XXL

Investor Presentation • Jul 14, 2023

XXL ASA – Q2 2023

Presentation of Financial Results 14 July 2023

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New CEO

Started 1st of May, and have hit the ground running

New CEO - Freddy Sobin

• 19 years of experience in B2C e-commerce and retail
• o Operational roles including Marketing and Business development Manager as well as E-commerce and Financial Services Director
• o CEO assignments during the last 13 years
• o Board of Directors experience, both as member and chairman, in multiple companies and industry organizations for the last 18 years
• Primary experience from the full Nordic region
• o But also from Baltics, CEE, Ukraine and Russia
• Primary category experience within consumer discretionary

Industry

• o I.e. whitegoods & home appliances, contact lenses, fashion & lifestyle, outdoor products and apparel, beauty and self care
• o But also within food and grocery
• Experience from both start ups and scale ups as well as turn arounds/restructuring and transformations and corporate growth

Key initial reflections

1

2

3

Strong and unique concept, but insufficient execution has adversely affected the performance

New market landscape and customer dynamics with omni/e-com/retail best practices that are not fully adopted

4

Macro economic environment, together with previous artificially boosted pandemic shopping, is temporarily dragging down consumer demand

With a committed organization, a leading and strong fundamental market position as well as considerable tech and omnichannel investments already made, the potential to once again win in the market is considerable!

5

New Nordic management team being secured

• 1. New top management with considerable experience, relevant competence, senior leadership and strong track records now being secured and effectively put in place
• 1. The majority of the senior management team will thus effectively be renewed
• 1. A new operating model as well as a clear steering framework will further support and secure strong execution

New CEO, started 1st of May

New EVP Brand & Marketing, signed and joins late August

Over 25 years experience in marketing with focus on FMCG, Retail and consumer brands

New EVP Category & Buying signed and to be communicated within short

New EVP Category & Buying, signed and joins late Q4 2023

Strong & diverse international experience, over 20 years, with proper & relevant category management competence

COO recruitment in final phases

EVP IT replacement recruitment ongoing

6

New COO to be recruited ASAP New EVP IT to be recruited ASAP

Other key actions thus far

Focus areas second half of 2022 and first half of 2023 – progress according to plan

	Priority		Revenue	Gross margin	Opex	Balance sheet
1		Category strategies	✓	✓		✓
2		Private label	✓	✓
3		Full fledge omni-channel	✓
4		Improve campaigns and marketing	✓		✓
5		Austria strategic review	✓	✓	✓	✓
6		Sustainable cost base			✓

A challenging market in the short-term, but resilient in the long-term

• Overall consumer sentiment and discretionary spending is down
• The sports and outdoor market is also affected by specific factors
• o Campaign back lash in Q2 with continued high campaign pressure in the market
• o Capital goods sub-category more adversely affected
• o Lingering bunkering effect from the pandemic

• We have continued to be active and competitive in the market, and will continue to be

Q2 financial summary

Renegotiated bank agreement and new equity from fully underwritten rights issue securing runway to realise effects from ongoing improvement initiatives

Financial Review Q2 2023

Key points in the agreement with the banks

1	Revised covenants	▪ Liquidity covenant of minimum NOK 200m from September 2023 to May 2024 ▪ Starting 30 June 2024 and lasting until November 2024, minimum liquidity reserve shall be no less than NOK 300m ▪ Maximum outstanding gross loan facilities of 50% of inventory book value, excluding value of supplier bonuses, (limited upwards to NOK 1,300m) starting 1 September 2023 ▪ Certain new restrictions on the size of the inventory of XXL Sport & Vildmark AB without providing additional floating charges over its assets ▪ NIBD/EBITDA LTM (ex IFRS 16) from December 2024 shall be no greater than 4.0x ▪ Restrictions on distributions, store openings and acquisitions extended to 31 December 2024 ▪ Fixed loan margin of 4.25% per annum extended from 30 September 2023 to 31 December 2024
2	Extension of facilities	▪ Bank facilities are extended to 25 June 2026
3	New equity	▪ Gross proceeds of NOK 500m in equity to be raised ▪ No repayment to the banks

Fully underwritten rights issue

Amount	Gross proceeds of NOK 500m
Use of proceeds	Working capital
Offer price	To be determined and announced on or about 16 Aug
Number of new shares	To be determined and announced on or about 16 Aug
Subscription rights	All existing shareholders as registered in VPS on 21 Aug 2023 will receive tradable subscription rights Oversubscription and subscription without subscription rights will be allowed
Key dates (subject to change)	Call for extraordinary general meeting ("EGM"): On or about 27 Jul Pricing: On or about 16 Aug EGM: On or about 17 Aug Trading exclusive of subscription rights: On or about 18 Aug Subscription period: On or about 22 Aug – 5 Sep Trading in subscription rights: On or about 22 Aug – 30 Aug
Underwriting	Fully underwritten Underwriting commission of 6%, payable in new shares or cash

Financing secures runway to realise effects from ongoing improvement initiatives

• Attractive market over the long-term, but temporary market challenges on the back of COVID and weaker consumer sentiment have continued triggering a need for further financial flexibility while undertaking improvement initiatives
• Size of proposed fully underwritten rights issue is based on current business plan which assumes gradual improvement in market conditions and positive effects of ongoing improvement initiatives
• Applying for postponement of payment of Swedish tax liability of SEK 345m which will provide liquidity upside if granted
• XXL will apply for an extension of further 12 months (until 12 September 2024) and will apply 6 weeks before 12 September 2023
• Response for the application is expected mid-August, but liquidity plan assumes that XXL will pay the liability in September 2023
• Certain fees and interest related to the extension will apply
• For further details, please see the stock exchange notices on 18 June 2023

• Awaiting conclusion on timing for payment of tax Norway of NOK 139m (excluding interest)

• XXL does not agree with the reassessment and will also seek to mitigate the net tax effects for the XXL group by adjustments to taxable income in another jurisdiction through mechanisms in relevant double taxation treaties between Norway and such jurisdiction and which could lead to a refund from that jurisdiction
• The Company accordingly expects that the net tax amount payable by the group will be reduced to a significantly lower amount
• The Company will in addition consider appealing the reassessment to the tax appeal board
• The Company is in dialogue with the Norwegian tax authorities regarding postponed payment of the Norwegian tax amount until the tax amount has been finally determined
• The final tax amount will be decided by a MAP/APA process involving Norway and Switzerland which will start during autumn 2023
• This matter has previously been disclosed on 15 June 2023 and described as a potential tax exposure in the notes to the Company's consolidated financial statements and in its prospectus published earlier this year

(Amounts in NOK million)	Q2 2023	Q2 2022	H1 2023	H1 2022	FY 2022
Group - Continuing Operations GROUP Continuing Operations
Operating revenue	1 946	2 090	3 930	3 956	8 426
Growth (%)	-6,9 %	-10,6 %	-0,7 %	-10,5 %	-12,2 %
Gross profit	538	791	1 159	1 503	2 721
Gross margin (%)	27,6 %	37,8 %	29,5 %	38,0 %	32,3 %
OPEX %	30,6 %	28,1 %	32,1 %	30,8 %	29,5 %
EBITDA	-57	203	-102	286	237
(%) EBITDA margin	-2,9 %	9,7 %	-2,6 %	7,2 %	2,8 %
EBIT	-249	-0	-488	-114	-467
EBIT margin (%)	-12,8 %	0,0 %	-12,4 %	-2,9 %	-5,5 %
Net Income	-246	4 5	-472	-85	-411
**Basic Earnings per share (NOK)	-0,63	0,18	-1,37	-0,34	-1,63

• Revenue down with NOK 144 million vs. last year - Challenging market driven by low consumer confidence and reduced demand for sporting goods results in a negative like for like growth of 12.9%
• Negative E-com growth of -2.0% representing 21.1% of total operating revenue versus 20.0% last year
• Gross margins ended at 27.6%, down from 37.8% last year
• The market is characterized by high inventory levels in the whole value chain, resulting in aggressive pricing, excessive campaigns, and consequently reduced margins
• As a result of a significantly decline in sales of capital goods, XXL has impaired its inventory resulting in an additional write down with a net effect of around NOK 67 million in the quarter. Resulting in a negative gross margin impact of 3.4 percentage points
• OPEX in % is 2.5 p.p higher than last year
• Operating expenses as percentage of sales increased to 30.6% in Q2 (28.1% in Q2 22) impacted by the negative like for like growth hampering scale in the operations
• Increased costs is explained by new store openings and negative currency translation effects
• EBITDA ending at negative NOK 57 million
• Net income of minus NOK 246 million in Q2 2023

Gross Margin Development

XXL ASA Q2 2023 - Gross margin per segment

• Weakened gross margin development in the quarter, down from 37.8% in Q2 2022 to 27.6% in Q2 2023
• The current market is being characterized by high inventory levels in the whole value chain, resulting in aggressive pricing, excessive campaigns, and consequently reduced margins
• Due to significantly decline in sales of capital goods, XXL has impaired its inventory resulting in an additional write down with a net effect of around NOK 67 million in the quarter. Resulting in a negative gross margin impact of 3.4 percentage points
• The current market demands strict focus on inventory levels and liquidity control, which will lead to fluctuations in the gross margin between quarters and seasons

OPEX Development

• Group OPEX% in Q2 increased to 30.6% (up 2.5 points vs Q2 22), impacted by the negative like for like growth hampering scale in the operations
• Operating expenses increased by NOK 26 million vs Q2 22, explained by negative currency translation effects of around NOK 33 million. Also, partly related to new store openings, and increased marketing spend due to high campaign activity. Counteracted by lower personnel costs

EBITDADevelopment

• Negative EBITDA development vs LY in all segments mainly explained by reduced revenue and significantly lower gross margin
• EBITDA margin of -2.9% in Q2 2023 vs. 9.7% in Q2 2022

Net Debt Development

Net Debt	Net cash flow from operations NOK 168 Million		Net Debt

*Including cashflow from Disc-Ops

20

Inventory levels are now normalized

Financial position

XXL has historically delivered EBITDA (excl. IFRS 16) >500-750 NOKm

Operating income EBITDA

2015-2018 are not restated figures, 2019 adjusted for extraordinary write down of inventory of 349 MNOK Note: Excludes Austria

Our ambition in 12 – 24 months: NOK 500 – 750m run-rate EBITDA uplift delivered from 5 main initiatives

Excluding IFRS 16 effects

XXL's journey ahead – different overall focus for each year going forward

RESET

Top line quick wins and cost control

X

RETHINK

Accelerate key top line levers

2023 2024 2025

TRANSFORM

New business models and strategic change

26

RESET: We have 5 "must-wins" for 2023

Significant ambition to decrease purchasing prices in 2H of 2023 and 2024

Reduction in input costs Key improvements

Commodities & input factors	Historical development of prices per season			Forecast
	FW22	SS23	FW23	Futures/options	Comments
Labour			➔	➔	• EU labour cost expected to increase slightly • Stable development in Asia
Energy			➔	➔	• "Dramatic" increase in 22. Expected to remain on higher level in 23 • Most likely normalised in 24
Cotton		➔			• Increased in 2022. Significant drop last months, -40% YoY • Expected to decrease slightly further
Rubber		➔			• ~25% price reduction last year • Expected to decrease further going forward
Metals		➔			• Steel and iron ore historically high but has dropped • Expectations of lower demand reduces forecast prices
Wool		➔			• Down from historical high in 18/19 • -10% YoY

Good deals

Availability – significant opportunity from normalising inventory availability

Availability for top 1,000 selling products currently below <80% for majority of product categories

1² Lower availability for top-selling and top GP-generating products

Self-fund inventory by prioritising items with high GP, long payment terms and low availability

Improving availability by 5-8%pts and assuming 50% sales uplift LFL¹ would yield ~150-250 MNOK top line with ~50-100 MNOK in EBITDA impact

Potential

3 Sales steering and store operations

Sales steering Store operations Potential

Up-sales and add-sales lists and strategies reintroduced from Category and Buying department

Local sales training in all stores

Optimize product selection lists for up-sales and add-sales

Defining routines for displaying up-sales and add-sales products in stores including bundles

Sales competitions in place in all stores and departments, across countries

service)

Signage and in-store material improvements to facilitate mechanical sales and fulfilment

Electronic price tags are marked where XXL is cheapest on Prisjakt (price checking

Launched new entry and exit area product

lists as well as for hot spots in each

department in stores

Identify and document best practices for non-sales activities in stores to improve efficiency

Roll-out of new RFID tagging routines to all stores, more tagging done centrally and by suppliers going forward

Pricing – significant untapped potential 4

Change of pricing process

Potential

~50-100 MNOK in

untapped potential

E-com – increased profitability >50 MNOK 5

• Return rate driven by e-com, ~25% rate for apparel & shoes and ~15% for hardware
• Return rate on par with competitors
• 3

2

Room for improvement as ~37% of returns are due to wrong fit

Reduces transport costs, improves NWC and keeps 50% of sales

Lower return rates Reduce ship-from-store orders

• 40% of ship-from-store orders are unprofitable 1
• Stopping low basket orders 2
• Replacing with orders from central warehouses will reduce freight costs 3
• Gross profit threshold introduced 4

Improve conversion rates

Slightly lower conversion rate than peers of 1.9% vs. above 2%

1

3

• Ongoing improvements on product listing page and merchandising, including 2
• recommendations
• Strengthen product detail page with size guides, photos, text and more
• Give the customer the best possible view of the assortment 4

Potential impact: NOK >20m Potential impact: NOK >20m from reducing return rates by ~2%pts

Potential impact: NOK >30m

Cost base in scope (2022 numbers)

* Rental costs not part of reported EBITDA

XXL's journey ahead – different overall focus for each year going forward

RESET

Top line quick wins and cost control

X

RETHINK

Accelerate key top line levers

2023 2024 2025

TRANSFORM

New business models and strategic change

Four long-term strategic pillars

35

THANK YOU

Q&A

Appendix

Q2 2023 key figures

• The sport retail market continued to be challenging in the second quarter 2023 impacted by reduced demand, heavy discount activities and high inventory levels in the value chain
• Negative growth of 6.9 per cent
• Impaired inventory of capital goods resulting in a write down of around NOK 67 million
• The inventory is back to normalised levels providing benefits for higher gross margin over time
• Total liquidity reserve ended at NOK 722 million (NOK 691 million)

Q1: Norway and Sweden

• Total operating revenue in the quarter amounted to NOK 963 million (NOK 1 074 million). The market is challenging with weakened consumer sentiment and reduced demand for sporting goods.
• Gross margin was impacted by high campaign activities under challenging market conditions as well as higher sourcing costs. XXL has taken a write down of its inventory of around NOK 22 million. Due to these effects the gross margin decreased from 39.9 per cent in Q2 2022 to 29.3 per cent in Q2 2023.
• Operating expenses as percentage of sales ended at 20.0 per cent (17.6 per cent) impacted by a negative like for like growth of 11.8 per cent . The absolute cost level was on par with last year.

• EBITDA of NOK 90 million (NOK 240 million).

• Total operating revenue in the quarter amounted to SEK 584 million (SEK 657 million). The driver was a negative like for like growth of 14.4 percent in local currency under weak and volatile market conditions with lower overall demand.

• Gross margin decreased to 24.3 per cent (35.2 per cent) explained by high campaign activity, both in the market and by XXL, under challenging conditions as well as increased sourcing costs. In addition, XXL has taken a write down of its inventory of around SEK 29 million.
• Operating expenses as percentage of sales ended at 30.8 per cent (28.2 per cent) explained by the negative like for like growth. XXL has also executed several cost reductions related to store personnel counteracted by increased marketing costs.
• EBITDA ending at negative SEK 39 million (SEK 45 million)

Q1: Finland

• Total operating revenue in the quarter amounted to EUR 33.4 million (EUR 38.7 million). This corresponded to a negative like for like growth of 13.9 per cent in local currency in a challenging market with weak consumer sentiment and low demand
• Gross margin ended at 28.6 per cent (36.2 per cent). XXL has taken a write down of its inventory of around EUR 1.4 million.
• Operating expenses as percentage of sales ended at 27.6 per cent (25.6 per cent) due to negative like for like growth hurting scale in the operations. During the quarter XXL has focused on cost efficiencies mostly related to store staffing
• EBITDA ended at EUR 0.4 million (EUR 4.1million) driven by negative sales growth and the lower gross margins.

The starting point, market conditions and challenges

43

Strong position and market share in all three core countries

Sources: Norway - Norske Sportsbransjeforening; Sweden – Bain; Finland – TMA; please be aware of different market definitions in each country

Also, the biggest online sports retailer in the Nordics

Online market share overview per country

Source: online traffic figures from Similarweb

The market continues to be challenging

• Challenging market conditions for the sporting goods industry in 2022 and so far in 2023, with weakening consumer sentiment and reduced demand for sporting goods all over the Nordics

• XXL is in line with the market decline in Norway, gaining some shares in Sweden, but negative development in Finland YTD 2023
• XXL's target and goal is to gain market shares over time

Market XXL

High inventory in the industry combined with high campaign activity

E24.no, 10th of November 2022

Low demand and market activity… … together with high inventories … … resulting in high campaign activity

Challenging markets in 2022 and 2023 driven by lower demand from consumers

Actions taken

49

Category strategies: XXL will probably be the first Nordic sports retailer with normalised inventory levels 1

Actions implemented

Implications

Improved category planning, forecasting and control

Reduced purchasing prices over time

XXL should have the flexibility to handle continued weak market development in second half of 2023

XXL will need to buy more goods in second half of 2023

• ‒ Refill stores
• ‒ Focus on higher rollers
• ‒ Selective good deals from suppliers

Private label: Stormberg is the first move and will secure entry level price points 2

Private label products have materially higher gross margins

Strategy to increase share of private label products to elevate Group gross margins

Stormberg was an important first step in accomplishing the strategy with its strong brand preference and attractive margins

Margin uplift One of the strongest Outdoor brands in Norway

Source: Schjærven

Omnichannel: Focus on improved E-com site and upgraded loyalty program 3

E-com Loyalty

But still room for significant improvements in:

• ‒ UX (filter/search)
• ‒ Content
• ‒ Upsell strategies
• ‒ Configurator

	Overview of loyalty programs
		XXL	Comp. #1	Comp. #2	Comp. #3	Comp. #4	Comp. #5	Comp. #6	Comp. #7
	Financial points/cashback								
	Qualifying points								
m	Tiered levels								
Mechanis	Community								
	Partner program								
	Subscription								
	Gamification								
	Member prices								
	Free shipping								
	Discount on high frequency items								
	Personal offers and discounts								
Benefits***	VIP access to sales								
	Price guarantee								
	Access to exclusive warranties								
	Webinars/seminars								
	Birthday gift								
	Welcome gift								
	Yes

To some extent

No

Upgrade of loyalty program during autumn of 2023

Campaigns and marketing: Improved brand recognition significantly

Now among the top 5 most remembered brands Actions implemented during the last months

Advertisement awareness poll
Rank	Brand name	Score (2/6 – 15/6)	Previous score (19/5 – 1/6)
1	Kiwi	43.0	33.4
2	Rema 1000	39.1	37.3
3	Extra	33.1	31.0
4	XXL	29.5	26.1
5	Europris	28.9	23.2
6	Jula	28.3	29.2
7	Obs	28.2	20.2
8	Telenor	26.4	22.2
9	Obs Bygg	25.4	25.7
10	Finn.no	24.5	33.0
11	Grandiosa	23.8	15.4
12	Coca-Cola	23.8	27.3
13	Power	22.9	32.3
14	Spar	22.7	15.3
15	DNB	22.0	15.9
16	Vipps	22.0	23.1
17	Telia	20.9	19.2
18	Meny	20.8	27.0
19	Ice	20.7	19.4
20	Elkjøp	20.7	25.3

Media Mix for 2023 significantly changed – more DR and TV

Yearly wheel for 2023 is established

Campaign themes and sales message per week in 2023 is established

Establish more traditional XXL marketing messages

✓

New DR layout – partly launched from week 50 2022 and completely new DR layout from week 5 2023

Reorganisation of the Marketing department – implemented in December 2022

Source: Yougov BrandIndex

Austria: Decision to exit in 2023 with good progress

Capital usage in Austria has been significant

Decision to exit Austria in 2023

• XXL entered the Austrian market in 2017 and has invested NOK 200 million to build a position in a very competitive market
• In addition, XXL has suffered losses of approx. NOK 500 million, due to both very strict Covid restrictions, but also challenges to obtain the needed assortment
• Already closed down 3 stores + e-com operations and central warehouse and agreed to close down two more stores, as well as significantly reduced local head office
• Good progress on the remaining 3 stores
• Ambition to have no negative cash effects in 2023

Sustainable cost base: Working towards a more flexible cost base

Stores HQ

Already implemented actions

• Decreased direct deliveries (from 31% in 2016 to 5% in 2022)
• Electronic price labels
• Self-check-out in store
• Pickup lockers
• New digital tool for store employees (Retail solution)
• RFID

Actions in progress

• New budget tool + improved manning tool
• Centralise store staff planning
• Self-service improvement instore

Actions

• Increased cost focus in all departments
• Scaling of HQ functions (rightsizing of several departments)
• Reduce complexity and streamline processes
• Making the cost base more scalable and flexible

* Excluding IFRS 16 effects; ¹ Excluding Austria

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