Hexagon Composites ASA

OSE:HEX

Earnings Call Transcript 2022-Q4

[Jon Erik Engeset, Chief Executive Officer]

[Starts Abruptly] Our revenue was NOK1.3 billion, delivering an [Technical Difficulty]. Input costs remain at inflated levels, and that continues to put pressure on margins in the Agility business. The margins have now been restored in the Ragasco business. That's very satisfactory. And entering 2023, we have good order books and good visibility in most parts of our business.

So probably presenting that in 2022, we enabled the avoidance of 1.35 million tonnes of CO2 equivalents, that equals 280,000 petroleum cars off the road for a year or saving 1.5 million acres of forest saved. So, that is a meaningful impact.

If you look at the full-year financials, Hexagon excluding Purus revenues of NOK4.3 billion, up from NOK3.3 billion last year, and EBITDA of NOK347 million. Purus business, really delivering almost NOK1 billion in revenues. And keep in mind that two years ago or in 2020, it was at less than NOK180 million. Still in the build-up phase. So, the EBITDA is negative at NOK406 million.

So, summing the two business companies together, we have a joint revenue of NOK4.93 billion and minus NOK65 million in EBITDA.

So, the world news continue to be relevant for Hexagon. But I would say that Hexagon also continues to be relevant for these solutions. Obviously, the climate issue, that is what Hexagon is about, first and foremost. But on top of that, we have the energy crisis and that creates very interesting business opportunities for us, primarily for the distribution segments, both in the Hexagon part of the business and in the Purus business. And longer term, it will also stimulate mobility for sure.

And we see now a tendency to accelerated deglobalization, which is interesting in many ways. One of the effects is that there is growing competition between the major regions, especially now between the U.S., that with the Inflation Reduction Act provided significant stimulus to investments in green technologies and resources in the U.S. And recently, the EU has responded to that with its Green Deal Industrial Plan, which is then complementary to the REPower EU program.

And also, the U.S. now in Q1 introduce the US National Blueprint for Transportation Decarbonization, which details out how to bring the transportation sector to net-zero by 2050. So, very ambitious plans. And that involves battery electric technologies, it involves hydrogen-related technologies, and it also, in a very positive way, supports the RNG industry.

Talking about RNG, money -- significant money continues to flow into projects to promote RNG. And latest, the news on Goldman Sachs investing $1 billion in European biomethane venture. And remind you, currently in the EU, there is a production of roughly 1 billion cubic meters of biomethane and the ambition is to bring that up to 30 billion by 2030. So, we will see more of these announcements and a significant industry is being developed, which in turn then will enable decarbonization of the transportation sector.

Our response to that is continue building up capacities, also continue developing our organization and, not least, further innovation and product improvements. So, this is our new generation Mobile Pipeline. The current generation was launched in 2010. We have some really good workhorses out there. But this new module is significantly more efficient in terms of delivery of gas per weight unit or per volume unit, very robust solution, also fit for purpose in difficult areas like the Canadian oil fields, et cetera, winter conditions.

We expect this to further strengthen our edge in the marketplace initially in North America and then this product will also be taken to South America and other parts of the world. While in Europe, we need a somewhat smaller configuration with vertical cylinders. And that is another drive that we will focus on going forward, building out more capacity for that production in Europe.

So, all in all, we are quite confident going into 2023. We have a solid order book. The order book is more or less filled for Mobile Pipeline. We expect -- excuse me, expect resilient volumes for the refuse truck markets and the transit bus markets. Strong sales pipeline in Hexagon Ragasco especially for the first half. As always, we need to collect business for the second half, but we are optimistic this year. And very, very pleased with the developments in Hexagon Digital Wave. Still a relatively small business, but tripled its top-line in '22 compared with '21. And that growth will continue now in '23.

Our uncertainty is regarding the heavy-duty truck market. It's actually looking good. We have a good order book for first half. There is a very high market activity. Lot of leads also for the second half. But we remain a bit cautious. Should there be a recession, we should expect that some of these orders will move into 2024. And also, the launch of the Cummins' 15-liters engine, which is a very good piece of news for us which will happen in 2024. It may lead some customers to wait for that new engine. So, that's why we, at this stage, remain a bit cautious regarding that important part of our business.

We continue to have margin challenges in the Agility business. We expect to see gradual improvements, but the input factors are priced very highly, especially for carbon fiber and for energy. Nevertheless, we are fully confident in the future of all our segments. And therefore, our investment programs will continue as planned, investments in increased capacities, that is.

And why is this Cummins launch so important for us? This is a 15-liter. The biggest engine in the market today is 12-liter. And that means that, essentially, the whole North American truck market will be addressable for us and could, in principle, convert to natural gas. We don't expect that to happen immediately, but we expect this will stimulate very, very strong growth from the very modest market share of 2% to 3% that natural gas enjoys today.

Also, this engine is significantly more efficient. So, Cummins talk about an efficiency improvement of 6%, 7%, that is the utilization of the energy in the field. And that makes the TCO even more attractive than it is today. And then from 2024, also in the U.S., much more stringent regulations begin to come into force and the diesel alternatives need to be supported by more filters, et cetera, creating the cost for the diesel alternative higher. So already today, the TCO of natural gas alternative is a very attractive proposition, but it will become increasingly attractive going into 2024.

Over to Purus. Already mentioned very strong growth, that growth is expected to continue. So, the management guided on at least 50% increase from '22 to '23. And looking further out to '25, we continue to have a high degree of confidence in reaching the targets of NOK4 billion to NOK5 billion in top-line revenue in this area. Much thanks to long-term agreements or existing customers that we have good visibility regarding their plans.

So, if you wonder why we still burn a lot of cash in this part of the business despite the strong top-line growth, this picture explains it. So, we have invested significantly in the organizational build-out that is both footprint and software and human capital. And we are setting up new facilities on three continents. So, from the left, Kelowna in British Columbia. The engineers have already moved in, and the facility will be opened in now in Q2. Westminster in Maryland was officially opened now in January, so a nice new facility there. Kassel, Germany, state-of-the-art facility, will be opened in the second half. And in Weeze, the Wystrach business for distribution units for the European markets where we are now out of capacity. We are adding significant new footprint there to meet the growing demand. Shijiazhuang in China, that project was a bit hampered by the several lockdowns. But now that China has opened up again, it's full steam ahead. And we're also setting up there one facility for cylinders and one for systems assembly.

And on that note, I will hand over to you, David, for more details on the financials.

[David Bandele, Chief Financial Officer]

Thank you, Jon Erik. Okay. Good morning, everybody, here live and also joining us on the webcast.

Just going into the highlights for quarter four, pretty much the same message throughout 2022. So, record top-line, while the supply chain disruptions and inflation, they still weigh on margins, particularly in the Hexagon Agility business.

And starting with Agility, another milestone there. NOK1 billion of revenue for the quarter and the 23% top-line growth, very much driven by our Mobile Pipeline. However, low margins as price rises continue to lag the higher input cost increases.

For Ragasco, they posted NOK234 million, 37% revenue growth. And the high volumes and demand allow the very positive scale efficiency, also with -- combined with some positive mix. We saw healthy margins coming out of Ragasco.

And on Digital Wave, NOK46 million in revenues, so tripling of revenues year-over-year across their technologies. And from those levels of volume, very strong EBITDA was a result.

Hexagon Purus is our publicly-listed subsidiary. As Jon Erik covered, tracking very well to their plans and guidance. And of course, the 73% ownership interest that we have is currently valued by the market at NOK5.4 billion. The book value is 1.7.

Okay. Going into the highlights. So, this is Hexagon excluding Purus. The result was NOK1.3 billion in revenues, or 26% growth. Even correcting for positive currency effects, that is 14% growth, very satisfactory. And strongest performance is again in Ragasco, Mobile Pipeline and Digital Wave.

For EBITDA, we posted NOK105 million, so NOK7 million down year-over-year, 3 percentage margin points down. And again, the margin pressure are those sales prices that are lagging the input cost increases, particularly in the heavy-duty business of Agility. We also did continue to suffer some output inefficiency caused by supply chain disruptions, also in Mobile Pipeline this quarter, but generally, for our operations in the U.S. So, still more to come with normalized supply chains.

And for the full year, NOK4.3 billion represents a 31% growth year-over-year. 22%, when we correct for foreign exchange or currency movements, and of course, solid volumes across the board for the year. And the margin pressure, we see the NOK347 million EBITDA we did was down from last year, 4 percentage points down on margin, and again, that's the softer profitability in Hexagon Agility.

And going into Hexagon Agility, starting with the Q4. So, the NOK1 billion in revenues was a 23% increase year-over-year. And again, a theme we've seen is the strong Mobile Pipeline sales. But coupled with the bounce back in refuse or garbage truck volumes for the year -- sorry, for the quarter and American U.S. transit volumes. There's also increasing effect of pass-through of the price adjustments. And when we go over to EBITDA, you can see the NOK48 million versus the NOK93 million same period last year, really much caused a lot by these higher inflation prices.

So, going into that a little bit more deeply, the carbon fiber price. This has been a -- it's contracts we try and fix forward. These prices have been growing through the last 18 months. And as we consumed in our inventory, we consumed our inventory at higher input prices. And those higher prices will continue to rise also in 2023. So, 2023 over '22, we'll continue to see higher carbon fiber prices. And this is obviously a key ingredient in our products.

Also, the suboptimal efficiency from the supply chain disruptions accounts for some of that margin reduction. And the -- let's not forget that in the light-duty vehicle business in Germany, there continues to be pretty low volumes from our major customer there. So, all of those are putting a drag on the margin in Agility.

However, for the full year, I'm going to be proud with the NOK3.5 billion in revenues of top-line and that's 33% growth. And just to dwell on Mobile Pipeline sales, so the previous record was 2014 where they did $78 million for the year and we beat it this year by quite a good margin. And Mobile Pipeline continues to go from strength to strength, both in this side of the business and also on the Purus side. Coupled with that for the year was strong refuse. I mentioned the bounce back before, but also considerable volumes of medium-duty as we deliver to our long-term partner, UPS.

On the EBITDA side, Agility recorded NOK208 million, down from last year. And again, this is subject to the same margin factors we mentioned before. But just like to say, as you can see almost 40% of the Agility pie is on the medium and heavy-duty truck. But you can see over 30% in transit and refuse and 23% in Mobile Pipeline. So as much more decarbonization targets are basically targeted towards transportation, the automotive business is definitely still very positive, particularly with the introduction of RNG, which is extremely well used fuel now in the U.S.

Similarly, the RNG needs to come from somewhere, and Mobile Pipelines can help to deliver that RNG either through transportation sources or other sources of industry. So, very diversified revenue streams and all pointed towards critical infrastructure or decarbonization targets.

So, Hexagon Ragasco, I can't say anymore. It's just a fantastic quarter, delivering NOK234 million in top-line and that record revenue really derived with help from positive mix and also the necessary passthrough of pricing. On the EBITDA side, you can see it generated NOK53 million, significantly up from last year and recording a 23% EBITDA margin for the quarter. Again, positive mix, good scale efficiency, and those price rises have combated the material input cost rises.

So, the strong quarter for Ragasco allowed them to finish at NOK706 million in revenue, up 22%. I'd like to say that we are able to source extra demand from Europe and the Middle East, and that offset lower volumes to a major customer in Asia for the year. On EBITDA, we posted NOK123 million in Ragasco, and that's up NOK28 million from the same period last year. And also importantly, margins were significantly higher. So, within the NOK123 million number, we've also, year-over-year, absorbed NOK12 million in extra energy costs and that is also set to be recouped from 2023. So, Hexagon Ragasco is the gift that keeps giving a very resilient business with recovering profitability.

Going on to Digital Wave. So, for the quarter, we tripled revenues, NOK46 million. It's not that far away from the full year last year. So, a significant quarter for Digital Wave and significant momentum. Healthy mix of their product sales, as well as the technology and services offerings and we see just increasing adoption on multiple applications going forward.

One of the wins in the period was Ultrasonic Examination, a new machine to quality check Type 1 steel cylinders and that's actually within the manufacturing processes as opposed to testing afterwards. So, a good win.

And on the full year then, Digital Wave posted NOK116 million doubling revenues year-over-year and it's been profitable growth. So, these types of levels you can see, they've gone over a breakeven point and started to make a profit. EBITDA of NOK7 million, up from the negative NOK11 million same period last year.

Digital Wave is an asset-light business with its proprietary technology, software, et cetera, and the services included in its core offering.

So, Jon Erik has covered the group. Just to remind everybody that group results hitting now almost NOK5 billion in top-line, negative EBITDA, really due to the fact of Purus being in its growth stage. You can see Purus in the middle, fantastic top-line growth, comes at a cost for now and they anticipate breakeven somewhere in the 2025 timeframe. But to the left, Hexagon excluding Purus, this remains -- continues to be a strongly growing business with profit generation.

And the balance sheet, some reduction in the currency values of the dollar to NOK has meant reduced values quarter-over-quarter there. But pleased to say, on the left-hand side, cash was up about NOK126 million and Hexagon ex-Purus NOK2.3 billion. And Purus had quite a modest quarter for them in terms of cash burn, half the cash burn that they have been doing, so good active management. And we closed that NOK0.4 billion at the end of the year. So, NOK714 million for the group in cash, and we closed with equity ratio of 44%.

So, some of the increase in cash on the Hexagon excluding Purus side, we can take through the capacity expansion, so the U.S. capacity expansion at Salisbury in North Carolina. This continues to be on track. And remember, this capacity is to be online for the growing demand we expect in 2024 from the launch of the 15-liter Cummins engine. So, right at the end of the year, this building here was owned. We did a sale and leaseback transaction and we concluded that, as I said, right at the end of the year, which we received then $16.3 million in gross proceeds and that, of course, strengthens our liquidity.

Construction commenced on the whole project, starting with the parking, building will be erected. And we've already through the year 2022 secured long lead equipment milestone payments, et cetera. So, very much going on track. And another point is that the lessor then will assume the construction cost of the new building. So, that's $13.8 million that doesn't need to be funded by Hexagon. So, further positive to liquidity going forward.

We closed at NOK1.341 billion interest-bearing debt, and we have stabilized leverage levels also for 31 December.

And then, finally our scorecard, our financial and ESG scorecard. As we see that the financial reporting and ESG reporting will be merging over time. We can see that trend. We have conviction that strong demand for our sustainable solutions is sustainable and will grow. And looking at 2022, which was a challenging year, still resulted in 31% top-line growth, NOK4.3 billion in revenue, NOK347 million in EBITDA. We avoided the 1.35 million metric tonnes of CO2. We have available liquidity of NOK684 million going into '23, equity ratio of 48%. And again, we have Hexagon Purus ownership valued at NOK5.4 billion on our balance sheet. So, ready to go into 2023.

And the final words regarding '22, just finishing off. That strong finish meant that we exceeded the revenue guidance. We haven't really changed the revenue guidance throughout the year. But we had NOK4.3 billion, so comfortable clearance. On the EBITDA, that's where we've had the challenges. It's extremely challenging to forecast how our margins develop in the year where you have so much supply chain disruption, where revenues are not always recognized in the period and where inflation and cost is hard to predict, how that goes through our cost of goods sold. Saying that, very, very pleased to hit NOK347 million, exceeding that guided target of NOK325 million.

But because of the difficulty, we still see some disruption, et cetera, coming through that difficulty to predict particularly on the margin side. We'll give preliminary qualitative guidance for 2023. We will return back in -- after the first quarter and with an update on particularly maybe more definitive guidance.

If we start with the Agility businesses, on Mobile Pipeline, we have seen over the last few years extremely strong RNG-driven growth. We expect that to continue. Our order book is -- more or less, covers the full year going forward. So, of course, we are very confident and have visibility on Mobile Pipeline going forward. So, subject to any disruptions, there should be an even stronger year.

On the transit and refuse, we have good momentum from 2022. We expect that to continue. So, very solid volumes in the transit sector and also the refuse sector. I'd just like to say the European transit sector has actually held up very well. We were quite worried about that when it came to the Ukraine war and effects, but we've closed pretty strongly in '22. And overall, very pleased in that sector.

I think the area where there is some uncertainty is heavy-duty truck. As Jon Erik mentioned, we have good visibility in the first half of the year. It should be solid enough. But there are too many risk factors on the second half of the year, one macro uncertainty. Good to note that some of the indications on heavy-duty market are okay, actually, so that's a good indication. But, of course, this switching effect -- potential switching effect to the 15-liter, that's something that we're just going to need more time to see how that affects the back end of the year. But otherwise, we are cautiously optimistic.

On Ragasco, we certainly see a very healthy outlook and a strong sales pipeline. It's been a few years. So, the Ragasco team will continue to be challenged to find other new big customer orders that we've missed for a couple of years. And Ragasco is going to every year, looking to fill the factory -- fulfill the factory and the results will come from there. But very promising in Ragasco and again, we don't have any -- we still believe in a very healthy outlook there.

On Digital Wave, we see this continuing to grow with the momentum. There are more and more markets opening up and more and more geographies. And as we ramp up, we are seeing that we are able to do that also profitably, even with a significant ramp-up in our staff to take these opportunities. So, more and profitable growth in Digital Wave.

So, overall, what does that mean? Healthy growth across most segments. Uncertainty only contained to the heavy-duty truck volumes moving potentially to 2024. And the EBITDA, we do expect a gradual margin improvement. We can't say how fast that margin improvement will be through the year. I will say that a lot of the heavy-duty truck demand is -- or volumes are back-end loaded. So again, we'll need to wait to see about that uncertainty on volumes. At the same time, we have the higher carbon fiber price, but also the other commodity prices coming down should transfer into our components probably by at least the second half -- the second quarter or the end of the second quarter and that will be a positive effect to margins. But at the moment, just a gradual margin improvement through to the end of '23.

On that note, I'll invite Jon Erik to join me.

[Jon Erik Engeset, Chief Executive Officer]

Thank you.

So, in summary then, record-high '22 revenues. We expect gradual margin improvements in 2023. Hexagon Purus, very strong order backlog, supporting future growth. And we maintain the '25 revenue targets of NOK6 billion for Hexagon excluding Purus and NOK4 billion to NOK5 billion for Hexagon Purus.

And with that, we are open for questions.

[Karen Romer, SVP Communications]

Very good. Are there any questions we want to start with here in the room? I do have some online. Okay. We will begin then with a few that come in on the webcast.

So, Jon Erik, do you see the strong European demand in Ragasco in Q4 continuing into 2023?

[Jon Erik Engeset, Chief Executive Officer]

Absolutely. So, the start of the year is very promising. So, we expect 2023 to be a good year. Another good year, I would say, for Ragasco. But still orders to be collected for the second half.

[Karen Romer, SVP Communications]

Another question. Are there further -- this is for you, David. Are there further investments in cylinder capacity expansion needed in order to address the expected '24 demand?

[David Bandele, Chief Financial Officer]

No. That's what we're building to now. So, the expansion that's on track will address the 2024 volumes.

[Karen Romer, SVP Communications]

And again to you, David. What's your overall feel for 2023 outlook?

[David Bandele, Chief Financial Officer]

My feel is good. As I said, I'm cautiously optimistic on the heavy-duty truck and the rest of the businesses are really performing. So, I maintain quite a chipper outlook. Yes.

[Karen Romer, SVP Communications]

Okay. Jon Erik, to what extent -- or maybe David, but to what extent can the solid improvement in Ragasco based on repricing, et cetera, be copied over to Agility performance in 2023 and '24?

[Jon Erik Engeset, Chief Executive Officer]

So, I think we will definitely expect gradual improvement in the margins in Agility in 2023. We also depend on getting good utilization of the factories to take out economies of scale. And that's back to the question of the second half. So, again, there is good reason to be optimistic because the market activity is very high. But we also then caution that if there is a recession, or if customers will choose to postpone because of the launch of the new Cummins engine, then we could see a somewhat softer second half. So, that's the uncertainty we have. But then going into 2024, we think we will have restored margins back to the pre-COVID level to put that right.

[Karen Romer, SVP Communications]

Continuation from that question was, when was the Cummins engine contracts negotiated? And how flexible are they on input costs on Hexagon side?

[Jon Erik Engeset, Chief Executive Officer]

Yes. So, I apologize if I have been imprecise. So, we have not entered into contracts with Cummins. Cummins is the engine supplier. We supply the fuel systems. So, we are, as such, independent players in the market. But the Cummins engine is, of course, central for the market to develop. So, this new model is very, very positive for us. But we don't trade directly with Cummins normally. There are some exceptions to that. But generally, we are independent from Cummins in the market offering.

[Karen Romer, SVP Communications]

And just as a continuation on the Cummins topic, how confident are you that the 15-liter launch will boost the CNG market and benefit you?

[Jon Erik Engeset, Chief Executive Officer]

Very confident.

[Karen Romer, SVP Communications]

Okay. We also have -- David, on a group basis, gross margin is 6 percentage points lower in 2022 versus prior years. How does the path forward to, for example, when will the 50% to 52% level be reached again?

[David Bandele, Chief Financial Officer]

I think it's a similar question I've faced before previous quarters. It's really a function of that normalization. So, if there is normalization in the supply chains, that's been part of the issue. And of course, normalization, at least with our -- or mitigation of our prices to the input costs.

I think the other key factor, though, going forward from there is when we kick into those 2024 volumes, we expect quite an inflection point and so quite more considerable volume scale efficiency and that will really impact margins.

One other item is kind of back to the question about Ragasco. So, Ragasco operating at world-class manufacturing levels, that is something that we'll use 2023 as quite a focus so that we are as efficient as possible when those '24 volumes come in. And we feel there is quite a lot of margin from the productivity, focusing on the manufacturing side. That should benefit margins as well.

[Karen Romer, SVP Communications]

Excellent.

[David Bandele, Chief Financial Officer]

So, wait for '24.

[Karen Romer, SVP Communications]

Okay. Maybe another question from the webcast. How much do you expect carbon fiber cost to increase year-over-year in 2023 in percent?

[David Bandele, Chief Financial Officer]

We tend not to give that sort of data out, but it's enough to be significant. So, these prices, you would say it's probably normalizing back to 10 years, 11 years, 12 years ago. So, they have been gradually increasing over the last couple of years at least. And so, we've been able to deal with it, apart from these very extreme conditions in 2022.

[Jon Erik Engeset, Chief Executive Officer]

But just to add to that. So, we don't really see continued price increases from what we saw in 2022. But we also don't see that the prices will come down again in 2023. So, they are flattening out at a relatively high level.

[Karen Romer, SVP Communications]

Very good. Jon Erik, can you expand on the ongoing RNG market strength contrasting the outlook in Europe and North America in view of the IRA?

[Jon Erik Engeset, Chief Executive Officer]

Could you please repeat the question?

[Karen Romer, SVP Communications]

Can you expand on the RNG market strength, the ongoing strength of the RNG market and contrast it to the outlook -- contrast the outlook in Europe versus North America in view of the IRA?

[Jon Erik Engeset, Chief Executive Officer]

The RNG is already very hot in the U.S. in the transportation sector. And there is a significant difference between Europe and the U.S., because in the U.S., we can run trucks on CNG, compressed natural gas. While because of the configurations of European trucks, that market is going to be liquid. And that is why we invested in Cryoshelter to also get leading technology for liquid storage of natural gas to the European market.

So, in that sense, Europe is lagging the U.S. in the transportation sector. The biomethane industry is as big or bigger in Europe than in the U.S. But the application for the transportation sector is more novel in Europe. But with this very, very strong focus on both decarbonization of transportation and the increase of biomethane capacity and the extreme increase of biomethane capacities in Europe and the build-out of infrastructure, we think that there is a very, very promising market also developing in Europe.

[Karen Romer, SVP Communications]

Excellent. Do we have any questions in the audience here?

[Unidentified Analyst]

Just a quick one. You reported a 11% cylinder sales from Hexagon or to Hexagon Purus. Can you just elaborate on that cooperation between you producing the cylinders and delivering to Purus?

[Karen Romer, SVP Communications]

Can you repeat the question for the audience? We didn't get the microphone to him.

[Jon Erik Engeset, Chief Executive Officer]

I think the microphone comes there. So maybe -- are you okay to repeat the question?

[Unidentified Analyst]

So, just on this 11% cylinder sales from Hexagon to Purus, just to understand the cooperation between Hexagon and Purus.

[Jon Erik Engeset, Chief Executive Officer]

So for now, Purus relies to a significant extent on getting supplies of cylinders from less Hexagon, from Agility, especially in Germany. But with the new sites then coming on stream step-by-step through this year, Purus will take over a share of that. They will still continue to be supplied for at least the next couple of years because of the growth rate. So even with all these expansions, they will need to have a third-party supplier and that will be Hexagon. Obviously, this trade is at arm's length distance.

[Karen Romer, SVP Communications]

Other questions from the room? Okay. I do have another question here from the audience. Jon Erik, can you describe some of the advantages of the new generation Mobile Pipeline modules that you spoke about?

[Jon Erik Engeset, Chief Executive Officer]

So, the main advantage is that it is more compact, more storage volume per weight unit and per space unit. But also, we are further reducing the gravity points of the container, and that is very, very important competitive edge to the competition. So, rollovers is a major concern when transporting, whether it is natural gas or hydrogen. And we have by far the lowest tipping point, if you like, of this container. And the new generation will further improve that. So, it's very well-thought-out products. I have been working on it now for, I think, almost three years, and we will continue to fill in with different configurations to cover the full market with that new concept.

[David Bandele, Chief Financial Officer]

I can also add. We shared that North American market, which is north of $70 million revenue with another competitor. And this product instantly makes us a better competitive position than that customer. So, we expect some good things there as well.

[Karen Romer, SVP Communications]

Let's keep my eye on the room here. I do have another question online. Jon Erik, regarding your stake in Hexagon Purus, what is the timing for reducing to a minority holding?

[Jon Erik Engeset, Chief Executive Officer]

That's the same answer as always, but we want to support this company. We love the company. But we also think that it is the right way to go that we over time reduce our ownership below 50%. One thing is on our side to -- because it's confusing for a lot of investors looking at the consolidated numbers when we have this mix of the early-stage peers, which is EBITDA negative and then the more profitable healthy portfolio that we have in the rest Hexagon.

So, for those of us -- for those investors who are not able to follow closely, the equity story will be simplified. So that's one thing. But also, we think it's good for the Purus stock to have more free flow, et cetera. So, we will contribute to that, but we will not make obviously any hasty moves, which is not then supporting the industrial development and also the equity value.

[Karen Romer, SVP Communications]

Okay. Then we have a clarifying question. To make it clear, you expect carbon fiber prices to remain relatively flat for '23 compared to '22, not a further increase?

[David Bandele, Chief Financial Officer]

So, the prices are fixed. But as they run through, come out of inventory and into margins, that is something that is increasing year-over-year. But the rate of increase is slower. So '22 over '21 was a higher rate than '23 over '22, if that clarifies. So, prices are fixed. But of course, as you take this through inventory, you start using the higher and higher prices and you get this margin effect I discussed.

[Jon Erik Engeset, Chief Executive Officer]

Because a lot of that price increase came into our inventories in the second half of 2022.

[Karen Romer, SVP Communications]

And then, continuing on the cost questions. Can you expand a bit more on the raw material effect in Agility? Can you explain why it's so difficult to pass along the cost increase to customers?

[David Bandele, Chief Financial Officer]

In Agility?

[Karen Romer, SVP Communications]

Yes.

[David Bandele, Chief Financial Officer]

Yes. I think we've discussed the contract structure. So, it's to do with the contract structures there. And -- yes.

[Jon Erik Engeset, Chief Executive Officer]

But it's always very difficult to pass on. It's very painful. But the contract structure is different in that business than in, for example, Ragasco. But we need to be mindful of the situation of the customers as well. So, to do this over some time is I think the most prudent way of approaching it.

[Karen Romer, SVP Communications]

Okay. I've got one last question here. Is there anything else from this room? No. Great. Then for you, David, what drove the great results in Hexagon Ragasco and Hexagon Digital Wave?

[David Bandele, Chief Financial Officer]

Obviously, a great team, I guess. No, I think Ragasco has had a constant focus on operational excellence and the question has always been developing that customer base, has done a good job on the recurring customer base and is doing a good job. I think I mentioned 14 new introductory markets. So that added 5% of volumes. But of course, some of those markets grow and grow. So, I think I'm having a very good scale efficiency. With high saturated plant, the results come through on Ragasco.

On Digital Wave, this is really nice to see the breakeven point. And they are growing profitably and we expect them in '23 to continue to grow significant top-line, but also with the profit. And again, it's because this technology is relatively, in our humble opinion, immature in terms of going out to the market. So, we are just opening more and more geographies, more and more applications, and that's really driving the momentum.

[Karen Romer, SVP Communications]

Excellent. I think that makes it a wrap for today. And thank you, everybody, for joining us here in the auditorium in Oslo and also online.

[Jon Erik Engeset, Chief Executive Officer]

Thank you.

[David Bandele, Chief Financial Officer]

Thank you.

[Karen Romer, SVP Communications]

Next quarter.