Eidos losses up, shares down

Board is happy

Eidos, the UK's biggest computer games company, lost £60.2 million in its second quarter - compared with a £12.8 million loss for the same period last year. Turnover also dropped to £20.6 million from £27.3 million last year. Shares fell 11 per cent this morning, having already fallen 82 per cent from its peak this year.

The heavy losses were due mostly to a hefty £54.1 million figure for exceptional items, and the board said it was happy with the company's underlying development. Of this figure, a significant proportion came in the form of three one-time write-offs:

First, Eidos developed and produced a number of games that have failed to take off. This is part and parcel of its business and it tried to pin the blame on the late launch of Playstation 2 - a part-truth. However, this failure has caused it to write off £16.9 million in obsolete products.

Second, Eidos has also been caught in the Net trap of paying far too much for an Internet company - Express.com in this case - and seeing its value vanish in front of its eyes. It bought a 12.6 per cent stake for $55 million. Goodness knows how much it's worth now it's worth now (Eidos wasn't keen on saying either). And thirdly, there was the £900,000 wasted on legal fees over talks with an "unnamed" company, but everyone knows it was Infogrames, that wanted to acquire it.

Sales were also down 25 per cent - again explained away as a slump in the market due to the wait for PlayStation 2. Eidos saw some some of this coming. It didn't batten down the hatches but it did shut the windows by cutting down on marketing and investment in other companies. This did not help much. And of course let's not forget the departure of both the CEO and FD in the past two months. The company has a new CEO in the form of former COO Michael McGarvey, but has still to find a new FD.

In fact, things look so nasty at the moment that the best the company could come up with was that the huge losses were "in line with expectations" - a classic piece of financial shorthand.

Eidos has, naturally, pushed its six-month figures ahead of the Q2 results. These are them (last-year's six-month figure in brackets): Gross turnover before exceptionals, depreciation etc - £54.3 million (-£44.1m); Exceptional items £54.1 million (£0); Net loss - £75.3 million (£27.0m).

Of course the million-dollar questions are: Is this just a temporarily blip? Will PlayStation 2 (plus Nintendo and M$ game boxes) boost the market again and send Eidos back to the heights again? Will the new Eidos team succeed where the others failed? Does it have any more Lara Crofts up its sleeve?

Despite these appalling set of results, the general consensus seems to be that Eidos could still pull it off. It has written off a huge chunk of lost investment in one quarter. Something no doubt related to the new management team's wish to throw out some amazing percentage improvement figures with their first results next quarter. It is also being fairly realistic as to its position - profitability by fiscal 2002.

However, even with the success of copycat games Who wants to be a millionaire? and Chicken Run, Eidos is going to need more smash successes soon if it is keep in line with its own expectations. ®

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