Ladies and gentlemen, welcome to Hexagon's year-end report 2013. To ask a question during the Q&A, press 01. Today, I am pleased to present Ola Rollén, President and CEO. For the first part of this call, all participants will be in listen-only mode, and afterwards there will be a question and answer session. Mr. Rollén, please begin.
Thank you very much. Good morning or good afternoon, everyone, and welcome to this earnings call for the final quarter of 2013. We start on slide number four, overview Q4 2013. We report 5% organic growth in the group as well as in the core business for the fourth quarter. The underlying trends were that we continue to see solid growth in the Americas, particularly fueled by strong demand in South America. EMEA continued to recover and grew largely due to increased demand from infrastructure-related activities. Asia reported a mixed quarter. Division-wide, Geosystems reported strong organic growth fueled by the improving European construction and infrastructure markets. Metrology saw reduced capital spending, primarily in the automotive sector, but sales are at record levels and order intake is now growing faster than sales once again. PP&M continues to expand despite tough comparison numbers from Q4 2012. Organic growth was 7%.
SG&I and NovAtel suffered in the quarter from the continuous downturn in the defense segment, the U.S. defense segment, and they report negative growth. Gross margins came in at 57%, and the EBIT margin for our core business measurement technologies was at 23%. We turn to slide five, it's just a reminder of the seasonality in earnings and sales quarter-over-quarter, where Q4 is our strongest quarter of the year, and that was the case this year as well. EUR 0.4 million. That's 6% growth, recorded growth over the same period last year. That corresponds to an earnings per share of EUR 0.29 for the period. For the full year, slide seven, net sales came in and amounted to EUR 2,430 million. That's consistently with the fourth quarter of 5% organic growth throughout the year.
The operating margin for the group is now almost 21%. We record 20.9% for the year. Earnings per share, including non-recurring items, grew by 5% to EUR 1.04, excluding another EUR 0.04 per share, 9% growth in earnings per share for the year. Cash flow for the year from operations before changes in working capital and excluding taxes and interest grew to EUR 629 million. Paid taxes increased from EUR 57 million to EUR 62 million, interest received and paid shrunk from EUR 45 million to EUR 29 million, that's of course reflective of our continuous amortization of our net debt throughout the year. Cash flow from operations thus amounted to EUR 538 million for the year. Changes in working capital amounted to negative EUR 31 million for the full year in comparison to a very good year in 2012, where we recorded positive EUR 3 million.
That's the biggest difference year-over-year in the cash flow statement, the operational cash flow statement. Ordinary investing activities, we continue to invest money, and in the second half of the year, we paid significant amounts against the project to construe a new headquarters in Huntsville, Alabama. Total investing activities amounted to EUR 216.3 million. If we look at the working capital to sales development on Slide 9, we can see that we have our ups and downs, but the trend line is still positive. For the year, we report 17% working capital against sales. Slide 10. Currency has been the theme throughout the year, and we've had significant headwind from primarily the emerging market currencies, but also the Japanese yen. The fourth quarter was significant in terms of currency. The EBIT was adversely affected by EUR 12.4 million and sales by EUR 29.7 million.
It stems primarily from the U.S. dollar, but also from the smaller currencies, Japanese yen, Brazilian reais, and Indian rupees. Looking ahead, we currently see a negative FX effect in the first quarter of 2014 of approximately 3%-4%. We think thereafter it will ease off if currencies stay where they are today. If we go to slide 11, you can see the impact that currency had on the group for the fourth quarter and for the full year. It actually shaved one percentage point off the fourth quarter operating margin. We have a 40% incremental margin from currencies in the fourth quarter. It was a significant FX impact in the fourth quarter. For the full year, it had a negative impact of EUR 75 million for sales and EUR 22 million for earnings. Market development, slide 13.
Sales mix for the full year, this is not the fourth quarter, this is the full year of 2013. For the full year, North America now represent 28% of sales, and Western Europe 31%. We continuously grew faster outside of the mature markets in 2013. We saw growth primarily in EMEA, excluding Western Europe, South America, and China. Currencies made Asia Pac, excluding China, shrink from 13% in 2012 to 12%, and I'm thinking primarily of the Indian rupee. Slide 14. If we look at trends per geographic region, we can see that South America is strong contributor to growth in the fourth quarter. North America is growing at 8% if we exclude U.S. Defense. Western Europe is also growing. East Asia and Middle East are strong growth regions for us.
China is now returning to growth once again, but we talk about weak single-digit growth instead of strong double-digit growth that we've been used to over the past 10 years. Two areas dampening the growth are continuously the U.S. Defense and the connected sequestration activities in the U.S. expense budget, as well as Australia, where the mining sector hasn't bottomed out yet in the fourth quarter. An overview, slide 15, segment and region. We can see that power and energy is now positive again, and growing above 8% in Western Europe and Middle East. We see a negative trend in China, but we believe it's temporary, and it was a postponed order in the fourth quarter that was pushed out to Q1. Surveying is now starting to grow again in China after a downturn in primarily the first half of the year.
All the other trends are basically the same as we reported in the third quarter. If we move to slide 16 and some comments around the EMEA development in the fourth quarter and what we saw. Customer demand in EMEA improved. It's particularly stemming from an increased activity in construction and infrastructure. We also see the major key accounts in engineering, large companies, starting to invest again in metrology equipment. Geographically, we saw increased activity in Western Europe, in particular from the so-called DACH region, i.e., Germany, Austria, Switzerland. Italy recovered, and U.K. has, over the past two consecutive quarters, shown strong growth. We continue to see a weak market in France and Spain.
Automotive and manufacturing sectors, as I commented, the large key accounts are now starting to invest again, but it's the so-called, as you say in German, Mittelstand, that is still weak for us in terms of activity. Other regions in EMEA, Middle East was strong. We had a fantastic quarter in Russia, especially related to infrastructural activities in connection to the Winter Olympics, among other things. Africa reported flat growth in the quarter. Americas, slide 17. Solid growth, organic growth in the U.S. market and Canada, 8% organic growth if you exclude defense. The majority of growth came once again from infrastructure and construction, where the housing market is now recovering in the United States. We also saw strong growth coming from power and energy segments in North America. Defense business, and when we say defense business here, we mean NovAtel and Intergraph SG&I.
It contracted by 21% in the quarter. The automotive sector recorded negative growth, but aerospace in North America continues to grow. In South America, we saw Brazil growing at strong double-digit numbers. We also saw countries on the west coast of South America, Venezuela, Chile, and so forth, growing at very strong double-digit growth rates. Asia, finally, slide 18. China recorded a mixed quarter. Automotive, aerospace, and surveying are seeing an increased demand from local customers. Power and energy-related business had one large deal pushed out into Q1, which hampered their growth in the quarter. This is not a trend. We expect it to come back in the first quarter of this year. The growth was also held back by the fact that the so-called project-related business had a strong quarter in the fourth quarter of 2012.
We sell so-called airborne sensors. We concluded a mining project in China last year, and that makes the comparisons difficult for this quarter. All in all, we are cautiously optimistic about the Chinese development going into 2014. We believe that we might not see strong double-digit numbers in 2014, but we will definitely see growth in the year to come. Southeast Asia and India recorded strong growth. India in particular helped us growing our sales in Asia in the quarter. Australia and New Zealand continues to record declining sales, even though it seems that we're very close to the trough of the cycle in the Australian mining business. Overall, slide 19, we can see the long-term trends where Asia continue to grow after the peak in the fourth quarter of 2008. We can now see America's accelerating growth.
EMEA in the fourth quarter continued to grow at a slower rate than the two other regions. Segment information, slide 21. In the fourth quarter, we report EUR 141.3 million in EBIT for measurement technologies. This corresponds to an EBIT margin of 22.8%. If you exclude the currency impact in measurement technologies, we would have reported a 23.7% EBIT margin in the fourth quarter. Organic growth by application area, slide 22. After two years of virtually no growth, Geosystems is now back to pre-crisis levels in organic growth. Technology had a weak quarter. That was primarily driven by negative growth at NovAtel in the quarter. Metrology has come down to weak single-digit growth rates, but order intake was stronger than organic growth in sales for the first time in three quarters.
Looking at margins in slide 23, the growth margin continued to improve in 2013. We added one percentage point to the growth margin. EBIT margin, quarterly data. No, sorry, this is 12-month rolling data. As we said, for measurement technologies, we ended the year at 22%. Mergers and acquisitions, orders, and product releases, slide 26. We acquired Pixis, a Chilean company specialized in servicing the metals and mining industry in Chile on the 3rd of December. It had no impact to our earnings for last year since it was consolidated too late in the year. We also expanded our analysis solutions portfolio by acquiring a technology that we call GT STRUDL, where GT stands for Georgia Tech, the Research Corporation of Atlanta, which is connected to the university in Atlanta. Slide 28, just an update. We've seen the impact in the cash flow. This is the actual building.
We hope that we can inaugurate our new head office in Huntsville, Alabama in the autumn of 2014. We're going to host 1,000 employees in the new building. Slide 29. Geosystems got an order from SNCF, the French rail network, where they acquired Leica Pegasus:One, which is a 3D laser scanner mounted on a railroad car. What you do is basically you create 3D-Visualization of your railroad network in order to improve maintenance activities. Geosystems, it was a rail-heavy quarter where Geosystems also got significant orders from Southern Africa, where they're planning to build a 900-kilometer railway corridor throughout Southern Africa. Also in Saudi Arabia, where they're planning to build a 450-kilometer long high-speed rail link. Slide 31. Geosystems also received an order from Costa Rica, the Costa Rica National Electric Company, that is building a new hydroelectric dam. Slide 32.
Intergraph launched a new product where we merge several products into one product. The new product is called Smart 3D and was launched in the fourth quarter. Chevron, slide 33, will use our SmartPlant suite of products for the so-called Gorgon Project in Australia, which is one of the world's largest natural gas projects. Slide 34, BHP Billiton chose Intergraph for the Olympic Dam project. Slide 35. Intergraph is also improving the public safety and productivity for the Calgary Police. This is an order that we got in connection to the launch of our new product, the so-called Mobile Responder, where we can use tablet computers or smartphones to improve information flow for police officers around a large metropolitan area. Slide 36. We also got new orders for our Smart H2O solution. It's gaining traction in China. Slide 37.
We are proud to support the World Cup in 2014 by building, as we put it here, the Brazilian dreams. It is two arenas for the FIFA World Cup, the summer of 2014. Slide 38. Mobile ground mapping in China. AutoNavi Holdings Limited is the leading provider of digital map content and navigation solutions in China. It is now building a fleet of what we would call so-called Google cars, even though it is not Google, to perform mobile ground mapping utilizing our NovAtel positioning technologies. Finally, update on Veripos. As of the 7th of February, we now own 97.7% of the shares outstanding in Veripos. We have initiated the so-called squeeze out process of the remaining 2.3%, and Veripos will be consolidated as of February. We will separately communicate the PPA effects that will affect the first quarter of 2014.
Just to remind you what we believe we can do with this acquisition, we can provide Veripos with state-of-the-art positioning technology via our GNSS technologies in NovAtel and Geosystems. But in turn, Veripos can give us world-class infrastructure for our customer base in technology as well as Geosystems. In summary, if we summarize the quarter, we can finally state a bit about the dividend. The board propose a dividend payout of EUR 0.31, which is an increase of 11% over 2012. And it can be paid in euros or in Swedish kronors, if you would choose to receive it in Swedish kronors rather than euros. Slide 42, to summarize the quarter. We report another strong quarter with 5% organic growth. We have added one percentage point to the very important growth margin.
Came in at 57%, 23% EBIT margin in MT, despite currency headwinds shaving off one percentage point to the EBIT in the quarter. Strong cash flow generation is rapidly strengthening our balance sheet. We have good covenants right now in our balance sheet, and this will open up opportunities for expansion going forward into 2014. Finally, slide 43. It is time to update our financial targets and host a Capital Markets Day. We will do that in June, the 2nd through the 3rd of June, in connection to Hexagon LIVE, which is our user conference in Las Vegas. We expect to attract more than 3,500 attendees this year, and it will be held at the MGM Grand in Las Vegas. If you are interested in participating in this Capital Markets Day and the user conference, you can contact us at ir@hexagon.com.
Thank you very much for listening, and I think we have come to the Q&A session.
Ladies and gentlemen, if you'd like to ask a question, please press 01 on your telephone keypad. That's 01. Our first question comes from Mr. Lars Bråthen from DNB. Please go ahead.
Thanks very much. Good morning, all. I had three questions. I'll take them one by one. Just on the margin impact from currency, it was a little greater than I had anticipated in Q4. I wonder whether you could give us a sense for the key emerging markets exposures as they break down by segment. I'm particularly interested in your Brazilian real exposure, if that's about 3% of group, in terms of sales exposure, how does that split down by segment? How big is it specifically for PP&M? What I'm trying to get at is whether we should model in the same incremental margin impact in Q1 and indeed in the first half 2014, as we saw from FX in Q4.
It's a difficult question since it relates to currency. You're absolutely right. We have a very good local margin in South America, and the Brazilian reais was, as you know, hit quite hard. What can you do to mitigate it? Well, you can increase prices in local currency, we're doing that. At the same time, we've seen the reais continue to weaken against the average rate for the fourth quarter, there will be an impact from currency in the first quarter as well. Stating how this will pan out for the full year of 2014 is risky business indeed. I'm not sure if I can do it.
That's clear, as you see it now, the incremental margin impact from FX in Q1 should be largely on a par with what we saw in Q4. Would that be a fair assumption?
Yeah, I think so.
Okay, great. Secondly, if I could, on metrology, I wonder whether you can give us a little granularity about how the book-to-bill has trended since Q2 last year. We've talked about a book-to-bill above one since Q2 2013. I wonder whether we're moving meaningfully above one and accelerating towards the 1.2, 1.3 times, or whether we're seeing a more steady above one book-to-bill ratio in that business.
It was 1.02 in the fourth quarter, the book-to-bill ratio.
That was a deceleration, was it from Q3?
No. It was an acceleration.
That's great. Secondly, just on metrology, I wonder whether you can elaborate a little more on the product pipeline here for 2014. We obviously saw in Geosystems, the Leica Nova have a quite a meaningful impact in the second half of 2013. How should we think about the product launches for 2014 coming through one on metrology in terms of the order of magnitude that might have in that business?
That, my dear Lars, I can't disclose to you unless you buy an air ticket and go to Las Vegas.
I thought you might say that, but fine, okay, which I will. Thirdly, just if I could, on the smart solutions and synergy projects, can you give us a number for what the sales was from that in Q4 and what the expectations are here for 2014?
The expectations are as always great. In the fourth quarter, I'd say it was probably around EUR 2 million. It's a very lumpy business since it's mostly projects. We think that we will see a gradual acceleration throughout the quarters to come in 2014. What we're doing right now is we have two solutions activities. We have the division we've incorporated, which is called Solutions, but then we have ongoing solutions activities within the current divisions. What we internally are debating is how we're going to report that number as from Q1, and you have to give me another couple of months to figure that one out.
For now, the EUR 2 million sales you saw in Q4 are primarily, I presume, on your H2O Solution and perhaps Smart Assembly, would that be?
Right. That's fair.
All right. Okay, great. Thanks.
Our next question comes from Mr. Mikael Sandgren from Carnegie. Please go ahead.
Yes, hi. I have a question regarding PP&M, and if you could maybe talk about the outlook there from an end customer perspective, oil and gas, power, et cetera, and also on a regional basis, and why you had a delay in one project in China. Thanks.
The outlook, overall, you could say that the CapEx activity is not at the level as we saw, let's say, if you go back to 2011. There has been a slowdown in CapEx activity in oil and gas. I think you're aware of that. If we look at the outlook for PP&M going into 2014, we obviously have expectation for our cloud-based solutions that will kick in beginning with the summer of 2014. It's very much a second half of the year story for the cloud business. All in all, we do see strong activity in the Americas, in Asia, and now in this quarter, EMEA actually recovered quite a bit. The delay in China was simply bureaucracy and administration that we didn't manage to shift the product in the fourth quarter. I don't see it as a sign of a slowdown in the Chinese market.
We have good growth for the full year in China.
Okay. When it comes to visibility on larger projects and so on, is that okay right now, and is it fair to assume growth roughly at 5%, 6%, 7% in 2014 from previously around 10%, historically? Is that what the experience is now?
We did 7% in the fourth quarter.
Yeah. Is that also a reasonable level given the Shell contract and Gorgon Project, et cetera?
We'll see. I think you're going to see gradual recovery in growth rates throughout the year since we have the ordinary business, and then on top of that, we have the cloud-based business.
Okay.
The way the cloud-based business is structured is you don't receive revenue until the users actually start using the software in the cloud, and we basically count the number of hours used. The project needs to kick off before you can have any revenue from the project. The first project is scheduled to be launched in the cloud, so to say, in the summer of 2014.
Oh, okay. If you split demand and growth in Q4 into design and management solutions enterprise, how is that developing?
No, I'm not sure I follow your question. What do you mean by design?
Well, you have an enterprise solution, right? You have a design software also, if you look at that on a total overview.
The owner-operators-
Yeah. Right
they're growing much faster. If you segment it by user and you say EPC and owner-operator, right now, the owner-operator segment is growing much faster than the EPC segment.
Okay. Thank you.
Thanks.
Our next question comes from Mr. Erik Golrang from ABG Sundal Collier. Please go ahead.
Thank you. I have a few questions. First one, as you say, quite a bit of headwind on the margin there from FX in the quarter. How much-
We supply from NovAtel in the fourth quarter. It's very difficult to say what's going to happen to the defense markets going forward. I guess an educated guess is that we don't expect another 25% drop in 2014. As a matter of fact, we actually believe that the market might have stabilized, then you should see growth from civil activities in SG&I, PP&M, and civil activities in NovAtel coming through in the technology numbers.
Do you think PP&M and metrology can actually move towards that 8% average trend that you're looking for?
We'll see.
A quick one on the EBIT margin. Can you just talk a little bit more about where the EBIT margin improvements are coming from? Obviously some from the gross margin mix, and also lower expenses and what the plans are there?
It's primarily gross margin in combination with currencies that don't continue to fall. If we have currency headwind in the way that we've seen in the fourth quarter, it's obviously going to be difficult to significantly improve EBIT margins. I don't believe, however, that that's going to continue with a 30% reduction in value for currencies around the world year in, year out. If you assume that you have a diminishing effect from currency headwind throughout the year, it's primarily mix and new product launches that are going to drive the gross margin towards around 60%. That's going to lift the EBIT margin.
Okay, the last one is just your M&A strategy going forward. Large or lots of small deals, mostly for technology or customer base? What's your focus this year?
Focus is the same as always. We're going to buy technology companies. Veripos is a good example. We're paying net around $185 million for Veripos. What we gain access to is that we can immediately launch the Veripos correction services in agriculture, construction, surveying, and other land-based markets where we have good opportunities for growth. Had we developed this ourselves, we wouldn't have had to spend $185 million, but we would probably lose out five years in market development, and we believe this was the better route. Those kind of acquisitions will continue where we see an opportunity to grow our core business by acquiring technologies rather than developing. Other acquisitions will be pure distribution acquisitions where we reach new end markets with our technologies via acquisitions.
Okay, thank you.
That's a very political answer, that's the best you will get.
That's fine. Thanks.
Our next question comes from Mr. Johan Eliason at Danske Bank. Please go ahead.
Yes, thank you. I had some questions on the defense market. You had some answers in the previous question here, but I take that you have quite limited visibility from your answer from the previous question. Is this not a lot of backlog-driven business in the defense market? Can you shed some light on that, please?
We have two defense businesses. We have the defense business we conduct via Intergraph SG&I, and that has a backlog, and we have a better visibility there. The NovAtel business, which is primarily selling positioning systems for drones, has less visibility. What hit us in the fourth quarter was primarily the drone business rather than the continuous sequestration that we've seen from the Intergraph SG&I business. I think that we have a better visibility into the SG&I business going into 2014, and our best guess is that we've hit the bottom when it comes to reduction in spending for defense-related activities. Having said that, as you say, we don't have the forecast or indeed, a promise from the customer that they will spend X next year or this year. Regarding the drone business, it's a lumpy business, and it's difficult to say.
It seems that drones are gaining in popularity over jet fighters, and therefore, over the longer term, we believe that the drone business is a growth business, and it's not just U.S., it's more countries that are investing in these programs now. It's very difficult to give a forecast what the immediate outlook is for that business.
A flattish development, I guess, for SG&I and perhaps a little bit of tough comps for the drone business in at least the first half of 2014, I guess is what you're saying?
That could be a good guesstimate.
Is it possible to get some clarification on what kind of earnings headwind this has been in 2013? Both the drone business and perhaps mainly the SG&I part.
It's significant because we try to shed and reduce fixed cost overheads as sales are shrinking, but if you're faced with a 25% reduction in sales and you have gross margins above 50%, then obviously it's going to hit your bottom line quite a bit.
Yes, that's very clear. Thank you. A question on cash flow. I guess CapEx will remain at an elevated level through Q3 or a good part of Q3. That's one question, and the second question related to that is if you can say something about the underlying CapEx without the building in proportion to sales or in absolute amount. Thanks.
I think in proportion to sales, the underlying long-term CapEx has peaked, and we're now moving into a situation where we're going to spend significant amounts on R&D, but the largest programs are now in the launch phase where we see new products hitting the market, so to say. We're going to see a bit of lower activity on the R&D side. The building, you're absolutely right. You should expect a bit elevated CapEx for Q1 through Q3, and as of the fourth quarter, we've hopefully moved in our employees into the building and it's operational.
Thank you so much. Thanks.
Thanks.
Our next question comes from Mr. Basab Borah from Goldman Sachs. Please go ahead. Mr. Basab Borah, your line is open. Please go ahead.
Hi, this is Basab here. Hi, Ola. Firstly, on the EM FX impact, you mentioned that you're planning to increase prices for some of your products in emerging markets. What has been the customer response to that? Secondly, with regards to China, you mentioned you will see some growth. Are you indicating to low single-digit growth or high single-digit growth? With regards to demand in China, is it more of a financing issue which has changed, or is it spending in general has been on the weaker end?
I didn't quite hear your question on emerging markets and product launches. Maybe you could repeat the first question, and then we could take China.
Sure. I just mentioned that with regards to emerging markets, obviously FX impact seems to be quite high, and you were mentioning that you're planning to increase prices for the products. What has been the customer response to that, and do you think that that will have a negative impact in terms of demand coming from emerging markets?
Okay. Now I got you. I don't think so, because the emerging markets where we've had most of the currency turbulence are actually so-called import markets, where we compete against other suppliers that have their cost base elsewhere. When you have an import market, that market will be used to local price increases when you do have FX impacts. It's sort of business as usual in those markets. Of course, we should expect that it takes some time to adjust price lists in local currencies and so forth. Customer response, as a consequence, is neutral because the customer base is typically used to this. We have two types of customers. We have local customers with a local business, and they see their cost in local currencies going up, and they have to adjust their prices as well.
Of course, then you have increased inflation in that society, and that could be Brazilian and Indian customers. Then you have international transplants or companies that are selling their products in U.S. dollars or something. For them, this is typically a positive impact because all the local cost is devalued while their revenues stay the same. They have no objections to the imported goods, part of their P&L statement increase in value. If we move to China, I think we indicate single-digit growth. To give you an exact number is too early sitting here in February.
With regards to China as well, is the impact largely related to CapEx spending or infrastructure-related spending being weak, or is it more a case of financing, which should probably ease out in the second half or more into 2015?
It's not financing as such. China is undergoing significant change right now. It's changing from an export-led, foreign direct investment-led economy into an economy that has to rely on consumption. This is bad and good, but in the transition, of course, you have a lot of turbulence. What it means for Hexagon is that they need to continue to invest in infrastructure. You're going to see significant flows of people from the countryside moving into cities, which is the prioritized activity for the Chinese government, since it stimulates consumption and growth in the economy. That will be good for technology and Geosystems. Coupled with that, we see auto sales, and going into 2014, we also see increased activity in aerospace in China, and this is going to be good for our metrology business.
Okay. Probably just last one from my end. If you look at your 2015 goals, compared to what you mentioned during last Capital Markets Day, the FX impact seems to be a lot more than what you would have expected for. The smart solutions, the sales cycles are definitely much longer than your regular products. Accounting for the FX impact and for the smart solutions, do you think you'll have to account for more M&A, or will have to do more acquisitions to meet your 2015 goals?
Well, that's the exciting part of the next coming two years. We'll see how it pans out.
Okay. Thanks, Ola.
Thank you.
Our next question comes from Mr. Guillermo Pianezza from UBS. Please go ahead.
Hi, Ola. It's Guillermo from UBS. Thanks for taking my question. I was wondering, again, on the currency moves in some of these emerging markets, whether you actually seen quite the contrary, so a pre-buy effect, i.e., your customers can only go to importers or exporters, and actually they see prices going up, therefore, in order to anticipate price increases, they actually pre-buy ahead of the potential price increase.
No, I don't think we see that because we've seen most of the growth from large projects. For example, Fiat is building a huge automotive plant in Pernambuco in Brazil. That's been scheduled since years, and they don't look at how the reais is moving when they place the orders to the sub-suppliers for that plant. If you take the Olympics and the World Cup, which is the SG&I business in Brazil, that's been scheduled for several years as well, and whether you build a football arena or not or renovate it, that has nothing to do with currency. It's not small customers looking at the exchange rate day in, day out to time it perfectly.
Thank you. Can you spot any differences between the mining activity levels in Australia and the mining activity levels in Latin America?
Absolutely. We have a much better demand from South America than we do from Australia at the moment.
Can you quantify that, if I may ask? In terms of how much is down Australia, how much the others are holding up?
Australia is down by, from top of my head, I'd say around 5%, 6% in the quarter, and it was double-digit decline in the beginning of the year. Whilst South America mining for us is growing at strong double-digit rates
It's very useful. Thank you.
When you discuss mining, it's important to remember what Hexagon does. We do safety and navigation equipment for the vehicles that are used in mines. It's more about safety, productivity, utilizing the assets you've already invested in. You can't compare Hexagon cycle to, let's say, other Swedish companies like Atlas Copco and Sandvik, or indeed Caterpillar.
I definitely don't. Thank you.
Inside. There is a subtle difference between us and these other mining-related companies. That's what I wanted to point out.
Thank you very much.
Thank you.
Our next question comes from Mr. Max Frisell from Erik Penser. Please go ahead.
Hi. Just if you could give some detail on Geosystems. In Q3, you mentioned that roughly half of the revenue growth for Geosystems attributable to new product launches, and maybe half from underlying market. Just if you could say how this relationship has developed into Q4.
It's difficult to give percentages. My honest answer would be the same, but I guess that probably the European market helped us a bit more in the fourth quarter than the third quarter. It was a general market recovery. That impact was stronger in Q4 than Q3. What I base that on is we reached full capacity for our new products in the third quarter, and we had the same capacity in the fourth quarter, so we couldn't ship any more new products. I guess that the demand was stemming from a better end market. As I said, Russia was particularly good for Geosystems in Q4.
Thank you very much. Just one question, I think you mentioned this already, but the order intake, outgoing sales in metrology, did you specify which end market that was? Was it mainly from aerospace or also from automotive?
We didn't specify it, but it was auto.
Come again? I'm sorry.
It was automotive.
Automotive. Okay. Thank you very much.
Our next question comes from Mr. Ben Maslen from Bank of America. Please go ahead.
Yeah. Thank you. Morning, Ola. Two questions, please. Just on PP&M, you mentioned the shift to the rental model.
Yeah.
Do you have any extent as to how much that shift is dragging on growth rates? How long that would go on for? That's the first question. Secondly, on working capital, do you think it's still possible to get that sales ratio down as your growth picks up? You're seeing better growth now in the product businesses, and you say Geosystems is flat out. Will that start to tie up more working capital? Thank you.
I think the conversion from selling perpetual licenses to leasing is not over, but it's not as strong as we saw, say, mid 2013. Having said that, the entire cloud business will be a subscription-based business. It would be even more dramatic than selling subscriptions since it's actually clocking hours.
Right.
It's growth on top of the ordinary business, so it should still be a positive for us. Ben, it's really difficult to give you an answer on when the conversion is done because it's very much the customers deciding. Contract come up for renewal and then we have a discussion, and right now the trend is that people are choosing a leasing model rather than buying a perpetual license.
Okay.
I guess we'll see a bit of it into 2014 as well. That's my best question. Now I'm having micro Alzheimer's, so could you remind me about your second question? It was working capital. Sorry.
If you grow faster in equipment than software, does that make it harder to get working capital? Do you tie up more working capital? Harder to get working capital to sales down?
That's absolutely true, that in combination with large projects in metrology to large OEMs is not good for the working capital development either, because typically you have to install everything until you get paid. Having said that, if we believe that SG&I can come back, which is a great contributor to reducing working capital and PP&M continue to grow, we gradually introduce services like, for example, the Veripos services into Geosystems business models and NovAtel's business models. The fair answer is that we shouldn't see dramatic improvements in our working capital to sales ratio, but we could see