Industrial software company Aveva (AVV) topped the FTSE 100 loser board on Wednesday (27 April 2022) after warning of lower revenue growth and margins this year, blaming rising costs and sanctions on Russia over its invasion of Ukraine.
Aveva, which provides design software to the energy infrastructure industry, earns most of its money from oil and gas, with renewables, nuclear and other smaller markets making up the rest.
It is no doubt suffering disruption to business as usual as war rages in Ukraine, yet Russia remains a modest part of its overall operations. Russia is a ‘relatively small market’ in the context of the group, representing around 2% of revenue in the 2022 financial year (to 31 March), the company said.
While Aveva has said it will not take on any new contracts in Russia, it continues to support existing non-sanctioned companies where there was no legal basis to terminate contracts.
WEIGHT OF WAGE GROWTH IN 2022
Aveva said today that revenue growth is expected to be lower in fiscal 2023 than in fiscal 2022 and operating margins are expected to reduce, ‘before resuming growth in fiscal 2024, it said.
Following this line of thought it is clear that rising costs will have a far greater impact on financial performance than Russian sanctions.
‘Wage inflation will be more than offset by pricing over time; however, most salary increases feed through at the beginning of the financial year, while list price increases only take effect when contracts are renewed, or new business is signed,’ the company said.
In other words, wages are rising now and are having an immediate impact, whereas pushing up prices takes time to come through.
The FTSE 100 company said annual earnings last year were in line with market forecasts, although it did not give figures. According to consensus estimates, analysts are anticipating revenue of £1.22 billion, versus £820.4 million in fiscal 2021.
Aveva shares fell nearly 14% in early trading on Wednesday to £19.72, topping the list of FTSE 100 fallers and taking the price to a near-40% decline year-to-date.
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