Half-year Report

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 results1 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 basis2 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

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.

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.

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.

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.

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

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:

* 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.

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:

* 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:

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).

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.

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:

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.

Normalised items

The following exceptional and other normalised items have been excluded in presenting the pro forma results:

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.

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

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 half-yearly 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

Consolidated income statement

for the six months ended 30 September 2018

All activities relate to continuing activities.

Consolidated statement of comprehensive income

for the six months ended 30 September 2018

Consolidated balance sheet

30 September 2018

Consolidated statement of changes in shareholders' equity

30 September 2018

Consolidated cash flow statement

for the six months ended 30 September 2018

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).

Subsequent measurement of debt instruments depends on the Group's business model for managing the asset and the cash flow characteristics of the asset. There are two measurement categories into which the Group classifies its debt instruments:

· Amortised cost

Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortised cost. Interest income from these financial assets is included in finance income using the effective interest rate method. Any gain or loss arising on derecognition is recognised directly in profit and loss and presented in other gains/losses, together with foreign exchange gains and losses. This category includes the Group's Trade and other receivables, and Treasury deposits.

· FVPL

Assets that do not meet the criteria for amortised cost or FVOCI are measured at FVPL. A gain or loss on a debt investment that is subsequently measured at FVPL is recognised in profit and loss and presented net within other gains/losses in the period in which it arises. This category includes the Group's derivative instruments, held within Financial assets and Financial liabilities.

The Group does not currently hold any financial instruments which are subsequently measured at fair value through other comprehensive income.

Impairment

From 1 April 2018, the Group assesses on a forward-looking basis the expected credit losses associated with its debt instruments carried at amortised cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk.

For Contract assets and Trade and other receivables, the Group has applied the standard's simplified approach and has calculated expected credit losses (ECLs) based on lifetime expected credit losses. The Group has established a provision matrix that is based on the Group's historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.

IFRS 15 Revenue from Contracts with Customers - Accounting policies applied from 1 April 2018

The Group generates its revenue principally through the supply of:

· Initial and perpetual licence fees;

· Support and maintenance fees, including mandatory annual fees;

· Rental and subscription fees; and

· Training and services.

Revenue is recognised upon transfer of control of the promised software and/or services to customers. Revenue is measured at the value of the expected consideration received in exchange for the services, allocated by the relative stand-alone selling prices of the performance obligations.

The Group enters into contracts which can include combinations of software licences, support and maintenance fees and other professional services, each of which is capable of being distinct and usually accounted for as separate performance obligations.

Initial and perpetual licence agreements

Customers are charged an initial or perpetual licence fee for on-premises software which is usually limited by a set number of users or seats. Initial and perpetual licences provide the customer with the right to use the software and are distinct from other services. Revenue is recognised at a point in time when the contract is agreed and the software is made available to the customer.

Annual licence fees and support and maintenance fees

Customers that have purchased an initial licence pay obligatory annual fees each year. Annual fees consist of the continuing right to use, and support and maintenance, which includes core product upgrades and enhancements, and remote support services. Users must continue to pay annual fees in order to maintain the right to use the software. Customers that have purchased a perpetual licence have the option to pay for support and maintenance. Revenue is recognised over time on a straight-line basis over the period of the contract, which is typically 12 months.

Rental and subscriptions

The Group offers a number of rental and subscription models for a non-cancellable term of between one month and five years. Rentals consist of two separate components, a software licence and maintenance and support, which are two distinct performance obligations. The software licence is a right to use licence which is recognised at a point in time when the contract is agreed and the software is made available to the customer. The maintenance and support element is recognised on a straight-line basis over the rental period.

Subscriptions are agreements with customers to provide access to software through a hosted solution. The software, maintenance and support and hosting elements are not distinct performance obligations, and represent a combined service provided to the customer. Revenue is recognised as the service is provided to the customer on a straight-line basis over the subscription period.

Services

Services consist primarily of consultancy, implementation services and training. Revenue from these services is recognised as the services are performed based on a percentage of completion basis by reference to the costs incurred as a proportion of the total estimated costs of the service project.

If an arrangement includes both licence and service elements, an assessment is made as to whether the licence element is distinct in the context of the contract, based on whether the services provided significantly modify or customise the base product. Where it is concluded that a licence is distinct, the licence element is recognised as a separate performance obligation. In all other cases, revenue from both licence and service elements is recognised when control is deemed to have passed to the customer.

Revenue from short-term one-off contracts is recognised when the service is complete.

IFRS 16 Leases

IFRS 16 will replace the current requirements of IAS 17. IFRS 16 requires lessees to recognise new assets and liabilities under an on balance sheet accounting model, similar to current finance lease accounting. Key metrics will be affected by the recognition of the new assets and liabilities and differences in the timing and classification of the lease income or expense. AVEVA will adopt the standard from 1 April 2019, with the first application in the financial year ending 31 March 2020.

The Group is in the process of assessing the impact the adoption of IFRS 16 will have on the financial statements. Analyses are undertaken in the context of the recent business combination, using the available exemptions for short term leases and low value leases (

It is anticipated that certain leases will require the recognition of a right of use asset and a corresponding liability towards the lessor. In the Consolidated statement of comprehensive income, the right of use asset will be depreciated using the straight-line method and finance related cost/interest will be recognised on the liability.

3 Going concern

The Group has significant financial resources. Although returning a loss for the period, this was significantly due to the one-off exceptional costs of £10,768,000 and non-cash amortisation charge (excluding other software) of £43,830,000. At 30 September 2018, the Group had bank, cash and treasury deposits of £93,693,000 (31 March 2018 - £105,875,000) and debt of £11,925,000 (31 March 2018 - £10,000,000).

After making enquiries and considering the cash flow forecasts for the Group, the Directors have a reasonable expectation that the Group has adequate resources to continue its operational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the interim financial statements.

4 Risks and uncertainties

As with any organisation, there are a number of potential risks and uncertainties which could have a material impact on the Group's long-term performance. The principal risks and uncertainties faced by the Group have not changed from those set out in the Annual Report for the year ended 31 March 2018. These are:

· Integration and synergies;

· dependency on key markets;

· competition;

· professional services;

· recruitment and retention of employees;

· protection of intellectual property rights;

· Research & Development;

· risks associated with widespread international operations;

· regulation and compliance; and

· cyber attack.

These risks are described in more detail on pages 32 to 34 of the 2018 Annual Report. The Directors routinely monitor these risks and uncertainties and appropriate actions are taken where possible to mitigate them. Included in the Strategic Review is a commentary on the outlook of the Group for the remaining six months of the year.

During the first six months of the year, there has been particular focus on management of the 'Integration and Synergies' Principal risk. The Directors consider integration to be on track and examples of progress include movement away from Transitional Service Agreements with Schneider Electric, management integration and business structure changes.

As described in the 2018 Annual Report, the Group is reviewing and refreshing its risk management processes during 2018 due to the combination of the heritage AVEVA business with the heritage Schneider Electric industrial software business. At an executive level, risk management has become the responsibility of the Strategic Leadership Team (SLT) who will report to the Board on risk matters. Two risk workshops have already been conducted with the SLT in 2018 and further sessions are planned. Concurrently, refreshed risk management processes are being deployed into the Group's Business Units and Functions, who will be accountable to the SLT on risk matters. Therefore, the review and refresh programme of risk management processes for the combined AVEVA remains on track.

5 Revenue and segment information

The combination of the AVEVA Group plc business with the Schneider Electric industrial software business was completed on 1 March 2018 and the new Executive Leadership Team (ELT) for the enlarged Group was formed shortly thereafter. The Executive team has decided how it plans to monitor and appraise the business and this will be on a geographic basis with three operating regions: Asia Pacific; Europe, Middle East and Africa (EMEA); and Americas. 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. Balance sheet information is not included in the information provided to the Executive Leadership Team.

However, as the combination of the two businesses completed so close to the start of the financial period it was not possible to report cost data between the three regions for either the period ended 30 September 2018 or the comparative period. Neither was it possible to consistently report the combined business on any other segmental basis. Therefore, the segmental information provided has had to be limited to regional revenue only. Segmental cost data will be reported for future accounting periods.

6 Selling and administration expenses

An analysis of selling and administration expenses is set out below:

7 Exceptional items

During the period, the Group incurred integration costs of £7,831,000. These principally related to consultancy costs paid to advisors and additional temporary resources required as a result of the combination of AVEVA Group plc and the Schneider Electric industrial software business.

The restructuring costs related to severance payments in a number of global office locations. Additionally, in the six month period to 30 September 2017, these costs were offset by an exceptional gain of £1,866,000 made by the sale of a property. In the year to 31 March 2018, restructuring costs also included a £858,000 write off in relation to a divestment made by the Schneider Electric industrial software business in China.

The impairment of capitalised R&D in the year ended 31 March 2018 related to a development project that was ceased, prior to completion, following a divestment of a Schneider Electric industrial software business joint venture operation with Schneider Electric. Also included were the previously capitalised development costs related to a project. Further to a commercial review of the project and the financial prospects for the developed technology, it was concluded that the carrying value of the development costs should be fully impaired.

The tax credit on the exceptional items of £10,768,000 is £1,659,000.

8 Income tax expense

The total tax charge for the half year is £310,000 (2017 - £1,019,000).

The effective tax rate on the loss before tax for the half year is (5.6)%. The difference from the UK tax rate of 19% is mainly due to higher overseas tax rates, overseas losses, and the benefit of US tax reform.

The tax charge on adjusted profit before tax for the half year ended 30 September 2018 is £11,635,000 which equates to an effective tax rate of 21.5% (half year ended 30 September 2017 - 10.9%).

9 Ordinary dividends

The proposed interim dividend of 14.0 pence per ordinary share will be payable on 1 February 2019, to shareholders on the register on 4 January 2019. 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 2018 were declared and paid relating to AVEVA Group plc.

An analysis of dividends paid is set out below:

10 Earnings per share

The calculation of earnings per share is based on the loss after tax for the six months ended 30 September 2018 of £5,816,000 and the following weighted average number of shares:

Details of the calculation of adjusted earnings per share are set out below:

11 Goodwill

As part of the adoption of IFRS 15 the goodwill as at 31 March 2018 has been restated from £1,298,323,000 to £1,294,251,000. For further details see note 15.

During the period ended 30 September 2018 further adjustments have been made to goodwill and intangible assets as part of the purchase price allocation. This has resulted in an increase to consideration and goodwill of £19,270,000. Adjustments to the purchase price allocation have reduced goodwill by £24,602,000. The remaining movement relates to foreign exchange.

The purchase price allocation remains provisional and may therefore be subject to change.

12 Trade and other receivables

Current

Non-current

Non-current other receivables consist of rental deposits for operating leases.

13 Trade and other payables

14 Related party transactions

Transactions between group subsidiaries have been eliminated on consolidation. A list of subsidiaries can be found in the notes to the AVEVA Group plc financial statements in the 2018 Annual Report.

During the period, group companies entered into the following transactions with Schneider Electric group companies:

As at the balance sheet date, group companies held the following balances with Schneider Electric group companies:

15 Changes in accounting policies

The Group has adopted IFRS 15 Revenue from Contracts with Customers, and IFRS 9 Financial Instruments, from 1 April 2018. This has resulted in changes in accounting policies and adjustments to the amounts recognised in the financial statements.

a) IFRS 15 Revenue from Contracts with Customers - Impact of adoption

The Group adopted IFRS 15 using the full retrospective method of adoption. In summary, the following adjustments were made to the amounts recognised in the primary statements:

i) Rendering of services - transfer of control

Under IAS 18, revenue from sales of initial licences, perpetual licences and the initial software delivery element of rental/term licences was recognised upon delivery. Delivery occurred when the customer had access to the intellectual property described in the contract. In some limited circumstances, AVEVA recognised revenue from a rental/term licence agreement rateably over the contract period. This assessment was based on whether AVEVA could reliably estimate the maintenance and support element of the contract.

Under IFRS 15, revenue is recognised when a customer obtains control of the services. All distinct performance obligations relating to licences for software are considered to be 'right to use' and are transferred to the customer at a 'point in time'. Therefore, under IFRS 15, all revenue from software licences which are distinct performance obligations are recognised at a 'point in time' and not 'over time'. This results in an acceleration of the recognition in revenue for certain contracts and revenue streams.

ii) Providing extended payment terms to customers

Under IAS 18, where AVEVA provided a customer with extended payment terms, the revenue was deferred until the consideration was due in accordance with the contract. Under IFRS 15, all the contractual payments are included in the transaction price and allocated to the performance obligations at the start of the contract, to the extent that collectability is considered probable. Where the performance obligation has already been satisfied, this has resulted in revenue being recognised at an earlier point under IFRS 15.

iii) Stand-alone selling prices

Revenue from contracts with separately-identifiable components (multiple-element arrangements) were previously recognised based on the relative fair value of the components. Under IFRS 15, the total consideration of a customer arrangement is allocated based on their relative stand-alone selling prices. Stand-alone selling prices are determined based on list prices (with standard discounts where appropriate), the adjusted market assessment approach and the residual approach.

Due to the Combination being accounted for as a reverse acquisition, IFRS 15 adjustments that would ordinarily adjust equity in the year ended 31 March 2018 are divided between pre-acquisition and post-acquisition. The pre-acquisition element is accounted for as an adjustment to goodwill, the post-acquisition element is adjusted to equity.

Impact on the balance sheet as at 31 March 2018

Contract assets recognised in relation to contracts with customers were previously presented as accrued income. Contract liabilities were previously presented as deferred revenue.

Impact on the income statement and statement of other comprehensive income

Impact on the cash flow statement

Impact on earnings per share

b) IFRS 9 Financial Instruments - Impact of adoption

IFRS 9 Financial Instruments replaces the provisions of IAS 39 that relate to the recognition, classification and measurement of financial assets and liabilities, derecognition of financial instruments, impairment of financial assets and hedge accounting.

In accordance with the transitional provisions in IFRS 9, comparative figures have not been restated. The reclassifications and adjustments arising from the new impairment rules are therefore not reflected in the restated balance sheet as at 31 March 2018, but are recognised in the opening balance sheet on 1 April 2018.

The total impact on the Group's retained earnings as at 1 April 2018 was £6,000.

c) Classification and measurement

As at 1 April 2018, management has assessed which business models apply to the financial assets held by the Group and has classified its financial instruments into the appropriate IFRS 9 categories. The reclassification has had no effect on the financial statements.

d) Impairment of financial assets

The Group has four types of financial assets that are subject to IFRS 9's new expected credit loss model:

· Trade receivables

· Contract assets

· Debt investments carried at amortised cost (other receivables)

· Debt investments carried at fair value (derivatives)

The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected credit loss allowance for all trade receivables and contract assets. To measure the expected credit losses, trade receivables and contract assets have been grouped based on shared credit risk characteristics and the days past due.

The contract assets relate to unbilled work in progress and have substantially the same risk characteristics as the trade receivables for the same types of contracts. The Group has therefore concluded that the expected loss rates for trade receivables are a reasonable approximation of the loss rates for the contract assets.

The application of the IFRS 9 accounting policy resulted in a decrease of £181,000 to selling and administration expenses for the six month period ending 30 September 2018.

16 Post balance sheet event

On 26 October 2018, the High Court of Justice of England and Wales issued a judgement in a claim between Lloyds Banking Group Pension Trustees Limited (claimant) and Lloyds Bank plc and others (defendants) regarding the rights of female members of certain pension schemes to equality of treatment in relation to pension benefits. The judgement concluded that the claimant is under a duty to amend the schemes in order to equalise benefits for men and women in relation to guaranteed minimum pension benefits.

The judgement also provided comments on the method to be adopted in order to equalise benefits, on the period during which a member can claim in respect of previously underpaid benefits, and on what should be done in relation to benefits that have been transferred into, and out of, the relevant schemes. The issues determined by the judgement arise in relation to many other occupational pension schemes. The extent to which the judgement will affect the liabilities of the retirement benefit obligations is not expected to be material. Any adjustment necessary will be recognised by the Group in the second half of the period ending 31 March 2019.

Unaudited pro forma combined income statement

Notes to the unaudited pro forma combined financial statements

1 Basis of preparation

The pro forma financial information of the AVEVA enlarged Group which follows is unaudited and does not constitute financial statements within the meaning of Section 434 of the Companies Act 2006.

The unaudited pro forma financial information has been prepared for illustrative purposes only, and due to its nature addresses a hypothetical situation because in the comparative period the businesses were not legally merged. It therefore does not represent the enlarged Group's statutory results or what the combined results would have been.

The information is presented in Pounds Sterling (£) and all values are rounded to the nearest thousand (£000) except when otherwise indicated.

2 Adjustments and assumptions

The unaudited pro forma combined income statements for the six month periods ended 30 September 2018, 30 September 2017 and the financial year ended 31 March 2018 have been prepared on the following basis:

· The financial information is the combination of the consolidated financial statements of AVEVA Group plc and the Schneider Electric industrial software business.