Investor Update

Oct 24, 2019

Good afternoon and good morning, everybody. Thank you for joining us on such a short notice. Over the past few years, we have benefited from the profound evolution of our portfolio of franchises. We have been able to expand our segments reach by establishing a strong foothold in diverse genres, from action adventures to shooters, RPG, solo, multiplayer and Esports. We have deeply transformed the group as we now combine our strong creative DNA with a data driven and player centric approach. We have learned to operate strong live services, which has allowed us to support our games over the long term and to continuously improve our players' experience. We can rely on a robust back catalog, which ended up again higher than expected in Q2, thanks notably to another remarkable performance from Rainbow Six and Assassin's Creed Odyssey. While we are proud of those achievements and of our evolutions toward a more recurring and profitable profile, our latest two AAA releases underperformed commercially versus our anticipation. Additionally, while the Division two was critically acclaimed, West African Breakpoint's critical reception was very disappointing and ended up significantly below our expectation. In the end, we did not fully deliver on both gains potential. For Ghostric and Breakpoint, most signals were indicative of a very solid critical reception. The game benefited from record like ratio among players during history. It was awarded best PC game at Gamescom, and previews were solid. The final internal tests of the game were conducted we conducted based on the launch version ended up with high scores. Obviously, we will conduct a full review of our internal test process. However, it is important to note that those processes did not fail in the recent past as they allowed us to deliver Assassin's Creed Origin, Assassin's Creed Odyssey and Far Cry five, which were all critically acclaimed. So why did we deliver as well this time? We have identified three main reasons. First reason, we continue to learn and adapt to the realities of live operations. And what we just experienced is that it is not it is more difficult to create interest for a sequel of a successful live multiplayer game when the past iteration has benefited from years of optimization and improvements. With so many learnings and build in confidence from our teams, we wrongly believed that after a thirty to thirty six month gap between releases, players could be ready to enjoy new adventures of our live games. In the end, it proved a too short time frame. Second reason, our strategy to evolve the gameplay formulas of our brands with new innovations has had a very positive impact on our franchises. From Assassin's Creed to Rainbow Six, we have significantly grown our portfolio. However, some of those changes of formula of formulas can be unsettling and require perfect implementation in order to offer an optimal experience. This has not been the case in with Gothric and Brightpoint. The changes we brought to its core gameplay have indeed generated very negative reaction. And the strength of the game, namely the freedom of choice it offers to players, its shooting mechanics, the beauty of the world, satisfying co op and PvP gameplays, as well as John Bernstein's performance did not overweighted the disappointment. While the change of formula has been very well received by some players as average daily playtime per player is very strong at more than three hours, it has also been rejected by an important portion of the community. Third reason, the end Costa Rican breakpoints reception gap lies also lack of differentiation, which was well covered over the past two weeks. The learning are straight and clear. First learning, we need to make sure that for live multiplayer games, there is sufficient time between each iteration releases to build strong anticipation and momentum. Second learning, we need to make sure that all our upcoming production benefit from enough development time. This has been our strategy for many years and it has proven very effective. The situation is telling us we can't make exceptions. This is even more true when we bring new innovation that require complex optimization. Third learning. While many of our titles are strongly differentiated, we need to ensure this is the case for all of them. We are already acting on those learnings and tackling those issues head on. We are implementing today the first changing at the group level to improve execution. We have evolved our processes few times already in the past with remarkable effect, and we will focus our energy to ensure we deliver again. The short term consequence is we have taken the difficult decision to delay Gotham Monster, Rainbow Six quarantine, and Watch Dog Legends. We did a full review of those games in the past two weeks. We are very confident in their potential and they each have a strong identity. The team are progressing well and could have delivered in Q4 as expected. However, we have decided to give our teams more time to polish the breakthrough. We want to offer an optimized experience and meet the high expectation that players have and that we have ourselves for this innovation cycle. I also want to be clear that our decision is not related to our competitors' release calendars, which are in flux and evolving. This decision is in large part equivalent to delaying those gains value by a few months, it has a huge impact on the current fiscal year. This is a significant setback on our commitment to deliver recurring performance and high profitability. But at the same time, we believe this decision is in line with our strategy to strengthen the value of our own IPs and the long term benefits for our teams, players and shareholders. Net of all these decisions, our lineup for fiscal year twenty twenty one is significantly bolstered. We expect a very strong financial performance for next year and Frederic will present the details. In a thriving industry and with video games growing dominant as form of entertainment, the future growth opportunities for Ubisoft are meaningful, and we are ideally positioned for that. We are investing to develop our franchises and PAI to catch mobile and new market opportunities, including eSports and to leverage the strength of our own IPs in the advent of streaming and the multiplication of platform. We therefore benefit from plenty of robust drivers to grow our top line and profitability over the coming years. I will now let Frederic detail our new target assumptions. Frederic? Hello, everybody. Thank you, Yves. For fiscal twenty twenty, we now target the net bookings of approximately €1,450,000,000 versus €2,185,000,000 previously. The drop in the net bookings guidance is explained by: first, significantly lower expectations for Ghost Recon Breakpoints and to a lesser extent, lower expectations for the Division two for the remainder of the year Second, the delay of Gods and Monsters, Rainbow Six Quarantine and Warzlock Legend to fiscal twenty twenty one. We also expect non IFRS operating income to end up between EUR 20,000,000 and 50,000,000 versus a prior target of EUR $480,000,000. This sharp reduction is by a very large extent explained by the reduction of our expectations for Ghost Recon Breakpoint and by the delay of the three titles. The remaining gap is coming from our lowered expectations on the division too. Of note, this EBIT reduction includes impairment charges on Ghost Recon and takes into account some marketing expenses that have and will be spent this fiscal year to prepare for the launch of the three titles in fiscal twenty twenty one. Based on these new targets, we expect a negative cash flow from operations for fiscal twenty twenty. With strong equity and long term financing means, we benefit from a strong financial position to pursue our development. As Yves said, while the decision to move our titles is having a very material impact on fiscal twenty twenty, it also means that fiscal twenty twenty one will boast a very strong lineup. It will now include Gods and Monsters, Rainbow Six Quarantine and Watch Dogs Legend as well as Royal Champion that we also moved out of fiscal twenty twenty. Gods and Monsters, Rainbow Six, Parenting and Watch Dogs Legion will be released between Q2 and Q3 of next fiscal year and will be optimized for the next generation of consoles. We will provide more details at a later date. Along those titles, we will also release AAAs from our biggest franchises. Finally, we are taking advantage of such a strong lineup to provide more development time to Skull and Builds, initially expected for fiscal twenty twenty one. With such strong foundations, we are introducing our initial targets for next fiscal year, with net bookings and non IFRS operating income of approximately €2,600,000,000 and €600,000,000 respectively. Finally, we will report our first half earnings on October 30. As auditors are currently reviewing our financial statements, we won't be able to make any comments today on this. I now hand over the call back to Yves for his conclusion. Thank you, Frederic. To conclude and before answering your questions, I would like to highlight the following. First, we are very disappointed by the revision of this fiscal year target. We believe we are taking the right decision for the long term of the company, and we highly value the trust placed in us by our employees, players and shareholders. Our goal is to deliver again great value for our stakeholders over the coming years. Second, we plan to get back on track as soon as next fiscal year, which is expected to be very strong with a great lineup. Third, The Gulf African Brightpoint Team is all at work to support the game of many of the improvements that players have been asking for. More about that in the near future. And finally, I would like to reconfirm that the future looks amazing for our industry and for Ubisoft. We are only at the outset of major transformation that will see our total addressable market grow to 5,000,000,000 gamers in the next ten years. We are ideally positioned to leverage our franchises on more platforms notably mobile, accelerate our development in new territories like Asia and build on the acceleration of technology capacity and multiscreen experiences brought by streaming and cloud gaming. We are now ready to take your questions. Thank We will take our first question from Nick Dempsey of Barclays. Please go ahead. Your line is open. Hi, guys. Good evening, guys. I've got three questions. So first of all, can you give us a sort of broad range for sense of the number of units that you do expect to sell from Ghost Recon Breakpoint? I know you're not going to be precise, but some kind of indication there. Second question, when we're thinking about next year, first of all, Cyberpunk 2,077 launching on the April 16, to what extent is that going to be a big competitive factor in terms of your launches? Or will you be enough beyond that for it not to have any effect? And then the two AAAs from your big franchises, which you're presumably planning to launch in the quarter to end March 2021, is that the best time to launch two AAAs from your big franchises? Are you kind of being squeezed into the wrong window for those by the situation? Thanks. So, Henrik, as we said on Gulf record breakpoints, we significantly lowered our expectations. We cannot give you any more detail, but of course, that's a significant decrease in the number of units. And we also anticipate that there will be some pricing movement down. On the Cyberpunk, in fact, we don't consider competition when we decide to the dates of releases just of the release of games just because dates are always changing. So we consider that. As you know, our key criteria for choosing the dates is whenever we think the games should be ready for the right level of quality. That's what we had seen with SSENSEQIDL DC doing very well in terms of quality in front of credit redemption too. So we've we've learned that it's the the key criteria to to keep on respecting. And in fact, we we think that the games we are coming now next year with, the two games we had plus the three games we are going to take from Q4 to the rest of the year, will be a very high quality, well polished with also a very good identity. So we think they will be really well armed to be strong sellers during the year. Okay. Can I can I ask one follow-up, which is do you think that the presence of Apex Legends and Fortnite means that games that don't quite hit the mark are selling much less than they would have done in the past because the barrier to the hurdle to make you buy a new game is higher when there's these free games around? There's competition, and it has always been competition on the market. What we see is when games of high quality, they tend to sell very well. Here, when we speak about Gastrican and the division that are not doing what we expected in sales. We feel it is due to the fact that people have been able to play those games for a long time and they have been experiencing that gameplay for a long time. So we need to wait longer before we come with something more differentiated first. And that is also coming quite a lot of time after they had that experience. So it's a different formula and with more time to try and replay those kinds of formulas. In ANS formula, sorry. Will take our next question from Tom Singlehurst of Citi. Please go ahead. Your line is open. Yes. Hi, it's Tom here from Citigroup. Yes, the I suppose really only one question. Mean, I can see this how the seesaw works between 2020 and 2021 guidance. Overall, it looks like if I look at consensus numbers, we're losing about €300,000,000 or €350,000,000 of operating profit, which I suppose is consistent with, I don't know, 5,000,000 fewer units on lower pricing for Ghost Recon. I suppose the question is how if you were in our position, how would you think about the trend beyond 2021? It's now an unusually big year in terms of launches. I mean, I'm not asking you to give 2022 guidance because you're not going to give it. But I mean, is it going to be a are we going to sort of a boom and bust profile where this year is very low, 2021 is going to be fantastic and then 2022 is going to be lower again? Or will 2021 be a base off of which we can sort of model going forward? That's the only question. Thank you. You're right. What we see in our game plan is that we anticipate that we will continue growing beyond fiscal twenty twenty one in terms of net booking and operating margin. But you would understand we're not going to give any precise indication as it comes to fiscal twenty twenty two, but we expect to grow. So the aspiration is that's a base that we can use for thinking about how this both the industry and Ubisoft develop medium term? Yes, yes, yes. Perfect. Thank you. We will now take our next question from Ken Rumph of Jefferies. Please go ahead. Your line is open. Hi, gentlemen. Ken from Jefferies. Can I ask something about your comment about the gap between games and the need for differentiation? There could be an alternative interpretation that says, in a sense, that there are games that are small and different, but they can't be big. So that, in a sense, the maximum that a Ghost Recon or a Rainbow Six or a Division can achieve is limited. Or you can be, in a sense, very broad. You can be Call of Duty, come out every year, and grab a big part of the market. And that in a sense, you're falling between these you're trying to be bigger and general without being big enough, or you can be small and different. So my first question is just, know, is is there a risk that that's a situation? The second question just relates again to your point about live games and kind of gaps between games. In a way we're transitioning from a kind of single game followed by a sequel a few years later to a a game with a live game tale. Does that mean that for all of your franchises that, so to speak, the gaps between a Far Cry, between an Assassin's Creed, between each of the Clancy games particularly and even within the the Clancy franchises that, you know, those games have to be spread out further, that the next For Honor has to be maybe a few years later and so on. So are we seeing a kind of, you know because you've got enough games in a sense that you perhaps could have been producing here, but it now looks as if that would imply two smaller gaps. So two questions on this kind of small and different versus large and secondly on gaps between gains. Thank you. Yes, that's an important topic. Our overall strategy is definitely to continue building a very strong portfolio of AAA brands that has allowed us to consistently increase audience and engagement at the same time. And that's what we see that we need to make sure to continue step changing audiences like we've done on Rainbow Six Siege, on Far Cry. We've been building audience in a very material way again since Syndicate and Assassin's Creed Odyssey. So we need to continue doing that across our portfolio. What we learned with the two recent disappointments over the last year is that in the context of live multiplayer games, when you optimize your game, your gameplay and the experience over time, then the players are very happy. But then you need to create more desire, more appetite when you want to these players to jump into the sequel. So that's the learning that we've got with DIVIDION and Ghost Recon that are part of this live multiplayer types of games. And that are also co op games, not PvP games. Absolutely. So that's a key point. The second key learning we are sharing with you is that when we come with a new formula to create this type of new desire appetite, we need to make sure that we must come with a very high optimized player experience. So that applies to each and every game because we usually come with innovation, breakthrough, evolution of formula or changing formula, and that's what we need to make sure we comply with this. The last learning that we are coming with is that we need to make sure that the identity, the differentiation of each and every game will start out even further. So obviously, we are not happy with the fact that our decision here impacts significantly the short term of our financials, but we believe that we're taking then this opportunity to definitely further elevate the quality of all of our games by coming with stronger identity features, differentiation and making sure that they will also come with original new formulas that come with highly optimized experiences. Okay. Thanks very much. May I ask a follow-up, which is are you concerned that gamers are beginning to rebel against more aggressive monetization in games? Because in a sense, a key part of your argument has been we're gonna catch up with what some peers have done on monetization, not perhaps going the full loot box route, but that was clearly one of the things that upset people with Ghost Recon. Do you feel that you're sort of sense trying to catch a train that's slowing down? So first, you need to consider that the increase, in revenue, is really linked to the increase in engagement and also in events that we put in our games. What we have seen is when we are able to create events that bring people to stay longer in our games and have a fantastic experience, they are spending from time to time money in our games. So what we consider is that in bringing a high quality experience that we can increase the revenue per games, knowing that this is linked because we create also more content, so on a regular basis. So it has to come with also a revenue for us. But in the case of Ghost Recon, like our other games, our philosophy is not is to give the the the possibility for players to play the full game 100% without having to spend money in the game. So we have no pay to win elements in our games and it's the what we can say there is that the philosophy we have works for all our games, but it has to be linked to more events, more content for players to play longer. Okay. Understood. Thank you very much. You're welcome. We will take our next question from Matthew Walker of Credit Suisse. Please go ahead. Your line is open. Thanks. Good evening. Just a few questions, please. The first is if could raise good reiterate the timing for the three titles that you're delaying. You mentioned a couple of them were between Q2 and Q3 fiscal. But if you could just repeat what you said and talk about the timing of those three titles. And then if you have any idea about the timing of the two AAA titles and when you might be able to tell us what franchises they will be based on? The second question is really around the catch up story on in game monetization, which was just asked before, just to flesh that out a bit. Obviously, you're saying that you don't have any pay to win. Can you just tell us why it was that with Ghost Recon that you didn't introduce the game, build up the player base first of all before you introduced the micro transactions because it seemed to be the micro transactions was the reason that everybody was giving it such a low score and they felt it was over aggressive. Can you just explain why you didn't just introduce that much more gradually? And the final question is just around your answer to Tom's question on 2022, maybe just be my ignorance, but I can't really see how you can have a year like 2021 where you release five games and then 2022 is even better when there's still some uncertainty around, one, the number of games 22, the execution in terms of monetization because clearly, you need to execute and get that right first. I don't really understand why 2022 is going to be a better year than 2021. So if you could help us with that. Thanks. So first of all, on your first question, yes, the three titles will come between Q2 and Q3. We haven't mentioned the timing for the two other AAAs. We've just said that they will be part of our will be coming from our biggest franchises. But as for timing, we'll give you that later as well as the names. So that's what I can say for on your first two questions. On the monetization side, in fact, what is important to consider is on live games, like Ghost Recon, WiLANS, we already had a store and people were spending buying items on the store. So what they did is to give more options actually at the beginning of Brightpoint. We understand it has been seen as a too big store and that it was really not appreciated at all. But it came from the fact that players were actually spending time in the store and buying things on wide land. And our team thought that they want they could give them the opportunity to have more choice, which has not been well interpreted, but that was the actually the goal. So back to your question on the fiscal twenty twenty two. Yes, it's too early to give you any more detail on what we plan to have in fiscal twenty twenty two in terms of lineup. What is very clear is that, as you're saying, we will focus on having execution rights, and that's why we've taken this radical decision we've just mentioned today to make sure that we further elevate the quality of our games, come with very strong identity games, to come with new formulas with very highly optimized experiences. And that should bring fruits in fiscal twenty twenty one and then fiscal twenty twenty two. As for the growth that we anticipate, we need to consider that we will we're planning to grow into the following years beyond fiscal twenty twenty two, but we're not going to give any specific detail at this stage on fiscal twenty twenty two per se. No. What we can say is that Skull and Bone will be there and that as we will have a very strong lineup this year, we will have a very strong back catalog the following year. Okay. Thank you. You're welcome. We'll take our next question from Robert Berg of Berenberg. Please go ahead. Your line is open. Yes, thanks. And three questions, if I can. The first, I think we started to get a bit worried about Ghost Recon at the closed beta stage, maybe open beta as well quite a few weeks before the release and many games even then were kind of almost begging for a delay. How close were you actually to delaying this game? And what made you have the comfort to go through I'm interested to hear the thought process. If you can discuss it around that. The second question I have is aside from Skull and Bones, I think you've now pushed that into 2022. Have you pushed any other games out of fiscal year 2021? Or was that going to be a three game year? And the third question, last time you gave guidance for this fiscal year, I remember you saying you felt it was prudent and you were making some concessions around the impact of competition. How should we think about your prudence now for the new guidance after what we thought just happened? Have you taken another step lower again in terms of your expectations? Thanks. Yes. Thank you for your questions. In fact, on gross written breakpoints, we had, as we said, good finds on the fact that it was it had a lot of like ratio at E3 that at Gamescom, it was received as the best PC game the best game on PC as during the show that that we we had good playtest just before the launch. Even on the day one launch, we had an even better playtest on the version. So having said that, we expected more increase on the preorders during the open beta, which was not which actually didn't happen. But the game had many of the elements that retract that were well on the way and gave us good opportunities for a good launch. And we have been very disappointed by the reaction that we had when the game was launched. Aside from Skull and Bows, no, we didn't push any further game out to fiscal twenty twenty two. On the guidance that we have mentioned for fiscal twenty twenty, what we had said is that we anticipated that competition was will be lighter this quarter than the quarter of last year. We had said that we were anticipating a strong competition in Q4, and we had said that we wanted to take a prudent stance on the catalog specifically because we anticipated competition to be strong, especially on the shooter side, which we believe is still very true this year. What we anticipate for fiscal twenty twenty two is that, of course, we want to make sure we achieve our objectives. We have reviewed all our games, I can say that they are all coming with very strong identity, very strong differentiating elements. And they are also coming with important breakthroughs and and new formula. So that give us confidence in the fact that we are coming with very strong five AAA games. We will take our next question from Nicolas Langlet of Exane BNPP. Three questions for me. The first one on the full year twenty nineteentwenty twenty guidance for net booking. Can you share the expected split between the new game and back catalog? Secondly, on the Division two, lower expectation, can you tell us a bit more, is it related to monetization of the game or lower than expected in recent months? And finally, you mentioned negative cash flow for the full year. Can you be a bit more specific, what level of free cash flow do you expect? So the fiscal twenty twenty guidance split between new releases and catalog, we'll give you more information next week on the thirtieth. On the Division two, actually, happened is that we had a good Q1. But as we had mentioned, we were relying on the strong post launch program. And what we've seen lately is that the episode updates have not triggered the level of acquisition and activity that we were counting on. In terms of cash flow, yes, I mentioned that we would be negative in cash flow from operations, but I won't go into more detail for now. All right. Thanks. Thank you. We will take our next question from Ray Stochel of Consumer Edge Research. Please go ahead. Your line is open. Great. Thanks for taking my question. So there seems to be a continued evolution and change to the way that you're thinking about game development and your pipeline. So but it sounds like you're not canceling or pushing titles further in the pipeline. So does that mean that you will be repurposing talent at other studios into some of these core franchises in an incremental way? Or will you be potentially even accelerating the rate as to which you're investing in some of this content? Then if you are investing more in content, do you have opportunities around cost savings to offset some of this incremental content investment? Thanks. So what we are saying today is that we of course, we will focus on fixing the issues that we've mentioned. And by postponing some of our games, we really invest into making sure that we'll go for further elevated level of quality, but we believe that it will come with a stronger potential for these games and for the brands behind these games. As for our general strategy, we want to maintain what we've said before in terms of investment pace, meaning that we see strong opportunities to continue growing on our core business, to continue growing in audience and engagement and to make sure that we also go after the massive opportunities for audience growth behind the mobile screen and behind the opportunities that streaming offer to multi screen experiences and from what cloud gaming can offer to us. So that the core strategy actually remained the same. Yes, we are not changing our strategy, but we are making changes to our production organization to make sure that what happened on breakpoint is not going to happen again. So are also, making sure that our processes are changing so that it can we can improve, the experiences again of our products. Great. Thanks. And one follow-up. Are there any learnings that you're having on the marketing side of the equation? There's obviously different ways to acquire users now and I'd love to know if you're thinking about marketing differently. And then on a quantification side, is there any way to think about how much marketing is shifting from what you were previously implying within this fiscal year to the next fiscal year? Thanks. So yes, we are going to improve marketability and we plan to do more work early on to make sure we have more feedback from players before launching many people in creating a game. And that will have an effect, we think, in the the amount we will need to spend to to launch our games. So that's one element. Maybe, Fred, you can answer the other question. Yes. Sorry, can you repeat the second question? Sure. The second question was, is there any way to quantify the shift in marketing from fiscal twenty twenty to fiscal twenty twenty one given the delay of these titles? Yes. We are not going to get into much detail on this. This is, I would say, just a meaningful amount of money that we want to keep in this fiscal to prepare for strong launches for these three games. Again, we believe that they are coming with a strong identity promise and very strong innovation. So we want to establish these games early enough to really prove that they have a strong potential to play us. Yes, some money has been spent in AT3 and preparing elements, but we are going to launch them big time next year. Got it. Thanks again. You're welcome. We will take our next question from Mike Hickey of Benchmark Company. Please go ahead. Your line is open. Hey, guys. Good evening. Thanks for doing this this call. The, I guess, curious on your sort of preliminary budget for fiscal twenty one before you announced the delays today. Were you originally planning for a step down in profitability in fiscal twenty twenty one? Sorry. Can you repeat the the question? I I didn't get it. Yeah. So your original budget, preliminary or otherwise for fiscal twenty one, obviously, fiscal twenty, you're looking for $4.80 in EBIT. Your new budget's looking for 600. Does that imply that, you're looking for a step down in fiscal twenty one on EBIT? You're talking about the cumulative EBIT number adding fiscal twenty twenty and fiscal twenty twenty one relative to our previous assumption? Yes. Yes. The overall impact that we see when we look at fiscal twenty twenty one twenty twenty one cumulated relative to our previous assumption is that the very large impact in the cumulative decrease of the EBIT is coming from our lower expectations, to a larger extent, coming from gross record breakpoint and, to a lesser extent, from the Division two. And the second key element that is impacting the overall two fiscal year is, of course, the fact that we decided to postpone Skull and Bones to fiscal twenty twenty two. And in fact, you have to consider that GOS Recon plus its back catalog and the division this year plus next year. And if you add the delay of Skull and Bone, it makes it comes for actually the actual difference. Exactly. Okay. Okay. Thanks. The, I guess on skull and bones, this is a game that's, been delayed for a couple of fiscal years now. Can you help, shape for us, the development expense that, has gone into this game or will go into this game up until commercialization, I guess, now in fiscal twenty twenty two and reflect on the market opportunity because it seems at this point, perhaps, you know, that effective balance has been compromised. Yes. In fact, Skull and Bone is a very, big product for us, and we want to make sure it comes with, the best quality possible. It it is a very it's a PV it's a PVE type of game, and we think it has a huge potential to stay for the long term. So that's why we are making sure bring the the game at a level that will will surprise and and please all the gamers for the long term. Keeping in mind that it's a new IP, so it's pretty usual that it takes time to get a new IP to market. Yep. All right. Thanks. Last question on WALT DOG Legion. I guess when you look at your three delays, that that's probably the big one. You've taken sort of a a big step, I guess, in a new direction for the franchise with offering players sort of the control of multiple characters. And I realize that initially, you received a pretty, warm response, from the community, although it's clear now that that's not always indicative of quality, with what we've seen from Breakpoint. Are are you more or less concerned now, I guess, in, the step in the new direction with Watchdogs, in terms of the ultimate player reception for that game? Thank you. Yes. As you said, game has been very well received and we see that this new proposition is something that can be a game changer in the industry. We believe that if with the team we have and the potential of this new option, we can have a very good new innovative game to come next year with. So no, we feel we are with even more time to bring that experience to players. We have something in our hands that can be very, very strong. Thank you, guys. Best of luck. You're welcome. We will take our next question from Michael from Goldman Sachs. Please go ahead. Your line is open. Hi, thank you very much for the question. Just have a bigger picture one and then just some housekeeping questions. First, given your commentary that games are going to require a little bit more development time, more differentiation and potentially more space between sequels, do you see the need to potentially change the development process to focus on fewer games but with much larger budgets? And then given the commentary about needing more sufficient development times, why decide to commit to five AAA games in fiscal 'twenty one at all in case something comes up in testing that may require, these games to get pushed out further? So to answer the last part of the question, We have always had, lots of competition, on the market and, it's only the quality that it's the best response to competition. So we feel that, what we will bring will be able to stand any competition. So we are not worried about that. We are always, looking at competition and reacting to it, but we think that the answer is the games that will please our players because they have time and they spend the time on the best quality games. On your first question, Mike, so an important point is that we're not saying that all our games will need more time. What we're saying is that specifically for live multiplayer games, we need to create more space between SQL to create more appetites. That's a very clear learning from what we've seen from the last experiences with division and cost recon. What we are saying as well is that we have already increased time for development over the last years. But what we understand from the learning here is that when we come with new evolution of formula, when we come with innovation and breakthroughs, we need to make sure that it comes with the proper development time to make sure that this implementation are coming with a very highly optimized experience. So for some of our game, and that's decision that is taken game per game, of course, depending on the mandate, depending on the variation the degree of breakthrough that we're coming for, then we can come with a longer development time. And that's what we decided to go for some of our games. Okay. Thank you very much. For those two games, division and Gulf Rican, we thought that because we improved the formula a lot and that our teams learned a lot in doing so, we could come with games faster. It's not the case for two reasons. We need more differentiation and we need to come leave time for players to experience the game that is on and come with a new formula over time. Great. Thank you. And just two quick housekeeping questions. Could you tell us how much were the impairment charges from gross free comp breakpoint that you're assuming for fiscal twenty twenty? And then could you just give us an updated PRI outlook for fiscal twenty twenty? Thank you. So what I can say on the impairment charges for gross recon is that it's a meaningful amount, but I cannot give you any more detail. On the PRI outlook for fiscal twenty twenty, we give you more detail next week. Okay. Great. It's disappointing. We are going to put lots of charges on it. Okay, great. Thank you both. Thank you. We will take our next question from Doug Creutz of Cowen. Please go ahead. Your line is open. Thank you. Can you talk about division for a second? I remember at E3, I think it was in 2018, you had the lead for the game come out and talk about all the learnings that they'd had on division one and how they were approaching the design process for Division II. It all sounded very impressive. Obviously, game didn't sell as well as you would have liked given what were pretty strong critical appraisals of the game. But beyond that, you've clearly had problems retaining players as you've gotten kind of three, four, five months out from the launch. Do you think the issue is that you hadn't learned the stuff that you thought you learned or that you didn't implement those learnings well? Or do you think that the market moved on you and there were new problems? And I ask this in the sense of presumably there'll be a Division III. And how do you make sure you don't have sort of the third replay of what's happened on I and II where you've had problems retaining players? Thank you. First, learn all the time and we react to what happens on the market. We think that the evolution of gameplay is really going the right way. What we think is on the identity part, didn't make enough progress. So that's what we are working on to make sure we really bring each time a big evolution in gameplay, but also characters and settings that are a lot more attractive. Yes. And in retrospect, Doug, the learning is clear on this one is that we should have given more time to the team. Okay. Thank you. We will take our next question from Abdul Sardy of Amplejes. Go ahead. Your line is open. Thank you for taking my question. I have a quick question on Q and A, quality and audit issue you had with cost recon breakpoint. I was a little bit surprised by your comment saying that you didn't see any problem with the with the game. While we see today when we look at all the forms, there is an AI problem, AI that is not responsive, problem with draw distance, with animations. I mean, who is doing the quality and and audit for these games? Because if if there's only 10 people playing the game, you can clearly see that there is a problem. This is my this is my first and all question because I I I thought that Ubisoft will do everything to not have the same issue that you had in the past with as a Sanskrit syndicate. And today, it shows to me that it's it's the exact same thing happening again. Thank you very much. So in fact, on the AI side, there's one thing which is extremely important is that what we have done is we did put many levels for players. So the fact that they are easy levels is not helping to see the potential of AI. When you have you are on the more difficult levels, you see the real quality of the AI. On the other subjects, we always have things that can be improved when we look at a game, but we think that the game we have is of high quality. We realized that there were more bugs than expected at the launch. But when we launched Wideland, we had also a certain number of problems that worked for the players that were still not blockers for players when it was launched because the experience of the corp experience specifically was fantastic. And so we thought that this could be the case this time again that the small flows would be nothing compared with what the experience actually can bring. What we see now is that with the response from players, we were wrong in our assumptions. And as we said, the playtests we actually did before the launch were actually positive playtests, actually good playtests. And so it has been a surprise for us. Okay. Thank you very much. You're welcome. We will take our next question from Giusan Salati of Macquarie. Please go ahead. Your line is open. Hi, good evening. Thanks for taking my question. On first, on the it's not a guidance for fiscal year twenty twenty two, but you kind of slipped in that you expect revenue growth on the 2021 base. Could we expect the same in terms of operating income as in fiscal twenty twenty two operating income growth? Or do we something in the phasing of costs? You discussed write offs and marketing brought forward this year, which affects fiscal year twenty twenty one operating income. Secondly, I'm relatively new to the industry, so apologies if this seems a very trivial question. But if there is one thing you want to improve in the three games you have delayed to next year, what would that be? Is that the monetization? That the identity, the go to market strategy or else? And lastly, has your in the new guidance, have the implied assumptions on recurring versus new release changed at all, recurring revenues versus revenues from the actual sales of the game? Thank you. Actually, what we can say is that the time we are going to have on those three games is going to help us to actually grow the profile of those games. And we expect they can become big brands for the company, for two of them and for Watchdogs to continue to grow. On the on financial year 2022, we gave already quite a lot of information, so we are not going to comment And in terms of your assumptions on the new guidance, if that has changed in terms of how much is contributed from recurring revenues or new releases? On this, as I said, we'll give you more elements next week. Okay. Maybe I can add a cheeky fourth question. We've been here before in autumn twenty thirteen, I think. And the stock was down 30% on Monday and then recovered straight afterwards. No trouble. How do you feel now versus autumn twenty thirteen? It's a good question. What we think is that at the time, it was a good decision to delay Watchdogs because it helped to create a good brand that is continues to be with us and has a strong potential with the next release of the WATCH DOGS three. And it gave the chance for our teams to really create high quality games after that. So the delay of that we had at that time, they were on two games for the following for financial year 2014 and also two games from 2014 to 2015. And that gave us a chance to improve the quality of those experiences and really build the brands that you have now on the market. The similar thinking applies to some extent to Warriors of Legends, Rainbow Six Quarantine and Gods and Monsters, we of course, we are affecting the short term financials, but we actually, by in a large part, just moving the value of these games by a few months. But we take this opportunity, if I may say so, to build stronger potential on these games to establish them for long term. And that's the key point that we are going after. That's great. Thank you very much. Welcome. We will take our next question from Philippe Thurou of Pictet. Was looking actually at history of Ubisoft. I know you you know, we've known each other for a long time. And you you you have a cycle of four years, actually. You did exactly the same thing in 02/2006, 02/2010, 02/2014, and now in 02/2019. So, I mean, for who who follow you for a long time, it it seems that it follows a little bit the consult cycle. Each time there is a big transition in the new console and the new technology you have to adjust, and it seems that you always come to this kind of event. I was looking at what you mentioned about 2022 that will be up on 2021. I was looking at in 02/2016, which was the last year which happened after the the the kind of delay you had in 02/2014. You had a very big year in 02/2015, and then 2016 was down on 2016. That was my first observation. The second one is you mentioned the operating cash flow will be down this year. Are you which level of cash flow are you talking about? Are you talking about the operating cash flow which consensus has today at EUR 900,000,000, which will mean a 900,000,000 kind of deviation into the expected cash or debt on hand of the company? So first, answer your question, first, we are in an industry that has cycles for sure. And actually, when we look at the performance of Ubisoft in the last few years, we if you look at the average growth of the company, I think we are in a very good position compared to our peers. We have been able to create a lot of value. And and I think our shareholders have been very happy. I'm I'm just saying that you're you think that that every four to five years, you have a reset like this, and it's it's been within the Ubisoft history for the past almost twenty years. It was always every four to five years. The last one was, as as it was mentioned before, during the fiscal year 2014 when you pushed back James 15, and then in 02/2010, then 2006 and I can come back. Maybe earlier, it was exactly the same thing. And it seems to follow the the the console cycle as well where you kind of put a lot of resources to develop games. And at one stage, it doesn't work anymore. You have to reset and reorganize. And and I was wondering if if it was linked to the same type of cycle you had before. In fact, we you have to look at Ubisoft in the in the context of all the video game industry. And there are changes in this industry and we have to adapt, and so we do. And what counts is are we capable of creating high quality brands that will generate value for our shareholders on the long term? We think we have been able to do that. Now we are very unhappy that we have problems with the two games we just launched. But we think we are on track to continue to perform and generate good shareholders value in the years to come. And it's really putting the time and effort to create the best games possible that has been a winning formula for the company over the years. And if you look at our competitors, they also are in this industry and they had also a certain number of events. So you have to look also at the industry and also the economic conditions where in 02/2010, there were also some external conditions that had an impact. FRANCOIS Regarding the cash your question, I think your consensus you're referring to for operating cash flow doesn't seem right. What I said actually is that so our cash flow from operations will be negative in fiscal twenty twenty. Okay. And that's the figure, which is around EUR 800,000,000 on Bloomberg, basically. Don't know if it's the same criteria you No. That doesn't seem to be right. Thank you. You're welcome. We will take our final question from Robert Berg of Berenberg. Please go ahead. Your line is open. Yes, sorry. I just wanted to ask another question actually. It feels now the gap between what we're hearing your view of the company and maybe from looking at recent the questions on the call and the share price, the financial markets view of the company is wider than it's been for as long as I can remember. Clearly, the hit this year isn't great for your leverage or cash position. But how are you thinking about maybe utilizing cash for buybacks or giving some kind of signal that you think the perception of your company is now too negative? Yes. I think what we're saying today is that it's a stated a strong statement to focus for the decision we're making to bid and focus on the long term value creation for our games and behind that for our brands and players and for the shareholders ultimately. So that's a key important element behind the decision that we are announcing today. In terms of cash use, we believe that we have strong value creation opportunities ahead of us. They have not disappeared. We have a strong portfolio of brands, and we believe that we can put them further into stronger audiences to go after strong opportunities in Asia on mobile and to benefit from streaming on the longer term. So I feel very right in the way you should consider the value of the company for the long term. Beyond the internal investment into internal growth, we can also, of course, continue looking at M and A opportunities, which we are constantly looking with a priority to go into mobile. Yes. It doesn't mean we are not going to look at also potential buybacks. What we feel is that with the lineup we have to come in the next few years, we are really in a good position to really grow quite fast, and we think we will be able to show that soon when we will unveil all the games that are going to come next year. Great. Thanks guys. Thank you very much for one last question, sorry. One last question from Ken Rumph of Jefferies. Please go ahead. Hello gentlemen. Just trying to clear up that question about the cash flow figure. I'm guessing that you're referring to the cash flow from non IFRS operations, which was about €385,000,000 last year. That I'm guessing that's what you're talking about. Cool. Okay. We can work out where consensus is, but it's at least we're not comparing negative with 900,000,000 Thanks very much. Absolutely. Thank you very much for all your questions today. What you need to know is it's for us something we are not happy with, but it is pushing the company to perform better and that's what we are going to work on to make sure we continue to surprise gamers with very high quality experiences. So thank you and bye bye.