RNS Number:9541S
SCI Entertainment Group PLC
08 December 2003
8 December 2003
SCi Entertainment Group Plc
("SCi" or the "Group")
Preliminary results for the year ended 30 September 2003
Year ended Year ended
30 September 30 September
2003 2002
#m #m
Turnover 28.5 17.7
EBITDA (see note 5) 4.3 2.9
Profit before tax 3.5 2.2
Earnings per share 15.36p 10.11p
Earnings per share before goodwill 17.00p 12.26p
Highlights
*Record turnover of #28.5m (2002 - #17.7m), an increase of 61%.
*Record pre-tax profit of #3.5m (2002 - #2.2m), 40% ahead of original
expectations.
*Earnings per share 15.36p (2001 - 10.11p), an increase of 52%.
*Positive cash generation from operating activities and strong balance sheet.
*Conflict: Desert Storm 2 reaches number one in the UK and many other European
countries. Over 1.2m units shipped since release.
*The Great Escape reaches number two position in the UK. Over 0.5m units shipped
since release.
*Strong back catalogue sales of Conflict: Desert Storm. Over 2m units shipped
since release.
*Acquisition of Pivotal Games, developer of Conflict: Desert Storm, Conflict:
Desert Storm 2 and The Great Escape.
*Strong product pipeline further strengthened by today's announcement of
the acquisition of Galleon, developed by the creator of Lara Croft(R) and lead
designer of the original Tomb Raider(R). Products for the 2004 and 2005
financial years, includes Richard Burns Rally, Conflict: Vietnam, Midway, and
Conflict 4.
*Proposed Capital Reduction to remove certain restrictions on the Company's
future ability to pay dividends.
Jane Cavanagh, Chief Executive of SCi commented "Today's record turnover of
#28.5m and profit before tax of #3.5m is further evidence of the success of our
strategy of investing in high quality licences, brands and developers. The
success of Conflict: Desert Storm 2 confirms the Conflict series as a major
brand. We have a strong release schedule in place for the 2004 and 2005
financial years and are pleased with the continuing growth in the global games
market which continues to develop into a mass-market industry.
The recent acquisition of Pivotal Games strengthens our business model by
enhancing the profitability of the Conflict brand. However, outsourced
development remains the core of our business, enabling us to deliver profitable
growth with maximum flexibility, low overheads and a good record of on-time
delivery."
Contacts
SCi Entertainment
Jane Cavanagh, Chief Executive / Rob Murphy, Finance
Director Tel: 020 7585 3308
Bell Pottinger Financial
Charles Reynolds / Robin Tozer Tel: 020 7861 3232
High resolution images are available for the media to view and download
free of charge from www.vismedia.co.uk
About SCi
SCi Entertainment Group Plc is one of the UK's leading publishers of computer
games, with a unique strategy, a valuable portfolio of intellectual property and
a track record of chart success with titles such as Carmageddon, Thunderbirds,
The Italian Job, The Great Escape, Rally Championship and Conflict: Desert
Storm. SCi has recently acquired the rights to develop games based on Reservoir
Dogs. www.sci.co.uk.
Our vision and strategy
SCi publishes computer games on all major platforms including Sony Playstation
2, Microsoft Xbox and PC. Through investment in licences, products and people we
have become one of the UK's leading publishers of computer games. In recent
years, we have consistently demonstrated our ability to deliver global number
one hits and create valuable brands. With a strong management team and long-term
relationships with leading developers and distribution partners, we remain well
positioned for continued profitable growth.
Our prime objective is to deliver shareholder value, through strong and
consistent earnings growth and by building our intellectual property portfolio.
Our strategy is to create, own and exploit valuable brands through investment in
high quality licences and products and to reduce our exposure to the commercial
risks in the games industry by our unique focus on publishing. Over the next
three years we aim to deliver this by releasing an increasing number of high
quality titles combined with a growing back catalogue and continued strong
control of our cost base.
A successful strategy - results for the year to 30 September 2003
For the second successive year, SCi is pleased to report record turnover and
profits. Turnover increased by 61% to #28.5m (2002 - #17.7m) and profit before
tax increased by 59% to #3.5m (2002 - #2.2m), both of which are substantially
better than our original budget. This strong performance is primarily due to
three products.
Sales of Conflict: Desert Storm, first released at the end of the 2002 financial
year, have continued to be strong and the product has now sold over 2 million
units across all platforms. Sales throughout the year have been particularly
strong in the United States and turnover includes further royalties from our US
distributor, Take-Two. It also includes guaranteed revenue from Capcom who are
to publish the title in Japan. Conflict: Desert Storm has now achieved Sony
Platinum status in both Europe and the United States and will continue to
contribute to future sales.
The Great Escape, based on the classic film starring Steve McQueen, was released
in the United States in July 2003 and the rest of the world in August 2003. It
was an immediate success and reached number two in the UK All Format Charts.
More than 500,000 units of The Great Escape have already been shipped worldwide
and sales of this title are expected to continue in the current financial year.
Conflict: Desert Storm 2 was launched on Playstation 2, Xbox and PC in September
2003 and immediately reached the number one chart position in the UK All Format
Charts. Like its predecessor, Conflict: Desert Storm 2 has also attracted strong
reviews and performed well in the charts across all major European countries.
Take-Two released the game in North America in October 2003. In the twelve weeks
since release, over 1.2m units of Conflict: Desert Storm 2 have been shipped
worldwide. This is approximately 20% better than in the corresponding period for
Conflict: Desert Storm. It will be released on the Nintendo GameCube in the
current financial year.
The success of The Great Escape and Conflict: Desert Storm 2 meant that in
September SCi had the fourth largest share of the UK games market, behind only
EA, Sony and Microsoft. This is a considerable achievement for a publisher of
our size and an indication of our growing market presence.
During the financial year, we also released Futurama on Playstation 2 and Xbox
which performed in line with our expectations and made a positive contribution
to profits. We also received a positive contribution from sales of The Italian
Job (first released in October 2001) which continues to feature prominently in
the Playstation budget charts.
Acquisition of Pivotal Games
In September 2003 we completed the acquisition of Pivotal Games for #2.36m.
Pivotal, the developer of the Conflict series and The Great Escape, is one of
the most talented development teams in the UK, and recent won "Best New Studio"
at the UK Develop Awards.
Outsourced development remains at the core of SCi's strategy. This model has
made a major contribution to our success and given us a good record of on-time
delivery, whilst keeping control over our cost base. Accordingly, product
development outside of the Conflict brand will continue to be predominantly
outsourced, enabling us to choose from the best developers in the industry.
The acquisition of Pivotal is, therefore, an exception, made for
compelling strategic and commercial reasons. First, the acquisition protects and
extends the long-term arrangements for further products in the Conflict series.
The third game in the Conflict series, Conflict: Vietnam, is scheduled for
release in the second half of 2004. Pivotal has also commenced work on the
fourth game in the Conflict series. Second, the acquisition enhances future
earnings by substantially improving the royalty arrangements for future
products. In the 2003 financial year we paid total royalties of approximately
#1.8m to developers. Without the acquisition of Pivotal we would have expected
this figure to rise significantly in 2004. Instead, we now expect this to fall.
SCi will continue to work with Pivotal in the same way that it has done for the
last three years. Pivotal is managed independently and is still paid strictly on
results. There is no impact on SCi's monthly expenditure. We anticipate that the
cost of the purchase will be recovered through the new royalty arrangements
within the next 12 months.
Outlook and future pipeline
The start to the 2004 financial year is in line with our internal forecasts. In
early October Take Two released Conflict: Desert Storm 2 in North America on
Playstation 2, Xbox and PC supported by a very strong marketing and PR campaign
including national TV advertising. Conflict: Desert Storm 2 will be published
worldwide on the Gamecube in early 2004. During October we launched Rolling, a
roller-blading game endorsed by many of the world's leading skaters, which was
acquired from the receivers of Rage plc earlier in the year. Rolling has already
made a positive contribution to our results.
The three most important titles planned for the 2004 financial year are Richard
Burns Rally, Galleon and Conflict: Vietnam. These titles will be published in
the second half of the financial year.
Richard Burns Rally, which will be published on Playstation2, Xbox and PC,
builds on SCi's expertise with the long running Rally Championship series and
aims to be a significant move forward for the Rally genre. It is planned to be
the most accurate recreation of real life rallying seen to date. We have worked
with Richard Burns to ensure that every aspect of modern rallying has been
precisely modelled to allow the player to experience life as a top-class rally
driver.
Galleon, announced today, will initially be published on Xbox. Galleon is
a pirate-based fantasy third person action adventure game with a very strong
story line. It has been developed by Confounding Factor, a development team led
by Toby Gard the creator of Lara Croft(R) and lead designer of the original Tomb
Raider(R).
Conflict: Vietnam, the third in the multi-million selling Conflict brand, is
scheduled for release on Playstation2, Xbox and PC in September 2004. Developed
once again by Pivotal Games, Conflict: Vietnam will extend the Conflict
brand.
We continue to demand the highest quality standards from our developers and,
accordingly, decided recently not to continue with the development of
Tidejackers. This decision allowed us to acquire Galleon with no net increase in
planned development expenditure. With a strong back catalogue and exciting new
products, the Board remains confident of delivering further profitable growth in
the 2004 financial year.
We have already made significant investments in our release schedule for the
2005 financial year and beyond. With a strong pipeline for 2004 we have
re-scheduled Midway to 2005 enabling us to further enhance this exciting
product, which will be our first game featuring full on-line play for PC, PS2
and Xbox Live. The 2005 release schedule therefore includes further products in
the Conflict series, a new version in the highly successful Carmageddon series,
Midway, plus a new, unannounced product, which is currently in the prototype
phase.
The Board believes that the outlook for the year to 30 September 2004 and beyond
is very strong. Our objective is to continue to build SCi's portfolio of
intellectual property and to deliver profitable growth.
Market outlook
Over the last five years the market for computer games has become established as
a mainstream leisure activity. According to the Entertainment Leisure Software
Publishers Association ("ELSPA") the UK games market alone was worth over #1
billion in revenue in 2002 making it double the size of the video rental market
and 1.4 times larger than cinema box office spending. The multi-billion dollar
global market for computer games also continues to grow. ELSPA recently reported
that the popular games console systems, Sony PlayStation 2, Nintendo GameCube
and Microsoft Xbox have sold 30 per cent more than the previous generation of
gaming technology at the equivalent point in time.
Working capital
Because of the performance of our products and the strength of our working
capital management, the Group's operational cash position is substantially
better than originally expected. At 30 September 2003, the Group had cash of
#1.8m.
In order not to divert cash from operations, the Group entered into a loan
agreement with its bankers, Barclays, to finance the acquisition of Pivotal. At
30 September 2003 the amount of this loan was #2.3m. The loan will be repaid by
31 December 2004.
At the end of the financial year, we had net current assets of #8.1m, including
trade debtors of #13.9m. Since the end of the financial year the Group has
significantly improved its cash position. We also have unused overdraft
facilities of up to #1.5m.
Other matters
Given the current profitability of the Group, the Directors consider that it is
appropriate to remove certain restrictions on the Company's future ability to
pay dividends. The Board, therefore, proposes a Capital Reduction to restructure
the Company's balance sheet. The Capital Reduction will be subject to the
consent of shareholders and Court approval. Formal details of the proposed
Capital Reduction will be posted to shareholders at the beginning of January
2004.
I would like to take this opportunity, on behalf of the Board, to thank all
SCi's staff, developers and distributors for their continued hard work and
commitment over the past year.
Jane Cavanagh
Chief Executive
8 December 2003
Consolidated profit and loss account for the year ended 30 September 2003
Unaudited
2003 2002
#000 #000
Notes
Turnover 3 28,481 17,712
Cost of sales (11,225) (6,351)
----------- ---------
Gross profit 17,256 11,361
Development costs 6 (8,187) (4,285)
Other administrative costs (4,720) (4,178)
Depreciation, amortisation and amounts
written off investments 5 (821) (617)
----------- ---------
Administrative expenses (13,728) (9,080)
Operating profit 3,528 2,281
Net interest payable (4) (74)
----------- ---------
Profit on ordinary activities before taxation 3,524 2,207
Tax on profit on ordinary activities 7 850
----------- ---------
Profit for the financial year taken to
reserves 4,374 2,207
=========== =========
Earnings per share
Basic 4 15.36p 10.11p
Diluted 4 14.17p 9.74p
Basic before goodwill 4 17.00p 12.26p
Diluted before goodwill 4 15.69p 11.81p
=========== =========
All recognised gains and losses are included above.
Consolidated balance sheet at 30 September 2003
Unaudited
30 September 30 September
2003 2002
#000 #000
Fixed assets
Goodwill 5,999 3,304
Tangible assets 362 255
Investments - 500
----------- ----------
6,361 4,059
Current assets
Stocks - finished goods for resale 268 377
Debtors - due within one year 14,911 8,387
Cash at bank and in hand 1,763 311
----------- ----------
16,942 9,075
Creditors - amounts falling due within
one year (8,825) (3,635)
----------- ----------
Net current assets 8,117 5,440
Creditors - amounts falling due after
more than one year (590) -
----------- ----------
Net assets 13,888 9,499
=========== ==========
Capital and reserves
Called-up equity share capital 1,425 1,423
Share premium account 28,350 28,337
Merger reserve 464 464
Profit and loss account (16,351) (20,725)
----------- ----------
Equity shareholders' funds 13,888 9,499
=========== ==========
Reconciliation of movement in Group shareholders' funds
Opening shareholder's funds 9,499 3,186
Profit for the financial period 4,374 2,207
New shares issued 15 4,106
----------- ----------
Closing shareholders' funds 13,888 9,499
=========== ==========
Consolidated cash flow statement for the year ended 30 September 2003
Unaudited
2003 2002
Notes #000 #000
Net cash inflow (outflow) from operating
activities 2,183 (3,509)
Returns on investments and servicing of
finance
Net interest received (paid) 20 (40)
Interest element of finance lease
rentals (24) (34)
--------- --------
(4) (74)
Capital expenditure and financial
investment
Purchase of tangible fixed assets (260) (79)
Acquisitions
Acquisition of Pivotal Games (2,360) -
--------- --------
Net cash outflow before financing (441) (3,662)
Financing
Increase (decrease) in short term
borrowings 2,300 (332)
Issue of ordinary share capital 15 4,106
Capital element of finance lease rentals (72) (128)
--------- --------
2,243 3,646
--------- --------
Increase (decrease) in cash in the year 8 1,802 (16)
========= ========
Reconciliation of operating profit to cash inflow (outflow) from operating
activities
Unaudited
2003 2002
#000 #000
Operating profit 3,728 2,281
Depreciation 153 149
Goodwill amortisation 468 468
Profit on sale of tangible fixed assets - 3
Decrease in stocks 109 867
Increase in debtors (5,674) (5,548)
Increase (decrease) in creditors 3,399 (1,729)
--------- --------
Net cash inflow (outflow) from operating activities 2,183 (3,509)
========= ========
Operating cash flows all relate to continuing activities.
Notes
1.Financial information
The financial information set out herein relating to the results of SCi
Entertainment Group Plc (the "Company") and subsidiary undertakings
(the "Group") for the year ended 30 September 2003 does not constitute
statutory accounts within the meaning of section 240 of the Companies Act
1985. Statutory accounts for the period to 30 September 2002 have been
delivered to the Registrar of Companies. The auditors' report on those
accounts was unqualified and did not contain a statement under section 237(2)
or (3) of the Companies Act 1985. The financial information contained herein
has been prepared on the basis of the accounting policies set out in the
accounts for the period ended 30 September 2002. The financial information
has been prepared on the going concern basis.
2.Accounting reference date
The accounting reference date of the Group is 30 September. The current year's
results are for the 51 week period ended 3 October 2003.The comparative year's
results are for the 54 week period ended 7 October 2003.
3.Turnover
Turnover includes (a) sales of games to retailers and distributors at invoiced
amounts less value added tax and (b) royalty payments received from
distributors under licence of the right to distribute games in certain
territories. Where advances against royalties are received under licence such
advances are recognised at the point at which they are non-returnable.
2003 2002
#000 #000
Sale of games 22,849 14,578
Royalties 5,632 3,134
----------- -----------
28,481 17,712
=========== ===========
4.Earnings per share
Earnings per share has been calculated using the following:
2003 2002
Earnings Weighted Earnings Weighted
average average
number of number of
shares shares
#000 #000
Basic eps 4,374 28,480 2,207 21,825
Diluted eps 4,374 30,870 2,207 22,652
Basic eps before
goodwill 4,842 28,480 2,675 21,825
Diluted eps before
goodwill 4,842 30,870 2,675 22,652
======== ============= ======== ============
5.Non-GAAP measure: EBITDA
2003 2002
#000 #000
Operating profit 3,528 2,281
Depreciation, amortisation and amounts written
off investments 821 617
---------- ----------
EBITDA 4,349 2,898
========== ==========
Depreciation and amounts written off investments include an amount of #200,000
to fully write off the Group's investment in Celoxica Holdings Plc.
6.Development costs
Development advances and royalties paid to third party contractors for the
development of games and licence fees paid to third parties for intellectual
properties are written off as incurred.
2003 2002
#000 #000
Development advances 5,680 4,063
Development royalties 1,773 -
Licences fees for intellectual properties 734 222
---------- ----------
8,187 4,285
========== ==========
7.Taxation
At 30 September 2003, SCi had approximately #13.0m to carry forward as tax
losses, subject to agreement with the Inland Revenue. After assessing the
prospects for the 2004 financial year the Board has decided to recognise a
deferred tax asset of #0.85m as a prudent estimate of the losses that may be
utilised in that period.
8.Analysis of net debt
1 October 30 September
2002 Cash flow 2003
#000 #000 #000
Cash 311 1,452 1,763
Overdrafts (350) 350 -
------------- ------------- -------------
(39) 1,802 1,763
Finance leases (122) 71 (51)
Bank loan - (2,300) (2,300)
------------- ------------- -------------
Net debt (161) (427) (588)
============= ============= =============
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