Hexagon sets new goals

I’m in San Diego for SolidWorks World, looking out at the harbor and trying to catch up on last week’s news. It’s in the 50s here, cloudy and windy. Wonderful for this New Englander, but cold to the natives who huddle around outdoor propane heaters. It’s likely colder in Sweden, so let’s get right to it. Hexagon’s business is very diverse, and reporting on it in its entirety is unlikely to be helpful to readers of this blog who are most interested in engineering software. What matters most in that context is how the company overall is doing, and then how the process, power and marine-facing units are performing. That would include Intergraph PP&M and, to the extent we can figure it out, Leica’s laser scanning business. In total, Hexagon report Q4 revenue of €592 million, up 18% as reported but up 6% on a constant-currency basis and excluding acquisitions. This growth was driven by the ongoing recovery in mature markets and strong demand from the automotive, aerospace, power and energy markets for the company’s solutions. As has been the case for the last several quarters, the lack of investment in China, especially in the high-speed rail network helped stall growth in the Geosystems business. Hexagon says that the Metrology and PP&M businesses reported “strong double digit growth”, which CEO Ola Rollén characterized as the “shining stars” of the quarter. Mr. Rollén said that EMEA saw single digit growth in power and energy sales, with stronger growth in the Middle East and Africa helping to drive increased investment in “enterprise engineering, construction and data management software” used in power and process industries. The other standout region seemed to be China, where “Intergraph” grew by 70% in Q4, “utilizing Hexagon’s network and customer relationships”. Hexagon said that expansion in China was one reason for its acquisition of Intergraph in 2010, and that it saw potential Intergraph penetration there as a significant business opportunity. Even so, Mr. Rollén said that over 85% of Hexagon’s business in China is still the “old products” (Metrology and Geosystems), so growing 70% in one quarter still results in a small portion of Hexagon’s total revenue. Doing a bit of math, China was 13% of total revenue in Q4, or about €80 million; if Intergraph was 15% of that, it totaled around €12 million for the quarter. Mr. Rollen did say that Hexagon was “happy with Intergraph in China, but that there’s more room yet.” For fiscal 2011, Hexagon reported revenue of €2,178 million, up 12% on an organic, constant currency basis. Net income for the year was €297 million, more than double last year’s €92 million, as the acquired software businesses drive up overall profitability. Mr. Rollén “closed the books” on the ambitious plans launched 4 years ago to reach sales of SEK 20 billion (€2.3 billion at today’s exchange rate of SEK 8.8 per Euro) by 2011 and launched a new effort, to grow sales to €3.5 billion with and EBIT (earnings before interest and tax expenses) of 25% before the end of 2015. Since this implies a growth rate of 12% per year, more acquisitions are clearly on the horizon. In general, 2012 is off to a good start, but Mr. Rollén refused to be more explicit. He did say that China and South America would be PPM’s growth markets in 2012 — no real surprise given both geo’s exploitation of natural resources and the power needs of their growing populations.