Hexagon Composites ASA

David Bandele - CFO Jon Engeset - CEO

Halvor Nygård - SEB Fredrik Steinslien - Pareto Securities

So welcome, everybody, joining us here in the studio, and also everybody joining us in the live stream. This is Hexagon Composites' Quarter Two 2017 Presentation.

And I am pleased to take you through the key highlights. And I'll also then touch the financial results, and Jon Erik will come and join me and take the lead on the outlook all the way through to Q&A.

So first, highlights from quarter two 2017. It would be right to start with the Low-Pressure segment, LPG and they continue to have a fantastic year 2017.

Further growth in quarter two of 23% year-over-year, and actually, consecutive record quarter sales. In addition to that, just a week ago, we were happy to report that we received a substantial order from Iraq for the value of around about $15 million.

That shows that Composites, especially in the Middle East, is really taking a march and taking share from steel in LPG cylinders. It's been three years since we last received the last large order to Iraq.

So this is a fantastic milestone there as well. In terms of Light-Duty Vehicles, in quarter 1, we reported that we'd resolved what we have some product acceptance delays, apologies.

And in quarter two, we were happy to say that these are resolved. It was good cooperation between our teams and the customer and very cooperative solutions.

And now, we are back to our normal production and sales. Did have some impact, but these were mitigated by some significant deliveries to Indonesia, both sizable for that division, but also that they were to the aftermarket conversions and applications as well.

Mobile Pipeline sales was soft in the quarter, but pleasing to note that as we end Q2, we have a sound order backlog in North America. And then, we look at our investment reported below the line, Agility Fuel Solutions.

They continue to grow, profitable growth at that, and one of the key events that occurred in the quarter was a small acquisition that has actually expanded their new Powertrains Systems business unit. And this is very much accelerating the propane opportunities and recorded sales in the quarter already.

Propane in Medium-duty is a fairly large segment in the U.S. It's growing, and it's very complementary then to the Heavy-duty CNG play that Agility is market leader in today.

Very strong hydrogen volume growth. The momentum continues, but I would say even more significant, we were recently -- as recent as yesterday, awarded a major development contract for hydrogen cylinders for new FCEV models, so fuel cell electric vehicle models.

This is highly significant for Hexagon Composites, a true milestone, and dare I say, also significant for the still rather fledgling fuel cell electric vehicle market as a whole. So we're very thankful to Rick Rashilla, who is heading the Hydrogen Department at Hexagon Composites and his team, working very well with the specific customers.

And we look forward to the very hard work that will be over the next few years in developing those solutions. On to the second quarter financials then; we -- over to the furthest right hand box is the quarter two 2017 reported figures.

Operating income of NOK372 million. And EBITDA, that's earnings before interest tax, depreciation, amortization, of NOK48 million.

And we recorded a net profit of NOK15 million for that quarter. The other figures there allow some comparability, given that we have had 2 major transactions since last year.

And I will walk you through some of the details of those shortly. But in delivering that NOK48 million in EBITDA, obviously the LPG performance is very much driving our profitability this year.

Strong hydrogen product sales. And I mentioned, product sales, so commercialized sales in hydrogen, very important factor.

And again, Light-Duty Vehicles had a positive contribution, but the level of contribution was impacted negatively by those product acceptance delays that are now resolved. Soft Mobile Pipeline sales, however, have been a drag.

So that's actually diluted the EBITDA for the quarter. Below the line, as I say, Agility contributes very profitably.

We'll go into details there, and the balance sheet continues to be very strong, cash and liquidity strong. Looking at the detailed group income statement.

The columns -- first columns on the left, look at the quarter specifically, quarter 2 2017 shaded and then quarter 2 2016 in light and you see the variance year-over-year there. The next columns is the half year results for 2017 and '16.

And we have a column to the far right that was our full year 2016 results. Just a quick mention again on the full year 2016, it included an exceptional gain as a result of the Agility transaction that's that NOK348.2 million posting towards the top.

Net of tax, the impact to net profit in 2016 was around about NOK226 million. However, concentrating back on quarter 2, 2017 in orange, as I said, we did an operating income of NOK372 million and that's against NOK315.6 million in the same quarter last year, a variance of NOK56.4 million.

We did EBITDA then of NOK47.8 million versus NOK37 million, a growth of almost NOK11 million. Depreciation on tangibles, minus NOK13.4 million gone down versus NOK16.3 million in the previous quarter year or the previous -- in quarter 2 2016.

And primarily as a result of the carve-out of assets into the Agility transaction. However, you see amortization and impairment of minus NOK5.3 million versus NOK0.9 million, so an expansion of NOK4.4 million there.

And that's principally driven by intangible depreciation related to the xperion acquisition that we also did quarter 4 2016. So we report operating profit, or EBIT, of NOK29.1 million versus NOK19.7 million.

Good growth there of NOK9.4 million year-over-year. Next line is our share of profit.

This is really from the Agility investments. Good positive share this quarter of NOK12.9 million gross.

However, it does attract also amortization of intangibles. We need to write down parts of the recognized assets -- intangible assets on that transaction.

And that will be a steady figure of NOK 3.5 million a quarter that lasts for quite a long time. Going to other financial items.

Here, we've had quite a large impact to the P&L for the quarter, that's NOK 20.5 million versus NOK1.3 million same quarter last year. And most of that NOK20 million or expansion year-over-year really has been in the mark-to-market movements, about NOK6 million there.

And those mark-to-market movements, obviously hedge against positives that we've gained in earlier periods in the P&L. But also, we have balance sheet translations, which is a large part of this disturbance in the quarter and that's been around about NOK13 million effect for the quarter.

Of course, these are very much related to timing and can reverse throughout the year. Then after tax, we report a profit of NOK15.1 million, which is interestingly identical to quarter 2 2016's result.

Again, dampened by those effects of currency movements in the quarter. So that leaves us with an EBITDA margin of 12.9% versus 11.7% previous quarter last year, and operating profit margin of 7.8% versus 6.2% and net profit of 4.1% versus 4.8% in the same period last year.

Moving over to the half year. So how are we attracting, I'll just take the bold numbers there, operating income NOK718.2 million for the half year versus NOK607.2 million.

So more or less the same growth Q1 and Q2. And a total variance then of NOK111 million higher for the half year.

EBITDA then at NOK82.9 million versus NOK55.6 million same period last year, growth of NOK27.3 million. And operating profit you can see has doubled year-over-year NOK45.8 million versus NOK22.9 million.

And that's very satisfactory tracking for the half year. Going down then to profit after-tax, NOK22.3 million as at the end of June versus NOK15.5 million same period last year.

So meaning that EBITDA margin for the first half year, we are still making double-digit EBITDA margin and that's definitely a target for full year '17. So the tracking is good, 11.5% margin.

Operating profit is 6.4%, and net profit of 3.1%. So let's walk our revenues year-over-year, because there are some disturbances from the transactions that we did in Q4 '16.

If we start to the very left-hand side, dark column there. We have NOK316 million that we reported headline figures same quarter 2016.

We then need to take the impact of the sales that were to CNG Heavy-Duty, Medium-Duty sector. This division was sold down into Agility Fuel Solutions.

And quarter 2, if you recall, was quite a very low quarter with the Heavy-Duty market had dried up for us, same impact in Agility. So NOK94 million actually is quite a low figure for us at that time.

Carving that out then, we have a rebased figure of NOK221 million in dark. And if you look to the next dark column to the right, you see quarter 2 2017 pre xperion 274 million.

So those two are comparable like-for-like year-over-year in our business. So what that does is that we can isolate our organic growth, so you see that both High-Pressure and Low-Pressure are contributing to that organic growth.

NOK22 million in High-Pressure very much pushed by the LDV, Light-Duty Vehicles, and Hydrogen. And Low-Pressure significant organic growth, of course, NOK36 million.

So that takes us to NOK274 million revenue pre-xperion. Then we add the xperion contribution, which is at its highest so far since we acquired, at 98 million.

And that's very much pushed by the Mobile Pipeline sales for the quarter definitely, in xperion. So that takes us to the far right of the 372 million reported figure.

So solid underlying growth in both High and Low-Pressure segments. In total, underlying growth of 24%.

So let's take the same walk, but looking at our EBITDA. We start on the far left-hand side, quarter 2, 2016 is NOK37 million that we reported.

We carve out the, what is now in Agility's numbers of 3 million, which takes us down to a rebased quarter 2 '16 figure of 34 million. The comparable Q2 '17 pre-xperion of 46 million is then influenced, you see, solely by Low-Pressure.

So here we still see that High-Pressure profitability is still an area that we are working on. From the 46 million, we get a contribution of a extra 2 million from xperion, which takes us to 48 million.

And we can see that the xperion contribution is much lower than you would expect from the revenue. And again, a lot of that effect is really the product acceptance delays in Light-Duty Vehicles.

So more to go there. Again more detail on the top line in the segment shares.

These numbers are before eliminations. We had that 317 million before eliminations in quarter 2 2016 versus 375 million this quarter.

The first thing to note on the pie to the left is that you see the 94 million that is no longer consolidated in our figures throughout this year. And this instead drops down and is accounted below the line.

So we don't have that contribution going forward in quarter 2 2017. We can see the next gray color there is the Light-Duty Vehicles.

So that's the organic piece of 10 million same quarter last year. And if you look at the gray piece now, the Light-Duty Vehicles recorded revenues of 52 million in quarter 2 '17.

So Light-Duty Vehicles is becoming a fairly significant part of the pie when it comes to Hexagon Composites' revenue, total group revenues. That growth is both organic and nonorganic.

Back to 2016, you see the darker-shaded 52 million that's the Mobile Pipeline. And then we recorded to the right hand side, the quarter 2 '17, 83 million.

So headline growth, but of course, there's actually some decline in organic and then a very good contribution from xperion to boost the 83 million. On the next lighter blue, you see a 4 million contribution from Hydrogen last year and 41 million this year.

So both organic and nonorganic growth, but regardless, highly pleasing. So very good momentum in Hydrogen.

And then, MasterWorks and other business units also making a small contribution this year, 7 million in total for the quarter. This is good growth over last year.

So that's a little picture of our shares. If we go into High-Pressure in a little bit more detail.

The Mobile Pipeline sales was soft for the quarter. However, one pleasing thing was that there was more balance than between North America and the rest of the world.

So if we recall quarter 1 2017, last quarter, we had more or less over 90% of our in Mobile Pipeline in North America. So this year, 50-50.

In terms of Hydrogen, dare I say, exponential growth. It's still in its early phase.

So we warn about profitability in the future. It's certainly a division that needs our business unit, I should say, that requires even more intense resources, because the opportunities are truly overwhelming.

So we note that we had positive EBITDA, which is great in this quarter. But we're pleased we don't try to guide that, that will be a recurring theme.

However, positive EBITDA was very much driven by these product sales in the transportation sector. And this is transportation of hydrogen gas for industrial use.

So very good commercialization of sales out of Germany. Light-duty, as we say, impacted by the customer acceptance delay, and resolved in the quarter.

And they mitigated that impact by the higher call-offs, Indonesia was one. There were also other customers.

And still, I have to say, profitable overall despite those impacts that we had. However, when we look at the numbers, it's the operating income in quarter two 2017, that's the orange block with -- there, is NOK 182.7 million.

Same quarter last year, NOK 160.9 million. So we have grown our top line NOK 21.8 million on a headline basis.

But we see EBITDA is more or less breakeven, and the same as last year. And our operating profit, we're making a loss of NOK 14.2 million versus the loss of NOK 11.4 million same period last year.

And when we rebase the numbers, the gray areas to the right, we see not a lot of change there. Now I have to say that the High-Pressure has had two main effects, the CNG business being pulled out of High-Pressure.

This was our highest volume business unit and a very profitable and solid business unit at that. So there has been some impact of taking that business unit out to the legacy High-Pressure area.

It also is carrying Hydrogen, which is in the early growth phase. So there is a lot of resources towards that and not the same margins currently.

So a lot on the shoulders of Light-Duty Vehicles, then, to really take the profitability forward in High-Pressure. Saying that, we really need to drive volumes and particularly in Mobile Pipeline sales, which is definitely a key focus area going forward.

Within High-Pressure, but below the line, those of us know Agility Fuel Solutions very well, those of us that know Hexagon Composites well. For those who are new to Hexagon Composites, let me recap.

We have this CNG Automotive Cylinders & Systems business on the top right, The number one cylinder manufacturing in this -- in the market. And our biggest customer was Agility Fuel Systems, the number one fuel systems player especially in North America.

In quarter four 2016, we completed a transaction to merge these two, so vertically integrate these two business units to form what you see in the bottom Agility Fuel Solutions. We took our respective 100% holdings.

And now we each own 50% of this vehicle Agility Fuel Solutions. What that means is that, the numbers are deconsolidated.

They come out of operating profit, but we want to make sure that out-of-sight doesn't mean out-of-mind. And just to remind the value of Agility Fuel Solutions, we can take a look at our balance sheet, group balance sheet, which currently stands at around about NOK 2.5 billion.

Agility Fuel Solutions then accounts for just over 40% of the balance sheet value. Admittedly, it has intangible valuations there as well.

But still, on a percentage terms, a very significant part of our balance sheet. Then you can take a look at the Legacy Hexagon in the darker blue there.

So this is what you know as Mobile Pipeline, the Light-Duty, the Hydrogen and LPG, before xperion, that's another 45%. And you can see the xperion acquisition plus intangible value around about 10% to 15%.

So although, not reported in operating profit as significant value driver for Hexagon Composites. Taking a look at Agility Fuel Solutions quarter 2 '17 results then.

On the top right-hand side chart, we have the bars which signify the total revenues for the quarter. These are in millions of dollars.

And the black line with the dots you see is marking out the adjusted EBITDA. So that's the more cash-based EBITDA figure.

Quarter 2 '16 and quarter 3 '16, the first 2 bars are obviously pro forma, as we did the transaction in the next quarter. But here we can see that trend from the low of quarter 2 2016 I referred to earlier, and a good positive uptick both in revenues and margin.

So quarter 2 '17 was a fairly satisfactory margin 14% and $5.7 million of adjusted EBITDA based off of $44 million in revenues. So the uptick in revenue is good, but also Agility have done a very good job in terms of cost efficiencies with some positive mix that's really also driving the margin there.

If we look at the next chart below, we walk then from this adjusted EBITDA figure of $5.7 million to profit before tax, which will be where we, Hexagon, begin to pick up the numbers. So we take the $5.7 million, and we see the largest impact to adjust back to reported EBITDA is share-based compensation.

And I'll touch on this in the next slide. But that's a big factor, that's minus $1.2 million going through the P&L, noncash.

And then transactions and all other operating expenses there are minor and takes us down to $4.7 million reported EBITDA. Depreciation of $2.2 million and interest expense of $0.4 million, very modest, takes us down then to a profit before tax of $2.1 million.

What you don't see in the graphs is the good cash and working capital position, balance sheet is very solid. From our perspective as an investor, it's fully funded, that's always good and actually has a net cash position despite the acquisitions it's done in the quarter.

So managing its cash and balance sheet very well. In terms of Agility revenues, so the $44 million you see for the quarter, part of the positive impact there is some recovery there in the Heavy-Duty truck.

That's what we'd like to see, that's very much the barometer of performance. And then the transit bus is still overall a solid division for Agility this half year.

Refuse truck sales, I would say, is relatively soft. So there is more to go there.

And driving also the revenue number of 44 million is the new fledgling Powertrain Systems business, as I said, which is more immediately a propane play that recorded good revenues already in Q2. So how does this impact the Hexagon Group reporting?

We take the top right-hand side, we take the $2.1 million of profit before tax. We put it through the exchange rate mechanism and turn it into NOK and take 50%, which is our share, and that results in NOK8.9 million.

There are certain accounting driven adjustments, there is U.S. GAAP to IFRS, the major play there.

That's been positive for us. So that takes us to a contribution growth of NOK12.9 million.

And then, also on that top right-hand graph you can see then the intangible amortization of NOK3.5 million, brings us down to a net contribution of Agility of NOK9.4 million. Going to the graph on the bottom, we just like to point out that the underlying contribution is higher.

So we start with that profit or loss of NOK9.4 million, take the intangible amortization and noncash impact back and that's NOK12.9 million. And then, we need to discuss a little bit about the share-based compensation.

The current level of share-based compensation going through the P&L and Agility is from an accounting perspective, deviate significantly from the actual cash value. And when I say cash value, I say the evaluation of the deal, so the transaction value when we entered.

These are legacy valuations that drive these costs. And it's really driven by the fact that if you remember the good old days of 2013 and '14, it was 50% year-over-year growth.

The diesel to CNG spread was at $2. So the valuations were fairly high.

We cannot change this. So this will run on through in terms of Agility numbers.

However, we need to isolate the fact that if this was to be transferred into a cash value today, there is a penalty that's happening at the moment that's being processed through the P&L. When we calculate that penalty and we adjust it for IFRS, sorry to be technical, the costs that we estimate is around about $3.4 million for Agility over the period 2017 through to the beginning of 2020.

50% of this then flows to Hexagon. The good news though is that 80% of that number is going to be flowing through 2017.

So meaning, after '17, it will have a much more dampened effect for Hexagon Composites. Going on to quarter 2 Low-Pressure.

Much more simpler numbers here. 23% revenue growth, as I mentioned, year-over-year.

And this consecutive record sales quarter also generated then a record EBITDA quarter in quarter 2. But just to be precise, this EBITDA is volume-driven.

So we feed our Ragasco facility with more orders, we will see the profits. It's very much volume-driven.

Deliveries in Q2 tend to be primarily through traditional European markets. There has been no break in tradition this quarter as well, very solid quarter.

And even more pleasing to note that despite the record performance, we also end the quarter with extremely strong order book. So fantastic job continuing to be done in Low-Pressure run by Skjalg.

So let's look at the financial position. Statements of financial position versus previous quarter.

In orange, you will see the balance sheet as of the end of the quarter 2. And the next column along is the balance sheet as of the previous quarter.

And the first thing I can note is there's really no significant changes for the quarter. There's been some currency effects both on the assets and the liabilities, but the other notable aspect is that working capital has been less volatile for the quarter.

If we move on to our balance pictorially, you can see on the far right-hand side, our net interest-bearing debt is 303 million. And that's a reduction from the 320 million we recorded end of Q1, and we hold a equity ratio of 55%.

Last, but not least, looking at our cash movements for the quarter. We ended quarter 1 with 135 million, and we ended quarter 2, far right in the orange block, with 157 million.

And the movements in between, we had a good positive cash contribution from our underlying operations. And there you see the next block's the operating working capital, a little bit negative, but other movements including accruals will balance that out.

So again, very less volatile, much more stable working capital in the quarter. CapEx and investments minus 6 million.

This is a netted figure. So just to point out that there has been a good spend in Ragasco, as we've reported, so over 20 million in spend in Ragasco cash for the quarter.

However, we have increasingly been more and more creative for the customer finding financial solutions on the Mobile Pipeline side of things. So we've had some programs of lease-to-own over the last few months.

And in this quarter, we finally sold some formerly leased assets to the customer and that needs to be recorded as a asset sale as opposed to a normal sale. So we've got those funds in and that's kind of dampened the CapEx and investment figure of minus 6 million you see there.

Net movements in financing are primarily leasing repayments and some interest costs, we have very low interest rates in the group, we're proud to say. And so quite a small effect from actual interest costs on the loan against xperion.

And with that, I would like to conclude and ask Jon Erik to join me.

Thank you, David. Good morning.

So I have to say that we are rather pleased with Q2, and especially the trends that are evident from what David has presented. There is obviously room for continued improvement in many areas.

But I would like to take the opportunity to express our appreciation for the support we felt -- we've had from our shareholders, throughout the last couple of years especially, following the downturn in the beginning of 2015. We have felt a strong support and confidence from our shareholders, allowing us to focus on developing our company in the way we feel it should be developed.

So thank you very much for that. Looking ahead, Mobile Pipelines.

We have a good order backlog in the Oil & Gas North America segment. We have shown this picture a few times.

The rig count is now above what it was two years ago. So that is certainly a major driver.

We also see the handling of gas being done in a more and more sophisticated way. So we have reason to believe that there will also be a growing and strong demand going forward in the U.S.

shale or in the North American shale in the Oil & Gas segment. In other subsegments, we have been a bit disappointed over the last few months, because a number of projects that we had great confidence in have been postponed.

So Q3 will be very soft in the rest of the world. However, none of these projects have gone away.

So we still have a significant project funnel out there, which we continue working on. But that is one of the areas that we're putting particular attention to.

Also, there has been new competition attracted to this industry. And so we see a downward price pressure, which is good and bad.

Good, because it is decreasing the threshold for the customers, and also increasing the relative competitiveness vis-à-vis the type one steel solutions. But of course, challenging us in terms of lower margins than we enjoyed going back a couple of years.

We're responding to this by focusing on the life cycle costs, and we will continue our development of the products themselves, reducing the cost of the products, but we will also add additional features to our offering. And also, as we have discussed a few times, financial solutions becoming very important.

We will continue our sophistication of that part of our offering. The after-market is going to be important as the customers also learn the industry they're in.

Because it's a new industry, we think there will be more and more focus on the auxiliary value of the modules. And we will also continue to support them with a high level of service so -- to sure -- ensure competitiveness going forward.

Turning to the Light-Duty Vehicle segment. Stating the obvious, the automotive industry is changing, driven by autonomous cars, electrification, environmental demands.

We are very pleased to note that into this equation also, the potential of biogas resources is becoming a more important factor. It is something we have discussed in this room several times.

And we see now that some of the majors in the industry, notably Volkswagen, has brought that into their core strategy. So it's a very interesting picture.

If you look at the OEM strategies, Volvo recently communicated that they will go all electric hybrids. The Japanese OEMs have been leading in the development of fuel cell electric vehicles, but also with other players there.

And Volkswagen among other things pursuing now a CNG strategy. So it's not necessarily so that one is right and the others are wrong.

There may be markets for all of these solutions. But it's certainly a very exciting market to be part of.

We continue to believe that truly environmental demands favor CNG vehicles. And 2020 is a very important year, because then new EU legislation will come into force, setting threshold of 95 grams per CO2 -- CO2 per kilometer.

And there are stiff penalties for manufacturers not meeting this demand. And it involves billions of euros potentially.

Biogas and e-gas, if you remember my last presentation, we also had a slide on e-gas, it increases the competitiveness of CNG significantly. Biomethane is 100% renewable and carbon negative.

However, we have a job to do together with the rest of the industry and Volkswagen and others to influence the regulators. Because today, the regulations measure the tail pipe emissions and not the well to wheel.

And that favors electric, and this favors CNG. Additionally, legislation does not yet reduce the positive impacts of biogas, biomethane.

So there we have regulation challenge to solve. And we have a few years until 2020.

And this is very high on our current agenda. So we see healthy Q3 and Q4.

As David mentioned, the product acceptance delays were resolved. And we also have a new model being introduced now in Q3 and ramping up expected in Q4.

Longer-term, we are quite bullish about the opportunities in this particular segment. Going to Hydrogen, as mentioned, by David, we were recently awarded a major development contract, which is good.

First of all, it's big business relative to our size. But there is also confirmation that some of the industry players are investing significantly into this type of technology and increasing the probability of significant potential for us down the road.

This also allows us to leverage our investment in xperion and the existing production footprint elsewhere. So we announced last year that we had initiated a feasibility study with Mitsui and Toray regarding possible investment in production capacity in Japan.

Following our acquisition of xperion, the study has concluded that we should apply a 2-phase production strategy. In Phase 1, we will utilize our existing footprint.

Couple of things have become clear, California appears now as the number 1 shorter-term market for fuel cell electric vehicles. Japan very much being a second major market opportunity.

But we also see Germany investing in infrastructure, and we see growing interest here in Scandinavia among other markets. So it's a more global opportunity then we also -- let's say, short-medium term then we may have thought when we commission the feasibility study.

Then -- we will then again evaluate at a later stage if additional capacity is required in Japan in order to serve the growth opportunities that we see in the horizon. Also, we recently announced 2 orders in the Heavy-Duty sector, to ASKO here in Norway and Toyota in Los Angeles.

Very pleased with those. First steps into the Heavy-Duty truck segment.

We think there is very interesting quotation from Mr. Ødegård at SINTEF, how he sees the selection between fuel cell electric and battery electric in the Heavy-Duty segment.

We think if his judgment is right, this also has impact on other segments like marine, rail, etcetera, where we believe fuel cell technology has a major potential for us. We're making an exception and giving a bit more detailed forecast for the remainder of the year in the Hydrogen business.

So this picture really shows a turning point from Hydrogen being a development area for us to becoming a true business. And we have now reached 7% of the corporate turnover and growing.

We don't necessarily think that it will be even growth, but we think and are confident that overtime we will experience exponential growth also going forward. So very satisfied with that.

David mentioned that we are even EBITDA positive at the moment. We have several times said that we expect this to be dilutive.

The problem is that while we see that we really needed to step up for all the opportunities lying ahead of us, we have been so busy serving the ongoing business that we haven't really had time to fully do that development process, but that is very high on our strategic agenda. So we will deploy significantly more resource into the Hydrogen business in the coming months, and years, then we have until today.

So our confidence in this opportunity is growing. And it's getting rather strong.

When we first presented this illustration, we felt that we were very visionary, because we included rail, we included marine. But those opportunities are already materializing.

And we have noted that also now the first test flights of an airplane based on fuel cell technology has have taken place in Germany. So we have now also added aircraft with a question mark to this illustration.

So this is exciting technology development, and who knows where it will end. Turning to Agility.

We are experiencing a relatively flat Heavy-duty market. However, we -- or rather our excellent management at Agility, they have done an excellent job in improving the operations.

And we are therefore satisfied, very satisfied with the developments so far. And we expect a similar trend for the rest of the year.

While the market as such is rather stagnant, we see that UPS is setting the standard. And they are constantly increasing their targets on sustainability in their fleets.

We have noted that a first biogas double-decker has been deployed in the UK. So the UK is also then arising as a very interesting market opportunity for us.

And that is part of Agility's strategy to internationalize the business and seek more and more global [indiscernible]. And also, the Powertrain Systems business addressing propane, medium Heavy-duty vehicles is expected to develop soundly.

And recently, we partnered with a U.S. bus manufacturing factory targeting the school bus market, which is substantial in North America.

One of the members of the executive team of Agility is a gentleman named Todd Sloan. He has recorded a video, and rather than me delivering the message, I suggest we listen to him.

[Audio/Video Presentation]

So we really feel that Agility is managed in the most efficient way, doing all the right things at this stage, securing the sound profitable business, even with a modest market growth. And when the market starts growing again, I think we will be very strongly positioned with that investment.

Turning to LPG; so as already mentioned, we have a solid backlog for second half. We expect high capacity utilization, but please note that we have a more complex product mix to produce in the second half, meaning that we will not have as high a efficiency as we have enjoyed in Q1 and Q2.

Also, we are scheduling a maintenance break in Q4. We have run the whole year without maintenance breaks.

So there is a somewhat reduced capacity in Q4. So it means that we will have a strong performance in Q3 and Q4, as we expected, but not at the level that you saw now in Q2.

Sales to especially the South European core markets where LPG is used for cooking and heating is expected to be strong. And we have especially good traction now in the Middle East.

In addition to the large order received for Iraq, we have also entered 2 new markets. It's a little premature to name them.

But we note 2 additional geographical markets in the order book of Ragasco. We are investing -- continuing our investment program in Ragasco.

We have concluded in 2016 a NOK45 million program, and we have initiated second phase NOK75 million program. So you see on these photos that there are -- there is physical digging for gold going on.

So the primary objective is to improve the product and also debottleneck some of the constraints that I mentioned that mean we'll need to reduce productivity for some of the specialties that we're producing. But as a by-effect almost, we also get increased output from these investments, although, that is not the main reason for doing so.

But that additional capacity, we think, will be very valuable for us. So expected to be highly profitable investments.

And the continuation of the, call it, stone-by-stone strategy and market orientation that we pursue with our LPG business. So summing up.

Some challenges to be overcome short term in the Mobile Pipeline segment, but the sound order backlog for the North American Oil & Gas markets. Healthy market growth expected for Light-Duty for the rest of 2017 and very attractive prospects going forward.

Highly satisfactory Hydrogen development. Very sound Agility performance despite rather stagnant U.S.

market. And the LPG business continues to prosper.

So on those closing remarks, I invite David back to the stage. And we welcome some questions, please.

[indiscernible] Nordea. With regard to the Mobile Pipeline, it seems somewhat disappointing on your guidance in the second half compared to what you said in the first quarter.

The delays, can you explain the reasons behind them, and also the competition that's popping up, is price the only advantage that we have or are there other things with regard to the pipeline that makes some put for your competition?

So regarding the delays, there is really a set of reasons. So each project living its own life.

In one case, it's delay of construction permission, which the customer or the end customer thought it had received, but then there were some delays. Frequently, it's a question of financing.

So if you talk about the rest of the world, some of the markets that we are serving are demanding in terms of export credit guarantees, etcetera. So there also we have experienced some cases of delays.

So various reasons, nothing new. What is more disappointing in a way is that we had more such examples this quarter than we had expected.

But the other important point is that the projects are still alive, and we continue pursuing them. So hopefully we will get that the business in later quarters instead.

Regarding competition, I think primarily, we see some players entering the markets with very competitive pricing. So as you know we developed this market.

And then, I think, it's to be expected that you will have some players trying to use the price mechanism to entire. That is not to say that these competitors don't also, at least some of them, may have good solutions, good configurations, so that will keep us on our toes.

We think -- honestly, we think that for the industry development, it is healthy that there are more suppliers. And we look forward to competing.

And we just hope that we will soon get through the phase where it is primarily price competition. And it is more a question of delivering good value-creating solutions to the market.

Halvor Nygård from SEB. The Hydrogen award that you announced yesterday, development award running until 2020, when will a possible decision be taken to possibly start your production on that country?

We have to be a bit careful in commenting on this. Our experiences in such programs, it may take time.

But certainly, in that period from now until the development phase is completed that decision is to be taken. But it will be major decisions.

And therefore, we expect that the customer will do that process very diligently and would require time.

And the high-pressure EBITDA margin was 0, so breakeven in Q2, maybe a bit disappointing. And with the current visibility you have within that segment, what kind of margins should we expect going forward?

I would say, if you look at the individual components, Mobile Pipeline will be continue to be as we say lumpy. So some quarters might be better than others, as you know.

But again, Hydrogen as you heard, Jon Erik, is more likely that is going to be more dilutive right, short term, especially as we need to increase our resources on cost base there. Not to say that the opportunities and income will come potentially at the same rate.

But regardless, it will not be at overall commercial margin, perhaps contribution. And then, Light-Duty Vehicles is really the one to watch.

It's much growing sort of proportion of our sales. Light-Duty Vehicles is really the one to watch.

It's a growing sort of proportion of our sales. If we can see that growth increase substantially, I think that would be one of the things to really drive up the margin.

But Mobile Pipeline will continue to be something that affects that High-Pressure margin more significantly.

All right. And within LPG with the stellar growth we have now seen and also the high profitability with the -- is at very strong EBITDA margins, is the competitive landscape changing, are you seeing new entrants coming into that market?

Or is it the same as before?

I think broadly speaking, there are no major changes there. We have two Indian competitors that we meet in certain markets.

We have some competition here in Europe. But we believe that we pursue a good strategy, and that there is more growth to collect for us going forward.

All right. And lastly, you mentioned the last quarter that you have made some new attempts to enter the U.S.

market within the LPG segment. Are there any news on that front?

We've had some very positive examples. So we are following the step-by-step, stone-by-stone approach there as well.

No major breakthrough, but we are not giving up on that market for sure. And when the breakthrough comes, of course the U.S.

will be a very significant opportunity for us.

Fredrik Steinslien from Pareto Securities. Very good sequential growth for LPG this quarter.

Can you split up that growth in terms of volumes and pricing compared to Q1?

I would just mention that volume is a big factor, as mentioned.

And looking into the second half, you talked about some more complex solutions to deliver there. Will you be able to compensate some of the pricing with regards to different mix of products?

We are very consistent on our pricing policy, so we are absorbing those inefficiencies on our side. But part of the investment program that we described is targeting those inefficiencies.

So adding additional tooling, debottlenecking, some of the constraints that we have in this specialty product production. So over time we will improve it.

But unfortunately, not for Q3 and Q4.

Okay. And in terms of Light-Duty Vehicles, a very good sequential growth also there compared to Q1.

Is that somewhat of a catch-up effect? Or do you see -- is that kind of a trend in terms of the underlying market growth, and you see that growth continuing into the second half?

I can take that.

Yes.

So the organic part of that growth was significant, particularly for those deliveries to Indonesia. So we have to register that.

However, on the other side, this was definitely not the run rate that you would typically expect in our other customers. So if you look at other quarters, the run rate should be -- more or less balance the same or higher.

Are there any more questions in the room? Looks like not.

There are no questions from the web audience at this time.

Okay. So then, thank you very much for being with us this morning, and have a good rest of the day.

Thank you.

Thank you.