Improvement in Operating Profit in the First Half of 2004-2005 Christmas Sales Off to a Good Start Record Activity Expected in the Fourth Quarter
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Paris, December 14, 2004 Improvement in operating profit in the first half of 2004-2005 Christmas sales off to a good start Record activity expected in the fourth quarter • Sales: 130 million euros, up 2%* • Operating income: o According to French accounting standards: -45.2 million euros o According to US GAAP pro-forma standards: -55.2 million euros • Net financial result: -7.5 million euros, including 2.7 million euros of provisions related to the equity swap • Net income: o According to French accounting standards: -33.0 million euros o According to US GAAP pro-forma standards: -39.5 million euros This net income is calculated before amortization of goodwill. • Objectives for 2004-2005 confirmed o Third-quarter sales for fiscal year 2004-2005: ⁄180-⁄190 million o Annual sales: growth in excess of 10%* o Earnings before interest and tax: ⁄40-⁄45 million according to French accounting standards and ⁄38-⁄43 million according to the pro-forma standard o Net income excluding exceptional items (before depreciation of goodwill and business assets): ⁄18-⁄22 million according to French accounting standards and ⁄17-⁄21 million according to the pro-forma standard o Net free cash flow (excluding acquisitions): -10 to +10 million euros ∗ at constant exchange rates —With a 5.4 million euro improvement in operating profit, the first half is in line with our expectations. For the Christmas season, the launches of two major products œ Tom Clancy‘s Ghost Recon ® 2 and Prince of Persia Warrior Within TM œ have been very encouraging: Ghost Recon ® 2 ranks third in November sales on Xbox® in the United States ** while Prince of Persia Warrior Within TM sold more than twice as many copies in its first week than the original game. The release of Tom Clancy‘s Splinter Cell Chaos Theory TM and Brothers In Arms Road to Hill 30 TM in the fourth quarter are bound to be major events. We are therefore confident of reaching our annual targets,“ stated Yves Guillemot, CEO of Ubisoft. Main elements of the income statement: In millions of euros French accounting standards Pro forma standards As of September 30 2004/2005 2003/2004 2004/2005 2003/2004 Sales 130.0 128.8 130.0 128.8 Gross margin 72.7 78.3 72.7 78.3 Operating income -45.2 -50.6 -55.2 -46.8 Financial gain/loss -7.5 -4.1 -7.5 -4.1 Exceptional income/loss 0.2 9.5 0.2 9.5 Net income (before depreciation of goodwill and business assets) -33.0 -31.6 -39.5 -29.3 Net income (after depreciation of goodwill and business assets) -36.5 -34.4 -43.0 -32.1 Improvement in operating profit in the first half of 2004-2005 In keeping with its objectives, Ubisoft has seen its sales continue to grow and its operating profit improve. The 2% growth in sales reflects the success of such major titles as Tom Clancy‘s Splinter Cell Pandora Tomorrow TM (1.2 million units during the first half and 2.8 million units since its launch), Tom Clancy‘s Rainbow Six ® 3: Black Arrow TM (top-selling game on Xbox® when launched in France ** , Germany and the United Kingdom, and in third place in the United States) and Myst ® IV: Revelation (No. 3 in sales on PC in France and No. 5 in Germany at the time of its launch ** ). The gross margin of 56% includes a 2.5 point impact related to inventory sell-out operation, for which a provision had already been set up, and which have generated 3.4 million euros in write-backs for provisions of inventory. Operating profit: • According to French accounting standards, operating profit increased by 5.4 million euros thanks to a 10.6 million euro reduction in development costs, due to a positive base effect (accelerated amortization during the first half 2003/04), and a one-time increase of 4.5 million euros in marketing expenses. • According to US GAAP pro-forma standards, operating profit was -55.2 million euros as a result of the increase in investments related to internal production (up 11.7 million euros compared to September 30, 2003). Total capitalized production costs reached 46.4 million euros, which is in line with annual forecasts. The net financial result of -7.5 million euros is mainly comprised of: • 3.7 million euros in financial charges, recording a 34% reduction (5.6 million euros in first half 2003/2004) • 2.7 million euros in charges related to the equity swap. In this transaction, the company continues to bear the risk until the final settlement and has therefore set up a provision based on a price of 16.53 euros. Before amortization of goodwill (3.5 million euros), net income was -33.0 million euros according to French accounting standards (vs. -31.6 million euros in 2003-2004) and -39.5 million euros according to US GAAP pro-forma standards (vs. -29.1 million euros in 2003-2004). Christmas sales off to a good start œ record activity expected in the fourth quarter The growth of the video game market has accelerated since October. In the United States, the market grew by 34% in October (all formats combined) and 11% in November (on consoles ** ). As a result, the group is anticipating annual growth of more than 6% on the overall market. In this favorable environment, sales of Prince of Persia Warrior Within TM and Tom Clancy‘s Ghost Recon® 2 are already very satisfactory. In its second week of sales, The Settlers ® Heritage of Kings was the second best-selling PC game in Germany ** . The following games will be launched in the fourth quarter: - Tom Clancy‘s Splinter Cell ® Chaos Theory™ - Brothers in Arms Road to Hill 30™ - Far Cry Instincts™ - Cold Fear™ - The Settlers® Heritage of Kings ,in Europe, excluding Germany) - Playboy: The Mansion™ - Silent Hunter™ III - Crime Scene Investigation Miami™ - Disney‘s Winnie the Pooh Rumbly Tumbly Adventure - Etc. The third opus of Tom Clancy‘s Splinter Cell has already won several awards for its exceptional quality, and its release is being hailed as one of the major events of 2005. For its part, Brothers in Arms Road to Hill 30™ will be the most impressive game developed on the theme of World War II. These two much-anticipated blockbusters, together with the other games released during the quarter, will enable Ubisoft to achieve its annual targets. Operating income is projected to be between ⁄40 and ⁄45 million according to French standards and between ⁄38 and ⁄43 million pro forma accounting standards. Before extraordinary items, net income (before goodwill amortization and depreciation of business assets) is projected to be between ⁄18 and ⁄22 million according to French standards and between ⁄17 and ⁄21 million in pro forma accounting standards. The Group should generate net free cash flow (excluding acquisitions) of between ⁄-10 million and ⁄+10 million over the fiscal year. Notes: Net free cash flow is defined as the net cash flow from operating transactions minus investments related to the operating cycle (excluding financial investments and investments in external growth). Business assets include all intangible elements (customer base and know-how) needed for the company to do business and grow. The intangible elements represent the average of productivity, sales and a sector-based multiple. In the event that business assets are valued at less than their book value, a provision for depreciation is applied. Equity swap: As part of the transaction concluded with Crédit Lyonnais on September 30, 2003, the latter will sell its shares (918,137 shares) at the end of an 18-month period in the understanding that Ubisoft will assume in its entirety any fluctuation in the share price from the sale price of .18.66. Changes between the date on which the contract is signed and its expiration will be recorded in temporary accounts pending a final adjustment. Unrealized gains are not recorded in the income statement. A provision for risk and charges must be included for any unrealized losses. At Ubisoft‘s request Crédit Lyonnais may sell in advance all or a portion of these shares in advance. ** Source: United States: NPD, France: GFK, United Kingdom: Chart Track, Germany: Media Control -end- © 2004 Red Storm Entertainment. All Rights Reserved. Ghost Recon, Ubisoft and the Ubisoft logo are trademarks of Ubisoft Entertainment in the US and/or other countries. Red Storm and the Red Storm logo are trademarks of Red Storm Entertainment in the US and/or other countries. Red Storm Entertainment, Inc. is a Ubisoft Entertainment company. © 2004 Ubisoft Entertainment. Based on Prince of Persia® created by Jordan Mechner. All Rights Reserved. Ubisoft and the Ubisoft logo are trademarks of Ubisoft Entertainment in the U.S. and/or other countries. Prince of Persia and Prince of Persia Warrior Within are trademarks of Jordan Mechner used under license by Ubisoft Entertainment. © 2004 Gearbox Software, L.L.C. All rights reserved. Published and distributed by UBISOFT Entertainment under license from Gearbox Software, L.L.C. Brothers In Arms Road to Hill 30 is a trademark of Gearbox Software and is used under license. © 2004 Ubisoft Entertainment. All Rights Reserved. Splinter Cell, Sam Fisher, Splinter Cell: Pandora Tomorrow, Ubisoft and the Ubisoft logo are trademarks of Ubisoft Entertainment in the US and/or other countries. © 2005 Ubisoft Entertainment. All Rights Reserved. Splinter Cell, Splinter Cell Chaos Theory, Sam Fisher, Ubisoft, and the Ubisoft logo are trademarks of Ubisoft Entertainment in the U.S. and/or other countries. © 2004 Red Storm Entertainment. All Rights Reserved. Ubisoft, the Ubisoft logo & Black Arrow are trademarks of Ubisoft Entertainment in the U.S.