2010-11 H1 Earnings Presentation...The best fitness game for Kinect Best Third party sales since...

2010-11 H1 Earnings Presentation

Ubisoft ConfidentialUbisoft Confidential

Agenda

2

First half performance

Holiday games and FY11

Online initiatives

Update on organization changes

3 strategic pillars

3Ubisoft Confidential 3


Ubisoft Confidential

H1

Q2 sales : 99M€ ─ up 19%

Solid back-catalogue : up 76%

Over 4 million Just Dance units sold-through LTD

Wii a very relevant platform

Online sales : up 100% in H1 to 16 M€ ─ Stronger DLCs and XBLA/PSN sales

─ Scott Pillgrim on XBLA/PSN ─ increased digital distribution

Market share gains : First nine months calendar 2010

+1 point in the US (5.2%) and Europe (8.4%)

H1 Sales : 260 M€, up 57%

Lower gross margins and higher R&D than expected

Profitability improves ─ cash-flows significantly up

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P&L : Profitability

* Before stock-based compensation

Gross margin up 77 M€

Sales up 39 M€ and 38 M€ improved margin (impact of product mix, back catalog and on line)

but 3 percentage points lower than expected : higher price protection and merchandising returns.

R&D up 50 M€ on heavier high definition release slate, accelerated depreciation of underperforming titles

and change of accounting rule that transferred depreciation from H2 to H1.

SG&A : variable marketing expenses at 56 M€ or 21.5% of sales (41.9 M€ and 25.2% in FY10)

G&A : fixed structure costs at 56.7 M€ or 21.7% of sales (56.6 M€ and 34.1% in FY10)

H1 2010-11 H1 2009-10

€ million €m % €m %

Sales 260,5 166,0

Cost of sales ( 114,4) 43,9 ( 96,9) 58,4

Gross profit 146,2 56,1 69,1 41,6

R&D expenses ( 98,4) 37,8 ( 48,1) 29,0

Selling expenses ( 81,9) 31,4 ( 65,4) 39,4

G & A expenses ( 30,8) 11,8 ( 33,1) 19,9

SG & A expenses ( 112,7) 43,2 ( 98,5) 59,3

Current operating income * ( 64,9) -24,9 ( 77,5) -46,7

Ubisoft Confidential5

P&L : review of R&D expenses and investments

Increase in current R&D expenses: in house games depreciation (Splinter, POP) + others (online expenses)

One time non current charge of 62 M€ related to games cancelled following production reorganization

Moderate increase of total investment : impact of weakening € on in-house development + increase of

online investments compensated by lesser external investments.

€ million H1 2010-11 H1 2009-10 % var

Depreciation of in-house games 69,2 20,9 231%

Depreciation of external games and licences 14,9 20,4 -27%

Royalties 5,9 5,7 4%

Others 8,4 1,0 ns

Total Current R&D 98,4 48,1 105%

Non Current R&D 62,1 - -

Total R&D 160,5 48,1 -

Capitalized software-related production 146,4 123.5 +19%

Investment in external production and licenses

(excluding future commitments)29,3 39,4 -26%

Royalties 5,9 5,7 +4%

Others 8,4 1,0 ns

Total development investment 189,9 169,7 +12%


P&L

* Before stock-based compensation

Non recurring charges include games cancelation + studios reorganization charges

Financial expenses :

Interest charge: (3.9) M€ (including (3.6) M€ sell-off on tax credit sales)

Gains on Gameloft shares sales : 4,7 M€

Foreign exchange : (2,3) M€ (6,6 M€ gain in FY10)

Tax rate 35% excluding stock base compensation

€ million H1 2010-11 H1 2009-10

Current operating income* ( 64,9) ( 77,5)

Fair Value Variation ( 1,4) 0,0

Stock-based compensation ( 5,4) ( 5,5)

Non recurring charges (reorganization) ( 62,1) 0,0

Operating income/(loss) ( 133,8) ( 83,0)

Net financial income/(expense) ( 1,7) 6,6

Share of profit of associates 0,1 0,1

Net income tax 45,6 24,2

Net income ( 89,8) ( 52,1)

Diluted earnings/(loss) per share (€) ( 0,93) ( 0,54)

Nbr of shares fully diluted 96 862 96 682

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P&L : net income before non recurring elements and stock-based compensation

€ million H1 2010-11 H1 2009-10

Net income ( 89,8) ( 52,1)

Gameloft ( 2,9) -

Fair Value Variation 1,4 -

Non recurring charges (reorganization) 41,4 -

Stock-based compensation 5,4 5,5

Net income before non recurring elements

and stock based compensation( 44,5) ( 46,6)

Diluted EPS before non recurring elements

and stock based compensation( 0,46) ( 0,48)


Cash flow statement

101 M€ improvement on net free cash flow :

56 M€ operating cash flow improvement

32 M€ WCR improvement (including 8 M€ from Gameloft sales)

22 M€ tax credit sales

A positive trend towards cash flow positive goal for FY11

€ million H1 2010-11 H1 2009-10

Opening cash position 41,3 154,2

Cash flows from operations ( 99,2) ( 154,9)

Change in WCR ( 30,6) ( 62,2)

Cash flows from operating activities ( 129,8) ( 217,1)

Net investment in capital assets ( 13,3) ( 5,3)

Tax credit sales 21,9 0

Net free cash flow ( 121,2) ( 222,4)

Net acquisitions/disposals 0,0 0,1

Proceeds from issue of capital and other financial flows 0,1 4,0

Effect of exchange rate fluctuations 0,7 ( 3,0)

Decrease/(increase) in net debt ( 120,5) ( 221,3)

Closing cash position ( 79,2) ( 67,2)


Change in working capital

Trade receivable : confirmation of better payment pattern + returns from merchandising business

Other receivables:

− 8 M€ proceed of Gameloft shares

Trade payable: 17,8 M€ reduction of future commitments

Other payable: reduction of tax debt

€ million H1 2010-11 H1 2009-10

Inventories 0,7 -5,0

Trade receivables -24,9 -0,3

Other receivables 4,8 43,9

Trade payables 22,6 12,8

Other payables 27,4 10,9

Change in WCR 30,6 62,2


Agenda

10



Online initiatives


3 strategic pillars


Assassin's Creed Brotherhood : continue to build a huge franchise

Pre-orders up 25%

"We may have only scratched the surface of what Brotherhood

has to offer" Game Trailers

"Brilliant new multiplayer system" Game Informer

"Riveting new multiplayer mode" Yahoo

Potential to perform as well or even better than prior opus

Budgeted prudently slightly below AC2's performance


Another demonstration of Ubisoft's touch with the casual market

Phenomenal success

First 5 week sales : +75% over prior opus

Over 10 million units sold LTD for the RR brand

The perfect Christmas present

Retailers commitments at the level of Just Dance 2

The best fitness game for Kinect

Best Third party sales since launch in the US

Higher expectations on

Dance and Kinect

Casual sales expected to

exceed 300 M€

"The truth is, Just Dance was brilliant fun, and so is Just Dance 2." Guardian.co.uk

"With Ubisoft's brilliant use of the Kinect technology,

YourShape really ought to be the definitive fitness game." Eurogamer.net

"Dancing is eternal." USA Today

"If you are looking for the perfect family game this

Christmas, then this could be it.” Playzine UK


Business update

FY11

Guidance confirmed :

Topline growth – back to profitability – positive cash flow generation

Break-even at around 960 million € :

− weakening € in H1 and, currently, strong CAD $

− a product mix more biased towards Dance games, with higher

marketing costs & royalties

− increase in online expenses

− accelerated depreciation of games released in H1

Ghost Recon & Driver postponed to FY12

Sales expected above 960 M€ : >10% growth (Q3 at 520 M€, up 5%)



Agenda

14



Online initiatives


3 strategic pillars

15

Back to the multiplayer top league : extend life expectation and players' commitments


Splinter Cell Conviction praised for its co-op Mode

Assassin's Creed Brotherhood wins E3's best multiplayer

Acquisition of Quazal, a leader in the creation of multiplayer

middleware and services

Same level of multiplayer quality targeted for all major franchises and release of more DLCs

Free DLCs

The hub for all connections to Ubisoft games, worlds and consumers

16

4 services

(released)


(released)

Online services : establish a premium relationship with our customers

"The Hellequin"

Multiplayer avatar "Gun Capacity""After Baby""Cardio race"

The more players progress in our games,

the more free rewards they get

17

Other digital achievements


Success of Scott Pilgrim

More games to be released

BGE, Splinter Cell, POP trilogy

Dust, Outland, Bloody Good Time

More than 10 games released

Around 4 million Monthly Average Users (MAU)

Worldwide release of Free to Play MMO underway

Partnership with NCSoft in South Corea

Very profitable collaboration with Gameloft


Agenda

18



Online initiatives


3 strategic pillars

Ubisoft ConfidentialUbisoft Confidential 19

Re-organization status

Staffing new equilibrium

Team reductions

in some studios and distribution business

Team increases in other studios

and online business

Many projects cancelled

6200 employees vs 6400 six months ago

Path to recovery :

The Assassin's Creed template

Brotherhood, a fantastic achievement

Collaboration lead/associate teams well in place

More specialized teams, better efficiency,

stronger productivity

Template adapted progressively to other franchises


Agenda

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Online initiatives


3 strategic pillars


3 strategic pillars

High Definition

Market estimated to grow over 15% in 2010

Additional commitment on top 7 iconic franchises

Objective : Release 3/4 very high quality franchises every year

Raise their quality to Assassin's Creed's level

Bring them back to very profitable levels

Mix of single player innovations and very strong online, social

and multiplayer experiences

CasualA unique know-how

Kinect, Move, 3DS, Wii : very positive future trends

Online

Market estimated to grow around 25-30% in 2010

Strong investments in multiplayer, social games, Free to Play

MMOs, Downloadable games

Digital sales expected to double every year for at least the next

2 years


Ubisoft Confidential 22

Appendices


High Definition and Online segments are growing

WII

Handheld

Xbox 360

PS3

Online

+ 19%+ 25%

- 29%

- 17%

$ 3 billion* $ 5 billion

$ 10 billion

Ubisoft estimated 2010 market growth by platform

* Software sales in value


Industry software sales year to date (September)

NPD, GFK, Chartrack, Nielsen, includes PC

Industry software sales year to date

Software sales (value) US Europe

Market -8% -8%

-22% -25%

+5% +14%

+29% +38%

-11% -27%

-35% -16%

PC -8% -11%

Ubisoft US market shares up to 5.2% (vs 4.2%)

Europe market shares up to 8,4% (vs 7,5%)


Creator of IPs : 18 multimillion franchises

Figures are Creation to Date 25

29 million U.

(Rayman +

Raving Rabbids)

22 million U. 23 million U.18 million U.

7 million U.7 million U.

17 million U.

8 million U.

15 million U.

2 million Units5 million U.

20 million U.

19 million U. 22 million U.

4 million U.2 million U.

4 million U.

4 million U.

2010-11 H1 Earnings Presentation...The best fitness game for Kinect Best Third party sales since...

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