Good day, welcome to the Hexagon second quarter interim report 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. Good morning, good afternoon, everyone, welcome to this conference regarding our second quarter report for 2014. If you flip to slide number four, we can start with the overview. We record an organic growth of 6%. All segments in EMEA saw increased activity. We had solid growth out of Americas. Asia saw continued organic growth, even though we saw a sequential slowdown compared to the first quarter. 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&M saw double-digit organic growth as demand was solid in more or less all regions throughout the quarter. SG&I reported slight growth as we see Western Europe improving its demand for SG&I's products.
NovAtel 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, group gross margin 57%, EBIT margin 22%, despite a 1% currency headwind in the quarter. If we go to slide number five, 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 our stronger quarters. Key figures in the second quarter, slide number six. Net sales amount to EUR 635.6 million. That is a 6% organic growth.
What you need to remember is, of course, the divestiture of other operations, which is in the report for the second quarter of 2013. They amount to EUR 20.6 million. You have to deduct that to get the comparison in recorded numbers. Operating earnings amount to EUR 139.6 million, which corresponds to a 22% EBIT margin. 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. Then we begin to see our amortization of R&D kicking in. Thus we report the net improvement of 1.3% on the EBIT line. EBITDA up 2%, EBIT up 1.3%. The difference, the 0.7%, is really accelerated amortization.
If we move to the six months numbers, we have net sales of EUR 1.23 billion, excluding other operations for the second quarter, but including other operations for the first half year of 2013. We recorded 6% organic growth for the first six months, and the operating margin corresponds to 21.4% EBIT. Net earnings amount to EUR 183, which is 4% below last year, but that's including the non-recurring items we posted in connection to the Veripos acquisition in the first quarter. If we move to cash flow, we had a good cash flow in the second quarter, 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 EUR 177 million, which is an increase of 5% over the corresponding period last year.
If we look at taxes paid, I want you to pay attention to the taxes paid versus the taxes booked in the P&L statement. You can't predict this, and it's a lumpy situation, paying taxes. In this quarter, we actually pay EUR 12 million more or EUR 11.3 million 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 third quarter. 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 second quarter.
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 EUR 14 million compared to last year. Within the cash flow from ordinary investing activities, we have EUR 12 million related to the new facility that we're completing in the third quarter in Huntsville, Alabama. If you add up these three effects, taxes paid versus taxes booked, working capital change, and building construction, it amounts to EUR 38 million. Cash flow without those three exceptions would actually have increased by 15%. This is a reflection of the EBITDA that actually is running 2% higher than the corresponding period last year. 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 nine, you can see the uptick in the second quarter, which is not abnormal, but you can see it happened in the first quarter last year. 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 second quarter. If I turn your attention to slide number 10, we saw a strengthening Swiss franc, a weakening US dollar, and a weakening Chinese renminbi. They all had negative profit impact on the Hexagon Group in the quarter. The profit impact from FX in the quarter on the EBIT line was EUR 10.3 million negative, and on sales, EUR 25.2 million.
For the first six months of this year, we now have negative effects if we compare to 2013 of EUR -21 million on the profit and EUR -49.2 million 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 -1% in the third quarter and a neutral effect in the fourth quarter. From here on, the currency headwind should subside. Slide number 11, just to 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 EUR 660.8 million and operating earnings of almost EUR 150 million, 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 one percentage point, but South America gained one percentage point. 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 one percentage point. 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, therefore China lose one percentage point in the total. Asia, excluding China, stable at 12%.
Looking at what went well, what went not so well in the quarter, we 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, bit tad slower rate. Then we saw significant negative growth in the UAV market and the mining sector. If we look 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. I'll take you through the highlights. We do see an uptick in Western Europe. Primarily, public safety has turned a 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. This is not the market itself, it's simply the fact that we delivered a very large project in the second quarter of last year, so the comps are quite tough in Q2 of 2014. Defense and aerospace in general is growing in North America. It's just the UAV market shrinking, which affects NovAtel. South America, strong growth across the region. We see infrastructure and surveying picking up. Then the mining sector is showing a downward trend. In China, we have two markets, a two-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.
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. 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, 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 sanctions. This is just a warning finger. July sanctions might negatively impact the second half in Russia, it could shave half a 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-digit rates.
We have smaller markets for us like India, Malaysia, Indonesia, and Japan growing at double-digit rates. Australia is another market that is contracting still. 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. The 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, we had double-digit growth for the defense segment from Intergraph, NovAtel had double-digit negative growth from the UAV segment, which is quite lumpy in North America. Once again, South America, strong double-digit growth despite weak demand in the mining sector in the region.
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 second quarter of 2008. We can see that Americas is now a bit above 20% above the previous peak in 2008. Finally, EMEA is now above the peak of 2008 pre-crisis records. 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, it's not meaningful to report measurement technologies anymore, but because the group is measurement technologies, we will continue to do that through Q3 and Q4, simply because we have other operations in those quarters last year.
Looking at measurement technologies, sales amounted to EUR 635.6 million, which is 6% organic growth, 4% currency headwind, and the balance is structure, i.e., acquisitions. Operating earnings amounted to EUR 144.2 million, and we had a record operating margin in the quarter, 22.7%. 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 panned out. Geosystems slowed down 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 at this level in the P&L statement, the FX effect is actually 2%.
We have 2% on the growth margin shaved off due to FX. Operating margin improved by 1.3% for the group, and FX in this case was 0.7%. We're definitely on track to improve our margins all together. We now start talking about M&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. 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. We have great expectations for Vero Software going forward and what we jointly can do for the manufacturing industry. Sales turnover was approximately EUR 80 million 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, North West Geomatics.
North West Geomatics has, over the past five 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 Valtus. The idea now with launching Hexagon's Content-as-a-Service initiative is that Valtus is the basic asset that we will use across the world to sell this data. North West was consolidated as from June. The annual turnover last year was EUR 10 million. We made a small acquisition, but very important for our agricultural strategy in the years to come, and that was iLab Sistemas 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. 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 Smart Ass, 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. 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 two orders for Smart Asset Control already in the quarter.
It was the Port of Tubarão in Brazil. It's Vale's port. Vale is one of the largest miners in the world, and this is the largest private port in Brazil with a capacity of 80 million tons per year. They have more than 100 vehicles, trucks, wheel loaders, flatbeds, and so on, trafficking this port. What Smart Asset Control is doing for them is basically following the movement on a computer screen via GPS receivers and software so that we can then guide and plan and control. They anticipate a 20% improvement in productivity and cost reduction from this installation. Another installation in Brazil is the construction. It's a consortium comprising of the 10 largest construction companies in Brazil, building the third-largest hydroelectric plant in the world.
They got over 900 mobile assets on site, and it's going to be a big task controlling and coordinating these 900 mobile assets. Therefore, Belo Monte choose 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 first SmartMine customer that we have, and it's an underground installation, which makes it even more challenging. They want to use our SmartMine 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. Here we have close to 100 vehicles trafficking this underground mine. It's a similar installation as the Smart Asset Control, but in this case, it's the mining industry. If we turn to slide 31, this is an important picture.
Fluor decided to go for SmartPlant Cloud for a multi-office mega project. This is an interesting inroad where we, for the first time, have an EPC participating in our cloud infrastructure. It's the third major commitment to SmartPlant Cloud following Shell and the Italian oil company, Eni. 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 Daewoo, Hyundai of Korea, and Fluor. They choose Intergraph SmartPlant Cloud to be able to collaborate between these three EPCs. It's over the clock, it's cross-border, and it's cross-companies. The project is the Kuwait 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 SmartPlant 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 a EUR 6.9 billion 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 Leica ScanStation P20, and Harford County in Maryland decided to choose ScanStation C10 for their forensic work. Slide 34. We have another interesting installation, once again in Brazil, and this is CEMADEN, which is a newly established research center dedicated to monitor and give early warning of natural disasters.
They monitor 644 municipalities across Brazil and give early warning to the general public when it comes to natural disasters. They standardized on our total stations and our Leica GeoMoS software to be able to do so. We also see a big push for metro build-out in China. This time in this quarter it was Ningbo Rail Transit, where we participated in the 20th Chinese city to have a metro network. Phase one 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 221 kilometers. If we move to slide 36, we launch 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.
This system can measure hundreds 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 double 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. Finally, a picture bragging a bit about our annual conference, which we of course always invite you to, was hosted between the second and the fifth of 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. A great success for us.
Finally, we've seen the negative part, so to say, in the cash flows 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. The final capital expenditure in this project is in connection to the third quarter, then we're done with this investment. In summary, if we move to the final slide 40, Hexagon has a great quarter in the second quarter. We accelerate organic growth after being hovering around 5% for the past six consecutive quarters. We now finally see one more percent added to the top line. It's derived very much from our synergy projects efforts that are now gaining traction. We also see that growth came from PP&M metrology and solutions in the quarter.
Margin-wise, we can see that it's a record EBIT margin for the group at 22%, the EBITDA margin is even more important and impressive at 28% versus 26% last year. The adverse effect on the EBIT is obviously the amortizations of R&D kicking in. We have a high M&A activity in the quarter, with the corrections 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%. With that final remark, Roman, I am ready to answer any questions I can answer. Thank you.
Thank you. If you'd like to ask a question at this time, please press the star or asterisk key followed by the digit 1 on your telephone. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment. Again, please press star one to ask a question. We will now take our first question from Daniel Schmidt from SEB. Please go ahead.
Yes, hello. Can you hear me?
Yep.
Yep.
Good morning.
Hello, Ola. I just wanted to ask you then, as you mentioned, Smart Solutions contributing more and more to the total top line, and you sort of insinuated that that was part of the 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, 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%.
Any projections on how fast that could move?
No.
Okay. 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 one, quite a bit above one. It's not 1.1, but I'd say it's fairly close. What you have to remember is that we've, over, I think the past five consecutive quarters, have had a positive book-to-bill ratio, why the order backlog is at a record all-time high.
Good. 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.
Okay.
As you can understand, they're quite busy in metrology right now.
On that subject, anything more to say on some of the products that you displayed for us in Las Vegas? Thinking about the 360° SIMS, 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 at our customers indeed. We have a really good and positive reception for both. One is directed towards sheet metal applications, i.e., body-in-white factories and so on. The fiber optical probe would be more directed towards turbines, powertrains, engine blocks and so on. No, it's really positive.
Yep. Good.
Part of the increased activity is obviously stemming from the fact that we've renewed our portfolio in metrology.
Yeah. Good. Finally, just on the run rate when it comes to Vero Software, the top line last year was EUR 80 million. 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. Vero is gaining or/and has gained market share within this market.
Okay, good. Okay, that's all for me. Thank you.
Thank you.
We will now take our next question from Stacy Pollard from J.P. Morgan. Please go ahead.
Hi, thanks. It might be too early, but can you give us an update on any progress in areas like SmartPlant Cloud? You mentioned that you've got your third customer. Can you talk about your revenue projections and what your mid to long-term ambitions might be? 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? 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. It's going quite well, and it's encouraging to see the first EPC project within the cloud. Typically one could expect the owner-operator to jump on the bandwagon, but now we have two owner-operators and one very large EPC, which is good news indeed for our cloud efforts. Your second question was about Smart Solutions. We have six products right now within the portfolio, commercial products. We have, I would guesstimate that we have 20 customers at the moment within Smart Solutions. 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 the Chinese construction 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. All in all, that in combination with the recent acquisitions of Milltech and Vero 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 come back for you?
That's a good question. I think one needs 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 on corruption, which is, of course, a big issue in the construction and infrastructural industries. 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 million people moving from the countryside into cities. We saw in this presentation, we talked about the Ningbo Rail Transit project. These projects need to be deployed, and they need to continue in order to facilitate this transition from the countryside into cities.
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. Morning, Ola. Thanks for taking the question. First of all, on the margins, obviously a nice pickup in the pace of margin improvement in the second quarter. 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 unusual benefits in the second quarter that would suggest that isn't the case? Secondly, on Vero, again, 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 the idea here that you persuade those companies to replace the CAM software they're using currently because of the benefit to that closed loop?
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, an operational margin improvement throughout last year and this year. You haven't been able to see it simply because of the FX. I see no reason why our margin improvement shouldn't continue into the second half and into next year, and that's in line with our financial targets, obviously. 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&D. You saw that happening in the second quarter. On your question on margins, yes, we do expect margins to continue, and obviously it will filter through the reported P&L statement as the 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 a 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. 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 the NC machine tool data.
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 the Vero system to be able to close that loop and integrate the metrology and the CAM data.
Absolutely. We believe that it's going to be a great benefit for them, and it's going to be a strength 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 Mohammed Moawalla 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 one percentage point. If we think of the business ex Smart Solutions, given the differing dynamics in Geosystems and Metrology, do you think that that'll 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? Then secondly, just to comment, curious on your thoughts on the PP&M 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.
Is it competitive gains or is it generally customers still looking to invest around efficiency tools?
I think if I start with CapEx, I would actually comment like this. I'd say we're a small fish in a very big pond indeed. The CapEx in the oil and gas industry might be down. For design software, I think it's still enough water to swim in. 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 slowdown in our very important market, China. Other markets are growing, and we don't see it getting worse in China. 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.
There is nothing saying that the organic growth should slow down if you disregard solutions.
Okay, great. Thank you.
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 Goss from Barclays. Please go ahead.
Hey, good morning, Ola. Thanks for taking my questions. Just one on NovAtel. You indicated there about delays in delivery. Do you think that will slip into the third quarter, or are we talking about longer-term delays here? Then secondly, on the synergy kind of projects. Historically, you've always indicated that should deliver the EUR 100 million to EUR 200 million kind of run rate. Could you just perhaps give us a bit of an update? Where are you in that kind of run rate, and where should this be in your new strategic framework for 2016? Thanks.
We still believe EUR 100 million to EUR 200 million by 2016. We're ramping up fairly quickly now. It's good business. It's our highest margin business we have in the group at the moment. If I comment on NovAtel, 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. The way the world is turning out, there might be plenty of opportunity for new orders for the U.S. military. I really don't know.
Okay. Fair enough. Thank you.
Thank you. As a reminder, if you wish to ask a question, please press star 1 on your telephone keypad. We will now take our next question from Erik Golrang from ABG.
Thank you.
Please go ahead.
Hi, Ola. I have two questions. The first one on PP&M. I know you've had a few quarters, you've had some sort of extraordinary project. Is there anything like that in the quarter that might not be repeated ahead?
No, this is a very ordinary quarter in terms of project size. Nothing sticking out.
Okay, very good. Second question, coming back to Vero Software. Could you say anything about the current, maybe I missed it, current profitability level and what you're paying for it, since it's a fairly big acquisition?
We're paying software multiples. 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.
Third question, for reference here, for Hexagon 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 Hexagon Geosystems performance and what we're seeing from Trimble?
It's two things, really. It's product mix, where Trimble's machine control construction business is much larger than Hexagon Geosystems. That is growing much faster, but that's growing fast for us as well. If you take the surveying equipment, which is growing at half that rate, that's significantly larger for Hexagon Geosystems. It's a product mix difference, which is in Trimble's favor at the moment. It's a geographic mix difference, which also is in Trimble's favor at the moment. Over the years, this has varied. If you go to 2005 through 2008, we beat Trimble. Right now it's better to be in America than in Europe.
Very good. Then maybe just one last question. You talked a bit more about electronics for this quarter, mentioning it 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, it's related to our inroad into what's called vision in the metrology field, where you use a non-contact sensor in connection to a contact sensor to measure smartphones, basically. Think of all the smartphone expansion in the market and how that is growing. It's in connection to the expansion of the smartphone industry, where they need more precise measurements to be able to assemble the phones.
Are we talking 2%, 3%, 4% of the total business, or how much of a contribution is it making?
I think 2%-3% is probably not a bad guess.
Thank you.
We're coming from less than 1% last year.