Hexagon AB
STO:HEXA B
US |
Fubotv Inc
NYSE:FUBO
|
Media
|
|
US |
Bank of America Corp
NYSE:BAC
|
Banking
|
|
US |
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
|
US |
C
|
C3.ai Inc
NYSE:AI
|
Technology
|
US |
Uber Technologies Inc
NYSE:UBER
|
Road & Rail
|
|
CN |
NIO Inc
NYSE:NIO
|
Automobiles
|
|
US |
Fluor Corp
NYSE:FLR
|
Construction
|
|
US |
Jacobs Engineering Group Inc
NYSE:J
|
Professional Services
|
|
US |
TopBuild Corp
NYSE:BLD
|
Consumer products
|
|
US |
Abbott Laboratories
NYSE:ABT
|
Health Care
|
|
US |
Chevron Corp
NYSE:CVX
|
Energy
|
|
US |
Occidental Petroleum Corp
NYSE:OXY
|
Energy
|
|
US |
Matrix Service Co
NASDAQ:MTRX
|
Construction
|
|
US |
Automatic Data Processing Inc
NASDAQ:ADP
|
Technology
|
|
US |
Qualcomm Inc
NASDAQ:QCOM
|
Semiconductors
|
|
US |
Ambarella Inc
NASDAQ:AMBA
|
Semiconductors
|
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
52 Week Range |
91.12
127.9119
|
Price Target |
|
We'll email you a reminder when the closing price reaches SEK.
Choose the stock you wish to monitor with a price alert.
Fubotv Inc
NYSE:FUBO
|
US | |
Bank of America Corp
NYSE:BAC
|
US | |
Palantir Technologies Inc
NYSE:PLTR
|
US | |
C
|
C3.ai Inc
NYSE:AI
|
US |
Uber Technologies Inc
NYSE:UBER
|
US | |
NIO Inc
NYSE:NIO
|
CN | |
Fluor Corp
NYSE:FLR
|
US | |
Jacobs Engineering Group Inc
NYSE:J
|
US | |
TopBuild Corp
NYSE:BLD
|
US | |
Abbott Laboratories
NYSE:ABT
|
US | |
Chevron Corp
NYSE:CVX
|
US | |
Occidental Petroleum Corp
NYSE:OXY
|
US | |
Matrix Service Co
NASDAQ:MTRX
|
US | |
Automatic Data Processing Inc
NASDAQ:ADP
|
US | |
Qualcomm Inc
NASDAQ:QCOM
|
US | |
Ambarella Inc
NASDAQ:AMBA
|
US |
This alert will be permanently deleted.
Welcome to the Hexagon Q2 Report 2021. [Operator Instructions] Today, I am pleased to present Ola Rollén, President and CEO. Please begin your meeting.
Thank you, and welcome, everyone, to this Q2 interim report 2021. And if we move to Slide #4, we can have an overview of the second quarter of 2021. We recorded sales of 20% and organic growth is 20% as well. And as you can see from the bridge on the right-hand side of this slide, structure and currency was 4% and minus 4%, respectively, and total sales amounts to EUR 1.76 billion. This is actually our strongest quarter ever with sales, earnings, margins and cash flow at an all-time high. We saw very strong demand in Geosystems and Autonomy & Positioning, solid recovery in MI, recording 31%, 18% and 24% organic growth, respectively. Safety & Infrastructure had tough comps, a very strong quarter in Q2 of 2020, but grew by 2% organic growth. PP&M was the only division that still declined in the quarter, minus 4% organically. And we saw a weak demand from primarily the oil and gas market. We do expect though PP&M to return to growth in the second half of 2021. Now if we turn to earnings, our adjusted operating earnings amounted to EUR 301 million compared to EUR 226.5 million a year earlier. And that is an increase of 33%. Our operating margin was, for the first time, 28%. Now if we move to Slide 5, this is just a reminder of the seasonality in our profit and earnings, where Q1 is the weakest; Q2, second weakest; Q2 and Q4 are typically strong quarters. Slide 6, an overview of the P&L statement. Net sales amounted to EUR 1.076 billion, which is 20% recorded as well as organic growth. And EBIT1 came in at 28%, as we've just stated, which is 33% better than the corresponding period last year. Slide 7 is for your reference, that is the first half of 2021. And if we turn to Slide 8, cash flow was very strong in the quarter as well. And highlights to point out is that we had a positive change in working capital in spite of the 20% organic growth. Cash conversion was 113% and operating cash flow grew by 15%. Slide 9, just to show the reduction in working capital over a longer period of time, we can see that historically, we were around 20% of sales in working capital. And in the second quarter, we report 3.9% working capital to sales. Market development. If we move to Slide 11, looking at the geographic mix for the group in the second quarter, we can see that China is returning to its historic 16% share of total sales. And we see an improvement in Western Europe and a reduction in the mix from Asia Pac. Slide 12, also for your reference, all geographic regions grow above 8% in the quarter, thus all the green arrows. And Slide 13 is an overview of the various segments that we serve and geographic markets. Slide 14, diving into EMEA a bit. Western Europe recorded 25% organic growth. All major markets in Western Europe grew double digits. Strong demand in surveying, infrastructure and construction. And we also saw, compared to Q1, a broad-based recovery in our manufacturing industries that we serve. Eastern Europe, Russia, Middle East and Africa all recorded strong double-digit organic growth in the quarter. Moving to Americas in the second quarter. Similar pattern to Europe, 14% organic growth in North America, broad-based recovery in surveying, infrastructure, construction and manufacturing. The only segment that showed weakness was power and energy and defense in the quarter. South America, strong double-digit organic growth, where we saw very strong organic growth from our Brazilian market. Moving on to Slide 16, Asia. China recorded 25% organic growth compared to a fairly normal quarter in 2020. We saw strong demand in all segments: manufacturing, infrastructure, construction and electronics. Australia and India recorded strong growth, supported by recovery in both manufacturing, infrastructure and construction in both markets. Eastern Asia, i.e., South Korea and Japan, remained weak in the quarter. Reporting segments, moving to Geospatial Enterprise Solutions on Slide 18. Geospatial reports an organic growth of 24%, where the shining star in the quarter is Geosystems with 31% organic growth. SI, as mentioned before, 2% organic growth, tough comparison numbers from the second quarter of 2020 but solid growth in public safety. Autonomy & Positioning, 18% organic growth, and it was the agricultural business that fueled this growth. Sales for the segment amount to EUR 560 million and EBIT is EUR 176 million, which corresponds to an operating margin of 31.5%. Moving to Industrial Enterprise Solutions on Slide 19. Organic growth amount to 16%, where MI saw a broad-based recovery in both Europe and North America and continuous strong growth in China and for its software business. PP&M, minus 4% organic decline, and that was mostly driven by a decline in our oil and gas business. On the other hand, PP&M saw solid growth in operations and maintenance solutions and its AEC portfolio. Sales amounted to EUR 515 million and EBIT, EUR 130 million, corresponding to an EBIT margin of 25.2%. Slide 20. Our gross margin was at all-time high. On a 12-month rolling basis, it's now 64% and it's slightly higher in the second quarter. Moving on to our EBIT margin, our operating margin is now 27%, which is the lower end of our target for '21. But in the quarter, we recorded 28% EBIT. And if you back out FX impact, it would have been at 29%, so a very strong margin. Moving on to the acquisition of Infor's EAM business. Just a reminder on Slide 23 that on July 6, Hexagon announced an agreement to acquire Infor's global EAM, which stands for enterprise asset management, business for approximately USD 2.75 billion. We will also form a broader strategic relationship with both Infor and Koch Industries, the owner of Infor. Typical profile for all the profile of the acquired businesses, CAGR in our SaaS revenue is roughly 35% over the past 3 years. Total revenue is expected to land at $184 million for fiscal '21, cash conversion of 110% and an adjusted EBIT of 40%. Now on Slide 24, we talk about why we do this. It is to continue to drive the digital transformation across our customer base. EAM will be combined with both Geosystems, PP&M, MI and SI. So we will have solutions for industrial facilities, for manufacturing, for infrastructure as well as buildings. And we believe a gradual synergy opportunity that will grow from obviously 0 this year to $100 million in revenue by 2026. Talking about M&A, other M&A, orders and product releases in the second quarter. If we start at Slide 26, we acquired a company called CADLM, which is a pioneer in computer-aided engineering, so-called CAE, combined with artificial intelligence and machine learning, to revolutionize the impact of simulation in product development processes and life cycles in discrete manufacturing. Slide 27, we launched HxGN Connect, which is a new SaaS-based software workspace for citywide collaboration between agencies, could be public safety agencies, transportation, utilities and other related organization. And we already have good traction for this new suite of software products from SI. Another product we launched, on Slide 28, is HxGN Mass Transit. It's a new geospatial transportation infrastructure management system for monitoring of assets and optimizing field operations using 3D, AI and mobile capabilities. Slide 29. We launched the Absolute Scanner AS1. It's a product from our MI division. This is a 7-axis system that has cutting-edge blue laser technology. And it's going to be us to deliver high-productivity, noncontact 3D measurement in discrete manufacturing. Slide 30, enabling aerospace manufacturers to reduce blisk inspection times. Blisk inspection is a sort of bottleneck in the next-generation aero engines for commercial airliners. And we launched a solution where we can reduce the blisk inspection time by as much as 50%, improving the quality and the output for the next-generation aero engines. Slide 31. We have worked with an OEM around the new card for ADAS, which stands for advanced driver assistance system. The card is called PIM222A. And it's got significant functionality in advanced driving assistance systems. And we are now ready with a price point that would support mass deployment of this GNSS system in auto applications. Slide 32, talking about autonomous cars. This is a project which will develop automated driving systems, so-called ADS, for rural applications. It's been fairly advanced development driving autonomously on proper roads with road lines and so on. But one of the problems have been dirt roads, snowed roads or rural roads. And this project is all about developing automated driving systems for rural roads. Slide 33. This is another technology that will enable automation. It's GAJT-410MS, which will be deployed both in commercial and defense marine applications. The uniqueness about this product is that it will combat intentional or unintentional interference with a ship's navigation system. And this is a problem that is becoming more and more frequent, both for commercial and defense-related naval activity. Slide 34, continued momentum for the newly launched HxGN OnCall that was launched last year. We got two good orders in the quarter: one from IMCOM, which is the U.S. Army Installation Management Command; and also an order from North Wales Police in United Kingdom for this dispatch system. Slide 35. We expand public safety efforts in Manaus, which is a large city in the midst of Amazon. They are building on our computer-aided dispatch system and they will also deploy Smart Advisor, which is an AI-guided insight system that we developed last year that works in real time and helps for better informed decisions during day-to-day dispatch operations. Slide 36, Rocscience and Hexagon continue to strengthen relations in applications primarily in mines for rock slides. This will also close the loop between radar monitoring and slope stability monitoring modeling. And this could be very helpful in the ever-increasing problem with landslides around the world. Slide 37. The HxGN Content Program is signing a 5-year partnership with Ecopia, which is a leading provider of HD vector maps and they use AI to convert high-resolution images of the Earth. And Ecopia will use our Content Program over the next 5 years. Slide 38, helping building a bridge between architecture, civil engineering, construction and computer science. We've entered into a partnership with ETH in Zurich and Design++. And the idea is to develop augmented design in the field for architecture, engineering and construction. Slide 39. We've also landed an order with ZF Wind Power that will use our durability and structures software to analyze stress and how you optimize gear loading and reduce transmission errors in wind turbines. And that was it. And we also would like to announce that we will host a Capital Markets Day, we're on Slide 41. The Capital Markets Day will take place on the 30th of September. And we will present various growth opportunities and trends and our key strategic focus areas for the future. The event will be held in person if conditions permit, which we certainly hope for. Otherwise, we will have a virtual event, but we will announce that later on. It all, as you know, depends on the COVID situation at the time. Finally, if we summarize on Slide 43. It's our strongest quarter ever, record sales, operating earnings and margins, continued solid cash conversion of 113%. And in July, post the end of the quarter, we signed an agreement to acquire Infor's EAM business. And with that operator, I am ready to answer questions and start the Q&A session.
[Operator Instructions] Our first question comes from the line of Magnus Kruber of UBS.
Magnus here with UBS. I guess, first, a congratulation is in order, another very solid print. Maybe jumping on the GES margins first. Obviously, the volumes and savings helped you a lot in the quarter, but you also called out the mix there. Could you help us a bit to quantify the mix contribution on margins year-over-year there, if that's possible? And to what extent that's sustainable?
It's hard to say. But I would say we probably have a mix contribution of 1%.
Got it. And I guess, that's Geosystems. That sort of the majority of that intra-business area mix is not so important...
No, it's actually -- no, it's actually across the board. So Geosystems had a fantastic margin development but so did SI and A&P.
Got it. And that means it could be a little bit more sustainable than just sort of the mix between the three potentially?
Yes, absolutely.
Perfect. And then I guess, same topic but then switching to IES. I mean, is this purely due to MI outgoing PP&M again in this quarter? Or is there anything else that we should sort of call out within the mix?
First of all, MI improved its mix significantly and improved its margins. But the fact that we have the same margin as last year is the fact that MI outgrew PP&M.
Perfect. I guess, maybe as a follow-up on that, do you have any comment on how fast the software business in MI grew in the quarter then?
Around 10%, organic.
Organic.
And our next question comes from the line of Daniel Djurberg of Handelsbanken.
Congratulations to a really strong quarter and fantastic cash flow. I was wondering if you could give me some view on the China, you had strong growth here also in this quarter despite tougher comps and your view on the second half and also perhaps on the political situation, if you do need to take any actions in any form on the back of the geopolitical situation right now.
China has a very strong momentum for us, and it's actually spread among some 5, 6 industry segments. So it's not just one segment performing very well. When it comes to the second half, one should remember that 2019 was not a great year for China. So we're still in a recovery mode, coming back to a long-term trend with strong single-digit, weak double-digit growth in China. And we think that is set to continue. When it comes to political situations, we never comment on that, but we obviously have mitigation plans for all possible outcomes.
Perfect. May I ask you also on the great cash conversion? Obviously, 113% and 3.9%, I think, working capital to sales have the drop in both in Q1 and Q2. Should we expect it to come back to the line, so to say, in second half or in 2022, where we see a drop in the line and more flat line perhaps ahead?
I think that maybe 4%, where we are in our mix development and strategic development in the company is -- might be a stretch to keep it at this level for the short term. I think longer term, this might be a realistic target for us the way the mix evolves.
Perfect. I had more questions, but I'll get back in queue to let the other ones.
Our next question comes from the line of Alexander Virgo of Bank of America.
I guess, sort of a broad question on a new normal. I mean, I appreciate that Q2 is the strongest quarter ever as I think we're sort of seeing across the board. But given where margins are and given where cash flow is, I'm just wondering if you can kind of -- and appreciate that you probably will answer this in a bit more detail at the CMD. But I wonder if you can help us a little bit just in terms of modeling. Because I want to try and understand where you see the new normal profitability. Gross margins, above 64%, is fantastic. Margins in GES, above 28%, is fantastic. I'm just trying to get a feel for how we need to think about the rest of this year in modeling terms but actually just more broadly.
I think that, first of all, you need to dissect the margin. And it stems from a new cost level in the group, where travel is obviously at all-time lows, and that contributes to the margin. And then you have the volume component, which probably is more accentuated in this quarter than normally. And then you have the never-ending mix improvement story. And I would put a percent on each of those three components in the quarter, so cost, 1%, volume and mix. And cost is not -- it's not so that we have savings over 2020, but it's more a philosophical discussion, where we probably travel less as an organization going forward. And that is going to be more of a long-term saving for us.
Okay. Great. And then one just follow-up, I wondered if you could talk a little bit to the product contribution or new product contribution to the top line and how that sort of plays through in the second half is typically a stronger contribution to the business in the second half. So just wondering how that sort of new product launches have developed and contributed.
That's absolutely true. We do expect greater contributions in the second half of this year. What happens when you have this kind of recovery that we're seeing right now is that all products are actually performing well, whether it's old or new. So I can't really highlight the new products as a great contributor to growth in this quarter.
Our next question comes from the line of Kathinka de Kuyper of JPMorgan.
Congratulations on the strong quarter. You mentioned you expect PPM to get back to growth in H2. Are you already starting to see some recovery in oil and gas? And could we expect PPM back to growth already in Q3?
That's what we hope. One shouldn't promise anything. But we do see signs of recovery. And that's why we are fairly certain that PP&M will return to growth, maybe already in the third quarter.
Okay. Can you comment on Eastern Asia that remained weak? Could you comment on the dynamics you saw there?
Yes. It was mostly shipyards in Korea and a somewhat muted manufacturing sector in Japan.
Got it, very clear. And then finally, on M&A, of course, you just announced the acquisition of Infor EAM. Can you comment on your pipeline? And are there any areas you're particularly interested in?
No, we don't comment on our pipeline, but it's healthy.
And our next question comes from the line of Joachim Gunell of DNB Markets.
So most questions were already taken. Perhaps, Ola, if you could talk us through a little bit about the new products here that accelerated growth in Geosystems and exactly what that pertains to.
Geosystems grew in several subsegments. We have a product line called reality capture with laser scanning and that grew significantly in the quarter. But also our more traditional sensors, like total stations and GNSS rovers for surveyors, grew rapidly. Automation of construction machines, what we call machine control, grew as well. So can't single out one area, all areas actually grew strong in the quarter.
Understood. And also, you have previously, in some quarters, commented a bit on the book-to-bill in MI. Can you give us any flavor on where that was now, given the stellar organic growth reported?
It was at record levels, so very strong book-to-bill ratio in the quarter.
And our next question comes from the line of Sven Merkt at Barclays.
I have a couple. First, I was wondering if you could help me to reconcile the difference in growth between AEC and Geosystems. If I interpret the release correctly, AEC was growing slower than Geosystems. So could you comment why you don't see a stronger acceleration for AEC? And then my second question is around if you see any signs that the strong recovery in construction, infrastructure is now peaking as increased construction cost, lower demand. And then finally, if you have seen any cost inflation either in your own cost base or if you have increased prices during the quarter.
First of all, I don't recognize what you're saying about AEC. AEC grew roughly at the same pace as Geosystems. So that is not correct. And no, I don't think we've seen the peak for the construction and infrastructure markets just yet. And cost inflation, not in the second quarter, it might come later in the year as everyone is squeezed for resources.
Okay. Great. That's helpful.
And our next question comes from the line of Erik Golrang of SEB.
I have three questions. The first one, on working capital, I mean, we can see the metrics in the balance sheet and so on. But if you could help us out just a bit there on the operational factors behind that improvement, especially now since, I guess, you're growing the hardware business faster. Have you changed payment terms or anything? And then on the second question, relates to the PIM222A there for ADAS applications. You said it was done in partnership with an OEM. Do you have a firm order? Or what kind of volumes are we talking about? And when does this product come into play? Are we talking Level 3-type applications? Or do we need to go higher in automation levels? And then the third question, if you could say something about the size of the business now on the HxGN Content Program.
So okay, let me see if I got it right. Working capital, there are actually several factors contributing to the reduction in working capital. But two major ones are on the liability side. And that is we have an increased share of software where you prepay, which builds up the liabilities. And then a bit funny is that we're starting to pay bonuses to our employees again. And we build up a short-term liability when we book those bonuses as the company starts to improve. And that has a negative impact on working capital. But apart from that, we had strict control of accounts receivables and inventories in the hardware business, which also contribute into the release. And then if we move on to ADAS, the OEM I referred to is an OEM that helped us manufacturing the board. But that was a bit, I guess, dim on my side. On the customer side, we already have relationships with all -- I wouldn't say all, but most of the major OEMs in automotive. And this is for Level 3 and up. And then the third...
But no firm orders as of today?
No, we have firm orders, but it's still in project-related applications where you develop product. So it's not -- but this is a prerequisite to go to manufacturing and scale up volumes. And your third question, you have to remind me.
Yes, the HxGN Content Program. How big is that business today?
It is roughly EUR 80 million, EUR 90 million on an annualized basis.
And our next question comes from the line of [ Moe Cernine ] of Berenberg.
Congratulations on a great quarter. I've got two questions, one relating -- or one focusing on the end markets and second, on the margins. I'll start with the end markets. So if we -- excluding power and energy, our top 3 end markets, we're seeing great growth. The demand and activities are performing very well. Just wanted to get a sense from you, how do you see this continuing, the recovery in H2, and then your expectation post 2021? If you could share some ideas on that, that will be great.
You can almost plot this recovery to the recovery we saw in '09/2010, after the financial crisis. So what we see right now is pent-up demand in combination with a changed behavior in the market due to corona. Automation has become a bigger issue, for example, in most customers' organizations. So I think we should see a good development and good demand throughout 2021. In 2022, with sort of business as normal, and we should expect a more normalized market, more normalized demand. And then obviously, it's back to normal, where you have to deliver great innovation, great products and great benefits for your customers in order to increase your sales.
Perfect. That's really helpful. The second part to your second question on the margins, you might have answered this already, so apologies if you already have. Obviously, we've got 28% op margin this quarter, probably one of the highest quarter in terms of profitability, your quantity of volume, product mix and cost savings. Presumably, these are the items that we will continue to see going forward, i.e., we should see uptick in margins going forward. Is that the right way to think about it? And secondly, relating to this, on a pro forma basis, if we were to include EMEA, which is a more profitable business, would the target -- the operating margin target of 28%, will that get closer to 30% or maybe even more?
Well, you put me on the spot here. I need to think this one through. I guess, that, yes -- I mean, it will definitely contribute to our margins. But how much, I think we've said around 1%. But luckily, you know what, come to our Capital Markets Day and we'll sort it out. Because it's much better to have these lengthy discussions at the Capital Markets Day. But you're absolutely right. It's cost, it's volume and mix, improving the margin in the second quarter. And longer term, the way to look at this continuous improvement is that cost might not be a factor going forward. It's a sort of one-off in 2021, but volume and mix, where mix typically is why we drive margin expansion long term. So I would bet more on mix than volume actually going forward.
Perfect. That's helpful. And understood on the EMEA pro forma numbers, and I'll go wait for the Capital Markets Day.
And currently, we have one further question in the queue. [Operator Instructions] And that's a follow-up from Daniel Djurberg of Handelsbanken.
Taking my follow-up question, I was thinking about cybersecurity. Actually, I know that you are working very much on digitalization. You have the HxGN Connect, OnCall, a number of different Software as a Service offerings, of course. And I was thinking that we do see more and more cyber espionage around the -- all over the world. So my thinking is how you work with this and also what you see among customers, if they are more reluctant to centralize, thanks to more concentrated management systems, et cetera.
I think the general trend is that companies like Microsoft and Amazon can provide much better security than mid-sized industrial or construction companies can do with their own budgets. So we still believe that moving to a Software as a Service is safer than staying on-prem. Then we have PAS, which is a company that we acquired late last year. And PAS is providing what's called OT, operational technology, as opposed to IT. And that is the cybersecurity solution, where we basically bolster and safe -- well, make operational assets more safe for our customers. So PAS is a really good example for our response to cybersecurity.
Perfect. So no major hurdle there. And my last question, if I may, this might have been asked already. But I think you mentioned 3 weeks back, when you did the Infor EAM acquisition, that we should look for some EUR 25 million in PPA amortization. And is this correct? And also regarding the financing part of EUR 800 million, I have used like 2.5% interest rate and 20 years amortization. Would you suggest being reasonable for these calculations?
I think 2.5%, you're in a bank. So that's just wishful thinking. No, I think it's lower than 2.5%. Our borrowing cost right now is typically 1%. EUR 25 million might be a good ballpark number. But we have to wait for the final consolidation because we don't know either the exact number right now.
And we have one further question in the queue. That's sort of a follow-up from Alexander Virgo of Bank of America.
Ola, to come back, if I could, just on the sequential momentum and looking at the 2-year stack, I suppose, versus 2019. It looks like China is accelerating. It looks like EMEA is accelerating. It looks like Americas isn't. And I'm a little, I guess, surprised that the relative growth in North America versus what we've seen in Europe -- now I appreciate comps were a lot easier in Europe year on -- last year. But just wondering if you could comment a little bit on the trends you're seeing there, whether we should expect to see that sequential momentum accelerating in North America as we move into the second half.
We do see an acceleration similar to Europe and Asia in America in manufacturing and construction. The two areas that are not accelerating are SI and PP&M. And PP&M's share of business in North America is slightly larger than the group average. So it has a negative impact on the region. But if we do see a recovery now in the second half, that should point at PP&M contributing to the growth in North America. When it comes to SI, we had a very good growth in North America this time last year. And we do not expect them to significantly contribute to growth going forward, even though they are also one of our smallest divisions. So I think that we have to wait and see. But we expect a good year in the Americas in 2021 as well.
And we've had one further question join the queue. That's from Andre Kukhnin of Crédit Suisse.
I was just thinking about the comment you made on mix being the more sustainable driver of your margin going forward with high software mix and Software as a Service. I'm trying to think about in the light of this shift towards Product as a Service across the kind of industrial environment, is that something that you're exploring your current new product launches already? Or is that something that's planned for the future to shift more towards Product as a Service or Solution as a Service?
No, absolutely. We're exploring several avenues. We have Product as a Service, we have Service as a Service and we have Software as a Service. And we're exploring all three avenues. And it is true that right now, many of our hardware products have similar gross margins as a pure software product. So there isn't a great difference in terms of profitability. But in terms of stability, if you can move a product to as a service, you obviously have a much more stable cash flow. And that's what we're aiming at.
And if I may, just one more question, on the new product launch of Absolute Scanner AS1, is this evolutionary? Or is this a game changer in this industry?
It's sort of a game changer, an evolutionary game changer.
Okay. I guess we'll learn more at the Capital Markets Day.
You will.
We've had one other question join the queue. That's from the line of Wasi Rizvi of Redburn.
Yes. Just one, on your very strong margins, and we've not had to spend a lot of time listing about cost headwinds or shortages of components. Is that because you're not really seeing any? Or is that strong margin performance despite some strong increases that you've absorbed and more than overcome? Or do we need to think about inflation coming further down the line for you? And then on the shortages, I know you're not a big manufacturer yourself, but what are you hearing about inventories and lead times for your suppliers?
Where I think the only area where we are a bit concerned is silicon wafers for our A&P division, where we've seen shortages. Up until now, it hasn't cost us more than a couple of million in sales. But it could get worse. So it's actually a daily activity trying to second guess what's going to happen to silicon wafers. But apart from that, we haven't seen material shortages having an impact on our business.
Got it. And on cost inflation, you're seeing it but just being able to price...
Yes. I think cost inflation for us is mostly salary inflation. And we've seen a tendency where salaries have increased in 2021 significantly in India, where we have a large software development facility. And I think that is just to be expected in the situation -- in this recovery situation where we're at, the fact that we've had almost 18 months of completely dead labor market and people are now changing jobs. But we also expect this to stabilize early next year.
And as there are no further questions at this time, I'll hand back to our speakers for the closing comments.
And I think we have exhausted the subject. So I have no closing comments. I thank you all for listening in, and I wish everyone a great summer with lots of sunshine. Thank you. Bye.