Ubisoft Releases Sales and Earnings for First Half of 2015/16

Comment

Today, Ubisoft released its sales and earnings figures for the six months ended September 30, 2015.

Yves Guillemot, Co-Founder and Chief Executive Officer, stated, “The quality of our back-catalog and the growing digitisation of our business enabled us to deliver a solid performance in the first half of the year, even though – as planned – we did not release any major titles during the period. The fact that more than 80% of our annual sales are expected to be generated in the second half of the year mechanically weighed on our earnings for the first six months.”

Yves Guillemot continued by saying, “The outlook for our industry continues to be very promising, with a return to growth, a healthier competitive environment, and the favourable impact of digital. Against this backdrop, Ubisoft has unique value-creating potential. We are ideally positioned in open-world games, whose market share is increasing. We also own our brands and have the in-house skills and expertise to create them. These two significant characteristics offer our shareholders an unrivalled level of long term visibility and security. In addition, the release of numerous multi-player games such as For Honor, Ghost Recon Wildlands, Rainbow Six Siege and The Division represent a major opportunity to develop players’ engagement and grow our highly-profitable digital segment. And lastly, we are pioneers in leveraging our brands in areas beyond video games, as demonstrated by the agreements we have signed with the most powerful international partners such as Columbia, Fox New Regency, Nickelodeon and Warner.”

Guillemot concluded by saying, “We continue developing Ubisoft’s business with the aim of becoming one of the highest-performing groups in the video game industry and a leader in the overall entertainment sector. In doing so, we are offering our shareholders significant value-creation potential for the coming years.”

Non-IFRS income statement and key financial data

In € millions H1 2015-16 % H1 2014-15* %
Sales 207.3 484.2
Gross margin 154.3 74.4% 378.1 78.1%
R&D expenses (99.5) -48.0% (181.2) -37.4%
Selling expenses (111.1) -53.6% (127.2) -26.3%
General and administrative expenses (51.5) -24.9% (44.9) -9.3%
Total SG&A expenses (162.6) -78.4% (172.1) -35.5%
Non-IFRS operating income/(loss) (107.8) -52.0% 24.9 5.1%
Non-IFRS net income/(loss) (65.7) 17.5
Non-IFRS diluted earnings/(loss) per share (in €) (0.57) 0.15
Cash flows from operating activities** (334.7) (19.5)
R&D investment expenditure*** (270.6) (250.0)
Net cash/(debt) position (155.5) (40.3)
  • Restated to reflect the impact of IFRIC 21

** Based on the consolidated cash flow statement for comparison with other industry players (unreviewed)
*** Including royalties but excluding future commitments

Sales

Sales for the first half of 2015-16 came to €207.3 million, down 57.2% (or 60.3% at constant exchange rates) compared with the €484.2 million recorded for first-half 2014-15, which saw the release of Watch Dogs.

Sales in the second quarter of 2015-16 totaled €110.7 million versus €124.1 million in the corresponding prior-year period, representing a decrease of 10.8% (or 16.8% at constant exchange rates). This second-quarter showing was higher than the target of approximately €90.0 million issued when Ubisoft released its sales figures for the first quarter 2015-16.

Ubisoft’s sales performance in first-half 2015-16 reflects:

The excellent staying power of major franchises (Assassin’s Creed, Far Cry, Just Dance, The Crew and Watch Dogs), which drove up back-catalog sales by 53.1% to €184.3 million.

The ever-growing importance of the digital segment, whose revenues amounted to €100.1 million, representing 48.3% of Ubisoft’s total sales for the period versus 27.8% in first-half 2014-15.

Main income statement items

Gross margin represented 74.4% of sales (€154.3 million) in the first half of 2015-16, versus 78.1% (€378.1 million) for the first six months of 2014-15. This decrease was due to the strong proportion of sales generated by the back-catalog, which has a lower gross margin. However, compared with the first six months of 2012-13 and 2013-14, gross margin grew by 5 points.

Ubisoft reported a non-IFRS operating loss of €107.8 million for first-half 2015-16, versus non-IFRS operating income of €24.9 million in the first six months of 2014-15 (when sales reached €484.2 million thanks to the release of Watch Dogs) and a non-IFRS operating loss of €98.0 million in first-half 2013-14 (when sales came to €293.3 million).

The non-IFRS operating income gap reflects the combined impact of the following factors:

  • A €223.8 million contraction in gross margin, partially offset by
  • a €81.7 million decrease in R&D expenses to €99.5 million (48.0% of sales) from €181.2 million (37.4% of sales) in first-half 2014-15,
  • a €9.5 million reduction in SG&A expenses to €162.6 million (78.4% of sales) from €172.1 million (35.5% of sales) in the first six months of 2014-15:

−    Variable marketing expenses amounted to €72.4 million (34.9% of sales) compared with €91.9 million (19.0%) in first-half 2014-15.
−    Structure costs amounted to €90.2 million (43.5% of sales) versus €80.8 million (16.7%). Half of this year-on-year increase was due to the currency effect.

Ubisoft ended the first half of 2015-16 with a non-IFRS net loss of €65.7 million, representing a non-IFRS diluted loss per share of €0.57, compared with non-IFRS net income of €17.5 million for the first half of 2014-15, representing non-IFRS diluted earnings per share of €0.15, and a non-IFRS net loss of €62.1 million and a non-IFRS diluted loss per share of €0.59 in first-half 2013-14.

The IFRS net loss for the first half of 2015-16 came to €75.2 million, representing an IFRS diluted loss per share of €0.65, compared with IFRS net income of €12.1 million and IFRS diluted earnings per share of €0.11 in first-half 2014-15, and an IFRS net loss of €62.3 million and an IFRS diluted loss per share of €0.60 in the first six months of 2013-14.

Main cash flow statement and balance sheet items

Cash flows from operating activities represented a net outflow of €334.7 million compared with a €19.5 million net outflow in first-half 2014-15 and a €260.7 million net outflow in the first six months of 2013-14. This reflects a negative €208.8 million in cash flow from operations (versus a negative €37.1 million in the same period of 2014-15 and a negative €144.8 million in the first six months of 2013-14) and a €125.9 million increase in working capital requirement (against a €17.5 million decrease in first-half 2014-15 and a €115.9 million increase in the first six months of 2013-14).

At September 30, 2015 Ubisoft had net debt of €155.5 million versus €40.3 million at September 30, 2014 and €141.8 million at September 30, 2013.

Adam

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