Ubisoft 2016 Annual Report Download - page 44

Governance, risks, riskmanagement andinternalcontrol
3Report of the Chairman of the Board of Directors on corporate governance, internal control andriskmanagement
RISK OF DEPENDENCY ON CUSTOMERS
SHARE OF THE MAIN CUSTOMERS IN THE GROUP’SSALES EX-VAT
Share in % 2015/2016 2014/2015 2013/2014
Top customer 12% 12% 10%
Top 5 customers 42.5% 38% 32%
Top 10 customers 60% 53% 47%
Ubisoft’s main customers (physical and digital distributors) represent
a very important share of the Group’s sales. However, the Company
can reduce its dependency on these main customers as they are
spread out across the globe. In any case, Ubisoft cannot rule out
the possibility that its customers’ performance (particularly those
trying to cope with the digital transition) could have an impact on its
performance. Similarly, this transition could see digital distributors
commanding a dominant position in the segment. Should this
happen, Ubisoft could see itself exposed to strong competitive
pressure.
In order to protect themselves against the risk of default, the
Group’s main subsidiaries, who account for approximately 58% of
consolidated sales, are all covered by credit insurance.
RISK OF DEPENDENCY ON SUPPLIERS
ANDSUBCONTRACTORS
The Company has no significant financial dependency on
subcontractors or suppliers that is likely to affect its growth
plan. Ubisoft and its subsidiaries predominantly use products
and services from service providers such as systems integrators
(product packaging, disk suppliers to subcontract the supply and
duplication of DVD-ROMs and Blu-ray discs, assemblers, suppliers
of promotional and point-of-sale merchandise, textile suppliers
and suppliers of collectibles such as fi gures), technology providers
and suppliers of licenses and maintenance in connection with the
Company’s operations.
However, there is a dependency on manufacturers. Ubisoft, like all
console-game publishers, purchases CDs and gaming media from
console manufacturers (Sony, Nintendo and Microsoft-approved
duplication factories). Supply is thus subject to prior approval of
the manufacturers, the production of these media in suffi cient
quantities and the establishment of royalty rates. Any change in
the terms of sale by manufacturers could have a material impact
on the Company’s results.
Games developed in-house account for 90% of sales. Nevertheless,
Ubisoft may, as part of its development activities, call upon external
studios to work on traditional subcontracting products by supplying
additional and/or specialized production capacity or to take on
original projects in which they have specifi c expertise. These
independent development studios may sometimes have a limited
capital base, which may put the completion of a project at risk.
To limit such risks, Ubisoft has introduced internal monitoring
procedures, limited the number of games entrusted to a single studio,
and ensured that it assimilates all or a portion of the technology
that these studios use.
That said, despite these procedures, Ubisoft could be negatively
impacted should relations with these third parties break down.
RISKS ASSOCIATED WITH THE ACQUISITION
ANDINTEGRATION OF NEW ENTITIES
The Company has a policy of expanding into new segments,
frequently refl ected in the opening and acquisition of new studios.
The integration of these studios is critical for the Company’s success
in order to meet future growth targets.
To ensure that these new entities are integrated successfully, the
Company has put in place a number of solutions to support the
teams. Similarly, the Company continues to develop the skills of its
administrative teams in order to limit fi nancial, tax or legal risks.
A sound fi nancial structure for the target company (net fi nancial
surplus and level of available equity) is expected to minimize these
risks. However, despite the in-depth analysis of target companies,
the risk of overvaluing an acquired company cannot be ruled out,
and could result in the Group recording a signifi cant write-down
of assets.
However, Ubisoft has always proven itself capable of integrating new
companies into the Group. The potential loss of key employees at
the target company could also have a negative impact on fi nancial
performance.
RISKS ASSOCIATED WITH RECRUITING AND
RETAINING TALENT
The Group’s success largely depends on the talent and skills of
its production and marketing teams in a highly competitive
international market. If the Group is no longer able to attract new
talent, or to retain and motivate its key employees, the Company’s
growth prospects and fi nancial position could be affected.
The Company follows an active policy of recruitment, training and
retention, particularly through the following initiatives:
♦ partnerships with leading universities in the various countries
in which the Group operates;
♦
addition of collaborative tools and forums to encourage skills
sharing;
♦
implementation of various high-level training programs tailored
to the video game sector.
Furthermore, all of the programs introduced by human resources
at local and international levels are fi rst and foremost designed to
attract, train, retain and motivate employees with strong technical
- Registration Document 2016
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