Ubisoft 2006 Annual Report Download - page 61

THE GROUP'S ACTIVITY AND RESULTS FOR FISCAL YEAR 2006-2007
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ciation of entertainment software publishers) and pursues
all known cases of software piracy both in France and
abroad (through criminal prosecution, if applicable, or by
any other existing criminal or civil remedy). It is also a
member of the ESA (Entertainment Software Association),
the North American equivalent to the SELL.
Moreover, with regard to piracy over the Internet, the
company routinely takes legal action against hackers in
order to force the withdrawal of games that have been ille-
gally placed online.
Legal and arbitration
proceedings
The lawsuit which pended between the company and a
licensee since October 2003 concerning breach of license
agreement has been handed down in Ubisoft Entertainment
SA favor. The total amount will be known in the next few
months.
To the best of the company’s knowledge, there are no
other exceptional events or lawsuits that are likely to have
or have recently had a significant impact on the business,
results, financial position or assets of Ubisoft
Entertainment SA or its subsidiaries, other than that reco-
gnized in the consolidated financial statements and men-
tioned in part 2.5.4, note 13 – Provisions.
Risk related to
dependence on suppliers
and subcontractors
The company has no significant financial dependence on
suppliers or subcontractors that could affect its develop-
ment plan.
Ubisoft and its subsidiaries primarily use the products and
services of such suppliers as integrators (printers that pro-
duce manuals and package products; CD-ROM and DVD-
ROM suppliers that provide these media and subcontract
their duplication; and assemblers), as well as firms that
provide technology and licensing or maintenance services
as part of their business.
In addition, despite the fact that 67% of the company’s
sales are generated by games developed in-house, the
company also makes regular use of the services of outside
studios. These studios can either carry out projects on a
traditional subcontracting basis by providing an additional
and/or specialized production capacity, or take on original
projects in which they have specific skills. These indepen-
dent studios sometimes have limited financial resources
which can jeopardize the successful completion of a pro-
ject. For this reason, the company limits the number of
games assigned to a particular studio and sees to it that all
or some of the technology they use is integrated.
The company is, however, dependent on manufacturers to
some extent. Like all publishers of console games, Ubisoft
purchases game cartridges and media from console manu-
facturers. Supply therefore hinges on prior approval by
manufacturers, the production of these media in sufficient
quantities, and the agreement of royalties. For PC games,
there is no specific dependence.
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 smal-
lest independent resellers are supplied through distribu-
tors or wholesalers, mainly in France and the UK.
Most sales are made to so-called “key accounts”. The risk
of non-payment by these clients is relatively low.
Moreover, the main subsidiaries, which represent some
92% of group sales, are covered by credit insurance.
Ubisoft's 10 largest customers account for 49% of the
group's pre-tax sales.
Risk related to
computer security
Despite the numerous integrated security systems
deployed, Ubisoft is not totally protected from computer
abuse, intrusion, problems with network user identifica-
tion, and so on. Changes in legislation, the implementation
of new mobility solutions, the spread of viruses and the
increased use of the Internet are all factors that support
the adoption of comprehensive security solutions.
Information is a strategic resource of considerable value,
and must therefore be protected in an appropriate man-
ner.
Information system security protects information from
these threats to ensure business continuity.
Security measures are aimed at guaranteeing the confi-
dentiality, integrity and availability of information.
Financial risk
Market risk
The group limits its market involvement to the manage-
ment of positions resulting from its commercial activities
and does not engage in any speculative transactions. Risk
management is centralized and handled exclusively by the
staff of the group’s Finance department on the basis of gui-
delines approved by the CEO.
To limit interest rate and foreign exchange risk resulting
from business financing needs and international activities,
the group uses certain financial instruments, as described
below.
Interest rate risk
The management of interest rate risk is aimed mainly at
minimizing the cost of the group's borrowings and at redu-
cing exposure to this risk. To do this, the group gives prio-
1.9.7
1.9.9
1.9.10
1.9.8
1.9.11