Business Valuation Case 1 ACTG 495 Case 5 – Business Valuation The following case will utilize your 5 year forecast of Ubisoft Entertainmen

Business Valuation Case

1

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ACTG 495

Case 5 – Business Valuation

The following case will utilize your 5 year forecast of Ubisoft Entertainment SAs (Ubisoft or the

Group) financial statements to value the business. This case involves a discounted cash flow

approach to value Ubisoft at a total company level as well as a value per share of common stock.

Companies will maintain valuation models to ensure proposed strategies improve value, evaluate

acquisitions and divestitures, sale or repurchase of financial securities, etc.

Requirements

Part I Weighted Average Cost of Capital (WACC)

Under the Discounted Cash Flow method, the value of a business is the present value of all future

Free Cash Flow. The discount rate applied to the future Free Cash Flow is the WACC. This is the

weighted average return that equity and debt investors expect based on the risk of the business.

A. Calculate the weights (mix) of debt and equity the company is utilizing as of March 31, 2020

(2020). The weights can be estimated by using the current market values. For example,

the weight of equity would be the value of equity divided by the sum of value of equity plus

the value of debt. To calculate the value of equity use the total number of shares outstanding

multiplied by the current market price per share. To calculate the value of debt, add the value

of short term financial debt plus the value of long term financial debt from the 2020 balance

sheet.

B. Calculate the cost of equity based on the Capital Asset Pricing Model (CAPM). Estimates for

Risk Free Rate and Market Risk Premium (MRP) and provided in the assumptions section at

the end of the case. (You will need to calculate the (beta) for Ubisoft based on comparable

U.S. companies – see PowerPoint slides for formulas.)

C. Calculate the after tax cost of debt. To arrive at a cost of debt for the company use the rate

of return debt investors are currently expecting from the company and then multiply by (1

tax rate). Many companies which utilize debt as a source of financing have multiple debt

securities outstanding with each having a different interest rate based on varying maturities or

provisions in each debt agreement.

D. Calculate the WACC based on the estimated rates of return on debt and equity and weights

calculated above.

Part II Free Cash Flow (FCF)

A. Based upon your 5 year forecast of Ubisofts financial statements, calculate FCF for each year

of the forecast period. Feel free to revise your forecast from the prior case as needed.

B. Ubisoft is a strong company and will likely continue to operate and generate FCF after the

forecast period. Analysts typically capture the value after the forecast period in a Terminal

Value calculation (also called horizon value or continuing value). Please calculate the terminal

value for Ubisoft.

Part III Valuation

With estimates in place for WACC and future FCF, you are now able to calculate a discounted cash

flow based valuation for Ubisoft.

2

A. Based on your estimates, what is the total value of Ubisoft? The total value of the firm would

be the present value of all future FCF plus the current value (2020) of any non-operating

assets not included in the forecast. Non-operating assets are typically financial in nature,

such as cash & equivalents, marketable securities, and short and long term investments.

B. What is the estimated value of equity?

C. What is the estimated value per share of common stock?

Part IV Sensitivity Analysis

The estimated value of Ubisoft is based on many assumptions related to the future performance

of the business and investor return expectations. Analysts spend a lot of time trying to put an

accurate forecasts in place, but the probability of every single input being accurate is virtually

zero. Sensitivity is a form of risk analysis to help identify which forecast assumptions are most

material and how changes to these assumptions impact the valuation.

Perform a sensitivity analysis on the following variables:

Growth rate of sales

Operating margin

Operating cycle

Choose 1 2 other variables

Part V Recommendation: Market value vs. calculated value

Compare your estimate of per share value of common stock to Ubisofts current market price.

Is your estimate higher or lower than the market price? What factors are likely

contributing to the difference?

If you were an equity analyst, would you recommend a Buy, Hold or Sell on Ubisoft stock

and why?

Assumptions:

Yield to Maturity (YTM) on 10 year French government bond (risk free rate): 0.67%

Market risk premium for France: 5.65%

Ubisofts stock price 70.04 per share Data

for the Years Ended March 31,

Consolidated Income Statements

For the Years Ended March 31,

(In thousands of euros)

2020 2019 2018 2017 2016 2015

Sales 1,594,831 1,845,522 1,731,894 1,459,874 1,393,997 -4.8% 1,463,753

Cost of sales (253,077) -15.9% (328,972) -17.8% (296,820) -17.1% (270,887) -18.6% (305,065) -21.9% (337,073)

Gross profit 1,341,754 1,516,550 1,435,074 1,188,987 1,088,932 1,126,680

R&D expenses (720,829) -45.198% (740,969) -40.150% (690,592) -39.875% (548,735) -37.588% (509,779) -36.570% (580,554)

Marketing expenses (386,604) -24.241% (410,070) -22.220% (339,274) -19.590% (316,806) -21.701% (305,735) -21.932% (284,965)

Administrative and IT expenses (193,011) -12.102% (157,295) -8.523% (144,649) -8.352% (122,538) -8.394% (117,296) -8.414% (100,051)

Operating income from continuing operations 41,310 -27.2% 208,216 -23.6% 260,559 -22.6% 200,908 -22.6% 156,122 -22.3% 161,110

Other non-current operating income and expenses (100,806) (49,231) (38,242) (25,094) (19,334) (21,717)

Operating income (59,496) 158,985 222,317 175,814 136,788 139,393

Interest on borrowings (18,121) -1.136% (20,920) -1.134% (17,732) -1.0% (12,081) -0.8% (8,429) -0.60% (5,322)

Income from cash 4,189 0.4% 2,780 0.3% 1,823 0.2% 1,265 0.1% 989 0.2% 556

Net borrowing cost (13,932) (18,140) (15,909) (10,816) (7,440) (4,766)

Result from foreign-exchange operations (3,787) (5,311) (5,747) (2,288) (5,168) 1,159

Other financial expenses (1,474) (23,941) (56) (5,449) (3,666) (1,764)

Other financial income 132 36,515 8,312 2,348 2,548 6,083

Net financial income (19,061) (10,877) (13,400) (16,205) (13,726) 712

Share in profit of associates 0 294 (224) (339) 0 0

Total income tax (45,685) (48,417) (69,241) (51,457) (29,654) (53,094)

Consolidated net income (124,242) 99,985 139,452 107,813 93,408 87,011

Net income attributable to non-controlling interests 1,382 0 0 0 0 0

Net income attributable to owners of the parent company (125,624) 99,985 139,452 107,813 93,408 87,011

Ubisoft Entertainment SA and Subsidiaries

Consolidated Balance Sheets

March 31,

(In thousands of euros)

2020 2019 2018 2017 2016 2015

ASSETS

Goodwill 334,558 15.1% 290,721 12.0% 259,462 43.6% 180,735 70.2% 106,194 -18.3% 129,906

Other intangible assets 1,115,283 26.3% 882,925 12.8% 782,402 6.2% 736,465 13.7% 647,602 13.2% 572,225

Property, plant and equipment 174,393 9.0% 159,958 40.2% 114,116 7.3% 106,375 26.7% 83,946 80,983

Right-of-use assets 229,906 0 0 0 0 0

Investments in associates 7 7 (289) (69) 0 0

Non-current financial assets 13,710 8,660 106,895 5,478 4,339 4,162

Deferred tax assets 169,338 168,443 84,181 88,831 122,193 134,954

Non-current assets 2,037,195 1,510,714 1,346,767 1,117,815 964,274 922,230

Inventory 12,446 -61.0% 31,880 57.3% 20,264 -20.1% 25,359 30.9% 19,374 5.2% 18,425

Trade receivables 307,060 -35.6% 476,641 9.4% 435,573 7.4% 405,557 -3.3% 419,577 1655.3% 23,904

Other receivables 127,456 -29.2% 179,982 -13.8% 208,778 42.5% 146,467 45.0% 100,985 -11.3% 113,855

Current financial assets 453 146.2% 184 -97.8% 8,320 635.6% 1,131 -91.8% 13,780 180.1% 4,919

Current tax assets 41,034 3.7% 39,555 2.8% 38,481 16.7% 32,967 -20.5% 41,464 234.9% 12,380

Cash and cash equivalents 1,079,197 2.8% 1,049,803 40.5% 746,939 -12.4% 852,699 84.8% 461,375 -29.7% 656,661

Current assets 1,567,646 1,778,045 1,458,355 1,464,180 1,056,555 830,144

Total assets 3,604,841 3,288,759 2,805,122 2,581,995 2,020,829 1,752,374

LIABILITIES AND EQUITY

Share capital 9,374 8,650 8,652 8,752 8,710 8,478

Premiums 863,547 335,759 234,123 280,975 215,125 180,515

Consolidated reserves 567,256 475,624 507,102 736,276 701,267 703,378

Consolidated earnings (125,624) 99,985 139,453 107,813 93,408 87,011

Equity attributable to owners of the parent company 1,314,553 920,018 889,330 1,133,816 1,018,510 979,382

Non-controlling interests 7,190 0 0 0 0 0

Total equity 1,321,743 920,018 889,330 1,133,816 1,018,510 979,382

Provisions 3,091 2,469 3,074 4,246 8,888 7,497

Employee benefit liabilities 15,769 14,382 10,289 9,079 6,618 5,430

Long-term borrowings and other financial liabilities 1,176,198 890,366 933,629 640,705 277,383 275,739

Deferred tax liabilities 109,531 127,902 96,047 72,773 47,648 48,944

Other non-current liabilities 59,568 0 0 0 0 0

Non-current liabilities 1,364,157 1,035,119 1,043,039 726,803 340,537 337,610

Short-term borrowings and other financial liabilities 246,863 453,299 361,538 293,403 228,218 183,226

Trade payables 139,208 188,787 176,613 178,283 206,246 94,919

Other liabilities (includes deferred revenue) 517,730 664,618 321,935 219,818 213,807 149,614

Current tax liabilities 15,140 26,918 12,667 29,872 13,511 7,623

Current liabilities 918,941 1,333,622 872,753 721,376 661,782 435,382

Total liabilities and equity 3,604,841 3,288,759 2,805,122 2,581,995 2,020,829 1,752,374 0

Ubisoft Entertainment SA and Subsidiaries

Consolidated Cash Flow Statements

For the Years Ended March 31,

(In thousands of euros)

2020 2019 2018 2017 2016 2015

Cash flows from operating activities

Consolidated earnings (124,242) 99,985 139,452 107,813 93,408 87,011

Share in profit of associates 0 (294) 224 338 0 0

Net amortization and depreciation on PP&E 619,429 584,259 544,031 474,635 462,800 510,963

Net provisions 2,264 22,039 4,052 (2,563) 449 3,201

Cost of stock-based-compensation 53,772 54,686 39,558 36,836 12,918 9,609

Gains/losses on disposals 682 261 308 408 104 64

Other income and expenses calculated 10,650 (5,403) 8,578 (10,655) 24,335 (15,534)

Tax expense 45,685 48,418 69,241 51,457 29,654 53,094

Cash flows from operating activities 608,240 803,951 805,444 658,269 623,668 648,408

Inventory 20,186 (31,326) 229 (5,381) (11) 3,007

Customers (trade receivables) 182,891 (18,031) (61,544) 31,934 (402,877) 53,783 Operating cycle

Other assets (excluding deferred tax assets) 58,194 105% 28,408 -135% (81,048) -570% 17,240 -156% (30,588) (23,503) 2,020 2,019 2,018 2,017 2,016 2,015

Suppliers (trade payables) (49,199) 3,181 15,243 (45,082) 116,466 (5,292) (18) (35) (25) (34) (23) (20)

Other liabilities (excluding deferred tax liabilities) (51,805) 6,389 49,380 24,871 61,635 34,034 38 63 65 60 45 39

Deferred income and prepaid expenses (96,525) 248,384 (3,089) 0 0 0

Change in WCR linked to operating activities 63,742 237,005 (80,829) 23,582 (255,375) 62,029 20 28 40 26 22 19

Current tax (71,624) (68,582) (33,460) (36,140) (27,586) (56,362)

Total cash flow generated by (used in) operting activities 600,358 972,374 691,155 645,711 340,707 654,075

Cash flows from investment activities

Payments for internal and external developments (651,202) (587,699) (521,290) (496,588) (489,464) (421,683)

Payments for other intangible assets and PP&E (104,909) (74,402) (59,366) (62,916) (42,499) (56,244)

Proceeds from the disposal of intangible assets and PP&E 179 25 20 603 67 122

Payments for the acquisition of financial assets (215,697) (43,816) (31,493) (44,373) (34,391) (23,709)

Security deposit CACIB 0 100,000 (100,000) 0 0 0

Refund of loans and other financial assets 210,498 42,057 29,790 43,322 34,115 23,373

Changes in scope (143,735) (84,327) (77,589) (105,642) 358 (3,188)

Cash generated by (used in) investing activities (904,866) (648,162) (759,928) (665,594) (531,814) (481,329)

Cash flow from financing activities

New finance leases contracted 0 20 5,054 1,416 0 10,142

New borrowings 935,241 604,985 893,596 669,165 234,540 622,185

Accrued interest (25) (1,324) 1,002 (18) 14 87

Refund of borrowings in relation to leases (35,577) (1,300) (1,672) (898) (891) (291)

Repayment of borrowings (584,908) (572,177) (487,677) (214,663) (230,216) (466,578)

Funds received from shareholders in capital increases 81,466 131,910 48,951 9,465 21,924 18,054

Sales/purchases of own shares 35,348 (201,899) (411,498) (67,844) (77,272) 650

Associated current accounts 0 0 0 0 258 (260)

Cash generated by (used in) financing activities 431,545 (39,785) 47,756 396,623 (51,643) 183,989

Net change in cash and cash equivalents 127,037 284,427 (21,017) 376,740 (242,750) 356,735

Cash and cash equivalents at the beginning of the period 878,612 583,354 632,314 255,688 505,215 115,610

Foreign exchange losses/gains (18,722) 10,831 (27,943) (114) (6,777) 32,870

Cash and cash equivalents at the end of the period 986,927 878,612 583,354 632,314 255,688 505,215

Vertical

2020 2019 2018 2017 2016 2015

Sales 100% 100% 100% 100% 100% 100%

Cost of sales -15.87% -17.83% -17.14% -18.56% -21.88% -23.03%

Gross profit 84.13% 82.17% 82.86% 81.44% 78.12% 76.97%

R&D expenses -45.20% -40.15% -39.87% -37.59% -36.57% -39.66%

Marketing expenses -24.24% -22.22% -19.59% -21.70% -21.93% -19.47%

Administrative and IT expenses -12.10% -8.52% -8.35% -8.39% -8.41% -6.84%

Operating income from continuing operations 2.59% 11.28% 15.04% 13.76% 11.20% 11.01%

Other non-current operating income and expenses -6.32% -2.67% -2.21% -1.72% -1.39% -1.48%

Operating income -3.73% 8.61% 12.84% 12.04% 9.81% 9.52%

Interest on borrowings -1.14% -1.13% -1.02% -0.83% -0.60% -0.36%

Income from cash 0.26% 0.15% 0.11% 0.09% 0.07% 0.04%

Net borrowing cost -0.87% -0.98% -0.92% -0.74% -0.53% -0.33%

Result from foreign-exchange operations -0.24% -0.29% -0.33% -0.16% -0.37% 0.08%

Other financial expenses -0.09% -1.30% -0.00% -0.37% -0.26% -0.12%

Other financial income 0.01% 1.98% 0.48% 0.16% 0.18% 0.42%

Net financial income -1.20% -0.59% -0.77% -1.11% -0.98% 0.05%

Share in profit of associates 0.00% 0.02% -0.01% -0.02% 0.00% 0.00%

Total income tax -2.86% -2.62% -4.00% -3.52% -2.13% -3.63%

Consolidated net income -7.79% 5.42% 8.05% 7.39% 6.70% 5.94%

Net income attributable to non-controlling interests 0.09% 0.00% 0.00% 0.00% 0.00% 0.00%

Net income attributable to owners of the parent company -7.88% 5.42% 8.05% 7.39% 6.70% 5.94%

2020 2019 2018 2017 2016 2015

Sales -13.6% 6.6% 18.6% 4.7% -4.8%

Cost of sales -23.1% 10.8% 9.6% -11.2% -9.5%

Gross profit -11.5% 5.7% 20.7% 9.2% -3.4%

R&D expenses -2.7% 7.3% 25.9% 7.6% -12.2%

Marketing expenses -5.7% 20.9% 7.1% 3.6% 7.3%

Administrative and IT expenses 22.7% 8.7% 18.0% 4.5% 17.2%

Operating income from continuing operations -80.2% -20.1% 29.7% 28.7% -3.1%

Other non-current operating income and expenses 104.8% 28.7% 52.4% 29.8% -11.0%

Operating income -137.4% -28.5% 26.5% 28.5% -1.9%

Interest on borrowings -13.4% 18.0% 46.8% 43.3% 58.4%

Income from cash 50.7% 52.5% 44.1% 27.9% 77.9%

Net borrowing cost -23.2% 14.0% 47.1% 45.4% 56.1%

Result from foreign-exchange operations -28.7% -7.6% 151.2% -55.7% -545.9%

Other financial expenses -93.8% 42651.8% -99.0% 48.6% 107.8%

Other financial income -99.6% 339.3% 254.0% -7.8% -58.1%

Net financial income 75.2% -18.8% -17.3% 18.1% -2027.8%

Share in profit of associates -100.0% -231.3% -33.9% – –

Total income tax -5.6% -30.1% 34.6% 73.5% -44.1%

Consolidated net income -224.3% -28.3% 29.3% 15.4% 7.4%

Net income attributable to non-controlling interests – – – – –

Net income attributable to owners of the parent company -225.6% -28.3% 29.3% 15.4% 7.4%

Profitability: 2020 2019 2018 2017 2016 2015

Gross margin 84.1% 82.2% 82.9% 81.4% 78.1% 77.0%

Operating margin 2.6% 11.3% 15.0% 13.8% 11.2% 11.0%

Net margin -7.9% 5.4% 8.1% 7.4% 6.7% 5.9%

Assets turnover 46.3% 60.6% 64.3% 63.4% 73.9% 83.5%

Return on Assets -3.6% 3.3% 5.2% 4.7% 5.0% 5.0%

&P

Base Assumption

Assumption:

Revenue historical 2016 2017 2018 2019 2020

-4.8% 4.7% 18.6% 6.6% -13.6% Will use this rate to compute projected A/R

Revenue growth 2021 2022 2023 2024 2025

15.0% 9.0% 9.0% 9.0% 9.0%

Expenses histo 2016 2017 2018 2019 2020

COGS -21.9% -18.6% -17.1% -17.8% -15.9% % of sales

SGA 7.3% 3.6% 7.1% 20.9% -5.7% This is the change

Other non-current op. -11.0% 29.8% 52.4% 28.7% 104.8%

Expenses growth 2021 2022 2023 2024 2025

COGS 3.2% 1.9% 1.9% 1.9% 1.9% COGS is 21% of the increase of revenue.Will use this rate to compute projected inventory

SGA 4.5% 2.7% 2.7% 2.7% 2.7%

Other non-current op. 0.0% 0.0% 0.0% 0.0% 0.0% This will not have any incease as there is any acquisitions

Interest borrowing 1.13% 1.13% 1.13% 1.13% 1.13% We assume to have the same rate of sales as the last few years

Tax rate (by year) 2016 2017 2018 2019 2020

Hist. -2.1% -3.5% -4.0% -2.6% -2.9%

2021 2022 2023 2024 2025

grow. 3.0% 3.0% 3.0% 3.0% 3.0% Historically the company had a rate rage of 2-4%, so we are assuming that the company will have a rate of 3% as an average of sales!

Dividends

Operating assets 2016 2017 2018 2019 2020

2021 2022 2023 2024 2025

Operating liability 2016 2017 2018 2019 2020

2021 2022 2023 2024 2025

Debt ratio 2016 2017 2018 2019 2020

2021 2022 2023 2024 2025

Equity 2016 2017 2018 2019 2020

Forecast

for the Years Ended March 31,

Consolidated Income Statements

For the Years Ended March 31,

(In thousands of euros) Actual Forecast

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Sales 1,463,753 1,393,997 1,459,874 1,731,894 1,845,522 1,594,831 1,993,539 2,292,570 2,498,901 2,698,813 2,887,730

Cost of sales (337,073) (305,065) (270,887) (296,820) (328,972) (253,077) (338,902) (389,737) (424,813) (458,798) (490,914)

Gross profit 1,126,680 1,088,932 1,188,987 1,435,074 1,516,550 1,341,754 1,654,637 1,902,833 2,074,088 2,240,015 2,396,816

R&D expenses (580,554) (509,779) (548,735) (690,592) (740,969) (720,829) (777,480) (894,102) (974,571) (1,052,537) (1,126,215) As the company stated that in order for them to develop exceptional video games, they are using the most recent technological advances.This means that Ubisoft will continue spending on R&D as they expected to have a stable level of sales.

Marketing expenses (284,965) (305,735) (316,806) (339,274) (410,070) (386,604) (418,643) (481,440) (524,769) (566,751) (606,423) since the company continued with R&D, they will keep supporting of the Group’s premium games

Administrative and IT expenses (100,051) (117,296) (122,538) (144,649) (157,295) (193,011) (159,483) (183,406) (199,912) (215,905) (231,018)

Operating income from continuing operations 161,110 156,122 200,908 260,559 208,216 41,310 299,031 343,885 374,836 404,822 433,160

Other non-current operating income and expenses (21,717) (19,334) (25,094) (38,242) (49,231) (100,806) 0 0 0 0 0

Operating income 139,393 136,788 175,814 222,317 158,985 (59,496) 299,031 343,885 374,836 404,822 433,160

Interest on borrowings (5,322) (8,429) (12,081) (17,732) (20,920) (18,121) (24,812) (24,053) (25,341) (22,630) (23,918)

Income from cash 556 989 1,265 1,823 2,780 4,189 4,189 4,189 4,189 4,189 4,189

Net borrowing cost (4,766) (7,440) (10,816) (15,909) (18,140) (13,932) (20,623) (19,864) (21,152) (18,441) (19,729)

Result from foreign-exchange operations 1,159 (5,168) (2,288) (5,747) (5,311) (3,787) (3,787) (3,787) (3,787) (3,787) (3,787)

Other financial expenses (1,764) (3,666) (5,449) (56) (23,941) (1,474) (1,474) (1,474) (1,474) (1,474) (1,474) this both wont have any increase of change since there is no acuisition or gain or loss from foreign exchange

Other financial income 6,083 2,548 2,348 8,312 36,515 132 132 132 132 132 132

Net financial income 712 (13,726) (16,205) (13,400) (10,877) (19,061) (25,752) (24,993) (26,281) (23,570) (24,858)

Share in profit of associates 0 0 (339) (224) 294 0 0 0 0 0 0

Total income tax (53,094) (29,654) (51,457) (69,241) (48,417) (45,685) (87,449) (102,045) (111,538) (122,001) (130,657)

Consolidated net income 87,011 93,408 107,813 139,452 99,985 (124,242) 185,830 216,847 237,017 259,251 277,645

Net income attributable to non-controlling interests 0 0 0 0 0 1,382 1,382 1,382 1,382 1,382 1,382

Net income attributable to owners of the parent company 87,011 93,408 107,813 139,452 99,985 (125,624) 184,448 215,465 235,635 257,869 276,263

Ubisoft Entertainment SA and Subsidiaries

Consolidated Balance Sheets

March 31,

(In thousands of euros) Forecast

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

ASSETS

Goodwill 129,906 106,194 180,735 259,462 290,721 334,558 334,558 334,558 334,558 334,558 334,558

Other intangible assets 572,225 647,602 736,465 782,402 882,925 1,115,283 1,225,437 1,341,099 1,462,544 1,490,061 1,723,954

Property, plant and equipment 80,983 83,946 106,375 114,116 159,958 174,393 174393 174393 174393 174393 174393

Right-of-use assets 0 0 0 0 0 229,906 229,906 229,906 229,906 229,906 229,906

Investments in associates 0 0 (69) (289) 7 7 7 7 7 7 7

Non-current financial assets 4,162 4,339 5,478 106,895 8,660 13,710 13,710 13,710 13,710 13,710 13,710

Deferred tax assets 134,954 122,193 88,831 84,181 168,443 169,338 169,338 169,338 169,338 169,338 169,338

Non-current assets 922,230 964,274 1,117,815 1,346,767 1,510,714 2,037,195 2,147,349 2,263,011 2,384,456 2,411,973 2,645,866

Inventory 18,425 19,374 25,359 20,264 31,880 12,446 15,558 17,892 19,502 21,062 22,536 along with COGS

Trade receivables 23,904 419,577 405,557 435,573 476,641 307,060 383,825 441,399 481,125 519,615 555,988 Along with revenue

Other receivables 113,855 100,985 146,467 208,778 179,982 127,456 127,456 127,456 127,456 127,456 127,456 Along with revenue

Current financial assets 4,919 13,780 1,131 8,320 184 453 543 543 543 543 543

Current tax assets 12,380 41,464 32,967 38,481 39,555 41,034 41034 41034 41034 41034 41034

Cash and cash equivalents 656,661 461,375 852,699 746,939 1,049,803 1,079,197 1,011,930 1,218,801 1,243,914 1,291,549 1,256,919

Current assets 830,144 1,056,555 1,464,180 1,458,355 1,778,045 1,567,646 1,580,346 1,847,125 1,913,574 2,001,259 2,004,476

Total assets 1,752,374 2,020,829 2,581,995 2,805,122 3,288,759 3,604,841 3,727,695 4,110,136 4,298,030 4,413,232 4,650,342

LIABILITIES AND EQUITY

Share capital 8,478 8,710 8,752 8,652 8,650 9,374 9,374 9,374 9,374 9,374 9,374

Premiums 180,515 215,125 280,975 234,123 335,759 863,547 980,762 1,108,059 1,242,313 1,383,307 1,530,671

Consolidated reserves 703,378 701,267 736,276 507,102 475,624 567,256 314,632 526,070 441,545 577,180 435,049

Consolidated earnings 87,011 93,408 107,813 139,453 99,985 (125,624) 184,448 215465 235635 257869 276263

Equity attributable to owners of the parent company 979,382 1,018,510 1,133,816 889,330 920,018 1,314,553 1,489,216 1,858,968 1,928,867 2,227,730 2,251,357

Non-controlling interests 0 0 0 0 0 7,190 7,190 7,190 7,190 7,190 7,190

Total equity 979,382 1,018,510 1,133,816 889,330 920,018 1,321,743 1,496,406 1,866,158 1,936,057 2,234,920 2,258,547

Provisions 7,497 8,888 4,246 3,074 2,469 3,091 3,091 3,091 3,091 3,091 3,091

Employee benefit liabilities 5,430 6,618 9,079 10,289 14,382 15,769 15,769 15,769 15,769 15,769 15,769

Long-term borrowings and other financial liabilities 275,739 277,383 640,705 933,629 890,366 1,176,198 1,138,221 702,644 467,067 1,031,490 1,095,913

Deferred tax liabilities 48,944 47,648 72,773 96,047 127,902 109,531 109,531 109,531 109,531 109,531 109,531

Other non-current liabilities 0 0 0 0 0 59,568 59,568 59,568 59,568 59,568 59,568

Non-current liabilities 337,610 340,537 726,803 1,043,039 1,035,119 1,364,157 1,326,180 890,603 655,026 1,219,449 1,283,872

Short-term borrowings and other financial liabilities 183,226 228,218 293,403 361,538 453,299 246,863 102,400 500,000 800,000 100,000 100,000

Trade payables 94,919 206,246 178,283 176,613 188,787 139,208 174,010 200,112 218,122 235,572 252,062

Other liabilities (includes deferred revenue) 149,614 213,807 219,818 321,935 664,618 517,730 586,469 638,023 673,595 708,061 740,631

Current tax liabilities 7,623 13,511 29,872 12,667 26,918 15,140 15,140 15,140 15,140 15,140 15,140

Current liabilities 435,382 661,782 721,376 872,753 1,333,622 918,941 878,019 1,353,275 1,706,857 1,058,773 1,107,833

Total liabilities and equity 1,752,374 2,020,829 2,581,995 2,805,122 3,288,759 3,604,841 3,700,605 4,110,036 4,297,940 4,513,142 4,650,252

Ubisoft Entertainment SA and Subsidiaries

Consolidated Cash Flow Statements

For the Years Ended March 31,

(In thousands of euros) Forecast

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Cash flows from operating activities

Consolidated earnings 87,011 93,408 107,813 139,452 99,985 (124,242) 184,448 215,465 235,635 257,869 276,263

Share in profit of associates 0 0 338 224 (294) 0 0 0 0 0 0

Net amortization and depreciation on PP&E 510,963 462,800 474,635 544,031 584,259 619,429 683,762 717,950 753,848 791,540 831,117

Net provisions 3,201 449 (2,563) 4,052 22,039 2,264 0 0 0 0 0

Cost of stock-based-compensation 9,609 12,918 36,836 39,558 54,686 53,772 67,215 77,297 84,254 90,994 97,364

Gains/losses on disposals 64 104 408 308 261 682 0 0 0 0 0

Other income and expenses calculated (15,534) 24,335 (10,655) 8,578 (5,403) 10,650 0 0 0 0 0

Tax expense 53,094 29,654 51,457 69,241 48,418 45,685 87,449 102,045 111,538 122,001 130,657

Cash flows from operating activities 648,408 623,668 658,269 805,444 803,951 608,240 1,022,874 1,112,757 1,185,275 1,262,404 1,335,401

Inventory 3,007 (11) (5,381) 229 (31,326) 20,186 (3,112) (2,334) (1,610) (1,560) (1,474)

Customers (trade receivables) 53,783 (402,877) 31,934 (61,544) (18,031) 182,891 (76,765) (57,574) (39,726) (38,490) (36,373)

Other assets (excluding deferred tax assets) (23,503) (30,588) 17,240 (81,048) 28,408 58,194 0 0 0 0 0

Suppliers (trade payables) (5,292) 116,466 (45,082) 15,243 3,181 (49,199) 34,802 26,102 18,010 17,450 16,490

Other liabilities (excluding deferred tax liabilities) 34,034 61,635 24,871 49,380 6,389 (51,805) 0 0 0 0 0

Deferred income and prepaid expenses 0 0 0 (3,089) 248,384 (96,525) 68,739 51,554 35,572 34,466 32,570

Change in WCR linked to operating activities 62,029 (255,375) 23,582 (80,829) 237,005 63,742 23,664 17,748 12,246 11,866 11,213

Current tax (56,362) (27,586) (36,140) (33,460) (68,582) (71,624) (87,449) (102,045) (111,538) (122,001) (130,657)

Total cash flow generated by (used in) operting activities 654,075 340,707 645,711 691,155 972,374 600,358 959,089 1,028,460 1,085,983 1,152,269 1,215,957

Cash flows from investment activities

Payments for internal and external developments (421,683) (489,464) (496,588) (521,290) (587,699) (651,202) (683,762) (717,950) (753,848) (791,540) (831,117)

Payments for other intangible assets and PP&E (56,244) (42,499) (62,916) (59,366) (74,402) (104,909) (110,154) (115,662) (121,445) (127,517) (133,893)

Proceeds from the disposal of intangible assets and PP&E 122 67 603 20 25 179 0 0 0 0 0

Payments for the acquisition of financial assets (23,709) (34,391) (44,373) (31,493) (43,816) (215,697) 0 0 0 0 0

Security deposit CACIB 0 0 0 (100,000) 100,000 0 0 0 0 0 0

Refund of loans and other financial assets 23,373 34,115 43,322 29,790 42,057 210,498 0 0 0 0 0

Changes in scope (3,188) 358 (105,642) (77,589) (84,327) (143,735) 0 0 0 0 0

Cash generated by (used in) investing activities (481,329) (531,814) (665,594) (759,928) (648,162) (904,866) (793,916) (833,612) (875,293) (919,057) (965,010)

Cash flow from financing activities

New finance leases contracted 10,142 0 1,416 5,054 20 0 0 0 0 0 0

New borrowings 622,185 234,540 669,165 893,596 604,985 935,241 100,000 100,000 600,000 700,000 200,000

Accrued interest 87 14 (18) 1,002 (1,324) (25) 0 0 0 0 0

Refund of borrowings in relation to leases (291) (891) (898) (1,672) (1,300) (35,577) (35,577) (35,577) (35,577) (35,577) (35,577)

Repayment of borrowings (466,578) (230,216) (214,663) (487,677) (572,177) (584,908) (246,863) (102,400) (500,000) (800,000) (100,000)

Funds received from shareholders in capital increases 18,054 21,924 9,465 48,951 131,910 81,466 50,000 50,000 50,000 50,000 50,000

Sales/purchases of own shares 650 (77,272) (67,844) (411,498) (201,899) 35,348 (100,000) 0 (300,000) (100,000) (400,000)

Associated current accounts (260) 258 0 0 0 0

Cash generated by (used in) financing activities 183,989 (51,643) 396,623 47,756 (39,785) 431,545 (232,440) 12,023 (185,577) (185,577) (285,577)

Net change in cash and cash equivalents 356,735 (242,750) 376,740 (21,017) 284,427 127,037 (67,267) 206,871 25,113 47,635 (34,630)

Cash and cash equivalents at the beginning of the period 115,610 505,215 255,688 632,314 583,354 878,612 986,927 919,660 1,126,531 1,151,644 1,199,279

Foreign exchange losses/gains 32,870 (6,777) (114) (27,943) 10,831 (18,722) 0 0 0 0 0

Cash and cash equivalents at the end of the period 505,215 255,688 632,314 583,354 878,612 986,927 919,660 1,126,531 1,151,644 1,199,279 1,164,649

Change in operating assets $190,121 $175,570 $162,781 $67,567 $271,740

Change in operating liabilities $27,817 $526,810 $389,154 -$613,618 $81,630

Net investment $162,304 -$351,240 -$226,373 $681,185 $190,110

EBIT $299,031 $343,885 $374,836 $404,822 $433,160

Tax rate 29% 30% 30% 30% 30%

NOPAT $212,312 $240,720 $262,385 $283,375 $303,212

Free Cash Flow to Firm $50,008 $591,960 $488,758 -$397,810 $113,102

Reinvestment Rate 76.0% -146.0% -86.0% 240.0% 63.0%

Return on Capital 8.0% 9.0% 11.0% 9.0% 9.0%

Valuation

PV of 2019 – 2023 $821,918

Terminal Value $38,852,929

Cash and cash equivalents (existing cash) $1,079,197

PV of Debt -$1,423,061

Value of equity $39,330,984

Additional computations and assumptions

Tax rate 30.00% Equity (market value) 8,471,408

Terminal growth rate. (pg223,2020) 1.20% Debt 1,423,061

Percent of equity 85.60%

Risk free rate 0.67% Percent of debt 14.4%

Beta 1.77%

Risk premium 5.65% WACC 1.5%

CAPM (cost of equity) 0.77%

Number of shares (million) 120,951

Pretax cost of debt 8.10% Stock price 70.04

After tax cost of debt 5.60%

2015 2016 2018 2017

77.0% 78.1% 81.4% 82.9% 82.2% 84.1%

11.0% 11.2% 13.8% 15.0% 11.3% 2.6%

5.9% 6.7% 7.4% 8.1% 5.4% -7.9%

67.5% 57.8% 49.7