1. Finance & Investment Club Technology Sector Summer 2012 Senior Analyst: Esther Tay Radio frequency identification (RFID)

2. 2 Overview The RFID Sub-Sector Increasing demand for modernizing RFID applications Significant support from mandates and regulations Rapid growth of RFID usage in emerging markets Growing need for firms to improve operational efficiency

3. 3 Industry Definition – Radio Frequency Identification (RFID)  Firms in this industry provide real-time analytical solutions using RFID technology to identify, track, and manage critical assets, supply chain logistics and business transactions  These companies serve the retail, manufacturing, transportation, security, electronics, telecommunications, laboratory/healthcare, industries and governments worldwide Scansource, Inc. (NASDAQ: SCSC) Zebra Technologies Corp. (NASDAQ: ZBRA) Brady Corp. (NYSE: BRC) Progress Software Corp. (NASDAQ: PRGS) Intermec, Inc. (NYSE: IN) Avery Dennison Corporation (NYSE: AVY)

4. 4 RFID Sector Industry Breakdown by Market Cap Technology $125,079.5B (100%) Wireless communications $38,968.5B (31.15%) RFID companies $3,814.9B (3.05%) Focus RFID companies $9.1B (0.007%) Breakdown by 2011 Revenue AVY 6.026 B BRC 1.340 B IN 0.848 B PRGS 0.534 B SCSC 2.667 B ZBRA 0.983 B

5. 5 RFID Industry Model RFID Middle and Software Links and allows communication between RFID hardware and business solutions Processes tag data from the reader and filters duplicated tag information RFID Readers Handheld readers UHF readers RFID readers with embedded middleware 99.9% read rate accuracy Source: Frost and Sullivan, 2009 RFID Tags Active Passive Semi-passive Printed RFID tags are expected to open up new markets RFID Hardware Tag data “Clean” data Enterprise applications Warehouse management systems Enterprise resource planning systems Manufacturing execution systems Global RFID Market: Percent of Revenues by Product Type

6. 6  Correlation coefficient = -0.323  Companies’ operations are weakly correlated to the RFID industry’s expansion  Shows that selected companies are able to retain their operating margins despite new entrants into the RFID industry Time Series Analysis of RFID Sub-Sector CAGR: 12.78%

7. 7 Trends overview Increasing demand for modernizing RFID applications Significant support from mandates and regulations Rapid growth of RFID usage in emerging markets Growing need for firms to improve operational efficiency

8. 8 Increasing Demand for Modernizing RFID Applications Source: ABI research, RFID Annual Market Overview Application Group 200820092014 (est.) CAGR (08- 14) Traditional4,456.34,454.46,729.87.1% Modernizing906.01,094.12,472.818.2% Total5,362.35,548.59,202.69.4% RFID Systems Revenue: Traditional vs. Modernizing Applications ($M) Total RFID Systems Revenue for Modernizing Applications ($M)  Contactless payment –American Express, MasterCard, and Visa, are fully committed to contactless rollouts after significant consumer validation –Largest CAGR 23.7% from 2008-14  Item-level tracking –High relevance to consumer businesses –Improve accuracy of inventory checks –Riding on the growth of eCommerce  Asset management –The RFID market’s truly horizontal application –Potential to gain traction across regional and vertical markets

9. 9 Significant Support from Mandates and Regulations  96 different countries, including the U.S., are now embedding RFID into passports to fight forgery  US Department of Defense –Finalized Defense Federal Acquisition Regulation Supplement amendment for supplier contracts requires RFID tagging –An estimated 60,000 suppliers will be impacted  Walmart Inc. –Published requirements for vendors to place RFID tags on all shipments –It is expected that over 3,750 Wal-Mart stores will be equipped with RFID capability for item-level tagging  Target Corporation –Set requirement for top suppliers to apply RFID tags on pallets and cases beginning late spring 2005 –Suppliers are required to use UHF rags based on EPC for shipments sent to its 1,200 stores Perceived RFID Benefits in Supply Chain

10. 10 Rapid Growth of RFID Usage in Emerging Markets  North America and Europe –High awareness of RFID –High volume deployments in progress  Asia –Fairly advanced in RFID deployments –Technology innovation in active tags –Growth in consumer markets and increase in supply chain activities  South America and Middle East –Emerging awareness –High growth potential –Growing number of pilot projects  Africa –Low penetration of RFID –Prospects of greenfield opportunities CAGR: 19.0% CAGR: 13.6% CAGR: 13.7% Global RFID Revenues ($ Millions) Geographic Penetration of the RFID Market (2009)

11. 11 Growing Need for Firms to Improve Operational Efficiency Business value of RFID technology  80% faster receipt of goods  More than 99% chance of inventory availability  Inventory stock-taking can be completed in minutes  Multiple tag reads can be performed simultaneously Source:The challenges ahead of supply chains: McKinsey Global Survey results, Nov 2010 RFID technology directly addresses these two concerns in the long run

12. 12 RFID Industry Risks Demand-side risks  Lack of end-user knowledge on RFID  Lack of system integrator skills  Budgetary constraints due to global recession  Privacy and security concerns Supply-side risks  Vendors incur recurring costs to keep up with fast-moving RFID technology innovation

13. 13 Key Financials Ticker Symbol Market Cap(B) % of 52 highClosing PriceP/EEPSEV/ EBITDADebt/ EquityDebt/ EBITDALTM ROE (%) AVY 3.1898.9631.3715.761.997.18x2.225.70x11.50 BRC 1.4971.3420.3919.191.486.61x0.572.76x0.001 IN 0.3799.516.15N/A-4.1515.77x3.4910.93xN/A PRGS 1.2499.6919.636.330.5410.52x0.361.87x0.76 SCSC 0.8499.2530.5511.492.666.81x1.065.30x9.64 ZBRA 1.9399.7637.3215.242.458.49x0.130.52x17.20 High 3.1899.7637.3236.332.6615.77x3.4910.93x17.20 Low 0.3771.346.1511.49-4.156.61x0.130.52x0.001 Mean 1.5194.7524.2319.600.839.23x1.314.51x7.82 Median 1.3799.3825.4715.761.747.84x0.824.03x9.64

14. 14 RFID Industry Recommendation: POSITIVE The RFID Subsector is still highly fragmented and survival of companies depend largely on the companies’ products Revenue-side trends for the industry:  Significant support from corporation mandates and government regulations provide a steady driving force for the industry  Operational savings from modernizing RFID applications in emerging markets and in the aftermath of the economic crisis will boost growth in the industry Cost-side trends for the industry:  Increasing innovation is reducing the cost of producing and implementing RFID applications Therefore, the RFID subsector can be recommended as a BUY.

15. Thank you

16. 16 Annex

17. 17 Annex

18. 18 Annex

19. 19 Annex

20. 20 Annex