Hexagon Composites — Interim / Quarterly Report 2014

Feb 12, 2015

Oslo, 12th February 2015

Jon Erik Engeset, CEO David Bandele, CFO

4TH QUARTER 2014

DISCLAIMER AND IMPORTANT NOTICE

This company presentation (the "Presentation") has been prepared by Hexagon Composites ASA ("Hexagon" or the "Company"). The Presentation has not been reviewed or registered with, or approved by, any public authority, stock exchange or regulated market place. The Company makes no representation or warranty (whether express or implied) as to the correctness or completeness of the information contained herein, and neither the Company nor any of its subsidiaries, directors, employees or advisors assume any liability connected to the Presentation and/or the statements set out herein. This presentation is not and does not purport to be complete in any way. The information included in this Presentation may contain certain forward-looking statements relating to the business, financial performance and results of the Company and/or the industry in which it operates. Forward-looking statements concern future circumstances and results and other statements that are not historical facts, sometimes identified by the words "believes", expects", "predicts", "intends", "projects", "plans", "estimates", "aims", "foresees", "anticipates", "targets", and similar expressions. The forwardlooking statements contained in this Presentation, including assumptions, opinions and views of the Company or cited from third party sources are solely opinions and forecasts which are subject to risks, uncertainties and other factors that may cause actual events to differ materially from any anticipated development. None of the Company or its advisors or any of their parent or subsidiary undertakings or any such person's affiliates, officers or employees provides any assurance that the assumptions underlying such forward-looking statements are free from errors nor does any of them accept any responsibility for the future accuracy of the opinions expressed in this Presentation or the actual occurrence of the forecasted developments. The Company and its advisors assume no obligation to update any forwardlooking statements or to conform these forward-looking statements to the Company's actual results. Investors are advised, however, to inform themselves about any further public disclosures made by the Company, such as filings made with the Oslo Stock Exchange or press releases. This Presentation has been prepared for information purposes only. This Presentation does not constitute any solicitation for any offer to purchase or subscribe any securities and is not an offer or invitation to sell or issue securities for sale in any jurisdiction, including the United States. Distribution of the Presentation in or into any jurisdiction where such distribution may be unlawful, is prohibited. This Presentation speaks as of 12th February 2015, and there may have been changes in matters which affect the Company subsequent to the date of this Presentation. Neither the issue nor delivery of this Presentation shall under any circumstance create any implication that the information contained herein is correct as of any time subsequent to the date hereof or that the affairs of the Company have not since changed, and the Company does not intend, and does not assume any obligation, to update or correct any information included in this Presentation. This Presentation is subject to Norwegian law, and any dispute arising in respect of this Presentation is subject to the exclusive jurisdiction of Norwegian courts with Oslo City Court as exclusive venue. By receiving this Presentation, you accept to be bound by the terms above.

AGENDA

• Group Highlights
• Group Financials & Segment Overview
• Outlook
• Q & A

RECORD YEAR

OPERATING REVENUES NOK Million

HIGHLIGHTS Q4 2014

• Record quarter with strong growth in both revenues and profits
• High capacity utilization in the Low Pressure Cylinders segment
• Strong Gas Distribution Products (mobile pipelines™) sales
• Some near-term market uncertainty due to oil price volatility
• Positive overall impacts of USD and EUR currency developments

GAS DISTRIBUTION PRODUCTS (MOBILE PIPELINES™)

• Strong sales of TITAN™ and SMARTSTORE™ in Q4
• Market development has been good despite the oil price fall
• Large orders to South and North America taken at the beginning of Q4
• Moving into 2015 with a satisfactory order backlog

HEAVY DUTY VEHICLES

• Heavy Duty sales in North America and rest of world picked up somewhat from Q3
• Bus markets in the US and Europe were good in Q4
• Record performance for the year in the heavy duty segment

LIGHT-DUTY VEHICLES

• A key customer is undertaking plant restructuring
• ‒ This has resulted in lower order volume during the quarter
• Continued efforts to achieve volumes towards 2017

LOW PRESSURE CYLINDERS (LPG)

• Record year in turnover, EBITDA and EBIT
• Completed delivery of the Qatar and Iraq orders
• Record number of cylinders delivered and produced in 2014

4TH QUARTER 2014 & PRELIMINARY FULL YEAR GROUP FINANCIALS

SUMMARY FINANCIAL HIGHLIGHTS

Q4 & PRELIMINARY FULL YEAR 2014

Through 2014 we have:

• Delivered growth and profitability
• Grown Net profit 84% to NOK 165 million
• Increased Equity by 40%
• Generated NOK 310 million in underlying* operational cash flow; NOK 199 million net
• Reduced Net Interest Bearing Debt by NOK 103 million
• Strengthened finance organisation and processes

Well positioned for 2015 with enhanced competitive advantage

GROUP INCOME STATEMENT

Q4 & PRELIMINARY FULL YEAR 2014

31.12.14 31.12.13 496 861 304 433 335) (271 331)	Variance 192 428 (137 004)	31.12.14 1 650 829	31.12.13 1 271 621	Variance 379 208
		(1 321 678)	(1 067 259)	(254 419)
88 526 33 102	55 424	329 151	204 362	124 789
(17	807	(72 363)	(62 297)	(10 066)
	56 231	256 788	142 065	114 723
(2	(4 262)	(9 554)	(4 224)	(5 330)
(4	3 561	(9 815)	(9 396)	(419)
	55 531	237 419	128 445	108 974
	(20 679)	(77 072)	(41 742)	(35 330)
	34 852	160 347	86 703	73 644
	(1 147)	4 325	2 941	1 384
	33 705	164 672	89 644	75 028
	152) 71 374 (6 613) 257) 63 504 237) (1 558) 41 267 (530) 40 737	959) 15 142 351) 818) 7 973 6 415 617 7 032

EBITDA %	17.8%	10.9%	19.9%	16.1%
EBIT %	14.4%	5%	15.6%	11.2%

Q4 '14* V '13* INCOME STATEMENT HIGHLIGHTS

• High-pressure growth NOK 99 million (39%)
• Low-pressure growth NOK 86 million (142%)
• Overall positive FX impacts of c. 70 NOK (+17% USD / +10% EUR)
• High-pressure at 19.6% margin
• Low-pressure at 14.2% margin
• Depreciation at same level in quarter
• Overall positive FX impacts of c. 18 NOK
• Financial items effect of +NOK 3 million (FX +3; Interest 0)
• ˗ Negative mark to market effects offset by positive translational effects
• Share from Rugasco JV NOK -4 million
• Tax effect of –NOK 21 million

Maintained healthy and profitable growth in quarter

GROUP EBITDA Q4 '14* V Q4'13*

NOK million

Strong Q4 performance in 2014; traditionally a "soft" quarter for Low Pressure

www.hexagon.no

2014* V 2013* INCOME STATEMENT HIGHLIGHTS

• Tax effect of - NOK 35 million

A record year for Income and profitability

of c. 100 NOK (+7% USD /

+6% EUR)

FINANCIAL POSITION V PREVIOUS QUARTER

NOK THOUSAND	31.12.2014*	30.9.2014*	Change
Intangible assets	106 233	82 965	23 268
Tangible fixed assets	294 462	246 734	47 728
Other non-current assets	4 852	2 613	2 239
Total Non-current Assets	405 547	332 312	73 235
Inventories	320 468	337 410	(16 943)
Receivables	250 536	216 003	34 533
Bank deposits, cash and similar	202 178	123 403	78 776
Total Current Assets	773 182	676 816	96 366
Total Assets	1 178 729	1 009 128	169 601
Total Equity	487 109	429 157	57 952
Provisions	35 720	23 988	11 732
Long-term interest-bearing debt	297 243	297 130	113
Total Non-current Liabilities	332 963	321 118	11 845
Short-term interest-bearing debt	-	-	-
Other current liabilities	358 657	258 853	99 804
Total Current Liabilities	358 657	258 853	99 804
Total Liabilities	691 620	579 971	111 649
Total Equity and Liabilities	1 178 729	1 009 128	169 601

• Additional Liquidity reserves are NOK 391 million
• Net Interest-bearing debt reduced by NOK 79 million (Q3 2014: 174 v Q4 2014: 95) – despite capex intensive quarter - 43 million in cash outlay
• Further optimised operational working capital levels in Q4
• Other current liabilities movement is mainly AP, Tax and Currency derivatives

CASHFLOW Q4 2014 – NOK MILLION

CF from Operations of NOK 160m includes working capital optimisation of NOK 80m

CAPITAL STRUCTURE

0 200 400 600 800 1 000 1 200 1 400 30.09.2014 31.12.2014 EQUITY SHARE: 41.3% Current liabilities Long term liabilities Equity LIABILITIES AND EQUITY NOK Million

Strong Cash and Equity position

SEGMENT SHARES Q4 2014

BEFORE INTERCOMPANY ELIMINATIONS AND GROUP CHARGES*

• High Pressure: CNG Automotive (Global)
• High Pressure: Gas Distribution Products

• Low Pressure: LPG (Propane)

• Distribution Products

• Low Pressure: LPG (Propane)

SEGMENT SHARES YEAR 2014

BEFORE INTERCOMPANY ELIMINATIONS AND GROUP CHARGES*

• High Pressure: CNG Automotive
• High Pressure: Gas Distribution Products

• Low Pressure: LPG (Propane)

• High Pressure: CNG Automotive and Gas Distribution Products

• Low Pressure: LPG (Propane)

Q4 & 2014: HIGH PRESSURE CYLINDERS

QUARTER 4

• CNG Automotive underlying revenues for TUFFSHELL™ picked up from Q3
• Strong underlying Global revenues for TITAN™ and SMARTSTORE™ transportation and storage systems
• Continued weak demand for RoW Light Duty vehicles precipitated need for short-term cost initiatives

YEAR 2014

• Satisfactory Growth in challenging 2nd half of year for CNG Automotive sales
• Strong focus on resourcing business opportunities as platform for further growth; a year of consolidation of market position and new product offerings
• 50% Growth versus 2013 but still a small part of our business portfolio; still requires increased volume in European market

NOK THOUSAND	SUMMARY FINANCIALS			SUMMARY FINANCIALS
	Q4 2014	Q4 2013	Variance	YEAR 2014	YEAR 2013	Variance
Operating Income	349 748	251 025	98 723	1 098 337	948 254	150 083
Operating expenses	(281 029)	(216 953)	(64 076)	(882 041)	(799 316)	(82 725)
EBITDA	68 719	34 072	34 647	216 295	148 937	67 358
Margin	19.6%	13.6%		19.7%	15.7%
Depreciation and impairment	(9 425)	(10 853)	1 428	(32 355)	(33 359)	1 004
EBIT	59 294	23 219	36 075	183 940	115 578	68 362
Margin	17.0%	9.2%		16.7%	12.2%

Q4 & 2014: LOW PRESSURE CYLINDERS

QUARTER 4

• Finished deliveries to Qatar and Iraq in quarter; another high revenue quarter
• High capacity utilization and variable cost productivity during plant uptime
• EBITDA margins impacted negatively by annual plant shutdown activities, price/mix factors and other items

YEAR 2014

• Record production and delivery of 1.5 million cylinders
• Significant contribution to operating profit of group; global penetration of composite cylinders for LPG is still only 3% - more to go for
• Need for increased capex investment going forward; replacements & enhancing productivity

NOK THOUSAND	SUMMARY FINANCIALS			SUMMARY FINANCIALS
	Q4 2014	Q4 2013	Variance	YEAR 2014	YEAR 2013	Variance
Operating Income	147 023	60 685	86 338	559 092	338 947	220 145
Operating expenses	(126 219)	(56 753)	(69 466)	(420 555)	(265 856)	(154 699)
EBITDA	20 804	3 932	16 872	138 537	73 091	65 446
Margin	14.2%	6.5%		24.8%	21.6%
Depreciation and impairment	(8 906)	(6 976)	(1 930)	(39 403)	(28 417)	(10 986)
EBIT	11 898	(3 044)	14 942	99 134	44 674	54 460
Margin	8.1%	(5.0)%		17.7%	13.2%

4TH QUARTER 2014 OUTLOOK

A world of opportunities, but low oil prices likely to temporarily slow growth in CNG Automotive

• Continued growth expected for the year as a whole driven by Gas Distribution Products (Mobile PipelinesTM)
• Q1 challenging due to some order postponements in the Mobile pipelinesTM and LPG businesses, while CNG Automotive looks good
• ˗ Relatively weak Q1 results should be assumed
  • Not a function of oil prices
• Existing CNG Automotive end users continue their investment programs, but new customers sitting on the fence
• ˗ Flat to moderately growing CNG Automotive market in 2015
• LPG enjoys a steady increase of leads, but capacity in 2nd half still not filled
• ˗ The two major Middle East contracts from 2014 may prove hard to "copy" in 2015

SHARP FALL IN OIL PRICE HAS RAISED QUESTIONS

Henry Hub Natural Gas Spot Price (Dollars per Barrel)

FUEL PRICE DELTA ONLY ONE OF SEVERAL DRIVERS

• Fuel price delta
• Local and global emission reductions
• Fuel price stability
• Fuel availability
• Technology shifts from T1 (steel) to T4 (composites)

A MAJOR PART OF OUR BUSINESS IS DRIVEN BY ENVIRONMENTAL CONSIDERATIONS

Well-to-Wheel GHG emissions for energy forms used in transportation

THG-Emission WTW in GCO2 äq/km

EU HAS INITIATED AN AMBITIOUS GREEN FUELS PROGRAM WHERE CNG IS CENTRAL

EU Parliament approved the world's strictest regulations on CO2 emissions

• "..create coverage of gas refueling points in Europe's cities and densely populated areas by 2020"
• "…provides 26 billion Euro of funding for transport infrastructure development during 2014-2020"

NGVA Europe

• "Natural gas in both compressed (CNG) and liquefied form (LNG) is at the core of the strategy"

"I want diesel cars out of Paris by 2020"

-Ms Hidalgo, Mayor of Paris, Financial Times

IN MANY AREAS OF THE WORLD NATURAL GAS IS THE ONLY RELIABLE SOURCE OF ENERGY

• Usually also the cheapest alternative
• Low oil prices an occasion to remove governmental subsidies on oil products
• ‒ e.g. Mexico and Indonesia
• Biogas opportunities pursued in most OECD countries as well as in several emerging economies

Price of diesel in Mexico

Pesos per liter (1 USD = 14.5 pesos)

Oct 14 Nov 14 Dec 14 Jan-15

Landfill project in Brazil

COMPOSITES SET TO TAKE A SIGNIFICANTLY HIGHER SHARE OF GLOBAL CYLINDER MARKET

Weight, corrosion and safety advantages

• Know-how
• Product development
• Cost reductions
• Marketing

Source: Composites forecast and consulting

AGENDA 2015

• Continue and complete upgrade program at both manufacturing facilities
• ˗ Use the opportunity to introduce improvements to the program and support product and market development
• ˗ Ramp-up in Lincoln according to market requirements
• Significantly step up R&D
• Pursue M&A opportunities to strengthen technology platform and widen geographical footprint
• Further develop international sales and marketing capability
• Support governmental initiatives for Natural Gas, Biogas and Hydrogen

QUESTIONS PLEASE

Jon Erik Engeset, CEO David Bandele, CFO