Hexagon Composites : Annual report 2023

Annual report

2023

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Driving Energy

Transformation

We are the world's leading manufacturer of Type 4 composite cylinders and fuel systems for alternative fuels. Our solutions enable global OEMs, fleet owners and distributors to displace diesel and make the switch to clean energy.

With over 20 years of experience in the industry, our solutions are in use across the world - as fuel systems on commercial vehicles, in gas transportation modules

to provide areas with access to clean energy, and in homes, as its own energy source.

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3 

Contents

In brief	4
Vision and values	4
Hexagon at a glance	5
Our presence	7
Reflecting on 2023	8
Key figures	8
A word from the CEO	9
Our strategic direction	11
Our business areas	13
Hexagon Agility	14
Hexagon Ragasco	15
Hexagon Digital Wave	16
Hexagon Purus	17
From the Board room	18
Board of directors' report	18
Executive management	35
Board of directors	37

EU Taxonomy	39
Sustainability	52
About this report	53
ESG governance	54
Sustainability in Hexagon	56
Our contribution through our solutions	62
Minimizing our operational environmental footprint	67
Product safety and compliance	78
Occupational health & safety	81
Our people	85
Governance	92
Accountant's assurance report	98
Financial statements	101
Financial statements Group	102
Financial statements Parent Company	166
Auditor's report	186

Appendix	193
Methodology	193
Stakeholder engagement	194
Hexagon Composites data	196
Hexagon Purus data	197
Glossary	198
Financial calendar	200

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4 In brief  |  Vision and values

CONTENTS | IN BRIEF REFLECTING ON 2023 FROM THE BOARD ROOM EU TAXONOMY SUSTAINABILITY FINANCIAL STATEMENTS APPENDIX

We believe that clean air is a right, not a privilege

VISION	PURPOSE	VALUES
Clean Air	Driving Energy	Integrity
Everywhere	Transformation	and Drive

OUR BELIEFS

We have a strong, values-based culture that drives our business performance. Our core values, integrity and drive, support our behavior and our beliefs.

Driven by a vision of Clean Air Everywhere, we believe that clean air is a right not a privilege; that technology is no longer the barrier in enabling clean energy for all; and that change is urgent.

We hold ourselves accountable for all our interactions with our customers, suppliers and owners, our people and the communities in which we operate.

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5 In brief  |  Hexagon at a glance

CONTENTS | IN BRIEF REFLECTING ON 2023 FROM THE BOARD ROOM EU TAXONOMY SUSTAINABILITY FINANCIAL STATEMENTS APPENDIX

Hexagon at a glance

OUR RESULTS

5 186Revenue MNOK

480EBITDA MNOK

50%Equity ratio

OUR PEOPLE

1 Employees‌150

13%Innovation efforts

of employees are dedicated to innovation, R&D and world-class manufacturing

OUR CONTRIBUTION

1 500Hexagon Group's solutions have000avoided

metric tons of CO2 equivalent emissions‌2

Committed to reach net-zero by

2050

1 Full-time equivalent	2 The Alternative Fuel Life-Cycle Environmental and Economic Transportation (AFLEET) tool from the Greenhouse gases, Regulated Emissions, and Energy use in
	Technologies (GREET®) model has been used for estimating emission reductions. For more information see appendix report methodologies and assumptions

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6 In brief  |  Hexagon at a glance

Our markets

The production of Type 4 cylinders is at the core of what we do.

We have evolved from a cylinder manufacturer to a full integrator of fuel solutions that drive the energy transition within three main markets:

CONTENTS | IN BRIEF REFLECTING ON 2023 FROM THE BOARD ROOM EU TAXONOMY SUSTAINABILITY FINANCIAL STATEMENTS APPENDIX

INFRASTRUCTURE

MOBILITY

DOMESTIC

Hexagon's gas distribution solutions are essential to clean fuel supply chains. Our solutions have the largest transport capacity worldwide and enable the safe transport of compressed (renewable) natural gas (RNG/ CNG), hydrogen or other industrial gases to users lacking pipeline infrastructure.

Hexagon is the leading global provider of clean fuel solutions for commercial vehicles. Our portfolio offers solutions that cover compressed (renewable) natural gas, hydrogen and battery electric. Integrating energy storage and fuel delivery systems into commercial vehicles is one of our key compe- tences. Our systems are installed on medium and heavy-duty trucks, refuse collection trucks, buses, delivery trucks and vans.

Hexagon's lightweight, safe and durable composite liquefied petroleum gas (LPG) cylinders have been a game changer in the LPG industry and are used in homes, leisure and small industrial applications worldwide.

2 000+	100 000	22+
distribution modules in operation worldwide	vehicles on the road	million LPG cylinders sold

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7 In brief  |  Our presence

CONTENTS | IN BRIEF REFLECTING ON 2023 FROM THE BOARD ROOM EU TAXONOMY SUSTAINABILITY FINANCIAL STATEMENTS APPENDIX

Our presence

Headquarter

Hexagon administration, marketing/sales and representative office

Hexagon production site and engineering hub

Hexagon Composites ASA is headquartered in Ålesund, Norway and listed on the Oslo Stock Exchange.

We have a strong global presence in the world's most important clean energy markets. Our 1 150 employees are dedicated to driving the energy transition and enabling our customers to reduce their CO2 emissions.

Kelowna, Canada	Ålesund, Norway		Raufoss, Norway
	Lincoln, US					Kassel, Germany

Fontana, US Salisbury, US

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8 Reflecting on 2023  |  Key figures

CONTENTS | IN BRIEF REFLECTING ON 2023 FROM THE BOARD ROOM EU TAXONOMY SUSTAINABILITY FINANCIAL STATEMENTS APPENDIX

Key figures

REVENUES AND PROFIT   MNOK	2023	2022	2021
Re-presented	Re-presented
Revenue	5 186	4 303	3 278
Operating profit before depreciation (EBITDA)	480	348	381
Operating profit (EBIT)	221	106	171
Profit/loss before taxes from continuing operations	(933)	24	46
Profit/loss after taxes from continuing operations	(941)	6	18
Profit/loss after tax from discontinued	2 050	(432)	(345 )
Total profit/loss after tax	1 109	(426 )	(328 )
CAPITAL 31.12   MNOK
Total assets	6 428	7 904	6 515
Equity	3 214	3 469	3 484
Equity ratio‌1	50.0%	43.9%	53.5%
CASH FLOWS   MNOK
Cash flow from operating activities - continuing operations	674	424	113
Cash flow from operating activities - discontinued operations	(291 )	(325 )	(457 )
PROFITABILITY AND RATE OF RETURN
EBITDA margin‌2	9.3%	8.1%	11.6%
EBIT margin‌3	4.3%	2.5%	5.2%
Return on equity‌4	33.2%	(12.3%)	(9.3%)
Return on assets‌5	15.5%	(5.9%)	(5.2%)

1. Total equity in percentage of total assets
2. Operating profit before depreciation and amortization (EBITDA) in a percentage of revenue
3. Operating profit (EBIT) in a percentage of revenue
4. Profit after tax divided by average total equity
5. Profit after tax divided by average total assets

REVENUE  MNOK
EBIT MNOK

EBITDA MNOK

EQUITY RATIO %
.%		.%
	.%

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9 Reflecting on 2023  |  A word from the CEO

CONTENTS | IN BRIEF REFLECTING ON 2023 FROM THE BOARD ROOM EU TAXONOMY SUSTAINABILITY FINANCIAL STATEMENTS APPENDIX

A WORD FROM THE CEO

Accelerating the energy transition and positioning for further growth

Dear shareholders,

Hexagon develops, manufactures, and integrates technologies that enable commercial fleet owners, gas distribution companies and consumers to make the switch to clean energy solutions.

In 2023, Hexagon delivered all-time high revenues of NOK 5 186 million. The strong topline, coupled with margin recovery from inflationary pressure in 2021 and 2022 and improvements in operational efficiency, contributed to an EBITDA of NOK 480 million after one-off costs of 27 million, up from NOK 348 million in 2022.

At Hexagon, we pride ourselves on our people. They are among the world's leading experts in clean energy technologies.

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10 Reflecting on 2023  |  A word from the CEO

CONTENTS | IN BRIEF REFLECTING ON 2023 FROM THE BOARD ROOM EU TAXONOMY SUSTAINABILITY FINANCIAL STATEMENTS APPENDIX

A record year for Mobile Pipeline

Hexagon Agility's Mobile Pipeline business was the key profit driver for the Group in 2023, with sales up more than 50% over 2022. This is in large part due to rising demand for the transportation of stranded renewable natural gas (RNG) in the US. We see further market growth in 2024 and beyond.

Driving the industry forward with smart technologies

Smart technology is a priority for Hexagon to enhance the value proposition for our customers while reducing material costs and extending the lifetime of our products.

In 2023, Hexagon Ragasco launched its smart cylinder, Linktra®, providing consumers with new digital features on LPG cylinders while setting the benchmark for how LPG distributors can manage logistics in the future.

Hexagon Digital Wave's Modal Acoustic Emissions testing technology provides the mar- ket's most cost-efficient and accurate inspection methods for high-pressure composites cylinders.

Our people

At Hexagon, we pride ourselves on our people. They are among the world's leading experts in

clean energy technologies. Investing in their development and safety is essential to remain an attractive workplace and deliver on our strategic agenda.

Operating in a historically male-dominated industry, we have taken steps to improve our gender balance. I am pleased that the percentage of female employees has increased to 20% from 18% in 2021.

In 2023, we recorded 24 work related injuries, seven of which led to loss of working time. We will further strengthen our efforts to reduce the number of incidents.

Committed to net- zero

I am proud to state that the solutions we deployed in 2023 contributed to the avoidance of just over 1.5 metric tons of CO2 equivalents, equal to taking 300 000 petroleum cars off the road for one year.

Hexagon's own carbon footprint increased by 11% to 255 365 metric tons of CO2 equivalents in 2023. The increase is a result of Group growth. Scope 3 emissions represent 96% of our total carbon footprint.

Hexagon recognizes the importance of reducing our own carbon footprint. In the past year we submitted near-term reduction targets for 2033 as well as net-zero targets for 2050. Engaging with our suppliers is essential to reach net zero and important steps have been taken in that direction. In the coming year, we will focus on implementing detailed roadmaps across our sites.

Inflection point for the US

Heavy Duty Truck sector

Cummins' ‌X15N natural gas engine will be launched in the second half of 2024. The ‌X15N's improved energy efficiency over current natural gas alternatives will allow natural gas vehicles to compete head-to-head with diesel, matching power and range, while superior in CO2 emissions and fuel economics. The launch of the engine will triple the addressable market for heavy-duty natural gas trucks in the US.

To meet the expected market growth, Hexagon has over the last few years invested in additional capacity in Kassel, Germany, and Lincoln, Nebraska. In 2024 we will install new cylinder capacity in Salisbury, North Carolina. By leveraging the already established infrastructure and support functions, we can add several new production lines in 2026 and 2027 within the

existing footprint, at relatively low incremental capital expenditure. Hence, when we exit 2024 our CapEx needs will be relatively modest and focused on innovation, maintenance, and productivity improvements.

Driving energy transformation

I sincerely thank Hexagon's shareholders, customers and suppliers for driving the energy transformation together with us, and not least our employees around the world who are committed to delivering on our vision of Clean Air Everywhere.

Sincerely,

Jon Erik Engeset

Group President & CEO

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