Earnings Call: Q2 2015

Aug 7, 2015

Good day, and welcome to the Interim Report Q2 2015 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Ola Rolland, CEO. Please go ahead. Thank you. Welcome to this Q2 interim report presentation. If we turn to slide number 4, you can see an overview of the Q2. Organic growth was 5% in the quarter and recorded growth 23%. So we got 4% acquisitions and 14% currency impact on the growth rate for the sale. Growth was primarily driven by the industrial enterprise solutions, which benefited from strong performance both in metrology and PP and M. We see United States continuing to expand, and we also see and Europe growing again at strong single digit numbers. Traditional growth markets, however, such as Brazil, Russia and China are suffering from weak demand and political turmoil in the case of Russia and Brazil. Gross margin for the quarter reached 61% and the EBIT margin was 23% in the quarter. The launched cost savings program contributed with €4,500,000 of savings in the quarter and the operating cash flow improved by 16% in the quarter. Just a cautionary statement on Slide 5, we do have seasonality in our earnings and in our sales. And we try to remind you of this every time, every quarter. Q1 is now our weakest quarter, Q3 our 2nd weakest, Q2 and Q4 we regard a strong quarter. If we turn to slide 6, the P and L statement. Net sales amounted to 780.7 percent, and that is 5% organic, 23% recorded growth. The EBITDA came in at €229,700,000 and that's the 29% growth over the corresponding period last year. EBIT came in at $177,300,000 and that is a 27 percent growth over the corresponding period last year. And as you can see, our EBITDA margins are expanding twice as fast as our EBIT margins. And this has to do with the increased amortization and depreciation that we do see stemming from R and D activities in the P and L statement. Earnings before tax is 170 point 3, 30 percent above corresponding period last year and earnings per share 0 point €37 which is 28% above the recorded level of last year. For the 1st 6 months, we're now at a sales turnover of €1,485,800,000,000 and the organic growth rate for the first half has been 5%. Our operating margin is at 22%, and our earnings per share excluding nonrecurring items is €0.69 or 25% above the same period last year. Cash flow. If we look at cash flow from operations before changes in working capital and taxes, the sort of operating working cash flow. We can see it increase to 228.6 percent, and that's actually 29% increase over the corresponding period last year. Taxes and interest is roughly at the same level as last year. And the big disappointment in the quarter was really the change in working capital where Geosystems saw significant working capital buildup. And it's attributed to a back end loaded quarter with large orders invoiced by the end of June as well as an inventory buildup due to several product releases that are due to be released in the second half. In spite of that, cash flow from operations increased by 16% to 77,000,000 euros Included in the 77,000,000 is €9,400,000 from the restructuring launched in the Q1. Working capital to sales is something we've discussed over time. And we can say that in spite of the slight disappointment in working capital development a ratio that we hope will improve over time as we enter into more recurring revenue transactions and become more software oriented in our product mix. Slide 10. This is an important slide to understand the margin development in the Hexagon Group in 2015. So this talks about effects and actions related to FX movements, and it's not entirely easy to understand the bits and pieces. But if we start with the reported numbers to the left, the left column in this table, we can see the net sales reported at $780,700,000 and the EBIT at 177.3%. Now this corresponds to 22.7% EBIT margin. If we look at the 2 columns to the right, impact from Swiss franc and impact from other FX movements. It's fair to say that net Hexagon has a positive impact from the FX movements we've seen over the past 9 months. And if you look at the right column, other FX movements, you can see a significant positive contribution to both sales and EBIT margins. As a matter of fact, if you divide 24.4% divided by 79.4%, that's 31% incremental margin. So the appreciation of the U. S. Dollar, the Chinese rmb and other currencies has helped Hexagon to improve its EBIT margin. Something though that is very special for the Hexagon Group and that one needs to bear in mind is the Swiss franc exposure where we have cost exposure in Swiss franc. And as you might remember, in January, the Swiss National Bank dropped the peg to the euro, which resulted in almost 20% appreciation of the Swiss franc overnight against the euro. And we can see the impact in the column impact from Swiss franc where we have very little positive contribution on net sales, but a significant negative impact, which in the quarter amounts to €8,900,000 negative or a negative margin contribution of 1.2 percentage points. And thus, we launched the savings program, which now is to the column second to the left, where we have saved SEK 4,500,000 out of a program that is expected to contribute with roughly €9,000,000 per quarter when it's fully implemented. And that has helped us to improve the cost savings program, we would have reported a margin of 22.5%. So net on net, we're reporting a slightly stronger margin. But obviously, with the Swiss franc, we could have reported 1% more in the EBIT margin. And that's what we're working at correcting. Now if we talk about the market development and we move to Slide 12, we can see significant changes in the regions and the regional contribution. And this has to do with 2 things: the significant downturn that we see in Russia, which you can detect in EMEA, which actually goes from 10% to 8% of Hexagon sales. On the other hand, we can see a significant positive contribution from North America where the underlying business is growing, but we also have a positive impact from the U. S. Dollar appreciation. We can see the slowdown in Brazil if we look at South America, which now is 4% of sales. And we can also see that Western Europe is, relatively speaking, becoming less important as a region and it's now our 2nd largest region after North America. China remains at 15% and Asia Pac 12%. So a fairly balanced geographic mix with 1 third of the business in each major region. On Slide 13, more of the same, significant downturn in Russia. South America is positive in spite of the negative development that we've seen in Brazil. China, 2% organic growth. Asia, excluding China, strong double digit growth. Eastern Europe, Middle East and Africa also strong double digit growth. Whilst Western Europe and North America is mid single digit growth. Slide 14, analysis of the organic growth per geographic region and business segment. We can see surveying, which is our largest segment still suffering in primarily the emerging markets, I. E, EMEA, which is in all On the other hand, we do see positive development in North America, Western Europe, Rest of Asia. Power and Energy, weak development in the aftermath of the Petrobras crisis in Brazil. All other regions are growing. Electronics and Manufacturing, strong growth in China and Western Europe, good growth in all other regions. This is our fastest growing segment at the moment. Infrastructure and Construction, similar trends as surveying China, Brazil, Russia negative. Public Safety and Security, we for the first time in a long time with the growth from Western Europe, a negative trend due to Russia and EMEA, North America positive, South America negative due to the downturn in Brazil. China, well, single digit growth and then strong growth in Asia. Automotive is reporting good growth from all regions and so is Aerospace and Defense. Now as an overview and a bit more long term perspective on Slide 15, we can see Asia continuing to outgrow the 2 other regions. Americas bypassed EMEA and accelerated as from the quarter of 2011. But we do see EMEA picking up growth as from the Q2 of 2013. If we look at the various regions, Slide 16, EMEA market trends. Western Europe recorded 5% organic growth, but the big five, I. E, U. K, Germany, France, Spain and Italy grew at 9%. Nordics grew slightly lower rates and the rest of Western Europe had negative growth. So all in all, Western Europe recorded 5% organic growth. This is actually a pickup compared to previous quarters. We saw segments such as automotive, power and energy, aerospace record strong performance in Western Europe. Middle East, Africa and Eastern Europe all grew, but significant weakness from Russia hampered the overall growth for the EMEA region, and we ended up at 4%. Russia is not an industrial market for us. It's more a geospatial market. And you can see that in the box to the right where GES is contracting by 1%, but we actually record 12% organic growth for our industrial activities. We turn to Americas. Good growth from both segments. Both and Industrial grew by 6% organic growth. NAFTA remained strong. Mexico and United States, significant growth. Canada, negative growth. And this has to do with the downturn in the Canadian raw material based economy. I'm thinking about the oil sands in Northern Canada, but also the mineral business in Canada, which has slowed significantly for us. In United States, growth was driven by infrastructure related activities and initiatives such as the Hexagon imagery program, which had good strong double digit growth in the quarter. On top of that, we recorded a large perpetual software contract for PPNM in North America, it amounted to €7,000,000 South America recorded 4% organic growth in spite of having a significant decline, minus 22% organic growth in Brazil. Growth was driven by a large mining contract that we landed in Peru. If we now move to Asia, Slide 18. Asia report 5% organic growth, geospatial minus 3% and industrial plus 9%. We saw 2% organic growth in China. The industrial activities report 10% organic growth, driven primarily by the electronics, but also automotive and aerospace segments. The geospatial activities saw a minus 24% growth in the quarter. And this is, of course, due to weakening construction and infrastructure market in China. Rest of Asia, however, recorded 10% organic growth. It was driven by markets such as Japan, Vietnam, but also Australia reported double digit growth, driven by a strong quarter for our mining activities. Reporting segments. If we start with Industrial Enterprise Solutions, Slide 20, as already reported, organic growth 9%, Metrology grew by 8%, driven by primarily growth in Western Europe and China. PP and M report 10% organic growth. Sales was boosted by a large perpetual software single digit 5%, 5.5 percent organic growth for software orders. And it's important to understand that when you get one, that customer will not cease to buy from you. You will replace the software sales with a maintenance contract. EBIT grew by 42%, and our margin was 27.7% or 1.7% improvement over the corresponding period last year. Slide 21, Geospatial Enterprise Solutions, organic growth of 1%. Geosystems grew by 2%. If we back out Russia, China and Brazil, the remaining Geosystems business grew by 9%. SG and I, 1% organic growth. The SG and I, 1% organic growth. The backlog continued to grow in the second quarter, which should talk for a stronger second half and twenty sixteen for SG and I. Positioning, minus 1%. Positioning is Novotel and Viripos merged. And it was primarily the Chinese market and some softening in the offshore market for positioning services. EBIT growth, 11%, and the EBIT margin came in at 19.3% versus 19 0.8%. And of course, here we have the CHF 9,000,000 Swiss franc hit. Most of it is with Geospatial Enterprise Solutions. Gross margin 12 month rolling is now at 59% versus 56%, Slide 22. And on slide 23, we see the 12 month rolling trend for the EBIT margin, which is now at 22%. Orders and product releases, if we start on Slide 25. We saw 2 important orders in the quarter for smart plant, Toyo Engineering Corporation and Jumbo Aramco Sinopec Refining Company has purchased our Smart Plant Enterprise Suite of software products. Slide 26. We got another order for SIMS 360 in the quarter, and it was Fiat Chrysler that will install its first 360 sims for its Mirafiori plant in Italy. Slide 27. We see more traction for our portable business, our laser trackers and articulated arms. Significant growth, strong double digit growth in the quarter. One customer example is Boeing that has upgraded its tracker fleet to Leica 8,930. And it's going to be used in conjunction with the manufacturing of the 7 47, 767, 777 and 787 Dreamliner production lines. Slide 28. We got an order from NECK Corporation to strengthen the Japanese satellite system that NECK is operating. We got an order for G3 receivers, which will be deployed in this regional 3 satellite GNSS augmentation system. Slide 29, content sharing partnerships. We've signed 2 partnerships in the quarter to strengthen our imagery program, one with BlackSky Global, which is a satellite imaging company. And they plan to deploy 60 satellites to capture the Earth and create a constellation consisting of these 60 satellites and it shall be ready by 2019. We also signed a contract with Airbus Defense and Space that also has a portfolio of geo information and imagery that we can now use to serve our customers. Slide 30. We got several orders for public safety and utility applications in the quarter. We're going to optimize the command and control operations in the country of Portugal in Europe. We also got an order to improve CLP Power. And they're going to install our software to improve outage management in their facilities. Slide 31. South Africa launched a new law and regulations to enhance safety in mines. And this has driven demand for our collision avoidance system that we've developed in our mining division, which basically is the system that will alert drivers of these large vehicles and basically make sure that they can't collide. Slide 32. It was a good quarter for our mining business. We got 3 orders for our fleet management systems, 1 in Boliden, copper and then one in United States with Barrick Goldstrike. Slide 32. We had a major launch of a new generation product from Geosystems in the quarter. It's the Leica software suite that enables realistic 3 d renderings on your portable screens that you use in the field. It's an easy to use touch technology, and it will be rolled out and integrated into all Leica hardware as from late June. So this is a product for second half of the year. Speeding up inspection. We launched RS3, a new integrated laser scanner articulated arm that offers more detailed 3 d point cloud and significant time savings. This is a new product from the metrology division, and we saw good uptake in June from this new product. Another novelty from the metrology business, MMS PULSE. MMS PULSE is a monitoring system that offers real time insight into factors affecting quality in relation to inspection and part of the larger MMS, Metrology Management System Suite that we are about to roll out. This is really Internet of Things. We combine hardware, we connect hardware and we do diagnostics on hardware and we can then present the results in the software suite in real time. Slide 36. Hexagon and Shell will drive down costs with the release of SDV. Shell is currently working on a project internally prices. And they've chosen Hexagon's product and it's an integration. It's the module in Smart Plant Cloud, an integrated data centric platform to enable data consistency across suppliers and engineering disciplines. And you see a quote from Shell's CEO at the bottom of this slide. And there is also a link to Project Vantage where you can read more about it. Finally, if we summarize the quarter, Slide 38. 5% organic growth is driven by a recovery in Western Europe, continuous strength in North America. But unfortunately, a weak quarter for the so called BRICS or emerging markets, one should say. The operating margin was positively impacted by the organic growth, acquisitions with higher margins than the core business, cost reductions, but adversely impacted by currencies. Savings program will mitigate this and it's progressing according to plan. Strong cash flow underlines potential for further M and A in the business. And by that, I have concluded my presentation and we're now open for any questions you might have on the quarter. Thank you. Our first question comes from Mohammed Moana of Comdata. Please go ahead. Great. Thank you. Ola, I wonder if you can comment a little bit around the second half of the year. You had alluded to some of this emerging market uncertainty. Obviously, there's a lot of diversity within the group. But specifically, can you comment on the extent to which you can kind of sustain any incremental slowdown in these emerging markets to kind of maintain the 5%? And can you also clarify in terms of full year 2015, are you still comfortable with 5% organic growth for the full year? And I have a follow-up as well. If we start with the emerging markets, China grew by 12% 18% in Q3 and Q4 organically last year. So that's going to be tough to mitigate given the current outlook. We still believe that we're going to see good growth from our industrial businesses in China, which actually amount to 75%, 80% of our total business in China. So it's fair to say that the best guess for China is probably like the 2nd quarter weak single digit growth. Brazil had a weak 4th quarter, but a fairly strong Q3 last year. So it's probably realistic to think that Brazil is going to hamper numbers as we go into the second half. Brazil, however, is a fairly small part of Hexagon. Currently, it's 2% of total sales. And the same goes for Russia. Russia started to see negative growth as of the Q3 last year, minus 6% in Q3, minus 24% in Q4. And then we saw the real bottom or trough in Q1 with minus 55% organic growth, Q2 minus 36%. So Russia should probably ease off in the second half. To counteract the emerging markets, we do see improved growth in Western Europe, continuous growth in North America. And hopefully, our product releases that we introduced in connection to Hexagon Live in Las Vegas will have a positive impact on growth as well. Already in the Q2, we guesstimate that approximately 2%, 1.72% stems from new products and new initiatives in the group out of the total 5%. Okay. That's great. And just a follow-up on PPNM. You obviously had this nice wind on a perpetual basis. How do you see that developing given your business has proven to be a lot more resilient than some of the kind of end market dynamics that we're observing. So can you just talk about the kind of any further resilience you expect? Or do you expect this growth to progressively slow? And could we see a scenario where this even turns negative towards the end of the year given the demanding comparisons in Q4 last year? You should never say never, but I have a tough time seeing that PP and M should turn negative by the end of this year. We've seen resilience in the numbers given the macro in the oil and gas industry. I think it's fair to say that the owner operators and the EPCs are starting to look at how to reduce operating costs in already existing plants and facilities. And this is actually an area where products like Smart Plant Fusion and other products are gaining momentum. So it's negative, but it's not all black. And I think we have a good and resilient business going forward. Thank you very much. Thank you. The next question comes from Daniel Schmidt, SEB. Yes, good morning, Ulla. Just wanted to actually add a question to the oil and gas discussion. First of all, could you say anything of use to you? You had 10% growth for PPM and M in total in the quarter. And that, of course, is not entirely oil and gas. If you exclude Let's talk Let's start with that one. It was roughly 5%, 6% growth from the oil and gas segment. Is that including that perpetual order then or No, the perpetual order was actually outside of oil and gas. Okay. Okay. It was Dow Chemical. Yeah. And could you say sort of because you took a couple of these frame agreement orders with Shell, ENI and Fluor in the second half of last year. And they as I understood it were sort of ramping up gradually as users came online. Should you see anything how that's been developing and how that's been affecting your growth in the oil and gas segment in 2015 and what we should expect going forward in terms of that ramp up? Well, we've seen strong double digit growth in our cloud offering. That doesn't mean much though since it's coming from well, non existing levels almost in 2014. So it's been positive on a if you keep the overview, so to say, the helicopter perspective, the bit negative has been that we've seen a few very large projects being mothballed over the years. So it could have been even greater had we not seen the uncertainty in the oil price. Okay. But are you saying also that the ramp up is finished? Or is there more sort of incremental revenues that come from these projects sequentially? And I got also the impression that the Shell contract, I think, was fairly big when you got it. Is that sort of that impression now? Or has that changed on the back of what you said in terms of mouthful products? No. I think it's meaningful and it's still substantial and we should expect more to come from our cloud activity. I think cloud is one of the things that is working in our favor and actually insulates us a bit from the general downturn that you might have seen for our other suppliers in the market. Yes. That was what I was getting to. So as we move in the second half of this year, that should continue to help you guide mitigate the underlying downturn basically in oil and gas vessels? Correct. Okay. Good. And you had a tremendous surge in consumer electronics sales in the second half of last year and you've sort of alluded to the Chinese growth and you've talked about one of the bigger players in mobile phones storing a lot of sort of measurement equipment going from manual inspection to automatic inspection. And it sounded as that was of course a very good and great order execution that's been going on some time. You have a good momentum in that sector overall. But is there any other players that you've sort of able to come into and be a big provider of these products to? Or is it really just this one big payer? No. Since then, we've actually captured 2 or 3 more OEMs. And it's not just restricted to China anymore. We see manufacturing entities in Southeast Asia ordering from us now. Does that mean that you also think that the sort of that you will be able to keep this growth pace even though you start to see these comp coming up and that sort of the fact that you've widened your customer base that much is going to sort of neutralize that? It's going to be tougher and tougher obviously to beat the comment. But we don't see a saturation in growth. Growth as such, we believe, is going to continue in the second half with electronics. But obviously, with the comps we have for the second half, it's going to be tougher to reach the kind of percentages we've seen in the past 4 quarters. Okay. Okay. Thank you so much. Thank you. The next question comes from Georges Vos, Barclays. Hey, good morning. Thanks for taking my questions. Just a few. First of all, on the kind of Geo Systems division, could you help us a bit what you've seen there in kind of stocking levels, particularly ahead of the big releases in the second half? And then secondly, would you be able to provide us with an update on M and A as sort of comments you made earlier this morning? And then finally just following up from Moe's questions on the kind of growth. Do you feel comfortable with consensus for the full year, which is forecasting around 5% growth? Thank you. Well, if we take the stocking are you referring to our inventory or our distributors? Distributors, sorry. No. We haven't really seen any impact on that. We saw us ramping up inventory since we carried 2 parallel product lines in the Q2, an old one that we phased out over the quarter and we've now concluded that and then the new one that we launched by the end of the quarter, which is now ramping up. So we haven't seen any replenishment by distributors as of yet. Okay. Thank you. And M and A, I think you need to clarify a bit more what you want to know. In the original guidance for 2015, which was then pushed to kind of 2016, part of the guidance was a sizable kind of deal. So I was wondering what the status is there. Is there something in the kind of pipeline? And how do you think about smaller deals versus larger deals at the moment? I think that we're going to see a string of mid sized to smaller deals and that's what we're building our plans upon. I don't think you can have a plan for a large transaction. Okay. And then just following up from that one, Ole. Is that a slight alteration? Because it's been difficult to find something a bit of larger that midsized kind of deals? No, I don't see it as an alteration at all. That was the initial plan and we stick to that plan. Okay. Thank you. And on the consensus numbers for the full year? Well, we don't comment consensus numbers since we don't issue forecast. Okay. You just have to continue major numbers and then call in on these calls and we'll see where we end up. We continue doing that. Thanks, Ole. Thank you. Our next question comes from Stacy Pollard, JPMorgan. Thank you. Just a few quick ones. Something you haven't spoken about in a while, Smart Solutions division, how is that progressing? Is it still a focus? Is it living up to your expectations as a new group? Secondly, looking at the cost savings plan, is it fair to assume around $9,000,000 in benefit in Q3? Or I guess in other words, are you seeing that it will fully hit the Q3 as a benefit? Or should we wait until Q4 or into next year? And then finally, how do you feel about the 2016 target for 25% operating margin? Do you think that might stretch out another year? Or is the restructuring plan putting you in line to meet that? Solutions is doing fine. And as I've said in this call, we expect almost 1.72% of the organic growth to stem from new solutions. So it's gaining traction. It's exciting. However, we have distributed all these initiatives to the operating division. And we do not emphasize it as a separate initiative. We try to build it into the current business model using the sales forces we do have and R and D activities that we already have going. So good progress there. On the savings, it's fair to say, and we've commented that, we expect full impact as of Q1 2016. And yes, that would be in the range of €9,000,000 per quarter. The 20 16 hold the Capital Markets Day in the Q4. And then we're going to talk about the outlook. Okay. Thank you. Thanks. Our next question comes from Sid Meier of Morgan Stanley. Please go ahead. Hi. Thanks a lot for taking the questions. Just two quick ones. One on the metrology business and electronics orders. I'd just like to get a better sense of how the order mechanics work. When you sign a new customer, let's say, now in Southeast Asia, when they're taking these products, does that typically impact on a 6 month or 12 month basis? Or do they just take a specific amount of orders and that impacts that quarter and that's it? And then the second question would be on the intangibles CapEx, which increased pretty significantly year on year. Has there been any change in the rate of R and D capitalization versus previous years? Thank you. If we start with intangibles, no. But we have most of our R and D activities in U. S. Dollars and Swiss francs. So naturally, you get a 20% inflation in euro as you continue to employ your people in United States and Switzerland. So that's the simple explanation. If you look at depreciation, they you have a similar impact on amortization of intangibles. When it comes to metrology, we typically get the order, and we will then deliver that within the next 3 to 5 months. So that's the backlog of a typical electronics order. Great. Thank you very much. Thanks. Our next question comes from Erik Golrang of Nordea. Please go ahead. Thank you. I have two questions. The first one on content as a service and the imagery program. Could you say something about where annualized sales is today for that business? We're approaching €40,000,000 Thank you. And then the second one, Paul, you talked about it. But in metrology, you talk about auto related orders in China slowing in the quarter. Does that mean that they declined? And if so, what kind of magnitude are we talking about here? No, they're not declining. It's the growth rate, which was very strong double digit in past quarters is slowing down to single digit. Thank you. That's it. Thanks. Our next question comes from Mikael Lattan of Carnegie. Please go ahead. Thanks. You announced in June that you will focus more on the BIM market within the TPNM side. Could you maybe talk more about that, the addressable market, size of that, time until you have products on the market and the R and D costs that will come with this? Thanks. We've all already started spending. So it's part of our current R and D that we use for other activities that we now divert to the BIM initiative. And we believe that market, it's not the traditional BIM market we try to address. It's actually a broader BIM market, more I mean, the construction market is one of the largest markets in the world. But it's at least US2 $1,000,000,000 currently. Okay. And I think that you have all the software tools to develop, so what you're aiming at? No, we don't. So it's going to be a development project over the next coming few years where we're gradually going to release products into this market. Okay. And I also got a question about geospatial. The mix was more negative or was negative this quarter. Could you maybe talk more about that and explain this in more detail? Because I understand, of course, that the FX is the largest impact on the margin for that segment. But if there were other factors, for example, the product mix or the regional sales split, for example? Yes. The mix, we have good profitability from emerging markets. And of course, when they contract, we have a slightly worse mix. I wouldn't say it's material, but there was a geographic than product. Okay. Thanks. Our next question comes from Bjorn Enarson of Danske Bank. Please go ahead. Yes. Hello. You sound quite positive on growth still on the second half? And can you shed some light on the backlog that you have within, I guess, mainly SG and I that you're comfortable, but also more on the metrology business by segment? Both metrology and SG and I have record backlogs. And as a matter of fact, if we look at metrology, no, both actually, they're geographically evenly spread. So we can't see weakness in any region at the moment when it comes to backlog. Other backlog based businesses would be PPNM, which has above 70% recurring business and that backlog is also at record level. And are those backlogs, is that what makes you so confident about the second half and that is also what you are seeing the sequential growth is stemming from? Yeah, partly. I mean, we do see that sequentially SG and I should have a better second half than the first half. We do see that we have a bit more weakness to filter through the P and L statement from China and possibly Brazil. But Russia should be at the bottom now geographically. But we do see strength in Western Europe, which could outweigh emerging markets. So I think it's going to be a 0 sum game almost between these factors going into the second half from what we're seeing today. And if you're looking at the non auto, non aero, non construction or what's left of it in China, Do you have you a sense of the general industrial demand for you is in China? Or is this very weak? Or is this the decent numbers that you see? I think if you back out auto, aero and electronics, it's fair to say that it's very little left of Chinese industrial activity. Exactly. Yes. Okay. Got it. Thanks. Thanks. We have no further questions at this time.