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Hexagon Composites Investor Presentation 2018

Aug 15, 2018

3619_rns_2018-08-15_9619dd5e-0f68-4e2d-8b47-6d2d0b3461a8.pdf

Investor Presentation

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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 forward-looking 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 forward-looking 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 15 August 2018, 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
  • •Business update
  • •Summary Group financials
  • •Outlook
  • •Q & A
  • •Appendix: Segment financials

Highlights from Q2 2018

  • •Strong profitability overall for the Group
  • • Solid Mobile Pipelines volumes in the quarter More diversified customer base than previous quarters
  • • Strong LPG results
  • New production record in Q2
  • • High activity levels within Hydrogen & Light-Duty Vehicles
  • Many development projects in Hydrogen
  • Preparing for higher CNG LDV demand in Europe
  • •Agility Fuel Solutions profitability continues upwards trend

Business Update Hot topics

Recent FCEV order received validates value proposition Hydrogen

  • • Hexagon received serial production order of new FCEV (fuel cell electric vehicle)
  • Demonstrates the vast long-term potential of the FCEV market
  • • Combined value for development and serial production of USD 120-150m (approx. NOK 1.0-1.2bn)
  • Ongoing development project to support production from 2020-2025
  • Leveraging Hexagon's global footprint in Nebraska and Ohio (US), and Kassel (Germany)
  • •Supported by our strategic alliance partner, Mitsui & Co. Ltd.

Hexagon FCEV illustration

Financial solutions to reduce obstacles to adoption Agility Fuel Solutions

  • • Oil major Total makes investment of USD 83.4m for 25% of shares of Clean Energy Fuels Corp (major natural gas retailer in the US)
  • And USD 100m credit financing facility
  • Complements their strategy of expanding low carbon business
  • Strong validation of natural gas as a transportation fuel
  • • Clean Energy to provide this financing for natural gas-powered heavy-duty trucks
  • Aiming to match the prices of comparable diesel trucks
  • Allows fuel savings from day 1 of purchase
  • Funding capability of ~2,000 new trucks

Clean Energy Fuels Corp. a leading provider of natural gas and RNG for transportation in North America, launched financing program

Hidden value of Agility Investment Agility Fuel Solutions

Agility represents ca. 40% of total balance sheet…

NOKbn

…but is not consolidated in Hexagon's Revenue

NOKm, based on average 2017 and 2018 exchange rates

Relative size HEX vs Agility

2nd

QUARTER 2018 FINANCIALS

Financial highlights Q2 2018 | Strong Profitability

Other Hexagon businesses vs Hydrogen results | Q2 2018

15% EBITDA margin from underlying non-H2 business

11

Q2 and first half 2018 Group income statement

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Revenue by Segment Q2 2018 | Before Group eliminations*

Revenue Q2'18

NOKm, before group eliminations

  • Hexagon Mobile Pipeline® & Other
  • Hexagon Ragasco LPG

Agility Fuel Solutions: Q2 2018 Business Operating results

  • • Increase in revenues and margin through 1H 2018
  • Driven by strong transit bus volumes
  • • Slow Heavy-Duty Truck volumes in quarter
  • Some pick-up from Q1 2018 including sales to trucks with new near-zero 12L engine
  • • Solid Refuse Truck sales
  • Continued upward trend in 2018 over 2017
  • • Good Liquidity
  • Fully-funded

Revenues and adjusted EBITDA

Balance sheet | Q2 2018 vs Q1 2018 NOK 271m (175m) Net Interest Bearing Debt & 62% (60%) Equity Ratio

Dividends and share buyback drives higher NIBD

Favorable macro conditions

  • •Attractive diesel vs. natural gas price spread
  • •Tighter governmental regulations are a strong driving force
  • •Incentive programs in Europe, the US and East Asia
  • • Hydrogen, biogas and natural gas widely acknowledged as essential components of the low carbon energy mix

E-mobility with fuel cells is a viable option

"…Battery and fuel cell form a perfect symbiosis…"

Growing demand for Hydrogen trucks and buses

  • • Heavy-duty applications receiving strong interest
  • Toyota unveils the 2nd iteration of its hydrogen class 8 truck
  • Nikola reports to have USD 11bn worth of pre-orders
    • Secured a 800-truck order from Anheuser-Busch in the US
    • Will build extensive hydrogen filling station network in the US (NEL exclusive supplier)
  • ASKO of Norway to deploy its first hydrogen truck on the road by the end of 2018
  • • Operationally the most efficient zero-emission solution
  • Fueling time, weight and range

Toyota is increasing the H2 truck's estimated range from 200 to 300+ miles per fill Source: Toyota

The maritime segment speeds up

  • • First fast ferry customer announced
  • Golden Gate Zero Emission in California, USA
  • Launch expected mid-2019
  • • Several new projects in discussion
  • Work boats, fast ferries and car ferries
  • From early 2020 and onwards
  • • Strong regulatory push
  • CO2 emissions from global shipping to be halved by 2050 IMO1)
  • • Norwegian parliament adopts zero-emission regulations latest by 2026
  • A comprehensive hydrogen strategy has been requested

Golden Gate Zero Emission Marine (GGZEM) building the first hydrogen fuel cell vessel in the US. Source: Golden Gate Zero Emission Marine

CNG Light-Duty Vehicles

22

CNG car sales rising on tougher emissions rules

  • • Pick-up in CNG demand in many European countries
  • Strict EU CO2 limits
  • Government incentives e.g. Sweden (Bonus-malus), Belgium (no excise duty) Germany (tax exemption extended to 2026)
  • Diesel car bans considered in many cities, i.e. Hamburg
  • • Extensive expansion plan for CNG filling stations in Italy
  • Eni to roll out 20 new CNG filling stations
  • Snam and API Group have signed agreement for 200 natural gas fuelling stations
  • •Volkswagen launching mono-fuel CNG models at the end of 2018

Volkswagen Group CNG models Source: Volkswagen Group

WLTP testing rules creating temporary delays for OEMs rollout*

"Carmakers are facing bottlenecks as they rush to get models through the more complex WLTP tests on a limited number of exhaust emissions test benches as they won't be able to sell new vehicles after Sept. 1 without the new carbon dioxide (CO2) emissions and fuel consumption readings"

"Implementation of the so-called Worldwide Harmonized Light Duty Vehicles Test Procedure (WLTP) on Sept. 1 for new cars will temporarily restrict the availability of some models and could affect working capital by driving up first-half inventories, Volkswagen (VW) said on Friday, without being more specific."

Reuters, June 8th

The temporary slowdown will affect Hexagon in Q3 but strong growth is expected to resume in Q4

* WLTP: Worldwide Harmonized Light Duty Vehicles Test

g-mobility in Germany continues to grow

Registered vehicles by drivetrain YoY growth

VW new CNG registrations in Germany

Newly launched TITAN®53

  • • Delivers almost 40% greater payload than the first TITAN® modules allowing customers to move greater volumes of CNG
  • • First TITAN®53 order received from XNG expanding their TITAN® fleet
  • Total value USD 10.6m (approx. NOK 86m)
  • Deliveries of modules scheduled for Q4 2018 Q1 2019
  • To serve virtual interconnect projects connecting communities and facilities to the gas grid in the US

TITAN®53 gas transport module

XNG Mobile Pipelines

Positive sentiment in Mobile Pipelines

  • • Demand in North America expected to continue
  • High onshore drilling activity
  • Growth in conversions from petroleum fuels to natural gas due to availability and favourable fuel spread, i.e. energy intensive industries
  • • Still slow project flow outside North America
  • However several projects in the pipeline e.g. energy intensive industries, gas islands and power generation
  • First sale into Guatemala in Q3
  • • MAE* business is growing as modules come up for requalification
  • • Expect strong year-over-year growth
  • Back-end loaded project pipeline i.e. soft Q3 but strong Q4

Healthy LPG market

  • •Expect to reach similar capacity utilization rate as last year
  • •Continued stable European market
  • • Bangladesh emerging as one of the fastest growing bottled LPG markets in the world
  • Replacing piped natural gas with bottled LPG for domestic use
  • • Continued expansion in the US BBQ Propane Exchange market
  • Entering California and Nebraska, following the introduction in Florida in Q1 2018

Beximco composite LPG cylinder

Agility Fuel Solutions

Agility Fuel Solutions

  • • Natural gas truck sales expected to rebound in 2nd half of 2018
  • 1st half slowed by delayed availability of Cummins Westport's near-zero emissions natural gas engine
  • Pent up demand for new engine means order board is strong for balance of year
  • All time high heavy-duty truck (incl. diesel) sales could limit chassis availability and push orders into 2019
  • • Expect good growth in North American and European Transit Bus segment
  • • Refuse Truck market also enjoying a good year
  • Customers continue to expand fleets of natural gas vehicles
  • Increasing investments into landfills turning waste to renewable natural gas (RNG)

Source: Volvotrucks.us

Fuel price spread has become significantly more favorable

Price development last 12 months

Oil price increase & natural gas price decrease are driving the fuel price spread in favor of CNG

* LTA: Long-term agreement for non-retail fleet CNG refueling

Group Outlook

•Hydrogen

  • – Deep into major development programs across several applications
  • –Revenue recognition sensitive to project milestones
  • – Expected revenue uptick in late 2018 / early 2019 as planned
  • – Continues to be heavily dilutive as the organization is ramping up and incurring costs

•CNG LDV

  • –Mandatory test program temporarily bottlenecking OEMs
  • –Underlying strong momentum in key European markets
  • –Expect to exit 2018 with strong run-rate

•Mobile Pipelines

  • –Softer Q3 due to postponements into Q4
  • –Strong long term market view

•LPG

  • –Working to fill 2nd half 2018
  • –Expect volumes similar to 2nd half 2017
  • • Agility Fuel Solutions
  • – Natural gas truck sales expected to rebound in 2nd half, with improving market conditions and availability of nearzero engine

Questions Please

Jon Erik Engeset, CEO David Bandele, CFO

APPENDIX

Segment financial highlights Q2 2018

  • •Steady quarter for CNG powered Light-Duty Vehicles
  • • Lower Hydrogen product revenues, instead performance based development revenues

  • • Investing in future H2 growth dilutes EBITDA by NOK 20m

  • • +36% year-over-year growth driven by North American Mobile Pipelines sales

  • • Incremental volumes above current level will drive EBITDA

Segment financial highlights Q2 2018

  • • Revenues primarily from core European and Middle Eastern markets

  • • Flat year-over-year on both revenue and EBITDA but maintaining high absolute levels

  • •Flat year-over-year Group revenue

  • • Strong EBITDA, however assisted by NOK 40m provision reversal

After all eliminations

Agility Fuel Solutions: Q2 2018

Result to Hexagon Group per equity accounting method

Q2 2018 AFS EBITDA to profit before tax

Agility impact to Group P&L

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