Paris – December 8, 2005 –Ubisoft, one of the world’s largest video game publishers, today announced earnings for the first half ended September 30, 2005. 

As of September 30, in millions of euros				H1 05/06		H1 04/05
Key elements of the consolidated income statement (IFRS)(1)
Net sales(2)			M€	152.9		128.2
Gross margin			%	62.1		56.9
Current operating income before stock-based compensation			M€	-42.4		-46.6
Current operating income			M€	-43.6		-46.5
Net income			M€	-11.3		-32.9
EPS(3)			€	-0.60		-1.86
Key elements of the consolidated balance sheet
Net debt			M€	83.9		169.7
Gearing			%	24		67

“Ubisoft saw progress in all of its performance indicators and is today a major player in the video game industry. Indeed, already second largest independent editor in Europe(4), Ubisoft joined the top six in the USA(5), and ranks even in the top five on consoles, as it continues to gain market shares. This trend is expected to prevail in the second half of the year: with major game launches scheduled, fiscal year 2005-2006 could well be an outstanding year. The sustained investments that we have done over the past several years, together with the acclaimed quality of our games will make it possible for us to take advantage of every possible growth opportunity presented by the new consoles” said Yves Guillemot, Chief Executive Officer of Ubisoft.

Income statement highlights :
• Net sales : +19%
• Gross margin at 62.1% (up 5.2 percentage points)
• Current operating income: up €4.2 million to -€42,4 million, before stock-based compensation
• Strong improvement of €21.6 million in net income 

As of September 30	H1 2005/2006		H1 2004/2005
	In millions of euros	In % of sales	In millions of euros	In % of sales
Net sales 152.9 100.0% 128.2 100.0%	152.9	100.0%	128.2	100.0
Gross profit 95.0 62.1% 73.0 56.9%	95.0	62.1%	73.0	56.9%
R & D expenses	60.3	39.4%	51.3	40.0%
Sales, marketing, G&A expenses	77.1	50.4%	68.3	53.2%
Current operating income (loss) before stock-based compensation	-42.4	-27.7%	-46.6	-36.3%

Net sales were up 19% reflecting:
- successful sales of games for next-generation portable consoles, which accounted for 19% of sales in the first half of 2005-2006;
- the launch of major titles such as Tom Clancy’s Rainbow Six Lockdown™ for the Microsoft Xbox® and Sony PlayStation®2, Far Cry Instincts™ for Xbox®, and Brothers in Arms Earned in Blood™ for Xbox® and PC.
Gross margin rose 5.2 percentage points to 62.1%, a record level for a first half year, reflecting the success of Ubisoft’s brand strategy and improved inventory management.
The Group continued to invest massively in its internal studios to secure future growth; consequently, R&D expenses were up 18% year-on-year.
Other operating expenses were kept under control (+13%) well below activity growth (+19%).
In total, current operating loss was 42.4 million euros, showing an improvement of 4.2 million euros, before stock-based compensation.
Including a non-cash charge of 1.2 million euros related to the expensing of stock options and a non-recurring supplementary payment of 1.7 million euros in relation with the Redstorm acquisition, current operating loss came at 45.3 million euros.
Net loss shows strong year-on-year improvement of 21.6 million euros to 11.3 million euros. In addition to improved operating performance, it benefited from a 17.0 million euros contribution from Ubisoft’s equity investment in Gameloft. This includes a capital gain(6) (13.5 million euros, net of tax), a dilution profit (2.6 million euros) and Ubisoft’s share in Gameloft’s net income for the period under review (0.9 million euros).
Cash flow statement and balance sheet highlights:
• Net debt divided by two in one year
• Gearing down to 24%

Net debt at September 30, 2005 came at 83.9 million euros, down 85.8 compared with September 30, 2004. The gearing ratio therefore fell to 24%, down from 67% a year ago.
This improvement was achieved with a strong increase in investments to 86.9 million euros (+25%) in the first half 2005-2006 in preparation for the new generation of home consoles. The reduction in net debt notably benefited from the disposal of Gameloft shares (22.7 million euros) and the conversion rate over 99% of convertible bonds issued in July 1998 (21.6 million euros).

Excellent outlook for the second half 2005-2006
As previously stated, the Group is anticipating sales of around 250 million euros (+36% year-on-year) for the third quarter 2005-2006.
“Peter Jackson’s King Kong: The Official Game of the Movie” has been awarded the best scores compared with other multiplatform games derived from a movie licence. With the release of Universal Pictures' highly-anticipated film, King Kong, scheduled for December 14, 2005, this game is one of Ubisoft's top titles for the upcoming Christmas season.
In addition, Prince of Persia: The Two Thrones™ which obtained a record number of magazine coverage and excellent scores, already sold over 1.5 million units. It currently ranks among the most expected games, according to specialized websites .
Also, Ubisoft has scheduled the launch of two new opus of major brands (Tom Clancy’s Ghost Recon® et Tom Clancy’s Splinter Cell®) and three new brands (And 1® Streetball, Heroes of Might & Magic® V et Blazing Angels™ Squadrons of World War II) during the fourth quarter 2005-2006. Moreover, with three titles launched on Microsoft Xbox® 360, the Group should fully benefit from the launch of this next generation home console.

Confirmation of financial targets for fiscal year 2005-2006
With strong revenue growth achieved in the first half 2005-2006 and excellent outlook for the remaining of the year, the Group is well on track to reach all of its financial targets for fiscal year 2005-2006:
• Net sales: 600 million euros (+12% at constant exchange rates)
• Current operating income above 52.5 million euros, before stock-based compensation
• Net income above 38 million euros, before stock-based compensation and before the following items:
o a positive impact related to the equity swap,
o a non-cash charge of 2 million euros, corresponding to the accounting for the convertible bonds.
• Free cash flow above 40 million euros.
• Zero net debt at March 31, 2006 . 

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