Welcome back, everybody. My pleasure to present the quarter three twenty eighteen Hexagon Composites market report. As usual, we will start with the group highlights, and then I'll take a short business update, touch on the summary group financials and Jan 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, but it's available on the downloaded copy from our website.
So quarter three, unfortunately temporary weakness in sales driven by two main factors. Firstly, Mobile Pipelines volumes were weak in the quarter. Good news is we use the capacity wisely, manufacturing capacity. We have a very strong backlog for quarter four. So we've actually been building inventory forward as necessary to service quarter four.
The largest impact though was Light Duty Vehicles and 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 have virtually no sales. So this really hurt the quarter three numbers. Good news is that this is sales that don't go away and they've already started again.
So 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. And it's great to see that the heavy duty truck has begun an upwards cycle. Also just recently, we announced our Digital Wave acquisition. Jon Erik will cover that well in his section.
But this is an acquisition that gives us control of unique testing technology for pressure vessels and more to come on that. So 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. And for a combined value of development and serial production of in the range of NOK $420,000,000 to NOK $590,000,000.
And if you recall in June, we announced our second OEM contract. So the combination of the second and third contracts are in the range then of NOK 1,400,000,000.0 to NOK1.8 billion in revenue. Also as guided previously, we would need a CapEx investment program to service both of those contracts. So there's no additional CapEx to what was guided previously And that is in the area of €300,000,000 and that will run through to 2020. We're obviously also able to customize the timing of that CapEx according to the customers' desires.
And one key thing is that particularly the long lead items, this CapEx is partly backstopped by the customer. So very good news going forward and Jan Erik will touch on the Hydrogen outlook in his section. For financials, revenues then were 276,700,000.0 to the left hand side. That's a reduction of 22% year over year from the 352,800,000.0 recorded then. So 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 also note that in 2017, we had extraordinary sales income to Agility of around about NOK21.5 million and that hasn't repeated in this quarter this year. If we go over to EBITDA in the middle, we recorded NOK39.2 million for a margin of 14%. That's a drop of 12,000,000 from previous year. So that Agility income has also followed through into EBITDA last year, so that hasn't repeated this year. However, when you look at this quarter, there were two major impacts impacting the 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 Experian in 2016. Those obligations are connected to performance and a lot of that performance is connected to the light duty vehicles. So 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. And the impact of the reversal of the obligation is plus 50,000,000, but the delayed revenue impact is minus €28,000,000 So a net positive impact of €22,000,000 does impact favorably the 39,200,000.0 recorded EBITDA in the quarter.
The other thing to bear in mind is that we are still bearing then the dilutive impacts of hydrogen, which is our growing business. Those dilutive impacts were negative €15,000,000 in the quarter. Going over to the right hand side, the net profit, we turn CHF12 million reduction year over year in EBITDA to a plus CHF16 million in net profit. So that's spread of plus 28,000,000. Biggest factors there is Agility's pickup has contributed favorably year over year, so plus CHF14 million with a strong uptick in profitability and agility.
We also have favorable currency effects of CHF5 million and tax charges of positive CHF12 million. So net profit recorded of CHF32.6 million for quarter three twenty eighteen. So let's start on the left hand side with those reported numbers, 276,700,000.0 in revenue and 39,200,000.0 in EBITDA. I think it's important also to isolate Hydrogen. Hydrogen is a special 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. So that will remain dilutive for a while as we have guided. But let's have a look to the right of what the normalized performance of the rest of the Hexagon businesses is.
So the Hydrogen in the middle, you can see contributes 28,900,000.0 to revenue. And as I said, it's just around about €15,000,000 negative to EBITA. And to the right hand side, if we normalize that revenue or correct for the Hydrogen revenue, it's 247,800,000.0 in revenue. Let's back out those impacts from the earn out obligation and the delayed revenues and we get a EBITA then of €32,200,000 normalized for a 13% or double digit EBITA margin. So 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. So we closed on 12.2% EBITA margin and a net profit margin of 4.8%. This quarter, quarter three, we are above that on the EBITA margin as you see, but 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 twenty seventeen. I've stripped out the extraordinary income from Agility of twenty one point five And 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 Vehicles side, there you see the primarily the effect of the WLTP testing, so much lower revenues. And in fact, within those revenues in light duty vehicles, there's actually some legacy business revenues that are not light duty.
It's actually Bus Systems business that was not transferred to Agility. So that dampens the effect you see on the top line. Mobile Pipelines, though, are pretty much flat year over year. So 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 U.
S. Dollar millions. And you can see from the five quarters picture to the right, revenues and margin have been depressed since quarter four twenty seventeen. Good pickup in quarter one, continued pickup in quarter two. And then really now the momentum on the upward cycle of the heavy duty truck, that's over the road truck really coming back and coming back very strongly.
So we recorded €48,000,000 in revenues. That's the highest quarterly revenue we've had since we had made the acquisition in quarter four twenty sixteen for an adjusted EBITDA of $6,300,000 or 13% margin. So actually those heavy duty truck revenues in quarter three are greater than the combined revenues in quarter one and quarter two. Also high transit bus volumes in the quarter, very strong year over year growth there. And the refuse truck sales or garbage truck sales continue their upward trend 2018 versus 2017.
Also 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've also ramped up ready for or ramped up or built forward in Castle 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. So we closed the quarter with 61% equity ratio, so very solid balance sheet and net interest bearing debt at €326,000,000 On that note, I ask Adrian Erik to take us through the outlook.
Thank you, David. Good morning all. So the backdrop of our business remains one of strong reasons for the world to shift from traditional fuels to natural gas, hydrogen and biogas. So you will have noted the last UN 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. And we are fully motivated to continue that effort in terms of CapEx, but also the necessary organizational ramp up and competence development. So we see that there will be another couple of years where this business will be dilutive until these programs come into serial production expected from 2020 or late twenty twenty and then full pays 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, on the heavy duty side of the business.
So this really came into focus in the first half of this year. We have a partnership with New Flyer in North America and we have delivered 20 buses and we expect much more coming in North America on the bus side. And 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 you for thinking in terms of hydrogen when electrifying the heavy duty sector. Also, we've had a breakthrough in the quarter with our ground storage applications. We've received U.
S. DOT, Department of Transportation, special permits for our ultra high pressure nine fifty bars. And we've had similar first orders to and deliveries to The Netherlands and order to Canada of this system. So 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 a very steep growth in the first half. Then this WLTP program created difficulties for the OEMs. They were not able to deliver or sell CNG cars in the quarter. But we see now in Q4 that we have resumed sales. We will not maybe come quite up to Q2, but not far off.
And the underlying market development is one of strength. So going into 2019, we expect this very strongly growing trend that we saw in the beginning of the year to continue with full force. And 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. And we see also other markets coming from a very low point, but starting to grow strongly.
So this is related to the biogas rationale. You look at this graph to the right, it is the emissions of different fuels. And depending on the mix of biogas and natural gas, you have a very attractive proposition environmentally. Also, is a cheaper fuel and there are subsidies in many countries. The graph to the left here shows the lifetime costs over seven years for a CNG vehicle in Germany.
So these are the underlying drivers. And I think a lot of governments have gone the circle looking at electric vehicles and then concluded that CNG is part of the solution. Moving on to Mobile Pipelines. So 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, good natural gas diesel spread and also the underlying environmental reasons to go nat gas. One of those is also in The States, biogas, renewable natural gas as they term it in North America. And they have a system of tradable green credits, which make investments into biogas facilities financially very attractive. And you see also a number of large players investing in this field.
And 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.
So 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 Titan rolls over, it has to be tested with acoustic model 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. So the primary purpose is to secure this key technology as a service to our customers on the mobile pipeline side, but 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 down Trump's wall. It is what you would get if you put all the cylinders sold by Hexagon, Ragasco over the years next to each other, 15,000,000 milestone passed in 2018. The year looks to be a record year volume wise, approaching 1,800,000 cylinders. The product mix is somewhat less favorable than we had last year, but the volume is very, very satisfactory. Q4 is looking strong.
Always some uncertainty with respect to letters of credits, but our prediction at this stage is that we will have, as I said, a record volume year and very, very satisfactory performance overall. Agility. So again, the difference, the delta between natural gas and diesel gallon equivalents is at a high, very attractive level, more than $1 point for the large consumers, strong reasons for the fleet owners to consider conversion of their fleets to natural gas. And we predicted this, but 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. So Q3 was good. Q4 looks very good, and 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. So that could push orders into 2019 for us. But those would not then be lost sales, but could impact the fourth quarter negatively. But still, we expect a very, very good Q4 for Agility. Also, 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. And that's a big reason why this market is now coming back after a couple of weak years.
Also the refuse truck market continues to be strong. So summing up, strong underlying market development, strong macro conditions. We expect a good Q4, especially driven by a pickup in the CNGLEV segment, Agility and the strong Mobile Pipeline quarter. And we are planning for continued dilutive effects from the Hydrogen through this ramp up phase that which will continue through 2019 and 2020. So with those closing remarks, David, please join me, and we welcome questions.
Hans Seikenkopf from Nordea. I was seeing the interest from the OEMs turning from battery electric vehicles to fuel electric vehicles? And also, are you seeing a different push from the different OEMs in Asia versus United States and Europe?
So at this stage, I think there are two hotspots. It's East Asia, so Japan, Korea and it's California. And then we see Germany now developing the infrastructure. But obviously, the infrastructure needs to be put in place before you can expect major volumes. So 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 fuel cell technology. I think most of them expect that as a real mainstream alternative, are talking 2030 and beyond. So we are not talking a large percentage. But as we have explained before, if we can assume 1% adoption by 02/1930, then that means massive business opportunities for a company like Hexagon. You.
Oliver Niebuh from SEB. On the funding side, you acquired Digital Wave for $7,500,000 and with a quite ambitious growth program from the hydrogen division, requiring some CapEx and investments and also some other potential deals and strategic actions out there. How do you assess your balance sheet going forward, and and how do you look at the different funding availabilities for you now?
Okay. Well, maybe you can fill me in. But as David explained, we have more than 60% equity. So we feel that our balance sheet is very strong, that we can do a lot of both nonorganic and inorganic steps with the current balance sheet. And then I think in the phase we're in, we have a number of options should we wish to expand that capacity.
And just to supplement, So back to remember when we were looking at the Japanese joint venture, so that is obviously a structure that is open to us on different opportunities going forward, for example. But, yeah, strong strong balance sheet. We do have accretive businesses, as you know, aside from hydrogen, so they continue to return a good cash flow going forward.
All right. And on Agility, we saw quite strong rebound alongside the increasing fuel spread, 13% EBITDA margin for this quarter. Just curious to know your what is the potential and the earnings potential for this business as you see it? And then 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, again, you'll 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're to be responsible in growing that, we should be part of the price dimension as well, not to dampen that growth. So in terms of margins above 13% to 15%, I think we should be more focused on growing the volumes out there. And certainly, with that adoption rate at 1.5%, I see a lot of upside to gain market share versus diesel.
So pretty much the same drivers that we saw in 02/1314, we begin to see that again, you know, high high spread of CNG price to diesel. But what is different than last time is the environmental factors are much stronger. You see a lot more, sustainable, focus. So I think this time when it comes, through, there will be a lot more focus on You see the low NOx, nitrogen oxide, engine from Cummins. That's one of the, one of the key factors.
Thank you.
Any other questions? No? And 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