Earnings Call: Q2 2012

Aug 9, 2012

Please begin. Thank you. Welcome, everyone, to this Interim Report Earnings Call for the Q2 2012. If we start with slide number 4 overview Q2 2012. We can only state the recorded growth was 12%, organic growth 6%. And I think the overriding theme this quarter is really currency movements. All geographic regions, however, display organic growth in net sales. And we have noted an acceleration in Asia and South America in the Q2 as compared to the Q1. We've also seen more normalized growth in United States compared to previous quarters. Europe is still very much a 2 speed story with growth coming primarily from northern and eastern parts of the region, whilst the southern part of Europe still is very much in recession. Geosystem is reporting growth and I think they've had 3 or 4 consecutive negative quarters when it comes to organic growth. And this was the 1st quarter since we lost the high speed rail business where they are back in growth mode. Metrology and PPNM, the PPNM division of Intergraph continue to be the primary engines of growth for the group. We have however seen Intergraph SG and I picking up in order intake and the same thing goes with as mentioned Geosystems. We report a strong gross profit of 56% in the quarter and a corresponding EBIT margin at 20 2% in the measurement technology business. We also report a strong cash flow in the 2nd quarter. Just a reminder on page or slide 5 that we still have quite accentuated seasonal pattern where Q2 is the 2nd strongest quarter of the year and the strongest quarter is obviously Q4. Slide 6, the P and L statement and key figures for the Q2. Operating net sales, which equals reported net sales this year, I think you remember the revenue haircut of last year amounted to €607,100,000 and that's 6% organic growth, 12% recorded growth over the corresponding quarter of 2011. Operating earnings or EBIT amounted to €127,500,000 and that is an EBIT margin of 21% in the quarter. Earnings before tax is excluding non recurring items and we did not report any non recurring items in this quarter amounted to SEK 114,700,000. The tax rate was 19% in the quarter. So the net earnings came in at €92,800,000 or 0.26 which is an 18% growth over Q2 2011. Slide 7, the 1st 6 months. We've had 6% organic growth for the 1st 6 months altogether for the group. The recorded growth has accelerated in the 2nd quarter and that has really to do with the weakening of the euro in the latter part of the second quarter. Our EBIT amounts to €239,000,000 which corresponds to an EBIT margin slightly above 20%. The tax rate is 19% for the 1st 6 months, while the net earnings amount to €172,000,000 corresponding to €0.48 per share. Corresponding period last year. Slide 8, cash flow. Cash flow from operations before changes in working capital amounted to €121,000,000 and that's a significant increase over and above the €80,000,000 we reported in the Q2 of 2011. We also note that our prepayment model is beginning to kick in for the group. So changes in working capital amounted to negative 8.6 percent compared to €25,900,000 for the Q2 last year. And you can also see for the first half that we've consumed less working capital fueling growth in the first half of this year compared to last year. Another noteworthy comparison in this table is that the Q2 was somewhat stronger than what's normal for Hexagon in the second quarter. And typically, we generate 30% of our cash flow in the first half and 70% in the second half as you can see from the outcome last year. Ordinary investment activities amounted to SEK 40,600,000 which is a significant increase over the Q2 last year. And we just want to highlight that one should expect an increased investment activity, which stems from 2 construction projects that we're undertaking at the Hexagon Group and that is we're building a new factory in Germany for metrology in the town of Wetzlar. And we're also we haven't seen the cost for it yet or the expense, But we've planned and we've agreed to build a new headquarter for Intergraph in Huntsville, Alabama and that is something we will come back to. But it's going to be a expense over the next coming 2 years. Operating cash flow, however, amounted to €71,500,000 and that is almost 3 times the amount we generated this time last year. Slide 9, currency. You might have noted that on page 12 in our interim report, we've now added a table displaying average and closing exchange rates. And the FX markets and the currency markets have become so volatile that it's quite important to keep track of currency changes. So from now on, we're going to report what exchange rates we're using when closing and calculating the EBIT in our interim statements. But it was very much the same trend as we've seen over the past 12 months. The Swiss franc as compared to last year has continued to strengthen. And as you know, that has a negative profit impact and a negative margin impact. The U. S. Dollar and the Chinese renminbi have also strengthened significantly against the euro and that has had a positive impact on sales and earnings. And the Swiss franc impact is a one off effect given that the Swiss franc continues to be pegged at €1.22 to the euro. And we will see a gradual easing off of this negative impact on the group EBIT margin as the year progresses given that the Swiss franc continues to be paid to the euro obviously. If we move on to market development, Slide 11. Hexagon's sales mix per region has been fairly stable. But in the Q2, we can see some noteworthy movement and that is that Western Europe is now shrinking its share of total business from 38% to 35%. The emerging markets led by Asia Pacific, South America and China are now growing their share from 14% to 15% in China, 13%, 14% Asia Pac and from 3% to 4% in South America. Slide 12, the overview business trends noted in the Q2 and we've highlighted the arrows where we see a different trend as compared to the Q1 of this year. The organic growth is exactly the same in the second quarter as in the first quarter 6% growth. But the growth comes from different areas as compared to the Q1 and is much more evenly distributed. So what's worthwhile noting in the Q2? Well, first of all, we have similar trends in the automotive industry on both sides of the Atlantic. Those arrows that are highlighted in yellow here were blue in the Q1. We've seen a slowdown at very high activity levels for automotive investments in metrology equipment both in North America and Western Europe. The other change is public safety in North America where we see an uptick in order intake, which should lead to increased business in the second half of twenty twelve. We've also seen the negative trend for surveying in China easing off and actually turning to a positive trend in the Q2. And this has to do with that Q1 was really the last quarter where we had significant high speed rail business in 2011. If we move to Slide 13 and look at the various regions, EMEA grew at 3% organic growth. And as I said before, it's very much a 2 speed market where we see good growth coming from Germany, Northern Europe, U. K, Eastern Europe and significant negative growth from Spain and Italy primarily. But measurement solutions used in automotive and aerospace were growing at high single digit rates in the quarter. And customers continue to invest in our enterprise engineering software, SmartPlan 3 d. So we're converting customers to our 3 d solutions. Construction related activities and the governmental business remained weak and that's quite natural given the bleak outlook. And as I just said, Eastern Europe, Middle East continue to grow. Slide 14, Americas. We continue to see a recovery in the construction markets in United States. The high demand in Canada driven by the natural resources sector continued in the quarter. And we see significant organic growth in South America as all end markets for Hexagon are Hexagon are growing in that sub region. For metrology, automotive, aerospace and general engineering continue to be the primary growth drivers. Slide 15, Asia. Asia grew by 10% organic growth and China is roughly half of our Asia business. And China continued to grow and recorded strong growth in the quarter. It's primarily strong demand for metrology from the automotive aerospace sectors. For geosystems, we do have demand from the power and energy markets. And geosystems returned to growth in the quarter and we expect further recovery as we start to receive orders in connection to the new business initiatives we initiated roughly this time last year in China. Other regions that report significant growth would be Korea, Japan and Australasia where we've had good growth in the quarter. On Slide 16, we basically see what we've just verbally commented graphically in the graph. And Slide 17 segment information. If we move to Slide 18, we have the P and L statement for Measurement Technologies. Measurement Technologies reported a 22.2 percent EBIT margin in the quarter and a 6% organic growth. Operating earnings amounted to €130,900,000 The strengthening of the Swiss franc is of course connected to measurement technologies and it had a negative impact on group EBIT margin of 0.4 percentage points in the 2nd quarter and 1 percentage points for the 1st 6 months of the year. Slide 19, the segments within measurement technology. We see the significant growth that metrology generated in the aftermath of the crisis in 2009 and we see it coming down to more normal pre crisis growth rates. Technology hasn't recovered since the crisis and as high speed rail was lost by the end of 2010 early 2011, we can see growth rates going down to 0 basically. But we also see the improvement that we've reported in the Q2. Technology has been with us since Q4 of 2011 and Technology reported a 7% organic growth. Gross margin, Slide 20. I believe this is somewhat of a record for gross margins 56% for Measurement Technologies in the Q2. And the corresponding EBIT margin on Slide 21 was up 22% in the quarter. Orders and product releases, Slide 23. Novotel received an order from the Chinese Internet company Tencent. And Tencent is a player in the Chinese market very similar to Google and Twitter. And they purchased the Span product to develop its social network services. Slide 24. We're quite proud that errors are not an option when it comes to manufacturing the largest Mars rover to date. I think it's the only one actually. And Novotel and Exagon Metrology have been involved in key parts of the solution to basically guide this rover remotely from Earth. Slide 25, we had we received significant orders for our enterprise software from Dow Chemicals, Petrofac, NEAP and China Institute of Atomic Energy. This is a trend. We do see Russia and China preparing to invest significant amounts in the nuclear power market. Slide 26. We also launched new software products in the quarter. We announced Smart Plant 3 d Revision 1, CAD Works Plant Professional 2013, and we expanded the Global Marine Center in Busan, South Korea to be able to support our Korean shipping customers. Slide 27. We also received a large order from Ireland from ESP Networks, which is a utility electricity company in the Republic of Ireland that will use our solutions to automate generation of reports, outages and so forth. Slide 28, the City of Calgary has decided to invest in Intergraph's public safety solutions to support their 911 center. Slide 29, the Ministry of Agriculture in Brazil has decided to standardize on Intergraph, ERDAS Imagine and ERDAS Apollo products and they will create a portal to boost and improve productivity in the sugarcane industry in Brazil. Slide 30, we got an order from the city of Lausanne in Switzerland that wants to document the entire city and create a 3 d model using airborne scan data from Hexagon well as terrestrial laser scanning. Slide 31, we also got 2 orders in Switzerland from earthwork companies HES and GMS in civil engineering are now standardizing on our machine control guidance systems. Slide 32. This is a quite interesting order where Sinclair Knight merged in Australia. It's a global EPC. They've since 2009 been a customer for Intergraph PPNM using Smart Plant 3 d. And they've now decided to integrate new Leica sensors into their existing software solution so that you can exchange files between the Leica solutions and the Smart Plant 3 d installation. Slide 33. CISPDR is a large government institute that is responsible for hydropower management in China. And we have they have now decided that we will get they will invest in Hexagon Technology in their hydropower station in the Yunnan Province. And this is a part of the so called H2O project that we showcased at Hexagon 2012 in Las Vegas. Slide 34, we received 2 orders from miners in the quarter. Anglo American's Dawson Mine will now standardize on our fleet management guidance systems and luminous copper in Chile will also use our mine management solution. Slide 35. We announced a couple of quarters ago a collaboration with Jigsaw Positioning Systems of Australia. And we've now received an order where we combine Hexagon's technology with sorry, with LUKATA's technology. And LUKATA is basically a local GPS system where you can augment and enhance positioning signals in an open pit mine. Slide 36, We got an order from Landmeterijet in Sweden. They will use Leica Geosystems products for their cadastrium surveying division. Slide 37, we had a new product release in the quarter, the so called Leica FlexLine was released. And we immediately got a significant order from a Mexican customer, Europo Gin Pro. Slide 38. Foxconn, which is a supplier of Apple Products, has ordered hundreds of shop floor bridge machines to be able to manufacture the next generation Apple products. And finally, Slide 39, we during the quarter, we hosted Hexagon 2012, which is a user conference with over 3,000 attendees representing more than 76 nations. And during our keynote speech, we had another 4,000 attendees that watched the live session via video stream. Summary. If we close this earnings call. In summary, we had another strong quarter. Sales growth 12%, 6% organic, 6% inorganic. Gross margin record of 56 percent and 22 percent EBIT in measurement technologies. Our operating cash flow increased by 175%. Thank you, everyone, and I am now ready to answer any questions there might be. First question comes from Mr. Lars Thorson from DNB. Please go ahead, sir. Thank you very much. Good afternoon, Ola. A couple of questions, primarily on the outlook in metrology and geosystems as we head into the second half of this year. But before we get there, a quick question on your gross margin. You continue to see a fairly good development here in the quarter, some 200 basis points year over year. To what extent is that driven by mix shift, particularly to Intergraft PBM? And to what extent do you believe that you're seeing an underlying like for like gross margin improvement in your metrology and geosystem segments? I think in this quarter specifically if we start with the gross margin question it was a mix shift where Intergraph weight in the total was slightly higher. And specifically in metrology, would you say the gross margins on an underlying basis are stable? They're stable and they are improving. But in this quarter, metrology's gross margin was not the reason why we saw a margin expansion. It was mix between the divisions. Understood. And on the outlook into the second half of this year, in metrology, your business trends as you highlighted on slide 12 in your automotive segments in Europe and the U. S. Have been revised down slightly versus Q1. That's perhaps less surprising. It's also revised down slightly versus your update in June when we met in Las Vegas. Can you comment a little bit on the order trends that you've seen in June July particularly in your automotive segment in Europe? And to what extent perhaps within that you're seeing any order deferrals or cancellations? No, we haven't seen that. We see order intake growth from metrology in July August. And the book to bill in metrology in the quarter? You mean Q3 so far? No. Yes. Sorry Q2 and so far in Q3. It's above 1. So would it be your expectation that you can continue to see growth as you head into late 2012 and perhaps early 2013 this year in metrology? It's difficult to give you predictions. But let's put it like this. We haven't seen a negative trend, I. E. Negative growth in metrology. But it's not realistic to believe that a business like metrology would grow at strong double digit rates like they have been growing for the past 2 years. That's clear. And just finally on D. U. Systems, you talked in your report about new business initiatives in China and we've talked about that earlier. Specifically at the Capital Markets Day, there was a lot of focus on your dam monitoring solutions and other initiatives that you're rolling out. What are the meaningful projects here in terms of revenue drivers in the next 12 months? And what's your visibility on the revenue opportunity of these specifically to Geosystems in China? Well, I mean it's not just Geosystems. It will also have a Hexagon 2012. So I can talk openly about that. We expect to see a gradual increase in the activity in the latter part of this year from that product portfolio. We also have similar initiatives alongside with dam monitoring and I believe to see meaningful revenue from those initiatives next year. How big do you think the dam managing solutions can be for you in revenue terms over the next 12 months? We'll see. Okay. Thank you very much. Thanks. Next question comes from Mr. Mikael Aschen from Carnegie. Please go ahead, sir. Yes. Hi. I also had a question regarding hydro power projects in China, but you could perhaps talk about the growth rate in China organically ex FX, first of all. That's the first part. Just to clarify that. China grew by 10% ex FX. You probably noted that the renminbi has strengthened during the quarter against the euro. You have a positive significant positive currency impact. Okay. I would assume it was rather 5%, but okay. Then on the SG and I development, if you could talk about the projects delays and how you have performed this quarter and what we could expect in terms of growth going forward? SG and I's restructuring is concluded and we're now focusing on top line again. And in this quarter you had you didn't have a decline in the top line. You didn't have much growth to brag about either. But we believe that we will see gradual recovery in the sales in the second half for SG and I simply because we have good order intake and we now are managing the delays in a professional way so that we can invoice. Okay. So simply delivering in line or delivering these projects as you have planned, what would that mean for the organic growth rates for that part of your business roughly? I mean, it's always been very modest growth in the SG and I business. Historically, it's grown at around 4%, 5%, 6% per annum. And I think that we might see a return to those low single digit rates rather than negative growth as we've seen for the past three quarters. Okay. And could you also discuss perhaps the difference in demand for the CAD solutions and the GIS solutions in that part? I mean the demand is fantastic for our CAD solutions right now. We believe the GIS solutions have a good demand, but it's a bit harder to sell. It's larger projects you negotiate longer. I mean, typical negotiations can go on for a year. But then you get a significant installation, which you basically place in your backlog and you can live from that installation over a 3, 4 year period. So it's 2 very different business models. Yes. I see. And the competitive side for SG and I, has that changed in any way? Not really. I think SG and I has improved. We typically don't have one competitor doing the same thing as we do. We team up with large integrators at times and those integrators could at other times become competitors because they work out their own solutions. Okay. And also just a quick question on PP and M the growth rate for that division and if you could comment on the mix, the sales mix there and perhaps demand for Smart 3 d versus the PDS products? Of course, SmartPlan 3 d is outgrowing the legacy products significantly. And we do see both a conversion of our own customer base from legacy products into smart plant, but we also see new customers adopting the smart plant technology. And since Technology as a division grew by 7 percent and we had very little growth from SG and I, you can figure out that we had strong growth in PP and M. Okay. Thank you. Thank you. Next question comes from Mr. John Hoetzner from Handelsbanken. Please go ahead, sir. Thank you. Can you hear me? Yes. Great. I have four questions and I'll start with the first one. On the cost savings impact for the restructuring in SG and I, could you give us a figure of that impact please? Yes, US3 $1,000,000 in the quarter. And is that the rate you will reach? Or will you come higher in Q3 and Q4? I think it's safe to say that we will continue to deliver €3,000,000 Anything else would be Christmas present. Good. That's clear. Then on your EBIT margin, you had a very good gross margin, but still EBIT margin for the whole group was flat year over year. Is this due to that the mix shift with higher gross margin also comes with higher SG and A? Or is there anything else on the SG and A side that is somewhat of a one off so that you should expand the EBIT margin going forward when the gross margin improves? I think that in the second quarter, it's I can't remember when the Swiss franc was paid to the euro. I think you will have a Swiss franc effect. I mean most of our currency negative Swiss franc impact is actually sitting in the OpEx. So you have I would say that the reason why we didn't improve the gross the EBIT margin when we improved the gross margin, I'd say 70% of that is because of the Swiss francs that has increased more than the other currencies and thus created a negative effect on our OpEx. Okay. So you get the positive impact on gross margin from FX, but the negative on your OpEx. So all in all, that takes down the margin expansion in the quarter in spite of fairly good growth. That's a good explanation. And don't hang me on this number, but as things stand right now with the current exchange rates as we see them today. So I mean, it's not a one off effect, but the revaluation of our fixed cost overhead in Switzerland has cost us €25,000,000 on an annualized basis. Now that could change if the Swiss franc continues to increase, which we knock on wood hope would never happen. So that's the effect we need to absorb. And obviously, as top line grows, the new incremental margin will be much higher than the one that has to absorb this €25,000,000 increase, if that makes sense for you? A little bit at least. On the FX, if we have €5,000,000 positive in this quarter on EBIT, given if we assume that rates will stay the same as they are currently, where what do you expect on impact on EBIT for Q for the second half? I mean, let's have a theoretical discussion on this one. We had a €20,000,000 35,000,000 FX effect on the top line. Typically that would have there is no reason in a balanced world why the EBIT wouldn't have increased by the reported EBIT margin I. E. 22%. So $35,000,000 22 percent we should have reported an $8,000,000 positive FX effect. And the difference between the €8,000,000 and the reported €5,000,000 that's the absorption of these €25,000,000 that I talked about earlier over a 12 month period. But given that your company continues to grow and you add new revenue and the Swiss franc stays where it is, the Swiss franc effect will have a diminishing effect on incremental margin orbit. Okay. So it should decline in the second half then? Hopefully. Good. Then on two more questions. On China, we've seen some news flow that investments in rail are picking up and that investments overall might be picking up. Are you seeing these trends as well? And if so, how strong could the impact be for you? I think then you need a general you need to have a general discussion about the Chinese economy. And of course, the government of China tries to promote consumer spending, but it's not easily done since you don't have the Social Security system with pensions, health care and so on. So people tend to save anyway. And as the economy slowdowns and you have these enormous reserves that China has in currency reserves and so forth, it's probably quite realistic to speculate that what they would do in the case of a slowdown is to push the button and spend money on infrastructure. And I think that we've seen some tendencies in that direction in the second quarter. So you've seen improvement in that sense. But are we talking about slight improvements or significant improvements? In the Q2, we talk about slight improvement. I think that in the second half of this year, we might hear about more initiative when it comes to infrastructure spending. Okay. And then my final question on Americas. I read on the news flash that you in an interview stated that growth in America would pick up and approach high single digit or low double digit levels. It's and at the same time you write in the report that Americas growth should come down to a more normalized level. What should one expect here going forward in terms of those comments? I think that I was misinterpreted. I think you should read it like this. We grew by 17% in Q1 and 5% organic growth in Q2. You can't really determine the trend by measuring 2 quarters. Our belief is that Americas and United States is recovering from low levels and we see increased activity in the U. S. Construction sector, which is the single largest market for us in the Americas. So we do believe in a recovery, a continuous recovery in Americas. Whether it's going to be double digit, single digit is very difficult to determine right now. But we do believe that it's definitely going to outgrow EMEA. Okay. And when you talk about normalized levels for growth in Americas, over time, are you talking about roughly 8% or is it lower or higher? We'll see. But I mean our long term trend for the group is 8%. All right. Very good. Thank you so much. Thank you. Next question comes from Mr. David Jacobsen from Pareto. Please go ahead, sir. Hi. Just a follow-up on the cost and the currency discussion. I think a year ago, we were discussing a measure to be taken to offset the Swiss franc impact. I was wondering if you could share some of your thoughts now with in terms of cost streamlining and what you can do to adjust your cost base to the current FX landscape? We've done quite a bit. We've renegotiated contracts with suppliers and so forth. And I think that's why also we have a good gross margin development. We can do very little about our fixed cost overhead in Switzerland, which basically is our 1,000 engineers developing new products for us. That's I mean, it's impossible to do anything about it. Okay. So you're relying on the peg a bit? We are. Okay. Thanks. Just a follow-up also on the working capital. You have very low tie up. Any further comments on that? And what should we expect going forward? I think that what we see is the increased weight of Integraph in the Hexagon Group is having a positive effect on the working capital requirement as we grow. We still had working capital negative working capital well build up basically in geosystems and metrology which have more traditional working capital model. So I believe that we will continue to improve our working capital situation as Intergraph continues to grow. Okay. Great. Thanks. Thanks. Next question comes from Mr. Prasad Bora from Goldman Sachs. Please go ahead, sir. Thanks for taking my question. I have just a couple of them. Firstly, on the metrology business, you have indicated and we have seen in the results that it seems to be a slight slowdown. Could you comment a bit more on the competitive landscape in the space? And with regards to the demand slowdown, is it just purely based on comps? Or you're seeing some incremental pricing pressure in the segment as well? And the second question is on the PPM business. Geographically, can you provide a bit more color especially on China? How does the order book look like? And are there any large customers where you're seeing upgrades coming through? If we start with metrology then, yes, it's a slight slowdown and the competitive landscape hasn't really changed. As a matter of fact, I would say that we're more and more moving into an oligopoly in the metrology market where we if you go back 5, 6, 7 years in time probably encountered 5 or 6 competitors at every bidding situation. And now it's really only us and the German company called Zeiss in most of the bids. So we haven't seen a price erosion. And I would say it's more a comparative slowdown rather than an actual slowdown in the market. One must remember that we report significant growth in metrology on historical levels. We report €180,000,000 in 1 quarter which is fantastic for that business. If we move on to your question about PP and M in China, yes, we do see large operators moving towards our solutions. And it's 2 areas where we've noted that for the first half and that is the oil exploration sector with companies like Sinopec and so forth. And then it's the initiative that the Chinese government has taken to build out its nuclear power sector. So the slowdown which we saw after the Japanese earthquake in a way you're indicating that the demand is coming back. Would that be a fair comment? I don't think that China ever slowed down. I think they reconsidered where to build their nuclear power plants and maybe they don't build them along the coastline. But I don't think there was ever a slowdown in the initiative to build out nuclear reactors in China. Okay. Probably just one more from my end. Looking at the balance sheet and looking at the priorities in terms of dividends and acquisitions, are there any change of plans? Are you planning to probably accelerate your debt reduction? Or do you think it's going to be as indicated earlier? I think we follow our plan to reach 2.5 times net debt to EBITDA by year end. Thank you. Thanks. Next question comes from Mr. Daniel Schmidt from SVB Insches. Please go ahead, sir. Yes. Hello. Good afternoon. I think most of my questions have been asked already and answered. So just a final short question on guidance. And in terms of CapEx, you mentioned in your statement that you will see investments in Germany and the U. S. When it comes to a plant and also a new headquarter for Entegraaf. Could you give us some more guidance in terms of numbers and also quarters? The German investment should be concluded by the 3rd quarter. The American investment 2012. So it's going to have an impact on possibly the Q4, but then stretching through 2013 into 2014. It's going to take almost 2 years to conclude that building that we're building. It's difficult to say what the cash flow impact will be. The total construction cost is $60,000,000 So if you do a rough sort of on the back of an envelope calculation that's €48,000,000 and it's over 8 quarters. So it would mean €6,000,000 per quarter in additional investments because of that. Now why it's difficult is because we are intending to sell land that we own around the building we want to build. And that will have a positive impact on investments. Receivable of payment for that parcel of land is also very difficult to determine now. Sure. Sure. And then the German investments? Sorry. I couldn't hear you. And then the CapEx for the German plant? That will be concluded this year. And any figures? Or is it maybe not meaningful? No. I think it's a €15,000,000 project that kicked in. Part of it was last quarter. I think the lion's share is this quarter, and we're going to have a portion next quarter as well. Okay. Okay. Thanks a lot. Thanks. Next question comes from Mr. Max Frieder from Erik Pansa Bank. Please go ahead, sir. Yes. Thank you very much. I believe most of my questions have been answered as well. But if you could just give some flavor on where we are in terms of margins in the A Systems, if it's closer to 25 rather than 20? And secondly, if you could elaborate a little bit about the potential of bringing metrology margins up to group level? How do you know the metrology margin? Well, as an indication from former calls, I guess. We don't comment margins per division. But I mean the plan, I don't think that metrology it's not in our plan that metrology could reach 25%. I think that Geosystem stands a chance to do it given good mix and volume development in the next coming few years. Metrology, however, has a history where you basically came from breakeven and we're now very close to group margins. And there is still room for improvement in the metrology business. Thank you. And just a quick follow-up on Asia. You see that all you saw growth in all application areas. Could you just comment a little bit on the construction? What has seen trends so far in the quarter in Q3? In Asia? Yes. Construction in Asia, we see a very sluggish market for you have to distinguish between construction and infrastructure. So when I say construction, I mean house building basically, commercial and residential housing. That market has been very sluggish even in the Q2. We've seen a growth in our sales, but that's simply because we're starting to introduce GeoMax, which is a low end brand, local Chinese brand that we have launched into that market. So we're basically taking market share in a very weak market with our product GeoMax. In general, we do see a stabilization for construction. Infrastructure, however, if we disregard high speed rail, there we've seen a pickup in the Q2 in China. I don't know if it was China or Asia you referred to. It was Asia in general that sounds very helpful. Okay. Of course. Rest of Asia, you could say construction sector is not very good in Australasia. In Japan, we do have some interesting projects in the aftermath of the earthquake you had last year and the buildup. Okay. Well, thank you very much. That was all from me. Thank you. Next question comes from Mr. Mats Torgander from NGS Berenberg. Please go ahead, sir. Yes. Good afternoon. Hi. I'm not quite sure how to put this, but I can't help asking since I was the one quoting you here. You spoke about Americas in Q3 and you said that it could possibly be single digit growth, maybe weak double digits. And I simply wrote that and it would be interesting to hear you clarify that. Now as I understand it, you don't quite recognize that. No, no. I recognize it. It's just that I'm getting cold feet. Okay. Well, I have a reputation to think about, so I have to ask you. So do you still stand by that then? Stand by what? Well, what you said. I stand by that. I said it. But now I say double digit might be a bit tough in the second half if we Okay Okay. Thanks for that clarification. Thank you. Thank you. Next question comes from Mr. John Husner from Handelsbanken. Please go ahead, sir. Thank you. I have 3 follow ups, if that's all right. First on sorry to dwell on the EBIT margin here, I'm trying to get the numbers right. If I look at your operational leverage in the quarter and strip the FX impact, I get that it comes down to a bit below 30% after being very strong 45% in Q1 and the quarters before. If those numbers if you recognize those numbers as right, can you explain them a bit why leverage in this quarter is not as good as before? Well, it always depends on the mix. And in this quarter, we had I mean the mix within the various divisions. And we in metrology, for example, we it was a bit of a disappointment to see the actual outcome. We were expecting a slightly stronger EBIT margin for metrology in the quarter. But we shipped products with low margins or lower margins as compared to Q1. I think it's it stems from metrology. I don't recognize your numbers, but I've done a similar analysis. And my conclusion was that metrology had a slightly more unfavorable product mix in the Q2 as compared to the Q1. Okay. But when you look at the mix in the order activity right now, is this mix similar? Or are you coming back to the old mix, so to speak? It's very hard to say because we have 4 weeks of this quarter. I don't want to give any answers on that. It's too long until we know the facts. Okay. But it's mix that is the reason for this. It has nothing to do with any eventual cost inflation or other factors? No. I mean within metrology you have products spanning from 1% EBIT margin to very strong double digit margins. And of course it depends on what you ship. In the quarter. Sure. Good. That was clear. And then on your working capital, you mentioned that seasonally it was stronger than normal in this quarter. How should we look for the rest of the year? Is it still the same with should we still expect a very strong working capital release in Q4? I certainly hope that. So I mean, if the world hasn't changed completely, that's what one should expect in the Q4. But the one who lives, we'll see. Sure. But I mean the impact from Intergraf and that has gotten a bigger impact on your working capital. It doesn't mean that the strength in Q4 will be less clear than it usually was? No, it shouldn't be in that because you have 2 different business model base that models basically within Hexagon. You have the Intergraph model where the customer prepays before delivery if we simplify things which has a positive impact on your working capital. And then you have the more traditional model that Geosystems and metrology adheres to. And that is you ship the product, you build accounts receivables and then you receive the money. Now we haven't seen any new pattern in the old business model I. E. Metrology and Geosystems. They still have a cash outflow in the first half. The reason why the group looks better is simply because Intergraph is now a larger portion of the group business than it was a year ago. So if metrology and geosystems repeat what they've been doing well since inception basically, we should see cash inflow from working capital from those two businesses. Whilst Intergraph doesn't have a seasonal pattern when it comes to working capital. They have a similar trend quarter over quarter. So all in all that should mean that we have the positive cash effect from working capital in the Q4. But as I said, we will see. Sure. Great. That's helpful. And then my last questions. The orders that you get to hydro powers and dams in China, what is the size of these? If you will get an inflow and one big project, what type of amounts are we talking about? Typical order could be anything from US100000 dollars up to $10,000,000 And it depends on the size of the project. What we try to construe is a scalable solution where local dam owners can buy one installation at the $100,000 level. But then authorities can connect those local installations into a central monitoring system so that you basically over time create a system that connects all these subsystems into 1 central reporting system. Okay. And on the same question, but for rail, if we should get a sharp pickup in investment in Rail, what type of order values are we talking about in this segment? Well, the business at the peak, it was €50,000,000 business, which now is basically well, it's not 0, but it might be €10,000,000 annualized right now. All right. Don't bet on that. Very good. Very good. Thank you so much. Thank you. There are no further questions at this time. Please go ahead, Mr. Roulian. Well, I don't have much more to go ahead with. So I thank everyone for listening and asking very clever questions indeed. Thank you and talk to you next quarter. Bye.