Hexagon Composites — Annual Report 2017

Mar 21, 2018

CONTENTS

2017 AT	04	Key Figures
A GLANCE	06	A word from the CEO
	09	Important Events
	10	Board and Management
	12	This is Hexagon Composites
	18	High-Pressure CNG, biogas and hydrogen
	28	Low-Pressure LPG
	32	Shareholder Information
	37	Strategy
	38	Corporate Governance
	42	Corporate Social Responsibility
BOARD OF	48	Integrating the new
DIRECTORS' REPORT		business combination
FINANCIAL	60	Financial Statements Group
STATEMENTS	115	Financial Statements Parent Company
	132	Auditor's Report
APPENDIX	136	Glossary
	137	Financial Calendar 2018

HEXAGON COMPOSITES ASA OSE:HEX

Hexagon Composites delivers safe and innovative solutions for a cleaner energy future. We are adapting our leading composite pressure vessel technology for a wide range of mobility and storage applications.

The energy transition towards a low-carbon society is constantly opening up exciting growth opportunities for Hexagon.

NET PROFIT

99.3 MNOK

EQUITY RATIO

59.1 %

KEY FIGURES

OPERATING INCOME MNOK EBITDA MNOK

EBIT MNOK EQUITY RATIO %

RETURN ON EQUITY % TOTAL RATE OF RETURN %

(NOK 1 000)

REVENUES AND PROFIT	2017	2016	2015	2014	2013
Operating income	1 429 397	1 220 511	1 443 873	1 650 829	1 271 621
Operating profit before depreciation (EBITDA)	174 022	374 877	100 119	329 151	204 362
Operating profit (EBIT)	99 291	299 266	37 513	256 788	142 064
Profit before tax	48 227	311 866	291	237 419	128 443
Profit after tax	69 472	208 303	4 563	164 672	89 643
CAPITAL 31.12
Total assets	2 391 298	2 424 847	1 180 789	1 179 615	1 137 346
Equity	1 412 441	1 333 170	470 138	487 109	348 564
Equity ratio 1)	59.1 %	55.0 %	39.8 %	41.3 %	30.6 %
PROFITABILITY AND RATE OF RETURN
Cash flow from operations	90 434	–4 034	41 276	175 908	158 575
Operating margin 2)	6.9 %	24.5 %	2.6 %	15.6 %	11.2 %
Return on equity 3)	5.1 %	23.1 %	1.0 %	39.4 %	29.5 %
Total rate of return 4)	2.4 %	17.9 %	1.8 %	23.3 %	15.4 %
NIBD/EBITDA 5)	1.2	0.6	3.0	0.3	1.0
SHARES
Share capital	16 663	16 663	13 329	13 329	13 329
Total number of shares per 31.12	166 627 868	166 627 868	133 294 868	133 294 868	133 294 868
Earnings per share 6) (NOK)	0.42	1.40	0.03	1.24	0.67
Cash flow per share 7) (NOK)	0.55	-0.03	0.31	1.33	1.19
Equity per share 8) (NOK)	8.48	8.00	3.56	3.67	2.62

DEFINITION OF KEY FIGURES

1) Shareholders' equity as a percentage of total assets.

2) Operating profit as a percentage of operating income.

3) Profit after tax divided by average shareholders' equity.

4) Profit before tax + interest expense divided by average total assets.

5) Net interest-bearing debt divided by EBITDA.

6) Net profit for the year divided by average number of shares outstanding.

7) Net cash flow from operations divided by average number of shares outstanding.

8) Shareholders' equity divided by average number of shares outstanding.

A word from the CEO

Jon Erik Engeset,

Group President & CEO of Hexagon Composites ASA

A word from the CEO

SETTING THE PACE FOR GROWTH

All of Hexagon's businesses are addressing energy related opportunities. The energy markets have undergone profound changes over the last few years. The cleaner energy transition, supported by public and private players, is happening now.

The launch of the Hydrogen Council, chaired by major energy and mobility players, demonstrates a strong commitment to hydrogen technology and investments. Through the consortium "CNG Mobility", the Volkswagen Group and leading German industrial players are taking the lead, aiming at 1 million CNG cars in Germany by 2025. We are proud to be part of both initiatives to continue enhancing the essential role of hydrogen, CNG and biogas in the future energy mix.

To be phased in from 2020, EU legislation sets stricter CO2 emission targets for new cars. The OEMs are mandated to swiftly deploy low carbon emission vehicles to meet the new regulations.

For Hexagon, these developments – combined with numerous others, represent major opportunities and we have good reasons for considerable optimism.

2017 AT A GLANCE

Hexagon Ragasco continues to increase the market penetration of LPG composite cylinders. We are investing in our facility at Raufoss to further improve manufacturing efficiency and product differentiation, as well as provide more production capacity. Innovations aimed at safety, ease of use, and high corrosion resistance are expected to make a positive impact upon the demand for LPG cylinders globally.

Our Hydrogen business has experienced exceptional growth since it was established at the beginning of 2016. During 2017 we had commercial sales to rail, distribution, refueling station, passenger car and heavy-duty vehicle markets. The award of a development contract for hydrogen cylinders for new fuel cell electric vehicle (FCEV) models represents a major milestone for us.

In Germany, we see a strong g-mobility drive in the lightduty vehicle market and an increasing consensus that climate targets cannot be reached without natural gas and biogas. We have confidence in the fundamentals of our CNG Light-Duty Vehicle business and the outlook for 2018 is very promising.

After a couple of challenging years for our Mobile Pipelines business, we see recovery in volumes particularly in North America, and strong underlying growth drivers globally. Natural gas has an increased portion of the energy mix, and biogas (renewable natural gas) is becoming more important in North America and Europe.

During fourth quarter of 2017, we successfully launched an efficient testing technology solution for our Mobile Pipeline® customers which minimizes their downtime during regulatory requalification of these modules. A large number of modules are due for regulatory requalification in the U.S. during 2018.

"We aim to lead the markets in renewable gas storage, distribution and fuel systems technology and solutions."

Medium and heavy-duty vehicles markets have been soft during 2017, however Agility Fuel Solutions' strong focus on cost efficiencies has created a sound platform for maximizing financial performance in an otherwise soft market. Cummins Westport's introduction of a "near zero" emissions 12L natural gas engine is expected to be a positive development for Natural Gas Vehicles going forward.

SET FOR FURTHER GROWTH

Having made significant strategic moves in 2016, our priority in 2017 has been to ensure optimal integration of the new businesses, with an emphasis on the realization of synergies.

Hexagon has established a unique position as the global market leader in safe and innovative mobility solutions for a cleaner energy future. We see strong growth drivers both short and long term across all business units.

SHARPENING OUR FOCUS ON CLEANER ENERGY OPPORTUNITIES

Hexagon is evolving from trusted product supplier to trusted solutions provider with increasing momentum. We are adopting our leading and proven Type 4 composite pressure tank technology for a wide range of mobility and storage applications in the energy market.

We are seeing a major paradigm shift in the energy transition. Hexagon views hydrogen as an essential energy carrier in the development of decarbonized energy systems. g-mobility, the use of gas in mobility applications, is the fastest way to reduce CO2 emissions in the transportation sector in a short-term.

Biogas is a commercially viable fuel, supported by governmental incentives. Biogas can rely on existing natural gas infrastructure and is based on proven technology.

As a carbon-negative solution, biogas provides the world's energy system with several advantages: it contributes to reaching climate targets through reduced CO2 emissions sequestration and can improve air quality by being used as a vehicular fuel displacing petrol. Further, it advances energy security as it can be produced locally using available biowaste. Biogas is the most emission-friendly fuel available today.

We aim to lead the markets in renewable gas storage, distribution and fuel systems technology and solutions. Hexagon is responding to these market opportunities and has organized Hydrogen and Light-Duty Vehicle activities into a dedicated business segment. Looking ahead, Hexagon will focus on forward integration and providing solutions around the hydrogen value chain.

Our Hydrogen business is a key focus area for our strategic partner and major owner, Mitsui & Co. The alliance secures a valuable and long-term minded partner and allows for deeper value chain penetration, directly leveraging the hydrogen opportunity.

ORGANIZATIONAL DEVELOPMENT IS KEY TO SUCCESS

In 2018 we will make substantial investments in our organization, research and development and production capacity to meet market demands and maintain technology leadership. Adapting to change can be demanding and challenging, and requires that we fundamentally change the way we think and work together.

I am grateful for the hard work and dedication exhibited by our people during this year. As we look forward to meeting market demands and unlocking new opportunities, I express my sincere gratitude for the cooperation and support from our shareholders and other key stakeholders during 2017.

JON ERIK ENGESET Group President & CEO

IMPORTANT EVENTS IN 2017

POSITIONING FOR SIGNIFICANT LONG-TERM OPPORTUNITIES

In 2017 Hexagon Composites prioritized the integration of the new business combination as a result of strategic moves in 2016. Going forward, the Group will focus on the significant long-term opportunities, particularly within hydrogen and biogas.

ACQUISITION OF XPERION

Successful integration of Hexagon xperion (renamed from xperion Energy & Environment) into the Group's business units

PARTNERSHIPS

Launched Hyon AS, a joint venture with NEL ASA and PowerCell Sweden AB, with an immediate focus on hydrogen related solutions within marine and maritime applications

1,429

MNOK

OPERATING INCOME

• Record LPG performance – 30% revenue growth
• Mobile Pipelines recovery in volumes
• Exceptional Hydrogen growth
• Positive macro sentiment for Light-Duty Vehicles

99

EBIT MNOK

PROFITABILITY

• EBIT margins for Low-Pressure LPG were above 19%
• Underlying profitability in all business units
• Agility recorded 78% growth in adjusted EBITDA

FINANCE

• Double-digit Group EBITDA margin
• Strong balance sheet with 59% equity ratio
• Net interest-bearing debt held to within 10% of total assets

10 2017 AT A GLANCE BOARD OF DIRECTORS' REPORT FINANCIAL STATEMENTS

BOARD OF DIRECTORS

KNUT FLAKK

Chairman

MSc (BI Norwegian Business School) and MBA (London Business School). Flakk owns the Flakk Group and has extensive experience from establishing, developing and operating industrial companies both in Norway and internationally. He has been the CEO of the Flakk Group since 1996.

Number of shares: 30,715,717 Includes shares owned by related parties

ELISABETH HEGGELUND TØRSTAD Board Member

Cand. scient. (University of Oslo) and Business Administration (Norwegian School of Management). CEO Digital Solutions at DNV GL. Tørstad has more than fifteen years of experience from leadership positions in DNV GL and most recently as CEO for Oil & Gas. Tørstad has been, for the most part, on the Executive Board and Council in DNV GL since 2010. Independent board member.

Number of shares: 0

KRISTINE LANDMARK Deputy Chair

MSc (NHH, Norwegian School of Economics), Managing Director of Slettvoll Møbler AS. Landmark has extensive experience from various management positions within the banking and furniture industries. She is a board member of several corporate groups, companies and associations. Independent board member.

Number of shares: 10,000 Includes shares owned by related parties

SVERRE NARVESEN Board Member

Civil Engineer, has been Head of Norwegian Centres of Expertise, Raufoss Industrial Cluster for the last 12 years. Narvesen has 15 years' experience from management positions within the fields of Automotive and Defence at Raufoss ASA. He holds board positions in several industrial companies and has experience developing innovation companies. Independent board member.

Number of shares: 0

KATHRINE DUUN MOEN Board Member

MSc (NTNU), Director for Business Development and IT at Relacom. Duun Moen has extensive experience from various management positions in energy, telecom and consultancy, and most recently as Senior Vice President in Statkraft. She held board positions in several energy and innovation companies. Independent board member.

Number of shares: 0

KATSUNORI MORI

Board Member

Bachelor degree in Aeronautical Engineering (Kyoto University), President & CEO of Mitsui & Co. Plastics Ltd. Mori held various management positions in Mitsui & Co. within the fields of advanced composite materials and renewable energy related materials. He has been a member of the Board of Advanced Composites Products. and Sunwize Technologies.

Number of shares: 41,666,321 Shares owned by Mitsui & Co., represented in the board by Katsunori Mori

The Board of Hexagon Composites from the left: Elisabeth Heggelund Tørstad, Katsunori Mori, Knut Flakk, Kristine Landmark, Kathrine Duun Moen and Sverre Narvesen

EXECUTIVE MANAGEMENT

JON ERIK ENGESET Group President & CEO

MSc and MBA (NHH), CEO & President since 2013. Previously, Jon Erik Engeset was the CEO of SafeRoad. He has extensive experience from various senior managerial positions at Rolls Royce and Norsk Hydro.

Number of shares: 440,867 Number of options: 550,000 Includes shares owned by related parties

DAVID BANDELE CFO

Bachelor of Economics (University of Sheffield), qualified Chartered Accountant in London (ACA), CFO since 2014. David Bandele has held several senior positions in the field of finance and controlling, previously as CFO of Aker Floating Production ASA. He has extensive manufacturing and supply chain experience from General Electric Healthcare.

Number of shares: 32,745 Number of options: 350,000

JACK SCHIMENTI Executive Vice President

Bachelor degree in Industrial Engineering. Jack Schimenti has been employed at Hexagon Lincoln since 2005 and as President since 2010. He has extensive experience from production processes for composites.

Number of shares: 60,341 Number of options: 350,000

MICHAEL KLESCHINSKI Executive Vice President Hydrogen & Light-Duty Vehicles

PhD and BSc in Mechanical Engineering (respectively Darmstadt University and Glasgow University), CEO of Hexagon xperion since 2016. Has previously held different management positions within production and engineering and has extensive experience with design and manufacturing of composites.

Number of shares:		0
Number of options:		150,000

SKJALG SYLTE STAVHEIM President

Low-Pressure Area LPG

MSc in Economics and Business Administration (BI Norwegian Business School). Skjalg Sylte Stavheim has been employed at Hexagon Ragasco since the beginning of 1996 and as Managing Director since 2013. He has experience from Delta Consult, Norbok and Raufoss ASA.

Number of shares: 29,215 Number of options: 300,000

DELIVERING ENERGY SOLUTIONS

Hexagon is adapting its leading composite pressure cylinder technology for a wide range of mobility and storage applications. The energy transition towards a low-carbon society provides exciting growth opportunities for the Group.

HYDROGEN & LIGHT-DUTY VEHICLES

MOBILE PIPELINES

This is Hexagon Composites

The value-added features of the products are light weight, high capacity, long life and a high level of safety. Hexagon is working with leading gas distributors, vehicle manufacturers and system and component suppliers to be at the forefront of its industry. The Group's ambition is to create value for customers, owners and other key stakeholders by delivering innovative, environmentally sound and costeffective solutions through sustainable business practices.

Hexagon Composites ASA is listed on the Oslo Stock Exchange (OSE:HEX). Based in Aalesund, Norway, the extended Group has around 850 employees and generated NOK 1,429 million in operating income in 2017. Production is carried out in modern, automated plants in Norway, Germany and the U.S.

DELIVERING ON STRATEGIC AGENDA

Having made significant strategic moves in 2016, the Company's priority in 2017 has been integration of the new businesses. Hexagon sees strong growth drivers both short and long-term across its businesses.

BUSINESS SEGMENTS

Hexagon was until 2017 comprised of two business segments: High-Pressure CNG & CHG and Low-Pressure LPG. To respond to the growing market opportunities for renewable fuels solutions, Hexagon has organized its Hydrogen activities and Light-Duty Vehicle activities into a dedicated single business segment. The new reporting structure from 2018 will be:

Consolidated segments:

• Hydrogen & Light-Duty Vehicles
• Mobile Pipelines
• LPG
• Other: Hexagon MasterWorks

Equity accounted:

• Medium and Heavy-Duty Vehicles (Agility Fuel Solutions (50% owned))

HYDROGEN & LIGHT-DUTY VEHICLES Hydrogen

The strong momentum towards global low-carbon economies stimulates demand for the Group's hydrogen solutions. Hydrogen is a clean and safe energy carrier that can be used as fuel in a wide range of applications. Hexagon is well positioned across the hydrogen value chain with vehicle tanks for cars, buses and heavy-duty trucks, ground storage, transportation, marine, rail and backup power

solutions. Type 4 tanks provide the best combination of safety, efficiency and durability that is available today. Their lightweight construction improves range, payload and handling.

Light-Duty Vehicles

Hexagon's cylinders are the ideal fuel tanks for light-duty vehicles because of their combination of safety, efficiency and durability. They are less than 50% of the weight of steel, which reduces fuel consumption, extends vehicle range and provides better stability and handling. The Group's principal OEM customers are located in Europe.

MOBILE PIPELINES

Hexagon designs and manufactures high-pressure composite cylinders and systems for the transportation and storage of compressed gases (natural gas, biogas and hydrogen). The TITAN® and X-STORE® solutions are designed for bulk transportation of natural gas and renewable gas. Light weight and high storage capacity make these systems ideal for customers that require large volumes of gas at a high flow rate, but are not currently served by traditional pipeline infrastructure. With four times more capacity and weighing only 30% that of steel tubes, Hexagon's cylinders are more economical in use under most conditions. This enables a faster return on investment.

LPG

Hexagon designs and manufactures low-pressure composite cylinders for LPG (propane and butane) used for leisure activities, household use and industrial applications worldwide. As the world's leading manufacturer of LPG composite cylinders, Hexagon has sold around 14 million units to over 80 countries in the last 17 years. Its state-ofthe-art production facilities deliver products with valueadded advantages over traditional steel cylinders including light weight, durability, safety and user-friendliness.

MEDIUM AND HEAVY-DUTY VEHICLES

Hexagon's 50%-owned affiliate, Agility Fuel Solutions, designs and manufactures high-pressure composite fuel cylinders and systems for transit buses, refuse trucks and medium- and heavy-duty trucks. The cylinders are used for CNG, biogas and hydrogen. Light weight, compact size, and superior safety make the cylinders an attractive alternative for the Natural Gas Vehicle (NGV) and Alternative Fuel Vehicles (AFV) market. The Type 4 composite cylinders are less than 30% of the weight of steel cylinders. Lower emissions, reduced particulates and This is Hexagon Composites

LEADING TYPE 4 PRESSURE CYLINDER TECHNOLOGY

lower fuel costs of gas powered engines, give customers a competitive edge while reducing the environmental impact of their operations.

A MARKET DRIVEN BY THE ENERGY TRANSITION AND ECONOMICS

Hydrogen, biogas and natural gas are expected to increase their share in the global energy mix. g-mobility, the use of gas in mobility applications, is the fastest way to reduce CO2 emissions in the transportation sector. The strong momentum towards low-carbon economies is stimulating demand for the Group's solutions.

Hydrogen is a clean and safe energy carrier with favorable characteristics as it does not release any CO2 during use. Hydrogen technologies and products have significantly progressed over the past years and are now being widely introduced and commercialized globally.

Gas transportation infrastructure is limited in many places. Mobile Pipeline® solutions enable markets to convert from diesel and oil to low-carbon natural gas, biogas and hydrogen without conventional pipelines.

The rapid increase worldwide in the use of natural gas and biogas has resulted in strong, long-term growth trends in the Group's markets. The fundamental market drivers remain robust and are expected to stimulate demand for Hexagon's solutions.

INNOVATION AND COST-EFFECTIVE PRODUCTION

Product and process innovation, along with highly automated and efficient production, are core competitive strengths underlying Hexagon's global leadership. Differentiation through innovation is essential to growing market share and margin contribution. The Group works closely with customers and suppliers to excel in these areas.

PRODUCT SAFETY

Since Hexagon's products are used to transport and store highly flammable, pressurized gases, product safety is a fundamental requirement. Hexagon is involved in several international standards development and maintenance committees with the primary aspect of bringing safety to users and the environment. All of Hexagon's products are tested and approved in accordance with established safety standards. Production and related processes are regularly monitored and controlled.

COMPETENCE AND EXPERTISE

Innovation, ambition, and expertise are critical success factors. Hexagon encourages diversity in hiring practices with the aim of hiring people with different backgrounds and expertise. The Group emphasizes empowerment and a flat organizational structure that recognizes employees' accomplishments and enable them to thrive.

14

This is Hexagon Composites

THE EXTENDED HEXAGON COMPOSITES GROUP 31 DECEMBER 2017 850

16

The extended Hexagon Composites Group

HEXAGON ADMINISTRATION AND PRODUCTION SITES

8

5 6

24

1. Aalesund, Norway Headquarters

^{4 7}

¹⁸¹⁹

• 1. Raufoss, Norway LPG Cylinders Light-Duty Vehicles
• 1. Kassel, Germany Hydrogen Light-Duty Vehicles Mobile Pipelines
• 1. Lincoln (NE), U.S. Hydrogen Mobile Pipelines
• 1. Heath (OH), U.S. LPG Cylinders distribution
• 1. Taneytown (MD), U.S. Hexagon MasterWorks

HEXAGON SALES OFFICES AND REPRESENTATIVES

10 15 12

13

• 1. Corona (CA), U.S. Sales representative
• 1. Santiago, Chile Sales representative
• 1. Arnheim, Netherlands Sales representative
• 1. Paris, France Sales representative
• 1. Wroclaw, Poland Sales representative
• 1. Klagenfurt, Austria Sales representative
• 1. Barcelona, Spain Sales representative
• 1. Nizhny Novgorod, Russia Sales office
• 1. Copenhagen, Denmark Sales representative
• 1. Bangalore, India Sales office
• 1. Singapore Sales office

AGILITY FUEL SOLUTIONS (50/50 OWNED)

17

• 1. Raufoss, Norway Systems production
• 1. Lincoln (NE), U.S. Cylinders production
• 1. Costa Mesa (CA), U.S. Headquarters
• 1. Fontana (CA), U.S. Systems production
• 1. Kelowna (BC), Canada Engineering, test and validation
• 1. Wixom (MI), U.S. Powertrain systems
• 1. Salisbury (NC), U.S. Systems production
• 1. Georgetown (TX), U.S. Propane dispenser
• 1. Sao Paolo, Brazil Sales resources

HISTORY ROOTED IN INNOVATION AND CHANGE

OPERATING INCOME

MNOK

History

1999

Flakk Group became the largest owner of publicly listed Norwegian Applied Technology ASA of which Comrod (composite antennae) was a central member. The Flakk Group was already the largest owner of Devold AMT AS, a world leader in multiaxial glass and carbon fibre reinforcements and saw the opportunities for growth in the composite industry.

2000

Norwegian Applied Technology ASA was merged with Devold AMT AS. The Group changed its name to Hexagon Composites, and the headquarters moved from Stavanger in Norway to Aalesund, Norway. The aim was to achieve a listed group which had the strength to make further acquisitions of industrial companies with composites expertise and global potential within niche markets.

2001

The Group acquired Ragasco, a leading manufacturer of composite LPG cylinders based in Raufoss, Norway. Enviromech (U.S.) was founded as a supplier of fuel storage solutions for natural gas and hydrogen.

2003

The Group acquired Raufoss Fuel Systems from Raufoss ASA, a leading supplier of high-pressure cylinders for gas-powered buses with a market focus in Europe.

2005

Hexagon acquired Lincoln Composites from General Dynamics, both located in Nebraska, USA. The company operated in the same business area as Raufoss Fuel Systems, with its main focus on the American and Asian markets.

2006

Comrod acquired Eltek Defence and Lerc to extend its product portfolio. Devold AMT established new production facilities in Lithuania and the U.S. to exploit the growth in Devold AMT's most important market segment, the wind power industry.

2007

The business area for composite antennae demerged and was listed separately as Comrod Communication ASA.

2009

A new facility with two production lines for high-pressure cylinders opened in Nebraska, USA.

2010

Ragasco's new production line for LPG cylinders opened in Raufoss. Hexagon acquired Composite Scandinavia, a Swedish company that produced LPG cylinders.

2011

FAB industries and Enviromech merged and formed Agility Fuel Systems, becoming a leading supplier of alternative fuel systems for heavy-duty trucks and buses.

2012

Remaining production of composite reinforcements in Norway was relocated to the company's factory in Lithuania. The CNG passenger car division demerged from Ragasco and merged with Raufoss Fuel Systems. Production of LPG cylinders at Composite Scandinavia in Sweden was closed down and the production volume was transferred to Raufoss.

2013

Hexagon Composites performed a re-branding and implemented a uniform profile throughout the Group.

2014

Hexagon Devold was sold to Saertex GmbH & Co. KG so the Group could focus on further development of the pressure cylinder business. A capacity expansion program in Nebraska was initiated. The company acquired MasterWorks in Maryland, USA, securing key technology and enhanced engineering capacity.

2015

Hexagon Raufoss restructured its operating model to achieve profitable operations. The company was operationally integrated with Hexagon Ragasco to take advantage of synergies.

2016

Mitsui & Co., Ltd. acquired 25.01% of Hexagon and a strategic alliance agreement was signed. The CNG Automotive Products Division was merged with Agility Fuel Systems, to create Agility Fuel Solutions (50% Hexagon owned). xperion Energy & Environment in Germany, one of the leading Type 4 cylinder manufacturers, was acquired.

2017

xperion was successfully integrated to the organization and the Group repositioned itself for further growth. Hyon AS was launched, a joint venture with NEL ASA and PowerCell Sweden AB, focused on hydrogen projects.

SHARPENED FOCUS ON CLEAN ENERGY OPPORTUNITIES

Low-Pressure LPG

KEY FIGURES

(MNOK)	2017	2016
Operating income	786.5	728.3
EBITDA	47.2	302.4
EBIT	-8.6	248.4
EBITDA %	6.0 %	41.5 %
EBIT %	-1.1 %	34.1 %

HEXAGON LINCOLN LINCOLN, NE, USA MOBILE PIPELINES HYDROGEN	121	6,000 m²
HEXAGON RAUFOSS RAUFOSS, NORWAY LIGHT-DUTY VEHICLES	12	3,000 m²
HEXAGON XPERION KASSEL, GERMANY MOBILE PIPELINES HYDROGEN LIGHT-DUTY VEHICLES	136	7,000 m²

Hexagon Composites is the global leader in Type 4 high-pressure composite cylinders and solutions for storage and transportation of compressed natural gas (CNG), biogas and hydrogen gas. Low weight, combined with considerable lower emissions, reduced particulates and lower fuel costs of natural gas-powered engines, helps the customer be more competitive and reduces the environmental impact of their operations.

The wholly-owned subsidiaries, Hexagon Lincoln, Hexagon Raufoss and Hexagon xperion, design and manufacture Type 4 cylinders and gas distribution systems at modern and high-capacity production facilities in Lincoln (Nebraska, USA), Kassel (Germany) and Raufoss (Norway). The 50% owned affiliate, Agility Fuel Solutions, a globally leading provider of natural gas fuel systems and Type 4 cylinders for medium- and heavy-duty commercial vehicles, operates state-of-the-art production facilities strategically located in the U.S., Norway and Canada.

The lightweight pressure cylinders are typically less than 25-30% the weight of steel cylinders, which is the dominating technology. The Type 4 composite cylinders are superior in fatigue life and further enhance safety by behaving corrosionfree over their lifetime. Less weight may provide substantially lower operational expenses and greater range due to more fuel being transported.

BENEFITS TO THE BOTTOM LINE AND THE ENVIRONMENT

Demand for Hexagon's solutions is driven by the price advantage of natural gas to oil-derived fuels, and the environmental benefits of cleaner-burning fuels. Consumers are looking to control their fuel costs minimizing their environmental footprint. The stability of the natural gas price compared to more volatile oil-derived fuels and improved emissions performance meet these requirements.

The acceleration of the energy transition to cleaner fuels continues to attract investments spurring further adoption of natural gas, biogas (renewable natural gas) and hydrogen.

OPERATING RESULTS

The High-Pressure area generated NOK 786.5 (728.3) million in operating income and made an operating profit (EBIT) of NOK -8.6 (248.5) million in 2017. Mobile Pipelines sales showed recovery with high activity in the North American oil & gas sector. Light-Duty Vehicle sales in Europe were disrupted in the first half of the year, but recovered strongly and returned to satisfactory profitability. Organic and inorganic growth has driven Hydrogen sales volumes to account for 10% of Group revenues, from 3% in 2016.

Read more about the financial results in the Board of Directors' Report.

KEY DEVELOPMENTS AND IMPORTANT EVENTS 2017

• Mobile Pipelines recovery in volumes driven by strong North American markets
• Exceptional Hydrogen growth

• Positive macro sentiment for CNG Light-Duty Vehicles in Europe

• Successful integration of the Hexagon xperion operations

• Entered into long-term agreement with Certarus and received TITAN® orders with a total value of approx. NOK 348 million
• Launched requalification testing program for Mobile Pipeline® cylinders minimizing customers' equipment downtime during regulatory requalification
• Received a major development award for hydrogen cylinders for new fuel cell electric vehicle (FCEV) models
• Expanded into the fuel cell heavy-duty truck market with deliveries to Toyota and ASKO
• Launched Hyon AS, a joint venture between Hexagon, Nel ASA and PowerCell Sweden AB
• Awarded a substantial order for cylinders from Air Products for hydrogen transportation in Germany
• Significant sales orders received for composite CNG cylinder vehicle conversions in Indonesia
• Expanded into the maritime industry with the first delivery of CNG TITAN® tanks for fuel storage onboard a LNG gas supply vessel being built for Babcock Schulte Energy
• Agility expanded its LPG-focused Powertrain Systems business unit through acquisition, and accelerating product sales.

OBJECTIVES ACHIEVED IN 2017

• Recovered volumes in North American Mobile Pipelines market towards the end of the year
• Improved profitability
• Obtained additional Hydrogen OEM business
• Strengthened market share positions for CNG vehicles in Indonesia
• Expanded market reach geographically
• Realized synergies of the xperion transaction and successfully integrated the business.

OBJECTIVES FOR 2018-2019

• Improve profitability in Mobile Pipelines and LDV
• Invest significantly in expanding hydrogen related businesses
• Successfully execute existing hydrogen OEM projects
• Re-establish Mobile Pipelines volumes in markets outside North America
• Trigger incremental Mobile Pipelines demand through further developing financing solutions
• Successful launch of new product offering within Mobile Pipelines
• Support the European resolve to displace diesel with CNG
• Strengthen our market reach geographically
• Continuously improve production efficiencies and reduce operational costs
• Seek and receive specific national approvals for key hydrogen products.

STRATEGY

Hexagon Composites will grow its leading position in the development, production and global adoption of Type 4 high-pressure CNG, biogas and hydrogen cylinders for mobility applications. The Group complies with enhanced applicable safety standards. With high integrity and leading product technology and manufacturing infrastructure, Hexagon targets to increase its position as the preferred partner to key players in the automotive and gas distribution industries. Experience in highly automated production and a leading position in the value chain enables the

Group to provide customers with continuous high-quality products and cost-competitive solutions as the market grows. The formation of the jointly-owned affiliate Agility Fuel Solutions enhances the Company's commitment to the CNG space. The joint venture is well positioned to lead the global commercial vehicle market's continued transition to natural gas and biogas (renewable natural gas).

Over the last decade, Hexagon has developed a strong and competitive tier 1 position with European car manufacturers for its Type 4 tanks in a niche market for CNG vehicles. Hexagon is ideally positioned to support an increasing market demand due to its legacy in robot-automated high serial production of full composite pressure vessels and the experience of a Tier 1 supplier.

Hexagon will remain the global leader in distribution systems for road transportation of CNG and other compressed energy gases beyond the pipeline. The company sees great potential in this largely undeveloped market on a global scale. Its TITAN® and X-STORE® solutions allow CNG, biogas and hydrogen to compete against other fuels, including pipeline natural gas, liquefied natural gas (LNG) and oil-derived liquid fuels. Hexagon continues to promote CNG as the preferred energy for off-pipeline and high-horsepower consumers, as well as expanding CNG and hydrogen as a fuel into emerging applications such as rail and marine markets. Hexagon continues to develop life-cycle asset management solutions and products.

Hydrogen is considered an essential part of the energy mix required for the energy transition. Hexagon has already taken a significant role in shaping the hydrogen storage industry and is well positioned across the hydrogen value chain with cylinders for passenger cars and commercial vehicles, ground storage, distribution, marine, rail and backup power solutions. Hydrogen has the potential to solve the challenge of equalizing energy demand and supply from solar and wind power.

RESEARCH, DEVELOPMENT AND INNOVATION

Hexagon is investing in technology and process innovation, and dedicates substantial resources towards this.

A research & development (R&D) center of excellence (COE) has been established in Lincoln, utilizing a virtual organization across the entire Group including Raufoss and Kassel, to enable the effective prioritization of R&D initiatives. The COE is focused on improvement initiatives that will positively impact Hexagon's competitive position in its markets. The R&D team continuously evaluates new innovative materials, design, and processing and analysis techniques. Hexagon is at the forefront of standards development throughout the world for Type 4 pressure vessels, systems and auxiliary components.

Hexagon has a strong, ongoing focus on product development in close collaboration with its customers. The Group works actively on innovative solutions and improvements like product standardization, which contributes to lower production costs and operating benefits for its customers. Hexagon strives to cultivate a strong relationship between product design, development, material selection and manufacturing processes to ensure optimal, cost-effective solutions.

The Group remains the market leader in large-scale production of composite storage and distribution products for compressed energy gases. This position is supported by a strong track record of safety, market-leading products and new developments in enhanced transport efficiency. In 2017, Hexagon received U.S. DOT (U.S. Department of Transportation) permits for the Modal Acoustic Emission (MAE) requalification testing program, as well as U.S. DOT permits for TITAN® 4 module enhancements.

Agility Fuel Solutions operates manufacturing and assembly facilities in North America, South America and Europe, as well as research and development centers. The company designs and produces fuel systems and cylinders which are based on its core product.

PRODUCTION

Hexagon strives to achieve high-capacity utilization and stable production to ensure efficient, cost-effective operations.

The production line of TITAN® 4 modules in Lincoln was upgraded in the third quarter of 2017 to reflect a coordinated effort between Hexagon and suppliers to reduce cost, ease manufacturability and product improvements. Production volumes fluctuated during the year and after a relatively soft second and third quarter, high production volume was achieved at the end of the year. A firmer order position has allowed for an expansion in manning capacity in the U.S. which will have greater effect through 2018.

Capacity utilization in Kassel, Germany, was low during the first half of 2017 due to disruptions, and high during second half of the year. The organization has focused on increasing efficiencies by streamlining all production steps to be prepared for increased marked demand.

Production volumes of LDV cylinders at Raufoss were high during the first half of 2017, and relatively soft during the second half of the year due to the timing of new orders.

MOBILE PIPELINES – ENABLING CONVERSION FROM PETROLEUM TO LOW-CARBON FUELS

Hexagon's Mobile Pipelines solutions offer distribution of CNG and biogas off the pipeline network. The Company's product portfolio is the broadest in the market and comprises the product brands TITAN® and X-STORE®.

TITAN® and X-STORE® modules are highly effective in areas without a pipeline network and with stringent road weight limitations. Both product brands represent the benchmark with regard to quality, weight, safety and payload for composite transport solutions.

KEY DEVELOPMENTS AND IMPORTANT EVENTS 2017

• Mobile Pipelines recovery in volumes driven by strong North American markets
• Entered into long-term agreement with Certarus and received TITAN® orders with a total value of approx. NOK 348 million
• Launched requalification testing program for Mobile Pipeline® cylinders minimizing customers' equipment downtime during regulatory requalification
• Expanded into the maritime industry with the first deliverable of CNG TITAN® tanks for fuel storage onboard a LNG (Liquefied Natural Gas) gas supply vessel (GSV) being built for Babcock Schulte Energy
• Received an order for gas container modules from EGAS in Pakistan with a total estimated value of approx. NOK 21 million.

Market

Mobile Pipelines sales volumes in 2017 were primarily attributed to North American customers and drove yearover-year organic growth of 48%. The Mobile Pipelines turnover displays a non-linear trend, but the Company expects significant growth opportunities in this market. The project funnel is solid, but visibility on timelines to realization of these projects remains challenging. The order intake outside North America is currently low, however, the prospect list is long and market opportunities remain strong.

The North American market is driven by high shale oil and gas activity, as well as strong interest from the industrial sector. CNG is a low-cost fuel alternative to diesel for highhorsepower drilling rigs and hydraulic fracturing pumps. Improving macro conditions, particularly in the oil and

gas sector, give momentum to this business. Demand for Hexagon's Mobile Pipelines solutions is driven principally by the price advantage of natural gas to oil-derived fuels, and the environmental benefits of cleaner burning alternative fuels.

The Company sees customer interests in flare gas capture, gas utilities, biogas plants, mobile refueling, industrial applications, oil field transportation, virtual interconnect and gas islands.

In the fourth quarter of 2017, Hexagon Lincoln launched a requalification testing program for Mobile Pipelines modules. The efficient requalification testing program, based on Modal Acoustic Emission (MAE) technology, minimizes the operators' out of service time while ensuring an approved, safe and reliable requalification method. Hexagon is a first-mover launching this unmatched service to the gas transportation market, expanding its equipment and service offerings to further its ability to meet market needs.

The inclusion of Hexagon xperion's Mobile Pipelines business has strengthened the Company's footprint. Hexagon xperion's X-STORE® solutions have a strong foothold in Europe, the Middle East and Southeast Asia. The X-STORE® design, with its vertically mounted cylinders, allows for high flexibility in terms of different module configurations ranging from 10 to 53 feet in length.

Hexagon will continue to focus on further development of products and business solutions, achieving the lowest cost per delivered gas volume unit, as well as value-added customer services to differentiate itself from the competition.

Hexagon remains the market leader in large-scale production of composite storage and distribution products for compressed energy gases. This position is supported by a strong track record of safety and market-leading products.

Rail

Hexagon continues its efforts to strengthen the value proposition of CNG for railways in North America. While still in the incubation stage, CNG for rail represents an economic fuel alternative for locomotives and could significantly reduce engine exhaust emission and improve air quality in surrounding communities. Long-term competitive fuel pricing and meeting reduced emissions requirements are important market drivers for the adoption of CNG in this segment.

Marine

In the marine transit segment CNG can be preferred, or be complimentary to LNG. Hexagon sees market opportunities in this sector. In 2017, Hexagon delivered its first CNG TITAN® tanks for fuel storage onboard a LNG (Liquefied Natural Gas) gas supply vessel (GSV).

Environmental benefits

The business unit focuses on continued awareness about the benefits of CNG and biogas (Renewable Natural Gas) and expects to retain its strong market position as the market recovers. In many instances, CNG remains the most economic fuel choice for industry and transportation. Mobile Pipeline® solutions require low capital expenditures compared to pipeline installations, do not cause visual or environmental concerns, and can be deployed within weeks.

Mobile Pipeline solutions can be used for transporting RNG produced at remote production plants to the pipeline grid.

In 2017, the US Environmental Protection Agency approved a pathway for RNG delivery by mobile pipelines solutions, which is expected to see an increased number of projects in this market.

Competition

Mobile Pipeline® products (TITAN® and X-STORE®) are unique within the gas transportation sector because they enable greater load capacity at lower weight than competing solutions. In addition, the simple and robust design with fewer couplings and connections results in lower operating costs.

The competition, mainly from traditional steel cylinder solutions is strong due to lower initial investment costs. There are also competitors delivering Type 4 cylinders (plastic inner liners) and Type 3 cylinders (aluminum inner liners). The improved market outlook for Mobile Pipelines, especially in the U.S. and Europe, has attracted new competition and it is expected to see more competition in the years to come.

HYDROGEN – KEY TO THE ENERGY TRANSITION

Hydrogen is a clean and safe energy carrier that can be used as fuel for power in a wide range of applications, and can be easily stored on a large scale. The low fatigue cycling properties of Type 4 composite pressure cylinders make them more suitable for storage of hydrogen than steel alternatives.

IMPORTANT EVENTS 2017

• Exceptional Hydrogen growth
• Received a major development award for hydrogen cylinders for new fuel cell electric vehicle (FCEV) models
• Expanded into the fuel cell heavy-duty truck market with deliveries to Toyota and ASKO
• Launched Hyon AS, a joint venture between Hexagon, Nel ASA and PowerCell Sweden AB
• Awarded a substantial order for cylinders from Air Products for hydrogen transportation in Germany.

Market

Hexagon is well-positioned across the hydrogen value chain and is working globally on several projects with passenger car OEMs, transit buses, heavy-duty trucks, ground storage, transport, marine, rail and backup power applications. The inclusion of Hexagon xperion's Hydrogen business unit fast-tracked the progress on rail and distribution opportunities.

The High-Pressure organization began reporting hydrogenrelated operations within a separate business unit from the start of 2016. Turnover recorded in this business unit in 2017 amounted to NOK 142 million.

Many opportunities are presenting themselves, especially prospects in the automotive, transportation and ground storage applications, which make this segment a significant growth area in the near term.

Fuel cell vehicles

A number of leading OEMs are introducing Hydrogen fuel cell vehicles (FCEV) as a long-term sustainable alternative to battery electric vehicles. The market potential for the FCEV segment is significant. Given its strong presence and experience in the NGV market, the FCEV market is a natural expansion for the Company.

In 2017, Hexagon was awarded a development contract for hydrogen cylinders for new fuel cell electric vehicle (FCEV) models. Hexagon has the capabilities to execute the initial deliveries in existing facilities.

Ground storage

The introduction of fuel cell vehicles drives the demand for Hydrogen refueling stations (HRS), which will generate good market opportunities for the Company's Type 4 cylinders. The fatigue-resistant cycling properties of composite pressure cylinders make them more suitable for storage than steel alternatives.

Players in Germany, Japan, California (U.S.) and Scandinavia are currently leading the development of FCEVs and related refueling infrastructure.

Gas distribution

Demand for Hydrogen distribution solutions is expected to grow strongly as a function of the demand for energy and especially for distribution of hydrogen from renewable sources like hydro, wind and solar. Hexagon's distribution solutions are certified for hydrogen distribution, and the Company has received several orders for its X-STORE® cylinders for the European market. The Company is currently seeking approvals in other geographical markets.

Marine and Rail

Hexagon is at the forefront of developing hydrogen solutions for the marine and rail industry. These markets are perceived as emerging market opportunities for the Company.

During the year, Hexagon xperion delivered hydrogen cylinders to Alstom's first prototype hydrogen fuel cell trains. The cooperation between Hexagon and Alstom is an important strategic step for Hexagon to extend its hydrogen application portfolio to include the rail sector.

In 2017, Hyon AS, an equally owned joint venture company between Hexagon, Nel ASA and PowerCell Sweden AB was launched. Hyon will initially focus on opportunities in

the maritime and marine segments as well as projects to leverage renewable energy resources.

Backup power

Hydrogen fuel cells are an efficient and emerging choice for low-emission, reliable backup power used for telecommunications and emergency services, typically in remote locations. Hexagon offers backup power solutions with lightweight hydrogen tanks that enhance system performance and payback.

Competition

Hexagon's high-pressure Type 4 cylinders are at the forefront of hydrogen and fuel cell vehicle technology. Type 4 cylinders are widely accepted as the optimal solution for 700 bar hydrogen storage systems for light-duty vehicles. Global regulations require that newly designed tank prototypes undergo stringent pressure, temperature and fatigue tests, regardless of size.

Among the competitors are the existing Type 3 and Type 4 CNG cylinder manufacturers, as well as a new class of competitors that have emerged, including automotive OEMs and Tier 1 suppliers.

The strong market momentum is expected to attract more competitors.

LIGHT-DUTY VEHICLES – STRONG G-MOBILITY DRIVE

Hexagon's cylinders are the ideal fuel tanks for light-duty vehicles due to their combination of safety, efficiency and durability. They are typically less than 30% of the weight of steel, which reduces fuel consumption, extends vehicle range and provides better stability and handling. The environmental value-proposition of CNG and bio-fueled Light-Duty Vehicles is being recognized to an increasing extent, especially in Europe.

KEY DEVELOPMENTS AND IMPORTANT EVENTS 2017

• Positive macro sentiment for CNG Light-Duty Vehicles in Europe
• Significant deliveries for vehicle conversions in Indonesia.

Market

The Light-Duty Vehicle (LDV) business is considerably strengthened with the inclusion of the LDV unit of Hexagon xperion and recorded organic growth of approximately 19%. The Company mainly delivers cylinders to major passenger car manufacturers in Europe, with additional deliveries to Southeast Asia.

In 2017 Hexagon delivered CNG cylinders for conversion of nearly 6,000 taxis and government vehicles in Indonesia. The Indonesian market is adopting CNG as an alternative to diesel and gasoline because of a government campaign to convert from oil to gas. The program's goal is to reduce pollution and diversify fuel in the public transportation sector.

g-mobility, the use of natural gas and biogas in mobility applications, is the fastest way to reduce CO2 emissions in the transportation sector due to existing infrastructure and available technology. The importance of CNG and biogas in addressing these environmental requirements is being

recognized to an increasing extent, especially in Europe. Through the consortium "CNG Mobility", the Volkswagen Group and leading German industrial players are aiming for 1 million CNG cars in Germany by 2025.

By 2021, phased in from 2020, EU legislation sets stricter CO2 emission targets for new cars. Failing to meet the regulations when they come into effect will force the OEMs to a swift deployment of low-carbon emission vehicles.

These strong market trends are stimulating the demand for CNG Light-Duty Vehicles.

Competition

Currently, steel cylinders dominate the European light-duty vehicle market because of price. However, the introduction of a new global driving cycle (WLTP – Worldwide harmonized Light vehicles Test Procedure) focusing on reduced vehicle emissions and incentives, as well as vehicle taxes and duties on traditional vehicles, is creating an increasing demand for lighter light-duty vehicles. Steel cylinders are heavier and susceptible to corrosion, inducing major car manufacturers to consider non-corrosive composite cylinders. These outstanding product properties, combined with an extensive systems knowledge, offer the Company a growth potential in this competitive market.

AGILITY FUEL SOLUTIONS – FUEL SOLUTIONS FOR MEDIUM- AND HEAVY-DUTY VEHICLES

Agility Fuel Solutions designs and manufactures clean fuel solutions for medium- and heavy-duty commercial vehicles globally. Its product offerings include fuel storage and delivery systems, and Type 4 composite cylinders. Agility's products are designed and engineered for durability, performance, safety, and reliability, providing both economic and environmental benefits to commercial vehicle fleets.

Agility has developed a broad range of product offerings, including natural gas and hydrogen fuel storage and delivery systems, Type 4 composite natural gas cylinders, propane fuel systems and propane dispensers. The company offers solutions for a variety of vehicle types, including heavy-duty trucks, refuse trucks, transit buses, school buses, concrete mixers, and delivery trucks.

Agility's focus on commercial vehicle sectors is expected to increase competitiveness and shareholder value in the medium-to long-term and Agility's scale and strong balance sheet have allowed the company to be proactive in a time of challenging industry conditions.

KEY DEVELOPMENTS AND IMPORTANT EVENTS 2017

• Launched Blue iQ diagnostics and service tools in partnership with Cummins Inc. to optimize fuel consumption and maximize uptime for natural gas vehicles
• Launched a new Powertrain Systems business unit focused initially on propane fuel systems for mediumduty engines and vehicles
• Acquired CleanFUEL USA to accelerate the development of its propane business
• Entered into strategic partnership with Thomas Built Buses to provide innovative, cutting-edge propane technologies to the North American school bus market
• Delivered its first CNG truck systems to fleet and OEM customers in the United Kingdom and France.

Market

Sales volumes in 2017 in the overall North American heavy-duty and refuse trucks markets were higher than in 2016. North America is Agility's primary market, with fuel systems and cylinders installed in Class 7 and 8 long-haul trucks, refuse collection trucks, transit buses and other heavy-duty truck platforms. While oil prices and the diesel to CNG price spread have increased notably since the beginning of 2016, this has not yet materialized

in a significantly improved penetration of CNG in North American commercial vehicle markets. The environmental value proposition of CNG continues to stimulate demand, especially within larger fleets and urban applications. Biogas is stimulating demand in several countries, especially in Europe.

Cummins Westport's introduction of a "near zero" emissions 12L natural gas engine at the end of 2017, is expected to be a positive development for Natural Gas Vehicles going forward, once it is homologated into North American truck OEM platforms during 2018.

Agility's primary transit bus markets are in North America and Europe. The North American transit bus market was strong in 2017 though with lower penetration of CNG among Agility's customers, while the rest of the world transit bus market was softer than in 2016. There has been steady growth in the North American transit bus market for several years due to an increased focus on environmentally-friendly public transportation, and the outlook remains strong. Continued growth is expected in the overall global transit bus market.

Agility's entry into medium-duty propane powertrain systems in 2017 was in its startup phase and is expected to be a growth driver in 2018 and beyond.

Competition

Agility Fuel Solutions is the global market leader for CNG and hydrogen fuel systems and Type 4 CNG cylinders in the medium- and heavy-duty truck and transit bus segments, and is establishing its position in the North American propane fuel systems market. Agility competes with CNG cylinder manufacturers globally, with smaller CNG system integrators in North America, South America, and Asia, and with medium-duty engine fuel system vendors and propane dispenser manufacturers in North America.

DELIVERING ON THE STRATEGIC AGENDA

KEY FIGURES

(MNOK)	2017	2016
Operating income	654.3	502.2
EBITDA	144.0	98.4
EBIT	125.7	77.9
EBITDA %	22.0 %	19.6 %
EBIT %	19.2 %	15.5 %

HEXAGON RAGASCO RAUFOSS, NORWAY

Hexagon continues to increase market penetration of LPG composite cylinders with a customeroriented approach.

Hexagon Composites is the leading manufacturer of low-pressure composite Liquefied Petroleum Gas (LPG) cylinders, used mainly for leisure activities, household use and industrial applications. An increased focus on safety, ease of use, high corrosion resistance and design is strengthening demand for composite LPG cylinders globally. A long-term customer-oriented approach has increased market penetration, improved capacity utilization and enabled expansion into new markets.

Hexagon Ragasco, the major operating unit within the Low-Pressure business area, is the world's leading manufacturer of composite LPG cylinders. A pioneer in the industry, it has sold nearly 14 million cylinders worldwide in the last 17 years, including 1.7 million in 2017. The unit started operations in 2000 and has since developed a customer base composed mainly of LPG distributors in over 80 countries. Production is carried out in modern, highly automated facilities located in Raufoss, Norway. The Company continues to build partnerships in new markets to help propane and butane marketers increase customer loyalty without compromising on safety.

The company's unique composite LPG cylinders deliver clear advantages over traditional steel alternatives in the form of significantly lower weight, no corrosion, translucency, increased safety and user-friendliness.

OPERATING RESULTS

Operating income for the Low-Pressure segment increased to a record NOK 654.3 (502.2) million and made an operating profit (EBIT) of NOK 125.7 (77.9) in 2017. The business area experienced solid growth and continued market penetration in markets both in Europe and the Middle East. The growth is attributed to greater flexibility within the product offering and targeted market penetration initiatives. This has been in conjunction with recent investment programs allowing faster cycle times and capacity improvement. Underlying growth is strong and the company's position has been strengthened in 2017.

Hexagon Ragasco is continuing to invest in processes and technologies that can further enhance manufacturing efficiency and product differentiation.

Read more about the financial results in the Board of Directors' Report.

STRATEGY

Hexagon Ragasco aims to be the undisputed market leader and preferred global supplier of mass-produced, Type 4 all-composite LPG cylinders.

The company strives to achieve high-capacity utilization, stable production and efficient and cost-effective operations. Hexagon Ragasco will accomplish this by expanding its market share in Europe and other selected markets.

KEY DEVELOPMENTS AND IMPORTANT EVENTS 2017

• Achieved 30% growth in revenues within the Low-Pressure segment versus 2016
• Received a major order from Iraq with a total value of approximately NOK 120 million
• Demonstrated strong momentum and continued market penetration to core European markets and markets outside Europe
• NOK 75 million investment program (2017-2019) for further product differentiation continued on-track
• Achieved high capacity utilization during the year.

OBJECTIVES ACHIEVED IN 2017

• Continued double digit growth
• Increased sales and capacity utilization for the second half of the year to offset seasonally low volumes
• Initiated investment program for further product differentiation and enhanced productivity
• Increased market penetration in the Middle East

Leisure activities, household and industrial applications

MARKET

The Low-Pressure business segment continued to execute its strategy of increasing market penetration of LPG composite cylinders with a customer-oriented approach.

The first half of the year is traditionally strong in its core European markets. Large orders from existing customers outside Europe have allowed for a stronger year-over-year performance in the second half of the year, which traditionally has seasonally low sales volume quarters.

Europe

Sales to Europe were solid during the year with continued high volumes from France, Scandinavia, Switzerland and the United Kingdom.

The company's most important market is European domestic and leisure customers, and these are mostly characterized by increased seasonal demand and sales volumes in the first half of the year. In France, however, LPG cylinders are used year-round in rural areas for cooking, resulting in strong demand and consistent sales volumes.

Markets outside Europe

Currently, steel cylinders dominate markets outside of Europe because of price. Although they are cheaper, steel products are heavier and susceptible to corrosion. This affects the safety and useful life of the steel cylinders, especially in areas with high levels of humidity. Moreover, Hexagon's composite LPG cylinders will not succumb to BLEVE (Boiling Liquid Expanding Vapor Explosion) when engulfed in fire. The superior user-friendliness and safety features of the products are the LPG composite cylinders' competitive advantages in these markets.

Hexagon Ragasco has maintained focus on several of these markets, including the Middle East, Africa, Southeast Asia and North and South America, to secure growth and improve capacity utilization in the seasonally slower second half of year. Increasing the market penetration in these regions is a priority going forward.

Middle East

In the third quarter, Hexagon Ragasco was awarded a new major order for LPG cylinders from Iraq with a total value of around USD 15 million (approximately NOK 120 million). With this order, Iraq expanded its already large fleet of composite LPG cylinders for the domestic market.

Hexagon is experiencing continued good traction in the substantial Middle East market. The region continues to invest in lightweight composite cylinders, making domestic use of LPG safer and more user-friendly. The composite cylinders were introduced to Lebanon in 2017. The new orders are a confirmation that the Company's cylinders, to an increasing degree, are the preferred alternative to traditional steel cylinders in the region.

South America

Development in the South American market has been softer than expected during 2017. Hexagon Ragasco is focusing its efforts on developing existing markets and increasing penetration of new markets in the region.

North America

During 2017, Hexagon Ragasco focused on selected segments of the North American market, specifically businesses specializing in cylinder exchange for gas (or propane) BBQ applications. So far, the company has yet to achieve any notable sales volumes in this market.

Asia and Africa

Bangladesh is one of the fastest growing markets in the region for LPG, especially bottled LPG for domestic use. With a premium product offering considerable advantages over steel cylinders, Hexagon Ragasco is confident that the composite LPG cylinders will help to make domestic use of LPG in Bangladesh safer and more user-friendly.

Several new Asian and African markets are showing promise. The company has received several smaller repeat orders during 2017 and is working on further opportunities in selected markets. Among several benefits, the distributor focuses on its corrosion-free feature, as humidity is an issue in the region.

CUSTOMERS

Hexagon Ragasco's customers are primarily leading national and international LPG distributors. These distributors manage large quantities of cylinders through their own exchange operations or through dealers.

APPROVALS

Hexagon Ragasco's cylinders have been approved and sold in more than 80 countries globally.

Low-Pressure LPG

COMPETITIVE POSITION

In 2017, Hexagon Ragasco solidified its position as the leading global supplier of composite LPG cylinders. The company's position was strengthened relative to both steel and other composite cylinder alternatives. The primary substitute is the traditional steel cylinder (Type 1) due to its low purchase price, but it is significantly heavier and subject to corrosion. Hexagon Ragasco's lightweight cylinders are less costly to transport, and the translucency and superior design make the composite LPG cylinders easier to monitor and use. The company's cylinders withstand a burst pressure that is twice as high as their steel counterparts. Since the cylinders will not succumb to BLEVE 1), the risk of explosion in case of fire is eliminated.

There are other composite cylinder alternatives in most markets and the company expects that competition will increase over time.

BUSINESS DEVELOPMENT

Hexagon Ragasco continues to strengthen its position as a global supplier of composite LPG cylinders. The company has allocated dedicated resources toward business development, securing and improving existing market positions and identifying opportunities for further expansion.

PRODUCTION & PRODUCT DEVELOPMENT

Production uptime was strong during the year. The recent investment programs have effectively increased capacity within the plant by allowing for faster cycle production times when required.

Hexagon Ragasco is continuing to invest in processes and technologies that can further enhance manufacturing efficiency and product differentiation.

Production and product development are fully integrated at the company's plant in Raufoss, Norway. This is a prerequisite for cost efficiency in its highly automated production system, which requires only eight operators for each production shift. In addition to meeting customer requirements, development activities focus on continued improvement of products and production processes.

Continuous improvements are essential to remain competitive in the global market. Over a period of 17 years, Hexagon Ragasco has reduced the cycle time per composite LPG cylinder from 74 seconds to 12 seconds. As a result of production investments implemented in 2017, the cycle time was reduced from 12 to 11 seconds.

Investments

The recent program of investments has effectively increased capacity within the plant by allowing for faster cycle production times when required. Hexagon Ragasco is continuing to invest in processes and technologies that can further enhance manufacturing efficiency and product differentiation. With these investments, Hexagon will also achieve increased volume and by mid-2019 the Company expects to reach a real capacity of 2 million cylinders.

Operations

From mid-first quarter, Hexagon Ragasco operated "24/7" to meet customer demand. Production stability and volumes were satisfactory during 2017. A stable volume enabled high capacity utilization during first half of the year. The capacity utilization during the second half of the year, which traditionally has been seasonally low, was also high. However, a complex product mix affected productivity.

MARKET OUTLOOK

The outlook for composite LPG cylinders is promising. In established markets, Hexagon Ragasco is acquiring market share from steel cylinders. Outside Europe the company expects demand to increase in the mediumand long-term. Increasing wealth in developing countries should generate demand for high-quality products. In particular, increased focus on health, safety and the environmental impact of traditional cooking fuels is expected to increase domestic demand for LPG.

Objectives for 2018 – 2019

• Achieve continued double-digit growth
• Increase sales and capacity utilization for the second half of 2018
• Leverage new technology to enhance production and increase customer value
• Improve productivity and manufacturing flexibility
• Increase market penetration outside Europe.

THE ENERGY TRANSITION CREATES LARGE GROWTH OPPORTUNITIES

During 2017, Hexagon Composites has prioritized the integration of the new business combination as a result of the strategic moves executed in 2016. The share price closed the year 2.2% above the closing price for 2016. Going forward, the company sees large growth opportunities materializing from the accelerating transition towards cleaner fuels, and expects to direct resources and investments toward exploiting these prospects.

HEXAGON SHARE PRICE AND VOLUME 2017 OSE PRICE TRENDS IN 2017

Share price

Jan Dec Jan Dec -10% -5% 0% 5% 10% 15% 20% 25% OSEBX OSE20 Industrials Hexagon Composites

Source: Oslo Stock Exchange Source: Oslo Stock Exchange

Hexagon Composites ASA is listed on the Oslo Stock Exchange (OSE:HEX). The share capital was NOK 16.7 (16.7) million at the end of 2017, divided into 166.6 (166.6) million shares with a nominal value of NOK 0.10. Hexagon Composites has one class of shares. Please refer to the Corporate Governance section in this report for more information on the Group's policies and procedures relating to shareholders and shares.

As of 31 December 2017, the market value of the Group's shares was NOK 4,582 (4,482) million, based on a price per share of NOK 27.50 (NOK 26.90) per 31 December 2017. The price per share appreciated by 2.2% during the year. The highest daily closing price during the year was NOK 29.70 and the lowest recorded closing price was 24.30. By comparison, the Oslo Stock Exchange Industrial Index (OSE20GI) increased by 13.0%, while the OBX Total Return Index (OBX) gained 20.2%. The Group remains well positioned for significant growth both medium- and longterm as a result of continued natural gas and alternative fuel mega-trends.

Hexagon Composites ASA is listed on the Match Segment of the Oslo Stock Exchange. All shares are freely transferable. In 2017, 15.9 million (51.6) shares were traded with a turnover rate of 9.5% (32.8%) computed on the average number of shares outstanding. Shares were traded daily, while liquidity developed adversely compared to 2016.

Previous year included the private placement of 41,666,321 shares completed in March 2016.

SHARE DISTRIBUTION AND MAJOR SHAREHOLDERS

The number of shareholders decreased by 3.8% to 2,298 (2,390) in 2017. The number of foreign shareholders was 197 (182) representing 40.91% (39.81%) ownership in the Group. The majority of the foreign shareholders are from Japan, the United Kingdom, Sweden and the USA.

Hexagon Composites' largest shareholder is Mitsui & Co., Ltd., with an ownership interest of 25.0% (25.0%).

The second largest shareholder is Flakk Composites AS, which, including related parties, controls 18.4% (18.4%) of the shares. Flakk Composites AS is a wholly owned subsidiary of Flakk Gruppen AS. Knut Flakk, who is Chairman of Hexagon Composites, owns 98.7% of Flakk Gruppen AS.

Mitsui & Co., Ltd. and Flakk Gruppen AS represent a combined ownership interest of 43.4% in Hexagon Composites. The 20 largest shareholders own 80.1% (79.5%) of the Group. Other shareholders are primarily private individuals, institutions and small- and medium-sized companies. Several employees including key management personnel of Hexagon Composites hold shares and share options in the Group.

10 LARGEST SHAREHOLDERS AS OF 20 MARCH 2018

SHAREHOLDER	NUMBER OF SHARES	SHARE OF TOTAL	COUNTRY
Mitsui & Co., Ltd.	41 666 321	25.01 %	JPN
Flakk Composites AS	29 002 667	17.41 %	NOR
MP Pensjon PK	13 075 846	7.85 %	NOR
Bøckmann Holding AS	9 000 000	5.40 %	NOR
Odin Norge	7 438 064	4.46 %	NOR
Nødingen AS	6 000 000	3.60 %	NOR
JP Morgan Chase Bank, N.A., London	5 160 762	3.10 %	GBR
Skandinaviska Enskilda Banken AB	3 677 561	2.21 %	SWE
The Bank of New York	3 108 002	1.87 %	GBR
Storebrand Norge	2 807 732	1.69 %	NOR
Total 10 largest shareholders	120 936 955	72.58 %
Remaining	45 690 913
Total number of shares	166 627 868

A detailed overview of the largest shareholders at 31.12.2017 is disclosed in Note 17 in the Financial Statements.

Shareholder Information

OWNERSHIP DISTRIBUTIONS OF SHARES 2017 HEX SHARE PRICE 2018 YTD

DIVIDEND POLICY

Hexagon Composites is focusing on developing its business in high-growth markets and intends to make the investments necessary to realize its growth ambitions. Our main objective is to provide competitive returns to shareholders primarily through increasing the intrinsic value of our business. Dividend payments are dependent on financial performance and excess cash after key investment requirements. For the year 2016 Hexagon Composites paid no dividends. The Board proposes to the Annual General Meeting on 19 April 2018 a dividend of NOK 0.30 per share for 2017.

The General Meeting on 20 April 2017 granted the authority to the Board to buy back shares in the Group up to a combined nominal value of NOK 1.7 million, or 10% of the current issued share capital. This authority pertains to a buy-back of shares in connection with either: i.) acquisitions, mergers, demergers or other transfers of business, ii.) share equity programs for employees, iii.) subsequent deletion of shares. The General Meeting also approved an authorization to increase in share capital by a maximum of NOK 1.7 million, which amounts to 16.7 million shares or 10% of existing share capital. These proxies are valid until the Group's Annual General Meeting in 2018.

Shareholder Information

EARNINGS PER SHARE

CASH FLOW FROM OPERATIONS PER SHARE NOK

EQUITY PER SHARE

KEY FIGURES SHARES

	2017	2016	2015	2014	2013
Closing Price NOK	27.50	26.90	22.90	22.80	32.30
Assessment value Price NOK	26.95	26.70	22.45	23.60	31.30
High NOK	29.70	31.40	27.00	39.10	32.30
Low NOK	24.30	17.40	12.60	18.90	4.32
Total return	2.2 %	17.5 %	3.0 %	-28.8 %	622.6 %
Market capitalization (NOK 1 000)	4 582 266	4 482 290	3 052 452	3 039 123	305 424
Turnover by value (NOK 1 000)	425 217	1 221 416	2 015 203	4 172 911	463 559
Turnover by no. of shares (1 000)	15 852	51 607	98 372	140 065	91 008
Number of transactions	32 368	50 684	89 285	146 914	33 603
Number of days traded	251	253	251	250	248
Turnover rate	9.5 %	32.8 %	73.8 %	105.1 %	69.3 %
Beta	0.49	0.75	1.80	1.02	0.66
P/E	65.96	21.52	668.98	18.46	48.03
P/B 1)	3.24	3.36	6.49	6.24	12.35
Earnings per share	0.42	1.40	0.03	1.24	0.67
Cash flow from operations per share	0.55	-0.03	0.31	1.33	1.19
Dividend per share 2)	0.30	0.00	0.00	0.62	0.33
Equity per share	8.48	8.00	3.56	3.67	2.62
Share capital (NOK 1 000)	16 663	16 663	13 329	13 329	13 329
Closing number of shares (1 000)	166 627	166 627	133 295	133 295	133 295
Number of shareholders, Norwegian	2 101	2 208	2 663	2 558	2 240
Number of shareholders, foreign	197	182	186	197	132
Ownership share, foreign	40.91 %	39.80 %	16.55 %	17.40 %	17.30 %

1) Exclusive goodwill.

2) The Board proposes to the Annual General Meeting on 19 April 2018 a dividend of NOK 0.30 per share for 2017.

DRIVING ENERGY TRANSFORMATION

VISION AND PURPOSE

Hexagon Composites aims to become the world's leading supplier of innovative and customer-valued composite solutions that positively impact the environment and enhance quality of life for the global community.

STRATEGY

MARKET ORIENTATION

We enhance our competitive position by providing high-quality products, systems and services based on clearly understood and communicated customer values.

EFFICIENCY

We build a world class and costeffective value chain on a global scale.

INNOVATION

We develop innovative products, systems and solutions, sharing our customers' striving to improve competitiveness and ecological sustainability.

OUR VALUES

INTEGRITY

The integrity, transparency and excellence of our processes are essential to maintain the highest safety standards of our products, our people and our communities. Integrity will prevail throughout the organization and in all its functions.

DRIVE

We are privileged to have excellent long-term growth opportunities. A healthy sense of urgency will be evident in our efforts to drive this growth.

SHAREHOLDER VALUE

Hexagon Composites will deliver shareholder value through sustainable growth and healthy profitability.

CREATING VALUE FOR OUR STAKEHOLDERS

CORPORATE GOVERNANCE

ATTENDANCE AT BOARD MEETINGS IN 2017

KNUT FLAKK Chairman

KRISTINE LANDMARK Deputy Chair

SVERRE NARVESEN Board Member

KATHRINE DUUN MOEN Board Member

KATSUNORI MORI Board Member

ELISABETH TØRSTAD Board Member

GUNNAR S BØCKMANN Deputy Board Member

Good corporate governance will contribute to the greatest possible value creation over time for all interest groups.

Hexagon Composites follows the Norwegian Code of Practice for Corporate Governance. We aim to secure a clear division of roles and responsibilities between shareholders, the Board of Directors and executive management to ensure good corporate management. We believe that this contributes to the greatest possible value creation for all interest groups and strengthens the trust in the Company among shareholders, in the capital markets and with other key stakeholders.

1. DESCRIPTION OF CORPORATE GOVERNANCE

Hexagon Composites ASA's principles for corporate governance were last revised at the Board meeting of 13 February 2018. The principles can be found on the Group's website.

We follow the Code of Practice established by the Norwegian Corporate Governance Committee (NUES). This is available at www.nues.no. We continue to update our principles for corporate governance in accordance with the Code of Practice of 30 October 2014. Unless otherwise indicated in the text below, there are no deviations to the Norwegian Code of Practice for Corporate Governance.

Hexagon Composites requires that all work and activities are performed in accordance with high ethical standards and that all employees and business partners refrain from corrupt practices. We operate within a framework of common values, including formal ethical requirements governing our business practices as approved by the Board. The Board believes that the organization is characterized by strong ethical standards and a high level of integrity.

Social responsibility is an integral part of Hexagon Composites' corporate governance process. Formal guidelines for corporate social responsibility have been approved by the Board and integrated into the Group's management systems. In the opinion of the Board, good results have been achieved in integrating social responsibility considerations into the Company's business strategies.

2. NATURE OF BUSINESS

Hexagon Composites develops and commercializes competitive, innovative products and solutions based on advanced composite technology. Our goal is to remain the international leader in selected niches.

The scope and objectives of our business are defined in the Company's articles of association which can be found on our website. A more comprehensive discussion and analysis of our business activity and operating results are included in this annual report.

3. COMPANY CAPITAL AND DIVIDENDS

Hexagon Composites' equity is considered to be at a level appropriate to the Group's objectives, strategies and risk profile. Our main objective is to focus on high-growth areas, and we intend to make the necessary investments to develop our business in these markets.

Authorization to the Board for capital transactions are normally restricted to defined objectives and time limitations that do not exceed the next ordinary general meeting. This applies to the issuance of new shares as well as the purchase of own shares. The Board is authorized to approve the purchase of own shares in one or more tranches up to or 10% of current issued share capital.

Equity incentive programs for employees are approved by special authorization. Authorizations for increases in share capital relating to multiple purposes are considered separately.

Our main objective is to provide competitive returns to shareholders primarily through increasing the intrinsic value of our business. Dividend payments are dependent on financial performance and investment requirements. For the year 2016 Hexagon Composites did not propose a dividend. The Board proposes a dividend of NOK 0.30 per share for 2017.

4. EQUAL TREATMENT OF SHAREHOLDERS AND TRANSACTIONS WITH RELATED PARTIES

Hexagon Composites ASA has one class of shares and our policy is to treat all shareholders equally in capital transactions. In the event where circumstances require preferential treatment for certain shareholders, subsequent measures will be implemented to restore the interest of the other shareholders as far as possible, unless the impact is justifiable. Reasons for any deviation from equal treatment of all shareholders in capital transactions are included in the notice to the stock exchange made in connection with the transaction.

The Group normally conducts transactions in its own shares through the stock exchange or at equivalent market rates. Particular prudence is applied in direct share transactions with the Group's shareholders, board members, management or related parties that have a financial or personal interest in the Company. Any assessments of material transactions are performed by an independent party.

5. FREELY NEGOTIABLE SHARES

All shares in Hexagon Composites ASA are freely negotiable. No form of sales limit has been stipulated in the articles of association.

6. ANNUAL GENERAL MEETING

We have well established procedures for publicly announcing and issuing information regarding the general meeting, and our website is an important source of information. Notice of the general meeting and supporting documents, including the recommendations from the nomination committee, are published on our website 21 days in advance of the meeting date. Sufficient information is included to enable shareholders to evaluate the items to be addressed in the meeting. Minutes from the meetings are published on the Group's website.

Deviations from the Norwegian Code of Practice for Corporate Governance:

In connection with the ordinary general meeting for 2017, only Knut Flakk was in attendance from the Board and nomination committee. The general meeting was chaired by Knut Flakk.

7. NOMINATION COMMITTEE

The Company has a nomination committee to propose candidates for election to the Board. The committee is currently comprised of three members, one of which is a Board member. The composition of the committee is intended to reflect the interests of all shareholders, and the majority of the members are normally independent of the Board and other executive management. Members are elected at the annual general meeting. In 2017 the nomination committee was comprised of Bjørn Gjerde (Chairman), Leif Arne Langøy and Knut Flakk.

The nomination committee's requirements are stipulated in the articles of association. The nomination committee's main responsibility is to evaluate the work and expertise profile of the Board of Directors and to propose suitable candidates. The nomination committee also proposes the fees to be paid to members of the Board. Proposals for candidates, including the reasons for selection and other relevant information are distributed with other documentation related to the annual general meeting.

Deviations from the Norwegian Code of Practice for Corporate Governance:

The Chairman of the Board is the Board's representative on the nomination committee and has also been a member of the nomination committee since it was established.

8. BOARD OF DIRECTORS: COMPOSITION AND INDEPENDENCE

The Board is composed of individuals with sufficient competence and expertise to enable independent evaluations of the Group's operations and to ensure the effective function as a governing body. The majority of the shareholder elected Board members are independent of the Company's day-to-day management, important business connections and the Company's major shareholders.

9. THE WORK OF THE BOARD OF DIRECTORS

The Board of Directors works with the Chief Executive Officer and external auditors to ensure that the Group is managed in accordance with its corporate objectives, values and ethical guidelines. The Board has an annual

plan with particular emphasis on objectives, strategy and implementation and submits an evaluation of its work to the nomination committee.

Clear guidelines require Board members and executive management to notify the Board of any significant direct or indirect interest in transactions executed by the Company. These guidelines are incorporated into the Board's instructions and instructions for the Chief Executive Officer. In the event that the Board Chairman has been actively engaged in such interests, the Chairman will recuse himself and the Deputy Chair will assume responsibility for the matter in question.

The Board has an audit committee comprised of members that are independent of the Company's day-to-day management, important business connections and the major shareholders. Instructions are established for the audit committee which was comprised of Board member, Sverre Narvesen and Deputy Chair, Kristine Landmark in 2017. The Board has a compensation committee which was comprised of the Board Chairman, Knut Flakk and Deputy Chair, Kristine Landmark. Knut Flakk is also the second largest shareholder of the Company.

10. RISK MANAGEMENT AND INTERNAL CONTROLS

Hexagon Composites works systematically to identify and manage the specific risks facing its business. Risk management is executed by Group management and management in subsidiary companies. The corporate finance department is responsible for ensuring that the Group has an adequate system of internal controls, including controls over financial reporting. The department reports to the CEO and has overall responsibility for ensuring compliance with the Group's accounting principles and financial controls. We believe that our overall strategy, management principles and organizational structure provide a good control environment. The Group's ethical guidelines also contribute to a culture and values that support this environment.

The Board ensures that the Group has good internal controls and appropriate systems for risk management in relation to the scope and type of our business operation. This includes ensuring that the Group's risk management and internal controls are adequate and systematic and that processes are established in accordance with laws and regulations, articles of association, instructions and external and internal guidelines. The Board regularly and systematically assesses strategies and guidelines for risk management. The Board's audit committee reviews the overall risk management policy and procedures and the Group's internal control routines. The committee functions as a preparatory and advisory committee for the Group's Board and provides support for exercising its responsibilities relating to risk management, financial reporting, financial information and auditing.

Please see Risk Management section of the Board of Directors' report for further information on the Group's main risks.

11. REMUNERATION OF THE BOARD

The remuneration of the Board of Directors is intended to reflect the Board's responsibility, expertise, time commitment and the complexity of the Company's activities. On 20 April 2017 the annual general meeting established the Board fees for 2016 in connection with the approval of the annual accounts.

POSITION	FEES
Chairman	NOK 700 000 (700 000)
Deputy Chair	NOK 200 000 (200 000)
Other Board Members	NOK 150 000 (150 000)
Deputy Board Member	NOK 25 000 per meeting

Executive Members of the Board committees are paid additional fees per positions of NOK 30,000 (20,000). Members of the Board committees are paid additional fees per positions of NOK 20,000 (20,000). Fees are fixed and are not linked to the Company's performance. Board members are not eligible for share option programs. Business transactions between companies owned by the two primary shareholders, Knut Flakk and Mitsui & Co., and Hexagon Composites ASA are described in note 28 to the consolidated financial statements - transactions with related parties.

12. REMUNERATION OF THE EXECUTIVE MANAGEMENT

The Board has established guidelines for the remuneration of the executive management, which include the main principles for the Company's management remuneration policy. Executive management remuneration is based on company and individual performance, and both the method and the amount are intended to promote long-term value creation for the Company. We believe that this can be achieved through the prudent use of share options and/or other equivalent financial instruments and/or bonus schemes. The requirements related to capital increases in relation to option agreements and other agreements regarding the allocation of shares, are approved by the annual general meeting. Remuneration guidelines for the CEO and other executive management are established by the Board and also presented to the general meeting for approval.

13. INFORMATION AND COMMUNICATION

The Group follows the Oslo Stock Exchange's recommendations for reporting investor information. The Group's information policy is based on openness and equal treatment of all shareholders and participants in the securities market. Our policy is to provide all shareholders with correct, clear, relevant and prompt information. Efforts are being directed towards developing disclosures on major value drivers and risk factors. We believe it is important that employees, shareholders and investors have equal opportunities to monitor the Company's performance, and receive sufficient information to value the Company correctly. The Group seeks to communicate information about its products and markets to central target groups, while ensuring that all stakeholders have equal access to information provided by the Company.

14. COMPANY ACQUISITION

The Board acknowledges that it should not prevent or obstruct offers for the purchase of the Company's business operation or shares. Agreements that restrict the possibility of obtaining other offers for the Company's shares should only be entered into when clearly justified as being in the joint interests of the Company and its shareholders. Agreements between the Company and an offeror that are important to the market's assessment of the offer are made public before or at the same time as notice is given that an offer will be made.

15. AUDITOR

Each year, the Company's external auditor provides an annual written confirmation of his/her independence and objectivity. The auditor attends Board meetings that address the annual accounts and presents to the audit committee the main features of a plan for implementing the auditing work. Annually the auditor presents to the Board an opinion on the Company's accounting principles, asset management and internal control procedures. EY are the Group's auditors, appointed by the general meeting of shareholders. The auditors have no engagements with the Company that could impair their independence.

See note 28 to the consolidated financial statements for information about remuneration to the auditor, including statutory audit and other services.

CORPORATE SOCIAL RESPONSIBILITY

Hexagon Composites conducts its business in an economically, socially and environmentally responsible manner. The Group focuses on reducing its impact on the environment and providing innovative products enabling its customers to do the same. Good working conditions for employees and relationships with the local communities where the Group operates are key objectives. Hexagon prioritizes ethical conduct within its organization and supply chain including anti-corruption, product safety and respect for human rights.

Social responsibility is an integral part of Hexagon Composites' corporate governance process. Formal guidelines for corporate social responsibility are approved by the Board and integrated into the Group's management systems. Compliance is assured through internal communication and periodic training activities. The Board believes that the organization is characterized by strong ethical standards and a high level of integrity. In the opinion of the Board, good results have been achieved in integrating social responsibility considerations into the Company's business strategies.

The following discussion on corporate social responsibility has been developed pursuant to Section 3-3 c of the Norwegian Accounting Act. Information is presented for the wholly-owned subsidiaries, Hexagon Lincoln (Lincoln (NE), U.S.), Hexagon Raufoss (Raufoss, Norway) and Hexagon xperion, which comprise the High-Pressure business area and for Hexagon Ragasco, the operating unit within the Low-Pressure business area. Operations for Hexagon Ragasco are located primarily in Raufoss, Norway.

THE ENVIRONMENT

Innovation

Increased global focus on vehicle particulate matter (PM), NOx emissions and greenhouse gases (GHG) encourages customers and investments towards adopting natural gas, biogas and hydrogen.

Overall, compressed natural gas is one of the cleanest burning fuels available today, producing 20-30% less

greenhouse gas than conventional fuels. Biogas is a commercially viable fuel, supported by local and regional jurisdictions.

Biogas is the most emission-friendly fuel available today. Biogas can rely on existing natural gas infrastructure and is based on proven technology. As a carbon-negative solution, biogas provides the world's energy system with several advantages: it contributes to reaching climate targets through reduced CO2 emissions and can improve air quality by being used as a vehicular fuel displacing petrol. Further, it advances energy security as it can be produced locally using available biowaste.

Hydrogen is a clean and safe energy carrier that can be used as fuel for power in a wide range of applications, and can be stored on a large scale. Hexagon Composites is well positioned across the hydrogen value chain.

Hexagon Composites believes that innovative storage and distribution solutions are key enablers to help its customers capture the cost savings available while reducing environmental impact. The Company's high-pressure composite cylinders are typically around 30% of the weight and enable 70-150% more transport capacity compared with traditional steel cylinders. Weight is an important driver of fuel efficiency, which generates lower cost and emissions.

In developing countries, many people rely on biomass such as firewood, charcoal and waste to meet their energy needs for cooking. This often results in unsustainable harvesting practices, as well as illness and premature death from indoor pollution. The United Nations Millennium Project has recommended halving the number of households using traditional biomass fuels, which would involve 1.3 billion people switching to other fuels. Hexagon Composites believes that the lightweight, user-friendliness and enhanced safety features of its LPG cylinders are important attributes to facilitate such a transition.

Environmental reporting

Hexagon Composites does not emit any regulated substances into the environment without a permit, and there are no health hazards associated with the Group's products. All waste from operations and production is sorted and delivered to approved sites for disposal or centers for recycling and reuse.

Emissions

Emissions of Volatile Organic Compounds (VOC) at the Raufoss plant are well within permitted limits. Production of high-pressure cylinders for passenger cars is included in the emissions permit for Hexagon Ragasco. The Company was certified to ISO14001 Environmental Standards in August 2017.

The operations in Lincoln, Nebraska, comply with increasing environmental regulations at the state and federal levels, including reporting on the storage, use and emission of environmentally hazardous chemicals.

The Resource Conservation and Recovery Act (RCRA 1)) requires that hazardous waste is monitored from generation to disposal. Further regulations 2) require reporting of hazardous chemicals above a certain quantity to the Environmental Protection Agency (EPA), local fire departments, local emergency planning committees and the state emergency response commissions. This includes information about the type, quantity and location of hazardous chemicals at each location. Hexagon Lincoln's facility has a designated emergency point-of-contact.

Hexagon Lincoln currently holds permits for Hazardous Materials and Spray Paint from the City of Lincoln as well as Special Waste Disposal Permits from the Lincoln-Lancaster County Health Department. These permits authorize the controlled disposal of paint-related materials, adhesives, sealants, cured epoxy resins and related materials. The company reports regularly on the exposure of employees to several materials and chemicals. Emissions from operations are controlled and are well under permitted limits. Scrapped tanks from production, product testing and quality control are recycled by donation to a local farmer for use on his land.

Hexagon Lincoln performs annual air quality samplings which are found to be in accordance with federally regulated permissible exposure limits 3). Air quality was last tested on 6 June 2017 with good results.

Hexagon xperion complies with the national environmental regulations for emissions (TA Luft) in Germany. By using a low-pollutant resin system, the exhaust systems are outside the scope of the relevant approval criteria (BImSchG: Act to protect against harmful environmental effects caused by air pollution).

Recycling

Hexagon xperion's operations in Kassel have continuously reduced the scrap rate of the produced goods due to various process improvements. Since the end of 2017, Hexagon xperion has worked with a recycling company to reuse remaining glass and carbon fiber waste as filler material for concrete applications.

The packaging of raw materials has been significantly reduced. A recycling system for the packaging material of the finished goods is in operation with several customers. As a result of this improvement project, pallets and materials can be re-used several times. Furthermore, in 2017, Hexagon xperion completed a project to move the warehouse close to the production facility to reduce internal transportation and local emissions.

Hexagon Ragasco works continually to reduce risk and negative impact on the environment. During 2017, Hexagon Ragasco improved production processes and significantly reduced the volume of waste and scrap. The routines for recycling materials are continuously on the agenda for improvements. Implementation of garbage handling measures has reduced the need for transportation of waste. Furthermore, the company has initiated a life cycle analysis focusing on the entire life cycle time of cylinders and related aspects of the circular economy.

Over the last couple of years, Hexagon Ragasco has implemented several measures to reduce the energy consumption in the production facility. Results show a relative reduction in energy consumption by more than 6% from 2016 to 2017.

Hexagon Lincoln has introduced a number of environmental improvement measures in recent years to reduce emissions and waste from its own vehicles and production processes. The company recycles several potential waste materials and has introduced initiatives to improve material utilization in order to reduce the waste output.

• 1) Federal level 40 of the Code of Federal Regulations (CFR) Part 261 and 262.
• 2) Part 370 of level 40 CFR and the Nebraska Emergency Planning and Community Right to Know Act, Tier II reporting. Section 312 of the Emergency Planning and Community Right to Know Act (EPCRA), also known as SARA title III.
• 3) Z- Tables, level 28 CFR, 1910.1000 Permissible Exposure Limit.

PEOPLE

Working conditions

Innovation, ambition and expertise are critical success factors for Hexagon Composites' business. The Group strives to create a safe and appealing work environment to attract competent, motivated people. Hexagon emphasizes involvement to empower individuals to influence their own work situation and believes a flat organizational structure ensures visibility and enables employees to develop and thrive.

Good internal communication regarding plans and ongoing development is prioritized to facilitate an open, positive working environment. When possible, Hexagon promotes internal recruitment to provide motivation and advancement opportunities to existing employees.

In 2017, Hexagon launched "Hexagon University" as an internal learning and development function. Initially rolled out in the High-Pressure organization, several different programs were offered during the year. The aim is to continue to build and implement programs that are valuable for the development of the Company's talent base.

Gender equality and non-discrimination

Hexagon Composites believes that people with different approaches and experience contribute to an innovative and dynamic work environment. The Group encourages diversity in its hiring practices with a goal to hire men and women with different backgrounds and the expertise necessary to develop its business. Preferential treatment or discrimination in working conditions due to gender, religion or ethnic background is strictly prohibited. However, Hexagon Composites has prioritized the recruitment of highly qualified women, notwithstanding the challenges the Group faces in connection with a traditionally maledominated, industrial operating environment.

Percentage of women in Hexagon Composites

SEGMENT	2017	2016
High-Pressure CNG & CHG
Norway	0 %	0 %
USA	12 %	12 %
Germany	14 %	15 %
Low-Pressure LPG
Norway	19 %	22 %
Hexagon Composites ASA	22 %	20 %
Board of Directors	50 %	40 %

The changes in the percentages of women employees were largely due to new appointments and natural departures. No instances of discrimination were recorded at Hexagon Composites in 2017.

Health, safety and environment (HSE)

The Group's production sites are comprised of industrial processes that involve complex machinery and processes, rapidly moving parts and equipment, high heat, caustic chemicals and pressurized gas. Hexagon Composites has established secure operating routines to manage these processes in a responsible manner and to ensure a safe and healthy work environment. The Group believes that this promotes efficiency and lower operating costs. Hexagon Composites has targeted no work-related accidents or injuries that result in employee absence. All business areas have established organizations and routines related to industrial safety. As a result, Hexagon is working

			TARGET
SEGMENT	2017	2016	2018	INITIATIVES AND OBJECTIVES
High-Pressure CNG & CHG
Norway	1.8 %	0.7 %	0.5 %	Targeted measures to reduce and prevent sickness absence. Close contact and monitoring of employees with regard to well-being and work environment.
USA	1.4 %	0.2 %	<0.5 %	Continued focus on wellness initiatives to keep absenteeism low.
Germany	5.1 %	5.4 % 1)	4.8 %	Targeted measures to reduce and prevent sickness absence, and increase talks and guidance.
Low-Pressure LPG
Norway	3.3 %	5.5 %	3.0 %	Targeted measures to reduce and prevent absence due to illness, guidance and facilitation for physical activity.

Sickness absence

1) Figure as per Q4 2017

systematically to reduce the number of injuries and improve safety performance.

In 2017, Hexagon Lincoln recorded four work-related injuries that resulted in absence and three other recordable injuries. One of those recordable injuries involved skin irritation related to the use of resin and carbon fiber in production. Hexagon Lincoln remains focused on improvements in the production process to enhance operational efficiency and reduce injuries. Further, the company is working on reducing incidents of skin irritation, and measures have been taken to further improve safety performance. In addition to work-related injuries, 17 instances of material or property damage were reported in 2017. Hexagon Lincoln discusses the risk of skin irritation related to production with new hires prior to starting work to provide better education regarding prevention and recognition of this type of injury. The company also completes an in-person first day training session with all new production hires to promote and focus on the importance of good safety practices.

Hexagon Lincoln has continued to coordinate quarterly HSE executive management reviews with Hexagon Raufoss and Hexagon xperion aimed at identifying and putting in place the needed focus for current and future initiatives. A shared performance metric for measuring and reducing overall injuries has also been established for Hexagon Lincoln, Hexagon Raufoss and Hexagon xperion to create additional visibility of this important area of the business. In 2017, Hexagon Lincoln coordinated and managed an integration of safety metrics and training with Hexagon Raufoss and Hexagon xperion to better identify deficiencies and opportunities for improvement. The aim of this coordinated effort was to share information between Hexagon Lincoln, Hexagon Raufoss and Hexagon xperion and find the "best practice". Hexagon Lincoln also implemented several health and wellness initiatives during 2017 with the goal of improving the overall health of our people.

Hexagon xperion in Kassel, Germany, had six work-related injuries that resulted in absence in 2017. The company's HSE coordinator is working closely with human resources and the external safety engineer on avoiding any injuries in the facility. During the year, an accident analysis was introduced, and specific security instructions were implemented for the various work stations, with a special emphasis on the production facility.

Hexagon xperion has initiated a fire prevention and evacuation plan which has been worked out and is controlled by the external safety engineer.

Hexagon Ragasco had one work-related injury with absence from work during 2017. The previous work-related injury was recorded in January 2014. Hexagon Ragasco also has a strong HSE profile, with a well-functioning reporting system to identify incidents that could result in accidents or injuries. The company has an annual HSE plan, including daily reporting in management meetings.

Hexagon Ragasco is also an IA registered company and conducted four dedicated IA meetings in 2017. The company has procedures for safety inspection focusing on risks related to chemicals, fire, electrical installations and noise, as well as on order and cleanliness. Twelve safety inspections were carried out in 2017. In general, the work environment and employee well-being are considered satisfactory.

From 2016, all operators in Hexagon Raufoss were transferred to Hexagon Ragasco and are servicing the Light-Duty Vehicle operations in Hexagon Raufoss as hired personnel. Hexagon Raufoss follows Hexagon Ragasco's HSE plans and audits.

No work-related accidents that resulted in absence from work were recorded at Hexagon Raufoss in 2017 and there were no instances of material damage. Hexagon Raufoss has invested in an improved work environment in the filament winding process. This implies minimized exposure to styrene for employees working in this production cell.

SOCIETY

Local community

In addition to providing employment opportunities, the Hexagon Group contributes to local communities by supporting non-profit organizations that focus on sports and education opportunities for children and youth in particular, as well as humanitarian aid. The Group also cooperates with various educational institutions to provide work experience for students.

Ethical conduct

Hexagon Composites does not accept any form of corruption including bribery or extortion. Formal ethical requirements governing business practices were established and approved by the Board in 2009. These provide guidance for the employees and, indirectly, throughout the supply chain.

To strengthen awareness, training courses focused on combating corruption have been completed for Group management, including the managing directors of the subsidiaries, followed by implementation of guidelines and training of personnel. The focus of the training courses includes anti-corruption principles and procedures relating to the Group's operations and in collaboration with suppliers, customers and other business partners.

Complying with regulations is part of the Hexagon Composites way of conducting business and a condition to maintain its leading position in the market. For this reason, the Group has created a compliance management system to support the organization in abiding by the applicable regulations.

Corporate Social Responsibility

PRODUCT SAFETY

Because the Group's products are used to transport and store highly flammable, pressurized gases, product safety is a fundamental requirement. All of Hexagon Composites' products are tested and approved in accordance with established safety standards. Production and related processes are regularly monitored and controlled.

For several years, product design and quality have qualified Hexagon Composites' low-pressure cylinders for the same inspection parameters as steel cylinders. This means that all customers in all countries, excluding Denmark, are subject to a 10-year testing interval, the same requirement as for steel cylinders. In Denmark, Hexagon is the only company that has achieved a 15-year interval for the first inspection of cylinders.

Hexagon Ragasco focuses on the continuous improvement of its critical production processes to ensure the quality and safety of its products. Several new initiatives to further improve processes and products were implemented in 2017.

Hexagon Lincoln participates and supports international standards with the primary purpose of ensuring product safety.

Hexagon xperion designs its products according to national and international standards. All relevant aspects of products and manufacturing processes are monitored and recorded. The company's certified in-house inspection service permanently and independently controls the production processes and product quality. The quality system is additionally certified to the automotive standard ISO/TS 16949. Internal audits guarantee a process of continuous improvements.

Hexagon Lincoln, Hexagon Raufoss, Hexagon xperion and Hexagon Ragasco are certified to ISO 9001.

SUPPLY CHAIN

Hexagon Composites' international scope entails a responsibility for promoting Corporate Social Responsibility (CSR) in its supply chain. The Group places a strong emphasis on encouraging its suppliers to act in accordance with its values and ethical guidelines.

Identifying and qualifying efficient and cost-effective suppliers is critical to improve the Group's competitive position. Hexagon Composites works continuously to strengthen its supplier base to reduce cost, improve quality and minimize the risk of delays in the manufacturing cycle. Corporate responsibility forms an integral part of all stages of the procurement process. Qualifying new suppliers will continue to have high priority in 2017.

HUMAN RIGHTS

Hexagon Composites respects and supports the protection of internationally recognized human rights. The Group works systematically to avoid contributing to any breach of human rights. Its commitment to promoting human rights is described in the Group's ethical guidelines for corporate social responsibility. Hexagon Composites supports freedom of association and the right to collective bargaining. Hexagon Composites strongly objects to any form of forced labor, child labor and discrimination in the work environment.

48

INTEGRATING THE NEW BUSINESS COMBINATION

For the year 2017 Group operating income increased by 17% to NOK 1,429.4 (1,220.5) million. Operating profit before depreciation (EBITDA) was NOK 174.0 (374.9) million. Operating profit (EBIT) was NOK 99.3 (299.3) million. Profit before tax was NOK 48.2 (311.9) million. All the above results for 2016 included an extraordinary gain of NOK 348 million related to the Agility transaction reported in the fourth quarter. Underlying profitability for the year, after normalizing for the gain, one-off costs and movements in accruals, increased significantly. This improvement is attributable to all business units within the Hexagon Composites Group.

KEY FIGURES

(MNOK)	2017	2016
Operating income	1 429.4	1 220.5
Operating profit before extraordinary gain and depreciation	174.0	26.7
Extraordinary gain	0.0	348.2
EBITDA	174.0	374.9
EBIT	99.3	299.3
EBITDA %	12.2 %	30.7 %
EBIT %	6.9 %	24.5 %

Hexagon has a strong financial and technological base provided by the established LPG and CNG businesses

KEY DEVELOPMENTS 2017

• Successfully integrated the acquired xperion businesses
• Record LPG performance reported with 30% revenue growth
• Mobile Pipelines recovery in volumes driven by strong North American markets
• Strong growth in Hydrogen related sales with tripling of sales year-over-year
• Positive momentum for CNG Light-Duty Vehicles
• Received a major LPG order from Iraq with a total value of approx NOK 120 million
• Entered into long-term agreement with Certarus and received TITAN® orders with a total value of approx NOK 348 million

• Launched an innovative and efficient requalification testing program for Mobile Pipeline® modules minimizing customers' downtime during regulatory requalification

• Received a major development contract for hydrogen cylinders for two new fuel cell electric vehicle (FCEV) models

• Expanded into the fuel cell heavy-duty truck market with deliveries to Toyota and ASKO
• Launched Hyon AS, a joint venture between Hexagon, Nel ASA and PowerCell Sweden AB
• Agility grew adjusted EBITDA by 78% for the year; Cost-efficiencies and integration synergies delivered significantly improved profitability in a relatively flat market
• Agility launched new Powertrain Systems business unit.

INTRODUCTION

In the fourth quarter of 2016, the Group included the impact of deconsolidating the previous Medium and Heavy-Duty CNG Automotive business unit results and instead accounted for Hexagon Composites' fifty-percent share of Agility Fuel Solutions ("Agility") results under the equity method for the first time. In addition, the fully consolidated financial results of the acquired xperion Energy & Environment ("xperion") and related group subsidiaries were included for the first time. There are no restatements to previously reported figures as a result of the transactions.

The main impact to profit & loss was lower underlying revenue, EBITDA and EBIT levels versus immediately before the transaction, whereas the one-off gain as a result of the Agility transaction increased EBITDA and EBIT levels. The one-off gain was booked within EBITDA with a corresponding provision for deferred tax charges booked in the tax cost line. The net one-off gain booked in the fourth quarter 2016 was NOK 348 million, with corresponding tax provision charges of NOK 122 million.

The main impacts to the statement of financial position were materially higher total assets after recognition of the relevant investment value of both transactions, an inclusion of the earn-out provision forming part of the booked investment cost of the xperion acquisition, and increased equity from recognition of the one-off gain from the Agility transaction.

RESULTS AND KEY DEVELOPMENTS

2017 saw significant improvement in the High-Pressure segment profitability, together with a record performance within Low-Pressure.

Mobile Pipelines sales showed recovery from a weak 2016 with high activity in the North American oil & gas sector as a principal driver. Light-Duty Vehicle sales in Europe were disrupted in the first half of the year, but recovered strongly and returned to more satisfactory profitability levels. Organic and inorganic growth has driven Hydrogen sales volumes to account for 10% of Group revenues, compared to 3% in 2016. Some, but not all, integration synergies from the xperion acquisition were realized in 2017, primarily in cost base savings and cost avoidance. Hexagon MasterWorks continued to be dilutive to profits as the unit works to secure contract revenues from key opportunities in oil & gas and aerospace.

Revenues for the Low-Pressure segment grew by 30% year-over-year, whilst receiving orders and executing deliveries to new market geographies. Hexagon Ragasco continues to invest in equipment and processes allowing faster cycle times, a wider array of cylinder variants and capacity improvement. Major investment milestones were achieved by the end of the year.

Management resources were focused on the successful integration of the acquired xperion businesses.

SEGMENT RESULTS

HIGH-PRESSURE CNG, BIOGAS AND HYDROGEN

HEXAGON LINCOLN | HEXAGON RAUFOSS | HEXAGON XPERION | AGILITY FUEL SOLUTIONS

KEY FIGURES

(MNOK)	2017	2016
Operating income	786.5	728.3
Operating profit before extraordinary gain and depreciation	47.2	-45.8
Extraordinary gain	0.0	348.2
EBITDA	47.2	302.4
EBIT	-8.6	248.4
EBITDA %	6.0 %	41.5 %
EBIT %	-1.1 %	34.1 %

2017 saw significant improvement in the High-Pressure segment profitability.

KEY DEVELOPMENTS

• Mobile Pipelines recovery in volumes driven by strong North American markets
• Strong growth in Hydrogen related sales with tripling of sales year-over-year
• Positive momentum for CNG Light-Duty Vehicles
• Entered into long-term agreement with Certarus and received TITAN® orders with a total value of approx NOK 348 million
• Launched requalification testing program for Mobile Pipeline® cylinders minimizing customers' downtime during regulatory requalification
• Received a major development award for hydrogen cylinders for two new FCEV models
• Expanded into the fuel cell heavy-duty truck market with deliveries to Toyota and ASKO
• Launched Hyon AS, a joint venture between Hexagon, Nel ASA and PowerCell Sweden AB
• Awarded a substantial order for cylinders from Air Products for hydrogen transportation
• Significant sales orders received for composite CNG cylinder vehicle conversions in Indonesia
• Agility grew adjusted EBITDA by 78%; Cost-efficiencies and integration synergies delivered significantly improved profitability in a relatively flat market
• Agility launched Powertrain Systems business unit through acquisition, accelerating product sales.

SALES AND MARKET

The High-Pressure segment achieved operating income in 2017 of NOK 786.5 (728.3) million. The M&A transactions effects in the fourth quarter in 2016, detailed earlier in this report, were contained to the High-Pressure segment.

Mobile Pipelines sales volumes for the year recovered strongly in North America but remained relatively weak in the rest of the world. A firmer order position has allowed for an expansion in manning capacity in the U.S. which will have greater effect through 2018. Improving macro conditions, particularly in the oil and gas sector, gained momentum as evidenced in increased customer interest, orders and sales.

The Light-Duty Vehicle (LDV) business is considerably strengthened with the integration of the LDV unit of Hexagon xperion. Sales volumes and profitability within the LDV business have steadied at a satisfactory level after disruptions earlier in 2017. Headline year-over-year growth exiting the fourth quarter was 19%.

The Hydrogen business unit revenues have grown from being 3% to 10% of Group turnover. Product sales represent more than 80% of total revenues recorded in 2017, the remainder primarily being funded development. Commercial sales particularly within rail, transport and distribution continue to deliver growth within this rapidly expanding business unit.

The Hexagon MasterWorks business unit is currently focused on product portfolio expansion opportunities within aerospace and oil and gas. The unit is also a supplier of key manufacturing equipment. However, its profitability

has been subject to delays in contracted revenues and the business unit recorded losses for the year. The unit is expected to deliver modest profits going forward.

Year-over-year growth of revenues in 2017 for Agility, comprising the Medium and Heavy-Duty CNG automotive businesses, increased by 3% primarily as a result of growth in Heavy-Duty Truck deliveries, versus a weak 2016. Transit Bus volumes were solid, though lower than in the exceptionally strong year of 2016, while Refuse Truck sales were generally weak in 2017. The new Powertrain Systems business provided inorganic growth for 2017.

PROFIT/LOSS

Operating income within High-Pressure for the year 2017 amounted to NOK 786.5 (728.3) million. Operating profit before depreciation (EBITDA) was NOK 47.2 (302.4) million, while Operating profit (EBIT) was NOK -8.6 (248.4) million. The 2016 figures were impacted by the one-off extraordinary gain of NOK 348 million.

Revenues for Agility for the year 2017 were USD 157.3 million (approximately NOK 1.3 billion), reported EBITDA was USD 9.5 million (approximately NOK 78 million) and EBITDA adjusted for non-recurring or non-cash items was USD 14.7 million (approximately NOK 120 million). Hexagon Composites' fifty percent share of net profit before tax, realized in the financial statements after IFRS adjustments, was NOK -16.3 million. This includes depreciation of intangibles of NOK -13.7 million, an elimination of unrealized profit from a downstream transaction to Agility of NOK -10.7 million and non-cash share based incentivization charges of NOK -21.5 million.

Board of Directors' Report

SEGMENT RESULTS

LOW-PRESSURE LPG

HEXAGON RAGASCO

KEY FIGURES

(MNOK)	2017	2016
Operating income	654.3	502.2
EBITDA	144.0	98.4
EBIT	125.7	77.9
EBITDA %	22.0 %	19.6 %
EBIT %	19.2 %	15.5 %

The growth is attributed to greater flexibility within the product offering and increased market activities.

KEY DEVELOPMENTS

• 30% growth in revenues within the Low-Pressure segment versus 2016
• Solid growth and continued market penetration
• Received a major order from Iraq with a total value of approx NOK 120 million
• Strong momentum and continued market penetration to core European markets and markets outside Europe
• NOK 75 million investment program (2017-2019) for further product differentiation continued on-track
• Achieved high capacity utilization during the year.

Board of Directors' Report

SALES AND MARKET

Sales revenues for 2017 were NOK 654.3 (502.2) million, an increase of 30%. The growth is attributed to greater flexibility within the product offering and increased market activities. This has been in conjunction with productivity initiatives allowing faster cycle times and capacity improvement.

The Low-Pressure business area has focused on developing the value proposition for LPG marketers and distributors. The composite LPG cylinders give clear advantages in strengthening customer branding and design options to increase market share. In addition, there are significant benefits related to safety and opportunities in reducing maintenance and logistics costs. Sales for the year were primarily to core European markets and the Middle East. The business area also continued development of custom design products for the French and the U.S. market.

The production facility at Raufoss in Norway was shut down at the end of the year for extensive maintenance and transition activities relating to building expansion and equipment relocation. These were all planned activities after a year of high uptime activity and continued investments in the lines. These investments into processes and technologies will further enhance manufacturing efficiency and product differentiation, as well as provide more capacity. In addition, longer cycle time products were prioritized in the fourth quarter of 2017 which impacted overall output and productivity. Production has since resumed as planned from January 2018.

PROFIT/LOSS

Low-Pressure achieved an operating profit before depreciation (EBITDA) of NOK 144.0 (98.4) million). Operating profit (EBIT) was NOK 125.7 (77.9) million, an increase of 61%. Operating margins were 19.2% (15.5%) due to higher achieved volumes.

GROUP

1) Margins were positively impacted by the one-off gain recorded following the Agility transaction in Q4 2016.

Hexagon Composites' headquarters is located in Aalesund, Norway. At the end of 2017, the Group's administration consisted of eight employees, responsible for general administration, finance, strategy, business development, investor relations and communications.

PROFIT/LOSS

Net profit after tax for the full year of 2017 was NOK 69.5 (208.3) million including negative foreign exchange effects recorded in other financial items of NOK 22.2 million. Net interest charges for the year were NOK 7.8 million and other financial items totaled NOK 4.4 million. A net credit tax charge of NOK 21.2 million was generated primarily due to restatements of deferred tax liabilities in the U.S., as a result of the recent U.S. tax reforms.

FINANCIAL POSITION

At year-end the statement of financial position totaled NOK 2,391.3 (2,424.8) million and the Group's equity ratio was 59% (55%). There is little change in total assets, however, equity has increased while liabilities have reduced.

Intangible assets and property, plant and equipment were NOK 551.3 (530.8) million and NOK 260.6 (260.6) million respectively. Inventory was NOK 242.4 (227.5) million. Outstanding receivables were NOK 238.1 (201.7) million.

Cash and cash equivalents decreased by NOK 36.5 million to NOK 171.6 million at the end of the year. The main factors influencing developments for the year included positive cash flow from operations of NOK 90.4 million, and debt repayments driving a cash flow of NOK -99.4 million in financing activities.

Long-term interest-bearing debt decreased to NOK 367.4 (431.7) million. Equity was strengthened to NOK 1,412.4 (1,333.2) million after a profitable year.

CASH FLOW AND LIQUIDITY

Total cash amounted to 171.6 (208.1) million at the end of 2017. Unused credit and overdraft facilities amounted to NOK 635.9 (591.1) million. The Group expects that cash and available credit facilities will be sufficient to cover planned capital expenditures, operational requirements and financing activities in 2018.

Net cash flow from operating activities was NOK 90.4 (-4.0) million. Depreciation and write-downs totaled NOK 74.7 (75.6) million. The difference between the operating profit and cash flow from operating activities was primarily due to changes in working capital and depreciation. Net cash flow from investment activities was NOK -26.5 (-547.5) million and is net of receipts received for sales of assets in the year. Net cash flow from financing activities was NOK -99.4 (644.1) million. Net currency differences presented separately totaled NOK -1.0 (-1.7) million.

LONG TERM BORROWING

The Group's financing requirement is covered by bank facilities as stated in note 20 to the Annual Report and Accounts 2017. See also note 24 for more information.

SHARE PRICE DEVELOPMENT AND DIVIDENDS

At the end of 2017 Hexagon Composites' share value was NOK 27.50, 2.2% above the closing price on 31 December 2016. This represents a market value at the end of the year of NOK 4.58 billion. By comparison, the Oslo Stock Exchange Industrial index increased by 13.0% while the OBX increased by about 20.2%.

At the end of the year the Group had 1,166,075 own shares.

No dividend was paid in 2016. The Board proposes to the annual General Meeting on 19 April 2018 that dividend of NOK 0.30 per share will be paid.

RISK MANAGEMENT

Hexagon Composites works systematically to identify and manage risks. Risk management is executed by Group management and management in subsidiary companies. The Board's audit committee reviews the overall risk management policy and procedures and the Group's internal control routines. The committee functions as a preparatory and advisory committee for the Group's Board and provides support for exercising its responsibilities relating to risk management, financial reporting, financial information and auditing.

FINANCIAL RISK

The Group has a centralized finance function with overall responsibility for accounting, cash management, capital management, financing arrangements and management of the Group's financial risk factors. In addition, the business areas have financial controllers that perform similar tasks on the subsidiary level.

The most significant financial risks for the Group include interest rate risk, liquidity risk, currency risk and credit risk. The Group uses financial instruments to hedge risks associated with interest rate and foreign currency fluctuations. Please see note 24 to the consolidated financial statements for further information related to financial risk factors and mitigating actions.

Unexpected events and potential fluctuations in cash generation from operations could result in the Group being unable to meet its financial obligations. To mitigate this risk, the Group targets a sufficient liquidity position and adequate level of credit facilities. At the end of the year, the Group had unused credit overdraft facilities totaling NOK 635.9 (591.1) million. See also discussion above on cash flow and liquidity.

The Group is mainly exposed to credit risk related to counterparty default on contractual agreements and trade, and other current receivables. The Group has policies and procedures to secure that sales are made to customers with appropriate credit profiles within defined limits. Actual losses on outstanding receivables in 2017 were NOK 1.8 (0.0) million. Trade receivables at the end of the year amounted to NOK 172.9 (84.7) million.

The Group is exposed to changes in currency rates which can impact the competitive position, and have a significant effect on reported results. The most important foreign currencies to the Group are the US Dollar and Euro. According to the Group's finance policy forward exchange contracts have been entered into to reduce this risk.

Certain of the Group's interest-bearing liabilities have variable interest rates, which expose the Group to volatility in future interest payment amounts. The aim of the Group's interest rate management is to reduce interest expense while keeping this volatility within acceptable limits. See discussion under Long-term borrowing for information relating to interest rate hedging agreements maintained by the Group.

OPERATIONAL RISK

Business risk

Business risk relates to the risk of loss and reduced profitability due to changes in the Group's competitive position. Factors which can impact the competitive position include new players in the industry, pressure on market prices and future demand and supply factors, including the price of natural gas and the relative price of gas compared with diesel. Depending on developments, these factors can have a negative impact on results and financial positions.

Operational and technological risk

Hexagon Composites currently has a strong position in the market, due to leading technologies in its niche markets. The Company uses its expertise to develop and commercialize new products, processes and technologies. The Company has protected its products, technologies and production processes with patents where possible and deemed appropriate. However, the Company is exposed to competing technologies and processes that could have a negative effect on competitive positions and, in turn profitability and financial position. Hexagon's Type 4 composite pressure vessel technology is industry leading, however, typically competes with existing Type 1 all-steel and Type 3 metal inner-lined composite over-wrapped pressure technologies. Hexagon Composites operates in markets with strict standards for quality and delivery. Deviations from these standards could result in significant additional costs, lost sales revenues and damage to the Company's reputation. In order to mitigate these risks, the Company has procedures and controls in place to identify and prevent deviations.

Raw materials risk

The Group is exposed to developments in the price of its raw material and, in particular, the cost of carbon fiber. The price of carbon fiber is primarily linked to the prevailing market balance where supply is dependent on a limited number of manufactures. To mitigate this risk the Group has a procurement policy which requires periodic fixed price agreements with its most important suppliers. The policy requires a minimum of two suppliers for the purchases of principal materials.

CORPORATE GOVERNANCE

The Group's principles for corporate governance were last revised at the board meeting of 13 February 2018 and follow the Norwegian recommendations in NUES (Norwegian Code of Practice for Corporate Governance) updated as of 30 October 2014. The Group's principles are referred to in a separate chapter in the annual report.

CORPORATE SOCIAL RESPONSIBILITY

Hexagon Composites strives to conduct its business in an economically, socially and environmentally responsible manner. The description of corporate social responsibility (CSR) has been provided in accordance with the provision in section 3-3 (c) of the Norwegian Accounting Act. The Group's CSR principles and practices are referred to in a separate chapter in the annual report.

RESEARCH & DEVELOPMENT

In order to maintain Hexagon Composites' leading position within its niche markets, the Group invests in technological and process development. Several R&D projects are carried out in cooperation with major customers.

The Group expensed R&D costs amounting to NOK 40.8 (34.5) million in 2017. The Group has received government contributions of NOK 16.8 (14.6) million towards research and development activities for 2017. The total amount of deferred costs related to R&D amounted to NOK 52.7 million as of 31.12.2017. Costs capitalized for the year amounted to NOK 9.8 (20.4) million, while amortization of deferred costs amounted to NOK 11.4 (6.2) million. The group has 44 fulltime equivalents who are directly expensed in addition to the above.

AFTER BALANCE SHEET DATE

No significant events have happened after the balance sheet date.

OUTLOOK

The global transition to cleaner, low-carbon energy and especially its application in mobility is happening now. It is supported by public and private investment, and Hexagon Composites aims to ensure it remains at the forefront, through innovative solutions comprising its leading pressure vessel technology.

Given the many exciting opportunities in all segments within the Hydrogen business unit and continued strong growth, the Company has begun to resource-up the organization to realize the full potential of this growth market. The Company maintains a leading position within Hydrogen, and substantial organizational investments are being made to develop this position further. Such plans are dilutive to short and medium-term profitability, however accretive to long-term shareholder value.

The importance of natural gas and biogas-fueled Light-Duty Vehicles in addressing environmental requirements is being recognized to an increasing extent, especially in Europe. Continued profitable growth is expected for 2018.

Mobile Pipelines sales volumes are on an upwards trend. New uses for Mobile Pipelines are expected to stimulate the demand for the Company's products. New product variants are scheduled to be in service in 2018, while tailored financial solutions and after-market services are available where appropriate. Hexagon may require the use of its own balance sheet to a limited but increasing extent, to stimulate sales in areas with challenging funding conditions. The Company will continue to act appropriately in managing risk against the reward of such projects.

Agility's strong focus on cost, plant optimization and vertical synergies has created the platform for maximizing financial performance in an otherwise soft market cycle. The venture into Medium-Duty propane powertrain systems has proven timely, and this is expected to become a growth driver in 2018. The overall year-over-year development in profitability in 2017 is significant and leaves Agility well positioned for future upswings in the Heavy-Duty market. Such upswings are anticipated in the second half of 2018. The Board is expecting the positive underlying results in Agility to be reflected in the share of profit recorded below the line, for the full year 2018.

The Low-Pressure business segment closed the year with record sales volumes, providing the Hexagon Group with a sound, profitable foundation. The Company will continue to invest in capturing market opportunities globally and continue to gain market share from steel cylinders. The order book for first half of 2018 is strong.

The Company aims for strong growth in the years ahead. It has the distinct advantage of a financially and technologically strong base provided by the established LPG and CNG businesses. This provides a sound platform for realizing the substantial growth opportunities related to hydrogen and biogas.

GOING CONCERN

According to section 3-3a of the Norwegian Accounting Act, the Board confirms that the financial statements have been prepared on the assumption of a going concern. This assumption is based on profit forecasts for 2017 as well as the Group's long-term strategic forecasts. The Group's financial position is strong with sufficient liquidity and a robust equity ratio.

THE PARENT COMPANY

The Parent Company Hexagon Composites ASA incurred an operating loss of NOK -22.4 (-15.6) million in 2017 and a profit of NOK 124.0 (49.6) million.

The Board of Hexagon Composites ASA proposes that the profit for the year is allocated as follows:

Total allocations	124.0
Transferred from/to other equity	74.4
Allocated to dividends	49.6
(MNOK)

STATEMENT FROM THE BOARD OF DIRECTORS AND GROUP PRESIDENT

We confirm to the best of our knowledge that:

• the financial statements for the Group and Parent Company for 2017 have been prepared in accordance with applicable accounting standards, and that the information provided in the financial statements gives a true and fair view of the Group's and Parent Company's assets, liabilities, financial position and financial performance as a whole, and
• the Board of Directors' Report gives a true and fair overview of the Group's and Parent Company's development, profit and financial position, together with a description of the principal risks and uncertainties that they face.

Aalesund, Norway, 20 March 2018 The Board of Directors of Hexagon Composites ASA

Knut Flakk Chairman of the Board

Kathrine Duun Moen Board Member

Kristine Landmark Deputy Chair

Katsunori Mori Board Member

Jon Erik Engeset Group President & CEO

Sverre Narvesen Board Member

Elisabeth Heggelund Tørstad Board Member

FINANCIAL STATEMENTS

FINANCIAL STATEMENTS GROUP

• Income statement
• Statement of comprehensive income
• Financial position
• Cash flow statement
• Changes in equity
• Notes

FINANCIAL STATEMENTS PARENT COMPANY

• Income statement
• Balance sheet
• Cash flow statement
• Notes

AUDITOR'S REPORT

Auditor's report

INCOME STATEMENT GROUP 01.01 – 31.12

(NOK 1 000)	NOTE	2017	2016
OPERATING INCOME
Sales revenue	4	1 407 939	1 220 511
Other operating income	28	21 458	0
Total operating income		1 429 397	1 220 511
OPERATING EXPENSES
Cost of materials	13	646 062	643 803
Payroll & social security expenses	9,18,27,28	345 449	365 622
Depreciation, amortization and impairment	10,11	74 731	75 611
Other operating expenses	5,14,19,23	263 863	184 404
Gain on carve-out	5	0	-348 196
Total operating expenses		1 330 105	921 245
Operating profit	4	99 291	299 266
FINANCE INCOME AND EXPENSES
Finance income	6,24	79 831	99 800
Finance expense	6,20	114 228	85 750
Net financial items		-34 397	14 050
Profit/loss from associates and joint ventures	5,26	-16 667	-1 450
Profit before tax		48 227	311 866
Tax expense	7	-21 245	103 563
Profit/loss for the year		69 472	208 303
Earnings per share (NOK)
Ordinary	8	0.42	1.40
Diluted	8	0.47	1.42

STATEMENT OF COMPREHENSIVE INCOME

(NOK 1 000)	NOTE	2017	2016
Profit/loss after tax		69 472	208 303
OTHER COMPREHENSIVE INCOME:
ITEMS THAT WILL BE RECLASSIFIED THROUGH PROFIT OR LOSS IN SUBSEQUENT PERIODS
Translation differences when translating foreign activities		-18 120	-5 391
Net total of items that will be reclassified through profit and loss in
subsequent periods		-18 120	-5 391
ITEMS THAT WILL NOT BE RECLASSIFIED THROUGH PROFIT OR LOSS IN SUBSEQUENT PERIODS
Actuarial gains/losses for the period	18	-1 351	-23
Tax on actuarial gains/losses for pensions for the period	7	324	6
Net total of items that will not be reclassified through profit and loss in subsequent periods		-1 027	-17
Other comprehensive income for the period		-19 147	-5 409
Total comprehensive income for the period		50 325	202 894
Attributable to:
Equity holders of the parent		50 325	202 722
Non-controlling interests		0	172

FINANCIAL POSITION OF THE GROUP

(NOK 1 000)	NOTE	31.12.2017	31.12.2016
ASSETS
NON-CURRENT ASSETS
Property, plant & equipment	10	260 550	260 550
Intangible assets	11	551 338	530 838
Net pension assets	18	383	912
Investments in associates and joint ventures	5,26	918 769	975 963
Other non-current assets	12	557	1 694
Deferred tax asset	7	7 639	17 644
Total non-current assets		1 739 237	1 787 601
CURRENT ASSETS
Inventories	13	242 351	227 481
Trade receivables	14	172 868	84 705
Forward exchange contracts	24	0	5 209
Other current assets	15	65 238	111 777
Bank deposits, cash and cash equivalents	16	171 605	208 073
Total current assets		652 062	637 245
Total assets		2 391 298	2 424 847

FINANCIAL POSITION OF THE GROUP

(NOK 1 000)	NOTE	31.12.2017	31.12.2016
EQUITY AND LIABILITIES
EQUITY
Share capital	17	16 663	16 663
Share premium	17	727 639	727 639
Own shares	17	-117	-117
Other paid-in capital		16 888	6 752
Total paid-in capital		761 073	750 937
Other equity		651 368	582 233
Total other equity		651 368	582 233
Total equity		1 412 441	1 333 170
NON-CURRENT LIABILITIES
Non-current interest-bearing liabilities	20,23	367 403	431 681
Pension liabilities	18	1 838	1 367
Deferred tax liabilities	7	108 892	197 289
Non-current provisions	5	113 675	106 619
Total non-current liabilities Knut Flakk	Kristine Landmark	591 808 Sverre Narvesen	736 956
Chairman of the Board CURRENT LIABILITIES	Deputy Chair	Board Member
Short-term loans	16,21,23	19 494	14 095
Kathrine Duun Moen Trade payables and other current liabilities	Katsunori Mori 22,24,26	Elisabeth Heggelund Tørstad 287 744	280 780
Board Member Income tax payable	Board Member 7	Board Member 41 966	12 677
Provisions	19	37 845	47 168
Total current liabilities		387 049	354 721
	Jon Erik Engeset Group President & CEO
Total liabilities		978 857	1 091 677
Total equity and liabilities		2 391 298	2 424 847

Aalesund, Norway, 20 March 2018 The Board of Directors of Hexagon Composites ASA

Knut Flakk Chairman of the Board

Kathrine Duun Moen Board Member

Kristine Landmark Deputy Chair

Katsunori Mori

Board Member

Sverre Narvesen

Board Member

Board Member

Elisabeth Heggelund Tørstad

Jon Erik Engeset Group President & CEO

CASH FLOW STATEMENT GROUP

(NOK 1 000)	NOTE	2017	2016
CASH FLOW FROM OPERATING ACTIVITIES Profit before tax		48 227	311 866
Tax paid for the period		11 467	24 089
Gains/losses on sale of property, plant & equipment	10	-24 946	-450
Depreciation/amortization	10,11	73 988	68 716
Impairment loss	10	743	6 895
Interest income	6	-1 144	-2 609
Interest expenses	6	9 087	15 326
Profit/loss from associates and joint ventures	26	16 667	1 450
Gain on carve-out	5	0	-348 196
Changes in inventories, trade receivables and payables		-132 711	47 465
Changes in pension liabilities	18	-352	391
Changes in other accrual accounting entries		89 408	-128 977
Net cash flow from operating activities		90 434	-4 034
CASH FLOW FROM INVESTMENT ACTIVITIES
Proceeds sale of fixed assets		36 591	0
Purchase of property, plant & equipment	10	-68 830	-67 511
Purchase of intangible assets	11	-9 781	-20 398
Interest received	6	1 144	2 609
Payment acquisition	5,26	0	-462 150
Other investments		14 396	0
Net cash flow from investing activities		-26 479	-547 450
CASH FLOW FROM FINANCING ACTIVITIES
New non-current liabilities	20,23	0	404 393
Repayment of non-current liabilities	20,23	-90 427	-387 752
Bank overdraft payments	21	0	-5 463
Interest payments	6	-8 981	-15 076
Payments of dividends		0	0
Increase in share capital		0	648 023
Net cash flow from financing activities		-99 407	644 125
Net change in cash & cash equivalents		-35 453	92 641
Net currency exchange differences		-1 016	-1 728
Cash & cash equivalents at beginning of period		208 073	93 177
Cash and cash equivalents acquisition		0	23 983
Cash & cash equivalents at end of period	16	171 605	208 073
Undrawn Group overdraft facilities	16,20	635 909	591 117
Restricted funds, included in cash & cash equivalents	16	6 400	6 332

STATEMENT OF CHANGES IN EQUITY

(NOK 1 000)	SHARE CAPITAL	OWN SHARES	SHARE PREMIUM	OTHER PAID-IN EQUITY	TRANS LATION DIFFER ENCES	OTHER EQUITY	NON CON TROLLING INTEREST	TOTAL
Balance 01.01.2016	13 329	-117	82 955	9 520	111 358	253 091	0	470 138
Dividends to shareholders								0
Share-based payment etc.				4 833		7 114		11 948
Profit/loss for the year						208 476	-172	208 303
Private placement / Capital increase	3 333		663 327				172	666 832
Transaction cost			-18 643					-18 643
Transfer/allocation				-7 602		7 602		0
OTHER COMPREHENSIVE INCOME
Translation differences when translating foreign activities					-5 391			-5 391
Actuarial gains/losses for the period						-17		-17
Actual gains or losses on instruments used for cash flow hedging								0
Total other comprehensive income					-5 391	-17		-5 408
Balance as of 31.12.2016	16 663		-117 727 639	6 752	105 967	476 266	0	1 333 170
(NOK 1 000)	SHARE CAPITAL	OWN SHARES	SHARE PREMIUM	OTHER PAID-IN EQUITY	TRANS LATION DIFFER ENCES	OTHER EQUITY	NON CON TROLLING	TOTAL
							INTEREST
Balance 01.01.2017	16 663	-117	727 639	6 752	105 967	476 266	0	1 333 170
Dividends to shareholders								0
Share-based payment etc.				10 136		18 811		28 947
Profit/loss for the year						69 472		69 472
OTHER COMPREHENSIVE INCOME
Translation differences when translating foreign activities					-18 120			-18 120
Actuarial gains/losses for the period						-1 027		-1 027
Actual gains or losses on instruments used for cash flow hedging								0
Total other comprehensive income					-18 120	-1 027		-19 147
Balance as of 31.12.2017	16 663	-117	727 639	16 888	87 847	563 521	0	1 412 441

Own shares comprise cost of acquisition for the Company's shares owned by the Group. As of 31 December 2017, the Group owned 1 166 075 (1 166 075) own shares.

Other equity includes accumulated actuarial gains/losses for pensions after tax of NOK -19 121 thousand (change of NOK -1 027 thousand from NOK -18 094 thousand as of 31.12.2016).

On the 21 March 2016 the Company issued 33 333 000 new shares to Mitsui & Co. Ltd, at the price of NOK 20 per share.

Non-controlling interest

For the non-controlling interest there is an agreement that Hexagon will fund (through a loan) the operation for 36 months. Based on this, the risk and rewards would be on Hexagon after the minority is reduced to 0, thus all negative results after this reduction are allocated to parent equity.

NOTES

NOTE 1 GENERAL

Hexagon Composites ASA is a public limited Company with its registered office in Norway. The company's headquarter is at Korsegata 4B, 6002 Aalesund, Norway.

The Board of directors authorized the annual report for publication on 20 March 2018.

The Group's operations are described in note 4.

NOTE 2 ACCOUNTING POLICIES

2.1 BASIS OF PREPARATION OF ANNUAL FINANCIAL STATEMENTS

The consolidated annual financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and adopted by the EU as of 31.12.2017, and Norwegian disclose requirements listed in the Norwegian Accounting Act as of 31.12.2017.

The consolidated financial statements have been prepared on a historical cost basis, with the exception of financial derivatives at fair value through profit or loss and financial derivatives used as cash flow hedges that are recognized at fair value.

The consolidated financial statements have been prepared using uniform accounting policies for equivalent transactions and events under otherwise identical circumstances.

2.2. FUNCTIONAL CURRENCY AND PRESENTATION CURRENCY

The Group's presentation currency is NOK. This is also the Parent Company's functional currency. The statement of financial position figures of entities with a different functional currency are translated at the exchange rate prevailing at the end of the reporting period for balance sheet items, including goodwill, and the exchange rate at the date of the transaction for profit and loss items. The monthly average exchange rates are used as an approximation of the transaction exchange rate. Translation differences are recognized in other comprehensive income ("OCI"). The functional currency is determined in each entity in the Group based on the currency within the entity's primary economic environment. Transactions in foreign currency are translated to functional currency using the exchange rate at the date of the transaction. At the end of each reporting period foreign currency monetary items are translated using the closing rate, non-monetary items that are measured in terms of historical cost are translated using the exchange rate at the date of the transaction and non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was measured. Changes in the exchange rate are recognized continuously in the accounting period.

2.3 BASIS OF CONSOLIDATION

The Group's consolidated financial statements comprise Hexagon Composites ASA and it's subsidiaries as of December 31, 2017. An entity has been assessed as being controlled by the Group when the Group is exposed for or have the rights to variable returns from its involvement with the entity, and has the ability to use its power over the entity to affect the amount of the Group's returns.

Thus, the Group controls an entity if and only if the Group has all the following:

• power over the entity;
• exposure, or rights, to variable returns from its involvement with the entity; and
• the ability to use its power over the entity to affect the amount of the Group's returns.

There is a presumption that if the Group has the majority of the voting rights in an entity, the entity is considered as a subsidiary. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over the entity. Including ownership interests, voting rights, ownership structure and relative power, as well as options controlled by the Group and shareholder's agreement or other contractual agreements. Reference is made to note 31 which contains a list of the subsidiaries and associates, note 25 and 26 which lists joint operations and joint ventures respectively.

The assessments are done for each individual investment. The Group re-assesses whether or not it controls an entity if facts and circumstances indicate that there are changes to one or more of the three elements of control.

Business combinations are accounted for by using the acquisition method, see note 5. The cost of an acquisition is measured as the aggregate of the consideration transferred, which is measured at acquisition date fair value. Acquisition related costs are expensed as incurred and included in administrative expense. Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the acquisition date. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary.

Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group's accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. Non-controlling interests are presented separately under equity in the Group's balance sheet.

Loss of control

In cases where changes in the ownership interest of a subsidiary leads to loss of control, the consideration is measured at fair value. Assets (including goodwill) and liabilities of the subsidiary and non-controlling interest at their carrying amounts are derecognized at the date when the control is lost.

The fair value of the consideration received is recognized and any investment retained is recognized at fair value. Gain or loss is recognized in profit and loss at the date when the control is lost. The Group has made a policy choice, when control is lost and the reminder of the interest is retained through a joint venture or associate, to partly recognize the gain or loss as to that attributable to the other party of which control is lost. The gain or loss is presented on a separate line included in operating expenses.

2.4 INVESTMENT IN ASSOSIATES AND JOINT VENTURES

Associates are entities where the Group has significant influence, but not control or joint control, over financial and operating management (normally a holding of between 20% and 50%).

A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control.

The considerations made in determining whether the Group has joint control or significant influence over an entity are similar to those necessary to determine control over subsidiaries. For more detailed description of the Group's considerations regarding level of influence and joint control as well as classification of joint arrangement, see note 26.

Associates and joint ventures are accounted for using the equity method from the date when significant influence or joint control is achieved until such influence ceases.

Investments in an associates or joint ventures are initially recognized at cost. The carrying amount of the investment is adjusted to recognize changes in the Group's share of net assets of the associate or joint venture since the acquisition date. Goodwill relating to the associate or joint venture is included in the carrying amount of the investment and is not tested for impairment individually.

The statement of profit or loss reflects the Group's share of the results of operations of the associate or joint venture. Any change in OCI of those investees is presented as part of the Group's OCI. In addition, when there has been a change recognized directly in the equity of the associate or joint venture, the Group recognizes its share of any changes, when applicable, in the statement of changes in equity. Unrealized gains and losses resulting from transactions between the Group and the associate or joint venture are eliminated to the extent of the interest in the associate or joint venture and is recognized against profit/loss from investment in associates and joint ventures.

If there is an indication that the investment in the associate or joint venture is impaired, the Group will perform an impairment test of the carrying amount of the investment. Any impairment losses are recognized as share of profit of an associate and a joint venture in the statement of profit or loss.

If the Group's share of the loss equals or exceeds the carrying amount of the associate or joint venture, the carrying amount is set to zero and further loss is not recognized unless the Group has incurred a legal or constructive obligation on behalf of the associate or joint venture.

Upon loss of significant influence over the associate or joint control over the joint venture, and as such the equity method ceases, the Group measures and recognizes any retained investment at its fair value. A new measurement of remaining ownership interests will not be performed if the equity method is still applicable, for example by transition from an associate to a joint venture.

2.5 JOINT OPERATIONS

A joint operation is a joint arrangement whereby the Group and the other parties that have joint control over the arrangement, have contractual rights to the assets and obligation for the liabilities relating to the arrangement. All decisions about the relevant activities require unanimous consent.

When assessing if a joint arrangement is a joint operation, the Group assesses the structure of the arrangement, the legal form, the contractual agreement and other facts and circumstances. For a detailed description of the Group's assessment regarding joint operation, see note 25.

The Group recognizes its assets, liabilities, revenue and expenses and its relative share of assets, liabilities, revenue and expenses of the joint operation.

When the Group enters into transactions with a joint operation in which it is a joint operator, the Group recognizes gains and losses resulting from such a transaction only to the extent of the other parties' interests in the joint operation.

2.6 CASH AND CASH EQUIVALENTS

Cash & cash equivalents consist of cash in hand and at bank. Any positive balances against bank overdrafts are included as a component of cash and cash equivalents in the cash flow statement. The cash flow statement has been prepared using the indirect method. Bank overdrafts are reported under short-term loans in the balance sheet. Received interest income is classified as investment activities and interest payments is classified as investment activities in the cash flow statement.

2.7 TRADE RECEIVABLES

Trade receivables are recognized at fair value less impairment losses. Nominal value does not normally differ significantly from amortized cost.

2.8 INVENTORIES

Inventories are recognized at the lower of historical cost and net selling price. Net selling price is the estimated selling price (in the normal course of business) less the estimated costs of completion, marketing and distribution. Cost is based on the average cost price, and includes the costs incurred in acquiring the goods and the costs incurred in acquiring the goods and the costs of bringing the goods to their current state and location. Goods produced by the Group itself include variable and fixed costs that can be allocated based on normal capacity utilization.

2.9 PROPERTY, PLANT & EQUIPMENT

Items of property, plant and equipment are valued at their cost, less accumulated depreciation and impairment losses. An asset is removed from the balance sheet on disposal or when it is withdrawn from use and no future economic benefits are expected from its disposal. The gain or loss on disposal is recognized in the income statement.

The cost of an item of property, plant and equipment includes its original purchase price and all costs necessary to bring the asset to working condition for its intended use. Subsequent expenditure on repair and maintenance of assets is recognized as an expense in the income statement, while expenses that are expected to generate future economic benefits are capitalized.

The cost of a non-current asset is depreciated to the residual value over the asset's useful life. The following depreciation periods apply:

• Buildings 10-20 years
• Machinery and equipment 3-15 years
• Fixtures & fittings, motor vehicles 3-10 years

If an item of property, plant and equipment has different parts with different useful lives, the parts are depreciated separately if the cost is significant in relation to the total cost of the item.

Depreciation is calculated on a straight-line basis.

The depreciation period and method are assessed annually. A residual value is estimated at each year-end, and changes to the estimated residual value is recognized as a change in an estimate. When the carrying amount of property, plant and equipment exceeds the estimated recoverable amount, the value is written down to the recoverable amount.

Assets under construction are classified as property, plant and equipment and are carried at cost until its manufacture or development is completed. Assets under construction are not subject to depreciation until the assets are taken into use.

2.10 LEASING – GROUP AS A LESSEE

Finance leases

Finance leases are leases under which the Group assumes most of the risk and return associated with the ownership of the asset. At the inception of the lease term, finance leases are recognized at the lower of the fair value and the present value of the minimum lease payments. The discount rate used to calculate the present value of the minimum lease payments is the interest rate implicit in the lease, if this is practicable to determine. If this cannot be calculated, the Group's incremental borrowing rate is used. Direct costs in connection with the establishment of a lease are included in the cost of the asset.

The same depreciation period is used as for the Group's other depreciable assets. If there is no reasonable certainty that the Group will obtain ownership at the end of the lease term, the asset is depreciated over the shorter of the lease term and the useful life of the asset.

Operating leases

A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership of the asset. Lease payments are classified as an operating expense and are recognized as an expense over the lease term.

2.11 FINANCIAL INSTRUMENTS

Financial assets and liabilities are recognized on the date the Group becomes a party to the instruments' contractual terms. A financial asset is derecognized when the contractual rights to the cash-flow expires or when the Group transfers substantially all the risk and rewards of the ownership of the financial asset. Financial liabilities are derecognized on the date the obligation specified in the contract are discharged, cancelled or expire.

In accordance with IAS 39, Financial instruments: Recognition and measurement, financial instruments within the scope of IAS 39 are classified in the following categories: at fair value with changes in value through profit or loss, held to maturity, loans and receivables, available for sale and other liabilities.

Financial assets and liabilities measured at fair value through profit or loss.

The Group has forward exchange contracts that are measured at fair value with gains or losses through profit or loss. Interest rate derivatives that do not qualify as hedges are measured at fair value with gains or losses through profit or loss. The financial instruments are classified as current assets or liabilities or non-current assets or liabilities based on the maturity of the financial instrument.

Gains or losses are recognized on an ongoing basis in the period they arise and are recognized in finance income or finance expense in the income statement.

Financial assets and liabilities measured at amortized cost.

Trade receivables, other non-current and current financial assets are valued at amortized cost based on expected cash flows. They are measured at fair value when measured for the first time, with the addition of any transaction costs.

Interest-bearing liabilities and other liabilities are measured at their fair value less associated transaction costs on the establishment date. In subsequent periods, financial liabilities are recognized at their amortized cost calculated using the effective interest rate.

Receivables and liabilities are non-derivative financial assets and liabilities with fixed or determinable payments that are not traded in one active market. They are classified as current assets or current liabilities, unless they fall due more than 12 months after the balance sheet date, in which case they are classified as non-current assets or non-current liabilities.

2.12 HEDGING

Before a hedging transaction is carried out, the Group's finance department assesses whether a derivative (or possibly another financial instrument in the case of a currency hedge) is to be used to:

• hedge the fair value of a recognized asset or liability or a firm commitment,
• hedge a future cash flow from a recognized asset, obligation, identified very probable future transaction or, in the case of a currency risk, a firm commitment or
• hedge a net investment in a foreign operation.

The Group's criteria for classifying a derivative or other financial instrument as a hedging instrument are as follows:

• the hedge is expected to be very effective in that it counteracts changes in the fair value of or cash flows to an identified asset - a hedging efficiency of 80-125% is expected,
• the effectiveness of the hedge can be reliably measured,
• there is adequate documentation when the hedge is entered into that the hedge is effective, among other things,
• for cash-flow hedges, the forthcoming transaction must be highly probable, and
• the hedge is evaluated regularly and determined actually to have been highly effective throughout the financial reporting periods for which the hedge was designated.

Cash flow hedges

The effective part of changes in the fair value of a hedging instrument is recognized in other comprehensive income. The ineffective part of the hedging instrument is recognized in profit and loss.

Should the expected transaction later lead to the recognition of a non-financial asset or liability or an expected transaction relating to a non-financial asset or liability become a firm commitment that is hedged by a fair value hedge, the associated accumulated gain or loss is removed from equity and included in the initial measurement of the non-financial asset or liability or the firm commitment.

Should the hedging of an expected transaction later lead to the recognition of a financial asset or liability, the associated gain or loss is reclassified from equity to the statement of comprehensive income during the same period(s) as the asset or liability affects the profit or loss.

For cash-flow hedges other than those mentioned above, associated accumulated gains and losses are reclassified from equity to the statement of comprehensive income during the same period(s) as the hedged expected transaction affects the profit or loss.

When a hedging instrument expires or is sold, terminated or exercised, or the enterprise cancels the hedging relationship despite the fact that the hedged transaction is still expected to take place, the accumulated gains or losses at that time remain in equity and are recognized in the statement of comprehensive income in accordance with the above guidelines when the transaction takes place.

Should the hedging relationship no longer meet the criteria for hedge accounting as specified above, accumulated gains and losses that are recognized in equity up to this date remain in equity and are recognized in the statement of comprehensive income in accordance with the above guidelines only when the transaction takes place.

If the hedged transaction is no longer expected to take place, accumulated unrealized gains or losses on the hedging instrument that have previously been recognized directly in equity are recognized in the statement of comprehensive income immediately.

Hedges of a net investment in a foreign operation

A hedge of a net investment in a foreign operation is accounted for in a similar way as a cash flow hedge. Foreign exchange gains or losses on the hedging instruments relating to the effective portion of the hedge are recognized directly in equity, while any foreign exchange gains and losses related to the ineffective portion are recognized in profit and loss. On disposal of the foreign entity, the cumulative value of foreign exchange gains or losses recognized directly in equity is transferred to profit and loss.

Derivatives that are not hedging instruments

Financial derivatives that are not recognized as hedging instruments are assessed at their fair value. Changes in the fair value are recognized in the income statement as they arise.

The Group uses forward currency contracts to reduce currency exposure, but do not use hedge accounting associated with the currency instruments.

2.13 INTANGIBLE ASSETS

Intangible assets acquired independently are recognized at cost. The cost of intangible assets acquired as part of acquisitions is recognized at fair value in the Group's opening balance. Capitalized intangible assets are recognized at cost less any amortization and impairment.

Internally generated intangible assets, with the exception of capitalized development expenses, are not capitalized, but expensed as incurred.

The economic life is either definite or indefinite. Intangible assets with a definite economic life are amortized over their economic life and tested for impairment if there are any indications. The amortization method and period are assessed at least once a year. Changes to the amortization method and/or period are accounted for as a change in estimate.

Intangible assets with an indefinite economic life are tested for impairment at least once a year, either individually or as a part of a cash-generating unit. Intangible assets with an indefinite economic life are not amortized. The economic life is assessed annually with regard to whether the assumption of an indefinite economic life can be justified. If it cannot, the change to a definite economic life is made prospectively.

Business combination and goodwill

Business combinations are accounted for using the acquisition method. For description of the measurement of noncontrolling interest, see below. Acquisition-related costs are expensed in the periods in which the costs are incurred and the services are received.

The consideration paid in a business combination is measured at fair value at the acquisition date and consist of cash and contingent consideration.

The contingent consideration is classified as a liability in accordance with IAS 39. Subsequent changes in the fair value are recognized in profit or loss. The assumptions for exercising the contingent contribution is described in note 5.

When acquiring a business are all financial assets and liabilities assumed for appropriate classification and designation in accordance with contractual terms, economic circumstances and pertinent conditions at the acquisition date. The acquired assets and liabilities are accounted for by using fair value in the opening group balance (unless other measurement principles should be applied in accordance to IFRS 3).

The initial accounting for a business combination can be changed if new information about the fair value at the acquisition date is present. The allocation can be amended within 12 months of the acquisition date. The non-controlling interest is set to the non-controlling interest's share of identifiable assets and liabilities. The measurement principle is done for each business combination separately.

Goodwill is recognized as the aggregate of the consideration transferred and the amount of any non-controlling interest, and deducted by the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. Goodwill is not depreciated, but is tested at least annually for impairment. In connection with this, goodwill is allocated to cash-generating units or groups of cash-generating units that are expected to benefit from synergies from the business combination.

If the fair value of the equity exceeds the acquisition cost in a business combination, the difference is recognized as income immediately on the acquisition date.

Patents and licences

Amounts paid for patents and licences are recognized in the balance sheet and are amortized on a straight-line basis over their useful life. The expected useful life of patents and licences varies between 6 and 17 years.

Technology development

Research costs are expensed as incurred. The development costs of projects (relating to the design and testing of new or improved products) are capitalized as intangible assets if all the following criteria are met:

• a) it is technically feasible to complete the asset for future use or sale;
• b) it is the management's intention to complete the asset and use or sell it;
• c) it is possible to use or sell the asset;
• d) it can be demonstrated how the asset will generate future economic benefits;
• e) technological and financial resources are available to complete the asset; and
• f) the costs can be reliably measured.

Other development costs are recognized as incurred. Development costs that have previously been expensed are not recognized in subsequent periods. Capitalized development costs are amortized on a straight-line basis over the estimated useful life of the asset. Capitalized development costs with an indefinite useful life or related to projects under development are tested annually for impairment in accordance with IAS 36.

Customer relationships

Purchased customer contracts have a finite useful life, and are recognized at cost less amortization. Customer contracts and technology are amortized using the straight-line method over their estimated useful lives.

2.14 IMPAIRMENT OF NON-FINANCIAL ASSETS

Intangible assets with an indefinite useful life are not amortized, but are tested annually for impairment. Items of property, plant and equipment and intangible assets are tested for impairment if there is reason to believe that future earnings do not justify the asset's carrying amount. The difference between the carrying amount and the recoverable amount is recognized as an impairment loss. The recoverable amount is the higher of the fair value less costs to sell and the value in use.

When testing for impairment, non-current assets are grouped at the lowest level at which it is possible to distinguish independent cash inflows (cash generating units). A cash generating unit is the smallest identifiable group of assets that generates cash inflows which are largely independent of the cash inflows from other assets or groups of assets. At each reporting date, the Group considers the possibility of reversing previous impairment losses on non-financial assets (except goodwill and other intangible assets with an indefinite useful life).

2.15 PROVISIONS

Provisions are recognized when the Group has an obligation (legal or self-imposed) as a result of a past event, and it is probable (more likely than not) that a financial settlement will take place as a result of this obligation and the size of the amount can be measured reliably. If the effect is significant, the provision is calculated by discounting estimated future cash flow using a discount rate before tax that reflects the market's pricing of the time value of money and, if relevant, risks specifically associated with the obligation.

A provision for guarantees is recognized when the underlying products or services are sold. The provision is based on historical information about guarantees and a weighting of possible outcomes according to the likelihood of their occurrence. A provision for onerous contracts is recognized when the Group's expected economic benefits under the contract are lower than the unavoidable costs of meeting the obligations under the contract.

2.16 EQUITY

Financial instruments are classified as liabilities or equity in accordance with the underlying economical realities.

Interest, dividend, gains and losses relating to a financial instrument classified as a liability will be presented as an expense or income. Amounts distributed to holders of financial instruments that are classified as equity will be recorded directly in equity.

(I) Own shares

In the event of a purchase of own shares, the purchase price and any directly associated costs are recognized as a change in equity. Own shares are reported as a reduction in equity. Gains or losses related to own share transactions are recognized directly in equity.

(II) Costs arising from equity transactions

Transaction costs directly related to an equity transaction are recognized directly in equity.

(III) Other equity

(a) Translation differences

Translation differences arise in connection with exchange-rate differences on consolidation of foreign entities, and are recognized in other comprehensive income. Exchange-rate differences in monetary amounts (liabilities or receivables) which are in reality a part of a company's net investment in a foreign entity are also included as translation differences.

If a foreign entity is sold, the accumulated translation differences linked to the entity are reversed and recognized in profit or loss in the same period in which the gain or loss on sale is recognized.

(b) Change in actuarial gains/losses (pension commitments)

Actuarial gains or losses resulting from changes in assumptions and basic data are recognized directly in other comprehensive income.

(c) Dividends

Proposed dividends are classified as other equity until they are approved by the general assembly of Hexagon Composites ASA.

(IV) Other paid-in capital – Share-based payments

The Group has a share based program for the senior executives. The fair value of the share options is measured at the date of the grant using the Black & Scholes model. The fair value of the issued options is expensed as an employee cost with a corresponding increase in other paid in capital over the vesting period which is over the agreed-upon future service time.

(V) Hedging reserve

Forward exchange contracts and interest rate derivatives that qualify as hedging instruments (cash flow hedges) are recognized at fair value, with a corresponding entry in total comprehensive income, and transferred to the revaluation reserve (net of tax). Realized gains or losses are recognized in profit or loss to offset gains or losses on the items that were hedged.

2.17 REVENUE RECOGNITION

The Group's main revenues come from the sale of its own products in the different segments:

• Low-Pressure LPG
• High-Pressure CNG & CHG

Revenue is recognized to the extent that it is probable that transactions will generate future economic benefits for the Group and the revenue can be reliably measured. Sales revenue is stated net of value added taxes and discounts.

Revenues from the sale of goods and services is recognized when delivery has taken place and the significant risks and return has been transferred. Royalties are recognized as revenue in accordance with the terms and conditions of the various royalty agreements. Interest income is recognized as interest accrues.

Dividends are recognized when the shareholders' right to receive the payment is established by the annual general assembly.

2.18 FOREIGN CURRENCY

Transactions in foreign currency

Foreign currency transactions are translated at the exchange rates existing at the date of the transactions. Monetary items denominated in foreign currencies are translated to functional currency using the exchange rates ruling at the balance sheet date. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated to functional currency using the exchange rates at the dates of the transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Exchange differences are recognized in profit or loss in the period in which they arise.

Foreign operations

Assets and liabilities of foreign operations with a functional currency that differs from the presentation currency are translated to reporting currency using the exchange rate on the balance sheet date. Income and expense from foreign operations is translated to reporting currency using the weighted average exchange rate (if the average does not provide a reasonable estimate of the cumulative effects of using the transaction rate, the transaction rate is used). Translation differences are recognized in other comprehensive income.

Translation differences arising from the translation of net investments in foreign operations, and from related hedged items, are classified as translation differences in other comprehensive income. Translation differences in other comprehensive income are transferred to the income statement on the disposal of a foreign operation.

2.19 EMPLOYEE BENEFITS

Defined benefit pension plans

Defined benefit plans are valued at the present value of accrued future pension benefits at the end of the reporting period. Pension plan assets are valued at their fair value.

The current service cost and net interest income/costs are recognized immediately and is presented as a payroll & social security expense in the income statement. Net interest income/costs is calculated by using the discount rate of the liability at the beginning of the period on the net liability. Changes in net pension liabilities as a result of payments of premiums and pension payments have been taken into consideration. The difference between the actual return and the accounted return is recognized continuously through other comprehensive income. The pension cost is affecting the payroll & social security costs in the income statement. Actuarial gains and losses, including changes in value, both for assets and liabilities, are recognized through other comprehensive income. Actuarial gains and losses are not reclassified over profit and loss.

Multi-employer plans

Some of the Norwegian employees participate in a new AFP pension scheme. The scheme is a defined benefit multiemployer pension plan, funded through premiums that are defined as a percentage of salary. The scheme's retirement benefit obligation and plan assets cannot be reliably measured and allocated at present. For accounting purposes, the scheme is treated as a defined contribution plan, with premium payments expensed as incurred, and no pension liability recognized.

Defined contribution pension plans

Pension premiums relating to defined contribution plans are recognized as an expense as they are incurred.

Share-based payment

The Group has a share based program for the senior executives. The share option program for the senior executives is settled in stocks. The fair value of the issued options is expensed over the vesting period which is over the agreed-upon future service period. The fair value of the share options is measured at grant date and calculated using the Black & Scholes model.

The cost of the employee share-based transaction is expensed over the average vesting period. The value of the issued options of the transactions that are settled with equity instruments (settled with the company's own shares) is recognized as salary and personnel cost in profit and loss and in other paid-in capital.

Social security tax on options is recorded as a liability and is recognized over the estimated vesting period.

2.20 GOVERNMENT GRANTS

Government grants, including the Skattefunn tax incentive scheme, are recognized when there is reasonable assurance that the Group will comply with the conditions attaching to them, and that the grants will be received. Grants are recognized as deductions against the cost that they are intended to compensate. Investment grants are capitalized and recognized systematically over the asset's useful life. Investment grants are recognized either as deferred income or as a deduction of the asset's carrying amount. The Group currently has grants with the United States Department of Energy which is recognized as grant income.

2.21 INCOME TAXES

The tax expense consists of the tax payable and changes to deferred tax. Deferred tax/tax assets are calculated on all differences between the book value and tax value of assets and liabilities, with the exception of:

• temporary differences linked to goodwill that are not tax deductible
• temporary differences related to investments in subsidiaries, associates or joint ventures when the Group controls when the temporary differences are to be reversed and this is not expected to take place in the foreseeable future.

Deferred tax assets are recognized when it is probable that the Group will have a sufficient profit for tax purposes in subsequent periods to utilize the tax asset. The Group recognize previously unrecognized deferred tax assets to the extent it has become probable that the Group can utilize the deferred tax asset. Similarly, the Group will reduce a deferred tax asset to the extent that the Group no longer regards it as probable that it can utilize the deferred tax asset.

Deferred tax and deferred tax assets are measured on the basis of the expected future tax rates applicable to the companies in the Group where temporary differences have arisen.

Deferred tax assets and liabilities are recognized at nominal value and are classified as non-current assets and non-current liabilities in the balance sheet. Deferred tax is presented as a gross amount for the geographical countries in which the Group operates.

Deferred tax is recognized directly in other comprehensive income if the tax items relate to items recognized in other comprehensive income. Deferred tax is recognized directly in equity if the tax items relate to items recognized directly in equity.

2.22 SEGMENTS

For management purposes, the Group is organized into different business areas according to product/service range. The Group's segment reporting format is business areas. Financial information relating to segments and geographical areas is presented in note 4.

In segment reporting, internal gains on sales between segments are eliminated.

2.23 CONTINGENT LIABILITIES AND CONTINGENT ASSETS

Contingent liabilities are not recognized in the annual accounts. Significant contingent liabilities are disclosed, with the exception of contingent liabilities that are remote to incurred.

Contingent assets are not recognized in the annual accounts but are disclosed if there is a certain probability that a benefit will be added to the Group.

2.24 EVENTS AFTER THE BALANCE SHEET DATE

New information on the Group's financial position on the end of the reporting period which becomes known after the reporting period is recorded in the annual accounts. Events after the reporting period that do not affect the Group's financial position on the end of the reporting period but which will affect the Group's financial position in the future are disclosed if significant.

2.25 NEW ACCOUNTING STANDARDS

The accounting policies adopted are consistent with those of the previous financial year, except for IAS 7 Statement of Cash Flows which has introduced a disclosure requirement relating to changes in financial liabilities arising from financing activities, and specified in note 20. The change does not entail any changes in the recognition and measurement of financial liabilities. There is no other new accounting standards or amendments in IFRS in 2017 which has had any effect for the Group's financial statements.

2.26 NEW AND AMENDED IFRS AND IFRICS WITH FUTURE EFFECTIVE DATES

Standards and interpretations that are issued up to the date of issuance of the consolidated financial statements, but not yet effective, are disclosed below. The Group's intention is to adopt the relevant new and amended standards and interpretations when they become effective, subject to EU approval before the consolidated financial statements are issued.

IFRS 9 Financial Instruments: Classification and Measurement

In July 2014, IASB published the last sub-project for IFRS 9 and the standard has now been completed. IFRS 9 constitutes amendments linked to the classification and valuation, hedge accounting and impairment. IFRS 9 will replace IAS 39 Financial Instruments - Recognition and Valuation. Those parts of IAS 39 which have not been changed as part of this project have been transferred and included in IFRS 9. The standard will be implemented retrospectively, except for hedge accounting, but preparing comparative figures is not a requirement. The rules for hedge accounting should mainly be implemented prospectively but with some exceptions. The standard has accounting effect from 1 January 2018. Overall, the Group expects no significant impact of implementing IFRS 9, this is primarily based on that the Group does not uses hedge accounting. The classification and measurement of the Group's balance sheet financial assets and liabilities is

expected to not change, and still be measured at amortized cost under IFRS 9. The Group expects not a significant impact on new IFRS 9 requirements on impairment of trade receivables due to its history of no significant losses on trade receivables.

IFRS 15 Revenue from Contracts with Customers

IFRS 15 was issued in May 2014, and amended in April 2016, and establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.

The Group plans to adopt the new standard on the required effective date using the modified retrospective method. The standard has accounting effect from 1 January 2018.

The Group's main revenues come from the sale of its own mass-produced standard products in the segments Lowpressure cylinders (LPG) and High-pressure cylinders (CNG and CHG). The products are mainly sold in relation to separate identifiable contracts with customers.

For normal sale contracts with customers of cylinders it is expected that this will be the only performance obligation and it is not expected to have any impact on the Group's profit or loss for the implementation of IFRS 15. The Group expects the revenue recognition to occur at a point in time when control of the asset is transferred to the customer, generally on delivery of the goods. These revenue streams accounts for over 90% of the Groups total revenue.

Some contracts with customers provide trade discounts or volume rebates. Currently, the Group recognizes revenue from the sale of goods measured at the fair value of the consideration received or receivable, net of allowances, trade discounts and volume rebates. If revenue cannot be reliably measured, the Group defers revenue recognition until the uncertainty is resolved. Such provisions give rise to variable consideration under IFRS 15, and will be required to be estimated at contract inception. IFRS 15 requires the estimated variable consideration to be constrained to prevent over-recognition of revenue. The Group continues to assess individual contracts to determine the estimated variable consideration and related constraint. Based on analysis of open contracts 31.12.2017, the Group estimates an effect of NOK 2.9 million in increased revenue 2017 related to variable considerations under IFRS 15. Besides this, the Group expects that application of the constraint will not result in any significant changes in revenue recognition.

The Group provides warranties for general repairs and does not provide extended warranties or maintenance services in its contracts with customers. As such, the Group expects that such warranties will be assurance-type warranties which will continue to be accounted for under IAS 37 Provisions, Contingent Liabilities and Contingent Assets consistent with its current practice.

To some extent the Group provides other services. These services are normally sold on their own. Under IFRS 15, allocation will be made based on relative stand-alone selling prices. The Group has also entered into funded contracts with a limited number of customers for development services. The Group recognizes revenue on development-in-progress as the services are performed. The Group have concluded that these services are satisfied over time given that the customer simultaneously receives and consumes the benefits provided by the Group. Consequently, under IFRS 15 the Group would continue to recognize revenue for these service contracts over time rather than at a point of time.

IFRS 15 provides presentation and disclosure requirements, which are more detailed than under current IFRS. The presentation requirements represent a significant change from current practice and significantly increases the volume of disclosures required in Group's financial statements. Many of the disclosure requirements in IFRS 15 are completely new. The Group believes it has the necessary systems and procedures to collect and disclose the required information.

In summary, the impact of IFRS 15 adoption is expected to be, as follows (NOK 1 000):

Impact on the statement of profit or loss (increase/- decrease) for 2017

Sale of goods	2 900
Income tax expense	-696
Net impact on profit for the year	2 204
Impact on equity (increase/- decrease) as of 31 December 2017
Provisions	2 900
Deferred tax liabilities	-696
Net impact on equity	2 204

IFRS 16 Leasing

IASB has run a joint program with FASB with the aim of establishing a new leasing standard. IFRS 16 Lease replaces the existing IFRS standard for leases, IAS 17 Leases. IFRS 16 sets out principles for recognition, measurement, presentation and disclosure of leases for both parties in a lease, i.e. the customer (lessee) and provider (lessor). The new standard requires that the lessee includes assets and liabilities for most leases, which is a significant change from current policies. For lessors, IFRS 16 essentially continues existing principles from IAS 17. In line with this, a lessor shall continue to classify their leases as operating leases or finance leases and report these two types of leases separately.

The standard is expected to have accounting effect from 1 January 2019 and will be implemented using either the full retrospective or modified retrospective method. In note 23 the Group has a total of MNOK 290 related to future minimum lease payments relating to fixed term operational leases as of 31.12.2017. It is assumed that some of these operational leases will be classified as financial leases according to IFRS 16 at implementation. In 2018, the Group plans to start the assessment of the potential effect of IFRS 16 on its consolidated financial statements.

IFRS 10 Consolidated Accounts and IAS 28 Investments in Associates and Joint Ventures

The amendment addresses an inconsistency between the requirements in IFRS 10 and IAS 28 in dealing with the sale or contribution of assets between an investor and the investor's associates or joint ventures. The main consequence of the amendment is that a full gain or loss are recognized when a transaction involves a business (whether it is housed in a subsidiary or not). A partial gain or loss is recognized when a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary.

IASB has postponed the effective date of the amendment indefinitely. The Group has made a policy choice, when control is lost and the reminder of the interest is retained through a joint venture of associate, to partly recognize the gain or loss as to that attributable to the other party of which control is lost. If the above amendment becomes effective the Group will assess any impact on the financial statements.

Other issued standards and interpretations, that are not yet effective, are not applicable for the Group, and will not have an impact on the financial statements.

NOTE 3 ESTIMATION UNCERTAINTY

In the process of applying the Group's accounting policies in accordance with IFRS, management has made several judgements and estimates. All estimates are assessed to the most probable outcome based on the managements best knowledge. Estimates and assumptions are regularly reassessed and are based on historical experience and other factors, including forecast events that are considered probable under current circumstances.

The Group prepares estimates and makes assumptions about the future. The accounting estimates based on this process are, by definition, rarely completely in line with the final outcome. Estimates and assumptions represent a risk of material changes in the carrying amounts of assets and liabilities, equity over the next financial year.

The Group's most important accounting estimates are related to the following items:

• Fair value of assets and liabilities acquired in a business combination including earn out provision.
• Depreciation and impairment of property, plant & equipment and intangible assets
• Development cost
• Impairment of goodwill
• Product warranty provisions
• Share-based payments

Fair value of assets and liabilities at the time of acquisition

The Group are required to allocate the purchase price of acquired companies to the assets acquired and liabilities assumed based on their estimated fair values. The Group have engaged third-party appraisal firms to assist the Group in determining the fair values of the assets acquired and liabilities assumed. Such valuations require management to make significant judgments in selecting valuation methods, estimates and assumptions. The significant purchased intangible assets recorded by Hexagon Composites include customer relationships, trade name and technology. Critical estimates in the evaluations for such intangible assets include, but are not limited to, estimated average customer relationship based on customer attrition, applying a relief from royalty model using an appropriate royalty rate.

In relation to the purchase of Hexagon xperion in 2016 an earn-out payment provision was recognized contingent to future revenue developments through 2017 and 2018. This contingent consideration was valued at fair value at the acquisition date as part of the business combination. The value of the earn-out is estimated to MNOK 113.2 as at 31.12.2017 (MNOK 103.4 as at 31.12.2016) based on 100% achievement. Future developments in 2018 may require further revisions to the estimate.

Management's estimates of fair value and useful lives are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. Management's fair value estimates are based on reasonable, but not entirely certain, assumptions. See also note 5 and 26.

Depreciation and impairment of property, plant & equipment and intangible assets

Group management determines the useful lives and depreciation rates for items of property, plant & equipment and intangible assets. The expected useful life of the Group's production equipment is largely dependent on technological development. The present depreciation period is 3-20 years, but an uncertainty exists for the interval between 10-20 years.

Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The Group has recognized an impairment of MNOK 0.7 (MNOK 6.9), principally related to specific production equipment. Impairment in 2016 was related to capitalization of ERP solutions. See also note 10.

Development costs

The Group capitalizes development costs for a project in accordance with the Groups accounting policy. Initial capitalization of costs is based on management's judgement that technological and economic feasibility is confirmed, usually when a product development project has reached a defined milestone according to project plan. In determining the amounts to be capitalized, management makes assumptions regarding the expected future cash generation of the project, discount rates to be applied and the expected period of benefits. At 31 December 2017, the carrying amount of capitalized development costs was NOK 52 705 (51 288) thousand. For criteria for recognition, see note 2.13 and note 11.

There is uncertainty about the date for when the criteria for recognition of intangible assets are satisfied and there is uncertainty associated with the valuation and allocation of the cost of acquisition for intangible assets

Impairment of goodwill

Recognized goodwill is assessed annually for impairment. Recoverable amounts from cash-generating units are calculated based on their value in use. There is uncertainty associated with the assumptions used as a basis in the preparation of budgets for the calculation of value in use. These calculations require the use of estimates and assumptions about future income and expense trends. The recoverable amount is sensitive to the discount rate used for the discounted cash flow model as well as the expected future cash-inflows and the growth rate.

See also note 11 for further information on impairment testing of goodwill.

Product warranty provisions

Management estimates the warranty provision using information on historical warranty costs and other relevant information relevant to future warranty claims. Factors that can influence estimated liabilities include the results of productivity and quality initiatives, as well as prices of parts and labor costs. See also note 19.

Share-based payments

Estimating fair value for share-based payment transactions requires determination of the most appropriate valuation model. This estimate also requires determination of the most appropriate inputs to the valuation model including the expected life of the share option, volatility and dividend yield and making assumptions about them. For the measurement of the fair value of the Group's share option program at the grant date, the Group uses the Black & Scholes model. The assumptions and models used for estimating fair value for share-based payment transactions are disclosed in Note 27.

NOTE 4 SEGMENT INFORMATION

The Group's operations are divided into two strategic business areas, which are organized and managed separately. These two business areas are also defined as the groups reportable operating segments as the different business areas sell different products, address different customer groups and have different risk profiles.

THE HEXAGON COMPOSITES GROUP IS DIVIDED INTO THE FOLLOWING REPORTABLE OPERATING SEGMENTS

a) Low-Pressure LPG - Hexagon Ragasco

b) High-Pressure CNG & CHG – Hexagon Lincoln / Hexagon Raufoss / Hexagon xperion / Agility Fuel Solutions / Hexagon Technology

Hexagon Ragasco manufactures low-pressure cylinders, i.e. cylinders for propane gas.

Hexagon Lincoln / Hexagon Raufoss / Hexagon xperion and Agility Fuel Solutions develop and supply complete storage and transport solutions for compressed natural gas (CNG) and compressed hydrogen gas (CHG) to the bus and automotive industry and for bulk transport of compressed gas.

The President Low-Pressure Area LPG and the President High-Pressure Area are the Chief Operating Decision Maker's (CODM's) and monitors the operating results of their respective business areas separately for the purpose of making decisions about resource allocation and performance assessment.

No operating segments have been aggregated to form the above reportable operating segments. Transactions between the segments are based on arm's-length basis.

OTHER INFORMATION

The Group's customer base is relatively fragmented in terms of size and concentration such that it is not dependent upon any one single customer. In 2017 the High-Pressure business segment had one customer group with sales that constituted more than 10% of the Group's annual sales. Sales to the customer totalled NOK 273 674 thousand. In 2016 the High-Pressure business segment had another customer group with sales that constituted more than 10% of the Group's annual sales. Sales to that customer totalled NOK 133 401 thousand in 2016.

GEOGRAPHICAL AREAS

The Group's activities are divided into the following regions: Europe, North America, South-East Asia, Middle East, Other and Norway.

Transactions in the different segments have been eliminated.

INTERNAL RESTRUCTURING 2016

At 3 October 2016, Hexagon Composites ASA Group completed its merger transaction with Agility Fuel Systems Inc. Hexagon Composites ASA contributed its existing CNG Automotive heavy and medium duty business and Agility Fuel Systems contributed its natural gas fuel systems solutions business into a newly formed equally owned company Agility Fuel Solutions. In addition to the contribution of the CNG business, Hexagon Composites ASA Group also made a cash payment of MUSD 17.5 (approximately MNOK 151.0) for the 50% interest in Agility Fuel Solutions.

The merger resulted, at the date of loss of control 3 October 2016, in a de-recognition of the wholly owned CNG business. The fair value of the newly formed entity was MNOK 2 688 of which Hexagon Composites ASA Group's 50% share was MNOK 1 344. Hexagon Composites ASA Group made an accounting policy choice to recognize 50% of the excess value and presented this gain as a separate line in the financial statements included in operating profit. The de-recognition resulted in a net accounting gain of MNOK 348.

The investment in Agility Fuel Solutions is accounted for according to the equity method from 3 October 2016 (See note 5 and 26).

With effect from 4 October 2016 Hexagon Composites acquired Hexagon xperion (xperion Energy & Environment GmbH) and its subsidiary companies. Hexagon xperion includes High-Pressure operations for light-duty vehicles, heavy-duty trucks, transit buses and gas transportation solutions at its modern production plants in Kassel, Germany and Ohio, USA. (See note 5)

BUSINESS SEGMENT DATA 2017

(NOK 1 000)	CNG & CHG	HIGH PRESSURE	LOW-PRESSURE	LPG UNALLOCATED		ELIMINATION	CONSOLIDATED 2017
OPERATING INCOME FROM EXTERNAL CUSTOMERS:
Sale of goods		763 402	643 784		753	0	1 407 939
Other operating income		21 458	0		0	0	21 458
Total operating income from external customers		784 859	643 784		753		1 429 397
Internal transactions		1 622	10 535	37 486		-49 643	0
Total operating income		786 481	654 319	38 239		-49 643	1 429 397
Operating profit for segment before depreciation/amortization (EBITDA)		47 245	143 964	-17 186			174 022
Operating profit for segment (EBIT)		-8 562	125 699	-17 845			99 291
Profit/loss from associates and joint ventures		-16 667					-16 667
Net financial items							34 397
Tax expense							-21 245
Profit/loss for the year							69 472
Segment assets		1 999 613	456 140	15 855		-80 311	2 391 298
Segment liabilities		1 491 019	358 492	128 858		-999 512	978 857
Investments in assets for the year		23 213	55 369		29	0	78 611
Depreciation/amortization/impairment		55 807	18 265		659		74 731
GEOGRAPHICAL INFORMATION 2017
(NOK 1 000)	EUROPE	NORTH AMERICA	SOUTH EAST ASIA	MIDDLE EAST	OTHER	NORWAY	CONSOLIDATED 2017
Income divided among customer locations from external customers	680 217	405 089	57 355	193 287	12 281	81 170	1 429 397
Non-current assets 1)	488 404	84 254				239 230	811 888

Investments in assets for the year 4 268 8 065 66 278 78 611

1) Non-current assets for this purpose consists of property, plant & equipment and intangible assets

BUSINESS SEGMENT DATA 2016

(NOK 1 000)	HIGH PRESSURE CNG & CHG	LOW-PRESSURE	LPG UNALLOCATED	ELIMINATION	CONSOLIDATED 2016
OPERATING INCOME FROM EXTERNAL CUSTOMERS:
Sale of goods	727 081	493 206	224	0	1 220 511
Total operating income from external customers	727 081	493 206	224		1 220 511
Internal transactions	1 219	8 964	34 361	-44 544	0
Total operating income	728 300	502 170	34 585	-44 544	1 220 511
Operating profit for segment before depreciation/amortization (EBITDA) 1)
	302 400	98 385	-25 908		374 877
Operating profit for segment (EBIT)	248 430	77 935	-27 098		299 266
Profit/loss from associates and joint ventures	-1 450				-1 450
Net financial items					-14 050
Tax expense					103 563
Profit/loss for the year					208 303
Segment assets	2 082 797	389 571	42 977	-90 498	2 424 847
Segment liabilities	1 533 370	274 883	38 246	-754 823	1 091 677
Investments in assets for the year	577 865	20 918	87		598 871
Depreciation/amortization/impairment	53 970	20 451	1 190		75 611

GEOGRAPHICAL INFORMATION 2016

(NOK 1 000)	EUROPE	NORTH AMERICA	SOUTH EAST ASIA	SOUTH AMERICA	OTHER	NORWAY	CONSOLIDATED 2016
Income divided among customer locations from external customers	507 482	545 774	27 311	42 702	27 718	69 526	1 220 511
Non-current assets 2)	476 279	112 765				202 344	791 389
Investments in assets for the year	480 252	72 361				46 257	598 871

1) Of the unallocated cost, MNOK 16.0 relates to acquisition costs of the xperion group

2) Non-current assets for this purpose consists of property, plant & equipment and intangible assets

NOTE 5 CHANGES IN THE GROUP'S STRUCTURE

PURCHASE OF XPERION GROUP IN 2016

With effect from 4 October 2016 Hexagon Composites acquired Hexagon xperion GmbH (xperion Energy & Environment GmbH) and its subsidiary companies. Hexagon xperion includes High-Pressure operations for light-duty vehicles, heavyduty trucks, transit buses and gas transportation solutions at its modern production plants in Kassel, Germany and Ohio, USA.

The fair value of the identifiable assets and liabilities of xperion group as at the date of acquisition were:

XPERION GROUP

(NOK 1 000)	FAIR VALUE RECOGNIZED ON ACQUISITION
ASSETS
Property, plant and equipment	60 306
Intangible assets	118 055
Cash	23 651
Inventories	62 092
Deferred tax asset	7 990
Trade accounts receivable	18 172
Total assets	290 266
LIABILITIES
Long term liabilities	30 975
Short term liabilities	168 646
Deferred tax liabilities	30 256
Total equity and liabilities	229 877
Net identifiable assets and liabilities at fair value	60 389
Goodwill	335 800
Purchase consideration	396 189
Accrued for earn-out	-103 353
Purchase consideration transferred / Paid in cash	292 836
Analysis of cash flows on acquisition:

Net cash acquired with the subsidiary	23 651
Cash paid	-292 836

An earn-out payment is contingent on future revenue development through 2017 and 2018 and may become payable within 2019. The earn-out is designed to be mutually beneficial to both parties. The fair value of the earn-out was estimated to be MEUR 11.5 (MNOK 103.4 as at 31.12.2016 and MNOK 113.2 as at 31.12.2017) based on 100% achievement. Debt totalling MEUR 9.5 (approximately MNOK 85.9) was purchased as part of the transaction.

In 2016 xperion group contributed from the date of acquisition to the Group's revenues and profit before tax by MNOK 71.1 and MNOK -7.1 respectively. If the acquisition had occurred at the beginning of 2016, revenues for 2016 and profit before taxes for 2016 for the Group would have been MNOK 1 479 and MNOK 281 respectively.

In the Group's profit for 2016, xperion Group was included from the acquisition date.

The goodwill recognized is primarily attributed to the expected synergies and other benefits from combining the assets and activities of the xperion group with the Hexagon Group. The goodwill is not deductible for income tax purposes.

Transaction costs of MNOK 16.0 was expensed and included in administrative expenses in the statement of profit and loss and as a part of operating cash flows in the statement of cash flows.

MERGER OF HEXAGON COMPOSITES CNG AUTOMOTIVE PRODUCTS DIVISION AND AGILITY FUEL SYSTEMS IN 2016:

At 3 October 2016, Hexagon Composites ASA Group completed its merger transaction with Agility Fuel Systems Inc. Hexagon Composites ASA contributed its existing CNG Automotive heavy and medium duty business and Agility Fuel Systems contributed its natural gas fuel systems solutions business into a newly formed equally owned company Agility Fuel Solutions. In addition to the contribution of the CNG business, Hexagon Composites ASA Group also made a cash payment of MUSD 17.5 (approximately MNOK 151) for the 50% interest in Agility Fuel Solutions.

The merger resulted, at the date of loss of control 3 October 2016, in a de-recognition of the wholly owned CNG business. The fair value of the newly formed entity was MNOK 2 688 of which Hexagon Composites ASA Group's 50% share was MNOK 1 344. Hexagon Composites ASA Group made an accounting policy choice to only recognize a gain attributable to the other party, meaning only 50% of the gain was recognized. The gain is presented as a separate line in the financial statements included in operating profit. The de-recognition resulted in a net accounting gain of MNOK 348 after transaction cost on MNOK 32.

The investment in Agility Fuel Solutions is accounted for according to the equity method from 3 October 2016. Further information about the investment can be found in note 26.

NOTE 6 NET FINANCIAL ITEMS

(NOK 1 000)	2017	2016
Interest income	1 144	5 109
Return on interest rate derivative with actual gains or losses through profit and loss	0	4 173
Unrealized gains from forward exchange contracts with actual gains or losses through profit and loss	0	23 238
Other finance income	0	649
Foreign exchange items	78 686	66 631
Total finance income	79 831	99 800
Loss on exchange items	90 202	61 250
Unrealized loss on forward exchange contracts and interest rate swaps with actual gains or losses through profit and loss	10 645	0
Cost of interest on loans etc.	8 986	10 161
Other finance expense	4 395	14 339
Total finance expense	114 228	85 750
Net financial items	-34 397	14 050

NOTE 7 TAX

TAX EXPENSE
(NOK 1 000) NOTE	2017	2016
Income tax payable in the income statement	56 823	-28 804
Change in deferred tax in income statement	-78 068	132 367
Tax expense	-21 245	103 563
Income tax payable in the balance sheet	41 966	12 677
Prepaid tax overseas in the balance sheet 15	-3 073	-44 616
Settled tax overseas	17 930	3 135
Total income tax payable in the income statement	56 823	-28 804
Nominal tax rates in Norway	24 %	25 %
Profit before tax	48 227	311 866
Tax based on nominal tax rate in Norway	11 575	77 966
Other differences relating to foreign subsidiaries	1 392	29 675
Share of profit/loss from associates	4 000	-363
Other non-taxable income and non-deductible expenses	2 375	-3 958
Effect of changes in tax rate	-40 586	242
Tax expense	-21 245	103 563

DEFERRED TAX ASSETS AND DEFERRED TAX LIABILITIES

	BALANCE SHEET		CHANGE IN DEFERRED TAX IN INCOME STATEMENT
(NOK 1 000)	2017	2016	2017	2016
DEFERRED TAX ASSET
Pension	-416	-179	88	28
Loss carryforwards	-24 806	-5 805	-19 001	-9
Inventories and trade receivables	-2 499	-4 560	2 061	7 511
Derivatives	-1 250	0	-1 250	5 314
Provisions for liabilities/other current liabilities	-12 846	-20 830	7 984	-19 044
Other	-13 446	-22 850	9 404	-9 637
Deferred tax asset– gross	-55 264	-54 225	-714	-15 837
DEFERRED TAX LIABILITIES
Property, plant & equipment	6 958	16 483	-9 525	15 172
Derivatives	0	1 250	-1 250	1 250
Provisions for liabilities/other current liabilities	149 559	216 138	-66 579	198 264
Deferred tax liabilities – gross	156 517	233 871	-77 354	184 342
Net recognized deferred tax liabilities/assets (-)	101 253	179 645	-78 068	168 505
Change in deferred tax from purchase of companies			0	-38 246
Change in deferred tax due to carved-out activities			0	2 108
Net change in deferred tax in income statement			-78 068	132 367
CARRYING AMOUNTS
Deferred tax asset	-7 639	-17 644
Deferred tax liabilities	108 892	197 289
Net recognized deferred tax assets/deferred tax liabilities	101 253	179 645

The effect of changes in tax rate for 2018 in USA and Norway resulted in tax income in 2017 on MNOK -40.0 related to USA and MNOK -0.5 related to Norway.

The Group has a total loss carried forward of MNOK 118.2 (MNOK 33.1) as of 31 December 2017, of which MNOK 118.2 (MNOK 33.1) is related to foreign activities.

Deferred tax assets are recognized when it is probable that the Group will have taxable profit available against which the tax assets can be utilized.

DEFERRED TAX RECOGNIZED IN THE STATEMENT OF COMPREHENSIVE INCOME ARE AS FOLLOWS

(NOK 1 000)	2017	2016
Actuarial gains/losses, pensions	324	6
Derivatives	0	0
Total	324	6

NOTE 8 EARNINGS PER SHARE

Earnings per share is calculated by dividing profit for the year by the weighted average number of shares outstanding.

To calculate diluted earnings per share, the profit and weighted average number of shares outstanding is adjusted to accommodate all dilution effects associated with share options. All share options are taken into consideration in the "denominator", and adjustments are made for recognized option expenses in the numerator. In the calculations, share options are considered to have been converted at the grant date. Redeemed options are included from the date of issue.

(NOK 1 000) NOTE	2017	2016
PROFIT/LOSS FOR THE YEAR FLOWING TO HOLDERS OF
ORDINARY SHARES
Profit/loss for the year	69 472	208 303
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 31.12 17
Ordinary shares issued 01.01	166 627 868	133 294 868
Own shares	-1 166 075	-1 166 075
Issued new shares	0	33 333 000
Outstanding number of shares 31.12	165 461 793	165 461 793
Weighted average number of shares outstanding 31.12	165 461 793	148 795 293
Profit/loss per share	0.42	1.40
17 DILUTED NUMBER OF SHARES OUTSTANDING 31.12
Ordinary shares issued 01.01	166 627 868	133 294 868
Own shares	-1 166 075	-1 166 075
Issued new shares	0	33 333 000
Effect of employee options issued	3 465 000	1 850 000
Outstanding shares 31.12 adjusted for dilution effects	168 926 793	167 311 793
Weighted average number of shares outstanding 31.12 adjusted for
dilution effects	168 119 293	150 207 793
Diluted profit/loss per share	0.47	1.42

NOTE 9 PAYROLL COSTS AND NUMBER OF EMPLOYEES

(NOK 1 000)	NOTE	2017	2016
Salaries/fees 1)		285 292	303 327
Bonus/profit-sharing		8 094	5 524
Pension expense, defined-benefit plans	18	768	572
Pension expense, defined-contribution plans	18	16 578	16 846
Other social security costs		34 717	39 353
Payroll costs 2)		345 449	365 622
Average number of full-time equivalents:		378	437
GROUP MANAGEMENT		10	10
LOW-PRESSURE LPG
Norway		143	126
Sweden		1	2
Russia		5	5
USA		3	3
HIGH-PRESSURE CNG & CHG 3)
Norway		12	21
USA		102	246
Germany		102	25
Total of		378	437

1) Capitalized payroll costs related to technology development projects amounted to MNOK 2.6 in 2017 and MNOK 2.6 in 2016.

2) Payroll costs in 2017 includes NOK 16.8 million of funding credits.

3) The number of full-time equivalents in 2016 was influenced by the carve-out of the CNG business 3 October 2016 and the acquisition of the xperion group 4 October 2016.

NOTE 10 PROPERTY, PLANT & EQUIPMENT

(NOK 1 000)	LAND AND BUILDINGS	PLANT AND EQUIPMENT	FIXTURES & FITTINGS, VEHICLES	ASSETS UNDER CONSTR UCTION	2017 TOTAL
COST OF ACQUISITION
Cost of acquisition 01.01.2017	52 618	534 459	66 466	22 901	676 445
Additions	5 734	24 227	18 162	20 706	68 830
Transfer from assets under construction	-407	3 871	1 823	-5 288	0
Disposals/scrap	-34	-1 682	-14 340	-6 711	-22 767
Translation differences	-467	-4 631	-406	-396	-5 899
Cost of acquisition 31.12.2017	57 445	556 245	71 706	31 212	716 608
ACCUMULATED DEPRECIATION AND IMPAIRMENT Accumulated depreciation 01.01.2017	23 056	362 661	23 126	7 051	415 895
Depreciation for the year	4 155	35 821	9 913	0	49 889
Impairment	0	637	106	0	743
Disposals/scrap	-14	0	-1 011	-6 711	-7 736
Translation differences	-33	-2 435	75	-339	-2 732
Accumulated depreciation and impairment 31.12.2017	27 164	396 684	32 209	0	456 058
Net carrying amount as of 31.12.2017	30 280	159 561	39 497	31 212	260 550
Of which pledged					0
Amortization rate	5-10 %	7-33 %	10-33 %	None
Useful life	10-20 years	3-15 years	3-10 years
Depreciation method	Straight-line	Straight-line	Straight-line

(NOK 1 000)	LAND AND BUILDINGS	PLANT AND EQUIPMENT	FIXTURES & FITTINGS, VEHICLES	ASSETS UNDER CONSTR UCTION	2016 TOTAL
COST OF ACQUISITION
Cost of acquisition 01.01.2016	53 004	686 552	47 394	127 570	914 520
Additions	1 223	12 447	1 334	52 508	67 511
Transfer from assets under construction	1 917	55 748	16 378	-74 043	0
Disposals/scrap	0	-43 074	-1 350	0	-44 424
Additions from purchase of companies	9 002	42 375	11 625	0	63 001
Disposals carved-out activities	-12 178	-213 263	-8 547	-80 940	-314 928
Translation differences	-350	-6 325	-367	-2 193	-9 236
Cost of acquisition 31.12.2016	52 618	534 459	66 466	22 901	676 445
ACCUMULATED DEPRECIATION AND IMPAIRMENT
Accumulated depreciation 01.01.2016	24 213	457 081	23 232	0	504 527
Depreciation for the year	4 053	48 744	6 705	0	59 503
Impairment	0	0	0	6 895	6 895
Disposals/scrap	0	-43 000	-1 350	0	-44 350
Disposals carved-out activities	-5 127	-98 092	-5 395	0	-108 614
Translation differences	-83	-2 071	-67	155	-2 065
Accumulated depreciation and impairment 31.12.2016	23 056	362 661	23 126	7 051	415 895
Net carrying amount as of 31.12.2016	29 561	171 798	43 340	15 850	260 550
Of which pledged					0
Amortization rate	5-10 %	7-33 %	10-33 %	None
Useful life	10-20 years	3-15 years	3-10 years
Depreciation method	Straight-line	Straight-line	Straight-line

1) Assets under construction. Hexagon Lincoln, Hexagon Ragasco and Hexagon xperion have assets under construction totalling NOK 31 212 thousand (15 850 thousand).

2) Construction loan interest expenses

No construction loan interest expenses were recognized in 2016 or 2017.

3) The calculated residual value on property, plant & equipment totalled NOK 6 000 thousand as of 31.12.2017 and NOK 6 000 thousand as of 31.12.2016.

4) Impairment

In 2017 the Group recognized an impairment of NOK 743 thousand. The impairment was principally related to specific pieces of equipment. The impairment was recorded as a part of the annual impairment review. The productivity of the machines was deemed not to be as high as originally anticipated and therefore an impairment was recognized.

In 2016 the Group recognized an impairment of NOK 6 895 thousand, principally related to capitalization of ERP solutions in Hexagon Lincoln. The benefit of the solutions is deemed not to be as high as originally anticipated due to organizational changes and therefore an impairment was recognized.

NOTE 11 INTANGIBLE ASSETS

HEXAGON COMPOSITES ASA HAS THE FOLLOWING PURCHASED AND OWN-DEVELOPED INTANGIBLE ASSETS

(NOK 1 000)	GOODWILL	PATENTS AND LICENCES	TECHNOLOGY AND DEVELOPMENT	CUSTOMER RELATION SHIPS	2017 TOTAL
COST PRICE
Opening balance 01.01.2017	373 213	16 974	98 406	120 449	609 042
Additions	0	241	9 540	0	9 781
Disposals	0	-1 476	0	0	-1 476
Translation differences	28 220	624	0	8 461	37 306
Cost of acquisition 31.12.2017	401 433	16 364	107 946	128 911	654 653
ACCUMULATED DEPRECIATION AND IMPAIRMENT
Opening balance 01.01.2017	0	9 533	47 118	21 554	78 204
Depreciation for the year	0	3 307	8 123	12 669	24 099
Disposals	0	0	0	0	0
Translation differences	0	123	0	888	1 012
Accumulated depreciation and impairment 31.12.2017	0	12 963	55 241	35 111	103 315
Net carrying amount 31.12.2017	401 433	3 400	52 705	93 800	551 338
Amortization rate	None	6-34 %	5-20 %	11-14 %
Useful life	Indefinite	3-17 years	5-20 years	7-9 years
Depreciation method	None	Straight-line	Straight-line	Straight-line

HEXAGON COMPOSITES ASA HAS THE FOLLOWING PURCHASED AND OWN-DEVELOPED INTANGIBLE ASSETS

(NOK 1 000)	GOODWILL	PATENTS AND LICENCES	TECHNOLOGY AND DEVELOPMENT	CUSTOMER RELATION SHIPS	2016 TOTAL
COST PRICE
Opening balance 01.01.2016	69 058	11 088	81 703	18 483	180 332
Additions from purchase of companies	340 235	5 760	0	101 966	447 961
Additions 1)	0	1 765	18 632	0	20 398
Disposals carved-out activities	-35 655	-1 639	-1 888	0	-39 181
Translation differences	-425	0	-41	0	-467
Cost of acquisition 31.12.2016	373 213	16 974	98 406	120 449	609 042
ACCUMULATED DEPRECIATION AND IMPAIRMENT Opening balance 01.01.2016 Depreciation for the year	16 530 0	10 159 1 040	43 930 5 116	18 483 3 057	89 102 9 213
Disposals carved-out activities	-16 530	-1 669	-1 888	0	-20 087
Translation differences	0	3	-40	13	-24
Accumulated depreciation and impairment 31.12.2016	0	9 533	47 118	21 554	78 204
Net carrying amount 31.12.2016	373 213	7 442	51 288	98 896	530 838
Amortization rate	None	6-17 %	5-20 %	11-14 %
Useful life	Indefinite	6-17 years	5-20 years	7-9 years
Depreciation method	None	Straight-line	Straight-line	Straight-line

1) Addition of MNOK 11.6 in technology and development relates to the xperion acquisition.

Additions for this year and the previous year primarily relate to technological developments in the High-Pressure CNG & CHG segment.

Additions from purchase of companies in 2016 relate to the acquisition of Hexagon xperion GmbH and its subsidiary companies.

Disposals carved-out activities in 2016 relate to the merger with Agility Fuel Systems Inc., where Hexagon Composites ASA contributed its existing CNG Automotive heavy and medium duty business and Agility Fuel Systems contributed its natural gas fuel systems solutions business, into a newly formed equally owned company Agility Fuel Solutions.

Research & development costs totalling MNOK 40.8 (MNOK 34.2) were expensed in 2017. The Group has received government grants of MNOK 16.8 (MNOK 14.6) in 2017. MNOK 16.6 (MNOK 9.7) has been offset against research and development costs while MNOK 0.2 (MNOK 4.9) is presented as income.

The Group has recognized goodwill as a result of three acquisitions of business enterprises. Each goodwill item is linked to a cash generating unit (CGU). When the acquired business enterprise is maintained as an independent business enterprise it is, as a starting point, the CGU. Entities that have considerable synergies and for which the type of activity is the same, are considered to be a unified CGU. This applies when acquired business enterprises are integrated with an existing Hexagon Composites company or the acquired business enterprise is, in operative terms, closely linked together with existing Hexagon Composites businesses. In these instances, it is the linking enterprise that is the level of the CGU where goodwill is measured and followed up. In the Group, two CGU's have been identified which capitalized goodwill has been linked to.

IMPAIRMENT TESTING

Goodwill is not depreciated but is subject to impairment testing in the fourth quarter each year. If there are particular indications of possible impairment, the impairment test is carried out on a quarterly basis. The impairment test is carried out by the calculated recoverable amount being compared with invested capital for the unit in question. When the recoverable amount exceeds invested capital, capitalized goodwill is maintained. When the recoverable amount is lower than invested capital, capitalized goodwill is written down to its recoverable amount. Invested capital consists of the units' total assets less interest-free current liabilities and interest-free non-current liabilities. The recoverable amount is based on expected future cash flows for the relevant unit based on the management's approved budget and strategy figures for the next four years. These are estimated based on current sales and margins and the expected market development. For subsequent periods it is assumed that there will be an increase in the cash flows equivalent to expected general growth within the various business areas.

The expected future investment requirements for the units are reflected in the calculations. These are in accordance with the management's approved budget and strategy. For the period beyond the next four years, it is assumed that the reinvestment requirement will be equivalent to expected depreciation. Changes in working capital have been assessed and adjusted in accordance with expected developments.

When there are indications that a company's assets (including goodwill) may be impaired, an impairment test is conducted using the company's weighted average capital cost (WACC) as an estimate for the discount rate (= return on assets ratio). Correspondingly, WACC is also used for annual impairment testing. The WACC rate which is used to discount future cash flows is based on 10-year risk-free interest rates in the market, the company's borrowing interest, beta factor, equity ratio and market risk premium, adjusted for the liquidity risk and size of the company.

Value in use is calculated by discounting future cash flows. Present value calculations are based on expected future cash flows for the different cash-generating units, which are all separate subsidiaries. Estimates of future cash flows are made on the basis of board-approved budgets and market plans for 2018, as well as forecasts up to and including 2022. Cash flow projections for subsequent years will be the same as the cash flow for 2022, as the units are not expected to have a finite useful life. The projections do not take into account price increases or other forms of growth in the cash flows.

The most important assumptions relate to estimates for operating income, operating margin and rates of return. A WACC of 8.5% after tax has been used for all companies.

THE GOODWILL ITEMS OF THE FOLLOWING CASH FLOW GENERATING UNITS ARE SUBJECT TO IMPAIRMENT TESTING

(NOK 1 000)	2017	2016
Hexagon Ragasco - Low-Pressure LPG	32 350	32 350
Hexagon Lincoln - High-Pressure CNG & CHG	615	629
Hexagon xperion - High-Pressure CNG & CHG	368 468	340 235
Total goodwill	401 433	373 213

The assumptions that were used as a basis for the calculations made at the end of 2017 were met by good margins for Hexagon Ragasco AS, Hexagon Lincoln and Hexagon xperion GmbH. Impairment test as of 31.12.2016 for the Hexagon xperion GmbH goodwill were not performed as the acquisition was in October 2016.

OTHER ASSUMPTIONS FOR THE IMPAIRMENT TESTING OF GOODWILL

The recoverable amount is calculated based on the general assumptions referred to above. The calculations do not assume major changes in the level of activity or operating margins compared with the results achieved in 2017. In the prognosis period, an increase in the operating profit equal to the general growth in the economy is expected.

SENSITIVITY ANALYSES FOR THE GOODWILL

In connection with the impairment testing of goodwill, the Group has carried out sensitivity analyses. These sensitivity analyses are carried out for each cash-generating unit. The present value of the cash flow in the calculations made is, among other things, sensitivity to changes in the discount rate. The sensitivity analysis uses the economic assumptions referred to above as its starting point. Calculations have been made based on one of the estimated economic assumptions being changed and in which the other economic assumptions remain unchanged.

The sensitivity analyses for the CGU demonstrate that recoverable amounts of Hexagon Ragasco Hexagon Lincoln and Hexagon xperion goodwill exceed the recognized value by a good margin, and a reasonable change in key assumption (+/- 0.5% for WACC and +/- 2.0% on EBITDA margin) would not cause the carrying amount to exceed value in use.

NOTE 12 OTHER NON-CURRENT ASSETS

(NOK 1 000)	2017	2016
Loans to employees	0	414
Other non-current assets	557	1 280
Total other non-current assets	557	1 694

More information relating to loans to employees can be found in note 28.

NOTE 13 INVENTORIES

(NOK 1 000)	2017	2016
Raw materials and consumables	136 335	118 362
Work in progress	37 723	42 732
Finished goods	68 294	66 386
Total inventories	242 351	227 481
Recognized cost of obsolete inventory	18 167	8 150
Provision for obsolete inventory in balance sheet	-18 892	-25 115
Carrying amount of holdings used as pledged assets	0	0

NOTE 14 TRADE RECEIVABLES

(NOK 1 000)	2017	2016
Trade receivables	179 311	92 421
Provisions for loss	-6 443	-7 716
Trade receivables after provision for losses	172 868	84 705
Carrying amount of trade receivables used as pledged assets	0	0

Losses on trade receivables are classified as other operating expenses in the income statement. Provision for losses are made on the basis of the individual assessments of each claim. In the assessment, consideration is made to guaranteed and insured amounts (see note 24 concerning credit risk).

CHANGES IN THE PROVISION FOR LOSSES ARE AS FOLLOWS

(NOK 1 000)	2017	2016
Opening balance 1 January	7 716	7 234
Additions from purchase of companies	0	659
Provision for losses for the year	662	26
Actual losses during the year	-1 845	0
Translation differences	-90	-202
Closing balance 31 December	6 443	7 716

Credit risk and currency risk regarding trade receivables are described in more detail in note 24.

AS OF 31 DECEMBER THE COMPANY HAD THE FOLLOWING AGEING OF TRADE RECEIVABLES

	TOTAL	NOT DUE	<30 DAYS	30-60 DAYS	60-90 DAYS	>90DAYS
2017	179 311	64 630	50 431	40 030	6 624	17 596
2016	92 421	59 436	16 775	8 228	2 603	5 379

NOTE 15 OTHER CURRENT ASSETS

(NOK 1 000)	2017	2016
Earned, not invoiced income	0	195
Prepaid expenses	15 540	20 436
VAT due	8 621	15 961
Prepaid tax overseas	3 073	48 401
Other 1)	38 004	26 785
Total other current assets	65 238	111 777

1) Other in 2017 included receivables from the Skattefunn tax incentive scheme and other grants of NOK 31 961 thousand (6 023 thousand).

NOTE 16 BANK DEPOSITS, CASH AND CASH EQUIVALENTS

(NOK 1 000)	2017	2016
Cash at bank and in hand	171 605	208 073
Bank deposits, cash and cash equivalents	171 605	208 073
Bank overdrafts	0	0
Cash & cash equivalents in the cash flow analysis	171 605	208 073
Undrawn Group overdraft facility	85 000	85 000
Undrawn loan facilities	550 909	506 117
Restricted funds included in cash & cash equivalents 1)	6 400	6 332

1) Restricted tax withholdings

NOTE 17 SHARE CAPITAL AND SHARE PREMIUM

(NOK 1 000)	2017	2016
Ordinary shares of NOK 0.10 each	166 627 868	166 627 868
Total number of shares	166 627 868	166 627 868

The Company's share capital consists of one class of shares and is fully paid-up.

CHANGES IN SHARE CAPITAL AND SHARE PREMIUM

	SHARE CAPITAL NUMBER OF SHARES (NOK 1 000)				SHARE PREMIUM (NOK 1 000)
	2017	2016	2017	2016	2017	2016
ORDINARY SHARES
Issued and paid 1 January	166 627 868	133 294 868	16 663	13 329	727 639	82 955
Issued new share capital	0	33 333 000	0	3 333	0	663 327
Transaction cost					0	-18 643
Issued and paid 31 December	166 627 868	166 627 868	16 663	16 663	727 639	727 639
OWN SHARES
1 January	1 166 075	1 166 075	117	117
Change during period	0	0	0	0
31 December	1 166 075	1 166 075	117	117

As of 31.12.2017 the Company had 1 166 075 own shares (1 166 075). The cost of acquisition of NOK 26 773 thousand is entered as a deduction in equity. The shares are held as "own shares", and the Company is entitled to sell them in the future.

20 LARGEST SHAREHOLDERS AS OF 31.12.2017

	NUMBER OF SHARES	SHAREHOLDING
Mitsui & Co., Ltd.	41 666 321	25.01 %
Flakk Composites AS 1)	29 002 667	17.41 %
MP Pensjon PK	12 531 440	7.52 %
Bøckmann Holding AS	9 000 000	5.40 %
Verdipapirfondet Odin Norge	7 438 064	4.46 %
Nødingen AS	6 000 000	3.60 %
JP Morgan Chase Bank, N.A., London (Nominee)	5 560 955	3.34 %
Skandinaviska Enskilda Banken AB, SFMA1	3 683 496	2.21 %
Verdipapirfondet Storebrand Norge	3 342 802	2.01 %
The Bank of New York Mellon SA/NV (Nominee)	3 108 002	1.87 %
The Bank of New York Mellon SA/NV (Nominee)	1 778 168	1.07 %
JP Morgan Chase Bank, N.A., London (Nominee)	1 472 042	0.88 %
Societe Generale	1 450 000	0.87 %
TR European Growth Trust PLC	1 308 563	0.79 %
Hexagon Composites ASA (own shares)	1 166 075	0.70 %
Verdipapirfondet Eika Norge	1 045 016	0.63 %
VPF Nordea Kapital	1 029 924	0.62 %
VPF Eika Spar	1 004 000	0.60 %
Flakk Invest AS 1)	1 000 000	0.60 %
Mustad Industrier AS	900 000	0.54 %
Total 20 largest shareholders	133 487 535	80.11 %
Remainder	33 140 333	19.89 %
Total	166 627 868	100.00 %

1) These shareholdings are controlled by the Chairman of the Board, Knut Flakk.

OWNERSHIP STRUCTURE

The total number of shareholders as of 31.12.2017 was 2 298 of whom 197 were foreign shareholders. The number of shares held by foreign shareholders was 68 163 365 or 40.9%.

The Board proposes to the general assembly that a dividend is paid of NOK 0.30 per outstanding share, NOK 49 639 thousand in total for the 2017 fiscal year.

No dividend was paid for the 2016 financial year.

Dividends are included as allocations to the owners in the period in which they are paid.

The Board (unanimous) has a mandate to increase share capital by up to NOK 1 666 278 by issuing up to 16 662 780 shares (par value NOK 0.10). This authorization is valid until the next ordinary general assembly.

NOTE 18 PENSIONS AND OTHER NON-CURRENT EMPLOYEE BENEFITS

The Norwegian companies in the group are legally obliged to have occupational pension arrangements under the Norwegian Mandatory Occupational Pension Act. The Norwegian pension arrangements satisfy the requirements of this act. Below is a summary table of the pension cost in the Group for the various pension plans. Further details on the various plans is provided below:

SUMMARY OF PENSION COST IN THE GROUP

(NOK 1000)

Total	17 348	17 418
Multi-employer pension plan in Norway (new AFP)	1 770	1 498
Defined benefit pension plan in Norway	768	572
Defined contribution pension plan	14 810	15 348
(NOK 1 000)	2017	2016

DEFINED CONTRIBUTION PENSION PLANS IN THE GROUP

The defined contribution pension plans in the Norwegian companies has contribution rates from 7% for salaries in the range of up to 7,1 times the national insurance base rate (G) and from 8% for salaries in the range from 7,1 G to 12 G. As of 31.12.2017 the Norwegian defined contribution pension plans had 159 members.

Hexagon Lincoln Inc and MasterWorks Inc. in USA, has a defined contribution plan which is operated in accordance with local laws. The defined contribution plan covers full-time employees and represents 4% to 5% of pay for employees paid hourly and 4% to 6% for those paid monthly. An additional payment is also made at the end of the year in accordance with the terms of the defined contribution plan. As of 31.12.2017, 114 members were covered by the plan.

The table below provides the expensed contributions in the defined contribution plans:

DEFINED CONTRIBUTION PLANS EXPENSES

(NOK 1 000)	2017	2016
Defined contribution pension plans - Norway	9 054	7 131
Defined contribution pension plans - USA	5 468	7 859
Defined contribution pension plans - Sweden	288	358
Total	14 810	15 348

LIABILITIES FROM DEFINED BENEFIT PENSION PLAN IN THE GROUP

The obligation for the defined benefit pension plans is calculated on a straight-line basis. Unrealized gains and losses resulting from changes in actuarial assumptions are recognized in other comprehensive income. Net accumulated actuarial gains/losses after tax as of 31.12.2017 amounted to NOK -19 121 thousand, compared with NOK -18 094 thousand as of 31.12.2016. As of 31.12.2017 the Groups defined benefit plans had 19 members (19 members in 2016).

PENSION EXPENSES FOR THE YEAR RELATING TO THE DEFINED BENEFIT PENSION PLANS ARE CALCULATED AS FOLLOWS

(NOK 1 000)	2017	2016
Current service cost	444	426
Interest cost on benefit obligation	444	396
Expected return on plan assets	-390	-413
Administrative costs	199	67
Employer's contribution	71	84
Effect of implementation	0	12
Total pension expenses	768	572
PENSION LIABILITIES AND PLAN ASSETS
(NOK 1 000)	2017	2016
Present value of funded obligations	19 604	17 699
Fair value of plan assets	-18 186	-17 155
Employer's contributions on net pension liabilities	36	-89
Net liability recognized in balance sheet 31 December	1 454	455
(NOK 1 000)	2017	2016
Net liability recognized in balance sheet 1 January	455	806
Translation differences	97	0
Additions from purchase of companies	0	1 172
Effect of demerged activities	0	-836
Recognized benefit expense	768	572
Benefits paid	-1 218	-1 275
Actuarial gains and losses arising from changes in financial assumptions	1 268	255
Actuarial gains and losses arising from changes in demographic assumptions	84	-208
Net liability recognized in balance sheet 31 December	1 454	455
Retirement benefit obligation	1 838	1 367
Plan assets	383	912
CHANGE IN BENEFIT LIABILITY DURING YEAR (NOK 1 000)
	2017	2016
Benefit obligation 1 January	17 699	17 078
Current service cost	444	554
Interest expense	444	396
Actuarial gains/losses (-)	-1 107	-1 897
Pension payments	-437	-370
Translation differences	348	0
Effect change of plans	0	-245
Additions from purchase of companies	0	4 191
Effect of demerged activities	0	-1 998
Retirement benefit obligation 31 December	19 604	17 699

Expected premium payment next year is NOK 1 278 thousand.

CHANGE IN FAIR VALUE OF PLAN ASSETS DURING THE YEAR

(NOK 1 000)	2017	2016
Plan assets 1 January	17 155	16 372
Return on plan assets	390	413
Actuarial gains/losses (-)	-77	-1 912
Administrative costs	-199	-67
Pension premiums	1 044	1 117
Paid pensions	-378	-370
Translation differences	251	0
Effect change of plans	0	-255
Additions from purchase of companies	0	3 019
Effect of demerged activities	0	1 162
Plan assets 31 December	18 186	17 155

AVERAGE DISTRIBUTION OF PLAN ASSETS BY INVESTMENT CATEGORY AS OF 31 DECEMBER

	2017		2016
(NOK 1 000)	ALLOCATION	AMOUNT	ALLOCATION	AMOUNT
Shares	10 %	1 782	6 %	961
Bonds/certificates	80 %	14 512	75 %	12 884
Property	10 %	1 728	19 %	3 260
Other	1 %	164	0%	51
Total	100 %	18 186	100 %	17 155

The actual return on plan assets in 2017 was NOK 313 thousand (-1 499 thousand in 2016), allowing for previous years' actuarial gains/losses.

CALCULATION OF PENSION EXPENSES AND NET PENSION LIABILITIES IS BASED ON THE FOLLOWING ASSUMPTIONS

	2017		2016
(NOK 1 000)	NORWAY	GERMANY	NORWAY	GERMANY
Discount rate	2.30 %	2.16 %	2.60 %	1.93 %
Return on plan assets	2.30 %	2.16 %	2.60 %	1.93 %
Salary increases	2.50 %	2.00 %	2.50 %	2.00 %
Pension increases	0.40 %	0.00 %	0.00 %	0.00 %
Adjustment of national insurance base rate	2.25 %	1.50 %	2.25 %	1.50 %
Mortality table	K2013 BE	RT Heubech 2005G	K2013 BE	RT Heubech 2005G

The Group has used the Norwegian covered bonds (OMF) as basis for the discount rate as of 31 December for both 2017 and 2016 for the Norwegian plans.

MULTI-EMPLOYER PENSION PLAN IN NORWAY

155 (139) of the Norwegian employees is a member of a new "agreement-based early retirement plan" (new AFP). The AFP plan is a lifelong supplement to the regular pension. Employees can take the new AFP scheme from the age of 62 or remain in employment and earn further benefits until the standard retirement age of 67. The AFP pension scheme is a defined benefit multi-employer pension plan, funded through premiums that are defined as a percentage of salary. The scheme's retirement benefit obligation and plan assets cannot be reliably measured and allocated at present. For accounting purposes, the scheme is treated as a defined contribution plan, with premium payments expensed as incurred, and no obligation recognized in the balance sheet. Premiums is 2.5% (2.5% in 2016) for salaries in the range 1.0 - 7.1 times the national insurance base rate (G), and is expected to increase in the coming years. Total contribution for the arrangement were NOK 1 770 thousand in 2017 and NOK 1 498 thousand in 2016. Expected premium for 2018 is NOK 1 824 thousand.

NOTE 19 PROVISIONS

(NOK 1 000)	2017	2016
Balance 1 January	47 168	43 491
Additions from purchase of companies	0	23 019
Disposals from demerged activities	0	-6 282
Provisions for year	23 405	10 020
Translation differences	137	-281
Provisions used during year	-32 865	-22 799
Balance 31 December	37 845	47 168

The Group seeks to minimize the level of warranty or other claims from third parties through a diligent focus on quality. The Group also seeks to consistently recognize any potential impact of unanticipated events. Provisions are made for both general and, if required, specific warranty claims on Low-Pressure and High-Pressure cylinders. Such provisions are typically based on i.) historical warranty costs levels for equivalent products and services, ii.) our assessment of any ongoing third party legal disputes or quality related matters, and iii.) a forward view based on the changing levels and complexity of our business activities within High and Low-Pressure business areas.

Legal Processes

Composites Scandinavia AB have appealed a decision from The Swedish Civil Contingencies Agency, MSB, regarding a withdrawal of specific cylinders. The cylinders are no longer in production and have not been sold since 2012. The products have met the relevant requirements when placed on the market and, according to MSB's investigation, still meet those requirements. As the decision is appealed, it has no legal effect as per 20 March 2018.

NOTE 20 NON-CURRENT INTEREST-BEARING LIABILITIES

				CARRYING AMOUNT
(NOK 1 000)	INTEREST RATE CONDITIONS	CURRENCY	MATURITY	2017	2016
UNSECURED
Bank loan (bullet)	Euribor 3 month + margin	EUR	30.09.2021	362 535	406 924
Total unsecured non-current liabilities				362 535	406 924
SECURED
Ohio loan	Fixed interest rate	USD	30.06.2018	12 188	14 914
Vehicle loan	Fixed interest rate	USD	01.08.2019	150	248
Obligations under finance leases	Libor + margin	USD	01.11.2019	5 132	7 795
Obligations under finance leases	Euribor + margin	EUR	30.11.2017	0	5 631
Obligations under finance leases	Euribor + margin	EUR	31.05.2018	2 940	5 123
Obligations under finance leases	Euribor + margin	EUR	30.09.2019	3 954	5 142
Total secured non-current liabilities				24 362	38 853
Total non-current liabilities				386 897	445 776
1st year's instalments, non-current liabilities				-19 494	-14 095
Total non-current liabilities, not including 1st year's instalments				367 403	431 681
ESTIMATED REPAYMENT STRUCTURE FOR NON-CURRENT LIABILITIES (NOK 1 000) AS OF 31.12.2017

2018	2019	2020	2021	2022	THEREAFTER
19 494	4 868	0	362 535	0	0

The current financing facility is a bilateral facility with DNB Bank. The overall size of the facility is NOK 1 billion, comprising a main revolving credit with overdraft facility of NOK 600 million and an optional ancillary facility of NOK 400 million. There are no breaches of the financial covenants under the financing facility agreements.

RECONCILIATION FOR LIABILITIES ARISING FROM FINANCING ACTIVITIES

(NOK 1 000)	FINANCIAL LIABILITIES	FINANCIAL LEASING OBLIGATIONS	TOTAL
Liabilities 1 January 2016	393 587	0	393 587
Cash flow from financing activities	-393 215	0	-393 215
Exchange differences	-831	0	-831
Additions financial liabilities	419 554	23 691	443 246
Other transactions without cash settlement	2 989	0	2 989
Liabilities 31 December 2016	422 085	23 691	445 776
Liabilities 1 January 2017	422 085	23 691	445 776
Cash flow from financing activities	-78 296	-12 130	-90 427
Exchange differences	30 679	465	31 144
Additions financial liabilities	0	0	0
Other transactions without cash settlement	403	0	403
Balance 31 December 2017	374 871	12 025	386 897

NOTE 21 SHORT-TERM INTEREST-BEARING LOANS

(NOK 1 000)	2017	2016
SECURED
Current interest-bearing liabilities	0	0
1st year's instalments, non-current interest-bearing liabilities	19 494	14 095
Total	19 494	14 095

Current short-term interest-bearing debt is subject to the same financial terms as the secured non-current interest bearing debt disclosed in note 20. The overdraft facility in Norway is subject to NIBOR + margin. In addition to this is a limit provision.

As at 31.12.2017 the Group had not drawn on these facilities.

NOTE 22 TRADE PAYABLES AND OTHER CURRENT LIABILITIES

(NOK 1 000)	2017	2016
Trade payables	151 130	185 943
Forward exchange contracts	5 436	0
Public duties payable	13 836	12 759
Accrued expenses and other current liabilities	117 343	82 077
Total	287 744	280 780

NOTE 23 LEASES

THE GROUP AS LESSEE / FINANCIAL LEASES

In relation to the acquisition of the Hexagon xperion group in 2016 The Group acquired finance lease contracts for patents and machinery. As of 31.12.2017 The Group has finance lease contracts for machinery.

ASSETS HELD UNDER FINANCIAL LEASES

(NOK 1 000)	2017	2016
Intangible assets 1)	0	12 875
Plant and equipment	33 751	33 759
Accumulated depreciation	-18 780	-20 533
Net carrying amount	14 971	26 101
OVERVIEW OF FUTURE MINIMUM LEASE PAYMENTS
Next year	7 699	13 220
1 to 5 years	4 976	12 251
Later than 5 years	0	0
Future minimum lease payments	12 676	25 472
PRESENT VALUE OF FUTURE MINIMUM LEASE PAYMENTS
Which includes:
- current liabilities	4 911	11 895
- non-current liabilities	7 115	11 796

1) In 2017 the Group redeemed a financial lease for EUR 425 thousand.

THE GROUP AS LESSEE - OPERATIONAL LEASES

The Group has entered into various operating leases for items of machinery, plant and other facilities. Most of these leases have a renewal option. Other have fixed terms. The majority of the leases are associated with the renting of premises. The leases have terms ranging from 3 to 20 years. The leases normally allow revision to accommodate factors such as changes in the CPI, increases in public duties and interest rates. None of the leases includes contingent rents. There is no legal right to acquire title to any leased asset.

LEASE RENTALS PAYABLE ARE AS FOLLOWS:

(NOK 1 000)	2017	2016
Ordinary lease payments	29 622	32 635
Total	29 622	32 635

FUTURE MINIMUM LEASE PAYMENTS RELATING TO FIXED TERM LEASES FALL DUE AS FOLLOWS:

Total	290 358
Later than 5 years	138 291
1 to 5 years	114 641
Not later than 1 year	37 426

NOTE 24 FINANCIAL INSTRUMENTS

FINANCIAL RISK

The Group use financial instruments such as bank loans and loans from other financial institutions. The purpose of the financial instruments are to raise capital for investments necessary for the group's operations. The group also has financial instruments such as trade receivables and payables which are directly linked to day-to-day operations. The Group can use some financial derivatives for hedging purposes.

Procedures for risk management are adopted by the board and carried out by the chief financial officer in close cooperation with the subsidiaries.

The most significant financial risks to which the group is exposed are interest rate risk, liquidity risk, currency risk and credit risk. The Group's management regularly evaluates these risks and defines guidelines on their management.

The Group uses financial instruments to hedge risks associated with interest rate and foreign currency fluctuations. The Group uses derivative financial instruments to minimize these risks under its strategy for interest and currency exposure. The accounting treatment of financial derivatives is described in note 2.

THE GROUP HAS THE FOLLOWING FINANCIAL ASSETS AND LIABILITIES DIVIDED INTO DIFFERENT CATEGORIES FOR ACCOUNTING TREATMENT AND RECONCILED AGAINST THE BALANCE SHEET ITEMS 31.12.2017

(NOK 1 000)	PROFIT AND LOSS	HEDGING	AMORTIZED COSTS	LIABILITIES	TOTAL
ASSETS
Other non-current assets			557		557
Trade receivables			172 868		172 868
Other current assets				65 238	65 238
Bank deposits, cash and cash equivalents			171 605		171 605
Total financial assets	0	0	345 030	65 238	410 268
LIABILITIES
Non-current interest-bearing liabilities			367 403		367 403
Non-current provisions (earn-out and other)			512	113 163	113 675
Short-term loans			19 494		19 494
Forward exchange contracts	5 436				5 436
Trade payables and other current liabilities			151 130	131 178	282 308
Total financial liabilities	5 436	0	538 538	244 342	788 316

THE GROUP HAS THE FOLLOWING FINANCIAL ASSETS AND LIABILITIES DIVIDED INTO DIFFERENT CATEGORIES FOR ACCOUNTING TREATMENT AND RECONCILED AGAINST THE BALANCE SHEET ITEMS 31.12.16

	FINANCIAL ASSETS MEASURED AT FAIR VALUE THROUGH	INTEREST RATE SWAPS USED AS CASH FLOW	LOANS/RECEIVABLES/ FINANCIAL OBLIGATIONS AT	NON FINANCIAL ASSETS/
(NOK 1 000)	PROFIT AND LOSS	HEDGING 1)	AMORTIZED COSTS	LIABILITIES	TOTAL
ASSETS
Other non-current assets			1 694		1 694
Trade receivables			84 705		84 705
Forward exchange contracts	5 209				5 209
Other current assets				111 777	111 777
Bank deposits, cash and cash equivalents			208 073		208 073
Total financial assets	5 209	0	294 472	111 777	411 458
LIABILITIES
Non-current interest-bearing liabilities			431 681		431 681
Non-current provisions (earn-out and other)			2 126	104 493	106 619
Short-term loans			14 095		14 095
Forward exchange contracts					0
Trade payables and other current liabilities			185 943	94 837	280 780
Total financial liabilities	0	0	633 846	199 329	833 175

1) Changes in value are recognized in other income and expenses in the statement of comprehensive income.

(I) CREDIT RISK

The Group is mainly exposed to credit risk associated with trade payables and other current receivables. The Group minimizes its exposure to credit risk by ensuring that all parties requiring credit (customers, for example) are approved and undergo a credit check.

The Group has a small number of large customers or counterparties who could be considered to be a Group due to similarities in credit risk. The risk associated with these counterparties is regularly reviewed and is minimized by measures such as use of credit insurance. The Norwegian subsidiaries Hexagon Ragasco AS and Hexagon Raufoss AS have credit insurance which covers parts of the companies' receivables.

Trade receivables in foreign subsidiaries amounted to NOK 76 174 thousand (53 941 thousand). These do not have credit insurance, however are partly covered through Letter of Credits.

The Group has policies in place to ensure that sales of products are made to customers with an appropriate credit history and that outstanding amounts do not exceed the defined credit limits. Credit information is also used in the group's regular appraisal of new and existing customers.

The Group has not issued guarantees for third party obligations.

The carrying amount of the financial assets, including derivatives, in the balance sheet represents the maximum risk exposure. As counterparties in derivative transactions are normally banks, the credit risk associated with derivatives is considered to be negligible.

The Group considers its maximum risk exposure to be the carrying amount of its trade receivables (see note 14) and other current assets (see note 15).

(II) INTEREST RATE RISK

The Group is exposed to interest rate risk from its financing activities (see notes 20 and 21). Some of the Group's interestbearing liabilities have variable interest rates, which means it is affected by changes in interest rates.

The aim of the Group's interest rate risk management is to reduce interest expenses, while also keeping the volatility of future interest payments within acceptable limits. The Group's strategy is for its finance departments to regularly evaluate the interest rate exposure of Hexagon Composites liabilities based on a total assessment of interest expectations and risk profile. The total fixed-interest term must not be below 0 years and must not exceed 10 years. The Group uses derivatives to adjust its effective interest rate exposure.

As a starting point, all interest rate derivatives are adapted to the duration and other conditions of individual loans. Following the repayment of all outstanding loan balances in April 2016 and the subsequent modification of facility terms the Group exited its remaining interest rate hedging positions at a loss of NOK 4 million. At the end of September 2016, the modified bank loan facility was drawn in Euro, with negative EURIBOR base rates (see note 20). The Group is currently evaluating a new hedging position but remains unhedged as at 31.12.2017.

FORWARD RATE AGREEMENTS 31.12.2016

	CURRENCY	AMOUNT (NOK 1 000)	MATURITY	FIXED RATE	FAIR VALUE
			Settled in
Interest rate swap	NOK	NOK 100 000	2016	2.47 % + margin	0
Total					0

Fixed rate contracts are classified as hedging instruments, with the underlying hedged item being a long-term variable rate loan. The entire fair value of the interest rate swap is classified as a non-current asset or non-current liability (derivatives), as the underlying risk being hedged is the long-term financing.

The interest rate swap is hedging of cash flow and is recognized at fair value. Gains or losses from interest rate swaps are included in other income and expenses in total comprehensive income provided that all hedging criteria have been satisfied.

The following table shows the group's sensitivity to potential changes in interest rates. The calculations take into account all interest-bearing instruments and associated interest rate derivatives as of 31.12.

	CHANGE IN INTEREST RATES IN BASE POINTS	EFFECT ON PROFIT/LOSS AFTER TAX (NOK 1 000)	GAINS OR LOSSES ON INTEREST RATE DERIVATIVES IN COMPREHENSIVE INCOME AFTER TAX (NOK 1 000)
2017	+50	-1 470	0
	-50	1 470	0
2016	+50	-1 672	0
	-50	1 672	0

Based on the financial instruments which existed as of 31 December 2017, an interest rate increase of 1% would reduce profit after tax by NOK 2 940 thousand (3 344 thousand).

THE AVERAGE EFFECTIVE INTEREST RATE ON FINANCIAL INSTRUMENTS WAS AS FOLLOWS

	2017	2016
Bank overdrafts	2.5 %	2.5 %
Bank loan	1.6 %	2.6 %
Finance leases	1.25 to 4.88 %	1.25 to 4.88 %

(III) LIQUIDITY RISK

Liquidity risk is the risk of the group not being in a position to fulfil its financial obligations when they fall due. The group's strategy for managing liquidity risk is to set a level of available liquidity to enable it to discharge its financial obligations when they fall due, both under normal and unexpected circumstances, without risking unacceptable losses or damaging the group's reputation. Undrawn credit facilities are dealt with in note 16.

The majority of excess liquidity is invested in bank deposits.

The following table provides an overview of the maturity structure of the group's financial obligations based on undiscounted contractual payments. In cases where the counterparty is entitled to ask for early settlement, the amount is included in the earliest period in which the payment may be demanded. If the counterparty is entitled to ask for ondemand settlement, the amount is included in the first column (under 1 month):

31.12.2017 REMAINING PERIOD

(NOK 1 000)	LESS THAN 1 MONTH	1-3 MONTHS	3-12 MONTHS	1-5 YEARS	MORE THAN 5 YEARS	TOTAL
Repayment of bank loan				364 091		364 091
Interest on loan		1 365	4 096	15 019		20 480
Other long term liabilities (earn-out and other)				113 675		113 675
Forward exchange contracts		876	2 574	1 986		5 436
Financial Leases		1 878	5 429	4 868		12 175
Interest on Financial leases		90	270	298		658
Other Loans		3 047	9 141			12 188
Interest on other loans		66	66			133
Trade payables	98 235	52 896				150 130
Total	98 235	60 218	21 576	499 937	0	679 965

31.12.2016 REMAINING PERIOD

(NOK 1 000)	LESS THAN 1 MONTH	1-3 MONTHS	3-12 MONTHS	1-5 YEARS	MORE THAN 5 YEARS	TOTAL
Repayment of bank loan				408 884		408 884
Interest on loan		1 227	3 680	18 400		23 306
Other long term liabilities (earn-out and other)				106 619		106 619
Financial Leases		2 927	8 781	11 983		23 691
Interest on Financial leases		189	567	788		1 544
Other Loans		597	1 791	9 070	3 704	15 162
Interest on other loans		50	149	745	319	1 263
Trade payables	120 863	65 080				185 943
Total	120 863	70 069	14 967	556 489	4 023	766 412

See note 20 for information on long-term loans, notes 21 and 22 for short-term liabilities.

(IV) FOREIGN EXCHANGE RISK

As the Group has production and sales in different countries with different functional currencies, it is exposed to currency risk associated with movements of the Norwegian krone against other currencies, while the Group's presentation currency is NOK. The carrying amount of the Group's net investments in foreign companies fluctuates as the Norwegian krone moves in relation to other relevant currencies. The Group's profit after tax is also affected by currency movements, as the results of foreign companies are translated to the Norwegian currency using the weighted average exchange rate for the period. The Group uses forward contracts to reduce its currency risk from cash flows denominated in foreign currencies. Currency risk is calculated for each currency and takes into consideration assets and liabilities, off-balance sheet obligations and highly probable purchases and sales in the relevant currency.

The following table shows the group's sensitivity to potential changes in the Norwegian krone, with all other conditions remaining constant. The calculation is based on the same movement of the krone against the relevant currencies. The effect on the profit/loss is caused by changes in the value of monetary items and currency derivatives. The effect on equity is caused by currency effects of net investments in foreign currencies.

	MOVEMENT OF NOK AGAINST USD	EFFECT ON PROFIT/LOSS AFTER TAX	EFFECT ON OTHER INCOME AND EXPENSES AFTER TAX (NOK 1 000)
2017	+5 %	-5 686	-34 187
	-5 %	5 686	34 187
2016	+5 %	-14 306	-18 110
	-5 %	14 306	18 110

	MOVEMENT OF NOK AGAINST EUR	EFFECT ON PROFIT/LOSS AFTER TAX	EFFECT ON OTHER INCOME AND EXPENSES AFTER TAX (NOK 1 000)
2017	+5 %	22 690	687
	-5 %	-22 690	-687
2016	+5 %	16 732	434
	-5 %	-16 732	-434

The fair values of derivatives classified as hedging instruments are reported under other current assets/liabilities or other non-current assets/liabilities depending on the recovery or settlement date for the associated hedged item.

As of 31.12.2017, the group had the following forward contracts to hedge forecast sales to customers. Forward contracts are used to reduce currency risk associated with expected future sales. The terms of the contracts are as follows:

FORWARD EXCHANGE CONTRACTS

	CURRENCY SELL/BUY	AMOUNT (NOK 1 000)	MATURITY	EXCHANGE RATE	FAIR VALUE 31.12.2017
Forward contracts to hedge expected future sales 1)
Forward contracts to hedge expected future sales 1)	EUR/NOK EUR/NOK	9 600/91 468 6 200/60 190	2018 2019	9.24 - 9.97 9.37 - 10.09	-3 450 -1 986
Total					-5 436

1) The forward contracts do not qualify for hedge accounting under IAS 39.

As of 31.12.2016, the Group had the following forward contracts to hedge future sales to customers.

	CURRENCY SELL/BUY	AMOUNT (NOK 1 000)	MATURITY	EXCHANGE RATE	FAIR VALUE 31.12.2016
Forward contracts to hedge expected future sales 1)	EUR/NOK	12 550/118 516	2017	8.68 - 9.85	3 575
Forward contracts to hedge expected future sales 1)	EUR/NOK	6 600/62 992	2018	9.28 - 9.80	1 634
Total					5 209

1) The forward contracts do not qualify for hedge accounting under IAS 39.

(V) MEASUREMENT OF FAIR VALUE

The fair value of forward exchange contracts is calculated by comparing the agreed forward rate and the estimated equivalent forward rate prevailing on the balance sheet date with the same maturity multiplied by the fixed volume specified in the contract. The fair value of the interest rate/currency swaps is determined by comparing with observable market data (pricing of financial instruments in the finance markets). For all the above derivatives, the fair value is confirmed by the financial institution with which the Company has entered into the contract.

The following financial instruments are not measured at fair value: Cash & cash equivalents, trade payables, other current receivables and bank overdrafts. These items are recognized at nominal value in the balance sheet as of 31 December, without taking into account the discount rate which relates to future inflows and outflows. Loans to employees and noncurrent interest-bearing liabilities are recognized in accordance with amortized cost.

Nominal amounts are assumed to reflect the fair value of receivables and liabilities which have a duration of less than 1 year.

The fair value of non-current liabilities is based on future interest rates and instalment payments.

ENTERING OF INCOME AND EXPENSES AGAINST TOTAL OTHER COMPREHENSIVE INCOME AND TRANSFERRED TO REVALUATION RESERVE

(NOK 1 000)	2017	2016
Fair value of cash flow hedges 1 January	0	0
Change over total comprehensive income	0	0
Fair value of cash flow hedges 31 December	0	0

FAIR VALUE HIERARCHY

The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

Level 1: Quoted (unadjusted) prices in active markets for identical assets or liabilities

Level 2: Other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly

Level 3: Techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.

CARRYING AMOUNT AND FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES

		2017		2016
(NOK 1 000)	LEVEL	BOOK VALUE	FAIR VALUE	BOOK VALUE	FAIR VALUE
FINANCIAL ASSETS
Other non-current assets		557	557	1 694	1 694
Trade receivables		172 868	172 868	84 705	84 705
Forward exchange contracts	2	0	0	5 209	5 209
Bank deposits, cash and cash equivalents		171 605	171 605	208 073	208 073
FINANCIAL LIABILITIES
Bank loans	2	362 535	364 091	406 924	408 884
Other loans		0	0	12 758	12 758
Finance leases	2	4 868	4 868	12 000	12 000
Other long term liabilities (earn-out and
other)		113 675	113 675	106 619	106 619
Short-term leases		7 306	7 306	11 691	11 691
Short-term loans		12 188	12 188	2 404	2 404
Forward exchange contracts	2	5 436	5 436	0	0
Trade payables and other current liabilities		151 130	151 130	185 943	185 943

The management assessed that the fair values of bank deposits, cash and cash equivalents, trade receivables, other noncurrent assets, trade payables, and other current liabilities approximate their carrying amounts largely due to the shortterm maturities of these instruments.

The fair values of the Group's interest-bearing bank loans and finance leases are determined by using the DCF method using discount rate that reflects the issuer's borrowing rate as at the end of the reporting period. The own nonperformance risk as at 31.12.2017 and 31.12.2016 was assessed to be insignificant.

The Group enters into foreign exchange contracts with various counterparties, principally financial institutions with investment grade credit ratings. Foreign exchange forward contracts are valued using valuation techniques, which employ the use of market observable inputs. The most frequently applied valuation techniques include forward pricing models using present value calculations.

FINANCIAL INSTRUMENTS APPRAISED AT FAIR VAUE WITH GAINS AND LOSSES IN THE INCOME STATEMENT

(NOK 1 000)	2017	2016
Level 1: Based on prices in an active market	0	0
Level 2: Observable market data	-5 436	4 892
Level 3: Other than observable market data	0	0
Total financial instruments at fair value	-5 436	4 892

FINANCIAL INSTRUMENTS APPRAISED AT FAIR VAUE WITH GAINS AND LOSSES OVER OTHER INCOME AND EXPENSES IN TOTAL COMPREHENSIVE INCOME

(NOK 1 000)	2017	2016
Level 1: Based on prices in an active market	0	0
Level 2: Observable market data	0	0
Level 3: Other than observable market data	0	0
Total financial instruments at fair value	0	0

OTHER INFORMATION RELATING TO FINANCIAL INSTRUMENTS

No financial assets were reclassified by changing the measurement method from amortized cost to fair value or vice versa.

(VI) CAPITAL STRUCTURE AND EQUITY

The main goal of the Group's capital structure management is to ensure it maintains a good credit rating (and therefore reasonable borrowing terms from lenders) and a level of equity which is reasonable in relation to the Group's operations.

By achieving a good debt/equity ratio, the Group will be able to support its operations and in doing so maximize the value of its shares.

The Group's shareholders shall receive a competitive return on their shares, mainly through price increases in the Group's shares, but also in the form of dividends based on financial performance/investment needs.

The Group manages and makes necessary changes to its capital structure by regularly assessing prevailing economic conditions and prospects of short and medium-term growth

Capital structure management is largely dealt with by means of new share issues. No changes to guidelines in this area were made in 2016 or 2017.

NOTE 25 INTEREST IN JOINT OPERATIONS

The joint operation entity was dissolved and subsumed simultaneously with the Agility Fuel Solutions merger transaction in October 2016 (See note 5). As at 31.12.2016 and 31.12.2017 there were no interests in joint operations.

NOTE 26 INVESTMENTS IN JOINT VENTURES

The Group has classified the investment in Agility Fuel Solutions LLC and Hyon AS as joint ventures. The entities are organized as limited liability companies with its own management in charge of day-to-day business. However, the composition of the board and guidelines for operation of the companies are based on a operational agreement and shareholder agreement. Under these agreements, it is required unanimity between the parties for making decisions about relevant activities. Accordingly, the ventures have joint control over the company's operations. Thus, the group as a participant is entitled to the arrangements net assets. The Group's responsibility as a participant in the companies are limited to the capital contribution, and the return equals the Group's share of profit/loss. The investments in joint ventures are accounted for according to the equity method.

HEXAGON COMPOSITES ASA HAS THE FOLLOWING INVESTMENTS IN JOINT OPERATIONS

			OWNERSHIP
JOINT VENTURE	COUNTRY	BUSINESS ACTIVITY	SHARE	VOTES
Agility Fuel Solutions LLC	USA	High-Pressure CNG & CHG	50 %	50 %
Hyon AS	Norway	High-Pressure CNG & CHG	33 %	33 %
Rugasco LLC 1)	Russia	Low-Pressure LPG	49 %	50 %

1) No activity in Rugasco LLC during 2016 and 2017

THE INCOME STATEMENT INCLUDES THE FOLLOWING AMOUNTS RESULTING FROM TRANSACTIONS WITH JOINT VENTURES

(NOK 1 000)	2017	2016
Sales revenue	6 412	4 130
Other operating income	21 458	0
Cost of materials	17 669	12 065
Other operating expenses	130	247

THE BALANCE SHEET INCLUDES THE FOLLOWING AMOUNTS RESULTING FROM TRANSACTIONS WITH JOINT VENTURES

(NOK 1 000)	2017	2016
Trade receivables	3 028	1 453
Trade payables	1 113	1 106

HEXAGON COMPOSITES GROUP'S SHARE OF PROFIT/LOSS IN AGILITY FUEL SOLUTIONS LLC

(NOK 1 000)	2017	2016
Carve-out value as at 03.10.2016		421 309
Cash payment as at 03.10.2016		150 850
Recognized gain carve-out excluding transaction costs		380 192
Translation differences as at 31.12.2016		18 990
Acquisition cost as at 31.12.2016		971 341
BOOK VALUE AS AT 01.01.2017 / ACQUISITION COST AS AT 31.12.2016	975 963	971 341
Share of profit	8 056	2 106
Amortization of excess value	-13 649	-3 556
Elimination of downstream transaction	-10 729	0
Reported as profit/loss from joint venture	-16 322	-1 450
Share of OCI	-46 078	-1 041
Received dividends	-14 770	0
Share-based payment	18 811	7 114
Book value as at 31.12.	917 604	975 963

Agility Fuel Solutions LLC does not have an observable market value in form of market price or similar.

THE TABLE BELOW SHOWS THE CONDENSED FINANCIAL INFORMATION OF AGILITY FUEL SOLUTIONS LLC, BASED ON 100% FOR THE PERIOD 2017 AND 03.10.2016 - 31.12.2016

INCOME STATEMENT FOR THE PERIOD	2017	2016
Operating income	1 300 728	310 959
Operating expenses	1 276 292	308 739
Net financial items	-8 325	-1 853
Profit before and after tax	16 112	4 072
Other income and expenses	1 752	-2 042
Comprehensive income	17 864	2 031
Group's share of comprehensive income	8 932	1 015
BALANCE SHEET	31.12.2017	31.12.2016
ASSETS
Current assets	455 028	649 135
Cash and cash equivalents	86 676	82 173
Non-current assets	599 852	571 985
LIABILITIES
Current liabilities	191 724	235 937
Current financial liabilities	4 084	96 746
Long-term liabilities	11 045	0
Long-term financials liabilities	72 871	93 892
Equity	861 832	876 717
Group's share of the equity	430 916	438 359
Goodwill	254 663	267 544
Trade name	7 003	7 893
Technology	37 351	42 094
Customer relationships	193 385	214 002
Translation differences	0	-1 041
Elimination of downstream transaction	-10 729	0
Share-based payment	5 015	7 114
Group's carrying amount of the investment	917 604	975 963

Agility Fuel Solutions LLC has the same reporting period as the Parent Company.

HEXAGON COMPOSITES GROUP'S SHARE OF PROFIT/LOSS IN HYON AS AND RUGASCO LLC

	HYON AS	RUGASCO LLC
Book value as at 31.12.2016	0	0
Share capital contribution	1 510	0
Share of profit after tax 2017	-345	0
Book value as at 31.12.2017	1 165	0

The Group does not have an obligation to pay additional equity in Rugasco LLC. Rugasco LLC does not have an observable market value in form of market price or similar. During 2017 there has been no activity in Rugasco LLC.

Both partners in the Hexagon Rugasco joint venture are in agreement to stop the activity of the company and are planning and performing actions regarding its closure. Hexagon Composites ASA has incorporated a new wholly owned subsidiary in Russia which will continue only the sales, marketing and distribution of products for the Russian market from 2016 and beyond.

NOTE 27 SHARE-BASED PAYMENT

The Group has a share option program covering certain employees in senior positions.

As at 31.12.2017, 31 employees were included in the option program.

3 March 2015 Hexagon Composites ASA issued 975 000 call options to senior executives and managers in the Group. The share options give rights to buy shares in Hexagon Composites ASA at NOK 25 per share. The options may be exercised in part or in full within three weeks following the official announcement of the financial results for the fourth quarter of 2017, first quarter of 2018 or second quarter of 2018.

1 April 2016 Hexagon Composites ASA issued 925 000 new call options to senior executives and managers in the Group at NOK 20 per share. The options may be exercised in part or in full within three weeks following the official announcement of the financial results for the fourth quarter of 2018, first quarter of 2019 or second quarter of 2019.

5 April 2017 Hexagon Composites ASA issued 1,450,000 new call options to senior executives and managers in the Group at NOK 27 per share. 7 September 2017 additional 190,000 call options were added to this program. The options may be exercised in part or in full within three weeks following the official announcement of the financial results for the fourth quarter of 2019, first quarter of 2020 or second quarter of 2020.

The fair value of the options was calculated on the grant date, based on the Black-Scholes model, and the cost is recognized over the service period. The cost in 2017 associated with the share option scheme was NOK 10 136 thousand (4 833). The fair value of all options granted is estimated to NOK 16 760 thousand 31 of December 2017 (9 780).

There are no cash settlement obligations. The Group does not have a past practice of cash settlement for outstanding share options.

OVERVIEW OF NUMBER OF OUTSTANDING OPTIONS

(NOK 1 000)	2017	2016	2015
Outstanding options 1 January	1 850 000	975 000	0
Options granted	1 640 000	925 000	975 000
Options exercised	0	0	0
Options lapsed	-25 000	-50 000	0
Share options outstanding 31 December	3 465 000	1 850 000	975 000
Exercisable at 31 December	0	0	0

(NOK 1 000) AWARDED 2017 AWARDED 2016 AWARDED 2015 THE FOLLOWING TABLE LIST THE INPUT TO THE MODEL USED FOR THE PLAN FOR YEAR ENDED 31 DECEMBER

Weighted average fair values at the measurement date per share (NOK)	10.55	10.62	7,42
Dividend yield (%)	0	0	0
Expected volatility (%)	53.23 %	57.40 %	54.60 %
Risk-free interest rate (%)	0.80 %	0.46 %	0.85 %
Expected life of share options (years)	3.42	3.44	3.51
Weighted average share price (NOK)	27.3	23.3	21.2
Model used	Black-Scholes	Black-Scholes	Black-Scholes

NOTE 28 TRANSACTIONS WITH RELATED PARTIES

The Group's related parties consist of associates, joint ventures, main shareholders, members of the Board and management. Transactions with joint ventures are disclosed in note 26.

All the transactions were carried out as part of normal business and at arm's length prices.

THE INCOME STATEMENT INCLUDES THE FOLLOWING AMOUNTS RESULTING FROM TRANSACTIONS WITH RELATED PARTIES

(NOK 1 000)	2017	2016
Sales revenue	6 077	0
Other operating expenses	2 988	625

THE BALANCE SHEET INCLUDES THE FOLLOWING AMOUNTS RESULTING FROM TRANSACTIONS WITH RELATED PARTIES

(NOK 1 000)	2017	2016
Trade receivables	1 825	0
Trade payables	907	509

REMUNERATION OF THE BOARD AND MANAGEMENT

(NOK 1 000)	SALARIES AND FEES TO BOARD MEMBERS	BONUSES PAID 1)	BENEFITS IN KIND	PAID PENSION PREMIUM	VALUE OF AWARDED SHARE OPTIONS	TOTAL REMUN ERATION 2017	TOTAL REMUN ERATION 2016
EXECUTIVE MANAGEMENT
Jon Erik Engeset, Group President	3 307	970	14	160	2 657	7 108	5 358
Tore J. Fjell, Senior Vice President 2)	886		31	1	0	918	1 559
David Bandele, Chief Financial Officer	1 775	550	14	160	1 594	4 093	3 106
BOARD OF DIRECTORS
Knut Flakk, Chairman	750					750	740
Kristine Landmark, Deputy Chair	240					240	240
Sverre Narvesen	180					180	170
Kathrine Duun Moen	150					150	0
Katsunori Mori 3)	0					0	0
Elisabeth Heggelund Tørstad	0					0	0
Gunnar Bøckmann, Deputy Board member	50					50	25
FORMER BOARD MEMBERS
Tom Vidar Rygh	135					135	150
May Britt Myhr	0					0	150
Total remuneration	7 472	1 520	59	320	4 252	13 624	11 498

1) Bonuses paid in the year relate to the year 2016.

2) Tore J. Fjell retired from his position as Senior Vice President end of July 2017.

3) Mr. Katsunori Mori has advised the company that he waives any board remuneration for the period he will serve on the board of directors.

The Chairman of the Board has no agreement relating to termination benefits. In his employment agreement, the Group President has a period of notice of 6 months. He has an agreement for up to 12 months' severance pay. The management of the Group have a target-based bonus agreement. At the end of the year, the following bonuses were allocated: NOK 1 106 thousand to the Group President and NOK 591 thousand to the CFO.

Group management participates in the Company's general pension arrangements, which are described in note 18, Pensions. The Group President and CFO participate in the Group's defined contribution plan and the Senior Vice President participate in the Group's defined benefit plan.

Group management participates in the Company's options scheme, which are described in note 27 Share-based payment. As of 31.12.2017 the Group President has 550 thousand (300 thousand) and CFO has 350 thousand (200 thousand) outstanding share options.

No loans have been made, or security provided for loans, to any member of Group management, the Board or other elected standing committees or any of their related parties.

SHARES OWNED BY BOARD MEMBERS OR RELATED PARTIES

	2017	2016
Knut Flakk, (Chairman) 1)	30 715 717	30 715 717
Kristine Landmark (Deputy chair) 2)	10 000	10 000
Katsunori Mori (Board member) 3)	41 666 321	41 666 321
Gunnar S. Bøckmann (Deputy board member) 4)	9 339 400	10 339 400

1) Of the shares owned by Knut Flakk, 131 248 are privately owned, 681 802 are owned by his wife, 28 902 667 are owned through Flakk Composites AS and 1 000 000 are owned through Flakk Invest AS.

2) The shares are owned by Kristine Landmark's husband.

3) Shares owned by Mitsui & Co., Ltd., represented in the Board by Katsunori Mori.

4) Of the shares owned by Gunnar S. Bøckmann, 339 400 are privately owned and 9 000 000 are owned through a limited liability company.

SHARES HELD BY KEY MANAGEMENT PERSONNEL

	2017	2016
Jon Erik Engeset, Group President 1)	440 867	420 867
Tore Fjell, Senior Vice President	775 131	775 131
David Bandele, Chief Financial Officer	32 745	32 745

1) The shares owned by Jon Erik Engeset, 1 867 are privately owned and 439 000 are owned by related limited liability companies.

Car loan has been given to one employee in subsidiaries. The remaining balance 31 December 2017 was NOK 0 (NOK 414 thousand in 2016). The loan was given on market terms.

Pursuant to Section 6-16a of the Norwegian Public Limited Liabilities Companies Act, the board must prepare a declaration regarding the determination of pay and benefits to the managing director and other key management personnel. Reference is made to the separate management declaration.

EXPENSED AUDITOR FEES WERE DIVIDED AMONG THE FOLLOWING SERVICES (EXCL. VAT)

(NOK 1 000)	2017	2016
Statutory audit and auditing-related services	3 136	2 666
Other attestation services	179	261
Tax advice	2 094	1 855
Other non-auditing services	767	170
Total	6 177	4 952

NOTE 29 PURCHASING COMMITMENTS

THE GROUP HAS THE FOLLOWING COMMITMENTS RESULTING FROM PURCHASING MATERIALS

(NOK 1 000)	2017	2016
2017	0	0
2018	3 500	0
Thereafter	0	0
Total	3 500	0

THE GROUP HAS THE FOLLOWING COMMITMENTS RESULTING FROM CONTRACTS FOR INVESTMENTS IN PRODUCTION FACILITIES/MACHINES

(NOK 1 000)	2017	2016
2017	0	8 563
2018	1 610	0
Thereafter	0	0
Total	1 610	8 563

All contracts relate to investments in production facilities/machines.

NOTE 30 EVENTS AFTER THE BALANCE SHEET DATE

There have not been any significant events after the balance sheet date.

NOTE 31 LIST OF SUBSIDIARIES AND ASSOCIATES

COMPANY	HOME COUNTRY	REGISTERED OFFICE	NATURE OF BUSINESS	OWNERSHIP SHARE	VOTES
SUBSIDIARIES
Hexagon Ragasco AS	Norway	Raufoss	Low-Pressure LPG	100 %	100 %
Ragasco NA Inc.	USA	Lincoln, NE	Low-Pressure LPG	100 %	100 %
Composite Scandinavia AB	Sweden	Piteå	Low-Pressure LPG	100 %	100 %
Hexagon Composites India Pvt. Ltd.	India	Bangalore	Low-Pressure LPG	100 %	100 %
Hexagon Composites Rus LLC	Russia	Nizhny Novgorod	Low-Pressure LPG	100 %	100 %
Hexagon Raufoss AS	Norway	Raufoss	High-Pressure CNG & CHG	100 %	100 %
Hexagon USA Holdings Inc.	USA	Delaware, DE	High-Pressure CNG & CHG	100 %	100 %
Hexagon Lincoln LLC	USA	Lincoln, NE	High-Pressure CNG & CHG	100 %	100 %
MasterWorks Inc.	USA	Lincoln, NE	High-Pressure CNG & CHG	100 %	100 %
Hexagon Railgas LLC	USA	Lincoln, NE	High-Pressure CNG & CHG	80 %	80 %
Hexagon Technical Services LLC	USA	Lincoln, NE	High-Pressure CNG & CHG	100 %	100 %
Hexagon Technology AS	Norway	Aalesund	High-Pressure CNG & CHG	100 %	100 %
Hexagon Composites Germany GmbH	Germany	Herford	High-Pressure CNG & CHG	100 %	100 %
Hexagon xperion GmbH	Germany	Herford	High-Pressure CNG & CHG	100 %	100 %
xperion E&E Overseas GmbH,	Germany	Herford	High-Pressure CNG & CHG	100 %	100 %
xperion E&E US Holding Inc.	USA	Heath, OH	High-Pressure CNG & CHG	100 %	100 %
xperion E&E USA LLC	USA	Heath, OH	High-Pressure CNG & CHG	100 %	100 %

JOINT VENTURES / JOINT OPERATIONS

Agility Fuel Solutions LLC 1)	USA	Delaware, DE	High-Pressure CNG & CHG	50 %	50 %
Hyon AS	Norway	Oslo	High-Pressure CNG & CHG	33 %	33 %
Rugasco, LLC 2)	Russia	Nizhny Novgorod		49 %	50 %

1) 44.5% directly owned. 5,5% owned through 9,91% ownership in Agility Fuel Solutions Holdings Inc.

2) Both partners in the Rugasco LLC joint venture have agreed to stop the activity of the company and perform actions regarding its closure.

NOTE 32 EXCHANGE RATES

	EXCHANGE RATE 1.1.2017	AVERAGE EXCHANGE RATE 2017	EXCHANGE RATE 31.12.2017
USD	8.620	8.271	8.205
EUR	9.086	9.372	9.840
GBP	10.613	10.639	11.091
RUB	14.131	14.158	14.181
CHF	846.100	839.110	840.910
SEK	95.120	98.560	99.960

INCOME STATEMENT – PARENT COMPANY HEXAGON COMPOSITES ASA

(NOK 1 000)	NOTE	2017	2016
Other revenue	6	38 239	34 361
Total operating income		38 239	34 361
Payroll & social security expenses	9,11,14	35 469	27 353
Depreciation and impairment	2,3	659	5 729
Other operating expenses	11	24 466	16 916
Operating profit		-22 356	-15 637
Income from investment in subsidiaries	10	174 029	70 081
Finance income	12,13	84 680	42 266
Finance expense	5,12,13	70 873	35 955
Profit on ordinary activities before tax		165 479	60 755
Tax on profit on ordinary activities	10	41 480	11 152
Profit on ordinary activities		123 998	49 603
Profit/loss for the year		123 998	49 603
Allocated to dividends	1	49 639	0
Transferred equity	1	74 360	49 033
Total transferred		123 998	49 603

BALANCE SHEET – PARENT COMPANY HEXAGON COMPOSITES ASA

(NOK 1 000)	NOTE	31.12.2017	31.12.2016
ASSETS
NON-CURRENT ASSETS
INTANGIBLE ASSETS
Research & development	3	0	0
Total intangible assets		0	0
PROPERTY, PLANT AND EQUIPMENT
Land, buildings and other real estate	2	6 000	6 000
Fixtures/fittings, equipment and tools	2	1 331	1 961
Total property, plant & equipment		7 331	7 961
FINANCIAL ASSETS
Investments in subsidiaries	4	123 265	123 265
Investments in associates and joint ventures	4	1 510	0
Loans to group companies	5,6	1 106 636	1 050 091
Other non-current receivables	5	256	957
Investments in shares		301	301
Excess financing of pension liabilities	9	383	380
Total financial assets		1 232 352	1 174 994
Total non-current assets		1 239 682	1 182 956
CURRENT ASSETS
RECEIVABLES
Other receivables	6	177 860	77 045
Total receivables		177 860	77 045
Bank deposits, cash and cash equivalents	7	788	27 270
Total current assets		178 647	104 315
Total assets		1 418 329	1 287 270

BALANCE SHEET – PARENT COMPANY HEXAGON COMPOSITES ASA

(NOK 1 000)	NOTE	31.12.2017	31.12.2016
EQUITY AND LIABILITIES
EQUITY
PAID-IN CAPITAL
Share capital	1,8	16 663	16 663
Own shares	1	-117	-117
Share premium	1	727 639	727 639
Other paid-in capital	1	16 887	6 752
Total paid-in capital		761 073	750 937
Other equity	1	116 225	41 894
Total other equity		116 225	41 894
Total equity		877 298	792 831
LIABILITIES
OTHER NON-CURRENT LIABILITIES
Non-current interest-bearing liabilities	5	362 535	406 924
Liabilities to group companies	6	0	52 652
Deferred tax liabilities	10	16 733	15 777
Total other non-current liabilities		379 268	475 353
Knut Flakk CURRENT LIABILITIES	Kristine Landmark	Sverre Narvesen
Chairman of the Board Liabilities to credit institutions	Deputy Chair 5,13	Board Member 56 444	0
Trade payables		2 657	3 046
Income tax payable Kathrine Duun Moen	10 Katsunori Mori	40 515 Elisabeth Heggelund Tørstad	6 490
Board Member Public duties payable	Board Member	Board Member 1 902	1 829
Allocated dividends	1	49 639	0
Other current liabilities	6	10 607	7 722
Total current liabilities	Jon Erik Engeset Group President & CEO	161 764	19 087
Total liabilities		541 032	494 439
Total equity and liabilities		1 418 329	1 287 270

Aalesund, Norway, 20 March 2018 The Board of Directors of Hexagon Composites ASA

Knut Flakk

Chairman of the Board

Kathrine Duun Moen Board Member

Kristine Landmark Deputy Chair

Board Member

Katsunori Mori

Sverre Narvesen Board Member

Board Member

Elisabeth Heggelund Tørstad

Jon Erik Engeset Group President & CEO

CASH FLOW STATEMENT – PARENT COMPANY HEXAGON COMPOSITES ASA

(NOK 1 000)	NOTE	2017	2016
CASH FLOW FROM OPERATING ACTIVITIES
Profit before tax		165 479	60 755
Tax paid for the period		-6 490	0
Depreciation and impairment		659	5 729
Gains and losses on shares		0	67
Recognized group contribution and dividend		-174 029	-70 081
Changes in trade payables		-389	1 299
Changes in pension provisions		-41	-42
Changes in other accrual accounting entries		45 942	620
Net cash flow from operating activities		31 132	-1 651
CASH FLOW FROM INVESTMENT ACTIVITIES
Purchase of property, plant & equipment and intangible assets		-28	-87
Purchase of shares		-1 510	-11 743
Net payments on loans to/from subsidiaries		-36 329	-600 481
Net cash flow from investing activities		-37 867	-612 310
CASH FLOW FROM FINANCING ACTIVITIES
New non-current liabilities		0	404 393
Repayment of non-current liabilities		-76 190	-387 818
Proceeds from issues of shares		0	648 017
Net change in bank overdraft		56 444	-24 031
Dividend payments		0	0
Net cash flow from financing activities		-19 747	640 561
Net change in cash & cash equivalents		-26 482	26 599
Cash & cash equivalents at beginning of period		27 270	670
Cash & cash equivalents at end of period	7	788	27 270
Undrawn group overdraft facility	7	85 000	85 000
Undrawn credit facility		550 909	506 117

NOTES – PARENT COMPANY

(NOK 1 000)

ACCOUNTING PRINCIPLES

The annual accounts have been prepared in accordance with the provisions of the Norwegian Accounting Act and generally accepted accounting principles in Norway.

CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements have been prepared in accordance with the international IFRS standards.

SALES REVENUE

Revenue from services is recognized as services are rendered. The portion of sales revenue relating to future rendering of services is capitalized as unearned revenue on the sale and recognized thereafter as the service is rendered.

CLASSIFICATION AND VALUATION OF BALANCE SHEET ITEMS

Current assets and liabilities include items due for payment within one year of the date of acquisition. Other items are classified as non-current assets/liabilities.

Current assets are valued at the lower of cost of acquisition and fair value. Current liabilities are recognized at nominal value on the date of commencement.

Non-current assets are measured at the cost of acquisition, but are written down to fair value if impairment is identified which is not considered to be of a temporary nature. Non-current liabilities are recognized at nominal value on the date of commencement. Costs associated with non-current liabilities are amortized over the duration of the loan using the effective interest method.

RECEIVABLES

Trade and other receivables are recognized in the balance sheet at their nominal value, following deductions for provisions for expected losses. Provisions for losses are made on the basis of the individual claims.

ASSETS AND LIABILITIES IN FOREIGN CURRENCY

Foreign currency transactions are recognized at the exchange rate prevailing at the transaction date. Foreign currency monetary items are valued using the exchange rate prevailing at the balance sheet date. Currency gains/losses on receivables/liabilities are classified as financial items.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is recognized and depreciated over the asset's expected useful life. Direct maintenance of property, plant and equipment is recognized under operating expenses as it is incurred, while overheads or improvement costs are added to the cost price of the asset and depreciated in pace with the asset's own depreciation. If the recoverable amount of the asset is lower than its carrying amount, this is written down to its recoverable amount. The recoverable amount is the higher of net realizable value and value in use. Value in use is the present value of future cash flows the asset will generate.

FINANCIAL INSTRUMENTS

In addition to traditional financial instruments such as trade receivables, trade payables and interest-bearing liabilities, the Company also uses forward exchange contracts and interest rate swaps to limit the Company's currency and interest rate exposure. The effects of these instruments are recognized as they arise, together with the hedged objects. The interest rate instruments are not measured at the fair value on the balance sheet date because the Company uses hedge accounting. The currency instruments are valued at fair value and converted to the exchange rate specified on the balance sheet date.

SHARES

In the company accounts, the cost method of accounting is used for all shares. All shares are valued at cost in the company accounts.

SHARE-BASED PAYMENT

Share based payment are accounted for in accordance with NRS 15A, applying IFRS 2 under Norwegian Legislation. Senior executives in the Group have in 2015, 2016 and 2017 received options to subscribe for shares in the Parent Company. The fair value of the share options is measured at the grant date and the cost is recognized, together with a corresponding increase in other paid-in capital, over the period in which the performance and/or service conditions are fulfilled. The fair value is calculated using the Black & Scholes model. The employer's contribution are accrued over the period in which the service conditions are fulfilled, based on the intrinsic value.

PENSION EXPENSES

Pensions are accounted for in accordance with NRS 6A, applying IAS 19 under Norwegian Legislation. Pension costs and benefit obligation are calculated using the straight-line method, based on the expected final salary. The calculations are based on a number of assumptions, including discount rate, future changes in salary, pensions and national insurance contributions, the expected return on plan assets and actuarial assumptions on mortality and early retirement. The discount rate is based on corporate bonds with a high credit rating. The Norwegian market for bonds with preferential rights is considered to have the features that would indicate that it can be used as a basis in the calculation of the discount rate. Plan assets are measured at fair value and deducted from net pension liabilities in the balance sheet. Changes in the benefit obligation arising from changes in plan assets are distributed over the expected remaining service period. Changes in the benefit obligation and plan assets due to the effects of changes and deviations in actuarial assumptions (actuarial gains and losses) are recognized in equity (net after tax). Pension premiums relating to defined contribution plans are recognized as an expense as they are incurred.

TAX

Tax expense in the income statement includes income tax payable for the period and changes in deferred tax. Deferred tax is calculated at 23% (24% in 2016) based on the temporary differences between accounting and fiscal values and loss carryforwards at the end of the financial year.

Tax-increasing and tax-reducing temporary differences which reverse or may reverse in the same period are offset. Net deferred tax asset is recognized to the extent that it is probable that it can be utilized.

INTEREST-BEARING LOANS AND BORROWING COSTS

Loans are recognized at the initial amount received less directly related transaction costs. In subsequent periods, interestbearing loans are measured at amortized cost using the effective interest method. Profit and loss is entered in the income statement when liabilities are deducted from the balance and via amortization. Borrowing costs are expensed as they arise.

CASH FLOW STATEMENT

The cash flow statement has been prepared using the indirect method. Cash & cash equivalents include cash and bank deposits.

USE OF ESTIMATES

Preparation of the annual financial statements in accordance with good accounting practice requires the use of estimates and assumptions by management which influence the income statement and the valuation of assets and liabilities, and disclosures on uncertain assets and obligations at the balance sheet date.

Contingent losses which are probable and quantifiable, are expensed as incurred.

NOTE 1 EQUITY

(NOK 1 000)	SHARE CAPITAL	OWN SHARES	SHARE PREMIUM	OTHER PAID-IN CAPITAL	OTHER EQUITY	TOTAL EQUITY
Equity as of 01.01.2017	16 663	-117	727 639	6 752	41 894	792 831
Profit/loss for the year			0		123 998	123 998
Allocated dividends					-49 639	-49 639
Share-based payment			0	10 136	0	10 136
Actuarial gains/losses for the year			0		-29	-29
Equity at 31.12.2017	16 663	-117	727 639	16 887	116 225	877 298

NOTE 2 PROPERTY, PLANT & EQUIPMENT

(NOK 1 000)	LAND/ BUILDINGS AND OTHER PROPERTY	FIXTURES/ FITTINGS, EQUIPMENT AND SIMILAR	TOTAL
Cost of acquisition as of 01.01.2017	8 345	3 676	12 021
Property, plant & equipment purchased	0	28	28
Cost of acquisition 31.12.2017	8 345	3 705	12 050
Accumulated depreciation and impairment 31.12.2017	2 345	2 374	4 719
Carrying amount at 31.12.2017	6 000	1 331	7 331
Depreciation for the year	0	659	659
Useful life	20 years - perpetual	4-10 years - perpetual

NOTE 3 INTANGIBLE ASSETS

(NOK 1 000)	RIGHTS TO TECHNOLOGY	TOTAL 2017	TOTAL 2016
Cost of acquisition as of 01.01.	22 215	22 215	22 215
Cost of acquisition 31.12.	22 215	22 215	22 215
Accumulated depreciation and impairment 31.12.	22 215	22 215	22 215
Carrying amount at 31.12.	0	0	0
Depreciation for the year	0	0	1 777
Impairment for the year 1)	0	0	3 223
Useful life	Discontinued

1) In 2016 The company recognized an impairment of NOK 3 223 thousand as a part of the annual impairment review.

NOTE 4 SHARES IN SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES

SUBSIDIARIES
(NOK 1 000)	REGISTERED OFFICE	OWNERSHIP SHARE	VOTING SHARE	CARRYING AMOUNT
Hexagon Ragasco AS	Raufoss	100 %	100 %	64 905
Hexagon Raufoss AS	Raufoss	100 %	100 %	21 398
Hexagon Technology AS	Ålesund	100 %	100 %	6 200
Hexagon USA Holdings Inc.	Delaware, USA	100 %	100 %	19 020
Hexagon Composites Germany GmbH	Herford, Germany	100 %	100 %	11 742
Hexagon Composites Rus LLC	Nizhny Novgorod, Russia	100 %	100 %	1
				123 265

EQUITY AND PROFIT/LOSS AS REPORTED IN MOST RECENT ANNUAL ACCOUNTS (COMPANY)

(NOK 1 000)	HEXAGON RAGASCO AS	HEXAGON RAUFOSS AS	HEXAGON TECHNOLOGY AS	HEXAGON USA HOLDINGS INC.	HEXAGON COMPOSITES GERMANY GMBH	HEXAGON COMPOSITES RUSSIA LLC
Cost of acquisition	64 905	21 398	6 200	19 020	11 742	1
Equity at 31.12.2017	63 416	24 714	50 257	446 628	-18 656	1 881
Profit 2017	85 080	1 036	23 667	-13 024	-14 154	225

ASSOCIATES AND JOINT VENTURES

	REGISTERED	OWNERSHIP		CARRYING
(NOK 1 000)	OFFICE	SHARE	VOTES	AMOUNT
Hyon AS	Oslo	33.34 %	33.34 %	1 510
Rugasco LLC	Nizhny Novgorod, Russia	49.0 %	50.0 %	0

NOTE 5 RECEIVABLES AND LIABILITIES

(NOK 1 000)	2017	2016
RECEIVABLES DUE FOR PAYMENT AFTER 1 YEAR
Other non-current receivables	256	957
Loans to group companies	1 106 636	1 050 091
Total	1 106 862	1 051 048
SHORT-TERM LIABILITIES
Liabilities to credit institutions	56 444	0
Total	56 444	0
Liabilities secured with collateral	0	0

The bank loans are unsecured credit facilities.

LONG-TERM FINANCING

(NOK 1 000)	CURRENCY AMOUNT	CARRYING AMOUNT	INTEREST	DURATION	MATURITY
Unsecured bank loans	EUR 37 000	362 535	Euriboribor 3 month + margin	5 years	30.09.2021

On 30 September 2016 the current financing facility was modified to a bilateral facility with DNB Bank, incorporating certain beneficial changes to the facility particularly in relation to higher leverage covenants. The modifications will allow more flexibility for the Group overall going forward.

The overall size of the facility remains at NOK 1 billion, comprising a main revolving credit with overdraft facility of NOK 600 million and an optional ancillary facility of NOK 400 million.

The Company is in the process of formalizing share pledges on Hexagon Ragasco AS, Hexagon Raufoss AS and Hexagon Technology AS as security for the Bank loan. Costs associated with the loans are amortized over the duration of the loans using the effective interest method and are included in the carrying amount of the loans. Balance as of 31.12.2017 was NOK 1 556 thousand.

There are no breaches of the financial covenants under the financing facility agreements.

In 2016 the company realized a loss of NOK 4 490 thousand related to termination of an interest rate swap. The value of the interest rate swap was NOK - 4 173 thousand at 01.01.2016. The loss was not recognized as the Company used hedge accounting.

NOTE 6 INTRA-GROUP TRANSACTIONS AND BALANCES

(NOK 1 000)	2017	2016
INCOME
Administrative services to subsidiaries	37 486	34 136
Total	37 486	34 136
RECEIVABLES
Loans to group companies	1 106 636	1 050 091
Other current receivables	175 100	73 810
Total	1 281 735	1 123 901
LIABILITIES
Liabilities to group companies - long-term	0	52 652
Liabilities to group companies - current	2 906	0
Total	2 906	52 652

NOTE 7 BANK DEPOSITS

(NOK 1 000)	2017	2016
Restricted tax withholdings	785	847

The Group's liquidity in Norway is organized in a Group overdraft facility. This means that the Norwegian subsidiaries' cash in hand is formally considered a receivable from the Parent Company and that the companies are jointly responsible for withdrawals made by the Group under this arrangement.

NOTE 8 SHARE CAPITAL AND SHAREHOLDER INFORMATION

SHARE CAPITAL CONSISTS OF

(AMOUNTS IN NOK)	NUMBER	NOMINAL	CARRYING AMOUNT
A shares	166 627 868	0.10	16 662 787

The Company's share capital consists of one class of shares and is fully paid-up.

20 LARGEST SHAREHOLDERS AS OF 31.12.2017

	NUMBER OF SHARES	SHAREHOLDING
Mitsui & Co., Ltd.	41 666 321	25.01 %
Flakk Composites AS 1)	29 002 667	17.41 %
MP Pensjon PK	12 531 440	7.52 %
Bøckmann Holding AS	9 000 000	5.40 %
Verdipapirfondet Odin Norge	7 438 064	4.46 %
Nødingen AS	6 000 000	3.60 %
JP Morgan Chase Bank, N.A., London (Nominee)	5 560 955	3.34 %
Skandinaviska Enskilda Banken AB, SFMA1	3 683 496	2.21 %
Verdipapirfondet Storebrand Norge	3 342 802	2.01 %
The Bank of New York Mellon SA/NV (Nominee)	3 108 002	1.87 %
The Bank of New York Mellon SA/NV (Nominee)	1 778 168	1.07 %
JP Morgan Chase Bank, N.A., London (Nominee)	1 472 042	0.88 %
Societe Generale Paris	1 450 000	0.87 %
TR European Growth Trust PLC	1 308 563	0.79 %
Hexagon Composites ASA (own shares)	1 166 075	0.70 %
Verdipapirfondet Eika Norge	1 045 016	0.63 %
Verdipapirfondet Nordea Kapital	1 029 924	0.62 %
Verdipapirfondet Eika Spar	1 004 000	0.60 %
Flakk Invest AS 1)	1 000 000	0.60 %
Mustad Industrier AS	900 000	0.54 %
Total 20 largest shareholders	133 487 535	80.11 %
Remainder	33 140 333	19.89 %
Total	166 627 868	100.00 %

1) These shareholdings are controlled by the Chairman of the Board, Knut Flakk.

As of 31.12.2017 the Company had 1 166 075 own shares (1 166 075). The cost of acquisition of NOK 26 773 thousand is entered as a deduction in equity. The shares are held as "own shares", and the Company is entitled to sell them in the future.

OWNERSHIP STRUCTURE

The total number of shareholders as of 31.12.2017 was 2 298 of whom 197 were foreign shareholders. The number of shares held by foreign shareholders was 68 163 365 or 40.9%.

The Board proposes to the general assembly that a dividend is paid of NOK 0.30 per outstanding share, NOK 49 639 thousand in total for the 2017 fiscal year. There was no dividend for the 2016 fiscal year.

The Board (unanimous) has a mandate to increase share capital by up to NOK 1 666 278 by issuing up to 16 662 780 shares (par value NOK 0.10). This authorization is valid until the next ordinary general assembly.

NOTE 9 PENSIONS AND BENEFIT OBLIGATIONS

The Company is legally obliged to have occupational pension arrangements under the Norwegian Mandatory Occupational Pension Act. The Company's pension arrangements satisfy the requirements of this Act.

The parent Company's pension arrangements cover 11 people in total - nine employed and two retired. Pension arrangements are dealt with according to the Norwegian Accounting Standard NRS 6A for pension costs.

In December 2008, the Group decided to terminate the defined benefit pension plan for employees under 52 years of age on the date of transfer. These employees joined a defined contribution pension plan with effect from 1 January 2009. Employees over the age of 52 on the date of transfer continued to be members of the defined benefit plan.

The defined benefit pension plans give an entitlement to defined future returns on plan assets. These largely depend on years of service, salary level on retirement and the amount of national insurance contributions. The company's benefit obligation is covered by an insurance plan.

The contribution rate is 7% for salaries in the range of up to 7.1 times the national insurance base rate (G) and 25.1% for salaries in the range 7.1 to 12 G.

Contributions for the year were expensed at NOK 1 226 thousand (1 101), excluding employer's contributions.

(NOK 1 000) 2017 2016 NET PENSION EXPENSES FOR THE YEAR IN THE DEFINED BENEFIT PENSION PLAN ARE CALCULATED AS FOLLOWS

Total	20	9
Employer's contribution	2	1
Administrative costs	26	17
Expected return on plan assets	-53	-55
Interest cost on benefit obligation	44	46
Current service cost	0	0

PENSION LIABILITIES AND PLAN ASSETS

(NOK 1 000)	2017	2016
Present value of funded obligations	1 758	1 785
Fair value of plan assets	-2 094	-2 118
Employer's contributions on net pension liabilities	-47	-47
Net pension liabilities/plan assets recognized in balance sheet 31.12	-380	-380
Net liability recognized in balance sheet 1 January	-380	-373
Recognized benefit expense	20	9
Premium payments/contributions paid	-61	-51
Actuarial gains/losses recognized directly in equity	38	35
Net liability recognized in balance sheet 31.12	-383	-380
Retirement benefit obligation	0	0
Plan assets	383	380
Accumulated actuarial gains/losses are recognized directly in equity (net after tax).	128	99

FINANCIAL ASSUMPTIONS

(NOK 1 000)	2017	2016
Discount rate	2.30 %	2.60 %
Expected salary adjustment	2.50 %	2.50 %
Expected pension adjustment	0.00 %	0.00 %
Adjustment of national insurance base rate	2.25 %	2.25 %
Expected return on plan assets	2.30 %	2.60 %
Mortality table	K2013 BE	K2013 BE

NOTE 10 TAX

TAX EXPENSE FOR THE YEAR CONSISTS OF

(NOK 1 000)	2017	2016
Income tax payable	40 515	6 490
Change in deferred tax	966	4 662
Total tax expense	41 480	11 152
CALCULATION OF TAX BASE FOR THE YEAR
(NOK 1 000)	2017	2016
Profit before tax	165 479	60 755
Permanent differences	10 387	13 517
Change in temporary differences	-7 055	-15 182
Use of loss carryforwards	0	0
Tax base for the year

Received group contributions of NOK 174 029 thousand (NOK 70 081 thousand in 2016) have been entered as income on investments in subsidiaries and included in the pre-tax profit.

OVERVIEW OF TEMPORARY DIFFERENCES

(NOK 1 000)	2017	2016
Receivables	75 473	68 045
Non-current assets	-836	-797
Provisions	-2 267	-1 890
Pensions	383	380
Loss carryforwards	0	0
Total	72 754	65 737
DEFERRED TAX 23% (24% IN 2016)	16 733	15 777

WHY TAX EXPENSE FOR THE YEAR DOES NOT AMOUNT TO 24% OF PROFIT BEFORE TAX (25% IN 2016)

(NOK 1 000)	2017	2016
24% of profit before tax (25% in 2016)	39 715	15 189
Permanent differences 24% (25% in 2016)	2 493	-3 379
Gains and losses/sale of financial assets 24% (25% in 2016)	0	0
Correction for previous year	0	0
Effect of change in tax rate	-728	-657
Calculated tax expense	41 480	11 152
Effective tax rate 1)	25.1 %	18.4 %

1) Tax expense in relation to profit before tax.

From the 2018 financial year, the tax rate on general income in Norway has been reduced to 23% (24% in 2017). Deferred tax and deferred tax assets as of 31 December 2017 are calculated using a tax rate of 23%. The effect on tax expense for the year was NOK -728 thousand.

NOTE 11 PAYROLL, NUMBER OF EMPLOYEES, REMUNERATION, LOANS TO EMPLOYEES ETC.

PAYROLL COSTS
(NOK 1 000)	2017	2016
Wages/salaries and fees	20 030	17 499
Employer's contribution	2 950	2 771
Pension expense	1 239	1 104
Other contributions	11 250	5 979
Total	35 469	27 353

There were 10 (10 in 2016) employees in the Company during the financial year.

(NOK 1 000)	SALARIES AND FEES	PAID BONUS 1)	NATURAL CONTRI BUTIONS	PAID PENSION PREMIUM	VALUE OF AWARDED SHARE OPTIONS	TOTAL REMUNE RATION
EXECUTIVE MANAGEMENT
Jon Erik Engeset, Group President	3 307	970	14	160	2 657	7 108
Tore J. Fjell, Senior Vice President 2)	886	0	31	1	0	918
David Bandele, CFO	1 775	550	14	160	1 594	4 093
BOARD OF DIRECTORS
Knut Flakk, Chairman	750					750
Kristine Landmark, Deputy Chair	240					240
Sverre Narvesen	180					180
Katsunori Mori 3)	0					0
Kathrine Duun Moen	150					150
Elisabeth Heggelund Tørstad	0					0
Gunnar Bøckmann, Deputy Board member	50					50
FORMER BOARD MEMBERS
Tom Vidar Rygh	135					135
Total remuneration	7 472	1 520	59	320	4 252	13 624

1) Bonuses paid in the year relate to the year 2016

2) Tore J. Fjell retired from his position as Senior Vice President end of July 2017

3) Mr. Katsunori Mori has advised the company that he waives any board remuneration for the period he will serve on the board of directors

The Chairman of the Board has no agreement relating to termination benefits. In his employment agreement, the Group President has a period of notice of 6 months. He has an agreement for up to 12 months' severance pay. The management of the Group have a target-based bonus agreement. At the end of the year, the following bonuses were allocated: NOK 1 106 thousand to the Group President and NOK 591 thousand to the CFO.

Group management participate in the Company's general pension arrangements, which are described in note 9, Pensions.

No loans have been made, or security provided for loans, to any member of Group management, the Board or other elected standing committees.

Group management participate in the Company's option scheme, which are described in note 14, Share-based Payment. As of 31.12.2017 the Group President has 550 thousand (300 thousand) and CFO has 350 thousand (200 thousand) outstanding share options.

SHARES OWNED BY BOARD MEMBERS OR RELATED PARTIES

	2017	2016
Knut Flakk, (Chairman) 1)	30 715 717	30 715 717
Kristine Landmark (Deputy chair) 2)	10 000	10 000
Katsunori Mori (Board member) 3)	41 666 321	41 666 321
Gunnar S. Bøckmann (Deputy board member) 4)	9 339 400	10 339 400

1) Of the shares owned by Knut Flakk, 131 248 are privately owned, 681 802 are owned by his wife, 28 902 667 are owned through Flakk Composites AS and 1 000 000 are owned through Flakk Invest AS.

2) The shares are owned by Kristine Landmarks husband.

3) Shares owned by Mitsui & Co., Ltd., represented in the Board by Katsunori Mori.

4) Of the shares owned by Gunnar S. Bøckmann, 339 400 are privately owned and 9 000 000 are owned through a limited liability company.

SHARES HELD BY KEY MANAGEMENT PERSONNEL

	2017	2016
Jon Erik Engeset, Group President 1)	440 867	420 867
Tore Fjell, Senior Vice President (until July 2017)	775 131	775 131
David Bandele, Chief Financial Officer	32 745	32 745

1) Of the shares owned by Jon Erik Engeset, 1 867 are privately owned and 439 000 are owned by related limited liability companies.

EXPENSED AUDITORS' FEES AND COMPRISED OF THE FOLLOWING SERVICES (NOT INCLUDING VAT)
(NOK 1 000)	2017	2016
Statutory audit and auditing-related services	1 342	1 105
Other attestation services	0	1
Tax advice	904	1 266
Other non-auditing services	136	0
Total	2 383	2 372

NOTE 12 MERGED ITEMS IN THE ACCOUNTS

(NOK 1 000) 2017 2016 Interest income from group companies 34 325 19 947 Other interest income 2 335 3 184 Other finance income (currency gains) 48 020 19 135 Total finance income 84 680 42 266 FINANCE INCOME (NOK 1 000) 2017 2016 Interest expenses to group companies 843 1 842 Other interest expenses 8 711 6 261 Arrangement fees and other commissions 1 441 8 673 Currency losses 59 032 14 090 Other finance expense 846 5 089 Total finance expense 70 874 35 955 FINANCE INCOME

NOTE 13 FINANCIAL MARKET RISK

The Company's international activities expose it to currency risk and interest risk. Derivative financial instruments are used to minimize these risks under the Group's strategy for interest and currency exposure. As of 31.12.2017 the company has no outstanding derivative instruments.

INTEREST RATE RISK

Interest rate risk arises in the short and medium term from the Company's floating rate liabilities. The Company have historically used interest rate swaps to minimize the risk.

CURRENCY RISK

Fluctuations in exchange rates represent a financial risk to the Company, both directly and indirectly. The Company have used currency swaps and borrows in foreign currency to minimize the risk.

NOTE 14 SHARE-BASED PAYMENT

3 March 2015 Hexagon Composites ASA issued 975 000 call options to senior executives and managers in the Group. The share options give rights to buy shares in Hexagon Composites ASA at NOK 25 per share. The options may be exercised in part or in full within three weeks following the official announcement of the financial results for the fourth quarter of 2017, first quarter of 2018 or second quarter of 2018.

1 April 2016 Hexagon Composites ASA issued 925 000 new call options to senior executives and managers in the Group at NOK 20 per share. The options may be exercised in part or in full within three weeks following the official announcement of the financial results for the fourth quarter of 2018, first quarter of 2019 or second quarter of 2019.

5 April 2017 Hexagon Composites ASA issued 1,450,000 new call options to senior executives and managers in the Group at NOK 27 per share. 7 September 2017 additional 190,000 call options were added to this program. The options may be exercised in part or in full within three weeks following the official announcement of the financial results for the fourth quarter of 2019, first quarter of 2020 or second quarter of 2020.

The fair value of the options was calculated on the grant date, based on the Black-Scholes model, and the cost is recognized over the service period. The cost in 2017 associated with the share option scheme was NOK 10 136 thousand (4 833). The fair value of all options granted is estimated to NOK 16 760 thousand 31 December 2017 (9 780).

OVERVIEW OF NUMBER OF OUTSTANDING OPTIONS

(NOK 1 000)	2017	2016
Outstanding options 1 January	1 850 000	975 000
Options granted	1 640 000	925 000
Options exercised	0	0
Options lapsed	-25 000	-50 000
Share options outstanding 31 December	3 465 000	1 850 000
Exercisable at 31. December	0	0

NOTE 15 LEASES

Ordinary lease payments for 2017 were NOK 2 817 thousand (2 832 in 2016).

FUTURE MINIMUM LEASE PAYMENTS RELATING TO FIXED TERM LEASES FALL DUE AS FOLLOWS:
(NOK 1 000)	2017
Not later than 1 year	2 435
1 to 5 years	8 938
Later than 5 years	4 069
Total	15 442

NOTE 16 EVENTS AFTER THE BALANCE SHEET DATE

There have not been any significant events after the balance sheet date.

Statsautoriserte revisorer Ernst & Young AS

DaaeGården, NO-6010 Ålesund Langelandsvegen 1, NO-6010 Ålesund Foretaksregisteret: NO 976 389 387 MVA Tlf: +47 24 00 24 00

Medlemmer av Den norske revisorforening

www.ey.no

INDEPENDENT AUDITOR'S REPORT

To the Annual Shareholders' Meeting of Hexagon Composites ASA

Report on the audit of the financial statements

Opinion

We have audited the financial statements of Hexagon Composites ASA comprising the financial statements of the parent company and the Group. The financial statements of the parent company comprise the balance sheet as at 31 December 2017, the income statement and the cash flow statement for the year then ended and notes to the financial statements, including a summary of significant accounting policies. The consolidated financial statements comprise the financial position of the Group as at 31 December 2017, the income statement, the statements of comprehensive income, the cash flow statement and statement of changes in equity for the year then ended and notes to the financial statements, including a summary of significant accounting policies.

In our opinion,

• ► the financial statements are prepared in accordance with the law and regulations;
• ► the financial statements present fairly, in all material respects, the financial position of the parent company as at 31 December 2017, and of its financial performance and its cash flows for the year then ended in accordance with the Norwegian Accounting Act and accounting standards and practices generally accepted in Norway;
• ► the consolidated financial statements present fairly, in all material respects the financial position of the Group as at 31 December 2017 and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the EU.

Basis for opinion

We conducted our audit in accordance with laws, regulations, and auditing standards and practices generally accepted in Norway, including International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the Company and the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in Norway, and we have fulfilled our ethical responsibilities as required by law and regulations. We have also complied with our other ethical obligations in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements for 2017. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.

We have fulfilled the responsibilities described in the Auditor's responsibilities for the audit of the financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the financial statements.

Goodwill Hexagon xperion – Impairment test

As at 31 December 2017, Hexagon Composites ASA Group reported goodwill of NOK 368 million from the acquisition of Hexagon xperion in 2016. Goodwill is subject to annual impairment testing and estimating the recoverable amount of the related cash generating unit requires management judgement of future revenues, gross margins, operating costs, terminal value growth rates, capital expenditures and discount rate. No impairment was recognized. The impairment test involves significant estimation uncertainty and management judgment, and is therefore a key audit matter.

Our audit procedures included, among others, an evaluation of the impairment model applied. We involved specialists in our team to support testing of the assumptions and methods used by management. We compared future cash flows against board approved plan for the years 2018-2022 and considered underlying assumptions for expected growth rates and the related cash flows applied by the group. We considered consistency against the assumptions used for the acquisition. Furthermore, we tested the input of the discount rate against comparable market data. We also tested the mathematically accuracy of the impairment model and performed sensitivity analysis of the assumptions used. We also assessed the disclosures in note 5 – Changes in the Group's structure and 11 – Intangible assets in the financial statements.

Other information

Other information consists of the information included in the Company's annual report other than the financial statements and our auditor's report thereon. The Board of Directors and Group President & CEO (management) are responsible for the other information. Our opinion on the financial statements does not cover the other information, and we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information, and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of management for the financial statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with the Norwegian Accounting Act and accounting standards and practices generally accepted in Norway for the financial statements of the parent company and International Financial Reporting Standards as adopted by the EU for the financial statements of the Group, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting, unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Auditor's responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with law, regulations and generally accepted auditing principles in Norway, including ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

Independent auditor's report - Hexagon Composites ASA

• ► identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• ► obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control
• ► evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
• ► conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern.
• ► evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
• ► obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Report on other legal and regulatory requirements

Opinion on the Board of Directors' report and on the statements on corporate governance and corporate social responsibility

Based on our audit of the financial statements as described above, it is our opinion that the information presented in the Board of Directors' report in the statements on corporate governance and corporate social responsibility concerning the financial statements, the going concern assumption and proposal for the allocation of the result is consistent with the financial statements and complies with the law and regulations.

Independent auditor's report - Hexagon Composites ASA

Opinion on registration and documentation

Based on our audit of the financial statements as described above, and control procedures we have considered necessary in accordance with the International Standard on Assurance Engagements (ISAE) 3000, «Assurance Engagements Other than Audits or Reviews of Historical Financial Information», it is our opinion that management has fulfilled its duty to ensure that the Company's accounting information is properly recorded and documented as required by law and bookkeeping standards and practices accepted in Norway.

Ålesund, 20 March 2018 ERNST & YOUNG AS

Amund Frøysa

State Authorised Public Accountant (Norway)

Independent auditor's report - Hexagon Composites ASA

GLOSSARY

ASA	Public Limited Company in Norway
BAR	Unit of pressure. 1 millibar = 100 N/m2
CHG	Compressed Hydrogen Gas
CNG	Compressed Natural Gas
TYPE 1	Steel cylinder
TYPE 2	Steel cylinder, composite-reinforced
TYPE 3	Composite cylinder with metal liner
TYPE 4	Composite cylinder with polymer liner
EBIT	Earnings before interests and taxes
EBITDA	Earnings before interest, taxes, depreciation and amortization
HEX	Hexagon Composites ticker on Oslo Børs
HMS	Health, Safety & Environment. Collective term for activities relating to health protection, environmental protection, working environment and employee safety.
HYDROGEN	Light, colourless gas (Symbol H), produced on an industrial scale
IA	Inclusive Workplace
ISO	International Organization for Standardization – publishes standards in a large number of areas
JOINT VENTURE	Legally signed contractual agreement whereby two or more parties undertake an economic activity
COMPOSITE	Combination of glass/carbon fibre and thermosetting plastic, exploiting the malleability of the plastic and the stiffness and strength of the glass/carbon fibre
LNG	Liquefied Natural Gas
LPG	Liquefied Petroleum Gas (propane gas)
MATCH	Equity segment on Oslo Børs
MOBILE PIPELINE®	Gas distribution products
NGV	Natural Gas Vehicle
OEM	Original Equipment Manufacturer
OSE	Oslo Stock Exchange (Oslo Børs)
X-STORE®	High-pressure composite cylinder for bulk transportation and storage of CNG
RESIN	Chemical adhesives for strengthening glass and/or carbon fibre
SMARTSTORE®	High-pressure composite cylinder for bulk transportation and storage of CNG
SCM 3	Standard cubic metres. Unit for volumetric measurement of oil, natural gas and natural gas condensate at standard conditions defined in the ISO standard ISO 13443
STYREN	Organic hydrocarbon used in the production of rubber and plastic components
TITAN®	High-pressure composite cylinder for bulk transportation and storage of CNG

FINANCIAL CALENDAR 2018

ANNUAL GENERAL MEETING 19 April 2018

1ST QUARTER 2018 9 May 2018

2ND QUARTER AND HALF YEAR REPORT 2018 15 August 2018

3RD QUARTER 2018 31 October 2018

4TH QUARTER 2018 13 February 2019

CONTACT US

IR CONTACTS David Bandele CFO Phone: +47 920 91 483 david.bandele@hexagon.no

Solveig Maria Saether Communication Manager Phone: +47 906 34 977 solveig.saether@hexagon.no

ADDRESS Hexagon Composites ASA Korsegata 4B P. O. Box 836 Sentrum N0-6001 Aalesund

Phone: +47 70 30 44 50 office@hexagon.no www.hexagon.no

ANNUAL REPORT 2017

HEXAGON COMPOSITES ASA

Korsegata 4B, P. O. Box 836 Sentrum, N0-6002 Ålesund, Norway. Phone: +47 70 30 44 50, office@hexagon.no, www.hexagon.no

HYDROGEN & LIGHT-DUTY VEHICLES

Hexagon MasterWorks Heavy-Duty Trucks

Transit Buses