Hexagon Composites Ord

Good morning, everyone, and welcome to Hexagon Composites' Q3 presentation. My name is Berit-Katrin Høivik, and I'll be moderating today's presentation. Joining me in the studio today is our CEO, Philip Schramm, and CFO, David Bundela. Today, we'll take you through a company update, financials, and outlook before we wrap up with the Q&A session. And with that, I'll hand the word over to Philip.

Thank you. Good morning everyone and thank you for joining us for our Q3 presentation. Let's start with a high-level summary of the third quarter this year. The macroeconomic uncertainty continues to negatively weigh on our business and our core markets are in a cyclical downturn in combination with an unprecedented macro environment. This has significantly affected our volumes and our profitability this quarter, and our Q3 results are weak, with group revenues which came in with 538 million Norwegian kroner and led to an EBITDA of negative 54 million. August contributed to the majority of our Q3 EBITDA loss. With our banking partners, we decided to initiate an equity race to improve our balance sheet, and we have raised 590 million Norwegian kroner. In September, we launched a group-wide cost savings program targeted at reducing our cost base, improving our EBITDA break-even point, and securing our liquidity. I will come back to the results and details of this program in more detail shortly. In addition, we remain focused on executing the strategic steps that will drive the adoption of natural gas in North America and in Europe. So let's take a closer look at how we are managing the current environment. First, let me give you some content to our current market exposure. On the one hand, our transit, refuse and aftermarket segments represent sectors that operate largely independently of the macroeconomic environment and typically have an uptick in tough times. This is exactly what we are currently experiencing with our refuse business. These segments provide our business with resilient cash flows. At the same time, truck and mobile pipeline are cyclical by nature with higher sensitivity towards the macroeconomic environment. These are also the two segments which represent hexagons, largest growth opportunities. For a deeper look into how these two cyclical growth markets are developing, I will explain some of the factors that are impacting truck and mobile pipeline in North America. These two segments are currently operating in an unprecedented environment affected by a unique combination of external factors. Constantly changing trade and tariff policies have created a wait and see environment. In our discussions with customers, as one example, the announcement and then the quick postponement of tariffs on trucks in September further delayed both spendings and projects. Shifting emissions regulations have had a similar effect. The current US administration has created uncertainty on whether the existing emissions regulations will hold or if other regulations will replace them. This too has caused fleets to sit on the fence. But I do want to be clear, though, that from a regulatory perspective, the removal of the zero emission mandate has supported CNG as the alternative fuel solution to replace the base fuel diesel. The high cost of capital and lower shell activity due to low oil and gas prices are impacting the demand for mobile pipeline. Currently, gas transportation companies have a strong focus on asset utilization in these high capital-intensive markets. For trucks, the freight decline has been now four years. Industry forecasts for the Class A truck market in 2026 have dropped dramatically over the last few months. Fleets are more reluctant in this environment to adapt to new technologies and to incur higher upfront capex costs, despite the positive total cost of ownership that CNG now delivers to heavy-duty fleets thanks to the new game-changing 50-liter engine. If these projections become reality, then we are preparing to navigate this environment. We cannot control the timing of recovery. However, actions that we are now taking will mean that we will be in a more profitable position in the future. So what does this exactly mean? As a company, we are laser focused on reducing our cost base through this down cycle. In connection with the equity race in September, we launched a group-wide cost and cash savings program. It follows cost-saving measures that were already implemented earlier this year. In total, by the end of Q3 2025, we have reduced personal costs by approximately 190 million NOK compared to 2024 on an annualized basis. Approximately 70 million of this reflects structural, analyzed run rate improvements by the end of Q3. As part of the ongoing program, we are delivering on additional measures and expect to see further effects in the coming quarters. We also see similar positive effects from other operating expenses. Beyond personal cost, Our investments are well below 2024 level and will remain that way. In 2026, we will limit capex to a maximum of 80 million NOK for our core businesses. In addition, we have identified significant optimization potential within our inventories. A strategic focus on utilizing our existing assets and raw materials will contribute to a further 150 to 200 million Norwegian kroner reduction in the first half of 2026. Improved payment terms will help us as well. As we have communicated in previous quarters, we remain focused on the core business and will have strict investment discipline. We will continue to review how our current assets can create the best value for you, our shareholders. Despite the current environment, this unprecedented market will rebound. We remain focused on driving the adoption of natural gas vehicles, especially in heavy-duty trucking. While the pace of adoption has been slower than expected, we are proactively doing our part to drive the adoption. In September, we formed a strategic partnership with Cummins and Clean Energy to launch Pioneer, an independent leasing company that is dedicated to mobility applications with alternative fuels. In addition, we launched our own demo truck program in October, enabling fleets across the United States and Canada to test how natural gas powered heavy duty trucks work in their specific and individual environment. For fleets to experience the potential of these trucks in their specific environment is reducing the barrier and it's essential to accelerate adoption. we are already seeing huge interest and confirmation from fleets that they are seeing savings, lower emissions, and the diesel-like performance, which can now go hand in hand without any compromise. In October, we also closed the full acquisition of SCS composites and will now focus on leveraging synergies and consolidating the European market. With a cylinder site in Poland and a valve manufacturing business in Germany, this acquisition further strengthened our position in the European transit bus segment. With that, I will hand over to David, who will walk you through the financials.

Thank you, Philipp. Good morning, everyone. On a group level, Q3 revenues were 538 million NOC with an EBITDA of negative 54 million. That's after booking severance costs of 9 million. The quarter was heavily impacted by the prolonged market uncertainty in North America. Volumes were lower across all segments and especially in mobile pipeline. As Philip has confirmed, to mitigate the effects of these weaker volumes, we initiated a new cost savings program in Q3. We are laser focused on our main priority, which is supporting liquidity through this down cycle. In September, we proactively strengthened our balance sheet by 590 million NOC and negotiated an updated bank agreement. We are already seeing the effects of positive working capital releases, and these efforts will continue to become more visible over the next two quarters. Headcount reductions totaled approximately 20% as at the end of this quarter, compared to 2024 levels. And in light of the market conditions this year, this cost savings program is delivering results with more to come. Now let's look at these results and their drivers in more detail segment by segment. In Q3, our fuel system segment generated 372 million knock-in revenues, weaker than the third quarter of 2024, which was bolstered by deliveries to the large UPS order received in the back end of 2024. The refuse sector has been incredibly strong in 2025 with continued year over year growth in Q3, albeit at slightly lower volumes than last quarter's record performance. Transit delivered steady volumes with deliveries to multiple municipalities, including the large previously announced order to Dallas, Texas. As expected, the refuse and transit sectors continue to deliver a stable base load of demand even amid the current market uncertainty. For the segment as a whole, the EBITDA margin in Q3 came in at negative 4% due to low truck volumes impacted by additional tariffs and further market uncertainties. Now over to mobile pipeline. which remained under pressure with continued impact from broader market uncertainty in the quarter. Lower shale gas activity and falling LCFS and RIN credit prices are resulting in customers halting their capex spending. With new investments being limited in our core energy end markets, including oil and gas and renewable natural gas, Module utilization is being favored by our largest customers who are employing a wait-and-see approach. In North America, this demand halt has resulted in a significant decline in profitability that has impacted group margins. Revenues for the quarter were 93 million NOC with negative margins of 49%. Now, outside of North America, the results delivered remain steady compared to the prior quarter. Now, moving to our aftermarket segment, which is our most resilient segment. Aftermarket delivered steady revenues of 97 million in Q3, on par with the same quarter last year. Our parts and services business delivered solid volumes in the quarter across both FleetCare and Hexagon Digital Wave. Profitability, while stable, came in lower at 8% EBITDA margin due to an unfavorable mix of internal services and one-off charges. As mentioned previously, 2025 has been a known down year for our modal acoustic emissions technology. At these low levels, the unit actually delivered close to EBITDA break-even this quarter, with cylinder inspection and testing activity picking up in 2026 as the five-year requalification cycle reaches their next annual milestone. And to counteract and navigate the headwinds we're experiencing in our cyclical businesses and with continued uncertainty on the timing of demand recovery, We are accelerating our actions on three targeted major themes. The first one, key, preserving liquidity through 2026 and beyond. The second one, lowering the break-even point of our group operations through significant indirect and fixed cost reductions, and then in turn, lowering our reliance on demand recovery. And the third, as you've heard from Philip, increased measures to stimulate the adoption of natural gas transportation in North America, Europe and the rest of the world. As an extension of these actions and to strengthen our balance sheet, announced in September, our refinancing arrangements with the banks have resulted in a suspension of leverage covenant testing up until Q3 2026, at which point the target will be 4.2x on that quarter, based on net interest-bearing debt divided by the last four quarters rolling EBITDA with some allowance for certain one-off adjustments. The steep fall-off in demand that we have experienced in 2025 has significantly reduced our EBITDA levels and made it technically difficult to show normal leverage until EBITDA levels are steadily built up again over time. In light of this development, we secured a covenant holiday to counter that difficulty and the relevance of the test in such situations. As a condition, our banking partners implemented a conditional reduction in debt levels, commitments and availability. A capital raise was a necessary condition to secure this flexibility and was successfully executed in September, again, raising 590 million in Norwegian crowns. Key changes to the financing facility are described in the Q3 report and include a total facility reduction by 200 million NOK down to 2 billion. of which 1.6 billion is fully accessible and 400 million accessibility is dependent on leverage being less than 2x. Also, that 400 million will be reduced to 200 million progressively through 2027. You also see the reduced covenant levels shown and also introduced a minimum liquidity requirement of 200 million. I will also note that M&A investments and financial support will be subject to the lender's consent. These updated terms, alongside the capital raise, have strengthened our balance sheet. While July trading performance was roundabout breakeven levels, August results generated losses with continued weakness in realized mobile pipeline sales versus our probability weighted expectations. With the reduced visibility impacting both core businesses and increasing debt and leverage levels, a maximum capital raise under the authority of the board was executed to ensure that we can best navigate these market headwinds. Hexagon will continue to focus on responsible actions within our control, focused on balance sheet resilience as we face these uncertainties in our markets. Here we illustrate the impact ranges of our additional cashflow and profitability initiatives for the four quarters through to that important milestone of Q3, 2026. These are split between balance sheet and profitability drivers. On the balance sheet side, We expect between 150 to 200 million in working capital reductions as we intentionally reduce our built up carbon fiber, raw materials and other key inventories through negotiated pauses in purchase commitments and of course, the pull through of sales. We can reduce capex in the short term by a further 50 to 80 million from an annualized run rate of around about 130 million. But we should not hold to those levels in 2027. Interest costs can be reduced by 20 to 30 million with benefits from the reduction in our absolute debt levels. Of the 150 million cost saving target disclosed in connection with the cap raise in September, an estimated 70 million of positive run rate effects have already been realized by the end of quarter three. And we expect to realize the remaining 80 million over the coming quarters. We are also actively working on that additional ambition of 50 million knock communicated in September. which would give us a range then of 80 to 130 million NOC over the next four quarters. Total potential cash improvement is as shown and both before any additional cash generation from sales. Again, I'll reiterate, these are before any additional cash generation from sales. In summary, we expect to reduce our interest-bearing debt levels over the next four quarters. While our cost savings initiatives will give a good boost to EBITDA, we will also be dependent on sales and mixed developments in the year ahead. We therefore need to keep laser focused to hit our covenant target at Q3 26, which technically is highly sensitive then to the EBITDA development. Hexagon has a market leading position and a history of profitable growth, and the market will recover over time. We will, of course, keep close and continuous dialogue with our banking partners in this period. And with that, I'll hand it back to Philip to share more on our outlook.