Annual Report • Aug 28, 2008
Annual Report
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Annual Report 2007
Hexagon's mission:
To measure objects To position objects To update objects To time processes
During , Hexagon's product offering was strengthened through proprietary product development and acquisitions. Earnings per share increased by per cent.
Hexagon's measurement systems and services enhance our customers' efficiency and productivity, increase quality and generate significant cost savings in the production process.
Successful product development is a prerequisite for companies intent on leading their industries. Hexagon has approximately employees working on the development of technologies for the future.
As a local player, Hexagon capitalizes on its understanding of each particular geographical market and customer requirements, knowledge that is essential to efforts to generate healthy profitability on a sustainable basis.
50 Directors' Report 55 Consolidated income statement
84 Proposed allocation of earnings
56 Consolidated balance sheet 58 Change in Group equity 59 Consolidated cash flow statement 60 Parent Company accounts
Hexagon is a global measurement technologies group with strong market positions.
In 2007, Hexagon had net sales of 14 587 MSEK. The Group has 10 100 employees in 36 countries worldwide.
Hexagon's vision is to be a market leader, ranking number one or two in each strategic business, in order to generate growth and shareholder value. Hexagon's business concept is to develop and market leading measurement technologies products and services to measure in one, two or three dimensions, position and update objects and time processes.
The Hexagon share is quoted among Large Cap companies on the Nordic Exchange and the SWX Swiss Exchange.
In the EMEA region, Hexagon's organic growth rate in net sales was per cent in . Th e rate of activity was favourable in engineering and construction industries in Western and Eastern Europe and in the Middle East. Hexagon is investing in the expansion of distribution and service activities in the EMEA's new, fast-growth segments and geographical areas.
In the Americas, Hexagon's organic growth rate in net sales was per cent in . Demand benefi ted from an increase in infrastructural investments, geographical information systems (GIS), mining, aerospace, construction, electronics and medical equipment technology. Hexagon is investing in service and distribution activities and in increasing the pace at which new products are launched.
In the Asia region, Hexagon's organic growth rate in net sales was per cent in . During the year, Hexagon further expanded its operations in China, via acquisitions and the establishment of new production facilities. In parallel with China, India is becoming an increasingly important market for Hexagon.
* EMEA – Europe, Middle East and Africa. Americas – North, South and Central America. Asia – Asia, Australia and New Zealand.
Countries in which Hexagon has established operations, production facilities, research and development and/or sales offi ces.
| 2007 | 2006 | Change | |
|---|---|---|---|
| Net sales, MSEK | 14 587 | 13 469 | 15%1 |
| Operating earnings (EBIT1), MSEK | 2 421 | 1 827 | 33% |
| Earnings before tax, MSEK | 2 056 | 1 618 | 27% |
| Net earnings, MSEK | 1 811 | 1 280 | 41% |
| Operating margin, % | 16.6 | 13.6 | 3.0 |
| Return on equity, % | 19.5 | 17.0 | 2.5 |
| Return on capital employed, % | 14.3 | 12.2 | 2.1 |
| Equity ratio, % | 40.3 | 46.4 | – 6.1 |
| Earnings per share, SEK | 6.79 | 5.01 | 36% |
| Share price, SEK | 135 | 97 | 39% |
| Average number of employees during the year | 8 406 | 7 862 | 7% |
Based on fixed exchange rates and a comparable structure (organic growth).
Net sales
In 2007, net sales increased to 14 587 MSEK, corresponding to organic growth of 15 per cent.
2 421 MSEK in 2007.
The Group's operating margin was 16.6 per cent. Operating margin of the measurement technologies business was 19.6 per cent.
Earnings per share Earnings per share rose 36 per cent to 6.79 SEK in 2007.
Water depth analysis near the San Diego coastline.
During 2007, we strengthened our product offering and our operations in various parts of the world through product development and acquisitions. We increased our earnings per share by 36 per cent and created a stable platform for future growth.
Hexagon pursues a philosophy based on professionalism and trust. Success can only be achieved with the help of committed and dedicated employees. Hexagon's slightly more than employees worldwide represent so much more than just a multitude of companies that engage in business on a parallel basis. It is a global network of committed people, all working towards the same overall objective – creating value for Hexagon's shareholders. Regardless of whether we are employed in China, Germany, the US, Australia, Russia or Singapore; or whether we work on the shop floor, in research and development or in Hexagon's management team, we are all contributing to the Group's success. Everyone is contributing to our joint success, and the financial year was a period of outstanding achievements.
In this Annual Report, we have chosen to highlight and describe in greater detail a number of the many exciting projects in which Hexagon participated during the year. The projects involved participation in the construction of the new Terminal at London Heathrow Airport in the UK, our cooperation with NASA in the development of the new James Webb Space Telescope, our initiatives in various parts of China and the measurement services we are performing at Caterpillar's production plant in Illinois, USA. We can be particularly proud of these projects, which demonstrate Hexagon's extensive expertise and broad product offering.
Our ambition is to increase earnings per share by at least per cent annually. That is our overall financial objective. In , we increased our earnings per share by a full per cent, thus creating value for us shareholders.
Hexagon's sales increased to MSEK in , corresponding to organic growth of per cent. Earnings before tax increased per cent to MSEK. It is extremely gratifying that Hexagon's organic growth continues to rise, while we maintain our high profitability and strong cash flow.
The past year was a very intensive period, not the least on the acquisitions front. We acquired a total of companies in order to supplement our measurement technologies business. This mainly involved the acquisitions of strategically important technologies or acquisitions to enhance our distribution activities in a number of geographical markets. In addition to measurement technologies companies, we also acquired a rubber compounding company in order to strengthen our polymer operations in the US market.
However, our business is not only being developed through the acquisition of companies; we have also devoted considerable energy to strengthening our existing product portfolio through in-house product development in the growth areas we have identified in the measurement technologies sector. During the past year, we launched about a hundred new products. We developed, for example, a measuring machine in China and new concepts within the machine control market segment. Considerable effort was also focused on the development projects initiated as a result of the acquisition of Leica Geosystems. The first of these products, which combines Hexagon's and Leica Geosystems' technologies, will be launched in stages starting in .
A powerful product portfolio requires an efficiently functioning distribution network in geographical regions that are showing growth. During the year, we established operations in six new geographical markets. A favourable geographical mix is of major strategic importance in efforts to balance slackening economic conditions in certain regions with better demand in others. Eastern Europe, the Middle East, South America and Asia are regions that are growing in terms of their share of the Group's total sales.
Efforts to strengthen our geographical positioning included inauguration of a number of production units during the year. In March, we inaugurated our second production plant for measurement instruments in China, where we also established two production plants for our polymer operations: the rubber compounding unit was opened in April and the wheel-production unit in November. Polymers' rubber compounding unit in Mexico was inaugurated in October and, while writing this message, we are completing the construction of a new gasket plant in China, which is scheduled to be deployed in August .
During the year, Hexagon's Board of Directors decided to propose that the polymer operations be listed separately on the Nordic Exchange. According to this proposal, Hexagon will operate as a dedicated measurement technology company as of the summer of . Accordingly, in the years ahead, we will be able to focus our resources on achieving rapid and profitable expansion of our measurement technology business through organic growth and a continued high rate of acquisitions.
In December, new financial objectives were announced for Hexagon as a dedicated measurement technology company. Up to , the aim is to double our sales to billion SEK and to raise the operating margin to per cent. Although the objectives set for our organization are ambitious, the plan, which is called "--" internally, has a solid foundation based on anticipated developments throughout the Group. Our employees' commitment will provide the organization with the power necessary for achieving our objective for .
Ola Rollén at a construction site in Nacka Strand, Sweden. The measurement instrument in the background is a total station for construction and civil engineering measurements.
In a slightly longer term, our goal is to represent per cent of the total global measurement technology market, which is growing by approximately per cent annually and is currently worth an estimated billion SEK. Our ambition entails almost tripling our current market share of per cent by means of organic growth and acquisitions. We will also expand our operations into exciting new and rapidly expanding segments of the market for measurement technology. We will continue to compete in the development of future technologies in the field of measurement, positioning, updating and time optimization.
The current year has begun well and by the end of , we are counting on again achieving our financial objective of growth in earnings per share by at least per cent.
Nacka Strand, Sweden, March
Ola Rollén President and Chief Executive Officer
Hexagon's ultimate objective is to generate long-term favourable value growth for the shareholders. The aims of the strategic and financial plan are to strengthen the Group's market position as a world-leading measurement technology company and to deliver long-term profitability and sustainable competiveness.
Hexagon's objective is to create long-term favourable value growth for its shareholders. In , this entailed continued development of the business in order to further enhance Hexagon's position as a world-leading measurement technology company. The measurement technology field offers considerable potential for increasing market share through establishment in new geographical markets and in new application areas, combined with opportunities to increase the total market by introducing new applications for existing products and systems.
As part of the streamlining of operations, the Hexagon Board of Directors decided during to propose to Hexagon's Annual General Meeting the separate listing of the polymer business on the Nordic Exchange in June . This would mean that Hexagon would operate as a dedicated measurement technology company as of the second half of .
Hexagon's vision is to be a market leader, number one or number two, in selected technical or geographical segments. To realize this vision, the following operational objectives must be fulfilled:
A competitive cost structure is a necessity, not least in order to more easily handle fluctuations in demand and changes in currency exchange rates. Cost-efficiency is also a prerequisite for being the innovator in the sector.
Hexagon's innovative capacity is of vital significance when customers choose a supplier. Since a market-leading position brings with it a responsibility to develop the sector, investments in research and development are a high priority within Hexagon's operations.
Management know-how and experience are decisive factors that are essential for being able to operate successfully and realize the objectives in the day-to-day business.
To be a market leader, number one or number two, in each strategic business to be able to generate growth and shareholder value.
To develop and market leading technologies and services to measure in one, two or three dimensions, to position and update objects and to time processes.
In 2007, net sales increased to 14 587 MSEK, corresponding to organic growth of 15 per cent. According to Hexagon's financial plan, sales shall amount to 20 billion SEK at the end of 2010.
In 2007, the operating margin increased by three percentage points to 16.6 per cent. According to the financial plan, the operating margin at the end of 2010 shall be up to 20 per cent.
When completed in 2008, Burj Dubai will be the world's tallest building. Hexagon has together with the Chief Surveyor of Burj Dubai, developed a unique monitoring system. A complex combination of GPS antenna/receivers, Total Stations, Continuously Operating GPS Reference Stations and Software together with Leica Nivel220 dual-axis precise clinometers, accurately determines and analyzes displacement of the tower alignment from the vertical axis.
Short and rapid decision processes and time-efficient implementation enhance competitiveness and raise organizational capacity.
Since Hexagon succeeded in fulfilling the financial objectives set for the end of as early as , Hexagon decided to prematurely adjust its financial objectives. At the Capital Markets Day held in December , Hexagon presented its new financial plan. Under the plan, the Group, as a dedicated measurement technology company, aims to achieve annual sales of billion SEK and an operating margin of per cent by the end of .
Hexagon currently has a stable platform for future organic growth. The Group is actively monitoring a large number of companies that represent potential acquisition candidates, so that it will also be able to grow non-organically. Hexagon's sales objective of billion SEK is sought to be achieved through organic increases in the core business from nearly billion SEK in to billion SEK and the acquisition of companies with total sales of at least billion SEK.
Hexagon's objective of a margin of per cent is soughts to be achieved through an increase in the operating margin on the core business from nearly per cent in to per cent and the acquisition of operations with an average operating margin of per cent.
| MSEK | Outcome 2007 | Target 2010 |
|---|---|---|
| Non-core business | 3 650 | 0 |
| Core business | 10 937 | 20 000 |
| Sales | 14 587 | 20 000 |
| Operating margin, % | 16.6 | 20 |
Hexagon communicates the following financial objectives:
Annual increase in earnings per share of >15 per cent Hexagon's overall financial objective is to increase earnings per share by at least per cent annually. Strong growth in earnings per share is the best way to produce favourable long-term return on shareholder investment. In , Hexagon increased its earnings per share by per cent.
Hexagon shall strive to minimize the weighted average cost of capital (WACC) for the company's financing. A strong equity ratio provides opportunities for using loans to finance parts of future expansion. At the close of , Hexagon had an equity ratio of slightly more than per cent. The new issue effected during the spring of strengthened Hexagon's equity ratio.
A positive cash flow creates freedom of action for long-term expansion. It also allows Hexagon's shareholders to govern operations on the basis of a lower required equity ratio than if the cash flow was uncertain. In , cash flow from continuing operations rose per cent to MSEK.
The long-term required return on capital employed over a business cycle amounts to more than per cent annually. The required return has been set based on an assumption of long-term risk-free interest of around per cent and a risk premium of some per cent. In , the return on capital employed was per cent.
Hexagon's expansion rate is limited by the restrictions imposed by its financiers, which entail that net debt may not exceed . times EBITDA, measured on a -month pro forma basis. At the close of , the Group's net debt amounted to . times EBITDA.
To succeed in doubling the measurement technology business's sales within a three-year period, in accordance with the financial plan, growth through a combination of acquisitions and organic growth will be required. Hexagon works on the basis of four growth strategies:
Earnings per share in 2007 amounted to 6.79 SEK. This increase of 36 per cent comfortably exceeded the target of an annual increase in earnings per share of at least 15 per cent.
Cash flow
In 2007, cash flow from operating activities rose to 2 027 MSEK. This corresponds to cash flow of 7.64 SEK per share.
At the end of 2007, the equity ratio was 40 per cent. The new issue implemented in the spring of 2006 strengthened the equity ratio. A strong equity ratio provides the ability to raise loans for continued expansion of operations.
03 04 05 06
In 2007, the return on capital employed amounted to 14 per cent, which is close to the long-term return requirement of more than 15 per cent annually over a business cycle.
% 2007 14 2006 12 2005 11 2004 13 2003 11 07
Objective: >15%
In 2007 Leica TITAN was introduced. This dynamic online solution allows users to share geospatial data, web services and location-based content to a variety of applications.
Introducing new products in existing markets Th rough successful research and development and sound knowledge of customer needs, growth is created in the form of unique product off erings. Th e challenge is to "think outside the box" and create pioneering products in an already established market.
A new application area or a new geographical market creates growth for an existing product through access to a larger customer group. Th e challenge is to have suffi cient knowledge of the new market, ensure that the product meets the market's quality requirements and establish smoothly functioning distribution channels.
Introduction of a new product or service in new markets creates growth through expansion of the total market. Th e challenge is to have suffi cient knowledge of the new market, understand the needs of the end customers, quality-assure the new product or service and gain access to smoothly functioning distribution channels, thus ensuring that the new off ering reaches the market.
Hexagon estimates that the market for measurement technologies is currently worth approximately billion SEK. Over a business cycle, market growth totals about per cent.
Hexagon's long-term ambition is to increase the Group's share of the existing market from the current level of nearly per cent to per cent. Th is is to be achieved through proprietary product development combined with acquisitions.
Hexagon's brand portfolio comprises strong brands that are well known in their sectors. Each brand represents a strong tradition in its geographical region and sector, which is why Hexagon uses diff erent brands for diff erent customer groups or in diff erent markets.
Th e brands in Hexagon's portfolio represent high quality and result in high entrance barriers for Hexagon's competitors. Hexagon works continuously to develop global product platforms in order to maximize the economies of scale between the various brands.
Hexagon monitors a large number of companies to find acquisitions that can strengthen the product portfolio or improve the distribution network in both new and existing markets. An acquisition candidate must have growth potential and strong brands.
Hexagon continuously analyzes more than acquisition candidates worldwide. The acquisition candidates are regularly evaluated financially, technologically and commercially. Every acquisition candidate's potential place in Hexagon is determined on the basis of synergy simulations and implementation strategies. On average, acquisition candidates have annual sales of approximately MSEK. However, a handful of companies are significantly larger with sales of more than MSEK.
During , Hexagon completed a total of corporate acquisitions, with sales totalling approximately MSEK, to strengthen Hexagon's leading position in the measurement technology market. The companies have contributed valuable expertise in strategically important technologies or distribution channels in geographic regions in which Hexagon's presence was previously weak.
Hexagon's expansion capacity is limited by the restriction imposed by financiers, which entail that net debt must not exceed . times pro forma EBITDA over months. At the end of , this restriction meant that Hexagon had an expansion capacity of nearly . billion SEK based on its own balance sheet. Cash and cash equivalents, including unutilized lines of credit, amounted to MSEK at the end of .
The acquisition price varies and is determined based on factors such as the acquired company's growth and operating margin. With a structured and well-conceived integration process, the acquired company's enterprise value should be less than times operating profit approximately months after acquisition.
| Company name | Domiciled | Emphasis | Consolidation | Market segment* |
|---|---|---|---|---|
| SBG | Sweden | Software for multi-dimensional systems for measurring, planning and machine control | 15 January | |
| Acquis | USA, Ireland | Web-based data editing of geospatial information | 1 April | |
| D&P Systems | France | Multi-dimensional systems for measuring, planning and machine control | 1 May | |
| Topolaser | France | Distribution and integration of systems for machine control | 1 May | |
| Allen Precision | USA | Distribution of surveying equipment and related products | 1 May | |
| Jigsaw | USA | Software for fleet management within machine control for mining | 1 May | |
| Transmetal | Turkey | Distribution of measurement technologies | 1 June | |
| GAMFI | France | Laser tools and instrumentation for the construction industries | 1 July | |
| ER Mapper | Australia | Server application and compression technologies within geospatial information | 1 July | |
| IONIC | Belgium, USA | Server application and cataloguing technologies within geospatial information | 1 July | |
| JMTC | China | Callipers with digital and mechanical indicators | 1 July | |
| Gesswein | Germany | Distribution of measurement technologies | 1 August | |
| CogniTens | Israel | Systems for three-dimensional optical measurement | 1 September | |
| Rost | Austria | Distribution of measurement technologies for the surveying and construction industries | 1 October | |
| Junglas | Germany | Distribution of measurement technologies for the construction industry and the market for machine control |
1 October | |
| Geopro | Hungary | Distribution of measurement technologies for the surveying and construction industries | 1 December | |
| NovAtel | Canada | Precision components and systems for satellite-based navigation systems | 1 December | |
| Elcome | India | Distribution of and system administration for measurement technologies | 1 January 2008 | |
| * For a more detailed description of the macro and micro segments of the measurement technologies market, see page 12. | = Macro = Micro |
15 January
Svensk ByggnadsGeodesi AB develops, manufactures and supplies complete multidimensional systems for measuring, planning and machine control for excavators, graders, dozers and paving machines. Th e acquisition of SBG is part of Hexagon's growth strategy and commitment to global expansion within the measurement market segment of machine control.
CogniTens Ltd. provides full surface and features measurements using advanced threedimensional optical technology especially designed for use in demanding engineering and shop fl oor environments of automotive and other manufacturing industries. Th e acquisition of CogniTens gives Hexagon an exciting new technology in the high speed, non contact, shop fl oor measurement and scanning segment of the measurement technologies market.
1 July
GAMFI International is a leading provider of laser tools and instrumentation that operates under the brands AGL, QBL and AGATEC. Th e company's research and development and manufacturing sites span from USA, Europe and China. Th e acquisition of GAMFI is an important step in Hexagon's overall growth strategy in the core construction market.
IONIC Software and IONIC Enterprise develop software products to securely catalog and serve geospatial information on the Internet. IONIC off ers products for publishing, discovery, access, integration, and application of spatial data. Th e acquisition of IONIC underlines Hexagon's growth strategy and commitment to the geospatial market.
NovAtel Inc. provides precision Global Navigation Satellite System (GNSS) components and subsystems. Th e company develops receivers, enclosures, antennas and fi rmware that are integrated into high precision positioning applications worldwide. Th e acquisition of NovAtel accelerates Hexagon's development of new applications in markets within the GNSS area.
With the capacity to handle 30 million passengers and big enough to fit 50 football pitches, Heathrow's Terminal 5 (T5) is one of the largest and most ambitious building and engineering projects in Europe. Hexagon's measurement systems has been used in the construction of the world's busiest airport.
The . billion GBP project consists of the main terminal building in five floors, two satellite buildings and aircraft stands, and has required the diversion of two rivers, the realignment of a perimeter road, extensions to the London Underground Piccadilly Line and Heathrow Express, a dedicated M spur road and a space multi storey car park.
Working in partnership with a team of contractors, Hexagon's subsidiary Leica Geosystems has played an important role in delivering precision and accuracy to help meet the stringent standards demanded by BAA (British Airports Authority).
The London Heathrow Airport Terminal 5 project in the UK is Europe's largets construction site, employing around 6 500 people. The new airport terminal significantly boosts Heathrow Airport's existing passenger capacity. Over
Terminal 5 project
13.5 kilometers of tunnels have been constructed as part of the project including extensions to the London Underground Piccadilly Line and Heathrow Express. The terminal building is the largest single span building in the UK.
Hexagon is a leading player in the global market for measurement technologies, which is a growing market under constant development. Trends such as increasing investment in infrastructure and the western world's relocation of production eastwards, combined with climate and environmental changes, are driving the need for three-dimensional measurement technologies.
Measuring, positioning and processing multidimensional data are of major strategic and financial significance to Hexagon's customers worldwide. Our customers demand optimal quality, maximum productivity and efficiency, minimum tolerance levels and scrapping, and the ability to quickly adjust processes and projects based on changes in requirements or demand.
Hexagon estimates the value of the measurement technologies market at approximately billion SEK, with growth of per cent annually over a business cycle. This estimate is based on internal industry knowledge and available public statistics. Hexagon's market share is approximately per cent.
The market for measurement technologies can be divided into three market segments: macro, micro and nano. The boundaries between the three different segments are based on the measurement precision required by the customer. The smaller the object to be measured, the greater the precision required.
However, the algorithms used to interpret measurement data and mathematically describe an object are largely the same regardless of whether a mountain chain or a component in a microprocessor is being measured. It is these mathematical algo-
Hexagon divides the measurement technologies market into three segments: macro, micro and nano. The boundaries between the three segments depend on the required measurement precision of the applications.
rithms that comprise the synergies between the three market segments, macro, micro and nano.
Within the macro segment, large objects such as mountains, cities, roads, bridges, tunnels, buildings and other construction projects are measured. These measurements require a precision stretching from a deviation of metres to micromillimetre.
Customers in this market segment primarily comprise surveyors, map offices and cartography companies, authorities, construction companies, mining companies, aerospace, security and defence industries.
Hexagon estimates the size of the macro segment at approximately billion SEK, with annual growth of about per cent. With a market share of some per cent, Hexagon is the joint market leader, together with the US NASDAQ-listed company Trimble. The Japanese company Topcon, listed on the Tokyo Stock Exchange, is also a major player in the macro segment of the measurement technologies market.
Within the micro segment, industrial components, from large aircraft to micro-components in small electronic applications, are measured. These measurements require a precision that extends from a deviation of to . micromillimetre.
Customers in the micro segment primarily comprise the automotive, aviation, engineering and energy industries.
Hexagon estimates the size of the micro segment at approximately billion SEK, with annual growth of about per cent. Hexagon's market share is some per cent, making it number one in terms of size. Other prominent players in the micro segment of the measurement technologies market are the German company Carl Zeiss and the Japanese company Mitutoyo.
Within the nano segment, objects such as microchips for the electronics industry, medical applications and materials with new characteristics are measured. These measurements require extreme precision. Deviations in the measurements may not exceed . micromillimetre .
The nano segment is an area in which Hexagon is not yet active, but where it is planning to ultimately establish operations. Hexagon estimates the size of the nano segment at approximately billion SEK with strong growth potential.
| Industry peers | Market segment | ||||||
|---|---|---|---|---|---|---|---|
| Company | Domiciled | Macro | Micro | Nano | |||
| Hexagon | Sweden | ||||||
| ESRI | USA | ||||||
| Intergraph | USA | ||||||
| Pentax | Japan | ||||||
| Sokkia | Japan | ||||||
| Topcon | Japan | ||||||
| Trimble | USA | ||||||
| Carl Zeiss | Germany | ||||||
| Faro Technologies | USA | ||||||
| Metris | Belgium | ||||||
| Mitutoyo | Japan | ||||||
| Perceptron | USA | ||||||
| Renishaw | UK | ||||||
| KLA Tencor | USA | ||||||
| Vecco | USA | ||||||
| Zygo | USA |
Growth in the newly industrialized regions of the world is a significant driving force for the measurement technologies market. In countries such as China and India, and regions such as South America, Eastern Europe and the Middle East, needs are growing for energy supplies, transport routes, communication lines, construction and housing. At the same time, the need to renovate the western world's aging infrastructure is growing. Many roads, bridges, tunnels, dams, sanitation systems and water mains in the western world are in substandard condition and require renovation and maintenance.
The increased infrastructural investments in both emerging economic regions and established markets in the west are driving Hexagon's business, primarily in the construction, mining, aerospace and electronics industries.
The need for measurement technologies is also being driven by our global climate and environmental changes. Authorities are increasingly investing in technologies that make it possible to foresee chains of events and estimate consequences, in order to improve and secure vital infrastructure. For example, Hexagon products assist authorities with measurement and decision data to answer questions such as: How would the Veracruz area in Mexico be affected if the Cazones River overflows? How quickly is the rain forest being cleared in Brazil? How can the Louisiana coastline in the US be rebuilt after Hurricane Katrina?
The ongoing geographic relocation of operations from old industrialized countries in the West to new industrialized countries in the East is also driving demand for measurement technologies. New construction of production facilities is boosting investment in state-of-the-art technologies and measurement
systems. The trend is that industrial companies are choosing to invest in the best technology possible when new production plants are built in Asia, South America and Eastern Europe. This trend is driving Hexagon's business, primarily in the automotive, engineering and tooling industries.
In EMEA*, demand for Hexagon's products and services is strong. Eastern Europe and the Middle East, in particular, have driven the region's sales growth. For , Hexagon expects demand to remain high in EMEA, with some slowing in the Western European engineering industry. Of the sales in measurement technologies, EMEA accounted for per cent in . Hexagon's organic growth was per cent.
In the Americas*, Hexagon is benefiting from higher infrastructure investment and increased demand from industries such as geospatial information systems, as well as the mining, construction, aerospace, electronics and medical technology industries. However, the weak competitiveness of the domestic auto motive industry and the decrease in new construction of housing has negatively impacted demand for Hexagon's products and services. For , imbalances in demand are expected in the housing-related construction sector in the US. However, Hexagon expects increasing export activity in the engineering industry, combined with continued strong demand in South America and Canada due to greater demand for grain, minerals and oil. Of the sales in measurement technologies, the Americas accounted for per cent in . Hexagon's organic growth was per cent.
In Asia* rapid expansion is being driven by domestic demand and our customers' relocation of production units from the West to the East. Well-functioning infrastructure, which benefits demand for Hexagon products, is required in pace with increasing number of western companies establishing operations and production in the region. Demand in the region is expected to remain strong in . Of the sales in measurement technologies, Asia accounted for per cent in . Hexagon's organic growth was per cent.
* EMEA – Europe, the Middle East and Africa. Americas – North, South and Central America. Asia – Asia, Australia and New Zealand.
Measurement technologies sales per geographical market, MSEK
Of the total sales of the measurement technologies business, Asia accounted for 21 per cent in 2007. Hexagon's organic growth was 39 per cent. India is expected to become Hexagon's second largest expansion market in the region after China.
NASA's James Webb Space Telescope, scheduled for launch in 2013, is the replacement for the venerable Hubble orbiting observatory. The telescope, with its array of hexagonal mirrors, will orbit the sun in synchrony with the Earth, at a vantage point more than a million miles from here.
Hexagon has provided Leitz and Leica Geosystems products to assist in the complicated task of manufacturing what amounts to a folding telescope. The . meter mirror array is made of hexagon-shaped mirrors. Each of the hexagons constitutes an offaxis segment of a near parabolic mirror contour.
A Leitz PMM-C coordinate measuring machine is used during the final mirror processing stages to ensure absolute precision in the contour of the mirrors. The coordinate measuring machine measures all the important dimensions of the mirrors and tracks the surface figure as it converges from a machined surface with a micromillimetres* peak to valley surface figure, into and beyond optical testing. The coordinate measuring machine has a low probe force option that allows the surface of the beryllium mirrors to be physically touched without damage, allowing the mirror's contour to be checked for absolute conformance to the design during the formative grinding and early polishing stages, where the form is established to within one-half a millionth of a meter.
A Leica Laser Tracker portable coordinate measuring machine, is used to establish absolute positions of elements of an optical test which in turn lets the customer L- SSG Tinsley measure and establish the radius of curvature to within a tenth of a millimeter out of meter radius.
The customer reports that the Leitz PMM-Cs and the Leica Laser Trackers are truly enabling technologies for producing mirror segments of this scale, precision and form. Both technologies are performing "flawlessly" and "better than specification".
* 1 micromillimetre = 1/1 000 000th of a meter.
Called The First Light Machine, i.e. first telescope to see the first light of the first galaxies in the emerging universe, James Webb Space Telescope will orbit the Sun in synchrony with the Earth, at a vantage point more than a million miles from the Earth. The 6.5 meter mirror array is made of 18 hexagon-shaped mirrors, of highly polished beryllium, a type of metal which is light, strong and has a high degree of thermal stability around the operating temperature
of –240° C minimizing contractions and deformations resulting from temperature changes around that temperature. The entire space telescope platform folds up to fit within the payload fairing of an Ariane V Launch Vehicle, and then deploys in sections after launch. NASA's largest astrophysics project will provide fundamental new science with insight into the origins of the universe, galaxies and planetary systems.
Hexagon is a world-leading supplier of systems for the measurement of objects in one, two or three dimensions. The measurement systems measure with great precision and rapidly provide access to large amounts of measurement data. For the customer, this means greater efficiency and productivity, improved quality and significant material and cost savings in the production process.
Increasingly stringent demands are being placed on the ability to measure and position infrastructure and environments. The pace of new construction is increasing worldwide and the emerging economies are building new infrastructure at the same time as old economies have to renovate and supplement their infrastructure.
For manufacturing industries, it is necessary to systematically and efficiently collect and process measurement data on proprietary production or products. Climate changes and environmental catastrophes of various kinds are also increasing the need to accurately describe, depict and measure countries and regions.
The measurement data collected with the help of Hexagon's measurement systems are used as a basis for graphical and mathematical descriptions of an object. Such a description is used to reconstruct an exact model or drawing of an object, map deviations from the object's original design or to correct the object's manufacturing process.
Hexagon develops complete, high-quality and reliable measurement systems through proprietary research and development. Subsequently, Hexagon purchases components from carefully selected and proven sub-suppliers worldwide. Purchasing of components is coordinated centrally to minimize costs, maintain quality and eliminate bottlenecks in component sourcing. At its own production facilities, Hexagon assembles the components into complete measurement systems and integrates proprietary software. For a description of components in the measurement system, see the illustration on page .
For certain products, Hexagon offers the customer an Installation, Training and Warranty (ITW) agreement as a supplement to the actual measurement system. Such an agreement means
| Macro | Micro | ||||
|---|---|---|---|---|---|
| Geomatics | Construction | GIS | Stationary | Portable | |
| TPS | M/C | Scanners | CMM | CMM | |
| GPS | TPS | Cameras | AMS | Trackers | |
| GNSS | GPS | S/W | S/W | Optical | |
| Networks | GNSS | Probes | Articulated Arms | ||
| Scanners | Lasers | S/W | |||
| S/W | S/W | Probes |
For a more detailed description of the macro and micro segments, see page 12.
Measurement technologies operations
Sales increased to 10 937 MSEK during the year, corresponding to organic growth of 16 per cent.
The operating margin grew by approximately three percentage points to nearly 20 per cent during the year.
that Hexagon installs the measurement system at the customer, calibrates and quality assures the system in accordance with the requirement specification, trains the measurement system operators and guarantees full service during the entire duration of the warranty.
Hexagon's product portfolio in the measurement technologies market's macro segment consists of a large number of various technologies, systems and products for multidimensional measurement and positioning. The systems measure with a precision that spans a deviation of metres to micromillimetres.
Geomatics is the science and technology of collecting, analyzing, processing, storing, presenting and using geographical information. Geomatics is a collective term for disciplines concerned with maps, in both digital and analogue formats.
In measurements conducted in this field, measurement and positioning systems are used, such as theodolites and total stations that are positioned in the terrain to measure with a range of several kilometres with optics and laser technology.
Within geomatics, GPS is used increasingly for measurement and positioning. With GPS, the user can measure easier, faster and with fewer stakeouts. To achieve sufficient precision in the measurements, signals from at least five satellites are compared.
Automotive industry 23 Construction industry 13 Aerospace, security and defence industry 6 Engineering industry 6 Tooling industry 4 Other 19
% Surveying 29
automotive industry.
| 2007 | 2006 | Change | |
|---|---|---|---|
| Order intake, MSEK | 11 234 | 9 273 | 19%* |
| Sales, MSEK | 10 937 | 9 250 | 16%* |
| Operating earnings, MSEK | 2 141 | 1 547 | 38% |
| Operating margin, % | 19.6 | 16.7 | 2.9 |
| Average number of employees | 5 796 | 4 942 | 17% |
* Adjusted to fixed exchange rates and comparable structures (organic growth).
Hexagon's measurement systems also have the ability to communicate with multiple satellite systems, known as Global Navigation Satellite System (GNSS), a collective name for satellite navigation. The satellite navigation systems currently available within GNSS are the US GPS system and the Russian Glonass system. In coming years, Hexagon's products will also gain access to the European Galileo system, the Chinese Compass system and the Indian INRSS system, all of which are under construction.
Hexagon's product portfolio for geomatics also includes laser scanners, measurement base stations, laser trackers and monitoring systems to measure changes or movement in a structure or in the nature.
The largest customer categories in geomatics are surveyors and government agencies and authorities. The main driver of demand for products and services in this area is the need to update terrestrial information.
A strongly growing segment of construction is machine control. By utilizing GPS and multidimensional software, Hexagon's products control and monitor excavators, graders, dozers and pavers in order to increase the productivity and quality of the work performed by the machine. The individual construction machines are linked together in a high-precision fleet management system that, using a radio network for GPS reception and
Technology based on GPS, Total Stations or lasers to guide or control mobile machinery in the construction, agricultural or mining industries.
real-time data transmission, can monitor an entire site.
Another important product group in the area of construction is level meters, optical or digital, for measuring plane surfaces at, for example, a construction site.
Construction lasers are another major product group. A construction laser measures angles, distances and levels. Pipe lasers constitute a sub-group within this product group. A pipe laser is used to measure inclines, in connection with pipe laying, for example.
Service and maintenance support operation of the measurement systems and can include contract-based measurement of parts, training of measurement system operators, outsourcing of the measurement function and/or software upgrades.
Laser meter for distance measuring and calculations of surface and volume. Natural colour versus infra-red processed image to highlight vegetation.
Hexagon's product portfolio for construction also includes handheld laser meters for short-distance measurement and calculation of surface and volume magnitudes. The Leica DISTO™ and Leica LINO™ products are used by such customer categories as architects, construction workers, painters, carpenters and real estate agents.
The largest customer categories are the construction industry, mapping companies, government agencies and authorities and security and defence-related industries. The main drivers of demand for products and services in this area are the need for higher productivity and cost-efficiency in construction processes, mineral extraction, grain production, and the control of production processes.
During the year, Hexagon strengthened its customer offering in machine control technologies through the acquisitions of Swedish SBG, French D&P Systems and Topolaser, and American Jigsaw Technologies. With these acquisitions, together with the preceding year's acquisitions of Swedish company Scanlaser and Danish company Mikrofyn and proprietary product development, Hexagon has taken a market-leading position in machine control in Europe.
During the year, Hexagon strengthened its customer offering in construction laser technologies through the acquisition of the French GAMFI International Group, thereby adding brands such as AGL, QBL and AGATEC to Hexagon's brand portfolio.
Geographic Information Systems (GIS)
GIS is a computer-based system for collecting, storing, analyzing and presenting position-related information. Thanks to webbased services such as Google Earth, GIS has become commonplace today.
Techniques used to collect data include GPS, digital image processing, photogrammetry, radar data, laser scanning, spectral analysis, digitalization of analogue documents and field inventories with various measurement instruments. Hexagon also develops digital sensors and software for the interpretation of images in two or three dimensions.
The largest customer groups within GIS are the security and defence-related industries, the national rescue services agencies, other government agencies and authorities and architects. The main drivers of demand for products and services in this area are the need to update and plan for changes in the cityscape or the environment, and for mapping natural disasters.
During the year, Hexagon strengthened its customer offering in GIS through the acquisition of the software companies Acquis of America, ER Mapper of Australia, IONIC Software of Belgium and US company IONIC Enterprise. These acquisitions have made Hexagon a leading player in the ongoing transition from desktop image handling and processing applications to web enabled and service oriented image management, processing and delivery solutions.
In the measurement technologies market's micro segment, Hexagon can offer the customer a complete range of products and one of the world's strongest service organizations. The systems measure with a precision spanning from a deviation of to . micromillimetres.
Hexagon's product offering in the area of stationary measurement systems includes vertical and horizontal coordinate measuring machines (CMM), sensors, software and aftermarket services.
Stationary measurement systems are used in the measurement of sheet-metal parts such as car doors, aircraft wings or the blades of a wind power station, as well as for control measurements directly on the workshop floor. The measurement systems are also used for measurements of components or products in the engineering industry or complex high-precision parts such as implants or prosthetics in the medical equipment industry.
The largest customer categories in stationary measurement systems comprise manufacturing companies such as the automotive, aerospace, electronics, energy and medical technology industries. The main driver of demand for products and services in this area is the need for greater quality, productivity and costefficiency in the manufacturing process.
In the area of portable measurement systems, Hexagon's product offering comprises handheld measurement devices, articulated arms, laser trackers, software and aftermarket services.
The largest customer categories in portable measurement systems comprise manufacturing companies in the automotive,
Contour inspection of lenses. Articulated arms for portable measurement.
aerospace, energy, medical technology and design industries. Another large area of application comprises maintenance and inspections of structures such as wind-power plants and aircraft. The main driver of demand for products and services in this area is the need for greater quality, productivity and cost-efficiency in the maintenance, manufacturing and design process.
During the year, Hexagon strengthened its position in the low and medium segment of the market for handheld measurement instruments through the acquisition of JMTC of China. The acquisition of Israeli company CogniTens also complemented the product portfolio by adding advanced three-dimensional optical technology for the measurement of surface structures and components.
In addition to its product offering in the macro and micro segments, Hexagon can function as a sub-supplier of technologies, systems and precision components to customers outside the Hexagon Group. The strategy of offering Hexagon's technologies to other OEMs (Original Equipment Manufacturers), and thus ensuring that Hexagon achieves critical volumes for these technologies, is a guarantee for continued cost-efficient development of the Group's technologies. Hexagon's core technologies are listed in the table on page .
The customers in this area primarily comprise internal and external OEMs of measurement technologies and positioning systems for civil aviation. The driver of demand for products and services in this area is primarily the need for greater precision and productivity.
During the year, Hexagon strengthened its product portfolio of precision components and systems for satellite-based naviga-
Three-dimensional laser scanning, more commonly known as High Definition Surveying (HDS), delivered a complete and accurate 3D model of St. Lambertus Church in Maastricht, the Netherlands. This will help to restore this impressive monument.
tion systems through the acquisition of NovAtel of Canada. NovAtel develops receivers, enclosures, antennas and firmware integrated in high-precision positioning applications. Hexagon also strengthened its product portfolio in this area through the launch of a five axis probing system.
The sales approach and distribution model for Hexagon's products and services vary from one area to another. The original sales process for large integrated measurement systems can take up to months and involve some engineers, while the handheld Leica DISTO™ laser meter is available for purchase in building supply warehouses.
For products in the measurement technologies market's macro segments, sales are largely made through distributors. For the sale of products in the micro segment, Hexagon has its own sales organization with approximately demonstration centres worldwide, at which the measurement systems are demonstrated by Hexagon's personnel and the customer is given the opportunity to make test measurements on site. Since the measurement system often involves a significant investment for the customer,
it is essential for both Hexagon and the customer to establish a close relationship for continued service and future upgrades.
During the year, Hexagon strengthened its distribution network in selected geographical markets through the acquisition of several distributors, including German companies Gesswein and Junglas, Austrian company Rost, Hungarian company Geopro, Turkish company Transmetal, US company Allen Precision and Indian company Elcome Technologies.
For Hexagon's software, demand is growing for long-term agreements through which the customer subscribes to regular software updates. Hexagon also offers regular upgrades of the measurement system, in which all sub-systems, except the carrier, are replaced.
Historically, Hexagon's sales follow a distinct seasonal pattern, in which the fourth quarter is the quarter generating the most sales. The second quarter of the year is historically Hexagon's second best quarter, since it is during this period that, for example, the construction industry in the Group's largest geographical markets buys equipment for the projects to be completed during the summer.
Innovation and successful product development are prerequisites for a company that wants to lead and develop its industry. Approximately 600 Hexagon employees work to develop the technologies of tomorrow that will further strengthen Hexagon's leading position in the market for measurement technologies.
Hexagon's vision is to be a market leader, number one or number two, in selected technical and geographic segments. Since a market-leading position demands products and services on the absolute cutting-edge of technology, one of Hexagon's overall operational targets is to be the industry's most innovative supplier.
Through successful research and development, combined with strong knowledge of the customer's needs, growth is created through unique product offerings. The challenge is to think big and develop pioneering technologies that cost-effectively provide the customer with greater efficiency, productivity and quality. As a supplement to the development of new technologies, Hexagon's research and development team works continuously on improving existing products and services, and finding new areas of application for already established technologies.
The entrepreneurial spirit and down-to-earth approach that are the primary characteristics of Hexagon's corporate culture create a favourable climate for successful research and development. In order to succeed, people must first dare to risk failure. Within Hexagon, creativity and innovativeness are encouraged.
Today, a total of approximately graduate engineers are engaged in research and development at Hexagon. The work is managed from a central research unit in Heerbrugg, Switzerland, where fundamental development takes place. The Group also has a number of product development units, which jointly form a worldwide network for knowledge exchange and close cooperation. These units, located in Sweden, Denmark, Switzerland, Germany, France, Italy, Israel, the US, Canada, Singapore, India, China, Japan and Australia, base their work on joint plans and processes.
In order to maintain its position as the industry's innovator and also ensure efficient innovation that generates improved sales and profitability, Hexagon works closely with its customers and has excellent knowledge of the market's development and trends. Hexagon continuously monitors closely related business segments to find technologies that can be applied in the Group's existing customer segments, or suitable business segments for Hexagon's existing technologies.
Product development efforts are conducted with a high level of intensity. Individual products in Hexagon's product portfolio have an average lifecycle of months. Product development is continuously pursued to update the measurement system's various components as new technology becomes commercially available. Extensive development work is a prerequisite for Hexagon's ability to be at the forefront of the commercialization of technological development.
Strategic development areas within research and development include software development, sensor technology, distance measurement and calibration and compensation technology. During the year, development of sensors for products in the micro segments and new software modules continued to dominate
Hexagon's product development. The research unit's focus areas in also included new software modules for three-dimensional imagery and new products that provide higher precision and productivity when using GPS or GNSS positioning systems.
Hexagon assigns investments in research and development a high priority. Meeting customer demands and continuously providing the market with new and improved products require resources. Hexagon's research and development costs for totalled MSEK, corresponding to approximately per cent of consolidated sales.
Development costs are capitalized, that is taken up as an asset in the balance sheet, only if they pertain to new products, if the cost is significant and if the product is assessed to have earnings potential. During the year, about per cent of the development cost was capitalized.
Hexagon believes that the current level of Group investments in research and development are reasonable and in line with those of other leading market players in the industry.
The TESA Star Linear wrist, a five axis probing system, was developed in 2007. Ideal for measuring complex applications such as gears, cams, blades, turbines and sheet metal.
On the management consulting firm Booz Allen Hamilton's list of the world's most research and development intensive listed companies, Hexagon is ranked among the top companies. In the Global Innovation report, Hexagon is mentioned as one of the companies in the world that generates the most from its investments in research and development.
| Product Groups | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Technology | NUMBER OF PATENTS |
CMM | ARTICULATED ARMS |
LASER TRACKERS |
TOTAL STATIONS |
DISTO™ | HDS | CON STRUCTION |
HANDTOOLS | PROBE SYSTEMS |
| Linear distance measurement | 330 | |||||||||
| Optics | 220 | |||||||||
| Sensors | 300 | |||||||||
| Calibration and compensation | 90 | |||||||||
| GPS and GNSS | 210 | |||||||||
| Machine control | 60 | |||||||||
| Laser | 50 | |||||||||
| Mechanical structures | 170 | |||||||||
| Components | 90 | |||||||||
| Signal and image processing | 130 | |||||||||
| Control systems | 40 | |||||||||
| Software | 10 | |||||||||
| Total | 1 700 |
To protect investments in research and development, Hexagon submits approximately 200 patent applications annually. The patent portfolio currently consists of more than 1 700 active patents worldwide. Hexagon carefully monitors its competitors in the measurement technologies market to ensure that its patents are respected. The Group views patent infringement seriously and has established a principle of legally defending its rights.
Hexagon's polymer operations holds a market-leading position within rubber compounds, gaskets for plate heat exchangers and plastic and rubber wheels. During 2007, Polymers' operations were strengthened through acquisitions and investments in new production facilities, and the process of listing the business on the Nordic Exchange commenced.
In recent years, Polymers has developed from a local Nordic player to a rapidly growing global Group with manufacturing on four continents. Polymers is currently a world leader in rubber compounds and gaskets for plate heat exchangers, and also one of the leading players in the global market for the manufacture of plastic and rubber wheels.
Polymers develops and supplies rubber compounds to customers worldwide. By combining first-class raw materials with optimal and cost-efficient manufacturing processes, Polymers develops and produces high-quality solutions. Polymers' customers use these rubber compounds for applications such as profiles for advanced sealing functions, primarily for the automotive industry and for the electrical and construction industries.
The rubber compounds operation has a total capacity of approximately tonnes of rubber per year. During , capacity utilization was high in existing facilities and new production units were inaugurated in China and Mexico. Today, production facilities are located in Sweden, Belgium, Germany, the Czech Republic, the US, Canada, China and Mexico.
Hexagon's potential to offer a global concept is exceptionally strong compared with local and regional competitors or with the customer's own ability to product rubber compounds in a costefficient manner.
Polymers is a world-leading supplier of gaskets for all major OEM manufacturers of plate heat exchangers. The market is experiencing strong growth, particularly the segment for heat exchangers intended for energy, ethanol, oil and gas applications. The market segments for air conditioning and district heating, which are both driven by higher living standards in developing countries, have also experienced strong growth in recent years.
Larger volumes are manufactured in Polymers' production facility in Sri Lanka and small volumes of advanced material grades are made in Sweden. A new gasket factory in China is under construction and scheduled to be deployed in August .
Sales increased to 2 730 MSEK during the year, corresponding to organic growth of 6 per cent.
Operating earnings Operating earnings increased by 39 per cent to 310 MSEK during the year.
The operating margin grew by more than two percentage points to slightly more than 11 per cent during the year.
Polymers has reached a size and level of profi tability that makes the business attractive as an independent listed company. Accordingly, Hexagon's Board of Directors has decided to propose that the Annual General Meeting resolve to list the polymer operations on the Nordic Exchange. Th e listing is scheduled to occur during June .
As a listed company, the polymer operations can continue to grow through new establishments and acquisitions. A listing prospectus will describe the business and its strategies in more detail. Th e prospectus will be available on www.hexagon.se as of early June .
Polymers is one of the leading players in the global market for the manufacture of plastic and rubber wheels. Th e major customers in this product area are manufacturers of electric forklift trucks, hand-pallet trucks and track drive applications. Th e competition primarily comprises family-owned companies.
Polymers' production facilities for the manufacture of wheels are located in Sweden, the US, Sri Lanka and China.
Polymers' global material and product development take place at each respective production facility to maximize the benefi t of close cooperation between the customer and the sales personnel, development engineers and production. Th e polymer operations currently invest approximately per cent of sales in research and development.
At a central development department connected to the production unit in Belgium, well-trained and experienced polymer technicians develop and test the functional performance and commercial strength of rubber compounds. Information on new compound formulas and raw materials is distributed to all of Polymers' units through an internal database and regular product development meetings. Th e objective is to optimize product quality, fi nancial profi le and reliability.
During the past year, Hexagon's polymer operations developed favourably after being negatively aff ected in by price increases and capacity defi ciencies, primarily in the production of oil-based raw materials such as carbon black and EPDM. Th e effi ciency of production was enhanced and more cost-effi cient compound formulas were developed.
In April , Polymers inaugurated a new production facility for rubber compounds in Qingdao, China, to meet demand from automotive industry sub-suppliers in Europe, the US and Korea, which is also increasing its volumes in China. In October, a new production facility was inaugurated in Aguascalientes, Mexico, to meet the North American automotive industry's extensive capacity expansion in Mexico.
During , the US rubber compound company Gold Key Processing Inc., which produces rubber compounds for industrial applications and the automotive, construction, pharmaceutical and aerospace industries, was acquired. Th e company's production plant in Ohio in the US has an annual capacity of approximately tonnes. In addition to strengthening the market position in the US, the acquisition of Gold Key has provided the business with new product lines, knowledge and competence in new materials technology.
%
| 2007 | 2006 | Change | |
|---|---|---|---|
| Order intake, MSEK | 2 824 | 2 542 | 4%* |
| Sales, MSEK | 2 730 | 2 488 | 6%* |
| Operating earnings, MSEK | 310 | 223 | 39% |
| Operating margin, % | 11.4 | 9.0 | 2.4 |
| Average number of employees | 2 120 | 1 933 | 10% |
* Adjusted to fi xed exchange rates and comparable structures (organic growth).
It is Hexagon's strategy to achieve global reach with local competence. The Group's experience in China is a typical example. As a local player, Hexagon benefits from its understanding of the Chinese market, culture and customer needs, knowledge that is essential for generating sustainable profitability.
Hexagon has grown rapidly in recent years on the basis of advanced technology and market leadership, as well as through strategic mergers and acquisitions. Hexagon made its debut in China in with one single CMM production facility and employees. At the end of , Hexagon had four production facilities in different parts of China and over employees. Since , Hexagon's total sales in China have increased six-fold.
Hexagon works proactively to engage people who are interested in or affected by Hexagon's innovative products and pioneering activities. Active engagement with business partners, community institutions and employees creates long-term value and generates a positive return for shareholders.
As a local player, Hexagon has a good understanding of the Chinese market, culture and customer needs. At the same time, Hexagon is cultivating a global mentality. Common research and development, sourcing and communication link all business units closely to the global network of Hexagon that features maximum resource sharing and diversified culture.
"An appropriate strategy is not the sole success factor for Hexagon's operations in China. The strategy has to be carried out loyally and thoroughly by qualified people", says Hongquan Li, President of Hexagon's measurement technologies operations in China.
"In China, Hexagon's core competence is the young professional team with its dynamic strength and high productivity. Having benefited from unprecedented rapid growth of the economy and comprehensive process of opening up to the outside world, this young generation of Chinese has access to the best education and a global vision. Hexagon's focus has always been to provide quality products and services to customers, as well as to give employees a high quality of life. It is our ambition to fulfill this mission for Hexagon's operations in China."
China has a population of more than 1.3 billion people. The land area is 9.6 million square kilometres and the coastline 18 000 kilometres long. The Chinese economy has grown six-fold in over the past 20 years. The country has had an annual GDP growth rate of 10 per cent for the past five years.
China project
The picture shows some of the 1 100 Hexagon employees in China. The company culture is based on competence, innovative thinking, loyalty and trust.
Throughout the world, in all markets, the need to measure with great precision in one, two or three dimensions is increasing. Demand is driven by growth in the world's new industrial regions, rebuilding of the western world's aging infrastructure and climate and environmental changes. Add to this the relocation of operations from old industrial countries in the west to new industrial countries in the east. High-quality measuring systems are contributing to improved quality, increased productivity and efficiency, decreased scrapping and, as a result, reduced consumption of materials and raw materials. Hexagon has made it its mission to meet these needs in a dedicated, professional and responsible manner.
For Hexagon, corporate responsibility is about responsibility and respect in its relationships with the Group's interested parties: employees, their families and society as a whole; customers that use Hexagon's products and services with confidence and trust; suppliers that produce the components Hexagon needs to develop, manufacture and market its products; investors who entrust Hexagon with their capital; and the environment and future generations.
Hexagon conducts business operations in countries and is subject to a wide range of legal requirements. However, as a market leader, Hexagon is responsible not only for complying with laws and regulations, but also for acting as a role model in its industry.
The Group must comply with all applicable laws, rules and regulations in all of its business activities. In international business transactions, there must be compliance with export and import regulations, anti-boycott provisions, trade embargos and economic sanctions in the countries affected. Hexagon's representatives are not permitted to demand, accept or offer bribes, kickbacks or any other unlawful or unethical benefits.
Hexagon's code of conduct supports and embodies the core values expressed in the United Nations Global Compact's ten principles in the areas of human rights, labour law, the environment and anti-corruption. Hexagon's code of conduct is applicable to all employees and everyone is encouraged to report any non-compliance with the code of conduct.
Hexagon's slightly more than ten thousand employees work within the areas of research and development, marketing, sales, production, installation, customer training, service and administration. The company culture is based on competence, innovative thinking, loyalty and trust. To increase profitability and achieve the financial targets, strong leadership and motivated employees are required. It is the task of management to preserve and maintain Hexagon's favourable work environment. Hexagon's operations are conducted based on a common platform of values and attitudes: a focus on earnings, professionalism, entrepreneurship, drive, commitment and a down-to-earth approach.
As part of the work to further strengthen cooperation and solidarity within Hexagon, the Group's global intranet was launched in . The intranet is a platform for all employees, at all levels and in all countries, where they can establish contacts, exchange ideas and receive information about exciting projects and news within the Group.
In the spring of , an employee engagement survey will be performed in all Hexagon companies throughtout the world for the first time. The goal is to receive better insight into employees' commitment and map out the basic driving forces that affect the individual's job satisfaction and productivity. From the results of the survey Hexagon will derive top-down actions and, if and where necessary, appropriate bottom-up actions.
Hexagon's work environment must be stimulating and facilitate development. Needless to say, it must also comply with existing legal requirements. No employee shall be discriminated against on the basis of gender, religion, age, disability, sexual orientation, nationality, political views or ethnic origin. For Hexagon, equality and diversity are a matter of mutual respect.
Measures to ensure employees' health and safety are established on the basis of local conditions and regulations. Hexagon's efforts to improve the work environment are pursued in cooperation with labour unions. Most work-related accidents occur on stairs or falls elsewhere on the premises. Statistics and followup concerning work-related accidents are generated within each company.
At Hexagon, career-oriented competence development is geared toward the needs of the company and the individual. Senior management within each company undertakes individual leader-
Hexagon employees work within such areas as research and development, marketing, sales, production, installation, customer training, service and administration. The advanced technical level of this work requires skilled and highly educated employees.
ship development programmes in cooperation with leading companies in the field.
To further utilize Hexagon's combined competence, Group employees work in a network that spans division and geographic boundaries. An example of this is Hexagon's network for employees within research and development, which meets regularly to discuss Group-wide development projects. Another is the annual Contact Conference, in which the Group's approximately most senior managers participate for the purpose of cooperation and exchanging experiences.
The level of remuneration at Hexagon is market-based and competitive. Performance-based remuneration, linked to the individual's contribution to earnings, is the standard in certain parts of the Group. Further information about salaries and other remuneration is available in Note a on page .
For a global company like Hexagon, local expertise is a necessary and decisive factor for success in specific geographic markets. For this reason, most recruitment is carried out locally.
To bring competence and up-to-date knowledge to the company, Hexagon cooperates with a wide range of universities and colleges throughout the world. An example of this is the newly established Centre of Excellence in photogrammetry and remote sensing at Wuhan University in China. Wuhan University will incorporate Hexagon's products into its curriculum and research activities. In addition to providing funding and software, Hexagon will also initiate special research projects.
Hexagon works to continuously improve its product portfolio, particularly through its own research and development, in order to satisfy customer requirements. Professionalism and a high level of service characterize the company's customer relations. Business decisions are based on the best interest of Hexagon rather than on personal considerations or relationships.
Hexagon competes honestly for business and upholds the highest standards with regard to business ethics. Hexagon also adheres to its business ethics in its marketing and advertising activities. Naturally, the Group complies with the local competition rules in effect in each geographic market.
When choosing suppliers, the competiveness of the supplier's offering is the most decisive factor. In addition, Hexagon aims to cooperate with suppliers and subcontractors whose procedures and business ethics correspond with Hexagon's code of conduct.
Hexagon's supplier policy also stipulates that preference be given to suppliers that are environmentally aware. This includes following Hexagon's environmental policy.
Hexagon aims to supply the capital market, investors and other stakeholders with relevant information that provides the basis for a fair assessment of the company. The goal is to apply openness, objectivity and a high level of service in the company's financial reporting to enhance the market's trust in the company and increase the interest of current and potential shareholders.
Hexagon carefully follows accounting principles and utilizes internal controls and processes to ensure that its accounting and financial reporting comply with laws, regulations and listing requirements. Hexagon applies transparency in its financial reporting and, in accordance with the Group's information policy, provides the market with comprehensive and well-founded information.
Hexagon's corporate governance is described in the Corporate Governance Report on page and is available on the company's website. All published financial information is also available on Hexagon's website, including press releases, financial reports, annual reports and presentations.
Hexagon strives to use its market-leading position responsibly. Accordingly, the company supports and participates in a number of projects that aim to improve the society in which Hexagon operates. These projects are decided and organized at a local level and by each company.
One example is the African Geodetic Reference Frame (AFREF) project. As a global acting company it is the interest of Hexagon to help establish a geodetic network for Africa – whose purpose is to provide a precise survey of the land – with the most advanced technology. AFREF will serve both the sub-Saharan region and the international community. It will increase capacity, modernize and harmonize geodetic reference networks in the region, thus strengthening survey work and providing accurate data to support the private sector a well as business and policy makers.
Another example is Amnesty International's request for an analysis of high-resolution satellite imagery to asses violations in Dafur, Sudan. Staffmembers of the American Association for the Advancement of Science (AAAS) analyze the images in Leica Geosystems ERDAS IMAGINE, a software tool providing the AAAS image processing and multi-spectral classification analysis.
Hexagon implements processes with regard to sustainability and the pursuit of an ecological product development. A fundamental principle for Hexagon's environmental initiatives is the environmentally friendly use of resources in its manufacturing whenever possible.
Questions regarding activities that may have an environmental impact are to be guided by what is ecologically motivated, technically possible and financially defensible. In accordance with Hexagon's overall environmental policy, the Group:
The environmental work of the operations is decided and organized at a local level and by each company. The goals of this environmental work are determined based on the individual companies' operations and impact on the environment. Followup also takes place at company level. Further information is available on each company's website.
To be able to conduct profitable operations, it is absolutely essential to meet international quality standards and specific
Based on the average number of employees in 36 countries during 2007, Switzerland, the US and Sri Lanka had the highest number of employees. Following the listing of the polymer operations, the Group will no longer have employees in Sri Lanka and the number of employees in Sweden will decrease significantly.
Geographic distribution of average number of employees 2003–2007 EMEA is the geographic region in which Hexagon has the highest number of employees. During the period from 2003 to 2005, the average number of employees in EMEA remained more or less constant, while the average number of employees in Asia and the Americas tripled.
The African Geodetic Reference Frame (AFREF) is conceived as a unified geodetic reference frame for Africa. In March 2007, the first permanent GNSS reference station was launched in Kenya. Leica Geosystems supports the project with its knowledge, as well as via donation of a complete system.
customer demands. This is a minimum requirement made explicit by customers. Hexagon has been awarded a number of certificates that attest to the quality of its products, manufacturing processes and customer satisfaction and that are reviewed and examined regularly.
All Hexagon products and plants are certified in accordance with ISO and ISO where this is warranted. Certification allows customers to feel secure in the knowledge that Hexagon follows high-level quality and environmental standards and that Hexagon's operations are conducted in accordance with defined and, as a result, measurable processes.
In accordance with the European Union's Waste Electrical and Electronic Equipment (WEEE) and RoHS directives, Hexagon strives to reduce the amount of waste that is produced during the lifetime of its products. The company selects materials and components that can be reused or recycled. An example of recycling within Hexagon is Leica Geosystems' commitment to take care of old measuring instruments free-of-charge and ensure that they are recycled correctly.
Hexagon addresses the issue of sustainability at the beginning of every product development and design process. As an integrated part of Hexagon's research and development work, continuous discussions are held and tests performed concerning product improvements and whether they are financially, technologically and ecologically justifiable. For Hexagon, sustainable product development includes:
Updating and developing the description of the manner in which Hexagon works for its interested parties is a continuous process. At present, an initiative is under way within Hexagon to review and update all Group-wide guidelines pertaining to corporate responsibility.
At year-end 2007, the share of female employees within Hexagon was 19 per cent, an increase of one percentage point.
In 2007, the average number of employees was 8 406. At year-end 2007, the number of employees was 10 062, an increase of 1 893 employees.
| Men Women | % | 2007 | 2006 | Change | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Number | Number of employees | 10 062 | 8 170 | 23% | |||||||||
| 2007 | 81 | 19 | 2007 8 406 | Average number of employees | 8 406 | 7 862 | 7% | ||||||
| 2006 2005 |
82 84 |
18 16 |
2006 7 862 2005 6 111 |
Number of countries | 36 | 30 | 6 | ||||||
| 2004 | 84 | 16 | 2004 5 935 | Average number of employees outside Sweden, % | 88 | 83 | 5 | ||||||
| 03 04 05 06 | 07 | 2003 | 84 | 16 | 03 04 05 06 | 07 | 2003 5 401 | Remuneration as a share of sales, % | 22 | 22 | 0 |
Outsourcing of metrology services is a growing part of the Hexagon service offering. Full-time Hexagon employees are embedded right at the point of production, providing direct support to manufacturing customers on a real-time collaborative basis.
When many companies outsource parts of their operations, it often means sending work to a far flung location away from the core factory. Hexagon provides outsourced metrology services of a different kind.
Dimensional measurement validation of parts often means the difference between "go" and "no-go" in production, and having third party experts from Hexagon permanently on-site provides an extra measure of reliability in test results. Cost savings in the form of improved production uptime and reduced scrap are tangible benefits to this type of integrated services.
Hexagon has signed a long term contract with the diesel engine manufacturing unit of Caterpillar Inc. in Mossville, Illinois, USA, to provide in-house metrology support services to the construction equipment company.
A staff of Hexagon employees provide round the clock, seven days a week, support on-site at Mossville providing complete inspection support including dimensional and surface finish checks. Caterpillar Mossville has multiple production lines producing engine heads, crankshafts, cylinder heads and engine blocks.
Hexagon inspectors work closely with Caterpillar staff to identify and assist in corrective actions and continuous improvements from the first production step to final product. The Hexagon staff also programs, services and maintains Caterpillar's onsite metrology equipment, the majority of which are Hexagon brands such as Brown & Sharpe and DEA.
Service and maintenance provided to secure the measurement system's operation comprise a key component in Hexagon's customer offering. Service and maintenance activities include contract-based measurement,
training of measurement system operators, outsourcing of the measurement function and software upgrades. Technical measurement advice and measurement assignments ensure that Hexagon stays abreast of the daily use the Group's products.
Hexagon's share price rose a full 39 per cent during 2007. At year-end, the share price was 135.50 SEK and market capitalization totalled about 36 billion SEK. Earnings per share increased 36 per cent compared with 2006.
Hexagon's class B shares are traded on the Nordic Exchange's Large Cap List under the HEXA B code. A trading lot comprises shares. The Hexagon share also has a secondary listing on the SWX Swiss Exchange under the HEXN code.
During the year, the price of the Hexagon share rose by per cent to . SEK (.). During the corresponding period, the Nordic Exchange's OMXS index declined by . per cent.
The highest closing price paid during the year was . SEK on November . The low for the year, . SEK, was recorded on March . Market capitalization at year-end was MSEK ( ).
Hexagon's share capital amounts to SEK, represented by shares. Total shares at year-end comprised class A shares, each carrying ten votes, and class B shares, each carrying one vote. All shares confer equal rights to participate in the company's assets and earnings.
A total of shares ( ) were traded in , including after-hour trading, for a total value of MSEK ( ). An average of shares ( ) were traded per trading day. The number of shares traded was per cent () of the total number of shares.
At year-end , Hexagon had registered shareholders, compared with at year-end . At year-end, the foreign ownership share was per cent (). Shareholders in the US accounted for the largest foreign holdings, representing per cent () of total shares.
During the year, the Hexagon share was split, whereby each share was divided into three shares of the same class. The record date for the split was June .
Hexagon's Board of Directors decided during the year to propose to the Annual General Meeting that it approve a separate listing of the polymer operations on the Nordic Exchange. The listing is planned to be effected during June . For Hexagon's shareholders, this corresponds to an extraordinary dividend in the form of shares in this future listed company.
| The Nordic Exchange | HEXA B |
|---|---|
| ISIN code | SE0000103699 |
| SWX Swiss Exchange | HEXN |
| Trading lot | 100 shares |
| Reuters Ticker | HEXAb.ST |
| Bloomberg Ticker | HEXAB SS |
| Type of share | Number of shares |
% of votes | % of capital |
|---|---|---|---|
| Class A shares | 11 812 500 | 31.8 | 4.5 |
| Class B shares | 253 537 485 | 68.2 | 95.5 |
| Total | 265 349 985 | 100.0 | 100.0 |
| 2007 | 2006 | Change | |
|---|---|---|---|
| Share price, SEK | 135 | 97 | 39% |
| Shareholders' equity, SEK | 37.69 | 32.00 | 18% |
| Earnings, SEK | 6.79 | 5.01 | 36% |
| Cash flow, SEK | 9.32 | 6.84 | 36% |
| Dividend, SEK | 2.35* | 1.67 | 41% |
| Dividend yield, % | 1.7 | 1.7 | 0.0 |
| Pay-out ratio, % | 35 | 33 | 2 |
Distribution of shares * According to the Board of Directors' proposal.
Hexagon currently has three outstanding option programmes with the overall objective of harmonizing the incentives applying to key employees with shareholder interests, by off ering these employees the opportunity to participate in the Group's value growth.
Hexagon's subsidiary Leica Geosystems has two options programmes outstanding. Th ese options have been transferred free on charge on allotment. Following Hexagon's acquisition of Leica Geosystems, the terms and conditions were adapted so that the options apply to Hexagon shares plus a cash consideration. Th e remaining options confer rights to subscribe for class B Hexagon shares, insofar as Hexagon elected not to redeem the options for cash.
In December , an Extraordinary General Meeting authorized Hexagon to implement a subscription warrant programme for approximately identifi ed senior executives and key employees of the Group through a directed issue of subscription warrants for a price of SEK per warrant. Each subscription warrant shall entitle the holder to subscribe for one class B Hexagon share during the period from July up to and including January . When exercising the subscription warrants, the price paid for the subscription of new shares shall be based on a market valuation considering the established price for the warrants, based on the Black-Scholes model.
Upon full exercise of remaining parts of Hexagon's three option programmes outstanding, the dilutive eff ect would be . per cent of the share capital and . per cent of the voting rights.
Financial information regarding Hexagon and current share-price information is available on the company's website at www.hexagon.se. Questions will be answered by Sara Kraft, IR Manager Telephone + E-mail [email protected]
Hexagon's earnings performance and equity ratio determine the size of the dividend. Hexagon's dividend policy stipulates that – per cent of earnings per share after tax should be paid as dividend to shareholders, assuming the company satisfi es its equity ratio objective.
Th e dividend proposed by the Board of Directors for is . SEK (.) per share, corresponding to MSEK (). Th e dividend corresponds to per cent () of earnings per share after tax and . per cent (.) of consolidated shareholders' equity. It is also proposed that the polymer operations be listed on the Nordic Exchange, which will correspond to a dividend of shares in the future listed company.
| Year Transaction | Nominal value, SEK |
Change in number, class A shares |
Change in number, class B shares |
Total number, class A shares |
Total number, class B shares |
Share capital, total, SEK |
|
|---|---|---|---|---|---|---|---|
| 2000 | 10 | – | – | 840 000 | 13 953 182 | 147 931 820 | |
| 2002 Rights issue | 10 | 210 000 | 3 488 295 | 1 050 000 | 17 441 477 | 184 914 770 | |
| 2004 New issue, options exercised | 10 | – | 10 170 | 1 050 000 | 17 451 647 | 185 016 470 | |
| 2005 New issue, options exercised | 10 | – | 722 635 | 1 050 000 | 18 174 282 | 192 242 820 | |
| 2005 Bonus issue | 12 | – | – | 1 050 000 | 18 174 282 | 230 691 384 | |
| 2005 Split 3:1 | 4 | 2 100 000 | 36 348 564 | 3 150 000 | 54 522 846 | 230 691 384 | |
| 2005 New issue, options exercised | 4 | – | 154 500 | 3 150 000 | 54 677 346 | 231 309 384 | |
| 2005 Private placement* | 4 | – | 11 990 765 | 3 150 000 | 66 668 111 | 279 272 444 | |
| 2005 Private placement* | 4 | – | 82 000 | 3 150 000 | 66 750 111 | 279 600 444 | |
| 2006 Rights issue | 4 | 787 500 | 16 687 527 | 3 937 500 | 83 437 638 | 349 500 552 | |
| 2006 New issue, options exercised | 4 | – | 508 933 | 3 937 500 | 83 946 571 | 351 536 284 | |
| 2006 Compulsory redemption, Leica Geosystems | 4 | – | 198 635 | 3 937 500 | 84 145 206 | 352 330 824 | |
| 2006 New issue, options exercised | 4 | – | 309 119 | 3 937 500 | 84 454 325 | 353 567 300 | |
| 2007 New issue, options exercised | 4 | – | 58 170 | 3 937 500 | 84 512 495 | 353 625 470 | |
| 2007 Bonus issue | 6 | – | – | 3 937 500 | 84 512 495 | 530 699 970 | |
| 2007 Split 3:1 | 2 | 7 875 000 | 169 024 990 | 11 812 500 | 253 537 485 | 530 699 970 | |
| 31 December 2007 | 2 | 11 812 500 | 253 537 485 | 530 699 970 |
* Issues in kind in connection with the acquisition of Leica Geosystems.
The share distribution is based on where the shareholding is registered. At the end of 2007, foreign ownership corresponded to 24 per cent.
registered in the US and 16 per cent in the UK at the end of 2007.
Earnings per share increased by 36 per cent to 6.79 SEK, which surpassed the objective of an annual increase of at least 15 per cent.
The Board of Directors proposes that the dividend be increased by 41 per cent to 2.35 SEK, corresponding to 35 per cent of earnings after tax.
36 Hexagon Annual Report 2007
| Class A shares |
Class B shares |
Capital, % | Votes, % | |
|---|---|---|---|---|
| Melker Schörling AB | 11 812 500 | 50 415 654 | 23.5 | 45.4 |
| Maths O. Sundqvist, through companies |
39 000 000 | 14.7 | 10.5 | |
| Swedbank Robur Funds | 17 161 625 | 6.5 | 4.6 | |
| AFA Insurance | 14 177 792 | 5.3 | 3.8 | |
| Columbia Wanger Asset Management |
10 950 000 | 4.1 | 2.9 | |
| Mellon Omnibus | 5 801 210 | 2.2 | 1.6 | |
| JP Morgan | 4 881 543 | 1.8 | 1.3 | |
| Handelsbanken Funds | 4 368 729 | 1.7 | 1.2 | |
| Fidelity Funds | 4 195 582 | 1.6 | 1.1 | |
| SEB Investment Management | 3 942 425 | 1.5 | 1.1 | |
| AMF Pensionsförsäkrings AB | 3 900 000 | 1.5 | 1.1 | |
| Handelsbanken | 3 804 908 | 1.4 | 1.0 | |
| Simon Bonnier | 3 227 430 | 1.2 | 0.9 | |
| Second AP Fund | 2 946 165 | 1.1 | 0.8 | |
| Didner & Gerge Mutual Fund | 2 770 000 | 1.0 | 0.8 | |
| Ola Rollén | 2 731 152 | 1.0 | 0.7 | |
| Fourth AP Fund | 1 904 087 | 0.7 | 0.5 | |
| Northern Trust | 1 815 809 | 0.7 | 0.5 | |
| SIS Segaintersettle AG | 1 788 044 | 0.7 | 0.5 | |
| AMF Pension Funds | 1 646 900 | 0.6 | 0.4 | |
| Total, largest 20 shareholders | 11 812 500 | 181 429 055 | 72.8 | 80.7 |
| Total, others | – | 72 108 430 | 27.2 | 19.3 |
| Total number of shares | 11 812 500 | 253 537 485 | 100.0 | 100.0 |
| Number of shareholders |
Number of class A shares |
Number of class B shares |
|
|---|---|---|---|
| 1–500 | 4 510 | – | 885 929 |
| 501–1 000 | 1 593 | – | 1 249 774 |
| 1 001–2 000 | 1 408 | – | 2 058 006 |
| 2 001–5 000 | 1 252 | – | 4 006 272 |
| 5 001–10 000 | 564 | – | 4 054 227 |
| 10 001–20 000 | 310 | – | 4 275 309 |
| 20 001–50 000 | 171 | – | 5 137 889 |
| 50 001–100 000 | 82 | – | 5 835 641 |
| 100 001–500 000 | 111 | – | 26 321 386 |
| 500 001–1 000 000 | 32 | – | 22 790 421 |
| 1 000 001–5 000 000 | 32 | – | 63 920 561 |
| 5 000 001–10 000 000 | – | – | – |
| 10 000 001– | 4 | 11 812 500 | 113 002 070 |
| Total | 10 069 | 11 812 500 | 253 537 485 |
Source: Direct and nominee-registered holdings with VPC at 31 December 2007.
| ABG Sundal Collier | Tobias Ottosson | [email protected] |
|---|---|---|
| CAI Chevreux | Patrik Sjöblom | [email protected] |
| Carnegie | Björn Enarson | [email protected] |
| Deutsche Bank | Johan Wettergren | [email protected] |
| Handelsbanken | Markus Almerud | [email protected] |
| Kaupthing | Joakim Höglund | [email protected] |
| SEB Enskilda | Daniel Schmidt | [email protected] |
| Swedbank | Mats Larsson | [email protected] |
Source: Direct and nominee-registered holdings with VPC at 31 December 2007, grouped into owner categories.
Cash flow from operating activities increased to 2 027 MSEK, corresponding 7.64 SEK per share.
More than 100 analysts, investors and journalists participated in Hexagon's Capital Markets Day on 4 December 2007 in Stockholm, Sweden, at which Hexagon presented new financial objectives for the coming three-year period. Hexagon's geospatial imaging and machine control operations were presented, as were the Group's operations in China.
Risks are a natural feature of international operations. The risks may be operational or financial. Hexagon deploys a structured approach to limiting both short and long-term risks.
Hexagon's risk-management activities are designed to identify, control and reduce risks associated with its business. Operational risks are primarily managed within each subsidiary and business area, while other risks are managed at Group level.
Since the majority of operational risks are attributable to Hexagon's customer and supplier relations, Hexagon conducts ongoing risk analyses of customers and suppliers to assess business risks.
Hexagon's business activities are conducted in a large number of geographical markets, with numerous customer categories. The largest customer represents about per cent of the Group's total sales. The same applies to the Group's suppliers, where the major supplier accounts for some per cent of net sales. Hexagon believes it has a favourable risk diversification and that dependence on a single customer or supplier is not decisive for the Group's success. Sales by customer category are presented in diagrams on pages and .
Operations may be limited by changes to regulatory structures, customs duties and other trading obstacles, pricing and currency controls and other central government guidelines in the countries where Hexagon is active.
To manage country-specific risks, Hexagon observes local legislation and monitors political developments in the countries where the Group is active.
Some of Hexagon's operations are pursued in competitively exposed industries that are affected by pressure on prices and rapid technological change. To reduce these risks, Hexagon's ability to compete in a market environment by introducing new products with greater functionality, while simultaneously reducing costs for new and existing products, is of major significance.
The raw materials risk relates to the supply of and price formation for necessary production inputs. During the past year, the price of most of the Group's raw materials has stabilized, compared with prior years. To minimize the risk of shortages in the supply of raw materials or of excessive price variations among suppliers, Hexagon works actively to identify alternative suppliers for strategic materials and, in close cooperation with customers, to identify alternative raw materials.
To avert legal risks, Hexagon closely monitors regulations and ordinances applicable in each market and works to rapidly adapt the company to identified future changes in the area.
While it occasionally occurs that Hexagon becomes a party to legal disputes relating to its business operations, no Group company is party to any legal process or dispute whose outcome is
| Change | Outcome |
|---|---|
| 1 per cent | 146 MSEK |
| 1 per cent | 38 MSEK |
| 1 percentage point | 70 MSEK |
Net assets per foreign currency CHF is the foreign currency in which the Group has the largest amount of its net assets, followed by CAD and USD.
anticipated to have a material impact on consolidated earnings and financial position.
To secure a return on Hexagon's investments in research and development, the Group protects its technological innovations against infringement and plagiarism. Hexagon protects its intellectual property through legal proceedings when warranted.
Since future successes are largely dependent on the capacity to retain, recruit and develop skilled staff, being an attractive employer is an important success factor for Hexagon. Group and business area management jointly handle risks associated with human capital.
To ensure well-balanced insurance cover and financial economies of scale, the Hexagon Group's insurance includes Group-wide non-life and liability insurance, travel insurance and transport insurance. In pace with the Group's development and the completion of damage-prevention programmes, the insurance programme is periodically amended so that own risk and insured risk are optimally balanced.
Hexagon does not believe that changed environmental requirements could affect demand for the Group's products or the use of the Group's tangible fixed assets to any major degree. Certain Group companies pursue operations that require permits or are notifiable pursuant to the Swedish Environmental Code and are under the supervision of the appropriate authority. Hexagon has received permits and has fulfilled the applicable notification obligations.
In its capacity as a net borrower and due to its extensive operations outside Sweden, Hexagon is exposed to various financial risks. The Group's finance policy indicates guidelines for financial exposure and how these should be managed in the Group. The Board formulates a finance policy for each year.
Hexagon's financial operations are centralized to the Group's internal bank, which is in charge of coordinating currency and interest rate exposure. The internal bank is also responsible for the Group's external borrowing and its internal financing. Centralization entails substantial economies of scale, lower financing costs and better control and management of the Group's financial risks. The internal bank has no mandate to conduct independent trading in currencies and interest rate instruments. The credit risk at the customer level is managed in each subsidiary.
A more detailed description of the Group's financial risks is presented in Note on page .
Pursuing operations outside Sweden entails currency risks. Changes in exchange rates affect Hexagon's earnings, in part when sales and purchases are made in different currencies (transaction exposure) and, in part, when the income statements and balance sheets of foreign subsidiaries are translated to Swedish kronor (translation exposure). In accordance with the finance policy, transaction exposure is eliminated as soon as it is identified, mainly through forward currency contracts. Other currency risks are subject to exchange rate hedging via loans or forward contracts in the net asset currency.
Financing risk refers to the risk that Hexagon cannot meet its need for external capital. Securing these requirements demands a strong financial position in the Group, combined with active measures to ensure access to credit. Cash and cash equivalents, including unutilized credit limits, totalled MSEK on December .
The interest rate risk is the risk that changes in interest rates will adversely affect the Group's net interest expenses and/or the cash flow.
The primary credit risk to which Hexagon is exposed is that a customer cannot settle its transactions with Hexagon. There is no substantial concentration of credit risks geographically or in terms of a particular customer segment.
The Group's earnings are affected by changes in certain key factors, as reviewed below. The calculations proceed from the conditions prevailing in and the effects are expressed on an annualized basis. Earnings in foreign subsidiaries are converted to Swedish kronor based on average exchange rates for the period the earnings arise.
During the year, the average exchange rate for CHF deteriorated by slightly more than per cent. Since Hexagon has negative exposure in terms of CHF, the decline had a favourable impact on earnings. This was offset by Hexagon's positive exposure in terms of USD, for which the average exchange rate deteriorated by slightly more than per cent.
During , total net cash flow from operations in foreign currencies amounted to an equivalent of MSEK. An appreciation in the exchange rate for SEK by per cent against all other foreign currencies, would have an adverse effect on operating earnings of approximately MSEK.
A per cent change in sales prices would affect revenues and operating earnings by approximately MSEK. A per cent change in payroll expenses including social security contributions would affect operating earnings by approximately MSEK.
Based on the average interest fixing period in the Group's total loan portfolio as of year-end , a simultaneous percentage point change in interest rates in all of Hexagon's funding currencies would exert an impact of about MSEK on pre-tax full-year earnings.
Hexagon applies a transparent approach to the dissemination of information to shareholders and capital markets. The company is governed in accordance with Hexagon's Articles of Association, the Swedish Companies Act, the listing agreement and other applicable Swedish and international rules and regulations.
Hexagon complies with the Swedish Code of Corporate Governance (the Code). During , deviations from the Code were as follows:
| Rule | Rule from the Code | Comments |
|---|---|---|
| 2.1.2. | Neither the Chairman of the Board nor any other Member of the Board shall be the chairman of the Nomination Committee. |
To facilitate an efficient nomination process, the Chairman of the Board also serves as chairman of the Nomination Committee. |
| 3.8.2. | The Board of Directors must establish an audit committee that must comprise at least three Members of the Board. |
In order to ensure active and efficient work by the Board of Directors, Hexagon has decided to have a limited number of Board Members. Accordingly, the Audit Committee has fewer members than the recom mended number. |
Hexagon's Corporate Governance Report for and the Board of Directors' report on internal control have not been examined by the company's auditors. These reports are not part of the formal annual report documents. Hexagon's corporate governance process is described schematically below.
Hexagon's current Articles of Association were adopted on May , and state that the company's operations are to own and manage shares in manufacturing, trading and service companies, and to own and manage real estate and securities, conduct administrative operations for subsidiaries, and to engage in related activities. The Articles of Association also formalize issues such as shareholders' rights, the number of Board Members and auditors, that the Annual General Meeting should be held within six months of the end of the financial year, the structure of the notice convening the Annual General Meeting and the fact that the company's Board has its registered office in Stockholm, Sweden. The current Articles of Association are available on the company's website.
The Annual General Meeting is Hexagon's supreme executive body in which all shareholders may participate. The AGM is the
General Shareholder Meeting at which the Board presents the annual report, the consolidated accounts and the audit report. Hexagon issues the notice convening the AGM no earlier than six weeks and no later than four weeks prior to the meeting. Th e AGM is usually held in May in Stockholm, Sweden.
Th e progress of the company and its operations is addressed at the AGM, which resolves on a number of issues of vital importance such as discharging the Board and Chief Executive Offi cer from personal liability for the fi nancial year, dividends, remuneration for the Board and auditors, appointment of new Members of the Board for the period up to the following AGM and any amendments to the Articles of Association. A resolution concerning the election of auditors is made at the AGM every fourth year. Wherever applicable, such matters as incentive programmes and new issues are also addressed.
Th e AGM was held on May in Stockholm, Sweden, and was attended by a total of shareholders, who jointly represented . per cent of the total number of shares and . per cent of the total number of voting rights. Melker Schörling was elected chairman of the AGM. Th e following main resolutions were passed:
My principal role in Hexagon, together with the other Members of the Board and in the best interests of the shareholders, is to work for the Group's long-term development. Th e function of the Board is, jointly with Group Management, to establish a strategy and a direction, to determine the operating and fi nancial objectives and make
overall decisions concerning how the company's assets are to be used for investments, acquisitions, divestments and dividends.
Th e year will be noted in our history as another successful and strategically important year for Hexagon. In the past year, we implemented a large number of strategic
acquisitions of companies in various parts of the world. We continued to develop Hexagon into a leading global measurement technologies group with strong market positions.
As a part of this process, we made the decision to list the polymer operations as a separate group on the Nordic Exchange. We are of the opinion that Polymers has achieved the size and profi tability that make the business attractive as an independent, listed company. As a listed company, Polymers can continue to grow through new establishments and acquisitions.
During , Hexagon continued to develop beyond all expectations and in December we established the new fi nancial direction for Hexagon as a dedicated measurement technologies company. In the next three years, the fi nancial target is to double sales through organic growth and a continued high pace of acquisition and to further increase the Group's operating margin. It will continue to be an exciting journey and I look forward to participating in it.
I would like to take this opportunity to thank all Hexagon employees for their excellent work during the past year. Th anks to you, Hexagon is today a successful innovator with world-class products and services.
Stockholm, Sweden, March
Chairman of the Board
The notice and the documents presented at the AGM are available in Swedish and in English on the company's website.
An Extraordinary General Meeting was held on December in Stockholm, Sweden, and was attended by a total of shareholders, who jointly represented . per cent of the total number of shares and . per cent of the total number of voting rights. Melker Schörling was elected chairman of the EGM. The EGM made the following principal resolution:
» The EGM resolved in accordance with the Board's motion to implement a subscription warrant programme for senior executives and key employees in the Group by means of a directed issue of subscription warrants. The warrants shall be transferred to approximately senior executives and key employees identified by the Board, at a price of SEK per warrant and the remaining warrants shall be reserved for future recruitment of senior executives and key employees in the Group.
At the AGM, a nomination committee is elected with the task of presenting proposals at the following AGM concerning the election of Chairman and other Members of the Board, the election of chairman of the AGM, director fees divided among the Chairman and other Members of the Board and any related issues. The Nomination Committee also presents proposals regarding the election and fees to be paid to the auditors. In order to facilitate an efficient nomination process, the Nomination Committee includes Board Members who also represent the principal shareholders.
The members of the Nomination Committee ahead of the AGM, presented on the company's website, are as follows:
In the event that a replacement is required for a member who leaves the Nomination Committee before its work has been completed, the Nomination Committee is entitled to replace such a member with another representative elected from among the major shareholders in terms of voting rights. During the year, the Nomination Committee held one minuted meeting at which the chairman made a presentation of the evaluation process. The Committee discussed desirable changes and decided on proposals to submit to the AGM concerning the election of chairman of the AGM, the election of Chairman and other Members of the Board, directors fees, remuneration for committee work and the election of auditors.
Shareholders wishing to submit proposals have been able to do so by contacting the Nomination Committee by post. No remuneration was paid to the members of the Nomination Committee for their work.
The Articles of Association stipulate that Hexagon's Board must comprise a minimum of three and maximum of nine regular members. These members are elected annually at the AGM for the period until the following AGM has been held. At the AGM, six members were elected, including the CEO. The Board
| Name | Function | Elected | Audit Committee |
Remuneration Committee |
Board Meetings |
Independence | Shares 1 |
|---|---|---|---|---|---|---|---|
| Melker Schörling | Chairman | 1999 | – | 1 | 14 | In relation to the company and management |
A: 11 812 500 2 B: 50 415 654 2 |
| Marianne Arosenius 3 | Member | 2004 | 1 | – | 6 | In relation to the company, management and the company's major shareholders |
B: 2 886 |
| Mario Fontana | Member | 2006 | 3 | – | 11 | In relation to the company, management and the company's major shareholders |
B: 60 195 |
| Ulf Henriksson 4 | Member | 2007 | – | – | 10 | In relation to the company, management and the company's major shareholders |
– |
| Ola Rollén | Member President and CEO |
2000 | – | – | 14 | In relation to the company's major shareholders | B: 2 731 152 |
| Maths O. Sundqvist | Member | 1991 | – | 1 | 12 | Not independent 5 | B: 39 000 000 |
1 At 31 December 2007. 2 Shares owned through Melker Schörling AB. 3 Resigned from the Board at her own request in August 2007. 4 Elected in May 2007. 5 Member of the Board for more than 12 years.
Members possess excellent financial know-how and broad international experience of the engineering technology business.
Chairman of the Board Melker Schörling is the principal owner of Melker Schörling AB, which controls slightly more than per cent of the voting rights in Hexagon. The company's second largest owner, Maths O. Sundqvist, who controls slightly more than per cent of the voting rights in Hexagon through companies, is also Member of the Board. The other Board Members, with the exception of one Member, also have direct or indirect shareholdings in the company, which ensures considerable personal commitment to Hexagon's development.
All Board Members are presented in greater detail on page and can be reached at the address of Hexagon's Head Office.
The Board is responsible for determining the overall objectives for the company's operations, developing and monitoring the company's overall strategy, decisions concerning major company acquisitions, divestments and investments, and ongoing monitoring of operations during the year. The Board is also responsible for ongoing evaluation of the company's management, the presence of effective systems for monitoring and internal control of the company's operations and financial position, the Group's organizational structure and administration pursuant to the Swedish Companies Act.
Procedural rules and instructions have been formulated for the Board and the CEO, which govern those issues requiring Board approval, and for the financial information and other reporting to be submitted to the Board. These issues are addressed and resolved on an annual basis.
The Chairman of the Board is appointed by the AGM. The Chairman directs the Board's activities to ensure that they are conducted pursuant to the Swedish Companies Act, the prevailing regulations for listed companies and the Board's internal control instruments.
In , the Board held minuted meetings, including the statutory Board meeting. At all scheduled Board meetings, the CEO and representatives of company management present to the Board information concerning the Group's financial position and important events affecting the company's operations.
The company's auditors attended the first Board meeting of the year and reported their observations from their examination of the Group's internal controls and financial statements for . The major matters addressed by the Board during included the following:
| 12 February | Financial statements for 2006 |
|---|---|
| 19 April | Decisions concerning acquisition of Jigsaw, ER Mapper and JMTC |
| 2 May | Interim report, first quarter |
| 2 May | Statutory Board meeting |
| 11 May | Decision concerning acquisition of IONIC |
| 22 May | Decisions concerning allotment of shares, non-cash issue |
| 8 June | Decision concerning listing of Polymers and acquisition of Gold Key |
| 9 August | Interim report, second quarter, decision concerning acquisition of CogniTens |
| 24 September Decisions concerning acquisition of Rost, Geopro and Junglas | |
| 1 October | Decision concerning acquisition of NovAtel Inc. |
| 25 October | Interim report, third quarter, decision concerning acquisition of Elcome Technologies |
| 13 November | Decision concerning Extraordinary General Meeting and proposal concerning warrants programme |
| 29 November | Adoption of proposal concerning warrants programme |
| 20 December Budget 2008 and strategic discussion |
Pursuant to a resolution by the AGM, the Chairman of the Board and other Board Members received remuneration totalling SEK for . The Chairman received SEK and the other Board Members each received SEK, apart from the CEO, who does not receive any director fees.
The chairman of the Remuneration Committee received SEK and each member of this Committee received SEK. The chairman of the Audit Committee received SEK and each member of this Committee received SEK.
The Board continuously evaluates its work and the forms for conducting its activities. This evaluation considers factors such as how the Board's work can be improved, whether the character of meetings stimulates open discussion, and whether each Board Member participates actively and contributes to discussions. Since the Board comprises a small number of members, this evaluation is effected through ongoing discussions between the members. The evaluation is coordinated by the Chairman of the Board, who also continuously evaluates each individual member's input and skills. The Board is also evaluated within the framework of the Nomination Committee's activities.
On behalf of the Board, the task of the Remuneration Committee is to consider issues regarding the remuneration of the CEO and the executives that report directly to the CEO, and other similar issues assigned by the Board for consideration. The Remuneration Committee obtains supporting data and views from, among others, other Board Members, the CEO and the CFO. The Committee also obtains comparable supporting data from external consultants.
During the year, the Remuneration Committee comprised Melker Schörling (Chairman) and Maths O. Sundqvist.
During , the Remuneration Committee held one minuted meeting:
| 10 January | Terms of employment for the CEO and Group Management |
|---|---|
| ------------ | ------------------------------------------------------ |
On behalf of the Board, the purpose of the Audit Committee is to consider issues relating to the procurement and remuneration of auditors, to consider plans for auditing work and the reports made by the auditors, to quality assure the company's financial reporting and other information, and to meet the company's auditors on an ongoing basis to keep itself informed of the orientation and scope of the audit. The Audit Committee's tasks also include monitoring the activities of the external auditors and the company's internal control systems, monitoring the current risk situation and the company's financial information, and monitoring other issues the Board assigns the Committee to consider.
The Audit Committee continuously obtains information and supporting data from the Board Members, CEO, CFO and the company's external auditors. The Committee also familiarizes itself with all reports from the external auditors and follows up these reports internally and with the auditors.
During the year, the Audit Committee comprised Marianne Arosenius (Chairman) and Mario Fontana. In August, after Marianne Arosenius had resigned from the Board at her own request and thus also from the Audit Committee, Mario Fontana was appointed chairman. The Committee's member is independent of the company, its management and the company's major shareholders.
During , the Audit Committee held four minuted meetings:
| 5 February | Annual accounts 2006 |
|---|---|
| 20 September | Focus of the audit in 2007 |
| 23 October | Auditors' fees in 2007 and procurement of audit for 2008–2011 |
| 19 December | Preparation of annual accounts |
The AGM appoints auditors every fourth year. On behalf of the shareholders, the auditors' task is to examine the company's Annual Report and accounting records and the administration of the Board of Directors and the CEO.
At the AGM on May , the accounting firm Ernst & Young AB, Sweden, was appointed for the period up to the AGM in . Ernst & Young AB possesses the requisite expertise and is a member of FAR. Authorized Public Accountant Hamish Mabon (born in ) serves as auditor in charge. Hamish Mabon has participated in the assignment of auditing Hexagon since . In addition to Hexagon, he conducts auditing assignments for such companies as If Skadeförsäkring, Relacom and Delaval International. Hamish Mabon has no active assignments in companies that are closely related to Hexagon's major shareholders or CEO.
During , in addition to the audit, the auditors had other assignments in the form of work connected to acquisitions and divestments of operations.
The company's auditors attended the first Board meeting of the year, at which they reported observations from their examination of the Group's internal controls and the annual financial statements. Moreover, the auditors met the Board's Audit Committee on four occasions during the year.
The address of Hexagon's auditors is Ernst & Young AB, P. O. Box , SE- , Stockholm, Sweden. A complete statement of remuneration to the auditors over the past two years is published in Note on page .
The CEO is responsible for leading and controlling Hexagon's operations in accordance with the strategy determined by the Board. The CEO has appointed a Group Management comprising the CEO, the CFO and the Vice President of Strategy. Group Management is responsible for overall business development, and apportioning financial resources between the business areas, as well as matters involving financing and capital structure. Where necessary, specialist know-how from leading experts is also commissioned.
Members of Hexagon's Group Management are presented in greater detail on page , and can be reached via the address of Hexagon's Head Office.
In addition to members of Group Management, Hexagon's management comprises key personnel each with responsibility for one of the Group's product segments and geographical regions. Regular management team meetings constitute the Group's forum for implementing Group Management's overall controls down to a particular business operation and geographical region, and in turn, down to individual company level.
In financial terms, Hexagon's business operations and subsidiaries are controlled on the basis of the parameter that they can influence themselves, namely the return on capital employed. This requires that they focus on maximizing operating earnings, and minimizing their working capital. Hexagon's organizational structure is distinctly characterized by decentralization. Individual managers assume overall responsibility for their business, and pursue clearly stated objectives.
variable remuneration, other benefits and pension, which when considered on the whole are regarded as competitive in the market. The variable remuneration shall be maximized in relation to the basic salary, be connected to the Group's earnings trend in terms of what the particular individual can affect and be based on individually established goals.
The executive must normally provide six-months notice of termination of employment. If the company terminates the executive's employment, the period of notice and severance pay should not exceed a total of months. Pension benefits shall be based on either defined-benefit or defined-contribution plans, or a combination of such plans, with individually set retirement ages, although never lower than years.
In order to create the conditions for recruiting and retaining valuable skills within the company, an option programme has been formulated that provide the option holder with the right to participate in the potential future value growth in company's share. This programme also aims to enhance interest in the company's progress and stimulate continued loyalty to the company.
In connection with the acquisition of Leica Geosystems, the Leica Geosystems Group already had existing option programmes targeted at the company's senior executives. The design of the programme that is still outstanding is described in the section on the Hexagon share, on page .
An EGM held during the year resolved to implement a subscription warrant programme for senior executives and key employees in the Group by means of a directed issue of subscription warrants. These warrants shall be transferred to
Hexagon's guidelines concerning the remuneration of executives essentially entail that the remuneration comprise basic salary,
| Employed | Class B shares |
|
|---|---|---|
| Ola Rollén, President and Chief Executive Office | 2000 | 2 731 152 |
| Håkan Halén, Chief Financial Officer | 2001 | 1 275 441 |
| Gert Viebke, Vice President of Strategy | 2000 | 1 277 667 |
| Year | Basic Salary |
Variable Pay |
Other Benefits |
Pension | Other Remuneration |
Total | |
|---|---|---|---|---|---|---|---|
| Chief Executive Office | 2006 | 8 311 | 4 000 | – | 1 247 | – | 13 558 |
| 2007 | 9 111 | 4 000 | – | 1 370 | – | 14 481 | |
| Other Senior Executives | 2006 | 10 132 | 4 091 | 511 | 2 550 | – | 17 284 |
| 2007 | 6 747 | 3 677 | 78 | 1 515 | – | 12 017 |
approximately senior executives and key employees identifi ed by the Board, at a price of SEK per warrant and the remaining warrants shall be reserved for future recruitment of senior executives and key employees in the Group.
Hexagon provides the market with ongoing information on the company's progress and fi nancial position. Hexagon aims to utilize openness, objectivity and a high level of service in its fi nancial reporting, in order to enhance the market's trust in the company and increase the interest of current and potential investors in the Hexagon share. During , Hexagon regularly met investors and capital market players, in Scandinavia and internationally, with the aim of explaining and clarifying the value of the Group's operations.
Th e company's information policy was adopted by the Board on May and is updated annually. Th e policy satisfi es the communication standards set by the stock market, and is designed in accordance with the Nordic Exchange's recommendations that complement the listing agreement. Th e information policy addresses such matters as who may represent the company as a spokesperson, who is to decide on matters that constitute share price sensitive information, how share price sensitive information should be dealt with, and the information content and methods used for communication with the fi nancial market.
Hexagon regularly publishes fi nancial information in Swedish and English in the form of Interim Reports, the Annual Report and press releases on news and share price sensitive events, arranges presentations and telephone conferences for fi nancial analysts, investors and the media when interim/year-end reports are published and/or publishes other signifi cant information disclosures.
Published information on the Group's progress, other information intended for the stock market and other important data is available on the company's website.
Th e Code stipulates that the Board of Directors must submit a report on the way the company's internal control, insofar as it pertains to fi nancial reporting, is organized and how well it worked during the year. Th e Code states that the report must be examined by the company's auditor. However, the company's Board has decided to comply with the statement issued by the Council of Swedish Corporate Governance on September . Th is statement stipulates that for and until further notice it is suffi cient, when writing the corporate governance report, for the Board to limit the report on internal control to a description of how internal control, insofar as it pertains to fi nancial reporting, is organized. Accordingly, the report needs not include any statement on how well the internal control process worked during the year. Nor does the report have to be examined by the company's auditor. Internal control pertaining to fi nancial reporting is a process that involves the Board, company management and other personnel. Th e process has been designed so that it provides reasonable assurance of the reliability of the external reporting. According to generally accepted frameworks that have been established for this purpose, internal control is usually described from fi ve diff erent perspectives. Th ese fi ve perspectives serve as subheadings below. Th is section, like other parts of the corporate governance report, has not been examined by the company's auditor. Th e report does not constitute a part of the formal annual report.
Hexagon's organization is designed to facilitate rapid decision-making. Accordingly, operational decisions are taken at the business area or subsidiary level, while decisions concerning strategies, acquisitions and companywide fi nancial matters are taken by the company's Board and Group Management. Th e organization is characterized by well-defi ned allocation of responsibility and wellfunctioning and well-established governance and control systems, which apply to all Hexagon units.
Th e basis for the internal controls pertaining to fi nancial reporting comprises an overall control environment in which the organization, decision-making routes, authorities and responsibilities have been documented and communicated in control documents, such as in Hexagon's fi nance policy and reporting instructions and in accordance with the authorization arrangements established by the CEO.
Hexagon's fi nancial-control functions are integrated by means of a Group-wide reporting system. Th e Group's fi nancial control unit engages in close and well-functioning cooperation with the subsidiaries' controllers in terms of the fi nancial statements and the reporting process. Th e Board's monitoring of the company's assessment of its internal control includes contacts with the company's auditor. Hexagon has no internal audit function, since the functions described above satisfy this need. All of Hexagon's subsidiaries report complete fi nancial statements on a monthly basis. Th is reporting provides the basis for the Group's consolidated fi nancial reporting. Each legal entity has a controller responsible for the business area's fi nancial control and for ensuring that the fi nancial reports are correct, complete and delivered in time for consolidated fi nancial reporting.
Th e signifi cant risks aff ecting the internal control of fi nancial reporting are identifi ed and managed at Group, business area, subsidiary and unit level. Within the Board, the Audit Committee is responsible for ensuring that signifi cant fi nancial risks and the risk of error in fi nancial reporting are identifi ed and managed in a manner that ensures correct fi nancial reporting. Special priority has been assigned to identifying processes that, relatively speaking, give rise to a higher risk of signifi cant error due to the complexity of the process or of the contexts in which major values are involved.
Th e risks identifi ed with respect to the fi nancial reporting process are managed via the company's control activities, which are designed to prevent, uncover and correct errors and non-conformities. Th eir management is conducted by means of manual controls in the form of, for example, reconciliations and audits, automatic controls using IT systems and general controls conducted in the underlying IT environment. Detailed analyses of fi nancial results and follow-ups in relation to budget and forecasts supplement the business-specifi c controls and provide general confi rmation of the quality of the fi nancial reporting.
To ensure the completeness and correctness of fi nancial reporting, the Group has formulated information and communication guidelines designed to ensure that relevant and signifi cant information is exchanged within the business, within the particular unit and to and from management and the Board. Guidelines, handbooks and job descriptions pertaining to the fi nancial process are communicated between management and personnel and are accessible electronically and/or in a printed format. Via the Audit Committee, the Board receives regular feedback in respect of the internal control process. To ensure that the external communication of information is correct and complete, Hexagon complies with a Board-approved information policy that stipulates what may be communicated, by whom and in what manner.
Th e effi ciency of the process for risk assessment and the implementation of control activities are followed up continuously. Th e follow-up pertains to both formal and informal procedures used by the offi cers responsible at each level. Th e procedures incorporate the follow-up of fi nancial results in relation to budget and plans, analyses and key fi gures. Th e Board obtains ongoing reports on the Group's fi nancial position and performance. At each Board meeting, the company's fi nancial position is addressed and, on a monthly basis, management analyzes the company's fi nancial reporting at a detailed level.
Th e Audit Committee follows up the fi nancial reporting at its meetings and receives reports from the auditors describing their observations.
Stockholm, Sweden, born in 1947 Chairman of the Board since 1999
Other assignments: Chairman of Melker Schörling AB, Aarhus-Karlshamn AB, Securitas AB and Securitas Systems AB. Deputy Chairman of Assa Abloy AB. Board member of Hennes & Mauritz AB.
Education: B.Sc. (Econ.)
Hexagon Committees: Chairman of Nomination Committee and Remuneration Committee
Independent of the company and its management
Hexagon shareholding: 11 812 500 class A shares and 50 415 654 class B shares, through Melker Schörling AB
Lit, Sweden, born in 1950
Board Member since 1991
Other assignments: CEO of AB Skrindan. Chairman of Jämtlamell AB and Fabös AB. Board member of Investment AB Öresund and Fabege AB.
Education: Economist Hexagon Committees: Nomination and Remuneration Committees
Not independent, Board Member for more than 12 years
Hexagon shareholding: 39 000 000 class B shares
Herrliberg, Switzerland, born in 1946 Board Member since 2006
Other assignments: Board member of SBB (Schweizerische Bundesbahnen) and four exchange-listed companies: Swissquote, Inficon, Dufry and X-Rite.
Education: M.A., Georgia Institute of Technology and ETH Zurich
Hexagon Committees: Audit Committee Independent of the company, its management and major shareholders
Hexagon shareholding: 60 195 class B shares
London, UK, born in 1965 President and CEO since 2000 Board Member since 2000 Education: B.Sc. (Econ.) Independent of the company major shareholders Hexagon shareholding: 2 731 152 class B shares
Oxshott, UK, born in 1963 Board Member since 2007 Other assignments: CEO of Invensys plc. Education: Master of Engineering Independent of the company, its management and major shareholders Hexagon shareholding: –
In 2007, Marianne Arosenius, was also a Member of Hexagon's Board of Directors until she resigned at her own request in August.
London, UK, born in 1965 President and CEO Employed in 2000 Education: B.Sc. (Econ.) Hexagon shareholding: 2 731 152 class B shares
Sollentuna, Sweden, born in 1954 Chief Financial Officer Employed in 2001 Education: B.Sc. (Econ.) Hexagon shareholding: 1 275 441 class B shares
London, UK, born in 1951 Vice President of Strategy Employed in 2000 Education: B.Sc. (Econ.) Hexagon shareholding: 1 277 667 class B shares
The Board of Directors and Chief Executive Officer of Hexagon AB (publ), with its registered office in Stockholm, Sweden, hereby submit the Annual Report and consolidated financial statements for the financial year .
The following Income Statements and Balance Sheets, Specifications of Shareholders' Equity, Cash Flow Statements and review of accounting principles and notes constitute Hexagon's formal financial report.
Hexagon is a global technology group with strong positions in selected market segments. Hexagon's business concept is to conduct global operations that develop and market leading technology-oriented products and services within measurement technologies and polymers. The Group is organized in two business areas: Hexagon Measurement Technologies and Hexagon Polymers. Business activities are conducted through operating companies in countries throughout the world.
Demand remained strong in EMEA, and organic growth (sales at fixed exchange rates and comparable structure) amounted to per cent. In the Americas, the negative trend continued in the US construction and domestic automotive industries during the year. However, the decline was offset by increased demand within infrastructure investments and stronger demand for Hexagon's products from non-automotive related segments such as mining, aerospace and electronics industries. Organic growth in the Americas was per cent. Growth in Asia continued to increase, with organic growth amounting to per cent. Hexagon's overall organic growth during was per cent.
The Hexagon share is listed on the Nordic Exchange and has a secondary listing on the SWX Swiss Exchange. Earnings per share before dilution increased per cent to . SEK (.).
A high level of divestment and acquisition activity was noted during . The acquisitions were concentrated mainly on increasing the Group's distribution power and developing new technologies within Hexagon Measurement Technologies. Other changes should be regarded as a reflection of the efforts to create a focused measurement technologies company.
There are no significant agreements to which the company is a party that will have an impact or be amended or cease to apply if control over the company changes due to a public tender offer for the company.
Melker Schörling and Maths O. Sundkvist indirectly own shares corresponding to more than per cent of the total number of voting rights in the company.
Johnson Metall AB and its subsidiaries were sold on January. The divested companies' sales during amounted to MSEK. Eurosteel AB and its subsidiaries were sold on March. The companies' sales during totalled MSEK. Tidamek AB was sold on December. The company's sales during amounted to MSEK.
Overall, the divestments of Johnson Metall AB, Eurosteel AB and Tidamek AB generated total capital gains of MSEK.
Divested companies are not of such a size that Hexagon chose to recognize them as discontinued operations.
Hexagon's Board of Directors decided on June to propose that Hexagon's AGM approve the public listing of the polymer operations as a separate company on the Nordic Exchange. The listing, planned to be in the form of a spinoff to Hexagon's shareholders, is expected to be completed during the first half of .
Effective January , Hexagon acquired all of the shares in Svensk ByggnadsGeodesi AB (SBG), which develops, manufactures and supplies complete multidimensional systems for measuring, planning and machine control for excavators, graders, dozers and paving machines. The systems combine software and hardware in the surveying, construction and contracting industries. Sales by SGB in amounted to MSEK.
SwePart Transmission AB, a subsidiary of Hexagon, entered into a three-year supply agreement in January whereby, as of September , it will take over Scania's component manufacturing in Sibbhult of cog-wheels and axles for Scania's gearboxes, representing total sales of approximately MSEK.
All the technology assets in the US software accompany Acquis, Inc. were acquired on April. Acquis is a leading player in the development of web-based data editing, with annual sales of about MUSD. The company operates from Palo Alto, CA, in the US, and Dublin, Ireland.
Effective May, the Group acquired all of the shares in the French companies D&P Systems s.a.s. and Topolaser System s.a.s. D&P Systems develops and supplies multidimensional systems for measuring, planning and machine control of construction machinery and equipment. Topolaser main operations are distribution of surveying and construction equipment and integration of machine control systems in the French market. Combined, the operations have annual sales of MEUR, excluding sales of Hexagon products. The operations are conducted from Le Pecq, near Paris, as well as Merignac, outside Bordeaux, and Orléans, France.
All of the shares in Allen Precision Equipment, Inc., a US company based in Duluth, GA, were acquired on May. Allen Precision is a distributor that represents several major suppliers and markets surveying equipment and related products to engineers, surveyors, contractors and government agencies. Allen Precision's sales in totalled slightly more than MUSD.
Effective May, Hexagon acquired all shares in Jigsaw Technologies, Inc., a US company based in Tucson, AZ. Jigsaw develops and supplies software for fleet management, the largest sector of the measurement technologies market segment machine control for mining. Its products are used mainly for coal and mineral open pit mining applications. Jigsaw has annual sales of about MUSD.
Effective June, Hexagon acquired all of the assets of Transmetal, the leading distributor of measurement technologies products and equipment in Turkey. The company is headquartered in Ankara and has annual sales totalling some MSEK.
All of the shares in the French group of companies GAMFI International s.a.s, based in Mesnil le Roi, were acquired on July. GAMFI is a global leading supplier of laser tools and instrumentation marketed under brands such as AGL, QBL and AGATEC. The Group has research and development units in the US, Europe and China. GAMFI's consolidated sales in was MEUR.
Earth Resource Mapping Ltd. (ER Mapper), an Australian software company based in Perth, was acquired on July. ER Mapper supplies "Image Web Server" (IWS) – a specialized, high-performance server application designed to manage and distribute large image datasets at very high speeds. ER Mapper is also a world-class provider of geospatial imagery processing solutions used to prepare, manage, compress and deploy imagery. The company is also a leader in the development of image compression technology. ER Mapper has annual sales of about MAUD.
IONIC Software, a Belgian software company, and IONIC Enterprise of the US were acquired on July. IONIC develops software that securely catalogues and serve geospatial information in the Internet. IONIC markets products for the publishing, discovery, access, integration, and application of spatial data. IONIC's annual sales amounted to MEUR. The head office of the European company is situated in Liège, Belgium, and the US operations are headquartered in Alexandria, VA.
Effective July, an additional per cent of the shares in Jingjiang Measuring Tool Company (JMTC) were acquired, increasing Hexagon's ownership in the company to per cent. JMTC develops, manufactures and supplies a complete range of calipers for both digital and mechanical display. Headquartered in Jingjiang, China, JMTC's sales during amounted to MSEK.
Hexagon acquired all of the assets of Gesswein of Germany on August. Gesswein is a well-established distributor of surveying
products in the measurement technologies market's macro segment in southwest Germany. Gesswein's sales in was MEUR.
Gold Key Processing, Ltd., a US rubber compounding company headquartered in Middlefield, OH, was acquired on September. Gold Key produces rubber compounds for the automotive, industrial, construction, pharmaceutical and aerospace industries. The capacity of the company's production plant is tonnes per year. Gold Key has annual sales of approximately MUSD.
Effective September, Hexagon acquired CogniTens Ltd., a measurement technologies company specializing in non-contact, three-dimensional measurement applications. CogniTens provides full surface and features measurements using advanced threedimensional optical technology. Headquartered in Israel, CogniTens had annual sales of approximately MUSD and about employees supporting the company's growing installed base at the worldleading automotive OEMs and their sub-suppliers.
During November, four European distribution companies for surveying and construction equipment were acquired, namely: R&A Rost Vertriebs GmbH and R&A Rost Produktions GmbH, both based in Austria, Junglas GmbH of Germany and Geopro Kft in Hungary. The four companies had combined sales during of approximately MSEK, or about MSEK excluding internal sales. The two Rost companies and Junglas were consolidated on October and Geopro on December.
During October and November, Hexagon acquired all of the shares outstanding in the NASDAQ-listed Canadian company NovAtel Inc. for USD per share. NovAtel is a leading supplier of precision Global Navigation Satellite System (GNSS) components and subsystems. The company develops quality products for OEMs, including receivers, enclosures, antennas and firmware integrated in high-precision positioning applications worldwide. These applications include surveying, Geographic Information Systems (GIS) mapping, machine control, port automation, mining and marine industries. NovAtel reported sales of . MCAD in , with after-tax earnings of . MCAD. Headquartered in Calgary, Canada, the company has about employees. NovAtel was consolidated on December .
Elcome Technologies Pvt. Ltd. of India was acquired on January . Elcome is a distributor and systems integrator of products and systems for positioning, navigation, alignment, measurements and surveying. The company is a market leader in India in its targeted application segments, has more than employees and operates from locations throughout India. The company's sales during totalled about MSEK, or some MSEK excluding internal sales.
Consolidated order intake grew per cent during the year to MSEK ( ). Consolidated net sales rose by per cent to MSEK ( ). Based on fixed exchange rates and a comparable structure, order intake grew by per cent and net sales by per cent.
Hexagon Measurement Technologies' net sales grew by per cent in to MSEK ( ). The growth in net sales was due in part to the companies acquired during the year. Based on fixed exchange rates and a comparable structure, net sales increased per cent.
Hexagon Polymers' net sales grew by per cent in to MSEK ( ). The growth in net sales was due partly to the acquisition of GoldKey. Based on fixed exchange rates and a comparable structure, net sales grew per cent.
Net sales from the Group's other operations decreased during to MSEK ( ). The decline in sales is attributable to operations divested during the year. Based on fixed exchange rates and a comparable structure, net sales grew per cent.
Consolidated gross earnings rose per cent in to MSEK ( ). The gross margin improved to per cent ().
Consolidated operating earnings (EBITDA) grew by per cent to MSEK ( ). The operating margin (EBITDA margin) improved to per cent ().
Consolidated operating earnings (EBIT) grew by per cent to MSEK ( ), corresponding to an operating margin of per cent (). The margin improvement was mainly attributable to the measurement technologies operations.
Hexagon Measurement Technologies' operating earnings (EBIT) increased by per cent during the year to MSEK ( ), corresponding to an operating margin of per cent (). The strong improvement in earnings derived primarily from a favourable product mix and a healthy volume trend.
Hexagon Polymers' operating earnings (EBIT) rose by per cent during to MSEK (), corresponding to an operating margin of per cent ().
Operating earnings (EBIT) from the Group's other operations decreased during to MSEK (), corresponding to a margin of per cent (). The decline was due to the operations divested during the year.
As a result of the divestment of Johnson Metall AB, Eurosteel AB and Tidamek AB, capital gains totalling MSEK were realized. In addition, impairment losses and restructuring expenses of MSEK, expenses of MSEK related to the listing of polymer operations and expenses of MSEK related to the acquisition analysis for NovAtel were recorded. Overall, this resulted in total non-recurring items amounting to an expense of MSEK.
In total, operating earnings rose by per cent to MSEK ( ).
Order intake, net sales and operating earnings (EBIT) for Hexagon's various business areas for are presented in the table below.
As of December , Hexagon's carrying value for intangible fixed assets was MSEK ( ). Amortization of intangible fixed assets for the financial year was to MSEK ().
Consolidated financial net expenses decreased to MSEK ().
The consolidated tax expense was MSEK (), equivalent to an effective tax rate of per cent (). The tax expense was influenced by a significant portion of earnings being generated by foreign subsidiaries in countries where tax rates differ from that in Sweden and by the fact that capital gains were essentially exempt from tax. In addition, tax expenses in benefited from revaluations of deferred tax assets and liabilities due to changes in the Group's legal and tax structures. Disregarding the taxation effects of nonrecurring items, the effective tax rate during the year would have been per cent ().
The minority share of net earnings was MSEK () in .
Consolidated earnings after tax grew by per cent to MSEK ( ), corresponding to earnings per share of . SEK (.).
Hexagon's net investments, excluding acquisitions of companies, amounted to MSEK () in and consisted mainly of investments in production facilities, production equipment and intangible assets. Investments corresponded to per cent () of net sales. Depreciation and amortization for the year, including MSEK () for impairment losses, amounted to MSEK ().
Cash flow from operating activities before change in working capital grew by per cent to MSEK ( ), corresponding to . SEK (.) per share. Including changes in working capital, cash flow from operating activities increased by per cent to
| Distribution by business area | Order intake | Net sales | Operating earnings (EBIT1) | |||
|---|---|---|---|---|---|---|
| MSEK | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 |
| Hexagon Measurement Technologies | 11 234 | 9 273 | 10 937 | 9 250 | 2 141 | 1 547 |
| Hexagon Polymers | 2 824 | 2 542 | 2 730 | 2 488 | 310 | 223 |
| Other operations | 1 081 | 1 905 | 922 | 1 734 | 30 | 109 |
| Group costs and adjustments | – | – | –2 | –3 | –60 | – 52 |
| Total | 15 139 | 13 720 | 14 587 | 13 469 | 2 421 | 1 827 |
MSEK ( ), corresponding to . SEK per share (.). Operating cash flow after normal investments amounted to MSEK (). Other investments, new share issues and the change in external borrowings influenced cash flow by MSEK (). Dividends to shareholders for financial year amounted to MSEK (), corresponding to . SEK per share (.).
Consolidated capital employed, defined as total assets less noninterest bearing liabilities, amounted to MSEK ( ). The return on average capital employed was . per cent (.). The return on average shareholders' equity was . per cent (.). The rate of capital turnover was . times (.).
Shareholders' equity, including minority interests, increased to MSEK ( ). Consolidated total assets increased to MSEK ( ). The equity ratio at December was per cent ().
As a consequence of goodwill no longer being amortized according to a plan, regular tests are made to determine whether the value of goodwill and/or similar fixed assets is justifiable or whether there is any impairment need in full or in part. Such a test was conducted at the end of and no impairment requirement arose.
Consolidated goodwill at December amounted to MSEK ( ), corresponding to per cent () of total assets. The table below shows the business areas to which the goodwill is attributable.
| MSEK | 2007 | 2006 |
|---|---|---|
| Hexagon Measurement Technologies | 8 390 | 5 071 |
| Hexagon Polymers | 1 122 | 826 |
| Hexagon Engineering | 11 | 76 |
| Total | 9 523 | 5 973 |
Consolidated net debt was MSEK ( ) and the net debt/ equity ratio was . times (.). The interest coverage ratio was . times (.). The change in net debt was mainly attributable to the companies acquired and divested during the year.
The Hexagon Group's capital comprises reported shareholders' equity, including minority interest, which totalled MSEK ( ) at year-end. Hexagon's overall objective is to increase earnings per share by at least per cent annually and to achieve a return on capital employed of at least per cent. Another Group objective is to achieve an equity ratio of – per cent because Hexagon is endeavouring to minimize the weighted average cost of capital for the company's financing. Hexagon's expansion rate is limited by covenants made to the company's financiers, whereby net debt is not permitted to exceed . times EBITDA, pro forma
over months. Implementation of the company's strategy, as well as its financial position and other financial objectives are taken into account in connection with annual decisions concerning dividend payments.
A significant portion of Hexagon's revenues and expenses is generated in foreign currencies. This means that fluctuations in exchange rates affect Hexagon's revenues, operating earnings, shareholders' equity and other items. Hexagon is also affected by fluctuations in interest rates. Hexagon's Treasury function is responsible for coordinating currency and interest exposure. The Treasury function is also responsible for the Group's external and internal financing. Guidelines for managing financial exposure are determined annually by the Board in a Group-wide finance policy.
In order to ensure that Hexagon can satisfy its needs for external capital, it is necessary for the Group to maintain a strong financial position and to take active measures to ensure its access to credit.
On June , Hexagon entered into a new seven-year (five years with an option for two additional years) syndicated credit facility in the amount of MEUR. This financing is based upon customary covenants drawn up by Hexagon's financiers.
The unused portion of all funding facilities, together with existing liquidity, meant that access to funds at December amounted to MSEK ( ).
Interest rate risk is the risk of a negative impact on consolidated earnings as a result of changes in market interest rates. The Group's interest risk is managed by the Parent Company. Interest risk primarily arises because of the Group's borrowing. Standardized derivative instruments are utilized to control interest exposure, through means such as extending or shortening interest fixing periods without renegotiating underlying loans.
Hexagon's transaction exposure pertains to currency exposure due to its subsidiaries' international trade. Exposure derives from changes in exchange rates in connection with buying and selling in currencies other than local currency. Contracted currency flows are fully hedged. Between and per cent of forecast flows over and above contracted flows are hedged with a horizon of months. Hedging is primarily arranged through currency forward contracts.
The Group's finance policy states that the effect of currency changes on shareholders' equity should be alleviated through hedging via loans or forwards contracts in the currency in which net assets are denominated.
The Group faces a variety of operational risks, including relations to customers and suppliers and political, price, raw material, legal, human capital, insurable and environmental risks. Hexagon works in a structured manner in its efforts to control both short-term and long-term risks and in order to limit their impact on business operations.
Being the most innovative supplier necessitates major product and process development, partly to improve and adapt existing products but also to identify new application areas and thereby to increase the total market for Hexagon's products and services. Total expenditure for research and development during amounted to MSEK (), corresponding to approximately per cent () of net sales.
Capitalization of the Group's development expenses only occurs with regard to new products where significant development costs are involved, where the products have likely earnings potential that is expected to accrue to the company and where the costs are clearly distinguishable.
The Parent Company reported a loss of MSEK (loss: ) after financial items. The Parent Company's equity ratio was per cent (). Shareholders' equity amounted to MSEK ( ). Cash and cash equivalents including unutilized credit facilities amounted to MSEK ( ) as of December .
The average number of Group employees during the year was ( ). At year-end, the number of employees was ( ). This increase was due mainly to the acquisitions completed during the year. The share of employees located outside Sweden increased to per cent (). The average number of employees in the Parent Company was ().
Remuneration of the CEO and other senior executives comprises basic salary, variable remuneration, other benefits and pension. The variable portion of salary is connected to the Group's earnings trend, comprises a maximum amount in relation to the fixed salary and is not pensionable. Pension benefits are based on defined contribution plans.
Hexagon's research and development work generates products and systems that comply with customer requirements for being able to measure with considerable precision in one, two or three dimensions. High-quality measurement systems contribute to increased quality, productivity and efficiency and reduced waste and thus to a decrease in the consumption of materials and raw materials.
When Hexagon implements processes, it takes the environment into account and endeavours to achieve ecological product development. A fundamental requirement for environmental efforts is to use environment-friendly resources in production, to the extent possible. Hexagon satisfies environmental requirements pursuant to legislation, ordinances and international accords.
Decisions regarding operations that affect the environment are guided by what is ecologically justifiable, technically feasible and economically viable. All of Hexagon subsidiaries must satisfy international environmental requirements in relation to local legislation, which may vary from country to country. In addition, all of the subsidiaries are obliged to have ISO quality accreditation, wherever this is warranted.
The AGM held on May resolved on the establishment of guidelines concerning the remuneration of senior executives essentially entailing that such remuneration should comprise a basic salary, variable remuneration, other benefits and pension, and that in total this remuneration should be commercially viable and competitive in the market. The variable remuneration should be maximized in relation to the basic salary, connected to the earnings trend that the specific individual can influence and be based on the outcome in relation to individually established targets. The Board of Directors' proposal to the AGM is that these guidelines remain unchanged for .
During , Hexagon continued to strengthen its market position, product portfolio and structure to enable further growth in sales and earnings. Hexagon's long-term financial target of an increase in earnings per share after tax by at least per cent annually stands firm.
At its Capital Markets Day in December , Hexagon launched new financial targets. Under the new financial plan, the Group, after the spin-off of the polymer operations, will aim to achieve annual sales of billion SEK and an operating margin of per cent by the end of .
Effective February , Hexagon has acquired all the assets and all of the shares, respectively, in Surveyors Service Company and Haselbach Surveying Instruments. The two companies, headquartered near Los Angeles and San Francisco, respectively, are leading distributors and service providers for surveying equipment in South Western USA. Surveyors Service Company and Haselbach Surveying Instruments had combined annual sales of about MSEK in , or of about MSEK excluding internal sales.
Effective March , Hexagon has acquired all outstanding shares of the Spanish company Santiago & Cintra Ibérica S.A. Santiago & Cintra is a leading distributor and service provider for positioning solutions in applications such as geomatics, geographic information systems and machine control for agriculture and construction. The company currently has employees operating out of the headquarters in Madrid and three sales offices in Valencia, Barcelona and Seville. The company had annual sales of approximately MSEK in .
| MSEK | Note | 2007 | 2006 |
|---|---|---|---|
| Net sales | 1 | 14 587 | 13 469 |
| Cost of goods sold | 4, 6 | –8 490 | – 8 350 |
| Gross earnings | 6 097 | 5 119 | |
| Sales expenses | 4, 6 | –1 990 | – 1 850 |
| Administration expenses | 4, 6, 13 | –1 080 | – 859 |
| Research and development expenses | 4, 6 | –811 | – 547 |
| Other operating revenues | 5 | 59 | 58 |
| Other operating expenses | 5, 6 | –88 | – 180 |
| Share in associated company earnings | 6, 7, 12 | –31 | 2 |
| Capital gain/loss from sale of shares in Group companies | 7 | 114 | – |
| Operating earnings 1 | 2 270 | 1 743 | |
| Financial revenues and expenses | |||
| Earnings from other securities classified as fixed assets | 7 | – | 97 |
| Other interest income | 7 | 48 | 29 |
| Interest expenses | 7 | –262 | – 251 |
| Earnings before tax | 1 | 2 056 | 1 618 |
| Tax on earnings for the year | 8 | –245 | – 338 |
| Net earnings 2 | 1 811 | 1 280 | |
| 1 Of which, nonrecurring items | 6 | –151 | – 84 |
| 2 Of which, minority share | 11 | 7 | |
| Average number of shares, thousands | 265 278 | 254 019 | |
| Average number of shares after dilution, thousands | 266 034 | 256 323 | |
| Earnings per share, SEK | 6.79 | 5.01 | |
| Earnings per share after dilution, SEK | 6.77 | 4.97 | |
| Earnings include depreciations and write-downs of | –803 | – 602 |
| MSEK | Note | 2007 | 2006 |
|---|---|---|---|
| ASSETS | 17 | ||
| Fixed assets | |||
| Intangible fixed assets | |||
| Capitalized expenditure on research and development | 10 | 665 | 632 |
| Patents and trademarks | 10 | 3 194 | 3 130 |
| Goodwill | 10 | 9 523 | 5 973 |
| Other intangible fixed assets | 10 | 769 | 306 |
| Total intangible fixed assets | 14 151 | 10 041 | |
| Tangible fixed assets | |||
| Buildings | 10 | 761 | 721 |
| Land and other real estate | 10 | 210 | 209 |
| Machinery and other technical plants | 10 | 976 | 864 |
| Equipment, tools and installations | 10 | 250 | 199 |
| Construction in progress and supplier advances | 10 | 80 | 108 |
| Total tangible fixed assets | 2 277 | 2 101 | |
| Financial fixed assets | |||
| Shares in associated companies | 11, 12 | 10 | 50 |
| Other long-term securities holdings | 11 | 11 | 1 |
| Other long-term receivables | 11 | 55 | 52 |
| Total financial fixed assets | 76 | 103 | |
| Deferred tax assets | 8 | 492 | 442 |
| Total fixed assets | 16 996 | 12 687 | |
| Current assets | |||
| Inventories, etc. | |||
| Raw materials and consumables | 1 072 | 1 002 | |
| Work in progress | 258 | 286 | |
| Finished goods and goods for resale | 1 256 | 1 023 | |
| Total inventories | 2 586 | 2 311 | |
| Current receivables | |||
| Customer receivables | 3 075 | 2 544 | |
| Receivables, associated companies | 20 | 2 | |
| Current tax receivables | 8 | 11 | 7 |
| Other receivables – non-interest bearing | 434 | 355 | |
| Prepaid expenses and accrued revenue | 14 | 206 | 161 |
| Total current receivables | 3 746 | 3 069 | |
| Short-term investments | 781 | 3 | |
| Cash and bank balances | 831 | 478 | |
| Total current assets | 7 944 | 5 861 | |
| TOTAL ASSETS | 24 940 | 18 548 | |
| MSEK | Note | 2007 | 2006 | |
|---|---|---|---|---|
| SHAREHOLDERS' EQUITY AND LIABILITIES | ||||
| Shareholders' equity | 15 | |||
| Share capital | 354 | 354 | ||
| Other capital contributions | 5 724 | 5 722 | ||
| Hedging reserve | –2 | – 1 | ||
| Translation reserve | –716 | – 795 | ||
| Retained earnings | 4 642 | 3 284 | ||
| Shareholders' equity attributable to Parent Company shareholders | 10 002 | 8 564 | ||
| Minorities | 44 | 45 | ||
| Total shareholders' equity | 10 046 | 8 609 | ||
| Long-term liabilities | 17 | |||
| Provisions for pensions | 4a | 433 | 487 | |
| Deferred tax liabilities | 8 | 668 | 389 | |
| Other provisions | 16 | 192 | 101 | |
| Liabilities to credit institutions | 9 762 | 5 688 | ||
| Other long-term liabilities – interest-bearing | 27 | 1 | ||
| Other long-term liabilities – non-interest bearing | 17 | 58 | ||
| Total long-term liabilities | 11 099 | 6 724 | ||
| Current liabilities | 17 | |||
| Liabilities to credit institutions | 163 | 391 | ||
| Other provisions – current portion | 208 | 133 | ||
| Advance payments from customers | 89 | 53 | ||
| Accounts payable | 1 473 | 1 212 | ||
| Current tax liabilities | 236 | 157 | ||
| Other liabilities – interest-bearing | 7 | 1 | ||
| Other liabilities – non-interest bearing | 432 | 321 | ||
| Accrued expenses and deferred income | 14 | 1 187 | 947 | |
| Total current liabilities | 3 795 | 3 215 | ||
| TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES | 24 940 | 18 548 | ||
| MEMORANDUM ITEMS | ||||
| Collateral pledged | 19 | 41 | 107 | |
| Contingent liabilities | 19 | 186 | 145 | |
| Opening shareholders' equity 354 5 722 –1 –795 3 284 8 564 45 8 609 Year's change in translation reserve 1 Gross – – – 221 – 221 3 224 Effect of hedging – – – –177 – –177 – –177 Year's change in hedging reserve (cash flow hedging) – – –1 – – –1 – –1 Tax attributable to items recognized directly in shareholders' equity – – – 35 – 35 – 35 Total revenues and expenses recognized directly in shareholders' equity, excluding trans actions involving company shareholders – – –1 79 – 78 3 81 1 800 1 811 Net earnings – – – – 1 800 11 Total revenues and expenses, excluding trans actions involving company shareholders – – –1 79 1 800 1 878 14 1 892 Benefit pertaining to options recognized as operating expenses 2 – 8 – – – 8 – 8 –27 –27 Effect of the acquisition of Leica Geosystems 3 – –27 – – – – Effect of acquisitions and divestitures of subsidiaries – – – – – – –9 –9 New share issue 0 21 – – – 21 – 21 Dividend – – – – –442 –442 –6 –448 Closing shareholders' equity, Dec. 31, 2007 354 5 724 –2 –716 4 642 10 002 44 10 046 2006 Opening shareholders' equity 280 3 072 – 7 – 147 2 275 5 473 46 5 519 Year's change in translation reserve 1 – 892 – 895 Gross – – – – 892 – – 3 Effect of hedging – – – 339 – 339 – 339 Year's change in hedging reserve (cash flow hedging) – – 8 – – 8 – 8 Tax attributable to items recognized – 97 – 97 directly in shareholders' equity – – – 2 – 95 – – Total revenues and expenses recognized directly in shareholders' equity, excluding trans actions involving company shareholders – – 6 – 648 – –642 –3 –645 Net earnings – – – – 1 273 1 273 7 1 280 Total revenues and expenses, excluding trans actions involving company shareholders – – 6 – 648 1 273 631 4 635 Benefit pertaining to options recognized 6 6 as operating expenses 2 – 6 – – – – Effect of the acquisition of Leica Geosystems 3 – – 89 – – – – 89 – – 89 2 807 2 807 New share issue 74 2 733 – – – – Dividend – – – – – 264 – 264 – 5 – 269 |
2007 | Share capital |
Other capital contri butions |
Hedging reserve |
Translation reserve |
Retained earnings |
Total Hexagon share holders |
Minorities | Total share holders' equity |
|---|---|---|---|---|---|---|---|---|---|
| Closing shareholders' equity, Dec. 31, 2006 | 354 | 5 722 | – 1 | – 795 | 3 284 | 8 564 | 45 | 8 609 |
Currency hedging pertains to net assets in foreign subsidiaries.
2 Corresponds to the value of the services that are estimated to be received during the period in terms of the original benefit value that accrued to option holders in Leica Geosystems at the date of allotment.
3 Leica Geosystems was acquired through a public tender offer comprising a combination of cash and new Hexagon shares. The offer was directed to all shareholders and indirectly to all option holders. Since more than 98 per cent of the shareholders in Leica Geosystems accepted the public offer, it was possible to acquire the remaining shares by means of compulsory redemption. In 2005, the value of the future compensation to option holders and the shares subject to compulsory redemption was accounted for as a liability, both the cash portion (less amounts that option holders were to pay when the options were exercised) and the value of the shares that were to be issued. In 2006, the liability pertaining
to the shares that were to be issued was adjusted, insofar as the shares were considered as already issued equity instruments in the 2005 accounts, which is why no liability need be reported. Accordingly, subsequent changes in the Hexagon share price up to the date of compulsory redemption or exercise of the options will not affect consolidated shareholders' equity. The compulsory redemption was implemented in 2006, at which time the cash portion of the public offer was increased, due to a decision by a Swiss court. The number of shares issued was not affected by the court ruling. Also in 2006, Hexagon exercised the opportunity to complete the public offer to option holders by only making a cash payment, rather than the aforementioned combination. Since this has been reported as a repurchase of already issued equity instruments, consolidated shareholders' equity has not been reduced. In 2007, Hexagon exercised the opportunity to only make cash payments to a minor extent. To a greater extent, it paid using Hexagon shares and cash in accordance with the original offer. This resulted in a reduction in total equity by 6 MSEK.
| MSEK | Note | 2007 | 2006 |
|---|---|---|---|
| Cash flow from operating activities | |||
| Net sales | 14 587 | 13 469 | |
| Operating expenses | –12 317 | – 11 726 | |
| Operating earnings | 2 270 | 1 743 | |
| Adjustments for items in operating earnings not influencing cash flow | |||
| Depreciation and amortization | 608 | 586 | |
| Impairment losses | 195 | 16 | |
| Change in provisions | –62 | – 204 | |
| Capital gains on divestment of fixed assets | –35 | – 6 | |
| Capital gains on shares in Group companies | –114 | – | |
| Earnings from shares in associated companies | 31 | – 2 | |
| Interest received | 39 | 24 | |
| Dividend received | 0 | 0 | |
| Interest paid | –255 | – 245 | |
| Tax paid | –205 | – 175 | |
| Cash flow from operating activities before changes in working capital | 2 472 | 1 737 | |
| Cash flow from changes in working capital | |||
| Change in inventories | –300 | – 279 | |
| Change in current receivables | –595 | – 410 | |
| Change in current liabilities | 450 | 67 | |
| Cash flow from changes in working capital | –445 | – 622 | |
| Cash flow from operating activities | 2 027 | 1 115 | |
| Cash flow from ordinary investing activities | |||
| Investments in intangible fixed assets | –416 | – 355 | |
| Investments in tangible fixed assets | –508 | – 502 | |
| Divestments of tangible fixed assets | 99 | 23 | |
| Cash flow from ordinary investing activities | –825 | – 834 | |
| Operating cash flow | 1 202 | 281 | |
| Cash flow from other investing activities | |||
| Investments in subsidiaries | 9 | –3 592 | – 361 |
| Divestments of subsidiaries | 9 | 569 | – |
| Investments in financial fixed assets | –8 | – 12 | |
| Divestments of financial fixed assets | – | 111 | |
| Cash flow from other investing activities | –3 031 | – 262 | |
| Cash flow from financing activities | |||
| Borrowings | 3 374 | – | |
| Repayments | – | – 2 443 | |
| New share issue Dividend to Parent Company shareholders |
– –442 |
2 755 – 264 |
|
| Dividend to minority interests in subsidiaries | –6 | – 5 | |
| Cash flow from financing activities | 2 926 | 43 | |
| Cash flow for the year | 1 097 | 62 | |
| Cash and cash equivalents, beginning of year 1 Effect of translation differences on Cash and cash equivalents |
481 34 |
439 – 20 |
|
| Cash flow for the year | 1 097 | 62 | |
| Cash and cash equivalents, end of year 1 | 1 612 | 481 | |
| Net debt | |||
| Pension obligations, net, and other interest-bearing provisions and liabilities | 10 499 | 6 617 | |
| Cash and cash equivalents 1 | –1 612 | – 481 | |
| Net debt | 8 887 | 6 136 |
1 Cash and cash equivalents include short-term investments and cash and bank balances.
| MSEK | Note | 2007 | 2006 |
|---|---|---|---|
| Net sales | 2 | 24 | 19 |
| Administration expenses | 4, 6, 13 | –51 | – 40 |
| Operating earnings | –27 | – 21 | |
| Financial income and expense | |||
| Earnings from shares in Group companies | 7 | – | – 5 |
| Earnings from other securities classified as fixed assets | 7 | – | 101 |
| Other interest income | 7 | 222 | 179 |
| Interest expenses | 7 | –350 | – 380 |
| Earnings before tax | –155 | – 126 | |
| Tax on earnings for the year | 8 | 48 | 58 |
| Net earnings | –107 | – 68 | |
| MSEK | Note | 2007 | 2006 |
|---|---|---|---|
| ASSETS | |||
| Fixed assets | |||
| Intangible fixed assets | |||
| Patents and trademarks | 10 | 0 | 0 |
| Tangible fixed assets | |||
| Buildings | 10 | 0 | 21 |
| Land | 10 | 0 | 8 |
| Equipment | 10 | 1 | 1 |
| Total tangible fixed assets | 1 | 30 | |
| Financial fixed assets | |||
| Shares in Group companies | 11 | 12 840 | 11 827 |
| Receivables from Group | |||
| companies | 11 | 6 076 | 2 800 |
| Total financial fixed assets | 18 916 | 14 689 | |
| Deferred tax asset | 79 | 62 | |
| Total fixed assets | 18 996 | 14 719 | |
| Current assets | |||
| Current receivables | |||
| Receivables from Group | |||
| companies | 152 | 905 | |
| Current tax receivable | 0 | 0 | |
| Other receivables | 68 | 71 | |
| Prepaid expenses and accrued revenue |
14 | 34 | 29 |
| Total current receivables | 254 | 1 005 | |
| Cash and bank balances | 370 | 235 | |
| Total current assets | 624 | 1 240 | |
| TOTAL ASSETS | 19 620 | 15 959 |
| MSEK | Note | 2007 | 2006 |
|---|---|---|---|
| SHAREHOLDERS' EQUITY AND LIABILITIES |
|||
| Shareholders' equity | 15 | ||
| Restricted equity | |||
| Share capital | 531 | 354 | |
| Statutory reserve | 2 814 | 2 991 | |
| Total restricted equity | 3 345 | 3 345 | |
| Non-restricted equity | |||
| Premium reserve | 2 754 | 2 733 | |
| Non-restricted equity | 556 | 1 025 | |
| Total non-restricted equity | 3 310 | 3 758 | |
| Total shareholders' equity | 6 655 | 7 103 | |
| Provisions | |||
| Pension provisions | 0 | 0 | |
| Other provisions | 8 | 8 | |
| Total provisions | 8 | 8 | |
| Long-term liabilities | |||
| Liabilities to credit institutions | 9 808 | 5 852 | |
| Total long-term liabilities | 9 808 | 5 852 | |
| Current liabilities | |||
| Liabilities to credit institutions | 0 | 346 | |
| Accounts payable | 34 | 3 | |
| Liabilities to Group companies | 3 089 | 2 612 | |
| Other liabilities | 2 | 3 | |
| Accrued expenses and deferred | |||
| income | 14 | 24 | 32 |
| Total current liabilities | 3 149 | 2 996 | |
| TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES |
19 620 | 15 959 | |
| MEMORANDUM ITEMS | |||
| Collateral pledged | 19 | None | None |
| Contingent liabilities | 19 | 146 | 98 |
| MSEK | Share capital |
Premium reserve (restricted) |
Statutory reserve |
Premium reserve (unrestricted) |
Unrestricted shareholders' equity |
Total shareholders' equity |
|---|---|---|---|---|---|---|
| Closing balance Dec. 31, 2005 | 280 | 2 771 | 220 | – | 1 318 | 4 589 |
| Re-allocation | – | – 2 771 | 2 771 | – | – | – |
| Dividend | – | – | – | – | – 264 | – 264 |
| Group contributions issued and received, net | – | – | – | – | 39 | 39 |
| New share issue | 74 | – | – | 2 733 | – | 2 807 |
| Net earnings | – | – | – | – | – 68 | – 68 |
| Closing balance Dec. 31, 2006 | 354 | – | 2 991 | 2 733 | 1 025 | 7 103 |
| Dividend | – | – | – | – | – 442 | – 442 |
| Group contributions issued and received, net | – | – | – | – | 80 | 80 |
| New share issue | 0 | – | – | 21 | – | 21 |
| Bonus issue | 177 | – | –177 | – | – | 0 |
| Net earnings | – | – | – | – | – 107 | – 107 |
| Closing balance Dec. 31, 2007 | 531 | – | 2 814 | 2 754 | 556 | 6 655 |
| MSEK | Note 2007 |
2006 |
|---|---|---|
| Cash flow from operating activities | ||
| Net sales | 24 | 19 |
| Operating expenses | –51 | – 40 |
| Operating earnings | –27 | – 21 |
| Adjustment for operating earnings items not influencing cash flow | ||
| Depreciation | 0 | 0 |
| Interest received | 213 | 177 |
| Interest paid | –329 | – 283 |
| Cash flow from operating activities before changes in working capital | –143 | – 127 |
| Cash flow from changes in working capital | ||
| Change in current receivables | 816 | – 177 |
| Change in current liabilities | 498 | 1 275 |
| Cash flow from changes in working capital | 1 314 | 1 098 |
| Cash flow from operating activities | 1 171 | 971 |
| Cash flow from investing activities | ||
| Investments in tangible fixed assets | 0 | – 14 |
| Divestments of tangible fixed assets | 29 | – |
| Investments in financial fixed assets | –1 013 | – 126 |
| Divestments of financial fixed assets | – | 106 |
| Change in long-term receivables, Group companies | –3 418 | – 1 075 |
| Group contributions received | 54 | – |
| Cash flow from other investing activities | –4 348 | – 1 109 |
| Cash flow from financing activities | ||
| Borrowings | 3 733 | – |
| Repayments | – | – 2 357 |
| New share issue | 21 | 2 755 |
| Dividend to shareholders | –442 | – 264 |
| Cash flow from financing activities | 3 312 | 134 |
| Cash flow for the year | 135 | – 4 |
| Cash and cash equivalents opening balance 1 | 235 | 239 |
| Cash and cash equivalents closing balance 1 | 370 | 235 |
Cash and cash equivalents include cash and bank balances.
The consolidated accounts have been prepared in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and interpretation statements by the International Financial Reporting Interpretations Committee (IFRIC), which have been approved by the EC Commission for application within the EU.
Furthermore, the recommendation RR30 Supplementary accounting rules for corporate groups issued by the Swedish Financial Accounting Standards Council has been applied.
The Parent Company applies the Annual Accounts Act and RR 32:06. This means that the Parent Company applies the same accounting policies as the Group, except as outlined below.
The applied accounting policies comply with those applied in the Annual Report for 2006, with the following exceptions.
These new standards and statements had no impact on Hexagon's earnings and financial position.
The new standards and interpretations that will be applied as of the 2008 calendar year or later are specified below.
This standard contains disclosure requirements pertaining to the Group's operating segments and replaces the requirement to define primary and secondary segments for the Group based on lines of business and geographical areas. IFRS 8 is to be applied for financial years starting 1 January 2009 or later. Due to the ongoing comprehensive changes of the Group's composition, Hexagon has not yet decided on the segment division that will be applied under IFRS 8.
The standard has been revised in order to increase the value of the information contained in financial statements. For example, equity transactions with shareholders are presented in a separate statement, while other transactions recognized directly in equity are presented either as a continuation of the income statement or in a separate statement. The revised IAS 1 is to be applied for financial years starting 1 January 2009 or later. Although the standard will have no impact on Hexagon's earnings or financial position, it will affect the way such transactions are presented.
The standard requires capitalization of borrowing costs when they pertain to assets that of necessity will take considerable time before they are ready for their intended use or for sale. The revised IAS 23 is to be applied for financial years starting 1 January 2009 or later. The standard is not adjudged to have any material impact on Hexagon's earnings or financial position.
The statement requires that agreements under which an employee is awarded entitlement to a company's equity instruments must be recognized as share-based payment settled with equity instruments even if the company purchases the instrument from an external party or if the shareholders provide the necessary equity instruments. IFRIC 11 is to be applied for financial years starting 1 March 2007 or later. The statement is not adjudged to have any material impact on Hexagon's earnings or financial position.
The statement pertains to operators who have concessions for social services and describes the way commitments and rights obtained through concession agreements for social services are to be recognized. IFRIC 12 is to be applied for financial years starting 1 January 2008 or later. The statement does not apply to Hexagon.
The statement requires that rewards deriving from customer loyalty programmes be reported as a special component of the sales transaction from which they are awarded and that their shares of payments received, calculated at fair value, be reported as prepaid income and recognized as income over the periods during which the obligation is fulfilled. IFRIC 13 is to be applied for financial years starting 1 July 2008 or later. The statement does not apply to Hexagon.
The statement addresses the matter of how the limit on assets and minimum funding requirements in accordance with defined-benefit pension schemes are to be calculated pursuant to IAS 19 Employee Benefits. IFRIC 14 is to be applied for financial years starting 1 January 2008 or later. The standard is not adjudged to have any material impact on Hexagon's earnings or financial position.
The functional currency of the Parent Company is Swedish kronor as is the reporting currency for the Parent Company and the Group.
Assets and liabilities are reported at historical cost with the exception of certain financial instruments (derivatives), which are reported at fair value.
The consolidated financial statements consolidate the Parent Company and the other companies in which the Parent Company has a controlling influence.
The consolidated financial statements have been prepared in accordance with the purchase method, which means that the Parent Company's acquisition value of shares in subsidiaries is eliminated against subsidiaries' shareholders' equity at the time of acquisition. The shareholders' equity of acquired subsidiaries is determined on the basis of a market valuation of assets and liabilities at the time of acquisition including those not reported earlier by the acquired company. In those cases where the acquisition value of shares in subsidiaries exceeds the acquired shareholders' equity as stated above, the discrepancy is accounted as goodwill in the balance sheet. In the event of an acquisition of minority interests, any differences between the acquisition price and the minority interest in the subsidiary's equity value are recognized as goodwill. In accordance with IFRS, goodwill amortization on a straight-line basis has been discontinued. Reported goodwill values are impairment tested at each reporting date.
In accordance with the stated principles for consolidated accounting, divested companies are consolidated up to their date of divestiture, while acquired companies are consolidated from the time of acquisition onwards, meaning from the time when a controlling interest was attained.
* Not yet adopted by the EU.
The current method is used for the translation of foreign subsidiaries, meaning that balance sheets are translated at year-end exchange rates, and income statements are translated at average exchange rates for the period. The resulting translation differences are recognized directly in consolidated shareholders' equity. The value of the net assets of foreign subsidiaries, including goodwill and other intangible assets, is hedged, mainly through foreigncurrency loans. Currency forward contracts are used to a lesser extent. In the consolidated financial statements, the after-tax effects of hedging are offset against those translation differences that were recognized directly in shareholders' equity regarding the foreign subsidiaries.
According to the applicable accounting rules, the earnings from certain divested operations, in terms of both operating profit and capital gains, must be separate from the earnings from continuing operations. However, a corresponding adjustment for acquired operations is not shown in the income statement but is provided, to the extent possible, as a supplementary disclosure.
Hexagon applies the equity method for accounting associated companies and joint ventures. Associated companies are those companies over which Hexagon, directly or indirectly, has a material influence. Joint ventures are defined as companies over which Hexagon, through partnership agreements with one or more parties, exercises a joint controlling influence over the operational and financial control.
Any differences between the acquisition value and equity value at the time of acquisition are termed goodwill, and is included in the acquisition value. In the consolidated balance sheet, holdings in associated companies are recognized at acquisition value adjusted for dividends, share in earnings and losses during the holding period, and accumulated impairment losses. The consolidated income statement includes share in associated companies' earnings after elimination of any inter-company gains. Associated company taxes are included in the Group's tax expenses.
At the close of every reporting period, the carrying amounts for associated companies and joint ventures, including implicit goodwill values, are impairment tested.
Business areas represent the primary segments within the Group and geographical areas the secondary segments. Internal billings between business areas are negligible and, where they occur, are made at market value.
Hexagon applies the following principles for revenue recognition:
Revenues from sales of goods are recognized when all the following conditions are satisfied:
Sales of services/contracts and similar assignments Income from the sale of services is recognized on the basis of the degree of completion at the balance sheet date, when all the following conditions are satisfied:
The percentage of completion is determined by dividing the expenditure that has arisen in relation to the total estimated expenditure for the assignment. If the degree of completion cannot be reliably determined, only those amounts corresponding to the expenditure that has arisen are recognized as revenues, and then, only to the extent that it is likely that they will be remunerated by the buyer. If it appears likely that all the expenditure for an assignment will exceed total revenues, the probable loss is accounted immediately, and fully, as an expense.
Expenditure for research is expensed as incurred, while expenditure for development is capitalized as follows: Capitalization of development expenses in the Group are only applied to new products where significant development costs are involved, where the products have a probable earnings potential that the company may benefit from, and the costs are clearly distinguishable from ongoing product development expenditure.
The Group has entered into both capital and operational leases. The agreements are classified in accordance with their financial implication when they were entered into. Capital leases are not material and primarily relate to vehicles. For operational leases, the lease payments are expensed straight-line over the shorter of the asset's useful life period and the lease period. For capital leases the leased asset is carried on the balance sheet with a corresponding liability for future lease payments. The leased asset is depreciated over the same period as for assets of the same kind owned by the Group. The liability for future lease payments is interest bearing.
Other operating revenues/expenses primarily consist of gains/losses from sales of fixed assets, currency exchange gains and losses related to operating assets and liabilities and revenues for sub-letting of premises.
Financial instruments are measured and recognized in accordance with the rules of IAS 39.
With certain exceptions, financial assets and liabilities are entered at acquisition value applying settlement-date accounting. Financial derivative instruments are recognized at fair value, with changes in fair value recognized in profit and loss, apart from cases where the derivative fulfils the requirement for cash flow hedging, in which case the change in value is recognized directly in shareholders' equity until the hedged transaction has been recognized.
Balances and transactions are hedged, and hedge accounting is applied if the hedging actions taken have the stated objective of constituting a hedge, have a direct correlation to the hedged item and effectively hedge the item. An effective hedge generates financial effects that offset those that arise through the hedged position. When hedging fair value, the change in the fair value of the hedging instrument is recognized in the income statement together with the change in the value of the liability or asset to which the risk hedging applies. Hexagon did not hedge fair value in 2006 and 2007.When hedging cash flow, the change in value of the hedging instrument is recognized directly in shareholders' equity until the hedged transaction has been recognized.
When establishing fair value, official market listings on the balancesheet date are used. If no such listings are available, a valuation is conducted based on the discounting of future cash flows to the listed market interest rate for the particular maturity. Currency swaps and currency forward contracts are valued at the listed market rate. Translation to SEK is based on the listed exchange rate on the balance-sheet date.
Receivables resulting from own lending and assets held to maturity are valued at the accrued acquisition value, applying the effective interest rate method. No financial instruments were classified in this category during 2006 and 2007.
Hexagon considers listed holdings of securities as being available for sale, which means that the change in value up to the selling date is recognized directly in shareholders' equity. Unlisted shares and participations whose value cannot be determined reliably are recognized at acquisition cost. Hexagon had no listed holdings in 2006 and 2007.
Accounts receivable and accounts payable are recognized at acquisition value.
Financial liabilities are mainly measured at accrued acquisition value, applying the effective interest rate method.
Borrowing costs in the form of interest expense are charged against earnings during the period to which they apply, and is normally not included in an asset's acquisition value, since Hexagon normally does not construct the types of assets that would permit this. Costs for raising loans are accrued over the maturity of the loan.
Expenditure for defined contribution plans are expensed as incurred. Expected expenditure under defined benefit plans are recognized as a liability calculated in accordance with actuarial models. Differences between expected and actual development of this liability are not expensed as long as the deviations remain within the so-called corridor. Pension expense for the year consists of pensions vested, interest expense during the period and – if applicable – accrued actuarial gains and losses. A deduction is made for the yield on plan assets intended to cover the obligation. The net cost is recognized in the income statement. Obligations related to defined benefit plans are recognized net in the balance sheet, meaning after a deduction of the value of any plan assets.
Defined benefit plans for which the insurer (Alecta) cannot specify Hexagon's share of the total plan assets and pension obligations, pending this information becoming available, are recognized as defined contribution plans.
Income taxes comprise:
The income tax expenses for the year consist of current and deferred tax, and shares in associated companies' tax.
Provisions for loss risks are made on a case-by-case basis; foreigncurrency receivables and liabilities are translated at the exchange rates prevailing on the balance-sheet date. The difference between acquisition value and the value on the balance-sheet date is recognized as income.
Inventories are accounted according to the FIFO (first-in first-out) principle. Market terms are applied for intra-Group transactions. The necessary provisions are made for obsolescence and intra-Group gains. Raw materials, and purchased finished and semi-finished
goods, are recognized at the lower of cost and fair value. Manufactured finished and semi-finished goods are recognized at the lower of manufacturing cost (including a reasonable portion of indirect manufacturing costs) and fair value.
Goodwill comprises the difference between the acquisition cost and fair value of the Group's share of acquired companies' identifiable net assets on the date of acquisition. Goodwill is recognized at acquisition value less accumulated impairment losses. Other acquisitionrelated intangible assets primarily comprise various types of intellectual rights such as brands, patents and customer relations. Acquisition-related intangible assets are recognized at fair value on the date of acquisition.
Both acquisition-related and other intangible assets are reported at acquisition value less accumulated amortization and impairment losses. Acquisition-related intangible assets with an indefinite life are not amortized.
Tangible fixed assets are recognized at acquisition value less accumulated depreciation and impairment losses. Acquisition value includes expenditure that is directly attributable to acquisition of the asset.
Gains/losses on the divestment of a tangible fixed asset are recognized in the income statement as other operating income/cost and comprise the difference between the sales revenue and the carrying amount.
Amounts that can be depreciated comprise acquisition value less estimated residual value. The assets' carrying value and useful life are impairment tested on every balance-sheet date and adjusted if necessary.
Depreciation/amortization according to plan is calculated on the original acquisition value and based on the asset's estimated economic life; the depreciation terms for various asset classes are:
| Capitalized development expenditure | 3–8 years |
|---|---|
| Patents and trademarks* | 20 years |
| Other intangible assets | 3–10 years |
| Computers | 3–8 years |
| Machinery and equipment | 3–15 years |
| Office buildings | 20–50 years |
| Industrial buildings | 20–50 years |
| Land improvements | 5–30 years |
* The value of trademarks obtained via acquired operations is determined by means of the acquisition analysis. If the trademark can be used without any time limitations, it is not subject to amortization according to plan. The right to use the name Leica derives from a contractual useful life under an agreement that expires in 95 years time. The agreement contains clauses stipulating extension opportunities. Since Hexagon is of the opinion that there is reason to believe that it will be possible to extend the agreement without considerable expenditure, the value of the right to use the name Leica is not subject to amortization according to plan.
Goodwill and other intangible assets with an indefinite life are subject to annual impairment testing. Other tangible and intangible assets are impairment tested if indications of an impairment requirement arise, meaning if the recognized value of an asset exceeds its recoverable value. If an impairment need is identified, the item is impaired to an amount corresponding to the recoverable value.
The recoverable value is the higher of the asset's net realizable value and the value in use, meaning the discounted present value of future cash flows. Previous impairments are reversed by relevant amounts matching the degree to which the impairment is no longer warranted, although goodwill impairments are never reversed.
The basic assumptions used to determine whether or not there is an impairment requirement are as follows:
| rate per currency | |
|---|---|
| Risk-free interest rate | 3.8–4.2 % |
| Tax rate | 9–31 % |
| Beta value | 0.6 – 0.9 |
| Applied discount rate before tax | 8.0–10.1 % |
| Forecasting method |
| Forecast period | 5 years |
|---|---|
| Growth after forecast period | 2 % |
Cash-generating units
The definition of cash-generating units complies with the Group's organization, whereby assessments of whether there are any impairment requirements are made at the sub-segment level within each particular business area. Intangible assets that are common to a specific business area are allocated to this business area. The total value of intangible fixed assets that are not subject to amortization was 12 182 MSEK (8 569) at 31 December 2007. The recoverable value is generally set at the value in use.
The Parent Company applies the same accounting policies as the Group with the following exceptions:
The Parent Company applies hedge accounting for assets in foreign currencies that are effectively hedged by borrowings in foreign currencies. Accordingly, changes in exchange rates are not reported for loans raised to finance acquisitions of foreign subsidiaries.
Fixed assets acquired in foreign currency are recognized at the historical exchange rate. Other assets and liabilities in foreign currency are recognized at the exchange rate prevailing on the balance-sheet date.
In December 2007, the Swedish Financial Accounting Standards Council issued revised versions of RR 30 Supplementary Accounting Regulations for Groups and RR 32 Accounting for Legal Entities. The revised versions are designated RFR 1.1 and RFR 2.1, respectively, and will be applied for financial years starting on 1 January 2008 or later. Advance application is encouraged. During 2007, Hexagon opted to continue to apply RR 30:06 and RR 32:06, respectively, and not to apply RFR 1.1 and RFR 2.1 in advance.
The Parent Company's and the consolidated financial statements will be presented to the Annual General Meeting for approval on 5 May 2008.
The critical accounting estimates and assumptions that are addressed in this section are those that company management and the Board of Directors regard as the most important for understanding Hexagon's financial reporting. The information is limited to areas that are significant considering the degree of impact and underlying uncertainty. Hexagon's accounting estimates and assumptions are based on historical experience and assumptions that company
management and the Board of Directors regard as reasonable under the current circumstances. The conclusions based on these accounting estimates constitute the foundation for the carrying amounts of assets and liabilities, in the event that they cannot be established through information from other sources. The actual outcome may differ from these accounting estimates and assumptions.
Parts of Hexagon's sales derive from major, complex customer contracts. In order to establish the amounts that are to be recognized as income and whether any loss provision should be posted, company management makes estimates of completed performance in relation to the contractual terms and conditions, the estimated total contractual costs and the proportion of the contract that has been completed.
Intangible assets within the Hexagon Group concern essentially pertain to patents, trademarks and goodwill. Goodwill and other acquired intangible assets with an indefinite life are not subject to annual amortization, while other intangible assets are amortized. Insofar as the underlying operations develop negatively, an impairment requirement may arise. Such intangible assets are subject to annual impairment testing, which is essentially based on the recoverable value, making assumptions about the sales trend, the Group's profit margins, ongoing investments, changes in working capital and discount interest rate. The assumptions made by the Board of Directors are presented above. Company management considers the assumptions applied to be compatible with the data received from external sources of information or from previous experience. Hexagon's goodwill at 31 December amounted to 9 523 MSEK. Implemented impairment tests did not give rise to a cause to impair this amount.
The Board of Directors and company management continuously assess the carrying amount of both current and deferred tax assets/ tax liabilities. For deferred tax assets, Hexagon has to assess the probability of whether it will be possible to utilize the deductible temporary differences that give rise to deferred tax assets to offset future taxable profits. In addition, in certain situations, the value of the deferred tax assets may be uncertain due to ongoing tax processes, for example. Accordingly, the fair value of deferred tax assets may deviate from these estimates due to a change in future earning capacity, changed tax regulations or the outcome of examinations by authorities or tax courts of issued or not yet issued tax returns. When assessing the value of deferred tax liabilities, Hexagon has to form an opinion of the tax rate that will apply at the time of the reversal of taxable temporary differences. Hexagon recognized deferred tax liabilities in an amount of 176 MSEK, net, at the end of 2007. At the same date, the Group had tax-loss carry-forwards with a tax value of 308 MSEK that were not recognized as assets. These assets could not be capitalized based on assessments of the opportunity to utilize the tax deficits. In comparison with the final outcome, the estimates made concerning both deferred tax assets and liabilities could have either a positive or a negative impact on earnings.
Within the Hexagon Group, there are defined-benefit pension schemes based on significant assumptions concerning future benefits pertaining to either the current or prior workforce. When calculating the pension liability, a number of actuarial assumptions are of major significance to the outcome of the calculation. The most critical pertain to the discount interest rate on the obligation and the anticipated return on the plan assets. Other significant assumptions include the rate of pay increases, employee turnover and estimated length of life. A reduced discount interest rate increases the recognized pension liability. The actual outcome could deviate from the recognized amount if the applied assumptions prove to be wrong.
Amounts in MSEK (SEK millions), unless stated otherwise.
A detailed description of the operations conducted by the various business areas is presented on pages 16–21 and 24–25 of this Annual Report.
| BUSINESS AREAS 2007 |
Hexagon Measurement Technologies |
Hexagon Polymers |
Other operations |
Group-wide and adjustments |
Eliminations | Group |
|---|---|---|---|---|---|---|
| Net sales 1 | 10 937 | 2 730 | 922 | – | –2 | 14 587 |
| Operating earnings (EBIT1) | 2 141 | 310 | 30 | –60 | – | 2 421 |
| Capital gain | – | – | – | 114 | – | 114 |
| Other non-recurring items | – | – | – | –265 | – | –265 |
| Earnings before net interest expense | 2 141 | 310 | 30 | –211 | – | 2 270 |
| Net interest income/expenses | – | – | – | –214 | – | –214 |
| Earnings before taxes | 2 141 | 310 | 30 | –425 | – | 2 056 |
| Operational assets | 19 441 | 2 599 | 692 | 80 | –110 | 22 702 |
| Operational liabilities | 3 012 | 359 | 306 | 0 | –110 | 3 567 |
| Net operating assets | 16 429 | 2 240 | 386 | 80 | – | 19 135 |
| Of which share in associated companies earnings | 4 | 0 | – | –35 | – | –31 |
| Shares in associated companies | 20 | 0 | – | – | – | 20 |
| Cash flow from operating activities | 2 114 | 360 | 17 | –526 | – | 1 965 |
| Cash flow from ordinary investment activities | –576 | –172 | –64 | –13 | – | –825 |
| Operating cash flow | 1 538 | 188 | –47 | –539 | – | 1 140 |
| Average number of employees | 5 796 | 2 120 | 480 | 10 | – | 8 406 |
| No. of employees at year-end | 7 296 | 2 327 | 428 | 11 | – | 10 062 |
| Depreciation/amortization and impairment losses | –515 | –70 | –42 | –176 | – | –803 |
| 2006 | Hexagon Measurement Technologies |
Hexagon Polymers |
Other operations |
Group-wide and adjustments |
Eliminations | Group |
|---|---|---|---|---|---|---|
| Net sales 1 | 9 250 | 2 488 | 1 734 | – | – 3 | 13 469 |
| Operating earnings (EBIT1) | 1 547 | 223 | 109 | –52 | 0 | 1 827 |
| Capital gain | – | – | – | 97 | – | 97 |
| Other non-recurring items | – | – | – | –84 | – | – 84 |
| Earnings before net interest expense | 1 547 | 223 | 109 | –39 | 0 | 1 840 |
| Net interest income/expenses | – | – | – | –222 | – | – 222 |
| Earnings before taxes | 1 547 | 223 | 109 | –261 | 0 | 1 618 |
| Operational assets | 14 082 | 1 941 | 1 190 | 252 | – 48 | 17 417 |
| Operational liabilities | 2 121 | 280 | 344 | 54 | – 48 | 2 751 |
| Net operating assets | 11 961 | 1 661 | 846 | 198 | – | 14 666 |
| Of which share in associated companies earnings | 2 | – | – | 0 | – | 2 |
| Shares in associated companies | 14 | 0 | 36 | – | – | 50 |
| Cash flow from operating activities | 1 382 | 233 | 43 | –543 | – | 1 115 |
| Cash flow from ordinary investment activities | – 663 | – 124 | – 43 | –4 | – | – 834 |
| Operating cash flow | 719 | 109 | 0 | –547 | – | 281 |
| Average number of employees | 4 942 | 1 933 | 975 | 12 | – | 7 862 |
| No. of employees at year-end | 5 133 | 2 016 | 1 008 | 13 | – | 8 170 |
| Depreciation/amortization and impairment losses | –470 | –68 | –64 | 0 | – | –602 |
1 Since inter-company invoicing among the business areas is negligible, only gross invoicing is stated.
Note 1, cont.
| Liabilities 1 | Cash flow from | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| recipient country GEOGRAPHICAL |
Net sales per | Assets | Assets | Net | ordinary investment activities |
|||||
| MARKETS | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 |
| EMEA | 8 646 | 8 329 | 15 774 | 14 499 | –2 711 | –2 078 | 13 063 | 12 421 | –498 | –432 |
| Americas | 3 551 | 3 261 | 6 228 | 2 421 | –1 062 | –813 | 5 166 | 1 608 | –188 | –292 |
| Asia | 2 390 | 1 879 | 1 447 | 1 105 | –541 | –468 | 906 | 637 | –139 | –110 |
| Elimination of intra-Group items |
– | – | –476 | –423 | 476 | 423 | – | – | – | – |
| Group | 14 587 | 13 469 | 22 973 | 17 602 | –3 838 | – 2 936 | 19 135 | 14 666 | –825 | – 834 |
Net operating assets are equivalent to operating earnings inasmuch as items such as cash and cash equivalents, tax, interest and interest-bearing liabilities and provisions are not included.
Other Group companies account for 100 per cent (100) of the Parent Company's sales and for none of the Parent Company's purchases.
| 2007 | 2006 | |||||
|---|---|---|---|---|---|---|
| Men | Women | Total | Men | Women | Total | |
| Parent Company | 6 | 4 | 10 | 8 | 4 | 12 |
| Subsidiaries | 6 758 | 1 638 | 8 396 | 6 422 | 1 428 | 7 850 |
| Total, Group | 6 764 | 1 642 | 8 406 | 6 430 | 1 432 | 7 862 |
| Average number of employees | 2007 | 2006 | ||||
|---|---|---|---|---|---|---|
| by location in Sweden | Men | Women | Total | Men | Women | Total |
| Eskilstuna | 75 | 15 | 90 | 65 | 12 | 77 |
| Gislaved | 119 | 153 | 272 | 106 | 148 | 254 |
| Göteborg | 2 | 1 | 3 | 5 | 2 | 7 |
| Karlskoga | 1 | 0 | 1 | 8 | 2 | 10 |
| Laxå | 74 | 13 | 87 | 76 | 15 | 91 |
| Malmö | 1 | 1 | 2 | 7 | 3 | 10 |
| Mölndal | 3 | 2 | 5 | 3 | 2 | 5 |
| Nacka | 6 | 4 | 10 | 8 | 4 | 12 |
| Nybro | 16 | 2 | 18 | 95 | 9 | 104 |
| Olofström | 130 | 41 | 171 | 118 | 42 | 160 |
| Oskarshamn | 11 | 0 | 11 | 65 | 2 | 67 |
| Sollentuna | 51 | 8 | 59 | 44 | 7 | 51 |
| Stockholm | – | – | – | 1 | – | 1 |
| Tidaholm | 75 | 8 | 83 | 90 | 10 | 100 |
| Trollhättan | – | – | – | 26 | 3 | 29 |
| Uddevalla | 1 | 0 | 1 | 1 | – | 1 |
| Värnamo | 4 | 1 | 5 | 26 | 4 | 30 |
| Älmhult | 118 | 18 | 136 | 96 | 18 | 114 |
| Örebro | 15 | 2 | 17 | 181 | 19 | 200 |
| Östra Göinge | 21 | 3 | 24 | – | – | – |
| Total Sweden | 723 | 272 | 995 | 1 021 | 302 | 1 323 |
Notes
| 2007 | 2006 | ||||||
|---|---|---|---|---|---|---|---|
| Average number of employees by country | Men | Women | Total | Men | Women | Total | |
| Sweden | 723 | 272 | 995 | 1 021 | 302 | 1 323 | |
| Norway | 34 | 4 | 38 | 34 | 7 | 41 | |
| Denmark | 67 | 37 | 104 | 61 | 37 | 98 | |
| Finland | 9 | 0 | 9 | 87 | 5 | 92 | |
| Nordic region and Baltic states | 833 | 313 | 1 146 | 1 203 | 351 | 1 554 | |
| UK | 162 | 40 | 202 | 154 | 37 | 191 | |
| Germany | 395 | 63 | 458 | 384 | 64 | 448 | |
| Netherlands | 18 | 2 | 20 | 17 | 3 | 20 | |
| Belgium | 98 | 10 | 108 | 89 | 10 | 99 | |
| France | 201 | 65 | 266 | 178 | 59 | 237 | |
| Switzerland | 1 192 | 229 | 1 421 | 1 139 | 228 | 1 367 | |
| Italy | 289 | 69 | 358 | 295 | 68 | 363 | |
| Portugal | 9 | 3 | 12 | 9 | 3 | 12 | |
| Spain | 100 | 32 | 132 | 75 | 22 | 97 | |
| Russia | 10 | 3 | 13 | 5 | 1 | 6 | |
| Czech Republic | 112 | 6 | 118 | 97 | 9 | 106 | |
| Turkey | 14 | 2 | 16 | – | – | – | |
| Austria | 1 | 0 | 1 | – | – | – | |
| Poland | 17 | 2 | 19 | 12 | 3 | 15 | |
| Rest of Europe | 2 618 | 526 | 3 144 | 2 454 | 507 | 2 961 | |
| Total, Europe | 3 451 | 839 | 4 290 | 3 657 | 858 | 4 515 | |
| USA | 1 082 | 264 | 1 346 | 958 | 254 | 1 212 | |
| Canada | 99 | 26 | 125 | 94 | 19 | 113 | |
| Mexico | 36 | 6 | 42 | 17 | 3 | 20 | |
| North America | 1 217 | 296 | 1 513 | 1 069 | 276 | 1 345 | |
| Brazil | 36 | 8 | 44 | 29 | 4 | 33 | |
| South America | 36 | 8 | 44 | 29 | 4 | 33 | |
| Australia | 83 | 15 | 98 | 80 | 13 | 93 | |
| Australia | 83 | 15 | 98 | 80 | 13 | 93 | |
| China | 587 | 312 | 899 | 302 | 132 | 434 | |
| United Arab Emirates | 1 | 0 | 1 | – | – | – | |
| Hong Kong | 16 | 10 | 26 | 14 | 9 | 23 | |
| India | 19 | 2 | 21 | 14 | 1 | 15 | |
| Israel | 4 | 1 | 5 | – | – | – | |
| Japan | 83 | 14 | 97 | 77 | 14 | 91 | |
| Korea | 32 | 6 | 38 | 31 | 6 | 37 | |
| Malaysia | 4 | 2 | 6 | – | – | – | |
| Thailand | 5 | 5 | 10 | 2 | – | 2 | |
| Singapore | 86 | 111 | 197 | 91 | 94 | 185 | |
| Sri Lanka | 1 140 | 21 | 1 161 | 1 064 | 25 | 1 089 | |
| Asia | 1 977 | 484 | 2 461 | 1 595 | 281 | 1 876 | |
| Total, Group | 6 764 | 1 642 | 8 406 | 6 430 | 1 432 | 7 862 | |
| Board and CEO | Other employees | |||
|---|---|---|---|---|
| Salaries and Remuneration | 2007 | 2006 | 2007 | 2006 |
| Parent Company | 15 | 14 | 17 | 14 |
| (of which performance-related | ||||
| pay and bonus) | (4) | (4) | (4) | (3) |
| Subsidiaries in Sweden | 18 | 20 | 325 | 416 |
| Total | 33 | 34 | 342 | 430 |
| Australia | 4 | – | 55 | 43 |
| Austria | 0 | – | 3 | – |
| Belgium | 7 | 6 | 34 | 26 |
| Brazil | 3 | 2 | 8 | 6 |
| Canada | 5 | 3 | 60 | 44 |
| China | 8 | 4 | 71 | 47 |
| Czech Republic | 1 | 1 | 12 | 10 |
| Denmark | 3 | 3 | 47 | 23 |
| Finland | – | 1 | 1 | 28 |
| France | 7 | 5 | 113 | 89 |
| Germany | 9 | 8 | 228 | 190 |
| Hong Kong | – | – | 2 | – |
| India | 0 | 0 | 1 | 1 |
| Israel | – | – | 8 | – |
| Italy | 3 | 8 | 139 | 132 |
| Japan | 6 | 4 | 37 | 40 |
| Korea | 1 | 1 | 11 | 10 |
| Malaysia | 0 | – | 1 | – |
| Mexico | 1 | 1 | 8 | 4 |
| Netherlands | 2 | 4 | 9 | 5 |
| Norway | 1 | 2 | 20 | 19 |
| Poland | 1 | 0 | 4 | 2 |
| Portugal | – | – | 4 | 3 |
| Russia | 1 | 0 | 2 | 1 |
| Singapore | 5 | 3 | 37 | 35 |
| Spain | 4 | 4 | 40 | 33 |
| Sri Lanka | 1 | 1 | 20 | 15 |
| Switzerland | 49 | 47 | 782 | 762 |
| Thailand | 1 | 0 | 1 | 0 |
| Turkey | 0 | – | 1 | – |
| UK | 6 | 6 | 104 | 80 |
| United Arab Emirates | 1 | – | 1 | – |
| USA | 24 | 16 | 772 | 730 |
| Total | 187 | 164 | 2 975 | 2 808 |
| (of which performance-related | ||||
| pay and bonus) | (46) | (36) | (248) | (215) |
| All Employees | ||||
| Social security expenses | 2007 | 2006 |
| Parent Company | 15 | 11 |
|---|---|---|
| (of which pension expenses) | (4) | (4) |
| Subsidiaries | 664 | 684 |
| (of which pension expenses) | (130) | (142) |
| Total | 679 | 695 |
| (of which pension expenses) | (134) | (146) |
Group amounted to 14 MSEK (13). Pension commitments to Boards of Directors and Chief Executive Officers in the Group were 13 MSEK (15).
At year-end, all Board members were men. The Chief Executive Officer and other senior executives were men.
Of all the Group's Board members, Chief Executive Officers and other corporate executives, 24 were women and 300 were men.
Sickness absence in the Parent Company totalled 0 per cent (0) of the employees combined ordinary working time. No part of sickness absence pertained to a connected period of 60 days or more.
| Total | 33 | 34 | 342 | 430 | Defined-benefit pension schemes | 2007 | 2006 |
|---|---|---|---|---|---|---|---|
| Actuarial assumptions (%) | |||||||
| Australia | 4 | – | 55 | 43 | Discount interest rate | 3,7 | 3,3 |
| Austria | 0 | – | 3 | – | Expected return on plan assets | 5,0 | 4,8 |
| Belgium | 7 | 6 | 34 | 26 | Inflation | 1,5 | 1,5 |
| Brazil | 3 | 2 | 8 | 6 | Employee turnover | 7,6 | 8,0 |
| Canada | 5 | 3 | 60 | 44 | |||
| China | 8 | 4 | 71 | 47 | OVERVIEW | ||
| Czech Republic | 1 | 1 | 12 | 10 | Provisions | ||
| Denmark | 3 | 3 | 47 | 23 | Pension obligation | 3 080 | 3 253 |
| Finland | – | 1 | 1 | 28 | Fair value of plan assets | – 3 018 | – 2 907 |
| France | 7 | 5 | 113 | 89 | Pension obligation less plan assets | 62 | 346 |
| Germany | 9 | 8 | 228 | 190 | Unrecognized costs for prior-year service | 25 | – |
| Hong Kong | – | – | 2 | – | Actuarial gains (+)/losses (–) | 331 | 128 |
| India | 0 | 0 | 1 | 1 | Pension provision | 418 | 474 |
| Israel | – | – | 8 | – | |||
| Italy | 3 | 8 | 139 | 132 | Expenses | ||
| Japan | 6 | 4 | 37 | 40 | Pensions vested during the year | 112 | 123 |
| Korea | 1 | 1 | 11 | 10 | Interest on pension provision | 112 | 117 |
| Malaysia | 0 | – | 1 | – | Expected return on plan assets | – 144 | – 143 |
| Mexico | 1 | 1 | 8 | 4 | Amortization of unrecognized actuarial gains(+)/losses(–) | – | |
| Netherlands | 2 | 4 | 9 | 5 | Employees' own contribution | – 28 | |
| Norway | 1 | 2 | 20 | 19 | Pension expenses – defined-benefit plans | 50 | 69 |
| Poland | 1 | 0 | 4 | 2 | Pension expenses – defined-contribution plans | 84 | 77 |
| Portugal | – | – | 4 | 3 | Total pension expenses | 134 | 146 |
| Russia | 1 | 0 | 2 | 1 | |||
| Singapore | 5 | 3 | 37 | 35 | SPECIFICATIONS | ||
| Spain | 4 | 4 | 40 | 33 | Pension obligations | ||
| Sri Lanka | 1 | 1 | 20 | 15 | Opening balance | 3 253 | 3 655 |
| Switzerland | 49 | 47 | 782 | 762 | Change in terms and conditions | – 31 | – |
| Thailand | 1 | 0 | 1 | 0 | Pensions vested during the year | 112 | 123 |
| Turkey | 0 | – | 1 | – | Interest expense | 112 | 117 |
| UK | 6 | 6 | 104 | 80 | Benefits paid | – 155 | – 249 |
| United Arab Emirates | 1 | – | 1 | – | Early retirements | – | – 3 |
| USA | 24 | 16 | 772 | 730 | Obligations in acquired/divested subsidiaries | – 23 | 1 |
| Total | 187 | 164 | 2 975 | 2 808 | Settlement of pension obligations | – | – 20 |
| (of which performance-related | Expenses for prior-year service | – 1 | – | ||||
| pay and bonus) | (46) | (36) | (248) | (215) | Actuarial gains (+)/losses (–) | – 216 | – 146 |
| Currency translation differences | 29 | – 225 | |||||
| Social security expenses | 2007 | All Employees 2006 |
Closing balance | 3 080 | 3 253 | ||
| Plan assets | |||||||
| Parent Company | 15 | 11 | Opening balance | 2 907 | 3 070 | ||
| (of which pension expenses) | (4) | (4) | Expected return on plan assets | 144 | 143 | ||
| Subsidiaries | 664 | 684 | Funds contributed | 113 | 104 | ||
| (of which pension expenses) | (130) | (142) | Amounts refunded | – 159 | – 230 | ||
| Total | 679 | 695 | Acquired/divested subsidiaries | 0 | 0 | ||
| (of which pension expenses) | (134) | (146) | Actuarial gains (+)/losses (–) | – 16 | 24 | ||
| Currency translation differences | 29 | – 204 | |||||
| Pension expenses for Boards of Directors and Chief Executive Officers in the | Closing balance | 3 018 | 2 907 | ||||
| Defined-benefit pension schemes | 2007 | 2006 |
|---|---|---|
| Return on plan assets | ||
| Expected return on plan assets | 144 | 143 |
| Actuarial gains (+)/losses (–) | – 16 | 24 |
| Actual return on plan assets | 128 | 167 |
| Provision for pensions | ||
| Opening balance | 474 | 551 |
| Pension expense, defined-benefit schemes | 80 | 97 |
| Benefits paid | –155 | – 249 |
| Funds contributed | – 113 | – 104 |
| Repayments | 159 | 230 |
| Premature retirements | – | – 3 |
| Expenses for prior-year service | – 6 | – |
| Settlement of pension obligations | 2 | – 20 |
| Acquired/divested subsidiaries | – 23 | 1 |
| Currency translation differences | 0 | – 29 |
| Closing balance | 418 | 474 |
| Actuarial gains/losses | ||
| Opening balance, actuarial gains (+)/losses (–) | 128 | – 34 |
| Redemption of pension obligations | 4 | – 3 |
| Pension obligations, actuarial gains (+)/losses (–) | 216 | 146 |
| Plan assets, actuarial gains (+)/losses (–) | – 16 | 24 |
| Acquired/divested companies | 2 | – |
| Currency translation differences | – 3 | – 5 |
| Closing balance, actuarial gains (+)/losses (–) | 331 | 128 |
| Unrecognized expenses for prior-year service | ||
| Opening balance | – | – |
| Recognized this year | – 6 | – |
| Unrecognized this year | 31 | – |
| Currency translation differences | 0 | – |
| Closing balance | 25 | – |
| Defined-benefit pension schemes | 2007 | 2006 | |
|---|---|---|---|
| Acquired subsidiaries | |||
| Increase in pension obligations (+) | 4 | 1 | |
| Increase in plan assets (–) | 0 | 0 | |
| Total – net | 4 | 1 | |
| Divested subsidiaries | |||
| Decrease in pension obligations (–) | – 31 | – | |
| Change in actuarial gains (–)/losses(+) | 7 | – | |
| Total – net | – 24 | 0 | |
| Fair value of plan assets | |||
| Equities and similar financial instruments | 827 | 835 | |
| Interest-bearing securities, etc. | 1 900 | 1 491 | |
| Real estate | 291 | 581 | |
| Total | 3 018 | 2 907 | |
| Pension obligations, 31 December 2007 |
Plan assets | Pension obligations |
Net |
| Sweden | – | –49 | –49 |
| Italy | – | –71 | –71 |
| Switzerland | 2 723 | –2 561 | 162 |
| Germany | 24 | –83 | –59 |
| UK | 231 | – 230 | 1 |
| USA | 37 | – 44 | – 7 |
| Other minor commitments | 3 | – 42 | – 39 |
| Total (fair/present value) | 3 018 | – 3 080 | – 62 |
| Capitalized actuarial gains/ losses/unrecognized expenses for prior-year service |
–356 | ||
| Pension provisions | –418 |
Any shortfall in the scheme in Switzerland must be covered by the employer, while surpluses can only become due to the beneficiaries. The value of plan assets has been reduced accordingly.
Pursuant to resolutions by the Annual General Meeting, the Chairman of the Board and Board members were paid remuneration totalling 2 425 000 SEK (1 950 000). Due to changes in the Board of Directors, the Board fee paid amounted to 2 200 000 SEK. The Chairman of the Board received 650 000 SEK and other Board members 350 000 SEK each (the Chief Executive Officer of Hexagon AB did not receive any director fees). In addition to director fees, remuneration is paid for work on committees. The chairman of the Remuneration Committee received 75 000 SEK and each member received 50 000 SEK. The chairman of the Audit Committee received 150 000 SEK and each member received 100 000 SEK. No Board member received any remuneration in addition to director fees.
Remuneration to the President and Chief Executive Officer, as well as other senior executives, comprises basic salary, variable remuneration, other benefits and pension. Other senior executives are the two people presented on page 49. Variable remuneration is based on outcome in relation to individually set targets.
Pensions and other benefits received by the President and other senior executives are paid as part of their total remuneration.
| SEK 000s | Basic salary/ Director fees |
Variable remuneration |
Other benefits |
Pension expenses |
Other remuneration |
Total |
|---|---|---|---|---|---|---|
| Chairman of the Board, Melker Schörling | 725 | – | – | – | – | 725 |
| Maths O. Sundqvist | 400 | – | – | – | – | 400 |
| Mario Fontana | 475 | – | – | – | – | 475 |
| Marianne Arosenius | 250 | – | – | – | – | 250 |
| Ulf Henriksson | 350 | – | – | – | – | 350 |
| Chief Executive Officer, Ola Rollén | 9 111 | 4 000 | – | 1 370 | – | 14 481 |
| Other senior executives (two people) | 6 747 | 3 677 | 78 | 1 515 | – | 12 017 |
| Total | 16 583 | 7 677 | 78 | 2 885 | – | 27 223 |
Other benefits primarily comprise company cars.
Pension expense comprises defined-contribution pension schemes, and is the expense affecting earnings for the year. The Chief Executive Officer's pensionable age is 65. Pension premiums are payable at 15 per cent of pensionable salaries. The pensionable age of other senior executives is 65. Pension premiums are 20–25 per cent of pensionable salary. Pensionable salary means basic salary.
Only if the Chief Executive Officer's employment is terminated by the Company will severance pay, corresponding to 18 months' salary, be paid. No salary during the period of notice will be paid in addition to the severance pay. Notice periods for other senior executives are 12 to 18 months. During the notice period, only ordinary salary is payable, with the exception of one person, for whom additional severance pay corresponding to six months ordinary salary will be paid if notice is served by the Company.
At the date of acquisition on 14 October 2005, Leica Geosystems had a number of stock option plans targeted at Leica's senior executives. These options conferred these employees with the right to subscribe for one new Leica share at a price predetermined at allotment. These stock options are associated with certain terms and conditions, such as a specified length of service, before the employee is permitted to redeem his/her options for shares. The options were allotted free of charge. During the acquisition
process, a third party submitted a competing bid for Leica Geosystems. As a consequence of this competing bid, Hexagon raised its initial bid, submitting an additional bid premium comprising five Hexagon class B shares in addition to the 440 CHF that had been offered per share. Hexagon's initial bid and the revised bid were targeted at existing shareholders, and those individuals holding Leica Geosystems' employee stock options. The value of the additional bid premium, i.e. the market value of the five class B Hexagon shares, has been accounted as a portion of the acquisition value of the acquired shares and options of Leica Geosystems. In connection with the new issue of Hexagon shares effected in 2006 (compulsory redemption), the cash portion was adjusted to 462 CHF by a Swiss court. Following a bonus issue and the share split implemented in 2007, the bid premium corresponds to 15 Hexagon class B shares shares.
Because the value of the additional bid premium stated above is not considered to correspond to remuneration for services, it has been regarded as a portion of the acquisition value of Leica Geosystems. Thus the expenses for the employee stock options in the Hexagon Group comprise the expense originally calculated regarding the services to which the benefits were considered to correspond at the date of allotment. These employee stock options are charged against the income statement until the earliest possible exercise date pursuant to the original calculation. For 2007, this expense was 8 MSEK (6).
The Chief Executive Officer and other senior executives (two people) are not participating in this stock option plan.
| WARRANTS | Exercise period, until |
Number of options/warrants |
Number of subscrip tion-qualifying shares in Hexagon to be re ceived free of charge |
To receive in cash less exercise price per Hexagon share |
Share price on exercise |
|---|---|---|---|---|---|
| Warrant plan in Leica Geosystems | |||||
| Opening balance 2007 | 2010-04-07 | 4 066 | 60 990 | 144.53 | |
| 2009-04-08 | 1 531 | 22 965 | 107.74 | ||
| 2011-04-08 | 14 682 | 220 230 | 99.11 | ||
| 2012-04-08 | 27 828 | 417 420 | 46.17 | ||
| 2008-04-04 | 247 | 3 705 | 36.04 | ||
| 2008-07-12 | 449 | 6 735 | 32.66 | ||
| Total closing balance 2007 | 48 803 | 732 045 | 72.05 | ||
| Changes in 2007 | |||||
| Warrants exercised for cash | – 4 561 | – | 120.00 | ||
| Warrants exercised for cash and Hexagon shares |
–11 634 | – | 126.00 | ||
| Forfeited warrants | –2 668 | – | |||
| Closing balance 2007 | 2010-04-07 | 1 281 | 19 215 | 146.26 | |
| 2009-04-08 | 821 | 12 315 | 109.03 | ||
| 2011-04-08 | 8 633 | 129 495 | 100.29 | ||
| 2012-04-08 | 19 176 | 287 640 | 46.73 | ||
| 2008-04-04 | 29 | 435 | 36.47 | ||
| Total closing balance 2007 | 29 940 | 449 100 | 68.13 |
| Warrants in Leica Geosystems | |||
|---|---|---|---|
| WARRANTS, 31 DECEMBER 2007 | Number Acquisition price | ||
| CEO | – | – | |
| Other senior executives (two people) | – | – | |
| Other employees | 29 940 | – | |
| Total | 29 940 | – |
The CEO and other senior executives (two people) did not hold any warrants at 31 December 2007. Upon full exercise of the non-terminated warrant plans, dilution would be 0.2 per cent of the share capital and 0.1 per cent of the voting rights. Where applicable, the figures in the table have been restated to take into account the bonus issue and share split implemented in 2007.
An Extraordinary General Meeting held on 14 December resolved to introduce a new warrant scheme for senior executives and key personnel within the Group.
Salary and other terms and conditions for the Group's senior executives are processed by a Remuneration Committee appointed by the Board of Directors.
| Group | Parent Company | |||
|---|---|---|---|---|
| 2007 | 2006 | 2007 | 2006 | |
| Operating revenues | ||||
| Capital gains on divestment of fixed assets | 34 | 8 | – | – |
| Exchange rate gains | 0 | 4 | – | – |
| Other | 25 | 46 | – | – |
| Total | 59 | 58 | – | – |
| Operating expenses | ||||
| Capital losses on divestment of fixed assets | 1 | 2 | – | – |
| Depreciation/amortization and impairment | 76 | 51 | – | – |
| Other | 11 | 127 | – | – |
| Total | 88 | 180 | – | – |
| NOTE 6. Non-recurring items | |||
|---|---|---|---|
| Business area | 2007 | 2006 | |
| Capital gain from divestment of subsidiaries | Other operations | 114 | – |
| Capital gain from divestment of shareholdings in Tradimus AB, etc. | Other operations | – | 97 |
| Restructuring costs for integration of Leica Geosystems | Hexagon Measurement Technologies | – | – 84 |
| Acquisition of NovAtel | Hexagon Measurement Technologies | ||
| Impairment of value of overlapping technologies | –91 | – | |
| Impairment of value of NovAtel's customer relations relating to Leica Geosystems |
–60 | – | |
| Impairment of value of the associated company Outokumpu Nordic Brass AB | Other operations | –35 | – |
| Costs related to preparations for the listing of Hexagon Polymers in 2008 | Hexagon Polymers | –16 | – |
| Legal costs pertaining to completed dispute concerning patent infringement | Hexagon Measurement Technologies | –20 | – |
| Other restructuring costs | Hexagon Measurement Technologies | –43 | – |
| Total | –151 | 13 |
| NOTE 7. Earnings from financial investments | ||||
|---|---|---|---|---|
| Group | Parent Company | |||
| 2007 | 2006 | 2007 | 2006 | |
| Earnings from shares in Group companies | ||||
| Capital gain | 140 | – | – | – |
| Capital loss | –26 | – | – | – 5 |
| Total | 114 | – | – | – 5 |
| Earnings from other securities classified as fixed assets | ||||
| Capital gain | – | 97 | – | 101 |
| Total | – | 97 | – | 101 |
| Other interest income | ||||
| Interest income, Group companies | – | – | 212 | 166 |
| Other interest income | 48 | 29 | 10 | 13 |
| Total | 48 | 29 | 222 | 179 |
| Interest expense | ||||
| Interest expense, Group companies | – | – | 111 | 61 |
| Other interest expense | 262 | 251 | 239 | 319 |
| Total | 262 | 251 | 350 | 380 |
| Earnings from shares in associated companies | ||||
| Impairment | –35 | – | – | – |
| Capital gain | 3 | – | – | – |
| Profit shares, etc. | 1 | 2 | – | – |
| Total | –31 | 2 | – | – |
| Group | ||
|---|---|---|
| 2007 | 2006 | |
| Tax on earnings for the year | ||
| Income tax | –286 | – 242 |
| Total current tax | –286 | – 242 |
| Deferred tax on earnings for the year | 41 | – 96 |
| Share of tax in associated companies | 0 | 0 |
| Total tax on earnings for the year | –245 | – 338 |
Non-accounted deferred Parent Company tax liabilities for untaxed reserves amount to – MSEK (–).
Deferred tax, meaning the difference between, on the one hand, income tax actually recognized as current tax in current and prior-year income statements and, on the other hand, the income tax the company will finally be charged as a consequence of business conducted in the current and prior financial years amounted to:
| Group | ||
|---|---|---|
| 2007 | 2006 | |
| Deferred tax assets (liabilities) comprise: | ||
| Fixed assets | –532 | – 414 |
| Inventories | 105 | 45 |
| Customer receivables | 16 | 23 |
| Provisions | 36 | 13 |
| Other | –47 | – 69 |
| Unutilized loss carry-forwards and similar deductions | 554 | 535 |
| Less items not satisfying criteria for being | ||
| recognized as assets | –308 | – 80 |
| Total | –176 | 53 |
| According to the balance sheet: | ||
| Deferred tax assets | 492 | 442 |
| Deferred tax liabilities | –668 | – 389 |
Total, net –176 53 Unutilized loss carry-forwards and similar deductions not satisfying criteria for being recognized as assets have not been recognized at any value. Deferred tax assets that depend on future taxable surpluses have been valued on the basis of both historical and forecast future taxable earnings. Hexagon is striving for a corporate structure that enables tax exemption when companies are divested and favourable taxation of dividends within the Group. However, certain potential taxes on dividends and divestments remain within the Group. The principal internal interface pertaining to potential income tax consequences from share divestments is the American company Brown & Sharpe International Capital Corporation's ownership of the Swiss company Tesa
SA. With respect to dividends, the principal internal interface is between the
Group's Chinese companies that are owned in the US.
| Reconciliation of the year's change in current and | Group | |
|---|---|---|
| deferred tax assets/liabilities | 2007 | 2006 |
| DEFERRED TAXES | ||
| Opening balance, net | 53 | – 34 |
| Change via income statement: | ||
| Deferred tax on earnings | –26 | – 134 |
| Change in reserve for deductions not satisfying criteria for being recognized as assets |
–67 | 66 |
| Change in tax rates and items pertaining to prior years | 135 | – 28 |
| Total | 42 | – 96 |
| Reconciliation of the year's change in current and | Group | |
|---|---|---|
| deferred tax assets/liabilities, cont. | 2007 | 2006 |
| Completion of acquisition analysis of Leica Geosystems* | –260 | 215 |
| Change via acquisitions and divestments | –65 | – 13 |
| Changes recognized directly in shareholders' equity, etc. | 35 | – 37 |
| Translation difference | 19 | 18 |
| Closing balance, net | –176 | 53 |
| CURRENT TAXES | ||
| Opening balance, net | –150 | – 77 |
| Change via income statement: | ||
| Current tax on earnings | –286 | – 247 |
| Change in tax rates and items pertaining to prior years | 0 | 5 |
| Total | –286 | – 242 |
| Change via acquisitions and divestments | 12 | – 11 |
| Payments, net | 205 | 175 |
| Translation difference | –6 | 5 |
| Closing balance, net | –225 | – 150 |
| The Group's unutilized loss carry-forwards and similar | Group |
|---|---|
| deductions mature as follows: | 2007 |
| Year | |
| 2008 | 12 |
| 2009 | 35 |
| 2010 | 2 |
| 2011 | 31 |
| 2012 and later | 508 |
| Indefinitely | 1 203 |
| Total | 1 791 |
| The difference between nominal Swedish tax rate and | Group | |
|---|---|---|
| effective tax rates arises as follows: | 2007 | 2006 |
| Earnings before tax | 2 056 | 1 618 |
| Tax pursuant to Swedish nominal tax rate | –575 | – 453 |
| Difference in tax rates in foreign businesses | 228 | 96 |
| Revaluation of loss carry-forwards, etc. | –67 | 66 |
| Non-deductible expenses | –64 | – 65 |
| Non-taxable revenue | 93 | 39 |
| Change in tax rates, etc., in foreign operations | 140 | – 21 |
| Tax, income statement | –245 | – 338 |
* During 2006, Leica Geosystems' acquisition analysis was completed whereby considerable deferred tax assets pertaining to tax-loss carry-forwards were reported. During 2007, it was established that deferred tax liabilities of 260 MSEK pertaining to temporary differences that existed at the time of the acquisition of Leica Geosystems had not been reported. The counter-item for reporting this liability within the time limit permitted by IFRS 3 would have been goodwill. Hexagon has reported tax liability against this counter-item despite the time limit permitted by IFRS 3 having expired. After studying all the relevant factors, Hexagon has concluded that reporting the item in this way is the most suitable solution and that it does not constitute a significant deviation from IFRS 3.
The market value of assets and liabilities in subsidiaries taken over and total cash flow from acquisitions is divided as follows:
NET ASSETS IN DIVESTED SUBSIDIARIES EXCLUDING DIVESTED CASH AND BANK BALANCES
Market value of transferred assets and liabilities of subsidiaries and the total cash flow from divestments is divided as follows:
2007 2006
| 2007 | 2006 | |
|---|---|---|
| Goodwill | 3 503 | 79 |
| Other intangible fixed assets | 627 | 89 |
| Tangible fixed assets | 244 | 21 |
| Financial fixed assets | 59 | – |
| Current receivables, inventories, etc. | 552 | 118 |
| Cash and cash equivalents | 1 101 | 6 |
| Provisions | –526 | –51 |
| Long-term liabilities | –161 | –9 |
| Current liabilities, etc. | –702 | –84 |
| Net assets | 4 695 | 169 |
| Acquisition price | 4 819 | 203 |
| Acquisition cost | 59 | 1 |
| Total acquisition expenditure | 4 878 | 204 |
| Less cash and cash equivalents in acquired | ||
| Group companies | –1 101 | – 6 |
| Less unpaid transaction costs | –7 | – |
| Less unpaid portion of acquisition price | –211 | –35 |
| Plus payment of unpaid portion of acquisition price from prior years |
13 | – |
| Plus payment for Leica Geosystems | 20 | 198 |
| Cash flow from acquired Group companies, net | 3 592 | 361 |
| Tangible fixed assets | 196 | – |
|---|---|---|
| Financial fixed assets | – | – |
| Current receivables, inventories, etc. | 540 | – |
| Cash and cash equivalents | 3 | – |
| Minority share | –11 | – |
| Provisions | –58 | – |
| Long-term liabilities | –8 | – |
| Current liabilities, etc. | –230 | – |
| Net assets | 458 | – |
| Selling price | 593 | – |
| Selling costs | –21 | – |
| Total sales revenue | 572 | – |
| Divested net assets | –458 | – |
| Capital gain | 114 | – |
| Total sales revenue | 572 | – |
| Less cash and cash equivalents in divested units | –3 | – |
| Cash flow from divested Group companies, net | 569 |
| 3 285 |
|---|
| 28 |
| 3 257 |
The acquisition of NovAtel was carried out in several steps. Initially, Hexagon acquired for cash a convertible debenture and newly issued shares from NovAtel. Subsequently, a public offer was directed to all shareholders. After the necessary number of shareholders had accepted the offer, a redemption procedure could be implemented for the remaining shares. Finally, NovAtel repaid the convertible debenture in cash to Hexagon.
| Cash flow according to cash flow statement | 2 306 | 0 | 2 306 | ||
|---|---|---|---|---|---|
| Plus acquisition costs | – | 28 | 28 | ||
| Less cash and cash equivalents | – 979 | – | –979 | ||
| Subtotal | 3 285 | – 28 | 3 257 | 2 262 | 995 |
| Current liabilities, etc. | –351 | – | –351 | 18 | –369 |
| Provisions | – 101 | – | – 101 | –95 | –6 |
| Cash and cash equivalents | 979 | – | 979 | – | 979 |
| Current receivables, inventories, etc. | 156 | – | 156 | –18 | 174 |
| Financial fixed assets | 67 | – | 67 | – | 67 |
| Tangible fixed assets | 54 | – | 54 | 5 | 49 |
| Other intangible fixed assets | 426 | – | 426 | 354 | 72 |
| Goodwill | 2 055 | –28 | 2 027 | 1 998 | 29 |
| Acquired net assets | Cash flow |
Acquisition costs |
Acquisition balance sheet |
Acquisition adjustments |
according to IFRS before acquisition adjustments |
| Balance sheet |
Most of the acquisition analyses pertaining to the year's acquisitions have been completed using definitive figures. However, the acquisition analyses pertaining to a few of the acquisitions may require calibration during 2008, although only by minor amounts. In 2007 and 2006, Hexagon carried out a very large number of acquisitions. The acquired companies apply IFRS as of the acquisition date, although the accounting norms previously applied are usually based on local legislation and/or tax legislation. Accordingly, historical figures are not comparable with the financial results reported after the acquisition. For this reason, Hexagon is not issuing any estimates of what the Hexagon Group's earnings and financial position would have been if the acquisitions had occurred at the beginning of the year or any similar information.
| GROUP Intangible fixed assets 2007 |
Capitalized expenditure for development work |
Patents and trademarks |
Goodwill | Other intangible fixed assets |
Total |
|---|---|---|---|---|---|
| Acquisition value, opening balance | 1 088 | 3 166 | 6 191 | 401 | 10 846 |
| Translation differences | –14 | 35 | 72 | 15 | 108 |
| Investments | 389 | – | – | 14 | 403 |
| Investments via acquisitions of subsidiaries | 29 | 57 | 3 503 | 625 | 4 214 |
| Sales/disposals | –32 | – | – | –4 | –36 |
| Sales via divestments of subsidiaries | – | – | –29 | –1 | –30 |
| Reclassification | –93 | –3 | – | 3 | –93 |
| Acquisition value, closing balance | 1 367 | 3 255 | 9 737 | 1 053 | 15 412 |
| Amortization, opening balance | –292 | –36 | –218 | –95 | –641 |
| Translation differences | 6 | –1 | – | –1 | 4 |
| Investments via acquisitions of subsidiaries | –16 | – | – | –68 | –84 |
| Amortization for the year | –229 | –24 | – | –52 | –305 |
| Sales/disposals | 32 | – | – | 4 | 36 |
| Sales via divestments of subsidiaries | – | – | 4 | – | 4 |
| Reclassification | 91 | – | – | – | 91 |
| Amortization, closing balance | –408 | –61 | –214 | –212 | –895 |
| Impairments, opening balance | –164 | – | – | – | –164 |
| Translation differences | 1 | – | – | –8 | –7 |
| Impairments for the year | –131 | – | – | –64 | –195 |
| Impairments, closing balance | –294 | – | – | –72 | –366 |
| Carrying value | 665 | 3 194 | 9 523 | 769 | 14 151 |
| Carrying value | 632 | 3 130 | 5 973 | 306 | 10 041 |
|---|---|---|---|---|---|
| Impairments, closing balance | – 164 | – | – | – | – 164 |
| Impairments for the year | – 15 | – | – | – | – 15 |
| Translation differences | 13 | – | – | – | 13 |
| Impairments, opening balance | – 162 | – | – | – | – 162 |
| Amortization, closing balance | – 292 | – 36 | – 218 | – 95 | – 641 |
| Reclassification | 7 | 59 | – | – 62 | 4 |
| Sales/disposals | 1 | – | – | – | 1 |
| Amortization for the year | – 198 | – 29 | – | – 34 | – 261 |
| Translation differences | 29 | 2 | 1 | 5 | 37 |
| Amortization, opening balance | – 131 | – 68 | – 219 | – 4 | – 422 |
| Acquisition value, closing balance | 1 088 | 3 166 | 6 191 | 401 | 10 846 |
| Reclassification | – 51 | – 105 | 7 | 153 | 4 |
| Sales/disposals | – 2 | – | – | – | – 2 |
| Investments via acquisitions of subsidiaries | 38 | 41 | 79 | 10 | 168 |
| Investments | 347 | – | – | 8 | 355 |
| Completion of acquisition analysis, Leica Geosystems | – | – | – 104 | – | – 104 |
| Translation differences | – 104 | – 235 | – 453 | – 28 | – 820 |
| Acquisition value, opening balance | 860 | 3 465 | 6 662 | 258 | 11 245 |
| 2006 | Capitalized expenditure for development work |
Patents and trademarks |
Goodwill | Other intangible fixed assets |
Total |
Capitalized expenditure for development work pertains mainly to software for sale.
With the exception of goodwill, the right to use the name "Leica" is the largest value in terms of intangible fixed assets. This right is not subject to amortization. During 2005, development work was added through the acquisition of Leica Geosystems, which was recognized in an amount of 540 MSEK. The revaluation of assets and liabilities that resulted from the acquisition did not result in any change in this value. Following completion of the acquisition analysis, the value of software within Hexagon Metrology and Leica Geosystems was impaired by a combined amount of 162 MSEK via the income statement, due to overlaps.
During 2007, a corresponding analysis was performed in connection with the acquisition of NovAtel Inc. The analysis led to an impairment of overlapping capitalized development work by 91 MSEK and of the value of the customer portfolio by 60 MSEK via the income statement. At 31 December 2007, trademarks accounted for 2 757 MSEK of the total carrying value of patents and trademarks.
| Carrying value | 761 | 210 | 976 | 250 | 80 | 2 277 |
|---|---|---|---|---|---|---|
| Depreciation, closing balance | –374 | –10 | –1 465 | –361 | – | –2 210 |
| Reclassification | 2 | – | 10 | 1 | – | 13 |
| Sales via divestments of subsidiaries | 70 | 2 | 271 | 38 | – | 381 |
| Sales/disposals | 3 | – | 33 | 6 | – | 42 |
| Depreciation for the year | –40 | –1 | –187 | –75 | – | –303 |
| Investments via acquisitions of subsidiaries | –9 | –3 | –100 | –38 | – | –150 |
| Translation differences | –7 | 0 | –18 | –3 | – | –28 |
| Depreciation, opening balance | –393 | –8 | –1 474 | –290 | – | –2 165 |
| Acquisition value, closing balance | 1 135 | 220 | 2 441 | 611 | 80 | 4 487 |
| Reclassification | 36 | – | 35 | –2 | –87 | –18 |
| Sales via divestments of subsidiaries | –123 | –15 | –391 | –47 | –1 | –577 |
| Sales/disposals | –41 | –16 | –36 | –14 | – | –107 |
| Investments via acquisitions of subsidiaries | 74 | 29 | 217 | 73 | 1 | 394 |
| Investments | 70 | 3 | 265 | 111 | 59 | 508 |
| Translation differences | 5 | 2 | 13 | 1 | – | 21 |
| Acquisition value, opening balance | 1 114 | 217 | 2 338 | 489 | 108 | 4 266 |
| GROUP Tangible fixed assets 2007 |
Buildings | Land and other real estate |
Plant and machinery |
Equipment, tools, fixtures and fittings |
Construction in progress and advance payments to suppliers |
Total |
| Construction in progress and |
||||||
|---|---|---|---|---|---|---|
| 2006 | Buildings | Land and other real estate |
Plant and machinery |
Equipment, tools, fixtures and fittings |
advance payments to suppliers |
Total |
| Acquisition value, opening balance | 1 037 | 232 | 2 307 | 609 | 48 | 4 233 |
| Translation differences | – 53 | – 15 | – 122 | – 39 | – 7 | – 236 |
| Investments | 144 | 5 | 202 | 76 | 75 | 502 |
| Investments via acquisitions of subsidiaries | 13 | 2 | 1 | 5 | – | 21 |
| Sales/disposals | – 27 | – 3 | – 58 | – 24 | – | – 112 |
| Reclassification | – | – 4 | 8 | – 138 | – 8 | – 142 |
| Acquisition value, closing balance | 1 114 | 217 | 2 338 | 489 | 108 | 4 266 |
| Depreciation, opening balance | – 377 | – 8 | – 1 399 | – 270 | – | – 2 054 |
| Translation differences | 15 | – | 63 | 12 | – | 90 |
| Depreciation for the year | – 38 | – 1 | – 196 | – 90 | – | – 325 |
| Sales/disposals | 7 | – | 58 | 17 | – | 82 |
| Reclassification | – | 1 | – | 41 | – | 42 |
| Depreciation, closing balance | – 393 | – 8 | – 1 474 | – 290 | – | – 2 165 |
| Impairment, opening balance | 2 | – | 2 | – | – | 4 |
| Translation differences | – 2 | – | – 2 | – | – | – 4 |
| Impairment, closing balance | – | – | – | – | – | – |
| Carrying value | 721 | 209 | 864 | 199 | 108 | 2 101 |
The taxable value of properties in Sweden was 30 MSEK (81) for buildings and 6 MSEK (17) for land.
Note 10, cont.
| PARENT COMPANY | Patents and | ||||
|---|---|---|---|---|---|
| 2007 | trademarks | Buildings | Land | Equipment | Total |
| Acquisition value, opening balance | 2 | 21 | 8 | 2 | 33 |
| Investments | 23 | 8 | – | 0 | 31 |
| Sales/disposals | –23 | –29 | –8 | 0 | – 60 |
| Acquisition value, closing balance | 2 | 0 | 0 | 2 | 4 |
| Depreciation, opening balance | – 2 | 0 | 0 | – 1 | – 3 |
| Depreciation for the year | – | 0 | – | – | 0 |
| Sales/disposals | – | 0 | – | – | 0 |
| Depreciation, closing balance | – 2 | 0 | 0 | – 1 | – 3 |
| Carrying value | 0 | 0 | 0 | 1 | 1 |
| 2006 | Patents and trademarks |
Buildings | Land | Equipment | Total |
| Acquisition value, opening balance | 2 | 8 | 8 | 2 | 20 |
| Investments | – | 13 | – | 1 | 14 |
| Sales/disposals | – | – | – | – 1 | – 1 |
| Acquisition value, closing balance | 2 | 21 | 8 | 2 | 33 |
| Depreciation, opening balance | – 2 | 0 | – | – 2 | – 4 |
| Depreciation for the year | – | 0 | – | 0 | 0 |
| Sales/disposals | – | – | – | 1 | 1 |
| Depreciation, closing balance | – 2 | 0 | – | – 1 | – 3 |
| Carrying value | 0 | 21 | 8 | 1 | 30 |
The taxable value of properties in Sweden was 2 MSEK (2) for buildings and 1 MSEK (5) for land.
| Participations in associated companies |
securities holdings | Other long-term | Other long-term receivables |
|||
|---|---|---|---|---|---|---|
| GROUP | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 |
| Opening balance | 50 | 36 | 1 | 11 | 52 | 44 |
| Translation differences | 0 | – 2 | 0 | 0 | 2 | – 2 |
| Investments | – | 5 | – | – | 7 | 14 |
| Investments via acquisitions of subsidiaries | – | – | 10 | – | – | – |
| Capital contributions | – | 10 | – | – | – | – |
| Earnings participations, etc. | 1 | 2 | – | – | – | – |
| Impairment | –35 | – 1 | – | – | –1 | – |
| Sales | –6 | – | – | –10 | –5 | – 4 |
| Closing balance | 10 | 50 | 11 | 1 | 55 | 52 |
| Participations in Group companies |
Receivables from Group companies |
Participations in associated companies |
||||
|---|---|---|---|---|---|---|
| PARENT COMPANY | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 |
| Opening balance | 11 827 | 11 649 | 2 800 | 1 725 | – | – |
| Purchases | 1 013 | 178 | – | – | 0 | – |
| Increase/decrease in receivables | – | – | 3 276 | 1 075 | – | – |
| Sales | – | 0 | – | – | – | – |
| Closing balance | 12 840 | 11 827 | 6 076 | 2 800 | 0 | – |
| Other long-term securities holdings |
||
|---|---|---|
| PARENT COMPANY | 2007 | 2006 |
| Opening balance | – | 10 |
| Sales | – | –10 |
| Closing balance | – | – |
Note 11, cont.
| Group | Parent Company | ||||
|---|---|---|---|---|---|
| OTHER LONG-TERM SECURITIES HOLDINGS | 2007 | 2006 | 2007 | 2006 | |
| Others | 11 | 1 | – | – | |
| Total | 11 | 1 | – | – |
| No. | Portion of share capital and |
Carrying amount | ||||
|---|---|---|---|---|---|---|
| Corp ID. No. | Reg. Office/Country | of shares | voting rights, % | 2007 | 2006 | |
| Subsidiaries of Hexagon AB | ||||||
| Leica Geosystems AG | – | Switzerland | 2 512 450 | 100 | 10 367 | 10 340 |
| SwePart AB | 556046-3407 | Stockholm, Sweden | 8 662 500 | 100 | 218 | 218 |
| Hexagon Förvaltning AB | 556016-3049 | Stockholm, Sweden | 200 000 | 100 | 206 | 206 |
| Hexagon Polymers AB | 556108-9631 | Gislaved, Sweden | 100 | 100 | 726 | 726 |
| Johnson Industries AB | 556099-2967 | Örebro, Sweden | 3 000 | 100 | 133 | 133 |
| Röomned AB | 556394-3678 | Stockholm, Sweden | 1 439 200 | 100 | 100 | 100 |
| Hexagon Metrology AB | 556365-9951 | Stockholm, Sweden | 1 000 | 100 | 78 | 78 |
| Tecla AB | 556068-1602 | Stockholm, Sweden | 160 000 | 100 | 14 | 14 |
| Kramsten Food and Drink Suppliers AB | 556083-1124 | Stockholm, Sweden | 100 000 | 100 | 12 | 12 |
| NovAtel Inc. 1 | – | Canada | 953 864 | 9 | 311 | – |
| Hexagon Acquistion Inc. | – | Canada | 1 | 100 | 675 | – |
| Hexagon Metrology SrO 2 | – | Czech Republic | 1 | 10 | 0 | 0 |
| Other companies, mainly dormant | – | – | – | 100 | 0 | 0 |
| Total | 12 840 | 11 827 |
Remaining 91 percent of the shares are owned by Hexagon Acquisition Inc.
Remaining 90 percent of the shares are owned by Hexagon Metrology AB.
| Share in associated companies' earnings |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Portion of, % | Portion of sharehol |
Carrying amount Group |
Before tax |
Tax | Before tax |
Tax | |||||
| Type of ownership | Number of shares |
Share capital |
Voting rights |
ders' equity MSEK |
2007 | 2006 | 2007 | 2007 | 2006 | 2006 | |
| Outokumpu Nordic | |||||||||||
| Brass AB Megufo AB |
Joint venture Associated company |
10 500 500 |
50.0 50.0 |
50.0 50.0 |
24 0 |
0 0 |
35 0 |
0 0 |
0 0 |
0 0 |
0 0 |
| Jingjiang City Linghuan Measuring Tools Co Ltd |
Associated company | – | – | – | – | – | 6 | 0 | 0 | 2 | 0 |
| AED-SICAD AG | Associated company | 67 246 | 20.0 | 20.0 | 7 | 7 | 9 | –1 | 0 | 0 | 0 |
| Point Inc. | Joint Venture | 73 549 | 49.0 | 49.0 | 2 | 2 | – | 6 | 0 | – | – |
| Geonova AG | Associated company | 134 910 | 20.0 | 20.0 | 1 | 1 | 0 | 0 | 0 | 0 | 0 |
| Total | 34 | 10 | 50 | 5 | 0 | 2 | 0 |
Outokumpu Nordic Brass AB, corporate identity no. 556499-3979, has its registered office in Valdemarsvik, Sweden.
Megufo AB, corporate identity no. 556421-2453, has its registered office in Gislaved, Sweden.
Jingjiang City Linghuan Measuring Tools Co Ltd has its registered office in China. During the year, an additional 60 per cent
of the company was acquired and the company then became a subsidiary and is consolidated.
AED-SICAD AG, corporate identity no. 008102, has its registered office in Bonn, Germany.
Point Inc. has its registered office in Kansas, USA.
Geonova AG, corporate identity no. CH 280.3003.179-8, has its registered office in Muttenz, Switzerland.
Since these holdings are insignificant in relation to the Group as a whole, no further disclosures are provided.
| Parent Company | |||
|---|---|---|---|
| 2007 | 2006 | 2007 | 2006 |
| 18 | 16 | 1 | 1 |
| 1 | 1 | – | – |
| 19 | 17 | 1 | 1 |
| 3 | 2 | 1 | 0 |
| 8 | 6 | – | – |
| 11 | 8 | 1 | 0 |
| Group |
| NOTE 14. Prepaid expenses and accrued income/accrued expenses and deferred income |
||||
|---|---|---|---|---|
| Group | Parent Company | |||
| 2007 | 2006 | 2007 | 2006 | |
| Prepaid expenses and accrued income |
||||
| Accrued invoicing | 93 | 59 | – | – |
| Prepaid rent | 13 | 11 | 0 | 0 |
| Accrued interest income | 12 | 3 | 4 | 1 |
| Prepaid acquisition costs | 6 | 8 | 1 | 2 |
| Other items | 82 | 80 | 29 | 26 |
| Total | 206 | 161 | 34 | 29 |
| Accrued expenses and deferred income |
||||
| Accrued personnel-related expenses |
594 | 526 | 3 | 4 |
| Received goods and services, not invoiced |
74 | 81 | – | – |
| Prepaid service revenues | 77 | 53 | – | – |
| Accrued interest expenses | 20 | 18 | 20 | 18 |
| Accrued sales commission | 85 | 53 | – | – |
| Accrued installation and educational expenses |
39 | 33 | – | – |
| Other items | 298 | 183 | 1 | 10 |
| Total | 1 187 | 947 | 24 | 32 |
| Par value | Share capital | ||||
|---|---|---|---|---|---|
| PARENT COMPANY | per share, SEK | Class A | Class B | Total | MSEK |
| Opening balance 2006 | 4 | 3 150 000 | 66 750 111 | 69 900 111 | 280 |
| New issues – cash rights issue | 4 | 787 500 | 16 687 527 | 17 475 027 | 70 |
| Contribution in kind – compulsory redemption of shares in Leica Geosystems Holdings AG |
4 | – | 198 635 | 198 635 | 1 |
| New issues – exercise of warrants | 4 | – | 818 052 | 818 052 | 3 |
| Closing balance 2006 | 4 | 3 937 500 | 84 454 325 | 88 391 825 | 354 |
| New issues – exercise of warrants | 4 | – | 58 170 | 58 170 | 0 |
| Bonus issue and split 3:1 | 2 | 7 875 500 | 169 024 990 | 176 899 990 | 177 |
| Closing balance 2007 | 2 | 11 812 500 | 253 537 485 | 265 349 985 | 531 |
In 2007, the Parent Company effected a new issue and conversion of options to shares. In addition, a bonus issue and 3:1 split were conducted.
In 2006, the Parent Company conducted two new issues by converting options to shares. In addition, a cash rights issue and a contribution in kind pertaining to compulsory redemption of the remaining shares outstanding in Leica Geosystems Holdings AG were conducted.
| AVERAGE NUMBER OF SHARES BEFORE AND AFTER DILUTION, THOUSANDS | 2007 | 2006 |
|---|---|---|
| Average number of shares before dilution | 265 278 | 254 019 |
| Estimated average number of potential shares pertaining to warrants plans | 756 | 1 482 |
| Estimated average number of potential shares pertaining to compulsory redemption of shares in Leica Geosystems holdings | – | 393 |
| Estimated average number of potential shares pertaining to new issue | – | 429 |
| Average number of shares after dilution | 266 034 | 256 323 |
The average number of shares has been calculated after taking the bonus issue and 3:1 split implemented in 2007 into account, as well as the rights issue implemented in 2006.
For more information on the Hexagon share, reference is made to page 34.
| GROUP | Restructuring measures |
Other provisions |
Estimated supplemen tary payments for acquired companies 1 |
Total 2 |
|---|---|---|---|---|
| Closing balance, 2005 | 130 | 291 | 0 | 421 |
| Adjustment pertaining to accounting for fulfilment of warrants plans |
– | – 81 | – | – 81 |
| Opening balance after adjustment, 2006 | 130 | 210 | 0 | 340 |
| Completion of acquisition analysis of Leica Geosystems | – | 139 | – | 139 |
| Provision | 92 | 100 | – | 192 |
| Present value adjustment | – | 4 | – | 4 |
| Increase through acquisition of businesses | – | – | 36 | 36 |
| Payment through fulfilment of warrants plans | – | – 64 | – | – 64 |
| Utilization | – 192 | – 204 | – | – 396 |
| Reclassification | – 3 | – 2 | – | – 5 |
| Translation difference | – 5 | – 7 | 0 | – 12 |
| Closing balance, 2006 | 22 | 176 | 36 | 234 |
| Provision | 15 | 85 | 53 | 153 |
| Present value adjustment | – | 3 | 3 | 6 |
| Increase through acquisition of businesses | 7 | 20 | 159 | 186 |
| Payments of supplementary acquisition considerations | – | – | – 20 | – 20 |
| Utilization | – 17 | –137 | – | –154 |
| Reclassification | – | 12 | –12 | 0 |
| Translation difference | – 1 | 0 | –4 | – 5 |
| Closing balance, 2007 | 26 | 159 | 215 | 400 |
Supplementary purchase prices that cannot be calculated reliably have not been provided for.
Of which, current portion: 208 (133).
Because a significant portion of consolidated revenues and expenses is generated in foreign currencies and the Group is established in a large number of countries, exchange rate variations influence the Group's revenues, operating earnings, shareholders' equity and other items. Bond market fluctuations also affect Hexagon. Hexagon's Treasury function is responsible for coordinating currency and interest exposure. The Treasury function is also responsible for most of the Group's external and internal funding. The guidelines for managing financial risks are determined annually by Hexagon's Board in a Groupwide policy. A sensitivity analysis is presented on page 38.
Translation exposure The Group's funding policy states that the effects of exchange rate variations on shareholders' equity should be minimized through hedging via loans and forwards contracts in the currency in which the net assets are denominated. Value changes on such loans and financial instruments are recognized directly in shareholders' equity on an ongoing basis as an adjustment of the differences in shareholders' equity that arose from currency translation of the foreign subsidiaries' financial statements. When subsidiaries are divested, the accumulated value changes are included in the capital gain that arises from the divestment.
Hexagon's transaction exposure is the currency exposure resulting from the subsidiaries' international trading. This exposure is due to the fact that exchange rates can change when sales and purchases are carried out currencies other than local currency. Contracted currency flows are hedged in their entirety. Forecast flows in addition to contracted flows are hedged at 40 to 100 per cent with a horizon of 12 months. Hedging is primarily effected using currency forwards and currency clauses.
Interest risk is the risk of an adverse impact on consolidated earnings from changes in yields. Consolidated interest risk is managed by the Parent Company. Interest risk primarily arises as a consequence of the Group's borrowings. Standard derivative instruments are used to control interest exposure, through means such as extending or shortening interest-fixing periods without renegotiating the underlying loan.
Customer credits account for the main counterparty risk. There is no significant concentration of such risks.
The funding risk is the risk that Hexagon will be unable to satisfy its need for external capital. Satisfying this requires a secure consolidated financial position, and active measures to ensure access to credits. In August 2005, Hexagon raised a five-year syndicated loan of 303 MEUR and raised a shortterm loan of 2 700 MSEK in connection with the acquisition of Leica Geosystems. The 2 700 MSEK loan was repaid when a new issue of the same amount was conducted in spring 2006. Subsequently, facilities totalling 703 MEUR were replaced by a new facility of 1 000 MEUR, which is subject to customary covenants. The principal covenant pertains to net debt/EBITDA, which must be lower than 3.5.
| NET ASSETS PER FOREIGN CURRENCY 31 DECEMBER 2007 |
Hedging rate | |
|---|---|---|
| CHF | 8 342 | 100% |
| CAD | 3 256 | – |
| USD | 2 919 | 25% |
| EUR | 1 962 | – |
| CNY | 515 | – |
| CZK | 473 | – |
| Other | 688 | – |
| Total | 18 155 | 50% |
| Total | 14 587 |
|---|---|
| Other | 502 |
| DKK | 148 |
| NOK | 236 |
| JPY | 253 |
| CAD | 286 |
| CNY | 596 |
| GBP | 646 |
| SEK | 1 499 |
| CHF | 1 662 |
| USD | 3 711 |
| EUR | 5 048 |
| Income | 48 |
|---|---|
| Expense | –262 |
| Net | –214 |
| ACCESS TO FUNDS AND CASH FLOW | |
| Access to funds, 1 January 2007 | 5 067 |
| Change in credit limits | – 494 |
| Cash flow excluding repayments/borrowing | –2 277 |
| Other change in cash and cash equivalents and borrowings | 457 |
| Access to funds, 31 December 2007 | 2 753 |
In the table, access to funds is defined as unutilized credit facilities plus cash and bank balances.
| Maturing amounts | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2008 | 2009–2011 | 2012 and later | Total | |||||
| Capital | Interest | Capital | Interest | Capital | Interest | Capital | Interest | |
| Liabilities to credit institutions | ||||||||
| Syndicated loan CHF | – | 8 309 | 8 309 | – | – | – | 8 309 | 8 309 |
| Syndicated loan USD | – | 860 | 860 | – | – | – | 860 | 860 |
| Bond loan SEK | – | 100 | 430 | 330 | – | – | 430 | 430 |
| Other lenders | 163 | 326 | 163 | – | – | – | 326 | 326 |
| Total liabilities to credit institutions | 163 | 9 595 | 9 762 | 330 | – | – | 9 925 | 9 925 |
| Other interest-bearing liabilities | 7 | 34 | – | – | 27 | – | 34 | 34 |
| Total interest-bearing liabilities | 170 | 9 629 | 9 762 | 330 | 27 | – | 9 959 | 9 959 |
| Total effective currency and interest rate exposure | 170 | 9 629 | 9 762 | 330 | 27 | – | 9 959 | 9 959 |
The interest rate columns state the corresponding capital that is subject to interest re-fixing.
There were no currency or interest rate derivatives pertaining to borrowing at 31 Dec 2007.
All financial assets, apart from derivative instruments, are included in the category "loan receivables and accounts receivable." All financial liabilities, apart from derivative instruments, are included in the category "financial liabilities valued at accrued acquisition value." Derivative instruments are reported on the accounts receivable line in the table above.
Interest-free financial instruments, such as accounts receivable and accounts payable are reported at acquisition value, which does not deviate from fair value.
Pension commitments, which are encompassed by special accounting policies, are not entered here.
For 2006, in a corresponding to manner, the differences between the carrying amounts and fair value are negligible.
Hexagon Annual Report 2007 81
| liabilities at 31 December 2007 | |
|---|---|
| CHF | 8 396 |
| SEK | 430 |
| USD | 866 |
| Other | 267 |
| Total | 9 959 |
| 2008 | 2009 | 2010 and later | Total | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Currency | Sold | Bought | Sold | Bought | Sold | Bought | Sold | Bought | Net |
| CAD | – 26 | 7 | – | – | – | – | – 26 | 7 | – 19 |
| CHF | – 87 | 514 | – | – | – | – | – 87 | 514 | 427 |
| CZK | – | 48 | – | – | – | – | – | 48 | 48 |
| DKK | – 7 | – | – | – | – | – | – 7 | – | –7 |
| EUR | – 488 | 65 | –41 | – | – | – | –529 | 65 | –464 |
| GBP | – 46 | 9 | – | – | – | – | – 46 | 9 | –37 |
| JPY | – 13 | 2 | – | – | – | – | –13 | 2 | –11 |
| NOK | – 11 | – | – | – | – | – | – 11 | – | – 11 |
| SEK | – 10 | 174 | – | 41 | – | – | – 10 | 215 | 205 |
| SGD | – | 74 | – | – | – | – | – | 74 | 74 |
| USD | – 228 | 17 | – | – | – | – | – 228 | 17 | – 211 |
| Total | –916 | 910 | –41 | 41 | – | – | – 957 | 951 | – 6 |
| Status | ||||||||
|---|---|---|---|---|---|---|---|---|
| Not due | Less than 30 days |
Between 30–60 days |
Between 61–90 days |
Between 91–120 days |
Older than 120 days |
Total | ||
| Current receivables, net of impairment losses | 2 242 | 755 | 200 | 106 | 114 | 83 | 3 500 | |
| Long-term receivables, net of impairment losses | 7 | 1 | 3 | 4 | 5 | 9 | 29 | |
| Total | 2 249 | 756 | 203 | 110 | 119 | 92 | 3 529 |
| Status | ||||||||
|---|---|---|---|---|---|---|---|---|
| Not due | Less than 30 days |
Between 30–60 days |
Between 61–90 days |
Between 91–120 days |
Older than 120 days |
Total | ||
| Current receivables, net of impairment losses | 2 004 | 567 | 133 | 56 | 48 | 72 | 2 880 | |
| Long-term receivables, net of impairment losses | 13 | – | – | – | – | 8 | 21 | |
| Total | 2 017 | 567 | 133 | 56 | 48 | 80 | 2 901 |
| Reserve for doubtful receivables | 2007 | 2006 |
|---|---|---|
| Opening balance | ||
| 111 | 106 | |
| Reserve for anticipated losses | 31 | 11 |
| Adjustment for definitive losses | –7 | –5 |
| Acquired/divested companies | 4 | 0 |
| Translation differences | 0 | –1 |
| Closing balance | 139 | 111 |
Remuneration of senior executives, meaning both the Board of Directors and management, is presented in Note 4b. The Group's holdings in associated companies and receivables from and liabilities to associated companies are immaterial. There were no significant transactions between Hexagon and its associated companies. Similarly, there were no significant transactions between Hexagon and Melker Schörling AB or the companies through which Maths O. Sundqvist holds shares in Hexagon.
In 2008, Hexagon completed acquisitions of, primarily, distribution operations in India, the US and Spain. The acquisitions have no significant impact on the Hexagon Group's earnings and financial position. In other respects, Hexagon estimates that no significant events occurred during the period from the balance-sheet date up to the date upon which the Annual Report was published.
| NOTE 20. Rented assets | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Group | Parent Company | |||||||||
| Leasing/rental agreements of an operational nature |
Machinery, equipment, etc. |
Premises | Machinery, equipment, etc. |
Premises | ||||||
| Expenses due for payment in | ||||||||||
| 2008 | 77 | 106 | – | 2 | ||||||
| 2009–2012 | 107 | 256 | – | 7 | ||||||
| 2013 and later | 2 | 66 | – | 0 | ||||||
| Total | 186 | 428 | – | 9 |
The amounts are un-discounted minimum undertakings pursuant to contract. Costs for leasing/rents for the financial year were 173 MSEK (138).
| Group | Parent Company | |||||
|---|---|---|---|---|---|---|
| Leasing/rental agreements of a financial nature |
Machinery, equipment, etc. |
Premises | Machinery, equipment, etc. |
Premises | ||
| Expenses due for payment in | ||||||
| 2008 | 12 | 2 | – | – | ||
| 2009–2012 | 12 | 2 | – | – | ||
| 2013 and later | 0 | 0 | – | – | ||
| Total | 24 | 4 | – | – |
The amounts are un-discounted minimum undertakings pursuant to contract.
There are no individual leasing agreements of material importance. Nor are there any individual sale/leaseback agreements of material importance.
| 2007 | 2006 | |||||||
|---|---|---|---|---|---|---|---|---|
| Q 1 | Q 2 | Q 3 | Q 4 | Q 1 Q 2 |
Q 3 | Q 4 | ||
| Net sales | 3 499 | 3 516 | 3 448 | 4 124 | 3 335 | 3 377 | 3 196 | 3 561 |
| Gross earnings | 1 364 | 1 472 | 1 450 | 1 811 | 1 257 | 1 291 | 1 211 | 1 360 |
| Sales expenses | –448 | –484 | –491 | –567 | – 467 | – 462 | – 426 | – 495 |
| Administration expenses | –250 | –208 | –213 | –409 | – 235 | – 230 | – 197 | – 197 |
| Research and development expenses | –183 | –192 | –175 | –261 | – 162 | – 100 | –141 | – 144 |
| Other operating revenues/expenses | –28 | 13 | –11 | –3 | – 89 – 15 |
– 40 | 22 | |
| Share in associated companies' earnings | –33 | 0 | 0 | 2 | 0 1 |
1 | 0 | |
| Capital gains from sale of shares in Group companies | 120 | – | – | –6 | – – |
– | – | |
| Operating earnings 1 | 542 | 601 | 560 | 567 | 304 485 |
408 | 546 | |
| Earnings from other securities 1 | – | – | – | 97 – |
– | – | ||
| Other financial revenue and expenses | –46 | –46 | –60 | –62 | – 79 – 51 |
– 46 | – 46 | |
| Earnings before tax | 496 | 555 | 500 | 505 | 322 434 |
362 | 500 | |
| Tax | –60 | –44 | –63 | –78 | – 59 – 106 |
– 91 | –82 | |
| Net earnings 2 | 436 | 511 | 437 | 427 | 263 328 |
271 | 418 | |
| 1 of which non-recurring items 2 of which minority shares |
22 2 |
– 2 |
– 3 |
–173 4 |
13 – 2 1 |
– 2 |
– 2 |
|
| Earnings include depreciation and impairments of |
–167 | –145 | –152 | –339 | – 172 | – 112 | – 145 | – 173 |
| Earnings per share, SEK | 1.64 | 1.92 | 1.64 | 1.59 | 1.14 1.27 |
1.02 | 1.57 | |
| Earnings per share after dilution, SEK | 1.63 | 1.91 | 1.63 | 1.59 | 1.12 1.26 |
1.01 | 1.56 | |
| Average number of shares, thousands | 265 176 | 265 235 | 265 350 | 265 350 | 228 546 | 258 006 | 264 348 | 265 176 |
| Average number of shares after dilution, thousands | 266 223 | 265 902 | 266 013 | 265 999 | 233 007 | 260 394 | 265 692 | 266 196 |
| Operating earnings (EBIT1) | 520 | 601 | 560 | 740 | 388 485 |
408 | 546 | |
| Operating earnings (EBIT1) per share (SEK) | 1.96 | 2.27 | 2.11 | 2.79 | 1.70 | 1.88 | 1.54 | 2.06 |
Quarterly figures are not examined by the company's auditors.
NOTE 21. Memorandum items
| Pledged assets to credit institutions for loans, bank |
Group | Parent Company | |||
|---|---|---|---|---|---|
| overdrafts and guarantees | 2007 | 2006 | 2007 | 2006 | |
| Real estate mortgages | – | 77 | – | – | |
| Floating charges | – | 5 | – | – | |
| Other | 41 | 25 | – | – | |
| Total | 41 | 107 | – | – | |
| Group | |||||
| Parent Company | |||||
| Contingent liabilities | 2007 | 2006 | 2007 | 2006 | |
| Guarantees in favour | |||||
| of Group companies | – | – | 80 | 32 | |
| Letters of credit | 114 | 72 | – | – | |
| Other contingent liabilities | 72 | 73 | 66 | 66 |
The following earnings in the Parent Company are at the disposal of the Annual General Meeting (KSEK):
| – Premium reserve | |
|---|---|
| – Earnings brought forward from previous year | |
| – Group contribution, net after tax | |
| – Net earnings | – |
| Total | |
The Board of Directors proposes that these funds are allocated as follows:
– That a cash dividend of . SEK per share be paid to shareholders
– That all of the shares in Hexagon Polymers AB be spun off to the shareholders
In the following manner:
| – That the shares in Hexagon Polymers AB be spun off via the premium reserve | * |
|---|---|
| – That the cash dividend to shareholders be paid via the premium reserve | ** |
| – That the cash dividend to shareholders be paid via retained earnings | ** |
| – Balance remaining in the premium reserve | |
| Total | |
* Pertains to the carrying amount in the Parent Company. The consolidated value at December was KSEK. ** The amount is based on the number of shares issued on December , namely .
The undersigned certify that the consolidated accounts and the annual report have been prepared in accordance with International Financial Reporting Standards ("IFRS"), as adopted by the European Union, and generally accepted accounting principles, respectively, and give a true and fair view of the financial position and earnings of the Group and the Company, and that the Directors' Report for the Group and the Company give a fair review of the development of the operations, financial position and earnings of the Group and the Company and describes substantial risks and uncertainties that the Group companies faces.
Stockholm, Sweden, March
Melker Schörling Maths O. Sundqvist Chairman Member of the Board
Member of the Board Member of the Board
Mario Fontana Ulf Henriksson
Ola Rollén Member of the Board President and Chief Executive Officer
Our Audit Report was submitted on March .
ERNST & YOUNG AB
Hamish Mabon Authorized Public Accountant
We have audited the annual accounts, the consolidated accounts, the accounting records and the administration of the board of directors and the managing director of Hexagon AB for the year . The company's Annual Report is included in the printed version of this document on pages –. The board of directors and the managing director are responsible for these accounts and the administration of the company as well as for the application of the Annual Accounts Act when preparing the annual accounts and the application of international financial reporting standards IFRSs as adopted by the EU and the Annual Accounts Act when preparing the consolidated accounts. Our responsibility is to express an opinion on the annual accounts, the consolidated accounts and the administration based on our audit.
We conducted our audit in accordance with generally accepted auditing standards in Sweden. Those standards require that we plan and perform the audit to obtain reasonable assurance that the annual accounts and the consolidated accounts are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the accounts. An audit also includes assessing the accounting principles used and their application by the board of directors and the managing director and significant estimates made by the board of directors and the managing director when preparing the annual accounts and consolidated accounts as well as evaluating the overall presentation of information in the annual accounts and the consolidated accounts. As a basis for our opinion concerning discharge from liability, we examined significant decisions, actions taken and circumstances of the company in order to be able to determine the liability, if any, to the company of any board member or the managing director. We also examined whether any board member or the managing director has, in any other way, acted in contravention of the Companies Act, the Annual Accounts Act or the Articles of Association. We believe that our audit provides a reasonable basis for our opinion set out below.
The annual accounts have been prepared in accordance with the Annual Accounts Act and give a true and fair view of the company's financial position and results of operations in accordance with generally accepted accounting principles in Sweden. The consolidated accounts have been prepared in accordance with the international financial reporting standards IFRSs as adopted by the EU and the Annual Accounts Act and give a true and fair view of the group's financial position and results of operations. The statutory administration report is consistent with the other parts of the annual accounts and the consolidated accounts.
We recommend to the annual meeting of shareholders that the income statements and balance sheets of the parent company and the group be adopted, that the profit of the parent company be dealt with in accordance with the proposal in the administration report and that the members of the board of directors and the managing director be discharged from liability for the financial year.
Stockholm, Sweden, March
ERNST & YOUNG AB
Hamish Mabon Authorized Public Accountant
Hexagon underwent a powerful transformation during –. Th is transformation has resulted in Hexagon being a company with a direction that diff ers completely to that of eight years ago. In , the Group had sales of slightly more than MSEK, of which Hexagon's polymer operations accounted for MSEK. Today, measurement technologies, a business that was not part of the Group in , accounts for approximately per cent of sales.
About acquisitions were completed during –.
Th e foundation for measurement technologies operations was laid in May , in connection with the acquisition of American measurement technologies company Brown & Sharpe, Inc. Gislaved Gummi AB, which has been part of Hexagon since , forms the foundation for the polymer operations.
During the period, Hexagon focused on growing the operations organically. Organic growth benefi ted from successful inhouse product development and expansion of the proprietary distribution network to new geographical markets.
| Income statement, MSEKMSEK | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 |
|---|---|---|---|---|---|---|---|---|
| Net sales | 5 099 | 6 204 | 6 997 | 7 103 | 8 256 | 9 637 | 13 469 | 14 587 |
| Operating earnings (EBITDA) | 440 | 531 | 719 | 711 | 929 | 1 272 | 2 429 | 3 054 |
| Operating earnings (EBITA) | 281 | 350 | 511 | 480 | 686 | 923 | 1 827 | 2 421 |
| Operating earnings (EBIT1) | 234 | 287 | 421 | 406 | 686 | 923 | 1 827 | 2 421 |
| Operating earnings | 267 | 310 | 400 | 406 | 634 | 844 | 1 743 | 2 270 |
| Earnings before tax | 223 | 227 | 319 | 323 | 541 | 705 | 1 618 | 2 056 |
| – of which non-recurring items | 33 | 23 | 15 | – | – 52 | – 79 | 13 | –151 |
| Net earnings | 139 | 144 | 187 | 221 | 420 | 618 | 1 280 | 1 811 |
| – of which minority share | – | – | – | – | 7 | 5 | 7 | 11 |
| Balance sheet, MSEK | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 |
| Current assets | 2 000 | 3 391 | 3 118 | 3 060 | 3 600 | 5 251 | 5 861 | 7 944 |
| Fixed assets | 1 541 | 3 096 | 3 100 | 2 866 | 3 798 | 13 391 | 12 687 | 16 996 |
| Non-interest bearing liabilities and provisions | 975 | 1 877 | 1 713 | 1 626 | 1 950 | 3 533 | 3 322 | 4 310 |
| Interest-bearing liabilities and provisions | 874 | 2 825 | 2 275 | 1 981 | 2 952 | 9 590 | 6 617 | 10 584 |
| Minority interests | 13 | 30 | 36 | 47 | – | – | – | – |
| Shareholders' equity | 1 679 | 1 755 | 2 194 | 2 272 | 2 496 | 5 519 | 8 609 | 10 046 |
| Total assets | 3 541 | 6 487 | 6 218 | 5 926 | 7 398 | 18 642 | 18 548 | 24 940 |
Figures for 2000–2003 have not been restated to comply with IFRS.
| ACQUISITIONS | 2000 | The operations of US listed measurement technology company Brown & Sharpe Inc, software developer Wilcox, Cubic Tavleproduktion and HTR Hydrauliikka Oy were acquired. 2001 |
Measurement technology company C E Johansson, rubber compounding company GFD Technology Gmbh, measurement technology company Quality Ltda and software developer Mirai Srl were acquired. 2002 |
Boliden and Hexagon formed a joint venture comprising their respective brass operations, Nordic Brass AB and Boliden Gusum AB. 2003 |
Hexagon increased its ownership to 90 per cent of the companies Qingdao Brown & Sharpe Quinshao Technology Co Ltd. and Qingdao Brown & Sharpe Trading Co Ltd. |
|---|---|---|---|---|---|
| DIVESTMENTS | The Norfood business area was divested. |
Gustaf Fagerberg AB, Tecla, Johnson Metal Bearing Components and the Hexagon Wireless business area were divested. |
| Key figures | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 |
|---|---|---|---|---|---|---|---|---|
| Annual net sales growth (%) | 9 | 22 | 13 | 2 | 16 | 17 | 40 | 8 |
| Operating margin, % | 5 | 5 | 6 | 6 | 8 | 10 | 14 | 17 |
| Return on capital employed (%) | 12 | 9 | 10 | 10 | 13 | 11 | 12 | 14 |
| Return on capital employed excluding goodwill amortization (%) |
14 | 10 | 12 | 11 | 13 | 11 | 12 | 14 |
| Return on equity (%) | 8 | 8 | 9 | 10 | 18 | 18 | 17 | 20 |
| Return on equity excluding goodwill amortization (%) |
11 | 12 | 14 | 13 | 18 | 18 | 17 | 20 |
| Investments, MSEK | 150 | 202 | 267 | 226 | 299 | 442 | 834 | 825 |
| Equity ratio (%) | 48 | 28 | 36 | 39 | 34 | 30 | 46 | 40 |
| Share of risk-bearing capital (%) | 48 | 28 | 37 | 41 | 35 | 32 | 49 | 43 |
| Interest coverage ratio (multiple) | 4.3 | 2.9 | 3.4 | 4.2 | 5.0 | 5.1 | 7.4 | 8.8 |
| Net debt/equity ratio (multiple) | 0.38 | 1.35 | 0.97 | 0.78 | 1.11 | 1.66 | 0.70 | 0.88 |
| Cash flow before changes in working capital, MSEK Cash flow, MSEK |
381 274 |
358 310 |
388 307 |
534 440 |
723 642 |
956 764 |
1 737 1 115 |
2 472 2 027 |
| Earnings per share, SEK | 0.89 | 0.92 | 1.10 | 1.22 | 2.28 | 3.14 | 5.01 | 6.79 |
| Earnings per share after dilution, SEK | 0.89 | 0.92 | 1.10 | 1.22 | 2.27 | 3.10 | 4.97 | 6.77 |
| Earnings per share excluding goodwill amortization, SEK |
1.19 | 1.32 | 1.62 | 1.63 | 2.28 | 3.14 | 5.01 | 6.79 |
| Cash flow per share before changes in working capital, SEK |
2.43 | 2.28 | 2.27 | 2.94 | 3.99 | 4.90 | 6.84 | 9.32 |
| Cash flow per share after change in working capital, SEK |
1.75 | 1.98 | 1.80 | 2.43 | 3.54 | 3.92 | 4.39 | 7.64 |
| Shareholders' equity per share, SEK | 11 | 11 | 12 | 13 | 13 | 24 | 32 | 38 |
| Closing share price, SEK | 11 | 14 | 14 | 20 | 32 | 72 | 97 | 135 |
| Cash dividend per share, SEK | 0.47 | 0.47 | 0.47 | 0.47 | 0.61 | 0.92 | 1.67 | 2.351 |
| Average no. of shares, in thousands | 156 925 | 156 925 | 170 714 | 181 376 | 181 386 | 195 125 | 254 019 | 265 278 |
| Average no. of shares after dilution, | ||||||||
| in thousands | 156 925 | 156 925 | 170 714 | 181 376 | 182 259 | 197 960 | 256 323 | 266 034 |
| Number of shares – closing balance, in thousands | 156 925 | 156 925 | 181 376 | 181 376 | 181 484 | 228 547 | 265 176 | 265 350 |
| Average number of employees | 4 078 | 5 061 | 5 428 | 5 401 | 5 935 | 6 111 | 7 862 | 8 406 |
The share-related key financial ratios have been calculated considering the 3:1 split conducted in May 2005 and the rights issues conducted in June 2002 and 2006, as well as the 3:1 split implemented in 2007. Figures for 2000–2003 have not been restated to comply with IFRS. Board of Directors' proposal.
ANNUAL NET SALES GROWTH Percentage change in net sales on previous year.
CAPITAL EMPLOYED Total assets less non-interest-bearing liabilities.
CAPITAL TURNOVER RATE Net sales for the year divided by average capital employed.
Cash flow from operating activities after change in working capital.
Cash flow from operating activities after change in working capital, divided by average number of shares.
DIVIDEND PAYOUT RATIO Dividend divided by earnings per share.
DIVIDEND YIELD Dividend as a percentage of share price.
zation, divided by average number of shares.
Net earnings, excluding minority interests, divided by average number of shares.
EARNINGS PER SHARE EXCLUDING GOODWILL IMPAIRMENT Net earnings, excluding minority interests and goodwill amorti-
Market capitalization less interest-bearing liabilities plus cash and bank balances.
Shareholders' equity including minority interests as a percentage of total assets.
Earnings after financial items plus financial expenses divided by financial expenses.
Purchases less sales of tangible and intangible fixed assets, excluding those included in acquisitions and divestitures of subsidiaries.
Interest-bearing liabilities less liquid assets divided by shareholders' equity excluding minority interests.
Operating earnings excluding capital gains from participations in Group companies and non-recurring items.
Operating earnings excluding capital gains from participations in Group companies, non-recurring items and amortization of goodwill and similar fixed assets.
Operating earnings excluding capital gains from participations in Group companies, non-recurring items and amortization and depreciation of fixed assets.
Operating earnings (EBIT1) as a percentage of net sales for the year.
P/E RATIO Share price divided by earnings per share.
Earnings after financial items as a percentage of net sales for the year.
RETURN ON CAPITAL EMPLOYED Earnings after financial items plus financial expenses as a percentage of average capital employed.
RETURN ON CAPITAL EMPLOYED EXCLUDING GOODWILL AMORTIZATION Earnings after financial items plus financial expenses and goodwill amortization as a percentage of average capital employed.
Net earnings as a percentage of average shareholders' equity.
RETURN ON EQUITY EXCLUDING GOODWILL AMORTIZATION Net earnings excluding goodwill amortization as a percentage of average shareholders' equity.
SHAREHOLDERS' EQUITY PER SHARE Shareholders' equity excluding minority interests divided by the number of shares at year-end.
The total of shareholders' equity including minority interests and tax provisions as a percentage of total assets.
Last settled transaction on the Nordic Exchange on the last business day for the year.
AMERICAS North, South and Central America, plus the Caribbean islands.
ASIA Asia, Australia and New Zealand.
Coordinate Measuring Machine.
Europe, Middle East and Africa.
Ethylene-Polypropylene Rubber.
Geographical Information System.
Global Navigation Satellite System. GPS
Global Positioning System.
Original Equipment Manufacturer.
The Annual General Meeting will be held on Monday, 5 May 2008 at 5 p.m. at IVA, Grev Turegatan 16, Stockholm, Sweden.
Those who wish to participate and vote at the Annual General Meeting must be registered as shareholders in the share register maintained by VPC no later than 28 April 2008 and notify Hexagon of their intention to attend the Annual General Meeting no later than 12 noon on 30 April 2008.
Notification of attendance should be sent to: Hexagon AB, P. O. Box 1112, SE-131 26 Nacka Strand, Sweden Telephone + 46 8 601 26 20 Fax + 46 8 601 26 21 E-mail [email protected]
Applications should state the shareholder's name, personal/ corporate identity number, address and telephone number. Shareholders wishing to be represented by proxy should send a power-of-attorney to Hexagon before the Annual General Meeting.
The Board of Directors proposes that the dividend for fiscal year 2007 be increased by 41 per cent to 2.35 SEK per share. In addition to the cash dividend, a spin-off of all of the shares in Hexagon Polymers AB is proposed.
The Board proposes 8 May 2008 as the record day for the payment of dividends. Dividends should be in the possession of shareholders by 13 May 2008, assuming that the Annual General Meeting approves the Board of Directors' motion.
Hexagon AB Registered Office: Stockholm Corp. Reg. No. 556190-4771
Cylindervägen 12 P. O. Box 1112 SE-131 26 Nacka Strand Sweden Telephone + 46 8 601 26 20 Fax + 46 8 601 26 21 [email protected] www.hexagon.se
Hexagon will issue financial information concerning fiscal year 2008 on the following dates:
First quarter Report 5 May 2008 2008 Annual General Meeting 5 May 2008 Second quarter Report 8 August 2008 Third quarter Report 28 October 2008 Year-End Report 2008 February 2009
Financial information is available on www.hexagon.se
If you have any questions, please contact: Sara Kraft Investor Relations Hexagon AB P. O. Box 1112 SE-131 26 Nacka Strand Sweden Telephone + 46 8 601 26 27 E-mail [email protected]
Production: Hexagon AB in cooperation with Sund Kommunikation AB.
Printing: Strokirk-Landströms AB, Lidköping 2008.
Photography of President & CEO, Board of Directors and Management: Linus Meyer. Photography of products and operations: Hexagon's subsidiaries.
www.hexagon.se
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