Earnings Call: Q3 2015

Oct 27, 2015

Good day, and welcome to the Interim Report Q3 2015 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ola Holleben, CEO. Please go ahead. Thank you, Steffi, and welcome, everyone, to this Q3 2015 interim report. And if we turn to Slide 4, the overview of the Q3. Organic growth amounted to 6% and recorded growth to 14% in the quarter, And growth was primarily driven by continued strong performance in the PPNM division as well as Geospatial Enterprise Solutions that saw an uptick in its organic growth. Significant part of growth stems from recently launched new products. We guesstimate the contribution from new products and segments to a bit more than 2% out of the 6% growth that we record in the quarter. Asia was the fastest growing region, and China improved to 5% organic growth. Metrology reports a negative book to bill ratio in the quarter, and we saw continuous weak demand from the oil and gas sector. We improved profitability and cash conversion in the quarter. Gross margin amounted to 60% and EBIT margin to 23%. Operating cash flow improved by 89% in the quarter. Slide 5, just a reminder that this is the seasonally 2nd weakest quarter in the year, but it's usually in the second half that we also see our working capital release. So it has a positive impact on cash flow. Key figures, Slide 6. Net sales amounted to $742,000,000 which is 14% recorded growth, 6% organic growth. And operating earnings EBITDA grew by 21% and EBIT won by 19% and amounted to €167,800,000 This corresponds to an earnings per share, excluding nonrecurring items of €0.36 and that should be compared to the €0.29 that we report, excluding nonrecurring items for the corresponding period last year, which is the 24% growth in earnings per share. If we look at the 9 months for the year, the calendar year 20 15, we are now at 5% organic growth, EUR 2.28 million in sales and then operating margin, EBITDA margin of 29.1 percent and 22.2 percent EBIT margin. And as you can see, the growth in EBITDA overshadows the growth in EBIT, and that's simply because we have this reversion of depreciation and capitalization that we talked about for the past few years. Earnings before taxes amount to €474,000,000 and the earnings per share, excluding nonrecurring items, is now €104, which is 24% better than the corresponding period last year. Cash flow, Slide 8. Cash flow from operations before changes in working capital grew significantly to SEK 221,700,000 As you can see, we had an increased taxes paid in the quarter, which distorts the picture a bit. But we can see the improvement from for the cash flow stemming from primarily three sources. We can look at cash flow from operations before changes in working capital. The operations are now generating more cash, but we also saw positive change in working capital compared to a negative change the same period last year. And then finally, we can see that investment in tangible assets is now dropping again. And this is to do with the completion of the new campus in Huntsville that we did last year and concluded in the Q3 last year. Working capital to sales continue to hover around 17%, but we definitely see now that the pattern repeats itself where we have a release of working capital in the second half of the year. Moving on to Slide 10, which is an important slide to understand the margin improvement. If we start to the left of this table, we can see the Q3 P and L statement as reported with a 22.6 percent EBIT margin. Now savings amount to SEK 6,900,000 in the quarter, and that corresponds to an improvement in the margin of 0.9%. So without this, the EBIT margin would have been 0.9% weaker. On the other hand, we have a negative impact of SEK 7,000,000 in the quarter stemming from the appreciation of the Swiss francs. So it's a wash between the savings program and the Swiss franc at the moment. But then we have 0.6 percent positive impact from other FX movements if we compare the 2 quarters year over year. So to the right, we have Q3 adjusted for if FX wouldn't have happened and we wouldn't have deployed the savings program. And then we can see how the business itself performed without any intervention from us, so to say, or currencies. Moving on to market development, if we go to Slide 12 in the deck. This is the sales mix for the Hexagon Group in the 3rd quarter, and we can see that North America gains 1% in the total mix, while South America is losing 2% on the back of the recession that we see in primarily Venezuela and Brazil. Western Europe maintains a 29% share of total sales, whilst EMEA, apart from Western Europe, is contracting by 1%. China is gaining 1 percentage point and Asia Pac, excluding China, is also gaining 1 percentage point. And we have a fairly well distributed mix geographic mix right now between the 3 major trading regions, EMEA, Asia Pac and Americas, onethree each. Moving on to Slide 13. If we just use the ARROW analysis to see trends in certain regions, Western Europe is up. It's growing above 8%. Asia, excluding China, is also above 8% organic growth, whilst North America is showing single digit growth and so does China with its 5% organic growth. Contracting regions in the quarter were Eastern Europe, Middle East and Africa, where we had tough comps in South Africa compared to 2014, and we do see a slowdown in investments in primarily the recession that we've just mentioned in Venezuela and Brazil. If we move to Slide 14, it's a busy picture, but it's noteworthy to see that surveying and infrastructure construction is now slowly moving into positive territory. We have less negative percentage ratios in China. We see that Asia is strong for construction and surveying. North America continues to be a strong market, and Western Europe has definitely been the positive for surveying infrastructure and construction. If we move to the other large segment, Power and Energy, we see Western Europe performing well, but we do see a muted market in North America, South America and the rest of EMEA. Whilst China and Asia is continuously investing in power and energy assets. Electronics and Manufacturing was still a big quarter in China, which is the major market for us in that segment. Safety and Security had a good quarter in Asia. And Automotive, we see that North America and South America is now declining for us, whilst Western Europe, China and the rest of Asia is still robust. Aerospace and Defense, Civil Aviation is still major players in that industry. Slide 15 is a recap of the long term organic growth trends per region where we can see that Asia is out pacing both Americas and EMEA, we see the slowdown in growth rate in Americas for the past 2 years and EMEA picking up. So we will move to Slide 16 and talk about EMEA for a while. Share of sales is now 37 growth, and the growth areas were really the recovery in Italy and Spain, coupled with good growth coming from Germany. Segments such as in Western Europe, and it was good to see Russia returning to 8% organic growth following 4 consecutive quarters of negative growth. Moving on to Americas, Slide 17. It's now 34% of sales, and we reported a 2% organic growth, which is a slowdown. Geospatial growing at a healthy 6%, whilst industrial is contracting by 4% in Americas. North America recorded another quarter of positive organic growth, although we saw a deceleration compared to the first half of twenty 15, and this deceleration was stemming from industrial markets. In United States, growth was driven by infrastructure and construction related activities and home generated growth stimulus such as the Hexagon Imagery program, which saw strong double digit growth. It was also good to see the Public Safety segment returning to mid single digit organic growth in United States. Sales in South America fell by 15% organic growth. Several key markets in South America contracted, but primarily our biggest market is Brazil, which contracted by 24%. Slide 18, Asia. Asia is now 29% of sales. Organic growth was 10% in the quarter, and both business segments, both Geospatial and Industrial saw strong growth. Geospatial 8% and Industrial, 11%. China grew by 5% organic growth in the quarter. IES showed an organic growth in China of 8%, and this is our by far largest segment in our Chinese business. And it was driven primarily by demand from the Chinese electronic and automotive segments. Geospatial saw a 6% contraction, which is, of course, still negative, but significantly lower contraction rates than we've seen in previous quarters in China. Growth rates in Asia, apart from China, were strong in countries such as Japan, Australia, New Zealand and India. Reporting segments, moving on to Slide 20, Industrial Enterprise Solutions. Organic growth was 7% in the quarter. Metrology saw 4% organic growth. And we really see peak demand from all metrologist areas. Solid demand in Western Europe and China, but we did see some softness stemming from the North American highlight that too much because it's a typical trend in the second half of the year, but we do see a slowdown in North America. PP and M, 12% organic growth and 7 out of these 12% was normal business, whilst 5% was a strategic order to the shipbuilding industry. EBIT grew by 22%, and the margin was 25.7 percent compared to 24.9% in the same quarter previous year. If we move to Slide 21, Geospatial Enterprise Solutions, organic growth increased to 6 percent. And it was good to see Safety and Infrastructure, formerly SG and I, return to growth. And Safety and Infrastructure reported 5% organic growth in the quarter. Geosystems organic growth accelerated to 7% in the quarter, where we saw strength in primarily North America and Western Europe. And we also saw benefits from the recent Captivate software launch and the Hexagon imagery program. EBIT growth 17 percent and EBIT margin improved to 21.2 percent from 20.1 percent same quarter previous year. Slide 22. Gross margin came in at 60%, and that's where we are on a 12 month rolling basis. Next slide, operating margin is now at 23% on a 12 month rolling basis. Orders and product releases in the quarter and significant events, Slide 25. We acquired ECOSYS in the quarter. ECOSYS is a software company providing project controls software and the flagship product is called EPC, which stands for Enterprise Planning and Controls. And our plan is to integrate the ECOSYS offering into PPNM's software offering and offer a comprehensive package for project scheduling where we can talk about 4 d, which would be cost management and 5 d, which would be project scheduling. And this is an important piece in the puzzle to build and strengthen Hexagon's capabilities in the so called building information modeling market. ECOSYS was consolidated on October 1. Slide 26. We rebrand SG and I, IntegraFSG and I into Hexagon Safety and Infrastructure, and we will launch and underline this rebrand at the Hexagon Conference in November of this year. Slide 27, we got our first breakthrough order into the shipbuilding industry with the Fincantieri Marine Group in Italy. This is the number one European shipbuilding company, and I think it's the largest manufacturer of truth liners. Fincantieri will replace its existing in house software with Smart Yard Hexagon's integrated CAD PLM suite of programs. And you could see this as the first step to create a so called, well, sort of BIM in shipbuilding. Daewoo chooses Hexagon for a €4,100,000,000 refinery upgrade. And if we move to Slide 29, Hexagon is to power Woodside's master data project. Woodside is currently it's the largest independent oil and gas company in Australia, and they're undertaking a master data project to cleanse and organize its operating and engineering data across its onshore and offshore assets. And this is also a project that underlines our move into what we could call integrated information flow solutions, where we connect the real world with the digital world. We also got an order from AGCO to participate in being the supplier of their next generation guidance technology. AGCO is the world leading manufacturer and distributor of agricultural equipment, and they got world renowned via Novotel, where we will provide the positioning technology for the AGCO Group of Brands. Hexagon Agriculture got an OEM partnership with Agraale, and Agraale is a Brazilian manufacturer of agricultural and military vehicles. Slide 32. Hexagon Metrology got an important order in the quarter from Fermi National Accelerator Laboratory. And this is a high energy particle physics laboratory where efficiency and capability gains will support the lab's ability to perform pioneering research and operate world leading particle accelerators and experiments. So we're quite proud of this. Slide 33. This is a fun order, Bot and Dolly. The Google owned Bot and Dolly, which is based in San Francisco, it's a design and engineering studio that specializes in automation and robotics in filmmaking. And they will use Hexagon Metrology's next generation laser tracker technology to map coordinated robot motion for advanced cinematography, that's a difficult word, in the morning. And well, it's going to come to a cinema near you very soon. Slide 34, Hexagon supports the Phase 2 of the Shanghai General Motors Wuhan branch build out. We're going to install our white light measuring systems, and it's basically going to boost the capacity in measuring for GM Wuhan. Slide 35, we got an order from the city of Quebec in Canada to install a modern 911 rescue system. And the benefits are really that we can integrate voice, text and data to increase community safety. Slide 36. We got several geospatial software orders in India in the quarter. We got from the Forest Survey of India to map India's forests and perform change detection. The National Centre For Sustainable Coastal is doing is installing our software to do coastal area planning. And Larsen and Toubro is construing the metro rail networks across India, and they have also bought our integrated GIS and BIM workflows. Slide 37. It's good to see that our new technologies are gaining momentum and strength in the mining industry in spite of the downturn in the industry. We got several safety orders from De Beers and Noskeidro, And we installed several fleet management operation systems in Cortes Gold Mine and a mine in Kazakhstan. And we also installed our modeling and mine planning software in an open pit copper mine in Bulgaria. Slide 38. We're currently involved in a big data integration project across hundreds of sources. It's just companies, but it should be sources in Italy. And it's about Italy's state owned railways that are going to be privatized. And in order to privatize the state railways, they need to improve the big data flow throughout the organization. Slide 39. We launched Leica Captivate, which is a new next generation surveying software. It's a revolutionary software for a variety of measurement instruments. And we were being able to create the most realistic 3 d renderings onboard on these mobile platform. So in summary, if we move to Slide 41, we saw 6% organic growth, and it stands from Asia and Western Europe, from PPNM and Geospatial. We saw continuous weak market for oil and gas and a slowdown in the North American manufacturing in the quarter. The operating margin was positively impacted by organic growth, acquisitions and cost reductions, but adversely impacted by primarily the Swiss franc movement. Savings program is on plan, and we record a very strong cash flow that underlines potential for M and A going forward. I just want to turn your attention to Slide 42. We're going to update our financial targets at the Capital Markets Day to be held in London on the 4th December this year. And you can find more about find out more if you contact Investor Relations either via e mail or call directly. And talking about Investor Relations, this is the final working day for Karl, who is leaving us, and I'd like to thank him for good work over these past few years. So well done, Karl. And by that, Stephie, we're ready to answer any questions there might be. Yes. Thank you. We will now take our first question from Seet Mehra from Morgan Stanley. Please go ahead. Hi, thanks a lot for taking the questions. Just 2 from my side. I'd like to square some of the commentary made on the outlook side. Clearly, in the release, there's some commentary around a weaker book to bill on the metrology side and weaker order intake on industrial enterprise solutions. But at the same time, we saw some comments around the demand environment being broadly in line with 3Q so far in the quarter for the Q4. So your commentary around Industrial and Enterprise Solutions, does that relate more to the performance in 2016? And then I just have a quick follow-up on PPNM. I think it's just it's hard at the moment to comment on the outlook. What we saw, we could divide our organic growth into, let's call it, the GDP related growth and the internally generated growth stemming from new products, new applications. And we see an increase in growth rates for new products, new applications, but we do see an underlying deceleration in the general GDP related growth. So we just want to give caution and just say that it's a fantastic growth rate in the Q3. Don't extrapolate it because the outlook is more difficult to predict going into 2016. Okay, perfect. That's very clear. Thank you. And then just on the PPNM side, we've seen now the Q2 where you've had, let's say, an outsized deal, which has helped the overall growth of that division. I'd just like to get a sense of what the pipeline is there for deals of similar sizes, because at the end of the day, being a software business, you do tend to have these larger license deals and you could almost see them as the normal course of business. But just to get a sense of how much more of these we should be expecting going forward. And then also especially related to the Marine project, was this a competitive offer with some of the other players in the space? Or was this just you versus the in house software at that particular company? It was a competitive offer. And yes, I don't want to brag, but I know why we got it. Okay. And anything on the pipeline for those larger deals? No, it's absolutely true what you're saying. We tend to almost regard them as nonrecurring or extraordinary. But of course, you do get a string of these significant deals. And I don't think this is the last deal we booked that we will regard as large and exceptional. We will take now our next question from Erik Golrang from Nordea. Please go ahead. Thank you. I have three questions. The first one on PPNM. You talked about weak demand there on oil and gas. How much was oil and gas for PPNM down in the quarter? And how much does that now represent of our PPNM sales? Oil and gas is roughly half of the business, and it wasn't down in the quarter. One must remember that more than 70% is recurring revenue. So it's just that we see a weakness and a softening in the backlog of our large customers, the EPCs. And we just have to draw the conclusion that we can't continue forever with these very strong growth rates that we see. Okay. Thank you. Then the second question on the Hexagon imagery program, if you can give an update on the current sales growth or the current annualized sales level there in the Q3? Well, the annualized sales level, it's a lumpy business where typically you sell more. 3rd quarter is the strongest quarter and the 4th quarter and the second quarter are roughly the same. 1st quarter is almost nothing. And this has to do that you simply can't fly and take pictures when it's winter. So but the growth and the sales pace annualized for this year is roughly €40,000,000 and we expect that to grow going into 2016. Okay. And then the last question on M and A. You talked about some cash flows underlying that. I think you somewhat expected a bit more deals to be closed in so far in the second half. Anything just takes time. You have to give us till December 31 before you judge the second half. Okay. Thank you. Thank you. We will take now our next question from Stacy Pollard from JPMorgan. Please go ahead. Hi, thank you. Just a few other divisions that perhaps you could touch on, Power and Energy. Can you talk about the demand there? Secondly, safety and infrastructure, there was a large deal in New York that you've spoken about before. Does that continue with the year on year benefit? Or is there still good demand across the board, which I think you referred to? Thirdly, if PP and M growth slows at all, does that put pressure on your margin improvements or do you have enough other divisional improvements in other divisions, I guess, to keep the momentum there? Power and Energies, I mean, most of it stems from PPNM. So it's the other part of the business, which is not oil and gas related, the other 50%. And we do see good demand primarily in Asia, but also we saw an uptick in demand from Russia in the quarter, which was positive. Regarding SG and I or Safety and Infrastructure as it's called nowadays, it's true. We do have a large order from New York City, which we're currently installing, but we did see many other projects. We saw several projects stemming from our relationship with Huawei around the world. We also saw Europe and projects in Australia, Singapore and New Zealand. And then finally, what was your question on PP? Yes, if PP and M slows down, does it put pressure on the overall margin? Well, of course, it's always beneficial if as well. And I guess we have to wait for the quantification of that for the Capital Markets Day in December? You have to wait in the 4th. Thanks. It's like Christmas. Thank you. All the others, great numbers. Just wanted to ask on the shipbuilding win that you had in PP and M, is that in the Chinese market? No, the shipbuilding, that's Fincantieri. It's an Italian shipyard. Okay. Okay. So it doesn't sort of what really sort of drives the recovery in China continues to be the automotive then. Are you seeing any sort of deceleration when it comes to the automotive CapEx spending in China? It's been fairly elevated for quite some time. No, no. CapEx is significantly down in general for automotive in China. It's just that the Chinese factories need to invest in quality and productivity and enhancing equipment. Okay, okay. Thank you. Thanks. Thank you. We will now take a question from Johan Sjoberg from DNB Bank. Please go ahead. Thank you. I have three questions. If you look at the plus 2%, which new products and applications contributed to organic growth during the quarter, have you seen all the bulk of this impact in Q3? Or will we see something now coming in Q4? My second question is regarding PPNM. If you could quantify a bit upon the organic growth, how much is growth through price increases and also and if there's any change there? And also the final question when it comes to China, when it comes to the quality enhancing projects that you see in the automotive and also electronics, what is your visibility in those? And how long do you expect that trend to continue? Thank you. Regarding the 2% organic growth, I if I was to guesstimate, I because we can control that growth better than the general GDP related growth, I think that could only increase. But the big question mark at the moment is what the global demand in general will be. So that's actually one of the positives in the quarter and hopefully in coming quarters. PP and M has its normal price increases, and we haven't really seen any difference in 2015 compared to other years. And then China and the sustainability in electronics and manufacturing, we I might have to regret saying this, but we think that we've seen the worst of the weakness that we saw in China. We don't expect China to come back to strong double digit growth that we've seen over the past 10 years. It's going to be a much slower growth rate going forward. But single digit growth, mid single digit growth is what we expect for the future, immediate future. And just my final question also regarding the Q4 outlook. If you compare, you had 9% organic growth, if I remember correctly, in Q4 last year, so facing tough comps. On the other hand, you faced tough comps also in Q3. Despite that, you managed to grow by 6%. I understand we're not going to extrapolate the trends here, but is it fair to assume now going into Q4 that the new spatial division will continue to show organic growth increases while the industrial side should point south. So should those even out, would you say? Do you dare to say anything about it? I don't dare to say anything, but I'm so foolish that I will say the following. And that is, I think what we see is a shift of locomotives inside the group where industrial has been the powerhouse up till now. But it's only natural to assume that industrial will slow down its growth if you look at all the industrial and capital goods companies that have reported. But we do see geospatial gearing up. And hopefully, geospatial could provide growth where industrial will become slightly softer. We will now take our next question from Mikael Lassine from Carnegie. Please go ahead. Yes. Hi. A couple of questions from me. The Captivate software that you launched in June, I think, can you say how much that contributed to your growth in the quarter? And what was sort of the driver here? Was it a software that, I mean, drove the customers to upgrade the hardware also? Can you say something about that? I think it's probably fair to say it was 2% of Geosystems growth. And if we say Geosystems is roughly 1 third of the group, it would have been slightly less than 1%, 0.6% or something percent of the total growth in the quarter. And it's definitely so that, yes, it drives hardware sales as well as software sales. Okay. And just wanted to understand the sales drivers for the imagery program going into 20 16 and the customer concentration there, if you can expand on that, please? You have to be a bit more specific. What exactly do you want to know? Well, as I understand it, one large customer is driving revenues this year. And I don't know how much you have penetrated the sales channels that you've added this year, how much they are adding and so on. And in terms of the I mean, the database, how that is, the quality of it and how far you have sort of come in terms of adding sort of new territories and so on? We think that in next year, we will expand geographically. We've covered Europe and North America once in 2015. And there is a demand to do this twice per year. And also, certain customers are asking for 15 centimeter accuracy in city centers, in large city centers across North America and Europe, and that will also drive demand further. So this is a very positive and good development for us, and we have great aspirations and ambitions when it comes to the imagery program to continuously fuel growth. Okay. Can you say something about the rev share that you have, the model that you're working with? What do you think then? I'm not sure I Well, you have sources of information, and they provide data to the database and they then you sell that in turn to your customers? Yes. No, no. That's we see a continuous pickup in our recruitment of new sources for information. So that's absolutely true, and it's going quite well. Okay. And just a final question, if I may. Could you explain the development and say something more about the development for Vero, for example, Veripos and the recent acquisitions that you made, for example, New Rivers, Genimetics, how they perform? Vero is performing well. It's not growing to the extent that we wanted to. We wanted to see double digit growth, and we haven't seen that in Miro so far. And this, of course, has to do with the slowdown in the manufacturing industry. However, we're working on a project to be able to offer Vero in the larger MMS, the metrology software platform that we've recently launched. And we think that will provide an uptick for Vero sales. When it comes to Viripos, we're making strides and we have a lot of positive development on the land based side, which was the reason why we acquired Verepos. But of course, to position oil rigs is not the best of markets at the moment. So the traditional core market for ViriPos has been hit in recent quarters. Okay. Thank you. Thanks. Thank you. Our next question now comes from Alexander Virgo from Nomura. Please go ahead. Thanks very much. Good morning, Ola. A couple of questions, please. The first one, can you just talk a little bit about the thinking around ECOSYS? And I guess what I'm getting at here is, was the driver your belief that there is a gap in the market for combining the 2 types of products, so talking to enterprise planning and also your original or existing capabilities? Or was it driven more by the fact that you had customers asking for a more combined product, if you like? The second question, just I wondered if you could disaggregate North America for us a little bit, your comments on decelerating manufacturing. I guess what I'm really getting at here is what customers are saying and what they're doing with respect to the next, I guess, 3 to 6 months, etcetera, would be really helpful. And then lastly, you commented briefly on the strength of the cash flow. And I wondered whether you could just talk about, I guess, the sustainability of the improvements that we're seeing there. You mentioned seasonality is stronger in the second half, but I just wondered if we can continue to see that improve through the next 12 to 18 months. Thank you. Thank you. ECOSYS, yes, we believe there is a gap in the market, and we believe that the penetration for design software is quite high, and a lot of industries are using all sorts of CAD tools at the moment. But we believe it's really the step beyond design, where you integrate the design process with the manufacturing process. And when you do that, you could call it BIM or whatever you want. But when you do that, you need strong project controls, software tools, where you control cost, time and so forth. And this was a gap that we saw that we had. And with the Ecosys, we can now fill this gap. Dissecting the North American manufacturing market, I think it's fair to say that the traditional manufacturing industries are slowing down. And I'm thinking about capital goods equipment such as large vehicles, heavy vehicles, the automotive sector, traditional manufacturing sector, sort of Midwest, Midwestern America. We do see good demand from the West Coast where you have more electronics and software related businesses. And we also see good demand from the East Coast and Seattle, of course, where aerospace is located. So I don't know if that's helpful if that helps you in any way. Cash flow, we've seen improving cash flow over the past 3 years. And this has to do with our capitalizing of the software where we started this in 2010 and where depreciation and amortization is simply catching up with capitalization and thus improving the underlying cash flow. Well, it doesn't improve the cash flow, but it improves the ratio between, well, the cash conversion. Right. Okay. So it's just a continuing the continuation of that. Can I just come back on ECOSYS? Sorry. Forgive my ignorance, but is this not sort of done filled by PLM offerings? Or is this, I guess, slightly to the right of that? I'm just trying to understand quite why it's different and why you think there was a gap. No, it's not filled by PLM because PLM platforms are typically deployed in, well, the traditional manufacturing industry. But here we're targeting project industries, capital project industries, such as large factories, large construction projects and so forth. I see. Okay. So right. Thank you. Thanks. Thank you. We will now take a question from Alex Twerd from Deutsche Bank. Please go ahead. Hi, guys. Thanks for taking the questions. Just drilling in on some of the geographic commentary. You mentioned the B2B in IES overall. I don't know if you mentioned the B2B in IES in China. How is that standing at the moment? And are you seeing any impact from stimulus measures so far by the Chinese government? Secondly, could North America from a revenue growth rate turn negative based on the B2B that you've seen and the trends that you're seeing in IES? And then just lastly, what do you attribute your strength in Western Europe to outside of the PPNM deal? And is this spending, do you think, related to an intra Europe recovery? Or could it potentially be jeopardized by some of the trends we're seeing in emerging markets? Thanks. Let me see now. Book to bill was positive in China. And then you had a follow-up question on North America. I can't remember how you jumped from China to North America, but maybe you could remind me. Just whether the trends that you saw there in IES and in the traditional manufacturing businesses you At At the moment, we don't see it turning negative. I mean, we're hovering around 0 growth at the moment. Western Europe, if we dissect the growth, it's stemming from an uptick infrastructure and construction activities across Central Europe Central Western Europe, we should say. And then we saw the blue chip companies continuously investing in Europe, the large companies such as Airbus, the automakers and so forth. And just whether you think that the trends in China and some of the other emerging markets might put that at risk? Or does it seem like some fairly solid internally generated demand there? I think the construction and infrastructure uptick is definitely internally generated within Europe. But of course, these large companies are dependent on exports to all areas of the world and are not immune by any way by weakness in other parts of the world. So that's something we shall see in the quarters to come. Very clear. Thanks. Thanks. Thank you. We now take a question from Gerard Foss from Barclays. Please go ahead. Hi, thanks for taking my question. An impressive result given the backdrop of the macro market. Just two questions there. First of all, on the Aviva Snyder proposed kind of deal, have you seen some kind of disruption from a competitive angle in that space? And then secondly, obviously, you had very tough comp from a consumer electronics perspective. How did that part of the business do? And how do you see that trending forward? Thank you. No, we haven't seen any different behaviors in the market from any competitors really in the quarter. And regarding electronics, yes, the comps are becoming tougher and tougher. But so it's going to be difficult in the near term to post double digit growth in electronics. But if we look over the longer term, let's say, a couple of years into the future, we see more and more electronics manufacturers creating more complicated structures within their products, little rounded edges and so forth. And this trend is very beneficial for Hexagon. Wearables is another trend where we benefit greatly from the launch of new products. So of course, short term, it's always hard to beat. But longer term, we still believe that this is a growth segment for us. And Ola, how big is this now for the group? Well, it's 10% of metrology and metrology is roughly 1 third. Okay. Okay, perfect. Thank you. Thanks. Thank you. We now take a question from Gautam Pillai from Goldman Sachs. Thanks for taking my question. Ola, specifically on this Daewo E and C deal win, it seems like quite a large win. Was there a competitive bid here? And when do you expect the organic revenue growth to ramp here? Is this like can we is it fair to assume a nice tailwind to PPNM growth from this volatility over the next 12 months? It's definitely going to contribute to PPNM's growth. I don't know actually if this was a competitive bid or not. I can't tell you, but I can find out for you. Sure. And just on this, the Geosystems product launches, again, is it fair to assume is there a potential to drive a major upsell cycle over the next few quarters from this, which kind of offsets any sort of macro weaknesses you're seeing from an end market standpoint? And just a related question to that, are there any major product upgrades we should be aware of coming in the next couple of quarters? You should always be aware of our product upgrades. Now did you ask about GeoMedia? Because we're actually phasing out GeoMedia. GeoMedia is a desktop product. And I think the next generation GIS products will be in the cloud. So we do have we had a teaser launch, we could call it, in Las Vegas. And the true launch of Smart Map, which is the next generation GIS, will be done in Hong Kong in November. Sure. And finally, on the progress of Smart Solutions in the quarter, can you provide how much Smart Solutions contributed to organic revenue growth in Q3? And also, do you still feel good about the 100,000,000 to 200,000,000 revenue run rate in Smart Solutions in 2016? Or do we need to wait until December 4 for an update? Just to get you there, I'd say you have to wait until December 4. If you're not there in person, you will never know. And contribution to the quarter for organic growth? I think it was roughly 1%, but this is becoming more and more difficult to follow-up since it's all over the place right now. Got it. Thanks, Ola. Thanks. Thank you. Our next question now from Guilherme Peigneux from UBS. Please go ahead. Hi, good morning everyone. It's Guilherme Peigneux from UBS. Just a couple of questions. First regarding mobile assembly in Asia. 1 of your clients is starting to or actually planning to move into India and add new 12 plants in India. And I was wondering regarding metrology and mobile assembly, whether that could be potentially some additional help to mitigate that growth slowdown? And I will do the follow-up later. Yes, we hope so. Okay. Thank you. And then second is regarding the operating leverage in the quarter. I was a bit maybe underwhelmed by the operating leverage in the quarter organic wise. Did you feel the same way? Or do you expect that to pick up in Q4? It was 35%. Okay. And I think that's what you should I mean, if you have a business that is running with a growth margin of 60% and if the incremental margin should actually be quite high for a company like Exagor. Okay. All right. Thank you. Thanks. Now we take our next question from Markus Almerud from Kepler. Please go ahead. Hi, Markus Almerud here from Kepler Cheuvreux. I'd like to come back to China, if I may. I was a little bit surprised about your comments when I saw them and some press comments as well that you say that you think you've reached some form of bottom and the manufacturing is reviving. You repeated that now on the call. Can you talk a little bit more about that? What how much of that is pure industrial demand? How much is just increasing productivity in the factories, etcetera, etcetera? And what gives you confidence to say those kind of things? Thanks. No, I don't think it's general demand. I think it's the manufacturing industry is squeezed and they need to find productivity gains. And where we see our biggest growth in China with the traditional industries such as auto and so on is really on our platform MMS, where we can enable them to release a lot of productivity gains. So what you refer to is really the your exposure to the structural growing segments such as robotics and things like that. That's what you're referring to? It's not robotics. It's about basically tying together isolated of information within our customers' manufacturing and make them visible so that you can then improve productivity. Okay. Okay. Thank you. Thanks. Thank you. We now take a question from Charles Evans Lund from Egerton. Please go ahead. Yes. Hi, good afternoon. I was just looking for the results. One, your R and D, you've always been a very R and D intensive organization for obvious reasons. And over the 9 months, your R and D expense increased by 16%. But in Q3, they were down 7% year on year, and I was just trying to understand what had happened. We did a restructuring in the Q3 of 2014, and we posted part of that restructuring in the condensed income statement on Page 9, where we can't have nonrecurring items. Okay. So that's so that was very clear. Yes. If you see impairments, so part of the impairments that we did in the Q3 of 2014, 15,600,000 are actually booked on the research and development expense line. So if you back that out, you have a 20% growth in R and D expense. Okay. Very clear. And Ola, since I'm on the line, you bought a chunk of shares about a month or 2 ago, but there was some commentary that you didn't participate in the warrant program. Can you talk about your rationale for that? Absolutely. It's so that if you're a U. K. Resident, which I am, and you participate in a stock option program, the company must pay social charges on your capital gains. And if I were to sign up for €2,000,000 warrants, it would be have been a substantial social charge for the Hexagon Group. And I just felt that wasn't fair. So I bought stock instead. So this was a change to previous warrant programs where there was I mean, did you why was there a change actually? Don't ask me, of course, born. Okay, fine. So it wasn't previously No, it's a change in the tax legislation. There was a response to change in tax legislation. That's very clear. Thank you very much. Thank you. Thank you. And we now take a question from Jean Dorski from Handelsbanken. Please go ahead. Thank you. I have a question related to the you referred to the book to bill in metrology. Can you talk about the book to bill for the entire group and how that compared to last year? So you can't talk about a book to bill in a business that is so software heavy because we have contracts. You can talk about the backlog, but you can't really talk about book to bill. Doesn't make sense. But for the non software part, the what's the book to bill if you look aside from the toilet? No. For the non software part, it was positive because that would be Geosystems. And Geosystems is the remaining hardware part. And they had a positive book to bill in the quarter. Okay. Thank you. Thanks. Thank you. As there are no further questions at the time, I will hand back to Mr. Ole Ola for any closing or additional remarks. Thank you. Thank you, and thank you for listening. I'm completely exhausted, so I don't have any closing further closing remarks. And talk to you next quarter. Thanks. Bye. Thank you. Ladies and gentlemen, this will conclude today's conference call. Thank you for your participation. You may now disconnect.