SCi Entertainment, the home of Lara Croft, was forced to admit yesterday that its financial problems were worse than expected as it announced an emergency overhaul that includes dismissing a quarter of its workforce.

The beleaguered computer games group – Britain’s only sizeable competitor in a global industry – said that it needed to raise between £45 million and £55 million to keep afloat, more than the £30 million it had thought that it needed as recently as January.

Its financial woes come despite the relative success of Kane & Lynch, its home-grown shooter starring a flawed mercenary and a medicated psychopath, which sold 1.4 million copies worldwide over the Christmas period – sales that SCi’s new management believes could have been greater if the company had been better run.

Phil Rogers, the group’s new chief executive, said: “It’s clear things have to change. We recognise the failure to maximise the franchise opportunities we have had.” He announced plans to abandon 14 games that are in development, prompting a write-off amounting to £79.6 million.

The company now hopes to raise new equity, although any investment is likely to leave existing investors – including the American media giant Time Warner – with a fraction of the rescued business. Yesterday, the shares tumbled 26 per cent to 39p, valuing what remains of the company at £34 million.

SCi parted company with Jane Cavanagh, its chief executive, and two other top executives in January. The new management made clear where they thought the fault lay as the business unveiled an interim loss of £83.4 million. It said that “quality has slipped below acceptable standards” and added that it was working in an “ineffective operating struture”.

Yesterday SCi indicated that it would consider “any sensible offer for the company”, although insiders believe that it would be a bad time to sell the business, because any purchaser would be picking up its intellectual property on the cheap. Neither is it clear that bids would be forthcoming after SCi spent the best part of last year in takeover talks that did not come to fruition.

The emergency restructuring will see the number of employees cut by a quarter to 800, with control ceded by the centre to its development studios, such as Io Interactive, the maker of Hitman. The idea is to create a more developer-friendly culture, which will save £14 million, at a one-off cost of £7 million.

However, SCi’s argument against an immediate sale is helped by the fact that its long-struggling US rival Take Two Interactive, the owner of Grand Theft Auto, is the subject of a $2 billion takeover bid from Electronic Arts, despite running up heavy loses in the past two years. Take Two appointed new management a year ago and the business has stabilised.

However, the City is worried aSCi’s short-term financial position. Simon Davies, an analyst at ABN Amro, said: “Breathing space is getting particularly limited. The preference is for an equity issue, but with no evidence of support for this plan, in these markets it is a concern.”

SCi Entertainment was a relatively small computer games group, best known for the violent road game Carmageddon, until it pulled off the takeover of its far larger rival Eidos, the original home of Lara Croft, in 2005.

After a brief period of stability, an attempt to expand the business came unstuck as the company was slow to recognise the immediate popularity of next generation consoles such as the Nintento Wii and PlayStation 3.

Turnover for the six months ending December 31 was £73 million, marginally below last year’s £74.5 million.



Into the tomb

1996 Lara Croft is born as Toby Gard creates the first Tomb Raider game for Core Design. Released by Eidos, it becomes an immediate bestseller. Eidos originally pressed 100,000 units for the launch, but ended up selling five million
1998 Jane Cavanagh launches SCi Games, the forerunner to SCi Entertainment. Four years later it unveils record pretax profits of £2.2 million after the success of new titles such as The Italian Job
April 2005 Eidos backs a £103 million all-share offer from SCi Entertainment and tears up an earlier bid from Elevation, a private equity group that counts Bono, the singer with the rock group U2, among its partners. SCi’s shares peak at 635p in October after bid approaches of its own
July 2006 Jane Cavanagh steps down as chairman of SCi Entertainment to comply with best corporate governance. She remains as chief executive. The changes come soon after SCi reveals that sales of latest Lara Croft game, Tomb Raider Legend, have beaten expectations
July 2007 Shares tumble after a profit warning as SCi takes a £14 million hit on falling prices of PlayStation2 games. Two months later SCi admits “extremely preliminary discussions” with unnamed suitor. By this time Robert Tchenguiz holds a 22 per cent stake
January 2008 Jane Cavanagh is ousted in a management clearout that includes Bill Ennis, her husband and commercial director, following another profit warning. The shares have fallen 90 per cent in six months
February 2008 SCi Entertainment axes 25 per cent of its workforce – 270 jobs - as part of a revised strategy that could cost up to £75 million to implement as half-year losses leap by 78 per cent. The company plans to scrap 14 of its ongoing projects to focus on “cornerstone” games including Tomb Raider, Hitman and Championship Manager

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