Source - RNS
RNS Number : 3925A
AVEVA Group PLC
29 May 2019
 

29 May 2019

 

AVEVA GROUP PLC

 

RESULTS FOR THE YEAR ENDED 31 MARCH 2019

 

AVEVA delivers strong growth, outlook remains positive

 

AVEVA Group plc ('AVEVA' or 'the Group') announces its results for the year ended 31 March 2019. The statutory results1 show 12 months of trading for the heritage Schneider Electric industrial software business ('SES') in the comparative period to March 2018, together with one month of the heritage AVEVA business. To provide further understanding of the combined trading performance and to improve transparency, non-statutory results are also shown for the combined Group on a pro forma basis2. Statutory and pro forma results are shown on an IFRS 15 basis in both periods.

 

Summary results

 

Year ended 31 March

2019

2018

Change


Results shown on a combined pro forma basis2

Revenue

£775.2m

£692.5m

11.9%

Adjusted EBIT3

£184.5m

£154.0m

19.8%

Adjusted3 diluted earnings per share

90.90p

71.59p

27.0%


Statutory results shown on a reverse acquisition basis1

Revenue

£766.6m

£486.3m

57.6%

Profit before tax

£46.7m

£34.5m

35.4%

Diluted earnings per share

20.90p

39.72p

(47.4)%

 

Highlights

·      On a pro forma basis, revenue for the combined Group grew 11.9% to £775.2m (FY18: £692.5m) and adjusted EBIT grew 19.8% to £184.5m (FY18: £154.0m)

·      Recurring revenue4 grew to 54.3% (FY18: 51.6%) and pro forma adjusted EBIT margin increased to 23.8% (FY18: 22.2%)

·      On a statutory basis, revenue grew 57.6% to £766.6m (FY18: £486.3m) and PBT was £46.7m (FY18: £34.5m)

·      Final dividend up 7.4% to 29.0 pence per share (FY18: 27.0p)

·      Net cash and deposits £127.8m (FY18: £95.8m)

·      Outlook remains positive and AVEVA is on-track to meet its medium-term targets

 

Chief Executive Officer, Craig Hayman said:

 

"AVEVA delivered a strong performance in its first full year as a combined company and integration has progressed well across all functions of the business. Digitalisation is accelerating in the industries we serve, driving ongoing growth in demand for industrial software. AVEVA is well placed to capture this demand by working with its customers to turn opportunities into business value, delivering solutions across the asset and operations lifecycle. We remain confident in the outlook and in meeting our medium-term targets of delivering revenue growth at least in-line with the industrial software market, increasing recurring revenue as a percentage of overall revenue to 60% and improving AVEVA's Adjusted EBIT margin to 30%."

 

 

 

Notes

 

1  Statutory results are stated under reverse acquisition accounting principles and therefore the results for the 12 months to 31 March 2018 include 12 months of heritage SES and one month of heritage AVEVA.

 

2  Pro forma results include results for both heritage SES and heritage AVEVA for the 12 months to 31 March 2018 and exclude a negative adjustment to revenue of £8.6m for the 12 months to 31 March 2019 reflecting an acquisition accounting adjustment to deferred revenue on the opening balance sheet.

 

3 Adjusted Earnings Before Interest and Tax (EBIT) and adjusted earnings per share are calculated before amortisation of intangible assets (excluding other software), share-based payments, gain/loss on fair value of forward foreign exchange contracts and exceptional items. Adjusted earnings per share also includes the tax effects of these adjustments. When expressed on a pro forma basis they are also calculated before the acquisition accounting adjustment to deferred revenue.

 

4 Recurring revenue is defined as rental and subscriptions software licence revenue plus support and maintenance revenue.

 

 

Enquiries:

 

AVEVA Group plc

Matt Springett, Head of Investor Relations

Tel: 01223 556 676

 

FTI Consulting LLP

Edward Bridges / Dwight Burden / Harry Staight

Tel: 020 3727 1000

 

 

Conference call and webcast

AVEVA will host a conference call and webcast, for registered participants, at 09:30 (BST) today.

 

To register for the webcast and access the presentation materials please visit: www.aveva.com/Investors

 

Conference calls dial in details:

Telephone: +44 (0) 207 1928 000 / +1 631 5107 495

Conference call code: 9474901

 

Conference call participants will be able to ask questions during the Q&A session, but those on the webcast will be in a listen only mode.

 

A replay of the call will be made available later in the day.

 

 

 

Chief Executive's review

 

Summary

 

AVEVA delivered a strong performance in its first full year as a combined company, both in terms of trading in the period and making progress towards medium-term targets.

 

On a statutory basis revenue was up 57.6% to £766.6 million (FY18: £486.3 million). Profit before tax (PBT) was £46.7 million (FY18: £34.5 million). This revenue growth primarily reflected the combination of heritage AVEVA with the heritage SES business (the Combination), together with the organic growth of both businesses. The relatively small increase in statutory PBT was primarily due to the amortisation of intangible assets related to the Combination.

 

On a pro forma basis, the enlarged Group achieved revenue growth of 11.9% to £775.2 million (FY18: £692.5 million) and growth in adjusted EBIT of 19.8% to £184.5 million (FY18: £154.0 million). On a constant currency basis, revenue increased 12.4%. Constant currency is calculated by restating the period's reported results to reflect the previous year's average exchange rates. Detailed constant currency analysis has not been provided because there is no material difference between actual and constant currency results.

 

This growth was driven by increasing demand for industrial software and good sales execution, including an increase in multi-year commitments from key customers.

 

AVEVA made significant progress with integrating the heritage AVEVA and SES product portfolios, launching a combined product offering at the Group's global customer event, the AVEVA World Summit, in October 2018. Since then, several key customers have expanded the range of software that they buy from AVEVA across the asset and operational lifecycle.

 

The Group has emerged from the year with a strong, integrated product portfolio with which to drive its customers' digitalisation journeys.

 

Trading and markets

 

The industries that AVEVA serves are making increasing use of technology to reduce both capital and operating costs. This is being driven by ongoing technological mega trends that are enabling the digitalisation of the industrial world, notably the industrial internet of things, data visualisation and artificial intelligence, together with competitive pressures to reduce costs and increase output.

 

This is driving growth in demand for industrial software and there are some signs that the rate of market growth is accelerating. AVEVA is optimally placed to help its customers digitalise, due to its end-to-end product portfolio, which runs from simulation through design and construction to operations, as well as having established market-leading positions serving process, marine, batch and hybrid industries.

 

End markets

 

The industries that AVEVA serves are at the early stages of a digitalisation growth curve, when compared to other industries. We believe that the current addressable market for AVEVA's products of approximately £15 billion is likely to grow significantly (Sources: ARC, Gartner, company reports).

 

Around 40% of AVEVA's revenue comes from the Oil & Gas end market and the Group has become more diversified since the Combination with Marine, Chemicals & Petrochemicals, Packaged Goods (such as Food & Beverage and Pharma), Power and Metals & Mining accounting for 5% to 10% of revenue each. Other markets include Water & Wastewater, Infrastructure and Discrete Manufacturing.

 

Within Oil & Gas, the Group has become more diversified than before the Combination, with approximately 15% of the total revenue relating to upstream capital related projects, 15% to the downstream end market and 10% to mid-stream.

 

Although AVEVA has historically seen some variation in growth due to end market conditions within specific cyclical industries, notably Oil & Gas and Marine, the ongoing structural growth drivers in each of our end markets are strong.

 

In Oil & Gas overall end market conditions were moderately positive, with an increase in both capital and operating expenditure across the upstream, mid-stream and downstream segments. AVEVA benefited from a slight increase in capital expenditure related to upstream Oil & Gas projects, growth in mid-stream as pipeline capacity expanded and ongoing digitalisation in downstream, particularly by national oil companies.

 

In Marine, end market conditions remained subdued, although strong sales execution drove wins in growth areas, such as the construction of cruise ships, and product upgrades.

 

Forthcoming 2020 International Maritime Organisation emissions regulations are expected to drive retrofit investments in operating vessels and design changes in new vessels. Linked to this, the refining industry is expected to make investments in existing capacity to meet new fuel mix requirements and make technology investments to ensure agility in supply chain processes to rapidly respond to new demand patterns as the regulations are implemented. As a result, both these markets are expected to generate additional opportunities for AVEVA's portfolio.

 

The Group's other end markets such as Power and Food & Beverages are largely non-cyclical and are primarily driven by structural growth as industries make increasing use of technology to drive efficiency.

 

In Power, existing generation facilities are maximising the life of their capital assets and investing in technologies to ensure safe and reliable operation, with high availability. AVEVA's capability in predictive asset analytics and reliability centric maintenance coupled with engineering information management, addresses a core requirement in these industries. With the shift to renewables, generation assets are moving from large consolidated units to networks of distributed assets. These will require scalable systems for monitoring and control and coordination of operations. AVEVA's portfolio in real time control and information management is highly suited to the evolving needs of the power generation sector.

 

Geographical performance

 

AVEVA delivered growth across all its geographies.

 

We saw improving execution from the direct and indirect sales channels, the latter of which represented approximately one-third of total revenue. Channel sales growth was solid double digit overall and broadly spread, with around two-thirds of our distributors growing revenues by more than 10%.

 

The Group achieved major order wins with customers including Covestro, ADNOC, China Petroleum, KBR, MV Werften and Sinopec.

 

The analysis of revenue by region on a pro forma basis was as follows:

£m

Asia Pacific

EMEA

Americas

Total

Reported change

Rentals and subscriptions

49.8

107.8

61.8

219.4

40.2%

Support and maintenance

48.6

74.6

78.6

201.8

0.3%

Total recurring revenue

98.4

182.4

140.4

421.2

17.8%

Initial fees and perpetuals

57.3

86.6

67.7

211.6

6.1%

Training and services

27.8

48.8

65.8

142.4

5.2%

Total

183.5

317.8

273.9

775.2

11.9%

Change

3.4%

19.6%

9.9%

11.9%

 

 

EMEA revenue increased 19.6% to £317.8 million (FY18: £265.8 million) on a pro forma basis. AVEVA delivered growth across a broad range of geographies and end-user markets. Key order wins in the first half of the year came from the Marine industry where AVEVA's capabilities and our customers' technical excellence in Norway and Germany helped to fulfil market demand for complex speciality and cruise vessels. In the second half, AVEVA saw strong demand in downstream Oil & Gas, with competitive wins across Spain, Italy and Turkey.

 

AVEVA also performed well in Food & Beverage, Power and Mining, where the Group delivered a digitalised mine for a leading operator in South Africa. Other areas of demand included discrete manufacturing, with wins in Automotive.

 

Americas revenue increased 9.9% to £273.9 million (FY18: £249.3 million) on a pro forma basis. AVEVA achieved strong growth in Latin America where there has been an improvement in end market conditions. In North America, AVEVA achieved large order wins in the EPC and Oil & Gas sectors, and saw good growth through its channel distribution partners as end users modernise and upgrade Monitoring & Control software.

 

Asia Pacific revenue increased 3.4% to £183.5 million (FY18: £177.4 million) on a pro forma basis, with good growth in China, particularly in the Oil & Gas end market. We continued to see major customers in the Oil & Gas market moving forward on their digital transformation journey with AVEVA across the region. Conditions in the Marine market continued to be subdued and this impacted growth in the Group's core Marine end markets of Japan and Korea.

 

Business unit performance

 

Engineering, which consists of design and simulation software, is the largest of AVEVA's business areas, representing around 43% of total revenue. It performed well during the year, delivering high-teens revenue growth.

 

The Group achieved solid revenue growth in the core product areas from both the heritage AVEVA and heritage SES businesses, Engineering & Design and Process Simulation respectively, with substantial revenue synergies coming through cross-selling to large customers.

 

Sales of engineering software for industrial plants were strong, whereas marine-related revenue was broadly flat, reflecting end market conditions. Material revenue synergies are expected in Marine in the medium-term as Monitoring & Control and Asset Performance Management solutions are introduced to complement the Group's existing market-leading engineering design offer.

 

Monitoring & Control, which comprises Human to Machine Interface and Supervisory Control and Data Acquisition (HMI SCADA) products, is the second largest of AVEVA's business areas, representing around 32% of total revenue. During the year, AVEVA introduced new product releases for InTouch HMI, Citect SCADA and System Platform. A combination of customers upgrading software and favourable end market conditions across Discrete, Hybrid, Process and Infrastructure, drove mid-single digit revenue growth, with a particularly good performance from channel sales.

 

As part of the Group's strategy to grow recurring revenues, AVEVA Flex, a token-based rental & subscription selling model was introduced for Monitoring & Control during the second half of the year.

 

The Group has also launched AVEVA Flex to its channel partners, making it easy for them to bring a compelling subscription offering to their customers for the first time.

 

Asset Performance Management (APM) represents around 14% of the Group's total revenue. AVEVA's APM offering is strongly differentiated. It addresses the broadest dimensions of APM using design and engineering information, real-time and historical operational data, and maintenance execution workflows, together with model-based machine learning for predictive asset analytics.

 

This differentiation and a growing overall market for APM solutions, resulted in revenue growth for AVEVA of 20%, making APM the fastest growing portfolio for the Group.

 

The Group has partnered with MaxGrip, a company that optimises asset performance with Reliability Centred Maintenance (RCM) solutions for the last few years. AVEVA acquired MaxGrip's software assets shortly after the financial year end, to augment AVEVA's APM offering by providing a templated approach to asset strategy optimisation and RCM software for risk-based maintenance. Additionally, MaxGrip's rich library of asset fault codes and remediations will enhance the power of AVEVA's predictive asset analytics capabilities and accelerate the deployment of artificial intelligence for prescriptive maintenance.

 

Planning & Operations represents around 11% of the Group's total revenue. The business unit achieved high single digit revenue growth during the year, despite a planned reduction in sales of services.

 

All areas of the Planning & Operations business grew (Operations Execution, Operations Optimisation and Trading, Planning & Scheduling) driven by the ongoing trend towards digital transformation in AVEVA's customer base. Operations Execution and Trading, Planning & Scheduling both achieved mid-teens growth, with strong order wins from the Energy, Mining and Packaged Goods sectors. In particular, the Unified Supply Chain Management Planning & Scheduling software is achieving strong growth due to its ability to help major oil companies achieve significant savings for every barrel of oil produced.

 

Integration

 

Integration of the heritage AVEVA and SES businesses has progressed well. Management structures were integrated across all functions, AVEVA exited the majority of the Transitional Service Agreements (TSAs) with Schneider Electric and made progress towards moving to common group-wide IT systems. This included moving to a single Customer Relationship Management (CRM) system and putting in place preparations to move onto a common group wide Enterprise Resource Planning (ERP) system in 2020.

 

The integration of the sales team has been particularly successful, leading to improved sales momentum and cross selling.

 

There has been a strong focus on cultural integration. AVEVA LIFE values of Limitless possibilities, Integrity always, Flexibility together and Excellence every day have been introduced across the business and have become core to employee behaviour.

 

Progress against our medium-term targets

 

In September 2018 AVEVA outlined new medium-term targets. These targets and progress against them is summarised below.

 

Medium-term revenue growth

 

The Group aims to grow medium-term revenue on a constant currency basis at least in line with the blended growth rate of the industrial software market.

 

This revenue growth target reflects AVEVA expecting to grow its underlying software business in excess of market growth rates, driven by a combination of the strength of the Group's market positions, sales execution, revenue synergies and additional value levers, including pricing and more sophisticated management of discounting.

 

As previously indicated, this above-market growth is expected to be partly offset in terms of reported revenue by the impact of a phased transition towards greater rental and subscription revenue, together with potentially lower growth rates in services revenue.

 

Progress report: AVEVA delivered revenue growth of 12.4% on a constant currency basis. This growth was driven by strong sales execution, which was enabled by the early integration of the sales force. The growth rate benefited from cross selling of our combined product portfolio to our enlarged customer base and certain multi-year contracts which have been partly recognised upfront in terms of revenue.

 

During the year, substantial investments were made in sales and marketing to drive growth. These included investments in leadership, sales training events, additional sales people, customer events and an expanded marketing team. New hires included a new Chief Marketing Officer to help drive efficiency and effectiveness in marketing performance, and a Head of Global Partners to drive channel partner sales.

 

Measures were also taken to increase yield by introducing consistent group-wide governance around allowable discounting and the application of price increases.

 

AVEVA benefited from its relationship with Schneider Electric. In addition to being a shareholder, Schneider acts as a sales channel for AVEVA and is a customer, buying software for its own industrial automation needs. Sales to Schneider and through Schneider as a distribution partner grew 9.9% to £80.1 million (FY19: £72.9 million) in total. This growth was driven principally by sales made through Schneider to third party end customers, reflecting the company's differentiated global distribution capabilities.

 

Medium-term adjusted EBIT margin

 

The Group aims to increase adjusted EBIT margins to 30%. This margin improvement is expected to be driven by a combination of revenue growth, previously announced cost savings, cost control and a focus on high margin revenue growth through pricing and revenue mix optimisation.

 

Adjusted EBIT is calculated as profit from operations before amortisation of intangible assets (excluding other software), share-based payments, gain/loss on fair value of forward foreign exchange contracts and exceptional items.

 

Progress report: AVEVA's adjusted EBIT margin on pro-forma revenue increased to 23.8% (FY18: 22.2%). This improvement was driven by the strong revenue growth. The overall increase in costs was beyond our objective of inflationary growth, albeit with much of the overrun being due to success-based costs associated with outperformance versus budgeted revenue.

 

Recurring Revenue

 

AVEVA aims to grow the proportion of recurring revenue to total revenue to over 60% in the medium term. Recurring revenue is defined as rental and subscriptions software licence revenue plus support and maintenance revenue. This will be driven by growing software as part of the revenue mix and by increasing the mix of rental and subscriptions revenue as a proportion of new software revenue in a financial year.

 

The transition to greater levels of recurring revenue is expected to increase long-term free cash flow generation. Rentals and subscriptions offer customers benefits including greater flexibility, lower up-front costs and simplicity in pricing. These benefits are reflected in higher customer lifetime value of a rental and subscriptions model versus a perpetual licence model.

 

Progress report: AVEVA made good progress during the year and grew recurring revenue as a proportion of overall revenue to 54.3% (FY18: 51.6%).

 

For FY20, sales incentives structures have been modified to encourage recurring revenue growth with a focus on driving rental and subscription revenue versus initial and perpetual licences. Incentives also favour software versus services.

 

The Group has seen strong demand for Cloud-based solutions. The Group won 37 new Cloud customers, taking the total to 57 (FY18: 20). Annualised Cloud revenues also increased nearly threefold. We are seeing strong demand for enterprise scale Cloud purchases with customer wins from major oil companies in particular.

 

Outlook

 

Demand for AVEVA's products is strong, driven by the ongoing digitalisation of the industrial world and stable conditions in key end markets. Therefore, the outlook remains positive and AVEVA is on-track to meet its medium-term targets of delivering revenue growth at least in line with the industrial software market, increasing recurring revenue as a percentage of overall revenue to 60% and improving Adjusted EBIT margin to 30%.

 

Craig Hayman

Chief Executive Officer

29 May 2019

 

 

 

Finance Review

 

Overview

 

The statutory results for the year ended 31 March 2019 are stated under acquisition accounting principles and therefore the comparative period (i.e. for the year to 31 March 2018) only includes the results of the heritage AVEVA business for one month.

 

To enhance understanding of these results and improve transparency, non-statutory summary results are also shown for the combined AVEVA Group on a pro forma basis in this commentary. These include both heritage SES and heritage AVEVA for the year to 31 March 2018 and exclude an adjustment to revenue of £8.6 million for the year to 31 March 2019, which reflects an acquisition accounting adjustment to deferred revenue on the opening balance sheet. We anticipate that this will be the last year of results where a pro forma presentation will be required.

 

These results have been prepared under the new revenue recognition standard, IFRS 15. The impact of IFRS 15 was to reduce revenue by £12.1 million on a pro forma basis in the prior year, versus revenue recognised using the previous accounting standard, IAS 18 and to reduce selling and administrative expenses by £0.5 million. On a statutory basis, the impact on revenue of adoption of IFRS 15 was £12.8 million and to reduce selling and administrative expenses by £0.5 million (see note 2).

 

Statutory results for the year ended 31 March 2019

 

Revenue for the period was £766.6 million which was up 57.6% (FY18: £486.3 million). This change was primarily due to the organic growth of the Group in the year together with the fact that the comparative period only included one month of the heritage AVEVA business.

 

The Group reported statutory profit before tax of £46.7 million (FY18: £34.5 million). The increase in revenue did not materially drop through to profit due to the full year amortisation charge for intangibles together with the acquisition and integration costs related to the Combination.

 

Pro forma results

 

The following table shows the composition of the pro forma results and the reconciliation of these to the statutory reported results.

 


Statutory 2019

Normalised items*

Exceptional items

Adjusted 2019

Revenue haircut

Pro forma 2019

Pro forma 2018

Change


£m

£m

£m

£m

£m

£m

£m

%










Revenue

766.6

-

-

766.6

8.6

775.2

692.5

11.9%

Cost of sales

(193.2)

-

1.9

(191.3)

-

(191.3)

(177.6)

7.7%

Gross profit

573.4

-

1.9

575.3

8.6

583.9

514.9

13.4%










R&D

(178.0)

61.8

1.7

(114.5)

-

(114.5)

(99.0)

15.7%

Selling & distribution

(235.6)

26.3

12.6

(196.7)

-

(196.7)

(179.1)

9.8%

Admin. expenses

(106.3)

11.7

12.7

(81.9)

-

(81.9)

(80.3)

2.0%

Net impairment loss from financial assets

(6.3)

-

-

(6.3)

-

(6.3)

(2.5)

-

Operating expenses

(526.2)

99.8

27.0

(399.4)

-

(399.4)

(360.9)

10.7%










EBIT

47.2

99.8

28.9

175.9

8.6

184.5

154.0

19.8%

Finance revenue

0.2

-

-

0.2

-

0.2

1.0

-

Finance expense

(0.7)

-

-

(0.7)

-

(0.7)

(3.8)

-

Profit before tax

46.7

99.8

28.9

175.4

8.6

184.0

151.2

21.7%

Tax charge

(12.9)

(18.1)

(4.4)

(35.4)

(1.7)

(37.1)

(35.5)

4.5%

Profit after tax

33.8

81.7

24.5

140.0

6.9

146.9

115.7

27.0%










Diluted EPS (pence)

20.90





90.90

71.59

27.0%

*   Normalised items include amortisation of intangible assets (excluding other software), share-based payments and gain/loss on fair value of forward foreign exchange contracts.

 

Revenue was £775.2 million, which was up 11.9% compared to the previous year (FY18: £692.5 million). EBIT grew 19.8% to £184.5 million (FY18: £154.0 million), primarily due to the revenue growth, higher gross margin and operational leverage.

 

While the integration of the enlarged Group has progressed to a point where it is becoming difficult to split out the performance of the heritage AVEVA and SES businesses, revenue growth from the heritage AVEVA products was approximately 14% and growth from the heritage SES products was approximately 11%.

 

During the year the Group increased the proportion of rental contracts sold on a multi-year versus one year basis and we expect this trend to continue. Longer-term contracts provide more reliable cash flows and when sold using token licensing, help to encourage customers to buy more of the AVEVA product portfolio. They are also favoured by customers as they provide certainty of terms and conditions over a longer period.

 

Foreign exchange translation moderately impacted growth in the period primarily due to Sterling having strengthened versus the US Dollar resulting in a small difference. On a constant currency basis revenue growth was 12.4%.

 

Revenue by type on a pro forma basis is set out below:

 

£m

2019

% of total

2018

% of total

Change

 

 

 

 

 

 

Rentals and subscriptions

219.4

28.3%

156.5

22.6%

40.2%

Support and maintenance

201.8

26.0%

201.1

29.0%

0.3%

Total recurring revenue

421.2

54.3%

357.6

51.6%

17.8%

Initial fees and perpetuals

211.6

27.3%

199.5

28.8%

6.1%

Training and services

142.4

18.4%

135.4

19.6%

5.2%

Pro forma total

775.2

100.0%

692.5

100.0%

11.9%

Deferred revenue haircut

(8.6)

 

 

 

 

Statutory revenue

766.6

 

 

 

 

 

Revenue overview

 

Rental and subscription

 

Rental and subscriptions revenue grew 40.2% to £219.4 million (FY18: £156.5 million). This growth was driven by a focus on increasing recurring revenue and included the benefit of partly up-front revenue recognition on certain multi-year contracts.

 

AVEVA will focus on growing these recurring revenues again in FY20, supported by new salesforce incentives to promote sales of these contracts over initial and perpetual licences and services. Although rental and subscription contracts can reduce revenue recognition in the short-term, they lead to higher longer-term product yields and cash generation.

 

Support and maintenance

 

Support and maintenance revenue was broadly flat at £201.8 million (FY18: £201.1 million). Although AVEVA grew initial and perpetual licences in the prior year which have associated support and maintenance revenues, this growth was offset by certain customers switching from support and maintenance to new rental contracts as the Group seeks to grow subscription revenues.

 

Initial fees and perpetuals

 

Initial fees and perpetual revenue grew 6.1% to £211.6 million (FY18: £199.5 million). This growth was driven by increased sales in the Monitoring & Control area of the business led by the indirect channel, which benefited from new product releases and good market demand, and which did not have a rental and subscription offer for customers in place until the latter part of the year.

 

Training and services

 

Training and services revenue grew 5.2% to £142.4 million (FY18: £135.4 million). This growth was primarily due to increasing demand for initial implementation work associated with the sale of APM and Planning & Operations products.

 

AVEVA will continue to focus on high gross margin sales of software revenue in FY20, supported by sales incentivisation together with a planned reduction in certain lower-margin services.

 

Profit before tax and cost management

 

The revenue growth drove a 19.8% increase in pro forma EBIT to £184.5 million (FY18: £154.0 million).

 

Total normalised costs were £590.7 million (FY18: £538.5 million), an increase of 9.7% over the previous year. This growth was above AVEVA's target of inflationary cost increases. The majority of the increase related to growth in cost of sales, sales commissions and financial performance related bonuses due to the strong growth.

 

In addition to this, decisions were made to accelerate investment in sales, marketing and product integration during the year in the context of positive market conditions. These incremental investments included the hiring of new people and greater expenditure on customer marketing, for example regional and global customer events.

 

On an underlying basis, AVEVA has been implementing a cost synergies programme through rationalisation of duplicated functions, the implementation of common systems, shared services for back office functions, real estate consolidation, and enhanced R&D effectiveness.

 

The Group is targeting annualised cost synergies of approximately 5% of total FY18 costs, representing some £25 million, which will be fully implemented by the end of the 2020 financial year. More than half of these were implemented by the end of the 2019 financial year, with most of these flowing through to the results in the year.

 

An analysis of total expenses is summarised below:

 

£m

Cost of

sales

R&D

Selling and

distribution

Admin.

expenses

Net impairment

loss from

financial assets

Total

Statutory

193.2

178.0

235.6

106.3

6.3

719.4

Amortisation

-

(61.8)

(26.3)

-

-

(88.1)

Share based payments

-

-

-

(11.2)

-

(11.2)

Loss on FX contracts

-

-

-

(0.5)

-

(0.5)

Exceptional items

(1.9)

(1.7)

(12.6)

(12.7)

-

(28.9)

Normalised costs

191.3

114.5

196.7

81.9

6.3

590.7

 

 

 

 

 

 

 

2018

177.6

99.0

179.1

80.3

2.5

538.5

Change

7.7%

15.7%

9.8%

2.0%

-

9.7%

 

 

Cost of sales increased 7.7% to £191.3 million (FY18: £177.6 million) and the gross margin improved to 75.3% (FY18: 74.4%). The cost of sales increase primarily related to revenue growth with higher associated channel partner and third-party royalty costs, together with some investments into the Customer Support function.

 

Research & Development costs were £114.5 million (FY18: £99.0 million) representing an increase of 15.7%. However, in FY19 no R&D investment was capitalised (FY18: £9.9 million). The remaining increase was due to investment in product integration and new product launches, being partly offset by cost synergies.

 

Selling and distribution expenses were £196.7 million (FY18: £179.1 million), a 9.8% increase versus the prior year. The majority of this increase related to higher sales commissions following better than budgeted sales performance. In addition to this, substantial investments were made during the year in Sales, both in terms of new recruits and training. Investments were also made in strengthening the marketing team and in customer events to showcase AVEVA's enlarged product portfolio.

 

Administrative expenses were £81.9 million (FY18: £80.3 million) an increase of 2.0%. This reflected underlying cost reductions being offset by higher bonus accruals in relation to the strong performance, national insurance costs related to share options and new senior hires. In addition, there were increased costs from establishing capabilities and skills in the support functions such as IT, HR, Finance and Legal where certain services did not transfer over from Schneider Electric and were not covered by the TSA e.g. legal team, treasury, IT support.

 

Net impairment loss from financial assets represents the impairment of accounts receivable during the year of £6.3 million (FY18: £2.5 million).

 

Normalised and exceptional items

 

The following exceptional and other normalised items have been excluded in presenting the pro forma results:

 

 

Pro forma year ended 31 March

£m

2019

2018

Acquisition and integration activities

23.0

29.5

Restructuring costs

5.9

2.9

Movement in provision for sales taxes

-

(3.0)

Impairment of R&D

-

Total exceptional items

28.9

 

 

 

Amortisation (excl. other software)

88.1

50.5

Share based payments

11.2

4.0

Loss / (gain) on FX contracts

0.5

Total normalised items

99.8

 

Acquisition and integration activities principally related to consultancy costs paid to advisors for integration support, a provision for an onerous lease, investment in new systems, deal related executive retention costs, legal and accounting fees and additional temporary resources required as a result of the combination.

 

Restructuring costs related to severance payments for employees in a number of global office locations as part of the cost synergy programme, the cost benefits of which are now starting to flow though. This included the closing of 10 offices in duplicate locations and the costs of exiting certain lower margin services business.

 

The increase in amortisation related to the amortisation of the fair valued heritage AVEVA intangible assets under acquisition accounting following the Combination.

 

Acquisition and integration and restructuring costs paid in the period were £18.9 million.

 

Taxation

 

The statutory tax charge was £12.9 million (FY18: credit of £6.0 million). The effective rate of tax of 27.6% differs from the US (FY18: UK) corporation tax rate of 24% because of higher rates of overseas tax and overseas losses in certain locations for which no deferred tax asset has been recognised. The tax rate has benefited from R&D tax incentives in the UK and the US.

 

The pro forma adjusted tax rate was 20.2% (FY18: 23.5%) and is expected to remain at around this level in FY20.

 

Earnings per share (EPS)

 

Statutory diluted EPS was 20.90 pence (FY18: 39.72 pence). The reduction was due to a greater number of shares being in issue on average as a result of the Combination. On a pro forma adjusted diluted basis EPS grew 27.0% to 90.90 pence (FY18: 71.59 pence).

 

Dividends

 

The Board proposes a final dividend of 29.0 pence per share at a cost of £46.8 million (FY18: 27.0 pence per share at a cost of £43.5 million). The final dividend will be payable on 2 August 2019 to shareholders on the register on 5 July 2019.

 

The total dividend for the year was 43.0 pence (FY18: 27.0 pence as no interim dividend was paid).

 

AVEVA intends to maintain its existing progressive dividend policy, taking account of the earnings profile of the Group.

 

Balance sheet

 

The Group balance sheet presented as at 31 March 2019 reflects the goodwill and intangible assets that arose from the Combination resulting in non-current assets of £1,923.0 million (31 March 2018: £1,992.9 million). Net measurement period adjustments of £15.3 million were made to goodwill during the first year of the Combination including reassessment of the values of certain intangible assets and adjustment to the consideration for the payment to Schneider Electric of £17.4 million under the completion accounts mechanism.

 

Trade receivables at 31 March 2019 were £174.9 million (31 March 2018: £146.9 million) reflecting the strong sales towards the year end. Contract assets increased to £100.5 million from £67.6 million at 31 March 2018, largely due to the impact of the multi-year contracts closed in the financial year. Contract liabilities representing deferred revenue were £174.6 million (31 March 2018: £141.7 million).

 

Cash flows

 

Cash generated from operating activities before tax was £169.1 million compared to £91.2 million in the previous year on a statutory basis. Conversion of adjusted EBIT to operating cash flow before tax was 91.7%, reflecting improved credit control, although the rate was lower than historic levels due to the acquisition and integration and restructuring costs during the period, of which £18.9 million were paid in cash.

 

During the second half £19.4 million was paid to Schneider Electric in relation to the final completion accounts adjustment in relation to the Combination.

 

At 31 March 2019 net cash and treasury deposits were £127.8 million (FY18: £95.8 million).

 

Events since the balance sheet date

 

After the period end, AVEVA acquired the software assets of MaxGrip for €25 million (approximately £21.8 million) and disposed of a small distribution business in Italy for approximately £1.3 million.

 

 

James Kidd

Deputy CEO & CFO

29 May 2019

 

 

 

Review of principal risks and uncertainties

Risk Management Approach

Whilst refreshing and building on existing risk management processes in the heritage AVEVA and Schneider Electric Software businesses, management has considered the risks faced by the new merged AVEVA throughout 2018 and early 2019. A number of corporate level risks have been identified and are being monitored, 12 of which are considered by the Board to be the Principal Risks to AVEVA over the next 12-18 month period.

Strategic Internal Risks

Risk

Mitigation

Talent Acquisition & Retention

AVEVA is heavily reliant on the people it employs around the world and if we are unable to attract or retain the niche skills and experience we need to drive the business forward, creating innovation and growth, this could materially impact the success of our business.

 

The technology sector is competitive when seeking talent and the AVEVA brand must remain attractive within each country it operates, particularly to niche skills such as developers, technical sales, services, consultants and leadership.

During the last 12 months, AVEVA has invested in its in-house talent acquisition expertise to boost this capability. Other mitigating activities include partnerships with universities, an employee referral programme and communicating our culture.

 

AVEVA endeavours to ensure that employees are motivated in their work and there are regular appraisals, with staff encouraged to develop their skills. Annually there is a Group-wide salary review that rewards strong performance and ensures salaries remain competitive. Commission and bonus schemes help to ensure the success of AVEVA and individual achievement is appropriately rewarded.

Move to Subscription Model

AVEVA's strategic move further towards a subscription based licence model is designed to offer customers improved flexibility when addressing their software needs. It could however fail to create the improved recurring revenue and cashflow generation expected for AVEVA if customers do not utilise the subscription offering.

 

This is a new principal risk for AVEVA reflecting the importance of the strategic objective of a move towards a subscription licensing model.

Whilst AVEVA is ambitious to gain the benefits of more widely adopting subscription-based licensing and to provide the benefits of this model to its customers, the expansion is initially being introduced within the Monitoring & Control business unit of AVEVA. This will allow AVEVA to both manage the risk and understand the model better.

 

AVEVA will continue to offer traditional licensing models throughout as further mitigation.

 

A transition strategy is in place and continues to be closely monitored.

 

Cloud Initiatives

AVEVA is committed to providing market-leading, value-adding, reliable and secure cloud services to its customers and is therefore investing in this initiative. This investment requires careful management otherwise AVEVA risks not realising anticipated returns in addition to reputational damage.

 

This is a new principal risk for AVEVA reflecting the ever-increasing demand for cloud-based services from customers and the criticality for AVEVA to meet these demands.

 

AVEVA has a dedicated Cloud Development Operations team in place to ensure that Cloud offerings fully meet customer expectations. This team works closely with the Portfolio Management team so that Cloud offerings are aligned with the right portfolio of products. In addition, there is a dedicated commercial function working with customers and listening closely to their feedback.

 

Digital Transformation Agenda

AVEVA's strategy to capitalise on the opportunities of digital transformation could ultimately fail or not provide the expected levels of return, leading to increased costs, reputational damage or lost market positions.

 

This is a new principal risk for AVEVA reflecting the digitisation of industry trend and the importance of AVEVA in being strategically aligned with it.

 

Alongside careful management of the right Digital Transformation strategy, AVEVA further mitigates this risk by having in place a dedicated Sales and Consulting team, targeted marketing campaigns, continued portfolio rationalisation and use case prioritisation.

Integration & Synergies

Integration and realisation of synergies remains as a principal risk for AVEVA. Throughout the next 12 months, failure to continue to effectively integrate the heritage AVEVA and SES businesses could lead to poor operational efficiency and anticipated synergy targets not being realised.

 

There are many areas that AVEVA must continually and carefully manage so that a successful integration takes place, including management of costs, integration of systems, controls, processes and management reporting.

AVEVA has appointed a senior executive as an Integration Lead and external integration consultants have been engaged throughout the merger process.

 

There are many ongoing workstreams in progress which are managing day to day integration activities including HR, Finance, IT, Real Estate and Communications. These are being supported by an established governance structure that includes close monitoring of the progress being made.

 

External Risks

Risk

Mitigation

Competitors

AVEVA operates in highly competitive markets. Other technology companies could acquire, merge or move into AVEVA's market space to compete with AVEVA's offering creating a material threat, or existing competitors could respond quicker to market demands and trends resulting in reduced market share and missed growth opportunities for AVEVA.

 

This is an increased principal risk for AVEVA reflecting the increased competitive focus on market trends such as digitisation of industry.

 

AVEVA carefully monitors customer requirements, trends and other suppliers operating within our chosen markets. We invest in innovation and strive to offer superior products to meet these market trends.

 

Further areas of specific mitigation include leveraging our relationship with Schneider Electric, attractive proposals for additional complimentary products for existing customers and flexibility to meet changing market demands and competitive forces.

Dependency on Cyclical Markets

AVEVA's revenue is predominantly derived from customers operating in markets which are mainly cyclical in nature such as Oil & Gas and Marine. As and when those markets reach downturn stages, our customers have less funding available for capital projects, including the purchase of AVEVA's software products. Significant end market downturns could materially impact AVEVA's revenues and profits.

 

 

 

Given the 2018 merger, AVEVA now has an increased portfolio of products available to customers operating in non-cyclical markets such as Food & Beverages and Utilities. Further strategic initiatives will also be undertaken to strengthen our offerings in those markets.

 

Our extensive global presence also provides some mitigation from over-reliance on key geographic markets.

 

AVEVA's strategic move towards a subscription-based licensing model also further mitigates this risk as it can offer customers greater flexibility over their expenditure.

AVEVA Products Implicated in Industrial Accidents or Customer Cyber Attack

Our software products are complex and new products or enhancements may contain undetected errors, failures, performance problems or defects which may impact our strong reputation with our customers or create financial implications.

 

This is a new principal risk for AVEVA reflecting the increased portfolio of products in the AVEVA range, their functionality and increasing threats in the external cyber environment.

AVEVA products are extensively tested prior to commercial launch. In addition, AVEVA has a robust Security Development Lifecycle as a key component of our overall software development process and has created formal and collaborative relationships with third-party security researchers and security organisations to proactively ensure our software is as safe and secure as is reasonable.

Cyber Attack

Threats within the global cyber environment continue to grow. AVEVA depends on its IT systems and should we be specifically targeted by a cyber-attack or be impacted by a general global cyber incident, this could potentially lead to suspension of some operations, regulatory breaches and fines, reputational damage, loss of customer and employee information and loss of customer confidence.

AVEVA has a low tolerance to this risk and utilises multiple layers of cyber security threat defences including access control, encryption, firewalls, etc. Additionally, regular external penetration testing is conducted across critical corporate and online services.

                  

Regulatory Compliance

AVEVA is required to comply with both international and local laws, regulations and tax legislation in each of the jurisdictions in which it operates. Significant changes in these laws and regulations or failure to comply with them could lead to liabilities or reputational damage.

Local management are supported by local professional advisers and further oversight is maintained from the corporate legal and finance functions.

 

In addition, AVEVA uses compliance policies and guidance materials, communications & training platforms for its employees and external partners.

 

Operational Risks

Risk

Mitigation

Internal IT Systems

AVEVA depends on its many IT systems for day-to-day operations and to meet its customers' expectations. If they fail to operate effectively and efficiently then this could result in reputational damage, negative employee engagement or poor customer experiences.

 

This is a new principal risk for AVEVA reflecting the range of IT systems now in the AVEVA IT estate given the 2018 merger and the ongoing projects to consolidate and improve them whilst maintaining business as usual processes.

AVEVA has appointed an experienced Chief Information Officer and additional people resources to lead and drive the various IT initiatives, including a new ERP implementation project designed to provide and support industry best practice processes. This includes respective governance frameworks and support from expert external advisors and integration specialists.

 

 

Disruptive Risks

Risk

Mitigation

Disruptive Technologies

New and unforeseen technology, software or business models which threaten AVEVA's value offering could be developed and become significantly commercially viable resulting in material impacts to AVEVA's profits and prospects.

 

This is a new principal risk for AVEVA reflecting the increased potential threats from disruptive forces which seek to capitalise on digitisation of industry trends.

AVEVA largely mitigates this threat through its own leading innovation initiatives and by remaining at the forefront of technological advances. This a core strategic strength of AVEVA. In addition, AVEVA continually scans the disruptive technology environment to ensure it is well informed and placed to respond to any material threats.

 

 

Consolidated income statement

for the year ended 31 March 2019

 


Notes

2019

£m

 

2018

£m

(restated)

Revenue

3,4

766.6

486.3

Cost of sales


(193.2)

(150.8)

Gross Profit


573.4

335.5

Operating Expenses




Research & Development costs


(178.0)

(116.3)

Selling and administrative expenses

5

(341.9)

(181.3)

Net impairment loss on financial assets


(6.3)

(1.2)

Total operating expenses


(526.2)

(298.8)

Profit from operations

6

47.2

36.7

Other income


-

1.0

Finance revenue


0.2

0.5

Finance expense


(0.7)

(3.7)

Profit before tax from continuing operations


46.7

34.5

Income tax (expense)/credit

7

(12.9)

6.0

Profit for the year attributable to equity holders of the parent


33.8

40.5

 

Profit from operations


47.2

36.7

Amortisation of intangibles (excluding other software)


88.1

45.2

Share-based payments


11.2

1.4

Loss on fair value of forward foreign exchange contracts


0.5

0.1

Exceptional items

6

28.9

23.6

Other income 


-

1.0

Adjusted EBIT


175.9

108.0

 

Earnings per share (pence)




- basic

9

20.97

39.92

- diluted

9

20.90

39.72

 

 

All activities relate to continuing activities.

 

The accompanying notes are an integral part of this Consolidated income statement.

 

 

 

Consolidated statement of comprehensive income

for the year ended 31 March 2019

 


Notes

2019

£m

 

2018

£m

(restated)

Profit for the year


33.8

40.5

Items that may be reclassified to profit or loss in subsequent periods:




Exchange gain/(loss) arising on translation of foreign operations


8.4

(15.5)

Total of items that may be reclassified to profit or loss in subsequent periods


8.4

(15.5)

Items that will not be reclassified to profit or loss in subsequent periods:




Remeasurement loss on defined benefit plans


(0.5)

(2.4)

Deferred tax effect

7(a)

(0.4)

1.5

Total of items that will not be reclassified to profit or loss in subsequent periods


(0.9)

(0.9)

Total comprehensive income for the year, net of tax


41.3

24.1

 

The accompanying notes are an integral part of this Consolidated statement of comprehensive income.

 

 

 

Consolidated balance sheet

31 March 2019


Notes

2019

£m

 

2018

£m

(restated)

2017

£m

(restated)

Non-current assets





Goodwill


1,285.3

1,283.5

42.4

Other intangible assets


599.5

678.8

199.0

Property, plant and equipment


17.1

14.8

8.7

Deferred tax assets


11.8

9.0

2.1

Other receivables


2.2

1.2

-

Retirement benefit surplus


7.1

5.6

-

Financial assets


-

-

1.6



1,923.0

1,992.9

253.8

Current assets





Inventories


0.8

0.9

1.0

Trade and other receivables

10

237.9

230.4

171.4

Contract assets

3

100.5

67.6

72.7

Treasury deposits

11

0.6

0.2

-

Cash and cash equivalents

11

127.2

105.6

22.4

Financial assets


-

0.5

-

Current tax assets


10.8

11.1

5.2



477.8

416.3

272.7

Total assets


2,400.8

2,409.2

526.5

Equity





Issued share capital


5.7

5.7

2.3

Share premium


574.5

574.5

27.3

Other reserves


1,178.8

1,179.4

(4.2)

Retained earnings


165.5

195.1

181.1

Total equity


1,924.5

1,954.7

206.5

Current liabilities





Trade and other payables

12

156.8

147.2

129.2

Contract liabilities

3

174.6

141.7

96.0

Loans and borrowings


-

10.0

-

Financial liabilities


0.1

-

1.9

Provisions


1.9

-

-

Current tax liabilities


12.8

12.1

8.6



346.2

311.0

235.7

Non-current liabilities





Deferred tax liabilities


111.3

130.5

75.7

Other liabilities


3.1

2.2

3.4

Provisions


2.6

-

-

Retirement benefit obligations


13.1

10.8

5.2



130.1

143.5

84.3

Total equity and liabilities


2,400.8

2,409.2

526.5

 

The accompanying notes are an integral part of this Consolidated balance sheet.

 

 

 

 

Consolidated statement of changes in shareholders' equity

31 March 2019

 




Other reserves




 


Share

capital

£m

Share premium £m

Merger reserve
£m

Cumulative translation adjustments £m

Capital contribution reserve

£m

Capital redemption reserve

£m

Reverse acquisition reserve

£m

Treasury shares

£m

Total other reserves £m

Retained earnings

£m

Total

equity

£m

 

At 1 April 2017

2.3

27.3

-

25.4

-

-

(29.4)

(0.2)

(4.2)

146.6

172.0

 

Impact of change in accounting polices

-

-

-

-

-

-

-

-

-

34.5

34.5

 

Restated balance as at 1 April 2017

2.3

27.3

-

25.4

-

-

(29.4)

(0.2)

(4.2)

181.1

206.5

 

Profit for the year

-

-

-

-

-

-

-

-

-

40.5

40.5

 

Other comprehensive income

-

-

-

(15.5)

-

-

-

-

(15.5)

(0.9)

(16.4)

 

Total comprehensive income

-

-

-

(15.5)

-

-

-

-

(15.5)

39.6

24.1

 

Shares issued to acquire the Schneider Electric software business

3.4

548.9

1,265.6

-

-

-

-

-

1,265.6

-

1,817.9

 

Issue and redemption of B shares

-

-

(650.0)

-

-

101.7

-

-

(548.3)

-

(548.3)

 

Recognition of reverse acquisition reserve on combination

-

-

-

-

-

-

481.9

-

481.9

-

481.9

 

Transaction costs

-

(1.7)

-

-

-

-

-

-

-

-

(1.7)

 

Share-based payments

-

-

-

-

-

-

-

-

-

1.2

1.2

 

Investment in own shares

-

-

-

-

-

-

-

(0.3)

(0.3)

-

(0.3)

 

Transactions with Schneider Electric

-

-

-

-

-

-

-

-

-

(26.8)

(26.8)

 

Cost of employee benefit trust shares issued to employees

-

-

-

-

-

-

-

0.2

0.2

-

0.2

 

At 31 March 2018

5.7

574.5

615.6

9.9

-

101.7

452.5

(0.3)

1,179.4

195.1

1,954.7

 

Profit for the year

-

-

-

-

-

-

-

-

-

33.8

33.8

 

Other comprehensive income

-

-

-

8.4

-

-

-

-

8.4

(0.9)

7.5

 

Total comprehensive income

-

-

-

8.4

-

-

-

-

8.4

32.9

41.3


Share-based payments

-

-

-

-

-

-

-

-

-

11.2

11.2

 

Tax arising on share options

-

-

-

-

-

-

-

-

-

1.3

1.3

 

Investment in own shares

-

-

-

-

-

-

-

(9.3)

(9.3)

-

(9.3)

 

Capital contribution

-

-

-

-

0.1

-

-

-

0.1

-

0.1

 

Transactions with Schneider Electric

-

-

-

-

-

-

-

-

-

(8.8)

(8.8)

 

Cost of employee benefit trust shares issued to employees

-

-

-

-

-

-

-

0.2

0.2

(0.2)

-

 

Equity dividends

-

-

-

-

-

-

-

-

-

(66.0)

(66.0)

 

At 31 March 2019

5.7

574.5

615.6

18.3

0.1

101.7

452.5

(9.4)

1,178.8

165.5

1,924.5

 

 

The accompanying notes are an integral part of this Consolidated statement of changes in shareholders' equity.

 

 

 

Consolidated cash flow statement

for the year ended 31 March 2019


Notes

2019

£m

 

2018

£m

(restated)

Cash flows from operating activities




Profit for the year


33.8

40.5

Income tax expense / (credit)

7(a)

12.9

(6.0)

Net finance expense


0.5

3.2

Other income


-

0.5

Amortisation of intangible assets


88.8

46.4

Depreciation of property, plant and equipment


5.4

3.2

Impairment and loss on disposal of intangible assets


-

14.9

Loss/(Profit) on disposal of property, plant and equipment


0.1

(1.8)

Share-based payments


11.2

1.2

Difference between pension contributions paid and amounts charged to operating profit


0.1

(1.3)

Research & Development expenditure tax credit


(2.0)

(0.3)

Capitalisation of Research & Development costs


-

(9.9)

Changes in working capital:




Trade and other receivables


(51.4)

(28.4)

Trade and other payables


69.2

28.9

Changes to fair value of forward foreign exchange contracts


0.5

0.1

Cash generated from operating activities before tax


169.1

91.2

Income taxes paid


(32.4)

(28.6)

Net cash generated from operating activities


136.7

62.6

Cash flows from investing activities




Purchase of property, plant and equipment


(7.4)

(4.9)

Purchase of intangible assets


(0.2)

(1.2)

Cash received on acquisition of business


-

132.2

Consideration paid on completion of business combination


(19.4)

-

Proceeds from disposal of property, plant and equipment


-

3.3

Proceeds from disposal of intangible assets


-

3.1

Purchase of treasury deposits


(0.4)

-

Interest received


0.2

0.5

Net cash flows (used in)/from investing activities


(27.2)

133.0

Cash flows from financing activities




Interest paid


(0.7)

(3.5)

Purchase of own shares


(9.3)

-

Repayment of/(proceeds from) borrowings


(10.0)

10.0

Change in funding with related parties


-

(18.1)

Return of value to shareholders


-

(100.0)

Transaction costs on issue of shares


-

(1.7)

Dividends paid to shareholders of the parent


(66.0)

-

Net cash flows used in financing activities


(86.0)

(113.3)

Net increase in cash and cash equivalents


23.5

82.3

Net foreign exchange difference


(1.9)

0.9

Opening cash and cash equivalents

11

105.6

22.4

Closing cash and cash equivalents

21

127.2

105.6

 

The accompanying notes are an integral part of this Consolidated cash flow statement.

 

 

 

1 Basis of preparation

The Consolidated financial statements of AVEVA Group plc and all its subsidiaries (the Group) have been prepared in accordance with IFRS, as adopted by the European Union, as they apply to the financial statements of the Group for the year ended 31 March 2019.

 

The preliminary announcement covers the period from 1 April 2018 to 31 March 2019 and was approved by the Board on 29 May 2019. It is presented in Pounds Sterling (£) and all values are rounded to the nearest £0.1m except when otherwise indicated.

 

The financial information contained in this preliminary announcement of audited results does not constitute the Group's statutory accounts for the years ended 31 March 2019 or 31 March 2018. The accounts for the year ended 31 March 2018 have been delivered to the Registrar of Companies. The statutory accounts for the year ended 31 March 2019 have been reported on by the Company's auditors; the report on these accounts was unqualified, did not draw attention to any matters by way of emphasis and did not contain any statement under section 498(2) or (3) of the Companies Act 2006 or equivalent preceding legislation.

 

The statutory accounts for the year ended 31 March 2019 are expected to be posted to shareholders in due course and will be delivered to the Registrar of Companies after they have been laid before the shareholders in a general meeting on 8 July 2019. Copies will be available from the registered office of the Company, High Cross, Madingley Road, Cambridge CB3 0HB and can be accessed on the AVEVA website, www.aveva.com. The registered number of AVEVA Group plc is 2937296.

 

For the year ended 31 March 2019, the consolidated financial statements comprise the results of both SES and the AVEVA Group for the full financial year. For the year ended 31 March 2018, the consolidated financial statements comprise the results of the SES for the full year, and the results of the AVEVA Group from 1 March 2018, the date of the reverse acquisition (hereafter referred to as the 'Combination'). For the year ended 31 March 2018, in accordance with IFRS 3, the financial statements were prepared as a reverse acquisition of AVEVA Group by SES. Therefore, although the consolidated financial statements were issued in the name of AVEVA Group plc, the legal acquirer, the Group's activity is in substance the continuation of the financial information of SES.

 

The Group presents a non-GAAP performance measure on the face of the Consolidated income statement. The Directors believe that 'adjusted EBIT' provides a reliable and consistent presentation of the underlying performance of the Group. Adjusted EBIT is not defined by IFRS and therefore may not be directly comparable with the 'adjusted EBIT' measures of other companies.

 

The business is managed and measured on a day to day basis using adjusted results. To arrive at adjusted results, certain adjustments are made for normalised and exceptional items that are individually important and which could, if included, distort the understanding of the performance for the year and the comparability between periods.

 

Normalised items: These are recurring items which management considers to have a distorting effect on the underlying results of the Group, and are non-cash items. These items relate to amortisation of intangibles (excluding other software), share-based payment charges and fair value adjustments on financial derivatives, although other types of recurring items may arise. Recurring items are adjusted each year irrespective of materiality to ensure consistent treatment.

 

Exceptional items: These are items which are non-recurring and are identified by virtue of either their size or their nature. These items can include, but are not restricted to, the costs of significant restructuring exercises, fees associated with business combinations and costs incurred in integrating acquired companies.

 

2 Accounting policies

 

The preliminary statement has been prepared on a consistent basis with the accounting policies set out in the last published financial statements for the year ended 31 March 2018 except where noted below. Other new standards and interpretations which came into force during the year did not have a significant impact on the Group's financial statements.

 

The Group has adopted IFRS 15 Revenue from Contracts with Customers from 1 April 2018, using the full retrospective method. This has resulted in changes in accounting policies and adjustments to the amounts recognised in the financial statements.

 

i) Rendering of services - transfer of control

Under IAS 18, revenue from sales of initial licences, perpetual licences and the initial software delivery element of rental/term licences was recognised upon delivery. Delivery occurred when the customer had access to the intellectual property described in the contract. In some limited circumstances, AVEVA recognised revenue from a rental/term licence agreement rateably over the contract period. This assessment was based on whether AVEVA could reliably estimate the maintenance and support element of the contract.

 

Under IFRS 15, revenue is recognised when a customer obtains control of the services. All distinct performance obligations relating to licences for software are considered to be 'right to use' and are transferred to the customer at a 'point in time'. Therefore, under IFRS 15, all revenue from software licences which are distinct performance obligations are recognised at a 'point in time' and not 'over time'. This results in an acceleration of the recognition in revenue for certain contracts and revenue streams.

 

The effect on the income statement for the year ended 31 March 2018 has been to reduce revenue by £10.4m, and profit after tax by £5.2m.

 

ii)   Providing extended payment terms to customers

Under IAS 18, where AVEVA provided a customer with extended payment terms, the revenue was deferred until the consideration was due in accordance with the contract. Under IFRS 15, all the contractual payments are included in the transaction price and allocated to the performance obligations at the start of the contract, to the extent that collectability is considered probable. Where the performance obligation has already been satisfied, this has resulted in revenue being recognised at an earlier point under IFRS 15.

 

The effect on the income statement for the year ended 31 March 2018 has been to reduce revenue and profit after tax by £0.1m.

 

iii)  Stand-alone selling prices

Revenue from contracts with separately-identifiable components (multiple-element arrangements) was previously recognised based on the relative fair value of the components. Under IFRS 15, the total consideration of a customer arrangement is allocated based on their relative stand-alone selling prices. Stand-alone selling prices are determined based on list prices (with standard discounts where appropriate), the adjusted market assessment approach and the residual approach.

 

The effect on the income statement for the year ended 31 March 2018 has been to reduce revenue by £2.3m, and profit after tax by £1.8m.

 

3 Revenue

 

An analysis of the Group's revenue is as follows:


2019

£m

2018

£m

Support and maintenance, including annual fees

194.4

133.5

Rental and subscriptions

218.2

72.7

Initial fees and perpetual licences

211.6

163.1

Training and services

142.4

117.0


766.6

486.3




Timing of revenue recognition



Services transferred at a point in time

357.3

220.0

Services transferred over time

409.3

266.3


766.6

486.3

Finance revenue

0.2

0.5


766.8

486.8

 

Training and services consists of consultancy, implementation services and training fees.

 

Contract balances are as below:

 


31 March 2019

£m

31 March 2018

£m

1 April 2017

£m

Trade receivables

174.9

146.9

64.5

Contract assets

100.5

67.6

72.7

Contract liabilities

174.6

141.7

96.0

 

A contract asset is recognised when the software licence performance obligation is satisfied, and therefore revenue recognised, but the full licence amount has not been billed. This situation arises when customers purchase a multi-year rental or subscription which is billed on an annual basis. When invoices are raised the contract assets are reclassified to trade receivables.

 

Contract liabilities are recognised when the customer is billed prior to the satisfaction of the performance obligation. This situation arises when a contract includes post contractual support as part of a rental or subscription contract or a support and maintenance contract. Post contractual support is a service transferred to the customer over time, with billing upfront or annually.

 

Set out below is the amount of revenue recognised from:

 


2019

£m

Amounts included in contract liabilities at the beginning of the year

127.6

Performance obligations satisfied in previous years

-

 

 

4 Segment information

 

The Executive Leadership Team monitors and appraises the business based on the performance of three geographic regions: Asia Pacific; Europe, Middle East and Africa (EMEA); and Americas. These three regions are the basis of the Group's primary operating segments reported in the financial statements. Performance is evaluated based on regional contribution using the same accounting policies as adopted for the Group's financial statements. There is no inter-segment revenue. Corporate costs include centralised functions such as Executive Management, Information Management, Finance and Legal. Balance sheet information is not included in the information provided to the Executive Leadership Team.

 



Year ended 31 March 2019


Asia Pacific

EMEA

Americas

Corporate

Total


£m

£m

£m

£m

£m

Revenue






Support and maintenance, including annual fees

45.0

71.7

77.7

-

194.4

Rental and subscriptions

49.4

107.2

61.6

-

218.2

Initial fees and perpetual licences

57.3

86.6

67.7

-

211.6

Training and services

27.8

48.8

65.8

-

142.4

Regional revenue total

179.5

314.3

272.8

-

766.6

Cost of sales

(28.8)

(42.6)

(66.2)

(53.7)

(191.3)

Selling and administrative expenses

(36.6)

(65.9)

(60.9)

(115.2)

(278.6)

Net impairment loss on financial assets

(4.0)

(1.6)

(0.7)

-

(6.3)

Regional contribution

110.1

204.2

145.0

(168.9)

290.4

Research & Development costs





(114.5)

Adjusted EBIT





175.9

Exceptional items, other normalised adjustments* and net interest





(129.2)

Profit before tax





46.7

* Normalised adjustments include amortisation of intangible assets (excluding other software), share-based payments and movements on fair value of forward exchange contracts.

 

As the Combination of the two businesses completed so close to the end of the financial year, it was not possible to report cost data between the three regions for the year ended 31 March 2018. Neither was it possible to consistently report the combined business on any other segmental basis. Therefore, the segmental information provided has had to be limited to regional revenue only for the comparative period.

 


Year ended 31 March 2018


Asia Pacific

EMEA

Americas

Total


£m

£m

£m

£m

Revenue





Support and maintenance, including annual fees

15.3

34.9

83.3

133.5

Rental and subscriptions

18.0

39.1

15.6

72.7

Initial fees and perpetual licences

44.1

51.6

67.4

163.1

Training and services

25.0

35.2

56.8

117.0


102.4

160.8

223.1

486.3

 

 

5 Selling and administration expenses

 

An analysis of selling and administration expenses is set out below:


2019

£m

2018

£m

Selling and distribution expenses

235.6

128.0

Administrative expenses

106.3

53.3


341.9

181.3

 

 

6 Exceptional items

 


2019

£m

2018
£m

Acquisition and integration activities

23.0

5.7

Restructuring costs

5.9

2.9

Impairment and loss on sale of capitalised R&D

-

15.0


28.9

23.6

 

Acquisition and integration activities relate to fees paid to professional advisers primarily for legal and financial due diligence services related to the combination of AVEVA Group plc and SES, plus other consultancy costs paid to advisors in relation to the integration, and provisions taken in relation to onerous leases.

 

The restructuring costs relate to severance payments in a number of global office locations. In the financial year ended 31 March 2018 this also included a divestment made by SES in China, which resulted in an exceptional write off of £0.9m. This was offset by an exceptional gain of £1.9m made by selling the property relating to the same write off.

 

The impairment of capitalised R&D recognised in the year ended 31 March 2018 related to a development project that was ceased, prior to completion, following a divestment of a Schneider Electric Software joint venture operation with Schneider Electric. Also included are the previously capitalised development costs related to a project over which a commercial review of financial prospects was performed, and it was concluded that the carrying value of the development costs should be fully impaired.

 

The total cash outflow during the year as a result of exceptional items was £18.9m (2018: £25.0m).

 

Exceptional items were included in the Consolidated income statement as follows:


2019

£m

2018
£m

Cost of sales

1.9

0.4

Research & Development costs

1.7

15.5

Selling and distribution expenses

12.6

2.8

Administrative expenses

12.7

5.9

Other income

-

(1.0)


28.9

23.6

 

 

7 Income tax expense

 

a) Tax on profit

The major components of income tax expense are as follows:


2019

£m

2018
£m

Tax charged in Consolidated income statement



Current tax



UK corporation tax

5.8

3.6

Foreign tax

29.8

35.1

Adjustments in respect of prior periods

(0.5)

(1.1)


35.1

37.6

Deferred tax



Origination and reversal of temporary differences

(22.0)

(43.6)

Adjustments in respect of prior periods

(0.2)

-


(22.2)

(43.6)

Total income tax expense reported in Consolidated income statement

12.9

(6.0)

 

 


2019

£m

2018
£m

Tax relating to items charged directly to Consolidated statement of comprehensive income



Deferred tax on actuarial remeasurements on retirement benefit obligation

0.4

(1.5)

Tax charge reported in Consolidated statement of comprehensive income

0.4

(1.5)

 

b) Reconciliation of the total tax charge

The differences between the total tax charge shown above and the amount calculated by applying the standard rate of US (2018: UK) corporation tax to the profit before tax are as follows:


2019

£m

2018
£m

Tax on Group profit before tax at standard US (2018: UK) corporation tax rate of 24% (2018: 19%)

11.2

6.6

Effects of:



- expenses not deductible for tax purposes

1.9

1.8

- US deferred tax rate benefit

-

(23.7)

- R&D incentives

(4.1)

(0.9)

- irrecoverable withholding tax

0.7

1.3

- movement on unprovided deferred tax balances

1.4

4.9

- differing tax rates

2.5

5.1

- adjustments in respect of prior years

(0.7)

(1.1)

Income tax expense reported in Consolidated income statement

12.9

(6.0)

 

The Group's effective tax rate for the year was: 27.6% (2018: -17.4%). The Group's effective tax rate for the year before exceptional items was 22.9% (2018: -7.9%). The Group's effective tax rate before exceptional and other normalised adjustments (see note 6) was 20.2% (2018: 30.5%).

 

 

8 Dividends paid and proposed on equity shares

 

The following dividends were declared, paid and proposed in relation to the legal entity AVEVA Group plc:


2019

£m

2018
£m

Declared and paid during the year



Interim 2018/19 dividend paid of 14.0 pence (2017/18: nil) per ordinary share

22.5

-

Final 2017/18 dividend paid of 27.0 pence (2016/17: 27.0 pence) per ordinary share

43.5

17.3


66.0

17.3

Proposed for approval by shareholders at the Annual General Meeting



Final proposed dividend 2018/19 of 29.0 pence (2017/18: 27.0 pence) per ordinary share

46.8

43.5

 

The proposed final dividend is subject to approval by shareholders at the Annual General Meeting on 8 July 2019 and has not been included as a liability in these financial statements. If approved at the Annual General Meeting, the final dividend will be paid on 2 August 2019 to shareholders on the register at the close of business on 5 July 2019.

 

 

9 Earnings per share

 


2019

Pence

2018
Pence

Earnings per share for the year:



- basic

20.97

39.92

- diluted

20.90

39.72

Adjusted earnings per share for the year*:



- basic

91.24

71.78

- diluted

90.90

71.42

*Adjusted earnings per share has been calculated inclusive of the acquisition accounting adjustment to revenue.


2019

Number

2018
Number

Weighted average number of ordinary shares for basic earnings per share

161,081,559

101,464,203

Effect of dilution: employee share options

589,978

514,438

Weighted average number of ordinary shares adjusted for the effect of dilution

161,671,537

101,978,641

 

The calculations of basic and diluted earnings per share are based on the net profit attributable to equity holders of the parent for the year of £33.8m (2018: £40.5m). Basic earnings per share amounts are calculated by dividing the net profit attributable to equity holders of the parent by the weighted average number of AVEVA Group plc ordinary shares outstanding during the year. For the purpose of the calculation, the number of shares prior to the Combination is considered to be 96,034,353. This is the number of AVEVA Group plc ordinary shares as at 1 March 2018, adjusted by the exchange ratio of the Combination.

 

Diluted earnings per share amounts are calculated by dividing the net profit attributable to equity holders of the parent by the weighted average number of ordinary shares outstanding during the year as described above, plus the weighted average number of ordinary shares that would be issued on the conversion of all the potentially dilutive share options into ordinary shares for the year ended 31 March 2019, and the period from 1 March 2018 to 31 March 2018.

 

Details of the calculation of adjusted earnings per share are set out below:


2019

£m

2018
£m

Profit after tax for the year

33.8

40.5

Intangible amortisation (excluding software)

88.1

45.2

Share-based payments

11.2

1.4

Loss on fair value of forward foreign exchange contracts

0.5

0.1

Exceptional items

28.9

23.6

Effect of acquisition accounting adjustments

8.6

-

Tax effect on exceptional items

(4.4)

(1.4)

Tax effect on other normalised adjustments (excluding net finance expense)

(18.1)

(36.6)

Tax effect on acquisition accounting adjustments

(1.6)

-

Adjusted profit after tax

147.0

72.8

 

The denominators used are the same as those detailed above for both basic and diluted earnings per share.

 

The adjustment made to profit after tax in calculating adjusted basic and diluted earnings per share has been adjusted for the tax effects of the items adjusted. The Directors believe that adjusted earnings per share is more representative of the underlying performance of the business.

 

 

10 Trade and other receivables

 


2019

£m

2018
£m

Current



Amounts falling due within one year:



Trade receivables

174.9

146.9

Amounts owed from related parties (note 13)

35.5

52.5

Prepayments and other receivables

27.5

31.0


237.9

230.4

 

Trade receivables are non-interest bearing and generally on terms of between 30 and 90 days. The Directors consider that the carrying amount of trade and other receivables approximates their fair value.

 

11 Cash and cash equivalents

 


2019

£m

2018
£m

Cash at bank and in hand

126.5

104.5

Short-term deposits

0.7

1.1

Net cash and cash equivalents per cash flow

127.2

105.6

Treasury deposits

0.6

0.2


127.8

105.8

 

Treasury deposits represent bank deposits with an original maturity of over three months. Treasury deposits held with a fixed rate of interest were £0.6m (2018: £0.2m), with the remainder held at a floating rate.

 

Short-term deposits are made for varying periods of between one day and three months, depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates.  £0.6m (2018: £1.0m) were at a fixed rate of interest and the remainder were held at a floating rate of interest.

 

The fair value of cash and cash equivalents and treasury deposits is £127.8m (2018: £105.8m).

 

 

12 Trade and other payables

 


2019

£m

2018
£m

Current



Trade payables

20.3

22.9

Amounts owed to related parties (note 13)

10.5

8.9

Social security, employee taxes and sales taxes

22.6

17.4

Accruals

100.5

74.8

Other payables

2.9

23.2


156.8

147.2

 

Trade payables are non-interest bearing and are normally settled on terms of between 30 and 60 days. Social security, employee taxes and sales taxes are non-interest bearing and are normally settled on terms of between 19 and 30 days. The Directors consider that the carrying amount of trade and other payables approximates their fair value.

 

 

13 Related party transactions

 

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.

 

During the year, Group companies entered into the following transactions with Schneider Electric group companies:

 


2019

£m

2018

£m

Sales of goods and services

80.1

72.9

Purchases of goods and services

(19.7)

(13.1)

Interest income

-

0.3

Interest expense

-

(3.4)

Completion accounts adjustment

(19.4)

-

Other non-trading transactions

4.3

(7.9)

Pre-closing management fees

-

(11.0)

 

During the year, the Group paid £17.4m to Schneider Electric SE, the parent company of the Schneider Electric Group. All other transactions were with subsidiary companies within the Schneider Electric Group.

 

As at 31 March, Group companies held the following balances with Schneider Electric group companies:


2019

£m

2018

£m

Trade and other receivables

34.1

43.1

Trade and other payables

(10.5)

(8.9)

Non-trading receivables

1.4

9.4

 

All balances held were with subsidiary companies within the Schneider Electric group.

 

Terms and conditions of transactions with related parties

Outstanding balances at 31 March 2019 are unsecured, and settlement occurs in cash. There have been no guarantees provided or received for any related party receivables or payables. For the year ended 31 March 2019, the Group has not recorded any impairment of receivables relating to amounts owed by related parties (2018: nil). This assessment is undertaken each financial year through examining the financial position of the related party and the market in which the related party operates.

 

 

Directors

 

Philip Aiken

Chairman

 

Jennifer Allerton

Independent Non-Executive Director

 

Christopher Humphrey

Independent Non-Executive Director

 

Ron Mobed

Independent Non-Executive Director

 

Emmanuel Babeau

Non-Executive Director

 

Paula Dowdy

Non-Executive Director

 

Peter Herweck

Non-Executive Director

 

Craig Hayman

CEO

 

James Kidd

Deputy CEO & CFO

 

 

14.  Responsibility statement pursuant to FSA's Disclosure and Transparency Rule 4
(DTR 4)

 

Each Director of the Company (whose names and functions appear above) confirms that (solely for the purpose of DTR 4) to the best of his/her knowledge:

 

·       the financial information in this document, prepared in accordance with the applicable UK law and applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and result of the Company and of the Group taken as a whole; and

·       the Chairman's statement, Chief Executive's strategic review and Finance review include a fair review of the development and performance of the business and the position of the Company and Group taken as a whole, together with a description of the principal risks and uncertainties that they face.

 

 

On behalf of the Board

 

 

Craig Hayman

James Kidd

CEO

Deputy CEO & CFO

 

29 May 2019


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