Hexagon Composites — Investor Presentation 2015

Aug 13, 2015

2ND QUARTER 2015

HALF YEAR INTERIM REPORT 2015

Oslo, 13th August 2015

Jon Erik Engeset, CEO David Bandele, CFO

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 13th August 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

FACING HEADWINDS

OPERATING REVENUES NOK Million

HIGHLIGHTS Q2 2015

• Weak Mobile Pipeline™ sales
• Record volume in Heavy-Duty segment, but margins under pressure
• Continued losses in Light-Duty Vehicles
• Good capacity utilization in the Low-Pressure Cylinders segment, but slightly down from Q2 2014

1ST QUARTER 2015 2ND QUARTER 2015 FINANCIALS

FINANCIALS HALF YEAR INTERIM RESULTS

FINANCIAL HIGHLIGHTS Q2 2015

• Overall profitability impacted by:
• ˗ Weak volume in Mobile Pipeline™
• ˗ Losses in Light-Duty Vehicles
• ˗ Higher fixed cost related to future growth
• Strong underlying growth in CNG North America at lower margins
• Solid profitability in LPG business
• Extraordinary refinancing costs in Q2
• ˗ NOK 21 million of Bond buy-back premium saving NOK 10.5 million per year
• ˗ NOK 7 million in non-cash charges to the P&L

Group key figures	NOK million
Operating Income	414
EBITDA	37
Net loss	-8

Q2 AND HALF-YEAR 2015 GROUP INCOME STATEMENT

NOK THOUSAND-	THREE MONTHS ENDING*			SIX MONTHS ENDING*			TWELVE MONTHS ENDING*
	30.06.15	30.06.14	Variance	30.06.15	30.06.14	Variance	31.12.14
Operating Income	413 892	394 167	19 725	815 528	804 696	10 832	1 650 829
Operating expenses	(376 518)	(313 715)	(62 803)	(725 300)	(639 135)	(86 165)	(1 321 678)
EBITDA	37 374	80 452	(43 078)	90 227	165 561	(75 334)	329 151
Depreciation and impairment	(14 195)	(17 627)	3 432	(27 523)	(35 616)	(8 093)	(72 363)
EBIT	23 179	62 825	(39 646)	62 704	129 945	(67 241)	256 788
Share of profit/(loss) from associates	(23)	(1 036)	1013	(135)	(1 792)	1 657	(9 554)
Other financial items (net)	(34 813)	(5 040)	(29 773)	(20 976)	(13 932)	(7 044)	(9 815)
Profit/(loss) before tax from cont. operations	(11 657)	56 749	(68 406)	41 594	114 221	(72 627)	237 419
Tax expense	3 473	(17 866)	21 339	(12 170)	(36 816)	24 646	(77 072)
Profit/(loss) after tax from cont. operations	(8 184)	38 883	(47 067)	29 424	77 405	(47 981)	160 347
Profit/(loss) from companies held for sale	-	-	-	-	4 855	(4 855)	4 325
Profit/(loss) for the period	(8 184)	38 883	(47 067)	29 424	82 260	(52 836)	164 672

EBITDA %	9.0%	20.4%	11.0%	20.6%	19.9%
EBIT %	5.6%	15.9%	7.6%	16.2%	15.6%
NET PROFIT%	(2.0)%	9.9%	3.6%	10.2%	10.0%

Q2 '15 V '14 INCOME STATEMENT HIGHLIGHTS

• High-Pressure growth NOK 22 million (8%)
• ˗ Includes positive USD FX impacts of c. NOK 67 million
• Low-Pressure decline NOK 2 million (-2%)
• High-Pressure at 3.6% margin
• Low-Pressure at 20.3% margin
• Prior years' asset base well depreciated in Low Pressure whilst asset base increases in High Pressure
• ˗ Low Pressure effect NOK +6 million
• ˗ High Pressure effect NOK -3 million
• Financial items effect of NOK 30 million (Bond buy-back and refinancing -28; FX -4; Interest +2)
• Effect from Rugasco JV NOK +1 million
• Tax effect of NOK +22 million

Profitability impacted negatively by lower Mobile Pipeline™ and Light-Duty Vehicle volumes together with higher cost base

H1 '15 V '14 INCOME STATEMENT HIGHLIGHTS

• High-Pressure growth NOK 55 million (10%)
• ˗ Includes positive USD FX impacts of c. NOK 133 million
• Low-Pressure decline NOK 44 million (-16%)
• High-Pressure at 7.6% margin
• Low-Pressure at 20.0% margin
• Prior years' asset base well depreciated in Low pressure whilst asset base increases in High-Pressure
• ˗ Low-Pressure effect NOK +14 million
• ˗ High-Pressure effect NOK -6 million
• Financial items effect of NOK -7 million
• Effect from Rugasco JV NOK +2 million
• Tax effect of NOK +24 million
• Divestments in 2014 NOK -5 million

Headwinds from effects of lower oil and diesel prices impacting markets in the Americas

GROUP EBITDA Q2 '15 V Q2 '14

Impacts to Group profitability mainly contained in High-Pressure Cylinders segment

GROUP EBITDA Q2 '15 V Q1 '15

Q2 2015 v Q1 2015 EBITDA impacted negatively primarily by Lower Mobile Pipeline™ volumes

SEGMENT SHARES Q2 2015

SHARE OF OPERATING INCOME

• High-Pressure: CNG Automotive (Global)
• High-Pressure: Mobile Pipeline™

• Low-Pressure: LPG (Propane)

• High-Pressure: CNG Automotive (Global)

• High-Pressure: Mobile Pipeline™
• Low-Pressure: LPG (Propane)

SEGMENT SHARES Q2 2015

BEFORE GROUP ELIMINATIONS*

• High-Pressure: CNG Automotive and Mobile Pipeline™

• Low-Pressure: LPG (Propane)

• High-Pressure: CNG Automotive and Mobile Pipeline™

• Low-Pressure: LPG (Propane)

Q2: HIGH-PRESSURE CYLINDERS

• Weak sales of Mobile Pipeline™ solutions
• Continued strong heavy-duty demand in North America but with lower margins; strong global transit bus market
• Weak demand in Light-Duty Vehicles; loss making
• Higher operating leverage from increased fixed cost including NOK 5 million higher corporate allocations

NOK THOUSAND	SUMMARY FINANCIALS
	Q2 2015	Q2 2014	Variance
Operating Income	284 981	263 454	21 527
Operating expenses	(274 697)	(208 021)	(66 676)
EBITDA	10 284	55 433	(45 149)
Depreciation and impairment	(11 188)	(7 758)	(3 430)
EBIT	(904)	47 675	(48 579)

Q2: LOW-PRESSURE CYLINDERS

• Good sales volume mainly in Europe
• Solid production capacity utilization, only slightly lower than Q2 2014
• Satisfactory profitability despite increased fixed cost including NOK 2 million higher corporate allocations

NOK THOUSAND	SUMMARY FINANCIALS
	Q2 2015	Q2 2014	Variance
Operating Income	130 443	132 806	(2 363)
Operating expenses	(103 959)	(101 094)	(2 865)
EBITDA	26 484	31 712	(5 228)
Depreciation and impairment	(2 713)	(9 274)	6 561
EBIT	23 771	22 438	1 333

FINANCIAL POSITION V PREVIOUS QUARTER

NOK THOUSAND	30.6.2015	31.3.2015	Change
Intangible assets	102 350	104 864	( 2 514)
Tangible fixed assets	333 336	325 644	7 692
Other non-current assets	9 471	9 372	99
Total Non-current Assets	445 157	439 880	5 277
Inventories	347 556	384 598	(37 042)
Receivables	289 442	285 985	3 457
Bank deposits, cash and similar	100 013	122 894	(22 881)
Total Current Assets	737 011	793 477	(56 466)
Total Assets	1 182 168	1 233 357	(51 189)
Total Equity	451 959	547 611	(95 652)
Provisions	36 013	36 984	(971)
Long-term interest-bearing debt	382 320	297 428	84 892
Total Non-current Liabilities	418 333	334 412	83 921
Short-term interest-bearing debt	8 711	-	8 711
Other current liabilities	303 165	351 334	(48 169)
Total Current Liabilities	311 876	351 334	(39 458)
Total Liabilities	730 209	685 746	44 463
Total Equity and Liabilities	1 182 168	1 233 357	(51 189)

• Net Interest-bearing debt increased by NOK 116 million (Q1 2015: 175 v Q2 2015: 291)
• ̵ Weak Mobile Pipeline™ sales drives lower operational net cash generation
• ̵ Dividend payment of NOK 82 million
• ̵ Capital expenditures of NOK 25 million

CAPITAL STRUCTURE

Strong Balance Sheet

GROUP CASH MOVEMENTS Q2 2015

Balancing our cash buffer in light of dividend and refinancing outflows

1ST 2ND QUARTER 2015 OUTLOOK

QUARTER 2015

HEAVY-DUTY VEHICLES

• Strong competition between North American fuel systems builders
• ‒ Hexagon Composites committed to support Agility Fuel Systems
• ‒ The introduction of the 27'' tank has enabled significantly reduced systems cost
• ‒ Reduced systems costs will entail lower CAPEX hurdle
• Transit bus market continues to grow
• ‒ Market largely unaffected by oil price

MOBILE PIPELINE™ VERY CHALLENGING SHORT TERM

• Low oil prices create high uncertainty ‒ Thin order book
• Q3 will be very weak
• Converting to natural gas continues to make sense for several customers ‒ Prospect list continues to grow
• Q4 appears as a "return to normal" ‒ Current volatility requires caution

Conventional pipelines come at a high price, financially and environmentally

LPG FALLS SHORT OF 2014

• Break-through in Italy; a major LPG market for cooking and heating
• Innovation investments in new designs and functionality will support medium and long term growth

ADAPTING TO NEW CONDITIONS

• High-Pressure expansion programs adjusted to short term market demand
• Reduced usage of contract labor and some adjustment of permanent manning levels
• Comprehensive restructuring of Hexagon Raufoss (light-duty vehicles) under preparation
• Programs to strengthen technology platform and business development will continue

OUR LONGER TERM OUTLOOK MAINTAINED - GAS WILL INCREASE SHARE

• Natural gas fastest growing fossil fuel (+1.9% p.a.)
• Natural gas set to overtake coal by 2035
• Renewables the fastest growing energy source
• ‒ Biofuels and hydrogen produced from clean primary sources

Global shares of primary energy

Source: BP February 2015 Energy Outlook

OUTLOOK SUMMARY

• Q3 very challenging and the Group likely to generate an operational loss
• Recovery expected already in Q4
• High short term uncertainty due to low oil prices
• 2016 looks promising ‒ Growing prospect lists in all segments
• Long term business potential appears very solid
• ‒ Natural gas and renewables expected to make up a significantly increased share of a growing global energy consumption

QUESTIONS PLEASE

Jon Erik Engeset, CEO David Bandele, CFO