Earnings Call: Q2 2016

Aug 8, 2016

Good day, ladies and gentlemen, and welcome to the Hexagon Interim Report Q2 2016 Conference Call. For your information, today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Ole Rollin. Please go ahead, sir. Thank you very much, and good morning or good afternoon, and welcome to this Q2 presentation for 2016. If we turn to Slide 4, I'm going to give you a brief overview of the 2nd quarter. Organic growth amounted to 3% and recorded growth was 2%. Growth was primarily driven by Geospatial Enterprise Solutions and Mi, Manufacturing Intelligence. We saw strong growth in China for the 2nd consecutive quarter for Geospatial. Growth, as you've seen, was hampered by tough comparison numbers where we had a nonrecurring large software order in the Q2 of 2015 in the oil and gas segment. We expect similar results for PPNM in Q3 before we believe we're going to see positive growth again from PPNM in the Q4. If we disregard PPNM, the rest of the Hexagon group grew by 6% organic growth, which is an increase over the Q1 of this year. However, negative currency had an impact of minus 4% on the top line. In spite of that, we saw improved profitability and cash flow. The EBIT margin came in at 23.51%, and it was driven primarily by new business opportunities and a richer software mix. Operating cash flow improved by 27% in the quarter. Slide 5, just a reminder of our seasonality, which continues to hold true. Q2, Q4 are our strongest quarters, Q1, Q3 the weakest. Key figures, Slide 6. Net sales amounted to €795,800,000 The EBITDA margin increased by 1.2 percentage points to 30.6 percent, and the corresponding operating margin increased by 0.8% to 23.5%. And we can see the impact of the capitalization, amortization where increased amortization is reducing the impact on the EBIT1 level. So we have a stronger improvement in the EBITDA than the EBIT. Slide 7, 1st 6 months. We now have net sales of $1,520,000,000 which is 3% organic growth for the first half. And we have net earnings of $273,000,000 which is 24% better than the corresponding period of last year. Cash flow, Slide 8. Cash flow from operations was 239,300,000 And we see that we had very little taxes paid in the quarter. This is nothing abnormal. It's just seasonality in when you pay taxes. If you look at the full 6 month period, you see that the impact is more in line with last year. Cash flow from operations before changing in working capital, EUR 218,000,000 and then we had an adverse effect, which is normal seasonality in the working capital of minus EUR 44,000,000. And once again, if you look at the full half year number of €81,000,000 for 2015 and compare that to the full year number, we usually have it back, so to say, in the second half of the year. Investments are now more on normal levels and aren't growing as much as we've seen previous years. And thus, operating cash flow after investments and after the nonrecurring items was $108,400,000 which is 27% better than the corresponding period last year. Effects of currency. It's a tough quarter to do explanations on FX movements. We've had a lot of movements in currencies. And it's not just the average currency, but the quarter end currencies that are having an impact this quarter. But as we can see, we have a negative impact on the top line from the Swiss franc, but we do have a positive impact on operating earnings from the Swiss franc. Other currencies, which is primarily the Japanese yen, Brazilian reais, Chinese renminbi, U. S. Dollar and a few more currencies. They had a significant adverse impact on the top line and as well as the bottom line, amounting to $27,400,000 $12,400,000 for the earnings, respectively. So adjusted for FX, we would have, in the same currency climate as this time last year, invoiced $824,000,000 and had an EBIT of roughly 24 point 1%. We believe it's fair to also comment if FX stays the way it was by the end of June early July, we would expect the full year FX impact on sales to be 2% and not the 4% that we saw in the second quarter. Moving on to Slide 12, sales mix. We see impacts from various regions and regional crisis here as well. If we start with EMEA, excluding Western Europe, we can see that it's now contracted from 8% to 6% of total sales. And this is, of course, the significant slowdown that we've seen in the Middle East due to the very low oil price. China remains at 15%. Asia Pac is growing its share from 12% to 13%. And Western Europe is also adding 2 percentage points and is now representing 32% of sales. North America stable at 31%. And then we see the other crisis area, South America, which has at its peak was representing 5% of Hexagon sales and has now dropped to 3%. And Slide 13 is using arrows but roughly describing the same pattern. We saw growth from China, Russia, North America, Asia excluding China, Western Europe. And we saw contraction in South America and the Middle East in the quarter. Looking at Slide 14, this is really for your review, but it's a summary of all the regional trends we see per sales segment across the world. Slide 15, another slide describing the same regional development where we can see if we index Q2 of 2,008 just before the crisis at 100. We're now at 194 region Asia, which has continued to grow throughout this turbulent period. Total is now at $140,000,000 for the group. We see Americas recovering but plateauing due to the downturn in South America. And then we see EMEA now above the pre crisis level. EMEA market trend, Slide 16. Western Europe recorded 8% organic growth. All countries in Western Europe, but for U. K, recorded strong growth. We recorded double digit decline on the back of uncertainties in the U. K. For the 2 last weeks, we had an impact that actually shaved off 1 percentage point on the Hexagon Group organic growth for the quarter stemming from the reversed or the negative development in the U. K. I'm happy to report that as of July, Q3 in the U. K. So it was a sort of breather or hesitation that we saw from our U. K. Customers in the very important last 2 weeks of the Q2. Russia is continuing to recover, and we recorded strong growth, albeit from low levels in the Q2. The Middle East recorded significant negative growth and is representing 0.5 percent negative growth in the 2nd quarter for the Hexagon Group. If we turn to Slide 17, Americas. North America recorded 1% organic growth. And it's a combination of strong growth in aerospace, automotive, safety and security with weak development from our Infrastructure and Construction segment where the best explanation is no, there is no downturn, but the market is taking a breather, and we expect better demand going into the second half and into 2017 for Infrastructure and Construction in North America. But then for the overall number, the very tough comparison number in North America for the PP and M division is shaving off several percent on our North American growth. South America continues to be weak in the second quarter, and we report minus 13% decline. And it's the continuous political and economic turmoil in Brazil plus in the second quarter tough comparison numbers in Peru where we had a large mining order in the Q2 of 2015. If we move to Asia, Slide 18, China recorded 6 percent organic growth where we see a continuous strong recovery in the infrastructure and construction market. The so called Digital City project has impacted sales positively in China. We saw negative development in power and energy and in the electronics sector, where we have much less demand compared to this time last year. South Korea, India and Japan, strong growth, and the region is doing fine. We also saw a recovery in Australia from the Mining segment with mid single digit organic growth. Segments. Slide 20, Industrial Enterprise Solutions. Organic growth for this segment was 1% where Manufacturing Intelligence grew by 7%, which is a very good number, solid organic growth. Solid development in EBIT margins for Manufacturing Intelligence as well, and we saw strong growth from Aerospace and Automotive, but a weak quarter for Electronics. TPNM, as previously stated, minus 10% organic growth due to a large perpetual software order in the 2nd quarter in North America last year and of course, the turmoil that we do see in the Oil and Gas segment. We expect similar results in Q3, and then we expect growth from PP and M as from Q4. And the reason why we believe that PPNM can grow in the 4th quarter is simply that Ecosys that we quarter into sales. EBIT for Industrial and Enterprise Solutions, we saw a bit of margin pressure due to less sales from PP and M in the quarter. So the mix between PP and M and Manufacturing Intelligence was negative even though Manufacturing Intelligence is now recording all time high EBIT margin levels. Slide 21, Geospatial Enterprise Solutions. Organic growth, 5%. Geosystems recorded 5 percent growth and saw solid growth in EMEA and Asia. Safety and Infrastructure has turned a corner and record 6% organic growth. Order intake is at all time high and continues to be very strong for us. Positioning Intelligence growth 3%, where we have strong growth in the GNSS related business, but we have very weak or negative growth from our Offshore Positioning business. Sales amounted to EUR 399,000,000 in the quarter and the EBIT margin improved from 19.3% to 22.3% in the quarter. Slide 22 is the 12 month graph for the gross margin, which came in at 60%. And the operating margin came in at well, is 23% for the rolling 12 month period in 2016 right now. If we move on to M and A's orders and product releases, Slide 25. We acquired Nestix in the quarter. Nestix is a small company that provides production control software for the fabrication of pipes and tubes in heavy industry. It's going to be integrated or is integrated into Process Power and Marine. And it will strengthen Hexagon's position in the industrial fabrication market. Slide 26. At Hexagon Live this year, we introduced our new suite of software products called Hexagon Smart Build. This is an enterprise construction software solution that provides architecture, engineering and construction tools to do an integrated solution where office and construction site can seamlessly communicate data between planning and execution. And we believe this is going to be a very important product for Hexagon over the next 5 to 10 years. In the latter stage, it's going to be integrated with the Leica Geosystem Sensors, providing feedback from a construction job site into the planning cycle. Slide 27. We have formed a safety critical systems group to develop functionally safe GNSS position and technology solutions for autonomous applications. And this might be land based, sea based or air based vehicles. The challenge this industry will have is protecting the GNSS signals from spoofing and jamming. And of course, if you're relying on autonomous vehicles, you don't want your vehicles hijacked by the group that simply destroys your positioning signals. Slide 28. Switzerland's Gotthard Base Tunnel. We talked about it a year ago where Leica provided the positioning equipment to enable the teams to drill the tunnel through the Alps. And in this quarter, we got a order to install the dispatch system and the surveillance system for emergency and aid procedures in connection to the operation of this tunnel. Slide 29, next generation communications for North Wales Police. North Wales Police has decided to invest in Hexagon's dispatch system to create a fully integrated system with a single platform for the entire police force. Slide 30 is an amazing project. It's called Dial 100, and it's in the province of Uttar Pradesh in India. Uttar Pradesh has 205,000,000 inhabitants. And this communications and response center will be able to handle 180,000 calls a day. And that could be compared to New York City, where our installation is handling 35,000 calls a day, so a huge installation. Slide 31. UMW is a Malaysian leader in manufacturing and engineering, and they've selected our high accuracy measuring machine to support their assembly of aero engines. And they have a 25 year agreement with Rolls Royce where they're going to manufacture and assemble fan cases for Boeing and Airbus aircraft. Slide 32. We continue to have commercial success in the mining industry. We signed 3 orders for collision fleet management and scheduling products with Torex, Barrick and Fonesack Mining Companies across the world. Slide 33. Navantia Spain choose our equipment to ensure that they have maximum efficiency in their offshore wind power program. They're going to use Hexagon's Manufacturing Intelligence and Geosystems products, where we've collaborated to create a combined solution that includes laser scanning, point cloud processing software and high accuracy total stations to ensure the productivity of these wind parks. Coastal mapping in France. This is an area where we've now combined 2 technologies. So we use our laser technology to measure land areas and then our bacimetric lidar to measure below the surface of the ocean. And then we merge these two data sets, and we can create a seamless picture where you can see what's under the surface of the water in coastal areas as well as land. And this is used to simulate flooding. Slide 35, Smart Map Infrastructure and Leverage is gaining ground. More than 50 organizations are now actively using the platform, and we have more than 300 organizations that are actively using 1 or more of the smart maps that we have available in our shop. So from the launch at year end, we were off to a good start for the new Smart Map product. Slide 36. We're adding non contact optical measurement in our Mi portable portfolio. We launched BLAZE 600M and PrimeScan in the quarter. And that's it for activities in the quarter. So if we summarize the 2nd quarter, 3% organic growth driven primarily by Geospatial and Manufacturing Intelligence. PP and M saw tough comps and weak sentiment and had minus 10% organic decline in the quarter. We expect Q3 and Q2 to be similar, but we expect this segment to return to growth in the Q4 of this year. Continued strengthening of operating margin And the reason for this was primarily driven by new products and a richer software mix. And with that, I am done with my presentation. So I am ready to take any questions from the listeners. Thank you, sir. We will now take our first question from Daniel Schmidt from SEB. Please go ahead. Yes. Hello. Good afternoon, Olad. I just wanted to you mentioned in the presentation that you saw revenues from the Dutil City project that you announced in Q1. Was this revenues from additional orders? Or was that revenues from the ones you talked about in the Q1? I'll start with that. It was both actually. We got follow-up orders. I mean these are loan projects. So we got follow-up orders from installations we'd already taken in Q1, but we also got new installation in the Q2. Could you in any way sort of quantify because you mentioned in Q1, I think it was $10,000,000 of which half was booked in the Q1. Would you be ready to give us some sort of shed some more light on these additional orders? Yes. I mean it's growing. We're a bit careful because we had a big disappointment with the dam project in China. This one, however, looks much more promising. But now I want to be a bit cautious setting expectations. We believe, however, that this is a huge opportunity for us. And if you combine that with sort of the inventory program and the mapping of the North American geographies in terms of cities larger than 50,000 and the same for Western Europe, Do you believe that that's still on track? I think you said that was $38,000,000 in revenues last year. No, it's absolutely on track. All right. Good. And then I just wanted to ask you, PPN was down 10% in the quarter. Half of that has historically been said being oil and gas. How much was that down? And did you see any growth in the other part of the business? We saw growth from non oil and gas related applications. We have a broad spectrum of other applications such as mining, medical and so forth, and those were all growing. The decline in the quarter is a combination of factors. It's the slowdown in the oil and gas not grass, but gas. And then in combination with the large perpetual order of €9,000,000 that we got in the second quarter last year. You can never we always get these large orders, but this quarter, we didn't have any to match. Yes. And would you say there's any sort of major difference in profitability between the oil and gas part of the business and the rest of the business? No. There is no difference. It's the same profitability difference between the various segments. All right. All right. Thank you. Thanks. We will now take our next question from Mike Glassen from Carnegie. Please go ahead. Hi. I actually have a follow-up on that last one. If you can say maybe in more detail how the oil differs from gas customers or if they are sort of performing in line with that 10% drop that you had in the quarter? And maybe if you can comment on the price climate and the outlook for perpetual orders? And it's all related to PP and M, the question? Yes, yes, definitely. All right. Gas is actually more stable than oil. We've seen less of a slowdown in the gas segment. When it comes to pricing, it's stable. We managed to get the incremental price increases we usually get. So 2016 is no different from any other year when it comes to pricing. And we believe in spite of the result, we believe that we're actually gaining market share in this segment. And the outlook for perpetual orders, larger orders, has that changed? It's very difficult. Perpetual orders are very difficult to predict. And this quarter shows that because we were expecting to get 1 or 2 when they've now slipped into the second half of this year. So you could say the climate has worsened for perpetual orders whilst leasing and subscription models are much more robust. Okay. Have you seen any changes in design software versus asset management software products in the quarter? We've seen an increase in asset management software, and that's why we believe we believe in 2 things. We believe that asset management will continue to grow. We also believe that the project tools that Ecosys provides, which brings productivity into design projects, is growing and demand is growing significantly. And that's why we believe that the 4th quarter will be a growing quarter for PP and M. Okay. And when it comes to the margin for PP and M, I guess it was down quite a lot year on year and also quarter on I guess that it was around 33%, 34%. Is that correct roughly? The margin was down definitely. And you can see that on the Industrial segment that margins are down. And of course, when you lose top line on something that has 90% incremental build. Can you sort of define the addressable market there, the size of it and the penetration of these software solutions overall? I guess it differs by country and market, of course. And also the pipeline that you have for this new product in terms of new customers or potential customers? Yes. And we have to be careful. It's a huge potential because it's the entire AEC market, which is one of the largest markets on this planet. We believe it's going to be a standard solution for the industry going forward. We're probably going to see competitive products in the next few years. But if we have a 5 to 10 year perspective, I think this is one of the largest opportunities that the Hexagon Group has for the next coming years. But as always, it always starts off slowly, and we have 2 beta customers trying it at the moment. Okay. Thanks. Thanks. We will now take our next question from Daniel Durburg from Handelsbanken. Please go ahead. Thank you very much and good afternoon, Ulla. A follow-up on the SmartBuild. You gave a statement on the that you will integrate the Leica Eosystem in the latter part, as I believe. What's the unique selling points if you don't have this feedback loop from the like a EOS system integrated from the beginning? Or did I understand Ron? No. We it's not being too technical. We have it's really 2 things that we enable. We enable communication between everyone involved in a construction project. We enable the planning office to issue something we call work to anything from I mean, it could be an electrician, a carpenter, a painter or whatever. But then the fundamental difference, which we also can do, is we can report back. And right now, we use the camera of the smartphone to report back. But tomorrow, we're going to and when I say tomorrow, we talk about Q4. We're going to have several Leica sensors integrated to this software so that you can have a direct report back to the planning office as progress is being made on the job site. And these are really the unique selling points. It's impossible to do that today. Yes. We'll let the party demand the Q4 then. That's great. Another question, if I may, on the electronics outlook in terms of Asia and China for the second half? Well, it's exciting times. We don't know any more than you do, but rumors are that there is going to be an iPhone 7 in September, and that could have an impact on our business. Yes. Good enough. And finally, if I may, on the amortization level, you stated that it's increasing, of course, and you've guided for this. Is it possible to give any or if you would like to give any insight on the magnitude year over year in the quarter or for the full year or for the first half to compare with the Fair enough. Thanks. Thanks. Our next question comes from Mohammed Moala from Goldman Sachs. Please go ahead. Great. Thank you. Ola, I'm wondering if you still believe that the lower end of the 4% to 8% organic growth outlook that you had talked about at the beginning of the year still stands given where you are post H1. Maybe just if you can help us balance some of the very positive comments you're making around the pipeline around new products versus some of the macro headwinds that you saw in Q2 and some specific end market headwinds. So where do you think you can sort of land for the year? We haven't really changed the outlook. I mean, to reach 3.5 becomes, of course, more and more challenging as the days pass by. What we didn't plan for was the impact we saw in the U. K. At the end of this quarter. We did nor did we plan for a 4 percent currency headwind. And since we're not talking about organic growth for this year since it's the final year of a 5 year plan, we're talking about absolute numbers. It's actually the recorded growth that we need to follow. And you can all do the math. We've done $1,500,000,000 for the first half. The second half is heavier. Is it enough with acquisition effects and less headwind to actually step that up to €1,700,000,000 1,800,000,000 I don't know. We're going to see. But at this moment, we haven't given up on our target. Okay. And my second question was as a follow-up to some comments you made on M and A and inferencing that valuations continue to remain quite high. I mean, are you sort of changing your view on sort of M and A or just willing to continue to be patient? And then should we continue to see more of the smaller and mid sized acquisitions that you kind of had pursued through the course of the year versus something more substantial? Patience is a virtue. We need to be patient. This is the long term game. This is a marathon. We're not in this for the short term. Valuations will vary over time. If there is something really good that we can make a lot of synergies with, of course, the valuation will not look too challenging for us still. But if it's something that we need to acquire, which is stand alone at first and it will take 3, 4 years to integrate it and reap those benefits, then we might be hesitating a bit more than we did 18 months ago. Okay. And I wanted to just follow-up on your comments on some of the impact you saw in U. K. It sounds like sort of that business then subsequently has closed early in Q3. And what's your sort of anticipation of do you think there could be a kind of more of a protracted effect, particularly towards the tail end of the year? Do you think kind of budget flush could be a little more muted this year? Or is it too early to say? I think it's too early to say. I don't think anyone knows what the long term impact of the Brexit will be. Our business in the U. K. Is primarily construction driven. And as we all know, construction relies on positive sentiment in the general society. So if people believe in a future on the British Isles, then we're going to see construction to continue, and then our business is fine. But if we have a dent in that, well, belief in the future, then of course, we will have a long term negative impact. But as I say, the experience up till now, early August, is we had a sort of a shock when closing the books end of June, and it recovered in July. And it's simply too early to say what the long term impact will be. Great. Thank you very much. Thank you. Our next question comes from Sid Mirra from Morgan Stanley. Please go ahead. Hi, thanks a lot for taking the questions. Most of them have been answered already, but just two quick ones. On the oil and gas point, I just wanted to make sure, was there any sequential deterioration in the growth there? Looking at what that one off order would have boosted in 2Q 'fifteen, it feels like things might have gone a little bit worse versus the plus 1% that you did on underlying basis last quarter. And then secondly, around automotive CapEx, I appreciate that Manufacturing Intelligence is not necessarily exposed 100% to the absolute CapEx cycle there. But are you seeing any impact from some of the warnings in the space on the design build or the, let's say, the variety of models out there? Thank you. You're absolutely right that mathematically, the plus 1% in Q1, if you back out the impact from the nonrecurring order in the Q2 of 2015, yes, it got a little worse for PPNM in the Q2 compared to the Q1. Now what conclusions can we draw from that? We can't because it's just normal that you have fluctuations like this between quarters. So without that order, I wouldn't say much have changed in the PP and M market. When it comes to automotive CapEx, we are not CapEx for automotive, and we're more in an integral part of the design and planning process around new models. So I would probably classify us more as R and D for the auto guys even though we might not be booked there. And we haven't really seen any impact from it. Got it. Thank you. Thanks. We will now take our next question from Per Lindbergh from ABG. Please go ahead. Thank you. Good afternoon, good morning, everyone. I wonder, Ulla, if you could take us back to 2,008 on the chart that you kindly provided there, I. E. The organic revenue base moving from 100 indexed end of June 2000 and 8 to approximately 140 as we currently stand. That mathematically must mean an average compounded growth rate of 4.3% per annum. And against that backdrop, would you now be in a position to reassess the 2x GDP growth rates that I believe Hexagon for long has communicated as an achievable target, I. E. 2 times GDP doesn't seem to be anything close to what you have delivered in the past 8 years, I. E. Since the more or less the trough of the or the beginning of the economic debacle? Thank you. No, I agree with you. We haven't. If we look at the Q2 in isolation, you can see that we have 6% in 85% of Hexagon and minus 10% in the oil and gas business. And unfortunately, we've had a series of shocks between 2010 when the economy recovered from the crisis of 'eight and up to 2016. We've seen regional shocks across the system. So no, you're right. We have not grown by 8%. And if I may then add, given that experience, is it sensible to still project organically, lebified M and A activities that Hexagon is a 2x GDP growth vehicle in future? Yes. I think we need to refocus a lot of our business, which we're doing. And that's what's going to be the discussion for the upcoming Capital Markets Day this winter. Thank you. Thanks. We will now take the next question from Stacy Pollard from JPMorgan. Go ahead. Hi, thank you. Can I ask if you are thinking to adjust your 2016 targets around the operating margin of 24 to 25%? And then as I look at the quarter, I see that gross margins fell 20 basis points, but operating margins were up 80 basis points. Can you explain what's driving that and whether future margin gains are more likely to be at the sort of gross level or the operating level, maybe a little bit of both? And then at the operating level in particular, can you talk about the efficiency factors that you're seeing there? If we start with the operating margin and the gross margin, you're absolutely right. We didn't see an improving gross margin in the quarter compared to this quarter last year. And the reason for that is mix. We sold more Manufacturing Intelligence, Geosystems products and less PPNM where well, PPNM is running at almost around 100% gross margin and the others are more in the high 50s. So you simply don't get an uplift in the group margin with that mix development. But on the operating margin, it's also fair to say that businesses like Mi and Geosystems are operating at significantly lower OpEx levels than PP and M. You actually get a positive impact on OpEx from this mix development. But then answering your question longer term, more and more of our businesses are moving towards the software centric model, which probably would lead to increased gross margins and increased OpEx levels. So we're going to more and more see the Hexagon Group move towards key ratio similar to what you see in PP and M. And then any thought about this year targets? No. This year, we keep our target for the EBIT margin. Okay. Good luck. Thanks. Thanks. We will now take the next question from Alex Tout from Deutsche Bank. Please go ahead. Yes. Hi, Ola. Thanks for taking the question. Could you just tell us what the China GES organic growth was in the quarter? And whether you expect that strength to persist over the rest of the year? Also, there was a 6,500,000 2nd quarter. Could you just clarify for us what that was? And is any recurrence of that likely over the rest of the year? And then what was the restructuring year over year run rate benefit to costs? And should we expect any additional restructuring potentially in the PP and M segment over the rest of the year? Thanks. That was not just one question. We have to take them 1 by 1. But let's start with China and GES organic growth. It was actually 51% in the quarter. And then if we move I think your second question was other income, which was positive in this quarter and negative in the last quarter. And this is not easy because we have huge movements in exchange rates. So where the average exchange rate if we take the dollar, for example, the average exchange rate was reduced by 2.3% in the 2nd quarter against the euro, which leads to a negative impact in the P and L statement. The closing rate strengthened by 2.5% on the very final day of the quarter, and that leads to a positive impact on, for example, accounts receivable that you book under other income. So this quarter, we had a large positive quarter. And on top of that, we have the rental income, which runs to the tune of roughly $2,000,000 per quarter from the Huntsville real estate that we've vacated when we moved into our new offices. Then you have to remind me, you had 2 more questions, but I don't remember them. Yes. I was just on restructuring, whether you well, what the benefit was this quarter. I think you mentioned a figure of about EUR 9,000,000 benefit on the cost base last quarter. Was it about the same this quarter year over year? And whether we should expect any additional restructuring over the balance of the year, for example, in the PP and M segment? We're always watching the market. But if doesn't deteriorate further, we're not expecting to do any more restructuring this year. But one might have to eat that statement up if something turns if things turns to the worst. But right now, we're not planning to do any major restructuring in any business between now year end. And the impact was less than $9,000,000 because you are now beginning to have FX impacts, and we had some benefits last year this time. I'm sorry, just going back to the China GES growth of 51%, it sounds pretty exceptional. Should we think of it as such? Well, it's from low levels. Don't forget that we've seen a decline ever since the peak with high speed rail in 2010. So it's coming back to levels where we were a couple of years ago. Great. Thank you. Thanks. We will now take the next question from Wazir Rizvi from RBC. Please go ahead. Hi, good afternoon. Just a couple from me. Firstly, on your margin mix, you mentioned the PPMM is likely to have a tougher Q3 as well. And I guess at Q2, there was a margin decline in IES. Should we expect a similar margin decline year on year in Q3 if PPM is going to have a tough quarter? Yes. The best guess from what we know now is, yes, a similar impact on the profit for PP and M in Q3. Maybe not as dramatic because we've taken a few precautions. So we think that margins might be somewhat stronger than the Q2 for PPNM. And from there on, we expect them to return to normal levels in the 4th quarter. Right. And then just my next one on Digital City. Can you help us understand the revenue profile? Is that something slightly lumpy? Or should it be quite smooth and over the course of a few quarters? It's going to be lumpy because we have a down payment when we sign a contract and then we have service payments over a longer period of time. But the lumpiness should even out as time goes, if that makes sense. Right. Okay. And so and then quarter just gone in. Was that a particularly large or small quarter? Or was that in line with what you expect to move in the next Q? Q2 is I think the activity level is more or less where we expect it to be. Great. Thanks. Thanks. As there are no further questions at this time, I would like to hand the call back to Mr. Rolland for any additional or closing remarks. I don't have any additional or closing remarks. So I thank everyone for listening in. And I'm sure we're going to do this in Q3. Thank you, everyone, and bye. Ladies and gentlemen, this concludes today's Hexagon conference call. Thank you all for your participation today. You may now disconnect.