Hexagon puts 2019 in the rearview, cautiously optimistic about 2020
Hexagon is such a diverse company these days that it’s hard to draw a simple set of conclusions from its earnings reports. After all, it operates in the process industries with the former Intergraph PPM, in a fledgling BIM way with Bricscad — but also in mechanical CAD, in CAM with the former Vero, in construction/surveying, in public safety, in CAE via MSC Software … but, in general, it was a tough end to 2019 and a tough year, overall. The details, and then some thoughts:
- Q4 revenue was up 2% as reported by down 2% on a constant currency, organic basis to €1.059 billion. For the full year organic revenue declined 1% to €3.907 billion
- By division, revenue from Geospatial Enterprise Solutions (GES) were down 1% organically in Q4 to €515 million. Geosystems revenue was down 2% due to weakness in global construction markets. The Autonomy & Positioning (fka Positioning Intelligence) group was hit by weakness in the automotive sector, bringing revenue down 9%. Safety & Infrastructure was the only bright spot in the division, with revenue up 7%, in part due to the launch of the OnCall platform, which has just been adopted by the City of London Metropolitan Police Service. By region, organic revenue was down 2% in EMEA, up 4% in the Americas and down 10% in Asia
- Revenue from the Industrial Enterprise Solutions (IES) division were down 4% organically in Q4 to €544 million, even though PPM reported solid demand in design and asset performance management, sending revenue up 13%. CEO Ola Rollén said that there were no major contract wins in that growth rate, meaning that he sees it as good sign for routine revenue growth potential and, in some cases, in new markets. Revenue from Manufacturing Intelligence was down 8% due, the company said, to weaker demand in the Chinese electronics sector and globally weak demand in automotive. By geo, organic revenue was down 2% in the Americas, up 3% in EMEA and down 10% in Asia
- Overall, revenue was drastically affected by the slowdown in China, which represented 15% of total revenue in Q4 2018 but only 12% of revenue in 2019. Rather than try to describe it, here’s Hexagon’s view of its performance by region and end-industry (note that this doesn’t tie directly to a reporting unit):
- As you can tell, there’s a lot of orange, negative growth in the CN, China, column. Mr. Rollén said that China, in total, reported a 21% decline in organic revenue, as strength in electronics couldn’t offset weaker demand in the manufacturing industry, a decline in infrastructure and construction. That said, Mr. Rollén is cautiously optimistic about China for 2020 as a whole and that auto OEMs there are more optimistic about 2020 than they were about 2019.
The biggest, first question from investors was about the management shuffle announced a few weeks ago. Mr. Rollén remains CEO, but there’s a new COO, new CTO and several new divisional heads. The reorg, said Mr. Rollén, will rejuvenate the divisional management and bring up the next generation of leaders. Why? Because the company needs to work better together, crossing divisional boundaries as they seek to bring ore integrated products to market.
The second was on the coronavirus, and its effect on Hexagon’s business. Yes there are travel restrictions that create a more difficult trading environment, said Mr. Rollén, but it’s too early to tell how much of an impact there will be–he said that March is Hexagon’s most important month in China, and hopes the crisis will be over by then.
As you know, Hexagon doesn’t provide yearly guidance but did give 2021 targets at its investor event in December. Then it said that 2021 revenue is expected to be €4.6 billion. One could interpolate from 2019’s total revenue of €3.9 billion and set a 2020 goal at around €4.2 billion. I’ll update if I find better info,