By Niklas Pollard
ORLANDO, Florida (Reuters) - Fast-growing measurement technology group Hexagon <HEXAb.ST> set new financial targets on Monday, setting its sights on stronger profitability and sales in the coming years while relying less on acquired growth.
The Swedish company said it would aim to boost operating margin to 25 percent in 2015 from an underlying 18.4 percent last year while lifting sales to an annual 3.5 billion euros ($5.11 billion) from 1.48 billion euros in 2010.
"We call the plan 35-25-15," Chief Executive Ola Rollen told reporters. "That is, 3.5 billion euros in turnover, 25 percent operating margin in 2015, and that is at an annual pace."
The new targets for the group, which sells under brands such as Leica Geosystems as well as its own name, compared with average market expectations in a Reuters survey for a margin goal of 25 percent in 2014 and sales of 3.36 billion euros.
The new goals were rolled out in the wake of last year's acquisition of U.S. software firm Intergraph, Hexagon's biggest-ever purchase, which left it set to ease past previous targets for a 20 percent margin and 20 billion crowns ($3.25 billion) in sales this year.
A steady flow of acquisitions and strong organic growth have underpinned a rise in Hexagon's market capitalization in recent years and saw it win a place in the Stockholm bourse's blue-chip benchmark index <.OMXS30> as of this month.
SYNERGIES AHEAD OF PLAN
Hexagon is market leader in a specialized sector straddling software and engineering hardware and where rivals such as U.S. Trimble Navigation <TRMB.O> have also been on the acquisition trail, making an agreed bid for Finland's Tekla <TLA1V.HE> last month.
Rollen said the integration of Intergraph was creating vast business opportunities that underpinned the new financial targets, as was a base-case scenario of continued market growth at the historic average of 8 percent per year.
In the base-case scenario of firm market growth, the focus would be on lifting sales organically with only some minor add-on acquisitions, Rollen said.
"This does not rule out additional acquisitions, but they will not be as prominent as organic growth under this plan," he said. "We are talking about small to medium-sized acquisitions with less than $100 million in turnover."
"We will finance these acquisitions via our own cash flow."
Rollen also said the company, whose stock has gained about 90 percent over the past year, would be looking to sell its non-core operations, grouped in the Other Operations segment, sometime during the period through to end-2015.
"The level of ambition here is a shade higher than what the market was looking for," said a Sweden-based analyst who asked not to be identified. "But it is hard to say whether it will be positive enough ... the stock has been doing quite well over the past ten days."
However, if markets suffered a sharp decline, for instance due to weaker development stemming from a public debt-laden eurozone, Hexagon would still stick to its new targets but reach them in part through one or more major acquisitions, he added.
"If you can't grow your own business, then it is a good time to buy somebody else's," Rollen said.
In the shorter term, Rollen said that market growth this year was expected to run in double digits amid strong growth in emerging markets and a continued recovery in mature markets in North America and Europe.
Cost synergies from the acquisition of Intergraph were also running ahead of plan, Rollen said. This meant the group should hit $40 million in cost synergies in the fourth quarter compared with a previous target of $30 million this year, he said.
($1 = 6.162 Swedish crowns)
($1 = 0.6854 euro)
(Reporting by Niklas Pollard, editing by Matthew Lewis and Phil Berlowitz)