Ubisoft 2006 Annual Report Download - page 62

UBISOFT • FINANCIAL REPORT 2007
Foreign exchange risk
The group is exposed to foreign exchange risk on its opera-
ting cash flow and its investments in its foreign subsidiaries.
The group protects only its positions related to its opera-
ting cash flow in the major currencies (i.e. the US dollar,
Canadian dollar, pound sterling and Australian dollar).
The strategy is to hedge one fiscal year at a time, which
means that the hedge period does not exceed 15 months.
The group relies mainly on natural hedges resulting from
two-way transactions (i.e. development expenses in foreign
currencies offset by royalties received from subsidiaries in
the same currency). For non-hedged balances and non-
commercial transactions (i.e. internal loans in foreign cur-
rencies), the parent company borrows in these currencies
or sets up forward sales contracts or options.
At March 31, 2007, the company had hedged GBP 5 mil-
lion and CAD 17.8 million through forward sales contracts
and loans in foreign currencies.
Impact of a change of ±1% in the principal foreign curren-
cies on sales and operating income in thousands of euros
for FY 2006/2007:
Equity price risk
The company has four main types of equity investments.
Long-term strategic investments in sectors related to video
games, such as the investment in Gameloft SA, in which
Ubisoft owns 13,367,923 shares, i.e. 18.89% of capital. This
investment is valued at €34 million on the company’s
consolidated balance sheet, while the fair market value of
these shares was €67 million as of March 31, 2007.
Stocks held directly under a market-making and liquidity
contract signed with Exane BNP: these purchases are
governed by a market-making contract pursuant to cur-
rent regulations and are intended to ensure liquidity on
stock sales and purchases. At March 31, 2007, Ubisoft held
22,059 of its own shares valued at €795 thousand.
Money market funds: these funds involve temporary
investments of liquid assets. They are therefore invested in
products offering a high degree of security and very low
volatility.
Equity swap contract: this derivative is recorded at its fair
value on the balance sheet. Any variations in the share
price in relation to the sale price of €9.33 are recorded on
the income statement. Given the 1,436,274 shares sold
under the equity swap contract at March 31, 2007, the
impact of a reduction in the share price of one euro would
be €1,436 thousand.
Liquidity risk
At March 31, 2007, the group's financial debt was €71 mil-
lion and its net cash flow position (reflecting liquid assets
and short-term investment securities) was €55 million.
Variable-rate debt Effective Nominal Annual interest Annual interest Difference
interest rate with a change
o f 1%
Bank Ioan 4.18% 20,000 835.8 1,036 200.0
Cash 3.99% - 55,281 - 2,204.2 - 2,757 - 552.8
Investments 3.98% - 30,786 - 1,225.5 - 1,533 - 307.9
Total - 66,067 - 2,593.9 - 3,254 - 660.7
Currency Impact on sales Impact on operating income
in K€ in K€
USD 2,830 944
GBP 1,084 835
CAD 410 376
AUD 211 173
DKK 225 183
JPY 65 27
rity to fixed-rate loans for long-term financing needs and
variable-rate loans to finance specific needs related to an
increase in working capital during particularly busy periods.
At March 31, 2007, the group's net debt consisted of a
variable-rate loan and bank overdrafts which, given its
positive net cash flow position, are mainly intended to
finance the group’s high year-end capital requirement lin-
ked to the strong seasonal variation in its business.
Based on its financial position at March 31, 2007, the
group’s sensitivity to changes in interest rates is as follows:
Debts and cash availability at variable rates (In K€)