Copyright 2002 www.eidos.com

[ May 15th 2002 ]

Eidos plc, one of the world's leading publishers and developers of entertainment software, announced today results for the six months and year ended March 31, 2002. Net revenue was 88.7 million pounds for the six months and 120.3 million pounds for the full year, a decrease of 18% on the previous year.

On a US GAAP basis the Group had a profit before tax for the six months ended March 31, 2002 of 13.1 million pounds with a loss before tax for the full year of 14.4 million pounds compared to a loss of 95.1 million pounds in 2001. This resulted in an earnings per share of 9.1p for the six months and a loss per share of 11.2p for the full year compared to a loss per share of 83.6p last year. Commenting on these results John van Kuffeler, Chairman, stated:


Turnover for the twelve months to March 31, 2002 decreased 26.7% from 164.2 million pounds to 120.3 million pounds (pre exceptional charges). Operating losses pre goodwill and exceptional charges were reduced by 69.2% from 23.3 million pounds to 7.2 million pounds. The loss per share was 10.7p, or 1.6p excluding goodwill, compared to 84.5p and 70.5p respectively, based on a weighted average number of shares in issue during the period of 132,514,410 (2001: 115,223,869). The 2001 comparatives for earnings per share have been restated for the Rights Issue that occurred during the current period, in accordance with FRS14 - Earnings per share.

In the twelve months to March 31, 2002 we shipped twenty new titles (2001: twenty), including eleven for PlayStation 2 and two for Xbox. A number of key franchise titles such as Blood Omen 2, Soul Reaver 2, and the PC CD versions of Commandos 2 and Championship Manager Season 01/02, all sold in excess of 350,000 units during the period. Championship Manager Season 01/02 became the UK's fastest selling PC CD title of all time when it launched in October 2001, whilst Blood Omen 2 was a top five title on both PlayStation 2 and Xbox, when it shipped in the USA at the end of March 2002. Whilst we were broadly satisfied with the performance of these particular titles the balance of our portfolio of new releases did not meet expectations. Catalogue sales of earlier versions of franchise titles such as Tomb Raider and TimeSplitters remained strong in the period.

The gross margin for the full-year was 59.5% compared to 50.2% (pre exceptional charges) for the corresponding period last year. Improved controls over channel and inventory exposures contributed to the increase in margins in the period, whilst royalty costs were also greatly reduced. This was partly as a result of the shift towards internally developed titles and the reduced reliance on licensed titles during the period. Gross margins are forecast to fall slightly in the coming year as a result of a shift in the sales mix towards console titles, however they are nevertheless expected to remain significantly ahead of the levels reported in the year to March 31, 2001.

Operating expenses before goodwill fell by 24.8% to 80.2 million pounds, compared to 106.7 million pounds for the same period last year (pre exceptional charges). Whilst improved controls over variable marketing expenses have contributed to this decrease, the majority of the savings have come from sustained downward pressure on the Group's fixed cost base. Overall fixed costs excluding goodwill and exceptionals were reduced by 28.7% in the year from 46.6 million pounds to 33.2 million pounds, on a like for like basis. Over a two-year period the Group has now exceeded its target for reducing the level of fixed costs, by achieving on-going savings of 22.7 million pounds, on this basis. It is the Group's intention to hold its fixed costs at this lower level, after adjusting for one off costs and any effects of the change in year-end.

The Group realized a 4.4 million pounds profit on the disposal of investments in the period, compared to a 36.3 million pounds loss in the prior period. This factor combined with the increase in gross margins and the reduction in operating expenses described above has meant that the net loss in accordance with US GAAP for the twelve month period has fallen from 96.3 million pounds in the prior period to 14.8 million pounds in the current period. The basic loss per share has also fallen from 83.6p to 11.2p accordingly.


Improved controls over variable advertising costs were introduced into the Group's publishing businesses during the period, with the aim of targeting annual expenditure more effectively. Advertising costs in the twelve months to March 31, 2002 were #12.3 million (10.3% of turnover) compared to 23.1 million pounds (14.1% of pre exceptional turnover) for the same period last year. During the period retail co-operative advertising expenses of 1.9 million pounds incurred in the USA were reclassified from turnover to advertising costs (2001: 3.8 million pounds).

This treatment more accurately reflects the nature of the expenditure and allows closer monitoring within the improved framework of controls on variable advertising spend. The fixed element of selling and marketing costs was down 55.4% to 8.2 million pounds compared to 18.4 million pounds in the prior year. The significant reduction in expenditure is due to reduced exhibition expenditure in the period and permanent savings arising from salary and license amortization costs in our publishing businesses.


Research and development represents the Company's total investment in product development of #39.4 million (2001: #42.5 million). The reduction in expenditure reflects the continued move towards internal development, which is one of the cornerstones of the Group's future development strategy. The Group intends to maintain this level of investment in developing titles for future release.


General and administrative costs before goodwill amortization were 20.3 million pounds, compared to 22.6 million pounds (pre exceptional charges) in the corresponding period. The reduction in like for like expenditure reflects significant permanent savings in salary and other costs. Total general and administrative costs for the period were 27.2 million pounds including goodwill amortization of 6.9 million pounds, compared to 33.5 million pounds including goodwill amortization of 10.9 million pounds in 2001 (pre exceptional charges). The reduction in the amortization charge resulted from the goodwill relating to the 1998 acquisition of Crystal Dynamics becoming fully amortized during the period.


The Group had net cash balances of #50.6 million at March 31, 2002 (2001: 9.5 million pounds). The strong closing cash position reflects the success of the Rights Issue in July 2001 and the disposal of the Group's remaining stake in Opticom in November and December 2001. Enhanced working capital and tax management procedures have also contributed to the improvement in the Group's cash position, which remains higher than following the Rights Issue. The net cash outflow from operating activities was 15.4 million pounds compared to a 1.9 million pounds inflow in the corresponding period. This outflow reflects the operating loss incurred and the significant number of new releases which shipped towards the end of the period.


The Group disposed of its remaining shareholding in Opticom during the period, realizing net proceeds of 11.0 million pounds and a net profit of 8.5 million pounds. This profit was partially off-set by write downs and losses on other disposals of 4.1 million pounds, which occurred following a review of the Group's other investments in the period.


Based on the level of losses sustained, there is no tax charge in the period. There are still significant brought forward losses available within the Group to offset future trading profits. The Group has however reviewed the provisions of FRS19 - Deferred Tax, and believes that no further amounts should be recognized in respect of these losses.


As previously announced in our 2002 Interim Results, the Group will change its year-end during the current financial year, to June 30. Historically, a significant proportion of sales has taken place in the fourth quarter of the Group's financial year. This has meant the Group's outcome for the year has been difficult to anticipate until a late stage in the financial year. Changing the year-end will reduce this uncertainty and as a result should increase the Group's ability to respond to changing circumstances and take corrective action where necessary. We will therefore be publishing our results for the fifteen months to June 30, 2002 later in the year, before reverting to a twice yearly reporting cycle based on a June 30 year end.


The months immediately following March 31 are typically relatively quiet for the Group, with a limited number of new titles being released. The Xbox version of Championship Manager Season 01/02 has shipped in the UK, entering the top ten in the charts during its first week of release and we expect the PlayStation 2 version of Deus Ex to ship in Europe prior to June 30.

Beyond this, our strong schedule of releases for the twelve months to June 30, 2003 and the continued strong growth in the market for next generation consoles marks the beginning of a new phase of growth for the Group. Key franchise titles scheduled to ship in the year include Hitman 2 (PlayStation 2, Xbox and PC CD) TimeSplitters 2 (PlayStation 2, GameCube and Xbox) and Championship Manager 4 (Xbox and PC CD). A new installment of the Tomb Raider franchise will also be released in the period on PlayStation 2 and PC CD. We were delighted to announce recently that Lara Croft Tomb Raider: The Angel of Darkness, will be exclusive to PlayStation 2 on the videogame console format. We believe that this strategic alliance underlines the complementary strengths of the PlayStation 2 and Tomb Raider brands and will maximize the potential of the franchise for both companies. In addition to these titles the Group has a number of new titles scheduled for release, which it believes have future franchise potential.

Our results for the twelve months to March 31, 2002 demonstrate a number of significant improvements that we have introduced to our business. Nevertheless there is still work to be done to ensure that the potential that exists within our development business is realized fully and that we are able to capitalize on the opportunities for growth that currently exist in our market. Whilst good progress has already been made in this area with the introduction of new risk-based techniques which are used in the regular and ongoing assessment of titles in development, this remains a key focus for the Group during the forthcoming year.

The entertainment software market continues to grow at impressive rates with the installed base of next generation consoles currently exceeding 25 million units. We have a significant turnaround program in place that continues to produce results. Combined with the continuing focus of our senior management team and the support of our staff, we feel confident that these ongoing enhancements to the way in which we manage our business will be reflected in further improvements in our financial performance over the forthcoming year.

Commenting on these results Michael McGarvey, Chief Executive Officer, said: "Our results for the twelve months to March 31, 2002 show significant improvements in our operating and financial performance and mark another key stage in the recovery of the Group. For the reasons outlined in our Interim Results and our March 19, 2002 Trading Update, turnover for the period is down on the prior year. Gross margins have however improved significantly over the same period and we have successfully reduced our fixed cost base. Following the successful Rights Issue in July 2001, our cash position is strong.

"The next generation of hardware systems is becoming more firmly and more widely established and the prospects for growth in the entertainment software market remain correspondingly strong. Our portfolio of forthcoming releases contains next generation versions of many of our key franchises such as Lara Croft Tomb Raider: The Angel of Darkness, TimeSplitters 2, Hitman 2 and Championship Manager 4 combined with selected new titles across all major formats. In addition to this promising line-up, we are entering the next stage of our development with a strengthened Board, improved processes and more robust operating fundamentals. Consequently whilst we continue to focus on our overall financial performance, we believe that there is much to be positive about and much to look forward to."

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