Hexagon Annual Report 2019

entity would not need to re-perform the installation or the defined milestones that the Group has provided to date demonstrates that the customer simultaneously receives and consumes the benefits of the Group’s performance as it performs. The Group determined that the input method is the best method in measuring progress of the services and funded development contracts because there is a direct relationship between the Group’s effort (i.e., total costs incurred) and the transfer of service to the customer. The Group recognizes revenue on the basis of the total costs expended relative to the total expected costs to complete the service and funded development contract. See also note 4. The group has several offices and other facilities leases with options to extend the lease. The renewal options have been included in the calculation of the lease liability if management is reasonably certain to exercise the option to renew the contract. Management has used judgment when considering all relevant factors that create an economic incentive to extend the lease. In this assessment Management has considered the original lease term and the significance of the underlying assets, i.e. the offices and other facilities. Leases – Significant judgement in determining the lease term of contracts with renewal options and incremental borrowing rate The Group cannot readily determine the interest rate implicit in the lease, therefore, it uses its incremental borrowing rate (IBR) to measure lease liabilities. The IBR is the rate of interest that the Group would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The IBR therefore reflects what the Group ‘would have to pay’, which requires estimation when no observable rates are available (such as for subsidiaries that do not enter into financing transactions). The Group estimates the IBR using observable inputs (such as market interest rates) when available and is required to make certain entity-specific estimates (such as the subsidiary’s stand-alone credit rating). See also note 2.25 related the effects of implementing IFRS 16 and note 23 Leases. A revised segment and reporting structure were established from first quarter 2018. As a result of the growing market opportunities for renewable fuels solutions, Hexagon has organized its Hydrogen activities and CNG Light-Duty Vehicle activities into a dedicated single business segment, Hexagon Purus. Agility became a consolidated segment from 2019. Comparable figures for the new segments are restated. NOTE 4 SEGMENT INFORMATION By this the Group’s operation is divided into four strategic business areas, which are organized and managed separately. These four business areas are also defined as the group’s reportable operating segments as the different business areas sell different products, address different customer groups and have different risk profiles. a) Agility - the leading global provider of highly engineered and cost-effective compressed natural gas, liquid natural gas, and propane hydrogen fuel systems and Type 4 composite cylinders for medium- and heavy-duty commercial vehicles. b) Hexagon Purus - development and supply of high-pressure composite cylinders and solutions for a wide range of Hydrogen applications as well as CNG-fueled Light-Duty Vehicles. c) Hexagon Mobile Pipeline & Other - development and supply of high-pressure composite storage and transportation cylinders and modules for compressed natural gas (CNG) and biogas. d) Hexagon Ragasco LPG - manufactures low-pressure composite cylinders, i.e. cylinders for propane gas. THE HEXAGON COMPOSITES GROUP IS DIVIDED INTO THE FOLLOWING REPORTABLE OPERATING SEGMENTS The President of Agility, Hexagon Purus, Hexagon Mobile Pipeline & Other and Hexagon Ragasco LPG are the Chief Operating Decision Makers (CODMs) and monitor the operating results of their respective business areas separately for the purpose of making decisions about resource allocation and performance assessment. No operating segments have been aggregated to form the above reportable operating segments. Transactions between the segments are based on arm’s length basis. The Group's customer base is relatively fragmented in terms of size and concentration such that it is not dependent upon any one single customer. In 2018 the Hexagon Mobile Pipeline & Other business segment had one customer group with sales that constituted more than 10% of the Group's annual sales. Sales to the customer totaled NOK 316 513 thousand in 2018. No customer or customer group is exceeding 10% of annual sales in the group in 2019. OTHER INFORMATION The Group’s activities are divided into the following regions: Europe, North America, South-East Asia, Middle East, Other and Norway. GEOGRAPHICAL AREAS Transactions within the segments have been eliminated. 23 109 2019 AT A GLANCE FROM THE BOARD ROOM FINANCIAL STATEMENTS