Hexagon AB (publ) (STO:HEXA.B)

CMD 2016

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Dec 1, 2016

We are 5 minutes from Showtime. Please come in and take your seats. 5 minutes. Ladies and gentlemen, 15 minutes to Showtime. Just 15 minutes. Where do I begin to Thank you, everyone. Just before we start the event, just wanted to give a quick health and safety speech. Good morning, everyone, and welcome to this Capital Markets Day here in London. And this is the schedule for today. And you're going to have the opportunity to have a short Q and A after each section and then we have a general Q and A at the end of the day. We're going to serve lunch at 12 o'clock, but it's just going to be half an hour. So please make your way back in good time before Norbert's and Paolo's section. Well, it's been an interesting year for me. My Chinese secretary said that I am a snake according to the Chinese zodiac and this is not my year. So we'll see about next year. I have two pieces of information that I want to give you. I'm not going to discuss my personal situation at all, but I think these are meaningful for you. First of all, the prosecutors' full investigation has gathered with written evidence and witness statements about my so called insider situation. We have in turn reviewed this. It's been reviewed by my lawyers and independent legal experts. And the material confirms our conclusion that no insider information existed on the 6th and 7th October of 2015. And as a consequence, all charges against me should be dropped. I would also like to focus on the extract from Mr. Schirling, which will be in today's press release, where he says, we want to make it clear that Ola has our full support whether he is indicted or not. You're innocent until proven guilty. And on a serious note, this is a very serious matter and obviously a very serious matter for me and my family. But there is going to be a discussion about law and how you execute law after this is all done. But that's not why we're here, but I wanted it out before we start. We're actually going to focus on Hexagon today, and that's a much nicer topic and we have a lot of good stories for you here today. And let's start with the first one. We need the backdrop. This is what you as analysts expect that we will do this year, dollars 3,160,000,000 in sales and roughly $23,400,000,000 Well, that's not roughly, that's actually quite accurate. 23.4 percent EBIT. We set a target 5 years ago to reach SEK3.5 billion in sales, 25 percent EBIT. And it looks as if we're going to miss this target. I think that it's important that we put it into context. If we look at the noughties, the period 2000 through 2010, it was called the super cycle. You had China growing. And as a consequence, countries like Canada, Brazil and so forth grew extraordinarily. We had a fantastic demand situation. And this little sawtan that you see, the sawtooth, that is actually the financial crisis between 'seven and 'nine. And as we exited the financial crisis, we, like everybody else, thought things are going to go back to normal. But we actually ended up in a situation which you are all too aware of, and that is China is not growing the way it's used to grow. All the other emerging markets are actually contracting or showing very poor growth indeed. And over this period, we've had the Brexit, we've had the sequestration, we've had lots of shocks to the global economy. So after the financial crisis, we've had a sort of low GDP growth. And that's why we record 6 percent organic growth instead of the 8% organic growth. Is that good or bad? Well, we can compare it to several other companies like Google. Obviously, Google outgrew us. We did 2.1 times sales in 2010 over the 6 year period. Google grew 3 times, But our peers grew 1.7 times over the corresponding period. And traditional engineering companies grew 1.3 times. And I think this is what it's all about. When you set financial plans for 5 years, obviously, you don't have a clue what's going to happen in these 5 years. But you need to set bold targets and step out of your comfort zone and you need to inspire your entire organization to do bold moves. And that is what we're going to show you here today. So why are we outperforming our industry? Well, we meet the needs of the global macro trends and technology momentum. There is no viable productivity and quality, and this is important in today's low GDP world. Our customers don't want capacity. If you're in the business of selling capacity, you're going to have a tough time in the next 5 years. But if you focus on enhancing productivity and quality, then you're meaningful for your customers. The last point is not just us. It's, of course, our competition as well. Brand loyalty and switching costs are tremendously high in our industry. It takes a lot of guts to switch from one brand to the other. And that's why we need to look at the green box. It's important for us to grow into new markets and new applications. Today, we have 3,000 patents and we apply for hundreds of patents every year. We invest more than SEK300 1,000,000 in R and D, and we spend more than the sales turnover of most of our competitors in R and D. It's a never ending flow of new application areas and emerging technologies, and you will see that during the course of the day. And our addressable market will continue to expand over these next 5 years. So what we're going to talk about today and what the theme of the day is moving from digital information, that was the first wave of technology, via digital information leverage where we deploy the information in our everyday world into creating products that are using this information autonomously without the interaction of human interfaces. And we call it digital transformation. And Claudio is going to talk about this a bit more. So thank you for the introduction. Hi, everyone. Welcome here. My name is Claudio Simao. I'm Chief Technology Officer at Hexagon. It's a pleasure to be here today. We would like today to talk on technology trends and our vision for the future, but also to share with you our enthusiastic, how are we are enthusiastic with the opportunities and potential value that can be created with the new emerging technologies and how Hexagon can effectively capture this value. Let's start talking about digital transformation. This is a very compelling trend today. And the first question that come is why should one transform? This is the the answer to this question is the very starting point to any transformation. For Exagon, this is our mission to move from or to turn from what is into what should be. And I will use this example in the screen to as an example. We can how we go to turn from traffic and roads infested with incidents, with accidents that bottom line, we are getting used to into smooth sailing, quality free time that we'd love to have when we move to 0.8 into 0.2. What's driving this change? What is pushing the trend? Well, in a dynamic technology environment, the risk is to stand still. Considering last 30 years, what changed our world? In fact, I would start from the Stone Age, but somebody told me maybe this would not be appropriate, this event, just a joke. But if we consider the last 30 years and the impact and benefit that the emerging technology, the latest emerging technology has impacted in the business in our society. This is really this has been really extreme. You can see in the screen these 3 last waves. Most successful companies have learned to ride to navigate and ride these waves and adapt to the changing environment sooner than others. We know some cases of in success company like Kodak or Blockbuster, for example. Today, there is a new wave coming. And this new wave is bringing an empowered potential and will change again totally the world. So we can see a big modification already. We can see the early stages of this steeper much steeper wave. And we can see also that this new wave is endorsed by technologies that will evolutionize the way we solve problems and we do businesses. Even at the early stage of this new wave, we see already this emerging technology permitting dramatic change to business model and moving entry barriers for new competition and also for replacement products. This is effectively disruptive disruptively changing the marketplace. What is the what is driving this disruption? We can see established momentum from cloud, cloud computing, the as a service model for software, for platforms, for infrastructure. We can see also the big the early stage of the big data and analytics. So these 3, let's say, influencers are conveying a paradigm shift. But a true evolutionary change is coming from somewhere else. And this is really the focus of my presentation. If we look to the right side of your screen, we can see some of the emerging new enabling emerging technologies. Connectivity as in IoT, pushing for real time applications. Nobody wants static application any longer. We can see advanced analytics kicking in with, for example, artificial intelligence bringing autonomous processes and autonomous systems. So this is a big also influencer today. We see image and video analytics with powerful algorithms for change detection. We will see some examples today. Our visualization techniques as in artificial in augmented reality and virtual reality, even now with mixed reality where you can interact with a virtual character or a virtual you interact with the virtual reality effect. So these technologies are not there per se, but they bring true benefits, each ones each of them in different cases that we will see some examples. Going in the next following slides, I will show some videos, some of them produced by Exagon, but I also extracted some videos from movies. Hollywood has been very keen anticipating the technology. So I will use this much more as an element of visualization and much more to permit better understanding. And I will make a parallel to things that we are doing. We will start with connectivity. In each video, you guys will see that there's not only one emerging or enabling technology in place, but I will focus each example with one of these technologies. This example, you see the guy playing catch with 3 drones. You'll see the 3 drones controlled by embedded computing and vision positioning and most importantly, with a system that connects all, so they are acting as 1. So acting together as a system, they can coordinate and play the catch game. It looks simple, but behind the scenes, there is an incredibly, incredibly complex articulation happening. So there are many technologies there, multi physics algorithms, visual inertial navigation, real time analytics and so on. If we put in the context our construction, mining, agriculture, I'm using or even manufacture, I'm using here an example of agriculture where Exagome is developing some interesting projects. This one, this one you see now is a sugarcane harvester, harvesting and logistic application. Sugar Cane is a very intense industry with a lot of fleets, harvester, truckers, transporters, a lot of mobile asset. They are not coordinate. This is the first initiative for our information management system that coordinates different assets with our enterprise processes, not only the fleet management itself, but the enterprise assets in the mill for them crushing the sugarcane in the mill or washing or waiting. So all this process coordinated for more productivity, less deviation of process and so on. Bottom line, more productivity, less cost. So everything acting as 1. And in the field, right? So you don't have many times, you don't have GPS, you don't have mobile phones. So a lot of technology together acting as one again. This movie from 91 Terminator 2: Judgment Day is another example now for advanced analytics mainly with augmented reality, too. It's another good example from Hollywood. You see here Arnold Schwarzenegger character determinator seeing layers of actionable information superimposed to reality to help him to take right decision in this case, particular case, to identify a person that comes close to his size. So big data analytics is playing here together with augmented connectivity, real time connectivity, source information from different databases, comparing real time with reality. So a lot of complex technology like data mining, machine learning, deep learning, artificial neural networks, genetic algorithms and so on. Very complex. Looks like very simple, but very complex behind the scenes. But we could extend this to security, to our application security center. This guy now is smiling, I see, But he can be a tool to identify and taking out bad guys with elements of technology that we saw in the prior video and that in Exelon, we are in advanced stage of development. This is another video Prometheus from 2012. You see drones mapping at an old tunnel. It's a very nice video that show exactly where we are going. We have most of the building blocks to do this. So the drones, they use indoor navigation and mapping at the same time, and then they can avert engineering. They can, bottom line, map the unknown space. If I correlate this with technology that we are developing, I associate this closely to our SLAM project. SLAM stands for simultaneous location and mapping. And some elements of these projects as image and video analytics permit us to recognize objects and patterns. For example, this video will show pattern recognition. So you detect, you recognize parts of the body, and then you can use contextual and semantics to make sense of what people is doing, if this behavior is abnormal or not. Abnormal can mean bad behavior, can mean a bad guy. You can create scenarios, and you can teach the algorithm to learn what is good or not. For the in deep learning, the next stage, the algorithm teaching himself to understand what's good or not. It's another level of where we are going. This example, the object recognition you see, the system will recognize a gun in the crowd. Now our last example of visualization techniques, video analytics, we will show them a dome of threat, as we call. This is this, in fact, is showing using visual analytics what is the areas of reach of propagation of a blast or spews, for example, dissemination of sound. That means line of sight, where you position an ambulance or a police car to tackle with events. This is this was used. This is a real product that we deployed in Rio for the Olympic Games this year using this technology to help the public safety agents to tackle this simulation, right? And then if you simulate things, you can overlay wide range of geospatial information, data on actual terrain, and you could create easy to understand digital realities for them assess any impact or any scenario of impact. This last video show virtual reality. Also, it's using visualization techniques, but in a virtual reality scenario. So the workers are interacting with the digital reality is a refinery to take decisions and to analyze possibilities. They can also a very strong capability of these 2 is also that you can cooperate remotely. That means one team here in U. K, another team in China could discuss on the same model real time. This maybe is the strongest appeal of this technology nowadays. So everybody as they were there in the future. So I think that all of us would agree that the challenges of the industry the industries are facing nowadays, these industries that where Hexagon has a footprint are quite complex. I guess nobody would discuss this. What is not so obvious is the challenges that we have for the ever increasing complexity of the technologies required to build up solutions for these real life challenges. These technologies required are more and more desperate and integrate to piece together. So the technology side that looks sometimes very easy, they are very, very complex. The world is complex. We have to make it simple to the user, but the world is not simple. And the technology we have are very complex and disparate. They are not connected. So connecting the building blocks is fundamental. That means sensors from sensors and workflows from real world, models and algorithms from the digital world. And at the same time, processing and streaming data, a lot of data in real time back and forth it's really difficult. How then to make everything work in a seamless integrated way? How to make everything act as one. So what we need in this case? We need something that orchestrates everything and ties everything together. So this is the moment where the platforms come into play, the concept of platforms come into play. An analogy to platforms. In this case, we see the 3 main platforms that Hexagon has, visualization platform, analytics platforms and connect platforms. We are in the corporate R and D together with the divisions developing these platforms. But if you want to do analogy, we can think our orchestra with many instruments playing together in harmony to deliver a beautiful symphony. But the instruments, they are disparate. They are totally unconnected. So how you make this work together? More technically speaking, we could think a platform in a generic and reusable, And reusable is one of the big advantage of this new era of emerging technologies. So a generic and reusable software framework, software environment to create, run and orchestrate powerful solutions using the emerging technologies to deliver advanced solutions. So the benefits, and this is really a key point of my on my time, on my presentation, the benefits of having the emerging technologies in one side, our legacy of technology on the other side and the platforms to orchestrate altogether is to accelerate having new streams because it is scalable, to reduce costs because we optimize the processes with platforms working together with the conclusion. But very, very important too, is that the platforms address complexity. That means make the utilization simple. To have devices and software easier to use, a direct consequence is an increase in addressable markets because you don't need any longer experts to use the devices, to use the software piece or to run the application. At the same time, because the platforms connect to different stakeholders of a complete solution, turn our device and our softness more relevant to the processes, again, increasing addressable markets. This will be really a major differentiation for Hexagon into the digital transformation that Ola mentioned. So what makes Hexagon different? What is the advantage and uniqueness in this case? I would summarize what first, we came from sensors. 1 of the strong DNA of Hexagon is data, is demand knowledge in creating capturing data and content. And also because we design sensor, we have to understand processes, so domain knowledge on working processes and applications. A second element is global presence, market leadership in sectors. So we are there already, mining, agriculture, construction sectors that have problems, complex problems to solve. So we have our footprint in there. The third element that I would emphasize is portfolio of proven technologies and subject matter expertise, not only in legacy technology but now with the new emerging technologies. And last but not least, our solid R and D program with committed investments and resources to develop the new technologies and to go ahead with our legacy technologies. So we are going the direction of next generation of platforms and solutions addressing the most vital high valued industries, as I mentioned. So these are the perfect ingredients. These are the elements to convey the new emerging technologies and solutions, platforms as the protagonist into Hexagon going to digital transformation. This is the guarantee of success and of, for example, important initiatives that Hexagon is doing as, for example, the smart connected factories and the smart cities. So this was my message in my high level tech trends and technology vision. So thank you for hearing, and happy to answer any question. No questions? Please. Thanks. It's Adam Wood from Morgan Stanley. Just wanted to ask a little bit about the analytics. It's maybe early stages, Hexagon talking more about big data and analytics. Could you talk a little bit about the technologies you're using on the analytics platform? Is that proprietary technology that Hexagon has developed itself? Is that 3rd party technology that you're relying on to manage the streaming and looking at that and analyzing that? Thank you. Yeah. No, no, it's a very good question, in fact. Analytics is a very wide concept, right? So you start from the statistic, the normal statistic, very traditional analytics, then go to diagnostic, then go to predictive. And the really, let's say, the premium level would be the prescriptive analytics that you have insights enough to understand what will happen next and you take you anticipate the action. We are we have consolidate analytics already in public safety, in metrology, in many areas of our expertise. So we have pieces, bits and bytes, but we don't want to develop everything. The concept of platform is really a motherboard that you plug in. For example, we have this collaboration with some universities, for example, here in U. K, Oxford and so on in U. S, in Germany, in China, that some algorithms, for example, for deep learning, there is no sense to develop this again. So we can just use as a plug in. Now we are open mind to use open source and to use consolidate algorithms for advanced analytics. The platform how we orchestrate this is really the key, the fundamental element in this going forward with advanced analytics. I don't know if I answer your question. It's okay? It's an approach where you take both your own technology that you're partnering in Yes. We have some proprietary algorithms, but we are open mind to use open source or consolidate algorithms from the market. Any other question? Please. It's Guillermo Bune from UBS. I was wondering about your R and D capabilities and efforts and also the proven track record that you commented. Can you have any specific number that you can share with us about product success ratios or contribution to sales from new products that we can actually conceptualize around? Thank you. Okay. At the center of R and D, Eddie, we call technology innovation hub, we develop essentially enabling technologies. That means technologies that go through the divisions to the market. We don't have a direct channel to market. The platforms are enabling technologies. So we don't productize stuff at the central R and D. The technologies that we have been developing, both for legacy and for the new emerging or enabling technologies, have been very effective so far. So we from laser to scanning, white light, and there are a lot of technologies that have been through. We have we do a lot of pilots, right? So the success rate of pilots is debatable. We do a pilot of sometimes some hours to conclude that this is not effective. But when we have a consolidate project that we start with, let's say, a team and put this what we call that our innovation process, then the success rate is very high. I would say 90%, 95%. But pilots, I'm not talking about pilots, right? Pilots are we test a lot of things that we is not at the end we conclude that makes no sense to go ahead. But answering straight, the success rate is very high when we conclude after our first assignment assessment that makes sense. Any other questions? Alex Thao from Deutsche Bank. You mentioned that one of your competitive differentiators is the data and domain specificity of the sensors that you have. Question is, if you're looking at a new domain where you want to gather data, how easy is it to repurpose some of the R and D that you've done, some of the sensors that you have to address a new domain? Or is it actually not so scalable when you're trying to do that? No. In fact, it is scalable. We in Hexagon, because we have our divisions, the R and D divisions and Accenture R and D, where we focus much more, as I mentioned, for enabling our core technologies, We have expertise very well identified in Exacom, right? If you're talking specifically on data, how we collect data, how we create content, we also have very clearly identified the expertise in areas of application. So we can very easily put together teams, piecing elements or collaborators from different areas to create, let's say, a new team for new purpose. So I don't particularly I don't think that it would be an issue going forward, too. So I think it's not a problem. We can really be flexible putting together teams to address different needs. For example, we have now a project called Data Fusion, where we are creating we are analyzing types and formats of data for different data types, which are the most used formats and how we can fuse these from before you stream this out, right? So there is this big trend now of processing in this device, at the edge, in the device. So if you have data, fusion makes a lot of sense. So for example, we assemble this team with contributors for each division to discuss how we will go ahead with this project, for example, giving an example. Here. Here. Hi. This is Daniel Schmidt from SEB. Hi, Daniel. Hi, Claudio. I just wanted to ask you, if you look back and if you look at the current situation now, how autonomous are these 2 divisions? And how much sort of cross fertilization when it comes to R and D is there between the industrial side and the construction side? Could they be sort of split apart and do equally well? Or how does it work? We can I guess if you want, you can do whatever? But if you think from the cross pollination, as you said, much more from the technology, I'm talking only not business, only technology side. We collaborate very well across the divisions, right? And a good example is smart build, for example, that there is PPNM looking more into the construction side and how the tools from Geosystems, scanners, laser meters and so. So we cross or from the technology perspective, we cross pollinate technologies very fluently between the two divisions. If you could separate in the Innovation Hub that is central the central R and D, the teams are working together. We are we have teams around the world, across the world, but we work very connected. A need from 1 division or even one of these 2, industrial and geospatial, if you need the expertise from the other, you can piece you can take these sources and use for a time very easily inside the Central Air and the Innovation Hub. But even across the vision is possible. Using the Innovation Hub as a hub, right, we are a hub, you can very easily gather together, put together teams or have consultancy for different R and D teams from the other division. So it's not a problem, the Polynesian, across Exagon division. I don't know if I answered your question. Yes, I think you do. So you're basically saying that are you saying also that these two entities are more connected now than they were a couple of years ago? Or is it sort of Yes. I guess it's the more we work together, the more fluent if you network in these meetings that we have, you know the person looking in the eyes, it's easier than it's a natural process of more and more contribution across the division of EcoSan. Yes, I would say, it's progressing in the right direction, let's say. Max Friedel from Danske Bank. You talked about these emerging drivers for technology. I just wonder, in your view, do you have enough R and D capabilities and resources at the moment? Or do you feel that you need to invest more in order to capture these drivers? Now we invest 300,000,000 plus dollars per year according to this slide from Ola in the beginning. So we are always investing in new. These new emerging technologies are really demanding investments. I, in the central R and D, I'm creating new teams for many of these things that I just mentioned today. So we are investing really. It's the capabilities for legacy technologies are very solid. For the new technologies, we are investing every year. But I don't feel answer your question more straight. I don't feel that we are we don't need the resources for this. We have the soil is very fertile to get people. The story line of Exacom is very strong. Technical guys feel attracted. We get guys from Microsoft, Google coming to work with us. I guess we are very tight in time now. 5 minutes something to give you an overview about our business, steps forward, etcetera, etcetera. I'm using about half of that time myself. The other half will be done or used by Mirko Stock, who is from Claudio's team, and this is one example of this cooperation between the divisions, which we now bring forward because there are synergies between. And just that you know, Mirko did work for us for the PBM Group until maybe 6 months ago or so when we thought we export him to Claudio's team. Okay. So let me start. A few facts about PPM, and you have seen this presentation, former version, a year ago approximately, most of you at least. So PPM is the industry market leader for more than 10 years in our space. And the good thing is, despite of the challenges we see in the industry with the low oil price, we are able to increase our market share. So we have a market share in our domain of approximately 50 3%, 54%, which is measured by independent analysts each year with new data. We are approximately 2,400 people in 2,400 employees worldwide. Almost 1,000 of those are working in R and D. So we have a very strong R and D investment and continue to do so. We are in our industry domain, by far, we are the biggest investor in R and D, as I said, almost 1,000 people developing software. And one thing we made a decision approximately a year ago is that I'm sorry, I'm sorry. You're out. Yes, yes, it's okay. The thing we did last year, and we talked about that last year, is that in October 2015, we did acquire a company from the U. S. Named Ecosys, because they had a very or have a very interesting technology, and they are the world marked leader technology wise in the area of project control, finance control of large projects, infrastructure, etcetera, which is an area we want to stronger go into and grow. So this is basically a slide which is showing the investment in the oil and gas industry over the last couple of years. And what you easily can see, these investments went down in the last 2 years dramatically. Reason is quite simple. Oil price is down. Many projects are simply not good anymore from a financial perspective and put on hold or delayed or whatever. And yes, we don't know, as nobody know, I guess, how the future will be, how the oil price will do. One good news, you probably know as financial guys, is that yesterday, most leading oil companies at a meeting in Vienna decided to cap or reduce the oil production to some limits. And as a result of that, the oil price went up yesterday by about 9% or 10%. And some experts say it will continue to go up. But the big question mark here still is what will be the U. S. Frackers do? Will they ramp up the production because more projects are more financially good and so counter the reduction of the oil countries or not, I truly hope and wish that OPEC countries and the U. S. Frackers sit together and come to an agreement instead of fight each other, which they did for a while in the past. So anyway, the situation is not easy. It's a challenge. We hope it's getting better, but we are not sure. What you see here is basically a split of our global revenue into the sub industry segments. And as you see, oil and gas is still our number one industry revenue wise, followed by chemical, petrochem. The good thing is, in a way, good thing, we were able to counter the reduction in revenue from the oil and gas industry due to these obvious reasons and balance that by growth in other areas. Nevertheless, if I look at our numbers, it's hard to almost impossible organically to grow in an environment we have been. But as I've said, we increased our market share. That means we were able to compensate the environment, if you like, business environment relatively well, and I'm glad about that and proud either. If you look at our growth potential for the next couple of years, Number 1, and that's not based by volume, but just by random. So one element of further growth will be, we will continue to do acquisitions of companies which would fit to our portfolio and our doings. We have some targets we talk with. The other thing is we will continue to grow our cloud based business, and that means private cloud, which we developed and where we offer full service for our clients as an option, but also public cloud. We will, in the next couple of months, select a public cloud we will prefer to go with. But with all our cloud offering, there comes some surplus on price for the services we provide. So that is a revenue growth. It's not a technology thing only, but it's a revenue growth potential thing, and it goes quite well. When we talk about the oil and gas industry, the majority of our business in that space comes and came from the engineering side, engineering companies who build all these large, beautiful, complex plants, ships, oil platforms, whatever you want. The business now is shifting to operation. So half all those existing plants, the shells, the exons, the ENIs of this world have and are running, have to be maintained, have to be managed. And that is important and becoming more and more important. The costs have to be managed because the margins are going down, right? This type of solution, we are focused solutions we are focusing on, and we are doing, I think, quite well. Let me give you a few examples. Another thing, a big, big growth potential is in project controls, Ecosys, which we have purchased a year ago, right? And I show you why. And last but not least, we made a decision with Hexagon Management and other Hexagon Divisions that it is time for us to enter the building market. Mirko Stoc will show you some details with numbers later on. But for me, the point is we have solutions, and the plant design industry has solutions to manage cost of large infrastructure plant design projects. You don't in our industry, you don't have the fact that the plant suddenly costs 3x more than it has been scheduled and take 5 years longer than expected. This does not exist. Why? Because they first have the discipline not to do these stupid things, which in the building industry happens often, and they have the tools and the methodologies to handle this. And we made a decision and thought enough is enough in the building industry. We have to stop the cost overruns, and we have to go there and teach and show this industry how to do better with the knowledge we can bring from the plant design industry. Technology, experience in how to operate or build and construct. And that is what we are doing. It is, I think, a great, great potential for us to grow in the future, okay? So where we are today, we can go a long way and highly up. So I'm very optimistic despite of the current challenges we are facing. I'm highly optimistic about the future of this business for the next, let's say, 4 or 5 years. Okay. We talked about the cloud. This is basically three examples about customers of us who are using our private cloud, if you like, which is called Smart Plant Cloud, and it's an offering our growing number of customers are using. On the left side, Shell, one of our biggest customer in our industry we have, They have dozens or hundreds, I don't know, of existing plants they operate worldwide. They are using our cloud as the basis for all those data management to operate those plants. Shell does have 800,000 work orders per day. Work orders are just things where engineers within the plant, existing plant, have to operate and change something, change a valve, for example. And this has to be managed, and the data has to be operated. And so and Shell is doing that using our basic technology for the communication. Another example for Daniel, American Engineering Company, I believe it's the biggest or second biggest engineering company worldwide. It's 80,000 or so people. They do a large project for Kazakhstan in Kazakhstan, which is of a size of about €35,000,000,000 or so, and it's done by 6 EPCs, engineering companies, along with Shell. So it's in a group of engineering companies, and it's done on 15 different locations. To manage all of this data for one plant on one base, they need to coordinate their doings very, very tightly. And for this, using the cloud, which allows seamless access and cooperation between those many players, they see that the cloud is the best communication platform. Very successful project I'm proud of. And the third one on the right brands in McDonald, we call it midsize customer, but it's at least a 6,000 engineers company. They do power plants. And they recently decided to get rid of their own data centers and IT infrastructure for communication at least and give that to us and operate it within our cloud system. So good examples hopefully. So how that works for the owner operators? I said they have to manage all those existing plants, right? So we have a couple of products, and I just listed 3 of them on the left side. Smart plant is our main structural label for products, software products we develop and sell. And this is working very closely with systems the owner operators already have in house like SAP or IBM Maximo or Meridian. You not necessarily need to know all of that, what is the message here is, on the right side, the systems and there are many more, they already have and use every day. And we over the cloud or not on premise, it doesn't matter. We can and our systems can suck data in which are necessary and needed for the plant operation guys and bring them in a format which is usable for these technical people in the plants to do their day to day work and are prepared for any extreme cases or shutoffs or unplanned shutdowns or whatever is necessary, right? It helps them to operate their plants simply more effective, more productive with lower cost, and it's a real time and money saver for them, which in these days with low margins due to the oil price, right, is very, very, very important. Let's talk a little bit about ECOSYS. ECOSYS is the world leading planning and cost control system. It's very easy to use. It's very customer user friendly, and it's really bridging the gap between a project planning and execution. And it covers basically all necessary areas or modules of technology needed and usability. Why is that oh, here you see a few logos from customers of Ecosys. And you can see there's different industries, and it's called customers of different size. The important thing here is that those customers on the top side are customers in our home industry, like oil, gas, chemical. The others below are from other industries, which we do not tap or address in the past, but ECOSYS does. So on their growth potential, I want to show you this. 70% of ECOSYS' current revenue is coming from North America. The reason is simple. This company has been founded in North America. Headquarter is close to Denver, Colorado, and that was the region where they focused their sales and marketing activities on. And by nature, they have the biggest density of customers in North America. Only 18% or 12% only 30% of their revenues outside of the U. S. And Canada. But the need for this type of solutions, operating plants more effectively, is the same everywhere in Asia, in Europe, in the Middle East and see the potential if we would be able or will be and will be able, wood is not the term, we will be able to copy this success we have with them in North America and do the same in Asia as well as Europe and Middle East. And you can, being financial guys, easily calculate yourself which potential that has to multiply their current business into the future. And of course, and by the way, they will not stand still in North America, but we'll continue to grow there as well. So the growth potential with this type of solution is really, really huge over the next couple of years. So that's basically it. And now I give it to Mirko to talk about the building initiative. Thank you, Gerhard. Well, I know it feels as if it was yesterday, but in fact, it's already 2 years that I left you and joined Claudio. So I'm the CEO of Hexagon Ventures. And what we're doing in ventures is we're basically working across the different business units that we have to basically come up with the next generation of smart solutions generating capabilities from the different businesses. 1 of the solutions that we have recently released is SmartBuild And SmartBuild's only purpose in life is to increase productivity for the construction industry. So let me just kind of tell you a little bit why we elected to do that. This curve is showing general industry productivity during the past 50 years or so. And that I think it's general industry excluding farming. And you see kind of nice steadily growing curve. Sadly enough, in the same time, the world record of speed skating has made very little progress. And you now might wonder, well, why on earth is he talking about speed skating? Apparently, it is much easier to improve the world record in speed skating than it is to increase construction productivity. So this is what the construction productivity has done in the same time frame. And you can see for a period of 15 years 50 years, that gap is getting bigger and bigger every year, right? I mean, you look at McKinsey. McKinsey pays us 98% of mega projects that are conducted out there. They overrun in terms of cost and schedule. And that is just the mega projects. They are like really well organized. Now imagine what that means for smaller or for midsize projects. So there is this industry is facing sorry, this industry is facing dramatic workflow and work process improvement capabilities. In the same time, it is a massive it's a massive market. Sorry, I'm sorry. It's a in parallel, it's a massive market. So this is a more conservative estimate. They're estimating annual growth of average 3.9% per year, which means outgrowing projected GDP by more than 1 percentage point. So if you do the math, this industry industry during the next 30 years will continue to waste an enormous amount of resources. It is a growing market and they have major work process challenges. And in parallel, there's a lot of governments, private owners and public owners that actually are mandating the use of more modern and sophisticated project execution tools on these projects. And this is why we, as Hexagon, have decided we are going to engage and we are going to help that industry to actually address some of these issues. So before I'm going to tell you a little bit more how we're going to do that, let's talk a little bit more about the root causes that kind of are responsible for some of these very bad productivity values. Just think about for a moment about an automotive plant. In an automotive plant, everything is beautifully synchronized. You have just in time supply chain. You have robots. You have people. Everybody knows what they need to do in the next 50 minutes, teams working together for many, many years. Construction industry is completely different. Every project is different. All of the things that happen on each new project are different than what happened on the other project. The suppliers, you have up to 100 suppliers on these major projects. They're kind of like different sizes. They are all new not used to work together. You have different phases in the project, kind of very, very clear break very strong break lines between the phases, different teams, very heterogeneous skills, kind of like people in the construction phase. They don't communicate with people in the planning phase and so on and so forth. So real break points. What does this mean? It really means that pretty much at any given point in time during project execution, the people and the teams are almost like operating in silos. There is no orchestration, very, very limited communication. You then look at the quality of plans. Very often, the plans are incomplete. They might be outdated. They are very often lack of detail. Then when you actually go into the field like the construction worker, the electricians, the plumbers, the craftsmen and so on and so forth, in many cases, they struggle to understand the plans because not only they're kind of incomplete or wrong, in many cases, they're just not communicated in the right way. You then have poor execution. You have pretty much 0 automation on these construction sites. You have external events like weather and cold or people have stowed some equipment that can impact what is going on in your construction site. And last but not least, it is extremely difficult with all of these different contractors and kind of responsibilities go from A to B to establish something that would even come close to accountability on these major projects. So this is a situation that you're facing in construction that is responsible to a large extent to these very, let's say, pitiful productivity values. So what are we going to do to change this? And Gerhard already alluded to that. First of all, we are going to leverage 1,000 of man years of development, knowledge and subject matter expertise on how to successfully run and execute major projects. Process Power and Marine Business is basically doing that since decades, right? I mean, since decades they are focusing on helping to execute some of the largest and most complex construction projects that have ever been executed on this planet in oil and gas, in conventional power, in nuclear and so on and so forth. So we are going to reuse all of that for smart build. And the time to do this is actually perfect. Why is the time perfect? Because we have right now in Hexagon, we have all of these technologies available. And when I say technologies, I'm not only talking about the software technologies that for instance allow us to kind of put things in the cloud of a smart build as a service. We also have the sensor technologies in geosystems and we are bringing everything together here right now, plus all of the platforms that Claudio mentioned earlier today to kind of leverage all of these emerging technologies to really well, to make a big significant difference in this industry. So what exactly does it mean for the industry? Actually, in a nutshell, what we're going to do is we're going to turn what today, are I don't want to be insulting, but like heterogeneous and very uncoordinated execution of major projects into beautifully orchestrated and synchronized construction enterprises where basically the people who work regardless of what your role is, you get your personalized user intuitive user experience that really helps you to do a better job. Okay. I want to just very briefly walk you through how that solution, 1st of all, looks, very short movies and also what the impact is. So the very first thing that we're going to do is we're going to help people to create better plans and to create better budgets. And for that, let me just illustrate that here right now. That actually is a 3 d model. We use a 3 d model as a starting point from our Intergraph headquarter in Huntsville, Alabama. Don't focus so much on the model. Focus on I could make everybody here in this room within 2 minutes could start working on this project. All you would need to do is I would need to kind of give you a link and an account and then you could start doing work and it wouldn't take me more than 5 minutes of training to kind of explain you how to create a high quality plan in smart build by simply build by simply using and moving around graphical components of that model and for instance put them into work package. So that is one of the key and strongholds, very simple, very intuitive, very small footprint. The plans that we are creating, we will make them meaningful so that basically when you're an electrician and you're going on the construction site, you understand in your language and with the information that you need what you need to do, the same for plumber, carpenters and so on and so forth. So we will not just kind of have these big complicated plans, but everything will be tailor made for what you need to do. That of course requires access to the information. So I just want to give you a little preview of how that looks. So this is about the complexity that the people in the field on the construction side can expect. It is not complex at all. So kind of like what we're seeing here is kind of you just see that opening a document could be an installation manual and so on and so forth. So not only you will get a plan communicated to you in a language that you actually understand, but you will also get the information that you need to carry out your work if you are a human being because we should not forget, there's not only human beings, there's also machines and sensors and so on and so forth. This next one here that is actually that is a big one. You hear us talking a lot about feedback loops. And feedback loop means, on the one hand, digital impacting the real world. I just want to give you a little example of what we mean by that. So you have the 3 d model here on the left hand side. And in the 3 d model, for instance, what we can do is we can select points that later on somebody on the construction side will actually have to find to do something real like drill or dig a hole or whatsoever. What we're going to do is we're going to use these points and we will seamlessly transfer them to the geosystem sensors. And then geosystem sensors that you see in up here, they will actually help the people on the site to locate these things. So basically, the sensors will show people on the site what they need to do, where they need to do, etcetera. So it's an extremely powerful concept and you just need to think about what this really means. This means we are going to start bringing real automation to construction sites. And then we go back, right? So that is the one half of the feedback group. That is digital world into reality. Now we go back from reality into the digital world. So if something has been built, what you want to do is you want to continuously verify that what has been built was actually according to spec. So we're going to use this beautiful point cloud. That is not our building in Hansard, Alabama, but it is a beautiful point cloud that I just want to use for illustration purposes. What you see here, this is accurate measurements taken by a geosystem laser scanning device. And we can use these point clouds to actually look at something that was constructed and compare it to a 3 d model. And then use that process to identify have there been deviations, gaps and so on and so forth, okay? So what this means is we can automate, we can real time measure quality and we can also know real time measure progress. Imagine the people are having these devices and they're kind of basically when they're done, they say, okay, I did that task, complete. That information immediately in real time goes back to the home office. So now in the home office, you have real time progress. You real time know what has done and you in real time identify deviations. Deviations oftentimes, I mean, they just happen. You can never avoid. Somebody made a mistake, something was missing wrong part or whatever. The key with deviations is you need to capture them early. The earlier you capture them, you can kind of mitigate the associated risk. This is going to do this in real time. So now if you think that through to the end, what it does is it gives you real time and I want to show you that real time cost and progress management of construction sites. So you can go at any given point in time, you can now go into the system. You can understand how much cost has been incurred, what is the real progress on the construction side in real time, empowered in the background by the powerful capabilities that we got from PPNM and Ecosys. The last thing no, not the last thing, almost last thing is as we go through this process, as we continuously get feedback from the construction site, we can start to continuously optimizing the plan, right? So it's not right now, in many cases, it's like an event where once a week the project managers, they meet, this becomes real time. So you can real time optimize your planning. And when the planning has been optimized, you can real time notify the people in the field that the plan has changed, need to do something different, need to go there and so on and so forth. And by the way, why we do all that as a site product with no additional cost, we are creating a digital copy of the asset, which is basically extremely valuable for the owners and for facility management companies to reduce total cost of ownership for that building. So where do we stand today? We just released the major 1st major release for SmartBuild. A couple of weeks ago, we have another one. It is a software as a service, so we have very short release and development cycles. We are not ever the one towards the end of the month. And I think also thinking back to what Claudio said, there is some very exciting opportunities ahead. And yes, I think you can expect big things from SmartBuild. And with that, I would like to ask maybe Gerhard back and open it for Q and A. Questions? Yes. Thank My name is Jurgen Dorlt, President of Hexagon GeoSystems. Hexagon GeoSystems in short is a solution and service provider in the geospatial industry, focusing on helping customers to do projects with higher productivity and quality. We are globally exposed in the market, active in more than 150 countries around the world, with close to 5,000 employees. Our revenue in 2015 crossed the first time the €1,000,000,000 we had since 2000 and 9, 2006 to 2015, we had 11% CAGR and invest heavily into the innovation. What are the growth drivers of Hexagon GEO systems? Obviously, it's about the urbanization, infrastructure, investments into So as we are globally exposed to the market with 50% of our business in EMEA. A third of our business is exposed to the Americas and about 20% to the Asian market. And we are exposed mainly to 70% to infrastructure, construction and the surveying around. This market is not just only about the construction, it's also preparing for construction. So before you start, you do the planning. Then actually, we are in that phase when it's about mapping and it is about in the construction process. And then also if then it's about the maintenance of the infrastructure. With 15%, we are exposed to the mining When I describe our business, When I describe our business then and how we grow, then we have in our mindset 2 parts of it. It's one is that we want to grow or we grow and expand our business with the existing customers which we have, but also addressing new customers, and that through the solutions and service approach. If you take the middle section, think about this, we have about 200 years of history when we, at the beginning, started optical mechanical field lights building for a specific tunnel in Switzerland. And then when we are really successful those times, then we maybe have 2 Theolites for a tunnel. And then we learned how to do productize our business. We have a very strong loyal customer base in the center of our business, where we have a wide range of application specific solutions. Could be applications in constructions, where we help to align and level certain areas on construction sites. It could be the surveying portfolio where we help to make sure that tunnels when they drill from both sides meet in the center with the hand sides of accuracy, making sure bridges come together, building roads. That's all about the surveying in the part in the center or about mapping sensors where we map entire countries. Those application specific solutions are solutions that consist of sensor technology, very innovative, but also combined with software technology to make it an application solution. And those applications are pretty similar, whether you build a road or you build a house or you build a bridge and so forth. So we're making these application solutions very unique, but also helping it for our service companies to cross uses over multiple applications. Having this rich portfolio of application solutions puts us in a very unique solutions that when focusing on certain industry segments, like the construction with a smart build or public safety or road application. So when we have this rich portfolio of application solutions that we can create management solutions that are industry specific. We have several initiatives, and that goes to the question which we heard before. Are we working with our sisters? Yes, we are working. We have different initiatives where we go focused on these kind of industry segments to create industry specific solutions. The other side of the expansions is that we have, especially in the mapping area, a broad customer base that map countries or use certain data. And we help in an ecosystems with those customers to expand the ecosystems to reach out to more with data services. So if you want to say so, we are doing both. We are taking care about the existing customers to grow their business and with them we grow, but also expand into the corners, whether it's added value in industry specific solutions or creating data services to create more touch points for what our customers are doing. So what does it do actually to our business? It actually shifts the exposure which we have in our revenue from, let's say, in 2,009 highly differentiated products to also highly unique products, solutions and services. Obviously, when we think about our application specific solutions, they are exposed to all highly differentiated and unique. But we would also say over this 100 to 200 years where we are, we always were exposed to also commodity trap in the one or the other product portfolio. It's nothing new. We have given up certain product lines over time. It's a normal process. But what we do also very well in some of the product lines which we have, we keep the pure cost leadership and work with OEM partners and so forth to multiply and get segment. While the industry specific solutions and the adjacent services which we are doing, they are increasing our exposure to the quality of our business. So let me run you with you so some of the examples. Let's start with kind of the core business in the center application specific solutions. The one important part, which also is reported surveying, we're exposed relatively strongly to that market is that we are transforming the serving market with true innovation in new categories. And the challenge is, in those case, you have to go on a journey with the customers. Let's think about when you thought about the steel lights, optical and mechanic, they are highly electronical and software enhanced solutions where we connect the real world with the digital world. What we did lately is and lately means 3 years ago, we announced the first scanning total station as an add on functionality to the normal process workflow as a serving engineer had, put that into a total stations to really kind of drive the adoption in the serving market to get used to rich 3 datas in that field. Very unique and still unique. It's still the only scanning total stations in the market. What we also will do is and you heard a big hype of U. S. Unmanned aircrafts. I truly believe at one point in time, every surveyor will have it because we will drive robotics in surveying. It's an early stage, as we have done in many of these innovations, which we have done relatively early in this case. But think next year, we will see some nice solutions how we also help the serving market in this part to take go with us on a journey on how robotic surveying can be done. 15 years ago, we started with the scanning. We're absolutely a leader in the scanning market. And that's a perfect example where we basically created a new product category for our surveyors that basically expanded their product, right? There are lots of surveying companies out that started with classical surveys, but now working in the plant industries and delivering kind of rich point cloud, 3 d realities to the PPNMs for designs and industry to really make those industry more efficient. We have, in the last 6 months, announced another product category, which is radar technology. It's an emerging technology. And for those who don't know what radar would do, landslides is a big topic in many cases to secure certain rail tracks and roads from landslides. This is a technology you can stand off 4 kilometers from a big area where you have a risk of landslides and in a minute in basically in minutes in real time, it basically tells you whether these movements on that slopes will happen or not and protect people. It's early stage, but it's already a significant business for us. But that's how you see that we basically take our current customer base on a journey incrementally, but also have products that are helping them to expand their business. Mobile reality capture solutions are even further broadening the addressable market. And that's what I mean in this area, where we basically benefit from the adoption of virtual reality. But we are not thinking about virtual reality. We are speaking about digital reality. Digital reality is basically the true representation of the world in the segment. I think I would like to see a video to visualize that to you. What you see here is a measurement result out of London. We are driving with a car who can basically capture the reality above the ground. Let's see here where we see the lines on the road, for example, if you want to have perfect signs on the road for autonomous cars or when you see with the radar technology in the ground, where you see the price below the road. And suddenly, you end up with a rich data set that basically is hard to grasp if you want to be look only in 2 d. And that's where these technologies from virtual reality come in and will be now used in the market of the professional market to capture all these realities. What we are doing is we're innovation innovating the way this serving market goes through this digital reality to really expand, whether this is street applications or backpacks where you go through indoors and map shopping malls for better planning and renovation or even inspection applications when you think about UAV technology applied to this as well. It's a broad area. It is an area where at this point in time, we see early adopters and also strong surveying firms to go into this market because it still needs kind of cloud solutions, complex workflows and so forth, which we continue to simplify. But then we had an idea about how do we make sure when we have those technology in our hand, how do we make sure that we create with disruptive technologies, a technology that can be used for the AEC market, for every architect out there. And it is basically January last year when our new CTO started with our company and said, I want to create something that is really, really simple. And it should look also nice because it dresses kind of another customer base. And what I would like to do is show you a short video that shows the result of less than 2 years development time. Please start the video. So that you get a perception of how big it is. This is the size. And so with this, every one of you could be a surveyor because it's just one button on it to press, and the lights tell you whether it's working or not. It is totally integrated, will be totally integrated in all our own solutions, but we have also decided to form a partnership with Autodesk because they're as we heard just recently, they are applying to the architects. It's the vision is that every architect can use this and create his own floor plans with a button click. And that's the idea behind this. This is very unique. It is a nice little scanning imaging, panoramic imaging device. We announced it just last week, and we got a lot of exciting feedback. If you're interested, then search on Twitter on Leica BLK360. That's the name of the product, and you see a lot of hype about that right now. We will start to deliver that early next year in spring, where we basically launch it via e commerce platforms and through our normal channels. So it's very exciting. We're very proud on this engineering technology which we had. It's not only from the functionality, but also from a design perspective, very, very unique. And I think it's the first emotional serving instrument that was ever built. Let me go a step forward. Disruptive innovation, we're going to industry specific solutions. As I said, we have a unique opportunity in our field from those devices which we have here to mapping devices, surveying devices. We have a unique opportunity to choose and fuse these technologies in industry specific solutions. Industry specific solutions like which we have started a couple of years ago in the mining industry. We were in the mining industry with surveying since many, many years. And we had that for monitoring, but also our same serving GPS technology in the fleet management arena where we steer the trucks in the machines. What we also did is then that we acquired a series of companies and formed a mining hexagon mining company with a dedicated management team, domain expertise in mining to run, at this point in time, a triple million business, very successful there. And they are the leader in helping to automate the mining industry, to help the mining industry to digitize with the integrated mining management solutions. Very exciting. It consists of cloud based management platforms connected to different solutions that help in the mining processes. We heard from Milko that one of the other markets which we are now looking also on to it is transforming the construction industry. And the GEO systems part, Enes, is that we continue to integrate our solutions in the priority of the SmartBuild organization to integrate into these solutions. There's 2 examples I would like to share. One is rigorous interrogation, which means of our technology into processes, but also adding complementary services. So these two examples I would like to share with you. The one is, I think, the most obvious, why the construction industry has profited from the digitalization. It is the machine automation market. It's quite a very interesting market where we connect that to our serving instruments, paving solutions where we combine that with our technologies, create highways that are so smooth that you drive very fast, like in Germany, where you can drive fast with your Porsche, and it is basically a very smooth ride. So that's the precision, but not only because it's from a quality point of view there, it is also using less material and being more efficient on that side. What we experienced with this business is strong growth rates right now. The adoption is increasing. Well, historically, the U. S. Was very strong on that and also the Northern European market, but we see it also now in other countries really taking up. And we are very well positioned with the basket of solutions which we have to help in the digitalization here to basically connect the plan through telematics on the machine so that the machines can then work automatically. Think about this when you typically in the past build a highway, you had maybe 10, 15 surveyors on the plant on the site. They told the machines what to do. And then basically the machine were acting upon that. Now these machines are getting programmed by the surveyors and only 1 or 2 surveyors are basically checking whether I was correct. So that's how the digitalization works. Another part of where we are going forward and believe there is a strong opportunity with the combination of our technologies is the digital progress documentation. It will drive efficiency and reduce waste. You know that on these construction side, there's lots of trades are working on their specific task. And it's about documenting what has been done at what stage. So the acquisition, which we just lately did, is Multivista. What they are doing is that they are creating this process by taking imager, visual documentation on a day 1, on a day 2. And when everything is closed up, then it's basically you don't see it anymore. But because you have the track record, you can go through a cloud based solutions through the work process of that construction site and can see, is it complete, are things in the right order. Even if you are done later in the maintenance, you can use this data to go back. This is a business model that consists out of technology, which they have started with imaging, video and webcam technologies, but they are now expanding with other technology. Now you see kind of the link between what we do from a sensor side and this type of service that we can enrich them with digital reality capture devices like what we see here, our backpacks and so forth, to enrich the value of the service to the end customer and connect these services into a smart build solution to really kind of round that technology up. Is that a new and emerging technology? Multivista exists since about 10 years. They have seen kind of 15,000. So lately, strong growth where they have 15,000 projects contracted, now 2,100,000,000 square feet contracted where they basically do this documentation. We are very excited about this because that is basically the connection between our sensor technology and the application out there. The last application is about adjacent services. Adjacent services, we see benefits of connecting our customer base with different disciplines. And I mentioned that recently that we have a partnership with 1 of the consumer companies. They ask for a lot of kind of coverage in the U. S. And also Europe to get imagery, high resolution imagery of rural areas. And now in last year, we started also to get 15 centimeter resolution imagery from metropolitans, all the metropolitans in the U. S, which are the reddish type of areas, which we nearly completed this year. So this Hexagon imagery program is one of the services which we have, where we partner up with supplying partners that are traditionally our customers and then basically take those data into the cloud and have multiple users, government and consumer partners, also construction companies, allocating us. There's a huge opportunity, which we see for next year is the so called 3DEP program in the U. S. It's 3DEP stands for 3 d Elevation Program. If the future President of the U. S. Will not change the plan, then there will be an interesting funding for that program. And what it is about is that they have researched that high precision elevation program of the entire nation of the U. S. Would be able to realize CHF 5,000,000,000 of benefits. And depending how good and how dense you get the point cloud status of that country. We have acquired through SigmaSpace a single photon lidar technology, which is the most efficient and highest resolution one. We are flying the sensor right now and we'll basically start the program from next year. So and those data will be also in an ecosystem available for customers to want to use this. So with this, I hope I have shown you what we are doing in these three areas of adjacent industry specific solutions and adjacent services, industry specific solutions and in the core business. And going forward, I can promise you that we will continue with this transformation towards solutions and services to grow our markets, our customers' business. And with this, we come back to the first slide. It is our opinion that the best way to predict the future is to create it, to create new solutions that take your customers on a journey to basically address new segments. And with this, I would like to open for Q and A, if there's a question. Thanks. It's Adam Wood from Morgan Stanley. What is the shape of progress? Is it innovation? Is it a new idea or a new approach to an old problem? At hexagon, we believe the shape of progress is change, the kind of change sought by every enterprise that fills a clearly defined gap, flanked on one side by what is and on the other by what should be. It is here that great stories of progress begin to take shape, pushing past the status quo and drawing possibility into sharp focus. And it is precisely here in this space that HEXAGON is creating new narratives where relevance emerges from an overwhelming volume of data and simplicity comes infuse meaning and context to automate and predict to infuse meaning and context to automate and predict. It is where silos disappear, disparate pieces connect and stories coalesce. By filling in the missing plot, we gain perspective on the big picture. This is our purpose, to leverage information technologies, to convey the whole story, to empower companies to reimagine workflows, business models, better outcomes, enabling them to write their own ending to their own narrative, one that aligns their own objectives. This is the shape of progress, the shape of change. This is HEXACON, shaping smart change. Yes, welcome back from lunch. Now I will introduce Hexagon Manufacturing Intelligent. My name is Norbert Hanke. I will do this together with Paolo Guglminini. So, Manufacturing Intelligence, we just changed our name 1 year ago from Hexagon Metrology to Manufacturing Intelligence. The business at the moment is around about €1,000,000,000 in sales and roughly 50% are related to software and services. And services meant here that we install our machines, calibrate our machines and upgrade our machines. When you look at the business by the different region, you will see very easily that's roundabout 1 third in all big regions, means in Asia and here is for sure China, the dominant player, It's roughly 1 third. The same thing for Americas here with the leading U. S. And then EMEA. When you then look at the different industry which we serve, there is from the days of Hexagon metrology still a very dominant play in the automotive role with 32%. And second in line is aero structure and aero engines for the aerospace industry, roughly 20% of our sales. Relatively new actually is the, say, the investment we have made into the electronics, round about 11% of our sales at the moment. And we entered into this segment around roughly in 4, 3 years ago. So when we look at our systems we have installed over the last decades, we have roundabout 135 systems, and that is the CMM, an ARM or a tracker over the years. Around 130,000 accounts are very active at the moment. I think very importantly, Siya, to be said that for sure we deliver to big OEMs, if it's in the car industry, like Volkswagen, Toyota, others. But it's only roundabout the top 10, roundabout 8% of our sales. So we are relatively strong as well across the whole industry. For sure, mostly related somewhere or somehow related to the automotive. The different applications, you can see around about 100 plus from my point of view, 40% is in the automotive side. That comes from car body, a powertrain, but as well that we inspect the hip, for example, artificial the hip from my point of view. In the past, we already sold not only hardware, but as well software. And at the moment, we have around about 100,000 licenses currently in use. We inspect, and here, we don't know exactly, trillions of parts. And I think that's a very important piece because that shows how we are ingrained in the different processes. With our new vision from metrology to manufacturing intelligence, we believe that we can upsell and cross sell much more. So different accounts, for example, Vero accounts to former metrology accounts and vice versa. When you look at the different outlooks for the markets, Aerospace, we still believe in a very strong 5% growth. And you read all the news about Airbus and Boeing, which they have huge backlog and have difficulties to deliver this. On the automotive side, we have seen a slight decrease in production from actually the growth was more like 3%, 3.5%, down to 2.5%. But what is very important for us is the change in models. There is a continuous growth in that element that more and more carmakers are looking for new updates on their models. Electronic, I already mentioned before that it's now 11% of our business is growing, but actually not anymore as fast as before. It is the first time since 2007 that you see only a single digit growth from that industry. Due to the fact that we went with Vero and the CAT HEM company into as well machine tool. This is a very important segment going forward where we have now different players. We are having Vero. We're having now machine tool probes, and we are deploying now CUDA as well, our SBC software. Okay. That was the outlook. But what are the challenges, for example, in the automotive world? Everyone sees that people don't want and the customer here, particularly, doesn't want to wait for a new car 7 or 8 years. They want to have the latest models normally. And that goes down to 4, sometimes 5 years. But it's not only this, but the variances of the models is getting more and more important. And the other change is the engines. Before, it was normally the combustion engines. Now we have hybrid and now the electrical vehicles as well. And in particular, the demand in big cities London or here, I guess, in Beijing because of air pollution is driving this demand. Smart cars, we have heard this earlier. Everyone want to connect either to the car directly or the car should directly connect to the environment. I think that's one of the challenges in the automotive world. Aerospace, the challenges there are, as I said earlier, Airbus and Boeing having a huge backlog, and they want to produce things quicker and faster. Here, I think the automation is a very important driver going forward. But not only that, the different materials, the carbon fibers, which are now being used in the 787 or the 350 of Airbus, is important. But it's not only to produce, but to combine the different materials like the Arlo and the carbon fiber is very important to produce, but even more important to inspect. The additive manufacturing can help to create new shapes, which I think makes things much easier going forward. Before you maybe have created, say, where you needed 5 different parts, you can now create one big part with these kind of manufacturing processes. Overall, challenges in manufacturing. I think everyone has seen Industry 4.0, have heard about Industry 4.0. And actually, Henry Ford said, once you can have any color of the T Model as long it is black. These days, I think, are gone. People are looking for either still the black, I guess, the blue, the silver or the pink. So it's all about customization. But when you customize things, you want to still produce with the cost of the serial production. I think that's the importance, and that's the challenge. And you have heard from Claudio earlier, it's all about digitalization of products and processes and connectivity in a sense. So overall, that's the challenges for the manufacturing world. But what does it mean going forward for moving the business scope from metrology into Manufacturing Intelligence? And I would like to ask now Paolo to describe this at the Car Body assembly process. Thank you. Okay. Well, thank you, everyone. I'm not sure if you can hear me. Let's go through a car assembly process in a little bit more detail so that we come a little step down in terms of understanding what our portfolio is, what it was until a couple of years ago, where really metrology was our core focus and what it is now. So we understand also what our growth projection and strategy is for the future. So if you would want to if you have a killer idea on a new model that you might want to launch and you want to raise enough capital to do it, basically these are the 6 core steps that you would need to think about, okay? Constant development is really when we translate an idea, can be a shape, can be a segment in which we want to invest and we translate that into a virtual or a physical model, okay? Clay models in automotive, they have been really traditionally the way in which car makers design new shape and really project what the look and feel of existing models and new categories will be over time. But then when you translate your ideas into actually CAD, that's the moment when product design happens. And product design normally happens in phases, okay, in multiple increasing phases of complexity. So we move from a static geometry. From CAD, we move to engineering, which means suddenly I start thinking about the manufacturability of components. I start in reaching CAD data with elements of materials. I start constraining myself in terms of the overall weight of the vehicle. I start thinking about emissions and regulation aspects. I start simulating whether those components will actually be able to be manufactured and whether that's going to be actually a good business to go after when you look at the cost of designing a process around those. And this is really the magic that happens in the advanced engineering, okay? So I suddenly start to design my supply chain. And I know how many steps on a forming process, stamping process will have to go through to obtain the product that I want. Suddenly, I move on to tooling and commissioning phase, which basically means start designing all of the tools and the fixtures and the dye and molds, etcetera, that are required to procure and manufacture all of the various components, okay? We're talking about thousands of components that get assembled into a car with various size and complexity and obviously a supply chain that has been perfected over the years, but it has to be re put in motion every time that there are changes. And as you know very, very well, changes are increasingly needed in this sector. Production is growing 2%, pretty much in sync with sales. Capacity is not changing dramatically also in China. So really, if you want to move shares, it's all about creating new vehicle vehicle categories and it's all about competing with more and more frequent product changes. So this is a process that these OEMs go through on a routine basis. And then we move on to pilot testing, preproduction and production ramp up. If you have to think about these 6 phases for a new vehicle, we're talking about 40 plus months. If you're talking about a facelift moving on from the last generation A 4 to the new generation A 4, you obviously are not going to change a large percentage of those components. You really look on the focus on the look and feel and that process shrinks down to probably a year to 18 months. So our technology traditionally really sits on 3 d positioning, 3 d inspection and CAD comparison. This is our core business and has been our core business for the last 10 plus years basically. We inspect the component. We are capable of doing it with various degrees of accuracy. We can do it with contact technology, non contact technology, and we compare to nominal. And we can say good or bad. Now if you look at what we've been doing through the years, we have successfully transitioned most of our business from quality increasingly into production, okay? So actually, if you would quote how many buyers and users of our technology sit in quality today versus production, you will realize that we talk much more frequently today to production rather than quality in the past. Now what we did a couple of years back is to start looking more broadly and more deeply at this workflow and really trying to take on board engineering software technology that allows us to address in a more productive way some of these challenges. And this is why VERO, the VERO Group joined us a couple of years back because with their die design technology, 5 axis machining technology, manufacturing execution software for dies, they really have a very strong footprint in this process very early on in the process from where we traditionally are. And this is the role for Curas. When you look at data analysis, the vast majority of production data and quality data out of a powertrain process gets acquired through the data format of Curas into the Curas database. If you look early on at our acquisition targets this year, you will notice that FTI joined us on board to help us specifically addressing this process from early on, from early days. FTI basically is a CAE company that has specific simulation technology to import CAD and generate early for mobility studies. So basically, I have five options. I run simulations and I have a sense for costing elements so that I can make a sound judgment. And I have an assessment for product requirements and number of iterations that will actually be needed to consume that product and manufacture that product. And then increasingly, we have technology that really digitalize the process, the early days process of conceptualizing a vehicle. So Norbert was talking about our 130,000 accounts and the number of installed base that we have in the manufacturing floor, in the quality department. If this is our sweet spot, if this is where actually we are deeply ingrained in our customer processes, what we are trying to do is increasingly use that expertise, that data, the way in which we are ingrained in those manufacturing floors to connect with engineering software and solve problems along these chains. If you have to summarize what our strategy for growth for the next couple of years is, we really want to get stronger and stronger at inspection, more and more throughput, more and more ingraining production, more and more usage of automated robotic technologies. We want to develop or acquire engineering software tools that are highly customized for the processes that we want to support. So auto assembly, auto powertrain, aerostructures, aero engines and consumer electronics. And we want to connect them to create unique solutions, solutions that actually deliver productivity, that solve problems. If you look at this process 48 months, there are 2 to 3 months of, let's say, waste for most OEMs that sit within constructing a die that is accurate enough to deliver door and stamped parts that actually are phenomenal. So this is really what we want to change the way in which we want to change these industries. If you have to summarize from a very high level where we stand, and we introduced this model last year, it's all about sensing, thinking and acting really. So sensing the real world with increasing throughput and increasingly, we want to really focus on sensing technology to support additive sensing technology to not only address 3 d geometries, but surfaces and defects because especially for our customers in the consumer electronics space, this is an increasing challenge. Thinking, which is really analytics, data structure and acting, a better design impact the process directly. So what I would like to do with you is really go through 5 examples from various industries on how we're actually delivering productivity today, and we are developing solutions today and we are deploying solutions today. Let's look at an Aerostructure customer of ours, okay, that I cannot mention, but okay, I don't think there's a lot of magic in there. These guys are based in Hamburg. They have an order book that is overwhelming. They had to add the production line earlier this year to actually deliver on their commitments. Now traditionally, this customer of ours is extremely sophisticated in the way they do the final assemble of elements of fuselage and wings to obtain an aircraft out of final assembly that is as efficient as possible, cut down hours in that process. We are helping them today through a combination of 3 d tracking technology and automation technology. We are helping them today to cut down that process in terms of days of assembly, okay? We have introduced the next level precision in the way they assemble parts. We are able to scan those parts before we actually near them and assemble them. And we use softer platforms that really interact with jigs and fixtures and motion elements to make sure that, that assembly process is as efficient as possible. What are we planning to do tomorrow is really move this physical assembly as much as possible into the virtual world, okay? So we are starting to get some traction, and we are nearing the moment where technology will be ready to scan these parts at the supplier end, virtually assemble these components and being capable of saying before we actually have aircrafts that are flying elements of fuselage around Europe to get them into a final assembly location, we will be able to tell can those parts actually match, can they be assembled, can the aircraft be assembled within cycle time. So already today, we can deliver on productivity of 10%, 15% as an order of magnitude through virtual automation technology, a digitization technology. Tomorrow, we want to make this process more efficient. And again, we will do it as a combination of development and acquire technology. Let's look at a different example from the world of powertrain, okay? There's a powertrain factory that is just being opened in 2016 in China, in Shenyang. One of the most modern example is actually a transplant, a result of a joint venture. They have to manufacture 300,000 engines per year. Now for them to go up and running in a brand new plant in which actually the start point in terms of skill set, local skill set wasn't phenomenal. For them to go up and running, minimize scrap was a big deal. The way in which we have helped them doing that obviously was delivering quality data. We do have devices that are in line. We do have devices in quality. We measure subcomponents. We measure final assemblies of these engines. But increasingly, what we managed to do was to combine data that is captured offline with data quality data that is captured in line with process parameters. So we acquire all of this data into the same software structure, same data templates and same databases, and we're starting to be capable of finding correlations. So when the process diverge and the quality that we obtain is not as nominal, we can actually start predicting those behaviors and being able to anticipate when the process for reasons that can be varied, can be wear and tear of tools, can be environmental conditions. When that process is about to diverge, we're going to be able to tell that in advance. So it's really analytical tools partly through acquisition, partly also in combination with Claudio's team that allow us to deliver these solutions. Let's move on to electronics. Norve was talking about the our inroads in electronics. And our inroads that have been, I would say, increasingly present not only in a couple of OEMs but also in multiple players in various areas. Because as you know, the quality of these devices is increasing through the global players, but also through local players. India has probably the largest smartphone adoption in for the next couple of years. In China, there are 4, 5 very consolidated players that are trying to up their game, increasingly use aluminum, increasingly use glass, increasingly make these devices thin, which is good for us basically. So what are we doing with them? They use our tactile technology in quality where we sample parts and we sample housings and glasses and we actually test them in quality. They use our vision technology. They use our in line gauging technology within the line where we actually measure features at 100%. Increasingly, what we did was to connect to the controllers of these systems, connect to quality data, measure environmental conditions, so humidity, temperature, vibration of these production lines, so that actually you become able to predict when quality assets will need to be maintained. If you think of a player like okay, Samsung or when you look at other players in this space, twice per year they go through the challenge of launching production lines that have to deliver 1,000,000 and ramping them down new features, new design, new functionalities, and they do that gig twice per year. So for them to be able to maintain 100 percent inspection, guarantee quality, end of line and making sure that all of these assets are efficient is obviously a big deal. Connection really is a key component of increasingly what we want to do. Let's look at an example from medical, an example that I think will shed a little bit more light on why manufacturing planning technology, machining strategy, technology makes sense in our portfolio. You take a small, very high end Tier 2 supplier in Switzerland that receives orders from one of the largest suppliers of orthopedic components. Orthopedic components are metallic parts. They tend to be increasingly customized. We're talking about titanium. We're talking about expensive materials. We're talking about high quality, tight tolerances. So typically components that we're capable of inspecting. Now what we managed to do is to combine for the first time not only the inspection after the facts once these components are up and running, we combine it with the inspection within the machining centers through our machine tool probes, and we combine those with machining strategy. So CADCAM technology that imports the design of the part, designs the tool path for the machining centers, we actually are automatically adjusting tool paths based on the results from quality. So when we are ramping up in production, we have differences. We have distances from tolerances. We are far from nominal. Automatically, we readjust machining centers so that we obtain quality out of the line. And again, productivity improvement for these cycles are extremely high. And the automation, I would say, more than the physical automation, is really the automation of data from the quality to machining is the way in which we deliver those. Last example, again to the world of automotive. I was talking before about the die making process. Now for us to optimize this specific process they can be extremely tight consuming. If you look at OEMs like BMW that have perfected this process, probably they iterate 2 to 3x in average before they obtain a die that is stable and delivers good quality parts. And when you're talking about a high end die, probably varies in cost of between $150,000 $350,000 So they do it a couple of times up to 3. Other OEMs, probably they do it 5 to 6 times according to the level of sophistication. Now by combination of FTI technology, so spring back analysis by combination of technology from Vero, so the software tool that allows you to design actually the die before it enters production And then in combination with quality, you manage to close a feedback loop in between the real world, the die that you have and the die that needs to be perfected. So basically, we design a die, we stamp parts, we measure parts, we can retroactively simulate the changes that we need to apply to the die to obtain a part that is compliant, that is nominal. Okay. I want to wrap up on the examples. The concept that I wanted to give to you is really these three elements: increasingly digitization increasingly metrology technology more and more rooted into production We use analytics to make sense of that data and make it available for decision making. Connectivity to our devices, automation of processes that in our respect is an automation that is increasingly softer automation, virtual automation, in order to transform processes. Okay? Thank you. So if you translate now what you just heard into the business scope, then you see from the past that we were purely in the metrology world or here, as we talked earlier about the sensing. We have developed further. We have acquired things from my point of view, and we will acquire more and more technology. You may have seen this as well. We bought a company called Icon, where we thought there's a white light technology out there, which we need to have in our product portfolio. So that's our core, and we want to strengthen this. And you have heard about, say, the 130,000 accounts, that's our sweet spot where we want to be active. Besides that, we want to invest more into data management systems by ourselves in conjunction as well with Claudio's team, but as well to look out there if there's possibilities of other technology we can acquire. And last but not least is the final of being in the feedback loop, the acting part. And I think we have now with the acquisition of Avero done a very strong footprint into the CAT Chem world, and you have heard from all the different examples where we are already active with them and where we try to bring sensing, thinking and acting totally together. And that is, from our point of view, our growth strategy going forward. So I can end with here. And any questions you have? Good afternoon, everyone. I'm Stephen Cost, President of Safety and Infrastructure. I think we all can agree that the world we live in today from a public safety standpoint is very different than the one we lived in 10 years ago. Every day when we open the newspaper or a tablet, there's another example of some act of terror, some natural disaster. 2 weeks ago, there was an earthquake in New Zealand. Just this week, there was an active guy with a knife at Ohio State University. And so even myself, when I go to major airports, rather than maybe having a coffee before I go through security, I'll go on through security and pay attention to my surroundings in a much more acute way than maybe 10 years ago. Appointed officials and elected officials are having to rethink the public safety arena that they're in and where they've historically viewed themselves in silos, they're going to be forced to push forward and not view themselves in silos. From a market perspective, we really participate in 3 major market areas. The first is in public safety command centers. And again, with this unrest and this new threat, the drive in that industry is about a $3,000,000,000 to $4,000,000,000 a year industry around the command center with good growth 6% to 7%, and we do believe that that will continue for the foreseeable future. The second business that we're working in is really around some innovation. We've had a security portal product for quite some time, but we believe that electronic security guarding and bringing on some of those industries with products are going to be really key in the future. We're going to talk some more about that. The piece of that eGuard ing industry, the security guard market is obviously a massive market, but a much smaller subset, but still $3,000,000,000 to $4,000,000,000 And then lastly, the utilities industry and what we're going to talk about some today is how the lines are being blurred between many of these industries. Not only do you think about just the fire department or the police, but the utilities and the traffic and the other agencies within state, city and federal governments are being impacted. So today we all have expectations of our infrastructure. We want to be able to flip a switch and expect the light to come on. We want to get in our car every day and drive to work with the confidence that the traffic lights are going to work and that although there may be some heavy traffic, we'll ultimately get there. And then lastly, we trust that when we have an emergency and we make a call that help will arrive in a timely manner, be it an ambulance, a fire truck or even police. But I do want to talk about how fragile these ecosystems really are and I want to give you a personal example of how that is. The date is April 27, 2011 and it's in Huntsville, Alabama. That happens to be where I live and work. Hexagon has a facility there with about 1200 people. Weather forecasters forecasted storms to come through and many of you know we have tornadoes in the southern part of the U. S. Most of us hurried home from work early to avoid the storms. I'm at home that night and about 7 p. M. The power goes out. So like anyone else, I get my mobile device out and I begin to consume news and information through that. The next morning, the power was still off. And I learned that an EF5 tornado about a half a mile wide had made a swath outside of the city about 15 miles. Nothing that I could see had been damaged other than the power was out. This tornado crossed the major power supply line to our city of about 350,000 people knocking out power to an area about 30 miles in each direction from the city center. The next morning my iPhone just as many of you suffer with was now low battery, so I ran out to the car to charge it up but in my haste going home I didn't stop for fuel. So I only had a little less than on empty, a little more than on empty. So I jump in the car and I go down to the fuel station to get gas. I pull up in front of the station, no electricity, no way to pump the gas out of the ground. So understand that the power is going to be out for a couple of days, so I run over to the supermarket to pick up a few staples. They have emergency power there to keep some of the things refrigerated. I get to the counter, the credit card machine, the ATM machine doesn't work, it's not supported by their backup power. I have about $25 cash, I spend all of it on some of the groceries, I then go home. So now I'm at home, I have no money, I have no gas to go anywhere and I have just a little bit of food. 3 days after that, 5 days after the event everything in the freezer had now spoiled. People were having barbecues out on the street eating everything that wasn't there. A simple tornado 15 miles outside of town turned our city almost into a refugee camp within a week. It's very fragile and there are very, very few things that can break down and when they do, chaos ensues. You remember what happened with Hurricane Katrina down in New Orleans. So today I want to talk about some of how hexagon systems and products can really fuse together both workflows, software and most importantly all of the sensor data that is coming along and also talk about how some of these different agencies and different really business units are coming together. And so this is the diagram that I really want to kind of base the conversation on today. As you know, we at Hexagon Safety and Infrastructure, we actually specialize in creating the record. So when the police, the fire and ambulance are called, we create the event and then we are the initial source of that record of data. As you look forward and what we see today is the infusion of dash cams, body cameras, all type of fixed CCT cameras, door alarms, all that information. You saw Juergen talk about the utilities that can be impacted in some type of natural disaster or a terror attack. All those industries are beginning to funnel in to this trunk of this and all this information coming together. Hexagon is in a unique position with the software that we have to really capture and interface with that data. That's what we've been doing with police, fire and ambulance and we're now doing it in an extended way. And so as you see, we work with Hexagon Geospatial for all of our location, the X and the Y. Hexagon Geosystems talked about some of their 3 d mapping. It's not about just the X and Y axis in a big city. You need to know the vertical and it may be vertical and it may be subterranean. What if something happened in the subway tunnel? You have to know location more than just on an X and a Y. And so we believe that we will play a key part in as this smart city and safe city initiative comes to be, and I'm going to talk about that as well. So the first thing we have to do is make sure that we protect our core business, and that is our computer aided dispatch, our outage management, our route and management, oversize overweight. The second thing we're doing and many of you heard we've partnered with some global systems integrators to really participate in this safe and smart city initiative. And the last thing we're doing is we're working, doing some innovative things around UAVs and robotics as they pertain to public safety. So the first thing I want to talk about is the public say is the core business that we have. And the core business to develop it is around making all of our systems that have been premise based push them into cloud and mobile. The amount of citizen data that's coming from mobile apps back into the public safety arena is just unimaginable how many data points you're getting from those areas. The second thing is the situational awareness, all the cameras, all of the other things that come along, they ultimately give you that full situational awareness picture. And then the last thing is probably the most powerful and there are many companies doing it, but ultimately taking all of that data and that's where all the analytics that are being done will be born from are those data sets, whether it's simple analytics around an event or whether it's something more advanced around the predictive analytics. They all need that data that's coming from these multiple sources. The second thing we're doing is we're working with partners. Many of you know we've partnered with Huawei to do several projects and we're really seeing the safe and smart city initiatives take hold more in emerging markets. Many times in existing markets and mature markets, there are much more bureaucracy and silos and agencies that are not willing to work together. In some emerging markets, they're really a blank sheet of paper and they're willing to make a large procurement and a large effort. We've partnered with Huawei with a project in Mecca, Saudi Arabia, and I'll talk about it. So Mecca, many of you know, one of the most diverse and complex cities in the world. It's home to about 2,000,000 people normally and it swells to over 6,000,000 people during the annual pilgrimage of the Hive. We went live on a system with Huawei where we had convergent video to be able to bring the video, live video feed into the command center from every police officer to give the city and the residents one number to call, one source of truth. We were live during the Hodge this year. It went off successfully. We continue to work with Huawei and with the Ministry of the Interior in Saudi Arabia, and we look forward to opportunities within Saudi Arabia and across emerging markets with Huawei. We also are working with regional systems integrators. Many of you heard in our last quarterly review about UdaPradesh and the DAO 100 project in India. We went live earlier in November with Udap Pradesh. We brought up initially about 70,000,000 people in the first go live. The day 2 call volume was about 3 times the call volume that we have in New York City. Again, giving the people and the citizens of the state in India a great access to public safety and to a better standard of living. Response times around some parts of the state were in excess of 2 hours. Those are down now to around 30 minutes. Over the next 6 months, we'll add up to 220,000,000 people and we believe that the call volumes will be somewhere between 150,200,000 calls per day. So we are really proud of the progress that we've made there and it really lays a foundation to working with large value added systems integrators around smart and safer cities. So the last area I want to talk about is really how UAVs and robotics and a lot of these new sensors are going to impact public safety as well as many other industries. So the first one, today most of these items are very desperate systems. The image behind me represents what happened in Dallas, Texas. If you guys remember, there was an active shooter who was shooting policemen from an office building up high. And the Dallas police actually sent a robot to his location with 1 pound of C4 and eliminated him without having to risk charging into the room where he was armed. UAVs in an ambulance type setting is another thing that there are lots of experimentation going on with. Imagine if you were in a rural area and were bitten by a cobra and they could fly some anti venom to you or maybe you had an allergic reaction and you needed an epinephrine shot and they could fly the shot to you in some remote area. Response times being decreased save lives and these things are going to be really powerful in the public safety industry where it comes to saving lives. And the last example, again, still in a desperate setting is robotics around fire. And so several things can happen. 1, you can go in and create a point cloud of a room using some hexagon technologies and then have a map and a heads up display while the building is on fire so that you can navigate in the smoke. You can have a UAV or a robot go in, spraying water. It could go across the floor doing search and rescue to help save lives. And so we're going to see more and more of this as time goes on. And so ultimately, what you want to see is all of these cameras and sensors and UAVs and robotics really be pulled into the mainstream in the command center of the future. This is our diagram of how we think the ultimate command center will ultimately look. And if you see to the far end, you've got all of the remote devices that will be providing information. And then as you move over, you've got static sensors, whether it's temperature sensors, door alarms, static cameras, all that being pushed into the mobile devices, so that the remote and the field responder can have full information real time of what's going on to really increase that situational awareness. And we don't think this is very far off. It's coming in the next 3 to 5 years. So what are we doing from an innovation perspective at Hexagon? Claudio talked about it earlier and we've partnered with a company called Gamma 2 Robotics and some of you may have seen the demonstration that we had at HXGN Live in Anaheim. We've had live pilots and we're completed with those and we've received tremendous amounts of interest from our security portal that will be agnostic to whatever platform we want to platform we want to have. And so think about having a robotic security guard in a setting where maybe you don't need a human all the time, you really only need to know if something is on fire or if there's heat or if you need to call the police. We can provide this at a price point. We have a software our first delivery of the software will be in Q2 2017 and we are excited about the competitiveness that we can bring this robotic application into the e guarding space in 2017. So to wrap up, we really want to become the glue that sits in the middle of all of this data capture beginning with our nucleus and our heartbeat, which was in public safety with fire and ambulance and really expanded across utilities industries and other infrastructures to really help be an integral part of safer and smarter cities. And with that, I'll take a few questions. Okay. So let's start. I got to pick the difficult slot replacing the following the popcorn session. So but I'll do my very best to keep you excited. My name is Robert Belkich, and I'm the CFO of Hexagon. And I'm looking at going through some financing slides with you focusing on different topics. So starting with our business model and also looking at some key metrics and key ratios that are important for Hexagon. Starting back in 2010 and going forward. One key metric that we're looking at is recurring revenue. And when I say recurring revenue, I mean the revenue that is contracted for the next 12 months. And as is evident from this slide, you can see that we have had a dramatic shift in the recurring revenue portion of sales. Back in 2010, we were at approximately 20% and now 2016, we are at 40% recurring revenue. And this the reason for this is really us continuing to be acquiring software companies, we have had a continuous underlying shift in the business model. And the 40% we are at right now is, I mean, a very solid and a very impressive number if we also consider that our recurring revenue star within Hexagon PP and M has had a quite weak year. Another key metric that we're looking at and tracking quite intensively is the software and services part of sales. And currently, we are at 55%. Next slide and looking at the cost structure. This changing business model, what kind of implications has it had for our cost structure? What is evident from this slide is that we have had a dramatic increase in the gross margin back in 2,009, 47%, now 60%. So that's an increase with 13 percentage points. If we look at the EBIT margin for the same period, the EBIT margin has gone from 15% to 23%. So that's an increase with 8 percentage points. And the difference here in the delta is, of course, our deliberate decision back in 2010 to increase our R and D spend. And one way the R and D spend has panned out in is really us recruiting, hiring more than 1,000 additional engineers during this period. And this shift in the cost structure will continue as we more and more continue our transformation from hardware selling and hardware centric company to a software centric company. So next slide, this deliberate decision by Hexagon to invest in R and D, what kind of implications has it had on our P and L statement? So looking at this slide and before looking at the R and D accounting, let's see what is stipulated by IFRS. What does IFRS say about R and D accounting? Well, as is evident from this slide, development expenses are capitalized only if they pertain to new products, the cost is significant and the product is probable to generate considerable earnings. So for Hexagon, during this period, it has meant that we have capitalized roughly 50% of R and D spent. And it also has also meant that we have amortized this capitalization on average on an average 5 year period. So looking at this graph then and then focusing on the red line, that's really the capitalization versus amortization in relation to sales. And as you can see, during 'eleven, 'twelve and 'thirteen, we had an increase in that graph Since 'thirteen and onwards or starting with 'fourteen and onwards, the gap has shrunk. And where we are now looking at the R and D portion of sales will continue to be stable. We're currently now at 10% to 12%. And correspondingly, this gap, the R and D amortization gap to sales will continue to shrink. Shifting gears a little bit, looking at our cash flow. As is evident from this slide, we have had throughout this period, we have had a very strong development of the cash flow, almost 80% increase in absolute terms. And that has then also been combined with an average cash conversion rate of 83%. And when I say cash conversion, I mean operating cash flow in as a fraction of in relation to EBIT. And going forward then, this cash conversion rate is anticipated to continue to increase as we add more and more software to our business model. Okay. So a strong period of cash flow. What has that meant for our balance sheet and for our deleveraging position? As is evident from this slide, during this period, we have also been able to deleverage quite dramatically. We have one financial covenant in our bank loan documentation today. That's net debt to EBITDA and that stipulates a max of 3.5. We are currently at 1.8, so a pretty hefty headroom for us at current stage. Looking at this graph and looking at the history, following the acquisition of Intergraph, we took a deliberate decision to start deleveraging our balance sheet. And we also set up an internal target at that point in time to reach 2.5%. And that target was then reached within 2 years. So 2 years later, we had reached the 2.5. And since then, we have continued to deleverage with the exception of the fall of 2014 when we did 2 larger software acquisitions in the same quarter, we acquired MNTech and Vero. So that's really the reason for the spike end of 'fourteen. Since then, once again, the deleveraging has continued. Looking at our debt and dissecting our debt a little bit, this has also been a very dramatic shift during these years. Back in 2011, we used to be very dependent on the bank loan market. 90% of our debt was sitting in the bank loan market, only 10% was sitting in the capital markets. And with capital markets, I mean commercial paper and medium term notes. Looking at today's situation, a very opposite picture is evident. 96% of our debt sits within the capital markets and 4% of our debt sits within the bank loan market. Some other features regarding our debt, 98% of our debt is denominated in euros today, which is the same currency as our functional currency, I. E, we don't have any translation exposure on our debt in the balance sheet. Looking at the average interest rate we are funding ourselves on today, it's roughly 1%. And looking at the average interest rate duration on our debt today, it's 17 months. If we look at the debt today, the debt today of Hexagon is 40% floating interest rates and 60% fixed interest rates. And then also if we look at the short term debt of Hexagon is today at all times backed by a revolving credit facility, a €2,000,000,000 credit facility that is maturing on September 21, so a 5 year tenure on that facility. And with that, I'll hand over to Matthias and also we will defer any questions to myself, Matthias and Ola following Ola's end session. All right. Thank you very much, Robert. So after looking at the balance sheet, what suits better than to look a bit on M and A, right? If we start with the key guiding principles of Hxagon's M and A strategy, I would say, 1st of all, it's a make or buy decision. It's a we always look at it from a technology perspective. It's about filling technology gaps in the portfolio. It's not about filling a revenue quota or buying a company just because it's financially attractive or something like that. It always starts with the technology. 2nd of all, I think important to say it's a bottom up process. So very high percentage of all the ideas come from the divisions. All the managers you are seeing here today, they have their divisions. They have their own business development teams, strategy teams and so on. And they come with a lot of ideas that myself and my team and the people in corporate, right, we filter and we discuss work very closely together with the divisions to really, say, filter out the best ideas. And then we work together closely in our M and A process that has been established over many years, right? We've done quite a few acquisitions throughout the year. So it's a well known process basically. And then synergy focus, of course. Every business case we look at is based at that 1 plus 1 should be something bigger than 2, right? We don't otherwise, we don't go into a situation. If we look at the financial criteria or the business case criteria, I think our starting point is always that the product or the solution that the company we're looking at should be market leading. We want to be number 1 or number 2 in the markets we operate. So we don't believe in buying, let's say, number 4 or 5 in a market and hope that it's going to improve. If you have a solid company, if you have a solid business idea, that will probably continue for the future, right? So that's our thinking. When it comes to sale, obviously, bigger is better, right? You need to do roughly the same amount of work or go through the same steps in an M and A process, regardless if the company is rather small or a little bit bigger. That is obviously not something you can control because we're looking at technologies and the size will vary, but we would prefer bigger. Looking at the margin, we want these companies to be accretive to Hexagon's margin in the, we say, short to medium term. So what does that mean? Well, it means that either they are immediately at a level that is higher than Hexagons or we have a very clear plan how we can take them to Hexagons level, well, let's say, within short, meaning 1 or 2 years maximum, right? It should be a very clear plan how to get there. And finally, of course, acquisitions that has a software element and high levels of recurring revenue are preferred, let's say. Further things we look at is obviously the risk level in an acquisition. We look at the cultural fit. We look at where are they based, who is going to run it, who are we going to how are we going to integrate it and so on. I think if you look at M and A history, textbooks, example, and so on, this is usually where companies go wrong, right? It's not usually the due diligence or things like that. It's normally the integration. So we pay a lot of attention to the integration. Here, I took a snapshot of the deals we have done the last 4 years. And I try to divide it into software and solutions and distributors. And on the one side of the graph, you see some software companies like Vero, Mintech, Ecosys and so on, some of the bigger ones. And on the solutions side, you see companies like Veripos, SigmaSpace and then obviously a few distributors. The point, I guess, with this slide is that we have filled most of our white spots when it comes to distribution and sort of geographical presence. But in terms of technology gaps, right, it will always exist. So I think you can expect more of the same in the future. Then on this slide, I deliberately picked 3 of the smaller deals we have done the last 12 months since I think or I hope at least that you've heard of some of the bigger names like Vero and Ecosys and so on. You've heard the divisional presidents talk about them. But here, I picked 3 of the smaller companies just to make you maybe better understand why do we make these smaller type of acquisitions. If we start with Sigma Space, you heard Jurgen talk about this 3D program, right, with the U. S. Government is, well, hopefully providing a budget for collecting this 3 d elevation data. And we think this company has a unique LiDAR technology that basically can capture this elevation data. And we saw this obviously as a perfect complement to our imagery program where we can resell this data both to our consumer company partner, but also to our professional market, right. I mean, basically, if you're going to drive a car, right, with these maps, you're going to need the elevation data. So we think that's a very interesting company and application. Looking in the middle here, you see a company called FTI or Forming Technologies Incorporated. That you heard Paolo talk a lot about in his presentation, right, how they basically connect, call it, the design process with the quality process. And in between that, if you simplify a bit, right, it's the simulation process. And this company is active in that space, the so called CAE space, which is simulation software. So it's really a key component in Mi's vision of this connected factory. Final example, Icon, is a bit different just to show why did we buy a sensor company, don't you have enough sensors. But it's there's always gaps in the portfolio. And this was or is a very interesting company active in the so called white light scanner space. We have some white light scanners already, but we are really in the high end segment. And this is a company that basically fills a gap in our, call it, mid- to low end segment of the white light scanning, letting us, what do you say, attack a broader market. So looking at the current or maybe a bit of history as well, if it's really the last 18 months, What's been going on in the M and A landscape? It has been an overheated market to be blunt, right? It's low interest rate, ship financing, rather stagnant world economy, like you heard Ulla say this morning, right? And companies looking for growth turning to M and A as an option. And at the same time, there's been a lot of competition from private equity funds, right, that have taken in lots of money and are quite active in the space. So what have we done? I mean, we've I think we've sticked to our principles and been relatively stringent with our investments and have not participated in the in that sort of craziness, but we have still managed to close a little more than 10 deals this year. So we have been very active. How have we managed that? Well, it's basically the arguments you see at the bottom of the slide, right? We a lot of times, we look at niche technologies where it's less competition. We also have very close relationships with these companies, right. It's often companies that we have met over the years, and we're building a relationship. And they see a bigger value than just a cash payment, right? They see how Hexagon can help them expand their market and use our sort of global distribution network to help them grow. So I think it's still possible to do very attractive M and A in this kind of market, but obviously, you need to be more get synergies. Going forward, well, I think more of the same. We will continue to do this kind of bolt on acquisitions. Transformational deals are still on the agenda. They always are, but we will be opportunistic and careful with the valuation situation in the economy, right? But from a strategic perspective, they're still on the agenda. And then as I said, software is given priority. And if you call it the so called run rate M and A, right, I think around sort of 3% to 5% is a reasonable target, excluding any transformational deals. That's been sort of the run rate we have done over the last 4, 5 years if you take out the bigger deals. So yes, that's about it. Back to you, Ula. It's time to wrap up. So we need to conclude a bit of the And this is a fascinating slide. If you look at this, what do you think this is? Have you got any idea what you're looking at? No. But this is the global wealth. And at the bottom, you have 7,400,000,000 people and at the top, you have 15,000,000 people. So 15,000,000 people are controlling half of the global wealth and the remaining 7,400,000,000 people are controlling the other half. This is becoming a problem in the global economy because it slows down growth. I'm not putting any ethics or value to this. I'm just stating this is one of the problems for the global economy to grow. Another thing we have to take into consideration looking into the next coming 5 years is what will happen with the presidential elections that we've just had in the United States. United States is still dominating the global economy in terms of trade, in terms of consumerism and so on. So what will happen to U. S. Inflation if you indeed start renegotiating trade deals early next year? What will happen to open export led economies such as Germany, Korea, Japan and China? And how will U. S. Construction be affected by these infrastructure programs that have been discussed? And these are, of course, questions that we don't know anything about. We can only speculate and we all read the same newspapers. But in the short term, there is one thing one can conclude and that is if you look at the U. S. Economy, it's actually much it's actually so that the rest of the world is much more dependent on United States than the U. S. Is on the rest of the world. So look at cars, for example, BMW, Audi, Mercedes, they all sell well in United States. But if there was a tariff of, let's say, 30% on imports or foreign denominated products, Of course, there is always a U. S. Alternative. So United States would actually continue, but it would have repercussions and huge impact in Asia and in Europe. Another thing that we've seen recently and we've begun to see this already in 2,005, 2,006 is that we live in a 2 speed world. And Cloud, you talked about it. We it's much more evident today with new emerging technologies and distribution models. You can compare Amazon, for example, to Walmart, and you can see that Walmart is just going down, whilst Amazon is growing year in year out. So we see new distribution patterns. We see new industry patterns crushing old industries. We see new ideas, changing buying patterns. We all do it. And we've discussed a lot about automation of workflows. But at the same time, we do see exhausted consumers, especially in the West. We haven't had a real salary increase since year 2000 in Western Europe and in United States. And this is, of course, driving the political agenda in these two regions. And at the same time, we can see emerging We've discussed automation and there is, of course, a negative impact from automation. The positive is you have productivity gains in your factory. The negative is, of course, unemployment. So we need new types of employment and work. And these are things that would have a significant impact on the economy and on demand patterns for Hexagon's products in the next few years. So with that as a backdrop, I'm going to discuss our next financial plan, which is going to stretch from we can go back from 2017 to 2021. And if we start discussing the sales, we believe in this backdrop, this economy that I tried to explain to you, we believe that we can't expect GDP to push growth any longer. You can't just say that I sold 10 products last year. I should be able to sell 11 next year to the same customer groups, to the same users. We need to be really clever about this. And if we want to achieve top line growth, we have to look for new applications, new initiatives, new areas where we can enter a market and we can do something disruptive. And that is exactly what we're going to do. So what we want to visualize here is new applications and initiatives are going to be required to enhance growth. Otherwise, we're going to be where we've been for the past few quarters. Another thing that's going to happen in the next 5 years is recurring revenue will continue to grow. And you're probably going to push me on this question, Mark. But I'd say it's foolish to set a target for recurring revenue. First of all, you want recurring net revenue, and you could sell that as a leasing model or a subscription. But we want to convert as much as possible to subscription models. So it's very hard. It's sort of a moving target, and it would be foolish to today point out a target for recurring revenue. And then M and A, we just discussed and Matthias presented our M and A strategy. I can only reiterate what he said. We will continue to look for bolt on accretive acquisitions where we can slide in a technology and transform a product offering. Transformational deals, I. E, large deals are on the agenda. And over this planning period, we shouldn't rule out that there is a situation where prices come down on targets. And then we're ready to act because we've deleveraged. But the normal run rate is that M and A should add 3% to 5% per annum. So when we look at this all together, the very low and bleak outlook for growth in the global economy, we believe that with new products and new ideas, 5% is the realistic organic growth. And we could top it up with 3% to 5% acquired growth over the years. So if you take a base case scenario, let's say, we grow at 8% per annum, then we would reach €4.6 1,000,000,000 in top line. And if we do indeed achieve 10% growth over the next 5 years, we reach SEK5.1 billion. And those are our targets. We're going to end up somewhere between SEK 4,600,000,000 and SEK 5,100,000,000 for the year 2021. The second target and we stick to our guns, is the EBIT margin. We believe it's important for a company to always drive the EBIT margin upwards. It's sort of a quality rubber stamp that you can deliver products that are sticky, that people want to buy and you can make money from. And our history has been a history of EBIT accretion over the past 5 years. And as we can see in 2011, we were around 20% in our core EBIT and our prediction is roughly to end up at 23.5% for this year. And that is a 3% expansion over the past few years. And what we believe is that our operating leverage is improving as we launch more and more software centric products. So if you look at our operating leverage, I. E, how much of 1 additional euro or dollar drops to the bottom line. In 2011, we received €0.28 from 1 additional dollars of sales. And in 2016, if we look at the situation right now, we received 0.37 dollars -0.38 to the bottom line. So this is quite important. New products replacing old products are more software centric. Gross margins are typically 100% or close to 100% for a software centric solution, whilst the hardware centric solution might have an incremental margin of maybe 40%. So we talked about the changed cost structure, and this is only going to continue for the next 5 years. We expect cost of goods sold to go down further. It's 40% cost of goods sold today or 60% gross margin. That's going to continue to be pushed up because we focus on areas where we can exclude hardware, which is dragging down the gross margin. At the same time, it's important to say that sales and marketing cost is going to increase as a percent of sales because we need a new type of sales force. You saw smart build. And we had a question from the auditorium, how are you going to sell that product? Are you going to use Accenture? Or what are you going to use? Well, we might not use Accenture, but what we need to do is we need to transform our sales cost into more solution centric, problem solving, almost consultative sales rather than transaction based sales. And this is going to be a huge cultural shift for our company. But it's a step we have to take in order to continue on this path. In short term, with the backdrop, no one knows what's going to happen next year, but next year could be another year with global macro shocks. So we need to take a hard look at non accretive OpEx before we enter into next year and look at if we have slack that we could get rid of. But with all this in mind, we expect that in a base case, we could achieve 3.5% EBIT margin improvement over the next 5 years. And in a more opportunistic case, we think that could grow by another percent to 4.5%, which would mean that our EBIT margins would be running between 27% 28% in 5 years' time. So if we summarize this financial plan, we've set our targets high. We're going to grow from SEK3.15 billion this year to at least SEK4.6 billion, but the range is really between SEK4.6 billion and SEK5.1 billion. And we're going to improve EBIT margins from the 23.5%, 24% where we might land this year up to 27%, 28%. And as I said, this is our tradition. This is our DNA. This is how Hexagon is pushing itself to deliver greatness when times are tough, because this next planning period is going to be tougher, probably tougher than the past 5 years. And some comments on these targets. Total growth between 8% 10%. Now this is not engineering. It could vary between years. We might do significant acquisitions 1 year. We might have slower organic year growth 1 year and then more significant growth the following year. So it's an average over the planning period. And the 5% should be read as an average. The M and A, same thing. We don't know. It could be 3%. It could be 5%. In FX, you cannot budget FX. So we've used the exchange rates we have right now to predict the future. And that's the best prediction you can get in a situation like this. So in summary, if we summarize what we want to achieve, what you've seen today is the presentation of 6 new areas where we want to make inroads and grow. We've talked about Digital City and Smart City. Digital City is really to enable a 3d, 4d, 5d map that you will use in application examples, as Stephen showed you where public safety and so on will use these tools to create a better city. And that's what we believe in when we talk about smart cities. The Hexagon Smart Content Program is a separate revenue generator that will feed into the Smart City and the Digital City, but also deliver data to outside customers. Hexagon Smart Guard is our ambition to transform a low EBIT margin business. If you look at the security market today, and maybe 8%. And we believe automation could boost those margins and transform that industry into a high margin industry. And we will connect that to our dispatch system. Hexagon Smart Build, similar situation. You take a low margin industry. What's the EBIT margins in a construction company? Well, they run very thin indeed. And you saw the development in the engineering industries such as automotive, aerospace and so forth. So if we can take the tools that we've developed for automotive and aerospace and now deploy them in the construction industry. We believe that that's a means to boost margins for the construction industry. So we have great aspirations for that business as well. Hexagon Smart Factory is about taking a state of the art production, such as aerospace or automotive and lift quality levels further. Automation, reducing the workforce working in these plants and ensure quality. And the slogan is really, use the quality we're generating today to drive productivity. We haven't talked much today about autonomous, but autonomous is another huge area where we see huge opportunities for Hexagon going forward. If you now look at all these pictures, I mean, digital city is a requirement for autonomous vehicles. The smart content program will feed into it. And we can use and leverage all these technologies, subset of technologies to be a player in that field. So what we're trying to paint is really a picture where you have new technologies replacing the old technologies as they mature and die, and we see a slowdown in the old products. And this has been the constant fuel for Hexagon's growth. We have to think like this. We can't rely on the current products to take us through the next 5 to 10 years. We need to start plan now to harvest those products in 5 years' time. So I think we have a pretty good and solid product positioning program where we have good products today and even more exciting products hitting the market tomorrow. So if you are to present a strategic plan, you need some consultants and our house consultant is Alice in Wonderland. And if you think about it, what we presented for you today is a road forward. But if you don't think through the road forward, it really doesn't matter what you do, does it? So on that note, we're going to end this presentation today. And it's time for a general Q and A session. So if we I could have everyone coming up and maybe we could get a microphone down here as well. We will take any

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