The full year-end report in Swedish is available at test.starbreeze.com/investor-relations/. The English version of the report will be available within a week. Financial statements in English are available at the end of this document.

CHANGED FISCAL YEAR

Note that in accordance with the decision taken on the Annual General Meeting in November 2015, this is the fourth quarterly report after changing the company’s fiscal year to calendar year. The comparative period Q4 2015 corresponds to October-December 2015, previously Q2 2015/2016.

FOURTH QUARTER (OCTOBER – DECEMBER 2016)

Net revenue amounted to SEK 99.4 million (SEK 48.9 million), representing a growth of 103 %. Sum of revenues and capitalized development amounted to SEK 165.5 million (SEK 73.6 million).

During the quarter, PAYDAY 2 represented SEK 37.2 million (SEK 47.7 million) of net revenue.

During the quarter, Dead by Daylight represented SEK 54.6 million (SEK 0.0 million) of net revenue.

Operating income before depreciation and amortization, EBITDA, amounted to SEK 38.8 million (SEK 15.2 million), implying a margin of 23.4 percent.

Income before tax amounted to SEK 32.3 million (SEK 14.0 million).

Net income for the period amounted to SEK 30.2 million (15.4 million).

Earnings per share before dilution were SEK 0.11 (SEK 0.07) and earnings per share after dilution were SEK 0.11 (SEK 0.07).

Cash flow from operating activities amounted to SEK 12.9 million (SEK -3.0 million).

As of December 31, cash and cash equivalents totaled SEK 669.4 million (SEK 85.4 million).

FISCAL YEAR (JANUARY – DECEMBER 2016)

Net revenue amounted to SEK 345.5 million (SEK 218.4 million), representing growth of 58 %. Sum of revenues and capitalized development amounted to SEK 523.0 million (SEK 299.6 million).

Operating income before depreciation and amortization, EBITDA, amounted to SEK 81.2 million (SEK 49.5 million) equivalent to an EBITDA margin of 15.5 %.

Income before tax amounted to SEK 55.9 million (SEK 43.1 million).

Net income for the period amounted to SEK 57.1 million (SEK 39.4 million).

Earnings per share before dilution were SEK 0.22 (SEK 0.20) and earnings per share after dilution were SEK 0.22 (SEK 0.20).

KEY EVENTS DURING THE FOURTH QUARTER (OCTOBER – DECEMBER 2016)

In October, Starbreeze carried out a direct share issue to institutional investors, where Första AP-fonden, a major Swedish pension fund, subscribed for a majority of the shares issued. A total of 16,452,991 shares were issued at a price of SEK 23.40, equivalent to a total amount issued of SEK 385 million. In connection with the new issue, Första AP-fonden also acquired 1,850,000 shares from Indian Nation AB, the company of Starbreeze Chairman Michael Hjorth.

In October, Starbreeze acquired Nozon, a Belgian Visual Effects (VFX) studio and the developer of the PresenZ technology. The PresenZ technology, which was released in 2015, makes it possible to convert 3D films to VR films, and thereby overcome the technical differences between film and game environments. This occurs through interactive parallax in virtual reality and delivers high quality blockbuster computer graphics with true immersive feeling. Since 1998, Nozon has steadily grown to become a well-known, and award winning VFX studio thanks to the company’s creative/artistic approach and technology development. The consideration amounted to EUR 7.1 million, of which EUR 4.6 million was in cash and EUR 2.5 million in newly issued Starbreeze B shares. In addition, the parties also agreed on a 10-year earnout period, based on revenue from the PrezenZ technology. After the acquisition, Starbreeze’s has deepened its analysis of the PresenZ technology, which has resulted in the decision to include all the potential earnout in the calculation of goodwill from the acquisition. The goodwill is estimated at SEK 257.5 million as of December 31, 2016.

In December, Starbreeze agreed to acquire 90.5 percent of the shares in the Indian production company Dhruva Interactive. The total consideration amounted to USD 8.5 million, of which USD 7.0 million was in cash and USD 1.5 million in newly issued Starbreeze B shares. The deal is planned to be completed in 2017 and had no impact on earnings during 2016. Dhruva Interactive is a highly reputed and best-of-breed art production house, with whom Starbreeze has a long-standing relationship. Founded in 1997, Dhruva is India’s leading game developer with over 320 employees, providing art production services to the global games industry. Dhruva has three studios in India.

During the quarter, Carnegie Investment Bank was appointed as advisor for the company’s relisting to Nasdaq Stockholm’s main market. Starbreeze intends to complete the relisting during 2017.

In November, a new brand was announced in the Publishing division. The new label Starbreeze IndieLabs aims to help projects that are smaller in scope to reach the market. Together with the Croatian studio Lion Game Lion, Starbreeze has agreed that the company will invest USD 300,000 to bring the game AntiSphere to PC and other platforms. Per the agreement Starbreeze will receive 30 percent of revenues, after the initial investment has been fully recouped by Starbreeze. Lion Game Lion and Soap Interactive in turn will retain 100 percent of the IP rights. AntiSphere is a top-down competitive arena battle game in which players use their skills in order to catch each other, and win the match.

In November, Starbreeze entered its second IndieLabs project with the Dutch studio KeokeN Interactive to publish the title “Deliver Us The Moon”. Starbreeze will invest USD 500,000 to bring the game to PC and other platforms. Starbreeze will be able to recoup 120 % of its investment, and will subsequently retain 50 percent of the revenues after distribution fees. KeokeN will retain 100 % of the IP rights. Deliver Us The Moon is set in the near future where the earth’s resources are nearly depleted. A brave astronaut will take the great step and travel to the moon in a do-or-die secret mission to save humanity.

AFTER THE QUARTER

In early January, Starbreeze announced that the first pilot center for IMAX VR Experience had opened in Los Angeles, in close proximity to the popular shopping area – The Grove and Farmers Market. In the center, visitors will be able to test high quality VR experiences in StarVR, which is produced in collaboration with Acer. Experiences available for StarVR include John Wick Chronicles: Arcade Edition and the range will be gradually extended as new VR experiences in both film and games become available. StarVR was positively received by visitors and along with John Wick Arcade Edition, is currently one of the most popular VR experiences in the center.

After the opening of the first IMAX VR Experience center in Los Angeles, Starbreeze announced that the company is negotiating with IMAX regarding the continuation of the agreement on premium experiences in IMAX VR Centers, which was announced in May 2016. In light of the decision of IMAX to broaden its offering to include widely available VR experiences during the launch of the center, Starbreeze anticipates that the form of collaboration will be adapted accordingly.

The VR game John Wick: Chronicles was released on Steam for HTC Vive on February 9, in connection with the premiere of the movie John Wick: Chapter 2. The game was available for pre-order for USD 19.99 via the platform from October 6, 2016.

In January, Starbreeze signed an agreement with Behaviour Digital regarding a digital version of Dead by Daylight for PlayStation 4 and Xbox One. To date, more than 1.8 million copies of the game’s PC version have been sold on Steam. The development costs for the modifications required for the console version will be shared equally between the parties. The revenue sharing model follows the existing agreement. In February, Starbreeze signed a distribution agreement with Digital Bros’ subsidiary 505 Games regarding physical distribution of Dead by Daylight for PlayStation 4 and Xbox One. Furthermore, this means that 505 Games will pay an advance royalty of USD 2.5 million, which will be shared between Starbreeze and Behaviour. The agreement does not cover the Asian and Nordic markets. The console version of the game is expected to be released during the second quarter of 2017.

In February, Starbreeze signed an agreement with Double Fine Productions to publish the game Psychonauts 2. Starbreeze will invest USD 8 million to bring the game to PC and console platforms together with Double Fine Productions. The release is expected to occur sometime during 2018. The development of the game was previously funded by Double Fine Productions and through equity crowdfunding via the Fig service. Starbreeze will be able to recoup 100 % of its full investment including marketing costs and will receive an initial revenue share of 85 % after distribution fees and Fig crowdfunding revenue share. Starbreeze share of revenues will become 60 % after the investment is recouped, after distribution fees and Fig crowdfunding revenue share. Psychonauts 2 is a third-person action/adventure game where players control Razputin Aquato – a newly graduated Psychonaut with powerful psychic abilities.





STARBREEZE KEEPS DELIVERING

CEO BO ANDERSSON KLINT GIVES HIS COMMENT

We’re proud to yet again show a triple digit growth for this quarter and the highest EBITDA since the launch of PAYDAY 2. It is a solid performance that shows our ability to deliver profitability while we are scaling our business to secure future growth.

PAYDAY

The PAYDAY franchise generated SEK 37.2 million (SEK 47.7 million) in total whereof SEK 0.0 million (SEK 14.4 million) in production support. As the sole owner of the PAYDAY IP, we no longer receive any production support revenues. We’re additionally still awaiting 505 to recoup USD 5 million on console, while we get 100% of the healthy PC sales. Moreover, we expect 505 to have reached their USD 5 million recoup in Q1 2017 as we see impressive PAYDAY performance through digital distribution on consoles following the lastest update.

DEAD BY DAYLIGHT

We’re over the moon with Dead by Daylight, a complete success both strategically and financially. The game has now sold over 1.8 million units on PC and contributes with SEK 54.6 million to Starbreeze net revenues in Q4, making it the best quarter through the game’s lifetime. An impressive trend that we, together with Behavior, will nurse carefully as we expand the product to consoles in Q2 2017. To date, the game has generated over 267 MSEK in gross sales on Steam.

STARBREEZE FINANCES

We’re also delighted to see that both our acquisitions, ePawn and Nozon, for the first time are contributing to top-line. Both businesses are now fully integrated and run at full speed within Starbreeze.

As we continue our steady growth we need to invest in our key assets PAYDAY, OVERKILL’s The Walking Dead, Valhalla engine, StarVR and in our very important publishing business. Consequently, our operating expenses, excluding royalties to publishing partners, have increased with SEK 46.7 million or 78 % compared to Q4 2015. The incremental spend is in all material aspects still derived from employee related expenses as we continue to ramp up the teams for delivering on our plans. Despite the increase in costs we show a remarkable profitability with an EBITDA margin reaching 23.4% underpinned by a strong development of our top line but also boosted by a stronger US dollar.

Boosted by successful financing activities during the third quarter, we’re ending the year with a cash position of SEK 669.4 million (SEK 85.4 million). To be clear, these funds will not be put in the bank to rest, they will continue to build our momentum. Hence we expect it to be reduced over time. Worth noting is also that we now have positive cash flow from our operating activities amounting to SEK 12.9 million (SEK -3.0 million).

When closing the fourth quarter we also close the financial year 2016 where net revenues reached SEK 345.5 MSEK (SEK 218.4 million) which is 62 % better than the financial year when we launched PAYDAY 2. EBITDA reached SEK 81.2 million (SEK 49.5 million) and net profit SEK 57.1 million (SEK 39.4 million). Our core business is doing very well.

VR-CENTER IN LOS ANGELES

As the first phase of building and operating a pilot VR center, mimicking our VR arcade concept StarCade, with IMAX is underway, we have entered into negotiations with IMAX about the future sale of content and StarVR-headsets into this business. At the VR center, we operate under our original agreement and have two pods equipped with the latest iteration of our StarVR HMD showcasing John Wick Chronicles Arcade Edition in collaboration with Lionsgate. Since January, we have thoroughly enjoyed having customers and potential partners visit the center to experience both the hardware as well as our content, something that has strengthened our view that location-based VR at this time is the best way for consumers to experience high-quality VR.

Our goal is to sell StarVR systems to as many different location-based businesses, theme parks and B2B projects as possible. Our aim is to sell a broader range of headsets and systems through our joint venture with Acer under the brand StarVR.

STARVR EVOLUTION

While we, just as planned, have not yet started shipping larger volumes of StarVR, the current interest from multiple markets and from prominent brands and business sets us up well for the mass production phase beginning later in 2017. We focus on distributing and prioritizing the current development version of the headset to key partners, ensuring that we are compatible with leading industry systems and standards to fully enable us to lead the charge once we deliver the first full production unit. We estimate approximately two more development iterations during the year, where we trust that the third iteration will include Tobii’s proprietary eye tracking. Durability, field of view, hygiene, resolution, refresh rates and weight are all key aspects that we improve constantly and according to plan. The roadmap of StarVR is clear, we’re still targeting B2B partners as our primary business, and we keep delivering as planned at our decided phase.

We aim to make the development of StarVR and sales of VR content a significant business for us down the line. We secure this through making early investments and strategic collaborations. This will educate us internally how to master the experience design and optimize our production. Once the market is mature, we’ll be in a pole position. For the fourth quarter StarVR with related activities account for less than 10% of Starbreeze operating expenses.

NOZON’S PRESENZ

While we’re integrating all of our recent acquisitions with Starbreeze vision to build future ecosystems, Nozon’s Presenz technology is generating quite the buzz in Hollywood. Nozon is now working hard together with our business development team to produce its first showcase VR short movie that we believe will build the foundation for a major cogwheel in our VR offering. Using PresenZ, movie studios can use their CG assets from feature films repurposing them easily for VR movies without losing visual fidelity. We strongly believe that together with the high-resolution of StarVR, this can be a groundbreaking technology for movie and entertainment production everywhere.

PAYDAY MOBILE, BCN STUDIO

As a separate note to this report, we also just announced that we’ve opened a new office in Barcelona, Spain. The Barcelona Studio consists of a handful of very talented individuals that have been with us in Stockholm for quite some time. Together with old friends and now new colleagues joining us from a prominent mobile developer, they form our task force to steer our mobile projects with a 100% focus. The bulk of the development will mainly be outsourced but we require a dedicated team from Starbreeze to make sure we are on point and deliver with the same focus as our other products.

Starbreeze Barcelona will closely monitor the wrap up of Geminose and also focus its efforts on PAYDAY: Crime War. After a due diligence of the progress on the mobile version of our beloved PAYDAY franchise, we found a lack of focus on our product. As we want to see this game realized as badly as many of our fans, we’ve moved production to another studio, BadFly Interactive. As part of a work-for-hire partnership, BadFly have hit the ground running and we look forward to sharing more from the game in the months to come. The project has already accelerated considerably and is now fully playable in multiplayer with the games backend in place. The following months will be dedicated to building more content and polishing the gameplay format to maximize the fun of the final product.

In 2017 we also continue our full productions of RAID, OVERKILLS The Walking Dead, CROSSFIRE Co-Op and Geminose. Our lineup is strong and our teams dedicate their full energy in making the games as high-quality as recent products such as the PAYDAY and Dead by Daylight DLC releases.

Our success is of course shared by and thanks to our partners. Lately we had the pleasure to work with Universal on our PAYDAY Scarface DLCs in December. Additionally, we’ve continued our extremely successful partnership with Lionsgate on two DLCs for PAYDAY and the release of the stand-alone VR game John Wick Chronicles on Steam and in the IMAX VR center. These collaborations are tremendously important to us as we establish Starbreeze as a trusted partner for top-tier brands as well as it gives us an ever-growing community of fans from near and far enjoying and talking about Starbreeze products.

Our publishing portfolio has grown to secure a steady flow of products, big and small, for the upcoming year. We are proud to have signed up Double Fine with Tim Shafer leading the development of their new AAA game Psychonauts 2. We are constantly looking to attract leading teams to our publishing business and 2017 will see a number of these projects initiated by Starbreeze.

It is with great satisfaction that we also can announce that PAYDAY 3 production is officially initiated and at a full design stage. I’d like to especially clarify, that this project will enjoy as much time as we deem needed. It will be done when it’s done. This is our single most important brand today and the cornerstone of our business and we will treat it accordingly. Updates in the near future might be scares and far between. You simply don’t rush PAYDAY 3.

With a team of over 550 talented developers, post the acquisition of Dhruva, we are well staffed for the full productions going forward. With this strategic acquisition our capacity is very satisfying, meanwhile we keep recruiting more game developers to secure quality and talent for the future. Our AAA game productions and our innovative VR pipeline is providing our developers with real challenges and exciting careers. At Starbreeze, we look forward to keep delivering on our games, services and strategy for 2017 and beyond.

Let’s do this!

###

This information is information that Starbreeze AB (publ) is obliged to make public pursuant to the EU Market Abuse Regulation and the Securities Markets Act.

The information was submitted for publication, through the agency of the contact person set out below, at 08:30 a.m. CET on 16 February, 2017

For more information, please contact:

Starbreeze Investor Relations Contact: Maeva Sponbergs, +46 (0)8 209 208 or ir@starbreeze.com

About Starbreeze

Starbreeze is an independent creator, publisher and distributor of high quality entertainment products. With studios in Stockholm, Paris, Los Angeles, Barcelona and Brussels, the company creates games and other virtual reality entertainment products, based on proprietary design and licensed content. Starbreeze’s most recent games include PAYDAY 2®, John Wick VR shooter and upcoming survival co-op FPS OVERKILL’s The Walking Dead. Under its publishing initiative, Starbreeze has together with Canadian studio Behaviour Digital successfully launched horror thriller Dead by Daylight.x

Starbreeze has set out to develop truly immersive virtual reality experiences, by integrating software and hardware in its StarVR® head mounted display, which is produced together with Acer, displaying a unique field of view and a mission to bring top-end VR to large audiences. Together with IMAX, Starbreeze aspires to dominate the location based VR market with the IMAX VR centers. The first IMAX VR center opened in Los Angeles in January 2017.

Headquartered in Stockholm, Sweden, Starbreeze’s shares are listed on Nasdaq Stockholm First North Premier under the tickers STAR A and STAR B with the ISIN-codes SE0007158928 (A share) and SE0005992831 (B share). Remium Nordic is the company’s Certified Adviser. For more information, please visit https://www.starbreeze.com, http://www.starvr.com, http://www.overkillsoftware.com

Attachments