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SCi Entertainment Group Plc
Annual report and accounts 2005
Leading brands, leading roles
Highlights
Acquisition of Eidos plc Change in year-end to Strong start to the 2006
effective from 16 May 2005 30 June following the financial year. Championship
makes SCi the largest UK acquisition results in a Manager Solo is the UK’s
computer and video games pre-tax loss of £14.0 million number one selling mobile
publisher and a leading after exceptional charges, phone game; Total Overdose
player in the global video which is 7% better than the entered the UK Top Ten and
games industry. market expectation of a loss is performing strongly in other
of £15.1 million. European countries; Conflict:
Integration of SCi and Eidos
Global Storm shipped on time
proceeding well and SCi’s Strong balance sheet and
on 30 September 2005.
management team no gearing. Positive cash of
strengthened by the £44 million at 30 June New Completion Bond
appointment of Scott 2005, which is 10% better agreement signed with Film
Dodkins (European than market expectations. Finances Inc to further
Managing Director), Bill manage and reduce
The Group has traded well
Gardner (Managing Director development risk.
since the acquisition of
– US Publishing) and Ian
Eidos. Strong performances
Livingstone (Product
from Championship Manager
Acquisition Director).
and the distribution of LEGO
Management and staff Star Wars mean that Eidos
restructuring completed on made an operating profit of
schedule. £1.6 million in the seven
week period from acquisition
Review of development
to 30 June 2005.
proceeding well. As planned,
key franchises scheduled for
release in the second half of Contents
Profile 1
the 2006 financial year in Organisation and structure 2
order to maximise quality Chief executive’s statement 4
Operating and financial review 16
and potential revenues. Directors, officers and advisers 25
Directors’ report 26
The Board remains confident Consolidated profit and
of achieving planned annual loss account 28
Consolidated statement of total
cost savings of £14 million recognised gains and losses 29
in the first full year of Balance sheets 30
Consolidated cash flow statement 31
operation. Notes to the accounts 33
Report of the independent auditors 53
SCi is confident of returning Corporate governance 55
Eidos to profitability during Corporate responsibility statement 58
Directors’ remuneration report 59
the twelve months to Shareholder information 64
30 June 2006. Five year record inside back cover
SCi Entertainment Annual Report & Accounts 2005
Profile
SCi is now a major force in the global interactive entertainment industry.
We own some of the strongest brands in the games industry – including
Tomb Raider, Hitman, the Conflict series and Championship Manager –
and some of the most talented development studios in the world –
Io Interactive, Crystal Dynamics, Pivotal Games, Beautiful Game Studios and
Core Design. We expect the 2006 financial year to demonstrate the strength
and breadth of the new Group’s brands and return Eidos to profitability.
The launch of new hardware platforms plus the continued expansion of
mobile and on-line games should continue to drive growth in the overall
market and therefore the opportunities available to the enlarged Group.
39%
of gamers are female
25%
of gamers are over 40
85%
of games sold have age ratings of <18
40%
of all Europeans play computer games
60%
of all Americans play computer games
Source: ISFE (Interactive Software Federation of Europe)
SCi Entertainment Annual Report & Accounts 2005 1
Organisation and structure
Publishing Development Distribution
Eidos Interactive (UK) Beautiful Game Studios (UK) Eidos France
Eidos Inc (US) Core Design (UK) Eidos Germany
Crystal Dynamics (US) Proein (Spain) 75%*
Io Interactive (Denmark)
Pivotal Games (UK)
Pyro Studios (Spain) 27%*
Rocksteady Studios (UK) 25.1%
* Group interest following 100% acquisition of Eidos plc.
Our brands include: Licensed products include:
Battlestations: Midway Constantine
Carmageddon Futurama
Championship Manager The Great Escape
Commandos Highlander
Conflict series The Italian Job
Deus Ex Reservoir Dogs
Galleon Rogue Trooper
Gangsters Thunderbirds
Hitman Where Eagles Dare
Imperial Glory
Just Cause
Legacy of Kain
Rally series
Thief
Tomb Raider
Total Overdose
Urban Chaos
SCi Entertainment Annual Report & Accounts 2005 2
PLC Board
Jane Cavanagh
Chief Executive
Bill Ennis
Commercial Director
Rob Murphy
Finance Director
Tim Ryan Product Acquisitions Ian Livingstone
Non-executive Director Product Acquisition Director
Nigel Wayne Development Darren Barnett Development Director
Non-executive Director Patrick O’Luanaigh Design Director
European Publishing Scott Dodkins
Anthony Price Managing Director, Europe
Company Secretary
US Publishing Bill Gardner
Managing Director – US Publishing
New Media & IT Simon Protheroe
New Media & IT Director
Development Studios
Beautiful Game Studios David Rutter
Core Design Gavin Rummery
Crystal Dynamics Sean Vesce
Io Interactive Janos Flösser
Pivotal Games Jim Bambra
SCi Entertainment Annual Report & Accounts 2005 3
Chief executive’s statement
SCi’s objective is to increase the combined Group will be fully
shareholder value. We aim to do this by realised in the 12 months to 30 June
continuing to build a strong portfolio 2006.
of high quality game franchises and
intellectual property combined with an Operating results to 30 June 2005
effective global distribution network. The offer to acquire Eidos was declared
We believe that this, supported by unconditional on 16 May 2005. Given
sound financial management, will the relative size of SCi and Eidos, the
continue to deliver profitable growth. Board concluded that there were strong
Over recent years SCi has successfully practical reasons for changing the SCi
achieved this objective, principally financial year to 30 June to coincide
through organic growth, whilst with the Eidos financial year. In
consistently delivering increases in addition, this change has enabled
turnover and profits. management, staff and shareholders to
In May 2005, SCi successfully focus quickly on the first full 12 months
completed its share offer for Eidos plc, of the combined Group.
making the combined Group the UK’s The results to 30 June 2005
largest video games publisher and a therefore incorporate nine months
leading player in the global video results for the existing SCi Group, plus
games industry. Following the the results of Eidos for a seven week Following the
acquisition, SCi now owns some of the period from acquisition on 16 May acquisition, SCi
strongest brands in the games industry 2005 to 30 June 2005. During this now owns some
(including Tomb Raider, which has now period, turnover was £15.4 million and of the strongest
sold in excess of 28 million units across the Group recorded a pre-tax loss after brands in the
the franchise, Hitman, the Conflict exceptional charges for the period of games industry.
series and Championship Manager) and £14.0 million, which is approximately
some of the most talented development 7% better than market expectations.
studios in the world. The Group’s During the nine month period SCi’s
development studios are Beautiful major product release, as planned, was
Game Studios, Core Design, Crystal Constantine. This was launched, on
Dynamics, Io Interactive and Pivotal time, in January 2005 to coincide with
Games. In addition, the Group has part the Warner Bros film starring Keanu
ownership of Rocksteady and Pyro Reeves.
Studios. The application of SCi’s At the start of October 2004, we
strategy and financial model is expected the majority of SCi’s turnover
returning Eidos to profitability. The and profits to arise in the second half
integration of Eidos and SCi is now at of the old financial year ending in
an advanced stage and the Board is September 2005. In line with the
confident that its stated objectives for successful approach adopted in
SCi Entertainment Annual Report & Accounts 2005 4
By the end of 2005, the network games market
will constitute 15% of total games software
sales in the Western World. Network games
include mobile, iDTV, massively multi-player
on-line games, casual
games and games
on demand.
Source: ELSPA/Screen Digest
OPINION
“Hitman: Blood Money
takes the series into
amazingly inventive new
places it’s never been
before.”
Official Xbox Magazine
on Hitman: Blood Money
In Hitman: Blood Money take control of the world’s deadliest
Hitman to carry out hits in a seemingly limitless number of
ingenious but ruthless ways. Using new gaming technology
and functionality it delivers an experience that is the closest
gamers will ever have come to the real world of the assassin.
SCi Entertainment Annual Report & Accounts 2005 5
Computer and video games now generate
more revenue than either the cinema box
office or video rentals in Europe.
Source: ISFE (Interactive Software Federation of Europe)
Championship Manager allows you to manage
your club to glory, dealing with everything from
tactics and training to transfers – everything
you would expect a real-life football manager
to do without owning a sheepskin coat.
OPINION
“...looking slicker than
many of the established
titles of the genre.”
XBM Magazine
on Commandos Strike Force
With Commandos Strike Force engage the individual
skills of your three Strike Force operatives to fight in
the world’s most fearsome war – bringing a reign of
terror to the enemy using any means necessary.
Chief executive’s statement continued
previous years, we planned our major known franchises. With cumulative sales
product launches for September 2005. of over 4 million units since its first
The Board is of the opinion that, had launch, Championship Manager is
the financial year end been unaltered, established as the leading football
the September product releases would management simulation. Sales of the
have enabled the Group to achieve its recently launched Championship
original profit targets. Manager 5 made a strong contribution
Following the acquisition of Eidos, to results for the period, particularly on
the enlarged Group performed well in console formats where the game has
the seven weeks to 30 June 2005. Sales enjoyed considerable chart success. The
of LEGO Star Wars, Championship development of the brand has been
Manager and Imperial Glory meant that supported by a subscription based on-
the post acquisition operating profit line version of Championship Manager.
(before exceptional restructuring costs) A new version of Championship
of Eidos was £1.3 million. The Manager for the Sony PSP format has
profitability of these products illustrate been launched in December 2005.
the potential of the new Group. The results for the period to 30 June
By 30 June 2005, LEGO Star Wars 2005 reflect the Group’s new policy in
had sold over 1.5 million units and respect of development costs. Whereas
reached the number one chart position previously all development expenditure
in many countries, including the UK. was written off as incurred, the Group
This product is being distributed by now capitalises development costs once
Eidos, rather than published, under an it has established that development of a
agreement signed prior to the acquisition game is technically and commercially
whereby Eidos earns a distribution fee for feasible. Once a game has been released
each unit sold, but does not assume the the cost of its development is expensed With cumulative
normal development, inventory and over the period in which the principle sales of over
credit risks of a publisher. Accordingly, revenues from the game are expected to 4 million units since
the contribution per unit is significantly arise. The new policy will enable a like its first launch,
lower than on published products. for like comparison to be made between Championship
Nevertheless, LEGO Star Wars will make the results of the Group and its Manager is
a good contribution to profits in the 2006 principal global competitors and is also established as the
financial year. The Board is reviewing consistent with the requirements of the leading football
further distribution opportunities to International Financial Reporting management
maximise the profitability potential of Standards which will apply to the Group simulation.
the Eidos distribution network around from the 2006 financial year onwards.
the world. The results for the period include
Championship Manager has always exceptional development provisions of
been one of Eidos’ strongest and best £1.9 million against the cost of games in
SCi Entertainment Annual Report & Accounts 2005 7
Chief executive’s statement continued
development plus fundamental will be released under the Eidos brand
restructuring costs of £4.7 million. These because of the strength of its consumer
costs relate to the fundamental recognition. All UK publishing staff
reorganisation of the enlarged Group, from both Groups are in the process of
including provisions for changing the moving to one location at the former
Group’s North American business model. Eidos headquarters in Wimbledon.
Following appropriate employee
Integration of Eidos consultation periods we have achieved
The acquisition of Eidos plc was a significant reduction in UK
effective from 16 May 2005 when our headcount and related costs. We are
recommended offer was declared achieving further savings through the
unconditional in all respects. The offer rationalisation of suppliers.
valued Eidos at approximately > Reduction in international
£74 million. In addition, SCi raised distribution overheads. We have
£60.1 million (before expenses) decided to close the former Eidos
through a Placing and Open Offer in distribution offices in Japan and
order to provide working capital Australia. In addition, we have lowered
facilities to the enlarged Group. the fixed cost base of the Eidos
Following the acquisition, the Board distribution offices in France and
has implemented a plan to integrate the Germany by the introduction of
combined Group and restore Eidos to performance based incentive schemes.
profitability. As previously stated in the > Overall cost reduction. Through
Offer Document for Eidos, the Board the combined effect of the above
believes that the acquisition will be measures the Board is confident that it
earnings enhancing in the first full year will achieve its stated target of annual
of trading. The principle achievements cost savings of £14 million in the first
in the first three months following full year of trading.
acquisition have been: > Strengthened management
> Reduction in annual cost of team. Group management has been Group management
Eidos plc. This has been achieved by strengthened by a number of selective has been
rationalisation of the Eidos plc board senior appointments. Scott Dodkins strengthened by a
and senior management, delisting of (formerly of Activision) has been number of selective
Eidos plc, termination of the Eidos appointed as European Managing senior appointments.
NASDAQ quote and ADR facility and Director, Bill Gardner (formerly of
the elimination of duplicated plc Capcom) has been appointed as
related costs. Managing Director of our US
> Integration of Eidos and SCi UK Publishing operations and Ian
publishing operations. The Board has Livingstone has been appointed as
decided that all future Group products Product Acquisition Director.
SCi Entertainment Annual Report & Accounts 2005 8
Conflict: Global Storm brings the series into the
21st century. Using a 100% rebuilt engine, it
boasts radically enhanced graphics and AI
and is fully playable co-operatively on-line, a
clear generation above previous instalments.
OPINION
“The graphics are mint.
Details are sharp,
animation superb and
rag-doll physics actually
look human.”
Official PlayStation 2 Magazine
on Conflict: Global Storm
SCi Entertainment Annual Report & Accounts 2005 9
£320 million was invested in the UK game
development industry in 2004.
Source: ELSPA/Screen Digest
OPINION
“We’ve lost count of how
many people have told us
how fun it is.”
NGC Magazine
on LEGO Star Wars
In LEGO Star Wars: The Video Game the
world’s most successful film series meets the
world’s favourite toy in this epic video game.
Rogue Trooper – As the last survivor of the
deadly Genetic Infantrymen, use a combination
of stealth and all-out action techniques in OPINION
your ultimate mission of revenge.
“You’re going to have to
think and shoot, and that
we like.”
Official Xbox Magazine
on Rogue Trooper
Chief executive’s statement continued
> Review of development process. future from substantially increased The Board has
We have completed our review of all margins on all products being extended its strong
Eidos development studios and titles in published directly in North America. financial
development. Our first priority has > Improved financial management. management to the
been to ensure that all titles are given The Board has extended its strong Eidos Group.
sufficient resources to be completed to financial management to the Eidos
a high standard. In particular our plans Group. In particular, new forecasting
allow for sufficient time to be spent on and approval systems have already been
key franchises such as Tomb Raider, introduced, resulting in tighter control
Hitman and Commandos. In line with of the cost base.
our plans, the next versions of these
franchises will now be released in 2006 financial year and future
spring 2006. The next phase of our product portfolio
development review is to introduce The Group has made a very positive
new incentive schemes into studios start to the 2006 financial year. On
owned by Eidos, structured on 16 September we launched Total
successful project management to Overdose. This new product received
encourage on time delivery and very strong reviews and immediately
supported by the appropriate financial entered the Top Ten of the UK All
framework to ensure that each Format Charts and reached similar
development studio is profitable. chart positions in several European
> Restructure of US publishing countries.
operation, improved margins. The On 30 September 2005 the latest
Board has determined that there are product in the highly successful
now considerable financial advantages Conflict series was launched. Conflict:
to the Group publishing directly in Global Storm is the fourth product in
North America rather than licensing the series. With a fully revised engine,
our products to other publishers. the game’s initial reviews suggest that
Accordingly, we decided to retain and this franchise should once again
restructure the existing Eidos perform strongly. The quality and on
publishing operation based in San time delivery of Conflict: Global Storm
Francisco. Under the new leadership of further illustrates the success of our
Bill Gardner, the US office has been acquisition, in September 2003, of
refocused on rebuilding the Eidos Pivotal Games.
presence in North America. After SCi The first half of the financial year
completes its existing contractual will also see revenue from the
licence obligations on a small number continued distribution income from
of titles previously signed to other US sales of LEGO Star Wars. The Platinum
publishers, the Group will benefit in version of LEGO Star Wars was
SCi Entertainment Annual Report & Accounts 2005 11
Chief executive’s statement continued
launched in October 2005 along with a until at least one year after the release
new version for the Nintendo of the new hardware.
GameCube. In addition, Championship We will also develop products to sell
Manager on PSP was launched in into the large installed base for
December 2005. PlayStation 2, which is currently
Our release schedule for the estimated at over 100 million. We
remainder of the financial year is very expect the average age of PlayStation 2
strong. We are continuing to build our buyers to fall and accordingly our
product line-up for 2007 and already games for this platform may have a
have several products in development for younger target audience.
2008 which have yet to be announced.
Our current portfolio of products, New media
in development or recently released, Following the acquisition of Eidos, the
includes the titles in the table opposite. Group now has a dedicated New Media
We are finalising our release division, which focuses on building new
schedules for the 2006 and 2007 revenue streams by bringing the Group’s
financial years based on these products intellectual property to developing
in development. markets including mobile gaming, on-
The growth in the global games line distribution, interactive TV and on-
market continues to be boosted by the line gambling. The New Media team is
introduction of new hardware platforms. building upon its early success as part of
Sony launched the PSP in Europe in Eidos and is benefiting from the addition The Group has a
September 2005. Microsoft has recently of the SCi catalogue to its portfolio. number of mobile
launched the Xbox 360 and Sony is The Group has a number of mobile titles at various
expected to launch PlayStation 3 in late titles at various stages of development, stages of
2006. We are planning our release including mobile versions of Tomb development,
schedule to maximise the potential Raider and Hitman. The titles in including mobile
opportunities to be derived once the development also include other versions of Tomb
installed base of a new hardware products, such as a poker game, which Raider and Hitman.
platform has achieved critical mass. are designed to appeal to the wider,
For these reasons our first next more casual, audience which
generation titles will be based around constitutes the bulk of the market in a
existing franchises with a substantial number of territories. In addition, the
fan base. This will include Company continues to work with
Championship Manager on Sony PSP Synergenix, who will release a number
and Tomb Raider: Legend on Sony PSP of titles from the SCi portfolio in
and Microsoft Xbox 360. However, we forthcoming months, following on
do not plan to launch next generation from Total Overdose which was
versions of the majority of our titles launched in September 2005.
SCi Entertainment Annual Report & Accounts 2005 12
Figures for 2004 show that the video games
industry employs over 22,000 people – in
development, distribution, retail, printing
and other support areas – making it by
far the largest software employment
field in Europe.
Source: ELSPA/Screen Digest
Products in development or recently released include: Platforms
LEGO Star Wars (released April 2005) PS2, Xbox, PC, GBA
Championship Manager 5 (released May 2005) PS2, Xbox
Imperial Glory (released May 2005) PC
Total Overdose (released September 2005) PS2, Xbox, PC
Conflict: Global Storm (released September 2005) PS2, Xbox, PC
LEGO Star Wars (released October 2005) GC and Platinum
Championship Manager (released December 2005) PSP
Commandos Strike Force PS2, Xbox, PC
Hitman: Blood Money PS2, Xbox, PC
Rogue Trooper PS2, Xbox, PC
Tomb Raider: Legend PS2, Xbox, PC, Xbox 360, PSP
Championship Manager 05/06 PS2, Xbox, PC
Battlestations: Midway PS2, Xbox, PC
Just Cause PS2, Xbox, PC
Reservoir Dogs PS2, Xbox, PC
Urban Chaos PS2, Xbox
Tomb Raider 10th Anniversary Edition PSP
Championship Manager 06/07 PS2, Xbox, PC
Highlander PS2, Xbox 360, PC
Conflict: Global Storm 2 PS2, Xbox 360, PC
Total Overdose 2 PS2, Xbox 360, PC
SCi Entertainment Annual Report & Accounts 2005 13
Tomb Raider and Lara Croft have a 94%
awareness amongst gamers.
Source: MAGDID & Assoc: Brand Awareness Study
Tomb Raider
has generated
$1.5 billion total
brand revenue
from games,
merchandising
and feature films.
OPINION
“A PlayStation 2 title
that is destined to
become the largest and
most significant of the
year.”
PSW Magazine
on Lara Croft: Tomb Raider Legend
Originally launched in 1996, Tomb Raider is one of the
best selling video game franchises of all time with over
28 million copies sold. The game’s protagonist, Lara Croft,
has transcended video games like no other character,
becoming a 20th century cultural phenomenon.
SCi Entertainment Annual Report & Accounts 2005 14
Chief executive’s statement continued
The first mobile title to be launched Overall
since the acquisition of Eidos was The new Group is in a strong financial The new Group is in
Championship Manager 5 Solo, which position, with an impressive product a strong financial
was released in the UK in August 2005, portfolio, an international distribution position, with an
at the start of the football season. The network, talented development impressive product
game received exceptional review scores resources and experienced employees. portfolio, an
and is selling very well, reaching a The Board therefore believes that the international
number one position with most of the Group has a very positive future ahead distribution
mobile operators through which it is of it. network, talented
available. Finally, I would like to thank all development
staff throughout the Group for their resources and
Further revenue streams support, effort and enthusiasm over the experienced
The strength of the Group’s franchises last year and, in particular, through the employees.
combined with the continuing growth recent acquisition and integration
of the video games industry are process.
increasingly presenting opportunities
to generate additional revenue through
licences and partnerships with other
entertainment media such as film and
on-line gambling. Jane Cavanagh
Chief executive
SCi Entertainment Annual Report & Accounts 2005 15
Operating and financial review
Results from operations Eidos in April 2005 before its
The Group made an operating loss of acquisition by SCi, had sold
£14.7 million (2004: restated profit of approximately 1.5 million units by
£7.3 million) after charging June 2005.
depreciation and amortisation of
£2.7 million (2004: £1.2 million) and Gross profit
exceptional costs of £6.6 million (2004: Gross profit represents
£nil). turnover less the direct
costs of selling a game.
Product releases Direct selling costs
We launched one new title in the principally comprise the
financial period. In addition we earned cost of manufacturing a
revenue from three titles initially finished product plus
launched by Eidos shortly before marketing costs. They also
acquisition by SCi. include royalties due to
PS2 Xbox PC GBA third parties in respect of products
New product release distributed by the Group. Marketing
Constantine costs were £0.8 million compared to
£1.0 million in 2004. The decrease
Other products reflects a smaller number of new
LEGO Star Wars releases. Gross margin for the financial
Imperial Glory year decreased to 29% from 65% in the
Championship Manager 5 previous year. This reflects: (a) a
significant fall in licence income
Turnover compared to the previous period when
Turnover for the period was a substantial portion of the Group’s
£17.5 million compared to £31.0 million income arose from products licensed to
in 2004. The decrease arises from the North American publishers (such
reduction in the financial year to nine income has no corresponding
months following the Group’s decision manufacturing or marketing costs as
to change its financial year-end to June. these are paid by the licensee); and
In previous years the Group has earned (b) the lower margins earned on the
a high proportion of its turnover from distribution of LEGO Star Wars.
products released in September. This There was little change during the
income was excluded from the nine year in margins earned from new
month period. products. We have experienced little
The largest contribution to turnover change in the retail prices of premium
was from distribution of LEGO Star products.
Wars. This product, first released by
SCi Entertainment Annual Report & Accounts 2005 16
The value of the US PC and video game
software market in 2004 reached
approximately $7.4 billion, a 7% increase
over 2003.
Source: International Development Group estimate
OPINION
“...the spectacularly
grand scale of Midway’s
warfare has made us ‘fall
in love’ with World War II
all over again.”
Xbox World
on Battlestations: Midway
Battlestations: Midway is an innovative WWII tactical
shooter on an unprecedented scale, bringing a new
dimension to the war gaming genre. With a mix of
action and strategy, relive the epic aerial and naval
battles of the Pacific War in direct command of
multiple warships, aircraft and submarines.
SCi Entertainment Annual Report & Accounts 2005 17
Regular players of video games are
mainly 20-to-30 years of age, playing
six hours a week.
Source: ISFE (Interactive Software Federation of Europe)
joint and kicking up one hell of a Mexican storm.
‘El Gringo Loco’, an ex-con, bad-ass fresh out of the
underworld. Go undercover with Ramiro Cruz
rampage through Mexico’s gun-toting, drug-pushing
Total Overdose is a super-cool, tequila-fuelled
OPINION
“Total Overdose manages
to mix guns and an
extreme-sports scoring
system to create an
excitingly twisted action
game.”
Official PlayStation 2 Magazine
on Total Overdose
SCi Entertainment Annual Report & Accounts 2005 18
Operating and financial review continued
Development costs Other administrative costs
Development costs charged to the profit Other administrative costs comprise all
and loss account represent: (a) the the costs of running the Group’s
amortisation of development costs in corporate, publishing and distribution
relation to products released during the functions. These include staff and
period; (b) development costs incurred associated costs employed in sales,
in the period on future products where distribution, marketing, PR, design,
the technical or commercial viability project management, production, IT,
cannot yet be assessed with reasonable localisation, quality assurance,
certainty; (c) exceptional charges to customer service, new product
write down previously capitalised acquisition, new media, finance, HR,
development costs on projects to net legal and licensing. Total administrative
realisable value taking into account cost costs of £4.1 million, compared to
of completion; and (d) development £4.7 million, reflect a nine month
royalties arising from further sales of period compared to 12 months in 2004,
games already released. partially offset by the inclusion of Eidos
Under the Group’s new accounting administrative costs for the seven weeks
policy, once a product is considered to following acquisition.
be technically and commercially Following the acquisition of Eidos,
feasible, development costs are the Group’s underlying level of The Group
capitalised and treated as work in administrative costs has increased continues to invest
progress. Once the product is released significantly. At 30 June 2005 the significantly in
its cost is amortised over the period Group had 274 administrative staff, future products.
which the Group expects to earn compared to 66 at 30 September 2004.
revenues from the product. The Group has implemented plans to
Development costs increased to reduce combined administrative costs,
£7.6 million from a restated £7.0 million particularly through the elimination of
in 2004. The costs included a duplicate plc costs, the rationalisation
£1.9 million exceptional charge to write of UK publishing and the closure of
down the carrying value of a future Eidos’ former distribution offices in
product where, due to unsatisfactory Japan and Australia.
performance by a third-party
developer, the Group has revised its
expectations of net realisable value.
The Group continues to invest
significantly in future products. At
30 June 2005 the Group has work in
progress of £16.8 million (2004
restated: £4.2 million).
SCi Entertainment Annual Report & Accounts 2005 19
Operating and financial review continued
Depreciation and amortisation After assessing the prospects for the
The charge for depreciation and 2006 financial year, the Group has
amortisation increased to £2.7 million recognised a deferred tax asset of
in the financial year from £1.2 million £7 million as a prudent estimate of the
in 2004. losses that may be utilised in that
The charge for goodwill increased period. The increase in deferred tax
to £2.1 million from £0.9 million in asset has been included in the profit
2004 due to the additional goodwill and loss account as a tax credit.
charge arising on the acquisition of
Eidos. Earnings per share
The acquisition of Eidos also caused Basic loss per share was 25.58p (2004:
depreciation to increase to £0.6 million restated earnings of 22.45p). The loss
from £0.3 million in 2004. per share reflects the effects of
shortening the financial year and the
Goodwill exceptional costs arising during the
Goodwill relates to the acquisitions of year, offset by the deferred tax credit
Eidos, Pivotal and Actualize, and is referred to under Taxation above.
being amortised over periods between
seven and ten years. The net book value Working capital
of goodwill at 30 June 2005 was At 30 June 2005 the Group had net At 30 June 2005
£88.7 million (2004: £5.1 million). cash of £44.1 million and no debt. the Group had net
There is no contingent consideration During the year the Group raised cash of
relating to the acquisitions of Eidos, £60.1 million (before expenses) £44.1 million and
Pivotal or Actualize. through a Placing and Open Offer. This no debt.
was to repay borrowings of Eidos and
Taxation provide working capital facilities to the
No tax charge arises on the loss for the enlarged Group, particularly allowing
financial period. At 30 June 2005 the for increased development time to
principal operating companies in the complete products in development to a
Group had substantial tax losses high standard.
available to carry forward to set against At 30 June 2005 the Group had net
future taxable profits, subject to current assets of £62.7 million,
agreement with appropriate tax including trade debtors of
authorities. £23.4 million.
SCi Entertainment Annual Report & Accounts 2005 20
In Europe as a whole, games software
sales grew to their highest ever level in
2004 – 5.6 billion euros.
Source: ELSPA/Screen Digest
In Urban Chaos you are the last line in urban defence
and it’s time to take your city back – experience a year
in the unpredictable life of a T-Zero Officer in a city on
the brink of collapse, working with the Emergency
Services to restore order through superior firepower.
OPINION
“It’s a first-person
shooter and then some,
...and all manner of
explosions and
disturbances keep you
constantly on edge.”
Xbox World
on Urban Chaos
SCi Entertainment Annual Report & Accounts 2005 21
There is massive growth in new, non-retail,
distribution channels for games – the
network games market – which is growing
at over seven times the pace of the
traditional, retail based, games market.
Source: ELSPA/Screen Digest
OPINION
“Global Storm does it
with the swagger and
confidence of a title that
knows it’s back at the
top of its game. Terrific
stuff.”
Xbox World 360
on Conflict: Global Storm
SCi Entertainment Annual Report & Accounts 2005 22
Operating and financial review continued
Completion bonding Financial instruments
We continue to seek new ways of During the period, the Group’s
managing and reducing development financial instruments, other than
risk. In this respect we have entered derivatives, comprised cash, overdrafts
into an agreement with Film Finances and various items such as trade debtors
Inc to provide Completion Bonds on and creditors that arise directly from
two titles currently in development. operations. The main purpose of these
The purpose of a Completion Bond financial instruments is to finance the
is to maximise the financial assurance Group’s operations. The Group also
that a product will be developed on enters into derivative transactions in
time, on budget and in accordance with the form of foreign currency contracts
agreed specifications. In the event of in order to manage the currency risk
delay or failure, the cost of the project arising from the Group’s operations.
will be guaranteed by the Bond rather The Group’s policy is, and was
than borne by the Group. This throughout the period under review,
arrangement has been common in the not to trade in financial instruments.
film industry for many years. Film The main risks arising from the
Finances Inc, based in Los Angeles, is Group’s financial instruments are
the leading provider of Completion liquidity risk and foreign currency risk.
Bonds to the film industry and we are The Board reviews and agrees policies
pleased to be amongst the first for managing each of these risks on a
companies in the games industry to regular basis.
apply this model. We anticipate further
use of the Completion Bonding model Liquidity risk
in the future. The Group has substantial cash
reserves. The Group currently has no
Pensions borrowing facility, but will assess its
The Group offers all employees the need to put in place appropriate short-
opportunity to participate in an term working capital facilities in
appropriate Company pension scheme. periods where there is a number of
As these are defined contribution product launches.
schemes there are no circumstances in
which the Group will face a future
pension liability.
SCi Entertainment Annual Report & Accounts 2005 23
Operating and financial review continued
Foreign currency risk International Financial Reporting
The Group receives significant portions Standards
of its revenues in either euros or US We are obliged to publish our next full
dollars. The Group also has significant set of results, for the period to 30 June
costs in each of these currencies 2006, under International Financial
relating to overseas offices, the Reporting Standards (“IFRS”). The
manufacture of finalised products and Group is currently identifying the
the development of new games. The accounting policies which will differ
Group seeks to balance the flows of between IFRS and UK Generally
currency across countries to minimise Accepted Accounting Principles. The
any imbalance of foreign currency results for the period to 30 June 2005
receipts and payments. will be restated as a comparative.
Rob Murphy
Finance director
Forge the destiny of the world amid the turbulent
times of the early 19th century. In Imperial Glory you
lead one of the Great Empires in titanic conflicts, or
achieve economic dominance backed by shrewd
diplomats and a resolute military. Choose to rule as
absolute despot or constitutional monarch.
SCi Entertainment Annual Report & Accounts 2005 24
Directors, officers and advisers
Jane Cavanagh Tim Ryan Company secretary
Chief executive non-executive director Anthony Price
Jane Cavanagh founded SCi in 1988. Tim Ryan was appointed to the Board
Before founding SCi, Jane worked in on 19 October 2001. Tim has Registered office
marketing for BT. She is one of the considerable experience of corporate Wimbledon Bridge House
most experienced executives in the communications. His former positions 1 Hartfield Road
games industry. As founder, Jane include head of corporate and investor Wimbledon
owned 100 per cent of SCi until its relations at SkyePharma Plc, one of the London
flotation in 1996. world’s leading drug delivery SW19 3RU
companies, and director of corporate
Bill Ennis communications at NTL. He is now Registered in England
Commercial director chief executive of Bell Pottinger No. 03121578
Bill Ennis was appointed to the Board Corporate and Financial.
on 1 May 1995, having previously Broker
worked for DEC. He has considerable Nigel Wayne KBC Peel Hunt Limited
experience in the industry and is a non-executive director 111 Old Broad Street
former director of the Entertainment Nigel Wayne was appointed to the London EC2N 1PH
Leisure Software Publishers Association Board on 20 July 2001 and was
(ELSPA). appointed senior independent director Solicitors
in 2004. He is a Chartered Accountant Harbottle & Lewis LLP
Rob Murphy with considerable experience of Hanover House
Finance director advising and funding growing 14 Hanover Square
Rob Murphy was appointed to the companies in the technology and London W1S 1HP
Board on 1 July 1997. Before joining media sectors. A former finance
the Company he was a partner in the director of SCi, he has considerable Auditors
audit and business advisory division of experience within the computer games BDO Stoy Hayward LLP
Arthur Andersen in London. He is a industry. 8 Baker Street
qualified Chartered Accountant. London W1U 3LL
Registrars
Capita IRG Plc
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Bankers
Barclays Bank PLC
27 Soho Square
London W1D 3QR
SCi Entertainment Annual Report & Accounts 2005 25
Directors’ report
The directors present their annual report on the affairs Directors
of the Group, together with the accounts and The names and brief biographical details of the
independent auditors’ report, for the nine months current directors, all of whom served throughout the
ended 30 June 2005. period under review, are set out on page 25.
Jane Cavanagh and Rob Murphy retire by rotation
Principal activities at the forthcoming Annual General Meeting and,
The principal activities of the Group are the being eligible, offer themselves for re-election.
development and publishing of interactive Details of directors’ shareholdings and options are
entertainment software. A review of the Group’s set out in the directors’ remuneration report on pages
performance during the nine months to 30 June 2005, 59 to 63.
including financial performance, likely future
developments and prospects, is set out in the chief Directors’ responsibilities
executive’s statement on pages 4 to 15 and the Company law requires the directors to prepare
operating and financial review on pages 16 to 24. accounts for each financial year which give a true and
Principal subsidiaries and joint ventures are listed in fair view of the state of affairs of the Company and
note 12 to the accounts on page 45. Group and of the profit or loss of the Group for that
period. In preparing those financial statements, the
Results and dividend directors are required to: select suitable accounting
The results for the nine month period to 30 June 2005 policies and apply them consistently; make
are shown in the consolidated profit and loss account judgements and estimates that are reasonable and
on page 28. No dividend has been paid or declared for prudent; state whether applicable accounting
the period (2004: £nil). standards have been followed, subject to any material
departures disclosed and explained in the financial
Post balance sheet events statements; and prepare the accounts on a going
The Board of SCi announced on 5 July 2005 that the concern basis unless it is inappropriate to presume
Company had received valid acceptances of the offer that the Group will continue in business.
for Eidos plc in respect of a total of 128,542,895 Eidos The directors are also responsible for keeping
shares, representing approximately 90.52 per cent of proper accounting records which disclose with
the issued ordinary share capital of Eidos. reasonable accuracy at any time the financial position
Since valid acceptances had been received in respect of the Company and Group and enable them to
of more than nine-tenths in value of the Eidos shares ensure that the financial statements comply with the
to which the offer related, SCi was entitled to exercise Companies Act 1985.
its rights pursuant to Sections 428-430F of the They are also responsible for safeguarding the
Companies Act 1985 (the “Act”) to acquire assets of the Company and Group and hence for
compulsorily all of the outstanding Eidos shares in taking reasonable steps for the prevention and
respect of which valid acceptances had not been detection of fraud and other irregularities.
received. Accordingly, compulsory acquisition notices Financial statements are published on the Group’s
pursuant to Section 429 of the Act in exercise of such website in accordance with legislation in the United
rights were dispatched to the holders of Eidos shares Kingdom governing the preparation and
who had not yet accepted the offer. The transfer of dissemination of financial statements, which may vary
the compulsorily acquired Eidos shares took place on from legislation in other jurisdictions. The
17 August 2005. maintenance and integrity of the Group’s website is
the responsibility of the directors. The directors’
Share Capital responsibility also extends to the ongoing integrity of
Details of changes in the share capital of the Company the financial statements contained therein.
are set out in note 19 to the accounts. This annual report is available on the Company’s
website at www.sci.co.uk.
SCi Entertainment Annual Report & Accounts 2005 26
Directors’ report continued
Charitable donations
During the nine month period to 30 June 2005 SCi
made no charitable donations (2004: £2,750).
Supplier payment policy
The Group’s policy is to settle terms of payment with
suppliers when agreeing the terms of each transaction,
ensure that suppliers are made aware of the terms of
payment and abide by the terms of payment. Trade
creditors of the Group at the period end represented
63 days purchases (2004: 39 days). The Company had
trade creditors of £0.3 million at the period-end
(2004: nil).
Substantial shareholdings
On 5 December 2005 the Company had been notified,
in accordance with Sections 198 to 208 of the
Companies Act 1985, of the following interests in the
ordinary share capital of the Company.
Number %
Credit Agricole Cheuvreux
International Limited 13,409,679 18.46
Artemis Investment
Management Ltd 6,657,770 9.17
Cantor Fitzgerald Europe 5,339,925 7.35
Jane Cavanagh 4,819,630 6.64
Schroders Investment
Management 3,912,128 5.39
Auditors
BDO Stoy Hayward LLP have expressed their
willingness to continue in office and a resolution to
re-appoint them will be proposed at the Annual
General Meeting.
By order of the Board,
Anthony Price
Company secretary
5 December 2005
SCi Entertainment Annual Report & Accounts 2005 27
Consolidated profit and loss account
for the nine months ended 30 June 2005
12 months to
Continuing operations Nine months 30 September
to 30 June 2004
Notes Acquisitions 2005 (restated)
£m £m £m £m
Turnover: Group and share of joint venture 2 3.7 13.8 17.5 31.0
Less: share of joint venture turnover – (2.1) (2.1) –
Turnover 3.7 11.7 15.4 31.0
Cost of sales (2.9) (8.1) (11.0) (10.8)
Gross profit 0.8 3.6 4.4 20.2
Development costs – Exceptional 6 (1.9) – (1.9) –
Other (5.0) (0.7) (5.7) (7.0)
Other administrative costs (3.6) (0.5) (4.1) (4.7)
Depreciation and amortisation (1.6) (1.1) (2.7) (1.2)
Exceptional restructuring costs 6 (2.4) (2.3) (4.7) –
Total administrative expenses (14.5) (4.6) (19.1) (12.9)
Operating (loss) profit (13.7) (1.0) (14.7) 7.3
Share of associated undertaking operating profit 0.1 – 0.1 –
Share of joint venture operating profit – 0.4 0.4 –
(Loss) profit on ordinary activities before interest (13.7) (0.5) (14.2) 7.3
Net interest receivable 3 0.2 –
(Loss) profit on ordinary activities
before taxation 4 (14.0) 7.3
Tax on profit on ordinary activities:
Group and share of joint venture 7 5.2 (0.9)
(Loss) profit on ordinary activities after taxation (8.8) 6.4
Minority interest (0.6) –
(Loss) profit for the period (9.4) 6.4
Pence Pence
(Loss) earnings per share
Basic 8 (25.58) 22.45
Diluted 8 (25.58) 20.71
There is no difference between the loss on ordinary activities before taxation and the loss for the period stated
above, and their historical cost equivalents.
The notes on pages 33 to 52 form part of the statutory financial statements.
SCi Entertainment Annual Report & Accounts 2005 28
Consolidated statement of total recognised gains and losses
for the nine months ended 30 June 2005
12 months to
Nine months 30 September
to 30 June 2004
2005 (restated)
£m £m
(Loss) profit for the period
Group (9.0) 6.4
Joint ventures 0.2 –
Attributable to minority interest (0.6) –
Total recognised gains and losses for the financial period (9.4) 6.4
Prior year adjustment – development costs (4.2) –
Total gains and losses recognised since last financial statements (5.2) –
SCi Entertainment Annual Report & Accounts 2005 29
Balance sheets
at 30 June 2005
Group Company
30 September
30 June 2004 30 June 30 September
Notes 2005 (as restated) 2005 2004
£m £m £m £m
Fixed assets
Goodwill 9 88.7 5.1 – –
Tangible assets 10 4.7 0.5 – –
Investments 12 2.9 – 9.6 7.8
96.3 5.6 9.6 7.8
Current assets
Work in progress 13 16.8 4.2 – –
Stocks 14 2.1 0.3 – –
Debtors – due within one year 33.7 14.8 19.3 5.0
– due after one year 0.2 – – –
Debtors 15 33.9 14.8 19.3 5.0
Cash at bank and in hand 44.1 3.5 35.1 –
96.9 22.8 54.4 5.0
Creditors: amounts falling due within one year 16 (34.2) (5.2) (0.9) –
Net current assets 62.7 17.6 53.5 5.0
Total assets less current liabilities 159.0 23.2 63.1 12.8
Creditors: amounts falling due
after more than one year 17 (0.2) – – –
Provisions for liabilities and charges 18 (15.3) – – –
Net assets 143.5 23.2 63.1 12.8
Capital and reserves
Called-up equity share capital 19 3.5 1.4 3.5 1.4
Share premium account 20 57.4 – 57.4 –
Merger reserve 20 69.9 0.5 – –
Capital reserve 20 6.3 6.3 6.3 6.3
Employee Benefit Trust share reserve 20 (0.9) – – –
Profit and loss account 20 5.6 15.0 (4.1) 5.1
Equity shareholders’ funds 21 141.8 23.2 63.1 12.8
Minority interest – equity 1.7 – – –
143.5 23.2 63.1 12.8
The accounts on pages 28 to 52 were approved by the Board of directors on 5 December 2005
and signed on its behalf by:
Jane Cavanagh Rob Murphy
Director Director
SCi Entertainment Annual Report & Accounts 2005 30
Consolidated cash flow statement
for the nine months ended 30 June 2005
Nine months 12 months to
to 30 June 30 September
2005 2004
£m £m
Net cash (outflow) inflow from operating activities (10.3) 4.4
Returns on investments and servicing of finance
Net interest received 0.2 –
(10.1) –
Capital expenditure and financial investment
Purchase of tangible fixed assets (0.3) (0.4)
Acquisitions
Acquisition expenses (0.6) –
Net cash acquired with subsidiary undertakings (6.8) –
(7.4) –
Net cash (outflow) inflow before financing (17.8) 4.0
Financing
(Decrease) in short-term borrowings – (2.3)
Issue of ordinary share capital 58.4 –
58.4 (2.3)
Increase in cash in the year 40.6 1.7
SCi Entertainment Annual Report & Accounts 2005 31
Reconciliation of operating (loss) profit to cash (outflow) inflow from operating activities
for the nine months ended 30 June 2005
12 months to
Nine months 30 September
to 30 June 2004
2005 (as restated)
£m £m
Operating (loss) profit (14.7) 6.2
Depreciation 0.6 0.3
Goodwill amortisation 2.1 0.9
(Increase) in work-in-progress (10.4) –
Decrease (increase) in stocks 0.5 (0.1)
Decrease in debtors 1.2 0.9
(Decrease) in creditors (4.0) (1.8)
EBT charge 1.4 –
Increase in provisions 13.0 –
Net cash (outflow) inflow from operating activities (10.3) 4.4
Reconciliation of net cash flow to movement in net funds
for the nine months ended 30 June 2005
£m
Increase in cash in the year 40.6
Finance leases acquired with subsidiary undertakings (0.5)
Opening net funds 3.5
Closing net funds 43.6
Analysis of net funds
at 30 June 2005
30 September Non-cash 30 June
2004 Cash flow movement 2005
£m £m £m £m
Cash 3.5 40.6 – 44.1
Finance leases – – (0.5) (0.5)
Total 3.5 40.6 (0.5) 43.6
Included within the cash flow statement is cash outflow from operating activities arising in the acquired entity of
£7.4 million. All other balances relate to existing activities.
SCi Entertainment Annual Report & Accounts 2005 32
Notes to the accounts
for the nine months ended 30 June 2005
1. Accounting policies it actually exercises significant influence. Joint
The principal accounting policies of the Group are ventures are undertakings, which are jointly controlled
summarised below. with other entities or individuals. The Group’s share of
profits less losses from associated and joint venture
Basis of accounting undertakings is included in the consolidated profit
The financial statements have been prepared under the and loss account on the equity accounting basis and
historical cost convention and in accordance with its interest in their net assets included in investments
applicable accounting standards. The Group has made in the balance sheet.
one change to accounting policies. Costs of developing
new products are now capitalised and amortised over Accounting periods
the period in which the Group expects to derive revenue The accounting reference date of the Group is 30 June.
from the product. Previously, development costs were The previous accounting reference date of the Group
written off as incurred. In the opinion of the directors was 30 September.
this change facilitates a clear comparison between the
results of the Group and those of its competitors. Fixed assets
The change in accounting policy has resulted in a Fixed assets are stated at cost, net of depreciation and
prior year adjustment to profit of £4.2 million. This provision for impairment. Depreciation is provided on
has had the effect of increasing shareholders’ funds at all fixed assets, at rates calculated to write off the cost
30 September 2004 from £19.0 million to £23.2 million. less estimated residual value, of each asset on a
The effect on the profit and loss account for the 12 straight-line basis over its expected useful life, as follows:
months to 30 September 2004 was to increase the
• Leasehold improvements: over the life of the lease
profit for the period by £2.8 million and to increase
• Equipment and vehicles: 3 to 5 years
shareholders’ funds at 1 October 2003 by £1.4 million.
Fixed asset investments
Basis of consolidation
Fixed asset investments are shown at cost less
The Group accounts consolidate the accounts of
provisions for any impairment.
SCi Entertainment Group Plc and its subsidiary
Investments are stated at cost plus direct
undertakings drawn up to 30 June 2005. As
acquisition costs. Where consideration is represented
provided by Section 230 of the Companies Act 1985,
by new share issues, under Sections 131 and 132 of the
no profit and loss account is presented in respect of
Companies Act 1985, the Company has elected to
SCi Entertainment Group Plc.
show the associated cost of investment as being the
The results of subsidiaries acquired are consolidated
nominal value of the shares issued.
for the period from the date on which control passed.
Acquisitions are accounted for under the acquisition
Work in progress
method with goodwill, representing any excess of the
The cost of developing new products is capitalised as
fair value of the consideration given over the fair value
work in progress once the Group has determined that:
of the identifiable assets and liabilities acquired.
• the product is technically and commercially
feasible;
Goodwill
• the project is clearly defined and related
Goodwill is capitalised and amortised in the profit and
expenditure is separately identifiable;
loss account on a straight line basis over a period of
• current and future costs are expected to be
between seven to ten years, based on the expected
exceeded by future sales; and
useful economic life in accordance with FRS 10.
• adequate resources exist for the product to be
Provision is made for any impairment.
completed.
Work in progress is charged to the profit and loss
Associated and joint venture undertakings
account, following the release of the product, over the
Associated undertakings are undertakings in which
period in which the Group is expected to derive
the Group holds a long-term interest and over which
revenues from the product.
SCi Entertainment Annual Report & Accounts 2005 33
Notes to the accounts continued
for the nine months ended 30 June 2005
1. Accounting policies continued recognised in the profit and loss account, or as
Stocks adjustments to the carrying value of fixed assets, only
Stocks comprise finished goods for resale, and are when the hedged transaction has itself been reflected
stated at the lower of cost and net realisable value. in the Group’s accounts. If an instrument ceases to be
Cost is calculated as cost of materials. Net realisable accounted for as a hedge, for example because the
value is based on estimated selling price, less further underlying hedged position is eliminated, the
disposal costs. instrument is marked to market and any resulting
profit or loss recognised at that time.
Taxation In relation to the disclosures made in note 24:
Corporation tax payable is provided on taxable profits • Short-term debtors and creditors are not treated as
at prevailing rates. financial assets or financial liabilities, except for the
foreign currency disclosures contained within
Deferred taxation note 24.
Deferred tax assets and liabilities arise from timing • The Group does not hold or issue derivative
differences between the recognition of gains and losses financial instruments for non-trading or
in the financial statements and their recognition in the speculative purposes.
tax computation. • Forward exchange contracts are used to fix the
In accordance with FRS 19, deferred tax is provided exchange rate of committed foreign currency
in respect of all timing differences that have originated, transactions. Gains and losses arising on such hedges
but not reversed, at the balance sheet date that may give are not recognised until the transaction occurs.
rise to an obligation to pay more or less tax in the
future. The recognition of deferred tax assets is limited Leases
to the extent that the group anticipates making Assets held under finance leases, which confer rights
sufficient taxable profits in the future to absorb the and obligations similar to those attached to owned
reversal of the underlying timing differences. assets, are capitalised as tangible fixed assets and are
Deferred tax balances are not discounted. depreciated over the shorter of the lease terms and
their useful lives. The capital elements of future lease
Foreign currency obligations are recorded as liabilities, while the interest
Transactions in foreign currencies are recorded at the elements are charged to the profit and loss account
rate of exchange at the date of the transaction or a over the period of the leases to produce a constant rate
forward contract rate where applicable. Monetary of charge on the balance of capital repayments
assets and liabilities denominated in foreign currencies outstanding. Rentals under operating leases are
at the balance sheet date are reported at the rates of charged on a straight-line basis over the lease term,
exchange prevailing at that date. Any gain or loss even if the payments are not made on such a basis.
arising from a change in exchange rates subsequent to
the date of the transaction is included as an exchange Employee Benefit Trust share reserve
gain or loss in the profit and loss account. The cost of the Company’s shares held by the EBT is
deducted from shareholders’ funds in the Company
Financial instruments and Group balance sheet. Any cash received by the
For a forward foreign exchange contract to be treated EBT on disposal of the shares it holds is also
as a hedge, the instrument must be related to actual recognised directly in shareholders’ funds. Other assets
foreign currency assets or liabilities or to a probable and liabilities of the EBT (including borrowings) are
commitment. It must involve the same currency or recognised as assets and liabilities of the Company.
similar currencies as the hedged item and must also Any shares held by the EBT are treated as cancelled
reduce the risk of foreign currency exchange for the purpose of calculating earnings per share.
movements on the Group’s operations. Gains and
losses arising on these contracts are deferred and
SCi Entertainment Annual Report & Accounts 2005 34
Notes to the accounts continued
for the nine months ended 30 June 2005
1. Accounting policies continued Pensions
Turnover For defined contribution schemes, the amount
Turnover comprises: (a) sales of games to retailers and charged to the profit and loss account in respect of
external distributors at invoiced and accrued amounts pension costs is the contributions payable in the year.
less value added tax; (b) royalty payments received or Differences between contributions payable in the year
accrued from external distributors under licence of the and contributions actually paid are shown as either
right to distribute games in certain territories. Where accruals or prepayments in the balance sheet.
advance payments against royalties are received under
licence, such advances are recognised at the point at Share based employee remuneration
which they become non-returnable; and (c) royalty When shares and share options are awarded to
payments received or accrued from third parties under employees a charge is made to the profit and loss
licence of the right to exploit the Group’s intellectual account based on the difference between the market
property on other media. Turnover from sales of value of the Company’s shares at the date of grant and
games is recognised at the point at which the game is the option exercise price in accordance with UITF
delivered. The Group makes provision against any Abstract 17 (revised 2003) “Employee Share Schemes”.
subsequent returns. The credit entry for this charge is taken to the profit
and loss reserve and reported in the reconciliation of
Long-term incentive plan for executive directors movements in shareholders’ funds.
Future payments under the Group’s long-term
incentive plan are estimated and charged to the profit
and loss account over the period to which they relate.
Nine months
2. Segmental analysis to 30 June 30 September
Turnover by destination 2005 2004
£m £m
United Kingdom 3.3 12.8
Europe 5.0 8.4
United States of America 7.2 7.7
Rest of World 2.0 2.0
17.5 31.0
Turnover from joint ventures, as shown in the consolidated profit and loss account, originates in Spain and relates
to entertainment software. In addition, turnover in the United Kingdom includes £131,000 (2004: nil) of sales to
joint ventures in Spain.
Nine months 30 September
to 30 June 2004
(Loss) profit before interest and taxation Exceptional Other 2005 (as restated)
£m £m £m £m
Geographical segment
United Kingdom (4.0) (8.8) (12.8) 7.3
Europe (0.3) 0.3 – –
United States of America (2.1) 1.0 (1.1) –
Rest of World (0.2) (0.1) (0.3) –
(6.6) (7.6) (14.2) 7.3
SCi Entertainment Annual Report & Accounts 2005 35
Notes to the accounts continued
for the nine months ended 30 June 2005
2. Segmental analysis continued Nine months 30 September
to 30 June 2004
Net assets 2005 (as restated)
£m £m
Geographical segment
United Kingdom 178.1 23.2
Europe 4.5 –
United States of America (38.4) –
Rest of World (0.7) –
143.5 23.2
Turnover, operating profit and net assets are all attributable to the principal activity of the Group which the
directors consider to be a single class of business.
Nine months
to 30 June 30 September
3. Net interest receivable 2005 2004
£m £m
Other interest receivable 0.3 0.1
Bank loans and overdrafts (0.1) (0.1)
0.2 –
4. (Loss) profit on ordinary activities before taxation Nine months 30 September
to 30 June 2004
(Loss) profit on ordinary activities before taxation is stated after charging (crediting): 2005 (as restated)
£m £m
Depreciation and amounts written off tangible fixed assets:
– owned fixed assets 0.2 0.2
– leased fixed assets 0.4 –
Goodwill amortisation 2.1 0.9
Operating lease rentals 0.7 0.1
(Profit) on foreign exchange (0.9) –
Auditors’ remuneration for audit services 0.3 –
Of the Group audit fee the amount attributable to the audit of the parent company was £25,000 (12 months to
30 September 2004: £3,500). Amounts payable to BDO Stoy Hayward LLP in respect of non-audit services,
including taxation, were £140,000 (12 months to 30 September 2004: £15,000).
SCi Entertainment Annual Report & Accounts 2005 36
Notes to the accounts continued
for the nine months ended 30 June 2005
Nine months
5. Staff costs to 30 June 30 September
The average monthly number of employees (including executive directors) was: 2005 2004
Number Number
Sales, marketing and administration 95 66
Development 145 73
240 139
The total number of employees at 30 June 2005 includes 152 SCi Entertainment Group employees and 651 Eidos
employees, the latter having been included for the period after acquisition on a time-apportioned basis and
increasing the total by 88.
Of the SCi Entertainment Group employees, 66 were engaged in sales, marketing and administration and 86
were engaged in development. Of the Eidos employees, 212 (29 on a time-apportioned basis) were engaged in
sales, marketing and administration, 439 (59 on a time-apportioned basis) were engaged in development.
Nine months
to 30 June 30 September
Aggregate remuneration comprised: 2005 2004
£m £m
Wages and salaries 8.8 5.3
Social security costs 0.8 0.6
Other pension costs 0.2 1.6
9.8 6.0
Details of emoluments paid to directors are contained in the directors’ remuneration report on pages 59 to 63.
Continuing operations Nine months
to 30 June 30 September
6. Exceptional charges Acquisition 2005 2004
£m £m £m £m
Restructuring costs of integrating Eidos and SCi 0.3 2.3 (2.6) –
Provisions in relation to US publishing 2.1 – (2.1) –
Write down of work in progress 1.9 – (1.9) –
4.3 2.3 (6.6) –
Restructuring costs of £2.6 million arise from the Company’s acquisition of Eidos plc. The costs relate primarily to
redundancy costs arising from the integration of the Group’s publishing activities.
Following the acquisition of Eidos plc, the Group has changed its method of publishing in the United States.
Previously the Group sub-licensed products to other publishers in the United States, and will now publish directly.
The Group has made a provision of £2.1 million for the costs of withdrawing from existing US publishing
arrangements.
Following a Group-wide review of its product profile, the Group has decided to make an exceptional provision
of £1.9 million against products in development.
SCi Entertainment Annual Report & Accounts 2005 37
Notes to the accounts continued
for the nine months ended 30 June 2005
Nine months 30 September
to 30 June 2004
7. Tax on (loss) profit on ordinary activities 2005 (as restated)
£m £m
UK corporation tax
Adjustment to the tax charge in respect of previous year (0.1) –
Share of tax in joint ventures (0.1) –
(0.2) –
Deferred tax
Origination and reversal of timing differences 5.4 (0.9)
Tax credit (charge) on (loss) profit on ordinary activities 5.2 (0.9)
Reconciliation of current year tax charge
Tax reconciliation
(Loss) profit on ordinary activities (14.0) 7.3
Tax credit (charge) on profit on ordinary activities at the
UK corporation tax rate (30%) 4.2 (2.2)
Effects of:
– expenditure qualifying for an enhanced deduction – 0.5
– short-term timing differences 0.3 (0.2)
– adjustment to the tax charge in respect of previous year (0.1) –
– share of tax in joint ventures (0.1) –
– adjustment to the tax charge in respect of change in accounting policy – 0.3
– tax losses carried forward/utilised (4.2) 1.2
– group accounting policy alignment (0.5) (0.1)
Current tax on (loss) profit on ordinary activities (0.2) –
Deferred tax
At 30 June 2005, the Group had substantial tax losses carried forward subject to the agreement of the tax
authorities in various jurisdictions. After assessing the prospects for the 2006 financial year the Board has decided
to recognise a deferred tax asset of £7 million (at 30 September 2004: £1.4 million) as a prudent estimate of the
losses that may be utilised in that period. The deferred tax asset in note 15 is stated net of a deferred tax liability of
£1.1 million arising in Denmark as a result of short-term timing differences.
30 June 30 September
Movement in deferred tax asset 2005 2004
£m £m
Brought forward 1.4 0.9
Acquisition of Eidos plc (0.9) –
Profit and loss account 5.4 0.5
5.9 1.4
SCi Entertainment Annual Report & Accounts 2005 38
Notes to the accounts continued
for the nine months ended 30 June 2005
Nine months to
8. (Loss) earnings per share 30 June 2005 30 September 2004
Weighted Weighted
Earnings per share has been calculated using average number Earnings average number
the following: Loss of shares (as restated) of shares
£m m £m m
Basic (8.8) 34.4 6.4 28.5
Diluted (8.8) 34.4 6.4 29.5
The difference between the weighted average number of shares in issue on a basic and diluted basis at
30 September 2004 reflects those shares which would be issued at 120.5p under the SCi Share Option Scheme.
The calculation of loss per ordinary share is based on the loss for the period of £8.8 million (30 September
2004: £6.4 million profit) and on 34.4 million ordinary shares (30 September 2004: 28.5 million), being the
weighted average number of ordinary shares in issue and ranking for dividend during the year. There is no
potential dilution of the loss per ordinary share for 30 June 2005.
9. Goodwill Group
£m
Cost
1 October 2004 7.7
Additions
– Arising on acquisition of Eidos 85.7
30 June 2005 93.4
Amortisation
1 October 2004 2.6
Charge for the period 2.1
30 June 2005 4.7
Net book value
30 June 2005 88.7
30 September 2004 5.1
SCi Entertainment Annual Report & Accounts 2005 39
Notes to the accounts continued
for the nine months ended 30 June 2005
Equipment,
vehicles
Leasehold and fixtures
10. Fixed assets improvements and fittings Total
£m £m £m
Cost
1 October 2004 0.2 1.5 1.7
Additions – 0.3 0.3
Acquisition of subsidiary 3.2 11.8 15.0
30 June 2005 3.4 13.6 17.0
Depreciation
1 October 2004 0.1 1.1 1.2
Charge for the period – 0.6 0.6
Acquisition of subsidiary 2.4 8.1 10.5
30 June 2005 2.5 9.8 12.3
Net book value
30 June 2005 0.8 3.8 4.7
30 September 2004 0.1 0.4 0.5
The net book value of tangible fixed assets at 30 June 2005 includes the amount of £502,000 (at 30 September
2004: £42,000) in respect of assets held under finance leases. The depreciation charge for the period in respect of
such assets was £363,000 (12 months ended 30 September 2004: £14,000).
SCi Entertainment Annual Report & Accounts 2005 40
Notes to the accounts continued
for the nine months ended 30 June 2005
11. Acquisition of Eidos
On 16 May 2005 the Group declared unconditional in all respects its offer for Eidos plc for a total maximum
consideration of £75.2 million, comprising the issue of up to 23.6 million shares. At the effective date of
acquisition SCi had received acceptances from Eidos shareholders comprising 78.02% of the issued share capital of
Eidos. At 30 June 2005 SCi had received further acceptances from Eidos shareholders such that SCi held 90.02% of
the shares in Eidos, acquired for a fair value consideration of £71.1 million (20.8 million SCi shares).
The fair value of consideration represents shares with an average market value on the date of issue of
£71.1 million.
This acquisition has been accounted for using the acquisition method of accounting. After the alignment of
accounting policies and other adjustments to the valuation of assets and liabilities to reflect their fair value, the
provisional fair value of liabilities acquired is £14.6 million. Goodwill of £85.7 million has therefore arisen.
In July and August the Group completed the acquisition of all the share capital of Eidos. Details are given in
note 27.
Fair value adjustments
In calculating the goodwill arising on acquisition, the fair value of net assets of Eidos plc have been assessed and
provisional adjustments from book value have been made where necessary. These adjustments are summarised in the
table below.
Fair value adjustments
Book value Accounting policy Revaluation Fair value
on acquisition alignment adjustment Total
£m £m £m £m
Tangible assets 4.5 – (0.5) 4.0
Other investments 0.3 – – 0.3
Joint venture – net assets 4.5 – (2.4) 2.1
Work in progress – 2.2 – 2.2
Stocks 2.3 – – 2.3
Debtors 15.8 – – 15.8
Creditors: amounts falling due within one year (30.3) – (0.3) (30.6)
Finance leases and other creditors (0.5) – – (0.5)
Provisions for liabilities and charges – – (2.3) (2.3)
Net liabilities (non cash) (3.4) 2.2 (5.5) (6.7)
Bank loans and overdraft (6.8) – – (6.8)
Net liabilities (10.2) 2.2 (5.5) (13.5)
Minority interest (1.1)
Net liabilities acquired (14.6)
Purchase price
Fair value of consideration 71.1
Goodwill created 85.7
SCi Entertainment Annual Report & Accounts 2005 41
Notes to the accounts continued
for the nine months ended 30 June 2005
11. Acquisition of Eidos continued
The reasons for the fair value adjustments above are as follows:
• The write down in tangible assets reflects a provision against the carrying value of fixtures and fittings on a
property that is the subject of an onerous lease.
• The write down of joint venture net assets reflects the revaluation to net asset value.
• The increase in creditors reflects accruals for expenditure incurred before the acquisition.
• The provisions for liabilities adjustment was to recognise an onerous lease provision in existence at the date of
acquisition and a reserve for potential litigation liabilities.
• Work in progress has been capitalised in line with the accounting policy of SCi.
Pre-acquisition results of Eidos plc
In the 45 week period from 1 July 2004 to 16 May 2005 the results for Eidos plc were:
45 weeks 12 months to
to 16 May 30 June
2005 2004
£m £m
Turnover 62.1 133.9
Cost of sales (50.3) (49.9)
11.8 84.0
Development costs (26.6) (39.2)
Administrative expenses (41.5) (48.9)
Amortisation of goodwill (4.6) (1.6)
Operating loss (60.9) (5.6)
Income from joint venture 2.3 2.1
Interest receivable 0.2 1.6
Loss before tax (58.4) (1.9)
Tax 0.5 (1.0)
Loss after tax transferred to reserves for the period (57.9) (2.9)
Consolidated statement of total recognised gains and losses
Profit/(loss) for the period
Group (60.2) (4.4)
Joint ventures 2.3 1.5
(57.9) (2.9)
Currency translation differences on foreign currency net investment
Group (0.1) (1.4)
Joint ventures (0.2) (0.1)
(0.3) (1.5)
Total gains and losses recognised (58.2) (4.4)
Cashflows
The only cashflows arising on the acquisition of Eidos plc were the overdraft of £6.8 million and incidental
acquisition expenses of £0.6 million.
SCi Entertainment Annual Report & Accounts 2005 42
Notes to the accounts continued
for the nine months ended 30 June 2005
12. Fixed asset investments
The Group had the following fixed asset investments:
Joint Associated 30 June 30 September
ventures undertaking Investments 2005 2004
£m £m £m £m £m
Cost
At 1 October 2004 – – – – –
Acquisition of Eidos 2.1 – 0.3 2.4 –
At 30 June 2005 2.1 – 0.3 2.4 –
Share of retained profits
At 1 October 2004 – – – – –
Profit for the period 0.4 0.1 – 0.5 –
At 30 June 2005 0.4 0.1 – 0.5 –
Net book value
At 30 June 2005 2.5 0.1 0.3 2.9 –
At 1 October 2004 – – – – –
Joint ventures
The Group’s share of the results of joint ventures includes the following:
Nine months
to 30 June 30 September
Proein SL Pyro Studios SL 2005 2004
£m £m £m £m
Turnover 2.0 0.1 2.1 –
Profit before tax 0.4 – 0.4 –
Taxation – – – –
Profit after tax 0.4 – 0.4 –
SCi Entertainment Annual Report & Accounts 2005 43
Notes to the accounts continued
for the nine months ended 30 June 2005
12. Fixed asset investments continued
Joint ventures continued
The Group has the following aggregate interests in joint ventures:
30 June 30 September
Proein SL Pyro Studios SL 2005 2004
£m £m £m £m
Share of assets
– Share of fixed assets 0.2 0.1 0.3 –
– Share of current assets 5.6 0.7 6.3 –
5.8 0.8 6.6 –
Share of liabilities
– Due within one year (1.0) (0.1) (1.1) –
– Due after more than one year (0.3) (0.3) (0.6) –
Share of net assets 4.5 0.4 4.9 –
Provision against carrying value of investment (2.2) (0.2) (2.4) –
2.3 0.2 2.5 –
The joint ventures are Proein SL, a games publisher, and Pyro Studios SL, a games developer, both of which are
located in Spain. The Group’s interests are 67.5% and 24% respectively. The interests in Proein SL and Pyro
Studios SL arise as a result of the acquisition of Eidos plc.
The associated undertaking is Rocksteady Studios Ltd, a games developer located in England, in which the
Group’s interest is 25.1%.
The Company has the following investments: Company
30 June 30 September
All amounts are shown at cost 2005 2004
£m £m
Subsidiary undertakings:
– shares 6.1 4.3
– loans 3.5 3.5
9.6 7.8
SCi Entertainment Annual Report & Accounts 2005 44
Notes to the accounts continued
for the nine months ended 30 June 2005
12. Fixed asset investments continued
At 30 June 2005, the parent company has investments in the following principal undertakings, each of which has
an accounting reference date of 30 June.
Country of
registration and
Principal activity Holding % Class operation
Subsidiary undertakings
SCi Games Ltd Development and publishing of 100* Ordinary England
interactive entertainment software
Pivotal Games Ltd Development of interactive 100* Ordinary England
entertainment software
Eidos plc Development and publishing of 90* Ordinary England
interactive entertainment software
Core Design Ltd Development of interactive 90 Ordinary England
entertainment software
Eidos Interactive Inc Publisher of interactive 90 Ordinary USA
entertainment software
Eidos Sarl Distributor of interactive 90 Ordinary France
entertainment software
Eidos GmbH Distributor of interactive 90 Ordinary Germany
entertainment software
Crystal Dynamics Inc Development of interactive 90 Ordinary USA
entertainment software
Io Interactive A/S Development of interactive 90 Ordinary Denmark
entertainment software
Joint ventures
Pyro Studios SL Development of interactive 24 Common Spain
entertainment software shares
Proein SL Distributor of interactive 67.5 Common Spain
entertainment software shares
Associated undertaking
Rocksteady Studios Ltd Development of interactive 25.1 Ordinary England
entertainment software
* Held directly by SCi Entertainment Group Plc
SCi Entertainment Annual Report & Accounts 2005 45
Notes to the accounts continued
for the nine months ended 30 June 2005
30 September
30 June 2004
13. Work in progress 2005 (restated)
£m £m
At 1 October 2004 4.2 1.4
Addition 15.8 9.8
On acquisition 2.2 –
Released in the period (5.4) (7.0)
At 30 June 2005 16.8 4.2
Group Company
30 June 30 September 30 June 30 September
14. Stocks 2005 2004 2005 2004
£m £m £m £m
Finished goods 2.1 0.3 – –
Group Company
30 June 30 September 30 June 30 September
15. Debtors 2005 2004 2005 2004
£m £m £m £m
Trade debtors 23.4 11.9 – –
Deferred tax asset 5.9 1.4 – –
Prepayments and accrued income 2.0 1.6 – –
Other debtors 2.4 – – –
Amounts due from subsidiary undertaking – – 19.3 5.0
Amount due from associated undertaking 0.2 – – –
33.9 14.9 19.3 5.0
The amount due from associated undertaking is a loan to Rocksteady Studios Ltd, and is repayable after more
than one year.
Group Company
30 June 30 September 30 June 30 September
16. Creditors: amounts falling due within one year 2005 2004 2005 2004
£m £m £m £m
Obligations under finance leases 0.3 – – –
Trade creditors 6.2 2.4 0.3 –
Royalty creditors 10.1 – – –
Taxation and social security 2.7 0.5 – –
Accruals and deferred income 12.8 2.3 0.6 –
Corporation tax 2.1 – – –
34.2 5.2 0.9 –
SCi Entertainment Annual Report & Accounts 2005 46
Notes to the accounts continued
for the nine months ended 30 June 2005
Group Company
17. Creditors: amounts falling due after 30 June 30 September 30 June 30 September
more than one year 2005 2004 2005 2004
£m £m £m £m
Obligations under finance leases 0.2 – – –
Group Company
30 June 30 September 30 June 30 September
18. Provisions for liabilities and charges 2005 2004 2005 2004
£m £m £m £m
Provision for onerous contract 0.8 – – –
Restructuring provision 1.0 – – –
Returns provision 13.3 – – –
Provision against legal proceedings 0.2 – – –
15.3 – – –
The provision for onerous contract and the provision against legal proceedings have been established on acquisition
of Eidos and hence have been taken to goodwill via fair value adjustments rather than being charged to the profit
and loss account in the period.
The provision against return of goods sold of £13.3 million relates to sales made during the nine month period
and hence has been charged to the profit and loss account during this period. The brought forward provision
(included within accruals) of £0.5 million was fully utilised during the year.
30 June 30 September
19. Called-up share capital 2005 2004
£m £m
Authorised
97,000,000 (2004: 49,000,000) ordinary shares of 5p each 4.9 2.5
Allotted, called-up and fully-paid
69,438,360 ordinary shares of 5p each (2004: 28,562,187 ordinary shares of 5p each) 3.5 1.4
Number
The movement in share capital was as follows: of shares (m) £m
1 October 2004 28.5 1.4
Placing and open offer 20.0 1.0
Issue of shares to acquire Eidos 20.8 1.1
Issue of new shares under SCi Share Option Scheme 0.1 –
30 June 2005 69.4 3.5
On 13 May 2005 the shareholders approved the issue of 21.3 million shares in order to acquire Eidos plc (see
note 11).
On 13 May 2005 the shareholders approved a Placing and Open Offer of 20.0 million shares to raise
£60.1 million before expenses (£58.3 million net of expenses). The proceeds of the share issue were to provide
working capital to the newly enlarged Group following the acquisition of Eidos plc.
A total of 103,500 shares were issued during the year under the SCi Share Option Scheme for a total
consideration of £45,875.
SCi Entertainment Annual Report & Accounts 2005 47
Notes to the accounts continued
for the nine months ended 30 June 2005
19. Called-up share capital continued
SCi Share Option Scheme
The Company operates an unapproved Share Option Scheme. At 30 June 2005, options were outstanding over
3,478,674 shares, including options held by directors. The options are exercisable if certain performance criteria
are met, as set by the remuneration committee, which currently relate to share price performance compared with a
published media sector average.
Number of shares over
which options granted Exercise price Exercise period
Pence
175,000 39.0 11 December 2001 to 11 December 2005
43,000 56.5 8 March 2002 to 8 March 2006
28,000 43.5 2 July 2004 to 2 July 2008
17,500 47.5 18 July 2004 to 18 July 2008
240,000 81.0 20 August 2004 to 20 August 2008
20,000 85.0 1 October 2004 to 1 October 2008
287,000 57.0 13 September 2005 to 13 September 2009
332,000 72.0 16 June 2006 to 16 June 2010
500,000 103.5 23 October 2006 to 23 October 2010
190,174 125.5 31 March 2007 to 31 March 2011
723,000 100.5 27 August 2007 to 27 August 2011
97,000 230.0 17 December 2007 to 17 December 2011
8,000 273.5 2 February 2008 to 2 February 2012
8,000 361.5 28 April 2008 to 28 April 2012
810,000 333.5 30 June 2008 to 30 June 2012
3,478,674
The market price of the ordinary shares at 30 June 2005 was 337.5p and the range during the period was 120.5p
to 443.5p. All share options granted during the year were issued at market value.
Employee
Share premium Profit and Benefit Trust
20. Reserves account Merger reserve Capital reserve loss account share reserve
£m £m £m £m £m
Group
1 October 2004 – as previously stated – 0.5 6.3 10.8 –
Prior year adjustment – – – 4.2 –
1 October 2004 – as restated – 0.5 6.3 15.0 –
Loss for the period – – – (9.4) –
Arising on acquisition – – – – (0.9)
New shares issued 126.8 – – – –
Transfer to merger reserve (69.4) 69.4 – – –
30 June 2005 57.4 69.9 6.3 5.6 (0.9)
SCi Entertainment Annual Report & Accounts 2005 48
Notes to the accounts continued
for the nine months ended 30 June 2005
Share premium Profit and
20. Reserves continued account Capital reserve loss account
£m £m £m
Company
1 October 2004 – 6.3 5.1
Loss for the period – – (9.2)
New shares issued 57.4 – –
30 June 2005 57.4 6.3 (4.1)
The Company has taken advantage of the exemption given in Section 132 of the Companies Act 1985 not to
recognise the premium on the issue of shares as they were issued in order to acquire at least 90% of its new
subsidiary undertaking, Eidos plc. As a result, the associated £69.4 million of fair value of shares issued in excess of
the nominal value has been transferred to the merger reserve.
The remaining £57.4 million within share premium represents the fair value of shares issued under open offer
(£61.1 million) less their nominal value (£1 million – see note 19) less associated issue costs (£1.7 million).
30 June 30 September
21. Reconciliation of movements in shareholders’ funds 2005 2004
£m £m
Group
Opening shareholders’ funds – as previously stated 19.0 13.9
Prior year adjustment 4.2 1.4
Opening shareholders’ funds – as restated 23.2 15.3
(Loss) profit for the financial period (9.4) 5.1
Shares available for distribution arising on acquisition of Eidos (0.9) –
New shares issued – arising on acquisition 70.5 –
– arising on open offer 58.4 –
Closing shareholders’ funds 141.8 20.4
Company
1 October 2004 12.8 7.7
(Loss) profit for the financial period (4.7) 5.1
New shares issued 59.5 –
Closing shareholders’ funds 67.6 12.8
SCi Entertainment Annual Report & Accounts 2005 49
Notes to the accounts continued
for the nine months ended 30 June 2005
22. Financial commitments
There were no capital commitments contracted at the balance sheet date. Annual commitments under
non-cancellable operating leases are as follows: 2005 2004
Land and Land and
buildings Other buildings Other
£m £m £m £m
Group
Expiry date: – within one year 0.1 0.1 – –
– between one and two years 1.4 0.1 – –
– between two and five years 0.3 – 0.1 –
– more than five years 0.2 – – –
2.0 0.2 0.1 –
Leases of land and buildings are typically subject to rent reviews at specified intervals and provide for the lessee to
pay all insurance, maintenance and repair costs. Other operating leases relate to cars and office equipment.
23. Profit attributable to SCi Entertainment Group Plc
The loss for the nine months to 30 June 2005 dealt with in the accounts of the parent company,
SCi Entertainment Group Plc, was £9.2 million (12 months to 30 September 2004: profit of £5.1 million).
24. Derivatives and other financial instruments
The operating and financial review provides an explanation of the role that financial instruments have had during
the period in creating or changing the risks the Group faces in its activities. It summarises the Group objectives
and policies in relation to financial instruments. The disclosures contained within this note deal with financial
assets and liabilities, excluding short-term debtors and creditors, other than for the purpose of the foreign
currency disclosures described under short-term debtors and creditors below.
Interest rate and currency profile
The interest rate and currency profile of the Group’s financial assets and liabilities, excluding short-term debtors
and creditors, was as follows:
Sterling US dollar Euro Other Total
£m £m £m £m £m
30 June 2005
Cash – floating rate 36.9 3.7 3.1 0.4 44.1
30 September 2004
Cash – floating rate 2.1 1.1 0.3 – 3.5
Cash balances earned interest at the following rates: Sterling 1.2% – 1.75%; US dollar 0.125% – 0.875%;
Euro 0.1% – 0.5%.
Balances placed on deposit earned interest at the following rates: Sterling 4.45% – 4.83%;
US dollar 2.11% – 3.15%; Euro 1.5% – 2.01%.
SCi Entertainment Annual Report & Accounts 2005 50
Notes to the accounts continued
for the nine months ended 30 June 2005
24. Derivatives and other financial instruments continued
Short-term debtors and creditors
At 30 June 2005 the Group had short-term debtors denominated 30 June 30 September
in the following foreign currencies: 2005 2004
£m £m
US dollars 11.9 3.6
Euros 4.5 2.7
Danish krone 0.7 –
Japanese yen 0.2 –
Australian dollars 0.5 –
At 30 June 2005 the Group had short-term creditors denominated
in the following foreign currencies:
US dollars 1.8 0.3
Euros 1.0 0.1
Danish krone 2.5 –
Japanese yen 0.2 –
All other short-term debtors and creditors were denominated in sterling.
Maturity of financial assets
Financial assets comprise balances on deposit, which may be withdrawn on demand.
Currency Exposures
The Group’s objective in managing the currency exposures is to minimise gains and losses arising in its overseas
subsidiaries. The Company provides working capital to its overseas subsidiaries in their functional currencies and
hedges its exposure in accordance with the policy described in the operating and financial review. The table below
shows the Group’s currency exposures, i.e. those transactional exposures that give rise to the net currency gains
and losses recognised in the profit and loss account. These exposures were as follows:
Net foreign currency monetary assets (liabilities)
US dollar Euro Total
£m £m £m
Functional currency of Group operation
30 June 2005
Sterling (3.8) 0.2 (3.6)
30 September 2004
Sterling 3.3 2.6 5.9
Borrowing facilities and maturity of financial liabilities
The Group had an agreed and unused overdraft facility of up to £1.5 million, which lapsed during the period. The
Group currently has no borrowing facility, but will assess its need to put in place appropriate short-term working
capital facilities in periods where there is a number of product launches.
SCi Entertainment Annual Report & Accounts 2005 51
Notes to the accounts continued
for the nine months ended 30 June 2005
24. Derivatives and other financial instruments continued
Interest rates
During the period sterling, dollar and euro deposits earned interest at rates between 1.5% and 4.83% (2004: 2.1% and
4.1%).
Foreign currency risk
The Group receives significant portions of its revenues in either euros or US dollars. The Group’s policy is to
eliminate significant currency exposures through natural hedges by transacting for sales and purchases in the same
currency and by forward contracts. At 30 June 2005 the Group had sold forward US dollars of $9.5 million (at
30 September 2004: $4.5 million). These contracts mature between 31 October and 22 December 2005, and at
30 June 2005 were showing a loss of £0.3 million.
Fair values
Other than stated above the directors consider the fair value of the financial assets and liabilities at 30 June 2005
and at 30 September 2004 are not materially different from their book values.
25. Related party transaction
a) Transactions with associated undertakings
During the period the Group paid £1.6 million to its associated undertakings as royalties and advances on games
being developed for the Group.
In the period to 30 June 2005 the Group paid £1.1 million to Rocksteady Studios Ltd, an associated undertaking in
which the Group has an interest of 25.1%, as advances for the development of games for the Group. At 30 June
2005, the Group was owed £0.2 million by Rocksteady Studios Ltd (see note 15).
In the period after acquisition of Eidos, the Group sold games to the joint venture Proein SL totalling £0.1 million.
In the same period, the Group paid £0.5 million to the joint venture Pyro Studios SL as royalties and advances for
the development of games for the Group. At 30 June 2005, the Group was owed £0.1 million by Proein SL and
£0.1 million by Pyro Studios SL.
b) Transactions with subsidiary undertakings
The Group has taken advantage of the exemption in FRS 8 in respect of subsidiaries, which are consolidated in
these accounts.
All inter-company transactions are calculated on an arm’s length basis.
c) Other related party transactions
Tim Ryan is a director of Bell Pottinger Financial Ltd. During the period Bell Pottinger acted as the Group’s financial
PR company. Tim Ryan was not involved in the process of selecting Bell Pottinger in this role and plays no part in the
arrangement of fees with Bell Pottinger. During the period the Group incurred fees of £75,772 from Bell Pottinger,
such fees being determined on an arms-length basis. At 30 June 2005 the Group owed £63,450 to Bell Pottinger.
26. Contingent liabilities
The Company and its subsidiaries are defendants in a number of legal proceedings incidental to its operations.
Other than already provided for in the financial statements, the Company does not expect the outcome of such
proceedings, either individually or in aggregate, to have a material effect upon the results of the Company’s
operations or its financial position.
27. Post balance sheet event
The Group completed the acquisition of the remaining issued share capital of Eidos plc during July and August
2005, for a fair value consideration of £11.7 million, represented by the issue of 2.9 million shares.
SCi Entertainment Annual Report & Accounts 2005 52
Report of the independent auditors
to the shareholders of SCi Entertainment Group Plc
We have audited the financial statements of SCi We read other information contained in the annual
Entertainment Group Plc for the nine months ended report and consider whether it is consistent with the
30 June 2005 on pages 28 to 52. These financial audited financial statements. This other information
statements have been prepared under the accounting comprises only the chief executive’s statement, the
policies set out on pages 33 to 35. We have also operating and financial review, the corporate
audited the information in the Directors’ governance statement, the unaudited part of the
remuneration report that is described as having been directors’ remuneration report and the directors’
audited. report. We consider the implications for our report if
we become aware of any apparent misstatements or
Respective responsibilities of directors material inconsistencies with the financial statements.
and auditors Our responsibilities do not extend to any other
The directors’ responsibilities for preparing the information.
Directors’ remuneration report, annual report and the Our report has been prepared pursuant to the
financial statements in accordance with applicable law requirements of the Companies Act 1985 and for no
and United Kingdom Accounting Standards are set other purpose. No person is entitled to rely on this
out in the statement of Directors’ responsibilities. report unless such a person is a person entitled to rely
Our responsibility is to audit the financial upon this report by virtue of, and for the purpose of,
statements and the part of the Directors’ the Companies Act 1985 or has been expressly
remuneration report to be audited in accordance with authorised to do so by our prior written consent. Save
relevant legal and regulatory requirements, United as above, we do not accept responsibility for this
Kingdom Auditing Standards and the Listing Rules of report to any other person or for any other purpose
the Financial Services Authority. and we hereby expressly disclaim any and all such
We report to you our opinion as to whether the liability.
financial statements give a true and fair view and
whether the financial statements and the part of the Basis of audit opinion
Directors’ remuneration report to be audited have We conducted our audit in accordance with United
been properly prepared in accordance with the Kingdom Auditing Standards issued by the Auditing
Companies Act 1985. We also report to you if, in our Practices Board. An audit includes examination, on a
opinion, the Directors’ report is not consistent with test basis, of evidence relevant to the amounts and
the financial statements, if the Group has not kept disclosures in the financial statements and the part of
proper accounting records, if we have not received all the Directors’ remuneration report to be audited. It
the information and explanations we require for our also includes an assessment of the significant estimates
audit, or if information specified by law or the Listing and judgements made by the directors in the
Rules regarding directors’ remuneration and preparation of the financial statements, and of
transactions with the company and other members of whether the accounting policies are appropriate to the
the Group is not disclosed. Group’s circumstances, consistently applied and
We review whether the corporate governance adequately disclosed.
statement reflects the Group’s compliance with the
nine provisions of the 2003 FRC Combined Code
specified for our review by the Listing Rules of the
Financial Services Authority, and we report if it does
not. We are not required to consider whether the
Board’s statements on internal control cover all risks
and controls, or form an opinion on the effectiveness
of the Group’s corporate governance procedures or its
risk and control procedures.
SCi Entertainment Annual Report & Accounts 2005 53
Report of the independent auditors continued
We planned and performed our audit so as to Opinion
obtain all the information and explanations which we In our opinion:
considered necessary in order to provide us with • the financial statements give a true and fair view of
sufficient evidence to give reasonable assurance that the state of affairs of the Group and the Company
the financial statements and the part of the directors’ as at 30 June 2005 and of the loss of the Group for
remuneration report to be audited are free from the nine month period then ended; and
material misstatement, whether caused by fraud or • the financial statements and the part of the
other irregularity or error. In forming our opinion we Directors’ remuneration report to be audited have
also evaluated the overall adequacy of the presentation been properly prepared in accordance with the
of information in the financial statements and the part Companies Act 1985.
of the Directors’ remuneration report to be audited.
BDO Stoy Hayward LLP
Chartered Accountants and Registered Auditors
London
20 December 2005
SCi Entertainment Annual Report & Accounts 2005 54
Corporate governance
The Board is committed to establishing and The audit, remuneration and the nomination
maintaining high standards of corporate governance; committees each comprise the two non-executive
the process by which the Group is directed and directors and the chief executive. Each committee is
managed, risks are identified and controlled and chaired by Nigel Wayne who has also been nominated
effective accountability assured. The following by the Board as the Group’s senior independent
statement is intended to describe how the Group has director.
applied the principles of the revised Combined Code Directors have access to the advice and services of
on Corporate Governance (the “Code”), which applied the company secretary and may take, at the
to the Group for the period under review. It also Company’s expense, independent professional advice.
explains the reasons for any areas of non-compliance During the nine month period ending 30 June 2005
with Section 1 of the Code. there were six Board meetings, two meetings of the
audit committee, two meetings of the remuneration
The Board committee and no meetings of the nomination
The Board comprises two non-executive directors and committee. All meetings were fully attended with the
three executive directors. The non-executive directors exception of three Board meetings relating to the
are considered to be independent. All directors are approval of pre-circulated documents, which were not
required to stand for re-election at least every three attended by Nigel Wayne and Tim Ryan.
years.
All the members of the Board are equally The audit committee
responsible for the management and proper The audit committee meets at least twice a year to
stewardship of the Group. The non-executive directors review the financial results, the findings of the external
are independent of management and, other than independent auditors and the Group’s internal control
described in the directors’ remuneration report and systems. It also considers the Group’s financial
note 25 to the accounts, free from any business or accounting procedures and policies as well as the cost-
other relationship with the Company or Group. The effectiveness, independence and objectivity of the
non-executive directors are able to bring independent external auditors by monitoring the level and
judgement to issues brought before the Board. appropriateness of any non-audit work provided by
During the period under review, the directors them.
considered that two non-executive directors were The members of the audit committee are
sufficient to maintain an appropriately balanced Jane Cavanagh, Nigel Wayne and Tim Ryan.
board, given the size of the Company.
The Board meets regularly throughout the year and The remuneration committee
more frequently where business needs require. The The committee is responsible for the remuneration of
Board has a schedule of matters reserved to it for the executive directors. It advises the Board on the
decision and the requirement for Board approval on broad framework for executive remuneration and
these matters is communicated widely throughout the determines, on behalf of the Board, the individual
senior management of the Group. This includes remuneration packages. The policies adopted together
matters such as business acquisitions, appointments to with details of the directors’ remuneration and service
subsidiary company boards, material capital contracts terms are set out in the directors’
commitments and commencing or settling major remuneration report on pages 59 to 63. The
litigation. Prior to each meeting directors are sent an committee meets on an ad hoc basis as necessary.
agenda together with additional information, No director is involved in deciding his or her own
including financial reports, required for the meeting. remuneration, whether determined by the committee
The Board has delegated responsibility in a number of or, in the case of the non-executives, by the Board.
areas to three sub-committees. The members of the remuneration committee are
Jane Cavanagh, Nigel Wayne and Tim Ryan.
SCi Entertainment Annual Report & Accounts 2005 55
Corporate governance continued
The nomination committee Directors on the Combined Code (the Turnbull
The nomination committee is responsible for Report) published in September 1999. This process,
reviewing the composition and structure of the Board which is tied closely to operations, is regularly
and for recommending Board appointments and reviewed by the Board. The key procedures that the
interviewing potential candidates. The committee directors have established to ensure risk management
meets on an ad hoc basis as required. and internal controls are effective are as follows:
The members of the nomination committee are
Jane Cavanagh, Nigel Wayne and Tim Ryan. Risk identification
The Group has identified its major risks and has
Operational management policies in place to avoid and mitigate those risks. All
The executive directors are supported by a team of senior members of staff participate in this process and
senior managers who are responsible for assisting in the results are reported to the Board.
the development and achievement of the Group’s
corporate strategy, business plans and budgets and for Operational risks
reviewing operational and financial performance. The Operational management are responsible for the
team, together with the executive directors are identification and evaluation of significant risks
responsible for agreeing and monitoring policies and applicable to their area of business and, in conjunction
other matters not reserved for the Board. with the Board, for designing and operating suitable
internal controls. The senior management team, which
Relations with shareholders includes the executive directors who report directly to
The executive directors meet regularly with the Board, are responsible for monitoring and
institutional shareholders, fund managers and analysts controlling all operational risks.
and are available to answer questions from private The Board regularly reviews risk summaries so that
shareholders. Communication with all shareholders is prompt action can be taken in an appropriate manner.
facilitated by the issue of full year and interim reports, In addition, the internal control process is supported
which, together with other corporate information and by:
press releases, are available on the Company’s website: (a) a comprehensive financial control and rolling
www.sci.co.uk. forecast system;
The Annual General Meeting provides a forum for (b) a flat management structure which facilitates
all shareholders to raise issues with the directors. The open and timely communication;
notice convening the meeting is normally issued at (c) sophisticated project management systems to
least 20 working days in advance and separate coordinate and control key development and
resolutions are proposed on each substantially publishing activities;
separate issue. (d) an experienced legal function that supports the
Group’s business needs; and
Risk management and internal controls (e) a programme of commercial insurance covering
The directors are responsible for the Group’s system of key risks including intellectual property matters,
internal control and for reviewing its effectiveness. product liability and business interruption.
However, such a system can only provide reasonable, The Board has considered the need for an internal
but not absolute, assurance against material audit facility and has determined that the scale and
misstatement or loss. As part of the Board’s ongoing nature of the Group does not justify a dedicated
review and involvement with joint ventures, they also function at the present time. However, given the recent
give consideration to the adequacy of their internal changes to the Group, the internal control systems will
controls and risk management. be further reviewed during the current financial year.
The Board confirms that there is an ongoing
process for identifying, evaluating and managing the
significant risks faced by the Group, in compliance
with the guidance Internal Control: Guidance for
SCi Entertainment Annual Report & Accounts 2005 56
Corporate governance continued
Compliance status • Check that all partners engaged in the audit process
During the period under review the Company are rotated at least every five years.
complied with the provisions of the Code except as • Assess the likely impact on the auditors’
follows: independence and objectivity before awarding
(a) there is currently no formal procedure for them any contract for additional services. It is
training newly appointed directors; company policy to require the auditors to tender
(b) non-executive directors have previously been for all non-audit assignments where the fee is in
awarded share options; excess of £100,000.
(c) non-executive directors are not appointed for • Have as a standing agenda item auditor
fixed terms but, as with executive directors, retire independence issues at each audit committee
by rotation approximately every three years; meeting.
(d) the chief executive’s service contract contains a
three-year notice period; Going concern
(e) the chief executive is a member of the The directors confirm that, after making enquiries,
remuneration and audit committees and hence they have a reasonable expectation that the Group has
these do not consist of at least three independent adequate resources to continue in operational
non-executive directors; existence for the foreseeable future. For this reason,
(f) the Company does not currently have a chairman they continue to adopt the going concern basis in
and the position is maintained by Jane Cavanagh preparing the accounts.
as both CEO and chairman;
(g) the Board has yet to implement a self-evaluation
process.
The reason for non-compliance with item (b) is
given in the directors’ remuneration report. For the
period under review, the directors considered the
Code provisions relating to the other exceptions listed
above to be inappropriate for the nature and size of
the Company. The Board intends to review these
issues in the light of the increased size and complexity
of the Group following the acquisition of Eidos plc.
Details of directors’ remuneration and related
matters are set out in the directors’ remuneration
report on pages 59 to 63.
External audit matters
Independence
The audit committee has sole responsibility for
assessing the independence of the external auditors,
BDO Stoy Hayward LLP. Each year the committee
undertakes to:
• Seek reassurance that the external auditors and
their staff have no family, financial, employment,
investment or business relationship with the
company. To this end the committee requires the
external auditor and their associates to confirm this
in writing, and detail the procedures which the
auditor has carried out in order to make this
confirmation.
SCi Entertainment Annual Report & Accounts 2005 57
Corporate responsibility statement
SCi has a strong commitment to its customers, Disabled employees
shareholders, employees and, in a wider context, Applications for employment by disabled persons are
society at large. The following policies represent the always fully considered, bearing in mind the aptitudes
basis of the Group’s approach to corporate of the applicant concerned. In the event of members
responsibility. of staff becoming disabled every effort is made to
ensure that their employment with the Group
Employment policy and employee involvement continues and that appropriate training is arranged. It
The Group’s employees are integral to the success of is the policy of the Group that the training, career
the business and, as a result, the Group pursues development and promotion of disabled persons
employment practices which are designed to attract, should, as far as possible, be identical with that of
retain and develop this talent to ensure the Group other employees.
retains its strong market position with motivated and
satisfied employees. Environmental policy
The Board and senior managers take responsibility SCi seeks to ensure that its operations and products
for employment matters and have established suitable cause the minimum detrimental impact to the
policies and guidelines. Wherever possible, the Group environment. The Group’s objective is to comply with
seeks to benchmark itself against industry best environmental legislation in all countries in which it
practice. operates and to promote effective resource
It is the Group’s policy to give all staff an management, energy efficiency waste minimisation
opportunity to share in the future success of the and recycling initiatives. Due to the nature of its
business. Historically this has been achieved through business, the Group does not have a high
the SCi Share Option Plan, which is due to expire in environmental impact.
2006. The Board is currently considering an
appropriate structure for future equity incentive Community
arrangements for the enlarged Group and will put The Group aims to partner with local communities in
forward proposals to shareholders in due course. which it operates by supporting local initiatives and
Employees receive regular updates on corporate charitable events. SCi encourages its employees to
performance and developments through various participate as volunteers in such activities and
formal and informal channels of communication, supports these initiatives through donations, employee
including the Group’s website and internal intranet. time and/or other contributions. During the nine
The Group assists its employees in achieving an months to 30 June 2005, SCi made no charitable
appropriate work/life balance, by measures including donations (2004: £2,750).
policies on parental, maternity and paternity leave and
flexible working where appropriate. Workplace
discrimination or harassment is not tolerated and the
Group is committed to providing equal opportunities
to all employees.
SCi Entertainment Annual Report & Accounts 2005 58
Directors’ remuneration report
to the shareholders of SCi Entertainment Group Plc
This report has been prepared in accordance with the incentive plan. The committee sets performance
Code and the Remuneration Regulations 2002. This criteria based on the financial targets set during the
report will be put to an advisory vote of the Company’s Group’s budgeting process, taking into account the
shareholders at the Annual General Meeting. strategic aims of the Group as well as the interests of
shareholders. The targets for each performance criteria
The constitution and responsibility of the are designed to be challenging. The committee
remuneration committee determines whether these criteria have been met based
The committee is comprised of the chief executive and on relevant financial information.
the non-executive directors. Nigel Wayne is chairman The above policy is expected to continue to be
of the remuneration committee. The committee has applied in respect of the forthcoming and subsequent
access to professional advice as and when it considers years.
it necessary.
The remuneration committee’s principal functions are Remuneration policy for non-executive directors
to advise the Board on the broad framework for executive The Company’s policy on non-executive director
remuneration and to determine the remuneration remuneration is to pay fees based upon the experience
packages of the executive directors. It reviews the and expertise of the directors. The level of non-
performance of the executive directors and sets the scale executive fees reflects the amount of time that the
and structure of their remuneration and the basis of their non-executives are required to spend on Company
service agreements with due regard to the interests of duties during the year. The non-executive directors
shareholders. No executive director may participate in receive no other benefits, with the exception of the
decisions regarding their own remuneration. The share options referred to on page 63.
committee is also responsible for overseeing the operation
of the SCi Share Option Scheme. Remuneration packages
Basic salary and benefits in kind
Remuneration policy for executive directors Basic salary and benefits have been reviewed in the light
In determining remuneration packages the of the increased responsibilities of the directors
remuneration committee has regard to the importance following the acquisition of Eidos. It is intended that
of retaining and motivating executive directors as well basic salary and benefits will now be reviewed every
as linking reward to the Group’s performance. Within three years. Interim reviews may take place at the
this context, the committee’s policy on executive discretion of the remuneration committee to take
director remuneration is to: account of exceptional or unusual changes in the
• pay a competitive base salary designed to attract Group’s circumstances. At each review the committee
and retain executive directors relevant to each considers the individual’s performance and
director’s role, experience and the external market; responsibilities as well as market trends. Particular
• provide incentive arrangements which are subject regard is paid to salary levels in companies of a
to challenging performance targets (based on comparable size, sector and performance. Accordingly,
profitable growth and share price performance), the committee reviewed the remuneration of the
reflect the Group’s objectives and recognise the executive directors following the Group’s acquisition of
importance of providing sustained motivation of Eidos and decided to increase the basic salaries of each
management to focus on longer-term, as well as of them to: Jane Cavanagh – £275,000; Bill Ennis –
annual, performance, and; £195,000; Rob Murphy – £195,000. The next review
• align the interest of the executive directors with shall take place in July 2008. The basic salary of each
those of shareholders. executive director will also be increased annually by
In order to achieve these objectives the committee’s the greater of 5% or the increase in the Average
approach is that a significant proportion of the overall Earnings Index over the previous twelve months.
remuneration package should be linked to the Benefits include car allowances and private medical
performance of the Group, through participation in insurance. The value of benefits is not pensionable.
annual bonus schemes, share options and a long-term
SCi Entertainment Annual Report & Accounts 2005 59
Directors’ remuneration report continued
Annual performance related bonus The 2008 LTIP
The annual bonus scheme applies to all executive At the Annual General Meeting shareholders will be
directors and is determined by the remuneration asked to approve a new LTIP (the “2008 LTIP”) which
committee. It is based on exceeding the Group’s target will apply to all executive directors and will cover
profits, with such targets set early in the financial year performance in the three year period to 30 September
for which the bonus is payable. 2008, (the “2008 LTIP”). Upon approval of the 2008
During the period under review the maximum LTIP the remuneration committee recommend
amount of the annual bonus under the scheme was payments of £75,000 to Jane Cavanagh and £50,000
45% of basic salary per director. Following the change each to Bill Ennis and Rob Murphy as compensation
in year-end the remuneration committee decided to for early termination of the 2007 LTIP.
award a prorated bonus for the nine month period to
each executive director. From 1 July 2005 the Long-term service scheme
maximum amount of the annual bonus under the Bill Ennis and Rob Murphy were awarded fixed grants
scheme is 67% of basic salary per director. The annual of share options as a reward for long service. Bill Ennis
bonus is not pensionable. has received his maximum entitlement of 410,000
shares under this scheme. Rob Murphy had received
Long-term incentive plans 85,000 shares under the scheme, at 30 June 2005, and
The 2007 LTIP is eligible for further annual awards.
During the period under review shareholders
approved the terms of a long-term incentive plan Pensions
(“LTIP”) which applies to all executive directors and Pension contributions are made on behalf of executive
covers performance in the three year period to directors based on 15% of basic salary.
30 September 2007, (the “2007 LTIP”). The 2007 LTIP
is based on performance in the three years to Share options
30 September 2007 and covers performance against Share option awards may be made to directors under
three performance measures. The performance the SCi 1996 Share Option Plan. Options under this
measures were chosen by the committee in 2004 to be plan, which are issued at the market price at the date
appropriate indicators of corporate performance over of grant, may be exercised at any time between the
the period of the 2007 LTIP that link to long-term third and seventh anniversaries of their date of grant
shareholder reward. The targets related to the to the extent that they have vested, provided that
performance measures are designed to be challenging. performance conditions to which they are subject have
Under the 2007 LTIP an award of up to a maximum of been fulfilled. Currently, the performance conditions
125% of total basic salaries for the period 30 September require the Company’s share price to have
2007 may be made to each executive director. Awards outperformed the FTSE Media & Entertainment Index
under the LTIP are not pensionable. The determination of over the period from the date of grant to exercise.
the value to be awarded depended on the Group The committee has chosen share price performance
achieving over the period of the 2007 LTIP (a) a target for as the performance condition for share options as it
total pre-tax profits in the three years to 30 September believes it is the most appropriate measure of long-
2007 of £6 million (after providing for all bonus term shareholder return. The requirement to exceed
payments); (b) annual profit growth in each of the three the performance of the FTSE Media & Entertainment
financial years ending 30 September 2007; and (c) a share Index is considered to be challenging. The committee
price performance which outperforms the FTSE Media & will regularly review the performance conditions for
Entertainment Index between 1 October 2004 and future option grants.
30 September 2007. In order to achieve the maximum The SCi 1996 Share Option Plan is due to expire in
payout all three criteria would have to be met. 2006 and the Board is currently considering an
Following the acquisition of Eidos, the appropriate structure for future equity incentive
remuneration committee has determined that the 2007 arrangements for the enlarged Group and will put
LTIP should be replaced by a new three year scheme forward proposals to shareholders in due course.
which better reflects the targets for the enlarged group.
SCi Entertainment Annual Report & Accounts 2005 60
Directors’ remuneration report continued
Service contracts
Details of the service contracts of directors are as follows:
Commencement date Expiry date
Jane Cavanagh 18 January 1996 terminable on three years’ rolling notice
Bill Ennis 29 July 1996 terminable on twelve months’ rolling notice
Rob Murphy 27 June 1997 terminable on six months’ rolling notice
Tim Ryan 27 September 2001 terminable on one month’s rolling notice
Nigel Wayne 13 July 2001 terminable on one month’s rolling notice
There are no provisions in any of the above service contracts for compensation to be payable in the event of early
termination other than for payment in lieu of notice.
Performance graph
The following graph shows the Company’s total shareholder return relative to the FTSE Media &
shareholder return since 1 October 2000 relative to the Entertainment Index which contains similar businesses
FTSE Media & Entertainment Index. The committee is more appropriate than a general FTSE index.
considers that a comparison of the Group’s total
FTSE Index (pence)
150
SCi Entertainment Group total return
FTSE Media & Entertainment sector total return
125
100
75
50
25
0
2000 2001 2002 2003 2004 2005
SCi Entertainment Annual Report & Accounts 2005 61
Directors’ remuneration report continued
The following disclosures on directors’ remuneration have been audited, as required by Part 3 of Schedule 7A of
the Companies Act 1985.
Individual directors’ remuneration
The remuneration of each director for the nine months ended 30 June 2005 was as follows:
Basic salary/ Taxable Total Total Pension* Pension*
Fees Bonus benefits 2005 2004 2005 2004
£000s £000s £000s £000s £000s £000s £000s
Executive
Jane Cavanagh 157 60 8 225 512 24 30
Bill Ennis 100 40 6 146 433 15 19
Rob Murphy 100 40 6 146 433 15 19
Non-executive
Tim Ryan 9 – – 9 12 – –
Nigel Wayne 9 – – 9 12 – –
375 140 20 535 621 54 68
* Pension represents contributions to money purchase schemes.
Directors’ shareholdings
The directors who held office at 30 June 2005 had the following interests in the shares of the Company:
30 June 30 September
2005 2004
Number Number
Executive
Jane Cavanagh 4,819,630 4,819,630
Bill Ennis 462,450 462,450
Rob Murphy 71,500 71,500
Non-executive
Tim Ryan 38,600 38,600
Nigel Wayne 10,000 10,000
5,402,180 5,402,180
There have been no changes in the above shareholdings between 30 June 2005 and the date of these financial
statements.
SCi Entertainment Annual Report & Accounts 2005 62
Directors’ remuneration report continued
Options
The interests of the directors in share options of the Company at 30 June 2005 were:
30 September Exercise
2004 Granted Exercised 30 June 2005 price Exercisable
Number Number Number Number Pence
Jane Cavanagh 75,000 – – 75,000 39.0 11 December 2001 to 11 December 2005
80,000 – – 80,000 81.0 20 August 2004 to 20 August 2008
80,000 – – 80,000 72.0 16 June 2006 to 16 June 2010
43,865 – – 43,865 125.5 31 March 2007 to 31 March 2011
– 270,000 – 270,000 333.5 30 June 2008 to 30 June 2012
Bill Ennis 50,000 – – 50,000 39.0 11 December 2001 to 11 December 2005
80,000 – – 80,000 81.0 20 August 2004 to 20 August 2008
170,000 – – 170,000 72.0 16 June 2006 to 16 June 2010
410,000 – – 410,000 100.5 27 August 2007 to 27 August 2011
– 270,000 – 270,000 333.5 30 June 2008 to 30 June 2012
Rob Murphy 50,000 – – 50,000 39.0 11 December 2001 to 11 December 2005
41,000 – – 41,000 56.5 8 March 2002 to 8 March 2006
80,000 – – 80,000 81.0 20 August 2004 to 20 August 2008
84,809 – – 84,809 125.5 31 March 2007 to 31 March 2011
85,000 – – 85,000 100.5 27 August 2007 to 27 August 2011
– 270,000 – 270,000 333.5 30 June 2008 to 30 June 2012
Tim Ryan 20,000 – – 20,000 85.0 1 October 2004 to 1 October 2008
Nigel Wayne 20,000 – (2,500) 17,500 47.5 18 July 2004 to 18 July 2008
1,369,674 810,000 (2,500) 2,177,174
As indicated on page 57 the Combined Code recommends that non-executive directors should not be eligible for
the award of share options. The Board believes that it is appropriate for non-executive directors to be incentivised
in the same manner as other directors.
All options granted to directors in the period were granted on 30 June 2005 and at market value.
On 14 January 2005 Nigel Wayne exercised 2,500 options at a price of 263.5p, making a gain of £5,400.
Under the rules of a long-term service scheme Rob Murphy is entitled to a maximum award of 325,000 options
to be awarded in increasing annual increments. 75,000 of these options were awarded on 19 October 2005.
Share price
The market price of the ordinary shares at 30 June 2005 was 337.5p and the range during the period was 120.5p to
443.5p.
On behalf of the Board,
Nigel Wayne
Chairman – Remuneration committee
5 December 2005
SCi Entertainment Annual Report & Accounts 2005 63
Shareholder information
Shareholder analysis
As at 5 December 2005, the number of registered shareholders was 3,974 and the number of ordinary shares in issue was
72,579,456.
Number of Percentage of Number of Percentage of
shareholders total shareholders shares (million) total shares
Range of holdings:
1 to 1,500 3,437 86.5 0.9 1.2
1,501 to 5,000 270 6.8 0.7 1.0
5,001 to 10,000 57 1.4 0.4 0.6
10,001 to 50,000 92 2.3 2.1 2.9
50,001 to 100,000 29 0.7 2.0 2.7
100,001 to 250,000 37 0.9 5.9 8.2
250,001 to 500,000 21 0.6 7.8 10.7
500,001 to 1,000,000 18 0.5 13.0 17.9
1,000,000 to highest 13 0.3 39.8 54.8
Total 3,974 100.0 72.6 100.0
Held by:
Individuals 3,236 81.4 7.4 10.2
Institutions and companies 738 18.6 65.2 89.8
Total 3,974 100.0 72.6 100.0
Company registrars ShareGIFT
Enquiries concerning shareholdings, change of address or Shareholders who hold only a small number of shares,
other particulars, should be directed in the first instance to where dealing costs make it uneconomic to sell them, may
the Company’s registrars, Capita Registrars. Capita also wish to consider donating them to charity through
provide a range of on-line shareholder information services ShareGIFT, a registered charity administered by The Orr
at www.capitaregistrars.com where shareholders can check Mackintosh Foundation. Further information is available at
their holdings and find practical help on transferring shares www.sharegift.org or telephone +44 (0)20 7337 0501.
and updating personal details.
Annual General Meeting
Share dealing service The Company’s Annual General Meeting will be held at the
An internet and telephone share dealing service has been offices of Peel Hunt, 111 Old Broad Street, London EC2N 1PH
established by Capita Registrars, enabling shareholders to on 7 February 2006. A circular to shareholders, which
buy or sell SCi ordinary shares on the London Stock includes the notice convening the meeting, accompanies this
Exchange. Shareholders who are interested in using these document.
services should visit www.capitadeal.com or telephone
+44 (0)870 458 4577. Financial calendar 2006
March 2006 Announcement of half year results
Share price information to 31 December 2005
The latest SCi share price can be obtained via the Company’s September 2006 Announcement of full year results
website at www.sci.co.uk. It can also be obtained in the UK to 30 June 2006
on Ceefax and Teletext. SCi’s stock exchange code is SEG.
Investor relations
Unsolicited mail Should you have any queries, please contact Anthony Price
The Company is obliged by law to make its share register on +44 (0)20 8636 3434. Alternatively, you can e-mail your
available upon request to the public and to other enquiry to anthonypr@eidos.co.uk.
organisations which may use it as a mailing list resulting in
shareholders receiving unsolicited mail. Shareholders
wishing to limit the receipt of such mail should write to the
Mailing Preference Service, Freepost 29, LON 20 771,
London W1E 0ZT or telephone +44 (0)845 703 4599 for an
application form.
SCi Entertainment Annual Report & Accounts 2005 64
Five year record
12 months to 12 months to
Nine months to 30 September 30 September 12 months to 12 months to
30 June 2004 2004 30 September 30 September
2005 (as restated) (as restated) 2002 2001
£m £m £m £m £m
Summary of results
Turnover 17.5 31.0 28.5 17.7 2.0
Gross profit 4.4 20.2 17.2 11.4 0.1
Operating (loss) profit (14.2) 4.5 3.6 2.3 (10.7)
(Loss) profit before tax (14.0) 4.5 3.6 2.2 (10.5)
Net assets employed
Fixed assets 96.3 5.6 6.4 4.1 5.4
Net current assets (liabilities) 62.7 17.6 10.3 5.4 (2.2)
Total assets less current liabilities 159.0 23.2 16.7 9.5 3.2
Long-term liabilities and provisions for
liabilities and charges (15.3) – (0.6) – –
Net assets 143.5 23.2 16.1 9.5 3.2
Pence Pence Pence Pence Pence
Earnings per share (25.58) 17.89 15.36 10.11 (53.50)
The results for 2001 and 2002 have not been restated for the change in accounting policy as the directors do not
consider the effect of these changes to be material.
ISO 14001 NAPM approved
Produced at a mill that holds recycled product
ISO 14001 certification
Printed on Revive Uncoated, made from a guaranteed minimum
80% de-inked post-consumer waste and 20% mill broke.
Designed and produced by Benjamin Rowntree Design Tel: 020 7357 0700 www.benrown.co.uk Printed in England
SCi Entertainment Group Plc
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1 Hartfield Road
Wimbledon
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SW19 3RU
Tel: +44 (0)20 8636 3000
Fax: +44 (0)20 8636 3001
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Email: info@sci.co.uk
