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April 19, 1994

NOT JUST PLAYING GAMES: CENTREGOLD OPENS ITS ACCOUNT WITH 24% PRE-TAX PROFIT RISE

By CBR Staff Writer

Birmingham-based entertainment software house CentreGold Plc was in celebratory mood yesterday as its first interim results since flotation showed profits and turnover up. The company, which came to market last October (CI No 2,270), managed to off-set lower margins on cartridge sales with a growth in turnover and tighter stock control. Consequently, the firm’s net profit grew 22.7% to UKP1.7m, while turnover soared 43.6% to UKP52.6m. The company splits into two main arms – the distribution side incorporates CentreSoft, while the publishing division houses US Gold Ltd. The publishing sector saw operating profit fall although turnover grew; chief executive Geoff Brown blamed this largely on the decline in sales and margins of cartridge products in Europe, due to higher technical specifications on the cartridges. Even so, cartridge software sales have grown 126% to UKP19.2m, mainly as a result of the firm’s marketing deal with Nintendo Co, which gave birth to the Winter Olympics product for the Super Nintendo and Gameboy machines. US Gold has titles on three Nintendo formats at present, and there will be a further three titles by the end of the fiscal year including World Cup and the Incredible Hulk. The company had already invested UKP541,000 in the World Cup game by January 31, but says that it will probably pay for itself on the first day of release this summer. Also, US publishing sales in general have increased 215% to UKP8.5m. The company is switching some of its attention away from cartridge market because of the depressed margins, and into CD-ROM production, where margins are said to be similar to floppy disk production. CD-ROM sales have also grown, partly as a result of the firm’s KIXX budget software label, which includes budget CD-ROM titles.

No piracy problem

Brown mentioned that there is virtually no piracy problem with cartridges or CD-ROMs, whereas it is rife on the floppy disk formats. The company is moving to restructure the distribution of its own titles in the UK and Europe. Until March 1, the UK distribution of US Gold titles was handled by Sega Europe, which bought the titles from US Gold and paid the latter a sales-linked royalty. The new deal sees US Gold distributing through CentreGold’s own distribution firm CentreSoft – from September, this will happen throughout Europe, too, and CentreGold is hoping that this will increase profitability. The company is also hoping to boost profits by negotiating cartridge assembly terms in the US and on the continent. At the moment cartridges are made in Japan. On the distribution side, turnover has jumped 19.5% to UKP26.4m in the half, fuelled by sales to specialist retail chains and a distribution agreement for Microsoft Corp’s entertainment products. The margin on profits decreased to 15.4% from 16.2% in the light of flat publishing margins, but the PDQ distribution service for third parties increased profits after signing some new customers. Brown was meanwhile busy trying to smooth over the closure of the firm’s Electric Dreams retail subsiduary, which he said wasn’t worth worrying about – despite the UKP85,000 that it cost CentreGold. We’re not a retailer, he said. The whole group now gets roughly 30% of turnover from overseas; 17.4% comes from the US, while 16.9% comes from Continental Europe and elsewhere. Other highlights are its cash reserves, which leaped to UKP10.6m from UKP560,000 as a result of the flotation. The dividend is 0.8 pence and earnings per share rose by 5% to 4.70 pence.

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