Annual results 2005/06

Transcription

1 Annual results 2005/06 June 28, 2006 Yves Guillemot, Chief Executive Officer Alain Martinez, Chief Finance Officer

2 Agenda Introduction Arrival of next-generation platforms: Evolutions and potential Ubisoft's strategy and strengths 2005/06 financial results Outlook and conclusions

3 Highlights Ubisoft : 4th independant publisher worldwide (excluding Japan) Sales : increase of 3% in a market that has decreased by 3% Current operating income in line with revised objectives: 3.1 M before stock-based compensation Net income : 11.9 M Gearing : decreased from 24% to 17% in a period of very high investment Objectives for and : acceleration of growth and increased profitability thanks to a strategy of anticipated investments on new consoles

4 years of growth and increasing market share Création International expansion US- UK- Germany etc. 1st in-house studios in France and Romania 1 multimillion unit selling brand Rayman IPO N 20 New Studios in China & Canada Acquisitions (Redstorm, TLC, Bluebyte) N 4 TC Rainbow 6, Prince of Persia, The Settlers Top 10 TC Ghost Recon, TC Splinter Cell, Brother in Arms, Far Cry 5 new brands presented at E3 Assassin s Creed, Red Steel Leader on Xbox360 and Xbox Live

5 Agenda Introduction Arrival of next-generation platforms: Evolutions and potential Ubisoft's strategy and strengths 2005/06 financial results Outlook and conclusions

6 A major segment of the entertainment industry US entertainment sales in 2005 (US$ billion)* 16,3M$ 12,3M$ Videogames (software & consoles) : 10,1 M$ 8,9M$ 6,5M$ DVD/VHS Music Box Office DVD/VHS rental *Sources, RIAA, Nielsen, Digital Entertainment Group, NPD

7 The battle of the next-generation platforms will support growth One objective: to become the multimedia platform for the home Two goals Sony : Blue ray Microsoft : Marketplace Sony & Microsoft Nintendo : An innovative gaming position reaching new consumers Major strategic challenges that will drive the sector s growth Installed base: +30%

8 A new cycle bringing strong growth Each generation brings a 30% increase in the installed console base An ever-increasing number of gamers at the start of the cycle 12 months less to reach 40 million units sold US Console sales (units) Next Gen 128 bit 32/64 bit Ubisoft forecasts

9 Impact of cycles on publishers Top 5 Independent publishers Sales (US$ m) Operating Income (US$ m) Previous cycle: Operating income divided by 3 at the time of transition Cycle-peak sales 150% higher than in the previous cycle Cycle-peak operating income 5 times higher than in the previous cycle Source: Annual reports, Consensus estimates:

10 Agenda Introduction Arrival of next-generation platforms: Evolutions and potential Ubisoft's strategy and strengths 2005/06 financial results Outlook and conclusions

11 Ubisoft s strategy Invest in development and creation capacity, with very competitive costs 1- Create high-quality games and a unique gaming experience Build a relationship with the gamer Develop high-value-added franchises 2- Develop technological leadership and the ability to produce newgeneration games Rapidly win market share 3- Enter new segments Children Sport Hollywood (TV & Films) Role-playing games Stand out through exceptional quality

12 Ubisoft : World s second-largest creative force R&D : production staff ; teams doubled in size within three years; 470 staff recruited in 2005/ new hires expected in 2006/07 in regions where development costs are low 320 million invested in R&D in two years (+ 37% en 2005/06) Renowned for creating high-quality games Score 83%* Score 92% (Xbox360) Score 87% (Xbox) 90% (PC) Score 89% Average 3 sequels. Score 93% Average 3 sequels Xbox Score 86% Average 2 sequels. Xbox *

13 Generating strong, sustained sales 17 million 14 million 14 million 11 million 8,5 million 6 million 3 million 2,4 million One of the sector s largest portfolios of proprietary brands

14 A strategy that is already paying off Next-generation share of FY 06 sales** Video games market: -3% in the calendar year* Electronic Arts Activision Ubisoft 29,0% 17,7% 15,8% 10,0% THQ Ubisoft Take 2 Vivendi +18% EA Activision THQ World's fourth-largest independent publisher* (outside Japan) Ranked third in Europe and Australia Fifth in the USA (*) source: NPD, Chart Track, Media Control, GFK, en valeur, année calendaire 2005, Etats-Unis, UK, France, Allemagne, Italie, Espagne, Australie, CA hors Online (**) reported figures

15 Agenda Introduction Arrival of next-generation platforms: Evolutions and potential Ubisoft's strategy and strengths 2005/06 financial results Outlook and conclusions

16 Profitability million M % M % Net sales 547,1 100,0 532,5 100,0 Cost of sales 186,4 34,1 178,3 33,5 Gross Margin 360,7 65,9 354,2 66,5 Research and development expenses 170,4 31,1 157,6 29,6 Sales, marketing, G&A expenses 187,2 34,2 157,6 30,0 Current operating income* 3,1 0,6 39,0 7,3 High level of gross margin: supported by next-generation sales Major R&D efforts: to take advantage of strong expected growth in the next-generation market Increased marketing expenditure: targeting the mass market" segment of currentgeneration consoles * Before stock-based compensation

17 Ongoing investments growth million % var Depreciation of in-house games 118,0 99,6 +18% Depreciation of external games and royalties 52,4 58,0-10% Total R&D expenditure 170,4 157,6 +8% Capitalized software-related production 130,5 100,0 +31% Investment in external production and licences 54,5 35,4 +54% Total development investment 185,0 135,4 +37%

18 Operating Income million Current operating income* 3,1 39 Stock options recognized as expenses/employee share plan -2,7-5,5 Other operating revenues and expenses -1,8 0 Operating Income -1,4 33,5 * Before stock-based compensation

19 Net Income million Operating Income -1,4 33,5 Financial Results -9,1-2,0 Net tax benefit (expenses) +3,3-7,0 Income from equity affiliates 19,1 0,2 Net income 11,9 24,7 Non diluted EPS ( ) 0,63 1,39 Diluted EPS ( ) 0,70 1,24 Financial Results: Cost of debt: 10.3m (including 1.7m due to the adoption of IFRS), Losses on foreign exchange: 6.3m Gain on equity swaps: 7.5m Positive impact of Gameloft: Ubisoft's share of income: 0.7m Dilution profit: 2.6m Disposal gain: 15.8m Tax credit: Credit related to operating losses during the year: 3.2m Research tax credit: 2.5m Capital gains tax on the sale of Gameloft SA shares: 2.4m

20 Net debt reduction million Funds from operations - 31,3 37,3 +/- tax paid 3,3-7,0 Change in WCR -6,5 23,3 Net operating cash position - 34,5 53,7 Net investment -17-8,0 Net free cash flow -51,5 45,7 N et acquisitions/disposals +22,7-19,5 Purchases/sales of own shares -0,5 0,6 Capital increase 40,8 6,6 Change in translations -2,5 1,8 Decrease/(increase) in net debt +9,0 +35,8 This reduction in net debt reflects: capital increases: 41m sales of Gameloft SA shares: 23m offset by a 50m increase in production investment and a 9m increase in other investments

21 Solid and reinforced balance sheet + 20% 317,6 381,3-12% 24% 17% 74,4 65,3 Shareholders equity Net debt Gearing million 31/03/ /03/2006

22 Agenda Introduction Arrival of next-generation platforms: Evolutions and potential Ubisoft's strategy and strengths 2005/06 financial results Outlook and conclusions

23 Outlook /2007: Installation of new consoles Arrival of the Nintendo Wii and Sony PS3 Ongoing transition: market contraction of 7%* Ubisoft sales growth of 5-10% Next-generation sales: around 60% of total sales 15 next-generation games released during the year, with 5 new brands including Assassin s Creed, Red Steel and Dark Messiah, 2 Hollywood license games (Open Season and Ninja Turtles) and the return of Splinter Cell and Rayman. Current operating margin** of 3-4%, due to: Higher prices for next-generation games (positive impact of around 2 percentage points on gross margin) Expected decline in marketing expenses (positive impact of around 3 percentage points) Continuing increase of R&D expenditure (*) Calendar year figures (**) Before stock-based compensation

24 Outlook 2007/ /2008: a year of strong growth Installed base of next generation consoles: 37 million* 17% market growth** Ubisoft sales growth outpacing the market Release of around 25 products on next-generation platforms, including 5 new brands Strong improvement in current operating income***: Continuation of positive effect of high next-generation prices + Leverage on R&D and fixed costs due to higher nextgen sales (*) Estimations Ubisoft (**)Données en calendaire (***) Avant comptabilisation des éléments de rémunération payés en actions

25 Conclusion Commitment to investing in game creation over a number of years - a strategy that is paying off 4th independent publisher worldwide 30% of 2005/2006 sales generated on next-platforms; 60% expected in 2006/2007 Strong growth and very high improvement in profitability expected in 2007/2008 Ubisoft's low-cost game creation studios: crucial competitive advantage in winning the nextgeneration battle

26 Appendices

27 2007 financial year main titles Heroes of Might & Magic And 1 Tom Clancy s Splinter Cell Double Agent Open Season Tom Clancy s Rainbow Six Vegas Red Steel Rayman Raving Rabbids Dark Messiah of Might & Magic Blazing Angels Haze Assassin s Creed Brothers In Arms Hell s Highway Ninja Turtles Release date T1 T1 T2 T2 T3 T3 T3 T3 T3 T4 T4 T4 T4

28 Renewed strong growth as of video game software market USA + Europe $20,0 $18,0 $16,0 $14,0 $12,0 $10,0 $8,0 $6,0 $4,0 $2,0 $0,0 $15.6 $ % $13.9-3% -7% $17,7 +15% $1,6 $3,0 $8,3 $5,5 $10,6 $7,2 $0,2 $2,2 $1,2 $0,7 $0,3 $0,1 $1,3 $1,7 $2,1 $2,4 $3,1 $3,0 $2,8 $3, Home Console Old Generation Home Console New Generation Portable Console Old Generation Portable Console New generation PC Source: Ubisoft International Strategic Marketing Forecasts in billion$

29 Optimal Control over development costs The highest margins before SG&A(%)* Improvment of the cost structure Average costs per production employee