CMD 2014

Jun 3, 2014

Slides

Okay. Hello, everyone. Please be seated, and we'll soon start the formal CMD presentation. I'm Carl Gustafsson. I'm the IR of Hexagon. Glad to see you here and hope you've enjoyed the day so far. Just some housekeeping before we get going. We will have the presentation here. Then we'll take a short break, 15 minutes, and then we join for Q and A. After that, we'll head to the tech park, the zone. We'll have a cocktail event. You can see the products that we have, touch, feel, buy if you wish. And then at 7 p. M, we have the private Sydney dinner at Emeril's. So you'll see the sign, just follow them. Now for those of you staying tomorrow, we have some suggestions. At 8 am, you'll have the private tour of the zone. So the entire zone for yourselves, there's 3 football fields of products. We have some representatives there, so you can ask them in person of the product's capabilities. After that, we have some suggestions of what you can do, but there's a wide area of sessions and demonstrations. You got the big tour guide in the welcome package. So just join that and feel free to browse the entire event tomorrow and on 1st if you're staying that far. And just briefly on our agenda for the day, we'll start with an introduction. Then we will discuss going forward, we will look at organic growth opportunities within a wide range of fields. Then we'll explain our M and A driven strategy, focusing on the mining and ag vertical. Then we will discuss the margin expansion, make a summary and following the break, we will have the Q and A. So with those words, I'd like to welcome our President and CEO, Oleg Roeland, on stage. Good evening or good afternoon, everyone. I'll just put it there. This is a far cry from the first Capital Markets Day we ever held. Then there were 3 people listening and 2 of them were pensioners and they were there because it was a free lunch. That's why you're here as well. But there are no free lunches in life. As we just said, we're going to recap what we said last time. And last time we held the Capital Markets Day was actually in this very room in 2012. And we continue to build on our plan, which basically lasts till 2015. And we stated that we're going to reach €3,500,000,000 in sales and 25% EBIT margin. Let's look at what's happened between 20112013 when we launched the plan. We said one of our targets is to grow at 8%. And as you can see, we're 1 percentage point below that for this period of 3 consecutive years. So who is the culprit? Well, we believe it's EMEA. And to be even more precise, we haven't really seen a slowdown until late 2013 for the engineering industry, but it's construction. Construction has been slow throughout 'twelve and 'thirteen in EMEA, but we saw it picking up in the latter half of last year. If we look at businesses or divisions, we can see that metrology has overachieved over this period. Geosystem has been below and technology has been growing below the target. And Geosystems is very linked to EMEA construction. 50% of Geosystems is EMEA and construction is, of course, the dominating industry for Geosystems. If we look at technology, it's easy to forget these complicated words that you learn from global events that is happening around the world. But I learned sequestration. And sequestration in plain English, I guess, is budget cuts. And this hit our U. S. ST and I business, and that's why we've grown below target. If we look at our M and A activity, I think it's important for you to remember this picture as we proceed through this presentation. The intention was never to do substantial acquisitions in 20 11 and 2012 because we need to deleverage. And we set a target for 2.5x net debt to EBITDA. And we reached that target in Q4, Q1 of 2012, 2013. And now you've seen a gradual increase in our M and A activities. And that's what you should expect going forward. So we've summarized our progress towards the SEK 3,500,000,000 target. We should have invoiced SEK 2,666,000,000 last year. Now this is a very theoretical model. I've just drawn a line between €2,100,000,000 that we did in 2011 and SEK 3,500,000,000 by 20 15. One has to remember this deleveraging of the group. So M and A activity is naturally back end loaded in this plan. So just remember that as we dissect this number. We actually invoiced CHF 2,369, so it's a GAAP of CHF 295,000,000 against plan. And if we dissect that further, we can see that we're lagging €190,000,000 And these are really the important millions in the year 2013 simply because of my comments on M and A. And it's EMEA once again sequestration that are the major reasons why we're €190,000,000 behind plan on sales. Other factors that have impacted is, well, this is really the M and A portion of it, focus on deleveraging. And then we have a tiny, tiny positive FX effect if we measure the period 2011 through 2013. And this is going to be a bit difficult to follow because we're going to claim that going forward, we're going to have negative FX. But for this period, which is the historic period, 2011 through 2013, we have €20,000,000 of positive FX in the group. If we look at EBIT margins, where are we with the 25% EBIT margin target. Well, we've actually lifted the gross margin by 10 percentage points since 2010. That's a fantastic improvement, 4% in 3 years. The EBIT margin has expanded by 3 percentage points since 2010. So that shows our new investment in more than 1,000 engineers that we took. We took this decision in 2011 to scale up our R and D activity. And hopefully, you've seen part of it being paid back today. The main negative impact on the EBIT margin so far, and that has really kicked in last year and the previous year, It's roughly 1%, and that is FX. So if we summarize EBIT margin, we should have done 20 2% last year, we did 21%. And we do see an improvement in our incremental margin. The mix is becoming richer. So we can actually claim 0.5% of improvement in incremental margin. And that has to do with the fact that SG and I has not improved or has actually shrunk. But whilst PPNM has continuously grown and taken a larger share of sales in the group. Structure, this is a bit artificial. Other operations was supposed to be disposed as of 2011. We failed to do that, so we sold the last piece of other operations in the Q1 this year. And then FX, 1% negative impact. And there are 2 factors that have played in when it comes to the FX effect. Earlier in this period in 2012, we had a very strong Swiss franc And strong Swiss franc is squeezing margins for Geosystems. 13, but then we had another impact, and that is the emerging market currencies collapsing. I wouldn't call Japan an emerging market. Some people would say it's a declining market, but the Gen dropped by 30%. The Brazilian reais dropped by 35% and the Indian rupee dropped by another 30%. So we had a great impact from FX last year, and that shaved off 1 percentage point. But going forward, that was the history. And now we're going to focus and we're going to talk about the future because as Stephen Koss said in his keynote speech, you didn't say who gives a damn about the past. You were not allowed to say that, but I'm saying that anyway. We're all about going forward. So let's look at what we're going to do in the coming 2 years or 1.5 years. First of all, I've been asked to give a brief business update on the Q2. And we see similar business conditions as in the Q1. Americas is our strongest growing region, and within Americas, it's South America seeing the strongest growth. We do continue to see continuous recovery in EMEA. And EMEA is coming back to better numbers. We're still below the peak in terms of volume. The last peak was seen in 2,008. China is restructuring its economy, and you might know this. We have a new we have a new government in China. So it was a change of guards, and this has caused a slowdown in the economy. Among other things, the new premier is focusing on reducing corruption in large projects and so on. And that is having a negative impact on our business. We do believe that we see a recovery in the second half of this year though. Other things that I think it's important for you to remember as we browse through this financial plan update is we calculate roughly 2% financial cost, and you can take that against the net debt. We calculate with by the end of this period, we're going to have 360,000,000 shares, and we calculate with a 20% tax rate. And when we do this plan looking forward, we use the FX rates that we've seen through May of 2014. So the big question is, and you've seen a number of keynote presentations from the divisions yesterday and today. And the big question is, how can this company out grow GDP? How can we grow twice the rate of GDP? Our target is 8% and GDP is roughly 4%. Currently, it's probably below 4%, more like 3%. Well, let's start talking about what you saw from the metrology presentation. It's all about productivity and efficiency when it comes to metrology. And this 360 things that we launched in connection to this conference is really about in line. Throughout the history of metrology, metrology has been not an enabler, but really a restriction to productivity and how fast you can run your assembly lines because metrology has been offline, which means that if you want to inspect the part and see that you've actually sorry, that you've actually produced the part you intended to produce, you need to bring it offline into a laboratory. And that's what you can see on the right hand side. So that's the metrology laboratory, and it takes time of productive time. So this is the first time ever you can measure good and meaningful measurements in an assembly line. And this is a small revolution that we're quite proud of. And I think we started this project 10 years ago, and this has been the dream for us. And finally, we can introduce it here today. So how big of a revolution is it? We don't know yet, but we're starting with assembly lines in the automotive industry. And we believe this is a very accurate number, but that's what you get when you deal with engineers. There are 2,810 assembly lines worldwide. So let's say 2,500 plus. Now the beauty about this project from the financial point of view is this is the first time ever, and correct me if I'm wrong, Norbert, that you've done a payback calculation before you put the price on the system. So we believe and we calculated backwards and we said, what does this mean for an automotive manufacturer? And installing SIMS 360 compared to the current technology that they're using, they would make a payback on the purchase price, which is roughly €1,000,000 for a dual system, €1,000,000 per year. And that's how we come to €2,500,000,000 opportunity. If all auto manufacturers switch to this technology, this could be a €2,500,000,000 market. Now like all things in life, the good stuff doesn't happen immediately. It takes over time. So I think you should factor in a gradual penetration of this market. We will start with Body and White. And there are 40 to 50 new cells per year, line refurbishments roughly 30 to 35 a year. So that's the initial market that we're going after. And this is a quick video. You've seen it before. But if you think about these car bodies, if you had to take a truck and transport them maybe 200, 300 meters away from the assembly line, then do the inspection and then say, okay, the assembly line is fine, you can continue to produce. And the novelty here is that is that we're being able to capture millions of points over fractions of time, and that's how we can allow metrology to be integrated into the assembly line. And the big novelty is the sensor, the white thing that you see that a robot is holding, plus the software. Another little revolution that I think you're getting grey hairs, Beau, like me. When did we start this? 10 years ago as well. You see, it's not snappy snappy. It takes time to do revolutions. That's what they never figured out in France. This is an optical probe. And what do we mean by an optical probe? The current technology is tactile, which means you have to touch the object you want to measure. And that is the restriction. The optical probe is using, we could say, laser beams or beams of light. And by doing that, you can be much quicker inspecting various components. So that's the background to this development. And we saw an example with these blisks and blades, turbine engines for aircrafts. And Paolo showed you that we expect to build 30 1,000 new airplanes in the next 20 years. And it's just an absolute necessity to measure each and every blade in this engine. And this has been the bottleneck to produce 30,000 airliners. And you've seen the backlogs of Boeing and Airbus growing. It's of course not only the engine parts, but this is a substantial part of the bottleneck in the construing an airliner. And the benefit is that you can run this much quicker, and you need to inspect 100%, as I said. So the benefit is speed and accuracy in combination. And here are some preliminary numbers for various applications. BLISK is the new generation turbine blades that you use in aircraft engines. Turbine blades, the old technology, 70 percent improvement. Compressor blades, 60% Camshafts and crankshafts, significant improvements, as you can see. We're going to show you a short video where we're running a chicken run between the old technology to the left and the HBO. So HBO is done now. And instead of boring you and continue, we're fast forwarding the video to the left. But here you can see the difference in time to inspect this little blade. Minute per blade, and that is We can save 1.5 minute per blade, and that is 120 man years. And this was just a tiny component. Then you can think what we could do if you're an engine or a turbine manufacturer and you do this day in and day out. So this is a small revolution that we're really proud of. We heard about MMF, Metrology Management System, and that is our software our new software product that we're launching in connection to this event as well. What is MMS? You could say that MMS is the large network connecting islands of information into something comprehensive that you can understand. Think once again of a large auto plant or something. They might have up to 50 islands of information that are not connected in any way. And what we do by this is we systematically connect these islands and bring them together to a dashboard so that you can see, you can create an overview what's the actual situation productivity and quality wise in your plant. So it's going to sit in the center, as we can see on this picture, of the manufacturing cycle. It needs to connect to CAM, Computer Aided Manufacturing, and it needs to connect to the CAD system. And then around it, it can feed the PLM system, Now I'd like to talk a bit about Geosystems. Think Metrology is launching the largest novelties this year. Last year, we saw significant developments from Geosystems. But this year, Geosystems is moving from focusing on the hardware only into solution selling. And we heard Jurgen and his colleagues talk about the new sensors that we have collected over the past 3, 4, 5 years. We have developed a mobile mapping device, which you see to the left. We've seen the UAV quite a few times. And we've developed significant novelties in our airborne sensor portfolio. We can now see underwater. We can do high altitude capturing of data and so forth. And we've seen the new scanners that we have and the MS50. So we have a comprehensive range of sensors, and we can cover all aspects of the real world. So the idea now is to move from just focusing on the sensor, selling the sensor, but creating a business based on the sensor itself. If you're a surveyor and you buy a sensor or if you are a company flying an area buying an airborne camera, you can connect to our data exchange. It's going to be like an exchange. Let's compare it to iTunes, for example, and you upload your data there. So you saw that lady that talked about the historic heritage and she they did laser scans and they scanned St. Paul's Cathedral and so on. So let's say you want to know something about St. Paul's Cathedral. They could upload that scan into this exchange, and I could browse. We have a search engine, so you can find the latest scan ever done over St. Paul's Cathedral. And the beauty about this model is, of course, the financial impact it's got. If you fly North America, we say that it costs is it $4 per square kilometer year again? Or is year again? Yes, like yours. So instead of 8, but let's use the number 8 here. It costs $4 to fly a square kilometer. The good thing is you sell it to the 1st customer and you get a tiny margin. Then you sell the same data again and again and again. And the beauty about this data, if you think about your day to day life is you're always going to need it. You're going to have to update your records, you buy a new property. Every time you buy a new property here in North America, you need to send out a surveyor to do a stakeout. Even if it was done a couple of months ago, if you change title, you need to send out the surveyor. Now with this exchange, we can have updated fresh information at your fingertip, but we can sell it over and over and over again. And this is the idea with the Hexagon Smart Content Program. How does it work? Well, we can gather image content from satellites or airborne cameras. We can gather terrain content so that you can see altitude and profiles of properties and so forth. Features, are the buildings there? What kind of buildings are there? Assets and so forth. And 3 d content, we can build entire 3 d models out of this data, if that's what you're after. But then we can add other content, other information layers. Let's say you're looking for where is the closest density in this city for 30 year old professionals wanting to drink a cup of coffee on their way to work, and that could be the hotspot. So you can sort of find that. You can go to demographic records and match that with maps, and then Starbucks know where to put their next coffee shop. So there are all sorts of things you can combine maps with. And this is what we're going to do. So Hexagon Geospatial is working on information layers that we can collaborate with our customers and create a business from. And Geosystems is working on content to be able to sell content to customers that then build information on top. We also have a huge internal market via SG and I that will use this in their respective applications. So that's another novelty from Geosystems. If we then move to PPNM and we saw a presentation about big data management, And this chip is just astonishing, 500 meters. Projects are getting larger and larger, and they're becoming more and more problematic to control in the design process. 40 years ago, a large project was USD 1,000,000,000 And now we talk about $20,000,000,000 to $30,000,000,000 projects. And the complexity has grown exponentially. So another problem is that the world is becoming more global, and this is how the design teams are working today. You ship files between teams working around the clock, around the globe, and you try to figure out what's going on with your project. So more complexity and design teams more geographically dispersed. How do you tackle that? Well, with smart cloud sorry, this as well. There is a great need for digitizing information. I think you've seen that as a theme throughout the presentations during the course of today and yesterday. How do you handle over a large project like this with all the updates you need to do and all the nitty gritty details. So with the traditional technology and design, we've seen that these challenges lead to costly delays and projects are running over budget. And this is becoming an increasingly important problem for the owner operators and the EPCs to address. And this is how the setup was in the past. So we were supplying with software, and in a large project, and they worked exclusively with that area. And then finally, one of the EPCs or the owner operator was responsible to merging Area 1 through 3 together and make sure that it fits. But we and our competitors in the software world were really 2 steps away from the project, supplying the EPCs. Now with the cloud based model, this would change. The cloud would sit in the center of the activity, and we would provide our technology into the cloud, whereas a matter of fact, we run the server farm for Shell in this case. And if you see on this picture, Shell can update itself online, day to day, what is the status of our project. I can look longer customers of ours. They need to log on to the cloud and buy ours where they do all their computations and designs in the cloud, which is the property of the owner, the owner operator. And this is a fundamentally different way of doing business. Now apart from the operational advantages like controlling delays, making sure that everyone is in sync and so forth, We do have financial implications, and I'm going to come to that. Currently, it's our current situation is that infrastructure is now in place in Ireland. We have 2 customers in our current cloud, and that is Shell Oil and ENI, as you've heard earlier today. 2 projects are running, and they're gradually going to ramp up in activity in the second half of this year. Implications to think about is, as opposed to selling a piece of software, we're now billing per hour. We're not billing Shell. We're not billing ENI. We're billing the EPCs that are subcontractors to these owner operators. And it's likely that we're going to secure a higher revenue per hour using this business model rather than selling software to the EPCs. We've talked about life cycle asset management over the course of the past 2 days. We've introduced Smart Plant Fusion. And this was a survey that PP and M showcased in their keynote speech. People or operators don't know where they have their assets. It's a big disarray out there, and we got several brownfield plants that are looking like this. We spend too much time looking for data, looking for information and we can't deal with the things we should be dealing with. Now what is Smart Plant Fusion? It's a solution for brownfield assets, I. E, plants that already exist, might have existed for 40 years and to manage those assets in a more structured way. So what we do is we combine Intergraph software with Geosystems laser scanning. And we rapidly find, we capture and organize large volumes of unstructured information or data. And where does it add value for the owner operator? We find content that might have been hidden in the past to the organization, enables off-site access. You can retrieve the data or access the data from anywhere in the world. And it increases, as we heard earlier today, safety and regulatory compliance. And it can be deployed in a matter of weeks. Had a customer here last year that testified that it was a really good implementation and it cost a fraction of the cost it would have cost using traditional technologies. So what we do is we send out a crew with a laser scanner and we scan the entire plant. And what you see now is a point cloud. It's the model world below and the real world on top. And then to the right, you can see small icons or labels. And if you click on one of those labels, you can retrieve data about that component, supplier, where can I get hold of it, what's the tolerances and so forth? So you can understand from having an archive of files how much easier it is for an owner operator to use this asset or do simulations on capacity improvements and so on compared to just having things in a binder all over the place. And this is the customer I referred to. It was a project in Australia. And they believe that it cost them 10% of what it would have been costing them digitizing their plant compared to traditional methods. So how big is this market? Well, there are 3,000 plants globally, and the opportunity for us is around €375,000 in software services and support. And then on top of that, we get to sell laser scanners. So the theoretical market is €1,100,000,000 and we believe that we can capture 5% to 10% annually going forward, which means that this would be running at 55 to €110,000,000 per year. Then we've looked into other markets. We see the fabrication industries, they have similar problems. Mill products like paper, pulp, steel and so forth, they also have similar problems. All process industries do. And then we can see this moving into BIM, Building Information Management. It's such a structured tool that we can see a lot of opportunities in other industries than just these power plants. Right now, the current status is we've had significant wins with Exxon, Santos and Shell and S Com that we saw yesterday in the video. And we're running pilots with several companies. And even more importantly, I think is you might have a good product, but you don't have a channel, a market channel. And I think it was a really good strategic move to sign up Accenture to do the implementation, the training and the execution of a project like this. Accenture has more than 200,000 consultants worldwide. Not all of them are trained on our products, but we are training a significant group of engineers to be able to take a customer through this process. And I think that's much better than us trying to build up our own Accenture. So conclusions organic growth. Why would we grow double digit or sorry, double the GDP? Well, you've seen the metrology product. If you do your own calculations, you will come to that this could mean 1% to 2% increased organic growth for the Hexagon Group. We have similar numbers for Geosystems with Content as a Service. And the same goes for PPNM's products, Smart Plant Cloud and Smart Plant Fusion. So in summary, we do believe that we can grow at 8% with the product portfolio we currently got. M and A, that is the non organic growth to reach our target. And what we said last time was we are targeting €200,000,000 to €600,000,000 sales from acquisitions. And another important thing to do was to dispose of other operations. And as of March this year, we've done that. And just for your reference, other operations turnover last year was €61,000,000 with a 3% EBIT margin. M and A activity since 2012, we've done small acquisitions, quite a number of acquisitions, but they've been fairly small. And you can group them into different categories. Distribution is always going to be important for us. We need to find more routes to market. And the overriding theme up till now has been the emerging markets where we can continue to build and improve our distribution structure. We're going to talk today about 2 M and A strategies that we're deploying in the mining and agricultural sectors. And then content as a service has been a target for us to build up assets around being able to deliver content rather than products. Software will always be an overriding theme for this group. And going forward, our balance sheet is in very good shape right now. So I believe that you will see increased M and A activity, and this is according to plan going into the latter part of this year and also next year. We roughly have headroom of €900,000,000 to €1,000,000,000 in our own balance sheet right now. So how could strategy and M and A driven strategies look like for Hexagon? Let me take you through mining. We have a vision for mining, and that is that we will want to have the ability to bring a and finally, when you have to restore the nature. And it started early on with our acquisition of Leica Geosystems in 2000 and 5. Then we got total stations and they look like this. And what you use the total station for is to survey a mine. You basically measure the mine walls to see how much have you dug out. So it's a productivity measurement tool, but also warning for maybe landslides or something that could be dangerous for the people working in the pit. So that was really our introduction to the mining industry. And as we learned how a mine works and what the customer base is looking for, we realized it's all about productivity. And we acquired a small software company called Jigsaw, and we merged that with Leica's mining business. And suddenly, we could start to control these large vehicles. We put GPS on them. We could pinpoint their position. We could guide them through the mine. And then we bought DEVEX, which added even more capability to control the vehicle inside the mine. And then later on, we added the Swiss company SAFEMINE that you've seen videos showcasing their technologies. They got anything from fatigue technologies where they measure the face of the driver to see, are you becoming so tired that you should take a break? Or are you fine and can continue? 2, automatic collision avoidance systems. And now we're very close to with all these assets being able to create an autonomous traffic system in a mine. We can control the position. We can control the speed. We can make them break and so forth. So what we need now is a design system. And that's why we acquired MinTeq with the product mine site. It's a CAD system that basically shows you what the mine looks like based on the measurements that Leica Geosystems is doing for the miner. And when we combine this, we've created an enterprise system for a mining company. We can go into design, so we can help the miner designing an exploration plan. And then we can set about doing it and controlling the assets you use to dig out the mine. And then we go back to exploration and follow-up again. And the whole idea is to have all this interconnected via database and links, radio links. So all the vehicles in the mines are now linked to this system. The planners are linked to the system and everyone can see the same thing. And another interesting thing is that is we're repositioning Hexagon in the mining industry. We were Mintech is number 2 or number 3 in terms of size, CAD software to the mining market. We were number 2 in machine guidance. But when we merge these two assets and we create this new thing, we leapfrog all the competitors out there. There is no one else that can do what we can do for the mining industry. So suddenly, we're number 1 in the mining industry. And what we're working on as our competition is struggling to sell either CAD software or total stations or machine guidance systems is we're focusing on going one step further and connecting into their supply chain system, which could be SAP or their demand management system, mining industry. And this is really interesting. So Mintech is now deployed in 500 plus mine sites. We've got fleet management in 150 sites. And Safe Mine is only deployed in 50 sites. So there is a huge opportunity for short term cross selling between these companies. This organization is going to be a vertical within But we expect sales to be double digit over the next few years because now we think short term, we can penetrate the 500 minuteeck sites with fleet management and safe mine applications. But longer term, we're merging these technologies together, and we solve problems that no one else can solve. EBIT margins are running significantly above group average as well. And you as financial analysts, you read about the mining sector being in a recession. Is that an issue for us? No, not really because we talk about mines that are up running. And if we can improve productivity or reduce cost by at least 10% for that miner, they're going to scream to get us in there. So we're not too concerned about the mining cycle. Let's take another example of our M and A strategy, our agriculture strategy. Now you've heard a lot about precision agriculture. In a layman's terms, you could say precision agriculture is when you put a very accurate GPS system onto a tractor and you can drive it in a straight line for mile and mile and mile. And our approach so far has been copying Trimble and Deere, which are the 2 leaders in this industry. So we've worked with independent dealers. We've targeted the retrofit market and as we put it here, in all honesty, with modest results. We haven't been very successful. So we went back to the drawing board and we said, how are we going to conquer the agricultural industry? Well, precision agriculture is becoming a de facto standard. And in the next 5 years, we're going to see all the OEMs building GPS into the dashboard as you have in your cars. You're not going to buy a separate unit that you install onto your tractor. Precision agriculture, and we're going to be a player there, but we're not going to be a dominant player. But what we're doing right now with the acquisition that we announced yesterday and with the Arroz acquisition we announced a couple of weeks ago, we're building a complete network of information on top of precision agriculture. We can use our drones to fly the fields. We can use our geospatial software to detect using color coding, detect bad crop or where you need more fertilizer and so forth. And then we have a planning system with Ilab, so we can optimize how you proceed throughout the cycle, sowing, seeding, harvesting and so forth. So we're bringing an enterprise solution to agriculture. We're hardware agnostic. We can build it on top of a Trimble solution or a Dia solution or a Hexagon solution. And we're going to sign and we're going to see that in the next coming months that we're signing strategic partnerships with OEMs, where we use our hardware just to build it into the dashboard to get connectivity to our software network. We have an emerging markets focus because we believe that's the biggest potential for the future. So it's really Brazil, India, Russia and so forth that we're aiming at. And we believe that you should treat agriculture as an open air manufacturing business. No more, no less. It's all about input and output. And our M and A history goes back to the Leica acquisition once again, where we got machine guidance. With Novotel, we got position capabilities. And with the Verepos acquisition that we did around Christmas time, we now have a subscription service where you can do very, very accurate positioning using your GPS receiver. So it's almost like subscribing to a mobile phone network. Then we did the Airbus acquisition and the iLab acquisition just yesterday. And this is now merged into Hexagon Smart Agriculture. We've done preliminary runs in Brazil with sugar mill plantations. And we believe that we can reduce the input of water, pesticides and fertilizer by roughly 20%, but we can increase the output from the same field by 30%. And these are huge numbers if you think about the economy of a farm. If you can reduce this input, which is your costliest input apart from your equipment and still increase output is really meaningful for not only the farmer, but for all of us that are going to live on this planet. Road to 25 percent EBIT. So we've talked about M and A, we've talked about organic growth, and the 3rd target is really reaching the 25% EBIT. It's important to remember some of you follow capital goods companies, and I think it's important for you to always remember that we're not a capital goods company. And the major difference is within our cost of goods sold. We don't manufacture things. Our manufacturing, you could say, sits with R and D. So when we develop a new product, that's our we And we've invested significant resources in R and D, as I stated before, more than 1,000 engineers over the past few years. So our OpEx is much higher than the average capital goods company. The beauty about it is, if we do this right, we're going to have significantly more recurring revenue and we're going to have a significantly higher EBIT. And we do that already today, 21%, but the target is 25%. So what we need to do to drive this business to the indicators trends and indicators that we're on the right track, you should really follow the gross margin because that needs to continue to go up. And our target is to reach 60% gross margin by 2015. And with the OpEx expansion that we do see, because what's happening is that our capitalized R and D is now the capitalization and the amortization is leveling out. So we do need to bring up the gross margin. But that's how we're going to do it in a schematic view. But what is happening to the business as we speak? Higher sales growth for software centric businesses has pushed our incremental margin up. And as you know, you can't expand your actual margin unless your incremental margin is running significantly higher. New product generations, I'm going to show you an example with Leica Nova, how new product generation is pushing up our incremental margin. And Solutions have a real positive impact, but it's been limited up to date because we haven't sold that much solutions up to now. But we believe going forward, our target to incremental margin will be around 35% to 40%. And this has been the trend over the past few years. So we're coming from a situation where our incremental margin was somewhere around 26 percent, and currently it's running at 36%. FX. It's been a limiting factor for margin expansion up to now. First, we have the Swiss franc, and you can see the gap between the green line and the blue line. And that's really where we've had pressure, FX driven pressure on our margins. So throughout twenty eleven and the first half of twenty twelve, the Swiss franc was the issue for us. Going into 2013, the emerging market currencies became an issue for us. And over this period between 2011 and up till the Q1, it's cost us not so much on sales, but EBIT minus SEK 38,000,000. And that's 1.6% if you divide it on our sales in 2013. So almost 2% margin pressure over this period. But what's the margin trend going forward? Well, Geosystems, as I said earlier on, we don't think that Swiss franc is an immediate issue right now. So Geosystems has returned to margin expansion as of the second half of last year. With the new product launches that metrology are doing here today, we're going to see a margin expansion in metrology as well. PP and M has never had a margin problem, on the contrary. So there it's all about driving top line growth to generate more profits. SG and I is a turnaround story, but I do believe that we've seen the light at the end of the tunnel and we could expect SG and I to improve going into the second half of twenty fourteen. And Hexagon Positioning is the merger of Novotel, our GPS business with Viripos. And it's all about integrating Viripos. And Viripos will be a high margin business when it's run by Hexagon. So let's look at an example how a new product going into our current customer base can improve our EBIT margin. What you see here is the Leica MS50. And as layman, you can say, I don't see any difference from previous models, but it's all inside under the hood, so to say. But what you can see is that within the surveying community, when you launch a novelty like this, you drive growth. So on the first chart, you can see the green. That is the contribution to organic growth that MS50 has generated for the entire Geosystems business since its launch. So it's significant when we do new product launches, and it means increased organic growth. On the bottom chart, you can see the gross margin for GEO MS50's predecessor in the center, the entire Geosystems division and the MS50. So the MS50 gross margin is significantly higher than the predecessor as well as the entire Geosystems division. So every time we launch a new product, we try to bring up the gross margin a bit and notch higher, and we drive organic growth. And that's why product development is so important. So the sales mix effect on EBIT, Geosystems is now having a positive trend. Metrology and PP and M are impacting our EBIT margins significantly in the next coming 12 months. SG and I is probably going to improve a lot, but SG and I impact on the group is not that great. Hexagon positioning, we believe that once we get traction with the subscription model that we're going to launch onshore for Veripos Technologies, it's going to have a great impact on our margins as well. So the trend should be an increase increasing EBIT margin going forward. If we then summarize what I've talked about and what you've seen throughout these two days. The financial target remains intact, but we feel and it's especially the top line target that with the things that have happened up till now and closing the gap of €300,000,000 we need another year to grow. Because by 2015, we believe that we can grow €300,000,000 even organically. So this is the sort of visualization of our business plan. We simply need to bring it forward 1 year because it's not realistic to add businesses and M and A to reach SEK 3,500,000,000 in 18 months. But why are we sure? And this is a fair question. Why will you hit it in 2016 when you don't do it in 2015? But we believe the worst is over. And it's fair to say in 2011, when we launched the plan, we believe that the world economy was recovering much better than it actually did. We didn't see the U. S. Sequestration. We didn't see the continuous turmoil that we've seen in EMEA. But now we've factored that in. And now we believe that with our own help, not external help, but with product launches, solution centric strategies and M and A, we can reach 3,500,000,000 dollars by 2016. Regarding margins, that's actually the easier target for us. The positive divisional mix that we've seen evolving is going to continue over the next 18 months. Software is increasing as a percentage of sales. And the M and A targets that we have in sight are to 90% software based companies running at a higher margin than what Hexagon has. We also believe that the FX impact will subside, and it will level off in the second half. For the second quarter, it's probably going to be as great as in the Q1, but then we're going to see a gradual easing off of the FX impact on margins. And that's my presentation. Thank you very much for listening.