Very much, welcome everyone to this Q3 interim report of 2020. I suggest that we start on slide number four, overview of the Q3 2020. Recorded sales decreased by 2%, and we report an organic growth of 0%, FX of -4%, and then a positive 2% impact from acquisitions during the year. It's a broad-based sequential recovery, and we see China recording 18% organic growth. We report solid growth in the Geospatial segment, and Geosystems and Safety & Infrastructure record 5% and 9% organic growth respectively. We do see continued negative organic growth in the Industrial segment, where Manufacturing Intelligence and PPM record -4% and -7% organic growth. Software recorded growth in the quarter, whilst hardware contracted. This is our best Q3 earnings and margin ever. It's close to being the best quarter ever if you adjust for FX.
Earnings amounted to EUR 250 million, an increase of 6%. The EBIT margin was 27%, which is 2% improved EBIT margin over last year. The growth margin improved by 1%. Cost savings measures and a richer product mix impacted earnings in a positive way. Earnings and margin were heavily impacted by currency headwinds. If we turn to slide five, this is just a reminder that Q3 is our second weakest quarter in a normal seasonal pattern. We go to slide six, the P&L statement. Net sales amounted to EUR 940 million, which is zero organic growth and -2% recorded growth. We have an FX impact of -EUR 37 million on the top line. If we move to EBIT1, it amounted to EUR 250 million compared to EUR 236 million for the corresponding period of last year. That is a 6% growth. Currency impacted our EBIT1 by a -EUR 20 million.
With comparable FX, we would have recorded EUR 270 million this quarter, which would correspond to an EBIT margin of 28%. I think I skipped slide seven. That is for your reference, the nine months, and we go straight into cash flow on slide eight. Cash flow from operations improved significantly in the quarter, and as we can see, before taxes and interest paid, it was EUR 352 million versus EUR 324 million the corresponding period of last year. 9% increase in raw cash flow from operation. We then move down the table, we see that we have an adverse effect in working capital, and that is primarily receivables growing again. We also see that investments are roughly at par, slightly lower in tangible assets, and same level as last year. Cash flow from operations before non-recurring items is EUR 213 million.
Our restructuring program is now kicking in, so non-recurring cash flow, which is payouts to laid-off workers, is now EUR 22 million. Operating cash flow, EUR 191 million, which corresponds to a cash conversion of 103%. Moving on to slide nine, working capital to sales is now 9.5% of sales, so the decrease in working capital continues. Market development, slide 11. The sales mix, the significant change is really North America that has diminished by two percentage points, and China that has increased by two percentage points. Slide 12. An overview per geographic region where we see good growth and strong double-digit growth, both in South America, where Brazil and the mining sector are pushing growth, and China, which is a broad-based recovery across many industry segments.
Eastern Europe, Middle East, and Africa were doing fine as well, whilst we saw continuous decline in North America, Western Europe, and the rest of Asia, excluding China. Slide 13 is for your reference, it shows the Q3 per business segment and geographic region. We move on to slide 14, EMEA market trends. Western Europe, -3% organic growth. We saw weakness in traditional automotive and aerospace in the Q3. We also saw weakness in the power and energy sectors in Western Europe. On the other hand, we saw solid growth in surveying, which is an early indicator for construction and infrastructure, and also public safety segments in Europe. Russia and Middle East recorded double-digit organic growth on the back of a continuous recovery in Russia and a large public safety order in the Middle East. Americas, slide 15. North America recorded -5% organic growth.
We saw weakness in the manufacturing segment in North America and tough comparison numbers in the power and energy segment. The mapping and positioning segments recorded good growth in the region, and South America, as previously stated, double-digit growth on the back of mining, public safety, and a recovery in Brazil. Asia, finally, on slide 16. As previously stated, China recorded 18% organic growth. We see a strong recovery in electronics, general manufacturing, infrastructure, and construction. We also saw good growth in the quarter in South Korea, where we recorded double-digit growth fueled by solid development in infrastructure and construction. Southeast Asia and India report continuous decline, heavily impacted by the pandemic. Slide 17, reporting segments, and we start on slide 18, Geospatial Enterprise Solutions. Geospatial had a great quarter, reporting 6% organic growth, where Geosystems grew by 5%, SI recorded 9%, and Autonomy & Positioning 6% organic growth.
The EBIT margin improved to 28.4%, which is a record for this segment. It's up more than 3% over the corresponding period of last year. Moving on to the Industrial Enterprise Solutions segment. Organic growth, minus 5%. MI reports minus 4%, where we saw weak demand in traditional automotive and aerospace segments. China, on the other hand, reported solid organic growth, and it was mainly driven by a recovery in electronics and general manufacturing. PP&M, minus 7%. A very, very tough year-on-year comparison, and the backdrop is the challenging oil and gas market in the Q3. However, we saw continuous solid growth from the AEC segment for our design software portfolios. EBIT margin, roughly the same as last year, 25.4% versus 25.7% for the corresponding period of last year. Slide 20. The growth margin came in at 64% in the quarter, but rolling 12 months, we're still at 63%.
EBIT margin came in at 27% for the quarter, but for rolling 12 months, we're now at 25%. M&A orders and product releases. Slide 23. We announced an acquisition of TACTICAWARE. TACTICAWARE is a software company using lidar-based 3D surveillance point clouds to create a digital image of, for example, a building, as you can see in this picture. You can create a geofence in an object like the picture, and if anyone intrudes that geofence, it will trigger a signal. We are planning to use our sensors, the BLK247, and our dispatch solution, HxGN OnCall, to offer a fully integrated end-to-end secure surveillance solution for 24-hour full visibility of critical infrastructure and spaces where you can automate alarm management. Slide 24. We launched the Leica GS18 I in the quarter in connection to a trade show in Germany.
What we've done here is we've fused GNSS, IMU, and camera-based technologies. It's the first GNSS rover of its kind to enable measurement of points from images with survey-grade accuracy. Professionals can now map areas that are difficult to reach physically, such as trenches, high power lines, and busy roads by simply taking a picture of the object. It will also work, thanks to its IMU module, in blocked areas where you're blocked from GNSS signals. Moving on to slide 25. HxGN OnCall, which is having success in the market, is now launching a module called Smart Advisor. It's the industry's first assistive artificial intelligence technology, where the Smart Advisor will be in the background of all the information that the call taker receives and autonomously analyze what the general public sends into the dispatch center.
It will detect patterns and anomalies sooner than humans, and agencies can act faster and coordinate smarter response to those patterns. Slide 26. We've partnered with Utopia Global, to create an integrated solution where we can synchronize engineering and maintenance data between the SAP plant maintenance system and our own Hexagon SDx software platform. This is very good news for the oil and gas, utilities, chemical, and manufacturing industries that needs to synchronize this kind of operational data. Slide 27. We are also supporting the world's first autonomous head-to-head motor race. Indy Autonomous Challenge will take place in 2021, and it's the first autonomous race using autonomous race cars. They will speed at 200 kilometers per hour, and we will use our equipment and precise positioning systems to keep them on track. Slide 28.
We are accelerating our off-road autonomy for agriculture, and we have a new test bed, where we use state-of-the-art tractors to do research and development for autonomous tractors. These are learnings that we then transfer to our OEM customers that then implement it in their production and products. Slide 29. A new simulation product will enable mass production of additive manufacturing. It's the so-called metal binder jetting simulation software that enables the manufacturer to predict and prevent distortions during design that could result from a so-called sintering process. The simulation will predict mechanical stresses in the part, giving an indication as to where defects may occur. Slide 30. We take surface measurement to a new level. Transparent materials such as glass or plastic has always been a problem in measurement.
With CALIPRI CB20, we've solved that problem, and this will enable automobile manufacturers to better meet the requirements of flush and gap measurement, i.e. the gap between, for example, a headlight and the sheet metal panel. Slide 31. We're collaborating with the Indian Navy and the Colombian Navy, using Luciad technology and M.App Enterprise to perform time-critical analysis, simulations, and command and control, in naval operations. Slide 32. We received several mining orders in the quarter related to operator safety from South Africa, Australia, and Colombia. Slide 33. The HxGN Content Program provide Germany's first digital surface model. The problem was that existing data sets varied from state to state in Germany, and that created problems for federal authorities operating across the country. With data from the HxGN Content Program, they can now create applications such as air traffic control, disaster relief, and civil protection. Slide 34.
This is actually a growing business for us where we use our 3D-based technology to model important buildings. This time it's the Budavári Palace in Hungary. You can compare this to why people want to do is simply to document historic buildings and think about Notre Dame in Paris, where we thankfully had done a documentation weeks before the fire occurred, and they're now using this to rebuild the historic building. Slide 35, reducing map production time for U.S. intelligence forces. We've sold our highly automated custom solution that reduces map production for the National Geospatial-Intelligence Agency, from months to hours. This is, of course, to help NGA meet mission requirements. Slide 36. HxGN OnCall continues its success in the market with several new orders. Here we have a select three orders in North America. Slide 37.
We're also supporting public safety in Ecuador, helping Ecuador's CSCG organization to combat crime and provide timely assistance to those in emergency situations. This time it will encompass 2.7 million citizens. In summary, if we turn to slide 39, our summary page, record Q3 earnings and margin despite significant currency headwinds. It's been supported by cost savings measures and richer product mix. We saw a solid sequential improvement recording 0% organic growth. It stems from a broad-based recovery in China and a strong quarter-on-quarter recovery in both North America and Europe. Software continued to grow, hardware continued to contract. The board of directors also propose a dividend of EUR 0.62 to be paid out for fiscal 2019. With that, operator, we have come to the end of this presentation, and we are now ready for the Q&A session.
Thank you. If you do wish to ask a question, please press zero one on your telephone keypads. If you wish to withdraw your question, you may do so by pressing zero two to cancel. Our first question comes from the line of Joachim Gunell of DNB Markets. Please go ahead.
Thank you very much. Good morning. I guess in terms of cadence with your software sales, it definitely varies a bit from end market and customers. Can you say anything regarding how contract renewals have behaved in the quarter? Are there, say, potential deals skipping, just going into Q4 instead?
No, I think Q4 will perform roughly as similar patterns as to what we've seen in the Q3.
That's clear, Ola. Finally, you mentioned again, challenging conditions in oil and gas and aerospace. Can you perhaps just expand on how you will position Hexagon for this? Is there, say, a need to undertake more restructuring measures to offset if this weakness will sustain?
You can never rule out more restructuring, but what we believe right now is that we need to continue to diversify the PP&M division, not being so reliant on oil and gas and growing into the AEC field, for example. When it comes to aerospace, it's a similar situation where we've seen great growth for electric vehicles, wind power, and solar power, and it's actually the same products that you use to measure a layout of a solar farm or measurement of wind turbines and electric cars as you do for aerospace. We don't believe in a quick recovery in aerospace.
All right. That's all from me. Thank you.
Thanks.
Our next question comes from the line of Daniel Djurberg of Handelsbanken. Please go ahead.
Thank you very much, and good morning, Ola, and congratulations on a really strong quarter. I would like if you could elaborate a bit on the OpEx savings that we have seen in the quarter from both a short term and more longer term, i.e., being COVID-19 related or not COVID-19 related, i.e., more related to your cost-saving program, i.e., some help to model into Q4 if we expect some temporary reduction that will come back, or more to think of a traditional seasonality pattern on OpEx coming into Q4.
We don't know yet, we believe it's going to be more or less a wash. What we've seen is that short-term furlough measures are being replaced by long-term reduction in force when it comes to savings on payroll. Other great savings areas are, of course, traveling expenses, where we've seen a significant drop in the money we spend on traveling. That is obviously going to recover, and we're going to see more traveling going forward. We don't believe that it's going to come back to the previous level pre-corona, simply because we're using Teams and other digital platforms for meetings.
Yeah. If I may follow up on your products, the BLK247 seems not to be in the market yet. I was wondering if you have any details on that, and also how the BLK2GO is performing.
The BLK2GO is doing fine, and the BLK247 is a part of a larger initiative where the acquisition of TACTICAWARE was important to have the fully fledged solution to offer customers. It's now in trials in some five test sites around the world. It's involving metro stations, public places, and so on, where test customers are trying out the technology. It's a longer sales cycle for BLK247 than BLK2GO.
Yeah. Okay. Thank you very much. Good luck in Q4.
Thank you.
Our next question comes from the line of Alexander Virgo of Bank of America. Please go ahead.
Thanks very much. Good morning, Ola. I trust you're well. Many questions, I suppose, but I'll focus on one and two. The first question is, I just wondered if you could talk a little bit more about the sustainability and complexion of that China recovery. You obviously phrased it as back with a bang last quarter, and I would suggest that it's carried on being back with a bang this quarter. Just wondering if you give us a little bit more color around that. Second question on the margins. You've come in at essentially the lower end of the 2021 target range in Q3, which, as you noted, isn't normally the strongest quarter. Really encouraging when we think about that for next year.
Wondered if you might be able to give us any help with how much of that margin benefit came from those structural savings, given they've only just started to come in. I guess where I'm coming from is that there'll presumably be much more to come next year. Thank you.
Thanks. Yeah, the sustainability in the Chinese recovery, it seems that China has decoupled from the rest of the world and continues to soar. The one who lives will see, we've seen a similar pattern in the Q4 as we've seen in Q3 in China, the start of the Q4. It's a broad-based recovery. It's actually traditional industries like traditional cars that have recovered in China, we did not see that happening in core countries like Germany, France, or U.S. to the same extent in the Q3. Regarding the margin, it's important to remember, we believe that the savings we have up till now will more or less be passed into 2021. Don't think of an acceleration because we're also going to see increased activity where short-term savings are going to be lost due to more traveling, for example.
The structural savings we've talked about, they are definitely going to be there.
Okay. Thanks, Ola.
Thanks.
Our next question comes from the line of Mikael Laséen of Carnegie. Please go ahead.
Thanks. Good morning. Yeah, follow up on the savings measures. Can you say what you have done so far in terms of more fundamental structural changes? Can you give a few examples?
We have shut down, I believe we're up to 10 facilities. We've laid off some 1,100 people. That pretty much sums it up.
Okay. This is what you needed to do. That is basically completed?
The long-term measures, we still have a bit to go in the Q4. Merging offices will take longer time than the reduction in force. The reduction in force will more or less be done and concluded by the Q4 of this year. The infrastructure, if you can call it that, our fixed assets, bricks and mortar, that will take a little longer since it has to do with rebuilding offices and so on by merging them.
Okay, good. Just curious about PPM revenue exposure. How much is oil and gas right now, approximately, and how much of revenue stemming from the AEC side?
AEC is still very small, but AEC provided strong growth in the quarter. I can't give you a breakdown, but we can come back on that to you.
Okay, great.
Um-
Just a final one, if I may.
Oil and gas. Sorry, I got it. Oil and gas, 30%.
Okay, great. It would be great to hear comments about your solutions supporting decarbonization, a very important focus area for investors.
It will be even more important going forward. You also mentioned that in your comment in report.
Yeah.
Can you during the call quickly mention something, what you are doing there and how you look at it?
We have some pretty big ideas, and we will come back, I believe, in connection to the Capital Markets Day and discuss it.
When do you plan to have that?
We will see. I think we need a different forum than the earnings call to discuss our carbon offset solution and our environmental solutions. We definitely are looking at that.
Okay, great.
Our next question comes from the line of Sven Merkt of Barclays. Please go ahead.
Good morning. Thanks for taking my question. Could you give us some insight into the strong performance for Geosystems? How much of that was a catch-up from Q2 versus maybe a more sustainable recovery? Could you comment if you maintained that performance so far into Q4? Secondly, just a clarification for the first question. You mentioned you're expecting a similar performance in Q4, relative to Q3. Was that for the whole business or just for software?
I comment on the software, but I think it's fair to say that we more or less believe that Q4 will continue the way Q3 ended. If I comment on Geosystems, it's interesting. We see a lot of automation, mining reports into Geosystems, and what's growing in our mining segment is really automation solution. The same goes for construction, where we have a lot of new automation solutions in connection to large infrastructure projects, and that grew as well. We do see a broad-based recovery for traditional surveying, which indicates that we're going to see much more infrastructure and construction investments going forward.
Okay, that's clear. Thank you.
Thanks.
Our next question comes from the line of Stacy Pollard of J.P. Morgan. Please go ahead.
Thank you for taking my question, or questions actually. First one, to what degree do you think new product launches this year are to credit for that very nice uplift in growth in the Geospatial division? For example, what portion of that 6% growth would you say? Maybe just following up on that previous question, do you think that 6% growth is something that continue for the next 12 months, given the weaker year-on-year comps? Maybe a follow-up after that.
If we start with new products, I believe that new products helped us a great deal growing in the Q3. We guesstimate roughly 2% being new products in the Q3 compared to 1% in the Q2. We do see a sequential increase in new product sales, and that's just natural since we held off in the Q2, and it wasn't the right timing, really, to launch new products. Your second question, can you repeat that?
It was really just, do you believe that 6% growth is sustainable over a 12-month period of time?
I don't know. We'll see.
Fair enough. Just quickly, you mentioned the three weaker sectors. I know you've touched on them a little bit. Just maybe, do you think there are any structural issues that could weaken demand for the longer term, or do you feel like those are cyclical and they will come back?
It's funny to say, I do think that over the longer term, we're going to see a recovery in oil and gas, simply because all the large owner operators are under-investing right now, and even if we see a decline in demand for oil and gas products globally, we're still under-invested. Our belief is still that we're going to see a recovery from these levels. When it comes to aerospace, it's anyone's guess, really. How many flights have you been on last month?
Probably as many as you.
Yeah.
Zero.
There is an underlying growth in our travel, but I think that we've had a reset where many of the trips you did in the past, you wouldn't do going forward. I think what that alludes to is really that we're going to see airlines cancel orders, which will eventually hit a very strong backlog with the major OEMs, and that is going to slow down deliveries. Then another fascinating trend that we saw in the Q3 is definitely that all the OEMs in the automotive industry are very much engaged in investing in electric vehicles or hydrogen vehicles. The traditional combustion engine product, there was very little investment activity in the Q3. Whether that is a long-term trend or not, I think it's for anyone to guess.
Thanks for your insights.
Thanks.
Our next question comes from the line of Erik Golrang of SEB. Please go ahead.
Thank you. I've three questions. The first one is, in the Q2, you were quite helpful in breaking out the specific software element from sales. I wonder if you could give us those numbers for Q3 as well. Second question is on the M&A side, in terms of potential activity there. We know that competition is heating up with new entrants investing, particularly into the industrial side of your business. Does that mean we'll see more deals in geospatial, perhaps? Thirdly, if you could just give some flavor on the demand development during Q3, and obviously September is always the strongest, so perhaps from a year-on-year perspective. Thank you.
I start with the third question and take the demand development. Yeah, it is obviously so that September was much better than July, August, which is quite natural. One should expect a sequential recovery from very low level in the weakest markets. The world is not going to end this time either. Could you repeat your second question again for me?
On M&A, the activity has been a bit lower for you, at least in terms of medium or larger size deals. The question was really that we have seen some new entrants being competitors to yours, perhaps now particularly on the industrial acquisitions, and wonder if that's going to lead to you perhaps being more active on the geospatial side in terms of what we should expect from the M&A pipeline.
I think the M&A activity since June has been on a very high level, and the reason why we haven't announced anything yet doesn't mean that we haven't been active. I think you should just wait and see. Finally, to answer your question on software and service, we believe it was around 60%, and 35% would be pure software.
Thank you.
If you include maintenance, maybe approximately 40% software.
Yep. Thanks.
Our next question comes from the line of Mohammed Moawalla of Goldman Sachs. Please go ahead.
Great. Thank you. Hi, Ola. I wanted to actually just follow up on that software question. Maybe just to help us understand in the divisions where historically there's been much more hardware heavy, how has it changed? As we think about the sort of improvement you cited in Geosystems, how much of it was software led? Because obviously at the group level, you talked about the sort of gross margin improving. Should we assume that the software element within things like Geosystems is actually growing substantially faster than in sort of what you're reporting, and therefore this is much more recurring, this revenue growth?
I believe that's a fair statement. Software grew in Geosystems, so no, I think you're right in your guesstimates.
Great. I don't know, can you give us a sense of the mix versus, I don't know, three, four years ago into Geosystems and MI, how much that software mix has changed? I mean, you gave us a group level number. Just curious to understand the delta, if you have it.
No, I don't have it. Still, 40% is pure software, i.e., license, subscription, and maintenance of our mix in the Q3. I think that once we have a little more time, we're going to lay out the text for you and show the more longer term trends when it comes to software and hardware growth, which we now have data in a weak period to show and compare to other weak periods in Hexagon's history.
Great. Lastly, a lot of software companies in Europe are now talking about accelerated shift to service subscriptions. These new software for revenue you're generating, are they on a subscription model out of the box or are they still a mix of license maintenance as well as subscription?
We still do a mix, and we are firm believers that you shouldn't force your customer base towards the subscription model. Having said that, the underlying trend is absolutely that subscriptions are growing faster than perpetual.
Okay, great. Thank you very much.
Thank you.
Our next question comes from the line of Markus Almerud of Kepler Cheuvreux. Please go ahead.
Hi, good morning. To follow up a little bit on Erik's questions. On the software sales, the pure software, what growth did you see in pure software in the quarter? If you could help us with that, would be very helpful. I think it grew by 5%, you said, in Q2.
Yeah, I think we had similar growth in the Q3 in software.
Okay.
We have a positive zero organic growth if you look at the nitty-gritty details. The lion's share of that growth is generated by software growth. Hardware declined in Europe and North America, but it did grow in Asia, fueled by China. The rest of the growth is software.
Okay. If I can ask on M&A to follow up there, what is your financial room for acquisitions, roughly, would you estimate?
Without any rights issue, I guess right now we could, in our own balance sheet, fund something around EUR 3 billion. Obviously you have to factor in the acquired entity's EBITDA. Beyond that, we could also do a rights issue.
Okay. Excellent. Thank you very much.
Thank you.
Our next question comes from the line of Wasi Rizvi of RBC. Please go ahead.
Hi, good morning. A couple left from me, mainly kind of digging into things you've mentioned before. Just to go back to that kind of Q4 similar patterns to Q3. Sorry to go on about this, but it seems consistent with the virus going up and restrictions going up, but governments trying to protect economic activity. Just to help us, our thinking, as if things get worse, which parts of your business do you think would be more exposed to increasing restrictions? I don't know whether that means you have to go into quite a lot of detail based on products or geographies, but just help us understand which bits might be more sensitive. Then the second one was more on one of your comments on auto, where you said the OEMs are engaged in EV and hydrogen development.
Does that mean you're already seeing the orders and the revenue, or does that mean you've got a pipeline of things that are going to come through in the future from the engaged comment?
We'll start with the last question. Yes, we've seen orders in the Q3, but we also have a pipeline that we work on. Regarding if we come back to a lockdown situation, it's probably going to happen in Europe and North America because that's where the numbers are escalating. We don't see a similar increase in China, for example. The hardware business is the one that suffers the most, simply because you need the physical transport to the customer to deliver.
Got it. Then just going back to auto, does that mean that Q3 also had some benefit from the hydrogen and EV investments coming through, or it's something that started and you're going to see more in the future than it was what we've had already?
We've been involved with electric vehicles for the past four or five years, so it's not a new phenomenon. We did see an increased activity in the EV market.
Got it. Thank you.
Thanks.
Our next question comes from the line of Olof Cederholm of ABG Sundal Collier. Please go ahead.
Yes. Hi, and thanks for taking my question. Just a quick follow-up on the great margins in Geospatial, and maybe a more direct question. 28% margins, was that a function of just very good growth in certain markets where you have high profitability? Is this sort of a margin level we should expect going forward now for this division?
It is a function of structural savings and mix enhancement, where we had a richer product mix in the Q3 than ever before. We had also implemented a lot of structural changes that we were planning to do anyway. That lifted the margin. Going forward, we will see what happens. We don't give forecasts, so.
No, there was nothing exceptional from the way you think about it. It was just great execution on cost savings coupled with the mix then.
Yeah. The mix will hopefully continue to improve over the years to come, and the structural changes that we've discussed, they are here to stay. I think that's.
Fantastic
All I'm saying, yeah.
Thank you very much.
Thanks.
Our next question comes from the line of Viktor Högberg of Danske Bank. Please go ahead.
Hi. Good morning. Could you give us any comments on the electronics business and the recovery in China? Was it helped in Q3 by a certain large OEM launching a new handset device a couple of days ago?
Could be.
Do you have any other comments on the potential or the recovery? We've seen the numbers coming up sequentially in the electronics business. Is it mainly in China or what do you see for electronics?
Our main market is still China. We are beginning to see increased activity, for example, in Vietnam, where certain OEMs have relocated manufacturing. Vietnam could be a good future market for electronics as well.
Okay. Thank you.
Thank you.
Our next question comes from the line of Magnus Kruber of UBS. Please go ahead.
Hi, Ola. Magnus here with UBS. Congratulations to a good print. A slightly bigger picture question. A couple of days ago, we saw a German software firm commenting on slightly weaker margin progression as they transition to the cloud over the next few years. How do you see that panning out for Hexagon, and do you have a sense for the sort of margin impact that this transition to cloud will have for you? I know you say you don't sort of push customers to make the transition, it will still be sort of interesting to know the margin differentials between the offerings.
No. It's absolutely right. It's important to remember that the cloud operator will take some of your margin, and if you can't compensate for that with the customer, you're going to see a margin decline. That's just natural as you migrate to the cloud. Having said that, many of our customers will not put their software in the cloud simply because, take a police force, for example, they want to have it on premises, and so does many of the large OEMs that we work with. We don't see a significant impact from moving from on-premise to cloud on our margins for our software. There is definitely an impact as you do it.
Got it. Do you have a sense for sort of what proportion that ultimately will move and where you are at the moment?
I think long term, many non-real-time solutions where you're not in need of very quick response, then you could put it in the cloud, and that will facilitate maintenance and upgrades for us, which will be a positive cost impact that will offset the operator's margin. I do think that non-real-time critical applications will eventually end up in the cloud. Real-time applications will probably not end up in a cloud because of the latency.
Very clear. Thank you so much, Ola.
Thanks.
Just to remind everyone, if you would like to ask a question, please press zero one on your telephone keypads. If you wish to withdraw your question, you may do so by pressing zero two to cancel. There will now be a brief pause while any further questions are being registered. We have no further questions at this time. Please go ahead.
Thank you. That was a very comprehensive Q&A session. I thank you all for dialing in. We'll do this again next quarter. Thank you, everyone. Bye.