Earnings Call: Q3 2019

Oct 30, 2019

Hello, and welcome to the Hexagon Q3 Report 2019. Throughout the call, all participants will be in a listen only mode and afterwards there will be a question and answer session. Today, I am pleased to present Ulla Rollin. Please go ahead with your meeting. Good afternoon, everyone, and welcome to this Q3 interim report for the Hexagon Group. And if we start on Page 4, we get an overview of the Q3. Organic growth was -3% in the quarter and the net sales recorded growth was +1%. The best performing business in the quarter was the PP and M division with an 8% organic growth. SI has forecasted return to growth in the 3rd quarter and recorded +1%. Geosystems recorded -3 percent organic growth, and it's been negatively impacted by tough comparisons from a big product launch that we saw last year and large orders for the mapping content business, which did not happen this year. We've also seen a general slowdown in the construction sector throughout the quarter. Manufacturing Intelligence recorded minus 9% organic growth, and that was largely or to well, mostly driven by the previously communicated decline that we've seen in the electronics business in China. Gross margin was 63.2%, reflecting a very good and favorable product mix in the quarter. So it's up 1.2% over the corresponding period last year. EBIT margin, 24.7%, up 0.2% compared to the Q3 of 2018. And as I just stated, we benefited from a favorable product mix and cost savings announced in the 2nd quarter. If we move to Slide 5, seasonality and profit. Q3 is usually our 2nd weakest quarter in the year, and that seems to be the pattern this year as well. Moving on to Slide 6. Key figures, the P and L statement. So recorded sales, €956,300,000 4.1% and the EBIT margin 24.7% in the quarter. And this corresponds to an earnings per share of €0.51 Slide thereafter, Slide 7 is just a 9 month summary for your reading afterwards. Let's turn to the cash flow, Slide 8. So cash flow from operations before changes in working capital amounted to $270,000,000 We had a positive change in working capital connected to the the this time last year. And thus, the cash flow from operations was 274.4 1,000,000 a very strong cash flow indeed, with a cash conversion of 97% in the quarter. If we look at working capital to sales on Slide 9, we can see that we are now firmly below 15% in the 3rd quarter. Working capital amounts to 12.7% of sales. And let's discuss the market development. So if we go to Slide 11, we have the sales mix, the geographic regions in the Q3. And this is usually a fairly static picture. But given what's going on in our business and in the global economy, we see huge shifts this time around. China is down from 17% to 13% of sales, whilst other regions and especially North America is gaining share and is now representing 33% of Hexagon sales in the quarter. Slide 12, an overview of organic growth for geographic region, and we can see that South America is continuing to recover with the rebound in Brazil and lots of mining recording strong growth. Whilst we see slower growth in Asia, excluding China and North America. And we see decline in Western Europe and China. On Slide 13, for your own review, we have the arrow chart giving you the organic growth per segment and geographic region. Slide 14, EMEA. EMEA recorded an organic growth of minus 2%. Western Europe recorded minus 4% organic growth. And we saw a very weak development in the U. K. Market, especially for our leasing products in the Geosystems segment, quarter. Continued solid growth in Eastern Europe and Russia and Africa recorded double digit growth on the back of strong demand for our mining solutions. Moving on to Americas, Slide 15. North America recorded 1% organic growth. It was good to see that Public Safety returned to growth. We also saw strong growth from the PPNM division in the power and energy field. Growth was hampered by weak demand in surveying and mapping content products. South America, as previously mentioned, recorded double digit percent organic growth, and China is the explanation to our negative growth in the quarter. China is impacting the Hexagon Group with minus 4% on the group level. And it's largely impacted by the previously communicated significant decline we see in our electronics business in China. But we've also seen decline in infrastructure and construction and positioning India and South Korea. We also see strong growth from the Southeast Asian countries. And some of it is spillover effects from companies relocating out of China and now setting up manufacturing operations in neighboring countries. Reporting segments. Slide 18, Industrial and Enterprise Solutions. Organic growth, minus 5%. Mi records minus 9 percent but had a stable EBIT margin. PP and M grew by 8% and expanded its EBIT margin. So all in all, sales of 200 sorry, CHF 482,500,000, down from CHF 4.89 4,000,000 corresponding to an EBIT margin of 25.7 percent, which is up compared to the previous this period previous year. And this is very much thanks to PPNM growing and Mi maintaining strong EBIT margins in spite of the negative organic growth. Moving on to Geospatial Enterprise Solutions, Slide 19. Organic growth of minus 2%. And it was primarily the large orders we saw last year in our mapping content business that slowed down, but also a general slowdown in construction across the globe. SI developed according to plan and recorded 1% organic growth, positioning no growth, no decline, 0, and was positively impacted by strong growth in aerospace and defense but saw a weaker demand in Automotive. Sales for the segment amounted to 473 point 8 $1,000,000 up from $457,000,000 last year. And EBIT amounted to 1 100 and 18.4 million, up from EUR 114,600,000 last year. If we move to Slide 20, the gross margin, we recorded a record gross margin in the 3rd quarter, and our rolling 12 month average is now 63% gross margin. The operating margin is at 25% for the past 12 months. And if we move to Slide 23, we're going to discuss orders and product release and acquisitions. In the quarter, we acquired a small company called Malone Technologies, which helps us to visualize in 3 d, creating so called urban and natural landscape models. And it will be integrated in our reality capture solutions. Slide 24. We're creating digital cities much faster and much more precisely with the new Leica City Mapper. And this enables digital twin creation for cities in metropolitan areas. Slide 25. We started a collaboration with the city of Calgary called Living Labs. It's an initiative that started to use our technology to do autonomous driving research and development in the city of Calgary, and it's the first in Canada. Slide Subsea 7, a Norwegian based company, switched to Hexagon's BrixCAD Pro CAD products for all its business in Africa, Asia, Pacific, Brazil, Middle East, Gulf of Mexico, North Sea and Canada. Huge win for the Bricsys business. Slide 27. Hexagon supports the U. S. Navy Cybersecurity. We've started a collaboration with something called SABR, the Situational Awareness Boundary Enforcement and Response contract. So we've signed a contract, and we're working with NAVSEA, which is a body within the U. S. Navy to do so. Slide 28. We also signed a 5 year deal for our MinePlan software with Bayer. And Bayer is using MinePlan to deploy complicated geologic modeling and engineering pieces in their minds. Slide 29. The country of El Salvador is using our location intelligence and AI solution to develop safety applications. So they will use our AI and machine learning techniques to generate location based situational analysis and awareness models to reduce risk Slide 30, it's a set of reality capture solutions orders that we got in the quarter from China Railway that is using Leica Pegasus Elektra Services Company based in Dubai using our drones And then Palabora Mining Company in South Africa that is standardizing on RTC 360 scanners to do 3 d visualization of underground mines. Slide 31. This has been a long process, but we've been working since 2012 with Caisse New Holland to enable them to standardize in our GNSF positioning technologies. And finally, Slide 32. We got 2 very interesting orders where we will collaborate with the states of Karnataka and Maharashtra in India to monitor forests and wildlife and manage land records and property using our geospatial software and receivers. Slide 33. Volkswagen is kicking off a project called India 2.0, where they were committing to invest EUR 1,000,000,000 in India to strengthen the group's footprint and build vehicles tailored to the engine market. And they've chosen Hexagon's metrology solution and ultra high accuracy machines to build quality critical applications in car bodies and powertrains. Slide 34. Airbus consolidates its database to reduce development lead time, and they're standardizing on our product material center to reduce the lead time further in their manufacturing workflow and design. And finally, on Slide 35, we will host a Capital Markets Day on 11th of December this year in Cobham, Surrey, United Kingdom, and we will start at 10 o'clock U. K. Time. And we will update you on our views on market trends and business activities. And if you're interested in attending, please send an e mail to cmdhexagon dot com no later than 25th November. So with that, we've concluded the Q3 earnings call, and we are now ready to answer any questions there might be. So Our first question is from Alexander Virgo from Bank of America. Please go ahead. Your line is open. Thanks very much. Good morning, Ola. I wondered if you could just expand a little bit on China for us. Maybe talk a little bit about the business ex electronics and also perhaps if you could quantify quite how much of the minus 23 was electronics. And your comp gets a little bit easier as we move into Q4. So I wondered if you could talk a little bit about the prognosis and any signs of life in either the electronics business or you also mentioned seeing customers already building outside of China. So just wondering how that plays into the to how we think about Q4 and 2020? Well, the contraction is roughly SEK 40,000,000 in the quarter and three quarters of those SEK 40,000,000, I. E, a bit more than SEK 30,000,000 is related to electronics. And you're absolutely right that as we move into Q4 and next year, the comps will get easier. There is definitely sign of life in the electronics sector, and we think that next year might be more positive than what we've seen this year. Beyond electronics, what's happening is a very complicated situation where we have, for example, U. S.-based technologies that we want to sell in China and vice versa. And that is the remaining €10,000,000 that we see. And we're trying to reshuffle our resources in China to simply go after non critical applications where we can sell for the future. So it's going to be another tough quarter, but hopefully, we'll see a silver lining as we enter into 2020. Okay. And perhaps maybe just expanding on that last bit that last point there. How much of your portfolio would you say would end up being affected by that sensitivity? Does it extend beyond MI? And I guess I'm thinking really about PPM and the strength that you've seen in the growth there in the last couple of quarters is really building up momentum. I'm guessing it's probably not really oil and gas, but maybe just expand a little bit on that as well. I think that all technologies and all software around the world could be affected by this if it continues because in effect what's happening is that the Chinese government is reluctant to invest in systems where they use U. S. Technology content simply because they don't know if they're going to be cut off or not in the future. And vice versa, U. S. Has put an embargo on Chinese technologies. So it's not just Hexagon. I would say that all technology companies could be affected if this drags out. So hopefully, we'll see a resolution or resolution in the next few quarters on this issue. But if not, we simply have to mitigate it and plan for a very different market going forward. Okay. Thanks, Ola. And our next question is from Adam Wood from Morgan Stanley. Please go ahead. Your line is open. Hi, good afternoon and thanks for taking the question. I've got 2 if I could. First of all, you highlighted the issue of the tough comps in 3Q last year with the product launches. Is it possible just to help us quantify how much of the deterioration in the Q3 versus the Q2 was due to those tough comps, which hopefully reverses as the hardware comes out in Q4 and Q1? And how much was incremental weakness in the macro across the geographies? That will be quite useful. And then just in terms of those product launches, you said in the release end of 2019 for the hardware coming out. Does that mean we should really only expect them to impact in Q1? Or will that actually be a meaningful benefit already in the Q4? Thank you. So, releasing them in November. So we will have 1 month out of 3 where we will sell the new products. If it's a meaningful impact or not, it's yet to be seen. But going then to your question on the Q3, yes, there is a significant impact in Q3 of 2018 from new products, which we don't see in the Q3 this year. And I would guesstimate it to maybe a couple of percent. So you'd say that ex that then the environment wasn't it was really relatively stable versus the Q2. Clearly, some gives and takes, but net net, relatively stable versus Q2 then. Can you repeat that? I didn't get that question. So if that impact was 2% and that's kind of roughly the delta in organic growth between Q2 and Q3, overall, we haven't seen a material movement in the underlying picture. Yes, there's some bits a bit worse and some bits a bit better. But overall, it feels like it's been relatively stable versus what the Q2 environment was. No, absolutely. That is my view of the situation. We're down, but it's not getting worse. And our next question is from Stacy Pollard from JPMorgan. Please go ahead. Your line is open. Hi, thank you. A few questions for me as well. It seems that you're benefiting from the restructuring in Q2. Can you just remind us what was restructured other than China? No. It wasn't just No. It wasn't just China that restructured. It was an overall restructuring and encompassing roughly 700 employees. And it's group wide. So no other divisions particularly targeted or okay? No. It was the general reduction in force. So it wasn't just one division contributing. It was across the second quick one would be autonomous vehicles. Approximately, how much does this area contribute to your revenues today, let's say, on an annualized basis? And how do you view the opportunity? And then also who are the competitors? It's hard to point at competitors because we work with everyone right now, and we're a facilitator in the development projects that various OEMs are undertaking right now. It's a fairly small business. I would say it's roughly a couple of percent of our total turnover today. But we see a lot of traction in other areas than just cars, like agriculture, mining and construction, where we could deploy these technologies to automate vehicles in those sectors. And that looks really promising as well. Okay. Very interesting. And sorry, last one for me. Just midterm guidance, do you still feel comfortable with the 2021 targets of €4,600,000,000 to €5,100,000,000 in revs and then 27% to 28% operating margins? I mean, it would be a lie to say that it's not too tough a stretch given what's happened in China. But no, we stick to our targets, and we believe that we can achieve them. Okay. Thank you. Thank you. And our next question is from Sven Dennis Merck from Barclays. Please go ahead. Your line is open. Yes. Thank you for taking my question. Just maybe a quick follow-up from the question just asked. Your medium term targets, what you feel actually comfortable around? Is it the 5% average organic growth? Or are you more comfortable in the absolute revenue target, I. E, if organic growth is weaker going forward, will you do more M and A to get to your targets? That's why we're having a Capital Markets Day in December, and we'll try to answer all your questions then. Great. Looking forward to that. And then maybe just quickly, more generally, if we're now going into a more macro slowdown, how are you thinking about investments going forward? Would you potentially slow down investments on that? Or would you just simply take a very long term view and continue into with your product investments? I don't think we have been in a selective macroeconomic slowdown for a very long time. And I think that the global economy is in need of new technologies that are greatly enhancing productivity and quality. And if you know that you can do that, I think you will continue to grow. But standard products and nice to have developments are probably something of the past. So we do see that we have great products like the RTC 360. Products like that can continue to grow in a very depressed macro environment. And that's where we have to invest, and we will continue to do so. Okay. Thank you. Thanks. And our next question is from Markus Almerich from Kepler Cheuvreux. Please go ahead. Your line is open. Hi, Markus Almerich from Kepler Cheuvreux. My first question is on the BLK products, which are to be released. So are there any preorders or anything like that which you can talk about to see how successful it's been? And I would assume that the reception so far has been quite good. Yes. There are preorders. We don't disclose that, but that gives us certain certainty that we will invoice in the Q4. No, the reception is great. I mean, the BLK to go is a small revolution in construction and design and yes, construction projects documenting in 3 d, the fact that you can walk around the construction site and document it. Okay. Okay. Yes, looking forward to that. Then can I just ask on PP and M? So the margin came off quite significantly in the oil and gas boom. And now that growth is back, is the margin also coming back to previous levels? Or is it growing at a slower rate? So how far off are we from previous levels? Now the margin is back, and that's why we see margin expansion in our Industrial segment in the quarter. It's not to it's not back to the peak levels where we were pre the oil crisis. But yes, no, it's improving significantly. Okay. Thank you very much. Thanks. And our next question is from Victor Hugo from Danske Bank. Please go ahead. Your line is open. Victor? So sorry, was both disconnected and on mute. So maybe you have to repeat yourself, you said that the primary driver for the negative organic growth was the large mapping orders last year. Was that Q3 specific and how much did they explain? We wouldn't comment on specific numbers in the program, but we saw significant reduction in the sales to certain customers in that program in the Q3. Okay. So would that be like only for Q3? Or should we expect that to continue? Or could you elaborate a bit? Q3 is the big quarter for the mapping content. That's when you fly large areas and you then resell the data. So Q4 is a much smaller quarter when it comes to mapping content. It will be easier to that extent to meet last year's numbers. Okay. But it's a smaller quarter? Yes. Okay. So key PMI seems to stabilize. What do you hear from your customers? What do they need to see for orders to come back again? What are you seeing in your discussions? I think it depends on what Could we within the industrial segment, within Mi maybe? Within automotive, and it's been electric vehicles that have stopped investing in China. We saw large investment activities in the electrical vehicle segment in China in Q1 and even in Q2. And that has faded off a bit in the Q3. We saw a slowdown in the automotive industry in Germany, where orders didn't come in as lasts for couple of quarters, and then we see new initiatives on design and new products, which will benefit the Hexagon business. If we move to electronics, which is the other segment, we do know that many OEMs are designing new products that could positively impact our business going forward. Whether that's a Q1 story or a Q2 story, it's yet to be seen. Okay. In terms of M and A, what do you see out there in terms of price tags and available targets? No, there is a I mean, there is a never ending activity going on in the M and A field, and we don't see any slowdown in the M and A processes. It's too early to say that prices have come down. They haven't. But I think that might happen in the next few quarters. Okay. Last question. Trimble said in August that they expect a flat organic growth in H2 in 2019, partly due to China. Could you elaborate a bit about what you see there that could be a differentiator between your and Trimble's product offering? We don't comment on Trimble. Okay. Well, that's it for me. Thank you. Thanks. And our next question is from Erik Golrang from SEB. Please go ahead. Your line is open. Thank you. I have two questions. The first one on SI, which at least to me is the most the trickiest one to sort of forecast a couple of quarters ahead. But sort of any guidance there would be very helpful. You talk about a continued expected improvement. I guess based on the order book, what that looks like and the order trend there, what kind of growth rates would you be happy with Essai ending up in the near term here? Is it a sort of high single digit level? Or could it even be in the double digits? Essai It's very difficult to predict indeed even for us internally because it's an onoff or do or die business. You either get the order or you don't. But lately, with the launch of a new product called OnCall, which is a dispatch system for first responders, we see a lot of traction. We that are going that are going to be realized next year. So I think we have a cautiously optimistic view on SI, and SI could have turned a corner and the outlook is actually quite positive for But it's going to be more of a sort of continued success taking new orders or rather than executing on an order book? Yes. They have a good order book already, I think we will see new orders as well in the next few months. Thank you. And then the second question, I guess, trying to square a bit all the moving parts here in terms of lower level of major new product launches and comparisons in electronics and sort of sequential trends. You said that Q2 underlying or Q3 underlying was similar to the Q2. I mean, if you would take guidance on sort of how has organic growth started the Q4 on a group level? Based on everything we learned about comparisons, it seems as if it could be a bit better. We'll see. I mean there is a we were hit by the electronics segment before we saw the general slowdown in the global economy. So now we've taken the hit in the electronics segment, but we still see a slowdown in the global economy. And how this will pan out when you tally up all the bits and pieces, that is still very difficult to do. But I stick to my guns when I say, I don't see it's getting much worse. I think this is the level that is sustainable. And from here, we now need to start refocusing our resources to start building organic growth again as we enter into 2020. Very good. Thank you. Thanks. And our next question talk a little bit about your kind of relative visibility as you go into sort of this Q4 and into next year versus sort of a year ago? I know you've sort of walked through these issues around electronics and also some of the comp issues. And I'm just sort of curious in terms of as you said on the last question, want to turn the business back towards organic growth. Do you think that sort of by H2, you're reasonably confident that the group can be back to sort of organic growth levels given you will have kind of lapped a lot of the difficult comps in electronics as well? Thank you. I think this is a much bigger question than just a third quarter growth number. I think the backdrop in the global economy is that we have very little growth in the global economy right now. And in order for a company to grow in this environment, you need to deliver something extraordinary. If you just do the ordinary, you will be hit eventually as we see the next coming quarters in going into 2020. So the focus has to be on new innovative solutions that truly enhance productivity or do something meaningful for your customer base. And that's what we're aiming at. We've grown 7% average organic growth since 2010. So that is our growth rate, our normal growth rate in this very weak macro environment. And we're definitely going to come back to that. The question is how many more quarters will it take for us to build that momentum. And do you feel you need to perhaps step up the rate of investment in the business to sort of achieve that? There might be a situation where we need to invest a bit more in certain areas, but I don't think it's going to be anything that we will have to flag on a group level right now. Okay, great. Thank you. And our next question is from Daniel Jurgen from Handelsbanken. Please go ahead. Your line is open. Thank you very much. Most questions are answered. I will still have two questions. Starting with automotive, you mentioned China, electrical vehicles, etcetera, and also Germany. And we see here that Western Europe and EMEA and also North America is weak on automotive. Can you comment a little bit on your if you can mitigate this also from new products or what's some of the outlook for 2020 in terms of automotive? We think that automotive is slowing down, and you can see that in other research in the market. So I guess that's no news to you that the automotive sector is slowing down. We also see a lot of activity in the design labs within the various OEMs where they're changing their product portfolios to hybrids, electric and more environmentally friendly products. And that is going to benefit Hexagon going forward. So we don't think this is a long term slowdown for us as a company. And sometime next year, we should see an increased activity again from the automotive sector. Yes. Perfect. And also, if I may, on the normal question on smart build progress, the black is to go coming up? And can you comment on your go to market a little bit? You have done pilots with Skanska and others. But can you now bring some best practice and to the market also for smaller sites? Or if you can comment a little bit on the smart build progress? We're planning the launch too early next year. So but it needs to be a coordinated effort with the scanners and the software platform. So maybe we can discuss that a bit more at the Capital Markets Day. Sounds great. And finally, from my on Process Power Marine, the power and energy did well. You had the subsea, so then bricks, this order, etcetera. And can you comment a little bit on the outlook there in terms of power and energy in process power and marine, if it's the pipeline that looks healthy? No. The pipeline is healthy. And what we've been working hard on over the past few years is to broaden the scope for our address oil and gas. So we've expanded into other fields such as mining, petrochemical, chemical applications, shipbuilding and so on. And that has paid off. And hopefully, the other initiative that you just discussed, smart build, will also pay off in the quarters and years to come. And our next question is from Andrew Disgari from Berenberg. Thanks for taking my question. First, just on the market trajectory. I know you showed aerospace and defense slowing down in Europe and the infrastructure and construction weakness in North America. Just curious, can you add some visibility on that in terms of how are things looking in 4Q? No. We can't really comment on this ability going into the next quarter. We more or less know the sentiment in that segment. But I have to remind you that we do almost 70% of our business in the 3rd month of Q4, I. E, December. So it's still early days. Right. But, Aerospace and Defense tends to be longer cycle. I mean, is there anything sort of one off in terms of the slowdown in the quarter? But it's not a longer cycle We typically deliver and take orders in the 3rd month. Got it. And then just one quick question on your product, the RTC 360. We hear from some users that it some people consider a little too expensive, but that the BOK doesn't deliver enough features. Do you plan or did you consider ever introducing a mid level product that bridges the 2? We'll see. No one knows yet. Thank you. Thanks. And our next question is from Alex Tell from Deutsche Bank. Please go ahead. Your line is open. Yes. Hi. Thanks for taking the questions. Just 2 from me. Firstly, on construction, you mentioned that you were seeing something of a broader based slowdown there. Could you just dig in a little bit on that? What you think might be causing it? Perhaps kind of the outlook over the next couple of quarters? Is that going to further decelerate in your view as it stands? And just within construction, could you talk about how demand for your software offerings, specifically as distinct from the kind of hardware equipment might be getting on? And I'll ask the follow-up after that. We've seen a slowdown in the Chinese market with government backed infrastructural projects. And I think that is it's probably the slowdown in the Chinese economy driving that. We've also seen slowdown in the West. And I guess that is on back of general slowdown in the economies, the large economies in Western Europe and North America. Whether this is it or if it's going to continue to get worse, I don't know. I'm no economist. So we'll see. And it's true what you're saying that we see less of a volatility with our software products in the construction sector compared to our hardware products. Okay. And then on the software Mi, the software within Mi, I think you mentioned it was stable in the quarter. Does that represent a deceleration for MSC specifically? And how are you finding demand holding up for MSC within the automotive sector right now? Is it proving resilient despite the wider market slowdown? Or is it also getting dragged down a bit by that general automotive slowdown? No, it's proven resilient. And MSC is I mean, it started off as a restructuring case where we took an old tired company and repositioned it. And we're still gaining traction in the market with the new products that we're launching from MSC. Great. Thank you. Our next question is from Magnus Kruber from UBS. Please go ahead. Your line is open. Hi, Ola. Magnus here from UBS on behalf of Kie Amor. Just one question from me on Geosystem. And sorry to lay with this point. I think you mentioned, of course, you had tough comps from product launches and large order last year. But if I try to sort of adjust for that by looking at the 2 year compounded growth, I think still there is a quite distinct slowdown in the growth rate from Q2 into Q3. Is that the general construction slowdown you're talking about? And should we expect that to sort of remain at that level? Yes. That is the general construction slowdown. And whether it remains or not, I don't know. The one who lives will see. Brilliant. That's all for me. Thank you so much. Thanks. And our next question is from Agnes Gabilala from Nordea. Please go ahead. Your line is open. Thank you. I have a question on IS. And if you can tell us if the mix that you said it was favorable in the quarter, was it because of the PPM growing so strongly? Do you have much better margins there? And also, what's in your PPM pipeline? And what are your demand expectations there? No. As we as stated previously, we believe that PP and M has a good has repositioned its business in a good way where we're penetrating more markets outside of the traditional oil and gas field. So we do expect PP and M to have PP and M to have a favorable trading situation going forward. When it comes to the mix, it's 2 things that happened in IES in the quarter. 1st of all, PP and M outgrew MI, which was beneficial. But within MI, the software business outgrew the hardware business. So you have 2 factors impacting the EBIT margin in a favorable way. Very clear. Thank you. Thanks. And our next question is from Vasya Risvi from RBC. Please go ahead. Your line is open. Hi. Thanks for taking my questions. Just 2 left for me. So firstly, just trying to understand the margin movement year on year. It's not quite clear. It's particularly in IES. Is it all mix? Or is some of the restructuring benefit in there? Or actually, the restructuring benefit will come later? And then the second question was actually on the BLK products again. In terms of the revenue opportunity for those products, is that a similar size or bigger or smaller than RTC 360? Because what I'm trying to understand is if these products launch and sell as expected, are we still looking at a net headwind or is it a net tailwind or is it broadly the same impact? We start with the BLK product. We have great expectations for these said a number what we expect. We will do our very best to introduce them, push for them and sell them. And hopefully, we'll gain traction in the market. That's how all market launches work. When it comes to the restructuring program on a group level, we benefited roughly SEK 5,000,000 in cost reductions year on year as a comparison. Great. That helps. Thanks. And our last question is from Michael Lassine from Carnegie. Please go ahead. Your line is open. Yes, thanks. Actually, I also had a question regarding the MI margin. It was stable year on year. And just wondering how much came from efficiency effects. And you partly answered that, I guess, but maybe you could be more specific regarding that unit. I don't know from top of my head out of the EUR 5,000,000 how much Mi contributes with. But I guess a good guesstimate would be that it's almost 50, 50, euros 2,500,000 per segment. And Mi is the largest division within IES. PPNM did its restructuring earlier. So yes, I really don't want to give you a number that I don't have. Okay. And in general, this efficiency program, euros 51,000,000 expected to be in cost adjustments. How should we model this? How do you how should we expect this to develop ahead? I mean, we expect full impact as of 2020. So if we had SEK 5,000,000 in Q3, I would do a linear extrapolation into Q4 and Q1 with 1 quarter per quarter as of 2020. Okay. So I expected actually That's how I would do it. So 12.5% a quarter going into next year. So I mean, to be clear, that means full annualized effect from Q1 2020? Okay. Got it. Thanks. And as there are no further questions, I will hand the word back to the speakers for any final comments. And we do not have any more comments. So we wish you a good day or a good evening depending on where you are. Thank you. This now concludes our conference call. Thank you all for attending. You may now disconnect your