Hexagon Composites Ord

Good morning, everyone, and welcome to Hexagon Composites' first quarter 2025 results presentation. My name is Berit Katrin Hövik. I'm the Senior Director of Communications at Hexagon, and I'll be moderating today's presentation. I'm joined here in Oslo by our CEO, Philip Schramm and CFO, David Bandella, who will present a company update, financial results and market outlook before we head to the Q&A session. Before we start, I'd like to draw your attention to our disclaimer. And with that, I'll invite Philip.

Thank you so much. Good morning, everyone, and welcome to our Q1 earnings call. Yes, I can tell you the last five months being with Hexagon have been exciting, challenging, and rewarding. Like everyone in the industry, we are facing the impacts of a broader economic uncertainty. However, the US administration and the revision of the zero emission mandate enables us to start facts and move away from ideology. And natural gas, with that said, is just the better alternative fuel solution to replace diesel for heavy duty, long haul, and high energy intensive mobility applications. And simply because natural gas is cheaper, cleaner, and healthier. And this, in many countries, without even subsidies. This differentiates natural gas, but this differentiates also hexagon composites from so many others in this space. With the launch of the new X15 engine from Cummins, With that engine, we can address the entire heavy-duty, long-haul, and high-energy intensive mobility application trucking market, primarily in the U.S., but we also see some movements in other markets. And we are enabling the adoption, and we see that the momentum is growing. Now let's come... quick, and David will do a deep dive into our Q1 results, we have delivered a steady performance, despite all the headwinds. Hexagon achieved 912 million NOC in revenues, with an EBITDA of 44 million, resulting in an EBITDA margin of 5%. The US truck market is down in Q1 versus prior year by 8%. But our fuel system business is up by 64 business year over year. Yes, we had some carryover effects from 24, minor. But what we see is strong, really strong take and revenues coming from refuse. refuse an industry which is for me a poster child for how this integration of natural gas can work and also be and provide an economical and environmental benefit. And I'm sure others will learn from that. In the current macroeconomic uncertainty, yes, mobile pipeline is being impacted the most at the moment. Operators have reduced the capital investment by focusing first on the utilization of the existing equipment before making new investments. In addition, mobile pipeline has experienced the impact of the slower than planned development of new RNG sites. With all the uncertainty around us, we have taken proactively action. We adopted to the new market dynamics. First, we reduced our workforce by 6% without jeopardizing our future growth story. We are now not cutting back. not to deliver in the future because we believe in the market, but we adjusted accordingly. I think that's our responsibility to you, our shareholders, by continuing our growth story at the same moment. We are proactively managing our supply chain. The tariff situation has made things different, I would say. Nevertheless, with a lot of discussions, hard work from our team, we have improved the resilience of our supply chain. And after all these effects, I can say we see just minor impacts from these, yes, almost daily changing news on tariffs on hexagon composites. With all this uncertainty, I would like to use the current market development to use the current environment to strengthen our business. Strengthen our business by internally getting better, but also by expanding within our markets and looking for new markets where we can deploy our product offerings. I'm confident that we can manage this period of uncertainty successfully and come out of this challenging environment stronger and more competitive than before. And with that, I would like to hand over to David, who gives you the details on our financials. Thank you.

Thank you, Philipp. Okay, so quarter one, welcome everybody also joining live. Yes, quarter one is a seasonally slow quarter for truck. So it was positive that in the heavy duty truck side, we were up year over year. We expected the softer mobile pipeline markets. And as you heard from Philip, we're very quick to implement cost savings measures, given some of the headwinds that we see. And of course, we closed the quarter very strongly with a liquidity reserve of $1.1 billion. And again, in this challenging market, steady performance is good. So $912 million in revenue, on a par just about with last year. And again, why is it soft in mobile pipeline? Customers are pausing their CapEx investments. Good to see improvements year over year in fuel systems, and we'll dig into the different core elements. But really pleased that in Refuse, we had our first major order from a single customer that covers all three of our core businesses. So the fuel system, the mobile pipeline, and also aftermarket services. So as we go into agility, on the left, you'll see the breakdown of the revenue, and there's several legs to stand on, as you see. In the left-hand side, you'll see the very strong contribution of mobile pipeline last year and how it's down 35% year over year. So already the sensitive reaction to mobile pipeline we're seeing as expected. Then on the upside, if you go to the next box, it's yellow. Apologies for those who may be color blind. But it's the second box there, and you see heavy duty truck will be as increased 36%. Right at the top box there in purple, you have that 68% increase year over year in refuse. And that follows a 72% increase when we looked at this in Q4. So definitely a boom over there. When we go to EBITDA in agility, so despite even revenues year over year, you can see EBITDA is down 49 million or is down to 49 million with a 6% EBITDA margin versus the 7% same period last year. And there you see the effects of the negative mix with mobile pipeline really drawing the profits down larger and with a larger effect than the increases that we see in fuel systems. And mobile pipeline is a theme because mobile pipeline also contributes to the revenues of digital wave significantly, given that there are five-yearly periodic inspections that are required in the US on mobile pipelines. So sales in that activity depend on historic sales of mobile pipeline. So we came into 2025 knowing they'll be soft. And Q1 was also soft for UE, ultrasonic examinations business, resulting in revenues of $22 million. And at those levels, it did expand our EBITDA loss this quarter to minus $9 million. So long-term, as we go into 26, we will expect that recovery in the MAE business and also very happy to see that we entered the exclusive long-term agreement with our customer Sotoris, and that is the biggest mobile pipeline operator in our North American market. So all goes well for Digital Wave also going forward. So we believe in the long-term profitability of Hexagon, and it's not a distant memory, the back end of 2024, where we delivered a combined 16% EBITDA margin. However, with a significant macro uncertainty that we are experiencing, with the limited visibility that causes, we, like many other capital goods providers, are not able to forecast the rest of the year with confidence. And the results will really depend on our customers' willingness to spend in this climate. And for that reason, we're pausing our guidance for 2025. Effectively, when in such an uncertain climate, our customers, and it's understandable, we're doing the same things, are pausing their purchases of our products. They want to be certain on the future, and it's a very uncertain environment. The one thing we can say is coming out of quarter one on 31st of March, we had a combined backlog and reported revenue of 1.9 billion. So that's a solid base going through the rest of 2025. The area of largest uncertainty is the US mobile pipeline, which we see a weak outlook. And this, again, is due to the general delays in spend. but also additional uncertainty on the oil price development. And of course, oil price development is linked to oil and gas activity, which is key to generating new sales of mobile pipeline. And in this area, in 2024, revenues were 1.6 billion. We know from history, I've lived that history in 2015, the last macro crash following the oil price crash, And also 2020, of course, with COVID. But in both occasions, mobile pipeline recovered pretty quickly. Second area, and this is an impact where we had, sorry, this is a revenue area where in 2024, it was 1.1 billion for us. And this is to do with the freight hauling trucks. So just part of the agility portfolio. And of course, the freight market has been depressed, as we've said, for the last couple of years. So the uncertainty adds to that. Saying that, the whole truck market is down. But again, we see that fleet spend, while they may be pausing it for now, they will start losing more money than they're saving without replacing those new trucks. So we have a lot of confidence in that rebounding. And again, for us in natural gas, we have the X15 engine, which competes head-to-head with diesel successfully. And of course, we have now with Daimler coming online, the new Cascadia platform, 40% of the market share of the heavy-duty truck. And that will be available then to produce new natural gas trucks from the summer months onwards. And then finally, an additional effect, and that is to do with the EU. Last year, we actually had 400 million in revenues selling to Hexagon Puris for their mobile pipeline distribution products. We went into the year expecting that to be lower, but now we anticipate little to no sales in that area, and that's really due to the depressed hydrogen market at the moment. So that's the state of play. What are we doing about it is the key question. Of course, we're not standing still. And we have the financial resilience to navigate what we see in 2025. Number one, when we look at trade and tariffs per se, as you heard from Philip, we don't really see that as a material impact to us. We are in market for market, and that protects us from most of the key issues. So there are only some indirect impacts there. The key impact, again, is that it is delaying demand, pausing, like I say, customers actually spending on our goods. The cost reduction initiatives across the board, not only reduction in headcount, but of course, discretionary spend, et cetera. But as you heard from Philip, it's not at the level that prevents us from gearing up for an upturn. However, if those conditions change, of course, we will also look into further initiatives. Immediately, capex spend will be restricted for the year to 120 to 130 million levels. Inventory should come down with sales. And with the combination of these and the fact that we come in with a strong balance sheet, especially after the sale of Hexagon Regasco last year, which returned 1.2 billion into the company, we are confident then that we are in the financial position to navigate these headwinds. So to discuss how we can recover in the market, maybe, Philip, you can give a few thoughts.