Hexagon Composites ASA

OSE:HEX

Earnings Call Transcript 2017-Q4

[David Bandele, Chief Financial Officer]

Welcome everybody to Hexagon Composites' Quarter 4 2017 and Full Year Preliminary Earnings Broadcast. Today, we will go through the highlights as usual, I'll take you through those. We'll touch on the financials. But I do want to extend out to new segment reporting, have a look at what we're going to be doing in 2018 and why. Jon Erik will come and join me for the outlook and the Q&A.So without further ado, highlights from quarter 4 2017. We had solid year-over-year growth in profit across all business units and particularly pleasing is the continued momentum back to profit in High-Pressure. Within High-Pressure, we had continued strong growth within hydrogen. And the commercial sales to railways and the transportation areas continue to gain traction.After a disrupted first half of the year in Light-Duty Vehicles, very steady profits in the second half and quarter 4 was no exception. And very pleasing to see very strong mobile pipeline volumes for the quarter. Again, North America is the main driver. However, after a dry third quarter for rest of the world, geography, it was good to see some recovering volume there as well. The one blemish was a weak quarter for Agility Fuel Solutions, reported below the line. However, that capped a particularly strong profitable growth year in 2017 anyways.Last but definitely not least, our Low-Pressure segment has delivered fantastically in 2017. Q4 was no exception, delivered on profit, but actually more pleasing the CapEx milestones, important milestones there. Jon Erik will touch on those at the end of the presentation. But we managed to end a record year with 30% growth. It's been a hard year on the production and we took 2 weeks at the end of the year to do complete maintenance and also relocate equipment to building expansion. All this was performed in those 2 weeks and we were back up running and production at the start of January as planned. So a very good performance in Low-Pressure.When we look at our financials then for quarter 4 2017, for revenues we did NOK 358 million, a growth of 3% year-over-year, and hydrogen and Light-Duty Vehicles really driving that growth in the quarter. For EBITDA, we did NOK 39.9 million. And when we compare against quarter 4 '16, here we've stripped out the one time exceptional gain for the Agility transaction in Q4 to make these numbers more comparable. And there we see a NOK 73 million increase year-over-year. For net profit, that increase was NOK 64 million to NOK 31 million. And again that's stated after the effects of the Agility transaction when we look at quarter 4 '16.I won't go through the detailed P&L in a lot of detail this time. I will point to 2 things: the white columns they give the quarter 4 2016 to the left and the white come to the right is the full year 2016. If you look at 2 lines down from operating income, exceptional gains, that's a NOK 348 million recorded with the Agility transaction in fourth quarter '16.If we go down to the tax expense line as well, we will see that also in 2016 we charged NOK 122 million as a deferred tax charge against that gain. So both those effects make 2016 not very comparable. So instead I'll focus on the orange items quarter 4 2017 and full year '17, the operating profit margins and the EBITDA margins.EBITDA margin was 11.1%, slightly down on the 12.2% for the full year. That's mainly the balance of Low-Pressure versus High-Pressure. On operating profit, we have 5.5% for the quarter versus 6.9%. So that reduction in EBIT dropping down. We also had a small pickup in amortization at the end of the year.For net profit, however, we see 8.5% for the quarter, so actually increasing in net profit versus the 4.8% for the full year. And the main reason is the currency effects. So in fourth quarter 2017 we actually had very little currency effects. However, throughout the year earlier in 2017, particularly the first half of the year, we had significant negative currency effects. So that's one change. The other change is the tax expense line, you actually see a credit there and we will go into a little bit more detail later on.Very stable picture when it comes to the business unit performance year-over-year. These are comparable, so I will just focus on hydrogen, which did NOK 40 million. I just note that that's actually higher than the whole full year of 2016 in one quarter and it caps off a fantastic year for hydrogen delivering NOK 142 million in revenue for the year.Agility Fuel Solutions, as you know we equity account for this. So we present the results as they have them. To the far right, you see we recorded USD 32 million. This is versus an average of around about USD 40 million per quarter in earlier quarters in 2017 and that's meant a lower reported EBITDA of -- adjusted EBITDA, sorry, of USD 0.7 million. And the main reason for the downturn was really a week heavy-duty truck deliveries in the quarter. We've seen order patterns disrupted by a delayed launch of a new 12 liter engine and we hope to see that recovery come back in 2018.Otherwise on the balance sheet in Agility, a fantastic cash management, it's actually net cash fully funded. And regarding the other streams or the other segments, bus volumes have continued to be relatively soft in the quarter. That's versus a very strong 2016. But also refuse truck sales, that's been pleasing; it's been low the first half of the year, but actually recovering strongly second half and that should bode well for 2018. Otherwise the powertrain systems, the propane play, that is on track to business plan.And when we look at the bottom right-hand side, we see we go from USD 0.7 million adjusted EBITDA after normal expenses, the biggest one being depreciation and amortization. That takes it down to a minus $2.9 million loss profit before tax for the quarter, so loss before tax.How does that affect Hexagon? We take that $2.9 million, translate it into NOK 11.6 million at our 50% share, add the other accounting adjustments including intangible amortization and we get to minus NOK 15.5 million. There was, however, one positive. I'll go back to the tax position. When we did the Agility transaction, we recorded also a tax provision against the very large NOK 348 million gain. At the time, that was a corporation tax rate, which was 35%, and since the House and Senate U.S. tax reforms, that has gone down to 21%. Allowing for some state taxes, et cetera, that has really meant that we've had to reduce the deferred tax provision and that's caused a credit to our tax expense line, a credit of NOK 40 million. So one could say it was a present from the president.When we look at our balance sheet, not a lot of movement there. Net interest bearing debt still low at NOK 215 million and a very strong and high equity ratio of 59%. And the main difference, reduction in the balance sheet, is really pay-down of debt. We can see that when we look at the cash movements for quarter 4 '17, strong cash generation in the business including operating working capital generating in total operational cash flow of NOK 51 million and that's allowed us to fund our CapEx and development of NOK 31 million, mainly out of Hexagon Ragasco, a Low-Pressure site. And also the NOK 82 million really represents the pay-down of debt that we did in the quarter.So let's touch on the preliminary and unaudited full year 2017 numbers. We begin with revenue to the left. We grew 17% to 1,429,000,000 in revenue. In terms of organic growth, that's really come from mobile pipelines and LPG. And here the -- actually the impacts of xperion coming into the business for a full 4 quarters and Agility going out to the '16 numbers for 3 quarters, they pretty much offset each other.When we look at EBITDA for the full year, we recorded NOK 174 million in EBITDA. That's NOK 147 growth in EBITDA year-over-year when we take out the Agility transaction exceptional gain. Low-Pressure recorded a margin for the year of 22% based on NOK 144 million of EBITDA and the High-Pressure recorded EBITDA of NOK 47 million with a margin of 6% there.When we go over to operating profit, we see a spread of NOK 148 million. Not much has changed versus the spread in the EBITDA. So a very high growth to NOK 99 million of operating profit for the full year. So here we saw depreciation and effects of amortization more or less offsetting each other for the year.However, that spread of NOK 148 million turns reduces to NOK 87 million for net profit, so where we recorded NOK 69 million for the full year versus a comparable minus NOK 18 million the year before. And the reason for that takedown is mainly the effect of negative currency effects year-over-year. So we had negatives in '17 and we had positives in '16, year-over-year it's minus NOK 56 million. We did, however, recover NOK 8 million from finance costs. Amortization of Agility, intangibles and the returns meant a negative NOK 16 million effect and tax was year-over-year neutral.This will be the last quarter where we have to adjust and present for Agility and xperion. So one last pro forma here and this looks at the pro forma '16 as if it was the continuing business that we have today. And that on the revenue side, the dark column there at NOK 1.1 billion would represent the pro forma '16 number and there you -- we see that we have actually grown headline 29% revenue year-over-year on the same basis. When we look to the right-hand side for EBITDA, actually the pro forma EBITDA would have been 0 and the growth in EBITDA that we recorded of NOK 174 million is total gross there.For Agility, we have to remind ourselves that Agility is 40% of our balance sheet, but then it's -- we don't see any of those numbers in the EBITDA nor operating profit. So if we were able to actually consolidate 50%, our share of Agility into our numbers, you would see the turnover having an extra NOK 650 million and we would be a NOK 2.1 billion company. Also if we brought in the reported EBITDA, our share of that from Agility, we would be a NOK 213 million EBITDA company. Those numbers will obviously be increased if we are looking at the adjusted EBITDA number.And then full year Agility, you can see on the chart top right-hand side if -- sorry on the top -- on the left of the 2 charts there. We have turnover of NOK 153 million in the full year 2016 and NOK 157 million, so a very modest increase of 3%. What has been pleasing though is the increase in adjusted EBITDA there. So the profitability increase has been 78% and a very, very good performance on the cost base and supply chain efficiencies.Although, the quarter was weak for heavy-duty truck, we see that for the full year it's actually been a very good year. Admittedly, on a weak 2016, but there's been 52% growth year-over-year, so that's good. Whereas the bus and the refuse truck have been pretty much the same comments as we had in the quarter. What we do notice that quarter 4 really turned more or less a neutral position into a negative position. But of course, if we look behind the non-cash items, this would definitely be positive underlying as recorded in our accounts.So to end on the financials, every year we have a little scorecard and here we list some of the achievements for the year. Of course, Low-Pressure having 46% EBITDA growth, record revenue, record EBITDA, very pleasing. On the High-Pressure, very pleasing that we've grown that by NOK 93 million year-over-year when we look away from the Agility exceptional gain. Mobile pipeline recovery very important for the business, we've seen that happening. We're beginning to see decent volumes now and increased momentum. And exceptional hydrogen growth, we've gone from 3% of group revenues to now 10% of group revenue. So you see the importance of hydrogen increasing as we speak.Positive momentum for LDV and also very happy to note that the xperion acquisition all fully integrated into our business units. It's been a good process both from the organization and culture, but also you see the results from the strategic plays we've had in the numbers for 2017. We commented on the Agility and impressive profitability growth in Agility and we ended the year with a strong balance sheet.So 2016 was a very busy year, lots of strategic plays. We've used 2017 to really settle those, get operational, integrate, et cetera. As I said, we've seen that come through the numbers in a positive way. But now 2018, things will get very, very interesting. So we have significant long-term opportunities within hydrogen and biogas in 2018 and let's take us through our thoughts on those.So the energy transition is opening up definitely growth opportunities. We see the global energy mix move to more renewables and natural gas. That really suits us down to the T. And using our composite pressure vessel technology, we then will adapt that into a wide range of storage and mobility applications. This is kind of what we do already, so it fits perfectly. And this very -- this focus as clear focus on low carbon fuels, particularly hydrogen and biogas, is going to allow us to really have some game-changing opportunities going forward.We will call this area in the green box g-mobility and really it plays into our pressure vessels being used for light-duty cars, heavy-duty trucks and buses. We transport large amounts of gas then by mobile pipelines, store -- gas ground storage and also dispense gas in refueling stations. We've also opened up the marine and maritime sectors, and we have commercial sales already into railways. So very, very exciting times.Our position is this, very clear. The transition is happening now. It is very much supported by private money, private enterprise and obviously public authorities. We see large cities around the world adopting these types of policies. We see states like California. We see whole countries like Japan with the vision of the hydrogen society. So these game-changing opportunities are within our grasp and for that we will be making significant investment into this area over the next 3 years, so 2018 to 2020. It's a longer term play so -- but we expect attractive returns from 2022 and beyond.One of the areas that gives us comfort in terms of the private enterprise was the Hydrogen Council formed in January 2017. You see some of these steering members to the right there. Eminent automotive players, energy companies, you name it. And really this focus now is on how to develop the value proposition for hydrogen. Some of the pronouncements through 2017, we will see a significant cost per kilowatt reduction. That's important in getting the molecule down -- price down. And there will be products marketed across the whole hydrogen value chain, including of course Hexagon on our pressure vessel technology. The clear political backing, as I said, with the public authorities, and investments will increase and investors are encouraged to get in early. I will definitely back that.Also the Hydrogen Council produced this map, which I find very illuminating. Basically, how -- a lot of the policy is going to be towards decarbonizing and transportation is one of those areas that is a key energy user. So a lot of policy will be focused on that. And if you look at the size of the white bubbles there, that really shows the energy consumption. So for us that shows where the incentives are going to be placed, where the public authorities are going to look to reduce or increase the near 0 emission agenda in these forms of transportation.The electric vehicle is going to play a key role, both battery electric and fuel cell electric vehicle, they will co-exist. Also there is a role obviously for the bio and hydrogen related synthetic fuels. So combination of these show a very good map of where it's very interesting to use pressure vessel technology.The blue area represents the -- obviously, these smaller vehicles with the shorter range and that will be definitely a playground of the battery electric vehicle. We see that already in the urban environment. But as you move away, you see trucks and buses being a large part of the energy consumption and of course, the larger or medium-sized cars that will probably be a mix of BEV, FCEV. So in total the green area is a large playing field for the FCEV opportunity for Hexagon.We have numerous hydrogen related plays always in the media. We noted the United Kingdom now introducing hydrogen into the blend of natural gas, so in the grid. Japanese majors combining to make the hydrogen society work, there they're looking at well you need infrastructure in order for it to work and a lot of the major companies in Japan promising to build up that infrastructure. China has been very active in the news, strong policies towards fuel cell. And we've had Nikola very active looking to invest $1 billion in fuel cell plants in the U.S. looking at the heavy-duty truck market there. And you have Toyota celebrating a milestone with 3,000 vehicles sold in California. So all positive news.We feel the Light-Duty Vehicles area, the FCEV, is going to be important, very important. Here we've simulated a market potential for cylinders and this is going 10 years out, slowly growing to a 1% adoption rate of global vehicles. And if we do that, we feel the market is roundabout a NOK 28 billion market within 10 years. So that's obviously very significant.And if you look at the 2020 to '21, you start seeing an inflection there. And I'll just point out that we have 2 new fuel cell electric vehicle models along with existing programs and those are set to have serial production in 2020-'21 time frame. So what we're saying is that we have those development contracts now and there that -- basically there will be a significant chunk of that '20 and '21 inflection should they be successful to serial production. So something that we are very confident about.Why 1%? I don't think 1% is too large. When we look at the plug-in electric vehicle adoption, to the chart on the bottom left, we saw a -- way over 1% within 6 or 7 years and we feel that the fuel cell electric vehicle adoption might be slightly slower but will have the same potential. So 1% is quite a reasonable estimate in our estimation.When you look to the right, there's more news. The -- we focused on the Light-Duty Vehicles, in the dark there, as the market potential. But remember, we have heavy-duty vehicles both trucks, buses, we have distribution, we have other forms of transport, ground storage, we talked about the marine, we have the railway. So when you add all those opportunities together, we're looking at over NOK 80 billion in the 10 year time frame.Of course, to get to that sort of market potential there are barriers that need to be overcome. One obvious one is building up the infrastructure. We see that already in Japan, California, Germany for example, and Scandinavia. The other one is the scaling the hydrogen production to be economic. That's where the Hydrogen Council is putting a lot of focus on. And I think very importantly is the regulatory frameworks where you have frameworks that fairly support sustainability, you see a lot of investment activity into those areas.The last one is the common one, familiarity. What's new is always unfamiliar at the start. It was the same for battery electric vehicles and now they're fairly a familiar part of our lives. So we expect to see the same with fuel cell electric vehicle and other hydrogen applications.So really a game changer for Hexagon. It's not just potential, we see that in actual numbers as I mentioned before, standing here the same position last year in quarter 4 2016 at -- looking at my hydrogen P&L at NOK 38 million and now we're at NOK 142 million. So we're seeing that really in the numbers. A lot of that is through the xperion acquisition. xperion have had some great commercial success in the hydrogen field.And our customers to the right, longstanding customers in Daimler for example, we have supplied to [ nel ] as you know and most recently Toyota as well. And I'll just point out, the 2 new fuel cell electric vehicles that we -- that I mentioned earlier. We are prevented from using their names due to confidentiality reasons, so they don't appear on this map.So what does this mean? This large market potential means that in the 3-year time frame, we are looking to heavily recruit skilled staff into hydrogen and biogas area. This is very ambitious, what we have here, and actually difficult to obtain in the short term, but we will definitely go for that. And it's key then in terms of being able to take these opportunities into reality. And that will really drive a lot of negative EBITDA in the area. So this will be the OpEx of staffing up, you can say. So we expect '18 and '19 to have almost negative NOK 40 million in that -- in the hydrogen space. And then if we deliver the 2020 employee numbers, looking at NOK 100 million negative impact by 2020.On the CapEx side of things, we start in a good position we have facilities, but the rest of our business will be growing as well. So we see 2018 has some minor equipment increases. 2019, some more major equipment increases in our site in Heath, Ohio. And that will allow us then to support the production of those 2 new fuel cell electric vehicle contracts for example. When we get into 2020, you will recall that we have a active joint venture with Toray and Mitsui. Earlier we looked at a feasibility study to produce in Japan. We concluded at that stage that it was not required, since we acquired that facility in Heath.However, second stage, where the market is showing that we need that capacity, we will of course then look at that option again. So the 2020 CapEx also includes then a second facility. So all this to tackle those opportunities and most importantly maintain our market leadership.Biogas is more and more in the news, we have Waitrose deploying that in the U.K. successfully. One good piece of news that we read just the other day was the alternative fuel tax credit was signed into existence or renewed you can say. So Obama has been renewing that consistently and good to see that the new president also has renewed that alternative fuel tax credit. That basically gives a $0.50 per diesel gallon credit to things like natural gas.And on the Light-Duty Vehicle, biogas market potential, we see a potential for 20% CAGR. So that's a nice attractive market and potential upsides to that even in the future. So that's something that we're very, very excited about in addition to hydrogen.So what does this all mean? In 2017, you know our reporting segments as Low-Pressure, and within High-Pressure we have the good old mobile pipeline, light duty and hydrogen products, and to the right the equity accounted Agility, which is the heavy and medium duty vehicles.And when we look at 2018, we will report in the following way. Hydrogen and Light-Duty Vehicles will be combined. This will sharpen our focus to the ultra low carbon fuel area. And again this is the area of most investment targeted in that 3-year period.And then we will have a mobile pipeline as separate reporting segment. LPG or Low-Pressure, as you know today, no change, separate reporting segment. And we'll have another specialized products area, for example Hexagon MasterWorks in that area. Agility will continue to be equity accounted. So these are the exciting opportunities. We're arranging ourselves like that and we look forward to reporting through 2018 on our progress.And with that, I'll ask Jon Erik to please join.

[Jon Erik Engeset, CEO & Group President]

So a very good morning to you all. So as David has explained, going forward, we will organize and report in a somewhat modified structure. And hydrogen and Light-Duty Vehicles will be one very important segment. We have touched the topic of biogas, also referred to as biomethane or renewable natural gas in the United States. And we have claimed that this is a very important part of the solution, both to CO2 emissions and to more local emissions like Nox and particulates.And we see this now being implemented in Germany. We have previously referred to Volkswagen taking leads and it's very interesting that now also this is backed by the German Chancellor Angela Merkel and becoming, as we understand it, German policy and strategy. This will stimulate demands in our business.And Volkswagen is reconfirming its strategy, supporting also financially the shift to natural gas increasing new -- or launching new models. And therefore we are quite encouraged and optimistic both short, medium and long term about our light duty CNG/biogas segment.So Germany is -- or sorry, Italy is still the largest market, but Germany is running up as a major market and we expect other European markets to follow suit in the years to come.David discussed hydrogen at some length. I will therefore take a light touch to there, but just draw your attention to a couple of application areas that we see now materializing as real business opportunities.Renewable energy cannot be utilized fully. So wind farms are depending on the grid being able to absorb all the energy 24 hours and the grid is not there to do that today. And the same applies to solar and hydroelectric power. So innovative solutions to store that energy are required and the conversion to hydrogen is one very effective way of doing that.And we saw this study coming from The Netherlands and then pointing at hydrogen production as one way to more efficiently utilize those clean energy resources. And that will mean storage of hydrogen in compressed form and also distribution, so business opportunities for Hexagon.Another segment that we have discussed and that we see in now the first development project being launched is fast ferries in Norway. Fast ferries accounts for a large share of CO2 emissions and also other emissions. And for this application, at least for the not very short distances, fuel cell electric solutions have significant advantages above battery electric: weight, short refueling time and also then range as a function of the weight.So if we turn to the mobile pipelines area, as David explained, there has been a marked pickup of activity and we see North American very vibrant active shale market being a major driver for this development for us. But we also see a very healthy project flow from other industries in North America. And interestingly, there are always new applications. Almost every quarter, we see new ideas of innovative application of our technology. Outside North America, we see still less than satisfactory visibility. A large number of projects, but it's hard to determine when they will materialize for us.We launched our new technology Modal Acoustic Emission for recertification, regulatory recertification of our TITANs. So in North America, that has to be done every fifth year and typically you have an hydraulic approach or a solution to doing that retesting. Our Acoustic Emission makes that process much shorter, much more efficient and it was tested in Q4 with success and we have a large number of modules up for testing now in 2018. This is a business in its own right, but it's also a very important selling point for our solutions compared to the competition.I talked about new applications. One application that you will hear more about is a collection of boil-off gas from LNG vessels. So LNG which is stored for a period of time needs to ventilate and you need to release gas to the air unless you collect it. So boil-off gas recovery systems combined with TITAN and compressors is a solution to capture that gas, avoid the emissions and enable an efficient or productive use of the gas instead of just ventilating it to the atmosphere.LPG, the strong development continues into 2018. We have a full order book now for Q1 supported by continued strong demand from our European core customers. But also we see more and more interest in other regions driven primarily by safety concerns but also the user friendliness and the attractiveness to the consumers.Our investment program at Raufoss is on track and we are now shifting our focus to further innovation of our products and solutions and product offerings services. And the key word there is smart cylinders, so that is on our agenda and we look forward to talking more about that at later presentations.Agility somewhat slow in Q4 as David explained. We think that will continue for Q1 and possibly also Q2. So one important reason for that is the later-than-expected launch of the new 12 liters Cummins Westport engine, which is near 0 emissions on Nox and particulates, so according to -- or similar to Euro 6 standard. That engine has now been approved by the Department of Transportation and is ready to be delivered into the programs of the truck manufacturers. But there will be some -- it will take some time before that is ramped up. So we expect that to take good effect in the second half.The other thing that is encouraging is the development of the delta between natural gas and diesel. So if we go back to 2014, this was a major driver for Hexagon's business. Then with the oil price collapse, that spread declined and the market since has very much been driven by environmental concerns.At this stage, however, the spread is still making investments or conversion into CNG profitable and we expect that when spring sets in that spread will increase further. Also it's worth to notice that for large consumers that CNG price is significantly below the reported pump price. So at this stage for trucks that have a long range, the payback analysis is again profitable and effective. And we think that will step by step stimulate demand in the heavy-duty over-the-road market.The other segments, the refuse segment, the [ track ] and transit bus segment and also the medium-duty powertrain propane business, is fairing very well and we expect good development, sound development there. And there are interesting growth initiatives outside North America that we also think will build the business longer term.So in summary, we see strong growth across the board, short term and long term. The hydrogen business, as David explained, will be strongly dilutive on the EBITDA side. So in Q1 alone, we expect negative EBITDA of between NOK 15 million and NOK 20 million. This will vary a bit from quarter-to-quarter, but I think it's important for those who analyze us to really see that this business is standing on 4 legs and 3 of them have strong growth, sound to strong profitability, while the fourth, especially the hydrogen part of it, will be dilutive. But we are committed to invest in that business because we see the medium- and long-term returns so attractive for us and can really be the game changer for hydrogen in the medium term -- sorry, for Hexagon in the medium term.So on that note, I welcome David back to the stage and welcome any questions that you may have.

[Halvor Strand Nygård, Analyst]

Halvor Nygard from SEB. I appreciate the color on the future outlook for hydrogen and I see you expect more than 100-fold growth within the hydrogen segment. What kind of market share do you expect in that period?

[Jon Erik Engeset, CEO & Group President]

We are modest guys, so we have 60% to 70% of the CNG market. We think there will be more competition in the hydrogen market going forward. But still we want to go for our fair share of that market. So I would say north of 40% market share is our ambition.

[Halvor Strand Nygård, Analyst]

And expecting solid or good returns as well, can you elaborate a bit what that means to margins post 2022, ballpark?

[Jon Erik Engeset, CEO & Group President]

I don't think we are quite prepared to go into that discussion but what we see is that this is sophisticated technology, it requires significant prompt investment and it is not a low entry type of market. So in our opinion, that means that there should be healthy margins. At the same time, there is a balance between maximizing margin and contributing to driving growth, market growth. And in the automotive market, I think all players need to participate in taking the costs of the end product down and we are prepared and committed to be part of that. So I would say healthy margins, but it's premature to attach a number to that yet.

[Halvor Strand Nygård, Analyst]

And you're committed to the future growth and showing the CapEx numbers here. Are you -- how's the balance sheet and is -- are you funded for the future growth?

[Jon Erik Engeset, CEO & Group President]

That is a good question. We're -- our balance sheet is, as you saw, very healthy today, but of course when these large opportunities materialize they will also require large investments and there are limits to what we can do with our current balance sheet. So we see additional financing in one sort or other as necessary at a certain stage in order to support strategy.

[Hans-Erik Jacobsen]

Hans-Erik Jacobsen from Nordea. Continuing on hydrogen, you gave us some guidance on investments from '18 to 2020. Is it possible to give some guidance on how long those investments you are making will last in terms of the capacity you are able to generate? I mean given that you are correct with your growth initiatives, when do you need further investments beyond 2020?

[David Bandele, Chief Financial Officer]

Sure. So those CapEx numbers we gave are typically I would say for about 20,000 vehicles for example out of those, with the ability then to expand machine capacity and labor to twice that. So that would be a typical per site -- as we see it now, but that can change. If things materialize like they do in the market potential, that would be a fairly recurring event.

[Hans-Erik Jacobsen]

Your Japanese partners, are they putting in some money in this venture or is this just you?

[David Bandele, Chief Financial Officer]

So when I mentioned the joint venture with Mitsui and Toray, I mean that is at feasibility stage. But of course, the way it's aligned is that we will be main partner and Toray and Mitsui will combine on the other side.

[Operator]

There are no questions from the web audience today. Thank you.

[David Bandele, Chief Financial Officer]

All right any other questions there? If not, thank you very, very much for being with us today and have a good rest of the day. Thank you.