Gunnebo Interim Report, July-September 2020: Focus on innovation and development while managing IT-incident during ongoing pandemic

Gunnebo AB (publ)

Interim report July-September 2020

Focus on innovation and development while managing IT-incident during ongoing pandemic

Summary

Gunnebo Group, January-September, 2020

Third Quarter 2020

• Order intake amounted to MSEK 965 (1,547), a decrease of 38%
• Order book amounted to MSEK 1,326 (1,596), a decrease of 17%
• Net sales amounted to MSEK 1,016 (1,373), a decrease of 26%
• EBITA amounted to MSEK 27 (92) and the EBITA margin was 2.7% (6.7)
• Adjusted EBIT amounted to MSEK 24 (89) and the adjusted EBIT margin was 2.4% (6.5)
• Net profit/loss for the period amounted to MSEK -70 (39)
• Earnings per share amounted to SEK -0.73 (0.50)
• Free cash flow amounted to MSEK -53 (25), and free cash flow per share amounted to SEK -0.56 (0.33)
• On 28 September GB HoldCo AB, owned indirectly by Stena Adactum and Altor AB, made a public cash offer to the shareholders in Gunnebo AB (publ) to transfer all their shares to GB HoldCo.
  GB HoldCo has offered SEK 25 per Gunnebo share. Gunnebo's Board of Directors has unanimously recommended the shareholders of Gunnebo to accept the offer.

January-September 2020

• Order intake amounted to MSEK 3,403 (4,342), a decrease of 22%
• Order book amounted to MSEK 1,326 (1,596), an decrease of 17%
• Net sales amounted to MSEK 3,192 (3,947), a decrease of 19%
• EBITA amounted to MSEK 52 (212) and the EBITA margin was 1.6% (5.4)
• Adjusted EBIT amounted to MSEK 43 (206) and the adjusted EBIT margin was 1.3% (5.2)
• Net profit/loss for the period amounted to MSEK -146 (70)
• Earnings per share amounted to SEK -1.53 (0.91)
• Free cash flow amounted to MSEK -15(-6), and free cash flow per share amounted to SEK -0.16(-0.08)

Net Sales and EBITA margin

Order book and Order intake

Financial Summary

	July-Sep	July-Sep		Jan-Sep	Jan-Sep		Full year
MSEK	2020	2019	Change	2020	2019	R12M	2019
Order intake	965	1,547	-38%	3,403	4,342	4,546	5,485
Of which organic growth, %	-31	4		-21	5	-20	0
Order book				1,326	1,596
Net sales	1,016	1,373	-26%	3,192	3,947	4,703	5,459
Of which organic growth, %	-19	-1		-19	2	-14	1
EBITA	27	92	-65	52	212	161	321
EBITA margin, %	2.7	6.7		1.6	5.4	3.4	5.9
Adjusted EBIT	24	89	-65	43	206	149	312
Adjusted EBIT margin, %	2.4	6.5		1.3	5.2	3.2	5.7
EBIT	-42	75	-117	-39	183	-30	192
Net profit/loss for the period	-70	39	-109	-146	70	-171	45
Earnings per share, SEK	-0.73	0.50	-1.23	-1.53	0.91		0.55
Operating cash flow	14	62	-48	102	127	375	400
Free cash flow	-53	25	-78	-15	-6	188	197
Free cash flow per share, SEK	-0.56	0.33	-0.89	-0.16	-0.08		2.41
Interest-bearing net debt				1,179	1,325	1,179	1,102
Interest-bearing net debt/EBITDA, times				4.6	3.2	4.6	2.6

Cover: The EverydaySafe™ security solution, launched during the quarter, can be flexibly integrated into storage units in both the home and as well as in the office.Read more on page 4.

Gunnebo Group Q3 Report 2020 1

CEO Comment

Focus on innovation and development while managing IT-incident during ongoing pandemic

The development processes continued during the quarter, and in addition to dealing with the effects of the pandemic we have been focusing on customer development, innovation and the strategic review of Other Business. We have continued to prioritise securing deliveries and creating value for our customers, while closely monitoring national guidelines so as to look after our employees' health and help avoiding furhter spread of the virus. In addition, Gunnebo discovered in August that an IT attack was carried out against the com- pany, which led to focus on customer dialogue and to further strengthening our IT environment.

Continuing our development

COVID-19 has added a new layer of uncerta- inty, one we have never faced before and have had to deal with on a daily basis. Nevertheless, we have made decisions and taken measures during the quarter to future-proof our business. We have continued to invest in our customer offering by strengthening our online presence for several of our brands and service solutions, since the pandemic has changed the way we come into contact with customers. The digital

arena is now our new center.

We have also launched and marketed a series of innovative products and services. Septem- ber saw the launch of the EverydaySafe™ security solution, which flexibly integrates into storage units in the home and office. With existing expertise and technology, we have created a brand new product category and met an identified customer need. This product development complements our existing offering

in a new customer vertical that also includes individuals.

Gunnebo's innovative solutions, H-Sense and OccuLinq, have started being installed with customers during the quarter, and have been marketed to the public & commercial buildings and airport segments. These offers provide efficient solutions for people flow management, which has come even more to the fore during the ongoing pandemic.

During the quarter Gunnebo divested Gateway and associated companies. Gateway's operates in electronic article surveillance (EAS) and loss prevention solutions for the retail and fashion industries. The divestment is a result of the ongoing evaluation to assess the future potential of operations in the business unit Other Business.

General comments on Q3, 2020

All Business Units were negatively affected by the pandemic during the quarter. The Group

saw a gradual improvement in sales and orders month on month, even though the quarter as a whole ended up weaker in terms of orders than in Q2, but stronger in terms of sales.

The Group's order intake and net sales in Q3 2020 fell by -38% and -26% respectively, compared to the corresponding quarter last year. The main reasons for the decline are postponed orders, difficulties delivering existing orders, lower demand for the Group's products and services, and limited mobility on important main markets.

At the time of writing, the spread of COVID-19 has started to increase again, leading to restrictions on mobility on important main markets for Gunnebo. The Group is applying its experience since Q1 and can also draw benefits from the investments made in the digital arena.

Provided there is no major new wave of the pandemic, the view remains that the Group has passed the lowest point. Despite the positive development trend during the quarter, considerable uncertainty still remains with regard to the macroeconomic outlook, particularly because of the impact of the pandemic.

Order book was down -17% compared to the corresponding quarter last year, which can be explained by altered purchasing behaviour among customers. We can also discern a tendency towards shorter lead times between order and delivery and customers' willingness to invest has been impacted, all of which has resulted in longer selling cycles for major projects and orders being less comprehensive than previously.

We do perceive a demand for the Group's products and services when talking with custo- mers, but unfortunately this has been hampered by the pandemic and the uncertainty it brings. Market growth for Gunnebo's operating segments equate to between 3% and 6% in a normal economic situation.

The financial effects of the pandemic have

been palpable during the third quarter, and the EBITA margin amounted to 2.7% (6.7).

We can see a positive trend compared to the second quarter (when the EBITA margin was 0%), even though there was less of a contribution from national support measures. The lower demand has led to lower capacity utilisation in several of the Group's manufacturing units. This has been addressed, and further measures will be initiated to deal with variance in the future.

Again in this quarter, Gunnebo has had a distinct cost focus, and powerful measures have been taken to mitigate the decrease in sales. These measures include cost-cutting, as well as personnel-related capacity adjust- ments. The cost focus is continuing, and further capacity and operational adjustments cannot be ruled out.

The Business Units' development

Entrance Control reported weak development during the quarter compared to earlier in the year, as the gradual decline in order intake from the previous quarter continued into Q3. This can be attributed to longer selling cycles on important main markets, as well as a very strong third quarter in 2019. During the quar- ter, the Business Unit launched H-Sense and OccuLinq to the commercial & public buildings and airport segments.

Safe Storage successfully launched Every- daySafe™ during the quarter and strengthened its presence in digital channels. The Business Unit's operation does, however, remain very adversely affected by COVID-19, as there are still restrictions and limited mobility on several markets. The Business Unit has once again delivered a positive result following a temporary negative result last quarter, when the pandemic reduced sales by half on important main markets.

Gunnebo Group Q3 Report 2020 2

Cash Management has won two strategically important contracts on two new markets for a CIT partner, and several orders from European bank customers. On the American market, demand for drive-up systems and for products and services that facilitate contactless cash handling remained strong during the pandemic, as did the roll-out of major projects in the bank segment. Powerful cost-cutting measures have had positive financial effects.

Other Business: during the quarter, the Swedish operation for EAS and loss prevention for the retail and fashion industries, Gateway, was divested. The Business Unit was severely affected by COVID-19 during the quarter, both in terms of orders and sales. A one-off order was delivered in Brazil during Q3, which did mitigate the fall in sales compared to the previous quarter.

Outlook Q4, 2020

One result of the public takeover offer on Gunnebo from GB HoldCo AB on 28 Septem- ber 2020 was that the outlook for the fourth quarter of 2020 was announced*.

Regarding the fourth quarter, 2020, the company assess that the recovery will conti- nue, which is expected to contribute to both sales and operating profit (EBITA) being slightly better compared with the third quarter, 2020. However, in comparison with the corresponding quarter in 2019, both sales and operating profit (EBITA) are expected to be significantly lower due to the continued negative impact of Covid-19 on several important main markets. Furthermore, the expectation is that this scenario also is valid for the full year 2020 compared with 2019. There is however a significant uncertainty in the macro economic outlook not least due to the impact from Covid-19.

Comment on the IT attack

On 18 August, Gunnebo discovered that an IT attack was under way against the company, with unauthorised persons hacking into its IT environment. As soon as Gunnebo discovered the intrusion, our IT department started working with external IT experts to close down servers and terminate the attack. The impact on our operations were therefore minimal, and business could soon be resumed. We decided to report the incident to the Swedish Security Service, since industrial espionage could not be ruled out. The incident was also reported to the police.

Since the hack was discovered, Gunnebo has been worked based on the hypothesis that data may have ended up in the wrong hands. Consequently, within a few days an analysis began of data on servers around the world, and during the autumn Gunnebo has maintained an ongoing dialogue with affected customers locally. In a later phase, the cybercrimi- nals uploaded hacked data onto the so-called darknet. This data too has undergone and continues to undergo further analysis. We have not been able to rule out the possibility that the cybercriminals may have accessed further data.

We have opted not to communicate with the criminal elements that have stolen our data and paying a ransom has never been an op- tion. The only way to curb this kind of crime is not to pay the ransoms demanded. We have clearly already had to pay a high price, with far-reaching work internally as well as scrutiny of our conduct in the media.

I fully understand that the IT attack has raised questions among our customers. Our aim has been to be available and swiflty answer our customers' questions. I feel that our discussions with customers have been constructive and that we have a good dialogue.

Since the IT attack, we have taken various measures internally: some of them short-term to further strengthen our IT security, and some long-term to ensure that we have a solid IT structure. External experts are analysing Gunnebo's IT structure and the actions we have taken, and their findings will guide our efforts moving forward.

At the time of writing, it is still too early to assess the long-term consequences for Gunnebo. We have been the victim of a serious crime, one that has unfortunately become an everyday occurrence among individuals, businesses and government authorities. This is a growing problem for society and clear, concerted action is required. I believe that broader cooperation between different parties in society is needed - including experts, poli- ce, authorities and organisations - if we are to stop these criminal elements and the ever-increasing number and scope of their attacks. For our part, as a company we welcome open discussion where we can share the lessons, we have learnt over the past few months.

Further information about the IT attack can be found on page 7 of this interim report.

Focusing on the customer

I stand by my conviction that Gunnebo will emerge from the pandemic as a stronger, even more future-oriented company. Recent months have been challenging, and in some cases, we have been forced to reprioritise, rethink and think along new lines. This has placed and continues to place great demands on the organisa- tion, and we have had to adapt to the changing reality of the current business climate. In these turbulent times, we have been able to drive innovation which has led to product and service launches and have divested operations that are not right for us in the long term. This shows courage and faith in the future, which will be at the fore again during the coming quarter as we continue our development journey towards a more profitable Gunnebo with continued value creation and customer focus.

Gothenburg 4 November 2020

Stefan Syrén

CEO and President

Gunnebo AB (publ)

Public cash offer to the shareholders in Gunnebo AB

On 28 September GB HoldCo AB, which is owned indirectly by Stena Adactum and Altor AB, made a public cash offer to the shareholders in Gunnebo AB (publ) to transfer all their shares to GB HoldCo. GB HoldCo has offered SEK 25 per Gunnebo share.

Gunnebo's Board of Directors has unanimously recommended that shareholders should accept the offer.

• The outlook for Q4 has not changed and is the same as outlined in the public press release dated 28 September 2020.

Gunnebo Group Q3 Report 2020 3