Commissioned Equity Research • 16 May 2019

Telecom Equipment and IT Cards Sweden

KEY DATA Solid report, hard to justify share price rally

Stock country Sweden Bloomberg FINGB SS Fingerprint's Q1 sales were SEK 343m, up 18% y/y, marking the first quarter Reuters FINGb.ST of yearly revenue growth since 2016. The gross margin came in at 23.0%, Share price (close) SEK 18.54 2.2 pp below consensus, albeit with a more promising outlook given. We Free Float 100% Market cap. (bn) EUR 0.54/SEK 5.82 increase our estimates for 2019 revenue thanks to stabilising market Website www..com conditions in capacitive sensors. We also see improved gross profit from Next report date 15 Aug 2019 the higher share of high-margin sensor FPC1511, but we reduce our long- term estimates for in-display sensors due to its late entrance to the market PERFORMANCE and need to play catch-up. We trim our EBIT estimates by 3.3%, 2.7% and 2.5% for 2020-22, respectively, and our new DCF-derived fair value range 150 lands at SEK 8.1-15.5 (8.3-16.0). The stock was shorted by around 8% of its

120 market cap ahead of the report, leading to a short squeeze. However, our fundamental view has not changed materially and justifying a higher price 90 would require a brighter outlook than we assume either for the in-display 60 sensor or the smartcard business. 30

0 May16 May17 May18 May19 Increased confidence in short-term profitability With 18% revenue growth y/y and shipment volumes for Fingerprint's core Fingerprint Cards Source: Thomson Reuters Sweden OMX Stockholm All-Share (Rebased) customers declining less than the market, we see stronger conviction in the company's ability to increase market share in capacitive sensors for 2019E. We expect sequential gross margin expansion from the better product mix, VALUATION APPROACH and the company claims to have achieved an annual opex run rate below SEK 400m before capitalisation of R&D.

In-display sensor outlook challenged During the Q1 conference call, we learnt that in-display sensors is growing DCF 8.1 15.5 faster as a segment, and Fingerprint has launched a product but not yet secured a design win. Three competitors are already on the market challenging Fingerprint in the race to become the market leader, even though claims are made around better form factor, security and value for 4 9 14 19 money to customers. This leads us to lower our segment market share and SEK thereby decrease company revenue estimates for 2020-22 by 0.5%. Source: Nordea estimates Winning in the short term, long term is a bet ESTIMATE CHANGES All in all, we see a company that has reduced the risk of cash depletion, Year 2019E 2020E 2021E thanks to successful cost-cutting and stabilising core business, but growth Sales 3% -1% 0% of new product lines comes with timing risk. Our updated DCF-derived fair EBIT (adj) 58% -3% -3% Source: Nordea estimates value range is SEK 8.1-15.5 (8.3-16.0). The top end of this would require a leading position in the smartcard market and a quick product launch of the in-display sensor.

SUMMARY TABLE - KEY FIGURES Nordea Markets - Analysts Jörgen Wetterberg SEKm 2015 2016 2017 2018 2019E 2020E 2021E Senior Analyst Total revenue 2,901 6,638 2,966 1,535 1,503 1,790 1,907 EBITDA (adj) 939 2,662 234 -737 184 228 278 EBIT (adj) 916 2,613 155 -772 52 172 222 EBIT (adj) margin 31.6% 39.4% 5.2% -50.3% 3.5% 9.6% 11.7% EPS (adj) 12.51 6.61 0.38 -2.01 0.13 0.43 0.55 Henning Zakrisson EPS (adj) growth 638.2% -47.1% -94.2% -624.4% 106.2% 241.4% 28.9% Analyst DPS (ord) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 EV/Sales -0.4 n.a. n.a. n.a. n.a. n.a. n.a. EV/EBIT (adj) n.m. n.a. n.a. n.a. n.a. n.a. n.a. P/E (adj) 9.5 9.5 41.3 n.m. n.m. 43.3 33.6 P/BV 0.0 8.8 2.1 1.8 3.2 3.0 2.7 Dividend yield (ord) 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% FCF Yield bef acq & disp n.m. 5.3% -14.0% 3.5% 2.9% 2.3% 2.9% Net debt -1,031 -1,162 -698 -541 -710 -844 -1,011 Net debt/EBITDA -1.1 -0.4 -3.0 0.7 -3.9 -3.7 -3.6 ROIC after tax n.m. n.m. 7.9% -38.8% 3.3% 11.6% 19.1% Source: Company data and Nordea estimates

Marketing material commissioned by Fingerprint Cards 16 May 2019 Fingerprint Cards Company update: Q1 2019 report

Fingerprint reported Q1 net sales of SEK 343m, 1.8% below our estimate and up 18% y/y. While volumes declined globally in Q1, Fingerprint's main customers fared better than the market. The gross margin ended up at 23.0%, up sequentially by 2.2 pp. While this was lower than consensus, it is promising since the company claims that a large portion of the quarter's sales were legacy high-cost sensors from the inventory, and that the new high-margin FPC1511 sensor volumes will ramp up and affect numbers more in Q2. Operational costs totalled SEK 81m, down 63.1% y/y as an effect of the executed cost programme. The maintained opex levels bode well for the sustainability of the cost base.

FINGERPRINT CARDS: Q1 DEVIATION TABLE

Actual NordeaDeviation Cons.Deviation Actual Actual (SEKm) Q1 19 Q1 19Evs. actual Q1 19Evs. actual Q4 18 q/q Q1 18 y/y Net sales 343 349 -6 -1.8% 341 2 +0.5% 424 -19% 290 +18%

Gross profit 79 92 -14 -14.9% 86 -7 -8.2% 88 -11% 45 +76% Gross margin 23.0% 26% -3.5pp 25% -2.2pp 21% +2.2pp 15% +7.5pp

EBIT -2 2 -4 -207% -13 11 +85% -26 +93% -175 +99% Operating margin -1% 1% -1.1pp -4% +3.2pp -6% +5.5pp -60% +59.8pp

EPS -0.01 -0.005 -0.01 -104% -0.03 0.02 +63% -0.06 +83% -0.47 +98%

Source: Company data, Thomson Reuters consensus and Nordea estimates Company results Net sales below our estimate Fingerprints reported Q1 net sales of SEK 343m, 1.8% below our estimate and up 18% y/y. While overall smartphone volumes decreased y/y in Q1, Fingerprint claims that the decline was only around 4% (IDC claims it was 6.6%), and the company's core customers were least affected while otherssuch as Apple and Samsung lost market shares. Combined with stabilising prices for the sensors and improved market shares from price cutting, this led to the y/y revenue decline seen in the last eight quarters coming to an end.

Non-smartphone revenue The company has previously stated that it aims for 10% of revenues to stem from other target reiterated segments than fingerprint sensors for , a goal it claims to have reached in 2018. While the company does not give an update on this on a quarterly basis, CEO Christian Fredriksson says that the revenue share is likely to be above 10% for 2019 as a whole, with Chinese door locks with fingerprint sensors being the fastest-growing market outside of smartphones.

QUARTERLY NET SALES PROGRESSION

900 30.0%

800 20.0%

700 10.0% 0.0% Q1 2019 was the first quarter 600 -10.0% since 2016 with growing 500 revenues y/y -20.0%

SEKm 400 -30.0% 300 -40.0% 200 -50.0% 100 -60.0% 0 -70.0% Q1 17 Q2 17 Q3 17 Q4 17 Q1 18 Q2 18 Q3 18 Q4 18 Q1 19 Net sales y/y

Source: Company data

Slight gross margin expansion, The gross margin was 23.0%, up 2.2 pp q/q and 7.5 pp y/y. The company comments that more to come the margin was better than during the worst quarters, but that it is still being affected by higher-cost sensors being sold off from the inventory at a lower price than expected.

Marketing material commissioned by Fingerprint Cards 2 16 May 2019 Fingerprint Cards

The new low-cost sensor FPC1511 is said to be gaining traction in the market with volumes ramping up in Q2 2019. While the company gives no guidance on gross margins apart from a long-term goal of >30%, this comment suggests to us that gross margins are expanding in Q2.

NUMBER OF FULL-TIME EMPLOYEES

450

400

350

300

250

200

150

100

50

0 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 12 12 13 13 13 13 14 14 14 14 15 15 15 15 16 16 16 16 17 17 17 17 18 18 18 18 19

Source: Company data

Stable cost base Q1 2019 opex ended up at SEK 59m before capitalisation of R&D, meaning LTM opex before capitalisation of R&D was SEK 429m. The company stated a goal of less than SEK 400m in operational costs before capitalisation of R&D when the 2018 cost-cutting programme was initiated, and says that this is the current run-rate. The Q2 2019 LTM level will likely be within the target, and as of Q1 2019 the LTM opex base was down 37.3%. The company now says that it is at a comfortable cost base to stay competitive. While cost-cutting measures will be evaluated on an ongoing basis, the current level is likely to be maintained to remain competitive and innovative. We believe that future cost-cutting will be seen mostly on the COGS line, with new sensors and higher-margin product mix.

QUARTERLY OPEX BREAKDOWN

250

200

150 SEKm 100

50

0 Q1 17 Q2 17 Q3 17 Q4 17 Q1 18 Q2 18 Q3 18 Q4 18 Q1 19 Sales Administration Development

Source: Company data

Operating cash flow hit by Operating cash flow was SEK -26.1m, and Fingerprint commented that it has been hit accounts payable and delayed by a seasonal effect connected to accounts payable and some delayed receivables receivables which were settled just after the quarter ended.

The smartphone sensor market Smartphone shipment volumes According to IDC, the global smartphone market declined by 6.6% in Q1 2019 are declining compared with Q1 2018, while Fingerprint says that the number was closer to 4%. Fingerprint also states that the decline was more severe for OEMs than its key customers. This is in line with an industry report from IDC. For example, volumes for core customer increased by over 50% y/y in Q1.

Marketing material commissioned by Fingerprint Cards 3 16 May 2019 Fingerprint Cards

SMARTPHONE SHIPMENT VOLUME CHANGES Q1 2019 VS Q1 2018 FROM MAJOR OEMS

355 -6.1% -10.1% +24.1% -8.1%

345 -30.3% The downturn did not affect Fingerprint's core customers as 335 much as others +50.4% -21.5% million units million 325

315

305 Q1 2018 Huawei vivo Xiaomi Samsung Apple Others Q1 2019

Source: IDC

While there are still no products launched with the optical in-display FPC1610, the company is certain this will be rolled out in end-customer handsets this year, and that the product is competitive on quality and price. The company added that it believes volumes of capacitive fingerprint sensors for smartphones peaked with declining smartphone volumes and new biometric standards, such as in-display and touchless.

Low-cost sensor set to ramp up A total of 11 new mobile devices using Fingerprint's sensors were launched in Q1, in volumes compared with 18 in Q4 2018. Please note in the table below that the low-cost FPC1511 sensor has really started to catch manufacturers' attention and volumes are increasing.

ANNOUNCEMENTS OF SMARTPHONES USING FINGERPRINT'S SENSORS

Announcement Manufacturer Model Sensor 12/03/2019 Xiaomi Redmi Note 7 Pro FPC1511 12/03/2019 Oppo F11 FPC1511 12/03/2019 Oppo F11 Pro FPC1511 12/03/2019 LG K50 FPC1511 12/03/2019 LG K20 FPC1511 12/03/2019 LG Q60 FPC1511 12/03/2019 Aquos Zero FPC1291 12/03/2019 Aquos R2 Compact FPC1291 18/03/2019 Huawei Y9 FPC1028 18/03/2019 Huawei Nova 4e FPC1511 02/05/2019 Xiaomi Redmi 7 FPC1511 02/05/2019 Kyozera Duraforce Pro2 FPC1145 02/05/2019 Huawei Y7 2019 FPC1511 02/05/2019 Huawei Y6 FPC1511 02/05/2019 Huawei Enjoy 9e FPC1511 10/05/2019 Pixel 3a FPC1035 10/05/2019 Google Pixel 3a XL FPC1035 13/05/2019 Honor A8 Pro FPC1028/1511 13/05/2019 Honor 10i FPC1028/1511 13/05/2019 Honor 20i FPC1028/1511 13/05/2019 Oppo A9 FPC1511 13/05/2019 Realme Realme 3 Pro FPC1511 13/05/2019 Razer Razer Phone 2 FPC1145 13/05/2019 Sharp AQUOS R3 FPC1291

Source: Company data The smartcard market First volume order of biometric Just after the Q4 2018 report, Fingerprint announced the world's first volume order of smartcards fingerprint sensors for dual-interface payment cards. , a world-leading company within digital security, ordered a few hundred thousand sensors to be shipped during 2019 and 2020. While the revenue from this is likely immaterial (we estimate the order at roughly SEK 15m), it is an initial datapoint indicating that the market is set to gain volumes in the coming years.

In March, Fingerprint announced that one of its sensors had been implemented in an 'all-in-one' card by Chinese user authentication solution provider Feitan. While this is not a stand-alone payment card, which the company considers the largest potential smartcard market in the future, it shows that there is some interest in the company's products in card-based user authentication.

Marketing material commissioned by Fingerprint Cards 4 16 May 2019 Fingerprint Cards

A few new trials have been launched using Fingerprint's sensors, including one with NatWest in the UK using the power-harvesting T-shape module.

MAP OF SMARTCARD TRIALS INVOLVING FINGERPRINTS' SENSORS

Source: Company data

Software platform product Another product launched during the quarter was a software platform designed to be launched used in biometric authentication for payments. The platform, intended to be implemented in cards, USB dongles and wearables, has been produced to ease the use of as a payment solution. It has been tailored to optimise performance when used with Fingerprints' T-shape module.

The Fingerprint share Share is up to a year-high level Before the Q1 report, the Fingerprint share had declined to levels more in line with those seen at the end of 2018, after which the share rose 44% on the day of the report. YTD, the stock is up 83%, and the one-year return is 201%. Since the peak on 25 February this year, the stock is down 21%.

52-WEEK SHARE PRICE

25

20

15 SEK 10

5

0 Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May 2018 2018 2018 2018 2018 2018 2018 2018 2018 2019 2019 2019 2019 2019

Source: Thomson Reuters

The shareholder table looks similar to what it looked like after the Q4 2018 report. The British Biometrics ETF that became a major shareholder early this year has increased its shareholding somewhat.

Marketing material commissioned by Fingerprint Cards 5 16 May 2019 Fingerprint Cards

LARGEST SHAREHOLDERS (AS OF 15 MAY 2019)

Owner FING A FING B Capital Votes Johan Carlström med bolag 6,000,000 14,000,000 6.4% 20.1% GO ETF Solutions LLP - 18,607,537 5.9% 5.1% Avanza Pension - 16,112,300 5.1% 4.4% Ålandsbanken Fonder - 4,934,220 1.6% 1.3% Danica Pension - 3,781,275 1.2% 1.0% Svenska Handelsbanken AB for PB - 3,531,500 1.1% 1.0% Nordnet Pensionsförsäkring - 2,651,121 0.8% 0.7% Swedbank Försäkring - 2,226,065 0.7% 0.6% DNB Asset Management SA - 2,218,035 0.7% 0.6% Dimensional Fund Advisors - 2,085,869 0.7% 0.6% Chahine Capital - 1,990,585 0.6% 0.5% SEB Fonder - 1,821,761 0.6% 0.5% Erik Svenonius - 1,803,000 0.6% 0.5% XACT Fonder - 1,721,878 0.5% 0.5% Nordea Liv & Pension - 1,662,310 0.5% 0.5% Other - 234,819,544 72.9% 62.2%

Source: Holdings

Marketing material commissioned by Fingerprint Cards 6 16 May 2019 Fingerprint Cards Estimate revisions

The Q1 report and a recent IDC report make us more confident in the company's ability to gain market share and improve profitability in the short term. However, decreased conviction on new biometric sensors and delayed product launches make us revise future market shares and volumes, leading to decreased revenue estimates of 0.5% for 2020E onwards. We present our estimate revisions below and detail our motivation. The new estimates and a WACC of 9.8% lead to a DCF-based fair value range of SEK 8.1-15.5 (8.3-16.0).

We change our estimates for four major reasons:

 Smartphone declines and shipment volumes have not declined as much as we expected, and Fingerprint's major customers have managed relatively well. We therefore upgrade the addressable market size and market share, and therefore sensor shipments are upgraded 6.6% for 2019.  The ASP erosion in 2018 was likely higher than we expected, new numbers on sensor volumes from the company show. We therefore reduce our capacitive sensor ASP by 5%.  The optical in-display sensor does not seem to be rolling out in end-user products in Q2 or Q3 as we expected, and does not have any convincing unique selling points. We therefore reduce our market share estimates in the long term to 18% (20%). This worsens the product mix going forward, and so we reduce our gross margin estimates by 0.2 pp for 2020-22.  The major gross margin expansion is likely ahead of us, as the effect from the new low-cost sensor did not materialise as we had expected in Q1. We therefore increase our gross margin estimate for Q3-Q4 2019 by 1.2-2.2 pp, respectively.

FINGERPRINT CARDS: ESTIMATE REVISIONS New Estimates Old estimates Diff % Diff SEKm 2019E 2020E 2021E 2022E 2019E 2020E 2021E 2022E 2019E 2020E 2021E 2022E 2019E 2020E 2021E 2022E Net sales 1,503 1,790 1,907 2,303 1,458 1,799 1,917 2,316 +46 -10 -9 -12 +3.1% -0.5% -0.5% -0.5% Gross profit 415 551 626 732 401 558 632 741 +14 -7 -7 -9 +3.4% -1.2% -1.1% -1.2% Gross margin 27.6% 30.8% 32.8% 31.8% 27.5% 31.0% 33.0% 32.0% +0.1pp -0.2pp -0.2pp -0.2pp

Operating expenses Sales expenses 139 147 159 184 131 148 160 185 +8 -1 -1 -1 +6.0% -0.5% -0.5% -0.5% Administrative expenses 92 88 88 88 93 88 88 88 -1 - - - -1.5% - - - Development expenses 132 144 156 160 144 144 156 160 -12 - - - -8.3% - - - Total opex 363 379 403 432 368 380 404 433 -5 -1 -1 -1 -1.5% -0.2% -0.2% -0.2%

EBIT 52 172 222 300 33 178 228 308 +19 -6 -6 -8 +58.2% -3.3% -2.7% -2.5% EBIT margin 3.5% 9.6% 11.7% 13.0% 2.3% 9.9% 11.9% 13.3% +1.2pp -0.3pp -0.3pp -0.3pp

EPS 0.13 0.43 0.55 0.75 0.04 0.44 0.57 0.76 +0.08 -0.01 -0.02 -0.02 +185.4% -3.3% -2.7% -2.5%

Units shipped (m) Capacitive 230 237 244 248 216 231 238 242 +14 +6 +6 +6 +6.6% +2.5% +2.5% +2.5% In-display 0.6 7 17 30 0.8 8 19 34 -0.1 -1 -2 -4 -16.5% -12.6% -9.0% -11.3% Iris 20 43 59 64 20 43 59 64 ------Smartcards 0 7 14 43 0 7 14 43 ------

ASP (USD) Capacitive 0.66 0.56 0.47 0.40 0.69 0.59 0.50 0.42 -0.03 -0.03 -0.02 -0.02 -5.0% -5.0% -5.0% -5.0% In-display 2.9 2.0 1.5 1.1 2.9 2.0 1.5 1.1 ------Iris 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 ------Smartcards 6.4 4.5 3.1 2.2 6.4 4.5 3.1 2.2 ------

Source: Nordea estimates Smartphone segment After industry reports from IDC and Fingerprint itself claimed that smartphone volumes were down 6.6% and 4%, respectively, in Q1 2019, we increase our global smartphone volumes, which were set for a 12% decline in Q1. However, we still believe 2019 will be a year of declining smartphone volumes.

Marketing material commissioned by Fingerprint Cards 7 16 May 2019 Fingerprint Cards

GLOBAL SMARTPHONE SHIPMENTS

1,600 30.0%

1,400 25.0%

1,200 20.0%

1,000 15.0%

800 10.0%

600 5.0% million units

400 0.0%

200 -5.0%

0 -10.0% 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E 2024E Smartphone shipments y/y growth

Source: IDC, Credit Suisse, Statista, ABI Research and Nordea estimates Increased confidence in our assumption that Fingerprint's core customers such as Huawei, Xiaomi and other Chinese manufacturers are gaining the most market share and losing the least relative to the market spur us to increase Fingerprint's market share in global biometric smartcard shipments. All in all, this calls for increased shipments of capacitive fingerprint sensors for Fingerprints.

SMARTPHONE SHIPMENT VOLUME CHANGES Q1 2019 VS Q1 2018 FROM MAJOR OEMS

355 -6.1% -10.1% +24.1% -8.1%

345 -30.3%

335

+50.4% -21.5% million units million 325

315

305 Q1 2018 Huawei vivo OPPO Xiaomi Samsung Apple Others Q1 2019

Source: IDC, Credit Suisse, Statista, ABI Research, Company data and Nordea estimates Data in the annual report claimed that Fingerprint shipped roughly 200-240 million out of around 700 total global shipments in 2018. This is higher than our previous estimates, which means we have likely overestimated the ASP for the capacitive sensors. We therefore lower the ASP by 5%.

Marketing material commissioned by Fingerprint Cards 8 16 May 2019 Fingerprint Cards

FINGERPRINT'S REVENUES

7,000

6,000

5,000

4,000

SEKm 3,000

2,000

1,000

0 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E 2024E Capacitive In-display Iris Face Smartcards Automotive&Embedded

Source: Company data and Nordea estimates The fact that the newly launched optical in-display sensor FPC1610 still has not received any design wins make us a bit cautious about the company's ability to gain market shares when it is the fourth player in the market to launch a product. The company claims it is more secure than the competitors' offerings and that this is its unique selling point, which we do not doubt. With the Samsung Galaxy S10+, Huawei P30 Pro, vivo Apex 2019, and others having already been launched with in-display sensors from , Goodix and Egistec, Fingerprints is late to the party. We saw the same issue with the capacitive sensors where Fingerprint has always been the market leader in terms of quality and security level but still lost shares to similar, equally convenient but cheaper sensors.

We therefore revise our market share for the in-display sensor, pushing the volume launch until later in 2019 and reducing long-term market shares to 18% (20%).

Cost management While the gross margin came in in line with consensus, it is higher than we would have expected knowing that a large share of the sensors sold in the quarter was legacy sensors from the inventory rather than the low-cost FPC1511. Since this likely means we will see a positive mix towards higher-margin sensors in Q2, we increase our gross margins somewhat for the remaining quarters of 2019, leading to a slight upgrade on the full year.

LAST NINE MONTHS OPERATIONAL COST BASE QUARTERLY OPERATIONAL COST BASE

700 250

600 200 500

400 150 SEKm 300 SEKm 100 200 50 100

0 0 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 15 15 16 16 16 16 17 17 17 17 18 18 18 18 19 19E 19E 19E 15 15 16 16 16 16 17 17 17 17 18 18 18 18 19 19E 19E 19E

Sales expenses Administrative expenses Development expenses Sales expenses Administrative expenses Development expenses

Source: Company data and Nordea estimates Source: Company data and Nordea estimates The opex level came in largely according to our estimates except for the significantly lower development costs, which lead to full-year costs estimates coming down 8.3% while leaving remaining quarter development costs unchanged. We still believe the company will reach its target of annual operational costs of SEK 400m before capitalisation of R&D.

Our sales opex estimates are down due to the fact that we still believe in a 9% sales expenses/sales ratio, and this is why costs come down with declining revenues.

Marketing material commissioned by Fingerprint Cards 9 16 May 2019 Fingerprint Cards Detailed estimates

FINGERPRINT'S P&L Q4 18 Q1 19 Q2 19E Q3 19E Q4 19E 2017 2018 2019E 2020E 2021E 2022E 2023E Net sales 424 343 383 399 379 2,966 1,535 1,503 1,790 1,907 2,303 2,755 Change y/y -31% 18% -2% -7% -11% -55% -48% -2% 19% 7% 21% 20% Cost of goods sold -336 -264 -278 -283 -264 -1,977 -1,533 -1,089 -1,238 -1,282 -1,571 -1,901 Gross profit 88 79 105 116 115 989 2 415 551 626 732 854 Gross margin 21% 23% 27% 29% 30% 33% 0% 28% 31% 33% 32% 31%

Sales expenses -35 -35 -34 -36 -34 -237 -189 -139 -147 -159 -184 -215 Administrative expenses -39 -22 -23 -23 -23 -146 -202 -92 -88 -88 -88 -88 Development expenses -43 -24 -36 -36 -36 -391 -244 -132 -144 -156 -160 -170 Total opex -117 -81 -94 -95 -93 -774 -635 -363 -379 -403 -432 -473 Change y/y -43% -63% -53% -6% -20% 29% -18% -43% 4% 6% 7% 9% Opex/sales 28% 23% 24% 24% 25% 26% 41% 24% 21% 21% 19% 17% Other operating incomes/expenses 3 0 0 0 0 -61 -139 0 0000

Operating profit -26 -2 11 21 22 155 -772 52 172 222 300 381 Margin -6% -1% 3% 5% 6% 5% -50% 3% 10% 12% 13% 14% Net financial items 21111 -13-2540000

Pre-tax profit -24 -1 13 22 23 142 -797 56 172 222 300 381 Tax 6 -3 -3 -5 -6 -22 166 -17 -38 -49 -66 -84 Tax rate 26% -337% 25% 25% 25% 15% 21% 30% 22% 22% 22% 22% Net profit -18 -4 9 16 17 120 -631 39 134 173 234 297 EPS -0.06 -0.01 0.03 0.05 0.05 0.38 -2.01 0.13 0.43 0.55 0.75 0.95

Source: Company data and Nordea estimates

FINGERPRINT'S VOLUMES AND ASP

Q4 18 Q1 19 Q2 19E Q3 19E Q4 19E 2017 2018 2019E 2020E 2021E 2022E 2023E USD/SEK 9.05 9.18 9.48 9.60 9.60 8.54 8.70 9.46 9.46 9.46 9.46 9.46 Revenues (SEKm) 424 343 383 399 379 2,966 1,535 1,503 1,790 1,907 2,303 2,755 Change y/y -31% 18% -2% -7% -11% -55% -48% -2% 19% 7% 21% 20%

Smartphone related units (m) Capacitive 59 47 54 59 53 245 205 214 221 223 225 227 ASP (USD) 0.72 0.70 0.66 0.62 0.63 1.41 0.79 0.66 0.56 0.47 0.40 0.36 Change y/y -45% -18% -17% -19% -12% -38% -44% -17% -15% -15% -15% -10% In-display 00001 0017173057 ASP (USD) ------4.22.92.01.51.10.8 Change y/y ------30%-30%-27%-25%-25%

Iris ------423374043 ASP (USD) ------0.380.340.31 0.28 0.25 0.23 Change y/y ------10%-10%-10%-10%-10%

Smartcard related units (m) 00000 0007144388 ASP (USD) 8.00 6.40 6.40 6.40 6.40 - 8 6 4322 Change y/y 0.0% -20.0% -20.0% -20.0% -20.0% 0 0 0 0000

Automotive & Embedded-related units (m) Capacitive 4.30 4.00 4.00 4.00 4.00 4 13 16 16 21 23 27 Touchless 4.00 3.61 4.00 4.00 4.00 10.0 16.0 15.6 20.0 22.0 24.2 26.6

Source: Company data and Nordea estimates

Marketing material commissioned by Fingerprint Cards 10 16 May 2019 Fingerprint Cards Factors to consider when investing in Fingerprint Cards

Fingerprint Cards has had a chequered past, to say the least. Its journey as a listed company was rather uneventful at the outset – it experienced slow adoption of capacitive fingerprint sensors only because its technology was ahead of its time. When the technology started gaining momentum, Fingerprint enjoyed a head start and growth was immense, providing its shareholders with significant returns. However, competition finally caught up, and the company’s decline came equally fast. The company now faces great challenges, but is not down for the count just yet. With the introduction of new biometric modalities (eg in-display fingerprint sensors and iris recognition) and growth in emerging segments, we see the possibility of a new dawn for Fingerprint Cards. In combination with more streamlined operations, the business could once again return to earnings growth and close the current margin gap to its peers. However, expanding from one to three or more industrial segments, and from essentially one product line to four, is a balancing act when cash is scarce – it carries high risk and potentially high rewards.

We consider the following factors critical when evaluating an investment in Fingerprint Cards:

We see four main factors to  Its potential to become a next-generation technology leader consider  Adjacent biometric market opportunities and an increased attachment rate for new applications that increase earnings diversification  Streamlined operations and a new product offering set to improve margins  Its potential as a takeover target.

The main risks to consider are the following:

The most important risks we  Fingerprints' competitive position could be threatened by new smartphone identify mainly relate to future biometric sensor standards revenue streams  Uncertainty regarding the future size and growth of new market opportunities within smartcards, automotive and embedded solutions  Challenging market conditions with immense competition, declining volumes and pressure on price  The potential need to turn to capital markets in the future due to the pressure on the company’s financial position  High concentration of existing and potential customers, with the ten largest customers accounting for 98.8% of revenues.

The future is multimodality We believe that in-display Following the success of fingerprint sensors in smartphones, in-display fingerprint fingerprint sensors will become sensors and touchless biometric modalities have become attractive to customers and the norm in smartphones manufacturers in the smartphone market. We have seen an increasing number of phones with multimodal biometric sensors, such as fingerprint sensors combined with face or iris recognition. The 2018 Google Pixel 3 launch was criticised for not featuring face recognition on top of its fingerprint sensor. One likely reason for Google's exclusion of touchless modalities is its willingness to keep screen bezel size down, while another is that some reviews claim the non-Apple face recognition technology is unsatisfactory from convenience and security perspectives – a view that is adhered to by Fingerprints' CEO. Apple's FaceID solution is a major R&D investment and the competition has not yet caught up, but this is just a matter of time. Advanced face recognition technology currently also requires that components are not obscured by display pixels, thus increasing the bezel or notch size requirements in the phones. We thus believe that in- display as a standalone sensor will be the norm in high-end smartphones until touchless sensors are good enough to be offered as a multimodality outside of Apple iPhones – which is likely to happen during 2019.

Marketing material commissioned by Fingerprint Cards 11 16 May 2019 Fingerprint Cards

Technology leadership position Last year, we witnessed the launch of a handful of devices sporting huge displays with still up for grabs fingerprint sensors built into the actual screen of the device. Despite receiving praise for the design, the sensors are reportedly slow, and there is room for improvement by moving from 'hot zone' detection, where only a very small part of the display is able to detect the fingerprint, to full-display detection.

SMARTPHONE SHIPMENTS FINGERPRINT SENSOR ATTACHMENT RATE 1,600 100% 1,400 90% 1,200 80% 70% 1,000 60% 800 50% 600 40%

million units million 30% 400 20% 200 10% 0 0%

Source: IDC, Credit Suisse, ABI Research and Nordea estimates Source: Company data and Nordea estimates

Fingerprints announced the launch of its first in-display sensor in February 2019, but it has yet to be implemented into any phones. It is, like most of its competitors' products, based on optical fingerprint detection, and is therefore not useful across an entire smartphone display. Since 2017, the company has been working on an ultrasound- based in-display sensor meant to be able to detect fingerprints across the entire display, but this has yet to be launched as a commercial product and is currently still in development. According to the company, the solution is almost finished, being demoed for customers at the moment, and the next step is basically a design win for the product.

Opportunity for Fingerprint to Fingerprints, assuming its product is released ahead of the competition, could enjoy a take a leadership position in in- first-mover advantage in full-display sensors and once again grab a large share of the display sensors for next- high-end smartphone market for biometric sensors. However, the issue is R&D generation high-end capability: Fingerprints is a smaller company than many of its competitors. Considering smartphones the recent cost and personnel reductions, as well as its diversified R&D focus, we are not surprised that Fingerprints has not yet released its ultrasound sensor. The risk of bringing the sensor to market too late, or that the product will simply be too expensive, cannot be ignored.

GLOBAL IN-DISPLAY SENSOR SHIPMENTS EXCLUDING APPLE

450 600%

400 500% 350

300 400%

250 300% 200

million units 150 200%

100 100% 50

0 0% 2018 2019E 2020E 2021E 2022E 2023E 2024E Shipments y/y growth

Source: Nordea estimates

Marketing material commissioned by Fingerprint Cards 12 16 May 2019 Fingerprint Cards

The opportunities in future product markets Capacitive sensors likely to be Capacitive fingerprint sensors in smartphones have become commonplace, but they around for the foreseeable are likely to be replaced by ultrasound and optical solutions in the coming years. This is future because ultrasound and optical detection, contrary to capacitive sensors, works through smartphone displays. However, capacitive sensors are still easy to implement, cheap to produce and offer high degrees of security and convenience. Despite the heavy competition, Fingerprint is still a market leader in this area and one of roughly four companies to make it through the heavy competition in recent years; as such, when the company ventures into new markets, it brings considerable experience to the table.

New segments like smartcards According to the company, smartcards are the single-largest future opportunity for could add earnings Fingerprints. With more than three billion payment cards shipped annually around the diversification world, the addressable market is huge. Using its T-shape module and sensor series, the company has already started testing sensor-equipped cards. It is one of only a few players openly planning to enter the maturing market with an actual product. Combined with the increasing implementation of fingerprint sensors in other segments (home security, automotive and the Internet of Things), this should diversify Fingerprints’ offering and make the company less vulnerable to volatility in smartphone volumes. The Q3 standard approval of the FPC1021AP sensor for automotive implementation came with the statement that the product is ready for mass-market production in 2019. This gives us a positive view that this segment, while small, is set to grow.

GLOBAL BIOMETRIC SMARTCARD SHIPMENTS, MILLION UNITS

400 12.0%

350 10.0% 300 8.0% 250

200 6.0%

150 4.0% 100 2.0% 50

0 0.0% 2019E 2020E 2021E 2022E 2023E 2024E Shipments Attachment rate

Source: Nordea estimates

Returning to cost leadership Cost-reduction programme to To ensure future competitiveness and a return to earnings growth, Fingerprints has drive opex below SEK 400m implemented a number of measures to improve its margins. The company has already before capitalisation of R&D finished one cost-cutting programme and has started rolling out another, from which it should reap benefits during the latter part of this year. The latest programme aims to adapt to the ongoing challenging market conditions for capacitive sensors and is expected to reduce the headcount by an additional 150 employees. The target is still set at total annual operational expenses before capitalisation of R&D below SEK 400m, which was the level back in 2015. We believe this is feasible in 2019E.

Product innovation should The Q2 announcement of the FPC1511 sensor, which the company claims to be its most adapt to demand for smaller cost-efficient sensor so far, is yet another iverdr to adapt to the latest shift in demand and cheaper sensors favouring smaller and cheaper fingerprint sensors. While the pricing of the sensor is not public, it is said to be the most cost-optimised sensor released by Fingerprints so far. If the new cost-cutting programme is executed properly and the FPC1511 gains order momentum in early 2019, we believe the company should be able to close the margin gap to its peers and defend its leading position in the market for capacitive fingerprint sensors.

Marketing material commissioned by Fingerprint Cards 13 16 May 2019 Fingerprint Cards

Challenging market could trigger industry consolidation Broken industry, not a broken With sensor prices in freefall, plummeting 30% annually in the last few years, the company capacitive sensor is being commoditised at a more rapid pace than likely anyone could have foreseen. On top of this, new industry standards are starting to emerge, creating the need for additional investments in R&D at the worst possible time. Industry experts such as ABI still rank Fingerprints as the market leader in a competitive assessment based on innovation and implementation, so its product and patent portfolio still holds value. Its experience in capacitive sensors should also offer first-mover advantages in new verticals and product categories.

Inevitable margin scenario is The flipside of the brutal price erosion seen in the past few quarters would be that it playing out amplifies the normalisation of a more realistic margin scenario than seen in 2016. Maintaining an EBIT margin of almost 40% for a commodity product is unrealistic in the long term. However, the rapid margin decline likely increases the probability that we are nearing a point where price pressure will start to subside.

The current market situation is With the market leader on the ropes, smaller competitors are also likely to struggle, tough, which could incite which could start a wave of consolidation. Against that backdrop, we do not rule out consolidation that Fingerprints itself could be a target for companies such as Qualcomm/NXP, ST Electronics, Samsung, etc. Benchmarking its margins against its peers, we see scope for margin normalisation due to the recent underperformance, although margins likely will not return to previous highs. This has also been acknowledged by Fingerprints’ management along with the announced plans to streamline the organisation. A new owner could likely fast-track this development, although it would eventually require consent from the chairman of the board, Johan Carlström, who is also the largest owner.

Marketing material commissioned by Fingerprint Cards 14 16 May 2019 Fingerprint Cards Risk factors

Below, we list the key risk factors for Fingerprint Cards. The purpose of this is not to provide a comprehensive picture of all risks that the company may face, but instead to highlight those that we find most relevant. The main risks we see relate to new industry standards, development speed, uncertainty about the potential in new market segments and the current financial position.

Technology risk and new industry standards The biometric sensor market is While fingerprint sensors are now used in over 60% of all smartphones produced, the going through a paradigm shift capacitive fingerprint sensor technology used by Fingerprints has been commoditised and the ASP has plummeted. The industry is also increasingly moving towards new standards, such as touchless recognition or in-display fingerprint sensors, and while Fingerprints has new technologies under development, the company has yet to implement them in a finished product. If Fingerprints does not meet its planned product roadmap, it risks losing market share to competitors, such as Goodix and Synaptics, which have already successfully implemented and adapted versions of the new technology.

Customer concentration A few major OEMs account for In 2017, 98.8% of Fingerprints’ revenue stemmed from its ten largest customers, and the majority of Fingerprints' three of the five largest smartphone manufacturers are Fingerprints’ customers. This is addressable markets, leading primarily because almost all of the company’s large OEM customers are in the highly to volatility in revenues and concentrated smartphone market. If Fingerprints fails to compete on product offerings development costs and prices for now and for future generations of sensors, it could lose customers to its competitors, and revenue is likely to take a considerable beating with every lost customer. The company recently reached its target to achieve 10% of revenues from segments other than smartphones. This alleviates risk in the company, and we suggest that risks will diminish even further as the company improves its customer mix.

Development speed Some of Fingerprints’ The technology used for in-display fingerprint detection is not based on the same competitors have a more technology (capacitance-based fingerprint detection) that launched Fingerprints in the convincing history of first place. The company does not have a legacy of revolutionising innovations in other innovation areas. The development of in-display sensors presented during the November 2017 Technology Update promises cutting-edge technology in terms of ultrasound fingerprint detection and 3D face recognition. The first would, if presented soon, provide a sensor more advanced than anything currently found in the consumer market, but its development has been delayed. While Fingerprints spends a significant amount on R&D and has a large number of PhDs in its development force, the company is up against competitors with superior R&D muscle. The cost cuts and upcoming reductions in personnel could also slow the ongoing innovation process down and hamper the progress of future innovations. Therefore, the risk is that Fingerprints' end- products will not be competitive enough to maintain the company’s market share in high-end smartphones. That said, the recent announcement of the optical in-display sensor offers us increased confidence in the company's R&D operation.

Since we expect a large portion of future revenues to come from smartcards, this risk is also becoming less relevant. This is because the players that are openly competing with Fingerprints on that front are smaller companies with less R&D power and less experience in the biometric mass markets. Fingerprints is likely set to be the technology leader in biometric smartcards when and if that market opens up and starts gaining volumes.

Size and growth of biometric sensor market There is no consensus on how Chairman of the board Johan Carlström claimed in a 2018 interview that Fingerprint big the future biometric Cards was the market leader in fingerprint detection and that smartcards and IoT markets will become would be a new, important market for the company’s detectors. While the current technology that Fingerprints offers would likely be well-suited for many products, and the T-shape module for smartcard fingerprint sensors is promising, in our view, there is no guarantee that the company will enjoy a strong, long-lasting first-mover advantage in these markets. As these are new markets, price discovery is still ongoing, and the

Marketing material commissioned by Fingerprint Cards 15 16 May 2019 Fingerprint Cards

initial ASPs and the rate of future price decreases are still uncertain. The addressable market size is based on sensitive assumptions relating to the attachment rate, and these ultimately depend on the payment industry’s dynamics and the strategic choices of the major card producers.

Future payment methods There is a risk that the future While using biometric identification as a security measure in payments would benefit payment norm will be mobile consumers and be convenient to use, it is unclear that the future lies in smartcards. In phone payments China, mobile payments on smartphones are increasing in popularity, using services such as WeChat Pay and Alipay. Cards as a payment solution have been around for decades, but now that mobile devices are so prevalent, questions are being raised regarding the benefits of smartcards as a payment medium compared with smartphones. There is a substantial risk that the smartcard business levels off before it catches on, and this risk should not be ignored.

Loss of customers and further pressure on ASP The barriers to entry in Innovation, product mix and an increasing number of fingerprint sensor producers for biometric sensors are not as smartphone implementation have burdened ASPs and proved that the barriers to entry high as previously thought in the biometric market are quite low. Prices could continue to decrease and customers could turn to other competitors in the current market. This customer churn will likely occur even if the company develops new innovations. Dual-sourcing is common in the smartphone industry, with OEMs diversifying their supplier portfolios for components.

Marketing material commissioned by Fingerprint Cards 16 16 May 2019 Fingerprint Cards Reported numbers and forecasts

INCOME STATEMENT SEKm 2011 2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E Net revenue 69 10 95 234 2,901 6,638 2,966 1,535 1,503 1,790 1,907 Revenue growth 12.6% -85.0% 828.4% 144.9% n.m. 128.9% -55.3% -48.2% -2.1% 19.0% 6.6% of which organic n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. of which FX n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. EBITDA 8 -28 -21 -72 939 2,662 234 -737 184 228 278 Depreciation and impairments PPE -1 -1 -2 0 -6 -8 -14 -34 -24 -16 -16 of which leased assets 0 0 0 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. EBITA 7 -29 -23 -72 933 2,654 221 -772 159 212 262 Amortisation and impairments -4 -9 -11 -74 -17 -41 -66 0 -107 -40 -40 EBIT 3 -39 -34 -145 916 2,613 155 -772 52 172 222 of which associates 0 0 0 0 0 0 0 0 0 0 0 Associates excluded from EBIT 0 0 0 0 0 n.a. n.a. n.a. n.a. n.a. n.a. Net financials 1 1 1 2 0 35 -13 -25 4 0 0 of which lease interest 0 0 0 0 0 n.a. n.a. n.a. n.a. n.a. n.a. Changes in value, net 0 0 0 0 n.a. n.a. n.a. n.a. n.a. n.a. n.a. Pre-tax profit 3 -38 -33 -144 916 2,648 142 -797 56 172 222 Reported taxes 0 0 0 -1 -112 -579 -22 166 -17 -38 -49 Net profit from continued operations 3 -38 -33 -144 804 2,069 120 -631 39 134 173 Discontinued operations 0 0 0 0 0 n.a. n.a. n.a. n.a. n.a. n.a. Minority interests 0 0 0 0 0 n.a. n.a. n.a. n.a. n.a. n.a. Net profit to equity 3 -38 -33 -144 804 2,069 120 -631 39 134 173 EPS 0.08 -0.83 -0.59 -2.32 12.51 6.61 0.38 -2.01 0.13 0.43 0.55 DPS 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 of which ordinary 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 of which extraordinary 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Profit margin in percent EBITDA 11.1% -271.4% -22.1% -30.7% 32.4% 40.1% 7.9% -48.0% 12.2% 12.8% 14.6% EBITA 9.8% -284.4% -24.2% -30.7% 32.1% 40.0% 7.4% -50.3% 10.6% 11.9% 13.8% EBIT 3.9% -376.6% -35.3% -62.2% 31.6% 39.4% 5.2% -50.3% 3.5% 9.6% 11.7%

Adjusted earnings EBITDA (adj) 8 -28 -21 -72 939 2,662 234 -737 184 228 278 EBITA (adj) 7 -29 -23 -72 933 2,654 221 -772 159 212 262 EBIT (adj) 3 -39 -34 -145 916 2,613 155 -772 52 172 222 EPS (adj) 0.08 -0.83 -0.59 -2.32 12.51 6.61 0.38 -2.01 0.13 0.43 0.55

Adjusted profit margins in percent EBITDA (adj) 11.1% -271.4% -22.1% -30.7% 32.4% 40.1% 7.9% -48.0% 12.2% 12.8% 14.6% EBITA (adj) 9.8% -284.4% -24.2% -30.7% 32.1% 40.0% 7.4% -50.3% 10.6% 11.9% 13.8% EBIT (adj) 3.9% -376.6% -35.3% -62.2% 31.6% 39.4% 5.2% -50.3% 3.5% 9.6% 11.7%

Performance metrics CAGR last 5 years Net revenue 44.0% -13.1% 28.3% 43.4% 116.5% 149.5% 210.5% 74.3% 45.1% -9.2% -22.1% EBITDA n.m. n.m. n.m. n.m. 159.4% 222.4% n.m. n.m. n.m. -24.6% -36.3% EBIT n.m. n.m. n.m. n.m. 256.0% 295.5% n.m. n.m. n.m. -28.4% -38.9% EPS n.m. n.m. n.m. n.m. 204.7% 143.9% n.m. n.m. n.m. -49.1% -39.1% DPS n.m. n.m. n.m. n.m. n.m. n.m. n.m. n.m. n.m. n.m. n.m. Average last 5 years Average EBIT margin -36.9% -40.4% -33.9% -45.5% 21.2% 33.5% 27.3% 19.4% 19.1% 15.4% -1.8% Average EBITDA margin -24.2% -23.1% -17.5% -22.4% 24.9% 35.2% 29.2% 21.2% 21.1% 17.8% 1.9% VALUATION RATIOS - ADJUSTED EARNINGS SEKm 2011 2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E P/E (adj) 24.3 n.m. n.m. n.m. 9.5 9.5 41.3 n.m. n.m. 43.3 33.6 EV/EBITDA (adj) n.m. 2.2 10.0 1.4 n.m. n.a. n.a. n.a. n.a. n.a. n.a. EV/EBITA (adj) n.m. 2.1 9.2 1.4 n.m. n.a. n.a. n.a. n.a. n.a. n.a. EV/EBIT (adj) n.m. 1.6 6.3 0.7 n.m. n.a. n.a. n.a. n.a. n.a. n.a. VALUATION RATIOS - REPORTED EARNINGS SEKm 2011 2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E P/E 24.3 n.m. n.m. n.m. 9.5 9.5 41.3 n.m. n.m. 43.3 33.6 EV/Sales -0.34 -5.90 -2.22 -0.44 -0.36 n.a. n.a. n.a. n.a. n.a. n.a. EV/EBITDA n.m. 2.2 10.0 1.4 n.m. n.a. n.a. n.a. n.a. n.a. n.a. EV/EBITA n.m. 2.1 9.2 1.4 n.m. n.a. n.a. n.a. n.a. n.a. n.a. EV/EBIT n.m. 1.6 6.3 0.7 n.m. n.a. n.a. n.a. n.a. n.a. n.a. Dividend yield (ord.) 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% FCF yield n.m. n.m. n.m. n.m. n.m. 5.3% -14.0% 3.5% 2.9% 2.3% 2.9% FCF yield, adjusted for leases n.m. n.m. n.m. n.m. n.m. 5.3% -14.0% 3.5% 2.9% 2.3% 2.9% Payout ratio 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Source: Company data and Nordea estimates

Marketing material commissioned by Fingerprint Cards 17 16 May 2019 Fingerprint Cards

BALANCE SHEET SEKm 2011 2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E Intangible assets 28 29 54 70 50 71 1,188 1,103 1,035 1,035 1,035 of which R&D 0 0 0 0 0 n.a. n.a. n.a. 0 0 0 of which other intangibles 28 29 54 70 50 71 1,188 1,103 1,035 1,035 1,035 of which goodwill 0 0 0 0 0 n.a. n.a. n.a. 0 0 0 Tangible assets 4 5 5 19 21 29 35 30 22 22 22 of which leased assets 0 0 0 0 0 n.a. n.a. n.a. 0 0 0 Shares associates 0 0 0 0 0 n.a. n.a. n.a. 0 0 0 Interest bearing assets 0 0 0 0 0 n.a. n.a. n.a. 0 0 0 Deferred tax assets 0 0 0 0 0 n.a. n.a. n.a. 0 0 0 Other non-IB non-current assets 0 0 0 0 0 n.a. n.a. n.a. 0 0 0 Other non-current assets 1 0 0 n.a. 1 0 0 28 0 0 0 Total non-current assets 33 34 60 89 71 101 1,223 1,161 1,057 1,057 1,057 Inventory 4 11 20 99 153 673 646 348 316 358 381 Accounts receivable 53 6 31 116 618 1,132 438 233 228 271 289 Short-term leased assets 0 0 0 0 0 n.a. n.a. n.a. n.a. n.a. n.a. Other current assets 3 3 8 20 37 435 313 38 37 44 47 Cash and bank 23 61 212 102 1,031 1,162 920 541 710 844 1,011 Total current assets 83 81 271 336 1,839 3,402 2,317 1,159 1,291 1,517 1,728 Assets held for sale 0 0 0 0 n.a. n.a. n.a. n.a. n.a. n.a. n.a. Total assets 117 115 330 425 1,910 3,503 3,540 2,319 2,348 2,574 2,785

Shareholders equity 106 102 288 301 1,147 2,226 2,331 1,776 1,815 1,949 2,123 Of which preferred stocks 0 0 0 0 0 n.a. n.a. n.a. 0 0 0 Of which equity part of hybrid debt 0 0 0 0 0 n.a. n.a. n.a. 0 0 0 Minority interest 0 0 0 0 0 n.a. n.a. n.a. 0 0 0 Total Equity 106 102 288 301 1,147 n.a. n.a. n.a. 1,815 1,949 2,123 Deferred tax 0 0 0 0 0 0 190 52 52 52 52 Long term interest bearing debt 0 0 0 0 0 0 222 0 0 0 0 Pension provisions 0 0 0 0 0 136 0 0 0 0 0 Other long-term provisions 1 0 0 0 0 n.a. n.a. n.a. 0 0 0 Other long-term liabilities 0 1 0 0 0 n.a. n.a. n.a. 0 0 0 Non-current lease debt 0 0 0 0 0 n.a. n.a. n.a. 0 0 0 Convertible debt 0 0 0 0 0 n.a. n.a. n.a. 0 0 0 Shareholder debt 0 0 0 0 0 n.a. n.a. n.a. 0 0 0 Hybrid debt 0 0 0 0 0 n.a. n.a. n.a. 0 0 0 Total non-current liabilities 1 1 0 0 0 136 412 52 52 52 52 Short-term provisions 0 0 15 22 101 258 190 1 1 1 1 Accounts payable 3 5 26 66 549 822 268 256 251 299 318 Current lease debt 0 0 0 0 0 n.a. n.a. n.a. 0 0 0 Other current liabilities 6 8 2 36 114 265 540 234 229 273 291 Short term interest bearing debt 0 0 0 0 0 n.a. n.a. n.a. 0 0 0 Total current liabilities 9 13 42 123 763 1,345 998 492 481 573 611 Liabilities for assets held for sale 0 0 0 0 0 n.a. n.a. n.a. 0 0 0 Total liabilities and equity 117 115 330 425 1,910 3,707 3,740 2,319 2,348 2,574 2,785

Balance sheet and debt metrics Net debt -23 -61 -212 -102 -1,031 -1,162 -698 -541 -710 -844 -1,011 of which lease debt 0 0 0 0 0 n.a. n.a. n.a. 0 0 0 Working capital 51 8 32 132 145 1,154 589 128 100 101 108 Invested capital 84 42 91 221 217 1,254 1,812 1,288 1,157 1,159 1,165 Capital employed 107 103 288 301 1,147 2,158 2,542 1,828 1,867 2,001 2,175 ROE 3.6% -36.7% -16.7% -49.0% n.m. n.m. 5.3% -30.7% 2.2% 7.1% 8.5% ROIC 3.2% -47.8% -39.4% -72.6% n.m. n.m. 7.9% -38.8% 3.3% 11.6% 19.1% ROCE 2.5% -37.7% -11.7% -48.2% 79.8% n.m. 6.1% -42.2% 2.8% 8.6% 10.2%

Net debt/EBITDA -3.0 2.2 10.0 1.4 -1.1 -0.4 -3.0 0.7 -3.9 -3.7 -3.6 Interest coverage n.m. n.m. n.m. n.m. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Equity ratio 91.0% 88.4% 87.0% 70.9% 60.0% 60.0% 62.3% 76.6% 77.3% 75.7% 76.2% Net gearing -21.6% -59.5% -73.7% -33.8% -89.9% n.a. n.a. n.a. -39.1% -43.3% -47.6% Source: Company data and Nordea estimates

Marketing material commissioned by Fingerprint Cards 18 16 May 2019 Fingerprint Cards

CASH FLOW STATEMENT SEKm 2011 2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E EBITDA (adj) for associates 8 -28 -21 -72 939 2,662 234 -737 184 228 278 Paid taxes 0 0 0 0 -2 -498 -345 232 -17 -38 -49 Net financials 1 1 1 0 0 0 -13 -25 4 0 0 Change in provisions 1 -1 15 6 80 293 -205 -189 0 0 0 Change in other LT non-IB -1 2 0 0 -1 1 0 -28 28 0 0 Cash flow to/from associates 0 0 0 0 0 0 0 0 0 0 0 Dividends paid to minorities 0 0 0 0 0 0 0 0 0 0 0 Other adj to reconcile to cash flow 1 -2 -15 -20 -64 -329 261 777 0 0 0 Funds from operations (FFO) 9 -29 -20 -86 951 2,130 -68 30 199 191 229 Change in NWC -31 43 -11 -88 -43 -1,000 444 244 27 -1 -7 Cash flow from operations (CFO) -21 14 -31 -174 908 1,130 377 275 226 189 223 Capital expenditure -11 -12 -38 -76 -17 -78 -1,071 -163 -56 -56 -56 Free cash flow before A&D -32 2 -69 -250 891 1,052 -694 112 170 133 167 Proceeds from sale of assets 0 0 0 0 0 0 0 0 0 0 0 Acquisitions 0 0 0 -15 0 0 0 0 0 0 0 Free cash flow -32 2 -69 -265 891 1,052 -694 112 170 133 167 Free cash flow, adjusted for leases -32 2 -69 -265 891 1,052 -694 112 170 133 167

Dividends paid 0 0 0 0 0 0 0 0 0 0 0 Equity issues / buybacks 25 34 221 155 48 -1,000 0 0 0 0 0 Net change in debt 0 1 0 0 0 0 0 -508 0 0 0 Other financing adjustments -2 1 0 0 0 0 0 0 0 0 0 Other non-cash adjustments 1 0 0 0 -9 79 452 16 0 0 0 Change in cash -8 38 151 -110 929 131 -242 -380 170 133 167

Cash flow metrics Capex/D&A n.m. n.m. n.m. n.m. 74.5% n.m. n.m. n.m. 42.5% 100.0% n.m. Capex/Sales 15.6% n.m. 40.2% 32.3% 0.6% 1.2% 36.1% 10.6% 3.7% 3.1% 2.9%

Key information Share price year end (/current) 2 2 11 7 118 63 16 10 19 19 19 Market cap. 0 0 0 0 0 19,678 4,964 3,179 5,821 5,821 5,821 Enterprise value -23 -61 -212 -102 -1,031 n.a. n.a. n.a. n.a. n.a. n.a. Diluted no. of shares, year-end (m) 0.0 0.0 0.0 0.0 0.0 313.1 314.0 314.0 314.0 314.0 314.0 Source: Company data and Nordea estimates

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Completion Date

16 May 2019, 09:19 CET

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