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Ubisoft Entertainment — Earnings Release 2016
May 12, 2016
1724_iss_2016-05-12_becd57fa-c5cd-4dc9-aca7-925c5532d1cb.pdf
Earnings Release
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UBISOFT® REPORTS FULL-YEAR 2015-16 SALES AND EARNINGS FIGURES
- Sales and earnings exceed revised targets
- Sales: €1,394 million
- Non-IFRS operating income: €169 million
- A further rise in profitability: 12.1%
- Non-IFRS diluted EPS: 1.13€
- Stronger-than-expected performances from Far Cry® Primal and Tom Clancy's The DivisionTM
- Significant increase in player engagement levels, boosting the digital segment's sales weighting to a record 32%
- Back-catalog sales up sharply, representing 25% of total sales, confirming an increasingly recurring financial profile
- 2016-17 targets confirmed
Paris, May 12, 2016 – Today, Ubisoft released its sales and earnings figures for the fiscal year ended March 31, 2016.
Yves Guillemot, Co-Founder and Chief Executive Officer, stated "We ended fiscal 2015-16 on a very positive note, having effectively executed our plan: the performances delivered by The Division and Far Cry Primal exceeded our expectations, we continued our major come-back in the multiplayer segment and we saw a significant increase in player engagement levels for our games. The Division currently has 9.5 million registered users, and active players are playing the game an average of three hours1 per day. These successes resulted in our digital segment outperforming our targets for the fiscal year and positively impacted our profitability."
Guillemot went on to say "Since our initial public offering 20 years ago, we have built one of the world's leading players in the entertainment industry and have created significant value for our shareholders, with a 14-fold increase in the Company's share price. Over the past few years, we have considerably strengthened our portfolio of owned brands. For example, we have tripled the audience for Far Cry, doubled it for Rainbow Six, and launched The Division and Watch Dogs which were the first and third-largest releases ever for a new video game brand. In parallel, we have increased the sales weighting of our digital segment to 32%, primarily through organic growth.
Thanks to these repeated successes, we have demonstrated our capacity to effectively implement and execute our strategic plan. As a result, we are now entering a new phase of expansion and strong value creation for our shareholders, with 2018-19 operating margin targeted to reach 20% and free cash flow expected to come in at around €300 million."
1 As at May 8, 2016
| In € millions | 2015-16 | % | 2014-15 restated* |
% |
|---|---|---|---|---|
| Sales | 1,394.0 | 1,463.8 | ||
| Gross profit | 1,088.9 | 78.1% | 1,126.7 | 77.0% |
| R&D expenses | (500.3) | -35.9% | (573.5) | -39.2% |
| Selling expenses | (304.5) | -21.8% | (284.1) | -19.4% |
| General and administrative expenses | (115.1) | -8.3% | (98.6) | -6.7% |
| Total SG&A expenses | (419.6) | -30.1% | (382.7) | -26.1% |
| Non-IFRS operating income | 169.0 | 12.1% | 170.5 | 11.6% |
| Non-IFRS net income | 129.0 | 112.6 | ||
| Non-IFRS diluted earnings per share | 1.13 | 1.00 | ||
| Cash flows from operating activities** | (148.8) | 232.4 | ||
| R&D investment expenditure*** | 586.8 | 537.3 | ||
| Net (debt)/cash position | (41.7) | 211.3 |
Non-IFRS income statement and key financial data
*Restated to reflect the impact of IFRIC 21. ** Based on the consolidated cash flow statement for comparison with other industry players (unaudited). *** Including royalties but excluding future commitments.
Sales
Full-year sales for 2015-16 totaled €1,394.0 million, down 4.8% (or 10.7 % at constant exchange rates) compared with the €1,463.8 million recorded for 2014-15 but higher than the recently revised target of €1,360.0 million.
Sales in the fourth quarter of 2015-16 came to €624.9 million versus €169.9 million in the corresponding prior-year period, representing a jump of 267.7% (or 250.3% at constant exchange rates).
Highlights from 2015-16 include:
- Placing three games (Tom Clancy's The Division, Far Cry Primal, and Tom Clancy's Rainbow Six Siege) among the five best-sellers2 for the first three months of calendar 2016.
- The record-breaking releases2 of Tom Clancy's The Division and Far Cry Primal, which exceeded expectations and were the industry's most successful new videogame launch ever and the best performance ever for a game released in the month of February, respectively.
- Success of Ubisoft's multiplayer strategy aimed at increasing player engagement:
- Tom Clancy's The Division attained very high player engagement levels, with currently a total of 9.5 million registered users, and active players playing the game an average of three hours per day.
- Tom Clancy's Rainbow Six Siege doubled its audience. Daily active users (DAU) is at 60% of peak DAU four months after launch – a remarkable performance compared with industry standards3 and a clear illustration of the exceptional retention power of the game's multiplayer mode.
2 Sources: NPD, GFK, and internal estimates
3 Source: DFC Intelligence
- The digital segment amounted to €446.7 million, up 16.7%, and accounted for 32.0% of total sales (26.1% in 2014-15) compared with a target of around 30%.
- A 45.6% rise in back-catalog sales to €354.6 million, led by sustained sales from franchises as well as digital revenues. The back-catalog represented 25.4% of total sales in 2015-16, confirming an increasingly recurring financial profile.
Main income statement items
Gross profit increased to 78.1% as a percentage of sales (versus 77.0% in 2014-15) but contracted to €1,088.9 million from €1,126.7 million in absolute value terms.
Non-IFRS operating income came in at €169.0 million (€170.5 million in 2014-15), exceeding the Group's revised target of €150 million.
The year-on-year change in non-IFRS operating income reflects the following:
- A €37.8 million decrease in gross profit.
- A €73.2 million reduction in R&D expenses to €500.3 million (35.9% of sales) from €573.5 million (39.2% of sales) in 2014-15, primarily due to the fact that (i) five AAA titles were released in 2014-15 (including Assassin's Creed® Rogue) compared with four in 2015-16, and (ii) two major titles – Tom Clancy's The Division and Far Cry Primal – were released towards the end of the fiscal year.
- A €36.9 million increase in SG&A expenses to €419.6 million (30.1% of sales) from €382.7 million (26.1% of sales) in 2014-15:
- − Variable marketing expenses amounted to €217.3 million (15.6% of sales) compared with €206.1 million (14.1% of sales) in 2014-15. The lower figures for 2014-15 reflect the fact that a portion of the marketing expenses for Watch Dogs was incurred in 2013-14.
- − Structure costs totaled €202.2 million (14.5% of sales) versus €176.6 million (12.1% of sales) in 2014-15, with one third of the year-on-year increase due to currency effects.
Ubisoft recorded non-IFRS net income of €129.0 million for 2015-16, representing non-IFRS diluted earnings per share of €1.13, compared with non-IFRS net income of €112.6 million and non-IFRS diluted earnings per share of €1.00 for the previous year.
IFRS net income amounted to €93.4 million, representing IFRS diluted earnings per share of €0.82, versus IFRS net income of €86.8 million and IFRS diluted earnings per share of €0.77 in 2014-15.
The average tax rate was 24% after taking into consideration the upcoming amendments to the income tax rate in France on temporary differences.
Main cash flow statement4 and balance sheet items
Cash flows from operating activities represented a net outflow of €148.8 million compared with a net inflow of €232.4 million in 2014-15. This reflects a €104.5 million cash flow from operations (versus €173.5 million in 2014-15) and a €253.3 million increase in working capital requirement (against a €58.9 million decrease in 2014-15) due to the release of two
4 Based on the consolidated cash flow statement for comparison with other industry players (unaudited)
major titles – Tom Clancy's The Division and Far Cry Primal – towards the end of the fiscal year. Free cash flow before working capital requirement was positive, coming in at €61.8 million.
At March 31, 2016 Ubisoft had net debt of €41.7 million compared with net cash of €211.3 million one year earlier, as the Company bought back 3,488,214 shares during the year for €79.3 million.
Outlook
Sales for the first quarter of 2016-17
The Group expects first-quarter 2016-17 sales to amount to approximately €125.0 million, up 29% on first-quarter 2015-16.
Full-year 2016-17
Ubisoft is standing by its targets for full-year 2016-17, namely sales of around €1,700 million, non-IFRS operating income of approximately €230 million and solid free cash flow generation.
Sales growth for the fiscal year will be driven by:
- A rise in revenues from new games releases, with a larger number of AAA title releases (five compared with four),
- Further strong growth for the back-catalog which is expected to account for around 30% of total sales, fueled by the success of Tom Clancy's The Division, Far Cry Primal and Tom Clancy's Rainbow Six Siege,
- Another sharp increase in recurring digital revenues, with the digital segment representing over 35% of total sales.
Recent significant events
Release of Hungry Shark® World: More than 10 million[1] downloads in less than 6 days, making it the world's second biggest release of the year.
Presentation of the three-year plan: On February 18, 2016, Ubisoft presented its financial targets for 2018-19, which correspond to sales of approximately €2,200 million, non-IFRS operating margin of 20%, and free cash flow of around €300 million.
Appointment of Didier Crespel as Lead Independent Director: Following a proposal from the Appointments Committee, Ubisoft's Board of Directors decided to create the role of Lead Independent Director, and appointed Didier Crespel to fill this new position. In this role, Mr. Crespel will act as the main point of contact for shareholders on all matters under the Board's responsibility and will keep the Board informed of any such contacts.
Unveiling of Eagle FlightTM: This virtual reality game – which gives players the chance to soar over Paris – will be available on the main virtual reality platforms, including PlayStation VR, Oculus Rift and HTC Vive for PC in 2016.
Ubisoft Motion Pictures: Appointment of Gérard Guillemot as CEO. Gerard has more than 30 years' experience in the entertainment industry. His detailed knowledge of Ubisoft, experience managing creative teams and expertise in marketing and publishing makes him an ideal choice. He also has been a long-time proponent of pushing Ubisoft's brands into new entertainment mediums, and as the spearhead of that strategy, Ubisoft Motion Pictures is a natural fit.
Contact Investor relations Jean-Benoît Roquette SVP Investor Relations + 33 1 48 18 52 39 [email protected]
Non-IFRS financial information
Ubisoft considers that "Non-IFRS operating income/(loss)" and "Non-IFRS net income/(loss)" – which are measures that are not prepared strictly in accordance with IFRS – are relevant indicators of the Group's operating and financial performance. Management uses them to run the Group's business as they are the best reflection of its recurring performance and exclude the majority of non-operating and non-recurring items. A reconciliation between the IFRS and non-IFRS measures is provided in the appendices to this press release.
Disclaimer
This statement 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 July 2, 2015 with the French Financial Markets Authority (l'Autorité des Marchés Financiers)).
About Ubisoft
Ubisoft is a leading creator, publisher and distributor of interactive entertainment and services, with a rich portfolio of world-renowned brands, including Assassin's Creed, Just Dance, Watch_Dogs, Tom Clancy's video game series, Rayman and Far Cry. The teams throughout Ubisoft's worldwide network of studios and business offices are committed to delivering original and memorable gaming experiences across all popular platforms, including consoles, mobile phones, tablets and PCs. For the 2015-16 fiscal year Ubisoft generated sales of €1,394 million. To learn more, please visit www.ubisoftgroup.com.
© 2016 Ubisoft Entertainment. All rights Reserved. Watch Dogs, Assassin's Creed, Far Cry, The Eagle Flight Logo, the character of Rayman, Tom Clancy's, Rainbow Six, The Division logo, Ubisoft and the Ubisoft logo are trademarks of Ubisoft Entertainment in the US and/or other countries. Far Cry Primal is based on Crytek's original Far Cry directed by Cevat Yerli. RISK is a trademark of Hasbro and is used with permission.© 2016 Hasbro. All Rights Reserved. Licensed by Hasbro to Ubisoft Entertainment. Games software © 2016 Ubisoft Entertainment. All Rights Reserved. Hungry Shark is a trademark of Future Games of London. Future Games of London is a Ubisoft Entertainment company.
APPENDICES
Breakdown of sales by geographic region
| % Sales | % Sales | % Sales | % Sales | |
|---|---|---|---|---|
| Q4 2015/16 | Q4 2014/15 | 12 months 2015/16 |
12 months 2014/15 |
|
| Europe | 43% | 45% | 40% | 43% |
| North America | 47% | 41% | 48% | 46% |
| Rest of world | 10% | 14% | 12% | 11% |
| TOTAL | 100% | 100% | 100% | 100% |
Breakdown of sales by platform
| Q4 2015/16 | Q4 2014/15 | 12 months 2015/16 |
12 months 2014/15 |
|
|---|---|---|---|---|
| PLAYSTATION®4 | 48% | 23% | 42% | 32% |
| XBOX One™ | 31% | 19% | 26% | 20% |
| XBOX 360™ | 1% | 10% | 4% | 13% |
| PLAYSTATION®3 | 1% | 8% | 3% | 13% |
| PC | 14% | 23% | 14% | 12% |
| Wii™ | 0% | 4% | 3% | 4% |
| Wii U™ | 0% | 1% | 2% | 1% |
| Others* | 5% | 12% | 6% | 5% |
| TOTAL | 100% | 100% | 100% | 100% |
* Mobile, ancillaries…
Title release schedule 1st quarter (April – June 2016)
DIGITAL
| ASSASSIN'S CREED® CHRONICLES | PS VITA |
|---|---|
| ASSASSIN'S CREED® IDENTITY | Google Play |
| HUNGRY SHARK® WORLD | App Store, Google Play, Amazon |
| TOM CLANCY'S THE DIVISION™ INCURSIONS (Free) | PC, PLAYSTATION®4, Xbox One™ |
| TOM CLANCY'S THE DIVISION™ CONFLICT(Free) | PC, PLAYSTATION®4, Xbox One™ |
| TOM CLANCY'S THE DIVISION™ UNDERGROUND | PC, PLAYSTATION®4, Xbox One™ |
The Statutory Auditors have completed their audit of the consolidated financial statements. They will issue their audit report after verifying the Group's annual financial report.
Consolidated income statement (IFRS, audited)
| In thousands of euros | 31.03.16 | 31.03.15* |
|---|---|---|
| Sales | 1 393 997 | 1 463 753 |
| Cost of sales | -305 065 | -337 073 |
| Gross Margin | 1 088 932 | 1 126 680 |
| Research and Development costs | -509 779 | -580 554 |
| Marketing costs | -305 735 | -284 965 |
| General and Administrative costs | -117 296 | -100 311 |
| Current operating income | 156 122 | 160 850 |
| Non-current expenses and income | -19 334 | -21 717 |
| Operating income | 136 788 | 139 133 |
| Net borrowing costs | -7 440 | -4 766 |
| Net foreign exchange gains/losses | -5 168 | 1 159 |
| Other financial income | 2 548 | 6 085 |
| Other financial expenses | -3 666 | -1 764 |
| Net financial income | -13 726 | 712 |
| Income tax | -29 654 | -52 996 |
| Profit for the period | 93 408 | 86 849 |
| Earnings per share | ||
| Basic earnings per share (in €) | 0,86 | 0,81 |
| Diluted earnings per share (in €) | 0,82 | 0,77 |
| Weighted average number of shares in issue | 108 131 113 | 107 523 851 |
| Diluted weighted average number of shares in issue | 114 198 228 | 113 297 751 |
Reconciliation of IFRS Net income and non-IFRS Net income
| 2015-16 | 2014-15* | |||||
|---|---|---|---|---|---|---|
| In million of euros, except for per share data |
IFRS | Adjustment | Non-IFRS | IFRS | Adjustment | Non-IFRS |
| Sales | 1 394,0 | 1 394,0 | 1 463,8 | 1 463,8 | ||
| Total Operating expenses | (1 257,2) | 32,3 | (1 225,0) | (1 324,6) | 31,3 | (1 293,3) |
| Stock-based compensation | (12,9) | 12,9 | 0,0 | (9,6) | 9,6 | 0,0 |
| Non-current expenses and income | (19,3) | 19,3 | (0,0) | (21,7) | 21,7 | 0,0 |
| Operating Income | 136,8 | 32,3 | 169,0 | 139,1 | 31,3 | 170,5 |
| Net Financial income | (13,7) | 3,3 | (10,4) | 0,7 | (5,2) | (4,4) |
| Income tax | (29,7) | 0,0 | (29,7) | (53,0) | (0,4) | (53,4) |
| Net Income | 93,4 | 35,6 | 129,0 | 86,8 | 25,7 | 112,6 |
| Diluted earnings per share | 0,82 | 0,31 | 1,13 | 0,77 | 0,23 | 1,00 |
Consolidated balance sheet (IFRS, audited)
| ASSETS | Net | Net* |
|---|---|---|
| In thousands of euros | 31.03.16 | 31.03.15 |
| Goodwill | 106 194 | 129 906 |
| Other intangible assets | 647 602 | 572 225 |
| Property, plant and equipment | 83 946 | 80 984 |
| Other financial assets | 4 339 | 4 162 |
| Deferred tax assets | 122 193 | 135 051 |
| Non current assets | 964 274 | 922 328 |
| Inventory | 19 374 | 18 425 |
| Trade receivables | 419 577 | 23 904 |
| Other receivables | 100 985 | 113 855 |
| Other current financial assets | 13 780 | 4 919 |
| Current tax assets | 41 464 | 12 380 |
| Cash and cash equivalents | 461 375 | 656 661 |
| Current assets | 1 056 555 | 830 144 |
| Total assets | 2 020 829 | 1 752 472 |
* Restated to reflect the impact of IFRIC 21
| LIABILITIES AND EQUITY | Net | Net* |
|---|---|---|
| In thousands of euros | 31.03.16 | 31.03.15 |
| Capital | 8 710 | 8 478 |
| Premiums | 215 125 | 180 515 |
| Consolidated reserves | 701 267 | 703 378 |
| Consolidated earnings | 93 408 | 86 849 |
| Total equity | 1 018 510 | 979 220 |
| Provisions | 8 888 | 7 497 |
| Employee benefit | 6 618 | 5 430 |
| Long-term borrowings | 277 383 | 275 739 |
| Deferred tax liabilities | 47 648 | 48 944 |
| Non-current liabilities | 340 537 | 337 610 |
| Short-term borrowings | 228 218 | 183 226 |
| Trade payables | 206 246 | 94 919 |
| Other liabilities | 213 807 | 149 874 |
| Current tax liabilities | 13 511 | 7 623 |
| Current liabilities | 661 782 | 435 642 |
| Total liabilities | 1 002 319 | 773 252 |
| Total liabilities and equity | 2 020 829 | 1 752 472 |
Consolidated cash flow statement for comparison with other industry players (non audited)
| In thousands of euros | 31.03.16 | 31.03.15* |
|---|---|---|
| Cash flows from operating activities | ||
| Consolidated earnings | 93 408 | 86 849 |
| +/- Depreciation on internal & external games & movies | 402 959 | 457 889 |
| +/- Other depreciation | 59 841 | 53 075 |
| +/- Provisions | 449 | 3 201 |
| +/- Cost of share-based payments | 12 918 | 9 609 |
| +/- Gains / losses on disposals | 104 | 64 |
| +/- Other income and expenses calculated | 24 335 | -15 534 |
| +/- Cost of internal development and license development | -489 464 | -421 683 |
| CASH FLOW FROM OPERATION | 104 550 | 173 469 |
| Inventory | -11 | 3 007 |
| Trade receivables | -402 877 | 53 783 |
| Other assets | -29 918 | -29 837 |
| Trade payables | 116 466 | -5 292 |
| Other liabilities | 63 033 | 37 262 |
| +/- Change in working capital from operating activities | -253 307 | 58 923 |
| TOTAL CASH FLOW GENERATED BY OPERATING ACTIVITIES | -148 757 | 232 392 |
| - Payments for the acquisition of intangible assets and property, plant and equipment | -42 499 | -56 244 |
| + Proceeds from the disposal of intangible assets and property, plant and equipment | 67 | 122 |
| +/- Other cash flows from investing activities | -34 391 | -23 709 |
| + Repayment of loans and other financial assets | 34 115 | 23 373 |
| +/- Changes in scope (1) | 358 | -3 188 |
| CASH USED BY INVESTING ACTIVITIES | -42 350 | -59 646 |
| Cash flows from financing activities | ||
| + New long term loans | 234 554 | 622 283 |
| + New finance leases | 0 | 10 142 |
| - Repayment of finance leases | -891 | -291 |
| - Repayment of borrowings | -230 216 | -466 578 |
| + Proceeds from shareholders in capital increases | 21 924 | 18 054 |
| +/- Sales / purchases of own shares | -77 272 | 639 |
| +/- Partner current account | 258 | -260 |
| CASH GENERATED (USED) BY FINANCING ACTIVITIES | -51 643 | 183 989 |
| Net change in cash and cash equivalents | -242 750 | 356 735 |
| Cash and cash equivalents at the beginning of the fiscal year | 505 215 | 115 610 |
| Impact of translation adjustments | -6 777 | 32 870 |
| Cash and cash equivalents at the end of the fiscal year | 255 688 | 505 215 |
| (1) Including cash in companies acquired and disposed of | 371 | - |
| RECONCILIATION OF NET CASH POSITION |
| Cash and cash equivalents at the end of the period | 255 688 | 505 215 |
|---|---|---|
| Bank borrowings and from the restatement of finance leases | -282 372 | -278 896 |
| Commercial papers | -15 000 | -15 000 |
| NET CASH POSITION | -41 684 | 211 319 |
Consolidated cash flow statement IFRS (audited)
| In thousand of euros | 31.03.16 | 31.03.15* |
|---|---|---|
| Cash flows from operating activities adjusted | ||
| Consolidated earnings | 93 408 | 86 849 |
| +/- Depreciation | 462 800 | 510 963 |
| +/- Provisions | 449 | 3 201 |
| +/- Cost of share-based payments | 12 918 | 9 609 |
| +/- Gains / losses on disposals | 104 | 64 |
| +/- Other income and expenses calculated | 24 335 | -15 534 |
| +/- Tax Expense | 29 654 | 52 996 |
| TOTAL CASH FLOW FROM OPERATIONS | 623 668 | 648 148 |
| Inventory | -11 | 3 007 |
| Trade receivables | -402 877 | 53 783 |
| Other assets | -30 588 | -23 503 |
| Trade payables | 116 466 | -5 292 |
| Other liabilities | 61 635 | 34 294 |
| +/-Change in working capital from operating activities adjusted | -255 375 | 62 289 |
| +/- Payable tax expense | -27 586 | -56 362 |
| TOTAL CASH FLOW GENERATED BY OPERATING ACTIVITIES | 340 707 | 654 075 |
| - Payments for the acquisition of internal & external games | -489 464 | -421 683 |
| - Payments for the acquisition of intangible assets and property, plant and equipment | -42 499 | -56 244 |
| + Proceeds from the disposal of intangible assets and property, plant and equipment | 67 | 122 |
| +/- Other cash flows from investing activities | -34 391 | -23 709 |
| + Repayment of loans and other financial assets | 34 115 | 23 373 |
| +/- Changes in scope (1) | 358 | -3 188 |
| CASH USED BY INVESTING ACTIVITIES ADJUSTED | -531 814 | -481 330 |
| Cash flows from financing activities | ||
| + New long term loans | 234 554 | 622 283 |
| + New finance leases | 0 | 10 142 |
| - Repayment of finance leases | -891 | -291 |
| - Repayment of borrowings | -230 216 | -466 578 |
| + Proceeds from shareholders in capital increases | 21 924 | 18 054 |
| +/- Sales / purchases of own shares | -77 272 | 639 |
| +/- Partner current account | 258 | -260 |
| CASH GENERATED (USED) BY FINANCING ACTIVITIES | -51 643 | 183 989 |
| Net change in cash and cash equivalents | -242 750 | 356 735 |
| Cash and cash equivalents at the beginning of the fiscal year | 505 215 | 115 610 |
| Impact of translation adjustments | -6 777 | 32 870 |
| Cash and cash equivalents at the end of the fiscal year | 255 688 | 505 215 |
| (1) Including cash in companies acquired and disposed of | 371 | - |