Earnings Call: Q4 2017

Feb 7, 2018

Thank you, and welcome, everyone, to this year end report for 2017. And if we go to Slide 4 in the deck, overview the Q4 of 2017. As you've seen from the report, we report organic growth of 10% and operating sales growth, I. E, before revenue haircut of 13%. We saw strong growth in geosystems, MI and positioning intelligence. China recorded a solid 23% organic growth, and we saw demand increase across all divisions. PP and M returned to growth and reported 2% organic growth in the quarter. And we posted a gross margin of 61.8% as compared to 60.5% for the Q4 previous year. The EBIT margin is 25.8% versus 24.6% for the previous year. We post MRI so called revenue haircuts of $6,300,000 in the quarter, and it's related to the acquisition of MSC. We also have already issued a press release on the one of positive tax income, which is about the revaluation of accruals in the United States due to the U. S. Tax reform in December. Slide 5, seasonality and profit. Q4 is our strongest quarter along with the 2nd quarter, and this pattern has repeated itself in 2017 as well. Slide 6, key figures for the Q4. We report operating net sales of 959.3 €1,000,000 and we posted operating earnings, I. E. EBIT1 of 247 point €1,000,000 and that corresponds to an EBIT margin of 25.8%. Earnings per share excluding non recurring items is €54, 20 percent up against the corresponding period of last year. On Slide 7, we see the full year numbers, but I'm not going to go through them since we've been through all quarters of the year, but you can review them later. Cash flow. If you look at the 4th quarter, we have a strong cash flow from operations, €300,000,000 versus $60,000,000 in the 4th quarter. We have an extraordinarily high tax payment related to tax paid in the United States in the Q4. But if we look at the full year, we see that the tax paid is in line with what we paid in 2016. It's pleasing to see that in spite of the 10% organic growth, we report plus €5,200,000 in change in working capital. And that is, of course, due to the subscription model that we introduced more and more on a broader base through the organization and through the various divisions, which, of course, is working capital positive. Investments are roughly in line, and we continued with our restructuring program in the 4th quarter and reduced both the now, thus the nonrecurring cash flow of $8,100,000 But a super good quarter and a super good year for cash flow. Looking at working capital to sales on Slide 9, we can see the development and how this prepayment model is kicking in on working capital to sales. The consolidation of MSC has, of course, helped us to bring it down further in the year. Market development. If we go to Slide 11, we can see the sales mix per geographic region in the 4th quarter compared to the Q4 of last year. Not much has changed. We see a bit growth in Europe, China and Asia Pac. If we move to Slide 12, the arrow picture, China with 23% organic growth is the shining star in this quarter like the previous two quarters before Q4. North America has turned the corner and is delivering strong growth. So with Eastern Europe, Middle East and Africa and South America, finally, we see the light at the end of a very long tunnel in Brazil, and Brazil is growing double digits in the quarter. Western Europe, good growth, but single digit growth and Asia ex China, same picture. Slide 13 is an overview where you can review yourself after this call the various segments and geographic regions, how they performed in the quarter. EMEA, Slide 14. Western Europe recorded 4% organic growth. We saw good growth from Germany, France and Italy, but we saw weak growth or negative growth in U. K. And Spain. Growth was mainly driven by infrastructure and construction related businesses as well as gaining new markets through the launch of our new product, the unknown scanner, Black 360. We saw strong development in Russia, which has turned the corner and is improving again for us across all business units. Double digit growth in the Middle East, driven by Geospatial Solutions. So GES is reporting 10% and IES 5% organic growth from this region. We move to Americas, Slide 15. North America recorded 9% organic growth. We actually saw strong growth from all three countries making up North America, Mexico, United States and Canada. Segments that grew exceptionally well in the quarter were infrastructure and construction as well as the new products we launched that are gaining traction. We saw recovery in PP and M in the North American market, and they reported solid growth, especially in Project Control Solutions. South America, as I've already commented, is recovering and is recording double digit organic growth in the quarter driven by the recovery in Brazil. GS, 10% and IES, 10% in this region as well. Moving on to Asia, Slide 16. China reported 23% organic growth, stellar results, and it was strong demand across all industries. But if we are to highlight 2 applications, it would be electronics in China as well as smart city solutions. We saw weaker development in India due to tough comparatives where we delivered a smart fitted solution in Q4 of 2016. GES is growing at 13% in this region and IES at 14%. Reporting segments. If we go to Industrial Enterprise Solutions, Slide 18, We record 10% organic growth for Industrial Enterprise Solutions, MI 13% organic growth, and it's the strong demand from the electronics industry in China as well as good recovery in all other regions and a robust growth in our software business. Automotive and Aerospace improved from previous quarters. We saw a bit weakness in aerospace. We don't think it has an impact for the long term view of that industry. PP and M, 2% organic growth, strong growth in Project Control Solutions and the United States. The EBIT margin came in at 26.5%, and that is almost 1% stronger than the corresponding period of last year. We move to Geospatial Enterprise Solutions, Slide 19. Organic growth, 10% even here. And Geosystems is reporting 13% organic growth, and this is driven by solid development in infrastructure across several geographic regions. We see a more broad based recovery this quarter than we've seen in previous quarters of 2017. And not to forget the launch of new products that have had a really successful reception in the market in the second half of twenty seventeen. SBI reports 0% organic growth, and it's difficult comparative from last year's smart city project in Middle East and India, but we do see solid development in smart city solutions in China. Headwind from the defense related business that we got in SI in the quarter as well. Positioning, on the other hand, reports 18% organic growth, and that is driven by continued strong demand from the defense related sector as well as agriculture. The EBIT margin came in at 25.7%, which is 1.5% stronger than the corresponding quarter of 2016, really good performance EBIT wise. If we move to the gross margin 12 months rolling on Slide 20, we can see that it's 61% rolling 12 months, 1% up again last year. But the trend continues. And we also see that on the operating margin, Slide 21, where we, in the 4th quarter, report 26 percent, but for the full 12 months, 24%. Talking a little bit of moving parts and what was going on in our markets and inside the organization. Slide 23, we acquired a small but highly critical business called IBS in the quarter. IBS' core products filled the gap in the newly launched product SGA Smart Digital Assets in Hexagon PPNM. It's adding completions and commissioning capabilities to our product suite. If we move to Slide 24, we talked a lot about the electronics industry, but what are we actually delivering? Well, on the picture, you see a complete in line measurement solution. It's state of the art automated solution to inspect electronic products. It cannot unfortunately mention who it is. And we're continuously developing solutions to move from the quality lab to the production line, from offline measurements to inline measurements. And we have a feedback using our software into the general reporting system of this very large factory. Slide 25, powering safe and efficient air travel. We got an order from Lufthansa that has a system called Lido, which basically is about flight path planning. And it's a 4 d solution where we've used our newly acquired technology, Luciad, to incorporate that with our technologies to be able to display movements in air from commercial carriers across the globe. Slide 26, Swedish Armed Forces depend on Hexagon Technology. We signed a 3 year agreement with the Swedish Armed Forces to deliver image processing and cartography solutions. Slide 27, we launched through MSC a new product called Actran 18, And it's basically about offering new capabilities to determine acoustic, vibroacoustic and aeroacoustic simulations to improve products. And primary end markets for this product will be automotive, aerospace, railway, defense and consumer goods. Slide 28. This is another in line development that we've installed in the quarter. WLS-400A is a white light scanning solution that we put on top of an industrial robot, and then we connect it to our measurement software. And it's a robust solution for real time shop floor metrology, and this time, it's not about inspecting finished products. Here, we inspect components and assembly processes. Slide 29, positioning intelligence had a great quarter. And some of the highlights were that we were involved in trying out Canada's first autonomous vehicle on street test. We're becoming quickly the de facto standard in GPS or DSS for autonomous cars. We partnered with East Alliance CNC Electronics to develop a new certified receiver for the aviation industry. And we see more and more success with our antigen technology, Gadgets. And this time, it was the Royal Navy that selected gadget for its Type 26 frigate as part of the protective navigation system that more and more deploy on their vessels and vehicles. Slide 30, New Delhi infrastructure projects. A company called ChooSurvey has bought our 3 d reality LiDAR, and they have a project where they're going to rebuild 200 kilometers of roads and highways around New Delhi. Slide 31. Vietnam was and is an interesting market for Hexagon. We struck 2 deals in the quarter. The first deal was with the Department of Cellular and Mapping in Vietnam that choose Hexagon to build the so called GNSS reference station network around its capital, Hanoi. And this network will be deployed in the development of the regional infrastructure around Hanoi, I. E. Roadworks, tunnels, bridges, large infrastructure, utilities and so forth. Vietnam Natural Resources and Environment Corporation has also chosen our technology. This time, it was the LiDAR airborne system to map the country and create a digital elevation model of the country. Slide 32, T2 Utilities in Canada is a company that is providing subsurface utility engineering services. They choose our ground penetrating radar to be able to do 3 d underground mapping of underground utilities, such as electric, water and fluids utilities. Riga is a Swiss air rescue organization. They choose our computer aided dispatch solution to dispatch their more than 10,000 missions that they do annually in Switzerland. Slide 32, the Italian Railways, responsible for the management and safety of more than 16,000 kilometers of rail network to Hexagon dispatch solutions. And it's going to be deployed in the operation center in Rome and in 15 regional control rooms around the country. Slide 35. Now we're moving on to mining. And this time, we got 3 orders in Australia. And on Slide 36, we had 3 more orders from Turkey. So it was a really good mining quarter, and we can see that our digitalization solutions for the mining industry are gaining traction. Slide 37. Mitsubishi Heavy Industries select Hexagon's project control solution for deployment in large scale projects. With Vicious and EPC that builds chemical and petrochemical plants, and they're deploying our project control solution as its dashboard to follow-up on these mega multi $1,000,000,000 projects. China, Slide 38. We had a fantastic quarter in China, but we've had a fantastic quarter throughout 2017 in China. And we can see parts of the business we do in China. CMMC, which is the Nuclear Corporation of China, has chosen Hexagon's CAD solutions to improve the design process. Acro cokingrefractory engineering company is choosing smart plant to improve its engineering capabilities. And TMG Mbuwa Chemical Development Company has a relocation project where they want to digitalize the plant before they move it so they can recreate it in another place and hand over the so called digital twin. Slide 39, we've launched new products in our agricultural business. We partnered with Raizen, which is leading Brazilian energy company growing sugarcane, and they choose Hexagon Agron Logistics, which is a new product that reports and maps in real time what's going on with the crops and on the field and basically work as a decision tool for the operators. In studies with Raizen, we believe that we can reduce operational cost and increase soil preparation productivity by roughly 30%. And that's what this quarter's events that we wanted to highlight. We now move on to the dividend, Slide 41. The Board of Directors proposed a dividend payout of €0.53 and that is 10% better than what we paid out last year. And this dividend can be paid in euro or in Swedish kronor. So summary of this quarter, another record quarter, 10% organic growth driven by strong development across most of our divisions, but especially in Geosystems and Manufacturing Intelligence, Positioning Intelligence. For continuous robust organic growth in China, 23%. And PP and M finally returned to growth. And the positive momentum was really outside of the oil and gas business. So strong profit development and cash flow and the proposed dividend of €0.53 I think it's in place of a result like this to thank our 18,000 employees that have done a stellar job in spite of the headwind we have encountered in 2017. I'm really proud to be the CEO of such a great company. Thank you, everyone. And operator, we are ready to answer any questions there might be. Thank We will take our first question from Daniel Dubeberg from Handelsbanken. Please go ahead. Thank you very much and a big congratulations Ola to a stellar report, quite an achievement, busy quarter. I would start with your last summary comment there on the oil and gas that the business outside oil and gas supports expectation of continued growth in 2018. But looking back here in PPNM and so on, haven't you seen any recovery in the oil and gas sector as well given the oil prices and so on? And a comment on the oil and gas and keeping and we'll be grateful for 2018. Yes, I hear you, but I didn't understand your question. Sorry. Sorry, the question was really about the oil and gas recovery. If you see anything of that in the Q4 and the outlook, especially, of course, for the Process Power and Marine segment division? Well, we've got 2 businesses in the oil and gas field. We have positioning of drill ships and service ships around the world, and we've seen that activity improve, which means that there is more activity offshore today than 1 year ago. So that's positive. And typically, PPNM is 6 to 9 months behind that. So you don't start designing new projects before you have hit the capacity ceiling in the assets you already have deployed in an oilfield. So there is hope for a better and a stabilization in the oil and gas market compared to what we've seen in the last few years. However, we shouldn't expect and we are not planning for oil and gas to grow at double digit levels again. Fair enough. May I also ask you about given this strong organic growth 10% and then Mi 13%, it seems like that you're taking market share in many places. Can you also comment if this is what you see? And also if you did go to market change ambition to go more with solution sales, key accounts and so on a couple of years back, if that is starting to help out as well? Any comments would be helpful. Thanks. I think so. I think now I'm commenting on mice business. We see a shift in the manufacturing industry where you decouple a lot of processes. For example, the traditional manufacturing company has had components manufacturing, assembly and design. And we see the decoupling happening where companies like Tesla and Apple, for example, they only focus on assembly and design, and they lead the components manufacturing with sub suppliers. And in this process, partners that can help them understand what's going on in this manufacturing work flow becomes increasingly important. And I think we've positioned ourselves so that we can capture a lot of that new ground interest for following up on quality and productivity across the manufacturing workflow, whether it's in house or outsource. So yes, I think I will go back to the queue. Thanks. Okay. Thanks. We will now take our next question. Please go ahead Adam Wood of Morgan Stanley. Hi, good morning and thanks for taking the question. And also congratulations from me on a very strong end 2017. But just looking into 2018, clearly, you're running well ahead of the organic growth target you've given for the midterm of 5%. And it looks as if that growth is very broad based across the business and across the geographies. So it's not one thing driving it. And the macro looks pretty supportive. So it's really just if you could help us understand those positive factors, which might suggest we should be expecting something better than the midterm guidance of 5% in 2018 against the tougher comps that you're going to have in the second half of the year? Should that maybe make us a little bit cautious? So any help you can give us on that would be great. And then secondly, just on the solutions portfolio. We've seen smart cities come in and be a nice driver for you over the last 12, 18 months. As we look into this year and maybe the next 18 months, is there another solution in that portfolio that you're starting to see build nicely from a pipeline perspective that you think could do a similar thing? Thank you. No. We have a few more White Rabbit up our sleeve, but you have to come to Las Vegas in June to see them. So that's the answer on that. SmartFitties is continuing to gain traction, and I think that they're going to have we're going to have another good year in SmartFitties. Giving guidance on organic growth for a full year is not something we do. But we've stated that the average growth should be 5% organic growth between 2017 and up to 2021. And I think we need to over perform in good years in order to reach an average growth of 5%, given that there might be a slowdown in the economy between now and 2021. And that's how you should look upon our average target of 5%. 3, if I may. First of all, on the kind of tax, could you help us what the impact will be off of the tax reform in the U. S. On the kind of tax rate for you in 2018? Then secondly, coming back on Adam's question on Smart Solutions, what was the kind of contribution from Smart Solutions during 2017? And where do you expect this to kind of trend over the kind of coming years? And then finally, you've had a couple of great quarters in kind of China. We're getting into tough comp territory. Is this something of a kind of more a multiyear kind of upgrade cycle what we've seen in the past? Or should we kind of temper our expectations into 2018? Thank you. 1st, if we start with tax impact, we expect a neutral tax impact. It's true that United States has dropped its income taxes significantly, but we have taxed our income in other lower taxed countries as well. So we believe that we will maintain the 18% tax rate for 2018, and that's the best guess we can do sitting here early February. Regarding Smart Solutions, 50% of the growth is if we disregard acquisitions is generated by new solutions and new projects. And we expect that to continue. As a matter of fact, that's our best. We're banking the company on the transition from a product based portfolio to a solution based portfolio over the next 5 years. China was your third question, and we had indeed a great year in China in 2017. China, for engineering, for example, and aerospace, auto, electronics, that's our best market and our most sophisticated market. So we see a great and healthy appetite for new technologies being deployed in China. And as a matter of fact, we're deploying more sophisticated technologies in China today than any other market in the world for manufacturing. But we think that's set to continue. The Smart fifty projects in China is more of a long term bet, which will continue into 2018. I think all in all, if you summarize China, I think we're going to have another strong year in China. Will it be as good as 2017? And will we grow at 20 plus percent? No, I think that's a follow-up stretch, but it's definitely going to be a good year. Okay, perfect. Thank you, and congrats on the quarter. Thanks. We will now take our next question from Max Fryden, Danske Bank. Please go ahead. Yes. Hi. I got disconnected from the call, so I'm not sure if this question has been answered. But I wonder what the contribution were from new products in the quarter in terms of the year over year organic growth? And also if you can possibly quantify what that number was in Q3 as well? Yes. No, new product is accelerating. And we just said that half of the organic growth is new products. Okay. And in Q3, was it similar or was it less, you're thinking? No, I think it was more because we saw more contribution from, let's call it, the general economy and the recovery across the world in the Q4. Okay. And another question for me. On the in line measurement technology in electronics, is this driven by customers changing their measurement equipment, I. E, will it continue to be driven by capital spending in new equipment from your customers? Or is it more volume driven by the strong end markets, you think? It's capital driven, and it's actually driven by the consumer. More and more smartphones have glass inlays and very sophisticated shapes and forms and they use brushed metal and so on. So the feel factor, if we could call it that, is becoming increasingly important. How does it feel when you touch your phone? And that means that we need to measure the casings and the covers in a different way. So the machine on the picture is actually capturing more than 200 measurement points in less than 2 seconds. All right. Thank you very much. That's all from me. Thanks. We will now take our next question from Mohammed Mawala from Goldman Sachs. Please go ahead. Great. Thank you and congratulations on a very good quarter. Ola, my question was on sort of the newer products. I know in the past, we have seen some of these sprouts of success with smart solutions, but you've also had perhaps the execution has not been a bit more as consistent and followed through. Can you give us a reminder on where you are given you've now seen a couple of quarters, but to see the consistency in this execution from new products, how ready the kind of the sales organization and the broader kind of go to market is and whether you need to do any more in order to ensure that this consistency continues? And then second question was just on some of these products and essentially sort of product cycles. How should we think about them? Because traditionally, with software companies, when they go into platform selling or solution selling, these are multiyear, very long product cycles, whereas you seem to be making bets on many of them. So will these be maybe slightly more shorter term in duration, meaning kind of a year or 2 rather than sort of 3 to 5 years? If you could just help us understand some of those bigger moving parts on the new products, that would be great. Wow. That wasn't an easy question. I think that I don't think it's wrong with the execution of launching new products, but the reception has varied, to be fair, to our organization. The maturity among the customers has varied. And I think that is more the issue rather than the execution of the new product. So I think we got that I think our internal organization is in shape, but sometimes it just takes longer to penetrate a new market than one would wish for. What was your second question again? Just the duration of some of these product cycles, do you expect them some of them to be kind of very longer duration and others more shorter durations and therefore you need to keep kind of getting more product in the tank in order to ensure this new product mix continues to be healthy? I think it's like everything in this world. We need to change more often to attract new sales. And it goes for almost any industry you're in right now that the changeover cost has dropped so dramatically in most industries that you can actually afford to do changes more often than you could in the past. Systems are much quicker. We've automated a lot of design features and so on. So thus, we can develop and deploy new technologies in a much more rapid way. So I think we should expect not only Hexagon, but all companies to have to change their product portfolio and refresh them more often than in the past. Okay. That's great. Thank you very much. That doesn't mean that costs needs to go up. I think what I'm trying to say is that changeover costs have dropped so dramatically that you're almost forced to do changes on a constant basis. Change is the new norm. Okay, great. Thanks. Our next question comes from Michael Lapine from Carnegie. Please go ahead. Yes, thank you. Yes, I have a few questions regarding the industrial sector and the improvement that you report in that area. And first of all, if you can comment on the PP and M segment. Did you book any large orders this quarter in Q4? And what is the outlook and performance for the non oil and gas segments and customer areas? No, we did not book any large orders. We saw an interest in our project control product from Ecosys, an acquisition we did 2 years ago. And we're finally gaining traction in our marketing channel for that product. So we saw a surge of non oil and gas project related software, I. E, Project Control. Okay. So the Oil and Gas side, did that continue to decline and the other segments grew? And on top of that, you had project controls? Or how did it look like? You could say oil and gas was flat, and then all the other segments, including Project Control, grew. Okay. Excellent. And I also have a question regarding the MIS segment. You highlight electronics and software, And the electronic side is well known, I guess. But the software side, if you can talk about that, what happened this quarter because it was significantly better in Q4 than in Q3 and Q2 and so on. Well, we're integrating an acquisition we did in 2014, Vero Software, which is a TAM based software. And we're now selling it more and more in combination with our other solutions. So people are starting to realize that this feedback loop that we've talked about is something that is quite useful. So we've had one great order in China where we deployed the so called feedback loop, I. E, the measuring software is telling the production machine that you're out of tolerance, recalibrate automatically. So we had a good quarter for our CAN software. MSC had a good quarter, and our quality software, CUDA, had a really good quarter as well. Okay. And regarding MSC, that's actually my third question. How much was the growth in this quarter? And what is the approximate margins for that type of business? Well, it's we had good growth in line with the plan when we acquired MSC. We have to remember that we've acquired it to sharpen and restructure the product portfolio. So it was under group average in growth. But the margins are okay. They're software margins where you expect a software company to be. Okay. So they are still well above your group margins, I guess? Yes. But the group margins are catching up. So Yes. Okay. And if I may, can you comment on the Automotive and Aerospace outlook? Because in Q3, I got the impression that you saw a risk for weakness in those verticals. But now you report quite a healthy development. Yes. Automotive is challenged short term with a lot of restructuring. For example, diesel cars are not selling as well as they used only 9 months ago, and this is due to the so called diesel gate. So there is a lot of changeover happening in the automotive industry. Short term, it's not necessarily a good thing for us, but longer term is definitely a good thing for us. We don't expect automotive to long term do anything differently than they've done this year, which is sort of our average organic growth target of 5%, 6% growth. Aerospace had a breather, you could say, in Q4. Q4 was slightly weaker than what we've seen in previous quarters in 2017. Is there a risk for a slowdown in aerospace? When we think not because the backlogs are so big and there is a need to rejuvenate fleets across the globe and expand commercial airline capacity in Asia. We believe that the forecast, which I think is we're going to double the number of commercial airliners in the world in the next 6, 7 years. That is still valid. Okay. Thank you. Thanks. Ladies and gentlemen, we will now take our next question from Alexander Virgo, Merrill Lynch. Please go ahead. Thanks very much. Good morning, Ulla. I wondered if you could comment a little bit on the infrastructure and construction trends that you called out in the Americas business. Maybe give us just a little bit of color around that because I think we've heard some fairly mixed messages from various different, I guess, suppliers or participants in that market. So any color you can give on that, where you are in Q4 and how you see things developing over the next 12 to 18 months? And then I wondered if, again, perhaps I missed it, but can you give us the percentage of the business that's subscription now and perhaps an indication of the growth in the year and presumably that's accelerating? Well, the construction market for us, we service the construction market with tools and systems for on the ground applications like excavators and large construction sites. And we saw an increase in that business. We also saw an increase on the back of the launch of our new scanner, Black 360 in North America. We launched it first in North America. So that had a great impact. That's not necessarily construction. It's typically architects and remodeling projects where you would use the black 360. Then we have another business altogether, and that is the airborne business where we fly North America and capture 3 d data models. And we saw good recovery in that business in the Q4 that will continue into 2018. It's not necessarily traditional construction that is improving. Okay. So it's more about the traction you're getting with your new products rather than necessarily a broader market comment, I suppose. I guess so. I haven't read the stats for the Q4 in North America, but I think there is a slight recovery. But I also know that our new products addressing new market segments have outgrown the market in the quarter. That wouldn't necessarily draw the conclusion that it's a construction recovery. Understood. And the subscription business? I don't know from top of my head. We have to come back on that number. It's growing, but I can't Maybe I can ask it a different way. How much of your the mix now would you say is software versus hardware? Software and software related services is north of 55%. I think we're approaching 60%. But we're going to close the books now and do all those key ratios so that we can communicate them to you. Okay, great. Thanks very much, Ulla. Our next question comes from Matthias Hollenberg from DNB Markets. Please go ahead. Thank you very much. I read in a news article earlier this morning quoted you saying that Q1 development was in line with Q4 so far. And I was just wondering if you please could expand on this a bit. And so if I'm misinterpreting this by assuming that you are still seeing close to double digit organic growth so far in 2018, please? Well, one has to remember that the only thing I can comment on is January, and January doesn't make a quarter. So you have to be very careful. But I answered that question from the journalists. And in January, we are growing in line with the 4th quarter for organic growth. Thank you very much. Ladies and gentlemen, we will now take our next question from Alex Child from Deutsche Bank. Hi, morning. Congratulations on good results. Just wanted to know if you could give us an update on BIN, so Building Information Modeling, the SmartBuild and related products. Was that a strong contributor in FY 2017? Or do you expect much from it going into FY 2018? And then secondly, on the smart convergence IoT platform, just how that's proceeding? I think when we spoke about this earlier in the year, you thought that you could achieve a reasonable penetration of the customer base even by the end of FY 'seventeen. How has that proceeded in practice? And is it yet meaningful from a revenue perspective? And when might it be? And just finally on margin drivers for FY 2018, I mean, could you just talk what we can really expect there and whether there's any incremental benefit from the Q1 restructuring that you did still to come in 2018? Thanks. Thanks. Wow. Let's see. Let's start with Smart BIM. First of all, we do not call our product BIM because Bim is design related, and we're addressing the workflow on a construction work site, and that's not what the Bim suppliers do, just to make some marketing for our product. We saw growth in the Q4, but it's still we're talking about 1,000,000 euros in sales. So it's very little contribution to the overall group. This is a long term project. And by the end of this financial plan, I expect SmartBuild to be a great contributor to growth for Hexagon, but not already in 2017. If we move to Smart Convergence, where we finalized our product offering with the acquisition of Catawalt. For you that don't know, Smart Convergence is our IoT platform, and we're now rolling it out into our divisions, and it's becoming standard in more and more product offerings throughout Exelon. So in the Q4, we saw PPMM, including smart convergence. We saw it becoming standard features for more and more products within Geosystems and Mi, and it will continue through 2018. So probably by the end of 2018, we have deployed our IoT And then talking about margin drivers going into 2018, I think it's the same drivers as always, new products with better margins replacing older products, thus enhancing the margin. Whether FX is going to be a margin contributor or creating margin pressure, that's too early to say. It was neutral in the Q4. So we have to come back on that. Sorry, the question was actually whether there's any incremental benefit from the restructuring that you did in FY 2017 still to come in 2018? No, no. That we will have the full effect in 2018. But I think on a full year, you should be more interested in the product mix than that cost restructuring program. It will help, but I think products will lift the margin even more. Okay. But in the same way that in a good year, you should be overachieving on the revenue side, do you expect similar for the on the margin side, especially now that we're starting to see a bit of a recovery in PP and M? No, not necessarily because our margins have never been volume driven. Our margins are driven more by new products and the product mix, not volume itself. You have to remember that the largest fixed cost item the largest fixed cost item, sorry, in the U. K. Is 10 and our alarm goes off every Wednesday at 10 o'clock. Anyway, where were we? No product mix is more important to margin enhancement than volume. Volume is not a great contributor to margin expansion for us. Great. Many thanks. Ladies and gentlemen, we will now take our next question from Alexander Frankowitz from Berenberg. Please go ahead. Hi, thanks for taking my call and congrats on the great quarter and end of the year. I just had two questions. The first one is pretty quick. I don't know if it's been asked yet, but on the effective tax rate for 2018 2019, how should we think about that when you take into account U. S. Tax reform? And the second question is on construction. We see companies like Trimble acquiring E Builder and building out their construction offering outside of Process Industries. Right now you have ECOSYS, if I'm not mistaken, that does construction outside of the process industries. Are you planning on building out that at all? And how should we think about M and A in that segment going forward? Well, if we start with construction, with construction, we launched a product called Hexagon Smart Field, and that is addressing construction and the AEC sector. So and through Geosystems, we've addressed that sector for a very long time indeed. I think we're not new to the sector. But long term, in order to succeed, our belief is that you need a platform software. You can't just buy bits and pieces of software. And SmartBuild is built on the structure that we acquired through Intergraph and that is essential if you're going to succeed entering a new market. Regarding the tax rate, we discussed that earlier on, and we do believe that we are maintaining 18% tax rate for. Okay, thanks. And then also just on M and A more broadly, how should we think about that moving forward? Hello, everyone. We're back again. Let's say let's put it like this. It's a great report, but it's a disastrous Q and A session. I don't know what's happening to the phone system. But please go ahead. Yes. Just my last question was on M and A more broadly. Where would you be looking to add if you're going to do M and A? And would it be more transformative deals or just more roll ups or tuck ins? Well, that's not something we can comment on because then it wouldn't be a secret and that would destroy our ability to acquire a company. But let's put it like this. We're trying to fill gaps in our big solution based projects that we're running over the next 5 years. So we're looking for technologies that can fill gaps and solve problems that we encountered today in those solutions. And then beyond that, transformative acquisitions, well, this is not the time to do it when companies are trading way north of 30 times EBITDA in our sector, and we just have to be patient and wait. Okay. Thank you. Thanks. We will now take our next question. Please go ahead. Erik Golrang, SEB. Please go ahead. Thank you. I have only one question that the others have been asked. And it's a follow-up on the question of share of software and services sales. Could you say something anything about the organic growth rate in 2017, absolute number or in relation to the group average of 5%? In software? Yes, software and services. I mean, obviously, the increasing No, no, it's outgrown the average growth rate since we're increasing the share of software and software related services. So it goes without saying it was greater than the average growth rate for the group. Yes. But I guess a lot of the growth comes from acquisitions. So also on an organic basis, is it growing faster? No, no. I'm only talking organic growth. Okay. Thank you. That's it. Next question comes from Wasi Rizvi from Royal Bank of Canada. Hi, good morning. Just a couple left for me. Just going back to the electronics growth. I think if I remember at Q3, you mentioned you'd kind of had the benefit of the iPhone X launch and it might soften from there. And I mean, clearly, it looks like it's carried on. So could you help us with where that's coming from, whether you've been able to get some more customers in terms whether it's major Chinese manufacturers or one of the other 2 major OEMs? And how much more room there is to run for you to gain new major customers in that segment? And then the second one was just a bit more on the margin. I guess in IES, there are a few moving parts. So if you could help me with what you saw in Q4 or maybe how we think about 2018 with respect to PPM recovering the MSC contribution at a higher level and then also what happens at operating leverage? Just help me understand how to think about those moving parts in your margin. Well, first of all, I don't think we commented on iPhone X in Q3 because we can't comment on our customers. But Okay. But there was a major launch in Q3, right? There was a major launch in Q3, but I don't think I ever said who it was. Right. I could be short term for that. So that wasn't I, must have come from Royal Bank of Canada. But it's more broad based than that. We have the top 10 suppliers of smartphones in our customer list today. So I think in the Q4, we see saw continuous activity, especially in China, but also from Vietnam in this segment. And regarding the margin, as I stated before, Hexagon is not as volume sensitive as other companies you might follow when it comes to margin expansion. We're more it's more important for us to get the product mix right, I. E. Larger content of software and solutions and less content of hardware. And that's more of a long term trend over the next coming few years and over the past 10, 15 years that we've seen. Right. And so are you able to help me with just how much of the RDS margin improvement in Q4 was from MSC's contribution? And how much was maybe from PPM returning to growth? It was actually broader than that. We saw contribution from all areas. We didn't see much contribution from PP and M in the 4th quarter when it comes to margin. As a matter of fact, that was on par with the Q4 2016 margin. So the improvement actually stands from Mi. And within Mi, it was all product lines that improved its margin. Great. That helps. Thank you. We will now take our next question from Thales Marinakis from Analyst Research. Please go ahead. Hi, congratulations on the strong performance again. Just wondering which part of the business you see as the strongest contributor for the next year. Is there any pocket for out beating expectations this time again? No, we just have to wait and see, and then I will answer. That's the excitement about following listed companies. You will see it next quarter. That's great. Thank you. Thanks. We will now take our next We will now take our next question from Jawahar Hingorani. Please go ahead. Hi, thanks for taking my question. Just a quick one on the new product. Do you measure or have you ever provided kind of what the incremental sales or margin contributions are from new products, either quarterly or for the full year? Is that can we get some color on that? No, we haven't. But I've just stated that 50% of the organic growth in the quarter, and I believe also for the year, stems from new products. And the margin improvement, I would say, is 100% related to new products or acquisitions that we've done a high margin acquisition like MSC. Okay, great. Thanks for that color. Ladies and gentlemen, that was our last question. Thank you, everyone, for listening in. And we can repeat this in May for the Q1 report. So thank you everyone and have a good day.