October 2, 2013

Hydrogenics Corporation
(HYG – TSX, HYGS-NASDAQ, $12.10)
INITIATING COVERAGE Rating: Buy Target Price: $15.50 (+28.0%)
Initiating Coverage
Rating Target Revenue 2013E (MM) EBITDA 2013E (MM) EPS (F.D.) 2013E Share data (estimated pro forma) Shares O/S (Basic) (MM) Market Cap (MM) Enterprise Value (MM) Average Weekly Volume (THSD) Dividend Yield Net Cash (MM) Fiscal Year End Financials F2013E Revenue (MM) $44.4 EBITDA (MM) $(6.6) EPS (F.D.) $(1.10) DCF/Share $13.8 Buy $15.50 $44.4 $(6.6) $(1.10)

Fuel Cells on the Move in 2013: HYGS Established Leader in H2 Generation, Emerging One in P2G Storage
Increasing renewable generation intensifying grid imbalance issues:
 Renewables are filling the gap created by mothballing of nuclear and phasing out of coal-fired plants.  Renewables crossing 10–15% of grid capacity can cause failures due to inherent instability of supply and the obvious lack of storage “buffers” in traditional grid designs.  Currently, no generally applicable utility-grade, bulk storage solution meets the complete demand for capacity, price and duration.  Utilities are therefore forced to either curtail renewable generation or accept hefty incremental costs in paying customers to purchase the excess capacity.

F2014E $62.4 $1.6 $0.02 $15.6

9 $108.9 $98.5 65 N/A $12.3 31-Dec F2015E $84.3 $7.5 $0.69 $17.6

Power to Gas (P2G) storage solution: HYGS emerging as a leader:
 Generating H2 using renewables and injecting it in gas pipelines for storage (P2G) is gathering momentum due to its price, simplicity, versatility and scalability.  P2G is a high-capacity, long-term, demand responsive and transportable solution that is able to use existing infrastructure without modification, and is economical.  HYGS has close ties with E.ON, the largest EU utility, and has won 7 out of 19 projects in Germany, currently the most advanced energy storage market; 10 projects remain unawarded.  HYGS has 1–2 MW P2G units deployed, 10MW being developed for commercial roll-out.

An established H2 generation leader, experiencing new growth opportunities

Company Description: Hydrogenics Corporation is a
globally recognized developer and provider of hydrogen generation and fuel cell products and services, serving the growing industrial, utilities and clean energy markets. Based in Mississauga, Ontario, Canada, Hydrogenics has manufacturing and operations in Belgium and Germany.

 Leading share of industrial H2 market, outperforming rival 2:1, over 60 years of legacy.  H2 generation demand should grow due to the build-out of refuelling stations, with fuel cell electric vehicles (FCEVs) debuting in 2015.  EU gas utilities are leveraging P2G to stay relevant and enhance the value of their network; they constitute a large and easily penetrable market for P2G.  Enbridge is building the first North American P2G storage system in Ontario, with HYGS as partner, and expects this to be followed by a 5–10MW commercial facility.

Power systems unit firing on all cylinders:
    Commscope FC units for telecom back-up power delivered in Q2/13. Larger telecom orders from Commscope expected in 2014 after hot/cold season tests. $92M order from a European propulsion OEM will drive multi-year revenue. Fast-growing power systems revenue puts HYGS within arm’s reach of break-even.

History has been hard, but future looks bright (finally):
 We understand HYGS’ history of operational losses and ongoing investor pain.  HYGS’ past investments have seeded this harvest, with clear signals from last 3 quarters.  HYGS’ leading share of industrial H2 market provides a hedge for the investor, while exposure to significant growth – all from powerful partners – provides the upside.  We see multiple areas for revenue growth, leading to positive cash flow by H2-CY2014.

Valuation: Our $15.50 target price is derived using a DCF methodology based on a 13%
discount rate and 4% terminal growth. We believe HYGS is a leading pure play in the hydrogen-based renewables industry, which is growing its revenue at a CAGR of 30%+ in the near and medium term; its peers are growing at an average of 18–19%. Our target implies 1.8x 2014E EV/Sales. HYGS is currently trading at 1.5x 2014E EV/Sales; its peers are trading at an average of 3.3x. Given 2013 revenue acceleration, our estimates for 39% revenue growth in 2014 (vs. 19% for peers), formidable strategic partners/customers, a dominant position in Germany and a possible medium-term take-out from the likes of any one of Siemens, other turbine OEMs or gas utilities, we believe HYGS should trade at a premium multiple, justifying our valuation and target.

Source: BigCharts.com

Please see end of this report for important disclosures

Dev Bhangui Senior Analyst, Disruptive Technologies and Innovations 647.426.1658 dbhangui@byroncapitalmarkets.com

Lino Camargo Associate, Equity Research 647.426.0289 lcamargo@byroncapitalmarkets.com

Hydrogenics Corporation

Investment Thesis
Mississauga, Ontario-based Hydrogenics (HYGS) is a leader in industrial and commercial hydrogen generation systems, their applications and fuel cell (FC) solutions. HYGS has manufacturing facilities in Belgium and Germany. Over the last 60 years, HYGS and its predecessors have built partnerships with tier 1 players in the hydrogen value chain, some of which are strategic investors in the company and leverage their distribution muscle to market HYGS’ products worldwide. A pioneer and emerging player in the P2G (Power to Gas) method using hydrogen-based energy storage, HYGS has a leading share of the German renewables energy storage market, considered the most progressive, fast growing and demanding in the world. After many years of posted losses, HYGS sits at an inflection point due to multiple growth opportunities, which we expect to occur concurrently and in the near term. This growth is driven by increasing interest from auto OEMs in fuel cells driving hydrogen refueling station build-outs, the close relationship between HYGS and E.ON driving P2G energy storage and large OEM orders for power systems, which have already resulted in a record backlog. Germany will reduce coal generation capacity to cut GHG emissions and nuclear plants in the wake of the Fukushima disaster. This has further intensified Germany’s need for renewable storage. As such, several P2G-based energy storage projects are expected to move quickly from demo to roll-out. Roll-out projects are expected to be at least 10x demo size, and HYGS is well positioned to experience this accelerated growth in the coming quarters. In addition to recently winning the bid for a 1MW P2G facility with its strategic investor Enbridge, we expect HYGS to also build the subsequent 5–10MW capacity commercial unit. While several technologies have been battling each other for a piece of the renewable energy storage market, hydrogen-based solutions hold an edge due to their economics, response, simplicity, higher capacity and location flexibility in storage and consumption, which are particularly appealing to the utilities. Leveraged to the fast-growing hydrogen economy, investors should view HYGS as a hydrogen pure play, which has a limited downside risk due to a strong legacy foundation of recurring revenue in traditional industrial hydrogen supply, combined with significant upside in hydrogen fueling stations for transportation infrastructure, back-up power for telecom and P2G energy storage, as well as potential to build-own-operate some of these assets through Enbridge, its partnerinvestor. While history does not conjure pleasant memories, given the performance trends apparent in the last three quarters, the outlook for the company, our discussions with management and checks with industry players leads us to believe that HYGS is in the initial stages of history-reversing value creation. We suggest investors buy the stock and benefit from this opportunity. Our $15.50 target price is derived using a DCF methodology based on a 13% discount rate and 4% terminal growth. We believe HYGS is a leading pure play in the hydrogen-based renewables industry, which is its growing revenue at a CAGR of 30%+ in the near and medium term. Its peers are growing at an average of 18–19%. Our target implies 1.8x 2014E EV/Sales. HYGS is currently trading at 1.5x 2014E EV/Sales; its peers are trading at an average of 3.3x. Given 2013 revenue acceleration, our estimates for 39% revenue growth in 2014 (vs. 19% for peers), formidable strategic partners/customers, a dominant position in Germany and a possible medium-term take-out from the likes of any one of Siemens, other turbine OEMs or gas utilities, we believe HYGS should trade at a premium multiple, justifying our valuation and target.
Dev Bhangui  647.426.1658  dbhangui@byroncapitalmarkets.com Lino Camargo  647.426.0289  lcamargo@byroncapitalmarkets.com Page | 2

Governments around the world have made massive investments in funding renewables innovation.426. Consequently. droughts. biomass and others have been worked on in tandem with a view to find solutions. biofuels. As populous countries in emerging markets and BRICS in particular are posting higher economic growth rates. To curb and control global warming. Dev Bhangui  647. there are fears that if we continue to consume the fossil fuels at the current rate of acceleration (see Exhibit 1). etc. Economics for adoption is a game of appropriate price points and scale. such as oil. none of these alternatives rank economically on par with the fossil fuels and have yet to reach mass adoption rates. On the other hand.1658  dbhangui@byroncapitalmarkets.4°F) compared to the pre-industrial times.426.com Page | 3 . some of these resources. research and product development. Solar. but also building our defenses for the fall-out will cost us in billions of dollars.Hydrogenics Corporation Industry Background The Situation: Renewables are filling large gap in our ever-increasing energy needs Various countries are not expected to be on track to meet IPCC-based emission targets set for 2020. renewables production really took off after 2001 for wind and after 2005 for solar.com Lino Camargo  647. and today in Germany the renewable power generation capacity can support 50% of the consumption on a typical summer weekend. Continued global warming will not only increase the frequency of natural disasters like flooding.0289  lcamargo@byroncapitalmarkets. They have passed subsidies and have issued mandatory policies for transportation and utility industries with a view to encourage end users and bring price points down for mass market adoption. geothermal. Exhibit 1 — World Fuel Consumption Is Ever Increasing Source: Peak Oil It is estimated that by 2050. wind. this issue will become exacerbated. which can be avoided. Currently. all the energy we need could come from renewable or sustainable sources. we need to keep the Earth temperature rise below 2°C (3. will peak and begin their decline as soon as 2015.

Coal plants continue to be shut down to reduce GHG emissions. Decommissioned Power. as shown in Exhibit 3. Oct.com Page | 4 .426. forcing many nations to take several nuclear reactors off line (Exhibit 2). Nuclear disasters like Fukushima have evoked strong negative public opinion.0289  lcamargo@byroncapitalmarkets. Renewable power has to fill this large and increasing gap. Exhibit 3 — Share of Renewables in Power Generation is increasing Source: IEC White Paper.1658  dbhangui@byroncapitalmarkets.426. EU Region Source: CleanTechnica But continued challenges to this picture exist and new ones emerge.Hydrogenics Corporation Exhibit 2 — New vs. Grid integration of large-capacity Renewable Energy sources and use of large-capacity Electrical Energy Storage. 2012 Dev Bhangui  647.com Lino Camargo  647.

With electricity generally created on-demand. Sun will shine and wind will blow at their whim and they could generate supply peaks during demand troughs. This is a sad state of affairs.com Lino Camargo  647. They also need flexibility to move these massive amounts from places of storage to places of consumption. Energy sources like solar and wind are inherently variable. they often curtail the energy produced by renewables or pay customers to off load excess power (bearing negative tariffs) to prevent such imbalances.426.Hydrogenics Corporation The Issue: Increasing proportion of renewable power causes electrical grid imbalance As such. cannot respond quickly to renewable power downs (such as when wind dies suddenly) and not feasible for flat terrains like Holland.426. capacity or high cost drawbacks. an increasing proportion of our energy consumption will come from renewable sources (as shown in Exhibit 3). Exhibit 4 — Hydrogen Energy Storage vs. This supply excess introduced into the grid causes imbalance. the traditionally designed electricity grid has no inherent storage capacity and this causes problems with increasing penetration of renewables. An excess beyond 10–15% can cause blackouts. causing its own issues — integration and imbalance. Others like compressed air and batteries face geographic.1658  dbhangui@byroncapitalmarkets. overheats transmission network and leads to a safety triggered shutdown.com Page | 5 . But this solution is limited by geography. As such.0289  lcamargo@byroncapitalmarkets. Pumped hydro is the most tried and tested and accounts for 80% of energy storage from renewable excess production (EPRI 2012 report). Asset utilization for renewables is far below that of conventional systems and full potential cannot be realized until suitable storage mechanisms are in place. Utilities need massive amounts of capacity to store the excess renewable energy at low costs. compressed air and batteries have been the most common. The Solution: P2G storage Industry has tried various solutions to solve this issue — pumped hydro. Alternatives — A Comparison Source: Electricity Storage Association Dev Bhangui  647. as significant investment and tax dollars have gone into this sector. Utilities have not yet found cost-effective means of storing this energy.

5/MW. Besides salvaging the excess renewables energy that is curtailed by utilities. Renewable power could be used to generate hydrogen via electrolyzers. providing dynamic response and the necessary capacity to cope with the variability in output of renewable electricity sources. break-even point on investment can be reached in 2. to be used where and when needed. The P2G solution integrates power and gas infrastructure in an unprecedented way.1658  dbhangui@byroncapitalmarkets. P2G can turn renewables into dispatchable power plants. Similarly.com Page | 6 . Dev Bhangui  647. there is enough capacity in the gas grid for energy storage on a seasonal scale (energy capacity of gas pipelines is 3x electrical grids). and at current P2G pricing levels of $0.5-4 years. creating value from both and helping extend their life span (Exhibit 5). the energy created by renewables is stored to be utilized during the high season. P2G projects can make money capturing the spread between high and low tariffs. third. and hydrogen. travels across the existing natural gas pipeline network and can be tapped at various industrial and commercial consumption points. One of the obvious benefits provided by P2G and the subject of focus from various technology blogs and articles is seasonal storage and ‘timeshift’. P2G has fast load following capability. The hydrogen produced could be stored in existing natural gas pipelines (P2G) and transported. First. when electrical tariffs are lower. Based on the tariff structure in the US.com Lino Camargo  647. during evenings and nights. the hydrogen-based P2G method provides an effective solution.426. it is flexible in terms of location of storage and scale. It is comparable in capacity to Pumped Hydro Storage and Compressed Air Energy Storage but more cost effective and responsive to demand variations.Hydrogenics Corporation As illustrated in Exhibit 4.426.0289  lcamargo@byroncapitalmarkets. P2G acts as a “shock absorber” for the electricity grid. helping maintain a balanced electricity grid. when injected. the excess energy produces hydrogen which is stored and utilized during day time when the demand and tariffs are higher. Thus. second. Exhibit 5 — Power to Gas – The How to Schematic Source: North Sea Power to Gas Platform and KEMA Thus. when demand exceeds supply. In low season when supply exceeds demand.

5%) is delivered by “time shift” versus several benefits provided by storage in areas of load following. Exhibit 6: Economic Analysis of Bulk Storage Benefits for Electric Grid Source: Sandia Labs (excerpt from an economic analysis of bulk storage for Renewable energy applications.com Page | 7 . significant excess capacity in electrical power production has compressed the tariff spreads enough whereby any type of storage cannot be financially justified. Due to its capacity. the new generation of power plants are cheaper and respond faster to issues caused by power-ups and downs inherent with the sun fading and the wind dying. transmission and distribution support and black starts. only $311/Kw out of $13.463/Kw of benefit (which is only 6.0289  lcamargo@byroncapitalmarkets. Advantages of H2 over alternatives are illustrated in Exhibits 7 and 8. Dev Bhangui  647. Non-believers in energy storage proclaim that the storage market need is questionable and it will not develop as envisaged.Hydrogenics Corporation However.1658  dbhangui@byroncapitalmarkets. 2011) Hydrogen can also be used to power fuel cells — a cheaper. However. in countries like Germany. In addition. hydrogen can offer long driving ranges and short fueling times. stationary back-up and motive power than batteries.426. as the Storage Benefit Analysis table below in Exhibit 6 illustrates (.426.com Lino Camargo  647. regulation. safer and longer-life alternative for transportation. The technical superiority of H2 over BEV in Exhibit 7 and massive cost advantages over all other alternatives in Exhibit 8 are especially apparent.

com Page | 8 .com Lino Camargo  647.0289  lcamargo@byroncapitalmarkets. Energy Content and Discharge Time of Different EES Technologies Source: IEC Electrical Storage Whitepaper 2011 and Fraunhofer ISE Exhibit: 8 Technical and Economical Features of Various Power Storage Technologies Source: European Commission Directorate-General for Energy. Dev Bhangui  647. which is leading the effort. the U.S.426.Hydrogenics Corporation Exhibit 7 — Comparison of Rated Power. Working Paper) Japanese auto OEMs such as Toyota have recognized the hydrogen fuel cell potential to power the autos and are releasing models expected to be in commercial production by 2015.426. After neglecting the FC potential in favour of solar and batteries and lagging the European Union (EU). Department of Energy has now made an about-turn in its FC policy in a bid to catch up with California Hydrogen Highway.1658  dbhangui@byroncapitalmarkets.

1658  dbhangui@byroncapitalmarkets. there were 200 fueling stations worldwide. but effective storage can be. causes grid imbalance issues and blackouts. which includes a roadmap toward putting 1. in absence of a flexible storage. there are 503 (according to H2 Stations. Brown has published its 2013 Zero Emissions Vehicle (ZEV) Action Plan.com Page | 9 .200 by 2020.5 million ZEVs on California roads by 2025. Germany currently produces 50 GW of renewable power.426. Utilities therefore ironically curtail renewable capacity. sufficient to satisfy almost half of a typical summer weekend base load need. However.com Lino Camargo  647. which grew to 340 in 2011. once in excess of 10–15% of grid capacity. integration of renewables.Hydrogenics Corporation The Office of California Governor Edmund G. and is projected to reach 179 GW by 2020. according to Frost & Sullivan's Energy group. Utilities need Dev Bhangui  647. providing a growth thrust to hydrogen generation and FC-based transportation and motive power industry.426. Currently.0289  lcamargo@byroncapitalmarkets. Sources of variability in renewable energy production — sun and wind — producing excess capacity during demand troughs cannot be controlled.org) and this is expected to grow to 5. phasing out of coal plants and mothballing of nuclear reactors in the wake of the Fukushima disaster have left a large and increasing energy generation gap which renewables must fill. Hydrogen fueling infrastructure investment has been keeping with the auto industry. In 2010. Exhibit 9: Hydrogen Demand for Transportation Source: Pike Research Opportunities Increasing renewable energy capacity intensifying grid imbalance issues: A lag with respect to IPCC 2020 emission targets. which has been expensive to install.

Dev Bhangui  647. scalable and cost-effective medium that is not dependent on geography. adding to the costs.1658  dbhangui@byroncapitalmarkets. But this solution is limited by geography to build large reservoirs at an elevation. can be used for the long term. in case of wind farms) and has to be transported to the place of consumption.com Lino Camargo  647. compressed air storage has been used but low energy density of air and geographic dependence of underground caverns limits large storage.426. It is also miscible with other gases such as natural gas.0289  lcamargo@byroncapitalmarkets. not feasible for flat terrain nations like Holland. pumped hydro accounts for 80%+ of storage due to its vast capacity and quick response. Similarly. Other geography independent methods. besides being expensive. Industry has tried various solutions to solve this issue — pumped hydro. but large capacity can be provided only for a short period of time (few minutes) and batteries occupy a large ground footprint. such as batteries and supercapacitors.426. compressed air and batteries have been the most common. Lux Research estimates it at 50 GW growing to 165 GW by 2017.com Page | 10 . Hydrogen solves all of these issues. Harnessing the stored energy from pumped hydro needs electricity generation and transmission network. have been used.Hydrogenics Corporation storage capacities which are large. Exhibit 10 — Addressable Market for Energy Storage and Industry Investment Source: American Vanadium P2G. cheap and can provide rapid response to demand. All these methods have another limitation: energy is stored where it is produced (could be remote areas or offshore. an economical storage solution that enables place and time arbitrage: HYGS emerging as a leader: Storing large capacity over long periods of time requires a stable. Estimates vary for the addressable market for energy storage but there is no denying that it is experiencing massive growth. Currently. making it less cost effective. Exhibit 10 shows the estimated total addressable storage market and projected energy investment from the industry to 2020. Hydrogen is one such carrier which is stable in the liquid and gaseous form and can be stored for long periods of time (such as a season). and hence can use existing gas pipelines without any modification at 5–15% concentrations.

we will not be surprised if HYGS has an opportunity to jointly own some of these P2G assets as the initiative progresses.5–$2. Currently. Currently installed capacity in Germany is 34. and is working to try and improve Canadian legislation on gas injection.ON P2G order for a 1 MW PEM electrolyzer was followed by a similar-sized P2G order by Enbridge for energy storage into its facilities. HYGS has won seven versus two for the competition and is awaiting the decision on balance. Dev Bhangui  647. 2013).0289  lcamargo@byroncapitalmarkets. avoids multiple conversion inefficiency losses and uses existing gas networks.Hydrogenics Corporation P2G has emerged as a large and utility-scale solution and is experiencing a significant momentum via utility adoption. HYGS holds key patents on ways to introduce H2 into gas pipelines without affecting the grid balance. where E.com Lino Camargo  647. Of the 18 German demo projects in the 1–2 MW range.ON partnered with Swiss Gas. was opened commercially. salt caverns. Due to hydrogen’s embrittlement and leakage characteristics. The latest E. Germany is the most progressive nation and HYGS is a well-acknowledged leader. Everyone in Europe has been watching the German progress on P2G. We expect the P2G Enbridge facility to be built in Southern Ontario. a natural gas network and energy variability driven by healthy wind generation near Lake Huron.com Page | 11 . recovering the energy during its use. Installed capacity via conventional sources was estimated to be another 61 GW (according to Germany Trade and Invest. Due to close a strategic relationship between the two. arguably the largest utility in the world. Renewables produce power that is used to run electrolyzers to produce hydrogen.426. the infusion cannot exceed 15%. nearly 50% of Germany’s 60 GW electrical energy consumption can be supplied by solar on a summer weekend (as experienced in July 2012 and 2013). The next 1 MW order is expected to be delivered this quarter. nine have been decided.K. At the time of consumption.ON. the 2 MW facility. In the P2G method of energy storage implementation. the price spread between peak and trough energy prices has decreased significantly. are cheaper than current storage alternatives. which has a similar issue as Germany with high and rising percentage of renewable energy production. Thus. without any modifications. HYGS is well positioned. U. it could be transported by the same pipeline to a combined cycle gas power plant or could be piped into end-user homes. Despite the current P2G momentum. in some cases..5 GW (wind). Enbridge considers this a commercial facility to be connected to the grid.426. With a stamp of German approval and a formidable partner like E. is expected to follow Germany’s lead.1658  dbhangui@byroncapitalmarkets. since the gas infrastructure capacity is 3x the electrical grid capacity. P2G contracts priced at ~$1. where it could be stored throughout the low season. Germany faces significant excess energy capacity. The new generation power plants can provide fast response to demand fluctuations and. Hence. which needs a thorough understanding of utility processes involved in maintaining that balance. This application is scalable. We expect HYGS to win at least 50% of the remaining demo projects. Revenue from P2G initiatives in Germany will make an impact on HYGS’ financials only when the country moves from demo-sized 1–2MW capacities to commercial stages of 10 MW or larger capacity modules. to be followed by a 5–10 MW facility. However.5 GW (solar) and 30. neutralizing the time shift arbitrage. a region attractive for P2G due to proximity to refineries. Recently. even a limit in high single-digit percentage will likely provide enough storage capacity for several years. there is a sobering thought for the long term.0M/MW should be able to add significant growth in 2014. If this happens. Such a facility is expected it to be the first of its kind in North America. Hydrogen is fed into existing natural gas pipeline infrastructure.

At $0. we expect the addressable storage market in German electricity grid to be $10–$20B. reliability and years of reputation. who dominate the industrial hydrogen landscape. An increasing proportion of renewables in the power mix threatens the future of gas companies. and assuming future cost reduction of 50%.0289  lcamargo@byroncapitalmarkets.com Page | 12 . surpluses of around 40 GW are expected by 2020. Hence. The company uses Air Liquide and Linde as its preferred supply partners. While 95% of the industrial H2 is produced by steam reformation of natural gas or methane and then carried to the consumption sites in compressed form by bottles or tankers. carving a niche for electrolytic hydrogen. as steam reformation leaves unacceptable impurities like CO. Even with the winding down of nuclear and coal plants. HYGS: An established leader in H2 generation. store it in the gas grid for short. a major entity driving P2G adoption is North Sea Power to Gas Platform. Hydrogen production through hydrolysis of water is the only solution. semiconductor fabrication. as its on and offshore natural gas infrastructure is well developed. storage may not hold any appeal as a supply-demand shock absorber but as a means of converting excess into profitable export. This is a $100–$200M/year market growing at 5–10%/year Hydrogenics commands a steady 25–30% market share. There is increasing evidence that gas companies are investing in P2G as a means of extending the economic life of their assets. Sweden. Gas companies own an extensive network of pipelines used to supply natural gas to households.1658  dbhangui@byroncapitalmarkets. other opportunities in P2G for selling hydrogen generation solutions abound and are discussed below. In addition.ON and Enbridge contracts as described above. power plant cooling. while the PV capacity installed in the countries surrounding the North Sea is expected to increase from 35 GW in 2012 to almost 60 GW in 2020.and long-term usage. experiencing new growth opportunities: HYGS facilities in Belgium have over 60 years of history in electrolyzer-based generation for industrial hydrogen.com Lino Camargo  647.426. The group expects to utilize excess power from intermittent wind and solar. Germany.Hydrogenics Corporation Refurbishing and extending the life of existing pumped hydro storage would be the cheapest way of increasing storage. transport it to remote parts where it is needed and where the electrical grid is inadequate.ON partnered with Swiss Gas at the recently commercialized P2G facility at Falkenhagen). It is a consortium of 11 leading gas companies in Europe (includes gas utilities of Switzerland.426. etc. capturing value and staying relevant. Denmark. but even that has been made uneconomical by the above factors. Belgium and Netherlands) which have joined forces in the newly established Power to Gas Platform to further develop the concept of P2G: the conversion of renewable power into gas. which most electrical utilities don’t own and have to partner with a gas utility (E. P2G is of particular interest for the North Sea area. for electrical utilities in Germany. While we have covered the revenue growth in electrolyser orders due to P2G momentum Via E. and provide H2 from renewable sources as feedstock for industry and mobility. High-purity hydrogen is required in glass. As an example. H2 storage needs gas pipelines. some applications need on-site generation or high purity. the combined generating capacity of offshore wind farms on the North Sea could reach around 100 GW by 2030. outselling its nearest competitor two-to-one. Austria.5M/MW of storage costs in 2013. commercial and industry — major consumers are refineries and combined cycle generation plants owned by electric utilities. It competes on quality. Hydrogenics is a member of the group and will likely benefit Dev Bhangui  647.

The power-to-gas facility Audi built in Germany works in two steps: electrolysis and methanation. the plant uses surplus green electricity to break water down into oxygen and hydrogen in three electrolyzers.1658  dbhangui@byroncapitalmarkets.800 metric tons of CO2.Hydrogenics Corporation from MFN-like status for its P2G solutions. This roughly corresponds to the amount that a forest of over 220. At current prices. to the CNG filling stations. The hydrogen is reacted with CO2 (obtained from its own bio gas plant) to produce synthetic methane. Exhibit 11: Projections for H2 Retail Fuel Stations Growth in the EU Source: Company Presentation – EU Hydrogen FCEV Coalition Workshops Dev Bhangui  647. Audi is expected to open a renewable energy e-gas plant in Werlte. Besides. this addressable market is ~$15–$20B. While the hydrogen could one day power fuel-cell vehicles. avoiding CO2 emissions. In the first step. the German natural gas network.000 metric tons of e-gas per year. a second step is carried out directly: methanation. syngas holds significant potential in curtailing controversial fracking activity currently used to unlock the natural gas trapped in rock formations. In another P2G initiative. or Audi egas. for now.426.com Lino Camargo  647. It is virtually identical to fossil natural gas and will be distributed via an existing infrastructure. The Audi e-gas plant will produce about 1.000 beech trees absorbs in one year.0289  lcamargo@byroncapitalmarkets. Germany. Water and oxygen are the only byproducts. The plant is scheduled to begin feeding Audi e-gas to the grid this fall.426. in the absence of an area-wide infrastructure.com Page | 13 . chemically binding some 2.

com Lino Camargo  647. offers a 30% investment tax credit up to $200. such as Linde and Air Liquide.com Page | 14 . Dev Bhangui  647.426.1658  dbhangui@byroncapitalmarkets. and included $37. Through powerful partners. Besides the initial phase of $36M for delivery within two years. by the build out of hydrogen fueling stations. the order comes with a $10M advance for product development and exclusivity for eight years (read: recurring revenue and a captive customer for years to come).S. Japan invested ~$240M in fuel cell and hydrogen energy programs. The addressable market in fueling stations is expected to be $2B. California.426.S. If the tests go well (we believe they will).200 fueling stations are expected to be operational by 2020 worldwide. Exhibit 11 shows projections for H2 retail fuel station growth in the EU. according to Hydrogenics. potentially catapulting HYGS above the break-even point earlier than expected. due to auto OEMs’ interest in bringing FCEVs to the market by 2015. Power systems target opportunities in telecom and data centre back-up power. the traditionally slow growth hydrogen generation business received another shot in the arm. due to push and incentives from local governments. In FY2012.71M for hydrogen infrastructure & vehicle demonstration projects. About 5. Hydrogenics has helped build 45 out of 200 built globally until 2010 –2011.Hydrogenics Corporation In addition. the EU and Japan are regions experiencing the highest activity in such a build out. Enbridge and GM. The U.. HYGS then won a massive $92M multi-year order for a power propulsion system (fuel cells) with prominent European OEM (unnamed at client’s request) with whom it has been working with for the last 10 years. recently. material handling and propulsion equipment. All units for the Commscope telecom order were delivered by Q2/13 and are being tested in the field for hot and cold seasons. Delivery of several demo orders has primed the commercial rollout funnel where the orders are expected to be magnitudes larger. nearly twice as much as the U. with an addressable market estimated at $2–$3B. Two of those investors contributed to the massive yearover-year growth of the company during the last year when Commscope placed a significant fuel cell order for telecom tower back-up. Power systems unit firing on all cylinders: HYGS as a public company is unique due to nearly 40% ownership by strategic entities – Commscope. we expect larger roll-out orders commencing at the end of 2013/early 2014.0289  lcamargo@byroncapitalmarkets. which is in FY2014.000/station built until 2014.

and may have made acquisition overtures in the past and are likely to keep HYGS on their active radar of potential targets.0289  lcamargo@byroncapitalmarkets. hydrogen fueling stations and P2G energy storage systems will be built. and strategic investors like Commscope and Enbridge. profile and prominent wins in Germany.1658  dbhangui@byroncapitalmarkets.com Page | 15 . All of these catalysts coming together almost concurrently convince us of a potential bright future for HYGS to be fully visible by H2-2014. and since the last year. we view HYGS as a significantly hedged play due to the decades old and relatively shielded industrial H2 business of $25M/year as profitable and provides a safety net.426. Larger competitors like Siemens (which are major vendors of wind generation equipment in Germany) are watching HYGS’ growing success. upon which growth layers in power systems. providing an additional value realization for patient investors. all these years of investments have seeded tomorrow’s harvest. reverse splits have have inflicted pain and made investors leery of the space and the players. However. Growth is further de-risked by HYGS’ go-to-market strategy by partnering with long-term customers like Linde and Air Liquide.com Lino Camargo  647. inflecting the company quickly beyond the break-even point and toward financial self-sustainability. HYGS is one such story with a sordid past. Several years of losses. Dev Bhangui  647.426. financings. Going forward. prospects have changed dramatically.Hydrogenics Corporation Exhibit 12 — DC Back-up Power Addressable Market Source: Company Presentation History is tough but future looks equally bright (finally): We understand the pain of a tech investor invested in a company ahead of its time.

production of FCs may not scale high enough to bring the costs down by incentivizing better catalyst materials or robotizing assembly. for a myriad of reasons. discussed earlier. which will lower the productions costs and. consequently. Another strike on electrolyzers is that round-trip efficiency for P2G using electrolytic H2 is low at 20% (wind to electrolysis to H2 to fuel cells to electricity) versus 50% for H2 Dev Bhangui  647. especially PEM cells. and hence labour intensive.ON may not undertake the P2G commercial roll-out with units of 10 MW and larger in the near term.com Lino Camargo  647. Mitigant: we believe the medium-term P2G upside will be driven by gas utilities.Hydrogenics Corporation Exhibit 13: HYGS Go-to-Market Strategy Leverages Established Networks Source: Company Presentation Risks Fuel cells may not be able to reach commercializable mass-market price points: Stacking of PEM cells is a precision activity and since build volumes are low. Stack building is a manually intensive and highly skilled activity. While research is ongoing for CO resistant catalyst coatings on electrodes. an expensive choice. Both of these factors make fuel cells. stacks are built manually.0289  lcamargo@byroncapitalmarkets. mass acceptance.com Page | 16 .426. P2G may not take off with German electrical utilities dampening short-term upside for electrolyzers: Imminent commercialization expected to be driven by German electrical utilities may not materialize due to Germany’s energy excess situation (discussed earlier).426. or to operate FCs at higher temperatures to increase their efficiency and CO resistance. such as the North Sea Alliance Platform. German utilities like E.1658  dbhangui@byroncapitalmarkets. eroding their smaller footprint advantage. High costs of platinum catalysts and high maintenance to prevent CO poisoning and reduced catalytic activity also significantly add to the costs.

HYGS is currently trading at 1. our estimates for 39% revenue growth in 2014 (vs.3x. are yet undecided. New generation electrolyzer products are being readied for 10 MW and larger-scale P2G projects. justifying our valuation and target. four customers constituted 55% of revenues. With a significant footprint with several dominant carriers and tower asset owners. creating significant shareholder value. we believe the power systems unit’s sales funnel is primed. we believe HYGS should trade at a premium multiple. Most of the backlog is translated into revenue in two quarters. As such. on track to build and commission the first P2G facility in North America. Our $15.1658  dbhangui@byroncapitalmarkets. simultaneous layers of sales growth in 2013 and 2014.426. We believe HYGS is a leading pure play in the hydrogen-based renewables industry. which is growing its revenue at a CAGR of 30%+ in the near and medium term. We are also awaiting results of hot/cold season tests on the hundreds of telecom back-up FC units delivered to Commscope — the largest strategic investor and customer. Our target implies 1.8x 2014E EV/Sales. if unmatched by follow-on orders from these customers may be short-lived. Valuation Hydrogenics has entered H2-FY2013 with a record $50M backlog — 1. due to delays in testing and ultimately orders from its carrier customers. Given 2013 revenue acceleration.6x its FY2012 revenue. H2 produced from electrolyzers is expensive versus that produced from methane reformation. Commscope may not follow through with orders in early 2014 on telecom back-up power. In Q2/13. Dev Bhangui  647.Hydrogenics Corporation production from steam reformation of natural gas. it dampens the P2G business case for hydrolyzers Customer concentration: HYGS’ record backlog and its near-term revenue conversion are driven by three-four customers. orders of magnitude larger than demo stages. its peers are trading at an average of 3. Mitigants: major customers as strategic investors and P2G pioneer advantage. Its peers are growing at an average of 18–19%. So long as high H2 purity and on-the-site production is not necessary. where HYGS has won a lion’s share of wards so far.0289  lcamargo@byroncapitalmarkets.com Page | 17 . a dominant position in Germany and a possible medium-term take-out from the likes of any one of Siemens.com Lino Camargo  647.426.50 target price is derived using a DCF methodology based on a 13% discount rate and 4% terminal growth. New products are also being developed for strategic partner and P2G customer Enbridge. HYGS is also developing next generation products and solutions in propulsion systems for its $92M OEM customer. Current revenue inflection. formidable strategic partners/customers. For example. and we urge potential investors to buy before this value creation. Its customers are market leaders in their own sector and some are investors. We believe HYGS is sitting on several. Outlook is further brightened by nine P2G projects in Germany. other turbine OEMs or gas utilities. Most have just moved off successful demo stages and are transitioning to commercial stages. 19% for peers).5x 2014E EV/Sales. we believe HYGS will be cash flow and EPS positive in H2-FY2014.

4x 1.0289  lcamargo@byroncapitalmarkets.1x 3.7 $60.7 $31.0) NA NA NA ($0.6) Market Cap $262.9 $72.0) ($18.0x 38.4x 3.0 ($0.0) $0.0 NA $149.5) ($0.9 $79.1658  dbhangui@byroncapitalmarkets.5 $6.7x NM NM 2.1x NM NM NM NM NM NM NM NM 35.2 $44.9) $3.0x 2.7 NA $60.6 $7.1x 33.1x NM NM 673.6x 11.1) ($0.10) $0.5x 1.1 ($6.7 HYGS Revenue (US$M) 2014E 2015E $205.02 $0.1x 2015E NM 1.7x 48.1 $108.com Company Maxwell Technologies Electrovaya ITM Power Proton Power Ballard Power Systems FuelCell Energy Plug Power Capstone Turbine Average Hydrogenics $12.1x NM 1.0 $1.2) ($0.3x 10.4) $4.7 $1.4 NA ($0.4 $160.69 Company Maxwell Technologies Electrovaya ITM Power Proton Power Ballard Power Systems FuelCell Energy Plug Power Capstone Turbine Average Hydrogenics Ticker MXWL EFL ITM PPS BLD FCEL PLUG CPST HYGS EV/EBITDA 2013E 2014E 2015E 12.1) ($0.3) NA ($9.2) ($0.1) NA ($0.0x 62.4 $43.0 $80.8 $171.3x 1.6x 1. Bloomberg and Byron Estimates .0 ($4.9 $97.3 $12.2) NA ($0.3x 6.6 $44.9 Ticker MXWL EFL ITM PPS BLD FCEL PLUG CPST Last Price $9.9) NA ($9.6 $1.3x 12.7 $200.5 2013E $19.0 NA NA $75.6 $345.5 EPS (US$M) 2013E 2014E 2015E $0.4 $186.3 $0.1) ($0.1) ($8.6x NM NM NM NM NM NM NM NM 27.2) ($0.1 $2.2) $12.8 $119.8 $353.8 $82.8 ($1.1 $1.3 $128.4 NA $0.2 2013E $192.Exhibit 14: Peer Comparables EV $237.0) NA ($0.5 NA $15.0) NA NA ($10.5 $85.2 $69.426.9x 1.6) ($22.3 $98.2x 341.8 $4.8 $101.6) ($6.7x -15.0) ($0.2 $0.7 $1.2x EV / SALES 2013E 2014E 1.8x 13.2x 1.426.1 $0.5 $84.1x 12.5 ($3.0 $243.4 $179.2x 1.7) NA ($15.7x 2.3 EBITDA (US$M) 2014E 2015E $25.9) ($10.1) ($0.2x NA 1.0) ($1.3 $256.1 $230.8) ($23.7 $0.4x 1.9x 2.5 Dev Bhangui  647.3x 2.0 $91.6x Hydrogenics Corporation Page | 18 Source: Capital IQ Estimates.com Lino Camargo  647.4) ($5.2x 9.6 $1.7 $29.1) ($0.5 $62.1) ($0.8x 1.

566 26% 11.0% (2.8% (7.154 28% 44.20) ($1.373) -17% (6.560 37.com ($1.724 61.272) -33. EBT Incl.000 9.10) ($1.1% 1. Unusual Items EBT Margin % Tax Income (Expense) Net Income Net Margin % EPS (GAAP) Bas ic Fully Diluted Hydrogenics Corporation Page | 19 Source: Company Reports.2% 2.239 1.0% (3.797 36% 4.100 9.546) -13.771 7.4% 1.561 5.9% 3.53) ($0.145) -38.1% (1.015 3.700 42.0% 4.910 12.573 19.926 8.700 42.569 2.426.551) -12.919 805 14% 8.679) -40% (3.0% (3.205 2.8% 1.622 29.342) -12.700 33.953 51.0% (63) (78) (88) (74) (3.19) ($0.724 4.6% 0.2% (3.470 19.7% 3.081) -39.5% (400) 139 0.2% 3.1% (1.915 44.48) ($0.9% (90) (1.679) -40% (12.1% 15.934 0 50 0 14.8% 3.42) ($1.6% (3.1% 539 1% 1.72) ($1.53) ($0.2% 139 0.58) ($1.658 21% 9.181) -55.1% 0. Byron Capital Markets .0% (1.6% (1.5% 0.686) -15.740 0 2.169 8.980 32% Revenue Cos t of Sales Gross Profit Gros s Margin % Operating Expenses General & Administrative % Revenues Research & Development % Revenues Other Operating Expense/(Income) % Revenues Total Operating Expenses % Revenues 11.48) ($0.0% (90) (1.312 8.8% (1.42) ($0.149 20.441 31.2% (4.0% 5.0% 4.606 0 (5) 0% 17.660) -14.19) ($0.081) -39.352 54.0% 4.660) -14.080 11.0% 843 10.02 $0.791 25% 3.389) -34.1658  dbhangui@byroncapitalmarkets.832 18.8% (9.846) -28.200 7.344 5.42) ($0.420) -12.018) -8.686) -15.118 9% 0% 19.40) ($0.72) ($0.20) ($0.181) -55.com Lino Camargo  647.6% (2.650 6% 0% 19.472 18% 7.516) -46.6% (3.1% (2.0% 0.42) ($0.9% (5) -0.7% (3.0% 4.542 28% Mar-12A Jun-12A Sep-12A Dec-12A FY2012A Mar-13A Jun-13A Sep-13E Dec-13E FY2013E FY2014E 62.920 3.600 32.649) -26.675) -37% (303) (12.259 6.7% (12.245 0 12.1% 5.616 1.6% (3.02 EBIT (Operating income) EBIT Margin % EBITDA EBITDA Margin % Net Interest Exp.7% (85) (1.751 0 4.6% 1.806 26.746) -41% (3.332) -28.Exhibit 15: Income Statement (US$) Hydrogenics Corporation Income Statement USD$ '000 FY2011A 23.897 6.7% (1.9% 1.216) -10.093) -54.115 31.7% (11.592) -31.8% 0.0% 4.20) ($0.297) -57.462 43.163) -40.6% 3.6% (94) (4.0289  lcamargo@byroncapitalmarkets.0% 4.286) -35% (171) (9.7% 3.280 29% 11.156 41.770 3.875 49.145) -38.1% (3.563) -15% (359) (9.030 63.551) -12.426.0% (3.542 29% 9.4% (3.4% 938 7.221 39.10) $0.8% (1.3% (820) -6.787 1.064 49.185) -32.272) -33.452 31.488 0 5.102 71.107) -38% (1.2% Dev Bhangui  647.746) -41% (9.0% 4.1% 0.041 10.413) -89% (9.1% 1.955 60.236) -39% (8.372) -42.1% (3.450 42.310 13% 31.413) -21% 15.40) ($0.7% (2.516) -46.20) ($0.9% 12.58) ($0.2% 0.

was with Powerlasers. in 2007. 2012. Mr. He is a Professional Engineer and holds a Bachelor’s degree in Chemical Engineering from the University of Toronto. he held senior leadership positions at Royal Group Technologies Inc. Wilson is a director of ATS Automation Tooling Systems Inc. he held increasingly responsible positions in marketing and business leadership. Smeets was previously a general manager with Cabot Corporation. Chief Financial Officer and Corporate Secretary Vice President. Smeets received his Master's degree in Chemistry from the University of Antwerp in Belgium.com Lino Camargo  647. Mr. Westbroek received his Bachelor of Science in Physics at the University of Waterloo in Ontario. Mr.S..com Page | 20 . Wido Westbroek joined the company in 2006 as Vice President. Operations. Wilson earned an MBA from McMaster University in Operations Management/Management Science. Mr. Prior to his role at Aeroquest.0289  lcamargo@byroncapitalmarkets. Motz served in a senior financial leadership role at Agility Logistics. Mr. Massachusetts. His former career. in Nov. Mr.Dir). ZENON Environmental Inc. Westbroek was appointed to his current position in Aug. Wilson is a Chartered Director (C. 2011. a global performance materials company. During his 12-year tenure at Cabot Corporation. Mr. Motz was previously Chief Financial Officer and then Chief Executive Officer of Aeroquest International Limited from 2008 to 2012 (at the time a TSX-listed company). Co.v. Sales and Marketing General Manager. Mr. Corporate Secretary of Hydrogenics Corporation.426. Filip Smeets joined Hydrogenics in 2011 as General Manager of the Belgian-based OnSite Generation business.. AMJ Campbell Inc. TOYOTA and DOFASCO Inc.Hydrogenics Corporation Appendix A: Management and Board of Directors Management President and Chief Executive Officer Daryl Wilson was appointed President and Chief Executive Officer in December 2006. of the Belgium OnSite Generation business and subsequently was appointed Vice President and General Manager for Hydrogenics Europe n. Mr. Motz is a Chartered Accountant and a Chartered Professional Accountant. In 1990. Prior to joining Hydrogenics. headquartered in Boston. spanning 18 years. having received his designation in 1987. Mr. and Motorola Canada Limited. Robert Motz was appointed Chief Financial Officer. having graduated in 2009 from Director’s College.1658  dbhangui@byroncapitalmarkets. a developer and manufacturer of unique laser welding technology and a maker of auto parts for automotive OEMs based in Canada and the U.. OnSite Generation Dev Bhangui  647.426.

Gnacke is a Director at Variety Foods Services Inc.426. a joint-venture between McMaster University and the Conference Board of Canada. Mr. Mr. Alexander was Executive Vice President and Chief Financial Officer of Trojan Technologies Inc. Cardiff has received many awards including “A Canadian Export Life Time Achievement Award. he held numerous senior positions in a number of technology companies. Mr. He is also a Chartered Director. Cargnelli was appointed as the Vice President. including several international assignments in the Middle East. Gnacke is the nominee of General Motors Corporation in connection with the strategic alliance with General Motors Dev Bhangui  647. Convergent Technologies. Spectra Security Software Visible Decisions and the Toronto Film Festival. Henry J. he was the Executive Director. Mr. Mr. Mr. Alexander was formerly the lead director and chair of the Audit Committee of Saxon Financial Inc.” He is a member of and holds the ICD. He is a director and member of the Audit Committee of Critical Outcome Technologies Inc. 2005. Mr.. a corporate advisory firm. Mr. Cargnelli was re-elected at the meeting of shareholders on May 17.Hydrogenics Corporation Board of Directors Douglas S. Mr.0289  lcamargo@byroncapitalmarkets. Chairman. Husky Injection Molding Systems. Asia and Europe.com Lino Camargo  647. He is also a senior advisor to Mobias Motors and is currently a Senior Director at OHorizons LLC. Mr. Mr. Alexander. Global Purchasing Supply Chain at General Motors Corporation. Michael Cardiff has been an Independent director of Hydrogenics Corporation since November 2007. Mr.com Page | 21 . when he resigned in connection with the closing of the Stuart Energy acquisition. Mr. Mr. Cargnelli earned both a Masters of Applied Science degree in Mechanical Engineering and a Bachelor of Applied Science degree in Mechanical Engineering from the University of Toronto. His title was changed to Chief Technology Officer in April 2003.1658  dbhangui@byroncapitalmarkets. Tandem and Stratus Computer. Alexander is a Chartered Accountant and is a member of the Institute of Chartered Accountants in Scotland and Ontario. Roy Thomson Hall. Cargnelli served as a Research Engineer with the Laboratory of Advanced Concepts in Energy Conversion Inc. Joseph Cargnelli is Chief Technology Officer. Descartes Systems Group. specializing in acquisitions and operations in the Automotive sector.. Biorem Inc. Cargnelli served as the Treasurer from January 1996 until July 2000. including multinationals such as EDS and IBM. joined the board in May 2006 and has served as Chairman since May 2009. Gnacke has over 30 years of experience and has held numerous positions at General Motors Corporation. He was responsible for Alternative Propulsion Technologies and specifically Fuel Cell propulsion and storage systems. He served as a director of Stuart Energy from 2003 to January 2005. Gnacke has been an Independent Director of Hydrogenics Corporation since May 2008.. Mr. Mr. Formerly. a laboratory engaged in the research. Mr. an international environmental high technology company. having graduated from the Director’s College. Director of Hydrogenics Corporation. and has served as the Chief Financial Officer of various Canadian public companies for 15 years. Cargnelli is a member of the Professional Engineers of Ontario. Cargnelli is one of the founders and served as a director from January 1996 to January 2005. Mr. Technology in July 2000. From April 1992 to April 1993...426. Prior to that. Visible Genetics.d designation from the Institute of Corporate Directors. Mr. and Equitable Life Insurance Company. development and demonstration of alkaline fuel cells and hydrogen storage methods. as well as start-up companies such as Fincentric. He has also served as a director of Burntsand Inc. Cardiff is currently a director of Medic Alert. Cardiff is the Chief Operating Officer of SAP Canada. Solcorp. From 1999 to 2004.

(now Molson Coors). and a director of Harbourfront Foundation. From September 1996 to May 1997.426. Seagram is an Independent Director of Hydrogenics Corporation. He served as Chairman of the Board from July 2000 to December 2006. Daryl Wilson.189 Henry J.417 Joseph Cargnelli.000 78.1658  dbhangui@byroncapitalmarkets. Fontainebleau.175 Nil Nil 50. University of Toronto and INSEAD. Director Nil 13.632 Nil Nil 43. as Lead Director from January–September 2007. Chairman 998 42.636 108. Director 1.730 Norman M. Seagram. Seagram was President of Sportsco International LP (SkyDome) from February 2001 to March 2003. Seagram was Chairman and Chief Executive Officer of Air Liquide Canada. Gnacke. Mr.100 24. 2013) Beneficial Owner Shares DSUs RSUs Stock Options Total Securities Douglas S.024 Source: Company Reports Source: Hydrogenics Corporation Dev Bhangui  647. having graduated from D irector’s College in 2012.015 56. a producer of industrial gases. He has served on the advisory board of the Faculty of Applied Science and Engineering. a trustee of Trinity College School and the Toronto Symphony Foundation. Mr.426. Inc.399 377.0289  lcamargo@byroncapitalmarkets. France. He is a former director of the Toronto Economic Development Corporation (TEDCO). President and Chief Executive Officer (see above) Share Ownership of Management and Directors (as of May 8. he was President and Chief Executive Officer of Molson Inc.428 49. a company he had previously served for 24 years in a variety of senior management positions. Mr. Mr. & CEO 4.989 185.500 301. Alexander. From October 1992 to August 1996. and subsequently as Chairman until May 2009. Director 156.574 64. Norman M. Director Nil 477 Nil Nil 477 Daryl Wilson..com Page | 22 .com Lino Camargo  647.417 Nil Nil 20.730 Nil Nil 13. Director Nil 20.630 Michael Cardiff.603 Don Lowry. Gnacke is a Chartered Director (C.Dir). Pres. He is Chairman of the Toronto Symphony Foundation.Hydrogenics Corporation Corporation.

com Lino Camargo  647. development. hydrogen fueling and renewable energy storage markets. a technology that converts electrical power to fuel. Dev Bhangui  647. the company has expanded into a new energy storage application. Germany. oil and gas companies. manufacture and sale of hydrogen generation products. Onsite Generation includes the design. The products developed in this business line are mainly sold to leading merchant gas companies. fueling stations. we provide a description of both lines of business. and develops products for energy storage.426. it is expected to benefit both the electroylizer and fuel cell segments. medium and large scale energy storage products. Power Systems Power Systems is based in Mississauga.426. This division includes the design.0289  lcamargo@byroncapitalmarkets. Ontario. using water electrolysis technology. It is based on Proton Exchange Membrane (PEM) fuel cell technology. Given the potential opportunities. Canada.com Page | 23 .1658  dbhangui@byroncapitalmarkets. Power to Gas . nonetheless. and develops products for industrial gas. electric power utilities. with a satellite facility in Gladbeck. which transforms chemical energy liberated during the electrochemical reaction of hydrogen and oxygen into electrical energy. So far.Hydrogenics Corporation Appendix B: Business Description Hydrogenics reports the top line of its financial performance in two business segments: OnSite Generation (electrolysers) and Power Systems (Fuel Cells). and small. stationary and motive power applications. Hydrogenics’ Lines of Business OnSite Generation OnSite Generation business segment is based in Oevel. Below. this business remains included in OnSite. development. Belgium.

1 Nm3/h . Models: . Dev Bhangui  647. motive power applications and heavy-duty applications. Hydrogenics Product Line The company’s product line is divided into three categories: I) Industrial Hydrogen Generators by Electrolysis INDOOR INSTALATION INDOOR INSTALATION The HySTAT™ Outdoor Version is a turnkey hydrogen generation plant that comes installed inside a modified ISO high cube shipping container.426.com Page | 24 . All mechanical and electrical interconnections are made inside the container.1658  dbhangui@byroncapitalmarkets. HyLYZER® PEM Electrolysis Technology is a modular electrolyzer which uses clean deionized water and either AC or DC electricity to produce up to 1.HyLYZER®. POWER PLANT SOLUTIONS Hudrogenics offer complete packages to deliver hydrogen in a safe and reliable way to cool down generators with no concessions on quality of its equipment. The container hosts the electrolyzer and the optional utility equipment such as the water treatment system & cooling systems. Hydrogen generation systems. The electrolysis reaction takes place within a proton exchange membrane (PEM) cell stack.2 normal cubic metre per hour (Nm 3/h) of hydrogen.HyLYZER®. such as buses.com Lino Camargo  647. trucks and utility vehicles. which use alkaline and PEM water electrolysis technologies. which simplifies and reduces the installation costs on site.1 and 2. a control/power panel with controlled AC/DC conversion to produce hydrogen in a safe and reliable way. This ensures hydrogen availability at all time .0289  lcamargo@byroncapitalmarkets.426.2 Nm3/h INDOOR LARGE CAPACITY It is adapted specifically to meet the requirements of higher capacity installation in excess of 500Nm3/h. The container is weatherized and can be installed in temperatures ranging from -20°C to A HySTAT™10-60 units consists of a hydrogen generating unit with our proprietary IMET® cell stack. as well as through leading merchant gas channel partners.Hydrogenics Corporation manufacture and sale of fuel cell products. and is well supported by commercial product and project work. this division targets back-up power for telecom and data centre installations. are sold directly to industrial customers. Also. The HySTAT™ Indoor Version is a modular electrolyzer composed of skids and enclosures that are easily interconnected.

reliable and abundant hydrogen power. Aerospace and Security Hydrogenics provides a link to a cleaner energy future by filling the energy gaps in the air. Power-to-Gas provides the means to both store and transport energy.426. Power-to-Gas is a highly effective way of integrating renewables.1658  dbhangui@byroncapitalmarkets. III) Fuel Cell Power Systems MOBILITY POWER It offerstransportation application to displace outdated petroleum burning technology with clean. Unlike other energy storage technologies. efficient.0289  lcamargo@byroncapitalmarkets. It can provide a rapid. a Hydrogenics HES consists of Hydrogenics modules that can be configured and integrated: Defence. REMOTE COMMUNITIES Hydrogenics build and install standalone hydrogen energy storage and power stations for remote communities.com Page | 25 . Hydrogenics products: HyPX Power Packs for powering electric motors in place of conventional lead-acid battery packs HyPM HD Fuel Cell PowerModules HYDROGEN FUELING STATIONS Defence. Aerospace and Security Hydrogenics offers solutions to leave behind burning oil. The HySTAT™ fueling station uses dvanced electrolysis technology to split water into hydrogen and oxygen. gas and diesel for the advantages of advanced hydrogen technologies for remote and intermittent power needs.com Lino Camargo  647. dynamic response to the Independent Grid Operator’s signal to adjust to the variations in renewable generation output. T The hydrogen is dispensed at 350 or 700 bar. Hydrogenics offers complete hydrogen fueling stations with modular capacities ranging from 20 kg to 130 kg/day and beyond.Hydrogenics Corporation II) Energy Storage and Fueling Solutions POWER-TO-GAS Hydrogenics is pioneering Power-to-Gas—an innovative energy conversion and storage solution using electrolysis. using only electricity. land and underwater. For 1MW and larger scale renewable energy systems. space. Power Systems products are operating in remote locales and commercial/industrial facilities around the globe: HyPM XR Fuel Cell Power Modules HyPMRacks with multiple fuel cell modules and power electronics in 19-inch server equipment racks HySTAT Electrolysis Systems HyPM XR Fuel Cell Systems Source: Company Reports Dev Bhangui  647.426.

Each type requires particular materials and fuels and is suitable for different applications. on the other hand. Dev Bhangui  647. Both batteries and fuel cells convert chemical energy into electrical energy and also. as long as it is supplied with a source of hydrogen and a source of oxygen (usually air). During oxidation.com Page | 26 . A fuel cell. uses an external supply of chemical energy and can run indefinitely. a battery holds a closed store of energy within it and once this is depleted the battery must be discarded. A catalyst is often used to speed up the reactions at the electrodes. although there is no combustion involved.426. Fuel cell types are generally classified according to the nature of the electrolyte they use.426. Fuel cells can vary from tiny devices producing only a few watts of electricity up to large power plants producing megawatts. or recharged by using an external supply of electricity to drive the electrochemical reaction in the reverse direction.com Lino Camargo  647.1658  dbhangui@byroncapitalmarkets. The source of hydrogen is generally referred to as the fuel and this gives the fuel cell its name. electrons are released and flow through an external circuit as an electric current.0289  lcamargo@byroncapitalmarkets. All fuel cells are based on a central design using two electrodes separated by a solid or liquid electrolyte that carries electrically charged particles between them. However. as a by-product of this process.Hydrogenics Corporation Fuel cells 101 (Excerpts from FuelCellToday) A fuel cell is like a battery in that it generates electricity from an electrochemical reaction. into heat. in the process. Oxidation of the hydrogen instead takes place electrochemically in a very efficient way. hydrogen atoms react with oxygen atoms to form water.

Since the revenues from these businesses vary. fax or regular mail. The security represents poor value and is expected to depreciate over the next 12-18 month time horizon. These reports will be clearly labeled as appropriate. retail sales and investment banking.1658  dbhangui@byroncapitalmarkets. The security is considered a BUY but in the analyst’s opinion possesses certain operational and/or financial risks that may be higher than average.426. The particulars contained herein were obtained from sources which we believe to be reliable but are not guaranteed by us and may be incomplete. Informational Reports From time to time. Byron Capital Markets Ltd. Clients may also receive our research via a third party. Byron equity research is distributed electronically via email and is posted on our proprietary website to ensure eligible clients receive coverage initiations and ratings changes.426. related to the specific recommendations or views expressed by the responsible analyst(s) in this report. Dissemination of Research Byron endeavours to make all reasonable efforts to provide research simultaneously to all eligible clients. Dev Bhangui  647. (“Byron”) is a Member of IIROC and CIPF.com Page | 27 . targets and opinions in a timely manner. registered in their jurisdiction.Hydrogenics Corporation IMPORTANT DISCLOSURES Analyst's Certification All of the views expressed in this report accurately reflect the personal views of the responsible analyst(s) about any and all of the subject securities or issuers. Company Specific Disclosures: None Investment Rating Criteria STRONG BUY The security represents extremely compelling value and is expected to appreciate significantly from the current price over the next 12-18 month time horizon. The research department is a cost centre and is funded by the business activities of Byron including institutional equity sales and trading. Additional distribution may be done by the sales personnel via email. the funds for research compensation vary. or will be. No one business line has greater influence than any other for research analyst compensation. No part of the compensation of the responsible analyst(s) named herein is. The security represents fair value and no material appreciation is expected over the next 12-18 month time horizon. Client s wishing to effect transactions in any security discussed should do so through a qualified Byron salesperson.0289  lcamargo@byroncapitalmarkets. SPECULATIVE BUY HOLD SELL Other Disclosures This report has been approved by Byron for distribution in Canada for the use of Byron’s clients. Byron will issue reports that are for information purposes only.com Lino Camargo  647. Byron compensates its research analysts from a variety of sources. directly or indirectly. BUY The security represents attractive value and is expected to appreciate significantly from the current price over the next 12-18 month time horizon. and will not include investment ratings.