Europris

Investor Presentation • Jan 31, 2019

Q4 2018 presentation

31 January 2019

Disclaimer

This presentation has been produced by Europris ASA (the "Company") exclusively for information purposes. This Presentation has not been approved, reviewed or registered with any public authority or stock exchange. Further to the aforementioned, this presentation is the result of an effort of the Company to present certain information which the Company has deemed relevant in accessible format. This Presentation is not intended to contain an exhaustive overview of the Company's present or future financial condition and there are several other facts and circumstances relevant to the Company and its present and future financial condition that not been included in this Presentation. This Presentation may not be disclosed, in whole or in part, or summarized or otherwise reproduced, distributed or referred to, in whole or in part, without prior written consent of the Company.

This Presentation contains certain forward-looking statements relating to the business, financial performance and results of the Company and/or the industry in which it operates or intends to operate. Forward-looking statements concern future circumstances and results and other statements that are not historical facts, sometimes identified by the words "believes", expects", "predicts", "intends", "projects", "plans", "estimates", "aims", "foresees", "anticipates", "targets", and similar expressions. The forward-looking statements contained in this Presentation, including assumptions, opinions and views of the Company or cited from third party sources are solely opinions and forecasts which are subject to risks, uncertainties and other factors that may cause actual events to differ materially from any anticipated development. None of the Company or any of its subsidiary undertakings or any such person's officers or employees provides any assurance that the assumptions underlying such forward-looking statements are free from errors nor does any of them accept any responsibility for the future accuracy of the opinions expressed in this Presentation or the actual occurrence of the forecasted developments. The Company assumes no obligation to update any forward-looking statements or to conform these forward-looking statements to our actual results. Furthermore, information about past performance given in this Presentation is given for illustrative purposes only and should not be relied upon as, and is not, an indication of future performance. No representation or warranty (express or implied) is made as to, and no reliance should be placed on, any information, including projections, estimates, targets and opinions, contained herein, and no liability whatsoever is accepted as to any errors, omissions or misstatements contained herein, and, accordingly, neither the Company nor any of its parent or subsidiary undertakings or any such person's officers or employees accepts any liability whatsoever arising directly or indirectly from the use of this document.

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This Presentation speaks as of 5 December 2018. Neither the delivery of this Presentation nor any further discussions of the Company with any of the recipients shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since such date. The Company does not intend, and does not assume any obligation, to update or correct any information included in this Presentation. This Presentation shall be governed by Norwegian law, and any disputes relating to hereto is subject to the sole and exclusive jurisdiction of Norwegian courts.

Norway's #1 discount variety retailer

• 31 million customer transactions in 2018 •Widely recognised brand and price position¹

Marketing

Stores

•Over 1 million leaflets in distribution • More than 300 000 subscribers to digital newsletter

• Cost-efficient locations and operations

• 224 of 238 like-for-like (LFL) stores profitable in 2018 •Track-record of 15 new or relocated stores p.a.

• More than 40 years of wholesaler experience •Efficient set-up and nationwide reach

• New modern central warehouse from Q2 2019

• •From more than 30 countries

• •Pan-Nordic agreement with ÖoB and Tokmanni

Europris – a growth story

4

Highlights in the fourth quarter

• 12.9% increase in group revenues to NOK 1,839m (1,629m)
• Solid sales performance throughout the quarter
• 7.0% increase in like-for-like sales, significantly above market benchmark of 0.4%(1)
• Gross margin was 43.4%, down 0.6%-points owing to increased campaign sales
• OPEX affected by increased costs related to higher volumes
• Adjusted net profit of NOK 224m (195m), up 14.6%
• New warehouse on plan investment into further automation is expected to reduce opex %

Highlights full year 2018

• Continued top line growth
• 7.3% growth in group revenues to NOK 5,817m (5.423m)
• 2.2% increase in like-for-like sales, well above market growth of 0.8%(1)
• Eight net new stores and eight franchise takeovers
• Gross margin improved to 43.1%, up 0.5%-points
• Adjusted net profit of NOK 429m (390m), up 10.1%
• Acquisition of 20% holding in Runsvengruppen AB (ÖoB) and launch of purchasing partnership

•Group revenue (NOK million)

2018 2017

Adjusted EPS and dividend

Adjusted EPS and DPS (NOK)

• The BoD proposes an ordinary dividend of NOK 1.85 per share for 2018
• Up 8.8% vs. last year
• Total dividend payment of NOK 309m
• Dividend for the 5.5m treasury shares amounts to NOK 10m

Sales performance

Retail sales per quarter (NOK million)

• Total retail sales growth of 10.1% in Q4, well above market total growth of 1.0%(1)

• High growth throughout the quarter
• One more sales day
• "Champion of seasons"
• Successful Black Friday sales campaign
• Christmas season well executed
• Capitalising on the efforts to increase central control of volumes and spacing in the stores
• Strengthened focus on implementing the weekly sales campaigns
• Reduce sold-out conditions
• Improve customer satisfaction and price position

(1) According to Kvarud Analyse shopping centre index

Sales growth above the market

Total growth development LFL development 1,0 % 1,3 % 10,1 % 5,3 % 0% 2% 4% 6% 8% 10% Q4 2018 2018 Market Europris 9.1 4.0

% points Europris growth rate in excess of market growth rate in the period

Strategic focus areas

Launching the first Nordic private label

Today

• Strong position in Norway within Washing & Cleaning
• Annual sales above NOK 100m across multiple categories
• Driver for gross margin

In the future

• Pan-Nordic brand
• ÖoB set to launch in 2019
• Scale and best practice to improve margins

Value to customers

• Increased offering of price points (good, better, best)
• Top level quality product at significant lower price points than A-brands

Sourcing power from a solid Nordic base

Futureproofing distribution

13

Further OPEX reductions from low-bay automation

Opex in % of group revenue

Opex in % of group revenue

• Automation part 2 expected to reduce Opex/group revenue ratio by 0.25 percentage-point
• Total reduction in Opex/group revenue ratio from new warehouse expected between 0.75 to 1.25 percentage points
• Equivalent to between NOK 40–70 million of Opex, assuming 2017 volumes
• Savings gradually realised from 2021 to full effect in 2023, offset by nonrecurring expenses in transition period
• Several drivers for increased efficiency
• Lower lease expenses
• Reduction in transport costs location closer to "the average store" and main infrastructure
• General savings from more efficient operations
• Automation parts 1 and 2, personnel, maintenance and no intrawarehouse logistics

Constant category evaluation and refining

Bridging digital opportunities and physical stores

Europris' 360⁰ customer vision

• Digital channels are an increasingly important supplement to the physical store
• Reach new and younger customer groups
• Be relevant and build loyalty
• Take ownership of the customer's purchase process
• Stepwise roll-out of cost-effective digital platform and shift towards omni-channel strategy
• Online is increasingly driving the whole purchase process from discovery to delivery
• Price, selection, delivery, payment, support and service

Online enables range expansion and new direct channel to customers

• All stores can offer the same range via e-commerce
• Click & collect and home delivery
• Leverage e-commerce platform to sell partner products
• Offer a widened range of high-value products without supply chain and warehousing
• Examples; garden furniture, generators and snow-blowers
• Potential to widen the overall range significantly
• Drive store traffic via click & collect
• Direct home delivery from partner with no Europris logistics involvement
• Add to customer experience and convenience

Robust pipeline of new stores

• New store openings on track
• Two new stores and one store closure in Q4, eight net new stores in total for 2018
• Maura, Akershus was closed in October
• Nannestad , Akershus opened in October
• Rjukan, Telemark was opened in December
• 12 stores in pipeline for 2019 and beyond
• Seven new stores expected in 2019
• Five of the stores are subject to local authority planning processes

Financial review

Gross margin development

• Gross margin was 43.4% in Q4 2018 vs. 44.0% in Q4 2017
• Increase in the campaign share of total sales following the strengthened focus on implementation of weekly sales campaigns
• Overall level of discounting unchanged
• Reducing margin, but positive on sales and profits

Gross margin

OPEX development

• OPEX in % of revenue was 26.9% in Q4 2018 vs. 26.5% in Q4 2017
• Number of directly operated stores increased from 205 to 221, up by 7.8%
• Large volumes resulted in capacity constraints at central warehouse
• Extra use of 3rd party handling and container rent amounting to NOK 8m
• OPEX in Q4 last year reduced by NOK 19.6m
• NOK 10.1m decrease in performance based remuneration
• NOK 9.5m increase in supplier marketing support

OPEX in % of group revenue

Adjusted EBITDA development

• Adjusted EBITDA was NOK 304m in Q4 2018 vs NOK 285m in Q4 2017
• Adjusted EBITDA margin was 16.5% (17.5%)
• Adjusted EBITDA affected by
• High sales growth
• Extra costs related to large volumes

Adjusted EBITDA (NOK million)

Cash flow

• Cash flow for the quarter reduced from last year due to share buy-back programmes
• NOK 77m cash outflow for 3.37m treasury shares
• For full year 2018 cash flow was impacted by:
• Increased inventory, both from new stores and at central warehouse (to increase service level to stores)
• Reduced capex, fewer store projects and purchase of land area in Moss last year
• Three share buy back programmes totalling NOK 121m

Cash flow, NOK million	Q4 2018	Q4 2017	FY 2018	FY 2017
Cash from operating activities	432	408	348	477
Cash used in investing activities	(19)	(29)	(90)	(132)
Cash from financing activities	(78)	(1)	(413)	(340)
Net change in cash	334	377	(155)	5
Cash at beginning of period	93	204	582	577
Cash at end of period	427	582	427	582

Outlook

• Continued growth in long-term revenue and profits supported by the group's leading position in an expanding retail segment
• Transforming Europris to an omni-channel retailer through ecommerce and e-crm
• Healthy pipeline of new stores
• Twelve stores planned for 2019 and beyond
• Two franchise takeover completed on 1 January and 2-3 additional takeovers expected during 2019

On the quest to be the best

The goal is to be the best in all four areas below

Price	Number 1 in price perception in Norway, the fight for lower prices continues
Concept	Continuous development, focus on customer need-based flow and distinct shop-in-shop
Value chain and cost efficiency	Nordic sourcing, new warehouse and automation of operations to improve further
Execution and culture	Continue to build on our strong company culture and dedicated employees

Be the best discount variety retailer in Europe

Next event: Q1 presentation 25 April 2019

27

Appendix

Sales days and store projects Analytical information IFRS 16 implementation APM's Appendix

Sales days and store projects

Number of sales days

Year	Q1	Q2	Q3	Q4	Total
2016	74	75	79	81	309
2017	77	71	79	79	306
2018	75	73	78	80	306
2019	76	71	79	80	306

•Number of store projects (franchise projects in brackets)

2018	Q1	Q2	Q3	Q4	Total
New stores	2	4	1	2	9
Store closures	-	-	-	1	1
Relocations	2	1 (1)	2 (1)	(1)	5 (3)
Modernisations	5	2	1	1	9

2019E	Q1	Q2	Q3	Q4	Total
New stores	1	5	1	-	7
Store closures	-	-	-	-	-
Relocations	-	4	1 (1)	2	7 (1)
Modernisations	7	2	5 (1)	-	14 (1)

¹ All figures are approximations and subject to change without further notice 31

Seasonality	• As rule-of-thumb, the Easter impact is approximately NOK 50 million in revenue and NOK 10 million of EBITDA
Quarterly OPEX	• As rule-of-thumb, OPEX in year ago quarter + inflation + NOK 1.5 – 1.6 million per extra directly operated store (DOS)
CAPEX	• New store – NOK 2.3 million per store (5 per year) • Relocation – NOK 1.5 million per store (10 per year) • Modernisation – NOK 1.0 million per store (10 per year) • Category development – NOK 10 million per year • IT & Maintenance – NOK 35 million per year
Estimated one-time CAPEX items 2019	• New warehouse and new head office of approximately NOK 30 million (IT, system integration, fixtures and fittings)

Analytical info¹

Analytical info – example rule-of-thumb, OPEX

OPEX Q4 2017	• NOK 431m - reported OPEX • + NOK 20m - for special items (performance based remuneration and supplier marketing support) • = NOK 451m – adjusted OPEX to be used as baseline
Inflation	• + NOK 16m (3.5% of NOK 451m, inflation according to SSB)
Extra directly operated stores (DOS)	• + NOK 25m (221 stores – 205 stores = 16 stores x NOK 1.5 - 1.6m)
Estimated OPEX Q4 2018	• = NOK 491m

Analytical info: New warehouse

NOK million	2019	2020	2021	2022
Investments
IT, office equipment and other (CAPEX)	~15	~5
Automation, part 1 (lease)	~85	~30
Automation, part 21 (CAPEX)	~25	~90
Non-recurring OPEX items

Moving costs	5-10	5-10
Redundant warehouse capacity in 2019 and Øra lease from H2 2020 (sublet potential to lease ends March 2022)	~6	0-13	0-26	0-10

IFRS 16 implementation - preliminary estimates¹

	Implementation effect 01.01.2019	2019 estimate
Assets
Total fixed assets	+1.96bn	+167m
Total assets	+1.96bn	+167m
Equity and liabilities Equity		-10m
Long term financial liabilities	+1.57bn	+199m
Current liabilities	+394m
Other short term liabilities Total equity and liabilities	+1.96bn	Net -22m +167m

• Implementation comes before new warehouse and head office
• 2019 estimate includes new warehouse, head office and other additions net of depreciation for the year
• Potential franchise take-over and adjustments to current lease portfolio are not included in 2019 estimate
• Loan facilities are not affected by reduction of equity ratio related to IFRS 16 implementation

Preliminary effect on group balance sheet Preliminary effect on group P&L statement

	Estimated 2019 P&L effects
Group revenue
COGS
Opex	Reduced by 430-450m
Depreciation	Increased by 400-420m
Net finance cost	Increased 40m-60m
Tax cost	Reduced by some 3m
Net income	Reduced by some 10m

• Significantly reduced rental cost to increase EBITDA
• More than offset by higher depreciation and finance costs
• Net negative impact expected on reported net income
• IFRS 16 implementation has no cash effects

¹ Includes all rented and leased properties, vehicles, trucks, machinery and equipment. Shorter and immaterial leases have been excluded. All numbers are estimates and will be subject to change owing to group operations and interest rate levels at the time of implementation

Alternative performance measures (APMs)

APMs are used by Europris for annual and periodic financial reporting in order to provide a better understanding of Europris' financial performance and are also used by management to measure operating performance. APMs are adjusted IFRS figures defined, calculated and used in a consistent and transparent manner.

Gross profit represents group revenue less the cost of goods sold excluding unrealised foreign currency effects.	Working capital is the sum of inventories, trade receivables and other receivables less the sum of accounts payable and other current liabilities
Opex is the sum of employee benefits expense and other operating expenses.	Capital expenditure is the sum of purchases of fixed assets and intangible assets
EBITDA (earnings before interest, tax, depreciation and amortisation) represents gross profit less Opex.	Net debt is the sum of term loans and financial leases less bank deposits and cash
Adjusted EBITDA is EBITDA adjusted for nonrecurring expenses.	Directly operated store means a store owned and operated by the group
Adjusted profit before tax is net profit before tax adjusted for non-recurring items	Franchise store means a store operated by a franchisee under a franchise agreement with the group
Adjusted net profit is net profit adjusted for non-recurring items	Chain means the sum of directly operated stores and franchise stores
Adjusted earnings per share is adjusted net profit divided by the current number of shares, adjusted by the monthly average of treasury shares	Like-for-like are stores which have been open for every month of the current calendar year and for every month of the previous calendar year