AVEVA : Interim Results Statement

PRESS RELEASE

AVEVA GROUP PLC

RESULTS FOR THE SIX MONTHS ENDED 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	£332.6m	£391.9m	(15.1)%
Recurring revenue1	64.2%	61.9%	230bps
Adjusted EBIT2	£56.3m	£90.6m	(37.9)%
(Loss)/profit from operations	£(23.2)m	£25.5m	-
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 £20 million pull forward of revenue into September 2019, organic constant currency revenue3 declined 6.8%
• Without this adjustment organic constant currency revenue declined3 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 costs2 of 8.3% (5.8% on a constant currency basis) as a result of tight cost control
• Adjusted EBIT of £56.3m (H1 FY20: £90.6m) 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 £7.1 million; and adjusts for the disposals of Wonderware Italy, Germany and Scandinavia.

Enquiries:

AVEVA Group plc

Matt Springett, Head of Investor Relations

Tel: [phone]

FTI Consulting LLP

Edward Bridges / Dwight Burden

Tel: [phone]

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: [phone]

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.

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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.

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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.

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