Earnings Call: Q3 2016

Oct 28, 2016

Good day, and welcome to the Interim Report Q3 2016 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Ola Rollin. Please go ahead, sir. Thank you. Good afternoon or good morning or good very early morning, depending on where you are in the world, and welcome to this Q3 interim statement for the Hexagon Group. If we turn to Slide 4, Organic growth was 2% in the quarter, and the recorded growth was 5%. Growth is primarily driven by construction and infrastructure related business in China where we've seen a pickup. And a global acceleration generally in the manufacturing segment. We also had increased traction from our smart city solutions in the quarter. We invoiced our first order, and we will come back to that. As expected, growth was muted and hampered by tough comparison numbers and poor sentiment in the oil and gas sector. And the currency impact was minus 1% in the quarter. Acquisitions added 4 percent to the top line growth. Gross margin was 60% and EBIT margin 23%, And we saw improved profitability from the GES segment, whilst we saw a reduced margin in the Industrial segment due to a negative business mix. Just a reminder, Q3 is the 2nd weakest quarter for the Hexagon Group, and this year is no exception. Slide 6, key figures in the 3rd quarter. Net sales amounted to 779 point €7,000,000 And this is a recorded increase over the same period last year of 5%, and it corresponds to an organic growth of 2%. The EBITDA margin came in at 30.4% compared to 29.5%. That is almost 8% improvement. The operating margin improved by 0.5%. And this is the effect that capitalization, amortization asset deviation is shrinking or the gap is shrinking. It actually shrunk by 20% year on year in the Q3. Earnings before taxes amounted to EUR 174,200,000 and that corresponds to an earnings per share of EUR 0.39 If we look at the key figures for the 1st 9 months, we've now reached €2,300,000,000 in sales, and we have an operating margin of almost 23% for the 1st 9 months, which is almost 1% stronger than the corresponding period last year. Cash flow. The operating cash flow before changing working capital improved. And it's really the working capital that is a bit of a disappointment in this quarter. And the reason is we saw significant growth in MI, which grew our receivables, and we saw a decline in PP and M, which reduced our deferred revenue reserves. And then you got this impact. I think, however, it's important to look at the full year and not just 1 quarter. We expect the working capital to develop well in 2016. Looking at working capital to sale, Slide 9, we can see that we had a slight uptick in the 3rd quarter, but really nothing extraordinary. Slide 10, effects from FX movements. For the first time in a very long time, we had a positive impact from the Swiss franc. It shaved off $800,000 in net sales, but we had a positive impact on operating earnings stemming from our cost structure in Switzerland that was reduced due to the weakening Swiss franc against the euro. All other currencies, however, had a negative impact where we saw the Chinese renminbi primarily and a few other large for hexagon large currencies weakening in the quarter. Market development. If we look at Slide 12, we can see that Western Europe has improved 1% of total Hexagon sales, And we also see a decline in EMEA stemming from primarily the Middle East. China, 16% and Asia Pac, 13%. It's also noteworthy to see that decline in South America, where I think in 1 quarter they represented 5% of sales, has now stopped at 3% of sales. And a similar analysis on Slide 13. China is growing 8% Western Europe, moderate growth Eastern Europe, Middle East and Africa, strong growth due to the smart city order that we invoiced in the quarter in Saudi Arabia Asia, excluding China, moderate growth. And then we see continuous decline in both Americas. Looking at Slide 14, this is really a too busy chart to comment or slide to comment on the earnings call, but it's more for reflections for you to study and see the differences to previous quarters. If we move to EMEA, Slide 15. Western Europe recorded 4% organic growth. We saw growth coming back in the UK after the decline that we saw in connection to the Brexit in the by the end of the second quarter. So good growth in the UK in the Q3. We also saw good growth in Spain and the Nordics. We saw negative growth in France and somewhat muted growth in Central Europe, Germany and so on. We saw continued recovery in Russia with double digit growth from lower levels than we had pre the ruble or the Russian crisis. And we also saw solid growth in the Middle East, driven by the smart city order that we invoiced in Mecca. If we look at Americas, Slide significant decline in Canada, which stands significant decline in Canada, which stems from a weak infrastructure market paired with the mineral and the oil and gas sector decline. We saw good growth from the manufacturing related businesses in North America. South America continuously shrinks, minus 8% organic growth in the quarter. Excluding Brazil, however, everything is not pitch black. Excluding Brazil, organic growth was up double digit. So we see good growth from other countries in South America. Asia, finally, Slide 17, 5% organic growth for the region, driven by strong demand in China, Japan and Australia 8% organic growth in China, and it's primarily a combination of recovery in infrastructure and construction, combined with the smart city digital city development that we see. We also saw good growth from the electronics segment in Mi that returned to positive growth due to new customer wins in the quarter. We saw a turnaround to solid growth in Australia driven by primarily infrastructure and construction. So if we move to the reporting segments and start with Industrial Enterprise Solutions, Slide 19. We report organic growth of 2%. Mi reports 8% organic growth, and it's driven primarily by the aerospace and electronics sectors, geographically North America and Asia, parts of Europe grew significantly. Continued negative growth in PP and M, similar to Q2, minus 10% organic growth. And it's a combination of tough comparison numbers and poor sentiment in the oil and gas sector. The EBIT margin for Industrial Enterprise Solutions was thus down by 1%, and it stems from the fact that we have more MI and less PP and M in the sales mix in the quarter. Moving on to Geospatial Enterprise Solutions. Geosystems report 1% organic growth, And it's a combination of tough comparison numbers in the aftermath of last year's big product launch, the software the onboard software system Captivate. In combination with a weak infrastructure market, primarily North America, we do see a strong recovery for Geosystems in China. This is driven by a combination of infrastructure projects, construction projects and the ambition to grow smart cities. SI report 8% organic growth, and it was primarily driven by an increased demand for public safety and smart city solutions across all regions of the world. Positioning is suffering from the weak offshore oil and gas market. But we saw good growth in the G and SS or GPS related business. EBIT margin, in this case, improved significantly from 21.2% to 22.7 percent. Looking at the gross margin, Slide 21. We're now at 60% gross margin in the quarter as well as the 12 month rolling average. And some people might react that we can improve the EBIT margin, which you see on Slide 21, with a flat gross margin development. And this has to do with the mix development where Mi primarily is growing very fast at a lower gross margin than group average. And PP and M is losing 10% growth and well, literally 100% of that sales is gross margin. So what you're left with is gross margin that isn't growing, but still, we improved the EBIT margin due to lower OpEx in the Mi business. Orders and product releases, Slide 24. Multivista, we announced the acquisition of the Multivista Group in the quarter. It's a Canadian based company with operations in Canada and United States. You should really regard this as an extension to our effort to grow the Hexagon Imagery program and the SmartBuild products. What Multivista do is they document using imagery, document construction projects, and then you embed these documentations in your workflow on the construction site. Slide 25, we made an acquisition of GIS Quadrant. That is a partner to us prior to the acquisition, and they have a cloud based solution that are built on our Hexagon SI software. We also acquired a small start up company that is going to grow into something exciting, and that is Apodius. Apodius is a software company that specialize in measurement solutions for the composite materials market. It's a start up based in Germany, and we believe this could be something exciting going forward since composites are growing. Slide 27. We've run a series of advanced cutting trials at Audi where we actually improved performance by 47%. And this is the first installation since the acquisition of the Vero, CAM Group in 2014, where we actually combine software and technologies from Hexagon Metrology and Vero Software. So we're thrilled about the results, and we can see more to come in this area. Slide 28, increased traction for smart city solutions. Well, you saw the invoicing in the Middle East, where we saw significant growth. And this stems from this project where Hexagon and Huawei announced a partnership in the Q4 of 2015 to collaborate on smart city installations. And the first installation that we've undertaken, we've delivered a system to Mecca in Saudi Arabia. And Mecca is, as you know, a very special city. Normally, it's got 2,000,000 inhabitants. But once per year, they add 2,000,000 to 3,000,000 people due to the Hajj, which is a 5 day pilgrimage period every year. We clock more than 60,000 calls to the police controlled center during Hajj in 2016. That's roughly double the rate of the daily call volume to rescue forces in New York City. And the system delivered it with standing ovations. Slide 29. ECOSYS has gained an order from Ontario Power, and they will now standardize their projects where they have 600 projects and a budget of €8,900,000,000 and Ecosys will be the follow-up system for Ontario Power going forward. Slide 30, we also got an order from Salt Lake Valley Emergency Communications. This is a multi agency dispatch platform that we're delivering that will include both police, fire and ambulance. Slide 31. We won a project in Italy, which is basically a project where we've designed a solution to mobile map a 1200 kilometer railway line between Rome and Genova. So you put this camera that you see on the picture on a trolley and you run the 1200 kilometers and what you're left with is the 3 d map that you can use for maintenance purposes. Slide 32. The U. S. Navy will standardize on Hexagon's anti jamming technology to protect the GPS signal on their vessels. And this is a real breakthrough order for gadget. For those of you who remember, we introduced this product first time at Hexagon Live in 2011 in Orlando. And it shows the sales cycles that we have to live through in certain segments of Hexagon's end markets. So it's taken 5 years to get the 1st real big order for gadget. Slide 33. We continue to gain ground in a very depressed mining industry. More and more, the miners are focusing on productivity and cost reduction, and they are turning to us to simply connect all pieces of the mining operation using our software platforms and our sensors to reduce manning, output yields and so forth, should be improving yields. Slide 34, we launched OEM7, which is our latest generation GNS receiver cards, and they can be built into many applications. But it will span from the defense industry to autonomous vehicles. And the form factor is such that they are easily built into any device. What we've done here is we've made great advances on the back of the gadget development that I talked about a few slides ago in so called interference mitigation. It's one thing to position a vehicle, a car, a vessel or something. And many technologies can do that with accuracy today, but the next challenge will be to protect that positioning from jamming. And this card has the latest technology, and believe that we have we are the world leaders in that field. Finally, Slide 35. We have announced and I will continue to push for and make a bit of advertisement for our Capital Markets Day, which will be hosted on the 1st December in London, where we will give an update to our growth plans, strategy and financial plan. So in summary, Q3 2016 growth was driven by construction and infrastructure related businesses in China and the global acceleration in the manufacturing segment in the quarter. We saw increased traction of our smart city solutions, our collaboration with Huawei. As expected, growth was hampered by both tough comparison numbers but poor sentiment in the oil and gas sector. And we continue to strengthen our operating margin despite the negative business mix. So that was it. And now I'm ready to start the Q and A session. So please, if there are any questions, use your keypad. Thank you, We can take our first question from Mohammed Nawala from Goldman Sachs. Please go ahead. Great. Thank you very much. Well, I was wondering if you can comment on, I think, what you said at the time of the Q2 call that you sort of anticipated some progressive improvement in the organic growth as we went to the back half given that we saw also a small dip relative to Q2. What's your expectation? Do you still anticipate sort of acceleration into Q4 and next year? I know the comps are a little easier. And then secondly, just on Smart Cities, on the back of the Macau win, what are you seeing in terms of the pipeline and interest from sort of other customers? And can you kind of remind us on the potential size and scope of some of these contracts and how big an impact they can start to have on the growth rate? Growth in the 4th quarter, we believe 4th quarter will be stronger than the Q3. Going into 2017, I would like to save that discussion promise you. Regarding Smart City, Mecha added 1 of the 2% growth in the quarter. And these projects are typically multi tens of 1,000,000 of euros in size. We have a fairly significant pipeline of projects. I don't want to disclose the full number, but we got a significant pipeline together with Huawei from several countries, primarily in the Middle East and Asia Pac regions. Okay. That's great. And can I just clarify the 1% is on the group level or for the SG and I? On the group level. Great. Thank you. Thank you. We will now take our next question from Daniel Gerberg from Handelsbanken. Please go ahead. Yes. Thank you very much. First, a question on PPNM and the organic growth. If you exclude last year's shipbuilding order, can you give us the number of the organic growth adjusted? And also, if possible, if you could say something about the visibility you see entering Q4, if I look at the prepaid expenses and the accrued income, we saw quarter on quarter 2018. Sorry, Daniel. Let's start with the P and M order. Otherwise, I'll leave Yes, of course. I believe it was slightly negative excluding the order. If I recollect, the order was in somewhere between EUR 5,000,000 and EUR 10,000,000 last year. So we would still have shrunk even without it, but it would not have been minus 10%. Now sorry, can you take the next? Yes, yes. Sorry for being coming to visibility for Q4. When I look at the prepaid expenses and accrued income in your balance sheet, I can see it increased quarter on quarter in Q3 to 2014 with 15% while 11% 2015%, but it's flat in Q3 to 2016 versus Q2. Should I be worried about the impact, I. E. The correlation with the revenues in quarter 4? Did you get the question? No, no, you shouldn't because there are two things that need to happen. We need to replenish, so to say, the deferred revenue with new long term contracts. And we don't see any material deterioration in our long term relationships. On top of that, we need to sell perpetual licenses in the Q4, and they would not end up in that column in the balance sheet because you invoice them in the quarter. And that is what we're working at. And what needs to happen in the Q4 is that we do land a few of these prospects that we're working on in order to see the improvement. Yes. I understand. And finally, if I may, also on the oil and gas. Is it possible to see any improvement in the outlook given what you've seen in the oil prices, etcetera? What we've heard is that I mean, this is a huge market. Changes in direction take time, but we do see that the rate of decline is diminishing. And if we take the positioning market, which is huge for us, we actually see small growth. We see customers coming back, subscribing for positioning services of vessels and rigs and so on. So that decline has leveled out. If it's a turnaround or we're at the bottom, well, your guess is as good as mine. Okay. Thank you very much, Ola, and good luck in Q4. Thank you. Thank you. We will now take our next question from Gerardus Voss from Barclays. Please go ahead. Hey, good morning. Thanks for taking my question. Just a few if I may. First of all, Oleg, could you make some comments about the kind of inventory levels in the channel going into Q4? And then secondly, from what I hear from the prior kind of questions, it seems that Q4 will depend on some larger sized license deals you need to kind of sign perhaps in the kind of smart city. Is that a correct understanding from what I heard? And then finally on the kind of working cap, again, going back to the deal in kind of Mecca, should I read that you have invoiced that you haven't received the cash yet and therefore Q4 should kind of normalize and that this was a big component of that kind of working capital built in the quarter? No, that had nothing to do. So my if we start with the working capital, my comment was, am I, Manufacturing Intelligence, invoiced a lot in the quarter. It grew by 8%, which built our receivables. And then PP and M did have an organic decline of 10%, why the deferred revenue was reduced. And that is the impact in the quarter on the working capital. It has nothing to do with Mecca. Inventory levels, you talked about inventory levels in the channel or what was your question? Yes, in the channel, yes. And no, we haven't seen anything. I mean, first of all, we don't have much inventory in the channel. We invoice most of our products to an end user. So we do have inventory in the channel for geosystems, and we haven't seen any increases there. And then you had a second question regarding Smart City Q4. Could you repeat that? Yes. So from the kind of comments you made about Q4 to be stronger than Q3, but you need to land a few of those kind of larger deals you're working on. So I was speculating, does this relate to any kind of large smart city deals? And should we expect for the coming quarters, therefore, that there might be some more kind of volatility in the quarters because they're so large? No, that comment was specifically to PP and M. In order to see PP and M grow, we need to land a few perpetual license deals in the Q4. Okay. Fair enough. I misheard that then. Yes. Thank you. Thank you. We will now take our next question from Adam Wood from Morgan Stanley. Please go ahead. Hi, good morning and thanks for taking the question. Just a couple please. First of all, on North America, that was obviously a bit weaker in the quarter. Do you see any impacts there kind of like Brexit with the elections that slowing decisions on a temporary basis and we might get a rebound in that market? Or are you more concerned about broader slower economy there as you look into Q4 and into 2017? Then maybe on the industrial side or the metrology side, you were hopeful about iPhone 7 having an impact on that business as we look into the second half. Has that been a benefit for you? And do we have benefits still to come from that over the next couple of quarters? Thank you. Well, sorry, Adam. I'm going to dissect things a bit here. If we start with North America, I guess my guess is as good as yours. Of course, the presidential election has an impact on the economy. Specifically, what we've seen is that the private construction sector actually is growing quite well, and we do see housing projects and so on. We've seen a very weak public spending, public construction center, larger infrastructure projects, office buildings and so forth. And that might be linked to the political situation, but my guess is as good as yours. I think this is actually a broader question where and we will come back to this at the Capital Markets Day, where not much is actually growing in the global economy today, and we see more and more industries slowing down. Sorry, and now your second question. Was around the metrology side. I think you were hopeful that the iPhone 7 would have a beneficial impact on that business through the second half. Was that already an impact in Q3? And is there any more to come from that as we look over the next few quarters? Absolutely. We saw electronics grow in the Q3, and we're hopeful that, that could continue into the 4th quarter, whether it's just iPhone 7 or the fact that we broaden our pace and have more customers in that segment, and they are quite successful as well. I don't know actually. Perfect. Thank you very much. Thank you. Thank you. We will now take our next question from Mikhail Lesson from Carnegie. Please go ahead. Yes. Hi. I was wondering how the imagery program is progressing. The imagery program had a week. We had a setback in the Q3, and we were introducing something called elevation data where we create a 3 d image rather than a 2 d image that we've been delivering up to now. And hopefully, we can recover, if not all, most of it in the Q4. Okay. And how much sales is that part generating roughly in annual terms? Trends? Right now, we're flattish. So if we don't see a significant improvement, we will end roughly where we were last year. And we're hoping for an uptick in the Q4. It's a bit weather dependent, so let's hope the clouds go away. Yes. And I actually have the same question for Ecosys, how that part is developing. Ecosys saw growth in the Q3, and we reported on this Ontario order among others. So we do see good traction. But for hopefully, Q4 will be the breakthrough for ECOSYS. Okay. What's the size of that type of order for Ecosys? Ecosys' orders, I mean, it's multiyear orders, but the typical order could be between $500,000 up to 1,000,000 of dollars. Okay. Yes, that's and also if I may, one question regarding the margins for S and I Mining and Positioning, if you have if you can give some indication where they are roughly? No. We don't do that. All right. Thanks. Thank you. Thank you. We will now take our next question from Erik Golderang from Nordea. Please go ahead. Thank you. I have three questions. Apologies if they've been asked. I've had a bad line on and off. First one is another question on product progress. And this time, it concerns SmartBuild. How is that developing? 2nd is on acquisitions, if you could say something about the landscape out there, if multiples are still too high or what's holding you back? And then third one is mining as a percentage of sales now or are we in Q3? Thank you. Thank you. Let's start with mining. Mining is roughly 3% of sales. And then prod smart build. Smart build is still in the development ramp up phase. We're running 2 pilot projects with 2 construction companies. And so far so good, still far away from being a significant product in our product mix. But this is a product that you should basically have the view that this is a big contributor to revenue over the next 5 years. It's not going to be significant in 1 individual quarter. And then if we move to M and A, yes, the multiples are as high as ever, and we see new records every day, what companies are spending on acquisitions. Thank you. Thanks. Thank you. We'll now take our next question from Stacy Pollard from JPMorgan. Please go ahead. Hi, thank you. Just a few as well, and I will break them up so you can answer them 1 at a time. Just in PP and M, the minus 10%, was that all from license weakness or was there a reduction in recurring revenues as well? No, that was all from license weakness. And remember, the large order from the Italian shipyard in the Q2 no, sorry, Q3 of 2015, which also was perpetual license a perpetual license. Okay. And then metrology, can you just discuss the automotive sector? I didn't really speak much about that. You want to discuss Manufacturing Intelligence. Sorry. Well, I have my corporate communications director looking at me very sternly. So we need to stick to the new names. We saw growth, and it's actually quite robust, the automotive sector, given how weak other segments are in the global economy. Is there any particular area in the world you're thinking of or No, it's just a general comment. Or if there were any geographies that stuck out, we'd be interested. It's just that you didn't comment on that subsector and often you do. No. And I mean, China is holding up in spite of the slowdown in the consumer, well, car spending. Europe was fine and North America okay. It's not brilliant numbers, but quite okay given the situation, I think. Okay. And then just my last question was, how do you now think about a probable operating margin for the full year of 2016? I am thinking it's going to happen. Any quantitative comment on there? No. I think let me put it like this. I think that we are closer to reach the consensus operating margin target than the top line target for the full year of 2016. Okay. That's fair. Thanks. Thanks. Thank you. We will now take our next question from Alexander Virgo from Merrill Lynch. Please go ahead. Thanks very much. Good morning, Ola. I wondered if you could answer a couple questions on the progression that you've seen Q3 to from Q2. And SG and I, in particular, I saw accelerated despite a pretty tough comp. Given the and I think GEO systems slowed a little more than I'd expected. Given the comp swap, if you like, in Q4 and that they get a bit easier in GEO and harder in SG and I, I think, what was can we see those sort of growth sustained in SG and I? And would you expect GEO to recover a bit more? I have to correct you again. It's SI. I beg your pardon. Sorry. SI. Sorry. Stand corrected. It's acronym. Anyway, FI, it's correct. We do see an acceleration. We have a strong backlog in this segment. And if there is one silver lining in the global economy, it would be that public safety services are investing more than ever. So we're actually quite positive about the prospects for SI going forward. Regarding Geosystems, it was a bit of the weakening of the organic growth sequentially. Let's see what happens in Q4 because 1 quarter doesn't make a year. So it's hard to say what the trend is given the numbers we have at the moment. Okay. Fair enough. And then just on your the chart that you skipped over and leaving to our reflection, I will reflect it on it, if I may observe that and say that the sequential deterioration in infrastructure and Construction and Surveying in North America and I guess EMEA as well was quite striking versus Q2. Is that is there anything more sinister in that that you'd like to share with us? Or it's just your comments on earlier on talk more positively about about infrastructure and construction. So just trying to square that particular circle. Thank you. I think if we start with North America, that was the discussion about the private construction versus public construction. And as I said, my guess is as good as yours. Regarding Europe, we saw a slowdown, a sequential slowdown in the quarter from Central Europe, and it was countries like France, Germany, other country markets in Western Europe like the Benelux, Switzerland, Austria and so on. And it's hard to say why that is. Middle East was weak for infrastructure and surveying as well. So if we disregard the Mecca order, which gave us a 15%, 1.5% organic growth in Middle East, the rest of the infrastructure business was actually weakening as well. And that is due to the budget constraints that the countries have in the Middle East at the moment with the oil price and so forth. So yes, it's hard to give you a straight answer. It becomes more of a discussion and hypothesis. Right. Okay. Thank you. Thank you. Thank you. We'll now take our next question from Daniel Schmidt from SEB. Please go ahead. Yes. Hello. Good morning, Olga. I think most of the stuff that I wanted to know has been answered. But could you just give us some more insight to the new customer wins that you talk about in electronics? How many customers do you basically have now on that side? And has there been any impact at all from sort of the recalls that Samsung has been forced to do on Note 7? And in any way, is that impacting you in the sort of going forward? I think we'll start with that. I think the Samsung recall could have a positive impact. We've seen a negative impact year on year from Samsung. They've declined in orders for us. What happens when you have a recall like this is that you need to redesign the product and you need to relaunch the product, and that is usually beneficial for Hexagon. Regarding the other customers, we got some a handful, I would say, we got less than 10, but more than 5 customers in the electronic segment. And it's all the large Asian and North American manufacturers of handsets. All right. And those are the new customers. How many in total do you think you have now on that side of the business? No. As I said, we think it's less than 10,000,000 but more than 10. Okay, okay, okay. All right. And this recall, which has been quite sort of talked about, do you think that anyway is sort of impacting the sort of state of urgency to improve quality assurance overall in the sector? As I understand it, it's about the footprint and the battery space in the handset, it was simply too cramped. That's the explanation I've gotten to these currencies of fires. So I guess that they need to redesign the space for the battery in a handset. Yes. I was just thinking it sort of it moves up the need for quality assurance on the agenda in general when it comes to the sector, maybe that's already happening. I think that is happening and but it is going to put more focus on dimensional measurements of a handset to make sure that you have the actual space you do need. Good. All right. Thank you, Ola. Thank you. Thank you. We will now take our next question from Alex Tout from Deutsche Bank. Please go ahead. Hi, morning, Ola. Thanks for taking the question. Just a few quick ones. What was the GES growth in China? Obviously, last quarter was very strong, 51%. You thought that maybe given the low base from last year, you might GES growth in China. Secondly, admin expenses seem to tick down quite nicely in the quarter to about $60,000,000 Is that a sustainable rate that you're at there? Because that seems to really help the margin this quarter, given the flat gross margin. Maybe if you could answer those 2 and then I'll just have a quick follow-up. I'll start with the admin question. We're running at roughly 7.5%, 8% to sales, admin expenses. And we've done a benchmark over the summer, and best in class is 6.5% when we look at other companies. So we have started to focus on our admin expenses. Whether this improvement year on year is sustainable or not is yet to be seen. But we have definitely put more focus on the admin expenses. If we look at GES in China, it was double digit growth. And you had a third question, didn't you? Yes. It was just on the IES margin. Obviously, it declined. You said it was just the mix effect with Mi growing and PP and M declining. Was there any decline in the PP and M margin as a result of the revenue decline or if you managed to sort of offset that with cost cuts? No, there was a decline. We roughly lost 4% margin in the PP and M business. So Mi improved its margin and PP and M reduced its margin. It's very difficult when you have negative growth, and it's a pure software business where sales are 100% contribution to profit. Great. Thanks for the answers. Thanks. Thank you. Thank you. We will now take our next question, which is a follow-up from Alexander Virgo from Merrill Lynch. Please go ahead. Hi, Ola. Thanks. Last one, if I may. Just on M and A, I think the contribution to revenue is a bit higher than I'd expected, 4% on structure. Is that a similar sort of number for Q4, please? No. I believe it's going to drop slightly because we got ECOSYS, which is classified as an acquisition in the Q3. And we acquired them in the Q3 of last year, and they will thus disappear as M and A in the Q4 of 2016, and they will add to organic growth. Thank you. There are no further questions in the queue at this time. I'll now hand the call back to Mr. Rollin for any additional or closing remarks. Thank you, everyone, for listening in, and we'll do the same procedure next quarter. Thank you, everyone. Bye. Thank you. That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.