Hexagon Composites Ord

Good morning and welcome to Hexagon Composites Q3 2024 presentation. My name is Karen Romer. I'm the SVP of Communications. I'll be your moderator for today. Joining me here in the room is Knut Flack, the chairman of our board, and David Bendelli, our CFO. Knut will present today the Q3 highlights and the market update. And then David will join us for the financials and the outlook. I'm sorry. And then Knut will sum up the day. Afterwards, there will be a Q&A. And for those of you in the audience, just raise your hand and Emily here will come over with the microphone. And for those of you on the digital audience, there is a field on your screen. Please feel free throughout the broadcast to type in your questions there and we will take them at the end. And then I'd just now like to invite Knut to join us on the stage.

Thank you, Karen. And good morning, everyone. I'm really proud to be here and present the Q3 numbers on behalf of the entire Hexagon Composites team. They've done a tremendous job and they're definitely delivering on target. So before we move into the numbers, let's remind ourselves about our mission and our purpose. We're really here to contribute to drive the green shift to replace fossil fuels with cleaner alternatives. And I'm happy to say that so far this year, our solutions have contributed to take away 1 million metric tons of CO2. That equals to close to 240,000 petrol vehicles taken off the road for a full year. So it's quite a substantial contribution that our solutions are making. Going into the numbers, I'm happy to say that Q3 is a very strong quarter. We have record high EBITDA, and that is driven primarily by the increased volume, but also because of improved operational efficiencies. So we reached 1.25 billion Norwegian kroner in sales, and with a corresponding EBITDA of 184 million, which turns into then 15% EBITDA margin. which we have communicated earlier is our target to be at 15% or above. If I'm going to take the highlights for the quarter, I'd like to point to three things. One is the increased activity in the R&D sector. The second one is our improved operational performance. And the third one is the fact that Hexagon Purus is now fully funded well beyond the point of cash positive returns. But let's look at the RNG business first. We did receive a major order from a refuse collector company in the US earlier in the quarter. That was roughly 18 million US dollars. But maybe even more importantly, we're seeing a wave of new orders coming from fleets that's now taking the X-15 engine into use. And it's not just the existing customers that we've had in the past, but it's also new adopters. And in fact, close to 40% of these people or these fleets are new adopters of R&D. They never used natural gas, renewable natural gas before. They've been relying on diesel. Now they have an alternative, which makes it possible for them to go greener. The second one is the solid improvement in operational performance. We see that the increased volume definitely helps us in improving efficiency, but it's also a result of the long-term work that has been done in terms of world-class manufacturing. We're now starting to see the results of that and with increased efficiencies, not just in fuel systems, but also in mobile pipelines. And as an example, last year we were able to produce roughly 20 40-foot modules of mobile pipeline per month. This year, that number is up to 30. So it's in reality a 50% increase as a result of the increased efficiencies, as well as, of course, more orders coming in. And last but not least, I'd like to pinpoint the fact that Hexagon Puris, where we are the largest shareholder, have now successfully raised capital, which will bring them well beyond the cash flow break-even stage. That's a real milestone for the company. We very much believe in Hexagon Puris. I'd say it this way. Nobody probably knows Hexagon Puris better than we do. because it was part of our business, and we then let them go on their own in 2020. But we have remained a major shareholder, and we will continue to do so going forward as well. And there is a lot of synergies on technology, on the market side and so forth, so we will definitely be working closely with them going forward. And I'm very impressed about the rate of growth that they are delivering. This year, you'll probably see another 50% up from last year, which is... following the track record that they've had for quite a few years now. So with that, let me pass it on to David. He will go deeper into the numbers and let you know what the current status is. Thank you very much, Knut.

Thank you. Good morning, everybody. Also joining us on the webcast. So quarter three, we will discuss the strong revenues and record EBITDA Knut touched upon. I'm very pleased with the 15% EBITDA margin, of course. And in the quarter, we had a 300 million NOC capital raise, which should give us additional financial flexibility for opportunities going forward. So diving into the group results, so the 1.25 billion in revenues, 9% up year over year, and the 184 million in EBITDA is up 64 million versus the same quarter last year. And those results were achieved due to the high activity in both the agility truck business and mobile pipeline business together. And when both are working very well, we see a substantial margin increase then from 10% last year to 15% the quarter. And of course, with the capital raise, we were able to close quarter three with leverage at a very comfortable 1.1x. So agility drove the results. They did 1.22 billion on the top line, up 10% year over year. But you see the main story there in the dark blocks of mobile pipeline and the gray of truck. And when we look at year over year. The absolute levels have increased in mobile pipeline and so has truck, but truck significantly. And also when we look at Q2, so the trailing quarter, it was also up 37% in volumes. So with that activity, Agility were able to deliver 203 million in EBITDA, up 78 million from last year, and of course produce a 17% EBITDA margin. So those are the results that we can do on today's demand. But of course, tomorrow's demand, we are facing a major inflection point in the natural gas trucking when it comes to the introduction of the X-15 natural gas engine, where we see significant quoting activity with fleets, and we'll discuss how those quotes turn into orders. But to set the scene again, we have Kenworth and Peterbilt. They are PACA brands who have already started serial production on the X15, and they comprise about 28% of the OEM market. Mid-2025, we should have Daimler with the Freightliner brand coming online, and then that will take the market share to 66%, and hopefully then other OEMs following after that. Being that, of course, we've already secured the industry's largest X15 order today, which is from UPS, and we've already started to deliver to that. So things are going as expected. We have this quoting period. There will be technical validation of the X15, and the order is coming through as expected. When we look at UPS, they are fully invested in natural gas. They have a long history with it and very familiar. And that's what led to them making a very large order off the get-go. And if you see the criteria on the left, these are the typical criteria that fleets need to check the box on in order to proceed with larger orders. As Knut mentioned, there are many new adopters coming on, which is good news. They've already checked the box on ROI, which is very attractive on the X15. That's why they're in the quoting phase. But of course, they will start with pilot orders because they want to test the fueling strategy for one. Do you rely on the public networks for their routes? Do you build your own private stations? Some combination of those. Then it's the performance. They would like to test these specifically on the routes that they do, those particular fleets. which is important to test the performance. Of course, all the feedback we've got in the initial trials have been very good on the driver side. And drivers are the key opinion leaders in the fleet. So driver acceptance is important and they have a chance to get experience with the pilots. Also, it's maintaining these assets. These are working assets at the end of the day. So you want to optimize and maximize their uptime. So seeing how they fit in their maintenance shop and routines is also an experience they gain in the pilot period. And as we've seen before, typically then that leads to larger orders. We expect a stepwise increase in orders, perhaps in six-month cycles. That would be typical. So six months, 12 months, etc., Ordering patterns can also be driven by the particular fleet's buying cycles in the year. We know that for truck business, we typically have revenues Q2 to Q4, and Q1 is usually quite a seasonally low period. So that was Hexagon Agility. Going on to Hexagon Digital Wave, which when it comes to MAE testing is very complementary to Agility. particularly in the mobile pipeline trailer testing. Hexagon Digital Wave, they celebrated having completed their 750th in-field trailer test, so a significant milestone there. In the quarter, they delivered $39 million in revenue, up 11%, and that allowed them to have a break-even EBITDA margin for Q3. So how does this all look? In 2024, we hold with the $4.8 billion guidance, but we increase EBITDA guidance to $560 million, and that's coming on the back of our expected increase in margins in the second half. And these are realizing very well in Q3, and hence the increase in expectations. So Q3, very satisfactory on current levels. But of course, I'd like to welcome Knut back to the stage so you can discuss a little bit more about how RNG looks like in driving the business for the future. Thank you, David.