Hexagon AB (publ) (HEXAB) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Hexagon Fourth Quarter Report 2024 Conference Call. [Operator Instructions] Please be advised today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Norbert Hanke. Please go ahead.

Good morning, and thank you for joining our fourth quarter and full year 2024 conference call. I'm Norbert Hanke, Interim President and CEO of Hexagon, and I'm joined by Chief Strategy Officer, Ben Maslen, and our Chief Financial Officer, David Mills. For those of you I have not met, I have been with Hexagon for over 20 years in a number of roles, including being President of the Manufacturing Intelligence division, and most recently as Chief Operating Officer. Therefore, I have a pretty good understanding of Hexagon about its markets, customers, it is and its potential. And I was happy to step in as Interim President and CEO during this period of leadership change. Now turning to our performance this quarter. In Q4, we had delivered a modest organic growth in -- of 1% with strong growth in software and new product launches, offsetting the weakness in key markets, which has been seen throughout 2024. The gross margin maintained to be very strong at 67%, reflecting innovation-driven pricing power and the strong product mix. The operating margin were good at 31%, reflecting good internal cost control and a favorable currency environment. The headline of this quarter is the cash conversion of 116%. This reflects the benefit of the operational improvements and our focus on this as well as usual seasonality. For the full year 2024, we have delivered net revenues with 30% operating margins and the cash conversion of 91%. So being with this slightly above our annualized target of 80% to 90%, this represents a strong performance in a very challenging key market environment throughout this year. With this achieved, the Board are proposing an 8% increase in the dividend to EUR 0.14 per share. We have made several exciting acquisitions to strengthen our market leadership position. We will revisit these in more details later on. There have also been some important appointments. Björn Rosengren has been proposed by the Nomination Committee as Deputy Chair and will be available for election at the AGM in May. It is intended that he will ultimately succeed Ola Rollen when he steps down as Chairman in 2026. I'm also pleased to announce that Anders Svensson will be joining as President and CEO of Hexagon from July 20, 2025. Finally, the investigation into the proposed separation of ALI is still ongoing. Today, we cannot give you any update, but we are committed to communicate this to the market during Q1. So in summary, a good busy quarter at Hexagon and we will now explore this quarter in more details. Please turn into the next slide. A few comments now on geographical trends, which you have seen in the quarter. We continue to see broad weakness in the construction market globally. Also, there was a small rebound in China. New products help us to mitigate some of the weaknesses in the construction market, and they generated around 2% in Geosystems organic growth during this quarter. Automotive markets remain tough, particularly within EMEA and in the U.S. Manufacturing as a whole returned to growth in Asia, with growth in China and a very strong performance in India. Software grew well across geographies, in particularly, OnCall public safety product, which drove growth in the U.S. and Asia. I will now hand over to Ben, who will talk about the division's performance.

Thank you, Norbert, and good morning, everyone. If we go to Slide 5 here, you have the overview of divisional performance during the quarter. As you can see, we saw a mixed development in terms of organic growth with ALI and SIG benefiting from good momentum in their underlying end markets. The Manufacturing Intelligence and Geosystems are still seeing the effects of a cyclical slowdown in their key verticals. As Norbert said, across the group, we continue to see good momentum in the software product lines and recurring revenues overall, which increased by 7% organically during the quarter. We also saw a good margin performance across the group despite these mixed end markets, balancing good cost control, with investing in future growth opportunities. If we go to Slide 6, this is the time series of divisional performance. For your reference, you have these numbers already. We can go on to Slide 7, which is the overview of Manufacturing Intelligence. MI reported revenues of EUR 530 million, which were down 2% organically compared to last year. We note that during Q4, we saw a similar development in terms of orders as we did for shipments. So there was no real adjustment in terms of backlog. The division reported EBIT of EUR 159 million and an increase in the operating margin to 30%, helped by good cost control and recent currency moves, which mitigated the weaker demand backdrop. By product, we saw good growth in the manufacturing software portfolio, which partly compensated for the weakness that we saw in the quarter in the Sensor and Robotic Solutions portfolio. By segment, as Norbert said, we saw good momentum in Aerospace globally, a stable development in General Manufacturing, with continued weakness in global Automotive and related supply chain, especially in Europe, but also to a lesser degree in North America. China in MI was relatively stable during the quarter. We go on to Slide 8 with the Asset Lifecycle Intelligence. They had a strong quarter, delivering revenues of EUR 228.8 million, and 10% organic growth, with good momentum in recurring software sales, which grew double digit and also a strong end to the quarter in perpetual software deals. EBIT increased to EUR 87.4 million, and the EBIT margin was 38%, matching last year's very strong level despite the additional investments we're making in product lines like SDx. The business saw good growth across all geographies and product areas, but especially in Design & Engineering software and Enterprise Asset Management software, which both grew at double-digit rates. If we go to Slide 9, we have Geosystems. They reported revenues of EUR 400 million during the quarter. That represented a 2% organic decline compared to the prior year. Despite this decline, EBIT increased to EUR 124.3 million and the operating margin reached 31%, reflecting the benefits of last year's efficiency program as well as our currency tailwinds. By segment, construction markets continue to remain weak in EMEA and North America. That was offset to a degree by stabilization in the quarter in China and growth we saw in the rest of Asia. Geosystems saw continued growth in software sales and good momentum in recurring revenues. And they also saw a positive contribution in the quarter from new product launches, including the Icon trade suite that Norbert will mention later on. If we go to Slide 10, and it's Autonomous Solutions. They had revenues of EUR 146.5 million during the quarter, which was a 2% decline against what was a tough comparative a year ago. EBIT came in at EUR 46 million, representing an EBIT margin of 31%. This decline compared to last year reflects both the volume drop, but also a different product mix this year to last year. In the Autonomy & Positioning business area, we saw ongoing weakness in precision agriculture, but this was offset by growth in marine, aerospace and defense markets. In mining, we saw a slight decline in the quarter, reflecting tough comparatives a year ago and a customer pause ahead of a product upgrade cycle we expect for 2025, which we think will drive resumed growth. We also booked the first revenues from the Australian autonomous road-train projects that we announced last year. If we go to Slide 7 for Safety, Infrastructure & Geospatial. Now they had a very good quarter, delivering revenues of EUR 140.8 million, an organic growth of 11%. Given the good growth, the division delivered EBIT of EUR 41.9 million and an EBIT margin of over 30%, both improvements on last year's record result. The growth acceleration was driven by public safety, where the division is now delivering the strong backlog of orders for the OnCall platform, which is over the last few years and where the pipeline of new potential projects remains very strong. Growth was good across all geographies and especially in Asia. If we go to Slide 12, staying with the divisions, we have a few slides now on the acquisitions that we've announced recently. Firstly, in Autonomous Solutions, we announced during Q4 the acquisition of indurad, a leading provider of radar technologies used to measure ore flows, position objects and avoid collisions between vehicles and a dynamic mining environment. Combined with our existing portfolio, this will help support our customers on their journey towards more autonomous mines. The acquisition closed in late November last year. Slide 13. In Manufacturing Intelligence in December, we announced the acquisition of Geomagic, and that's a suite of software tools that create high-quality 3D models from multiple sources, including laser scanning. These models can be used to help build CAD design models or to accurately measure and inspect finished parts for quality control purposes, which obviously fit well with our existing solutions, and we expect this transaction to close early in the second quarter. Slide 14. We have an exciting acquisition announced in Autonomous Solutions in early January. Septentrio is a leading provider of GNSS or advanced positioning technologies especially focused on applications with low size, weight and power applications. This will give Hexagon the opportunity to expand in newer fast-growing markets like airborne delivery and security drones and ground-based robots where very accurate positioning is needed. This acquisition is expected to be completed during the second quarter. And then finally, Slide 15, an acquisition within ALI that we announced last week, CAD service is an existing partner to ALI, providing advanced visualization tools to integrate CAD, BIM and 3D reality capture data into our Asset Management Software platform. As customers move from visualizing their assets in 3 dimensions as opposed to 2 dimensions, I think this technology in-house allows us to accelerate the road map and integration of those tools. So welcome to all our new members of the Hexagon team. And with that, I will hand over to David.

Thanks, Ben. In the following slides, I would like to take you through the Q4 and full year performance, which despite the continued challenging economic conditions in terms of growth or some of the end markets culminated the year with an operationally resilient performance, consequently an improved EBIT1 margin and a cash flow delivery at the top of our range. Moving on and starting with the income statement for Q4 2024. Stepping through the sales bridge. Sales of EUR 1.448 billion is a reported growth of 0.9%, with no material impact from FX on sales and a small minus 0.2% impact from structure given 1.1% organic growth. Gross margin continued to improve up to 66.7% and was delivered by a strong performance, in particular within the software portfolio. Operating earnings increased by 3%, above the reported growth rate to EUR 450.3 million with a 55 basis point increase in the margin to a high of 31.1%. The elements of which we will break out in the profit bridge. Interest expense and financial costs now decreasing year-over-year to EUR 41 million versus EUR 49 million gave a delta on earnings before taxes of plus 5%. Taxes being 18% in line with prior year, bring us down to an EPS of EUR 0.124, also growing 5%. For reference, EBIT1, including PPA includes EUR 29 million of amortization and so dilutes the EBIT1 percentage by 200 basis points to 29.1%. Moving on to the gross margin. Q4 delivered a further improved gross margin at 66.7%, and this brings the rolling 12 months to 66.9%, up from 66.1% by 80 basis points, continuing the strong upward trend. The positive quarterly performance being from improved margins in the software portfolio and stabilized margins in the sensor portfolio, enhanced by a positive divisional mix and further improved by the structural divestments. Moving on to the Q4 profitability bridge. Currency has a material influence with a 1.5% accretive EBIT1 impact. This is due predominantly to the net year-over-year transaction impact, which is a positive of EUR 22.5 million from a current year gain of EUR 12 million against the prior year loss of EUR 10.5 million. The impact from translation being marginally positive at EUR 0.5 million on sales but with a negative EBIT of minus EUR 1.5 million. The moderate translation movements this quarter were driven mainly from an offset of the positive impact of the appreciation of the U.S. dollar by 0.8% and the CNY by 1.3% where sales exceeds cost and continued depreciation of the Swiss franc by 1.9%, which has the opposite characteristic. The structural element was neutral and reflects the net impact of acquisitions less disposal. And in the fourth quarter, the disposal of the hand tool business in MI exceeding the incremental acquired sales, of which the material elements were Voyansi and Xwatch in Geosystems. The organic sales development that was diluted with respect to EBIT1 in this period as expected. This being the first quarter comparing against the accelerated efficiency savings in Q4 2023 of EUR 20 million. The NRI savings, though now at full run rate of EUR 43 million per quarter result in incremental savings in Q2 2024 of EUR 23 million. And for comparative, this is - this is lower by EUR 11 million than the preceding 3 quarters, which averaged EUR 34 million incrementally. Moving on to the full year income statement. Stepping through the sales bridge. Sales of EUR 5.401 billion is a reported growth of minus 0.7%. And negatively impacted by FX of minus 0.8% and a minus 0.2% net impact from structure, giving 0.2% positive organic growth. Most notably for the year is the gross margin improvement, up 66.9%, an increase of 80 basis points, and this was delivered by a broad-based divisional improvement. With multiple drivers as mentioned in previous quarters, including pricing discipline, rationalization program and product innovation enhanced by both a positive divisional and product mix and further improved by the structural divestment. Positively, operating earnings were marginally above last year at EUR 1,602.9 million and with a 32 basis point increase in margin to 29.7%, the elements of which again, we'll break out in the full year profit bridge. Interest expense and financial costs of EUR 170 million versus EUR 155 million give a delta on earnings before taxes of minus 1%, bringing us down to an EPS of EUR 0.433. And again, for reference, the EBIT1, including PPA includes the EUR 112 million of amortization and so dilutes the EBIT1 percentage by 280 basis points to 27.6%, an improvement of 38 basis points over the prior year. Moving into the full year profit bridge. Currency has a 0.2% accretive EBIT impact. This is due to the negative currency translation on sales of EUR 41 million having a corresponding EUR 23 million EBIT at a margin of 56%, combined with the net year-over-year transaction impact, which is a positive of EUR 24 million from the net reversal of the prior year loss of EUR 24 million and the current year full gain of just EUR 6.6 million. The structural element is also accretive and reflects the net impact of acquisitions less disposals for the year with the sales element being negative, but the EBIT positive as the acquired business is generally having a book group EBIT and those disposed conversely lower. The organic sales and EBIT evolution being marginally positive for the year is despite the challenging macro backdrop and thus no dilution impact. This is due to the gross margin improvement in conjunction with successful cost mitigation through the effective implementation of the rationalization program. So with the accretive impact of both currency and structure and managed organic performance, the EBIT1 margin percentage has improved by 32 basis points to 29.7%. Moving on to the Q4 cash flow, which shows improvements in cash generation and conversion over the prior year and cements an excellent full year performance on cash conversion of 91% versus 80% prior year and is at the top of the target range of 80% to 90%. The adjusted EBITDA demonstrates a similar cash generation to the prior year despite the drop in D&A add-back, which comes from lower onetime impairments in the current quarter, as the underlying depreciation is increasing as we have seen throughout the year. Capital expenditure increased compared to the prior year, mainly due to capitalized development expenditure. The most significant improvement being the net working capital was a release of EUR 140 million versus the prior year release of EUR 69 million, which generated an operating cash flow of EUR 521.7 million, an increase of 16%, which is a cash conversion of 116% versus 103% prior year. Including cash, taxes and interest payments, the improvement in cash flow before non-recurring is 19%. Non-recurring items, cash outflow of EUR 18.5 million brings an operating cash flow to EUR 403 million, up 26%. Moving on to the net working capital being a release of EUR 140 million versus the prior year of EUR 69 million is the release for the full year of EUR 94 million versus a build of EUR 78 million in the prior year. This reduced the proportion of rolling 12-month sales to 6%. The constituent elements of the movements being receivables and prepaid increased by EUR 35 million from solid Q4 shipments resulting in DSOs of 83 days, which is in the normal range. Inventory decreased by EUR 36 million. And as mentioned in Q3, this was a focus and support of the shipments with DII dropping below the prior year. Liabilities increased by EUR 64 million, with the traded DPOs at a level of 61 days. An increase in deferred revenue of EUR 72 million, which is reflective of the normal billing cycle in software. And finally, accrued expenses are marginally increasing as expected, but a very tempered rate based on overall performance. In the final slide, I want to reiterate the usual seasonal trend where sequentially, Q1 is weaker than Q4, which is the strongest performance quarter from a volume, EBIT and cash flow perspective. So in conclusion, despite the continuation of the challenging macro environment and consequential muted organic growth, the EBIT1 performance has marginally improved due to the continued positive development in gross margin coupled with cost management through the rationalization program, which has achieved its expected return. In addition, the annual cash conversion was cemented with strong performance in Q4 to deliver marginally above the normal range. And with that, I'd like to hand back over to Norbert.

Thank you, David. Turning now to some key customer stories and wins from this quarter. Let's start with MI. Here we have, SEAT S.A. a long-term customer, who has purchased more of our PRESTO robotic measuring cell to improve digital communications between production sites and their headquarters. By doing this, we are aiming to reduce inspection time by 50% and improved the assembly process. Moving now to the next slide. For ALI, we got some orders from a repeat customer. This global data center hyperscaler purchased EAM for their data center operations already in Q2 '24 and have now returned for more licenses to cover their global hardware design footprint, taking up an additional 1,200 licenses. This kind of repeat business underpins the stickiness and value of EAM products, which was growing nicely during this quarter. Turning now to the next slide. I would like now to spend some time on the Leica iCON trade solution, which was launched by Geosystems for the construction industry in September 2024. These products contributed a total of 2% organic growth in Geosystems. These products are focused on ease of use, delivering speed and accuracy. So it can provide simple and complex 3D measurements with a very short setup time, meaning that the product can be used by one individual with minimal training to deliver high quality or design and quality control. It is another step in our strategy to deliver products and services that mitigate labor and skilled shortages in key workforces. Some initial use cases for this product can be found now on the next slide. So we have listed on as used cases, advanced on-site measurements, designing and producing high-quality staircases with easy on-site matching, prefabrication of fitted catches of bathrooms and bathrooms and improved simplifications. And now to the next slide, please. We have here agreed on calling within our SIG division. Williamson County in Texas have selected OnCall to upgrade their public safety software. This project will enhance collaboration across 13 agencies, including fire and police to protect more than 600,000 people and improve emergency response time. Next slide, please. I'm very pleased with the progress we have made in Q4. We have overcome challenging key markets by leveraging innovation to deliver growth and good margins alongside an excellent cash flow. We have continued to invest in the future and start 2025 with several exciting acquisitions, which will fuel future growth and returns. The investigation of the proposed spin of the ALI division and other software assets continues at pace. And finally, we go into 2025 with the opportunity of a refreshed leadership team with skills to unlock the potential of Hexagon in the future. Turning now to my final slide. Here, you will find some dates for your calendar. We hope as many of you can attend these events, particular Hexagon Live, as there are a great showcases of our products and people. Thank you for your time today, and I will now hand over to the operator for questions.

[Operator Instructions] And now we're going to take our first question and it comes from line of Andre Kukhnin from UBS.

I've got two. I'll go one at a time. Firstly, could you just remind us on your positioning in North America in terms of the degree of localization and how you're positioned versus peers there and vis-a-vis the tariffs that's likely coming in now?

Yes. Andre. So at a very high level, U.S. is around 30% of group sales. And I would say just under 20% of those revenues are imported into the U.S., so around 6% of revenues overall. 2/3 of those products come from Europe and mostly Switzerland and 1/3 of that comes from Canada. In terms of what's coming from Canada, it's a very highly specialized positioning products, GNSS and GPS that are often designed into customer applications. So we think it's not -- they're not some products that are easy for customers to switch out, the customer would pay the tariff. That's how it contractually works. So in that area, we don't see a huge potential impact overall. And I think as I've laid out, the percentage of sales that go into the U.S. overall are a pretty small percentage of group revenues.

Very clear. And just one trend I got in Manufacturing Intelligence. You talked about Americas turning negative, which I found a bit surprising. So, I wonder, if you could just dig into that a little bit more. And I think against that, I'm just toggling back to it. You talked about China stabilizing. So maybe if you could just touch on that a little bit on these two trends that Americas turning surprisingly negative and China, on the other hand, stabilizing. Is China kind of finally end destocking? Or are you starting to take share there?

Yes. No, I think in the U.S., we saw a little bit of a pause in Q4. It wasn't dramatic, but it's probably tied maybe to the election and people are waiting to see what happens. In terms of orders, there was actually a little bit better momentum. So I think we see probably into Q1 some sequential improvement in the U.S. If you look at China, it's almost the other way around. I think as we guided the Q3, we did expect a better Q4 in China. And that wasn't really a strong view on the economy. That was more the phasing of our deliveries. As we look into Q1, we actually see it the other way around. Not a big change in the underlying Chinese economy, but just you probably won't have the same growth that we had in Q4. So net-net, I think MI looks fairly similar going into Q1 as Q4 overall, probably U.S. a little bit better. China may be a little bit softer, and Europe is still relatively weak and moving sideways basically.

And the question comes from the line of Joachim Gunell from DNB Markets.

So when it comes to the spin-off, it makes sense to create a more like focused separate company here that allows you to make EPS accretive acquisitions. But can you comment a bit on the RemainCo and the capital allocation plans here? Will software-centric M&A still be a key focus point? Or I mean, for this more like hardware-enabled software business? Or do you think that we can increasingly target like organic initiatives and be eventually more shareholder-friendly on capital distributions?

Yes. Joachim, I mean, look, obviously, that will be decided as we -- if the decision is taken to do the spin and as we go nearer to the point of separation. I think you're right, for the company that spun out, assuming that they end up with a higher multiple that reflects the benchmarking against other software peers, it will be easier for them to do software M&A at similar multiples. I think, that's one reason to support the separation. I think the Hexagon OnCall, I think, software is still going to be a part of the DNA of that business. And I think it's going to be about integrating the hardware and software more tightly to push into markets where you need real-time processing, more autonomy, if you think about precision agriculture, mining, or in manufacturing production line. So I think, you're going to see continued investment in R&D to drive new solutions in most markets and continued M&A, both on the sensors and software side to kind of drive that. And I think, if you look at the M&A we've done in the last few weeks, Geomagic, which is a software company that goes into MI is a good example of a continuation of that M&A strategy.

And just when it comes to your software business more in general, both for the spin-off and the RemainCo. What are your thoughts with regards to like potential disruption to seat-based software pricing and the potential shifts from a Software-as-a-Service to more service as software via AI agents?

Well, that's a good question. I think, it's a good question further out you look. But I think for us, if you look at our business, we upgrade in very high niches. We have strong market shares. We're investing in embedding AI in all of our products as well. So I think for us, we more see it as an opportunity to use those tools in our software product set to drive more value for customers rather than something that's going to potentially disrupt us. But obviously, we invest a lot and we keep an eye on the change in the market, and we're not complacent.

And the question comes from the line of Daniel Djurberg from Handelsbanken.

Yes, I have a question that relates to also the ALI spin-off and that is -- if you can on high level comment a little bit on how the organization, the key customers have -- yes, thought about this and the -- any reactions that you could -- you can tell us about?

So far, we have heard that the customer are positive on these kind of things as well. And let's agree every time when the company is even more focused, that gives normally additional momentum from our point of view. So I think that is all good, honestly speaking.

Perfect. And internal as well or...

Internal as well.

Perfect. And another question if I may. You touched upon the trends. You spoke about MI, especially about similar trends, Q1 but perhaps a little bit better in U.S. and less growth in China. But if you talk a little bit on the trends you see in the other segment, i.e., you talked in Q4, for example, we had stabilization in NIS and the Geosystems and steady demand in ALI and SIG. So should we expect this trend to stay there as well?

Yes. Look, I think, it's a difficult economy to call, right? We don't see it getting worse. But if you look at lead indicators and so forth, there's not a huge amount of momentum there either. So I think it's stable. I think, if you look at ALI and you look at SIG, I think we expect we've got a lot of recurring revenue. We'd expect to see good growth through 2025, whether it matches the level we see in Q4 or they have some perpetual deals. We will have to see. But I think those markets look good. I think, in Autonomous Solutions, they had a very strong 2023. So this year was always going to be a bit tough in terms of comparatives. And some of those underlying markets if you think about agriculture have been weaker. I think, as we go through 2025, when we launch new products, particularly on the mining side, I think, we would hope to see a re-acceleration of growth. MI, I mentioned earlier, I think, it's stable and I think the same for Geosystems. We haven't really seen the benefit of rate cuts yet feed into renewed activity in construction markets. I think, it's relatively stable. But I think we do have good product launches coming in Geosystems as we go through the year that will hopefully help us in the second half.

Now we're going to take our next question, and it comes from the line of Alexander Virgo from Bank of America.

Could I start with gross margins, please? I was surprised to see gross margin tick down in Q4, particularly given some of the positive tailwinds that you flagged quite rightly, I think, in terms of richer software mix and innovation, et cetera, et cetera. So perhaps you could just talk a little bit about that and how we think about that rolling into 2025? The second question, just on cash flow, David, I wondered if you could just go through this working capital inflow again for us? It seems incredibly sizable. I appreciate you touched on it a little bit, but I appreciate understanding this deferred revenue movement as well, maybe in a bit more detail, because I want to try and understand how sustainable that movement is into 2025. And then final clarification, I guess. Just wondering how much product contribution at the group level in that organic growth number you printed in Q4, which is obviously a little bit better than we thought it was going to be. And I guess, basically trying to size that to 2025.

Okay. So I guess I'll start with the gross margin. Yes, I mean, so just to be clear, I mean, the Q4 gross margin was positive year-over-year. So 66.5%, up to 66.7%. I think, your question is probably coming more on the sequential level, because we have some very, very strong margins in Q2 and Q3 where we were running at 67.3% and 67.1%. But I mean if we look at the full year, we were up at 66.9% versus 66.1% prior year. That's an 80 basis points improvement over the full year. So I mean, it was a very strong year from the gross margin perspective. Q4 may have been not quite as high as Q3, but we have a different product mix. We saw a little bit of dilution from a couple of elements in the AS, the road-train element had a slight dilutive impact, but overall, MI was completely flat on margins year-over-year, which I think is pretty good and we saw a positive uptick in the software and a positive contribution from the mix overall. So I think, it was a positive margin, and I'm very happy with the year-over-year. The 80 basis point improvement in gross margin is in line with our normal uptick year-over-year. Turning back to the cash flow question. And I agree. It is an extremely strong inflow in the quarter. Effectively, we moved positively in all of the metrics. So very strong on the DII, good on the DSO and good on the DPO. In terms of the deferred revenue, which I think you specifically mentioned, I mean, deferred revenue increases in Q1 and into Q4 and decreases in the Q2 and into Q3, that's the kind of normal trend that you would see. And we've talked about it. We've had strong software shipments, strong software business. So naturally, you have an increase in deferred revenue as that happens. We expect the inventories to go down. We had good improvement on the receivable side, fees and collection side. So I think all in all, it was a strong performance.

Alex on the new products. I mean, it's a little bit difficult to pin down exactly, right? It's a definition of what's new and what's not. I would say it probably contributed 2% growth to Geosystems, and that's mostly the Icon product range that, that Norbert mentioned. Presto that we launched last year in Manufacturing Intelligence, they have longer implementation cycles. So I think we have a nice backlog hasn't yet really contributed to revenues. And obviously, in SIG, the pickup we're seeing in OnCall, this was a product launch a few years ago, but the implementation cycles are very long. It's only really now starting to feed into revenues. But I think across the group, in a tough economy, you're starting to see the benefit of these new products coming through.

Okay. Can I follow it up just quickly with a question on what China actually looks like. Ben, I think you talked about market environment not really changing and a phasing issue for you guys in Manufacturing Intelligence. But what are we actually seeing in terms of sort of dynamics on your end markets in China with respect to sequential momentum, I guess?