XXL

Investor Presentation • Feb 7, 2020

XXL ASA – Q4 2019

Disclaimer

Important notice

The following presentation is being made only to, and is only directed at, persons to whom such presentation may lawfully be communicated ("relevant persons"). Any person who is not a relevant person should not act or rely on this presentation or any of its contents.

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This presentation includes and is based, inter alia, on forward-looking information and contains statements regarding the future in connection with the XXL Group's growth initiatives, profit figures, outlook, strategies and objectives. All forward-looking information and statements in this presentation are based on current expectations, estimates and projections about global economic conditions, the economic conditions of the regions and industries that are major markets for the XXL Group and its lines of business. These expectations, estimates and projections are generally identifiable by statements containing words such as "expects", "believes", "estimates" or similar expressions.

Important factors may lead to actual profits, results and developments deviating substantially from what has been expressed or implied in such statements. Although XXL believes that its expectations and the presentation are based upon reasonable assumptions, it can give no assurance that those expectations will be achieved or that the actual results will be as set out in the presentation.

XXL is making no representation or warranty, expressed or implied, as to the accuracy, reliability or completeness of the presentation, and neither XXL nor any of its directors, officers or employees will have any liability to you or any other persons resulting from your use.

This presentation was prepared for the interim results presentation for the fourth quarter 2019, held on 7 February 2020. Information contained herein will not be updated. The following slides should also be read and considered in connection with the information given orally during the presentation.

Highlights fourth quarter 2019

• EBITDA* of NOK 14 million, negatively affected by
  • Lower supplier bonuses of NOK 72 million
  • Negative like for like growth of 12.2%
• Better performance during Black Week, but particularly December and Christmas sales proved to be challenging
• Challenging Nordic sports retail market leading to inventory build up and heavy discount activities
• Leverage ratio of 2.9x
• Liquidity reserve of NOK 0.8 billion up NOK 0.1 billion from last year

Highlights 2019 – a challenging year

• Disappointing sales trend in a challenging market
• Gross margin control, but hampering growth and cost leverage
• EBITDA significantly down explained by the extraordinary write down of inventory, lower supplier bonuses of NOK 105 mill, and negative like for like growth of 8.6%
• Mixed performance
  • Norway: loss of market share in a discounting market
  • Sweden: setback both on sales and profit
  • Finland: gaining market shares and profitability
  • Austria: disappointing results, lack of scale
  • Denmark: reorganized to a tactical sales channel

2019 - overall sluggish market growth

Q4 – challenging retail environment

Status Q4 2019 – LFL and EBITDA

* Excluding effects of IFRS 16 and extraordinary writedown inventory Austria contains only two stores in the Vienna region, both

Key focus areas

• More exiting and inspiring stores and e-commerce
• Category development
• Broadened assortment online
• Utilize omni-channel opportunities

• Sold out situations and better control of replenishment

• Improved forecast control

• Reduced pre purchase
• Full assessment of assortment and suppliers
• Inventory per store down towards NOK 25 million medium term in order to significantly strengthen the balance sheet

Top line Inventory Organization

• New CEO Pål Wibe in place from 1. of April
• Tolle Grøterud given the responsibility to strengthen HR and communications – ongoing recruitments
• André Sjåsæt appointed new strategy and business development director
• Optimizing cost base and company structure

Current Trading January 2020

• Challenging winter conditions in all of Nordics
• January 2020 sales down with 22% vs. last year to around NOK 600 mill
• Sales of winter products not compensated by sales of other categories
• The Nordic markets with double digit decline
• XXL will immediately start a massive clearance sales in all markets

Current trading Sales of typical winter products Sales of typical spring products

Financial review

Q4 results significantly impacted by inventory write down

• 2019 negative top line growth and inventory build up
• XXL will reduce the number of SKU's and suppliers => changed strategy
• Very poor winter conditions during December 19 and January 20
• Challenging market dynamics

Background Write down of inventory Implications

• XXL has done an assessment of the whole assortment and inventory in all countries
• Extraordinary write down of the inventory of NOK 385 million
  • Norway: NOK 169 million
  • Sweden: NOK 123 million
  • Finland: NOK 69 million
  • Austria: NOK 23 million

XXL will immediately start a massive clearance sales in all markets

Should contribute to top line growth

Improved liquidity and stronger financial position

Strengthen the flow of goods throughout the value chain

Short term – negative effect on gross margins

Key Figures

	Q4 2019		FY 2019	FY 2018
(Amounts in NOK million)	(ex IFRS 16)	Q4 2018	(ex IFRS 16)	Audited
GROUP
Operating revenue	2 319	2 569	8 992	9 475
Growth (%)	-9 8 % ,	1 8 % ,	-5 1 % ,	8 8 % ,
Gross profit (adj )	844	930	3 443	3 536
Gross margin (adj ) (%)	36 4 % ,	36 2 % ,	38 3 % ,	37 3 % ,
OPEX %	35 8 % ,	31 7 % ,	34 5 % ,	31 6 % ,
EBITDA (adj )	14	115	343	541
EBITDA (adj ) margin (%)	0 6 % ,	4 5 % ,	3 8 % ,	5 7 % ,
Extraordinary writedown of inventory	385	-	385	-
EBITDA	-371	115	-42	541
(%) EBITDA margin	-16 0 % ,	4 % 5 ,	-0 5 % ,	5 7 % ,
EBIT	-422	64	-241	352
Net Income	-347	44	-253	237

• Disappointing sales development in Q4 vs. LY: 9.8%
  • Challenging markets
  • All segments posting negative growth
• Gross margins:
  • Q4: margins ended at 36.4%, marginally higher levels than 2018, despite NOK 72 million in lower supplier bonuses.
  • 2019 margins ended at 38.3%, 1% point above LY with NOK 105 million in lower supplier bonuses
• Opex % both in Q4 and YTD hampered by lower the lower sales – all segments with negative trend
• EBITDA* in Q4, adjusted for extraordinary write down, ended at NOK 14 million, down NOK 101 mill vs. LY

Gross margin development*

• Gross margin was 36.4% in Q4 2019 up from 36.2% in Q4 2018, despite significant impact from lower supplier bonuses of NOK 72 million
• Gross margin was 38.3% in 2019, and increase of 1% point versus 2018. Lower supplier bonuses of NOK 105 affected the margins negatively in all markets.
• All markets had higher gross margin in 2019 compared to 2018.

OPEX development (ex IFRS16)

• Group OPEX% up by 4.1 points to 35.8% in Q4
  • Driven by negative like for like growth of 12.2%
  • Negative like for like growth in the stores impacting the cost leverage
  • Increased costs in HQ and Logistics segment, mainly explained by extraordinary costs related to the DLA Piper report and consultancy related to these topics.
  • In 2019 group OPEX% up by 2.9 points to 34.5%
    • Driven by negative like for like growth of 8.6%
    • New stores

OPEX* (%)

31.7

35.8

31.6

34.5

2018 2019

29.3

32.6 31.9

35.4

38.0

30.6

EBITDA (adj.) development (ex IFRS16)

• EBITDA decline in Q4 of NOK 101 million vs. LY
  • negative revenue growth
  • lower supplier volume bonuses of NOK 72 mill
  • Higher opex base
• Strong decline in Norway (NOK 57 mill) and Sweden (NOK 38 mill), while Finland had improvement (NOK 5 mill)
• In 2019 EBITDA ended at NOK 343 million, whereof lower supplier bonuses counted for NOK 105 million. Also negatively affected by negative revenue growth and higher opex base
• Poor performance in especially Norway (NOK -134 mill), and Sweden (NOK – 93 million). Finland with improvement of NOK 18 million

Net debt development (ex IFRS16)

Net debt development (ex IFRS16)

Liquidity reserves ending at NOK 0.8 billion

* Excluding effects of IFRS 16 ** NIBD/EBITDA includes NOK 100 million from the subsequent offering that is made in Q1-20

Summary

Q4 and 2019 takeaways	• Disappointing sales development in challenging markets • Significant EBITDA decline explained by: - extraordinary inventory write down of NOK 385 million - lower supplier bonuses of NOK 72 million in Q4 and NOK 105 million in 2019 - negative like for like growth of 12.2% in Q4 and 8.6% in 2019 • Liquidity reserves ending at NOK 0.8 billion and leverage ratio at 2.9x
Priorities	• Top line growth and inventory reduction - massive clearance campaign in all markets - more exiting and inspiring stores and e-com - pricing • Optimizing cost base and company structure • Strengthen corporate governance
Outlook	• Covenant risk – XXL investigates long term sustainable sources of funding • 4 new lease agreements signed for 2020 • Slow down the pace of the store roll-out – focus on Austria and some in Sweden • Downsizing smaller stores and renegotiate rental contracts • Mid-term ambition of inventory per store of NOK 25 million • Capex NOK ~150-180 mill

Norway

• Negative like for like growth of 16.2%
  • 16% adjusted for cannibalization effects
  • Impacting the cost leverage negatively
• Lower gross margins* down 0.9%p to 38.3%, affected by lower supplier bonuses
• EBITDA-margin* down 2.3%p to 13.6%

* Excluding effects of IFRS 16 & extraordinary writedown

Sweden

• Volatile and price focused market
• Like for like growth down 8.3% in local currency
  • Affecting the cost leverage negatively
• Negative development in gross margin* of 0.6%p to 34.4%, affected by lower supplier bonuses
• EBITDA* of NOK -12 million and a margin of -1.8%

Finland

• Started good in the quarter, but negative development in December
• Negative like for like growth of 10.0% when adjusting for cannibalization effects
• Positive development in gross margins*, up 2.6%p to 36.4% despite negative effect from lower supplier bonuses
• EBITDA* of NOK 25 million (NOK 20 million)

Amounts in MNOK

* Excluding effects of IFRS 16 & extraordinary writedown

Austria

• Constantly working on improving the offering
• Gross margin* up 5.8%p to 31.2% despite negative effect from lower supplier bonuses
• Negative EBITDA* of NOK 22 million
  • still lagging scale on HQ

Denmark

• Revenues declined 64.2% in local currency
• Gross margins improved from 15.3% to 25.7% YoY
• EBITDA loss of NOK 2 million
• Adjustments to reach break-even on a significant lower cost base

HQ and Logistics

• Higher cost mainly explained by new recruitments and costs of external cost elements
• OPEX of NOK 123 million to 5.3% of Group sales
• Several initiatives to reduce the cost base

IFRS 16 Q4 – Significant effects on the classification of the P&L

IFRS 16 YTD – Significant effects on the classification of the P&L

Market data – online traffic

Growth split by markets

XXL ASA – Q4 2019