Half-year Report

8 November 2016

AVEVA GROUP PLC

INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2016

AVEVA Group plc ('AVEVA'; stock code: AVV), one of the world's leading providers of engineering data and design IT systems, today announces its interim results for the six months ended 30 September 2016.

Financials

* 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. In addition, adjusted earnings per share also include the tax effects of these adjustments.

Highlights

Chairman, Philip Aiken said:

"The first half financial performance was resilient in the context of current market conditions, with strong cash generation highlighting the strength of our business model. We have made good progress in laying the foundations for growth, progressing our readiness for future SaaS/Cloud demand and winning significant new contracts. There have been some changes to our Board and we were delighted to appoint James as Chief Executive which will ensure continuity in driving the Group's strategy. Looking forward, the full year outlook remains in line with the Board's expectations."

Enquiries:

AVEVA Group plc

Matt Springett, Head of Investor Relations

Tel: 01223 556 655

FTI Consulting LLP

Edward Bridges / Dwight Burden / Emma Appleton

Tel: 020 3727 1000

Conference call and webcast

AVEVA management will host a conference call and audio-webcast, for registered participants, at 09:30 (BST) today. The audio-webcast will be also accessible via the AVEVA website following the presentation.

To register for the webcast and access the presentation materials please visit:

http://www.aveva.com/en/Investors.aspx.

Participants are advised to visit the website at least 15 minutes prior to the commencement of the call in order to register and, for those accessing the webcast, in order to download and install any audio software that may be required.

NB: 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 full replay facility will be made available later in the day.

Additional information can be accessed at www.aveva.com/investors or by contacting AVEVA Investor Relations or FTI Consulting directly.

Strategic Review

Overview

The Group has delivered good progress against its strategic objectives and a solid set of half year results, despite continued tough trading conditions. 

Revenue in the six months to 30 September 2016 was up 3% to £84.3 million (2015 - £82.0 million). Adjusted profit before tax for the same period remained broadly flat at £9.1 million (2015 - £9.3 million).

Recurring revenue increased 4% to £64.1 million and continued to be 76% of total revenue. Delivery against our strategies combined to achieve this resilient result, with notable new customer wins, success in diversifying end markets and a broadening solution footprint within our existing customer base.

Following the UK referendum on EU membership and the continued weakening of sterling that followed, particularly against the euro and dollar, foreign currency translation has had a positive effect on reported revenue and profit as well as on cash reserve balances. In constant currency* terms, revenue decreased by 6% to £76.8 million and adjusted profit before tax was £5.9 million. 

AVEVA continues to maintain a strong balance sheet with net cash at 30 September 2016 increasing to £124.4 million (31 March 2016 - £107.9 million). The Board plans to maintain its progressive dividend policy, and has decided to re-weight the total dividend payment more heavily toward the interim dividend than in prior periods. The Board is therefore pleased to announce an interim dividend of 13.0 pence per share, which represents a 117% increase over the prior year (6.0 pence).

* Constant currency revenue is defined as the period's reported revenue restated to reflect the previous year's average exchange rates.

Business performance

Within Oil & Gas, we have continued to see a difficult environment for our Engineering, Procurement and Construction (EPC) customers who are exposed to offshore projects. A lack of new project awards in the first half has, as expected, resulted in some customers reducing the level of licences under their rental contracts. This has been offset by good progress with Owner Operators (OOs).

In Power, the market continues to offer strong growth opportunities and we have made solid progress in the first half, particularly in the US, which we will look to build on in the second half. The Marine market remains subdued with revenue remaining broadly flat, although there continues to be investment in naval projects in India, China and Australia. We have continued to diversify into adjacent markets such as downstream and onshore areas of Oil & Gas, Petrochemicals & Chemicals, Infrastructure & Buildings and Mining & Metals. One of the key initiatives to support our diversification has been the "One AVEVA" project which is focused on training our sales and marketing teams on positioning our products into adjacent markets.

Sales of AVEVA Everything3DTM (AVEVA E3DTM) have continued to be strong and revenue for the six-month period almost doubled to over £9.0 million. During the period, we added another 100 customers who now use AVEVA E3D taking the total to more than 500, with brownfield engineering projects a catalyst.

Regionally, the trading environment remained mixed. In Europe, the Middle East and Africa (EMEA) we saw generally stable conditions with an increase in solution-sales and cross-selling new products to existing customers. In the Americas, we saw strong progress in the period in North America where our business grew 33% reflecting strong progress with OOs. We saw lower levels of demand in Latin America, where Brazil remains particularly subdued as expected. In China, the economic backdrop has been generally slower compared to a year ago resulting in a weaker overall performance. Revenue from China was lower than the comparative period in 2015 and we were disappointed not to close two deals which we now expect to close in the second half. Elsewhere in Asia, sales in South Korea and Japan were strong and improved over the prior year, despite a reduction in offshore projects in the major shipyards.

As in previous years, we expect our revenue to be more heavily weighted to the second half of the financial year. This is due mostly to the renewal dates of some Global Account customers, where for a number of customers the terms and renewal dates are already contracted.

Given the market conditions the Group faces, we began the current financial year focused on maintaining tight control of the cost base. We have implemented a number of cost management initiatives and as a result have successfully offset inflationary pressures. Operating costs in the six-month period were, on a constant currency basis, slightly lower than the prior year. Further, as a result of the cost management initiatives implemented in this period, and which incurred an exceptional cost of £2.0 million, we expect to see annualised savings of £1.5 million.

Strategic progress

We have made good progress against our strategic objectives in the first half.

Extend to a Digital Asset SaaS footprint

Significantly, during the first half of the current year we accelerated our readiness for future SaaS/Cloud demand. We proved our 3D design systems in a Cloud environment in conjunction with a major international EPC customer and are working more closely with major Cloud platform and technology providers, leading to the launch of our 'AVEVA Connect' Cloud offering at this year's AVEVA World Summit in October.

At this same event, we also launched 'AVEVA NET Connect', our new Information Management as a Service offering, planned to be delivered in conjunction with Capgemini Technology Services, a global leader in consulting, technology and outsourcing services. With AVEVA NET Connect, the Digital Asset will have the capability to be rapidly deployed in the Cloud, allowing cross-disciplinary teams to collaborate and share information with complete clarity on the engineered status of the entire project or operating asset. This will enable greater collaboration between all parties in the supply chain, and better decision making by the asset operators.

For the industries we serve, we do not expect the transition to the Cloud to be fast because there are a number of challenges facing our customers which need to be overcome. Customers will be cautious to move from their trusted 'on-premise' versions of AVEVA's tools. However, over time we do expect that customers will want to explore ways of using the Cloud to drive efficiency and improved collaboration through the supply chain and operating cycle of their assets. AVEVA has been working with customers in these areas for the last three years and we believe that we have the strongest technology to enable customers to explore what the Cloud has to offer at their own pace.

We are continuing to see strong interest for our on-demand AVEVA E3D environment, AVEVA Experience™, with almost 4,000 users already trialling the Cloud version of AVEVA E3D.

More than 3D

As previously highlighted, we see a major market opportunity in leveraging our 3D installed base by selling additional engineering software tools, outside of AVEVA's core 3D design platforms, AVEVA E3D and AVEVA PDMS™. Despite some weakness in our 3D revenue in the first half, we have continued to see strong revenue growth in schematics, AVEVA Bocad™ and AVEVA NETTM amongst other applications which has partially offset this. For example, in the first half we have seen our schematics product family grow by more than 20%, demonstrating that our tools are gaining traction in the market, particularly as part of our integrated engineering and design offering. AVEVA NET has also been strong in the first half as both OOs and EPCs see the benefit of the tool in managing data both in project execution and operations.

Our Fabricators business has delivered strong growth during the first half with revenue increasing 20%. This business, which incorporates Bocad and FabTrol, offers an end-to-end solution for steel detailing and steel fabrication management, production control and shipping. The performance in Fabricators was driven by strong demand in South East Asia, which more than offset the slower market conditions in the Middle East.

Increasing our revenue from OOs

We continued to see good progress with our strategy to maintain and build stronger relationships with the OOs, evidenced by revenue in the first half from OOs increasing by more than 20%. A highlight was the contract signed with Southern Company, one of the largest utility providers in the US, which was a competitive win against the incumbent and other vendors. A key driver for Southern Company was the ability of AVEVA's tools to manage the data through the lifecycle of the asset from design through to construction and into operations.

In addition, at the AVEVA World Summit we saw a significant focus from the OOs on Engineering Information Management, particularly as they look to extend the life of existing plant on brownfield projects through revamps and modifications. Our new Cloud offering, AVEVA NET Connect, supports this and is attracting a lot of interest from OOs in a managed service for their Digital Asset.

During the first half we secured a number of additional mandates from OOs for use of our software. This results in AVEVA software being mandated to the EPCs and other vendors in the supply chain for use on projects which significantly shortens the sales cycle and secures our position with the EPCs.

AVEVA World Summit 2016

In October 2016, we hosted our AVEVA World Summit, in New Orleans. The AVEVA World Summit is a thought leadership event for business executives. Our popular User Groups continue to be the best forum for knowledge exchange among our technical users.

This year's theme was 'A Catalyst for Change', chosen specifically to address the key challenges our customers are facing in the current climate. We heard how different businesses have dealt with change, from all-out transformational projects through to gradual improvements undertaken by other customers. 

Over 200 business executives attended the event, where, for the first time, the participants were able to choose a stream of their interest: Plant, Marine or Infrastructure & Buildings. In addition, each stream had up to five themes, each tackling key market challenges ranging from digital disruption, through to sharing practical advice on how to achieve significant operational efficiencies when transforming engineering project delivery. 

The new event format, focused on customer led, business level content proved a real success and has given us a solid framework for similar initiatives in the future.

Board changes

After 33 years with the Group, 17 years of which as Chief Executive, Richard Longdon will step down as Chief Executive and as a Director of the Company with effect from 31 December 2016. Richard shall take on the role of President through 2017 and will be a representative and ambassador for the Company. James Kidd, previously Chief Financial Officer, was appointed Deputy Chief Executive from 8 July 2016 and will assume the role of Chief Executive with effect from 1 January 2017. David Ward was appointed as Chief Financial Officer and as a Director of the Company from 8 July 2016.

After nine years on the Board, Jonathan Brooks has retired as a Non-Executive Director and as Chair of the Audit Committee with effect from the date of this announcement. On 8 July 2016, Christopher Humphrey joined the Board as a Non-Executive Director and assumed the role of Chair of the Audit Committee in November 2016.

Market outlook and summary

AVEVA continues to be impacted by the slowdown in Oil & Gas capex and most of our EPC customers have now responded by downsizing their own operations and have adapted to current activity levels. Commodity prices remain relatively low and volatile, and this continues to impact investment decisions by OOs. Capital expenditure in this sector is unlikely to see any significant change from current levels until commodity prices rise or until there are other changes that drive investment.

Many of our valued customers are focused on optimisation and efficiency in these tough markets. The current market backdrop is also offering opportunities for customers to consider their technology strategy and how that can assist them in achieving these goals. We have a number of noteworthy examples of customers taking the opportunity to review a wider deployment of AVEVA's solutions suite to assist driving increased effectiveness and efficiency. We are actively working with these customers and in doing so are further strengthening a number of key relationships with EPCs and OOs.

We remain confident that the medium-term prospects for our key vertical markets of Oil & Gas and Power are fundamentally strong and we believe that our proactive focus on our key strategies will deliver resilience in the short term and strong growth when more favourable market conditions return.

Despite the tough market conditions, we have made good strategic progress in the first six months and we expect to achieve a result for the full year in line with the Board's expectations.

Richard Longdon

Chief Executive

8 November 2016

James Kidd

Deputy Chief Executive

8 November 2016

Finance Review

Overview of Financial Progress

Overall, the first half results demonstrate the financial stability and resilience of the Group. The overall performance of the Group was broadly flat, despite the challenging market environment. The weakening of sterling has had the effect of increasing both revenue and costs, reflecting the significant overseas operations of the Group. The ability of the Group to generate cash is strong, with cash reserves increasing by £16.5 million (15%) from 31 March 2016. The Group has a strong balance sheet with a cash balance of £124.4 million and no debt. 

The results for the half year are summarised as follows:

* 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.

** Constant currency is defined as the period's reported results, restated to reflect the previous year's average exchange rates.

Strong Financial Foundations

Revenue and profit

Total revenue for the half year was £84.3 million which was up 3% (2015 - £82.0 million). After two years of sterling strengthening and negatively impacting revenue and profit, sterling has weakened considerably following the UK referendum on EU membership in June 2016 and this had a favourable impact on the Group's reported results in the first half. Reported revenue was £7.5 million higher (10%) due to significant currency fluctuations, most notably against the euro and US dollar. Revenue on a constant currency basis was £76.8 million. 

The Group's recurring revenue, which consists of annual fees and rental licence fees showed reasonable resilience in difficult trading conditions, increasing by 4% to £64.1 million (2015 - £61.8 million). This equated to a reduction in constant currency terms of 5%. The reduction was as a result of continued weak trading conditions in Brazil where rental fees reduced year on year by £1.0 million and two other rental customers delaying renewals, which are now expected to close in the second half. Annual fees grew by 13% to £34.7 million (2015 - £30.6 million) and by 3% on a constant currency basis following on from the initial licence sales in 2015/16 and price increases that we have been able to secure. Recurring revenue continues to represent 76% of revenue (2015 - 76%). 

Initial licence fee revenue grew 4% to £11.6 million (2015 - £11.2 million), but this represented a small decline in constant currency terms, (down by £0.9 million).

Training and services revenue was down 4% at £8.6 million (2015 - £9.0 million) as a result of fewer implementation projects.

The Group has continued to take proactive steps to manage the cost base and, despite wage and other cost inflation, the underlying costs on a constant currency basis fell by 1%. This resulted in adjusted profit before tax of £9.1 million (2015 - £9.3 million), a reduction of 2%. On a constant currency basis, the adjusted profit before tax was £5.9 million.

Reported profit before tax improved significantly to £5.5 million (2015 - loss of £0.8 million). In 2015, the reported result was negatively impacted by the professional adviser costs associated with the aborted transaction with Schneider Electric. In the first half, the result was affected positively by a partial refund of £1.8 million received following an indemnity claim related to the 8over8 acquisition completed in January 2015.

Balance sheet and cash flows

The Group continues to be highly cash-generative, with a strong balance sheet and no debt. Net cash at 30 September was £124.4 million (2015 - £105.7 million) and net assets were £191.8 million (2015 - £174.1 million). Non-current assets fell from £90.5 million at 30 September 2015 to £89.3 million in the period as a result of amortisation and depreciation.

The ability of the Group to generate cash continues to be strong, with cash reserves increasing by £16.5 million (15%) from 31 March 2016. Cash generated from operating activities before tax was £36.4 million, 18% higher than the comparable period last year, and even 1% better than the whole of the previous financial year.

Gross trade receivables at 30 September were £46.6 million (2015 - £46.6 million). The bad debt provision at 30 September 2016 was £7.4 million (2015 - £6.0 million) with the increase due to delayed collections in Brazil and India and currency translation effects. Deferred income at 30 September 2016 was £37.6 million up 7% (2015 - £35.1 million), principally due to the effect of foreign exchange. Trade payables and other liabilities were £28.9 million (2015 - £27.0 million).

At 30 September 2016, the Company had 63,946,210 ordinary shares of 3 5/9 pence each in issue (30 September 2015 - 63,910,365 shares).

Dividends, earnings per share and Tax

During the first half, the Group paid a final dividend in respect of 2015/16 of 30.0 pence per share (2014/15 - 25.0 pence) at a cost of £19.2 million (2015 - £16.0 million).

The Group maintains a progressive policy for the total dividend. The Board has decided to rebalance the interim and final dividends, placing more emphasis on the interim than in prior periods. Consequently the Board has declared an interim dividend in respect of 2016/17 of 13.0 pence per share (2015 - 6.0 pence), an increase of 117% over the prior year. The dividend will be payable on 3 February 2017, to shareholders on the register on 6 January 2017.

Adjusted basic earnings per share was 9.94 pence (2015 - 10.06 pence). Basic earnings per share was 6.47 pence (2015 - basic loss per share of 3.99 pence) and diluted earnings per share was 6.46 pence (2015 - diluted loss per share 3.99 pence).

The effective tax rate has steadily fallen over recent years. The total tax charge for the half year is £1.3 million (2015 - £1.8 million). The tax charge on adjusted profit before tax for the half year ended 30 September 2016 is £2.7 million which equates to an effective tax rate of 30.0% (six months ended 30 September 2015 - 31.0%). The Group expects the tax rate on adjusted profit before tax for the full year to be between 22% and 24% (year ended 31 March 2016 - 22.5%).

Regional Execution

An analysis of revenue by geography is set out below:

EMEA

Revenue in EMEA increased by 1% to £42.1 million over the prior period. Market conditions in EMEA have been stable, but remain challenging for customers with heavy exposure to Oil & Gas. The business grew in Norway, Germany, Italy and France, boosted by our largest customers renewing and expanding their use of the AVEVA product set. Russian performance declined in the face of a tough domestic market. Overall recurring revenue increased by 1%.

Americas

Americas revenue increased 3% to £12.5 million but strong performance in North America was in contrast to conditions in Latin America where the Brazilian market in particular continues to be difficult. In North America, the business performed well with new customer wins leading to a 200% increase in initial fees. Recurring revenue, and specifically rental fees, suffered as a result of the tough trading conditions in Brazil where some customers reduced token and licence consumption.

Asia Pacific

Revenue from the Asia Pacific region was £29.7 million and increased 6% over the prior period. We saw relatively stronger performance in Japan and South Korea, with weaker sales in China, impacted by two deals slipping from the first half. Territories in South East Asia were broadly flat with annual fees and rental fees holding up well, although initial licences declined due to the slowdown in Oil & Gas projects and continued subdued conditions in shipbuilding.

Cost focus

An analysis of operating expenses on an adjusted basis is set out below:

On a constant currency basis operating costs have reduced 1% compared to 2015. This is primarily as a result of the cost saving initiatives implemented and tight cost control policies.

As discussed in the 2016 Annual Report, the Group intended to make further cost savings in the first half to mitigate the impact of cost inflation and other planned investments elsewhere in the business. During the first half the Group incurred exceptional restructuring costs of £2.0 million in connection with the rationalisation of offices and reduction in headcount in specific areas of the business. These actions will deliver annualised savings of £1.5 million per year.

Research & Development costs fell by 5% on a constant currency basis, partly due to the restructuring that was undertaken in the first half but also savings from utilising our in-house facility in Hyderabad, India for more projects and savings from lower discretionary costs such as travel. The Group continues to focus on Research & Development and the recent release of AVEVA NET Connect, our first fully Cloud-enabled product, at our annual AVEVA World Summit in New Orleans demonstrates the continual innovation for the Group. On a constant currency basis, selling and distribution expenses remained flat, and administrative expenses fell slightly by 1%.

David Ward

Chief Financial Officer

8 November 2016

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 2016 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 17. 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 2016 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

Reading

8 November 2016

Consolidated income statement

for the six months ended 30 September 2016

Consolidated statement of comprehensive income

for the six months ended 30 September 2016

Consolidated balance sheet

30 September 2016

Consolidated statement of changes in shareholders' equity

30 September 2016

Consolidated cash flow statement

for the six months ended 30 September 2016

Notes to the Interim Report

1 The Interim Report

The Interim Report was approved by the Board on 8 November 2016. 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 2016 has been prepared in accordance with IAS 34 Interim Financial Reporting and the disclosure requirements of the Listing Rules.

The Interim Report does not include all the information and disclosures required in the Annual Report and should be read in conjunction with the Annual Report for the year ended 31 March 2016.

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 2016 have been extracted from the Consolidated statutory financial statements for AVEVA Group plc for the year ended 31 March 2016 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 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 2016.

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.

3 Going concern

The Group has significant financial resources and continues to be profitable. At 30 September 2016, the Group had bank, cash and treasury deposits of £124.4 million (31 March 2016 - £107.9 million) and no debt.

Therefore, 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

AVEVA has continued to be profitable in the period, but 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 primary risk and uncertainty related to the Group's performance for the remainder of the year is the challenging macro-economic environment, which could have a material impact on the Group's performance over the remaining six months of the financial year and could cause actual results to differ materially from expected and historical results.

The decision of the UK referendum vote to leave the European Union on 23 June 2016 has created uncertainty and volatility in currency prices and the stock markets. Until negotiations over the timing as well as political and legal issues are resolved, there is likely to be further uncertainty. Soon after the vote result was announced, the AVEVA Risk Committee met to discuss the immediate and potential medium-term implications and risks for the Group and how these might be mitigated. This is being regularly tracked by the Committee. The economic uncertainty has created an immediate weakening of the British pound, which for the Group has had the effect of increasing both revenues and costs, due to our significant overseas operations. The Group has a strong cash balance with no debt and continues to show robust cash generation, and is therefore not adversely affected by short-term fluctuations in interest rates. Due to the geographic diversity and strength of the balance sheet, the Group does not consider Brexit to be of material concern to the operations nor going concern of AVEVA Group plc.

The other 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 2016. These include:

· dependency on key markets;

· competition;

· professional services;

· acquisitions;

· recruitment and retention of employees;

· protection of the Group's intellectual property rights;

· Research & Development;

· risks associated with widespread international operations; and

· foreign exchange risk.

These risks are described in more detail on pages 34 and 35 of the 2016 Annual Report. The Directors routinely monitor all of these risks and uncertainties and appropriate actions are taken where possible to mitigate these risks. Included in the Business Review is a commentary on the outlook of the Group for the remaining six months of the year.

5 Revenue

An analysis of the Group's revenue is as follows:

The operations of the Group are not subject to significant seasonality, but the timing of customer contract renewals can be significant to the phasing of revenue between six-month periods. Typically there are more renewals in the second half of any financial year.

Services consist of consultancy, implementation services and training fees.

6 Segment information

The Group is organised into three geographical segments: Asia Pacific; EMEA; and Americas. Each segment is determined by the location of the Group's operations and is organised and managed separately due to the differing local requirements in each market.

The Executive Board monitors the operating results of the Regions for the purposes of making decisions about performance assessment and resource allocation. 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. Balance sheet information is not included in the information provided to the Executive Board. Support functions such as head office departments are controlled and monitored centrally.

7 Selling and administration expenses

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

8 Exceptional items

As discussed in the 2016 Annual Report, we intended to make continued cost savings in addition to those already made in 2015/16 to mitigate the impact of cost inflation and other planned investments elsewhere in the business. During the period the Group incurred exceptional restructuring costs of £2.0 million in connection with the rationalisation of offices and reduction in headcount in specific areas of the business.

The Group received an exceptional credit of £1.8 million as a result of a partial refund received following an indemnity claim related to the 8over8 acquisition, and a partial reversal of a provision for interest on underpaid sales taxes in an overseas location of £0.1 million. The Group has provided for a potential underpaid sales tax liability in respect of prior periods, related to the local sales of one of the Group's subsidiary companies. The provision includes an estimate of the underpaid tax as well as related interest for late payment, the latter being included as an exceptional item.

9 Income tax expense

The total tax charge for the half year of £1.3 million (2015 - £1.8 million) is comprised of UK tax of £0.1 million (2015 - £0.2 million) and overseas tax of £1.2 million (2015 - £1.6 million).

The tax charge on adjusted profit before tax for the half year ended 30 September 2016 is £2.7 million which equates to an effective tax rate of 30.0% (half year ended 30 September 2015 - 31.0%). The Group expects the tax rate on adjusted profit before tax for the full year to be between 22% and 24% (year ended March 2016 - 22.5%).

10 Ordinary dividends

The proposed interim dividend of 13.0 pence per ordinary share will be payable on 3 February 2017, to shareholders on the register on 6 January 2017. In accordance with IFRS, no provision for the interim dividend has been made in these financial statements.

An analysis of dividends paid is set out below:

11 Earnings per share

The calculation of earnings per share is based on the profit after tax for the six months ended 30 September 2016 of £4,140,000 and the following weighted average number of shares:

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

12 Cash and cash equivalents and treasury deposits

Treasury deposits represent bank deposits with an original maturity of greater than three months.

13 Trade and other receivables

Current

Non-current

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

14 Trade and other payables

15 Financial instruments

Financial instruments which are recognised at fair value subsequent to initial recognition are grouped into Levels 1 to 3 based on the degree to which the fair value is observable. The three levels are defined as follows:

· Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;

· Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

· Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The Group's financial assets include forward foreign exchange contracts which were measured at Level 2 fair value subsequent to initial recognition and were calculated as the present value of the estimated cash flows based on spot and forward exchange rates. There were no transfers between levels during the periods disclosed. At 30 September 2016 the fair value of the financial liability in respect of foreign exchange contracts was £1,219,000 (31 March 2016 - liability of £864,000 and at 30 September 2015 - liability of £266,000).

16 Retirement benefit obligations

The movement on the provision for retirement benefit obligations during the period was as follows:

The discount rate used to value the liabilities of the UK defined benefit pension scheme at 30 September 2016 was 2.3% (March 2016 - 3.4%, September 2015 - 3.6%).

17 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 2016 Annual Report.

Responsibility statement of the Directors

in respect of the Interim Report

The Directors of the Company confirm that to the best of our knowledge:

· the Interim Report has been prepared in accordance with IAS 34;

· the Interim Report includes a fair review of the information required by DTR 4.2.7R, being an indication of the important events that have occurred during the first six months of the financial year and a description of the principal risks and uncertainties for the remaining six months of the year; and

· the Interim Report includes a fair review of the information required by DTR 4.2.8R, being disclosure of related party transactions and changes therein since the last Annual Report.

By order of the board