Gentlemen, welcome to the Hexagon Interim Report first quarter 2016 conference call. For your information, today's conference is being recorded. At this time, I would like to turn the call over to Mr. Ola Rollén. Please go ahead, sir.
Thank you. Welcome everyone to the Q1 interim report of 2016. I'd like to start on slide number four, overview of the first quarter 2016. Organic growth amounted to 2% in the quarter, recorded growth amounted to 3%. If we break it down, the 3% recorded growth consists of, as previously stated, 2% organic, 2% negative currency impact, and 3% acquired growth. The improved profitability and cash flow that we saw in the quarter is a growth margin of 61% and an EBIT margin of 22%. The operating cash flow improved by 55%. That is indeed a strong cash flow for the Q1. We acquired five companies in the quarter.
If we look at slide number five, that's just a reminder for you of the seasonality in profit and sales for the Hexagon Group, where Q1 is our weakest quarter, Q3 is the second weakest, followed by two strong quarters, which will be Q2 and Q4. Slide number six, the profit and loss statement. Net sales amount to EUR 724.2 million in the quarter, the EBITDA amounts to EUR 215.3 million. That corresponds to an EBITDA margin of roughly 30%, up one and a half percentage points over the corresponding period last year. If we then move to operating earnings, we can see that operating earnings amount to EUR 160.5, which is 7% higher than the corresponding period last year, corresponds to an EBIT margin of 22.2%. We do see the effect of amortizations growing, catching up with capitalized software in the two ratios, EBITDA versus EBIT.
Earnings before taxes amount to EUR 155.3 million, which is 47% above last year, we have EUR 36.6 million of non-recurring items in Q1 of 2015. Earnings per share, excluding these non-recurring items, amount to EUR 0.35, which is 13% better than the corresponding period last year. Cash flow on slide number seven. The operating cash flow grew by 55% to EUR 101.1 million, including the non-recurring cash flow. As we can see, the taxes paid are roughly the same level as last year. We see changes in working capital being contained at roughly EUR 15 million, which is very low for a Q1. We also see that investments were roughly at par with the same quarter of last year.
We do notice an increase in investments in tangible assets, and that has to do with the inauguration and the consequential investments that we've done at our development center in Hyderabad in India that was inaugurated in February of this year. Slide eight talks about FX movements and the impact it's had on our margins and profit and loss. We do see a positive impact from the weakening Swiss franc against the euro. We have a negative impact on sales, but we do have a positive impact of EUR 1 million in the earnings. If we look at all the other FX movements, where the US dollar and the Chinese renminbi are having the greatest impact, we can see that we have the significant operating margin impact, EUR 4.6 million negative impact on EBIT on EUR 9 million of net sales impact. That shaves off 0.3 percentage points on our EBIT margin.
Adjusted for FX, we would have reported EUR 733.7 million for the first quarter, and operating earnings of EUR 164.1 million, corresponding to 22.4% EBIT. Looking ahead, using the April closing exchange rates, we expect the FX impact to bottom out and have its most severe impact on the Hexagon Group in the second quarter, where we estimate the FX impact on the top line to be negative 4%. Using the April closing rates, the full-year FX impact will be minus 2%. It's going to get worse before it gets better in Q3 and Q4 if all exchange rates stays where they were at the end of April. Moving on to slide nine, working capital to sales. We had a fairly good quarter given the seasonally weak first quarter where we always have a working capital buildup, and we're now close to 15% working capital to sales.
Moving on to market development in slide 11. This is usually not a very exciting slide, but in this quarter we see substantial changes to our geographic mix. North America and Western Europe are both adding 1% to total sales, whilst we see South America contract by 50% and South America now represent 2% of sales. This is of course due to the significant downturn we see in countries such as Brazil and Venezuela. If we move to Asia and the rest of EMEA, we can see that China is gaining 1% on the back of very strong growth in the first quarter. Asia-Pacific is holding its position with 13% of sales, whilst EMEA is contracting and it's the Middle East contracting significantly in the quarter. The negative development in Middle East is actually shaving off 1% organic sales on the entire Hexagon Group.
On slide 12, we can see this in the shape of arrows where China is growing at 9%, Eastern Europe, Russia, and Africa, significant growth. We record 54% organic growth in Russia, from very low levels of course. North America, 2% organic growth, Asia, excluding China, positive growth, Western Europe, another 2%, Middle East, minus 23%, and South America, minus 11% organic growth. On slide 13, you see the same picture but expressed as segments per geographic region. We do see that in the Middle East, it's actually not power and energy contracting, but it's all other activities that are now subject to budget cuts in the large economies of the Middle East, such as infrastructure and construction, for example. The two good businesses in the Middle East in the quarter have been safety and security and power and energy.
Slide 14 shows the geographic regions over a longer period of time, where we can see that Asia is outgrowing all other regions, and Americas is recovering and are above the previous peak before the financial crisis. EMEA is now very close to reaching its previous level before the financial crisis. EMEA, slide 15, 2% organic growth. Core segments such as construction, surveying, automotive report solid growth. We did see significant negative growth in the Industrial Tools business, partly caused by a restructuring where we divested a product line within the tools business, and that is having an impact on growth numbers for Western Europe. Russia, as previously stated, continues to recover and record strong growth from fairly low levels. As previously stated, the Middle East recorded significant decline due to spillover effects from the overall weak sentiment in the region. Americas, slide 16.
North America, 2% organic growth, South America, minus 11% organic growth. In North America, we're successful in public safety right now. Construction and surveying is growing, whilst MI recorded negative growth in the U.S. from the manufacturing sector. PP&M recorded growth despite the weak sentiment in the oil and gas sector. In South America, we do see Brazil as the principal problem area. Brazil suffers from, as you well know, both political and economic setbacks, and we recorded minus 23% in the quarter. Asia, slide 17. China has turned a corner and is recording 9% organic growth. This is on the back of a recovery in infrastructure and construction, as well as order wins for our Digital City project. We also saw strong development from the traditional engineering industries, automotive, aerospace, and so forth. We did record negative growth or negative development in power and energy in China.
It was a weak quarter for electronics, where we're facing tough comparison numbers, where Q1, Q2 were really strong quarters in 2015. Geographically, Japan, Korea, Southeast Asia all record strong single-digit organic growth, whilst Australia continues to dampen the growth for the region. Segments, slide 19, Industrial Enterprise Solutions. The organic growth for this segment was 1%, and it was 1% for both Manufacturing Intelligence and PP&M. Manufacturing Intelligence were faced with tough comparison numbers, but we saw solid development in aerospace, but a somewhat sluggish development for electronics. Order development signals demand improvement. We have a positive book-to-bill ratio in Manufacturing Intelligence. PP&M, good performance for PP&M given its market. 1% organic growth, and it will, it's just as a reminder, our two strongest quarters were Q1, Q2, and a fairly strong Q3 of 2015.
It's going to be tougher and tougher for PP&M to beat previous year as we proceed throughout 2016. Sales amounted to EUR 354.8 million, and the EBIT amounted to EUR 89.6 million, which corresponds to an EBIT margin of 25.3%. Most of the currency impact, EBIT-wise, hit Industrial Enterprise Solutions, where Geospatial has a positive impact from the Swiss franc. If we now move to Geospatial, slide 20, organic growth was 4% for the segment, consisting of 5% organic growth for Geosystems, 6% organic growth for Safety & Infrastructure, but negative 3% for Positioning. Geosystems saw a strong recovery in the infrastructure and construction-related business in Asia. It also saw a good take-up for the new business, Digital City, in China. North America performed well for Geosystems.
In Safety & Infrastructure, we see good growth and positive momentum both in North America and Europe, we see a weak South American market. In Positioning, we have good growth in our GPS or GNSS solutions, whilst our positioning services are suffering from mothballing of oil rigs and drill ships in the Gulf of Mexico and North Sea. EBIT came in at EUR 75.7 million on EUR 369.4 million on sales, corresponding to an EBIT margin of 20.5%. This is really where we can see the EBIT margin improvement over last year. Currency-wise, we benefited from a somewhat weaker Swiss franc in the quarter. Slide 21, growth margin. The recorded growth margin in the quarter was 61.1%, and for the 12-month rolling period, it's 60%. EBIT margin, 12-month rolling, 23%, 22.2% in the quarter, 1% better than the corresponding period last year.
Let's talk a bit about M&A orders and product releases. Slide 24. In the quarter, we acquired a company named Sigma Space. We've done lidar technologies for the past 10 years. What Sigma Space offer us is the single-photon lidar technology, which enables data collection at very high speeds and resolution. We can get much more resolution from a higher altitude, collecting more data, covering larger geographic areas with uncompromised quality as a result. We will consolidate this as of March, and the approximate turnover in 2015 was $25 million. Slide 25, AICON 3D Systems offers a white light technology which is complementary to the white light technology that we already have. It's for high-precision monitoring in the industrial space. It's going to touch industries such as automotive, aerospace, shipbuilding, renewable energies, and mechanical engineering.
It was consolidated on the 30th of March, we're going to consolidate sales as of Q2. Slide 26. We acquired a division within the Italian-based company IDS. This is a radar technology in the geospatial area. It's got fairly sophisticated technologies, where we have a ground-penetrating radar which can detect things such as pipes, cables, fiber optic cables and so forth, and basically geo-reference those pipes. You see on the piece of software within this picture, you can see the piping and where it's marked in a street. It lowers the cost of fixing utilities and other things. Furthermore, it's a way of monitoring mine walls in open pit mines. Slide 27. SCCS is a survey equipment company based in the U.K. This is in our approach to convert sales from selling hardware into subscriptions.
We're building up a network of companies that are being able to rent out and basically offer subscription services for construction companies and surveying companies around the world. Slide 28, FTI is a software company making CAE. CAE stands for computer-aided engineering technologies, it's basically the link between CAD, computer-aided design, and CAM, which stands for computer-aided manufacturing. You take the CAD design and you expose it to the real world, if you so wish, in the CAE. You look at the properties, if you can make a product that you've designed and so forth, then you alter designs. Our project is to create a new overarching software where we connect CAE with CAM and with metrology software. We create a self-teaching feedback loop where we can improve quality and productivity in manufacturing companies.
Digital City, we talked about our wins in Digital City in the quarter. We've got an order from Pengtai, a company in Beijing specialized in smart city planning applications. They decided to integrate Hexagon's Digital City model, where we use sensors and software solutions, and we provide an innovative and efficient way to capture large cities in 3D. You see a picture here of the city of Shanghai. Slide 30. We got an order from Crosslinx Transit Solutions Canada, where they're going to build light rail connections in the city of Toronto in Canada. Slide 31. Ecuador has decided to start building subways in the city of Quito, and they're going to standardize this modeling using Leica sensors and software. Slide 32. MK Surveys are using our mobile mapping equipment, Pegasus II. It's a software suite and sensors where you collect data.
This is really a prerequisite for autonomous driving. Slide 33. We got an order from the state of New Mexico, U.S., where they choose to standardize for their public safety agencies on Intergraph computer-aided dispatch system. Slide 34. This is actually a quite exciting application. It's Zipline, a unmanned robotic and remotely piloted platform company where they will use this platform to ship medical supplies to remote regions. What we've done here is we will provide high-precision GNSS receivers in connection to our correction services, our global correction services, to provide centimeter positioning accuracy anywhere this platform is deployed in the world. Slide 35. We talked about it when we talked about investments, but this is the positive side from this investment. We inaugurated our Hexagon Capability Center in India, which you see on this picture.
We basically move in our 1,200 staff in the city of Hyderabad to state-of-the-art facilities. That's it. In summary, if we summarize the quarter in one slide on Slide 37, 3% recorded, 2% organic growth was driven by Geospatial Enterprise Solutions in the quarter. We expect somewhat stronger growth rates, organic growth rates, that should be later in the year as a result from stronger order development, new product launches, and initiatives. We see an improvement in the operating margin of 1%, despite the negative currency impact. We have a strong balance sheet, and we have a strong cash flow that underlines the potential for further M&A. With that, I am ready for the Q&A session. Elaine, we are ready to take any questions from the audience.
Thank you, Mr. Rollén. Ladies and gentlemen, if you would like to ask a question, please press the star or asterisk key followed by the digit 1 on your telephone. Please ensure that the mute function is switched off to allow your signal to reach our equipment. If you find that your question has already been answered, you may remove yourself from the queue by pressing star two. Once again, please press star one to ask a question. We will pause for a moment to allow everyone to signal. We will take our first question today from Stacy Pollard of J.P. Morgan. Please go ahead.
Hi. Thank you. Can you please go through your pipeline, and stronger order developments, new product launches, et cetera, and talk about that, breaking it down by metrology and Safety & Infrastructure and by division a little bit? Secondly, can you talk about some of the new products specifically that are driving growth today and will do in the second half?
Thank you, Stacy. If we break it down, if we look at the first quarter, you had 1% growth from the industrial applications, and for PP&M, it's fairly straightforward. It was 1% for the SmartPlant software. If we then jump to Manufacturing Intelligence, we saw positive growth from our portable metrology business, which mostly is working with aerospace. We saw a slowdown in the automotive, we do think it's temporary moving forward. We think automotive will actually recover somewhat in the quarters to come. We also saw a slowdown from very high levels, or I should say, a decline in electronics. We're basically between product generations with our largest customers in the electronics segment. They are running with their current platforms, we believe that they will launch new products in the quarters to come later in the year.
Just to-
We also-- Oh, sorry.
I was going to say, you think Q1 also represents the outlook for Q2, three, four as well?
How do you mean?
Do you think the growth will be similar in future quarters as in Q1 on those individual divisions?
No, we believe that MI will see a somewhat better growth for the remainder of the year. We think this was the bottom.
Okay. Sorry, I interrupted. I think you were heading towards Geospatial.
Yeah. Geospatial is reporting good growth. We see no reason why it couldn't continue throughout the year. We see good momentum in the SI. The Geospatial segment, if you so wish, should be able to continue its growth. We should see a somewhat stronger industrial growth in latter quarters in the year. Talking about new products, you have to buy a ticket, and you have to join us in Anaheim in June. Then we will happily answer any questions you have on new products.
Okay. Thank you.
Thanks.
Thank you. We will take our next question from James Goodman of Barclays. Please go ahead.
Good afternoon. Thank you. I wanted to ask on the gross margin, the significant improvement that you saw there, could you give us a little bit more behind the factors driving that? Would you expect a comparable improvement as you move through the year? It looks like it wasn't mix driven. Was it product specific, or what drove that? If I could follow up just on the PP&M outlook. Given we've seen oil price come back a little bit and maybe a few more decisions being made, how are you thinking about the more medium-term outlook for that business and the positioning of your business ahead of that? Thanks.
Thanks. On the gross margin, you need to do one thing, and that is it's a bit unfair to previous year. We do have some non-recurring posts in Q1 gross margin of the previous year. It's not significant, but the improvement on a steady state is not as great as one first might see looking into the interim report. I think it's roughly half a percent impact on 2015. You're absolutely right. What has had a positive impact on the gross margin is product mix within the businesses, the divisions, I should say. Between the divisions, you could say Geosystems was outgrowing MI, which has a positive impact, but at the same time, PP&M was not growing, which would have a negative impact.
It's really individual product lines within the divisions that are improving the overall gross margin. If we then move to PP&M and outlook, we believe that this is the bottom for PP&M, and we have a somewhat brighter forecast for the remainder of the year. Having said that, one needs to remember that we had two large orders, one in Q2 and one in Q3 from Fincantieri, which distorts the short-term picture. Coming out of Q3, and if you look midterm Q4 going into 2017, we believe the worst is over for us.
Thanks, Ola. That's very helpful. If I remember correctly, the order in Q2 last year was EUR 7 million. Could you help us with the Q3 order? I don't have that.
Similar size, maybe slightly bigger. We can check it up for you.
Without much recurring this year from those deals, there's not a recurring, a large sort of maintenance coming through from those deals?
Well, they are going to be recurring, but they're not going to be to that magnitude, the recurring revenue.
Great.
Maybe 20% of the total order value.
Sure
recurring revenue.
Excellent. Thank you.
Thanks.
Thank you. We will now move to Guillermo Peigneux-Lojo of UBS. Please go ahead.
Hi, good afternoon. Guillermo Peigneux-Lojo from UBS. I actually wanted to ask a couple of questions regarding Digital City China. Can you give us a ground right as to how big it is at the moment, and how big of an opportunity this can become? Thank you.
The order in Q1 was for EUR 10 million, and that's an order for one city. We have recurring revenue from that order for the foreseeable future, maybe 20% of the total order value. It's important to remember, and we've learned our lesson from our H2O project that this is a city-by-city decision. China has decided to digitize the 600 largest cities. We do know this is going to be lumpy. We think we have good success with our product. We have more orders coming in later quarters of this year, and we do believe that it's a good momentum. We want to be a bit cautious, not overselling you on expectation for Digital City, but it's one of the very good developments in the quarter.
How many competitors do you have in this segment? Is there anyone doing the same?
Not really. We have a fairly unique product offering where we combine lidar and photogrammetric capabilities in the sensor with the workflow where we can download an entire city in hours after the aircraft has landed.
Thank you. Can you also comment on when you said that the order trends will suggest a better second quarter, I was wondering whether you could give us basically a book-to-bill indication just to see how the order trends compare to the sales trends.
Yeah. If you take MI, it was 107 if you divide order to sales.
Thank you. My last question regarding the electronics market and obviously its relationship with the mobile industry assemblers. I was thinking whether you could give us any indication of whether you see actually the Chinese local manufacturers are starting to do the same kind of investments?
They are. There are three local successful Chinese handset manufacturers that are investing in similar technologies as we've seen the leaders have done previously. There is definitely hope for the electronics industry.
Yeah. Did you capture any order from those yet, or would be something for the future?
That goes without saying, of course.
Okay. Thank you.
Thanks.
Thank you. Erik Golrang of Nordea, our next question. Please go ahead.
Thank you. I have two questions, and then returning to the margin discussion. Within IES, you talked about the sort of divisional mission and so on, but how has the margin for PP&M specifically developed over the last couple of years here when growth has slowed down? That's the first question. Secondly, if we look over the next couple of quarters here, you're moving into the quarters now where you started to see the benefits from the cost reduction program you launched early last year. Will there be enough growth and possibly mix effect to sort of offset less year-on-year support from savings if you compare to the 1% expansion you had on EBIT margins in Q1?
Well, if I start with your second question, the simple answer is yes. We do believe that we're on track to reach our margin targets. We're going to do it with mix rather than volume in 2016. Moving back to PP&M, we've improved the PP&M EBIT margin by 5% over the period you referred to, when you've seen the sort of sluggish market. It's not volume driven there either. It's more getting the customers to convert from the legacy product to SmartPlant, and that is having a margin boost on the business.
Okay, thank you. Just one follow-up, a technical question. If I add together the stated FX effects on sales there from slide eight, it gives you EUR 9.5 million, which is less than the reported 2% impact on sales. What's the difference there?
Yeah, it's 1.6. It's the rounding off, I guess.
Okay. Thank you.
Thank you. We will now move to Mikael Laséen of Carnegie. Please go ahead.
Yes. Hi. You stated on the first page in the report that you had some regional initiatives that will support growth ahead. What are they really about? Can you explain that, please?
One regional initiative would be Digital City, which is a Chinese effort, where I can't really say that the Chinese economy is growing at the same rate as our business is growing.
Okay. It's basically China that you're referring to there.
China. We're actually launching another initiative in Brazil in connection to the Olympics, we will be able to talk about that in latter quarters.
Okay.
We have several initiatives regionally to boost growth.
Okay, thanks. The second question is about the acquired growth in the quarter was a bit better than expected, actually. Can you talk about EcoSys, how they are performing in the quarter and the outlook for them?
EcoSys is okay. It's not as good as it could be, that's one of the things we expect will happen in the quarters to come. We're now introducing EcoSys to our customer base in PP&M, the uptake and the reception so far has been very good. EcoSys was primarily a North American business. We're now introducing it in EMEA and Asia, our customers actually like EcoSys, want to integrate it into their SmartPlant offering.
Okay, thanks.
Thanks.
Thank you. Sid Mehra of Morgan Stanley has our next question. Please go ahead.
Hi. Thanks a lot for taking the questions. Just two quick ones on the growth outlook. Firstly, on China, you reported some very strong growth there off arguably easier base comps. Could you talk a little bit about how the sustainability is around that growth? Do you think this is sort of one-off stimulus related, or do you see that sustaining into the rest of the year? Secondly, on the growth outlook in general, the 4%-8%, could you give us some color around what the macro assumption is to get you to the 4% organic versus what the assumptions need to be to get you to the higher end of that? Thanks.
If we talk about China, I can't promise you that we can do 9% throughout the year, which is a very strong number given the Chinese economy right now. With the regional initiatives that we touched upon, it's shipping, construction of ships, Digital City, the slight recovery we see from construction and infrastructure, and the continuous demand for our products in automotive, aerospace, and later in the year, electronics. We believe all in all, that should create a firm foundation for continuous growth from China. If we move to the general outlook, it's fair to say it's increasingly difficult to grow organically by 8% in 2016, 4% is still achievable. We're coming back to the product launches in Q2, recovery, the order intake we see in MI, and continuous stability and growth in the other businesses.
Great. Thank you very much.
Thanks.
Thank you. Alex Tout of Deutsche Bank has our next question. Please go ahead.
Yeah. Hi. Thanks for taking the question. A quick one on restructuring. What was the impact on the operating income in the quarter, and when do you expect to annualize the impact there? What would make up for the loss of that effect later in the year to see you hitting that 100 basis points margin expansion target? Secondly, a more general one on the automotive industry, just the trends that you're seeing there, perhaps if you differentiate across North America and Europe, how strong growth was overall and how sustainable that is. Thanks.
Sorry. I had to look at your restructuring question. We had full impact in Q1, and therefore, we don't report. It's running at roughly EUR 9 million per quarter in savings. The program is concluded and closed. From here on, what you need to remember is that was to mitigate the strengthening of the Swiss franc that was a negative impact last year. Any additional growth on top of last year, of course, has an incremental margin of roughly 35%, 40%. That's how we achieve our 1% improvement. Could you repeat your second question because I didn't hear that?
Yeah, sure. It was on the automotive industry, what sort of trends you're seeing, maybe if you differentiate between the major geographic regions, just the overall growth rate that you're seeing and how sustainable growth would be in that industry? I guess some of the trends in North America suggest the sector might be quite late cycle. What's your view on that?
What we saw in the quarter, which do not necessarily translate into a forecast for the year, is that we saw a bit hesitation from Germany. We saw good growth from all other regions, but Italy. Germany, Italy, we saw a bit weaker demand from automotive in the quarter. France, U.K., other countries in Europe were fairly strong when it comes to equipment to the automotive industry. China, Japan, Korea, good growth in the quarter for automotive. We saw negative growth in North America and South America. South America doesn't come as a surprise, I guess, because it's mostly Brazil. North America, I don't think that investments did reflect the growth from the consumers in the quarter, so that could actually shift into somewhat positive growth in latter quarters of the year.
Many thanks.
Thanks.
We now move to Gautam Pillai of Goldman Sachs. Please go ahead.
Hi. Thank you. First question on the geographic growth progression, especially in Europe. Despite the negative growth you mentioned in Industrial Tools, you have reported positive organic growth across verticals. Anything specific you'd like to call out here? Also, can you comment on the pipeline looking forward for the remainder of the year? Just going back to your automotive comment, are there any concerns that any automotive CapEx could be a near-term headwind for you at all?
Regarding Europe, we saw good growth. If we take the various countries in Europe, Nordics, France, Spain grew. We saw negative growth from United Kingdom, Germany and Italy. Germany, Italy, I think Germany was somewhat of a surprise, and we think Germany and Italy will recover in later quarters. We don't see a reason why we would have negative growth in those two countries. U.K., one has to remember, has recovered and performed remarkably well over the past four years, and it's at the peak of its market. There is a bit of a hesitation in connection to the Brexit discussion right now in U.K. We'll see what happens after June. Regarding automotive, what was your question again regarding the automotive segment?
You mentioned that you think it should rebound in the coming quarters, but any concerns you have at all that the auto CapEx could be a near-term headwind?
For us, it's not CapEx, so that's important. It's actually OpEx, our equipment. The second thing is we're connected to product launches that have been decided years ago, and we see no reason why the OEMs would back off launching new products in the quarters to come.
Okay. A quick follow-up on PP&M. Was the Q1 growth progression better than your internal expectations? Is there any specific project ramp-ups in Q1 which we should be aware? Also, can you comment if you're seeing any change in the competitive environment in PP&M?
We've seen no change in the competitive environment, and there wasn't anything specific. It was actually a very ordinary quarter for PP&M. No large orders, no one-off orders, nothing out of the normal.
Understood. Thank you so much.
Thanks.
Thank you. We will now move to Per Lindberg of ABG. Please go ahead.
Thank you. Good morning. Good afternoon, everyone. I have two accounting questions, if I may. These relate unmistakably to whether they have had any influence on the income statement. One is R&D capitalization minus amortization. You kindly disclosed that on an annualized basis now in the annual report, but not to the best of my understanding on a quarterly basis. Could you please quantify the effect in the last three months? That's the first item. The other is a little bit more intractable. It relates to movements of provisions, something that we did see in the annual report for 2015 and also beforehand. What was the net effect of the movements of provisions, specifically reversals of provisions in the last three months? Thank you.
The capitalization amortization has not had any great impact in the quarter, and provisions were actually negative in the quarter where we built provisions.
Thank you.
Thanks.
Thank you. We'll now move to Wasi Rizvi of RBC. Please go ahead.
Hi, good afternoon. Just a couple from me. I could start on new product launches, have there been any delays or is this running to your schedule at the start of the year? The reason I ask is I don't recall in previous conversations whether you were flagging the product launches would be more towards the later half of the year and maybe Q1 would be a bit weaker.
We have a hard stop in mid-June where we have our annual user conference. We simply need to time our product launches with this user conference.
Right. Okay. I guess what I would like to hear a bit more about is this network of businesses for a rental model on the surveying equipment. You could just talk me through what you're doing, what portion of your business that is at the moment, and where you'd like to take that.
It's a fairly small portion of the total surveying business. We believe this is the model for the future, where we will basically have pools of equipment around the world where we will offer subscriptions on various timelines. You could rent it short-term, or you could rent it long-term. We're going to bundle that so that you also subscribe to a cloud-based solution whereby you can store your data and everything, archive information. We believe this is the model for the future for surveying.
Right. I guess just as a follow-up, how do you think about the returns on that business versus how you're doing it now? By that, I mean return on sales as well as return on capital employed. How does that compare to-
We believe it is going to be significantly better returns on both capital employed and sales. It is sort of a long-term model where we collect more and more data. It is a crowdsourcing model, and we are going to offer that data to third parties via the Hexagon Imagery Program long term.
Right. Okay. Thanks so much.
Thanks.
Thank you. We will now move to Daniel Schmidt of SEB. Please go ahead.
Yes, hello. Good afternoon. I have two questions. First one, Ola, you mentioned in the PowerPoint and also verbally that you had a negative impact in Europe from the divestment of a product line with Industrial Tools. Could you say anything about the magnitude that impacted top line on, and if we should expect that for the coming quarters as well?
It's minus EUR 2.7 million in the quarter. Yes, you should expect a similar number for the coming three quarters of 2016.
All right. Thank you. Secondly, coming back to Automotive and the 360° SIMS product that you have been out in the market now for, I think it's two years, and you've had a number of OEMs, I think it's four that have signed up. Could you tell us anything more about the progress and what you're seeing in terms of interests and pickup and what we should expect in terms of growth for this year for this particular product?
Yeah, no, we've had good uptake, and we expect it to gradually ramp up. We believe this is not probably the strongest automotive year one will encounter during one's career, but we do think that 360° SIMS is going to do well this year. I can't give you the order book.
Oh, okay
It looks promising.
Can you say anything about OEMs that have sort of signed up with you? Has that changed in the past couple of quarters, or it's still these four that you've mentioned in connection with the CMD?
Let's put it like this, we have OEMs in Asia, Europe, and Americas, and it's going to be similar geographic regions that are going to buy in 2016.
All right. Okay. Thank you.
Thank you.
Thank you. We appear to have no further questions. I would like to turn the call back over to you, sir, for any additional or closing remarks.
There are no additional remarks, so thank you, everyone, for listening in, and we'll do the same procedure again next quarter. Thank you.
Thank you. Ladies and gentlemen, that will conclude today's conference call. Thank you for your participation. You may now disconnect.