Good day, 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. Ola Rollén. Please go ahead, sir.
Thank you, welcome everyone to this Year-End Report for 2014. If I could turn your attention to slide four, the overview of the fourth quarter. We recorded an organic growth of 9% in the quarter, 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. The overall business segment was hampered by the decline in the mining segment. Metrology, 14% organic growth, that was driven by our inroad into consumer electronics, but also continuous good growth from automotive and aerospace segments. PP&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&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% growth margin and 23% EBIT margins. If we go to slide five, this is really a note for you to remember that our seasonal pattern has changed, 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. Q1 is the weakest quarter in a year, Q3 second weakest, Q2 and Q4 are our best quarters.
Just a reminder. Slide six, key figures the fourth quarter. Net sales amounted to EUR 743.4 million, 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 EUR 174.4 million, that's a 28% growth over the corresponding period last year. That corresponds to an EBIT margin in the quarter of 23.5%. Earnings before tax is EUR 165.8 million, earnings per share after tax is EUR 0.37. It's important to note that in the fourth quarter, we also had a so-called revenue haircut impacting sales and EBIT by negative EUR 2.2 million. As from Q1, we don't have any more revenue haircut in connection to the acquisitions of Vero and Mintec. Full year 2014, page seven.
Net sales amounted to EUR 2,622,000,000, which is an organic growth of 7% in the full year. Operating earnings amounted to EUR 578.1 million, which is a 14% improvement over the corresponding period in 2013. Earnings per share amounted to EUR 1.13 or excluding non-recurring items, EUR 1.21. Just as a highlight and as a guidance going into the next two years in our long-term business plan on page eight, 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 growth margins, and we came in at 59% in the fourth quarter. Our target is 60% or above.
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. Even though we improve our growth margin and our EBIT margins, our EBIT margins will improve to a lesser extent. If we move to cash flow, Slide nine, we can see that the operating cash flow in the fourth quarter grew by 55% to EUR 131.2 million. 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 relief. 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 growth. 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. We've tried to state our pro forma result had we had the exchange rates that were valid yesterday on the exchange markets throughout the year 2014. Our recorded net sales, as you can see to the left, were EUR 2,622,000,000 in 2014. We would have had a positive impact of EUR 213 million had the exchange rates that are valid today or yesterday, been prevailing throughout the previous year.
Thus, we would have recorded sales of EUR 2.836 billion, an increase of 8%. If we now look at the operating earnings, the EUR 578 million recorded would have benefited by another EUR 35 million in earnings stemming from currency movements. We would have recorded EUR 613 million in EBIT for last year, which is an increase of 6%. If we look at the operating margin, we record a 22% operating margin for the year, and that would have been 21.6%, a reduction by 0.4%. This is stemming from the fact that we have roughly EUR 130 million in net cost in Swiss francs. As we see the Swiss franc appreciate by 20%, that is putting this slight pressure on our EBIT margin.
We've already announced and taken actions, and we will come back and quantify these actions that were undertaken in the first quarter to mitigate this pressure on the operating margin. However, on the balance sheet side, we can see that borrowings are almost to 100% in EUR. You see the little pie chart at the bottom of this page. We had 8% in US dollars, and we have 91% in EUR. 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 two percentage points to 29%. Western Europe shrunk by two percentage points to 30%, and South America is 5% of sales.
EMEA, excluding Western Europe, is now 9% of sales. China grew its share from 14% to 15% of sales in the fourth quarter. Asia, excluding China, also expanded and is now 12% of group sales. If we look at what customer groups we sold our products and solutions to last year, slide 14. Surveying remain our largest application area, almost one-fourth of the group sales. Power and energy grew from 18% to 20% of sales. 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%-8% organic growth, yellow, and above 8% organic growth, blue arrows. We can see that China, Southeast Asia, Middle East and Africa, and Eastern Europe all grew above 8% organic growth. North American, Western Europe, between 0%-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 fourth quarter is that the second-tier emerging markets now represent 11% of Hexagon Group sales. By second-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. So did safety and security. We can see Middle East accelerating to strong growth. 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 2013. In South America, it's a similar situation where we delivered the final installations for a large mining deal in Chile in the fourth quarter of 2013. 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 fourth quarter, Western Europe, mid-single digit organic growth driven by primarily Germany and the U.K., Italy and Nordics.
We saw negative growth from France. 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 fourth quarter of last year. Russia weakened, -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 as demand in mining decreased following a project completion in the second half of 2013. If we move to slide 19, Asia, 18% organic growth in China. 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 PP&M in power and energy segments in China. Sales in China also saw an improvement in the solution-related business 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. So are Malaysia, Indonesia, and Vietnam. Australia reported solid growth in the quarter, but it might be a bit early to say that we 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. 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. Geosystems in the quarter suffering from negative comparisons, primarily in mining. Slide 22, growth margins.
As I stated previously, it's an integral part of our business plan to reach 25% EBIT to bring up the growth margin. It was 58% for the year and 59% in the fourth quarter. If we now go to slide 23, we can see that the EBIT margin for the full 12 months was 23% versus 22% last year, and 23.5% for the group in the quarter. M&A orders and product releases. If we start on slide 25, we had strong demand for asset management solutions. 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. In the quarter, we received orders for SmartPlant solutions from Gazprom, Rosneft, and PetroVietnam.
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 SmartPlant Cloud initiative. This time it's JGC Americas that has signed a seven-year agreement for SmartPlant Cloud. JGC is a Japanese company that is establishing itself in the Houston, Texas region. With its subsidiary, JGC Corporation, they've decided to use our SmartPlant 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. This is creating a good backlog for our SG&I business to work from in the years to come. Slide 28.
We got an order from the U.S. Marine Corps, who are consolidating their emergency response program. 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 precision farming products. They will now use our GNSS capabilities, selling to their customers. Slide 30. We're providing positioning technology to the U.S. Army and FAA in the quarter. We got two orders from the U.S. Army for Gadget, which is an anti-jamming technology in connection to GPS receivers. Then we got the satellite availability correction data system for the Federal Aviation Administration in the United States. Hexagon, Slide 31, is aiding mining safety and productivity. We got two orders, one from Rio Tinto Kennecott Mine in Utah, where we will have real-time surveillance systems of mining walls.
You can see what happens if you don't warn ahead of time on that picture where you see the landslide. We also got an order from KAZ Minerals in Kazakhstan for two new mines in the Kazakhstan region. Slide 32, making mines safer in South Africa. We also got an order from Anglo American for their iron ore mine, which is the largest in South Africa. 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 three orders which were important in the quarter from Klabin, Suzano, and Veracel. They are using a combination of our sensors and 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. This time it's from China. We see expansion in rail and underground networks in the large cities of China. 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 the United States, renewed its use of Hexagon Geospatial's 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. They offer digital map content similar to what Google offers, navigation solutions, and location-based solutions in China. They purchased our solution for aerial photography, map production, remote sensing, image processing, and real 3D scene production for cities.
Slide 37. We are launching the new Absolute Tracker AT960 in the quarter. It is a fantastic product development, which is smaller footprint, faster, quicker, and more accurate. 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. In summary, if we summarize the quarter and we start with Slide 39, the board of directors propose an increase in dividend of 13% to EUR 0.35, and it was EUR 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 krona. Slide 40, the summary slide. We report another strong quarter, 18% recorded growth, 9% of it is organic. Metrology and Intergraph PP&M were the shining stars in the quarter, 14% organic growth respectively.
Group growth 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. Operator, I am ready to take questions. Thank you.
Thank you. If you would like to ask a question at this time, please press star one on your telephone keypad and please ensure that mute function is switched off. If you would like to cancel this request, please press star two. We will now take our first question from Gerard Volz 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 is looking at around 6% organic growth and around 80 basis points margin improvement in 2015, and I was wondering if you feel comfortable with that. Secondly, just on the longer-term margin guidance, I was just wondering, how do you see the kind of guidance that you expect around a 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&A? How do you see that kind of discrepancy? Then finally on PP&M, which continues to surprise me given the kind of weak oil market, do you expect to see there some impact, perhaps from second half 2015 onwards? Thank you.
We start with the outlook. We don't comment on the outlook. 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 U.S. dollar and renminbi increase, and then on top of that, the increase of the Swiss franc. We still believe that we're going to improve growth 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 2016. That, of course, implies that the growth margin must grow to cater for the increased OpEx that we will see from increased amortization. You've got two components when you do those variables. It's not static.
You got volume as well in the mix. We then move to PP&M, it's hard to say. What's fair to say is that we're benefiting from. First 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, [inaudible] and so forth. 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. 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. We will probably not deliver 14% organic growth in that scenario.
Thank you. We'll now take our next question from Daniel Schmidt of SEB. Please go ahead, your line is open.
Yes, hello. Good morning, Ola. Just wanted to ask you a little bit about European construction. It was fairly slow in the quarter as you write in the report. You had a very good start, of course, to that at the end of 2013. It's difficult comps. 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 breaking point for Geosystems to start improving their organic growth? Is that 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 Western Europe, which still is the largest market area for Geosystems, they were doing fairly well. 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. If we see this momentum continuing in 2015, where Northern Europe continues to invest in infrastructure, yes, then Geosystems should improve. We already saw mid-single-digit growth in the quarter from our surveying and civil engineering business in Geosystems in Europe. Hopefully, we can hope for that.
Yeah. If you add what you have in your 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. 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.
Much 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. 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. 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 Moawalla 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? I recall in the third quarter, it had just under a one-point contribution, so that would be great. How do you expect that to evolve over the course of 2015? Is that going to meaningfully accelerate this year based on product launches? Secondly, just coming back on PP&M. Obviously, the 14% you said is not sustainable. Do you think that PP&M can still grow in positive territory over the course of 2015, given some of the company's specific tailwinds you have?
We start with PP&M. Yeah, I definitely expect PP&M to grow. If we then take solutions, it was roughly 1% contribution from solutions in the fourth quarter as well. 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 five to seven years.
Great. Thank you.
Thank you.
Thank you. We will now take our next question from Guillermo Peigneux of UBS. Please go ahead. Your line is open.
Hi, good morning. It's Guillermo Peigneux , UBS. Just a couple of questions regarding metrology. Can you, in a way, give us any granularity as to how much growth in automotive versus consumer electronics?
Consumer electronics was the real growth engine in 2014 in the second half. If automotive grew by strong mid-single-digit growth, 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.
Yeah. Regarding consumer electronics, obviously fantastic momentum from automation trends in consumer electronics. 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. 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. If you do that, I can promise you that we continue to grow.
Thank you very much. One more actually regarding PP&M. How much would you say is new product, the growth that you saw in the quarter, how much is new product market or gains, versus what is the market per se, actually? Thank you.
It's hard to say what the market did, I think we outperformed the market. I would say that, first of all, one has to remember that 70% of our business in PP&M is recurring revenue. At any given time, we have sort of a base load of 70%, we can only grow the new business on top of those 70%. 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, I think that SmartPlant, in general, is gaining momentum with both EPCs and owner operators.
Thank you, then two easy follow-ups. SG&I book-to-bill, can you give us any more sort of data? How high was it?
I can say that it was way above one. We've gotten several really large orders that we've been working hard to achieve in a very long time, in the fourth quarter we got them in the bag. It's fairly meaningless to talk about book-to-bill in the quarter.
Yeah. Then R&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&D expenses in absolute levels. As a % to 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 J.P. Morgan. 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. Also you have some new products. 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? Also, how big is Content-as-a-Service, and how do you think about the midterm opportunity there?
Wow.
Sorry, lots of questions.
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 two to three 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. I think we have some exciting things brewing at the Hexagon R&D for metrology. You're absolutely right, of course, with such a year, it's always tough to beat it 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. We only expect that to grow, of course, in 2015, both Content-as-a-Service and the solutions business. Then you asked something about PP&M.
Cloud, actually.
We don't give that number either.
Yeah, fair enough.
We got four customers in the cloud now. It's also becoming a meaningful business for PP&M.
Okay. Maybe one quick follow-up. Now that other operations-
If I 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.
Oh, okay. Useful. Thank you.
Thanks.
Thank you. We'll 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. Two for me. Just first of all, back to the PP&M side, I wonder if you could help us in Q4, obviously very strong growth. Was that very broad across customers, and you're seeing good demand across many areas, or were there one or two larger deals that impacted the growth? Would give us any feel for that around the pipeline as well. 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 is it more the expansion of manufacturing capacity that's helping the growth there? Thank you.
We start with PP&M. We're happy to report that there were no large deals, because that could have caused some worry for us because then we might not have seen the true market trend. 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 SmartPlant Fusion and SmartPlant Cloud, and other tools to enhance operators' productivity. No large deals, unfortunately, in the fourth quarter. We turn to metrology. It is a combination of the two. 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 to enhance productivity. If you want from top of my head as a layman, 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 Golrang of Nordea. Please go ahead.
Thank you. I have three 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 third quarter. If that's correct, what's keeping it down? The second one on acquisitions, the bigger ones last year, Veripos, Mintec, and Vero, I guess, software companies with about 25% of margin or so. I think you paid around three and a half times EBIT 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? 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 the overall pretty challenging mining environment out there? Thanks.
You think an incremental of margin of 31% is bad? I'm sorry.
Not bad, I would expect it to be even better.
Okay. We're working hard on that. No, I think that there were ups and downs, good things and bad things like all quarters. We achieved 31, which is more or less in line with where we should be if we want to achieve our EBIT target by 2016. 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 three and a half times for sales for Vero 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.
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. 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. Then you create a mine plan, which you do in Mintec that we acquired as well. 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. The only way to do that is to have a seamless integration between fleet management systems on the vehicles and the tools you use to excavate in a mine with your mine planning system. That's absolutely what we're going to achieve in 2015.
We believe that regardless if 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. As a reminder, to ask a question, please press star one. We will now take our next question from Ben Maslen of Bank of America Merrill Lynch. Please go ahead.
Yeah. Thank you. Morning, Ola. Three questions, please. I will ask them one at a time. Firstly, following up on M&A, you did a lot last year. Just maybe a comment on how the pipeline looks for this year. Do you see enough potential activity to keep yourself on track to the 2016 targets?
Yeah. Morning, Ben. I think we are keeping Mattias busy, so his pipeline is full.
Okay, great. On the Swiss franc, you say you are 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 is a funny discussion about Switzerland and especially in Switzerland. They have something they call Grenzgänger. A Grenzgänger is a person that is employed in Switzerland, is paid in Swiss francs, but lives in Austria, Germany, or France, and commutes every day across the border. Several companies are now looking at setting up operations on the other side of the border and paying people good salaries, but in euro.
Right.
We simply need to address our structure because certain functions. One has to remember that when we acquired Geosystems, the exchange rate to the EUR was 1.60, and that's 10 years ago, and now it's at par. It's a huge cost that we have to mitigate over these past 10 years. We believe R&D is core for Switzerland, but we need to look at other functions and see what could we do elsewhere, because Switzerland is becoming awfully expensive indeed.
Got it. Okay. Just a final one on PP&M. Just can you give us a revenue split between how much is asset management software solutions and how much is design, if it makes sense to split it like that? 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%, the rest is asset management.
Is the growth similar relative to the 14% you did in the quarter?
Between the two?
Yeah.
No, it's slightly slower in design.
Right.
Significantly higher in asset management.
Got it. Thank you. Thanks so much.
Thanks.
Thank you. We will now take the follow-up question from Guillermo Peigneux 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. Can you explain or give any clarity as to how do you secure the payments from those companies?
Well, we pay cash on delivery, basically.
Okay, it will be the safest accounting when it comes to these kind of clients.
Yeah.
Okay. Thank you.
Thanks.
Thank you. As a final reminder, to ask a question at this time, please press star one. We will now take our next question from Mikael Laséen of Carnegie. Please go ahead, your line is open.
Yeah, thank you. Just had a question regarding Geosystems and how much of that segment comes from mining-related activities.
It's roughly nine, 10% of the total sales of Geosystems.
Okay. When it comes to PP&M, you've talked about the split there, upstream, downstream. How much is the different parts, actually?
Out of the 50% for oil and gas?
Yeah.
Probably 70/30, downstream, upstream.
Okay. Thank you. Great.
Thank you. As we know we don't have any further questions, I would like to turn the call back to Mr. Ola Rollén for any additional or closing remarks.
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.