Kid ASA — Investor Presentation 2016

Nov 10, 2016

Q3 2016

Presentation available at investor.kid.no

Highlights Q3 2016

• Revenues increased by 9.2% compared to Q3 2015
• LFL growth of 6.7% including online sales
• Online sales growth of 59.7%
• Gross margin of 59.1% (60.8%)
• Adjusted EBITDA of MNOK 51.6 (MNOK 48.6)
• 5 new stores since Q3 2015
• NIBD/EBITDA of 2.7 (4.0)

Revenues and market share

• High growth in August due to negative weather impact last year
• Like-for-like growth of 6.7% including online sales
• Online sales growth of 59.7%
• 5 new stores since Q3 2016
• Kid outperformed home textile market by 6.5pp in the third quarter. Home textile market performed at similar level as broader retail benchmark

Operational focus

Q3 operational summary:

• Customer loyalty program now have more than 550.000 members
• Online store under continuous development. Vipps launched as mobile payment service in Q3
• The Hanjin (shipping line) bankruptcy in Q3 will have very little impact on Kid
• CEO Kjersti Hobøl was awarded the title "2016 Retail Leader of the Year in Norway" by Virke

Operational focus

Store portfolio development:

• New stores opened in Bekkestua (Oslo) and Knarvik
• Slependen (Oslo) was closed in accordance with plan
• 133 physical stores at the end of the quarter

Operational focus

Corporate Social Responsibility

Kid has a plan to ensure 100 percent sustainability and responsibility in the entire value chain, from the farm to our stores. In the third quarter we made the following progress:

• Started to source cotton certified by Cotton Made in Africa as the first Norwegian retailer. This initiative aims to help African smallholder cotton farmers to improve their living conditions
• Joined Better Cotton Initiative, a not-for-profit organisation working for global cotton standards from farmers to retailers

Gross margin

Gross margin decline of 1.7 pp in Q2 (IFRS)

• Gross margin including realized currency effects was 59.1% for the quarter, a decrease of 1.7 pp from Q3 2015
• Kid ASA is planning an early adoption of the new IFRS 9 standard related to hedge accounting*. When applying hedge accounting, the gross margin in Q3 show an improvement from 60.4% last year to 61.1% in 2016
• COGS including FX losses and gains would be consequently reduced by MNOK 6.5 in Q3 2016, and increased by MNOK 1.0 in Q3 2015

Gross margins in 2015 and 2016

* The timing of the accounting recognition of loss/gain from foreign exchange contracts and the realized gross margin on a spot basis are not synchronized using the current IFRS standards ⁷

Adjusted EBITDA*

Adjusted EBITDA of MNOK 51.6 in Q3 (MNOK 48.6)

• EBITDA was positively affected by a higher like-for-like growth, but negatively affected by a drop in gross margin
• Employee benefits expenses increased by 8.7% in Q3 2016, in line with our expectations
• 3.1 pp of the increase was due to new stores
• Remainder of the increase due to general salary inflation and increased staffing due to higher sales
• Other OPEX increased by 4.7% in Q3 2016
• 2.1% of the increase due to new stores
• 3.2% of the increase due to other rental costs
• -0.6% of the increase due to other OPEX

Adjusted EBITDA 2015 and 2016

8 Kid ASA Q3 2016

*Please see adjustment overview in appendix

Income statement*

Q3 adjusted net profit of MNOK 30.7 (MNOK 28.1)

• Depreciation increased due to last year`s CAPEX levels
• Financial expenses reduced due to lower interest rate on long term debt and debt instalment of MNOK 75 in November 2015
• Q3 2016 adjusted for unrealized losses/gains on USDNOK forward contracts and the related tax effect*
• Corporate tax rate is 25% in 2016 (27% in 2015)

Income statement

Q3 2016	Q3 2015	Q1-Q3 2016	Q1-Q3 2015
314,1	287,6	810,1	755,3
-128,6	-112,8	-332,1	-304,0
185,5	174,8	478,0	451,3
59,1 %	60,8 %	59,0 %	59,7 %
1,5	0,8	1,6	1,2
-135,4	-127,0	-408,7	-382,8
51,6	48,6	70,9	69,7
16,4 %	16,9 %	8,7 %	9,2 %
-7,4	-5,6	-21,0	-17,0
44,2	43,0	49,9	52,7
14,1 %	14,9 %	6,2 %	7,0 %
-3,2	-4,5	-9,6	-14,3
41,0	38,5	40,3	38,4
30,7	28,1	30,1	28,0

Cash flow

NIBD/EBITDA OF 2.7 PER 30.09.2016

• Increased cash flow from operations driven by higher sales, reduced inventory and increased VAT payables compared to last year
• Kid withdrew MNOK 29 from the overdraft facility in Q3 2015 which had a positive impact on the cash flow from financing. The facility has a positive balance by the end of Q3 2016.
• NIBD/EBITDA of 2.7 (based on adjusted EBITDA for the last twelve months), compared to 4.0 as of 30.09.2015

Cash flow

Amounts in MNOK	Q3 2016	Q3 2015	Q1-Q3 2016	Q1-Q3 2015
Net cash flow from operations	17,5	-10,9	-72,1	-103,0
Net cash flow from investments	-9,0	-7,2	-26,4	-31,3
Net cash flow from financing	-3,2	21,5	-71,3	47,1
Net change in cash and cash equivalents	5,3	3,3	-169,8	-87,1
Cash and cash equivalents at the beginning of the period	53,0	8,6	230,4	99,1
Exchange gains / (losses) on cash and cash equivalents	-0,6	-0,6	-2,8	-0,6
Cash and cash equivalents at the end of the period	57,7	11,3	57,7	11,3

Working capital

Amounts in MNOK	Q3 2016	Q3 2015	Q1-Q3 2016	Q1-Q3 2015
Change in inventory	-49,0	-64,9	-86,1	-113,0
Change in trade debtors	-0,2	1,5	1,2	-0,1
Change in trade creditors	1,1	9,4	-1,4	16,7
Change in other provisions	13,6	-2,7	-36,4	-51,2
Change in working capital	-34,7	-56,7	-122,7	-147,6

Operational initiatives

Mid-term objectives unchanged

• Focus on core business well prepared Christmas assortment and marketing campaigns for our most important season
• Inventory optimization initiative is ready to be launched. Increased volumes and availability on base assortment and best sellers in order to reduce out-of-stock situations in Q4 2016
• New store in Drøbak under construction with expected opening ultimo November

Q&A

Adjustments overview

Adjustments overview (MNOK)	Q3 2016	Q3 2015	Q1-Q3 2016	Q1-Q3 2015	FY 2015
1 Adj: Cost of relocation to new warehouse	-	-	-	3,7	3,7
2 Adj: Cost related to IPO	-	3,3	-	3,8	5,8
3 Other Unrealized losses/gains	7,0	-7,1	21,3	-14,3	-14,2
EBITDA adjustments	7,0	-3,8	21,3	-6,9	-4,7
4 Changes in fair value of financial current assets	-	1,3	-	-4,7	-5,5
5 Interest expenses on SWAP	-	2,3	-	6,4	7,4
Profit adjustments before tax	7,0	-0,2	21,3	-5,3	-2,9
6 Adj: Tax effect of adjustments (1-5)	-1,7	0,0	-5,3	1,4	0,8
7 Adj: Deffered tax effect of lower tax rate	-	-	-	-	-29,2
Net profit (loss) adjustments	5,2	-0,1	16,0	-3,9	-31,3

Comments

• 1. Kid relocated to a new warehouse in June 2015 and consider costs related to this as one-off
• 1. Costs related to the IPO in 2015 is considered one-off
• 1. Unrealized losses/gains is related to open USDNOK forward contracts at the end of the quarter. Kid does not consider unrealized FX contracts as part of adjusted net income. Realized losses/gains are considered to be a part of COGS.
• 1. Changes in fair value of financial current assets are related to a SWAP agreement that was terminated in connection with the IPO.
• 1. Same as #4
• 1. The tax effect for adjustment 1-5 is calculated using a corporate tax rate of 25% for 2016 and 27% for 2015
• 1. Change in deferred tax related to the trademark caused by a reduced tax rate from 27% to 25% with effect from 1.1.2016.