Hexagon’s Q1 showed growth –also in China– even as the company exited unprofitable US defense contracts

Apr 28, 2023 | Hot Topics

Hexagon reported results this morning — and they tell a different story of the environment in China. Read on.

  • Total revenue in Q1 was €1287 million, up 11% as reported and up 8% on an organic constant currency basis (occ)
  • By geo, CEO Paolo Guglielmini said revenue was up 14% occ in Asia, with revenue from China up 10% occ, “driven by strong growth in general manufacturing and recovery in power and energy, and despite continued weakness in infrastructure and construction markets.” Hexagon doesn’t sell a SolidWorks competitor (though its BricsCAD targets some of the same customers). Still, it offers many NC/CAM products in the same end markets. Hence, its 10% occ growth contradicts what DS reported earlier in the week. The rest of Asia was also solid, with “high double-digit organic growth,” driven by India and Japan
  • Revenue was up 9% occ in EMEA on 7% occ growth in Western Europe, “driven by strong growth across manufacturing industries.” Recall that Hexagon froze its business in Russia in Q2 2022, so the Q1 results reflect that artificially-created decline. Excluding Russia and Western Europe, the rest of Europe reported “strong double-digit organic growth.”
  • Revenue was up 2% occ in the Americas, with revenue up 1% occ in North America even though the company saw “strong performance in power and energy and growth in manufacturing, surveying, infrastructure, and construction markets … held back by the exiting of some lower margin defense contracts. South America recorded continued double-digit organic growth, driven by strength in mining and power and energy.”
  • By business line, Geospatial Enterprise Solutions (GES) revenue was up 5% occ to €617 million. Within that total, Geosystems revenue was up 9% occ, significantly faster than in Q4 (up 4% occ), Autonomy & Positioning revenue was also up 4% (a slowdown from the 15% occ reported in Q4), “fueled by strong demand for aerospace and defense solutions“. The (negative) standout is Safety, Infrastructure & Geospatial, which reported a revenue decline of 11% occ (versus an increase of 3% occ) as Hexagon exited the defense service contracts mentioned above — Mr. Guglielmini said that accounted for perhaps -8% of the -11%; a sizeable one-off software deal in Q1 2022 that didn’t recur this year accounts for the rest. That loss was not offset by revenue growth in public safety solutions. [See more on GES here, including a geo discussion in the company’s report.]
  • Industrial Enterprise Solutions (IES) revenue was up 11% occ (more or less on par with the Q4 growth rate of 12%) to €670 million. Within that total, Manufacturing Intelligence (MI) revenue was up 10% (slightly down from the Q4 increase of 13%), “driven by strong growth across key industries including aerospace and general manufacturing, as well as the software portfolio,” with Mr. Guglielmini singling out CAM, e-mobility, and commercial aerospace —especially as production ticks upwards.
  • Asset Lifecycle Intelligence (fka PPM) was up 16% occ (well ahead of the Q4 increase of 8%), “driven by strong growth in the entire product portfolio, with good growth in both perpetual and recurring software.” Mr. Guglielmini added that he saw “cross the board good SaaS and perpetual deals, good diversification of the business” with demand in the core and enterprise asset management portfolio, which is more tightly connected to the rest of the offering.
  • By geo, IES revenue was up 16% occ in Asia. China reported a 14% occ “fuelled by strong growth across manufacturing, power, and energy industries. The rest of Asia recorded double-digit organic growth, driven by solid demand for power, energy, and manufacturing solutions.”
  • IES revenue was up 10% occ in EMEA. Western Europe reported a 9% occ increase, “driven by strong demand in automotive and power and energy.” Aside from Russia, the rest of EMEA “grew at double-digit rates.”
  • IES revenue was up 8% occ in the Americas, with North America reporting 8% occ growth, “driven by strong growth in manufacturing, power, and energy. South America recorded double-digit organic growth, also driven by strong demand in power and energy.”

OK. The whole thing, business lines, geos … what does it all tell us? Diversification certainly helps — being active in so many geos, so many end industries, so many types of technologies, hardware and software, adds a level of stability that’s hard to unseat.

Specifically to out PLMish interest, Mr. Guglielmini told investors that the MI portfolio is becoming more diverse and is highly competitive in electrification, sustainability, and other areas where he sees more interest and growth potential and that the same can be said across the divisions; each is focusing on growth areas.

And closing as we started: Mr. Guglielmini said that China had a good start to the year, up 10%. Since MI is 3/4 of the business in China, it had a good quarter there. “We’re positive on China, with good momentum.”