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Hexagon Composites Investor Presentation 2018

Feb 14, 2018

3619_rns_2018-02-14_ddaed8f3-6071-40ff-91d1-ab23a286d82c.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 14 February 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
  • •Group financials & segment overview
  • •New segment reporting
  • •Outlook
  • •Q & A

Highlights from Q4 2017

  • • Solid year-over-year growth in profit across all business unit s
  • ‒Continued momentum in High-Pressure
  • • Strong Hydrogen volume growth
  • Rail and transportation continue to gain commercial traction
  • •Steady profitability in Light-Duty Vehicles
  • • Strong Mobile Pipelines volumes in the quarter
  • ‒North America is still the main growth driver
  • ‒Recovering volume in Rest of world
  • • Weak quarter for Agility Fuel Solutions
  • However strong growth in profitability for full year 2017
  • • Low-Pressure delivered on profit and capex milestones
  • ‒Ended a record year with 30% growth of revenue in 2017

Financial highlights Q4 2017

Solid Profitability and strong cash generation

347 358 +11(+3%) +7339.9(11%) -33.5(-10%) 31-33+64Revenues EBITDA1 Net profit1 NOKm NOKm, ex Q4'16 extraordinary gain of NOK 348m NOKm, ex Q4'16 extraordinary gain net of tax provision of NOK 226mQ4'16 Q4'17 Q4'161 Q4'17 Q4'161 Q4'17 • Hydrogen and Light-Duty Vehicles drive growth • Strong volumes within Mobile Pipelines • Positive profit growth across all business units • Continued momentum in High-Pressure • Currency effects negative year over year • Tax charges effects positive year over year

1Excluding reported extraordinary gain on Agility transaction

Q4 2017 Group income statement

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7

Segment shares Q4 2017 | Before Group eliminations*

Operating income Q4'16 Operating income Q4'17

NOKm, before group eliminations NOKm, before group elimination

  • High-Pressure: Mobile Pipeline®
  • High-Pressure: Hydrogen
  • High-Pressure: MasterWorks & Other
  • Low-Pressure: LPG (Propane)

NOTE: NOK 13 million reclassified to LDV from Other

Agility Fuel Solutions Q4 2017

  • • Weak 4th quarter for revenues and margin after 3 successive solid quarters in 2017
  • • Good cash and working capital position Fully-funded
  • • Weak Heavy-Duty Truck deliveries in quarter
  • Order patterns disrupted by delayed launch of new near-zero 12L engine
  • • Bus volumes relatively soft in quarter
  • Year-over-year decline vs. strong 2016 in US
  • • Strongest quarter in 2017 for Refuse Truck sales Recovery strong in second half of year
  • • Powertrain Systems (propane) on track to business plan

Revenues and adjusted EBITDA*

Q4 2017 EBITDA to profit before tax

Effects for Group reporting Q4 2017

  • • Additional accounting adjustments including amortization of intangible assets add to loss for quarter
  • • However, US tax reforms revising tax rate downwards to 21% has positive impact to the Deferred tax liability recognized as part of the initial Agility transaction
  • • Impact of this adjustment is + NOK 40 million reflected in Net Profit through credits to the tax expense line

Agility impact to Group P&L

NOKm unless otherwise stated

profit before tax adjustments tax (USDm) associates & JVsrecorded by HEX before intangible amort.

Balance sheet | Q4'17 vs Q3'17

NOK 215m Net Interest Bearing Debt & 59% Equity Ratio

No significant movements other than a pay-down of debt in the quarter

Group cash movements Q4'17

Strong contribution from underlying operations allowed for Debt pay-down

Preliminary & unaudited Full Year 2017

Full-year 20171 vs. 2016

12017 = Preliminary and unaudited 2Excluding reported extraordinary gain on Agility transaction

Full Year Preliminary Unaudited 2017 vs pro-forma 2016

+29% headline revenue growth on pro-forma basis (vs. 17% headline growth on reported numbers) +174m EBITDA increase on pro-forma basis (vs. +147m on reported numbers ex Agility gain)

Agility investment

Agility represents ca. 40% of total balance sheet… …but is not reported in Hexagon's EBITDA

NOKm, based on average 2017 USD:NOK of 8.27

The above pro-forma 2017 Group EBITDA includes 50% of Agility's Reported EBITDA under US GAAP

Using the Adjusted EBITDA number would add another ~ NOK 22 million

Legacy Hexagon: Pre xperion acquisition Mobile Pipelines, Light-Duty, Hydrogen and LPG xperion acquisition: Closed in Q4 2016 for purchase consideration of NOK 293m in cash and contingent earn-out of up to NOK 103m Agility Fuel Solutions: Closed in Q4 2016 at value of NOK 971m

Agility Fuel Solutions Full Year 2017

  • • Satisfactory margin growth despite modest revenue growth
  • • Solid Heavy-duty truck deliveries
  • 52% Year-over-year growth vs. weak 2016
  • • Solid Bus volumes
  • However 18% lower than very strong 2016
  • • Weak Refuse truck sales
  • 20% Year-over-year decline however picked up momentum in second half of 2017
  • • Significant non-cash items turn an underlying positive into a negative contribution to Hexagon Group profit

Revenues and adjusted EBITDA*

Agility impact to Group P&L

2017* Financial Scorecard

  • • Record LPG performance –30% Revenue and 46% EBITDA growth
  • • Positive EBITDA in High-Pressure –Improvement of NOK 93 million ex Agility gain of NOK 348 million
  • •Mobile Pipelines recovery in volumes
  • • Exceptional Hydrogen growth –From 3% to 10% of Group revenue
  • • Positive momentum for LDV with increased focus on biogas
  • •xperion acquisition fully integrated into business units
  • •Agility 78% Adjusted EBITDA growth
  • •Strong Balance Sheet

In 2017 we prioritised integrating the new business combination as a result of strategic plays in 2016; Now we will focus on the significant long-term opportunities within hydrogen and biogas in 2018

*2017 = Preliminary and unaudited

Sharpening our focus on cleaner energy opportunities

The energy transition is opening up growth opportunities

We are adapting our leading composite pressure vessel technology for a wide range of mobility and storage applications

Our position on the Hydrogen and Biogas opportunities

The transition to cleaner energy, supported by public and private players, is happening now…

…driving game-changing opportunities especially within Hydrogen …

2

…and we are making significant investments in 2018-2020 for attractive returns from 2022 and beyond

Market Drivers Hydrogen Council pronouncements

  • • Significant cost/kW reduction over a 10 year period
  • • Commercial products are now being marketed across sectors and along the full hydrogen value chain
  • • Exponential growth is underway in all addressed markets, supported by clear political backing
  • • Investments will multiply by 10 over the period and are required along full value chain
  • •Investors are encouraged to get in early

Key conclusions Steering members

The Council Launched at the World Economic Forum 2017, in Davos

Source: Hydrogen Council

FCEVs will play an essential role in decarbonizing transportation

Projected economic attractiveness

Source: Hydrogen Council, Toyota, Hyundai, Daimler

Numerous Hydrogen related plays…

United Kingdom will reduce CO2 with hydrogen grid blend

Japanese majors speeding up the Hydrogen Society

China aims to build a "hydrogen city"

US based Nikola plans \$1bn fuel cell truck factory

California hit 3,000 Toyota Mirai

Segment analysis | Light-duty vehicles example

  • • Hexagon has development/trial production contracts with several OEMs
  • • New contract for 2 new FCEV models ongoing through 2019
  • •Supplied several other OEMs with test tanks
  • • Building on leading position within production of CNG composite cylinders
  • • Unique production technology for mass production of composite cylinders
  • • Potential for scope beyond cylinder manufacturing (systems)

Market potential | Hexagon estimate (NOKbn)

  • ~1.9% CAGR for #LDV vehicles sold p.a.
  • 1% FCV adoption rate in 2028

Fuel Cell Electric Vehicle market penetration rate expected to follow adoption rates for BEVs

  • •Predicted growth validated by past performance (trailing 7 years) of BEV accomplishments
  • •BEV's currently have > than 1% market share in China, France, Netherlands, Norway, Sweden and UK
  • •Embedded OEM also predicting greater than 1% penetration rates for Light-Duty FCEVs

Demonstrated market adoption Potential FCEV adoption

Source: evvolumes.com

Key to unlocking the market potential

Total market potential

The multiple opportunities in Hydrogen can be a game changer for Hexagon Composites

Hydrogen opportunities now materializing in revenue

1 Revenues before eliminations

Large Hydrogen market potential requires investments

2018-2020 is a period of significant investment to pursue the Hydrogen opportunity and maintain market leadership

Public and private support of Biogas growing…

Lower carbon footprint and reduced greenhouse gas (GHG) emissions

LDV CNG/Biogas market potential

2017 reporting segments in Hexagon Group

Equity accounted 50% owned investment (reported below EBITDA)

2018 segment reporting in Hexagon Group

Strong g-mobility drive in Germany

  • • Climate targets cannot be reached without CNG with biogas
  • • Tax relief extension for natural gas until 2026 guarantees CNG LDV owners a cost-effective fuel
  • • Targeting increase of CNG vehicle fleet in Germany tenfold to 1 million by 2025
  • • Expanding filling infrastructure from 900 to 2,000 stations

"If we get it right, an 80 percent cut in CO2 emissions can be achieved by using automobiles powered by natural gas."

Angela Merkel, Chancellor of Germany

Source: Volkswagen Group

g-mobility

  • • Volkswagen reconfirms its CNG strategy
  • Grants to customers for switching to CNG vehicles introduced in 2017 has been extended until end March 2018
  • Increasing its CNG LDV range to 16 models
  • Introduction of four mono-fuel CNG models end of 2018
  • •Double digit growth expected short and medium term

Volkswagen new CNG LDV models: CO2 emissions g/km well below EU 2021 target

Photo: Volkswagen Group

"As far as a natural gas vehicle powered by CNG is concerned, it is irrelevant whether it runs on pure fossil fuel or methane that has been 100 percent regenerated. This characteristic makes the natural gas vehicle extremely important for the current energy transition."

Jens Andersen, Group CEO for Natural Gas Mobility at Volkswagen AG

Power-to-gas

Hydrogen as a battery

- + Hydrogen key to unlocking the full offshore wind potential of the North Sea Battery Fuel cell Hydrogen Hydrogen transport Power & heatDAY STORAGESEASONAL STORAGERenewable energy Surplus renewable energy Power at night Surplus battery energy Electrolyser Compression

'Bringing North Sea Energy Ashore Efficiently", by Netherlands member committee of the World Energy Council. Posted 19 January 2018

Hydrogen for zero emissions fast ferries

  • • Fast ferries in Norway annually consume 86,000 tons of diesel1)
  • –CO2: 233,000 tons
  • –Nox: 2,570 tons
  • –Sulphur: 77 tons
  • • Fuel cell solutions outperform batteries on key parameters
  • ‒ Weight: Hydrogen system considerably lighter than battery system
    • 1/5 in representative configuration
  • ‒Short refueling time
  • ‒Long range
  • •Sør-Trøndelag County launching development project 2)

Teknisk Ukeblad, 8 January 2018

1) NOx-fondet

2) "Hydrogen til hurtigbåter i Trøndelag," by SINTEF and Greenstat, December 2017. For Sør-Trøndelag Fylkeskommune (Sør-Trøndelag County Authority)

Mobile Pipelines

Mobile Pipelines

  • •Vibrant shale oil & gas sector driving demand in North America
  • •Healthy project flow from other industries
  • • Several new applications
  • Enhanced oil recovery
  • ‒ "Pipeline integrity"
    • ensuring CNG during pipeline down-time (e.g. service)
  • ‒Mobile fleet refueling
  • •Markets outside North America remain lumpy
  • • Modal Acoustic Emission (MAE) requalification testing successfully launched in the US
  • Large number of modules up for regulatory requalification in the US in 2018
  • Seeking regulatory approvals in other geographical markets

Hexagon Modal Acoustic Emission (MAE) testing site

Mobile Pipeline® for LNG boil-off gas recovery

  • • Maritime transport emits around 1 billion mt of CO2 annually
  • ‒About 2.5% of global greenhouse gas emissions
  • •Boil-off from LNG vessels a significant source
  • • Boil-off gas recovery systems with TITAN® storage systems can capture and store the gas

150+ shipping industry leaders to drive the decarbonization agenda

World Maritime News, November 16, 2017

LPG

  • • Strong order backlog for 1st half of 2018
  • ‒Full order book for Q1
  • ‒Strong order base from European customers
  • ‒Deliveries to Iraq to be completed in Q1
  • • Increased focus on user-friendliness and safety drives demand in new regions
  • ‒E.g. Middle East
  • • MNOK 75 expansion program on track
  • Investing in product differentiation, faster cycle-times and capacity improvements
  • • Differentiation strategy will be continued and further sophisticated
  • Smart cylinders on the agenda

Woqod marketing campaign January 2018

Agility Fuel Solutions

  • • US Heavy-Duty Vehicle market relatively flat ‒Weak truck market offset by improved refuse and transit bus sales
  • •Strategic development of new geographical markets
  • • Cummins Westport introduction of "near zero" emissions 12L natural gas engine expected to be a positive development for CNG
  • Order patterns affecting sales in first half of 2018
  • • Price delta between diesel and natural gas expected to widen when spring sets in

Fuel price spread has become significantly more favorable

Sources: EIA, NYMEX, cngprices.com, Hexagon Composites

Outlook – Summary

•LPG

–Full capacity utilization 1st half

  • • Mobile Pipelines
  • –Continued strong momentum into 2018
  • • Hydrogen and Light Duty Vehicles (LDV)
  • – Good outlook for LDV
    • –Double digit topline growth expected
  • Broad range of Hydrogen opportunities
    • Diluting EBITDA short term

•Agility Fuel Solutions

  • –Healthy medium duty truck, refuse truck and transit bus markets
  • Soft heavy-duty long haul truck market in first half of 2018, but recovery thereafter
  • – Oil price > USD 60 and launch of near zero emission 12L Cummins Westport Natural Gas engine expected to stimulate demand

Traditional business units performing very well Significant dilutive EBITDA effect from Hydrogen

Questions Please

Jon Erik Engeset, CEO David Bandele, CFO

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