Hexagon Composites — Investor Presentation 2019

Aug 14, 2019

This company presentation (the "Presentation") has been prepared by Hexagon Composites ASA ("Hexagon" or the "Company").

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Agenda

• Strategy update
• Summary Group highlights and financials
• Outlook
• Q & A
• Appendix: Segment financials & other material

Strategic context

The shift to clean energy alternatives past the point of no return Financiers prefer ESG papers 1 2

Governments, companies and the public at large are seeing global warming and local pollution as main threats to civilization

Financial investors are generally looking favorably at ESG investment opportunities – and capital is available at attractive terms

Strategic context

Significant push for greener transportation

• Short to medium term (5-10 years), natural gas represents the energy carrier with the largest potential for a positive environmental impact
• Further improved by blending with Biogas (RNG), with its carbon negative characteristics
• The automotive industry is shifting towards electric drive trains. E-drives are more energy efficient than mechanical drive trains
• The jury is still out on Battery Electric vs Fuel Cell (Hydrogen) Electric vs Hybrids
• Infrastructure is a huge challenge, less so for hybrids
• Centre of gravity of Hydrogen development shifting towards East Asia and towards heavier applications – LDV projects in Europe and North America delayed

We expect significant growth

Mobility shifting to cleaner solutions

In 2018 Hexagon's addressable g-mobility and e-mobility market was estimated to 0.04% of all vehicles sold, corresponding to ~NOK 4 billion

If 10% by 2030 → more than NOK 600 billion addressable market

Strategy recap – from shale gas play to world leader in clean fuel systems

World leading engineering capabilities

Hexagon has solutions across the clean fuels spectrum

Hydrogen momentum building up strongly

• Hydrogen core topic at G20 summit in Japan
• The US, EU and Japan formed a new hydrogen and fuel cells partnership
• German government targeting leadership position
• Desire to break out of coal dependency
• Cummins acquiring Hydrogenics

Source: IEA report "The Future of Hydrogen", June 2019

"Hydrogen is one of the hottest topics in the energy transition in the country (Germany) at the moment. The interest from the private sector is really huge." Inga Posch, Managing Director at FNB Gas e.V., the federation of Germany's gas network operators

China's "father of electric cars" says hydrogen is the future

• Government targets 1 million hydrogen fuel cell vehicles by 2030
• Home to half of the global EV fleet
• Delivery vans, buses and trucks prioritized segments
• Energy independence and local pollution main drivers
• Significant hydrogen capacities available

"We will sort out the factors that have been hindering the development of fuel-cell vehicles." Wang Gang, Vice Chairman of China's national advisory body for policy making

Renewable natural gas (RNG)

– the fast track to emission reductions

• UPS targets 40% alternative fuels by 2025
• Makes record RNG deal of 170 million diesel gallon equivalents
• RNG gives 45% 382% CO2 reductions compared with diesel*

By switching from diesel to RNG UPS vehicles will realize a significant CO2 reduction

"It's (RNG) a winning solution that will help UPS to reach our ambitious sustainability goals. At the same time, we hope our unprecedented seven-year commitment serves as a catalyst for wider adoption of RNG by other companies." -Mike Casteel, UPS director of fleet procurement

* Source: NGV America. Dependent upon RNG source: Reductions of 45% up to 382% compared to diesel; values based on CARB LCFS program data under CA-GREET 3.0.

CNG and RNG core to VW's decarbonization strategy

19 gas-powered passenger car models

"Volkswagen is committed to the Paris Climate Agreement. CNG has an important role to play in the alternative drive systems strategy that runs alongside the Group's electrification offensive. It is sufficiently proven, immediately available, efficient and cost-effective."

Stephen Neumann, Volkswagen Group Representative for CNG Mobility

Leverage established leadership position to pursue even stronger growth

% of sales

2nd QUARTER 2019 FINANCIALS

Highlights from Q2 2019

• Strong Agility Fuel Solutions growth
• ‒ 44% increase in overall revenue versus Q2 2018
• ‒ Driven primarily by Refuse Truck volumes
• Strong CNG Light-Duty Vehicle volumes
• ‒ Volkswagen pushing CNG in Europe;
  • Tripling of annual production volume from 2018 to 2019
• Relatively soft Mobile Pipeline volumes
• ‒ Pick-up outside North America
• Solid LPG sales volumes
• ‒ Profitability impacted adversely by mix factors
• Dynamic Hydrogen market
• ‒ Delay in a hydrogen light-duty project
• ‒ Joined H2Bus Consortium focused on heavy-duty

Financial highlights Q2 2019 | Agility consolidated from 2019 Hexagon Composites Group

Other Hexagon businesses vs Hydrogen results | Q2 2019

11% EBITDA margin from normalized non-Hydrogen business

Revenue by segment Q2 2019 | Before Group eliminations*

• Agility Fuel Solutions (Heavy and Medium-Duty)
• Hexagon Purus (Hydrogen & CNG Light-Duty Vehicles)
• Hexagon Mobile Pipeline & Other
• Hexagon Ragasco LPG

Revenue Q2'19

NOKm, before group eliminations

• Agility Fuel Solutions (Heavy and Medium-Duty)
• Hexagon Purus (Hydrogen & CNG Light-Duty Vehicles)
• Hexagon Mobile Pipeline & Other
• Hexagon Ragasco LPG

Agility Fuel Solutions: Q2 2019

• Strong revenue trend maintained
• ‒ Refuse Truck volumes skewed to first half of 2019
• ‒ Accelerating European Transit Bus market
• ‒ Heavy-Duty Truck volumes expected to be skewed to second half of 2019
• Temporary margin reduction is a consequence of
• ‒ PPA and other transaction adjustments of NOK 7m
• ‒ Adverse mix and ramp-up of EV program
• Self-funded and strongly cash generating

Revenues and EBITDA*

NOKm, *2018 = Pro-forma on reported basis. 2019 = Segment reported

Balance sheet | Q2 2019 vs Q1 2019

NOK 1,169m Net Interest Bearing Debt & 45% Equity Ratio

Stable and strong Balance Sheet

OUTLOOK

Agility Fuel Solutions Medium and Heavy-Duty Vehicles

Positive development across all segments

• Accelerated growth in European Transit Bus
• ‒ Backed by more stringent regulations
• Lower 2H 2019 Refuse Truck volumes following a skewed 1H 2019
• ‒ Full year volumes in 2019 remain at high levels
• Growing momentum for low and zero-emission heavy-duty trucks
• ‒ RNG & CNG initiatives help stakeholders achieve sustainability commitments
• ‒ Battery Electric Vehicle pilot programs are on track

Agility is the exclusive supplier of fuel systems to MAN Lion's City bus Photo: MAN

Hexagon Purus Hydrogen

High activity levels especially within Heavy-Duty applications

• H2Bus partnership to drive zero-emission public transportation in Europe
• Deploying 600 buses by 2023 at competitive price
• Hexagon to provide hydrogen fuel solutions and distribution trailers
• Strong interest in Asia for hydrogen bus and truck – Chinese and Korean markets expanding
• Requiring continued organization ramp-up

Hexagon Purus CNG Light-Duty Vehicles

Very strong CNG demand in Europe

• Strong order backlog for CNG Light-Duty Vehicles – Order intake at all-time high
• Capacity investment running according to plan
• Commissioning expected end of Q3
• Growing demand for VW's models in key countries
• Italy, Germany, Spain, Belgium, Sweden and Czech Republic
• Target of 1 million vehicles on the road by 2025 in Germany alone

The new VW Golf Variant TGI enabling range up to 440 km (based on WLTP) with CNG alone Photo: Volkswagen

Hexagon Mobile Pipeline

Strong underlying growth drivers, but challenging near term

• Lumpy demand, with low order visibility for rest of 2019
• ‒ North American oil & gas and industrial users are still main driver of sales
• ‒ Increase in Renewable Natural Gas (RNG) projects provide more diversification
• New order from Certarus of USD 7 million
• ‒ Supporting expansion in eastern Canada e.g. mining sector
• Awarded USD 4 million RNG transportation contract with leading gas utility
• ‒ Enabling reduction of agricultural carbon emissions

Stable "step by step" development

• Seasonally softer second half of year
• Strategically well positioned in Bangladesh to capture growth opportunities
• Gaining some traction in USA with 7 ongoing pilot programs
• First entry into Bulgaria

Toplivo Gas, Bulgaria

APPENDIX

Q2 2019 Group income statement

NOK MILLION	QUARTER			HALF YEAR	1 FULL YEAR
	Q2 2019	Q2 2018	Variance	H1 2019	H1 2018	Variance	FY 2018
Revenue	882.1	366.8	515.4	1,703.9	783.0	920.9	1,486.5
Operating expenses	(820.2)	(333.1)	(487.1)	(1,561.0)	(682.8)	(878.2)	(1,360.5)
Earn-out obligation reversal / gain on transaction	0.0	40.0	(40.0)	69.4	40.0	29.4	108.5
EBITDA	62.0	73.6	(11.7)	212.3	140.1	72.1	234.5
Depreciation on tangibles	(44.8)	(13.4)	(31.4)	(87.6)	(26.6)	(61.0)	(52.4)
Amortisation and impairment	(14.3)	(5.9)	(8.3)	(29.5)	(12.0)	(17.6)	(41.9)
EBIT	2.9	54.3	(51.4)	95.2	101.6	(6.5)	140.2
Share of profit/(loss) from associates	(0.3)	1.8	(2.1)	(0.7)	0.9	(1.6)	31.4
Amortisation of associates intangibles	0.0	(3.3)	3.3	0.0	(6.5)	6.5	(13.4)
Other financial items (net)	(34.0)	16.2	(50.2)	(59.7)	4.3	(64.0)	10.6
Profit/(loss) before tax	(31.3)	69.0	(100.3)	34.8	100.3	(65.5)	168.7
Tax expense	4.0	(6.4)	10.4	6.3	(14.6)	21.0	(27.3)
Profit/(loss) after tax	(27.3)	62.6	(89.9)	41.1	85.7	(44.5)	141.5
EBITDA %	7.0 %	20.1 %		12.5 %	17.9 %		15.8 %
EBIT %	0.3 %	14.8 %		5.6 %	13.0 %		9.4 %
Profit/(loss) after tax %	-3.1 %	17.1 %		2.4 %	10.9 %		9.5 %

Segment financial highlights Q2 2019

Hexagon Purus (Hydrogen & CNG LDV) NOKm 67 150 Q2'18 Q2'19 +83 (+125%) -21.4 (-32%) Q2'18 Q2'19 -3.4 (-2%) +18.0

• Continue strong topline growth with +44% vs. last year, coupled with margin expansion

• Growth primarily from Refuse truck

• Very strong year-over-year revenue increase driven by CNG LDV

• Investing in future H2 growth dilutes EBITDA by NOK -29.6m

Segment financial highlights Q2 2019

• Flattish development versus last year with adverse product/market mix

• Revenues primarily from Asian and core European markets
• Product mix effects drive lower year-over-year EBITDA

Group cash movements Q2 2019

Cash generation from operations offset by working capital draw