Hexagon Composites Ord

Good morning, everyone, and welcome to Hexagon Composites Q4 and full year 2025 presentation. My name is Berit-Kathrin Høyvik, and I'll be moderating today's presentation. Joining me in the studio today is our CEO, Philip Schramm, and CFO, Eirik Løre. They will take you through our company update, financials, and outlook before we wrap up with the Q&A session. With a reminder that you may submit questions on your screen at any point during the presentation. And with that, I'll hand the word over to Philipp.

Thank you so much, Berit, Katrin. Good morning, everyone, and thank you for joining us for our Q4 and full year 2025 results presentation. Before we begin, I would like to extend a warm welcome to Eirik Löhrer, who stepped in as our CFO. Eirik has been a core member of our executive team for the past four years, and he has a strong understanding of our organization, and I'm really happy to have him by my side today, and he will walk you through the financials shortly. For now, I will guide you through the key developments of the quarter. Q4 can be summarized as a quarter of improving performance, strategic progress and early signs of market stabilization from the continued softness in our core North American markets. Let me start with an update on the market environment, because it continues to set the backdrop for our performance. In 2025, our core markets in North America have been characterized by macroeconomic uncertainty, regulatory flux and low investment appetite. Those dynamics alongside low oil prices and high interest rates delayed investments by customers, especially in our North American mobile pipeline business. In the United States, the trucking market and freight rates remain at multi-year lows, fleets are deferring replacement cycles despite aging fleets, and now the length of this downturn is unprecedented. It is unfortunate, but not unsurprising, that in this environment fleets have limited willingness to adopt new technologies, even when the economics and environmental benefits are compelling. However, November brought an important shift. The confirmation, or better, the reassurance of the existing EPA 2027 NOx emission rule has brought much needed regulatory clarity to the industry. Class 8 truck sales saw a positive reaction in December and January's sales numbers. While this does not yet mark a market rebound for us, it is a meaningful signal that the pieces for recovery are starting to slowly fall into place. This regulation also provides important clarity for fleets and incentivizes the shift towards CNG from 2027 onwards. So overall, while the market conditions remain soft, We are seeing signs of gradual stabilization. These signs of gradual stabilization are evident in our Q4 results, where we delivered sequential revenue growth and improved profitability. Our revenues increased to 831 million Norwegian kroner in Q4, driven by the strongest quarter of the year for our fuel systems business, including strong performances by Refuse and Transit, which again proved their resilience. EBITDA was for the quarter at 156 million, which included 13 million in severance costs and a one-off accounting gain of 119 million from the acquisition of SES Composites. We completed the acquisition in October and since then SES added 97 million to our top line and 4 million to our EBITDA. And we are expecting more financial synergies to materialize in 2026 from this acquisition. This acquisition solidifies us as the leading cylinder and fuel system supplier to European transit bus OEMs. For the group, the quarter's underlying profitability trends, stripping out one-offs reflects the progress of our cost cash optimization program, which is now well underway and on track. Since launching it in Q3 of last year, we have delivered meaningful progress across operating expenses, working capital, and our portfolio. The highlights of the actions that we have delivered so far are A targeted 25% reduction in workforce slash headcount. The optimization of our production footprints, shifting patterns and equipment usage. A reduction of around 200 million Norwegian kroner in personal and SG&A costs so far, including 100 million in structural reductions. You will see a reduction in our Q4 numbers on working capital and can expect to see further reduction of between 100 to 150 million in 2026. We are applying strict investment discipline and have limited capex in 2026 to 80 million Norwegian kroner with no non-core cash investments planned throughout the year. The positive momentum and visible progress of these measures are evident and we expect further effects to build through 2026. Importantly, I want to make clear that these are not short-term fixes. They are structural improvements that will benefit us in the soft market, but also as the market responds. The structural break-even point of our business entering 2026 is now significantly lower than it was a year ago. With our cost structure improved, growing and diversifying our top line through this market down cycle has also been a focus of ours since I joined the company a year ago. With a clear goal as a technological leader with unmatched capabilities to apply them where possible. There are many commercial developments over the last year and especially the last quarter that prove this change and have set us to be a stronger and more resilient business. One clear highlight is the outstanding performance of our refuse segment in fuel systems. In 2025, we delivered record annual revenues of around 800 million from the refuse industry. Refuse is a resilient market. It has stable demand, tied to public sector, backed critical services. So has been relatively unaffected by the macroeconomic environment in North America. Trash still needs to be picked up. And in many cases now, This trash, which is being picked up by refuse companies, is now turned into renewable natural gas and used to fuel these very trucks that collect it. It is one of the strongest circular economy use cases with major sustainability and economic benefits. It is enabling refuse companies to produce their own fuel and remove the single largest historical office cost, which was diesel. One of the reasons we are so confident in the outlook for natural gas vehicles is because of the conversion that has happened within refuse in North America over the last decade. Our team has spent two decades building this market together with the industry's trailblazers. Today, 60% of new refuse truck orders in North America are natural gas powered. A clear validation of this long-term conversion story. Our team is working on that same conversion story in heavy-duty long-haul trucking. For the first time, North American heavy-duty long-haul fleets have a real alternative to diesel. Natural gas is cheaper, and with the coming N15X engine. This engine delivers diesel-like performance without compromise. In the last month, we received a significant order from a leading truck operator in Mexico, valued at approximately 110 million Norwegian kroner. The fleet tested the performance of the pilot trucks in their real-world operations And this major order is a testament to how well it performed driving coast to coast across Mexico. More recently, yeah, actually it happened last night, we signed a PO and unlocked new opportunities for our business in securing our first commercial order for space applications, valued at slightly over 7 million US dollars. While it is a first order, it is a strong proof of Hexagon's industry-leading high-tech capabilities. We have unmatched capabilities within our business that truly do set us apart, and I want to personally recognize our engineering and our production teams for their exceptional work over the last weeks to make this happen. Their agility, unparalleled expertise and innovation continue to open the door to new verticals and other opportunities like this one for our business. This is a testimony of how we are walking the talk. Across the group, we are committed to utilizing our capabilities, products, capabilities, capacities and assets to create shareholder value, whether in new markets, new geographies like India, or new industries like space. With that, I will hand over to Eirik to take you through our financial performance in more detail. Eirik, please.

Thank you, Philip, and good morning, everyone. Starting with the financial results for the group, we delivered revenue of 831 million for the quarter and 2.9 billion for the full year. Q4 is a seasonally strong quarter and we saw higher activity across most segments, driving a 50% uplift versus Q3 and including a 97 million contribution from SCS composites, which was acquired in October. Organically, our quarterly growth was 37%. Full-year revenues for 2025 were significantly down compared to 2024, reflecting weaker demand in particular within our mobile pipeline segment. Reported EBITDA improved from minus 54 million in Q3 to 156 million in Q4. However, this includes a non-cash accounting gain of 119 million, booked as other income in our accounts, which is related to the SES Composites acquisition, as Philip mentioned. This is simply due to the fact that the book value of the company exceeded the purchase price. Adjusting for this and for severance cost of 13 million in the quarter, adjusted EBTA was 49 million, corresponding to a 6% margin. Profitability-wise, Q4 was the strongest quarter of 2025, supported by cost actions implemented throughout the year. And for the full year, adjusted EBTA was 65 million, corresponding to a margin of 2%. Turning to fuel systems... We delivered revenues of 548 million in a seasonally strong quarter, including a significant contribution from SCS composites. The full year revenue of 1.8 billion was weighed down by lower truck volumes due to a muted freight market through the year, driven by regulatory uncertainty, tariff concerns and weaker consumer confidence. Towards the year end, we saw a pickup in activity driven by improved clarity on the factors mentioned earlier by Philip as well, including the EPA 2027 NOx rules. For the quarter, we delivered some sizable orders, notably 100 sleeper cab systems, our largest configuration, to a leading Mexican trucking company, contributing significantly to both top line and margin. The reference business is one of our more resilient segments and continues to perform well, closing the year with record annual revenues of 800 million, as Philip also touched on earlier. EBITDA came in at 61 million for the segment, corresponding to 11% margin, driven by volumes, a favourable mix and improved materials efficiency. Mobile pipeline had revenues of around 200 million in the quarter, significantly down year on year, but more than double Q3 levels. In North America, this segment has, after years of strong growth, experienced a pronounced cyclical downturn in 2025, driven by lower shale activity and slower build-out of RNG projects, which in turn has led to lower asset utilization and delayed capex decisions among the mobile pipeline operators, which are our customers. We did see a small spike in demand ahead of the winter season in Q4, but this is also offset by some increased price pressure from competition given the market situation. On the positive side, our EMEA business delivered record revenues of around 100 million in Q4, driven by R&D projects in the UK and CNG projects in the Middle East, including the Vatani business that we have previously announced. And while activity and EBITDA improved quarter on quarter for the segment, the mobile pipeline segment is still below the point of financial break even. Aftermarket, our service and testing and inspection business delivered revenues of 105 million for the quarter and 433 million for the full year. Performance was down year on year, reflecting lower truck volumes, which means lower installation revenues for our aftermarket business. as well as delayed maintenance and extended service intervals among the CNG fleet operators. As expected, 2025 was a low activity year for MAE trailer requalification. Remember, this follows regulatory requalification requirements from the U.S. Department of Transportation on five air intervals. With 2015 and 2020 being low years for mobile pipeline, we knew going into 2025 that this would be lower activity for the MAE testing technology. And this also further impacted both our revenues and our margin for the year. EBITDA was 12 million in Q4 and 28 million for the year. Also weighed down by non-recurring project work related to an LNG project we have now completed with the CryoShelter technology. Turning to cash flow. We delivered positive operational cash flow for the quarter, supported by improved EBITDA and the working capital release Philip mentioned earlier in the presentation, which amounted to 37 million for the quarter. In addition, we had some tax effects and other non-cash outbacks to EBITDA, bringing the total up to 102 million. On the financial side. Under investments to associated companies, we provided the last major funding to CryoShelter in December to complete the work related to the major customer order that business has carried out before the ownership has since been restructured from January 2026. This involves Hexagon taking 100% control and significantly reducing the cash burn of that business. We are currently exploring alternative outlets for that technology that does not involve further investment from Hexagon, including deploying the technology in high potential markets such as India. Including 100 million of debt drawdown, we ended the quarter with 104 million higher cash balance. Briefly on the balance sheet, which remains sound following the capital race in September. Net debt remains slightly above 1 billion in Q4, broadly in line with last quarter. And our net working capital stood at close to 1.2 billion. And as Philip mentioned earlier, we are working diligently to address that number. Our available liquidity stood at 561 million at year end, and we had an equity ratio of 50%. And to round out the finance section, I wanted to briefly touch on the covenant situation. As previously disclosed, the September refinancing included a waiver for the leveraged covenant until Q3 2026. And from that point on, the covenant will be reinstated at 4.2 times EBITDA. In an uncertain market, management remains laser focused on financial discipline, cost control and working capital management in order to meet the obligation of the loan agreement. And in parallel, we're also maintaining proactive and ongoing dialogue with our lending partners to ensure appropriate financial flexibility in the short term, but also a sustainable capital structure in the longer term. And with that, I'm handing it back to you, Philip, for the outlook section.

Thank you, Eirik. Looking ahead to 2026. While Q4 2025 delivered encouraging improvements, we remain a back-ended, loaded company. We expect many of the market headwinds that shape 2025 will continue to influence our core markets in the first half of 2026. The key drivers and risks affecting our business segments entering this year However, let me to be cautiously optimistic about 2026, where we see both potential upsides, but also potential downsides. From mobile pipeline, there's still an unfavorable supply and demand imbalance in the North American market, as Arik explained. Traditionally, oil and gas customers are focusing on utilization rather than exploration and expansion. This tougher environment is also leading to increased pricing pressure from underutilized competitors. On the flip side, we expect there to be multiple drivers of demand for mobile pipeline solutions in 2026. We have new product developments and we have improvements scheduled to launch in 2026 that make me personally optimistic we will capture relevance in new industries. We also have opportunities in new geographies and for applications in markets like India, Latin America, and for applications for data centers that may drive volumes. For fuel systems, on the risk side, Class 8 truck volume sales are still projected to match or even be slightly below the very low levels in 2025. Despite a significant improvement of projections from ACT over the last two months, In our view, the weak freight rates in North America may keep fleets conservative on capex and rolling stock investments. November's confirmation on the very important EPA 2027 NOx emission law will stand. This is good news. It will come in effect. on January 1st, 2027 and may lead to a potential pre-buy effect on diesel trucks. Before the tailwinds of those same regulations positively support CNG and our business from 2027 onwards. The positive flip side of the EPA 2027 regulation and confirmation is clarity. We have been waiting for this final confirmation that the law would not be reopened. With that certainty, we are already hearing from fleets that they are more comfortable committing to buying new trucks, investing and looking into CNG. Now it's on us we need to turn interest into orders. Alongside improving market fundamentals, we expect that larger fleets may look to transition to commit to make orders in the second half of 2026 as they grow more comfortable with with the new technology. For transit buses, we are seeing positive CNG momentum in Europe and the Americas, with governments and municipalities committing to CNG as the best solution for their fleets and cities. Another potential driver of revenues would be a pickup of additional business in adjacent industries, like space, with further progress on our diversification strategy taking effect. For aftermarket, we expect that an extended soft truck market will limit parts and install volumes on the risk side, Offsetting that on the driver side, we are expecting strong recovery for Hexagon Digital Wave in 2026. As I mentioned, mobile pipeline re-qualification activity is expected to rebound from the cyclical low 2025. Broader product and geographical expansion in mobile pipeline and fuel systems could also open new aftermarket opportunities for sales and increased profitability. To summarize, our core markets, especially in North America, look to be relatively soft in the first half of 2026. With a return to normal seasonality and back-end loaded year. Based on current visibility and continued market uncertainty, we expect our 2026 top line to be broadly in line with 2020. or moderately above 2025 levels. With improvements in profitability, we see across all segments the value proposition of our core technology and capabilities remains firmly intact, and with the improved cost structure, we are more competitive. As we enter 2026, our priorities are clear. And they reflect both the current environment and our long-term ambitions. We will have strict financial discipline. We are focused on leveraging the core technology and capabilities that differentiate us and that have made us the market leaders in our industries for decades. And we will drive the adoption of natural gas vehicles as the only alternative to diesel in long-haul, heavy-duty and high-energy intensive mobility applications. Our cost and cash optimization program is delivering structural benefits and our strategic steps are bearing fruit. We will have an European footprint improved. We are gaining traction in diverse new verticals and geographies and have greater regulatory clarity that meaningfully benefits natural gas adoption. While we are expecting a modest first half, of this year, we are cautiously optimistic for 2026 and we remain confident about our long-term growth. With that, I will hand back to Berit Katrin for the Q&A session. Thank you so much for listening.

Thank you, Philip. We already got some questions from the audience, and I'll start with the first question for you, Philip. On the aerospace order announced this morning, can you provide additional color on the nature of that opportunity and how we should think about its potential to develop into a meaningful growth avenue for Hexagonal?

Okay. For us, as I stated, this is a testimony twofold. One about our capability and that we walk the talk and that we come back to that. Walking to talk was important that we are becoming more resilient. That's a testimony looking in adjacent industries. The second is a testimony of our capabilities. of our teams who can drive and bring this home, the capacity we have, and the product we have in place. And that a very challenging environment, very challenging customer is accepting this, and that we with the team are driving this home over a relatively short period in time, as I stated, makes me confident that we can explore other opportunities in adjacent industries.

Thank you. Continuing with the question for you, Eric, on profitability, what do you mean by meaningful improvements to profitability and what material and non-material savings impacts do you expect in 2026?

All right. Thank you. I appreciate the question. I'll not give a number, but I think we have some levers that will contribute. Firstly, it's the full effect of the cost actions we have implemented in 2024. As Philip mentioned earlier, and as I also mentioned, we expect the effects to linger on into 2026. The second lever would be the acquisition of SCS composites. We already communicated that we expect to see some synergies from that transaction on the administrative side and operational side, but also on the sourcing side. And the third lever would be general operational and material efficiency that we see throughout the course of the year. So I think we're pretty confident in a step up in margin from 2025 which was a low level 2% but not to the extent of 2024 which was at 13% at the end of the day we are depending on a certain volume to absorb cost

Moving more over to commercial and you, Philip. Regarding the synergy with engine partners, your partner Cummins has recently highlighted the massive growth in the data center sector as a key driver for backup and standby power demand. Given Hexagon Agility's leadership in high-pressure gas fuel systems, do you see a strategic opportunity to provide the storage and distribution systems required for large-scale gas-powered stationary power generation in this sector?

Absolutely. And also with that question, Multiple dimensions are unfolding here. One is our value proposition. Lightweight, high density, a lot of payload of natural gas on a vehicle. That is efficient for gas transportation companies. And now it comes to the need of a lot of energy with data centers. And this works perfectly together. And this is where we work closely together with our partners in the gas distribution industry to see what they need, what their product demands are, what changes potentially need to be made. And we anticipated this already during the course of 2025, as I stated, that we make product improvements. We're looking into new product offerings within mobile pipeline to serve these industries in the most efficient way.

Moving back to you, Eirik, and a question on covenants. You mentioned in your report that you see a risk of covenant breach and are in dialogues with banks. How advanced are you on this? Will you be able to get a waiver or do you foresee an equity raise will be needed?

Yeah. No, thanks for the question. And as I said during the presentation, we... have done and we are doing everything in our power to stay in compliance with the obligation of the the loan agreement we are addressing costs we are addressing working capital we're minimizing uh discretionary spend capex um i think we as philip mentioned as well we are cautiously optimistic about 2026 we do see improvement in profitability but It would also be wrong, given the market uncertainty, for me to categorically rule out a risk of being in a potential technical breach. But of course, we are on top of this situation and we're doing what we can. At the end of the day, we are depending on a certain uptake in the market. And I can also say, as mentioned during the presentation, that we have a good and constructive dialogue with our lending partners. And most importantly, we do also have a solid liquidity situation. And we also, as mentioned in the presentation, expect positive cash flow in 2026. So, yeah, that's what I can say about that. Of course, we will do whatever we think is in the best interest for our shareholders, both in the short term, but also in the long term.

Thank you. Philip, a question related to our third quarter presentation. In the third quarter presentation, you said that the first quarter would be weaker than the fourth quarter results. Do you reiterate that message or have anything changed?

I think I've been very clear that based on the visibility and the uncertainty we see in the current market and the shifting dynamics here that we believe that 2026 will be a more normal year based on seasonalities meaning that the first half might be softer and the second half might be stronger and that is in alignment with what we hear from other market players and what they see as well and this is how we manage our business at the current moment.

A question on SES acquisition and how it relates to covenant. Will the gain on SES acquisition of NOC 119 million in EBITDA contribute to the EBITDA as defined in the loan agreement and thereby contribute to fulfill the NIVD-EBITDA covenant in the third quarter of 2026?

Good question. I think as a starting point, the definition of EBITDA under the lending agreement is intended to reflect underlying performance and cash generation. That's the starting point. But we are having discussions along multiple fronts with the banks. So I would for now assume that it will not count in the definition of EBITDA. But I've said there are discussions along different fronts.

Question for you, Philip, on Europe. Do you consider the increased defense build-out in Europe to be an additional upside for the fuel system business? If so, how do you assess the potential?

I think it's a similar question then to our aerospace business. We have and we have capabilities which can be used in all different industries, also the one you just mentioned. And it's like one of our endeavors to see and take opportunities as we can deliver them from our sites in the US or in Europe. So we are open to these discussions with the capabilities we have, the product portfolio we want to utilize, and the capacity we want to utilize as much as possible.

Then I think, let's see, many questions coming in here. Eric, question for you on analyzed cost base for 2026. What is your approximate analyzed cost base for 2026, G&A and personnel costs?

Can you repeat the last part of the question?

It says approximate annualized cost base for 2026, G&A and personnel costs.

Yeah, I guess where we, you know, I think our fourth quarter is pretty representative for what we will have in 2026. So, you know, that's what I can say about that. Again, we expect to have some improvement, so that's a good baseline. But building on that, we should see some improvement.

Thank you. Philip, on mobile pipeline, do you see the EMEA region driving the sequential mobile pipeline growth going forward, or is it still dependent on improvements in the North American markets?

For mobile pipeline, we take every opportunity in all the regions. We were focused on the North American market with the downturn which we are seeing. We are deploying all our resources in every region of the world. So it's not just Europe, Middle East, Asia. It's also South America. It's applications, as I said before, where you need a lot of energy and need to transport it from a point to another point. And this is where our value proposition come to fruition. And we're seeing a lot of positivity. We're seeing due to the geopolitical uncertainties also changes in how people approach stationary gas, pipeline gas. distribution and there are some benefits in a lot of these industries regions countries where we can serve it but we also see within our some of our core businesses like the RNG businesses huge development in countries within Europe which are focusing on that as well and so I think it's not a question to say yes or no it's like multiple answers and we take every opportunity we get

Thank you. We have several questions on the need for raising capital. So I'll just ask one. So for you, Eric, are you in the process of raising capital in near future?

We cannot comment on that, obviously. And if and when that would be the case, then we would obviously address that and communicate it. But I cannot comment on anything like that. What I said about the COVID situation earlier is still the reality. So we're working to find a solution.

Thank you. Philip, exactly what type of gas cylinders and tanks are needed for data printers?

I think every one of our applications is unique and for a certain application. In general, our Titan cylinders, Titan trucks, Titan modules are best in the utilization of space on a truck in a module and with the application of payload which can be transported. So our Titan trailers would be perfect for that kind of application in comparison to some of our competitors products.

I think what we see on data centers is that it's very common to deploy a temporary energy supply in absence of permanent infrastructure, while there is a rapid deployment or rapid build-out of data centers. So it's very common to see in the initial phase before permanent infrastructure is established. Just adding to what Philip said.

Thank you. Thanks. That seems to be the questions for today. So that concludes our fourth quarter presentation. Thank you for joining.