Welcome back, everybody. My pleasure to present the Q3 2018 Hexagon Composites Market Report. As usual, we will start with the group highlights. Then I will take a short business update, touch on the summary group financials, and Jon Erik will join for the outlook and question and answer session. Just another reminder, we have a more detailed segment financials in the appendix to this presentation. We won't go through it today. It's available on the downloaded copy from our website. Q3, unfortunately, temporary weakness in sales, driven by two main factors. Firstly, Mobile Pipeline volumes were weak in the quarter. Good news is we used the capacity wisely, the manufacturing capacity. We have a very strong backlog for Q4. We've actually been building inventory for it as necessary to service Q4. The largest impact, though, was light-duty vehicles.
This was heavily impacted by the worldwide light-duty vehicle testing program, WLTP. This is as guided last quarter. I can say that our key European customer, virtually no sales. This really hurt the Q3 numbers. Good news is that this is sales that don't go away, and they've already started again. They're just postponed to future quarters. Agility Fuel Solutions, our 50% investment in the heavy-duty, medium-duty space, very strong profitability for the quarter. It's great to see that the heavy-duty truck has began an upwards cycle. Just recently, we announced our Digital Wave acquisition. Jon Erik will cover that well in his section. This is an acquisition that gives us control of a unique testing technology for pressure vessels, and more to come on that. Business update.
Very pleased, in October, to announce our third OEM, so automotive manufacturer, FCEV, so fuel cell electric vehicle, serial production contract. That's key. It's actually our second-largest contract to date. For a combined value of development and serial production in the range of NOK 420 million-NOK 590 million. If you recall, in June, we announced our second OEM contract. The combination of the second and third contract are in the range then of NOK 1.4 billion-NOK 1.8 billion in revenue. As guided previously, we would need a CapEx investment program to service both of those contracts. There's no additional CapEx to what was guided previously. That is in the area of NOK 300 million. That will run through to 2020. We're obviously also able to customize the timing of that CapEx according to the customer's desires.
One key thing is that, particularly the long lead items, this CapEx is partly backstopped by the customer. Very good news going forward. Jon Erik will touch on the hydrogen outlook in his section. For financials, revenues then were NOK 276.7 million to the left-hand side. That's a reduction of 22% year-over-year from the NOK 352.8 million recorded then. One of the biggest impacts, as we've touched, is this pause in light-duty vehicle volumes, mainly due to that global emissions testing program. We note that in 2017, we had extraordinary sales income to Agility of around about NOK 21.5 million, and that hasn't repeated in this quarter this year. If we go over to EBITDA in the middle, we recorded NOK 39.2 million for a margin of 14%. That's a drop of NOK 12 million from previous year.
Agility income has also followed through into EBITDA last year, that hasn't repeated this year. However, when we look at this quarter, there were two major impacts impacting the NOK 39.2. On the positive side, we have a net impact of two factors. The first one is obligations of earn-out payment that are connected to our acquisition of xperion in 2016. Those obligations are connected to performance, a lot of that performance is connected to the light-duty vehicles. Where the light-duty vehicles performance has dropped, as we've seen with the WLTP program, this also means that our obligation to pay the earn-out has reduced. The impact of the reversal of the obligation is +NOK 50 million, but the delayed revenue impact is -NOK 28 million. A net positive impact of NOK 22 does impact favorably the NOK 39.2 recorded EBITDA in the quarter.
The other thing to bear in mind is that we are still bearing the dilutive impacts of hydrogen, which is our growing business. Those dilutive impacts were -NOK 15 million in the quarter. Going over to the right-hand side and net profit, we turn a NOK 12 million reduction year-over-year in EBITDA to a +NOK 16 million in net profit, that spread of +NOK 28. Biggest factors there is Agility's pickup has contributed favorably year-over-year, +NOK 14 million with a strong uptick in profitability in Agility. We also have favorable currency effects of NOK 5 million and tax charges of +NOK 12 million. Net profit recorded of NOK 32.6 million for Quarter 3 2018. Let's start on the left-hand side with those reported numbers, NOK 276.7 in revenue and NOK 39.2 in EBITDA. I think it's important also to isolate hydrogen. Hydrogen is in a special phase.
You've seen the size of those contracts in the future. The returns are very promising in the future. We will have to invest now. That will remain dilutive for a while as we have guided. Let's have a look to the right of what the normalized performance of the rest of the Hexagon businesses is. The hydrogen in the middle, you can see, contributes NOK 28.9 to revenue, as I said, it's just around about -NOK 15 million negative to EBITDA. To the right-hand side, if we normalize that revenue or correct for the hydrogen revenue, it's NOK 247.8 in revenue. Let's back out those impacts from the earn-out obligation and the delayed revenues, we get an EBITDA then of NOK 32.2 million normalized for a 13% or double-digit EBITDA margin. Rest of Hexagon business, healthy. Of course, we are carrying the dilutive impacts of hydrogen.
On the detailed income statement, I will just refer to the margins at the bottom. To the right-hand side shows the full year 2017. We closed on a 12.2% EBITDA margin and a net profit margin of 4.8%. This quarter three, we're above that on the EBITDA margin, as you see, also our profit margin, 11.8%, is, as you saw, quite impressive. Looking at the segment revenues, on the left-hand side is quarter three 2017. I've stripped out the extraordinary income from Agility of NOK 21.5. When we look at year-over-year from left to the right, you can see that there is some fall on LPG revenues year-over-year. Small impact there. On the hydrogen and light-duty vehicle side, there you see primarily the effect of the WLTP testing. Much lower revenues.
In fact, within those revenues in light-duty vehicles, there's actually some legacy business revenues that are not light duty. It's actually a bus systems business that was not transferred to Agility. That dampens the effect you see on the top line. Mobile Pipeline, though, pretty much flat year-over-year. Agility Fuel Solutions, that is our 50% investment into the heavy-duty, medium-duty sector, unique vertically integrated cylinder and fuel systems company. I'm presenting here their actual results on the ground in US dollar millions. You can see from the 5 quarters picture to the right, revenues and margin have been depressed since Q4 2017. Good pickup in Q1, continued pickup in Q2, and then really now the momentum on the upward cycle of the heavy-duty truck, so that's over-the-road truck, really coming back and coming back very strongly.
We recorded $48 million in revenues. That's the highest quarterly revenue we've had since we had made the acquisition in Q4 2016 for an adjusted EBITDA of $6.3 million or 13% margin. Actually those heavy-duty truck revenues in Q3 are greater than the combined revenues in Q1 and Q2. Also, high transit bus volumes in the quarter, very strong year-over-year growth there. The refuse truck sales or garbage truck sales continue their upward trend 2018 versus 2017. Agility remain fiscally very responsible, profitable business, good liquidity, and fully funded. When we look at our balance sheet increases since the previous quarter, if we look to the left, you can see the story on the asset side. Very much a large growth in inventories.
As I said, we've built forward for Mobile Pipeline given the strong backlog that we have and also for the WLTP program. We knew that was coming, but we also know the ramp-up is coming, and we have also ramped up or built forward in Kassel ready for those sales to come in future quarters. On the right-hand side, given that we anticipated the effects of Q3, we also dampened those by drawing more on our revolving credit facility, so hence the increase in interest-bearing debt to mitigate the impacts of working capital. We closed the quarter with a 61% equity ratio, so very solid balance sheet, and net interest-bearing debt at NOK 326 million. On that note, I ask you, Jon Erik, to take us through the outlook.
Thank you, David. Good morning, all. The backdrop of our business remains one of strong reasons for the world to shift from traditional fuels to natural gas, hydrogen, and biogas. You will have noted the last U.N. report urging for action and also the remaining relatively high oil prices, both drivers very important and very strong for our business at this point in time. On the hydrogen side, as we've talked about in this room for several quarters, we made the strategic decision in 2017 to really invest in this area. Not without risk, of course. At this stage, I think we can conclude that the strategy was absolutely right.
With the third OEM on the light-duty side secured, we have confirmed or reconfirmed the basis for our hydrogen strategy. We are fully motivated to continue that effort in terms of CapEx, but also the necessary organizational ramp-up and competence development. We see that there will be another couple of years where this business will be diluted until these programs come into serial production, expected from 2020 or late 2020, then full pace from 2021, when we will get payback on the investments that we are making in this phase. What is very satisfactory for us is also to see how much is going on the heavy-duty side of the business. This really came into focus in the first half of this year.
We have a partnership with New Flyer in North America. We have delivered 20 buses, and we expect much more coming in North America on the bus side. We also noted that Hyundai is going to deliver more than 1,000 trucks into Switzerland, which is another strong confirmation that the heavy-duty segment, there is a very strong rationale for thinking in terms of hydrogen when electrifying the heavy-duty sector. We've had a breakthrough in the quarter with our ground storage applications. We've received USDOT, Department of Transportation, special permit for our ultra-high pressure 950 bars. We've had similar first orders and deliveries to the Netherlands and order to Canada for this system. This is related to filling stations and other storage requirements for hydrogen, for example, at the production site. Moving on to the CNG light-duty vehicles.
That is the segment that has caused us some heartburn in the quarter, shown by this dramatic fall after very steep growth in the first half. This WLTP program created difficulties for the OEMs. They were not able to deliver or sell CNG cars in the quarter. We see now in Q4 that we have resumed sales. We will not maybe come quite up to Q2, but not far off. The underlying market development is one of strength. Going into 2019, we expect this very strongly growing trend that we saw in the beginning of the year to continue with full force. We see that from this graph down to the right here, that not only in Germany, but also in the largest CNG light-duty market in Europe, Italy, we've had significant growth in the year so far.
We see also other markets coming from a very low point, but starting to grow strongly. This is related to the biogas rationale. If you look at this graph to the right, it is the emissions of different fuels. Depending on the mix of biogas and natural gas, you have a very attractive proposition environmentally. Also, CNG is a cheaper fuel, and there are subsidies in many countries. The graph to the left there shows the lifetime cost over seven years for a CNG vehicle in Germany. These are the underlying drivers, I think a lot of governments have gone the circle looking at electric vehicles, then concluded that CNG is part of the solution. Moving on to mobile pipelines. As David already mentioned, Q4 looks very strong.
Some of the contracts that we secured in the quarter, we were not able to start deliveries in Q3, so those will be then delivered in Q4 and Q1. Very favorable fundamental drivers for 2019. A good natural gas-diesel spread and also the underlying environmental reasons to go nat gas. One of those is also in the U.S., biogas, renewable natural gas, as they term it in North America. They have a system of tradable green credits, which make investments into biogas facilities financially very attractive. You see also a number of large players investing in this field. These sites are by almost nature, often in stranded locations, so that Mobile Pipeline technology for many such sites is key in order to transport the gas. Digital Wave, my good colleague, Jack Schimenti, calls it the holy grail of composite technology. We've talked about it before.
We have had the development program with Digital Wave over three years to develop technology, as you see here on the photo, avoiding hydrostatic testing. We apply sensors onto the tanks and listens to the integrity of the structures. It's a much more efficient and much higher precision method of analyzing a tank. The Department of Transportation has actually passed regulation now that if a TITAN rolls over, it has to be tested with acoustic emission technology in order to confirm the robustness of the tanks and then recertify for further use. We see very important application of this, not only for the Mobile Pipeline solutions, but also for other pressure cylinders. Not only for gases, but any type of pressure cylinder, and also in other types of material.
The primary purpose is to secure this key technology as a service to our customers on the Mobile Pipeline side. We also see a number of strategic opportunities to apply the technology in other areas, and that is something we will develop through 2019. LPG. This line here, it's not Donald Trump's wall. It is what you would get if you put all the cylinders sold by Hexagon Purus over the years next to each other, 15 million, a milestone passed in 2018. The year looks to be a record year volume-wise, approaching 1.8 million cylinders. The product mix is somewhat less favorable than we had last year. The volume is very satisfactory. Q4 is looking strong. Always some uncertainty with respect to letters of credits.
Our prediction at this stage is that we will have, as I said, a record volume year and very satisfactory performance overall. Agility. Again, the difference, the delta between natural gas and diesel gallon equivalence, is at a high, very attractive level, more than a dollar and a half for the large consumers. Strong reasons for the fleet owners to consider conversion of their fleets to natural gas. We predicted this, as we discussed at the beginning of the year, there is always a time lag. These decisions are not taken overnight, but now we see this translating into higher demand and into higher deliveries. Q3 was good. Q4 looks very good. We expect this strong trend to continue into 2019. Small concern at this stage, the overall U.S. trucking industry is at a very high level, and there is shortage of chassis.
That could push orders into 2019 for us. Those would not then be lost sales, but could impact the fourth quarter negatively. Still, we expect a very good Q4 for Agility. The transit bus market in North America is strong. The European transit bus market is all-time high. It's the same thing as I commented on the light-duty side. A lot of decision-makers in cities and communities have taken a close look at the electric vehicle alternative. They have come around and they've seen that the natural gas and especially the biogas option is, in most cases, a better option and a cheaper option, more economical option. That's a big reason why this market is now coming back after a couple of weak years. The refuse truck market continues to be strong. Summing up, strong underlying market development, strong macro conditions.
We expect a good Q4, especially driven by a pickup in the CNG LDV segment, Agility, and a strong Mobile Pipeline quarter. We are planning for continued dilutive effects from the hydrogen through this ramp-up phase, which will continue through 2019 and 2020. With those closing remarks, David, please join me, and we welcome questions.
Hans-Erik Jacobsen, Nordea. Are you seeing the interest from the OEMs turning from battery electric vehicles to fuel electric vehicles? Are you seeing a different push from the different OEMs in Asia versus the U.S. and Europe?
At this stage, I think there are two hotspots. It's East Asia, so Japan, Korea, and it's California. We see Germany now developing the infrastructure, but obviously the infrastructure needs to be put in place before you can expect major volumes. I would say it is those two areas that are most active. We note that most of the larger OEMs are taking a close look at the fuel cell technology. I think most of them expect that as a real mainstream alternative, we are talking 2030 and beyond. We are not talking a large percentage, but as we have explained before, if we can assume 1% adoption by 2030, that means massive business opportunities for a company like Hexcel.
Thank you.
Halvor Nygaard from SEB. On the funding side, you acquired Digital Wave for $7.5 million. With a quite ambitious growth program from the hydrogen division, acquiring some CapEx investments, also some other potential deals, and strategic actions out there. How do you assess your balance sheet going forward, and how do you look at the different funding availabilities for you now?
Matteo?
Well, maybe you can fill me in. As David explained, we have more than 60% equity. We feel that our balance sheet is very strong, that we can do a lot of both non-organic and organic steps with the current balance sheet. I think in the phase we're in, we have a number of options should we wish to expand that capacity.
Just to supplement. Back to, you remember when we were looking at the Japanese joint venture? That is obviously a structure that is open to us on different opportunities going forward, for example. Yeah, strong balance sheet. We do have accretive businesses as you know, aside from hydrogen. They continue to return good cash flow going forward.
All right.
On Agility, we saw quite a strong rebound alongside the increasing fuel spread, 13% EBITDA margin for this quarter. Just curious to know what is the potential and the earnings potential for this business as you see it, how high or what's driving the operational leverage and how high can the margin go?
I think, if I lead off on that one. You probably recall 2014. We are still, maybe not in the refuse and the transit bus, but certainly in the heavy-duty truck sector. The adoption rate is still around about 1.5%, I'm talking about North America. If we are to be responsible in growing that, we should be part of the price dimension as well, not to dampen that growth. In terms of margins above 13%-15%, I think we should be more focused on growing the volumes out there. Certainly with that adoption rate at 1.5%, I see a lot of upside to gain market share versus diesel. Pretty much the same drivers that we saw in 2013, 2014, we begin to see that again. High spread of CNG price to diesel.
What is different than the last time is the environmental factors are much stronger. You see a lot more sustainable focus. I think this time when it comes through, there will be a lot more focus on the environment. You see the low NOx, nitrogen oxide engine from Cummins. That's one of the key factors.
Thank you.
Any other question? No. Today, there are no questions from the web audience. Thank you.
Thank you very much.
Okay. Thank you very much for being with us this morning. Have a good rest of the day.