Ubisoft 2004 Annual Report Download - page 43

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UBISOFT > 2005 FINANCIAL REPORT
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GROUP’S ACTIVITIES AND PERFORMANCE DURING FISCAL YEAR 2004/2005
Risk related to
customer dependence
The company has no significant dependence on customers
that could affect its development plan.
Ubisoft’s distribution network is increasingly centralized.
In fact, in most European countries as well as in the United
States and Japan, distribution is centralized, and Ubisoft
delivers its products directly to local retail chains, which in
turn redistribute products to their stores. Only the
smallest independent retailers are supplied through
distributors or wholesalers, mainly in France and Britain.
Most sales are made to so-called “major accounts”. The
risk of non-payment by these clients is relatively low.
Moreover, the main subsidiaries, who represent more than
89% of group sales, are covered by credit insurance.
Ubisoft’s 10 largest customers account for 46% of the
group’s pre-tax sales.
Risk related to
dependence on suppliers
and subcontractors
The company has no significant financial dependence
on suppliers or subcontractors that could affect its
development plan.
Ubisoft and its subsidiaries primarily use the services and
products of such suppliers as integrators (printers who
produce the manuals and package the products; diskette
and CD-ROM suppliers who provide these media and
subcontract their duplication; and assemblers) as well as
firms that supply technology and provide licensing or
maintenance services within the relevant business context.
The company is, however, dependent on manufacturers to
some extent. Like all publishers of console games, Ubisoft
purchases game cartridges and media from console
manufacturers. Procurement is therefore dependent on
production of the media. For PC games, there is no specific
dependence.
Market risks
The group limits its market operations to the management
of positions arising from its commercial activity and does
not engage in any speculative transactions. Management of
theseoperations is centralizedand handled exclusively by
the staffof the Corporate Financial department on the basis
of guidelines approved by the CEO.
To control interest rate risk and foreign exchange risk
resulting from business financing needs and from its
international activities, the group uses certain financial
instruments, as described below.
Interest rate risks
The management of interest rate risk is aimedmainlyat
minimizing the cost of the group's financial borrowings and
1.6.10
1.6.9
1.6.8
The termination of several of these partnerships for a
variety of reasons – either at Ubisoft’s initiative or that of
its partners – could have a negative impact on the
company’s future revenue and operating income, insofar
as this impact may not be offset by new licenses with other
partners.
Since licenses accounted for just 10% of the company’s
sales as of March 31, 2005, this risk is much reduced.
Risk related to
intellectual property
Ubisoft Entertainment games are covered by intellectual
property rights both in Europe and internationally (for
France: the “Institut National de la Propriété Industrielle”
(French Patent Office) in Paris; for Europe: the Office for
Harmonization in the Internal Market; internationally: the
World Intellectual Property Organization; and finally, for
North America: the Patent and Trademark Office in
Washington, D.C.).
In addition, games designed by Ubisoft are covered by
international copyright laws.
Ubisoft Entertainment has not filed any patents and does
not depend on any particular patent.
Like all game publishers, Ubisoft faces the problem of
piracy. The company is a member of the “Syndicat des
Éditeurs deLogiciels deLoisirs” (the French trade
association of entertainment software publishers) and
pursues all known cases of software piracy both in France
and abroad (through criminal prosecution, if applicable, or
by means of any other existing penal or civil remedy).
Moreover, with regard to piracy over the Internet, the
company systematically takes legal action against hackers
in order to force the withdrawal of games that have been
illegallyplaced online.
Risk related to
computer security
In spite of the numerous integrated security systems
deployed, Ubisoft is not totally protected from malicious
intent, intrusion, problems with network user
identification, and so on.
Changes in legislation, the deployment of new mobility
technology, the spread of virus attacks and increased use
of the Internet have all been factors in the adoption of
comprehensive security solutions.
Information is a strategic resource of considerable value,
and must therefore be protected in an appropriate manner.
Security measures for information systems protect
information from a wide array of threats to ensure
business continuity.
Security measures are aimed at guaranteeing the
confidentiality, integrity and availability of information.
1.6.7
1.6.6