19th May 2015 12:50
LONDON (Alliance News) - Engineering software company Aveva Group PLC Tuesday said its pretax profit fell 20% in the year to the end of March, as revenue was hit by falling demand in the oil and gas industry, though the group tried to sweeten the pill for shareholders by hiking its final dividend by 14%.
FTSE 250-listed Aveva said its pretax profit for the year was GBP54.9 million, down from GBP69 million a year earlier, as revenue fell 12% to GBP208.7 million from GBP237.3 million.
Revenue was dragged lower by the tough conditions in the oil and gas market, which meant rental licence fee revenue was down 7% and initial licence fee revenue down 31%. Oil and gas markets account for 45% of Aveva's group revenue.
The weakness in oil and gas markets, which have led to sharp decline in exploration and production capital expenditure by companies in the sector, was coupled by weakness in Latin America, particularly the ongoing political turmoil in Brazil, and by subdued activity in the global shipbuilding market, driven by over-capacity.
Aveva has consistently warned about the impact of difficult oil and gas markets on its performance, blaming the conditions for the drop in pretax profit it posted for the first half and cautioning in January of increasing uncertainty and reduced visibility in the oil and gas sector.
The company said that its performance did improve in the second half of the year, with the group hitting its target to cut GBP10 million in costs and rental deals delayed in the first half flowing through, though demand from customers exposed to the oil and gas market remain under pressure.
Still, Aveva has proposed a final dividend of 25 pence per share, up from 22 pence a year earlier, meaning its total dividend for the year will be 30.5 pence, up 13% from 27 pence in 2014.
"Overall I am very pleased with the strategic and operational progress we have made during the period. Despite the difficult trading environment, we have demonstrated our ability to capitalise on our strengths: a broad international reach and strong competitive positioning in all of our markets," said Aveva Chief Executive Richard Longdon.
Aveva shares were down 5.3% to 1,894.00 pence on Tuesday, one of the worst performers in the FTSE 250.
The company's net cash had dropped to GBP103.8 million by the end of the year, from GBP117.5 million a year earlier, but had returned to GBP117.6 million by April 30 due to strong cash collection since the end of the financial year.
Aveva said its results reflect weaker market demand throughout the financial year due to the fall in the oil price and the subsequent reduction in customer activity, along with the lower contract renewals and weak Asia Pacific trading that the company flagged in its first-half results in November, when pretax profit nearly halved. Aveva also said the strength of sterling trimmed revenue by 6% year-on-year.
In its Engineering & Design Systems business, revenue dropped 14% to GBP182.7 million, dragged lower by the downturn in Brazil and weakness in South Korea, the primary culprit for the depressed rental licence renewals in the first half. The group's initial licence business was hit by sluggish conditions among Asian shipyard customers, but the group said sales of its E3D plant design software gained momentum over the course of the year and it secured deals with a number of key customers, including FTSE 250-listed engineer Amec Foster Wheeler PLC.
The group's Enterprise Solutions arm, which provides information management products, also struggled against a challenging market backdrop, with lengthy sales cycles and pressures on discretionary spending by its customers. Overall, revenue ticked down to GBP24.9 million, excluding the impact of the 8over8 Ltd contract risk management software business it acquired in January for GBP26.9 million.
Panmure Gordon and Numis both said Aveva's results were in line with consensus and ahead of their respective expectations, with both saying the company has performed well against a tough backdrop.
Panmure Gordon said the highlight in the company's results was the 14% hike to its dividend, illustrating management confidence in an improvement in future cash flows.
The broker said shares in Aveva have been ramped up by M&A speculation which, in truth, puts the valuation out of reach for any potential suitors. A report in The Sunday Times over the weekend said Aveva has become a takeover target, with French energy group Schneider Electric SA, US conglomerate General Electric Co and US-based manufacturer Emerson Electric Co all cited as possible buyers.
Shares in the company currently trade at 25.8 times price-earnings and Panmure pushed up its target price to 1,935 pence from 1,907 pence.
Panmure kept a Hold recommendation on the shares based on Aveva's robust cash balance, continued momentum in its E3D division, and benefits from its restructuring.
Numis said the results were ahead of its expectations as well and added a key takeaway from the results is that, though challenging, markets are not deteriorating further.
Though the broker expects muted revenue growth for Aveva in its 2016 financial year, it does expect modest underlying growth and good cost controls to keep profit flat. Numis says that given the challenges in Aveva's end markets, the results from the company were "excellent" and testament to the strength of its product offering.
Numis keeps an Add rating and 2,200 pence price target on the shares.
By Sam Unsted; [email protected]; @SamUAtAlliance
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