Earnings Call: Q3 2017

Oct 27, 2017

Good day, ladies and gentlemen, and welcome to the Hexagon Q3 Report 2017 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Ola Rolland, CEO. Thank you. Good morning, good afternoon, everyone, and welcome to this interim Q3 report 2017. If we start on Slide 4, overview of the Q3 of 20 17. Organic growth amounted to 6%. Operating sales growth, I. E. Excluding the revenue haircut, 10% growth. We saw strong growth in geosystems, manufacturing intelligence and positioning intelligence in the quarter and geographically, China had another record quarter with 19% organic growth. Strong demand across literally all divisions and PP and M is heading in the right direction. Improved profitability year on year despite the increasing currency headwind that we see from a weaker U. S. Dollar and Chinese renminbi. Gross margin, 60.4% compared to 59.8% last year. EBIT1 margin of 24% compared to 23.1% a year ago. And we benefited from the organic growth, but primarily product mix and improved cost structure. We post non recurring items of $7,300,000 in the quarter and this is the so called revenue haircut where we make a haircut of the acquired deferred revenue in connection to the acquisition of MSC. Moving on to Slide 5, the seasonal pattern proves to exist in 2017 as well. Q1 is our weakest quarter, Q3 our 2nd weakest quarter, Q2 and Q4 are usually our strongest quarters. Slide 6, the P and L statement, key figures. Operating net sales €859,700,000 and that is 10% recorded growth, 6% organic growth. And we got currency headwind and acquisitions that is the wash. Operating earnings, EBIT1 €206,000,000 which is 15% better than the corresponding period last year, which earns us an operating margin of 24% in the quarter. I am going to skip the 9 month table on Slide 7 and go straight to the cash flow table on Slide 8. We had a strong cash flow. Cash flows from operations after nonrecurring items, I. E, restructuring costs, amounted to 152.2 percent, and that is significantly stronger than the corresponding period of last year. And we're within the cash conversion target of 80% to 90% in spite of organic growth of 6%. Slide 9, what helped us was really working capital to sales that with our increasing exposure to recurring revenue business models, we can see that our working capital is reduced in comparison to sales. So a year ago or actually long ago when we were more hardware prone, our working capital sales was actually in the neighborhood of 30%. But since then, we've halved the working capital need to sales. Market Development, if we turn to Slide 11, nothing dramatic. North America, still 31% of sales. We do see a recovery in South America. And it's important to remember that South America once used to represent 5% of Hexagon sales. We have a long way back, but we do see a trend towards recovery in Brazil, which is the main market in South America. Western Europe lost 1%, 29% EMEA, 7% Asia Pac, 14% and China, 16% in the quarter. So fairly well balanced geographic exposure with 1 third in each major region. We move to Slide 12, which is the simplified version of our table where we have many arrows, which we will come to. Slide 12 gives you an overview. China, North America, Eastern Europe, Middle East and Africa were growth markets. Asia, excluding China, also grew, and we saw the turnaround in South America. Western Europe had the weakest organic growth in the quarter, 1%. I'm not going to go through the nitty gritty details on Slide 13, but it's really for your review as you review this report later on. But if we turn to Slide 14, EMEA. Western Europe, sorry, I said 1%, 0% organic growth, was hampered by tough comparatives in MI, and it's the automotive industry that has slowed down in Western Europe. We saw good growth in Germany, France and the Nordic countries, but weaker or weak development in the UK and Spain. I think Spain is just a seasonal matter. UK has delivered good growth over 3 consecutive years. So the question is, if the UK economy is peaking. Continued strong development in Africa and that is driven by our mining operations. Double digit decline in the Middle East due to difficult comparatives after last year's large smart city project that we invoiced in the Q3 of 2016. That was an installation in the city of Mecca in Saudi Arabia. Americas, Slide 15. North America recorded 8 percent organic growth, and this is an improvement over previous quarters. Strong growth in infrastructure and construction and the content program, I. E, 2 d ortho data or 3 d elevation data had a good quarter. Somewhat weak aerospace on peak levels really and automotive industry due to tough comparatives in Q3 of 'sixteen. Already stated, South America is recovering and recorded 4 percent organic growth, driven by a return to growth in Brazil. If we move to Asia, China is the Chinese star, 19% organic growth. They represent half of Asia at this stage. And it's a broad based growth. But if you were to single out individual products and solutions, it would be the electronics industry that continue to invest in hexagon technologies. Also solid growth from our smart city solutions in China. We saw weak development in South Korea, and that is a more broad based decline where we see several industries suffering from competition, primarily from competitors in China and Japan. In India, it's really a comparative where we delivered a response system to Uttar Pradesh in Q3 of 20 16. And Enterprise Solutions, we've seen strong growth in general from industrial applications in the past few years. It's fair to say that both automotive, general manufacturing and aerospace are at peak levels. But still Mi recorded 6 percent organic growth and that was driven by the strong demand that we've already commented from the electronics industry, primarily in Asia. The main countries today for electronics are China, Vietnam and South Korea. Growth was hampered though by tough comparatives in automotive, primarily in Europe and Aerospace in Europe. PP and M, minus 11% organic growth in Q1. If we disregard the revenue reversal in Q2, we had minus 6% in Q2, and now we report minus 4% organic growth in the Q3. It is still a challenging oil and gas market out there, but we do see signs when we look at our overall portfolio for oil and gas that it's recovering. We have positive momentum in the business outside the oil and gas, and we do expect it to return to growth towards the end of the year. And just to save you from questions in the Q and A session, whether it's going to be the Q4 or it's going to be the individual months of November December, we don't know. But the outlook is that we return to growth and 2018 should be a year of growth, even though it might not be the best year ever for PP and M. EBIT1 Industrial Enterprise Solutions, well, the margin 25.1%, which is a sign that Mi is improving its margin significantly year over year. If we now turn to Geospatial Enterprise Solutions, Slide 19, we had strong growth in the geospatial area. So if industrial and general industry is at peak levels, geospatial still has momentum and growth and that is, of course, linked to the recovery in the global construction infrastructure sectors. Geosystems 12% organic growth, driven by a number of new initiatives. We saw the content program growing. We saw our mining solutions, the digital mining solutions really capturing market share. And we also saw the Black 360 having a really good quarter, even though we were slow ramping up deliveries in the quarter. So we're set for a good Q4 for Black360. SI, minus 1% organic growth and it's hampered by difficult comparatives in Mecca and Uttar Pradesh. But we also had good deliveries in China. And overall, the defense related services that we sell to the U. S. Army, they were significantly down year on year. On the other hand, positioning report 17% organic growth and that is driven by strong demand from defense and also strong demand in the agricultural sector. EBIT1, dollars 100,000,000 which is 24% EBIT margin versus 22.7% in the Q3 last year. The improvement comes from both Geosystems SI and positioning. So we do see good operational execution in the quarter. Slide 20, the gross margin. 12 month rolling, 1% up from 60% to 61%, percent, so the trend continues. Moving to Slide 21, the EBIT margin, 24%, 1% higher than the 12 month rolling a year ago. And you can see our targets of 27% 28%, respectively, for 2021. Orders and product releases in the quarter. I think the biggest new product or new technology that we launched in the quarter was on Slide 23, the new GNSS RTK rover. We haven't done much new technology development in the surveying field for GNSS rovers in a long time. But this might not look like much for a layman, but what you can do with this rover is you can point it at any direction and you can tilt the pole, but we use a precise enough inertial measuring unit inside the electronics processor of this unit. We don't use a compass anymore, which means that before, a surveyor needed to make sure that the pole was straight before you measure the point. Now you can just touch the area you want to measure. You can tilt it. You can do whatever you want. So it's a super quick way of capturing points if you're a surveyor. And it actually means that you do not necessarily have to be a surveyor to use it. It's that easy. So I think we've had really good reception for this and this is a big innovation. Next slide, Slide 24. Construction Management and Engineering Services is a U. S.-based construction company that has standardized on Hexagon's machine control solutions to drive their excavators and other machines on large construction sites. Slide 25, as you know, it's been a tough hurricane season in Southeastern United States and the Caribbean. We've seen Harvey, Irma and Maria devastating countries, islands and flooding in Texas among other places. The Hexagon Content Program has provided 1st responders and non government organizations access to professional quality imagery data, fresh data as the hurricanes hit. And that has been critical for damage analysis and the focus cleanup efforts to make sure that first responders actually access people in need. So this is something we're really proud of. Slide 26. Hexagon Technology is featured in the Baidu Apollo project. They are using our GNSS engines. Baidu is the equivalent of Google in China, and they're running the Project Apollo to create autonomous vehicles in China. And we deliver these solutions through our partner, Autonomous Stuff. Slide 27. It's been a big quarter for Hexagon Mining and the digitalization of mining activities across the world. The expansion continues. We got new orders from Newmont, Victoria Gold and CMOC International in the quarter. Slide 28, Austria Federal Police is driving an historic transformation of their IT assets. They've established a project called platform on Hexagon's computer aided dispatch and crisis management systems. Slide 29, we got an order from the firefighting and rescue services in Ontario, Canada in the quarter for a computer aided dispatch system. Slide 30. We're also installing critical infrastructure protection, which is becoming an increasing problem in oilfield. So one of the largest oilfields in the world, the Iraq Zubair Giant Field, selected Hexagon's technologies for this critical infrastructure protection. I don't know if you remember, there was this attack on an oilfield by terrorists a couple of years ago, where they took hostages. And this is to address that issue. Slide 31, shaping national security and disaster management in Japan. Japan is an earthquake prone country, and Hex Solutions will aid the Japanese government in processing and analyzing data from optical and radar satellites. And this is, of course, to make sure that the decision makers and stakeholders are well educated on what's going on in real time in national security and disaster management. Slide 32. Hexagon's Power and Energy Solutions are growing in China. We already have the world's largest oil and gas company, CNPC, on our customer list. But they decided to solidify their application using our software by upgrading its Slide 33, Hex Slide 33. Hexagon AMI is launching the first step in a series of products towards the smart connected factory. It's called Smart Quality. And it's a resource management software platform using our proprietary IoT platform to connect machines with databases and create a consistent tool for measuring quality across large scale manufacturing operation. Slide 34, accuracy for industry specific applications. We need to do something about our product names because we're actually launching a product called high throughput and accuracy measurement solution, HTA. The product name is long, but the product is amazing. We're using our non contact optical probe technologies, and we can improve the productivity and throughput for primarily BLISQ applications when manufacturing aero engines. And that is the unique application for the aero engine manufacturers, enabling them to step up productivity and output. Slide 35, we launched ECOSYS 8, And this will enable real time seamless data flow between all stages of the product life cycle to maximize returns and margins. And we have a first order for this new generation software. And it's China Nuclear Power and Engineering Company that will deploy Ecosys in their project management building new power plants in China. Slide 36. Finally, we made an acquisition after the end of the quarter, but we acquired a company called Luciad. And this is to enable Hexagon to move towards 5 d real time maps in the smart city segments. So we use the Lucien technology in combination with the Hexagon source content from real time sensor feeds, could be traffic, could be catastrophes or whatever you want to follow in real time. And by doing that, we create dynamic analytics, 5 d. So I think that was it. So in summary, 6% organic growth, driven by strong development in geosystems, manufacturing intelligence and positioning intelligence, Continued robust organic growth in China, hampered by continuous weak oil and gas sector, but we do see positive momentum outside of the oil and gas, and that supports our expectation of growth towards the end of the year for PP and M. Strong profit development despite the currency headwind. And operator, I think we've reached the end of the presentation and we're now ready for our Q and A session. If you do have questions on my upcoming trial in Norway, I suggest that we take that offline. You contact us at ir@hexagon.com, and we will direct you to the right channel. So with that, I open up for questions. Thank you. Thank And we'll take our first question from Guillermo Peigneux of UBS. Please go ahead. Thank you. Good morning. Thank you, Ola, for answering my questions. My first question actually regards to recent comments from one of your Swedish peers in the industrial world suggesting that there is actually a significant amount of synergies from the combination of cutting tools or cemented carbide cutting tools and actually metrology, which basically will help them grow both franchises ahead of what the market is growing at the moment. And I wanted to see what your impressions are about that comment. I don't have any comment. There are many synergies in the manufacturing sector, both between cutting, programming of machines, robotics and so on. So I guess it's a valid point. Okay. Thank you. And then second is basically regarding Page 15 of your press release or your results release. When it comes to contingent considerations to when it comes to recognition to fair value, I've noticed that these lines are becoming recurrent every quarter, whereas in the past we're more actually single out in the annual report or in the Q4 statements. And I was wondering the reason why this regularity nowadays or whether it's something that we will see What page did you refer to? Yes. It's Page 15 of the results release, so the full report on acquisitions. And what was your question regarding that page? Yes, that is becoming more recurring. So I noticed Q1, Q2 and Q3 have this kind of contingent consideration recognition to fair value comments in which you specifically mentioned numbers and adjustments. And in the past, they were not that returned. So I think either you are now highlighting it as the quarter happens or there's something that has changed in terms of the policy for this contingency considerations or contingent considerations and recognition to fair value. I was wondering whether there is any change on the way you look at acquisitions or No, no, no. It's have you heard of IFRS? Yes, I heard a little bit about it. That is a body of very clever auditors that every year come up with new ways to account for things. And they always issue new policies. So there is some new policy how to treat fair valuations and earn outs. And now we're moving towards a situation where you need to disclose the valuation and the considerations you do every quarter. So it's going to be even more common. And we might end up sometime in the next 2 years where you need to announce tables that show you the development of the fair value of acquisitions. Acquisitions. Okay. Thank you very much, Ola. I'll stand back in line, and then I'll come back with a follow-up maybe later on. Thank you. All right. Thank you. We'll take the next question from Stacy Pollard of JPMorgan. Please go ahead. Hi, thank you. Your top line growth 6%, that was a pretty strong, good acceleration there. Do you think that is sustainable into Q4 or could it even increase if PPM grows? And then kind of subset of that question is, can you talk about the sustainability of Geosystems? Could we see that into the double digits again in Q4 and 2018? And then China also kind of same question. And Electronics, is there any seasonality to that? And maybe can you tell us what you're doing there beyond phones? That was many questions. Sorry, it was many questions, sorry. No, but I think you need to take a step back. We live in a 0 inflation world. Interest rates are at all time low. Growth is simply not there in the global economy. That's the backdrop. And we launched our financial plan in December of last year, where we said we're going to grow by 5% over the next 5 years. From December 2016 to December 2021, the average growth is going to be 5 percent. So we reached 6% in this quarter and that was a good rubber stand for us that we're heading in the right direction. But to say whether Q4 is 7% or 4%, it's not meaningful. I think you need to look at the long term trend. And if Hexagon can grow by 5% organic growth in the next 4 years, we're doing very well indeed in this global market. Understood. And any comments maybe on the Geosystems China or Electronics? What's interesting is that we do see manufacturing in general reaching sort of a peak in the global economy. I mean, auto sales are at all time high. Aerospace sales are at all time high. Electronics are at all time high. So we do see one of our segments, the industrial segment slowing down or fairly stable mid single digit organic growth. But we do see an acceleration in the geospatial segment. And that is connected to the improved situation in infrastructure and construction across the globe. And it's primarily Europe coming back. North America has been strong in construction, but we do see infrastructure projects in North America that we haven't seen in years. And then the situation in China is stabilizing, and thus, China is also investing in infrastructure again. So I think that it's a general trend that industrial applications might slow down in growth, but your spatial applications might actually accelerate. Useful. Thanks. Thanks. Sachs. Please go ahead. Great. Thank you. Ola, I was wondering if you could comment on the some of the strength you're seeing in the PP and M on the non oil and gas side. Any particular geographies or sub segments within that? And as we think about sort of that recovery in PP and M into next year, what is the kind of expected mix between oil and gas? Is that still expected to be broadly stable? And then the kind of non oil and gas continues to accelerate? I mean oil and gas has been reduced in the mix, obviously, since oil and gas has tanked. But growing segments are chemicals. In the quarter, we had a large order from Germany, which was a buyer related company. You saw the nuclear activities in China. So nuclear and chemicals are definitely growing well in this market. And mix wise, I mean, if oil and gas recovers next year, which is the hope, then they will increase their share of PPNM from current levels. Okay. And just as sort of a follow-up on Geosystems and your comment that manufacturing is peaking. It sounds though that you're still reasonably comfortable with a sort of mid single digit growth rate in the Geosystems segment. As we progressed, you don't expect a kind of a sharp deceleration? And was there any impact in Q3? Because I know you had a soft North America in Q2. Was there any kind of spillover effect there that distorted the Geosystems performance in Q3? I just need to ask you, are you referring to Geosystems or Manufacturing Intelligence since you're talking about manufacturing? Sorry, sorry, Aesir and Geosystems. Okay. So then you refer to Construction and Infrastructure? Yes. No, Construction and Infrastructure, we do see a strong development both in Central Europe, Northern Europe and North America. So Geosystems should actually have a quite good quarter ahead of it. And plus China has already been good. We shouldn't forget China. Great. Thank you. Thanks. Thank you. The next question comes from Alexander Virgo of Bank of America. Please go I wonder if you could talk about a couple of points you made earlier on, I guess, clarification perhaps in a couple of instances. 1, you mentioned tough comps in auto in Europe. And you also mentioned slowdown. I wondered if it is actually both or just the former. On Smart Cities, I wondered if you could clarify how big that business is and whereabouts it is. Is it in SI? Or does it cover both SI and GEO? And then the last one, just on Manufacturing Intelligence. The margin improvement there, how much of that is attributable to the integration of MSC? And how much of it is actually the underlying margin? Yes. Start with the margin. I'd say roughly 50% stems from the old MI and 50 percent from the fact that we consolidate MSC at much higher margins. If we move to the auto question production in Europe, but there is a shift where the so called diesel gate question is putting pressure on the manufacturers because consumers in Europe are not buying diesel cars anymore. And that has sort of had some unforeseen planning challenges for the big auto manufacturers in Europe, and that has affected their plans for this quarter. Whether that's a short term or a long term trend, we if we looked really long term, we see a lot of activity launching new car models, which should be beneficial for Hexagon. So we don't see a significant slowdown in our order volumes in the next 2, 3 years. But quarter on quarter, you never know. Moving on to Smart Cities, it's both Geosystems and SI that benefit from smart cities. And all in all, it's becoming a 40 I would say this year, it's EUR 45,000,000 growing very rapidly for us. Okay, lovely. Thank you. Thanks. Thank you. We'll take the next question from Daniel Gerberg of Handelsbanken. Please go ahead. Yes. Good morning, Ola. And I have a question. Last year, we had an abnormal large order helping organic growth with, I guess, 1 percentage point. Have you seen any similar in Q3 of 2017? And also a question, if I may, about smart cities strong in China. Is this a multi city thing or is it some mega cities or a combination? And also if you could comment on the pipeline on smart cities outside of China would be great. Thanks. We don't have I mean, we always have large individual orders in any quarter you look at because we do have a lot of solutions businesses. But I can't single out a single order in this quarter that would represent 1% of organic growth. So it's a more normal quarter, if you so wish, compared to Q3 of 2016. Regarding China, this is a broad based project across China. It's more than 300 cities that have signed up to a protocol to make their cities smart by 2022, I believe it is. So it's not one individual region. It's not one individual order. And outside of China, we see a lot of activity, primarily in Asia actually. I mean, Singapore is discussing installations. You have India that is sort of leapfrogging technology and installing the latest technologies, skipping like landline based telephone technologies and going straight for mobile and cloud based. So, India is definitely an interesting market for smart cities. And then we got Europe that is looking into it. We had a large order with the Austria that might pan out to involve city installations as well. So it's definitely more broad based trend than just one order here and there. I take a quick follow-up on that? I know that MSC also was working with Huawei on the smart cities, I believe. Has that helped that you get a bigger share? If you can comment anything about that, would you? I'm not sure MSC worked with Huawei on smart cities. Perhaps it's also on something else. Okay, thanks. And I wish you great success in Norway as well. Thank you. Thank you. We'll take the next question from Adam Wood of Morgan Stanley. Please go ahead. Hi, good morning and thanks for taking the question. I've got 2, please. Just wanted to dig in a little bit, first of all, on Manufacturing Intelligence and maybe some help with the phasing of growth over the next few quarters. I think you've suggested that the electronics business there starts to give you tougher comps, but you've grown in Q3 off a pretty tough base. And I think previously you've suggested that with new models kicking in, auto and aero should get better as we look into the end of this year and next year. Is there anything more you can help us with in terms of when we really hit the base comparisons on electronics where those base comps get very difficult? And is there a risk we get a quarter between the 2 where things don't quite work out and we have that hiatus? And then maybe just secondly on margins looking into the 4th quarter, it feels like there's quite a few gives and takes. You've obviously got the cost saving plan, but currency is going against you. On the other hand, organic growth is picking up. Is there any reason why we shouldn't be seeing a kind of similar margin progression as we saw in the Q3 in terms of the cost saving plan phasing or greater impacts from currency? Thank you. We'll see. The one who lives, we'll see. I don't comment on margins in the Q4, but I do comment on the margins over a 4 year period. And our target is still to reach 27% or 28% by December 2021, Adam. So you extrapolate and draw the line. Tougher comps in electronics or water and arrow. Now I think auto and arrow is easier to predict because we do have visibility into the future with next generation programs and models. Electronics is more difficult to predict because typically you have the launch of new products like we saw from Apple in the Q3 with iPhone 10 or iPhone X. And what's new with that is really the wraparound loss. And I don't know, it's for anyone to guess if the others will follow suit and deploy that technology as well or that design. And that means business for us. So we simply just have to wait and see what happens. Perfect. Thank you. Thank you. Thank you. We'll take the next question from Max Friden of Danske Bank. Please go ahead. Hi, Ola. This is Max Freyden, Danske. I don't know if you commented this already, but have you displayed the contribution from product launches in the I think it's at least 1% in the quarter. I think it's at least 1% in the quarter. Okay. And that's helpful. And on the BLK K360, you said you had some ramp up problems here in Q3. So do you believe that contribution is going to be bigger in Q4 for Geosystems? It's definitely going to be greater in Q4 compared to Q3. That I know for sure. And on that theme, the imagery program, did that contribute a lot to growth in North America Geosystems in the quarter? It did. And finally, on the product related questions. On the smart digital asset and PPM, did you have any contribution from that in PPM in the quarter as well? No, absolutely. Yes, absolutely. We had contribution, but it wasn't big enough to stop the erosion in sales. So we still posted minus 4%, but we definitely saw a contribution from FDA. And where is that coming from? Sort of big blue chip customers? Or does this give some color on on it? No, it's we have a collaboration with 1 large customer that is deploying the smart digital asset. And that is, of course, the main contribution. But having said that, other customers are waiting and watching and if this large customer is happy, they're going to deploy it too. I think that was it. Then maybe just a follow-up on metrology. You used to display the book to bill or say the book to bill in Metrology. Is that something you can do now as well primarily then, I guess, to outline that? It may book to bill makes less and less sense as you move to a recurring revenue model. I mean, a typical engineering company would discuss book to bill. But the more of your business that is recurring revenue when you operate from a well, a reserve or an accrual of revenue, book to bill doesn't really say anything. But in this quarter, for comparable, if you go to the old classic metrology business, we had a positive book to bill. Yes. That's helpful. Thank you very much for answering my questions. Thank you. Thank you. We'll take the next question from Wazee Rizvi of RBC. Please go ahead. Hi, good morning. Just a couple of questions from me. Just on the margin actually, I'm just trying to understand where we are in the cycle. I think when you mentioned the cost savings, you mentioned that there was going to be a period where you saw more of the cost savings, but you would be reinvesting, but the reinvesting would obviously lag. So I was wondering where we are in terms of the benefits from the cost savings. But Pam, have we started reinvesting it? Was that still to come? And therefore, that might take off some of the margin improvement. And then the other thing I was interested in was again on Mi and Electronics. Have we now seen most of the impact of the big new launches? So you mentioned the iPhone X. Was that mostly in Q3 or is there a bit more to come as they ramp up production? I'll start with electronics. I think it's fair to say that the lion's share of orders, we've seen the lion's share of that business in the Q3. Q4 will be somewhat slower. I don't know quarter on quarter if you compare it to Q4 of 'sixteen. I don't know that from top of my head. But sequentially, if you look at Q3 into Q4, we expect electronics to be a smaller quarter in Q4 compared to Q3. And then you talked about the margin. And I think it's fair to say that we're trying to hire qualified engineers in the areas where we need engineers, but that's a slow process. So I think you're going to see benefits from the cost savings in the Q4 as well. Okay. That helps. Thank you. Thanks. Thank you. We'll now move to Alex Francovich of Berenberg. Please go ahead. Hi. Thanks for taking my question and congrats on the great quarter. I was wondering if you could give some more color on how the MSC integration is going and what their organic growth rate was for the quarter? Additionally, do you plan on any additional M and A in the space considering competitors continue to acquire in the segment? Start with the last question. We don't comment on that. MSC and I'm not going to give you this every quarter, but it's new. So MSE actually grew by 7% in the quarter. So it was a really good organic growth from MSE. The integration is going according to plan. We're quite happy with what we see, and we think computer aided engineering is a huge opportunity for Hexagon, especially in combination with metrology software, where we do see strong synergies for the future. So it's a highly interesting field for us. Okay. Thank you. But we did not buy Ekso. Thank you. We'll take the next question from Alex Tu of Deutsche Bank. Please go ahead. Hi. Thanks for taking the question. Could you just give us an update on where recurring revenue has now reached as a percentage of the mix? And if you can break that out between services and software recurring revenue. And could you just as a detail within that, say whether customers typically are paying maintenance every year on the embedded software within manufacturing intelligence equipment? Or is the software sale within that equipment generally just a one off at the time of the hardware sale? I would say, and don't shoot me on this number, but I would say we're roughly at 40% recurring revenue at this stage for the group. And within Mi, as you sell a system, you charge for the software and the service maintenance upfront. But then after 1 year of installation, training and warranty, we call it ITW, you renegotiate that package with the customer. And then typically, they sign on a 2 year subscription for software. And then we also negotiate services subscriptions separately. Thanks. So sorry, just for clarity, that 40% recurring revenue that you're roughly at is software only or that includes services? That includes services as well. So how much is software? I would say it might be 30 out of the 40. Okay. Great. Thank you. Thank you. I mean, what you can start doing if you want to analyze it, you could say in to graph, the old PP and M and SI is roughly 20%, 23% of our group sales, and that is all more or less recurring today, we could simplify. So let's say 20% of that is recurring. And then the rest is coming from Mi Geospatial and a little bit from Geosystems. That's how it looks like. Great. That's helpful. Thank you. Yes. Thank you. And we'll take the next question from Wazee Rizvi of RBC. Please go ahead. Hi. Just a follow-up from me on market shares actually. I was interested to hear what you're seeing and particularly in relation to some comments from Trimble in their last quarter where they thought they were taking market share in Europe. So I mean they didn't necessarily say it's from you, but I was wondering what you were seeing in the market and the competitive dynamics. The funny thing is any industry you analyze, everyone is taking market share. So why comment? Right. So you're not seeing any changes or you're taking share, right? No. I think it's a more long term process when you take share. I know where we've taken share in the quarter, but that's not something I'm going to discuss. Right. Got it. Thanks. Thank you. As there are no remaining questions And this was a completely exhausting Q and A session. So I have no more remarks or comments. Thank you, everyone, for calling in, and we'll do this again in February. Goodbye.