AVEVA Group plc, a global leader in engineering and industrial software, provides a scheduled trading update on its financial year ended 31 March 2020 and the impact of the COVID-19 crisis to date.
AVEVA GROUP releases trading update
AVEVA has entered the global COVID-19 crisis in a strong position. The Group's focus remains on serving its customers, employees and shareholders, as well as the wider communities in which it operates.
AVEVA is safeguarding the wellbeing of its employees, through responsible working practices that help suppress the spread of the virus, while supporting its customers to drive greater efficiencies in their operations.
The Group will continue to drive its business model transition to subscription, increasing recurring revenue as a proportion of overall revenue and accelerating Cloud adoption. This will offer increased flexibility to customers, while generating long-term value for shareholders.
The financial year ended 31 March 2020 (FY20)
AVEVA had a satisfactory close to its financial year, despite the challenges caused by global macro-economic disruption. The Group's employees adapted quickly to remote working and key contracts were still able to be negotiated and signed with customers across diverse end markets. These included: consumer packaged goods, food production, water processing, power generation, shipbuilding and oil & gas.
Revenue growth is expected to be approximately 9% on a reported basis for the full year, with recurring revenue exceeding the medium-term target of 60% of total revenue, ahead of schedule. Strong growth in Rental & Subscription revenue was partly offset by significantly lower Initial & Perpetual licences and Services, as intended. Overall Software revenue grew by over 10%.
Outlook and medium-term targets
AVEVA's customers are on a digital journey with its technology helping to drive efficiency improvements across both the design and operational lifecycle of industrial assets. AVEVA has a diversified end market exposure, a high-quality customer base, significant recurring revenues, strong cash generation and low customer concentration. As such, the Board expects the Group to be relatively resilient.
AVEVA set medium-term targets in September 2018 around revenue growth, increasing recurring revenue as a proportion of overall revenue and adjusted EBIT margin progression.
The Group's aim has been to grow medium-term revenue on a constant currency basis at least in line with the blended growth rate of the industrial software market. This target is maintained, although we anticipate a period of lower growth across the overall industrial software market during this period of economic disruption.
Growing Rental & Subscription revenue remains a key focus and further increases in recurring revenue as a proportion of overall revenue are being targeted in FY21.
The Group continued to make progress during FY20 in increasing adjusted EBIT margins towards a medium-term target of 30%. The Board is maintaining this medium-term target, although the speed of progress in FY21 may be impacted.
FY21 - First half
Notwithstanding AVEVA's expected resilience, revenue may be impacted by disruption caused by the global macro-economic downturn, particularly in the first six months of the financial year from 1 April to 30 September 2020, especially set against a strong comparative period.
Most notably, expected reductions in capital expenditure, predominantly in the oil & gas sector, will lead to lower than previously targeted revenue, particularly in AVEVA's Engineering business area, while reduced GDP will impact demand for new licences.
In the context of the challenging growth environment, AVEVA will manage its cost base appropriately, without damaging the longer-term growth prospects of the Group. This includes protecting investments in strategic areas such as Cloud and Artificial Intelligence, whilst significantly reducing costs to support operating margin and cash generation.
Actions being taken include pay freezes, a freeze on recruitment and reduced discretionary costs, including travel and physical customer events. Overall these actions are expected to result in a meaningful reduction in costs. At this point, AVEVA does not intend to make staff reductions in response to the economic environment, furlough any staff, or make use of government support programmes.
Supporting AVEVA's communities
AVEVA's Action for Good commitment is to return 1% of its net profit into the communities where employees live and work. This initiative is even more important in the context of the COVID-19 crisis, when the focus will be on supporting medical care, medical workers, food and education.Each of AVEVA's Chairman, CEO, Deputy CEO and CFO, Non-executive Directors and Executive Leadership Team members will donate 10% of base salary for a six-month period, effective 1 April 2020, to further Action for Good's work. Employees below this level remain on full salaries.
Balance sheet and dividend
AVEVA's business is cash generative and the Group has a strong balance sheet with over £110m of cash at 31 March 2020 and no debt. In addition to this, the Group has an undrawn £100m revolving credit facility, which is available until early calendar year 2023.
Notwithstanding this, the expected length and depth of the global macro-economic disruption is unknown. The Board will therefore continue to monitor the situation and will make a decision on the FY20 final dividend as part of the full year results announcement, which is expected to be in early June 2020.
AVEVA is a global leader in engineering and industrial software driving digital transformation across the entire asset and operational life cycle of capital-intensive industries.