Hexagon Composites ASA (HEX) Earnings Call Transcript & Summary

Good morning, and welcome to Hexagon's webcast regarding an announcement we made at 7:00 a.m. today. My name is Karen Romer, I'm the SVP of Communications. I'll be moderating and controlling the slide presentation from my home office here in Oslo. Our presenters are participating from their home offices in other parts of Norway. Jon Erik Engeset, who is our CEO; and Morten Holum, who is President of Hexagon Purus. I just want to say that at the end of this session, we will invite you to take direct contact with me or my colleague, David Bandele, if you wish to have one-on-ones with the CEO and the CFO or Morten, following the presentation. I will come back to that at the end of the presentation. And without further ado, I'd like to hand this over to Jon Erik Engeset.

Thank you, Karen, and hello, good morning to all of you. Thank you for joining us for this webcast following this morning's presentation. So those of you who have followed our quarterly presentations will have heard me talking about our desire to establish a footprint and strategic presence in Asia, and this announcement this morning is a very important step in that direction. Hydrogen is crucial to accomplish the transition to zero-emission mobility. And Type 4 technology is required to achieve economics and range while maintaining the highest safety standards. Hexagon pioneered Type 3 technology from the early 1960s and Type 4 technology from the early 1990s. Our know-how, experience and product range in this field are unparalleled in the world. China is the world's largest automotive market and a pioneer in electric vehicle technologies. President Xi Jinping and President Macron in November last year issued a joint statement reaffirming their strong support for the Paris agreement, which they consider an irreversible process and a compass for strong action on the climate. And China is now rapidly becoming the world's by far largest market for hydrogen technology. If you can go to the next page please, Karen. Hexagon made a prefeasibility study of the Chinese market in 2017 and 2018, leading up to a strategic decision in mid-2019 to enter the Chinese market. In this process, we carefully considered alternative partnerships. And in CIMC ENRIC, we have found a sophisticated partner that shares our core values and will contribute its own expertise, technology, know-how and market presence. And together, we will become the clear market leader for hydrogen cylinders and fuel systems in China and Southeast Asia. I actually can't see the presentation now. So are we -- can we just...

We are on Today's announcement.

So the first and foremost objective of the cooperation is to establish a strong presence in China. But the alliance will also aim at developing the strong market presence in Southeast Asia, and we will jointly also consider additional opportunities in other geographies in the world. And we expect to close the deal in Q3. A lot of groundwork has been done in the term sheet, but there are some remaining steps to be taken before we have the final joint venture agreement. If we can go to next page please, Karen. So this slide shows, to the left, Mr. Gao, who is the Chairman of the Board of CIMC ENRIC. He is also an Executive Vice President of CIMC. To his right is Mr. Xiaohu Yang, who is the Executive Director and General Manager of CIMC ENRIC. And to the right, you see Mr. Morten Holum. I've known Morten for more than 10 years. I hired him as my CFO in my previous company, Saferoad. Morten later took over as CEO. He led the company when it was IPO-ed on the Oslo Stock Exchange. When the company was bought off the stock exchange, Morten chose to leave the company, and he joined Hexagon, worked together with myself and my team in developing the strategy for the period [ we're in now ]. And then from beginning of March this year, Morten was appointed President of Hexagon Purus. So as part of our strategic plan, we restructured the group, and we assembled all zero-emission technologies in Hexagon Purus. And Morten is in charge of that business area. And Morten, I will hand over to you, and you will explains a bit more about our partners and our plans. Thank you.

Okay. Thank you, Jon Erik, and good morning, everybody. Let's start with the market. We see China as a very attractive market. It's already the world's largest automotive market with increasing exports. And it's set to become the world's largest market for hydrogen mobility through the course of this decade. By 2030, the Chinese government has targeted to have 1 million fuel cell electric vehicles out on the road and more than 1,000 refueling stations. This, of course, represents a multibillion-dollar opportunity for hydrogen cylinders on vehicles and on trailers. China is the world's largest producer of hydrogen, and by shifting those resources towards transportation, they can improve the air quality, reduce the greenhouse gas emissions and, of course, increase their energy independence. So we have conducted market studies, and the growth projections in China look very favorable. On this page, there are 2 charts. The chart on the left shows the projected growth of fuel cell electric vehicles. And you can see that the segments where we see the earliest adoption and the largest volume is the commercial vehicles, heavy-duty trucks, transit buses and medium-duty delivery vans. Those vehicles will, of course, require a fueling infrastructure, which is shown in the chart on the right-hand side. The growth numbers are very high, particularly when we approach the mass adoption stage in the second part of this decade. And of course, the driver for this development is the need for rapid decarbonization to combat global warming. Hydrogen plays a very important role in that in solving the global climate crisis by enabling the zero-emission mobility on a large scale. And this, of course, creates a tremendous growth opportunity for Hexagon. And it's not only, of course, about China. In Southeast Asia, the alliance of Southeast Asian countries is also targeting to move towards zero-emission mobility. They have targeted to have almost 1/4 of their energy needs covered by renewables by 2025 and growing further in later years. We expect Singapore to take the early lead and that the other Southeast Asian countries will follow. So that was the market highlights. Now some words on the alliance. Hexagon and CIMC ENRIC is the perfect alliance to capture the hydrogen opportunity and drive the market for zero-emission mobility forward. First, us in Hexagon, we deliver safe and innovative solutions for a cleaner energy future. We have extensive experience in pressure vessel development since the early '60s, as Jon Erik mentioned, and we are the clear market leader for high-pressure T4 cylinders for CNG and hydrogen. We design and build state-of-the-art fuel systems for hydrogen, battery electric and hybrid mobility applications, and we cover many of the key mobility segments, whether it be light-, medium- or heavy-duty vehicles, distribution, ground storage, marine, rail, et cetera. We have a strong international presence, particularly strong maybe in Europe and North America. Moving over to our partner, CIMC ENRIC. So CIMC is a large global conglomerate headquartered in Shenzhen in China with around $12 billion in revenue and 50,000 employees. It's a global provider of energy equipment and/or solutions to the logistics and energy industry and maybe most widely known for their freight containers and airport jet bridges, which you can see even here in the Oslo airport. CIMC ENRIC is one of their subsidiaries, listed on the main board of the Hong Kong Stock Exchange, about $2 billion in revenue. And CIMC is the majority owner with around 67% ownership. Looking at CIMC ENRIC in more detail. It's a global company. They have about 20-plus subsidiaries around the world, 10,000 employees. They're #1 worldwide for the ISO liquid shipping container, and they also are #1 in China for high-pressure gas tube trailers, cryogenic liquid transport equipment and LNG, CNG and LPG transport equipment. The combination of CIMC ENRIC and Hexagon is a very compelling industrial partnership. We bring expertise in Type 4 pressure vessel technology, which is a key enabler for growth in the fuel cell electric vehicle market. We bring state-of-the-art design of fuel systems for hydrogen, battery electric and hybrid mobility applications, and our expertise spans all the key mobility segments, as I mentioned earlier. And we have a -- most importantly, a solid track record of innovating with global vehicle OEMs on fuel cell electric vehicle projects. CIMC ENRIC is a leader in Type 1, 2 and 3 pressure vessel technology. They have strong relationships with Chinese vehicle OEMS, gas distributors and Chinese regulators. And it's a trusted and reliable brand in China. It's a solid company with a successful track record of international alliances. They are used to operating internationally, and they are used to cooperating with international companies. So we're really excited about this alliance and believe the combined competencies is well suited to capture the hydrogen opportunity in China. So summing up. This alliance is about accelerating the adoption of zero-emission transportation in China and Southeast Asia. It's about expanding Hexagon's footprint to the strategically important Chinese market. It's about decarbonizing mobility to get cleaner air and lower emissions of harmful greenhouse gases. And it's about together becoming the largest provider of hydrogen storage and distribution solutions in China and in Southeast Asia. So that concludes our presentation today. Thanks for watching. And Karen, I'll now hand the word over to you.

Yes. Thank you very much for participation. Thank you, Jon Erik and Morten, for the presentation. I just want to remind the audience that -- if they have questions or they would like to discuss further any of the facets of the presentation presented today, that we encourage investors and analysts to reach out to my colleague, David Bandele. You see his contact information on the screen. It's also in the stock exchange announcement and also on our website. And media and others interested in one-on-one interviews with Jon Erik or Morten can reach out to me. Again, my information here, on the stock exchange release and on the website. So with that, I will thank you for joining us, and I look forward to meeting with you again soon. Jon Erik, anything you'd like to say in closing?

Thank you. That's all I have to say.

Okay. Great. Thank you very much.

Bye-bye.

Bye-bye.