EIDOS RETURNS TO PROFITABILITY ON STRONG GAME SALES

Eidos reported profit of ?17.4 million, reversing ?15.3 million loss year ago as sales increased to ?151.5 million from ?116.5 million. Company also said it “improved gross profit margin to 59%.” It said “the significant increase in turnover of 30% is largely attributable to our strong performance in North America, where turnover increased by 55% and which now represents more than 40% of the Group’s total turnover.” Company said it shipped 27 new game SKUs in year vs. 18 in 2002, including 7 for PS2 and 5 for Xbox with rest mostly for PC.

Van Kuffeler said: “As we increase investment in our games pipeline, we continue to focus on minimizing the risk in the development process to enable Eidos to enhance further its quality portfolio of game titles providing long-term value for shareholders. Eidos has successfully moved from a period in which realignment and cost control were the primary goals, to one in which the business and our strengthened management team are focused on demonstrating their competence in producing market- smart games. The Group is also looking to build on its success by driving operational excellence throughout its business and in delivering a portfolio of quality games in a more timely manner. [While] Eidos continues to develop, the board is confident that through our experience and knowledge of the marketplace and technology, we are managing the transition into a customer- focused, market-smart developer and publisher of entertainment software.”

Eidos said it was “disappointed with the delays experienced prior to the launch of Tomb Raider: The Angel of Darkness in June.” Nevertheless, it once again said “a significant number of Tomb Raider units were shipped prior to the [June 30] year-end with 500,000 units being shipped early in the current financial year… The game continues to sell well in all formats and territories, with unit sales and sellthrough to date in line with management’s original expectations.”

Company said its “primary challenge” ahead -- and for “game developers in general,” for that matter -- “remains the timely delivery of quality games to the market… We are focusing our attention on an improved development process comprising a concept, prototype and preproduction stage, prior to final approval being given and production costs incurred.”

Eidos said “securing long-term value for our shareholders will only be achieved by the creation and development of successful game franchises.” It said its “primary focus remains the creation of internally developed IP, aligned with appropriate controls over the development processes, to ensure that all commercial opportunities are maximized.” As part of that process, it said: “We continually review our existing developer relationships, both internally and externally, to ensure that we work with those partners and studios that can operate within our strategic framework. This may require us to challenge the status quo from time to time and to take decisions which may be difficult in the short term but which we believe to be in the long-term interests of shareholders. It was in this context that the board decided in July to transfer the future development of its key Tomb Raider franchise from our Core Design studio in the U.K. to our Crystal Dynamics studio in the U.S. The commercial rationale was the need to develop the next game with a fresh look and feel, targeted at a mass-market audience.”

In similar vein, company said it and Sports Interactive “mutually agreed to end their long-standing relationship for the joint development of our Championship Manager football management series, for which Eidos owns the brand.” Eidos said one last update of game would be released under existing relationship between companies. After that, it said, it “will develop the Championship Manager game internally, out of a new London-based studio, with an update release planned for the football season 04/05.” Eidos also said it “decided not to pursue its option to develop a TimeSplitters 3 game” with external development studio Free Radical Design. Company said that “in line with our IP strategy,” it had signed up 3 new game titles yet to be named in fiscal 2003 “which are in development and in which the company owns the IP rights.”

“Strong growth [is] expected” in fiscal 2004, Eidos said. It plans to ship 6 key games this fiscal year: Commandos 3: Destination Berlin, Backyard Wrestling: Don’t Try This At Home, Championship Manager: Season 03/04, Legacy of Kain: Defiance, Deus Ex: Invisible War, Hitman 3: Contracts. It said it was “also planning to release The Italian Job in Europe and Whiplash, a new character-based action game focused on a younger demographic.” Company said it expected to “benefit from the sale of units of Tomb Raider: The Angel of Darkness shipped in the current financial year.” It plans to ship next Tomb Raider title in fiscal year ending June 30, 2005, it said.

Company said its board believes entertainment software market “has the ability to deliver strong growth potential… Sales of the most successful hardware platforms for videogames are expected to grow significantly over the next 12 to 18 months which could drive growth in the software market for these platforms by 10-15% in both the U.S. and Europe.”