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Ubisoft's Financial Result Reveals New Title and Delays

by Rainier on Nov. 20, 2007 @ 9:28 a.m. PST

Ubisoft released its results for the six months ended Sept. 30, 2007, reporting sales are up 52%, driven by Assassin's Creed, which has already surpassed 1 million units sold, as well as Beowulf, Naruto and Rayman 2. Ubisoft also revealed that Rainbow Six Vegas 2 will be released during the Q4 of fiscal 2007-08, which will unfortunately be joined by Haze (originally due Q3). Splinter Cell Conviction has also been pushed until fiscal 2008-09 (second half of 2008).

Yves Guillemot, CEO of Ubisoft, stated: "Ubisoft's excellent sales performance during the first half of fiscal 2007-08 has considerably boosted our earnings figures for the period. In addition, the early indications for our Christmas games launches have been positive, especially for Assassin's Creedtm, whose sell-through sales have already topped the record level of 1 million units. These very strong trends further underpin our confidence that we will achieve our objectives for the current year and add further impetus for fiscal 2008-09, which we expect to be a another year of robust growth for the Group."

Main income statement items

  • Gross margin: 64.1% of sales.
  • R&D expenses: 31.1% of sales.
  • SG&A expenses: 29.5% of sales.
  • Current operating income before stock options: €9 million.
  • Gain of €7.5 million recorded following the positive outcome of a lawsuit.
  • Net financial income: €12.6 million, including a €15.5 million gain arising from the Equity Swap.
  • €14.3 million gain recorded on the sale of Gameloft shares.
  • Diluted earnings per share: €0.64.

Sales for the first six months of 2007-8 came to €261 million, up 51.8%, or 55.1% at constant exchange rates.

Gross margin represented 64.1% of sales, up from 59.4% in the comparable prior-year period. This strong increase was mainly driven by new generation games, which have a higher sale price and accounted for 75% of overall sales during the period versus 39% one year earlier. The gross margin figure now includes the impact of logistics costs which were previously classified under SG&A expenses. These costs amounted to €5.6 million during the period compared with €5.1 million in the first half of 2006-07.

Current operating income before stock options totaled €9.1 million (3.4% of sales) compared with a €33.6 million loss recorded in first-half 2006-07. This robust improvement was primarily attributable to the following factors:

  • A €65.4 million rise in gross profit.
  • A considerable reduction in R&D expenses as a percentage of sales, particularly due to the solid level of back catalog sales. In first-half 2007-08, R&D expenses totaled €81.3 million, representing 31.1% of sales, compared with 41.5% of sales (€71.4 million) in the same period of 2006-07.
  • The significant leverage effect generated by a tightly controlled 19.9% rise in SG&A expenses, well below the rate of sales growth for the period. SG&A expenses came to €77.2 million and represented 29.5% of sales, versus 37.4% in first-half 2006-07 (€64.4 million). The main improvements were seen for fixed costs, which increased by only 8.5% to €47.2 million (from €43.5 million one year earlier), and, to a lesser extent, for variable marketing expenses which rose 43.5% to €30.0 million (versus €20.9 million in first-half 2006-07).

Ubisoft ended the period with operating income of €12.5 million, compared with an operating loss of €35.3 million in first-half 2006-07. This figure includes stock option expenses of €4.0 million and a €7.5 million gain resulting from the positive outcome of a lawsuit.

Net financial income came to €12.6 million (versus €3.3 million one year earlier), breaking down as follows:

  • €0.6 million in financial charges against €4.7 million in first-half 2006-7, reflecting the year-on-year decrease in the Group’s debt.
  • €2.3 million in foreign exchange losses versus foreign exchange gains of €1.0 million in first-half 2006-07.
  • A €15.5 million positive impact attributable to the Equity Swap[4], compared with €7.0 million in first-half 2006-07.

Following the sale of Ubisoft’s Gameloft shares to Calyon in July 2007, the Group’s share of profit of associates (principally Gameloft) decreased to almost zero from €2.9 million in first-half 2006-07. During the period Ubisoft recorded €14.8 million under "Net gain from operations of discontinued business segment" when Calyon sold 4.2 million of the total 13.4 million Gameloft shares.

The Group ended the first six months of 2007-08 with net income of €30.6 million, compared with a net loss of €20.5 million one year earlier. Diluted earnings per share amounted to €0.64. Excluding non-recurring items (i.e. the impact of the Gameloft share sale, the Equity Swap and the positive lawsuit outcome), the net income figure would amount to €0.9 million, versus a net loss of €27.6 million for first-half 2006-07.

Cash flows from operating activities came to a negative €42.7 million. This improvement on the negative €55.2 million reported in the first six months of 2006-07 reflects the impact of the robust increase in operating income, partly offset by a €16.9 million increase in working capital requirement, primarily as a result of the Equity Swap4.

At September 30, 2007, Ubisoft had a positive net cash position of €18.7 million compared with €55 million at March 31, 2007. The main movements during the period were as follows:

  • Cash flows from operating activities amounting to a negative €42.7 million.
  • €25.1 million arising from the sale of Gameloft shares.
  • Investments of €16.9 million for the purchase of Sunflowers and the Anno brand.
  • Capital increases totaling €5.7 million.
  • €0.5 million in translation adjustments.

The third quarter of fiscal 2007-08 got off to a good start with a number of new games released in November including Assassin's Creed, Rayman Raving Rabbids® 2, Naruto: Rise of a Ninja, Beowulf, and the range of casual games. Assassin’s Creed has already notched up record sell-through sales of over a million units, a positive sign that the brand will be successful and that Ubisoft has created another long-term franchise. The casual games – including the Imagine, Petz® and MyCoach brands – have also recorded a solid early performance.

Ubisoft today announced that Tom Clancy's Rainbow Six® Vegas 2 will be released during the fourth quarter of fiscal 2007-08. This release will capitalize on the success of the first episode. In addition, Tom Clancy's Splinter Cell Conviction, previously scheduled for release in the fourth quarter of fiscal 2007-08, will now form part of a stronger line-up for fiscal 2008-09. Lastly, Haze – which was due for release during the third quarter of fiscal 2007-08 – will now be launched in the fourth fiscal quarter. The targets previously announced by Ubisoft remain unchanged as they already took into account the possible impact of these delays as a preventive measure.

Ubisoft is confident of achieving its targets for third-quarter and full-year 2007-08, as announced on October 23, 2007 when it published its first-half sales figures, i.e. sales of approximately €330 million for the third quarter and around €825 million for the full fiscal year, as well as current operating income before stock options representing at least 9% of sales.

Ubisoft acquires Japanese video game development studio Digital Kids: Established in 1996, with offices in Nagoya and Osaka, Digital Kids currently has a team of 20 developers specialized in games for the Nintendo DS. The studio has worked regularly for a number of Japanese publishers and has developed several titles for Ubisoft’s Petz® line of games, including the highly successful Hamsterz Life.

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