Rovio Telecom Equipment and IT · Rovio is still all about Angry Birds which we view as a strength Of Rovio's 22 live mobile games, the top ﬁve are based on the Angry Birds (AB)

Rovio FinlandTelecom Equipment and IT

Commissioned Equity Research • 19 June 2019

KEY DATA

FinlandStock countryROVIO FHBloombergROVIO.HEReutersEUR 7.31 Share price (close)

Free FloatEUR 0.58/EUR 0.58Market cap. (bn)

http://www.rovio.com/Website08 Aug 2019Next report date

PERFORMANCE

Sep17 Apr18 Nov18 Jun192

4

6

8

10

12

Rovio

Finland OMX Helsinki All-Share (Rebased)

Source: Thomson Reuters

VALUATION APPROACH

6.6

7.2

6.1

6.9

9.5

9.4

8.5

10.4

4 6 8 10 12

DCF Monte Carlosimulation, 10th-90th percentiles

DCF

EV/EBIT

P/E

Source: Nordea estimates

ESTIMATE CHANGES

2021E2020E2019EYearn.a.n.a.n.a.Salesn.a.n.a.n.a.EBIT (adj)


Casual games leader's quest for golden eggs

Having been around for about ten years, the Angry Birds brand has proved its longevity and Rovio its ability to monetise the entertainment franchise through engaging casual mobile games and brand licensing. The solid balance sheet and positive cash flow allow the company to pursue growth objectives through organic and inorganic means. We believe the biggest risks for the company relate to rising user acquisition costs, a possible decline of the Angry Birds brand and failure to diversify the game portfolio to include new genres.

Rovio is still all about Angry Birds which we view as a strengthOf Rovio's 22 live mobile games, the top five are based on the Angry Birds (AB) brand. The two top-grossing games in 2018, AB 2 and AB Friends, are slingshot games that were launched in 2015 and 2012, respectively. The success of these games proves Rovio's solid category leadership, capability to monetise its brand, and its ability to run live operations to engage gamers and prolong the lifetime of its games. Its brand and slingshot genre leadership create a stable cash-generating core for Rovio.

Upside from a flock of upcoming game titles and bolt-on M&A In order to achieve meaningful growth, Rovio aims to diversify its game portfolio from the casual and AB-themed games through in-house development and bolt-on M&A. Current initiatives include the launch of AB Dream Blast in Q1 2019, the acquisition of strategy game developer PlayRaven in Q4 2018, and incubation of the Hatch mobile game streaming service. Rovio should launch a new game in H2, after which we expect two new game launches per year. We estimate the new games to have a slightly weaker KPI performance on average than the recently launched AB Dream Blast, leading to a 7% sales CAGR on a group level during 2018-21E, and an EBIT margin of 13% (14% ex-Hatch) in 2021E, from 11% in 2018.

DCF and peer multiples suggest valuation range of EUR 6.8-9.4We derive a DCF valuation range of EUR 7.6-8.7 per share by applying a WACC of 8-12%. We perform a Monte Carlo simulation with game KPIs (MAU, DAU/MAU and ARPDAU) and calculate the 10th-90th percentile values to be EUR 6.6-9.5 per share. We also include relative valuation with P/E and EV/EBIT multiples derived from relevant Nordic gaming companies and global mobile gaming companies. The averages of the upper and lower limits for different valuation approaches equal a valuation range of EUR 6.8-9.4.

Nordea Markets - AnalystsSami SarkamiesSenior Analyst

Veikkopekka SilvastiAnalyst

Ville TiainenSenior Analyst

SUMMARY TABLE - KEY FIGURES

2021E2020E2019E2018201720162015EURm347333315281297192142Total revenue

515050486535-6EBITDA (adj)444037313617-22EBIT (adj)

12.7%12.1%11.8%11.1%12.1%8.8%-15.2%EBIT (adj) margin0.440.400.370.300.330.14-0.24EPS (adj)

9.5%8.4%23.6%-7.7%130.7%158.8%-323.7%EPS (adj) growth0.130.120.110.090.060.060.00DPS (ord)1.01.21.30.72.2n.a.n.a.EV/Sales8.29.711.45.917.8n.a.n.a.EV/EBIT (adj)

16.518.119.612.727.6n.a.n.a.P/E (adj)2.52.83.21.95.2n.a.n.a.P/BV

1.8%1.7%1.5%2.4%0.7%n.a.n.a.Dividend yield (ord)6.7%6.7%7.8%14.0%8.2%n.a.n.a.FCF Yield bef A&D, lease -218-188-158-120-88-10-10Net debt-4.2-3.8-3.2-2.5-1.5-0.31.5Net debt/EBITDAn.m.n.m.91.5%53.6%43.9%18.5%-31.6%ROIC after tax

Source: Company data and Nordea estimates

Marketing material commissioned by Rovio

Rovio19 June 2019

Contents

Factors to consider 3

Valuation 7

Estimates 12

Rovio's market 20

Rovio in brief 30

Game portfolio – fewer, bigger and better 38

Business model 44

Risk factors 48

Reported numbers and forecasts 49

Disclaimer and legal disclosures 52

Marketing material commissioned by Rovio 2

Rovio19 June 2019

Factors to considerRovio is best known for the global Angry Birds brand, which started out as a popular mobile game in 2009, and has since evolved to include various entertainment and consumer products through brand licensing and movies. We believe that the well-recognised Angry Birds brand, the company's leading position within the slingshot games genre, its solid net cash position and its experienced team of developers will drive growth ahead. The main risks, in our view, lie in rising user acquisition costs, potential deterioration of the global Angry Birds brand, failure to diversify into new game genres and potential risks related to bolt-on M&A activity.

We believe Angry Birds is Rovio's "secret sauce", enabling better organic user acquisition and a profitable product and content licensing business

Angry Birds is a global brand with high recognitionWe believe that the strong brand value of Angry Birds benefits the company in two ways. Firstly, the global awareness of the brand improves organic user acquisition in the hyper-competitive mobile games market. Given that the cost of acquiring a paying customer has been steadily rising, all leverage that can generate organic downloads is highly valuable. Secondly, a strong brand enables the company to run a profitable product and content licensing business, which also further strengthens the brand awareness. Thus, we view the Angry Birds brand as Rovio's "secret sauce" in terms of discoverability and user acquisition challenges. The upcoming Angry Birds Movie 2 in August and the ten-year Angry Bird anniversary celebrations in December are testimonies to the brand's versatility and longevity.

RECOGNITION OF SELECTED "MOBILE-BORN" BRANDS, %

97%

80%

70%

0%

20%

40%

60%

80%

100%

Angry Birds Candy Crush saga Clash of Clans

Source: Lieberman Research Worldwide, 2017

RECOGNITION OF SELECTED GLOBAL BRANDS, %

97% 96%94% 93%

91%

70%

75%

80%

85%

90%

95%

100%

Angry Birds Star Wars Frozen Hello Kitty Pokemon

Source: Lieberman Research Worldwide, 2017

Rovio has a robust portfolio of core games that has proven its ability to generate stable gross sales...

...but every game has a lifetime and new games need to be constantly added to maintain and grow the business

Core portfolio ensures stable cash flow but requires constant refreshmentRovio's current game portfolio includes 22 titles. However, in line with its "fewer, bigger and better" logic for the game portfolio, significant resources (developer hours and marketing expenses) are invested in just the top four or five games. As illustrated below, Rovio's game portfolio has delivered relatively stable quarterly gross sales of EUR 60m or above since Q2 2017. However, every game carries a lifetime, and Rovio cannot expect to keep on delivering such robust gross sales without launching new games. The portfolio received a much needed boost when Rovio launched AB Dream Blast in Q1 2019 and we expect another game to be unveiled before year-end. Furthermore, we forecast that Rovio will launch two games per year in 2020 and 2021.


Rovio19 June 2019

GROSS SALES PER GAME, EURm

6 9 12 16 20 21 18 20 2230 31 35 32

68

810

8 98 8 7

8 88

711 119 8 6

10 9

7

67 7

77

57

88

7 65

44 3

337

1212

1213

1016 15 15

1516 14

14 10

2936

40

47

56

63 65 67

6065 63

67 66

0

10

20

30

40

50

60

70

80

Q12016

Q22016

Q32016

Q42016

Q12017

Q22017

Q32017

Q42017

Q12018

Q22018

Q32018

Q42018

Q12019

Angry Birds 2 Angry Birds Friends Angry Birds Blast Angry Birds Evolution

Angry Birds Match Angry Birds Pop! Angry Birds Dream Blast Other


AB Dream Blast has been making progress recentlyLooking at the top grossing rank of all games from the US App Store (App Annie), we conclude that Rovio's top games at present have performed quite stably over the past three months. AB 2 has maintained its position as the top grossing game by Rovio (since Q1 2016) and ranks among the top 100 grossing games on the US App Store, with the top grossing rank varying between the 80th and 48th position. This means that out of all of the games on the US App Store, AB 2 ranks 55th when sorted by revenue. AB Dream Blast has enjoyed a slight upward trend recently, implying that it may very well take over as Rovio's second-largest game during Q2. In addition, AB Match is still in growth stage and has performed slightly better over the past three months. We have not included AB Friends in the chart as the US is not the game's main market.

TOP GROSSING GAMES RANK FROM US APP STORE

5548

56 55 54 56 57 6352

80

62 59 5468 72

55

161150

137144 144 138 138 136 137

127119 119 117

127

110126

213200

193184

202195

184

165172

180171 172

179171 165

193

20

40

60

80

100

120

140

160

180

200

220

AB 2 AB Dream Blast AB Match

Source: App Annie

Hundreds of mobile games are launched every day, making discoverability one of main hurdles for mobile gaming companies

Challenges in terms of discoverability and rising UA costs will persistThe gaming apps space is crowded and competitive. In this arena, the ability to acquire and engage highly valuable audiences can make or break a business. According to mobile app marketing platform Liftoff, the average cost of acquiring a paying customer in a gaming app rose from USD 65.9 to USD 101.6 during 2016-18. On an industry level, this is a good sign as rising costs reflect higher expected lifetime value (LTV) per customer. However, on a company level, inflating UA costs elevate the required LTV of new gamers, which in turn requires developers to come up with new and ingenious games or continuously improve their existing ones. However, the soaring UA costs can also act as a barrier of entry for newcomers, strengthening the position of already established companies with an existing gamer base, brand and good cash position, such as Rovio.


Rovio19 June 2019

PER CUSTOMER ACQUISITION COSTS IN MOBILE GAMES, USD

4.19.4

65.9

3.88.9

76.4

2.9 5.1

101.6

0

20

40

60

80

100

120

Install Register In-App-Purchase

2016 2017 2018

Source: Liftoff (2018 Mobile App Engagement Index)

IN-APP PURCHASE: MONTHLY COSTS AND ENGAGEMENT RATES, USD AND %

0%

1%

2%

3%

4%

5%

0

20

40

60

80

100

120

140

Monthly costs Engagement rates

Source: Liftoff (2018 Mobile App Engagement Index)

According to industry experts, the ability to run efficient live operations to prolong the lifetime of games is scarce

Ability to engage and monetiseDespite Rovio not releasing any new games in 2018, sales in the Games segment increased 1% y/y that year. This illustrates Rovio's ability to run good live operations of existing games so that gamers keep coming back to their AB-themed slingshot or puzzle games, and spending money while doing so. However, for the company to achieve growth of 1% for the Games segment, Rovio needed to invest another EUR 9m in user acquisition (UA), ie 13% more y/y. The rapid growth in UA investments reflects the tightening competition in the mobile gaming industry, which has led to bigger UA costs.

Solid portfolio of core games supports Rovio's cash position

Strong net cash position supports game development and M&A activity We note that Rovio's strong balance sheet is strategically important in the mobile gaming industry, where development and user acquisition costs require front-loaded investments. In addition to the aforementioned activities, Rovio's net cash position of EUR 122m (as of Q1 2019) provides M&A firepower if and when the company wants to diversify into new game genres or businesses.

CASH AND NET GEARING, EURm AND %

-78%

-76%

-74%

-72%

-70%

-68%

-66%

-64%

-62%

-60%

-58%

0

20

40

60

80

100

120

140

Q1 18 Q2 18 Q3 18 Q4 18 Q1 19

Cash at the end of the period Net gearing %

Source: Company data

Mature games enjoy higher marginsWhile some mobile games thrive for several years, others start declining much faster. Eventually, every game matures, but that does not necessarily need to be negative. Once a game matures, Rovio needs to invest far less in marketing, while retaining long-tail earnings for a long time after the game has reached peak sales. This means that revenue from some mature assets can decline each year, but without any UA costs, thus leading to gross margins of almost 70% (after the 30% cut taken by app stores). In other words, high margins should offset periods of negative revenue growth.


Rovio19 June 2019

We expect group revenue to grow at a CAGR of 7% in 2018-21, with sales growth driven mainly by the Games unit as we expect Brand Licensing sales to decline after the 2019 movie launch

Group revenue to grow at a CAGR of 7% during 2018-21EFor the Games unit, we model 2019E-21E revenue using a bottom-up approach, whereas for 2022E-24E, we apply a conservative steady growth rate of 5%. Moreover, we estimate that gross profit will remain around 68% during the entire forecast period of 2019-24. We base this on the current competitive situation in the platform market. On a group level, we model that revenue will grow at a CAGR of 7% during 2018-21E. We believe the group revenue growth will be driven solely by the Games business unit during 2020-21 as we model declining sales for Brand Licensing after the launch of the AB Movie 2 in 2019. Growth in operational expenses should remain in line with revenue growth, though we believe user acquisition costs will create upwards pressure. In addition, we expect the company to achieve an EBIT margin of 13% (14% excluding Hatch) by 2021, after 11% in 2018 (14% excluding Hatch). For 2019, Rovio expects to achieve sales of EUR 300-330m (7-17% growth) with an EBIT margin of 9-11% (12-14% excluding Hatch). For 2019, we estimate sales growth of 12%, in line with company guidance, with an EBIT margin of 12% (15% excluding Hatch), which is slightly above guidance.

Consensus expects slowing growth and an improving EBIT margin in 2020-21

Our estimates are ahead of consensus on growth but below on marginsThompson Reuters consensus currently expects decelerating growth and an improving EBIT margin for 2020-21. We believe that Rovio will be able to remain on its growth path and forecast a lower EBIT margin than consensus. Consensus expects sales to grow by 13% in 2019 (-5% in 2018), while estimates for 2020 and 2021 are at 7% and -1%, respectively. We estimate sales will grow 12% in 2019, while 2020 and 2021 estimates are at 6% and 4%, respectively. Along with slowing sales growth estimates, consensus expects the EBIT margin to improve from 10% in 2019E (11% in 2018) to 21% in 2021E. We estimate that Rovio will deliver an EBIT margin of 12% (15% excluding Hatch) in 2019, with only slight margin expansion to 13% (14% excluding Hatch) for 2021. We note that Rovio's long-term financial goals from 2016-17 target growth above that of the western mobile gaming market and a 30% EBIT margin. The company has made little progress on this front, however.

Despite significant operational changes and transformations, management has not been able to expand the company's offering beyond casual slingshot and puzzle games

Management still needs to prove ability to expand outside of core genresOver the years, management has carried out some significant operational changes and transformations, such as fully transitioning the games monetisation model to free-to-play, growing the Games business unit, restructuring the Brand Licensing business unit to regain focus on core operations and products, and transforming the business model for movies and animated series to full licensing. Moreover, the team's newest addition, head of Games, Alexandre Pelletier-Normand, has a strong background from global giants Gameloft and Vivendi. However, so far, the management team has been focussed on operating the AB brand and existing games, and has not been able to expand the company's offering beyond the casual slingshot and puzzle games.

Rovio aims to acquire smaller game studios to attain new talent and enable faster time to market for new games

Bolt-on M&A complements in-house developmentRovio views smaller bolt-on acquisitions as a means to acquire new talent, which speeds up expansion into new gaming genres. Recently acquired PlayRaven, a gaming company focused on strategy games, is an embodiment of an optimal takeover target in terms of business logic and risk. In addition, Rovio has indicated that it is seeking external investors to fund Hatch Entertainment's mobile game streaming service and is willing to dilute its 80% stake. We view Hatch as a binary project that will prove to be a major success or a flop. Our estimates do not include revenue from Hatch. Overall, we believe that potential problems in terms of cultural fit between Rovio, PlayRaven and other possible targets represent the largest risk in terms of M&A activity.

DCF and peer multiples suggest a valuation range of EUR 6.8-9.4We derive a DCF valuation range of EUR 7.6-8.7 per share by applying a WACC of 8-12%. We perform a Monte Carlo simulation using game KPIs (MAU, DAU/MAU and ARPDAU) and calculate the 10th-90th percentile values to be EUR 6.6-9.5 per share. We also include relative valuation with P/E and EV/EBIT multiples derived from relevant Nordic gaming companies and global mobile gaming companies. The averages of upper and lower limits for different valuation approaches yield a valuation range of EUR 6.8-9.4.


Rovio19 June 2019

ValuationOur valuation is based on two fundamental assumptions: 1) on a group level, revenue should grow at a CAGR of 4% during 2019E-24E; and, 2) we expect the company to deliver a 12-16% adjusted EBIT margin over the forecast period. Using primarily a DCF valuation and assuming a WACC of 8-12%, we derive an equity value range of EUR 7.2-9.4 per share. We also complement our DCF framework with a multiples-based relative valuation approach and a Monte Carlo simulation.

DCF model points to a value of EUR 7.2-9.4 per shareOur bottom-up valuation of Rovio focuses on current game titles, pipeline potential and licensing. In our view, the solid strategy, which centres on the strong Angry Birds brand, strong cash flow, ample liquidity and a capable management, bodes well for future performance. Using a WACC of 8-12%, we derive an equity value range of EUR 7.2-9.4 per share.

Furthermore, we add weight to our DCF valuation by conducting a Monte Carlo simulation with 10,000 draws. The probabilistic variables simulated are the three main KPIs: monthly active users (MAU), user engagement (DAU-to-MAU ratio) and average revenue per daily active user (ARPDAU). All variables are simulated on a portfolio level annually in order to derive a probability distribution for our DCF valuation. The valuation range is based on the 10th and 90th percentile cut-off values of EUR 6.6 to EUR 9.5 per share, respectively. In our simulation, revenue from the Brand Licensing unit is modelled at 5% of the Gaming unit's revenue per fiscal year, whereas revenue from the Other segment is expected to remain zero.

We also complement our DCF approach with a multiples-based relative valuation but note that a direct peer comparison is difficult owing to the different release cycles, accounting principles and risks related to the IP and games portfolios.

Valuation reflects our expectation of steady performanceWe base our DCF valuation on a bottom-up approach, where we forecast current and upcoming quarterly revenue for games on a game-by-game basis during 2019-21. User acquisition and marketing costs are modelled with the same approach for the corresponding period. Valuation of the Brand Licensing business is conducted with a similar bottom-up approach, where we forecast quarterly revenue, profitability and capex for the business unit.

We believe that Rovio will deliver good organic revenue growth with a healthy operating margin of 12-16%. We expect that the upcoming Angry Birds Movie 2, which is to be released in August 2019, will give a notable boost to the company's EBIT through the content and consumer products' licensing businesses. We expect the company to exceed its guidance range of 9-11% adjusted operating profitability and deliver a 12% EBIT margin for the full-year 2019. Furthermore, we forecast that the operating margin will improve gradually throughout our explicit forecast period of 2019-24, reaching 16% in 2023.

In addition to decent organic growth prospects and healthy operating margins, the company's ample liquidity, negative net debt and limited capex needs support our valuation. More detailed estimates are presented in the 'Estimates' section of this report.

The WACC we apply to our DCF valuation is 10%. The figure assumes 100% equity weight, a 4.0% market risk premium, a risk-free rate of 2.5% and an equity beta of 1.875.


Rovio19 June 2019

DCF VALUATION

DCF value Value Per share

NPV FCFF 491 6.2(Net debt) 120 1.5Market value of associates 0 0.0(Market value of minorities) 0 0.0Surplus values 0 0.0(Market value preference shares) 0 0.0Share based adjustments 0 0.0Other adjustments 0 0.0Time value 27 0.3DCF Value 638 8.1


WACC COMPONENTS

Risk-free interest rate 2.5%Market risk premium 4.0%Forward looking asset beta -Beta debt 20.0%Forward looking equity beta 187.5%Cost of equity 10.0%Cost of debt 7.0%Tax-rate used in WACC 20.0%Equity weight 100.0%WACC 10.0%


DCF ASSUMPTIONS

Averages and assumptions 2019-24 2025-29 2030-34 2035-39 2040-44 2045-49 Sust.

Sales growth, CAGR 4.50% 3.5% 3.5% 3.5% 3.0% 2.5%EBIT-margin, excluding associates 14.0% 12.5% 12.5% 12.5% 12.5% 0.0%Capex/depreciation, x 0.6 0.60 0.70 0.80 0.90 1.00Capex/sales 1.1% 0.0% 0.0% 0.0% 0.0% 0.0%NWC/sales -1.8% -1.8% -1.8% -1.8% -1.8% -1.8%FCFF, CAGR 2.0% -1.3% 3.5% 3.5% 3.1% -71.7% 2.5%


Monte Carlo simulation adds depth to our DCF-derived valueUnlike a scenario analysis, where we would look at the values under discrete scenarios, simulations allow for more flexibility in how we deal with uncertainty. We believe that a simulation provides a bigger picture of the risk related to an asset or investment. This is especially true for young and small mobile gaming companies with limited track records.

We opt to use MAU, DAU-to-MAU and ARPDAU as our probabilistic variables for which we define probability distributions and parameters. Furthermore, we model zero correlation between the variables. All variables are simulated on the portfolio level annually. We assign gamma, uniform and normal distributions for MAU, DAU-to-MAU and ARPDAU, respectively. Histograms, descriptive statistics and relevant percentiles for all probabilistic variables are presented below.

ARPDAU HISTOGRAM, EUR AND NUMBER OF OBSERVATIONS

0

500

1000

1500

2000

2500

0.03 0.04 0.05 0.06 0.07 0.08 0.09 0.10 0.11 0.12 0.13 0.14 0.15 0.16 0.17

ARDPAU


ARPDAU PERCENTILES AND CUT-OFF VALUES, % AND EUR

10th 0.0720th 0.0830th 0.0940th 0.1050th 0.1060th 0.1170th 0.1180th 0.1290th 0.1399th 0.15



Rovio19 June 2019

MAU HISTOGRAM, MILLION PLAYERS AND OBSERVATIONS

0

500

1000

1500

2000

2500

3000

3500

10 20 30 40 50 60 70 80 90 100

MAU


MAU PERCENTILES AND CUT-OFF VALUES, % AND MILLION PLAYERS

10th 30.820th 35.030th 38.040th 40.950th 43.760th 46.770th 50.280th 54.490th 60.599th 76.0


DAU/MAU HISTOGRAM, % AND OBSERVATIONS

1200

1400

1600

17% 18% 19% 20% 21% 22% 23%

DAU/MAU


DAU/MAU PERCENTILES AND CUT-OFF VALUES, % AND %

10th 16.7%20th 17.4%30th 18.1%40th 18.8%50th 19.5%60th 20.2%70th 20.9%80th 21.6%90th 22.3%99th 22.9%


The parameters in our Monte Carlo simulation are calibrated so that the median value of 10,000 simulations equals our primary DCF valuation. The share price distribution and relevant descriptive statistics based on 10,000 simulations are presented below.

SHARE PRICE DISTRIBUTION, EUR AND NUMBER OF OBSERVATIONS

0

500

1000

1500

2000

2500

3000

3500

4000

4-5 5-6 6-7 7-8 8-9 9-10 10-11 11-12 12-13

Share price range


SHARE PRICE PERCENTILES AND CUT-OFF VALUES, % AND EUR

1st 5.910th 6.850th 8.190th 9.699th 10.9


SHARE PRICE DESCRIPTIVE STATISTICS

Mean 8.2Median 8.1Min 4.6Max 12.2St.Dev 1.1



Rovio19 June 2019

Relative valuation complements our DCF modelOur peer group valuation consists of listed Nordic gaming companies and relevant international mobile gaming companies. For an optimal comparable company, we would need to find a peer with a similar gaming market, product strategy and release schedule. This is a challenging task, to say the least; therefore, we consider a multiples-based valuation to be a good complement to a DCF valuation, which we consider the most relevant option when valuing gaming companies' earnings potential.

In terms of benchmarking, we regard enterprise value (EV)-based multiples, such as EV/EBITDA and EV/sales, as the most relevant multiples for the gaming sector. The advantage of the former is that it is not affected by the large accounting differences with regards to amortisation and depreciation across the companies. The latter is interesting thanks to its stability – from time to time, other multiples can be inflated as a result of timing effects in revenue recognition and game releases, while EV/sales, although also volatile, varies far less. Other multiples can swing higher due to margin profiles when titles reach peak sales. EV multiples are also neutral to a company's financial gearing. We also add the traditional P/E multiple to complement our EV-based relative valuation framework.

Relevant peer group consists of Nordic gaming companies...As mentioned above, to add granularity to our relative valuation, we divide our peer universe into listed Nordic gaming companies and relevant international mobile gaming companies. As can be seen from the standard deviation of different pricing multiples and market capitalisation, comparable companies comprise a homogenous group.

A key highlight from the Nordic peer comparison is that, based on our DCF valuation, Rovio's P/E, EV/EBIT, EV/EBITDA and EV/sales multiples are all in line with Nordic peer medians for 2020 estimates.

NORDIC GAMING COMPANIES

P/E EV/EBIT EV/EBITDA EV/SALESName Country Mcap EURt 19E 20E 19E 20E 19E 20E 19E 20ETHQ Nordic (NDEA) Sweden 2001 22.5 18.2 15.1 12.6 14.6 11.1 3.5 2.9Paradox Interactive Sweden 1458 34.9 28.6 26.6 21.8 18.4 14.6 11.0 9.1Stillfront Group (NDEA) Sweden 569 19.3 15.9 13.7 10.9 9.4 7.6 3.4 2.8G5 Entertainment Sweden 72 7.0 6.5 5.2 4.7 2.7 2.5 0.5 0.5Starbreeze (NDEA) Sweden 45 61.7 107.7 26.3 3.7 1.9 1.3MAG Interactive Sweden 31 21.9 8.8 3.5 0.8 0.7Next Games (NDEA) Finland 30 46.1 31.4 8.3 0.9 0.7Remedy Entertainment Finland 103 14.7 12.0 9.2 7.6 9.2 7.6 2.5 2.2

Rovio Entertainment (NDEA) Finland 638 21.7 20.0 12.9 11.2 9.6 9.0 1.5 1.4

Average 539 19.7 26.3 14.0 25.7 13.4 7.4 3.1 2.5Median 88 19.3 20.0 13.7 11.7 12.0 7.6 2.2 1.7Min 30 7.0 6.5 5.2 4.7 2.7 2.5 0.5 0.5Max 2001 34.9 61.7 26.6 107.7 26.3 14.6 11.0 9.1

Source: Thomson Reuters and Nordea estimates (18 June 2019)

...and global mobile gaming companies In addition to Nordic gaming companies, global mobile gaming companies constitute another relevant peer group for Rovio. In general, as with the Nordic peers, the median multiples based on 2020 estimates reflect Rovio's corresponding multiples. As mentioned above, we consider the comparative valuation as a complement and sanity check to our DCF valuation and the related Monte Carlo simulation.


Rovio19 June 2019

MOBILE GAMING COMPANIES

P/E EV/EBIT EV/EBITDA EV/SALESName Country Mcap EURt 19E 20E 19E 20E 19E 20E 19E 20EG5 Entertainment Sweden 72 7.0 6.5 5.2 4.7 2.7 2.5 0.5 0.5MAG Interactive Sweden 31 21.9 8.8 3.5 0.8 0.7Next Games (NDEA) Finland 30 46.1 31.4 8.3 0.9 0.7Zynga U.S. 5174 27.2 22.4 21.9 17.8 21.0 16.7 3.9 3.5Glu Mobile U.S. 919 20.4 13.2 17.4 10.9 16.7 10.4 2.1 1.8

Rovio Entertainment (NDEA) Finland 638 21.7 20.0 12.9 11.2 9.6 9.0 1.5 1.4

Average 1245 18.2 22.0 14.8 14.7 13.5 8.3 1.6 1.4Median 72 20.4 21.9 17.4 10.9 16.7 8.3 0.9 0.7Min 30 7.0 6.5 5.2 4.7 2.7 2.5 0.5 0.5Max 5174 27.2 46.1 21.9 31.4 21.0 16.7 3.9 3.5

Source: Thomson Reuters and Nordea estimates (18 June 2019)

DCF and peer multiples imply an average valuation range of EUR 6.8-9.4We derive a DCF valuation range of EUR 7.2-9.4 per share by applying a WACC of 8-12%. We also complement our DCF model with relative valuation multiples – P/E and EV/EBIT – derived from relevant Nordic gaming companies and global mobile gaming companies. The averages of the upper and lower limits for different valuation approaches equal EUR 6.8-9.4. Our Monte Carlo simulation conducted with our DCF model implies 10th and 90th percentile values of EUR 6.6 and EUR 9.5, respectively.

VALUATION APPROACHES, EUR PER SHARE

6.6

7.2

6.1

6.9

9.5

9.4

8.5

10.4

4 5 6 7 8 9 10 11

DCF Monte Carlo simulation,10th-90th percentiles

DCF

EV/EBIT

P/E



Rovio19 June 2019

EstimatesFor the Games unit, we model 2019E-21E revenue using a bottom-up approach, whereas for 2022E-24E we apply a conservative steady growth rate of 5%. Moreover, we estimate that gross profit will remain around 68% during the entire forecast period (2019-24). We base this on the current competitive situation in the platform market. On a group level, we model that revenue will grow at a CAGR of 7% during 2018-21E. Growth in operational expenses should remain in line with revenue growth, though we believe user acquisition costs will create upward pressure. Lastly, we expect the company to reach a 13% EBIT margin by 2021.

Game unit's implied revenue CAGRs for 2018-21E and 2021E-24E are 10% and 5%, respectively, in our bottom-up approach

Games unit estimated to grow at a CAGR of 10% during 2018-21For the Games unit, we base our 2019-21 revenue estimates on a bottom-up approach, namely our forecasts for monthly average users (MAU), engagement (daily active users (DAU)-to-MAU ratio) and monetisation (average revenue per daily active user, ARPDAU). Furthermore, we apply steady churn rates to estimate q/q retention in the MAU figure. In addition to Angry Birds Dream Blast, we expect the company to launch another game in H2 this year and forecast that it will launch two new games per year during 2020-21. We believe that the new games may raise both revenue and user acquisition costs, whereas we expect the more established titles to provide a steady, albeit declining, revenue stream. Using our bottom-up approach, we derive implied revenue CAGRs for 2018-21E and 2021E-24E of 10% and 5%, respectively.

We expect the gross margin in the Games unit to remain around 68% for the forecast period

For our gross margin estimates, we adjust revenue for fees paid to app stores and sales agents. Even though we note that there is downward pressure on the platform fee (ie the amount that platforms charge for hosting/selling the game to clients), we model a constant cut of 30% for Apple and Google. Moreover, we expect sales agents' commissions to correspond to roughly ~2% of revenue. Consequently, we expect the gross margin to remain around 68% for the forecast period.

GAMES QUARTERLY GROSS BOOKINGS AND LTM, EURm

0

50

100

150

200

250

300

350

400

0102030405060708090

100

Q1

17Q

2 17

Q3

17Q

4 17

Q1

18Q

2 18

Q3

18Q

4 18

Q1

19Q

2 19

EQ

3 19

EQ

4 19

EQ

1 20

EQ

2 20

EQ

3 20

EQ

4 20

EQ

1 21

EQ

2 21

EQ

3 21

EQ

4 21

E

Gross bookings - Total Rolling 12M - Total


GAMES REVENUE, ADJ. EBITDA AND MARGIN, EURm AND %

0%

5%

10%

15%

20%

25%

0102030405060708090

100

Q1

17Q

2 17

Q3

17Q

4 17

Q1

18Q

2 18

Q3

18Q

4 18

Q1

19Q

2 19

EQ

3 19

EQ

4 19

EQ

1 20

EQ

2 20

EQ

3 20

EQ

4 20

EQ

1 21

EQ

2 21

EQ

3 21

EQ

4 21

E

Revenue Adj. EBITDA Adj. EBITDA margin (%)


Engagement and monetisation should remain goodRovio has demonstrated time and again that it can engage and monetise players. For instance, according to GameAnalytics, the median DAU-to-MAU and ARPDAU figures for more than 60,000 mobile games from June 2017 to June 2018 were 8% and USD 0.03, respectively. The corresponding figures for Rovio were 13% and USD 0.08 (EUR/USD 1.12) on average for Q2 2016 to Q1 2019.


Rovio19 June 2019

DAU, MAU AND DAU-TO-MAU, MILLIONS AND %

12%

13%

14%

15%

16%

0

10

20

30

40

50

60

70

80

90

Q1

17Q

2 17

Q3

17Q

4 17

Q1

18Q

2 18

Q3

18Q

4 18

Q1

19Q

2 19

EQ

3 19

EQ

4 19

EQ

1 20

EQ

2 20

EQ

3 20

EQ

4 20

EQ

1 21

EQ

2 21

EQ

3 21

EQ

4 21

E

DAU - All MAU - All DAU/MAU - All


ARPDAU, EUR

0.00

0.02

0.04

0.06

0.08

0.10

0.12

0.14

0.16

Q1

17Q

2 17

Q3

17Q

4 17

Q1

18Q

2 18

Q3

18Q

4 18

Q1

19Q

2 19

EQ

3 19

EQ

4 19

EQ

1 20

EQ

2 20

EQ

3 20

EQ

4 20

EQ

1 21

EQ

2 21

EQ

3 21

EQ

4 21

E

ARPDAU - All


We do not expect any major changes to the current KPIs for the upcoming titles. We assume churn of 4% q/q in MAU figures and slightly improving engagement (ie the DAU/MAU ratio). In terms of monetisation, we believe the ARPDAU of the top-five games will increase by 1% q/q during 2019-21 and beyond, whereas we expect the rest of the game portfolio to grow 0-1% q/q. Overall, the company has disclosed that it intends to publish at least two titles per year in 2020 and 2021. It expects the second title this year to be Angry Birds POP 2, which had a soft launch in Q2 2019. More detailed estimates about Rovio's top-five games currently and its entire games portfolio are presented at the end of this section.

No investment or distribution costs associated with the Angry Birds sequel, as it has been licensed to Columbia Pictures Industries

Angry Birds Movie 2 should boost revenue growth in Brand LicensingBrand Licensing will receive a boost from the world premiere of Angry Birds Movie 2, which will open in theatres globally in August 2019. Unlike the first movie, the sequel has been licensed to Sony-owned Columbia Pictures Industries. This practically cuts out the financial risk, as Rovio does not need to invest in production or distribution. Furthermore, the licensing model enables faster revenue recognition and the company expects to recognise ~50% of the total revenue during Q3-Q4 2019. Overall, we expect Brand Licensing to deliver ~50% revenue and ~65% EBITDA growth in 2019. We expect the movie sequel to grow both the content and product licensing businesses and boost organic downloads of games. Furthermore, for 2020E-21E, we model that product licensing revenue will decline at a pace corresponding to that of the two years following the first movie.

BRAND LICENSING REVENUE, ADJ. EBITDA AND MARGIN, EURm AND %

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

0

5

10

15

20

25

30

Q117

Q217

Q317

Q417

Q118

Q218

Q318

Q418

Q119

Q219E

Q319E

Q419E

Q120E

Q220E

Q320E

Q420E

Q121E

Q221E

Q321E

Q421E

Revenue Adj. EBITDA Adj. EBITDA margin


So far, Hatch has generated zero revenue for Rovio

Hatch reflects one future gaming trend but the payoff is hard to estimate The Other segment consists of the group’s subsidiary Hatch Entertainment and expenses that are not allocated to other segments. Hatch, Rovio's 80%-owned subsidiary, is developing a cloud-based game streaming service for Android mobile devices and TVs. So far, Hatch has generated zero revenue for Rovio and the company is currently looking for external funding to boost the growth prospects of the service.


Rovio19 June 2019

In 2018, Hatch's operating expenses amounted to around EUR 7.3m. If Rovio's ownership of Hatch were below 50%, the company would not need to consolidate the unit's numbers on its balance sheet and income statement, which would reduce operating expenses and the asset base. The segment reported capex of EUR 1m for 2018. We expect the unit's expenses to amount to EUR 9.5m, EUR 7.0m and EUR 4.5m for 2019-21, respectively. We do not model any additional costs or investments in Hatch after 2021E. Though Rovio has recently announced collaboration initiatives with Vodafone in the UK and Samsung in the US, we do not assume any revenue from Hatch in our model. However, we derive a USD 45m back-of-the-envelope valuation for Hatch, which reflects the strategic value of the platform. The underlying assumptions for this calculation are shown in the table below.

Global games market by 2021 174,000

% of mobile gaming 52%Global mobile gaming market by 2021 90,480

% of streaming 2%Global streamed mobile gaming 1,810

Hatch's market share 1%Hatch sales (USDm) 18EV/Sales multiple 5EV (USDm) 90Net debt 0Equity value 90Rovio's expected ownership 50%Value of Hatch for Rovio in 2021 45

% of current market value 8%

ESTIMATE OF HATCH VALUE, USDm

Source: Nordea estimates and Newzoo

User acquisition costs drive the opex increase in 2019E We estimate user acquisition costs will rise from EUR 79m in 2018 to EUR 100m in 2019. Rising UA costs, reported under Other operating expenses, reflect our bullish view on the recently launched AB Dream Blast and the soft launch of AB Pop 2. However, we expect the movie sequel to boost the number of organic downloads of selected Angry Birds titles during Q3-Q4 2019. After 2019, we model UA costs will equal roughly 35-36% of the revenue generated by the Games unit over the forecast period (2020-24). Otherwise, we do not see any major cost pressure on a company level and forecast that opex will remain at ~55% of revenue.

COMPANY OPERATING EXPENSES BY SOURCE, EURm

0

10

20

30

40

50

60

70

80

90

Q117

Q217

Q317

Q417

Q118

Q218

Q318

Q418

Q119

Q219E

Q319E

Q419E

Q120E

Q220E

Q320E

Q420E

Q121E

Q221E

Q321E

Q421E

Materials and servives Employee benefits expense Other operating expenses


Upcoming Angry Birds Movie 2 will notably boost group EBIT

Brand licensing business should boost full-year 2019 EBIT We believe that the upcoming Angry Birds Movie 2, which is set for release in August 2019, will notably boost group EBIT through the content and consumer products' licensing businesses. We expect the company to exceed its guidance range of 9-11% adjusted operating profitability and deliver a 12% margin for the full-year 2019. Furthermore, we forecast a similar margin throughout our explicit forecast period of 2019-21.


Rovio19 June 2019

Unlike the first movie, the sequel is licensed to Sony-owned Columbia Pictures Industries Inc., which bears the majority of the financial risk. However, Rovio's upside is limited to royalties, which we estimate to be 3% of total box office revenue during Q3-Q4 2019. Moreover, we expect the sequel to attract an audience similar to the first movie and forecast that it will pull in USD 350m in box office revenue. In addition to content licensing, the ramped-up consumer product licensing business should drive Rovio's profitability up.

With regards to the Games unit, we expect the adjusted operating margin to be 13% in 2019, just below the 2018 figure of 15%. We believe this margin decline will be caused by higher user acquisition costs (36% of games revenue), whereas we expect other costs to grow in line with revenue in 2019. Nonetheless, we believe user acquisition costs will level out after 2019 and should amount to 33% of games revenue during 2020-24.

Lastly, we do not model any revenue from the Other segment in our forecasts. In 2018, Hatch's operating expenses amounted to around EUR 7.3m. We expect Hatch-related expenses to amount to EUR 9.5m, EUR 7.0m and EUR 4.5m in 2019-21, respectively, after which point we do not model any costs from the unit. Historical and expected operating profit excluding Hatch is presented below.

COMPANY OPERATIONAL PERFORMANCE, EURm AND %

0%

5%

10%

15%

20%

25%

0

10

20

30

40

50

60

70

80

90

100

Q117

Q217

Q317

Q417

Q118

Q218

Q318

Q418

Q119

Q219E

Q319E

Q419E

Q120E

Q220E

Q320E

Q420E

Q121E

Q221E

Q321E

Q421E

Revenue Adj. EBIT Adj. EBIT margin EBIT margin (excl. Hatch)


Growing EPS, moderate payout ratio and solid liquidityWe forecast EPS will double from EUR 0.31 to EUR 0.60 during 2018-24, which equals a CAGR of 12%. We believe this growth will be driven by revenue, while we assume profitability and financial costs will remain stable relative to revenue.

We see a high probability of higher annual dividends equalling roughly one third of the company's adjusted net profit

The company paid annual dividends of EUR 0.06 for 2016-17 and EUR 0.09 for 2018-19. Rovio's long-term goal is to distribute around 30% of annual adjusted net profit as dividends and equity returns. Given the company's healthy business model, hefty cash position and limited capex needs in the next few years, we see a high probability of higher annual dividends equalling roughly one third of the company's adjusted net profit.

Considering our expectations for improving operating income, limited capex needs and a moderate payout ratio, we expect Rovio's cash position to remain solid throughout our forecast period. The company's ample liquidity lends it some flexibility in terms of game development, user acquisition and M&A. We note that these attributes are strategic benefits in the mobile gaming industry and that they enable Rovio to sit in the driver's seat in a rapidly growing industry.


Rovio19 June 2019

DILUTED EPS, DIVIDEND AND PAYOUT RATIO, EUR AND %

0%

5%

10%

15%

20%

25%

30%

35%

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

EPS, diluted DPS Payout ratio


NET CASH AND GEARING, EURm AND %

-100%

-80%

-60%

-40%

-20%

0%

0

50

100

150

200

250

300

350

Net cash and equivalents Net gearing


ESTIMATED KPIs FOR ROVIO'S TOP-FIVE GAMES CURRENTLY, MILLION AND %

GAME KPIs Q1 19 Q2 19E Q3 19E Q4 19E Q1 20E Q2 20E Q3 20E Q4 20E Q1 21E Q2 21E Q3 21E Q4 21E

AB2Gross bookings 32.0 32.9 35.2 33.8 33.1 32.7 32.7 32.4 30.7 30.1 29.5 28.6

MAU 9.8 10.2 12.3 11.7 11.4 11.2 11.0 10.8 10.3 9.9 9.5 9.1DAU/MAU 20% 20% 18% 18% 18% 18% 18% 18% 18% 18% 18% 18%DAU 2.0 2.0 2.2 2.1 2.1 2.0 2.0 1.9 1.9 1.8 1.7 1.6ARPDAU (EUR) 0.18 0.18 0.17 0.17 0.18 0.18 0.18 0.18 0.18 0.19 0.19 0.19

AB FriendsGross bookings 7.2 6.3 6.6 6.3 6.1 5.9 5.8 5.6 5.2 5.0 4.8 4.5

MAU 2.2 2.1 2.2 2.1 2.0 1.9 1.8 1.8 1.7 1.6 1.5 1.4DAU/MAU 20% 18% 18% 18% 18% 18% 18% 18% 18% 18% 18% 18%DAU 0.4 0.4 0.4 0.4 0.4 0.3 0.3 0.3 0.3 0.3 0.3 0.2ARPDAU 0.18 0.18 0.18 0.18 0.19 0.19 0.19 0.19 0.19 0.19 0.20 0.20

AB Dream BlastGross bookings 6.9 11.3 13.4 12.9 12.6 12.5 12.5 12.4 11.7 11.5 11.3 10.9


AB MatchGross bookings 6.8 6.0 6.3 6.0 5.8 5.6 5.5 5.3 5.0 4.8 4.7 4.5


AB POPGross bookings 3.3 2.7 2.9 2.8 2.7 2.6 2.5 2.5 2.3 2.2 2.2 2.1




Rovio19 June 2019

ESTIMATED KPIs FOR THE WHOLE GAME PORTFOLIO, MILLION AND %

GAME KPIs Q1 19 Q2 19E Q3 19E Q4 19E Q1 20E Q2 20E Q3 20E Q4 20E Q1 21E Q2 21E Q3 21E Q4 21E

BookingsGross bookings - TOP 5 56 59 64 62 60 59 59 58 55 54 52 51Gross bookings - All 66 67 73 71 76 74 81 79 82 80 86 83Rolling 12M - TOP5 223 227 237 241 245 245 240 236 231 226 219 212Rolling 12M - All 261 263 273 277 287 294 302 311 317 323 328 331

User amountDAU - TOP 5 3.5 3.7 4.1 3.9 3.8 3.7 3.6 3.5 3.3 3.2 3.1 2.9DAU - All 7.0 6.6 7.0 6.7 6.9 6.7 6.9 6.7 6.8 6.4 6.5 6.2MAU - TOP 5 17.1 19.0 22.1 21.0 20.5 20.0 19.5 19.0 18.2 17.3 16.6 15.8MAU - All 49.3 48.0 51.1 48.7 49.1 47.4 48.2 46.5 46.5 44.0 44.2 41.9

EngagementDAU/MAU - TOP 5 20% 19% 18% 18% 18% 18% 18% 18% 18% 18% 18% 18%DAU/MAU - All 14% 14% 14% 14% 14% 14% 14% 14% 15% 15% 15% 15%

RetentionMAU retention - TOP5 95% 111% 116% 95% 98% 98% 98% 98% 96% 96% 96% 96%MAU retention - All 98% 97% 106% 95% 101% 97% 102% 96% 100% 95% 100% 95%

ConversionMUP - TOP 5 0.4 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.4 0.4 0.4 0.4MUP - All 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.4 0.4 0.4Conversion rate (TOP5) 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5%Conversion rate (All) 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%

MonetizationARPDAU - TOP 5 0.18 0.18 0.17 0.17 0.18 0.18 0.18 0.18 0.18 0.18 0.19 0.19ARPDAU - All 0.10 0.11 0.11 0.12 0.12 0.12 0.13 0.13 0.14 0.14 0.14 0.14MARPPU - TOP 5 39.0 42.0 39.3 39.7 39.7 40.1 40.9 41.3 40.9 41.8 42.7 43.2MARPPU - All 38.5 46.6 47.3 48.1 51.3 52.0 55.9 56.7 58.8 60.4 64.5 65.5


Negative consensus estimate revision trend since IPOConsensus estimate revisions have been negative since the IPO in September 2017. Estimates were downgraded sharply in February 2018 when Rovio published its Q4 2017 financials and provided guidance for 2018. The main reason has been that so far Rovio has not delivered on its long-term financial goals from 2016, of growth above that of the Western mobile gaming market (~10%) and a 30% EBIT margin.

SALES: CONSENSUS ESTIMATES, EURm

250

300

350

400

450

500

May19

Mar19

Jan19

Nov18

Sep18

Jul18

May18

Mar18

Jan18

Nov17

FY2018 FY2019 FY2020


EBIT: CONSENSUS ESTIMATES, EURm

0

20

40

60

80

100

120

May19

Mar19

Jan19

Nov18

Sep18

Jul18

May18

Mar18

Jan18

Nov17

FY2018 FY2019 FY2020



Rovio19 June 2019

EBIT MARGIN: CONSENSUS ESTIMATES, %

0%

5%

10%

15%

20%

25%

May19

Mar19

Jan19

Nov18

Sep18

Jul18

May18

Mar18

Jan18

Nov17

FY2018 FY2019 FY2020


EPS REVISIONS AND NUMBER OF ESTIMATES

-20-15-10-505101520253035

30dMD 18SJMD 17SJ

Upward Downward Num Ests


Our estimates are ahead of consensus on growth but below on marginsThe Thomson Reuters consensus currently expects decelerating growth and an improving EBIT margin for 2020-21. We believe that Rovio will be able to remain on its growth path and forecast a lower EBIT margin than consensus. Consensus expects sales to grow by 13% in 2019 (-5% in 2018), while estimates for 2020 and 2021 are at 7% and -1%, respectively. We estimate sales will grow 12% in 2019, while our 2020 and 2021 estimates are at 6% and 4%, respectively. Along with slowing sales growth estimates, consensus expects the EBIT margin to improve from 10% in 2019 (11% in 2018) to 21% in 2021. We estimate that Rovio will deliver an EBIT margin of 12% (15% excluding Hatch) in 2019, expanding only slightly to 13% (14% excluding Hatch) in 2021.

ROVIO ENTERTAINMENT: OUR ESTIMATES VS CONSENSUS

Nordea estimates Consensus estimates Difference

EURm Q2 2019E 2019E 2020E 2021E Q2 2019E 2019E 2020E 2021E Q2 2019E 2019E 2020E 2021ESales 71.5 315.1 332.6 346.7 74.5 319.0 342.0 338.0 -4% -1% -3% 3%EBITDA 6.5 50.2 50.1 51.3 7.0 46.0 67.0 75.0 -7% 9% -25% -32%EBITDA margin 9% 16% 15% 15% 9% 14% 20% 22% -0.3pp 1.5pp -4.5pp -7.4ppEBIT 2.8 37.2 40.3 44.1 4.0 33.0 54.0 70.0 -29% 13% -25% -37%EBIT margin 4% 12% 12% 13% 5% 10% 16% 21% -1.4pp 1.4pp -3.7pp -8.0ppAdj. EBIT (Excl. Hatch) 5.4 46.6 47.2 48.6 4.0 33.0 54.0 70.0 -29% 13% -25% -37%Adj. EBIT margin (Excl. Hatch) 8% 15% 14% 14% 5% 10% 16% 21% 2.2pp 4.4pp -1.6pp -6.7ppPTP 2.8 37.3 40.2 44.1 6.0 33.0 54.0 70.0 -53% 13% -25% -37%EPS 0.03 0.37 0.40 0.44 0.03 0.32 0.52 0.68 14% 17% -22% -35%Adj. EPS 0.03 0.37 0.40 0.44 0.03 0.32 0.52 0.68 14% 17% -22% -35%DPS 0.11 0.12 0.13 0.10 0.16 0.17 17% -23% -25%

Source: Thomson Reuters and Nordea estimates


Rovio19 June 2019

Reported numbers and estimates

REPORTED QUARTERLY NUMBERS AND ESTIMATES, EURm AND %

Company Q1 17 Q2 17 Q3 17 Q4 17 Q1 18 Q2 18 Q3 18 Q4 18 Q1 19 Q2 19E Q3 19E Q4 19E

Revenue 66 86 71 74 66 72 71 73 71 71 90 83Materials and services 19 20 21 22 18 21 21 20 20 21 24 23Employee benefits expense 13 14 11 14 11 10 10 11 9 10 9 11Other operating expenses 24 23 33 24 22 32 26 33 31 33 36 36EBITDA 10 30 6 14 14 9 15 9 11 6 20 12Adj. EBITDA 10 32 9 14 15 9 15 9 11 6 20 12EBIT 5 14 2 10 9 6 10 6 8 3 17 9Adj. EBIT 5 16 4 11 10 6 10 5 8 3 17 9Adj. EBIT (excl. Hatch) 6 15 3 12 10 8 12 9 9 5 19 12PTP 5 13 -1 10 9 7 10 6 8 3 17 9Net Profit 4 10 -1 8 7 5 8 4 6 2 13 7EPS, diluted 0.05 0.13 -0.01 0.10 0.09 0.07 0.10 0.05 0.07 0.03 0.17 0.09DPSPayout ratio 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%Adj. EBITDA margin 15% 37% 12% 19% 22% 13% 21% 12% 15% 9% 22% 15%Adj. EBIT margin 8% 19% 6% 14% 15% 8% 15% 7% 11% 4% 19% 11%Adj. EBIT margin (excl. Hatch) 10% 18% 4% 16% 16% 10% 17% 12% 13% 8% 21% 14%


REPORTED ANNUAL NUMBERS AND ESTIMATES, EURm AND %

Company 2017 2018 2019E 2020E 2021E 2022E 2023E 2024ECAGR

18-21ECAGR

21E-24ERevenue 297 281 315 333 347 360 376 393 5% 4%Materials and services 82 80 88 97 103 108 114 119 7% 5%Employee benefits expense 52 43 40 40 39 40 40 41 -2% 1%Other operating expenses 104 112 137 145 152 152 158 166 8% 3%EBITDA 60 48 50 50 51 60 63 66 2% 9%Adj. EBITDA 65 48 50 50 51 60 63 66 2% 9%EBIT 31 32 37 40 44 55 59 63 9% 12%Adj. EBIT 36 31 37 40 44 55 59 63 9% 12%Adj. EBIT (excl. Hatch) 36 39 47 47 49 55 59 63 6% 4%PTP 27 32 37 40 44 55 59 63 8% 12%Net Profit 21 25 30 32 36 44 47 50 10% 12%EPS, diluted 0.27 0.31 0.36 0.39 0.43 0.54 0.58 0.62 9% 13%DPS 0.06 0.09 0.11 0.12 0.13 0.16 0.17 0.19 10% 13%Payout ratio 22% 29% 31% 31% 30% 30% 30% 30%Adj. EBITDA margin 22% 17% 16% 15% 15% 17% 17% 17%Adj. EBIT margin 12% 11% 12% 12% 13% 15% 16% 16%Adj. EBIT margin (excl. Hatch) 12% 14% 15% 14% 14% 15% 16% 16%Net cash and equivalents 88 120 158 188 218 253 287 323Net gearing -63% -75% -87% -91% -94% -95% -96% -96%



Rovio19 June 2019

Rovio's market Rovio operates in three main entertainment markets: mobile gaming, brand & character licensing, and movies. Because Rovio is a games-first entertainment company, we take a deep dive into the gaming industry in this section, and then introduce the large but mature markets of brand licensing. We take a look at the gaming market as a whole to understand its significant growth history and potential. We believe that mobile gaming is the fastest-growing segment of the gaming market, but this market segment also faces the toughest competition and has the highest user acquisition costs (UAC). According to the mobile marketing platform, Liftoff, paying users in the mobile gaming segment generate average revenue of USD 70 over 90 days, while the cost of acquiring a paying customer was USD 102 in 2018. However, the average lifetime value (LTV) of truly engaged gamers exceeds the 90-day average revenue, as gamers continue to spend money on the games for prolonged periods. Rovio uses a 12-month payback time for its UA investment decisions.

Games segment's market overviewGaming is now the largest entertainment industry in the world

The global gaming market has grown substantially in recent years. In 2018, it generated around USD 135bn, rendering it the largest industry in the entertainment business measured in revenue terms. It also marked the first year ever that revenue from the video game industry surpassed that of the movie industry. Gaming market research provider, Newzoo, forecasts a CAGR of 9.3% for the global gaming market in 2017-21, expecting growth to stem from a larger customer base and a higher willingness to spend.

GLOBAL GAMING REVENUE, USDbn

0%

5%

10%

15%

20%

25%

0

20

40

60

80

100

120

140

160

180

200

2012 2013 2014 2015 2016 2017 2018E 2019E 2020E 2021E

US

Db

n

Global gaming market revenue Growth Y/Y

Source: Newzoo estimates

North America had the largest growth rate in 2018

Gaming market by geographyNorth America, along with Europe, the Middle East, and Africa, enjoyed the greatest growth y/y in 2018. Measured in revenue, China has the biggest market share. Combined with the rest of the APAC region, China accounted for around half of the total global gaming revenue generated in 2018. It goes without saying that China is an interesting market, offering a lucrative opportunity for western gaming companies, especially due to its large player base. North America and EMEA account for roughly 25% and 22% of total global gaming revenue, respectively, while Latin America, with a large player base, still lags significantly in terms of revenue, as it has less than a 4% market share.


Rovio19 June 2019

GLOBAL GAMING REVENUE BY REGION, 2018

EMEA22%

LATAM4%

NAM25%

APAC ex. China24%

China25%


GLOBAL GAMING REVENUE GROWTH BY REGION, 2018

13%

11%

14%

8%

0%

2%

4%

6%

8%

10%

12%

14%

16%

Growth y/y

EMEA LATAM NAM APAC


According to Newzoo, there are a total of 2.2 billion gamers or gaming enthusiasts globally, ie 1.1 billion excluding APAC. Newzoo defines a gamer as anyone who has installed a game on their smartphone, inflating the number of players who likely account for a decent share of the wallet.

Asia-Pacific is the biggest region measured by number of gamers

As mentioned earlier, the strong growth in the gaming market can be explained by fundamental factors, such as a growing population and continuous online penetration. China is the largest country in terms of revenue, followed by the US, Japan, South Korea, and Germany. We argue that there is more to give in terms of growth, however, as online penetration of countries such as China and India has not yet reached the same levels as in western countries, where online penetration is above or around 90% of the population. With online penetration of 60% for China, and as low as 30% for India and Indonesia, around 1.6 billion people are still 'unconnected', meaning the potential for further growth in the gaming market is enormous.

LARGEST COUNTRIES IN TERMS OF GAMING REVENUE, USDm

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

US

Dm

Total Revenue


ONLINE POPULATION AND PENETRATION, MILLIONS

0%

20%

40%

60%

80%

100%

120%

0

200

400

600

800

1 000

1 200

1 400

1 600

Mill

ions

Population Online Population Online Penetration


Mobile gaming accounted for a whopping 48% of global gaming revenue in 2018

Gaming market by segmentAt 48%, mobile gaming accounted for the largest share of the global gaming market's revenue in 2018. With 2.2 billion players worldwide, smartphone and tablet games together generated revenue of more than USD 63bn during 2018. This represented steady growth y/y, with smartphone and tablet revenue for the year increasing by 14% and 11%, respectively.

The future is not as bright for browser gaming

Breaking down total revenue by platform, Newzoo estimates that smartphones and tablets will experience solid growth during 2017-21. It also forecasts that gaming revenue generated through smartphones will grow the fastest in this period, at a CAGR of 14.4%, while it expects tablet revenue to grow by 7.1% during the same period. Newzoo also forecasts that the overall global gaming market will grow at an annual pace of 9.3% up until 2021, but it expects the worst for browser games, at a CAGR of -19.1%.

With the rise of multi-platform gaming and streaming, the lines between platforms will become increasingly blurred in the future and revenue/statistics may not be categorised in the same way as they are today.


Rovio19 June 2019

GLOBAL GAMING REVENUE BY SEGMENT, USDbn

44 50 58 66 75

3338

4143

4728

3031

3233

1213

1516

16

54

33

2

0

20

40

60

80

100

120

140

160

180

200

2017 2018 2019E 2020E 2021E

Smartphone Console PC Tablet Browser

121.7134.9

148.1160.5

174.0


REVENUE CAGR PER SEGMENT, 2017-21E

9.3%

14.4%

9.6%

4.5%7.1%

-19.1%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

Total market Smartphone Console PC Tablet Browser


Mobile gamingMobile gaming set to grow the most in the next few years, according to Newzoo

Rovio operates in the mobile gaming market (smartphone and tablet games). Newzoo estimates that mobile gaming will generate total global revenue of USD 91bn by 2021, representing a CAGR of ~13% during 2017-21. The rapid increase in the number of smartphone users around the world has been one of the main drivers behind the solid mobile gaming growth in recent years. Smartphone user growth is being driven by the APAC region, with India leading the pack. Newzoo forecasts a CAGR of 17% for the APAC region during 2018-21.

GLOBAL MOBILE GAMING REVENUE, USDbn

1318

2531

41

5663

7382

91

0102030405060708090

100

Mobile Gaming


GLOBAL SMARTPHONE USERS BY REGION, MILLIONS

0

500

1000

1500

2000

2500

3000

3500

4000

2016 2017 2018 2019E 2020E 2021E

China India

Asia Pacific ex. IND and CHN Middel East & Africa

Eastern Europe Western Europe

Latin America North America



Rovio19 June 2019

Monetisation of mobile gamesThe most widely used monetisation methods for mobile are video ads, in-app purchases, and display ads

According to a 2017 survey by AdColony, in which the respondents were mostly gaming developers (90%), the top-three most common methods for monetising apps are video ads, in-app purchases (IAP), and display ads. Self-reported use of these methods was 100%, 91% and 80%, respectively.

These three methods account for 90% of total revenue generated in the mobile apps industry. In-app purchases account for an impressive 39% of revenue generated. In the context of mobile gaming, this could involve purchasing in-game currencies, boosts, timed promotions, themes etc.

MONETISATION TYPE: FREQUENCY OF USE IN MOBILE APPS

100%91%

80%

43%36%

27% 25% 23%

0%

20%

40%

60%

80%

100%

120%

Source: AdColony (Mobile Publishing Survey, 2017) and Nordea

REVENUE PER MONETISATION TYPE IN MOBILE APPS

Video Ads31%

In-app Purchases

39%Display Ads

20%

Native Ads5%

Other5%


In-app purchases are more predominant in gaming than in other mobile apps

The survey also shows considerable differences in how gaming apps monetise their apps relative to other non-gaming apps. Free-to-play games represent another general trend in the industry, whereby developers generate revenue for their free games by offering special features and exclusive content for players who are willing to spend extra. The gap can also be explained by the natural integration of in-game transactions, where the purchase value is immediate and obvious for gamers.

REVENUE % PER MONETISATION, MOBILE GAMING

Video Ads31%

In-app Purchases & mCommerce

43%

Display Ads19%

Native Ads3%

Other4%


REVENUE % PER MONETISATION, OTHER APPS

Video Ads36%

In-app Purchases & mCommerce

21%

Display Ads30%

Native Ads10%

Other3%


Casual games generate the majority of Rovio's revenueDelving deeper into mobile gaming revenue and how it is split, we find that the puzzle and slingshot subcategories – Rovio's main focus – rely heavily on In-app-advertising (IAA). According to data from mobile marketing analytics and attribution platform AppsFlyer, casual games generate 31-58% of their revenue from IAA as opposed to IAP. In this sense, Rovio could increase its share of advertisement revenue as it generated 11% of its revenue through IAA in 2018. However, Rovio's game portfolio is diverse, and includes games from the mid-core and strategy genre too, but the top-five grossing games belong to the casual category at the moment.


Rovio19 June 2019

REVENUE SPLIT, CASUAL MOBILE GAMES

69% 65%52%

44% 42% 44%

31% 35%48%

56% 58% 56%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18

IAP IAA

Source: AppsFlyer (The state of Gaming App Marketing, 2018) and Nordea

REVENUE SPLIT, MID-CORE AND STRATEGY MOBILE GAMES

74% 70% 72% 72% 72% 70%

26% 30% 28% 28% 28% 30%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18

IAP IAA


Customer revenue in mobile gamingIn mobile gaming, 10% of customers generate 90% of the revenue

The revenue distribution across gamers in the industry is highly concentrated. Based on a sample of ~400,000 gamers, Rakuten Intelligence reports that 10% of mobile gamers generates around 90% of total gaming revenue, while the top 1% account for a whopping 58% of revenue.

The chart below depicts the nature of mobile gaming market. Because games are free to download and an average player does not spend money on IAPs, most of the players do not generate any meaningful revenue for the gaming companies. According to player analysis platform GameAnalytics, the daily conversion rate, ie the percentage of players that convert to paying users each day, is only 1.2% for the top converting games, while the median daily conversion rate is below 0.4%. This leads to a market where a very small percentage of gamers generate the bulk of total revenue.

SPEND DISTRIBUTION BY PERCENTAGE OF MOBILE GAMERS

0%

20%

40%

60%

80%

100%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

% o

f Rev

enue

% of Users

Source: Rakuten Intelligence (2016) and Nordea estimates

The median 90-day average revenue per paying customer in gaming is USD 70.3, although 90 days is a relatively short time to measure the LTV of engaged gamers

Average revenue per paying customer (ARPPU) is one of the core KPIs in the industry. The metric is used to measure the small segment of customers that contribute to revenue in the industry. According to AppsFlyer, for both organic customers (acquired through app store searches) and non-organic customers (acquired through advertisements), the 90-day average revenue per paying user is USD 70.3.

However, the games-as-a-service business model has become increasingly popular in the mobile gaming industry, which leads to longer lives of games. The best games are able to engage their gamers for multiple years. Thus, the true LTV of engaged gamers is distributed across a prolonged period of time in, for example, games with skilled, live operations teams that continue to add new and interesting content to keep the players engaged. For example, Rovio uses a 12-month payback time for its return on investment calculations when it plans UA investments.


Rovio19 June 2019

Organic users spend more money than non-organic users, which is positive for Rovio, as its Angry Birds IP attracts organic downloads

Isolating only non-organic customers, we see values from USD 49.3 to USD 25.7 depending on the country, as the graph below shows. This implies that organic users generate notably higher revenue than non-organic users on average. This is positive for Rovio as the company has a large organic user base bolstered by the global Angry Birds brand.

NON-ORGANIC AVERAGE REVENUE PER PAYING USER, USD

Source: AppsFlyer (2018 LTV Benchmarks)

Across the whole user base, the average revenue is USD 1.7 per customer

Looking at the total user base (ie both paying and non-paying customers), AppsFlyer reports a 90-day average revenue per user (ARPU) of USD 1.7 for organic and non-organic traffic. Below, we outline AppsFlyer's data for average non-organic users only, noting that the US and UK markets are above the other major markets. The global average is reported to be USD 1.31 per non-organic user.

NON-ORGANIC REVENUE PER USER (AVERAGE OF ALL USERS), USD

Source: AppsFlyer (2018 LTV Benchmarks)

The winner takes it all with the top performers accounting for the lion's share of revenue

According to GameAnalytics, which enables the tracking, analysis, and reporting of game metrics, the median purchase volume for the mobile industry is around USD 7, while the top 15% of companies report an average of USD 25 and the bottom 15% report an average of USD 2 per customer. The large gap between the top performers and the median value illustrates the winner-takes-all nature of the industry, as it seems most of the revenue is concentrated at the top.

Customer acquisition costsCustomer acquisition cost (CAC) is one of the core KPIs for e-businesses. As the name suggests, it is the cost associated with acquiring a new customer. As digital companies


Rovio19 June 2019

can proactively target their marketing campaigns, CAC is a useful tool that can be used to track the efficiency and effectiveness of marketing efforts. Subtracting the CAC from the customer's lifetime value (LTV) gives the ROI per user, which, for example, drives investment decisions for each game.

Rovio's games are usually easy to pick up and play, so the registration step is not too relevant for Rovio

In the context of mobile games, the acquisition cost is divided into the three stages of customer engagement: installation, registration, and in-app purchasing. In 2018, acquisition costs in terms of installation and registration were down 24% and 42%, respectively, compared with 2017. When acquiring in-app-purchasing (IAP) customers in the industry (which is the critical stage for monetising mobile games), however, the cost rises from USD 76 up to USD 102, representing a 33% increase. The negative trend continues in the engagement rates for the industry, with Liftoff reporting that only ~3% of total customers were willing to make in-app purchases in 2018 compared with 5% the previous year.

MOBILE GAMES: CUSTOMER ACQUISITION COSTS, USD

4.19.4

65.9

3.88.9

76.4

2.9 5.1

101.6

0

20

40

60

80

100

120

Install Register In-App-Purchase

US

D

Axis Title2016 2017 2018

Source: Liftoff (2018 Mobile App Engagement Index) and Nordea

MOBILE GAMES: CUSTOMER ENGAGEMENT RATES, %

44.1%

6.3%

43.2%

5.0%

57.1%

2.9%

0%

10%

20%

30%

40%

50%

60%

Register In-App-Purchase

2016 2017 2018


High demand for mobile ads will lead to higher advertising prices, we believe

We believe increased advertising prices can be expected, as the high segmentation and competitiveness in the market, which have only accelerated in the past few years, are generating high demand for mobile ads. For example, App Annie, which provides global app market data, reports that in 2017, the cumulative number of apps released amounted to 4.5 million, 77% of which were gaming apps.

Efficient customer acquisition strategy is key; this requires adequate cash, especially during game launch

The substantial growth in the number of gaming apps underlines the need for Rovio and other publishers to stand out from the crowd with efficient customer acquisition strategies. To ensure this, companies require sufficient headroom in terms of cash position, especially during the launch phase of new games. We see that Rovio is in a good position to launch new games with its solid expertise in user acquisition and strong balance sheet with a cash position of EUR 128.8m at the end of Q1 2019.

APPS RELEASED ON iOS APP STORE WORLDWIDE

0.0 0.20.4

0.71.1

1.5

2.1

2.8

3.8

4.5

0

1

2

3

4

5

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Mill

ions

Game Apps Other Apps

Source: App Annie (2018) and Nordea estimates

NON-ORGANIC INSTALLS PER CATEGORY, %

Midcore & Strategy

52%Casual37%

Hyper Casual

6%

Casino5%


Below, we show the monthly trend for the acquisition cost of in-app-purchasing customers, based on Liftoff data for the whole mobile industry. We see an identical trend for the isolated gaming data, with IAP costs on the rise and engagement rates decreasing.


Rovio19 June 2019

MONTHLY IN-APP-PURCHASING CAC AND ENGAGEMENT RATES, USD

6169

9198

90 93101

119113 111

128

1134%

4%

3% 3% 3% 3% 3%

3% 3% 3%

2% 2%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

0

20

40

60

80

100

120

140

US

D

IAP Cost Engagement Rate


Acquiring a paying customer is becoming cheaper for most industries, but not for gaming

Below we show the acquisition cost trends for the past three years for the major mobile app categories. For installation and registration, it seems that the gaming subcategory is following the general trend in the market, ie prices are dropping. The cost of acquiring paying customers, however, is showing a decline, which is not visible in the gaming vertical.

INSTALL: USER ACQUISITION COST

01234567

US

D

2016 2017 2018

Source: Liftoff (Mobile Engagement Index) and Nordea

REGISTER: USER ACQUISITION COST

0

5

10

15

20

25

US

D

Axis Title2016 2017 2018


PAYMENT: USER ACQUISITION COST

0

50

100

150

US

D

Axis Title2016 2017 2018


There are significant cost differences across geographical markets

In terms of regional differences, we find considerable variations in acquisition costs, highlighting the different geographical dynamics. For example, in the APAC region, we see an impressive 99% penetration rate for registered users and the lowest installation and registration costs compared with other regions. Users willing to make in-app purchases in the region are the most expensive to acquire and represent only ~2% of the total user base.

MOBILE CUSTOMER ACQUISITION COST PER REGION, USD

1.6

1.6

110.0

2.5

3.4

83.7

2.5

4.8

91.9

3.9

6.9

105.5

0 20 40 60 80 100 120

Install

Register

In-App Purchase

NAR LATAM EMEA APAC


MOBILE ENGAGEMENT RATES PER REGION

99%

2%

74%

3%

51%

3%

56%

4%

0% 20% 40% 60% 80% 100%

Install

Register

In-App Purchase

NAR LATAM EMEA APAC



Rovio19 June 2019

Global licensing marketAccording to LIMA, the licensing industry’s global association, global retail sales of licensed merchandise and services reached USD 271.6bn in 2017, representing growth of 3.3% from the previous year. Altogether, the global licensing industry has grown at a CAGR of 4.0% during 2014-17.

GLOBAL LICENSING INDUSTRY REVENUE, USDbn, AND GROWTH, %

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

225.0

230.0

235.0

240.0

245.0

250.0

255.0

260.0

265.0

270.0

275.0

2014 2015 2016 2017

Global licensing industry revenue Growth y/y

Source: LIMA, Annual Global Licensing Industry Survey 2015-2018

Character & Entertainment licensing is the relevant segment for RovioThe licensing industry can be divided by product category. According to the 2015 survey of LIMA, entertainment and character licensing is the largest licensed product category, with a 44% share of total licensing revenue, followed by corporate trademark licensing with a 22% share in 2014.

As Rovio licenses its Angry Birds brand for movies and a variety of different consumer products, the relevant segment for the company is the character and entertainment licensing segment. The segment boasted revenue of USD 121.5bn in 2017, representing a 44.7% share of the licensed retail market. During 2014-17, entertainment and character licensing grew at a CAGR of 4.3%, slightly faster than the whole licensing market.

According to Rovio, brand licensors typically receive approximately 6% of the retail sales as royalties. The size of the character and entertainment licensing market was USD ~7.3bn in 2017, calculated in terms of reported royalties received by licensors such as Rovio, when assuming the 6% royalty rate. The market is dominated by global brands with high brand awareness, and building new brands is expensive and time-consuming. Currently, Disney accounts for a major share of all the royalties received by the segment.

SALES OF LICENSED GOODS BY PROPERTY TYPE, 2014

Entertainment & character

44%

Corporate trademarks

22%

Fashion13%

Sports10%

Publishing5%

Other6%

Source: LIMA, Annual Global Licensing Industry Survey 2015

ENTERTAINMENT & CHARACTER LICENSING REVENUE AND ROYALTY INCOME

6.4 6.8 7.1 7.3

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

2014 2015 2016 2017

Character & entertainment licensing Royalties with 6% royalty rate

Source: LIMA, Annual Global Licensing Industry Survey 2015-18


Rovio19 June 2019

North America and EMEA account for the majority of global licensed revenue, but China and the rest of Asia are growing at the fastest rate. When looking at sales of licensed goods by product category, we find that apparel led all other categories in 2017 with USD 40.7bn in revenue, accounting for 15% of total sales. Apparel was followed by toys at USD 36.1bn (13.3%) of revenue.

Altogether, the global licensing market is large and mature, with slow but steady growth prospects. The profitability of the licensing business is commonly attractive, however, because the licensing business normally has a low cost base. We believe Rovio is in a good position to increase its Brand Licensing unit's sales in the near future, supported by the launch of the new movie and its strong licensing partner network.


Rovio19 June 2019

Rovio in briefFounded in 2003, Rovio operates in the global entertainment market as a creator, developer and publisher of mobile games. In addition, the company conducts licensing business in various entertainment categories. Rovio is best known for its Angry Birds brand, which started from a popular mobile game in 2009 and expanded to include multiple other games, animated series, movies, activity parks and various consumer products. Rovio employs 422 people in Finland and Sweden and operates through two segments: Games and Brand Licensing.

Angry Birds brand celebrates its tenth anniversary in 2019, which will culminate in the release of Angry Birds Movie 2 in September 2019

Angry Birds brand is the soul of RovioAngry Birds is a global brand with high worldwide awareness. According to a survey conducted by Lieberman Research Worldwide in 2017, Angry Birds enjoys very high brand awareness of 97% globally. Having been around since 2009, the Angry Birds brand has proven its longevity: according to Rovio, 70 million licensed Angry Birds products of various kinds were sold in 2018 alone. In addition to this, the Angry Birds games have been downloaded 4.5 billion times so far.

Even though Rovio is a games-first entertainment company, it has utilised Angry Birds in its Brand Licensing segment too. The Brand Licensing segment consists of two subsegments: Content Licensing and Consumer Products. The Content Licensing subsegment licenses the Angry Birds brand for producers of digital content, such as movies, while the Consumer Products unit licenses the brand for producers of physical products, eg toys, candy and other merchandise.

Initiatives planned to enhance the presence of Angry Birds on digital platforms

Angry Bird brand's 10th anniversary culminates in release of new movieIn May 2016, Rovio released The Angry Birds Movie in 88 counties. The movie was top of the box office in 50 countries on opening weekend, including the US and China. The movie generated box office revenue of over USD 350m globally. Currently, Rovio's partner Columbia Pictures is preparing to launch Angry Birds Movie 2. The sequel will be released in September this year. We note that in 2017 Rovio adopted a new licensing-based business model for movies to decrease the need for capital expenditure and to reduce its business risk. The sequel has been licensed to Sony-owned Columbia Pictures Industries, which is also responsible for the marketing, production and distribution of the movie. While this move significantly reduces Rovio's financial risks compared with the first movie, it also cuts Rovio's revenue potential, as Rovio will only receive royalties from the proceeds that Columbia Pictures generates. However, the movie will boost brand awareness, and we expect this to have a positive impact on revenue through both the Games and Brand Licensing business units.

In addition, Rovio is planning to introduce new initiatives in the future, such as the first long-form animation series for TV (expected to be launched in 2020) and other new content to enhance the presence of Angry Birds on digital platforms such as the official Angry Birds YouTube channel.

ROVIO'S ANGRY BIRDS BRANDED OFFERING

Games Movies Merchandise

Source: Company images


Rovio19 June 2019

Games accounted for ~89% of total group sales in 2018

Games is the main business segmentIn 2018, the Games segment generated EUR 250.4m in sales, which represents ~89% of total group sales, while the Brand Licensing segment generated EUR 30.8m, representing ~11% of revenue. The Other segment consists of Rovio's subsidiary Hatch Entertainment, and this segment has not yet generated revenue.

The Games segment also generates most of Rovio's profits, delivering adjusted EBIT of EUR 38.7m in 2018, which represents an adjusted EBIT margin of 15.4%. However, when comparing the profitability of the two segments, Brand Licensing has a notably higher adjusted EBIT margin of 22.8%.

REVENUE BY SEGMENT, EURm

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

2016 2017 2018

Games Brand Licensing Other


ADJ. EBIT BY SEGMENT, EURm

-20.0

-10.0

0.0

10.0

20.0

30.0

40.0

50.0

2016 2017 2018

Games Brand Licensing Other


IAPs accounts for the lion's share of Games' revenue...

Analysing Rovio's revenue streams further, we note that 89% of the Games segment's revenue comes from in-app purchases (IAP), while 11% is generated from advertising. IAPs are extra services or subscriptions that users can buy in apps on mobile devices. In the case of Rovio, IAPs may include extra content, virtual currency or more time to play. Advertising revenue is generated by displaying advertisements against a fee. The advertisements are shown in a "movie theatre" within the game, so that players can go and watch advertisements to gain free virtual goods.

...while Content Licensing generates 72% of revenue in the Brand Licensing segment

Consumer Products accounted for 28% of the Brand Licensing segment's sales in 2018. The sales are generated through hundreds of partners who produce AB branded goods. The licensees pay a royalty on each item sold. Rovio's royalty rate is not public information, but average royalties in the licensing industry are about 6% of retail prices. Content Licensing accounted for 72% of the Brand Licensing segments' revenue in 2018. Currently the revenue is generated mostly through the AB movie, but as Rovio proceeds with its strategy and launches AB-themed TV animations and other content, we expect that the revenue streams will diversify.

GAMES SEGMENT'S REVENUE SPLIT 2018

IAP89%

Advertising11%


BRAND LICENSING SEGMENT'S REVENUE SPLIT 2018

Consumer Products

28%

Content Licensing

72%



Rovio19 June 2019

Rovio has been successful in creating games with very long lifetimes

Stable revenue streams from top gamesWe find that Rovio has a solid record in developing its live game portfolio in line with its Games as a Service (GaaS) approach. The company has succeeded in creating games with very long lifetimes. For example, Angry Birds (AB) Friends was launched in February 2012, and it is still ranked among Rovio's top-five grossing games seven years later. AB Friends accrued EUR 31m worth of gross sales in 2018, with cumulative sales of EUR 127m since its launch. AB 2, which was launched in July 2015, has also enjoyed impressive sales growth. However, according to management, AB 2 did not have sufficient monetisation right after launch, but with new features and improvements, monetisation has improved significantly, thereby enabling the company to increase user acquisition and grow the game. AB 2 has been Rovio's top grossing game since Q1 2016, delivering record-breaking gross sales of EUR 117m in 2018 and cumulative gross sales of EUR 285m since its launch. Gross bookings for AB 2 have increased by a whopping 433% since Q1 2016, reaching EUR 32m in Q1 2019.

GROSS BOOKINGS PER GAME, EURm

6 9 1216

20 21 18 20 2230 31

35 32

68

8

108 9

88 7

8 88

711

11

9 8 6

10 9

7

67 7

77

5

78

8

7 65

44 3

33

7

12

1212

13

1016

1515

1516 14

14 10

29

3640

47

56

6365

67

60

6563

67 66

0

10

20

30

40

50

60

70

80

Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019

Angry Birds 2 Angry Birds Friends Angry Birds Blast Angry Birds Evolution

Angry Birds Match Angry Birds Pop! Angry Birds Dream Blast Other


In Q4 2018, AB 2 accounted for 52% of total gross bookings, making Rovio very dependent on its biggest game

One game launched, one more to go during 2019During Q1 2019, Rovio published a new game, AB Dream Blast, a casual puzzle game targeted at an adult female audience. The game reached gross bookings of EUR 6.9m during its first quarter. By the end of Q1, the game performed such that the quarterly run-rate revenue of the game should reach EUR 11.5m if it can continue its positive performance during Q2. The successful launch of AB Dream Blast is a good refreshment of the game portfolio after 2018, during which Rovio did not launch any new games.

Rovio has announced that it will publish another game during 2019. We expect the next launch to be AB Pop 2 because it is the only game of Rovio's in soft launch. The game is a sequel to AB Pop, which was launched in 2015 and has cumulative gross sales of EUR 79m as of Q1 2019. According to the company, the game with an expected launch in 2019 might not be AB Pop 2 but some other game in development. However, we view this as fairly unlikely because the soft launch phase of new games usually takes multiple months.

Rovio's games are played globallyNorth America is the largest geographical market for Rovio. Revenue generated in North America was EUR 177.8m in 2018, accounting for 63% of total revenue, while EMEA is the second-largest geographical area with sales of EUR 69.1m (25%). Rovio has been able to penetrate the Asian market too, but APAC accounted for only 11% of the total group revenue in 2018. Rovio currently has one game ready to be launched in the Chinese market, and the game is waiting to be published by Rovio's Chinese publishing partner.


Rovio19 June 2019

REVENUE BY REGION IN 2018, %

North America

63%Latin America

1%

EMEA25%

APAC11%


REVENUE BY SEGMENT AND REGION IN 2018, EURm

0

50

100

150

200

250

300

Games Brand Licensing

North America Latin America EMEA APAC


Brief history of RovioRovio was founded in 2003 when Niklas Hed, Jarno Väkeväinen and Kim Dikert established a mobile game development studio called Relude. In 2005 Relude received its first round of financing and changed its name to Rovio Mobile.

Angry Birds Classic was the 52nd game by Rovio

During 2003-09, Rovio produced 51 mobile games. The 52nd game, the original Angry Birds released in December 2009, hit the jackpot and gained vast popularity around the world. After the release of Angry Birds (AB), Rovio launched a few more AB-themed games, which together reached one billion downloads in May 2012.

In 2011-14 Rovio aimed to build an entertainment powerhouse. It collaborated with brands such as Star Wars and NASA when launching AB Space and AB Star Wars in 2012. In 2013, Rovio signed distribution and production agreements with Colombia Pictures and Sony Pictures for The Angry Birds Movie, which was launched in 2016.

In 2014-16, Rovio restructured its business to focus on the core areas of games, animation and licensing. As a result of restructuring, Rovio reduced its headcount from 908 in August 2014 to 474 in December 2016. During 2017 Rovio further emphasised its focus on the games business and accordingly restructured its animation business. As a result of the restructuring, the current Brand Licensing business unit was formed and Rovio's headcount declined further to 391 in 2017. Rovio also transformed the monetisation model of its games segment from pay-to-download, which was the industry standard in 2009 when the original AB was published, to free-to-play. The transformation to a free-to-play monetisation model depicts Rovio's ability to react to changes in the fast-moving mobile gaming market.

HISTORICAL DEVELOPMENT OF ROVIO

551

83 95111 113

159

248 250

5

25

6978 48

29

33

5031

0

50

100

150

200

250

300

350

2010 2011 2012 2013 2014 2015 2016 2017 2018

Games revenue (EURm) Brand Licensing revenue (EURm)

28 114 377 684 848 668 476 418391

Average headcount

“Games only” “Games-first”

Transition from pay-to-download to free-to-playBuilding an entertainment powerhouse Restructuring and movie

Launch of Angry Birds Classic in December 2009

Launch of Angry Birds 2 in July 2015

Release of Angry Birds Movie in May 2016

Source: Company dataNote: Rovio changed its accounting policy and accounting standards during 2010-18; thus, the data is not perfectly comparable.


Rovio19 June 2019

StrategyRovio has identified four strategic focus areas. The chart below presents the focus areas of strategic interest and actions the company aims to take to reach its goals. An interesting observation is that Rovio states in its strategy that it actively aims to diversify its games portfolio from the causal genre into the mid-core genre. The PlayRaven acquisition completed in November 2018 is a concrete step in the right direction, as PlayRaven specialises in strategic mid-core games. Rovio aims to get the first mid-core game developed by the PlayRaven team to soft launch during 2019.

Strengthening the baseline brand appeal by delivering an engaging entertainment offering is at the core of brand licensing. The marketing around Angry Birds Movie 2 and the 10th year anniversary events of the AB brand are definitely positive developments to expand the AB brand and licensing business.

Rovio's management acknowledges that the mobile gaming industry can be revolutionised by new technological advances. Thus, the final strategic pillar of Rovio is to explore the future of gaming. Concrete steps have been taken in the right direction as the company launched its first augmented reality (AR) game called The Isle of Pigs in 2019. In addition, Rovio has been investing significant resources in its 80%-owned subsidiary Hatch Entertainment Oy, which provides an advanced game streaming service.

Rovio's guidance for 2019 is to reach sales of EUR 300-330m with an EBIT margin between 9% and 11%. Excluding Hatch Entertainment, management guides for an EBIT margin of 12-14%. It should be noted that Rovio's long-term financial goals from 2016-17 target growth above western mobile gaming market growth (high single-digit growth) and a 30% EBIT margin. The company has made little progress towards its long-term financial goals and there has been no communication about the long-term targets over the past year.

ROVIO'S FOUR PILLAR STRATEGY

Grow Games business

Grow the Angry Birds brand and

Licensing business

Leverage strong consolidation

platform

Explore the future of gaming

• Prioritise top live games in UA and resourcing

• Increase investments in new games development

• Aim to launch at least 2 games in 2019

• Angry Birds Movie 2 in the second half of 2019

• 10th year anniversary of Angry Birds

• Screen and evaluate potential M&A targets

• Focus on free-to-play mobile games

• Investigate and invest in new technologies and platforms

• Explore external funding and strategic partners for Hatch



Rovio19 June 2019

Management teamRovio has an experienced management team consisting of Kati Levoranta (CEO), René Lindell (CFO), Ville Heijari (CMO), Simo Hämäläinen (Head of Brand Licensing), Heini Kaihu (Head of HR), Alexandre Pelletier-Normand (Head of Games), Minna Raitanen (General Counsel) and Mikko Setälä as Head of Investor Relations.

Rovio’s management team has experience from all relevant sectors for the company, including games, mobile technology, intellectual property rights, governance and brand management. In addition, except for the Head of Games, who started working at Rovio during 2019, all of the management team members have long tenures at the company.

ROVIO'S MANAGEMENT TEAM

Kati Levoranta Alexandre Pelletier-Normand Simo Hämäläinen René LindellPosition (since) Position (since) Position (since) Position (since)CEO (2016) Head of Games (2019) Head of Brand Licensing (2017) CFO (2017)Education Education Education Education

Joined Rovio in Joined Rovio in Joined Rovio in Joined Rovio in2012 2019 2013 2014Selected experience Selected experience Selected experience Selected experience

Share holdings Share holdings Share holdings Share holdings9,842 0 3,690 8,444

Several positions in Nokia Oyj and Nokia Siemens Networks Oy 2005–2011

Several leadership positions at Gameloft SE 2003–2012 and 2014–2018, latest executive vice president, Games

Various international sales, marketing and brand management positions at Oy Hartwall Ab and Heineken N.V. 2007–2013

Strategy director at Nokia Oyj 2011–2014, management consultant at the Boston Consulting Group 2006–2011

MSc in Law,MBA in Economics

BSc in Computes Science MSc in EngineeringMSc in Economics, PhD in Technology

Minna Raitanen Ville Heijari Heini KaihuPosition (since) Position (since) Position (since)General Counsel (2016) CMO (2018) Head of HR (2019)Education Education Education

Joined Rovio in Joined Rovio in Joined Rovio in

2012 2010 2012Selected experience Selected experience Selected experience

Share holdings Share holdings Share holdings13,750 37,460 43,690

MA in English Translation, Communication and Digital Media

Senior legal counsel at Nokia Siemens Networks Oy and Nokia Oyj 2005–2012

General manager at Two Men and a Dog Oy 2015–2016,head of supply, Europe at Vungle 2014–2015

EVP product member of leadership team at Sulake 2011–2012

MSc in Law Undergraduate student of Philosophy



Rovio19 June 2019

Board of directors have skin in the gameRovio has an experienced board of directors led by chairman Mika Ihamuotila, who is also a shareholder in Rovio with 0.31% of the shares. In addition, vice chairman of the board Kaj Hed and member of the board Camilia Hed-Wilson own 40% and 20% of the shares in Oivor AB respectively, which in turn has a >40% holding in Rovio, thus making Kaj Hed and Camilia Hed-Wilson the company's largest shareholders.

ROVIO'S BOARDS OF DIRECTORS

Mika Ihamuotila Kaj Hed Camila Hed-Wilson Jenny WolframPosition (since) Position (since) Position (since) Position (since)Chairman of the Board (2017) Vice chairman of the board (2017) Board member (2011) Board member (2017)Education Education Education Education

Selected experience Selected experience Selected experience Selected experience

Share holdings Share holdings* Share holdings* Share holdings245,190 12,919,011 6,459,505 0Independency Independency Independency Independency

Independent investor Independent investorIndependent of the Company and its major shareholders

Independent of the company and its major shareholders

President of Marimekko Oyj 2008–2015 and CEO 2008–2016,A member of the Board of Elisa Oyj 2003–2008,President and CEO of Sampo Pankki Oyj 2001–2007

Chairman of Rovio’s Board in 2005–2006 and 2008–2017,The chairman of the board of Hatch Entertainment Oy since 2016

Founder and the chairman of the board of Fiilinki Oy,CEO and the chairman of the board of So Ihana Oy

CEO, a board member and founder of BrandBastion Ltd,A member of the board of directors and CEO of Jenny Wolfram Ab

PhD in EconomicsElectrical engineeringEconomics

BBA in Human Resources MSc in Law

Kim Ignatius Fredrik Löving Jeferson ValadaresPosition (since) Position (since) Position (since)Board member (2017) Board member (2019) Board member (2019)Education Education Education

Selected experience Selected experience Selected experience

Share holdings Share holdings Share holdings0 0 0Independency Independency Independency




MSc in Computer Science and AI

Executive vice president of Sanoma Corporation since 2017,Chairman of Rovio’s Audit Committee and Remuneration Committee since 2017

Head of studio of Goodbye Kansas,Head of studio and general manager of DICE / EA (Battlefield Franchise) 2013-2017 and producer and development director 2007-2013

Co-founder and CEO of Doppio,general manager, Mobile and VP of Product Development of Bandai Namco Entertainment America, 2014-2018

BSc in EconomicsMSc in E-CommerceBSc in Information Technology



Rovio19 June 2019

ShareholdersAs mentioned, Oivor AB is the largest shareholder with 40.5% ownership of Rovio, followed by Swedbank AB and Invesco Ltd with 10% and 5.9%, respectively. As the top 20 shareholders own almost 80% of the company, the ownership base of Rovio can be said to be concentrated.

LARGEST SHAREHOLDERS IN ROVIO AS OF 28 MAY 2019

Number of Shares % of shares Market value (EUR)

Oivor AB 32,297,528 40.5% 228,989,474Swedbank AB 8,000,000 10.0% 56,720,000Invesco Ltd 4,700,000 5.9% 33,323,000Keskinainen Elakevakuutusyhtio Ilmarinen 2,067,500 2.6% 14,658,575Capita PLC 2,035,682 2.6% 14,432,985Hed Niklas 1,996,746 2.5% 14,156,929Vesterbacka Peter 1,456,229 1.8% 10,324,664Sijoitusrahasto Aktia 1,365,074 1.7% 9,678,375Danske Bank A/S 1,310,059 1.6% 9,288,318Keskinainen Tyoelakevakuutusyhtiö ELO 1,200,000 1.5% 8,508,000State Pension Fund 1,000,000 1.3% 7,090,000Nordea Bank Abp 847,162 1.1% 6,006,379Saastopankki Fund Management/Finla 831,994 1.0% 5,898,837Varma Mutual Pension Insurance Co 677,471 0.9% 4,803,269Rovio Entertainment Oyj 595,237 0.7% 4,220,230Danske Investment Finnish Equity 580,000 0.7% 4,112,200DNB ASA 511,051 0.6% 3,623,352Muotitla LTD 476,190 0.6% 3,376,187Aktia Fund Management Ltd 410,000 0.5% 2,906,900Veritas Pension Insurance Co Ltd 348,000 0.4% 2,467,320Top 20 combined 62,705,923 78.7% 444,584,994Other 16,971,719 21.3% 121,126,264Total 79,677,642 100.0% 565,711,258

Source: Bloomberg


Rovio19 June 2019

Game portfolio – fewer, bigger and betterRovio aims to develop its games portfolio following its "fewer, bigger and better" portfolio strategy to support long-term revenue generation – games that have potential for a long lifetime, to reach top-grossing lists and to become digital hobbies are focused upon and developed further. Following its game-as-a-service (GaaS) model, Rovio focuses on its existing top-five games. The current game portfolio consists of 22 games, of which the top games are introduced in more detail below. Rovio's game pipeline is in a healthy state with 12 games in different stages of development, one game in soft launch and one awaiting for release in China.

The portfolio logic – fewer games, genre mastery and hybrid productsDifferent genres attract different cohorts of players; thus, diversifying the game portfolio into new genres widens the potential player base of Rovio

Rovio's portfolio logic is built on three key principles: "fewer, bigger and better", hybrid products and genre mastery.

Rovio currently has 22 live games in its game portfolio, but the company focuses only on its top performing games based on its "fewer, bigger and better" portfolio strategy. This means that the majority of all user acquisition (UA) investments and development efforts are focused on the top-four or top-five highest grossing games.

Rovio is pursuing genre mastery in certain genres of its choice. So far, the company has been successful in genres such as slingshot and puzzle, ie casual games. Casual games have simple rules and shorter gaming sessions, and appeal to wider audiences when compared with games in the midcore genre. Midcore games are more serious and require more skills and time from both the players and developers of the game.

Currently, Rovio is actively trying to break through into the midcore genre to access new player cohorts. Rovio has already published two midcore games: 1) Angry Birds Evolution, which is a role-playing game (RPG); and, 2) Battle Bay, which is a real-time strategy game featuring player-versus-player battles. Furthermore, we expect that Rovio will have a soft launch release of a new midcore game already during 2019. According to the company, the new game belongs to the 4x strategy genre and is being developed by the team of PlayRaven, the company Rovio acquired in late 2018. So far, Rovio's midcore titles, despite being fairly successful, have not reached similar success and longevity as its casual games, such as Angry Birds 2 (AB 2) or AB Match.

However, Rovio's most successful game, AB 2, is a "hybrid" game. AB 2 combines elements of the casual slingshot (using a slingshot to fire angry birds at green pigs) and RPG (collect and evolve the angry birds) genres. Games that combine elements of different genres are called hybrid products, and developing hybrids is one of the key principles of Rovio's portfolio strategy.

Angry Birds 2AB 2, Rovio's best performing game, is a direct sequel to the original Angry Birds game that was launched in December 2009. Similar to its predecessor, AB 2 is a slingshot game that offers users modernised graphics and new engaging features.

AB 2 was launched in July 2015, and the current version of AB 2 is well rated in the US App Store (4.7 out of 5 stars as of June 2019). AB 2 has generated cumulative gross sales of EUR 285m by Q1 2019, of which EUR 32m was generated in Q1 2019. Rovio is heavily dependent on AB 2, as the game accounted for over 46% of total gross bookings of all of Rovio's games in 2018.

We gathered grossing rank data of Rovio's main titles provided by App Annie, an app market data and insights provider that produces information on downloads, revenue, ratings and other app specifics. The below table presents the progression of AB 2's grossing rank when compared with all games available in the App Store. AB 2 has been fairly stable in all its main markets, albeit with a slight downward trend from the start of March 2019. In the US, AB 2 was, on average, the 54th highest grossing game during March 2019, while the figure was 57th and 65th for April and May respectively.


Rovio19 June 2019

AB 2'S GROSSING RANK IN THE iPHONE APP STORE

0

20

40

60

80

100

12001/03/2019 15/03/2019 29/03/2019 12/04/2019 26/04/2019 10/05/2019 24/05/2019

US UK France Germany

Source: App Annie and Nordea

According to GameRefinery's proprietary POWERSCORE®, which is an objective, fact-based indicator to measure how well the feature set of the game or game concept corresponds with current market trends, AB 2 is a strong performer within the population of similar slingshot games. AB 2 has a POWERSCORE® of 86 (scale 0-100) as of June 2019, while the current average POWERSCORE® of competing games is ~51.

Based on GameRefinery's proprietary POWERSCORE® and our estimation, the distribution of daily revenue potential of AB 2 is presented below. It is noteworthy that GameRefinery generates its POWERSCORE® and appropriate potential revenue distribution using only US App Store data.

All in all, because of the high POWERSCORE® and solid track record of grossing rank data of AB 2, we do not foresee any drastic change in the monetisation potential of AB 2 in the near future.

AB 2 REVENUE POTENTIAL DISTRIBUTION: US APP STORE, USD

7%

6%

1%

7%

9%

34%

31%

4%

0% 10% 20% 30% 40%

>$200,000

$100,000-$199,999

$70,000-$99,999

$50,000-$69,999

$30,000-$49,999

$10,000-$29,999

$2,000-$9,999

<$2,000

Source: GameRefinery and Nordea estimates

AB 2 POWERSCORE®, US APP STORE (SCALE 0-100)

40

50

60

70

80

90

100

AB 2 Average of 14 competitors



Rovio19 June 2019

Angry Birds Dream BlastAB Dream Blast is Rovio's latest game, which was released in Q1 2019. The game is a casual game in which the player needs to pop bubbles to solve puzzles. AB Dream Blast is easy to pick up and play, and the target audience is adult female gamers.

The current version of AB Dream Blast is well rated in the US App Store (4.7 out of 5 stars as of June 2019). The game generated EUR 6.9m in gross sales during its first quarter, but the company guided that it reached a run-rate of EUR 11m per quarter. If the game is able to maintain its good performance, AB Dream Blast will be the second highest grossing game of Rovio in Q2 2019.

The table below presents the progression of AB Dream Blast's grossing rank when compared with all games available in the App Store. AB Dream Blast's performance has been fairly stable in all its main markets, with a slight upward trend in the US markets during the last three months. In the US, AB Dream Blast was, on average, the 147th highest grossing game during March 2019, while the figure was 137th and 122nd for April and May respectively. This indicates that AB Dream Blast has been able to maintain, and even improve, its performance since the end of Q1.

AB DREAM BLAST'S GROSSING RANK IN THE iPHONE APP STORE

0

50

100

150

200

250

US UK France Germany


According to GameRefinery's proprietary POWERSCORE®, AB Dream Blast has room to improve within the genre of similar puzzle games. AB Dream Blast has a POWERSCORE® of 79 as of June 2019, while the current average POWERSCORE® of competing games is ~85. It should be noted that AB Dream Blast is a young game and Rovio is slowly optimising its features, which is also visible in the upward trending POWERSCORE®. In addition, the puzzle genre is extremely competitive, making the comparison group very tough.

Based on GameRefinery's proprietary POWERSCORE® and our estimation, the distribution of daily revenue potential of AB Dream Blast is presented below. We see potential for the game, as Rovio keeps on adding new features and updating the game.

All in all, because of the improving POWERSCORE® and grossing rank data of AB Dream Blast, we see increasing monetisation potential of AB Dream Blast in the near future.


Rovio19 June 2019

AB DREAM BLAST REVENUE POTENTIAL DISTRIBUTION: US APP STORE, USD

1%

2%

2%

3%

8%

27%

45%

12%

0% 10% 20% 30% 40% 50%

>$200,000

$100,000-$199,999

$70,000-$99,999

$50,000-$69,999

$30,000-$49,999

$10,000-$29,999

$2,000-$9,999

<$2,000


AB DREAM BLAST POWERSCORE®, US APP STORE (SCALE 0-100)

65

70

75

80

85

90

Q3 18 Q4 18 Q1 19 Current

AB Dream Blast Average of 20 competitors


Angry Birds FriendsAB Friends is a slingshot game whereby players compete with their friends and users around the world in AB tournaments every week. As such, AB Friends is a traditional slingshot game and with its multiplayer features, it is considered to be a hybrid game.

AB Friends was launched in February 2012, making it the oldest top-grossing game of Rovio. As of the end of Q1 2019, the game had cumulative gross sales of EUR 127m. Regardless of its longevity, AB Friends has continued to generate solid revenue, and the game accounted for over 12% of Rovio's total games revenue in 2018. The current version of AB Friends is rated 4.6 out of 5 stars in the US App Store, as of June 2019.

The table below presents the progression of AB Friends' grossing rank when compared with all games available in the App Store. AB Friends' performance has been quite volatile with a slight downward trend in Germany during the past three months. However, the game has been live for over seven years and it has been performing well all this time; therefore, we do not see any material reason for the game to lose popularity in the near future.

AB FRIENDS' GROSSING RANK IN THE iPHONE APP STORE

0

50

100

150

200

250

300

350

400

450

US UK Germany



Rovio19 June 2019

Angry Birds MatchAB Match is a casual puzzle game, where the player needs to match items to rescue hatchlings. Similar to AB Dream Blast, the game competes in the saturated puzzle game segment, where already established games such as Candy Crush Saga are dominating the market.

AB Match was launched in August 2017 and it has generated cumulative gross sales of EUR 44m as of the end of Q1 2019. AB Match was the third-largest game of Rovio during 2018, but in Q1 2019, it dropped to the fourth place, replaced by AB Dream Blast. The current version of the game is rated 4.6 out of 5 stars in the US App Store, as of June 2019.

The table below presents the progression of AB Match's grossing rank when compared with all games available in the App Store. AB Match's performance has been stable with a slight upward trend during the past three months, especially in the US. In the US, AB Match was, on average, the 199th highest grossing game during March 2019, while the figure was 179th and 175th for April and May respectively. This indicates that AB Dream Match has been able to keep up its stable performance.

AB MATCH'S GROSSING RANK IN iPHONE APP STORE

0

50

100

150

200

250

300

350

US UK Germany


According to GameRefinery's proprietary POWERSCORE®, AB Match's features are in line with competing games of the same genre. AB Match has a POWERSCORE® of 85 as of June 2019, in line with the current average POWERSCORE® of competing games.

Based on GameRefinery's proprietary POWERSCORE® and our estimation, the distribution of daily revenue potential of AB Match is presented below. Altogether, we see that AB Match is set to keep its stable performance as indicated by its high POWERSCORE® and slightly upward trending grossing rank.

AB MATCH REVENUE POTENTIAL DISTRIBUTION: US APP STORE, USD

7%

7%

3%

7%

9%

32%

32%

5%

0% 5% 10% 15% 20% 25% 30% 35%

>$200,000

$100,000-$199,999

$70,000-$99,999

$50,000-$69,999

$30,000-$49,999

$10,000-$29,999

$2,000-$9,999

<$2,000


AB MATCH POWERSCORE®: US APP STORE (SCALE 0-100)

65

70

75

80

85

90

Q3 17 Q4 17 Q1 18 Q2 18 Q3 18 Q4 18 Q1 19

AB Match Average of 20 competitors



Rovio19 June 2019

The next release is Angry Birds POP 2Currently, AB POP 2 is in soft launch, which we expect to be released during H2 2019. The game is a sequel to AB POP, which was launched in March 2015 and has generated EUR 79m in cumulative gross sales as of Q1 2019. The performance of AB POP showed a downward trend during 2018, as the gross sales of the game declined from EUR 5.5m in Q1 2018 to EUR 3.3m in Q1 2019.

AB POP 2 belongs to the puzzle genre, similar to AB Match and AB Dream Blast. As the game is currently in soft launch, there is no relevant grossing data available.


Rovio19 June 2019

Business modelRovio is a global games-first entertainment company, which creates, develops and publishes mobile games and acts as a brand licensor in various entertainment and consumer product categories. The company is best known for its global Angry Birds brand, which started out as a popular mobile game in 2009, and has since evolved to include various entertainment and consumer products in brand licensing.

Free-to-play mobile games for the mass marketWith over four billion downloads of its mobile games, Rovio has clearly reached a global mobile gaming audience. The company's global conquest started in December 2009 when it released the original Angry Birds mobile game and simultaneously invented the 'slingshot' genre in mobile gaming. Since then, the company has expanded its product portfolio to the puzzle, RPG and PvP (player versus player) genres, and adopted the free-to-play monetisation model in its games.

Creating 'fewer, bigger and better' free-to-play (F2P) mobile games

Today, the free-to-play model has evolved into a games-as-a-service (GaaS) model where developers drive player retention by developing and updating existing games rather than launching new ones. The global trend towards the GaaS model is driven by the current market environment in which challenges in discoverability and rising user acquisition costs have forced developers to think carefully about how to allocate their marketing budgets. Though there is no silver bullet in sight, the company's 'fewer, bigger and better' strategy (ie turning top-grossing games into long-term digital hobbies) makes sense, in our view. The business model is presented in further detail below.

In the F2P model, the majority of revenue is generated through in-app purchases (IAP)

BUSINESS MODEL – GAMES SEGMENT

GAMES

Rovio runs paid and organic user acquisition campaigns in digital media channels

Players download games from application stores for free

Players do in-application purchases

Players watch ads in the game

89% of games revenues 11% of games revenues

Source: Company data (Annual Report 2018)


Rovio19 June 2019

The company operates mainly in the match-3 puzzle and slingshot genres; the PlayRaven acquisition will expand the focus to strategy

The Games business unit employs approximately 300 professionals divided between the Battle and Puzzle studios in Espoo, Finland, and the RPG studio in Stockholm, Sweden. In December 2018, Rovio expanded its development capabilities with the acquisition of Helsinki-based Finnish company PlayRaven, which previously focused on mobile strategy games. The acquisition is intended to speed up Rovio's expansion into the lucrative strategy game genre.

Regarding the game development process, the typical time span between the initial idea and global launch is 10-24 months. Team size and consequently development costs increase as a project proceeds from the concept phase to production and launch. The general game development framework is presented below.

GAME DEVELOPMENT PROCESS

# of

pro

ject

s

Inve

stm

ent

Based on the soft launch KPIs, games are

launched globally. UA is ramped up

gradually.

Game ideas are produced by individuals or

teams, collected and pitched on a

weekly basis.

Potential ideaswith strategic fit

proceed. The business case and the game

design are evaluated

Games are launched in

selected markets, acquiring targeted

players.

Production, planning,

budgeting and resourcing.

Games are built with an agile

mindset.

Team size:10–35

Team size: 1–3

Length: 3–4 months

Team size:10-25

Length:3-8 months

Team size:3-6

Length: 2-6 months

Team size: 10–25

Length:2-6 months

Ideas & concepts

Prototyping & demos

Preproduction

Production Soft launch Global launch

Timeline


Brand Licensing spreads the Angry Birds gospel In 2014-16, Rovio restructured its business and switched its focus to games, licensing and animation. In addition, during the first half of 2017, the company further emphasised its focus on the games business. As a result, the current Brand Licensing business unit was established. Previously, the company used its own balance sheet to finance animation and movie initiatives.

Brand Licensing consists of two sub-units: Consumer Products and Content Licensing

The Brand Licensing business is divided into two sub-units: Consumer Products and Content Licensing. The Consumer Products unit is responsible for licensing the Angry Birds brand for producers of physical goods, such as toys, food and location-based entertainment like activity and entertainment parks. Furthermore, Content Licensing licenses the Angry Birds brand for producers of digital content other than games. The upcoming Angry Birds 2 movie is a prime example of content licensing.


Rovio19 June 2019

Compared to in-house production, licensing minimises capex needs and improves profitability

BUSINESS MODEL – BRAND LICENSING

BRAND LICENSING

Rovio licenses Angry Birds brand to productmanufacturers and content creators directly

or through agents

Manufacturers make the products and handle distribution. Content creators create content and handle distribution

Royalties from contentlicensing

Royalties from productlicensing

72% of licensing revenues

28% of licensing revenues

Source: Company data (Annual Report 2018)

According to Rovio, royalties in the licensing industry are 6% of retail prices, on average

As shown in the image above, content licensing accounts for the majority of the Brand Licensing business unit's revenue. The revenue stems mainly from royalties, which, according to Rovio, are on average about 6% of retail prices. However, the company has emphasised that royalty levels are negotiated on a deal-by-deal basis and that different product and content categories entail different compensation for Rovio. Even though revenue in the Brand Licensing unit is clearly below that of the Games unit, the contribution to the group's adjusted EBITDA is notable, as shown below.

The licensing business delivers lucrative margins with negligible capex

EBITDA AND MARGIN, EURm AND %

0%

10%

20%

30%

40%

50%

60%

70%

80%

0

5

10

15

20

25

30

35

40

45

50

2016 2017 2018

Adj. EBITDA (BL) Adj. EBITDA (Games) Margin (BL) Margin (Games)



Rovio19 June 2019

The games and licensing businesses have a symbiotic relationship

Moreover, Brand Licensing plays a pivotal role in supporting the growth of the Games unit globally and vice versa. The company emphasises the importance of a credible roadmap for Angry Birds content and games, which builds attention and demand among consumers, retailers and licensees. The current roadmap is being led by the upcoming Angry Birds 2 movie, which is set to be released in August 2019.

Hatch is trying to do what Netflix did for movies and series

Hatch streaming service reflects the future of gamingHatch, Rovio's 80%-owned subsidiary, develops a cloud-based game streaming service for Android mobile devices and TVs. Neogames, the Finnish game industry organisation, sees console and mobile cloud services as a trend in the future, since they enable game developers to bypass the dominant application stores such as Apple App Store and Google Play. From players' point of view, the added value from this 'Netflix' model comes from the ease of playing games without having to download them.

At the end of the 2018, Hatch offered more than 100 live titles. Currently, signed developers and publishers have committed to bringing up the number of live games to over 350. Although Hatch also works in current 4G networks, Neogames does not believe that cloud-based gaming platforms, such as Hatch, will be able to challenge the incumbent platforms until 5G becomes mainstream.

So far, Hatch has created zero revenue for Rovio and the company is currently looking for external funding to boost the growth prospects of the service. Moreover, the company is ready to reduce its stake in Hatch to below 50%. In 2018, Hatch's operating expenses amounted to approximately to EUR 7.3m.

BUSINESS MODEL – HATCH STREAMING SERVICE

Free subscription

Game developers and publishers

Hatch platform

Premium subscription

Games

Revenue Monthly subscription fee

Games

Advertisers

Ads

Games

Ads

Source: Nordea


Rovio19 June 2019

Risk factorsBelow, we list the main risk factors that we find relevant for Rovio. The purpose of this is not toprovide a comprehensive list of all of the risks that the company may face, but instead to highlight those that we find most relevant. In our view, the relevant short-term risks mainly come from external sources.

Decline of the appeal of the Angry Birds brandThough Rovio has launched non-Angry Birds games, the company's revenue effectively comes from Angry Birds-related games and licensing. Thus, a decline of the appeal of the brand would have notable consequences, especially for the licensing business.

Ability to attract and retain top talent Given the global and highly competitive nature of the mobile gaming market, Rovio's success depends heavily on attracting and retaining top international specialists and executives.

Ability to develop games with lucrative feature setsAccording to a study by GameRefinery, 50% of a game's success is explained by its feature set. Mobile gaming is still a nascent industry, which means that 'a winning feature set' is a constantly moving target, making success extremely hard to replicate in subsequent games.

Failure to create new IPs and enter new genresRovio's current game portfolio is dependent on AB themed casual games, such as slingshot, match 3 and bubble popping games. In the future Rovio aims to enter the mid-core genre with new games without the AB brand. This may turn out to be a costly task, eroding Rovio's profitability and cash position.

RegulationThe mobile gaming industry is facing increasing regulation, especially in China. The trend towards tighter regulation of mobile game monetisation could hamper the financial performance of Rovio in the long run.

Rising user acquisition costsAccording to Neogames, a Finnish game industry organisation, challenges in discoverability and rising user acquisition costs have been a challenge in the games industry for years. This risk applies especially to smaller companies with limited marketing resources.


Rovio19 June 2019

Reported numbers and forecastsINCOME STATEMENT

2021E2020E2019E20182017201620152014201320122011EURm347333315281297192142158n.a.n.a.n.a.Net revenue

4.2%5.6%12.0%-5.4%55.0%34.9%-10.3%n.a.n.a.n.a.n.a.Revenue growthn.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.of which organicn.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.of which FX

515050486035-617000EBITDA00000000000Depreciation and impairments PPE00000000000of which leased assets

515050486035-617000EBITA-7-10-13-16-29-18-15-7000Amortisation and impairments444037323117-2210n.a.n.a.n.a.EBIT00000000000of which associates00000000000Associates excluded from EBIT0001-5-111000Net financials00000000000of which lease interest00000000000Changes in value, net

444037322716-2111000Pre-tax profit-9-8-7-8-6-53-3000Reported taxes363230252111-188000Net profit from continued operations00000000000Discontinued operations00000000000Minority interests

363230252111-188000Net profit to equity0.440.400.370.310.270.14-0.240.11n.a.n.a.n.a.EPS0.130.120.110.090.060.060.000.040.000.000.00DPS0.130.120.110.090.060.060.000.040.000.000.00of which ordinary0.000.000.000.000.000.000.000.000.000.000.00of which extraordinary

Profit margin in percent14.8%15.1%15.9%17.0%20.2%18.5%-4.5%10.8%n.a.n.a.n.a.EBITDA14.8%15.1%15.9%17.0%20.2%18.5%-4.5%10.8%n.a.n.a.n.a.EBITA12.7%12.1%11.8%11.2%10.6%8.8%-15.2%6.3%n.a.n.a.n.a.EBIT

Adjusted earnings515050486535-617000EBITDA (adj)515050486535-617000EBITA (adj)444037313617-2210000EBIT (adj)

0.440.400.370.300.330.14-0.240.11n.a.n.a.n.a.EPS (adj)

Adjusted profit margins in percent14.8%15.1%15.9%16.9%21.7%18.5%-4.5%10.8%n.a.n.a.n.a.EBITDA (adj)14.8%15.1%15.9%16.9%21.7%18.5%-4.5%10.8%n.a.n.a.n.a.EBITA (adj)12.7%12.1%11.8%11.1%12.1%8.8%-15.2%6.3%n.a.n.a.n.a.EBIT (adj)

Performance metricsCAGR last 5 years

12.6%18.5%14.8%n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.Net revenue7.7%n.m.24.1%n.m.n.m.n.m.n.m.n.m.n.m.n.m.n.m.EBITDA

21.2%n.m.30.1%n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.EBIT25.6%n.m.28.2%n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.EPS16.8%n.m.22.8%n.m.n.m.n.m.n.m.n.m.n.m.n.m.n.m.DPS

Average last 5 years11.7%11.1%7.8%6.4%n.a.n.a.n.a.n.a.n.a.n.a.n.a.Average EBIT margin16.5%17.2%15.2%14.4%n.a.n.a.n.a.n.a.n.a.n.a.n.a.Average EBITDA margin

VALUATION RATIOS - ADJUSTED EARNINGS

2021E2020E2019E20182017201620152014201320122011EURm16.518.119.612.727.6n.a.n.a.n.a.n.a.n.a.n.a.P/E (adj)7.17.88.43.89.9n.a.n.a.n.a.n.a.n.a.n.a.EV/EBITDA (adj)7.17.88.43.89.9n.a.n.a.n.a.n.a.n.a.n.a.EV/EBITA (adj)8.29.711.45.917.8n.a.n.a.n.a.n.a.n.a.n.a.EV/EBIT (adj)

VALUATION RATIOS - REPORTED EARNINGS

2021E2020E2019E20182017201620152014201320122011EURm16.518.119.612.533.6n.a.n.a.n.a.n.a.n.a.n.a.P/E1.051.181.340.652.15n.a.n.a.n.a.n.a.n.a.n.a.EV/Sales7.17.88.43.810.7n.a.n.a.n.a.n.a.n.a.n.a.EV/EBITDA7.17.88.43.810.7n.a.n.a.n.a.n.a.n.a.n.a.EV/EBITA8.29.711.45.820.4n.a.n.a.n.a.n.a.n.a.n.a.EV/EBIT

1.8%1.7%1.5%2.4%0.7%n.a.n.a.n.a.n.a.n.a.n.a.Dividend yield (ord.)6.7%6.7%7.8%13.6%7.1%n.a.n.a.n.a.n.a.n.a.n.a.FCF yield6.7%6.7%7.8%14.0%8.2%n.a.n.a.n.a.n.a.n.a.n.a.FCF Yield bef A&D, lease adj

29.4%30.3%29.9%29.4%22.3%42.3%0.0%37.1%n.a.n.a.n.a.Payout ratioSource: Company data and Nordea estimates


Rovio19 June 2019

BALANCE SHEET

2021E2020E2019E20182017201620152014201320122011EURm2023293953746939000Intangible assets00000000000of which R&D

2023293953746939000of which other intangibles00000000000of which goodwill11111112000Tangible assets00000000000of which leased assets00000000000Shares associates00000000000Interest bearing assets00053160000Deferred tax assets11111121000Other non-IB non-current assets00000000000Other non-current assets

2125314557777742000Total non-current assets00000000000Inventory

2827262329281925000Accounts receivable00000000000Short-term leased assets

1413131113161317000Other current assets22119216212491293454000Cash and bank263232200158133736695000Total current assetsn.a.n.a.n.a.n.a.n.a.n.a.n.a.0000Assets held for sale285257231203190150143138000Total assets

232206182160140877494000Shareholders equity00000000000Of which preferred stocks00000000000Of which equity part of hybrid debt00000000000Minority interest

232206182160140877494000Total Equity00000000000Deferred tax444333160000Long term interest bearing debt00000000000Pension provisions00000000000Other long-term provisions00000000000Other long-term liabilities00000000000Non-current lease debt00000000000Convertible debt00000000000Shareholder debt00000000000Hybrid debt444433170000Total non-current liabilities11111131000Short-term provisions

131312119886000Accounts payable00000000000Current lease debt

3534322937353337000Other current liabilities000001780000Short term interest bearing debt

4947454047605344000Total current liabilities00000000000Liabilities for assets held for sale

285257231203190150143138000Total liabilities and equity

Balance sheet and debt metrics-218-188-158-120-88-10-10-54000Net debt

00000000000of which lease debt-6-6-6-5-41-10-1000Working capital1518254053786841000Invested capital

235210186163143899194000Capital employed16.2%16.7%17.5%16.3%18.3%13.3%-21.5%17.3%n.m.n.m.n.m.ROE

n.m.n.m.91.5%53.6%43.9%18.5%-31.6%38.7%n.m.n.m.n.m.ROIC18.7%19.2%20.0%19.3%21.9%18.9%-23.7%10.7%n.a.n.a.n.a.ROCE

-4.2-3.8-3.2-2.5-1.5-0.31.5-3.1n.m.n.m.n.m.Net debt/EBITDAn.m.n.m.n.m.n.m.n.m.n.m.n.m.n.m.n.a.n.a.n.a.Interest coverage

81.4%80.2%79.0%78.5%73.8%58.0%51.8%68.0%n.m.n.m.n.m.Equity ratio-93.9%-91.4%-86.8%-75.3%-62.9%-11.4%-13.3%-57.4%n.m.n.m.n.m.Net gearing



Rovio19 June 2019

CASH FLOW STATEMENT

2021E2020E2019E20182017201620152014201320122011EURm515050486035-617000EBITDA (adj) for associates-9-8-7-11-101-9000Paid taxes0000-1-2-10000Net financials00000-221000Change in provisions005-2-15-6-2000Change in other LT non-IB00000000000Cash flow to/from associates00000000000Dividends paid to minorities00044-150000Other adj to reconcile to cash flow

434248396035-57000Funds from operations (FFO)0013-1-13610000Change in NWC

434348436023117000Cash flow from operations (CFO)-4-4-300000000Capital expenditure393945436023117000Free cash flow before A&D00000000000Proceeds from sale of assets000-1-9-23-44-38000Acquisitions

39394541510-42-21000Free cash flow393945436023117000Free cash flow bef A&D, lease adj

-10-9-7-7-5-50-3000Dividends paid000136000000Equity issues / buybacks0000-17-6250000Net change in debt000-3-1000000Other financing adjustments0001-35-278000Other non-cash adjustments

2930383362-6-1954000Change in cash

Cash flow metrics55.8%38.5%25.4%0.0%0.0%0.0%0.0%0.0%n.m.n.m.n.m.Capex/D&A1.2%1.1%1.0%0.0%0.0%0.0%0.0%0.0%n.a.n.a.n.a.Capex/Sales

Key information77749n.a.n.a.n.a.n.a.n.a.n.a.Share price year end (/current)

580580580303728n.a.n.a.n.a.n.a.n.a.n.a.Market cap.363392422183640n.a.n.a.n.a.n.a.n.a.n.a.Enterprise value79.479.479.479.480.675.974.974.90.00.00.0Diluted no. of shares, year-end (m)



Rovio19 June 2019

Disclaimer and legal disclosuresOrigin of the reportThis publication or report originates from: Nordea Bank Abp, including its branches Nordea Danmark, Filial af Nordea Bank Abp, Finland, Nordea Bank Abp, filial i Norge and Nordea Bank Abp, filial i Sverige (together "Nordea") acting through their unit Nordea Markets.

Nordea Bank Abp is supervised by the European Central Bank and the Finnish Financial Supervisory Authority and the branches are supervised by the European Central Bank and the Finnish Financial Supervisory Authority and the Financial Supervisory Authorities in their respective countries.

Content of reportThis report has been prepared solely by Nordea Markets.

Opinions or suggestions from Nordea Markets credit and equity research may deviate from one another or from opinions presented by other departments in Nordea. This may typically be the result of differing time horizons, methodologies, contexts or other factors.

The information provided herein is not intended to constitute and does not constitute investment advice nor is the information intended as an offer or solicitation for the purchase or sale of any financial instrument. The information contained herein has no regard to the specific investment objectives, the financial situation or particular needs of any particular recipient. Relevant and specific professional advice should always be obtained before making any investment or credit decision

Opinions or ratings are based on one or more methods of valuation, for instance cash flow analysis, use of multiples, behavioural technical analyses of underlying market movements in combination with considerations of the market situation and the time horizon. Key assumptions of forecasts or ratings in research cited or reproduced appear in the research material from the named sources. The date of publication appears from the research material cited or reproduced. Opinions and estimates may be updated in subsequent versions of the report, provided that the relevant company/issuer is treated anew in such later versions of the report.

Validity of the reportAll opinions and estimates in this report are, regardless of source, given in good faith, and may only be valid as of the stated date of this report and are subject to changewithout notice.

No individual investment or tax adviceThe report is intended only to provide general and preliminary information to investors and shall not be construed as the basis for any investment decision. This report has been prepared by Nordea Markets as general information for private use of investors to whom the report has been distributed, but it is not intended as a personal recommendation of particular financial instruments or strategies and thus it does not provide individually tailored investment advice, and does not take into account the individual investor's particular financial situation, existing holdings or liabilities, investment knowledge and experience, investment objective and horizon or risk profile and preferences. The investor must particularly ensure the suitability of an investment as regards his/her financial and fiscal situation and investment objectives. The investor bears the risk of losses in connection with an investment.

Before acting on any information in this report, it is recommendable to consult (without being limited to) one's financial, legal, tax, accounting, or regulatory advisor in any relevant jurisdiction.

The information contained in this report does not constitute advice on the tax consequences of making any particular investment decision. Each investor shall make his/her own appraisal of the tax and other financial merits of his/her investment.

SourcesThis report may be based on or contain information, such as opinions, estimates and valuations which emanate from: Nordea Markets' analysts or representatives, publicly available information, information from other units of Nordea, or other named sources.

To the extent this publication or report is based on or contain information emanating from other sources ("Other Sources") than Nordea Markets ("External Information"), Nordea Markets has deemed the Other Sources to be reliable but neither Nordea, others associated or affiliated with Nordea nor any other person, do guarantee the accuracy, adequacy or completeness of the External Information.

Limitation of liabilityNordea or other associated and affiliated companies assume no liability as regards to any investment, divestment or retention decision taken by the investor on the basis of this report. In no event will Nordea or other associated and affiliated companies be liable for direct, indirect or incidental, special or consequential damages (regardless ofwhether being considered as foreseeable or not) resulting from the information in this report.

Risk informationThe risk of investing in certain financial instruments, including those mentioned in this report , is generally high, as their market value is exposed to a lot of different factors such as the operational and financial conditions of the relevant company, growth prospects, change in interest rates, the economic and political environment, foreign exchange rates, shifts in market sentiments etc. Where an investment or security is denominated in a different currency to the investor's currency of reference, changes in rates of exchange may have an adverse effect on the value, price or income of or from that investment to the investor. Past performance is not a guide to future performance. Estimates of future performance are based on assumptions that may not be realized. When investing in individual shares, the investor may lose all or part of the investments.

Conflicts of interestReaders of this document should note that Nordea Markets has received remuneration from the company mentioned in this document for the production of the report. The remuneration is not dependent on the content of the report.

Nordea, affiliates or staff in Nordea, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives) of any company mentioned in the report.

To limit possible conflicts of interest and counter the abuse of inside knowledge, the analysts of Nordea Markets are subject to internal rules on sound ethical conduct, the management of inside information, handling of unpublished research material, contact with other units of Nordea and personal account dealing. The internal rules have been prepared in accordance with applicable legislation and relevant industry standards. The object of the internal rules is for example to ensure that no analyst will abuse or cause others to abuse confidential information. It is the policy of Nordea Markets that no link exists between revenues from capital markets activities and individual analyst remuneration. Nordea and the branches are members of national stockbrokers' associations in each of the countries in which Nordea has head offices. Internal rules have been developed in accordance with recommendations issued by the stockbrokers associations. This material has been prepared following the Nordea Conflict of Interest Policy, which may be viewed at www.nordea.com/mifid.

Distribution restrictionsThe securities referred to in this report may not be eligible for sale in some jurisdictions. This report is not intended for, and must not be distributed to private customers in the UK or the US. This research report is intended only for, and may be distributed only to, accredited investors, expert investors or institutional investors in Singapore who maycontact Nordea Bank, Singapore Branch of 138 Market Street, #09-01 CapitaGreen, Singapore 048946.

This report may be distributed by Nordea Bank Luxembourg S.A., 562 rue de Neudorf, L-2015 Luxembourg which is subject to the supervision of the Commission de Surveillance du Secteur Financier.

This publication or report may be distributed by Nordea Bank Abp Singapore Branch, which is subject to the supervision of the European Central Bank, the Finnish Financial Supervisory Authority and the Monetary Authority of Singapore.

This publication or report may be distributed in the UK to institutional investors by Nordea Bank Abp London Branch of 6th Floor, 5 Aldermanbury Square, London, EC2V 7AZ, which is under supervision of the European Central Bank, Finanssivalvonta (Financial Supervisory Authority) in Finland and subject to limited regulation by the Financial Conduct Authority and Prudential Regulation Authority in the United Kingdom. Details about the extent of our regulation by the Financial Conduct Authority and Prudential Regulation Authority are available from us on request.

This report may not be mechanically duplicated, photocopied or otherwise reproduced, in full or in part, under applicable copyright laws.


Rovio19 June 2019

Analyst ShareholdingNordea Markets analysts do not hold shares in the companies that they cover.No holdings or other affiliations by analysts or associates.

Market-making obligations and other significant financial interestNordea Markets has no market-making obligations in Rovio.

Fair value sensitivityWe calculate our fair values by weighting DCF, DDM, SOTP, asset-based and other standard valuation methods. When applicable, we set a 12-month target price by applying an appropriate premium/discount and/or other relevant adjustment to our fair value to reflect the share price potential we see within the coming 12 months. Our fair values are sensitive to changes in valuation assumptions, of which growth, margins, tax rates, working capital ratios, investment-to-sales ratios and cost of capital are typically the most sensitive. It should be noted that our fair values would change by a disproportionate factor if changes are made to any or all valuation assumptions, owing to the non-linear nature of the standard valuation models applied (mentioned above). As a consequence of the standard valuation models we apply, changes of 1-2 percentage points in any single valuation assumption can change the derived fair value by as much as 30% or more. Dividend payouts are included in the target price. All research is produced on an ad hoc basis and will be updated when the circumstances require it.

Investment banking transactionsIn view of Nordea’s position in its markets readers should assume that the bank may currently or may in the coming three months and beyond be providing or seeking to provide confidential investment banking services to the company/companies

Marketing MaterialThis research report should be considered marketing material, as it has been commissioned and paid for by the subject company, and has not been prepared in accordance with the regulations designed to promote the independence of investment research and it is not subject to any legal prohibition on dealing ahead of the dissemination of the report. However, Nordea Markets analysts are according to internal policies not allowed to hold shares in the companies/sectors that they cover.

Where applicable, recommendation changes are available at: https://research.nordea.com/compliance#equity-changes.

Issuer Review

This report has not been reviewed by the Issuer prior to publication.

Completion Date

18 Jun 2019, 18:53 CET

Nordea Bank Abp Nordea Bank Abp, filial i Sverige Nordea Danmark, Filial af Nordea Nordea Bank Abp, filial i NorgeBank Abp, Finland

Nordea Markets Division,Research




Visiting address:Aleksis Kiven katu 7, Helsinki

Visiting address:Smålandsgatan 17

Visiting address:Grønjordsvej 10

Visiting address:Essendropsgate 7

FI-00020 Nordea SE-105 71 Stockholm DK-2300 Copenhagen S N-0107 OsloFinland Sweden Denmark Norway

Tel: +358 9 1651 Tel: +46 8 614 7000 Tel: +45 3333 3333 Tel: +47 2248 5000Fax: +358 9 165 59710 Fax: +46 8 534 911 60 Fax: +45 3333 1520 Fax: +47 2256 8650

Reg.no. 2858394-9Satamaradankatu 5Helsinki


Documents

Rovio Telecom Equipment and IT · Rovio is still all about Angry Birds which we view as a strength Of Rovio's 22 live mobile games, the top ﬁve are based on the Angry Birds (AB)