Hexagon Composites Ord

Good morning and welcome to Hexagon Composites Q2 2024 financial presentations, financial results. My name is Karen Romer. I'm the SVP communications for Hexagon Composites. And joining me here in the auditorium in Oslo is Knut Flack, our chair of the board, and David Bendelli, our CFO, who will be covering this morning the Q2 highlights and market outlook. Financial, and then Outlook, again, with Knut at the end. For those of you that are our online audience, there is a question field in your screen. So during the presentation, feel free to input your questions. And in the room here at the end of the presentation, we will have a Q&A. And I'll ask you to wait for the mic to be delivered to you before asking your questions so that we can include our webcast audience in hearing that. So without further ado, I'd like to invite Knut Flack to the stage.

Thank you, Karen. and good morning everyone. Welcome to our presentation. I'm very happy that you are here and also for the online audience, a heartfelt welcome. As you all know, or most of you know at least, we are in the business of driving the energy transformation. We have a mission that we should create clean air everywhere. That goes for both local pollution and it goes for CO2 reductions. And in the first half of 2024, our solutions have enabled the reduction of CO2 in the range of 540,000 tons, which would equal to about 120,000 petrol cars removed from the road for one year. In the quarter, we've also been approved by design-based targets. They have approved our near-term and net-zero greenhouse gas emission reduction targets. And we're quite proud of that because it's a limited number of companies worldwide that has so far been approved. So Q1 was a solid quarter with significant margin growth. And we are definitely on track for our 2024 targets. That's with the adjustment of Hexagon Logosco, which was sold during the quarter. We came in at 1.15 billion Norwegian kroner in sales and had an EBITDA margin of 137 million, which turns into a margin of 12%, which is quite an improvement compared to the previous quarters. We had several highlights during the quarter. The commercial activity was very high, and we have noted substantial orders both for our fuel systems and for our mobile pipeline business. We saw the launch of the Hexagon Purus truck in the US, and we had the successful sale of Hexagon Rogosco in the quarter. So let's take a quick look at each of them. On the commercial side, the most notable one was the order from UPS of close to 60 million US dollars. This is the front runner on the X-15 natural gas engine. So it includes quite a number of the natural gas engines for the large X-15 engines. And it is in a fairly soft U.S. freight market. So to see UPS place an order of that magnitude at this point in time is quite encouraging. And it shows that they put a lot of focus on renewable natural gas and have a clear aim to turn their fleet into more green or greener solutions. In addition to the specific order, we also extended the framework agreement with UPS. So that's now extended for three years, well into 2027. On the mobile pipeline side, we received an order of close to 13 million US dollars from a global gas company. And this is not for natural gas, renewable natural gas. It's a different gas. And it shows that there is a need for mobile pipeline solutions also in other segments, not just in the natural gas, renewable natural gas segment, which I will revert to later on. And they have continued their strong growth with the first half of the year being well above the first half of 2023. The other major event during the quarter was in Hexagon Puris, which we are owner of, or 38.5, sorry, 38.4% owner of. So it means a lot to us as well. They launched the turn truck in the US and it created quite a lot of attention from the audience during the ACT Expo. This is a truck that is targeting regional and city use, because that's where battery electric solutions have a clear advantage. If you talk long haul trucking, if you talk very heavy loads, it's probably different solutions that will take the main part of the market. It's a groundbreaking, heavy-duty battery electric truck. and it will be quite exciting to see how that rolls out. They had had a very good response on the truck, and I think they also have received their first order, and they are starting now to deliver in Q3 2024. What's also important here is the cooperation with the Haino trucks, because these trucks will be sold exclusively through the Haino truck network. Haino is a Toyota group company, as you might know. And to have this distribution arm and this after sales and service arm is quite important for us to be successful in this new segment. Then last but not least, we sold Hexagon Rogosco in the quarter. We sold it to Worthington Industries and we think that will be a good new owner for Rogosco who can take the company further because of their strong position in the LPG market. So that was important to us, but even more important was the fact that we received a price that we were satisfied with, and also that we can now focus even more on the fuel systems for buses and trucks and for mobile pipeline solutions. Because there is a lot of growth potential in those areas, and we want to ensure that we can really take the lion's share of the market going forward. We're also proud that we have been able to develop Ragasco from being a fairly small company when we acquired it back in 2001 to become the globally leading composite LPG cylinder manufacturer, with more than 22 million cylinders sold worldwide to over 100 countries. So it's been a journey and it wasn't an easy heart that I decided or we decided to sell because I've been following the company for 24 years almost. But it was the right thing to do. And I certainly believe that Worthington will be a good owner for the company. And I also believe that this will be good for Hexagon with a strengthened balance sheet and with a more focused approach going forward. So with that, I'll leave it to David to talk about the financials.

Thank you very much, Clint. Yes, indeed. That was a successful quarter and also evidenced in the financials. So we had a higher heavy-duty truck volume, something we've been waiting for. They came a little bit even further than our expectations in the quarter. That led to accelerated margin increase and, as Knut mentioned, a significantly strengthened balance sheet then as we exited Q2. But first, it's important to see how these transactions affect the financial statements from Q2 onwards. And first of all, the sale of Regasco to Worthington, as Knut mentioned, resulted in an enterprise value of significantly $1,050 million. It also included an earn-out component with a sliding scale from minus 50 to plus 100. And to put a data point in there, it's based on EBITDA. So if Regasco do the EBITDA performance they do in 2023, that would result in a plus 50 million result. No surprise that there was a gain on the transaction. We recorded that that's $677 million, and that is net of transactions costs. But perhaps the most important thing going forward is that Regasco has been reclassified and presented as discontinued operations under IFRS. So that means that everything from revenue down to profit after tax has been stripped out of the continuing operations and presented below profit after tax in discontinued operations in one line. So that means that what's left is completely free of Regasco numbers in the P&L from revenue down to profit after tax. And that is both for 2023 represented and 2024 and going forward. So that's very important. For the acquisition of 49% of Worthington Enterprise's Sustainable Energy Solutions business, SES, that we did for 114 million NOC. It's a 49% and non-controlling interest. So it's presented as investment and associates and will be accounted for using the equity method. So going forward, we will take our share, 49%, of the either profit or loss in that investment going forward. Okay, so for the group, we did 1.15 billion in revenues, but more importantly, off that revenue base, we generated 137 million in EBITDA, up 27 million from last year. And that 12% EBITDA margin then represents three percentage points increase year over year. So substantial. And really, this kind of accelerated margin recovery already in Q2 does set up a stronger second half of the year. We closed Q2 with net debt at 753 million and leverage reduced to 1.6 then primarily as a result of the sale of Rogasco. So where is this margin appreciation coming from? So first of all, we've had a very strong base of mobile pipeline volumes, particularly in the first half of this year and profit performance. So that's the base. What has been low and has been recovering for some time now our truck volumes. And in the quarter, we were able or Hexagon Agility were able to deliver 140 million EBITDA of their 1.1 billion of revenue for EBITDA margin of 13%. And that is the highest margin since Q3 2021. So truly all the issues that followed the pandemic, the war in Ukraine, The cost inflation, the disruptions that all impacted our margins and the subsequent price revisions, all that is now firmly under control and we look forward to hitting our longer term EBITDA margins. So quarter over quarter, you see the real difference. There were six percentage points of EBITDA margin improvement, and that's really from a 2.6x pickup in heavy-duty truck sales versus the low Q1. When we look at the shares on the left, although we see 28% in Q2-23, five percentage points of that was medium-duty, where we have much lower content. So you can see there was even a year-over-year increase in heavy-duty truck sales for that period. So recovering truck volumes drive further EBITDA margins. And what continues to drive Hexagon Agility going forward? Remember, we do transit buses, we do refuse trucks. We just got an order for almost $90 million published. But we also do trucks. And in the trucking business, we have nine-liter engines. We have predominantly 12-liter engines doing a lot of business there. And what's new is this game changing 15 liter engine. And what that does, and Knut will follow that up, but it does triple our market and it opens the market up basically for high power, high torque operations, and particularly high payload, long range. So that's the difference. UPS, as you heard, is a big customer, $58 million order from them that combines both the 12 liter and the 15 liter engine. So that is actually the largest commercial order for 15 liter to date. And of course, we've had some further orders as well. So Kenworth and Peterbilt, they're the forerunners who have adopted the 15-liter engine. And we have serial production in Q3. And that's where the first orders are being generated through. And in time then, in 2025, sometime from the mid-2025 onwards, then Daimler or DTNA will also have homologated or approved the 15-liter engine for use in their trucks. Altogether, that would be two thirds of the North American OEM market and a very good future base then for future sales going forward. At the moment, we see a lot of quoting activity being market leader. We're heavily involved in that and we will see that quoting activity then turn to orders and sales in due course. So that was Agility. Let's turn our attention to Digital Wave. That's our cylinder inspection and testing arm. This is an arm that is fully complementary to both Hexagon Agility and Hexagon Puris businesses. Digital Wave increased their revenues 13% to $45 million in the quarter, with a modest profit of about $1 million. Knock each period stable. There was a pickup in the UE machine volumes from a low Q1, but that stable profit is really more due to continued growth OPEX year over year for digital wave. So where are we on the guidance? We reconfirm our guidance, really no changes. We just adjust for the sale of Hexagon Regasco. So 100% of the results of Regasco are out. And that leaves us with a 2024 expectation of around about $4.8 billion in top line. That would be against the comparative $4.5 billion for 2023. And EBITDA of greater than 500 million. And that's at least then a 37% increase from the comparative 2023, which is 366 million. So impressive EBITDA expansion already in 2024. And we expect that to continue in 2025. So on track for our targets. So as we close Q2, we see the uptick in truck volumes. We see the accelerated margin and margins coming back in. And of course, with the UPS order and the order for the refuse trucks for 19 million, that really sets us up for a stronger second half of the year. And of course, all this within a much strengthened balance sheet going forward. On that note, I'll ask Knut to come back for the outlook.