Day, and thank you for standing by. Welcome to the Hexagon Q3 report 2026 webcast and conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a Q&A session. To ask a question during the session, you will need to press star one and one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one and one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Anders Svensson, President and CEO of Hexagon. Please go ahead.
Thank you, operator, and good morning everyone on the line, and also thank you for joining us for this Hexagon third quarter 2026 results. My name is Anders Svensson. I am the President and CEO of Hexagon, and I am pleased to have with me here in the room Enrique Patrickson, our CFO. With that, we turn into the cautionary statements. After this, we go into the agenda for today. I will begin with Hexagon's performance in the third quarter. Enrique will then present the business review and financials in more details. I will then conclude the presentation and we will open for Q&A . Next slide. Let me begin with an overview of our performance in the third quarter, and we can now turn into the highlight slide. We delivered another excellent quarter.
Organic growth accelerated to 13%, and it is our highest level in the last five years. We achieved that against a tougher comparable, while also generating even stronger order intake and adding to our order book in the quarter. Gross margin held stable at around 62%, and our EBITAC margin, excluding robotics, rose to 25.3%. That is up 450 basis points on a like to like, and quarter-on-quarter, that is up 100 basis points. Cash conversion was 82% in the quarter, and that is reflecting the normal seasonality that we have in the third quarter versus the second quarter. Operationally, we continued building our business for long-term profitable growth. The acquisition of Waygate Technologies is expected to complete during this quarter, the fourth quarter, and we also announced the bolt-on acquisitions of Guidance Marine, Septentrio, and Rocscience during the quarter.
We continue to embed the Hexagon Way, and that was also done during our leadership forum, where we collected 200 leaders across the group, where we improved alignment, accountability and collaboration. We also launched our new company-wide values, which are trust, curiosity, and courage. AEON, our humanoid, continues to make great progress. We gained two new customers during the quarter, and two of our existing customers have now started training AEON independently for different use cases. This is an industry first, and possible thanks to our simulations and world models. This is a great step forward to full production deployment at our customers. As the Hexagon Way takes hold across our business, we are well-positioned to capture the significant opportunities for profitable growth lying ahead of us.
Let me now take you through the quarter in more details, and I will start with the organic growth slide. The next slide. Organic growth accelerated to 13% during the quarter, and every one of our business areas grew. Autonomous Solutions was again leading the way with 23% growth. Manufacturing Intelligence delivered a strong 16% growth, and Infrastructure & Geospatial grew 4% in quite tough environments. All categories grew, but sensor sales led the way with 20% growth. Strong hardware sales today is enabling future sales of software and service solutions, which are normally at a higher margin. Adoption of our newer products continued to progress very well and represents an increasing part of sales for us. This is an important support for our growth of both the top line and gross margin development going forward.
On the next slide, I will now show how the organic growth was fed across our regions and industries. Looking at the regional industry picture, growth was the strongest in EMEA with 17% growth, followed by China at 15% and the rest of Asia at 14%. The Americas grew 6% with tough comparables. Construction, which is our largest industry at 27% of sales, remained mixed. Growth was strong in China, however from a low base, as you are aware, and helped by large monitoring projects, and monitoring projects of infrastructure, of course. Western Europe returned to growth on machine control and reality capture. In North America, construction services and software were strong, but machine control was weaker, and South America declined for us. In general manufacturing, we were strong basically across the board, with the Americas particularly strong due to reshoring trends.
Aerospace and defense continue to see strong demand across both Manufacturing Intelligence and Autonomous Solutions. Mining also grew well in the Americas, including a record quarter in LATAM, and return to growth in EMEA and the rest of Asia. That was driven also by mining radar. Sentiment remains cautious given the high fuel cost within mining and also the iron ore inventories and iron ore growth rate that we see. Automotive was a more mixed picture. The Americas is improving in both shipments and in orders, while EMEA was flat and China was clearly weak. A trend that we have seen now for some time and also see with all our competitors. Electronics was a bright spot in Asia with strong orders and shipments of bridge machines and also vision systems, both within China and within Southeast Asia.
Finally, agriculture, which has only represented 2% of sales, remains weak, with farm income continuing to be under hard pressure, both from, again, fuel cost, diesel, but also from fertilizer cost due to the Middle East conflict. I'll now turn into the next slide, which is the gross margin. We kept gross margin around 62%, so that's the same as last year, and this is despite the growth of sensor sales of 20%, like I mentioned previously, which is a reminder of the strong gross margin profile across our portfolio, from sensors to software and services. But also that we managed to keep pricing in a good way year-on-year. We should remember that increasing the installed base with a large sensor sales is enabling future high margin recurring and solution sales. Then we move into the next slide.
We generated EUR 265 million of EBITAC, excluding robotics, and that is giving us an increase in our margins to 25.3% in the quarter, and that is up from 23.1% in the previous year. Last year's margin here was flattered by 230 basis points from a large, very profitable one-off order within Autonomous Solutions for defense application. This is an order that we spoke about one year ago as well. We also have some smaller one-offs included in that flattered margin increase. If we remove those one-offs, the margin improved by 450 basis points year-on-year. If we break this down, roughly 130 basis points was from favorable FX or currency, and 170 basis points came from the full contribution of the cost-saving program that now reached EUR 18.5 million in the third quarter.
The rest, the 150 basis points, were the drop through from our organic growth. We benefited in the quarter from some tariff refunds, but these were more than offset by the increase in costs related to the iron ore and cost from semiconductor shortages and memory costs. We aim to mitigate this impact also going forward, of course, but some of these effects will wait until the Q1 2027 to get full effect. Sequentially, the margin increased 100 basis points compared to the second quarter, even though the third quarter is seasonally weaker than the second quarter. This was another proof of a strong third quarter. Including robotics, EBITAC margin was 24% compared to 22.5% a year ago, and the difference reflects the investment of EUR 13 million during the quarter versus the EUR 6 million in 2025.
I then move into the next slide, and now we turn to robotics. This quarter has been a breakthrough quarter for AEON. We have hit several customer milestones towards production deployment, and our customers can now individually train our humanoid themselves. That is a big step to scale up use cases with customers. Two of our existing pilots, that is BMW and Schaeffler, are already doing the self-training. In August, AEON became the first humanoid to be trained in Schaeffler's Humanoid Gym in Germany. The gym recreates real factory workstations and environments so AEON can learn, validate, and refine new tasks before it goes into the production line. This is the next step in Schaeffler's planned rollout of at least 1,000 AEON over the next five to six years. What makes self-training possible is a combination of several physical AI efforts.
This is an industry first and only possible because of the AI models and simulation capabilities that we have built. In the market, this was also recognized. ARC Advisory named AEON and Hexagon as a major player in its humanoid report. During the quarter, we also added two new customers to the robotics business. Now I turn to the next slide, which is acquisitions. We continue to be active in the M&As with three acquisitions announced and one of those closed already in the quarter. First, Autonomous Solutions will acquire Guidance Marine, and Guidance Marine makes the sensors that position vessels next to other marine assets or quays. It generated revenues of around EUR 22 million in 2025. The second acquisition is within I&G, and that is to acquire Rocscience. Rocscience makes geotechnical engineering software for mining and infrastructure projects.
Rocscience has the revenues around $50 million, and we expect both Rocscience and Guidance Marine to be completed during the fourth quarter. In Manufacturing Intelligence, we acquired the remaining 49% of ZG Technology. We bought the first 51% in 2021, but now with full ownership, it strengthens our portable metrology portfolio and also enables us to run a globalization strategy of the offering from ZG. On the next slide, we will move into the Waygate acquisition. Before I hand over to Enrique, we have this update on Waygate, which we also expect to close during the fourth quarter. As a reminder, Waygate is a Manufacturing Intelligence entry point into the nondestructive testing with high product and customer synergies with our existing business. Waygate adds around $631 million of revenue at around 10% EBIT. Those are 2025 numbers.
We will have four businesses being added, and we have allocated different strategic mandates to those four businesses. Remote visual inspection has a growth mandate in the beginning. Radiography has a profitability mandate, and this is the CT business. Then we have imaging solutions and ultrasonic testing which are in stability mandates from the start. On margins, Waygate is of course dilutive at first, and if we apply the numbers from 2025 that I mentioned, it will dilute the group EBITAC margin by roughly 150 basis points and the MI margin by roughly 300 basis points. We have a plan in place already to bring Waygate's EBITAC margin into the MI's target range of 21%-24% EBITAC. This is a real possibility for a value creation journey in the next coming years.
Of course, we will update the regular on our progress with this as Andreas Renulf and his team work to unlock this value. I will now hand you over to Enrique to talk to the financials and the business review. Please, Enrique, go ahead.
Thank you, Anders. Before I begin, let me add my own perspective on this quarter. It is fantastic to see the business executing so well on the market opportunities we are seeing. I am also very pleased to see the Hexagon Way embedding further into the organization, and that is reflected in the underlying profitability performance that we show. Now turning to the revenue and profitability bridge. This slide shows it bridges the performance year-on-year. Starting with the net sales at the top, we added some EUR 73 million to our top line to reach EUR 1.05 billion. Structure, mainly the divestment of the D&E business, took out EUR 68 million, and currency added EUR 20 million. Organically, we grew by about EUR 121 million, and that is the 13% organic growth that Anders mentioned.
And what you will see when I comment on the business areas is that our growth is really broad based and structural. More importantly, EBITAC grew organically by about EUR 37 million, or around 16%, faster than sales. As you heard from Anders, once we account for the large one-off defense order last year, the organic EBITAC growth would have been around 28%. Currency also helped, adding EUR 18 million. This is broken down to EUR 8 million in the quarter translation and EUR 6 million of transaction, and then the balance of EUR 4 million is the negative impact from prior periods. Now let's turn to the business areas. Starting with Manufacturing Intelligence, which grew by an outstanding 16% organically and delivered a strong improvement in margins. Growth was driven mainly by the stationary and portable metrology divisions, with general manufacturing, aerospace and defense, and electronics all growing well.
Automotive improved in Americas but remained weak in China. Overall, though, China grew very strongly and our export strategy is increasingly contributing. Importantly, order intake was strong again for them. On profitability, if you exclude the divested Design & Engineering business, EBITAC margin improved by 310 basis points to 25.2%, which is a very good progress. This was driven by the strong organic growth, the benefits of the restructuring program, and some currency benefits. As Anders mentioned, the Waygate acquisition remains on track to complete in this quarter. Moving to Infrastructure & Geospatial on the next page. That one grew by 4% organically, up from 1% a year ago despite the mixed markets that they see. By division, growth was strongest in construction software and services, in geomatics, and radar and monitoring. China continued to grow after destocking, and there was good growth in North America and Western Europe.
Our new TS20 total station continued to sell very well, and that supported the growth in geomatics. EBITAC margin rose 120 basis points to 23.7%, reflecting the higher volumes, a more favorable product mix, and some help from currencies. Moving on to the last one. Last but not least, Autonomous Solutions, which once again delivered a fantastic growth and margin performance with 23% organic growth. This is the strongest quarter ever for Autonomous Solutions. Aerospace and defense continued to drive a very strong performance across our positioning divisions, particularly in Septentrio. Mining also grew, while agriculture remained weak. EMEA drove the growth, in particular, Ukraine-related spend. North America declined on a headline basis due to tough comparatives from the one-off order last year but continued to grow excluding that. By product, growth was led by our anti-jamming solutions, our high-precision GNSS, and our correction services.
Backlog also continued to grow. EBITAC margin expanded by 250 basis points to 31.5% margin on the back of these strong volumes. This is despite the large one-off defense deal from last year. Currency also helped during the quarter. Now, moving on to the income statement, I focus on a couple of items below the EBITAC line. EBIT1 grew by 5% against 11% for EBITAC. The difference is the capitalization and amortization gap, which narrowed by 80 basis points, or 120 points if we exclude the D&E and robotics business. Adjusted EPS was EUR 0.082, up 19% from EUR 0.069 a year ago. That is lower than the reported EPS because reported earnings include a fair value gain on investment. As you might have noted, this refers to unitary.
The effective tax rate for the quarter was 18.7%, slightly below the lower end of our guiding range from 19%-21%. Turning to cash flow and net debt and starting with the cash flow waterfall. EBITAC, including robotics costs, was EUR 252 million. Adding back depreciation and capitalized R&D takes us to adjusted EBITDA of EUR 370 million. After CapEx and non-cash items and a working capital outflow of EUR 63 million, operating cash flow pre-tax was EUR 208 million. That is the number that we compare against the EBITAC number here, and that takes our cash conversion to 82%. After taxes, interest, and non-recurring items, operating cash flow was EUR 119 million. On the net debt bridge, you see the EUR 119 million here as a positive, reducing our net debt.
That operating cash flow more than covered out the investments in EUR 35 million, mainly related to acquisitions, and the outflow for leases and share program. As a result, net debt fell from EUR 532 million to EUR 489 million during the quarter.
On the next page, to give you a sense of the combined businesses, this slide shows roughly how our last 12 months would have looked if Waygate, Rocscience, and Guidance Marine had been part of Hexagon for the full period. Revenue would have been EUR 4.7 billion, up from EUR 4.0 billion, and EBITAC of around EUR 1 billion, up from the EUR 0.9 billion that we have currently. On that basis, net debt to EBITDA goes from 0.3x s today to 1.4x, and this is well below the 2.5x threshold that we have set for ourselves. Even after these three acquisitions, we keep a strong financial firepower for further acquisitions.
It should be noted that when we look at net debt here, this is financial net debt excluding leases. Finally, on next page, sustainability, where as a reminder, our 2030 target is to reduce our scope one and two emissions by 70% against our 2022 baseline. By 2025, we had already reduced them by 33%, and we are on a good trajectory for further reduction in 2026. Five months after we launched our new sustainability targets at the Capital Markets Day, the Science-Based Targets initiative has validated both our near-term and our net zero targets. We are now building sustainability into every part of the business, from product design to how customers use our products and how we refurbish them. In the quarter, all our sustainability program commitments progress as planned, and all our targets remain on track. Several programs gain traction.
We are using more renewable energy, we are replacing combustion engine vehicles with hybrid and electric cars, and our production is more energy efficient. This progress in emissions reduction is helping us to win business also. Increasingly, customers include sustainability criteria in their tenders, so being a leader in this area places us at a distinct advantage versus competitors. In short, our targets are now externally validated, our emissions keep falling, and we remain on track for 2030. I now hand you back to Anders for concluding remarks.
Thank you, Enrique. Let me now bring this together with a short summary of the quarter. But before we do that, let's move into the save-the-date slide. On February 25th, next year, we will host a site visit at Septentrio in Leuven, Belgium, where you will be able to see GNSS receivers being developed and also production. The second date that we ask you to hold is October 26th, and also next year, we will open our doors at our Manufacturing Intelligence facility in Rhode Island, where we will demonstrate our production, talk more about Manufacturing Intelligence, and of course, the North America marketplace and situation. Investor relations, Tom and Anton, are sending invitations with the full details in due course, and we hope to see many of you there. Now, if we move into the conclusion slide.
To summarize, the third quarter has built towards value creation levers, both in the near and in the longer term. We deliver an excellent quarter with 13% organic growth and further improvement in margins. At the same time, we deliver an even stronger order intake while further embedding the Hexagon Way and the benefits that it's increasingly delivering for us. This allows us to enter Q4 with strong momentum. We are also investing in longer term value creation initiatives. We have at least three acquisitions that are expected to close during the fourth quarter, all representing great value creation opportunities. Waygate, as we know well, is the largest one and brings an opportunity to generate a material step-up in profitability over time.
As you have heard, AEON is continuing to take broad steps forward in commercialization, giving us access to a sizable humanoid robotics market in the future. A lot of execution at Hexagon currently and much to be positive about. With that, we would be happy to take your questions. Operator, please.
Thank you. To ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. We are now going to take our first question. This question comes from Simon Granath from ABG. Please go ahead.
Yes. Thank you. Good morning, Anders and Enrique, and thank you for the presentation. Quite encouraging demand trends here, especially in MI. I know you do not report orders, but you have, for some quarters now, given comment about them. I am keen to understand if the book to bill in MI is directionally up, down, or flat versus Q2. Then I am curious to understand how you would describe your visibility into 2027. Is there anything that suggests that the recent trends could reverse or cool off, as we move into that year? Thanks.
Thanks, Simon. If you look at MI, that is basically flattish in terms of developing sales versus order intake. So equally strong, I would say. Autonomous Solutions is considerably stronger on the order intake side than on the sales side, and we also have positive book to bill in Geosystems, or Infrastructure & Geospatial. If you look at 2027, currently, we do not see any dramatic changes in demand. If we look at our strong areas like aerospace and space also, defense, electronics, general manufacturing, they all seem very stable for us, and not sort of weakening in any way. If you look at the weaker sectors like agriculture, automotive, and also the construction side, which are the weak markets, we do not see a specific uptake in those markets either going forward in the short term.
Of course, these markets are quite large, so they are not changing in one quarter or two quarters from being weak to being strong.
That is crystal clear. Thank you so much for that. Then I would like to double-click on the latest acquisition of Rocscience. It is a quite sizable deal with a multiple, at least above yours. Directionally, you have moved a bit away from software more recently. So I would like to get some more color on the rationale for this one, also with aspects to pricing, as we know that at least public software multiples have been hammered over the past year or so.
Yeah. Thanks. Rocscience is a very good acquisition for us. If you put it simply, Rocscience is a leading software company specializing in geotechnical analysis. Hexagon's and Rocscience's technologies complement each other perfectly. As you know, we have the sensors that primarily is radars monitoring slopes and monitoring infrastructure, bridges and tunnels, et cetera, where we continuously record data on how these structures are moving. Then Rocscience adds a simulation on top of that. They actually simulate how these will move in the future. Then on the mining side, we actually have how the mines need to plan. We have the mining planning tool as well. That's how you change your planning, then to run the mine in the best way and to do the necessary fixes. It's extremely complementary to what we are doing currently.
Hence, we know that we are able to grow this company significantly going forward. It feels like a perfect fit for us. Then the second part of the question was related to what? Can you please repeat, Simon?
Yes. It was regarding multiples and how you reason when acquiring these companies.
Yeah
Partly in light of the fact that public software multiples have been coming down.
Yeah, exactly. So if you look at Rocscience, if you look at the multiple, it is actually very similar to the multiple that Hexagon has. So it is basically not contributing a multiple and it is not eroding in multiples. So, we think from that point of view, it is a good fit. Then, if you look at the performance of the company, it has a much stronger growth trajectory than the Hexagon group. And the recurring revenue is 80%, so very stable revenues. And the EBITAC margin is north of 40%. So I think the multiple that we paid for this company is high. But if you look comparing to what we get and what we can do with it is definitely a value creation opportunity going forward.
Thank you so much. And just a final short follow-up. Can you share anything on how Waygate has developed in terms of growth or margin since the acquisition was announced, also given recent market trends?
We do not have included Waygate yet, and we are in this period where it is a bit hands-off, so we are not giving basically any comments on Waygate's performance or similar. More that we are planning for receiving Waygate and the employees into our organization. We are looking already now on what we can do without having full insights in the company on how to start with running from day one basically to make sure that we do the improvement journey that we have been discussing to bring them up into MI's average performance. So lots of planning ongoing, Simon, but we look forward to receiving the team.
Very encouraging. Thank you for having my question, and congrats on the strong numbers.
Thank you.
Thank you. We are now going to take our next question, and this question comes from Phil Buller from JP Morgan. Please go ahead.
Hi. Good morning. Thank you for taking the questions. I have got two, please. I will perhaps ask them one at a time because they are quite different. The first one is on the growth by geographic region. It is a very different picture than in recent quarters with EMEA, Asia, China, the drivers of growth well above the U.S. now. Obviously, that is a good thing to have a broadening out. How should we think about the evolution of the geographic exposures into Q4? Are you seeing any change in tone or customer behavior in any different regions of the world that you would call out as we should think ahead to Q4 please ?
No, thanks, Phil. If I start with the other markets, start with EMEA, we had a growth of 17% in the quarter. I think that is really encouraging to see that we are back to good growth in EMEA. China, also back to strong growth with 15%. Very important market for us, especially when it comes to MI. Rest of Asia, strong when it comes to electronics, et cetera, and we grew 14%, so in line with China, basically. Very happy to see that development as well. Then, of course, when you look at the Americas, like you say, it dropped to 6% growth. However, if you then take in the one-off order that I discussed in my presentation that we had within Autonomous Solutions in the comparison period last year, it shoots out as a one standoff. If you would remove that, the growth numbers are much stronger.
We will, of course, not go in and discuss specifics of that order or customer, but the underlying growth is much more positive than the numbers you see there. If you would remove that number, you would also see that the group would have a growth of 16% instead of 13%, if you would remove that one-off order. That would bring up America significantly from the 6%. We don't see that America is a slowdown for us or so. We see continued strong demand in North America, and we expect that to continue in the next coming quarters as well.
Thank you. I guess part of the question was there's no one-offs in EMEA or Asia or China. That's kind of like an underlying-ish number.
That's correct.
Is that fair?
That is correct.
Yeah. Great. Then secondly, on AEON, obviously good to see two new customers come in during the quarter. I know you will not disclose who they are, but are they Europe-based companies? When it comes to the investment profile into 2027, given you are now moving into production and you are gaining new customers, how should we think about the increase in investment 2027 over 2026 in approximate terms, please?
Yeah. Thanks. Yeah. Focus for our early deployments are in Europe, partly because of proximity, of course, from the home base and the R&D team. So these customers are also based out of Europe, even though they, of course, have global operations. If we are successful, which we believe we are, that will be rolled out on a more global scale.
On to your second question, how you should think about the investment profile. So AEON or humanoid will continue to require investments going forward. Last year was EUR 25 million from our side, and this year we end up somewhere in between EUR 45 million and EUR 50 million as we guided for also previously. Next year will be an increase from that. I would say that we will be in the range of EUR 70 million to EUR 80 million maybe, but that is not confirmed yet. But in those kind of levels is likely.
We will start having revenues also next year within our humanoid or robotics division. Some of the robots will be sold, some will be robot as a service, most likely. So there will be different business models that we operate with customers within this area. So it will still require investments in the next coming years. I would say after 2031 or so, this project is probably breaking even, and then the humanoid sales is targeting to take off 2032 or so, if you look what the people who understand this better than me are saying. Then the market is exponentially growing very quickly. We are currently in a good position, and we can see that from the feedback we get from customers. We can see that from the feedback we get in media and recommendations, et cetera.
We are in a strong position, and we intend to hold that. We will invest what is required to make sure that we keep our position.
That is good to hear. Thanks very much.
Thank you.
Thank you. We are now going to take our next question. This one comes from Daniel Djurberg from Handelsbanken. Please go ahead.
Thank you, operator, and good morning, Anders Svensson and Enrique Patrickson. I have a couple of questions as well. Congrats on a strong report, I would like to say as well. I was a bit surprised by the strong automotive segment, roughly 10% of revenues, seeing good growth in Americas and positive in EMEA, rest of Asia, and only negative in China. Can you comment a bit if this is the beginning of a more positive trend or more of a temporary effect?
Yeah. Thanks, Daniel Djurberg. I'll start from the other direction. I'll start from China then. As we all are aware, the automotive business in China is currently on a decline from the manufacturing side. We have quite large inventories of battery vehicles. Also in Europe, I think it's the highest inventory ever of electric cars around the world as the Chinese are offloading more globally since the domestic market is weakening. Where we see positive effects is rest of Asia and EMEA, and I would say those are not huge positive effects, but there is a positive atmosphere, and we can see increased order intake and increased sales, as you can see, but it's still in the single digit area for us. It's not double digit yet.
When we look at North America in specifics, very strong, and I think this is related also to tariffs announced of 50% tariffs on imported cars from the 1st of January. I think that drives investments in local manufacturing of cars, et cetera. There is a general feeling of home shoring in U.S. at the moment. So I think that drives investments, and I think that's probably here to stay. I believe also that we are recovering in Europe, and of course, the Chinese market will probably remain weaker for some time, but I believe that will also turn in the not too distant future.
Perfect. May I also ask you, and thank you for the pro forma on Waygate. You highlight your plans, obviously, to improve the margins towards the MI level 21, 24. Have you got some ballpark plan timeline of this, or is it too early to tell?
We have a plan, but it's too early to go external with that. We first want to include the company and get to know the company, understand our people, and do this plan together with them, because they are the people that should execute on this plan. It won't be me and it won't be Andreas Renulf that executes on the plan. They need to be on board, of course, and own what we are going to do to make the improvements. When we have done that, we will talk externally about this.
Super. That's fair, I think. My final question would be on, A, on congrats to more customers and so on. You also talk about finding cooperating partners, and I was also a little bit curious on how you work on versioning, if it will be upgrades by the air or if it will come out a new AEON 2.0 or something at some point, just to understand how you work with that.
Yes. You are correct. We are looking for partners. We are not looking primarily for someone to invest money, because we can fund this ourselves. We're looking for partners that actually can add value, which we ourselves have difficulties to add. That could be a range of different things. That could be sort of technologies, that could be manufacturing capabilities, and that could be being a supply chain partner, et cetera. We're looking for someone who adds value rather than only capital. We are proceeding with this, but of course, finding the right partners for this, we are not in a hurry with. As we go into commercialization in the beginning of next year, of course, then we have a lot of more proof points that also, I think, creates a more secure valuation of the AEON's value, both now and going forward.
I'm not in a hurry, but I think finding the right partners will add value going forward and will also put us in a stronger position competitiveness. Then your question on AEON going forward, if it's going to be AEON 2.0, I would think it will not be. I think it might even be with a different name. But of course, there will be, for lack of a better word, robot one instead of prototype seven. There will be a change both design-wise, but also the components inside and how we have optimized it more for production than for proof points.
Perfect. Crystal clear. Thank you so much.
Thank you.
Thank you. We are now going to take our next question, and this one comes from Meihan Yang from Goldman Sachs. Please go ahead.
Hi. Good morning. Thank you for taking my question. I have two questions. The first one is there anything that you can give us a bit more color on the acceleration of the Autonomous Solutions organic self-growth, despite your tough comparables in the second of 2025? Should we expect this to continue in the fourth quarter as well? The second question I have is on your tariff refund impact. Is it possible to give us a bit more color on the magnitude of one-off benefit you had this quarter, and how is it split across your divisions so that we can understand a bit more on the underlying margin? Thank you.
Thank you. I think the main reason for the AS growth was the high demand of anti-jamming antennas primarily in Europe. We see this with countries reequipping and modernizing their defense against the backdrop of the war on the eastern border of Europe. It is also relating to the anti-jamming solutions for airplanes, marine, and other applications. It is not only related to defense applications. Being a Swedish company, of course, puts us in a very strong position to get increased orders and customer loyalty within the European Union. This development is, of course, driven also by political agendas. I think this will continue also going forward. The rearming of Europe will take several years. I would say it is just started, actually. There is probably a long positive tailwind for this sector. It is also strong in North America.
However, like mentioned, in the comparable was a fantastic order in the comparable. That makes this quarter's number look a bit tougher. There is some effect of that order also into the fourth quarter before that goes out of our comparables. Generally, very strong across North America and Europe, I would say, and we see that trend to continue. There is also rebuild of what has been used by U.S. in also supporting Ukraine and the Iran war, et cetera. There is a tailwind that is not only in the short term. For the tariffs, I probably leave it to Enrique Patrickson to respond to that one.
Yeah, thanks for the question. We have a small effect coming into our gross margin and helping there. This is largely then offset with other headwinds that we have on memory costs, chips, Iran effects, and so on. So higher transportation costs. Those two are a wash. We estimate it to be in the tune of about somewhere between 70- 90 basis points each. It is not of a big magnitude on either side.
Got it. Is this mainly in the Autonomous Solutions impact? What is the net balance between each divisions that were impacted by tariffs more?
I would say it is across the board, but Autonomous Solutions that you highlight, it is a smaller business area, so they have a smaller share of that. The bigger impacts are in I&G and MI.
Yeah, actually in Autonomous Solutions, a lot was actually paid by customers directly on those tariffs.
Got it. Very clear. Thank you very much.
Thank you.
Thanks.
Thank you. In the interest of time, we are now going to take one last question, and this one comes from Andre Kukhnin from UBS. Please go ahead.
Yes, good morning. Thank you very much for taking my questions. Maybe I will start with the construction one. Immediately, I am just looking at your very helpful indicated by end market, by quarter, by region. Looking at EMEA, we kind of were in growth territory, then dipped into a negative. We are now back in the blue dot. I just wondered, do you think there is a beginning of recovery there in construction market for you, or is it just kind of treading water?
Yeah. Thanks, Andre. I think the sound is not perfect here, but I think I got most of your question. Construction in EMEA, we see some sort of bounce back, very, I would say, early indications, primarily in U.K. and Germany, we see positive effects. It is not significant still. It is single-digit numbers, basically, I would say. But this seems to be more than one quarter effect, and driven, I would say, primarily by machine control and new product sales like the TS20.
That is very helpful. Thank you. I hope the sound is a bit better now I have changed the headset. I also wanted to ask on the strength in Manufacturing Intelligence that you are seeing, especially in the U.S., we are kind of hearing from some channel checks that this is getting really quite buoyant and heated up. Are you seeing any signs of customers trying to stock up as well?
No, I wouldn't say so. Our products are generally not products you stock up on. I think it's mainly connected to actual underlying demand. We can see the reshoring of manufacturing into North America is driving a lot of these investments. I would say those investments are more long-term than some bump from stocking up in that case.
Perfect. Just a very quick one. Your M&A activity clearly stepped up, but you also indicated that your gearing is still well below the limit to where you'd be comfortable with. It sounds like you're continuing at full pace. Would it make sense to expect that kind of continuation of deal flow that you've delivered in the last six months or year to date?
Yeah, I would say that's probably something you should expect from us going forward. If you look at us historically, this company is built from being very skilled at doing M&As and create value, and we have the competence internally to do that. We are expecting, and we have a very strong M&A funnel, actually, across the whole group within all the business areas and divisions. But we are not buying companies to buy companies.
We are buying companies that we are sure that we can create value over, that we can get those companies a better home than where they are today, where we can generate double-digit sustainable growth going forward, that we can have a return on capital, at least at WACC, after three years or so, and that we have a cultural fit, and we have also synergies that we can create from our current portfolio when we are adding into the portfolio.
Very helpful. Thank you very much.
Thank you.
Thank you. That was our final question for today. I will now hand the call back to Anders Svensson for closing remarks.
Thank you, everyone, for participating and engaging with good questions. Make sure that you lock in the dates that I mentioned previously, and be safe, and see you soon. Thank you. Bye.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.