H1 FY15 Earnings presentation October 30th, 2014 Yves Guillemot, - - PowerPoint PPT Presentation

H1 FY15 Earnings presentation

October 30th, 2014

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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 June 26, 2014 with the French Financial Markets Authority (l’Autorité des marchés financiers)).

D I S C L A I M E R Yves Guillemot, President and Chief Executive Officer Alain Martinez, Chief Financial Officer Jean-Benoît Roquette, SVP Investor Relations

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H1: Ubisoft’s strategy delivers

• Stronger sales than expected = Watch Dogs (9Mu), Digital and Back Catalog
• Record gross margin, better than expected operating income & cash flows

SUMMARY

FY15 & FY16: Targets confirmed

• FY15: sales ≥ 1 400 M€ & non-IFRS operating income ≥ 150M€
• FY16: non-IFRS operating income ≥ 200 M€
• 200 M€ of FCF over the 2 years (or net cash situation ~ 200 M€ by March 16)

Q3: Great momentum with 4 major releases Short-Medium-Long Term: Ubisoft ready to generate significant value for its shareholders

AGENDA

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H1 Q3 & FY15 FY16

H1 FY15

H1 Sales : 484 M€, +68% at cstt exchange rates

Q2 sales: 124 M€, beating target of 85 M€

Watch Dogs continued success: > 9 Mu

> 10 Mu expected in FY15

Digital strong momentum : 135 M€, +90%

28% of total sales Driven by digital distribution, mobile, sale of items & DLCs

Mobile up 6x, already 45% higher than full FY14

Back-catalog : 114 M€, +1%

AC 4, South Park, Far Cry 3 & Rayman Legends

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H1 FY15 : SALES OUTPERFORMANCE

9 Mu already sold in. On track to >10 Mu in FY15 Builds on Ubisoft’s strengths : IP creation - open world - massive production values Xbox One, PS4, PS3, Xbox 360, PC, Wii U

H1 FY15 : WATCH DOGS

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creation of a major franchise

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H1 FY15 : EARNINGS OUTPERFORMANCE

H1 FY15

Record gross margin at 78% (up 9 pts)

Supported by Watch Dogs success, favorable mix (PS4/Xbox One/PC) + growing digital revenues

Non-IFRS Operating profit : 24 M€ vs loss expected

Positive impact from rev, gross margin & lower than anticipated expenses A 122 M€ improvement yoy

Free Cash flow: (47,6) M€

A 229 M€ improvement yoy

H1 outperfomance demonstrates Ubisoft is now ready to generate significant value for its shareholders

• Gross margin up 176 M€, at record 78% level (+9 points yoy)
• Strong performance of Watch Dogs + favorable mix (PS4, XboxOne, PC)
• Growing digital footprint
• R&D up 42 M€ but down 10 percentage points
• SG&A up 12 M€, down 19 percentage points
• variable marketing expenses marginally up at 92 M€ or 19% of sales (88 M€ and 30% in H1 FY14). Some Watch Dogs

expenses incurred in FY14

• fixed structure costs up at 81 M€ or 17% of sales (73 M€ and 25% in H1 FY14)
• Non-IFRS Income tax rate at 21%. 32% rate expected for the full year

H1 FY15 : NON-IFRS P&L

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€ million, except for per share data

H1 2014-2015 H1 2013-2014

% %

Sales 484,2 293,3 Gross profit 378,1 78,1 202,2 68,9 R&D expenses (181,2) (37,4) (138,9) (47,4) Selling expenses (127,2) (26,3) (123,5) (42,1) G & A expenses (45,6) (9,4) (37,8) (12,9) SG & A expenses (172,8) (35,7) (161,3) (55,0) Non-IFRS operating income 24,2 5,0 (98,0) (33,4) Net Financial Income (2,5) (2,4) Income Tax (4,6) 38,2 Non-IFRS Net Income 17,1 (62,1) Non-IFRS Diluted EPS 0,15 (0,59) Nbr of shares fully diluted (000) 112 931 104 508

• 27 M€ total depreciation increase : release of Watch Dogs
• 18 M€ increase in Non Capitalized R&D & others : live operations of FTP PC & mobile, post launch, higher

bonuses, accounting of in-between projects

• 1% increase in capitalized R&D

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H1 FY15 : R&D

€ million

H1 2014-15 H1 2013-14

Depreciation of in-house software-related production

138,8 107,8

Depreciation of external software-related production and licenses

2,5 6,2

Royalties

6,8 9,7

Non Capitalized R&D & others

33,1 15,2

Total R&D depreciation and royalties

181,2 138,9

Capitalized in-house software-related production

195,2 189,8

Capitalized external software-related production and licenses

14,9 18,7

(excluding future commitments) Royalties

6,8 9,7

Non Capitalized R&D & others

33,1 15,2

Total development investment

250,0 233,3

IFRS Non-Current expenses and income : (5.7) M€

• Goodwill depreciation

IFRS Net financial income : 2.7 M€

• Includes : 5,3 M€ (non-cash) from adjustment of earn-out liabilities

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H1 FY15 : IFRS / NON-IFRS RECONCILIATION

€ million, except for per share data

H1 2014-15 H1 2013-14

IFRS Adjustment Non-IFRS IFRS Adjustment Non-IFRS

Sales 484,2 484,2 293,3 293,3 Total Operating expenses

• 470,6

10,6

• 460,0
• 407,3

16,0

• 391,3

Stock-based compensation

• 5,0

5,0 0,0

• 4,3

4,3 0,0 Non-current expenses and income

• 5,7

5,7 0,0

• 11,7

11,7 0,0 Other operating income and expenses 0,0 0,0 0,0 0,0 0,0 Operating Income 13,5 10,6 24,2

• 114,0

16,0

• 98,0

Net Financial income 2,7

• 5,3
• 3,0

13,4

• 15,8
• 2,4

Income tax

• 4,6

0,0 4,6 38,2 0,0 38,2 Net Income 11,7 5,4 17,1

• 62,3

0,2

• 62,1

Diluted earnings per share 0,10 0,05 0,15

• 0,60

0,00

• 0,59

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• Sharp improvement of Cash flows from Operations :
• Reflection of the strong top and bottom lines performance
• Sharp WCR improvement : More favorable starting basis for Account Receivables, plus early launch of

Watch Dogs, versus late launch of JD 2014, Splinter Cell and Rayman Legends last year

€ million

H1 2014-15 H1 2013-14

Opening cash position (12,7) 104,5 Cash flows from operations (37,5) (144,8) Change in WCR 17,9 (115,9) Cash flows from operating activities (19,5) (260,7) Net investment in capital assets (28,1) ( 16,3) Net free cash flow (47,6) (276,9) Net acquisitions/disposals (2,3) (3,0) Proceeds from issue of capital and other financial flows 7,5 36,3 Disposal of Gameloft Shares 0,0 6,0 Effect of exchange rate fluctuations 14,9 (8,7) Decrease/(increase) in net debt (27,6) (246,3) Closing cash position (40,3) (141,8)

H1 FY15 : CASH FLOWS & CLOSING CASH POSITION

AGENDA

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H1 Q3 & FY15 FY16

FY15

FY Sales : minimum 1 400 M€, up 39% Gross margin : up 3 to 4 points Marketing expenses down in % : < 18% of total sales Non-IFRS Operating Income : minimum 150 M€ Positive Free Cash Flows Q3 Sales : 730 M€, up 40%

FY15 : DRIVEN BY CORE & DIGITAL STRONG GROWTH

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The most beautiful game ever created by Ubisoft New state of the art engine: fully new gen New innovations, co-op, customization abilities Release : November 11

Q3 : ASSASSIN’S CREED UNITY & ROGUE two strong offerings for new and last gen

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Great story telling - Play as a Templar Return of the acclaimed naval gameplay Release : November 11

PS4 Xbox One PC PS3 Xbox 360 PC (early 2015)

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FC4’s systemic open world rated* significantly > FC3’s Doubled FC3’s search & website traffic & Youtube views Release : November 18 (PS4, Xbox One, PC, 360, PS3)

Q3 : FAR CRY 4

the return of the Anecdote Factory

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Best of E3 Best E3 Shooter

* Ubisoft internal playtests

Q3 : THE CREW

A seamless single, coop and multiplayer experience A major step forward for the racing genre Release : December 2 (PS4, Xbox One, PC, Xbox 360)

designed to be the “World of Warcraft” of driving games

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Best E3 Racing game

Q3 : JUST DANCE 2015 & JUST DANCE NOW

Best songs of the years Smartphones as a controller, no need for Kinect

• r PS move

constant flow of innovation

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Downloaded ~ 6 million times:

Brazil & the Philippines among top 5 countries (downloads)

Local adaptation: “India Waale” from

Bollywood blockbuster of the year

FY15 : DIGITAL REVENUES significant growth expected

DIGITAL DISTRIBUTION PC FREE-TO-PLAY MOBILE FREE-TO-PLAY CONSOLES & PC DLC/ITEMS

…

CONSOLES & PC DIGITAL

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AGENDA

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H1 Q3 & FY15 FY16

FY16

TARGETS

Non-IFRS Operating Income : minimum 200 M€ Positive Free Cash Flows

KEY DRIVERS

Built on a mix of topline, gross margins and operating margins strengths

Resurgent growth of the market in calendar 2015 Very strong line-up Another improvement in gross margin Significant growth of high margins back-catalog revenues Further improvement of the profitability of FTP business Positive effects of improved efficiency in marketing spending

FY16 : TARGETS CONFIRMED

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A persistent online open-world RPG shooter The Snowdrop engine : amazing graphics Release : 2015 (Xbox One, PS4 & PC)

FY16 : THE DIVISION buzz and players’ anticipation at high levels

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“It was a pretty outstanding demo” IGN, June 2014 “The Division vs Destiny” Gamespot, October 2014

FY16 : RAINBOW 6 SIEGE

“Rainbow Six was our favorite game at E3” PC Gamer, May 14

Very strong reaction from die-hard shooters fans Solo campaign to broaden the audience Release : 2015 (Xbox One, PS4 & PC)

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Best E3 PC game Game of the show

a cult franchise is back !

APPENDICES

"We believe that our major production capacity, strong of a network of 26 international studios and

• ver 8 000 developers, now optimized

with our lead and associate

• rganization, will allow us to come

with an enhanced pipeline of increasingly high quality franchises and new IPs. We will be able to release

• ur franchises more and more

regularly, providing solid visibility on

• ur future revenue and profitability

streams. All that, combined with the Open-World and Online expertise/know-how that we have been growing steadily internally make us believe that we will benefit disproportionally from the arrival of the new generation and from the continued growth of the online market" Yves Guillemot, Ubisoft CEO

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A MAJOR OPPORTUNITY FOR UBISOFT

Open Worlds will take a bigger share

• f the market

New cycle’s early years = great timing for new IPs Fast growing digital footprint = better players’ engagement Ubisoft to benefit disproportionaly from the market’s growth

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KEY LEARNINGS

FRANCHISES = LG TERM VISIBILITY KEY FACTORS OF SUCCESS – Quality – Regular Releases – Deep Production Capacity NEW CYCLES = OPPORTUNITY FOR NEW BRANDS

PAST 9 YEARS KEY SUCCESS FACTORS : Quality and regular releases

Physical retail sales : NPD, GFK

AC THE 4TH BIGGEST BRAND ! 2 OF THE 4

BIGGEST NEW IPS !

*includes hardware

Far Cry – Watch Dogs – The Division – The Crew – Rainbow 6 strong contenders for Next-Gen top 20

F: Franchise NB: New Brands

Cumulated Retail Sales (Value) (Xbox360, PS3, Wii, WiiU, Xbox One, PS4 + PC) 2005 - 2013 (9 years)

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CALL OF DUTY ACTIVISION BLIZZARD F

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MARIO NINTENDO F

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FIFA SOCCER EA F

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ASSASSIN'S CREED UBISOFT NB

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GRAND THEFT AUTO TAKE-TWO F

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WII FIT* NINTENDO NB

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THE SIMS EA F

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MADDEN NFL EA F

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GUITAR HERO* ACTIVISION NB

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BATTLEFIELD EA F

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HALO MICROSOFT F

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NEED FOR SPEED EA F

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JUST DANCE UBISOFT NB

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WORLD OF WARCRAFT ACTIVISION F

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NBA 2K TAKE-TWO F

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LEGO WARNER NB

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SONIC SEGA F

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ROCK BAND* EA NB

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ELDER SCROLLS BETHESDA F

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GEARS OF WAR MICROSOFT NB

Publishers

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FY10 FY11 FY12 FY13 FY14 FY15e

• 60

29 56 100 150e

Gross Margin

FY10 FY11 FY12 FY13 FY14 FY15e 58.9% 64.8% 67.7% 72.7%

Non-IFRS Op. Income (€ million)

2009 2010 2011 2012 2013 2014e 15.9 14.5 12.2 15.7

Industry Soft. Sales

(€ billion)

FY10 FY11 FY12 FY13 FY14 FY15e 871 1 039 1 061 1 256 20 38 78 148 193

Digital

Sales (€ million)

FY15 : Back to financial performance improvement

1 400e

• 66

10.8 71.7% 1 007

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UBISOFT’S STOCK much more liquid than it may appear

As of October, 29th

Euronext 43% of total liquidity Average volume over 1 year at 833 000 shares

Volume Fragmentation