WWW.SPINMASTER.COM SPIN MASTER CORP. 2018 ANNUAL REPORT GROWTH STRATEGIES INNOVATE USING OUR GLOBAL INTERNAL DEVELOP EVERGREEN GLOBAL AND EXTERNAL R&D NETWORK ENTERTAINMENT PROPERTIES • Leverage competitive strengths • Leverage current properties and global networks to build Launch at least one new property per year a robust pipeline • Strategically relaunch properties to capitalize • Continue to focus on strategic • on value of owned content library. brand building Continue to build broadcast relationships • Continue to invest in advanced • technology, and licenses • Generate new licensing and merchandising revenue streams INCREASE SALES IN INTERNATIONAL LEVERAGE GLOBAL PLATFORM 2 DEVELOPING AND EMERGING MARKETS THROUGH STRATEGIC ACQUISITIONS • Increase proportion of sales outside • Fragmented industry with opportunities for consolidation of North America to 40% in the Strong balance sheet with nancial exibility medium term • • Focus on Asia: China and Japan FINANCIAL INFORMATION (US$ millions) $1,708 $1,657 $1,708 + %% $1,657 + %% + % % 20.4 28.4 $304 25.3 + 1 + 1 + 1 20.4 28.4 $304 25.3 1 ADJUSTED EBITDA1 ADJUSTED NET INCOME1 GROSSGROSS PRODUCT PRODUCT SALES SALES ADJUSTED EBITDA $292$292 ADJUSTED NET INCOME CAGRCAGR 2014 2014–2018–2018 CAGR 20142014––20182018 CAGRCAGR 2014 –20142018–2018 $1,255$1,255 $173 $173 $164 $164 $983$983 $206$206 $812$812 $160$160 $120 $120 $112 $99 $99 $66 $66 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 1. Non-IFRS financial measures. Non-IFRS measures do not have any standardized meaning prescribed by International Financial Reporting Standards (“IFRS”) and are therefore unlikely to be comparable to similar measures presented by other issuers. Please refer to the section entitled “Non IFRS Financial Measures” in the Management Discussion and Analysis within Spin Master’s public filings for a discussion of the definition, components and uses of such non-IFRS measures, as well as a reconciliation of such non-IFRS measures to IFRS measures (where a comparable IFRS measure exists). LETTER TO SHAREHOLDERS Spin Master is anchored by our dedication to innovation and our vision for growth. We have grown significantly over the past several years launching innovative products, expanding globally, building our entertainment franchises and making acquisitions. In 2018, we navigated through a challenging and disruptive year for the toy industry. Despite this challenging environment, we delivered solid financial and operational results for the full-year and demonstrated the underlying strength of our business. We executed well against our four growth strategies, which include: innovating our core portfolio of products; creating successful global entertainment properties; increasing international sales; and making strategic, accretive acquisitions. Our performance this year confirmed that our focus and strong execution on these strategies has positioned us to achieve long term success. 2018 was a year of consolidation for Spin Master. Grounded in our vision for long term growth, we navigated through a challenging year for the toy industry and achieved low single-digit growth, despite the bankruptcy of Toys ‘R Us. We believe that the industry will level set in 2019, especially in the second half of the year. We are channel 3 agnostic and will evolve as required to continue to grow and support a changing retail environment. We executed well against our four growth strategies which include: innovating our core portfolio of products; creating successful global entertainment properties; increasing international sales and; making strategic, accretive acquisitions. These strategies continue to be the drivers of our long-term growth model and are the primary focus of Spin Master’s management team. We maintained a conservative, exible nancial prole and nished the year with signicant cash balances and no debt. We believe we are well positioned for long term sustainable growth. We report Gross Product Sales1 in five business segments: (1) Remote Control & Interactive Characters, emphasizing innovative, adrenaline-charged experiences as well as leading-edge robotics; (2) Boys Action and High Tech Construction, delivering high-quality products, including popular entertainment franchises, with engineering and robotics play; (3) Activities, Games & Puzzles and Plush, a wide range of products, games, puzzles and plush toys with global appeal, including innovative owned intellectual property as well as licensed brands; (4) Pre-School and Girls, products based on our internally created entertainment content as well as focused on specic girls’ play patterns and trends; and (5) Outdoor, a diverse portfolio of innovative toys, oats and sporting goods for the backyard, pool and beach. We reported Gross Product Sales1 of $1,708 million, up 3% from 2017. Over the past 10 years, our Gross Product Sales1 have increased at a compound annual growth rate of 9.6%. In 2018, we reported year-over-year increases in Revenue (up 5.2%), and Adjusted EBITDA1 (up 3.9%). We maintain a capital-light business model that emphasizes variable costs over xed costs. We do not own any material manufacturing assets, nor do we own any warehousing facilities or animation studios. Our asset light structure, leveraging best in class service providers, enhances our free cash ow generation potential, allowing us to focus on those areas that add the most value, thereby prioritizing the quality of the content and products we produce. From a manufacturing perspective, we have increasingly diversied our supply base from China to qualied low cost producers in countries such as Vietnam, India and Mexico. 1. Non-IFRS financial measures. Non-IFRS measures do not have any standardized meaning prescribed by International Financial Reporting Standards (“IFRS”) and are therefore unlikely to be comparable to similar measures presented by other issuers. Please refer to the section entitled “Non IFRS Financial Measures” in the Management Discussion and Analysis within Spin Master’s public filings for a discussion of the definition, components and uses of such non-IFRS measures, as well as a reconciliation of such non-IFRS measures to IFRS measures (where a comparable IFRS measure exists). LETTER TO SHAREHOLDERS (continued) We stayed focused on our efforts to expand gross and EBITDA1 margins through several initiatives, including: the generation of internally created intellectual property, which also allows us to generate alternate high-margin revenue streams; a goal of lowering sales allowances; productivity programs for strategic sourcing, volume rebates and reengineering and a disciplined approach to operating leverage. Our strong protability and free cash ow generation capability allow us to reinvest in our four growth strategies as well as invest in our people and processes to exploit future opportunities. What follows is a review of the factors in 2018 that allowed us to advance each of our growth strategies and deliver strong nancial results. INNOVATION Success in the toy industry demands constant innovation. Our ability to innovate has, over 4 the years, been one of our core competencies and a key competitive advantage. Our global internal R&D, engineering and design teams, complemented by our global 3rd party inventor network, consistently create meaningful innovation for our consumers. The sustainability of our innovation is achieved, in part, from our rolling 36-month brand innovation pipeline. We regularly review our 36-month product pipeline to identify opportunities for innovation, capitalize on growing trends, ll gaps in the marketplace and diversify. In December, we announced a significant multi-year deal with DC Comics and Warner Brothers for the DC characters, which will begin in early 2020. We are already developing an innovative, well-priced differentiated product line. It is an incredible testament to our team that Warner Bros have entrusted us to bring the DC characters to life for kids around the world. We will continue to innovate in our product development and marketing initiatives as this drives our product pipeline and builds our brands. DEVELOP EVERGREEN GLOBAL ENTERTAINMENT PROPERTIES 2018 marked the 10th year of our entertainment business having TV shows broadcast globally. We are focusing on developing our own entertainment content as we see opportunities for increased consumer engagement, extended product life, better margins and the ability to participate in incremental royalty streams. We partner with world-class content creators, animation studios and talent to develop television entertainment that is complemented by and developed in conjunction with the physical toy lines. Children’s programming, especially animation, travels across geographies, cultures and ethnicities very easily. Many children's properties are based on animals or fictitious characters, increasing their appeal to all viewers. Our goal is to turn PAW Patrol into a long-term global evergreen franchise, and after 5 full years, Spin Master is now recognized as one of the key global players in the licensed pre- school space. In 2018, we introduced a new season of 52 episodes and in the US, PAW Patrol was the #1 preschool show for kids 2-5 years old. We also launched a 44-minute special movie for the first time as well as two-minute episodes designed for YouTube, which increased viewership accessibility and drove sales. SM_COR_2018AnnualReport_03.indd 4 2019-03-20 10:45 AM 2019