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AVEVA Group PLC  -  AVV   

Final Results

Released 07:00 23-May-2017

RNS Number : 8985F
AVEVA Group PLC
23 May 2017
 

23 May 2017

 

AVEVA GROUP PLC

 

PRELIMINARY RESULTS FOR THE YEAR ENDED 31 MARCH 2017

 

AVEVA Group plc ('AVEVA' or 'the Group'), one of the world's leading providers of engineering data and design IT systems, today announces its preliminary results for the year ended 31 March 2017.

 

Financial Summary

 


2017

2016

% change

Revenue

£215.8m

£201.5m

7%

Profit before tax

£46.9m

£29.4m

60%

Adjusted* profit before tax

£55.0m

£51.2m

7%

Basic earnings per share

59.52p

32.03p

86%

Adjusted* diluted earnings per share

66.81p

61.91p

8%

Net cash

£130.9m

£107.9m

21%

Total dividend per share

40.0p

36.0p

11%

 

*   Adjusted profit before tax 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 include the tax effects of these adjustments.

 

 

Highlights

 

·      

Revenue up 7.1% to £215.8 million (2016 - £201.5 million), assisted by currency translation

·      

Constant currency revenue down 3.8%. H2 ex. Latin America flat on a constant currency basis

·      

Recurring revenue up to 76.9% of total revenue (2016 - 76.4%)

·      

Adjusted profit before tax up 7.4% to £55.0 million (2016 - £51.2 million)

·      

Net cash from operating activities before tax up 58.2% to £57.2 million (2016 - £36.1 million)

·      

Net cash up 21.3% to £130.9 million (2016 - £107.9 million) despite increased dividend payments

·      

Final dividend of 27.0 pence per share, taking the total dividend to 40.0 pence per share (2016 - 36.0 pence), an increase of 11.1%

·      

Strong progress in executing growth strategy with significant wins with new customers in growth markets and industry verticals, with North America and Power performing strongly

 

 

Chief Executive Officer, James Kidd said:

 

"AVEVA's performance was resilient in the context of challenging conditions in our core Oil & Gas and Marine end markets. This demonstrated the strength of our business model, with high levels of recurring revenue and continued strong cash generation. We made good progress in delivering against our growth strategy, with significant new order wins in the Owner Operator market, growing sales of our More Than 3D products and success in broadening our end market exposure. Although the timing of a return to material demand growth in our core end markets is difficult to predict, I am confident that our strategy will deliver good growth in the medium-term and that AVEVA is well positioned to benefit from a recovery in our end markets."

 

 

Enquiries:

 

 

AVEVA Group plc

Matthew Springett, Head of Investor Relations: +44 (0) 1223 556 676

 

FTI Consulting LLP

Edward Bridges / Dwight Burden: +44 (0) 203 727 1000

 

 

Conference call and webcast

AVEVA management will host a conference call and audio-webcast at 09:30 (BST) today. A listen only webcast and replay will also be accessible via the AVEVA website.

 

To register for the webcast and access the presentation materials please visit the link below at least 15 minutes prior to the presentation commencing.

 

www.aveva.com/en/investors

 

Conference calls dial in details:

Telephone: +44(0)20 3427 1904

Conference call code: 6861317

 

 

 

Chairman's statement

 

Overview

 

I am pleased to report that AVEVA delivered a resilient performance during 2016/17, despite two of our key end markets, Oil & Gas and Marine remaining subdued. Revenue increased 7.1% to £215.8 million (2016 - £201.5 million) assisted by currency translation and profit before tax was £46.9 million (2016 - £29.4 million), supported by strong cost discipline. On an adjusted basis, profit before tax grew 7.4% to £55.0 million (2016 - £51.2 million).

 

The Group also increased cash from operating activities by 58.2% to £57.2 million (2016 - £36.1 million). We are maintaining our progressive dividend policy and propose to increase the total dividend for the year to 40.0 pence per share (2016 - 36.0 pence). This represents an increase of 11.1% over the prior year, underpinned by our confidence in the long term prospects for the business.

 

AVEVA's net cash position at the year-end grew to £130.9 million (2016 - £107.9 million). The Board believes that it is important to maintain a strong balance sheet. This gives our customers confidence in the strength of our business and allows us to have at hand sufficient resources to invest in AVEVA's future growth, for example, by investing in Research & Development and capitalising on acquisition opportunities as they become available.

 

Delivering on our strategy

 

In addition to delivering solid results, we have remained focused on executing upon our strategy, in order to position AVEVA to achieve growth well into the future.

 

AVEVA achieved good momentum in sales of products beyond the core 3D design software that currently makes up the majority of our revenues. We also made good progress with our strategy of increasing our sales to Owner Operators (OOs), growth in the key North American market and in broadening our market exposure outside of Oil & Gas and Marine. For example, during the year we had considerable success in the Power market, winning contracts with companies including KEPCO E&C, Southern Company and TerraPower.

 

These successes were made possible by the strength of our technologies and people. We continued to enhance our existing products and develop new offerings during the year through our development centres in Cambridge and Hyderabad.

 

Board developments

 

At the end of 2016, after 33 years with the Group, and 17 years as Chief Executive, Richard Longdon stepped down from his role as Chief Executive and as a Director of the Company. Richard oversaw the most successful phase in AVEVA's history and was the driving force in developing it into a global company. The Board and I are grateful to Richard for his contribution to AVEVA's success.

 

We were delighted to appoint James Kidd as Deputy Chief Executive in July and as Richard's successor as Chief Executive from 1 January 2017. James had been Chief Financial Officer and a member of the Board since January 2011.

 

We were also pleased to appoint David Ward to the Board as James' successor in the role of Chief Financial Officer in July. David had been Head of Finance at AVEVA since 2011.

 

James and David were both key to developing AVEVA's strategy and I have been impressed with the sharp focus that they have demonstrated in executing it in their new roles.

 

We also had changes within our Non-Executive team. Jonathan Brooks and Philip Dayer both reached their nine-year tenures during the year. Jonathan stepped down from the Board in November 2016 and Philip will retire at the AGM in July 2017. I would like to thank them both on behalf of the Board for their contributions to AVEVA.

 

We welcomed two new Non-Executives to the Board. Christopher Humphrey joined the Board in July 2016 and assumed the role of Chair of the Audit Committee in November. Rohinton (Ron) Mobed was appointed to the Board in March 2017. Christopher and Ron have a wealth of technology and information management experience, which will add further breadth and depth to the skills of the Board.

 

Summary

 

AVEVA is now in its 50th year, having been founded in 1967 as a government-funded research institute created by the then UK Ministry of Technology at Cambridge University. The Company's original mission, to develop computer-aided design techniques for use by British industry, has been achieved and indeed greatly exceeded.

 

The Group now operates in more than 30 countries across the globe and provides the design technology that has created some of the world's largest and most complex engineering assets. As I look ahead, the opportunities are as exciting as they have ever been, as industries look to drive efficiencies by adopting a Digital Asset approach throughout the life cycle of the physical asset.

 

We will continue to target growth, strengthening customer relationships, winning new customers in new areas and developing our product portfolio.

 

AVEVA's progress would not be possible without the hard work and dedication of all our employees. The Board would like to express its sincere thanks for their considerable efforts. We would also like to thank our customers, shareholders and other stakeholders for their continued support.

 

 

Philip Aiken AM

Chairman

23 May 2017

 

 

 

Chief Executive's strategic review

 

Summary

 

As expected, AVEVA's financial performance was resilient despite the challenging conditions in our core end markets. In addition to delivering solid results, we made good progress in delivering against our strategy during the year and in structuring the business to enable future growth.

 

Revenue increased 7.1% to £215.8 million (2016 - £201.5 million), assisted by a currency translation benefit of 11.4%. Profit before tax grew to £46.9 million (2016 - £29.4 million), supported by a strong focus on cost control. On an adjusted basis, profit before tax grew 7.4% to £55.0 million (2016 - £51.2 million).

 

On a regional basis, revenue in the Americas grew due to a strong performance in North America, partly offset by difficult market conditions in Latin America, specifically in Brazil. AVEVA's performance in EMEA and Asia Pacific was robust in the context of the subdued Oil & Gas and Marine markets. Overall Group revenue declined in constant currency terms by 3.8%, although we did see an improvement in the second half. Excluding Latin America, Group revenue declined only 2.3% in constant currency terms for the full year, and were flat in the second half.

 

We made good progress in executing our strategy. On a constant currency basis, we delivered good growth with More Than 3D (MT3D), Owner Operators and sales to the Power sector.

 

The strength of our product offering was demonstrated by several key new business wins during the year. These included wins in both markets that offer growth opportunities for us and in our more mature product and geographic areas.

 

During the year, I took over as CEO and David Ward transitioned to the post of CFO. We have both been in the business for many years and were core to formulating AVEVA's strategy. We plan to continue to pursue this strategy, with a sharp focus on execution and getting closer to our customers. As part of this, I have simplified AVEVA's management structure with greater decision-making capabilities and direct accountability for performance being allocated to our regions. I have also added more customer-facing people to our Executive team, including a recently recruited Chief Revenue Officer, who will take overall responsibility for leading Global Sales, Partnership Management and Marketing.

 

Delivery against our strategy

 

AVEVA's strategy is to increase revenues by growing the addressable market for its products as the concept of the Digital Asset is more widely adopted; to sell a wider range of products; and to grow in industry and geographic verticals where the Group's market share is underweight, versus the strength of its product offering.

 

Notwithstanding the cyclical headwinds in end markets that AVEVA has experienced in the recent past, we expect our strategy to deliver solid organic growth in the long term, across end market cycles.

 

The building blocks of this strategy are summarised below.

 

·      

More Than 3D: We see a major market opportunity in leveraging our customer base and market position by selling additional engineering software tools, extending beyond our core 3D design platforms. Further to this, information management tools such as AVEVA NET™, can generate revenue throughout the operation life cycle of assets, therefore expanding the market that we address.

·      

Owner Operators: OOs such as energy and power generation companies currently only account for approximately 16% of our revenue. However, a significant market opportunity is developing as OOs increasingly adopt the Digital Asset concept to help them manage their physical assets throughout their life cycles.

·      

Growth markets: AVEVA generates approximately half of its revenue from EMEA. This largely relates to our heritage as a UK-based company. Over time, we intend to grow our revenues in key markets such as the USA and China, using the competitive advantages that our products offer.

·      

Broaden market exposure: We aim to grow our market share in industries beyond our core Oil & Gas and Marine markets, with a particular focus in the short term on Power, by applying the strength of our core technology and the rich knowledge of our people in these markets.

·      

Software as a Service (SaaS) and the Cloud: We intend to unify all of our applications onto a common Cloud platform to provide greater value to our customers and address a wider customer base.

 

More than 3D 'MT3D'

 

AVEVA's MT3D sales grew during the year, increasing 2.1% on a constant currency basis. MT3D products represented 26.5% of total revenue, increasing from 25.2% in the prior year. Sales of our wider product suite have been a feature of this year's key customer wins, with for example the AVEVA NET and AVEVA EngageTM information management tools helping to strengthen our offer to OOs.

 

We are also achieving success in leveraging our existing EPC customer base to sell MT3D products. We have developed our technology to help deliver Building Information Management (BIM) projects in Infrastructure - not only to help satisfy any BIM mandate, but also to support faster more effective project execution and handover through improved data management. A good example is Jacobs who have used AVEVA technologies (AVEVA NET, AVEVA Engineering™ and AVEVA Information Standards Manager™) to meet their client's information management and BIM level 2 requirements, and to achieve efficiency improvements for a UK highways project.

 

Owner Operators

 

AVEVA's sales to OOs also grew during the year, increasing 5.4% on a constant currency basis. OOs represented 16.2% of total revenue, increasing from 14.9% in the prior year. We had particular success in North America and Asia, where we won contracts in the Petrochemical & Chemical and Power sectors. These included KEPCO E&C, a leading global energy solutions provider based in South Korea, which chose AVEVA for a full range of 3D and MT3D design and information management products for its new nuclear power plant projects. Similarly, another leading power generation OO, Southern Company, in the USA, selected our design and information management tools to help improve project execution efficiency and asset information access. Meanwhile, we strengthened our relationship with Eastman, a global specialty chemical company.

 

Growth markets

 

We enjoyed success in North America, where our local strategy of leading with sales to OOs and of MT3D products is working well, and we achieved significant new business wins. The business grew by 18.9% during the year on a constant currency basis. We continue to see growth potential in China, where successes during the year included expanding our business with Sinopec Engineering Group, which adopted AVEVA's Integrated Engineering and Design solution for effective design, collaboration and improved efficiency. However, overall our business there was broadly flat during the year, being impacted by tougher market conditions, particularly in shipbuilding.

 

Broaden market exposure

 

We made good progress during the year in broadening our market exposure away from the cyclical Oil & Gas and Marine end markets. We enjoyed particular success in Power where revenue increased 11.4% on a constant currency basis during the year. Our software is well suited to creating and managing large complex projects, such as gas powered and nuclear power stations. During the year, we achieved several key wins within the Power market with Southern Company and TerraPower in the USA, KEPCO EPC in Korea and Japan Nuclear Fuel. We also achieved success in Paper & Pulp, where Valmet, the leading global developer and supplier of technologies, automation and services for the pulp, paper and energy industries, signed a multi-year agreement for AVEVA Everything3D™ (AVEVA E3D).

 

AVEVA also enjoyed success in the steel fabrication market where sales increased by 10.0% on a constant currency basis as we continue to integrate and leverage the Bocad and FabTrol acquisitions.

 

SaaS and the Cloud

 

While AVEVA's business model already has the high level of recurring subscription revenues typically associated with Cloud delivery, we aim to be technologically ready to offer our products on a SaaS model in response to customer demand.

 

For the industries we serve, there are several challenges facing our customers which need to be overcome before there is a full transition to Cloud. However, over time we do expect that customers will want to explore ways of using the Cloud to drive efficiency and improve collaboration through the supply chain and operating cycle of their assets.

 

We launched our Cloud platform AVEVA Connect™ together with our first SaaS offering Asset Visualisation at the AVEVA World Summit in October 2016. AVEVA Connect is our SaaS ecosystem for Engineering, Design and Information Management solutions. Asset Visualisation is our new Information Management as a Service offering. There is a willingness from the OOs to move towards SaaS for the provision of the Digital Asset and we expect these products to gain traction with major customers in the medium-term.

 

In April this year, we launched a second SaaS offering on AVEVA Connect, Information Standards Management. The Sales team has now been equipped to sell these solutions and we have brought on board several major oil Owner Operators as early adopters. Both Asset Visualisation and Information Standards Management provide entry points for our Owner Operator customers to access Digital Asset-as-a-Service solutions flexibly and cost effectively.

 

Our technology

 

Our software is used by customers as they design, build and operate large capital-intensive assets, mainly in the Process, Power and Marine industries. Our vision is for the widespread adoption of constantly-evolving Digital Assets, enabling our customers to manage continual change as they design, build and operate some of the world's most complicated physical assets.

 

We believe that our products offer a strong advantage over competing offerings, due to their inherent integration based on our leading object modelling technology, which reduces complexity and lowers the total cost of ownership for our customers.

 

AVEVA's heritage is in 3D design, where our core products are AVEVA PDMSTM (Plant Design Management System), AVEVA E3D and AVEVA Marine products. These products represented 73.5% of FY17 revenues. AVEVA E3D is the latest generation 3D product which carries a price premium reflecting its higher productivity and advanced feature set.

 

AVEVA E3D grew strongly during the year as existing customers continued to migrate towards it and new contracts were won. It contributed almost 13% of total revenue, up from just below 10% in the prior year.

 

Within More Than 3D, the largest product sets are schematics applications such as Piping and Instrumentation Diagram (P&ID), Instrumentation & Electrical applications and our unique multi-discipline AVEVA Engineering solution; together with information management applications such as AVEVA NET. These areas grew during the year with strong growth in information management sales particularly to the Owner Operators.

 

Our markets and our customers

 

AVEVA's key end markets are Oil & Gas, Marine, Power and Petrochemical & Chemical. Other markets we serve include: Architecture, Construction & Steel Fabrication; Mining & Minerals Processing; Paper & Pulp and Pharmaceuticals. Oil & Gas accounts for 40-45% of revenue, Marine 20%; Power 15-20%; Petrochemical & Chemical 10% and the remainder 10%.

 

AVEVA has four main groups of customers. These are Engineering Procurement and Construction companies (EPCs), shipyards, OOs, and fabricators.

 

EPCs primarily use AVEVA's software to design and build industrial assets, such as oil platforms, power stations and process plants for OOs. Demand from EPCs for AVEVA's products is therefore impacted by end market demand and particularly the level of capital expenditure on new installations and brownfield projects. AVEVA has strong long-standing relationships with many leading EPCs. The large, global EPCs are managed as strategic partnerships through AVEVA's Global Accounts programme.

 

OOs are key to achieving AVEVA's vision of a constantly-evolving Digital Asset. Whereas historically the Digital Asset was core only to the design phase of physical assets, it is now widely accepted that Digital Assets can help OOs to drive efficiency and reduce risk through minimising downtime and unplanned outages, while complying with ever more stringent environmental and safety legislation.

 

We won 9 new OO customers during the year and significantly expanded our business with several existing OO customers.

 

Oil & Gas

 

In the Oil & Gas industry, end market demand was weak, with global industry capital expenditure falling by over 40% between calendar 2014 and calendar 2016 (Sources: Barclays, Bank of America Merrill Lynch).

 

This decline had a significant impact on the workloads of our EPC customers, with the more complex (and therefore design-intensive) greenfield upstream and offshore projects being impacted most significantly. This impacted demand for our software.

 

EPC customers tend to favour a rental model for software, meaning that their spend with AVEVA adjusts to market demand relatively quickly and some EPCs have reduced their seat count reflecting lower activity. There was also some consolidation amongst EPCs and in the oil services sector more generally. However, as OOs seek to extend the life of existing assets, we saw an increase in revamps and modifications (known as brownfield projects), which helped to sustain a level of demand from EPCs, although these projects are typically shorter in duration and lower in value.

 

Due to the downturn in the Oil & Gas industry, OOs are putting pressure on EPCs to reduce the cost of capital projects, often by up to 50%. This is putting pressure on the margins of the EPCs and they have been forced to look at how they become more efficient and reduce the cost of projects. EPCs are also increasingly looking to technology to help drive efficiency in projects. Our integrated engineering and design approach, which helps manage the engineering data across the different engineering disciplines is receiving very positive feedback, enabling customers to reduce the total cost of ownership compared to our competition.

 

An area of focus for EPCs has been around reducing the cost of supporting, maintaining and developing in-house systems by looking to third party vendors such as AVEVA to replace these with commercial software products. This is particularly pronounced around materials procurement and construction management, given that many still use in-house systems in these areas. As such we are seeing significant interest in our Enterprise Resource Management product.

 

We are also seeing EPCs start to consider standardising their engineering technology strategy on one toolset and we believe that we are well positioned to capitalise on that trend.

 

Oil & Gas industry capital expenditure is forecast to increase in future years as investments are made to maintain production and reserves. There are early signs of improvement in the market, however the exact timing of a market recovery is difficult to predict.

 

Marine

 

AVEVA is a market leader in Marine design software, with customers including 90% of the world's largest shipyards. The Marine market is in a cyclical trough, with a relatively low number of new ship builds ongoing. Shipyard customers typically prefer an Initial Licence Fee model, because they view software as a longer-term investment rather than being project specific. This results in annual maintenance payments continuing even in tougher market conditions. Our recurring revenue from the Marine market was broadly flat during the year.

 

We are also winning significant new business in the sector, with new wins in Europe including a customer focused on cruise ships and in Asia where we won a major South East Asian customer focused on marine and offshore capital projects.

 

As with Oil & Gas, the Marine market is forecast by commentators such as Clarksons Research to recover from the current trough conditions. We expect activity to increase as overcapacity in the world fleet reduces and demand for specialist ships such as Floating Production, Storage and Offloading vessels and naval vessels grows, although again, the exact timing of a market recovery is difficult to predict.

 

Power

 

We had significant success in the Power market during the year, winning several significant new contracts with both utilities and power systems design companies.

 

Longer-term trends in the Power market are positive as the world's emerging economies invest in their power generation requirements and the ageing infrastructure of the developed world is maintained and replaced.

 

In the shorter term, AVEVA benefited from market share gains and requirements from operators in the sector for both design and information management tools, as they seek to improve asset efficiency.

 

Petrochemical & Chemical

 

We saw ongoing investment in the sector during the year, particularly in Asia with stable market conditions on a global basis. AVEVA enjoyed success in winning new OO customers in Asia during the year in the refining sector.

 

Other markets

 

Conditions in AVEVA's other markets are less subject to cyclical volatility, meaning that AVEVA can grow in a more linear fashion through the execution of its strategy. Notable developments during the year included solid constant currency growth in sales to fabricators and a new OO customer win in the Pharmaceutical sector.

 

In the Fabrication sector, AVEVA provides integrated end-to-end solutions for 3D modelling, detailing and fabrication of structural steelwork. This enables rapid, high-quality fabrication and construction for on-time, on-budget, integrated project execution for customers specialising in the engineering, manufacturing and assembly of advanced steel structures. In 2016/17 our revenue from fabricator customers increased 10.0% on a constant currency basis.

 

Outlook

 

We believe that AVEVA has both the market opportunity and the right strategy to deliver substantial growth over the longer term.

 

In the short term, demand cycles within our end markets have had an impact on growth. Our core markets of Oil & Gas and Marine, which together account for over 60% of Group revenue, have been in a cyclical trough over the last three years.

 

There are early signs of improvement in Oil & Gas. Although the timing of a full recovery in demand is still uncertain, we expect that as the headwinds lessen, the growth resulting from our strategic initiatives will begin to show at the Group level.

 

The Board remains confident in the long-term strength of AVEVA's business model, the deliverability of its organic growth strategy and its positioning to benefit from a recovery in our end markets.

 

 

 

James Kidd

Chief Executive Officer

23 May 2017

 

 

 

Finance review

 

Overview of financial progress

 

AVEVA delivered a solid performance in the financial year ended 31 March 2017. Reported revenue and profit showed growth over the previous year and cash generation was particularly strong. We ended the year with £130.9 million in net cash and no debt (2016 - £107.9 million).

 

Total revenue for the year was £215.8 million which was up 7.1% compared to the previous year (2016 - £201.5 million) and reported profit before tax was £46.9 million which was up 59.5% compared to the previous year (2016 - £29.4 million).  On an adjusted basis, profit before tax was £55.0 million which was an increase of 7.4% (2016 - £51.2 million).

 

The weakening of sterling had the impact of increasing reported revenues and costs by 11.4% and 9.4% respectively, reflecting the significant overseas operations of the Group. On a constant currency basis revenue declined 3.8%, although the rate of reduction decelerated during the year, with the second half being minus 2.1% on a constant currency basis, or broadly flat excluding the impact of the difficult market in Latin America.

 

The results for the year are summarised below.

 

£m

2017

Total

2016

Total

Reported

change

Constant currency

change**

Revenue





Annual Fees

71.8

63.4

13.2%

(0.5)%

Rental Licence Fees

94.2

90.6

4.0%

(4.6)%

Recurring revenue

166.0

154.0

7.8%

(2.9)%

Initial Licence Fees

32.2

29.4

9.5%

(2.7)%

Training and Services

17.6

18.1

(2.8)%

(13.8)%

Total revenue

215.8

201.5

7.1%

(3.8)%






Cost of sales

(14.2)

(14.7)

(3.4)%

(12.2)%






Gross profit

201.6

186.8

7.9%

(3.2)%






Operating expenses*

(147.0)

(135.6)

8.4%

(0.9)%






Net interest

0.4

-

-

-






Adjusted profit before tax

55.0

51.2

7.4%

(8.5)%

Normalised adjustments

(8.1)

(21.8)



Reported profit before tax

46.9

29.4

59.5%

31.6%

 

* Operating expenses adjusted to exclude amortisation of intangible assets (excluding other software), share-based payments, gain/loss on forward foreign exchange contracts and exceptional items.

** Constant currency is calculated by restating the period's reported results to reflect the previous year's average exchange rates.

 

Revenue

 

Revenue model

 

The Group sells its proprietary software products by licensing rights to use the software directly to customers through our network of global sales offices. We operate a 'right-to-use' licensing model. Customers can choose to pay Initial Licence Fees, followed by lower mandatory Annual Fees to cover support, maintenance and upgrades; or Rental Licence Fees. The latter are usually paid upfront on an annual basis.

 

Over a long period, it is usually cheaper for a customer to adopt the Initial Licence Fee model. However, many customers, particularly EPCs, prefer to view software as a more flexible operational expense which can be charged to a project, as opposed to a capital expense and therefore use the rental model.

 

AVEVA also generates revenue from Training and Services. This is typically associated with the implementation of new installations, customisation to meet specific customer requirements and end user training.

 

Revenue by category

 

AVEVA generated 14.9% of revenue from Initial Licence Fees, 33.3% of revenue from Annual Fees, 43.6% of revenue from Rental Licence Fees, and 8.2% from Training and Services. Recurring revenue, which consists of Annual Fees and Rental Licence Fees, increased by 7.8% to £166.0 million (2016 - £154.0 million), representing 76.9% of revenue (2016 - 76.4%). 

 

Annual fees grew 13.2% to £71.8 million (2016 - £63.4 million), but were broadly flat in constant currency terms. This reflects high rates of customer retention, new customer wins and a low impact from price increases.

 

Rental Licence Fees also grew in reported terms, but there was a decline in constant currency terms of 4.6%. This reduction was to a large part attributable to the continuing weak market conditions in Latin America, and specifically Brazil, which accounted for 2.8% of the decline.  Outside of Latin America, Rental Licence Fees showed reasonable resilience in difficult market conditions, particularly for customers operating in the Oil & Gas, sector although some EPC customers did reduce their seat count reflecting lower activity.

 

Initial Licence Fee revenue was £32.2 million, representing an increase of 9.5% (2016 - £29.4 million) reflecting the impact of currency translation, with the constant currency result being a decrease of 2.7%. There were a few significant wins with Owner Operators who chose to buy initial licences.

 

Training and Services revenue was down by 2.8% to £17.6 million (2016 - £18.1 million) as a result of fewer customer implementation projects. On a constant currency basis, revenue was down 13.8%.

 

Regional execution

 

On a regional basis, the Group performed well in the Americas. Sales were particularly strong in North America, although the difficult market conditions in Latin America caused a further decline in revenues in that region. AVEVA's performance in EMEA and Asia Pacific was robust in the context of the subdued Oil & Gas and Marine markets.

 

Reported revenue was impacted by a £22.0 million (11.4%) benefit related to foreign exchange translation. Around 20% of the Group's revenues were in each of sterling and euros and the US dollar was the next most material currency at around 15%.

 

An analysis of revenue by geography is set out below.

 

£m

Asia Pacific

EMEA

Americas

Total

Revenue

76.3

106.6

32.9

215.8

2016

71.6

101.6

28.3

201.5

Change

Constant currency change

 

Asia Pacific

 

Revenue from the Asia Pacific region was £76.3 million (2016 - £71.6 million) and increased 6.6% over the prior year but declined 6.4% in constant currency terms. More specifically, we saw strong performance in Japan with a few significant new wins, but marginally weaker performance in South Korea and India, in the face of a tough market for Marine. Our businesses in China and South East Asia were broadly flat when compared to the prior year.

 

EMEA

 

In EMEA revenue grew 4.9% to £106.6 million (2016 - £101.6 million). Market conditions in EMEA have been reasonably stable, but remain challenging for customers with heavy exposure to Oil & Gas. However, we saw real growth in Germany and Finland where we won business in Paper & Pulp and revenue from Central and Southern Europe was higher in reported terms but performance in constant currency terms was slightly down on the prior year. Our businesses in Russia and the Middle East performed broadly in line with last year.

Training and Services revenue declined from the prior year as a number of implementation projects were completed.

 

Americas

 

In the Americas revenue grew 16.3% to £32.9 million (2016 - £28.3 million) with a very strong performance in North America being partly offset by ongoing weakness in Latin America, where revenues have now declined to a level that is no longer material to the Group.

 

Our performance in North America was very pleasing with revenue in the USA increasing 18.9% in constant currency terms, following the aforementioned customer wins with Southern Company, TerraPower and a very large global industrial company.

 

Market conditions in Brazil remained very tough through 2016/17 and our revenues from Latin America more than halved over the prior year, on both a reported and constant currency basis. We took action during the second half of the year to right-size our team there for the reduced market size.

 

Cost focus

 

AVEVA has a largely fixed cost base, albeit with some annual inflation embedded within it. We exercised strong cost control during the financial year in the context of the difficult end market conditions. We have, however, maintained adequate levels of investment in R&D and sales capabilities to ensure that we can execute our strategy and grow sales over the medium and long term.

 

Overall, in constant currency terms, operating costs were 0.9% lower than the previous year with the effect of cost management actions more than compensating for inflationary pressures and planned areas of investment.

 

We continue to have a focused and disciplined approach to managing the cost base. During the year we undertook some restructuring activity, which included headcount reductions in Latin America and corporate management.

 

An analysis of operating expenses on a normalised basis is set out below.

 

£m

Research & Development

Selling and distribution

Administrative expenses

Total

As reported

31.9

93.0

31.9

156.8

Normalised adjustments

(4.7)

(3.8)

(1.3)

(9.8)

Normalised costs

27.2

89.2

30.6

147.0






2016

25.7

83.2

26.7

135.6

Change

5.8%

7.2%

14.6%

8.4%

Constant currency change

(1.2)%

(3.1)%

6.0%

(0.9)%

 

Normalised items include amortisation of intangibles (excluding other software) of £5.8 million (2016 - £5.6 million), share-based payments of £1.1 million (2016 - £0.5 million), gains on fair value of forward foreign exchange contracts of £0.7 million (2016 - loss of £0.4 million) and exceptional items of £3.6 million (2016 - £15.2 million).

 

Research & Development costs were broadly flat on a normalised constant currency basis reflecting a few strategic investments and efficiencies achieved through expanding our presence in Hyderabad, India and reducing costs in other locations. Overall our average R&D headcount through the year increased by 12%.

 

Selling and distribution expenses include the costs of our direct sales force as well as our regionally based technical support and marketing teams and in total were £89.2 million in the year 2016/17.  The cost of these teams decreased by 3.1% on a constant currency basis principally due to a lower bad debt charge than in the prior year of £0.6 million (2016 - £3.4 million).

 

Administrative expenses increased 6.0% (or £1.6 million) on a constant currency basis, with the increase due to some minor investments in the HR team and a small increase in the cost of staff bonuses.

 

Exceptional items

 

During the year, the Group incurred exceptional costs of £1.9 million (2016 - £15.2 million). These included restructuring costs of £4.2 million, which were partly offset by factors including an indemnified receivable claim relating to a previous business combination.  The restructuring costs related to the rationalisation of offices and reduction in headcount in specific areas of the business. Also included are the redundancy costs incurred in eliminating the Regional Operations layer of management as part of the initiative to structure the business with clearer lines of accountability.

 

Prior year exceptional items included professional fees of £10.5 million, principally for legal and financial due diligence services related to the aborted Schneider Electric transaction and exceptional restructuring costs of £4.5 million.

 

Profit before tax

 

Adjusted profit before tax was £55.0 million (2016 - £51.2 million), an increase of 7.4%, principally caused by the growth in revenue. This resulted in an adjusted profit margin of 25.5% compared to (2016 - 25.4%).

 

Reported profit before tax was £46.9 million (2016 - £29.4 million). The growth of 59.5% was principally due to growth in revenue and reduction in exceptional items as described above.

 

Taxation

 

The Group's effective tax rate, on an adjusted basis, has steadily declined over recent years in line with the reductions seen in UK corporation tax.  The adjusted effective tax rate for the 2016/17 financial year was 22.1%, which represented a further reduction from 2016 when the rate was 22.5%. We see this trend continuing as the UK corporate rate reduces and we increasingly benefit from Patent Box relief.

 

The headline, or unadjusted, effective rate for the year was 18.8% (2016 - 30.4%). The prior year rate was impacted by non-deductible acquisition-related exceptional costs of £10.5 million (see above). 

 

Dividends

 

With consistent and strong cash flows and no net debt, the Group retains considerable financial flexibility. The Board remains focused on delivering growth both organically and through acquisitions. Our strong cash flows underpin the Board's sustainable, progressive dividend policy, which is balanced against keeping cash available for M&A opportunities, with excess capital being returned to shareholders from time to time.

 

The Board is proposing a final dividend of 27.0 pence per share, taking the total dividend for the year to 40.0 pence (2016 - 36.0 pence per share), an increase of 11.1%. The dividend will be payable on 4 August 2017, to shareholders on the register on 7 July 2017.

 

As announced previously, we have rebalanced the interim and final dividends, with more of the total dividend being paid at the interim.  As a result, the final dividend proposed for 2016/17 of 27.0 is slightly lower than the final dividend paid in respect of 2015/16 (30.0 pence per share).

 

Earnings per share

 

Basic earnings per share were 59.52 pence and increased 85.8% over 2016 (32.03 pence) and diluted earnings per share were 59.36 pence (2016 - 31.96 pence).

 

On an adjusted basis, EPS increased 8.0% to 66.98 pence (2016 - 62.04 pence) and to 66.81 pence on a diluted basis (2016 - 61.91 pence).

 

Balance sheet and cash flows

 

AVEVA continues to maintain a strong balance sheet and has no debt. Net assets at 31 March 2017 were £220.7 million compared to £201.0 million at 31 March 2016.

 

Non-current assets increased marginally to £89.9 million (2016 - £87.5 million) principally due to foreign currency translation effects. During the year we purchased intangible software rights for a total of £2.3 million, which provided valuable additional functionality for our products.

 

Working capital

 

Gross trade receivables at 31 March 2017 were £91.1 million which was broadly in line with last year (2016 - £94.5 million). We again saw a strong finish to the year with a large number of our Global Account renewals occurring in the final quarter. This resulted in billings being more weighted towards the end of the period, although Q4 cash collections were marginally stronger than in 2015/16.

 

The bad debt provision at 31 March 2017 of £6.1 million was similar in scale to the level held at the previous year end of £5.9 million.

 

Deferred income remained stable at 31 March 2017 was £45.9 million compared to £46.9 million at 31 March 2016. Trade and other payables were higher than the prior year at £42.9 million (2016 - £37.2 million).

 

Cash generation

 

Net cash (including treasury deposits) at 31 March 2017 was £130.9 million compared to £107.9 million at 31 March 2016.

 

Cash generated from operating activities before tax was £57.2 million (2016 - £36.1 million), with the largest parts of this improvement being due to the increased profit recorded in 2016/17 and the high exceptional costs incurred and paid in 2015/16.

 

Pensions

 

On an accounting basis, the Group's net retirement benefit obligations decreased from £5.2 million last year to £2.6 million. This was principally caused by the valuation of the UK defined benefit pension scheme moving from a deficit of £2.3 million to a surplus of £1.2 million driven by employer contributions of £1.6 million and strong asset returns over the period.  Since March 2015, the UK defined benefit pension scheme has been closed to future accrual.

 

Capital structure

 

At 31 March 2017, the Group had 63,975,869 shares of 3 5/9p each in issue (2016 - 63,961,113 shares). During the year the AVEVA Group Employee Benefit Trust 2008 ('the Trust') purchased 2,160 ordinary shares in the Company in the open market at an average price of £18.68 per share for total consideration of £40,349 in order to satisfy awards made under the AVEVA Group Management Bonus Deferred Share Scheme 2008. At 31 March 2017, the Trust owned 10,857 ordinary shares in the Company. 13,380 shares (2016 - 26,791) with an attributable cost of £296,431 were issued to employees in satisfying share options that were exercised.

 

Treasury policy

 

The Group treasury policy aims to ensure that the capital held is not put at risk and the treasury function is managed under policies and procedures approved by the Board. These policies are designed to reduce the financial risk arising from the Group's normal trading activities, which primarily relate to credit, interest, liquidity and currency risk. The Group is, and expects to continue to be, cash positive and at 31 March 2017 held net cash of £130.9 million. The treasury policy includes strict counterparty limits.

 

 

David Ward

Chief Financial Officer

23 May 2017

 

 

 

Review of principal risks and uncertainties

 

AVEVA faces a number of potential risks and uncertainties which could have a material impact on the Group's long-term performance.  The Board is responsible for determining the nature of these risks and ensuring appropriate mitigating actions are in place to manage them effectively.

 

Strategic and market risks

 

Risk


Mitigation

Dependency on key markets

AVEVA generates a substantial amount of its income from customers whose main business is derived from capital projects in the Oil & Gas, Power and Marine markets.  Currently, some of AVEVA's vertical end markets are under pressure with lower oil prices and inevitably this is having an impact on the Group's revenues.  As the availability of capital expenditure returns to our key markets, particularly Oil & Gas, the balance may shift away from our traditional core sector of complex off-shore projects, towards simpler on-shore projects, such as shale gas extraction. The risk of this further reinforces our need for market diversification.


AVEVA is expanding into new market segments such as Power, Petrochemicals & Chemicals and Construction, albeit from a relatively small base. It is central to our strategy to diversify our customer offerings into Owner Operators and Plant operations. This will help secure a longer-term income stream that extends beyond the design/build phase of these capital projects. In addition, our extensive global presence provides some mitigation from over-reliance on key geographic markets.

 

Competition

AVEVA operates in highly competitive markets that serve the Oil & Gas, Power and Marine markets. Our 3D design tools are well established in our markets and we believe that there are a relatively small number of significant competitors. However, some of these competitors could, in the future, pose a greater competitive threat to AVEVA's revenues, particularly if they consolidate or form strategic or commercial relationships among themselves or with larger, well capitalised companies.

 

Further threats are posed by the entrance, into AVEVA's markets, of a much larger technology competitor or transformational technology, such as Cloud-based solutions.

 

The Group's strategy to extend the digital asset footprint is key to ensuring that our customer penetration is broad and that AVEVA's sources of revenue are diversified.

 


We carefully monitor customers and other suppliers operating within our chosen markets. We stay close to our customers and ensure we have a strong understanding of their needs and their expectations from the AVEVA product development roadmap.

 

We expect that the customers we serve will, over the next 3 to 5 years, show an increased appetite or insistence on their software needs being delivered with more flexibility.  AVEVA is already well progressed with its Cloud strategy and expects to be able to meet these customer demands as they develop.

 

Professional Services

Where AVEVA assists customers with the deployment of an enterprise solution this involves some degree of consulting and/or implementation work.  This requires specialist knowledge to be available and well managed potentially in many geographic locations.  There is a risk that the services provided do not meet the customer's expectations or that technical difficulties are encountered. 

 

In some instances we may opt to partner with a third party for this work and this relationship also requires careful management and maintenance to ensure that AVEVA's strong reputation with our customers is not damaged.

 


We employ experienced industry professionals within our professional services team and continue to build commercial partnerships with third party systems integrators.

 

We have rigorous processes and controls for the appraisal of potential commercial opportunities prior to any bid being submitted.  Bids are appraised on grounds of technical complexity as well as financial and commercial risk.

Risk


Mitigation

Acquisitions

An acquisition by AVEVA or of AVEVA could pose a significant distraction to management and to the delivery of our business plan.

 

The Group expects to continue to review acquisition targets as part of its strategy. The integration of acquisitions involves a number of unique risks, including diversion of management's attention, failure to retain key personnel of the acquired business, failure to realise the benefits anticipated to result from the acquisition, and successful integration of the acquired intellectual property.


 

While each acquisition and integration is unique, AVEVA now has an experienced team to appraise and complete acquisitions. The Group's experience of previous 'bolt-on' acquisitions as well as the aborted transaction with Schneider Electric provides a good understanding of potential transaction and integration risks.

 

 

 

 

Operational risks

 

Risk


Mitigation

Recruitment and retention of employees

AVEVA's success has been built on the quality and reputation of its products and services, which rely almost entirely on the quality of the people developing and delivering them. Managing this pool of highly skilled and motivated individuals across all disciplines and geographies remains key to our ongoing success.

 


The Group 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 the Group and individual achievement is appropriately rewarded.

 

Protection of intellectual property

The Group's success has been built upon the development of its substantial intellectual property rights and the future growth of the business requires the continual protection of these tools.

 

The protection of the Group's proprietary software products is achieved by licensing rights to use the application, rather than selling or licensing the computer source code.

 


The Group uses third party technology to encrypt, protect and restrict access to its products. Access limitations and rights are also defined within the terms of the software licence agreement.

 

The Group seeks to ensure that its intellectual property rights are appropriately protected by law and seeks to vigorously assert its proprietary rights wherever possible.

 

Research & Development

The Group makes substantial investments in Research & Development in enhancing existing products and introducing new products and must effectively appraise its investment decisions and ensure that we continue to provide class-leading solutions that meet the needs of our markets.

 

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.

 


AVEVA continually reviews the alignment of the activities of our Research & Development teams to ensure that they remain focused on areas that will meet the demands of our customers and deliver appropriate financial returns. This process is managed by developing a product roadmap that identifies the schedule for new products and the enhancements that will be made to successive versions of existing products. Products are extensively tested prior to commercial launch.

International operations

The Group operates in over 30 countries globally and must determine how best to utilise its resources across these diverse markets. Where necessary, the business must adapt its market approach to best capitalise on local market opportunities, particularly in the strategically key growth economies.

 

In addition, the Group is required to comply with the local laws, regulations and tax legislation in each of these jurisdictions. Significant changes in these laws and regulations or failure to comply with them could lead to additional liabilities and penalties.

 


 

The Group manages its overseas operations by employing locally qualified personnel who are able to provide expertise in the appropriate language and an understanding of local culture, custom and practice. Local management is supported by local professional advisers and further oversight is maintained from the Group's corporate legal and finance functions.

 

 

Financial risks

 

Risk


Mitigation

Foreign exchange risk

Exposure to foreign currency gains and losses can be material to the Group, with more than 80% of the Group's revenue denominated in a currency other than sterling, of which our two largest are US Dollar and Euro.

 

The result of the UK referendum on European Union membership has led to significant weakening of the British Pound, and the volatility is likely to continue until further certainty is reached over exit negotiations.


The overseas subsidiaries predominantly trade in their own local currencies, which acts as a partial natural hedge against currency movements. In addition, the Group enters into forward foreign currency contracts to manage the risk where material and practical. The Group limits its hedging of revenue to US Dollar and Euro, Japanese Yen and its hedging of costs to Swedish Krona and Indian Rupee

 

 

 

Consolidated income statement

for the year ended 31 March 2017

 


Notes

2017

£000

2016

£000

Revenue

3, 4

215,831

201,491

Cost of sales


(14,233)

(14,689)

Gross profit


201,598

186,802

Operating expenses




Research & Development costs


(31,884)

(32,128)

Selling and administrative expenses

5

(124,948)

(125,252)

Total operating expenses


(156,832)

(157,380)

Profit from operations


44,766

29,422

Other income

6

1,753

-

Finance revenue


777

633

Finance expense


(396)

(626)

 Analysed as:




 Adjusted profit before tax


55,004

51,201

 Amortisation of intangibles (excluding other software)


(5,806)

(5,617)

 Share-based payments


(1,084)

(494)

 Gains/(losses) on fair value of forward foreign exchange contracts


669

(432)

 Exceptional items

6

(1,883)

(15,229)

Profit before tax


46,900

29,429

Income tax expense

7

(8,834)

(8,955)

Profit for the year attributable to equity holders of the parent


38,066

20,474

Earnings per share (pence)




- basic

9

59.52

32.03

- diluted

9

59.36

31.96

Adjusted earnings per share (pence)




- basic

9

66.98

62.04

- diluted

9

66.81

61.91

 

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 2017

 


Notes

2017

£000

2016

£000

Profit for the year


38,066

20,474

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




Exchange gain arising on translation of foreign operations


6,675

3,812

Income tax effect

7(a)

(406)

-

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


6,269

3,812

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




Remeasurement gain on defined benefit plans


2,170

7,837

Income tax effect

7(a)

(395)

(1,654)

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


1,775

6,183

Total comprehensive income for the year, net of tax


46,110

30,469

 

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

 

 

 

Consolidated balance sheet

31 March 2017

 


Notes

2017

£000

2016

£000

Non-current assets




Goodwill


54,305

51,697

Other intangible assets


21,868

24,841

Property, plant and equipment


7,432

7,101

Deferred tax assets


3,594

2,617

Other receivables


1,499

1,257

Retirement benefit surplus

13

1,222

-



89,920

87,513

Current assets




Trade and other receivables

10

93,279

97,138

Treasury deposits

11

45,486

43,316

Cash and cash equivalents

11

85,462

64,611

Current tax assets


3,557

3,492



227,784

208,557

Total assets


317,704

296,070

Equity




Issued share capital


2,275

2,274

Share premium


27,288

27,288

Other reserves


12,896

5,965

Retained earnings


178,223

165,471

Total equity


220,682

200,998

Current liabilities




Trade and other payables

12

42,876

37,196

Deferred revenue


45,894

46,874

Financial liabilities


196

864

Current tax liabilities


865

1,789



89,831

86,723

Non-current liabilities




Deferred tax liabilities


3,381

3,187

Retirement benefit obligations

13

3,810

5,162



7,191

8,349

Total equity and liabilities


317,704

296,070

 

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

 

 

 

Consolidated statement of changes in shareholders' equity

31 March 2017

 






Other reserves





 


Notes

Share

capital

£000

Share

premium

£000

Merger

reserve

£000

Cumulative

Translation

adjustments

£000

Treasury

shares

£000

Total

Other

reserves

£000

Retained

earnings

£000

Total

equity

£000

 

At 1 April 2015


2,274

27,288

3,921

(1,284)

(982)

1,655

158,713

189,930

 

Profit for the year


-

-

-

-

-

-

20,474

20,474

 

Other comprehensive income


-

-

-

3,812

-

3,812

6,183

9,995

 

Total comprehensive income


-

-

-

3,812

-

3,812

26,657

30,469

 

Issue of share capital


-

-

-

-

-

-

-

-

 

Share-based payments


-

-

-

-

-

-

494

494

 

Tax arising on share options



-

-

-

-

-

13

13

 

Investment in own shares


-

-

-

-

(94)

(94)

-

(94)

 

Cost of employee benefit trust shares issued to employees


-

-

-

-

592

592

(592)

-

 

Equity dividends

8

-

-

-

-

-

-

(19,814)

(19,814)

 

At 31 March 2016


2,274

27,288

3,921

2,528

(484)

5,965

165,471

200,998

 

Profit for the year


-

-

-

-

-

-

38,066

38,066

 

Other comprehensive income


-

-

-

6,269

-

6,269

1,775

8,044

 

Total comprehensive income


-

-

-

6,269

-

6,269

39,841

46,110


Issue of share capital


1

-

-

-

-

-

-

1

 

Share-based payments


-

-

-

-

-

-

1,084

1,084

 

Tax arising on share options



-

-

-

-

-

29

29

 

Investment in own shares


-

-

-

-

(40)

(40)

-

(40)

 

Cost of employee benefit trust shares issued to employees


-

-

-

-

296

296

(296)

-

 

Transfers


-

-

-

406

-

406

(406)

-

 

Equity dividends

8

-

-

-

-

-

-

(27,500)

(27,500)

 

At 31 March 2017


2,275

27,288

3,921

9,203

(228)

12,896

178,223

220,682

 

 

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 2017

 


Notes

2017

£000

2016

£000

Cash flows from operating activities




Profit for the year


38,066

20,474

Income tax

7

8,834

8,955

Net finance revenue


(381)

(7)

Other income (indemnified receivable)

6

(1,753)

-

Amortisation of intangible assets


6,160

5,954

Depreciation of property, plant and equipment


2,487

2,167

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


(27)

2

Share-based payments


1,084

494

Difference between pension contributions paid and amounts charged to operating profit


(1,139)

(1,849)

Research & Development expenditure tax credit


(1,750)

(2,076)

Changes in working capital:




Trade and other receivables


2,567

514

Trade and other payables


3,711

1,076

Changes to fair value of forward foreign exchange contracts


(669)

432

Cash generated from operating activities before tax


57,190

36,136

Income taxes paid


(9,332)

(11,798)

Net cash generated from operating activities


47,858

24,338

Cash flows from investing activities




Purchase of property, plant and equipment


(2,419)

(2,056)

Purchase of intangible assets


(2,252)

(393)

Acquisition of subsidiaries and business undertakings, net of cash acquired


-

(2,540)

Refund of consideration from business combinations


1,753

4,349

Proceeds from disposal of property, plant and equipment


194

429

Interest received


777

633

(Purchase)/maturity of treasury deposits (net)


(2,170)

1,932

Net cash flows (used in)/from investing activities


(4,117)

2,354

Cash flows from financing activities




Interest paid


(58)

(48)

Purchase of own shares


(40)

(94)

Proceeds from the issue of shares


1

-

Dividends paid to equity holders of the parent

8

(27,500)

(19,814)

Net cash flows used in financing activities


(27,597)

(19,956)

Net increase in cash and cash equivalents


16,144

6,736

Net foreign exchange difference


4,707

(644)

Opening cash and cash equivalents

11

64,611

58,519

Closing cash and cash equivalents

11

85,462

64,611

 

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

 

 

 

1  Basis of preparation

 

The Group is required to prepare its Consolidated financial statements in accordance with IFRS as adopted by the European Union. For the purposes of this document the term IFRS includes International Accounting Standards.

 

The preliminary announcement covers the period 1 April 2016 to 31 March 2017 and was approved by the Board on 23 May 2017.

 

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 2017 or 31 March 2016. The accounts for the year ended 31 March 2016 have been delivered to the Registrar of Companies. The statutory accounts for the years ended 31 March 2017 and 2016 have been reported on by the Company's auditors; the reports on these accounts were 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 2017 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 7 July 2017. 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.

 

The Group presents a non-GAAP performance measure on the face of the Consolidated income statement. The Directors believe that the 'adjusted profit before tax' and 'adjusted diluted and basic earnings per share' measures presented provide a reliable and consistent presentation of the underlying performance of the Group. Adjusted profit is not defined by IFRS and therefore may not be directly comparable with the 'adjusted' profit 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.

 

 

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 2016. New standards and interpretations which came into force during the year did not have a significant impact on the Group's financial statements.

 

 

3  Revenue

 

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

 


2017

£000

2016

£000

Annual fees

71,845

63,368

Rental licence fees

94,188

90,617

Total recurring revenue

166,033

153,985

Initial licence fees

32,214

29,373

Training and services

17,584

18,133

Total revenue

215,831

201,491

Finance revenue

777

633


216,608

202,124

 

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

 

 

4  Segment information

 

The Executive 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. Balance sheet information is not included in the information provided to the Executive team. Support functions such as head office departments are controlled and monitored centrally. All regions sell all the products and services. Corporate costs include centralised functions such as Executive Management, IT, Finance and Legal.

 


Year ended 31 March 2017


Asia Pacific

EMEA

Americas

Corporate

Total


£000

£000

£000

£000

£000

Revenue






Annual fees

32,996

30,453

8,396

-

71,845

Initial fees

18,688

8,600

4,926

-

32,214

Rental fees

19,693

57,907

16,588

-

94,188

Training and services

4,913

9,719

2,952

-

17,584

Regional revenue total

76,290

106,679

32,862

-

215,831

Cost of sales

(3,314)

(8,968)

(1,951)

-

(14,233)

Selling and administrative expenses

(26,938)

(33,345)

(18,593)

(40,925)

(119,801)

Regional contribution

46,038

64,366

12,318

(40,925)

81,797

Research & Development costs





(27,174)

Adjusted profit from operations





54,623

Net finance revenue





381

Adjusted profit before tax





55,004

Exceptional items and other normalised adjustments*





(8,104)

Profit before tax





46,900

 

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

 

 


Year ended 31 March 2016


Asia Pacific

EMEA

Americas

Corporate

Total


£000

£000

£000

Revenue






Annual fees

27,608

28,528

7,232

-

63,368

Initial fees

18,403

8,787

2,183

-

29,373

Rental fees

21,486

53,270

15,861

-

90,617

Training and services

4,049

11,015

18,133

Regional revenue total

71,546

101,600

28,345

-

201,491

Cost of sales

(3,117)

(9,514)

(2,058)

-

(14,689)

Selling and administrative expenses

(24,491)

(33,270)

(109,897)

Regional contribution

43,938

58,816

8,322

(34,171)

76,905

Research & Development costs





(25,711)

Adjusted profit from operations





51,194

Net finance revenue



7

Adjusted profit before tax





51,201

Exceptional items and other normalised adjustments*



(21,772)

Profit before tax



29,429

 

 

5  Selling and administration expenses

 

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

 


2017

£000

2016

£000

Selling and distribution expenses

93,023

85,915

Administrative expenses

31,925

39,337


124,948

125,252

 

 

6  Exceptional items

 


2017

£000

2016

£000

Acquisition and integration activities

-

10,459

Restructuring costs

4,152

4,544

Indemnified receivable claim for previous business combination

(1,753)

-

Movement in provision for sales taxes in an overseas location

(516)

226


1,883

15,229

 

The acquisition and integration expenses of the year ended 31 March 2016 relate to fees paid to professional advisers primarily for legal and financial due diligence services related to the aborted acquisition of certain software assets from Schneider Electric and the acquisition of FabTrol Systems Inc.

 

As described in the 2016 Annual Report, we intended to make continued cost savings in addition to those already made in 2015/16 to mitigate the impact of cost inflation and other planned investments elsewhere in the business. During the 2016/17 financial year the Group incurred exceptional restructuring costs of £4,152,000 in connection with the rationalisation of offices and reduction in headcount in specific areas of the business. Also included are the redundancy costs incurred in eliminating the Regional Operations layer of management. These activities are a continuation of the restructuring activities of the previous year which were ultimately more protracted than initially expected due to changes in the Executive management team.

 

The Group has provided for a potential sales tax liability in respect of prior periods, related to the local sales of one of the Group's subsidiary companies. The provision includes an estimate of the underpaid tax as well as related interest for late payment.

 

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

 


2017

£000

2016

£000

Research & Development costs

492

2,230

Selling and distribution expenses

2,190

1,290

Administrative expenses

954

11,709

Other income

(1,753)

-


1,883

15,229

 

The Group received an exceptional credit of £1,753,000 to other income as a result of a partial refund received following an indemnity claim related to the 8over8 acquisition.

 

 

7  Income tax expense

 

a) Tax on profit

 

The major components of income tax expense are as follows:

 


2017

£000

2016

£000

Tax charged in Consolidated income statement



Current tax



UK corporation tax

5,129

3,863

Adjustments in respect of prior periods

(881)

(47)


4,248

3,816

Foreign tax

5,568

5,869

Adjustments in respect of prior periods

42

(704)


5,610

5,165

Total current tax

9,858

8,981

Deferred tax



Origination and reversal of temporary differences

(851)

(441)

Adjustments in respect of prior periods

(173)

415

Total deferred tax (note 24)

(1,024)

(26)

Total income tax expense reported in Consolidated income statement

8,834

8,955

 


2017

£000

2016

£000

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



Deferred tax on actuarial remeasurements on retirement benefit obligation

395

1,868

Current tax on pension contributions

-

(214)

Current tax on exchange gain on retranslation of foreign operations

406

-

Tax charge reported in Consolidated statement of comprehensive income

801

1,654

 

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 UK corporation tax to the profit before tax are as follows:

 


2017

£000

2016

£000

Tax on Group profit before tax at standard UK corporation tax rate of 20% (2016 - 20%)

9,380

5,886

Effects of:



- expenses not deductible for tax purposes

299

988

- acquisition and integration activities (see note 7)

-

1,935

- indemnified receivable (see note 7)

(351)

-

- patent box

(500)

-

- irrecoverable withholding tax

64

93

- movement on unprovided deferred tax balances

1,026

408

- differing tax rates

(72)

(19)

- adjustments in respect of prior years

(1,012)

(336)

Income tax expense reported in Consolidated income statement

8,834

8,955

 

The Group's effective tax rate for the year was 18.8% (2016 - 30.4%). The Group's effective tax rate for the year before exceptional items was 22.2% (2016 - 22.1%). The Group's effective tax rate before exceptional and other normalised adjustments (see note 13) was 22.1% (2016 - 22.5%).

 

Contained within the prior year adjustment of £1,012,000 is a £1,200,000 exceptional tax credit related to the acquisition and integration activities in the previous period (see note 7).

 

At the previous balance sheet date, the UK government had substantively enacted a 1% reduction in the main rate of UK corporation tax to 19% from 1 April 2017 and by another 1% to 18% from 1 April 2020.

 

At this balance sheet date, the UK government had substantively enacted a further reduction to 17% from 1 April 2020. The effect of this reduction is immaterial to the UK net deferred tax liability.

 

 

8  Dividends paid and proposed on equity shares

 


2017

£000

2016

£000

Declared and paid during the year



Interim 2016/17 dividend paid of 13.0 pence (2015/16 - 6.0 pence) per ordinary share

8,316

3,836

Final 2015/16 dividend paid of 30.0 pence (2014/15 - 25.0 pence) per ordinary share

19,184

15,978


27,500

19,814

Proposed for approval by shareholders at the Annual General Meeting



Final proposed dividend 2016/17 of 27.0 pence (2015/16 - 30.0 pence) per ordinary share

17,271

19,182

 

The proposed final dividend is subject to approval by shareholders at the Annual General Meeting on 7 July 2017 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 4 August 2017 to shareholders on the register at the close of business on 7 July 2017.

 

 

9  Earnings per share

 


2017

Pence

2016

Pence

Earnings per share for the year:



- basic

59.52

32.03

- diluted

59.36

31.96

Adjusted earnings per share for the year:



- basic

66.98

62.04

- diluted

66.81

61.91

 

 


2017

Number

2016

Number

Weighted average number of ordinary shares for basic earnings per share

63,959,162

63,925,508

Effect of dilution: employee share options

163,002

137,389

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

64,122,164

64,062,897

 

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 £38,066,000 (2016 - £20,474,000). 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 ordinary shares outstanding during the year. 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 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. Details of the terms and conditions of share options are provided in note 26.

 

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

 


2017

£000

2016

£000

Profit after tax for the year

38,066

20,474

Intangible amortisation (excluding software)

5,806

5,617

Share-based payments

1,084

494

(Gain)/loss on fair value of forward foreign exchange contracts

(669)

432

Exceptional items

1,883

15,229

Tax effect on exceptional items

(1,990)

(936)

Tax effect on other normalised adjustments

(1,343)

(1,648)

Adjusted profit after tax

42,837

39,662

 

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

 


2017

£000

2016

£000

Current



Amounts falling due within one year:



Trade receivables

85,041

88,618

Prepayments and other receivables

7,465

7,384

Accrued income

773

1,136


93,279

97,138

 

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.

 


2017

£000

2016

£000

Non-current



Prepayments and other receivables

1,499

1,257

 

Non-current prepayments and other receivables include rental deposits for operating leases.

 

As at 31 March 2017, the provision for impairment of receivables was £6,054,000 (2016 - £5,879,000) and an analysis of the movements during the year was as follows:

 


£000

At 1 April 2015

5,636

Charge for the year, net of amounts reversed

3,431

Utilised

(3,141)

Exchange adjustment

(47)

At 31 March 2016

5,879

Charge for the year, net of amounts reversed

635

Utilised

(1,643)

Exchange adjustment

1,183

As at 31 March 2017

6,054

 

As at 31 March, the ageing analysis of trade receivables (net of provision for impairment) was as follows:

 


Total

£000

Neither past due nor impaired

£000

Past due not impaired

Less than four months

£000

Four to eight months

£000

Eight to twelve months

£000

More than twelve months

£000

2017

85,041

61,729

20,661

1,258

1,393

-

2016

88,618

54,778

30,831

2,142

867

-

 

Further disclosures relating to the credit quality of trade receivables are included in note 23.

 

 

11  Cash and cash equivalents and treasury deposits

 


2017

£000

2016

£000

Cash at bank and in hand

49,704

38,176

Short-term deposits

35,758

26,435

Net cash and cash equivalents per cash flow

85,462

64,611

Treasury deposits

45,486

43,316


130,948

107,927

 

Treasury deposits represent bank deposits with an original maturity of over three months.  Treasury deposits held with a fixed rate of interest were £336,000 (2016 - £23,296,000), 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.  £14,406,000 (2016 - £31,776,000) 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 £130,948,000 (2016 - £107,927,000).

 

 

12  Trade and other payables

 


2017

£000

2016

£000

Current



Trade payables

5,835

5,986

Social security, employee taxes and sales taxes

14,699

13,502

Accruals and other payables

21,994

16,478

Deferred consideration

348

1,230


42,876

37,196

 

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  Retirement benefit obligations

 

The movement on the provision for retirement benefit obligations was as follows:

 


UK defined benefit scheme

£000

German defined benefit schemes

£000

South Korean severance pay

£000

Total

£000

At 31 March 2015

11,281

1,059

1,847

14,187

Current service cost

-

-

213

213

Net interest on pension scheme liabilities

506

30

42

578

Actuarial remeasurements

(7,936)

211

(112)

(7,837)

Employer contributions

(1,580)

(11)

(471)

(2,062)

Exchange adjustment

-

104

(21)

83

At 31 March 2016

2,271

1,393

1,498

5,162

Current service cost

-

-

227

227

Net interest on pension scheme liabilities

274

28

36

338

Actuarial remeasurements

(2,187)

27

(10)

(2,170)

Employer contributions

(1,580)

314

(100)

(1,366)

Exchange adjustment

-

122

275

397

At 31 March 2017

(1,222)

1,884

1,926

2,588

 

The UK defined benefit scheme surplus has been recognised as a non-current asset as the Group has a right to any remaining surplus after all liabilities are paid. The Trustees may not distribute any surplus without the agreement of the Group. If such agreement is withheld, the Trustees are required to repay any remaining funds to the Group.

 

 

14  Directors

 

Philip Aiken

Chairman

 

Philip Dayer

Non-Executive Director and Senior Independent Director

 

Jennifer Allerton

Non-Executive Director

 

Christopher Humphrey

Non-Executive Director

 

Ron Mobed

Non-Executive Director

 

James Kidd

Chief Executive

 

David Ward

Chief Financial Officer

 

 

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

 

Each Director of the Company (whose names and functions appear in note 14) 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 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

 

 

 

 

David Ward

James Kidd

Chief Financial Officer

Chief Executive

 

23 May 2017

 


This information is provided by RNS
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