Half-year Report

AVEVA GROUP PLC

RESULTS FOR THE 6 MONTHS ENDED 30 SEPTEMBER 2022

AVEVA delivers 11.6% growth in Annualised Recurring Revenue

AVEVA Group plc ('AVEVA' or 'the Group') announces its results for the six months ended 30 September 2022.

Highlights

Key highlights

· Annualised Recurring Revenue (ARR)1 increased 11.6% to £876.2m (H1 FY22: £785.2m).

· Pro forma recurring revenue2 grew 6.9% on an organic constant currency basis and increased as a proportion of total pro forma revenue to 70.2% (H1 FY22: 64.3%), driven by subscription revenues which grew 23.2%, with SaaS revenue growth of 85.8%.

· On an organic constant currency basis3 pro forma revenue reduced by 2.5% and pro forma adjusted EBIT4 reduced 57.0% due to planned cost increases and seasonality in the phasing of cost increases. Including the benefit of currency translation, pro forma revenue grew by 7.3% and pro forma adjusted EBIT reduced by 41.8%.

· Cash conversion5 for the seasonally weaker first half improved year-on-year to 32.7%.

· R&D up 13%4 reflecting continued investment in cloud portfolio.

Statutory results

· Revenue was £551.5m (H1 FY22: £480.9m) representing an increase of 14.7%. This change was primarily due to FX translation. The performance differed from that of pro forma revenue due to a reduction in the deferred revenue haircut to £2.3 million (H1 FY22: £35.2 million).

· Loss from operations before tax was £77.6m (H1 FY22: loss of £74.3m). The loss was primarily due to the amortisation of intangible assets of £109.4 m (H1 FY22: £115.7m).

· Diluted loss per share was 26.52p (H1 FY22: 27.07p).

· Interim dividend of 13.0p (H1 FY22: 13.0p) payable on 9 December 2022 to shareholders on the register on 18 November 2022.

Summary results

Chief Executive Officer, Peter Herweck said: 

"AVEVA's business model transition to subscription and SaaS is accelerating with a good ARR progression to 11.6% in H1 driving recurring revenue up to over 70% of total revenue. The Group's first half operating margin was impacted by higher costs, particularly relating to planned investment including in R&D and selling & distribution, plus the return of certain costs post-Covid."

Notes

1 ARR makes it easier to track recurring revenue progression by annualising revenue associated with subscription, cloud and maintenance contracts. It removes timing differences caused by revenue recognition standards by annualising the revenue associated with contracts at a point in time. ARR is calculated by dividing the non-cancellable contract consideration of subscription and maintenance contracts as at the reporting date by the number of days in the non-cancellable contract period and multiplying by 365. ARR is calculated on a constant currency basis, excludes the impact of lost business in Russia and is restated for consistence of methodology. ARR cannot be reconciled back to statutory results.

2 Pro forma revenue excludes the impact of the deferred revenue haircut in both H1 FY23 and H1 FY22. In H1 FY23 it was £2.3 million and H1 FY22 it was £35.2 million. Recurring revenue is defined as all Subscription and Maintenance revenue. A reconciliation between non-GAAP and GAAP measures can be found in the Non-GAAP Measures section of this document.

3 Organic constant currency revenue and pro forma adjusted EBIT excludes a currency translation benefit of £53.2 million to revenue; the impact of the deferred revenue haircut; and adjusts for the disposals of the Acquis Software, Termis Software and Water Loss Management Software businesses in June 2021 and Bocad in April 2022, by removing the results of the disposals from the prior reporting period. A reconciliation between non-GAAP and GAAP measures can be found in the Non-GAAP Measures section of this document.

4 Pro forma adjusted metrics are calculated before the impact of the deferred revenue haircut, and where relevant amortisation of intangible assets, share-based payments, exceptional items and the tax effects of these adjustments. A reconciliation between non-GAAP and GAAP measures can be found in the Non-GAAP Measures section of this document.

5 Cash conversion is defined as free cash flow before tax excluding acquisition costs as a proportion of adjusted profit before tax. A reconciliation between non-GAAP and GAAP measures can be found in the Non-GAAP Measures section of this document.

Rule 26.1

In accordance with Rule 26.1 of the City Code on Takeovers and Mergers, a copy of this announcement will be available (subject to certain restrictions relating to persons resident in restricted jurisdictions) at https://investors.aveva.com by no later than 12 noon (London time) on the business day following the date of this announcement. The content of the website referred to in this announcement is not incorporated into and does not form part of this announcement.

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

Presentation

There will not be a live presentation for these results. A recorded presentation is available on investors.aveva.com and AVEVA's IR team are available to discuss the results.

Chief Executive's review

Summary

AVEVA made progress with its transition to greater subscription based revenues during the first half. On an organic constant currency basis ARR increased 11.6%, revenue reduced by 2.5% and pro forma adjusted EBIT decreased 57.0%. The reduction in revenue largely reflects the loss of point-in-time recognition associated with sales of perpetual licences, versus greater over time revenue recognition relating to sales of on premise and SaaS subscription licences.

On 21 September 2022, the boards of Schneider Electric and Ascot Acquisitions Holdings Limited and the AVEVA Independent Committee announced the terms of a recommended cash offer for AVEVA. The offer remains conditional on, among other matters, shareholders voting to approve the transaction at the shareholder meetings scheduled for 17 November 2022. The terms and conditions of the offer are outlined in the scheme document sent to shareholders dated 18 October 2022.

ARR and business model transition

AVEVA's business model is being moved towards a greater proportion of recurring revenue, through a focus on on-premises rental software and SaaS. ARR at 30 September 2022 was £876.2 million (H1 FY22: £785.2 million), representing a 12 month increase of 11.6%. The ARR growth in the half year period was driven by increased sales of on-premises rental software, which were supported by the move away from perpetual licences.

During the half year, on an organic constant currency basis, AVEVA grew on-premises rental software revenue by 17.4% to £144.4 million (H1 FY22: £123.0 million) and SaaS revenue by 85.8% to £21.0 million (H1 FY22: £11.3 million). The growth in SaaS revenue was primarily driven by orders won in FY22. Total recuring revenue increased 6.9% on an organic constant currency basis to reach 70.2% of total revenue (H1 FY22: 64.3%).

AVEVA made significant progress in developing its Cloud business. AVEVA DataHub continues to evolve progressively with a lot more capabilities to serve the demands of larger customers.

AVEVA Unified Operations in the cloud was accelerated to be released in early calendar year 2023. This further advanced product will enable hundreds of team members at a client to view the full operations of the enterprise without having to be in the physical control room, thus expanding the user base.

Lastly, the first version of Operations Control was released last quarter, which enables most of the HMI SCADA software to be purchased and available via the Group's SaaS platform, AVEVA Connect. This is all part of the hybrid strategy where AVEVA's on-premises software is interwoven with AVEVA Connect.

Pro forma regional performance

EMEA revenue was £184.5 million representing an increase of 7.1% (H1 FY22: £172.2 million) and an increase of 0.8% on an organic constant currency basis. AVEVA achieved good growth in the Middle East and Southern Europe. This was offset by a reduction in revenue in Central and Eastern Europe, with trading being impacted by the war in Ukraine. AVEVA won significant subscription orders with companies including Iberdrola and Enppi.

Americas revenue was £236.4 million representing an increase of 4.9% (H1 FY22: £225.3 million) and a decrease of 8.0% on an organic constant currency basis. This decrease was due to a fall in perpetual licence sales relating to AVEVA's business model transition, particularly in the indirect sales channel for HMI/SCADA licences.

Asia Pacific revenue was £132.9 million, representing an increase of 12.1% (H1 FY22: £118.6 million) and was up 3.3% on an organic constant currency basis. AVEVA saw good growth, particularly in the Marine industry where there has been increased activity in building ships which are powered by sustainable energy and also in the Energy sector. AVEVA won significant subscription orders with companies such as Hyundai Heavy Industries.

Business areas

Engineering consists of Engineering and Simulation software. In turn, Engineering software includes Engineering & Design, Project Execution and Engineering Information Management. Simulation includes Simulation & Learning and Value Chain Optimisation.

Engineering contributed 31.1% of pro forma revenue in the period (H1 FY22: 29.9%). On an organic constant currency basis, revenue increased by 5.9%. Market conditions were helped by stronger energy prices and the need to build and operate industrial assets more sustainably, both of which are driving capital investment. Although supply chains and limits on access to materials are disruptive for AVEVA's customers revenue growth was solid across AVEVA's product areas, with particularly good growth in Simulation.

Operations consists of Asset Performance, Monitoring & Control and Information Management (PI System). In turn, Asset Performance consists of Asset Performance Management and Manufacturing Executions Systems software. Monitoring & Control includes HMI SCADA, Enterprise Visualisation and Pipeline Management software. Information Management consists of the recently acquired OSIsoft business.

Operations contributed 68.9% of pro forma revenue in the period (H1 FY22: 70.1%). On an organic constant currency basis, revenue decreased by 6.1%. Market conditions were mixed, with increased energy prices putting pressure on manufacturing margins. PI System revenue recognition was impacted by a move away from perpetual licences, although the business was more robust on an order win basis, and Asset Performance Management saw strong growth. Monitoring & Control was relatively weak, primarily due to factors including business model transition and a decline in HMI SCADA licences sold through the indirect channel.

Outlook

AVEVA serves a range of end markets. While some of these, such as Energy, Power and Infrastructure are relatively strong, others face a more uncertain economic and geopolitical outlook.

The Board continues to expect further improvement in AVEVA's ARR growth rate in the second half due to a greater weighting of contract wins and contract renewals, on which previously announced list price increases will take effect.

On a constant currency basis, AVEVA expects to achieve some revenue growth in the second half, notwithstanding a tough comparative in the third quarter driven by a large contract win in the prior year. Cost increases are expected to be significantly lower in the second half.

In addition, if current rates of FX persist, AVEVA second half revenues will continue to benefit from a significant currency translation gain relative to the prior year, due to the strength of the US dollar versus Sterling.

Peter Herweck

Chief Executive Officer

7 November 2022

Finance review

Overview

The finance review begins with a commentary of statutory results and then covers pro forma adjusted results to show the underlying performance of AVEVA's business. Pro forma adjusted metrics are calculated before the impact of the deferred revenue haircut relating to the acquisition of OSIsoft in March 2021, and where relevant amortisation of intangible assets, share-based payments, exceptional items and the tax effects of these adjustments.

Statutory results

On a statutory basis, revenue for the half year was £551.5 million which was 14.7% higher compared with the previous year (H1 FY22: £480.9 million). This change was due to an FX translation benefit of £53.2 million and a reduction in the deferred revenue haircut to £2.3 million (H1 FY22: £35.2 million).

Subscription revenue, which includes on-premise rental contracts and SaaS contracts, grew 33.3% to £178.8 million (H1 FY22: £134.1 million), due to increased sales of subscription products in line with AVEVA's strategy and an FX translation benefit.

Maintenance revenue grew by 27.6% to £207.6 million (H1 FY22: £162.7 million). This was due to a slight decline in revenue as certain contracts were moved to subscription, being more than offset by a reduction in the deferred revenue haircut and an FX translation benefit.

Perpetual licences declined 26.4% to £93.9 million (H1 FY22: £127.6 million). This was due to a reduction in sales in line with AVEVA's strategy to move towards greater subscription revenue being partly offset by an FX translation benefit.

Services revenue grew by 26.0% to £71.2 million (H1 FY22: £56.5 million) due to an increase in project implementations and an FX translation benefit.

Total statutory costs increased to £629.1 million (H1 FY22: £555.2 million). This was due to an increase in costs, particularly in R&D and Selling & Distribution, together with the impact of FX translation, partly offset by lower amortisation. The amortisation charge decreased to £109.4 million (H1 FY22: £115.7 million).

Cost of sales was £130.4 million (H1 FY21: £106.7 million) representing an increase of 22.2%. This was due to inflation, higher costs associated with delivering SaaS (such as hosting costs) and Services (such as labour costs), together with FX translation.

Research & Development costs were £182.0 million (H1 FY22: £164.9 million) representing an increase of 10.4%. This was due to inflation, investment made to deliver future growth and FX translation, partly offset by lower amortisation.

Selling and distribution expenses were £180.5 million (H1 FY22: £157.5 million) representing an increase of 14.6%. This was mainly due to inflation, increased investment in people and travel and FX translation, partly offset by lower amortisation and exceptional costs.

Administrative expenses were £133.1 million (H1 FY22: £112.5 million) representing an increase of 18.3%. This reflected cost inflation and FX translation.

The Group made a loss before tax of £89.1 million (H1 FY22: loss of £80.3 million). This was largely due to the amortisation of intangible assets relating to AVEVA's combinations with the Schneider Electric industrial software business and OSIsoft and exceptional costs.

Basic loss per share was 26.52 pence (H1 FY22: 27.07 pence) and diluted loss per share was also 26.52 pence (H1 FY22: 27.07 pence).

The statutory tax credit was £9.1 million (H1 FY22: charge of £1.2 million). The increase in the tax credit compared to the prior year largely relates to the recognition of the cost of the increase in the UK tax rate from 19% to 25% in H1 FY22.

Operating cash flow

Cash generated from operating activities before tax was £53.4 million, compared to £(14.4) million in the previous year due to a better working capital performance.

Cash conversion, defined as free cash flow before tax excluding acquisition costs as a proportion of pro forma adjusted profit before tax, was 32.7% (H1 FY22: 23.9%) also due to a better working capital performance.

Dividend

AVEVA announced an interim dividend of 13.0 pence per share (H1 FY22: 13.0 pence). The interim dividend will be payable on 9 December 2022 to shareholders on the register on 18 November 2022. The record date and payment date for the interim dividend have been brought forward for FY23. In the event that Schneider Electric's recommended offer for AVEVA, the terms of which are set out in the scheme document sent to shareholders dated 18 October 2022, completes in the first part of Q1 2023, this will ensure that the interim dividend is paid to shareholders ahead of such completion date.

Balance sheet

On 30 September 2022, AVEVA had net debt of £601.6 million (31 March 2022: £405.2 million). Net debt is defined as loans and borrowings minus cash and cash equivalents. This reflects the $900 million term loan taken out to partly finance the acquisition of OSIsoft, together with cash of £203.8 million (31 March 2022: £279.3 million). The increase in net debt was largely due to a negative impact of currency translation £105.3 million and the payment of dividends of £73.9 million.

Non-current assets were £6.3 billion (31 March 2022: £5.7 billion), reflecting goodwill and intangible assets that arose from the combination with the Schneider Electric industrial software business and the OSIsoft acquisition. Goodwill and intangible assets were £6.0 billion (31 March 2022: £5.5 billion). This movement was due to amortisation being more than offset by FX translation.

Trade and other receivables were £287.2 million (31 March 2022: £381.2 million). Contract assets increased to £343.4 million from £302.1 million at 31 March 2022. This increase included the impact of new on-premises subscription contract wins with point in time revenue recognition and FX translation of £29.5 million.

Contract liabilities were £313.0 million (31 March 2022: £328.2 million). This reflected the conversion of maintenance contracts to on-premises subscription contracts, a reduction in Maintenance contract wins, and the unwinding of the deferred revenue haircut, which arose from the acquisition of OSIsoft and FX translation.

Pro forma results

The pro forma results are summarised below:

Pro forma adjusted metrics are calculated before the impact of the deferred revenue haircut, and where relevant amortisation of intangible assets, share-based payments, exceptional items and the tax effects of these adjustments.

Organic constant currency revenue and pro forma adjusted EBIT excludes a currency translation benefit of £53.2 million to revenue; the impact of the deferred revenue haircut; and adjusts for the disposals of the Acquis Software, Termis Software and Water Loss Management Software businesses in June 2021 and Bocad in April 2022, by removing the results of the disposals from the prior reporting period.

Pro forma revenue

Revenue was £553.8 million, representing an increase of 7.3% (H1 FY22: £516.1 million) due to a positive FX translation benefit. Organic constant currency revenue reduced 2.5%, after removing the currency translation benefit and adjusting for £2.8 million of disposals in the prior year.

The revenue mix for the combined Group is shown below:

Subscription revenue growth was driven by sales of on-premises rental contracts, which grew 17.4% on an organic constant currency basis, as the transition to a recurring revenue model continued, particularly at OSIsoft, as it accelerated its business model transition. Within subscription, SaaS revenue grew 85.8% on the same basis to £22.5 million (H1 FY22: £11.3 million) and SaaS ACV grew 26.7% in the first half driven by an increase in Flex subscription contracts.

Maintenance revenue declined on an organic constant currency basis due to a focus on selling subscription and conversions from maintenance to subscription in both the prior and current financial years.

Total recurring revenue increased 6.9% on an organic constant currency basis to reach 70.2% of total revenue (H1 FY22: 64.3%).

The decline in Perpetual licences was primarily due to AVEVA's focus on selling subscription contracts, together with a decline in HMI SCADA licenses sold through the indirect channel.

The increase in Services revenue was due to project delivery for certain growth areas of the business, such as Asset Performance Management.

The revenue mix for the combined Group showing point in time versus overtime revenue recognition is shown below:

Of the total revenue recognised in H1 FY23, £373.6 million (H1 FY22: £327.7million) was recognised over time representing 67.5% of the total (H1 FY22: 63.5%). 

Revenue recognised at a point in time was £180.2 million (H1 FY22: £188.4 million) representing 32.5% of total revenue (H1 FY22: 36.5%). Of this £86.3 million (H1 FY22: £60.6 million) related to on-premises rental subscription contracts and represented 15.6% of total revenue in the year (H1 FY22: 11.7%).

Pro forma costs

An analysis of total expenses is summarised below. Overall, on an organic constant currency basis costs were impacted by wage inflation and the return of certain costs that were suppressed during the Covid pandemic, such as travel and in-person events. On a reported basis, Sterling costs were further impacted by currency translation as Sterling has weakened versus some other currencies, particularly the US dollar, and it accounts for a relatively small proportion of AVEVA's costs.

Cost of sales increased on an organic constant currency basis, primarily due to higher costs associated with delivering services in line with the increase in service revenue and an increase in hosting costs relating to the delivery of SaaS solutions as this area of the business grew.

Research & Development costs increased on an organic constant currency basis due to investment in the development of cloud products and higher employment costs.

Selling and distribution expenses increased on an organic constant currency basis due to increased investment in the sales force and marketing, together with higher travel costs and in-person sales and customer events.

Administrative expenses increased on an organic constant currency basis due to higher costs in support functions, particularly Legal, Finance and HR.

Net impairment loss from financial assets represents the impairment of accounts receivable and contract assets. The reduction is due to a credit in the previous year. This related to the reversal of forward-looking provisions against contract assets which had been made in response to the Covid-19 pandemic.

Pro forma adjusted EBIT

Pro forma adjusted EBIT decreased by 41.8% to £72.9 million (H1 FY22: £125.2 million). This resulted in an pro forma adjusted EBIT margin of 13.2% (H1 FY22: 24.3%).

Net interest charge

Total net interest was £11.5 million (H1 FY22: £6.0 million). The year-on-year increase was due to higher LIBOR rates, which impact the rate that AVEVA pays on its $900 million term loan and currency translation.

Pro forma taxation

The pro forma tax credit on pro forma profit before tax was £1.9 million (H1 FY22: charge of £6.0 million), which equates to an effective tax rate of (3.1)% (H1 FY22: 5.0%). This tax credit includes the cost of irrecoverable withholding tax and alternative minimum taxes.

Pro forma earnings per share

Pro forma diluted adjusted EPS decreased by 44.3% to 20.83 pence (H1 FY22: 37.38 pence) primarily due to the lower pro forma adjusted EBIT.

Normalised and exceptional items

The normalised and exceptional items below have been excluded in presenting the adjusted results. See below for a summary and Note 7 for fuller details.

Amortisation 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 and the amortisation of intangibles relating to the OSIsoft acquisition. Of the £109.4 million amortisation charge, £83.0 million relates to the intangibles acquired through the OSIsoft acquisition.

Brian DiBenedetto

Chief Financial Officer

7 November 2022

Independent review report to AVEVA Group plc

Report on the condensed consolidated interim financial statements

Our conclusion

We have reviewed AVEVA Group plc's condensed consolidated interim financial statements (the "interim financial statements") in the Interim Report of AVEVA Group plc for the 6 month period ended 30 September 2022 (the "period").

Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with UK adopted International Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

The interim financial statements comprise:

· the Consolidated Balance Sheet as at 30 September 2022;

· the Consolidated Income Statement and Consolidated Statement of Comprehensive Income for the period then ended;

· the Consolidated Cash Flow Statement for the period then ended;

· the Consolidated Statement of Changes in Shareholders' Equity for the period then ended; and

· the explanatory notes to the interim financial statements.

The interim financial statements included in the Interim Report of AVEVA Group plc have been prepared in accordance with UK adopted International Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

Basis for conclusion

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 Financial Reporting Council 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, 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.

We have read the other information contained in the Interim Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

Conclusions relating to going concern

Based on our review procedures, which are less extensive than those performed in an audit as described in the Basis for conclusion section of this report, nothing has come to our attention to suggest that the directors have inappropriately adopted the going concern basis of accounting or that the directors have identified material uncertainties relating to going concern that are not appropriately disclosed. This conclusion is based on the review procedures performed in accordance with this ISRE. However, future events or conditions may cause the group to cease to continue as a going concern.

Responsibilities for the interim financial statements and the review

Our responsibilities and those of the directors

The Interim Report, including the interim financial statements, is the responsibility of, and has been approved by the directors. The directors are responsible for preparing the Interim Report in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority. In preparing the Interim Report, including the interim financial statements, the directors are responsible for assessing the group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or to cease operations, or have no realistic alternative but to do so.

Our responsibility is to express a conclusion on the interim financial statements in the Interim Report based on our review. Our conclusion, including our Conclusions relating to going concern, is based on procedures that are less extensive than audit procedures, as described in the Basis for conclusion paragraph of this report. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

PricewaterhouseCoopers LLP

Chartered Accountants

Cambridge

7 November 2022

Consolidated Income Statement

for the six months ended 30 September 2022

All activities relate to continuing activities.

Consolidated Statement of Comprehensive Income

for the six months ended 30 September 2022

Consolidated Balance Sheet

30 September 2022

Consolidated Statement of Changes in Shareholders' Equity

30 September 2022

Consolidated Cash Flow Statement

for the six months ended 30 September 2022

Notes to the Interim Report

1 The Interim Report

The Interim Report was approved by the Board on 7 November 2022. The interim condensed financial statements set out in the Interim Report are unaudited but have been reviewed by the auditor, PricewaterhouseCoopers LLP, and their report to the Company is set out above.

2 Basis of preparation and accounting policies

a) Basis of preparation

This Interim Report has been prepared in accordance with IAS 34 'Interim Financial Reporting' as issued by the International Accounting Standards Board (IASB) and as adopted by the UK, 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 2022.

The financial information set out within this report does not constitute AVEVA's consolidated statutory financial statements as defined in Section 434 of the Companies Act 2006. The results for the year ended 31 March 2022 have been extracted from the consolidated statutory financial statements for AVEVA Group plc for the year ended 31 March 2022 on which the auditor, Ernst & Young LLP, gave an unqualified report (which made no statement under Section 498(2) or 498(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.

Consistent with the Annual Report for the year ended 31 March 2022, Selling and distribution expenses and Administrative expenses have been separated on the face of the Consolidated Income Statement. These were previously combined within Selling & administrative expenses.

A prior period restatement has been made to the Trade and other payables disclosure note as at 30 September 2021 resulting in an increase to Accruals of £10.5 million and a corresponding decrease to Social security, employee and sales taxes of the same amount. This is due to a classification error identified in the previously reported notes.

b) 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 2022. The impact of new or amended standards for the current reporting period is immaterial.

c) Significant judgements and estimates

There have been no changes to the Group's significant judgement and estimates since the year ended 31 March 2022, with the following exception:

Determination of lease term for contracts with renewal or termination option

This is not considered a significant judgement for H1 FY23 as it was linked to the acquisition of OSIsoft in March 2021, and hence is no longer relevant to the financial statements. The assessment of lease terms for the Group's wider lease portfolio is not considered a material judgement on an ongoing basis.

d) Non-GAAP measures

The Group presents multiple non-GAAP measures throughout this Interim Report. They are not defined by IFRSs and therefore may not be directly comparable with similarly titled measures of other companies. They are not intended to be a substitute for, or superior to, GAAP measures. Additional information for all non-GAAP measures, including definitions, rationale for their presentation, and reconciliations from the closest IFRS measure is provided in the Non-GAAP Measures section below and on pages 203 to 214 of the 2022 Annual Report. The main non-GAAP presentations are adjusted and pro forma results.

Adjusted results

The business is managed and measured on a day-to-day basis using adjusted results. To arrive at adjusted results, adjustments are made for normalised and exceptional items that are individually significant and which could affect the understanding of the performance for the year and the comparability between periods.

Adjusted earnings before interest and tax (adjusted EBIT) is presented on the face of the Consolidated Income Statement and is reconciled to profit from operations as required to be presented under the applicable accounting standards. The Directors believe that this alternative measure of profit provides a reliable and consistent measure of the Group's underlying performance.

Adjusted earnings per share is calculated having adjusted profit after tax for the normalised and exceptional items, their tax effect, the deferred revenue haircut arising due to the fair valuing of OSIsoft's contract liabilities on acquisition, and the tax effect of the deferred revenue haircut.

Normalised items

Normalised items are removed from statutory results to achieve adjusted results. These are recurring items which management considers could affect the underlying results of the Group. These items relate to:

· amortisation of intangible assets;

· share-based payment charges; and

· tax step up due to intangible assets recognised on acquisition of OSIsoft, LLC.

Other types of recurring items may arise; however, no others were identified in either the current or prior year. Recurring items are adjusted each year irrespective of materiality to ensure consistent treatment. Management considers these items to not reflect the underlying performance of the Group.

Exceptional items

Exceptional items are removed from statutory results to achieve adjusted results. These are items which are non-recurring and are identified by virtue of either their size or their nature. These items can include, but are not restricted to, the costs of significant restructuring exercises, fees associated with business combinations and costs incurred in integrating acquired companies. Exceptional items are discussed further in note 7.

Management considers these significant, non-recurring-items to be inherently not reflective of the future or underlying performance of the Group.

Pro forma results

Pro forma results are the Group's adjusted results with an additional adjustment to add back the deferred revenue haircut arising due to the fair valuing of OSIsoft's contract liabilities on acquisition. Pro forma results do not form part of the financial statements and are unaudited.

These are presented to increase year-on-year comparability, given the significant impact of the deferred revenue haircut upon the Group's results.

3 Going concern

In adopting the going concern basis for preparing the interim 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 reviews of liquidity and covenant forecasts, and possible ongoing impacts upon the Group of economic sanctions following the Russian invasion of Ukraine and the global Covid-19 pandemic.

At 30 September 2022, the Group held external debt in the form of a £805.4 million (US$ 900.0 million) term loan, due for repayment in March 2024. The Group has access to a £250.0 million Revolving Credit Facility (RCF), of which nil was drawn down at 30 September 2022. This facility is due for renewal in February 2025, with a one-year extension option subject to lender approval.

To support the going concern conclusion, the Group has developed several working capital financial models covering the period from the signing of the interim financial statements to 31 December 2023. The specific scenarios modelled are:

Should extreme downside scenarios occur, there are several mitigating actions the Group could take to avoid covenant breaches to maintain liquidity headroom under existing debt facilities. These include cancellation or deferral of dividend payments and reductions in other discretionary spending costs.

Proposed acquisition of AVEVA by Schneider Electric

On 21 September 2022, the Group announced that it was recommending an offer from Schneider Electric to purchase the remaining share capital of AVEVA Group plc, subject to shareholder and regulatory approvals. It is expected that the acquisition will complete in Q4 FY23. The Directors have considered the implications for this proposed acquisition on the Group's ability to continue as a going concern.

Schneider Electric released their full year results to 31 December 2021 and half year results to 30 June 2022 on 11 March 2022 and 27 July 2022 respectively. Both were prepared on a going concern basis with no material uncertainties over going concern. The Schneider Electric group is profitable, cash generative and has significant cash facilities available.

The Rule 2.7 announcement on 21 September 2022, together with the scheme document sent to shareholders dated 18 October 2022, detailed Schneider Electric's intentions regarding the AVEVA Group post-acquisition. These included:

· AVEVA remaining as a distinct legal group with its own board of directors.

· Preservation of AVEVA's business autonomy, meaning the AVEVA name and brand will continue and AVEVA will have its own, dedicated go-to-market, marketing and R&D capabilities, as well as its own P&L.

· Retention of AVEVA's specific culture as a software company, meaning the AVEVA teams will not be merged or integrated with existing Schneider Electric hardware businesses, or country operations.

Therefore, the Directors believe that the Group would continue as a going concern in the event of an acquisition by Schneider Electric.

Conclusion

The interim financial statements for the six months ended 30 September 2022 have been prepared under the going concern basis of accounting.

4 Risks and uncertainties

There are several potential risks and uncertainties which could have a material impact on the Group's long-term performance. The principal risks and uncertainties as set out in the Annual Report for the year ended 31 March 2022 remain unchanged. The unchanged risks are:

· Talent;

· SaaS subscription;

· Sustainability;

· Integration;

· Competitors;

· Dependency on energy sector;

· Product security;

· Cyber security;

· Regulatory compliance;

· Pandemic-related economic disruption;

· Internal IT systems (suitability and continuity); and

· Disruptive technologies.

These risks are described in more detail on pages 56 to 61 of the 2022 Annual Report.

The Directors have considered the impact of the proposed acquisition by Schneider Electric. They have determined no changes to existing risks are currently required as it remains subject to shareholder approval and, should the acquisition complete, Schneider Electric have indicated their intention to preserve AVEVA's business autonomy and culture.

A risk for Global Persistent Inflation is registered and kept under close review by the Executive Risk Committee and the Board. It is not currently considered to be a principal risk

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 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:

Contract balances are as follows:

Contract assets have increased year-on-year due to an increase in the value of multi-year subscription licenses. The structure of these contracts results in the cumulative revenue recognised in the initial years being higher than the invoiced total. Contract assets increased by £102.2 million from 30 September 2021, of which £33.8 million was attributable to foreign exchange.

Contract liabilities increased by £80.5 million from 30 September 2021, of which £44.8 million was attributable to foreign exchange, and £16.1 million to the reduction in revenue haircut taken on acquisition of OSIsoft, LLC.

6 Segment information

The Executive Leadership Team (ELT) monitors and appraises the business based on the performance of three geographic regions: Americas; Asia Pacific; and Europe, Middle East and Africa (EMEA). 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.

1. Adjusted cost of sales, adjusted selling and distribution expenses, adjusted administrative expenses and adjusted Research & Development costs exclude the impact of exceptional and normalised adjustments. Normalised adjustments include amortisation of intangible assets and share-based payments.

1. Adjusted cost of sales, adjusted selling and distribution expenses, adjusted administrative expenses and adjusted Research & Development costs exclude the impact of exceptional and normalised adjustments. Normalised adjustments include amortisation of intangible assets and share-based payments.

1. Adjusted cost of sales, adjusted selling and distribution expenses, adjusted administrative expenses and adjusted Research & Development costs exclude the impact of exceptional and normalised adjustments. Normalised adjustments include amortisation of intangible assets and share-based payments.

7 Exceptional items

The total cash outflow during the period as a result of exceptional items was £17.8 million (H1 FY22: £35.1 million). Of this, £17.8 million related to operating activities (H1 FY22: £36.7 million) and £nil related to investing activities (H1 FY22: £1.6 million inflow).

a) Integration of OSIsoft and associated activities

Costs incurred in the integration of OSIsoft, primarily consisting of consultancy and adviser fees, and additional temporary resources paid relating to the merging of IT systems and real estate. Costs are anticipated to continue until at least the end of the year ended 31 March 2024.

This has resulted in a cash outflow of £13.8 million (H1 FY22: £10.8 million).

b) Integration of SES and associated activities

Costs relating to the continued build and implementation of a global ERP system and legal entity rationalisation. These costs are expected to continue until 2024.

This has resulted in a cash outflow of £3.7 million (H1 FY22: £8.0 million).

c) Proposed acquisition of AVEVA by Schneider Electric

On 24 August 2022, Schneider Electric confirmed that it was considering the possible acquisition of the remaining share capital of AVEVA Group plc. On 21 September 2022, the boards of Schneider Electric and Ascot Acquisitions Holdings Limited and the AVEVA Independent Committee announced the terms of a recommended cash offer for AVEVA. Fees have been incurred relating to this proposed acquisition, primarily for financial and legal advice, and corporate brokers. Additional cost will be incurred up to any potential completion date. Should the acquisition complete, further cost of approximately £35 million is anticipated.

This has resulted in a cash outflow of £nil (H1 FY22: £nil).

d) Tax impact

The tax credit on the exceptional items of £24.8 million (H1 FY22: £34.5 million) is £3.7 million (H1 FY22: £5.9 million).

8 Income tax expense

The total tax credit for the half year ended 30 September 2022 is £9.1 million (H1 FY22: expense of £1.2 million). The movement in deferred tax assets net of liabilities is £33.6 million, of which £27.6 million was as a result of an income statement credit largely relating to tax losses incurred in the period.

The effective tax rate on the loss before tax is 10.2% (H1 FY22: (1.5)%). This has been calculated by estimating and applying a separate average annual effective income tax rate for each jurisdiction. The Group's tax credit has been reduced by the cost of irrecoverable holding taxes and alternative minimum taxes. 

The tax credit on adjusted profit before tax is £2.5 million (H1 FY22: £3.2 million) which equates to an effective tax rate of (4.2)% (H1 FY22: (3.8)%).

9 Ordinary dividends

The proposed interim dividend of 13.0 pence per ordinary share will be payable on 9 December 2022 to shareholders on the register on 18 November 2022. In accordance with IFRS, no provision for the interim dividend has been made in these financial statements.

The dividends relating to year ended 31 March 2022 were declared and paid relating to AVEVA Group plc.

An analysis of dividends paid is set out below:

As disclosed in the Rule 2.7 announcement made on 21 September 2022, and in the scheme document sent to shareholders dated 18 October 2022, the proposed interim dividend would be paid without a reduction in consideration in the event that the proposed acquisition by Schneider Electric completes.

10 Earnings per share