UBISOFT ENTERTAINMENT : Ubisoft reports first-half 2018-19 sales and earnings figures

UBISOFT^® REPORTS FIRST-HALF 2018-19
SALES AND EARNINGS FIGURES

Robust growth and continued solid execution
                                 

H1 2018-19: higher-than-expected performance, with a sharp increase in financial results

• First-half sales of €767.0 million and net bookings up 60.0% to €746.1 million
   
  • Second-quarter sales: €367.1 million vs a target of between €345.0 million and €355.0 million
     
  • Second-quarter net bookings: €364.6 million (up 38.0%) vs a target of approximately €345.0 million

• Digital net bookings up 51.5% to €519.2 million (69.6% of total net bookings vs 73.5% in first-half 2017-18)

• PRI^[1] net bookings up 49.5% to €262.0 million (35.1% of total net bookings vs 37.6% in first-half 2017-18)

• Back-catalog net bookings up 48.8% to €564.9 million (75.7% of total net bookings vs 81.4% in first-half 2017-18)

• IFRS operating income of €94.3 million. Non-IFRS operating income of €110.2 million, significantly higher than the €3.1 million recorded for first-half 2017-18

• Sharp improvement in non-IFRS cash flow from operations, coming in at €88.4 million, versus a negative €83.6 million in first-half 2017-18

TARGETS FOR FULL-YEAR 2018-19 CONFIRMED

TRANSACTION IN UBISOFT SHARES

• Buyback of 3,045,455 shares on October 31, 2018 (CACIB swap contract)

Paris, October 30, 2018 - Today, Ubisoft released its sales and earnings figures for the six months ended September 30, 2018.

Yves Guillemot, Co-Founder and Chief Executive Officer, said "Thanks to the depth and strength of our back catalog and Live operations, our second quarter 2018-19 performance was above target. This momentum drove up our net bookings and financial results for the first half of the fiscal year.

The release of Assassin's Creed Odyssey was successful. Community reception has been extremely favorable and player engagement rose once again, confirming the franchise's entry among the very best RPGs.

Led by an increasingly direct relationship with our player communities as well as very high-quality titles, our first-half 2018-19 performance confirms the potential of Ubisoft's many short- and medium-term growth drivers. The steady rise in player engagement is feeding our digital development and the quality of our games is enabling us to achieve top-rate performance. Our mobile segment is growing significantly and our PC segment is experiencing strong momentum, especially across the whole of Asia. Lastly, we are ramping up our presence in e-sports, artificial intelligence and streaming, all of which offer long term opportunities for the video game industry. In light of all of these factors we are confident in our ability to deliver robust growth and to sustainably increase our profitability over the long term."

Note
The Group presents indicators which are not prepared strictly in accordance with IFRS as it considers that they are the best reflection of its operating and financial performance. The definitions of the non-IFRS indicators with a description of the applicable adjustments, as well as a reconciliation table between the IFRS consolidated income statement and the non-IFRS consolidated income statement are provided in an appendix to this press release.

The Group applied the new revenue standard, IFRS 15, for the first time in its financial statements for the six months ended September 30, 2018. The main consequence of applying this standard is that a portion of revenue generated from games is now recognized after the initial delivery date of the game concerned. As the Group has elected to use the cumulative catch-up method for applying IFRS 15, the revenue figure for H1 2017-18 has not been restated.

Income statement and key financial data

Sales and net bookings

Sales for the second quarter of fiscal 2018-19 amounted to €367.1 million (€365.9 million at constant exchange rates^[2]). First half sales amounted to €767.0 million (€781.4 million at constant exchange rates).

Net bookings for the second quarter came to €364.6 million, representing an increase of 38.0% (+37.7% at constant exchange rates) compared with second quarter 2017-18. First-half 2018-19 net bookings came to €746.1 million, representing an increase of 60.0% (+63.0% at constant exchange rates) compared with first-half 2017-18.

Main income statement items

Gross margin based on net bookings rose to 85.1% of net bookings and €635.0 million in absolute value terms (compared with 83.7% and €390.1 million in first-half 2017-18).

Non-IFRS operating income came in at €110.2 million versus €3.1 million in first-half 2017-18. This year-on-year jump reflects the following:

• A €244.9 million increase in gross margin based on net bookings.

• An €85.5 million rise in R&D expenses to €272.0 million (36.5% of net bookings) from €186.5 million (40.0%) in first-half 2017-18.

• A €52.3 million increase in total SG&A expenses to €252.8 million (33.9% of net bookings) from €200.5 million (43.0%) in the first six months of 2017-18:

• Variable marketing expenses amounted to €127.6 million (17.1% of net bookings) compared with €87.9 million (18.9%) in first-half 2017-18.
   
• Structure costs totaled €125.2 million (16.8% of net bookings) versus €112.6 million (24.1%) in first-half 2017-18.

             
Non-IFRS net income came in at €159.0 million, representing non-IFRS diluted earnings per share ("EPS") of €1.32, compared with non-IFRS net income of €19.4 million and non-IFRS diluted EPS of €0.16 for first-half 2017-18.
             
IFRS net income for the first six months of 2018-19 amounted to €140.7 million, representing IFRS diluted EPS of €1.19 versus an IFRS net loss of €20.8 million and an IFRS loss per share of €0.19 in first-half 2017-18.

The Group's IFRS and non-IFRS net income figures for the first six months of 2018-19 include €76.3 million in financial income related to the total return swap contract signed on March 20, 2018 with Credit Agricole Corporate and Investment Bank.

Main cash flow statement^[3] and balance sheet items

Non-IFRS cash flows from operating activities represented a net inflow of €22.0 million compared with an €81.4 million net outflow in the first six months of 2017-18. This positive swing reflects an improvement in non-IFRS cash flow from operations (a positive €88.4 million versus a negative €83.6 million in first-half 2017-18) and a €66.4 million increase in non-IFRS working capital requirement (against a €2.2 million decrease in the first six months of 2017-18).

At September 30, 2018, Ubisoft had net debt of €337.4 million versus €548.1 million at March 31, 2018.
                         
                         
Outlook

Full-year 2018-19

Ubisoft is standing by its targets of:

• Sales of around €2,000.0 million.
   
• Net bookings of around €2,050.0 million.
   
• Non-IFRS operating income (calculated based on net bookings) of around €440.0 million.
   
• Free cash flow of around €300.0 million.

             
             
Third-quarter 2018-19

Ubisoft expects third-quarter 2018-19 sales to come in at approximately €580 million. Net bookings for the third quarter of 2018-19 are expected to total around €600,0 million, representing a decrease of approximately 17% compared with the third-quarter 2017-18 due to (i) early ship-ins of Assassin's Creed^® Odyssey in the second quarter of 2018-19, and (ii) the release of South Park^TM The Fractured but Whole^TM in the third quarter of 2017-18, although these effects should be partly offset by growth in back-catalog.

Cancellation of 1,565,426 shares
                   
Following a decision by the Board of Directors, on September 12, 2018, 1,565,426 treasury shares were canceled.

Buyback of 3,045,455 shares on October 31, 2018

Ubisoft has decided to buy back 3,045,455 of its own shares on October 31, 2018, thus terminating in advance and in full the swap contract signed with Crédit Agricole Corporate and Investment Bank (CACIB) in March 2018 in connection with Vivendi's exit from Ubisoft's capital. The shares will be bought back at a contractual price of €66 and will be delivered on November 7, 2018. Ubisoft intends to either cancel these shares, with an accretive effect for all shareholders, or to use them for share-based compensation plans or share-indexed compensation plans for employees.

Recent significant events

Ubisoft appoints Frederick Duguet as Chief Financial Officer: Alain Martinez, who has been the Group's Chief Financial Officer for 19 years, will be retiring at the end of 2018. He will be replaced as from January 1, 2019 by Frederick Duguet, who is currently the Group's Chief Financial Planning Officer.

Contacts

Disclaimer
This release 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 were presented to and approved by the Board of Directors on October 30, 2018 and have not been audited by the Statutory Auditors. (Additional information is specified in the most recent Ubisoft Registration Document filed on June 6, 2018 with the French Financial Markets Authority (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, Far Cry, For Honor, Just Dance, Watch_Dogs, and Tom Clancy's video game series including Ghost Recon, Rainbow Six and The Division. 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 2017-18 fiscal year Ubisoft generated sales of €1,732 million. To learn more, please visit www.ubisoftgroup.com.

© 2018 Ubisoft Entertainment. All Rights Reserved. Ubisoft and the Ubisoft logo are registered trademarks in the US and/or other countries.

APPENDICES

Definition of non-IFRS financial indicators

Net bookings corresponds to the "Sales" indicator used prior to fiscal 2018-19.

Non-IFRS operating income calculated based on net bookings corresponds to operating income less the following items:

• Stock-based compensation expense arising on free share plans, group savings plans and/or stock options.
• Depreciation of acquired intangible assets with indefinite useful lives.
• Non-operating income and expenses resulting from restructuring operations within the Group.

Non-IFRS operating margin, calculated based on net bookings, corresponds to non-IFRS operating income expressed as a percentage of net bookings. This ratio is an indicator of the Group's financial performance.

Non-IFRS net income corresponds to net income less the following items:

• The above-described deductions used to calculate non-IFRS operating income.
• Income and expenses arising on revaluations, carried out after the measurement period, of the potential variable consideration granted in relation to business combinations.
• OCEANE bond interest expense recognized in accordance with IAS 39.
• The tax impacts on these adjustments.

Non-IFRS diluted EPS corresponds to non-IFRS net income divided by the weighted average number of shares after exercise of the rights attached to dilutive instruments.

The adjusted cash flow statement includes:

• Non-IFRS cash flow from operations which comprises:
  • The costs of internally developed software and external developments (presented under cash flows from investing activities in the IFRS cash flow statement) as these costs form an integral part of the Group's operations.
  • Current and deferred taxes.
• Non-IFRS change in working capital requirement which includes movements in deferred taxes, thus cancelling out the deferred tax income or expense presented in Non-IFRS cash flow from operations.
• Non-IFRS cash flows from operating activities which includes the costs of internal development and licenses development (presented under cash flows from investing activities in the IFRS cash flow statement and included in Non-IFRS cash flow from operations in the adjusted cash flow statement).
• Non-IFRS cash flows from investing activities which excludes the costs of internal development and licenses development that are presented under Non-IFRS cash flow from operations.

Free cash flow corresponds to cash flows from operating activities after cash inflows/outflows arising on the disposal/acquisition of other intangible assets and property, plant and equipment.

Net cash/(debt) position corresponds to cash and cash equivalents less financial liabilities excluding derivatives.

*Ancillaries,...

Title release schedule
3^rd quarter (October - December 2018)

Reconciliation of IFRS Net income and non-IFRS Net income