Hi, and welcome to Hexagon Puris Q4 2020 Presentation. My name is Eva Giere, and I am the VP of Investor Relations in Hexagon, and I will be moderating today. I'm joined by company CEO, Morten Hulam from the studio here in Oslo and by Dilip Warrior, company CFO from his Home Office in California. Today's presentation includes Hexagon Puris in brief, highlights from the quarter, the financials and finally the outlook followed by a Q and A session. The Q and A option on your screen is open.
So please feel free to enter your questions there. Or you can also send your questions to irhexagonpuris.com. Without further ado, I'll hand over the word to You, Morten?
Thank you very much, Eva, and good morning, everybody. We have our first presentation today as a public company. So I thought I would start off by giving a brief introduction to our business and the opportunities that we see ahead. So the We're in the early stages of a major shift, the shift away from carbon fuels and the transition into 0 emission And Hexagon Purus is one of the companies that are making this transition happen. So we are a global leader in some of the key technologies That the green shift has really gained strong momentum.
The people around the world now realize That climate change is a major threat to civilization and that we have to and that we can do everything Possible in order to fight global warming. The solution to global warming is renewable energy, And the required policy changes are now being implemented in country after country all around the world, tighter emission standards, green incentives and massive investments into renewable energy and green technologies. And Hydrogen is quickly emerging as one of the key zero emission solutions. And it's because of Hydrogen's relevance across the entire energy spectrum and its potential to decarbonize Some of the sectors that are very difficult to decarbonize by other means. And with renewable energy Being the solution, hydrogen is a great way to store and to transport that renewable energy.
And then there are several factors that drive the adoption of hydrogen that are now moving in the right direction. On the one side policy is very important where the politicians are putting tighter emission standards To discourage the use of things that they don't want to see and also providing incentives to encourage those things that they want to see. The cost of hydrogen is important. We see the cost overall of renewable energy falling. And the cost of hydrogen technologies, when you scale up and you industrialize those technologies, the costs are expected to come down rapidly just as they have Then it's the infrastructure side, Which is a critical one because nobody wants to buy a hydrogen car or a hydrogen truck if there is no place to refuel it.
But we see now major companies That are interested in this space going in to invest to build up the infrastructure for refueling of vehicles. And then finally, there is the network or multiplier effect that Major companies in almost every industry is now looking to shift their efforts away from carbon and into green. And the more companies and the more industries that deploy hydrogen as a solution, the easier it is For the next industry and the next company to also deploy hydrogen. So it's a self strengthening mechanism that Serves as an acceleration factor for the overall adoption. And these factors in combination can really drive hydrogen towards mass adoption.
And for us, This translates into a large market opportunity for hydrogen mobility. The overall market for hydrogen cylinders It's expected to approach $7,000,000,000 in 2,030. And at that point, We're still only seeing single digit adoption of hydrogen vehicles, more in the heavier vehicle classes Unless in the lighter vehicle classes. But overall, there is also then a sizable growth opportunity beyond 2,030. So with this market backdrop, a few words on what we do in Hexagon Purus.
So we are the leading provider of Type 4 cylinders. This is essentially a polymer inner tank that's been overwrapped With high strength carbon fiber, which makes the cylinders extremely robust, so you can store gas at very high pressure. And also, they are lightweight. And this combination makes them ideal to store hydrogen fuel onboard a vehicle where you need to maximize the overall range of the vehicle. So we can sell these cylinders as a component, But more often, we sell these cylinders in a system where you combine cylinders together with plumbing and regulators Into an overall fuel system that then goes onto a number of different mobility platforms, Whether that is on the back of a truck, on the roof of a bus or a train or in an overall distribution module.
Then the 3rd point, which is maybe less known about Hexagon Purus is our leading position as a provider of electric drivetrain integration solutions, where we take an empty chassis and we combine our own technologies, The hydrogen fuel system, the battery system, power electronics, we combine that with 3rd party components And then integrate the entire drivetrain of the truck and make that truck run on the road. We have a good track record of doing this, and our battery systems and drivetrain offering has really received great feedback from both Customers, OEMs and users. And despite our modest SAIS, as a company, we are far from a start up. We already are a global organization With engineering, manufacturing and R and D facilities in both North America and in Europe and a strong track record and proven ability to deliver to these very demanding OEM contracts. So overall, we feel very confident about our abilities and to really benefit from this sizable market opportunity that we see ahead.
We have deep competence in some of the key technologies needed for hydrogen mobility. We have established manufacturing facilities in Europe and North America with also serial production capabilities. We have strong relationships with world class OEMs. And finally, we've got an experienced Global team with a solid track record and a good execution DNA. So that was the overall presentation of Hexagon Purus and the market we see ahead.
And now I want to give a few highlights from Q4 in 2020. And for us, one of the key highlights, of course, was the successful listing on the Euronext Growth Oslo, where we raised SEK 750,000,000 in December. This allows us to accelerate our development further. And with Hexagon Composites retaining a majority ownership of Hexagon Purus, We can continue to benefit from the strong industrial link and capture the synergies that exist between these two group of companies. We also picked up some contracts through the course of Q4, both in the Heavy duty vehicle segment, the rail segment and for distribution modules.
So we were selected by Hino, which is a Truck OEM that's owned by Toyota, we were selected to be a development partner for them to develop both the battery electric and the fuel cell electric Vehicle platform. We got a contract with New Flyer in the Transit segment and then 2 rail contracts, 1 for Stadler to for a regional commuter train in North America and with Talgo to provide cylinders to the 1st 0 emission train in Spain. And then in the Distribution segment, we also wrote a long term agreement, Multiyearframe agreement with Everfuel and also received a sizable order from another You will continue to hear different contract announcements from us. But sometimes, it can be difficult to assess At which point do these contracts turn into revenue. So what I thought I would do today is to give you a short overview of the different market segments that we operate in and where we see these segments in terms of revenue maturity.
So starting with the heavy duty truck and trans in segment, we are involved in several development contracts when it comes to both battery electric and fuel cell electric heavy duty vehicles. In the early stages, The battery technology is a little bit more advanced than the fuel cell electric Drivetrains. So while battery electric trucks are possible to sell already today, The large volumes when it comes to the fuel cell electric trucks are still a few years out. And then on the transit side, the overall platform development is already done, and these are Then already in serial production, although the series is quite small at the moment, it will grow significantly in the years ahead. On the light duty side, there are only 2 vehicles 2 light duty vehicles on the road today, and we have been nominated to provide cylinders to one of them.
This is not today, but it's something that starts to generate revenue for us from 2022 and onwards. And then we know that there are a number of other OEMs that are working on development programs For fuel cell electric vehicles. But overall, we see that the mass volumes is not expected to come until the second half of this decade because these vehicle platforms do take a long time to develop. On the distribution side of things, we are already in commercial production. So with renewable hydrogen again growing, there is an increased demand to transport This renewable energy from the source where it's generated to where the hydrogen is going to be used.
And these distribution modules are ideal to do that. And we see that as something that's already mature and where we see that the volumes in the coming years is expected to increase significantly already from this year. And then on the rail side, It's a lot of exciting things are happening and Hydrogen has very good logic in rail applications. But derailed platforms do take a long time to develop. So although we are involved in development programs now, It is not likely that the large volumes on the rail side will be here until around the middle of the decade.
And similarly for marine, there is a good logic for hydrogen as a fuel for marine vessels. And we see a lot of interest in different applications, different ship applications in the maritime segment. The maritime sector, just like any other sector, need to decarbonize and hydrogen is a very Likely solution to decarbonize also on the maritime side. So we see a lot of interest and an increase in activity level For Zero Emission Solutions, it is at an early stage. And so just like in the Rail segment, It's probably some years out until the mass volumes are approaching.
So we will be in development mode for the 1st few years likely. But we see the maritime segment That's very important and very interesting and are rigging ourselves to significantly accelerate our own efforts in the Marine segment. So with that, I will turn it back to Hiba.
Thank you, Martin. Moving on in the program. Dylip, will you please walk us through the financials?
Yes. Thank you, Hiba. So I will walk you through the financials of Purus' e Mobility business. The CNG LTV business is now classified as Discontinued operation. So revenue in Q4 was NOK33 1,000,000.
EBITDA loss was NOK52 1,000,000. It's important to know that in this early stage of development of the industry and the relative maturity of Puris, that revenue On a quarterly basis may vary quite widely. In 2019 and in particular in Q4 of 2019, We saw fairly heavy revenue contribution from an OEM heavy duty electric vehicle demonstration program. That program completed in Q1 of 2020 as expected. Also in Q4 of 2020, we saw roughly NOK 10,000,000 Of revenue getting pushed out to Q1 of 2021 due to certain supply chain delays.
So that revenue decrease combined with an overall increase in expenses related to The IPO, other strategic costs and then the incremental costs of having Purus as a Relatively independent and now a separately publicly listed company drove that decline in EBITDA. So we exited the year at NOK 180,000,000 in revenue and roughly NOK 140,000,000 in EBITDA losses. And on the next slide, we just wanted to share with you some idea of the composition of The business as it stood in 2020 for certain heavy duty vehicles is a very important segment for us, But also fairly material contribution from the distribution module business and Aerospace. So those three segments together account for Almost 80% of revenue in 2020. We also had some revenue contribution on the light duty side, but Primarily development programs kind of stuff.
And then we had some revenue contribution from the Transit Bus business And other applications in ground, rail and marine. Next slide. Just taking a look at the balance sheet. Obviously, following the private placement, we have a very strong balance sheet, NOK 1,200,000,000 In cash, we have listed the net assets of the CNG LDB business as held for sale. It's roughly NOK 141,000,000 not there.
Debt, we're substantially debt free. There's about NOK161,000,000 of debt remaining on the balance sheet due to Hexagon Composites, And that should be offset against the eventual transfer of the CNG LTV business to Hexagon. And then moving on to the cash flow, not surprisingly, the net financing activities, so the Private placement in December in Puris as well as the proceeds in August via the private placement in Hexagon Composites Has resulted really in a very solid cash position. The CNG LTV business, as you can see, resulted in NOK 41,000,000 of cash outflow. And with that, I'll hand it back to you, Eva.
Thank you, Dylip, and thank you for walking us through the financials. Moving on to the final section of today's presentation is the outlook. And Morten, please walk us through the outlook.
Thank you, Hiba. We have a very active project pipeline and see a lot of interest in general into the 0 emission Mobility Space. So at the moment, we're above 75 projects in our pipeline. It's It's a combination of some projects which are relatively short term and some projects that are long term, Some that are small and some that are large and also across the various sectors of the mobility spectrum. But overall, high activity in the 0 emission space, and we expect our business to grow in 2021.
The CARB ruling in California really is a game changer for vehicle electrification. So California regulators are now mandating that a certain percentage of heavy duty vehicles Sold in California needs to be 0 emission already from the year 2024. So heavy duty vehicles account for a small part of the overall number of vehicles out of the road, but is responsible For a large portion of the emissions. So the focus is now shifted on to from regulators onto the heavy duty Vehicle side. And so starting from the year 2024, in California, 9% Of vehicles Class 4 to 8 will have to be 0 emission.
This is a big deal. This is a big driver for 0 emission platforms, and we expect this to start driving revenue for us already in 2021. And we have a good track record with vehicle electrification, having supported Daimler with their innovation fleet back in 2019. And we have really we really see now With the OEMs that there is a high interest and also from the fleet customers in solutions for vehicle electrification. So we expect that to be a revenue driver for us in this year.
Then on the European side, EU has very ambitious hydrogen plants and are really gearing themselves up for massive investments into transitioning their energy system in a green direction. And so the focus in Europe is on renewable energy, which of course will drive the demand for distribution solutions. And When it comes to the overall infrastructure rollout, we see that over the next 10 years, the number of stations Will grow substantially. And also the size of each station as adoption is increasing will also increase, which is a positive factor for us when it comes to the distribution segment. So the growth, of course, is primarily driven by large truck fleets being rolled out across Europe and across North America and Asia as well.
So we expect that the demand for distribution modules is going to grow for us in 2021, one of the key revenue drivers. Then I want to also give a short update on where we stand in China. Despite the COVID Travel bans. We have been able to progress the negotiations with our joint venture partner in China and expect to finalize the negotiations there shortly. Our financial targets for 2021 is to grow revenue by at least 50% compared to last year.
Looking further out in 2025, we have a revenue target of SEK 4,000,000,000 to SEK 5,000,000,000 and a long term profitability target of double digit EBITDA Margins. So to sum up, We see a very solid outlook driven by high activity and secular tailwinds. The high activity level we see across all of the segments where we operate. We are also accelerating into product development, into production capacity and into organization. And then finally, we are on track to meet The revenue target of 50% year over year growth in 2021.
So with that, I will leave it over to Hiba.
Thanks, Martin. We've received some questions from the audience. So I suggest that we just jump to it. The first question has come from a Morton Bergkopf. Can you tell us something about the size and the deal of with Talgo?
And if success, then how many trains can we envision?
Yes. I think it's difficult to speculate on how many trains you could foresee down the But I think what we say is that we see that hydrogen has a good logic in rail applications Because it is expensive to electrify lines, and you can do that with hydrogen instead. So we see Increasing interest. The initial deal for these types of development programs Are usually quite small. So we're talking low €100,000 type sizes.
But of course, as you get into serial production, The deal size is obviously going to be a lot larger. But we do see that there is a large opportunity down the road in the Rail segment.
Thanks, Martin. Moving on, can you Explain how you become nominated as a supplier for an FCEV that is already in serial production. Does that mean that you've replaced a current supplier or will you be a co supplier?
Yes, we will be a coal supplier for that vehicle platform. It's not unusual for an OEM to want Several suppliers for certain parts and certainly for the fuel system and the cylinders, It's very relevant to have a second supplier for a vehicle platform.
Great. We've received a question from Miguel Nieholtz, and he's asking about China. How important is China in your 2025 revenue target? Is the CIMC JV the only current push on that market? And this third question is, are you not afraid of giving away company intellectual property?
And finally, would you make that JV what could make the JV fail? And if so, what would be your plan B?
Okay. So let's start with The first part of your question, how important is China? Overall, China is the largest Vehicle market in the world, and it will be the largest clean mobility vehicle market in the world. And so China is important to us. I think it's fair to say that it will be challenging for us to reach our revenue target if We are not being successful in China.
So it's definitely part of our plans going forward. Then there was a question there on the IP protection, which I think we have been Very, very cautious of in the way that we have both structured the JVs and also In the way that we have structured the agreements. So without being more specific than that, I can say that, that has really been a high focus area in our negotiations with the Chinese partner.
And then there was a final question, Martin. What could make the JV fail? And what's the plan B?
Yes. I think that the we need to ensure in China that we are competitive. So competitiveness is going to be extremely important. We know that we are competitive on the cylinder technology. We are probably the company that knows this technology the best and has the longest history in producing these types Cylinders.
Then we have found a partner who also has a track record of profitability and are good International Business People. So I think the structure we have put in place is a very good combination of 2 companies with solid and partly complementary skill sets, at least also when it comes to geography. So we're quite confident that we will be competitive in China.
On the topic of China, just another question from the audience. Maybe you could reiterate why it's been delayed and when you expect to sign with CIMC Enric?
We have had a few Expectations that we have set for ourselves out there previously. The overall explanation, it's Quite simple. We sit and negotiate and discuss various aspects of these agreements over Teams. So we have not been able to travel to China since March. And so we've not been able to sit in the same room and then things just do take longer.
So that's a very simple answer. The negotiations and the discussions are going really well. It's a very extensive set of agreements that we are writing, so it needs to be worked through Thoroughly. And I think that right now, we're in the middle of Chinese New Year celebration. So but we do expect To finalize this quite soon.
A question from Erik Dahlstrand, can the high pressure cylinder be recycled? And to what degree?
The cylinder is a combination of polymers, Carbon fiber and resin, that's been baked together in an oven. So it's very difficult to recycle each piece per se, But they can be recycled and reused as a material, so basically being grinded up and then used as material For other uses.
So a question maybe for you, Dylip. Have you target price of the share of 2021 and or for the next year?
If the question was related to a target share price, the answer is No. We are focused on building real value for shareholders. We are focused on following the strategic plan and really investing in the growth initiatives we've Shared with investors in the roadshow. If we're doing things right, the share price will follow.
Thank you. Maybe another question for you, Dilep. What was your order backlog as of Q4? What was the order intake in Q4 in NOK1 1,000,000? And how much of 2021 sales is covered by the order reserves?
Yes, it's a good question. And frankly, we're looking at Sharing some of that information at some point in the future. I'd say it's early days yet, but Our confidence is high. We have the I guess what I would say is we do have the backlog To justify our confidence in the at least 50% revenue growth in 2021.
Anything else to add, Martin?
No, perfect.
No. So a question about the supply chain and the delays. If we've experienced any delays in the supply chain during Q4.
Yes. So I think that's referring to the comment we made about roughly NOK 10,000,000 not being pushed out of Q4 into Q1. It really was sort of one off complication. And that's kind of it really has been sorted out. In fact, it's I believe that revenue has already been recognized here sitting in January, so one off.
Yes. And in general, I think we can say that I'm actually amazed at how in the face of the pandemic that hit us in 2020, how little disturbances In general, we have seen in the supply chain and in the manufacturing in our facilities. So I think that's a very Positive sign.
A question to you, Martin. Who do you see as your biggest competitor and partners in this segment?
It's a quickly evolving space and there's lots of interest there. You have The vehicle OEMs themselves that are interested, you have on the component side other cylinder suppliers, Specialist cylinder suppliers. You have Tier 1 suppliers to the OEMs That wants to go in the clean mobility direction. And then you have also a number of companies that serve the OEMs with electric drivetrain integration services. So it's early stage.
There are lots of players out there. It's vibrant. But so far, we have at least been able to secure a leading position and been able to stay On the leading edge of technology, both when it comes to the cylinder side, when it comes to the System side and when it comes to the overall vehicle integration side.
Thanks. So a question from Anders. Can you provide the name and model of the FCEV contract?
It's you will see this in several of the announcements that we are giving. If we don't Announce the name, it is because the counterparty that we have does not want the name to be announced. It's unfortunate, but that's the way it is. So no, we are not able, unfortunately, to name that customer.
Yes. Another question from Mikael. Across all projects that you've been a part of. How much of the balance of system would normally a fuel cell slash battery electric vehicle system make up for in percentages?
I'm not sure I understood that question.
How much of let me try to read it again.
Sorry.
How much of the balance of the system would normally the fuel cell or the battery electric system make up for in percent Out of the total, how much does the fuel cell electric system represent or the battery electric System represent of the total balance of the system.
Revenue share. You want to take that, Dileep?
Frankly, I think it's really a difficult question for me to answer right now. Maybe Mikkel, we can take that Offline, but I don't have numbers off the top of my head.
Okay. We'll follow-up with Mikkel. So we have A question regarding the Rail and Maritime segment from Lars. You were saying that there you see a large potential within both Rail and Maritime, which now only contributes to about 4% of the total revenue mix. Do you expect the revenue split to change significantly in the coming years?
And what is your long term target for these 2 new segments?
I do think that in the coming years, we are in the development stage For these technologies. So it's not at if we talk rail first, it's not at serial production. So it takes a long time to develop the platform and to validate and test the platform before you are able to roll out The trains in larger volumes. So there, we probably expect things to happen towards mid of the decade and onwards. For Marine, it's a bit different because there are a lot of customized solutions.
There's lots of interest in this space at the moment. And I do think that we expect to see an increased Revenue from maritime applications overall, but In terms of share, it all depends on when things are happening at larger volumes. So it's difficult, I think, to be very specific on that Other than to say that we really believe that Hydrogen has a strong merit for nearshore maritime applications, We see very high interest from customers and from shipyards. And So there's lots of activities going on. So we do expect our business to grow in there.
It probably won't have a meaningful impact in terms of share of revenue in 2021, But in the years ahead, it will grow.
Thank you. We have another CMC Endrick Specific question from Anders. What does the next few months mean? 17th May, is wondering if 17th May. I understand that you don't want to provide and miss Additional dates, but the current phasing seems to suggest a high degree of uncertainty.
Also, Why have you not traveled to China to close the deal? Are the borders really that closed? Morten?
Yes. It's an interesting question. You could, of course, always ask Why have we not traveled to China? It has been a possibility to travel to Kinda, but on the balance of everything that we have had ongoing, we have not prioritized to do that. And so these are discussions that are Possible to do, of course, without travel.
It just takes, as I said, a little bit longer time. And then was there another aspect of that question?
I think you've covered it. Okay. Good. So it seems like China is a topic, a high topic today. And also, maritime and rail.
So I have another maritime and rail question. How do you perceive the technical challenges and incremental investment needed in Marine and Rail? And how and over and above what you're currently doing in commercial vehicle?
There are some technical challenges in the Marine segment, in particular, that It is about storing high pressure gas and then transporting high pressure gas onto the vessel And into the storage tank and onto the fuel cell. So there are some different technical challenges aboard a marine vessel compared to an on road vehicle. But again, the basic competence that we have It's solid and is right now not the limitation for us.
So a Question about acquisitions. Do you have any plans any acquisition plans for 2021?
Our main focus is to develop the business from where we are and continue to do the development work with Customers, it could potentially be also inorganic opportunities for us to grow, But it's not a main focus area. It's not something we rule out, but it's not a main focus area for us. We focus on Building a strong business and a strong organization to capture the future opportunities.
Thank you, Martin. A question about production cost. How much of the total production cost would your products make up for in a car?
This is something we have discussed, Dilip, In several dialogues, do you want to answer that?
Yes. So without guiding to any specific Price points. I think the way to think about the revenue content for a hydrogen Cylinder or hydrogen system inside of a light duty vehicle is it's probably in the low 1,000 of euros per vehicle. As you go into heavy duty applications, Class 8 trucking, for example, or a transit bus, the revenue content is going to be multiples of that based on the amount of hydrogen you want to store on board.
Thank you, Dylip. Do you do Pieris also have tanks for ammonia for the maritime sector?
We don't manufacture that at the moment, no.
Short answer. Another question comes from Lars. In what markets and or regions do you see the best potential for the meaningful growth for the next two quarters? That's his first question. His second question is, the growth of 50% in revenue, What segments of your business is this coming from?
Yes. So back to the outlook section. I think that we expect a couple of segments that we mentioned there to represent A large portion of growth for us in 2021. It is Mainly battery electric, heavy duty trucks in North America. We expect to be a revenue driver.
And the second one is in the distribution segment where we see increased demand for these distribution modules. Those, I think, would be the 2 largest revenue drivers in 2021.
And Morten, I would just add that in terms of the cadence of revenue over the year, We'd expect it to be a significantly back half loaded year.
Thank you, Dilip. Thank you, Morton. At this time, we've covered all the questions. Should you have any further questions, you can always send us an email to hexagonpuris.com and we will answer you via email. We thank the audience for your participation and for being with us this morning.
And we wish you a lovely rest of the day. Thank you.
Thank you.