Editorial

Ubisoft® reports first-half 2009-10 results

• Sales1: €166 million
• Current operating loss2 of €78 million, in line with guidance
• 2009-10 targets confirmed

Ubisoft released its results for the six months ended September 30, 2009.

Key financial data

* Supply chain costs that were previously included in SG&A expenses are now classified in gross profit. Costs related to Hybride that were previously included in SG&A expenses are now classified in R&D expenses.
** After the November 14, 2008 two-for-one stock split
*** Including royalties but excluding future commitments and stock-based compensation.

Main income statement items

Sales for the first six months of 2009-10 came to €166.0 million.

Due to the sharp drop in sales and the significant sales promotions on back-catalog games, gross profit was down sharply on the first half of 2008-09, both in absolute value terms, at €69.1 million versus €199.6 million, and as a percentage of sales, representing 41.6% compared to 57.9%. Gross profit on games launched during the first six months of 2009-10 was higher than in the equivalent prior-year period whereas back catalog titles – which normally generate a gross profit – turned in a negative gross margin.

Ubisoft reported a €77.7 million current operating loss before stock-based compensation, in line with the previously announced guidance of €80.0 million, compared with current operating income of €33.0 million in the first half of 2008-09.

This current operating loss figure reflects the following combined factors:

• A €130.5 million decrease in gross profit.
• A €14.5 million reduction in R&D expenses due to a smaller number of games launches. Total R&D expenses came to €48.3 million, representing 29.1% of sales, versus €62.8 million (18.2% of sales) in the same period of 2008-09.
• A €5.4 million contraction in SG&A expenses, which stood at €98.5 million (59.3% of sales) against €103.9 million (30.2% of sales) in first-half 2008-09.
  • Variable marketing expenses decreased in absolute value terms to €41.9 million (25.2% of sales) from €51.9 million (15.1%).
  • Structure costs rose to €56.6 million (34.1% of sales) from €52.0 million (15.1%), reflecting higher IT expenses and an increase in the number of sales and administrative staff.

Ubisoft recorded an operating loss of €83.0 million for the first six months of 2009-10 compared with operating income of €24.7 million one year prior. The first-half 2009-10 figure includes stock-based compensation amounting to €5.3 million (versus €8.1 million in the corresponding prior-year prior).

Net financial income came to €6.6 million (versus €11.9 million in first-half 2008-09), breaking down as follows:

• €0.0 million in financial income compared with €1.6 million in first-half 2008-09.
• €6.6 million in foreign exchange gains against €1.7 million.

As a reminder, in first-half 2008-09, Ubisoft recorded an €8.5 million gain resulting from Calyon’s sale of its remaining Ubisoft shares.

Ubisoft ended the period with a €52.0 million net loss, representing a diluted loss per share3 of €0.54, compared with net income of €24.0 million (representing diluted earnings per share3 of €0.24) in the first six months of 2008-09.

Excluding non-recurring items (i.e. the Equity Swap) and before stock-based compensation, the net loss figure would have amounted to €46.5 million, representing a diluted loss per share3 of €0.48, versus net income of €26.3 million and earnings per share3 of €0.27 for first-half 2008-09.

Main cash flow statement and balance sheet items

Cash flows from operating activities came to a negative €212.9 million (versus a negative €68.9 million in first-half 2008-09), reflecting cash flow from operations* amounting to a negative €139.4 million (compared with a negative €52.6 million) and a €73.5 million increase in working capital requirement (against a €16.3 million increase in the first six months of 2008-09). As a reminder, in first-half 2008-09, the Group’s working capital requirement was improved by the €59.3 million positive impact of the sale of Ubisoft shares held in connection with the Equity Swap.

At September 30, 2009, net debt stood at €67.3 million (compared with a net cash position of €72.2 million one year earlier). The change from the net cash position of €154.2 million at March 31, 2009 primarily reflects:

• The above-mentioned €212.9 million net cash outflow from operating activities.
• € 9.5 million in purchases of tangible and intangible assets.
• Proceeds from the issue of capital amounting to €4.2 million following employee rights issues and the exercise of stock options.
• A negative €2.9 million effect from exchange rate fluctuations.

* Cash flows from operations includes future commitments on external development contracts and licenses which have no impact on cash flow generation and which decreased by €14.6 million. In the “Cash flow statement for comparison with other industry players”, “Costs of internal development and license development”, which amounted to €148.4 million, were reduced by this difference of €14.6 million. Before this adjustment, "Costs of internal development and license development” amounted to €163.0 million.

2009-10 targets confirmed

Ubisoft confirms its previously announced targets for 2009-10, namely:

• Third-quarter sales of around €540 million.
• Full-year sales of approximately €1,040 million and current operating income before stock-based compensation representing at least 7% of sales.

1 Sales figures for first-half 2009-10 were released on November 4, 2009.
2 Before stock-based compensation.
3 After the November 14, 2008 two-for-one stock split

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