PracticeConsultingAccounts change increases loss at Rage

Accounts change increases loss at Rage

Computer games company Rage software has blamed its greater pre-tax losses on a change of accounts policy.

In its annual results to 30 June 2001, the company reported a turnover of £5.7m, up 72% from £3.3m last year.

But pre-tax losses increased from £6.7m to £17.1m because the change in the way it reports its accounts has resulted in operating costs more than doubling to £22.3m.

According to the company the new accounting policy means direct labour costs and overhead costs generated by the development of original games are treated as work in progress.

Also, in both long and short-term contracts, Rage is now writing off labour and overhead costs, and recording the turnover from them to the profit and loss accounts immediately, whereas previously long-term contracts were recorded in the accounts as the contract progressed.

As a result of these changes adjustments of £8.4m were made to the previous year’s accounts, reducing shareholders’ funds from £29m to £20.6m.

‘These changes in accounting policy are both preferable and appropriate now that the group has changed the focus of activities from developer to publisher,’ the company said.

In the financial year to June 2001, Rage changed its operational strategy from just developing games software to developing and publishing it, and re-focused its product portfolio to mass market titles.

The company also restructured its management, including the appointment of Gary Johnson as finance director to replace Peter Desmier in February. Additionally, it changed its reporting procedures and integrated its acquisitions made last year.

Managing director Paul Finnegan said: ‘We have used this difficult time for the sector as a period of transition to ensure that our strategy, product offering and internal structure is in place so that Rage is ready to exploit the anticipated growth in the games market over the next few years.’

‘We are confident that we can build on our current portfolio of high profile licenses, which includes David Beckham Soccer and the Rocky movies, and bring top quality games to market across a number of consoles as we continue to seek to deliver shareholder value.’

Despite management’s confidence in the future, shareholders and analysts remain dubious. Losses were wider than expected, causing shares to fall in the midmorning trade. And although he is positive on the games sector, analyst Julian Morse of Beeson Gregory has given Rage shares a cautious ‘hold’ recommendation.

He said: ‘It is still risky from a shareholder’s point of view, and I definitely think there’s better things out there in the sector.’ Morse added that the company had still to prove it can sell product and that it was now down to how the management strikes deals with third parties.

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