SCI slashing jobs and uncompleted projects in restructuring

by: Dan - posted: 3/2/2008 10:02:00 AM

SCI Entertainment, parent company of Eidos Interactive, made the announcement on Friday that they would be initiating a massive restructuring project. Included will be elimination of 800 people (25% of headcount), eliminating $14 million in costs and canceling 14 projects that are deemed unlikely to generate acceptable return. In addition, Phil Rogers (SCI CEO) said that the company will focus development on its Tomb Raider, Hitman, Championship Manager and Deus Ex products and go to a more studio oriented format. Check out all the intricate details in the London Stock Exchange filing after the jump:

RNS Number:0284P
SCI Entertainment Group PLC
29 February 2008

29th February 2008

SCi Entertainment Group plc

Business review and half-yearly financial report for the six months ended 31
December 2007

COMPANY TO BE RE-STRUCTURED


SCi Entertainment Group plc ('SCi' 'the Company' or the 'Group'), today
announces a group re-structuring plan following its business review and its
interim results for the six months to 31 December 2007.

The business review led by new Chief Executive, Phil Rogers, has decided on the
following actions:


Fundamental change in business structure:

* SCi's business structure will be significantly changed from a centrally
controlled development and publishing model to a studio-led business focused
around cornerstone products, such as Tomb Raider, Hitman, Championship
Manager and Deus Ex.
* Creation of Eidos PLAY to fuse together casual and new media resources to
attack growing markets.
* Flexible and efficient approach to distribution.

Product improvement initiatives started:

* Cancellation of 14 projects which the Board considers are unlikely to
generate an acceptable return on investment or are not of appropriate
quality.
* Studios focusing on product innovation and delivery of high quality games.
* Production services to form part of the studio group, relocating to
Montreal from London.

Cost reduction plan:

* New business structure targeted to operate with a maximum of 800 people, a
reduction of 25% from current headcount.
* Annual operating costs to be cut by £14 million by the end of June 2008 at
a one-off cost of £7 million


Phil Rogers, Chief Executive of SCi Entertainment Group said,

'SCi is in need of immediate change.

'Following our business review over the last six weeks, we are initiating a
clear action plan based on three fundamental strands of activity: a radical
change in our structure to a studio-led business, a top to bottom programme of
product improvement and efficiency and a considerable cost reduction plan.

'To get SCi on track we have to act rapidly and effect change quickly. We must
allow the world-class people that we have within the Group to focus on strong,
profitable titles which will create the value our shareholders deserve.

'I am confident our staff share this vision and excitement for the future, and
determination to build a working environment where our innovation and creativity
can be commercially realised.'


SCi Entertainment Group
Phil Rogers, CEO and Malcolm Dunne CFO +44 20 8636 3000


Madano Partnership
Matthew Moth/Mark Way +44 20 7593 4000


BUSINESS REVIEW

Strategic backdrop

As illustrated by today's interim results, which are set out below, our quality
has slipped below acceptable standards and, through disappointing game
development and working within an ineffective operating structure, we are
failing to realise the commercial return our creative ability and our
shareholders demand. Our infrastructure is too big and expensive for the scale
of the business.

The cost of delivering world-class games has increased significantly and we must
provide appropriate levels of resource to maximise these opportunities. At the
same time our industry is well positioned for business and margin expansion
through a broadening demographic appeal of games and initiatives centred around
online initiatives.

Our cornerstone franchises, such as Tomb Raider that has already sold 35 million
units, have the potential to deliver significant profits and substantial returns
on investment, which should not be diluted by more run-of-the-mill games. We
must optimise our return on these titles, leverage and position the Group for
online and make better use of our innovative strength. Kane & Lynch, for
example, a home grown franchise, has sold over 1.4 million copies in its first
incarnation - yet we believe it could have sold more had we optimised the
opportunity.

The business has always been run as a development and publishing organisation.
However top-down control over development with a centralised brand and product
marketing team, often in a different country and time-zone, is not the right
formula for the creation of high quality games. We need to provide the right
environment for our studios to do what they do best - create great and
commercially successful games.


Fundamental change in business structure

SCi's business structure will be significantly changed with a shift from
publishing and development to a studio-led model.

Our focus is to build the appropriate studio infrastructure around our
cornerstone franchises. Shifting key publishing responsibilities to within a
studio structure is expected to increase our efficiency and focus.

We are creating a third party business unit to manage the effective creation and
delivery of exciting new games such as Just Cause 2. Third party developers will
continue to be an important part of our business.

A new casual and mobile games group, Eidos PLAY, will be created to capitalise
on the growing casual games market that is taking games to new audiences. This
group will concentrate on the development and distribution of innovative and fun
casual and mobile phone games. Eidos PLAY, created by fusing our resources,
responsible for creating and marketing titles such as Pony Friends and our New
Media teams, will enable us to accelerate our presence in this market and
enhance our returns.

Supporting our studio-led model is a flexible and efficient approach to
distribution, with the appropriate balance of direct and third party
distribution channels and partners.


Product improvement initiatives

Shifting today's key publishing responsibilities such as brand, PR and marketing
into the studio units enables us to form highly focused teams around our
products. This promotes not only high quality games, but high-impact, focused
and coordinated marketing of those games.

With this new company strategy we have reviewed our product line-up and are
cancelling 14 projects that will not deliver the returns we require.

We will move our production services, which include localisation and QA, to
Montreal from London as part of our initiative to bring people closer to games
while benefiting from Montreal's lower cost operating environment.


Cost reduction plan

Cost savings initiatives are underway and today we are announcing a new business
structure to reduce headcount to 800 people, a reduction of 25% from the current
level; we expect that annual operating costs will be cut by £14 million by the
end of June 2008.


Working capital


The Board is reviewing the working capital required for the successful
implementation of the revised strategy. This amount is not yet finalised, but
it is estimated to be between £45 - 55 million, over and above the current
overdraft facility of £20 million.


The Board believes that value for shareholders is best achieved by raising this
through the issue of new equity. The Board's preferred method of equity fund
raising is through the capital markets, though discussions with potential
commercial partners indicate that equity may also be forthcoming from such
sources. Encouraging discussions continue with the Company's lending bank
regarding the extension of the current banking facilities.


At this time the Board is not encouraging offers for the Company but, in a
consolidating industry, any sensible offer for the Company or proposal for
crystallising value for some of the Group's IP will be considered in the context
of the alternatives and benchmarked against the value the Board believes can be
delivered for shareholders through the revised strategy and business plan.