TIDMAVV
RNS Number : 3125E
AVEVA Group PLC
05 November 2020
AVEVA GROUP PLC
RESULTS FOR THE SIX MONTHSED 30 SEPTEMBER 2020
AVEVA delivers a creditable performance in H1 FY21 in a
Covid-disrupted trading environment and a strong H2 pipeline gives
the Board confidence in its outlook for the full year. OSIsoft's
strong trading has continued.
Summary results
Six months ended 30 September H1 FY21 H1 FY20 Change
Revenue GBP332.6m GBP391.9m (15.1)%
----------- ---------- --------
Recurring revenue(1) 64.2% 61.9% 230bps
----------- ---------- --------
Adjusted EBIT(2) GBP56.3m GBP90.6m (37.9)%
----------- ---------- --------
(Loss)/profit from operations GBP(23.2)m GBP25.5m -
----------- ---------- --------
Dividend per share 15.5p 15.5p -
----------- ---------- --------
Highlights
-- First half results were broadly in-line with the Group's plan
for the shape of the year, save for an increased FX translation
headwind and two medium-sized subscription deals slipping from Q2
into Q3
-- Adjusting for the previously disclosed early renewal of a significant contract, which caused approximately GBP20 million pull forward of revenue into September 2019, organic constant currency revenue(3) declined 6.8%
-- Without this adjustment organic constant currency revenue declined(3) by 11.7%
-- Recurring revenue as a percentage of total revenue increased
to 64.2% (H1 FY20: 61.9%) and grew in three of AVEVA's four
business units
-- Reduction in adjusted costs(2) of 8.3% (5.8% on a constant
currency basis) as a result of tight cost control
-- Adjusted EBIT of GBP56.3m (H1 FY20: GBP90.6m) was impacted by the decline in revenue
-- Strong focus on strategic investments to drive future growth
with R&D investment in AI, Cloud and Extended Reality and
digital marketing investment increased
-- AVEVA's position as a global leader in industrial software
will be strengthened by the proposed acquisition of OSIsoft, a
global leader in real-time industrial data software
-- Strong second half order pipeline underpins the Board's
confidence in its outlook for the full year
-- Interim dividend maintained at 15.5 pence per share,
reflecting confidence in AVEVA's resilience
OSIsoft update
-- OSIsoft has continued to perform strongly in the seven-month
period ended 31 July 2020 with revenue increasing by 9.5% compared
to the seven months ended 31 July 2019 and operating profit
increasing by 110.1%. This positive trading momentum has continued
in recent months, with billings increasing by approximately 12% in
the first nine months of 2020 compared to the same period last
year
-- Regulatory approvals on track. Expected to complete between December 2020 and February 2021
-- Underwritten Rights Issue to be launched very shortly
Chief Executive Officer, Craig Hayman said:
"Given the Covid-19 disruption, AVEVA has performed creditably
in what has been a relatively tough trading environment in the
first half, and against very tough comparatives. We continue to see
solid demand from our customers for AVEVA's software to help them
digitalise and the long-term trend towards digitalisation of the
industrial world remains very exciting. Our order pipeline for the
remainder of the year is strong and we expect the Group to achieve
year-on-year revenue growth in the second half of the financial
year. Despite the challenging market conditions, we have continued
to make significant investments and progress in strengthening
AVEVA's position as a global leader in industrial software,
including agreeing the proposed acquisition of OSIsoft."
Notes
(1) Recurring revenue is defined as subscription revenue plus
maintenance revenue.
(2) Adjusted metrics 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.
(3) Organic constant currency revenue excludes a currency
translation impact of GBP7.1 million; and adjusts for the disposals
of Wonderware Italy, Germany and Scandinavia.
Enquiries:
AVEVA Group plc
Matt Springett, Head of Investor Relations
Tel: 07789 818 684
FTI Consulting LLP
Edward Bridges / Dwight Burden
Tel: 0203 727 1017
Webcast and conference call
AVEVA will host a conference call and webcast, for registered
participants, at 09:30 (GMT) today.
To register for the webcast and access the presentation
materials please visit:
https://investors.aveva.com/
Conference calls dial in details:
Telephone UK: 0800 098 8116 / 0203 868 4725
All other locations: +44 203 868 4725
Conference call code: 394014
Conference call participants will be able to ask questions
during the Q&A session and are also advised to watch the
webcast.
A replay of the webcast call will be made available later in the
day.
Chief Executive's review
Summary
AVEVA continued to make strong operational and strategic
progress over the first six months of FY21, even though the
disruptions of the Covid-19 pandemic affected the financial
results. Revenue declined 11.7% on an organic constant currency
basis during the first half of FY21, albeit against a tough
comparative. The impact of this revenue decline on profitability
was mitigated by proactive cost control as part of the plan for
this year, with an overall reduction in adjusted costs of 8.3%,
while continuing AVEVA's strategic investments.
AVEVA continued to make progress in its business model
transition, with recurring revenue increasing to 64.2% of total
revenue (H1 FY20: 61.9%) and Cloud delivered particularly good
growth with a 50% increase in orders.
AVEVA's software drives efficiency gains for the industries it
serves and digitalisation is key to dealing with the challenges
that these industries are facing. The Group has continued to invest
in areas and business functions that will support long-term growth,
including accelerated product development of Cloud and Artificial
Intelligence (AI) effused products; digital marketing and
sustainability. For example, nine new Cloud products were launched
during the first half.
AVEVA swiftly moved to remote working to safeguard employees and
mitigate any potential business disruption. A much higher
proportion of customer support work, including training, and
implementation projects has been delivered remotely and we have
already held two global digital customer marketing events, which
had over 8,000 attendees. The impact of the more challenging
circumstances on our people is well-recognised and in the six-month
period there has been an increased focus on regular communications,
engagement surveys and staff wellbeing initiatives.
On 25 August 2020, AVEVA announced that it has reached agreement
to acquire OSIsoft at an enterprise value of $5.0 billion. OSIsoft
is a global leader in real-time industrial data software. The
acquisition is expected to complete between December 2020 and
February 2021, subject to certain regulatory approvals. OSIsoft has
a strong track record of delivering growth in revenue and profit
and that has continued in 2020. Integration planning is well
progressed and material revenue synergies are expected from the
combination as well as cost savings. Costs related to this
acquisition led to an increase in exceptional items in the first
half.
Operational execution
The Group adapted quickly to a new way of working during the
first half. This had an impact on our employees, customers and
partners. First and foremost, the Group is focused on the safety
and wellbeing of its employees. As such, most employees worked
remotely during the first half and the majority will continue to do
so for the remainder of the calendar year, although where required
and local conditions allow, some offices have partially reopened
with the necessary safeguards in place.
From a demand generation perspective, the business has also
adapted quickly. This started with the first digital sales kick-off
meeting, AVEVA Ignite, being held in April to provide sales and
technical teams with the necessary skills, training and product
enablement to support selling digitally. Also, as part of this,
AVEVA moved away from face-to-face customer events and invested in
digital marketing.
During the first half, the Group hosted two AVEVA World Digital
conferences, which generated significant interest from customers
and prospects with record levels of attendees and launched a
digital Customer Experience Centre, which provides a virtual
experience of the entire product portfolio. The Group also
supported its customers at the beginning of the Covid-19 crisis
with complimentary access to Engineering Cloud products and free
e-learning training for Monitoring & Control products.
The Services and Support teams have also changed the way they
work. There has been significant increase in demand for online
training and projects have been successfully delivered on a remote
basis without any significant disruption to customers. For example,
major projects were delivered remotely including a large Unified
Operations Centre deployment for Saudi Aramco, while over 1,000
remote training sessions were delivered.
Total adjusted costs were reduced to increase earnings
resilience in the context of the Covid-19 crisis. Overall adjusted
costs reduced by 8.3%, while investment in key areas to underpin
future growth were maintained or increased. For example, in
Research & Development and Marketing.
In the context of the experiences since the beginning of the
Covid-19 pandemic, the Group has started a 'Future of Work'
project, to review how remote and office-based working can be
optimised in the future.
Cloud
Cloud continues to be a key strategic objective for AVEVA and
the Cloud Business Unit has made good progress during the first
half on all aspects of Cloud, from product strategy to commercial
model and back office processes.
There has also been increased interest and demand from customers
for Cloud solutions as they adapt and deal with the challenges of
enabling their workforce to connect and work remotely from
anywhere. In particular digital-twin solutions around the Connected
Worker have been an area of high demand, including a key strategic
project with Shell. This strong demand helped the Group achieve
growth of 50% in Cloud orders during the first half, which
represented a high single digit percentage of overall orders.
In line with the AVEVA's 'Cloud First' focus, Several key
products were launched on AVEVA Connect, the Group's Cloud
platform. These included: AVEVA Unified Engineering, providing key
engineering products such as E3D, Engineering and Simulation in a
single Cloud environment; AVEVA Unified Supply Chain; and AVEVA
Insight Guided and Advanced Analytics.
Trading and markets
The industries that AVEVA serves are making ever greater use of
technology to reduce both capital and operating costs in the
context of competitive pressures to increase efficiency, output,
flexibility and improve overall sustainability. This is being
enabled by ongoing technological mega trends that are driving the
digitalisation of the industrial world, notably the industrial
internet of things, Cloud, data visualisation and AI.
This is driving long-term growth in demand for industrial
software. 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 and into
operations.
Notwithstanding this, AVEVA experienced tough market conditions
across all its geographical reporting segments and Business Units
during the first half as disruption from the pandemic caused
customer caution and led to delays in some forecast sales.
End markets
AVEVA primarily serves process, batch and hybrid industries.
These industries provide staple requirements for basic consumption,
such as Energy, Food, and Transport. As such, they have some level
of resilience to the macroeconomic downturn.
AVEVA's largest end market is Energy at around 40% of revenue,
which includes upstream, mid-stream and downstream Oil & Gas
and the emerging renewable energy sector. Markets including
Packaged Goods (such as Food & Beverage and Pharma), Power
generation, Marine, Chemicals & Petrochemicals, and Metals
& Mining each accounted for 5-10% of Group revenue; while other
markets include Water & Wastewater, Infrastructure and Discrete
Manufacturing.
Within Energy, the Group's business is diversified across the
capital and operational expenditure phases of the asset lifecycle.
In Oil & Gas, overall end market conditions were challenging.
The reduction in oil consumption associated with the Covid-19
crisis led to oil companies reducing capital expenditure,
particularly for upstream projects. This led to subdued demand for
engineering and design software.
Tough market conditions also offer opportunities to drive
further efficiencies through digitalisation, particularly in
operations, where AVEVA's solutions include software to support
supply chain planning and asset performance. The Group has won
significant orders in this area including with Saudi Aramco, Shell
and Chevron.
The Marine market was also challenging and AVEVA saw less demand
for new design software. The Group's other end markets are largely
non-cyclical and are primarily driven by structural growth as
industries make increasing use of technology to drive efficiency.
However, the Group did see some delayed decision making regarding
new or extended deals across sectors as diverse as power
generation, food and data centres.
Geographical performance
AVEVA achieves over 70% of its revenue from direct sales. The
Group's remaining sales are made through a network of distributors
and Schneider Electric. During the first half, channel sales were
more resilient than direct sales, helped by wide industry
diversification and initiatives such as AVEVA's Select programme,
which gives sales partners full access to AVEVA's comprehensive
software portfolio.
EMEA: Overall constant currency revenue decreased by 5.0% and
grew slightly on an organic constant currency basis. AVEVA's Cloud
proposition was well received, ensuring that customers could
support business continuity and continue to meet their obligations
with certainty of software supply. This continuity of service and
customer intimacy served to drive increased customer commitment and
contract extensions in Oil & Gas (Southern Europe) and Marine
(Middle East). EMEA's midstream business saw several new contract
wins in Southern Europe where long-term infrastructure projects
were less impacted by short term market dynamics.
AVEVA also closed good contract awards for new solutions from
flagship customers in the Middle East, however this was not
sufficient to offset the impact of two medium-sized subscription
deals that slipped from Q2 into Q3.
Americas: Overall constant currency revenue decreased by 7.5%.
Trading conditions were challenging due to the depressed economy
and resulting pressure on customers' budgets. Notwithstanding this,
industries such as Food & Beverage, consumer goods and
chemicals saw growth, although the Oil & Gas sector saw a
decline in demand. Channel sales held up relatively well, helped by
diversification across a wide range of end markets. Overall, most
of the demand shrinkage in the first half is expected to be
temporary, with deals being pushed back to later in the year,
rather than having disappeared.
Asia Pacific: Overall constant currency revenue decreased by
28.7% against a particularly tough comparative in H1 FY20 that
included a large Global Account contract early-renewal. Revenue
reduced in all regions, with South Korea and China being the main
drivers of the decline. The year-on-year performance of sales to
the marine industry was weak, mainly because the prior year
contained a number of large contracts that did not repeat in H1
FY21. The second half of FY21 is expected to see a better
performance in Asia Pacific, partly because the pipeline looks
strong and there is an easier comparator in the prior year given
the Covid disruption began in Q4 for the region.
Business Unit performance
AVEVA has four business units: Engineering, Monitoring &
Control, Asset Performance Management and Planning &
Operations. In H1 FY21, approximately 85% of Engineering's revenue
was recurring, compared to 50-60% for the other business units.
Engineering consists of design and simulation software and
contributed 36% of total revenue. The Business Unit experienced a
decline of approximately 24% in constant currency recurring
revenue, due to a tough comparator period in H1 FY21 and some delay
in contract signings due to the economic environment and the impact
of customers' capex cuts, resulting in a decline in sales of design
software. Although actual churn is very low, upfront revenue
recognition on multi-year contracts under IFRS 15 in the prior year
was not repeated in H1 FY21 to the same extent. The overall revenue
reduction was approximately 26% on a constant currency basis.
Monitoring & Control represented 35% of total revenue. The
Business Unit achieved approximately 3.7% growth in constant
currency recurring revenue, due to the ongoing revenue from large
subscription deals signed in the previous year and some new
subscription order wins. Overall revenue declined approximately 5%
on a constant currency basis and increased slightly on an organic
constant currency basis. This was primarily caused by a reduction
in perpetual licences due to the difficult economic environment and
the disposal of distribution businesses in the prior year.
Asset Performance Management represented 15% of the Group's
total revenue. The Business Unit achieved growth of approximately
3% in constant currency recurring revenue, with good demand for
engineering information software. Overall revenue declined
approximately 7% on a constant currency basis. This was primarily
due to a steep reduction in perpetual licences, partly due to the
move towards subscription and partly due to the economic
environment.
Planning & Operations represented 14% of the Group's total
revenue. The Business Unit achieved growth of approximately 20% in
constant currency recurring revenue. Overall revenue declined
approximately 2% on a constant currency basis. This was primarily
due to a sharp reduction in perpetual licences, again, partly due
to the move towards subscription and partly due to the economic
environment. The Business Unit achieved good order wins in the
Energy market, particularly with supply chain planning software for
the Oil & Gas industry.
Progress against our medium-term targets
In September 2018, AVEVA outlined medium-term targets around
revenue growth, increasing recurring revenue as a proportion of
overall revenue and adjusted EBIT margin progression. Historically
AVEVA has made, and expects to continue to make, strong progress
against these targets, although that progress was disrupted during
the first half of FY21. Updated targets will be provided in 2021
following the close of the OSIsoft acquisition.
Sustainability
Many of AVEVA's customers are focused on sustainability, as they
transition to business models that are aligned with objectives such
as carbon reduction and circularity.
The Group's software supports the development of industries such
as clean power generation. In more mature industries it increases
energy efficiency, helps reduce waste and boosts circularity
throughout engineering and operations to maximise sustainable
performance.
AVEVA has established a sustainability team, having recruited a
Director of Sustainability and work to support customers'
sustainability ambitions is being accelerated. This included a
Sustainability Jam in August 2020, where employees came together
virtually to put forward ideas around sustainability related to
AVEVA's products and operations. Several ideas were selected for
further development, including a few product ideas that may be
patentable. For more on sustainability, including case studies,
please see www.aveva.com/sustainability.
Proposed acquisition of OSIsoft
On 25 August, AVEVA announced that it had reached agreement to
acquire OSIsoft at an enterprise value of $5.0 billion. OSIsoft is
a global leader in real-time industrial data software. Its PI
System is the system of record for customers for data capture,
storage, analysis and sharing of real-time industrial sensor-based
data across operations, enabling customers to connect disparate
sources of time-series data in an efficient and cost-effective
manner. Through OSIsoft's PI System, customers draw insights, make
better decisions, optimise operations, and drive digital
transformation.
OSIsoft has consistently delivered growth over a long time
period. OSIsoft has continued to perform strongly in the seven
months period ended 31 July 2020 with revenue increasing by 9.5%
compared to the seven months ended 31 July 2019, with adjusted EBIT
and operating cash flow increasing by 110.1% and 33.3%,
respectively as reported in the interim financial information
prepared for the purpose of the prospectus. This positive trading
momentum has continued in recent months, with billings increasing
by approximately 12% in the first nine months of 2020 compared to
the same period last year.
AVEVA expects substantial revenue synergies from the
combination. In addition to this, pre-tax cost synergies are
expected of not less than GBP20 million per annum on a run rate
basis by the end of the second full financial year following
completion, which is expected to be year ending March 2023.
The acquisition is expected to complete between December 2020
and February 2021, subject to a shareholder vote, and certain
regulatory approvals. The Group expects to launch a fully committed
and underwritten Rights Issue very shortly.
Outlook
AVEVA's products are key to driving efficiency for our customers
in capital projects and operations. As such, the Group's full-year
performance is expected to be resilient despite the challenging
global economic environment.
The order pipeline for the remainder of the financial year is
strong, underpinned by a higher volume of contract renewals,
including major Global Account contracts, as well as the contracts
that slipped from the second quarter. As such, the Board expects to
see solid revenue growth in the second half and remains confident
in its outlook for the full year.
The proposed acquisition of OSIsoft remains on-track.
Craig Hayman
Chief Executive Officer
5 November 2020
Finance Review
Overview
Revenue was GBP332.6 million, representing a reduction of 15.1%
(H1 FY20: GBP391.9 million). Adjusted EBIT reduced by 37.9% to
GBP56.3 million (H1 FY20: GBP90.6 million), largely due to the
reduction in revenue. For the same reasons, as well as an increase
in exceptional acquisition and integration related costs, on a
statutory basis, a loss before tax was incurred of GBP24.2 million
(H1 FY20: Profit before tax of GBP24.0 million).
Organic constant currency revenue reduced 11.7%, adjusted for a
currency translation headwind of GBP7.1 million in H1 FY21 and the
disposal of Wonderware Italy, Germany and Scandinavia.
Six months ended 30 September H1 FY21 H1 FY20
2020 GBPm GBPm Change
------------------------------- -------- -------- ---------
Revenue 332.6 391.9 (15.1)%
Cost of sales (83.7) (92.3) (9.3)%
------------------------------- -------- -------- ---------
Gross profit 248.9 299.6 (16.9)%
Operating expenses (192.6) (209.0) (7.8)%
------------------------------- -------- -------- ---------
Adjusted EBIT 56.3 90.6 (37.9)%
Net interest (1.0) (1.5) -
------------------------------- -------- -------- ---------
Adjusted profit before tax 55.3 89.1 (37.9)%
Tax charge (9.5) (19.0) (50.0)%
------------------------------- -------- -------- ---------
Adjusted profit after tax 45.8 70.1 (34.7)%
(Loss)/profit before tax (24.2) 24.0 -
Adjusted diluted EPS (pence) 28.26 43.31 (34.7)%
Gross margin 74.8% 76.4% (160)bps
Adjusted EBIT margin 16.9% 23.1% (620)bps
Tax charge 17.2% 21.3% (410)bps
Revenue overview
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. While the market growth rate has been
impacted in the short-term by the global economic disruption
relating to Covid-19, the fundamental trends and prospects over the
medium and longer term remain strong.
In the six-month period to 30 September 2020, revenue declined
11.7% on an organic constant currency basis. The decline in revenue
was primarily due to a reduction in both perpetual and subscription
licences. The decline in perpetual licences reflected the
challenging market environment. The decline in subscription revenue
was primarily due to a tough comparator in the prior year and some
delayed decision making in AVEVA's customer base.
The overall growth rate for the period was impacted by a tough
comparative in H1 FY20, which included the early renewal of a
significant Global Account contract, which caused approximately
GBP20 million pull forward of revenue into September 2019, as well
as two medium-sized subscription contracts in EMEA that slipped
from Q2 into Q3. However, due to the strong sales pipeline for the
second half of the financial year, the Board has confidence in the
outlook for the full year.
Revenue by type is set out below:
Organic
constant
GBPm H1 FY21 % of total H1 FY20 % of total Change currency
Subscription 113.9 34.2% 141.0 36.0% (19.2)% (17.6)%
Maintenance 99.6 30.0% 101.5 25.9% (1.9)% 2.8%
Total recurring
revenue 213.5 64.2% 242.5 61.9% (12.0)% (9.2)%
Perpetual licences 61.7 18.6% 85.4 21.8% (27.8)% (21.9)%
Services 57.4 17.2% 64.0 16.3% (10.3)% (8.0)%
-------------------- -------- ----------- --------- ----------- -------- ----------
Total 332.6 100% 391.9 100.0% (15.1)% (11.7)%
Recurring revenue
AVEVA's target was to grow the proportion of recurring revenue
to total revenue to over 60% in the medium term. AVEVA met its
target early in the last financial year. In H1 FY21, recurring
revenue as a proportion of overall revenue increased to 64.2% (H1
FY20: 61.9%).
Growing recurring revenue both as a proportion of overall
revenue and in absolute terms remain a key focus for AVEVA.
Total recurring revenue reduced by 12.0% to GBP213.5m (H1 FY20:
GBP242.5m).
Subscriptions revenue, which includes rental contracts, token
contracts, Cloud contracts and subscriptions, reduced 19.2% to
GBP113.9 million (H1 FY20: GBP141.0 million). This reflected the
challenging economic environment and a tough comparator in the
prior year in Asia Pacific and the Americas, which included a
number of larger multi-year contracts on which a proportion of
revenue is recognised upfront, and in Asia, the early renewal of a
significant Global Account contract, which caused approximately
GBP20 million pull forward of revenue into September 2019. In EMEA
there was growth in subscriptions of 8.2%.
Maintenance revenue was resilient, reducing by 1.9% to GBP99.6m
(H1 FY20: GBP101.5m) due to foreign exchange translation.
Perpetual licences
Perpetual licences reduced 27.8% year-on-year to GBP61.7 million
(H1 FY20: GBP85.4 million), with consistent declines across the
three regions, primarily due to the tough economic environment and
also some impact from the transition of customer purchases into
subscription license models.
Services
Services revenue reduced by 10.3% to GBP57.4 million (H1 FY20:
GBP64.0 million). Services are sold alongside the software licence
to ensure efficient deployment and to generate value faster for
customers. This planned reduction was driven by AVEVA's focus on
increasing the proportion of higher gross margin software as part
of its overall revenue mix in the longer-term, while still
undertaking services that support long-term growth, particularly in
newer areas of the business such as Asset Performance Management
and digital-twin projects.
Adjusted EBIT and cost management
The Group aims to increase adjusted EBIT margins to 30%.
However, first half margins are variable due to revenue in the
period being typically lower than in the second half of the year on
a cost base that is broadly similar. In the first six months of
FY21, AVEVA's adjusted EBIT margin was 16.9% (H1 FY20: 23.1%). This
reduction was due to the revenue decline and was mitigated by a
reduction in overall costs. Given that full year revenue is
expected to be more heavily weighted to the second half, this first
half decline is not expected to impair AVEVA's longer-term
progress, which we judge full year margins on, given the first half
margin volatility.
In the context of the challenging growth environment, AVEVA is
managing its cost base appropriately, while continuing to invest to
support longer-term growth.
The Group is protecting investment in strategic areas such as
Cloud and Artificial Intelligence and digital marketing, whilst
significantly reducing costs elsewhere to support operating margins
and cash generation.
Total adjusted costs were GBP276.3 million (H1 FY20: GBP301.3
million), a decrease of 8.3% over the previous year and a decrease
of 5.8% on a constant currency basis. Actions taken during the
first half of the year include pay and recruitment freezes and a
reduction in travel and event costs as a result of the pandemic.
The annual bonus scheme and sales commissions are also dependent on
sales and profitability.
As a result of the revenue change outlined above and these
movements in costs, adjusted EBIT decreased to GBP56.3 million (H1
FY20: GBP90.6m).
An analysis of total expenses is summarised below:
Net impairment
loss from
Cost Selling financial Other
GBPm of sales R&D and distribution Admin. assets income Total
Statutory 83.9 92.7 103.2 78.3 0.8 (3.1) 355.8
Amortisation ex
other software - (32.3) (13.5) - - (45.8)
Share-based payments - - - (4.6) - (4.6)
Loss on FX contracts - - - (0.1) - (0.1)
Exceptional items (0.2) (0.1) (1.6) (30.2) - 3.1 (29.0)
---------------------- ---------- ------- ------------------ -------- --------------- -------- -------
Adjusted costs 83.7 60.3 88.1 43.4 0.8 0.0 276.3
H1 FY20 92.3 60.1 98.3 49.0 1.6 - 301.3
Change (9.3)% 0.3% (10.4)% (11.4)% (50.0)% - (8.3)%
Constant currency (7.6)% 1.3% (8.6)% (4.3)% (50.0)% - (5.8)%
Cost of sales decreased by 9.3% to GBP83.7 million (H1 FY20:
GBP92.3 million). This was driven by a significant reduction in the
cost of delivering services, partially offset by higher Cloud
hosting costs. However, the other key element of cost of sale,
customer support, decreased by less than overall revenue because it
is largely fixed in nature, hence the gross margin reduced to 74.8%
(H1 FY20: 76.4%).
Research & Development costs were GBP60.3 million (H1 FY20:
GBP60.1 million) representing an increase of 0.3% with tight cost
control being balanced by investment in areas including Cloud, AI
(specifically AI-infused product expansion) and Extended Reality.
There was a marked increase in productivity due to remote working
because: 1) there was no commute time, 2) easier, quicker access to
global expertise, 3) no travel time lost resulting in more
efficient meetings.
Selling and distribution expenses were GBP88.1 million (H1 FY20:
GBP98.3 million), a 10.4% decrease versus the prior year. This was
primarily due to reduced sales costs and commissions as a result of
the lower performance versus the previous year. Overall marketing
costs increased as AVEVA invested in digital marketing.
Administrative expenses were GBP43.4 million (H1 FY20: GBP49.0
million) representing a decrease of 11.4%. This was due corporate
costs, such as the provision for bonuses and also foreign currency
translation gains.
Net impairment loss from financial assets represents the
impairment of accounts receivable and contract assets during the
year of GBP0.8 million (H1 FY20: GBP1.6 million).
Normalised and exceptional items
The following normalised and exceptional items have been
excluded in presenting the adjusted results:
Six months ended 30 September
GBPm 2020 2019
Acquisition and integration
activities 30.1 12.5
Restructuring costs 2.0 0.8
Other income (3.1) -
Total exceptional items 29.0 13.3
----------------------------- ----------------- -------------
Amortisation (excl. other
software) 45.8 45.3
Share-based payments 4.6 6.4
Loss on FX contracts 0.1 0.1
----------------------------- ----------------- -------------
Total normalised items 50.5 51.8
----------------------------- ----------------- -------------
Acquisition and integration activities principally related to
acquisition costs associated with OSIsoft of GBP16.3 million (H1
FY20: GBPnil) and the tail-end of integration activities related to
the Schneider Electric Industrial Software business, such as IT
costs related to the exit of the Transitional Service Agreement,
including the new ERP system implementation. Other income primarily
relates to reimbursement of capital expenditure on integration
activities from Schneider Electric.
Amortisation mainly relates to the amortisation of the fair
valued heritage AVEVA intangible assets under acquisition
accounting, following the combination with the Schneider Electric
industrial software business.
Taxation
The total tax credit for the half year ended 30 September 2020
was GBP3.9 million (H1 FY20: charge of GBP6.0 million).
The effective tax rate on the loss before tax is 16.1% (H1 FY20:
25.0%).
The tax charge on adjusted profit before tax is GBP9.5 million
(H1 FY20: GBP19.0 million) which equates to an effective tax rate
of 17.2% (H1 FY20: 21.3%) as a result of the benefit of UK and US
tax incentives on intellectual property.
For reference, the enlarged Group's pro forma effective tax rate
for FY 2020, for AVEVA and OSIsoft combined, before exceptional and
normalised items was 13%.
Earnings per share
Statutory diluted loss per share was 12.60 pence (H1 FY20: EPS
of 11.13 pence). Adjusted diluted EPS reduced to 28.26 pence (H1
FY20: 43.31 pence).
Dividends
AVEVA intends to pay an interim dividend of 15.5 pence per
share. The interim dividend will be payable on 5 February 2021 to
shareholders on the register on 8 January 2021. If, as expected,
the proposed Rights Issue to facilitate the acquisition of OSIsoft
has completed prior to the record date of 8 January 2021, then the
Rights Issue shares will also be eligible to receive the interim
dividend and the proposed dividend per share will be adjusted to
reflect the bonus element of the Rights Issue. The revised dividend
per share will be notified as soon as this is known.
Balance sheet and cash flow
Net cash and treasury deposits were GBP59.9 million (H1 FY20:
GBP58.6 million). As at 30 September 2020 non-current assets were
GBP1,911.2 million (31 March 2020: GBP1,956.0 million) reflecting
goodwill and intangible assets that arose from the combination with
the Schneider Electric industrial software business.
Trade and other receivables at 30 September 2020 were GBP185.1
million (31 March 2020: GBP242.2 million) with strong collections
from customers during the first half. Contract assets increased to
GBP159.5 million from GBP142.4 million at 31 March 2020, due to the
upfront revenue recognition on multi-year contracts signed in the
first half and included two contracts where the sales invoicing
schedule has been pushed out in return for longer term commitment
from the customer. Contract asset balances are impacted by the
timing of invoicing with more renewals in the second half.
Individual contract balances at 30 September 2020 are expected to
be reduced by invoices due to be issued on the anniversary of the
multi-year contracts that were signed in the second half of
FY20.
Contract liabilities were GBP132.9 million (31 March 2020:
GBP177.0 million) which reflects the timing of renewals and
invoices for subscription and maintenance and a reduction in new
business.
Cash generated from operating activities before tax was GBP23.7
million, compared to GBP43.5 million in the previous half year.
This includes exceptional costs paid of GBP36.4 million (H1 FY20:
GBP17.5 million) including fees of GBP10.5 million in relation to
the acquisition of OSIsoft. Adjusting for the cash cost of
exceptionals, cash generated from operating activities before tax
was broadly flat.
Integration
The integration of the heritage AVEVA business and the heritage
Schneider Electric software business is largely complete and has
been successfully delivered in line with the plans. The key
remaining area of integration is the completion of the roll-out of
a new ERP system which will replace the legacy systems in both
businesses.
During the period, the implementation of the new ERP system has
progressed well. The new system, has been deployed to all UK
entities. Following a period of stabilisation after the initial
transition, the deployment of the new ERP to the rest of the Group
will continue in a series of geographic 'waves'.
The team is now focused on planning for the integration of
OSIsoft once the transaction completes.
James Kidd
Deputy CEO & CFO
5 November 2020
Independent Review Report
Introduction
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 September 2020 which comprise the consolidated
income statement, the consolidated statement of comprehensive
income, the consolidated balance sheet, the consolidated statement
of changes in shareholders' equity, the consolidated cash flow
statement, and the related notes 1 to 18. We have read the other
information contained in the half-yearly financial report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set
of financial statements.
This report is made solely to the Company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland) 'Review of Interim Financial Information
Performed by the Independent Auditor of the Entity' issued by the
Auditing Practices Board. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
Company, for our work, for this report, or for the conclusions we
have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the Directors. The Directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
As disclosed in note 2, the annual financial statements of the
Group are prepared in accordance with IFRS as adopted by the
European Union. The condensed set of financial statements included
in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34, 'Interim
Financial Reporting', as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK) 2410, 'Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity' issued by the Auditing Practices Board for use in the
United Kingdom. A review of interim financial information consists
of making enquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing
(UK and Ireland) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
September 2020 is not prepared, in all material respects, in
accordance with International Accounting Standard 34 as adopted by
the European Union and the Disclosure and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
Ernst & Young LLP
London
5 November 2020
Consolidated Income Statement
for the six months ended 30 September 2020
Six months ended Year ended
30 September 31 March
--------------------------
2020 2019 2020
GBPm GBPm GBPm
Notes (unaudited) (unaudited) (audited)
------------------------------------------- ------ ------------ ------------ -----------
Revenue 5 332.6 391.9 833.8
Cost of sales (83.9) (92.5) (190.7)
------------------------------------------- ------ ------------ ------------ -----------
Gross profit 248.7 299.4 643.1
Operating expenses
Research & Development costs (92.7) (92.0) (184.6)
Selling and administrative expenses 7 (181.5) (180.3) (367.8)
Net impairment loss on financial
assets (0.8) (1.6) (7.6)
Other income 8 3.1 - 11.9
Total operating expenses (271.9) (273.9) (548.1)
------------------------------------------- ------ ------------ ------------ -----------
(Loss)/profit from operations (23.2) 25.5 95.0
Finance revenue 0.1 0.1 0.3
Finance expense (1.1) (1.6) (3.3)
------------------------------------------- ------ ------------ ------------ -----------
(Loss)/profit before tax from continuing
operations (24.2) 24.0 92.0
Income tax credit/(expense) 9 3.9 (6.0) (22.2)
------------------------------------------- ------ ------------ ------------ -----------
(Loss)/profit for the period attributable
to equity holders of the parent (20.3) 18.0 69.8
------------------------------------------- ------ ------------ ------------ -----------
(Loss)/profit from operations (23.2) 25.5 95.0
Amortisation of intangibles (excluding
other software) 45.8 45.3 90.6
Share-based payments 4.6 6.4 12.0
Loss on fair value of forward foreign
exchange contracts 0.1 0.1 0.4
Exceptional items 8 29.0 13.3 18.8
---------------------------------------- ------- ----- ------
Adjusted EBIT 56.3 90.6 216.8
---------------------------------------- ------- ----- ------
Earnings per share (pence)
- basic 11 (12.60) 11.19 43.35
- diluted 11 (12.60) 11.13 43.13
---------------------------- --- -------- ------ ------
All activities relate to continuing activities.
Consolidated Statement of Comprehensive Income
for the six months ended 30 September 2020
Six months ended Year ended
30 September 31 March
--------------------------
2020 2019 2020
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
---------------------------------------------- ------------ ------------ -----------
(Loss)/profit for the period (20.3) 18.0 69.8
Items that may be reclassified to profit
or loss in subsequent periods :
Exchange (loss)/gain arising on translation
of foreign operations (4.5) 8.6 4.2
Total of items that may be reclassified
to profit or loss in subsequent periods: (4.5) 8.6 4.2
---------------------------------------------- ------------ ------------ -----------
Items that will not be reclassified to
profit
or loss in subsequent periods:
Remeasurement (loss)/gain on defined benefit
plans (4.4) 0.8 6.2
Deferred tax effect 0.8 (0.1) (1.2)
---------------------------------------------- ------------ ------------ -----------
Total of items that will not be reclassified
to profit or loss in subsequent periods (3.6) 0.7 5.0
---------------------------------------------- ------------ ------------ -----------
Total comprehensive (loss)/income for the
period, net of tax (28.4) 27.3 79.0
---------------------------------------------- ------------ ------------ -----------
Consolidated Balance Sheet
30 September 2020
As at 30 As at 30 As at 31
September September March
2020 2019 2020
GBPm GBPm GBPm
Notes (unaudited) (unaudited) (audited)
-------------------------------- ------ ------------ ------------ ----------
Non-current assets
Goodwill 1,294.6 1,298.8 1,295.7
Other intangible assets 467.1 558.7 514.8
Property, plant and equipment 29.0 20.4 27.6
Right-of-use assets 73.3 81.0 79.5
Deferred tax assets 13.6 12.3 19.1
Trade and other receivables 13 22.7 3.5 4.4
Retirement benefit surplus 10.9 8.6 14.9
1,911.2 1,983.3 1,956.0
-------------------------------- ------ ------------ ------------ ----------
Current assets
Trade and other receivables 13 185.1 204.7 242.2
Contract assets 159.5 127.3 142.4
Treasury deposits 0.1 - 0.1
Cash and cash equivalents 79.8 78.6 114.5
Current tax assets 27.5 17.7 20.2
452.0 428.3 519.4
-------------------------------- ------ ------------ ------------ ----------
Total assets 2,363.2 2,411.6 2,475.4
-------------------------------- ------ ------------ ------------ ----------
Equity
Issued share capital 5.7 5.7 5.7
Share premium 574.5 574.5 574.5
Other reserves 1,180.7 1,184.7 1,180.3
Retained earnings 111.8 143.5 181.2
-------------------------------- ------ ------------ ------------ ----------
Total equity 1,872.7 1,908.4 1,941.7
-------------------------------- ------ ------------ ------------ ----------
Current liabilities
Trade and other payables 14 134.3 135.4 149.5
Contract liabilities 132.9 148.3 177.0
Loans and borrowings 20.0 20.0 -
Lease liabilities 15.5 17.3 16.6
Financial liabilities 0.5 0.6 0.4
Current tax liabilities 1.1 4.4 5.5
-------------------------------- ------ ------------ ------------ ----------
304.3 326.0 349.0
-------------------------------- ------ ------------ ------------ ----------
Non-current liabilities
Lease liabilities 48.7 53.0 53.3
Deferred tax liabilities 104.6 109.2 119.9
Other liabilities 14 20.9 1.9 0.7
Retirement benefit obligations 12.0 13.1 10.8
-------------------------------- ------ ------------ ------------ ----------
186.2 177.2 184.7
-------------------------------- ------ ------------ ------------ ----------
Total equity and liabilities 2,363.2 2,411.6 2,475.4
-------------------------------- ------ ------------ ------------ ----------
Consolidated Statement of Changes in Shareholders' Equity
30 September 2020
Other reserves
--------------------------------------------------
Cumulative Capital Reverse Total
Share Share Merger translation redemption acquisition Treasury other Retained Total
capital premium reserve adjustments reserve reserve shares reserves earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- -------- -------- -------- ------------ ----------- ------------ --------- --------- --------- --------
At 1 April
2019 5.7 574.5 615.6 18.4 101.7 452.5 (9.4) 1,178.8 165.5 1,924.5
Profit for the
period - - - - - - - - 18.0 18.0
Other
comprehensive
income - - - 8.6 - - - 8.6 0.7 9.3
--------------- -------- -------- -------- ------------ ----------- ------------ --------- --------- --------- --------
Total
comprehensive
income - - - 8.6 - - - 8.6 18.7 27.3
Share-based
payments - - - - - - - - 6.4 6.4
Investment in
own shares - - - - - - (3.1) (3.1) - (3.1)
Cost of
employee
benefit trust
shares issued
to employees - - - - - - 0.4 0.4 (0.4) -
Equity
dividends - - - - - - - - (46.7) (46.7)
--------------- -------- -------- -------- ------------ ----------- ------------ --------- --------- --------- --------
At 30
September
2019 5.7 574.5 615.6 27.0 101.7 452.5 (12.1) 1,184.7 143.5 1,908.4
Profit for the
period - - - - - - - - 51.8 51.8
Other
comprehensive
income - - - (4.4) - - - (4.4) 4.3 (0.1)
--------------- -------- -------- -------- ------------ ----------- ------------ --------- --------- --------- --------
Total
comprehensive
income - - - (4.4) - - - (4.4) 56.1 51.7
Share-based
payments - - - - - - - - 5.6 5.6
Tax arising
on share
options - - - - - - - - 1.0 1.0
Equity
dividends - - - - - - - - (25.0) (25.0)
--------------- -------- -------- -------- ------------ ----------- ------------ --------- --------- --------- --------
At 31 March
2020 5.7 574.5 615.6 22.6 101.7 452.5 (12.1) 1,180.3 181.2 1,941.7
Loss for the
period - - - - - - - - (20.3) (20.3)
Other
comprehensive
loss - - - (4.5) - - - (4.5) (3.6) (8.1)
--------------- -------- -------- -------- ------------ ----------- ------------ --------- --------- --------- --------
Total
comprehensive
loss - - - (4.5) - - - (4.5) (23.9) (28.4)
Share-based
payments - - - - - - - - 4.6 4.6
Tax arising
on share
options - - - - - - - - 2.7 2.7
Investment in
own shares - - - - - - (1.1) (1.1) - (1.1)
Cost of
employee
benefit trust
shares issued
to employees - - - - - - 6.0 6.0 (6.0) -
Equity
dividends - - - - - - - - (46.8) (46.8)
At 30
September
2020 5.7 574.5 615.6 18.1 101.7 452.5 (7.2) 1,180.7 111.8 1,872.7
Consolidated Cash Flow Statement
for the six months ended 30 September 2020
Six months ended Year ended
30 September 31 March
--------------------------
2020 2019 2020
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
------------------------------------------- ------------ ------------ -----------
Cash flows from operating activities
(Loss)/profit for the period (20.3) 18.0 69.8
Income tax (credit)/expense (3.9) 6.0 22.2
Net finance expense 1.0 1.5 3.0
Amortisation of intangible assets 46.2 46.1 91.7
Depreciation of property, plant and
equipment, and right-of-use assets 13.5 10.1 24.4
Loss on disposal of property, plant
and equipment 0.2 0.1 0.7
Loss on disposal of intangibles 0.1 - -
Gain on disposal of pension scheme (0.4) - (0.4)
Gain on disposal of subsidiaries - (0.2) (7.7)
Share-based payments 4.6 6.4 12.0
Difference between pension contributions
paid and amounts charged to operating
profit 0.3 (0.1) (1.2)
Research & Development expenditure
tax credit (1.4) (1.2) (2.3)
Changes in working capital:
Trade and other receivables 39.2 33.6 (12.2)
Contract assets (17.1) (27.0) (43.8)
Trade and other payables 5.5 (24.9) (5.8)
Contract liabilities (43.9) (25.4) 10.7
Changes to fair value of forward
foreign exchange contracts 0.1 0.5 0.3
------------------------------------------- ------------ ------------ -----------
Cash generated from operating activities
before tax 23.7 43.5 161.4
Income taxes paid (11.3) (27.6) (39.3)
------------------------------------------- ------------ ------------ -----------
Net cash generated from operating
activities 12.4 15.9 122.1
------------------------------------------- ------------ ------------ -----------
Cash flows from investing activities
Purchase of property, plant and equipment (6.3) (7.1) (18.5)
Purchase of intangible assets (0.8) (0.1) (0.6)
Payment on disposal of pension scheme (0.3) - (2.0)
Acquisition of subsidiaries, net
of cash acquired - (22.2) (25.1)
Proceeds from sale of subsidiaries,
net of cash - (1.5) 5.5
Sale of treasury deposits - 0.6 0.5
Interest received 0.1 0.1 0.3
Net cash flows used in investing
activities (7.3) (30.2) (39.9)
------------------------------------------- ------------ ------------ -----------
Cash flows from financing activities
Interest paid (1.3) (0.3) (3.3)
Purchase of own shares (1.1) (3.1) (3.1)
Proceeds from borrowings 20.0 20.0 -
Payment of principal element of lease
liabilities (8.6) (7.7) (15.5)
Dividends paid to shareholders of
the parent (46.8) (46.7) (71.7)
------------------------------------------- ------------ ------------ -----------
Net cash flows used in financing
activities (37.8) (37.8) (93.6)
------------------------------------------- ------------ ------------ -----------
Net decrease in cash and cash equivalents (32.7) (52.1) (11.4)
Net foreign exchange difference (2.0) 3.5 (1.3)
Opening cash and cash equivalents 114.5 127.2 127.2
------------------------------------------- ------------ ------------ -----------
Closing cash and cash equivalents 79.8 78.6 114.5
------------------------------------------- ------------ ------------ -----------
Notes to the Interim Report
1 The Interim Report
The Interim Report was approved by the Board on 5 November 2020.
The interim condensed financial statements set out in the Interim
Report are unaudited but have been reviewed by the auditor, Ernst
& Young LLP, and their report to the Company is set out
above.
The Interim Report will be made available to shareholders in due
course from the Company's website at www.aveva.com.
2 Basis of preparation and accounting policies
a) Basis of preparation
The Interim Report for the six months ended 30 September 2020
has been prepared in accordance with IAS 34 'Interim Financial
Reporting' and the disclosure requirements of the Listing
Rules.
The Interim Report does not include all the information and
disclosures required in the annual financial statements and should
be read in conjunction with the Annual Report for the year ended 31
March 2020.
The financial information set out within this report does not
constitute AVEVA's consolidated statutory financial statements as
defined in Section 435 of the Companies Act 2006. The results for
the year ended 31 March 2020 have been extracted from the
consolidated statutory financial statements for AVEVA Group plc for
the year ended 31 March 2020 which are prepared in accordance with
IFRS as adopted by the European Union, on which the auditor gave an
unqualified report (which made no statement under Section 498 (2)
or (3) respectively of the Companies Act 2006 and did not draw
attention to any matters by way of emphasis) and have been filed
with the Registrar of Companies.
b) Non-GAAP measures
The Group presents a non-GAAP performance measure on the face of
the consolidated income statement. The Directors believe that this
alternative measure of profit provides a reliable and consistent
measure of the Group's underlying performance. The face of the
consolidated income statement presents adjusted earnings before
interest and tax (adjusted EBIT) and reconciles this to profit from
operations as required to be presented under the applicable
accounting standards. Adjusted earnings per share is calculated
having adjusted profit after tax for the same items and their tax
effect. The term adjusted EBIT is not defined under IFRS and may
not be comparable with similarly titled profit measures reported by
other companies. It is not intended to be a substitute for, or
superior to, GAAP measures of profit.
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.
c) Accounting policies
The Interim Report has been prepared on the basis of the
accounting policies set out in the most recently published Annual
Report of the Group for the year ended 31 March 2020, with the
exception noted below.
The Group adopted Amendments to IFRS 3 'Definition of a
Business' on 1 April 2020. These amendments had no impact on the
interim consolidated financial statements of the Group, but may
impact future periods should the Group enter into any business
combinations.
3 Going concern
In adopting the going concern basis for preparing the financial
statements, the Directors have considered the business activities
and the Group's principal risks and uncertainties in the context of
the current operating environment. This includes the Director's
expectations of business performance and estimated potential impact
of Covid-19 and subsequent impact on the Group's cashflow,
liquidity headroom and covenant forecasts.
As a result of the previously announced acquisition of OSIsoft,
the Directors have created a working capital financial model
covering the 14-month period to November 2021. The first case is
based upon the enlarged Group including the acquired business
("acquisition case"), whereas the second case is based upon the
existing Group ("existing Group case"). The Directors have then
considered sensitivities in respect of reasonably possible downside
scenarios over and above the acquisition case and existing Group
case and the mitigating actions available. Throughout each of the
scenarios, the Group continues to have liquidity headroom on
existing facilities and against the Revolving Credit Facility
("RCF") financial covenants during the period under assessment.
Should a more extreme downside scenario occur, additional
mitigating actions could be taken such as reductions in other
discretionary costs and, in a severe case, even the cancellation or
deferral of dividend payments. This has led the Directors to
conclude that the Group is able to continue in operation for a
period of at least 12 months from the date of approving the interim
financial statements.
The interim financial statements for the six months ended 30
September 2020 have therefore been prepared under the going concern
basis of accounting.
4 Risks and uncertainties
There are a number of potential risks and uncertainties which
could have a material impact on the Group's long-term
performance.
One new principal risk was identified in the six months to 30
September 2020. This relates to the proposed acquisition and
integration of OSIsoft, LLC as announced by the Group on 25 August
2020. The acquisition involves the integration of two businesses
that have previously operated independently of one another.
Specific areas of risk which could lead to financial and/or
reputational impacts to AVEVA or the anticipated revenue and cost
synergies benefits of the acquisition not being fully realised
include:
-- Consolidating organisations, systems and facilities;
-- Maintaining employee morale and culture and retaining and incentivising key employees;
-- Co-ordinating communications with customers of both the AVEVA
Group and the OSIsoft Group; and
-- Realising revenue and cost synergies from the Enlarged Group.
AVEVA has appointed a senior executive as an Acquisition and
Integration Lead and external consultants have been continually
engaged throughout the acquisition process. Several workstreams are
in progress and will continue to manage the process and risks.
These include Sales, R&D, Portfolio, HR, Finance, IT,
Marketing, Legal, Real Estate and Communications.
The principal risks and uncertainties as set out in the Annual
Report for the year ended 31 March 2020 remain unchanged. These
are:
-- Talent acquisition and retention
-- Move to subscription model
-- Cloud (strategy and SaaS security)
-- Digital transformation agenda strategy
-- Sustainability
-- Competitors
-- Regulatory compliance
-- AVEVA products implicated in industrial accidents or customer cyberattack
-- Cyberattack (corporate systems)
-- Dependency on cyclical markets
-- Global economic disruption and declined GDPs
-- Internal systems (suitability and continuity)
-- Extended period of remote working
-- Disruptive technologies
As at 30 September 2020, the ongoing disruption and impact as a
result of Covid-19 remained uncertain. No new risks specifically
relating to Covid-19 were identified in the six months to 30
September 2020, and there were no events that indicated the
probability and impact of the principal risks identified at the
year-end had changed. The Executive Risk Committee will continue to
review the impact of Covid-19 as the situation develops.
These risks are described in more detail on pages 42-47 of the
Strategic Report section of the 2020 Annual Report. The Directors
routinely monitor these risks and uncertainties and appropriate
actions are taken to manage them within agreed risk appetites.
Included in the Chief Executive's Strategic Review is a commentary
on the outlook of the Group for the remaining six months of the
year.
At an executive level, risk management remains the
responsibility of the Executive Risk Committee, who report to the
Board on risk matters.
5 Revenue
An analysis of the Group's revenue is as follows:
Services transferred Services
at a point in transferred
Six months ended 30 September 2020 time over time Total
(unaudited) GBPm GBPm GBPm
------------------------------------ --------------------- ------------- ------
Subscription 53.2 60.7 113.9
Maintenance - 99.6 99.6
Perpetual licences 61.7 - 61.7
Services - 57.4 57.4
------------------------------------ --------------------- ------------- ------
114.9 217.7 332.6
Services transferred Services
at a point in transferred
Six months ended 30 September 2019 time over time Total
(unaudited) GBPm GBPm GBPm
------------------------------------ --------------------- ------------- ------
Subscription 83.8 57.2 141.0
Maintenance - 101.5 101.5
Perpetual licences 85.4 - 85.4
Services - 64.0 64.0
------------------------------------ --------------------- ------------- ------
169.2 222.7 391.9
Services transferred Services
at a point in transferred
time over time Total
Year ended 31 March 2020 (audited) GBPm GBPm GBPm
------------------------------------ --------------------- ------------- ------
Subscription 228.7 88.1 316.8
Maintenance - 201.7 201.7
Perpetual licences 179.3 - 179.3
Services - 136.0 136.0
------------------------------------ --------------------- ------------- ------
408.0 425.8 833.8
6 Segment information
The Executive Leadership Team (ELT) 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 ELT.
Six months ended 30 September 2020 (unaudited)
Asia Pacific EMEA Americas Corporate Total
GBPm GBPm GBPm GBPm GBPm
---------------------------- ------------- ------- --------- ---------- --------
Revenue
Subscription 29.2 49.9 34.8 - 113.9
Maintenance 23.4 33.7 42.5 - 99.6
Perpetual licences 20.8 22.0 18.9 - 61.7
Services 13.7 21.6 22.1 - 57.4
---------------------------- ------------- ------- --------- ---------- --------
Regional revenue total 87.1 127.2 118.3 - 332.6
Cost of sales (8.6) (16.1) (24.8) (34.2) (83.7)
Selling and administrative
expenses (18.8) (31.3) (28.0) (53.4) (131.5)
Net impairment loss on
financial assets 0.8 (2.0) 0.4 - (0.8)
---------------------------- ------------- ------- --------- ---------- --------
Regional contribution 60.5 77.8 65.9 (87.6) 116.6
Research & Development
costs (60.3)
---------------------------- ------------- ------- --------- ---------- --------
Adjusted EBIT 56.3
---------------------------- ------------- ------- --------- ---------- --------
Exceptional items, other
normalised adjustments(1)
and net interest (80.5)
---------------------------- ------------- ------- --------- ---------- --------
Loss before tax (24.2)
---------------------------- ------------- ------- --------- ---------- --------
1 Normalised adjustments include amortisation of intangible
assets (excluding other software), share-based payments, and
movements on fair value of forward exchange contracts.
Six months ended 30 September 2019 (unaudited)
Asia Pacific EMEA Americas Corporate Total
GBPm GBPm GBPm GBPm GBPm
---------------------------- ------------- ------- --------- ---------- --------
Revenue
Subscription 58.2 46.1 36.7 - 141.0
Maintenance 23.8 34.6 43.1 - 101.5
Perpetual licences 27.1 32.9 25.4 - 85.4
Services 15.2 21.1 27.7 - 64.0
---------------------------- ------------- ------- --------- ---------- --------
Regional revenue total 124.3 134.7 132.9 - 391.9
Cost of sales (14.2) (16.8) (27.5) (33.8) (92.3)
Selling and administrative
expenses (21.7) (34.7) (33.1) (57.8) (147.3)
Net impairment loss on
financial assets 0.7 (0.3) (2.0) - (1.6)
---------------------------- ------------- ------- --------- ---------- --------
Regional contribution 89.1 82.9 70.3 (91.6) 150.7
Research & Development
costs (60.1)
---------------------------- ------------- ------- --------- ---------- --------
Adjusted EBIT 90.6
---------------------------- ------------- ------- --------- ---------- --------
Exceptional items, other
normalised adjustments(1)
and net interest (66.6)
---------------------------- ------------- ------- --------- ---------- --------
Profit before tax 24.0
---------------------------- ------------- ------- --------- ---------- --------
1 Normalised adjustments include amortisation of intangible
assets (excluding other software), share-based payments, and
movements on fair value of forward exchange contracts.
Year ended 31 March 2020 (audited)
Asia Pacific EMEA Americas Corporate Total
GBPm GBPm GBPm GBPm GBPm
---------------------------- ------------- ------- --------- ---------- --------
Revenue
Subscription 95.6 140.0 81.2 - 316.8
Maintenance 47.9 67.9 85.9 - 201.7
Perpetual licences 52.1 69.6 57.6 - 179.3
Services 31.9 49.6 54.5 - 136.0
---------------------------- ------------- ------- --------- ---------- --------
Regional revenue total 227.5 327.1 279.2 - 833.8
Cost of sales (27.3) (34.6) (49.9) (78.3) (190.1)
Selling and administrative
expenses (44.7) (72.5) (69.4) (112.0) (298.6)
Net impairment loss on
financial assets (0.8) (2.7) (4.1) - (7.6)
---------------------------- ------------- ------- --------- ---------- --------
Regional contribution 154.7 217.3 155.8 (190.3) 337.5
Research & Development
costs (120.7)
---------------------------- ------------- ------- --------- ---------- --------
Adjusted EBIT 216.8
---------------------------- ------------- ------- --------- ---------- --------
Exceptional items, other
normalised adjustments(1)
and net interest (124.8)
---------------------------- ------------- ------- --------- ---------- --------
Profit before tax 92.0
---------------------------- ------------- ------- --------- ---------- --------
1 Normalised adjustments include amortisation of intangible
assets (excluding other software), share-based payments, and
movements on fair value of forward exchange contracts.
7 Selling and administrative expenses
An analysis of selling and administrative expenses is set out
below:
Six months ended Year ended
30 September 31 March
--------------------------
2020 2019 2020
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
----------------------------------- ------------ ------------ -----------
Selling and distribution expenses 103.2 113.1 240.1
Administrative expenses 78.3 67.2 127.7
181.5 180.3 367.8
----------------------------------- ------------ ------------ -----------
8 Exceptional items
Six months ended Year ended
30 September 31 March
--------------------------
2020 2019 2020
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
---------------------------------------- ------------ ------------ -----------
Acquisition and integration activities 30.1 12.5 29.0
Restructuring costs 2.0 0.8 1.7
Other income (3.1) - (11.9)
29.0 13.3 18.8
---------------------------------------- ------------ ------------ -----------
Acquisition and integration costs incurred year-to-date includes
GBP16.3 million (H1 FY20: nil) of fees incurred in activities
relating to the potential future acquisition of OSIsoft, LLC. These
costs are anticipated to continue throughout the rest of the
current financial year, until the completion of the
acquisition.
In addition, integration costs include consultancy fees paid to
advisers and the costs of additional temporary resources required
for the integration of heritage AVEVA and the Schneider Electric
industrial software business (the Combination). Key integration
activities included work undertaken to exit the Transitional
Service Agreements (TSA) provided by Schneider Electric; costs
incurred in the initial design and build phases of a new harmonised
global ERP system for the enlarged Group; and assistance from
consultants to the Group in running programmes designed to deliver
revenue and cost synergies from the Combination. Costs relating to
the TSA exits and global ERP system continue throughout the current
financial year ending 31 March 2021.
Restructuring costs related to severance payments in a number of
global office locations. The costs incurred for the year ended 31
March 2020 were a continuation of the project started in the prior
year following the Combination, and are expected to continue
throughout the current financial year.
Other income contains GBP2.8 million (H1 FY20: nil) received
from Schneider Electric in reimbursement for capital expenditure
incurred as part of the Company's migration from activities covered
by TSAs following the Combination.
For the year ended 31 March 2020 other income also included a
GBP7.7 million gain on sale of three wholly owned distributor
businesses.
The tax credit on the exceptional items of GBP29.0 million (H1
FY20: GBP13.3 million) is GBP4.2 million (H1 FY20: GBP2.5
million).
9 Income tax expense
The total tax credit for the half year ended 30 September 2020
is GBP3.9 million (H1 FY20: charge of GBP6.0 million).
The effective tax rate on the loss before tax is 16.1% (H1 FY20:
25.0%). The difference from the US tax rate of 24.0% is mainly due
to higher overseas tax rates and the benefit of UK and US tax
incentives.
The tax charge on adjusted profit before tax is GBP9.5 million
(H1 FY20: GBP19.0 million) which equates to an effective tax rate
of 17.2% (H1 FY20: 21.3%).
10 Ordinary dividends
The proposed interim dividend of 15.5 pence per ordinary share
will be payable on 5 February 2021, to shareholders on the register
on 8 January 2021. In accordance with IFRS, no provision for the
interim dividend has been made in these financial statements. If,
as expected, the proposed Rights Issue to facilitate the
acquisition of OSIsoft has completed prior to the record date of 8
January 2021, then the Rights Issue shares will also be eligible to
receive the interim dividend and the proposed dividend per share
will be adjusted to reflect the bonus element of the Rights Issue.
The revised dividend per share will be notified as soon as this is
known.
The dividends relating to year ended 31 March 2020 were declared
and paid relating to AVEVA Group plc.
An analysis of dividends paid is set out below:
Six months ended Year ended
30 September 31 March
--------------------------
2020 2019 2020
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
------------------------------------ ------------ ------------ -----------
Final 2019/20 paid at 29.0 pence
per share 46.8 - -
Interim 2019/20 paid at 15.5 pence
per share - - 25.0
Final 2018/19 paid at 29.0 pence
per share - 46.7 46.7
46.8 46.7 71.7
------------------------------------ ------------ ------------ -----------
11 Earnings per share
Six months ended Year ended
30 September 31 March
--------------------------
2020 2019 2020
pence pence pence
(unaudited) (unaudited) (audited)
------------------------------------ ------------ ------------ -----------
Earnings per share for the period:
- basic (12.60) 11.19 43.35
- diluted (12.60) 11.13 43.13
Adjusted earnings per share:
- basic 28.43 43.54 108.70
- diluted 28.26 43.31 108.15
------------------------------------ ------------ ------------ -----------
The calculation of EPS is based on the net loss attributable to
equity holders of the parent for the six months ended 30 September
2020 of GBP20.3 million and the following weighted average number
of shares:
Six months ended Year ended
30 September 31 March
--------------------------
2020 2019 2020
Number of Number of Number of
shares shares shares
(unaudited) (unaudited) (audited)
------------------------------------- ------------ ------------ ------------
EPS
Weighted average number of ordinary
shares for basic EPS 161,122,019 161,014,600 161,046,059
Effect of dilution: employee share
options(1) - 853,703 826,621
------------------------------------- ------------ ------------ ------------
Weighted average number of ordinary
shares adjusted for the effect
of dilution 161,122,019 161,868,303 161,872,680
------------------------------------- ------------ ------------ ------------
Adjusted EPS
Weighted average number of ordinary
shares for basic EPS 161,122,019 161,014,600 161,046,059
Effect of dilution: employee share
options 945,718 853,703 826,621
------------------------------------- ------------ ------------ ------------
Weighted average number of ordinary
shares adjusted for the effect
of dilution 162,067,737 161,868,303 161,872,680
------------------------------------- ------------ ------------ ------------
(1) The effect of share options are anti-dilutive in the six
months ended 30 September 2020 due to the Group recognising a net
loss for the period. They are therefore excluded from the diluted
earnings per share calculation.
Details of the calculation of adjusted EPS are set out
below:
Six months ended Year ended
30 September 31 March
--------------------------
2020 2019 2020
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
-------------------------------------------- ------------ ------------ -----------
(Loss)/profit after tax for the period (20.3) 18.0 69.8
Intangible amortisation (excluding
other software) 45.8 45.3 90.6
Share-based payments 4.6 6.4 12.0
Loss on fair value of forward foreign
exchange contracts 0.1 0.1 0.4
Exceptional items 29.0 13.3 18.8
Tax effect on exceptional items (4.2) (2.5) (4.6)
Tax effect on other normalised adjustments
(excluding net finance expense) (9.2) (10.5) (12.0)
Adjusted profit after tax 45.8 70.1 175.0
-------------------------------------------- ------------ ------------ -----------
12 Business combinations
On 25 August, the Group announced the proposed acquisition of
OSIsoft, LLC, for a consideration of $5.0 billion. OSIsoft is a
global leader in real-time industrial operational data software and
services. Completion of the deal is contingent on shareholder
approval and receipt of necessary regulatory approvals. The deal is
expected to close towards the end of the calendar year 2020 between
December 2020 and February 2021.
For the year ended 31 December 2019, OSIsoft recognised revenue
of $470.0 million and adjusted EBIT of $125.2 million.
The deal will be funded by $4.4 billion of cash consideration,
of which $3.5 billion will be raised via a rights issue to existing
shareholders and $0.9 billion from existing cash and new debt
facilities. The remainder will be funded by a $0.6 billion share
consideration to be issued to Estudillo Holdings Corp.
Fees of GBP5.1 million relating to share issue costs and loan
financing have been recognised in prepayments.
13 Trade and other receivables
30 September 30 September 31 March
2020 2019 2020
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
----------------------------------- ------------- ------------- ----------
Current
Trade receivables 99.3 141.0 181.2
Amounts owed from related parties 35.7 32.3 28.4
Prepayments and other receivables 50.1 31.4 32.6
----------------------------------- ------------- ------------- ----------
185.1 204.7 242.2
----------------------------------- ------------- ------------- ----------
Non-current
Prepayments and other receivables 22.7 3.5 4.4
----------------------------------- ------------- ------------- ----------
22.7 3.5 4.4
----------------------------------- ------------- ------------- ----------
The Directors consider that the carrying amount of trade and
other receivables approximates their fair value.
Non-current prepayments and other receivables include a
prepayment for cloud services over a three year period.
14 Trade and other payables
30 September 30 September 31 March
2020 2019 2020
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
------------------------------------- ------------- ------------- ----------
Current
Trade payables 20.4 18.2 20.1
Amounts owed to related parties 1.9 7.3 7.6
Social security, employee and sales
taxes 20.6 14.5 18.5
Accruals 76.4 93.5 99.2
Other payables 15.0 1.9 4.1
134.3 135.4 149.5
------------------------------------- ------------- ------------- ----------
Non-current
Other liabilities 20.9 1.9 0.7
------------------------------------- ------------- ------------- ----------
20.9 1.9 0.7
------------------------------------- ------------- ------------- ----------
Non-current other liabilities includes a liability for cloud
services over a three year period.
15 Fair value
The book values of the Group's financial assets and liabilities
consist of bank and cash balances of GBP79.8 million (2019: GBP78.6
million) and treasury deposits of GBP0.1 million (2019: nil). The
carrying amounts of these financial assets and liabilities in the
Group's financial statements approximates their fair values.
In addition, the Group's financial liabilities include forward
foreign exchange contracts. Financial instruments that are
recognised at fair value subsequent to initial recognition are
grouped into Levels 1 to 3 based on the degree to which the fair
value is observable. The three levels are defined as follows:
-- Level 1 fair value measurements are those derived from quoted
prices (unadjusted) in active markets for identical assets or
liabilities.
-- Level 2 fair value measurements are those derived from inputs
other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly (i.e. as
prices) or indirectly (i.e. derived from prices).
-- Level 3 fair value measurements are those derived from
valuation techniques that include inputs for the asset or liability
that are not based on observable market data (unobservable
inputs).
At 30 September 2020, the Group had forward foreign exchange
contracts which were measured at Level 2 fair value subsequent to
initial recognition. The fair value of the liability in respect of
foreign exchange contracts was GBP0.5 million at 30 September 2020
(2019: GBP0.6 million).
The resulting loss of GBP0.1 million (H1 FY20: loss of GBP0.1
million) on the movement of the fair value of forward foreign
exchange contracts is recognised in the consolidated income
statement within administrative expenses.
16 Related party transactions
Transactions between Group subsidiaries have been eliminated on
consolidation. A list of subsidiaries can be found in the notes to
the AVEVA Group plc financial statements in the 2020 Annual
Report.
During the period, Group companies entered into the following
transactions with Schneider Electric group companies:
Six months ended Year ended
30 September 31 March
--------------------------
2020 2019 2020
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
Sales of goods and services 33.4 31.9 69.1
Purchase of goods and services (4.2) (6.9) (11.2)
Other non-trading transactions 9.2 2.9 13.4
-------------------------------- ------------ ------------ -----------
As at the balance sheet date, Group companies held the following
balances with Schneider Electric group companies:
30 September 30 September 31 March
2020 2019 2020
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
Trade and other receivables 24.6 28.0 23.6
Trade and other payables (1.9) (7.3) (7.6)
Non-trading receivables 11.1 4.3 4.8
----------------------------- ------------- ------------- ----------
17 Commitments and contingencies
30 September 30 September 31 March
2020 2019 2020
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
--------------------------- ------------- ------------- ----------
Bank guarantees 23.9 19.6 22.4
Parent company guarantees 29.0 - -
--------------------------- ------------- ------------- ----------
52.9 19.6 22.4
--------------------------- ------------- ------------- ----------
The Group provides a number of guarantees for obligations to
complete and deliver projects. These include bid, performance and
warranty bonds, and guarantees against advance payments, all of
which arise in the ordinary course of business and are issued by
either banking partners or AVEVA parent companies. The amounts
disclosed above represent the Group's contractual exposure at the
balance sheet date.
18 Subsequent events
Subsequent to the 30 September 2020, the Group has entered into
forward contracts to hedge $3.5 billion of the OSIsoft purchase
price. The instruments are due to mature in December 2020, ahead of
completion of the acquisition.
Responsibility Statement of the Directors
in respect of the Interim Report
The Directors of the Company confirm that to the best of our
knowledge:
-- the Interim Report has been prepared in accordance with IAS 34;
-- the Interim Report includes a fair review of the information
required by DTR 4.2.7R, being an indication of the important events
that have occurred during the first six months of the financial
year and a description of the principal risks and uncertainties for
the remaining six months of the year; and
-- the Interim Report includes a fair review of the information
required by DTR 4.2.8R, being disclosure of related party
transactions and changes therein since the last Annual Report.
By order of the Board
Craig Hayman James Kidd
Chief Executive Officer Deputy CEO & CFO
5 November 2020
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END
IR USSARRNUARUA
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November 05, 2020 02:00 ET (07:00 GMT)
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