Annual Report • Jul 19, 2010
Annual Report
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Today, half of the world's nearly seven billion people live in urban areas. In the course of the coming two decades an additional two billion people will move to cities, primarily in developing countries. Hexagon's measurement technologies help the world's growing megacities answer these challenges.
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Hexagon AB is a Swedish public limited liability company with Corporate Registration Number 556190-4771.
All values are expressed in Swedish kronor. Kronor is abbreviated to SEK and millions of kronor to MSEK. Figures in parentheses refer to 2008 and include the polymers business that was de-consolidated from Hexagon as of 1 June 2008, unless otherwise stated.
Data on markets and competition represent Hexagon's own assessments, unless otherwise stated. Assessments are based on most recent available facts from published sources. This report contains forward-looking statements based on the Hexagon management's current expectations. Although management considers expectations expressed in such future oriented information as reasonable, no assurance can be given that these expectations will prove correct. Consequently, actual future results can differ considerably from those implied in the forward-looking statements as a result of factors such as changed conditions in the economy, market and competition, changes in legal requirements and other political measures, fluctuations in exchange rates and other factors.
Contents A LEADER IN MEASUREMENT TECHNOLOGIES Hexagon is a global measurement technologies Group with strong market positions.
Hexagon develops and markets leading technologies and services to measure in one, two or three dimensions, to position and update objects and to time processes.
Hexagon's vision is to be number one or number two, in each core business, in order to generate growth and shareholder value.
Hexagon has a wide geographic coverage and a strong local presence. Hexagon's products and services are sold in more than 140 countries. Emerging economies, primarily in Asia, account for a growing percentage of the Group's sales.
Demand for measurement technologies is driven by long-term macro trends with significant impact on the world's economy in the foreseeable future. Hexagon estimates that the market for measurement technologies will grow long-term by approximately 8 per cent annually.
From global mapping to precision measurements with nanometre accuracy, measurement technologies are used in application areas ranging from infrastructure and agriculture, to raw material extraction, manufacturing industries and medical technologies. New applications are being discovered every day.
Hexagon has nearly 1 000 employees within its R&D division and invests approximately 10 per cent of net sales in research and development. Each year the company applies for more than 200 patents and has an existing portfolio of more than 1 700 active patents.
The Group's financial plan is to achieve net sales of 20 billion SEK, and a operating margin of 20 per cent, by the end of 2011.
Geosystems satisfies the growing need for measurement technologies in infrastructure development, among other areas. Customers include building and construction companies, map companies, surveyors, extraction companies and farmers.
METROLOGY 35% of net sales in MT
Metrology offers measurement technologies and measurement data management for customers in the manufacturing sector. Measurement technologies, when integrated into production processes, minimise quality issues considerably reducing costs.
Technology is a sub-supplier of technology, systems and precision components for OEM customers. End customers are located in sectors, such as surveying, marine applications, navigation, port management, aviation, building and construction.
The strong growth in primarily Asia partially compensated for lower sales figures in Hexagon's markets in Western Europe and North America. The Group's market position was further strengthened through the continued launch of new technologies and products.
| MSEK | 2009 | 2008 | % |
|---|---|---|---|
| Net sales1 | 11 811 13 060 | 2 -19 |
|
| Operating earnings 1 (EBIT 1) |
1 784 | 2 405 | -26 |
| Operating margin 1 , % |
15.1 | 18.4 | -3.3 |
| Earnings before taxes, excluding non-recurring items1 | 1 626 | 2 104 | -23 |
| Non-recurring items | -184 | -100 | n.a. |
| Earnings before taxes1 | 1 442 | 2 004 | -28 |
| Earnings after taxes1 | 1 254 | 1 770 | -29 |
| Earnings per share, excluding non-recurring items1 , SEK |
5.31 | 6.95 | -24 |
| Earnings per share, SEK | 4.71 | 6.63 | -29 |
| Operating cash flow | 1 610 | 750 | 115 |
| Return on equity, % | 10 | 18 | -45 |
| Return on capital employed, % | 8 | 12 | -33 |
| Share price, SEK | 106 | 38 | 179 |
| Average number of employees | 7 549 | 9 062 | -17 |
Excluding Hexpol AB, which was de-consolidated from Hexagon AB on 1 June 2008.
2 Adjusted to fixed exchange rates and comparable structure (organic growth).
OPERATING MARGIN MT (QUARTERLY DATA)
Hexagon improved its operating margin from approximately 5 per cent in 2001 to approximately 20 per cent in 2008. In 2009 the margin decreased to approximately 17 per cent due to reduced volumes caused by the global economic downturn.
The estimated market size in 2009 amounted to 83 billion SEK. Hexagon's 2009 market share was 14 per cent, or approximately 12 billion SEK. The average annual market growth is approximately 8 per cent over a business cycle.
2009 was a dramatic year, with a global recession that affected most companies, industries and, indeed, countries negatively. But there were also some clearly positive developments. While the heavily indebted economies of the US and Western Europe struggled to recover, China in particular demonstrated an impressive capacity for growth. China is now Hexagon's biggest single market and an excellent example of how several macro economic trends can shape emerging economies for the foreseeable future.
Strong population growth, urbanisation and the emergence of a middle class with Western consumption patterns are, among other things, resulting in substantially increased demand for infrastructure, food and consumer goods. Measurement technologies is of crucial importance in ensuring the delivery of these requirements.
Our position in emerging economies is typified by our early identification of Asia as a growth area with strong demand for measurement technologies.
Our overall position in the rapidly growing economies is good, but can be even better. A challenge that Hexagon shares with virtually all Western companies is the imbalance between resource concentration in the industrialised world and sales in emerging economies.
Hexagon still has more employees in the industrialised world, relative to sales share. Our company needs to grow faster in regions such as Asia, Africa and South America that will account for the lion's share of growth in the coming years. In the industrialised world, we must increase the share of services in our product range as developed countries' industrial base continues to shrink.
In 2009, we accelerated our restructuring programme to counter the downturn in the economy. The programme was drawn up in conjunction with the some 30 acquisitions we made in 2007 and 2008.
"China is now Hexagon's biggest single market and an excellent example of how several macro economic trends can shape emerging economies for the foreseeable future"
Our efforts to adapt the company have resulted in long-term, structural cost savings of approximately 500–600 MSEK per year compared to the autumn of 2008. These savings will help the company reach its target of an operating margin of 20 per cent in 2011. During the year, we reduced our workforce from approximately 8 500 to approximately 7 500 employees, which of course is regrettable. The goal should be to create an organisation that can cope with short-term fluctuations in demand without having to reduce staff numbers.
Despite the downturn, we realised the importance of continuing the momentum in R&D that we maintained since late 2007 – new products sell better than old ones, even in a recession. The measurement technology industry is fiercely research-intensive and every year Hexagon invests around 10 per cent of net sales in R&D. Our R&D operations are not only intended to make our products more technologically advanced; we also put great store in making our products more user-friendly to save time and money for our customers. When a measurement instrument is designed in a more user friendly way it does not however only increase the customers' efficiency, it also presents an opportunity to expand our customer list beyond the trained measurement engineers to also include for example the foreman at a building site. As the world economy recovers, we will continue to increase our sales, service and product development capabilities.
Our financial plan for net sales of 20 billion SEK by the end of 2011 assumes that we will make a further three to five acquisitions. This target may seem high, but we have shown that we can make and implement large acquisitions. Two of our most important acquisitions in the past ten years involved companies that were bigger than Hexagon at the time of the transactions. Acquisition candidates should be able to generate synergies in two main areas: technology and/or distribution. We create growth for both existing and new products by acquiring marketing companies and distributors that can help us penetrate new markets. We already hold a strong market position in this field, in part due to having our own sales organisations. This means we can offer our customers a service level few competitors can match. Our advantage here can, however, be further strengthened.
2009 was my tenth year as Hexagon's CEO. It is thus only natural to look back and consider the past decade. Ten years ago, Hexagon was a small, unfocused conglomerate with poor profitability and an uncertain future. None of its activities was especially successful or financially viable. At the time, the best option was to divest the various businesses and distribute the proceeds. It is therefore with a sense of pride that I am able to report that we succeeded in selling the older, non-viable parts of the business to finance the development of a world-leading, high-tech company from scratch. Hexagon is now synonymous with dimensional measurement technology and our name is becoming increasingly wellknown throughout the world.
HEXAGONS TEKNOLOGIER
For all of us who chose to go on this journey as shareholders, the past decade has been a very profitable one indeed. Since 2000, Hexagon's share price has risen by 1 400 per cent, including new issues, ordinary dividends and distribution of shares in Hexpol AB and VBG AB. During the same period, the Stockholm Stock Exchange (OMXS index) has been close to flat.
The next ten years will be at least as exciting as the past ten. I am convinced that Hexagon will continue to grow rapidly and profitably. With the focus we now have, to achieve an unrivalled position as the world's leading measurement technologies provider, ultimately, the favourable conditions for Hexagon shareholders should continue to make the stock a worthwhile investment.
Stockholm, Sweden, January 2010
Ola Rollén President and Chief Executive Officer
Hexagon's ultimate objective is to generate favourable long-term value growth for its shareholders. The aim is to strengthen the Group's market position as a world-leading measurement technology company and to deliver long-term profitability and sustainable competitiveness. Hexagon's vision is to be number one or number two, in each core business, in order to generate growth and shareholder value.
Hexagon strives to generate favourable longterm value growth for its shareholders. The goal is for earnings per share to increase by 15 per cent annually. The company has a number of well-defined goals and strategies to achieve this.
Hexagon's current financial target is to achieve net sales of 20 billion SEK and an operating margin of 20 per cent by the end of 2011.
Sales objectives will be achieved through organic growth and acquisitions.
Hexagon has determined that it is necessary to be the market leader in order to achieve its financial targets. For Hexagon, market leadership means achieving both a high level of innovation and cost efficiency.
In order to be number one or number two within the global measurement technology industry and in its sub segments, each operation places strong emphasis on its market position. Today the company has a market-leading position within the measurement technology industry as a whole, as well as within the three application areas of Geosystems, Metrology and Technology. There are, however, sectors within the three application areas where there is room for improvement in terms of market position.
A competitive cost structure is necessary to defend a market-leading position, or to enhance an operation's position as a challenger. This is in no small part due to the need to more easily manage fluctuations in demand and changes in currency exchange rates. Cost efficiency is also a prerequisite for being the innovator in the industry.
In the measurement technology industry, a capacity for innovation is central to Hexagon's opportunities to become an attractive business partner for customers in the long term. Investments in research and development are therefore highly prioritised at Hexagon, and each year approximately 10 per cent of net sales is invested in R&D.
Management know-how and experience are decisive factors that are essential for being able to operate successfully and realise objectives in day-to-day business. Hexagon recruits local personnel and is therefore regarded as a local company within its respective markets.
Short and rapid decision-making processes, along with time-efficient implementation, enhance competitiveness and raise organisational capacity. A good manager appreciates a working environment in which there are clear responsibilities, a flat hierarchy and minimal bureaucracy.
Market existing products in current markets With a focus on core operations, growth is created through product modifications and acquisitions of complementary technologies, both of which create cost benefits and thus enhanced competitiveness through the rationalisation of the overall structure.
Through successful research and development and sound knowledge of customer needs, growth is created in the form of unique product offerings. Hexagon renews its product portfolio every 18 months and in 2009 a large number of new products were launched with-
Hexagon's mission is to develop and market leading technologies to
Overall financial targets
15 per cent annually
Å To achieve growth organically and through acquisitions
Å Earnings per share to increase by at least
Å To strengthen and develop the Hexagon brand along with the Group's other brands
in the three application areas: Geosystems, Metrology and Technology.
A new application area or a new geographical market creates growth for an existing product through access to a larger customer group. The challenge is to have sufficient knowledge of the new market, ensure that the product meets the market's quality requirements and establish smoothly functioning distribution channels.
Introducing new products in new markets The introduction of a new product or service in new markets creates growth through expansion of the total market. The challenge is to have sufficient knowledge of the new market, understand the needs of the customers, quality-assure the new product or service and gain access to smoothly functioning distribution channels, thus ensuring that the new offering reaches the market.
Hexagon monitors a large number of compa-
nies to find acquisitions that can strengthen the product portfolio or improve the distribution network. The acquisition targets 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.
The acquisition price varies and is determined based on factors such as the acquisition target's growth potential and operating margin.
ORGANIC GROWTH BY APPLICATION AREA
Technology has achieved yoy growth throughout 2009. Geosystems experienced a shift in demand sooner than Metrology.
ORGANIC GROWTH BY REGION (MT)
A decrease in demand during 2009 in EMEA and the Americas was only partially balanced by the organic growth in Asia.
NET SALES BY APPLICATION AREA (MT) Metrology's share of sales decreased in 2009 due to weak demand from the manufacturing industry.
The Hexagon brand is the Group brand, supplemented with subsidiaries' brands targeting specific customer segments, markets or geographical areas. Hexagon's brand portfolio comprises a large number of world-class brands that represent strong traditions and are well known within their individual sectors. The brands represent high quality and reliability.
As part of the Hexagon brand strategy, it is vital to allow the individual brands and subsidiaries to evolve. They each have their own history, own culture and a professional relationship with their customers. Hexagon aims to preserve these strengths.
At the same time, the individual brands and companies are part of the larger Hexagon Group from which they can benefit in terms of an extensive network of professionalism, knowledge, people and global culture.
Hexagon works continuously to strength-
en the Hexagon brand globally and to utilise the synergies between the individual brands. The Hexagon brand strategy supports the Hexagon growth strategy and helps create long-term sustainability and profitability for the Hexagon Group.
05 06 07 08 09 9.6 13.6 16.6 17.6 15.1 % 05 06 07 08 09 9.6 13.5 14.6 14.5 11.8 Billion SEK 05 06 07 08 09 3.14 5.01 6.79 6.96 4.71 SEK 05 06 07 08 09 30 46 40 44 49 % 05 06 07 08 09 764 1115 2027 1755 MSEK 2 621 05 06 07 08 09 11 12 12 8 14 % The long-term return on capital employed over a business cycle should amount to more than 15 per cent annually. The required return has been set based on an assumption of a long-term, risk-free interest rate of approximately 5 per cent and a risk premium of approximately 10 per cent. In 2009, return on capital employed amounted to 8 per cent. RETURN ON CAPITAL Return on capital employed of at least 15 per cent. Cash flow should be positive over a business cycle. A positive cash flow creates freedom of action for longterm expansion and allows for a greater degree of loan financing, all else being equal. In 2009 cash flow from operating activities increased to 2 621 MSEK excluding cash flow from restructuring. CASH FLOW Positive cash flow over a business cycle. The equity ratio should be at least 25 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 end of 2009 the equity ratio amounted to 49.1 per cent. EQUITY RATIO An equity ratio of 25 to 35 per cent. Strong growth in earnings per share is the best way to produce favourable long-term return. In 2009 earnings per share, excluding non-recurring items, decreased by 24 per cent. EARNINGS PER SHARE Annual increase of earnings per share of at least 15 per cent. Hexagon's objective of an operating margin of 20 per cent is to be achieved through an increase in the operating margin in the core businesses to 23 per cent and the acquisition of operations with an average operating margin of 15 per cent. In 2009 the operating margin in MT amounted to 16.6 per cent. Including Other operations, the operating margin amounted to 15.1 per cent. OPERATING MARGIN Operating margin of 20 per cent by the end of 2011. Hexagon's sales objective of 20 billion SEK in 2011 is to be achieved through a mix of organic growth and acquisitions. Sales in 2009 amounted to 11 811 MSEK. NET SALES Net sales of 20 billion SEK by the end of 2011. FINANCIAL TARGETS
Today dimensional measurement technology is a prerequisite for modern social planning, effective construction and manufacturing with minimal environmental impact. Measurement technology is utilised everywhere in society and in industrial applications to save time and resources, and to increase knowledge and understanding. Demands are increasing for the capability to measure and position objects, infrastructures and environments.
Hexagon's core business Measurement Technology, which represents 97 per cent of Group sales, delivers solutions within the three application areas Geosystems, Metrology and Technology. These applications are described in more detail in the section Products and Services on pages 22–25.
Common for the three application areas is that they offer systems for the measurement of objects in one, two or three dimensions and that the systems are of high quality and reliable, resulting in increased productivity and efficiency for customers. The measurement process is not identical in the three application areas, but is based on common core technologies and uses the same basic principles, similar mathematical procedures and algorithms. Hexagon has a comprehensive customer of-
fering, delivering solutions encompassing the entire measurement process, including sensors, hardware and software. Hexagon's core offering is to deliver services and software via various applications in order to solve different types of customer needs.
The process starts with the collection of the object's measurement data. Regardless of whether it is a mountain or a circuit board that is to be measured, it can be done using different type of technologies and sensors.
The sensor in the measurement process collects data by physically touching the object with a measurement probe, so called tactile measurement or by technologies such as laser, GPS, optics and photogrammetry.
The carrier to the sensor is some sort of hardware, either stationary or portable. In the example with the mountain, the carrier is an airborne camera that is attached in the airplane. In the example about the circuit board, the carrier is a Coordinate Measuring Machine.
Hexagon's core offering is services and software that enhances the customer's capabilities, competitiveness, productivity and profitability. Service and support include contract-based measurement of parts, training of measurement system operators, outsourcing of the measurement function and software upgrades.
A tactile scanning probe captures and produces enormous amounts of data ("point clouds") from surfaces, enabling the measurement of an entire object's form.
Tactile measurement probes measure discrete points on a surface and are used in, for example, Coordinate Measuring Machines (CMMs) to test the quality of manufacturing.
Laser
The laser instrument emits from single to thousands of light pulses per second. It measures the amount of time it takes for each light pulse to return, thereby taking a distance measurement for each light pulse and can out of that information recreate the object.
Photogrammetry involves measurement through photographic imagery of the size, form and position of a photographed object. The most extensive example is aerial photogrammetry, which uses aerial imagery primarily for the purpose of producing maps of various kinds.
IN NEW YORK, work is underway in constructing the landmark 1 World Trade Center on the site where the former twin towers and other World Trade Center buildings stood prior to the 2001 attacks.
The skyscraper will consist of 102 stories standing more than 541 metres in height. It is to be completed in 2013, at which time lower Manhattan and New York City will have regained a world-famous landmark. The tower will contain offices, shops, restaurants and a lookout point, among other features. Several other buildings and a memorial site will also be located in the surrounding area.
The construction of 1 World Trade Center is a massive project that requires minute control of every detail. Advanced measurement technologies are used to ensure precision with centimetre accuracy. During construction, Hexagon's instruments will allow to control the vertical integrity of the structure to within a few centimetres of the intended design. Furthermore, equipment from Hexagon is used in the factories where the load-bearing construction elements are manufactured, as well as on-site during the joining of these elements.
Hexagon has also recently been involved in the construction of the world's tallest building, Dubai's Burj Khalifa, a structure more than 800 metres in height.
CALIFORNIA'S POLICE now use modern technologies that are considered to be as transformational for the police and justice system as the advent of DNA analyses.
The California Highway Patrol (CHP) faces the daily challenge of arriving to the scene of traffic accidents. In addition to assisting the people involved in the accident, the police are also required to document the scene before vehicles are removed and before traffic is allowed to flow again.
In order for police personnel to determine how an accident occurred, the documentation must take place quickly, correctly and without missing important facts. Once collected, the material may be used in both criminal and civil law proceedings in which millions of dollars are at stake.
CHP utilises Hexagon's laser scanners. Millions of measurement points are rapidly captured, making it possible to record and recreate the scene of the accident. With the help of laser scanners, the work can be carried out more precisely and comprehensively than with more traditional technologies. Investigators can also virtually recreate the scene in 3D later on when new theories need to be tested, or to reach a better understanding of the events that occurred.
AT THE HIGHEST LEVEL of motor sports, there is no room for errors. Extreme quality demands apply to a Formula 1 car's entire development process. The utmost precision is decisive as any divergence from specifications can cost the team a victory, valuable points or, even worse, a world championship title.
That is why Red Bull's Formula 1 team carefully measures every individual production detail as well as each finished vehicle.
All of the production processes' threshold values are controlled with the help of precise measurement instruments. What is measured in hundreds of seconds within the world of Formula 1 equates to micromillimetres in industrial design. Many details are critical, such as the car's front and rear wings, the width of the vehicle and the placement of pedals. Everything must be perfect, down to the smallest detail.
The Red Bull Racing Team has chosen Hexagon as its partner and uses measurement instruments from Metrology when constructing its vehicles.
WITHIN THE GROWING wind power sector, measurement technology is critical to success. Modern wind turbines consist of up to 8 000 individual components, each of which must have exactly the right dimensions since any divergence from the construction design results in lower electricity output from the facility. Natural stresses on the turbines require great stability. The rotor blades' outer tips can spin at speeds of up to 300 kilometres per hour.
Additional demands result from the fact that wind turbines are becoming larger. The higher the captured wind power, the greater the energy yields. A single 80-metre tall wind turbine produces as much energy as 39 wind turbines at 30 metres in height. This pressure on manufacturers to produce larger and larger wind turbines means that they are also forced to work with larger and heavier components.
By 2020, wind power will account for up to 18 per cent of Europe's energy needs, according to the European Wind Energy Association. Hexagon contributes to the positive development of the sector by delivering measurement solutions to all of the largest manufacturers of wind turbines.
EVERY OTHER YEAR, a special measurement team climbs Western Europe's highest mountain, Mont Blanc in the French Alps. Their objective is to collect data that can be used in the scientific analyses of meteorologists, geologists, climate researchers and glaciologists, among others.
When the height of a mountain peak changes, this can be a sign of changes in ice layers. The transformation of surrounding glaciers can then be used to draw more general conclusions about climate change.
Since 2001, the team consisting of surveyors from the French department of Haute Savoie and specialists from Hexagon carried out height measurements on Europe's highest mountain located in the east of France and home to ski resorts including Chamonix and Albertville. Models of the mountain range have been developed with the help of these measurements, thus enabling long-term comparative studies. Various types of Hexagon GPS equipment have been used during the measurement missions since 2001.
A NEW, ADVANCED COMPUTER GAME is taking place high above the earth's surface. The game, known as Sky Challenge, allows amateurs to compete by computer with trained pilots on actual flight missions.
Sky Challenge, which is developed by New Zealand-based Air Sports Ltd, and consists of a virtual obstacle course in which airplanes must pass through complicated checkpoints. For the real pilots, the obstacle course is projected onto a monitor in the cockpit against a background image of their actual surroundings. In this way, they experience a need for challenging manoeuvres in order to avoid crashing into obstacles.
For those playing by computer, both the sky and the obstacles are virtual, and the challenge is to manoeuvre their plane digitally. Any crashes with obstacles will lengthen the course. The overall effect is that professional pilots and players can compete with each other.
The game makes use of advanced positioning equipment in which satellite and inertial navigation technologies are combined to ensure uninterrupted precision in measurements down to a single centimetre. The technology comes from Hexagon and is known as Synchronous Position, Attitude and Navigation (SPAN).
The market for measurement technologies can be divided into the macro, micro and nano segments. Boundaries between the three segments are based on the precision required by the customer: the smaller the object to be measured, the greater the precision required. Hexagon's operating segment Measurement Technologies consists of the three application areas; Geosystems, Metrology and Technology. Geosystems and Technology are located within the macro segment, whereas Metrology is located within the micro and nano segments.
In the macro segment, large objects such as mountains, cities, roads, bridges, tunnels, dams, and buildings, are measured. These measurements require precision ranging from 10 metres to 100 micrometres. Customers in this market segment consist of surveyors, cartography companies, authorities, construction and mining companies, aerospace and defence industries.
Hexagon estimates the size of the macro segment to be about 45 billion SEK, with annual growth of about 10 per cent over a business cycle. Hexagon's market share is approximately 17 per cent.
In the micro segment, industrial components, from large aircraft to micro components in electronic and medical applications, are measured. These measurements require precision ranging from 100 to 0.3 micrometres. Customers in this segment are primarily the automotive, aerospace, engineering, medical and energy industries.
Hexagon estimates the size of the micro segment to be about 28 billion SEK, with annual growth of about 6 per cent over a business cycle. Hexagon's market share is approximately 14 per cent.
In the nano segment, objects such as microchips for the electronic industry, medical application and materials with new properties are measured. These applications require precision from 0.3 micrometres. In comparison, a human hair has an average diameter of approximately 50 micrometres.
Hexagon estimates the size of the nano segment to be about 10 billion SEK with strong growth potential. Hexagon's market share within this segment is currently quite small.
Hexagon's geographic markets differ in many respects and are part of a fragmented sector. This means that Hexagon's competitors include companies of varying size and with differing specialisations. Some companies provide only hardware, others only software, while still others are active only in the macro or micro segment. Multinational companies compete with national companies that are sometimes market leaders within specific regions. These smaller companies can consist of anywhere from a couple of hundred to a couple of thousand employees. By providing solutions encompassing the entire measurement process within the macro and micro segments, and by supplying systems with a combination of hardware and software with the latest technology, Hexagon has a comprehensive customer offering.
| COMPANY | DOMICILED | MACRO | MICRO | NANO | PUBLIC CO |
|---|---|---|---|---|---|
| Hexagon | Sweden | ||||
| ESRI | USA | ||||
| Faro Technologies | USA | ||||
| Intergraph | USA | ||||
| Topcon | Japan | ||||
| Trimble | USA | ||||
| Carl Zeiss | Germany | ||||
| Mitutoyo | Japan | ||||
| QVI | USA | ||||
| Renishaw | UK | ||||
| KLA Tencor | USA | ||||
| Nikon | Japan | ||||
| Veeco | USA | ||||
| Zygo | USA |
The long-term use of measurement technologies is rising due to structural changes in the global economy. Population growth and urbanisation lead to an enormous need for infrastructure. Rising prosperity in developing countries creates demand for consumer products and thus production capacity. As a consequence, measurement technologies are in demand in all affected sectors.
In 2007 Hexagon estimated the size of the measurement technologies market at approximately 100 billion SEK, with annual growth of 8 per cent over a business cycle. This estimate is based on internal industry knowledge and available public statistics. Hexagon's market share amounted to approximately 11 per cent in 2007. Market growth was less than 8 per cent during the first half of 2008, subsequently falling during the second half of 2008 and throughout most of 2009. Today, Hexagon estimates the size of the measurement technologies market at about 83 billion SEK. The market has thus diminished by some 25 per cent during 2009, while Hexagon's sales in MT have decreased by 17 per cent. Hexagon's market share thus increased during 2009 and amounted to 14 per cent by the end of the year.
Underlying demand is nonetheless rising as a trend due to structural changes in the global economy, a fact that reinforces Hexagon's assessment of an annual market growth of 8 per cent over a business cycle.
In addition to these megatrends, Hexagon is affected by driving forces within the manufacturing and construction industries.
The need to increase productivity and efficiency is always at the heart of the manufacturing industry. A rising number of companies have seen that by integrating advanced measurement technologies into their production processes, quality issues can be avoided and costs can be dramatically reduced. For Hexagon Metrology, with its strong positions in the automotive, aerospace and other manufacturing industries, this is bound to have a positive effect.
The construction industry is also driven by constant improvements in productivity. Efficiency can be considerably improved through control and coordination of construction machinery and vehicles. For Geosystems, which provides solutions for machine control, airborne sensors and laser scanners, this is a positive trend.
The world's population is estimated to increase from today's 6.8 billion people to more than 9 billion in 2050. Nearly all of this growth will take place in developing countries whose population is expected to increase from 5.6 billion today to 7.9 billion by 2050.
This increase in world population entails increased demand for land, housing, infrastructure, energy, minerals, water and food products.
The industrialisation and modernisation of developing countries will require massive investments in all sectors of society. As a consequence, domestic and foreign companies within the agriculture, oil, gas, mineral excavation, energy and construction industries with a focus on these rapidly growing markets will be driven by a decades-long structural demand.
All of these companies are in some way dependent on measurement technologies. In order to modernise agriculture and increase food production, for example, measurement technology solutions from Geosystems will be required to address needs for land surveying and machine control.
The bulk of the population increase will occur in cities. In 2008 there were more people living in cities than in rural areas for the first time in human history. The proportion of world population living in cities is expected to increase from 50 per cent today to 60 per cent in 2030. An increase of some two billion people is expected to occur in the urban areas of developing countries alone.
Providing the inhabitants of these cities with adequate housing, water, electricity, sewage systems and transportation will be a challenge on every level, from financing and civil engineering to social planning an environmental sustainability.
Geosystems solutions are critical for increasing agricultural production and successfully planning and executing the investments in housing and infrastructure in the wake of urbanisation.
The BRIC countries (Brazil, Russia, India and China) already have significant combined strength comparable to that of the large western economies and one that will gradually grow to surpass the current OECD countries.
Rapid economic developments in the cities of emerging economies serve to create a middle class with the consumption habits of the western world. This results in surging demand for housing, food, consumer goods, travel and leisure activities. This rising demand entails a growing need for measurement technologies both from Metrology as well as from Geosystems.
The dimensional accuracy of the car door is being measured with portable instruments from Hexagon and then compared to the customers CAD (Computer Aided Design) model.
Aging populations are part of a global phenomenon. The number of people over age 60 is expected to increase from nearly 750 million today to 2 billion by 2050.
The growing elderly population poses challenges for all of society. In the health care industry, for example, the number of organ transplants and knee or hip operations will continue to grow. These processes, which require high-precision manufacturing of implants and prosthetics, will also require high quality measurement technologies. Metrology will benefit from this development.
The energy sector is predicted to undergo significant structural changes. Global demand for energy is likely to double by 2030, and the majority of this growth is expected to occur in BRIC countries. If energy production continues as it has in the past, i.e. in the form of fossil fuels, this will cause a corresponding increase in carbon dioxide emissions. A major portion of energy production will therefore have to occur with the help of renewable energy sources such as wind power. Hexagon is an important supplier of measurement technologies to companies in the "green energy" sector.
Rising sea and river levels run the risk of damaging buildings and infrastructure. The Low Elevation Coastal Zone, the continuous land mass that lies less that 10 metres above sea level, makes up only 2 per cent of the earth's surface while accommodating 10 per cent of the world's population.
The effects of rising water levels thus pose risks to a large number of people. These developments increase the need for measurement technologies from Geosystems which can help in planning for the consequences of climate change in order to avoid potential threats to people, buildings and infrastructure.
List of references to this section:
World Population Prospects: The 2008 Revision (United Nations Department of Economic and Social Affairs/Population Division).
State of the World: The FIDIC Infrastructure Report 2009 (The International Federation of Consulting Engineers).
Hexagon's customers have a growing need for measurement technologies in nearly every market sector around the world. Measurement technologies are used in industries as diverse as building and construction, urban planning, agriculture, mining, petroleum and gas. Measurement technologies are also a prerequisite for improving efficiency, quality and productivity in the automotive, aerospace and manufacturing industries.
Hexagon's measurement technology solutions are oriented toward customers with applications in the following areas:
During the planning and execution of infrastructural projects, surveyors and construction industries utilise measurement technology in every phase: project planning, execution and inspection. Infrastructure-related sales of measurement technology account for more than 55 per cent of Hexagon's total sales. Geosystems occupies a relatively early stage in the business cycle.
Together, land surveying and building surveying account for Hexagon's largest single customer category, representing 35 per cent of net sales in 2009.
Land surveyors map land surfaces, for example when defining the legal boundaries of land ownership. The results are used to create or update cadastres, which are public registers containing the boundaries of land property ownership.
Building and engineering surveying involves measurements taken before, during and after all types of construction. In many countries, building and engineering surveying belong to a recognised profession requiring official certification.
Hexagon's measurement systems are used by construction companies for the preparation, execution and monitoring of buildings, roads, bridges, railroads, tunnels, airplanes and ports, among other projects.
The increased global demand for energy and minerals has made the mining industry an increasingly important customer sector. Mining companies require solutions for guiding and coordinating fleets of heavy machinery, both above and below ground, and for steering individual pieces of equipment. By using Hexagon's systems for steering and control of agricultural and construction equipment, customers can increase productivity and efficiency with greater environmental responsibility. It is not unusual for Hexagon's machine control system to improve efficiency, for example in a road construction project, by more than 30 per cent.
Geospatial information is information about the earth's surface. Hexagon's measurement systems are used in applications such as urban and landscape planning, updating of maps and preventing, mapping and managing natural disasters.
The largest customer groups for geospatial information are cartographic companies and government authorities, defence-related industries, system administrators and companies selling GIS services. However, these solutions are increasingly used by new customers such as urban planners, real estate agents, environmental consulting firms, civil engineering or oil and gas companies.
For details regarding which countries are included in Hexagon's definition of the various regions, see page 94.
Hexagon's offering includes optical and digital levels for the measurement of flat surfaces at construction sites. Hexagon's total stations and construction lasers are used to measure angles, distance and grade. The primary customers in this sector are construction companies building private housing and commercial properties. The category also includes private customers using handheld products for home use.
The manufacturing, automotive and airline industries account for approximately one quarter of Hexagon's net sales. These customer groups are generally more dependent on capacity investments, making them more active later in the business cycle than the customers of Geosystems.
Hexagon has a broad customer base within the automotive industry. Nearly all of the world's automotive manufacturers use Hexagon's measurement systems to some extent. Demand is driven by the need to increase quality, productivity and cost efficiency in the manufacturing process.
Hexagon's measurement systems are well integrated into the R&D processes of car and truck manufacturers. Because customer investments are often driven by new model launches and the relocation of production facilities, demand is not solely driven by the number of units produced.
While the western world's automotive industry experienced a significant decline in sales during 2009, investments in new technology were made in existing and future production facilities in Asia, South America and Eastern Europe – a market trend which benefits Hexagon due to Hexagon's strong position in these markets.
Applications for Hexagon's measurement systems in the airline industry are similar to those of the automotive industry. In short, they are integrated into the R&D process. As opposed to the automotive industry, where regular random vehicle inspections take place, the aerospace industry measures and inspects every individual aircraft.
Hexagon has a large number of customers within the manufacturing, electronics, industrial machine and energy industries. As in the automotive and aerospace industries, measurement systems are used to increase
efficiency, quality and productivity in manufacturing processes.
This category includes a number of smaller applications such as the use of measurement systems by police authorities to document crime scenes or the manufacturing of highprecision parts and components for products such as implants and prosthetics within the medical device industry.
Hexagon has a well-diversified customer base in terms of geographical distribution. This means that weak growth in one region or customer segment can often be compensated by strong growth in another.
In 2009, emerging markets accounted for 33 per cent of Hexagon's net sales, compared to 28 per cent in 2008. Emerging markets include China, South America, India, other Asian countries, Russia, Africa and the Middle East. China alone accounted for 17 per cent of Hexagon's 2009 net sales.
In Asia, Hexagon's sales grew continuously throughout 2009. Several sectors and industries experienced double-digit growth figures. Asia now represents nearly 30 per cent of Hexagon's total net sales, with India, Korea, Japan and China all showing strong overall growth in 2009. This favourable sales growth is due to Hexagon's strong position in the region as well as high demand from infrastructural construction industries, primarily in China.
China's economic stimulus package has produced additional positive effects on the growth of Geosystems. Chinese automotive manufacturers have increased sales as well as investments in capacity expansions, thereby increasing the demand for measurement technologies from Metrology. Organic growth in Asia in 2009 has resulted in a 9 per cent increase of both order intake and net sales.
The end of 2009 saw a reduction in the inventory liquidations that had characterised the year and led to decreasing sales to construction companies in Western Europe. Eastern Europe also experienced a decrease in sales, while Russia, the Middle East and Africa continued to grow, although at a significantly slower pace than previously. Sales for Geosystems eventually recovered, once again showing positive growth figures near the end of the year. Metrology normally registers its strongest results later in the business cycle and is therefore more vulnerable to fluctuations in demand.
The aerospace industry and the alternative energy sector continued their growth throughout the year. However, the total business volume produced by the European economic stimulus program during 2009 remained negligible.
Organic growth of order intake within the EMEA declined by -25 per cent, while organic growth in net sales amounted to -27 per cent.
The situation in the Americas was similar to that of EMEA, where customers reduced inventory levels during the year's first three fiscal quarters, thus leading to a decline in demand for Hexagon's products. Demand from the manufacturing industry was weak during the year.
The American economic stimulus package has failed to have a significant economic impact on Hexagon's operations in the North American Free Trade Agreement (NAFTA).
South America, led by Brazil, demonstrated strong growth during the year, mainly attributable to high activity within the South American mining and automotive industries. South America now accounts for 3 per cent of Hexagons net sales, compared to 2 per cent in 2008. In 2009, organic growth in the Americas amounted to -19 per cent in order intake, and -23 per cent in net sales.
With Hexagon's solutions, customers can collect and utilise measurement data of significant strategic and economic importance. This information can be used to create precise models or sketches, to map discrepancies from the measurement object's original form or to modify and correct the object's production process. Hexagon provides measurement systems within the application areas of Geosystems, Metrology and Technology.
The Hexagon Group consists of two business areas: Hexagon Measurement Technologies and Other Operations.
Hexagon Measurement Technologies includes the application areas Geosystems, Metrology and Technology as well as aftermarket services and support.
Hexagon's systems are designed for measurement in one, two or three dimensions, as well as positioning and updating of objects. The systems consist of core technologies common to each instrument, under a generally coordinated development and production system.
Production is coordinated in order to utilise both skills and scale advantages. Each of Hexagon's measurement systems is produced in world-class facilities in order to assure that they are able to meet the highest demands in terms of precision and quality. Hexagon has R&D units and production facilities in approximately 20 countries.
Hexagon purchases components from
carefully chosen and highly regarded subsuppliers throughout the world. Several of these are subsidiaries of the Hexagon Group. Purchasing is centrally coordinated to minimise costs, ensure quality and eliminate bottlenecks in the supply of components. At the Hexagon production facilities, components are assembled into complete measurement systems and proprietary software integrated into the systems.
Geosystem's products are sold mainly through a worldwide network of distributors. Hexagon Metrology's products are primarily sold through an in-house sales organisation, with some 50 local demonstration and service centres throughout the world. It is here that Hexagon's staff demonstrate the products and customers are offered the chance to personally carry out their own test measurements. Because measurement systems often involve significant investment costs for customers, it is of vital importance for both Hexagon and the customer to establish close relationships for continued service and future upgrades.
Support and service are an integrated strategic component to Hexagon's customer offerings.
High-quality technical support is crucial to achieving maximal productivity in measurement instruments and systems. As a complement to its product portfolio, Hexagon offers a complete range of after-sales services.
Services can vary from regular routine maintenance such as calibration, supply of reserve parts, upgrades and equipment repairs, to added-value offerings such as contract measuring of customer components, temporary outsourced personnel, custom programming of equipment or adaptation and integrated automatisation with Hexagon's software.
There is currently a growing demand for long-term contracts for Hexagon's software, in which customers subscribe to regular software updates.
EDM, Tilt, Angle, Laser, GNSS, GPS, Models and algorithms, Communication, 3D visualisation and digitisation, Feature Extraction
Hexagon's Geosystems solutions are sold within the measurement technologies market's macro segment, where specifications range in accuracy from 10 metres to 100 micrometres (millionths of a metre). A wide array of technologies and systems are used for multidimensional measurement and positioning.
Geosystems is divided into three application areas: Geomatics1 , Construction and Geographic Information Systems (GIS).
Hexagon's customers in the Geomatics product area capture, reference, measure, analyse, process, store, present and use geographical information. Measurements can involve anything from simple distances to hundreds of thousands of points used to position complex objects or to transform measurement data into 3D drawings and images. The measurement systems are used in all types of infrastructural projects: buildings, roads, bridges, railways, tunnels, airports and seaports, as well as relocation and modification of production facilities, etc.
Within Geomatics both terrestrial- and satellite-based systems are used to depict measurement objects. Hexagon's primary products in Geomatics are theodolites and fully electronic total stations which are optical instruments used to position and determine a target by aiming through the telescope at the target, measuring the angles and distance and then using trigonometry for calculating the position.
By combining terrestrial- and satellite-based systems surveyors can conduct measurements with less personnel in the field, thus increasing productivity, speed of data acquisition, and reducing costs.
Within monitoring, Hexagon's products track movements of objects such as dams, bridges and buildings, but also of natural structures such as potentially dangerous landslides. Highly precise total stations, GPS equipment and specially designed software are important products within this area. Many customers take advantage in accessing their data via Internet thanks to Hexagon's special software solutions.
Hexagon's laser scanners are also used to create precise 3D models of objects, such as an oil rig without updated blueprints or a historical building of which a digital copy is needed.
Large infrastructural projects demand high productivity and low costs for manpower, time and materials. There is also a clear trend towards increased prioritisation of environmental and working conditions. Hexagon's solutions meet these needs.
Machine control involves the steering of heavy machinery by one or several measurement instruments and software. The largest customer segments include construction companies, along with mining and agricultural industries. Road grading, excavation, trenching and asphalting equipment are among the machines that can be controlled with the help of two- and three-dimensional solutions. Machine control is a fast-growing segment with significant market potential. In the case of construction, machine control can be used to achieve efficiency improvements of up to 30 to 50 per cent.
On the software side, integration for fleet monitoring, remote diagnostics, data exchange and machine performance metrics (telemetry) will be the cornerstone of successful Hexagon machine control solutions in the near future. Wireless data transfer will be the key growth enabler for these value-added services.
Optical or digital levels for measuring plane surfaces and easy-to-use total stations and GPS instruments for measuring angles and distances are examples of other major product groups for construction customers.
GIS is a computer-based system for collecting, storing, analysing and presenting positionrelated information. Urban planning, landscape design, updating of maps and prevention, monitoring and management of natural disasters are examples of GIS applications.
Hexagon's product and service offering for GIS consists of both hardware and software. The most prominent hardware products are airborne cameras and LIDAR scanners. LIDAR (Light Detection and Ranging) is a technology used to collect topographical data with airplane-mounted lasers. From a height of several kilometres, these lasers are capable of registering data at speeds of up to 200 000 points per second, with centimetre precision.
GIS software includes various applications for collecting, storing, distributing and presenting geospatial data in a simple and userfriendly manner.
Capturing and positioning of data Correctly renders a position in relation to a known reference point.
Measuring Precise measurement of the distance between two points.
Analysis and presentation Analyses positional data and presents the information in a user-friendly format.
In the measurement technologies market's micro segment, Hexagon offers customers in the automotive, aerospace, electronics, general metal fabrication, energy and medical technologies industries a complete range of products and one of the industry's strongest service organisations.
Metrology is used to improve efficiency, quality and productivity in manufacturing processes. Hexagon's products measure an object and compare it with the customer's CAD (Computer Aided Design) drawings in order to confirm whether the object was produced correctly.
The systems measure objects as large as aircraft and as small as medical components with a precision ranging from 100 to 0.3 micrometres. Smaller objects are normally measured with stationary measurement systems whereas larger objects are usually measured with portable equipment.
Automatisaton and robotisation are clear trends within the Metrology segment. By integrating measurement systems into the manufacturing process, the repetition and risk of errors and stoppages can be reduced. Simultaneously, customers can also increase productivity, efficiency and reduce costs in the production phase.
Hexagon's products are closely connected with Hexagon's software, which is well integrated with customers' CAD systems.
Hexagon's product offering in the area of stationary measurement systems includes vertical and horizontal coordinate measuring machines (CMMs), sensors, software and aftermarket services.
Stationary measurement systems are generally automated, which means that they can be programmed and run repetitive inspections of components in large volumes. These systems are often part of manufacturing cell integration directly on the workshop floor.
High-precision measuring machines measure objects such as engine blocks and gearwheels. Machines with a lower level of precision are used to measure sheet-metal parts, such as car doors or aircraft wings, or machined casted parts (housing for gearboxes or turbine blades).
The measurement systems are also used for measurements of small components requiring high precision such as lenses and gears or complex high-precision parts such as implants or prosthetics in the medical technologies industry.
Portable measurement systems are used to measure objects that cannot be moved to a measuring machine, that are produced in small volumes or that are specially manufactured in a way that entails rapidly changing specifications. The largest customer categories in portable measurement systems comprise manufacturing companies in the automotive, aerospace, energy, medical technology, general metal fabrication and design industries.
A further important field of application is the maintenance and inspection of structures such as wind-power plants and aircraft.
Hexagon's product offering in the area of portable measurement systems includes handheld measurement devices, articulated arms, laser trackers, software and aftermarket services.
Inspection Nearly all types of manufactured components are inspected and controlled by Hexagon products.
Control
Hexagon's products are used to control and assure manufacturing processes in a range of different industries.
Reverse-Engineering Creates a 3D model of a physical object.
In addition to its Geosystems and Metrology product offerings, Hexagon functions 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) guarantees continued cost-efficient development of Hexagon's technologies.
Technology is a world-leading supplier of receivers, casings, antennae and so-called midware, which is integrated into high-precision positioning applications. In addition to serving other customers, Technology is an important supplier to Geosystems, which uses GPS and GNSS (Global Navigation Satellite Systems) technology in a number of its products.
However, the majority of Technology's sales are to customers outside the Hexagon Group, including market segments such as land survey, marine, navigation, security and defence, port management, aviation, construction and mining. Its products provide positioning information to customer systems in a range of different environments, from open landscapes to crowded urban environments and dense vegetation. As an OEM manufacturer, Technology is able to sell to a variety of markets and is not generally niched toward specific segments.
Receiving Receives signals from GNSS satellites.
Processing Processes and amplifies signals from GNSS satellites.
Transformation Transforms data for use in commercial applications such as the aerospace, geomatics, mining, agriculture and defence industries or marine applications.
Hexagon's other operations outside of Measurement Technologies consist of two companies which are focused on providing high quality components, primarily to the automotive industry. These operations accounted for 3 per cent of Hexagon Group net sales in 2009.
EBP EBP manufactures bodywork parts for several of Europe's leading automotive manufacturers. The company is specialised in the qualified production supply of low volumes for both series production and the aftermarket.
SwePart Transmission SwePart Transmission is a manufacturer of custom gearbox housings, precision-ground gearwheels and other transmission parts for industrial and automotive applications.
When it comes to building a new high-speed railway through the St. Gotthard mountain in the Swiss Alps, the slightest mistake in measurement can have devastating consequences. This stretch of railway, which will open in 2017, must be positioned perfectly in order to allow trains to pass through the tunnel at 250 kilometres per hour. Careful preparations and measurements make it possible to ensure quality and maintain the time schedule.
"It is essential for us to be able to trust in our measuring equipment. There are many sources for potential error"
Ivo Schätti, Grünenfelder & Partner AG and VI-GBT "THE HOLE MUST BE IN exactly the right place," summarises Ivo Schätti of the engineering consulting firm Grünenfelder & Partner AG, the company at the head of the consulting consortium of surveying specialists, VI-GBT.
Under direction of the state-owned Swiss railway authority, VI-GBT is tasked with carrying out the technical measurements of the construction of a new 57 kilometre railway tunnel located at St. Gottard. The consortium is thus responsible for ensuring the proper placement, height and direction of the tunnel throughout all stages of the construction process. In doing this they use highly precise Hexagon total stations and digital levels.
"It is essential for us to be able to trust in our measuring equipment. The smallest error in measurement can cause serious complications, obviously with the structure itself, but most of all in terms of the time schedule. There are many sources for potential error," explains Mr. Schätti.
Due to its location at the heart of the European continent, Switzerland is a central traffic hub for the transportation industry. The mountain pass of St. Gotthard in particular is a bottleneck for North-South traffic through Europe, and the existing railway tunnel, constructed at the end of the 19th century, fails to meet the demands of today's traffic. The goal of the AlpTransit Gotthard tunnel project is to connect Switzerland to Europe's network of high-speed railways, while relieving traffic pressures on the country's domestic railway system.
By the time construction is complete in 2017, trains will be able to travel through the twin tunnels of St. Gotthard at speeds of up to 250 kilometres per hour. One critical factor for achieving these speeds is that the tunnel is
drilled deep below the earth's surface at no more than 550 metres above sea level and with a maximum gradient of 0.8 per cent. High-speed trains will thus be able to effectively transport passengers, freight and cars through the Alps.
The sheer length of the tunnel, combined with the fact that construction is proceeding from five directions simultaneously, only adds to the complexity of the project. Tunnel openings are located at Erstfeld, Bodio in Tessin, Amsteg and Faido.
While the tunnel boring machines are continuously eating their way through the base of the St. Gotthard, advanced measurements are taking place simultaneously above ground to prevent substantial damages from occurring. This because parts of the tunnel pass directly under three water storage reservoirs. The construction of a tunnel affects the normal flows and pressures of ground water, and changes in this system could cause the mountain literally to cave in.
For this reason, eventual movements in the parts of the mountain near the dam walls are continuously monitored with Hexagon total stations, GPS equipment and monitoring software. All equipment must be flown in, and prisms have to be affixed to vertical mountain walls. The severe Swiss winters, with their deep snowpack and avalanches, only add to the work's complexity.
Length: 57 kilometres Estimated completion: 2017
Cost of construction (2008): 7.76 billion EUR
VI-GBT Consortium c/o Grünenfelder und Partner AG and ARGE LOS349 c/o BSF Swissphoto AG.
The cost of production for aircraft engines can be reduced dramatically with the help of advanced measurement technology. Germany based MTU Aero Engines has succeeded in increasing efficiency in the manufacturing of so-called 'blisks', or turbine rotors. After a comprehensive evaluation, the company has chosen Hexagon as its supplier of measurement systems for production applications.
" With the Hexagon solution, MTU Aero Engines will be able to considerably reduce investment and manufacturing costs"
Wolfgang Meister, Quality Projects Representative at MTU Aero Engines
IN THE AIRCRAFT ENGINE INDUSTRY, the term blisk is used as an abbreviation for Blade Integrated Disks, referring to the rotor blades of the engine. Blisk technology allows turbine rotors to be made from a single piece of metal, rather than from several components welded together.
Munich-based aircraft engine manufacturer MTU Aero Engines has carried out a project in the form of a competition aimed at increasing efficiency in the production of blisks. Its target was to reduce measurement time by 30 per cent.
The project or competition, known as Efficiency Improvements in Metrology, took place over twelve months and originally included ten competing suppliers. After one stage of evaluation only three companies remained, one of which was Hexagon. Ultimately, Hexagon exceeded the client's objectives by a wide margin. Instead of 30 per cent time savings, Hexagon managed to reduce the total measurement time by 65 per cent for test components and 75 per cent for rotor blades.
The winning system from Hexagon consists of a coordinate measuring machine with a rotatable measurement table and associated software programme. The rotatable measurement table allows a single sensor, which can be used during the entire process, to reach all critical measurement points.
"Hexagon's systems dramatically reduced measurement times. MTU Aero Engines will be able to considerably reduce both its investment and production costs. We're now changing our systems for measuring blisk components," says Wolfgang Meister, representative of the quality assurance project at MTU Aero Engines.
In total, the deal includes seven measurement systems for blisks and one system for measuring independent blades. The complete package, in a contract worth over 3.1 million EUR over a five-year period, will be delivered by 2013.
Representing Hexagon in the evaluation project was a team from German subsidiary Messtechnik Wetzlar (MTWZ). Detailed demonstrations of the systems' functionality, usability and measurement capacity were presented repeatedly during the course of the evaluation. Continuous improvements were made to the overall concept, measurement dynamics, precision, processes and process stability.
MTU Aero Engines is one of the world's largest aircraft engine manufacturers, with a presence in every major market. Within civil aviation, MTU collaborates with the largest global aircraft engine manufacturers: General Electric, Pratt & Whitney and Rolls Royce. Within the defence industry, MTU is a dominant systems partner on the German market and maintains a significant presence in Europe.
Canada's best skiers are becoming even better with the help of positioning technology. Researchers at the University of Calgary have developed a system for measuring and evaluating skiers' results. Included in the system is a small sensor, which is affixed to the skier, as well as a satellite receiver from Hexagon, which is placed on the ski slope.
" The new system gives drastically better results and increases efficiency in training"
James Perkes, Coach of the Canadian National Ski Team "THE NEW SYSTEM gives drastically better results and increases efficiency in training," says James Perkes, coach of the Canadian National Ski Team. "Now we can identify minute differences in our skiers' training results where the traditional position and timing methods used for training did not provide us with this ability."
Development of the so-called STEALTH System (short for Sensor for the Training of Elite Athletes) began in 2006 together with the organisations responsible for the Canadian skiteam as a top-secret project at the Schulich School of Engineering at the University of Calgary. Its main objective was to develop a super-precise, superlight sensor, for performance measurement and analysis. The goal was to prepare the national ski team for the Olympic Games in their home country in 2010.
"The global navigation satellite system GNSS has the potential to provide the required information to athletes and coaches. However, equipment size, weight, power autonomy, signal tracking, accuracy, and availability performance posed major obstacles – until we 'invented' STEALTH," explains Professor Gérard Lachapelle, who headed the research team.
Competitive athletes win or lose races by fractions of seconds. The use of technology to measure and enhance sport performance, particularly in sports like downhill skiing that involve speed, distance and timing, is becoming increasingly important. Precise knowledge of rate of descent, lateral accelerations, and gate crossing times is also important for training skiers in order to critically analyze strengths and weaknesses in order to improve their performance.
One of the system requirements was the ability to record differences in the skiers' chosen course routes within the separate competitions of slalom, super-G and giant slalom. It also needed to be moisture-resistant as well as function in temperatures as low as minus 20 degrees Celsius. Also, the system was required to cause minimal disturbance to the skiers at speeds of up to 120 kilometres per hour.
In order for the technology to become accepted, it was critical that the system would be easy to use, primarily on the course, but also when presenting data for evaluation. Measurement precision was required to be better than 20 centimetres in position and one millisecond in timing. Measurement data from the GNSS unit needed to be updated 20 times per second (20Hz). The sensor affixed to the skier could not weigh more than 500 grams, and it needed to survive at least four hours of continuous use on the course. The first tests of the new STEALTH training tool were carried out in the winter of 2006/2007. It was based on Hexagon's satellite signal receiver, which was placed out on the ski slope, an elastic belt with a built-in STEALTH unit and helmet-mounted GNSS antenna for data collection. A specially developed software programme made it possible for coaches to analyse data from every round of training for each individual skier.
Today the Canadian National Ski Team fully relies on Stealth data to improve the training of its elite athletes.
Measurement technology relies largely on positioning and therefore requires beneath terrestrial data extensive satellite systems. Today, the American Global Positioning System (GPS) and the newer Russian system GLONASS form the Global Navigation Satellite System (GNSS). The satellite systems Galileo and Compass/Beidou are also being built in Europe and China, respectively. Hexagon plays an active role in these developments, in part by including built-in compatibility with several of its Geosystems products.
HEXAGON AB PUBL 31
Being the industry's most innovative supplier is about more than just reacting to customer demands as they arise. Hexagon's research and development team strive to discover opportunities in advance by taking the pulse of the market in order to achieve a genuine understanding of the needs within industries that are dependent on measurement technologies.
In order for Hexagon to be successful, whether in terms of improving existing products and services or finding new application areas for established technologies, it is necessary to have a complete understanding of the needs in our customers' end-user markets. The objective for Hexagon's R&D division is to transform customer needs into products and services, even before they are articulated by inventing and applying cutting-edge technology.
A total of about 950 engineers are engaged in research and development at Hexagon. Whereas most of them work on product development, about 10 per cent of research and development spending is allocated to technology development. The results are adapted and transformed into innovative products in the individual research and development departments of the Hexagon companies, brands and units.
Hexagon's R&D department forms a worldwide network of knowledge exchange and close cooperation with employees based in Sweden, Denmark, Switzerland, Germany, France, Italy, Israel, the US, Canada, Singapore, India, China, Japan and Australia. The research and development units create tomorrow's products, while the task of technology development is to conceive those for the day after tomorrow.
Investments in research and development Hexagon places a high priority on investments in research and development. In 2009, expenses in the core business of measurement technologies was 1 255 MSEK (1 264), corresponding to about 11 per cent (9) of net sales. Development expenses are capitalised only if they pertain to new products, the cost is significant and the product is believed to have major earnings potential. The current level of research and development investments is in line with, or above, those of other leading market players in the industry.
Hexagon has launched a large number of award-winning innovations over the years.
During 2009 Hexagon received recognition for its innovations and its positive technological contribution to the mining industry. Hexagon's Jigsaw software solution was awarded a prize in the category of "Surface Mining – Ancillary & Analysis" at the annual Mining Magazine awards. Another product to be honoured for its innovativeness in 2009 was the Leica DISTOTM D8 distance meter. The prize was awarded in Paris at Batimat, a major construction industry trade show.
| PRODUCT GROUPS | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| MARKET SEGMENT | MICRO | MICRO | MICRO | MACRO | MACRO | MACRO | MACRO | MICRO | MICRO | |
| NO. OF PATENTS |
TECHNOLOGIES | CMMs | Articulated arms |
Laser trackers |
Total stations |
DISTOTM | High def. scanners |
Const ruction |
Hand tools |
Probe systems |
| 328 | Linear distance measurement |
|||||||||
| 310 | Sensors | |||||||||
| 221 | Optics | |||||||||
| 210 | GPS and GNSS | |||||||||
| 170 | Mechanical structures | |||||||||
| 137 | Signal and image processing |
|||||||||
| 92 | Calibration and compensation |
|||||||||
| 92 | Components | |||||||||
| 55 | Laser | |||||||||
| 38 | Machine guidance | |||||||||
| Control and | ||||||||||
| 38 | electronics | |||||||||
| 10 | Software | |||||||||
| 1 701 |
The patent portfolio consists of more than 1 700 active patents worldwide and every year Hexagon submits a large number of patent applications. Hexagon carefully monitors its competitors to ensure that its patents are respected, views patent infringement seriously and has a policy of legally defending its rights.
2008 and 2009 were intensive years for Hexagon's R&D division. By the end of 2010 the Group will have renewed nearly 70 per cent of its 2007 product portfolio. In 2009 Hexagon launched more than 80 products or product families in all of the three application areas within Measurement Technology. Among the year's launches were laser scanners, total stations for the high-end customer segment, GNSS systems, the DISTOTM D8 distance meter and software for the mining industry.
Across the globe, farmers are constantly striving to achieve more efficient food production methods in order to meet the needs of the growing world population. With the help of measurement technologies fuel and seed costs can be dramatically reduced and, as a consequence, the demand for navigation systems for agricultural machinery has risen to create a global industry.
Hexagon is seizing these market opportunities in part through Leica Geosystems mojoRTK console. This console operates through the GNSS network to remotely control tractors with extreme precision, by the help of viewer-friendly graphics.
Further progress was made in 2009 with the development of the dual-purpose Leica mojo-MINI, which can be used either for agricultural applications or as a road navigation unit at street level. The Leica mojoMINI is based on the GNSS satellite system, but is also equipped for road navigation throughout the world. Its agricultural applications include those such as seeding, spraying and harvesting.
Measurements of the forms of certain soft materials cannot be carried out by mechanical tactile measuring. Instead, other types of measurement systems are needed. With this in mind, Hexagon created a newly specialised business unit within Metrology in 2009 known as Vision Metrology. Within this area is the brand Visio, which provides optical measurement systems along with developing cameras, laser equipment and scanning sensors for "white light".
Hexagon predicts a growing demand for
By using Hexagon's navigation systems farmers can significantly improve their efficiency.
these types of equipment, which are able to perform 3D measurements within industrial measurement technologies. Customers in this segment require flexible equipment with various types of sensors in order to carry out simultaneous measurements of a range of properties and characteristics. This is a rapidly growing area within industrial measurement technologies and includes among its target groups companies in a range of industries, from medical customers to electronics and micromachining companies.
The expansion of Vision Metrology enables Hexagon to address all market segments for multisensors, from less complex systems to advanced, fully automated solutions, thus paving a path for the development of nanotechnologies in measurement applications.
New products such as the TESA-VISIO200GL optical measuring system answer customer needs for optical measurement of smaller details without lowering quality standards.
With the new SPAN-MPPC satellite receiver Hexagon introduces new opportunities in the market for so-called UAVs (Unmanned Airborne Vehicles).
SPAN, or "Synchronous Position, Attitude and Navigation", combines GNSS satellite navigation with inertial navigation, thus enabling the system to specify the position, direction and speed of moving objects without the need for reference points. These two navigation technologies differ in a way that makes them complementary. Application areas for SPAN are wide ranging and include examples such as navigation by sea or air.
The new SPAN-MPPC is light and compact, thus offering possibilities for use in unmanned aircraft, where equipment weight can be a limiting factor at the same time that the requirements for precision in position and speed measurements remain extremely high.
Hexagon is committed to creating value by delivering long-term profitability and sustainable competitiveness. This can only be achieved by doing business responsibly.
For Hexagon, responsibility is about doing business that wins the trust of customers, employees, suppliers, shareholders, lenders and local communities. As the owner of world-class brands in highly demanding sectors, Hexagon knows the value of reputation and the cost when reputation is lost. That is why responsible business is essential to strong financial performance and a successful future. Hexagon strives to make the right decisions for the long-term, not just what is easy to achieve today. All efforts and strategies are prioritised based on a balanced assessment of financial, technological and sustainability aspects.
To support the application of its value platform, Hexagon has a legislative platform consisting of:
The latest version of the framework was approved by the Hexagon Board of Directors in May 2009. It is normally updated on an annual basis, and all policies can be found in their entirety on the Hexagon website.
This code consists of a collection of ethical rules concerning the Group, its employees and suppliers, and functions as a foundation for the Group's activities. Among other areas, it regulates the commitments and obligations expected of the Group and its employees, as well as the Group's attitude toward customers, competitors, suppliers and owners.
The Code of Business Ethics applies to all employees, and it is the responsibility of every manager to ensure that his or her employees are aware of it. All Hexagon employees are encouraged and expected to report any incidents of non-compliance to the relevant internal officers, with the assurance that there will be no retaliation or other negative consequences for persons acting in good faith.
Hexagon's Corporate Responsibility Guidelines identify the Group's positions regarding issues of environmental sustainability. With these guidelines Hexagon assumes a commitment towards constant improvement of its ways of doing business responsibly. The guidelines define which demands Hexagon places on itself as a market leader, employer and world citizen. They also complement the Code of
Business Ethics, which is to be regarded as the minimal standard of ethical conduct.
Hexagon's pledges to uphold and ensure the integrity of its business at all times. This implies, above all, that all employees, managers and Board Members respect the laws, rules and regulations in countries where Hexagon operates.
Hexagon's ambitions nonetheless extend beyond mere compliance to legal obligations. As an industry leader in innovation and quality, Hexagon must set an example in areas such as business ethics, working environment standards and environmental responsibility in the manufacturing process.
Hexagon's Corporate Responsibility Guidelines apply to all locations and companies in the Group. Responsibility for the application and assurance of the Code of Business Ethics lies with the respective business units, but is centrally evaluated by Hexagon. HR-related aspects are evaluated quarterly together with subsidiary managers and regional managers.
Below is a summary of the main features of Hexagon's Code of Business Ethics and Corporate Responsibility guidelines.
Hexagon is a values-oriented Group with a decentralised organisation. Operations are developed on the basis of a common platform consisting of six fundamental values:
Sustainable profit – Hexagon exists to generate favourable results for its shareholders. Its employees are results-oriented individuals with a focus on business operations and performance.
Professionalism – Hexagon's employees act professionally and are knowledgeable about their operations.
Entrepreneurship – Hexagon's employees apply personal vision and ambition to their work while working together with colleagues toward a common goal.
High energy and commitment – Hexagon's strategy relies on a decentralised hierarchy with short decision-making processes. Employees are driven and take personal responsibility for their actions.
Image is good, prestige is not – A true and trustworthy image is everything. Hexagon employees are motivated not by status but by the opportunity to drive business opportunities forward.
Corporate responsibility – Hexagon is focused on long-term profitability. Respect for colleagues, customers and the environment are important parts of the effort to build longterm credibility as a successful company. Responsible business practices are therefore an integral part of Hexagon's values platform as well as its business operations.
ENTREPRENEURSHIP
When choosing suppliers, the competitiveness of the supplier's offer is the most decisive factor. However, particular preference is given to suppliers that are leaders in environmental performance and who live up to the goals and values articulated in Hexagon's Corporate Responsibility Guidelines.
Hexagon makes purchases from suppliers around the world who in turn make purchases from other suppliers. These extensive purchasing chains complicate the process of supplier oversight. In countries with relatively weak controls and regulations, the demands placed on Hexagon's purchasing managers are greater than in countries with well-functioning regulatory systems.
Hexagon maintains close and ongoing contacts with its core suppliers to ensure quality and sound business practices. Within its sphere of influence, Hexagon strives to ensure that major suppliers follow the principles set out in the Hexagon Code of Business Ethics. Hexagon representatives perform audits on a regular basis. In cases where non-compliance is discovered, Hexagon will engage with suppliers and require that appropriate measures are taken to ensure this will not happen again.
Hexagon strives to contribute to an environmentally sustainable society by providing solutions that reduce resource consumption and environmental impact, primarily within production processes.
As an integrated part of the 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:
Å Reducing the consumption of hazardous materials in the production and design of products.
Å Consumption of hazardous materials in the customer's production is reduced.
In its own production methods Hexagon aims to
Hexagon strives to be the first-choice supplier for all customers, whether existing or potential, by offering superior products through fair and honest competition.
Hexagon follows the ethical norms of ICC's (International Chamber of Commerce) codes for advertising and marketing.
In their contacts with customers and distribution partners, Hexagon's employees are expected to make only statements and pledges that can be fulfilled.
Hexagon follows the industry norms and accepted antitrust and competition legislation in those countries where the Group operates.
All employees must avoid situations that may lead to actions that are illegal or that hinder competition.
Hexagon regularly engages in social projects where the Group's technology is used for the benefit of poor and vulnerable people or to support other social goals. These projects are decided and managed at the local level by each Hexagon company.
As partners, Hexagon will engage with respected organisations and institutions that have the aim of supporting the common good.
As a publicly listed company, Hexagon is required to follow accounting principles and standards and to have appropriate internal processes to ensure that accounting and financial reporting complies with legal, regulatory and listing requirements.
Hexagon is committed to ensuring transparency in its financial reporting. It has a policy of full, fair and accurate disclosure to ensure that the market receives timely, comprehensive and understandable information on an impartial basis. Comments about financial performance and prospects to external parties may only be made by an official Hexagon spokesperson.
Hexagon's some 7 500 employees work in research, development, marketing, sales, production, installation, customer training, service and administration.
Hexagon's ambitions as an employer extend beyond compliance with minimum ethical standards. As an industry leader in innovation and quality, Hexagon needs to attract and retain the most competent employees and motivate them to excel. The work environment must be stimulating, challenging and support lifelong learning.
Hexagon is committed to a diverse workplace.
The company seeks to actively recruit, continually develop and retain talented people from diverse backgrounds and origins. All employees are to be treated with equal respect and will have an equal opportunity to contribute fully to the company's success based on their individual skills and interests.
Hexagon employees will not discriminate against or harass any colleague or business associate. Hexagon has a zero-tolerance policy against harassment and discrimination based on age, background, colour, marital status, medical condition, mental or physical disability, national origin, religion, political affiliation, sex, sexual orientation or gender identity, or any other factor as established by law. Employment-related decisions based on any of these factors are unacceptable.
Employee safety in the workplace is a top priority and Hexagon strives to minimise the risks of accidents or illness among its workers. Hexagon is responsible for maintaining a safe work environment by implementing all of the applicable health and safety rules and practices within the entire Group.
Hexagon encourages communication and collaboration across divisions and geographic boundaries to ensure the best possible use of available knowledge and expertise. Hexagon teams work globally, sharing their knowledge and professional skills, and within the Hexagon Group there is a dynamic exchange of information, on the management level as well as among individual employees working together on comprehensive projects.
Hexagon not only profits from the professional knowledge of the employees, but also from their cultural background and individual approach, ensuring that customers get the best out of Hexagon's worldwide network. At Hexagon, career-oriented competence development is geared toward the needs of the Group and the individual. Hexagon's managers are provided training to ensure that they live up to the Group's high leadership standards. The level of remuneration should be market-based and competitive. Where appropriate, there is also a performance-based component.
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. As an example, Hexagon provides universities with measurement instruments for students to use in their curriculum and research activities.
Hexagon also offers students research and practical experience possibilities for their diploma thesis as well as participating in education by giving lectures at universities.
% 0 20 40 60 80 100 05 06 07 08 09
SHARE OF MEN AND WOMEN At year-end 2009, the share of female employees in Hexagon was 23 per cent (23).
AVERAGE NUMBER OF EMPLOYEES In 2009, the average number of employees was 7 549 (9 062). Excluding Hexpol the 2008 number was 8 112.
AVERAGE NUMBER OF EMPLOYEES PER COUNTRY
Based on the average number of employees in 2009, China, Switzerland and the US had the highest number of employees. Liao Lu has worked at Hexagon for 19 years and has, amongst other things, experienced Hexagon's acquisition of Brown & Sharpe, now part of the Group. She works in marketing in China.
The high demands put on you by the company. There are always fresh chances for development. The demand to constantly go forward and improve, gives you the opportunity to grow as an individual. It's a dynamic environment that is stimulating to work in.
It's exciting to work with the industry's market leader. I get to be involved in creating tomorrow's measurement technology, both in China and the rest of the world.
Dr. Nader Issa started at Hexagon in 2007 in the research and development department.
What made you come to Hexagon? The combination of advanced technology
and robust practical applications.
" Knowledge and technology in my field, light and laser technology, have fantastic potential for the future. I am convinced that this is also true of Hexagon"
Seeing how our work develops from an initial idea to a finished, functioning solution. The thousands of small steps that must be taken there in between make my daily work both challenging and stimulating.
Knowledge and technology in my field, light and laser technology, have fantastic potential for the future. I am convinced that this is also true of Hexagon.
Thomas Jensen: R&D department, Heerbrugg, Switzerland, started to work in a central R&D department at Hexagon 2004.
Our central position allows us to work with many different partners from Hexagon. Besides the technical parts social aspects have to be considered that keep the work challenging and interesting.
My expectations regarding flexibility and diversifications have been fulfilled. Projects are very interesting and we have a very good working atmosphere in our groups.
Continue working on interacting Hexagon projects and develop the optical path inside Hexagon.
AVERAGE NUMBER OF EMPLOYEES PER REGION
EMEA is the geographic region in which Hexagon has the highest number of employees. The average number of employees in the Americas and Asia almost tripled during the period 2004 to 2009. Definitions of regions, see page 94.
| 2009 | 2008 | CHANGE | |
|---|---|---|---|
| Number of employees | 7 476 | 8 436 | -11% |
| Average number of employees | 7 549 | 9 062 | -17% |
| Number of countries | 39 | 36 | 3 |
| Average number of employees outside Sweden, % | 93 | 92 | 1 |
| Remuneration as a share of sales, % | 27 | 25 | 2 |
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 of the Hexagon Group, while financial risks are managed at Group level. The Group's Treasury Policy, which is updated and approved annually by the Board, stipulates the rules and limitations for the management of financial risk throughout the Group.
Risk is a natural feature of international operations and can be operational or financial. Hexagon deploys a structured approach to limit exposure to short as well as long-term risk.
Since the majority of operational risks are attributable to Hexagon's customer and supplier relations, ongoing risk analyses of customers and suppliers are conducted to assess business risks.
During 2009, the real global economy was hit by a recession that started as a financial crisis in the autumn of 2008. A weaker economy increases the risk in business processes that can affect customers' decision to invest in measurement technologies. The market for measurement technologies significantly contracted in 2009, although conditions improved somewhat towards the end of the year.
The negative effects of the recession on Hexagon's performance are somewhat balanced by sales of growth technologies and sales to growth markets with differing economic cycles. Emerging markets and new technologies account for about 33 per cent of net sales and Hexagon is focusing on increasing its local presence in regions where growth is expected to remain strong. During 2009, Hexagon continued to maintain high levels of investment in R&D and launched a large number of new products.
Hexagon's operations may be limited by changes to regulatory structures, customs duties and other trading obstacles, pricing and currency controls and other central government regulations and restrictions in the countries where Hexagon is active.
To manage country specific risks, Hexagon observes local legislation and monitors the political development in the countries where the Group is active.
Hexagon's business activities are conducted in a large number of geographical markets, with numerous customer categories. Surveying is the largest customer category for Hexagon's core business, measurement technologies, and accounted for 35 per cent of net sales in 2009. Surveying is followed by customer categories heavy construction (12 per cent), automotive (9 per cent) and manufacturing (9 per cent). For more information about Hexagon's customer categories, see page 20.
The largest customer represents about 1.5 per cent of the Group's total net sales and the largest supplier accounts for some 1 per cent of total net sales. Customer credits account for the majority of our counterparty risk.
Hexagon believes there is no significant concentration of counterparty risk. Hexagon has favourable risk diversification and dependence on a single customer, customer category or supplier is not decisive for the Group's performance.
Parts of Hexagon's operations are affected by pressure on prices and rapid technological change.
To reduce price risk, 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 crucially important. In Hexagon's innovation process, there is a constant focus on costs, both in development and production of new technologies, as well as on finished products' pricing.
Raw materials risk relates to the supply of and price formation for necessary production inputs.
Hexagon sources components such as electronics, sensors, optics and computers. To minimise the risk of shortages in the supply or of excessive price variations among suppliers, Hexagon works actively to coordinate sourcing within the Group and to identify alternative suppliers for strategic components.
To minimise legal risks, Hexagon closely monitors regulations and ordinances applicable in each market and rapidly works to 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, at 31 December 2009, no Group company is part of any legal process or dispute whose outcome is 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. Hexagon protects its intellectual property through legal proceedings when warranted.
Since future success is 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 coverage and financial economies of scale, Hexagon's insurance includes Group-wide property and liability insurance, travel insurance and transport insurance. As Hexagon develops and damage-prevention programmes are completed, the insurance programme is periodically amended so that own risk and insured risk are optimally balanced.
Changes in environmental requirements can positively effect demand for the Group's products. Hexagon's measurement instruments help customers maximise productivity and efficiency, minimise tolerance levels and scrapping and quickly adjust processes based on changes in requirements or demand.
Hexagon is a net borrower and has operations in many countries around the world. Hexagon is therefore exposed to various forms of financial risk. The Group's Treasury Policy, which is updated and approved annually by the Board, stipulates the rules and limitations for the management of financial risks throughout the Group.
Hexagon's treasury operations run the Group's internal bank, which is responsible for coordinating the financial risk management. The internal bank is also responsible for the Group's external borrowing and its internal financing. Centralisation generates substantial economies of scale, lower financing costs and better control and management of the Group's financial risks. Within Hexagon there is no mandate to conduct independent trading in currencies and interest rate instruments. All relevant exposures are monitored continuously and are reported to Group Management on a regular basis.
The Group's earnings are affected by changes in certain key factors, as reviewed below. The calculations proceed from the conditions prevailing in 2009 and the effects are expressed on an annualised basis. Earnings in foreign subsidiaries are converted into SEK based on average exchange rates for the period the earnings arise.
During the year, there have been very significant changes to the exchange rates of the foreign currencies that have the biggest impact on Hexagon's earnings and net assets, namely USD, EUR, CHF and CNY. The SEK weakened substantially against all these currencies. Since Hexagon has a majority of its operating earnings denominated in USD, EUR and CNY this had a positive impact on operating earnings for the year. But the strengthening of the CHF had an adverse effect, since a large part of Hexagon's costs and the majority of the Group's external debt is denominated in CHF.
During 2009, total net operating earnings from operations in foreign currencies amounted to an equivalent of 1 580 MSEK (2 267). An isolated change in the SEK exchange rate by 1 per cent against all other foreign currencies would have an effect on operating earnings of approximately 16 MSEK.
A 1 per cent change in sales prices would affect revenues and operating earnings by approximately 118 MSEK. A 1 per cent change in payroll expenses, including social security contributions, would affect operating earnings by approximately 39 MSEK.
Based on the average interest fixing period of less than two months in the Group's total loan portfolio as of year-end 2009, a simultaneous 1 percentage point change in interest rates in all of Hexagon's funding currencies would have an earnings impact before tax of about 82 MSEK in the coming 12 months.
| Change | Pre-tax impact |
|
|---|---|---|
| Foreign exchange rates | 1 per cent | 16 MSEK |
| Sales price | 1 per cent | 118 MSEK |
| Payroll expenses | 1 per cent | 39 MSEK |
| 1 percent | ||
| Market interest rates | age point | 82 MSEK |
| RISK | POLICY | |||
|---|---|---|---|---|
| FOREIGN EXCHANGE | CHF USD EUR CNY |
|||
| Foreign exchange risk is the risk that | EXPOSURE 2009 CURRENCY EFFECTS 2009 Movement1 Income-cost Profit impact strengthened negative negative strengthened positive positive strengthened positive positive strengthened positive positive EBIT, MSEK 106 1 Compared to SEK |
|||
| currency exchange rate fluctuations will have an adverse effect on cash |
||||
| flow, income statement or balance | ||||
| sheet. Furthermore, the comparability | ||||
| of Hexagon's results between periods | ||||
| will be affected by changes in currency exchange rates. Hexagon's operations |
||||
| are mainly located outside Sweden and | ||||
| sales, costs and net assets are there | ||||
| fore primarily denominated in curren |
cies other than SEK.
Sale and purchase of goods and services in currencies other than the subsidiary's functional currency give rise to transaction exposure. Transaction exposure is as far as possible concentrated to the countries where manufacturing entities are located. This is achieved by invoicing the sales entities in their respective functional currency.
Transaction exposure is hedged in accordance with the Group Treasury Policy. Contracted transactions, i.e. accounts receivable and payable, and orders booked, are fully hedged. In addition, 40 to 100 per cent of a rolling six month exposure forecast is hedged. Hedging of transaction exposure is done by using foreign exchange forward contracts.
As of 31 December 2009, outstanding foreign exchange derivatives hedging transaction exposures had a net market value of 9 MSEK. Cash flow hedge accounting is applied and thereby the market value is partly deferred in the hedge reserve in equity to offset the gains/losses on hedged future sales and purchases in foreign currencies.
Translation exposure arise when the net assets in foreign entities are translated into SEK upon consolidation.
Translation exposure from net assets in foreign operations are partly hedged with external debt in corresponding currencies, mainly CHF, USD and EUR, in accordance with the Group Treasury Policy.
Translation differences from net assets in foreign operations reported in equity during 2009 were negative, -953 MSEK (3 668), which were partly offset by profits from revaluing loans in non-SEK currencies, designated as hedges of net assets in foreign entities, by 430 MSEK (-2 653).
Since the consolidated operating income is mainly generated in non-Swedish subsidiaries, changes in foreign exchange rates have an impact on the Group's earnings when the income statements of foreign subsidiaries are translated into SEK.
Translation exposure related to actual and forecasted earnings in foreign operations are not hedged.
Consolidated operating earnings was positively affected by 106 MSEK using last year's exchange rates on 2009 operating income.
| INTEREST RATE The interest rate risk is the risk that |
In accordance with the Group Treasury | The average interest fixing period as of the | FINANCIAL INCOME AND EXPENSE |
|
|---|---|---|---|---|
| changes in interest rates will adversely | Policy all external debt has short inter est rate duration, on average shorter |
end of 2009 was less than two months. During 2009 no interest rate derivatives |
MSEK | 2009 |
| affect the Group's net interest expense and/or the cash flow. Interest rate expo |
than six months. | were used to manage the interest rate | Interest income | 9 |
risk.
Credit risk is the risk that counterparts may be unable to fulfil their payment obligations. Financial credit risks arise when investing cash and cash equivalents and when trading in financial instruments.
sure arise primarily from the external
interest bearing debt.
To reduce the Group's financial credit risk, surplus cash is only invested with a limited number of approved banks and derivative transactions are only conducted with counterparts where an ISDA netting agreement has been established.
RISK POLICY EXPOSURE 2009
As the Group is a net borrower, excess liquidity is primarily used to repay external debt and therefore the average surplus cash invested with banks is kept as low as possible.
Liquidity risk is the risk of not being able to meet payment obligations in full as they become due or being able to do so at materially disadvantageous terms due to lack of cash resources.
To minimise the liquidity risk the policy is that total liquidity reserve shall at all times be at least 10 per cent of the Group's forecasted annual net sales.
On 31 December 2009, cash and unutilised credit limits totalled 4 737 MSEK (3 001).
Other financial
| AND CASH FLOW | |
|---|---|
| MSEK | 2009 |
| Access to funds, 1 January 2009 |
3 001 |
| Change in credit limits | 55 |
| Cash flow excluding repayments/borrowing |
1 194 |
| Other change in cash and cash equivalents |
487 |
| Access to funds, 31 December 2009 |
4 737 |
Interest expense -148
income and expense -19 Net -158
Refinancing risk refers to the risk that Hexagon does not have sufficient financing available when needed to refinance maturing debt, because existing lenders decline extending or difficulties arise in procuring new lines of credit at a given point in time. Securing these requirements demands a strong financial position in the Group, combined with active measures to ensure access to credit.
In order to ensure that appropriate financing is in place and to decrease the refinancing risk, no more than 20 per cent of the Group's gross debt, including committed credit facilities, is allowed to mature within the next 12 months unless replacing facilities has been agreed.
A syndicated loan of 1 000 MEUR, with maturity in June 2011, forms the foundation of the Group's financing. The key financial covenant in the syndicated loan is that the ratio between net debt and EBITDA shall be less than 3.5, which was the case at year-end 2009. For debt diversification and refinancing risk purposes Hexagon issued a 2 000 MSEK five year bond in the fourth quarter of 2009. The bond was placed with a Swedish institutional investor.
| NET DEBT PER CURRENCY |
2009 |
|---|---|
| CHF | 49% |
| USD | 28% |
| SEK | 21% |
| EUR | 1% |
| Other | 1% |
| Total | 100% |
A more detailed description of Hexagon's financial risks is presented in Note 19 on page 88.
The Hexagon share is traded on the NASDAQ OMX Stockholm and also has a secondary listing on the SWX Swiss Exchange. Hexagon's share price at year-end was 105.75 SEK and market capitalisation totalled approximately 28 billion SEK. Earnings per share amounted to 4.71 SEK.
At year-end 2009 the price of the Hexagon share was 105.75 SEK, an increase of 179 per cent compared to year-end 2008. During the same period, the NASDAQ OMX Stockholm's OMXS index increased by 44 per cent. The highest closing price paid during the year was 105.75 SEK on 30 December 2009. The low for the year, 26.00 SEK, was recorded on 20 January 2009. Market capitalisation at year-end was 27 830 MSEK (10 014). A total of 290 712 420 shares (262 946 817) were traded in 2009, including after-hour trading, for a total value of 17 563 MSEK (22 307). An average of 1 158 217 shares (1 043 440) were traded per trading day. The number of shares traded was 109 per cent (99) of the total number of shares.
At year-end 2009, Hexagon had 19 406 registered shareholders (12 636). Foreign ownership was 21 per cent (22) of the total number of shares. Shareholders in the US accounted for the largest foreign holding, representing 8 per cent (9) of total shares.
Hexagon's share capital was 531 039 540
| ABG Sundal Collier | Erik Pettersson | erik.pettersson6abgsc.se |
|---|---|---|
| CA Cheuvreux | Andreas Dahl | adahl6cheuvreux.com |
| Carnegie | Joakim Höglund | joakim.hoglund6carnegie.se |
| Danske Bank | Carl Gustafsson | cagu6danskebank.se |
| Deutsche Bank | Johan Wettergren | johan.wettergren6db.com |
| Evli Bank | Marcus Neckmar | marcus.neckmar6evli.com |
| Handelsbanken | Jon Hyltner | johy016handelsbanken.se |
| Nordea | Olof Krook | olof.krook6nordea.com |
| SEB Enskilda | Daniel Schmidt | daniel.schmidt6enskilda.se |
| Swedbank Markets | Peter Näslund | peter.naslund6swedbank.se |
| Ålandsbanken | Carl-Johan Blomqvist | carl-johan.blomqvist6alandsbanken.se |
| Öhman Equities | Björn Enarson | bjorn.enarson6ohman.se |
SEK, represented by 265 519 770 outstanding shares. Total outstanding shares at year-end was 11 812 500 class A shares, each carrying ten votes, and 253 707 270 class B shares. Class A shares carry ten votes and Class B shares carry one vote. All shares confer equal rights to participate in Hexagon's assets and earnings.
Hexagon's Annual General Meeting on 6 May 2009 authorised the Board of Directors to purchase the company's own shares for the purpose of among other things giving the Board the possibility to adapt the company's capital structure and of enabling the financing of acquisitions. The authorisation totals repurchase of a maximum of ten per cent of outstanding shares in the company.
The total number of repurchased shares, held by Hexagon, at year-end 2009 was 1172 617 (1 311 442). The shares were repurchased at an average share price of 39.30 SEK. During the period, 138 825 repurchased shares were used to buy options at an average price of 63.00 SEK.
Hexagon currently has three option pro-
grammes with the overall objective of harmonising the incentives applying to key employees with shareholder interests, by offering these employees the opportunity to participate in the Group's value growth.
Hexagon's subsidiary Leica Geosystems has two option programmes. These options have been transferred free of 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. The remaining 3 340 options confer rights to subscribe for 50 100 class B Hexagon shares, insofar as Hexagon elected not to redeem the options for cash.
Hexagon AB has one option programme in place through a directed issue of 2 500 000 subscription warrants for a price of 20 SEK per warrant. Each subscription warrant shall entitle the holder to subscribe for one classB Hexagon share during the period from 2 July 2011 up to and including 2 January 2012. When transferring the subscription warrants, the price to be paid upon subscription of new shares (exercise price) shall be based on a market valuation considering the established price for the warrants and the exercise period using the Black-Scholes model. In April 2008, 1 391 000 options were issued to management and other key staff with an exercise price calculated to be 177.00 SEK per share. Following the Hexpol share issue, in 2008 the number of shares per option was changed to 1.04 and the exercise price to 170.20 SEK.
Upon full exercise of Hexagon's three option programmes, the dilutive effect would be 1.0 per cent of the share capital and 0.7 per cent of the number of votes.
Hexagon's Board of Directors proposes a dividend of 1.20 SEK per share, compared to 0.50 SEK in 2008. The 2009 dividend amounts to 25 per cent of the year's income per share after tax.
Hexagon's earnings and equity ratio determine the size of the dividend. Hexagon's dividend policy stipulates that 25–35 per cent of earnings per share after tax should be paid as a dividend to shareholders, assuming the company satisfies its equity ratio objective.
Via Hexagon's subscription service, you can subscribe to press releases and other financial information. Information is also available on the company's website www.hexagon.se and can be ordered via e-mail ir6hexagon.se or telephone +46 8 601 26 27.
© NASDAQ OMX
The Hexagon Annual Report 2009 is sent to all shareholders who have not informed the company that they do not wish to receive the Annual Report. Hexagon Annual Reports from 1997 to 2009 are available on the company's website www.hexagon.se.
Class B shares
OMX Stockholm PI OMX Stockholm Capital Goods PI
Total number of traded shares in thousands
Since 2000, Hexagon's share price development has been favourable for the shareholders. The share price has increased by approximately 1 400 per cent, including new issues, ordinary dividends and distribution of shares in Hexpol AB and VBG AB. During 2008 the share price fell by 72 per cent and then recovered in 2009 with an increase of 179 per cent. 40 000 50
| Year | Transaction | Nominal value, SEK |
A shares, change |
B shares, change |
A shares, total |
B shares, total |
Share capital, 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 Placement1 | 4 | – | 11 990 765 | 3 150 000 | 66 668 111 | 279 272 444 |
| 2005 | Private Placement1 | 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 |
| 2008 | New issue, options exercised | 2 | – | 169 785 | 11 812 500 | 253 707 270 | 531 039 540 |
| 2008 | Repurchase of shares | 2 | – | -1 311 442 | 11 812 500 | 252 395 828 | 531 039 540 |
| 2009 | Options exercised | 2 | – | 138 825 | 11 812 500 | 252 534 653 | 531 039 540 |
| 31 December 2009 | 2 | – | – | 11 812 500 | 252 534 653 | 531 039 540 | |
| 2 | 11 812 500 | 252 534 653 | 531 039 540 |
1 Issues in kind in connection with the acquisition of Leica Geosystems.
| HOLDING PER SHAREHOLDER | No. of shareholders | No. of outstan ding shares A |
No. of outstan ding shares B |
|---|---|---|---|
| 1–500 | 11 138 | – | 1 937 352 |
| 501–1 000 | 3 096 | – | 2 609 245 |
| 1 001–2 000 | 2 007 | – | 3 121 421 |
| 2 001–5 000 | 1 695 | – | 5 603 326 |
| 5 001–10 000 | 641 | – | 4 709 798 |
| 10 001–20 000 | 366 | – | 5 162 557 |
| 20 001–50 000 | 201 | – | 6 254 624 |
| 50 001–100 000 | 78 | – | 5 532 554 |
| 100 001–500 000 | 109 | – | 24 288 848 |
| 500 001–1 000 000 | 32 | – | 22 598 401 |
| 1 000 001–5 000 000 | 37 | – | 66 377 787 |
| 5 000 001–10 000 000 | 4 | – | 27 023 014 |
| 10 000 001– | 2 | 11 812 500 | 77 431 726 |
| Total external shareholders | 19 406 | 11 812 500 | 252 534 653 |
| Repurchased shares, Hexagon AB | – | – | 1 172 617 |
| Total | 19 406 | 11 812 500 | 253 707 270 |
SYMBOLS AND CODES
| ISIN code | SE0000103699 |
|---|---|
| NASDAQ OMX Stockholm | HEXA B |
| SWX Swiss Exchange | HEXN |
| Reuters Ticker | HEXAb.ST |
| Bloomberg Ticker | HEXAB SS |
Source: Direct and nominee-registered holdings with Euroclear Sweden AB at 31 December 2009
EARNINGS PER SHARE In 2009 earnings per share decreased by 32 per cent.
CASH FLOW PER SHARE Cash flow from operating activities increased to 2 621 MSEK, corresponding 9.92 SEK per share.
CASH DIVIDEND PER SHARE The Hexagon Board of Directors proposes a cash dividend of 1.20 SEK, corresponding to 25 per cent of earnings per share after tax.
NUMBER OF SHAREHOLDERS The number of Hexagon shareholders has steadily increased. At year-end 2009, Hexagon had 19 406 shareholders.
| A shares | B shares | Share capital, % |
Voting rights, % |
|
|---|---|---|---|---|
| Melker Schörling AB | 11 812 500 | 66 374 551 | 29.45 | 49.78 |
| AMF Pension Funds | – | 13 564 082 | 5.11 | 3.66 |
| Swedbank Robur Funds | – | 12 837 651 | 4.83 | 3.46 |
| Columbia Wanger Asset Management | – | 11 471 151 | 4.32 | 3.09 |
| Ramsbury Invest AB | – | 9 312 000 | 3.51 | 2.51 |
| AFA Insurance | – | 7 471 913 | 2.81 | 2.02 |
| Didner & Gerge Aktiefond | – | 5 525 627 | 2.08 | 1.49 |
| SEB Investment Management | – | 5 112 905 | 1.93 | 1.38 |
| Nordea Investment Funds Sweden | – | 4 876 380 | 1.84 | 1.32 |
| Handelsbanken Funds | – | 3 911 785 | 1.47 | 1.06 |
| Lannebo Funds | – | 3 900 000 | 1.47 | 1.05 |
| Fourth AP Fund | – | 3 543 176 | 1.33 | 0.96 |
| Simon Bonnier | – | 3 242 430 | 1.22 | 0.87 |
| Ola Rollén | – | 2 781 152 | 1.05 | 0.75 |
| Folksam with subsidiaries | – | 2 591 653 | 0.98 | 0.70 |
| First AP Fund | – | 2 509 489 | 0.95 | 0.68 |
| Government of Norway | – | 2 280 402 | 0.86 | 0.62 |
| Gamla Livförsäkringsaktiebolaget | – | 2 219 270 | 0.84 | 0.60 |
| Schroeders ESEC Lending Account | – | 2 032 540 | 0.77 | 0.55 |
| Second AP Fund | – | 1 953 544 | 0.74 | 0.53 |
| Subtotal, 20 largest shareholders | 11 812 500 | 167 511 701 | 67.54 | 77.06 |
| Summary, others | – | 85 022 952 | 32.02 | 22.94 |
| Total number of outstanding shares | 11 812 500 | 252 534 653 | 99.56 | 100.00 |
| Hexagon AB Treasury shares | – | 1 172 617 | 0.44 | – |
| Total number of issued shares | 11 812 500 | 253 707 270 | 100.00 | 100.00 |
THE HEXAGON SHARE
| 13 January | Hexagon grew earnings per share by 6 to 8 per cent in 2008 |
|---|---|
| 6 February | Year-End Report 2008 |
| 2 April | Annual General Meeting invitation |
| 6 May | Interim Report January–March 2009 |
| 6 May | Annual General Meeting of Hexagon AB |
| 6 August | Interim Report January–June 2009 |
| 1 October | Hexagon strengthens its distribution in North America |
| 28 October | Interim Report January–September 2009 |
| 1 December | Hexagon Capital Markets Day |
| 10 December | Hexagon acquires two companies in Germany |
Source: Direct and nominee-registered holdings with Euroclear Sweden AB at 31 December 2009 (with some adjustments).
| DISTRIBUTIONOFSHARES | No. of outstanding shares | Capital, % | Votes, % |
|---|---|---|---|
| A shares | 11 812 500 | 4.45 | 31.87 |
| B shares | 252 534 653 | 95.11 | 68.13 |
| Hexagon AB Treasury B shares | 1 172 617 | 0.44 | – |
| Total | 265 519 770 | 100.0 | 100.0 |
The share distribution is based on where the shareholding is registered. At the end of 2009, foreign ownership was 21 per cent.
Of the foreign owners, 39 per cent were registered in the US and 12 per cent in the UK at the end of 2009.
| KEY DATA PER SHARE | 2009 | 2008 | % |
|---|---|---|---|
| Shareholders' equity, SEK | 47.03 | 45.26 | 4 |
| Earnings, SEK1 | 4.71 | 6.63 | -29 |
| Cash flow, SEK | 9.20 | 6.61 | 39 |
| Cash dividend, SEK | 1.202 | 0.50 | 140 |
| Dividend yield, % | 1.1 | 1.3 | -15 |
| Pay-out ratio, % | 25 | 7 | 257 |
| Share price, SEK | 106 | 38 | 179 |
| P/E ratio, SEK3 | 22 | 5 | 340 |
1 Excluding Hexpol AB, which was de-consolidated from Hexagon AB as of 1 June 2008.
2 According to the Board of Directors' proposal.
Based on the share price at 31 December and calender year earnings.
Hexagon has expanded through organic growth and acquisitions. Successful product development and expansion of our distribution network has opened up new market segments and geographical areas. Hexagon has between 2000 and 2009 made some 70 acquisitions and approximately 50 divestitures. Today, measurement technologies account for 97 per cent of Hexagon's net sales.
| INCOME STATEMENT, MSEK | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 |
|---|---|---|---|---|---|---|---|---|---|
| Net sales | 6 204 | 6 997 | 7 103 | 8 256 | 9 637 | 13 469 | 14 587 | 14 479 | 11 811 |
| EBITDA operating earnings | 531 | 719 | 711 | 929 | 1 272 | 2 429 | 3 054 | 3 267 | 2 537 |
| EBITA operating earnings | 350 | 511 | 480 | 686 | 923 | 1 827 | 2 421 | 2 548 | 1 784 |
| EBIT1 operating earnings | 287 | 421 | 406 | 686 | 923 | 1 827 | 2 421 | 2 548 | 1 784 |
| Operating earnings | 310 | 400 | 406 | 634 | 844 | 1 743 | 2 270 | 2 448 | 1 600 |
| Earnings before tax | 227 | 319 | 323 | 541 | 705 | 1 618 | 2 056 | 2 129 | 1 442 |
| - of which non-recurring items | 23 | 15 | – | -52 | -79 | 13 | -151 | -100 | -184 |
| Net earnings | 144 | 187 | 221 | 420 | 618 | 1 280 | 1 811 | 1 859 | 1 254 |
| - of which minority share | – | – | – | 7 | 5 | 7 | 11 | 12 | 9 |
| BALANCE SHEET, MSEK | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 |
|---|---|---|---|---|---|---|---|---|---|
| Current assets | 3 391 | 3 118 | 3 060 | 3 600 | 5 251 | 5 861 | 7 944 | 8 070 | 6 617 |
| Fixed assets | 3 096 | 3 100 | 2 866 | 3 798 | 13 391 | 12 687 | 16 996 | 19 431 | 18 809 |
| Non-interest bearing liabilities and provisions | 1 877 | 1 713 | 1 626 | 1 950 | 3 533 | 3 322 | 4 310 | 3 833 | 3 126 |
| Interest-bearing liabilities and provisions | 2 825 | 2 275 | 1 981 | 2 952 | 9 590 | 6 617 | 10 584 | 11 654 | 9 816 |
| Minority interests | 30 | 36 | 47 | – | – | – | – | – | – |
| Shareholders' equity | 1 755 | 2 194 | 2 272 | 2 496 | 5 519 | 8 609 | 10 046 | 12 014 | 12 484 |
| Total assets | 6 487 | 6 218 | 5 926 | 7 398 | 18 642 | 18 548 | 24 940 | 27 501 | 25 426 |
Figures for 2001–2003 have not been restated to comply with IFRS.
4 600 MSEK net sales, 4 per cent operating margin, 24 different businesses – a large number of small subcontractors supplying components to the Swedish engineering sector. Decision to concentrate the Group's activities. Measurement technologies deemed to have substantial potential.
Acquisition of US-based Brown & Sharpe Inc., additional acquisitions in the Metrology sector both in distribution and in technology, with software company Wilcox being the largest of these.
Hexagon's transformation begins to take effect and earnings per share after tax increased by 19 per cent. At the same time, acquisitions have been made in hydraulics and measurement technologies sectors, with total net sales of approximately 4.5 billion SEK since the new strategy was laid out in 2000. Hexagon's main acquisition in 2002 was C E Johansson, a metrology company.
Hexagon has at this time four separate business areas: Metrology, Engineering, Automation and Polymers. Metrology has the best development and within that business a number of important acquisitions are made in China.
A record year with earnings per share after tax increasing 62 per cent. Sales and operating margin have doubled compared to 2000 and the number of strategic businesses has decreased from 24 to 4.
| KEY FIGURES | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 |
|---|---|---|---|---|---|---|---|---|---|
| Annual net sales growth, % | 22 | 13 | 2 | 16 | 17 | 40 | 8 | -1 | -19 |
| Operating margin, % | 5 | 6 | 6 | 8 | 10 | 14 | 17 | 18 | 15 |
| Return on capital employed, % | 9 | 10 | 10 | 13 | 11 | 12 | 14 | 12 | 8 |
| Return on capital employed excluding goodwill amortisation, % |
10 | 12 | 11 | 13 | 11 | 12 | 14 | 12 | 8 |
| Return on equity, % | 8 | 9 | 10 | 18 | 18 | 17 | 20 | 18 | 10 |
| Return on equity excluding goodwill amortisation, % |
12 | 14 | 13 | 18 | 18 | 17 | 20 | 18 | 10 |
| Investments | 202 | 267 | 226 | 299 | 442 | 834 | 825 | 1 005 | 821 |
| Equity ratio, % | 28 | 36 | 39 | 34 | 30 | 46 | 40 | 44 | 49 |
| Share of risk-bearing capital, % | 28 | 37 | 41 | 35 | 32 | 49 | 43 | 45 | 51 |
| Interest coverage ratio, multiple | 2.90 | 3.40 | 4.20 | 5.00 | 5.10 | 7.40 | 8.85 | 7.00 | 9.50 |
| Net debt /equity ratio, multiple | 1.35 | 0.97 | 0.78 | 1.11 | 1.66 | 0.70 | 0.88 | 0.89 | 0.66 |
| Cash flow before changes in working capital1 |
358 | 388 | 534 | 723 | 956 | 1 737 | 2 472 | 2 587 | 2 003 |
| Cash flow1 | 310 | 307 | 440 | 642 | 764 | 1 115 | 2 027 | 1 755 | 2 621 |
| Earnings per share, SEK | 0.92 | 1.10 | 1.22 | 2.28 | 3.14 | 5.01 | 6.79 | 6.96 | 4.71 |
| Earnings per share after dilution, SEK | 0.92 | 1.10 | 1.22 | 2.27 | 3.10 | 4.97 | 6.77 | 6.95 | 4.71 |
| Earnings per share excluding goodwill amortization, SEK |
1.32 | 1.62 | 1.63 | 2.28 | 3.14 | 5.01 | 6.79 | 6.96 | 4.71 |
| Cash flow per share before changes in working capital, SEK |
2.28 | 2.27 | 2.94 | 3.99 | 4.90 | 6.84 | 9.32 | 9.75 | 7.58 |
| Cash flow per share after change in working capital, SEK |
1.98 | 1.80 | 2.43 | 3.54 | 3.92 | 4.39 | 7.64 | 6.61 | 9.20 |
| Shareholders' equity per share, SEK | 11.00 | 12.00 | 13.00 | 13.00 | 24.00 | 32.00 | 37.69 | 45.26 | 47.03 |
| Closing share price, SEK | 12 | 14 | 20 | 32 | 72 | 97 | 135 | 38 | 106 |
| Cash dividend per share, SEK | 0.47 | 0.47 | 0.47 | 0.61 | 0.92 | 1.67 | 2.35 | 0.50 | 1.201 |
| Average no. of shares, in thousands | 156 925 | 170 714 | 181 376 | 181 386 | 195 125 | 254 019 | 265 278 | 265 317 | 264 284 |
| Average no. of shares after dilution, in thousands |
156 925 | 170 714 | 181 376 | 182 259 | 197 960 | 256 323 | 266 034 | 265 768 | 264 511 |
| Number of shares closing balance, in thousands |
156 925 | 181 376 | 181 376 | 181 484 | 228 547 | 265 176 | 265 350 | 264 208 | 264 347 |
| Average number of employees | 5 061 | 5 428 | 5 401 | 5 935 | 6 111 | 7 862 | 8 406 | 9 062 | 7 549 |
The share-related key financial ratios have been calculated considering all historical share issues and splits. The figures for 2001–2003 have not been restated to comply with IFRS.
As proposed by the Board.
2005
Synergies between Leica Geosystems and Metrology realised more rapidly than expected and earnings per share increase by 60 per cent. Major acquisitions in Geosystems include Sweden's Scanlaser AB, Norway-based Scanlaser AS and Danish Mikrofyn A/S that strengthen Hexagon's market position in the fast-growing machine control sector.
Hexagon acquires NovAtel, now Hexagon Technology. 2007 sees a total of 18 acquisitions, with annual sales of approximately 1 400 MSEK, to complement our measurement technologies activities primarily in the macro segment.
Hexagon Polymers is distributed to Hexagon shareholders and listed as a separate company, Hexpol AB, on NASDAQ OMX Stockholm. Streamlining of Hexagon as a measurement technologies company is complete. A series of complementary acquisitions are made both in the micro and macro segments.
11 811 MSEK in net sales, 15 per cent operating margin, one core business – a leading global measurement technologies group.
Hexagon is a listed company on NASDAQ OMX Stockholm. The company applies a transparent approach to the dissemination of information to shareholders and capital markets and applies the Swedish Code of Corporate Governance.
During 2009, deviations from the Swedish Code of Corporate Governance (the Code) were as follows:
| Rule | Rule from the Code | Comments |
|---|---|---|
| 10.1 | The Board of Directors shall establish an au dit 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 a limited number of Board Members. Accordingly, the Audit Com mittee only comprises two Board Members. |
The Corporate Governance Report 2009 has not been audited by Hexagon's auditors and is not part of the formal Annual Report.
Hexagon's current Articles of Association were adopted on 2 May 2007, and state that the objective of the company's operations is to own and manage shares in industrial, trade and service companies and to own and manage real property, securities, and to manage administrative operations for the subsidiaries as well as to carry on other operations compatible therewith. The Articles of Association formalise issues such as shareholders' rights, the number of Board Members and auditors, that the Annual General Meeting (AGM) is to be held within six months of the end of the financial year, the structure of the notice convening the AGM and 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 role of the Board of Directors of Hexagon is to work for Hexagon's long-term development and in the best interests of the company's shareholders. This means working out an overall strategy for the Group, but also to take into consideration, at the earliest possible time, other circumstances which may affect the company's performance and development. Together with Hexagon's management, we establish a direction for the company and make overall decisions on how Hexagon's assets are to be used for investments, acquisitions and dividends. All of our decisions are taken with care and seriousness of purpose.
The significant downturn that began during the second half of 2008 bottomed out and slowly recovered during 2009. Hexagon took strong actions to meet the difficult market situation in order to maintain its position as a leading global measurement technologies company and the innovator of the industry. The actions involved rightsizing the organisation to a temporary lower sales volume and at the same time investing in R&D by the continuous launch of new technologies.
The long-term demand for measurement technology is growing. The target of a turnover of 20 billion SEK and an operating margin of 20 per cent in 2011 is a milestone but not the ultimate target. The focus of the work for the
Board of Directors and Hexagon's management is on making Hexagon the undisputed leader in an industry which can help respond to the challenges that our world faces in the coming decades.
We can put a dramatic year behind us. It is pleasing that so many shareholders have shown the company continued confidence. That Hexagon has managed to withstand the hardship is much due to the dedicated employees of the Group. On behalf of Hexagon's Board of Directors, I would like to thank Hexagon's employees for the hard work during a difficult time. 2010 has the prerequisites to become a year characterised by recovery and growth to benefit all of Hexagon's stakeholders.
Stockholm, Sweden, January 2010
Melker Schörling Chairman of the Board
The AGM was held on 6 May 2009 in Stockholm, Sweden, and was attended by a total of 112 shareholders, who jointly represented 61 per cent of the total number of shares and 72 per cent of the total number of votes. Melker Schörling was elected Chairman of the AGM.
The following main resolutions were passed:
share capital was to be increased by a maximum of 408 000 SEK by a new issue of not more than 204 000 class B shares. The background to the issue in kind was that, in connection with Hexagon's acquisition of Leica Geosystems Holdings AG in October 2005, there were approximately 90 000 outstanding options which had been awarded employees within the former Leica Geosystems Group.
Å Authorisation of the Board to resolve on acquisition and transfer of the company's own shares.
The notice, minutes and documents presented at the 2009 AGM are available in Swedish and in English on Hexagon's website.
In accordance with the resolution at the 2009 AGM, five representatives of the company's major shareholders were by the end of the third quarter asked to become members of the Hexagon Nomination Committee. The composition of the Nomination Committee ahead of the 2010 AGM is:
During 2009, the Nomination Committee held five minuted meetings at which the Chairman made a presentation of the evaluation process. The Committee discussed desirable changes and decided on proposals to submit to the 2010 AGM concerning the election of Chairman of the AGM, the election of Chairman and other Board Members, directors' fees, remuneration for committee work and to the auditors. Shareholders wishing to submit proposals have been able to do so by contacting the Nomination Committee via post or e-mail. Addresses are available on Hexagon's website.
At the 2009 AGM, all members were re-elected. The Board Members possess excellent financial know-how and broad international experience of the engineering technology business.
All Board Members are shareholders of Hexagon, which ensures considerable personal commitment to Hexagon's development. Chairman of the Board Melker Schörling is the principal owner of Melker Schörling AB, which controls slightly more than 49 per cent of the voting rights in Hexagon.
Hexagon's CFO, Strategy Director and General Counsel attended the Board meetings in 2009. Other Hexagon employees participate in the Board meetings to make presentations on particular matters if requested. Hexagon's auditors attend the first Board meeting of the year and report their observations from their examination of the Group's internal controls and financial statements. At all scheduled Board meetings information concerning the Group's financial position and important events affecting the company's operations are presented.
| Attendance | |||||||
|---|---|---|---|---|---|---|---|
| Name | Position | Elected | Audit Committee |
Remuneration Committee |
Board Meetings |
Independence1 | Shares2 |
| Melker Schörling | Chairman | 1999 | – | 1 | 7 | In relation to the company and management |
A: 11 812 5003 B: 66 374 5513 |
| Mario Fontana | Member | 2006 | 4 | – | 7 | In relation to the company, management and the company's major shareholders |
B: 62 000 |
| Ulf Henriksson | Member | 2007 | – | – | 6 | In relation to the company, management and the company's major shareholders |
B: 56 350 |
| Gun Nilsson | Member | 2008 | 4 | 1 | 7 | In relation to the company, management and the company's major shareholders |
B: 5 000 |
| Ola Rollén | Member, President and CEO |
2000 | – | – | 7 | In relation to the company, management and the company's major shareholders |
B: 2 781 152 |
1The assessment of the independence of the Board Members has been made in accordance with
NASDAQ OMX Stockholm's rule book for issuers and criteria for independence.
2At 31 December 2009.
3 Shares owned through Melker Schörling AB.
In 2009, the Board held seven minuted meetings, including the statutory Board meeting. The major matters included:
| Å 12 January | Update of the 2008 forecast |
|---|---|
| Å 5 February | Financial statements for 2008 |
| Å 6 May | Interim report, first quarter |
| Å 6 May | Statutory Board meeting |
| Å 5 August | Interim report, second quarter |
| Å 27 October | Interim report, third quarter |
| Å 17 December | Budget 2010 and strategic discussion |
The Board continuously evaluates its work and the format of 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.
The evaluation is coordinated by the Chairman of the Board. The Board is also evaluated within the framework of the Nomination Committee's activities.
Hexagon's Remuneration Committee is appointed by the Board annually, and its task is to consider issues regarding remuneration to the CEO and executives that report directly to the CEO, on behalf of the Board, and other similar issues that the Board assigns the Committee to consider. The Committee has not been authorised to make any decisions of behalf of the Board. During 2009, the Remuneration Committee comprised the Board Members Melker Schörling (Chairman) and Gun Nilsson.
During 2009, the Remuneration Committee held a meeting in April where they discussed the terms of employment for the CEO and Group Management.
Hexagon's Audit Committee is appointed annually by the Board, and its purpose is to consider issues regarding tendering and remunerating auditors on behalf of the Board, considering plans for auditing and the related reporting, to quality assure the company's financial reporting, other information, and meet the company's auditors on an ongoing basis to stay informed on the orientation and scope of the audit. The Audit Committee's tasks include monitoring external auditors' activities, and the company's internal control systems, monitoring the current risk situation and the company's financial information, and other issues the Board assigns the Committee to consider. The Committee has not been authorised to make any decisions on behalf of the Board. During 2009, the Audit Committee comprised Gun Nilsson (Chairman) and Mario Fontana. The Committee members are independent of the company, its management and the company's major shareholders.
During 2009, the Audit Committee held four meetings:
Å 4 February Annual accounts 2008 Å 4 May Financing activities Å 23 September Focus of the audit in 2009 Å 7 December Preparation of annual accounts 2009
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 2008 AGM, Ernst & Young AB, with the authorised public accountant Hamish Mabon as chief auditor, was re-elected auditor for a term of office of four years. Ernst & Young AB possesses the requisite expertise and is a member of FAR SRS. Hamish Mabon (born in 1965) has participated in the assignment of auditing Hexagon since 2001. In addition to Hexagon, he conducts auditing assignments for such companies as Vattenfall AB, Relacom Holding AB and Scania Sverige AB. Hamish Mabon has no active assignments in companies that are closely related to Hexagon's major shareholders or CEO.
During 2009, in addition to the audit, the auditors had other assignments in the form of work connected to acquisitions. Hexagon'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 Audit Committee on three occasions during 2009.
The address of Hexagon's auditors is Ernst & Young AB, P. O. Box 7850, SE-103 99, Stockholm, Sweden.
The CEO is responsible for leading and controlling Hexagon's operations in accordance with the strategy determined by the Board. The CEO has as of 1 April 2010 appointed a Group Management comprising heads of business areas and Group staff functions, a
| SEK 000s | Year | Basic salary |
Variable remuneration |
Other benefits1 |
Pension | Other remuneration |
Total |
|---|---|---|---|---|---|---|---|
| President and CEO | 2008 | 10 135 | 4 000 | – | 2 027 | – | 16 162 |
| 2009 | 10 135 | – | – | 2 027 | – | 12 162 | |
| Other senior executives (five people)2 | 2008 | 9 619 | 4 175 | 149 | 1 927 | – | 15 870 |
| 2009 | 17 666 | – | 1 756 | 2 013 | – | 21 435 |
1Other benefits comprise company car and benefits from free rent.
2 Three people during 2008. total of eight persons. Group Management is responsible for overall business development, and apportioning financial resources between the businesses, as well as matters involving financing and capital structure.
Hexagon provides the market with ongoing information on the company's progress and financial position. Hexagon aims to utilise openness, objectivity and a high level of service in its financial 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 2009, Hexagon regularly met investors and capital market players to explain and clarify the value of the Group's operations. The company's information policy was adopted by the Board on 6 May 2009 and is updated annually. The policy satisfies the communication standards set by the stock market, and is designed in accordance with NASDAQ OMX Stockholm's recommendations that complement the rule book for issuers.
Hexagon regularly publishes financial 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 financial analysts, investors and the media when interim reports are published and/or publishes other significant information disclosures. Published information on the Group's progress, other information intended for the stock market and other important data is available on Hexagon's website.
REMUNERATION
The 2009 AGM resolved on the adoption of
guidelines for 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 maximised 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 24 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 not lower than 60 years.
In order to create the conditions for recruiting and retaining valuable skills within the company, an option programme has been formulated that provides the option holder with the right to participate in the potential future value growth in the 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 designed for the company's senior executives. In 2007 Hexagon implemented a subscription warrant programme for senior executives and key employees in the Group by means of a directed issue of 2 500 000 subscription warrants. 1 391 000 of the warrants were transferred to approximately 80 senior executives and key employees identified by the Board, at a price of 20 SEK per warrant, and the remaining warrants to be reserved for future recruitment of senior executives and key employees in the Group. The design of the outstanding incentive programmes is described in the section on the Hexagon share on page 42.
Remuneration to the President and CEO, as well as other senior executives, comprises basic salary, variable remuneration, other benefits and pension. In 2009 the President and CEO and the other senior executives declined salary increases as well as bonus payments with consideration to the fact that the Group at the same time were carrying out a cost reduction programme. For 2009, remuneration was paid as per the table on the previous page.
Remuneration to the Board of Directors is resolved by the AGM on the proposal from the Nomination Committee. During 2009, the Chairman of the Board and other Board Members received remuneration totalling 2 075 000 SEK. The Chairman received 650 000 SEK and the other Board Members each plus if any committee fee received 350 000 SEK, apart from the CEO, who does not receive any director's fees. For 2009, remuneration was paid as per the table below.
Remuneration for services in addition to auditing services primarily refers to work related to acquisitions. For 2009, remuneration was paid as per the table below.
| TSEK | Position | Directors' fee | Committee fee | Total |
|---|---|---|---|---|
| Melker Schörling | Chairman | 650 | 75 | 725 |
| Mario Fontana | Member | 350 | 100 | 450 |
| Ulf Henriksson | Member | 350 | – | 350 |
| Gun Nilsson | Member | 350 | 200 | 550 |
| Ola Rollén | Member, President and CEO | – | – | – |
| MSEK | 2009 | 2008 |
|---|---|---|
| Auditing | 20 | 20 |
| Assignments other than auditing | 8 | 15 |
| Total | 28 | 35 |
The Code stipulates that the Board of Directors must submit a report on the key aspects of the company's systems for internal controls and risk management regarding financial reports. Internal control pertaining to financial reporting is a process that involves the Board, company management and other personnel. The process has been designed so that it provides reasonable assurance of the reliability of the external reporting. According to a generally accepted framework that has been established for this purpose, internal control is usually described from five different perspectives. These five perspectives serve as subheadings below.
Hexagon's organisation is designed to facilitate rapid decisionmaking. Accordingly, operational decisions are taken at the business area or subsidiary level, while decisions concerning strategies, acquisitions and companywide financial matters are taken by the company's Board and Group Management. The organisation is characterised by well-defined allocation of responsibility and well-functioning and well-established governance and control systems, which apply to all Hexagon units. The basis for the internal control pertaining to financial reporting comprises an overall control environment in which the organisation, decision-making routes, authorities and responsibilities have been documented and communicated in control documents, such as in Hexagon's finance policy and reporting instructions and in accordance with the authorisation arrangements established by the CEO.
Hexagon's financial-control functions are integrated by means of a Group-wide reporting system. The Group's financial control unit engages in close and well-functioning cooperation with the subsidiaries' controllers in terms of the financial statements and the reporting process. The 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 financial statements on a monthly basis. This reporting provides the basis for the Group's consolidated financial reporting. Each legal entity has a controller responsible for the financial control and for ensuring that the financial reports are correct, complete and delivered in time for consolidated financial reporting.
The significant risks affecting the internal control of financial reporting are identified and managed at Group, business area, subsidiary and unit level. Within the Board, the Audit Committee is responsible for ensuring that significant financial risks and the risk of error in financial reporting are identified and managed in a manner that ensures correct financial reporting. Special priority has been assigned to identifying processes that, relatively speaking, give rise to a higher risk of significant error due to the complexity of the process or of the contexts in which major values are involved.
The risks identified with respect to the financial reporting process are managed via the company's control activities, which are designed to prevent, uncover and correct errors and non-conformities. Their 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 financial results and follow-ups in relation to budget and forecasts supplement the business-specific controls and provide general confirmation of the quality of the financial reporting.
To ensure the completeness and correctness of financial reporting, the Group has formulated information and communication guidelines designed to ensure that relevant and significant 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 financial 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.
The efficiency of the process for risk assessment and the implementation of control activities are followed up continuously. The follow-up pertains to both formal and informal procedures used by the officers responsible at each level. The procedures incorporate the follow-up of financial results in relation to budget and plans, analyses and key figures. The Board obtains current reports on the Group's financial position and performance. At each Board meeting, the company's financial position is addressed and, on a monthly basis, management analyses the company's financial reporting at a detailed level. The Audit Committee follows up the financial reporting at its meetings and receives reports from the auditors describing their observations.
The Annual General Meeting (AGM) is Hexagon's supreme executive body in which all shareholders may participate. At the AGM the Board presents the annual report, consolidated accounts and audit report. Hexagon issues the notice convening the AGM no later than four weeks prior to the meeting. The AGM is held in May in Stockholm, Sweden. The development of the company is addressed at the AGM, which resolves on a number of issues such as discharging the Board and CEO from personal liability for the financial year, dividends, remuneration to the Board and auditors, appointment of new Board Members for the period up to the following AGM and any amendments to the Articles of Association.
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.
The auditors report to the Audit Committee and participate in the AGM to present the audit report, which describes the audit work and observations made.
On behalf of the Board, the task of the Audit Committee is to consider the procurement and remuneration of auditors, plans for auditing work, to quality assure the financial reporting, and to meet the auditors on an ongoing basis. The Audit Committee's tasks also include monitoring the activities of external auditors and 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.
Hexagon's Board Members are elected annually at the AGM for the period until the following AGM has been held. The Board is responsible for determining the Group's overall objectives, developing and monitoring the overall strategy, decisions on major acquisitions, divestments and investments, and ongoing monitoring of operations. The Board is also responsible for ongoing evaluation of management, systems for monitoring and internal control and financial position.
Procedural rules and instructions for the Board and the CEO govern issues requiring Board approval, and financial information and other reporting to be submitted to the Board. 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.
The CEO is responsible for leading and controlling Hexagon's operations in accordance with the strategy determined by the Board. 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.
Hexagon's management also comprises key personnel, each with responsibility for one of the Group's product segments and geographical regions. Regular management meetings constitute the Group's forum for implementing overall controls down to a particular business operation, and in turn, down to individual company level.
In financial terms, Hexagon's business operations are controlled on the basis of the return on capital employed. This requires that they focus on maximising operating earnings, and minimising their working capital. Hexagon's organisational structure is distinctly characterised by decentralisation. Individual managers assume overall responsibility for their respective business, and pursue clearly stated objectives.
On behalf of the AGM, the Nomination Committee presents proposals on the election of Chairman and Board Members, chairman of the AGM, director fees etc. The Nomination Committee also presents proposals regarding the election of auditors and auditors' fees. The Nomination Committee includes representatives of major shareholders. If a replacement is required, the Committee elects a representative from the major shareholders in terms of voting rights.
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.
Stockholm, Sweden, born in 1947 Chairman of the Board since 1999 Other assignments: Chairman of Melker Schörling AB, AarhusKarlshamn AB, Securitas AB and Hexpol AB. Board Member of Hennes & Mauritz AB. Work experience: CEO Securitas AB, President and CEO Skanska AB.
Education: B.Sc. (Econ.)
Committees: Chairman of Remuneration Committee
Independent/Dependent: Independent of the company and its management
Hexagon shareholding: 11 812 500 series A and 66 374 551 series B, through Melker Schörling AB
Herrliberg, Switzerland, born in 1946
Board Member since 2006 Other assignments: Board Member of
three exchange listed companies: Swissquote, Inficon and Dufry.
Work experience: Chief of Staff and CIO Brown Boveri Brazil, Country General Manager Storage Technology Switzerland, Country General Manager Hewlett-Packard Switzerland, General Manager Computer
Business Hewlett-Packard Europe and General Manager Financial Services worldwide Hewlett-Packard USA.
Education: Master of Engineering
Committees: Audit Committee.
Independent/Dependent: Independent of the company, its management and major shareholders
Hexagon shareholding: 62 000 series B
Oxshott, UK, born in 1963
Board Member since 2007
Other assignments: CEO of Invensys plc.
Work experience: Executive and senior leader for Eaton Corporation, Honeywell International/Allied Signal Inc. and Volvo Aero.
Education: Master of Engineering
Independent/Dependent: Independent of the company, its management and major shareholders
Hexagon shareholding: 56 350 series B
Stockholm, Sweden, born in 1955
Board Member since 2008
Other assignments: CFO Sanitec. Board Member of Husqvarna AB.
Work experience: CFO Nobia Group, CEO Gambro Holding AB, Deputy Managing Director and CFO at Duni AB.
Education: B.Sc. (Econ.) Committees: Chairman of Audit Committee, Remuneration Committee
Independent/Dependent: Independent of the company, its management and major shareholders
Hexagon shareholding: 5 000 series B
London, UK, born in 1965
President and CEO since 2000 Board Member since 2000
Other assignments: Board Member of Vestas Wind Systems A/S.
Work experience: President Sandvik Materials Technology, Executive Vice President Avesta-Sheffield and President of Kanthal.
Independent/Dependent: Independent of the company's major shareholders
Hexagon shareholding: 2 781 152 series B
Born in 1965 President and CEO Employed in 2000 Education: B.Sc. (Econ.) Hexagon shareholding: 2 781 152 series B
William Gruber Born in 1953 Vice President Employed in 2003 Education: B.Sc. (Econ.) Hexagon shareholding: 108 818 series B and 50 000 warrants
Jürgen Dold1 Born in 1962 President Hexagon Geosystems Employed in 1995
Education: M.Sc. (Engineering) Hexagon shareholding: 6 929 series B and 25 000 warrants
Håkan Halén
Born in 1954 Chief Financial Officer Employed in 2001 Education: B.Sc. (Econ.)
Hexagon shareholding: 1 054 441 series B, through capital insurance
Employed in 2001 Education: B.Sc. (Econ.) Hexagon shareholding: 70 897 series B and 50 000 warrants
Born in 1966 President Hexagon Asia Employed in 2001 Education: M.Sc. (Engineering) Hexagon shareholding: 99 000 series B and 50 000 warrants
General Counsel Employed in 2007 Education: B.A. (Econ.), J.D. (Law) Hexagon shareholding: 3 360 series B and 40 000 warrants
Born in 1952 Chief Technical Officer Employed in 2001 Education: M.Sc. (Engineering)
Hexagon shareholding: 194 750 series B (own and family members') and 50 000 warrants
1 Part of Group management as of 1 April 2010.
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 2009. 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 measurement technologies company with strong positions in selected market segments. Hexagon's business activities are conducted through 142 operating companies in 36 countries throughout the world. Hexagon's operations are organised, governed and reported on the basis of the two operating segments, Hexagon Measurement Technologies (MT) and Other Operations. The operating segment Hexagon Measurement Technologies comprises the application areas Geosystems, Metrology and Technology. The product portfolio consists of systems that are designed to measure in one, two or three dimensions and to position and update objects. The portfolio's different measuring instruments are built upon common core technologies and have to a large extent coordinated development and production. Aftermarket services and support are also an important part of the offering in MT. The operating segment Other Operations is mainly focused towards the transportation industry including cars as well as heavy vehicles. Other Operations has the bulk of its business in the Nordic region. The Hexagon share is listed on the NASDAQ OMX Stockholm and SWX Swiss Exchange. Earnings per share before dilution and excluding Hexpol amounted to 4.71 SEK (6.63).
Demand for Hexagon's products and services declined during 2009 on the back of the financial crisis. The size of the market for measurement technologies contracted by approximately 25 per cent in 2009. Hexagon's net sales organic growth in MT was down 17 per cent in the same period.
Hexagon's sales in Asia increased throughout 2009. Within the region several submarkets and industries grew at double-digit rates. The healthy growth was primarily obtained from Hexagon's strong position in the region in combination with good demand from the infrastructure-related construction industry primarily in China. The organic growth in Asia in net sales was 9 per cent, in 2009.
Demand for Hexagon's products in EMEA was reduced during 2009 compared to 2008. The organic growth in net sales was -27 per cent. By the end of the year, however, customers stopped reducing inventory levels which for the first nine months of the year had caused reductions in sales volumes in both the industrial and constructionrelated segments across Western Europe. The sales volume was reduced in Eastern European as well. Russia, the Middle East and Africa continued to grow albeit at significantly lower growth rates.
In Americas a similar situation as in EMEA occurred, where customers reduced inventory levels during the first nine months of the year thus reducing demand for Hexagon's products. Demand from the manufacturing industry in Americas has been weak during 2009. South America, led by Brazil, has been growing throughout the year mainly due to increasing activity in the mining and automotive industries. Americas displayed organic growth in net sales of -23 per cent, in 2009.
On 1 October 2009, Hexagon acquired the Spatial Systems division of the American company Loyola Enterprises Inc. Loyola's Spatial Systems division, headquartered in Richmond, Virginia, is a leading distributor and service provider for surveying equipment in the states of Virginia, West Virginia, Maryland and Washington DC. The division also operates its own GPS reference station network RTK-NetTM, providing high-precision differential correction services to a wide range of users and applications. The division had an average annual turnover of 23 MSEK over the past years. Excluding inter-company transactions, this number would have been approximately 8 MSEK.
Effective 10 December 2009, Hexagon acquired all outstanding assets and intellectual property of two German companies within the vision metrology industry. The acquired assets and IP from Mahr Multisensor GmbH gave Hexagon a complete range of optical coordinate measuring systems used for measuring in industrial applications, as well as in science and research. The transactions also included all assets and IP in Mycrona GmbH, which is a manufacturer of state-of-the-art 3D multi-sensor coordinate measuring machines. The acquired businesses will be integrated into Hexagon's Metrology Vision business. It will be operated with R&D and manufacturing facilities in Germany and China. Excluding inter-company transactions, the acquisitions will add approximately 50–70 MSEK to Hexagon's sales in 2010.
Order intake, excluding Hexpol, which was deconsolidated from
Hexagon as of 1 June 2008, amounted to 11 842 MSEK (13 168) and net sales to 11 811 MSEK (13 060). Using fixed exchange rates and a comparable group structure, order intake decreased by -16 per cent and net sales by -19 per cent. For the first five months of 2008, net sales in Hexpol amounted to 1 419 MSEK.
Hexagon Measurement Technologies' net sales amounted to 11 458 MSEK (12 356) during the year. Using fixed exchange rates and a comparable group structure, order intake and net sales decreased by -15 per cent and -17 per cent, respectively.
Net sales from Other operations amounted to 353 MSEK (704) during the year. Using fixed exchange rates and a comparable group structure, order intake and net sales decreased by -47 per cent and -50 per cent, respectively. The negative trend is caused by a severe downturn in the Swedish heavy vehicle industry.
Order intake and net sales for Hexagon's various businesses are presented in the table below.
Gross profit, excluding Hexpol, amounted to 5 580 MSEK (6 365). The gross margin was 47.3 per cent (48.7).
Operating earnings (EBITDA), excluding Hexpol, amounted to 2 537 MSEK (3 087), corresponding to an operating margin (EBITDA margin) of 21 per cent (24).
Operating earnings (EBIT1), excluding Hexpol, amounted to 1 784 MSEK (2 405), corresponding to an operating margin of 15 per cent (18).
Hexagon Measurement Technologies' operating earnings (EBIT1) amounted to 1 905 MSEK (2 469), corresponding to an operating margin of 17 per cent (20).
Operating earnings (EBIT1) from Other operations decreased during the year to -74 MSEK (6), corresponding to an operating margin of -21 per cent (1).
Hexpols' operating earnings (EBIT1) for the first five months 2008 were 143 MSEK.
Operating earnings (EBIT1) for Hexagon's various businesses are presented in the table below.
| DIVIDED BY BUSINESS AREA | Order intake | Net sales | Operating earnings (EBIT1) | |||
|---|---|---|---|---|---|---|
| MSEK | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 |
| Hexagon Measurement Technologies | 11 512 | 12 481 | 11 458 | 12 356 | 1 905 | 2 469 |
| Hexpol | – | 1 425 | – | 1 419 | – | 143 |
| Other operations | 330 | 617 | 353 | 704 | -74 | 6 |
| Group costs and adjustments | – | – | – | – | -47 | -70 |
| Total | 11 842 | 14 523 | 11 811 | 14 479 | 1 784 | 2 548 |
During the fourth quarter of 2008 and into 2009 Hexagon has taken advantage of the weakened demand to accelerate planned rationalisations and extract synergies from acquisitions made in recent years. Previously decided rationalisation projects have, in view of the situation, been possible to carry out in just six months time. All in all, the cost savings affect approximately 1 200 employees including both lay-offs and temporary leaves of absence. As a consequence, Hexagon reported restructuring charges of 100 MSEK in the fourth quarter of 2008 and restructuring charges of 184 MSEK in 2009. Annualised savings amount to approximately 900 MSEK by the end of 2009 compared to the cost level seen in September 2008. Of the total savings, approximately 500–600 MSEK are structural, and therefore enabling Hexagon to improve its EBIT margins, especially once the volumes resume growth.
As of 31 December 2009, Hexagon's carrying value of intangible fixed assets was 16 396 MSEK (16 832). Amortisation of intangible fixed assets for the 2009 financial year was -472 MSEK (-418).
The financial net amounted to -158 MSEK (-319) in 2009. The decrease is mainly explained by lower interest rates and a lower net debt.
Earnings before taxes, excluding Hexpol and non-recurring items, amounted to 1 626 MSEK (2 104). Including Hexpol and -184 MSEK of non-recurring items for 2009 and -100 MSEK of non-recurring items for 2008, earnings before taxes amounted to 1 442 MSEK (2 129).
The Group's tax cost for the year totalled -188 MSEK (-270), corresponding to an effective tax rate of 13 per cent (13). The tax cost is affected by the fact that a considerable part of Hexagon's earnings are generated in foreign subsidiaries located in countries where tax rates differ from those in Sweden.
The minority share of net earnings was 9 MSEK (12).
Net earnings, excluding Hexpol and non-recurring items, amounted to 1 412 MSEK (1 857), or 5.31 SEK (6.95) per share. Net earnings, including these items, amounted to 1 254 MSEK (1 859), or 4.71 SEK (6.96) per share.
Hexagon's net investments, excluding acquisitions and divestitures, were -821 MSEK (-1 005) during the year and consisted mainly of investments in production facilities, production equipment and intangible assets, primarily capitalised development costs. Investments corresponded to 7 per cent (7) of net sales. Depreciation and writedowns during the year, including 4 MSEK (-4) for reversed impairment losses, amounted to -756 MSEK (-719).
Cash flow from operations before changes in working capital and restructuring amounted to 2 003 MSEK (2 587), corresponding to 7.58 SEK (9.75) per share. Including changes in working capital, cash flow from operations was 2 621 MSEK (1 755), corresponding to 9.92 SEK per share (6.61). The cash flow was negatively affected by the settlement of restructuring programme obligations, amounting to -190 MSEK (-). Operating cash flow after normal investments amounted to 1 610 MSEK (750). Cash flow from other investments activities was -268 MSEK (-1 048). The change in borrowings was -1 327 MSEK (262). Cash dividends to the Parent Company shareholders amounted to -132 MSEK (-624), corresponding to 0.50 SEK (2.35) per share.
Capital employed, defined as total assets less non-interest bearing liabilities, decreased to 22 300 MSEK (23 668). Return on average capital employed, excluding non-recurring items, for the last twelve months was 7.8 per cent (12.5). Return on average shareholders' equity for the last twelve months was 10.3 per cent (18.2). The capital turnover rate was 0.5 times (0.7).
Shareholders' equity, including minority interests, amounted to 12 484 MSEK (12 014). The equity ratio increased to 49 per cent (44). Hexagon's total assets decreased to 25 426 MSEK (27 501). As a consequence of goodwill no longer being amortised 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 2009 and no impairment requirement arose. Consolidated goodwill at 31 December 2009 amounted to 10 196 MSEK (10 522), corresponding to 40 per cent (38) of total assets. The table below shows the businesses to which the goodwill is attributable.
| MSEK | 2009 | 2008 |
|---|---|---|
| Hexagon Measurement Technologies | 10 185 | 10 511 |
| Other operations | 11 | 11 |
| Total | 10 196 | 10 522 |
On 31 December 2009, Hexagon's net debt was 8 298 MSEK (10 676). The net indebtedness was 0.66 times (0.89). The interest coverage ratio was 9.5 times (7.0).
The Hexagon Group's capital comprises reported shareholders' equity, including minority interest, which was 12 484 MSEK (12 014) at yearend. Hexagon's overall long-term objective is to increase earnings per share by at least 15 per cent annually and to achieve a return on capital employed of at least 15 per cent. Another Group objective is to achieve an equity ratio of 25–35 per cent because Hexagon is endeavouring to minimise the weighted average cost of capital for the company's financing. Hexagon's expansion rate is limited by financial covenants made to the company's lenders, whereby net debt is not permitted to exceed 3.5 times EBITDA. The net debt is calculated as all interest-bearing liabilities and provisions less cash and cash equivalents and interest bearing current assets. EBITDA excludes/ includes 12 months proforma EBITDA from divested/acquired companies and also excludes non-recurring items. All key ratios related to the financial covenants are reported to the lenders in conjunction with the disclosure of the quarterly reports. If the financial covenants are breached, the terms and conditions are re-negotiated and the borrowing cost probably increases temporarily.
Implementation of the company's strategy, as well as its financial position and other financial objectives are taken into account in connection with the annual decisions concerning dividend payments.
A predominant portion of Hexagon's revenues, expenses and net assets are denominated in foreign currencies due to extensive operations outside Sweden. This means that fluctuations in exchange rates affect Hexagon's net sales, operating earnings, net assets, shareholders' equity and other items. Hexagon is also affected by fluctuations in interest rates. Hexagon's Treasury function is responsible for coordinating the management of currency and interest rate exposure. The Treasury function is also responsible for the Group's external and internal financing. Rules and limitations for the management of financial risks are determined annually by the Board and are stipulated in the Group Treasury Policy.
In order to ensure that Hexagon can satisfy its short- and long-term 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. Hexagon's primary source for financing the company's operations is a syndicated loan facility amounting to 1 billion EUR that expires in June 2011. The syndicated loan facility includes certain financial covenants to be fulfilled in order to avoid additional financing cost. Hexagon met all its financial covenants in 2009. To diversify the debt portfolio and to prepare for the refinancing of the syndicated loan facility, Hexagon issued a 2 000 MSEK five-year bond to a Swedish institutional investor during the fourth quarter of 2009.
The unused portion of all funding facilities, together with existing liquidity, was 4 757 MSEK (3 001) on 31 December 2009.
The interest rate risk is the risk that changes in interest rates will adversely affect the Group's net interest expense and/or the cash flow. The Group's interest rate risk is managed by the Treasury function. Interest rate risk primarily arises due to of the Group's external borrowings. Standardised derivative instruments can be utilised to control interest rate exposure through means such as extending or shortening interest fixing periods without renegotiating underlying loans. In accordance with the Group Treasury Policy, all external debt has short interest rate duration.
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 40 and 100 per cent of forecast flows in addition to contracted flows are hedged with a horizon of six months. Hedging is arranged through foreign exchange forward contracts.
The Group Treasury Policy states that the effect of currency exchange rate changes on shareholders' equity should be alleviated through hedging via loans in the currencies in which net assets are denominated.
Translation exposure related to forecasted earnings in foreign operations are not hedged.
Credit risk is the risk that counterparts may be unable to fulfil their payment obligations. Financial credit risk arises when investing cash, cash equivalents and when trading in financial instruments. To reduce the Group's financial credit risk, surplus cash is only invested with a limited number of approved banks and derivative transactions are only conducted with counterparts where an ISDA netting agreement has been established. As the Group is a net borrower, excess liquidity is primarily used to amortise external debt and therefore the average surplus cash invested with banks is kept as low as possible.
Credit risk also includes the risk that customers will not pay receivables that the company has invoiced or intends to invoice. Through a combination of geographical and business segment diversification of the customers, the risk for significant customer credit losses is reduced.
As an international company the Group faces a variety of operational risks, including relations with customers, suppliers, political, price, raw material, legal, human capital, insurable and corporate responsibility risks. Hexagon works in a structured manner in its efforts to control both short-term and long-term risks 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 applications and thereby increasing the total market for Hexagon's products and services. Total expenditure for research and development during 2009 amounted to 1 255 MSEK (1 264), corresponding to 11 per cent (9) of net sales. Capitalisation of the Group's development expenses only occurs with regards 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's earnings after financial items were 302 MSEK (1 444). The solvency ratio of the Parent Company was 38 per cent (36). The equity was 7 046 MSEK (6 786). Liquid funds including unutilised credit limits was 3 734 MSEK (2 105).
Hexagon's share capital was 531 039 540 SEK, represented by 265 519 770 outstanding shares. Total outstanding shares at yearend 2009 was 11 812 500 class A shares, each carrying ten votes, and 253 707 270 class B shares, each carrying one vote. At year-end 2009 Melker Schörling AB, the single largest shareholder in Hexagon, held a total of 11 812 500 class A shares and 66 374 551 class B shares, representing 49.8 per cent of the votes and 29.5 per cent of the capital.
The Annual General Meeting on 6 May 2009 authorised Hexagon's Board of Directors to acquire the company's own shares for the purpose of, among other things, giving the Board the possibility to adapt the company's capital structure and to enable the financing of acquisitions. The authorisation to repurchase totals a maximum of ten per cent of all outstanding shares in the company.
During 2009 no shares were repurchased. During the year, 138 825 out of 1 311 442 previously repurchased shares were used to pay for exercised options. By year-end Hexagon held 1 172 617 repurchased shares.
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.
The average number of employees in Hexagon during 2009 was 7 549 (9 062). Excluding Hexpol, the average number of employees in 2008 was 8 112. The share of employees located outside Sweden increased to 93 per cent (92). The average number of employees in the Parent Company was 11 (11).
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.
The Annual General Meeting 2009 resolved, as proposed by the Board, on the establishment of guidelines concerning the remuneration of senior executives. The remuneration shall consist of a basic salary, a variable remuneration, other benefits and pension and all in all be competitive and in accordance with market practice. The variable remuneration shall be maximized in relation to the basic salary, tied to such performance that the relevant individual can influence and based on the outcome in relation to individual targets. The Board shall annually consider whether a share or share price related incentive program shall be proposed to the Annual General Meeting.
The notice period shall normally be six months on the part of the employee. In case of notice of termination by the company, the notice period and the period during which severance payment is paid shall, all in all, not exceed 24 months. The pension rights shall be either benefit or fee-based, or a combination of both, with an individual pension age, however, not lower than 60 years.
The Board of Directors' proposal to the Annual General Meeting 2010 is that these guidelines remain unchanged. In 2009 the President and CEO and the other senior executives declined salary increases as well as bonus payments with consideration to that the Group at the same time was carrying out a cost reduction programme.
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 sustainable product development. A fundamental requirement for Hexagon's environmental efforts is to use environmentally friendly resources in production, to whatever 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. Hexagon's subsidiaries are obliged to have ISO quality accreditation, wherever this is warranted.
As of April, 2010 William Gruber, President of Hexagon Metrology and member of Group Management, will be assuming the position of Executive Vice President for the Group.
Norbert Hanke will succeed William Gruber as President of product area Hexagon Metrology and join the Group management team. Norbert Hanke has been with the company since 2001 and his most recent positions have been CFO for product area Hexagon Metrology as well as responsible for operations for Hexagon MT in the sales regions RoA (Asia excl. China) and South America.
Jürgen Dold will assume the position of President of product area Hexagon Geosystems and join the Group management team. Jürgen Dold has been with the company since 1995 and his most recent position was President of the Geospatial Solutions Division within Hexagon Geosystems.
Also joining Group management is Li Hongquan who will assume the position of President Hexagon Asia. Li Hongquan has been employed since 2001.
Norbert Hanke, Jürgen Dold and Li Hongquan will join Ola Rollén - President and CEO, William Gruber - EVP, Håkan Halén - CFO , Frederick London - General Counsel and Bo Pettersson - Chief Technical Officer thus forming the new management team for the Group.
| MSEK | Note | 2009 | 2008 |
|---|---|---|---|
| Net sales | 1 | 11 811 | 14 479 |
| Cost of goods sold | 4, 7, 8, 19 | -6 231 | -7 881 |
| Gross earnings | 5 580 | 6 598 | |
| Sales expenses | 4, 7, 8, 19 | -2 074 | -2 238 |
| Administration expenses | 4, 6, 7, 8, 19 | -943 | -1 007 |
| Research and development expenses | 4, 7, 8, 19 | -911 | -944 |
| Other operating revenues | 5, 8 | 139 | 84 |
| Other operating expenses | 5, 7, 8 | -189 | -46 |
| Share in associated company earnings | 9, 14 | -2 | 1 |
| Operating earnings 1 | 1 600 | 2 448 | |
| Financial revenues and expenses | |||
| Interest income | 9 | 9 | 36 |
| Interest expenses | 9 | -167 | -355 |
| Earnings before tax | 1 | 1 442 | 2 129 |
| Tax on earnings for the year | 10 | -188 | -270 |
| Net earnings 2 | 1 254 | 1 859 | |
| 1 Of which, non-recurring items | 7 | -184 | -100 |
| 2 Of which, minority share | 9 | 12 | |
| Average number of shares, thousands | 264 284 | 265 317 | |
| Average number of shares after dilution, thousands | 264 511 | 265 768 | |
| Earnings per share, SEK | 4.71 | 6.96 | |
| Earnings per share after dilution, SEK | 4.71 | 6.95 | |
| Net Earnings include depreciations and write-downs of | -756 | -719 |
| MSEK | 2009 | 2008 |
|---|---|---|
| Net earnings | 1 254 | 1 859 |
| Other comprehensive income: | ||
| Translation differences | -953 | 3 688 |
| Effect of hedging of net investments in foreign operations | 430 | -2 653 |
| Cash flow hedges, net | 1 | 1 |
| Tax attributable to other comprehensive income | ||
| Tax attributable to effect of hedging of net investments in foreign operations | -113 | 607 |
| Tax attributable to effect of cash flow hedges | 0 | 0 |
| Other comprehensive income, net of tax | -635 | 1 643 |
| Total comprehensive income | 619 | 3 502 |
| Attributable to: | ||
| Parent company shareholders | 609 | 3 483 |
| Minority interest | 10 | 19 |
| MSEK | Note | 2009 | 2008 |
|---|---|---|---|
| ASSETS | |||
| Fixed assets | |||
| Intangible fixed assets | |||
| Capitalized development expenses | 12 | 1 626 | 1 276 |
| Patents and trademarks | 12 | 3 872 | 4 138 |
| Goodwill | 12 | 10 196 | 10 522 |
| Other intangible fixed assets | 12 | 702 | 896 |
| Total intangible fixed assets | 16 396 | 16 832 | |
| Tangible fixed assets | |||
| Buildings | 12 | 654 | 734 |
| Land and other real estate | 12 | 216 | 229 |
| Machinery and other technical plants | 12 | 642 | 724 |
| Equipment, tools and installations | 12 | 169 | 196 |
| Construction in progress and supplier advances | 12 | 13 | 20 |
| Total tangible fixed assets | 1 694 | 1 903 | |
| Financial fixed assets | |||
| Shares in associated companies | 13, 14 | 15 | 20 |
| Other long-term securities holdings | 13, 19 | 89 | 39 |
| Other long-term receivables | 13, 15, 19 | 25 | 50 |
| Total financial fixed assets | 129 | 109 | |
| Deferred tax assets | 10 | 590 | 587 |
| Total fixed assets | 18 809 | 19 431 | |
| Current assets | |||
| Inventories, etc. | |||
| Raw materials and consumables | 1 070 | 1 283 | |
| Work in progress | 211 | 282 | |
| Finished goods and goods for sale | 1 316 | 1 729 | |
| Total inventories | 2 597 | 3 294 | |
| Current receivables | |||
| Customer receivables | 15, 19 | 2 615 | 3 151 |
| Receivables, associated companies | 15 | 15 | 10 |
| Current tax receivables | 10 | 44 | 33 |
| Other receivables – interest bearing | 19 | 53 | 44 |
| Other receivables – non-interest bearing | 15, 19 | 209 | 362 |
| Prepaid expenses and accrued income | 16, 19 | 290 | 257 |
| Total current receivables | 3 226 | 3 857 | |
| Short-term investments | 19 | 21 | 20 |
| Cash and bank balances | 19 | 773 | 899 |
| Total current assets | 6 617 | 8 070 | |
| TOTAL ASSETS | 25 426 | 27 501 |
| MSEK | Note | 2009 | 2008 |
|---|---|---|---|
| SHAREHOLDERS' EQUITY AND LIABILITIES | |||
| Shareholders' equity | |||
| Share capital | 17 | 531 | 531 |
| Other capital contributions | 5 506 | 5 509 | |
| Hedging reserve | 0 | -1 | |
| Translation reserve | 232 | 869 | |
| Retained earnings | 6 164 | 5 049 | |
| Shareholders' equity attributable to Parent Company shareholders | 12 433 | 11 957 | |
| Minorities | 51 | 57 | |
| Total shareholders' equity | 12 484 | 12 014 | |
| Long-term liabilities | 19 | ||
| Provisions for pensions | 4a | 383 | 452 |
| Other provisions | 18 | 65 | 174 |
| Deferred tax liabilities | 10 | 409 | 331 |
| Liabilities to credit institutions | 19 | 9 223 | 10 470 |
| Other long-term liabilities – interest-bearing | 19 | 28 | 39 |
| Other long-term liabilities – non-interest bearing | 19 | 14 | 26 |
| Total long-term liabilities | 10 122 | 11 492 | |
| Current liabilities | |||
| Other provisions – current portion | 18 | 265 | 339 |
| Liabilities to credit institutions | 19 | 117 | 500 |
| Advance payments from customers | 146 | 121 | |
| Accounts payable | 19 | 864 | 1 185 |
| Current tax liabilities | 10 | 138 | 185 |
| Other liabilities – interest-bearing | 19 | – | – |
| Other liabilities – non-interest bearing | 19 | 193 | 239 |
| Accrued expenses and deferred income | 16, 19 | 1 097 | 1 426 |
| Total current liabilities | 2 820 | 3 995 | |
| TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES | 25 426 | 27 501 | |
| MEMORANDUM ITEMS | |||
| Collateral pledged | 21 | 29 | 20 |
| Contingent liabilities | 21 | 239 | 185 |
| 2009 | Share capital |
Other capital contri butions |
Hedging reserve |
Trans lation reserve |
Retained earnings |
Shareholders Equity attributable to Parent Company shareholders |
Mino rities |
Total share holders' equity |
|---|---|---|---|---|---|---|---|---|
| Opening shareholders' equity | 531 | 5 509 | -1 | 869 | 5 049 | 11 957 | 57 | 12 014 |
| Other Comprehensive Income, net of tax | – | – | 1 | -637 | – | -636 | 1 | -635 |
| Net earnings | – | – | – | – | 1 245 | 1 245 | 9 | 1 254 |
| Total Comprehensive Income for the period | – | – | 1 | -637 | 1 245 | 609 | 10 | 619 |
| Expense for share-based payments1 | – | – | – | – | 2 | 2 | – | 2 |
| Effect of acquisitions and divestments of subsidiaries2 | – | -3 | – | – | – | -3 | – | -3 |
| Cash dividend | – | – | – | – | -132 | -132 | –16 | -148 |
| Closing shareholders' equity, Dec. 31, 2009 | 531 | 5 506 | 0 | 232 | 6 164 | 12 433 | 51 | 12 484 |
| 2008 | ||||||||
| Opening shareholders' equity | 531 | 5 539 | -2 | -716 | 4 650 | 10 002 | 44 | 10 046 |
| Other Comprehensive Income, net of tax | – | – | 1 | 1 635 | – | 1 636 | 7 | 1 643 |
| Net earnings | – | – | – | – | 1 847 | 1 847 | 12 | 1 859 |
| Total Comprehensive Income for the period | – | – | 1 | 1 635 | 1 847 | 3 483 | 19 | 3 502 |
| Expense for share-based payments1 | – | – | – | – | 6 | 6 | – | 6 |
| Effect of acquisitions and divestments of subsidiaries2 | – | -5 | – | – | – | -5 | 4 | -1 |
| Repurchase of shares | – | -52 | – | – | – | -52 | – | -52 |
| Stock option payment | – | 27 | – | – | – | 27 | – | 27 |
| Cash dividend | – | – | – | – | -624 | -624 | -10 | -634 |
| Dividend - shares in Hexpol | – | – | -50 | -830 | -880 | – | -880 | |
| Closing shareholders' equity, Dec. 31, 2008 | 531 | 5 509 | -1 | 869 | 5 049 | 11 957 | 57 | 12 014 |
Share capital is described in detail in Note 17.
Other contributed capital includes, among others, premium reserves and statutory reserves.
The hedging reserve includes changes in value of the hedging instruments representing cash flow hedges, net after amount transferred to the income statement.
The translation reserve is the net of currency translation differences related to foreign subsidiaries and the effect after tax of the currency hedging of net assets made.
Retained earnings include all historical net earnings excluding minorities less dividends paid.
Minorities are the shares of equity that pertain to minority holders in certain subsidiaries.
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 before the acquisition by Hexagon.
2 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. In essence, all option holders at the time of the acquisition have been treated as shareholders. Hexagon has used both the possibility to redeem the options in cash alone, which results in a similar effect to that of a repurchase of shares, and the possibility to redeem with a combination of shares and cash.
| MSEK | Note | 2009 | 2008 |
|---|---|---|---|
| Cash flow from operating activities | |||
| Net sales | 11 811 | 14 479 | |
| Operating expenses | -10 211 | -12 031 | |
| Operating earnings | 1 600 | 2 448 | |
| Adjustments for items in operating earnings not influencing cash flow | |||
| Depreciation and amortization | 760 | 715 | |
| Impairment losses | -4 | 4 | |
| Change in provisions | -77 | 10 | |
| Capital gains on divestment of fixed assets | -1 | -7 | |
| Earnings from shares in associated companies | 2 | -1 | |
| Other items not influencing cash flow | 2 | 7 | |
| Interest received | 15 | 45 | |
| Interest paid | -236 | -290 | |
| Tax paid | -248 | -344 | |
| Cash flow from operating activities before changes in working capital | 1 813 | 2 587 | |
| Cash flow from changes in working capital | |||
| Change in inventories | 579 | -491 | |
| Change in current receivables Change in current liabilities |
531 -492 |
80 -421 |
|
| Cash flow from changes in working capital | 618 | -832 | |
| Cash flow from operating activities | 2 431 | 1 755 | |
| Cash flow from ordinary investing activities | |||
| Investments in intangible fixed assets | 12 | -673 | -634 |
| Investments in tangible fixed assets | 12 | -157 | -387 |
| Divestments of tangible fixed assets | 9 | 16 | |
| Cash flow from ordinary investing activities | -821 | -1 005 | |
| Operating cash flow | 1 610 | 750 | |
| Cash flow from other investing activities | |||
| Investments in subsidiaries | 11 | -222 | -798 |
| Divestments of subsidiaries | 11 | – | -220 |
| Investments in financial fixed assets | 13 | -54 | -44 |
| Divestments of financial fixed assets | 13 | 8 | 14 |
| Cash flow from other investing activities | -268 | - 1 048 | |
| Cash flow from financing activities | |||
| Borrowings | 1 993 | 262 | |
| Amortizations | -3 320 | – | |
| Stock option payment | – | 27 | |
| Repurchase of shares | – | -52 | |
| Dividend to Parent Company shareholders | -132 | -624 | |
| Dividend to minority interests in subsidiaries | -16 | -10 | |
| Cash flow from financing activities | -1 475 | -397 | |
| Cash flow for the year | -133 | -695 | |
| Cash and cash equivalents, beginning of year 1 | 919 | 1 612 | |
| Effect of translation differences on Cash and cash equivalents | 8 | 2 | |
| Cash flow for the year | -133 | -695 | |
| Cash and cash equivalents, end of year 1 | 794 | 919 | |
| Net debt Pension obligations, net, and other interest-bearing provisions and liabilities |
9 816 | 11 655 | |
| Short-term interest bearing receivables | -724 | -60 | |
| Cash and cash equivalents 1 | -794 | -919 | |
| Net debt | 8 298 | 10 676 | |
1 Cash and cash equivalents include short-term investments and cash and bank balances.
| MSEK | Note | 2009 | 2008 |
|---|---|---|---|
| Net sales | 2 | 31 | 28 |
| Administration expenses | 2, 4, 6 | -48 | -75 |
| Operating earnings | -17 | -47 | |
| Financial income and expense | |||
| Earnings from shares in Group companies | 9 | 549 | 1 688 |
| Interest income | 9 | 147 | 258 |
| Interest expenses | 9 | -377 | -455 |
| Earnings before tax | 302 | 1 444 | |
| Tax on earnings for the year | 61 | 54 | |
| Net earnings | 363 | 1 498 |
| MSEK | Note | 2009 | 2008 |
|---|---|---|---|
| ASSETS | |||
| Fixed assets | |||
| Intangible fixed assets | |||
| Patents and trademarks | 12 | 0 | 0 |
| Tangible fixed assets | |||
| Buildings | 12 | 0 | 0 |
| Land | 12 | 0 | 0 |
| Equipment | 12 | 1 | 1 |
| Total tangible fixed assets | 1 | 1 | |
| Financial fixed assets | |||
| Shares in Group companies | 13 | 12 150 | 12 137 |
| Receivables from Group companies | 13 | 5 092 | 5 429 |
| Other financial fixed assets | 13 | 1 | 1 |
| Total financial fixed assets | 17 243 | 17 567 | |
| Deferred tax asset | 189 | 128 | |
| Total fixed assets | 17 433 | 17 696 | |
| Current assets | |||
| Current receivables | |||
| Receivables from Group companies | 898 | 746 | |
| Other receivables | 49 | 61 | |
| Prepaid expenses and accrued income | 16 | 18 | 21 |
| Total current receivables | 965 | 828 | |
| Cash and bank balances | 171 | 507 | |
| Total current assets | 1 136 | 1 335 | |
| TOTAL ASSETS | 18 569 | 19 031 |
| MSEK | Note | 2009 | 2008 |
|---|---|---|---|
| SHAREHOLDERS' EQUITY | |||
| AND LIABILITIES | |||
| Shareholders' equity | |||
| Restricted equity | |||
| Share capital | 17 | 531 | 531 |
| Statutory reserve | 2 814 | 2 814 | |
| Total restricted equity | 3 345 | 3 345 | |
| Non-restricted equity | |||
| Premium reserve | 1 980 | 1 980 | |
| Retained earnings | 1 721 | 1 461 | |
| Total non-restricted equity | 3 701 | 3 441 | |
| Total shareholders' equity | 7 046 | 6 786 | |
| Long-term liabilities | |||
| Liabilities to credit institutions | 7 683 | 8 315 | |
| Total long-term liabilities | 7 683 | 8 315 | |
| Current liabilities | |||
| Liabilities to credit institutions | – | 430 | |
| Accounts payable | 3 | 6 | |
| Liabilities to Group companies | 3 823 | 3 410 | |
| Other liabilities | 1 | 4 | |
| Accrued expenses and deferred income | 16 | 13 | 80 |
| Total current liabilities | 3 840 | 3 930 | |
| TOTAL SHAREHOLDERS' EQUITY | |||
| AND LIABILITIES | 18 569 | 19 031 | |
| MEMORANDUM ITEMS | |||
| Collateral pledged | 21 | None | None |
| Contingent liabilities | 21 | 455 | 477 |
| MSEK | Share capital |
Statutory reserve (restricted) |
Premium reserve (unrestricted) |
Retained earnings |
Total shareholders'equity |
|---|---|---|---|---|---|
| Closing balance Dec. 31, 2008 | 531 | 2 814 | 1 980 | 1 461 | 6 786 |
| Dividend | – | – | – | -132 | -132 |
| Group contributions issued and received, net | – | – | – | 19 | 19 |
| Sale of own shares | – | – | – | 10 | 10 |
| Net earnings | – | – | – | 363 | 363 |
| Closing balance Dec. 31, 2009 | 531 | 2 814 | 1 980 | 1 721 | 7 046 |
| Closing balance Dec. 31, 2007 | 531 | 2 814 | 2 754 | 556 | 6 655 |
| Dividend | – | – | -793 | -556 | -1 349 |
| Group contributions issued and received, net | – | – | – | 14 | 14 |
| New share issue | 0 | – | 19 | – | 19 |
| Repurchase of shares | – | – | – | -51 | -51 |
| Net earnings | – | – | – | 1 498 | 1 498 |
| Closing balance Dec. 31, 2008 | 531 | 2 814 | 1 980 | 1 461 | 6 786 |
| MSEK | Note | 2009 | 2008 |
|---|---|---|---|
| Cash flow from operating activities | |||
| Net sales | 31 | 28 | |
| Operating expenses | -48 | -75 | |
| Operating earnings | -17 | -47 | |
| Adjustment for operating earnings items not influencing cash flow | |||
| Depreciation | 0 | 0 | |
| Unrealised currency exchange differences | -570 | -70 | |
| Other items not influencing cash flow | 0 | -3 | |
| Interest received | 510 | 258 | |
| Dividend from subsidaries | 549 | 1 679 | |
| Interest paid | -243 | -386 | |
| Cash flow from operating activities before changes in working capital | 229 | 1 431 | |
| Cash flow from changes in working capital | |||
| Change in current receivables | -135 | - 671 | |
| Change in current liabilities | 419 | 291 | |
| Cash flow from changes in working capital | 284 | -380 | |
| Cash flow from operating activities | 513 | 1 051 | |
| Cash flow from investing activities | |||
| Investments in tangible fixed assets | 12 | 0 | 0 |
| Divestments of tangible fixed assets | 12 | 0 | 0 |
| Investments in financial fixed assets | 13 | -3 | -4 |
| Change in long-term receivables, Group companies | 337 | 655 | |
| Group contributions received | 14 | 111 | |
| Cash flow from other investing activities | 348 | 762 | |
| Cash flow from financing activities | |||
| Borrowings | 1 993 | – | |
| Repayments | -3 058 | -1 001 | |
| Repurchase of shares | – | -51 | |
| Dividend to shareholders | -132 | -624 | |
| Cash flow from financing activities | -1 197 | -1 676 | |
| Cash flow for the year | -336 | 137 | |
| Cash and cash equivalents opening balance 1 | 507 | 370 | |
| Cash and cash equivalents closing balance 1 | 171 | 507 |
1 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 RFR 1.2 Supplementary accounting rules for corporate groups issued by the Swedish Financial Accoutning Standards Council has been applied.
The Parent Company applies the Annual Accounts Act and RFR 2.2. This means that the Parent Company applies the same accounting policies as the Group, except as outlined below.
The accounting policies applied by the Group are consistent with those of the previous financial year except as follows.
The group has introduced the following new and amended standards and interpretations from IASB and IFRIC, respectively, as of January 1, 2009.
The IASB issued an amendment to IFRS 2 in January 2008 that clarifies the definition of a vesting condition and prescribes the treatment for an award that is effectively cancelled. The revisions have not been applicable for Hexagon in 2009.
IFRS 7 Financial instruments, Presentation and Disclosure (Revisions) The revisions have entailed additional disclosures related to liquidity risks and related to the calculation of fair values. Financial instrument are divided into three tiers based on the methods applied to determine fair value. See Note 19.
The IASB issued IFRS 8 in November 2006 intended as a replacement for IAS 14 Segment Reporting. The new standard sets disclosure requirements for the Group's Operating Segments and replaces the need to define primary and secondary segments based on operating and geographical segments. IFRS 8 however requires that operating segment information is provided in the same manner that it is reported internally to the chief operating decision maker. Hexagon concluded that the operating segments determined in accordance with IFRS 8 are the same as the business segments previously identified under IAS 14.
The standard separates changes in equity resulting from transactions with owners and other changes. The statement of changes in equity will only include details of transactions with owners. Other changes in equity than transactions with owners are presented as a separate caption in the statement of changes in equity. In addition the standard introduces the concept of "statement of comprehensive income", which presents all items related to income and expenses in a separate statement or in two inter-related statements. Hexagon has elected to report one separate statement.
The revised IAS 23 requires capitalization of borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset. Hexagon has historically applied this accounting policy, however currently has no qualifying assets as defined by the revised standard.
IAS 27 Consolidated and Separate Financial Statements (Amended) The amendment to IAS 27 requires that dividends received from subsidiaries, associated companies etc. are recognized in the income statement in the separate financial statements. The amendments to IAS 27 should be applied prospectively, but only affect the separate financial statements of the parent company and not the consolidated financial statements.
The revisions to these standards will not have an impact on the Group's financial performance or position, since no such instruments have been issued.
IFRIC 9 Reassessment of Embedded Derivatives and IAS 39 – Financial Instruments: Recognition and Measurement (Amendments) The interpretation and amendments adress the reassessment of embedded derivatives and has not affected the Group's financial performance or position.
This interpretation requires customer loyalty credits to be accounted for as a separate component of the sales transactions in which they are granted. The Group does not maintain customer loyalty programmes of this nature.
Improvements aim at simplifying and clarifying standards through changes influencing presentation, accounting, valuation and changes in terminology or editorial changes. These changes have had no or small impact on Hexagon's financial reports.
Adoption of these standards and interpretations did not have any effect on the financial performance or position of the Group. They did give rise to some, or no, impact on disclosures, including, in some cases, amendments to the description of accounting policies applied.
Hexagon has not early adopted IFRS and IFRIC interpretations that become effective as of 1 January 2010 or later. The adoption of these standards and interpretations is, with the exception of the adoption of IFRS 3R and IAS 27R, not expected to have a material effect on the financial performance or position of the Group. They are however expected to give rise to additional disclosures, including in some cases, revisions to accounting policies. A brief description of the changes is presented below.
The revised/amended standards were issued in January 2008 and should be applied for reporting periods commencing on 1 July 2009 or later. IFRS 3R introduces a number of changes to the accounting for business combinations made after the effective date, which will affect the amount of goodwill recognized, the earnings reported in the period the business combination are concluded as well as earnings reported in future periods. The revised IAS 27 requires changes in the ownership in a subsidiary where the majority owner does not lose control to be accounted for within equity. Consequently such transactions will not give rise to goodwill, nor will they lead to gains or losses. Furthermore the revised IAS 27 changes the accounting for losses that arise in a subsidiary as well as losses which arise upon loss of control of a subsidiary. The revisions/amendments have resulted in follow-on changes to IAS 7 Cash Flow Statements, IAS 12 Income taxes, IAS 21 The Effects of Foreign Exchange Rates, IAS 28 Investments in Associates and IAS 31 Interests in Joint Ventures.
In aggregate the revisions/amendments to IFRS 3 and IAS 27 will affect the accounting for future acquisitions, loss of control and transactions with minority owners which might have a big impact on Hexagon.
The amendment entails classifying rights issues denominated in a currency other than the entities functional currency to in certain situations treat the rights issues as equity instruments. Hexagon is currently not affected by the amendments.
The amendment covers the designation of a one-sided risk in a hedged item and the designation of inflation as a hedged risk or part of a hedged risk in a specific situation. Hexagon has assessed that the amendment will not have an effect on the Group's financial performance or position, as the Group has not entered into any such hedges.
The interpretation covers general principles for recognition and measurement of rights and obligations related to so called service concession arrangements, i.e. the delivery of certain infrastructure services to the public. The interpretation will not have any impact on the Group's financial performance or position.
IFRIC 15 will not effect the Group's financial reporting in that such operations covered by the standard are not conducted within the Group.
The interpretation is to be applied prospectively. IFRIC 16 provides guidance on how to account for hedges of a net investment in a foreign operation with regards to the identification of foreign currency risks which qualify for hedge accounting of net investments, what entities within a group which may hold the hedging instrument in question, as well as how the entity shall determine the value of the foreign currency gains or losses in relation to the net investment and the hedging instrument, which should be reversed upon a sale of the foreign operations. Hexagon are currently assessing what accounting policy should be applied upon sales of foreign operations.
The interpretation addresses issues related to non-cash distributions to owners. The interpretation will entail a change in the method applied by Hexagon upon such distributions.
The interpretation adresses the accounting for assets or cash contributed from a customer and which thereafter is applied in the delivery of goods and services. The interpretation is not expected to have a material impact on the Group's financial performance or position.
The amendment clarifies the accounting for certain Group internal share-based payment transactions and entails the introduction of IFRIC 8 – Scope for IFRS 2 and IFRIC 11 – Group and Treasury Share Transactions into the standard itself. Hexagons current assessment is that the amended standard will not have a material impact on the Group's financial performance or position.
The standard addresses the classification and measurement of financial instruments and represents the first step in the IASBs efforts to replace IAS 39 – Financial instruments: Recognition and measurement. The new standard will affect the Group's financial performance and position.
The revised standard clarifies and simplifies the definition of related parties and provides excemptions for disclosures of transactions between government owned entities. The revisions to IAS 24 will not have a material impact on the Group's financial performance or position.
The interpretation has corrected an inadvertent effect of IFRIC 14, but will have no material impact on the Group's financial performance or position.
IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments The interpretation addresses the accounting treatment for loans extinguished by means of issuing equity instruments. Hexagon is currently unaffected by the interpretation.
In April 2009 the IASB issued additional changes to existing standards, primarily aimed at removing inconsistencies and clarifying certain passages. Hexagon has elected not to early-adopt any of the improvements, which are not expected to materially affect the Group's financial performance or 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) and any available for sale securities such as long term securities holdings, 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. 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.
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 other comprehensive income.
The value of the net assets of foreign subsidiaries, including goodwill and other intangible assets, is hedged, mainly through foreign currency 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 Other comprehensive income regarding the foreign subsidiaries.
An amendment to IAS 1 concerns the form for presentation of financial position, comprehensive income and cash flow and includes a requirement for statement of comprehensive income. As a consequence of the amendment, Hexagon reports an additional statement showing total comprehensive income for the period in connection with the income statement. The new statement includes items previously reported under 'Changes in shareholder's equity'.
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 has elected to account for the distribution of Hexpol to its shareholders as a reduction of shareholders' equity. Hexpol is consequently not treated as a discontinued operation in Hexagon consolidated accounts.
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.
As of financial year 2009 Hexagon applies the "IFRS 8 Operating Segments" standard. The new standard sets disclosure requirements for the Group's Operating Segments and replaces the need to define primary and secondary segments based on operating and geographical segments. Adoption of this standard has a minor impact on Hexagon's financial reporting.
Hexagon's Board of Directors is responsible for determining the Group's overall objectives, developing and monitoring the overall strategy, decisions on major acquisitions, divestments and investments, and ongoing monitoring of operations.
The CEO is responsible for leading and controlling Hexagon's operations in accordance with the strategy determined by the Board. Group Management is responsible for overall business development, allocating financial resources between the business areas, and matters involving financing and capital structure. Group management is therefore equal to what IFRS 8 defines as the Group's chief operating decision maker and is the function that internally within the Hexagon Group allocates resources and evaluates results. The Group's chief operating decision maker assesses the performance in the operating segments based on earnings before financial items, excluding non-recurring items. Financial items and taxes are reported for the Group as a whole.
Hexagon's operations are organised, governed and reported on the basis of the two operating segments Hexagon Measurement Technologies and Other Operations. The operating segment Hexagon Measurement Technologies comprises the application areas Geosystems, Metrology and Technology. The product portfolio consists of systems that are designed to measure in one, two or three dimensions and to position and update objects. The portfolio's different measuring instruments are built upon common core technologies and have to a large extent coordinated development and production. The operating segment Other Operations is mainly focused towards the transportation industry including cars as well as heavy vehicles. Other Operations conducts its business in the Nordic region.
The two segments have separate product offerings, customer groups and geographical exposure and hence differentiated risk composition. No sales between the two operating segments exist. Both segments report applying the same accounting principles as the Group. Hexagon's internal reporting, representing the base for detailed review and analysis, is designed in alignment with the described division into operating segments. Sales within each operating segment are consequently analysed geographically.
Hexagon applies the following principles for revenue recognition:
Revenues from sales of goods are recognized when all the following conditions are satisfied:
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 comparing the expenditure that has arisen in relation with 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, but 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.
Hexagon applies IAS 20 and has only accounted for government grants that were decided and paid out during the year. Government grants have been reported as a reduction of the Group's expenses in the function where the expenses ocurred. In Note 8 it is shown in detail the distribution by function. The government grants relate primarily to education of employees and support to cover employment expenses during a limited period of time in order to avoid redundancies.
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 Other comprehensive income 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 2008 and 2009. When hedging cash flow, the change in value of the hedging instrument is recognized directly in Other comprehensive income until the hedged transaction has been recognized.
When establishing fair value, official market listings on the balance-sheet 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 2008 and 2009.
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 Other comprehensive income. Unlisted shares and participations whose value cannot be determined reliably are recognized at acquisition cost. Hexagon had no listed holdings in 2008 and 2009.
Accounts receivable and accounts payable are recognized at accrued 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 included in an asset's acquisition value for certain qualifying assets only. Since Hexagon normally does not construct the types of assets that would permit this, no such borrowing costs have been capitalised, instead they have been expensed as incurred. Costs for raising loans are expensed 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 earned, 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 in the income statement.
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 net realizable 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 acquisition-related 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, if any. Acquisition-related intangible assets with an indefinite life are not amortized, but are tested for impairment on an annual basis.
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 | 2–6 years |
|---|---|
| Patents and trademarks* | 5 years |
| Other intangible assets | 2–10 years |
| Computers | 3–8 years |
| Machinery and equipment | 3–15 years |
| Office buildings | 20–50 years |
| Industrial buildings | 20–50 years |
| Land improvements | 5–25 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 93 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:
| Basic assumptions used for determining discount rate per currency |
2009 | 2008 |
|---|---|---|
| Risk-free interest rate | 2.0–3.5 % | 1.8–2.4 % |
| Tax rate | 7–35% | 7–40% |
| Beta value | 1–1.5 | 1–1.4 |
| Applied discount rate before tax | 8.4–9.6 % | 6.8–8.8 % |
| ACCOUNTING POLICIES | |||
|---|---|---|---|
| Forecasting method | 2009 | 2008 |
|---|---|---|
| Forecast period | 5–10 years | 5–10 years |
| Growth after forecast period | 2% | 2% |
The definition of cash-generating units complies with the Group's organisation, 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 13 382 MSEK (14 095) at 31 December 2009. The entire amount is attributable to business area Hexagon Measurement Technologies. 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 balancesheet date.
The Parent Company's and the consolidated financial statements will be presented to the Annual General Meeting for approval on 5 May 2010.
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 value in use, 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 10 196 (10 522) 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 utilise 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 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 assets in an amount of 181 (256) MSEK, net, at the end of 2009. At the same date, the Group had tax-loss carry-forwards with a tax value of 304 (422) MSEK that were not recognized as assets. These assets could not be capitalized based on assessments of the opportunity to utilise 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 22–25 of this Annual Report.
| BUSINESS AREAS 2009 |
Hexagon Measure ment Technologies |
Hexagon Polymers | Other operations |
Group-wide and adjustments |
Eliminations | Group |
|---|---|---|---|---|---|---|
| Net sales | 11 458 | – | 353 | – | – | 11 811 |
| Operating earnings (EBIT1) | 1 905 | – | -74 | -47 | – | 1 784 |
| Non-recurring items | -175 | – | -9 | – | – | -184 |
| Earnings before net interest expense | 1 730 | – | -83 | -47 | – | 1 600 |
| Net interest income/expenses | – | – | – | -158 | – | -158 |
| Earnings before taxes | 1 730 | – | -83 | -205 | – | 1 442 |
| Operating assets | 23 341 | – | 446 | 129 | -36 | 23 880 |
| Operating liabilities | -2 488 | – | -101 | -18 | 36 | -2 571 |
| Net operating assets | 20 853 | – | 345 | 111 | – | 21 309 |
| Of which share in associated companies earnings | -2 | – | – | – | – | -2 |
| Shares in associated companies | 0 | – | 15 | – | – | 15 |
| Cash flow from operating activities | 3 116 | – | -15 | -670 | – | 2 431 |
| Cash flow from ordinary investment activities | -814 | – | -7 | – | – | -821 |
| Operating cash flow | 2 302 | – | -22 | -670 | – | 1 610 |
| Average number of employees | 7 239 | – | 299 | 11 | – | 7 549 |
| No. of employees at year-end | 7 152 | – | 312 | 12 | – | 7 476 |
| Depreciation/amortization and impairment losses | -715 | – | -40 | -1 | – | -756 |
| 2008 | Hexagon Measure ment Technologies |
Hexagon Polymers | Other operations |
Group-wide and adjustments |
Eliminations | Group |
|---|---|---|---|---|---|---|
| Net sales | 12 356 | 1 419 | 704 | – | – | 14 479 |
| Operating earnings (EBIT1) | 2 469 | 143 | 6 | -70 | – | 2 548 |
| Non-recurring items | -100 | – | – | – | – | -100 |
| Earnings before net interest expense | 2 369 | 143 | 6 | -70 | – | 2 448 |
| Net interest income/expenses | – | – | – | -319 | – | -319 |
| Earnings before taxes | 2 369 | 143 | 6 | -389 | – | 2 129 |
| Operating assets | 25 302 | – | 514 | 104 | -112 | 25 808 |
| Operating liabilities | -3 220 | – | -111 | -21 | 112 | -3 240 |
| Net operating assets | 22 082 | – | 403 | 83 | – | 22 568 |
| Of which share in associated companies' earnings | 1 | – | – | – | – | 1 |
| Shares in associated companies | 5 | – | 15 | – | – | 20 |
| Cash flow from operating activities | 2 410 | 145 | 19 | -819 | – | 1 755 |
| Cash flow from ordinary investment activities | -925 | -39 | -36 | -5 | – | -1 005 |
| Operating cash flow | 1 485 | 106 | -17 | -824 | – | 750 |
| Average number of employees | 7 720 | 950 | 381 | 11 | – | 9 062 |
| No. of employees at year-end | 8 024 | – | 401 | 11 | – | 8 436 |
| Depreciation/amortization and impairment losses | -641 | -38 | -37 | -3 | – | -719 |
| Net sales per recipient country |
Assets | Liabilities | Net | Cash flow from ordinary investment activities |
||||||
|---|---|---|---|---|---|---|---|---|---|---|
| GEOGRAPHICAL MARKETS | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 |
| Sweden | 758 | 1 557 | 428 | 496 | -177 | -194 | 251 | 302 | -20 | -52 |
| EMEA excluding Sweden | 4 971 | 6 449 | 16 799 | 18 386 | -1 323 | -1 744 | 15 476 | 16 642 | -527 | -695 |
| Americas | 2 883 | 3 589 | 1 760 | 2 010 | -1 136 | -1 136 | 624 | 874 | -243 | -199 |
| Asia | 3 199 | 2 884 | 5 667 | 5 848 | -709 | -1 098 | 4 958 | 4 750 | -31 | -59 |
| Elimination of intra-group items | – | – | -774 | -932 | 774 | 932 | – | – | – | – |
| Group | 11 811 | 14 479 | 23 880 | 25 808 | -2 571 | -3 240 | 21 309 | 22 568 | -821 | -1 005 |
1 Net operating assets corresponds with operating earnings inasmuch as items such as cash and cash equivalents, tax, interest and interest-bearing liabilities and provisions are not included.
No single customer represented more than 10 % of net sales in 2008 or 2009.
Other Group companies account for 100 per cent (100) of the Parent Company's sales and 10 per cent (34) of the Parent Company's purchases.
| 2009 | 2008 | |||||
|---|---|---|---|---|---|---|
| Men | Women | Total | Men | Women | Total | |
| Parent Company | 8 | 3 | 11 | 7 | 4 | 11 |
| Subsidiaries | 5 841 | 1 697 | 7 538 | 6 952 | 2 099 | 9 051 |
| Total, Group | 5 849 | 1 700 | 7 549 | 6 959 | 2 103 | 9 062 |
| Average number of | 2009 | 2008 | ||||
| employees by country | Men | Women | Total | Men | Women | Total |
| Sweden | 429 | 88 | 517 | 577 | 173 | 750 |
| Norway | 38 | 4 | 42 | 42 | 5 | 47 |
| Denmark | 65 | 27 | 92 | 80 | 41 | 121 |
| Finland | 4 | 0 | 4 | 7 | 1 | 8 |
| Nordic region | 536 | 119 | 655 | 706 | 220 | 926 |
| UK | 156 | 39 | 195 | 175 | 42 | 217 |
| Germany | 442 | 74 | 516 | 444 | 80 | 524 |
| Netherlands | 19 | 2 | 21 | 20 | 2 | 22 |
| Belgium | 35 | 5 | 40 | 75 | 11 | 86 |
| France | 259 | 95 | 354 | 266 | 108 | 374 |
| Switzerland | 1 194 | 229 | 1 423 | 1 289 | 261 | 1 550 |
| Italy | 275 | 70 | 345 | 285 | 75 | 360 |
| Portugal | 9 | 3 | 12 | 9 | 3 | 12 |
| Spain | 122 | 27 | 149 | 137 | 41 | 178 |
| Russia | 3 | 1 | 4 | 12 | 3 | 15 |
| Czech Republic | 5 | 1 | 6 | 53 | 5 | 58 |
| Turkey | 10 | 4 | 14 | 11 | 3 | 14 |
| Austria | 10 | 4 | 14 | 12 | 4 | 16 |
| Poland | 30 | 4 | 34 | 25 | 4 | 29 |
| Hungary | 8 | 3 | 11 | 7 | 4 | 11 |
| Rest of Europe | 2 577 | 561 | 3 138 | 2 820 | 646 | 3 466 |
| Total, Europe | 3 113 | 680 | 3 793 | 3 526 | 866 | 4 392 |
| USA | 922 | 220 | 1 142 | 1 169 | 293 | 1 462 |
| Canada | 239 | 82 | 321 | 256 | 83 | 339 |
| Mexico | 23 | 3 | 26 | 50 | 8 | 58 |
North America 1 184 305 1 489 1 475 384 1 859
| 2009 | 2008 | |||||
|---|---|---|---|---|---|---|
| Average number of employees by country, cont. | Men | Women | Total | Men | Women | Total |
| Argentina | 2 | 1 | 3 | – | – | – |
| Brazil | 70 | 27 | 97 | 53 | 18 | 71 |
| Chile | 26 | 4 | 30 | – | – | – |
| Peru | 12 | 1 | 13 | – | – | – |
| South America | 110 | 33 | 143 | 53 | 18 | 71 |
| South Africa | 3 | 2 | 5 | 1 | – | 1 |
| South Africa | 3 | 2 | 5 | 1 | – | 1 |
| Australia | 103 | 13 | 116 | 104 | 20 | 124 |
| Australia | 103 | 13 | 116 | 104 | 20 | 124 |
| China | 939 | 515 | 1 454 | 954 | 627 | 1 581 |
| United Arab Emirates | 5 | 1 | 6 | 4 | 1 | 5 |
| Hong Kong | 22 | 9 | 31 | 21 | 10 | 31 |
| India | 145 | 14 | 159 | 96 | 11 | 107 |
| Israel | 34 | 8 | 42 | 40 | 9 | 49 |
| Japan | 77 | 12 | 89 | 86 | 13 | 99 |
| Korea | 30 | 5 | 35 | 32 | 5 | 37 |
| Malaysia | 3 | 2 | 5 | 7 | 2 | 9 |
| Thailand | 5 | 5 | 10 | 6 | 6 | 12 |
| Singapore | 75 | 96 | 171 | 90 | 124 | 214 |
| Sri Lanka | – | – | – | 464 | 7 | 471 |
| Vietnamn | 1 | – | 1 | – | – | – |
| Asia | 1 336 | 667 | 2 003 | 1 800 | 815 | 2 615 |
| Total, Group | 5 849 | 1 700 | 7 549 | 6 959 | 2 103 | 9 062 |
| Board, CEO and other Senior Executives |
Other employees | ||||
|---|---|---|---|---|---|
| Salaries and Remuneration | 2009 | 2008 | 2009 | 2008 | |
| Parent Company | 19 | 27 | 7 | 7 | |
| (of which performance-related | |||||
| pay and bonus) | (–) | (8) | (–) | (–) | |
| Subsidiaries in Sweden | 19 | 14 | 135 | 249 | |
| Total | 38 | 41 | 142 | 256 | |
| Australia | 1 | 5 | 71 | 73 | |
| Austria | 1 | 1 | 6 | 8 | |
| Belgium | 4 | 6 | 17 | 32 | |
| Brazil | 2 | 4 | 11 | 11 | |
| Canada | 6 | 5 | 207 | 174 | |
| Chile | 1 | – | 4 | – | |
| China | 10 | 7 | 113 | 99 | |
| Czech Republic | 1 | 2 | 2 | 7 | |
| Denmark | 1 | 3 | 10 | 55 | |
| Finland | – | – | – | 3 | |
| France | 4 | 8 | 100 | 138 | |
| Germany | 23 | 18 | 248 | 268 | |
| Hong Kong | – | – | 13 | 12 | |
| Hungary | 0 | 1 | 2 | 2 | |
| India | 4 | 3 | 14 | 11 | |
| Ireland | – | – | 2 | – | |
| Israel | 2 | 2 | 23 | 28 | |
| Italy | 6 | 12 | 152 | 151 | |
| Japan | 10 | 7 | 46 | 41 | |
| Korea | – | – | 8 | 12 | |
| Malaysia | 0 | 0 | 1 | 1 | |
| Mexico | 1 | 2 | 7 | 10 |
| Board, CEO and other Senior Executives |
Other employees | |||
|---|---|---|---|---|
| Salaries and Remuneration, cont. | 2009 | 2008 | 2009 | 2008 |
| Netherlands | 1 | 2 | 11 | 11 |
| Norway | 1 | 1 | 9 | 16 |
| New Zeeland | – | – | 12 | – |
| Poland | 1 | 5 | 6 | 2 |
| Portugal | – | – | 4 | 4 |
| Russia | 0 | 1 | 2 | 4 |
| Singapore | 4 | 3 | 39 | 39 |
| South Africa | – | – | 3 | 0 |
| Spain | 6 | 5 | 50 | 63 |
| Sri Lanka | – | 0 | – | 9 |
| Switzerland | 51 | 63 | 814 | 842 |
| Thailand | 1 | 1 | 1 | 1 |
| Turkey | 1 | 1 | 2 | 2 |
| UK | 3 | 8 | 88 | 101 |
| United Arab Emirates | 1 | 2 | 2 | 1 |
| USA | 21 | 28 | 774 | 824 |
| Total, Group | 206 | 247 | 3 016 | 3 311 |
| (of which performance-related | ||||
| pay and bonus) | (15) | (45) | (156) | (205) |
| All Employees | ||||
| Social security expenses | 2009 | 2008 |
|---|---|---|
| Parent Company | 10 | 16 |
| (of which pension expenses) | (5) | (6) |
| Subsidiaries | 663 | 770 |
| (of which pension expenses) | (136) | (127) |
| Total, Group | 673 | 786 |
| (of which pension expenses) | (141) | (133) |
Pension expenses for Boards of Directors and Chief Executive Officers in the Group amounted to 12 MSEK (15). Pension commitments to Boards of Directors and Chief Executive Officers in the Group were 17 MSEK (12).
At year-end, one Board member was woman and four were men. The Chief Executive Officer and other senior executives were all men.
Of all the Group's Board members, Chief Executive Officers and other Senior Executives, 37 were women and 468 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.
| Pension obligations, 31 December 2009 |
Plan assets | Pension obligations |
Net |
|---|---|---|---|
| Switzerland | 3 169 | - 3 077 | 92 |
| UK | 198 | -204 | -6 |
| Germany | 34 | -99 | -65 |
| Italy | 0 | -61 | -61 |
| USA | 38 | -50 | -12 |
| Sweden | 0 | -35 | -35 |
| Other minor commitments | 11 | -43 | -32 |
| Total (fair/present value) | 3 450 | -3 569 | -119 |
| Capitalized actuarial gains/losses | -218 | ||
| Unrecognized expenses for prior years service | -16 | ||
| Unrecognized assets according to IAS 19 | -15 | ||
| Pension provisions, net | -368 | ||
| Of which: | |||
| Reported as asset | 15 | ||
| Reported as liability | -383 |
Any shortfall in the schemes 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.
| Defined-benefit pension schemes | 2009 | 2008 |
|---|---|---|
| Actuarial assumptions (%) | ||
| Discount interest rate | 3.7 | 3.7 |
| Expected return on plan assets | 5.0 | 4.9 |
| Inflation | 1.5 | 1.5 |
| Employee turnover | 14.1 | 8.4 |
| OVERVIEW | ||
| Provisions | ||
| Pension obligations | 3 569 | 3 809 |
| Fair value of plan assets | -3 450 | -3 416 |
| Pension obligations less plan assets | 119 | 393 |
| Unrecognized past service cost | 16 | 25 |
| Unrecognized assets according to IAS 19 | 15 | – |
| Actuarial gains (-)/losses (+) | 218 | 18 |
| Pension provision | 368 | 436 |
| Expenses | ||
| Pensions vested during the year | 144 | 119 |
| Interest on pension provision | 133 | 119 |
| Expected return on plan assets | -164 | -161 |
| Amortization of unrecognized actuarial gains(-)/losses(+) | 1 | 12 |
| Expenses for prior-year service | -8 | -7 |
| Immediate recognition in accordance with IAS 19 | 15 | – |
| Change in terms and conditions | -7 | – |
| Employees' own contribution | -62 | -41 |
| Pension expenses – defined-benefit plans | 52 | 41 |
| Pension expenses – defined-contribution plans | 89 | 92 |
| Total pension expenses | 141 | 133 |
| Defined-benefit pension schemes , cont. |
2009 | 2008 |
|---|---|---|
| SPECIFICATIONS | ||
| Pension obligations | ||
| Opening balance | 3 809 | 3 080 |
| Change in terms and conditions | -7 | – |
| Pensions vested during the year | 144 | 119 |
| Interest expense | 133 | 119 |
| Benefits paid | -273 | -186 |
| Acquired/divested subsidiaries | 51 | -9 |
| Settlement of pension obligations | -1 | – |
| Actuarial gains (-)/losses (+) | -91 | -64 |
| Currency translation differences | -196 | 750 |
| Closing balance | 3 569 | 3 809 |
| Plan assets | ||
| Opening balance | 3 416 | 3 018 |
| Expected return on plan assets | 164 | 161 |
| Funds contributed | 141 | 118 |
| Benefits paid | -254 | -177 |
| Acquired/divested subsidiaries | 52 | – |
| Actuarial gains (+)/losses (–) | 114 | -406 |
| Currency translation differences | -183 | 702 |
| Closing balance | 3 450 | 3 416 |
| Return on plan assets | ||
| Expected return on plan assets | 164 | 161 |
| Actuarial gains (+)/losses (–) | 114 | -406 |
| Actual return on plan assets | 278 | -245 |
| Provision for pensions | ||
| Opening balance | 436 | 418 |
| Pension expense, defined-benefit schemes | 113 | 77 |
| Funds contributed | -141 | -118 |
| Benefits paid | -19 | -9 |
| Expenses for prior-year service | -8 | -7 |
| Acquired/divested subsidiaries | -1 | -9 |
| Currency translation differences | -12 | 84 |
| Closing balance | 368 | 436 |
| Actuarial gains/losses | ||
| Opening balance, actuarial gains (-)/losses (+) | 18 | 331 |
| Amortisation during the year | -1 | -12 |
| Pension obligations, actuarial gains (-)/losses (+) | 91 | 64 |
| Plan assets, actuarial gains (-)/losses (+) | 114 | -406 |
| Other gains and losses | 8 | 11 |
| Acquired/divested companies | -6 | 2 |
| Currency translation differences | -6 | 28 |
| Closing balance, actuarial gains (-)/losses (+) | 218 | 18 |
| Unrecognized expenses for prior-year service Opening balance |
25 | 25 |
| Recognized this year | -8 | -7 |
| Unrecognized this year | 0 | 1 |
| Currency translation differences | -1 | 6 |
| Closing balance | 16 | 25 |
| Defined-benefit pension schemes, cont. | 2009 | 2008 |
|---|---|---|
| Unrecognised assets according to IAS 19 | ||
| Opening balance | – | – |
| Unrecognized during the year | 15 | – |
| Currency translation differences | 0 | – |
| Closning balance | 15 | – |
| Acquired subsidiaries | ||
| Increase in pension obligations (+) | 51 | – |
| Increase in plan assets (–) | -52 | – |
| Total, net | -1 | – |
| Defined-benefit pension schemes, cont. | 2009 | 2008 |
|---|---|---|
| Divested subsidiaries | ||
| Decrease in pension obligations (–) | – | -9 |
| Change in actuarial gains (–)/losses(+) | – | 2 |
| Total, net | – | -7 |
| Fair value of plan assets | ||
| Equities and similar financial instruments | 931 | 775 |
| Interest-bearing securities, etc. | 2 027 | 2 152 |
| Real estate | 492 | 489 |
| Total | 3 450 | 3 416 |
Pursuant to resolutions by the Annual General Meeting, the Chairman of the Board and Board members were paid remuneration totalling 2 075 000 SEK (2 425 000). 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 ordinary 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 se-
nior executives, comprises basic salary, variable remuneration, other benefits and pension. Other senior executives are William Gruber, President Hexagon Metrology (Vice President Hexagon AB from April 1, 2010), Håkan Halén, Chief Financial Officer, Frederick London, General Counsel, Bo Pettersson, Chief Technical Officer and Gert Viebke, Vice President of Strategy. Gert Viebke has left his position in February 2010. Variable remuneration is based on the group's profitability. During 2009 CEO and other senior executives resigned from variable remuneration due to the fact that the Group started a cost reduction program.
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 benefits1 |
Pension expenses |
Other remuneration |
Total |
|---|---|---|---|---|---|---|
| Chairman of the Board, Melker Schörling | 725 | – | – | – | – | 725 |
| Gun Nilsson | 550 | – | – | – | – | 550 |
| Mario Fontana | 450 | – | – | – | – | 450 |
| Ulf Henriksson | 350 | – | – | – | – | 350 |
| Chief Executive Officer, Ola Rollén | 10 135 | – | – | 2 027 | – | 12 162 |
| Other senior executives (five people) | 17 666 | – | 1 756 | 2 013 | – | 21 435 |
| Total | 29 876 | – | 1 756 | 4 040 | – | 35 672 |
1 Other benefits comprise of company cars and benefits from free rent.
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 20 per cent of pensionable salaries. The pensionable age of other senior executives is 65. Pension premiums for four of the other senior executives are 20–25 per cent of pensionable salary and for the fifth senior executive 7 per cent of pensionable salary. Pensionable salary means basic salary.
Notice period for Chief Executive Officer is six months. Only if the Chief Executive Officer's employment is terminated by the Company will severance pay, corresponding to 18 months' basic 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 depending on age and corresponding to 12 to 18 months. During the notice period, only basic salary is payable.
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. As a consequens of the distribution of the shares in HexPol AB in June 2008, the cash portion was adjusted to 473.80 CHF per option.
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 2009, this expense was 2 MSEK (6).
The Chief Executive Officer and other senior executives (five people) do not participate in this stock option plan.
| WARRANTS | Exercise period, until | Number of options/warrants |
Number of subscription qualifying shares in Hexagon to be received free of charge |
To receive in cash less exercise price per Hexagon share |
Share price on exercise |
|---|---|---|---|---|---|
| Warrant plan in Leica Geosystems | |||||
| Opening balance 2009 | 2010-04-07 | 503 | 7 545 | 193.59 | |
| 2009-04-08 | 438 | 6 570 | 145.78 | ||
| 2011-04-08 | 2 568 | 38 520 | 134.55 | ||
| 2012-04-08 | 10 816 | 162 240 | 65.76 | ||
| Total opening balance 2009 | 14 325 | 214 875 | 85.03 | ||
| Changes in 2009 | |||||
| Warrants exercised for cash | -375 | 88.00 | |||
| Warrants exercised for cash and Hexagon shares | -10 468 | 60.00 | |||
| Forfeited warrants | -142 | ||||
| Closing balance 2009 | 2010-04-07 | 100 | 1 500 | 182.80 | |
| 2011-04-08 | 400 | 6 000 | 127.06 | ||
| 2012-04-08 | 2 840 | 42 600 | 62.10 | ||
| Total closing balance 2009 | 3 340 | 50 100 | 73.49 |
In order to offer the opportunity for senior executives and key employees to participate in the increase in value of the company's share, increase their interest in the company's development and to stimulate a continued company loyalty over the forthcoming years, an Extraordinary General Meeting resolved in December 2007 to introduce a new warrant programme. The warrants were transferred to the employees in the beginning of April 2008. The price was fixed to 20 SEK per option. Each warrant conferred the right to subscribe for one Hexagon share for 177 SEK per share. The exercise period was decided to be 2011-07-02, inclusive, until 2012-01-02, inclusive. The transfer of the warrants was made at market value
since the exercise price of 177 SEK per share was calculated using the Black-Scholes' method with the stipulated price per option and the exercise period as the base. As a consequence of the distribution of the shares in HexPol AB in June 2008, the number of subscription-qualifying shares was adjusted to be 1.04 per warrant and the exercise
price to 170.20 SEK per share.
| Exercise period, until | Number of options | Number of subscription-qualifying shares in Hexagon |
To be paid in cash per subscribed Hexagon share |
||
|---|---|---|---|---|---|
| Warrant plan in Hexagon AB | |||||
| Opening balance 2009 | 2012-01-02 | 1 391 000 | 1 446 640 | 170.20 | |
| Closing balance 2009 | 2012-01-02 | 1 391 000 | 1 446 640 | 170.20 | |
| Warrants in Leica Geosystems | Warrants in Hexagon AB | ||||
| WARRANTS, 31 December 2009 | Number | Acquisition price (CHF) |
Number | Acquisition price (SEK) |
|
| CEO | – | – | – | – | |
| Other senior executives (five people) | – | – | 140 000 | 2 800 000 | |
| Other employees | 3 340 | – | 1 251 000 | 25 020 000 | |
| Total | 3 340 | – | 1 391 000 | 27 820 000 |
Upon full exercise of outstanding warrant programs, dilution would be 1.0 per cent of the share capital and 0.7 per cent of the voting rights.
| NOTE 5. Other operating revenues and operating expenses | ||||
|---|---|---|---|---|
| Group | Parent Company | |||
| 2009 | 2008 | 2009 | 2008 | |
| Operating revenues | ||||
| Capital gains on divestment | ||||
| of fixed assets | 1 | 7 | – | – |
| Exchange rate gains | 88 | 6 | – | – |
| Government Grants | 4 | – | – | – |
| Other | 46 | 71 | – | – |
| Total | 139 | 84 | – | – |
| Operating expenses | ||||
| Exchange rate losses | 114 | – | – | – |
| Acquisition costs | – | 9 | – | – |
| Government grants | -4 | – | – | – |
| Other | 79 | 37 | – | – |
| Total | 189 | 46 | – | – |
| Group | Parent Company | |||
|---|---|---|---|---|
| 2009 | 2008 | 2009 | 2008 | |
| Auditing | ||||
| Ernst & Young | 19 | 19 | 1 | 1 |
| Other | 1 | 1 | – | – |
| Total | 20 | 20 | 1 | 1 |
| Assignments other than auditing |
||||
| Ernst & Young | 2 | 2 | – | – |
| Other | 6 | 13 | – | – |
| Total | 8 | 15 | – | – |
| NOTE 7. Non-recurring items | |||
|---|---|---|---|
| Business area | 2009 | 2008 | |
| Hexagon Measurement Technologies | Restructuring costs | -175 | -100 |
| Other operations | Restructuring costs | –9 | – |
| Total | -184 | -100 | |
| Function | 2009 | 2008 | |
| Cost of goods sold | -51 | -34 | |
| Sales Expenses | -50 | -22 | |
| Administration Expenses | -34 | -37 | |
| Research and Development Expenses | -10 | -7 | |
| Other operating expense | -39 | - | |
| Total | -184 | -100 |
During 2009 several of the subsidiaries within the group have received government grants. In the table below is shown how the grants are allocated to functions.
| Function | 2009 |
|---|---|
| Cost of goods sold | 97 |
| Sales Expenses | 34 |
| Administration Expenses | 6 |
| Research and Development Expenses | 4 |
| Other operating income | 4 |
| Other operating expense | 4 |
| Total | 149 |
Government Grants for 2008 were significant lower than for 2009 and are not specified separately.
| Group | Parent Company | |||
|---|---|---|---|---|
| 2009 | 2008 | 2009 | 2008 | |
| Earnings from shares in Group companies | ||||
| Dividend from subsidiaries | – | – | 549 | 1 679 |
| Capital gain | – | – | – | 9 |
| Total | – | – | 549 | 1 688 |
| Group | Parent Company | |||
| 2009 | 2008 | 2009 | 2008 | |
| Earnings from shares in associated companies | ||||
| Share in associated company earnings | -2 | 1 | – | – |
| Total | -2 | 1 | – | – |
| Interest income | ||||
| Interest income, bank accounts | 9 | 36 | 4 | 10 |
| Interest income, inter-company receivables | – | – | 143 | 248 |
| Total | 9 | 36 | 147 | 258 |
| Interest expense | ||||
| Interest expense, inter-company liabilities | – | – | -26 | -114 |
| Interest expense on financial liabilities valued at accrued acquisition value | - 148 | -336 | -131 | -322 |
| Exchange rate differences | – | – | -211 | -11 |
| Other financial expenses | -19 | -19 | -9 | -8 |
| Total | -167 | -355 | -377 | -455 |
| Group | ||
|---|---|---|
| 2009 | 2008 | |
| Tax on earnings for the year | ||
| Income tax | -198 | -243 |
| Total current tax | -198 | -243 |
| Deferred tax on earnings for the year | 10 | -27 |
| Share of tax in associated companies | 0 | 0 |
| Total tax on earnings for the year | -188 | -270 |
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 | ||
|---|---|---|
| 2009 | 2008 | |
| Deferred tax assets (liabilities) comprise: | ||
| Fixed assets | -763 | -660 |
| Inventories | 120 | 146 |
| Customer receivables | 5 | 4 |
| Provisions | 35 | 43 |
| Hedge of net assets in foreign subsidiaries | 489 | 602 |
| Other | -54 | -108 |
| Unutilised loss carry-forwards and similar deductions | 653 | 651 |
| Less items not satisfying criteria for being recognized as assets | -304 | -422 |
| Total | 181 | 256 |
| According to the balance sheet: | ||
| Deferred tax assets | 590 | 587 |
| Deferred tax liabilities | -409 | -331 |
| Total, net | 181 | 256 |
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 and owning company in the US.
| Reconciliation of the year's change in current and | Group | |
|---|---|---|
| deferred tax assets/liabilities | 2009 | 2008 |
| DEFERRED TAXES | ||
| Opening balance, net | 256 | -176 |
| Change via income statement: | ||
| Deferred tax on earnings | -14 | -32 |
| Change in reserve for deductions not satisfying criteria for being | ||
| recognized as assets | 66 | -7 |
| Change in tax rates and items pertaining to prior years | -42 | 12 |
| Total | 10 | -27 |
| Reconciliation of the year's change in current and | Group | |
|---|---|---|
| deferred tax assets/liabilities, cont. | 2009 | 2008 |
| Change via acquisitions and divestments | -2 | -4 |
| Changes recognized in Other comprehensive income, etc. | -113 | 607 |
| Translation difference | 30 | -144 |
| Closing balance, net | 181 | 256 |
| CURRENT TAXES | ||
| Opening balance, net | -152 | -225 |
| Change via income statement: | ||
| Current tax on earnings | -194 | -281 |
| Items pertaining to prior years | -4 | 38 |
| Total | -198 | -243 |
| Change via acquisitions and divestments | 3 | 5 |
| Payments, net | 248 | 344 |
| Translation difference | 5 | -33 |
| Closing balance, net | -94 | -152 |
| The Group's unutilized loss carry-forwards and similar | Group |
|---|---|
| deductions mature as follows: | 2009 |
| Year | |
| 2010 | 12 |
| 2011 | 0 |
| 2012 | 4 |
| 2013 | 6 |
| 2014 and later | 451 |
| Indefinitely | 1 895 |
| Total | 2 368 |
| The difference between nominal Swedish tax rate and effec | Group | ||
|---|---|---|---|
| tive tax rate arises as follows: | 2009 | 2008 | |
| Earnings before tax | 1 442 | 2 129 | |
| Tax pursuant to Swedish nominal tax rate | -379 | -596 | |
| Difference in tax rates in foreign businesses | 201 | 280 | |
| Revaluation of loss carry-forwards, etc. | 66 | -7 | |
| Non-deductible expenses | -75 | -43 | |
| Non-taxable revenue | 37 | 50 | |
| Change in tax rates, etc., | -38 | 46 | |
| Tax, income statement | -188 | -270 |
The market value of assets and liabilities in subsidiaries taken over and total cash flow from acquisitions is divided as follows:
| 2009 | 2008 | |
|---|---|---|
| Goodwill | 21 | 583 |
| Other intangible fixed assets | 20 | 206 |
| Tangible fixed assets | 7 | 32 |
| Financial fixed assets | 2 | -3 |
| Current receivables, inventories, etc. | 35 | 221 |
| Cash and cash equivalents | – | 73 |
| Provisions | 133 | -53 |
| Long-term liabilities | 3 | -19 |
| Current liabilities, etc. | 1 | -169 |
| Net assets | 222 | 871 |
| Acquisition price | 67 | 859 |
| Acquisition cost | 4 | 15 |
| Total acquisition expenditure | 71 | 874 |
| Less cash and cash equivalents in acquired Group companies | – | -73 |
| Less unpaid transaction costs | – | -2 |
| Less unpaid portion of acquisition price | – | -114 |
| Plus payment of unpaid acquisition costs from prior years | 1 | 2 |
| Plus payment of unpaid portion | ||
| of acquisition price from prior years | 132 | 90 |
| Plus payment for Leica Geosystems | 18 | 21 |
| Cash flow from acquired Group companies, net | 222 | 798 |
Market value of transferred assets and liabilities of subsidiaries and the total cash flow from divestments is divided as follows:
| 2009 | 2008 | |
|---|---|---|
| Goodwill | – | 1 094 |
| Other intangible fixed assets | – | 14 |
| Tangible fixed assets | – | 722 |
| Financial fixed assets | – | 1 |
| Current receivables, inventories, etc. | – | 789 |
| Cash and cash equivalents | – | 220 |
| Provisions | – | -29 |
| Long-term liabilities | – | -1 406 |
| Current liabilities, etc. | – | -525 |
| Net assets | – | 880 |
| Dividend to parent company's shareholders | – | 880 |
| Total sales revenue | – | - |
| Less cash and cash equivalents in divested units | – | -220 |
| Cash flow from divested Group companies, net | – | -220 |
Most of the acquisition analyses pertaining to the year's acquisitions have been finalized. However, the acquisition analyses pertaining to a few of the acquisitions may require calibration during 2010, although only by minor amounts. 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 does not issue 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. Since each acquisition in 2008 and 2009 was insignificant in size, all acquisitions are reported in summary. The only divestment made during 2008 and 2009 was the distribution of the shares in Hexpol to Hexagon's shareholders in 2008.
| Intangible fixed assets 2009 |
Capitalized devel opment expenses |
Patents and trademarks Goodwill |
Other intangible fixed assets |
Total | |
|---|---|---|---|---|---|
| Acquisition value, opening balance | 2 131 | 4 251 | 10 712 | 1 309 | 18 403 |
| Translation differences | -130 | -239 | -340 | -15 | -724 |
| Investments | 672 | – | – | 1 | 673 |
| Investments via acquisitions of subsidiaries | 3 | 0 | 18 | 19 | 40 |
| Sales/disposals | -9 | – | – | – | -9 |
| Reclassification | 2 | 3 | -4 | 0 | 1 |
| Acquisition value, closing balance | 2 669 | 4 015 | 10 386 | 1 314 | 18 384 |
| Amortization, opening balance | -700 | -113 | -190 | -344 | -1 347 |
| Translation differences | 22 | 7 | – | 12 | 41 |
| Amortization for the year | -328 | -35 | – | -109 | -472 |
| Sales/disposals | 9 | – | – | 0 | 9 |
| Reclassification | 2 | -2 | – | 1 | 1 |
| Amortization, closing balance | -995 | -143 | -190 | -440 | -1 768 |
| Impairments, opening balance | -155 | – | – | -69 | -224 |
| Translation differences | 7 | – | – | -5 | 2 |
| Impairment reversal | 4 | – | – | – | 4 |
| Reclassification | 96 | – | – | -98 | -2 |
| Impairments, closing balance | -48 | – | – | -172 | -220 |
| Carrying value | 1 626 | 3 872 | 10 196 | 702 | 16 396 |
| 2008 | Capitalized devel opment expenses |
Patents and trademarks |
Goodwill | Other intangible fixed assets |
Total |
|---|---|---|---|---|---|
| Acquisition value, opening balance | 1 367 | 3 255 | 9 737 | 1 053 | 15 412 |
| Translation differences | 298 | 918 | 1 509 | 121 | 2 846 |
| Investments | 613 | – | – | 20 | 633 |
| Investments via acquisitions of subsidiaries | 1 | 78 | 583 | 127 | 789 |
| Sales/disposals | -157 | – | – | 0 | -157 |
| Sales via divestments of subsidiaries | -17 | – | -1 118 | -11 | -1 146 |
| Reclassification | 26 | – | 1 | -1 | 26 |
| Acquisition value, closing balance | 2 131 | 4 251 | 10 712 | 1 309 | 18 403 |
| Amortization, opening balance | -408 | -61 | -214 | -212 | -895 |
| Translation differences | -48 | -23 | 1 | -40 | -110 |
| Amortization for the year | -293 | -29 | – | -96 | -418 |
| Sales/disposals | 50 | – | – | 0 | 50 |
| Sales via divestments of subsidiaries | 11 | – | 23 | 4 | 38 |
| Reclassification | -12 | – | – | 0 | -12 |
| Amortization, closing balance | -700 | -113 | -190 | -344 | -1 347 |
| Impairments, opening balance | -294 | – | – | -72 | -366 |
| Translation differences | -51 | – | – | 3 | -48 |
| Impairments for the year | -4 | – | – | – | - |
| Sales/disposals | 194 | – | – | – | 194 |
| Impairments, closing balance | -155 | – | – | -69 | -224 |
| Carrying value | 1 276 | 4 138 | 10 522 | 896 | 16 832 |
Capitalized expenditure on research and development 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.
At 31 December 2009, trademarks accounted for 3 186 (3 573) MSEK of the total carrying value of patents and trademarks.
Other intangible fixed assets primarily consist of customer bases identified upon acquisitions.
| GROUP Tangible fixed assets 2009 |
Buildings | Land and other real estate |
Machinery and other technical plants |
Equipment, tools and installation |
Construction in progress and suppliers advances |
Total |
|---|---|---|---|---|---|---|
| Acquisition value, opening balance | 1 115 | 236 | 2 018 | 470 | 20 | 3 859 |
| Translation differences | -57 | -9 | -87 | -16 | -1 | -170 |
| Investments | 2 | – | 97 | 54 | 4 | 157 |
| Investments via acquisitions of subsidiaries | 5 | – | 1 | 1 | – | 7 |
| Sales/disposals | -1 | – | -13 | -12 | – | -26 |
| Reclassification | 76 | -1 | 180 | 7 | -10 | 252 |
| Acquisition value, closing balance | 1 140 | 226 | 2 196 | 504 | 13 | 4 079 |
| Depreciation, opening balance | -381 | -7 | -1 294 | -274 | – | -1 956 |
| Translation differences | 18 | 0 | 66 | 9 | – | 93 |
| Depreciation for the year | -46 | -3 | -171 | -67 | – | -287 |
| Sales/disposals | – | 0 | 12 | 8 | – | 20 |
| Reclassification | -77 | – | -167 | -11 | – | -255 |
| Depreciation, closing balance | -486 | -10 | -1 554 | -335 | – | -2 385 |
| Carrying value | 654 | 216 | 642 | 169 | 13 | 1 694 |
| 2008 | Buildings | Land and other real estate |
Machinery and other technical plants |
Equipment, tools and installation |
Construction in progress and suppliers advances |
Total |
|---|---|---|---|---|---|---|
| Acquisition value, opening balance | 1 135 | 220 | 2 441 | 611 | 80 | 4 487 |
| Translation differences | 139 | 40 | 273 | 52 | 2 | 506 |
| Investments | 49 | 9 | 224 | 69 | 36 | 387 |
| Investments via acquisitions of subsidiaries | 35 | – | 0 | 13 | – | 48 |
| Sales/disposals | -4 | -3 | -25 | -12 | – | -44 |
| Sales via divestments of subsidiaries | -300 | -36 | -905 | -167 | -77 | -1 485 |
| Reclassification | 61 | 6 | 10 | -96 | -21 | -40 |
| Acquisition value, closing balance | 1 115 | 236 | 2 018 | 470 | 20 | 3 859 |
| Depreciation, opening balance | -374 | -10 | -1 465 | -361 | – | -2 210 |
| Translation differences | -41 | 0 | -189 | -26 | – | -256 |
| Investments via acquisitions of subsidiaries | -16 | – | – | – | – | -16 |
| Depreciation for the year | -44 | -3 | -177 | -73 | – | -297 |
| Sales/disposals | 2 | 0 | 20 | 12 | – | 34 |
| Sales via divestments of subsidiaries | 105 | 6 | 521 | 130 | – | 762 |
| Reclassification | -13 | – | -4 | 44 | – | 27 |
| Depreciation, closing balance | -381 | -7 | -1 294 | -274 | – | -1 956 |
| Carrying value | 734 | 229 | 724 | 196 | 20 | 1 903 |
The taxable value of properties in Sweden was 13 MSEK (10) for buildings and 9 MSEK (6) for land.
| PARENT COMPANY 2009 |
Patents and trademarks |
Buildings | Land | Equipment | Total |
|---|---|---|---|---|---|
| Acquisition value, opening balance | 2 | 0 | 0 | 2 | 4 |
| Investments | – | – | – | 0 | 0 |
| Acquisition value, closing balance | 2 | 0 | 0 | 2 | 4 |
| Depreciation, opening balance | -2 | 0 | 0 | -1 | -3 |
| Depreciation for the year | – | – | – | 0 | 0 |
| Depreciation, closing balance | -2 | 0 | 0 | -1 | -3 |
| Carrying value | 0 | 0 | 0 | 1 | 1 |
| 2008 | Patents and trademarks |
Buildings | Land | Equipment | Total |
|---|---|---|---|---|---|
| Acquisition value, opening balance | 2 | 0 | 0 | 2 | 4 |
| Investments | – | – | – | 0 | 0 |
| Acquisition value, closing balance | 2 | 0 | 0 | 2 | 4 |
| Depreciation, opening balance | -2 | 0 | 0 | -1 | -3 |
| Depreciation for the year | – | – | – | 0 | 0 |
| Depreciation, closing balance | -2 | 0 | 0 | -1 | -3 |
| Carrying value | 0 | 0 | 0 | 1 | 1 |
The taxable value of properties was – MSEK (-) for buildings and – MSEK (-) for land.
| Group | |||
|---|---|---|---|
| Amortisation of intangible assets allocated by function: | 2009 | 2008 | |
| Cost of goods sold | -3 | -4 | |
| Sales expenses | -12 | -14 | |
| Administration expenses | -38 | -32 | |
| Research and Development expenses | -417 | -365 | |
| Other operating expenses | -2 | -3 | |
| Total | -472 | -418 |
| Group | ||
|---|---|---|
| Depreciation of tangible assets allocated by function: | 2009 | 2008 |
| Cost of goods sold | -148 | -179 |
| Sales expenses | -30 | -16 |
| Administration expenses | -48 | -60 |
| Research and Development expenses | -24 | -15 |
| Other operating expenses | -38 | -26 |
| Total | -288 | -296 |
| Shares in associated companies |
Other long-term securities holdings |
Other long-term receivables |
||||
|---|---|---|---|---|---|---|
| GROUP | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 |
| Opening balance | 20 | 10 | 39 | 11 | 50 | 55 |
| Translation differences | -1 | 0 | 1 | 1 | -1 | 1 |
| Investments | – | 15 | 50 | 29 | 6 | 2 |
| Investments via acquisitions of subsidiaries | – | 1 | – | – | – | – |
| Sales via divestment of subsidiaries | – | – | – | – | -1 | -1 |
| Earnings participations, etc. | -2 | 1 | – | – | – | – |
| Impairment | – | – | – | -2 | – | – |
| Sales/disposals | -2 | -7 | -1 | – | – | -7 |
| Reclassification | – | – | – | – | -29 | – |
| Closing balance | 15 | 20 | 89 | 39 | 25 | 50 |
| Shares in Group companies |
Receivables from Group companies |
Other financial fixed assets |
||||
|---|---|---|---|---|---|---|
| PARENT COMPANY | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 |
| Opening balance | 12 137 | 12 840 | 5 429 | 6 076 | 1 | – |
| Purchases | 13 | 40 | – | – | – | 1 |
| Divestment | – | –17 | – | – | – | – |
| Increase/decrease in receivables | – | – | –337 | –647 | – | – |
| Dividend (shares in Hexpol) | – | –726 | – | – | – | – |
| Closing balance | 12 150 | 12 137 | 5 092 | 5 429 | 1 | 1 |
| Group | Parent Company | |||||
| OTHER LONG-TERM SECURITIES HOLDINGS | 2009 | 2008 | 2009 | 2008 | ||
| Brilliant Telecommunications Inc. | 33 | 30 | – | – | ||
| Trimek | 7 | 7 | – | – | ||
| Navgeocom | 49 | – | – | – | ||
| Others | 0 | 2 | – | – | ||
| Total | 89 | 39 | – | – |
Hexagon believes that the acquisition cost for the other long-term securities holdings represents a close approximation of fair value.
| No. | Portion of share capital and |
Carrying amount | ||||
|---|---|---|---|---|---|---|
| Subsidiaries of Hexagon AB | Corp ID. No. | Reg. Office/Country | of shares | voting rights, % | 2009 | 2008 |
| Leica Geosystems AG | – | Switzerland | 32 000 | 100 | 10 403 | 10 390 |
| SwePart AB | 556046-3407 | Stockholm, Sweden | 8 662 500 | 100 | 218 | 218 |
| Hexagon Förvaltning AB | 556016-3049 | Stockholm, Sweden | 200 000 | 100 | 206 | 206 |
| 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 | – | – | – | 311 |
| Hexagon Acquistion Inc. 1 | – | Canada | 1 | 100 | 986 | 675 |
| Hexagon Metrology SrO 2 | – | Czech Republic | 1 | 10 | 0 | 0 |
| Other companies, mainly dormant | – | – | – | 100 | 0 | 0 |
| Total | 12 150 | 12 137 |
1 NovAtel Inc. and Hexagon Acquisition Inc. have been merged during 2009.
2 Remaining 90 percent of the shares are owned by Hexagon Metrology AB.
| Share in associated companies' earnings |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Portion of, % | Portion of sharehold |
Carrying amount | Group | Before tax |
Tax | Before tax |
Tax | ||||
| Type of ownership | Number of shares |
Share capital |
Voting rights |
ers' equity MSEK |
2009 | 2008 | 2009 | 2009 | 2008 | 2008 | |
| Outokumpu Nordic Brass AB | Joint venture | 10 500 | 50.0 | 50.0 | 10 | 15 | 15 | 0 | 0 | 0 | 0 |
| Point Inc. | Joint Venture | – | – | – | – | – | 4 | -1 | 0 | 2 | 0 |
| Beamrider Ltd | Joint Venture | 50 000 | 50.0 | 50.0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| H&S Server and Laser | Joint Venture | – | 50.0 | 50.0 | 0 | 0 | 1 | -1 | 0 | -1 | 0 |
| Total | 10 | 15 | 20 | -2 | 0 | 1 | 0 |
Outokumpu Nordic Brass AB, corporate identity no. 556499-3979, has its registered office in Valdemarsvik, Sweden.
Point Inc. has its registered office in Kansas, USA. The company has been sold during 2009.
Beamrider Ltd has its registered office in Worcestershire, Great Brittain.
H&S Server and Laser has its registred office in Las Vegas, USA
Since these holdings are insignificant in relation to the Group as a whole, no further disclosures are provided.
| Status | |||||||
|---|---|---|---|---|---|---|---|
| Not due | Due less than 30 days |
Due between 30–60 days |
Due between 61–90 days |
Due between 91–120 days |
Older than 120 days |
Total | |
| Aging analysis of receivables, 31 December 2009, net of impairment losses | |||||||
| Other non-current receivables | 25 | – | – | – | – | – | 25 |
| Account receivables | 1 896 | 270 | 128 | 74 | 50 | 197 | 2 615 |
| Receivables asssociated companies | 15 | – | – | – | – | – | 15 |
| Other current receivables | 199 | 2 | 2 | 0 | 1 | 5 | 209 |
| Total | 2 135 | 270 | 130 | 74 | 51 | 202 | 2 864 |
| Aging analysis of receivables, 31 December 2008, net of impairment losses | |||||||
| Other non-current receivables | 50 | – | – | – | – | – | 50 |
| Account receivables | 1 959 | 554 | 195 | 159 | 90 | 194 | 3 151 |
| Receivables asssociated companies | 10 | – | – | – | – | – | 10 |
| Other current receivables | 289 | 59 | 5 | 0 | 1 | 8 | 362 |
| Total | 2 308 | 613 | 200 | 159 | 91 | 202 | 3 573 |
| Reserve for doubtful receivables | 2009 | 2008 |
|---|---|---|
| Opening balance | 165 | 139 |
| Reserve for anticipated losses | 35 | 65 |
| Adjustment for definitive losses | -17 | -35 |
| Recovery of provisions | -9 | -18 |
| Acquired/divested companies | – | 3 |
| Translation differences | -14 | 11 |
| Closing balance | 160 | 165 |
Trade receivable exposures are managed locally in the operating units where they arise and credit limits are set as deemed appropriate for the customer. Hexagon's business activities are conducted in a large number of geographical markets, with numerous customer categories. The underlying local economic and sovereign risks vary throughout the world. Where appropriate, the Group endeavours to minimise risks by the use of trade finance instruments such as letters of credit, insurance and advance payments from customers.
Each operating unit establishes an allowance for impairment that represents its estimate of incurred losses in respect of specific trade and other receivables where it is deemed that a receivable may not be recoverable. When the debt is deemed irrecoverable, the allowance account is written off against the underlying receivable.
A credit assessment is done for all new customers. The assessment is based on several different sources, for example, credit information companies, prior company trading history and internet.
| NOTE 16. Prepaid expenses and accrued income/accrued |
|---|
| expenses and deferred income |
| Group | Parent Company | |||
|---|---|---|---|---|
| 2009 | 2008 | 2009 | 2008 | |
| Prepaid expenses and accrued income | ||||
| Accrued invoicing | 209 | 122 | – | – |
| Prepaid rent | 15 | 15 | 1 | 0 |
| Prepaid insurance | 8 | 8 | – | – |
| Accrued interest income | 0 | 3 | – | 3 |
| Prepaid products | 31 | – | – | – |
| Prepaid acquisition costs | 16 | 6 | 0 | 0 |
| Prepaid bank expenses | – | – | 15 | 14 |
| Other items | 11 | 103 | 2 | 4 |
| Total | 290 | 257 | 18 | 21 |
| Accrued expenses and deferred income | ||||
| Accrued personnel-related expenses | 437 | 595 | 3 | 3 |
| Received goods and services, not invoiced | 21 | 20 | – | – |
| Prepaid service revenues | 35 | 48 | – | – |
| Other prepaid revenues | 299 | 334 | – | – |
| Accrued consultant fees | 20 | 30 | – | – |
| Accrued R&D expenses | 14 | – | – | – |
| Accrued royalties | 8 | – | – | – |
| Accrued interest expenses | 7 | 76 | 7 | 75 |
| Accrued sales commission | 60 | 78 | – | – |
| Accrued installation and training expenses | 33 | 49 | – | – |
| Other items | 163 | 196 | 3 | 2 |
| Total | 1 097 | 1 426 | 13 | 80 |
| Number of shares | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Par value | Outstanding | Repurchased | Total issued | Share | |||||||
| PARENT COMPANY | per share, SEK |
Class A | Class B | Total | Class A | Class B | Total | Class A | Class B | capital Total MSEK |
|
| Opening balance 2008 | 2 | 11 812 500 | 253 537 485 | 265 349 985 | – | – | – | 11 812 500 | 253 537 485 | 265 349 985 | 531 |
| New issues – exercise of warrants | 2 | – | 169 785 | 169 785 | – | – | – | – | 169 785 | 169 785 | 0 |
| Repurchase of shares | 2 | – | –1 311 442 | –1 311 442 | – | –1 311 442 –1 311 442 | – | – | – | – | |
| Closing balance 2008 | 2 11 812 500 | 252 395 828 | 264 208 328 | – | –1 311 442 –1 311 442 | 11 812 500 | 253 707 270 265 519 770 | 531 | |||
| Sale of own shares - exercise of warrants | 2 | – | 138 825 | 138 825 | – | 138 825 | 138 825 | – | – | – | – |
| Closing balance 2009 | 2 11 812 500 | 252 534 653 | 264 347 153 | – | –1 172 617 –1 172 617 | 11 812 500 | 253 707 270 265 519 770 | 531 |
In 2009, the Parent Company used repurchased shares for the redemption of options. In 2008, the Parent Company effected a new issue and conversion of options to shares.
| AVERAGE NUMBER OF SHARES BEFORE AND AFTER DILUTION, THOUSANDS | 2009 | 2008 |
|---|---|---|
| Average number of shares before dilution | 264 284 | 265 317 |
| Estimated average number of potential shares pertaining to warrants plans | 227 | 451 |
| Average number of shares after dilution | 264 511 | 265 768 |
Each A-share entitles the holder to 10 votes and each B-share to 1 vote. All shares entail the same right to share of profits in Hexagon. For more information on the Hexagon share, reference is made to page 42-45.
| NOTE 18. Other provisions | |||||
|---|---|---|---|---|---|
| GROUP | Restructuring measures |
Warranty provi sion |
Other provisions |
Estimated supplementary payments for acquired companies |
Total |
| Closing balance 2007 | 26 | 67 | 92 | 215 | 400 |
| Provision | 84 | 37 | 27 | 8 | 156 |
| Present value adjustment | – | – | – | 9 | 9 |
| Increase through acquisition of businesses | – | – | – | 91 | 91 |
| Decrease through divestments of businesses | – | – | -27 | – | -27 |
| Payment o f supplementary acquisition considerations | – | – | – | -84 | -84 |
| Utilization | -28 | -40 | -23 | – | -91 |
| Reclassification | – | 8 | -17 | -6 | -15 |
| Translation difference | 13 | 23 | 5 | 33 | 74 |
| Closing balance 2008 | 95 | 95 | 57 | 266 | 513 |
| Provision | 184 | 74 | 2 | 6 | 266 |
| Present value adjustment | – | – | – | 3 | 3 |
| Increase through acquisition of businesses | – | 3 | 3 | – | 6 |
| Payments of supplementary acquisition considerations | – | – | – | -147 | -147 |
| Utilization | -196 | -83 | -12 | – | -291 |
| Reclassification | 3 | 5 | – | – | 8 |
| Translation difference | –5 | -4 | -2 | -17 | -28 |
| Closing balance 2009 | 81 | 90 | 48 | 1112 | 3301 |
1 Of which, current portion: 265 (339).
2 Estimated amounts fall due within two years
Hexagon is a net borrower and has extensive operations outside Sweden and is therefore exposed to various financial risks. The Group Treasury Policy, approved by the Board, stipulates the rules and limitations for the management of the different financial risks within the Group.
Hexagon's treasury operations are centralized to the Group's internal bank, which is in charge of coordinating the financial risk management. The internal bank is also responsible for the Group's external borrowing and its internal financing. Centralization entails substantial economies of scale, lower financing cost 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. All relevant exposures are monitored continuously and are reported to the Group Management on a regular basis.
Foreign exchange risk is the risk that currency exchange rate fluctuations will have an adverse effect on cash flow, income statement and balance sheet. Furthermore, the comparability of Hexagon's earnings between periods will be affected by changes in currency exchange rates.
Hexagon's operations are located mainly outside Sweden and sales, costs and net assets are therefore primarily denominated in other currencies than SEK.
Currency exposure originates both from transactions in foreign currencies in the individual operating entities, i.e. transaction exposure, and from translation of earnings and net assets into SEK upon consolidation of the Group, i.e. translation exposure.
Sale and purchase of goods and services in currencies other than the subsidiary's functional currency give rise to transaction exposure. Transaction exposure is, as far as possible, concentrated to the countries where manufacturing entities are located. This is achieved by invoicing the sales entities in their respective functional currency.
Transaction exposure is hedged in accordance with the Group Treasury Policy. Contracted transactions, i.e. accounts receivable and payable, and orders booked, are fully hedged. In addition, 40 to 100 per cent of a rolling six month exposure forecast is hedged. Hedging of transaction exposure is made by entering into foreign exchange forwards and swaps.
As of 31 December 2009, outstanding foreign exchange derivatives, used for hedging transaction exposure, had a net market value of 9 MSEK (-2). Cash flow hedge accounting is applied and hereby the market value is partly deferred in the hedge reserve in equity to offset the gains/losses on hedged future sales and purchases in foreign currencies. The unrealized result deferred in equity will at unchanged exchange rates affect the income statement during 2010.
| 2010 | 2011 and later | Total | |||||
|---|---|---|---|---|---|---|---|
| Currency | Sold | Bought | Sold | Bought | Sold | Bought | Net |
| AUD | – | 0 | – | – | – | 0 | 0 |
| BRL | -4 | – | – | – | -4 | – | -4 |
| CAD | – | 216 | – | – | – | 216 | 216 |
| CHF | -66 | 343 | – | – | -66 | 343 | 277 |
| DKK | -7 | – | – | – | -7 | – | -7 |
| EUR | -120 | 35 | – | – | -120 | 35 | -85 |
| GBP | -33 | 0 | – | – | -33 | 0 | -33 |
| HUF | -3 | – | – | – | -3 | – | -3 |
| JPY | -19 | – | – | – | -19 | – | -19 |
| NOK | -20 | – | – | – | -20 | – | -20 |
| PLN | -9 | – | – | – | -9 | – | -9 |
| SEK | -10 | – | – | – | -10 | – | -10 |
| SGD | – | 66 | – | – | – | 66 | 66 |
| USD | -367 | 7 | – | – | -367 | 7 | -360 |
| Total | -658 | 667 | – | – | -658 | 667 | 9 |
The majority of the subsidiaries are operating outside Sweden with other functional currencies than SEK. Translation exposure arise when the net assets from foreign entities are translated into SEK upon consolidation.
Translation exposure from net assets in foreign operations are partly hedged with external debt in corresponding currencies, mainly CHF, USD and EUR, in accordance with the Group Treasury Policy.
Translation differences from net assets in foreign operations reported in Equity during 2009 were negative, -953 MSEK (3 688), which was partly offset by gains from revaluing loans in non-SEK currencies by 430 MSEK (–2 653).
| NET ASSETS PER | Hedging, | Hedging, | ||
|---|---|---|---|---|
| FOREIGN CURRENCY | 2009 | % | 2008 | % |
| CHF | 9 597 | 48 | 10 474 | 65 |
| USD | 3 754 | 68 | 3 028 | 77 |
| CAD | 2 653 | – | 2 354 | – |
| EUR | 1 640 | – | 3 216 | 41 |
| CNY | 717 | – | 878 | – |
| SGD | 390 | – | -6 | – |
| DKK | 243 | – | 237 | – |
| Other | 1 071 | – | 1 102 | – |
| Total | 20 065 | 36 | 21 283 | 49 |
The consolidated operating income is mainly generated in non-Swedish subsidiaries. Changes in foreign exchange rates therefore have a significant impact on the Group's earnings when the income statements of foreign subsidiaries are translated into SEK.
Translation exposure related to actual and forecasted earnings in foreign operations are not hedged.
| NET SALES PER CURRENCY | 2009 | 2008 |
|---|---|---|
| EUR | 3 339 | 4 652 |
| USD | 3 302 | 3 928 |
| CHF | 1 362 | 1 761 |
| CNY | 1 098 | 848 |
| SEK | 632 | 1 205 |
| GBP | 463 | 539 |
| Other | 1 615 | 1 546 |
| Total | 11 811 | 14 479 |
The interest rate risk is the risk that changes in interest rates will adversely affect the Group's net interest expense and/or cash flow. Interest rate exposure arise primarily from the external interest bearing debt.
In accordance with the Group Treasury Policy all external debt has short interest rate duration, on average shorter than six months.
During 2009 and 2008 no interest rate derivatives were used in order to manage the interest rate risk.
| FINANCIAL INCOME AND EXPENSE 2009 | 2009 | 2008 |
|---|---|---|
| Interest income | 9 | 36 |
| Interest expense | -148 | -336 |
| Other financial income and expense | -19 | -19 |
| Net | -158 | -319 |
Credit risk is the risk that counterparts may be unable to fulfil their payment obligations. Financial credit risks arise when investing cash and cash equivalents and when trading in financial instruments. To reduce the Group's financial credit risk surplus cash is only invested with a limited number of approved banks and derivative transactions are only conducted with counterparts where an ISDA netting agreement has been established.
As the Group is a net borrower, excess liquidity is primarily used to amortize external debt and therefore the average surplus cash invested with banks is kept as low as possible. Credit risks associated with receivables are addressed in not 15.
Credit risk also includes the risk that customers will not pay receivables that the company has invoiced or intends to invoice. Through a combination of geographical and business segmental diversification of the customers the risk for significant customer credit losses is reduced.
An ageing analysis of the receivables can be found in Note 15.
Liquidity risk is the risk of not being able to meet the Group's payment obligations in full as they fall due or can only do so at materially disadvantageous terms due to lack of cash resources. To minimize the liquidity risk , the policy is that total liquidity reserves shall at all times be at least 10 per cent of the Group's forecasted annual net sales.
On 31 December 2009, cash and unutilized credit limits totalled 4 737 MSEK (3 001).
| 487 |
|---|
| 1 194 |
| 55 |
| 3 001 |
Access to funds is defined as unutilized credit facilities plus cash and bank balances.
| Maturing amounts | ||||||||
|---|---|---|---|---|---|---|---|---|
| Dates for re-fixing the interest and capital due dates pertaining to interest bearing liabilities with related financial instruments, 31 December 2009 |
2010 | 2011–2012 | 2013 and later | Total | ||||
| Capital | Interest | Capital | Interest | Capital | Interest | Capital | Interest | |
| Liabilities to credit institutions | ||||||||
| Syndicated loan | – | 7 171 | 7 171 | – | – | – | 7 171 | 7 171 |
| Bond loan | – | 2 000 | – | – | 2 000 | – | 2 000 | 2 000 |
| Other lenders | 117 | 169 | 48 | – | 4 | – | 169 | 169 |
| Total liabilities to credit institutions | 117 | 9 340 | 7 219 | – | 2 004 | – | 9 340 | 9 340 |
| Other interest-bearing liabilities | – | 28 | 9 | – | 19 | – | 28 | 28 |
| Total interest-bearing liabilities | 117 | 9 368 | 7 228 | – | 2 023 | – | 9 368 | 9 368 |
The interest rate columns state the corresponding capital that is subject to interest re-fixing. There were no interest rate derivatives pertaining to borrowing at 31 December 2009.
Refinancing risk refers to the risk that Hexagon does not have sufficient financing available when needed to refinance maturing debt, due to existing lenders do not extend or difficulties in procuring new lines of credit at a given point in time. Securing these requirements demands a strong financial position in the Group, combined with active measures to ensure access to credit.
In order to ensure that appropriate financing is in place and to decrease the refinancing risk, no more than 20 per cent of the Group's gross debt, including unutilised credit facilities, is allowed to mature within the next 12 months without replacing facilities agreed.
A syndicated loan of 1 000 MEUR, with maturity June 2011, forms the foundation of the Group's financing. The key financial covenant in the syndicated loan is that the ratio between net debt and EBITDA shall be less than 3.5, which was the case as per year-end 2009. Due to the different method for translating net debt and EBITDA ,respectively, to SEK, this ratio is sensitive towards large fluctuations in exchange rates. Net debt is translated into SEK using closing rate while EBITDA is translated using a 12 month rolling average rate. In the short term large movements in exchange rates for important currencies, especially CHF and USD, will have a larger impact on net debt than on EBITDA.
For debt diversification and refinancing risk purposes Hexagon issued a 2 000 MSEK five year bond in November 2009. The bond was placed with a Swedish institutional investor and is not subject to financial covenants.
| Total | 100% |
|---|---|
| Other | 1% |
| EUR | 1% |
| SEK | 21% |
| USD | 28% |
| CHF | 49% |
Carrying amount and fair value on 31 December 2009
| 2009 | 2008 | ||||
|---|---|---|---|---|---|
| Assets | Carrying amount |
Fair value |
Carrying amount |
Fair value |
|
| Other long-term securities holdings | 89 | 89 | 39 | 39 | |
| Long-term receivables | 10 | 10 | 34 | 34 | |
| Accounts receivable | 2 621 | 2 621 | 3 151 | 3 151 | |
| Other current receivables | 209 | 209 | 362 | 362 | |
| Accrued income | 209 | 209 | 122 | 122 | |
| Accrued interest | 0 | 0 | 3 | 3 | |
| Short-term investments | 21 | 21 | 20 | 20 | |
| Cash and bank balances | 773 | 773 | 899 | 899 | |
| Derivatives | 9 | 9 | – | – | |
| Total | 3 941 | 3 941 | 4 630 | 4 630 |
The Group's earnings are affected by changes in certain key factors, as described below. The calculations proceed from the conditions prevailing in 2009 and the effects are expressed on an annualized basis. Earnings in foreign subsidiaries are converted into SEK based on average exchange rates for the period the earnings arise.
During the year there have been very significant changes to the exchange rates of the foreign currencies that have the biggest impact on Hexagon's earnings and net assets, namely USD, EUR , CHF and CNY. The SEK has weakened substantially against all these currencies. Since Hexagon has a majority of the operating earnings denominated in USD, EUR and CNY. This had a positive impact on operating earnings. But the strengthening of the CHF had an adverse effect, since a significant part of the cost and a majority of external debt is denominated in CHF. An isolated change in the exchange rate for SEK by 1 per cent for all assets and liabilities denominated in all foreign currencies would have had an immaterial effect on net income but an effect on equity of 129 MSEK net after the impact of hedging.
During 2009, total net operating earnings from operations in foreign currencies amounted to an equivalent of 1 580 MSEK. An isolated change in the exchange rate for SEK by 1 per cent against all other foreign currencies would have an effect on operating earnings of approximately 16 MSEK.
Based on the average interest fixing period of less than 2 months in the Group's total loan portfolio as of year-end 2009, a simultaneous 1 percentage point change in interest rates in all of Hexagon's funding currencies would entail a pre-tax impact of about 82 MSEK in the coming 12 months earnings.
| Group's capital structure | 2009 | 2008 |
|---|---|---|
| Interest-bearing liabilities and provisions | 9 816 | 11 655 |
| Less: interest bearing assets | -1 518 | -979 |
| Net Debt | 8 298 | 10 676 |
| Total shareholders' equity | 12 484 | 12 014 |
| Debt/equity ratio | 66 % | 89% |
| 2009 | 2008 | ||||
|---|---|---|---|---|---|
| Liabilities | Carrying amount |
Fair value |
Carrying amount |
Fair value |
|
| Long-term liabilities to credit institutions | 9 223 | 9 223 | 10 470 | 10 470 | |
| Other long-term interest bearing liabilities | 28 | 28 | 39 | 39 | |
| Long-term interest-free liabilities | 14 | 14 | 26 | 26 | |
| Current liabilities to credit institutions | 117 | 117 | 500 | 500 | |
| Accounts payable | 864 | 864 | 1 185 | 1 185 | |
| Other current interest-free liabilities | 339 | 339 | 360 | 360 | |
| Accrued expenses | 756 | 756 | 968 | 968 | |
| Accrued interest | 7 | 7 | 76 | 76 | |
| Derivatives | – | – | 2 | 2 | |
| Total | 11 348 | 11 348 | 13 626 | 13 626 |
All financial assets, apart for derivative instruments, and long-term securities holdings are included in the category "loan receivables and account receivables". Other long-term securities holdings are in the category "Available for sale securities".
All financial liabilities, apart from derivative instruments, are included in the category "financial liabilities valued at accrued acquisition value".
Interest-bearing accounts receivable represent overdue receivables where Hexagon has a legal or contractual right to receive penalty interest from due-date until date of collection. Penalty interest is recorded as income as earned net of amounts not expected to be recovered.
Fair value of long-term interest bearing liabilities is deemed to be the same as the carrying amount in that interest rates are variable and interest margins would be essentially unchanged upon refinancing. Fair value of derivatives has been determined by means of current market quotes .
Hexagon believes that the fair value of other long-term securities holdings is the same as the carrying value in all material respects, representing acquisition cost, net of any impairment.
| NOTE 20. Rented assets | ||||
|---|---|---|---|---|
| Group | Parent Company | |||
| Leasing/rental agreements of an |
Machinery, equipment, |
Machinery, equipment, |
||
| operational nature | etc. | Premises | etc. | Premises |
| Expenses due for payment in | ||||
| 2010 | 51 | 143 | – | 3 |
| 2011–2014 | 54 | 330 | – | 2 |
| 2015 and later | 3 | 88 | – | – |
| Total | 108 | 561 | – | 5 |
The amounts are un-discounted minimum undertakings pursuant to contract. Costs for leasing/rents for the financial year were 226 MSEK (196).
| Group | Parent Company | |||
|---|---|---|---|---|
| Leasing/rental agreements of a financial nature |
Machinery, equipment, etc. |
Premises | Machinery, equipment, etc. |
Premises |
| Expenses due for payment in | ||||
| 2010 | 7 | 1 | – | – |
| 2011–2014 | 4 | 3 | – | – |
| 2015 and later | 0 | 4 | – | – |
| Total | 11 | 8 | – | – |
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.
| Pledged assets to credit institutions for loans, bank |
Group | Parent Company | |||
|---|---|---|---|---|---|
| overdrafts and guarantees | 2009 | 2008 | 2009 | 2008 | |
| Other | 29 | 20 | – | – | |
| Total | 29 | 20 | – | – | |
| Group | Parent Company | ||||
| Contingent liabilities | 2009 | 2008 | 2009 | 2008 | |
| Guarantees in favour of Group | |||||
| companies | – | – | 375 | 392 | |
| Letters of credit | 158 | 100 | – | – | |
| Other contingent liabilities | 81 | 85 | 80 | 85 |
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.
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 issued.
| 2009 | 2008 | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Q 1 | Q 2 | Q 3 | Q 4 | Q 1 | Q 2 | Q 3 | Q 4 | ||
| Net sales | 3 038 | 3 068 | 2 629 | 3 076 | 4 027 | 3 904 | 3 070 | 3 478 | |
| Gross earnings | 1 429 | 1 427 | 1 249 | 1 475 | 1 699 | 1 760 | 1 514 | 1 625 | |
| Sales expenses | -617 | -506 | -475 | -476 | -534 | -541 | -531 | -639 | |
| Administration expenses | -265 | -236 | -203 | -239 | -251 | -236 | -247 | -273 | |
| Research and development expenses | -278 | -227 | -208 | -199 | -245 | -233 | -189 | -277 | |
| Other operating revenues/expenses | -37 | -5 | -4 | -4 | -27 | -17 | -4 | 93 | |
| Share in associated companies' earnings | -2 | 0 | 0 | 0 | 1 | 1 | 0 | -1 | |
| Operating earnings1 | 230 | 454 | 359 | 557 | 643 | 734 | 543 | 528 | |
| Interest income/expenses, net | -55 | -43 | -30 | -30 | -81 | -77 | -76 | -85 | |
| Earnings before tax | 175 | 411 | 329 | 527 | 562 | 657 | 467 | 443 | |
| Tax | -24 | -57 | -43 | -64 | -84 | -91 | -49 | -46 | |
| Net earnings2 | 151 | 354 | 286 | 463 | 478 | 566 | 418 | 397 | |
| 1 of which non-recurring items | -175 | – | – | -9 | – | – | – | -100 | |
| 2 of which minority shares |
2 | 2 | 2 | 3 | 2 | 3 | 3 | 4 | |
| Earnings include depreciation | |||||||||
| and impairments of | -194 | -185 | -169 | -208 | -178 | -169 | -156 | -216 | |
| Earnings per share, SEK | 0.56 | 1.33 | 1.07 | 1.74 | 1.79 | 2.12 | 1.56 | 1.48 | |
| Earnings per share after dilution, SEK | 0.56 | 1.33 | 1.07 | 1.74 | 1.79 | 2.12 | 1.56 | 1.48 | |
| Average number of shares, thousands | 264 208 | 264 235 | 264 347 | 264 347 | 265 350 | 265 412 | 265 520 | 264 985 | |
| Average number of shares after dilution, thousands | 264 817 | 264 349 | 264 448 | 264 431 | 265 733 | 265 792 | 265 939 | 265 607 | |
| Operating earnings (EBIT1) | 405 | 454 | 359 | 566 | 643 | 734 | 543 | 628 | |
| Operating earnings (EBIT1) per share, SEK | 1.53 | 1.72 | 1.36 | 2.14 | 2.42 | 2.77 | 2.05 | 2.37 |
Quarterly figures are not examined by the company's auditors.
The following earnings in the parent company are at the disposal of the Annual General Meeting (KSEK):
| – Premium reserve | 1 980 275 |
|---|---|
| – Earnings brought forward from previous year | 1 337 830 |
| – Group contribution, net after tax | 19 139 |
| – Net earnings | 363 296 |
| Total | 3 700 540 |
The Board of Directors proposes that these funds are allocated as follows:
– That a cash dividend of 1.20 SEK per share be paid to shareholders
In the following manner:
| Total | 3 700 540 |
|---|---|
| – Carried forward | 1 403 048 |
| – Balance remaining in the premium reserve | 1 980 275 |
| – That the cash dividend to shareholders be paid via retained earnings | 317 217* |
*The amount is based on the number of shares issued and outstanding on 31 December 2009, namely 264 347 153.
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 face.
Stockholm, Sweden, 26 March 2010
Melker Schörling Mario Fontana Chairman Member of the Board
Ulf Henriksson Gun Nilsson Member of the Board Member of the Board
Ola Rollén Member of the Board President and Chief Executive Officer
Our Audit Report was submitted on 26 March 2010
Hamish Mabon Authorized Public Accountant
To the annual meeting of the shareholders of Hexagon AB Corporate identity number 556190-4771
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 2009. The company's Annual Report is included in the printed version of this document on pages 56–92. 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, 26 March 2010
ERNST & YOUNG AB
Hamish Mabon Authorized Public Accountant
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 Cash flow from operating activities after change in working capital.
Cash flow per share Cash flow from operating activities after change in working capital divided by average number of shares.
Dividend payout ratio Dividend per share divided by earnings per share.
Dividend yield Dividend per share as a percentage of share price.
Earnings per share Net earnings, excluding minority interests, divided by average number of shares.
Earnings per share excluding goodwill Net earnings, excluding minority interests and goodwill amortisation, divided by average number of shares.
Enterprise value Market capitalisation less interest-bearing liabilities plus cash and bank balances.
Equity ratio Shareholders' equity including minority interests as a percentage of total assets.
Interest cover ratio Earnings after financial items plus financial expenses divided by financial expenses.
Investments Purchases less sales of tangible and intangible fixed assets excluding those included in acquisitions and divestitures of subsidiaries.
Net debt/equity ratio
Interest-bearing liabilities less liquid assets and short-term interest bearing receivables divided by shareholders' equity excluding minority interests.
Operating earnings (EBIT1) Operating earnings excluding non-recurring items.
Operating earnings (EBITA) Operating earnings excluding non-recurring items and amortisation of goodwill.
Operating earnings (EBITDA) Operating earnings excluding non-recurring items and amortisation and depreciation of fixed assets.
Operating margin Operating earnings (EBIT1) as a percentage of net sales for the year.
P/E ratio Share price divided by earnings per share.
Profit margin before tax Earnings after financial items as a percentage of net sales for the year.
Return on capital employed Twelve months to end of period earnings after financial items, excluding nonrecurring items, plus financial expenses as a percentage of twelve months to end of period average capital employed.
Twelve months to end of period earnings after financial items, excluding non-recurring items, plus financial expenses and goodwill amortisation as a percentage of twelve months to end of period average capital employed.
Return on equity
Twelve months to end of period net earnings excluding minority interests as a percentage of twelve months to end of period average shareholders' equity excluding minority interests.
Return on equity excluding goodwill amortisation
Twelve months to end of period net earnings excluding minority interests and goodwill amortisation as a percentage of twelve months to end of period average shareholders' equity excluding minority interests.
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.
Share price
Last settled transaction on the NASDAQ OMX Stockholm on the last business day for the year.
Americas North, South and Central America, and the Caribbean islands.
Asia Asia, Australia and New Zealand.
CAD Computer Aided Design.
Coordinate Measuring Machine. EMEA Europe, Middle East and Africa.
GIS Geographical Information System.
GLONASS Global'naya Navigatsionnaya Sputnikovaya Sistema.
GNSS Global Navigation Satellite System.
GPS Global Positioning System.
HDS High Definition Surveying (3D laser scanning).
Micrometre One millionth of a metre, one thousandth of a millimetre.
OEM
Original Equipment Manufacturer.
TPS Terrestrial Positioning System (Total Station).
The Annual General Meeting will be held on Wednesday 5 May 2010 at 17:00 CET at IVA, Grev Turegatan 16, Stockholm, Sweden.
Shareholders who wish to participate at the Annual General Meeting must be registered in the share register maintained by Euroclear Sweden AB (formerly VPC AB) no later than 28 April 2010. Notification of attendance should be made no later than 12:00 CET on 29 April 2010.
Notification of attendance can be done by filling out a form at Hexagon's website or alternatively:
To be eligible to participate in the Annual General Meeting, share holders with nominee-registered holdings should temporarily register their shares in their own names through the agency of their nominees so that they are recorded in the share register in good time before 28 April 2010.
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.
Hexagon AB Registered Office: Stockholm, Sweden Corp. Reg. No. 556190-4771
P. O. Box 3692 SE-103 59 Stockholm, Sweden
Visiting address: Lilla Bantorget 15
Telephone +46 8 601 26 20 Fax +46 8 601 26 21 E-mail info6hexagon.se www.hexagon.se
The Hexagon Board of Directors proposes a dividend for the financial year 2009 of 1.20 SEK per share.
The Board proposes 10 May 2010 as the record date for the payment of dividends. First day of trade excluding right to dividend is 6 May 2010. Dividends should be in the possession of shareholders by 14 May 2010, assuming that the Annual General Meeting approves the Board's motion.
Hexagon will issue financial information concerning financial year 2010 on the following dates:
Annual General Meeting 2010 5 May 2010 Interim Report Q1 5 May 2010 Interim Report Q2 5 August 2010 Interim Report Q3 28 October 2010 Year-End Report February 2011
Financial information is available on www.hexagon.se If you have any questions, please contact:
Investor Relations Hexagon AB P. O. Box 3692 SE-103 59 Stockholm Sweden Telephone +46 8 601 26 27 E-mail ir6hexagon.se
Cover: Hong Kong's skyline seen from Victoria Peak at an altitude of 552 metres.
Production: Hexagon AB in cooperation with Prinfo I&N and Wildeco. Printing: Prinfo.
Photos of Board of Directors and Group Management: Johan Olsson, Howard Brundrett. Photo cover: Samuel C.H. Louie. Photos of products and operations: ESA, Farouk Kadded, BSF Swissphoto AG, MTU Aero Engine, University of Calgary, Skidmore, Owings & Merrill LLP, Hexagon's subsidiaries, Alan Becker, Paul Chesley, Getty Images, iStockphoto.
ANNUAL RE
PORT 2009
Hexagon is a leading global supplier of systems for measuring objects in one, two or three dimensions.
Measurement technology is used everywhere, from mapping of large land areas to precision measurements of components in the manufacturing sector.
The measurement systems we offer are able to measure with very high precision, providing rapid access to large quantities of measurement data. This results in increased efficiency and productivity, improved quality and significant material and cost savings.
Hexagon serves customers in nearly every business sector in every region of the world. The demand for measurement technologies is rising in part due to investments in infrastructure and industries among the world's emerging economies.
Our vision is to be a market leader. Our strategy is to be the most cost efficient and innovative supplier, with the industry's best management and very short and rapid decision-making processes.
Hexagon has more than 7 500 employees in 39 countries and net sales of approximately 12 000 MSEK.
B-shares are quoted on the NASDAQ OMX Stockholm and the SWX Swiss Exchange.
POSTAL ADDRESS: Box 3692, 103 59 Stockholm, Sweden. VISITING ADDRESS: Lilla Bantorget 15, Telephone: +46 8 601 26 20 Fax: +46 8 601 26 21 info6hexagon.se, www.hexagon.se
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