Hexagon

Quarterly Report • Oct 27, 2017

INTERIM REPORT

1 JANUARY – 30 SEPTEMBER 2017 THIRD QUARTER 2017

• Operating net sales increased by 10 per cent to 859.7 MEUR (779.7). Using fixed exchange rates and a comparable group structure (organic growth), net sales increased by 6 per cent
• Operating earnings (EBIT1) increased by 15 per cent to 205.9 MEUR (179.8)
• Earnings before taxes, excluding non-recurring items, amounted to 200.3 MEUR (174.2)
• Net earnings, excluding non-recurring items, amounted to 164.2 MEUR (141.1)
• Earnings per share, excluding non-recurring items, increased by 15 per cent to 0.45 EUR (0.39)
• Operating cash flow improved by 32 per cent to 152.2 MEUR (115.1)

MEUR		Q3 2017 Q3 2016	Δ%		Q1-Q3 2017 Q1-Q3 2016	Δ%
Operating net sales	859.7	779.7	1) 6	2,511.5	2,299.7	1) 4
Revenue adjustment 2)	-7.3	-	n.a.	-16.1	-	n.a.
Net sales	852.4	779.7	1) 6	2,495.4	2,299.7	1) 4
Gross earnings	519.0	466.4	11	1,528.2	1,388.2	10
Gross margin, % 3)	60.4	59.8	0.6	60.8	60.4	0.4
Operating earnings (EBITDA) 4)	278.6	237.1	18	798.8	696.3	15
EBITDA margin, %	32.4	30.4	2.0	31.8	30.3	1.5
Operating earnings (EBIT1) 4)	205.9	179.8	15	588.2	527.4	12
Operating margin, %	24.0	23.1	0.9	23.4	22.9	0.5
Earnings before taxes,
excluding non-recurring items	200.3	174.2	15	572.2	511.7	12
Non-recurring items 5)	-7.3	-	n.a.	-66.9		- n.a.
Earnings before taxes	193.0	174.2	11	505.3	511.7	-1
Net earnings	156.9	141.1	11	410.5	414.5	-1
Net earnings, excl. non
recurring items	164.2	141.1	16	469.3	414.5	13
Earnings per share, EUR	0.43	0.39	10	1.12	1.14	-2
Earnings per share, excl.
non-recurring items, EUR	0.45	0.39	15	1.29	1.14	13

1) Adjusted to fixed exchange rates and a comparable group structure, i.e. organic growth.

2) Reduction of acquired deferred revenue (haircut) related to the acquisition of MSC Software.

3) Operating gross margin. 4) For definition, see page 18.

5) Reduction of acquired deferred revenue (haircut) related to the acquisition of MSC Software, costs related to the implementation of a cost savings programme and the acquisition of MSC Software.

COMMENTS FROM THE CEO

"As evidenced by our accelerated growth – 6 per cent organic and strong profitability despite currency headwind – it's clear our innovative solutions are continuing to build momentum. Notable highlights include the Content Programme, BLK360, and Machine Control solutions in construction and mining fuelling 12 per cent organic growth in Geosystems; the continued development in our strategic software solutions combined with strong demand in electronics driving 6 per cent organic growth in Manufacturing Intelligence; and China and the Americas recording 19 per cent and 8 per cent organic growth respectively. In addition, positive momentum in the PPM business outside of the challenging oil & gas market supports expectations that PPM will return to growth by year end. Our solid financial position gives us confidence in the continued execution of our strategy and we are excited about Hexagon's expansion possibilities going forward."

Ola Rollén, President and CEO, Hexagon AB

GROUP BUSINESS DEVELOPMENT Q3

NET SALES

Operating net sales increased by 10 per cent to 859.7 MEUR (779.7). Using fixed exchange rates and a comparable group structure (organic growth), net sales increased by 6 per cent. Regionally, organic growth was 11 per cent in Asia, 8 per cent in Americas and 1 per cent in EMEA. In Asia, China recorded 19 per cent organic growth with a strong development in all businesses. However, South Korea and India continued to be weak. In Americas, North America recorded strong growth mainly driven by good demand within infrastructure & construction markets and the Content Programme. South America showed signs of recovery and returned to growth. In EMEA, Western Europe recorded flat organic growth mainly due to tough comparatives in the auto and aerospace industries and a weak development in the UK. However, growth was solid in Germany, France and the Nordic countries. Eastern Europe, Russia and Africa continued to report strong growth while the Middle East recorded a double digit decline, mainly due to tough comparatives from the large Smart City order in the previous year.

EARNINGS

Operating earnings (EBIT1) grew by 15 per cent to 205.9 MEUR (179.8), which corresponds to an operating margin of 24.0 per cent (23.1). The operating margin benefited from organic growth, product mix and improved cost structure but was adversly impacted by currency movements. Operating earnings (EBIT1) were negatively impacted by currency translation effects of -9.4 MEUR. Earnings before taxes amounted to 193.0 MEUR (174.2). Earnings before taxes were negatively impacted by currency translation effects of -9.4 MEUR.

NON-RECURRING ITEMS

On 26 April 2017, Hexagon acquired MSC Software (MSC), a leading provider of CAE (simulation) software. Approximately -23 MEUR related to a revenue recognition adjustment of deferred revenue (haircut) will impact the income statement during 2017. In the third quarter, the haircut amounted to -7.3 MEUR and is expected to be approximately -7 MEUR in the fourth quarter.

FINANCIAL SUMMARY – THIRD QUARTER

	Net sales				Earnings
MEUR	Q3 2017	Q3 2016 Δ% 1)		Q3 2017	Q3 2016	Δ%
Geospatial Enterprise Solutions	418.1	390.6	9	100.5	88.7	13
Industrial Enterprise Solutions	441.6	389.1	3	110.8	96.3	15
Operating net sales	859.7	779.7	6
Revenue adjustment 2)	-7.3	-	n.a.
Net sales	852.4	779.7	6
Group cost				-5.4	-5.2	-4
Operating earnings (EBIT1)				205.9	179.8	15
Operating margin, %				24.0	23.1	0.9
Interest income and expenses, net				-5.6	-5.6	-
Earnings before non-recurring items				200.3	174.2	15
Non-recurring items 2)				-7.3	-	n.a.
Earnings before taxes				193.0	174.2	11
Taxes				-36.1	-33.1	-9
Net earnings				156.9	141.1	11

1) Adjusted to fixed exchange rates and a comparable group structure, i.e. organic growth.

2) Non-recurring reduction of acquired deferred revenue in Q3 2017 related to the acquisition of MSC Software.

CURRENCY TRANSLATION IMPACT COMPARED TO EUR – THIRD QUARTER

	Movement 1)	Income less cost	Earnings impact
CHF	Weakened -4%	Negative	Positive 
USD	Weakened -5%	Positive	Negative 
CNY	Weakened -5%	Positive	Negative 
EBIT1, MEUR			-9.4

1) Compared to Q3 2016.

per cent.

SALES BRIDGE – THIRD QUARTER ORGANIC GROWTH

Operating net sales*
2016, MEUR	779.7
Structure, %	8
Currency, %	-4
Organic growth, %	6
Total, %	10
2017, MEUR	859.7
*Operating net sales from acquisitions and divestments during the last twelve months are reported as "Structure" in the table above. Percentages are rounded to the nearest whole

Analysis of organic growth1) per geographic region
Q3 2016	779.7
China (16% of sales)
North America (31% of sales)
EMEA excl. Western Europe (7% of sales)
Asia excl. China (14% of sales)		>8%
South America (3% of sales)		0-8%
Western Europe (29% of sales)		Negative
Q3 2017	859.7

1) Adjusted to fixed exchange rates and a comparable group structure (organic growth).

GEOSPATIAL ENTERPRISE SOLUTIONS – Q3 2017

Geospatial Enterprise Solutions includes a world-leading portfolio of sensors for capturing data from land and air as well as sensors for positioning via satellites. The sensors are complemented by software (GIS) for the creation of 3D maps and models which are used for decision-making in a range of software applications, covering areas such as surveying, construction, public safety and agriculture. This segment consists of Geosystems, Safety & Infrastructure and Positioning Intelligence.

NET SALES

Geospatial Enterprise Solutions (GES) sales amounted to 418.1 MEUR (390.6). Organic growth was 9 per cent. Regionally, organic growth was 15 per cent in Asia, 12 per cent in Americas and 4 per cent in EMEA.

GES benefited from robust growth in China within all businesses. However, infrastructure in Japan and public safety in India declined. In North America, the US recorded solid growth, benefitting from strong demand within infrastructure & construction markets and the Content Programme. In EMEA, Western Europe recorded mid-single digit growth benefitting from a continued good development in the Nordic countries and order wins within public safety, but was adversely impacted by weak demand in the UK. Eastern Europe, Russia and Africa continued to report strong growth related to infrastructure & construction and mining while the Middle East recorded a double digit decline due to tough comparatives.

Regarding the divisions within GES, Geosystems recorded 12 per cent organic growth with a strong development in infrastructure & construction and mining. The Content Programme also accelerated in the quarter and recorded double digit growth. Safety & Infrastructure recorded -1 per cent organic growth hampered by difficult comparatives from last year's large Smart City orders in the Middle East and India, and continued weakness in defence solutions. However, the strong growth in Smart City solutions in China continued. Positioning Intelligence recorded 17 per cent organic growth, positively impacted by continued strong demand in agriculture and defence. The offshore related business continued to decline but is bottoming out.

EARNINGS

Operating earnings (EBIT1) increased by 13 per cent to 100.5 MEUR (88.7), which corresponds to an operating margin of 24.0 per cent (22.7). The operating margin was positively impacted by organic growth, improved cost structure and product mix.

NET SALES, OPERATING EARNINGS (EBIT1) AND NUMBER OF EMPLOYEES

MEUR	Q3 2017	Q3 2016	Δ%		Q1-Q3 2017 Q1-Q3 2016	Δ%
Operating net sales	418.1	390.6	1) 9	1,250.9	1,159.2	1) 6
Operating earnings (EBIT1)	100.5	88.7	13	295.3	253.3	17
Operating margin,%	24.0	22.7	1.3	23.6	21.9	1.7
Average number of employees				7,834	7,945	-1

1) Adjusted to fixed exchange rates and a comparable group structure, i.e. organic growth.

GES – NET SALES PER REGION* GES sales per geography

GES – NET SALES PER CUSTOMER SEGMENT** GES sales per customer segment

* Q3 2017 numbers ** Full-year 2016 numbers

INDUSTRIAL ENTERPRISE SOLUTIONS – Q3 2017

Industrial Enterprise Solutions includes metrology systems that incorporate the latest in sensor technology for fast and accurate measurements, as well as CAD (computer-aided design), CAM (computer-aided manufacturing) and CAE (computer-aided engineering) software. These solutions optimise design, processes and throughput in manufacturing facilities and create and leverage asset management information critical to the planning, construction and operation of plants and process facilities in a number of industries, such as automotive, aerospace and oil and gas. Industrial Enterprise Solutions consists of Manufacturing Intelligence and PPM.

NET SALES

Industrial Enterprise Solutions (IES) sales amounted to 441.6 MEUR (389.1). Organic growth was 3 per cent. Regionally, organic growth was 9 per cent in Asia, 2 per cent in Americas and -2 per cent in EMEA

IES benefited from strong growth in China and Vietnam, mainly driven by the electronics industry but also a good development in power & energy. Japan, South Korea and India continued to be weak. In Americas, North America recorded slight growth hampered by a slowdown from the aerospace industry after last year's strong development. However, South America showed signs of recovery and recorded double digit growth in the quarter. In EMEA, Western Europe recorded a mid-single digit organic decline mainly due to tough comparatives in the auto and aerospace industries. However, Germany recorded solid growth driven by order wins in the power & energy business. Russia and the Middle East recorded favourable growth.

Regarding the divisions within IES, Manufacturing Intelligence recorded 6 per cent organic growth, driven by continued strong demand in the electronics industry. Aerospace and automotive had a weak quarter mainly due to tough comparatives. PPM recorded -4 per cent organic growth. The development is however heading in the right direction with positive momentum seen in the business outside of the challenging oil & gas market. Growth is expected towards the end of the year.

EARNINGS

Operating earnings (EBIT1) increased by 15 per cent to 110.8 MEUR (96.3), which corresponds to an operating margin of 25.1 per cent (24.7). The operating margin (EBIT1) benefitted from increased software mix in MI but was adversly impacted by the sales decline in PPM.

NET SALES, OPERATING EARNINGS (EBIT1) AND NUMBER OF EMPLOYEES

MEUR	Q3 2017	Q3 2016	Δ%		Q1-Q3 2017 Q1-Q3 2016	Δ%
Operating net sales	441.6	389.1	1) 3	1,260.6	1,140.5	1) 2
Operating earnings (EBIT1)	110.8	96.3	15	310.6	288.9	8
Operating margin,%	25.1	24.7	0.4	24.6	25.3	-0.7
Average number of employees				9,368	8,401	12

1) Adjusted to fixed exchange rates and a comparable group structure, i.e. organic growth.

IES – NET SALES PER REGION* IES sales per geography

IES – NET SALES PER CUSTOMER SEGMENT**

* Q3 2017 numbers

4 HEXAGON INTERIM REPORT 1 JANUARY – 30 SEPTEMBER 2017

** Full-year 2016 numbers

FINANCIAL SUMMARY – FIRST NINE MONTHS

		Net sales			Earnings
MEUR	Q1-Q3 2017	Q1-Q3 2016 Δ %	1)	Q1-Q3 2017	Q1-Q3 2016	Δ%
Geospatial Enterprise Solutions	1,250.9	1,159.2	6	295.3	253.3	17
Industrial Enterprise Solutions	1,260.6	1,140.5	2	310.6	288.9	8
Operating net sales	2,511.5	2,299.7	4
Revenue adjustment 2)	-16.1		- n.a.
Net sales	2,495.4	2,299.7	4
Group cost				-17.7	-14.8	-20
Operating earnings (EBIT1)				588.2	527.4	12
Operating margin, %				23.4	22.9	0.5
Interest income and expenses, net				-16.0	-15.7	-2
Earnings before non-recurring items				572.2	511.7	12
Non-recurring items 3)				-66.9	-	n.a.
Earnings before taxes				505.3	511.7	-1
Taxes				-94.8	-97.2	2
Net earnings				410.5	414.5	-1

1) Adjusted to fixed exchange rates and a comparable group structure, i.e. organic growth.

2) Non-recurring reduction of acquired deferred revenue in 2017 related to the acquisition of MSC Software.

3) Non-recurring items related to the implementation of a cost savings programme and the acquisition of MSC Software.

Q1-Q3 NET SALES AND EARNINGS

Operating net sales amounted to 2,511.5 MEUR (2,299.7) in the first nine months of the year. Net sales, including revenue adjustment, amounted to 2,495.4 MEUR (2,299.7). Using fixed exchange rates and a comparable group structure (organic growth), net sales increased by 4 per cent.

Operating earnings (EBIT1) amounted to 588.2 MEUR (527.4), which corresponds to an operating margin of 23.4 per cent (22.9). Operating earnings (EBIT1) were negatively affected by currency translation effects of -3.4 MEUR.

The financial net amounted to -16.0 MEUR (-15.7) in the first nine months.

Earnings before taxes, excluding nonrecurring items, amounted to 572.2 MEUR (511.7). Earnings before taxes, including these items, amounted to 505.3 MEUR (511.7). Earnings before taxes were negatively affected by currency translation effects of -3.3 MEUR.

Net earnings, excluding non-recurring items, amounted to 469.3 MEUR (414.5) or 1.29 EUR (1.14) per share. Net earnings, including these items, amounted to 410.5 MEUR (414.5) or 1.12 EUR (1.14) per share.

CURRENCY TRANSLATION IMPACT COMPARED TO EUR – Q1-Q3 2017

	Movement 1)		Income less cost	Earnings impact
CHF	Weakened	0%	Negative	Positive 
USD	Strengthened	0%	Positive	Positive 
CNY	Weakened	-3%	Positive	Negative 
EBIT1, MEUR				-3.4

1) Compared to Q1-Q3 2016.

Hexagon released GS18 T, the world's fastest GNSS RTK rover. This is the first calibration-free tilt compensating GNSS solution immune to magnetic disturbances. GNSS measurements can be taken from any position on site, saving users up to 20 per cent of time in the field over conventional surveying practices as you no longer need to hold the pole vertical. As the only GNSS RTK rover to use precise enough inertial measuring units (IMUs) and not a compass, users can measure with a tilted pole close to buildings, underneath cars and close to metallic objects.

GROUP SUMMARY

PROFITABILITY

Capital employed increased to 6,881.1 MEUR (6,268.9). Return on average capital employed for the last twelve months was 12.3 per cent (11.9). Return on average shareholders' equity for the last twelve months was 12.6 per cent (13.9). The capital turnover rate was 0.5 times (0.5).

FINANCIAL POSITION

Total shareholders' equity increased to 4,407.3 MEUR (4,221.0). The equity ratio was 52 per cent (55). Hexagon's total assets increased to 8,513.2 MEUR (7,649.3). The increase in total assets is driven primarily by acquisitions.

Hexagon's main sources of financing consist of:

1) A multicurrency revolving credit facility (RCF) established during 2014. The RCF amounts to 2,000 MEUR with maturity 2021

2) A Swedish Medium Term Note Programme (MTN) established during 2014. The MTN programme amounts to 15,000 MSEK with tenor up to 5 years

3) A Swedish Commercial Paper Programme (CP) established during 2012. The CP programme amounts to 15,000 MSEK with tenor up to 12 months

On 30 September 2017, cash and unutilised credit limits totalled 1,433.1 MEUR (1,440.9). Hexagon's net debt was 2,148.1 MEUR (1,786.6). The net indebtedness was 0.45 times (0.38). Interest coverage ratio was 25.9 times (27.4).

CASH FLOW

During the third quarter, cash flow from operations before changes in working capital amounted to 205.7 MEUR (197.7), corresponding to 0.57 EUR (0.55) per share. Cash flow from operations in the third quarter amounted to 221.4 MEUR (178.5), corresponding to 0.61 EUR (0.50) per share. Operating cash flow in the third quarter, including non-recurring items, amounted to 152.2 MEUR (115.1).

For the first nine months, cash flow from operations amounted to 643.0 MEUR (520.5), corresponding to 1.78 EUR (1.44) per share. The operating cash flow, including non-recurring items, amounted to 423.3 MEUR (324.6).

INVESTMENTS, DEPRECIATION, AMORTISATION AND IMPAIRMENT

Hexagon's net investments, excluding acquisitions and divestitures, amounted to -64.0 MEUR (-61.9) in the third quarter and -199.2 MEUR (-189.3) in the first nine months.

Depreciation, amortisation and impairment amounted to -72.7 MEUR (-57.3) in the third quarter and -221.1 MEUR (-168.9) during the first nine months, whereof impairment charges amounted to -12.3 MEUR (-) in the third quarter and -39.2 MEUR (-) during the first nine months.

TAX RATE

The Group's tax expense for the first nine months totalled -94.8 MEUR (-97.2).

The reported tax rate was 18.7 per cent (19.0) for the quarter and 18.8 per cent (19.0) for the first nine months. The tax rate, excluding nonrecurring items, was 18.0 (19.0) per cent for the quarter and 18.0 (19.0) for the first nine months.

EMPLOYEES

The average number of employees during the first nine months was 17,272 (16,416). The number of employees at the end of the quarter was 18,026 (16,704). The increase was primarily driven by acquisitions.

SHARE DATA

Earnings per share, excluding non-recurring items, for the third quarter amounted to 0.45 EUR (0.39). Earnings per share, including nonrecurring items, for the third quarter amounted to 0.43 EUR (0.39). Earnings per share, excluding non-recurring items, for the first nine months

amounted to 1.29 EUR (1.14). Earnings per share, including non-recurring items, for the first nine months amounted to 1.12 EUR (1.14).

On 30 September 2017, equity per share was 12.18 EUR (11.67) and the share price was 403.70 SEK (374.60).

Hexagon's share capital amounts to 79,980,283 EUR, represented by 360,443,142 shares, of which 15,750,000 are of series A with 10 votes each and 344,693,142 are of series B with one vote each.

In accordance with a decision by a Shareholders' General Meeting in May 2015, an incentive programme (2015/2019) was introduced, under which a maximum of 10,000,000 warrants can be issued. The dilutive effect at full utilization of the programme would be 2.8 per cent of the share capital and 2.0 per cent of the number of votes. The number of warrants that have been issued are 7,107,660 and may be exercised during 1 June 2018 - 31 December 2019.

ASSOCIATED COMPANIES

Associated companies did not affect Hexagon's earnings during the first nine months (0.3).

PARENT COMPANY

The parent company's earnings before taxes in the third quarter amounted to -3.9 MEUR (2.7) and to 30.6 MEUR (-13.6) for the first nine months. The equity was 4,546.0 MEUR (4,636.9). The equity ratio of the parent company was 52 per cent (58). Liquid funds including unutilised credit limits were 1,089.8 MEUR (1,223.5).

Hexagon's high precision positioning solutions were featured in the Baidu Apollo Project – one of the world's largest partner ecosystems for an autonomous driving platform. Leveraged by partner, AutonomouStuff, Hexagon provided position, orientation and time critical components for this initiative. This technology is a key component on various Baidu autonomous and mobile mapping vehicles and demonstrates Hexagon's extensive capabilities in the autonomous driving space.

The Board of Directors and the President and CEO declare that this interim report provides a true and fair overview of the Company´s and the Group´s operations, their financial position and performance, and describes material risks and uncertainties facing the Company and companies within the Group.

Stockholm, Sweden, 27 October 2017 Hexagon AB (publ)

Gun Nilsson Chairman of the Board

Ola Rollén Hans Vestberg Ulrika Francke President and CEO Board Member Board Member Board Member

Märta Schörling Andreen Sofia Schörling Högberg John Brandon Board Member Board Member Board Member

Henrik Henriksson Board Member

ACCOUNTING PRINCIPLES

Hexagon applies International Financial Reporting Standards (IFRS) as adopted by the European Union. Hexagon's report for the Group is prepared in accordance with IAS 34, "Interim Financial Reporting" and the Annual Accounts Act. Parent company accounts are prepared in accordance with the Annual Accounts Act. Accounting principles and calculation methods are unchanged from those applied in the Annual Report for 2016. New and amended standards applicable from 2017 have not had any significant impact on the financial statements.

RISKS AND UNCERTAINTY FACTORS

As an international group, Hexagon is exposed to a number of business and financial risks. The business risks can be divided into strategic, operational and legal risks. The financial risks are related to such factors as exchange rates, interest rates, liquidity and the ability to raise funds. Risk management in Hexagon aims to identify, control and reduce risks. This work begins with an assessment of the probability of risks occurring and their potential effect on the Group. There has been no change in the risks facing the Group compared to what was reported in the Annual Report 2016.

RELATED PARTY TRANSACTIONS

No significant related party transactions have been incurred during the quarter.

ANNUAL GENERAL MEETING AND NOMINATION COMMITTEE

The AGM will be held on 4 May 2018 at 17:00 CET at City Conference Center Stockholm (Norra Latin), Drottninggatan 71 B. The composition of the Hexagon Nomination Committee for the Annual General Meeting 2018 is: Mikael Ekdahl (Chairman), Anders Oscarsson, AMF and AMF Fonder, Jan Andersson, Swedbank Robur fonder and Ossian Ekdahl, Första APfonden.

SUBSEQUENT EVENTS

On 4 October, Hexagon acquired Luciad, a leading provider of 5D visualisation and analysis solutions, based in Belgium.

AUDITORS' REVIEW REPORT

Introduction

We have reviewed the condensed interim report for Hexagon AB as at September 30, 2017 and for the nine months period then ended. The Board of Directors and the Managing Director are responsible for the preparation and presentation of this interim report in accordance with IAS 34 and the Swedish Annual Accounts Act. Our responsibility is to express a conclusion on this interim report based on our review.

Scope of review

We conducted our review in accordance with the Swedish Standard on Review Engagements, ISRE 2410 Review of Interim Financial Statements Performed by the Independent Auditor of the Entity. A review consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing, ISA, and other generally accepted auditing standards in Sweden. The procedures performed in a review do not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the interim report is not prepared, in all material respects, in accordance with IAS 34 and the Swedish Annual Accounts Act regarding the Group, and in accordance with the Swedish Annual Accounts Act regarding the Parent Company.

Stockholm, 27 October 2017

Ernst & Young AB

Rickard Andersson Authorised Public Accountant

Condensed Income Statement

MEUR	Q3 2017	Q3 2016	Q1-Q3 2017	Q1-Q3 2016	2016
Net sales	852.4	779.7	2,495.4	2,299.7	3,149.2
Cost of goods sold	-333.4	-313.3	-967.2	-911.5	-1,247.2
Gross earnings	519.0	466.4.	1,528.2	1,388.2	1,902.0
Sales expenses	-161.9	-140.9	-485.1	-423.9	-573.3
Administration expenses	-65.7	-60.5	-218.1	-193.6	-269.1
Research and development expenses	-90.6	-85.7	-294.0	-249.0	-333.1
Earnings from shares in associated companies	-	0.4	-	0.3	0.4
Capital loss from sale of shares in Group companies	-	-	-	-	0.7
Other income and expenses, net	-2.2	0.1	-9.7	5.4	8.5
Operating earnings 1)	198.6	179.8	521.3	527.4	736.1
Financial income	1.6	1.0	4.3	3.7	4.8
Financial expenses	-7.2	-6.6	-20.3	-19.4	-26.6
Earnings before taxes	193.0	174.2	505.3	511.7	714.3
Taxes	-36.1	-33.1	-94.8	-97.2	-135.7
Net earnings	156.9	141.1	410.5	414.5	578.6
Attributable to:
Parent company shareholders	154.9	139.5	405.2	410.2	573.3
Non-controlling interest	2.0	1.6	5.3	4.3	5.3
1) of which non-recurring items	-7.3	-	-66.9	-	-
Earnings include depreciation, amortisation and impairments of	-72.7	-57.3	-221.1	-168.9	-233.9
- of which amortisation of surplus values	-11.9	-8.8	-32.8	-26.2	-35.2
Basic earnings per share, EUR	0.43	0.39	1.12	1.14	1.59
Earnings per share after dilution, EUR	0.43	0.39	1.12	1.14	1.59
Total shareholder's equity per share, EUR	12.18	11.67	12.18	11.67	12.70
Closing number of shares, thousands	360,443	360,443	360,443	360,443	360,443
Average number of shares, thousands	360,443	360,443	360,443	360,429	360,433
Average number of shares after dilution, thousands	361,697	361,657	361,552	360,955	360,879

Condensed Comprehensive Income

MEUR	Q3 2017	Q3 2016	Q1-Q3 2017	Q1-Q3 2016	2016
Net earnings	156.9	141.1	410.5	414.5	578.6
Other comprehensive income Items that will not be reclassified to income statement
Remeasurement of pensions	11.1	-10.1	29.9	-34.8	-9.4
Taxes on items that will not be reclassified to income statement	-1.0	1.2	-3.3	3.6	1.8
Total items that will not be reclassified to income statement, net of taxes	10.1	-8.9	26.6	-31.2	-7.6
Items that may be reclassified subsequently to income statement
Exchange rate differences	-134.2	-38.2	-468.8	-112.8	69.8
Effect of hedging of net investments in foreign operations	-	-0.3	-	-0.2	-0.1
Taxes on items that may be reclassified subsequently to income statement	5.8	3.5	21.5	3.6	3.9
Total items that may be reclassified subsequently to income statement, net of taxes	-128.4	-35.0	-447.3	-109.4	73.6
Other comprehensive income, net of taxes	-118.3	-43.9	-420.7	-140.6	66.0
Total comprehensive income for the period	38.6	97.2	-10.2	273.9	644.6
Attributable to:
Parent company shareholders	36.9	95.8	-14.4	270.1	639.5
Non-controlling interest	1.7	1.4	4.2	3.8	5.1

Condensed Balance Sheet

MEUR	30/9 2017	30/9 2016	31/12 2016
Intangible fixed assets	6,369.1	5,689.4	5,870.8
Tangible fixed assets	280.5	289.6	294.8
Financial fixed assets	35.1	20.7	21.1
Deferred tax assets	84.1	62.1	55.0
Total fixed assets	6,768.8	6,061.8	6,241.7
Inventories	442.5	443.9	426.7
Accounts receivable	773.8	725.5	788.0
Other receivables	97.3	95.7	71.0
Prepaid expenses and accrued income	105.1	117.6	102.7
Total current receivables	976.2	938.8	961.7
Cash and cash equivalents	325.7	204.8	284.0
Total current assets	1,744.4	1,587.5	1,672.4
Total assets	8,513.2	7,649.3	7,914.1
Equity attributable to parent company shareholders	4,389.4	4,207.4	4,576.8
Equity attributable to non-controlling interest	17.9	13.6	14.0
Total shareholders' equity	4,407.3	4,221.0	4,590.8
Interest bearing liabilities	2,047.0	1,548.5	1,476.2
Other liabilities	58.1	72.5	77.9
Pension liabilities	100.7	160.8	132.0
Deferred tax liabilities	547.2	455.2	472.7
Other provisions	8.3	3.7	3.8
Total long-term liabilities	2,761.3	2,240.7	2,162.6
Interest bearing liabilities	326.1	280.0	240.6
Accounts payable	174.7	168.8	175.7
Other liabilities	180.0	206.7	184.3
Other provisions	35.8	22.6	20.8
Deferred income	308.2	228.2	254.3
Accrued expenses	319.8	281.3	285.0
Total short-term liabilities	1,344.6	1,187.6	1,160.7
Total equity and liabilities	8,513.2	7,649.3	7,914.1

Financial instruments

In Hexagon's balance sheet derivatives and other long-term securities holdings are carried at fair value. Derivatives are measured at fair value based on valuation techniques with observable market data as input (level 2 according to definition in IFRS 13). Other long-term securities holdings amount to insignificant numbers. Liabilities for contingent considerations are measured at fair value and based on management's best estimation of the most probable outcome (level 3 according to definition in IFRS 13). Other assets and liabilities are carried at accrued cost.

For financial assets and liabilities that are carried at accrued cost, the fair value is deemed to be coincident with the carrying amount except for long-term liabilities to credit institutions. The difference between the fair value and the carrying amount for these long-term liabilities is deemed to be insignificant relative to the total balance sheet since the interest rate duration is short.

Condensed Statement of Changes in Equity

MEUR	Q1-Q3 2017	Q1-Q3 2016	2016
Opening shareholders' equity	4,590.8	4,102.3	4,102.3
Total comprehensive income for the period 1)	-10.2	273.9	644.6
Dividend	-173.3	-155.2	-156.1
Closing shareholders' equity 2)	4,407.3	4,221.0	4,590.8
1) Of which: Parent company shareholders	-14.4	270.1	639.5
Non-controlling interest	4.2	3.8	5.1
2) Of which: Parent company shareholders Non-controlling interest	4,389.4 17.9	4,207.4 13.6	4,576.8 14.0

Number of Shares

	series A	series B	Total
2009-12-31 Total issued and outstanding	11,812,500	252,534,653	264,347,153
Sale of repurchased shares	-	20,070	20,070
Rights issue	3,937,500	83,845,572	87,783,072
2010-12-31 Total issued and outstanding	15,750,000	336,400,295	352,150,295
Rights issue	-	339,335	339,335
2011-12-31 Total issued and outstanding	15,750,000	336,739,630	352,489,630
Sale of repurchased shares	-	185,207	185,207
2012-12-31 Total issued and outstanding	15,750,000	336,924,837	352,674,837
Sale of repurchased shares	-	967,340	967,340
New issue, warrants exercised	-	1,354,800	1,354,800
2013-12-31 Total issued and outstanding	15,750,000	339,246,977	354,996,977
New issue, warrants exercised	-	2,392,236	2,392,236
2014-12-31 Total issued and outstanding	15,750,000	341,639,213	357,389,213
New issue, warrants exercised	-	2,947,929	2,947,929
2015-12-31 Total issued and outstanding	15,750,000	344,587,142	360,337,142
New issue, warrants exercised	-	106,000	106,000
2016-12-31 Total issued and outstanding	15,750,000	344,693,142	360,443,142
New issue, warrants exercised	-	-	-
2017-09-30 Total issued and outstanding 1)	15,750,000	344,693,142	360,443,142

1) As per 30 September 2017 there were in total 360,443,142 shares in the Company, of which 15,750,000 are of series A with ten votes each and 344,693,142 are of series B with one vote each.

Condensed Cash Flow Statement

MEUR	Q3 2017	Q3 2016	Q1-Q3 2017	Q1-Q3 2016	2016
Cash flow from operations before change in working capital
excluding taxes and interest	241.4	227.6	713.7	681.7	941.9
Taxes paid	-30.6	-22.4	-78.0	-70.6	-92.1
Interest received and paid, net	-5.1	-7.5	-12.4	-12.5	-17.7
Cash flow from operations before change in working capital	205.7	197.7	623.3	598.6	832.1
Cash flow from change in working capital	15.7	-19.2	19.7	-78.1	-50.0
Cash flow from operations	221.4	178.5	643.0	520.5	782.1
Investments tangible assets	-10.7	-11.9	-33.1	-37.8	-50.9
Investments intangible assets	-53.3	-50.0	-166.1	-151.5	-206.7
Operating cash flow before non-recurring items	157.4	116.6	443.8	331.2	524.5
Non-recurring cash flow 1)	-5.2	-1.5	-20.5	-6.6	-7.9
Operating cash flow	152.2	115.1	423.3	324.6	516.6
Cash flow from other investing activities 2)	-39.0	-65.9	-843.7	-167.2	-172.0
Cash flow after other investing activities	113.2	49.2	-420.4	157.4	344.6
Dividends paid	-	-	-173.3	-155.2	-156.1
Cash flow from other financing activities	-92.6	-34.2	657.3	-18.0	-130.5
Cash flow for the period	20.6	15.0	63.6	-15.8	58.0
Cash and cash equivalents, beginning of period	313.1	191.5	284.0	225.5	225.5
Effect of translation differences on cash and cash
equivalents	-8.0	-1.7	-21.9	-4.9	0.5
Cash flow for the period	20.6	15.0	63.6	-15.8	58.0
Cash and cash equivalents, end of period	325.7	204.8	325.7	204.8	284.0

1) Non-recurring cash flow consists of restructuring costs.

2) Acquisitions and divestments totalled -36.0 MEUR (-66.4) and other was -3.0 MEUR (0.5) in the third quarter of 2017.

Key Ratios

	Q3 2017	Q3 2016	Q1-Q3 2017	Q1-Q3 2016	2016
Operating margin, %	24.0	23.1	23.4	22.9	23.4
Profit margin before taxes, %	22.6	22.3	20.2	22.3	22.7
Return on shareholders' equity, 12 month average, %	12.6	13.9	12.6	13.9	13.7
Return on capital employed ,12 month average, %	12.3	11.9	12.3	11.9	11.9
Equity ratio, %	51.8	55.2	51.8	55.2	58.0
Net indebtedness	0.45	0.38	0.45	0.38	0.30
Interest coverage ratio	27.8	27.4	25.9	27.4	27.9
Average number of shares, thousands	360,443	360,443	360,443	360,429	360,433
Basic earnings per share excl. non-recurring items, EUR	0.45	0.39	1.29	1.14	1.59
Basic earnings per share, EUR	0.43	0.39	1.12	1.14	1.59
Cash flow per share, EUR	0.61	0.50	1.78	1.44	2.17
Cash flow per share before change in working cap, EUR	0.57	0.55	1.73	1.66	2.31
Share price, SEK	403.70	374.60	403.70	374.60	325.50
Share price, translated to EUR	41.84	38.94	41.84	38.94	34.07

Supplementary Information

NET SALES PER SEGMENT

MEUR	Q3 2017*	Q2 2017*	Q1 2017	Q4 2016	Q3 2016	Q2 2016	Q1 2016	2016
Geospatial Enterprise Solutions	418.1	429.8	403.0	420.1	390.6	399.2	369.4	1,579.3
Industrial Enterprise Solutions	441.6	443.9	375.1	429.4	389.1	396.6	354.8	1,569.9
Group	859.7	873.7	778.1	849.5	779.7	795.8	724.2	3,149.2

OPERATING EARNINGS (EBIT1) PER SEGMENT

MEUR	Q3 2017	Q2 2017	Q1 2017	Q4 2016	Q3 2016	Q2 2016	Q1 2016	2016
Geospatial Enterprise Solutions	100.5	103.9	91.0	101.5	88.7	88.9	75.7	354.8
Industrial Enterprise Solutions	110.8	110.5	89.2	110.2	96.3	103.0	89.6	399.1
Group costs	-5.4	-6.6	-5.7	-3.0	-5.2	-4.8	-4.8	-17.8
Group	205.9	207.8	174.5	208.7	179.8	187.1	160.5	736.1
Margin, %	24.0	23.8	22.4	24.6	23.1	23.5	22.2	23.4

NET SALES PER REGION

MEUR	Q3 2017*	Q2 2017*	Q1 2017	Q4 2016	Q3 2016	Q2 2016	Q1 2016	2016
EMEA	311.5	321.8	296.0	326.5	292.2	304.5	270.5	1,193.7
Americas	289.8	293.4	265.9	294.9	264.1	270.0	247.5	1,076.5
Asia	258.4	258.5	216.2	228.1	223.4	221.3	206.2	879.0
Group	859.7	873.7	778.1	849.5	779.7	795.8	724.2	3,149.2

EXCHANGE RATES

Average	Q3 2017	Q2 2017	Q1 2017	Q4 2016	Q3 2016	Q2 2016	Q1 2016	2016
SEK/EUR	0.1046	0.1033	0.1052	0.1025	0.1051	0.1078	0.1072	0.1056
USD/EUR	0.8517	0.9094	0.9386	0.9267	0.8960	0.8855	0.9069	0.9040
CNY/EUR	0.1277	0.1325	0.1363	0.1356	0.1344	0.1355	0.1386	0.1360
CHF/EUR	0.8848	0.9228	0.9347	0.9260	0.9183	0.9123	0.9122	0.9174
Closing	Q3 2017	Q2 2017	Q1 2017	Q4 2016	Q3 2016	Q2 2016	Q1 2016	2016
SEK/EUR	0.1036	0.1037	0.1049	0.1047	0.1039	0.1061	0.1084	0.1047
USD/EUR	0.8470	0.8763	0.9354	0.9487	0.8960	0.9007	0.8783	0.9487
CNY/EUR	0.1273	0.1292	0.1358	0.1366	0.1343	0.1356	0.1360	0.1366

* Operating net sales, i.e. excluding revenue adjustment (haircut)

Acquisitions

			Acquisitions
MEUR	MSC	Other	Q1-Q3 2017	Q1-Q3 2016
Fair value of acquired assets and assumed liabilities
Intangible fixed assets	242.9	2.5	245.4	52.2
Other fixed assets	31.4	1.1	32.5	7.1
Total fixed assets	274.3	3.6	277.9	59.3
Total current assets	100.4	12.6	113.0	42.1
Total assets	374.7	16.2	390.9	101.4
Total long-term liabilities	100.7	5.1	105.8	13.6
Total current liabilities	115.3	12.9	128.2	26.8
Total liabilities	216.0	18.0	234.0	40.4
Fair value of acquired assets and assumed liabilities, net	158.7	-1.8	156.9	61.0
Shares in associated companies	-	-	-	-1.9
Goodwill	654.5	59.9	714.4	146.4
Total purchase consideration transferred	813.2	58.1	871.3	205.5
Less cash and cash equivalents in acquired companies			-36.2	-8.9
Adjustment for non-paid consideration and considerations paid
for prior years' acquisitions			0.8	-30.3
Cash flow from acquisition of companies/businesses			835.9	166.3

During the first nine months of 2017, Hexagon acquired the following companies:

• MiPlan Ltd, a provider of mobile software applications to increase productivity in mines, based in Australia
• IDS Georadar Australia, a distributor of structural health monitoring solutions
• MSC Software, a US-based provider of computer-aided engineering (CAE) solutions
• Catavolt Inc, a US-based mobile app platform provider
• VIRES GmbH, a German-based provider of simulation software solutions
• DST Computer Services S.A., a developer of piping stress analysis solutions for the nuclear industry, based in Switzerland
• FASys GmbH, a German developer of machine tools management software
• IDS Georadar North America, a distributor of structural health monitoring solutions, based in the USA
• InfraMeasure Inc, a US-based provider of measurement solutions for railroad and tunnelling applications

Further information related to the acquisition of MSC Software, is presented in the acquisition analysis on page 16. The other acquisitions are individually assessed as immaterial from a group perspective why only aggregated information is presented. The analysis of the acquired net assets is preliminary and the fair value might be subject to change. Contingent considerations are recognised to fair value (level 3 according to definition in IFRS 13) each reporting period and based on the latest relevant forecast for the acquired company. The valuation method is unchanged compared to previous period. Estimated liability for contingent considerations amounted to 62.7 MEUR as of 30 September (129.7), whereof the fair value adjustment amounts to 50.0 MEUR. The fair value adjustment is offset by impairment of fixed assets and other fair value adjustments of current assets, including the impact from a review of ongoing projects performed in the second quarter of 2017.

Acquisition analysis

ACQUISITION OF MSC SOFTWARE

As of 26 April 2017, after customary regulatory approvals were received, Hexagon acquired MSC Software, a US-based leading provider of computeraided engineering (CAE) solutions, including simulation software for virtual product and manufacturing process development. MSC has over 1,200 highlyskilled professionals in 20 countries. Its strong brand and reputation in industries such as automotive, aerospace and electronics spans more than 50 years. In 2016 MSC generated proforma sales of 230 MUSD, with strong profitability and a high percentage of recurring revenue.

Background and reasons for the transaction

The acquisition strengthens Hexagon's ability to connect the traditionally separate stages of design and production – integrating real-world data generated on the production floor with simulation data to further improve a customer's ability to reveal and correct design limitations and production problems prior to manufacturing. MSC will be a fully owned subsidiary of Hexagon and operate under the division Manufacturing Intelligence.

Purchase price of MSC amounted to 834 MUSD on a cash and debt free basis (Enterprise Value). The goodwill comprises expected synergies arising from the acquisition and the assembled workforce, which is not separately recognized. Synergies have primarly been identified to arise by increasing Hexagon's total market in excess of MSCs own market and by combining Hexagon and MSC technologies to develop new customer solutions.

From the date of acquisition, MSC has contributed 93.1 MEUR of net sales in the first nine months of 2017. If the acquisition had taken place at the beginning of the year, the contribution to net sales would have been 153.6 MEUR.

Condensed Parent Company Income Statement

MEUR	Q3 2017	Q3 2016	Q1-Q3 2017	Q1-Q3 2016	2016
Net sales	5.3	2.8	15.8	8.3	20.2
Administration cost	-4.2	-4.2	-17.4	-12.8	-26.9
Operating earnings	1.1	-1.4	-1.6	-4.5	-6.7
Earnings from shares in Group companies	-	-	70.1	-	-
Interest income and expenses, net	-5.0	4.1	-37.9	-9.1	43.3
Group contribution	-	-	-	-	1.8
Earnings before taxes	-3.9	2.7	30.6	-13.6	38.4
Taxes	-0.2	-	-0.2	-	-0.2
Net earnings	-4.1	2.7	30.4	-13.6	38.2

Condensed Parent Company Balance Sheet

MEUR	30/9 2017	30/9 2016	31/12 2016
Total fixed assets	7,858.6	7,143.7	7,203.6
Total current receivables	929.5	818.6	803.3
Cash and cash equivalents	2.1	6.6	15.6
Total current assets	931.6	825.2	818.9
Total assets	8,790.2	7,968.9	8,022.5
Total shareholders' equity	4,546.0	4,636.9	4,688.7
Total long-term liabilities	2,041.8	1,542.3	1,469.4
Total short-term liabilities	2,202.4	1,789.7	1,864.4
Total equity and liabilities	8,790.2	7,968.9	8,022.5

Definitions

In addition to the financial measures as required by the financial reporting framework based on IFRS, this report also includes other measures and indicators that are used to follow-up, analyze and manage the business. These measures also provide Hexagon stakeholders with useful financial information on the Group's financial position, performance and development in a consistent way. Below is a list of definitions of measures and indicators used in this report.

BUSINESS DEFINITIONS

Americas	North, South and Central America
Asia	Asia, Australia and New Zealand
EMEA	Europe, Middle East and Africa
GES	Geospatial Enterprise Solutions
IES	Industrial Enterprise Solutions

FINANCIAL DEFINITIONS

Amortization of surplus values	When a company is acquired, the purchase consideration is allocated to the identified assets and liabilities of the company. Intangible assets are most often allocated the substantial part of the purchase consideration. The amortization of surplus values is defined as the difference between the amortization of such identified intangible assets and what the amortization would have been in the acquired company had the acquisition not taken place at all
Capital employed	Total assets less non-interest bearing liabilities
Capital turnover rate	Net sales divided by average capital employed
Cash flow per share	Cash flow from operations, after change in working capital, excluding non-recurring items divided by average number of shares
Earnings per share	Net earnings excluding non-controlling interest divided by average number of shares
Equity ratio	Shareholders' equity including non-controlling interests as a percentage of total assets
Gross margin	Gross earnings divided by operating net sales
Interest coverage ratio	Earnings after financial items plus financial expenses divided by financial expenses
Investments	Purchases less sales of tangible and intangible fixed assets, excluding those included in acquisitions and divestitures of subsidiaries
Net debt	Interest-bearing liabilities including pension liabilities and interest-bearing provisions less cash and cash equivalents
Net indebtedness	Interest-bearing liabilities less interest-bearing current receivables and liquid assets divided by shareholders' equity excluding non-controlling interests
Non-recurring items	Income and expenses that are not expected to appear on a regular basis
Operating earnings (EBIT1)	Operating earnings excluding capital gains on shares in group companies and non-recurring items
Operating earnings (EBITDA)	Operating earnings (EBIT 1) excluding amortisation, depreciation and impairment of fixed assets
Operating margin	Operating earnings (EBIT1) as a percentage of operating net sales
Organic growth	Net sales compared to prior period excluding acquisitions and divestments and adjusted for currency exchange movements
Operating net sales	Net sales adjusted by the difference between fair value and book-value of deferred revenue regarding acquired businesses.
Profit margin before taxes	Earnings after financial items as a percentage of net sales
Return on capital employed (12 month average)	Twelve months to end of period earnings after financial items, excluding non-recurring items, plus financial expenses as a percentage of twelve months to end of period average capital employed. The twelve months average capital employed is based on average quarterly capital employed
Return on shareholders' equity (12 month average)	Twelve months to end of period net earnings excluding non-controlling interests as a percentage of twelve months to end of period average shareholders' equity excluding non-controlling interests last twelve months. The twelve months average shareholders equity is based on quarterly average shareholders equity
Shareholders' equity per share	Shareholders' equity excluding non-controlling interests divided by the number of shares at year-end
Share price	Last settled transaction on Nasdaq Stockholm on the last business day for the period

Hexagon is a leading global provider of information technologies that drive productivity and quality across geospatial and industrial enterprise applications. Hexagon's solutions integrate sensors, software, domain knowledge and customer workflows into intelligent information ecosystems that deliver actionable information. They are used in a broad range of vital industries. Hexagon (Nasdaq Stockholm: HEXA B) has approximately 18,000 employees in 50 countries and net sales of approximately 3.1bn EUR. Learn more at hexagon.com.

FINANCIAL REPORT DATES

Hexagon gives financial information at the following occasions:

Year-end report 2017	7 February 2018
Interim report Q1 2018	4 May 2018
Interim report Q2 2018	31 July 2018
Interim report Q3 2018	1 November 2018

FINANCIAL INFORMATION

Financial information is available in Swedish and English at the Hexagon website and can also be ordered via phone +46 8 601 26 20 or e-mail ir@hexagon.com

TELEPHONE CONFERENCE

The interim report for the third quarter 2017 will be presented on 27 October at 10:00 CET at a telephone conference. Please view instructions at Hexagon's website on how to participate.

CONTACT

Maria Luthström, Investor Relations Manager, Hexagon AB, +46 8 601 26 27, ir@hexagon.com

This information is information that Hexagon AB is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the contact person set out above, at 08:00 CET on 27 October 2017.

This communication may contain forward-looking statements. When used in this communication, words such as "anticipate", "believe", "estimate", "expect", "intend", "plan" and "project" are intended to identify forward-looking statements. They may involve risks and uncertainties, including technological advances in the measurement field, product demand and market acceptance, the effect of economic conditions, the impact of competitive products and pricing, foreign currency exchange rates and other risks. These forward-looking statements reflect the views of Hexagon's management as of the date made with respect to future events and are subject to risks and uncertainties. All of these forward-looking statements are based on estimates and assumptions made by Hexagon's management and are believed to be reasonable, though are inherently uncertain and difficult to predict. Actual results or experience could differ materially from the forward-looking statements. Hexagon disclaims any intention or obligation to update these forward-looking statements.