Earnings Call: Q1 2015

May 6, 2015

Good day, ladies and gentlemen, and welcome to the Hexagon Interim Report First Quarter 2015 Conference Call. For your information, today's conference is being recorded. I would now like to turn the call over to your host, CEO, Mr. Ola Rolon. Please go ahead, sir. Thank you. Welcome to this Q1 interim report of 2015. If you turn to Slide 4 in the presentation, you have an overview of the Q1. Organic growth amounted to 5% and recorded growth 19%. Recorded growth in a comparable structure actually 22% since last year Q1 was the Q1 or the last quarter with other operations. The growth was primarily driven by our industrial activities, IES, where both metrology and PPNM showed continuous strength in the Q1. All regions showed mid single digit growth with acceleration in Western Europe, but a slowdown in Asia. We also saw improved profitability and cash flow. Group gross margin 60% and an EBIT margin of 21% in the 1st quarter. As a way to mitigate the very complex FX movements we have in this quarter, we've launched a cost savings program during the quarter and we're going to come back to that. Operating cash flow improved by 40% in the quarter. Now if we turn to slide 5, just to remind you, over the years, we've seen a transition where Q3 used to be our weakest quarter, but nowadays Q1 is the weakest quarter and that has to do with the very large holidays we have in Asia and South America in the Q1. If we move to slide 6, we have the P and L table, where net sales amounted to 705 point €1,000,000 which is a recorded increase of 19%, whereof organic growth is 5% in the quarter. EBITDA amounted to €198,600,000 which is a 24% growth over the corresponding period last year. And the margin now corresponds to 28.2%. Operating earnings EBIT1 amounted to €149,800,000 and that corresponds to an EBIT margin of 21.2%, an improvement of 0.5%. And we can see the EBITDA margin growing by 1.2 percentage points. So the difference between the two is the accelerated depreciation and amortization over 2014. Earnings before taxes excluding non recurring items amounted to EUR142,200,000 which is an increase of 23% over the corresponding period last year. And then we have this cost restructuring program, which addresses the cost increases we see in the United States Organization, U. S. Sorry, U. S. Organizations and the Swiss Organizations. It's roughly 4.20 individuals that will or have left the company. Net earnings amounted to €84,000,000 including taxes and non recurring items, and that corresponds to an earnings per share of €0.23 Excluding non recurring items, the earnings per share grew by 19% to €0.31 Now if we look at the cash flow on slide 7, cash flow from operations, including tax paid and interest received or paid net, grew to €157,800,000 Change in working capital was minus €33,000,000 Thus, cash flow from operations were 124,800,000 in the seasonally weak quarter for cash flow, which is Q1. Slide 8, just to highlight working capital to sales. And over the longer period, we can see that the consolidation of Intergraph has been beneficial to our working capital development. Lately though as of 2013, we can see that we've made little progress from 20% to 19% of sales. And right now, this has to do with that we're changing generations of products. So we're actually running 2 product lines in parallel in the Q1. And by the end of the Q2, this will be cleared when we release the next generation products. Effects and actions related to FX movements, Slide 9. We do have a positive FX of €66,400,000 on sales and €14,100,000 on operating earnings. Now currency movements have had a neutral impact on our EBIT1 margin. However, the currency movements did have a negative impact on primarily Geosystems and PPNM, but a positive impact on other units with less rich EBIT margins. So we have a mix impact in the margin, which is negative. And you could guesstimate that to be minus €9,000,000 in the quarter. However, the cost savings program that we announced on the 31st March is intended to address that. We will release approximately 400 employees, and it's expected to drive cash cost savings to approximately €35,000,000 per annum with full effects as of January 2016. Market development, if we turn to slide 11, we can look at the geographic mix in the quarter. North America has significantly grown its share from 27% to 31% of sales. Western Europe is shrinking from 31% to 30% of sales. And China and South America remain at 15% 4 percent, respectively, and so does Asia Pacific at 13%. And then we see a 2% loss in EMEA outside of Western Europe, and that has to do with the significant decline we saw in the quarter coming from Russia. Slide 12, an overview contributors to growth in descending order in the quarter. Was a fairly good quarter for Western Europe, both for industrial applications as well as geospatial and construction applications. Western Europe grew above 8% organic growth. So did Asia excluding China Australia and Eastern Europe, Middle East and Africa. North America, China and South America were showing growth 0% to 8% in the quarter, whilst Australia and Russia had significant negative growth in the quarter affecting the overall growth. If we then analyze the segments business segments and geographic regions, slide 13, we can see that surveying is showing a negative trend in emerging markets whilst the 2 mature markets, Western Europe and North America, are doing. And energy is growing throughout the world, and we see significant growth coming from Western Europe. We had another good quarter for electronics and manufacturing where we see significant growth primarily in China and North America. Infrastructure and construction, similar trends as we see in surveying. It's the emerging markets where we're suffering at the moment whilst North America and Western Europe are actually growing quite well. Safety and Security was good to see growth in Western Europe for the first time in 2 years. And this quarter, we had slight negative growth in North America, which is the biggest market for safety and security. We do believe, however, that that will be corrected in the quarters to come given that we now have a large order with the Fire Department of New York. Automotive, good and stable growth throughout all regions, slightly slower growth in Western Europe in the quarter and a similar pattern in Aerospace and Defense. If we move to slide 14, we just visualize what we've just gone through. Asia is outgrowing all the other regions longer term. Americas is now 30% above the previous peak in Q1 of 2,008. And EMEA has just recovered to the previous peak that we saw in 2,008. We roughly have, as you can see in the pie chart, 1 third of our business in each region. EMEA market trend, Slide 15. Western Europe recorded 9% organic growth. Positive markets were U. K, Italy and Spain that are recovering, as well as the Nordic region and Germany. France recorded negative growth in the quarter. And segments such as surveying, automotive, power and energy drove the broad based organic growth in Western Europe. Middle East, Africa and Eastern Europe all grew, but Russia recorded minus 55% organic growth in the quarter. Americas, Slide 16. Demand in NAFTA remained strong, driven by Mexico and United States Canada had 0 growth and that has to do with the reduced activity in the so called oil sand fields in Northwestern Canada. In the United States, we saw automotive, electronics and surveying grow at good growth rates. Public Safety had negative growth and this is simply because we finalized a large installation in Q1, 2014. But the backlog is, reassuringly strong. And we do believe that public safety will have a good year in United States in 2015. South America recorded growth despite negative development in Brazil as markets such as Argentina and Colombia showed strong growth rates. Asia market trends, Slide 17, 4% organic growth in China. All businesses slowed down, but we saw good growth coming from our industrial applications, whilst the geospatial applications showed negative growth. And this is a continuous impact from lower activity in construction. Apart from China, India, Malaysia, Vietnam and Singapore and New Zealand all grew at strong double digit growth rates. But Australia, which is a fairly large market for us, 3% of sales, reported double digit decline in the quarter. And this is connected to the downturn in mining, which also affected the wider surveying business. Segments. We introduced new segments for the first time in this quarter. And if we start with Geospatial Enterprise Solutions or MAP based solutions, slide 19, we can see that the organic growth was fairly sluggish 2%. Geosystems recorded 1% organic growth. SG and I, 0. And positioning, which is the merger between EBIT margin increased driven primarily by positioning and an improved margin in SG and I to 19% was 18% last year. Industrial Enterprise Solutions, Slide 20, organic growth of 8%. Even though we see a deceleration from Q4, 8% is good considering the markets. Metrology grew at 8% and PPNM at 7% growth. EBIT growth of 24%, but we saw a reduced margin from 26.3% last year to 25.6% in the Q1 this year. The margin was negatively impacted by business mix and currency. And there are 2 things going within this division. First of all, metrology outgrew PP and M and PP and M has a much higher margin than metrology. And secondly, PP and M itself has most of its cost in U. S. Dollars. And with this superb EBIT margin that PP and M is recording, even tiny reductions will have a significant impact on the overall margin. But this is one of the things we address with our cost restructuring program. If we now move to the gross margin, Slide 21, it improved from 56% to 60%. And this is also due to FX movements. It's more FX movements than actual improvements in the underlying operational gross margin. The flip side of the coin is that the OpEx is increased as well due to FX. And we can see that on the operating margin slide 22 where we do see an improvement year on year of the EBIT margin, but it would have been even greater had we not had the Swiss franc appreciating the way it did. M and A orders and product releases, slide 24. Our first acquisition this year is QDAS. QDAS is specialized in statistic process control. And it's a German software which is a comprehensive software product that we launched in the second half last year. Approximate turnover last year was €15,000,000 Slide 25. Hexagon imagery program is now launched to external distribution partners. Throughout 2014, we sold it to dedicated sponsors and key customers, But we now have a wider distribution channel, including Esri with its Arc GIS market place. And also Hexagon Geospatial Division is selling it through its so called power product portfolio. And then we have Walthus, which is our own exchange where you can buy aerial data. Slide 26. In Colombia, we installed a system with the largest multi utility in Colombia. EPM, which is the name of the utility, has more than 5,200,000 customers. And it's a combination of our so called G technology with maps provided via GeoMedia, where we can locate and geo reference outages. Slide 27, we're making an impact in the agro industry in Brazil, India and United States. We've received orders in the Q1 for our new suite of agro products. Slide 28. Hexagon Technology aids real time surveillance. This is a quite interesting technology project that we've developed together with CellEx, which is a subsidiary within the Italian group Finmechanica. And we basically it's for border patrol where you can analyze movements of groups of people and you can follow where they're moving and monitor them. And analysts are able to handle large amounts of multi intelligence data that they can download into server and really use big data to paint a picture of what's happening. Slide 29. We announced that Hexagon and Esri will collaborate for public safety and security applications where we will open up our products to be used in collaboration with Esri's ArcGIS platform. And this product will be available as of the Q2 this year. Slide 30, New York Police Department signed another 5 year contract with Intergraph SG and I for 20 fourseven on-site support of the software system that we installed last year. The system went live in May 2013 and has improved productivity within the police department significantly. If we now move to Slide 31, this is about automating emergency services in the capital of the Para state in Brazil. We installed a comprehensive system in their control rooms consisting of several software packages from Intergraph. Slide 32, improved fleet operation. This is a new product called Smart Asset Control, where we basically control and create a large logistics systems system in workplaces like when you construe a port. And we talk about several hundreds of vehicles that we control using GPS receivers, software and so forth. Slide 33. General Motors selected Hexagon 360 Siems for its Rosario plant in Argentina. So another breakthrough order for the new product 360 sims. Slide 34, Daewoo Shipbuilding selected Smart 3d for the so called impacts project. Slide 35, we launched a new tracker in the metrology division, the absolute tracker AT960 and it's definitely gaining attention and momentum in the aerospace industry. It's our best laser tracker yet. Slide 36. In this quarter, we've launched the next generation land based correction services via the acquisition Viripos. We have new GNS service level. We call it TerraStar C. It's very accurate. And we basically combine GPS, which is the U. S.-based system with Launas, which is the Russian system. And we've opened up to cater for also Galileo and BeiDou, which is the European and Chinese satellite constellations. Slide 37. In the quarter, we also launched a new family of laser scanners. Scan station P304016 were launched in the quarter. And we now cover all aspects of scanning from easy to use scan station P16 to a very versatile instrument, the P40. So in summary, Slide 39, 5% organic growth, primarily driven by our industrial applications in the quarter. Improvement To mitigate this negative impact, which stems from the Swiss franc, but also from the U. S. Dollar in certain businesses, we launched a savings program that will more than compensate for the negative Swiss franc impact that we see on our margins. For Q1, we report strong cash flow that underlines the potential for M and A for the group going forward. And with that, I open up for questions. So, Elaine, if there are any questions, we're ready to take them. Thank Our first question today comes from Sid Mehra of Morgan Stanley. Please go ahead, sir. Hi. Thanks a lot for taking the question. Just two very quick ones. Number 1 on the organic growth. I think when we look out into the second half of the year and the base comp stuff and generally it feels like there might be some concerns that the growth slows further from here. So could you just highlight a couple of points where you see particular strength in the pipeline? And I know you mentioned already in the security space, but anything else to get us incrementally confident that, that growth can accelerate from this point? And then secondly, on the EBIT margins, if you make the adjustment on the FX in 1Q 'fourteen and 1Q 'fifteen, overall, the margins were down somewhat. Could you just talk through some of the gives and takes there? What happened in the quarter? Was this just because of metrology? Thanks very much. Organic growth, I can't give you a forecast for the second half because we simply don't issue forecasts. I mean, maybe not a forecast, but just some particular business lines or products where you're seeing solid momentum, a good pipeline, something like that? I think instead of looking at the 5% in Q1, maybe we should look at the 9% in Q4 and the 5% in Q1 and say that 9% in Q4 was probably a bit better than what we were hoping for or were asking for and 5% was probably a bit on the weak side from what we expected going into this quarter. I think the truth will lie somewhere between those two extremes. And I think that's the best guidance I can give you. And then if we move to margins, I tend to disagree with you that margins are down, but we have to dissect it. So if you use the condensed income statement in the interim report, what you need to remember is that we've spread out the non recurring items in the OpEx in the table that you see there. So maybe you want to elaborate a bit more on reduced margins. No, I was making the adjustment for the foreign exchange because if you look last year, your EBIT was negatively impacted by FX. And if you make the adjustment on that side, you get to margins of 21.6 percent as it would have been without any impact of FX. And if I do the same calculation this year, I get to something more like 21.3%, 21.4%. So I just wanted to get a sense of what happened in the business mix that would have led to that type of deterioration without any without taking into account the impacts of FX. You can't do that because it's 2 different FX. I mean in 2014 you compare to the situation in 2013 And in 2015 you compare to the situation in 2014. And the big negative that's happened between the two is really the Swiss franc where we have lots of operating costs, but we have very little revenue in Swiss €9,000,000 The Swiss franc has been pegged to the euro, €1,000,000 The Swiss franc has been pegged to the euro at €1.20 for the past four years. And suddenly, it was a drop negative impact on our EBIT margins. And that's why we launched this cost cutting program. Okay, great. Thank you. Thanks. Thank you. Our next question comes from Hailey Chen of Deutsche Bank. Please go ahead. Hi, good afternoon. Thank you very much for taking my question. On Metrology, you had the easiest comps year on year in Q1. So do you still expect organic growth to improve from the 8% this year going forward? Because I think there was a comment on improving demand in European Auto and Manufacturing. And the second question is around your EBIT margin. So could you please talk us through the kind of net net impact post the restructuring program and given what you're seeing in the market and the relative performance of your business units for the full year please? Thank you. I've never said that we expect improved organic growth in metrology going forward. Maybe Europe, but not metrology division as a whole, because we don't give forecasts. And you're absolutely right that, of course, Metrology had a stellar year last year and it's going to be tougher and tougher for them to beat last year. But we have some good things up our sleeves. So let's hope that we can continue on this very positive trend that we've seen in metrology. Regarding EBIT margins, I think you have to do a calculation where the cost cutting program will contribute with €36,000,000 in reduced costs or improved margin. And if we had implemented that on January 1, we would have basically cut cost in the range of €9,000,000 per quarter. And if you divide €9,000,000 on €705,000,000 that would have given us an EBIT margin boost of 1.3% in Q1 over the recorded operating margin of 21.2%. So if we do a reconciliation, we would have landed at 22.5%. And that's why it was so important to given that we have our long term targets, we needed to adjust our cost structure to the new currency situation. Great. Thank you. Thanks. Thank you. We will now move to Stacy Pollard of JPMorgan. Please go ahead. Thank you. Since we were talking about margin maybe I'll leave with that question, which is you've discussed some product mix a little bit and the various margins across a few of the products. Can you also talk about certain industry verticals, whether certain industry verticals have higher margins than others? That's question 1. And kind of the follow-up to that really is, can you remind us the guidance that you do have for 2015? Or is it all laid on to the 2016 targets? And then finally, can you discuss product cycle in Metrology and Geosystems? I think you mentioned something up your sleeve perhaps? My sleeve is actually I'm sorry, it's gone. I've rolled it up. Just joking. No, let's start with the easy one. We don't have a guidance for 2015. We have a guidance for 20 16. So that was an easy question. If we talk about industry verticals, it's obviously so that there is significant difference in profitability per vertical. Surveying is very profitable. Power and Energy is very profitable. Automotive, Safety and Security less profitable and so on. And product cycles? Any comment on product cycles either in Geosystems or metrology? I think that the big year for Geosystems was 2013. The big year for metrology was 2014. And what we're going to see in 2015 in connection to Hexagon Live in June in Las Vegas is probably not an as big product launch as the 2 previous years, but I think the 2 divisions are going to launch significant product releases in June, which could drive growth in the second half. If we move to SG and I and PP and M, they have more, I shouldn't call it routine product releases, but it's more next generation software products that you release twice per year. So when we think about GEO and metrology, are they on a sort of 2 to 3 year cycle? Or is it a little bit more of a stretch? And that are you at this point going small launches all along the way? I think that you could say we have big, big product launches every 18 months. Okay. Thanks. It's difficult for us to say how big the launches will be, but I think it's worthwhile a trip to Las Vegas. Thank you. Okay. Thanks. Thank you. Bjorn Erensen of Danske Bank has our next question. Please go ahead. Yes. Bjorn Ernst Can you hear me? We can hear you well. Good. Seth muted on my phone though, so I was a little bit puzzled. Yes, I have a question on your gross margin and your comments on FX there. You said it was mainly an FX contribution on that line. Looking ahead, are you seeing some drivers for that for you to keep that level up? Or is this mainly based on FX development? Or do you have anything else that could offset the potential changes to the FX? And then follow-up to that is on the OpEx side and it was, of course, up significant. How much of that is FX really? And I guess that as you were saying the your restructuring is aiming for the OpEx. And will we see a positive OpEx development in the next few quarters? Let's start with the easy one. We hope that we'll see a positive OpEx development in the next few quarters. If we move to the gross profit, it's true that the short term increase is driven by FX. Longer term, we hope to be able to underpin a continuous improvement in gross profits, not by FX, but by new products. And what we need to do now, we previously said that 60% would be the target level for our gross margin short term in the current planning cycle, which ends in 2016. With the new exchange rates, we probably need to recalculate that and it's going to be a higher target since we're obviously not at 25 percent EBIT. If we look at the OpEx in the quarter, it's a bit difficult to dissect what actually happened. But we record if you go to Page 7 in the interim report, we report 43.4% OpEx in the quarter. Within that OpEx, you got 4% roughly, which is the non recurring items that are spread between the lines administration, research and sales expenses. So the corrected numbers would be instead of 20% 20.4% sales expenses, you would have 18.5%, percent, 9.8 percent for admin rather than reported 10.6 percent and 12.4 percent for research and development would be 10.9 if we back out the NRI of 36,600,000 in the quarter. If we look at cost savings that would shave off another €9,000,000 from the OpEx line. And then we have another implication, which is a bit difficult to see if you just read the report on page 7 in the interim report. And that is depreciation and amortization, which seems to be the same amount year on year. But it's actually so that we had an impairment in 2014. So the true depreciation and amortization going forward in 2014 was €38,000,000 whilst it's €48,800,000 in 2015. And that's an increase. So depreciation, amortization and FX is working negative, have adverse effects on our OpEx. The cost cutting program and the NRI are really the ones that you can discount in the OpEx going forward. Okay, good. And my next question were actually related to depreciation and amortization here. But should we expect a slow increase in on that line looking ahead? It's not a slow increase. As I said You had a very strong increase this quarter, but should we see a similar growth rate looking at? I think I mean, we're growing it at 29% quarter on quarter if you back out the impairment. So I think that's probably valid for the year. That's the rate we're going to see. And unfortunately, part of our amortization is in Swiss franc and U. S. Dollars. So it's a higher number. Yes. Got it. Okay. Thank you. Thanks. Thank you. We will now move to Daniel Schmidt of SEB. Please go on PPM going forward? You continue to have really good growth in the quarter. And of course, you highlight a things there. What do you see in the sort of pipeline going forward given the concerns in the market? And then also, Ola, if you could say something about what really happened in the quarter. As you said, you were a bit surprised or negatively surprised by the growth rate in Q1. And I remember you saying that you kept the same pace in connection with the Q4 report that you had in Q4 when you sort of reported the Q4 numbers? So what happened in the second half of Q1 basically? If we start with Q1, I think what happened was that we had a slow start like everyone in January. And the currency movements in combination with what happened in Russia took us by surprise. And that's why we're slightly lighter on organic growth than what we hoped for. It wasn't really something happening in the latter part of the quarter. It was sort of a continuous process after everyone came back from winter or Christmas holidays and Swiss franc depreciated. I'd rather say that I think that if anything the pace increased by the end of the quarter. If we look at growth for PP and M, it's good growth given the backdrop of the market. Having said that, this is a complicated story with the large multinationals having CapEx plans that run into 2020, I mean, 5 years plans. And I guess that what we've read and what we've heard in Q1 reflects an oil price of around $45 per barrel, whilst it's currently trading last Ilukt at $69 per barrel. And these the recent increase in the oil price makes a tremendous difference for offshore oil operations. Really, the only operations that are now running with red numbers are the oil sand fields in Canada and some of the U. S. Shale oil operations. So this is roughly the level which is the sweet spot for our business between $70 up to $100 per barrel. So we'll see what it means, but no one knows. Would you say that you are a bit more sort of confident than you were then maybe a month ago or when we were really sort of in the tank when it comes to the oil price. Are you more confident now that you will keep growth this year? Or how should you how would you sort of give you would you give us any guidance? Where was the oil price a month ago? Okay. But when we were down below 50%, do you feel that, that is a big difference for sort of your conviction going forward where we are now compared to sort of at the start of the year then? The oil price is up by more than 40% since the beginning of the year, and my confidence has grown by roughly 40%. No, it's as easy as that. No, it's much better outlook with the oil price at 69 compared to the oil price at 45. Yes. But do you see that in the trend during the past couple of months? Do you or is it too early to say? No, you don't see that because we have visibility roughly. I mean, more than 70% of the business is recurring revenue. So if you translate that, you could say we have visibility 3 quarters into the future. And we don't see any dramatic changes. Q2 looks fairly stable and good and Q3 so far so good. And beyond that, I think it's very much about the CapEx plans from the large multinationals in combination with an oil price. And given that the oil price is where it is, it gives me much more comfort for 2016 than an oil price at 45. Yes. Okay. That's good. Thanks a lot. Thanks. Thank you. Our next question comes from James Goodman of Barclays. Please go ahead. Thank you. Could you quantify the contribution to metrology growth from any smartphone measurement deals in Q1 that drove the growth in the second half last year? And then maybe more generally, just talk about your progress in expanding your the customer relationships for those types of deals. These customers want to remain anonymous, so we can't comment on individual accounts. No, not individual names, but in terms your ability to expand those into sort of a number of vendors? What we've done, we had a breakthrough deal in the electronics area with a large OEM in Asia in the quarter. So we've expanded this business further. And instead of having 1 customer end user, which we had last year, we now have 2. And given the size of these businesses and accounts, going from 1 to 2 with the significant growth. That's extremely clear. Thank you. And in terms of that business, would you see that as ongoing then with the 2nd vendor? Or would you see it as sort of done for the coming period within the Q1? It's a bit complicated because we're our growth is a function of the number of new products they launch in correlation to the number of new products they launch. But the trend is very favorable for us because the products are becoming increasingly difficult to assemble. You have bent shapes and so on and smaller products like smart watches and things like that, wearables. And this is a very good trend for us indeed. And we're quite happy with the development we see in the electronics field in the Q1. Great. That's really helpful. Thank you. Could I ask you just quickly on Russia as well actually? The I had in my mind that it was about 3% of sales previously, I guess half that now in terms of what you've just recorded in Q1. But is that sort of the right level? And as we look to sort of Q2 to Q4 this year, do those comps weaken as we go through the year already? Or did it hang on for quite some time in that business? 1st half was very strong. It was like there was a general order to buy as much as you could in Q1, Q2. And then we saw a softening in Q3, Q4. But this significant negative growth, this is the Q1 we've seen that. The comps will get easier as we get into the second half of twenty fifteen. It's very difficult to predict what's going to happen in Russia. If we talk to our Russian customers, they say it's a delay. It's a lot of uncertainty, but the large projects that we were connected with that drove growth last year, they will start and they will resume. But it's not the embargo itself. We haven't been touched by the embargo. It's really the negative sentiment and the lack of cash in the system. Okay. Thank you. Thanks. Thank you. We will now move to Erik Golrang of Nordea. Please go ahead. Thank you. I have only two questions left. The others have been answered. The first one just to clarify, were there any savings from the cost taker program in Q1? No. Thank you. And then the second one on you mentioned M and A. Any thoughts on what we should expect there or potential deals of similar characters that the ones you did last year or something different coming up? No, I think you should expect right now, our agenda is all about technology. And we need to add a few technologies that we don't have in our own portfolio. So similar acquisitions as we saw last year like the Vero software, the Mintech acquisition and so forth, similar sized companies. Thank you. That's it. Thanks. Our next question comes from Deepshika Agarwal of Goldman Sachs. Please go ahead. Hi, it's actually Gautam on Deepshika's line. I had a quick question on Smart Solutions. If you could just comment on what contribution was from Smart Solutions for the current growth in Q1? It was a little less than 1%, maybe point somewhere between 0.5% 1%. Thanks a lot. Thanks. We have no further questions at this time. Terrific. Excuse me. Can we just call it today? Oh, there was another one. Apologies. Yes, we do have a question from Mikael Lassen of Carnegie. Yeah. Yeah. Sorry for that. Hi, Ulla. And just a question on the SD and I, the order backlog we have there. Can you explain how you plan to start those projects and recognize revenues? Will that start already in Q2? It will start in Q2. And there is a plan where you agree with the customer on certain points that you need to reach in order to invoice and recognize revenue. The cash flow, however, has a different projection where they do down payments after a schedule that we've agreed. Okay. And will that have a material impact already in Q2? With the definition of those projects? I think the single biggest project that we have going for us is Fire Department of New York, and it will start in Q2. Farly small impact in Q2, but we expect it to reach sort of full pace of implementation as from Q3. Okay. Thanks. Thanks. We have no further questions, sir. Then we call it a day. Thank you everyone for listening in and talk to you next quarter. Bye. Thank you. Ladies and gentlemen, that will conclude today's conference call. Thank you for your participation. You may now disconnect.