2007-08 Earnings Conference Call May 22, 2008 Yves Guillemot, President and Chief Executive Officer Alain Martinez, Chief Financial Officer
Disclaimer
This presentation may contain estimated financial data, information on future projects and transactions and future business results/performance. Such forward-looking data are provided for estimation purposes only. They are subject to market risks and uncertainties and may vary significantly compared with the actual results that will be published. The estimated financial data have been presented to the Board of Directors and have not been audited by the Statutory Auditors. (Additional information is specified in the most recent Ubisoft Registration Document filed on June 27, 2007 with the French Financial Markets Authority (l'Autorité des Marchés Financiers).
Ubisoft Confidential 2 Agenda
Introduction 2007-08 financial highlights 2008-09
Ubisoft Confidential 3 Introduction
Record Fiscal 2008 - Sales up +43% at constant exchange rates. - Operating margin up to 14.3%, from 5.6% last year - Cash flow from operating activities up to 117 M€ from 53 M€ last year. - Closing cash position up to 150 M€ from 55 M€ last year.
Continued strengthening of existing franchises : - Rainbow Six, Ghost Recon, Rayman, the Settlers.
Sharp ramp-up of the "Games For Everyone" casual business : - Total sales figures tripled over the year. - Petz > 8 million units. Imagine close to 4 million units : creation of a new long term franchise.
Creation of new brands, Assassin’s Creed : - The fastest selling new IPs ever in the US and in the UK : > 6 million units worldwide.
New steps implemented for growth : - 3 new studios created (Singapore – Chengdu, China – Kiev, Ukraine). - 1 acquired (Pune, India).
Ubisoft Confidential 4 Agenda
Introduction 2007-08 financial highlights 2008-09
Ubisoft Confidential 5 P&L (1) : Sharp profitability improvement
2007-08 2006-07
€ million €m % €m %
Sales 928.3 680.3
Cost of sales (311.7) 33.6 (241.1) 35.4
Gross profit 616.6 66.4 439.2 64.6
Research and development expenses (264.6) 28.5 (233.0) 34.2
Sales, marketing, G&A expenses (218.9) 23.6 (167.9) 24.7
Current operating income * 133.1 14.3 38.3 5.6
Gross margin : + 1.8 percentage points, due to early positioning on next gen platforms : higher ASPs and lower price protections. Includes 15.2 M€ of logistic costs (13.2 M€ in 2006-07), previously included in SG&A line.
R&D expenses : down 5.7 percentage points, thanks to strong sales performance.
Fixed structure costs : 105 M€, up 11.9%, strong leverage on top line growth of 36.4%.
Variable Marketing expenses : 113.9 M€, up 53.7% with strong support of Assassin's Creed and Casual titles.
* Before stock-based compensation Ubisoft Confidential 6 P&L (2) : review of R&D expense
€ million 2007-08 2006-07 % var
Depreciation of in-house games 168.4 162.2 +3.8%
Depreciation of external games and licences 70.9 52.3 +35.6%
Royalties 25.3 18.5 +36.8%
Total R&D depreciation and royalties 264.6 233.0 +13.6%
Capitalized software-related production 186.7 161.2 +15.8%
Investment in external production and licenses 71.6 64.8 +10.5% (excluding future commitments)
Royalties 25.3 18.5 +36.8%
Total development investment 283.6 244.5 +16.0%
Moderate growth of investment : +14.3%.
Gap between investment and depreciation : 19 M€.
Investment in external production and licences : now includes 43 M€ of future commitments in 2007-08 versus 11 M€ in 2006-07.
Ubisoft Confidential 7 P&L (3)
€ million 2007-08 2006-07
Current operating income* 133.1 38.3 Stock options recognized as expenses / Employee share plan (8.5) (3.3) Other revenues 6.9 (0.4) Operating income/(loss) 131.5 34.6 Net financial income/(expense) 12.4 18.0 Net income tax (49.0) (15.2) Share of profit of associates (Gameloft) - 3.1 Gain from operations of discontinued business segment (Gameloft) 14.8 - Net income 109.8 40.5
Diluted earnings/(loss) per share (€) 2.3 0.92
Financial income : − Cost of debt: (2.9) M€ against (7.0) M€ in FY07. − Foreign exchange losses: (14.0) M€ against (1.7) M€ in FY07. − Gain on equity swap: 28 M€ against gain of 27.1 M€ in FY07.
Net income tax of 34%. Impacted by increase of stock option expenses. Would have been 33% without a tax audit charge of 2.1 M€ previously booked as a provision.
* Before stock-based compensation Ubisoft Confidential 8 P&L (4) : net income before non recurring elements
€ million 2007-08 2006-07
Net income 109.8 40.5
Gameloft (14.8) (3.1)
Equity Swap / Calyon (18.4) (18.1)
Law suit & others (4.6) -
Stock Options 8.5 3.3
Net income before non recurring elements 80.6 22.7
Diluted EPS before non recurring elements 1.7 0.5
Ubisoft Confidential 9 Strong decrease of working capital
€ million 2007-08 2006-07
∆ Inventories +17.6 +1.9 ∆ Trade receivables +7.1 +0.8 ∆ Other receivables +27.9 +34.8 ∆ Trade payables -60.7 -22.8 ∆ Other payables -49.9 -33.4 Change in WCR -58.1 -18.7
Preliminary comment : Figures calculated on gross value and net of exchange variation; include 25 M€ restatement of Gameloft shares.
Inventories up: mainly due to more Nintendo products (longer production times).
Other receivables up: 19.8 M€ impact from Equity Swap, compensated by decrease of deffered taxes of 15.9 M€. 8M€ impact from VAT increase.
Trade payables up: impact of 43 M€ for new accounting of future commitments (compared with 11.3 M€ in FY07).
Other payables up : 15.5 M€ for Tom Clancy deal and +28 M€ for taxes.
Ubisoft Confidential 10 Cash flow statement
€ million 2007-08 2006-07
Opening cash position 55.0 (65.3) Cash flows from operations 58.7 34.5 Change in WCR +58.1 +18.7 Cash flows from operating activities 116.8 53.2 Net investment in capital assets (14.9) (18.0) Net free cash flow 101.9 35.2 Net acquisitions/disposals (26.2) (25.0) Proceeds from issue of capital 15.4 107.2 Effect of exchange rate fluctuations 3.4 2.9 Decrease/(increase) in net debt 94.5 +120.3 Closing cash position 149.5 55.0
Sharp improvement of cash flows from operations : strong improvement in operating income.
+ Impact of 26.0 M€ : disposal of Gameloft shares by Calyon (+25 M€) compensated by investment in Sunflowers/Anno/Digital Kids for -18 M€ and Tom Clancy's brand -32 M€.
Tom Clancy acquisition valued at 46 M€ : 16.4 M€ paid in 2007-08, 14.6 M€ in previous years and 15.5 M€ to be paid between 2008-09 and 2009-10.
Ubisoft Confidential 11 Agenda
Introduction 2007-08 financial highlights 2008-09
Ubisoft Confidential 12 2008-09: a strong line up
Line up 2008-09
7 franchises expected (Far Cry 2, Brothers in arms, Splinter Cell, Anno, Prince of Persia, 2
unannounced titles).
5 new brands to be launched (Haze, H.A.W.X., End War, Shaun White, 1 unannounced title).
Another strong push into the casual Game for Everyone segment : more Petz, Imagine and
Mycoach titles and new "umbrella" brands to be unveiled.
Ubisoft Confidential 13 2008-09: first steps
Q1 is tracking in line with our expectations.
The remaining equity swap concerning Ubisoft shares have been sold by Calyon. This will
generate a cash inflow of 59.3 M€ and a financial gain of 8.8 M€ in H1 2008-09.
Signature of a new syndicated loan agreement for €180 million with a five-year term which will
provide additional flexibility.
Ubisoft Confidential 14 Conclusion
Strong performance in FY08 and calendar 2007.
New steps implemented for growth.
2008, another record year for the industry : - Market expected to grow minimum 15%.
Strong line up reinforces further our position to achieve another record year in 2008-09. - FY 09 objectives : sales of around 1 billion €, at least 12% operating margin and net cash position of at least 270 M€ .
Ubisoft Confidential 15