Rovio Entertainment Oyj (6460) Earnings Call Transcript & Summary

My name is Lotta Backlund. I'm Head of Communications at Rovio. Very welcome. I'll be moderating this event today. I hope you all found coffee and breakfast at the back of the room, it will be served the entire event through. We have media present here at Epicenter in Helsinki, but we also have some people joining online, on Zoom. We have some media outlets joining us from Japan, from the U.K. and the U.S. For those of you joining live, you've been handed folders which contained the original stock exchange release from 2 weeks ago announcing the recommended cash offer. There's also a photographer who is here at the venue, who's going to be taking some pictures and those pictures will be made available for everyone in a few hours. There will not be possibilities for one-on-one interviews today but we will open up for questions and answers after the initial presentation. [Operator Instructions] Some expectation, management due to time constraints, the topic of the event today is the deal between Rovio and Sega and we will limit ourselves to questions about that. However, I do want to note that since we are currently in the takeover bid period neither representatives of Rovio nor Sega can answer about concrete plans or details regarding future integration or questions related to that. The agenda is as follows: we will first hear an introduction to Sega Sammy by Haruki Satomi, who is President and CEO for Sega Sammy and CEO of Sega. That will be followed by an introduction of Sega Games by Shuji Utsumi, who's Co-COO and President of Consumer Game and Transmedia for Sega. We're then going to hear commentary from Rovio both from Chairman of the Board, Kim Ignatius; and CEO, Alexandre Pelletier-Normand. And after that we're going to open up for questions. We are having an interpreter joining us today, so he will be translating questions from English to Japanese to English, where needed. All right. Everyone ready. Let's get started. So please welcome to the stage, President and CEO for Sega Sammy and CEO of Sega, Haruki Satomi.

Hey, everyone. It is my pleasure to be here in Helsinki today and to host this press event. First of all, allow me to introduce the Sega Sammy group. First, Sega, a provider of entertainment content and services, such as video games, arcade machines, animation and toys. And second, Sammy, which sells pachinko and slot machines in Japan. Third, we have various resort businesses that operate large-scale hotels and golf resorts in Japan and Korea. The group as a whole has sales of approximately $3 billion. Let me talk a little bit more about Sega. Since 1960, we have delivered many games to the world. In recent years, the movie Sonic the Hedgehog, co-produced with Paramount Pictures have been a huge hit in revitalizing the intellectual property and successfully expanding on its mixed media. We have other popular games, too, such as Persona, Like a Dragon, Phantasy Star Online 2, Total War, Football Manager and among others. Another strength of Sega is that we have games of variety of platforms, including consoles, PCs, smart devices and arcade machines. We have cultivated those IPs over the long history. You might remember that the history of smartphone gaming has started by Apple App Store in 2008. Now it has expanded to a market size of over 50% of the whole game industry. When Sega released Super Monkey Ball as a launch partner, I was actually involved in the smartphone game business as Vice President of Sega of America at the time in San Francisco. Soon after, Rovio released Angry Birds and became much more popular than Super Monkey Ball. I am so sad. But I still remember that scene of everyone playing Angry Birds in America. That's why we are so excited for the possibility to have Rovio to join the Sega family and explore our business together. From a strategic point of view, this is a great opportunity for Sega to expand in the global market. Our objective is to learn and strength from Rovio's high level of development and management capabilities. For Sega, we believe that by reaching out to the global market, we will be able to achieve another level of significant growth. For Rovio, you will have the opportunity to have expanding into areas other than the mobile games based on Sega's development and publishing capability for a variety of platforms, as I mentioned. We believe that sharing and a collaboration of both companies' IP would further grow the mutual fan bases of both companies. Before I finish, let me share you a short story. Last year, I visited Helsinki and had a conversation with Kim, the Chairman of the Board; and Alex, the CEO; and I had a chance to see the city. I also had dinner with Alex and even went to a sauna together. The sauna in Helsinki was amazing. I love it. Actually I went there yesterday. And it's actually very popular in Japan as well. In Japanese, there's a world omotenashi, which means hospitality to treat guests with respect and care. Sega respects Rovio with its spirit of omotenashi and would like to face the same vector to deliver experiences to captivate the people around the world. I look forward to seeing the prosperous future of both companies. Thank you very much.

Thank you so much, Satomi-san. All right. We're going to next hear an introduction of Sega Games. So please welcome Shuji Utsumi who is Co-COO of President of Consumer Games and Transmedia for Sega. Welcome.

[Foreign Language] My presentation is over in Finnish. Well, I'm Co-COO of Sega and in charge of Game Business and Transmedia. Satomi-san touched on overall Sega Sammy perspective and the relationship with Rovio. I'd like to introduce more on Sega Game-related business. Sega Game business started from arcade, and we are still a major arcade player in Japan. Recently, crane game market exploded like this, and Sega is the leader in this category. Consumer Games, covering console, PC games, mobile represents a major part of Sega business. I will discuss more later in my presentation. And Sega also has animation studios and also a toy company. Animation company has been doing a pretty good job and actually having a Japanese animation series for a long time, popular one, namely Anpanman and Detective Conan and so on. Next page, please. As Haruki-san mentioned, Sega has many, many IPs. We identify some key IPs as franchise and deliver a new title regularly. Sonic franchise has been growing again recently, and the IP has become back as the face of Sega. I will touch on Sega Sonic business more later. And Like a Dragon franchise, also known as Yakuza series has been growing its popularity just from Japan to global market. And PSO2 NEW GENESIS here is console and PC online franchise. And finally, Persona is another growing franchise developed by Atlus, which Sega merged in the year 2006. We keep Atlus brand now, and the company is a major contributor of Sega's profit. Next page. We also have several franchises from Europe. All these franchise came from M&A. Total War and WARHAMMER series from Creative Assembly, Two Point series from Two Point Studios and Company of Heroes from Relic Entertainment. Football Manager from Sports Interactive. HUMANKIND from Amplitude and so on. Next. We have many, many business bases all over the world. Sega and Atlus including studios are located in Tokyo. In Japan, we have 3,900 crews. U.S. headquarters in Los Angeles and also Relic Entertainment is located in Vancouver in Canada. North America, we have 600 people. Asia, we have many marketing sales entities like Seoul, like in Taipei and Shanghai and Singapore. And Europe, we have second largest manpower resources for Sega. We have roughly 1,800 people ready. We have several studios in London, Amplitude in Paris, Creative Assembly Sofia in Sofia. Altogether, we have roughly 6,500 crews all over the world. Next one, please. I'd like to also share our business challenge. As Haruki-san mentioned, left chart shows Sega's game sales split among platforms. When you see mobile games here, 38% of our game business represents from -- is from mobile business. But on the right side, majority, namely 88% of the business comes from Japanese market and only 12% is from overseas. On the contrary on the left side, PC and console combined, and then you want to see the right on the bottom, 80% of the PC and console business comes from outside of Japan last year. Especially Japan-based franchise, including Sonic, has been growing remarkably. Next one, please. This is a familiar chart. I mean this is a global video game market chart. As you know, mobile gaming represent more than 50% of the business, game business, and it grows fastest among all the sectors. It has been our challenges to reach out global mobile market utilizing our own IPs and franchises. Next page, please. I'd like to share recent activities of Sonic. We are fortunate to have Sonic movie hits 2 in a row and up until a few weeks ago, we had a box office record using gaming IP. Sandman broke our record with a red color. Talking about animation, we have a Netflix animation called Sonic Prime debuted last year, which was ranked top 3 in dozens of countries in family sector. Sonic also appears in Roblox. #1, IP-based games among all Roblox games. And also, we have a lot of merchandise partners like clothes, like shoes and also recently, we made an announcement with LEGO for another initiative. And of course, we have been active in game business, too. Sega introduced new Sonic title every year. But last year, we introduced Sonic Frontiers. We released last year. It was a great hit already hitting 3.5 million units. Next page, please. I believe the recent success of Mario movie should accelerate Transmedia trend of game IPs. Sega has lots of IPs, which are now included in the franchise I mentioned before, like below chart -- charts below, and I hope you like some of the IPs here. I joined Sega 3 years ago. And Sega is like -- I feel like Sega is like a treasure island with great IPs and great talents. Sega has also solid business base of console and PC game globally. Through our conversation with Rovio, we see similar culture and value. And we also see Rovio has the strengths we do not have. We believe Sega and Rovio has characteristics to complement each other for the future growth. With Rovio, I believe Sega can accelerate Transmedia initiative more aggressively. Next page, please. TOB process has not yet started, so I cannot -- allow to show too much of the information. But I try to share Sega's profile and respect towards Rovio.

All right. Next, we're going to hear from Rovio. Please welcome Kim Ignatius, Vice Chairman of the Board for Rovio.

Good morning, everybody. My name is Kim Ignatius and I'm the Chair of the Board of Rovio, and I'm very happy to be here on the stage today with our friends from Sega. I would like to start with a few words about how this -- how we came to this day actually. In the beginning of the year, Rovio received indicative interest from some external parties looking for perhaps acquiring the company. The Rovio Board decided to start a strategic review on what possible avenues were for the company in the future. In this strategic review, we thoroughly analyzed and addressed all the options. We considered all options, of course, from the perspective of the shareholders, but also from the perspective of Rovio itself and the Rovions. The options included possible transactions, but also naturally continuing as a stand-alone company by executing Rovio's announced strong strategy that we believe in firmly. As part of the review, we had discussions with several interested parties about the potential combination. My personal reflection is that throughout the process, when meeting with the people from Sega, I always felt that there was a strong potential in this combination. As you know now, the review was completed. And on April 17, Sega's public tender offer was announced. The conversations with Sega were fruitful and constructive from the very beginning. Between February and April, an extensive due diligence was completed by Sega, as is typical in this type of potential transactions. Several meetings were held where we got to know each other and possible synergies were explored. During this process, it became quite evident that Sega and Rovio would make a very strong fit. There are synergies to be had in several areas, and Alex will soon, in his presentation, talk about these synergies in more detail. Overall, combining the strength of these 2 companies presents an incredibly exciting future. The Board of Directors of Rovio is recommending this deal not only because of the reasons I just mentioned in terms of synergies that these 2 great companies can have. But because this is also a financially solid deal. The share offer price represents a premium of approximately 63% compared to the undisturbed share price. The Board of Rovio sees that Sega as one of the most prestigious and historical gaming companies would be a good home for all the talented Rovions and the iconic games of Rovio. Once again, very happy to be here today. Thank you.

Thank you, Kim. And finally, please welcome Alex Pelletier-Normand, CEO of Rovio.

Good morning. Good morning, everyone. Well, first of all, thank you very much to Satomi-san and Utsumi-san for your presentation. It's been insightful. And today, I would like to share with you some thoughts on what this transaction could mean from more of the angle of Rovions, for Red, the Angry Birds and for our overall global strategy. So to begin with, I will talk about my fellow Rovions, so the passionate and dedicated employees of Rovio. Over the past few months, I had the opportunity to sit down with the Sega team with a limited group of managers and to discuss several things together, and I was able to understand a little bit more how they saw the market and what was their strategy going forward. And there's a couple of things that became apparent very quickly. And one of them is that our strengths were remarkably complementary. And then the second one is that there was a mutual respect for what both companies have accomplished throughout the years, which created a strong connection. So myself and this group of managers left the meeting impressed, but we were also eager to see what other Rovions would think about it. So leading to the April 17 announcement, Rovio's leadership team and I carefully planned the announcement date and how we would share the news with Rovions. The announcement there was actually literally planned minute by minute. So the all-hands meeting that we had on the Monday was perhaps not a surprise to anyone due to the media attention we got in the previous weekend, but we had everybody's full focus when we presented the project carefully in depth and addressed all questions. So judging by the smiles across the room and all the positive atmosphere that we felt, it was clear that Rovions were excited at the idea of partnering with a company that many of them had admired since childhood, playing Sonic the Hedgehog on their Sega Genesis platform. Sega has a long history of developing and nurturing IPs and this respect for craftsmanship is paramount to Rovions when thinking about a new home, giving the pride and attachment we all have towards Angry Birds. So the reason why this project is exciting to us is that it simply makes sense. Rovio and Sega share a deep respect of IPs. Our strengths complement each other perfectly. Sega is a household name on PC and console, which means that they can help us bring Angry Birds to new audiences on those platforms. On the Rovio side, we have spent the last 20 years developing and operating mobile games. We're excited at the idea of helping Sega expand their IPs and reach an even more people in the global mobile gaming market. Both Rovio and Sega have also succeeded in bringing their beloved characters outside gaming to other forms of entertainment such as feature films and series. We certainly have a lot in common to share about this. So in conclusion, I want to express my heartfelt gratitude to all Rovions who have contributed to Rovio's success over the years. I am personally convinced that Sega as an owner, will deeply respect and honor this legacy. Thank you.

Thank you, Alex. Please don't leave. if I could ask Satomi-san and Utsumi-san and Kim to join us on stage. I will remind you, if you are on the Zoom call, if you're joining online, please put your questions in the Q&A box. You can find it at the bottom of your screen, and we will pull them from there and you can ask your questions, if there is somebody in the room who wants to ask a question, just put up your hand.

[Foreign Language]

Okay. We have a microphone running to the gentleman in the back.

Wiley, Finland. Sega has done acquisitions previously, and I know that you are not -- at least you said, so you're not going to tell specifics of this integration that is coming in the next -- in the future. But what is your strategy overall with the gaming studios that you have bought previously? And is that something that we can expect?

[Foreign Language]

Yes. As I mentioned, we cannot talk about the detail specifically about Rovio. Of course, we can talk about the past, what we have done. And over the last 15 years, I think we have acquired nearly 10, a little less than 10 studios of worldwide. And all of the studio have grown since then, especially the Creative Assembly. When I visited the office the first time, their offices is just a small house, about 60 people, now expanded to 800?

800 people is in my hunch.

One of the biggest studios in U.K. now. And in Japan Atlus, they joined us Sega family and nearly size, we could double now. And all of the studio we respect the independency and their brands. But for console and PC, we published at Sega brand, most of the title, but like Atlus, they were the publishers of console before that. So we respect their brands. So we treat it as the publishers as well, not only just the studio.

For example, Atlus, I mean, they just focus on also only, but now they have a PC initiative also and now expanding into mobile also too. We are helping them to grow utilizing those things.

Do we have more questions in the room. Elia

You told us you visited Finland first time last year. How did the discussions started already before Playtika offer? Or how did you become interested and who started the discussion?

[Foreign Language]