Hexagon Composites ASA

Jon Erik Engeset - Chief Executive Officer David Bandele - Chief Financial Officer

Halvor Nygard - SEB Hans-Erik Jacobsen - Swedbank Fredrik Steinslien - Pareto Securities Bengt Jonassen - Carnegie

Good morning. Welcome to the Q2 Presentation for Hexagon Composites.

We continue to be challenged with top-line growth in the quarter. The good news is that we have had good order intake and we have had good control over our cost space.

So, we expect that this pattern will improve in the coming quarters. We are very satisfied with the growth developments in the LPG segment, 20% plus organic growth.

The Mobile Pipeline sales in the quarter have been very modest but strong order intake. And it’s worth mentioning that we have had the first delivery to rail applications in the quarter and that is pointing to interesting opportunity going forward.

We also had the TITAN XL approved by the U.S. Department of Transportation, opening up a new segment in that market for us.

The CNG automotive sales have been overall weak in the quarter. The U.S.

transit bus market has been strong. But we have had a very soft heavy-duty and also to some surprise weak refuse markets.

The heavy-duty market was expected, the refuse market we think is temporary challenge. And the light-duty development is now very healthy from low level but we will see growth going forward.

So we’re quite pleased with what we have achieved there. The hydrogen market is developing at rapid pace and if anything it’s going faster than we have been expecting.

Overall, I have to remind everybody, this is starting from scratch, so don’t expect significant numbers. But the market activity is very encouraging.

We announced a merger of our heavy-duty activities in linking with our main customer Agility Fuel Systems I will revert to that after the financial presentation. And last but not least, we announced a joint venture agreement in India, India being one of the largest CNG markets in the world and the market where we expect significant growth going forward both in the CNG area but also actually regarding hydrogen.

So, with those introductory remarks, we will look at the financials. So, please David.

Thank you, Jon Erik. Welcome everybody joining us here also live on the webcam.

Hexagon Composites ASA second quarter 2016 financials. Highlights: first of all, we achieved operating income, a turnover of NOK316 million, from that we recorded earnings before interest tax depreciation and amortization, EBITDA of NOK37 million and recorded then a bottom line profit of NOK15 million.

As Jon Erik mentioned lower turnover volumes, particularly from the High-Pressure segment. However, as we see in the profitability we managed to mitigate a lot of that impact from good cost initiative.

So this is the cost initiative program that we executed back-end of 2015 so that’s helped to dampen the effect of those lower volumes on profitability. Also in the background, on the Low-Pressure side of the business, that’s been very strong performance in Q2.

Digging into High-Pressure, the strong transit has allowed still some reasonable volumes in CNG North America. As Jon Erik said, refuse and truck in that section.

But the positive is definitely steadily recovering mobile pipeline volumes. So, both in sales this quarter much better than the previous quarter, Quarter One but also the order intake which would be better for realizing sales in the second half of the year.

Quality in the Low-Pressure sales, we’ve been beating our objectives of trying to chase that growth. We’ve been recording 20% year-over-year growth, continue to do that.

And whereas volume is in our core markets, we find that growth is in diversifying the geographies which we have done in the quarter and also, not only that but new customer orders. On the balance sheet we do have large working capital swings.

As you know this was very positive in Quarter One, so we’ve had a negative working capital movement in Quarter two. Within that we have positive effects of reducing our inventories, that’s good.

And there has been, negative movements in the current liabilities, and I can speak more to that later. Big impact on our balance sheet this quarter than was right at the end of the previous quarter, Quarter One, we received the proceeds from the equity private placement.

And right after Quarter One, going into Quarter two then we repaid all our long-term interesting-bearing debt. So you will see the balance sheet somewhat reduced.

If we go into the numbers for the first columns to the left, are for Quarter two only 2016 versus 2015. The middle columns for the first half year 2016 versus 2015 and the columns to the right hand side is the full-year 2015.

So, operating income for the quarter, Quarter two, NOK315.6 million versus NOK413.9 million same period last year. EBITDA of NOK37.0 million versus NOK37.4 million same period last year.

And after depreciation, we recorded operating profit or EBIT of NOK19.7 million this quarter versus NOK23.2 million in the previous quarter last year. Big differences in our other financial items, net year-over-year NOK1.3 million modest charges overall this quarter, Quarter two 2016 versus the NOK34.8 million charges in the same quarter last year, so positive variance of NOK33.5 million.

And that took us then to a profit for the quarter of NOK18.4 million before tax versus a loss of NOK11.6 before tax in 2015. After taxes then, our profit or loss bottom line, NOK15.1 million versus a loss of NOK8.2 million same period last year.

And good to note that on the EBITDA margins we’ve achieved a double-digit margin this quarter, so we’re pleased about that especially in the lower volumes, 11.7% versus 9% same quarter last year. EBIT operating profit margin 6.2% versus 5.6% previous quarter last year, sorry, same quarter last year, and our net profit 4.8% versus the minus 2% last year.

If you move over to the middle columns then, that’s the six months, so first half year results. Quarter Two is quite the same trend as Quarter One, so you’ll note that through the numbers.

Operating income NOK607.2 million versus NOK815.5 million, same quarter last year - sorry, same half-year last year. EBITDA was NOK55.6 million versus NOK90.2 million same period last year.

And the EBIT operating profit is NOK23 million versus NOK62.7 million last year. Going down straight to the profit or loss after tax, right to the bottom, we have NOK15.5 million for the first six months then versus NOK29.4 million recorded for the first six months last year.

EBITDA margin combined 9.2% versus 11.1% same period last year. But as you’ll recall, in 2015, it was the second half of the year that we really gone into weak results, whereas this year we expect much better results than last year going forward.

So, when we look at the margin that we achieved for the full-year 2015, EBITDA margin of 6.9%. We of course are looking to better that going forward this year.

If we jump into Quarter Two, 2016 versus 2015 comparisons, a little bit more detail. First column on the left is the operating income, turnover sales.

So we were, that was a 24% decline so negative growth there or minus NOK98 million, again High-Pressure contributed most to that NOK124 million reduction or 44% down year-over-year for the quarter. That also includes some positive currency effects.

Low-Pressure, going the other way, contributed NOK16 million to turnover, year-over-year for the quarter and about 20% growth rate. However, the NOK98 million spread when we come to EBITDA you see a more or less a zero spread, High-Pressure did still drag EBITDA down quarter-over-quarter by NOK10 million and recording more or less a neutral EBITDA margin, whereas Low-Pressure contributed to an increase of NOK13 million to that EBITDA number and healthier margins of 25.4% on EBITDA.

Moving on to EBIT, operating profit, our spread goes down to minus 3% and that is just the higher deprecation from the Low-Pressure segment. So we had an extensive investment program in Ragasco, the site for Low-Pressure through 2015 and now that’s activated and obviously generating higher depreciation.

On the net profit side of things, to the right, we see, we take that minus 3 spread to a plus 23 spread, so a positive effect of 26. And again, as I was mentioning, most of that came from the financial items line.

We’ve had positive year-over-year FX or currency changes plus 11. Interests, we continue to have lower interest debt servicing, when we refinanced, quarter-over-quarter it’s plus 3.

And also what happened in 2015 is when we took out the bond, it was a repayment premium so that was a big charge, around about NOK21 million in the quarter last year. And of course we don’t have that charge this year, so it’s a positive effect.

Tax effect is minus NOK7 million but that’s okay. So, overall, for the quarter, again, we focus on those positive effects of the cost initiatives and they help to offset the profitability impacts of what is quite a large volume reduction particularly in the CNG area.

Okay, just going on to the first half year. As I said the same trend you see minus 26% growth on our operating income or NOK208 million negative variance.

And again, it’s the same pattern with High-Pressure contributing to that decline and low-pressure actually contributing positively to growth. Going over to EBITDA, we see a spread of NOK35 million for the first half-year.

High-Pressure declined by NOK51 million and slight negative EBITDA margin, whereas Low-Pressure has been quite consistent contributing NOK13 million for the first six months and the margin for the first six months is 23.6% for EBITDA. Same depreciation pattern going forward, and we go from a spread and operating profit of negative NOK40 million and we get back NOK26 million as the spread reduces to NOK14 million and that positive NOK26 million comes mainly from the financial items effect and also positive tax effects year-over-year.

So, those weak High-Pressure volumes negatively impact year-over-year profit growth of course but the year-over-year situation will then turn around from Quarter Three onwards, so that’s positive going forward. Looking at our segment shares, perhaps pictorially you can see the changes there, if you’ll start with the light blue to the left, this is the CNG segment versus CNG segment in Quarter Two 2016 to the right.

So there you see quite a large difference. If we look back to 2015 that was more or less a record quarter for us, we introduced new carbon large-diameter cylinder to good effect in the market for example.

But with those weaker Heavy-duty volumes this year, you see the difference quite clearly. Mobile pipeline beginning to catch up to where it was last year, which is good, and of course hydrogen still modest sales in the quarter but sales nonetheless.

So the big story then is Low-Pressure being able to carry and more or less 50% of the revenues this quarter. And we go over to profit, of course Low-Pressure is as it was in 2015 really the area contributing our operating profit and the same picture little bit more deviation where Low-Pressure is ensuring that we have good operating profit despite the lower High-Pressure volumes.

So, within High-Pressure, we mentioned the improving mobile pipeline sales. The good order intake, we’ve seen order backlog now back to very healthy levels, so that’s very positive.

Strong transit bus demand in the USA that’s in some way a tale of two worlds you can say. America has been really, really strong.

Rest of the world has been a lot weaker than the U.S. If I look at the rest of the world, back in 2013, great year, 2014 little bit softer, 2015 record year, 2016 softer, so it’s a little bit lumpy like that.

But its temporary it’s phasing. On the heavy-duty our backlog certainly points to better performance up-tick in Q3 and Q4, which is also positive going forward.

But the realized sales in Quarter Two again pretty light. Jon Erik mentioned on the European light-duty vehicles that, was a restructured business division, one that was very dilutive to margins last year, that’s been turned around and recording good profit although based on low volume numbers.

But that’s been positive obviously to our margins this year, year-over-year. Those hydrogen sales of course are to ground-storage applications.

As we said before that’s the precursor, you do need the refueling stations for the light-duty vehicles to fuel. So our next step then would be developing the commercial opportunities in light-duty, Jon Erik will come back to that later.

And one tailwind we did have in the quarter, so that skews the High-Pressure results positively for us. We have a very long-running dispute, minor dispute in the U.S.

it goes back a few years. We finally won the case and the positive impact of P&L was plus NOK5 million so that was a windfall in the quarter.

All the costs related to that have been taken in - obviously in previous quarters, previous years. So, on the financials, you see in the High-Pressure segment, operating income NOK160.9 million versus NOK285 million last quarter, so I say a significant variance.

But on the EBITDA that variance is muted or dampened, more or less neutral this quarter versus the NOK10.3 million, profit last year. And depreciation quite similar, so operating profit is minus NOK11.5 million for Quarter Two 2016 and negative NOK0.9 million for Quarter Two 2015.

So, Low-Pressure, doing very, very well, Quarter Two is seasonally our strongest quarter, especially in our core markets as we get prepared for the summer season of course. And this quarter was no exception, so very strong sales.

But again, pleasing in terms of growth to new markets, we’ve had those new sales or orders for the next coming quarters, both to other European markets, African and South American markets. And Jon Erik will give a little bit more detail about that later.

And it’s important, we mentioned the program of investment in 2015, productivity base but also flexibility based, it’s going to this development of our customized product offerings. This development is already taking shape and cracking into new markets and new geographies.

And as we see this going forward it’s only going to increase. So not only do we have good productivity or capacity increase in Ragasco from our investments but we also have this ability to yes, have the customer leverage their branding and designs in the way they feel most effective for the market.

So I think this is very, key in terms of getting increased market roll-out. So just quickly, the operating income NOK156.5 million versus NOK130.4 million on the top-line, so NOK26 million growth.

EBITDA nearing NOK40 million for the quarter versus NOK26.5 million, previous quarter. And then the operating profit EBIT of NOK34.1 million versus NOK33.8 million previous year’s quarter.

So, in Quarter One, I was faced with the problem of having NOK763 million in my bank account, so I thought it would be prudent to let you know how we spent it in this quarter. We had positive impacts of good quarter, underlying operations that was positive to cash balances of NOK45 million.

I mentioned some of the operating working capital changes which turned around, just to give some flavor on that. Inventory was positive so we reduced inventories that that’s good for working capital.

But we had - we paid a lot, we reduced our accounts payable balances significantly in the quarter. So, overall negative working capital change.

And also there were significant payments made in Q1 being the deal fees, so with the transaction that we had on the equity proceeds, so that was also a significant number that was paid straight after into Q2 - straight after Q1 in Q2. However, so net positive from operations - sorry, net negative from operations.

But on the CapEx, it’s been very modest, the NOK22 million is split more or less 50-50 between development tangibles and the tangible fixed assets. And of course the big item was just to really repay off all our interest bearing debt and that was NOK388 million outgoing in the quarter.

Otherwise, small other effects and we end up with a cash balance of NOK291 million at the end of the quarter and no debt. So, carrying on that theme of de-levering the balance sheet; that really was the big effect between end of this quarter versus end of last quarter.

And then, in terms of the working capital, we talked about the reduction in inventory. In end of Q1, we had made bulk purchases of carbon fiber.

And we’ve steadily consumed those bulk purchases as we go forward. So that’s been positive.

Apart from the reduced accounts payable we have an effect that’s peculiar to mobile pipeline, some of you will recall that we get customer deposits in on the mobile pipeline side due to the size of the individual orders. And these are only released into sales once we complete inspected and shipped.

So, actually the railway shipments we made for example, that balance was in deferred income, current liability. And then when we shipped out at the end of the quarter, then turns into sales and comes out of current liabilities.

So that’s why you often get some big swings also generated by the mobile pipeline segment. On the basis points, pictorially it’s what we’re saying the graph to the left, the blue bars, reduced significantly and that’s just cash being used to pay-off on the right hand side, the light grey is our debts.

What this results in is equity share of 79.1% and good net cash position and certainly a balance sheet that has significant capacity going forward. I thought I would take a few moments to discuss the Agility transaction.

So obviously in the middle of June we announced a major transaction for us which was actually us becoming a 50% owner of a new jointly controlled company called Agility Fuel Solutions, whereby we contributed our assets for CNG and the heavy-duty and medium-duty space. And Agility brought in their whole company.

And together as I said, jointly controlled 50% fully vertically integrated entity going forward. There was information provided obviously on the release.

An update to that is the close of certainly targeted effective 1 October, 2016. So, what this means from a financial reporting point of view, obviously it changes the way we report.

But up to Q3 it will be business as usual, so it will be the same accounting. So, the first time that will change our accounting due to this transaction will be Quarter Four reporting which is due out in the middle of February.

Okay, the new venture just to be sure and clear, will be reported under the equity method as a jointly controlled entity. And that means that everything that was previously consolidated in the P&L, all the turnover, all the costs, etcetera will move out and will replaced by one line, which is a 50% share of the new entity’s bottom-line.

Same thing will happen on the balance sheet all the assets and liabilities will be stripped out and will be replaced by one line, which is the net 50% share of the net assets of the new company. So it’s a bit like a marriage, we’ve got together, you find your partner, you decide to move into a bigger house, better house.

You come with your furniture. And then like any good marriage, you’re entitled to 50% of everything in the house.

So that’s how we will report this. One thing that will be substantial in the one-offs, it’s technically a sale.

It’s a sale of assets to a new company. So, a gain will arrange from the transaction.

So we gave an indication of the size of the gain in our communications in June. It will be significant.

It will be significant. The gross gain will probably be in the area of NOK740 million.

This is obviously subject to true-ups and act-close, currency rates NOK at close. But what we’re entitled to do and IFRS is just to recognize, is to choose whether we recognize the whole gain or 50% of the gain, okay.

And 50% is kept, it’s a bit like we sell 50% to ourselves anyway but you can just recognize the amount sold to the partner. So we cap that 50%.

So, the gain will be more or less in the area of NOK370 million into P&L and also be reflected as a, you can say a post in the balance sheet it’s, part of the investment cost. Okay.

Obviously we will keep the market informed as the process continues whenever we can and provide more and more information. Just to say that the carve-out process is quite complex and the opening position will require time.

The deal was constructed from 31 December 2015 date and we have a lock-box then all the way through nine months. So it will take some time to true-up of course and take some time to produce that opening balance sheet and reporting going forward.

Saying that we have as part of this release now, you can find it or download it. We have provided pro forma financial statements for the Agility Fuel Solutions for the new company that has Hexagon and Agility’s contribution.

So, please take a look at that. It’s based on full-year 2015 and based on Q1 2016.

With that, I hand it back to you Jon Erik to give the outlook.

So, looking to the next quarters and beyond, so the U.S. transit bus markets, has been very strong.

And we expect it to continue to grow largely driven by the desire to reduce local emissions. And outside of U.S.

the market has been quite slow so far this year after a record 2015 we’ve had a slow start to 2016. However, we’ve seen historically also that this particular segment is very lumpy.

And we see clear signs that the market is coming back now in the second half. So that is as expected.

The North American Heavy-duty over-to-road truck market is weak. In Q1 there was a time when the oil price was below NOK30.

And although the oil price has come up again, it’s clear that the economic value proposition in this segment is not as strong as the customers want it to be. So, although we see an improvement in the second half, we have overall fairly stagnant development in that segment.

As I mentioned in the first half we’ve also had a slow refuse market. That is something which will normalize itself.

And it should also be mentioned that in, particular reasons we’ve had a reduced market-share in Q2, which will continue into Q3. But we are absolutely confident that that will get back to normal going forward.

So, we are not worried about refuse segment but the weakest market, segment at this point in time the over-the-road heavy-duty segments. Light-duty, very modest volume for us but new models will be launched now in this quarter and again next year we will see a significant growth.

And we expect that growth to be very profitable and healthy. So that is one of the things that we are quite pleased about.

Mobile pipeline, as you know has been our main headache over the last year. We are now very pleased to inform that our order backlog for the rest of this year is satisfactory.

The number of projects and prospects is growing again. Lot of new projects and new ideas of applications in North America again to a great extent driven by environmental considerations, and also, outside North America there is no lack of projects.

As you know by now it is difficult to predict exactly when these projects will be realized and when they will result in sales. But we believe we’re moving back to a more normal market situation for our mobile pipeline range.

And we announced a few days ago, a joint venture regarding rail. As mentioned we took our first order and delivery in this segment in Q2.

And that was also a contributing factor to our decision to team-up with individuals who have been pursuing this opportunity for many years, very capable partners. We will have 80% of that JV and our partners will have 20%.

And so, it’s really - it’s just another heavy-duty application, also a high horse-power application with also today’s oil prices significant economical savings for the operators. But of course it’s conversion of diesel technology into new technology so it’s not going to happen overnight.

But the potential there is significant if the operators decide to convert. Hydrogen, we are now going from the stage where we have been doing R&D and prototype production to receiving orders small serial orders, starting from very low level but we do expect to see a growth visible in our numbers in the coming quarters.

And we expect to be able to announce some significant longer-term agreements in the relatively near future. Very encouraged by what we see in the market.

And we have every reason to believe that this development will continue to have good momentum in the coming quarters. LPG, we are of the opinion that we have the right strategy for the area.

So we will do more of the same. We have a very sound development in the core markets in Europe.

We are signing up with new customers quarter-by-quarter entering in new markets in Europe and outside Europe. Of course initial volumes are always modest when entering a new market or partnering with new customer but over time we see that this is working and we’re getting the effect of the marketing drive that we decided to pursue a couple of years ago.

So, there we will simply do more of the same and we think that the management on this business area is doing an excellent job. So, 2015 and 2016 have really been about steering through challenging period in some of our segments while at the same time pursuing some of the strategic opportunities that are there either because of the trends in the industry or because of the particularly challenging market situation that we’ve seen in some segments.

So, this chart sums up the main initiatives that we’ve done to date. I think it’s mainly about two things it’s about moving businesses from being product suppliers to being systems/solutions suppliers and by that gaining stronger market position and also defending margins.

And at the same time it’s about geographical growth and expansion. So the most important thing must be said to be Mitsui Agreement, whereby we with Mitsui totally global footprint have access to most relevant markets around the globe.

And as a small organization that will prove very valuable for us going forward. It will take time before we get the full-effects.

Our Japanese friends are exceptionally professional and thorough in the processes. And we work with them in that manner.

But promising opportunities are definitely out there. We also made two JVs of limited scale, one in Brazil, one in India.

The Brazilian not particularly targeting Brazil itself but rather South America and also Africa on the bus side, while the joint venture in India is targeting both bus opportunities but maybe first and foremost mobile pipeline opportunities. So, as we all know these markets are large, challenging for many reasons, extremely important we believe to have the right local partners.

We’ve spent long-long time including ethical due-diligence before we have selected our partners and we feel that we now are married to the right people. The merger with Agility is obviously also a major event for us.

That has been integration into steps. The first step was the JV that we made with them in 2014.

At that time we were frankly not yet confident that it would be right for us to take the step from being a cylinder product supplier to becoming a system supplier. As we’ve seen in the market development in the meantime, we today strongly believe that is the right position for us to take and that Agility is the right partner.

We also announced that we are a conducting a feasibility study together with Mitsui and with Toray, Toray being the largest carbon fiber supplier for us and also in the industry with the aim to position ourselves in the Japanese hydrogen society development. So it’s too early to report back on that feasibility study.

But it’s ongoing and encouraging. A few more words on the Agility merger, so beyond the ambition then to take it from a product position for us to systems and also expand with additional services so that we are complete solution provider.

It is this venture will have a global ambition. We at Hexagon have had a fairly international activity on the bus side, while Agility has been till date very much North America focused.

We think that the bus opportunity is significant and needs to be further strengthened and developed. We also think that there is a market outside North America for the refuse trucks.

So that is maybe the main point to focus in the foreseeable future. One side of this, we in the new emerged entity will get separate management.

Our view is that it is an exceptionally strong management. It’s a lady Kathleen Ligocki, who will be the CEO and she has a strong team with her including our Chet Dawes who will lead in the cylinder division, some of you have met him.

And he will also take with him his current management. Together, we feel that we have an exceptionally strong management team.

If this team doesn’t win in this market no team will win in this market. It also has the effect that it will free-up our risk management for other opportunities.

And that is important for us because in the last couple of years there have been more opportunities and projects than we have really had the capacity to pursue in an efficient manner. So this change will free-up management capacity and allow us to go after all the other opportunities with more strengths and capacity.

So, summing up, the High-Pressure business area is gradually getting firmer. We don’t think that you will be impressed by Q3 but Q4 looks good.

There will be improvement in Q3 but as we see it now we see particularly a good Q4. The Low-Pressure area will continue to deliver good growth.

However, remind you that the second half of the year is seasonally softer than the first half. There are some opportunities out there if they can, we could be positively surprised.

But we think the safest assumption is that there will be a seasonal slowdown but still an improvement over last year. We see that the environmental business case is supporting our business in a major way.

And it is getting stronger day-by-day. While at this point in time, the economic value proposition is improving with improved oil prices.

And that’s a major reason why several of these mobile pipeline projects are now getting closer to decision points. But the current oil price is still not supporting the CNG automotive segment in a satisfactory way.

So we’re now strategic thinking, we are of course hoping for higher oil price and supporting that segment but we are planning for future which is to large extent driven by the environmental very good reasons for choosing alternative fuels. Of course if the oil price would increase that would be very supportive but it’s important for us to make our future based also on other scenarios.

The hydrogen opportunity is materializing but since it’s starting from scratch, and it will take a few years before it will become a significant part of our business. But we have to say that every indication supports that the development is going in that direction.

Then we welcome questions please. David, please join me.

Halvor Nygard from SEB. Can you say something about the share of sales in LPG that was to new customers this quarter?

It’s, as a share of sales, well I’ll say is that it’s very modest. But we see in that always when we get new customers that it starts with few thousand cylinders to the customers, then they test it out, they get their feedback from the market.

They sophisticate their marketing material and then we in many cases see that it gains traction over time.

Thank you. Continuing on the LPG side, last quarter you didn’t exclude the possibility of one-time or one-off order and you’re saying that it could potentially happen.

But could you elaborate a little bit on that?

These one-off orders are typically in far-away countries, typically a number of clarifications required. So, we never share to get such orders before we get them and before we have the financing and everything in place.

So, that’s why we do not base our assumptions or expectations on getting such orders. Our whole strategy is as we’ve discussed before I think moving away from depending on one-off orders and rather replacing by the recurring orders.

But as long as we have available capacity of course we will be welcoming also that type of orders. So, the message is the same, we don’t exclude that we will get in the next weeks or months, but we don’t think you should assume it.

Okay. CNG for rail, the joint venture, could you talk a little bit about the two partners that you have there?

I think that’s maybe going into too much detail if then maybe it’s better idea to get back to that at a later presentation. But because this is all new for us and it’s now in the shaping so there are certain clarifications that we would like to make before we communicate more than what was in the release of last Monday, but very experienced people, engineers having a deep understanding of this opportunity, and being firm believers.

But as often, such development takes more, time than one expects. And that is also the experience that they have made.

And we have been talking to them for long time now, couple of years probably. But at this point in time we feel it’s right to move in.

We had this first delivery in Q2, which is hard evidence for us that there is a market there. And we think that the economic value proposition is excellent.

Last one on the refuse side, you said you lost market share during Q2, who did you lose it to?

I think it’s actually evident from report of one oil competitors. So rather than pointing at that I recommend looking at such releases.

But as I said, we think it’s for particular reasons and it’s not a concern to us.

Thank you.

Hans-Erik Jacobsen, Swedbank. The low gas prices we have seen in Europe over the past year or so.

Has that in, no way influenced and the buyers in Europe to convert to CNG like we have seen in the U.S. for a number of years?

It seems like you report that the market continued to be very slow.

I think it’s important to separate between different segments. There is really no Heavy-duty segment in Europe.

For CNG there is some LNG in Europe. However we think that there is an important opportunity on the refuse side.

In Europe, policymaking and subsidies play an important role. And there we’ve seen different shifts over time but when these things get sorted out then definitely gas, natural gas, compressed natural gas will have an important role, especially if blended in with biogas and you get the better environmental or CO2 footprints.

Obviously you have the local emissions effects regardless but if you mix in with biogas you also get very good CO2 proposition. So, it’s probably the European market is probably more reliant on that because the cost themselves come at a premium.

So even if the gas prices are lower, the economic incentive itself in low gas prices is not enough to drive the market. There is a need for public support.

But of course it helps but also in Europe things take time before you see it impacting the demand side.

And in Russia, the joint venture you have there on the LPG side, any new developments there?

The JV in Russia is actually being wound up. So, we are now in Russia with our own sales organization importing from Ragasco.

And also monitoring closely other opportunities there. And we think that with the JV with Agility, Russia is also an opportunity that should not be ignored for reasons that we know very well on the political level there has been a period of wait-n-see let’s call it.

But we’ve kept our staff there and we’re ready to take larger position as those things normalize.

And lastly on the mobile pipeline, maybe since in the U.S. previously you talked about leasing out the cylinders as a way of speeding up sales.

Has that materialized?

I would say yes, so we have a very strong partner there. So, effectively we are offering customers leasing option and being used to a large extent.

Thanks.

Thank you.

Fredrik Steinslien from Pareto Securities. At Q1 you had fairly cautious expectations for mobile pipelines for this year and there has, been a couple of announcements since then, it’s been kind of high expectations in terms of progress or in line or of low expectations in terms of mobile pipeline sales?

I think it’s fair to say it’s above expectation from Q1. So, and then, furthermore the increase in market activity in terms of prospects and leads is also very encouraging.

But coming out of a period with almost zero sales, we’re a bit cautious to say that the crisis is over. But yes, I think it’s fair to say the order intake has been stronger than we expected frankly, expected in Q1, although we expected an uptick.

It has come with more momentum assumed.

Okay. And then you also indicated that you thought that 2016 sales should be in line with the 2015, see that could come in a bit higher than 2015 for mobile pipelines?

Allow us to revert to that next quarter. But because order backlog is good but we need to secure some more orders before we can say that things are back to normal.

And also, following up on you talked a bit about it on transactions and partnerships, you’re doing a lot of work there lately. Can you elaborate a bit on what kind of investment requirements this would entail for you over coming years?

And also, maybe a bit on the timeline and direct economic effects it will have for you going into 2017 and going forward?

So, most of these partnerships and JVs they are low upfront initial investments, low risk. We certainly expect and plan for major market activity.

So we take them one by one, we think that the - in India, in order to succeed in India, we need to have a footprint there. So, at this point in time we’re busy with developing our business plans.

And that’s one of the things that has changed in this group that I think is fair to say that our marketing people are more sophisticated in understanding the value propositions that we’re able to deliver in various markets. And as you know every market is different and India is more different than most.

But major opportunities that we want to understand exactly where we want to use our ammunition. But there we expect that it will be necessary to make investments.

We think that such investments typically should be done by having system capacity. So buying components with this high local content is possible assembling and delivering in the appropriate business process.

If the market opportunity becomes big enough then it becomes also question of cylinder capacity. And similar development might be required in South America, but for now there we already have systems capacity, so we have certain footprint.

But we will base the strategy on importing primarily from the U.S. On the rail side, it’s more marketing JV we don’t expect significant CapEx there.

But we certainly hope that the - but it may be necessary to do more product development. It will certainly be necessary to develop rail tailor made solutions.

So, I would say that we take a step-by-step approach, try to keep the initial investments low. And we want to understand the risks before we commit more substantial capital.

Thank you. And last one if I may.

So, with low initial investments what are your plans for your very strong net cash position?

That’s a great question as well. So, we have, we certainly have thoughts about that.

As you know we are working with Toray and Mitsui on the JV opportunity in Japan that will require significant capital investments. So that’s one area.

And then there are also certain other opportunities which are premature to go in detail on. [Foreign Language].

Do we have web audience?

You say you are losing market share. Any new competitors gaining market share and what drives the competitive landscape currently?

So, I need to emphasize that this comment on market share is specific to Q2 and into Q3. And specifically the refuse market.

Beyond that I’m not able to go in detail except repeating that it is a transitional issue. And we are absolutely confident that we will get back our fair share.

Sorry, could you repeat the second half of the question please?

And what drives the competitive landscape currently?

Well, that’s a very broad question of course because there are so many segments. But if I understand the question right, it’s more related to our competition.

As you remember a Quantum went into Chapter 11 has been refinanced the main creditor Kevin Douglas has assumed the company. They will for sure attempt a market position but we are not exactly clear on what their approach would be yet.

Apart from that of course everybody sees a market which is slow and I’m talking on the CNG side. So, it’s clear that there is strong competition at this point in time.

We try in this situation to focus on the added value that we can bring to the customers. And rather than be hung up in a product oriented price competition.

We have always been quite cautious on giving specific comments. It’s of course sensitive.

So we have to come back to that when things materialize.

Okay. I think with those closing remarks, thank you for being with us this morning.

And we wish you all a good rest of the day. Thank you.

Thank you.