Earnings Call: Q2 2019

Jul 26, 2019

Hello, and welcome to the Q2 report of Hexagon 2019. Today, I am pleased to present Ola Rolien. Please go ahead. Thank you, and welcome everyone to this interim report for the Q2 of 2019. And if we start on Slide number 4, the overview of the Q2 2019. As previously reported early in July, we see organic growth of minus 1% in this quarter. Our recorded net sales growth is 4%, thanks to structure and FX. We saw solid growth in the quarter in most areas actually. Geosystems 6% organic growth PP and M 3% on the back of very tough comps in the Q2 of 2018. But Manufacturing Intelligence recorded minus 7% organic growth, reflecting the weaker demand environment in China and especially in the Electronics segment. Manufacturing Intelligence without China actually grew year on year organic growth. So the rest of the world was fine for Manufacturing Intelligence. And as expected and previously communicated, Safety and Infrastructure began to stabilize and we saw improvement in that division. Earnings and margins. Gross margin excluding nonrecurring items. In the report, you have nonrecurring items in the gross margin amounting to €9,000,000 But excluding those nonrecurring items, the margin was 63% versus 62% last year. And the EBIT margin was 24.5%. If we now move to Slide 5, overview continued China in the second quarter. We saw a decline in the Chinese demand and it's on the back of geopolitical uncertainties on global trade, especially within the electronics or mobile phone segment in China. Electronics accounted for 4% of Hexagon Group sales in the Q2 of 2018 and it's now declined to below 1% in the Q2 of 2019. China accounted for 17% of sales in the Q2 of 2018 and it's now down to 12% of sales in the Q2 of 2019. And what's happening in the Electronics segment is several factors impacting demand. We see customers restructuring their supply chain, moving capacity out of China. And we also see some suppliers faced with restricted access to foreign technology, which is hurting their overseas sales. The financial impact from this and savings is that we launched a restructuring program with proactive restructuring actions across the world to ensure that the company remains on track to meet the 2021 financial targets. We are reducing our global workforce by approximately 700 employees. We're charging the 2nd quarter P and L with SEK 44,400,000 and this is expected to result in annualized savings of $51,000,000 with the full run rate achieved as from 2020. Slide 6, seasonality and profit In spite of this weak Chinese development, Q2 was, as you can see from this graph, a strong quarter and Q2 should be a strong quarter. Moving on to Slide 7, key figures in the P and L statement. Sales amounted to €976,000,000 which is 4% recorded minus 1% organic growth. Operating earnings EBIT1 amounted to 239 €1,000,000 which is 5% better than the corresponding period last year. And in spite of this Chinese decline, we managed to improve our EBIT margin slightly in the quarter. If we move to Slide, I think we skip the 6 months numbers and go straight to Slide 9, cash flow. Cash flow from operations before changes in working capital and excluding taxes and interest grew by some 10%. And we see a pretty good cash flow throughout the quarter. And we had a cash conversion of 97%. And just to remind you, our target is 80% to 90%, but we're going to be above our target if the organic growth is negative. Working capital to sales, Slide 10. Working capital to sales was 12.5%. So we saw continuous reduction in working capital to sales in the quarter, reflecting the changed business structure of Hexagon. Market development finally, if we move to slide 12, the sales mix is actually pretty dramatic. This is usually a picture where we have very stable relationships. But as you can see, China dropped from 17% in Q2 of 2018 to 12% of global sales in Q2 of 2019. If we look at contributors to growth, we saw strong growth, and I'm on Page 13, strong growth in South America, strong growth in Asia, excluding China. And we see a trend where manufacturers are starting to build capacity in countries like Vietnam, Indonesia, Malaysia, and that is benefiting Asia, excluding China. Eastern Europe, Middle East and Africa grew well as well, and we had pretty decent growth in Western Europe. All major countries, but for U. K. Grew. North America is on the back of very tough comps for PPNM. PPNM had a perpetual software order amounting to $12,000,000 in Canada and United States this quarter last year, and they did not have a similar perpetual order this year. And that's why North America is down. The rest of the business is actually performing quite well in North America. And then we have China with -25 percent organic growth in the quarter. Moving on to Slide 14. This gives you an overview of the situation for various segments and geographic regions. I am not going to spend time on it now, but you can review it and come back with questions later on. Moving to EMEA, Slide 15. As previously stated, Western Europe, decent growth, 5% organic growth, primarily driven by France and Germany, and we saw weakness in the construction sector in the U. K. In the Q2 double digit growth in Russia and high single digit growth in Eastern Europe Middle East mid single digit growth. Americas, Slide 16. North America, minus 1%, and this was on the back of this perpetual one off order of €12,000,000 in Canada and United States for PP and M in the Q2 of last year. But continued solid demand in infrastructure and construction, Geosystems had a good quarter in North America. And South America is growing very strongly in the quarter, strong double digit growth. And it's two things that we see in the quarter in South America. We see strong growth for our solutions in the mining related countries, the Andean countries. And we also see a continued recovery in the Brazilian economy. Asia, finally, Slide 17. As previously stated, China recorded minus 25% organic growth. It's impacted by the increased geopolitical uncertainty on global trade, and it was felt most heavily within the electronics mobile phone business within the Manufacturing Intelligence division. Demand in Automotive Infrastructure and construction positioning solutions also declined somewhat. Power and Energy grew, strong growth reported in China for Power and Energy. And as I commented before, we do see well, right now it's small, but we do see a positive trend in countries like Vietnam, Malaysia and Indonesia, where a large handset manufacturer built out its capacity in Vietnam in the quarter. So all these countries neighboring or being close to China in the Asia region are benefiting from investments due to this geopolitical uncertainty. Japan and South Korea continue to record double digit growth. Reporting segments, Slide 19, Industrial Enterprise Solutions. An organic growth of minus 4%, where MI had minus 7%, but PPNM recorded plus 3% on the back of a very strong quarter in 2018. Sales amounted to SEK 4 79,000,000 and EBIT came in at roughly SEK 120,000,000 and this is an EBIT margin of 24.9% compared to 25.2% this time last year. And the negative impact is obviously to do with Mi in China. Geospatial Enterprise Solutions, Slide 20, organic growth of 3% Geosystems, very strong growth 6% on the back of newly released products and technologies. And I think it's worthwhile mentioning the RTC360, our new scanner, which had record sales in the quarter. SI is stabilizing and improving. So for SI, we saw minus 4% organic growth, and we believe it's going to recover further. And we are expecting growth in the second half of this year for that business, positioning 0% organic growth where we saw a weaker demand in the surveying market, primarily in China. Sales amounted to SEK497 1,000,000 and EBIT SEK127 1,000,000, dollars which corresponds to an operating margin improvement of 0.5%. Moving on to Slide 21. The gross margin excluding the $9,000,000 charged in NRI in the quarter, is now 63% on a 12 month rolling basis. And the operating margin came in at 25% on page 20 2. And if we move on to orders and product releases in the quarter, we start on Slide 24. Amundate is an acquisition of a German based provider of simulation software solutions, and it supports the generation and optimization of designs for additive manufacturing and engineering simulation. And it's going to be consolidated into the software division of Mi. Slide 25, we're speeding the transition from document based workflows to digital workflows by signing a partnership with Aspen Technology, a U. S.-based technology company. And we align AspenTech's conceptual basic engineering and cost estimations with Hexagon's detailed engineering suite. And the result will be a data driven centric data centric workflow that supports the flow of digital project information from the conceptual phase into what's called front end engineering design. Slide 26. In connection to Hexagon Live, we introduced the 2nd member of the new BLK family from Leica, the Leica BLK2Go. And this takes the Leica 3 d that we launched a couple of years ago and makes it movable so that you can actually walk through an object, a construction site or whatever it is you want to capture in 3 d scans. So it allows you to have motion, but still get really good quality point clouds. And we see a wider range of applications for this new product, like visual effects in media and entertainment, design of industries or 3 d documentation of already existing plants and architecture and so on. So this is a little revolution, but it doesn't end there. So on Slide 27, we can provide the we can present the 3rd member of the new BNK family and that is 20 fourseven. And it's continuous 3 d reality capture stationery that eliminates the need for constant human monitoring of screens because here you're measuring with lasers and not with images, which is typical for, for example, security cameras. So you can now geofence objects. You can look at objects that appear that wasn't there before. And combining this technology, this LiDAR based technology with artificial intelligence, you can teach the camera to look for certain events or objects that it should react and send alarms to someone that reacts to that alarm. Both these two products will be commercially available as from no, sorry, the BLK2Go will be available as from the Q4 and BLK 20 fourseven as from Q1 2020. Slide 28, Leica also launched the Leica DSX ground penetrating radar solution. And this will enable you to easily detect, map and visualize underground utilities. And you can combine that with your map so that you get to 3 d representation both above ground and below ground. Slide 29, we introduce the next generation public safety software, which will help driving the growth for the SI division. It's Hexagon On Call. It's the name of the new suite of products that helps public safety agencies of all sizes to achieve more agility and resilience through modernized capabilities and a modernized structure. Now OnCall can be deployed on premise or in the cloud. So it's really up to the customer to configure and decide what modules and how large of an application they want. And this will enable Hexagon to address not only the really large police forces or rescue forces around the world, but also smaller sized forces. Slide 30, we launched a new advanced positioning system for automated 3 d optical measurement on the factory floor. It's called Light Runner, and it's transforming the 3 d optical measurement process by speeding up surface data capture while simplifying setup and operation. You don't need object identification tags anymore. You can just shoot and project your optics. And it's a patented solution, and we're launching it in the Q4. Slide 31, open autonomy pilot in Peoria. This is a new level of research for autonomous vehicles where we have created a route through downtown Peoria in the United States to refine autonomous capabilities for partners and other research organizations in connection to autonomous driving. We're bringing several cross divisional technologies together in this test site in Peoria. Slide 32, we're launching gadget 410ml and this is the latest addition to the gadget portfolio of Antigen Technology. It's a space constrained module, which works very well on military land applications where space is an issue. And it protects against both intentional jamming and accidental interference on your communications and positioning systems. Slide 33. We've merged our technologies from surveying with our mining technologies in the new Hexagon Geo Monitoring Hub, which provides an integrated visualization and analysis platform for mining, bringing together the total positioning station sensors, the scanning sensors with our mining software. And we've created one integrated solution for the mining world. Slide 34. We got an order from Deutsche Bahn, the German railway, and they choose Hexagon's data as a service solution to deliver a Germany wide cadastral map to support planning and operations in connection to their rail operations. Slide 35, Iowa Department of Transportation in United States selected Hexagon's documentation services for full service documentation of 180 facilities with some 90 plus additional facilities scheduled for 2020. What we're doing here is we're offering services, scanning services through our distribution channel, Multivista, using the Black3d to scan. We're also using our drone capabilities to do aerial mapping of those facilities. So we've reached the end of my presentation. In summary, on the final slide, we report 4% recorded growth, 1% negative organic growth. And despite a more uncertain global trade environment impacting parts of the business, we saw solid growth in GEO systems and PPNM on the back of tough comp. But Manufacturing Intelligence record a minus 7% organic growth, reflecting the weaker demand environment for Mi in China. Hexagon also announced a proactive restructuring program to ensure that the company remains on track to meet its 2021 financial targets. And in spite of this, we continued our margin expansion and our profit growth. So with that, operator, I think we're ready to answer any questions there might be on the call. Thank you. Our first question is from Adam Wood from Morgan Stanley. Please go ahead. Your line is open. Hi, good morning and thanks for taking the question. I've got 2 if I could. The first one is obviously around the handset business in China. It feels like this was kind of a very one off geopolitical shock. And you're suggesting that in the rest of Asia, you're already seeing kind of build outs and orders coming through that you might think would compensate. So what's your view around this being relatively one off and short lived and that the demand you start to see coming back in other regions? The fact that you're restructuring reasonably aggressively suggests that maybe you don't think that or maybe there are other areas of the business that you're nervous about. So if you could just give a few thoughts around how quickly things could bounce back, why you're doing the things are a little bit tougher. I think in November last year, one of the lunches you spoke in quite a bit of detail around how the portfolio was much more based today around value selling. It wasn't really volume linked. Again, is there any reason to change that view today? Is there any kind of metrics you can give us around the recurring software revenue percentages just to help us understand how much of that portfolio is tied to value that will be more protected if things were a little bit slower in the macro? Thank you very much. Well, I need to shop it up in probably two questions. So if we start with China, no one really knows how long this is going to take. But as you pointed out, we do see a trend where manufacturers are moving out of China, setting up operations in neighboring countries. For China and for electronics, we don't see any sequential worsening because, frankly speaking, it was worse enough as it was in the Q2. So we don't think sequentially it's going to be any in the Q3. Year on year though you're going to have a similar impact in the Q3 as in the Q2. So that's important to remember. Why we're doing the restructuring? I mean, I think what we're doing is what you we do see a worsening general situation in the global economy on the back of these failing trade talks. So it's China in the second quarter and no one knows really what's going to happen in the second half of this year. But I don't think any single end market is getting any better, if I put it like that, except for maybe public safety. So I don't know if that's enough for you on your first question. Absolutely. That's very helpful. Thank you. So could you take the second half of your question again? Yes, sure. I mean, it was just I remember a lunch we had in London last year. You were going through the portfolio and showing how the sales were much more linked to product quality and basically the value that you deliver a business in particular, but more generally would make you change your view at all on that? And then if there's any metrics you could give us in terms of percentage of revenues that's more linked to that? I don't know whether it's giving us recurring software helps, just things like that. So just give us more of a feel for as things slow, how protected the portfolio is, given it's very different than where you were going into the last cycle if this is a cycle? And as you say, who knows? No. I mean, we haven't changed our views. It's still linked to new design and new products. But I mean, now we're talking a political event where the OEMs are seeing their volumes drop significantly overnight. And that, of course, makes them hesitate on product development as well and they cut all expenses. So it's hard to see how this is going to play out, but it was a bit of a hard stop in June. Perfect. Thank you. Thanks. And our next question is from Daniel Jubei from Handelsbanken. Coming back to China, you also mentioned this restricted technology access as an obstacle. Can you comment if this is related only to one customer like Huawei? And can this potentially be sold in short notice, you think? We're seeing delays in the foldable handset, etcetera, from Huawei. And also a question on your 700 employees cut down here in 2019 to be on the safe side for 2021 financial targets. How should we consider the impact on the net sales from these measures? Thank you. I don't think it's going to impact net sales. I think the net sales impact is already seen. And as I stated before, it's a very fluid situation out there and no one knows what's going to happen in the second half and how this prolonged stalemate between the 2 largest economies in the world is going to play out on certain sectors of the global economy. You have to ask someone smarter than me to answer that. But yes, I don't know what I should answer you really, but I can't comment on individual accounts. It's a more complicated situation than just Chinese manufacturers getting access to U. S. Technology. It's actually a bit the other way around as well on certain components. So everyone is getting hurt right now no matter what nationality they have. Okay. May I just have a follow-up on the Process Power and Marine? Obviously, very strong underlying growth in the quarter given the very strong Q2 '18. You mentioned the LNG Canada and the average CHF 12,000,000 order in last year. What can you say anything about the pipeline for similar orders? Or is this a huge challenging Canada potential PPNM going forward into the second half. So I think the most geopolitical sensitive businesses we got are in manufacturing where people tend to pull the brakes very early on. And then you have political decisions around infrastructure decisions as well, which later on could have an impact on our surveying construction business. But it's still early days and we don't know. But if you look at the PPNM and the SI businesses, I think right now we're probably a bit more comfortable with growth in those areas. Okay. Thank you very much and good luck to you, 3. Thanks. And our next question is from Stacy Pollard from JPMorgan. I was hoping to dig in a little bit on North America. You talked about weakness in energy and power as well as automotive. Maybe you could talk about which product sets are being hit there? And of course, you talked about the $12,000,000 perpetual order in PPNM, but of course, overall PPNM grew. But yes, just trying to begin to understand the minus 1% for the region. Second question, maybe I'll follow-up after. Yes. Thank you. It makes it much easier to answer. No, I mean, North America isn't very weak if you back out the $12,000,000 perpetual order that we had this time last year. So then it's actually growing. And I think it's not weakness in the petrochemicals Petrochemicals segment. It's just that we couldn't beat a very tough comp in that region this year around. And automotive? Automotive, I think, is a global phenomenon where we do see slower growth rates both in Europe, North America and Asia outside China. And then the follow-up was on restructuring again, sorry to be the 3rd person asking. But just the 700 employees, how many came from China? And what other divisions were affected? It was across the board. So we're just safeguarding our margins. And I don't know if you should use Naven terminology, but if you're out on the ocean and you reef your top sales because you don't know what's going to happen. So that's how you should view this restructuring. So not particularly focused on China, just completely across the board? No. One third a bit less than one third came from China. But China is a fairly well run organization already as it's with really good EBIT margins. So we were restructuring other regions as well. Okay. Makes sense. Thanks. Thanks. And our next question is from Michael Lassien from Carnegie. Please go ahead. Your line is open. Hello, hi. Yes, I have a question regarding Asia and Asia and development was a decline of 6%, I think. Can you explain this decline? Because Asia seems to be growing. So how much was China down for that segment? It's more or less all linked to China. And we've seen it's not that great at the electronics decline, but we've seen reduced activity in these large infrastructural projects like the Silk Road, for example, that has impacted our infrastructure and surveying business adversely in the quarter. And how much so how is the exposure there? How much of GES Asia is China and how much is rest of Asia? I don't know from top of my head. I mean, it's not like MI. The geospatial has a much more diversified exposure where Japan, Korea, Australia are large markets as well. Can we come back on that? Because I don't know from top of my head how big China is. Yes, of course. But I was a bit surprised by the weakness in China because it must be done quite a lot because it's more broad based, this 17% of the GES segment. No, absolutely. And it's hard to speculate. I mean, I don't know for sure what the Chinese government's balance sheet looked like, But it's a huge commitment, these large infrastructural projects, and maybe they've been cutting back on that. I don't know. Okay. So in total, do you expect you mentioned that you expect the same or similar decline in Q3, maybe Q4 in China. Is that the same type of weakness across all end markets? So it's not only electronics, it's infrastructure No, it's primarily electronics. But the Chinese most of our end markets have weakened in the quarter, not as dramatically as electronics. So we do see a broader weakening in China. And the best forecast we can do really is that sequentially, we don't expect it to get worse. But year on year, we think a similar trend in Q3. And then Q4, maybe slightly easier comps. And the earliest we could return to growth would be the first half of 2020 in China. And that's what we're working on. Yes. Okay. But do you expect the total group to grow year on year in Q3, Q4? We'll see. I think right now we China is such a big impact on the group. It depends on how the demand develops in the other regions really. Yes, of course. Yes. Okay, thanks. And our next question is from Mathias Holmberg from DNB Markets. Please go ahead. Your line is open. Thank you. Sorry to get back to China again. And my question was partially answered right now. But could you still again please help us understand a bit? Because from how I read your report now compared to what was written in the press release with the profit warning? It seems like the slowdown in China is a bit more broad based, I. E. Not just impacting the electronics business. So if you could just help us understand a bit how much of the 25% decline was related to electronics and how much was driven sort of by these other verticals where you saw some softer demand? And also as a follow-up on that, could you just help us a bit with how big is China of the total Mi division? I mean, we said mostly China Electronics. So mostly for me would be 80%, 90% of the total decline. So that is the segment that dramatically has changed. But you do see an impact in other regions. And as I pointed out, in the infrastructure, we do see a slowdown in spending in connection to large scale projects. And do you have And do you have an indication of how big China is of Mi? Of Mi? I don't know if we disclosed that, but it's by far the largest market for Some quarters, it's been up to 40% of sales. Okay. Thank you very much. Thanks. And our next question is from Sven Berg from Barclays. Please go ahead. Your line is open. Yes. Thank you for Just one quick follow-up on China. Obviously, some of the manufacturer are now looking to relocate outside China. Are you actively working with these customers? And then secondly, could you give us an update on smart build? When do you expect the product to come out of beta? And how big could this product be for you in a couple of years? Thank you. No, we are actively working. It's the same customers that we encounter in China as in Vietnam, for example. So we are actively working in their relocation of capacities. So we'll see how that will pan out in the quarters to come. And SmartBuild will was planned to be released in the Q3 from its beta mode, but we've now had requests from our beta customer to add things to the scope, which means that we're going to keep it in beta until year end and then release it in by the end of Q4. We believe that this could be a really good product. And if you combine it with the development that you're beginning to see in geosystems with the BLK series where you will have portable scanners that can report back to this platform software on updates. We think that ecosystem could be one of the largest products for Hexagon in a few years' time, not being specific on years. And maybe just quick follow-up, who do you see as your closest competitor for SmartBuild? We don't see a competitor because you have software competitors just focusing on BIM or creating a software model and then you have competitors making sensors, scanners and layout tools. But we haven't really seen anyone combining the 2 and create a workflow solution. Solution. Okay. Thank you. Thanks. And our next question is from Erik Golang from SEB. Please go ahead. Your line is open. My question is from now to actually. Thank you. And the next question is from Alexander Virgo from Bank of America. Please go ahead. Your line is open. Thanks very much. Good morning. Good morning, Ola. Thanks for squeezing me in. I wondered if you could talk a little bit about 2 things. On the first one, and it's a slightly esoteric question, but obviously, the scale of the decline in June took you a little bit by surprise, exclusive of this deterioration in that exclusive of this deterioration in electronics just as a function of how you see the next kind of 12 months or the prognosis for the next 12 to 18 months in the context of the 2021 targets? I guess that's a fair question. And we've seen and we've personally have been expecting weakening in the global economy for 2 years now. So I would be lying if I didn't say that we had prepared a cutback already a year ago. This economy has been very strong indeed, as we all know. We've seen 10 years of unprecedented growth in the global economy. And all great things come to an end. So the Chinese decline took us by surprise because it was so distinct and it was one segment where orders that we were expecting simply didn't materialize in June. The cutbacks would probably have happened anyway. Right, right. Okay. Well, that's helpful. Thank you. And then the second one, just on, I know you don't always quantify this explicitly, but product contribution, new product contribution to organic growth, I guess, particularly in GES or as a mitigant in the context of IES, normally, it's a much bigger thing for Q3 and even Q4, I suppose, is when you typically see the biggest impact because of when you launch the new product portfolio. But RTC 360 has obviously been around for a little bit longer than that. So I just wonder if you could talk a little bit about the contribution from new products to organic growth in this current quarter and obviously as we look forward over the next couple? It's a bit more than 2% in the quarter. And RTC 360 is a really sticky product. And you're absolutely right, it's not brand new, but it's gaining traction everywhere. And I think it's the 1st product in a family of products where you can move around, capture data as the product itself navigates in the geospatial space you want to capture. So it's a very clever development. And so that's 2% at the group something that you'd expect to carry on through the rest of the year. Okay. And something that you'd expect to carry on through the rest of the year, notwithstanding the underlying market development, of course? I think that we're going to see continuous traction in the Q3. Q3 is going to be a tough quarter for new products because we really don't launch this year's new product until Q4. And Otissey 360 is not a new product in the 3rd quarter. Okay. That's helpful. Thanks, Uwe. Have a good summer. Thanks. You too. And our next question is from Markus Almerud from Kepler Cheuvreux. Please go ahead. Your line is open. Yes, yes. Good morning. Markus Almerud from Kepler Chevreux. A couple of questions. Just a follow-up on China Electronics. Could you just help us with what is the product what is the customer mix here? So how much is foreign producers and how much is We are very restricted on commenting on these accounts. We are very restricted on commenting on these accounts. So but I can only state that it's both foreign and domestic brands that we work with. There isn't a single OEM in the mobile phone market that we don't work with. Okay. Okay. Fair enough. Then my second question is on the BLK family. So first of all, just a little bit on the risk. What kind of response have you got on the new product if you launched HEXIO Live? And then also, is it possible to say what kind of annual sales you have at the moment for the family as a whole, so for the BLK family? And also, what is the price for BLK 2 go? I don't think we've announced did we announce the price? I can't remember. It's slightly more expensive than the BLK360, which is $16,000 because it's got a bit more technology in it since you can move around. But I don't have to say your question because I might be wrong if you want to go out and buy 1. We don't disclose how much the sales are annualized for this new family, but it's been a success. And the reception on the Black To Go and also the BLK 20 fourseven has been fantastic. I mean, it's what people have been looking for because you have a lot of setup time with the traditional scanners, which needs to be stationary and think compare that to that you can walk through a plant or a premises that you want to document in a normal walking pace and you capture all aspects about it. So it's a small revolution really and people are really excited. I have to say though, since this is an earnings call that don't expect deliveries in Q3. We start delivering in Q4. Okay. And so just one follow-up on the BKL to go and also I guess the BLKT. Who's the typical customer of this product? BLK2Go will have anything from construction companies, foreman, layout managers, architects. We also have discussions with the media industry where you have entertainment, gaming, film productions and so on. The BLK 20 fourseven is installations, large industrial sites where or large offices where or even subway stations and things where you want public safety and you want constant monitoring of what's going on. Okay. Okay. Perfect. Thank you. And then finally, if I can just ask on SI, which is now recovering. So if you can just shortly say what kind of steps you've taken to get back on SI? We worked really hard in the first and the second quarter to erase all complaints in previous installations in the product that we launched last year. And now with the new launch of OnCall, we have a much easier installation process where we can remotely install software at the customer's premises. So the cost and the the complication of installing a large game system is going to go down. Okay, fine. Thank you very much. Thank you. I think we have time for one final question, if there is one. And the next question is from Gal Munda from Berenberg. Please go ahead. Your line is This is Francois on for Gal. We were wondering, is it possible for you to give us a little bit more color on what the driver of the weakness was in the electronics business in China? Was it just a few key customers being restricted? Or was it more of a broad based slow among many of your Chinese customers? Well, if you count the number of handset manufacturers globally, it's, of course, a small number of companies. So without disclosing any names, I think that's the best answer I can give you. Okay. Thank you. And just one follow-up. Could you give us an indication on what your software business is growing at versus hardware? Is it possible to give us a split? And do you find the software is more defensive in terms of growth and not just in terms of total revenues? No, not really. I mean, in the industrial the But having said that, if you look at the BLK family that we're now launching with Geosystems, it's outgrowing all our other products. Okay. Thank you. Thanks. Okay.