elease Press Release 20 November 2018 AVEVA GROUP PLC INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2018 AVEVA delivers strong growth and integration is on track AVEVA Group plc ('AVEVA' or 'the Group') announces its interim results for the six months ended 30 September 2018. The statutory results 1 show standalone results for the heritage Schneider Electric Industrial Software Business ( SES ) in the comparative period of the six months to September 2017. To provide further understanding of the combined trading performance and to improve transparency, non-statutory results are also shown for the combined Group on a pro forma basis 2 for the six months to September 2018 and the six months to September 2017. Statutory and pro forma results are shown on an IFRS 15 basis in both periods. Summary results Six months ended 30 September 2018 2017 Change Results shown on a combined pro forma basis 2 Revenue 343.0m 309.4m 10.9% Adjusted 3 profit before tax 60.5m 39.2m 54.3% Adjusted 3 diluted earnings per share 29.48p 20.85p 41.4% Statutory results shown on a reverse acquisition basis 1 Revenue 336.5m 215.1m 56.4% (Loss)/profit before tax (5.5m) 7.8m - Adjusted 3 profit before tax 54.1m 28.6m 89.2% Diluted (loss)/earnings per share (3.61p) 7.0p - Adjusted 3 diluted earnings per share 26.25p 26.40p (0.6)% Highlights On a pro forma basis, revenue for the combined Group grew 10.9% to 343.0m (H1 FY18: 309.4m) and adjusted profit before tax grew 54.3% to 60.5m (H1 FY18: 39.2m) On a statutory basis, revenue was up 56.4% to 336.5m (H1 FY18: 215.1m) principally as a result of only the heritage SES business numbers being reported in the comparative period. Loss before tax was 5.5m (H1 FY18: profit of 7.8m) Recurring revenue up 18.7% and adjusted PBT margin up 490bps Interim dividend 14.0 pence per share (H1 FY18: nil) Integration remains on track with new organisational structures in place across the Group, integrated product solutions developed and showcased to customers, and cost synergy programmes under way Net cash of 81.8m (FY18: 95.9m) following payment of full year dividend Full year outlook remains positive Chief Executive Officer, Craig Hayman said: The industries that AVEVA serves are making increasing use of technology. This is being driven by ongoing secular trends driving growth in demand for industrial software. AVEVA is optimally placed to capture this demand due to its unique end-to-end product portfolio. AVEVA delivered a good performance in the first half of the financial year. Sales execution was strong, integration is on-track and the results represent a good base to build on in the second half. We remain confident in the outlook and are making progress towards our medium term targets of delivering revenue growth at least in-line with the industrial software market, increasing recurring revenue as a percentage of overall revenue and improving AVEVA s Adjusted EBIT margin to 30%.
Notes 1 Statutory results are stated under reverse acquisition accounting principles and therefore the results for the six months to 30 September 2017 include heritage SES only. 2 Pro forma results include results for both heritage SES and heritage AVEVA for the six months to 30 September 2017 and exclude an adjustment to revenue of 6.5m for the six months to 30 September 2018 reflecting a reverse acquisition accounting adjustment to deferred revenue on the opening balance sheet. 3 Adjusted profit before tax and adjusted earnings per share are calculated before amortisation of intangible assets (excluding other software), share-based payments, gain/loss on fair value of forward foreign exchange contracts and exceptional items. Adjusted earnings per share also include the tax effects of these adjustments. Enquiries: AVEVA Group plc Matt Springett, Head of Investor Relations Tel: 01223 556 676 FTI Consulting LLP Edward Bridges / Dwight Burden / Harry Staight Tel: 020 3727 1000 Conference call and webcast AVEVA will host a conference call and webcast, for registered participants, at 09:30 (GMT) today. To register for the webcast and access the presentation materials please visit: www.aveva.com/investors Conference calls dial in details: Telephone: +44 (0)330 336 9127 / +1 929 477 0448 Conference call code: 5939620 Conference call participants will be able to ask questions during the Q&A session, but those on the webcast will be in a listen only mode. A replay of the call will be made available later in the day. 2
Chief Executive s strategic review Summary AVEVA delivered a good performance in the first half both in terms of trading in the period and making progress towards longer term objectives. On a statutory basis revenue was up 56.4% to 336.5 million (H1 FY18: 215.1 million). Loss before tax was 5.5 million (H1 FY18: profit of 7.8 million). This revenue growth primarily reflected the combination of heritage AVEVA with the heritage SES business (the Combination), together with the organic growth of both businesses, while the statutory loss before tax was primarily due to the amortisation of intangible assets related to the Combination. On a pro forma basis, the enlarged Group achieved revenue growth of 10.9% to 343.0 million (H1 FY18: 309.4 million) and growth in adjusted profit before tax of 54.3% to 60.5 million (H1 FY18: 39.2 million). On a constant currency basis revenue increased 13.9% and adjusted profit before tax grew 59.7%. Constant currency is calculated by restating the period s reported results to reflect the previous year s average exchange rates. This growth was driven by good sales execution, with certain renewal contracts being closed earlier in the current year than in the previous year and certain multi-year contracts which have been partly recognised upfront. Integration of the heritage AVEVA and SES businesses has progressed well. AVEVA has planned the integration process in detail and is delivering it in steps to minimise business disruption. During the first half we integrated management structures across all functions and made significant progress in moving away from Transitional Service Agreements (TSAs) with Schneider Electric. We also made significant progress with product integration and showcased this in Amsterdam, Dallas and Palm Springs, events that were attended by over 1,200 key individuals from both existing and potential customers. Trading and markets The process, marine, batch and hybrid industries that AVEVA serves are making increasing use of technology in order to reduce both capital and operating costs. This trend is being driven by ongoing secular trends in technology in Cloud, the Industrial Internet of Things (IIoT), Big Data, Mobility and Virtual / Augmented Reality, together with competitive pressures. This is driving ongoing growth in demand for industrial software. AVEVA is optimally placed to capture this demand due to its unique end-to-end product portfolio, which runs from Simulation through to Operations, as well as having established market-leading positions serving process, marine, batch and hybrid industries. These industries are at the early stages of a digitalisation growth curve, when compared to other industries and the current addressable market for AVEVA s products of some 15 billion is increasing (Sources: ARC, Gartner, company reports). Against the backdrop of this ongoing growth trend, AVEVA has historically seen some variation in growth due to end market conditions within specific industries, such as Oil & Gas and Marine. During 2018 there has been a generally more positive trend across the Group s end markets with, for example, a moderate increase in Oil & Gas capital expenditure and some areas of growth in Marine, such as cruise ships. AVEVA delivered growth across all of its geographies. On a pro forma basis, EMEA revenue increased 21.9% to 131.7 million (H1 FY18: 108.1 million). This reflected ongoing structural growth, better conditions in the Oil & Gas end market, a large win in the Marine end market and a major multi-year contract with a global Engineering, Procurement and Construction (EPC) company. In the Americas, revenue increased 6.3% to 124.8 million (H1 FY18: 117.4 million) and in Asia Pacific revenue increased 3.0% to 86.5 million (H1 FY18: 84.0 million), again helped by demand from Oil & Gas and Marine customers with good performances in China and India. 3
We saw improving execution from the direct sales force and a good performance from indirect channel sales, which represent approximately one third of revenue. In terms of products, Engineering, which is the largest of AVEVA s business areas and consists of design and simulation software, continued to perform well in the first half and was the largest contributor in absolute terms to overall Group growth. Revenue grew at a low double digit rate and was driven by the heritage AVEVA portfolio, particularly the 3D products, which performed strongly across each of the regions. AVEVA signed major contracts across a range of industries with customers including KBR, MV Werften, and EDF. Monitoring & Control, which comprises HMI SCADA products, grew at a low single digit rate. This was driven by a good performance from channel sales, particularly from Europe and North America. AVEVA won contracts with customers across a range of sectors and increased business with Schneider Electric. Asset Performance Management (APM) was the fastest growing area of the portfolio in the first half and the second greatest contributor to overall Group growth. AVEVA achieved competitive wins with customers including Aker BP, Air Liquide, MV Werften, Chevron and KBR. We are seeing strong demand from customers in AVEVA s traditional markets of Oil & Gas, Power and Chemicals, particularly in North America. AVEVA s offering is strongly differentiated because we can seamlessly address the broadest dimensions of asset performance management. We do this by leveraging our experience, engineering information, real-time data and transactional history in context. This results in the most effective use of analytics and artificial intelligence to close the loop with our unique ability to operationalise and visualise APM. Revenue in Planning & Operations was flat, including the impact of lower services revenue. AVEVA won significant orders with customers from sectors including Food & Beverage, Mining and Oil & Gas. Sales of Cloud products grew strongly across all business areas and included demand from our top 100 customers. Integration During the first half AVEVA established an Executive Leadership Team for the combined business and integrated other operating teams across all key functions, such as R&D and Sales. This has enabled good progress in key areas such as sales execution and product integration, while the cost synergies programme is on track. AVEVA also made good progress in moving away from TSAs with Schneider Electric that were put in place to support functions such as IT, real estate and HR in the heritage SES business. To date, AVEVA has moved away from over half of these TSAs, for example, in moving heritage SES staff in the USA, Canada, Australia and the Middle East on to AVEVA payroll and HR systems. In terms of real estate integration, AVEVA has to date reduced its number of offices by seven and has consolidated staff from Schneider Electric office locations. More detail is given below in terms of what has already been achieved and what needs to happen in terms of integration and the implementation of Group-wide best practice to progress towards delivering these three year targets. Progress against our medium-term targets In September 2018 AVEVA outlined new medium-term targets. These are summarised below, together with the progress around integration that has already been undertaken or will be put in place to meet them. Medium-term revenue growth The Group aims to grow medium-term revenue on a constant currency basis at least in line with the blended growth rate of the industrial software market, which we currently estimate to be growing at a mid-single digit rate. This revenue growth target reflects AVEVA expecting to grow its underlying software business in excess of market growth rates, driven by a combination of the strength of the Group s market positions, sales execution, revenue synergies and additional value levers, including pricing. 4
This above-market growth is expected to be partly offset in terms of reported revenue by the impact of a phased transition towards greater Rental & Subscription revenue, together with potentially lower growth rates in Services revenue. Progress report: AVEVA delivered revenue growth in the first half that was in line with its medium-term objectives. This growth was assisted by strong sales execution, which was enabled by the early integration of the sales force. Our growth rate benefited from certain renewal contracts being closed earlier in the current year than in the previous year and certain multi-year contracts which have been partly recognised upfront. Looking forward, we have further progress to make around product integration and cross selling, systems integration, marketing efficiency and pricing. Product integration and cross selling: Bringing together engineering and behavioural data is key to AVEVA s customer value proposition. We have developed prototypes of integrated Process Simulation and Engineering Design, together with integrated Monitoring & Control and Engineering information / asset visualisation (Wonderware System Platform and Engage / Net). These products were demonstrated to customers at the AVEVA World Summit in California and were well received. Systems integration: AVEVA has appointed a new CIO to drive business transformation through the implementation of best-in-class technology. As part of this a common CRM system is being put in place across the Group and is expected to be fully implemented by the end of this financial year. Marketing efficiency: A new Chief Marketing Officer has been appointed to lead the implementation of best-in-class B2B software marketing strategies and maximise returns on marketing investment. Pricing: AVEVA aims to increase yields by simplifying terms and conditions for customers, making more consistent use of discounting, and implementing previously agreed price increases. These initiatives are being progressed, with for example new combined Group terms and conditions to be introduced in the second half of the current financial year and revised sales incentives to encourage a focus on higher yielding revenues to be put in place for the beginning of the next financial year. Medium-term adjusted EBIT margin The Group aims to increase adjusted EBIT margins to 30%. This margin improvement is expected to be driven by a combination of revenue growth, previously announced cost savings, cost control and a focus on high margin revenue growth through pricing and revenue mix optimisation. Adjusted EBIT is calculated as profit from operations before amortisation of intangible assets (excluding other software), share-based payments, gain/loss on fair value of forward foreign exchange contracts and exceptional items. Progress report: AVEVA s targeted increase in adjusted EBIT margin will be driven by operational leverage through revenue growth, cost control and cost savings. The Group is targeting annualised cost synergies of approximately 5% of total FY18 costs, representing some 25 million, which will be fully implemented by the end of the 2020 financial year. Approximately half of these are expected to be implemented by the end of the current financial year. Cost synergies are expected to be achieved through a rationalisation of duplicated functions, the implementation of a common ERP, shared services for back office functions, real estate consolidation, and enhanced R&D effectiveness. The cost synergies programme is on track. During the first half, initiatives implemented included the removal of duplicate roles in R&D and sales. Looking forward, we have further progress to make around implementing planned cost synergies and in limiting underlying cost increases to inflation. Recurring Revenue AVEVA aims to grow the proportion of recurring revenue to total revenue from 52% (FY18 on a pro forma basis) to over 60% in the medium term. This will be driven by growing software as part of the revenue mix and by increasing the mix of rental and subscriptions revenue as a proportion of new software revenue in a financial year. 5
The transition to greater levels of recurring revenue is expected to increase long-term free cash flow generation. Rentals and subscriptions offer customers benefits including greater flexibility, lower up-front costs and simplicity in pricing. These benefits are reflected in higher customer lifetime value of a rental and subscriptions model versus a perpetual licence model. Recurring revenue is defined as rental and subscriptions software licence revenue plus support and maintenance revenue, divided by total revenue. Progress report: AVEVA made good initial progress during the first half and grew recurring revenue as a proportion of overall revenue by 350bps to 51.7%. During the second half of the financial year, the Group plans to introduce a comprehensive subscription offering for the Monitoring and control product area for the first time, which is the major area that we intend to transition to a subscription model. Sales incentives and commission structures will be modified to encourage recurring revenue growth from the beginning of the next financial year. Outlook AVEVA s solid first half results underpin the Board s confidence in its full year expectations. AVEVA has made a good start to the financial year, although it should be noted that as previously disclosed, the comparative period in the fourth quarter included the benefit of a large multi-year contract extension with a key customer. The Board is encouraged by the good early progress being made towards the Group s recently-announced medium-term targets. Craig Hayman Chief Executive Officer 20 November 2018 6
Finance Review Overview The statutory results for the six months ended 30 September 2018 are stated under reverse acquisition accounting principles and therefore the comparative period (i.e. for the six months to 30 September 2017) only includes the results of heritage SES. Statutory results for the six months ended 30 September 2018 The statutory results are summarised below: m Six months Reported 30 September Change 2018 2017 Revenue 336.5 215.1 56.4% Cost of sales* (92.8) (75.3) 23.2% Gross profit 243.7 139.8 74.3% Operating expenses* (189.3) (110.4) 71.5% Adjusted EBIT 54.4 29.4 85.0% Net interest and other income (0.3) (0.8) - Adjusted PBT 54.1 28.6 89.2% Normalised adjustments (59.6) (20.8) - Reported PBT (5.5) 7.8 - * Cost of sales and Operating expenses adjusted to exclude amortisation of intangible assets (excluding other software), share-based payments, gain/loss on forward foreign exchange contracts and exceptional items. Revenue for the period was 336.5 million which was up 56.4% compared to the previous period (H1 FY18: 215.1 million). This change was primarily due to the Combination creating a larger business, together with the organic growth of that business. The Group made a loss before tax of 5.5 million (H1 FY18: profit of 7.8 million), primarily due to the amortisation of intangibles, together with acquisition and integration costs as a result of the Combination. On an adjusted basis, the Group made a profit before tax of 54.1 million (H1 FY18: 28.6 million). Pro forma results for the six months ended 30 September 2018 In order to enhance understanding of these results and improve transparency, non-statutory summary results are also shown for the combined AVEVA Group on a pro forma basis. These include both heritage SES and heritage AVEVA for the six months to 30 September 2017 and exclude an adjustment to revenue of 6.5m for the six months to 30 September 2018, which reflects a reverse acquisition accounting adjustment to deferred revenue on the opening balance sheet. These results have been prepared under the new revenue recognition standard, IFRS 15. The impact of IFRS 15 was to reduce revenue by 7.4m in the prior half year comparative, versus revenue recognised using the previous accounting standard, IAS 18 (see note 6). Revenue was 343.0 million which was up 10.9% compared to the previous year (H1 FY18: 309.4 million). Adjusted PBT grew 54.3% to 60.5 million (H1 FY18: 39.2 million) due to the strong revenue growth and high operational leverage. The growth rate for the first half of 10.9% reflects a good performance across the business with strong sales execution. There was particularly strong growth from the heritage AVEVA business and mid-single digit growth from the heritage SES business including increased levels of business with Schneider Electric. 7
Foreign exchange translation impacted growth in the period primarily due to Sterling having strengthened versus US dollar resulting in a 2.9% headwind. On a constant currency basis revenue growth was 13.9%. There were different components to the growth with the first half benefiting by 2.7% from some customers renewing their agreements early and 2.8% from multi-year contracts where the licence element is recognised upfront, offset by the foreign exchange headwind. Taking these factors into account, the underlying constant currency growth in the first half was 8.5%. Results for the pro forma combined AVEVA Group are summarised below: m Six months ended Reported Constant currency 30 September change change 2018 2017 Revenue 343.0 309.4 10.9% 13.9% Cost of sales* (92.9) (89.6) 3.7% 6.9% Gross profit 250.1 219.8 13.8% 16.8% R&D (54.2) (54.8) (1.1)% 1.6% SG&A (135.1) (125.1) 8.0% 10.4% Operating expenses* (189.3) (179.9) 5.2% 7.7% Adjusted EBIT 60.8 39.9 52.4% 57.7% Adjusted EBIT margin 17.7% 12.9% 480bps 500bps Net interest and other income (0.3) (0.7) - - Adjusted PBT 60.5 39.2 54.3% 59.7% Adjusted PBT margin 17.6% 12.7% 490bps 510bps * Cost of sales and Operating expenses adjusted to exclude amortisation of intangible assets (excluding other software), share-based payments, gain/loss on forward foreign exchange contracts and exceptional items. Revenue Revenue by type on a pro forma basis is set out below: m Asia Pacific EMEA Americas Total Reported change Constant currency change Support and maintenance 24.5 32.5 42.4 99.4 1.9% 4.8% Rentals and subscriptions 22.5 40.8 14.5 77.8 50.2% 52.9% Initial fees and perpetuals 26.4 35.0 35.3 96.7 3.5% 7.1% Training and services 13.1 23.4 32.6 69.1 3.6% 6.6% Total 86.5 131.7 124.8 343.0 13.9% Change 3.0% 21.8% 6.4% 10.9% Constant currency change 4.8% 24.1% 11.1% 13.9% Revenue overview Overall from a regional perspective there was strong growth in EMEA driven by a strong performance from the heritage AVEVA business and from the SES indirect channel. Americas growth was 6.4% (11.1% on a constant currency basis) with the SES indirect channel driving growth from the Monitoring and Control portfolio. In Asia Pacific there was a tough comparative in the first half of FY18 but despite that the business still grew 3.0% (4.8% on a constant currency basis). 8
In terms of the product portfolio, Engineering and Asset Performance Management were strongest contributors to Group growth. Revenue from the indirect channel contributed approximately 33% to total revenue in the first half and is primarily focused on the Monitoring and Control portfolio. The indirect channel grew approximately 12% in the first half. Support and maintenance Support and maintenance revenue grew with renewals generally holding up and a good performance from the indirect channel. There was strong channel growth on Monitoring & Control products (especially Wonderware and Citect) across each of the regions. In the Americas the growth was offset by certain customers switching from support and maintenance to a new rental contract as part of a broader deal. Rental and subscription Rental and subscriptions grew strongly with constant currency growth of 52.9%. This growth was driven by a focus on increasing recurring revenue across all of the regions and included the benefit of partly up front revenue recognition on certain multi-year contracts. In the Americas rental and subscriptions grew 83% driven by new customer wins for engineering and process design software and Asset Performance Management software. In EMEA rental and subscription also grew strongly, up 37.6%, benefitting from a large multi-year contract with a global EPC for the entire engineering software portfolio and new business and extension of existing contracts driven by generally better conditions in Oil & Gas. In Asia Pacific there was a strong performance in China with a large multi-year contract signed with a state owned entity for engineering software and growth from Spiral products in downstream Oil & Gas. Recurring revenue improved to 51.7% compared to 48.2% in the 6 months to 30 September 2017. Initial fees and perpetuals Initial fees and perpetuals grew 7.1% on a constant currency basis. In Asia Pacific initial fees and perpetuals were down 14.2% to 26.4 million mainly due to the large initial licence deals in marine in the first half of FY18 not repeating to the same extent in the first half. There was growth from the indirect channel in Asia and there were new contracts closed in marine in China but Korea and Japan remained challenging. In EMEA initial fees and perpetuals grew 31.0% to 35.0 million where there was a strong performance from the indirect channel for the Monitoring and Control products and a large deal signed with MW Werften for AVEVA Marine and other engineering products for the design of cruise ships in Germany. Initial fees and perpetuals in the Americas declined by 1.7% to 35.4 million (H1 FY18: 35.9 million). There was growth from the indirect channel for Monitoring and Control products and Asset Performance Management software, offset by currency translation and a decline in pipeline monitoring software for mid-stream Oil & Gas. Training and services Training and services revenue was 69.1 million (H1 FY18: 66.8 million), up 3.6% and 6.6% on a constant currency basis. In Asia Pacific training and services declined by 16.1% due to fewer projects in the mid-stream Oil & Gas and fewer simulation project implementations in Japan. In EMEA training and services increased by 10.4% due to new implementations of the engineering products and projects for Manufacturing Execution Systems in Food and Beverage. In Americas training and services grew by 9.0% due to increased projects for Information Management and Asset Performance Management offset by fewer implementation projects for pipeline simulation. 9
Adjusted profit before tax and cost management The revenue growth achieved in the first half drove a 54.3% increase in adjusted profit before tax to 60.5 million (H1 FY18: 39.2 million). Adjusted costs were 282.2 million (H1 FY18: 269.5 million), an increase of 4.7% over the previous year and 7.4% on a constant currency basis. An analysis of total expenses is summarised below: m Cost of Research & Selling and Administrative Total sales Development distribution expenses Including normalised items 95.0 84.5 106.9 55.4 341.8 Amortisation (0.6) (30.2) (13.0) - (43.8) Share based payments - - - (4.3) (4.3) Loss on FX contracts - - - (0.7) (0.7) Exceptional items (1.6) (0.1) (3.4) (5.7) (10.8) Normalised costs 92.8 54.2 90.5 44.7 282.2 2017 89.6 54.8 85.0 40.1 269.5 Change 3.6% (1.1)% 6.5% 11.5% 4.7% Cost of sales increased by 3.6% to 92.8 million (H1 FY18: 89.6 million) in line with the increase in training and services revenue and the gross margin improved to 72.9% (H1 FY18: 71.0%). Research & Development costs were 54.2 million (H1 FY18: 54.8 million) representing a decrease of 1.1% and an increase of 1.6% in constant currency terms. We successfully limited the increase to below inflationary levels through a combination of cost discipline and benefits from the implementation of the cost synergies beginning to accrue. Selling and distribution expenses together with administrative costs increased 8.0% on a reported basis and 10.4% on a constant currency basis. Selling and distribution expenses were 90.5 million (H1 FY18: 85.0 million), a 6.5% increase versus the prior year. This reported increase was due to higher sales commissions following the strong performance in the first half, together with higher costs from our annual sales and customer events, offset by the cost synergies arising from the restructuring of the sales team in the period. In addition there are some classification differences in the first half of FY18 between selling and distribution and administrative expenses which distort the comparison to this financial year. Administrative expenses were 44.7 million (H1 FY18: 40.1 million) an increase of 11.5%. This reflected several factors including higher bonus accruals in relation to the strong first half performance, foreign exchange losses, increased bad debt provision, higher national insurance costs related to share option awards, increased costs for the new Executive Leadership Team and higher audit and consulting fees. In general, there were increased costs from establishing capability and skills in the support functions such as IT, HR, finance and legal where certain services did not transfer over from Schneider Electric and were not covered by the TSA e.g. legal team, treasury, IT support. Also, there was the impact of some differences in classification between selling and distribution and administrative expenses compared to the previous year as noted above. 10
Normalised items The following exceptional and other normalised items have been excluded in presenting the pro forma results: Six months ended 30 September m 2018 2017 Exceptional items Acquisition and integration activities 7.9 19.5 Restructuring costs 2.9 (0.7) Total exceptional items 10.8 18.8 Amortisation (excl. other software) 43.8 24.3 Share based payments 4.3 1.0 Loss / (gain) on FX contracts 0.7 (0.5) Total normalised items 59.6 43.6 Acquisition and integration activities principally related to consultancy costs paid to advisors and additional temporary resources required as a result of the combination. Restructuring costs related to severance payments in a number of global office locations as part of the cost synergy programme. The increase in amortisation related to the amortisation of the fair valued heritage AVEVA intangible assets under reverse acquisition accounting following the Combination. Acquisition and integration and restructuring costs paid in the period were 7.0 million. Taxation The statutory tax charge was 0.3 million (H1 FY18: 1.0 million). The effective rate of tax of (5.6%) differs from the UK rate of corporation of 19% because of higher rates of overseas tax, overseas tax losses for which no benefit has been recognised and the benefits of US tax reform and the UK patent box regime. The pro forma adjusted tax rate was 21.3% (H1 FY18: 14.0%). Earnings per share (EPS) Statutory diluted EPS was a loss of 3.61 pence (H1 FY18: earnings of 7.00 pence). On a pro forma adjusted diluted basis EPS was up 41.4% to 29.48 pence (H1 FY18: 20.85 pence). Dividends AVEVA intends to pay an interim dividend of 14.0 pence per share at a cost of 22.6 million (H1 FY18: nil; H1 FY17: 13 pence). An interim dividend was not paid in respect of the 2018 financial year due to the return of value of 10.15 per share which was paid in March 2018. The interim dividend will be payable on 1 February 2019 to shareholders on the register on 4 January 2019. AVEVA intends to maintain its existing progressive dividend policy, taking account of the earnings profile of the enlarged AVEVA Group. Balance sheet The Group balance sheet presented as at 30 September 2018 reflects the goodwill and intangible assets that arose from the Combination resulting in non-current assets of 1,962.2 million. Trade receivables at 30 September 2018 were 196.2 million (31 March 2018: 230.4 million) reflecting the high level of renewals that are invoiced in March each year. Contract assets increased to 77.9 million from 67.6 million due to the impact of the multi-year contracts closed in the first half. Contract liabilities at 30 September 2018 were 128.6 million (31 March 2018: 150.8 million) due to the seasonality of renewals and were broadly flat with the balance as at 30 September 2017. Trade and other payables include an estimate of 17.4m in relation to the completion accounts adjustment in relation to the Combination with Schneider Electric. 11
Cash flows Cash generated from operating activities before tax was 44.9 million compared to 31.5 million in the previous year on a statutory basis and 56.8 million on a pro forma basis. Cash generation was lower compared to the previous year on a pro forma basis due to exceptional costs paid out in the period, higher bonus payments and the movement on contract assets. At 30 September 2018 net cash (including treasury deposits) was 81.8 million, net of 10.0 million drawn down under the revolving credit facility (31 March 2018: 95.9 million, net of 10.0 million), following payment of the full year dividend in the first half. James Kidd Deputy CEO & CFO 20 November 2018 12
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 2018 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 16. 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 halfyearly financial report based on our review. Scope of review We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 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 2018 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 November 2018 13
Consolidated income statement for the six months ended 30 September 2018 Six months ended 30 September (unaudited) Year ended 31 March 2018 2017 2018 (unaudited) Notes (restated) (restated) Revenue 5 336,511 215,146 486,295 Cost of sales (94,983) (75,664) (150,814) Gross profit 241,528 139,482 335,481 Operating expenses Research & Development costs (84,473) (54,158) (116,314) Selling and administration expenses 6 (162,277) (78,509) (182,466) Total operating expenses (246,750) (132,667) (298,780) (Loss)/Profit from operations (5,222) 6,815 36,701 Other income 1,861 1,008 Finance revenue 93 266 521 Finance expense (377) (1,170) (3,687) (Loss)/Profit before tax (5,506) 7,772 34,543 Income tax (expense)/credit 8 (310) (1,019) 5,963 (Loss)/Profit for the period attributable to equity holders of the parent (5,816) 6,753 40,506 (Loss)/Profit before tax (5,506) 7,772 34,543 Amortisation of intangibles (excluding other software) 43,830 21,345 45,240 Share-based payments 4,303 157 1,383 Losses on fair value of forward foreign exchange contracts 661 68 Exceptional items 7 10,768 (695) 23,642 Adjusted profit before tax 54,056 28,579 104,876 (Loss)/earnings per share (pence) 10 - basic (3.61) 7.03 39.92 - diluted (3.61) 7.00 39.72 Adjusted earnings per share (pence) - basic 26.33 26.51 71.78 - diluted 26.25 26.40 71.42 All activities relate to continuing activities. 14
Consolidated statement of comprehensive income for the six months ended 30 September 2018 Six months ended 30 September Year ended 31 March 2018 2017 2018 (unaudited) (unaudited) (restated) (restated) (Loss)/Profit for the period (5,816) 6,753 40,506 Items that may be reclassified to profit or loss in subsequent periods: Exchange gain/(loss) arising on translation of foreign operations 11,336 (9,427) (15,533) Total of items that may be reclassified to profit or loss in subsequent periods: 11,336 (9,427) (15,533) Items that will not be reclassified to profit or loss in subsequent periods: Remeasurement gain/(loss) on defined benefit plans 790 (1,949) (2,347) Deferred tax effect (259) 1,479 Total of items that will not be reclassified to profit or loss in subsequent periods 531 (1,949) (868) Total comprehensive income/(loss) for the period, net of tax 6,051 (4,623) 24,105 15
Consolidated balance sheet 30 September 2018 Non-current assets As at 30 September As at 31 March 2018 2018 Notes (unaudited) (restated) Goodwill 11 1,291,376 1,294,251 Other intangible assets 638,483 653,403 Property, plant and equipment 14,986 14,832 Deferred tax assets 8,363 9,051 Other receivables 12 1,195 1,201 Retirement benefit surplus 7,773 5,563 Current assets 1,962,176 1,978,301 Inventories 906 907 Trade and other receivables 12 196,238 230,377 Contract assets 15 77,923 67,621 Treasury deposits 234 226 Cash and cash equivalents 93,459 105,649 Financial assets 451 Current tax assets 11,085 11,062 379,845 416,293 Total assets 2,342,021 2,394,594 Equity Issued share capital 5,734 5,732 Share premium 574,543 574,543 Other reserves 1,186,448 1,179,408 Retained earnings 142,138 195,118 Total equity 1,908,863 1,954,801 Current liabilities Trade and other payables 13 145,533 128,788 Contract liabilities 15 128,590 150,821 Loans and borrowings 11,925 10,000 Financial liabilities 211 Current tax liabilities 14,655 12,054 Non-current liabilities 300,914 301,663 Deferred tax liabilities 119,966 125,211 Other liabilities 266 2,125 Retirement benefit obligations 12,012 10,794 132,244 138,130 Total equity and liabilities 2,342,021 2,394,594 16
Consolidated statement of changes in shareholders equity 30 September 2018 Other reserves Share capital Share premium Cumulative Merger translation reserve adjustments Capital redemption reserve 000 Reverse acquisition reserve 000 Treasury shares Total other reserves Retained earnings Total equity At 1 April 2017 2,275 27,288 25,389 (29,335) (228) (4,174) 146,567 171,956 Impact of change in accounting policies 34,530 34,530 Restated balance as at 1 April 2017 2,275 27,288 25,389 (29,335) (228) (4,174) 181,097 206,486 Profit for the year 6,753 6,753 Other comprehensive income (9,427) (9,427) (1,949) (11,376) Total comprehensive income (9,427) (9,427) 4,804 (4,623) Issue of share capital 1 1 Share-based payments 825 825 Investment in own shares (323) (323) (323) Transactions with Schneider Electric (227,431) (227,431) Cost of employee benefit trust shares issued to employees 124 124 124 At 30 September 2017 2,276 27,288 15,962 (29,335) (427) (13,800) (40,705) (24,941) Profit for the period 33,753 33,753 Other comprehensive income (6,106) (6,106) 1,081 (5,025) Total comprehensive income (6,106) (6,106) 34,834 28,728 Shares issued to acquire the Schneider Electric industrial software business 3,455 548,955 1,265,634 1,265,634 1,818,044 Issue and redemption of B shares (649,982) 101,682 (548,300) (548,300) Recognition of reverse acquisition reserve on combination 481,860 481,860 481,860 Issue of share capital 1 1 Transaction costs (1,700) (1,700) Share-based payments 405 405 Investment in own shares 1 1 1 Transactions with Schneider Electric 200,584 200,584 Cost of employee benefit trust shares issued to employees 119 119 119 At 31 March 2018 5,732 574,543 615,652 9,856 101,682 452,525 (307) 1,179,408 195,118 1,954,801 Impact of change in accounting policies (6) (6) Restated balance as at 1 April 2018 5,732 574,543 615,652 9,856 101,682 452,525 (307) 1,179,408 195,112 1,954,795 Loss for the period (5,816) (5,816) Other comprehensive income 11,336 11,336 531 11,867 Total comprehensive income/(loss) 11,336 11,336 (5,285) 6,051 Issue of share capital 2 2 Share-based payments 4,303 4,303 Tax arising on share options 507 507 Investment in own shares (4,446) (4,446) (4,446) Cost of employee benefit trust share issued to employees 150 150 (150) Transactions with Schneider Electric (8,862) (8,862) Equity dividends (43,487) (43,487) At 30 September 2018 5,734 574,543 615,652 21,192 101,682 452,525 (4,603) 1,186,448 142,138 1,908,863 17
Consolidated cash flow statement for the six months ended 30 September 2018 Cash flows from operating activities Six months ended Year ended 30 September 31 March 2018 2017 2018 (unaudited) (unaudited) (audited) (Loss)/Profit for the period (5,816) 6,753 40,506 Income tax expense/(credit) 310 1,019 (5,963) Net finance expense 284 904 3,166 Other (income)/expense (242) 622 Amortisation of intangible assets 44,565 21,814 46,300 Depreciation of property, plant and equipment 3,178 2,037 3,158 Impairment of intangibles 11,227 Profit on disposal of property, plant and equipment (15) (1,873) (1,801) Loss on disposal of intangible assets 3,743 Share-based payments 4,303 1,230 Difference between pension contributions paid and amounts charged to operating profit (253) (274) (1,314) Research & Development expenditure tax credit (750) (255) Capitalisation of Research & Development costs (4,115) (9,951) Changes in working capital: Inventories 1 (1,598) 57 Trade and other receivables 13,764 (20,425) (28,464) Trade and other payables (15,680) 27,790 28,879 Changes to fair value of forward foreign exchange contracts 662 (277) 68 Cash generated from operating activities before tax 44,553 31,513 91,208 Income taxes paid (8,617) (13,229) (28,636) Net cash generated from operating activities 35,936 18,284 62,572 Cash flows from investing activities Purchase of property, plant and equipment (3,457) (1,572) (4,924) Purchase of intangible assets (148) (673) (1,187) Cash received on acquisition of business 132,156 Proceeds from disposal of property, plant and equipment 21 2,777 3,306 Proceeds from disposal of intangible assets 3,144 Purchase of treasury deposits (8) (8) Interest received 93 521 Net cash flows (used in)/from investing activities (3,499) 532 133,008 Cash flows from financing activities Interest paid (377) (904) (3,542) Proceeds from borrowings 1,925 10,000 Change in funding with related parties (20,300) (18,125) Return of value to shareholders (99,982) Transaction costs on issue of shares (1,700) Purchase of own shares (4,446) Proceeds from the issue of shares 2 Dividends paid to equity holders of the parent (43,487) Net cash flows used in financing activities (46,383) (21,204) (113,349) Net (decrease)/increase in cash and cash equivalents (13,946) (2,388) 82,231 Net foreign exchange difference 1,756 1,236 987 Opening cash and cash equivalents 105,649 22,431 22,431 Closing cash and cash equivalents 93,459 21,279 105,649 18
Notes to the Interim Report 1 The Interim Report The Interim Report was approved by the Board on 20 November 2018. The interim condensed financial statements set out in the Interim Report is unaudited but has 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 The Interim Report for the six months ended 30 September 2018 has been prepared in accordance with IAS 34 Interim Financial Reporting and the disclosure requirements of the Listing Rules. In accordance with IFRS 3, the consolidated financial information has been prepared as a reverse acquisition of AVEVA Group by the Schneider Electric industrial software business. Therefore, although this Interim Report has been issued in the name of AVEVA Group plc, the legal acquirer, the Group s activity is in substance, the continuation of the financial information of the Schneider Electric industrial software business, to which the financial information for the six months to 30 September 2017 relates. For the year ended 31 March 2018, the consolidated financial statements comprise the results of the Schneider Electric industrial software business for the full year, and the results of the AVEVA Group from 1 March 2018, the date of the reverse acquisition. Further information in relation to the reverse acquisition can be found in the Annual Report for the year ended 31 March 2018. For the six months to 30 September 2018 the consolidated financial statements comprise the results of the combined business. Assets and liabilities of software operations carved-out from legal entities with other non-software operations have been initially recorded through group funding (expressed as amounts receivable from/payable to related parties) at their carrying value in the separate financial statements of the legal entity to which these assets and liabilities belong to as described above. Subsequently, the cash generated or consumed by such carved-out entities has been reflected as a debit or credit to group funding and has been reflected accordingly in the cash flow statement in the line change in funding with related parties. Lastly, at the time of the legal reorganisation of each of these carved-out operations into a separate dedicated legal entity/subsidiary, group funding has been recorded as equity or current account with a related party (the Schneider Electric Group). 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 2018. 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 2018 have been extracted from the consolidated statutory financial statements for AVEVA Group plc for the year ended 31 March 2018 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. 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 profit before tax and reconciles this to profit before tax 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 profit 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. 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 2018, with the exception of the adoption of IFRS 9 Financial instruments and IFRS 15 Revenue from contracts with customers, as set out below. IFRS 9 Financial Instruments Accounting policies applied from 1 April 2018 Classification and measurement At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit and loss (FVPL), transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVPL are expensed in profit or loss. Following the adoption of IFRS 9, debt financial instruments are subsequently measured at fair value through profit or loss, amortised cost, or fair value through other comprehensive income (FVOCI). 19