Ubisoft 2012 Annual Report Download - page 16

Management Report
2012
11
1.3 CASH AND CAPITAL
1.3.1 CHANGES IN EQUITY
The video games business line calls for investments in development of around 35% of revenue. This
capital expenditure takes place over average periods of between 24 and 36 months, which publishers
must be able to finance out of their own resources. Furthermore, publishers are required to launch
new releases on a regular basis, and their level of success cannot be guaranteed.
For these reasons, significant capitalization is essential to guarantee the continuous financing of
capital expenditure and to deal with contingencies stemming from the success or failure of a particular
title without endangering the future of the Company.
With equity of €763 million, up €49 million, Ubisoft easily finances its capital investments in games,
which amount to €350 million.
1.3.2 CASH FLOW
Video game publishers have two kinds of cash flows:
- Cash flows for financing development costs are spread evenly over a period of 24 to 36
months, given that each project progressively scales up but that teams work on a number
of projects. They represented €428 million in 2011/2012;
- Cash flows linked to the marketing of games, which are highly seasonal in nature
(25% of sales are made in the first half of the year and 75% in the second half), and the
lag between production costs and cash inflows. This is because the Company must first
finance product manufacturing, which accounts for 33% of sales and is payable at 30 days
on average, and also finance marketing costs (around 17% of sales) before cash flows in
at an average of 48 days after the games hit the shelves. For this reason, the Company
must finance significant cash peaks around Christmas time before seeing its cash climb
back up during February and March. This timing may be different if Q4 of the financial year
is very strong, because in this case, working capital requirements may be higher.
Accordingly, in the financial year 2011/2012, the Company’s net cash varied between €99 million and
€85 million, with debt peaking from October to December.
1.3.3 BORROWING TERMS AND FINANCING STRUCTURE
In 2011/2012, most of the financing used came from a medium-term loan of €20 million, paid off in
February 2012, from the syndicated loan of €180 million agreed in May 2008 (maturing in May 2013)
and from bilateral credit lines of €95 million (maturing in April and May 2013).
The average cost of borrowing was under 2% for the financial year 2011/2012.
The covenants with which the Company must comply regarding the syndicated loan and those of the
€95 million bilateral credit lines are as follows:
2011/2012
Net debt restated for assigned receivables/equity restated for
goodwill <
0.8
Net debt restated for assigned receivables/Ebitda <
1.5