Geo Week News

October 23, 2013

Shift to software-centric biz model boosts Hexagon's Q3 operating margin

10.23.13hexagon

10.23.13hexagon

Intergraph SG&I reports 36% drop in demand from U.S. defense segment in third quarter

3D measurement and imaging firm Hexagon AB Wednesday said new product sales and a stronger construction market in Europe boosted third quarter sales of its Geosystems unit by 12 percent to €203.9 million (US$279 million).

Based in Stockholm, Sweden, the publicly traded company (NASDAQ OMX Stockholm: HEXA B), with annual sales of €2.4 billion ($3.3 billion), sells 3D measurement and visualization software and hardware under the Leica Geosystems, Intergraph, and Hexagon brands for the surveying, power and energy, aerospace and defense, construction, safety and security, automotive and manufacturing industries.

Automotive industry in ‘trough of its capex cycle’

“We experienced solid demand in the aerospace, power and energy sectors, but faced weakness in the U.S. defense sector, as well as automotive, which is currently in the trough of its capex cycle,” said Ola Rollén, Hexagon CEO, discussing interim financial results for the period ending Sept. 30. 

Hexagon’s overall third quarter sales were €577 million (US$790.3 million), basically flat compared to last year’s third quarter sales but below analysts’ expectations of €585 million (US$802 million), according to a Reuters poll. The company reported 5 percent organic sales growth for the quarter, which means without the impacts of currency swings and recent acquisitions.

Third quarter net earnings were down 9 percent to €76.4 million ($104.7 million). Earnings per share were down 13 percent to €0.21; excluding non-recurring items, net earnings were €89 million (US$122 million), a 6 percent increase, and earnings per share were up 4 percent for the third quarter.

Operating margin for the third quarter was 20.5 percent, reflecting a 3 percent increase in operating earnings to €118 million ($162 million), which is in line with expectations of analysts, according to a Reuters poll of analysts, despite being hit hard by currency swings.

Biz model shifts toward software

“The operating margin expansion in the quarter underscores the shift in our business model as we move towards software centric solutions,” said Rollen.

Hexagon said product innovations including new technology, lower manufacturing costs and an increasing software content has boosted gross margin in the first nine months of 2013 to 57 percent.

Q3 core business results

Hexagon’s core Measurement Technologies (MT) business segment generates about 97 percent of the company’s revenue and operates three business units:

Geosystems – largely the operations of Leica Geosystems AG, selling systems for data capture, modeling and visualization of 3D spatial information. Geosystems third quarter revenue represented 35 percent of Hexagon’s overall sales in the quarter.

Metrology– business unit was rebranded in 2012, it offers systems for manufacturing evaluation, reverse engineering, process qualification and inspections of final parts. Metrology posted €173.3 million (US$238 million) in third quarter net sales, up 3 percent. The business unit represents 30 percent of Hexagon’s quarterly sales.

Technology – largely the operations of Intergraph, which operates two divisions: Process, Power Marine (PPM) and Security, Government, Infrastructure (SG&I), and sells enterprise engineering software, geospatial software, and a line of Global Navigation Satellite System (GNSS) products. The Technology segment had zero sales growth for the third quarter, posting €188.9 million (US$259 million) in sales. Technology represents 33 percent of Hexagon’s net sales. Intergraph PP&M continued to expand and reported organic growth of 7 percent despite tough comparison numbers from Q3 2012. Intergraph SG&I reported negative growth due to the continued downturn in the defense segment which sank 36 percent in the third quarter. 

Global market development
 

  • Americas – demand for Hexagon products had 6 percent organic growth, largely due to the recovery in the U.S. construction sector and the infrastructure, power and energy segments. Double-digit organic growth was reported for South America in the third quarter.
  • EMEA – demand for Hexagon products for infrastructure-related activities was strong in the third quarter with especially strong demand in Germany, Italy, United Kingdom and the Nordic region, as well as the Middle East, Eastern Europe and Russia, particularly in the construction sector. Demand from France was weak. Recent product launches from Geosystems continue to have a positive impact on the growth in EMEA but demand for public safety solutions weakened due to various government budget cuts.
  • Asia – recorded organic growth in net sales of 4 percent in the third quarter. China had a mixed quarter where automotive, aerospace, surveying, power and energy segments saw increased demand. But, project-related businesses (airborne sensors and mining) experienced a weak quarter. Growth was also held back in Asia by Australia, due to the downturn in the mining sector. Rapidly expanding markets in Asia include Malaysia, Indonesia, Philippines, New Zealand, India and Korea.

2013 Acquisitions

During the first nine months of 2013, Hexagon acquired the following companies:
 

  • Navgeocom, a Russian distributor, Listech, an Australian software development company
  • Kompakt, a Hungarian distributor, MANFRA, a Brazil based distributor, a/m/t software service ag, a Swiss based software solutions company
  • Geosoft, an Italian software development company

In October, Hexagon signed an agreement to acquire:
 

  • Devex, a developer of automation software for mining operations in Brazil
  • Airborne Hydrography AB, a Swedish based provider of airborne laser survey systems

Just last week, the company said it will make a public voluntary offer of more than $150 million for Veripos, a position services company listed in Oslo.

Want more stories like this? Subscribe today!



Read Next

Related Articles

Comments

Join the Discussion