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Rapport Annuel 2002 1 Chairman's Statement

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Rapport Annuel 2002 1 Chairman's Statement Ubi Soft Entertainment is Europe's number 3 video game publisher and a world leader in a sector that is, in turnover, bigger than the movie industry. Given its strong growth performance over the last five years, +40% on average, its objective is to be among the top 5 independent game publishers worldwide by 2006. The group’s ambition relies on an internal growth that surpasses the average market growth as well as on strategic acquisitions. Created in 1986, Ubi Soft deploys the talents of 1,900 people around the world. Today, the company is the world's second largest force in video game creation. Its studios have developed such original creations as Rayman® and hits based on famous licenses that include Batman™: Vengeance™ and Disney’s Tarzan™ Freeride. Ubi Soft is also the publisher of well-known game titles such as Myst®III: Exile, Battle Realms® and IL2 Sturmovik™. Sales of its products are assured worldwide through an efficient distribution network operating in 21 countries. Supported by the experience of its studios, the creation and deployment of international brands, the successful integration of new acquisitions and a sound financial footing, the group's long-term growth prospects remain promising. RAPPORT ANNUEL 2002 1 CHAIRMAN'S STATEMENT Once again, our growth performance has been in line with forecasts. Up more than 40% in 2001-2002, it marks a success for all Ubi Soft teams. At € 369 million, group sales increased Unrivalled development studios for strong brands We invested in our first design and development studios in 1994. 42% during the fiscal year. Internal growth Today we are the second largest force in video game creation worldwide. outperformed the market twofold, while Development teams are set up in 10 different countries throughout contributions from acquisitions exceeded North America, Europe and Asia. As a result of the combined contribution of forecasts. this extraordinary talent base and successful acquisitions, our core product catalogue now includes six leading brands. This sustained growth combined with effective Rayman®, with more than 12 million copies sold since its launch, cost containment has contributed to im- remains a major of the genre. It registered another successful year with the performance of its Game Boy® Advance release. proved financial ratios. Operating income is up In the area of strategic action games, the titles Tom Clancy's Rainbow Six® 292%, at € 31 million, while the net result and Tom Clancy’s Ghost Recon™ have quickly become market references. stands at € 8 million. Myst®III: Exile, the period's bestseller with over a million copies sold, and Chessmaster® benefit from their solid PC position as they expand to all gaming In addition, following successful operations to platforms. Settlers® and Prince of Persia® have already respectively sold more raise capital, we benefit from a solid financing than 3 million and 2 million copies, and the sequels currently under development capacity: € 150 million from convertible bonds are impatiently awaited by fans. To these must be added the strong licenses we acquire and develop year after year - licenses that continue to enrich our already and a € 130 million credit line under a comprehensive catalogue. Batman™: Vengeance and IL2 Sturmovik™ were syndicated loan. added last year, for example, and are among several others still to come… Finally, as highlighted in the US pro forma financial statements, our studios have Ubi Soft’s growth strategy is based on four achieved further gains in productivity. Starting this year, to facilitate comparison strategic pillars: of our performance with peer-group companies in our sector, we will provide our financial statement under US Gaap, too. 2 Targeted, rapidly integrated acquisitions Our strategy is supported by the acquisition of established brands, industry know-how and advanced technologies. We have successfully completed the integration of last year's acquisitions: Red Storm, Blue Byte, and the Entertainment division of The Learning Company. We have been able to integrate and deploy the new brands, and have laid the groundwork for sharing knowledge and effective collaboration with our studios. The addition of new talent and creativity has enriched our teams. These companies have thus contributed to the achievement of our goals, and our initial estimates have been well exceeded, representing sales of € 108 million. Accelerated international expansion Since the founding of the company, our choice has been to create a powerful distribution network. More and more of our international development is effectively assured through a strengthened distribution network. We are directly present in 21 countries and ensure the distribution of our products in more than 50. In FY 2001/2002, Ubi Soft opened new distribution subsidiaries in Belgium, Holland, Canada and Switzerland. We added Korea and Finland in 2002. Sales in North America increased twofold. In Europe, sales also registered strong growth of approximately 21%, while sales in Asia expanded 55%. This large network ensures that we are always close to our customers and understand their demands. Anticipating technological advances Thanks to our studios and research and development teams as well as to shrewd marketing choices, Ubi Soft has always been well positioned at the launch of new consoles. This year, we have released major titles for the launch of the Game Boy® Advance, GameCube™ and Xbox™. Ubi Soft is now taking the next step with its online gaming initiative : 80% of our PC games offer online multiplayer capabilities. This means we are already positioned for the next market evolution, and able to offer our customers a richer gaming experience. During the financial year, we launched ubi.com, the benchmark portal for fans of Ubi Soft games. This portal will strengthen our relationship with gamers while enabling them to participate in communities of users with like interests. I Ubi Soft's outlook remains particularly promising Our goal is to pursue the internal development of bestsellers. We ensure that our creativity translates into concrete success, we place the consumer at the heart of all our activities. We remain attentive to their needs and expectations throughout the world thanks to our developers and publishing specialists, all devoted to gaming. Our expertise is now well established and has received many awards and wide market recognition. Tom Clancy's Splinter Cell™, for example, obtained awards for Best Game(1) 2002, Best Action/Adventure Game and Best Xbox™(2) Game. More generally, the game has been widely acclaimed by the press. The outlook for the new fiscal year, which began in April 2002, is particularly promising. Our next blockbusters will be Tom Clancy's Splinter Cell™, Tom Clancy's Rainbow Six®: Raven Shield™, Rayman®3: Hoodlum Havoc, XIII, Sum of All Fears™ and Tom Clancy's Ghost Recon™. The math is simple: 6 games = 6 million units to be sold. In the meantime, our studios are already planning and developing AAA products for the years ahead. These include the next episodes of Myst® and Prince of Persia®, Project BG&E *, Settlers®V, Loose Cannon and others. We are also pursuing our entry into the online gaming sector. Before the year's end, two massively multiplayer online (MMO) titles will be released. Shadowbane, one of the most awaited games in its category, will be launched in North America. In Europe, we will publish the most famous MMO, EverQuest®, in localized versions. By 2006, we will be among the world's top 5 publishers. By achieving this objective, we will also further improve our financial ratios. I have no doubt that Ubi Soft has the strength and assets needed to succeed. Sixteen years after the company's creation, our success continues to be driven by the tremendous motivation and talent of all our teams. I would like to once again express my gratitude for all their contributions and efforts. I also wish to thank our commercial and financial partners as well as our shareholders for the confidence they have continued to show in our company. Together, we will continue to work to move and shake the world of interactive entertainment products and video games, providing gamers with rich and unique entertainment experiences. Yves Guillemot, Chairman and CEO (1) ECTS, London, August 29-31, 2002. (2) Selected as Best Action/Adventure Game by journalists at the 2002 E3 Electronic Entertainment Exhibition, and Best Xbox™ Game of 2002 by Gamespot. * Working title. 3 Ubi Soft has achieved growth in consolidated sales of 40% on average over the last five financial periods. This sustained and managed growth has assured the group a solid groundwork and improvements in profitability. A WINNING STRATEGY IN FIGURES A DYNAMIC GROWTH PERFORMANCE Operating profit * In line with forecasts, (in millions of euros) for the 2001/2002 financial 35 year Ubi Soft registered a 42% 31 A SIGNIFICANT 30 increase in sales related IMPROVEMENT IN to the prior period, with 18% 25 PROFITABILITY attributable to internal growth. 20 Operating income surged Well exceeding targets, (+292%) in response to the contribution from 15 13.5 13.7 sustained growth in sales acquisitions in 2000/2001 10 combined with effective 8.1 7.9 was particularly significant, containment of operating 5 representing €108 million. expenses and further 0 Consolidated sales productivity gains. 97/98 98/99 99/00 00/01 01/02 (in millions of euros) As a result, sales per employee rose 38%, to € 194,000, Net income * following a 26% increase (in millions of euros) in the prior period. The effective 15 400 management of operating 13.4 369 expenses is highlighted 350 12 by their more modest increase 10.9 300 in relation to sales 259.8 9 250 (+34% versus +42%). 7.9 200 186.5 6.31 6 150 132.6 4.41 100 96.4 3 50 0 0 97/98 98/99 99/00 00/01 01/02 97/98 98/99 99/00 00/01 01/02 * Before depreciation of goodwill.
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