Hexagon Composites ASA

Jon Erik Engeset - CEO David Bandele - CFO

Good morning everybody joining in the webcast. Good morning everybody here.

Pleased to take us through the Q4 2016 results for Hexagon Composites. Slight break of tradition here, I will start off with the group highlights and then do an extended session on the financials given the large impacts that have happened this quarter and then Jon Erik will take us through the outlook and also lead the Q&A as usual.

So without further ado very pleased to say that the low pressure LPG segment has capped off a great year for them. Quarter four top line growth of 19% and in addition awarded several large contracts one of those two new geography for us.

Also extremely pleased to say solid mobile pipeline sales in the quarter, a lot of credit has to be due to the production team and Hexagon Lincoln who have managed to deliver what was essentially 60% of the annual revenues falling in the fourth quarter. The other pleasing thing was as we announced last time we got a large order in the oil and gas sector that's an important sector as far as mobile pipeline sales is concerned.

And so we're actually busy working hard there delivering mainly in Q1 on that order. We signed a letter of intent with Nel and PowerCell, Sweden to form a Scandinavian Triumvirate pursuing hydrogen opportunities and Jon Erik will take us through that later.

Of course we closed the Agility Fuel Solutions merger, happy to say that the first quarter there were a steady revenues reported. We'll go into more detail later.

And of course we acquired xperion Energy & Environment. There's been significant post acquisition integration efforts.

Team has done a great job very, very well managed and we have very high expectations of the output of that team and effort in 2017. So going into the fourth quarter financials.

It's very important to maybe simplify a little bit some of the major effects that are going to impact this quarter's figures and also going forward. So first thing is all previously reported figures will not be changed, there's no restatements.

However in quarter four we had those the Agility transaction. We also had the xperion transaction.

Agility is a transaction that really takes equity accounted from fourth quarter onwards, that means that we have to deconsolidate all of the P&L results in the fourth quarter and they go below the line. But of course xperion we consolidate and we add xperion results.

So if we look to the right hand side here and see the profit and loss statement three main impacts going forward. We will have lower comparable revenues EBITDA and EBIT aside from a one off gain and that's just because the Agility business you can say is the rule of thumb about twice the size of the xperion business coming in.

So the CNG business heavy duty of Agility again is about twice the size going out as the xperion business is coming in. Saying that there's a one off gain, I recognize which is quite significant as a consequence of the Agility transaction and we'll go through that, that is represented in EBITDA and also going forward then we have the fair value of assets there will be higher depreciation catch up on there.

Going to our balance sheet the statement of financial position we will definitely have a larger total assets you will see that that's the fair value applied to both M&A transactions. Equity will be increased by the one off gain less a provision for tax and also there is a -- you can say contingent purchase consideration, an earnout clause on the xperion meaning that if the business in total does very well both parties will benefit.

So we've also provided an earnout provision as a cost of the transaction but also as a provision in the liability side. Again no restatements to comparatives.

So it's going to make our numbers difficult in terms of comparability, things like multiples on revenue, EBITDA, EBIT will be disturbed. So going forward for this quarter and the next three quarters we will present in this more fashion to try and make it more comparable for everybody.

On the far right hand side for quarter four 2016 we reported operating income of 347 million and EBITDA of 315 million including the one off gain and net profit of 193 million for the quarter. In terms of comparability what you'll see as we go through if you go to the left hand side column you'll see the actual reported numbers in Q4 2015 same quarter last year that was 371 of revenues, 41 of EBITDA and 11 of net profit.

In order to make comparable going forward we would need to then carve out the CNG business that was the demerged and then merged into the Agility Fuel Solutions transaction and therefore quarter four you see that will be taking out 146 of revenues and 43 of EBITDA meaning that the comparable pro-forma quarter four 2015 without the xperion transaction would look like 226 in sales and minus 2 in in EBITDA. The same combination for quarter four 2016 before xperion would be 276 in revenue, 314 in EBITDA so those two columns in the middle you can compare and then in addition we are bringing xperion as a new acquisition and that add 71 to the top line and one to EBITDA hence coming back to the 347 operating income, 315 EBITDA and the 193 net profit.

Of course the main key factor hitting EBITDA is that one off gain. This is stated after M&A costs in the area of 33 million and we have a what I would call a shadow effect here, deconsolidating the CNG business meant that we would have recorded 17 million of EBITDA.

So that's a shadow effect. M&A costs related directly to xperion expense in the P&L up 16 million for the quarter and we also have other one off items in direct impacts to indirect M&A costs and movements in accruals that total 30 million negative contained in the quarter.

We also remind that the hydrogen business is in the early growth phase and that is will remain dilutive to results. Net profit impact then so that gain we have recognized also a tax provision against that, again it's a tax free transaction but it's prudent then to recognize a fair share of tax to that profit and that is a 122 million so net of tax if you take the 348 less 122 you'll get to 226 million net profit impact.

Xperion acquisition, this had a net result of plus 1 million but I need to break that down. The main operations site in Germany was positive plus seven million however we also have the USA division which is still in a start-up phase and actually had some delayed revenues in the fourth quarter.

So that contributed negatively by minus six so hence a plus 1 million results. Looking at the detailed P&L, the middle columns this is the quarter four results in isolation.

We've talked about down through EBITDA so if start at that line that's the 314.7 million versus 40.9 million same period last year after the gain. And then we have depreciations of tangibles of just split out some of these lines here of slightly less depreciation as you would imagine the effect of the fourth quarter, 13.4 versus 14.8 last year.

However, amortization and impairment this includes the amortization of intangibles and that's driving the growth of 5.1 million or recording 12.6 amortization and impairment for this quarter this year and the same quarter last year was 7.4 million. So that takes us down to operating profit or EBIT of 288.7 versus 18.6 and a difference of 270.1 million there.

The next two lines are concerned with the Agility joint venture and the share of profit from Agility for the quarter, that was negative 7.8 million from operations versus negative north 0.1 that was not Agility last year and we have amortization then attached to the intangibles in that transaction. So the excess of the fair value excess over the book assets, that's 3.2 million and no charge obviously same period last year.

Other financial items was positive for the quarter 27.2 positive versus net charge of 3.8 million same quarter last year. Most of that difference of 31 million is currency effects below the line.

After taxes of 112 million including the 122 deferred tax provision on the gain. We have a net profit of 192.9 million for the quarter against 10.8 million same quarter last year.

Now obviously the EBITDA margins are a little bit skewed by the one off gains of 90.7% is obviously not fully representative and neither is operating profit of an 83.2% or net profit of 55.6 although I wish that was a recurring item. For the 12 months ending, I will talk about that till later in the presentation.

We will go through some of the main figures there but the figures are there for all to see. Let's dig into some of these effects then and comparability for quarter four.

Quick revenue walk then, we start on the left hand side that's the 371 million for quarter four 2015 actual. Quarter four 2015 was actually a bumper quarter for CNG business at the time ironically quite a lot of calls from Agility etcetera.

So we strip out fairly meaty quarter of minus 146 and make it comparable or rebase the quarter four '15 number to 226. Then we're comparing to a similar ex-xperion 2016 performance of 276 and there you can see high pressure contributed positively in growth year-over-year of 30 million mainly driven by the mobile pipeline performance and low pressure which has been driving double digit growth over 20% fairly consistently over the year, the 21 million underlying growth.

Then in addition you see to the far right hand side as mentioned Xperion then contributes further to the revenues to 347 million. So two take-aways underlying top-line growth when you compare when you make it comparable but also that you should note again it's roughly twice the size the effect of the business going out and going below the line.

So not out of the group totally but out of high pressure segment but going below the line versus the group that's coming in in the usual places in the P&L. If we take the same walk them for EBITDA we start with the 41 million reported same quarter last year, we carve out the CNG business again it was a very good and high margin quarter on quarter four '15 so stripping out that minus 43 would actually rebase us to minus two quarter four '15 EBITDA, then you add in some of the effects of high pressure plus 340 that means 348 gain and minus eight of underlying performance.

We have low pressure minus two on EBITDA and then [indiscernible] in Central where we booked a lot of the M&A related costs for example having contributing minus 22 million. So EBITDA ex-xperion of 314 million and as we move to the right xperion as I say contributes a net 1 million for the quarter which takes us to the orange bar which is the reported EBITDA of 315 for the quarter.

However let's normalize these at least give a example of normalization in the reported EBITDA is according IFRS of course and this is the normalization is just a way of maybe giving a steady state or a normalized results if we take out the net gain of 348 we take out the M&A costs of '16 plus these unusual which are like timing effects contained to the quarter movements in accruals and alike of 30 million we get down to around about 13 million EBITDA normalized. So the normalized EBITDA then shows a modest underlying improvement in the group after the M&A transactions.

Our pie charts on the business units revenue for the fourth quarter 2015 we'll compare quarter four 2015 to quarter four 2016 on the right and of course you see this large CNG chunk that won't repeat in quarter four '16 so we lose that from our revenue numbers obviously that goes down below the line. Second thing though is the light duty vehicles.

This is becoming to be a more of a significant business unit for us when we add we move from six million to 29 million when we add the Xperion business. So together getting some volume that growth is mainly the addition of the Xperion business.

Looking at mobile pipeline 87 million versus 151 million, out of the 151 million about 30 million was xperion but there is a significant result year-over-year for mobile pipeline which we're very pleased on. And then hydrogen 90 million last quarter, hydrogen has been a little bit low this quarter and that's really just delayed funded development.

So funded development we expected in '16 will come through in '17 so that’s actually gone down. And then we have a bucket here which is masterworks and I'll talk a little bit about masterworks later and also in quarter four 2016 we add some niche contracts you can say that also as part of the Xperion acquisition that doesn't fit so far neatly into the other business units.

So that's seen some expansion from 7 million last year to 28 million and of course the LPG showing great growth as it has done throughout the year. Looking at high pressure again within quarter four, we have talked about mobile pipeline, we've talked about hydrogen which is very much a future earner but it will be dilutive in short to medium term.

But masterworks this is a business that we acquired in the fall of 2014. Masterworks at the time for us primarily they were serving our CNG business some of the tensioning system, some of the key manufacturing equipment.

We took that in house but Masterworks also has a fairly diverse customer base particularly in tensioning systems and they also represent expertise on the engineering side they represent or they do services such as testing of products and design and that type of activity. Masterworks is still dilutive to profits but we're pleased to see that there's new business opportunities coming some related to the oil and gas uptake and so we hope for better results as we go through 2017.

Finally, the unusuals as they settled in the high pressure segment totalled 26 million and if we go down to the results then operating income in the new business combination of 221.3 versus the old business combination of 265.4 obviously lower for the reasons I mentioned before and then EBITDA impacted by the gain 324.4 versus 26.8 and dropping all the way down to operating profit of 303.6 versus 8.7 same quarter last year. So further down, down the P&L Agility Fuel Solutions.

I'm actually going to start off with a little disclaimer. So we have key elements of finalizing the audit especially in relation to Norwegian [indiscernible] or the purchase price allocation, these types of events.

So we are awaiting the final audit opinions in Agility for that and also on the xperion transaction. So there can be some movements to the numbers when we report in the annual 2016 annual report in March 2017.

Hopefully contained to the balance sheet. But these will be the typical areas of taxes which we always come last there will be quite a complex area as the U.S.

GAAP to IFRS adjustments so that needs to be finally audited and obviously we will make relevant disclosures in the annual reports coming out soon. However, I'm pleased to say that the revenues underlying in Agility were 36.8 million.

They had a report -- this is U.S., they had a reported EBITDA of 1.6 million in U.S. dollars and if you adjust particularly you can imagine on their side as well Agility had quite a few quite a lot of booked transaction costs as well.

So if you adjust for the one offs and the non-cash their adjusted EBITDA is $3.3 million for the quarter. Very modest net debt in the vehicle of 1.5 million.

So that's just a snapshot of the results and we'll have more disclosure as I said in March 2017. However how does that impact the reporting for Hexagon Composites Group, we spoke about the gain and the deferred tax, the share of profit or loss in quarter four was not 11 million, as I mentioned 8 million from operations negative and 3 million depreciation.

For the balance sheet on the date of acquisition the investment is recorded at the total value of NOK971 million. I will just remind that the gain we had the option of capping that gain, the gain you see is 348 million by 50% on the IFRS for this type of transaction after all we've sold 50% to ourselves effectively.

So we elected to cap the gain. So it's a smaller gain However again plus all the underlying assets the purchase consideration is 971 million.

Moving forward that will vary by the profit or loss on the Agility results going forward. So it will increase with the profits, it will decrease with the loss going forward.

Within that 971 million there's a block of 244 million of intangible assets that are depreciated so that 244 million will be depreciated to zero over time. Low pressure, again great year, 19% growth as we mentioned and deliveries to new geographics including Asian and South American markets in the quarter.

The order book gives us promise for 2017. However, it's fair to say that the profitability in the quarter wasn't as good as the top line growth and that's really we took the chance in quarter four to manufacture some of our more difficult products, or products that take longer cycle time.

So basically our utilization is lower. So there is some productivity and efficiencies there.

Also some accruals at the year-end etcetera which dampen the result. Saying that looking at it from a year's perspective it has been as I said an outstanding year for low pressure.

For fourth quarter operating income of 128.7 versus 108.1 last year. EBITDA of 14.4 versus 16.4 same period last year and after depreciation operating profit of 10 million versus 12.4 previous year's quarter.

So now the balance sheet and there definitely you can see the impacts of the changes. So here we look at the balance sheet as it closed at the end of this year versus the close of the previous quarters so that’s September 30, 2016 or quarter three.

So what's changed? So here's the impact of the intangibles going up to 532 from 108 a change or 424 so this is really the purchase price consideration for Xperion both the paid amounts for the shares and also the earn out consideration.

Then we see if you look at the effects on tangible fixed assets if I just look at the variance column here. So that's reduced by 121, if you look at the inventories that's reduced by 100, almost a 110 and receivables by 90 most of that impact is the carve out of Agility.

Those numbers don't disappear but they come back into this part of this 964, 964 is the 971 at acquisition plus or minus some of the effects we spoke about. So the other impact is our cash that's obviously gone down by 463.6 not alarming end of last quarter we obviously drawn the loan ready for the transaction right over the quarter and here we're paying the considerations and our cash is going down accordingly.

Equity as you see the impact of 221 that's again mainly that one off gain and then the other big changes in our other non-current liabilities that is increased around about 256 million and that is where we have that deferred tax provision and the earn out provision. So those are the main changes.

So the only thing that looks slightly counter-intuitive is our other current liabilities. They have actually increased and that's just a strange effect trade payables have reduced as CNG has gone out but actually mobile pipeline customer deposits deferred income has increased so you don't really see the effect of Agility or you see the effect of the acquisition of Xperion liabilities coming in.

So that leaves us with the balance sheet that is just under 2.4 billion from 1.8 billion previous quarter, quarter three. And that's just the illustration of what we said, most of these assets or all the assets from Agility going into the investment bucket including Xperion all at fair value that changes the shape of our balance sheet.

Still good free cash of 208 million after all these transactions and on the right hand side the changes we haven’t talked about there is a small change in the interest bearing debt. We didn't take down any more loans but this is also acquiring some effect from Xperion particularly leases that are classified as interest bearing debt.

So net interest bearing debt is 241 million and the equity ratio strong 155.1%. And just to track the cash in the quarter again we started off with the inflated position ready to purchase at 672, the underlying operations when you take out all those accruals etcetera for example the underlying cash was minus four and up slightly positive to working capital plus 25 and then you see the other movements all those M&A transactions costs etcetera, etcetera really impacting negative 45 million.

Our CapEx continues to be modest at 30 million about 23 million of that is tangible CapEx and about 7 million then is development costs capitalized. So big block is obviously the investments, the purchase considerations that's the payment for shares in Xperion and also the cash consideration on the Agility transaction.

Small net movements in financing so we left them with some FX movements which is about 7 million of that 30 block and the rest is purchased cash from Xperion as part of the deal. We're going to look at the full year in a similar way.

First of all highlights that we recorded operating income for the year then of 1.221 billion and 1.444 billion 2015 last year. EBITDA then is 375 million versus the 100 million last year and net profit of 198 million versus the 4 million last year.

Full year low pressure growth was 24% but most of the top-line reduction as we reported last quarter was really the pressure in mobile pipeline and heavy duty truck quarter one to quarter three, so that was roughly 200 million and if you recall when we reported last quarter as well year to date we actually had the same amount of EBITDA year over year so there you saw that we were able to match the 200 million loss in top line with the cost initiatives. We've done in 2015 taking impact.

So actually most of the effect already happened in Q1 to Q3 but of course as we've shown there's also a net impact of taking out a bigger business of CNG replacing it with a smaller business of xperion. In addition the heavy direct and indirect related M&A cost obviously weigh down on final profit.

So working full year similarly one slight difference so we start with a 1.44 billion last year, one slight difference is that carve out the full year last year for CNG 2015 was a good year but we have to recall that in 2016 we also did record revenues and results for CNG so we need to take those out as well and then you have a net impact of 11.29 when you rebase and that is comparable before the xperion transaction to 1149 [ph] and there you see high pressure challenged particularly in the first three quarters of 2016 negative on the top line but low pressure the other story the other way a very high growth and then we had the xperion 4Q results and we get to the 1.221. On the shares of revenue and again we don't -- we only have bit of that 671 repeating so far in 2016 that's the 356 we saw, all the Xperion revenues here are represented in the different business units as we've shown before in quarter four but taking light duty vehicles and that becomes a 21 million business last year that was a particular low to a 59 million business just with quarter four's results of Xperion included.

Fair to say that we had over 50% growth within the organic business out of [indiscernible] for the year so it's been a great year there be it on low volumes but also the addition of Xperion compliments and put some size to and volume to that business unit. Despite the great quarter four in mobile pipeline you can see that year over year it was still lower so that's a key takeaway, but it's good to see the momentum now back end of quarter four '16 going into '17.

On the hydrogen then we had a pretty good year in 2015 of 51 million and again lower mainly due to funded development that moves on to 2017 and 38 million in total for top line hydrogen and then we have Masterworks and some of the niche contracts we spoke about in xperion 29 million of revenue last year 44 million this year and then finally the 405 million in LPG segment versus 495 and this is all before eliminations for low pressure. EBITDA same work same analysis, we have 100 million that was reported for the full year, we strip out the CNG results, 118 and 40, we rebase that to 22 million of EBITDA.

We add the impacts of the gain versus anything underlying on high pressure that's plus 343, low pressure is plus 33 and the central elimination is minus 24 and that takes us including the Xperion to 375 reported EBITDA for the year. Let's normalize that for those Q4 effects back out the same amounts as we spoke about for 4Q and we get a normalized amount of 73 million, again the orange bar is the IFRS reported amounts in our books.

So particularly heavy effects in the fourth quarter but just to recap 2016 has been a significant year for Hexagon Composites, you see that also in the numbers and the shape of our balance sheet going forward, but fair to say that start of the year we injected about 666 million into equity and pleasingly from a very strong strategically aligned partner so Mitsubishi is going to allow us to be able to realize the opportunities going forward. So that's key.

Very good balance sheet but also great and excellent partner for the future. We observe just an observation that the market cap increased in the calendar year by 1.4 billion to 4.5 billion.

We were able to fund obviously the strategic M&A and we still reduce net debt by 60 million and of course our balance sheet ratio at 55% is still solid. So before I hand over to Jon Erik after a fairly meaty session here, to summarize 2015 was a shock to our profits.

We responded, stabilized our financial position, 2016 we enabled non-organic growth and 2017 we're positioned for synergies from the Xperion acquisition. Jon Erik?

Good morning. So I will pick up on the last statement from David.

So clearly now is to time for integration of xperion and Hexagon. These businesses have been competing in all main segments in the high pressure area and that gives us a good opportunity for integration and we are about to establish a very clean structure within the high pressure area three subunits mobile pipelines, light duty vehicles and hydrogen products and then the heavy and medium duty business and trucks go into the Agility Fuel Systems.

We targeted when we made the acquisition of Xperion Synergy take of €4 million. We are getting increasingly confident that we will achieve that target and that is certainly a very high on our priority list at this stage.

Going segment by segment mobile pipelines we have the good order book now for Q1 we see that mobile pipeline products regained traction in North America, not least due to the uptick in rig count. So this is from the February 10th showing a sharp increase in rig count on shore in the U.S.

and Canada and that has one direct effect for us because as you will remember Clayton's [ph] are used to power getting rigs and fracing installations and this was the sub-segment that disappeared completely for us back towards the end of 2014 and we only got new orders again in the last quarter of last year and more fundamentally it is a confirmation of the U.S. oil and gas sector which of course is going to deliver a lot of natural gas into the local markets which again is an important driver for a number of our products.

That said we see that this improved market outlook is also attracting more competition. You will remember that quantum went into Chapter 11 in Q2 last year.

They had then made their first products for the mobile pipeline market and we see them coming back into the market at this stage and we also see a couple of other possible competitors entering the market. So we do assume that this market will meet margin pressure going forward.

We also see that we have experienced lumpy demand historically and we think it's reasonable to assume that also going forward. Very strong trend which is going to impact our markets positively is biogas or renewable natural gas, RNG as they prefer to call it in North America and we see a number of projects in North America, in Europe but also in other parts of the of the world aiming at utilizing waste capturing methane which is much more aggressive climate gas than CO2 and to a great extent used that for transportation.

I will show video a little later from a new project in the UK. As David mentioned the combination of Hexagon and Xperion could place us as the clear market leader for light duty vehicles.

We have seen a stagnant market for a while but at this stage we see new models coming in and a nice growth outlook going forward. We also have refit markets and the most important single market for us is in Indonesia.

So we expect this to be a steady growth and profitable growth segment for us all. I have used the extreme word extreme when describing the increase in prospects and leads in the hydrogen segment and this is still marginal business for us David showed a turnover in 10 to 16, NOK39 million but now it's time for growth and I would not be surprised if we see a tripling of that turnover in 2017 compared with 2016.

What is very exciting for us working with this is that every more applications become realistic, when we did our strategy plan two years ago we had the maritime segment on the radar screen that we expected it to be maybe 10 years into the future and now we see that the first ferry project here in Norway is being planned for billing and delivery intent in 2019 already. In the last presentation, I referred to the Coradia Lint rail project in Germany where we are a supplier of the tanks for the first two locomotives and we expect a significant number of locomotives being put into the rail system in Germany and we see such opportunities being discussed in many more areas including Norway, the newlines bomber in the Norway is still on diesel and should preferably be converted to a cleaner power source.

We announced in Q1 this year that we will enter into where we have a letter of intent to enter into a joint venture with Nel in Norway and with PowerCell in Sweden, PowerCell is fuel cell supplier and where we will target more complex projects where we see that the customers will require the integrated systems and where we by combining our capabilities expect to be more efficient and thereby competitive partner to the customers. So a lot of exciting stuff going on, the moving into the high growth phase but as I've said many times and would like to repeat today this business unit will continue to demand a lot of resources, investments in terms of personnel market, work etcetera.

So it will be dilutive to our results for the short and medium term and in our terminology we say medium term three to five years. So this is a long term investment but we believe we get more and more confident quarter by quarter that this is going to actually take place.

And one of the reasons why our confidence rate is increasing, is the fact that infrastructure for fuelling is being built out in several areas and while Japan and California have been the front runners, we see Germany now being maybe the most ambitious country in terms of supporting infrastructure development. So the German plants are significant but we see also significant plans in other countries including here in Scandinavia and in Norway as well where a number of stations are either being committed or planned.

At the recent awards meeting, major industry players announced that they will establish hydrogen council which is for us another confirmation that the industry leaders are taking this seriously and are now prepared to commit to the development of hydrogen technology and solutions and several of these names are on our customer list as well. And there have been a lot of discussions where the Toyota is moving away from fuel cell cars over to electric vehicles.

We cannot see that there is any substance in that speculation and so from what we can understand Toyota and Japan as a whole is as committed now as they were when they launched the so-called hydrogen society. Moving over Agility, so we expect 2016 as David explained was business reduction for Agility.

We assume that 2017 will be stagnant year. Of course we follow with great interest the development in the oil markets and we see the tipping point between $50 and $55 per barrel.

So any dollar above that is stimulating this segment as well as the mobile pipeline segment very strongly. So that could accelerate the return to growth but in the meantime we are focusing on integrating new Agility structure as best as we can and to take out cost and to improve profitability.

Also for Agility the biogas development is an important stimulant and also if you go into 2018 in the U.S. a lot of new legislation is being passed or coming into effect rather on state level, it's important to emphasize that most of the environmental legislation is passed in the state level and not on the federal level and that will further require for example in California zero emission solutions.

So we see an important opportunity for our solutions regardless of oil price but of course increased oil prices will help a lot. There is an unfortunate spelling mistake here because we have certainly delivered hundreds if not thousands of projects to the U.S.

refuse [ph] market but this should read the UK where we've had our first delivery and if you look carefully you will see Agility fuel system's on the video that I will show. [Video Playing] So we have seen estimates that run 17% of the fuel consumption in the UK could actually be supplied by renewable biogas.

So in some countries this is going to be an important part of the energy mix going forward. On the OPG side we have had great 2016, we will have a great 2017 the way we see it at this stage, we will have very high capacity utilization in first half of 2017 possibly we will also utilize fully the capacity in the second half.

So we are at the point when we have to consider increasing the overall LPG capacity. So we've talked about that previously we have had a policy now of getting the maximum out of the capacity we have but we are now approaching certain limits.

So we have to think about the next step. In the meantime, we continue to invest in processes, technologies, and product improvements in order to stay ahead of the competition in this segment.

So in summary mobile pipeline, outlook is positive but we do have a limited visibility from Q2 which is an uncertainty and since now mobile pipeline is such an important part of the business Hexagon business turnover it is important to secure a good utilization of our capacity in order to deliver acceptable profit margins. We expect a sound market growth for the light duty segment.

We have a strong momentum in the low pressure area and we expect another year of double digit growth. Stagnant short term market for Agility but stronger market towards the end of this year.

A very strong development within the hydrogen area. We are on plan with respect to integration and synergy outtake for Xperion and we will continue our strategic shift from being a product supplier to being a systems and solutions provider.

So as I also said in the last quarter our main focus now is to regain growth and to harvest synergies short and medium term. The longer outlook in our opinion is bright, the International Energy Agency had a report for 2016 confirming their prediction that they still see a major role for natural gas while renewables is taking a larger share of the energy mix.

The right hand graph there is from BP its year-old but it shows the same trend with natural gas increasing, oil and coal taking a lower share while renewables in fact growing very, very strongly. So with that closing remark the floor is open for questions.

You talked about the LPG side and the capacity utilization there and new investments what can be done, is it new investments refractory or is it Greenfield investments elsewhere?

We will do certain new investments at that force [ph], the primary purpose is to improve the product performance but it will have the additional effect of locking some bottlenecks, but that will only take us a few hundred thousand units of increase. While the more strategic decision is whether we should increase the capacity significantly and in that case whether that should be at that force or whether we should invest somewhere else and that is something which is as I mentioned coming back onto our agenda.

And mobile pipelines you said you have a good order book for Q1, could you give some indications on the size of the backlog you have or compared to Q4 what we saw then?

We don’t want to give backlog numbers. So we want to be consistent on that but the Q1 is relatively strong but we have to go and get orders for the rest of the year.

All right, and to the integration process, both with Agility Fuel Solutions and Xperion you stated that you're comfortable with synergies €4 million in Xperion can we see some upside to that and have there been any surprises that you have seen over the last month for AFS or Xperion in the integration process?

Not really. So when I say or to answer your first question first when I say that the a bit comfortable with the original objective of €4 million that implies I suppose that we see some upside also, but we haven't seen nasty surprise, what has pleased us is the cultural fit.

So it's almost like these people -- we have been colleagues for years, they are talking the same tribe language and they approach their engineering challenges in a very similar way and that has been a pleasant surprise, that's not always the case in such integrations. On the Agility side it's much the same thing of course that process has gone on already from June of last year.

So there we are now almost post the integration phase and as far as we can judge it has been a success so far but we look forward to harvesting the effects of that integration with the markets hopefully starting to grow again soon.

Last one for me, on the CNG side and transit bus in the U.S. we saw several announcements from new flare industries or last week with several CNG buses on order, should we expect that Hexagon will be involved in that part of the framework agreement you have with new flyer?

So that part of the business is now part of Agility and we don't want to comment on individual customers but our ambitions to stay a clear market leader in the U.S. remains of course full and therefore we know the satisfaction that this market is showing signs of continued strength.

In the hydrogen area you said that you will incur losses for the next three to five years. Can you give some guidance on how much those losses will be and also can you comment on your expectations for the sales development with that area during those three to five years?

I would like to say concrete numbers but it's fair to say that we've seen a couple of quarters where we've mentioned levels of minus 10 million. I don't think that's indicative seen as a full year but of course it really depends on these opportunities if further you know Jon Erik was talking about these extreme opportunities which they are.

As further opportunities come on and they are usually slightly long lead you need to invest at the start phase. So I would imagine at least a steady, an expectation of steady dilution similar to 2016 at least.

So with respect to the growth potential so as I said we would not be surprised if we would triple the turnover in 2017 compared with 2016 and we think that the continued market development our best assumption is that it will have an exponential growth curve, then we would not want to speculate too much but in the previous presentation we showed some calculation examples if you assume 1% penetration by 2025 of vehicles for example if I recall correctly that translates into cylinder market around $10 billion. So relative to the size of Hexagon today that market opportunity is very, very, very significant.

So that means that we will now go back, we will reshape our plans and then hopefully when we meet again in early May we can give some more color on the cost levels that we will assume and the profile of the impact to our P&L. But I think already at this stage I can say we will be committed to invest strongly into this market because we think it's such an opportunity that we cannot afford not to take it.

You said that I think it was [indiscernible] back in the titan [ph] market, how is that technology compared to Hexagon's?

The main difference is that their tanks are vertical. So it's in fact similar you may say to the [indiscernible] with Xperion, so our tanks are very large diameter and horizontal in the containers.

While the Xperion technology and also the quantum technology is vertical and quantum has also promoted the solution with higher pressure. The standard pressure in the U.S.

is 3600 PSI, while they can go up to 4800 PSI. We question whether the market is prepared to receive that increased pressure because that has consequences for a lot of other equipment and infrastructure but that's a major feature of their solution as we understand it.

My name is Peter [ph] Private Investor. I guess the clue to these units is how [indiscernible] transport [Technical Difficulty] leadership in technology or not.

Is the titan [ph] better that way or more pressure means more gas doesn’t it?

I think the pressure is standard at 200 bars, but there are other significant differences between the different technologies and so the largest difference between our systems and the competition is the diameters of the tanks. It means that there are few tanks in the container that has certain advantages, you can control and you can operate from behind the trailer relatively limited number of valves and measurement instruments while obviously if you have smaller tanks vertically you have to access them from the top of the container.

So that's the difference which we would say is advantages for our solution but we realized also this market is in its early days and we expect a lot of technology to be developed and we need to be committed to continuing developing our technology to remain at the forefront.

We have received several questions from the webcast audience today. I will start with a question from [indiscernible], what is the expected lifetime of our mobile pipeline trailer?

When do the first trailers have to be replaced?

So the expected lifetime depends on the usage but 15 years' life is a norm that one can refer to. It has to be inspected in the meantime so that means that it will still take some years before the first containers are replaced because of age but we would not be surprised if some customers would want to upgrade and replace old containers with new for that reason.

Next question is from Frederick Stanley [ph] in light the JV with Nel and PowerCell is it fair to assume that Hexagon will recognize revenues relating to Nel's recently announced contracts for providing multiple fuelling stations in California.

First well the JV has not informed. Secondly there will be three parties, 1/3rd each so when we come to accounting P&L it will be below the EBITDA line.

Next question is from Eric Mella [ph] Danske Bank, can you please give us an update on any development in the rail in North America. Can you comment on any progress on ongoing CNG trails?

Where are we in regards of technical and regulative hurdles and could we see any large railway companies making investments decisions in 2017 or 2018?

I will not endeavour to comment on the regulations than we would need to bring in the experts in that field but this is constantly on the agenda of the railway companies. The U.S.

railways have had a difficult market conditions following the oil price for also the transportational coal went down so that has impacted their revenue streams and reduced their investment appetite but with the oil prices coming up also in the U.S. increased focus on the environmental consequences we believe that several rail companies are looking at this option as an alternative to diesel.

Another question from Frederick Stanley [ph], how large LPG expansions are you looking into? What investments will this require?

That is for a coming meeting to discuss.

Question from the Vikas Sharda [ph], what would be Hexagon's market share in low pressure cylinders in 2016 and do you see increased competition in this segment?

So keep in mind that the main competition comes from steel cylinders and if we measure against the total population of cylinders installed on the LPG side we are talking maybe 1% to 2% of the global market share. So we're looking forward to increasing that market share.

And then the final question from the webcast audience. It's a question from Lou Morey [ph], are there any updates on the Mitsubishi partnership?

Good question. So that is ongoing, having regular daily contacts.

We have a Mitsubishi representative working within Hexagon and they are providing very valuable support in number of concrete projects. So that is living up to our expectations definitely.

Okay. Thank you for your attention and have a good rest of the day.