Hexagon Ab B Shs New

Thank you for joining us today. Let's start from slide four to review some of the highlights from this Q1 2023. We had a good solid quarter, posting net sales of 1 billion 287 million euros. That represents an 11% reported growth on prior year, with strong organic growth of 8 percentage points, two from structure and negligible FX in the quarter. We were pleased to see a good uptake in terms of gross margin up to 66.5% with the all-time high in the quarter, 1.4 percentage points above Q1 2022. I would say primarily driven by volume and pricing, but particularly a richer software mix and new product releases that came in of higher gross margin than previous generations. We have posted adjusted operating earnings of 371 million euros, an 11% uptick on prior year. Adjusted operating margin was 28.9% at this point, pretty much on par with Q1 2022 and yet negatively affected by effects. I would say overall the business has leveraged pretty well on the additional volume. If we go on slide five and we start analyzing more detail in that Organic growth, looking at the two reporting segments, the industrial enterprise solutions segment that posted 11% organic growth, driven by asset life cycle, 16 percentage points, I would say, across the board, good SaaS progress, perpetual deals, close at a high value in the quarter, good diversification of the business, and strong performance for the enterprise asset management portfolio. Manufacturing intelligence came in at 10 percentage points of organic growth. Coming from most product lines, I would say e-mobility and all that area of investment has helped a lot. Commercial aerospace and we are taking capital investment to drive commercial aircraft production volumes up big and are the noticeable driver in the business. The geospatial enterprise solution reporting segment grew up five percentage points, very solid performance from geosystems, all in portfolio for buildings and construction and infrastructure positive across product line. Four percentage points of growth in autonomy and positioning with good performance, I would say, in defense and in agriculture, safety infrastructure and government decline 11 percentage points. Not surprised. This is something that we were expecting in the quarter. I would say 8 percentage points of this decline came from Winding down, highly volatile, very low margin service contracts in defense in the United States. Besides that, we also had a one-off software deal fully recognized in Q1 2022 in the telecommunications space that didn't reoccur in this quarter. In terms of regional breakdown for the revenue, 14 percentage points of growth. in Asia with China strong at 10% and a good momentum going further. Europe came in at 9 percentage points of growth. North America grew 1% but held back by those two impacts in SIG that we just mentioned. Going on to slide number six, cash flow, operating cash flow amounted to $117 million. in the quarter, primarily affected by a one-time tax payment with a timing different from prior year. Working capital came in at 7.9 percentage points of sales. Again, in an attempt to fund this incremental growth and somewhat also driven by an uptick in inventory in order to have safety stocks and protect from the electronic component shortages that would take that impact. We've got less to do now with our P&L, but the situation from a top line delivery has more or less stabilized. We still have some of those impacts from an inventory perspective. Cash conversion improved year-on-year at 66%. An improved picture, although still reflecting weak seasonality in Q1, but the annual guidance of 80% to 90% is reconfirmed on a full-year basis. If we move now to slide number eight, then Matthew will take us through the geospatial enterprise solution segment. Thank you, Paolo. Good morning, everybody. The GFO, as Paolo said, organic growth of 5%, starting with geosystems, 9% organic growth. We saw demand pretty much strong in every region, particularly Asia and the Middle East. We also saw a stabilization in the Chinese market after a week, second half of last year. And by product, we saw strongest demand in our mining business, surveying solutions, and also a good uptake from the new BLK. In SIG, at minus 11% organic growth. Within that, the public safety business grew slightly. As Paolo mentioned, we took the decision to exit a number of low-margin services contracts That was 8% of the 11% decline, with the bridge item being the last perpetual contract we had last year in the infrastructure business. Autonomy and positioning was 4% organic growth, driven by strong demand for their solutions in aerospace and defense markets. In terms of the profitability, the operating margin rose from 30.1% last year to 30.3%, positively impacted by product mix, both within the divisions and across the divisions, which offset the negative impact on effects. If we go to slide nine, just some highlights of what's been happening in the divisions during the quarter. So firstly, with Geosystems, they launched a product called Reveal, an AI-driven solution for heavy construction. Here you can use a laser scanner or drone to capture a point cloud at a construction site, and that's what you see on the right. Then use AI to automatically identify objects, so it could be vehicles, vegetation, stockpiles, and so forth. You can then remove them to have a much clearer picture of the underlying work going on. If we go to site 10, you can see Immersal launched a new smart city visual positioning system. So here you can combine Hexagon's digital reality platform, HXDR, and Immersal spatial anchoring to allow you to connect the real world to the digital world. So you can build a 3D map of a city and use computer vision to derive very accurate positioning within that model. And that can be used to drive augmented reality applications, as you can see on the right. Slide 11, Hexagon during the quarter acquired a business called ProjectMate. This is a SaaS project management software platform used by project owners. So you can use it to track progress on job sites, monitor delays, rework and changes and so forth. Project mates will be integrated with other tools in the SmartBuild suite and can take progress in monitoring information from Oxford Canvas, for example. If you look at slide 12, great to get an innovation award at CES for the Leica 3LK360 scanner. This is in the virtual and augmented reality category. So the new BRK-350 launched last year. It's smaller and lighter than the original version, which was launched in 2016. And as a reminder, it can scan four times as quickly, which obviously helps customer workflows and is already contributing to the organic growth that we see these years. Over to SIG on slide 13, just some selected customer wins, highlighting the continued good momentum for Encore. So first the Alpharetta, the Department of Public Safety, they wanted a fast solution. They chose the Encore Dispatch, Analytics and Records Management product to meet that demand. BMW also selected Encore to manage their security operations across seven different European manufacturing facilities. A good example of how this technology is used outside of the core police, fire and ambulance market. And then finally on GES, slide 14, a nice example of how our technology is applied to environmental applications. Saudi Arabia's National Center for Vegetation, Cover, and Combating Desertification selected our geospatial software to support their initiatives, including a plan to plant September million trees by 2030. They will use our software to help monitor this. Great. So looking at the industrial enterprise solution portfolio from slide 15, I've discussed both MI and ALI experience good growth across regions. MI is primarily driven by growth in general manufacturing in the software portfolio, in the CAM portfolio. We have, of course, integrated on top of the 10% organic growth, BPQ, as of April of last year. I would say in terms of demand for the first devices, strong uptake not only in China, but I would say also in Central Europe, where we see a lot of demand related to R&D projects and productization of new tools and methods related to e-mobility. In the asset lifecycle intelligence portfolio, 16% organic growth was great to see both in the core and in the enterprise asset management portfolio. Of course, EAM is more and more tightly connected with the rest of the business. Synergies are starting to flow through in between core ALI and EAM. And we've had good progress here, both in terms of driving recurring revenue growth and closing transformational perpetual deals. If we look at a couple of these sort of marquee or significant wins in slide 16, two projects related to the enterprise asset management portfolio. At the top, a major U.S.-based technology corporation has selected Hexagon's EAM to manage its global data center facility assets. The goal really is to maximize asset performance, increase reliability, support this hyper-growth phase as they build new data centers and retrofit existing ones. This is a landmark win for BAM. The second from Transdev Australasia. This is an operator of buses and ferries, light rail and rail services in Australia and in New Zealand. A large company managing thousands of assets, delivering more than 100 million journeys per year, so a lot of complexity and a lot of need to manage maintenance routines and keep uptime going. What EAM helps them do is really to centralize all of their systems, create improved visibility and improve overall the asset lifecycle management. I think these two wins underline how horizontal that platform is, certainly best in class, and we're putting investment in to make sure that we are relevant in all of these verticals. If we move to slide 17, two important wins in the core of the offering of ALI. The first one with BASF, of course, the largest chemical producer in the world. BASF was a long-term customer for ALI, and then progressively BASF is moving on to the SaaS offering of ALI. I would say it's a testament to upsell capabilities and the relationship that has been built over time. The second example is from Georgia Pacific. Georgia Pacific is one of the world's largest manufacturers, distributors of tissue, hard paper, packaging, building products. Of course, it's part of the Koch Industries Group. GP has selected Hexagon as a strategic partner when it comes to OT cybersecurity. Our cyber solutions will provide inventory and vulnerability management capabilities, enable comprehensive OT asset inventory. Moving on to manufacturing intelligence in slide 18, a couple of examples of new accounts that have been opened through the ETQ quality management software platform. Their offering is called Reliance, and it's a true multi-tenant offering with all the applications signed for high complexity OEM type accounts. In this case, we've closed significant business with Sealed Air, which is a global food safety and product protection solution provider. Large company, more than 16,000 employees. EPQ Reliance is their global quality management system, replacing a lot of homegrown processes. It's going to get rolled out across the 100 manufacturing plants over time. Second example is from Belgium, Solvay, a very well-known leader in material, chemical solutions to solve critical industrial, societal, environmental challenges. Large company active in multiple countries, more than 20,000 employees. Again, a lot of innovation and critical solutions. They are deploying ETQ, so there is a long-term customer of MI. It's being introduced by the CAE portfolio from R&D onto quality, and we are deploying Reliant across their facilities. Just to conclude on MI, we've announced the launch of our digital manufacturing platform already a couple of months ago, now commercially available from Q1. Nexus has been co-developed with our long-term partner, Microsoft, using their Microsoft Teams Fluid Framework. A lot of focus on making our technologies increasingly available through Nexus, more easily consumable by customers, a lot of focus on helping customers collaborate across silos and across applications onto this next generation platform. We also announced in the quarter a couple of partnership amongst others with Altium EDA, a fast growth sort of designer of electronic software design tools. We're going to connect our platform and theirs to make sure that we can go and cross-sell customers and help them solve multi-physics type problems. But we look forward to seeing Nexus growing commercially over the next quarters. Slide 20 is an overview of the organic growth by geographic region and by industry. So as you can see from the growth rate there, we had good growth in all regions, with the exception of the U.S. The U.S. is explained in the down arrow by the decision select of those contracts in the defense sector in SIG. Every market in North America has good momentum. China, 10% organic growth. and we feel optimistic about that for the second half of the year. Some softness or down arrows in infrastructure and construction markets. We've seen a little bit of a slowdown there with the interior systems, but that's being offset by very good growth in every region in surveying business and also reality capture centers. I think the rest of those you can process yourselves. With you, Dr. Atipo. Great, and just in conclusion, slide 23 and then the first solid quarter, solid start of the year and continuation with good momentum. Great opportunity for all of us also to catch up with our customers and find new ways of looking at helping them deliver great quality products across Industries will be at Exagon Live, our user conference in Vegas from the 12th to the 15th of June and we would love to see of course also as many of you on the line, investors, partners, stakeholders and customers are absolutely invited to join us in Vegas. Thank you. With that operator, I think we're ready to take questions.

Thank you. Dear participants, as a reminder, if you wish to ask a question, please press star 11 on your telephone keypad and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by. We will compile the Q&A roll start. This will take a few moments. Now we're going to take our first question. And it comes from the line of Joachim Gunnell from DNB. Your line is open. Please ask your question.

Thank you, and good morning. So two questions from my side, starting off with ALI. Can you highlight the underlying growth rates here of the perpetual-based licenses as well as the source-based revenues in Q1, and what is driving that? And based on the growth rates of the perpetual business, is it fair to assume a slowdown over the coming quarters?

Yeah. Hi, Joakim. You're right. I mean, we saw very good growth both on the subscription product, but also We don't know next quarter and the quarters after how many perpetual licenses we will win. So there's a little bit of volatility there. They probably added a few percent to the overall growth rate of ALI. But we saw double digits on the subscriptions like that. So underlying momentum is very strong in that.

Great. Thank you. And also on the both operating and the free cash flow conversion. slight improvement sequentially. I know there are seasonal effects here, but can you just comment a bit more about the drivers to get back to your 80 to 90% target here on a full year basis?

Yeah, you know, I think the, as you say, Q1 is normally seasonally weaker for us. And the reason for that is, you know, you obviously pay the sales commissions and bonuses that you accrue for during the prior year. And you'll see that movement on the balance sheet, the decline in the accrued expenses, that those money is being paid. X that, I think we made progress in terms of accounts receivable during the quarter. We brought that balance down. We are carrying a little bit of extra inventory at the moment. If you remember last year we had Restrictions on our ability to deliver because of component shortages. We've taken the decision to carry a bit more inventory to make sure we can meet customer demand. If we don't see that problem getting worse, we're going up from here. And I think if we go through this year, we would expect that cash conversion ratio to creep up. And as Paolo said, be in the 80 to 90 to 10 range for the full year.

Great. Thank you.

Thank you. Now we're going to take our next question. Just give us a moment. And the next question comes from the line of Sven Merkt from Barclays. Your line is open. Please ask your question.

Great. Good morning. Thank you for taking my questions. Maybe a first question on the capitalization of R&D. This has increased again significantly this quarter. Can you comment what role this and at what level intangible capex will stabilize from here? And can I also follow up on the working capital? Even seasonally adjusted, it has been weak. And I expected this to benefit a bit more from the reversal of the working capital investments you have done in Q4. Can you explain what happened here exactly? And, you know, from a phasing perspective, when you really expect to see an improvement now in working capital?

I'd say, yeah, on the working capital side, I think one thing that's obviously stronger at the moment is demand. So that does move into your account as you call, given the hockey stick we have at the end of the quarter and also the energy we carry. So the longer demand is priced on the upside, the more it is going to be a drag on working capital. I think that's the reality of having a hardware component of our business. But as I said, we did bring accounts receivables down in the quarter, and the real swing factor on the working capital in Q1 is a seat of chronology, which is paying the accrued payments that get built up last year. But that won't happen in Q2, Q3, or Q4, and that's the reason to expect the cash conversion to be free. In terms of R&D investments and capitalization, what I would say is that We are in an investment cycle because we see opportunities across the board. I think we have quite an exciting lineup of innovation coming up. I would say a lot of the innovation that we see in positioning is driven by contracts that were pre-signed and commitments that we have. So relatively low risk type of development, a lot of what we see. coming from manufacturing intelligence is future-proofing the core of the methodology revenues for next-generation stationary and portable devices that will come in at higher gross margin. Nexus, the future-proofed software offering. I think a lot of the growth that we're seeing in ALI today comes from investments that have been made in the last years to make sure that we lead from a SaaS perspective. I would see the R&D expense line kind of flatlining going further. I mean, I see we have the teams in place now, and then the capitalization rate depends mostly on getting closer to those release dates and having more line of sight on productization and having kind of de-risked technology development. But we feel there's a massive opportunity, and we want to stay ahead of it.

Great, that's helpful. Can I also ask a question on cost growth from here? You know, costs were quite high this quarter, 480 million, and if you now think about the cost growth sequentially throughout the year, are you still hiring? Should we expect sequential growth from here? Any color really would be helpful. Thank you.

Yeah, I think obviously, there are some cost lines that are still normalizing coming out of COVID but I think you know if you look at things like travel and entertainment you know we're probably back to normal rates now you know we are hiring selectively in the businesses that are growing so if you're trying to drive growth in EAM or ETQ we're obviously hiring people to do that but I think you know we're keeping a fairly One foot on the brakes as well at the same time, given some of the concerns that there are around the macro development through the second half of next year. We want to make sure that we don't overcommit. Thank you very much. We don't see a step up in those cost lines from here. I think that's affected this quarter in the margin being by the archaeology.

Perfect. Thank you.

Thank you. Now we're going to take our next question. And the next question comes from Adam Wood from Morgan Stanley. Your line is open. Please ask your question.

Hi, good morning, and thanks for taking the question. I wanted to talk about the manufacturing intelligence business a little bit. I guess this has been a very challenging cycle for all of us to kind of work through. We've been talking about recession for probably more than a year, but that business has had a very strong performance, particularly in Q4 and Q1. supply chain constraints are probably factored into that. And so it's kind of hard to work out how consumer demand translates into demand that some of your customers are seeing. Could you maybe just talk a little bit around when you look at pipelines in that business, are you continuing to see strengths? You're not seeing your consumer weakness in the end markets kind of feed through into demand that your customers, I appreciate you're not volume driven, but ultimately there will be some correlation and maybe talk a little bit about whether you see things like electrification driving new cycles of spending on quality. So any help around the kind of cycling in MI would be helpful. And then maybe just secondly, probably similarly on China, how much of Q1 was a rebound from reopening? Would Pipeline suggest again that actually with the easier comps that business can sustain decent levels of growth through the rest of this year, or was there some bounce back from reopening benefit in China? Thank you.

Yeah, Adam, thank you. I mean, on manufacturing intelligence, what I would say is that the The portfolio is becoming more diversified and what's important for that business is to be associated with and be highly competitive in the new areas of growth and research and innovation and digitalization, right? So as you said, electrification is one of those, but not only. There's increased demand associated with sustainability solutions. In consumer electronics, there's more of an adoption trend that is helping us. EPQ came in with customers in the medical sector that traditionally were not so much of a focus for us, and we managed to cross that into those accounts with the rest of the portfolio. So an association and a growth in revenue from OEMs and key accounts and leaders in more of those industries. I would say when it comes to China, China had a good start of the year. I would say manufacturing intelligence, of course, was in good shape. I mean, China grew 10% in the quarter. And of course, manufacturing intelligence is three quarters of the business. So clearly that was in good shape. But I would say the energy portfolio did well as well. Construction is probably still on a lower base than it was some time ago, but it grew in the quarter. I mean, we've attended multiple events in different locations. There was good participation to construction and infrastructure type events, good demand. We're working on localization. So all in all, I mean, we are... positive on China for the rest of the year. There's good momentum, and the team sees that reflected in the deal flow and in pipeline.

Thank you very much.

Thank you. Now we're going to take our next question. And the next question comes from the line of Daniel Dureberg from Handelsbanken. Your line is open. Please ask your question.

Thank you, operator, and good morning, Paul and David. I would like to actually revisit the investment you do in R&D that is on a quite high level. You mentioned that you now have launched Nexus, and a question is if we should expect the total R&D as percentage of sales to stay at the, you know, 20, 21% level or coming back to like 80, 90%. on back of that launch or if we should expect to know that you have much more in the pipeline that you're working on.

Thanks. Thank you, Daniel. When you look at that spend in terms of of overall R&D spend. I mean, we look at the current run rate as being on the high side, right? So that means that also we monitor it accordingly internally. And I think where you go and spend in R&D reflects a little bit the shift in between existing development projects nearing completion and launch and at the same time trying to launch new initiatives that keep your sort of innovation pipeline going for the future. As I said before, I don't see a year enough R&D span further. What we're going to spend a lot of time doing in the future is to try and find more, especially in the software portfolio, more elements that we can go and cross-utilize within the portfolio. So we're spending a lot of time looking at the platforms components across the division and try and make sure that everything that we do to build nexus is the best possible platform and data automation tool we want to make sure that those capabilities get reutilized in other industries um you know in ali we are i think competing very well when it comes to sas adoption in process industries there's a lot of work that has been done on architecture in the past three years we want to reutilize some of those element in other parts of the portfolio so i think for us the future is about focusing on those releases in the next 12 months making sure that they count commercially and then go and find those areas of cross-use and optimization perfect thanks and if i may another question on yeah why not on the working capital again um i was wondering if you see you know

uh differences uh and now on back of your graphical chain or difference uh in in working capital sales on back of geographical uptakes etc and also if uh overall if the customer are more cash flow centric that we should expect you know this trajectory to to uh to continue to to go uh north uh towards ten percent or something

No, I don't think so. I think if you look at the asset side of the balance sheet, then I think receivables came down, I think inventories, as I said, we had a step up, but that's not getting worse. The shortage is, if anything, going to improve, I think, as we go through the year. And the Q1 cash flow, really the big driver would be accrued expenses, which is the seasonal phenomenon, and isn't going to happen in Q2, Q3 or Q4. So no, I think Bigger picture, you know, downward trend in terms of working capital sales for a long time. As the business is shifted towards software and services and, you know, medium term, we would expect that to continue.

Perfect. Fair enough, and good luck in Q2. Thank you.

Thank you. Now we're going to take our next question. And the next question comes from the line of Eric Golrang from SEB. Your line is open. Please ask your question.

Thank you. I have three questions. First one, on the gross model expansion you saw in the quarter, is that coming from both divisions or particularly support from one of them? You mentioned new products, volume and pricing, but if you look at it from a divisional perspective. And then the second question is on the organic sales drop in SIG related to the exited business. Should we expect something I think you talked about an 8% point drag from that. I guess we should annualize that for the rest, the coming three quarters. And then the third question, if you could say something about sort of how demand, we talked about China, but if you look in Europe and North America, how was sort of growth trending to the quarter? Some companies have talked about a softer end to the quarter, particularly in North America. If you exclude the exited SIG business there in North America, what was the underlying sort of growth trends through Q1? Thank you.

And I would say thank you for the question. On the first one related to the gross margin, I think there's been an uptake in both reporting segments driven by different dynamics, but certainly in both areas. When it comes to SIG, Yeah, I mean, I think we're going to see a similar type of impact in Q2 and then possibly comparing ourselves to Q3 and Q4 2022, we're going to see that impact sort of softening. But again, we want to be very focused on making sure that our commitments are aligned to the strategic direction, meaning synergistic business, be more staff-oriented, and be very focused on things that can be accreted from an EV perspective, and those business plans don't match those criteria. In terms of Europe and North America, in North America, we see deal flow pipeline being at a good level, so a lot of the impact was really driven by SIG. We are wary, of course, of a business environment that is uncertain. And so we try and reflect that in the way we kind of go to market in North America. When it comes to Europe, for me, the good news of what happened in Europe in the quarter is that a lot of that spend, whether that's aerospace, CapEx, or commercial aircraft, or whether that's investment in immobility support in the construction of gigafactories, trying to make those processes more efficient. resilient and stable, or whether that's sort of infrastructure-led spend. Those are very long-term type of activities, so gaining ground in those areas, I think, is going to prove resilient also in the future.

Okay, thank you. And then one follow-up on SIG, if I may. this has been a slowing part of the portfolio for quite some time and yet still clearly under sort of group profitability from a margin perspective at least. How much more do you think you'll need to do that before, how much more shrinking to be able to start growing that business at a good incremental margin?

Look, I mean, we will see about that. What we think is positive in that part of the offering is that in the quarter we've closed good amounts of business for instance with Oncall and so we see that that product group is starting to pay off in terms of innovation the news new generation dispatch systems both on-prem and on SaaS are competing well so that's really a positive we're going to keep on looking at especially those service assignments We want to make sure that we focus on our IT, and we want to make sure that service assignments are conducive to software sales in the future, so scrutinize profitability for all those assignments that don't fulfill that criteria. Thank you.

Thank you. Now we're going to take our next question. And the next question comes from the line of Mikael Lassin from Carnegie. Your line is open. Please ask your question. Excuse me, Mikael. Your line is open. Please ask your question.

Okay. Thanks. Yeah, I have a few questions. First one is a follow-up on this termination of the low-modeling contract in F&I. How should we think about the modern impact here? Did you have an extra cost for doing this?

Thanks for the question. No, this was really us deciding not to re-bid for certain contracts or being way more careful in making sure that business would have come in at the right margin levels. We have done a realignment of the cost structure in the projects were external to style.

Okay. So when this is out of your books, the old contract, you could have a margin support, I guess.

Yeah. From a mixed perspective, Mikael, we're stepping out of contracts that have a significantly lower margin than the division as a whole.

All right. And on the manufacturing intelligence, can you say something about the real-world trends in that part of your business, the bookings?

Yeah, I would say, Mikko, the bookings were in good shape. I mean, we felt a little bit of backlog in the quarter, and I would say that happened both in the devices and in the software side of the portfolio. So, again, good deal flow.

well as well as recognizing well so uh do a good momentum okay and also on the supply chain side um what happened here in q1 compared to the second half and it would be great to become comment also on the delivery and shipping cost and maybe component cost if that is talking to stabilize

Yeah, I mean, I would say the type of components that are a little bit more under pressure from an availability perspective has changed. I mean, as we said, not as much of a top-line impact any longer. We have had some missed shipments in some divisions and a little bit of a catch-up in others, so I would say neutral all in all. In some product categories we see pricing easing a little bit and I would say also logistics costs driven by supply chain at ease as well, especially in EMI where as a mixture of trying to be more efficient and pricing easing, we hope to see that trend continuing.

Okay, got it. Just a final one, if I may. Your spatial competitors have talked about deal inventory reduction. Do you also see this in the market and how is like a user-systems affected?

Yeah, Nicol, we've seen a little bit of that in the US. I mean, obviously the US business for us is smaller. We, I think, have more direct sales than they do. So the less of a drag on our business. But yeah, I think there has been some inventory rebalance in the U.S. construction markets.

Okay, thank you.

Thank you. Now we're going to take our next question. And the next question comes from the line of Naeso Neng from Birnbeck. Your line is open. Please ask your question.

Hi, good morning, everyone. Thank you for taking my questions. I've got a few as well, if I may. Starting with the organic growth rate in the quarter, you know, it's been a big positive surprise for me and I think probably for a few other analysts on the call as well. Just focusing on the GES specifically, you know, you managed to do 9% a year in your growth organically. And going forward for the rest of the year, could you kind of maybe give a sense of how we should think about that, especially if the headwinds in China unwind for the rest of the year and then especially in H2 will have an easier comp compared to what we just had in Q1 and Q2?

Yeah, I think there are a lot of moving parts. I mean, if you break the geosystems growth down to the quarter, you know, it probably had a couple of percentage points of growth coming from new products, things like the BLK, it's not really macro-dependent in particular. You've got the mining business where you've got very good growth, it's got its own cycle, content mapping and things like that. So there are a lot of individual drivers in geosystems that have good If you think about the construction pieces, I think it's not a big business for us compared to MI in China, Geo Systems. We do see an improvement relative to Q4, and we would hope that continues to go through the year. Offsetting that, we'll have to see how high interest rates feed into the construction

you know, a lot of moving parts.

But, you know, I think that there are drivers within geosystems that are not dependent on the macro, like new products and markets like RealityCapture, where, you know, we feel confident we can continue to work with however it plays out.

That's helpful. Thank you. And then my next question is on, you know, we've touched a lot on the the investment cycles or investment phases you're going through at the moment, that's probably reflected in when you try and match a lot of the good progress that you've made at the EBIT margins to from the cash generation margin, as opposed to the free cash flow margin. We've started to see a disconnect in the past two years. EBIT has nicely trended upwards, but whereas on the free cash flow margin side, we're not seeing that. But I suppose my question is going to be, when should we expect that disconnect to stop? And when do we start seeing improvement in free cash flow margins? That will track the margin improvement we see in the P&L as well.

Yeah, and on the working capital side, you know, if you look at the slightly longer-term trends, I mean, you had probably an overshoot in terms of our ability to pull in working capital through COVID and the need So that unwinds as you have a couple of years' growth. You have to put the working capital back out there. Plus, as I said, on top of that, we have held a bit more inventory to make sure we can deal with some of the component volatility that we've seen. But we don't see it getting worse from here. And I think as that settles down, we go back to the longer-term trend that we've been on, the working capital sales start to come down. As Paolo said, we are in a period now where the overall level of R&D spending is higher than it's been for the last few years because of these very large projects that we're working on. We don't see that amount going up from here. Obviously, as those products are launched and they drive growth, that would drive the investment ratio to sales to start to come down again.

Super helpful. Thank you. And last question for me. In your hardware business, we've seen from other manufacturing hardware vendors, especially in automation and related to digitization, that they're seeing quite a good take-up in the order books. I was wondering if you could comment a little bit on your order book and visibility for the remainder of the year in your hardware business.

Yeah, I would say, as we discussed earlier, there was good order intake especially in the malfunctioning metrology of area where we build backlog I would say that was pretty neutral as well in geosystems where for sure we didn't do a backlog in the core so things are still in decent shape. And for the geosystems side? Yeah, as well in GEO, we didn't have a backlog erosion in the quarter. So all things considered, good progress both on the deal side and on the shipment side. Thank you very much.

Thanks. Thank you. Now we're going to take another question. And the question comes from Alexander Verger from Bank of America. Your line is open. Please ask a question.

Yeah, thanks very much. Morning, Paolo, Ben. I wondered if I could just distill the free cash comments down into, is it fair to say the balance of the year is likely to be a working capital unwind tailwind to free cash, but your level of investment is going to stay at these sorts of levels for the foreseeable future? That's the first question. And then the second question is I wondered if you could comment around sort of the very front end of construction market dynamics, because I'm guessing as the position that you guys occupy in terms of surveying and sort of right around the front end of discussions on projects and FIDs, et cetera, you might have a slightly better insight into what's going on in terms of activity and dynamics. there than most. Thank you.

Yeah, hi, Alex. On the construction side, you know, as the arrows chart shows, I think we saw a little bit of softness maybe on machine control kind of business. And that goes back to, you know, the previous question around some inventory stocking or normalization in the U.S. That was a little bit of a drag. But against that, the terrain business was pretty strong across the board. And as you know, that largely played into heavier construction projects, more infrastructure projects. And I think there was a lot of spending in that area across the world that is definitely helping that business. So I think it depends a little bit which segment of the construction market and what's geography you're looking at. And then on, you know, breaking down the cash flow question, yeah, I think that assumption is right. You know, I think from a working capital perspective, you know, we would expect that to be a more positive driver as we go to the back end of the year, because you won't have to see some effects that we had in Q1, which is the name of the commission for bonuses. In terms of the investment level, yeah, I think, you know, we don't see it going up from here, but I think, you know, some of these are longer-term projects. multi-year investment project and I think for the rest of this year that will stay at a pretty similar level.

Okay, thanks very much.

Thank you. The speakers are on for the questions. I would now like to hand the conference over to Paolo Guglielmini for any closing remarks.

Yeah, I would say just to say thank you everybody for joining us. A lot of very interesting questions, and we're going to talk again in three months.