Hexagon Composites ASA

OSE:HEX

Earnings Call Transcript 2021-Q1

[Karen Romer, Senior Vice President of Communications]

Good morning, and welcome to Hexagon Composites' Q1 2021 Presentation. My name is Karen Romer. I'm the SVP, Communications at Hexagon Group. I'll moderate today's broadcast from the studio here in Oslo. Joining us from his home office outside of Alesund on the West Coast of Norway will be Jon Erik Engeset, President and CEO of Hexagon Composites; and in studio here with me today is David Bandele, CFO.The agenda for the broadcast includes: Q1 highlights and key market developments by Jon Erik, a summary of group highlights and financials and outlook by David. This will be followed by Q&A. And when the Q&A appears, you can see the Q&A field below the stream window on your screen. It will be open throughout the broadcast, so feel free to use it throughout the presentation. If you have trouble accessing the Q&A field, also you can access us via [e-mail].I now invite our CEO, Jon Erik Engeset, to take the floor.

[Jon Erik Engeset, President & CEO]

Thank you, Karen, and good morning to everyone. The first quarter was particularly hectic but highly satisfactory quarter for us in terms of very high order intake and entering into several strategic long-term agreements. So we collected more than USD 90 million worth of new orders on the RNG and CNG side so far this year. On the Mobile Pipelines side, while the quarter itself was relatively soft, we entered into several new contracts, boding well for the remainder of the year and beyond, and most notably our USD 85 million long-term agreement with our key customer Certarus. Hexagon Purus signed their LTA worth EUR 200 million with Nikola for hydrogen tanks. And they also entered into their joint venture agreements with CIMC Enric for China and the Southeast Asian markets. And last but not least, we extended and expanded our strategic alliance with our esteemed partner and largest shareholder, Mitsui & Co. out of Japan. Our financials in the quarter were very decent, albeit probably the lowest for the year. We had a top line for the group, excluding Purus, of NOK 690 million, delivering an EBITDA of NOK 87 million. Hexagon Purus is on track with their ramp-up plans and had a revenue in the quarter of NOK 57 million and a negative EBITDA of NOK 62 million in the quarter. At Hexagon, we are proud to term ourselves an ESG company. And in the last 12 months, we contributed to the avoidance of 730,000 metric tons of CO2 emissions, and that equals approximately 160,000 fossil cars on the roads or equal 960,000 acres of forest. Also noteworthy, today 13% of our workforce are involved in innovation, research and development, and world-class manufacturing. That is another representation of the significant investment we're doing in future growth, sustainability and profitability. And currently we have more than 30 nationalities in our workforce. So we are indeed a diverse group of companies. We are relieved to see the number of new infections from COVID going down in the United States and so also in our factories. Nevertheless, to date, we have had 122 cases. And as I also reported in the previous quarter, sadly, we have had 1 fatality among our employees. We have been fully operational in the quarter. However, we have felt the impact of some supply chain disruptions, not least the global semiconductor shortage, which has impacted, in particular, our CNG Light-Duty business. We also see long lead times on certain other key components, including battery cells, which may lead to delays in some projects. But overall, we feel that we have the situation under quite good control. President Biden recently hosted the Global Climate Summit, and by that, resuming U.S. leadership in the fight against global warming. What is very interesting to note is that both the United States, the European Union and several other leading nations, they are pulling forward their targets. While a short while ago we're talking about targets in 2040 and 2050, they are now talking about 2030 targets, and very ambitious targets like United States pledging more than 50% CO2 reductions by 2030. That requires action and solutions now. And that is really good news for Hexagon because we have such solutions to offer. As part of their program, the administration unveiled their USD 2 trillion green infrastructure package, which, of course, is an important program in order to transform the transportation sector in the U.S. Some very good news also from the European side. As I've shared with you previously, we have been a bit concerned that the European Union has not recognized RNG or biomethane on an equal basis as, for example, hydrogen or battery electric technologies. But the Commission has now issued their draft delegated act and there is every reason to believe that, that EU Taxonomy Act will be approved by the member states and by the European parliament. And that classifies renewable natural gas or biomethane as a mitigation alternative. And that is great news and will have a very positive impact on the development of infrastructure for RNG/CNG and technologies and certainly for our business. And I think we can at this stage just state that RNG will be part of the energy transformation in Europe. And for extremely good reasons. This chart compares different alternatives for vehicle fuels with a Class 7 truck example. At the top of the chart, you have a diesel truck which emits 660 approximately grams per kilometer driven. In the middle there, the green bar, you see a comparable natural gas truck fueled with RNG produced on basis of manure, which will have a negative CO2 impact of 745 grams per kilometer. And at the bottom, you see hydrogen, which is close to 0 based on the green hydrogen produced from renewable energy resources. Just above, you see the battery electric alternative, which is significantly better than diesel but still with today's mix in the grid will still have a significant CO2 emission from the vehicles. So not only is RNG an alternative for the next decade, it is the only alternative for a significant impact on CO2 reductions in the transportation sector. We have recently conducted a very comprehensive study on this. And this is a bit of a busy slide, but at the left there, you see that only a marginal portion of the available potential has been developed and utilized to date. We estimate that only 5% of the global RNG resources are currently used. And to the right, if you translate that to the North American and European vehicle sector, it means that if we take full advantage of this potential, the total demand and 50% more of all commercial vehicles could be fueled with RNG. And RNG does not only make environmental sense, it also makes financial sense. With the incentive schemes already in place, RNG has a lower total cost of ownership than fossil alternatives, approximately 5%, for example, in California, 15% in Europe. And we see a rapidly growing number of commercial players, municipalities and cities realizing this and embracing this alternative, fully understanding that this is the only way that serious effects can be accomplished in terms of CO2 reductions in this decade. And this is a LinkedIn tweet from the Chairman of the Volkswagen Group, stating pretty much the same thing. As you will know, Volkswagen is committed to electrification of their platforms. But Mr. Diess is acknowledging that electrification of the truck fleet will take time but that in the meantime biofuels, in other words, RNG, will be helpful in reducing emissions in freight transport. So this leads us to reiterate our forecast from the Capital Markets Day early this year when we stated that the addressable market will grow by a factor of minimum 4x. And frankly, the confirmations that we have received since that Capital Markets Day makes us even more confident that this is a realistic assumption. The -- in relative terms, the strongest growth will come from the hydrogen business from the Hexagon Purus business. But in absolute terms, it is clear that it is the RNG/CNG business which will have the strongest growth. And we estimate that by 2025, more than half of that will come from the medium and heavy-duty truck customers. In response to this, we need to scale up, and we are well prepared for that. We have made significant investments in our organization and in our structure over the last several years. As we speak, we are adding capacity in the U.S. and in Germany. And we are, as you know, planning a new facility in China together with our partner. What you should note is that the incremental CapEx cost to get significant capital -- sorry, capacity increases is quite modest and therefore the return on these investments will be very attractive. So as we see it now, the main bottleneck is in developing the organization, getting the right talent into our group and onboarding them in order to organize and manage this going forward. The development of a global production system allows us to optimize, especially in how we handle peak demand, and also leverage our resourcing position in an optimal way. And I am not trying to say that no other player in this industry enjoys our scale and synergy potential. So the way we see it, we are ready for significant growth on the Hexagon Agility side, driven by the RNG demand. On Hexagon Purus, they have assumed their leadership position for hydrogen and battery electric solutions, and they are ahead of schedule. And our production system is now ready for scale. And with that, I hand over to you, David, for further details on the financials and the outlook. Thank you.

[David Bandele, Chief Financial Officer]

Thank you very much, Jon Erik. Just a quick update on our 2021 reporting structure. We covered this last time, but just to recap. So the Hexagon Composites Group, we comprise Hexagon companies. You can see on the orange there, our segments will be g-mobility, Hexagon Digital Wave and Hexagon Ragasco, and then in addition, our listed subsidiary, Hexagon Purus, who reported yesterday, and you can find information on their website on their results. Of course, we own 75% of those. So in this forum, we will concentrate on the orange businesses you see. And just to explain g-mobility that comprises Hexagon Agility, and Hexagon Agility is -- has been integrated -- or integrated Agility Fuel Solutions and Mobile Pipeline together and of course, bringing in Hexagon CNG Light-Duty vehicles. That means g-mobility then houses all the automotive and distribution CNG/RNG businesses. And then to the right, you see Hexagon Digital Wave, and we'll go into that in some detail later. And of course, Hexagon Ragasco on the LPG side. So let's look at the quarter 1 financials. Again, this is Hexagon, excluding Purus. First of all, as Jon Erik mentioned, we are ahead of schedule and a strong order book for the remainder of the year, very encouraging developments, both macro and also in our niche. g-mobility started off with over NOK 0.5 billion in revenue. So a very solid quarter there. Very strong order intake, particularly in the Heavy-Duty Truck side. And again, RNG we see as a significant driver for that in the U.S. As Jon Erik mentioned, temporarily reduced volumes in Light-Duty due to the semiconductor shortage, so some top line effect there. And of course, we had a light quarter for Mobile Pipeline, which we expected. Good news is during the quarter, we also secured a USD 15 million order there. So that is a fantastic result also for Mobile Pipeline. EBITDA in Hexagon Ragasco was extremely strong for the quarter, NOK 34 million posted there. Good top line volumes, but also we usually use the last 2 weeks of the year to do essential works. And starting up production this year has been very smooth. And in fact, we are breaking weekly records on the production. So very good efficiencies also coming through in the numbers. Meanwhile, Ragasco is working hard, finalizing the technology for the SMART cylinders, and also then initiating basically pilot programs for these SMART cylinders in some of our major customers in Europe. So more news to come throughout the year. And on Digital Wave, we continue to execute the development of pipeline of digital products and services and really attracting and acquiring new talent to go with that. In terms of Hexagon Purus, again, our listed subsidiary. They reported a very strong order backlog, including a EUR 200 million long-term agreement with Nikola Corporation. So congratulations for that. Our 75% ownership is now valued at around about NOK 6 billion. Also to note, Purus has NOK 1.1 billion of its own cash reserves. So first of all, if I take revenues, to the left, we posted NOK 690 million revenues this quarter, which was down from last quarter. And that's despite overall very strong sustainability-driven demand, particularly, as I mentioned, in the Heavy-Duty automotive sector. So the main reasons for the shortfall, half of that, over NOK 50 million plus, was on FX or currency headwinds year-over-year, and the other half was to do with Mobile Pipeline. If you remember, quarter 1 '20 was -- COVID did not impact that quarter whereas quarter 1 this year we still have some of those impacts affecting demand in quarter 1 2021. So combined, that really accounts for the shortfall you see year-over-year. Otherwise, as I mentioned, very strong order intake in the quarter for quarter 2. So that's great. But when we go to the right hand -- to the middle, we posted NOK 87 million in EBITDA, which is actually up 6% year-over-year. So a very good result there, also aided by favorable mix, the production efficiencies I mentioned and good cost control. So they're resulting in the higher profitability. And that profitability has carried over as EBIT. We have increased our EBIT by 19% year-over-year to NOK 32 million. Looking at the segments. First, starting with g-mobility, our largest segment. You can see revenues there. Basically, the issues I talked about on foreign currency movements, those were dollar-NOK. So they mainly impact g-mobility, that's where Mobile Pipeline is as well. So shortfall in revenue year-over-year. But again, the same trend, you see EBITDA actually up 13% year-over-year to NOK 58 million versus NOK 51 million same quarter last year. So a solid quarter as we gear up then for the rest of the year. Apart from the strong U.S. truck and EU European transit bus demand, we're also very pleased to already see operational synergies coming from the integration of Mobile Pipeline and Agility. And particularly in our Lincoln, Nebraska site there, we're able to share resources much more fluidly now. On the Light-Duty side, despite the impacts of the semiconductor issue, our major customer sales to Volkswagen were down. They have been particularly impacted by this issue. However, we've had very high activity towards Hexagon Purus, particularly on the hydrogen distribution side. So our Kassel plant there helping produce cylinders for Purus. And to the right, we can see the revenue share dominated by Heavy-Duty, Medium-Duty Truck -- sorry, Heavy and Medium-Duty Truck and also Transit Bus taking the largest shares as we would expect. Refuse Truck is still slightly slow for the year. We expect the uptick later accounting for 13%. And the 6% there is mainly our propane, Medium-Duty business, also some parts and services. So collectively then, the Heavy and Medium-Duty businesses account for 78% of the top line. When you add in the Light-Duty, that's 12% there. Automotive accounts for 90% of the pie and 10% then going to distribution or Mobile Pipeline. On Digital Wave, slight reduction of sales year-over-year. Of course, these are much smaller numbers despite strong SCBA, that's self-contained breathing apparatus, life extension sales. These were offset by a delay in ultrasonic examinations, or UE, sales from Q1 to Q2. Consequently, lower EBITDA year-over-year, but that also includes some extra OpEx as we invest into the organization then to develop the digitalization product pipeline. So fairly expected results from Hexagon Digital Wave. When we look at Ragasco, more or less flat top line year-over-year. But again, you can see the EBITDA has improved 13% year-over-year to NOK 34 million, a fantastic result. In terms of revenues, interesting to see the strong demand from the Nordics and Switzerland. Obviously, with the continued travel restrictions, it's looking like another year of staycation. So that's been good news then for Hexagon Ragasco, particularly European sales. And as I mentioned, the high production efficiencies certainly contributing then to improved margin year-over-year. On leverage, again, this is Hexagon proforma, so excluding Purus. If we take the top chart in the gray bars there, you can see that the total IBD or interest-bearing debt is NOK 1.1 billion. So substantially, it's the bond loan. That means we remain substantially undrawn on the bank loans. So a good position. Including the cash then for Hexagon of NOK 200 million, that leaves, in the orange bar at the top right, NOK 0.9 billion in net interest-bearing debt for Hexagon. And to the bottom, you can see how that translates to our leverage, which is net interest-bearing debt divided by EBITDA, at a very healthy 2.7x. Let's take a look at the group results very quickly. Starting with the balance sheet. Here, we can see the picture on the left from the end of last year to this year. You can see not too much change there. The cash has gone down, and we've had good uses of that cash, just to explain. A couple of extraordinary items. One, we had the dividend in kind, you recall, related to Hexagon Purus, that attracted withholding tax, which we collected and accrued in our balances at the end of last year. We then had to settle the taxman and that was around about NOK 90 million paid out in the quarter. In addition to that, we repaid bank debt of NOK 100 million, so almost NOK 200 million down mainly to do with those 2 items. And in Purus then, operationally, they've been using cash to really build up the organization and increase their competitive advantage. And then to the right-hand side, you can see the impact of the interest-bearing debt going down by NOK 100 million, I mentioned, and also a very strong equity ratio of 59%. So overall, starting with the left, Hexagon, excluding Purus, cash-generating business in totality, NOK 690 million of revenue, scoring a 13% EBITDA margin with the NOK 87 million EBITDA it developed. And then in the middle, you can see Hexagon Purus, they reported top line of NOK 57 million, which is up from the NOK 30-plus million they recorded last quarter, the previous quarter. So that's good news. And they are also on track in terms of their EBITDA performance, minus NOK 62 million. But of course, when you combine these together and eliminate the -- most of the goods and services sold by Hexagon to Purus, when you eliminate the top line, it's NOK 692 million, of course, EBITDA eliminates naturally. One sale is a cost in the other. And there you see a much reduced EBITDA at group level of NOK 25 million. And that's why it's very important to really present these results separately, so you can see that the Hexagon is profitable cash-generating business and generating value through there. Hexagon Purus in its own way generating value for the future as it chases exponential growth. But of course combined, the results then look somewhat skewed. Final comments on quarter 1. Solid operating opening quarter for Hexagon as it gears up for the significantly stronger rest of the year, and that's particularly in the Automotive and Mobile Pipeline businesses. Through Q1 as it has done in 2020 -- as it has done in 2019, the U.S. Heavy-Duty Truck and the European Transit Bus business really powering ahead with the RNG uptake. Strong EBITDA generation from Hexagon Ragasco. What that provides is a solid platform for them to then invest in growth initiatives, not only SMART cylinders but also penetrating other markets. And in terms of Digital Wave, they're also funded organically as is Hexagon Purus, which is completely ring-fenced then from the external financing obligations of Hexagon. So a very solid quarter, and let's have a look at our 2021 full year guidance. So as we communicated way back in early January, we -- the Hexagon, excluding Purus, will target NOK 3.5 billion in revenues and looking at NOK 400 million in EBITDA. And once again, I said this is Hexagon businesses, excluding Purus. Nothing has changed. Last quarter, we flagged the semiconductor shortage impact. We've seen that impact in Q1. We see that it will carry on to Q2. So there are -- it's possible that we're not able to fully recoup the CNG LDV delays in 2021. However, in totality, given the tremendous drive, the RNG uptake and the rest of the business, we still feel confident to hit those targets for 2021 in total. And let's describe why; starting with Hexagon Agility's Medium and Heavy-Duty vehicles. This very strong sustainability or ESG-driven demand we see only increasing. As Jon Erik has covered very well, the favorable result in the EU taxonomy for RNG, coupled with RNG already accounted for 53% of on-road fuel usage in the U.S., these are particularly strong factors pushing this. So much so that we have a new major logistics supply customer, new to us just in 2020. This year, they've already ordered USD 44 million worth of our products. So that's evidence enough. As well as the majors, we have had very improved adoption among smaller fleet owners, and we haven't seen that effect since the 2014 time line. So actually, now you see even the smaller fleets really coming through on the ESG sustainability matters, pumping that in their smaller fleets and also because it is still a cheaper alternative in terms of the fuel. New customer order from Certarus. This is interesting. We talked about the operational synergies between Mobile Pipeline and Automotive earlier. Here, we see the commercial synergies. So Certarus was exclusively a Mobile Pipeline customer for us. But now we see them being a customer for us on the Automotive side, which makes sense, of course, but also on Hexagon Purus as they look to distribute hydrogen gas as well. Continued positive demand for European bus. We see that just continuing to go on. And then the interesting kick is then we expect Refuse and the U.S. Transit Bus, which is another very large P&L for us, to pick up then in the second half of 2021. So really good and strong news from Hexagon Agility's Automotive business. And in the Mobile Pipeline business, this has always been a slightly more unpredictable business unit for us. However, we expect rebounds in volumes this year. We have a strong backlog and actually relatively good visibility for Mobile Pipeline for the remainder of 2021. And here, we'll see oil and gas, RNG, industrial and also mobile refueling units as really powering that rebound. And again, behind that is the decarbonization and sustainability targets. So I'd like to point out that the LTA or long-term agreement we signed with Certarus was for USD 85 million. And again, that goes across both Hexagon Purus and Hexagon Agility. And the combined initial order, including Automotive and Mobile Pipeline, was already USD 19 million, and we'll have deliveries starting in the second quarter. So very good news there. Slightly different picture, as I mentioned, on the CNG Light-Duty vehicles. So here, we're impacted by those semiconductor shortages. As I say, we expect volumes maybe more to rebound in the second half of the year now, albeit at a lower level. But again, CNG LDV is also high in activity producing for hydrogen. So let's talk about Digital Wave here. This is clearly an exciting extension to our portfolio. So we've brought it up to be its own business segment this year. And here we will focus really on the digitalization of Hexagon's products and solutions. I want to focus on MAE, which is Modal Acoustic Emissions technology. Today, we use that technology, obviously, to monitor the health of our tanks or other people's tanks. And now I'm talking about Type-4 technology. And that allows us to also extend the life of the tanks and pass inspections and so you can renew the use of these tanks, et cetera. However, today, it involves having a product, you can say, a rack of sensors, and we take this to the item to be tested. Imagine it's a Mobile Pipeline rig or so. And we rig these sensors up and we can literally then check the health of the tank. This is a process that takes hours and days. The alternative technology is what they call hydrostatic testing, where you have to pressure-fill with water, then you have to disassemble. So imagine disassembling a whole Mobile Pipeline unit, testing each tank individually, drying out, reassembling, et cetera. Then you're talking about a matter of weeks, months. So the avoided downtime of that working asset is certainly a benefit today with our MAE technology. But that's still bringing our product to the customer's asset. What we envisage then is factory-installed technology. So actually shrinking down, miniaturizing the technology such that it's actually woven in either to the -- into the tank or it's actually as a part of the system. And when you do that, then you get real-time health monitoring, you get real-time data and information, you get connected services and quite a lot of extended value we see for the customer. It will also allow us to, as I say, life-extend the products. And that is good not only for the customer but also good in terms of ESG. So win-win. However, there will be a road map in terms of developing and miniaturizing that technology, but that's really where the future is. And as we see that the whole industry, whether it be hydrogen, whether it be CNG/RNG is growing and growing and growing, there'll be a lot more vehicles either carrying and distributing gases along -- or actually vehicles carrying passengers or whatever, commercial vehicles. As that grows and grows, I think the need for this is going to really increase. And that will definitely increase also the safety with our whole industry. And that technology will be available to use on all Type-4 cylinders. So very, very exciting future on Digital Wave. In terms of Ragasco, seasonally strong demand from Europe expected to continue. As I mentioned, given the COVID situation, there will be still a lot more barbecuing at home. We won a significant order from South Asia with delivery in Q2, so already manufacturing and we'll be distributing that out. So that's a very important result for Q2. Germany, we continue to make inroads. We secured another regional LPG marketer for introductory order, and that will go out in Q2 as well. In Q3, we've received an introductory order from a very large, so a Tier 1 Southeast Asian LPG marketer. Very excited for the prospects there. And as I mentioned, that will go out in Q3. Otherwise, as I mentioned before, the SMART cylinders pilot program is on track. So that was 2021. If I was asked, what are the 3 big things to look out for in the Hexagon businesses going forward. Without a doubt, 2021 is happening now. The RNG uptake as the fast-track alternative fuel to lower harmful emissions for commercial vehicles, that you'll see in our numbers today. And that is only going to continue to increase. From 2022 onwards, we'll see the impacts of the SMART cylinder digitalization of the LPG Type-4 tanks. And there, we see that as a key thing to accelerate the adoption of Type-4 technology. Remember, today, we're still only around about 1% versus steel. So there's a large market to go for, and we feel this technology will really help with the value proposition there. And again, accelerate the adoption. And then finally, what I mentioned about the Modal Acoustic Emissions technology. That will take a few more years to fully develop, but by 2025 we see exciting growth opportunities there. I've said enough. And on that note, I'll leave it for Clean Air Everywhere and back to Karen for Q&A.

[Karen Romer, Senior Vice President of Communications]

Thank you, David. And thank you, Jon Erik. And now we're open for Q&A. If you fill in the question box underneath the screen, we'll receive it here in the studio. Otherwise, if you have difficulty with that, please just send us an e-mail to [e-mail] do have already a couple of questions that have come in from Mikkel. "How prepared would you say the transportation sector is to adopt RNG technologies compared to battery electric and fuel cell electric? And what could the potential adoption be? Will manure be as readily available as, for example, hydrogen? Or will there be a natural glass ceiling?" I think that's directed to you, Jon Erik.

[Jon Erik Engeset, President & CEO]

So several questions there. First of all, the technology and the alternative is available now. In the U.S., already 53% of the CNG comes from RNG. So -- and it is exactly the same engines, exactly the same fuel systems used for RNG as for conventional CNG. And we have several players investing into this clean energy as a leading player. Total has made significant investment in the development of biogas -- or sorry, RNG/biomethane resources. So that said, in order for it to be a major share of the total fleet replacing diesel, the resources obviously need to be developed further. But on balance, I would say that the fleets are much better prepared for adopting RNG at this stage than for adopting hydrogen and battery electric. And while we expect hydrogen fuel cell electric to become a very important alternative for the fleets by the end of this decade, we don't see those alternatives being able to have a really significant impact on CO2 reductions until towards the end of this decade. So that's why RNG is such an important alternative. In terms of battery electric heavy-duty trucks and even medium-duty trucks, I think the jury is still out and it's very uncertain if that ever will become a really viable solution for those heavy vehicles.

[Karen Romer, Senior Vice President of Communications]

Thank you. We have another question, I think, also for you, Jon Erik. It refers to a slide in your presentation. "On Slide 10 of the presentation, is it fair to compare emissions from fuel cell electric vehicles using hydrogen produced by renewable electricity with battery electric vehicles using nonrenewable electricity? And if so, why is that fair?" And then there's a second question, "Isn't RNG fuel cell electric vehicles and battery electric vehicles all part of the solution?"

[Jon Erik Engeset, President & CEO]

Let me answer the second question first. Definitely, they are all part of the solutions. And as Hexagon, we are completely agnostic. We have battery electric technologies, we have fuel cell electric technologies and we certainly have RNG/CNG technologies. It's just that we, as I've said, are confident that in the short and medium term RNG is the only alternative that can make a significant impact. But we are also, of course, confident that over time especially hydrogen will become a significant part of the solution. And I think it is fair to compare with clean or green hydrogen because the commercial decision makers, they will want to choose based on alternatives. And by the time the hydrogen becomes available for the commercial fleet, in earnest, they will have a choice of procuring green hydrogen. In the EU alone, there are plans to ramp up the electrolysis production of hydrogen to 40 gigawatts by the end of this decade. And the customers can choose to get their hydrogen from such sources. On the electric -- battery electric side, they depend on charging from the grid. And therefore, the mix in the grid is the relevant point. And then, of course, one may argue that the portion of renewable energy also delivered to the grid will increase over time. So battery electric vehicles will have an increasing benefit from using battery electric -- sorry, electricity from such sources. But that will take time, and it's impossible today to estimate what the real CO2 footprint of such solutions will be 5 to 10 years from now.

[Karen Romer, Senior Vice President of Communications]

Continuing on to the hydrogen topic. "How is your relationship with Daimler/Volvo truck partnership on hydrogen trucks?"

[Jon Erik Engeset, President & CEO]

I don't think we can comment on specific customer relationships. But what we can say is that on a general basis, we are a supplier to most of the renowned brands among the OEMs. And you will know from previous communications that we have both Daimler and the Volkswagen Group on our customer list.

[Karen Romer, Senior Vice President of Communications]

Thank you. And for you, David. "There has been a revenue drop year-over-year. How much of this impact can be attributed to COVID? And how can we be sure this won't continue?"

[David Bandele, Chief Financial Officer]

Sure. So I mentioned quite specifically the main drops came in foreign exchange, foreign currency. That was half of the drop and the other half was Mobile Pipeline. So I can say directly around about NOK 50-plus million on the Mobile Pipeline shortfall. That is still suffering from the impacts of COVID-19. Otherwise, we've also flagged that we have the semiconductor type of issues, the indirect impacts. Let's wait and see how those continue. The important thing is that we're still guiding for our full year 2021 target, so NOK 3.5 billion in revenue, NOK 400 million in EBITDA.

[Karen Romer, Senior Vice President of Communications]

Very good. And Jon Erik, "When do we expect the RNG impact on our business?"

[Jon Erik Engeset, President & CEO]

We see the RNG impact. So it's happening now. A significant portion of the order intake in the first quarter was directly related to RNG. So it's happening now.

[Karen Romer, Senior Vice President of Communications]

And continuing on from that, "How much capacity will we be adding to meet that demand?"

[Jon Erik Engeset, President & CEO]

That is a bit hard to predict. The important thing is to state that the resources are there. They can be taken advantage of. I think that requires a cooperation between political authorities and the market players. And we are hopeful that, that will happen because I think more and more people will realize that, as I've said, this is the only way, the only way that the transportation sector can effectively reduce their CO2 footprint in this decade.

[Karen Romer, Senior Vice President of Communications]

Continuing further now onto, "What kind of effect do you expect COVID-19 or the semiconductor shortage to have on our business going forward?"

[Jon Erik Engeset, President & CEO]

That was for me, Karen?

[Karen Romer, Senior Vice President of Communications]

It can be for David, they didn't specify. So David, if you'd like to respond.

[David Bandele, Chief Financial Officer]

Well, I can say clearly on the CNG LDV as we've mentioned. So that's a direct impact that we're seeing now. Again, we don't expect lost sales, it's more delay. And we expect that situation to rectify itself at some point in 2021. Of course, that semiconductor issue is a global issue for -- not only for the automotive industry but everybody. So that's, I would say, a key matter that we're trying to look at. The other point Jon Erik mentioned is on battery cells. So there's a similar impact there. But again, it's something that we are managing. And in these times, it's also important to have strong strategic partners such as Mitsui. They are a very large organization. They are connected to many different suppliers in many different geographies. And that, of course, helps in this situation when they occur to make sure that we are more towards the front of the line, put it that way.

[Karen Romer, Senior Vice President of Communications]

Very good. And now a question for you, Jon Erik. "Is RNG technology different from CNG technology?"

[Jon Erik Engeset, President & CEO]

No. It is exactly the same. So the methane molecule is identical. It is just the source of the gas, which is -- depending on whether it comes from conventional fossil sources, oil and gas, or is being produced from renewable bio sources.

[Karen Romer, Senior Vice President of Communications]

Okay. Now also for you, Jon Erik. First a comment. One of our viewers, "First of all, exciting to see your highlighted focus on RNG." And then the question, "Could you elaborate on how Europe versus U.S.A. customers have viewed the RNG option, which obviously follows a CNG vehicle?"

[Jon Erik Engeset, President & CEO]

It's a bit of a complex question because I think in Europe, there has been a strong focus for several years, especially on the bus side, on CNG. If you go back 4, 5 years, there was a lot of attention to battery electric alternatives. And many of our customers, they put their decisions a bit on hold. And then they did their maths and they considered uptime of the fleet, et cetera, et cetera, and they landed on CNG. And meanwhile, they have realized the very important contribution also on the CO2 side from renewable natural gas. And therefore that has been sort of gradually phased in. While in the U.S., there has been a remarkable shift of attention to RNG in the last couple of years. And on average, actually, in the U.S., there is more RNG in the mix than there is in Europe. So in the U.S., 53% of the available natural gas for vehicle transportation is from renewable sources, i.e., RNG. In Europe, it varies from almost 100% in Sweden to 20% on average in the European Union. But we expect it to develop on both continents and indeed also elsewhere over time.

[Karen Romer, Senior Vice President of Communications]

Another question for you, Jon Erik. The -- further to the question on fuel cell electric and battery electric that you answered earlier, "How do you see the fueling infrastructure for fuel cell electric vehicles going forward? Will the hydrogen be produced centralized and distributed to fueling stations? Or will it be produced on-site using grid electricity? And if it will be produced centralized, does this imply multiple large plants around large cities?"

[Jon Erik Engeset, President & CEO]

I cannot claim to be an expert and now we are moving beyond the scope of Hexagon. But -- so this is my personal view. I think we will have a mix. But I think that scale will also be important in the production of green hydrogen, which will then require a certain centralization. But I don't envisage that you will have mega plants. I think you will have rather several facilities across the continents and then distribution from there to the filling stations. I don't exclude that in certain areas, especially the sunny regions. But over time at least, you can also produce renewable energy, solar energy on-site and then have a small-scale electrolyzers operation. But I think that question can better be answered by other players in the industry. But from our perspective, clearly, we see significant potential in distribution of hydrogen from the production sites to the filling stations. So we don't see a structure where all the green hydrogen will be produced locally. There will certainly be some transportation which will then require our distribution modules.

[Karen Romer, Senior Vice President of Communications]

Very good. A new topic but still directed to you, Jon Erik. "What is Hexagon Digital Wave's technology enabling?"

[Jon Erik Engeset, President & CEO]

Many things, but first and foremost, increased safety. And of course, with pressure -- sort of gases under pressure, safety is and will remain a primary priority and concern for the industry and for the public at large. So MAE technology will provide additional robustness to the core technology of the high-pressure cylinders. It will also enable life extension which is, both from an environmental point of view but also from a financial point of view, very important. So we will be able to more or less real-time monitor the state of the cylinders, and we will have digital twins of the cylinders so that any impact or any other concerning factor can then be captured. And then such cylinders can be taken out of service, while we can then allow a much longer life for the cylinders then under the current regulations.

[Karen Romer, Senior Vice President of Communications]

Very good. Thank you very much. That wraps up the questions that we received today. If you have any further questions, please feel free to send them to [e-mail]. But from all of us here at Hexagon Group, we want to thank you and wish you a very nice day. Thank you very much.

[David Bandele, Chief Financial Officer]

Thank you.