Earnings Call: Q1 2013

May 13, 2013

Ladies and gentlemen, welcome to the presentation of the Hexagon Interim Report January to March 2013. Today, I am pleased to present Ola Rolian, CEO. For the first part of this call, all participants will be in listen only mode. And Ola, please begin. Thank you. Good afternoon, good morning, everyone, calling in today to our interim report on the Q1 of 2013. If you turn to slide number 4 in the presentation pack, we'll give you an overview of the Q1. The recorded growth was 4% for the group and for Measurement Technologies. And for the organic growth for the core business, Measurement Technologies was 5% in the quarter. We recorded strong double digit growth in emerging markets whilst we see slight growth in mature markets. Geosystems is now growing again on the back of improving demand in all major regions, including EMEA. The metrology business reports another record quarter, although it's getting more and more difficult to beat previous quarters. So we could say that the growth rate is normalizing from the very high levels we've seen over the past 2 years. PP and M, another record quarter in sales and profitability. And SG and I had improved profitability in spite of diminishing U. S. Defense sales due to the so called sequestration in United States. Overall, strong profitability, we reported 57% gross margin in the core business, measurement technologies, coupled with a 22% operating margin. Earnings grew for the group in the quarter by 17% compared to the corresponding quarter last year. Slide 5. We begin to see a shift in seasonality. It's not accentuated, but we do see a slight shift in our seasonality over a year. And that is you could simplify and say that Q1, Q3 are normally fairly weak quarters, whilst Q2 and Q4 are strong quarters. We really don't know why this is, but it could be that more and more of our sales are derived from emerging markets. And for example, in South America, you have Carnival in the Q1 and you the Chinese New Year coinciding in February. If we turn to Slide 6, key figures. Net sales amounted to $586,300,000 dollars which is 4% up over the corresponding period last year. EBIT amounted to 100 and 21,000,000 which is an 11% improvement over the same period last year. Operating margin improved by 1.3%, and it amounted to 20.6% in the quarter. Earnings before taxes grew by 17% to €111,600,000 and earnings after tax amount to €90,400,000 which corresponds to an earnings per share of €0.25 Slide 7, cash flow. Cash flow changes in working capital and paid interest and tax amounted to 146 point $7,000,000 We paid $10,000,000 more in taxes this quarter, but we paid less in interest received due to almost to almost EUR 122,000,000 And the big disappointment in the quarter was really the change in working capital where we record negative €59,500,000 in change in working capital. Cash flow from operations amounted real estate and properties in America. Thus, operating cash flow amounts to 21.2 €1,000,000,000 The next slide, Slide 8. I'd like to elaborate a bit around working capital and put it in context. When we entered into the recession in 2009, we had way too much working capital. And you can see that our working capital in relation to sales drew to a peak of 33% in the Q2 of 2010. Then we managed to bring back sales up and working capital under control. And with the consolidation of Intergraph, we basically were at 22.5%, 23% working capital in relation to sales. It took roughly a year to get the recurring revenue cash flow to match the P and L statement. So by the Q3 of 2011, we managed to reduce the working capital another notch down to 19%, where it was fairly stable as we entered into 2012. And throughout 2012, we worked with the working capital. And it's fair to say that we squeezed it in the 4th quarter. And I think that we should see the €59,000,000 negative in this quarter as a backlash to the squeeze in the Q4. We do expect this to stabilize as the quarters proceed over the fiscal year. Could also add that we're fairly happy with the result to be below 20% working capital. Slide 9, currency impact in the quarter. The Swiss franc weakened against the euro, which has a positive profit impact on the Hexagon Group. The U. S. Dollar weakened as well, which has a negative profit impact on the Hexagon Group. The Chinese renminbi strengthened, which has a positive impact on the Hexagon Group. All in all, the profit impact was fairly small given the movement that we've seen. And that has to do with 2 other currencies, the Japanese gen and the Brazilian real that weakened significantly year on year and had a negative impact on both sales and profits. Slide 11, sales mix in the quarter for the core business, Hexagon MT. More than 40% of sales are now derived outside of the Western European markets and North American markets. North America represents 28 percent of sales and Western Europe 32% of sales. South America is increasing its share from 3% to 4%. And China is increasing from 13% to 15%. Another strong region in the quarter was EMEA excluding Western Europe where we saw strong growth from and Africa. Russia. EMEA excluding Western Europe increased its share of sales from 8% to 9%. Asia excluding China contract acted and that has to do with the slowdown we've seen in the mining related business we have in Australia. Slide 12 is a fairly complicated slide, but I think it's worthwhile talking you through it. If we start on the left hand side, we can see the plus 2%, which we believe is the underlying trend for organic growth in region EMEA. However, we report 5% growth. And this gap between 2% 5% is explained by a large software order that we got from South Africa in the quarter. Now if we just to simplify the discussion look at Americas for a while, we had a software order in Canada of a similar size this time last year. And on a group level, these two orders are a wash. But regionally, they really distort the picture. So the reported organic growth in the quarter for EMEA is 5%. We believe the underlying trend is more like 2% in the quarter, which still is an improvement over previous quarters. If we then move to Americas, I've already explained about the large software order that we had in Canada this time last year. And that actually has a 4% impact on the region as such. So if you wash out that software distortion from this launch order, the region would have grown at 5%. And on top of that, we should experience a contraction from the U. S. Sequestration program of roughly $5,500,000 per quarter for the remainder of this year. And that is another 3% in the Q1. So the underlying trend for the rest of our business is actually more than 8% in Americas. If we then look at Asia in the same context, we report 9% organic growth. Within those 9%, the mining segment in Australia is impacting the overall number for the region with minus 2%. So the underlying business is actually growing at 11%. Moving on and looking at the market development margin in the quarter, Slide 13. China and U. S, Canada, I. E. NAFTA, excluding quarter. China represents 48% of the growth in the quarter. So significant impact from the Chinese and the North American market. Africa is having a significant impact in the quarter, actually 1% out of the 5% growth And that has to do with the software order in the quarter. On the other hand, Canada at the bottom of the list has a negative impact of 1%. And as I explained earlier, those two orders on a group level actually are awash. South America growing at 22%. Organic growth is the 3rd most important region in the quarter. We do get positive contribution from Japan, Korea, India, New Zealand and Southeast Asia. We see growth in Middle East, Western Europe, Eastern Europe and Russia, but contraction in Australia, the U. S. Defense market and simply because of tough comps from previous quarter last year in Canada. Slide 14 is our weather forecast and what it looks like in the Q1 in comparison to the Q1 of 2012. And if we follow the customer segments through the regions, we start with surveying. And surveying is now growing again in Western Europe, which is a positive development quarter on quarter. Middle East, North America, South America and China is continuing to grow, whilst APAC, the red arrow, has to do with the mining industry in Australia. Power and Energy is growing at good rates in all regions, but for Western Europe. Aerospace and Defense are grouped together, and we have good growth from aerospace in all regions. But defense, as I've already mentioned, due to the sequestration, this has a negative impact of roughly 1% on the group level in North America. Construction is we're beginning to see the light at the end of the tunnel in Europe. Northern Europe is now growing again in construction whilst Southern Europe continues to contract. Middle East, North America, South America, China and Asia Pac are all growing in the construction segment. Public Safety and Security, the European market contracts whilst all the other markets and especially the U. S. Market is growing at double digit rates. Automotive, interestingly enough, Western Europe, strong growth from the major automotive companies in Europe. We're actually growing in Spain at double digit rates from automotive in the quarter. North America doing well, South America contracting. China growing again at double digit rates, but Asia Pac contracting and that's primarily linked to Japanese investments. Manufacturing scattered picture Western Europe, North America contracting, South America contracting, China growing and Asia Pac contracting. So all in all, a mixed picture, but slightly better than the picture we saw in the Q4 of 2012. Moving on to Slide 15 and discussing the various regions in detail. Customer demand in EMEA improved in the Q1 as a general statement, increased activity was noted in Western Europe in Geosystems and Metrology, for Geosystem in Northern Europe and for Metrology in Central Europe. Eastern Europe reported declining sales due mostly due to tough comparison numbers where large automotive companies invested significant amounts in their factories in Eastern Europe last year. Russia reported good growth on the back of infrastructural programs around the Moscow region, and sales in Africa more than doubled due to the large software order that we received in the quarter. And I've already comment on the underlying growth trend in EMEA being lower than the reported one. Americas, Slide 16. Apart from the defense related products, all market segments are now growing in NAFTA. We had a large software order in 20 12 that makes comparison numbers unusually high in the NAFTA region. We recorded strong double digit organic growth in South America in the quarter. And once again, if you normalize Americas, the growth rate is higher than the reported rate of 1%. The drop in defense related business, I. E, the sequestration measure, reduced the reported growth by 3 percentage points and the large software order by another 2 percentage points. Moving on to Asia, Slide 17. All of Hexagon's application areas recorded growth in China in the quarter. All in all, China reported double digit organic growth as a region. Strong demand was seen in infrastructure related businesses, very good and favorable for Geosystems, obviously. But also, automotive is gearing up investment needs as well as aerospace, power and energy related markets. Other countries and regions that saw significant double digit growth were India, Korea and Japan. And as already mentioned, Australia reported negative growth due to the contracting demand from the mining sector. And excluding the mining sector, Asia grew by 11% organic growth. Segment information, Slide 19. Measurement Technologies report an organic growth of 5%. Sales amount €569,100,000 and the operating earnings amount to €125,000,000 which corresponds to a 22% EBIT margin. If we look at the organic growth by application area, we can see all areas moving towards the mean roughly around 5 percent. Slide 21. The gross margin in the quarter came in at 57%, which is 2 percentage points above the corresponding quarter previous year. And the reason for that is favorable mix in the quarter. Now the gross margin obviously had a positive impact on the EBIT margin, which you can see on Slide 22, where we report a 22% EBIT margin for Measurement Technologies, up significantly over the same quarter last year. And once again, mix was favorable in the quarter. Discussing the quarter a bit from operational perspective, orders and product releases. If we start with Slide 24, we saw continuous demand for Intergraph's PP and M Engineering Solutions. This order that I've talked about in South Africa was to Eskom, which is one of South Africa's largest public electric utility companies, and they've selected the smart plant suite of products that they will introduce in their operations. Babcock and Wilcox, North Carolina, United States choose PPNM Solutions as well as McDermott in Texas, United States. We move to Slide 25. Intergraph also landed a very important order in Brazil with CEMIG, which is one of the largest power generators in Brazil responsible for more than 12% of the national distribution. Chengdu Engineering in China also selected our engineering design services smart plant suite of products. Slide 26. We had several large reference orders for infrastructural development from the independent region of Hong Kong in China. Hong Kong Land Department, Civil Engineering and Development Department and the National Administration of Surveying, Mapping and Geo Information placed orders with us for various products. Slide 27. We also supported the disaster recovery in the infamous rock slide in China that occurred on February 18 in blocking the river in Longshan Town. The rescue teams used our sensors, the Leica HDF8800 in the recovery Dublin project. Slide 28. Both Intergraph SG and I and Leica Geosystems got important network systems orders in the quarter. We received from the Department of Transportation in Louisiana in United States Lime, which is a Brazilian mobile phone operator operating the Caribbean, placed an order with our GE Technology solution. And Wales and West Utility in the U. K. Choose Leica Geosystems solutions to digitize mapping covering their network assets in the U. K. Slide 29. We received an order to equip the New Zealand Police's more than 6,000 patrolling officers with tablet computers where they will use our software Intergraph Mobile Responder to be able to download critical information to the tablet computer wherever you are in New Zealand. Slide 30. Geosystem Solutions also support construction and monitoring applications. So in the quarter, we had 2 important orders, one for the Tappan Zee Bridge in New York, United States. Some of you have probably traveled across that bridge. It's a 3 mile long bridge between New York City and Upstate New York. 140,000 vehicles pass it every day. And we basically installed our solutions to monitor and ensure tolerance levels in the infrastructure. Another really interesting application was this application from Kazakhstan where they created 5 man made islands in the Caspian Sea. And we monitor those islands whilst they do hydrocarbon drilling in the sea to make sure that the island's structure aren't compromised from a safety point of view. Slide 31. In spite of the doom and gloom that I've talked about in the Australian mining industry, mining continues elsewhere around the globe. So we had 3 important reference orders, one from Mongolia, the Oka Khudag coal mine. I should get them out for being able to pronounce that. And then from Chile, we had 2 follow-up orders from the Lumina Copper Company, 2 of their mines standardizing on our fleet management system solutions. Slide 32. There is going to be 2 large wind farms in the northern part of Sweden outside a small town called Solastio. And they're going to erect 123 wind turbines. And the owner operator choose Hexagon's machine control solution to increase the accuracy and the site safety whilst reducing work time erecting these turbines. Slide 33, this is actually a quite cool development. The Leica DISTO D510 is the world's fastest distance laser measurement device, but it's also connected to Apple's iOS devices. So you can use it in conjunction with using an iPhone or an iPad. And you can take measurements and sketch up a room or whatever it is you want to redecorate or display and then send those measurements to your iPhone where you can draw the drawing of the room and then send it to your computer for further development. We also launched a completely new set of rugby 800, which is a laser construction measurement device that is used in on construction sites in the quarter. Slide 34. We have several new developments in the agricultural sector where we received good reference orders but also launched new products in that sector. Slide 35. Hexagon Metrology is making inroads into the medtech segment, and we're seeing some early success with VIVA Medical that will use our Optede CT160 to measure coronary stents that are used to prevent coronary heart diseases. And then we've also launched the jaw of a patient and then you can redesign the jaw of a patient and then you can redesign or design implants, crowns, bridge designs and so forth and send that off to production to mill the component. Slide 36. Hexagon Metrology continue to play an important role with the automotive industry. We received several large orders from, among others, Skoda, Ford, Fiat and Volkswagen in the quarter. Slide 37, the watch industry. We had several important reference orders from the Swiss watch industry in the quarter: Cartier, the Tech, Brioche, Ita and Brioche Watch among others. Slide 38. This is China. And the Chinese authorities have decided to equip them with precision GPS to prevent fraud when doing a test to receive your driving license in China. And you basically scan these test driving cars from operations centers that you see on the left hand picture. Slide 39. We're launching the Leica ADS 100 digital sensor to do aerial photography. The beauty about this product is that it can record 66 percent more data than its predecessor and can do it at nearly 2 times the recording speed. And this means less flight time to capture data and reduce costs significantly for the operators. Slide 40. Hexagon Metrology is launching several new products, the new Opteel Classic products, the new high precision lights PMM Xi and the new Roamer Absolute Arm, the 70 1 series. Finally, Slide 41, I just want to promote our International User Conference to be held between the 3rd and the 6th of June in Las Vegas this year. We're going to have more than 400 sessions, more than 3,500 attendees coming from more than 70 countries worldwide. And I think it's going to be a great event with a lot of new innovation. So finally, in summary, if we turn to Slide 43 and try to wrap up this presentation, 5% organic growth in measurement technologies, 57% gross margin, 22 percent EBIT, a record for a Q1 ever. And for the group as a whole, 17% growth in net earnings. So we're fairly happy with this quarter. Operator, I'm happy to answer any questions I can answer now. Our first question comes from Mr. Gerardis Vos from Barclays. Please go ahead sir. Hi. Thanks for taking my question. Just a couple if I may. First of all, on the kind of European construction market, could you just give me a bit more kind of color on what you see in Southern Europe? Do you expect that to start to grow again in the second half on the back of easy comp or perhaps some activity there? And then secondly, obviously, a good kind of netback in GEO systems partly because of some exceptional large deals as well. But I was wondering also, are you starting to see some impact of your kind of product launches in that space? Or is that still to come into the Q2 and onwards for this year? Thank you. Thank you. We'll start with Southern Europe. I mean it's unfortunately still contracting when it comes to construction. And then I basically refer to growth in Italy and Spain. So Italy and Spain is unfortunately still contracting. The comps, however, of course, gets easier and easier to match as the year proceeds. Growth in Europe, on the other hand, in construction is actually coming from Northern Europe, I. E, Germany, France and parts of the Nordic countries. Regarding product launches, we have definitely launched products that have helped Geosystems improve its organic growth. I still think we have some really important product launches yet to be made that will have an impact in the second half of the year. Okay. Thank you. Thank you. Our next question comes from Mr. Lars Brusson from DNB. Please go ahead sir. Yes. Thank you very much. Afternoon all. Three questions if I could. First of all, can you give us an assessment of the inventory levels in the distributor channel in your Geosystems segment? It looks like it could be very tight levels here. And so are you seeing or do you expect to see some tailwind in 2013 as the channel starts to restock? That's my first question. We don't we have visibility into the inventory levels with our distributors in certain products. But in general, it's fair to say we don't have that much visibility into the inventory levels. I think you're right though because we haven't really seen an uptick in blanket orders distributors across the world since the financial crisis. So I think I have to say it's a fairly tight management in the distribution. And just to that, how do you estimate your growth compared to the underlying market growth in Q1 with NGOSystems? I think we were in line with market growth. That's slightly better. That's slightly better. Yes. Okay. Just secondly on your mining exposure, it looks like all the weakness you saw here in Q1 was exclusively in your machine control segment I. E. And geosystems. Can you talk a little bit about what you're seeing in your PPM segment? Any signs of spending deferrals here that could impact 2013? No. We haven't seen any weakness from PP and M. And regarding machine control, I think it's fair to say that we did see weakness in machine control Australia, but we actually grew as a business in the mining. Do you expect mining to continue to develop well for PPM through 2013? I think it's important to understand that we had a very strong market share or do have still a strong market share in a declining market in Australia. So we weren't immune to the general market contraction. Having said that, the mining companies now need to start focus on the mines they already got. So they're cutting back on new mines and exploration activities, which hurts our surveying business, but it's actually beneficial for our machine control business as they want to improve mining efficiency. Got it. And thirdly and finally, if I could, just on SG and I, where are you margin wise here? [SPEAKER JEAN LOUIS SERVRANCKX:] We're much better. We're 5.50 basis points above Q1 of 2012 at a lower invoicing level. But we unfortunately dropped from the Q4 level simply because we couldn't match the 25% drop from the defense business. Understood. Thanks a lot. Thank you. Our next question comes from Mr. Ben Maslin from Merrill Lynch. Please go ahead, sir. Yes. Good afternoon, Ola. Firstly, just on European surveying. You say you're seeing an improvement in infrastructure markets, which I've not heard any other companies talk about. And is that a fairly specific project or just a very low base or kind of a function of just surveying coming much earlier in the process? That's the first question. I think it's surveying related. And it's in the sort of Germanic world in Europe. It's Austria, it's Benelux, it's Germany, it's Switzerland, parts of the Nordic countries and even U. K, where the railroad across London is actually beneficial for us from a surveying perspective. But that's linked to surveying. You're absolutely right. Thanks. And then on SG and I, can you talk a bit about how the non defense business is performing? I guess public safety in terms of tender activity or the pipeline of work that you see and the growth prospects into next year? And then just on defense, which obviously is falling very quickly, do you need to do more cost cutting? And do you think that you can keep the margins improving for SG and I as a whole even with that drag? Thank you. If we just answer the defense related question, we expect the cutback from the sequestration to be €5,500,000 every quarter from now on into Q1 2014. That's the new level. It's almost a negotiated level. So that's momentarily. We've taken the cost measures to mitigate that revenue drop. So that was fairly swiftly done. And we now have a new cost level as well. So we can definitely keep this EBIT level. Talking about growth, we see good double digit growth from public safety in North America and South America and Asia. But those markets are performing well. And where we do need where a bit more order intake is in and Europe where the market has been sluggish for us. Thanks. Thanks, Oliver. Thank you. Thank you. Our next question comes from Mr. Brasad Borra from Goldman Sachs. Please go ahead, sir. Thank you. A couple of questions, if I may. Firstly, can you elaborate a bit more about your pipeline of deals in emerging markets, especially in the SG and I segment. And you did refer to some cost rationalization being done. Would it mean that you will progress towards high 20s in terms of margins over the next 12 month period? And secondly, on revenue synergies, you had announced some new product plans last year. They seem to be getting some few deals in that segment. When does that become substantial? And when does that start substantially benefiting revenues? I can't talk about pipeline of deals, obviously, for a specific business without disclosing customers where we are in negotiations. So that's a very hard question to answer. We do have a significant pipeline of deals. And what's needed for SG and I, we think we have good management, good cost structure, good cost management. And what we lack right now is 1 or 2 major deals. And hopefully, we'll be able to announce that over the next few months. And then SG and I should move into double digit territory and well, close the gap to the group average. Talking about revenue synergies, I think that if you show up in Las Vegas, I'll be happy to brag about it. Okay. But let's say we get to Las Vegas. Okay. Okay. And what stays in Vegas, you know, the same. What happens in Vegas stays in Vegas. Definitely. Probably just last one from my end. On the working capital, it's been substantial improvement over the last 12 months and you had a bit of a hit in Q1. Now structurally, where can the working capital move? What percentage of sales are you targeting more in the medium to long term? Finally, two things happening in the business. 1 is technology has become a bigger portion of revenues. But also in your core metrology and geosystems business, the software component is increasing. So what does that mean in terms of decreased working capital needs? It's a good question. We're currently operating at roughly 50% software and services and 50% hardware in the group. And currently, we're roughly at 20% working capital gainsales. So in order to I don't think we'll ever achieve the typical software company structure with positive working capital. But I do think that maybe a long term ambition could be to stabilize around 15%. Okay. That's very clear. Thank you. Thank you. Our next question comes from Mr. Max Frodeel from Erik Tensel Bank. Please go ahead, sir. Hi. Thank you for taking my question. And also thank you for clarifying your view on the underlying growth on Slide 12. And weighing that together, I guess slightly above 6%. Could you just guide us a little bit? Is that what you see for Q2? I can't explicitly give you a number for the Q2. But let's say all in all weighted in, and I'm really happy that you like the slide because it was a pain to make. All in all, yes, it points in that direction that we should see a slow but gradual uptick in organic growth rates simply because of the support from these regions. Do you believe that already this year you can reach above that, that is aiming to the 8% that long term market growth is? Or is that something we will see in 1, 2 or 3 years? The one who lives will see. We'll see. Okay. Thank you. One final question from my side. Some of your competitors' reports indicated somewhat lower growth in the quarter and also some of them are somewhat more cautious outlook. Is there something you see that they don't? Or is it just in your opinion that you're gaining market shares in the quarter? I think it's more about your starting point. If you go out and you say you're going to grow at double digit rates, no matter to what happens, you might have to reduce your outlook. But if you don't state that you're going to grow at double digit growth, you come out slightly more positive. I think we still serve the same markets. Okay. Smart guidance. I get it. Okay. Thank you. That's all for me. Thank you. Our next question comes from Mr. Daniel Schmidt from SEB. Please go ahead, sir. Yes. Hello. Good afternoon. I just wanted to ask you guys or Ulla about the mix going forward. How should we view in your opinion sort of model the mix impact on margins? Of course, you had a very strong PPM performance in Q1, which you've had for some time and then SG and I falling back in terms of revenues. And of course, that's impacting the entire group in terms of mix, I assume. What do you believe going forward? [SPEAKER STEPHEN ROBERT BINNIE:] I believe that we might see relative to metrology, I think that Geosystems much might have a better growth in the second half compared to metrology. I think metrology will struggle to beat its comps significantly going forward because it's already at a record high level, while Geosystems still have room to improve. I think PPNM will continue to keep its share within the hexagon mix. And hopefully, SG and I could improve a bit. All in all, I don't expect significant changes in the fiscal year. Okay. Good. Just a completely different question and maybe a sort of an nonsense question. But is 2012 or Q1 and the full year last year restated by €5,000,000 on EBIT? [SPEAKER JACQUES VAN DEN BROEK:] Correct. For the IAF 2019 impact, which is also Okay. So no, that's a good question to clarify. I mean, everyone has to restate 2012 according to the new accounting rule where you have to add your liability in your pension schemes. And that's been restated for 12% and it's of course included in the 13% numbers. Absolutely. Thank you. Thank We have a question from Mr. Mikael Lassen from Carnegie. Please go ahead sir. Please. Yes, hello. I have a question regarding PPNM. If you could talk about the revenue trends that you see in the market with these large deals that you signed this quarter and last year and if see any changes to the NEX ahead, for example, the rental model increasing? You've relaunched some new products, for example. That's the first part. No. We don't see any significant shifts in trends for the PP and M market. And the growth rate for the owner operator and the EPC side, Could you comment on that? That's an interesting question because the owner operator segment is actually outgrowing the EPC segment at the moment. And I think that's a longer term trend that we're going to see for the foreseeable future. And I think this is important. I mean, what we're doing now is we're introducing several new products in that area like the Leica TruVue collaboration with PPNM where you can basically take a so called brownfield plant and make it productive again. And PPM units? Is it PPM units? Is it more sales to the current customer base? Or can you even grow the customer base? I think it's 3 areas where we can grow. We can grow to the current customer base. We can grow to non current customers. But we can also grow outside the ordinary scope for PP and M. And we are introducing new combinations of software products that have been developed between metrology and PPNM and Geosystems and PPNM for completely new applications into more of the engineering sector like automotive, aerospace, but also shipbuilding. Will you be able to reach new clients with those or new areas with those new solutions? Or is it more to the customer base that you have? No. We believe that could be completely new customers for the PPNM area. Okay. Great. And also when it comes to working capital, if you could comment on any trends per segment or per unit, I mean, it's PP and M, SD and I with the sales development that you have, for example, in the integration side? PP and M It's a negative working capital, so I guess that is a drag. No, no. PP and M and SG and I have negative working capital. That's correct. But that's not a drag. That's actually positive. It means that customers are paying you. They're prepaying you before you deliver an invoice. You actually build cash ahead of your invoicing. And that's very typical for software businesses that you have that pattern. So they're definitely not a drag. Yes. For the Telstra Group or unit, I mean, but for the FT and I that could have a negative effect if you have a negative growth of 6%. You mean like that, yes, that's true. That's absolutely true. But it's not very significant in terms of working capital for the whole group. I think the culprits in this quarter were more geosystems and metrology actually. Okay. Great. And also if you could give us the R and D cost for this quarter. Is that possible? If you could quantify the capitalized R and D? It's 11% of sales, our R and D cost. Is that reported or the cash side? No, no. That's the cash impact. Okay. And also the last question for me, the tax rate ahead, will that be 19%? What we do is we need to calibrate the tax rate because it's dependent on where we make the money in what division and in what jurisdiction. So what we do is we usually use last year's tax rate for the 1st few quarters of a new fiscal year And then we calibrate our systems and we basically second guess what we think the outcome will be for the year and then adjust the tax rate. Long term, however, we believe that our tax rate is trending down. Okay, great. Thank you. [SPEAKER JEAN FRANCOIS VAN BOXMEER:] Thank you. There are no further questions at this time. Please go ahead, Ulla. I don't have much more to go ahead with. So I thank everyone to calling in today and talk to you next quarter. Thank you. Bye. This concludes the Hexagon Interim Report conference call. Thank you all for attending.