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Hexagon

Interim / Quarterly Report Jul 27, 2017

2919_ir_2017-07-27_8527a352-aa17-4c93-971d-cf02ae8e813b.pdf

Interim / Quarterly Report

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INTERIM REPORT

1 JANUARY – 30 JUNE 2017

SECOND QUARTER 2017

  • Operating net sales increased by 10 per cent to 873.7 MEUR (795.8). Using fixed exchange rates and a comparable group structure (organic growth), net sales increased by 3 per cent
  • Operating earnings (EBIT1) increased by 11 per cent to 207.8 MEUR (187.1)
  • Earnings before taxes, excluding non-recurring items, amounted to 202.5 MEUR (182.2)
  • Net earnings, excluding non-recurring items, amounted to 166.2 MEUR (147.6)
  • Earnings per share, excluding non-recurring items, increased by 12 per cent to 0.46 EUR (0.41)
  • Operating cash flow improved by 18 per cent to 127.6 MEUR (108.4)
MEUR Q2 2017 Q2 2016 Δ% H1 2017 H1 2016 Δ%
Operating net sales 873.7 795.8 1)
3
1,651.8 1,520.0 1)
3
Revenue adjustment 2) -8.8 - n.a. -8.8 - n.a.
Net sales 864.9 795.8 1)
3
1,643.0 1,520.0 1)
3
Gross earnings 534.2 479.5 11 1,009.2 921.8 9
Gross margin, % 61.1 60.3 0.8 61.1 60.6 0.5
Operating earnings (EBITDA) 3) 269.1 243.9 10 520.2 459.2 13
EBITDA margin, % 30.8 30.6 0.2 31.5 30.2 1.3
Operating earnings (EBIT1) 3) 207.8 187.1 11 382.3 347.6 10
Operating margin, % 23.8 23.5 0.3 23.1 22.9 0.2
Earnings before taxes,
excluding non-recurring items 202.5 182.2 11 371.9 337.5 10
Non-recurring items 2) -8.8 - n.a. -59.6 - n.a.
Earnings before taxes 193.7 182.2 6 312.3 337.5 -7
Net earnings 157.4 147.6 7 253.6 273.4 -7
Net earnings, excl. non
recurring items 166.2 147.6 13 305.1 273.4 12
Earnings per share, EUR 0.43 0.41 5 0.69 0.75 -8
Earnings per share, excl.
non-recurring items, EUR 0.46 0.41 12 0.84 0.75 12
1) Adjusted to fixed exchange rates and a comparable group structure, i.e. organic growth
2) Non-recurring reduction of acquired deferred revenue (haircut) in Q2 2017 related to the acquisition of MSC Software and related to
the implementation of a cost savings programme and acquisition of MSC Software in Q1 2017
3) For definition, see page 17
COMMENTS FROM THE CEO
that Hexagon's growth will accelerate in the second half of 2017."
Ola Rollén, President and CEO, Hexagon AB

2) Non-recurring reduction of acquired deferred revenue (haircut) in Q2 2017 related to the acquisition of MSC Software and related to the implementation of a cost savings programme and acquisition of MSC Software in Q1 2017

COMMENTS FROM THE CEO

"The second quarter was another confirmation that organic growth is continuing to recover. Manufacturing Intelligence maintained good organic growth at 6 per cent, whilst Geosystems accelerated from 4 to 5 per cent quarter over quarter. We had impressive organic growth in China, 21 per cent, where demand from the electronics segment was up and Smart City solutions continued to gain traction. PPM saw underlying improvements, especially in North America. However, its organic growth was hampered due to a one-time revenue impact of -5 MEUR following a comprehensive review of ongoing projects. Looking ahead, we expect the PPM business to continue to develop in a positive direction. We feel confident that Hexagon's growth will accelerate in the second half of 2017."

OPERA 10 TING SALES GROWTH %

ORGANIC GROWTH

24%

OPERATING MARGIN

3%

Q2

GROUP BUSINESS DEVELOPMENT Q2

NET SALES

Operating net sales increased by 10 per cent to 873.7 MEUR (795.8) and organic growth was 3 per cent. Regionally, organic growth was 8 per cent in Asia, 1 per cent in EMEA and flat in Americas. In Asia, China recorded 21 per cent organic growth, and benefited from strong demand from the electronics industry as well as increased traction for Smart City solutions. India, South Korea and Japan, however, experienced a weaker quarter. In EMEA, Western Europe recorded -1 per cent organic growth, negatively impacted by difficult comparatives in Germany and a weak shipbuilding industry. Eastern Europe, Russia and The Middle East continued to recover and recorded favourable growth. In the Americas, North America recorded flat organic growth, hampered by difficult comparatives in the US mining market and a decline within the Safety & Infrastructure defence business. South America recorded organic sales in line with the same period last year, hampered by continued weakness in Brazil. PPM had a one time revenue adjustment in the quarter of -5 MEUR which had a negative impact on net sales and growth.

EARNINGS

Operating earnings (EBIT1) increased by 11 per cent to 207.8 MEUR (187.1), which corresponds to an operating margin of 23.8 per cent (23.5). The operating margin benefited from organic growth, acquisitions and cost reductions. Operating earnings (EBIT1) were positively impacted by currency translation effects of 2.6 MEUR. However, currency transaction effects negatively impacted the operating earnings (EBIT1) by -6.8 MEUR. Earnings before taxes amounted to 193.7 MEUR (182.2).

NON-RECURRING ITEMS

On 26 April 2017, Hexagon acquired MSC Software (MSC), a leading provider of CAE (simulation) software. Approximately -24 MEUR related to a revenue recognition adjustment of deferred revenue (haircut) will impact the income statement during 2017. In the second quarter, the haircut amounted to -8.8 MEUR and is expected to be approximately -8 MEUR in the third quarter and approximately -7 MEUR in the fourth quarter.

FINANCIAL SUMMARY – SECOND QUARTER

Net sales Earnings
MEUR Q2 2017 Q2 2016 Δ% 1) Q2 2017 Q2 2016 Δ%
Geospatial Enterprise Solutions 429.8 399.2 4 103.9 88.9 17
Industrial Enterprise Solutions 443.9 396.6 1 110.5 103.0 7
Operating net sales 873.7 795.8 3
Revenue adjustment 2) -8.8 - n.a.
Net sales 864.9 795.8 3
Group cost and eliminations -6.6 -4.8 -38
Operating earnings (EBIT1) 207.8 187.1 11
Operating margin, % 23.8 23.5 0.3
Interest income and expenses, net -5.3 -4.9 -8
Earnings before non-recurring items 202.5 182.2 -11
Non-recurring items 2) -8.8 - n.a.
Earnings before taxes 193.7 182.2 6
Taxes -36.3 -34.6 -5
Net earnings 157.4 147.6 7

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

2) Non-recurring reduction of acquired deferred revenue in Q2 2017 related to the acquisition of MSC Software.

CURRENCY TRANSLATION IMPACT COMPARED TO EUR – SECOND QUARTER

Movement 1) Income less cost Earnings impact
CHF Strengthened 1% Negative Negative 
USD Strengthened 3% Positive Positive 
CNY Weakened -2% Positive Negative 
EBIT1, MEUR 2.6

1) Compared to Q2 2016.

SALES BRIDGE – SECOND QUARTER ORGANIC GROWTH

Net sales*
2016, MEUR 795.8
Structure, % 6
Currency, % 1
Organic growth, % 3
Total, % 10
2017, MEUR 873.7

*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 per cent.

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

GEOSPATIAL ENTERPRISE SOLUTIONS – Q2 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) operating net sales amounted to 429.8 MEUR (399.2). Using fixed exchange rates and a comparable group structure (organic growth), sales increased by 4 per cent. Organic growth was 7 percent in EMEA, 7 per cent in Asia and flat in Americas.

GES benefited from favourable growth in Eastern Europe and a recovery in the Middle East. Western Europe recorded mid-single digit growth with strong demand in Spain, Italy, France and the UK. In Asia, China reported robust growth in all businesses and a solid increase in Australia and New Zealand. North America reported slightly negative organic growth, mainly due to difficult comparatives in the US mining market and adverse weather conditions affecting the Hexagon Imagery programme.

Regarding the divisions within GES, Geosystems recorded 5 per cent organic growth. The strongest contributors were machine control, which continued to experience solid growth, and the infrastructure & construction segment, most notably in Western Europe, the Middle East and China. In North America, construction recovered and grew in the quarter. However, demand from the mining industry was weaker due to tough comparatives. Safety & Infrastructure reported 1 per cent organic growth with strong development in Smart City and safety solutions in Asia, hampered by a weak development in defence solutions in the US. Positioning Intelligence recorded 7 per cent organic growth, driven by strong demand in agriculture and defence but continued to be negatively impacted by the weak oil and gas offshore market.

EARNINGS

Operating earnings (EBIT1) increased by 17 per cent to 103.9 MEUR (88.9), which corresponds to an operating margin of 24.2 per cent (22.3). The operating margin was positively impacted by organic growth, high margin products and improved cost control.

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

MEUR Q2 2017 Q2 2016 Δ% H1 2017 H1 2016 Δ%
Operating net sales 429.8 399.2 1)
4
832.8 768.6 1)
4
Operating earnings (EBIT1) 103.9 88.9 17 194.9 164.6 18
Operating margin,% 24.2 22.3 1.9 23.4 21.4 2.0
Average number of employees 7,812 7,909 -1

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

GES sales per geography

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

* Q2 2017 numbers ** Full-year 2016 numbers

INDUSTRIAL ENTERPRISE SOLUTIONS – Q2 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) operating net sales amounted to 443.9 MEUR (396.6). Using fixed exchange rates and a comparable group structure (organic growth), sales increased by 1 per cent. Organic growth was 9 per cent in Asia, -1 per cent in Americas and -6 per cent in EMEA.

IES benefited from robust growth in China driven by increased demand from the electronics industry. In North America, the manufacturing business reported mid-single digit growth and the power & energy business improved from previous quarters and reported a slight decline. In EMEA, Western Europe experienced a weak quarter, mainly due to tough comparatives for the automotive and aerospace sectors and negative growth in the power and energy related business.

Regarding the divisions within IES, Manufacturing Intelligence recorded 6 per cent organic growth and benefitted from strong demand within electronics. However, demand from the automotive industry was weaker and the aerospace industry slowed down after several quarters of strong growth. PPM recorded -11 per cent organic growth, negatively impacted by a one-time revenue adjustment following a comprehensive review of ongoing projects and a decline in shipbuilding demand in Korea and Japan. However, PPM saw underlying improvements and North America experienced a better quarter compared to previous periods. Looking ahead, PPM will gradually recover and is expected to return to growth towards the end of the year.

EARNINGS

Operating earnings (EBIT1) increased by 7 per cent to 110.5 MEUR (103.0), which corresponds to an operating margin of 24.9 per cent (26.0). The operating margin (EBIT1) was negatively impacted by unfavourable business mix due to the decline in PPM. The review of PPM resulted in a net impact on operating earnings (EBIT1) of -3 MEUR.

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

MEUR Q2 2017 Q2 2016 Δ% H1 2017 H1 2016 Δ%
Operating net sales 443.9 396.6 1
1)
819.0 751.4 2
1)
Operating earnings (EBIT1) 110.5 103.0 7 199.7 192.6 4
Operating margin,% 24.9 26.0 -1.1 24.4 25.6 -1.2
Average number of employees 9,086 8,335 9

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

IES sales per geography

IES – NET SALES PER REGION* IES – NET SALES PER CUSTOMER SEGMENT**

* Q2 2017 numbers ** Full-year 2016 numbers

FINANCIAL SUMMARY – FIRST SIX MONTHS H1 NET SALES AND EARNINGS

Net sales
Earnings
MEUR H1 2017 H1 2016 Δ % 1) H1 2017 H1 2016 Δ%
Geospatial Enterprise Solutions 832.8 768.6 4 194.9 164.6 18
Industrial Enterprise Solutions 819.0 751.4 2 199.7 192.6 4
Operating net sales 1,651.8 1,520.0 3
Revenue adjustment 2) -8.8 - n.a.
Net sales 1,643.0 1,520.0 3
Group cost and eliminations -12.3 -9.6 -28
Operating earnings (EBIT1) 382.3 347.6 10
Operating margin, % 23.1 22.9 0.2
Interest income and expenses, net -10.4 -10.1 -3
Earnings before non-recurring items 371.9 337.5 10
Non-recurring items 3) -59.6 - n.a.
Earnings before taxes 312.3 337.5 -7
Taxes -58.7 -64.1 8
Net earnings 253.6 273.4 -7

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

2) Non-recurring reduction of acquired deferred revenue in Q2 2017 related to the acquisition of MSC Software.

3) Non-recurring items in H1 2017 related to the implementation of a cost savings programme and acquisition of MSC Software.

Operating net sales amounted to 1,651.8 MEUR (1,520.0) in the first six months of the year. Net sales, including revenue adjustment, amounted to 1,643.0 MEUR (1,520.0). Using fixed exchange rates and a comparable group structure (organic growth), sales increased by 3 per cent.

Operating earnings (EBIT1) amounted to 382.3 MEUR (347.6), which corresponds to an operating margin of 23.1 per cent (22.9). Operating earnings (EBIT1) were positively affected by currency translation effects of 5.9 MEUR.

The financial net amounted to -10.4 MEUR (-10.1) in the first six months.

Earnings before taxes, excluding nonrecurring items, amounted to 371.9 MEUR (337.5). Earnings before taxes, including these items, amounted to 312.3 MEUR (337.5). Net earnings, excluding non-recurring items, amounted to 305.1 MEUR (273.4) or 0.84 EUR (0.75) per share. Net earnings, including these items, amounted to 253.6 MEUR (273.4) or

0.69 EUR (0.75) per share. CURRENCY TRANSLATION IMPACT COMPARED TO EUR – H1 2017

Movement 1) Income less cost Earnings impact
CHF Strengthened 2% Negative Negative 
USD Strengthened 3% Positive Positive 
CNY Weakened -2% Positive Negative 
EBIT1, MEUR 5.9

1) Compared to H1 2016.

Hexagon is investing approximately 90 million EUR in a new 52,000-square-metre, state-of-the-art production facility in Hongdao, China. The facility will produce metrology systems for the Manufacturing Intelligence division, as well as pioneer technologies to support smart manufacturing. Construction will be managed using Hexagon's own enterprise construction solution, HxGN SMART Build, and is slated to begin this year, with completion targeted for 2020.

GROUP SUMMARY

PROFITABILITY

Capital employed increased to 6,972.4 MEUR (6,209.3). Return on average capital employed for the last twelve months was 11.3 per cent (11.8). Return on average shareholders' equity for the last twelve months was 12.5 per cent (13.9). The capital turnover rate was 0.5 times (0.5).

FINANCIAL POSITION

Total shareholders' equity increased to 4,368.7 MEUR (4,123.8). The equity ratio was 50.7 per cent (54.5). Hexagon's total assets increased to 8,612.3 MEUR (7,567.3). The increase in total assets was primarily driven 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 June 2017, cash and unutilised credit limits totalled 1,300.6 MEUR (1,383.7). Hexagon's net debt was 2,278.5 MEUR (1,824.0). The net indebtedness was 0.49 times (0.40). Interest coverage ratio was 24.8 times (27.4).

CASH FLOW

During the second quarter, cash flow from operations before changes in working capital amounted to 207.7 MEUR (218.2), corresponding to 0.58 EUR (0.61) per share. Cash flow from operations in the second quarter amounted to 205.2 MEUR (174.1), corresponding to 0.57 EUR (0.48) per share. Operating cash flow in the second quarter, including non-recurring items, amounted to 127.6 MEUR (108.4).

For the first six months, cash flow from operations amounted to 421.6 MEUR (342.0), corresponding to

1.17 EUR (0.95) per share. The operating cash flow, including non-recurring items, amounted to 271.1 MEUR (209.5).

INVESTMENTS, DEPRECIATION, AMORTISATION AND IMPAIRMENT

Hexagon's net investments, excluding acquisitions and divestitures, amounted to -70.4 MEUR (-64.1) in the second quarter and -135.2 MEUR (-127.4) in the first six months.

Depreciation, amortisation and impairment amounted to -61.3 MEUR (-56.8) in the second quarter and -148.4 MEUR (-111.6) during the first six months, whereof impairment charges amounted to -26.9 MEUR (-). All the impairment charges occurred in Q1 2017.

TAX RATE

The Group's tax expense for the first six months totalled -58.7 MEUR (-64.1).

The reported tax rate was 18.7 per cent (19.0) for the quarter and 18.8 per cent (19.0) for the first six months. The tax rate, excluding nonrecurring items, was 17.9 per cent (19.0) for the quarter and 18.0 per cent (19.0) for the first six months.

EMPLOYEES

The average number of employees during the first six months was 16,968 (16,315). The number of employees at the end of the quarter was 17,990 (16,561). The increase was primarily driven by acquisitions.

SHARE DATA

Earnings per share, including non recurring items, for the second quarter amounted to 0.43 EUR (0.41). Earnings per share, excluding non recurring items, for the second quarter amounted to 0.46 EUR (0.41). Earnings per share, including non recurring items, for the first six months amounted to 0.69 EUR (0.75). Earnings per share, excluding non-recurring

items, for the first six months amounted to 0.84 EUR (0.75).

On 30 June 2017, equity per share was 12.08 EUR (11.41) and the share price was 400.50 SEK (305.90).

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 six months (-0.1).

PARENT COMPANY

The parent company's earnings before taxes in the second quarter amounted to 27.6 MEUR (16.2) and to 34.5 MEUR (-16.3) for the first six months. The equity was 4,550.2 MEUR (4,634.2). The equity ratio of the parent company was 52 per cent (59). Liquid funds including unutilised credit limits were 970.3 MEUR (1,178.0).

Hexagon acquired Catavolt, a U.S.-based mobile app platform provider that offers an end-to-end platform for mobile application development and delivery, secure cloud orchestration and edge computing (real time). Catavolt's expertise will enable Hexagon to advance its digital transformation platform, HxGN SMART Convergence, which orchestrates connectivity (IoT), intelligence (AI) and visualisation (VR/AR/MR) technologies according to industry-specific needs and user-specific workflows.

The Board of Directors and the President and CEO declare that this half-year 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 July 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.

SUBSEQUENT EVENTS

No significant events effecting the financial reporting have occurred during the period between quarter-end and date of issuance of this report.

This Interim Report has not been reviewed by the Company's auditors.

Condensed Income Statement

MEUR Q2 2017 Q2 2016 H1 2017 H1 2016 2016
Net sales 864.9 795.8 1,643.0 1,520.0 3,149.2
Cost of goods sold -330.7 -316.3 -633.8 -598.2 -1,247.2
Gross earnings 534.2 479.5 1,009.2 921.8 1,902.0
Sales expenses -166.4 -147.0 -323.2 -283.0 -573.3
Administration expenses -70.3 -68.7 -152.4 -133.1 -269.1
Research and development expenses -93.9 -83.2 -203.4 -163.3 -333.1
Earnings from shares in associated companies - - - -0.1 0.4
Capital loss from sale of shares in Group companies - - - - 0.7
Other income and expenses, net -4.6 6.5 -7.5 5.3 8.5
Operating earnings 1) 199.0 187.1 322.7 347.6 736.1
Financial income 1.5 1.4 2.7 2.6 4.8
Financial expenses -6.8 -6.3 -13.1 -12.7 -26.6
Earnings before taxes 193.7 182.2 312.3 337.5 714.3
Taxes -36.3 -34.6 -58.7 -64.1 -135.7
Net earnings 157.4 147.6 253.6 273.4 578.6
Attributable to:
Parent company shareholders 155.5 146.1 250.3 270.7 573.3
Non-controlling interest 1.9 1.5 3.3 2.7 5.3
1) of which non-recurring items -8.8 - -59.6 - -
Earnings include depreciation, amortisation and impairments of -61.3 -56.8 -148.4 -111.6 -233.9
- of which amortisation of surplus values -11.3 -8.9 -20.9 -17.4 -35.2
Basic earnings per share, EUR 0.43 0.41 0.69 0.75 1.59
Earnings per share after dilution, EUR 0.43 0.41 0.69 0.75 1.59
Total shareholder's equity per share, EUR 12.08 11.41 12.08 11.41 12.70
Closing number of shares, thousands 360,443 360,443 360,443 360,443 360,443
Average number of shares, thousands 360,443 360,443 360,443 360,423 360,433
Average number of shares after dilution, thousands 361,752 360,455 361,479 360,605 360,879

Condensed Comprehensive Income

MEUR Q2 2017 Q2 2016 H1 2017 H1 2016 2016
Net earnings 157.4 147.6 253.6 273.4 578.6
Other comprehensive income
Items that will not be reclassified to income statement
Remeasurement of pensions 9.8 -7.0 18.8 -24.7 -9.4
Taxes on items that will not be reclassified to income statement -1.3 0.9 -2.3 2.4 1.8
Total items that will not be reclassified to income statement, net of taxes 8.5 -6.1 16.5 -22.3 -7.6
Items that may be reclassified subsequently to income statement
Exchange rate differences -297.6 80.9 -334.6 -74.6 69.8
Effect of hedging of net investments in foreign operations - 0.2 - 0.1 -0.1
Taxes on items that may be reclassified subsequently to income statement 13.6 1.5 15.7 0.1 3.9
Total items that may be reclassified subsequently to income statement, net of
taxes
-284.0 82.6 -318.9 -74.4 73.6
Other comprehensive income, net of taxes -275.5 76.5 -302.4 -96.7 66.0
Total comprehensive income for the period -118.1 224.1 -48.8 176.7 644.6
Attributable to:
Parent company shareholders -119.2 222.5 -51.3 174.3 639.5
Non-controlling interest 1.1 1.6 2.5 2.4 5.1

Condensed Balance Sheet

MEUR 30/6 2017 30/6 2016 31/12 2016
Intangible fixed assets 6,479.8 5,637.0 5,870.8
Tangible fixed assets 286.9 285.1 294.8
Financial fixed assets 32.8 21.2 21.1
Deferred tax assets 84.4 60.3 55.0
Total fixed assets 6,883.9 6,003.6 6,241.7
Inventories 449.8 450.2 426.7
Accounts receivable 781.1 711.5 788.0
Other receivables 81.6 92.8 71.0
Prepaid expenses and accrued income 102.8 117.7 102.7
Total current receivables 965.5 922.0 961.7
Cash and cash equivalents 313.1 191.5 284.0
Total current assets 1,728.4 1,563.7 1,672.4
Total assets 8,612.3 7,567.3 7,914.1
Equity attributable to parent company shareholders 4,352.5 4,111.6 4,576.8
Equity attributable to non-controlling interest 16.2 12.2 14.0
Total shareholders' equity 4,368.7 4,123.8 4,590.8
Interest bearing liabilities 2,321.2 1,583.8 1,476.2
Other liabilities 58.1 87.4 77.9
Pension liabilities 126.2 150.0 132.0
Deferred tax liabilities 529.4 434.8 472.7
Other provisions 5.4 3.8 3.8
Total long-term liabilities 3,040.3 2,259.8 2,162.6
Interest bearing liabilities 144.2 280.2 240.6
Accounts payable 176.8 172.3 175.7
Other liabilities 196.7 177.1 184.3
Other provisions 44.4 23.9 20.8
Deferred income 344.7 260.4 254.3
Accrued expenses 296.5 269.8 285.0
Total short-term liabilities 1,203.3 1,183.7 1,160.7
Total equity and liabilities 8,612.3 7,567.3 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 H1 2017 H1 2016 2016
Opening shareholders' equity 4,590.8 4,102.3 4,102.3
Total comprehensive income for the period 1) -48.8 176.7 644.6
Dividend -173.3 -155.2 -156.1
Closing shareholders' equity 2) 4,368.7 4,123.8 4,590.8
1) Of which: Parent company shareholders -51.3 174.3 639.5
Non-controlling interest 2.5 2.4 5.1
2) Of which: Parent company shareholders
Non-controlling interest
4,352.5
16.2
4,111.6
12.2
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 - - -
2017-06-30 Total issued and outstanding 1) 15,750,000 344,693,142 360,443,142

1) As per 30 June 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 Q2 2017 Q2 2016 H1 2017 H1 2016 2016
Cash flow from operations before change in working capital
excluding taxes and interest 242.6 239.3 472.3 454.1 941.9
Taxes paid -30.3 -18.8 -47.4 -48.2 -92.1
Interest received and paid, net -4.6 -2.3 -7.3 -5.0 -17.7
Cash flow from operations before change in working capital 207.7 218.2 417.6 400.9 832.1
Cash flow from change in working capital -2.5 -44.1 4.0 -58.9 -50.0
Cash flow from operations 205.2 174.1 421.6 342.0 782.1
Investments tangible assets -13.4 -11.4 -22.4 -25.9 -50.9
Investments intangible assets -57.0 -52.7 -112.8 -101.5 -206.7
Operating cash flow before non-recurring items 134.8 110.0 286.4 214.6 524.5
Non-recurring cash flow 1) -7.2 -1.6 -15.3 -5.1 -7.9
Operating cash flow 127.6 108.4 271.1 209.5 516.6
Cash flow from other investing activities 2) -796.3 -8.6 -804.7 -101.3 -172.0
Cash flow after other investing activities -668.7 99.8 -533.6 108.2 344.6
Dividends paid -173.0 -155.2 -173.3 -155.2 -156.1
Cash flow from other financing activities 886.8 36.6 749.9 16.2 -130.5
Cash flow for the period 45.1 -18.8 43.0 -30.8 58.0
Cash and cash equivalents, beginning of period
Effect of translation differences on cash and cash
282.7 202.3 284.0 225.5 225.5
equivalents -14.7 8.0 -13.9 -3.2 0.5
Cash flow for the period 45.1 -18.8 43.0 -30.8 58.0
Cash and cash equivalents, end of period 313.1 191.5 313.1 191.5 284.0

1) Non-recurring cash flow consists of restructuring cost in the second quarter of 2017.

2) Acquisitions and divestments totalled -792.6 MEUR (-8.5) and other was -3.7 MEUR (-0.1) in the second quarter of 2017.

Key Ratios

Q2 2017 Q2 2016 H1 2017 H1 2016 2016
Operating margin, % 23.8 23.5 23.1 22.9 23.4
Profit margin before taxes, % 22.4 22.9 19.0 22.2 22.7
Return on shareholders' equity, 12 month average, % 12.5 13.9 12.5 13.9 13.7
Return on capital employed ,12 month average, % 11.3 11.8 11.3 11.8 11.9
Equity ratio, % 50.7 54.5 50.7 54.5 58.0
Net indebtedness 0.49 0.40 0.49 0.40 0.30
Interest coverage ratio 29.5 29.5 24.8 27.4 27.9
Average number of shares, thousands 360,443 360,443 360,443 360,423 360,443
Basic earnings per share excl. non-recurring items, EUR 0.46 0.41 0.84 0.75 1.59
Basic earnings per share, EUR 0.43 0.41 0.69 0.75 1.59
Cash flow per share, EUR 0.57 0.48 1.17 0.95 2.17
Cash flow per share before change in working cap, EUR 0.58 0.61 1.16 1.11 2.31
Share price, SEK 400.50 305.90 400.50 305.90 325.50
Share price, translated to EUR 41.55 32.46 41.55 32.46 34.07

Supplementary Information

NET SALES PER SEGMENT

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

OPERATING EARNINGS (EBIT1) PER SEGMENT

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

NET SALES PER REGION

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

EXCHANGE RATES

Average Q2 2017 Q1 2017 Q4 2016 Q3 2016 Q2 2016 Q1 2016 2016
SEK/EUR 0.1033 0.1052 0.1025 0.1051 0.1078 0.1072 0.1056
USD/EUR 0.9094 0.9386 0.9267 0.8960 0.8855 0.9069 0.9040
CNY/EUR 0.1325 0.1363 0.1356 0.1344 0.1355 0.1386 0.1360
CHF/EUR 0.9228 0.9347 0.9260 0.9183 0.9123 0.9122 0.9174
Closing Q2 2017 Q1 2017 Q4 2016 Q3 2016 Q2 2016 Q1 2016 2016
SEK/EUR 0.1037 0.1049 0.1047 0.1039 0.1061 0.1084 0.1047
USD/EUR 0.8763 0.9354 0.9487 0.8960 0.9007 0.8783 0.9487
CNY/EUR 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 H1 2017 H1 2016
Fair value of acquired assets and assumed liabilities
Intangible fixed assets 249.1 1.0 250.1 33.0
Other fixed assets 31.6 1.1 32.7 6.5
Total fixed assets 280.7 2.1 282.8 39.5
Total current assets 121.9 12.4 134.3 35.5
Total assets 402.6 14.5 417.1 75.0
Total long-term liabilities 89.6 4.5 94.1 8.7
Total current liabilities 129.5 13.0 142.5 20.3
Total liabilities 219.1 17.5 236.6 29.0
Fair value of acquired assets and assumed liabilities, net 183.5 -3.0 180.5 46.0
Goodwill 629.7 60.9 690.6 84.8
Total purchase consideration transferred 813.2 57.9 871.1 128.9
Less cash and cash equivalents in acquired companies -57.9 -7.3
Adjustment for non-paid consideration and considerations paid
for prior years' acquisitions -13.3 -21.7
Cash flow from acquisition of companies/businesses 799.9 99.9

During the first six 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 15. 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 each reporting period and based on the latest relevant forecast for the acquired company. Estimated liability for contingent considerations amounted to 88.8 MEUR as of 30 June, whereof the fair value adjustment amounts to 35.8 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.

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 39.3 MEUR of net sales in the first six months of 2017. If the acquisition had taken place at the beginning of the year, the contribution to net sales would have been 99.8 MEUR.

Condensed Parent Company Income Statement

MEUR Q2 2017 Q2 2016 H1 2017 H1 2016 2016
Net sales 5.3 2.7 10.5 5.5 20.2
Administration cost -7.8 -4.2 -13.2 -8.6 -26.9
Operating earnings -2.5 -1.5 -2.7 -3.1 -6.7
Earnings from shares in Group
companies 70.1 - 70.1 - -
Interest income and expenses, net -40.0 17.7 -32.9 -13.2 43.3
Group contribution - - - - 1.8
Earnings before taxes 27.6 16.2 34.5 -16.3 38.4
Taxes 1.3 - - - -0.2
Net earnings 28.9 16.2 34.5 -16.3 38.2

Condensed Parent Company Balance Sheet

MEUR 30/6 2017 30/6 2016 31/12 2016
Total fixed assets 7,904.3 7,137.3 7,203.6
Total current receivables 882.6 777.0 803.3
Cash and cash equivalents 1.4 6.6 15.6
Total current assets 884.0 783.6 818.9
Total assets 8,788.3 7,920.9 8,022.5
Total shareholders' equity 4,550.2 4,634.2 4,688.7
Total long-term liabilities 2,315.6 1,575.9 1,469.4
Total short-term liabilities 1,922.5 1,710.7 1,864.4
Total equity and liabilities 8,788.3 7,920.9 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 and depreciation 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:

Interim report Q3 2017 27 October 2017 Year-end report 2017 6 February 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 [email protected]

TELEPHONE CONFERENCE

The interim report for the second quarter 2017 will be presented on 27 July at 15:00 CEST 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, [email protected]

This information is information that Hexagon AB is obliged to make public pursuant to the EU Market Abuse Regulation and the Securities Markets Act. The information was submitted for publication, through the agency of the contact person set out above, at 13.00 CEST on 27 July 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.

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