Hexagon Purus Asa

Hi and welcome to Hexagon Pyrrhus Q3 2025 presentation. My name is Mathias Meidel and I am the IR Director of Hexagon Pyrrhus. I will be moderating from the studio in Oslo and from the studio I'm also joined by the Group CEO Morten Holum and the Group CFO Salman Alam. The agenda for today includes, as usual, the highlights from the quarter, a company update, the financials and the outlook. We will end the presentation with a Q&A session. So please feel free to enter your questions via the function on your screen. So with that, I'll pass the word over to you, Morten, who will take us to the highlights of the quarter.

Thank you, Mattias. And good morning, everyone. Thanks for tuning in to our webcast this morning. Let's dive straight into it. Key developments in the third quarter. Number one, we had sequential revenue growth. Revenue was weaker than we expected going into the quarter. And that's mainly a result of customer driven shifts into Q4 and some execution related issues driven by the major workforce reductions we implemented in the quarter. Number two, our underlying financial performance improved from Q2. We're now starting to see the impact of the cost measures we implemented in the first half of the year. And although we're still in negative margin territory, we saw a significant sequential improvement in Q3. And finally, number three, we completed a second round of workforce reduction in HMI during the quarter. And the organization is now properly adjusted to what we think is the needed short term. We have lowered capacity and taken out cost to match the new term demand outlook across applications and to enable profitability at lower volume. We expect to see some positive impact of this already now in Q4, but the majority of the effect will come in 2026. Revenue for Q3 was 252 million NOC down from last year, but 30% higher than last quarter, and the highest revenue quarter so far this year. The positive delta from last quarter is mainly driven by higher volume in hydrogen distribution. We're also slowly working ourselves up on the EBITDA curve, where volume is going up and costs are coming down. EBITDA in the quarter was negative 116 million NOK compared to negative 161 million in Q2. And the Q3 figure includes a 31 million NOK charge for restructuring costs related to the personnel reductions. On the order side, we exited the quarter with a fairly solid order book of around 1 billion NOK. So we expect to see a meaningful uptick in activity in Q4. Based on the order book alone, we have enough business in there to give us an all time high revenue in a single quarter. We do expect to deliver a large portion of this in Q4, but given the cost and capacity reductions we have implemented, we will have to shift some of the volume into Q1 to ensure that we execute well with the required quality output. Looking at revenue composition, hydrogen mobility made up the largest part of revenue in Q3, 37%, which is 10 percentage points higher than last year. Hydrogen mobility today is mainly transit bus, which currently has good momentum, but the largest driver for the change in revenue mix is obviously the decline in hydrogen distribution compared to last year. We also see high activity in aerospace, which positively impacts revenue from other applications. But overall, given the change in market environment, we're still in the situation where we're meeting high comparables from last year. And that's clearly visible looking at the Q3 year-over-year revenue bridge. We had significantly lower revenue in hydrogen distribution compared to last year. We do see that volumes are slowly picking up from a very low first half of this year, but we're not back to the levels we saw in Q3 last year. And we do not expect to be there either in the near to medium term. In hydrogen mobility, we had a positive impact from transit bus now in Q3. So the main reason for the negative year over year variance is the heavy duty truck volumes that were there last year, but not this year. And in battery electric mobility, it's also more about last year than this year, as we had a large one-off compensation payment related to the cancellation of a customer contract in third quarter last year. In other applications, we see continued high activity in aerospace and good revenue contribution in the quarter, offset by somewhat lower activity in the industrial gas business. At this point in time, we don't focus much on the year over year variances. The main driver for those is the significant change we have seen in the market since last year. And we're obviously in a very different place this year. And our focus is more on adjusting the cost base to the current market environment, reviewing and adjusting the business portfolio and reducing the cash spend. Looking at the different application areas, the demand dynamics and the forward visibility vary between them. In hydrogen transit bus, the commercial momentum continues to be strong, driven by local and municipal adoption of public zero-emission transportation in Europe. A lot of this is battery electric, but hydrogen adoption is also growing fast. Germany is the largest market and also one of the most supportive in terms of incentives. They recently announced a new round of incentives covering up to 80% of the cost difference between a hydrogen bus and a diesel bus. So we continue to see healthy tender activity and a strong medium term pipeline in Europe. But we have limited visibility beyond the current order horizon. So it's still too early to assess how much of this activity will materialize as revenue in 2026. We also see strong momentum in aerospace. Currently, we have strong demand from US-based commercial space exploration companies for onboard storage cylinders in space applications. The commercial launch activity has grown significantly, and we have a solid position with the most prominent space exploration companies in the US. And so with the combination of technology advancements and the new geopolitical situation, we expect the activity to increase significantly in the years ahead. And we already have a good order book for 2026. In hydrogen distribution, we see an uptick in activity and have a solid order book for Q4. And we believe in an attractive future for this business. Hydrogen still has strong support in Europe. The market is obviously significantly lower than what we expected a few years ago, but it is in fact growing. And there are several green hydrogen projects in construction that are expected to come online in the coming years. And then remember that our business is also driven by transportation of gray hydrogen for industrial purposes and the replacement of older steel-based technology with our newer and more efficient type four based trailers. So we do expect to see a gradual improvement in demand for hydrogen distribution module from current levels in the coming years. But the visibility is still lower than what it has been in the past. We're currently in dialogue with customers for volume in 26, and we'll come back to our expectations for next year when we report Q4. The industrial gas business is mostly recurring annual customer demand for industrial gas bundles, for storing and transporting air gases in industrial applications. It's typically a quite stable business, although somewhat lumpy in between the quarters. We've seen a bit lower volume this year and expect to come in at the lower end of the typical revenue range, which correlates with the overall industrial activity in Germany and in Europe overall, which is also slower this year. The battery electric trucking area is expected to ramp slower than what we previously expected. North American truck market overall is weak currently, and volumes are significantly down from last year for all technologies, including diesel and natural gas. Policy shift from the federal government has not been helpful for the energy transition, but electrification is not going away. Several states, with California in the lead, are maintaining their incentives for zero-emission medium and heavy-duty trucking. And there are around 150 BEV-friendly incentive programs in the US and Canada, corresponding to more than $3 billion in total available incentives. So despite a lack of support from the federal government, there is significant support in many individual states. And the major fleets are continuing their electrification programs. And we see strong interest from many fleet operators to sign up for customer trials. The customer demo programs for the Tern RC8 with Hino continued during the third quarter. We have demo units operating with several leading logistics and distribution companies across the US. These are customers representing beverage distribution, regional freight and logistics, and large corporate fleets. The feedback from these programs is encouraging, with drivers and fleet operators emphasizing the vehicle's drivability, range efficiency, and overall reliability. I'm pleased to see that the truck is performing really well, and high driver acceptance is key at this stage, confirming the vehicle's suitability for demanding urban and regional delivery applications. And we're soon ready to launch the Class 6 program announced earlier this year. That truck is intended to carry the Hino brand and be available through Hino's extensive network of authorized dealers. So we plan to deliver the first batch of demo trucks to Hino now in the fourth quarter. Moving on to the order book. As we entered the quarter, we had orders on hand totaling around a billion NOC, which is a bit down from last quarter, but actually higher than it was last year. It split roughly equal between hydrogen distribution, hydrogen mobility, and other applications, which is mainly aerospace. 56% is for execution this year, so we have good visibility for Q4. But as I mentioned earlier, we'll not be able to deliver all of this in Q4, as we have taken down our capacity as part of the cost reduction program. So some of it will be pushed into next year. It's unfortunate in some respects. I mean, we have enough orders to deliver an all-time high revenue in a single quarter. But it's the right thing to do, and it's better to get a more even volume spread across quarters. The second round of workforce reductions that we announced in July was completed in Q3. Adding to the measures we already implemented in the first half of the year, we have reduced the total workforce by around 30% compared to 2024. and we recognize the restructuring charge of 31 million NOC in Q3 as part of this second round of cuts. The full P&L impact of the underlying cost reductions is not expected to materialize until 2026, but we will start to see some positive effects already in Q4. It's always challenging to go through major workforce reductions, but this was important to align our cost base with expected demand and to establish a more sustainable operating structure going forward. While we have done a lot to adjust our cost base to match the demand outlook, we also continue to systematically review our entire portfolio. We have the strategic review process for the BVI business. That's still ongoing. And we're also going through the HMI business and the China JV, looking for ways to take out costs to reduce capital spend, considering both operational and structural measures. The ambition remains unchanged. The portfolio review together with the cost measures are aimed at maintaining sufficient liquidity to bridge the company to EBITDA and cash breakeven. Okay, that was the company update and I'll now hand the word over to Salman who will take you through the financials.

Yes, thank you, Morten. And good morning, everyone. Let's have a closer look at the Q3 2025 results. In the third quarter of 2025, we posted revenue of 252 million, which is 54% lower compared to the same period last year, but up 30% compared to the second quarter of this year. The year-over-year decline was driven primarily by lower revenue from hydrogen infrastructure and hydrogen heavy duty mobility. Compared to the second quarter of this year, we saw more hydrogen distribution module deliveries and continued strong momentum for transit bus and aerospace. Total operating expenses ended at 368 million in the third quarter. Our cost of materials ratio was 47% compared to 56% in the same quarter last year. This quarter, the materials ratio was positively impacted by product mix and a one-time customer payment for which no associated costs were incurred during the quarter. Payroll-related expenses were 187 million, but this includes 31 million of restructuring costs related to the personnel reductions announced in July. Adjusting for this, payroll expenses were 156 million, which is about 20% lower than the same period last year. Other operating expenses came in at 62 million in the third quarter, which is 35% lower compared to the same period last year, and reflects the effects of our cost reduction initiatives. Subtracting total operating expenses from total revenue, EBITDA ended at negative 116 million in the third quarter compared to negative 51 million in the same quarter of last year. Moving below the EBITDA line, depreciation amortization was 68 million in the quarter, up from 55 million in the same quarter last year, and the increase is mainly due to higher balance of depreciable assets compared to last year. Losses from investments were stable in the quarter year over year at minus 2 million, and finance income in the third quarter was 10 million, where 5 million is related to interest income on bank deposits and 5 million is related to foreign exchange fluctuations. Finance expense in the third quarter was 191 million, where 62 million of that is related to non-cash interest on the two convertible bonds we have outstanding. Another 9 million is related to interest on lease liabilities and other interest-bearing debt, and about 15 million relates to foreign exchange fluctuations. The remaining amount primarily reflects a non-cash impairment charge of 102 million related to our investment in Norwegian Hydrogen and Virion, reflecting mainly a reversal of prior fair value increases based on recent market and company developments. At the group level, we are not yet in a taxable position, and tax expense in the quarter was negative 2 million. Subsequently, loss after tax ended at minus 365 million versus minus 149 million in the same quarter of last year. moving on to the segments starting off with hydrogen mobility and infrastructure as a reminder this segment is the business unit that manufactures hydrogen cylinders and hydrogen systems for storage of hydrogen on board or off-road or on road vehicles or for infrastructure purposes such as the distribution of hydrogen from the point of production to the point of consumption It also includes our industrial gas business in Europe and aerospace business in the US. The focus for HMI in the quarter has been on executing the cost reduction program to structurally lower its break-even point and improve profitability going forward. In Germany, we have now completed the second round of workforce reductions, bringing the total reduction to around 30% compared to 2024 levels. The full P&L effect from these cost measures will materialize from 2026, although we're already starting to see the benefits of a leaner cost base from the first round of reductions in the Q3 numbers. On the commercial side, revenue in Q3 was impacted by capacity constraints and customer-related timing shifts, with deliveries moving from Q3 into Q4, and we're also expecting some spillover from Q4 and into 2026. Based on the current order book, we expect Q4 to still represent a significant uptick in activity for the segment. Revenue in the third quarter for HMI was 233 million, which is down 55% compared to the same period last year, but up 42% compared to the second quarter of this year. The year-over-year decline is mainly driven by a reduction in hydrogen infrastructure revenue, which was down 75% year-over-year. As we've also seen year to date, hydrogen mobility was the largest revenue component for the HMI segment, also in the third quarter, and made up about 40% of revenue. Within the hydrogen mobility segment, we saw continued strong activity in transit bus, which was offset year over year by lower activity within heavy-duty trucking. In the other application area, higher aerospace revenue was offset by lower industrial gas revenue, which in some resulted in a flat year-over-year development. We see that the industrial gas business, which is a business linked to the overall industrial and economic activity, is having a weaker year than usual, as industrial activity in Germany and in wider Europe is also slower this year. Turning to the right-hand side of the page, EBITDA for a quarter was negative 47 million or negative 28 million, which is equal to minus 12% margin when adjusted for non-recurring items. While still negative, the underlying trend is encouraging. On the back of higher volumes and a leaner cost base, the segment returned to double-digit gross margins in the third quarter. And this gives confidence that EBITDA breakeven is within reach as cost reduction measures take place and volumes improve. Moving on to the battery systems and vehicle integration segment. This is the business unit that engages in battery systems production and complete vehicle integration of battery electric and fuel cell electric vehicles for the North American market. We also have a complete suite of proprietary key components required for electrification of heavy-duty trucking. The BVI organization has in recent quarters and months been fully focused on demonstration programs that we've been running together with Hino with several major U.S. logistics and distribution companies. The feedback has been positive so far. Preparations for the Classics program that we announced in June is also underway, and we expect the first trucks to be delivered to Hino in Q4. Revenue for BVI in the third quarter was 13 million and was primarily comprised of vehicle deliveries to Hino and lease revenue from Dallas. We recently entered into a sublease agreement with Hino, allowing them to use part of our Dallas facility for their own operations. This provides an efficient way to generate income from excess floor space that we do not expect to utilize in the near term. EBITDA for the BVI segment ended at negative 30 million in the third quarter compared to negative 21 million in the same quarter last year. Zooming out to the group level and turning to the balance sheet, the balance sheet amounted to approximately 4 billion at the end of the third quarter, down from 4.3 billion at the end of the second quarter. On the asset side, most line items remained relatively stable with an increase in inventory, primarily driven by higher levels of work in progress and raw materials in preparation for an expected ramp up in revenue in the fourth quarter of this year. Cash stood at 360 million at the end of the third quarter, which is down 166 million from the second quarter this year. On the liability side, the increase in non-current liabilities reflect the payment in kind infrastructure of the convertible bonds. The equity ratio at the end of the second quarter was 26% and was down quarter over quarter impacted by losses after tax and the impairment charge that we mentioned earlier today. Moving to the cash flow statement, which captures the effects of changes in the balance sheet and income statement. Operating cash flow for the quarter was negative 115 million in the quarter, primarily driven by the loss before tax, which is partly offset by non-cash adjustments. Cash flow from investments ended at negative 34 million, reflecting that we're seeing the tail end of the capacity expansion program. CapEx towards property, plant and equipment was 14 million and capitalized product development was 16 million, which relates to ongoing product validation and certain highly selective next generation technology initiatives. Cash flow from financing and currency movements was negative 17 million in the quarter, resulting in a net cash flow of negative 166 million and a cash balance at the end of the second quarter of 360 million. As communicated in previous quarters this year, the cash outflow in the first half of the year has been significant. This was due to lower revenue, restructuring costs related to downsizing, spillover capex from 2024, and limited working capital release. We've also said that we expect the cash outflow to slow down in the second half of the year. And in the third quarter this year, we had the lowest cash outflow we've had in more than two years. Looking ahead, revenue is expected to increase with a stronger weighting towards November and December. Much of the material for these deliveries is already in inventory. So as revenue picks up, we will gradually convert inventory into cash with most of that working capital release expected in the first quarter of 2026. With the leaner cost base following recent cost reductions and continued low capital expenditure, we expect cash outflow to remain at the lower level going forward. With that, I'd like to pass it over to Morten to walk us through the outlook.