Ubisoft not finding much success with latest Wii games

In Ubisoft’s first-half 2009-20 results release, the company commented on the sales of their Wii products. While Ubisoft launched a number of different products such as Rabbids Go Home, Shaun White Snowboarding: World Stage, they have yet to achieve substantial success on the platform. Here’s what Yves Guillemot, Chief Executive Officer, had to say…

“First week sales of Assassin’s Creed II, up 32%, with positive initial indications for the second week, combined with an overwhelmingly warm reception from gamers, validates our strategy of developing bigger franchises. Based on this initial data, Assassin’s Creed 2 looks well positioned to outstrip targets while our Wii games have got off to a more contrasted start in a less predictable market. Finally, sales of James Cameron’s Avatar : The Game should benefit from the launch of the movie which is expected to be the biggest blockbuster of this holiday season.”

You can read the full press release below:

Paris, November 30, 2009 – Today, Ubisoft released its results for the six months ended September 30, 2009.

Key financial data

In E millions

H1 2009-10

%

H1 2008-09

%
Sales 166.0 344.5
Gross profit* 69.1 41.6% 199.6 57.9%
R&D expenses* (48.3) 29.1% (62.8) 18.2%
Selling expenses (65.4) 39.4% (75.9) 22.0%
General and administrative expenses (33.1) 19.9% (28.0) 8.1%
SG&A expenses* (98.5) 59.3% (103.9) 30.2%
Current operating income/(loss)2 (77.7) (46.8)% 33.0 9.6%
Net income/(loss) (52.0) (31.3)% 24.0 7.0%
Diluted earnings/(loss) per share (in E)** (0.54) 0.24
Diluted earnings/(loss) per share before non-recurring items and stock-based compensation (in E)** (0.48) 0.27
Cash flows from R&D investments *** 169.7 157.3
Net cash/(debt) (67.3) 72.3

* Supply chain costs that were previously included in SG&A expenses are now classified in gross profit. Costs related to Hybride that were previously included in SG&A expenses are now classified in R&D expenses.

** After the November 14, 2008 two-for-one stock split

*** Including royalties but excluding future commitments and stock-based compensation.

Yves Guillemot, Chief Executive Officer, stated “First week sales of Assassin’s Creed II, up 32%, with positive initial indications for the second week, combined with an overwhelmingly warm reception from gamers, validates our strategy of developing bigger franchises. Based on this initial data, Assassin’s Creed 2 looks well positioned to outstrip targets while our Wii games have got off to a more contrasted start in a less predictable market. Finally, sales of James Cameron’s Avatar : The Game should benefit from the launch of the movie which is expected to be the biggest blockbuster of this holiday season.”

Main income statement items

Sales for the first six months of 2009-10 came to E166.0 million.

Due to the sharp drop in sales and the significant sales promotions on back-catalog games, gross profit was down sharply on the first half of 2008-09, both in absolute value terms, at E69.1 million versus E199.6 million, and as a percentage of sales, representing 41.6% compared to 57.9%. Gross profit on games launched during the first six months of 2009-10 was higher than in the equivalent prior-year period whereas back catalog titles – which normally generate a gross profit – turned in a negative gross margin.

Ubisoft reported a E77.7 million current operating loss before stock-based compensation, in line with the previously announced guidance of E80.0 million, compared with current operating income of E33.0 million in the first half of 2008-09.

This current operating loss figure reflects the following combined factors:

A E130.5 million decrease in gross profit.

A E14.5 million reduction in R&D expenses due to a smaller number of games launches. Total R&D expenses came to E48.3 million, representing 29.1% of sales, versus E62.8 million (18.2% of sales) in the same period of 2008-09.

A E5.4 million contraction in SG&A expenses, which stood at E98.5 million (59.3% of sales) against E103.9 million (30.2% of sales) in first-half 2008-09.

− Variable marketing expenses decreased in absolute value terms to E41.9 million (25.2% of sales) from E51.9 million (15.1%).

− Structure costs rose to E56.6 million (34.1% of sales) from E52.0 million (15.1%), reflecting higher IT expenses and an increase in the number of sales and administrative staff.

Ubisoft recorded an operating loss of E83.0 million for the first six months of 2009-10 compared with operating income of E24.7 million one year prior. The first-half 2009-10 figure includes stock-based compensation amounting to E5.3 million (versus E8.1 million in the corresponding prior-year prior).

Net financial income came to E6.6 million (versus E11.9 million in first-half 2008-09), breaking down as follows:

E0.0 million in financial income compared with E1.6 million in first-half 2008-09.

E6.6 million in foreign exchange gains against E1.7 million.

As a reminder, in first-half 2008-09, Ubisoft recorded an E8.5 million gain resulting from Calyon’s sale of its remaining Ubisoft shares.

Ubisoft ended the period with a E52.0 million net loss, representing a diluted loss per share[3] of E0.54, compared with net income of E24.0 million (representing diluted earnings per share3 of E0.24) in the first six months of 2008-09.

Excluding non-recurring items (i.e. the Equity Swap) and before stock-based compensation, the net loss figure would have amounted to E46.5 million, representing a diluted loss per share3 of E0.48, versus net income of E26.3 million and earnings per share3 of E0.27 for first-half 2008-09.

Main cash flow statement and balance sheet items

Cash flows from operating activities came to a negative E212.9 million (versus a negative E68.9 million in first-half 2008-09), reflecting cash flow from operations* amounting to a negative E139.4 million (compared with a negative E52.6 million) and a E73.5 million increase in working capital requirement (against a E16.3 million increase in the first six months of 2008-09). As a reminder, in first-half 2008-09, the Group’s working capital requirement was improved by the E59.3 million positive impact of the sale of Ubisoft shares held in connection with the Equity Swap.

At September 30, 2009, net debt stood at E67.3 million (compared with a net cash position of E72.2 million one year earlier). The change from the net cash position of E154.2 million at March 31, 2009 primarily reflects:

­ The above-mentioned E212.9 million net cash outflow from operating activities.

­ E9.5 million in purchases of tangible and intangible assets.

­ Proceeds from the issue of capital amounting to E4.2 million following employee rights issues and the exercise of stock options.

­ A negative E2.9 million effect from exchange rate fluctuations.

* Cash flows from operations includes future commitments on external development contracts and licenses which have no impact on cash flow generation and which decreased by E14.6 million. In the “Cash flow statement for comparison with other industry players”, “Costs of internal development and license development”, which amounted to E148.4 million, were reduced by this difference of E14.6 million. Before this adjustment, “Costs of internal development and license development” amounted to E163.0 million.

2009-10 targets confirmed

Ubisoft confirms its previously announced targets for 2009-10, namely:

­ Third-quarter sales of around E540 million.

­ Full-year sales of approximately E1,040 million and current operating income before stock-based compensation representing at least 7% of sales.

Source 1, Source 2

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