Earnings Call: Q1 2018

May 4, 2018

Good day, and welcome to the Hexagon Q1 Report 2018 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ole Wallen. Please go ahead. Thank you. Welcome to this Q1 of 2018 interim report presentation. And if you go to Slide number 4 in the deck, overview the Q1. Organic growth came in at 7%, and that's equal to the recorded growth, which also was 7%. And within those two numbers, you have a negative FX impact of 8%, primarily the Chinese renminbi and the U. S. Dollar. And then you have a positive impact of 8% from acquisitions. We saw 13% organic growth in China. We had 11% growth in Geosystems and 9% organic growth in Manufacturing Intelligence. And we recorded a 62% EBIT margin sorry, gross margin and an EBIT margin of 23.8%. We move to Slide 5. Q1 is now our weakest quarter, and that has to do with the geographic mix change away from Europe and North America to Asia. But it was our strongest Q1 ever. On Slide 6, we see the key numbers. Net sales amounted to SEK 834,700,000, dollars which is 7% organic and 7% recorded growth. Operating earnings, dollars 198,300,000 which is 12% up from the same quarter previous year. And for those of you who have the old report from 2017, these are the restated numbers according to the new IFRS rules. Earnings per share, excluding nonrecurring items, drew by 10% from €0.39 to €0.43 If we move to Slide 7, cash flow. Cash flow from operations before changes in working capital and taxes and interest paid grew to CHF 255,000,000 If we look at taxes paid and change in working capital, those are really the 2 items that are materially different from the same period of last year. We can see that we pay almost double as much in taxes paid. We also see an adverse impact on the change in working capital. And this is the normal situation in the Q1 for Hexagon. I would say that we had an exceptionally good working capital development in the Q1 of last year. Do we expect significant growth, adverse growth in the working capital going forward? No. I think this is roughly the level. Typically, we have an outflow in working capital in the first half, and then we have an influx of capital in the second half. This time, it was accounts payables, where we simply had an adverse effect in our working capital position. We also want to highlight investment in tangible assets. There is nothing exceptional in the first quarter. But planning ahead and for your calculations going forward, you need to take into account that we will acquire a property, an R and D property in Canada, in Calgary. And we've also started the construction of our new facility in China. So we expect it will increase and be in the range of €145,000,000 to €165,000,000 in this fiscal year. Still, in spite of the adverse development of working capital, if we look at Slide 8, working capital to sales is developing well and is now at 13%. This is a function of increased software content and increased recurring revenues. If we had 100% recurring revenues, this would, of course, be negative. So it shows the difference from 100% to where we're at, at the moment. Market development. If we go to Slide 10, sales mix per geographic region. North America slightly lower than this time last year, 29% versus 31%. We see Western Europe strengthening its position from 31% to 32%. Asia Pac also grew on the back of good development in Australia and Southeast Asia. Slide 11. China reported strong growth, 13%. Eastern Europe, Middle East and Africa were also double digit growth and so was South America. North America, good growth, Western Europe as well, but single digit. Asia, excluding China, also single digit growth in the quarter. Slide 12 is for your reference. It's a lot of information, but you can see the various segments per geographic area. Slide 13, EMEA. Western Europe recorded 4% organic growth. We saw good growth stemming from a recovery or a comeback to strong growth in Construction and Infrastructure segments in Germany and France and Italy. It's a weak development in the U. K. UK is at record levels, but in recent quarters, growth has been somewhat weaker. I think it's it would be a guess to connect it to Brexit or anything else. It could also be just a breather in the market. Growth is mainly driven, as I said, by infrastructure North America, and we yet have to launch it in the rest of the world. The recovery is continuing in Russia, and we saw strong double digit growth for all business units in Russia. And we also saw Middle East coming back to growth in the quarter. And as you can see on the table to the right, GES is outgrowing IES in this region. If we move to America, Slide 14. North America recorded 8% organic growth, and that was once again on the back of strong infrastructural investments and a construction market that was buoyant. We saw mining and public safety solutions grow strongly in North America as well. Industry was somewhat weaker. Aerospace, automotive, not as strong demand as the other sectors. Solid development in new solutions and a recovery for PPNM in the U. S. South America is now returning to growth, and we saw double digit growth in South America. And it's Brazil recovering for the Q2 in a row. Moving to Asia. China recorded 13% organic growth, and that's on the back of continued strong demand from our electronics customers. And we also saw solid development from Tier 2, Tier 3 industrial enterprises all across China. And we also saw good development in the smart city solutions. Southeast Asia recorded 28% organic growth. The powerhouse in the quarter was really Vietnam that continues to go from strength to strength. A lot of international companies are relocating their operations to Vietnam at the moment. Weak development in Japan and India. Reporting segments, if we go to Slide 17, Industrial Enterprise Solutions. Mi grew by 9% organic growth. Auto and Aerospace improved globally, but it was really China that was the powerhouse for MI in the quarter. PP and M, 1 percent organic growth, mainly driven by favorable growth in project control software and recent order wins in Korea and China. The oil and gas segment was weak, but we do see improvements going forward. So growth is expected to accelerate in the coming quarters. Due to mix where PP and M didn't grow as fast as Mi, we had a slight reduction in operating margin from 24.2% to 24.1% in the quarter. Geospatial Enterprise Solutions, Slide 18, organic growth of 8%. Geosystems recorded a very strong 11% growth. And its new products, the Black 360, Mining, Infrastructure and Construction, driving this growth. SI, 5% organic growth. We have good prospects and a good funding for our safe city and public safety solutions. Positioning, still a weak market for offshore positioning, but the Novotel business grew by double digit growth, backed by strong demand in agriculture and defense. We saw good development for both sales EBIT and operating margin for Geospatial in this quarter. Slide 19, gross margin. The 12 month rolling is now at 61 percent, up 1% against this period last year. For the quarter itself, it was 62%. Slide 20, EBIT margin, 24% in the quarter, which is our seasonally weakest quarter and 24% on a 12 month rolling. The targets are unchanged. Base scenario, 27 and opportunity scenario 28 by 2021. Orders and product releases. If we turn to Slide 22, we announced that we are acquiring AgTech. It's a U. S.-based software company specialized in planning and productivity software for heavy civil construction and engineering, I. E, roadworks. And our intention is to connect this software to our machine control solutions, Hexagon Machine Control Construction, and have a seamless portfolio of software and hardware solutions for civil engineering and roadworks. On the longer term, we also have plans and roadmaps to connect it to Hexagon SmartBuild, where SmartBuild would then not only stretch building and construction, but also engineering and infrastructure. Slide 23, driving mine safety through collision avoidance. We've launched a new product called Personal and Alert, which is a sub product for our collision avoidance family of products, where we now have vehicle mounted and personnel mounted sensors that can alert vehicles in the mine if there is about to be a collision or an accident. And Glencore Coal in South Africa is the first customer that now will standardize on this solution. It's actually a it's compulsory in South Africa via the Department of Mineral Resources to have collision avoidance systems in South African mines. Slide 24. We've captured a number of orders in the quarter from the mining sector. Reality capture from Sigareny Collier's company in India planning software from Fekola mine in Mali and Safety Solutions collision avoidance from Codelco in Chile. Slide 25. We're launching a new product this quarter called Hexagon Aggron. Hexagon Agron is a software solution where we connect precision agriculture sensors with the office on large farms to do real time measurements and resource allocation, sort of ERP system for a farm. And we already closed deals with 2 Brazilian companies in the quarter involved in the sugarcane industry, and that's Sao Martinho. And then we have Susano, which is the largest pulp and paper company in Latin America. Slide 26. We got an order from a major aerospace OEM who wants to remain anonymous, and they will incorporate our simulation solution into their development process for the next generation aircraft. Major Aerospace OEMs use MSC Apex to do conceptual modeling work flows when they design the next generation. And they do this to reduce the design cycle time and avoid potential human errors in the early design stages. Slide 27. We're launching a new product called Bending Studio with an absolute arm. And this creates the ability to connect directly to a CNC machine, Bending machine, your metrology software. And you have speedy determination of exact geometry to tell whether you're producing scrap or good things. So it's another in line solution for CNC machines. Slide 28. We're launching the next generation of Adams products. In computer aided engineering, Adams is a classic software, and we launched the next generation. We acquired MSC in, well, about this time last year, and we worked hard on refreshing and modernizing this product. And I think it's fair to say that I think we have a really good product in this field now. Slide 29, managing underground utilities for a smart city. We got an order from the 3rd largest city in the Indian state of Gujarat. And they're going to implement our GIS based project management tool for underground utilities. And that's going to include utilities like water, sewer systems and telecoms. And is based on our GIS platform, Geomedia. Slide 30, predictive analytics for crime prevention. You can use our technology to predict where crime is going to happen. And the city of San Pedro, Garza Garcia in Mexico is standardizing on our platform, and the police will use our platform to predict the likelihood of crime in certain locations. You basically geo reference incidents and you follow-up over time, and you can see when crime happens, where crime happens, and you can man your resources accordingly. Slide 31. We got a large order from the Viennese Professional Rescue Service. It's the largest rescue organization in Austria, and they have more than 100 ambulances covering an area with 1,900,000 residents. They manage roughly 1,000 incidents per day, and they used our dispatch solutions to do well, to improve productivity for their organization. Slide 32. AT and T is using our technology to extend their footprint to another 90,000,000 customers in North America. AT and T is the world's largest telecommunications company, and they've already used our technology for network design and installation tools for its landline footprint in the West and Midwest regions of the United States. And now they're extending this into the Southwest regions of region of the United States. So it will add another 90,000,000 customers to our platform. Slide 33, driving innovation with top of the line enterprise engineering software. PPNM received orders from, among others, FGL LLC, which is an owner operator based in Taiwan. And Sinopec renewed their commitment to PPNM in the quarter. Finally, Slide 34, internal investments of large scale. We're opening our new campus in China, in Hongdao, in the Shandong province in China in 2020. It's a 52,000 square meter state of the art facility. And we're using all our tools when construing this campus. So we use Hexagon SmartBuild. We use our surveying equipment. We use our construction equipment to build it. We're going to use our security and safety systems to protect it, and we're going to showcase all our technologies for our Chinese customer base so that we have a Chinese demo center, state of the art demo center. In July of 2018, we inaugurate our new R and D facility in Calgary in Canada. Calgary is our R and D center for the Positioning Intelligence division, and we develop GPS or GNSS Technologies in Calgary. It will house roughly 600 employees. I think this is what I wanted to point out when you calculate investments going forward. We're going to have investments of €90,000,000 to €110,000,000 in this fiscal year related to these 2 new facilities. So you should budget for tangible assets investments in the range of €145,000,000 to €165,000,000 in 2018. Finally, some advertisement. We have a Capital Markets Day in Las Vegas in connection to our user conference, Hexagon Live 2018. Hexagon Live will kick off on the 12th June and last till the 15th June. And we will have the Capital Markets Day the day after 13th June in the Venetian Las Vegas. If you're interested, please contact us at cmdhexagon.com. So in summary, Slide 37. Strong growth in Geosystems Manufacturing Intelligence, an excellent start to a hopefully good year for Hexagon, another good year. 13% organic growth in China, continued robust demand from the electronics industry positive development in PP and M growth expected to accelerate in the quarters to come strong profitability despite this significant euro strength that we currently see in the market. And with that, operator, we've come to the final slide of my presentation, and we're now ready to open up for questions. Thank And we will take an opening question from Guillermo Peigneau of UBS. Please go ahead. Hi, good afternoon. Guillermo Peigne from UBS. Just a couple of questions. First, regarding China. As you highlighted, China is a little bit slower, but it's still the strong growth in electronics and smart city. I was wondering whether you could point what was slower in the quarter, what first question on China. The second on PP and M, can you give an indication of the magnitude of a recovery that you point to in the press release regarding PPNM recovering in the subsequent quarters? Is there any orders at hand or any activity that you could highlight as helping for us to address the magnitude of recovery there? Thank you. I don't think you can address the magnitude of recoveries. That's up to our salespeople to do. So I will pass on that. I'm just stating that it's we believe it's going to grow faster in the quarters to come. And if you listen in on the 31st July, I will tell you exactly how much it's grown. When it comes to China, yes, it's a slowdown compared to Q4. I still think 13% organic growth is decent growth. What we saw sequentially slowing down was certain parts of the manufacturing industry like auto, for example, that didn't grow as fast sequentially as it did in the Q4. Is that a long term issue? I don't know. I think long term, and then I'm my outlook is the next 4, 5 years. I think we're going to see good growth from the auto industry simply because all auto manufacturers now need to provide 3 platforms. It's been combustion engines up to now. Now it's going to be combustion engines, hybrids and electric cars. And this is putting a lot of pressure on their investment budgets and especially in China, where we see a lot of local manufacturers switching to electric cars. And can I follow-up on smart cities? Can you comment on how many cities in China have you already received orders from? It's less than 5 right now. Thank you. Thanks. We will take our next question from Markus Amerald of Kepler Cheuvreux. Please go ahead. Hi, Markus from Kepler Cheuvreux. So starting out with Geosystems, you said the infrastructure is one of the key I mean, it's one of the key drivers. Can you talk a little bit about the regions, which regions stick out? And then if I can also ask on the new product, you say that there's about 2 percentage points of the organic growth is new products. Which product is it mainly the BLK360 or are there others as well? It's if we start with the new products, I would highlight 3 product lines. It's our geo radar solution where we use radar rather than laser to predict mudslides, landslides, rockfalls and so on. And we see really good growth for that. We use a similar technology to create so called ground penetrating radar, where you can locate assets underground like fiber optical cables, sewage systems and so on. And in general, you could say the GeoRadar solution is gaining a lot of traction in the market. The second product line would be BLK360, which has really good growth in the quarter. And the 3rd solution I would point at is our new vision technologies in MI directed towards the electronics industry. Okay. And when it comes to the infrastructure, what any region that particularly sticks out? Or is it just across the board? No, it's Central Europe driven by France, Germany and Italy, which is coming back. And this is the first time we see solid demand in Central Europe since the financial crisis. But we also saw a return to growth in North America, primarily United States actually. And then finally, if I can just ask also on manufacturing. I'm a little bit surprised that you see weak demand in manufacturing in the U. S. Can you just talk a little bit about that and what's behind that and the specific areas of manufacturing that is behind, etcetera? It's primarily aerospace, and I think it's a changeover of models. Okay. Thank you. Thanks. Our next question comes from Stacy Pollard of JPMorgan. Please go ahead. Hi. Just a few for me, please. Operating margins seem to have held up relatively well, particularly in light of the FX headwinds. Could you provide some more details around product mix and the improvements in your cost structure, how that's progressing? Second one would be just about M and A. And then how are you seeing the valuations in the market on that? And then third question, any changes in the competitive position either in PPNM? So for example, of course, we've seen Aviva and Schneider come together, any thoughts on that? And also within Mi or metrology or even agriculture, it sounds like you're trying to be more competitive there as well. Okay. Cost wise, the benefit we got cost wise, well, we had 2 benefits in our cost structure or 3, actually. We had product mix. We had the cost rationalization program that we launched in the Q1 of 2017. That is now giving us cost reductions of in the tune of SEK 10,000,000 per quarter. And then thirdly, what we do have as a improvement FX wise is the weakening Swiss franc where we have cost in Switzerland, which in euros is becoming less expensive. So that's the cost side. And if you do a proper calculation on our incremental margin on the EBITA level, it was actually 60% in the quarter, which is a very good drop through for a quarter. So cost is under control. If we talk about M and A, I would say that's not under control. Some of the multiples that we see in our market right now are outright crazy. It's we backed out of, I don't know, 4 or 5 processes in the past 6 months simply because of price. But you can still find really attractive acquisitions, but you need to be very pecky right now and buying the stuff that gives you good synergies. And hopefully, we're going to come back to that. And then competitive? And then competitive situation, no, we haven't seen much change in the competitive landscape this quarter. Agriculture, yes, we were trying hard to catch up with the leaders in that industry. And it's fair to say that apart from our GNS solution, we're very small at this moment. But Aggron will hopefully help us grow that segment much to a much larger size. Thank you. Thanks. We will take our next question from Mikael Lhasin of Carnegie. Please go ahead. All right. Thanks. I also had a question regarding your margins, mainly in the Geospatial segment, where incremental margins were really good. Can you explain this in more detail why they improved so much? I guess that Swiss franc is one thing. Sorry, I caught there is a very there is a bust on your line. Okay. I'll try to pull in again and see if I can get through. Yes, we'll wait for you. Thanks. We will take our next question from Daniel Dubeug of Handelsbanken. Starting again with the PPNM, you stated that you will see hopefully improved growth coming quarters. And is this partly because of oil and gas recovery? Or is that more of a 2019 happening? Let's start there. I definitely hope it's a 2018 happening. It's not oil and gas related. We worked hard on penetrating other segments of the market. So hopefully, oil and gas, it seems to be at the bottom. We've plotted our sales of seats software seats to the CapEx cycle of the oil and gas sector. And there is a fantastic correlation between the 2. And CapEx seems to be improving slightly in that market. But as I said, at the same time, we worked hard in this downturn to penetrate new segments of the market, and we expect good wins from those segments. Okay. And another question, if I may, would be regarding your predictive analytics. There's a lot of talk in Bas about artificial intelligence, etcetera, nowadays. I was thinking, are you using your own analytics IPR? Or do you buy in this from 3rd party, etcetera? Or if it's in your own, can it also be licensed to other industries where you're not pressed? So on any comments on that. We have our own analytics, and we're building our own AI group right now with competencies from around the world for various applications. We see it being used in all our divisions. So it's a group project, and we connect it closely to our IoT platform. And we've been looking at models where we could license out the entire package, I. E, IoT connections, orchestration, analytics and presentation on our technology. So it looks quite promising actually. Interesting. We'll hear more about that in Las Vegas. Another last question would be on SmartBuild, if you can tell us. I know it's still early days and so on, but now you have also Agatec integration ahead. And so can you say anything about how Agatec will change the size of the offering relative to competitive tiers of that trend when that will happen? The basic fundamentals are the same, and that is we're not a BIM. A BIM is beautiful three d model. We want to create almost an ERP system, something that you can work with when you build stuff. And so far, we've tried to encompass building construction, I. E, when you erect buildings. With AgTech, we can now look at connecting infrastructure, civil engineering projects like bridges. I know some people in the construction industry call it flat or horizontal projects rather than vertical, if that makes sense. Vertical projects would be building and buildings and horizontal would be roads, tunnels, bridges and so on. So we believe that we can finally connect SmartBuild with that construction process as well. Okay. Thank you so much, and good luck in Q2. See you on the flip. Thank you. We will take our next question from Karl Munda of Berenberg Capital Markets. Please go ahead. Hello. Can you hear me? Yes. Perfect. So I got a few questions. The first one is just if you can comment on the recent consolidation in construction industry, especially the recent deal that your competitor in U. S. Did. Is that something is adding additional pieces of the BIM puzzle important for you at this stage? Or are you more relying on building your own? How do you think about build versus buy in that sense, especially in light of the multiples you mentioned? And then the second one would just be connected with in connection with MSC. I don't know if you can comment, give us any clarity on the growth, how it's progressing? You mentioned one important win on the Apex side. If you have any color on that, that would be very helpful. Thank you. No, we had a vision long ago for the construction industry, and thus, we acquired PP and M in Intergraph, and we got the platform and the foundation to create smart build. So I wouldn't say that we're always going to make bolt on acquisitions when we expand into a market. But I would say that the basic fundamentals for smart build are now in the hands of our developers. We don't need to make huge investments in terms of M and A to realize our vision in the construction market. Regarding MSC, they grew 10% organically in the quarter. We will take our next question from Max Freiden of Danske Bank. Please go ahead. Yes, hi. Just two questions from me. The follow-up on the sales contribution from new products. It's accelerated during the second half and in Q4 and now since it has decelerated in Q1 2018, is this sort of the contribution profile, if you can say so, from new products? Or should we expect this trend to turn here into the Q2? First of all, I need to make a correction because in an interview earlier today, I stated 2%, and we have since checked and it was actually 3%. And that is the sequential slowdown from Q4 where we said it was 5%. I think the cycle for Hexagon is very much connected to Hexagon Live. We run Hexagon Live in June. All divisions are targeting product launches at that conference. So then you get a cycle where you see some adoption in the Q3, Q4 and then it's trailing off in Q1, Q2, only to strengthen again in the Q3. So that's our cycle typically. Perfect. Very clear. Thanks. And just maybe on Manufacturing Intelligence organic growth. You have seen very strong growth in Electronics. You're going to meet tougher comparables there. And you mentioned Automotive CapEx slowing slightly here in the quarter. And then if you look at the historical growth rate in Mi of 7% to 8% in the past 2 to 3 years, in comparison to that, what growth drivers should we take into account here in the near term in order to continue that very strong track record? I think that in the near term, it's the same growth drivers as in Q4 and Q1. It's going to continue to be electronics for a while. It's going to be I think we're going to see a return to growth in aerospace. I expect automotive to look a bit better. And what we also saw in the quarter, which hasn't really happened since 2011, that is Tier 3, Tier 4 customers starting to invest heavily in our technology. Okay. That's clear. Thank you all for taking my questions. Thank you. We will take our next question from Mohammed Marwala of Goldman Sachs. Please go ahead. Great. Thank you very much, Ola. One question from my end. Ola, you talk a lot about sort of penetrating with your solution set in a lot of the kind of OEMs. But as you kind of increase your share of wallet in there, how do you think of the sort of supply chain opportunity within these OEMs? Is this a sort of further accelerator down the line? I don't know. Is there a way to kind of size some of these opportunities within supply chains of sort of major OEMs? It's very difficult to size it, but you're absolutely right. As you penetrate the Tier 1 players in an industry, there is going to be 1 solutions. You've seen that in the on the Tier 1 solutions. You've seen that in the software industry where you want to integrate into a large company's ERP system and have seamless deliveries, for example. It's similar in our industry. So think of a construction worksite where you have a huge contractor that subcontracts a lot of work to small companies. These companies need to be connected to this information system. Otherwise, it's useless and pointless to invest in that system. So I do believe that over time, you will see an acceleration. We've definitely seen it in the automotive field, where we've been for the past 18 months sorry, 18 years. And I expect that to happen in other industries, too, as they digitalize their workflows. Okay. And if I can sneak one more in. Can you kind of give us an update on sort of the smart solutions and the revenue contribution from those? So smart cities has been a focus area and how the pipeline is evolving on those kind of product sets? Pipeline is evolving. It's I think it's a stepwise process. I couldn't back out them right now sitting here, but I can give you a number offline later on. Okay. That's great. Thank you. Thanks. We will take our next question from Gerardus Voss of Barclays. Please go ahead. Hi, good afternoon. Thanks for taking my questions. First on the BLK360, when do you expect that to launch in the rest of the world outside North America and Europe? And should we expect some tick up in GEO system because of that in the second half of the year? And then secondly, could you remind me about the negative FX impact you had on the quarter on the margin? Thank you. Okay. BLK360, we are actually trying to fulfill the need in the market in North America and Europe as we speak. So it's going to be an H2 question when we open up in the rest of the world for deliveries. And when it comes to the margin, the impact on the margin was €40,000,000 on the top line, was €18,000,000 EBIT, negative adverse EBIT impact on €60,000,000 adverse sales. So it's a 30% incremental margin on the FX. Okay. So EUR 60,000,000 impact top line, EUR 80,000,000 on the EBIT? Yes, EUR 1.8 billion. Okay. Perfect. Thank you. We will take our next question from Matthias Holmberg of DNB. Please go ahead. Hi, Ola. Matthias Holmberg from DNB here. I have a couple of questions on the BLK360 as well. So you just mentioned getting out the volumes that the market is requesting? And then another question on the BLK is that, please correct me if I have misunderstood this, but I've heard that you only sell this online, so sort of stepping away a bit from your traditional route to market. Is there could you please just elaborate a bit on your thoughts of this new approach? No. It's absolutely true that we have it's a brand new product. It's the first in its family of new generation of products that Geosystems is designing and planning to launch. So we're going to see more black products in the future. But we're catching up. So I don't see this as a long term problem to gear up and fulfill the needs in the market. It's true that we started launching it as an online product, and we've only sold it online. That was the collaboration with Autodesk where we had a package deal. You could buy Autodesk's BIM software as a package together with BLK360. We are, however, going to sell it through more traditional channels as well as it's maturing. Great. That is very clear. And a final one from my side. Looking at the FX, we've seen the Swiss franc weaken quite significantly in value versus the euro. And I know you have quite some exposure at least to the Swiss franc. Could you please just remind us a bit about the dynamics here and if you can expect some kind of offset versus the dollar and other currencies here in the coming quarters? Yes. I mean the negative effect is stemming from the renminbi and the U. S. Dollar, if you simplify life. And then there is a positive impact, not on top line, but on bottom line from the Swiss franc. So you're absolutely right. We it would have been even worse if the Swiss franc had stayed where it were, but it weakened in the quarter against the euro as well. Would you be willing to share any sort of significance of the Swiss franc in this quarter, how much it would have been without it? We had a net effect of minus SEK 18,000,000, and we had a positive effect of roughly SEK 5,000,000 from the Swiss franc. Great. That is very helpful. Thank you very much. We will take our next question from Erik Golang of SEB. Please go ahead. Thank you. I have two questions. The first one is returning to the margin strength in Deospatial. I think if I'm not wrong, it's the first time that we've seen Geospatial higher than industrial in terms of operating margin. I don't think that most of us probably assume that, that won't be the case long term. But is that something that we would have to rethink perhaps? And then the second question, I had a bad line when you talked about the working capital impact on cash flow, If you could repeat that and also in relation to the increase we saw in prepaid expenses and include income quarter on quarter? And then finally, some thoughts on with the new product there, Agron, in the agriculture space, how do you think about your position here now? Why it's better compared to when you try to penetrate this segment perhaps historically? Thank you. Well, I wouldn't bet that Geospatial would have a lower margin than industrial. I think it's going to be neck on neck, and I think they're going to compete fiercely internally who has the better margin. So I would definitely not rule out good margin expansion for Geospatial. When it comes to working capital, my comment was that typically, we have working capital buildup in the first half of the year, and then we have working capital release in the second half of the year. And 2017 was an exceptionally good Q1 when it comes to working capital. What happened this time around was that it was accounts payables that shrunk in working capital, and thus we tied up more working capital in the quarter. And then you had a question on Agron. And I would say that when we launched our Precision Agriculture product portfolio some 10 years ago, we were late in the game, and the OEMs had already started integrating precision agriculture functionality into the cab of the tractors. Since then, we've changed strategy, and PEI, Positioning Intelligence, is now delivering GNS' components to the OEMs, to their factory lines. So it becomes an integrated factory option very much like the automotive industry when it comes to satnavs. And what Agron is trying to do is to address the entire farm or plantation where you need to orchestrate and synchronize traffic in the fields, fertilizer, follow-up with satellite imagery and well, follow through productivity on a farm level rather than on a tractor level. So that's the big difference. Thank you. And then just a follow-up on the first one in Geospatial. Is SI and Geosystems both contributing equally to that margin improvement? Or is it more a Geosystems thing given the new product launches you have there? I would say all 3 contribute, but of course, Geosystems is contributing the most. But then you shouldn't forget PEI, which had a record quarter. We will take our next question from Razi Visby of Royal Bank of Canada Capital Markets. Please go ahead. Hi, good afternoon. A couple left for me. Firstly, on the FX impact on EBIT, you've given it at a group level. Is it possible to get an idea of how that split by division? And I guess the commentary makes it clear that maybe it's a bit more in IES. Some numbers would be helpful. And also just to understand the dynamic of how that works, whether there's any kind of lag in terms of what Shandri is moving and the profit impact. Yes. I mean, if you dissect it, then we have a positive impact from the Swiss francs, which is almost to its entirety related to facial, you have a much more severe negative impact on IEA. So that's absolutely true. But I don't have the numbers from top of my head. Okay. And then just the next one was on electronics. Have you got an idea of your customer concentration? I mean, what do the top 3 or 5 represent of your electronics sales? And then how does that compare to how it was maybe a few years ago? A few years ago, it was very easy. We had one customer. And since then, we've penetrated several accounts. And now we have maybe 6 to 10 top customers. Great. And then just finally, on autonomous vehicles, can you give us an idea of kind of what's your total exposure to that through various bits and what kind of growth rates you're seeing? And then in the businesses that you do have, what kind of market positions they have and what relationships they have, whether it's with the OEMs or whether it's with kind of Tier 1 suppliers? We have a good position in autonomous vehicles. And currently, we're engaged in the positioning side. So it's positioning intelligence, and it's strong double digit growth. I would say that we're probably involved in all, almost 100% of all platforms being developed right now. But more on that in Las Vegas. I have to say, it's not raining for a rainy day. Not that it rains in Las Vegas, but We will take our next question from Alex Talt of Deutsche Bank. Please go ahead. Yes. Hi. Thanks for taking the question. Just a couple. So on the CapEx guidance, the tangible CapEx guidance, just why is it so much higher than we've been used to? It's about you're looking you're guiding at about 3 times the rate of the last few years, and it seems to be driven just by 2 major site developments. If you could just give us a bit more color on why these are such expensive developments? And does CapEx then drop down back to those more normal levels from FY 2019 or even slightly below those levels in compensation for the spend this year? And secondly, just on the growth outlook, I guess, how do you see the net of growing momentum in PPM, Europe and Brazil, potential for better performances in auto and aerospace versus much tougher comps coming up in China and GES generally already having done very well for some time now? Let's take the first one. The second question was a really long one. So that one, we have to come back to and dissect a bit. But take the first one with CapEx. Well, we're building a state of the art facility in Calgary for 600 people, and that's roughly the cost to do that. Secondly, we're building a state of the art campus in China where we're going to regroup all our operations, our strategic operations in China, which is our 2nd largest market. So unfortunately, that's the cost you have to pay. Why are we not leasing like some companies do simply because the IFRS rules have changed, and there is very little difference nowadays, leasing or outright buying property. So this is just something we have to get used to. What's going to happen in 2019? Well, it's going to be around CHF 25,000,000 additional investments in Houndau in 2019 and another CHF 25,000,000 in 2020. In 2021, we're moving our staff from the current facility to the new facility, and then we're going to have a positive impact on fixed assets simply by releasing the capital currently employed in that facility. So that's the profile of the outlay. Net on net, we're not sure if we're actually going to make or if it's going to be cost at the end of the day because the current facility is appreciating every year. And then your second question on outlook, and you mentioned many segments. Could you you pose that question again? Yes, sure. I was just kind of topping up the puts and takes around growth. And it looks like growing momentum in PPM, Europe pretty strong, maybe accelerating. Brazil seems like it's certainly accelerating versus the second half of last year. And the potential for better performances in Automotive and Aerospace, And then you set that against what become much tougher comps in China from here and the GES part of the business has been strong for a little while now. And just wondering what you make of that in terms of the growth outlook for the year? Can it accelerate from the Q1 over the coming quarters? Or does it look like the headwinds grow? Well, we're going to see. The one who lives will see. So if you call back on the 31st July, we will know. Any difference to that analysis of the headwinds and tailwinds that are coming up? Or is that more or less how you see it as well? I think let me put it like this, and this is probably the politically correct answer, and then we have to explore this question a bit further at the Capital Markets Day. But we're going to we're probably going to grow above our long term target that we set about in 2016 of 5% organic growth between 2016 2021. This is going to be one of the years that where we're going to beat that number. That's my firm belief. And then we'll see by how much. Great. Thanks very much. Thank you. We will take our next question from Alexander Frankewitz of Berenberg Capital Markets. Please go ahead. Hi, guys. Thanks for taking my question. I just had two quick questions. Firstly, just what was the contribution of new products in the quarter? And where do you see this going additionally on BLK360? What was the contribution from that in terms of the organic growth for Geosystems and what would Geosystems been ex the OK360? And then secondly for Agron, just what were who are the main competitors for Agron and how do you see that developing? How do you see the competitive market for that? And how does Hexagon plan to take share from them going forward? New products, we commented that before. It's 3% of the organic growth in the quarter. Okay. Thank you. And we also said the cycle is you release new products in connection to our user conference in June. You see an upturn in Q3 and then acceleration Q4 and then typically tails off Q1, Q2, and then you start all over again. So that's typical cycle for new products. Regarding Agron, we haven't seen a head on competitor, but both Topcon and Trimble would be companies that are aspiring to the same position. And then you actually have some fertilizer companies exploring if they can launch products in the agricultural area. Okay. And then just also on organic growth of Geosystems. Do you know what that would have what BLK360's contribution to that was and what it would have been ex BLK360? It's not just BLK360 fueling growth. We launched a new GPS solution where you can tilt the pole. We've launched new imagery programs. And so there's a variety of new products contributing to the 11% growth. Okay. Thank you. But I'm not going to single out one number. We will take a follow on question from Guillermo Peigneau of UBS. Please go ahead. I wanted to know your opinion about agnostic metrology software and the combination of Sandvik and Metrologic. Is it posing a threat for you at all, maybe long term? I guess it was a very small acquisition also. You commented already on the multiples. But I wonder what your opinions are about the combination of those two businesses and Agnostics Software and Metrology? I can't comment on the combination, but I've heard this expression earlier today, agnostic metrology software, and I didn't know what it was. But it's fair to say that over the 18 years, we've been involved in the metrology industry, there has been a move towards open interfaces. So it's nothing new. We are selling our software on Zeiss machines, and Zeiss is selling its software on our machines. And it's simply a retrofit package that you offer customers if they do want to change. But I think even more important is what you do with data from these platforms. And what we've worked hard in the industry is to standardize the data format so that the user can download the data from various platforms into 1 database. And that is really the important angle for the user. Okay. And can I maybe again, it's very early stages, but I think one of the key synergies they're talking about or the combination of not the specific names mentioned here, but the combination of potentially cutting tools technologies and metrology technologies is to do in line measurement as opposed of offline measurement? Is that something that could be a threat to Hexagon? Or is something that is completely different from the business you're in at the moment? No, absolutely not. On the other hand, I think that we are the leaders in in line measurement, and we're driving that change. You need if you want to participate in smart connected factories, you need to launch in line measurements. And that's going to happen in all sorts of production facilities, anything from stamping presses, robot operations to CNC machines to end assembly lines. And we talked about it in our Capital Markets Day where we say quality drives productivity. And we're going to see a new way of using metrology data in the manufacturing chain, and it's quite exciting actually. We will take our next question from Mikael Lesan of Carnegie. Please go ahead. Thanks. Welcome back. I'm back. Yes. I have three questions, quick ones. First of all, can you help us with the acquisition driven growth in Q2? I guess it will be significantly lower. I mean, I'm just thinking about the already done deals. Yes. If you've done the deal, it should be lower in Q2, absolutely. I mean, MSC is the big acquisition. So it I think it was in Q2 of 'seventeen for 1 month. Yes. And you have done also other transactions that you have not announced. So that's why I'm asking. Yes. We'll see. Okay. And the second one is deferred income. Maybe I've answered that already and explained the increase that you had in Q1. It was 48% of sales. And last year, it was 40% basically. What was the reason behind that? I think it's the consolidation of MSC. Yes. But it was also lower in Q4 when you had MSC Software. Yes. But then we've grown the deferred income, and that's typical. So with the order growth has been stronger than the invoicing growth in the Q1. Okay. Yes. Yes. I mean, what happens is you get paid, you book it as deferred income, and then in subsequent quarters, you invoice. And if you have very strong order growth, but maybe not delivery, If you can talk about delivery for a software, then this happens. Okay. So it's mainly organic and no sort of mix effects or IFRS effects or things like that, that is disturbing that? No, not that comes to mind sitting here. I would explain it with stronger order intake in the software business. Okay. Good. And the last one is regarding the MSC Apex order that you got from the aircraft manufacturer. Didn't you have that already, that customer? So the net effect, what is that really? The net effect is that MSC is growing by 10% organic growth in the quarter, which is still stronger than some competitors. Okay. So they are expanding share of orders really with that order? Yes. Okay, good. Thanks. Thanks. As we have no further questions, would like to turn the call back to the speakers for any additional or closing remarks. And this was an exhausting Q and A session. So I have no more further comments. And I thank you for listening in, and we can do this again on the 31st July, if you so wish. Thank you, everyone. Thank you. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.