Welcome everyone, and thank you for joining the call today. We foresee the solid performance this semester, outperforming our expectations, notably thanks to the strength of our back catalog, driven by the Rainbow Six and Assassin's Creed franchises. This puts us on the right track to reach our EUR 400 million non-IFRS EBIT objectives this fiscal year. This semester, we continue to transform Ubisoft. We are focusing our resources on our biggest opportunities while adapting our organization, as exemplified by the newly announced global creative office and our ongoing cost optimization efforts. During our recent Ubisoft Forward event, we revealed our most ambitious roadmap ever for Assassin's Creed brand, which received an incredibly enthusiastic response from fans. Our objective is to bring the brand to new heights by reaching a significantly wider audience with more platforms and business models.
We are replicating this strategic template with our other major brands, starting with Rainbow Six and The Division in the near future. In September, with the objective of growing our business collaboration with Tencent, as well as bringing stability to the company, we expanded our shareholding concept. This was essential to deliver on our full value creation potential with significant top line and operating income growth over the coming year. I will now let Frédérick detail our H1 performance. Frédérick?
Thank you, Yves, and hello, everybody. This semester, both unique active users and MAUs, that stood at EUR 36.5 million, were stable versus H1 of last year. We delivered a solid performance with H1 net bookings reaching EUR 699 million, down 3% year-on-year. Our Q2 net bookings came out at EUR 406 million at 4% year-on-year, well above the EUR 270 million guidance. This overperformance benefited from the much stronger than expected revenues from our back catalog, and to a greater extent, from the faster recognition of revenues from the mobile licensing partnership announced in July. As a reminder, Q2 of last year saw material revenue from Far Cry 6 pre-shipments. Lastly, exchange rates had no impact on this overperformance.
Operationally, we can notably highlight the strong performance this quarter from Rainbow Six Siege that, after initial improvements in Q1, saw net bookings up 18% year-on-year, with record ARPU reflecting the high-quality content the team has been working on. The Assassin's Creed franchise also registered another excellent performance across Origins, Odyssey, and Valhalla that once again exceeded expectations. Back catalog in Q2 was down 14% year-on-year, mostly explained by the release of Assassin's Creed Valhalla second DLC in Q2 last year. Total digital net bookings reached EUR 380 million at 37% year-on-year. PRI stood at EUR 269 million at 54% year-on-year. Within PRI, mobile amounted to EUR 153 million compared to EUR 39 million in Q2 of last year. This significant revenue increase reflects the first revenue recognition linked to the mobile licensing partnership.
Let me now go into the details of our H1 earnings. First, you will find our non-IFRS P&L on slide six of our presentation. Gross margin was up by close to three percentage points, reflecting a significantly higher proportion of digital, including the revenues linked to the mobile licensing partnership and recurring back catalog. R&D was up significantly. I will come back to that point in the following slide. SG&A was up a limited 4%, reflecting a EUR 2022 million decrease of variable marketing expenses, which was more than compensated for by a EUR 33 million increase in structural costs. As already mentioned, our goal is to progressively bring our structural costs back to fiscal 2022 levels by the course of fiscal 2024. This means that fiscal 2024 structural costs will be well below fiscal 2023 levels.
Please refer to our press release or presentation appendix for the full IFRS to non-IFRS reconciliation. Turning now to slide seven. P&L R&D was up EUR 176 million. As expected and in line with the full year guidance, this reflects three elements. First, accelerated depreciation linked to the additional time we have provided to some of our games as is standard practice. Second, the depreciation of capitalized R&D related to the cancellation of four projects that was announced in July. Finally, H1 P&L R&D was impacted by the fact that we released eight major games on a two-year rolling period, versus only six on the two-year rolling period last year, leading to a mechanical increase in depreciation. Total cash R&D was up 17% as expected.
As a reminder, fiscal 2023 will be the last year of meaningful cash R&D growth before it stabilizes in fiscal 2024. Looking at our cash flow statement on slide eight, with no major game being released this semester, free cash flow stood at EUR -110 million versus EUR -333 million in H1 fiscal 2022. This mostly reflects the following impacts. On the one hand, the EUR 288 million favorable move in change in working capital requirements. It notably reflects the unwinding of the EUR 113 million increase in trade receivable at end of March 2022 versus March of the previous year, while last year's first semester was unfavorably impacted by Far Cry 6 early shipping and Assassin's Creed Valhalla season pass reversals.
On the other hand, the EUR 67 million decrease in cash flow from operations, driven by the decrease in net income that was partially offset by the reduction in the gap between cash and P&L already. Non-IFRS net debt stood at EUR 331 million , slightly up versus last year, and cash and cash equivalents amount to around EUR 1.5 billion , slightly up versus a year ago. We continue to expect a high positive cash flow from operations this fiscal year. Looking at Q3, we expect net bookings of approximately EUR 830 million , up 11% year-over-year.
The quarter will benefit from the release of Mario + Rabbids Sparks of Hope, Just Dance 2023 Edition, as well as additional content for our live games, including an expansion for Far Cry 6, major content updates for Rainbow Six Siege, and from additional very significant milestones from our mobile licensing partnership. Mario + Rabbids Sparks of Hope is critically acclaimed with an exceptional 97% recommendation score on OpenCritic. Our ambition with this title is to reach a significantly larger audience. On top of leveraging a massive install base, we have an ambitious marketing plan alongside material support from Nintendo that will grow throughout November and December, when the mainstream audience will be the most receptive. 80% of the marketing spend is still ahead of us. We expect the game to outperform its prior opus and to be a strong holiday performer.
Today, we confirmed our significant net booking growth target for fiscal 2023, expected above 10%. The second semester will be built on the following pillars. First element, the release of Mario + Rabbids Sparks of Hope, Just Dance 2023, Skull and Bones, and the first free-to-play initiatives, as well as an expansion for Far Cry 6 and additional content for our live games, including Rainbow Six Siege, year 7, season 4. Second element, the significant impact from the mobile licensing deal, for which the clear majority of the up-front recognition will be booked in H2 fiscal 2023. Third element, the favorable foreign exchange impact. We also confirmed our fiscal 2023 non-IFRS operating income target of approximately EUR 400 million. On the cost side, we confirm our objective to stabilize our global headcount by the end of fiscal year versus March 2022.
This cost optimization program will deliver material cash and P&L savings related to our main guidance assumptions. A bigger impact will be delivered in fiscal 2024 and fiscal 2025. We are now ready for your first questions.
Thank you. Dear participants, we will now begin the question-and-answer session. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. Please stand by while we compile the Q&A roster. This will take a few moments. Now we're going to take our first question. Please stand by. The first question comes from the line of Charles-Louis Scotti from Kepler Cheuvreux. Your line is open. Please ask your question.
Yes, good evening everyone. A couple of questions from my side. The first one on the licensing, mobile licensing agreement. Any chance you can help us quantify the size of this agreement and whether or not you would have beat your guidance for Q2 if you had not you know accelerated the recognition of revenues during the quarter? Second question on the Q3 guidance, which is pretty optimistic, probably a bit. Is it fair to assume that most of the licensing, mobile licensing agreement will be recognized in Q3, or is it going to be you know equally split between Q3 and Q4?
Third question on the full year guidance, which implied EUR 540 million non-IFRS EBIT with only, you know, two games launched. How comfortable are you on this guidance? You said that it will include some free-to-play initiatives, so it would be nice if you could, you know, give us a little bit more color on the upcoming free-to-play initiatives. Finally, on the Rainbow Six Siege Mobile, can you tell us when you plan to soft launch the game and when we can reasonably expect the game to be out? Thank you.
Thank you, Charles- Louis. Yes, we would have beaten our Q2 guidance without recognizing a bit faster the mobile licensing agreements. As we said, we benefited from a much stronger performance on our back catalog, primarily due to Assassin's Creed and Rainbow Six. That was, as we mentioned, only growing versus last year. Yes, we clearly outperformed even without the impact of the licensing agreement. In terms of quantifying, as you know, it's confidential information for this competitive and sensitive reason. It's, as we said back in July, this is a sizable partnership.
As we mentioned earlier, the majority of it will be recognized in the H2 , but there was a good portion in the H1 . It's an important partnership for us, as we said back in July, because it allows us to expand our mobile footprint with one of our biggest brands. On the second question, there will be, as I've just mentioned, the majority of the recognition of revenue in the H2, and that would be impacting Q3 and Q4. As for your third question, yes, we're comfortable to deliver on the EUR 400 million operating profit.
In terms of the free-to-play initiatives, as this is in the very beginning of these launches, we included a very marginal contribution. We don't depend on them to deliver on the EBIT guidance, to be clear. We've been very happy with the first results of the closed beta of Rainbow Six Mobile. The metrics are very supportive of the retention, and it was important with such an Android test to confirm that the game will be able to reach wide audiences, including emerging markets. As for our other free-to-play initiatives, in terms of testing and development, they're also progressing very well.
Okay, thank you very much.
Thank you. [crosstalk]
Now we're going to take our next question. Please stand by. The next question comes to the line of Nick Dempsey from Barclays. Your line is open. Please ask your question.
Yeah, good evening. I've got three questions. First of all, I may have missed it, but did you confirm that significant growth in net bookings was still 10%+? Second question: When I look at the EUR 830 million of guidance for Q3 and then back out what is implied for Q4 by 10% growth, gets just over EUR 800 million in Q4. Does that mean that you're expecting the release of Skull and Bones to deliver roughly the same kind of revenue as the release of Mario + Rabbids? Or are there free-to-play games helping in there? Are there other things that mean that Q4 can be roughly the same size as Q3?
The last question: Can you confirm the Division Heartland and XDefiant are still lined up to land inside FY 2023?
Yes, we do confirm that the significant growth of net bookings this year means to be above 10% growth. As for Q4, we expect Skull & Bones to be a key contributor of the quarter, so clearly bigger than Extraction last year. Mario + Rabbids still being the bigger game of the fiscal year. We will of course, as we said before, have the impact of the licensing agreement. As for the free-to-play products, we're still progressing well to have some free-to-play games being launched by the end of this fiscal year. We will confirm the release dates whenever we finalize all the testing phases.
Okay. Thank you.
You're welcome.
Thank you. Now we're going to take our next question. Please stand by. The next question comes to the line of Nicolas Langlet from Exane BNP Paribas. Your line is open. Please ask your question.
Yes. Good afternoon everyone. I've got three questions. First one: The mobile net booking was around EUR 160 million in Q2 versus EUR 40 million in Q1. Is it fair to assume that the difference mostly come from the licensing agreement? Secondly, what percentage of the full year contribution from the licensing agreement have you booked in H1 compared to H2? Second question on the R&D expenses: Of the EUR 452 million in H1, how much is related to the cancellation of four games, so the accelerated depreciation of those gains? Finally, on the cash R&D: Given you expect to stabilize the headcount by the end of the year, is it fair to assume H2 to be fairly in line with H1? Thank you.
On the first question, yes, most of the difference is coming from the mobile licensing agreement. As I mentioned, a clear majority of this agreement net booking recognition will be booked in the H2. On the R&D expenses, as I mentioned, there are three items that reflect the increase in expenses. Cancellation of four games is a key element of that, together with the fact that we accelerated depreciation related to games that we delayed. Also, as I mentioned, the mechanical impact of the fact that we launched more games recently than two years ago. Can you just repeat, sorry, Nicolas, the third question?
Yeah, on the cash R&D spending for the full year. Given you plan to stabilize the headcount by the end of the year, should we extrapolate what you spent in H1 for H2?
On the cash R&D, what we can say is that we plan for meaningful growth in the full year. That's been the case as expected in the first year. We plan to have R&D being stabilized in fiscal 2024 versus fiscal 2023.
Okay, thank you.
You're welcome.
Thank you. Now we're going to take our next question. Please stand by. The next question comes to line of Douglas Creutz from Cowen. Your line is open. Please ask the question.
Hey, thank you. Just about the Far Cry 6 expansion you mentioned, is that something that's gonna be scoped like New Dawn was for Far Cry 5? Or is it a bit smaller like a normal DLC? Thank you.
It's a bit smaller.
Okay. Thank you.
Thank you.
Thank you. Dear participants, as a reminder, if you wish to ask a question, please press star one one on your telephone keypad. Now we're going to take our next question. Please stand by. The next question comes to the line of Brian Fitzgerald from Wells Fargo. Your line is open. Please ask your question.
Thanks guys. A couple questions. I wanted to know, there's been a lot of impacts to the marketing channels with what Apple was doing and the ATT, so I wanna know what you're seeing with respect to player acquisition costs, which channels are working for you most effectively right now? Is that changing dynamically? We heard from Snap and Google, and I think even Meta have pointed to softness in game ad budgets, so maybe you're getting better yields there in certain social environments. Can you talk about how your marketing is performing now?
Yeah. I can say that our marketing is performing well. It's been more efficient than before, and we could save money in the H1, and we plan to do so in the H2. We still, of course, come with a very sizable budget for our upcoming launches.
Okay. Maybe one other one is just the state of competition for talent. How's your retention going? How's your acquisition going? We've heard, you know, certain companies in the technology sector pulling back heads, pulling back hiring amidst the macro. I wanna know how you guys are thinking about talent acquisition.
Yeah. It's getting a lot better. Actually, we were able again to have 360 people coming back in the first semester and very highly talented people. It's much better than what it was one year ago.
Got it. Thanks, gentlemen. Appreciate it.
Thank you.
Thank you. Now we're going to take our next question. Please stand by. The next question comes to line of George Samuel Brown from Deutsche Bank. Your line is open. Please ask your question.
Hey, thanks for taking my questions. I have two, if I may. On Mario Rabbids, there was an article a few days ago saying that this game was tracking behind the previous release in 2017 in terms of physical sales. Can you provide any comment on the truth of that article? Then secondly, in terms of that game, can we expect any DLCs coming this fiscal year, or are they coming next year? Then secondly, in terms of the cash R&D, can you share with us the growth we may see in fiscal year 2023? You said that in fiscal year 2024 it's flat, and fiscal year 2023 we have meaningful growth. Could you give us any color on this? Is it above or below 10%?
On Mario + Rabbids, clearly we're very happy with the critical praise that we had and with such an exceptional recommendation score. We're satisfied with the early sales. We're still about to spend our biggest chunk of the marketing, so it's still to come, because we're targeting a much bigger audience, which will be mainstream during the holiday season. We're going to spend 80% of the total marketing budget in the coming weeks and months. We have a very strong support from Nintendo. We'll also benefit from a much bigger install base. With this game, we see a stronger digital share than for the previous opus.
On the DLC side, I think it's a couple of DLCs that will arrive before the end of the year.
Just for cash R&D, it's been growing in the H1 17%. As I said, you should expect for this total fiscal year to be a meaningful growth. Again, I will just repeat that, we will stabilize it in fiscal 2024.
Okay. Perfect. Thank you.
You're welcome.
Thank you.
Now we're going to take our next question. Please stand by. The next question comes from the line of Charles-Louis Planade from MidCap. Your line is open. Please ask your question.
Hello everyone, and thank you for taking my question. Maybe you already gave some indication about this, but is it fair to assume that you recognize around EUR 150 million-EUR 200 million with your mobile licensing partnership during the H1?
Hello, Charlie. What I can say is that we recognize a significant portion in the H1, but I think it's a number that is slightly lower than what you just mentioned.
Okay. Thank you.
Thank you. Now we're going to take our next question. Please give us a moment. The next question comes from the line of Eric Sheridan from Goldman Sachs. Your line is open. Please ask your question.
Thank you much for taking the questions. Maybe two, if I can. First, in terms of moving past fiscal 2023, what does the team see as the biggest opportunity set to continue to optimize the cost structure of the company beyond fiscal 2023? Just leaving aside what elements of revenue growth can produce operating leverage, but just in a vacuum, what are optimized costs that we should be keeping in mind on a multi-year view beyond this fiscal year? With the creation of the global creative office, maybe a second question would be, how should investors and analysts think about a manifestation of what that will mean in terms of creative cadence, revenue growth, or again, maybe optimized costs that come out of the efforts of having that sort of global creative office now within the company? Thanks so much.
Okay. On your first question, what is important to have in mind is that, so we accelerated investment over the last years because we wanted to bring free to play on top of premium. We are now very close to the critical size that we wanted to achieve when we decided to do so. We have the biggest pipeline of products in our company's history to enter into a very strong growth in the coming years. Now, naturally, we are at the stage when it's the right time to go after more efficiency, synergies and simplification of our organization, like with we've been doing with the move from our regional base to our global base, publishing organization.
This is what we're doing on top of focusing on our biggest opportunities, and that's why we recently canceled four games. That's why, on the cost structure side, we anticipate that we will get back to the fiscal 2022 levels in the course of fiscal 2024. We will trend towards fiscal 2022 by the end of next fiscal year.
On the global creative office, the goal is to specialize the teams that are following the different brands and projects so that they are more agile on making sure those games are well followed and being very specialized in the topics they are looking at.
Thanks so much.
Thank you. There are no further questions, and I would like to hand the conference over to Yves Guillemot for closing remarks.
Thank you very much for your questions and have a good evening and good morning for the others. Thank you.