Release Date: August 15, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Hexagon Composites ASA (HXGCF, Financial) reported a significant reduction in CO2 emissions, equivalent to removing 120,000 petrol cars from the road for one year.
- The company achieved a solid Q2 2024 with NOK 1.15 billion in sales and an EBITDA margin of 12%, showing substantial margin growth.
- Hexagon Composites ASA (HXGCF) secured a major order from UPS worth close to USD 60 million, indicating strong commercial activity.
- The successful sale of Hexagon Ragasco to Worthington Industries resulted in a gain of NOK 677 million, strengthening the company's balance sheet.
- Hexagon Purus launched a groundbreaking heavy-duty battery electric truck in the US, receiving positive market response and initial orders.
Negative Points
- The US freight market remains relatively soft, which could impact future order volumes.
- Hexagon Composites ASA (HXGCF) faces challenges in the European market due to regulatory focus on tailpipe emissions rather than well-to-wheel emissions.
- The company has a high dependency on the North American market, with slower business growth in Europe.
- Despite strong financial performance, the company still faces significant competition in the Mobile Pipeline and industrial gas segments.
- The transition to new CFO leadership is still underway, which could create uncertainty in strategic direction.
Q & A Highlights
Q: You talked about high tender activity on the HPV side and for the 15 liter with the short lead times you have, could we expect to see orders in the second half of the year? And could those be executed also in the second half of this year?
A: If you look at history, Agility has headquarters with 19% EBITDA margin so it all depends on volumes and how they're spread. We tend to look at it in years, obviously because it is a patent. But to answer your question, yes, technically and that can happen. I think what we've tried to look at the say second half of the year will be a higher margin than the first half of the year clearly, and as the trend continues, the growth continues and '25, '26, we'll see even higher margins.
Q: Have a strong cash balance. Can you talk about the alternatives for the use of those proceeds?
A: We are quite happy that we have a strong balance sheet now because we see a lot of opportunities going forward. So we are prepared and we want to be in a position where we can take advantage of those opportunities, both in terms of them increasing our capacity when it's needed because right now, we have already invested a lot and have sufficient capacity for the short medium term. But we want to be able to also expand further and follow the market as it grows. And there are interesting opportunities, for acquisitions as well. So we can we see every reason to -- I think we can employ the money in a good way going forward.
Q: When we speak about potential acquisitions, is that complementary technologies or is it more of competing companies with similar production?
A: I think we will stay pretty focused going forward. But as you have seen, we've also, for instance, invested in Cryoshelter, which is a different technology compared to the high-pressure systems. It's the liquefied natural gas in that case. So yes, we will be focused, but we will also look at widening our portfolio so we can cover all parts of the market.
Q: Can you say a bit more around the integration of Worthing in SES, how's that going? And I also think you mentioned something about competition regulations here in Europe because you were taking such a large part of the bus market. Am I wrong now?
A: First of all, as a noncontrolling interest. So there's no. SES is a mix of different term products and solutions at this point in time, they have valve business, they have a C4 business which is soon pretty much along the same type of product that the Purus is working with, they have also an CNG business with Tier 3 systems. So we will evaluate these different term product lines going forward. And I see what would be a good fit into Hexagone, both composites and perhaps also purest. But we see interesting opportunities there, but may need a bit more time before we can present the final solution.
Q: Metals are obviously going very well in North America than you mentioned. Europe is one of the places where you probably see in business is going to pick up, but it's been rather slow compared to what we had expected a couple of years back and explain a little bit why it is so slow. And when do you expect the business to pick up in this important graphic area?
A: The European market is quite different from the North American at this point in time. And one of the challenges in Europe has been that the authorities or the EU has been focusing on tailpipe emissions. I'm not looking at from well to wheel and in that case, battery electric solutions, for instance, they are zero-emission. But in reality, they're not zero-emission. If you take into account the way the electricity is produced firms for renewable natural gas, it would be a great benefit if we can get the regulators to actually talk about well to wheel. And we are spending a lot of time on that in Brussels and elsewhere too make them understand that renewable natural gas is actually a better solution than, for instance, a battery electric solution simply because it doesn't emit -- it emits much less CO2 or even negative CO2 footprint compared to, for instance, battery electric, which looking at the entire energy chain, it is certainly having a carbon footprint. So I hope and I think we will be able to get some traction there moving forward but of course, it depends on that work.
Q: Could you please confirm how much CapEx you have left on the CapEx program?
A: So we had them, we talked about NOK9 million in the automotive and NOK3 million in our pipeline. And our pipeline is more or less all spent and I would say we're halfway there on the NOK9 million.
Q: There did not seem to be a specific 2025 financial target in this presentation. Are these reiterated adjusting for Ragasco?
A: Yeah, we focus on 2024 Ragasco is a segment that's been reported individually. So I think all the analysts have adjusted Ragasco to their numbers '24, '25 and we and we agree with the expectations going into 2025.
Q: Can you be a bit more clear on that? Because previously you said you have an ambition of NOK6 billion in revenues in 2025 with 15% EBITDA margin. What does that translate to now?
A: If you look historically, Ragasco has had anything between 1% and 1.5% EBITDA margin accretion for the group. So obviously, you take out Ragasco. It's a higher margin business that will be naturally lower margin. But certainly we can see we're overperforming on the continuing businesses of Agility. So again, as we seek and consensus, we feel that's the right position and we are on track.
Q: What is that 15% target that you've talked about in the past is that 15% or is it 14%?
A: The target will remain at 15%, and we will achieve that with the scale volume and Agility in due course, absolutely.
Q: You were extremely cash rich after the sale, but you've used that cash to pay down debt, don't you?
A: Correct. So you have flexibility on the balance sheet, but you've actually paid down debt in order to avoid sitting on a lot of cash budget.
Q: What you see as kind of sensible capital structure for Hexagon moving forward, seeing you're maybe a bit more depending on the structural growth of course, for the CNG RNG adoption rate, I mean, you're a bit more cyclical now than you
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
