Earnings Call: Q2 2014

Aug 7, 2014

Good day, and welcome to the Hexagon Second Quarter Interim Report Conference Call. Today's conference is being recorded. And at this time, I would like to turn the conference over to Mr. Ola Rolland. Please go ahead, sir. Thank you. Good morning, good afternoon, everyone, and welcome to this conference regarding our Q2 report for 2014. If you flip to slide number 4, we can start with the overview. We record an organic growth of 6% and all segments in EMEA saw increased activity. We had solid growth out of Americas and Asia saw continued organic growth even though we saw a sequential slowdown compared to the Q1. Geosystems organic growth hampered by the slowdown that we've seen in the quarter in the construction and infrastructure industry in China. Metrology organic growth accelerated during the quarter. Strong demand from electronics industry in Asia as well as automotive industry in Western Europe. PP and M saw double digit organic growth as demand was solid in well more or less all regions throughout the quarter. And SG and I reported slight growth as we see Western Europe improving its demand for SG and I's products. Novotel reported a weak quarter due to delays in the unmanned aerial vehicle scheduling or shipment schedules. Solutions was a good surprise in the quarter. Our newly formed business solution had a strong uptake of its products and reports a strong quarter both in terms of revenue and primarily profitability in the quarter. All in all, grew gross margin If we go to slide number 5, it's really only an overview to show you the seasonality and profitability that we record. Q1, Q3 continues to be our weaker quarters. Q2 and Q4 are stronger quarters. Key figures in the Q2, slide number 6. Net sales amount to 600 €35,600,000 and that is 6% organic growth. And what you need to remember is, of course, the divestiture of other operations, which is in the report for the Q2 of 2013. And they amount to €20,600,000 So you have to deduct that to get the comparison in recorded numbers. Operating earnings amount to €139,600,000 which corresponds to a 22% EBIT margin. And within this EBIT margin, it's important to remember that the reported EBITDA margin is actually 28% in the quarter, which is 2% better than the corresponding quarter last year. And then we begin to see our amortization of R and D kicking in and thus we report the net improvement of 1.3% on the EBIT line. So EBITDA up 2%, EBIT up 1.3% and the difference the 0.7% is really accelerated amortization. If we move to the 6 months numbers, we have net sales of 1 point $23,000,000,000 excluding other operations for the Q2, but including other operations for the first half year of twenty 13. We recorded 6% organic growth for the 1st 6 months and the operating margin corresponds to 21.4 percent EBIT. Net earnings amount to $183,000,000 which is 4% below last year, but that's including the non recurring items we posted in connection to the Viripos acquisition in the Q1. If we move to cash flow, we had a good cash flow in the Q2, but I need to take you through the sequence of events and what you need to do to analyze the cash flow. Cash flow from operations before changes in working capital and excluding taxes and interest amount to €177,000,000 which is an increase of 5% over corresponding period last year. If we look at taxes paid, I want to you to pay attention to the taxes paid versus the taxes booked in the P and L statement. You can't predict this and it's a lumpy situation paying taxes. In this quarter, we actually pay €12,000,000 more in or €11,300,000 more in taxes paid, which of course hampers the cash flow in the more in taxes paid, which of course hampers the cash flow in the quarter, but it's quite normal. And you could expect maybe that we have a tax holiday in the Q3. The other area is working capital. We typically have negative working capital cash outflow in the first half of the year. Last year, it was Q1. This year, we have the negative effect in the negative effect in the Q2. But if you look at the full year statement for last year compared to the first half last year, you can see that typically the second half has a much better cash flow profile. And that is another $14,700,000 compared to $14,000,000 compared to last year. And then within the cash flow from investing activities, ordinary investing activities, we have €12,000,000 related to the new facility that we're completing in the Q3 in Huntsville, Alabama. So if you add up these three effects, taxes paid versus taxes booked, working capital change and building construction, it amounts to $38,000,000 So cash flow without those 3 exceptions would actually have increased by 15%. And this is a reflection of the EBITDA that actually is running 2% higher than the corresponding period last year. So we're quite happy with the cash flow actually. If we look at the working capital, which is an operational business and move our attention to slide number 9, you can see the uptick in the second quarter, which is not abnormal, but you can see it happened in the Q1 last year. But typically, we're being able to bring down the working capital as the year proceeds in the second half. Currency had another significant impact to our earnings in the Q2. So if I turn your attention to Slide 10, We saw strengthening Swiss franc, a weakening U. S. Dollar and a weakening Chinese renminbi. So they all had negative profit impact on the Hexagon Group in the quarter. And the impact the profit impact from FX in the quarter on the EBIT line was €10,300,000 negative and on sales €25,200,000 For the 1st 6 months of this year, we now have negative effects if we compare to 2013 of minus €21,000,000 on the profit and minus €49,200,000 on the top line. If we look ahead and try to predict what could happen in the second half of this year, if we look at the currencies where they're at currently, we can see that we would have an adverse effect of minus 1% in the 3rd quarter and a neutral effect in the 4th quarter. So from here on, the currency headwind should highlight what this means for the Hexagon Group. Had we reported according to last year's currencies, we would have reported a top line of €660,800,000 and operating earnings of almost €150,000,000 dollars which would have corresponded to almost 23% EBIT margin in the quarter. If we move on to market development and we look at slide number 13 for a while, which is our geographic mix in the second quarter, we can see that Western Europe was stable, North America lost 1 percentage point, but South America gained 1 percentage point. And if you look at the organic growth in those two regions, it's quite natural where South America is reporting strong double digit organic growth and North America single digit organic growth. EMEA excluding Western Europe is growing by 1 percentage point, and we do indeed see strong organic growth from that region as well. China is growing below group average, 5% organic growth in China, 6% for the group. And therefore, China lose 1 percentage point in the total. Asia excluding China stable at 12%. Can see that South America, Eastern Europe and Russia and East Asia were all growing at strong double digit rates, whilst Western Europe and North America were growing at single digit rates as well as China. Middle East, Africa, bits tabs lower grade. And then we saw significant negative growth in the UAV market at per segment and geographic region, changes, shifts and trends, Slide 15, this is really for your slide that you can study after the earnings call, but I'll take you through the highlights. We do see an up tick in Western Europe, primarily public safety has turned the corner, automotive and manufacturing industries are gearing up. Power and Energy in Middle East is once again increasing its growth. Whilst we see public safety in North America turning to negative growth. And this is not the market itself. It's 20 14. Defense and Aerospace in general is growing in North America and it's just the UAV market shrinking which affects Novotel. South America strong growth across the region. We see infrastructure and surveying picking up and then the mining sector is showing a downward trend. In China, we have 2 markets, a 2 speed market really where we see infrastructure and surveying recording strong negative growth on the back of the clampdown on corruption in the construction industry initiated by the new Chinese government. But we also see a significant increase in demand primarily from the electronics sector, but also automotive and aerospace is doing fine in China. Rest of Asia growing strongly, negative trends in infrastructure and surveying, but very positive trends indeed in all the other sectors in the region. Looking at EMEA, Slide 16, all segments are reporting organic growth in EMEA in the quarter. If we take the big five economies in Western Europe, Germany reported firm growth, France and U. K, slight negative growth. When it comes to France, we do see the French economy being weak, whilst in the U. K, I think it was just a slump in the quarter. Italy and Spain have now reached the bottom and we do see Italy and Spain starting to trend upwards. And in the quarter, they both report double digit growth rates. The Western European demand in infrastructure related activities as well as the automotive and aerospace sectors is coming back and we did see increased demand in the quarter. Eastern Europe, Middle East and Russia saw strong growth despite the turmoil that we've all read about in the regions. July July sanctions, this is just a warning finger. July sanctions might negatively impact the second half in Russia and it could shave 0.5 percent of our top line growth in the second half of the year. That's our best estimation at the moment. Russia represents 3% of Hexagon's sales. Moving on to Slide 17, Asia. A mixed quarter in China that I mentioned previously. Automotive, Electronics, Power and Energy growing strongly, surveying and infrastructure related activities reported a very weak quarter indeed. China all in all 5% organic growth in the quarter. Several markets in Asia are now growing at strong double digits rates. We have smaller markets for us like India, Malaysia, Indonesia and Japan growing at double digit rates. But Australia is another market that is contracting still. So we saw another weak quarter fueled by the lack of demand from the mining sector in Australia. That is very strongly linked to the Chinese construction and infrastructure market obviously. Americas, slide 18, region continues to record good growth rates. Growth is driven by construction in North America, Automotive and Aerospace, Electronics Industries as well as Power and Energy and Infrastructure in South America. We did see and record increased activity and we had double digit growth for the defense segment from Intergraph, but Novotel had double digit negative growth from the UAV segment, which is quite lumpy in North America. Once again, South America's strong double digit growth despite weak demand in the mining sector in the region. Now if we look at an overview over a couple of years, I'd like you to turn your attention to Slide 19. We can see that Asia is continuing to grow organic growth over and above the peak level of the Q2 of 2,008. And we can see that Americas is now a bit above 20% above the previous peak in 2,008. And finally, EMEA is now above the peak of 2,008 pre crisis records. So of course, the total group organic growth number is now 30% above the previous peak in the cycle. Looking at Measurement Technologies in the quarter, slide 20, and it's not meaningful to report Measurement Technologies any more, but because the group is Measurement Technologies. But we will continue to do that through Q3 and Q4 simply because we have other operations in those quarters last year. But looking at Measurement Technologies, sales amounted to €635,600,000 which is 6% organic growth, 4% currency headwind and the balance is structure, I. E, acquisitions. Operating earnings amounted to $144,200,000 and we had a record operating margin in the quarter, 22.7%. And it's even more impressive if you look at the EBITDA margin for this business in the quarter and the improvement that we do see in EBITDA margins. If we move to Slide 21, we can see the various divisions within measurement technologies and how the organic growth turned out. Geosystems, a slowdown in organic growth in the quarter, but we did see a significant pickup primarily in metrology, but also in technology improving its organic growth rates. Gross margin, slide 22 came in at 57%, but you have to remember that on this at this level in the P and L statement, the FX effect is actually 2%. So we have 2% on the gross margin shaved off due to FX. Operating margin improved by 1.3% for the group and FX in this case was 0.7%. So we're definitely on track to improve our margins altogether. If we now start talking about M and A orders and product releases, if we flip to slide 25. We announced during the quarter over summer that we have signed a contract to acquire a privately held British company called Vero Software. Vero is a leader in computer aided manufacturing CAM. And what CAM does is it programs and controls machine tools, I. E. Large manufacturing machines. You basically take the CAD file into the CAD CAM program. And by doing that you can then direct the NC machine and tell it what to do. This is very exciting indeed because this closes the gap of making quality data that we derive from our metrology software fully actionable by connecting it to the CAM software so that we can close the reporting loop from the metrology software straight into the CAM software and we can in operation, so to say, have an impact and improve the quality, productivity and yield losses that you do see in machine tools. So we have great expectations for Vero software going forward and what we jointly can do for the manufacturing industry. Sales turnover was approximately €80,000,000 last year and we will close the deal today, knock on wood. And consolidation will be as of August. We did another acquisition in the quarter. We bought out the remaining 90% of the Canadian based company, Northwest Geomatics. Northwest Geomatics has over the past 5 years created a very impressive database called Valtus where North West has stored spatial data. And North West has started to build a content as a service business around Walthus. And the idea now with launching Hexagon's Content as a Service initiative Valtas is the basic asset that we will use across the world to sell this data. And North West was consolidated as from June. The annual turnover last year was €10,000,000 We made a small acquisition, but very important for our agricultural strategy in the years to come, and that was iLab Systemas in Brazil. This is a planning and optimization software company that we can link into our smart agriculture initiative that we run out of Hexagon Solutions. And this is sort of the brains in the strategy to create an intelligent agricultural industry. Talking about products. Within Hexagon Solutions, we launched a new product called Smart Asset Control. It goes under the nickname SmartAss, so you will remember it. It's an important product. It's a mobile asset management software. You could call it Internet of Things, connecting mobile hardware assets in an environment, being able to retrieve real time info on a dashboard somewhere remotely and by doing that, improving productivity significantly in these workplaces. So what kind of workplaces could it be? It could be large scale construction sites. It could be operational plants, industrial plants or ports where you need to move a lot of goods and containers. And you have hundreds of vehicles operational at the same time and you need to improve the logistics. If we turn to Slide 29, we actually received 2 orders for SmartAsset Control already in the quarter. It was the port of Barao in Brazil. It's Vale's Porch. Vale is one of the largest miners in the world. And this is the largest port in private port in Brazil with a capacity of 80,000,000 ton per year. They have more than 100 vehicles, trucks, wheel loaders, flatbeds and so on, trafficking this port. And what Smart Asset Control is doing for them is basically following the movement on a computer screen via GPS receivers and software, 20 percent improvement in productivity and cost reduction from this installation. Another installation in Brazil is construction. It's a consortium comprising of the 10 largest construction companies in Brazil building the 3rd largest hydroelectric plant in the world. They've got over 900 mobile assets on-site And it's going to be a big task controlling and coordinating these 900 mobile assets and therefore, VEERLO MONT SHOES Smart Asset Control to improve and increase and ensure that the transport equipment productivity goes up. Really exciting news actually. Slide 30, Barrick Gold is the 1st Smart Mine customer that we have and it's an underground installation, which makes it even more challenging. They want to use our Smart Mine UG product, which is a software monitoring scheduling and in real time following up what's happening in the underground mine to improve productivity once again. And here we have close to 100 vehicles trafficking this underground mine. There's a similar installation at the smart asset control, but in this case, it's the mining industry. If we turn to Slide 31, this is an Now this Now this is an interesting inroad where we for the first time have an EPC participating in our cloud infrastructure. It's the 3rd major commitment to Smart Plant Cloud following Shell and the Italian oil company, Eni. And then you could say it marks the start of bringing major multi office so called mega EPC projects to the cloud. This is a joint venture between Daivo and Hyundai of Korea and Fluor. And they choose Integral Smart Plant Cloud to be able to collaborate between these 3 EPCs. So it's over the clock, it's cross border and it's cross companies. And the project is the Kuwaiti National Petroleum Company building out a mega project in Kuwait. If we turn to slide 32, we were also selected by Fluor that will implement Smart Plant Technologies designing another mega project, which is going to take place in Kazakhstan. It's one of the largest and most complex projects we've seen so far being undertaken in the oil and gas industry. It's 6 €900,000,000 expansion of the oil and gas production facilities in Western Kazakhstan. Slide 33, we picked up more wins in the forensic field in North America. Both Pennsylvania Emergency Management Agency choose our Scan Station P20 and Hartford County in Maryland decided to choose Scan Station 10 for their forensic work. Slide 34, We have another interesting installation once again in Brazil and this is Semaden, which is a newly established research center dedicated to monitor and give early warning of natural disasters. And they monitor 644 municipalities across Brazil and gives early warning to the general public when it comes to natural disasters. And they standardized on our total stations and our GeoMOS software to be able to do so. We also see a big push for metro build out in China. And this time in this quarter it was Ningbo Metro Rail, where we participated in it's the 20th Chinese city to have a metro network. And Phase 1 was 20.9 kilometers of rail. But the total project is that before 2020, they should have added another 200 kilometers to these 21 kilometers, giving the total urban mass transit network a total of 2 21 kilometers. If we move to Slide 36, we launched Leica T Scan 5, which we believe is the most dynamic laser scanner ever. It's a handheld laser scanner that you connect to our tracker system in the metrology industry. And this system can measure 100 of millions of accurate points on virtually any surface, whether it's matte black or highly reflective, which is an important issue in, for example, the aerospace and automotive industries. It's 15% faster than the previous model and has doubled the standoff distance, which means you become almost twice as productive from a distance point of view. You can stand further away from the object you measure, which is important. And then finally, a picture bragging a bit about our annual conference, which we, of course, always invite you to, was hosted between the 2nd 5th June this year. We had almost 4,000 attendees from 80 countries. And we signed more orders than ever before in connection to this event. So a great success for us. And then finally, we've seen the negative part, so to say, in the cash flow statement from the new Intergraph facility in Huntsville, Alabama. But the pieces are coming together. The project is on budget and completion is scheduled for mid September, I. E. Next month. And the final capital expenditure in this project is in connection to the Q3 and then we're done with this investment. So in summary, if we move to the final slide, Slide 40, Hexagon has a great quarter in the second quarter. We accelerate organic growth after been hovering around 5% for the past 6 consecutive quarters. We now finally see 1 more percent add into the top line. And it's derived very much from our synergy projects efforts that are now gaining traction. We also see that growth came from PP and M, Metrology and Solutions in the quarter. And margin wise, we can see that it's a record EBIT margin for the group at 22%, but the EBITDA margin is even more important and impressive at 28% versus 26 percent last year. But the adverse effect on the EBIT is obviously the amortizations of R and D kicking in. We have high M and A activity in the quarter and with the correction for taxes paid versus taxes booked, working capital and the building in Huntsville, Alabama, we report a very strong cash flow indeed where cash conversion is 100%. And with that final remark, Roman, I am ready to answer any questions I can answer. Thank you. Thank you. We will now take our first question from Daniel Schmidt from SEB. Please go ahead. Yes. Hello. Can you hear me? Yes. Good morning, contributing more and more to the total top line and you sort of insinuated that that was part of reason why you saw a step up in organic growth in the quarter. Could you quantify in any way how much it is per quarter now that you have in run rate? They added 1% in Q2. Okay. And that's also what you see going forward? Or is it sort of accelerating in growth? I definitely hope it will accelerate in growth. We haven't done all this to record 1%. And sort of any projections on how fast that could move? No. Thanks. And then just second question is basically on the order intake in metrology. What kind of book to bill did you have in Q2? It's definitely above 1, quite a bit above 1. It's not 1.1, but I'd say it's fairly close. And so and what you have to remember is that we've over I think the past 5 consecutive quarters have had a positive book to bill ratio, why the order backlog is at a record all time high. Good. And if you would help us in terms of the execution of that order backlog and the book to bill that you had in the quarter. Over the coming two quarters, will we see that mostly coming through? Or what should we expect? We're working very hard on getting it through. We're working very hard on getting it through. So but as you can understand they're quite busy in metrology right now. And on that subject, anything more to say on some of the products that you sort of displayed for us in Las Vegas thinking about the Sims 360 for instance? Both Sims 360 and the fiber optical probe is gaining traction and a lot of interest. This is, of course, a long sales cycle because it has to do with very vital production processes that our customers indeed. But we have a really good and positive reception for both. White factories and so on. And the fiber optical probe would be more directed towards turbines, powertrains, engine blocks and so on. So no, it's really positive. Yes. Good. And then just Part of the increased activity is obviously stemming from the fact that we've renewed our portfolio in metrology. Yes. Yes. Good. And then finally just on the run rate when it comes to Vero software and the top line last year was €80,000,000 Can you say anything about the run rate as you consolidate that part of that business? Well, what we can comment is that this market typically grows at 7% per annum. That's been the long term trend for CAM Software over the past 10 years. And Vero is gaining or and has gained market share within this market. So Okay. Good. Okay. That's all for me. Thank you. Thank you. We will now take our next question from Stacy Pollard from JPMorgan. Please go ahead. Hi, thanks. It might be too early, but can you give us an update on any progress in areas like Smart Cloud? Now you mentioned that you've got your 3rd customer. Can you talk about your revenue projections and what your mid- to long term ambitions might be? Also secondly on the Smart Solutions division, I know you just spoke a little bit about the revenues, but can you just remind us or refresh us on all of your different smart solutions? How many you have now and approximately how many customers? And then maybe the last question just a little bit on outlook for 2014 what you could say about this year? I know of course you've pushed your other estimates forward, but any comments on 2014? If we start with cloud, we have great ambitions, as you can understand, Stacy, but we don't disclose them. But it's going quite well, and it's encouraging to see the first EPC project within the cloud, because typically one could expect the owner operator to jump on the bandwagon, but now we have 2 owner operators and one very large EPC, which is good news indeed for our cloud efforts. Then your second question was about smart solutions. We have 6 products right now within the portfolio, commercial products. And we have I would guesstimate that we have 20 customers at the moment within Smart Solutions. And but it's gaining traction quite quickly and it's almost a quarterly calibration process to understand the dynamic of the growth. When it comes to 2014, we are cautiously optimistic about the second half. We think that we have a lot of things going for us. We do see a good backlog in metrology. We see an acceleration in technology in growth. We did see a slowdown in Geosystems compared to Q4 and Q1. But it's very much linked to the mining cycle and Chinese contraction activity where other regions are actually seeing increased growth. And we don't think it's going to get much worse in China or in the mining sector. So all in all, that in combination with the recent acquisitions of LinTec and BRO Software, we're actually looking forward to the second half. And that's probably as much as I can give you today. Okay. No, thanks. That was useful. Just a very quick follow-up on China. Since you're located there now, any extra insight in terms of when you think the Chinese market might sort of come back for you? That's a good question. I think one need to remember what's happening. And what's happening is that the new government that took office last year, they are doing a systematic crackdown of corruption, which is, of course, a big issue in the construction and infrastructural industries. And that has slowed down the expansion pace. Now there is, of course, a limit to how long this can continue because at the same time you have some 20,000,000 people moving from the countryside into cities. So we saw in this presentation, we talked about the Ningbo Metro Rail project. These projects need to be deployed and they need to continue in order to facilitate this transition from the countryside into cities. So there is a limit to how long this slowdown can continue. But I think without really knowing, it's hard to say that we're going to see activity at lower levels probably until year end. Okay. That's fair. Thanks. Thanks. Thank you. We will now take our next question from Adam Wood from Morgan Stanley. Please go ahead. Hi, good morning, Milla. Thanks for taking the question. First of all, on the margins, obviously, a nice pickup in the pace of margin improvement in the Q2. Could you maybe just help us as FX becomes less of a headwind in the second half, should we expect that kind of underlying margin improvement to continue to be possible? Or were there any exceptionals or kind of unusual benefits in the second quarter that would suggest that isn't the case? And then secondly on Vero, again, it looks like an interesting acquisition to close the loop there. I assume there's quite a lot of CAM systems in use in manufacturing companies. Could you maybe just help us, is this is the idea here that you persuade those companies to replace the CAM software they're using currently because of the benefits of that closed loop? And maybe just how quickly and how easy do you think that replacement cycle could be for you if that's the aim? Thank you. If we talk about the margin at first, we've seen a margin improvement and operational margin improvement throughout last year and this year. You haven't been able to see it simply because of the FX. So I see no reason why our margin improvement shouldn't continue into the what's also interesting to discuss when we talk about margins is this development that we've anticipated that the EBITDA margin will accelerate much faster than the EBIT margin simply because we now start amortizing on our R and D. And you saw that happening in the second quarter. So on your question on margins, yes, we do expect margins to continue. And obviously, it will filter through the reported P and L statement as FX diminishes in the second half of this year. If we then move on to Vero Software, our business plan is actually to integrate the CAM into MMS, which stands for Metrology Management Software or System, which is a sort of PLM system that we launched in connection to our Las Vegas conference in June. It's sort of an overarching quality productivity assurance system in the manufacturing, which will touch the information that you can retrieve on the shop floor both from metrology equipment as well as manufacturing equipment. And then you begin to see that it's quite logical for the customer base to invest in this system if they could gain a significant productivity increase by systematically synchronizing metrology data with NC machine tool data. So the added the revenue benefit for you would come from both it improves the offering around the PLM for metrology and it gives you an extra CAM sale to make as people see the benefits of switching the CAM to VERO system to be able to close that loop and integrate the metrology and the CAM data? Absolutely. And we believe that it's going to be a great benefit for them and it's going to be a strain for Vero to have this closed loop and which will distinguish our CAM product from competition. Great. Thank you very much. Thanks. We will now take our next question from Mohammad Mowawalla from Goldman Sachs. Please go ahead. Yes. Thank you. Ola, I wonder if you can comment on just the second half organic growth progression. You talked about Smart Solutions being additive about 1 percentage point. So if we think of the business ex Smart Solutions, given the differing dynamics in Geosystems and metrology, do you think that that will kind of maintain that similar rate we saw in Q2? Or do you feel that the strength in metrology is significant enough to drive further acceleration given the comments you made on book to bill? And then secondly, just a comment, curious on your thoughts on the PPNM side. We've seen that get back into double digit growth after a while. What are you seeing out there in terms of some of the CapEx trends with oil and gas spending? You talked about broad based trends. So is it sort of competitive gains? Or is it generally customers still kind of looking to invest around efficiency tools? I think let's start with CapEx. I would actually comment like this. I'd say we're a small fish in a very big pond indeed. I mean, the CapEx in the oil and gas industry might be down. But for design software, I think it's still enough water to swim in. And then if we talk about the organic growth, we do knock on wood hope that Geosystems have bottomed out and that it's not getting any worse. What we've suffered from in the second half is a significant slow down in our very important market, China. On the other hand, other markets are growing, and we don't see it getting worse in China. And I think that's important to underline. Metrology could accelerate. We need to remember that it's 10% organic growth in the metrology segment in the quarter, which is quite strong for the metrology business. So there is nothing saying that the organic growth should slow down if you disregard solutions. Okay, great. Thank you. And on top of that you do see an acceleration in technology in the quarter. Thank you. Thanks. Thank you. We will now take our next question from Gerard Boss from Barclays. Please go ahead. Hey, good morning, Oleg. Thanks for taking my questions. Just one on Novotel. You indicated there about delays in delivery. Do you think that that will slip into the Q3? Or are we talking about longer term delays here? And then secondly, on the Smarter, on the synergy kind of projects, Historically, you've always indicated that that should kind of deliver kind of the €100,000,000 to €200,000,000 kind of run rate. Could you just perhaps give us a bit of an update where where are you in that kind of run rate? And where should this be in your new kind of strategic framework for 2016? Thanks. No, we still believe SEK 100,000,000 to SEK 200,000,000 by 2016. So we're ramping up fairly quickly now. And it's good business. We it's our highest margin business we have in the group at the moment. And then if I comment on Novotel, it's hard for us to have visibility into the UAV market. We are supplying a subsidiary of Boeing, and Boeing is in turn supplying the U. S. Military. But the way the world is turning out, there might be plenty of opportunity for new orders for the U. S. Military. So I really don't know. Okay. Fair enough. Thank you. Thank you. We will now take our next question from Erik Golrang from ABG. Thank you. Hi, Uwe. I have a few questions. The first one on PPNM. I know you've had a few quarters. You've had some sort of extraordinary projects. Very ordinary quarter in terms of project size. Nothing sticking out. Okay. Very good. 2nd question coming back to Vero Software. Could you say anything about the current maybe I missed this current profitability level and what you're paying for it since it's a fairly big acquisition? We're paying software multiples and it's a fairly normal EBITDA margin for a software company. It's a pure play software company. I'm guessing this will be integrated into metrology? Yes. 3rd question for reference here for Geosystems just comparing it to Trimble and its relevant part seems to be growing quite a bit faster currently in spite of, I guess, agriculture now being a positive factor for you having less of that. What's the main differentiator here behind the U. S. Systems performance and what we're seeing from Trimble? It's two things really. It's product mix where Trimble is Trimble's machine control construction business is much larger than Geosystems. And that is growing much faster, but that's growing fast for us as well. And then if you take the surveying equipment, which is growing at half that rate, that's significantly larger for Geosystems. So it's a product mix difference, which is in Trimble's favor at the moment. And then it's a geographic mix difference, which also is in Trimble's favor at the moment. And over the years, this has varied. If you go to 2,005 through 2,008, we beat Trimble. And right now, it's better to be in America than in Europe. Very good. And then maybe just one last question. You talked a bit about a bit more about electronics for this quarter, mentioning it in both in China and in the U. S. How big is that as an end market for you now? It's grown significantly in 2014 and it's related to our inroad into what's called vision in the metrology field where you use the non contact censoring in connection to a contact sensor to measure smartphones basically. I mean think of all the smartphone expansion in the market and how that is growing. So it's in connection to the expansion of the smartphone industry where they need more precise measurements to be able to assemble the phones. And is it are we talking 2%, 3%, 4% of the total business? Or how much of a contribution is it making? I think 2% to 3% is probably not a bad guess. Okay. Thank you. And we're coming from, I mean, less than 1% last year.