London, United Kingdom – November 20, 2007 – Today Ubisoft, one of the world’s largest video game publishers, released its results for the six months ended September 30, 2007.

  • Sales[1] up 52%.
  • Marked improvement in profitability:

o Current operating income[2] up €43 million to a positive €9 million.
o Net income totals €31 million.

  • 2007-08 games release schedule updated.
  • 2007-08 Outlook confirmed.

Yves Guillemot, CEO of Ubisoft, stated: “Ubisoft’s excellent sales performance during the first half of fiscal 2007-08 has considerably boosted our earnings figures for the period. In addition, the early indications for our Christmas games launches have been positive, especially for Assassin’s Creedtm, whose sell-through sales have already topped the record level of 1 million units. These very strong trends further underpin our confidence that we will achieve our objectives for the current year and add further impetus for fiscal 2008-09, which we expect to be a another year of robust growth for the Group.”

Main income statement items

· Gross margin: 64.1% of sales.

· R&D expenses: 31.1% of sales.

· SG&A expenses: 29.5% of sales.

· Current operating income before stock options: €9 million.

· Gain of €7.5 million recorded following the positive outcome of a lawsuit.

· Net financial income: €12.6 million, including a €15.5 million gain arising from the Equity Swap.

· €14.3 million gain recorded on the sale of Gameloft shares.

· Diluted earnings per share: €0.64.

Sales for the first six months of 2007-8 came to €261 million, up 51.8%, or 55.1% at constant exchange rates.

Gross margin represented 64.1% of sales, up from 59.4% in the comparable prior-year period. This strong increase was mainly driven by new generation games, which have a higher sale price and accounted for 75% of overall sales during the period versus 39% one year earlier. The gross margin figure now includes the impact of logistics costs which were previously classified under SG&A expenses. These costs amounted to €5.6 million during the period compared with €5.1 million in the first half of 2006-07.

Current operating income before stock options totaled €9.1 million (3.4% of sales) compared with a €33.6 million loss recorded in first-half 2006-07. This robust improvement was primarily attributable to the following factors:

  • A €65.4 million rise in gross profit.
  • A considerable reduction in R&D expenses as a percentage of sales, particularly due to the solid level of back catalog sales. In first-half 2007-08, R&D expenses totaled €81.3 million, representing 31.1% of sales, compared with 41.5% of sales (€71.4 million) in the same period of 2006-07.
  • The significant leverage effect generated by a tightly controlled 19.9% rise in SG&A expenses, well below the rate of sales growth for the period. SG&A expenses came to €77.2 million and represented 29.5% of sales, versus 37.4% in first-half 2006-07 (€64.4 million). The main improvements were seen for fixed costs, which increased by only 8.5% to €47.2 million (from €43.5 million one year earlier), and, to a lesser extent, for variable marketing expenses which rose 43.5% to €30.0 million (versus €20.9 million in first-half 2006-07).

Ubisoft ended the period with operating income of €12.5 million, compared with an operating loss of €35.3 million in first-half 2006-07. This figure includes stock option expenses of €4.0 million and a €7.5 million gain resulting from the positive outcome of a lawsuit.

Net financial income came to €12.6 million (versus €3.3 million one year earlier), breaking down as follows:

  • €0.6 million in financial charges against €4.7 million in first-half 2006-7, reflecting the year-on-year decrease in the Group’s debt.
  • €2.3 million in foreign exchange losses versus foreign exchange gains of €1.0 million in first-half 2006-07.
  • A €15.5 million positive impact attributable to the Equity Swap[4], compared with €7.0 million in first-half 2006-07.

Following the sale of Ubisoft’s Gameloft shares to Calyon in July 2007, the Group’s share of profit of associates (principally Gameloft) decreased to almost zero from €2.9 million in first-half 2006-07. During the period Ubisoft recorded €14.8 million under “Net gain from operations of discontinued business segment” when Calyon sold 4.2 million of the total 13.4 million Gameloft shares.

The Group ended the first six months of 2007-08 with net income of €30.6 million, compared with a net loss of €20.5 million one year earlier. Diluted earnings per share amounted to €0.64. Excluding non-recurring items (i.e. the impact of the Gameloft share sale, the Equity Swap and the positive lawsuit outcome), the net income figure would amount to €0.9 million, versus a net loss of €27.6 million for first-half 2006-07.

Main cash flow statement and balance sheet items

Cash flows from operating activities came to a negative €42.7 million. This improvement on the negative €55.2 million reported in the first six months of 2006-07 reflects the impact of the robust increase in operating income, partly offset by a €16.9 million increase in working capital requirement, primarily as a result of the Equity Swap4.

At September 30, 2007, Ubisoft had a positive net cash position of €18.7 million compared with €55 million at March 31, 2007. The main movements during the period were as follows:

· Cash flows from operating activities amounting to a negative €42.7 million.

· €25.1 million arising from the sale of Gameloft shares.

· Investments of €16.9 million for the purchase of Sunflowers and the Anno™ brand.

· Capital increases totaling €5.7 million.

· €0.5 million in translation adjustments.