Equity Research - 22 August 2019 06:31 CET

StrongPoint Reason: Initiating coverage Company sponsored research Capitalising on retail megatrends Not rated

 Leading provider of technology solutions to retailers  We see strong growth, driven by margin pressure in retail

 Trading 20% below peers: ’20e adj. P/E 10x, 7% div. yield Share price (NOK) 21/08/2019 1 1 .6

Broad product portfolio and strong position in home markets Information Technology, Norway StrongPoint is a retail technology company that sells a wide variety of STRONG.OL/STRONG NO technology solutions to increase efficiency, reduce theft, enhance customer experience, and facilitate online sales for retailers. Its product MCap (NOKm) 515 portfolio includes electronic shelf labels (ESLs), self-checkout counters, MCap (EURm) 51.6 cash management, and e-commerce solutions. The company also Net debt (EURm) 10 produces security cases for cash-in-transit and adhesive labels, which provides a good cash flow that it can reinvest in the retail technology No. of shares (m) 44.4 business. StrongPoint has strong market positions in Norway, Sweden and Free float (%) 96.8 the Baltics, and aims to grow in selected other markets such as Spain. Av. daily volume (k) 4.7

We expect strong growth, driven by margin pressure in retail The rapid growth in e-commerce is putting pressure on margins for retailers. Performance

For StrongPoint, this creates a double opportunity, because the company 1) 170 delivers technology solutions that help retailers increase their profitability, 160 150 and 2) sells products that enable retailers to develop their own e-commerce 140 offerings. Moreover, cash is still used in 79% of all transactions in Europe, 130 120 creating a need for efficient cash handling. We expect these trends to drive 110 100 7% sales CAGR for StrongPoint from 2018 to 2021e. Combined with NOK 90 30m in cost savings, we expect underlying EBITDA (excl. a positive one-off 80 70

and IFRS16 effects) to double from NOK 46m in 2018 to NOK 96m in 2021e.

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Aug 18 Aug Dec 18 Dec Trading ~20% below peers, ’20e adj. P/E 10x, 7% div. yield StrongPoint OSE GI On our estimates, the StrongPoint share is trading ~20% below the 1m 3m 12m average of its peers. Using the lowest to the highest of peer multiples for Absolute (%) 13.2 19.1 19.8 2019e-2021e, we find an implied price range of NOK 11.4-30.3/share. Our OSE GI (%) -3.3 -6.7 -9.0 DCF valuation returns a price range of NOK 12-19/share. We estimate an Source: FactSet FCF to equity yield of 6.5-9% in 2019e-2021e, which could make room for a dividend yield of 6-8%. This compares with peers at 2-4% in the same period. The key risk to our estimates is weaker sales growth due to slower order intake, which could cause the share to drop.

Lead analyst: Petter Nystrøm Øystein Elton Lodgaard

NOKm 2017 2018 2019e 2020e 2021e 2019e 2020e 2021e Sales 951 1,068 1,127 1,232 1,301 P/E (x) 16.7 13.2 10.9 EBITDA 52 67 93 108 119 P/E adj (x) 11.9 10.0 8.6 EBITDA margin (%) 5.5 6.3 8.2 8.8 9.2 P/BVPS (x) 2.03 1.95 1.87 EBIT adj 20 30 38 53 64 EV/EBITDA (x) 6.6 5.4 4.6 EBIT adj margin (%) 2.1 2.8 3.3 4.3 4.9 EV/EBIT adj (x) 16.3 11.0 8.6 Pretax profit 14 26 39 49 60 EV/sales (x) 0.54 0.47 0.42 EPS rep 0.23 0.30 0.70 0.88 1.07 ROE adj (%) 18.1 21.3 23.5 EPS adj 0.51 0.80 0.98 1.16 1.35 Dividend yield (%) 5.6 6.9 8.2 Sales growth (%) -15.0 12.2 5.5 9.3 5.6 FCF yield (%) 7.0 6.7 9.5 EPS growth (%) -86.5 34.0 129.0 26.2 21.6 Net IB debt/EBITDA 1.0 0.6 0.3 Source: ABG Sundal Collier, Company data Please refer to important disclosures at the end of this report This research product is commissioned and paid for by the company covered in this report. As such, this report is deemed to constitute an acceptable minor non-monetary benefit (i.e. not investment research) as defined in MiFID II. StrongPoint

Opportunities Risks The retail technology market is growing healthily, driven by StrongPoint’s earnings are to some degree dependent on e-commerce and a tough competitive landscape, forcing large product orders. If StrongPoint is unable to win large retailers to adopt new technology solutions to remain contracts from new or existing customers, it could pose a competitive. For StrongPoint, this creates a double risk to its future sales and earnings growth. The Nordic opportunity: 1) StrongPoint delivers technology solutions grocery retail market is highly concentrated and several of that help retailers improve efficiency, and 2) StrongPoint these large chains are StrongPoint customers. Losing one sells e-commerce solutions to physical retailers that have of these customers could result in a significant loss of their own online offerings. StrongPoint has a solid potential repeat business for StrongPoint. As there are some for future growth in Spain, which is a large and fragmented competing products, StrongPoint could be exposed to price market and where the cash share is very high at 87%. pressure from new or existing competitors. Other risk factors include FX, macroeconomy, warranty issues and regulatory risks. Geographical breakdown, sales, NOKm Business area breakdown, sales, NOKm

450 900 400 800 350 700 300 600 250 500 200 400 150 300 100 200 50 100 0 0 Norway Sweden Other Retail Technology Cash Security Labels

Sales Sales

Source: ABG Sundal Collier, Company data Source: ABG Sundal Collier, Company data

Quarterly sales and adj. EBIT, NOKm Company description StrongPoint is a retail technology company that sells a 350 16.0 wide variety of technology solutions that save costs, 14.0 300 increase productivity, reduce theft or facilitate e-commerce 12.0 sales for retailers. Its product portfolio includes electronic 250 10.0 shelf labels, cash management systems, self-checkout 8.0 200 terminals, click & collect lockers and digital e-commerce 6.0 solutions. In addition, it holds strong positions in security 150 4.0 cases for cash-in-transit and in adhesive labels. The 2.0 100 company has strong positions in Norway, Sweden and the 0.0 50 Baltics and is targeting to grow significantly in Spain. -2.0 0 -4.0

quarterly sales quarterly adj. EBIT

Source: ABG Sundal Collier, Company data

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StrongPoint

StrongPoint is primarily a retail technology company that also holds strong positions within adhesive labels and secure cases for transportation of cash. The market for retail technology is growing healthily driven by e-commerce and a tough competitive landscape, forcing retailers to adopt new technology solutions to remain competitive. This has resulted in a 2003-2018 sales CAGR of 8% for StrongPoint and should also continue to drive its growth.

StrongPoint’s core business is to develop and sell technology solutions to retailers that increase efficiency, simplify everyday tasks and enhance the value proposition for their customers. In addition, it holds leading positions within security solutions for cash transit and in design and printing of adhesive labels. These three areas make up the company’s three segments: 1) Retail Technology, 2) Cash Security and 3) Labels. Retail Technology is by far the most important segment, with 71% of group revenues and 72% of the EBITDA. Cash Security had a limited contribution to group EBITDA in 2018, but profitability is set to increase in 2019. Labels is a steady cash generator, which contributes about 25% of group EBITDA. Cash Security and Labels are considered non-core by StrongPoint, and we therefore believe that the businesses may be sold at some point if the price is right.

Overview of business model and segments

Core business Other business areas

Retail Technology Cash Security Labels

Technology solutions for retailers Produces and sells high quality Design and production of adhesive About that increase productivity or security cases for protection of labels for consumer products or improve the shopping experience Cash-in-Transit (CIT) industrial applications

Customers Grocery stores and other retailers Cash handling companies Brand owners

15% Share of total 14% sales (2018) 71%

24% Share of 3% EBITDA (2018) 72%

Business Solid growth outlook and Large fluctuations in sales and Stable sales and EBITDA dynamics profitability, short-term volatility EBITDA contribution contribution

Source: ABG Sundal Collier, StrongPoint

Retail Technology – the real kicker StrongPoint’s core business is to deliver technology solutions to retailers that increase productivity and improve the shopping experience in-store or online. Its product portfolio includes a wide variety of products, such as electronic shelf labels (ESLs), self-checkout counters, cash management hardware and e-commerce solutions. Today, cash management and ESLs are the two most important products

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in terms of revenue and EBITDA contribution, while Click & Collect, self-checkout counters and the E-commerce Logistics Suite are experiencing the strongest growth.

Selected Retail Technology products Retail Technology geographic presence*

Primary markets Partner markets

Electronic shelf labels Self-checkout

CashGuard Click & Collect

Source: ABG Sundal Collier, StrongPoint Source: ABG Sundal Collier, StrongPoint. *StrongPoint also sells products through partners in the US, South Africa and Malaysia.

StrongPoint’s home markets are Norway, Sweden and the Baltics. In addition, it has its own sales organisations in Spain and Germany, which are key focus areas for growth. In addition, it distributes its products in several other European countries through partners.

Cash Security and Labels – a nice cash cow StrongPoint produces and sells Cash-in-Transit (CIT) cases based on Intelligent Banknote Neutralisation System (IBNS) technology for secure cash transportation. Strongpoint is among the global leaders in IBNS technology. If a case is tampered with, the cash is covered a liquid, usually an indelible ink. The typical customers of StrongPoint’s CIT cases are leading cash handling and logistics companies such as Loomis, G4S and Prosegur, or banks.

High quality security cases for Cash-in-Transit Adhesive labels for products and transportation

Source: StrongPoint Source: StrongPoint

The Label segment is one of the leading designers and producers of adhesive labels in Scandinavia. In 2018, Labels had revenues of NOK 166m and an EBITDA of NOK 23m, corresponding to an EBITDA margin of 14%. In addition to Cash

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Security, the company views Labels as non-core and it could be divested for the right price. Typical customers of the Label business are brand owners in the food and beverage, cosmetics, chemicals or manufacturing industries.

Solid track record; EBITDA growth set to accelerate From 2003 to 2018, sales grew at a CAGR of 8%, from NOK 337m to NOK 1,068m. The strong growth has been organic and through several acquisitions, including Antonsongruppen (2004), CashGuard (2008) and Vensafe (2014). EBITDA has not seen the same growth, as it has hovered around NOK 60-80m since 2007, excluding 2015 and 2016. In those years, CashGuard revenues were boosted by the introduction of new banknotes and coins in the Nordics. For 2019, we expect solid growth in EBITDA, i.e. up NOK 25m y-o-y, to NOK 93m driven by 1) impressive H1’19 numbers with underlying EBITDA up NOK 30m y-o-y1, 2) an IFRS16 effect of NOK 23m, 3) cost cuts and 4) supportive markets. This is somewhat offset by tough comparisons in the Cash Security segment in H2’19.

StrongPoint, historical and estimated key figures Key figures NOKm Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19e Q4'19e 2017 2018 2019e 2020e 2021e Revenue 250 276 233 308 288 287 259 292 951 1,068 1,127 1,232 1,301 Underlying revenue growth* 0% 1% 14% 19% 15% 19% 11% -5% -15% 8% 9% 9% 6%

EBITDA 11 18 15 22 28 22 16 27 52 67 93 108 119 Underlying EBITDA* 11 -3 15 22 22 16 10 21 52 46 70 86 96 Underlying EBITDA margin 4.6% -1.1% 6.5% 7.3% 7.6% 5.7% 3.9% 7.2% 5.5% 4.3% 6.2% 7.0% 7.4% Underlying EBITDA growth (NOKm) 1 -10 1 2 11 19 -5 -1 -59 -6 24 16 11

Reported EPS 0.12 0.16 0.07 -0.05 0.30 0.16 0.02 0.21 0.23 0.30 0.70 0.88 1.07 Adjusted EPS** 0.21 0.26 0.15 0.18 0.37 0.23 0.09 0.29 0.51 0.80 0.98 1.16 1.35

Net debt 62 71 72 55 120 107 96 96 51 55 96 69 34

Source: ABG Sundal Collier, StrongPoint. *Excluding NOK 23m in annual IFRS16 effects and NOK 36m in sales and NOK 21m in EBITDA from the sale of 725 CashGuard’s to Alimerka in Q2’18. **Excluding depreciation of intangible assets.

Strong new management team in place In August 2018, after 15 years under the leadership of Jørgen Waaler, Jacob Tveraabak took over the reins as CEO. Prior to joining StrongPoint, he served as CEO of Miklagruppen, worked 12 years for McKinsey & Company and was the Business Development Director at REMA 1000. In February 2019, StrongPoint strengthened its management team further with Hilde Horn Gilen as new CFO, who came from the position as CFO of Ahlsell Norway. In addition, the team consists of Peer Haagensen, Trond Kongrød, Julius Stulpinas, Göran Thörn, Erik Vaag, Roine Gabrielsen, Leif Persson and Lars-Åke Köpper, all of whom have long relevant experience. The chairman, Per-Morthen Johannessen, has held several CEO positions and been COO at Tomra. In our view, the team combines people with deep company and industry knowledge with fresh ideas.

1 Excluding IFRS16 effect of NOK 11.4m in H1’19 and one-off sale to Alimerka of NOK 21.3m in Q2’18. 22 August 2019 ABG Sundal Collier 5

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StrongPoint in the sweet spot The retail environment is changing. E-commerce is taking an increasingly larger share of retail revenues, making it harder for physical retailers to achieve sales growth, which puts pressure on profitability. In this environment, retailers are forced to adopt new technology to improve costs and stay competitive. In addition, physical retailers are launching their own e-commerce offerings. StrongPoint develops and sells such technological solutions via its Retail Technology segment.

For StrongPoint, e-commerce is a double opportunity For StrongPoint, the strong growth in e-commerce creates a double opportunity. First, the pressure on retailers’ profitability is forcing them to adopt technological solutions to increase their profitability and improve the value proposition for their customers. Secondly, retailers are adopting omni-channel as their new distribution strategy and will need solutions that enable them to provide customers with a high- quality, online offering at a low cost. We will analyse these trends below.

E-commerce creates a double opportunity for StrongPoint

Customer need Opportunity for StrongPoint StrongPoint products

Electronic shelf labels, Increased competition from e- StrongPoint provides Self-checkout solutions, commerce puts pressure on technology solutions that 1 CashGuard, Vensafe, retailers’ profitability increase retailers’ profitability ShopFlow Logistics E-commerce Traditional brick & mortar StrongPoint provides e- E-com Logistics Suite retailers wish to establish an commerce solutions for 2 Click & Collect online presence retailers

\ Source: ABG Sundal Collier, StrongPoint

Migration of traffic and sales from store to online… E-commerce has grown rapidly in recent years and now makes up a significant share of global retail trade. In the US, e-commerce now accounts for ~10% of retail sales and it is still growing fast with y-o-y growth of 14% in 2018. E-commerce has also been growing strongly in the Nordics. According to Statistics Norway (SSB), online sales in Norway amounted to NOK 23.3bn in 2018, or 7.2% of total retail sales (excl. groceries). However, this number only includes sales from Norwegian online stores. It does not include imports or online sales from traditional brick & mortar stores (Elkjøp, Power, XXL, etc.), which we estimate could be as much as ~NOK 12bn. On top of this comes service and travel, some NOK 20bn and NOK 50bn respectively, making total e-commerce sales over NOK 100bn in Norway.

US e-commerce sales and share of total retail Norway: E-commerce in % of total retail sales* USDbn % of total retail sales % of total retail sales 700 12% 8% 7.2% 6.9% 600 10% 7% 9% 10% 6.2% 8% 500 6% 5.5% 7% 8% 6% 4.8% 400 6% 5% 5% 4.3% 5% 6% 4.0% 4% 3.7% 3.8% 300 4% 4% 3% 4% 3.3% 3.3% 3% 4% 200 2% 3% 2% 2% 1% 1% 2% 100 1% 2%

0 0% 1%

2000 2001 2002 2004 2005 2006 2007 2008 2009 2010 2011 2014 2015 2016 2017 2018 2012 2013 2003 0% E-commerce sales (lhs) E-com share (rhs) 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Source: ABG Sundal Collier, US Census Bureau Source: ABG Sundal Collier, SSB. *Excluding groceries.

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In the past five years, online sales in Norway have grown by 14% y-o-y on average, significantly outgrowing physical retail stores at 2%. The growth is driven by pure e- commerce retailers, but also traditional brick & mortar retailers venturing online as part of an omni-channel offering. Consequently, store traffic has fallen, hurting retailers’ like-for-like (LFL) sales growth. Below we have shown LFL sales growth for some selected retailers, including shopping centres in Norway.

Norway: E-com vs. physical retail (sales growth) Norway: LFL sales growth, selected retailers

Growth, y-o-y 8% y-o-y 20% 18% 18% 17% 6% 16% 16% 16% 14% 4% 14% 12% 2% 10% 10% 8% 8% 0% 8% 2013 2014 2015 2016 2017 2018 2019e 6% 5% -2% 4% 4% 3% 3% 3% 2% 2% 2% 2% -4% 2% 1% 0% -6% 2010 2011 2012 2013 2014 2015 2016 2017 2018 E-com retail sales growth Physical retail sales growth Kid XXL* Europris Shopping centre Average

Source: ABG Sundal Collier, SSB. All figures are excluding groceries. Source: ABG Sundal Collier, Kvarud, company data.

As can be seen in the graph, LFL sales growth has gone from ~4% in 2013 to ~1% in 2019e (average), highlighting migration of traffic and sales from store to online. For the shopping centre index, groceries are the most important retail sector, accounting for ~30% of sales, highlighting that food retailers are also experiencing a more challenging trading environment. Data from the US also shows that store productivity, measured by sales per square foot, has decreased significantly in the past few years for several large US retailers across categories. As can be seen below, from 2014 to 2017, sales per square foot decreased by 5-10% for several retailers, and by even up to 20-25% for some.

US: Reduced store productivity Sales pr. Square Foot (USD) Change Retail company Category 2014 2017 2014-2017 (%) Urban Outfitters, Inc. Apparel stores $473 $377 -20% Gap Inc. Apparel stores $360 $337 -6% Ascena Retail Group Apparel stores $204 $193 -5% Abercrombie & Fitch Co. Apparel stores $379 $365 -4% L Brands Apparel stores $655 $639 -2% Sears Holdings Department stores $120 $91 -24% Macy's Department stores $163 $147 -10% Kohl's Department stores $168 $156 -7% Dillard's Department stores $123 $117 -5% JC Penney Department stores $102 $102 0% Wal-Mart Stores, Inc. Discount & Variety stores $421 $400 -5% Target Discount & Variety stores $294 $283 -4% Best Buy Electronics stores $770 $759 -1% Bed Bath & Beyond Furniture & Home Furnishing stores $254 $239 -6% Williams-Sonoma Furniture & Home Furnishing stores $395 $392 -1% Sportsman's Warehouse Sporting Goods stores $264 $236 -11% Dick's Sporting Goods Sporting Goods stores $188 $184 -2%

Source: ABG Sundal Collier, company data

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…putting pressure on profitability for traditional retailers Retailers have a relatively fixed costs base short term, as personnel costs normally account for ~50% of the cost base while rent is ~25%. This means close to 75% of a retailer’s cost base is relatively fixed short term and subject to yearly cost inflation. With sales growth under pressure, it is clear that retailers need to concentrate more on costs to defend margins. As can be seen in the charts below, in the last few years slower sales growth (together with gross margin pressure) has resulted in EBIT margin contraction for retailers. Although e-commerce still makes up a relatively small share of the total grocery trade, we see the same margin pressure among Nordic grocery retailers, a core market for StrongPoint.

Nordic: EBIT margins of various retailers Nordics: EBIT margins, grocery retailers

EBIT margin EBIT margin 16% 25% 5.0% 14% 20% 12% 4.5% 10% 15% 8% 6% 4.0% 10% 4% 2% 5% 3.5% 0% -2% 0% 2004 2006 2008 2010 2012 2014 2016 2018 3.0% 2012 2013 2014 2015 2016 2017 2018 BYGGmax Kappahl XXL Clas Ohlson H&M Europris Axfood ICA group Rema 1000 Norgesgruppen

Source: ABG Sundal Collier, FactSet, company data Source: ABG Sundal Collier, FactSet, proff.no, company data

Declining margins requires investment in new technology Historically, the retail sector has lagged other industries when it comes to adopting new technologies, but now customer expectations and increased competition are forcing retailers to invest more in new technologies and digitalization. According to a survey conducted by VoucherCodes and WBR Insights, 55% of retail executives in the UK and France have plans to invest in “technology in-store”, as seen below. This was the most important investment area for the retailers after investing in mobile technologies (apps, coupons, mobile payments, etc.). Another key demand driver for retail technology is consumer demand for an increasingly digitalised, personalised and convenient shopping experience. According to Riverbed’s Retail Digital Trends Survey (as seen below to the left), automated checkouts are the number one in-store technology that consumers want, while smart shelves were the second most wanted technology (both provided by StrongPoint).

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Retailers’ plans for technology investments What consumers want from in-store technology

Share of respondents 90% Automated checkout 36% 80% 75% 70% Smart shelves with sensors to 55% 29% 60% maintain inventory 50% 47% 40% 29% VR/augmented reality 23% 30% 20% 10% 7% 0% Pop-up store openings 22% 0% Mobile In-store AR, AI, etc. Revamping Nothing Don't see technology online planned the value 0% 10% 20% 30% 40% 50% presence Share of respondents

Source: ABG Sundal Collier, VoucherCodes, WBR Insights, Source: ABG Sundal Collier, Riverbed Retail Digital Trends Survey eMarketer.com. Survey conducted in UK and France in Q2’18. 2019. 3,000 consumers surveyed in the US, Germany and Australia.

StrongPoint already sells several products that increase automation in stores and reduce labour costs for retailers, including self-checkouts and electronic shelf labels (ESL). Actually, according to Mckinsey & Company, ESLs and self-checkout terminals are among the automation technologies available today that have the biggest effect on man-hours in retail2.

Given our discussion, retailers are expected to increase investments in in-store technology to improve their cost position/efficiency. In particular, ReportLinker expects the global ESL market to grow at a CAGR of 24% up to 2023, driven by a general trend for retail automation and ESLs being a more cost-efficient alternative to paper labels. In our view, growth will likely be much lower in the Nordics, as many grocery retailers and some other retailers have already adopted ESLs. However, we expect the growth to be much higher in Spain and the Baltics, where penetration is currently low. Also, Global Market Insights expects self-checkout systems to grow at a CAGR of 8% to 2024, reaching a market value of over USD 4bn, almost double from 2016.

Global: Market for electronic shelf labels Global: Self-checkout system market USDm USDbn 1,800 CAGR 24% 4.5 1,600 4.0 1,425 1,400 3.5 1,200 3.0 1,000 2.5 800 2.0 600 1.5 392 400 1.0 200 0.5 0 0.0 2017 2023 2016 2017 2018 2019 2020 2021 2022 2023 2024

Source: ABG Sundal Collier, ReportLinker Source: ABG Sundal Collier, Global Market Insights

StrongPoint has leveraged the relationships it has established with large grocery chains in the Baltics through sales of POS systems to take a high market share in self-checkout solutions (SCOs) in the region. These are either sold in partnership with NCR, where StrongPoint provides software to NCR’s hardware, or StrongPoint’s own solutions, where it delivers both hardware and software. Our study of the

2 McKinsey & Company: Automation in retail, May 2019

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market reveals that Maxim, Coop and Rimi (StrongPoint customers) on average have rolled out SCOs in only ~20% of their stores. A typical Baltic supermarket has 15-25 SCOs per store. This suggests that there is still large untapped potential in the region. StrongPoint delivered a large order of 82 own SCOs in 2018 and another 123 in H1’19. It has sold many more NCR terminals with StrongPoint software.

Baltics: Share of stores with self-checkout Baltics: StrongPoint sales of own SCOs

Number of stores Number of Self-checkout terminals 600 250

485 500 200

400 333 150 123 300 268 192 200 100 205

100 60 50 3 82 0 Maxima Coop Rimi 0 Total Stores with self-checkout 2018 H1'19 Total \ Source: ABG Sundal Collier, Rimi, Coop, Maxima Group Source: ABG Sundal Collier, StrongPoint

In Q1’19, StrongPoint announced that it had entered into a partnership with Harting Systems for the development and distribution of new self-checkout solutions to the German market. Harting Systems is a retail technology producer with a strong presence in the German market.

Traditional retailers moving into e-commerce Many traditional physical retailers are now launching their own e-commerce solutions. By developing their e-commerce offerings, retailers can take part in the growth of e-commerce, but they can also drive more foot traffic to their physical stores. According to a survey by Riverbed, 47% of consumers say that they have visited a store for the first time because of a good online shopping experience. As StrongPoint’s main market is groceries, we will focus our analysis on this. Online shopping is still in its early days in groceries, but made up ~2% of the US market in 2016. In Norway, the online grocery market has been pioneered by a start-up called Kolonial.no. It has grown significantly since its launch in 2014 and has captured 0.5% of the total grocery market (2018). Although the online grocery turnover is still limited in Norway, the incumbent grocery chains will need to speed up their investments in e-com or risk losing significant market share to players like Kolonial.no.

Kolonial.no sales and market share (Norway) US: Online share of total sales by category NOKm Market share Share of total sales (%) 35 33 1,000 919 0.8% 32 900 30 28 28 801 0.7% 24 800 25 0.6% 21 700 19 19 18 0.5% 0.5% 20 17 600 0.5% 15 15 13 500 424 0.4% 12 9 10 400 0.3% 10 6 6 5 300 0.2% 3 0.2% 5 2 200 0.6 75 0.1% 0 100 14 2011 2016 2021 0 0.0% Food & Alcohol Drugs, Health & Beauty Furniture 2014 2015 2016 2017 2018 Footwear & Apparel Toys & sports Entertain- ment Sales Market share Electro- nics

Source: ABG Sundal Collier, proff.no, SSB Source: ABG Sundal Collier, Statista, Kantar Retail

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An up-and-coming solution that retailers have begun to adopt is Click & Collect lockers, whereby consumers can pick up goods that they purchase online. According to OC&C Strategy Consultants, the Click & Collect market for retail is projected to grow strongly until 2025. It has also started to gain popularity in grocery retail, with several large grocery chains across Europe now piloting the solution. In the UK, changing buying patterns are expected to result in a doubling of the home delivery and Click & Collect markets by 2025. In 2015, home delivery made up the majority of the sales at GBP 36bn, while Click & Collect only accounted for GBP 6bn in sales. The Click & Collect market, however, is expected to grow more rapidly in coming years and amount to GBP 23bn, or ~10% of total grocery retail sales in 20253. This would correspond to a CAGR of 15% over the 10-year period. Other industry experts support this by arguing that one of the main future changes in retail grocery stores will be an expansion of pickup areas, whereby customers can collect online pre-ordered items4.

UK online grocery retail by type UK grocery retail sales by type

GBPbn 80 100% 1% 69 3% 10% 70 9% 19% 80% 60 30%

50 60% 40 36 90% 40% 78% 30 23 60% 20 15 20% 10 6 1 0 0% Home delivery Click & collect 2005 2015 2025 2005 2015 2025 In store Home delivery Click & collect

Source: ABG Sundal Collier, OC&C Strategy Consultants Source: ABG Sundal Collier, OC&C Strategy Consultants

StrongPoint has its own Click & Collect lockers with separate ambient, cooling and freezing compartments well suited for online grocery sales. Since the launch of the product in the beginning of 2017, StrongPoint has installed over 100 lockers in Sweden, Norway, Russia, Lithuania, Estonia, Italy and Spain.

3 OC&C Strategy Consultants 4 Bain & Company, Grocery Retailing, reimagined, 2018

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Cash is still king

Cash is still the most used form of payment in most regions of the world. In fact, 79% of all transactions in Europe are done in cash. For the average retailer, handling cash can be time-consuming and an additional risk to the business. CashGuard is a cash management system that improves money security by offering a complete solution for efficient, secure and closed cash handling. StrongPoint delivers CashGuard through its Retail Technology segment and is a market leader with over 30,000 machines installed to date. With a cash share of 87%, Spain is a key growth market for CashGuard.

Cash: Still the preferred payment method For the average retailer, handling cash is time-consuming and an additional risk to the business. Counting, storing/handling, and depositing cash requires time, manpower and security measures. Theft, robbery and fraud are just some of the risks retailers face when accepting cash payments. A reliable and affordable cash- handling solution can reduce these risks and improve efficiency for retailers. For Norway and Sweden, the share of cash is low, as only ~12% of all transactions are done in cash. This is in sharp contrast to many other countries in Europe, where the figure is over 80%. Actually, cash is still the most used form of payment in most regions of the world, and cash in circulation (CIC) is still growing.5

Cash share of transactions by country (2016) Interchange fee per country

% of transaction value Greece 88% 0.3% Spain 87% Italy 86% 0.20% 0.2% Portugal 81% Germany 80% Euro Area 79% 0.2% France 68% Finland 54% 0.1% UK 44% Sweden 13% 0.1% 0.03% Norway 11% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 0.0% Cash share of transactions EU Norway

Source: ABG Sundal Collier, European Central Bank, Norges Bank. Source: ABG Sundal Collier, Norges Bank, European Commission. In 2018 for Norway and Sweden, 2017 for Denmark. Markets where Norway, the fee is NOK 0.1, which is equal to 0.03% of the average StrongPoint sells CashGuard are marked in brown. card transaction value of NOK 350.

The Nordic countries, such as Norway and Sweden, clearly distinguish themselves from the rest of Europe, with cash shares of 11% and 13% respectively. There are two reasons for this: 1) a technology savvy population that have been early to adopt new technological solutions and 2) the Nordic countries have reduced card transaction costs significantly through a shared payments infrastructure. This has resulted in low fees for card transactions. In Norway, this fee is only NOK 0.1 per transaction, or 0.03% of the average transaction value of NOK 350. The interchange fees6 on the European continent have been much higher than in the Nordics due to structurally higher costs for payment processing. Following a recent EU battle with Visa and Mastercard to lower interchange fees, there will be a new ceiling on these fees of 0.20% in the EU. This is lower than it is today, but still well above the level in the Nordics.

5 According to the G4S cash report from 2018 6 The fee paid per card transaction

22 August 2019 ABG Sundal Collier 12

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Cash to be the preferred payment method Some habits die hard, including the Spaniards’ preference for paying with cash (87%). According to the chief cashier at the Spanish central bank, the average Spanish consumer prefers to pay with cash due to the convenience and control they have over their spending7. Although cash withdrawals have declined in several other countries, ATM withdrawals in Spain have been flat for the past decade. In addition, debit and credit cards are usually not accepted for transactions worth less than EUR 6 at Spanish pharmacies. Germany is another European country where cash is still the preferred form of payment (80%) and likely will continue to be so in the foreseeable future. According to the ECB, the average German wallet contains EUR 103, which is the highest figure in Europe and three times the figure in France. This is another example showing that cash is still the preferred payment method in many countries.

Spain: ATM withdrawals Europe: Value of money in an average wallet EURbn Germany 103 140 Austria 89 120 Greece 80 100 Italy 69 Ireland 69 80 Belgium 58 60 Finland 56 Spain 50 40 Netherlands 44 20 France 32 0 Portugal 29 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 0 30 60 90 120 Euros

ATM Withdrawals Source: ABG Sundal Collier, The PYMNTS.com Global Cash Index – Source: ABG Sundal Collier, Bloomberg, European Central Bank, Spain Edition (2018) Deutsche Bundesbank, De Nederlandsche Bank

It is also interesting to see that cash withdrawals in Sweden have stayed relatively stable in recent years after declining from 2013/2014 levels. Furthermore, despite cash making up only 13% of transactions in Sweden, cash is still in broad use across the population. In 2018, 61% of Swedes reported that they had used cash as a means of payment in the last month.

Sweden: Number of ATMs and cash withdrawals Sweden: Payment forms used in the past month

Number of ATMs SEKbn Share of respondents

4,000 300 100% 93% 93% 93% 90% 87% 3,500 3,237 3,231 3,285 79% 250 80% 3,000 2,850 219 213 2,655 70% 200 61% 62% 2,500 60% 52% 2,000 153 150 50% 130 40% 1,500 110 100 30% 1,000 20% 50 10% 500 10% 0 0 0% 2013 2014 2015 2016 2017 Cash Debit card Mobile payment Number of ATMs Transaction value 2014 2016 2018

Source: ABG Sundal Collier, Sveriges Riksbank Source: ABG Sundal Collier, Sveriges Riksbank. Survey of 2,000 Swedish inhabitants.

7 PYMNTS.com - For Payments In Spain, Cash Still Reigns 22 August 2019 ABG Sundal Collier 13

StrongPoint

Untapped market potential in Spain Besides growing within its core market (Norway, Sweden and the Baltics), one of StrongPoint’s key focus areas is to grow its presence with retailers in Spain and Germany. In our view, these retail markets are particularly interesting as 1) they are significantly larger than the Nordic markets, 2) they are much more fragmented than the retail market in the Nordics, 3) they still have a high cash share of transactions (87% and 80%, respectively), 4) they are only in the early stages of adopting advanced retail technologies and 5) they are countries where StrongPoint already has a presence.

As seen below, Spain is the 5th largest grocery market in Europe, with EUR 111bn in total sales in 2017. This compares to EUR 24.5bn in Norway and EUR 29.6bn in Sweden. There were a total of 449 retail chains in Spain in 2018, with Fashion & Clothing as the largest category, with 115 retail chains. Food was the second- largest category, with 60 different retail chains and with the top three chains in Spain only control 39% of the market (vs Norway where three players control ~98%). In total, there are more than 22,000 supermarkets in Spain.

European grocery turnover by country Spain: Number of retail chains by sector (2018)

Germany 239 Fashion & Clothing 115 France 225 Food 60 UK 216 Footwear & Leather 54 Italy 175 Personal Care 45 Spain 111 Consumer Electronics 41 Poland 63 Furniture & Decoration 36 Netherlands 49 Jewelry & Watches 31 Belgium 41 Sport & Leisure 30 Switzerland 40 Home Ware 28 Romania 33 Baby Ware 26 Sweden 30 Toys & Games 23 Ukraine 27 DIY & Gardening 23 Austria 25 Books & Magazines 18 Norway 25 Car Parts & Accessories 16 Czech R. 23 Petrol 14 Denmark 20 Optical 12 Portugal 19 Telecom 8 Finland 18 Pet Care 4 0 50 100 150 200 250 0 30 60 90 120

EURbn Number of retail chains

Source: ABG Sundal Collier, IGD Datacentre, NHH Source: ABG Sundal Collier, Statista

In addition to the ~22,000 supermarkets, StrongPoint’s target market in Spain also includes ~11,000 bakeries8, ~22,000 pharmacies9, ~11,000 gas stations10 and ~280,00011 bars and restaurants.

As discussed, Spain has a very high usage of cash, with 87% of all transactions made in cash. This should create an opportunity for StrongPoint’s CashGuard products. As an example, the Spanish chain Alimerka decided to buy 725 CashGuard machines that they had been leasing from StrongPoint in Q2’18. This deal alone accounted for 32% of StrongPoint’s 2018 EBITDA. According to StrongPoint, there were approximately 5,000 cash management systems installed in Spain at the end of ’18. Below we have shown a simplified calculation of the market potential for Strongpoint’s CashGuard in the Spanish grocery sector. Assuming a

8 Spain's National Statistics Institute (INE) 9 Canifarma, Statista. 10 Expatica.com, elEconomista.es 11 Thelocal.es, thinkSPAIN.es 22 August 2019 ABG Sundal Collier 14

StrongPoint

70% penetration rate, a 40% market share for StrongPoint and machines installed over 10 years, we estimate that it could lift StrongPoint’s revenues by 20% annually. On top of this comes the potential for sales to bakeries, pharmacies, gas stations, bars and restaurants.

Estimated potential for CashGuards in Spain Estimated number of CashGuards per market Spain potential Number of CashGuards (1,000) Number of supermarkets 22,000 CashGuards per supermarket* 4.3 30 ~5k Penetration rate 75% 25 Total maket potential 70,950 ~2k Installed CashGuards** 5,000 20 ~5k Remaining to install 65,950 15 ~30k Market share 40% ~8k Price (NOK) 60,000 10 Product sales potential 1,583 5 Sales per year (over 10 years) 158 ~10k Service revenue (30%) 55 0 2018 revenue 1,073 Norway Sweden Spain France Rest of Europe World total Increase vs. 2018 20%

Source: ABG Sundal Collier, Statista, StrongPoint. *Alimerka has 4.3 Source: ABG Sundal Collier, StrongPoint. Norway, Sweden and rest of CashGuards per store. **Installed as of year-end 2018. Europe are ABGSC estimates.

StrongPoint is moving towards more sales of CashGuard on a rental solution, called Easy Access. This reduces the initial capex for smaller retailers and could open up a larger share of the market for StrongPoint. As far as we know, StrongPoint is currently the only player that provides cash management machines through a rental solution. This option is also open for sales through StrongPoint’s partners (RoadRunners). Easy access has started to gain good momentum in Spain, and sales would have been NOK 5.5m higher in Q2 if the systems were sold instead.

Recent growth initiatives In July 2019, StrongPoint announced that it had entered Portugal for the first time through a partnership agreement with Exclusivas Iglesias. According to the company, Portugal is a natural stepping stone from Spain. The agreement gives Exclusivas Iglesias the exclusive right to sell StrongPoint’s cash management solutions to small retail and hospitality customers in Portugal and the non-exclusive right to sell all other of StrongPoint’s solutions in Portugal. Exclusivas Iglesias has a wide distributor network, with 60 employees, of which 15 are in Portugal and seven large partners in Spain. It has committed itself to sell at least 100 Cash Management units in Portugal per year. The aim is that the partnership with Iglesias will also open the Portuguese market to StrongPoint’s other solutions within self- checkout, instore productivity and e-commerce. It is StrongPoint’s strategy to partner up with distributors that already have a solid foothold in the markets they enter and it is therefore likely that, in our view, it will enter into several partnerships in Portugal.

22 August 2019 ABG Sundal Collier 15

StrongPoint

Retail Technology segment – positioned for strong growth The Retail Technology segment supplies a variety of technology solutions to retailers that improve efficiency and enhance the customer experience. Several products, including electronic shelf labels, Click & Collect lockers and self- checkout counters, are expected to show strong growth in the coming years. Recurring service and licence revenues account for one-third of the segment’s sales, while product sales account for the remaining two-thirds.

StrongPoint’s largest and most important segment is the Retail Technology segment, accounting for ~70% of EBITDA. It supplies a diverse range of products to retailers that help them improve profitability, lower the risk of theft, enhance the customer experience or venture into e-commerce. Today, cash management and electronic shelf labels (ESLs) are the two products with the biggest impact on the company’s revenues. An overview of the product portfolio is illustrated below.

Retail Technology product overview

Click & Collect E-commerce Logistics Suite Self-checkout Vensafe

CashGuard ShopFlow Logistics Electronic shelf labels Real-Time Task Manager

Source: ABG Sundal Collier, StrongPoint

The company has three focus areas for growth, which are shown below.

StrongPoint has three strategic focus areas

Strategic focus areas

1 2 3 Maintain and grow Significantly grow relevance with retailers Grow e-commerce into a presence with retailers in current key markets of substantial portion of Spain to mirror home Norway, Sweden and the Strongpoint’s business market penetration Baltics

Source: ABG Sundal Collier, StrongPoint

22 August 2019 ABG Sundal Collier 16

StrongPoint

The first focus area is to maintain and increase its relevance to retailers in Norway, Sweden and the Baltics. StrongPoint has a strong position in the Nordics and close business relationships with many grocery chains. This connection should help the company to sell additional products to existing customers. StrongPoint has good momentum in terms of self-checkout terminals in the Baltics while it has also slowly started to roll out ESLs in the region. Secondly, the company aims to significantly increase its presence in Spain. In particular, we see solid potential for cash management solutions in Spain because of the high share of cash transactions there. Thirdly, StrongPoint aims to grow e-commerce into a substantial portion of its business. Its current portfolio of e-commerce solutions focus on grocery retailers that sell goods online for store pickup, but it is aiming to expand its portfolio to include other areas.

One-third of revenue is recurring, the rest is lumpy Sales are split among product sales, recurring service and licence revenues. Product sales are lumpier by nature and can swing significantly from quarter to quarter depending on the timing of large orders. For example, Q2’18 sales and EBITDA received a boost when the Spanish chain Alimerka bought 725 cash management machines, which it had previously rented (this increased sales and EBITDA by NOK 36m and NOK 21m, respectively, in Q2’18). Large orders such as these tend to recur on a frequent basis and can often make up a significant share of annual EBITDA. Service and licenses represent recurring revenues such as service and repair fees, software licenses and leasing. In 2018, 64% of segment revenues were product sales, while 36%, or NOK 280m, were recurring service and license revenues. In addition, product sales include some replacement sales, which can be considered as recurring revenue on a quarterly basis.

Retail Technology: Sales and EBITDA Retail Technology sales split by region (2018) NOKm Share of revenues 250 50% 222 214 213 14% 189 196 45% 200 183 179 177 161 32% 145 40% 150 38% Sweden 35% 35% Norway 33% 24% 100 31% EMEA/partners 30% Baltics 50 29 23 25 25% 14 9 9 14 17 11 11 0 20% Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 30% Retail Technology EBITDA Recurring revenue share

Source: ABG Sundal Collier, Strongpoint Source: ABG Sundal Collier, Strongpoint

Strong market growth for ESLs StrongPoint distributes ESLs manufactured by the Swedish company Pricer12. This is one of StrongPoint’s most important products. ESLs are digital shelf-edge labels based on infrared (IR) technology that replace traditional paper shelf labels. By using IR technology, the ESLs offer a quick response time and low power consumption compared to competitors. The ESL enables automatic, real-time price updates, which saves retailers significant time and costs related to manual price changes. ESLs have a high cost of installation and can contribute significantly to product sales. Installation in a single large supermarket could mean NOK 3-5m in product sales. There is limited revenue from in-store service, but StrongPoint has some recurring revenue from online support agreements.

12 Pricer is a global leader in ESLs with over 165m labels installed in +16,000 stores in over 50 countries 22 August 2019 ABG Sundal Collier 17

StrongPoint

Electronic shelf label (ESL) Key functionality of Pricer’s ESLs

Flash Alert Shelf interactivity Geofencing

Source: Pricer Source: Pricer

The ESLs can be connected to wireless devices, which enables a variety of add-on features. These include flashing when the product is out of stock, “geofencing” and sending detailed product information to the shopper’s phone. Another feature is “Pick & Collect”, which can be used in combination with StrongPoint’s Click & Collect lockers. Pick & Collect plans the optimal route for the picking process using the geofencing ability and highlights the products to be picked with the Flash function. Please see the appendix for more information about these features. Unfortunately, StrongPoint does not disclose revenues from ESLs, but Pricer obviously does. As seen below Pricer has achieved high sales growth in the past 10 years. Pricer’s sales in the Nordics, particularly in Norway, should give a good indication of StrongPoint’s ESL sales, since StrongPoint is the main reseller for Pricer in the Nordics and exclusive distributor in Norway. The years 2012 and 2015 were very strong for sales of ESLs in Norway due to the roll-outs of ESLs to Rema 1000 in 2012 and Meny and Coop in 2015. From 2016 to 2018, sales in Norway grew by a CAGR of 20%. The ESL batteries can last up to 10 years, but the tags are less durable and typically need to be replaced every 5-7 years at a cost of ~USD 5 per ESL. This should mean replacement sales every 5-7 years. Pricer: Group sales (historical and estimates) Pricer’s sales in Norway and Sweden SEKm SEKm 1,400 250 218 1,200 200 1,000

800 150

600 99 100 87 400 69 60 50 200 50 37 30 31 34 18 19 16 14 20 0 10

0

2007 2008 2009 2011 2012 2014 2015 2016 2018 2010 2013 2017

2006 2011 2012 2013 2014 2015 2016 2017 2018

2020e 2021e 2019e Norway Sweden sss Source: ABG Sundal Collier, Pricer Source: ABG Sundal Collier, Pricer

In Sweden, sales have been more stable due to a higher degree of franchise stores, which makes chain-wide roll-outs less likely to happen. Sales growth has also been solid in Sweden, with a CAGR of 9% since 2008. However, sales in Sweden have only been SEK 182m since 2011, compared to SEK 631m in Norway. Pricer has been able to achieve a higher market share in Norway than in Sweden, which is likely somewhat due to StrongPoint’s good relationship with the major Norwegian retailers. Pricer is one of the two market leaders in ESLs globally, but the market is

22 August 2019 ABG Sundal Collier 18

StrongPoint

highly competitive. Pricer distinguishes itself from its competitors due to the IR technology, which gives a longer battery life and enables add-on features13.

Cash management StrongPoint’s cash management product, called CashGuard, provides a closed cash-handling system that counts, seals and secures the cash it receives from the customer at the checkout counter and in the back of the store. Cash-handling efficiency and security is an important issue for many retailers. The CashGuard significantly reduces the amount of manual cash-handling and thereby increases efficiency, removes potential loss from miscalculations and enables the store personnel to focus on customer service. In addition, it can remove issues related to theft, especially from own employees.

CashGuard Premium Coin Recycler CashGuard Premium Note Recycler

Source: Strongpoint Source: Strongpoint

Gunnebo estimates the global market for cash management solutions to be worth SEK 15bn and to grow at a CAGR of 5% until 202014. There are several competitors to StrongPoint globally, including Diebold Nixdorf, Glory, Cashlogy and Suzohapp, but StrongPoint has a very high market share in the Nordics, particularly in Norway. Gunnebo seems to be its strongest competitor in the Nordics and has, among others, delivered machines to Coop and Circle K.

The CashGuard is one of the company’s two most important products today and accounts for a relatively decent share of the segment’s revenues. However, it may also be one of the key growth drivers. The share of store purchases that are made in cash is still at between 60% and 80% in almost every European country. The exceptions are the Nordic countries, which have a low share of cash transactions due to low card fees and a high rate of technological adoption. The list price for a CashGuard Premium is NOK 80,000-100,000 per machine (excluding discounts). In addition, it has a product called CashGuard Unico that it sells at a lower price point. However, StrongPoint is now moving towards a rental solution (Easy Access) in Spain as this obviously reduces the initial capex for smaller retailers.

Self-checkout solutions – one of StrongPoint’s fastest-growing products Self-checkout solutions represent one of Strongpoint’s fastest-growing product categories. StrongPoint develops and sells both registers and software, which can be bought either together or on a stand-alone basis. Self-checkout registers are particularly well suited for stores with a high number of customers with small and medium-sized shopping carts. For the customers, it increases the speed of the store

13 Key competitors ranked in order of sales: SES imotag (about equal to Pricer in size), Henchao, SoluM, DisplayData and ALTJR. 14 Gunnebo annual report 2018

22 August 2019 ABG Sundal Collier 19

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visit, and for the retailers it significantly reduces cost of staffing. One store employee can handle up to eight self-checkout registers single-handedly.

Self-checkout registers Self-checkout register software

Source: Strongpoint Source: Strongpoint

As can be seen below, it is not only within retail that self-checkout systems are expected to see growth. Looking at the UK as a proxy for the European market, we see that several sectors are expected to see material growth for self-checkout solutions. Deployment of self-checkout solutions has also started to pick up in the European grocery sector, with installations at (among others) several Nordic grocery chains. Lidl has also started to pilot self-checkout solutions in several European countries, including France, and Poundland has started pilots in the UK15.

UK self-checkout system market by application Market shares of self-checkout system vendors USDm 180 5% 5% 2% 160 4% 140 9% 7% NCR 120 Toshiba 100 Diebold Nixdorf 80 6% 6% 8% Fujitsu 60 21% 3% 61% Digi 40 20 Others 0 Retail Hospitality Entertain- Travel Healthcare Others ment 2016 2024

Source: ABG Sundal Collier, Global Market Insights Source: ABG Sundal Collier, Global Market Insights

NCR is the largest vendor of self-checkout solutions globally with 61% of shipments in 2017, followed by Toshiba with 21% of the market. Diebold Nixdorf has a particularly strong position in Europe, where it has a ~30% market share. In the Nordics, ITAB Shop Concept holds a strong position as the market leader in Norway and Sweden. StrongPoint seems to have taken a solid position in the Baltics with deliveries to several major grocery chains such as Maxima, Coop and Rimi.

15 https://www.rbrlondon.com/wp-content/uploads/2018/06/SCO_Press_Release_250618.pdf

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Click & Collect StrongPoint provides Click & Collect pickup stations for the grocery sector; this enables customers to shop for groceries online and later pick them up at a physical store location, eliminating the need to wait for home delivery. The purchased goods are stored in lockers inside or outside the store. Then the customer receives a text message with a code to open it. Placing the lockers outside the store enables the customer to pick up the goods outside of the store’s opening hours.

There are many companies that provide Click & Collect lockers, but StrongPoint seems to distinguish itself from some by offering lockers with cooling and freezing. The list price for a locker can vary, but would be around NOK 300,000 for a small locker equipped with both cooling and freezing compartments. Since the launch of the product in the beginning of 2017, StrongPoint has installed over 100 Click & Collect lockers in Sweden, Norway, Russia, Lithuania, Estonia, Italy and Spain.

Click & Collect pickup stations

Source: Strongpoint

StrongPoint’s Click & Collect solution can also allow for selling of age-restricted items online to be collected from Click & Collect lockers without the assistance of the store attendants. When collecting the purchases, the customer confirms his age via the Yoti age verification app. Upon successful verification, the respective locker door unlocks, and the items can be collected.

E-commerce Logistics Suite and ShopFlow Logistics Suite In 2017, StrongPoint acquired Cub Systems, which had developed logistics solutions for retailers. The E-commerce Logistics Suite is a software solution that handles and optimises the entire product flow of e-commerce, including route planning, pickup and delivery either at home, or at a Click & Collect locker. ShopFlow Logistics manages the entire picking process for goods purchased online for delivery in a grocery store. StrongPoint is now investing in developing the E- commerce Logistics Suite further to increase its scalability and enable it to be distributed on a Software-as-a-Service (SaaS) basis.

22 August 2019 ABG Sundal Collier 21

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Use of ShopFlow Logistics to pick groceries E-commerce Logistics Suite route planning

Source: StrongPoint Source: StrongPoint

StrongPoint is one of the market leaders for these logistics systems in the Nordics16 and has several of the largest retailers as customers, including Coop Sweden and Glitter. In total, over 15,000 installations of the solution have been done in several European countries, including 350 Axfood stores, 250 Swedish Coop stores and 400 OKQ8 gas stations. It is also in use at Coop’s main warehouse for deliveries of online orders, a 6,000m2 large warehouse that was opened in Stockholm in 2017.

Vensafe Vensafe stores high value products such as tobacco, razors and medical equipment in a separate dispensers outside of the checkout registers. These products are typically among the most stolen items from stores, which is solved by storing them in the safe Vensafe dispenser. The customer simply browses for and selects the product she is interested in at the Vensafe kiosk, pays at the register and picks up her goods at the dispenser. Another feature of the Vensafe is that it provides the retailer with full inventory control as stock levels are monitored automatically. The list price for a Vensafe solution is ~NOK 150,000.

Vensafe dispenser Vensafe kiosk

Source: Strongpoint Source: Strongpoint

Demand for Vensafe solutions is also driven by regulatory scrutiny on sales and in- store marketing of tobacco products. In Norway, for example, the law states that tobacco products needs to be kept out of sight for the consumer. In May 2020, the new EU tobacco directive will come into force, which could potentially drive additional demand for Vensafe solutions.

16 StrongPoint

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Estimates

We forecast sales growth of 6-9% in 2019-2021 driven by Retail Technology. Combined with NOK 30m in cost savings and NOK 23m in annual IFRS16 effects, we expect EBITDA to increase from NOK 67m in 2018 to NOK 93m in 2019, and further to NOK 108m in 2020 and NOK 119m in 2021.

We forecast sales growth of 6%, 9% and 6% in 2019, 2020 and 2021, respectively, driven by strong momentum for Retail Technology. This compares to 9% growth y- o-y in H1’19, which would be 16% adjusted for the one-off sale to Alimerka in Q2’18. In 2018, revenue growth was 8% adjusted for the same one-off.

StrongPoint, historical and estimated sales StrongPoint, underlying EBITDA*

NOKm NOKm 1,400 ABGSCe 120 ABGSCe

1,200 90 1,000

800 60 600

400 30 200

0 0

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019e

2020e

2021e

2019e

2020e 2021e

Source: ABG Sundal Collier, StrongPoint, Factset Source: ABG Sundal Collier, StrongPoint, Factset. *Excluding IFRS16 effects of NOK 23m and the Alimerka one-off of NOK 21.3m

In the second half of 2018, StrongPoint launched a new cost savings programme, which it expects to generate NOK 30m in annual savings, with full effect from 2020. Key initiatives in the programme include conversion of own offices in Belgium, France and Malaysia to partner offices. If we add the NOK 30m in cost savings and NOK 23m in annual IFRS16 effects to 2018 EBITDA of NOK 67m, we find EBITDA potential of NOK 120m. However, this excludes the upside potential from future growth.

EBITDA margin EBITDA after cost savings vs. ABGSC estimates

EBITDA margin NOKm 14% ABGSCe 140 ABGSCe 12% 120 30 10% 100 8% 80 23 6% 60 120 119 108 4% 93 40 2% 67 20 0%

0

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016 2017

2018 2018 IFRS16 Cost "New" 2019e 2020e 2021e

2019e

2020e 2021e EBITDA margin Average EBITDA effect* savings EBITDA

Source: ABG Sundal Collier, StrongPoint Source: ABG Sundal Collier, StrongPoint. *H1'19 EBITDA effect of 11,375m annualised.

In H1’19, StrongPoint delivered strong results, with an increase in reported EBITDA of NOK 20m y-o-y. This is even more impressive if we look at the underlying

22 August 2019 ABG Sundal Collier 23

StrongPoint

EBITDA, which was up NOK 30m y-o-y17. The good momentum seems set to continue into H2’19, with continued rollouts of ESLs and Vensafe upgrades in Norway, combined with good order momentum in other markets. However, StrongPoint will face tough comps y-o-y in H2’19, among other things due to a large order for CIT security cases, which boosted the Cash Security EBITDA in Q4’18. For 2019, we expect the EBITDA margin to increase to 8.2%, from 6.3% in 2018. IFRS16 effects alone should lift the EBITDA margin by 2pp. This corresponds to an increase in EBITDA of NOK 25m y-o-y, to NOK 93m. In 2020 and 2021, we estimate that StrongPoint will continue to grow its EBITDA by NOK 16m and NOK 11m, respectively, to NOK 108m and NOK 119m.

Labels – a steady cash generator In 2018, Labels had revenues of NOK 166m and EBITDA of NOK 23m, giving an EBITDA margin of 14%. Labels is StrongPoint’s most stable segment, with less dependence on large orders. From 2013 to 2017, the Scandinavian market for adhesive labels grew at a CAGR ~4.0%18. Food and beverages were the largest application area for adhesive labels in 2017, with 35% of the global market. In Norway, grocery retail grew at an average rate of 3.3% between 2013 and 2018. People are increasingly demanding convenience and quality food products, resulting in increased demand for in-store packing of products. In addition, higher standards for product information such as nutritional content and expiry dates are driving demand for adhesive labels.

Labels: quarterly revenues and EBITDA Grocery retail growth, Norway

NOKm Growth, y-o-y 240 5% ABGSCe 4.3% 200 3.9% 175 176 4% 166 164 171 3.6% 160 3.2% 3.1% 3% 120 1.8% 80 2%

40 25 23 20 22 25 1%

0 2017 2018 2019e 2020e 2021e 0% 2013 2014 2015 2016 2017 2018

Revenues EBITDA Source: ABG Sundal Collier, Strongpoint Source: ABG Sundal Collier, SSB

Recently, there has been some price pressure in the adhesive labels market due to increased competition. We therefore expect a slight decline in EBITDA in 2019 and 2020. Otherwise, we expect the segment to continue to be a stable cash generator for StrongPoint.

Cash Security – profitability set to increase In 2018, StrongPoint’s Cash Security segment achieved a relatively soft EBITDA of NOK 3m, or an EBITDA margin of 2%. However, this included NOK 12m in non- recurring warranty costs related to cases sold in Russia. In our view, this warranty issue does not seem to be the result of poor quality, but rather because of user misuse. Either way, StrongPoint says it has corrected this issue. If we add the warranty costs to the 2018 EBITDA, it would imply an underlying EBITDA of NOK

17 Excluding IFRS16 effects, which boosted H2’19 EBITDA by NOK 11.4m and the one-off sale to Alimerka in Q2’18, which boosted H2’18 EBITDA by NOK 21.3m. 18 Finat: https://www.finat.com/documents/348/european-label-industry-continues-dynamic-track-record- in-2017.pdf 22 August 2019 ABG Sundal Collier 24

StrongPoint

15m. StrongPoint has also initiated a lean production project, which will streamline the production process and improve product quality. Strongpoint will also implement a system that will allow it to increase and decrease production according to demand. The company expects these initiatives to both lift and stabilise segment profitability.

Cash Security: quarterly revenues and EBITDA Cash Security EBITDA NOKm NOKm 200 16 15 ABGSCe 15 180 14 160 150 146 138 12 140 118 120 10 103 NOK 12m in 100 8 non-recurring 80 warranty costs 6 60 40 4 3 15 15 20 11 1 2 2 1 0 2017 2018 2019e 2020e 2021e 0 2017 2018 2018 underlying H1'19 annualised

Revenues EBITDA

Source: ABG Sundal Collier, Strongpoint Source: ABG Sundal Collier, Strongpoint. H1’19 annualised is equal to H1’19 EBITDA of NOK 7.3m * 2 = NOK 14.6m.

Significant fluctuations in quarterly EBITDA reflect the business model StrongPoint’s sales tend to fluctuate significantly on a quarterly basis. This is natural given the nature of the company’s business, where larger orders can boost quarterly sales. Combined with some operational leverage, this results in relatively large fluctuations in quarterly EBITDA. StrongPoint has recently taken several measures to reduce this volatility, including a reduction in fixed costs and an increase in the share of recurring revenues. As can be seen from the chart on the right below, swings in quarterly sales are the key driver behind changes in quarterly EBITDA. Understanding the quarterly sales drivers is therefore key to predicting quarterly EBITDA. At the same time, we argue that investors should focus more on annual results than on quarterly results.

StrongPoint quarterly EBITDA StrongPoint quarterly sales versus EBITDA

NOKm Sales (NOKm) EBITDA (NOKm) 330 40 40 36 35 310 35 35 31 290 30 30 29 28 27 27 270 25 25 22 22 250 20 21 20 20 18 230 16 16 14 15 14 15 15 15 13 210 11 11 10 10 10 10 190 10 10 7 170 5 5 150 0

0

Q1'13

Q2'13

Q3'13

Q4'13

Q1'14

Q2'14

Q3'14

Q4'14

Q1'15

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Q2'19

Q1'13 Q2'13 Q3'13 Q1'14 Q2'14 Q3'14 Q4'14 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 Q2'18 Q3'18 Q4'18 Q1'19 Q1'15 Q3'16 Q1'18 Q2'19 Q4'13 Sales EBITDA Source: ABG Sundal Collier, StrongPoint Source: ABG Sundal Collier, StrongPoint

Recent trading conditions On 16 July, StrongPoint reported Q2’19 figures, with underlying revenue growth of 19% when we adjust for the one-off sale to Alimerka in Q2’18. Excluding the same one-off and an IFRS16 effect of NOK 5.7m, EBITDA increased by NOK 19m y-o-y. This was the second quarter in a row with strong results from the Retail Technology segment. The segment’s performance was driven by solid sales momentum across all of its geographical markets and different product areas, with continued roll-out of ESLs and upgrades of Vensafe machines in Norway, self-checkout solutions in the 22 August 2019 ABG Sundal Collier 25

StrongPoint

Baltics and cash management solutions in Spain. The company said that it expects several of the drivers that impacted H1’19 to continue into H2’19 and that it sees solid order momentum across the business. The share price has increased by 18% since the release of the Q2 report.

Estimated and historical numbers

Profit and loss NOKm Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19e Q4'19e 2017 2018 2019e 2020e 2021e Revenue 250 276 233 308 288 287 259 292 951 1,068 1,127 1,232 1,301 Gross profit 130 145 113 146 138 138 126 138 479 533 540 591 624 Opex -112 -112 -92 -111 -118 -126 -98 -123 -427 -466 -448 -482 -505 EBITDA 11 18 15 22 28 22 16 27 52 67 93 108 119 -excl. IFRS16 and Alimerka one-off* 11 -3 15 22 22 16 10 21 52 46 70 86 96

Depreciation tangible assets -4 -4 -4 -6 -10 -10 -10 -10 -18 -19 -39 -39 -39 Depreciation intangible assets -5 -5 -4 -4 -4 -4 -4 -4 -14 -19 -16 -16 -16 EBIT 2 9 7 12 14 8 2 13 20 30 38 53 64 EBIT adj.** 7 14 11 17 18 12 6 17 34 49 54 69 80 Interest expenses -1 -1 -1 -1 -1 -1 -1 -1 -2 -3 -4 -4 -4 Other financial expenses 5 1 -2 -5 4 1 0 0 -3 -1 5 0 0 Pre-tax profit 6 9 4 6 17 9 1 12 14 26 39 49 60 Taxes -1 -2 -1 -8 -4 -2 0 -3 -4 -13 -8 -10 -13 Net income 5 7 3 -2 13 7 1 10 10 13 31 39 47

Reported EPS 0.12 0.16 0.07 -0.05 0.30 0.16 0.02 0.21 0.23 0.30 0.70 0.88 1.07 Adjusted EPS** 0.21 0.26 0.15 0.18 0.37 0.23 0.09 0.29 0.51 0.80 0.98 1.16 1.35

Key figures Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19e Q4'19e 2017 2018 2019e 2020e 2021e Gross margin 51.8% 52.3% 48.5% 47.3% 48.0% 48.1% 48.5% 47.3% 50.4% 49.9% 48.0% 47.9% 47.9% EBITDA margin 4.6% 6.6% 6.5% 7.3% 9.6% 7.7% 6.1% 9.2% 5.5% 6.3% 8.2% 8.8% 9.2% EBIT margin 0.8% 3.2% 2.8% 4.0% 4.9% 2.9% 0.8% 4.5% 2.1% 2.8% 3.3% 4.3% 4.9% Adj. EBIT margin 2.9% 5.1% 4.7% 5.4% 6.3% 4.3% 2.4% 5.9% 3.6% 4.6% 4.8% 5.6% 6.2%

Net debt 62 71 72 55 120 107 96 96 51 55 96 69 34 Net debt (excl. IFRS16) 62 71 72 55 55 46 40 46 51 55 46 41 28 Net debt/EBITDA 1.2x 1.1x 1.1x 0.8x 1.4x 1.2x 1.1x 1.0x 1.0x 0.8x 1.0x 0.6x 0.3x Net debt (excl. IFRS16)/EBITDA 1.2x 1.6x 1.6x 1.2x 1.0x 0.6x 0.6x 0.7x 1.0x 1.2x 0.7x 0.5x 0.3x FCF / share 0.26 0.56 0.81 0.78 1.10 Dividend / share 0.50 0.55 0.65 0.80 0.95 Payout ratio of adj. EPS 99% 68% 66% 69% 70% ATROCE 4.6% 7.2% 8.3% 12.3% 15.9% Adj. ATROCE 7.9% 11.8% 11.8% 16.1% 19.9%

Revenue by segment (NOKm) Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19e Q4'19e 2017 2018 2019e 2020e 2021e Retail Technology 189 214 161 196 213 222 202 217 684 760 853 931 987 Cash Security 22 19 36 73 35 26 20 37 103 150 118 138 146 Labels 41 48 38 39 43 42 39 40 175 166 164 171 176 Group and eliminations -1 -2 -2 0 -3 -2 -2 -2 -11 -5 -8 -8 -8 Total revenue 250 276 233 308 288 287 259 292 951 1,068 1,127 1,232 1,301 -excl. Alimerka one-off 250 240 233 308 288 287 259 292 951 1,032 1,127 1,232 1,301

Revenue growth, y-o-y (%) Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19e Q4'19e 2017 2018 2019e 2020e 2021e Retail Technology 3% 20% 11% 11% 12% 4% 26% 10% n.a. 11% 12% 9% 6% Cash Security -20% 20% 80% 83% 63% 33% -44% -49% n.a. 45% -21% 18% 5% Labels -3% 4% -12% -11% 6% -13% 3% 3% n.a. -5% -1% 4% 3% Group and eliminations -38% -43% -46% -97% 86% 0% 12% 2987% n.a. -52% 66% -5% 0% Total revenue 0% 16% 14% 19% 15% 4% 11% -5% -15% 12% 6% 9% 6% -excl. Alimerka one-off 0% 1% 14% 19% 15% 19% 11% -5% -15% 8% 9% 9% 6%

Revenue growth, y-o-y (NOKm) Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19e Q4'19e 2017 2018 2019e 2020e 2021e Retail Technology 6 35 16 19 23 8 41 21 n.a. 76 93 77 57 Cash Security -6 3 16 33 14 6 -16 -36 n.a. 47 -32 21 7 Labels -1 2 -5 -5 3 -6 1 1 n.a. -10 -1 7 5 Group and eliminations 1 1 1 2 -1 0 0 -2 n.a. 6 -3 0 0 Total revenue 0 39 28 49 38 11 26 -16 -168 116 59 105 69 -excl. Alimerka one-off 0 3 28 49 38 47 26 -16 -168 80 95 105 69

Source: ABG Sundal Collier, StrongPoint. *Excluding NOK 23m in annual IFRS16 effects and NOK 36m in sales and NOK 21m in EBITDA from the sale of 725 CashGuard’s to Alimerka that they had previously rented in Q2’18. **Excluding depreciation of intangible assets.

22 August 2019 ABG Sundal Collier 26

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Estimated and historical numbers

Retail Technology sales split (NOKm) Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19e Q4'19e 2017 2018 2019e 2020e 2021e Norway 58 53 n.a. n.a. 71 81 75 69 n.a. 227 296 296 309 Sweden 69 60 n.a. n.a. 64 68 59 66 n.a. 242 256 271 278 Baltics 24 24 n.a. n.a. 42 40 33 41 n.a. 108 156 172 180 EMEA/Partners 39 74 n.a. n.a. 36 33 35 41 n.a. 179 145 191 220 Total revenue 189 214 161 196 213 222 202 217 n.a. 756 853 931 987

Product sales 117 144 n.a. n.a. 139 148 130 144 n.a. 479 561 614 648 Service and licenses 72 67 n.a. n.a. 74 73 73 73 n.a. 277 292 316 339 Total revenue 189 214 161 196 213 222 202 217 n.a. 756 853 931 987 Recurring revenue share 38% 31% n.a. n.a. 35% 33% 36% 34% n.a. 37% 34% 34% 34%

EBITDA by segment (NOKm) Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19e Q4'19e 2017 2018 2019e 2020e 2021e Retail Technology 17 29 11 11 23 25 19 24 46 68 92 101 109 Cash Security -5 -9 2 15 6 2 -2 6 1 2 11 15 15 Labels 4 7 7 5 6 4 5 5 25 23 20 22 25 Group and eliminations -4 -9 -5 -9 -8 -9 -6 -8 -20 -26 -30 -30 -30 Total EBITDA 11 18 15 22 28 22 16 27 52 67 93 108 119 -excl. IFRS16 and Alimerka one-off 11 -3 15 22 22 16 10 21 52 46 70 86 96

EBITDA margin by segment Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19e Q4'19e 2017 2018 2019e 2020e 2021e Retail Technology 9.0% 13.6% 6.8% 5.6% 11.0% 11.4% 9.5% 11.1% 6.7% 9.0% 10.8% 10.9% 11.1% Cash Security -25.1% -47.9% 5.6% 20.5% 16.5% 5.9% -10.0% 16.2% 1.0% 1.6% 9.6% 11.1% 10.5% Labels 10.1% 14.2% 18.4% 12.8% 14.2% 9.3% 12.0% 12.0% 14.3% 13.8% 11.9% 12.7% 14.0% Total EBITDA 4.6% 6.6% 6.5% 7.3% 9.6% 7.7% 6.1% 9.2% 5.5% 6.3% 8.2% 8.8% 9.2%

EBITDA growth, y-o-y (%) Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19e Q4'19e 2017 2018 2019e 2020e 2021e Retail Technology 22% 222% 22% -21% 36% -13% 75% 118% n.a. 48% 35% 11% 8% Cash Security 440% 207% -300% 150% -207% -116% -200% -60% n.a. 140% 371% 35% 0% Labels 105% 36% -22% -44% 49% -43% -33% -4% n.a. -8% -15% 11% 13% Group and eliminations 1% 98% 69% 5% 74% 0% 24% -6% n.a. 34% 15% 0% 0% Total EBITDA 7% 173% 7% 8% 141% 21% 5% 19% n.a. 29% 37% 17% 10%

EBITDA growth, y-o-y (NOKm) Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19e Q4'19e 2017 2018 2019e 2020e 2021e Retail Technology 3 20 2 -3 6 -4 8 13 n.a. 22 24 10 8 Cash Security -4 -6 3 9 11 11 -4 -9 n.a. 1 9 4 0 Labels 2 2 -2 -4 2 -3 -2 0 n.a. -2 -3 2 3 Group and eliminations 0 -4 -2 0 -3 0 -1 1 n.a. -7 -4 0 0 Total EBITDA 1 12 1 2 16 4 1 4 -59 15 25 16 11 -excl. IFRS16 and Alimerka one-off 1 -10 1 2 11 19 -5 -1 -59 -6 24 16 11

Source: ABG Sundal Collier, StrongPoint. *Excluding NOK 23m in annual IFRS16 effects and NOK 36m in sales and NOK 21m in EBITDA from the sale of 725 CashGuard’s to Alimerka that they had previously rented in Q2’18. **Excluding depreciation of intangible assets.

22 August 2019 ABG Sundal Collier 27

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Estimated and historical numbers Balance sheet NOKm Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19e Q4'19e 2017 2018 2019e 2020e 2021e Assets Intangible assets 73 65 62 60 55 51 47 43 82 60 43 27 10 Goodwill 131 128 135 141 136 134 134 134 139 141 134 134 134 Tangible assets 76 63 60 58 56 57 55 57 81 58 57 57 57 Tangible assets leasing IFRS 16 0 0 0 0 65 61 55 50 0 0 50 28 7 Other non-current assets 21 19 18 14 11 10 10 10 22 14 10 10 10 Non-current assets 301 275 274 274 323 312 301 294 324 274 294 256 218

Inventory 118 137 142 128 128 117 132 135 131 128 135 123 129 Accounts receivable 171 167 174 200 212 200 181 203 160 200 203 251 265 Prepaid expenses & other receivables 31 30 29 26 26 27 25 28 38 26 28 34 36 Bank deposits 34 24 20 27 19 24 30 23 42 27 23 29 42 Current assets 355 359 365 381 385 368 367 389 371 381 389 437 472

Total assets 656 634 640 655 708 681 667 683 696 655 683 693 689

Equity and liabilities Share capital 28 28 28 28 28 28 28 28 28 28 28 28 28 Holding of own shares 0 0 0 0 0 0 0 0 0 0 0 0 0 Other equity 239 215 221 238 238 216 217 226 254 238 226 236 248 Total equity 267 243 248 265 266 243 244 254 281 265 254 264 276

Long term interest bearing liabilities 45 44 39 50 43 37 37 37 25 50 37 37 37 Liabilities leasing IFRS 16 0 0 0 0 65 61 55 50 0 0 50 28 7 Other long term liabilities 24 24 20 21 9 9 9 9 27 21 9 9 9 Total long term liabilities 69 67 58 70 118 107 102 96 52 70 96 75 53

Short term interest bearing liabilities 52 52 53 32 31 33 33 33 68 32 33 33 33 Accounts payable 64 67 76 81 84 88 79 91 93 81 91 113 119 Taxes payable 1 1 0 3 1 0 0 0 2 3 0 0 0 Other short term liabilities 203 204 203 204 209 209 209 209 199 204 209 209 209 Total short term liabilities 320 323 333 320 324 330 321 333 363 320 333 354 361

Total equity and liabilities 656 634 640 655 708 681 667 683 696 655 683 693 689

Source: ABG Sundal Collier, StrongPoint

Estimated and historical numbers Cash flow statement NOKm Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19e Q4'19e 2017 2018 2019e 2020e 2021e Ordinary profit before tax 6 9 4 6 17 9 1 12 14 26 39 49 60 Tax paid 0 0 0 3 -1 -1 0 -3 4 2 -5 -10 -13 D&A 10 9 9 10 14 14 14 14 33 38 55 55 55 Payment of leasing committments 0 0 0 0 -5 -5 -5 -5 0 0 -22 -22 -22 Realised loss on financial instruments 0 0 0 0 0 0 0 0 0 0 0 0 0 Other non-cash effects 0 0 0 0 0 0 0 0 0 -1 0 0 0 Change in working capital -23 -13 -12 0 -19 24 -2 -17 -25 -47 -14 -21 -15 Cash flow from operational activities -7 5 0 19 5 40 8 1 25 18 53 52 66

Payments for fixed assets -4 -2 -1 -4 -3 -5 -2 -7 -15 -11 -17 -17 -17 Acquisitions 0 0 0 0 0 0 0 0 0 0 0 0 0 Payment from sale of fixed assets 0 14 0 3 0 0 0 0 3 18 0 0 0 Cash flow from investment activities -4 13 -1 -1 -3 -5 -2 -7 -13 7 -17 -17 -17

Free cash flow -11 18 0 18 2 35 6 -6 11 25 36 35 49

Selling of treasury shares 0 0 0 0 0 -1 0 0 0 0 -1 0 0 Change in long-term debt 22 -6 -5 18 -8 -4 0 0 -22 30 -12 0 0 Change in overdraft -18 1 2 -32 -1 0 0 0 50 -47 -1 0 0 Dividend paid 0 -22 0 0 0 -24 0 0 -66 -22 -24 -29 -36 Cash flow from financing activities 5 -27 -3 -14 -8 -30 0 0 -39 -39 -38 -29 -36

Net cash flow -6 -9 -4 5 -7 5 6 -6 -27 -14 -2 6 13

Source: ABG Sundal Collier, StrongPoint

22 August 2019 ABG Sundal Collier 28

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Below, we illustrate the sensitivity of our estimates given different assumptions for sales growth and the EBITDA margin.

2019e EBITDA Deviation to ABGSC 2019e EBITDA

Sales growth SalesSales growth growth Sales growth 93 2% 4% 6% 8% 10% 12% 0 2% 4% 6% 8% 10% 12% 7% 76 78 79 81 82 84 7% -23% -21% -20% -18% -17% -15% 8% 87 89 91 92 94 96 8% -12% -10% -8% -6% -5% -3% 9% 98 100 102 104 106 108 9% -1% 1% 3% 5% 7% 9% 10% 109 111 113 115 117 120 10% 10% 13% 15% 17% 19% 21% 11% 120 122 124 127 129 132 11% 22% 24% 26% 29% 31% 33%

EBITDA margin EBITDA 12% 131 133 136 138 141 143 margin EBITDA 12% 33% 35% 38% 40% 43% 46%

Source: ABG Sundal Collier Source: ABG Sundal Collier

2020e EBITDA Deviation to ABGSC 2020e EBITDA Sales growth SalesSales growth growth Sales growth 108 2% 4% 6% 8% 10% 12% 0 2% 4% 6% 8% 10% 12% 7% 80 82 84 85 87 88 7% -30% -28% -27% -26% -24% -23% 8% 92 94 96 97 99 101 8% -20% -18% -17% -15% -13% -12% 9% 103 105 107 109 112 114 9% -10% -8% -6% -4% -3% -1% 10% 115 117 119 122 124 126 10% 0% 2% 4% 6% 8% 10% 11% 126 129 131 134 136 139 11% 10% 13% 15% 17% 19% 21%

EBITDA margin EBITDA 12% 138 141 143 146 149 151 margin EBITDA 12% 20% 23% 25% 28% 30% 32%

Source: ABG Sundal Collier Source: ABG Sundal Collier

2019e adjusted EPS Deviation to ABGSC 2019e adjusted EPS

Sales growth SalesSales growth growth Sales growth 1 2% 4% 6% 8% 10% 12% 0 2% 4% 6% 8% 10% 12% 7% 0.69 0.71 0.74 0.77 0.79 0.82 7% -37% -34% -32% -29% -27% -24% 8% 0.88 0.91 0.94 0.97 1.00 1.03 8% -19% -16% -13% -10% -8% -5% 9% 1.07 1.11 1.14 1.18 1.21 1.24 9% -1% 2% 5% 9% 12% 15% 10% 1.27 1.31 1.34 1.38 1.42 1.46 10% 17% 21% 24% 28% 31% 35% 11% 1.46 1.50 1.54 1.59 1.63 1.67 11% 35% 39% 43% 46% 50% 54%

EBITDA margin EBITDA 12% 1.65 1.70 1.75 1.79 1.84 1.88 margin EBITDA 12% 53% 57% 61% 65% 70% 74%

Source: ABG Sundal Collier Source: ABG Sundal Collier

2020e adjusted EPS Deviation to ABGSC 2020e adjusted EPS Sales growth SalesSales growth growth Sales growth 1 2% 4% 6% 8% 10% 12% 0 2% 4% 6% 8% 10% 12% 7% 0.67 0.69 0.72 0.75 0.78 0.81 7% -48% -45% -43% -41% -39% -37% 8% 0.87 0.90 0.93 0.97 1.00 1.03 8% -32% -29% -27% -24% -21% -19% 9% 1.08 1.11 1.15 1.18 1.22 1.26 9% -15% -13% -10% -7% -4% -1% 10% 1.28 1.32 1.36 1.40 1.44 1.48 10% 1% 4% 7% 10% 13% 16% 11% 1.48 1.53 1.57 1.62 1.66 1.70 11% 17% 20% 24% 27% 31% 34%

EBITDA margin EBITDA 12% 1.69 1.74 1.79 1.83 1.88 1.93 margin EBITDA 12% 33% 37% 40% 44% 48% 52%

Source: ABG Sundal Collier Source: ABG Sundal Collier

22 August 2019 ABG Sundal Collier 29

StrongPoint

Valuation

On our estimates, the StrongPoint share is trading ~20% below the average of its peers. Using the lowest to the highest of the peer multiples for 2019e-2021e, we find an implied price range of NOK 11.4-30.3/share. Our DCF valuation returns a share price range of NOK 12-19 for StrongPoint. StrongPoint has a dividend yield of 5.6-8.1% for 2019e-2021e, which compares to peers at 2-4%.

Peer valuation To identify relevant peers for StrongPoint, we have looked at companies that provide the same products and services as StrongPoint and where retail is a key end-market. This has resulted in a group of eight key peers for StrongPoint:

Diebold-Nixdorf: Delivers cash management, self-checkout, POS systems, interactive kiosks and ATMs to the retail and financial services sectors.

Pricer: One of two leading producers of ESLs globally.

SES-Imagotag: The other leading producer of ESLs globally.

ITAB Shop Concept: Delivers shop concepts, lighting and self-checkout solutions to retailers. The company is one of Europe’s largest suppliers of shop concepts and lighting and the market leader in self-checkout solutions in Scandinavia.

Gunnebo: Sells cash management and security solutions such as entrance control and safes to the retail, transportation and financial services sectors.

Datalogic: Sells barcode readers and other scanners and sensors for retail, manufacturing, transportation and logistics.

NCR: Provides POS, self-checkout and other solutions to the retail, financial services and hospitality sectors. The global market leader in self-checkout.

Glory: One of the global market leaders in cash management solutions for the retail, financial services, transportation and gaming sectors.

Below, we show some key facts and consensus figures for the peer group and compare this to StrongPoint. StrongPoint has lower leverage and a better growth outlook than the median of its peers. In our view, this should point to a higher valuation relative to peers. However, StrongPoint is also smaller and less diversified in terms of geography and end-market segments than some of its peers. In our view, this should point to a lower valuation relative to its peers.

Overview of key peers Retail Technology peers Sales (NOKm) CAGR EBIT CAGR EBIT margin ATROCE NIBD/EBITDA Company Products End-market segments 2019e 18-'21e 18-'21e '18-'21e '18-'21e '19e Diebold-Nixdorf Cash m., POS, self-checkout Retail, financial 40,914 1% 17% 5% 12% 4.4x Pricer ESLs Retail 961 3% 13% 9% 13% -1.2x SES-imotag ESLs Retail 2,439 37% n.a. 3% 6% 1.1x Itab Shop concepts, self-checkout Retail 5,927 3% 29% 6% 7% 3.4x Gunnebo Cash management, security Retail, financial, transp. 5,037 3% 14% 6% 9% 3.3x Datalogic Scanning, checkout, logistics Retail, industry, logistics 6,176 3% 1% 12% 15% 0.0x NCR POS, self-checkout Retail, financial, hospitality 59,660 3% 9% 12% 14% 2.8x Glory Cash management Retail, financial, gaming 19,322 3% 2% 8% 10% -1.6x Average 17,555 7% 12% 8% 11% 1.5x Median 6,051 3% 13% 7% 11% 1.9x

StrongPoint (ABGSCe) 1,127 7% 12% 5% 15% 1.0x

Source: ABG Sundal Collier for StrongPoint estimates, Factset for consensus estimates

22 August 2019 ABG Sundal Collier 30

StrongPoint

StrongPoint’s accounting practice is somewhat different to that of peers as it expenses all R&D costs, but at the same time takes depreciation on its intangible assets. As a result, its EBIT and EPS are not comparable to those of peers. For StrongPoint we will therefore look at EBIT and EPS adjusted for depreciation of intangible assets when we compare StrongPoint’s P/E and EV/EBIT to peers’, in order to obtain a like-for-like comparison.

Peer valuation

Retail Technology peers EV / EBITDA EV / EBIT adj. P / E adj. Dividend Yield FCF yield Company 2019e 2020e 2021e 2019e 2020e 2021e 2019e 2020e 2021e 2019e 2020e 2021e Diebold-Nixdorf 6.7x 6.0x 6.0x 11.5x 9.5x 12.4x 88.2x 12.1x 11.4x 1% 0% 0% Pricer 8.2x 7.3x 6.5x 10.9x 9.7x 8.5x 12.8x 11.8x 10.9x 5% 5% 5% SES-imagotag 23.7x 12.7x 7.5x 82.0x 24.9x 11.7x 118.5x 37.1x 17.7x 0% 0% 0% ITAB Shop Concept 6.3x 6.1x 5.5x 11.5x 9.4x 8.3x 12.7x 9.3x 8.3x 0% 7% 7% Gunnebo 7.5x 5.2x 4.7x 13.0x 7.8x 6.9x 9.4x 8.5x 7.4x 2% 3% 5% Datalogic 8.0x 7.4x 6.7x 11.0x 10.0x 8.7x 14.3x 13.4x 11.9x 4% 3% 4% NCR 6.3x 5.7x 5.3x 8.7x 7.6x 7.0x 11.0x 9.8x 9.4x n.a. n.a. n.a. Glory 5.3x 4.6x 4.1x 8.8x 7.1x 6.5x 16.9x 14.3x 13.9x 2% 2% 2% Median 7.1x 6.1x 5.8x 11.2x 9.4x 8.4x 13.6x 12.0x 11.2x 2% 3% 4%

StrongPoint (ABGSCe) 6.7x 5.4x 4.7x 11.5x 8.5x 6.9x 12.0x 10.1x 8.7x 5% 6% 7% Difference to peers -6% -10% -19% 2% -10% -17% -11% -16% -22% -54% -52% -47%

Implied share price 12.6 13.2 14.7 11.4 13.2 14.3 13.3 13.9 15.2 30.2 30.3 26.3

Source: ABG Sundal Collier for StrongPoint estimates, Factset for consensus estimates

On our estimates, StrongPoint is trading ~20% below its peers on an average of the multiples shown above. Using the lowest to the highest of the peer multiples for 2019e-2021e, we find an implied share price range of NOK 11.4-30.3/share.

22 August 2019 ABG Sundal Collier 31

StrongPoint

Below, we illustrate the sensitivities of different valuation multiples given different assumptions for sales growth and the EBITDA margin.

2019e adjusted P/E 2020e adjusted P/E Sales growth SalesSales growth growth Sales growth 12 2% 4% 6% 8% 10% 12% 10 2% 4% 6% 8% 10% 12% 7% 17.1x 16.4x 15.8x 15.3x 14.8x 14.3x 7% 17.6x 16.9x 16.2x 15.6x 15.0x 14.5x 8% 13.3x 12.9x 12.4x 12.1x 11.7x 11.3x 8% 13.4x 13.0x 12.5x 12.1x 11.7x 11.3x 9% 10.9x 10.6x 10.2x 9.9x 9.7x 9.4x 9% 10.9x 10.5x 10.2x 9.9x 9.6x 9.3x 10% 9.2x 9.0x 8.7x 8.5x 8.2x 8.0x 10% 9.1x 8.9x 8.6x 8.4x 8.1x 7.9x 11% 8.0x 7.8x 7.6x 7.4x 7.2x 7.0x 11% 7.9x 7.7x 7.4x 7.2x 7.0x 6.9x

EBITDA margin EBITDA 12% 7.1x 6.9x 6.7x 6.5x 6.4x 6.2x margin EBITDA 12% 6.9x 6.7x 6.6x 6.4x 6.2x 6.1x

Source: ABG Sundal Collier Source: ABG Sundal Collier

2019e adjusted EV/EBIT 2020e adjusted EV/EBIT Sales growth SalesSales growth growth Sales growth 11 2% 4% 6% 8% 10% 12% 8 2% 4% 6% 8% 10% 12% 7% 16.4x 15.8x 15.2x 14.7x 14.2x 13.7x 7% 14.2x 13.7x 13.2x 12.7x 12.3x 11.9x 8% 12.7x 12.3x 11.9x 11.5x 11.2x 10.8x 8% 11.1x 10.8x 10.4x 10.1x 9.8x 9.5x 9% 10.4x 10.1x 9.8x 9.5x 9.2x 8.9x 9% 9.1x 8.9x 8.6x 8.3x 8.1x 7.9x 10% 8.8x 8.5x 8.3x 8.0x 7.8x 7.6x 10% 7.8x 7.5x 7.3x 7.1x 6.9x 6.7x 11% 7.6x 7.4x 7.2x 7.0x 6.8x 6.6x 11% 6.7x 6.5x 6.4x 6.2x 6.0x 5.9x

EBITDA margin EBITDA 12% 6.7x 6.5x 6.3x 6.2x 6.0x 5.9x margin EBITDA 12% 5.9x 5.8x 5.6x 5.5x 5.4x 5.2x

Source: ABG Sundal Collier Source: ABG Sundal Collier

2019e EV/EBITDA 2020e EV/EBITDA Sales growth SalesSales growth growth Sales growth 7 2% 4% 6% 8% 10% 12% 5 2% 4% 6% 8% 10% 12% 7% 8.1x 7.9x 7.8x 7.6x 7.5x 7.4x 7% 7.3x 7.2x 7.0x 6.9x 6.8x 6.7x 8% 7.1x 6.9x 6.8x 6.7x 6.6x 6.4x 8% 6.4x 6.3x 6.2x 6.0x 5.9x 5.8x 9% 6.3x 6.2x 6.0x 5.9x 5.8x 5.7x 9% 5.7x 5.6x 5.5x 5.4x 5.3x 5.2x 10% 5.7x 5.5x 5.4x 5.3x 5.2x 5.1x 10% 5.1x 5.0x 4.9x 4.8x 4.7x 4.7x 11% 5.1x 5.0x 4.9x 4.9x 4.8x 4.7x 11% 4.7x 4.6x 4.5x 4.4x 4.3x 4.2x

EBITDA margin EBITDA 12% 4.7x 4.6x 4.5x 4.4x 4.4x 4.3x margin EBITDA 12% 4.3x 4.2x 4.1x 4.0x 4.0x 3.9x

Source: ABG Sundal Collier Source: ABG Sundal Collier

2019e FCF to equity yield 2020e FCF to equity yield Sales growth SalesSales growth growth Sales growth 0 2% 4% 6% 8% 10% 12% 0 2% 4% 6% 8% 10% 12% 7% 3.8% 4.1% 4.3% 4.5% 4.7% 5.0% 7% 2.4% 2.6% 2.9% 3.1% 3.3% 3.6% 8% 5.5% 5.8% 6.0% 6.3% 6.5% 6.8% 8% 4.1% 4.4% 4.7% 5.0% 5.2% 5.5% 9% 7.1% 7.4% 7.7% 8.0% 8.3% 8.6% 9% 5.9% 6.2% 6.5% 6.8% 7.1% 7.4% 10% 8.8% 9.1% 9.5% 9.8% 10.1% 10.4% 10% 7.6% 8.0% 8.3% 8.7% 9.0% 9.3% 11% 10.5% 10.8% 11.2% 11.5% 11.9% 12.3% 11% 9.4% 9.8% 10.1% 10.5% 10.9% 11.3%

EBITDA margin EBITDA 12% 12.1% 12.5% 12.9% 13.3% 13.7% 14.1% margin EBITDA 12% 11.1% 11.5% 11.9% 12.4% 12.8% 13.2%

Source: ABG Sundal Collier Source: ABG Sundal Collier

22 August 2019 ABG Sundal Collier 32

StrongPoint

DCF valuation Our discounted cash flow (DCF) valuation returns a share price range of NOK 12-19 for StrongPoint. We have assumed the following in our DCF calculation:

 ABGSC estimates for 2019e-2021e  Annual growth of 4% for 2022e-2026e  EBITDA margin of 9.0% for 2022e-2026e  Weighted average tax rate of 21%  Depreciation, amortisation, capex and working capital grow at the same rate as sales after 2021e.  Long-term terminal growth rate of 1-3%.  A weighted average cost of capital (WACC) of 9.0-11.0%.

DCF valuation DCF model ABGSC estimates Extrapolated Terminal value NOKm 2019 2020 2021 2022 2023 2024 2025 2026 NOKm 2026 2027

Revenues 1,127 1,232 1,301 1,353 1,407 1,463 1,522 1,583 Revenues 1,583 1,614 Sales growth 9% 6% 4% 4% 4% 4% 4% Sales growth 4% 2%

EBITDA 93 108 119 122 127 132 137 142 EBITDA 142 145 EBITDA margin 8.2% 8.8% 9.2% 9.0% 9.0% 9.0% 9.0% 9.0% EBITDA margin 9.0% 9.0%

Net income 31 39 47 49 53 57 61 66 Net income 66 67 D&A incl. IFRS16 55 55 55 55 55 55 55 55 D&A incl. IFRS16 55 56 IFRS16 lease payments -22 -22 -22 -22 -22 -22 -22 -22 IFRS16 lease payments -22 -22 Ch. in working capital -14 -21 -15 -16 -16 -17 -18 -18 Ch. in working capital -18 -19 Capex -17 -17 -17 -18 -19 -19 -20 -21 Capex -21 -21 Free cash flow 33 35 49 49 52 55 57 60 Free cash flow 60 61

Discounted free cash flow 33 33 42 39 37 36 34 32 Terminal value 766

Valuation summary NOKm Assumptions Stage 1: '19e-'21e 108 Growth '22e-'26e 4% Stage 2: '22e-'26e 178 Terminal growth 2.0% Terminal value 412 EBITDA margin 9.0% Enterprise value 699 WACC 10.0% Net debt excl. IFRS16 46 Equity value 653 Number of shares 44 Terminal value 15

Source: ABG Sundal Collier

Share price given WACC and terminal growth Share price given terminal growth and margin Terminal sales growth Terminal sales growth 15 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 15 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 8% 18 19 20 21 23 25 7.5% 10 10 11 11 12 12 9% 15 16 17 18 19 20 8.0% 11 11 12 12 13 14 10% 14 14 15 15 16 17 8.5% 12 13 13 14 15 15 11% 12 13 13 14 14 15 9.0% 14 14 15 15 16 17

WACC 12% 11 11 12 12 13 13 9.5% 15 15 16 17 18 19

13% 10 10 11 11 11 12 margin EBITDA 10.0% 16 17 18 18 19 20

Source: ABG Sundal Collier Source: ABG Sundal Collier

22 August 2019 ABG Sundal Collier 33

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Dividend yield StrongPoint has paid a steady and increasing dividend for the past eight years. Following the strong years of 2015 and 2016, the company paid an extraordinary dividend of NOK 1/share in addition to its ordinary dividend of NOK 0.50/share for 2016. In five of the last eight years, the company has paid a dividend per share that was higher than its EPS. This is because the company has made relatively large depreciations of its intangible assets, which has resulted in a cash flow per share that is higher than EPS. Between 2015 and 2018, StrongPoint had an average pay- out ratio of adjusted EPS of 73%. In 2018, StrongPoint paid a dividend of NOK 0.55/share, corresponding to a pay-out ratio of 68% of adjusted EPS. For 2019e- 2021e, we have assumed a pay-out ratio of 66-70%, which would give a dividend yield of 5.6-8.1%. The average for peers in the same period is 2-4%.

Dividend pay-out ratio and dividend yield

Dividend yield Actual numbers ABGSC estimates

NOKm 2015 2016 2017 2018 2019e 2020e 2021e Revenues 1,146 1,120 951 1,068 1,127 1,232 1,301 EBITDA 90 112 52 67 93 108 119 EBITDA margin 7.9% 10.0% 5.5% 6.3% 8.2% 8.8% 9.2%

Depreciation of tangible assets -15 -16 -18 -19 -39 -39 -39 Depreciation of intangible assets -17 -17 -14 -19 -16 -16 -16 EBIT 59 78 20 30 38 53 64 Adj. EBIT 76 96 34 49 54 69 80 Adj. EBIT margin 6.6% 8.6% 3.6% 4.6% 4.8% 5.6% 6.2%

Net financials -9 1 -6 -4 1 -4 -4 Pre-tax profit 50 79 14 26 39 49 60 Net income 36 74 10 13 31 39 47

Reported EPS 0.82 1.68 0.23 0.30 0.70 0.88 1.07 Adjusted EPS 1.19 1.70 0.51 0.80 0.98 1.16 1.35

Dividend per share 0.45 1.50 0.50 0.55 0.65 0.80 0.95 Payout ratio of reported EPS 55% 89% 221% 181% 93% 91% 89% Payout ratio of adj. EPS 38% 88% 99% 68% 66% 69% 70%

Dividend yield 5.6% 6.8% 8.1%

Source: ABG Sundal Collier, StrongPoint

Below, we show the dividend yield in 2019e and 2020e given different assumptions for the EBITDA margin and pay-out ratio (as a share of adjusted EPS).

2019e dividend yield 2020e dividend yield

Payout ratio of adj. EPS PayoutPayout ratio ratio of adj.of adj. EPS EPS Payout ratio of adj. EPS 0 60% 65% 70% 75% 80% 85% 0 60% 65% 70% 75% 80% 85% 7% 3.8% 4.1% 4.4% 4.7% 5.0% 5.3% 7% 3.9% 4.3% 4.6% 4.9% 5.3% 5.6% 8% 4.8% 5.2% 5.6% 6.0% 6.4% 6.8% 8% 5.1% 5.5% 5.9% 6.3% 6.8% 7.2% 9% 5.8% 6.3% 6.8% 7.3% 7.8% 8.2% 9% 6.2% 6.7% 7.2% 7.7% 8.3% 8.8% 10% 6.8% 7.4% 8.0% 8.6% 9.1% 9.7% 10% 7.3% 7.9% 8.5% 9.1% 9.8% 10.4% 11% 7.9% 8.5% 9.2% 9.8% 10.5% 11.1% 11% 8.4% 9.1% 9.8% 10.6% 11.3% 12.0%

EBITDA margin EBITDA 12% 8.9% 9.6% 10.4% 11.1% 11.9% 12.6% margin EBITDA 12% 9.6% 10.4% 11.2% 12.0% 12.8% 13.6%

Source: ABG Sundal Collier Source: ABG Sundal Collier

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Risks

A number of risks and uncertainties could affect StrongPoint’s business and financial performance. Some of these are:

Customer concentration StrongPoint’s core market is the Nordic grocery retail market, which is characterised by a very high concentration of key players. Several of these large grocery retailers are StrongPoint customers, and losing these customers could result in a significant loss of service and product sales for StrongPoint.

Dependence on large customer orders StrongPoint’s earnings are to some degree dependent on large customer orders for new products or the replacement of old products. If StrongPoint is unable to win large orders from new or existing customers, it could pose a significant risk to its future sales and earnings growth.

Price pressure As competition is fragmented with several competitors providing similar products, StrongPoint’s products and services could be exposed to significant price pressure from new and existing competitors trying to increase their market share.

Macroeconomic developments Demand for StrongPoint’s products is affected by general economic activity. An economic downturn could have a negative effect on the company’s earnings through lower sales.

Warranty issues The company’s results could be affected by potential costs related to warranty issues, such as it experienced in its Cash Security segment in 2018.

M&A The company aims to grow through M&A, which entails several risks such as integration risk.

FX StrongPoint reports in NOK, but generates some of its revenue in other currencies. While StrongPoint does not employ any currency hedges, it has some contracts in which it is specified that certain changes in exchange rates should be compensated for, which reduces the company’s exposure to short-term FX risk. The largest FX exposures are towards changes in the EUR and USD exchange rates.

Regulatory risks One potential future regulatory risk is a change to a cash-free society, where cash is no longer accepted as a means of payment. This would hurt the company’s sales of CashGuard machines. However, we find this very unlikely in the foreseeable future as cash is still used in 79% of all point-of-sale transactions in Europe.

Credit and counterparty There is a risk of customers not being able to meet their payment obligations, resulting in losses on accounts receivable.

Production risk All production facilities are subject to a risk of failure of machinery and equipment and other disruptions. This is an ever-present risk for all companies with their own production, but is also expected to occur from time to time. StrongPoint’s machinery and equipment are either leased or the investments in new equipment are to be 22 August 2019 ABG Sundal Collier 35

StrongPoint

covered by the company’s maintenance capex budget, at least up to a reasonable amount. Larger production disruptions that significantly reduce the company’s output could have an impact on the company’s earnings.

Liquidity risk StrongPoint’s cash flow fluctuates with its financial performance, entailing a risk of low liquidity in some periods. This is mitigated by the company’s strong balance sheet, which gives the company a large liquidity reserve.

Future expansion StrongPoint has been able to obtain a strong position in the Nordic market, with a strong historical sales CAGR of 8%. However, this does not necessarily imply that the business model can be copied to new markets in order to achieve future growth.

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Appendices

Appendix 1: StrongPoint’s electronic shelf labels Pros and cons with IR/Radio systems The electronic shelf labels by Pricer are based on a wireless system of IR signals communicating through modules in the roof out to every electronic shelf label in a store. Most of the competing products use radio signals instead of IR, with the primary argument being that set-up is easier. However, the radio system can be disturbed by mobile signals and requires more battery power. To save power, the radio system does not update the prices as often as the IR system, which makes the IR system more reliable.

An IR battery can last between 7 and 10 years. The strong IR signal from the label is used to calculate, at any given moment, its position in the store. Generally, label response signal is recognised by multiple transceivers, which read different signal strengths depending on the distance to the label. Recently, customer and store personnel positioning has become an integral part of the value proposition. By measuring the energy signals combined with smartphone sensors and digital store maps, the labels can provide real time positioning updates.

Pricer’s infrared electronic shelf label technology

Source: Pricer

Why do stores invest in StrongPoints’ ESL solutions? The key selling point for ESL is the return on investment from reduced labour cost related to re-labelling along with fewer pricing errors. In 2014, SES-imagotag (ELS company) suggested that electronic shelf labelling could result in 0.5-1.0pp margin improvements for its customers, in conjunction with a payback period of one-and-a- half to two years. Although this margin effect seems a bit high, in our view, the low operating margins in retail would suggest that such efficiency gains could have a substantial effect on retailers’ bottom lines. As a reference point, the three biggest listed UK supermarkets (Tesco, Sainsbury’s and Morrisons) had an average EBIT margin of 2.4% in 2017.

Key product features of StrongPoint’s ESL’s Flash Alert Flash alert is a solution where the labels can blink in order to highlight a certain product. For instance, the flash alert can be activated whenever a product is unavailable to alert the store personnel to which products are out of stock. It can also highlight a product that is on promotion to help customers find the item.

22 August 2019 ABG Sundal Collier 37

StrongPoint

Smartflash

Source: Pricer

Shelf interactivity Shelf interactivity is an easy way for the customer to get more information on a product in which they are interested. While shopping, the shopper can scan a product’s bar code or QR code in order to receive a detailed description of the product. Furthermore, the customer is supplied with additional information such as videos, photos and web content.

Shelf interactivity

Source: Pricer

Geofencing With this technique, a retailer is able to divide the store into several virtual areas to compare the customer’s position with the virtual area to enhance the customer experience. For example, the shoppers can be informed of which areas they have recently entered, and the retailer can furthermore push a promotion or a welcome message to the shoppers depending on which area they are in.

Customers can create shopping lists at home, go to the store, and then be provided with the optimal route based on the shopping list. Hence, the shortest path from the

22 August 2019 ABG Sundal Collier 38

StrongPoint

shopper’s location to the next article in the shopping list. However, this technique can also be used the other way around, to observe and analyse shopper behaviour in order to increase customer spending in-store.

Shopper guidance using the geofencing ability

Source: Pricer

Pick & Collect For a retailer that has already installed electronic shelf labels, StrongPoint can also provide its Pick & Collect solution. This is a value-added product for retailers in combination with the Click & Collect lockers. As online sales from Click & Collect start to increase, efficient picking of goods will become important for the stores to be able to deliver an efficient service, while minimizing personnel expenses. Just as with geofencing, the Pick & Collect solution plans the optimal route for the picking process. It highlights which products should be picked through the Flash Alert function, and then provides the shop employee with the shortest route to the next product.

Electronic shelf label’s Pick & Collect functionality

Source: Pricer

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Appendix 2: Automation in retail is coming Automation in retail is coming and those that do not implement new technologies will likely fall behind. In our view, grocery retail will likely be among the very first to implement new automation technologies due to its low margins and highly competitive nature. One of the leading initiatives globally when it comes to retail automation is Amazon Go. Since its launch in January 2018, Amazon has opened nine Amazon Go stores in three different US cities but, is targeting to have opened 3,000 stores by the end of 2021.

Number of Amazon Go stores

3,000

300x

10

2019 2021 Source: ABG Sundal Collier, Amazon.com

Mckinsey estimates that Amazon Go can deliver significant top- and bottom-line benefits through the use of automation technology. It estimates a potential top-line effect of 5-10% sales uplift driven in particular by reduced waiting times and added convenience driving store traffic (2-3%) and the use of customer insights to optimize assortments and personalise promotions (3-6%). It estimates the effect on EBITat 2- 3%, driven by a reduction in labour costs (3-4%) and deleveraging of the cost base (~1%), while depreciation will increase due to higher investments.

Potential topline effect of Amazon Go Potential EBIT effect of Amazon Go Topline impact Bottomline impact 9% 5% 8% 0-1% 7% 4% 1% 6% -2% 2-4% 3% 5% 4% 5-10% 2% 3% 1-2% 3-4% 2-3% 2% 1% 1% 2-3% 0% 0% Added Tailored Personalized Out-of-stock Sales uplift Reduced labor- Deleveraging Depreciation Operating profit convenience assortment promo reduction cost fixed-cost base

Source: ABG Sundal Collier, McKinsey & Company Source: ABG Sundal Collier, McKinsey & Company

Strongpoint already sells several products that increase automation in stores and reduce labour costs for retailers at the same time as increasing convenience for consumers, such as electronic shelf labels and self-check registers. In our view, it is likely that Strongpoint will continue to expand its product portfolio with additional automation solutions. The company could also be able to deliver Amazon Go-like systems to retailers sometime in the future, but it is not something we would expect in the next few years.

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Appendix 3: History StrongPoint ASA was formed in 2015 after the seven companies in the PSI Group consolidated into a single entity. The seven companies were PSI Systems AS, PSI Antonson AB, New Vision Baltija UAB, SQS Security Qube System AB, Antonson Etikett AB, CashGuard AB and Vensafe AS.

Although a company named StrongPoint did not exist until 2015 the PSI Group still has a long history. The PSI Group was listed on the Oslo Stock Exchange in 2001. After its IPO it expanded through a series of European mergers and acquisitions. The group acquired Antonsongruppen, a Swedish reseller of retail technology solutions, in 2004, for SEK 20m, which was a strategic move to strengthen its market position in Sweden and Scandinavia.

StrongPoint History

The seven companies in PSI Group is listed PSI Group acquires PSI Group merge their StrongPoint ASA on the Oslo Stock PSI Group merges the Select & Collect operations and form the acquires CUB Exchange with CashGuard company Vensafe company StrongPoint Business Systems AB

2001 2004 2008 2013 2014 2014 2015 2016 2017 2018

PSI Group acquires PSI Group PSI Group acquires StrongPoint Jacob Antonsongruppen – a acquires the label the retail company ASA acquires Tveraabak seller of retail company New Vision Baltija PyD Seguridad appointed CEO technology solutions SydEtikett

Source: ABG Sundal Collier, StrongPoint

In 2008, PSI Group merged with CashGuard, and CashGuard and SQS Security Qube System became subsidiaries of PSI Group. Five years later, in 2013, PSI Group acquired the label company SydEtikett for SEK 40m, which was later merged with PSI’s Swedish label business. The merger enabled PSI Group to establish a strong market position in retail labelling in the Nordics.

In 2014, PSI Group acquired the Norwegian technology company Vensafe through a private placement. Vensafe, founded in 1998, develops and markets automated sales solutions for small and valuable goods at risk of theft. StrongPoint also expanded internationally in 2014 with the acquisition of New Vision Baltja, a market leader within Retail Solutions and self-serving checkout technologies in the Baltics, for ~EUR 2m. The transaction provided StrongPoint with a strong position in the Baltics.

StrongPoint was formed in 2015, as PSI Group consolidated its business operations. StrongPoint grew in Europe with the acquisition of the Spanish company PyD Seguridad for ~EUR 450k in 2016. At the end of 2017 it expanded its e- commerce portfolio with the acquisition of Cub Business Systems.

In August 2018, after 15 years under the leadership of Jørgen Waaler, Jacob Tveraabak was appointed CEO of StrongPoint. The company delivered solid financial results in 2018, with turnover of NOK 1.07bn and 12% growth, and it has now initiated a cost optimisation programme. To date, StrongPoint has 525 employees and offers solutions within retail, cash security and labelling, with a strong European presence.

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Appendix 4: Management CEO: Jacob Tveraabak, has been CEO of StrongPoint since August 2018. Prior to this he served as CEO of Miklagruppen. He obtained extensive international experience through working 12 years for McKinsey & Company where he was Associate Partner and had a focus on retail for many years. After McKinsey he served as Director of Business Development at REMA 1000 for four years. He is also the co-founder and rotating Chairman of the Board at Nabobil.no. Tveraabak has an MSc in Business Administration from the Norwegian School of Economics (NHH).

CFO: Hilde Horn Gilen, has been CFO of StrongPoint since February 2019. Prior to that she worked for five years as CFO of Ahlsell Norway, having also worked seven years at Kongsberg Gruppen and at PWC for 10 years. Gilen has an Msc in Business from Nord University (Norway).

SVP Home Markets: Per Haagensen, has worked for StrongPoint since 2010 and manages sales and services in Norway, Sweden and the Baltics. He previously worked 12 years as Managing Director in Tomra AS, responsible for Sales and Service operations in Norway. He has an MBA from BI - Norwegian School of Management.

Management overview Corporate Management Name Position Background

Tveraabak has been CEO of StrongPoint since August 2018. Extensive Jacob Tveraabak CEO international experience from 12 years at McKinsey & Company and four years at REMA 1000. He is also the co-founder of Nabobil.no.

Gilen has been CFO of StrongPoint since February 2019. Previously worked five Hilde Horn Gilen CFO years as CFO of Ahlsell Norway, seven years at Kongsberg Gruppen and at PWC for 10 years.

Haagensen has worked for the company since 2010 and manages sales and services in Norway, Sweden and Baltics. Previously worked 12 years as Per Haagensen SVP Home Markets Managing Director in Tomra AS, responsible for Sales and Service operations in Norway.

Kongrød has been CEO of Vensafe since 2009, which was acquired by Trond Kongrød SVP EMEA StrongPoint in 2014. 15 years of prior experience in retail from G-Sport and MD of THORN.

Gabrielsson has been SVP at StrongPoint since 2015. He has extensive retail SVP Global Partners experience having held leadership positions at CashGuard, McAfee and Roine Gabrielsson Synergica.

Source: ABG Sundal Collier, Strongpoint

SVP EMEA: Trond Kongrød, has been CEO of Vensafe since 2009, which was acquired by StrongPoint in 2014, with 15 years of prior experience in retail from G- Sport and MD of THORN. Educated in the Norwegian Armed Forces.

SVP Global Partners: Roine Gabrielsson, has been SVP at StrongPoint since 2015. Has extensive experience within sales management and marketing, having held leadership positions at CashGuard, McAfee and Synergica. Has an MBA from Henley Business School (UK).

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StrongPoint

Appendix 5: Board of Directors Chairman: Per-Morthen Johannessen, PE Industrial Advisor, investor and experienced board member. Johannessen has over 20 years of experience in sales, marketing and management from Motri, Voss, Tomra Systems and Pepsi. He has an MSc in Marketing Management from Copenhagen Business School. Board member at StrongPoint ASA since 2016.

Board Member: Camilla Tepfers, Founding Partner in inFuture since 2008, with prior experience from DNB and as an assistant professor at NTNU (Norway).She has an MSc from NTNU. Board member at StrongPoint ASA since 2013.

Board of Directors overview Board of Directors Name Position Background

PE Industrial Advisor, investor and experienced board member. Johannessen Per-Morthen Johannessen Chairman has over 20 years of experience in sales, marketing and management from Motri, Voss, Tomra Systems and Pepsi. Board member since 2016.

Founding Partner in inFuture since 2008, with former experience from DNB and Camilla Tepfers Board Member as an assistant professor at NTNU (Norway). Board member since 2013.

Partner at XO Executive Advisors, previously having been CEO of Nidar. 20 Inger Johanne Solhaug Board Member years of experience in retail from leadership positions at Orkla. Board member since 2015.

Investment Director in Strømstangen AS since 2009, with experience from IK Klaus De Vibe Board Member Investment Partners and from Morgan Stanley. Board member since 2016.

Principal Advisor, Consultant and Board Member. 18 years of experience within Peter Mikael Wirén Board Member payments and merchant services from leadership positions in Bambora, Nets Denmark and Teller. Board member since 2018.

Source: ABG Sundal Collier, Strongpoint

Board Member: Inger Johanne Solhaug, Partner at XO Executive Advisors, previously having been CEO of Nidar. She has 20 years of experience in retail from Orkla, where she has held several leadership positions. She has an MSc from the Norwegian School of Economics (NHH). Board member at StrongPoint ASA since 2015.

Board Member: Klaus De Vibe. Since 2009 he has been Investment Director in Strømstangen AS, with previous experience from IK Investment Partners and Morgan Stanley. He has an MSc in Finance from the Norwegian School of Economics (NHH). Board member at StrongPoint ASA since 2016.

Board Member: Peter Mikael Wirén, Principal Advisor, Consultant and Board Member. Has 18 years of experience within payments and merchant services from having held leadership positions in Bambora, Nets Denmark and Teller. He has a B.Sc. in Business Administration and Economics from Uppsala University. Board member at StrongPoint ASA since 2018.

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Income Statement (NOKm) 2012 2013 2014 2015 2016 2017 2018 2019e 2020e 2021e Sales 596 717 829 1,146 1,120 951 1,068 1,127 1,232 1,301 COGS -298 -378 -408 -630 -573 -472 -535 -586 -641 -677 Gross profit 297 338 420 516 547 479 533 540 591 624 Other operating items -257 -284 -359 -425 -435 -427 -466 -448 -482 -505 EBITDA 40 54 61 90 112 52 67 93 108 119 Depreciation on tangibles -8 -11 -12 -15 -16 -18 -19 -39 -39 -39 Depreciation on intangibles 0 0 0 0 0 0 0 0 0 0 EBITA 32 44 49 76 96 34 49 54 69 80 Goodwill impairment charges 0 0 0 0 0 0 0 0 0 0 Other impairment and amortisation -14 -15 -55 -17 -17 -14 -19 -16 -16 -16 EBIT 17 28 -6 59 78 20 30 38 53 64 Interest Net -5 -4 -4 -4 -2 -2 -3 -4 -4 -4 Other financial items -4 32 -2 -5 3 -3 -1 5 0 0 Associated income 0 0 0 0 0 0 0 0 0 0 Other EO items 0 0 0 0 0 0 0 0 0 0 Pretax profit 9 56 -12 50 79 14 26 39 49 60 Tax -15 -5 10 -13 -5 -4 -13 -8 -10 -13 Net profit -6 51 -2 36 74 10 13 31 39 47 Minority interest 0 0 0 0 0 0 0 0 0 0 Net profit discontinued 0 0 0 0 0 0 0 0 0 0 Net profit to shareholders -6 51 -2 36 74 10 13 31 39 47 EPS -0.14 1.16 -0.04 0.82 1.68 0.23 0.30 0.70 0.88 1.07 EPS Adj 0.41 1.28 0.19 1.19 1.70 0.51 0.80 0.98 1.16 1.35 Total extraordinary items after tax 0 0 0 0 0 0 0 0 0 0 Tax rate (%) 167.6 9.2 85.2 26.5 6.4 29.5 48.3 20.3 21.0 21.0 Gross margin (%) 49.9 47.2 50.7 45.0 48.8 50.4 49.9 48.0 47.9 47.9 EBITDA margin (%) 6.7 7.6 7.4 7.9 10.0 5.5 6.3 8.2 8.8 9.2 EBITA margin (%) 5.3 6.1 5.9 6.6 8.6 3.6 4.6 4.8 5.6 6.2 EBIT margin (%) 2.9 3.9 -0.8 5.1 7.0 2.1 2.8 3.3 4.3 4.9 Pretax margin (%) 1.5 7.9 -1.5 4.3 7.1 1.5 2.4 3.4 4.0 4.6 Net margin (%) -1.0 7.1 -0.2 3.2 6.6 1.1 1.3 2.7 3.2 3.6 Growth rates Y/Y 2012 2013 2014 2015 2016 2017 2018 2019e 2020e 2021e Sales growth (%) 11.3 20.2 15.6 38.3 -2.3 -15.0 12.2 5.5 9.3 5.6 EBITDA growth (%) -19.5 34.8 12.6 48.4 23.4 -53.0 28.6 37.2 17.2 9.8 EBIT growth (%) 134.0 62.4 -122.1 1,037.2 33.7 -74.6 50.1 25.8 41.9 20.0 Net profit growth (%) 89.8 971.2 -103.6 2,102.3 103.6 -86.5 34.0 129.2 26.4 21.6 EPS growth (%) 93.1 928.6 -103.4 2,157.9 103.6 -86.5 34.0 129.0 26.2 21.6 Profitability 2012 2013 2014 2015 2016 2017 2018 2019e 2020e 2021e ROE (%) nm 40.8 -0.7 13.4 24.0 3.3 4.9 11.9 15.0 17.6 ROE Adj (%) nm 53.0 21.5 19.7 29.7 8.0 11.9 18.1 21.3 23.5 ROCE (%) nm 40.0 -2.6 14.9 21.0 4.3 8.1 11.8 14.5 17.9 ROCE Adj(%) nm 50.1 14.7 19.7 25.6 8.1 13.4 16.3 18.9 22.4 ROIC (%) nm 13.1 -0.2 8.7 15.0 2.9 3.0 5.6 8.0 10.0 ROIC Adj (%) nm 13.1 -0.2 8.7 15.0 2.9 3.0 5.6 8.0 10.0 Adj earnings numbers 2012 2013 2014 2015 2016 2017 2018 2019e 2020e 2021e EBITDA Adj 40 54 61 90 112 52 67 93 108 119 EBITDA Adj margin (%) 6.7 7.6 7.4 7.9 10.0 5.5 6.3 8.2 8.8 9.2 EBITA Adj 32 44 49 76 96 34 49 54 69 80 EBITA Adj margin (%) 5.3 6.1 5.9 6.6 8.6 3.6 4.6 4.8 5.6 6.2 EBIT Adj 17 28 -6 59 78 20 30 38 53 64 EBIT Adj margin (%) 2.9 3.9 -0.8 5.1 7.0 2.1 2.8 3.3 4.3 4.9 Pretax profit Adj 23 72 43 67 97 28 45 55 65 76 Net profit Adj 8 66 53 54 92 24 33 47 55 64 Net profit to shareholders Adj 8 66 53 54 92 24 33 47 55 64 Net Adj margin (%) 1.4 9.3 6.4 4.7 8.2 2.5 3.0 4.2 4.5 4.9 Source: ABG Sundal Collier, Company data

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Cash Flow Statement (NOKm) 2012 2013 2014 2015 2016 2017 2018 2019e 2020e 2021e EBITDA 40 54 61 90 112 52 67 93 108 119 Net financial items -9 28 -6 -9 1 -6 -4 1 -4 -4 Paid tax -15 -5 10 -13 -5 -4 -13 -8 -10 -13 Non-cash items 9 14 -15 5 34 -16 0 0 0 0 Cash flow before change in WC 26 91 51 73 142 27 51 86 94 103 Change in WC 0 -113 -34 -67 54 -38 -48 -0 -14 -13 Operating cash flow 26 66 46 50 161 25 18 53 52 66 CAPEX tangible fixed assets -6 -5 -13 -15 -29 -15 -11 -17 -17 -17 CAPEX intangible fixed assets 0 0 0 0 0 0 0 0 0 0 Acquisitions and disposals 2 21 -16 -9 -6 2 18 0 0 0 Free cash flow 22 83 16 27 126 11 25 36 35 49 Dividend paid -11 -11 -13 -15 -20 -66 -22 -24 -29 -36 Share issues and buybacks 0 0 0 0 0 0 0 -1 0 0 Other non cash items -10 -116 -26 -13 -32 -2 -6 -52 22 22 Decrease in net IB debt 0 -44 -23 -1 74 -57 -3 -42 27 35 Balance Sheet (NOKm) 2012 2013 2014 2015 2016 2017 2018 2019e 2020e 2021e Goodwill 0 111 142 153 113 139 141 134 134 134 Indefinite intangible assets 0 114 86 75 56 82 60 43 27 10 Definite intangible assets 0 0 0 0 0 0 0 0 0 0 Tangible fixed assets 0 36 43 55 85 81 58 107 85 63 Other fixed assets 0 19 42 29 33 22 14 10 10 10 Fixed assets 0 280 312 313 288 324 274 294 256 218 Inventories 0 86 96 125 101 131 128 135 123 129 Receivables 0 98 157 185 161 160 200 203 251 265 Other current assets 0 22 27 29 42 38 26 28 34 36 Cash and liquid assets 0 9 19 23 67 42 27 23 29 42 Total assets 0 494 611 675 659 696 655 683 693 689 Shareholders equity 0 251 247 297 321 281 265 254 264 276 Minority 0 0 0 0 0 0 0 0 0 0 Total equity 0 251 247 297 321 281 265 254 264 276 Long-term debt 0 44 39 37 33 25 50 87 65 44 Pension debt 0 0 0 0 0 0 0 0 0 0 Convertible debt 0 0 0 0 0 0 0 0 0 0 Deferred tax 0 0 0 0 0 0 0 0 0 0 Other long-term liabilities 0 10 29 0 5 27 21 9 9 9 Short-term debt 0 9 47 54 29 68 32 33 33 33 Accounts payable 0 71 106 96 102 93 81 91 113 119 Other current liabilities 0 110 144 191 169 201 207 209 209 209 Total liabilities and equity 0 494 611 675 659 696 655 683 693 689 Net IB debt 0 44 67 69 -5 51 55 96 69 34 Net IB debt excl. pension debt 0 44 67 69 -5 51 55 96 69 34 Capital invested 0 392 459 527 448 523 521 541 517 492 Working capital 0 113 147 214 160 198 247 247 262 275 EV breakdown 2012 2013 2014 2015 2016 2017 2018 2019e 2020e 2021e Market cap. diluted (m) na na 302 590 676 493 395 515 515 515 Net IB debt Adj 0 44 67 69 -5 51 55 96 69 34 Market value of minority 0 0 0 0 0 0 0 0 0 0 Reversal of shares and participations 0 0 0 0 0 0 0 0 0 0 Reversal of conv. debt assumed equity 0 0 0 0 0 0 0 0 0 0 EV na na 370 659 670 544 450 611 584 549 Capital efficiency (%) 2012 2013 2014 2015 2016 2017 2018 2019e 2020e 2021e Total assets turnover (%) nm 289.9 149.9 178.2 167.8 140.4 158.0 168.3 179.0 188.2 Capital invested turnover (%) nm 365.3 194.6 232.3 229.7 196.1 204.5 212.1 232.8 257.6 Capital employed turnover (%) nm 471.9 260.4 317.9 290.4 251.5 296.3 312.9 335.0 364.4 Inventories/sales (%) 0 6.0 10.9 9.6 10.1 12.2 12.1 11.7 10.5 9.7 Customer advances/sales (%) 0 0 0 0 0 0 0 0 0 0 Payables/sales (%) 0 5.0 10.7 8.8 8.9 10.3 8.2 7.7 8.3 8.9 Working capital/sales (%) 0 7.9 15.7 15.8 16.7 18.8 20.9 21.9 20.6 20.6 Financial risk and debt service 2012 2013 2014 2015 2016 2017 2018 2019e 2020e 2021e Net debt/equity (%) nm 17.7 27.2 23.1 -1.7 18.3 20.6 37.9 26.1 12.4 Net debt/market cap (%) na na 25.3 17.5 -1.0 9.3 12.8 18.7 13.4 6.6 Equity ratio (%) nm 50.7 40.4 44.0 48.7 40.4 40.5 37.2 38.1 40.0 Net IB debt adj./equity (%) nm 17.7 27.2 23.1 -1.7 18.3 20.6 37.9 26.1 12.4 Current ratio (%) nm 113.0 100.8 106.3 123.8 102.4 119.2 116.9 123.3 130.8 EBITDA/net interest (%) 859.6 1,255.3 1,548.9 2,172.2 5,881.8 2,374.5 2,155.9 2,431.4 2,711.6 2,978.1 Net IB debt/EBITDA (%) 0 81.8 110.1 75.8 -4.8 97.9 80.9 104.0 63.6 28.7 Interest cover (%) 677.4 1,010.2 1,244.8 1,819.2 5,045.7 1,541.2 1,563.6 1,412.4 1,736.0 2,002.5 Source: ABG Sundal Collier, Company data

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Valuation and Ratios (NOKm) 2012 2013 2014 2015 2016 2017 2018 2019e 2020e 2021e Shares outstanding adj. 44 44 44 44 44 44 44 44 44 44 Fully diluted shares Adj 44 44 44 44 44 44 44 44 44 44 EPS -0.14 1.16 -0.04 0.82 1.68 0.23 0.30 0.70 0.88 1.07 Dividend per share Adj 0.3 0.3 0.4 0.5 1.5 0.5 0.6 0.7 0.8 1.0 EPS Adj 0.41 1.28 0.19 1.19 1.70 0.51 0.80 0.98 1.16 1.35 BVPS 0 5.65 5.56 6.70 7.23 6.33 5.97 5.72 5.95 6.21 BVPS Adj 0 3.16 2.36 3.24 4.68 3.20 2.79 2.69 2.92 3.19 Net IB debt / share 0 1.0 1.5 1.5 -0.1 1.2 1.2 2.2 1.6 0.8 Share price na na 6.82 13.30 15.23 11.10 8.90 11.60 11.60 11.60 Market cap. (m) na na 302 590 676 493 395 515 515 515 Valuation 2012 2013 2014 2015 2016 2017 2018 2019e 2020e 2021e P/E na na -170.4 16.2 9.1 49.0 29.3 16.7 13.2 10.9 EV/sales na na 0.45 0.57 0.60 0.57 0.42 0.54 0.47 0.42 EV/EBITDA na na 6.1 7.3 6.0 10.4 6.7 6.6 5.4 4.6 EV/EBITA na na 7.5 8.7 7.0 16.0 9.2 11.4 8.4 6.9 EV/EBIT na na -59.1 11.2 8.6 27.3 15.1 16.3 11.0 8.6 Dividend yield (%) na na 5.1 3.4 9.8 4.5 6.2 5.6 6.9 8.2 FCF yield (%) na na 5.3 4.6 18.6 2.3 6.3 7.0 6.7 9.5 P/BVPS na na 1.23 1.99 2.11 1.75 1.49 2.03 1.95 1.87 P/BVPS Adj na na 2.89 4.10 3.25 3.47 3.19 4.31 3.97 3.64 P/E Adj na na 36.3 11.2 9.0 21.9 11.1 11.9 10.0 8.6 EV/EBITDA Adj na na 6.1 7.3 6.0 10.4 6.7 6.6 5.4 4.6 EV/EBITA Adj na na 7.5 8.7 7.0 16.0 9.2 11.4 8.4 6.9 EV/EBIT Adj na na -59.1 11.2 8.6 27.3 15.1 16.3 11.0 8.6 EV/cap. employed na na 1.1 1.7 1.8 1.5 1.3 1.6 1.6 1.6 Investment ratios 2012 2013 2014 2015 2016 2017 2018 2019e 2020e 2021e Capex/sales 1.1 0.6 1.6 1.3 2.6 1.6 1.0 1.5 1.4 1.3 Capex/depreciation 76.6 43.0 112.0 99.8 185.4 83.9 59.7 44.1 43.8 43.8 Capex tangibles/tangible fixed assets nm 12.5 31.3 26.7 34.4 19.0 19.1 16.0 20.1 27.0 Capex intangibles/definite intangibles nm nm nm nm nm nm nm nm nm nm Depreciation on intangibles/definite intangibles nm nm nm nm nm nm nm nm nm nm Depreciation on tangibles/tangibles nm 29.0 27.9 26.7 18.6 22.6 31.9 36.2 45.8 61.7 Source: ABG Sundal Collier, Company data

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Analyst certification I/We, Petter Nystrøm, Øystein Elton Lodgaard, the author(s) of this report, certify that not withstanding the existence of any such potential conflicts of interests referred to below, the views expressed in this report accurately reflect my/our personal view about the companies and securities covered in this report.

Analyst valuation methods ABG Sundal Collier analysts may publish valuation ranges for stocks covered under Company Sponsored Research. These valuation ranges rely on various valuation methods. One of the most frequently used methods is the valuation of a company by calculation of that company's discounted cash flow (DCF). Another valuation method is the analysis of a company's return on capital employed relative to its cost of capital. Finally, the analysts may analyse various valuation multiples (e.g. the P/E multiples and the EV/EBITDA multiples) relative to global industry peers. In special cases, particularly for property companies and investment companies, the ratio of price to net asset value is considered. Valuation ranges may be changed when earnings and cash flow forecasts are changed. They may also be changed when the underlying value of a company's assets changes (in the cases of investment companies, property companies or insurance companies) or when factors impacting the required rate of return change.

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Unless disclosed in this section, ABG Sundal Collier has no required regulatory disclosures to make in relation to an ownership position for the analyst(s) and members of the analyst's household, ownership by ABG Sundal Collier, ownership in ABG Sundal Collier by the company(ies) to whom the report(s) refer(s) to, market making, managed or co-managed public offerings, compensation for provision of certain services, directorship of the analyst, or a member of the analyst's household, or in relation to any contractual obligations to the issuance of this research report.

ABG Sundal Collier has undertaken a contractual obligation to issue this report and receives predetermined compensation from the company covered in this report. A redacted version of this research report has been sent to StrongPoint for the purposes of checking its factual content

only. Any changes made have been based on factual input received. w mo

mo

ABG Sundal Collier is not aware of any other actual, material conflicts of interest of the analyst or ABG Sundal Collier of which the analyst

knows or has reason to know at the time of the publication of this report.

Production of report: 22/08/2019 06:31 CET. All prices are as of market close on 20 August, 2019 unless otherwise noted.

Disclaimer This document has been prepared by ABG Sundal Collier which is the marketing name referring to all or any of ABG Sundal Colli er ASA, ABG Sundal Collier AB or ABG Sundal Collier Partners LLP and any of their affiliated or associated companies and their directors, officers, representatives and employees.

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This research report does not, and does not attempt to contain everything material that there is to be said about StrongPoint .

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ABGSC Research Department

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