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Edited Transcript of UBI.PA earnings conference call or presentation 30-Oct-19 5:15pm GMT

Half Year 2020 Ubisoft Entertainment SA Earnings Call

Montreuil-sous-Bois Cedex Nov 12, 2019 (Thomson StreetEvents) -- Edited Transcript of Ubisoft Entertainment SA earnings conference call or presentation Wednesday, October 30, 2019 at 5:15:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Frédérick Duguet

Ubisoft Entertainment SA - CFO

* Yves Guillemot

Ubisoft Entertainment SA - Co-Founder, Chairman, CEO & President

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Conference Call Participants

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* Benjy Scurlock

Arete Research Services LLP - Analyst

* Charles-Louis Scotti

Kepler Cheuvreux, Research Division - Research Analyst

* Kenneth Charles Rumph

Jefferies LLC, Research Division - Equity Analyst

* Matthew John Walker

Crédit Suisse AG, Research Division - Research Analyst

* Michael Ng

Goldman Sachs Group Inc., Research Division - Research Analyst

* Nicolas Langlet

Exane BNP Paribas, Research Division - Research Analyst

* Raymond Leonard Stochel

Consumer Edge Research, LLC - Analyst of Entertainment

* Robert Berg

Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

* Thomas A Singlehurst

Citigroup Inc, Research Division - Director and Head of European Media Research

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Presentation

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Yves Guillemot, Ubisoft Entertainment SA - Co-Founder, Chairman, CEO & President [1]

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Good afternoon, and good morning, everybody. Thank you for joining our conference call. As announced last week, we are implementing new changes to our organization. While they are having a negative impact on our short-term performance, we expect they will generate sufficient value over the coming years. Ubisoft has a history of making moves intended to spare its long-term prospects that have led to very significant value creation for its shareholders over the past 5 years. Ten years ago, we focused our strategy on our biggest franchises, and we put in place the lead and associate studio organization. Six years ago, we decided to increase the production time between the alpha and the release date for our games. Those 2 decisions and others like them have led to a material transformation of our portfolio, with the launch of successful new IPs like The Division, Watch Dogs and For Honor with significant growth for franchises like Rainbow Six and Far Cry and a strong comeback for assessing script franchise. And we delivered a huge increase in players' engagement over the past few years. Our numbers of session date for the first 6 months of this year is equal to the total number of session dates for the full fiscal year '14, '15 and '16 combined. These are all second achievements and led to 100 million unique active players on PC and console last year.

Looking at H1, after a better-than-expected Q1, our second quarter net bookings came in above our target, demonstrating the strength of our back catalog. Our second quarter was only down 7% at constant exchange rates despite no AAA release this H1 versus the [Q2] release in June 2018. This speaks to the broad performance of our portfolio of franchises and notably, the great momentum of Rainbow Six and Assassin's Creed audited. Before turning the call over to Frédérick, I would like to come back to the comment we made last week regarding the Division 2's momentum versus our initial expectation. In absolute value, I want to underline that the Division 2 is delivering an overall solid performance. It was the biggest seller of the industry for the first 6 months of the calendar year, and it generated a solid financial contribution. As such, we are going to support the game with high-quality updates for the community, and we are for -- as we are doing for our biggest title.

I will now let Frédérick detail our H1 performance. Frédérick?

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Frédérick Duguet, Ubisoft Entertainment SA - CFO [2]

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Thank you, Yves, and hello, everybody. Net bookings in H1 reached EUR 661 million, down 13% at constant exchange rates. Our Q2 net bookings reached EUR 347 million, down 7% at constant exchange rates and 12% above our target of approximately EUR 310 million. As a reminder, the year-on-year decrease mostly reflects fewer early physical shipments from Ghost Recon Breakpoint versus Assassin's Creed or DC last year. Excluding the technical impact, Q2 is slightly growing versus last year. We delivered this better-than-anticipated quarter, thanks to solid and across the board back-catalog performance, up 3% to EUR 238 million. This was spurred by a solid increase in overall play time and by a growing engagement per player, while MAUs were flat year-on-year. This more than offsets the high comparison base from Far Cry 5 outstanding contribution in Q2 last year. Mobile and PC also contributed to this overperformance. As we celebrate its 1-year anniversary, we can confirm the continued momentum of Assassin's Creed Odyssey. Daily engagement, PRI and sales count continued to grow strongly over the quarter, ahead of Assassin's Creed Odyssey last year. All of these metrics even accelerated during the quarter after an already very strong Q1. Rainbow Six Siege MAUs has reached a new record this quarter. As a consequence, PRI grew again year-on-year. The game passed the 50 million registered players mark in September, and its solid momentum over the quarter was spurred by the July event showdown and the new season Operation Ember Rise in September. On the eSport scene, the Six Major Raleigh organized in August saw a meaningful engagement progression with a 27% increase in watch time compared to the Six Major Pairs 2018 addition. Finally, the current Halloween event is seeing the strongest revenue per session ratio since the outbreak expansion in March 2018 and a robust year-on-year engagement progression. We recently introduced a Mini Battle Pass, and we'll launch the full version during an upcoming season. On selling the Division 2. In October, we released Episode 2 - Pentagon: The Last Castle. We see a second major update. We brought extensive changes and delivered a host of improvements, fueled by community feedback. It is true it generated the highest reactivation rates since the launch of the Division 2. The improvements to accessibility and the overall health of the game resulted in the most successful conversion rate for a free weekend on the Division 2. And as we mentioned, the game was the biggest seller of the calendar year until the end of June. We are already hard at work improving the Ghost Recon Breakpoint experience for our community of players. Our first priority is to improve the technical state of the game with the release of several title updates in the coming weeks. In parallel, we are also working to make the experience for players more comfortable. We are dedicated to supporting the game in the long-term to keep the world constantly growing and evolving. Among our other titles, Brawlhalla, our free-to-play game now supports cross-platform play between PS4, Xbox One, PC and Switch. The game continues to enjoy great momentum with very strong year-on-year growth.

In H1, total digital net bookings reached EUR 537 million, up 4%, and PRI was up 18% to EUR 310 million. On a platform basis, PC up 18% in H1, continues to enjoy a strong momentum. As a reminder, we launched our Uplay platform 10 years ago and this long-term investment is now paying off handsomely. Following a great performance in fiscal '19, revenues on Uplay grew very strongly again in H1.

Additionally, we launched our new subscription platform, Uplay+ on PC in September, which aims at leveraging our diversified portfolio of own IPs. Like with other subscription services, the early data is showing that subscribers are more engaged than nonsubscribers. This is just the beginning. And as you know, we did not factor any contribution from new players in our assumptions for the fiscal year. Looking at our mobile business. Net bookings were up 6% in H1 and 33% in Q2. Q2 growth is due to the releases of Mighty Quest for Epic Loot and Rayman Mini and to the acquisition of Green Panda Games. The quarter saw strong performance from the hyper-casual segments. We saw all our games in the Top 10 iOS dollar rankings in the U.S. this summer. Regarding earnings. We implemented for the first time IFRS 16 in H1. The objective of IFRS 16 is to homogenize the accounting presentation between companies buying and just leaving their assets, and to standardize the accounting treatment of all types of lease. At the balance sheet level, this implies, first, the accounting of right-of-use of the assets amortized over the duration of the contract for a net amount of EUR 206 million. Second, the accounting of the lease obligation liability corresponding to the sum of discounted future cash flows for EUR 217 million. At the P&L level, impacts are as follows in our marginal this semester: Cancellation of the rental expense and recognition of an amortization expense of the right-of-use; recognition of interest expenses on financial debt; the accounting of taxes applicable.

Finally, IFRS 16 has a meaningful impact of EUR 217 million on the net cash position. Therefore, we have introduced a new metric, which is a non-IFRS net cash position adjusted from IFRS 16 impacts in line with our historic net cash calculation.

Let me now go into the details of our H1 earnings, which mostly reflect the momentum of our back-catalog, compensated by the unfavorable comparisons of Ghost Recon Breakpoint versus Assassin's Creed Odyssey and the Division 2 versus Far Cry 5. The release of The Crew 2 last year and one-off elements. As you can see in Slide 5 of our presentation, our gross margin stood at 85.4%, a 0.3 point increase versus last year. The positive mechanical impact from the digital progression was primarily offset by one-off elements related to higher hosting costs. R&D was up 6.6 points, and I will review it in the following slide. Regarding SG&A, marketing was impacted by a bigger campaign for Ghost Recon Breakpoint versus Assassin's Creed Odyssey. Our fixed pressure costs were up 5.1 points, with the biggest increase factor being the last December acquisition of i3D.net, followed by our investment in our e-commerce platform, data and security.

Turning now to Slide 6. Despite no AAA release in the quarter, R&D P&L was up 5% due to the significant impairment charges we recorded on Breakpoint. Our total cash R&D was at 12%, reflecting our stated goal to fuel our long-term growth and value creation. More specifically, the 24% increase in noncapitalized R&D reflects our investment in post-launch content to drive strong PRI growth for H1 and for the coming year. It also reflects a onetime accounting event as last year Rainbow Six Siege when post-launch was capitalized, and it is now fully expensed.

Regarding the reconciliation table, Slide 7. IFRS sales are impacted by a positive EUR 36 million that was deferred from the prior year. Stock-based compensation was slightly down versus last year. And as usual, our non-IFRS figures also exclude a EUR 4 million noncash charge related to the convertible bond option cost.

Looking at our cash flow statement in Slide 8. There are different elements to highlight. Further, EUR 193 million decrease in cash flow from operations is mostly due to the non-IFRS net income decrease of EUR 146 million combined with the EUR 33 million increase in the gap between R&D, P&L and cash. This is partially offset by EUR 84 million decrease in working capital requirement that is mostly related to fewer early physical shipments on Breakpoint versus Odyssey last year, and inventory variance from prior year related to the launch of (inaudible). We had EUR 33 million in acquisition related to the acquisition of Green Panda Game, end of July and deferred payment of past acquisitions. Finally, we had EUR 77 million (sic) [EUR 75 million] proceeds from issue of capital and EUR 35 million disposal of our own shares to fund our latest employee share plan, which had a positive impact of EUR 112 million.

All in all, this translated into a non-IFRS net debt of EUR 218 million, that compares with EUR 337 million a year ago.

Talking about net debt. I would like to highlight the benefit from a solid financial position. As you can see in Slide 9. Even if we factor in the fact we expect negative cash flow from operations over the second semester, we expect a significant improvement in our net financial situation by year-end. Additionally, we bought EUR 1.3 billion in committed available funding and no maturity debt within the next 3 years, excluding EUR 50 million in Schuldschein combined with the total equity of comfortably north of EUR 1 billion by fiscal year-end. We benefit from a very strong financial situation that will allow us to finance further growth development, contemplate potential M&A and opportunistic buybacks.

Looking at Q3. We expect net booking at around EUR 410 million, down 32% versus last year. This mostly reflects the lower Ghost Recon Breakpoint related to Assassin's Creed Odyssey as well as to a lesser extent the launches starting last year. As for the full year 2020, as we announced last week, we now target net bookings of approximately EUR 1.450 billion, and we expect non-IFRS operating income to add up between EUR 20 million and EUR 50 million. In light of these new targets, we are now expecting digital PRI in back-catalog to grow meaningfully as a percentage of net bookings versus last year. Regarding the items below the non-IFRS operating income line, please note that the number of diluted shares are now expected around 122 million. Last week, we also introduced our first target for fiscal '21, with net bookings and non-IFRS operating income of approximately EUR 2.600 billion and EUR 600 million, respectively. With the additional time provided to our 3 titles and the fact that our further 2 AAAs come from our biggest franchises, we believe we have a strong visibility on next year's lineup. And we also plan to continue to grow PRI, Asia and PC. For the years beyond fiscal '21, we continue to expect releasing 3 to 4 AAA per year to benefit from a growing catalog and PRI and from our Tencent balance sheets on mobile and on the ongoing momentum in Asia and PC.

I now hand over the call back to Yves.

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Yves Guillemot, Ubisoft Entertainment SA - Co-Founder, Chairman, CEO & President [3]

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Thank you, Frédérick. We are confident in the medium and long-term prospect for Ubisoft. The ongoing trend of popular IP successfully transitioning to mobile like Fortnite and Call of Duty proves our strategy of bringing our franchisees on mobile is the right one. It can generate significant value. The new generation of consoles will bring items excitement from gamers, and our PC momentum will continue to bear fruit.

Asia is also a significant source of opportunity for Ubisoft. And we will leverage our strong and diversified portfolio of IP through the multiplication of platforms and Uplay. Finally, while the decision we made last week is impacting our short-term performance, history shows that those kinds of moves are always very positive to our long-term development. We expect financial year '21 and financial year '22 to be demonstrate -- to demonstrate the first benefit of that decision. We are now ready to answer your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We will now take our first question from Nicolas Langlet of Exane BNP.

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Nicolas Langlet, Exane BNP Paribas, Research Division - Research Analyst [2]

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I've got 3 questions, please. The first one on Rainbow Six. So you mentioned a good PRI growth in Q2 that the competition is likely to become a bit tougher in the coming months, notably with Call of Duty: Modern Warfare. Do you think your own initiatives can offset that increased competition and allow Rainbow Six PRI to continue growing in H2? Is it what you included in your guidance? Second question on the full year '21 net booking. You didn't comment on the split between back-catalog and new game last week. Hopefully, you can give us a bit more color at least a rough split between the 2? And third question. On your -- on the non-IFRS debt, if we take into account the recent issuance of the new convertible bond and your expected free cash flow, what roughly level of non-IFRS net cash position you expect for the full year?

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Frédérick Duguet, Ubisoft Entertainment SA - CFO [3]

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So on the first point, Nicolas, we had indeed a very strong Q2 on Rainbow on the PRI side. As we said, we reached a record MAU number over the quarter, it was even bigger than during the quarter when we launched the Outbreak expansion. We see that engagement grew at a double-digit growth rate in Q2. So as a consequence, PRI grew nicely. And what we've seen recently is that with the Halloween events, it grew materially again engagement and PRI, while it was in front of a strong competition. So that confirms that we are coming with a higher number and a higher quality of events as we come with the high pace of content delivery. It's doing very well for Rainbow. We're also happy to come with the -- the Battle Pass that would be a strong retention tool in the future. So we believe Rainbow is coming well in terms of PRI growth. And yes, we assume that PRI will grow in the second semester. In fiscal -- for fiscal '21, it's too early to provide any detail on this metric. What we said is that we have very strong visibility on our new releases that we visit thoroughly, and we believe that they will be coming along very well. And so that's the reason why we believe that fiscal one will be a great year. On your question, yes, taking into account that we'll have the impact of the new convertible bond and the conversion of the previous one. And assuming that we have negative cash flow from operation in the second semester. We expect that our net cash position will strongly improve versus our net position at the end of September in non-IFRS terms.

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Operator [4]

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We will then move on to our next question from Mike Ng of Goldman Sachs.

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Michael Ng, Goldman Sachs Group Inc., Research Division - Research Analyst [5]

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Maybe -- I just have 2. The first is, could you just talk a little bit about the PRI strength in Rainbow Six Siege? How should we think about the cadence of that PRI in the second half? And are there any specific events or live services update that you would highlight? And then as a follow-up to that, do you think the success of Rainbow Six Siege has made it more difficult for other Tom Clancy games like the Division or Breakpoint to succeed? And just as a housekeeping question. Could you just tell us how much the impairment charge was for Breakpoint?

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Yves Guillemot, Ubisoft Entertainment SA - Co-Founder, Chairman, CEO & President [6]

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So first on the competition Rainbow Six could have on the other products. We don't think that it has a major impact as it is a PDP game where the other games are more solo and co-op. Frédérick, maybe you can answer the other question?

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Frédérick Duguet, Ubisoft Entertainment SA - CFO [7]

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Yes. So on the PR sense, on Rainbow Six Siege, I think I already answered the question previously. Again, we've been happy to see that we are increasing with a stronger cadence in terms of content delivery. And what we see is that the fact that we're coming more often drives more sessions per player per month, and that's the key point. And we also believe that our PRI improvement potential is strong on Rainbow. The fact that we are coming with Battle Pass will be very positive for the future. In terms of impairment charges for Ghost Recon Breakpoint, it's meaningful, but we don't give the exact amount of this.

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Yves Guillemot, Ubisoft Entertainment SA - Co-Founder, Chairman, CEO & President [8]

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And you have to consider as well that Assassin's Creed Odyssey PRI is also very good.

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Frédérick Duguet, Ubisoft Entertainment SA - CFO [9]

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Yes, we've been very happy (inaudible) again in Q2.

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Operator [10]

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We will now take our next question from Robert Berg of Berenberg.

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Robert Berg, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [11]

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A couple of questions left for me. The first, I'm slightly confused by the message on the Division 2. Last week, you pointed to it being a disappointment and a reason behind the downgrade this year. Today, you're saying it's setting reactivation records and you're keen to say how well it's doing. I just want you to try and summarize everything together and what is the message we should be taking away for this game? And the second question on the convertible. Again, I'm keen to hear why you decided to issue another convertible. Did you consider other sources of finance? And why did you come to the conclusion that the convertible was the most appealing?

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Yves Guillemot, Ubisoft Entertainment SA - Co-Founder, Chairman, CEO & President [12]

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So on Division 2 what we wanted to say is that even if we were disappointed by the expectations we had on the game, we see -- it was still a good seller and it was meaningfully profitable. So it's just -- it didn't do what we expected, but it's still a very good gain. That's what we wanted to say.

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Frédérick Duguet, Ubisoft Entertainment SA - CFO [13]

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Yes, Robert, on the convertible, yes, we carefully examined different alternatives, especially the alternative between convertible bond and non-rated bonds possibility. What was very clear after our in-depth analysis was that the market conditions were exceptional in the convertible bond side with a very strong imbalance between offer and demand. And that led us to the conclusion in a very clear manner, that we will benefit from exceptional market conditions with low risk of execution and actually with a high probability of very high-quality in the execution. So -- and that's exactly what happened. We were able to optimize the terms to exceptional levels up to 65% premiums and negative 1% yield over 5 years. So that's been pretty exceptional in terms of market terms. So that's why we wanted to seize this opportunity to provide a company with the right long-term flexibility to fuel our growth in terms of development internally but also with a focus potentially if M&A opportunities arise.

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Robert Berg, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [14]

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And just a very quick follow-up. Do we assume that everybody in the previous convertible converted, is that the bit -- what we should be assuming.

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Frédérick Duguet, Ubisoft Entertainment SA - CFO [15]

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Yes. The 99.4% converted on the previous one.

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Operator [16]

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We will now take our next question from Ken Rumph of Jefferies.

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Kenneth Charles Rumph, Jefferies LLC, Research Division - Equity Analyst [17]

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Could I ask something about your thought process in delaying the games? And what differently you would do going forward? Firstly, in terms of the thought process. You had a choice I guess of delaying kind of 1, 2, 3 games. It seems to me you could well have decided that you'll say, Gods & Monsters is very different. It has nothing to do with Ghost Recon, we could go ahead with this. And there it seems to me, perhaps you thought this year's financially kind of severely impacted, let's push everything. So a little bit about your thought process about kind of why all 3, why not just a couple? Related to that, what kind of inefficiency costs you bear this year? You -- effectively, you have a staff and a marketing department that's designed for 3 or 4 games. Those guys are all still working. Okay. You don't have to buy as much media capacity as you would have done for -- if you'd had those launches, but there are fixed costs that are kind of underutilized that would have been utilized if you'd launched a game as planned in the first quarter. How much if you like does that weigh on the second half of the year? And finally, regarding the extra time that you're giving yourself. Part of the problem appears to be that although you scrutinized Ghost Recon and tested it and surveyed it in advance, and it seemed like it would be okay, it didn't turn out that way. So what different do you do going forwards with the 3 games? Do we have an earlier [beat herd]? So you tell me what can you do aside from spending more time and polishing harder to kind of ensure those games have what players demand and overweight the mistakes or the disappointments of Ghost Recon.

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Yves Guillemot, Ubisoft Entertainment SA - Co-Founder, Chairman, CEO & President [18]

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So thank you for your questions. What you have to consider for the team that we -- marketing team that we have is that as we are doing lots of events on our live games, they will have plenty of work to do on all those events. For sure not having games will cost, but it means we will spend a lot more time on all those events and live events that we will have on our games. Now on the other question about how do we do it differently than on Ghost Recon on the next releases. Having more time is going to give us a chance to do more testing and get more feedback from players, and this is what we -- the way we have been doing in the past. So more time is going to help us to have a better understanding of all the changes we can make. So as those games are going to be playable for a long time, we are going to get those info and make the modifications that are -- that can be needed.

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Kenneth Charles Rumph, Jefferies LLC, Research Division - Equity Analyst [19]

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So if I understand in a way, if you had a beater and then several months to respond to it, there's more you can do.

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Yves Guillemot, Ubisoft Entertainment SA - Co-Founder, Chairman, CEO & President [20]

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In fact, we are also changing our organization to check all the problems that we had last time with Ghost Recon. So we -- this organization is also going to check all the different points that we want to check. What is important, again what is important to consider is that, like we said last week, we have -- we're working on 2 major elements. First of all, making sure that each breakthrough new formula, change in formula new brands are coming with a very highly optimized experience, and that our key goal that we're stating very clearly, loud and clear. And that's why we believe that these 3 games that are coming with a very strong promise, a strong element of differentiation will be very well delivered. And also, in general, what we said is that we'll spend more time and have an additional pillar in our quality approach into building differentiation elements to improve the marketability of our games. We've been improving game play in a very meaningful manner over the years. We have optimized live operation services, now we are adding a new pillar to make sure that all of our games will start out and we'll be able to come with very stronger elements of identity. And then we believe that it's going to be a key step change in going for a higher marketability and grow our audience to a higher level.

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Operator [21]

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We will now move on to our next question from Mr. Ray Stochel, Consumer Edge Research.

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Raymond Leonard Stochel, Consumer Edge Research, LLC - Analyst of Entertainment [22]

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Can you discuss the introduction of the Battle Pass into Rainbow Six? Is this an additive monetization strategy? Or is it more focused on retention? And why do you think we're seeing so many Battle Passes in the market from your competitors?

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Frédérick Duguet, Ubisoft Entertainment SA - CFO [23]

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Yes, what we -- first of all, we've seen a very smooth implementation of the Mini Battle Pass that we implemented ahead of the Halloween event. The feedback from players were good. Of course, it's too early to isolate the impact that we've had on strong engagement growth -- NPI growth from the event to isolate the impact of Mini Battle Pass from the event itself. But we see it as a strong retention tool. And we know that when we come with a highly optimized and very pleasant player experience and we come with stronger elements and tools of retention, then naturally, PRI grows to a high level.

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Raymond Leonard Stochel, Consumer Edge Research, LLC - Analyst of Entertainment [24]

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Got it. And are you learning more post Ghost Recon with this inflammation of the -- implementation of the Battle Pass and Rainbow Six? Are you learning more about the best monetization strategy approach for each of the titles that you have coming next year? Was there any worry about launching the titles with a poor monetization strategy? And now you have extra time to fix that post-launch monetization strategy with that extra 6 to 9 months plus with those titles that you pushed into the next year.

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Yves Guillemot, Ubisoft Entertainment SA - Co-Founder, Chairman, CEO & President [25]

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We are learning from all the experiences we have. So we are going to make sure monetization is well implemented, and that continues to follow our goal, which is always to make sure that players can play 100% of the experience without having to buy in game. And really, what we do is really make sure that people have a good experience in the game and that when they spend lots of time in the game, they can be interested in buying items in games, not the contrary.

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Operator [26]

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We will now take our next question from Matthew Walker of Crédit Suisse.

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Matthew John Walker, Crédit Suisse AG, Research Division - Research Analyst [27]

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I've just got 2 questions, please. The first one is, can you just tell us a little bit more about what happened on Ghost Recon? And you go through these checks and these gating procedures. Can you just explain who does the final checks? How come it wasn't spotted that the micro transactions are not going down very well? Is it the studio that produces the game that does all these checks, so they're kind of -- they're sort of marking their own homework as it were? Or is it somebody from outside that studio who makes the game that does the necessary checks to make sure it's going to be successful and explain how those checks are going to be done differently in the future? The second question is, you saw EA pushed out Battlefield into fiscal '22. Their argument was around the low installed base for the new consoles, they need time to get it to a higher level. You're going to be releasing your titles with -- I guess earlier. So what's your thinking around the timing of releases? And how many releases are going to come in the Q4 -- the fiscal Q4 of '21?

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Yves Guillemot, Ubisoft Entertainment SA - Co-Founder, Chairman, CEO & President [28]

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So I will answer the first question, maybe Freddy's going to answer the second one. So I will answer the second question and Freddy the first one. We consider that the coming of the new consoles is actually to boost the market quite a lot as what happens with those new consoles is that the Sony and Microsoft are generally coming with good volume for those new machines. So it's going to be lots of marketing and lots of new machines there that will increase the market potential. And what is important is when you come early on the next-generation of console, you can sell also your games for a long time. So we are very happy to be close to the launch of those consoles because it's going to benefit all the games we will launch. It doesn't mean that they will not be happy. We will be also happy to have games coming in '22 that will have more console installs. But here, it's -- the new console arrival is going to help tremendously.

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Frédérick Duguet, Ubisoft Entertainment SA - CFO [29]

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Keeping in mind that at the time of the last transition, we had launched Assassin's Creed Black Flag, which has been one of the biggest game ever for Ubisoft. So it worked very well at the time of the generation transition.

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Yves Guillemot, Ubisoft Entertainment SA - Co-Founder, Chairman, CEO & President [30]

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And you have both actually you have the old gen and new gen at the same time. So it's really helping a lot.

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Frédérick Duguet, Ubisoft Entertainment SA - CFO [31]

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Now on your first question. Let's be clear and step back. The primary point on Ghost Recon has been that the new formula has been rejected by an important fraction of the players. So of course, we could have improved this final execution of the micro transaction point. But the key point in what we know and what we've learned is that the primary element is to come with the formula that the players will love and that the player experience needs to be great. And then API comes along naturally. The responsibility's, of course, shared by the studio and the central teams. And in the past, we've had a number of very great experiences in the way we implemented PRI, cost in our games. We're coming back with the decision we've just made. Coming back to the point that we need to come with a very well optimized player experience, and that comes from that.

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Operator [32]

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We will now move on to our next question from Tom Singlehurst of Citi.

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Thomas A Singlehurst, Citigroup Inc, Research Division - Director and Head of European Media Research [33]

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It's Tom here from Citigroup. One question. I suppose I should probably should have asked this last week because it's not really a 1H related pool. But just as I say, with a couple more days to think about it. Just wondering, with respect to the performance of Ghost Recon and the development so far, whether you think there's anything sort of I suppose more structural about the sort of open sandbox type of game. I mean whether in this -- I just -- well, it just struck me that some of the games that people are really excited about how very strong sort of stories and narratives associated with them. And I just would be interested in your perspective on whether the sort of as I say the sort of open world sandbox type games are just falling slightly out of vogue? Whether that's one of the takeaways from Ghost Recon and to a lesser extent, the performance of Division 2?

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Yves Guillemot, Ubisoft Entertainment SA - Co-Founder, Chairman, CEO & President [34]

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Yes. What -- when we look at -- in the past, our open world setting has been -- have been loved by many players, and that's been the case for Ghost Recon as well.

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Frédérick Duguet, Ubisoft Entertainment SA - CFO [35]

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Ghost Recon Wildlands.

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Yves Guillemot, Ubisoft Entertainment SA - Co-Founder, Chairman, CEO & President [36]

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Ghost Recon Wildlands. So that's sort of proven to be a very great competitive advantage for Ubisoft in the long run. What we know is that we have to come with a compelling story and a marketability of the places you go, which is also more appealing than what we had. That's what we see now is that it's very important to make sure the story and that even if it's in an open world, it's really well worked and that the characters are stronger.

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Frédérick Duguet, Ubisoft Entertainment SA - CFO [37]

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Keeping in mind that we had step changed, the audience of Ghost Recon by coming into an open world.

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Thomas A Singlehurst, Citigroup Inc, Research Division - Director and Head of European Media Research [38]

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Got it. Got it. And is that something that's on the agenda with these delays, just a little bit more emphasis on the story and the characterization.

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Yves Guillemot, Ubisoft Entertainment SA - Co-Founder, Chairman, CEO & President [39]

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We're going to -- that's the kind of gates we are putting to make sure we work harder on the characters on the settings and making sure, we get that a lot more than what we did before.

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Frédérick Duguet, Ubisoft Entertainment SA - CFO [40]

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The key element of differentiation and identity, we are very much around the sense of purpose we're building, the sense of antagonism along together with the element that you mentioned around character and artists, of course, that will depend on each and every game genre.

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Yves Guillemot, Ubisoft Entertainment SA - Co-Founder, Chairman, CEO & President [41]

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On the template side, w e made a lot of progress, and the experience in Ghost Recon is a fantastic experience. So the second step is to make sure that we work harder on the other elements.

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Operator [42]

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We will now move on to our next question from Charles Scotti of Kepler.

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Charles-Louis Scotti, Kepler Cheuvreux, Research Division - Research Analyst [43]

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I've got 3 questions, please. The first one on Rainbow Six Siege. Why the approval process in China is taking so long in your view? Is there any blocking point? The second question. I'm just curious to hear your thought on the success of Call of Duty: Modern Warfare because last week you kind of suggested that the (inaudible) sequel based business model was clearly question. But it seems that this success means that it is still relevant. And my third question. Last week, you talked about a bit that your factory play games would be compatible on both consoles generation. So does that mean that it's a game I buy a game I play on PS4? I would be able to pay it on PS5 with benefiting from the great graphics? Or are we just talking about the [back-catalog] compatibility?

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Yves Guillemot, Ubisoft Entertainment SA - Co-Founder, Chairman, CEO & President [44]

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Yes. So on Rainbow Six, it's -- in China, it follows the normal process, and it's well underway. It takes time. But we feel -- we can't say much more, but it's well underway. That's the only thing we can say.

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Frédérick Duguet, Ubisoft Entertainment SA - CFO [45]

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Yes. On the comment we made last week in terms of space (technical difficulty) between releases, this was very much around the multi-play Life Corp. type of games. So that there are different genres than what you mentioned for Call of Duty.

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Yves Guillemot, Ubisoft Entertainment SA - Co-Founder, Chairman, CEO & President [46]

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Which is a PDP.

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Frédérick Duguet, Ubisoft Entertainment SA - CFO [47]

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Which is a PDP.

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Yves Guillemot, Ubisoft Entertainment SA - Co-Founder, Chairman, CEO & President [48]

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Yes, on the 5 cycles, yes, there will be compatible. They will be on this generation and next-generation of console, and they will take advantage -- full advantage of all the new features that are coming with the machines, which are actually going to be extremely interesting for players. As you will be able to download a lot faster new content, the experience will -- players will experience better frame rate. So there are lots of very good elements that will come with those new machines.

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Operator [49]

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We will now move on to our next question from Mike Ng of Goldman Sachs.

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Michael Ng, Goldman Sachs Group Inc., Research Division - Research Analyst [50]

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I just had a few housekeeping questions. Could you just clarify, Frédérick, when you said growth in the second semester of fiscal '20 for PRI. Was that sequentially versus the first half or year-over-year? And could you just clarify what the outlook for PRI is for the full year? And then could you just talk a little bit about Green Panda, how much did it contribute in the quarter? And what's the run rate?

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Frédérick Duguet, Ubisoft Entertainment SA - CFO [51]

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Yes. On PRI my comment on the growth was for Rainbow Six feature related to last year. While I didn't -- I don't see any -- made any comment on the overall PRIs globally. What we said is that we expect PRI as a percentage of net booking, of course, to be significantly higher than last year.

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Yves Guillemot, Ubisoft Entertainment SA - Co-Founder, Chairman, CEO & President [52]

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On Green Panda...

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Frédérick Duguet, Ubisoft Entertainment SA - CFO [53]

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Yes. On Green Panda, it has been a meaningful contribution related to the mobile overperformance with...

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Yves Guillemot, Ubisoft Entertainment SA - Co-Founder, Chairman, CEO & President [54]

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It's still small.

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Frédérick Duguet, Ubisoft Entertainment SA - CFO [55]

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But it is still relatively small.

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Operator [56]

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We will now take our next question from Benjy Scurlock of Arete Research.

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Benjy Scurlock, Arete Research Services LLP - Analyst [57]

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Just on cross play. I was wondering if you can comment on whether you see any increase in engagement in Brawlhalla after introducing cross play feature. And whether you have any plans to implement the feature across your larger franchises? And what you think it could do for engagement?

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Yves Guillemot, Ubisoft Entertainment SA - Co-Founder, Chairman, CEO & President [58]

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Yes. Our goal is to put cross play on all the games that -- all the PDP games that we have over time. So that's really well underway.

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Frédérick Duguet, Ubisoft Entertainment SA - CFO [59]

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And while I say early to draw any conclusion. We believe it will contribute to continue increasing engagement, but it's too early to do a final conclusion. We've been very happy with a very strong growth of Brawlhalla again in Q2. That's what we can say at this stage.

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Operator [60]

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We move on to our final question from Ken Rumph of Jefferies.

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Kenneth Charles Rumph, Jefferies LLC, Research Division - Equity Analyst [61]

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Just thinking about cadence and your rolling 3-year plan. Obviously, we don't know the details, but we know you were planning 4 games for the current year, presumably 3 or 4 for next year, 3 or 4 for the year after. You therefore, you push 3 games into next year, turned it into a 5 game year, shunted Skull & Bones into year after. There seems therefore, a possibility that numbers go 1 game, 5 games, 3 games, which raises the question that was raised earlier about aren't you overloading '21 and running the risk of a disappointment in 9 months' time when you might reasonably say, we want to make sure that all these games go well, so maybe it's only 4 after all and 4 the year after. So perhaps just a little bit about sort of the cadence and sort of capacity to launch many games in one year.

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Yves Guillemot, Ubisoft Entertainment SA - Co-Founder, Chairman, CEO & President [62]

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Yes. First, what is important to consider is that as those games would be -- were to be finished in Q4. What we are going to put in the 3 games that you will have next year is improvements. A lot of polish and a lot of testing. So it's -- the amount of work will be less important than what we do on the full new game. So that's one element. And then, Frédérick?

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Frédérick Duguet, Ubisoft Entertainment SA - CFO [63]

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Yes. On the 2 biggest franchises, we have a strong visibility. We've reviewed them thoroughly. So it's coming along well.

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Operator [64]

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It appears there are no further questions at this time. I'd like to turn the conference back to you for any additional or closing remarks.

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Yves Guillemot, Ubisoft Entertainment SA - Co-Founder, Chairman, CEO & President [65]

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So thank you for all your questions today, and have a good evening or a good day.