Earnings Call: Q3 2020

Oct 28, 2020

Welcome everyone to this Q3 Interim Report of 2020. I suggest that we start on Slide number 4, overview of the Q3 2020. So recorded sales decreased by 2%, and we report an organic growth of 0%, FX of minus 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 and Infrastructure record 5% 9% organic growth, respectively. But we do see continued negative organic growth in the Industrial segment where Manufacturing Intelligence and PPM record minus 4% and minus 7% organic growth. Software recorded growth in the quarter whilst hardware contracted. This is our best third quarter earnings and margin ever. It's close to being the best quarter ever if you adjust for FX. Earnings amounted to $250,000,000 an increase of 6 percent. The EBIT margin was 27%, which is 2% improved EBIT margin over last year. The gross margin improved by 1%. Cost savings measures and the richer product mix impacted earnings in a positive way, but earnings and margin were heavily impacted by currency headwinds. If we turn to Slide 5, this is just a reminder that Q3 is our 2nd weakest quarter in a normal seasonal pattern. We go to Slide 6, the P and L statement. Net sales amounted to €940,000,000 which is 0 organic growth and minus 2% recorded growth. We have an FX impact of minus 37,000,000 dollars on the top line. We moved to EBIT1, it amounted to 250,000,000 dollars compared to $236,000,000 for the corresponding period of last year. That is a 6% growth. Currency impacted our EBIT1 by a negative €20,000,000 So with comparable FX, we would have recorded $270,000,000 this quarter, which would correspond to an EBIT margin of 28%. I think I skipped Slide 7, that is for your reference, the 9 months, and we go straight into cash flow on Slide 8. Cash flow from operations improved significantly in the quarter. And as we can see before taxes and interest paid, it was $352,000,000 versus $324,000,000 the corresponding period of last year. So 9% increase in raw cash flow from operation. If 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 intangible assets and same level as last year. Thus, cash flow from operations before nonrecurring items is SEK213,000,000 Our restructuring program is now kicking in. So nonrecurring cash flow, which is payouts to laid off workers is now 22,000,000. Euros Operating cash flow, €191,000,000 which corresponds to a cash conversion of 103 percent. Moving on to Slide 9. 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 2 percentage points and China that has increased by 2 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, but it shows the Q3 per business segment and geographic region. We move on to Slide 14, EMEA market trends. Western Europe, minus 3% organic growth. We saw weakness in traditional automotive and aerospace in the 3rd quarter. 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 percent 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 the 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 and 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 recovery in electronics and general manufacturing. PP and M, minus 7%, a very, very tough year on year comparison, and the backdrop is a challenging oil and gas market in the 3rd quarter. However, we saw continued 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 gross margin came in at 64% in the quarter, but rolling 12 months were still at 63%. EBIT margin came in at 27% for the quarter, but for rolling 12 months, we're now at 25%. M and A orders and product releases, Slide 23. We announced an acquisition of TactiAware. TactiAware is a software company using lidar based 3 d surveillance point clouds to create a digital image of, for example, a building, as you can see in this picture. And you can create a geofence in an object like the picture. And if anyone intrudes that geofence, it will trigger a signal. Now we are planning to use our sensors, the BLK-twenty fourseven and our dispatch solution, Hexagon On Call, to offer fully integrated end to end secure disobeying solution for 24 hours full visibility of critical infrastructure and spaces, where you can automate alarm management. Slide 24. We launched the Leica GS18i 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. So 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, Hexagon OnCore, 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. And 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 synchronize engineering and maintenance data between the SAP plant maintenance system and our own Hexagon SDX software platform. This is very, 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 1st autonomous head to head motor race. In the autonomous challenge will take place in 2021, and it's the 1st 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 new test bed where we use state of the art tractors to do research and development for autonomous tractors. And 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 the effects 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. But with CaliPre CV20, 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, though we're collaborating with the Indian Navy and the Colombian Navy using LUCIAD Technology and MAP 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 Hexagon 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. But with data from the Hexagon 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 used our 3 d based technology to modern important buildings. And this time, it's the Budvar Palace in Hungary. And you can compare this to why people want to do it. It's 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 mass production for the National Geospatial Intelligence Agency from months to hours. And this is, of course, to help NGA meet mission requirements. Slide 36. Hexagon OnCall continues its success in the market with several new orders. Here, we have select 3 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. And this time, it will encompass 2,700,000 citizens. So 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 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 proposed a dividend of €0.62 to be paid out for fiscal 2019. And with that, operator, we have come to the end of this presentation, and we are now ready for the Q and A session. Thank you. And our first question comes from the line of Joakim Goenel of DNB Markets. Please go ahead. Thank you very much. Good morning. So I guess in terms of tailwinds, with your software sales, it definitely varies a bit from end market and customers. But can you say anything regarding how contract renewals have behaved in the quarter? And are there, say, potential deal skippages going into Q4 instead? No, I think Q4 will perform roughly as well similar patterns as to what we've seen in the Q3. That's clear, Ulla. And finally, you mentioned again, I mean, challenging conditions in Oil and Gas and Aerospace. So can you perhaps just expand on how you will position Hexagon for this? Is there, say, a need to undertake more restructuring You can never rule out more restructuring. But what we believe right now is that we need to continue to diversify the PPNM division, not being so reliant on oil and gas and growing into the A and C 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 for me. Thank you. Thanks. Our next question comes from the line of Daniel Dubei of Handelsbanken. Please go ahead. Thank you very much and good morning, Ola, and congratulations on a really strong quarter. I would like to see if you could elaborate a bit on the OpEx savings that we have seen in the quarter from both short term and more longer term, I. E. Being COVID-nineteen related or not COVID-nineteen 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 more to think of a traditional seasonality pattern on OpEx coming into Q4? It's we don't know yet, but 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, but 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. Yes. And that's my follow-up on your products. The 20 fourseven and the black 20 fourseven seems not to be in the market yet. I was wondering if you have any details on that and also how the Black 2 Go is performing? The BLK to go is doing fine, and the BLK 20 fourseven is a part of a larger initiative where the acquisition of TactiAware was important to have the fully fledged solution to offer customers. It's now in trials in some 5 test sites around the world. It's involving metro stations, public places and so on where test customers are trying out the technology. So it's a longer sales cycle for BLK 20 fourseven than BLK to go. Yes. Okay. Thank you very much and 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 all. I trust you well. Many, many questions I suppose, but I'll focus on 1 and 2. So the first question is, I just wondered if you 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. So just wondering how you can if you give us a little bit more color around that. And then 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. So really encouraging when we think about that for next year. Just 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. Yes, 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, we'll see, but we haven't we've seen a similar pattern in the Q4 as we've seen in Q3 in China, the start of the 4th quarter. And it's a broad based recovery, actually traditional industries like traditional cars that have recovered in China, and we did not see that happening in color countries like Germany, France or United States to the same extent in the Q3. Regarding the margin, it's important to remember, we believe that the savings we have up to now will more or less be passed into 2021. But 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. But 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 Lasseyan of Carnegie. Please go ahead. Thanks. Good morning. Yes, a follow-up on the savings measures. Can you say what you have done so far in terms of more fundamental structure changes? Can you give a few examples? We have shut down, I believe, we're up to 10 facilities. We've laid off some 1100 people, and that pretty much sums it up. Okay. And this is what you needed to do, so that is basically contemplated The long term measures, we still have a bit to go in the Q4, and merging offices will take longer time than the reduction in force. But the reduction in force will more or less be done and concluded by the Q4 of this year. Then 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. I'm just curious about PPM revenue exposure. How much is oil and gas right now approximately? And how much of revenue is 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. And just the final one, if I may, would be interesting Oil and gas, sorry, I got it. Oil and gas, 30%. Okay, great. And it would be great to hear comments about your solutions supporting decarbonization, a very important focus area for investors. And it will be even more important going forward. And you also mentioned that in your comment in the report. Can you hear in the call quickly and then mention something what you are doing there and how you look at this? We have some pretty big ideas, and we will come back, I believe, in connection to the Capital Markets Day and discuss it. And when you can't have that? We will see. But I think we need a different forum than the earnings call to discuss our carbon offset solution and our environmental solutions, but we definitely are looking at that. Okay, great. Our next question comes from the line of Sven Mert 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? And could you comment if you maintained that performance so far into Q4? And then 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. But if I comment on Geosystems, it's interesting. We have 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. But then 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 JPMorgan. Please go ahead. Thank you for taking my question or questions actually. To what 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? So for example, what portion of that 6% growth would you say? And maybe just following up on that previous question, I mean, do you think that is that 6% growth is something that continue sort of for the next 12 months given the weaker year on year comps? And 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. So we do see a sequential increase in new product sales. And that's just natural since we held off in the second quarter, and it wasn't the right timing really to launch new products. And your second question, can you repeat that? It was really just do you believe that 6% growth is sort of sustainable over a 12 month period of time? I don't know. We'll see. Fair enough. And then just quickly, 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, but 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 underinvesting right now. And even if we see a declining demand for oil and gas products globally, we're still underinvested. So 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. Yes. So I mean, will we in near term, I mean, 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. So 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. So Aerospace, I don't believe that we should believe in a recovery anytime soon. And then another fascinating trend that we saw in the Q3 is definitely that all the OEMs in the automotive are very much engaged in investing in electric vehicles or hydrogen vehicles. But 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 have three questions. The first one is in the second quarter 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. 2nd question is on the M and A side in terms of potential activity there. We know that competition is heating up with sort of new entrants investing particularly in the industrial side of your business. Does that mean we'll see more deals in the Euospatial perhaps? And then thirdly, if you could just give some flavor on the Devon development during Q3. And obviously, September is always a stronger, so perhaps from a year on year perspective. Thank you. I start with a third question and take it to more on development. Yes, it's obviously so that September was much better than July, August, which is quite natural. But 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 question on your second question again for me. Now on M and A, I mean, this activity has been a bit lower for you, at least in terms of medium or larger sized deals. And the question was really that we have seen some new entrants being competitors to yours perhaps now particularly on 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 and A pipeline? I think the M and A activity has been since June, it's 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. So I think you should just wait and see. And then finally, to answer your question on software and service, we believe it was around 60% and 35% will be pure software. Thank you. So if you include maintenance, maybe approximately 40% software. Our next question comes from the line of Mohamed Mowala of Goldman Sachs. Please go ahead. Great. Thank you. Hi, Oya. I wanted to actually just follow-up on that software question. Maybe just to help us understand in the divisions where historically, there have been much more kind of hardware heavy. How has the mix changed? And as we think about this sort of improvement you cited in Geosystems, how much of it was sort of software led? Because obviously at the group level you talked about the sort of gross margin improving. So 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 kind of recurring, this revenue growth? Yes, I believe that's the past statement. Software grew in Geosystems. So no, I think you're right in your guesstimates. Great. So I don't know, can you give us a sense of the mix versus I don't know 3, 4 years ago in intergeosystems and Mi, how much that software mix has changed? I mean, you gave us a group level number. Just curious to kind of understand the delta, if you have it. No, I don't have it. But 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 week period to show and compare to other week periods in Hexagon's history. Great. And lastly, I mean, a lot of software companies in Europe are now talking about accelerated shift to sort of subscriptions. These new sort of software revenue you're generating, are they on a subscription model out of the box or are they still a mix of kind 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 Almorud of Kepler Cheuvreux. Please go ahead. Hi, good morning. So 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. Yes. I think we had similar growth in the Q3 in software. It was pretty much I mean, we have a positive 0 organic growth, if you look at the nitty gritty details. And 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, but the rest of the growth is software. Okay. And then if I can ask on M and A to follow-up there. What would you estimate that your 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 €3,000,000,000 Then obviously, you have to factor in the acquired entities EBITDA and beyond that we could also do a rights issue. Okay. Okay. Excellent. Thank you very much. Thank you. Our next question comes from the line of Wasi Drisvi of RBC. Please go ahead. Hi, good morning. A couple left for me, mainly kind of digging into things you've mentioned before. So 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 government is trying to protect economic activity. But which parts of your just help us are thinking as if things get worse, which parts of your business do you think would be more exposed to increasing restrictions? And 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 of this might be more sensitive. And then the second one was more on one of your comments on auto, where you said the OEMs are engaged in kind of 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. And then the hardware business is the one that suffers the most simply because you need the physical transport to the customer to deliver. Got it. And 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 in the it's more in the future than it was what we had already? No. I mean, we've been involved with electric vehicles for the past 4 or 5 years. So it's not a new phenomenon, but we did see an increased activity EV market. Got it. Thank you. Our next question comes from the line of Olof Sederholm 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? And 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 structure changes that we were planning to do anyway but lifted the margin. Going forward, we will see what happens. We don't give forecast, so No, but there was nothing exceptional from the way you think about it. It was just great execution on cost savings coupled with the mix? Yes. I mean, 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. So Fantastic. Thank you very much. Thanks. Our next question comes from the line of Victor Hogberg of Danske Bank. Please go ahead. Hi, good morning. So 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. Okay. 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 is it what do you see for electronics? Yes. We see our main market is still in China. We're beginning to see increased activity, for example, in Vietnam, where certain OEMs have relocated manufacturing. So 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. So 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 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, but it will still be 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 and 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. So we don't see a significant impact from moving from on premise to cloud on our margins for our software, but 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 operators' margin. But I do think that non real time critical applications will eventually end up in the cloud, but real time applications will probably not end up in a cloud because of the latency. Very clear. Thank you so much, Ola. Thanks. And we have no further questions at this time. Please go ahead. Thank you. And that was a very comprehensive Q and A session. And I thank you all for dialing in, and we'll do this again next quarter. Thank you, everyone. Bye.