Ubisoft 2004 Annual Report Download - page 41

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39
UBISOFT > 2005 FINANCIAL REPORT
1
GROUP’S ACTIVITIES AND PERFORMANCE DURING FISCAL YEAR 2004/2005
In order of importance, risks are as follows:
Risk relating to
the rapid growth in
new-generation consoles
Like all publishers, Ubisoft must remain abreast of advances
in technology.
2005 will be a year of transition in the international video
game market.
1.6.1
Investment policy
Two years ago, Ubisoft decided to focus its investments on
major products that are developed in-house, i.e. top-quality
video games and the time-to-market for each game. During
2004/2005, the company reaffirmed its desire to
consolidate its position by acquiring the resources to
enhance its internal production. Internal production costs
increased by 25% from €80 million to €100 million.
Investment related to production
(in millions of euros)
Forecast for fiscal year 2005/2006: approximately €125 million.
Percentage of total pre-tax sales
Forecast for fiscal year 2005/2006: approximately 20%.
Amount per production employee
Forecast for fiscal year 2005/2006: approx. €49,000.
1.5.1 Research and
development policy
In its ongoing effort to develop top-quality video games,
Ubisoft has developed a policy of researching and developing
tools for each project, incorporating the latest technological
developments. The selection of tools takes place at a very
early stage in a project, because the decisions made then
directly affect the investment required in terms of time,
human resources and the overall funding of the game.
Thanks to its in-house team of engineers, who have a solid
grasp of the best technology currently available, Ubisoft now
has a highly pragmatic approach to its projects. Depending
on the problems involved in a game and the desired results,
the tools selected will either be tools developed in-house
specifically for the purpose, or commercial software, or a
mixture of the two. Research is therefore focused on
innovation and functionality through the use of technologies
suited to products of the highest quality. Development is
focused on creative games that offer gamers a total
entertainment experience.
Research and development expenses represent tool
development costs; they are therefore capitalizedand
amortized over a three-year period. During the fiscal year,
these expenses totaled €99,976,000.
There is no basic research.
Litigation
So far as the company is aware, there are no particular
events or disputes that are likely to have or have recently
had any significant impact on the business, results, financial
situation, or assets of Ubisoft Entertainment SA or its
subsidiaries.
1.5.3
1.5.2
2004/2005 2003/2004 2002/2003
100 80 72
2004/2005 2003/2004 2002/2003
18.6 % 15.7% 15.9%
2004/2005 2003/2004 2002/2003
52,840€ 56,338€ 57,090€
When a new console is introduced on the market, sales of
previous-generation consoles perceptibly slow until the
new console is made available and gradually begins to drive
additional sales. At the same time, publishers
must allocate significant investment in research and
development in order to develop titles for new-generation
consoles. Thesecompanies must anticipate future trends in
order to develop games featuring the latest technology.
As new consoles are introducedin 2005 and 2006, increasing
the cost of developing a game, studios must have adequate
financial resources to respond to the latest technology and
survive temporary slowdowns in business.
General information
1.5
Risk factors
1.6