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Edited Transcript of HEXA B.ST earnings conference call or presentation 7-May-19 8:00am GMT

Q1 2019 Hexagon AB Earnings Call

NACKA STRAND May 13, 2019 (Thomson StreetEvents) -- Edited Transcript of Hexagon AB earnings conference call or presentation Tuesday, May 7, 2019 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Ola Rollén

Hexagon AB (publ) - CEO, President & Director

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Conference Call Participants

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* Alexander Stuart Virgo

BofA Merrill Lynch, Research Division - Director

* Alexander William Tout

Deutsche Bank AG, Research Division - Research Analyst

* Daniel Djurberg

Handelsbanken Capital Markets AB, Research Division - Research Analyst

* Markus A. Almerud

Kepler Cheuvreux, Research Division - Senior Research Analyst

* Mattias Holmberg

DNB Markets, Research Division - Analyst

* Mikael Laséen

Carnegie Investment Bank AB, Research Division - Head of Software & Services and Financial Analyst

* Toby Ogg

JP Morgan Chase & Co, Research Division - Analyst

* Wasi Rizvi

RBC Capital Markets, LLC, Research Division - Analyst

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Presentation

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Operator [1]

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Hello, everyone, and welcome to the Hexagon Q1 Report 2019. (Operator Instructions)

I'll now hand the call over to Ola Rollén. Please go ahead with your meeting.

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Ola Rollén, Hexagon AB (publ) - CEO, President & Director [2]

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Thank you, and welcome to this Q1 earnings call for 2019. And I suggest we start with Slide #4, overview of the first quarter 2019. We report an organic growth of 4% in the quarter and the operating net sales growth is 10% recorded. So we saw solid growth in PI, Geosystems and PP&M, and MI had 4% organic growth.

Growth was hampered by the continued decline in Safety & Infrastructure. And as we will see in a few slides, actions have been taken to ensure improvements throughout 2019. Excluding SI, the organic growth was above 6% in the quarter.

Record earnings and profitability in the quarter. The gross margin came in at 62.6%, which is a new record for us. The EBIT margin came in at 24.1%, which is the strongest first quarter ever for Hexagon. And we strongly benefited from the organic growth and a very favorable product mix in the quarter, with new product releases.

If you turn to Slide 5, the seasonality in profit. Q1 is our weakest quarter in the year, and there is no change to that pattern. So we do see that this is the first quarter and it's supposed to be the weakest quarter in the year.

Moving on to Slide 6, we have the key figures for the first quarter. Net sales of EUR 916.5 million, which is 10% recorded growth, 4% organic growth. And that corresponds to an EBIT margin of 24.1% or EUR 220.5 million, which is 11% higher than the corresponding period last year.

If we now turn our focus to cash flow, Slide 7. I'd like to point out 2 things with the cash flow in the quarter. First of all, in the taxes paid, we have a EUR 12 million income tax paid on unrealized currency gains. So it's a sort of one-off in the quarter, increasing taxes paid by almost EUR 20 million.

And then obviously, with the very, very favorable working capital development we had in the fourth quarter, it was a tough quarter to match in terms of working capital in Q1. So we have a slight increase in change in working capital. Cash conversion, 75%, still in spite of these 2 items and a very strong underlying cash flow for the first quarter of the year.

Turning to Slide 8, we can see in spite of the adverse development for the working capital in the quarter, we're still way below 15% working capital to sales.

Slide 10, market development. If we look at the sales mix in the first quarter compared to the third quarter of 2018, we see very little change between the geographic region, but we do see the recovery in South America making a -- making itself shown in the number.

So South America has grown from 3% to 4% in group sales. And Asia Pac is also very strong in the first quarter, led by Southeast Asia, Japan and Korea, and it now represents 15% of the group sales. But more or less the same pattern, 1/3 of sales in the 3 major regions of the world.

Slide 11, just trends, organic growth. And I think we can skip forward, you've got Slide 12 [wiggling] the arrows, and I'm not going to go through them on this call, but it's a good backup for you.

So let's move to Slide 13, EMEA market trends. Western Europe recorded 4% organic growth, with strong growth in Italy and Spain. But we saw a slowdown for manufacturing and especially in the automotive sector in Germany and France. So the growth was mainly driven by infrastructure, construction and surveying in Western Europe, whilst manufacturing and automotive especially was weak in the quarter.

We saw double-digit growth in Russia. It continues to recover after a very, very steep fall in 2015/'16, and we've seen recovery since. Good growth in Eastern Europe. Middle East continued to decline.

Moving to Americas, Slide 14. North America recorded minus 3% organic growth. We saw solid growth in most segments like power and energy, infrastructure and construction. But of course, most of the decline in the SI business is in North America, and that continued to hamper the numbers for the North American region.

South America continues to recover as previously stated, and it's led by a strong recovery in Brazil. And we still see continued strong demand in the Andean countries, where you have a lot of mining activity. So very strong double-digit growth from South America.

If we move to Slide 15 finally, Asia. China recorded 3% organic growth, and that is quite an achievement in this tough market, where favorable development in infrastructure, construction and other manufacturing apart from electronics was growing at double-digit rates.

It was a weak quarter for electronics due to tough comparisons and a slowdown in the electronics sector, it actually shaved off 1% organic growth for the group in the first quarter. Japan, Indonesia and South Korea, strong double-digit growth, and we see a lot of traction for new products, especially in Japan and South Korea.

Reporting segments, if we start with Industrial Enterprise Solutions on Slide 17. Industrial Enterprise Solutions report an organic growth of 5%, 4% in MI, where we saw a significant slowdown from the electronics segment as previously mentioned. But we also saw solid growth and demand in aerospace and general manufacturing across all regions of the world. We also have strong demand from our design and production software portfolio in MI.

PP&M, 7% organic growth. Contributions from the traditional design portfolio that actually grew in the first quarter after, I believe, 3 years of decline as well as construction and information management solutions that are new products that grew in the quarter. The investments in the organization continued in the quarter for PP&M.

Sales EUR 468 million, and an EBIT margin of 24.3% in the quarter.

Now if we turn to Geospatial Enterprise Solutions, reported an organic growth of 3%. A very solid 8% organic growth for Geosystems, driven by continued strong development in the infrastructure and construction industries in both North America and Europe. The mining solutions are growing double-digit. But also new innovations, such as the RTC360, are generating good traction in the market.

SI hampering sales 2% on group level but minus 17% for the division. And it's the continued challenges in the business. Actions have been taken to ensure improvements. Positioning grew by 18% organic growth and its strong demand in agriculture and automotive and the continuous recovery in our marine positioning business.

Geospatial Enterprise Solutions report EUR 449 million of sales in the quarter and an EBIT margin of 25.1%. So a very good margin expansion in this segment.

If we turn to Slide 19, so what's going on within Safety & Infrastructure? Well, the reason for negative growth is twofold. First of all, we saw a shift from desktop products to cloud-based dynamic products in Hexagon Federal. And that's been an ongoing drag for a number of years now.

And then on top of that, we've had a new product launch delay since the second half of 2018 that has forced us to delay revenue recognition but also burning a lot of resources trying to fix bugs in connection to this new product launch.

The actions taken of Hexagon Federal, with the acquisition of Thermopylae that we've announced a couple of weeks ago and selective restructuring actions, we believe that we have the product portfolio for the future for our Federal business.

And with the new product launch, the implementation is progressing. We think that as of the second quarter, we have a more normal situation again where we utilize our resources in a more normal fashion. So the outlook is that underlying demand environment for SI will remain healthy throughout 2019. And we expect SI to stabilize in Q2 and return to growth in the second half of 2019.

Moving on to group numbers. And Slide 20, the gross margin came in at a record, and it's now 62% for the past 12 months, 1% up. Our EBIT margin, Slide 21, is now at 25% on a rolling 12-month basis. And it's also 1% up compared to this time last year.

And if we now talk about the quarter in details and discuss orders and product releases, on Slide 23, we mentioned the acquisition of Thermopylae Science and Technology. It was done in the quarter and it enabled us to do a dynamic edge mapping for U.S. defense and intelligence customers. Edge mapping means that you create a map on the fly. So think soldiers in the field, they can use the drone and in a matter of a minutes, they can create a map of the area where they are.

We see a lot of opportunities in the private sector for this technology, which is very versatile and will replace the traditional static GIS desktop businesses that the GIS industry has made from -- over the past 30, 40 years. So it's a huge trend shift. It will operate as part of Hexagon U.S. Federal, which operates under a proxy statement -- proxy agreement.

Slide 24, we are also -- we acquired j5 International, and that's been consolidated into the PP&M business. It's a market-leading developer of operations management software, and it enables us to incorporate real-time situational awareness of facility operations into a digital twin. So think shift changes and so on, you can use the shift handovers, and you can smoothen that using j5.

Slide 25, we also acquired Etalon. And Etalon is another step on our vision to realize the smart factory concept. It's a natural extension for our data-driven factory strategy where Etalon calibrates and continuously monitor and initiates compensation of not only our own products but machine tools, robots and structures in the manufacturing environment. So it's a prerequisite to create an autonomous connective ecosystem within the factory environment to be able to monitor and adjust and compensate.

Slide 26, PP&M got an order the Sinopec SABIC joint venture. It's a joint venture between Sinopec of China and SABIC of Saudi Arabia, it's called SSTPC, and they now standardize all our first owner -- all owner operator software for 8 of their plants in the world.

Slide 27, we launched something called MineOperate Asset Health within our mining business, and it helps improve the efficiencies and minimize equipment downtime in the mine. So it's like a remote, real-time health check of your facilities and your machines.

Slide 28, we continue to expand groundbreaking autonomous driving simulation capabilities. So in our software world, we're relaunching Virtual Test Drive, which is within our open software platform for autonomous cars, and we got a lot of new features in this product. But we also launched something called Open Autonomy Pilot program where we can host and drive models, autonomous models in Peoria in Illinois, United States to test autonomous cars.

Slide 29, Leica Cyclone FIELD 360, which is our new onboard software for surveying and infrastructure application, won the iF Design Award 2019, so we're quite proud of that.

Slide 30, we're aiding forest and wildlife management in India, in Jharkhand. And the forest department of Jharkhand has standardized its monitoring resources on Hexagon's Power software portfolio, basically to monitor all activity in the forest, including watershed information, change detection, wildlife reporting and mining.

Slide 31, we launched the first low-range laser tracker. And this could be used in new types of industries, such as both rail installations, wind turbines, solar panels and so on, large-scale manufactured assets where the ATS600 is unbeatable. It can scan a surface with metrological accuracy from a distance up to 60 meters, which helps in large factory [walls], with no need for targets, sprays or reflectors. So this is a groundbreaking development for this application.

Slide 32, we partnered with Ericsson in connection to the Hannover Messe, the world's largest industrial show, where we showcased a 5G-ready connected Absolute Arm portable measurement system.

Slide 33, Bloomfield Collieries is a mine in Hunter Valley, Australia, and they choose to standardize on our MineProtect product in our mining fleet. And it's a clear tie-in with our fatigue monitoring solution that we've delivered previously to this mine.

Slide 34, we have also got an order in the quarter from FAA, the United States Federal Aviation Administration, to design, produce and deliver the next-generation uplink stations. And this is how we make precise approaches and landings at any airport in spite of fog or haze or whatever the weather might be.

Slide 35, we showcased our autonomous capabilities at the CES 2019. The key highlights included Lexus demonstrations showing all our automotive and data intelligence solutions for autonomous vehicles.

Slide 36, AECOM is a U.S.-based engineering firm that has standardized on Hexagon's surveying solutions throughout its workflow. And they can now produce 95% completed CAD drawings using our point cloud technology, and then they can seamlessly download these CAD drawings from real-world objects into their CAD models. I think this is showing you a bit of the future in the AEC industry.

Slide 37, Gujarat Police Academy is standardizing on our new RTC360 and BLK360. We added to scanners to capture crime scene data in a digital manner. This is a growth business for us, and we can see that reality capture in connection to the crime investigations is growing quite rapidly.

Slide 38, we announced the 3D image service powered by the newly released BLK3D. It's an image service which is available at 38 global locations as we roll it out.

And that was it. So in summary, if we now go to Slide 40, solid development, 4% organic, 10% recorded growth. We saw good growth in several segments, but growth was hampered by the continuous decline in our Safety & Infrastructure business. And actions have been taken to improve performance, as previously stated, in 2019. We saw continued EBIT expansion, where we improved our EBIT margin by 0.3% quarter-on-quarter.

And with that, operator, I think we're ready for the Q&A session.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And the first question is from the line of Daniel Djurberg.

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Daniel Djurberg, Handelsbanken Capital Markets AB, Research Division - Research Analyst [2]

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Just a clarification on the organic growth adjusting for SI. It seems to be 6%. But then public safety is 5% of total sales and if I -- I need to have a higher revenue stake than that to get to 4% for the group. So can you help me a little bit on the math in terms of how a large part of the group was impacted negatively by...

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Ola Rollén, Hexagon AB (publ) - CEO, President & Director [3]

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You got 2 segments. You got the U.S. Federal business and the new product launch in public safety, and that is roughly 9% of group sales.

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Daniel Djurberg, Handelsbanken Capital Markets AB, Research Division - Research Analyst [4]

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Okay. That clarifies. I was looking for [9%] but I couldn't find it really. Okay. And another question, if I may, would be on the -- if you take this -- on the BLK3D, you talked about this new image service and so on. It feels quite, if you like, a manual services there. Or if you can talk more about the BLK3D, the uptake in the quarter, I haven't seen it on every billboard everywhere, et cetera.

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Ola Rollén, Hexagon AB (publ) - CEO, President & Director [5]

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No, it's an uptake. It's a new product, and we launched this service in connection to the launch of the product. So it's simultaneously launched, you can say, the image service, where you basically buy a cloud space where you upload your images. So it's a new business model, you can say.

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Daniel Djurberg, Handelsbanken Capital Markets AB, Research Division - Research Analyst [6]

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Okay. And are you satisfied with your go-to-market, i.e., your own channel and so on? And -- or will you address that?

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Ola Rollén, Hexagon AB (publ) - CEO, President & Director [7]

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No, no. We are satisfied with it, but it's early days. I mean we launched it in the beginning of the quarter, so we have to give it a few quarters.

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Operator [8]

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Next question is from Mattias Holmberg from DNB Markets.

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Mattias Holmberg, DNB Markets, Research Division - Analyst [9]

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So I was wondering a bit about PP&M segment, where I recall a couple of quarters ago, you said that -- or actually when we started to see the growth pick up in this segment, you said that the margin leverage for the drop-through was less than one might expect as it hired more staff to facilitate new product launches, et cetera. So just wondering where we stand now on that part. If we still have this sort of muted drop-through in the growth in PP&M or if this has started to come through more clearly now.

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Ola Rollén, Hexagon AB (publ) - CEO, President & Director [10]

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No, we haven't seen it come through in the first quarter. We'll see for the remainder of the year, but we continue to invest compared to Q1 of '18. So we haven't had a typical sort of software drop-through in the Q -- first quarter.

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Mattias Holmberg, DNB Markets, Research Division - Analyst [11]

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I see. And another question from my side, looking at your comment on the slowdown in the electronics business in China, could you elaborate a bit on what is driving this slowdown and also what's your action plan is going forward, assuming that this phase continues to weaken?

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Ola Rollén, Hexagon AB (publ) - CEO, President & Director [12]

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We see a shift in the supply chain where the OEM seems to source directly, and they are now pushing that [talk] to their sub-suppliers. So it's a bit difficult to say how it's going to pan out in 2019. But we're working on expanding our touch points with the supply chain, and we'll see how it works out, it's still early days.

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Operator [13]

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Next question is from Mikael Laséen from Carnegie.

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Mikael Laséen, Carnegie Investment Bank AB, Research Division - Head of Software & Services and Financial Analyst [14]

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I just wanted to ask a couple of questions on Safety & Infrastructure, first of all. So what happened really here in Q1? You have a slide on that but didn't really sort of understand what really happened. Now you talked about this long-term shift to dynamic maps, but that has been ongoing.

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Ola Rollén, Hexagon AB (publ) - CEO, President & Director [15]

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No, 2 things have happened. We've eroded and gradually lost a very successful and profitable desktop business with the U.S. government, and we didn't have a complete solution. But with Thermopylae, we now have the solution to address that. So now we can start growing again in that segment. The other thing that happened was that we launched a new product where we had several installations where we had teething problems and we simply had to throw resources resolving those teething problems, at the same time as we couldn't invoice because we didn't meet the milestones we were supposed to meet. We believe that, as I said, with Thermopylae, we now have both the products and the distribution to tackle the [fabrum] program. And we also think we have our arms around the problem with the newly launched product.

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Mikael Laséen, Carnegie Investment Bank AB, Research Division - Head of Software & Services and Financial Analyst [16]

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Okay. Got it. And what do you mean with the stabilization in Q2? I guess the gross will also be negative in Q2 and then improve a bit in the second half, is that a correct assumption?

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Ola Rollén, Hexagon AB (publ) - CEO, President & Director [17]

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We'll see. The longer...

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Mikael Laséen, Carnegie Investment Bank AB, Research Division - Head of Software & Services and Financial Analyst [18]

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But the stabilization is from this level, right?

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Ola Rollén, Hexagon AB (publ) - CEO, President & Director [19]

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From this level, we'll see what happens in the second quarter.

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Mikael Laséen, Carnegie Investment Bank AB, Research Division - Head of Software & Services and Financial Analyst [20]

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Okay. And just a clarification also, is this affecting Hexagon Geospatial in any way, [the immediate] in margin and so on?

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Ola Rollén, Hexagon AB (publ) - CEO, President & Director [21]

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Yes, it is. It's one where we didn't -- we just got it because SI is really just Geospatial and SI.

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Mikael Laséen, Carnegie Investment Bank AB, Research Division - Head of Software & Services and Financial Analyst [22]

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Okay. Got it.

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Ola Rollén, Hexagon AB (publ) - CEO, President & Director [23]

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And they deliver the solutions together.

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Mikael Laséen, Carnegie Investment Bank AB, Research Division - Head of Software & Services and Financial Analyst [24]

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Okay. Yes. And then a final one regarding China, it grows by 3% and you said that, that was an achievement. Can you elaborate a bit more on that? Because comparisons were actually a bit easier now in Q1, but maybe you can explain that, sort of what happened there at the same time.

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Ola Rollén, Hexagon AB (publ) - CEO, President & Director [25]

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But you had an electronic business that was 1% negative on the group level. And the lion's share of that business is in China. So what we managed to do in China as to grow the rest of the business significantly above 3% to mitigate the drop in the electronics business.

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Mikael Laséen, Carnegie Investment Bank AB, Research Division - Head of Software & Services and Financial Analyst [26]

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Okay. So what are the most, the strongest areas in China for you?

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Ola Rollén, Hexagon AB (publ) - CEO, President & Director [27]

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Right now it's power, it's traditional manufacturing industries, it's automotive and it's aerospace.

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Mikael Laséen, Carnegie Investment Bank AB, Research Division - Head of Software & Services and Financial Analyst [28]

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And they're growing by around 10% or...

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Ola Rollén, Hexagon AB (publ) - CEO, President & Director [29]

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Yes, something like that.

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Operator [30]

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Next question is from Alexander Virgo from Bank of America Merrill Lynch.

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Alexander Stuart Virgo, BofA Merrill Lynch, Research Division - Director [31]

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I just wanted to dig a little bit more into SI, I'm afraid. Can you just help me understand what exactly was it that you didn't have in the first instance when you won the contract? Because it sounds to me, or maybe I'm making the wrong inference, but it sounds to me like you didn't have what you needed to win the contract in the first place. So I'm just trying to understand exactly what happened there.

I think the second thing on public safety is the issues with respect to China. It's the first time, I think, you've talked about that. So maybe you can just expand a little bit. Is that purely just the installation taking longer than you thought? And then related to that last bit, can you give us an indication of how much of an EBIT headwind or margin headwind those problems were in the quarter, just so we can think about how that is addressed through the back half of the year?

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Ola Rollén, Hexagon AB (publ) - CEO, President & Director [32]

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I didn't get your China question, but we'll come back to that. Let's start with SI. Within SI, we delivered a product that we thought were an off-the-shelf solution. And as we introduced it to the market and sold it, we realized that we needed to fill it with more content than what we previously thought. So we ended up in situations where we had to send in programming resources in installations across North America to fix some bugs and also add features that we hadn't previously accounted for. And that stopped the process, it stopped our ability to invoice, but it of course cost us a lot of money eroding the margins for the business. So that's what happened in SI. If you go back to your China question, I really didn't understand that.

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Alexander Stuart Virgo, BofA Merrill Lynch, Research Division - Director [33]

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Sorry, it was just in the text in the report in Geo, you call out declining public safety in China. And I made an assumption, and maybe it was erroneous that, that was related to similar problems, perhaps it was not. But...

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Ola Rollén, Hexagon AB (publ) - CEO, President & Director [34]

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No, no. It's not related.

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Alexander Stuart Virgo, BofA Merrill Lynch, Research Division - Director [35]

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Okay. Well, what was the driver of that then instead?

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Ola Rollén, Hexagon AB (publ) - CEO, President & Director [36]

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In public safety in China. It is just that we haven't landed any orders recently, and the comps compared to Q1 of '18 were simply too strong.

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Operator [37]

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Next question is from Toby Ogg from JPMorgan.

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Toby Ogg, JP Morgan Chase & Co, Research Division - Analyst [38]

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Just firstly on the sort of the margin performance in the quarter. The growth sort of year-on-year seems to be mainly driven by GES, despite the sort of lower organic revenue growth. Would you say the relative softness in the IES segment is mainly a function of the sort of slight deceleration in PPM? And then just secondly, following up on PPM, where do you think the top is for this business, specifically in the current environment? And also, how much did oil and gas contribute to the growth in the segment?

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Ola Rollén, Hexagon AB (publ) - CEO, President & Director [39]

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Well, we'll start with the -- well let's dissect your question. No, I don't think the slowdown in IES is PP&M. PP&M grew by 7% organic growth. I think the slowdown is electronics, the electronics segment in MI that is causing the slowdown in IES. And we saw a contribution from the oil and gas segment in the first quarter, but it's not dramatic numbers. So the recovery continues, and we're far from previous peaks in that segment.

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Operator [40]

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Next question is from Markus Almerud from Kepler Cheuvreux.

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Markus A. Almerud, Kepler Cheuvreux, Research Division - Senior Research Analyst [41]

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Markus Almerud from Kepler Cheuvreux, a couple of questions. First in automotive. So you say that automotive in China is growing very, very well. I assume that your exposure to "traditional automotive" is quite low. And then also in Europe, are you seeing any signs of stabilization in the automotive industry in Europe? That's my first question.

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Ola Rollén, Hexagon AB (publ) - CEO, President & Director [42]

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Well, our exposure in China is actually to both traditional and the new electric automotive players. And so far by the end of last year and early this year, we've seen fantastic growth from the new electric car manufacturers in China. We saw a bit of a stabilization with some key OEMs in Europe in March. But to say that it's a trend, it's simply too early.

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Markus A. Almerud, Kepler Cheuvreux, Research Division - Senior Research Analyst [43]

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Okay. And then in general, in China, I mean you're quite big there. Do you see any signs of any impact from the stimulus that they have introduced?

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Ola Rollén, Hexagon AB (publ) - CEO, President & Director [44]

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No, not yet. We see concerns about the looming trade war with the United States, which have been an issue throughout the first quarter, that is sort of putting a dampening effect on investment and CapEx. And we haven't really seen any impact from the stimulus.

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Markus A. Almerud, Kepler Cheuvreux, Research Division - Senior Research Analyst [45]

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Okay. Perfect. And then finally, what was the contribution from new products in the quarter? And are you still seeing a good contribution from BLK360? Or is that kind of all worked through the system now and the growth in kind of good rates but not the same as before?

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Ola Rollén, Hexagon AB (publ) - CEO, President & Director [46]

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It's still growing, but it's not impacting the numbers that we did last year. It's been replaced by the RTC360 that is generating good growth for us. And it's hard to guesstimate what new product contributed with, but I would say probably more than 2% in the quarter.

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Operator [47]

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Next question is from Wasi Rizvi from RBC Capital Markets.

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Wasi Rizvi, RBC Capital Markets, LLC, Research Division - Analyst [48]

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Just a couple from me and they're for SI actually. So firstly on your comment on the stabilization in Q2, just for clarification, is that sequential or is that a year-on-year stabilization that you're talking about? And then secondly, when you talk about the growth in the back half of the year, you mentioned that you've not been able to bill revenues while you've been working on the product mix. Is that growth mainly just that pent-up demand? Or is it actually a return to growth in you winning share and winning contracts?

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Ola Rollén, Hexagon AB (publ) - CEO, President & Director [49]

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I think that is -- what we've been trying to say is a return to growth in the second half.

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Wasi Rizvi, RBC Capital Markets, LLC, Research Division - Analyst [50]

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Right. But is that a function of just catching up on what you've not been -- on working contracts you've not been able to bill for while you've been fixing the problems? Or is that just the underlying growth?

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Ola Rollén, Hexagon AB (publ) - CEO, President & Director [51]

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No, no. It's the underlying. I mean the market is healthy. There is nothing wrong with the market, and we have to call that out, that this is not a function of demand, it's a function of our own deployment of the new product. So we continue to collect orders and the market is still good. And we expect growth from the market, basically, going into the second half of this year.

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Wasi Rizvi, RBC Capital Markets, LLC, Research Division - Analyst [52]

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Got it. And just that stabilization, is that sequential or a year-on-year comment?

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Ola Rollén, Hexagon AB (publ) - CEO, President & Director [53]

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Year-on-year.

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Operator [54]

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And next question is from Alex Tout from Deutsche Bank.

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Alexander William Tout, Deutsche Bank AG, Research Division - Research Analyst [55]

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Firstly, could you just zero in on the simulation MSC business and just give us an idea of how that performed in the quarter, and sort of the distinction between pricing versus volume growth in simulations. And then just secondly, are there any areas of the business that you see kind of peaking currently from a growth perspective that might offset some of the improvement that you foresee in Safety & Infrastructure?

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Ola Rollén, Hexagon AB (publ) - CEO, President & Director [56]

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So MSC had a really good quarter, it was in the range of 7% organic growth, bookings grew even faster. So we're quite pleased with our simulation business. In the beginning of 2019 or whatever you should [say], things turned flat -- the return to growth in SI are obviously -- I mean, first of all, we do in the dampening impact on MI from the electronics, but we -- or is set to continue in Q2. And then it's the -- I guess it's not a million-dollar question, it's more like a trillion-dollar question, what will happen to the global economy. Will we have an impact on investment in related products from these talks that are ongoing and so vital for the global economy and the sentiment in the market, we think we don't know.

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Alexander William Tout, Deutsche Bank AG, Research Division - Research Analyst [57]

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Sorry. Could I just follow up on the 7% organic growth in MSC? How much of that [number] is due to pricing increase versus just usage volume increase?

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Ola Rollén, Hexagon AB (publ) - CEO, President & Director [58]

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I don't think it's much price in that number, simply because we haven't done a price increase in the first quarter.

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Operator [59]

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(Operator Instructions) And there are currently no further questions registered on the telephone lines. So I'll hand the call back to the speaker. Please go ahead.

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Ola Rollén, Hexagon AB (publ) - CEO, President & Director [60]

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Thank you, everyone, for listening in. And we'll talk again in the second quarter by the end of July. Thank you, everyone. Bye.

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Operator [61]

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And this now concludes the conference call. Thank you all for attending, you may now disconnect your lines.