ANNUAL REPORT 2014 REPORT ANNUAL HEXAGON ANNUAL REPORT 2014 TABLE OF CONTENTS Financials in brief Board of Directors’ report 52 Hexagon in brief Managing risks 57 Shaping smart change 1 Consolidated income statement 63 Letter from the President & CEO 2 Consolidated comprehensive income statement 63 Profitable growth 4 Consolidated balance sheet 64 Market environment 8 Changes in consolidated shareholders’ equity 65 Operational strategies and priorities 10 Consolidated cash flow statement 66 Acquisitions in 2014 14 Parent Company income statement 67 The Hexagon Advantage 16 Parent Company comprehensive income statement 67 Application area: Geospatial Enterprise Solutions 18 Parent Company balance sheet 68 Application area: Industrial Enterprise Solutions 26 Changes in parent company shareholders’ equity 69 Research and development 32 Parent company cash flow statement 70 Corporate social responsibility 34 Notes 71 Employees 36 Proposed allocation of earnings 97 The share 38 Audit report 98 Corporate Governance report 41 Quarterly income statements 99 Comments from the Chairman of the Board 47 10-year summary 100 Board of Directors 48 Definitions 102 Group Management 50 Information for shareholders 104 MISSION: Hexagon is dedicated to delivering actionable information through information technologies that enable customers to shape smart change across diverse business and industry landscapes. VISION: Hexagon aspires to play a leading role in the effort to solve the challenges our world is facing by providing groundbreaking information technologies that make a positive and lasting impact. Hexagon AB is a Swedish public limited liability company with corporate registration number 556190-4771. All values are expressed in Euros unless otherwise stated. The Euro is abbreviated EUR, thousands of Euro to KEUR, millions of Euro to MEUR, billions of Euro to bn EUR and million US dollars to MUSD. Figures in parentheses refer to 2013 unless For a breadth of news, interviews, podcasts and otherwise stated. Data on markets and competition repre- blog postings, make sure to follow Hexagon: sent Hexagon’s own assessments unless otherwise stated. Assessments are based on most recent available facts from published sources. FINANCIALS IN BRIEF Hexagon’s organic growth amounted to 7 per cent in 2014 as customers continue to show a willingness to invest in solutions that drive productivity and quality. Hexagon’s gross margin reached 58 per cent and the operating margin 22 per cent – both new record levels and a result of the change in business model to more software-centric solutions ORGANIC GROWTH GROSS MARGIN OPERATING MARGIN 7% 58 % 22% NET SALES, MEUR GROSS MARGIN, % OPERATING MARGIN , % 2,622 58 22 2,430 55 56 20 20 21 2,380 51 53 2,169 18 1,481 1413121110 1413121110 1413121110 KEY FIGURES1 2014 2013 % Net sales 2,622.4 2,429.7 72 Operating earnings (EBIT1)3 578.1 507.7 14 Operating margin, % 22.0 20.9 1.1 Earnings before taxes excl. non-recurring items 544.5 473.8 15 Non-recurring items4 -36.0 -14.9 - Earnings before taxes 508.5 458.9 11 Net earnings 406.2 371.2 9 Earnings per share, EUR 1.13 1.04 9 Operating cash flow 330.9 290.5 14 Return on equity, % 13.1 13.0 0.1 Return on capital employed, % 11.6 11.2 0.4 Share price, SEK 242 203 19 Net debt 1,896.7 1,488.7 27 Average number of employees 14,865 13,931 7 1 All figures are in MEUR unless otherwise stated 2 Adjusted to fixed exchange rates and a comparable group structure, i.e. organic growth 3 Operating earnings excluding non-recurring items 4 Non-recurring items related to the acquisitions of Veripos, Mintec, Vero and the divestment of Other operations HEXAGON IN BRIEF Hexagon is a leading global provider of information technologies that drive productivity and quality across industrial and geospatial enterprise applications. Hexagon’s solutions integrate sensors, 55% software, domain knowledge and customer workflows into intelligent OF NETSALES IS SERVICES information ecosystems that deliver actionable information AND SOFTWARE GEOSPATIAL ENTERPRISE SOLUTIONS INDUSTRIAL ENTERPRISE SOLUTIONS Hexagon Geospatial Enterprise Solutions are used in Hexagon Industrial Enterprise Solutions are used planning, construction and maintenance of infrastructure for measurement and quality inspection of complex such as roads, bridges, railroads, airports and ports. parts, a significant aspect of every manufacturing pro- cess, as well as design and operations of engineering facilities. PER CENT OF NET SALES: AVERAGE NO OF EMPLOYEES: PER CENT OF NET SALES: AVERAGE NO OF EMPLOYEES: 52% 7,4 0 0 48% 7,5 0 0 NORTH AMERICA SOUTH AMERICA WESTERN EUROPE EMEA EXCLUDING CHINA ASIA Demand remained Strong growth in Growth was strong WESTERN EUROPE A strong development Countries such as strong throughout the countries such as in markets such as Eastern Europe had a in the automotive and Malaysia, Indonesia year, with the auto- Brazil and Chile until Germany, UK and Italy positive development the consumer elec- and Vietnam had a motive, construction the final quarter of the while France had a throughout the year tronics segments lead positive development, and aerospace seg- year, when demand weaker development. with the exception to a strengthening of and helped to offset a ments as the primary weakened due to the The automotive of Russia, which growth rates during weaker development drivers. The defence economic slowdown and aerospace seg- weakened during the the year. This was in Australia where segment improved in the region. ments saw strong second half of the despite a weakness in the mining segment following a weak start development. year. Africa recorded the surveying-related was weak. to the year. strong growth. business. PER CENT OF NET SALES: PER CENT OF NET SALES: PER CENT OF NET SALES: PER CENT OF NET SALES: PER CENT OF NET SALES: PER CENT OF NET SALES: 29% 5% 30% 9% 15% 12% NO OF EMPLOYEES: NO OF EMPLOYEES: NO OF EMPLOYEES: NO OF EMPLOYEES: NO OF EMPLOYEES: NO OF EMPLOYEES: 3,850 750 5,200 500 2,250 2,350 SHAPING SMART CHANGE As a leading global provider of information technologies, Hexagon is focused on helping customers view global challenges as a source of innovation and growth. That means challenging the status quo – providing innovations that disrupt existing business models and deliver new ways to create value. Big data … cloud … real time … connectivity. These are just a few of the topics and trends fuelling solutions essential to our future. Hexagon’s reach extends to these areas and more. Together with our customers, we share a collective purpose – to shape smart change by investing in groundbreaking concepts that will transform the world we know today into a viable and sustainable world of the future. 1 1. READY download Zappar from your app store 2. LAUNCH open the app and aim at this page Use your mobile phone to watch Ola recount Hexagon’s 2014 journey and learn about our acquisitions, innovations, mega projects and more. LETTER FROM THE PRESIDENT & CEO DEAR SHAREHOLDERS, 2014 was a year in which Hexagon further cemented its ACQUISITIONS AS PART OF OUR STRATEGY position as a global leader in information technologies 2014 came to be our most active year in terms of acqui- which drives productivity and quality. We enable custom- sitions since acquiring Intergraph in 2010. Every 2014 ers to view global challenges as a source of innovation and acquisition sought to complement our current information growth – and we know our continued success depends on technology portfolio, strengthening our presence in key how well we leverage our technology, leadership and exper- verticals, as well as enabling our solution-centric strategy. tise to create new and continued value for them. Through the acquisition of Vero Software, we added CAM (computer-aided manufacturing) software to our portfolio, PERFORMANCE IN THE FACE OF CHALLENGE significantly broadening our value proposition to our manu- The global economy in 2014 saw its share of ups and downs. facturing customers. The combination of metrology (quality The recovery from the 2008-2009 recession remains one of control) and CAM supports the growing need to integrate the most challenging in the past century. The U.S. and UK all data and processes across the manufacturing life cycle. economies are leading the recovery in advanced countries, CAM enables us to move beyond quality control where we while small economies continue to outperform. On the can help customers drive proactive manufacturing pro- downside, Europe’s economies remain subdued, and key cesses. By leveraging design and metrology data, custom- emerging economies including China and Brazil are experi- ers can avoid problems before they occur and reach new encing slowing growth. levels of quality and productivity. 2014 was a solid year for Hexagon, with sales amounting to We completed the acquisition of North West Geomatics. a record 2.6bn EUR and EBIT margin of 22 per cent. With 7 Through their database, which enables professional crowd- per cent organic growth, we came to outperform global eco- sourcing of data content, and their expertise in selling nomic growth. We believe the investments we made in R&D data content as a service (CaaS), they are instrumental in over the past five years were crucial in enabling this growth. enabling us to move beyond software and sensors and offer In the current economy, having a leading-edge product customers the ability to both access and resell data through offering that delivers quality and productivity improve- an information exchange. As an example, a surveyor can ments to our customers is key to growing our business. resell content from a laser scanning of an object such as a 2 Hexagon Annual Report 2014 bridge, reducing the need to make multiple measurements In a joint venture with Korean Daewoo E&C and Hyundai of the same object.