Risk management​ 

Risk: Hexagon engages in worldwide operations that are dependent on global economic and financial market conditions, as well as conditions that are unique to certain countries or regions. General economic and financial market conditions including the interest rate environment, affect the inclination and the capabilities of Hexagon’s existing and potential customers to invest in various technologies. Weak macroeconomic conditions globally or in part of the world may therefore result in lower market growth that falls below expectations and may reduce revenues for Hexagon, or it may have other effects, like extending the sales cycle.

The resurgence of a pandemic such as Covid-19 could have an impact on important Hexagon customer industries, and an increase of raw material and intermediate goods costs could impact Hexagon’s sales potential and cost structure. While the duration and severity of those impacts on Hexagon’s business are highly uncertain, they could have an adverse effect on the business, financial condition and results of operations in many ways, including disruptions in Hexagon’s supply chains. 

Risk management: Hexagon’s business is widely spread geographically, with a broad customer base within numerous market segments which may make the Group less sensitive to economic fluctuations in individual sectors, industries and geographical regions. Potential negative effects of a downturn in the developed world may, for example, be partially off-set by growth in emerging markets and vice-versa.

While Hexagon has developed and continues to develop plans intended to help mitigate the negative impact of economic downturns on the business, a protracted event would likely limit the effectiveness of those mitigation efforts.

Risk: Understanding geopolitical risk, how geography and economics influence politics and the relations between countries, is important in a world that has become more closely intertwined due interconnected global networks and systems– and additionally the trends of regionalisation that we have observed more recently in certain jurisdictions.

Current geopolitical risks include the current war in Ukraine and the corresponding global sanctions, the conflict between Israel and Palestine as well as Israel and other middle eastern countries, the resurgence of the civil war in Syria, other political and economic uncertainties and the potential for further escalation of the trade tensions among various countries and regions, for example the US, China and the EU. Although it is difficult to assess the evolution and impact of intensification of war hostilities, ongoing political tensions and international economic sanctions could have significant negative impacts on the global economy and the performance of financial markets, new legislation, various governmental approvals or permits, interest rates, availability of supply and on the markets for raw materials.

Understanding how geopolitical risks may affect Hexagon’s organisation, activities, operating results and strategies is critical to making accurate projections about Hexagon’s future growth and profitability. However, what impact the wars, crises, pandemics and/or an escalating trade complexity will have on commercial activities and/ or global markets, and the demand for Hexagon’s products, over the coming years remains uncertain and will to some extent depend upon resolution of any crises.

Risk management: In order to mitigate risks that may occur due to geopolitics, such as sanctions and/or global perception and reputational risk, Hexagon follows developments closely while evaluating different strategies in order to prepare for and handle possible scenarios that may affect Hexagon’s organisation and the ability to do business in different parts of the world in the near term and over the coming years. Among other things, Hexagon seeks to mitigate geopolitical risk through its local operations and localised products, adapted to local requirements, which mitigates risks associated with international tensions. Further, Hexagon has defined a Group Policy ensuring strict compliance with economic sanctions and a global team of subject matter experts that monitor regulatory developments and best practices.

Risk: Parts of Hexagon’s operation are carried out in sectors which are subject to price pressure and rapid technological change. Hexagon’s ability to compete in the market by introducing new and successful products with enhanced functionality while simultaneously cutting costs on new and existing products is of the utmost importance in order to retain customers and avoid erosion of market share. Other inherent risks exist with competitors, such as consolidation or entry into Hexagon’s markets by companies with significant resources. Such competition may result in price reductions, reduced margins or loss of market share.

R&D efforts are costly and new product development always entails a risk of unsuccessful product launches or commercialisation, which could have material adverse consequences on Hexagon. Further, technological innovation and changing trends, such as disruptive technologies, technical capabilities, supply chains, new market entrants or novel business models, creates inherent risks that are difficult to foresee.

Risk management: Hexagon makes significant Investments into R&D. The objectives for Hexagon’s R&D division are to transform customer needs into products and services and to detect and advance market and technology opportunities as early as practicable. Introducing new products and technologies require active intellectual property management to secure Hexagon’s technological position.

In addition to innovation, Hexagon recognises that competition matters are reflected as compliance risks and has incorporated these considerations into its Hexagon Compliance Programme.

Risk: Hexagon’s business activities are conducted in a large number of markets with multiple customer categories. In 2024, General Manufacturing was the single largest customer category and accounted for 12 per cent of net sales. For Hexagon, this customer category may involve certain risks as a downturn or weak development in the general manufacturing sector can have a negative impact on Hexagon’s business. General Manufacturing is followed by customer categories Other with 11 per cent, Aerospace and Defence with 10 per cent and Mining with 9 per cent. Changing demand of Hexagon’s customers is possible as technology needs and consumption change over time.

Hexagon may face risks, including reputational risks, while global conflicts persist, due to unauthorised use or misuse of the Group’s products. Further, the resurgence of the Covid-19 pandemic or any other outbreak or pandemic could result in delays, cancellations, or changes to user and industry conferences and other marketing events relating to Hexagon’s solutions, including its own customer and partner activities, which may negatively impact the ability to obtain new and retain existing customers, and effectively market Hexagon’s solutions.

Risk management: Hexagon has a favourable risk diversification in products and geographical areas, and no single customer or customer category is decisive for the Group’s performance. The largest customer represents approximately 1 per cent of the Group’s total net sales. Credit risk in customer receivables accounts for the majority of Hexagon’s counterparty risk.

Hexagon’s Compliance Programme addresses all principles contained in the Code of Business Conduct and Ethics, including trade with export controls, customs, anti-corruption, competition, public contracting and data privacy.

Hexagon is committed to adhering to all applicable legal requirements, including those specified above. The Group’s compliance efforts are designed to ensure peace and security by preventing the unlawful trade of items (such as goods, software, or technology) and their diversion to destinations where they may be used for illegal purposes.

Risk: Hexagon’s hardware products consist of components from several different suppliers. To be in a position to sell and deliver solutions to customers, Hexagon is dependent upon deliveries from third parties in accordance with agreed requirements relating to, for example, quantity, quality and delivery times. Erroneous or default deliveries by suppliers can cause delay or default in Hexagon’s deliveries, which can result in reduced sales.

Further, Hexagon uses subcontractors, distributors, resellers and other representatives. Hexagon may face risks, including reputational risks, if suppliers do not maintain a high level of business ethics in terms of, for example human rights working conditions and corruption. The resurgence of a pandemic such as Covid-19 could temporarily result in an inability to meet in person or otherwise effectively communicate with current or potential vendors, suppliers, and partners, which may negatively affect current and future relationships with such vendors, suppliers, and partners and Hexagon’s ability to generate demand for solutions.

If there were to be unmanaged negative impacts following a supplier’s noncompliance with Hexagon’s Code of Business Conduct and Ethics and/ or Hexagon’s Supplier Code of Conduct, it may result in reputational risks for Hexagon.

Risk management: Hexagon seeks a favorable risk diversification, and no single supplier is decisive for the Group’s performance. The largest supplier accounted for 1 per cent of Hexagon’s total net sales in 2024. To minimise the risk of supply shortages or of excessive price variations among suppliers, Hexagon works actively to coordinate sourcing within the Group and to identify alternative suppliers for strategic components. Supplier risk surveys are performed (including those by Hexagon’s external partner) in order to identify and mitigate risks associated with the suppliers’ operations.

Hexagon also has a sustainability risk assessment and supplier audit process in place, including handling the risk of breaches in human rights. Hexagon has implemented a comprehensive compliance programme for suppliers to manage social, legal, and ethical risks. The Group regularly conducts supplier audits to ensure adherence to Hexagon’s Code of Business Conduct and Ethics, as well as Hexagon’s Supplier Code of Conduct. Compliance training is offered to Hexagon’s suppliers. Hexagon also ensures strict adherence to the new EU regulations on supply chain management and updates its supply chain management system accordingly.

Risk: Hexagon’s production and distribution units are exposed to risks (fire, explosion, natural hazards, machinery damages, cyber threats, infrastructure failures, power outages, etc.) that could lead to property damage and business interruption. This risk may be further accentuated by climate change, which may impact the frequency and severity of many of these events.

Risk management: Risk grading surveys are performed (including by Hexagon’s external partner) in order to identify and mitigate risks as well as support local management in their loss prevention work. Surveys are conducted with each subsidiary in accordance with a long-term plan. Hexagon has implemented ISO 9001 at the majority of the largest production sites.

Risk: The resignation of key employees or Hexagon’s failure to attract skilled and diverse personnel to all different levels within the organisation may have an adverse impact on the Group’s operations. Further, maintaining Hexagon’s company culture is critical to attracting and retaining top talent.

In the event that all or a portion of Hexagon’s workforce becomes unable or unwilling to work on-site or travel as a result of event cancellations, facility closures, shelter-in-place, travel and other restrictions and changes in industry practice due to any causes (including pandemics), these workforce disruptions could adversely affect Hexagon’s ability to operate, including to develop, manufacture, generate sales of, promote, market and deliver hardware and software products, solutions and services, and provide customer support. Adoption of new laws or regulations, or changes to existing laws or regulations, that may be imposed as a result of the resurgence of a pandemic such as Covid-19, or any other wide-spread public health situation, may cause risks in the company’s ability to hire and retain skilled professionals.

Risk management: Since future success is largely dependent on the capacity to retain, recruit and develop skilled staff, being an attractive employer to both potential and existing employees is an important success factor for Hexagon.

Group and business area management jointly handle risks associated with human capital. Hexagon works with a structured approach to HR and market-based remuneration to better ensure employee satisfaction. Hexagon uses employee engagement as the overall measure in the employee survey.

In order to attract skilled employees, Hexagon cooperates with multiple universities and colleges around the world, aiming at training, developing an skills.

Risk: Hexagon provides sensors, software and data to its customers. 57 per cent of the revenues are from software and services. Hexagon does not currently operate any business that requires carbon credits, but that could change in the future. However, stricter regulation of environmental matters can result in increased costs or further investments for the companies within Hexagon which are subject to such regulation. Climate change can result in natural disasters and increase the risk of physical damage on assets and supply shortages. Hexagon is impacted by such legislation in a manner similar to other companies operating in these fields.

Risk management: Hexagon believes that it is in material compliance with all applicable laws and obligations and obtains relevant approvals where needed. Hexagon continuously monitors anticipated and implemented changes in legislation in the countries in which it operates, and potential environmental risks are regularly monitored. Hexagon routinely assesses the risk of climate change on its operations as part of its insurance programme. Hexagon has implemented ISO 14001 at the majority of the largest production sites and has implemented a sustainability programme to reduce its carbon impact in its own operations and in its value chain.

Risk: Corruption negatively impacts communities and overall global economic development and erodes the trust necessary to build a stable business environment. Additionally, under the anti-corruption laws of many jurisdictions, businesses such as Hexagon may potentially be held liable for the corrupt actions taken by employees, strategic or local partners or other representatives. If Hexagon or its intermediaries fail to comply with anti-corruption laws, governmental authorities could potentially seek to impose civil and/ or criminal fines and penalties which could have an adverse effect on Hexagon’s business and reputation.

Risk management: Hexagon places paramount importance on anti-corruption compliance for numerous reasons, including the advancement of its financial interests, sustainability objectives, brand value and its reputation.

Hexagon has established a comprehensive Code of Business Conduct and Ethics together with an Anti-Corruption Compliance Programme that covers the entire Group. This programme includes policies, processes, and training related to various potential corruption areas such as gifts and entertainment (both given and received from third parties), hiring candidates with government connections, and conducting business transactions with third parties.

Risk: Hexagon relies on IT systems in its operations. Disruptions or faults in critical systems may have a negative impact on Hexagon’s operations, including impacts on production, Hexagon’s tangible and intellectual property and, in some cases, the intellectual property and operations of external parties. Advances in digital technology such as artificial intelligence and increases in device connectivity have presented new security challenges as employees and Hexagon’s partners, customers and service providers to a greater extent, work remotely from non-corporate managed networks.

Incidents may also lead to data privacy infringements such as unauthorised access, leakage or loss of data. The use of AI-driven software may further exacerbate this risk. Data security and integrity are critical issues for Hexagon. Under the GDPR, and other analogous legislation in various jurisdictions, and ePrivacy regulations, Hexagon has firm legal requirements to protect against personal information (PI) data breaches. The regulations extend to all vendors that Hexagon uses to collect, store and process PI data on its behalf. In China and several other jurisdictions, there are also similar laws in place to protect various data types, including PI data. It is critical for Hexagon to protect and secure all data as the costs of remediating a serious breach are high and can also be damaging to Hexagon’s reputation.

Risk management: Cyber security risks are increasing in society in general and Hexagon works continuously to keep the Group’s IT systems protected. In addition, Hexagon invests in enhanced disaster recovery and data storage capabilities, cyber security expertise and tools, and other appropriate risk mitigation techniques. Hexagon also mitigates IT-related risks through contracts with external parties.

Hexagon manages risk through a formal risk assessment process, aligning with the NIST Risk Management Framework and ISO 31000 approaches. Risks are identified, assessed and evaluated before mitigating controls are selected to reduce risk to an acceptable level. Control selection has dependencies on external factors such as industrial regulation, local legislation and customer specific requirements. Accordingly, Hexagon operates a matrix of security certification standards such as ISO 27001, CMMC, TISAX and Cyber Essentials among others. Controls are mapped to the various standards and assured through both internal and independent external audit procedures.

Risk: Interest rate risk refers to the potential adverse impact of market interest rate fluctuations on the Group’s net interest expense and cash flow. Interest rate exposure arises primarily from outstanding loans. The impact on the Group’s net interest expense depends, among other things, on the average interest rate for borrowings. Further, increasing interest rates may have an impact on Hexagon’s customers, vendors and suppliers. For example, customers may invest less in Hexagon solutions, or the sales cycle may lengthen. Vendors and suppliers may reduce inventory levels of available products to deliver to Hexagon, which could extend delivery times, or could fail to fulfil their obligations.

Risk management: In  accordance with the Group Treasury Policy, the average interest rate duration of the external debt is to be between 6 months and 3 years. During the year, interest rate derivatives were used to manage the interest rate risk.

Customer interest-rate sensitivity is mitigated by the variety of products and services at various prices that Hexagon offers. Supplier and vendor interest-rate sensitivity mitigate through monitoring key vendors and suppliers.

Risk: Credit risk, i.e., the risk that customers may be unable to fulfill their payment obligations, accounts for the majority of Hexagon’s counterparty risk. Financial credit risk is the exposure to default of counterparties with which Hexagon has invested cash or has entered into forward exchange contracts or other financial instruments.

Risk management: Through a combination of geographical and industry diversification of customers, the risk for significant credit losses is reduced.

To reduce Hexagon’s financial credit risk, surplus cash is only invested with a limited number of approved banks and derivative transactions are only conducted with counterparties where an ISDA (International Swaps and Derivatives Association) netting agreement has been established. As Hexagon is a net borrower, excess liquidity is primarily used to repay external debt and therefore the average surplus cash invested with banks is kept as low as possible.

Risk: Liquidity risk is the risk of not being able to meet payment obligations in full as they become due or only being able to do so at materially disadvantageous terms due to lack of cash resources.

Risk management: The Group Treasury Policy states that the total liquidity reserve shall at all times be at least 10 per cent of forecasted annual net sales. A sufficient liquidity reserve limits the risk of not being able to meet payment obligations in full when they become due. At year-end 2024, cash and unutilised credit limits totalled 1,835.2 MEUR (1,268.6).

Risk: Refinancing risk refers to the risk that Hexagon does not have sufficient financing available when needed to refinance maturing debt, because existing lenders decline to provide additional credit or difficulties arise in procuring new lines of credit at a given point in time. Hexagon’s ability to satisfy future capital needs is to a large degree dependent on successful sales of the Group’s products and services. There is no guarantee that Hexagon will be able to generate necessary capital from sales or from third party financing arrangements. In this regard, the general development of the capital and credit markets is also of major importance. Hexagon, moreover, requires sufficient financing in order to refinance maturing debt.

In order to ensure that appropriate financing is in place and to decrease refinancing risk, no more than 20 per cent of the Group’s gross debt, including committed credit facilities, is allowed. 

Risk management: In order to ensure that appropriate financing is in place and to decrease refinancing risk, no more than 20 per cent of the Group’s gross debt, including committed credit facilities, is allowed to mature within the succeeding 12 months unless replacement facilities have been entered into. 

Hexagon’s main sources of financing consist of:

• A multicurrency revolving credit facility (RCF) established during 2021. The RCF amounts to 1,500 MEUR with a tenor of 5+1+1 years.
• A Swedish Medium-Term Note Programme (MTN) established during 2014. The MTN programme amounts to 20,000 MSEK and gives Hexagon the option to issue bonds with tenors of up to 6 years.
• A Swedish Commercial Paper Programme (CP) established during 2012. The CP programme gives Hexagon the option to issue commercial paper for a total amount of 15,000 MSEK with tenor up to 12 months.

Risk: Hexagon’s operations, assets and staff are to a certain degree exposed to various risks of damages, losses and injuries which could tentatively threaten the Group’s business continuity, earnings, financial assets and personnel.

Risk management: To ensure a well-balanced insurance coverage and financial economies of scale, Hexagon’s insurance programme includes, among other things, group-wide property and liability insurance, travel insurance, errors and omissions insurance and transport insurance, as well as several other programmes, combined with local insurance coverage wherever needed. The insurance programme is periodically amended so that owned risk and insured risk are optimally balanced.

Risk: Hexagon’s main markets are subject to regulation and applicable laws. Hexagon’s operations may be affected by regulatory changes, tax changes (including tariffs and customs duties) and other trading obstacles, political changes and pricing and currency controls, as well as other government legislation and restrictions in the countries where Hexagon is active. For example, more stringent regulations have been passed, such as in the EU, or are being developed in several jurisdictions relating to the use of artificial intelligence in product development and solutions deployment. In addition, Hexagon remains subject to data protection regulations, which continue to evolve. These changing requirements and more stringent rules impose a risk of non-compliance with these regulations, which could potentially result in substantial legal fees and damage to Hexagon’s reputation. Additional areas of regulatory uncertainty include laws and regulations related to export controls and sanctions, foreign-direct investment controls and disclosures, and environmental sustainability (including climate change). New laws and regulations could result in increased compliance and operating costs, such as the Corporate Sustainability Reporting Directive within the EU. Further, delivery of products and services that comply with contractual requirements may present certain risks at times, particularly in light of frequent regulatory change, natural disasters, wars and regional conflicts, and pandemics and similar force majeure events.

Risk management: Hexagon closely monitors legislation, regulations and applicable ordinances in each market and seeks to adapt the business to identified future changes in each market. The Group’s legal function is staffed with experienced professionals and Hexagon also regularly consults with external subject matter experts to address legal risk management topics.

To manage country-specific risks, Hexagon observes local legislation and monitors political developments in the countries where the Group conducts operations. To this effect, Hexagon has adopted a worldwide compliance programme across the Group to ensure that its subsidiaries at all times comply with all applicable legislation, rules and ordinances. Hexagon’s Compliance Programme is regularly reviewed and updated as needed based on changes in laws and regulations. Further, Hexagon will continue to comply with all applicable trade restrictions and sanctions laws relevant to our operations and with the rules of ethics and international standards.

Risk: Intellectual property infringement and plagiarism by third parties are risks to which Hexagon is exposed. There is no guarantee that Hexagon will be able to protect obtained patents, trademarks and other intellectual property rights or that submitted applications for registration will be granted. Furthermore, there is a risk that new technologies and products are developed which circumvent or replace Hexagon’s intellectual property rights. Infringement disputes, and legal disputes in general, can be costly and time consuming and may therefore adversely affect Hexagon’s business. Additionally, third parties may assert that Hexagon’s products infringe their intellectual property rights.

Risk management: Hexagon seeks to protect its technology innovations to safeguard the returns on the resources that Hexagon assigns to R&D. The Group strives to protect its technical innovations through patents, trademarks, copyrights, and trade secrets and enforces its intellectual property rights through legal proceedings when warranted. Such intellectual property rights can generally only be enforced in jurisdictions that have granted such protections or recognise these rights. Hexagon closely monitors any new regulations impacting IP rights.

Risk: Hexagon operates through subsidiaries in a number of jurisdictions and all cross-border transactions are normally a tax risk because there are no global transfer pricing rules. Local tax authorities follow their own local transfer pricing rules and authorities interpret transfer pricing guidelines differently. Risks are also presented by new accounting rules or interpretations by the applicable governing bodies. Hexagon interacts with local taxing authorities and frequently has several ongoing tax audits in progress.

Hexagon’s interpretation of prevailing tax law, tax treaties, OECD guidelines and agreements entered into with foreign tax authorities may be challenged by tax authorities in some countries. Rules and guidelines may also be subject to future changes which can have an adverse effect on the Group’s tax position. Furthermore, a change in the business or part of the business can have an impact on agreements entered into with tax authorities in some tax jurisdictions.

The tax rate may increase if large acquisitions are made in high tax jurisdictions or if the corporate tax rates change in countries where Hexagon carries our substantial business.

Risk management: Transactions between the Group companies are carried out in accordance with Hexagon’s interpretation of prevailing tax laws, tax treaties, OECD’s guidelines and agreements entered into with foreign tax authorities. Hexagon has a tax policy that is annually reviewed and adopted by its Board of Directors.