Earnings Call: Q4 2014

Feb 6, 2015

Good day, and welcome to the Hexagon AB Year End Report 2014 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Ulla Rollin. Please go ahead, sir. Thank you, and welcome, everyone, to this year end report for 2014. If I could turn your attention to Slide 4, the overview of the Q4. Organic growth, we recorded an organic growth of 9% in the quarter, and it's stemming from Geosystems contributing with 2% organic growth. The core surveying business, which is the lion's share of the Geosystems business, was growing at mid single digit organic growth. But the overall Mining segment. Metrology, 14% organic growth, and that was driven by our inroad into consumer electronics, but also continuous good growth from Automotive and Aerospace segments. PP and M, 14% organic growth, driven mainly by our focus on owner operators, which are in need of increasing their capacity and productivity and saving cost in relation to asset management solutions. SG and I recorded low single digit organic growth in the quarter. However, we got strong order intake and a huge backlog going into Q1. And we're very proud about the order from the New York Fire Department. Positioning strong organic growth due to customer wins in the agriculture segment. Solutions had another good quarter with good performance, primarily stemming from China and South America. Overall, the profitability was good in the quarter, 59 percent gross margin and 23 percent EBIT margins. If we go to Slide 5, this is really a note for you to remember that our seasonal pattern has changed. And we started talking about this already in Q2. We see a trend where traditional European companies have been worried about Easter, for example. We see a greater impact now from the Chinese New Year and Carnival in South America. So Q1 is the weakest quarter in a year, Q3 2nd weakest, Q2 and Q4 are our best quarters. Just a reminder. Slide 6, key figures for the 4th quarter. Net sales amounted to 743 point €4,000,000 And in an organic structure, that's 9% organic growth when we wash the numbers away from acquisitions, divestitures and FX movements. Operating earnings or EBIT1 came in at SEK 174,400,000 and that's a 28% growth over the corresponding period year, and that corresponds to an EBIT margin in the quarter of 23.5%. Earnings before tax is €165,800,000 and earnings per share after tax is €0.37 It's important to note that in the Q4, we also had a so called revenue haircut impacting sales and EBIT by negative €2,200,000 And as from Q1, we don't have any more revenue haircut in connection to the acquisitions of Vero and Mintech. Full year 2014, Page 7. Net sales amounted to €2,622,000,000 which is an organic growth of 7% in the full year. Operating earnings amounted to €578,100,000 which is a 14% improvement over the corresponding period in 2013. Earnings per share amounted to €1.13 or excluding nonrecurring items €1.21 Just as a highlight and as a guidance going into the next 2 years in our long term business plan on Page 8, we just want to remind you how we try to transform our profit and loss statement. It's vital for us to continuously improve our gross margins, and we came in at 59% in the 4th quarter. Our target is 60% or above. However, during the coming years, we will see OpEx increase and primarily the depreciation and amortization portion of OpEx stemming from the fact that our capitalized software is now not growing anymore, but depreciations and amortizations will catch up with the capitalization. So even though we improve our gross margin and our EBITDA margins, our EBIT margins will improve to a lesser extent. If we move to cash flow, Slide 9, we can see that the cash flow, the operating cash flow in the 4th quarter grew by 55% to $131,200,000 Now if we look at the various posts within this cash flow, we can see that the working capital was positive in the quarter. However, a bit of a disappointment for us since we expected a greater release. But with the organic growth rates, we simply couldn't release more and most of it was built up in receivables. If we look at Slide 10, you have an overview over a longer period of time where we can see the first initial effect drop working capital to sales in 2010 as we consolidate into Graf. But we're working and our target to bring it down to between 15% 20% is still on the radar. Slide 11. It's been a lot of discussions and a lot of turmoil within the currency markets early in January. So we've tried to state our pro form a result had we had the exchange rates that were valid yesterday on the exchange markets throughout the year 2014. So our recorded net sales, as you can see to the left, were €2,622,000,000 in 2014. We would have had a positive impact of €2 €13,000,000 had the exchange rates that are valid today or yesterday been prevailing throughout the previous year. And thus, we would have recorded sales of €2,836,000,000,000 an increase of 8%. If we now look at the operating earnings, the €578,000,000 recorded would have benefited by another $35,000,000 in earnings stemming from currency movements. So we would have recorded 6 13,000,000 in EBIT for last year, which is an increase of 6%. And if we look at the operating margin, we recorded 22% operating margin for the year, and that would have been 21.6%, I. E, a reduction by 0.4%. This is stemming from the fact that we have roughly €130,000,000 in net cost in Swiss francs. As we see the Swiss francs appreciate by 20%, that is putting this slight pressure on our EBIT margin. And we've already announced and taken actions, and we will come back and quantify these actions that were undertaken in the Q1 to mitigate this pressure on the operating margin. However, on the balance sheet side, we can see that borrowings are almost to 100% in euros. You see the little pie chart at the bottom of this page. We have 8% in U. S. Dollars and we have 91% in euro. So our balance sheet and our net debt has as a consequence gone down in relation to our EBITDA. Market development. If we turn to Slide 13, North America as a share of total sales grew by 2 percentage points to 29%. Western Europe shrunk by 2 percentage points to 30% and South America is 5% of sales. EMEA, excluding Western Europe, is now 9% of sales, and China grew its share from 14% to 15% of sales in the 4th quarter. Asia, excluding China, also expanded and is now 12% of group sales. If we look at to what customer groups we sold our products and solutions to last year, Slide 14. Surveying remain our largest application area, almost onefour of the group sales. Power and Energy grew from 18% to 20% of sales. And Electronics and Manufacturing is expanding, thanks to our inroads into the consumer electronics industry, and it now represents 12% of group sales. Infrastructure and Construction shrunk its share from 12% to 11%, and Safety and Security is at 10%, and so is Automotive. Aerospace and Defense shrunk its share from 9% to 8%, and other remain at 6%. If we look on Slide 15, we see trends using arrows where negative is red, 0% to 8% organic growth, yellow and above 8% organic growth, blue arrows. And we can see that China, Southeast Asia, Middle East and Africa and Eastern Europe all grew above 8% organic growth. North America and Western Europe between 0% to 8% growth and declining business growth in Russia and South America. Russia is, of course, due to the macroeconomic situation and political situation. South America is linked to mining. What's interesting in the Q4 is that the 2nd tier emerging markets now represent 11% of Hexagon Group sales. By 2nd tier, I mean countries like Vietnam, Indonesia, Malaysia, Peru, Bolivia and so forth. If we look at the table on Slide 16, analysis of growth per geographic region and application area. We can see the changes highlighted with the circles around the arrows. Power and Energy started growing more rapidly in Western Europe and so did Safety and Security. We can see Middle East accelerating to strong growth, and we can see North America slowing down and South America turning to negative growth. If we look at North America, it's due to comparables where we delivered the final orders in a large public safety deal on the North American East Coast in the second half of twenty thirteen. And in South America, it's a similar situation where we delivered the final installations for a large mining deal in Chile in the Q4 of 13. China accelerating 18% organic growth in the quarter and Asia very strong organic growth in the quarter as well. Turning to EMEA, Slide 17. Market trends in the Q4. Western Europe, mid single digit organic growth, driven by primarily Germany and the UK, Italy and Nordics. We saw negative growth from France. But demand was driven in the region by automotive, aerospace, power and energy. Infrastructure related activities, however, slowed down but for Germany, partly due to the strong development that we saw in the Q4 of last year. Russia weakened minus 1% organic growth in the quarter, whilst Eastern Europe records strong double digit growth on the back of large investments in manufacturing for automotive and aerospace activities. Middle East continued to see increased activity levels. Africa recorded strong growth due to a project order in South Africa. Americas market trends, Slide 18. The demand in NAFTA remains strong, driven by Construction Automotive and Electronics. Geosystems continue to benefit from the improvement that we see in the construction related residential housing sector as well as our new initiative, content as a service. South America, as I've already stated, weak quarter demand in mining decreased following a project completion in the second half of twenty thirteen. If we move to Slide 19, Asia, 18% organic growth in China, and this comes from favorable development both in automotive, which is a more traditional business for us, but our new inroads into consumer electronics as well as good expansion for PPNM in Power and Energy segments in China. Sales in China also saw an improvement in the solution related where we delivered our first order for the so called digital city initiative in China. Markets such as Japan and South Korea and East Asia are growing at strong double digit levels and so are Malaysia, Indonesia and Vietnam. Australia reported solid growth in the quarter, but it might be a bit early to say that we've turned a corner. India reported negative growth in the quarter. If we now turn to Slide 20, we can see over a longer period of time how these various market regions have fared. And it's fair to say that we can see the continuous expansion for the Asia region. Americas is gaining momentum and picking up speed, whilst EMEA is the lagging region for the Hexagon Group. If we look at organic growth per application area, we can see that metrology is at record levels for organic growth. We haven't seen this kind of organic growth since the aftermath of the financial crisis. Technology is gearing up on the back of new products and new market segments that we've penetrated in the past three quarters. And Geosystems in the quarter suffering from negative comparisons, primarily in mining. Slide 22, gross margins. As I stated previously, it's an integral part of our business plan to reach 25% EBIT to bring up the gross margin. It was 58% for the year and 59% in the 4th quarter. If we now go to Slide 23, we can see that the EBIT margin for the full 12 months were was 23% versus 22% last year and 23.5% for the group in the quarter. M and A orders and product releases. If we start on Slide 25, we had strong demand for asset management solutions. And I think this is a strong and important picture given the concern there has been in the market for the falling oil price. What we see is that owner operators are now pressured to improve productivity in their current investments. And in the quarter, we received orders smart plant solutions from Gazprom, Rosneft and PetroVietnam. And these are new accounts for us where they're determined to improve productivity in their current kit. Slide 26. We continue also to expand our Smart Plant Cloud initiative. And this time, it's JGC Americas that has signed a 7 year agreement for Smart Plant Cloud. JGC is a Japanese company that is establishing itself in the Houston, Texas region. And with its subsidiary, JGC Corporation, they've decided to use our Smart Plant Cloud solution to be able to seamlessly communicate between this newly established design center in Houston and headquarters back in Japan. Slide 27. This is another proud moment for us. We worked a long time indeed to achieve this completion, but we finally have the order signed with Fire Department of New York. And this is creating a good backlog for our SG and I business to work from in the years to come. Slide 28. We got an order from the U. S. Marine Corps, who consolidating their emergency response program, and they will standardize on our computer aided dispatch systems. In the quarter, positioning got an order from Ag Leader, which is an equipment provider with so called customers. Slide 30, we're providing positioning technology to the U. S. Army and FAA in the quarter. So we got 2 orders from the U. S. Army for gadget, which is an anti jamming technology in connection to GPS receivers. And then we got the satellite availability correction data for the Federal Aviation Administration in the United States. Hexagon Slide 31 is aiding mining safety and productivity. We got 2 orders, 1 from Rio Tinto, Kennicot Mine in Utah, where we will have real time surveillance systems of mining walls. And you can see what happens if you don't warn ahead of time on that picture where you see the landslide. And we also got an order from CASM Minerals in Kazakhstan for 2 new mines in the Kazakhstan region. Slide 32, making mines safer in South Africa. We've also got an order from Anglo American for their iron ore mine, which is the largest in South Africa. And we're going to put our safety and anti collision systems on more than 2,500 vehicles in this mine. Slide 33, optimizing and automating agriculture and forestry in Brazil. We got 3 orders which were important in the quarter from Klabin, ZUSANO and Veracel. And they are using a combination of our sensors and software web based software technologies to improve productivity and quality in both forestry and agricultural industries. Slide 34, we see a strong development for our MS50 that we launched in the summer of 2013. And this time, it's from China. And we see expansion in rail and underground networks in the large cities of China. But we also see it being used for hydrology and monitoring applications around the large rivers and estuaries in China. Slide 35, NGA, the National Geospatial Intelligence Agency in United States, renewed its use of hexagon geospatial cartographic web services in the quarter. Slide 36. We got our first reference order for a digital city solution, which is starting to make an impact on our Chinese sales. Autonavi is a subsidiary of Alibaba, Alibaba, and they offer digital map content similar to what Google offers, navigation solutions and location based solutions in China. And they purchased our solution for aerial photography, map production, remote sensing, image processing and real 3 d scene production for cities. Slide 37. We're launching the new absolute tracker AT960 in the quarter. It's a fantastic product development, which is smaller footprint, faster, quicker and more accurate. And Boeing has already decided in the quarter to use it for in line production for the fuselage of the Boeing 747 or the jumbo jet. So in summary, if we summarize the quarter and we start with Slide 39, the Board of Directors proposed an increase in dividend of 13% to €0.35 and it was €0.31 last year. The dividend can be paid in euro to shareholders who wish to receive it in this currency. Other shareholders will receive the dividend payment in Swedish kronor. Slide 40, the summary slide. We report another strong quarter, 18% recorded growth, 9% of it is organic. Metrology and Intergraph PP and M were the shining stars in the quarter, 14% organic growth, respectively group gross margins of 59% and 23% EBIT margins, strong cash flow generation, which will enable us to continue to pursue attractive acquisitions in the months to come. With that, I leave the call open for any questions there might be. So operator, I'm ready to take questions. Thank you. Thank We will now take our first question from Gerard Walsh of Barclays. Please go ahead. Your line is open. Hi, good morning all. Congratulations on the quarter. Just a couple of questions if I may. Just on the outlook. If I look at consensus, consensus is looking at kind of around 6% organic growth and around a kind of 80 basis points margin improvement in 2015. And I was wondering if you feel comfortable with that. Secondly, just on the kind of longer term margin guidance, I was just wondering how do you see the kind of guidance that you expect around the 200 basis points gross margin improvement by 2016, but over 300 basis points operating margin improvement by 2016 despite having a bit of headwind because of D and A? How do you see that kind of discrepancy? And then finally on PP and M, which continues to surprise me given the kind of weak oral market, do you expect to see there some impact perhaps from kind of second half 2015 onwards? Thank you. We'll start with the outlook. We don't comment on the outlook, but I can say the following January, which is the only reference point we got, have started on a similar fashion as Q4 ended. Margin guidance. Our guidance is that you could say the deck has been shuffled around a bit given the very strong dollar and renminbi increase and then on top of that, the increase of the Swiss franc. But we still believe that we're going to improve gross margins to cover the gap that is needed to reach from where we're at by the end of 2014 and to reach our target of 25% EBIT margin by 'sixteen. And that, of course, implies that the gross margin must grow to cater for the increased OpEx that we will see from increased amortization. But you've got 2 components when you do those variables. It's not static. You've got volume as well in the mix. If we then move to PP and M, it's hard to say. What we what's fair to say is that we're benefiting from 1st of all, I must say that 50% of the business is directly related to oil and gas. The rest is other applications such as mining, nuclear, Medicare and so forth. So if we focus on those 50%, our largest application is so called downstream activities, I. E, refineries, petroleum manufacturing and so on. And we're not as exposed to the upstream manufacturing as one might think. And it's primarily in the upstream activities where we see shutdowns and mothballing of assets. It's hard to say what will happen in the second half, of course, with the continuous oil price where it is at the moment. But we will probably not deliver 14% organic growth in that scenario. Thank you. We will now take our next question from Daniel Schmidt of SEB. Please go ahead. Your line is open. Yes. Hello. Good morning, Ulla. Just wanted to ask you a little bit about European construction. It was fairly slow in the quarter as you were right in the report. You had a very good start, of course, to that at the end of 'thirteen, so it's difficult comps. But looking a bit ahead and sort of entering the high season now, a couple of months out with a lot of new products and easier comps. Do you think that's the sort of the breaking point for Geosystems to start sort of improving their organic growth? Is that sort of reasonable to assume? I definitely hope you're right. If we just look at the data, you could say that the Nordics, U. K. And Germany, if we take West and Europe, which still is the largest market area for Geosystems, they were doing fairly well. And then they were hampered by France, Spain and some other Southern European regions. I guess it's not a quick fix to fix the construction and infrastructure markets in France and Southern Europe. But if we see this momentum continuing in 2015, where Northern Europe continues to invest in infrastructure, yes, then geosystems should improve. We already saw sort of mid single digit growth in the quarter from our surveying and civil engineering business in geosystems in Europe. So hopefully, we can hope for that. Yes. And if you add sort of what you have in your sort of pipeline when it comes to new products, Is that going to be as strong as a push as what you've seen in metrology? Or is it not really the same? I don't think it's the same dynamics in the geosystems markets. With metrology, you can achieve strong demand because it's easier to penetrate the metrology core businesses. If you take automotive, if you introduce a new technology to one of the large OEMs, very soon all the other OEMs will know about it. So you don't have as much marketing effort, if you so wish, in the metrology side as you do in geosystems. Geosystems typically have smaller but more customers and it takes longer time to penetrate the market. That's more fragmented. I understand. If you add China to the equation, Chinese construction has been in the tank and continues to come down. It seems what's your general impression of China right now for the construction part? Construction is down. It's subdued. We don't expect apart from the government is pushing for a build out of underground systems, and that's visible for us, and that's a benefit. Apart from these initiatives, we don't see any improved activity in general construction throughout China. The reason why Geosystems is growing is basically on the back of new initiatives that we've launched such as Digital City, where we collaborate with Huawei to launch a so called smart city for Chinese city and municipality governments. Okay. So are you between the lines saying that Geosystems actually contributed to the growth in China in Q4? They did. Okay. Thank you so much. Thanks. Thank you. We will now take our next question from Mohammed Moawala of Goldman Sachs. Please go ahead. Your line is open. Yes. Thank you very much. Ola, could you comment a little bit on the Smart Solutions business? How did that perform in the quarter? And I recall in the Q3, it had a sort of just under a one point contribution. So that would be great. And how do you expect that to sort of evolve over the course of 2015? Is that going to meaningfully accelerate this year based on product launches? And secondly, just coming back on PP and M, obviously, the 14% you said is not sustainable. But do you think that PP and M can still grow in positive territory over the course of 2015 given some of the company specific tailwinds you have? Will start with PP and M. Yes, I definitely expect PP and M to grow. If we then take Solutions, it was roughly 1% contribution from Solutions. What should I say, we have great expectation for our solution based business. We believe that we need to verticalize Hexagon in order to continue to sustain good margins and growth for the coming 5 to 7 years. Great. Thank you. Thank you. Thank you. We will now take our next question from Guillermo Pignot of UBS. Please go ahead. Your line is open. Hi, good morning. It's Guillermo Pignot, UBS. Just a couple of questions regarding metrology. Can you in a way give us any granularity as to how much of a growth or how much growth in automotive versus consumer electronics? Consumer electronics was the real growth engine in 2014 in the second half. If automotive grow grew by mid strong mid single digit growth, I mean, percent doesn't make sense when it comes to electronics because electronics was 2% of sales in 2013, and it ended the year at 12% of metrology sales. Yes. And regarding consumer electronics, obviously fantastic momentum from automation trends in consumer electronics. So I wanted to basically gather or try to gauge how long do you think this trend actually continues? Obviously, there's very large clients there that will do this very fast or should we think this is a sustainable trend for you? It depends on you. Are you going to buy the next generation technologies that are going to be launched from the major OEMs? It doesn't depend on me. It depends on my kids. How many iPads can they break? It's not just iPads. You're going to wear stuff. You're going to need more smartphones. You're going to need to be constantly connected. And if you do that, I can promise you that we continue to grow. Thank you very much. One more actually regarding PPNM. How much would you say is new product the growth that you saw in the quarter? How much is new product marketer versus what is the market per se actually? Thank you. We it's hard to say what the market did, but I think we outperformed the market. And I would say that, first of all, one has to remember that 70% of our business in PPNM is recurring revenue. So at any given time, we have sort of a base load of 70%. So we can only grow the new business on top of those 70%. And that is definitely new products. I think we have good momentum with our cloud initiative. I think we have good momentum with our Fusion products. And I think that smart plant in general is gaining momentum with both EPCs and owner operators. Thank you. And then 2 easy follow ups. SG I book to bill, can you give us any more sort of data? How high it was? I would say that it was way above 1. We've gotten several really large orders that we've been working hard to achieve in a very long time. And in the Q4, we got them in the bag. So it's fairly meaningless to talk about book to bill in the quarter. And then R and D going forward, research and development expenses, is it fair to assume flat on an absolute level? I think flattish or single digit growth for R and D expenses in absolute levels. But as a percent of sales, it should shrink slightly. Fantastic. Thank you very much. Thank you. Thank you. We will now take our next question from Stacy Pollard of JPMorgan. Please go ahead. Your line is open. Hi, thank you. A couple of questions, please. First of all, metrology, year on year comps obviously get a little tougher, but also you have some new products. So how what kind of growth do you expect in 2015 from that? Second question would be, can you tell me you talked about smart solutions already and the size of that business. Can you speak at all about cloud, maybe run rate there? And also how big is content as a service? And how do you think about the midterm opportunity there? Wow. Sorry. We'll start with the metrology growth. You're absolutely right that comps are getting tougher and tougher even though we don't believe that we've exhausted all our ideas to grow metrology. I think that what we will see if we talk over a slightly longer period of time, let's say, 2 to 3 years, is that metrology will shift focus from having traditionally been solely a quality tool. It's going to be more of a quality productivity root cause tool to find the root cause for production disturbances or things that go wrong in production in many industries. So I think we have some exciting things brewing at the Hexagon R and D for metrology. But you're absolutely right, of course, with such a year, it's always tough to beat it again and again and again. When it comes to smart solutions, we don't give any numbers, and we don't give any numbers for content as a service. But it's meaningful numbers. They're visible on the group level now. And we only expect that to grow, of course, in 2015, both Content as a Service and the Solutions business. And then you asked something about PPNM and I Cloud actually. We don't give that number either, but we've got 4 customers We've got 4 customers in the cloud now. So it's also becoming a meaningful business for PP and M. Okay. And maybe one quick follow-up. Now that I'll tell you this, Stacy, sorry. Out of the 9%, 4% of the organic growth is stemming from all these new initiatives. Okay. Well, that's interesting. Another quick one, sorry, just kind of logistics follow-up is, now that other operations is gone out of the business, are you considering showing margin splits by division in your reported accounts? Is that something you might do in the near future? We'll see. It might come to a cinema near you in Q1. Okay. Useful. Thank you. Thanks. Thank you. We will now take our next question from Adam Wood of Morgan Stanley. Please go ahead. Your line is open. Hi, good morning. Thanks very much for taking the question. 2 for me. Just first of all, on the back to the PPNM side. I wonder if you could help us in Q4, obviously, very strong growth. Was that kind of very broad across customers and you're seeing good demand across many areas? Or what were the 1 or 2 large deals that impacted the growth? And then would give us any feel for that around the pipeline as well? And then secondly around metrology coming back to the consumer electronics. Can you maybe help us understand is this equipping factories for the first time and therefore there's a kind of penetration effect to happen? And if so how far down that road do you think you are? Or We'll start with PP and M. No, we were happy to report that there were no large steels because that could have caused some worry for us because then we might not have seen the true market trend. But in this quarter, we're happy that we didn't get any large deals. It's a series of smaller achievements and acquisitions of new labels and customers penetrating primarily owner operators with Smart Plant Fusion and Smart Plant Cloud and other tools to enhance operators' productivity. So no large deals unfortunately in the Q4. We then turn to metrology. It is a combination of the 2. It's a combination of capacity expansion and penetration of a fairly new technology for the electronic sector, where they try to automate their production say that we're below 10% I'd say that we're below 10% penetration. That's very helpful. Thank you very much. Thanks. Thank you. We will now take our next question from Erik Kollrang of Nordea. Please go ahead. Thank you. I have a few questions. The first one, if I do the numbers right, the incremental margin adjusting for currencies was about 31%, I think same as in the Q3. If that's correct what's keeping it down, I would have thought that with PPNM growing strongly incrementals would move up a bit. Then the second one on acquisitions, the bigger ones last year Verifos, Mean Tech and Vero, I guess, software companies with about 25% or margin or so. I think you paid around 3.5 times CV sales. Is that what we should expect from future acquisitions as well? Or could there be any change to sort of the general characteristics of them? And then the last question on mining. You've been building a position here through a number of acquisitions. What do you think about the growth potential for you given sort of the overall pretty challenging mining environment out there? Thanks. Do you think an incremental margin of 31% is bad? I'm sorry. Not bad, but I would expect it to be even better. Okay. We're working hard on that. Now I think that there were ups and downs, good things and bad things like all quarters. We achieved 31%, which is more in more or less in line with where we should be if we want to achieve our EBIT target by 16%. I think we might improve it slightly going forward in quarters to come simply because the mix is richer and it's becoming richer and richer for the group. How you know that we paid 3.5 times for sales for Forbero and Mintec would intrigue me, but that's your number. I think it's fair to say that, yes, that is the road forward. Thank God someone invented a word for what we're trying to achieve, Internet of Things. We got the sensors. We got the hardware. And now we try to connect our sensors to software applications. And that's exactly why we're now buying up these fairly small, but very agile and strong software solutions to be able to offer a complete solution in various industries. And if we then look at mining, that's exactly what we're doing in mining. If you think about the life of a mine, it starts with surveying. You use surveying tools and then you create a mine plan, which you do in Mintech that we acquired as well. And then you want to execute on that plan and you want to improve operations and productivity, especially now when iron ore prices and other prices are down. And the only way to do that is to have a seamless integration between fleet management that's absolutely what we're going to achieve in 2015. And we believe that regardless if mine the mining industry is up or down, This will be such a good productivity tool for any miner that they will want to listen to us and try it. Thank you. Thanks. Thank you. We will now take our next question from Dan Martin of Bank of America Merrill Lynch. Please go ahead. Yes. Thank you. Good morning, Ola. Three questions please. I'll best do them one at a time. Firstly, following up on M and A. You did a lot last year. Just maybe a comment on how the pipeline looks for this year. And do you see enough potential activity to keep yourself on track to the 2016 targets? Yes. Ben, I think we're keeping Mattias business. So his pipeline is full. Okay. Great. And then on the Swiss francs, you say you're going to take some actions to mitigate what I guess is a small drag on the margin. Just what could those actions be? And how long do you think it will take to rebalance that? It's a funny discussion about Switzerland and especially in Switzerland. They have something they call Grensganger. And Grensganger is a person that is employed in Switzerland, is paid in Swiss France, but lives in Austria, Germany or France and commutes every day across the border. And several companies are now looking at setting up operations on the other side of the border and paying people in, well, good salaries, but in euro. Right. And we simply need to address our structure because certain functions one have to remember that when we acquired Leica Geosystems, the exchange rate to the euro was 1.60 and that's 10 years ago. And now it's at par. So it's a huge cost that we have to mitigate over these past 10 years. And we simply need to look we believe R and D is core for Switzerland, but we need to look at other functions and see what could we do where, because Switzerland is becoming awfully expensive indeed. Got it. Okay. And then just a final one on PPNM. Just can you give us a revenue split between the how much is asset management Software Solutions and how much is Design, if it makes sense to split it like that? And just whether there's a big differential in the growth rates you see on Asset Management relative to the overall division? Design is roughly 65% now. It used to be 70%, but now it's more like 65%, 70%, and the rest is asset management. And is the growth similar relative to the 14% you did in the quarter? Between the 2? Yes. No, it's slightly slower in design. Right. And significantly higher in Asset Management. Got it. Thank you. Thanks so much. Thanks. Thank you. Will now take the follow-up question from Guillermo Pinault of UBS. Please go ahead. Hi. Again, it's Guillermo. Out of curiosity, I'm surprised to see Gazprom and Rosneft. I guess it makes sense that they want to become increasingly efficient. But can you explain or give any clarity as to how you secure the payments from those companies? Well, we pay cash on delivery basically. Okay. So you will not do it will be the safest accounting when it comes to these kind of clients? Okay. Thank you. Thanks. Thank you. We'll now take our next question from Mikael Larsen of Carnegie. Please go ahead. Your line is open. Thank you. Just had a question regarding Geosystems and how much of that segment comes from mining related activities? It's roughly 9%, 10% of the total sales of GeoSystems. Okay. And when it comes to PPNM, you've talked about the split upstream, downstream. How much is the different parts actually? Out of the 50% for oil and gas? Yes. Probably 70%, 30% downstream, upstream. Okay. Thank you. Great. Thank you. As we are now we don't have any further questions, I would like to turn the call back to Mr. Ulla Rollen for any additional or closing remarks. And ladies and gentlemen, I'm completely exhausted, so I don't have anything else to say. Thank you very much for listening in and talk to you in Q1. Thanks. Thank you. That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.