Good day, and thank you for standing by. Welcome to the Ubisoft Strategic Update Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during this session, you will need to press star 1, 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1, 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Yves Guillemot, Ubisoft Co-founder and Chief Executive Officer. Please go ahead.
Good evening, everyone, and thank you for joining us on such short notice. Today, we are announcing a major organizational, operational, and portfolio reset, a fundamental change designed to reclaim our creative leadership, regain agility, and restore the conditions for a return to sustainable growth and robust cash generation. This reset is built around three core pillars. First, a new operating model centered around five specialized creative houses. Second, a refocused portfolio with a meaningfully revised three-year roadmap. And third, an acceleration of our cost reduction initiatives to right-size the organization and improve structural efficiency. Let me start with the context. The industry has become persistently selective, especially on the AAA side, and the shooter landscape is increasingly competitive, with rising development costs and greater challenges in creating new brands. Nevertheless, when successful, exceptional AAA content has more financial potential than ever.
While the progress on our production process is translated into improved levels of quality across our releases in 2025, today's environment requires that we step-change how we are organized and operate with the objective of delivering exceptional game quality at more competitive costs. At the core of this transformation are our Creative Houses, integrated business units combining production and publishing, therefore unifying the gamer relationship. Each one is built around a clear creative genre and brand focus, with full responsibility and financial ownership led by dedicated and expert leadership teams, focusing on the long-term value creation roadmap. It is a radical move, relying on a more decentralized creative organization with faster decision-making and best-in-class cross-functional core services supporting and serving each Creative House.
This new operating model will further empower the execution of the group strategy centered on open-world adventures and guest-native experiences, supported by targeted investments, deeper specialization, and cutting-edge technology, including accelerated investment behind player-facing Gen AI. To put the creative houses in the best condition to success, we decided to refocus our portfolio with a meaningfully revised three-year roadmap and accelerated our cost reduction initiatives to right-size the organization. We will discontinue several projects currently in development and provide additional time to certain games in order to ensure enhanced quality and maximize long-term value. We will also selectively close several studios and continue restructuring throughout the group. While these decisions are difficult, they are necessary for us to build a more focused, efficient, and sustainable organization over the long term.
Taken together, these measures mark, as you can see, a decisive turning point in Ubisoft's history and reflect our determination to confront challenges head-on, to reshape the group. The portfolio refocus will have a significant impact on the group's short-term financial trajectory, particularly in fiscal year 2026 and 2027. But this reset will strengthen the group and enable us to renew with sustainable growth and robust cash generation. We are entering a new phase, one designed to reclaim creative leadership and build value for players and stakeholders over the long term. So I will now hand over the call to Frederick, who will walk you through today's announcements in more detail.
Thank you, Yves, and hello, everybody. Let me start with the first pillar of this reset, the new operating model. As mentioned by Yves, our new organization will be structured around five creative houses and supported by, first, a creative network bringing together studios providing development resources, second, shared core services, and three, a reshaped headquarters focused on strategy, governance, performance management, and capital allocation. This new organization will start operating early April. It is designed to simplify the organization and place creative and financial accountability closer to where value is created, strengthening our ability to innovate and execute with greater discipline, flexibility, and speed. At the heart of this reset is a new and decentralized operating model structured around five creative houses. These integrated business units will feature three major changes.
First, they will combine game development and go-to-market functions with a gamer-centric approach and be fully responsible for brand development, content strategy, as well as editorial direction. Second, they will be shaped by distinct creative genres led by dedicated, high-profile, incentivized teams with a unique set of expertise in their respective genres. And third, they will have full financial ownership and account for economic performance. Overall, they will be driven by clear objectives and guiding principles. Each creative house will be organized around a distinct creative genre and designed to concentrate deep expertise in specific types of player experiences. Each house will host dedicated studios and will be responsible for developing must-play experiences for specific audiences and engaging player communities earlier and constantly throughout the developing process.
The first creative house, Vantage Studios, is focused on scaling and extending Ubisoft's largest and established franchises, Assassin's Creed, Far Cry, and Rainbow Six, to turn them into annual billionaire brands. The second creative house is dedicated to competitive and cooperative shooter experiences. It includes The Division, Ghost Recon, and Splinter Cell brands. The third creative house is designed to operate a roster of select sharp live experiences. It includes For Honor, The Crew, Riders Republic, Brawlhalla, and Skull and Bones brands. The fourth creative house is dedicated to immersive fantasy worlds and narrative-driven universes. It includes Anno, Might and Magic, Rayman, Prince of Persia, and Beyond Good and Evil brands, and the fifth creative house is focused on reclaiming our position in casual and family-friendly games. It includes Just Dance, Idle Miner Tycoon, Ketchapp, Hungry Shark, Invincible: Guarding the Globe, Uno, and Hasbro brands.
In addition, there are four new IPs currently in development, including March of Giants. We will communicate on their respective Creative House at a later stage. Each Creative House will benefit from dedicated leadership that will include high-profile talent coming from the industry. They will be tasked with attracting and developing top-level specialist talent and supported by incentive schemes aligned with creative success, player engagement, and long-term value creation. Finally, fully owning the gamer relationship, each Creative House will have end-to-end responsibility for its portfolio, overseeing the full creative and brand scope from development to publishing, including brand marketing and sales go-to-market strategy. They will also be financially accountable, both in terms of P&L and cash generation. This will sharpen strategic focus, reinforce execution discipline, and ensure that investment decisions will be taken closer to where value is created.
To support these creative houses, we are setting up a streamlined organization that preserves our scale benefits while reducing complexity. This new organization will be composed of the creative network that will bring together a powerful set of studios providing best-in-class production capacity and cross-functional creative expertise serving the creative houses. Operating within a structured project-by-project collaboration framework, the creative network studios can deliver both co-development or end-to-end mandates under the strategic direction of each creative house. It will also be supported by three core services that will provide the backbone of our ecosystem and act as an enabler for the creative houses and network. They will focus on delivering scalable technology, production capabilities, as well as business services across the group. First, production services will include production standards and tools, localization, playtest, game analytics, QA, and QC.
Second, technology and infrastructure will include game engines, online services, Gen AI initiatives, and IT infrastructure. Third, business operations and services will include media planning, execution, influencer, and direct-to-player capabilities, pricing and distribution management, as well as customer support. Finally, the new organization will be underpinned by a reshaped headquarters, which will set the group's strategic priorities, ensure support for all creative houses, and maintain a forward-looking view on industry trends, including technological developments and market innovations. It will notably oversee the group's talent management strategy and performance monitoring, corporate communication strategy, legal services, capital allocation framework, and financing, ensuring alignment between long-term strategy, financial performance, and value creation. To support the effective implementation and operation of this new model, the group also intends to return to five days per week on-site for all teams, complemented by an annual allowance of working-from-home days.
This evolution is intended to strengthen collaboration, including constant knowledge sharing and the collective dynamics across teams. We strongly believe in-person collaboration is a key enabler of collective efficiency, creativity, and success in a persistently selective AAA market. Moving on to the second pillar of our reset is a significantly refocused portfolio and a meaningfully revised roadmap. In the context of a persistently more selective market, but also more rewarding, as illustrated by the last quarter and as part of the finalization of the group's new operating model, we have conducted a thorough review of our content pipeline over December and January. This has led to the strategic decision to refocus our portfolio, reallocate resources, and comprehensively revise our roadmap over the next three years.
This will support our objective to return to exceptional levels of quality on the open-world adventure segment and strengthen the group's position in the next-gen experiences segment, as illustrated by the recently acquired project March of Giants. The reshaped portfolio is designed to best position the creative houses for success, and this has led to two sets of actions. First, we have discontinued six games that do not meet the new enhanced quality expectations under a more selective portfolio approach. These are Prince of Persia: The Sands of Time Remake, as well as four unannounced titles, including three new IPs and a mobile title. Second, we have allocated additional development time to seven games in order to ensure enhanced quality benchmarks are fully met and maximize long-term value creation. This includes the unannounced title initially planned for fiscal year 2026 that has been delayed to fiscal year 2027.
Our objective is to ensure that every major project we bring to market has the right conditions, the right quality benchmarks, and the right path to long-term value creation. Finally, the third pillar of our reset is the acceleration of our cost reduction initiatives and the right-sizing of our organization to improve structural efficiency, restoring a much higher level of organizational agility, and aligning our cost base with our strategic and creative priorities. This includes focusing resources on core value-creating activities, notably through further restructurings and strict hiring discipline across all functions. We will also continue to consider potential asset diversifications. As part of our efforts to streamline operations and adapt to evolving market conditions, we have already taken decisive actions in the recent months to adjust our studio footprint.
This includes the closure of the Halifax Mobile Studio announced earlier this month and the Stockholm Studio, as well as restructurings at Abu Dhabi, RedLynx, and Massive. The current cost reduction program of at least €100 million in fixed cost savings versus fiscal year 2025 is now targeted to be fully achieved by March 2026, one year ahead of the initial target. Building on this momentum, we are defining the third and final phase of our cost reduction program by setting a new objective to reduce our fixed cost base by an additional €200 million over the next two years, bringing total fixed cost reductions in fiscal year 2023 to around €500 million. This is expected to bring total fixed costs to approximately €1.25 billion on a run-rate basis by March 2028, compared to €1.75 billion in fiscal year 2023.
To conclude, I'll cover the financial impacts of this decision we've just described. First, the previously communicated fiscal year '27 guidance is no longer an appropriate reference, and we will update it in May 2026 during our fiscal year earnings release. Second, here are the key updated elements of our fiscal year '26 guidance. Net bookings are expected at around € 1.5 billion, translating into a minus € 330 million gross margin reduction versus the prior guidance, mainly reflecting changes to the current quarter release pipeline following the updated roadmap and the decision to postpone negotiation on certain partnerships in the context of our new operating model. Non-IFRS EBIT is expected at around € 1 billion, mainly reflecting both the impact of the updated fiscal year '26 net bookings that I just covered, as well as the following transformation-related decisions that led to a one-off accelerated depreciation of around € 650 million.
First, the discontinuation of six games, and second, the allocation of additional time to seven titles with updated revenue expectations, reflecting a persistently more selective market. Also, free cash flow is expected at between € 400 million and € 500 million, and the non-IFRS net debt is expected at between € 150 million and € 250 million as of year-end fiscal year 2026, with a cash and cash equivalent position of between € 1.25 billion and € 1.35 billion versus prior guidance of around € 1.5 billion. In addition, ahead of our Q3 sales release scheduled on February the 12th, we are providing an indicative net bookings figure of approximately € 330 million for the third quarter, primarily driven by an overperformance linked to partnerships and reflecting a robust back catalog.
The quarter notably saw the releases of Anno 117: Pax Romana, sorry, and the Avatar: Frontiers of Pandora from the Ashes expansion that were praised by players and critics alike. Further details will be provided on February the 12th. I will now hand over the call to Yves for his final remarks. Thank you, Frédérick. This major reset has meaningful near-term implications, particularly in financial year 2026 and financial year 2027, and we recognize this will be a significant shift for the market to absorb. However, we firmly believe that this is the right decision to reposition Ubisoft for creative leadership, sustainable growth, and robust cash generation, with a disciplined strategy and a simplified operating model, and a refocused portfolio designed to create exceptional quality games and maximize long-term value creation. We are now ready to take your questions. Thank you.
As a reminder, to ask a question, you will need to press star 1, 1 on your telephone, and wait for your name to be announced. To withdraw your question, please press star 1, 1 again. We will take our first question. Your first question comes from the line of Alexander Peterc from Bernstein. Please go ahead. Your line is open. Yes, good afternoon, and thank you for taking my question. I have a couple, if I may. So the first one is whether your new creative house structure will translate into external financial reporting and guidance, or at least Vantage Studios separately and then the other creative houses separately, so we know how they're performing both in terms of revenue and in terms of non-IFRS EBIT. Secondly, how should we think about fiscal 2027?
Because this major change is now happening towards the end of the current fiscal year 2026. So is it fair to assume that things will get worse before they get better? So if you do bottom-out, it won't be before sometime 2027 and maybe then an improvement in 2028. Is that how we should think about that? And is this a right-sizing of the revenue base of the company as well, or do you still plan medium-term to retain your current revenue base more or less? And then the last one, just on the return to free cash flow, positive, should we expect that to be a year-plus-2 event, or will it take longer for you to right-size your cost base and get back to a cash-generative position? Thank you very much. Yeah, thank you, Alex.
On your first question, at this stage, we don't expect and we don't plan to make such reporting. What you will have at minimum is that we will report the net income, so with the distinction between group share and minority interest. In terms of fiscal year 2027, beyond the fact that we just mentioned that we are postponing an important game this year from 2026 to 2027, we can't say more. What we can say is that, of course, we'll provide the guidance in May. And everything we're doing today is to make sure that we reset the financial trajectory to sustainable growth over the next three years and for the company to be cash-generating. Okay, so it's a three-year event. Thank you. Thank you. Your third question is, can you repeat your third and fourth question, please? Sorry. One moment, please. Can you hear me? Yes.
Thank you. The third question was basically I think you answered it. The question was around when you plan to return to positive free cash flow. And from what I understood, this is a three-year plan to get back to that trajectory. Is that correct? So we expect to get back to robust free cash flow over the next three years, but we'll give you more indication on a year-by-year schedule at a later stage. Excellent. Thank you very much. Thank you. We will take our next question. Your next question comes from the line of Ben Shelley from UBS. Please go ahead. Your line is open. Hi, thank you. I think I've got three questions. One, how should investors think about your balance sheet over the coming years and cash and liquidity and debt? It'd be helpful to have some commentary there.
My second question is, I just want to come back to that free cash flow question, and specifically maybe into 2027 and 2028. How should we think about, almost just directionally, how should we think about the free cash flow losses? Should we think about them falling into 2027 and 2028? Should we expect an improvement in free cash flow? And my last question is on Rainbow Six. And can you provide any commentary on how that franchise has fared amid sort of an uptick in competition and new releases from your peers? Thank you. Yes, thank you, Ben. So yes, we benefit from a solid cash and cash equivalent position.
In terms of the way we'll proceed, we'll proceed as we have been doing so far, which is that we'll look at the different refinancing options that we have in front of us and choose the ones that will allow us to extend the maturity profile at the best cost possible. We will replicate what we've been doing in the past in that area. On your second question, I think I've already answered everything we're doing, which is to optimize our roadmap over the next three years and coming back with exceptional content quality, which we know is highly rewarded by the market. We just need to execute extremely well to optimize quality. We have big products coming over the next three years. All the purpose of what we're doing with resizing of the cost base is to progressively get back to cash generation.
We expect to get back to robust cash flow generation within the next three years. In terms of Rainbow Six, as we said, last quarter has been very competitive in the shooter segment. The team has done great work to make sure that we will solve the cheating issue that we had mentioned last quarter. We came with a strong season in December, and the activity has come up as expected. Some players try competition like they usually do at the busy season, and they usually come back by Christmas. That's what happened. Again, this year, we're preparing for a strong Q4 as usual with the Six Invitational coming very soon and the Invasion of next year that will be very strong. Thanks very much.
If I could just come back to my question on the balance sheet, when you say you would sort of proceed as you've been doing, would that mean sort of going back to potentially looking again at traditional refinancing options and looking at financial markets? Or would it also mean potentially selling another minority stake as you have done before, or are all options on the table and it's too soon to say anything? Yes, so we have different refinancing options that we can work in the coming year and 18 months. We can also, as we mentioned, continue considering the divestiture of assets. Thanks very much, guys. Appreciate it. Thank you. You're welcome. Thank you. Once again, if you wish to ask a question, please press star one, one on your telephone. We will take our next question.
The question comes from the line of Doug Creutz from TD Cowen. Please go ahead. Your line is open. Thank you. One of the factors you cited in bringing down your fiscal 26 revenue guide was the decision to postpone negotiations on certain partnerships. Is that just a delay that was around you having to sit down and decide what the new operating model was going to look like, or does this reflect a more fundamental rethink of your approach to partnerships? And if so, could you talk about how you see that progressing going forward? Thank you. Yeah, thank you, Doug. So yes, we decided to postpone negotiation on some partnerships. B2B partnership, as we said a number of times, is a key important way of doing business today as a complement to B2C.
So it's here to stay and across different platforms and with different shapes of form. What we said with the fact that we're postponing this negotiation is that we are starting a new organization very soon. And of course, the leadership of the creative houses will have the mandate to support the upcoming partnerships together with the group. So that's what they will pursue in our strategy. So no fundamental shift, no fundamental change in our approach, just onboarding the new management coming with the creative houses. Okay, thank you. You're welcome. Thank you. We will take our next question. And the question comes from the line of Alexander Peterc from Bernstein. Please go ahead. Your line is open. Yeah, just a quick follow-up. Thank you so much. Just on your upcoming debt maturities, so I see you have a 2027 bond, EUR 600 million.
You have an OCEANE maturing in 2028. So altogether, that's about €1 billion. Do you expect to be in a position to roll this debt, or do you have any other plans to refinance these maturities? Thank you. Yeah, so I think I answered already the question. We will be working. So with this new operating model, this organization that will work for creative houses to perform very well with high-quality products and strong financial rewards, we will also, in parallel, work on the refinancing of our debt. And there are different options that are open to us, but it's too early to share them with you. That's great. Thank you very much. You're welcome. Thank you. This concludes today's question and answer session. I will now hand back for closing remarks. So thank you very much for your questions, and have a good evening or a good day.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.