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Ubisoft Sees Sales Up, Digital Sales Boost, But High Costs Lead To Restructuring

Ubisoft saw sales up 57% in its first half and slightly narrower -- but still substantial -- losses, yet with R&D costs up, the company is canceling some projects and restructuring studios.
Ubisoft saw sales for the first half of its current fiscal year up 56.7 to €260 million ($343.5 million), but closed the period with a €64.9 million ($88.4 million) loss. Still, that loss is narrower than the same period last year, when it reported a €77.5 million ($105.4 million) loss. More releases, strong back-catalog sales and the strong performance of digital titles like Scott Pilgrim vs. the World helped create the sales boost. But as CEO Yves Guillemot explains: "The market environment continues to be tough and although our gross profit rose sharply, the increase was lower than we expected and we had to accelerate depreciations on certain released titles." Ubisoft also said it saw higher R&D costs over its first half. The company saw a €50.3 million ($68.4 million) increase in R&D expenses to €98.4 million ($133.8 million), or 37.8 percent of its total sales. It impacted the company more this time, because some of its R&D depreciation has been historically recognized in the second half of its fiscal year rather than in the first. The second quarter saw a 19.3 percent sales increase to €99 million ($134.9 million) -- higher than the company's guidance. However, Ubisoft called out Tom Clancy's H.A.W.X. 2 and R.U.S.E. for having "performed below expectations." During the second quarter, the company said its back catalog continued to see "solid" performance thanks to Just Dance's continued success -- the title has sold through 4 million units since launch, Guillemot said on the company's call to investors alongside the results. Scott Pilgrim vs. The World was the top-selling PlayStation Network game over the quarter, said Guillemot, playing a key role in the company's digital sales increasing twofold during the period. Ubisoft also highlighted its increased marketshare, gaining a whole percent in the U.S. and .9 percent in Europe to reach 5.2 percent and 7.5 percent, respectively. The company also noted it is "taking measures to adapt its structure to the major changes in the industry by reorganizing the roles and operations of its studios, which has resulted in the termination of certain projects." The terminated projects spelled €62.1 million ($84.6 million) in reorganization charges in the first half of the fiscal year. On the company's call, Guillemot further revealed that Ghost Recon: Future Soldier and Driver San Francisco, planned for fiscal 2011, have both been moved to fiscal 2012, which ranges from April 2011 to March 2012. Overall, however, Ubisoft says its outlook for the holiday period is "extremely encouraging," thanks to strong momentum of Just Dance 2. Since its mid-October launch, its sales are up 75 percent on its predecessor, while pre-orders for Assassin's Creed: Brotherhood, which launches tomorrow, are up 25 percent on Assassin's Creed II -- although on the call Guillemot said he expected Brotherhood's performance to end up "slightly lower" than its predecessor. The company's holiday season will also see the launch of Michael Jackson: The Experience and Raving Rabbids Travel In Time. Added Guillemot: "We are also encouraged by the very positive early performance of Kinect and the good showing of our games for this system, especially Your Shape: Fitness Evolved, which is the best selling third-party game for Kinect in the United States." The company expects to meet its full-year goals of sales growth and a return to profitability, expecting sales over €960 million ($1.3 billion) for the fiscal year. "We are continuing to overhaul our studios' roles, operations and structures in order to meet the new challenges in our industry, and we are focused on offering highly innovative and creative products, as well as enhancing quality levels, releasing new iterations of our major franchises on a more regular basis, providing gamers with an richer online experience and attracting a constantly growing number of casual gamers," Guillemot concluded. The company's fiscal first half and second quarter closed September 30, 2010.

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