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Redeye Gaming Event Schedule and participants

14:00-14:30 Introduction to the Gaming industry; Redeye presentation

14:30 – 15:00 Panel One; How to invest in Gaming Companies? • Eric Sprincorn, Fondförvaltare Swedbank • Henrik Sandell, Fondförvaltare Didner&Gerge • Per H Börjesson, VD Spiltan • Jörgen Larsson, VD Stillfront • Lars Wingefors, VD THQ

15.00-15:30 Panel Two; Winning ideas and processes in the production of gaming titles • Christofer Sundberg, Creative Director Avalanche Studios • Martin Sahlin, Creative Director Coldwood • Victor Magnusson, Lead Designer Fatshark • Stefan Ljungqvist, Goodbye Kansas • Johan Pilestedt, VD Arrowhead

15:30-16:00 Panel Three; How to run a successful gaming company? • Lars Wingefors, VD THQ • Jörgen Larsson, VD Stillfront • Sebastian Ahlskog, CFO Starbreeze • Stefan Wikstrand, CFO G5 Entertainment • Peter Levin, VD Goodbye Kansas • Rickard Blomberg, vVD Fatshark • Rui Manuel Monteiro Casais, VD Funcom

Konfidentiellt 2 Introduction to the Gaming Industry

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Size and growth Global games market per region 2016

The market is expected to continue to show robust growth in the coming years. The growth is structural and therefore less cyclical than many industries.

Mobile is expected to be the strongest growing segment and China the strongest growing geographical market.

Asia-Pacific has a huge population but the spend per capita and per gamer is still much lower than in the West. Expected growth and size per segment (bn SEK) Revenue per capita is: - SEK 600 in North America - SEK 370 in Europé CAGR All segments 7% - SEK 100 i Asia-Pacific CAGR Mobile 17%

Data from App Annie showed that China nearly doubled the iOS App Store Games revenue vs a year earlier in Q2 2015. In two years revenues has tripled.

Mobile is expected to generate nearly SEK 500 billion in 2019, thereby reaching the same revenue as for console and PC combined. Hence, total market is expected to reach revenues of around SEK 1 trillion in 2019.

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Gaming revenues

The platform owners are the Gaming revenues from publicly traded companies (SEK Billion) winners as a result of the digitalization of the industry.

Tencent and NetEase dominate the Chinese market with large online platforms providing games services. Apple and Google owns the biggest mobile gaming platforms.

Sony has its 10 year old Playstation Store (PSN).The company has the strongest growth of them all in H1 2016, around 35 %.

Valve’s Steam generated revenues of SEK 32 bn in 2016. Mobile vs Digital vs Physical sales, Market shares The number of game titles in the on-line store increased by 75% but the revenues remained Global 37% 47% 16% flat. The number of players and revenue per game China 41% 56% 3% decreased which shows that competition has increased. South Korea 48% 47% 5% Japan 52% 28% 20% The boxed console and PC games stands for a minority of USA 29% 49% 22% the games sales in China and Germany 23% 51% 26% South Korea. The boxed industry is almost non-existing and it was totally forbidden to sell consoles until mid 2015. Mobile Digital (Console/PC) Physical (Console/PC)

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Game genres

Shooter/FPS: First Person Shooter Examples: Call of Duty, BaDlefield, Doom

AcVon/Adventure: Played in third person. The games are storydriven with a focus on acKon and collecKng inventories. OMen problem solving and puzzle-elements. Examples: Zelda, GTA, Tomb Raider, Super Mario Bros

RPG: Role Playing Game. Character evolves as the game progresses. Customizable characters. Most games today are AcKon RPGs. Exemples: Witcher, Final Fantasy, Skyrim, Mass Effect

MMORPG: Massive MulK-player On-line RPG. Thousands of individuals play on-line simultaneously. Game environment is constantly acKve. Paid accounts and in- game purchasing. Exemples: World of WarcraM, EVE, The Elder Scrolls Online

Strategy: Logical and tacKcal gameplay. MOBA: MulK-player Online BaDle Arena. Real-Kme strategy. Examples: Clash of Clans, League of Legends, DOTA, StarcraM

SimulaVon: Designed to closely simulate real world acKviKes. Usually no strictly defined goals in the game. Examples: Sim City, Sims, Farming Simulator

Puzzle: ObjecKve to solve or survive the puzzle. Players intelligence is primary and controller skills is secondary. Tetris invented the sub-genre Match 3 Puzzle. Examples: Tetris, Candy Crush Saga, Unravel

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Gaming genres and sales

A consolidated industry with a minority of the companies Console/PC Mobile standing for the majority of the revenues.

There are a few dominant game titles within each of the segments (Console, PC and Mobile) with very high loyalty and stable revenues. Eg FIFA and Call of Duty have been the highest grossing games for several years on console.

Violent games stands for over 50% of the revenues on console and PC.

Over 500 new mobile games are introduced in App Store every day. However, only 40 % are newcomers on the highest grossing Top Ten- list. Revenues from highest grossing games in 2016 (SEK Billion)

The biggest surprises in 2016 Game Genre Revenue Game Genre Revenue were: FIFA 17 Sports 12 Game of War - Fire Age Strategy 11.6

- Pokémon with revenues over Battlefield 1 Shooter 9 Clash of Clans Strategy 11 SEK 11 billion. Call of Duty Shooter 8.5 Monster Strike Action 10

- The Division is a new Pokémon Sun/Moon Collection 6 Mobile Strike (NEW) Strategy 9.6 franchise that is setting new The Division Action 5 Clash Royale (NEW) Card Battler 7.8 records. Developed in Sweden by Massive Interactive, owned Game Genre Revenue Pokémon GO (NEW) Collection 7 by Ubisoft. League of Legends MOBA 15 Candy Crush Saga Match 3 Puzzle 6.7 - Blizzard does it again with World of Warcraft MMORPG 9 Puzzle & Dragons Puzzle 6 new franchise Overwatch. The game has potential to be a long CrossFire Shooter 8.8 Fate/Grand Order (NEW) Card Game 4.8 term revenue generator. Dungeon Fighter Online Beat 'em up 8.5 Candy Crush Soda Saga Match 3 Puzzle 3.3 Overwatch Shooter 4.5

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Industry value chain DEVELOPER The people that make the game Developers can be divided into three different PUBLISHER Production, marketing and promotion categories. DISTRIBUTOR The platform owner and logistics delivery RETAILER The outlet where the product is bought First-party developers CONSUMER The people that buy the game are part of a platform owner. DistribuVon format of released games

Second-party developers are connected to a platform owner but is independently owned.

Third party developers are platform independent.

There has been a dramatic change from physical distibution to digital distribution. - Loser: Retailer - Winner: Distributor Physical distribuVon

Higher revenues for publishers and in some cases developers. Distributors such as Apple and Google are minimazing risk and maximazing profits thanks to Digital distribuVon digital distribution.

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Full game Downloadable Content (DLC) / Expansion pack: Usually extended TradiKonal model where the customer pays for the whole game up front. story line, new game areas or objects Extra content which are distributed digitally by OMen called ”Add-ons” and DLC (Downloadable Content). Most profitable and biggest revenue the game's official publisher. driver in recent years. Extra content is generating 2x revenues in comparison to the Freemium/F2P traditional model of ”Full games Most common in mobile games. The player has to pay money to save Kme or overcome sales” for EA. challenges that are to frustraKng. Microtransactions from FIFA’s Ultimate Team is a large contributor to revenues. SubscripVon-based The big publishers and distributors have started to do it ”the SpoKfy-way”. F2P (Free to Play) has been dominating the mobile industry: Nintendo tried charging players EA’s Digital Net Revenue in 2016 (SEK million) when launching Super Mario Run (55% of total net revenue) but without success. Freemium is starting to take a position in the console industry as well.

Subscription-based is the new trend. EA, Sony and Microsoft have launched new subscription based services. This could be a new revenue model for mobile gaming. Possibly for the whole industry as well where the dominating giants charge subscriptions for all their games cross-plattform.

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The Nordic Gaming Universe

The Nordic Gaming market is diverse with leading companies from all countries. Sweden and Finland stand out with the largest regional industries.

The Swedish companies have a diverse presence in the industry with both mobile only developers like King, sandbox maker Mojang and AAA studios like DICE and MASSIVE.

In Finland, mobile game developers are dominating with giants like SUPERCELL and Rovio.

The largest Danish developer, IO Interactive, has produced the widely popular Hitman series. Unity is the developer of the Unity 3D game engine.

In Norway, the MMORPG maker Funcom stands out and in Iceland, the creator of EVE Online, CCP, is a large player.

Konfidentiellt 10 The Swedish market

The Swedish Game developer N.o of companies industry has grown 236 substantially over the past five 250 years. Both in terms of number of companies, employees and 200 revenues. CAGR 17% According to 150 Dataspelsbranschen, there were 106 236 registered businesses in Sweden with a focus on game 100 N.o companies development. These companies generated revenues of approximately SEK 12bn. 50

Stockholm Over the past five years, the 0 30% number of employees and 2010 2015 39% Malmö revenues has grown annually by 17% and 60%. Göteborg Skövde 4% Revenues are growing Revenue mSEK Uppsala significantly faster than the 7% 14000 Other number of employees and 11% 9% companies. The reasons are the 11 904 pronounced economies of scale 12000 in the business model and that several companies have had 10000 their commercial breakthrough in the past few years. 8000 CAGR 60% 6000 Most companies are located in the larger cities of Sweden. 4000 Skövde stands out as a pronounced Gaming hub given 2000 1 101 the small size of the town. 0 2010 2015

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Outperformance of the sector

The Video Game Index consists of the Global Video Game Index & S&P 500 larger international player’s and can be viewed as a visualization of the global 160 video game industry. The Index has 150 outperformed the market, measured by 140 the S&P 500 over the past three years. 130 Digitalization continues to create value for game makers. 120 110

100 The listed Swedish companies have 90 outperformed the market by a wide margin. On average, the group has 80 returned 139% over the past year. 70 60 G5 has had incredible performance as Hidden City continues to climb the charts. Last year’s newcomer Stillfront has also shown strong returns over the Video Game Index S&P 500 previous year. Starbreeze, the star of 2015, has had the lowest return in the Source: Bloomberg last year but still beating the OMXS30 by a wide margin. Market cap performance

1 month 3 months 6 months 1 year The two large IPOs, Paradox and THQ Nordic, has yielded high returns. Both IPOs were massively oversubscribed Paradox -5% 13% 7% 72% and attracted both institutional and Starbreeze -5% -11% -26% 30% private investors. THQ 6% 34% 95% 95% G5 -3% 86% 305% 419% Smaller IPOs have shown less Stillfront -6% 27% 66% 81% impressive returns. The key seems to have both an existing revenue OMXS 30 -1% 3% 9% 17% generating portfolio and a promising Average -3% 30% 89% 139% pipeline, not just one of the two. Source: Redeye Research & Bloomberg

Konfidentiellt 12 Valuation levels

Overall, we can say that the Peer valuation SALES Valuation levels differ to some EV/Sales EV/EBIT EBIT margin CAGR degree due to region and game EV genres. In our sample, there is Company (MSEK) 2017E 2018E 2017E 2018E 2019E 16-19E 2017E 2018E 2019E some distortion due to outliers. Swedish Gaming Paradox Interactive 5 746 n.m. n.m. n.m. n.m. n.m. n.m. n.m. n.m. n.m. The Swedish companies are Starbreeze 3 867 3.2x 3.3x 11.3x 27.0x 266.7x 49% 28% 12% 1% relatively uncovered by the THQ Nordic 2 714 4.8x 3.8x 19.2x 14.5x 12.8x 41% 25% 26% 25% analyst community, something G5 Entertainment 1 452 2.6x 2.3x 30.9x 27.4x 25.9x 7% 8% 9% 9% we aim to improve. Stillfront 465 2.7x 1.9x 12.9x 5.5x 5.9x 40% 21% 34% 30% Median 2 714 3.0x 2.8x 16x 21x 19x 41% 23% 19% 17% Some qualitative factors that affect the valuations are; Mobile/casual Zynga 14 031 1.9x 1.8x 48.3x 30.0x 43.1x 11% 4% 6% 4% - Quality and risk of current Com2us 6 220 1.4x 1.3x 3.6x 3.3x 3.1x 13% 39% 40% 36% portfolio and pipeline of G5 Entertainment 1 452 2.6x 2.3x 30.9x 27.4x 25.9x 7% 8% 9% 9% projects GLU 1 368 0.7x 0.6x n.m. n.m. n.m. 12% -11% -4% 1% - IP ownership Median 3 836 1.7x 1.5x 31x 27x 26x 12% 6% 7% 6% - Track record for the company regarding past hits. International Gaming - Segment focus of games Tencent 2 324 468 11.7x 8.7x 32.9x 25.7x 20.3x 35% 35% 34% 34% (console, PC, F2p online, Activision 345 568 6.0x 5.5x 18.1x 15.2x 13.4x 6% 33% 36% 38% Xplatform, mobile, etc..). EA 219 025 4.9x 4.6x 16.1x 14.8x 12.8x 10% 30% 31% 35% Nintendo 201 783 5.4x 3.4x 108.0x 25.5x 17.1x 26% 5% 13% 17% Bandai Namco 46 948 1.0x 1.0x 9.8x 8.8x 8.1x 8% 10% 11% 11% It all boils down to cash flow Take-Two 43 680 2.6x 2.2x 17.1x 10.8x 10.7x 15% 15% 20% 22% generating possibilities in the Ubisoft 39 000 2.7x 2.4x 19.8x 15.1x 11.7x 13% 14% 16% 18% future for the company. CD projekt 13 917 12.9x 16.0x 24.5x 41.6x 16.0x 1% 53% 38% 47% Median 124 366 5.1x 4.0x 19x 15x 13x 11% 23% 26% 28% On an overall level, the multiple valuation range from; 2-5x EV/S Peer Group median 3 836 3.0x 2.8x 19x 21x 19x 12% 23% 19% 17% and 15-30 EV/EBIT. Profitability Source: Bloomberg & Redeye Research and growth prospects is the main focus for receiving higher multiples.

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M&A

Profound presence from the Gaming M&A in Sweden public companies in the M&A Trans. Value spectrum. Some consolidation as Year Target Buyer EV/S larger companies acquire smaller (MSEK) studios but keep them independent. 2015 King Activision Blizzard 49 900 2.3x 2014 Mojang Microsoft 17 795 7.7x This list does not include 2016 Starbreeze Smilegate Ent. 344 acquisitions of IPs. 2015 DreamHac k AB MTG 244 3.5x

2014 Geminose Inc Starbreeze 120 There is a wide spread of valuation multiples, but most sell 2016 Dhruva Int erac t ive Starbreeze 75 1.8x between 1.5-3x EV/S. The large 2016 Nozon Starbreeze 71 3.1x transactions of Mojang and King 2016 ePAWN Starbreeze 52 do of course standout. 2015 Resolut ion Games Partech Int. 51 The trend with large 2016 Babil Games Stillfront 41 1.5x international companies like EA, 2016 Simutronics Stillfront 9 0.9x Activision Blizzard, Microsoft and Ubisoft acquiring successful 2015 Delinquent Interactive Mobile Access Group Swedish companies will most 2015 White Wolf Publishing Paradox Interactive likely continue. 2015 Farm Clan G5 Ent ert ainment

2014 Bit squid Autodesk - However, Paradox’s and THQ’s IPOs might indicate a 2014 Free Lunch Design Palringo Limited shift to preferring the public Source: Redeye Research, company websites & Dataspelsbranschen markets instead of a trade sale.

Konfidentiellt 14 Trends – ongoing

Digital distribution - Changing the value chain. Benefit for the platform owners, distributors (often the same) and publisher/developers but not the retailers (expect Amazon).

Mobile - The smartphone opened up the Casual gaming and a whole new game segment. The first hurdle to start playing games has been lowered.

Demographic shifts - First generation of gamers coming of age as new enters. Broadening the gamer audience.

New geographical markets - Asia, MENA, and India driving forces and in some cases untouched ground for many Western gaming companies. Global improved living standards leads to more free time = more time to play games.

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Trends - emerging

• VR & AR Virtual reality Computer tech that use virtual reality headsets to generate the realistic images, sounds. VR is not new for gaming, but the technique is maturing. However, we believe it will take 2-3 generations before the market takes of.

Augmented reality View of a physical, real-world environment whose elements are augmented (or supplemented) by computer-generated sensory input such as sound, video, graphics or GPS data. Will likely take off before VR as the hurdle to use is smaller. Early examples are Pokemon Go (semi AR) and Google Glasses. • Esports

Esports: Competitive gaming soon has a larger audience than ordinary sports. This will only continue as a new generation of gamers mature. New industries emerge such as Game betting companies and different streaming services.

Konfidentiellt 16 Why invest in Gaming companies

The video game industry provides investors the opportunity to benefit from an ongoing secular growth trend. Globally improved living standards lead to higher disposable income, more spare time and increased demand for entertainment. Other factors are demographic shifts, digitalization( reduces cost and time to market) and the smartphone era continues to broaden the gamer audience.

Key industry drivers include:

Globally increased demand for free time entertainment Global living standards are improving, this leads to more free time and an increased demand for entertainment. This trend benefits the video game industry as a whole.

Gamers come of age Demographic shift increases the average age of gamers. Popularity for games grew large during the 80s and 90s; these are now in their mid-thirties with life-time peak of spending power.

Digitalization lower cost of distribution and increase availability The rise of digital distribution have led to lower costs for selling games, which leads to an increased share of profits for game developers. The Improved profits lead to greater reinvestment opportunity’s and thus improving the gaming experience and drive innovation.

Smartphone broadens gamer audience The rise of the smartphone have resulted in a relatively new game genre; Casual games. The reduced “hurdle” for start playing games have also increased the likelihood of “new” gamers trying other more hardcore game genres, thus increasing the gamer audience.

Why now? The main secular forces behind the growth of the video game industry will continue for many years. The opportunity in new markets continue to be enormous and new trends like esports, VR and AR has only just begun to take form.

The theme focus on three high-growth subthemes: Improved quality of life leading to more free time • Rise of new technologies • On going digitalization

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Participant description Redeye

Konfidentiellt 18 Participant description Institutional investors

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Participant description Gaming Industry Management

Konfidentiellt 20 Participant description Gaming Industry Management

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Participant description Gaming Industry Management

Konfidentiellt 22 Participant description Gaming Industry Management

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