18th May 2006 07:01
AVEVA Group PLC18 May 2006 18 May 2006 AVEVA Group plc RESULTS FOR THE FINANCIAL YEAR ENDED 31 March 2006 AVEVA Group plc ("AVEVA"; stock code: AVV), one of the world's leading providersof engineering data and design IT systems, today announces its audited resultsfor the year ended 31 March 2006. Highlights • Another record year of revenue, profit and cash growth • Revenues up 15% to £65.9 million (2005: £57.2 million) • Recurring revenues up 26% at £40.9 million (2005: £32.4 million) - now account for 62% of total revenue (2005: 57%) • Adjusted profit from operations before amortisation, goodwill adjustment, restructuring costs and past service credit up 36% to £13.9 million (2005: £10.2 million) • Adjusted earnings per share up 74% to 48.44p (2005: 27.86p) • Profit from operations £11.2 million (2005: £9.4 million) • Basic earnings per share up 52% to 36.41p (2005: 23.91p) • Strong cash flow with net cash at the year end of £23.5 million (2005: £11.2 million). • Increased final dividend of 5.2p (2005: 4.3p) bringing the full year dividend to 7.4p (2005: 6.1p) - an increase of 21% • Strong performance across all regions and our key markets of oil and gas, power and marine • Development and expansion of our VANTAGE suite of solutions generating new customer leads and expanding sales to existing customers • Proposed three-for-one share split Nick Prest, Chairman, commented: "AVEVA continues to be at the forefront of technological improvements thatsupport the creation and operation of major capital assets such as power andprocess plants and naval and commercial ships. The marine, oil and gas and power sectors we operate within are forecast tocontinue to enjoy good levels of long-term growth. In addition, our customerbase and our exposure to high growth emerging economies are increasing. As a result, the Board believes that the outlook for the business continues tobe positive for this year and beyond." Enquiries:AVEVA Group plc On 18th May Tel: 020 7796 4133Richard Longdon Thereafter Tel: 01223 556 611Paul Taylor Hudson Sandler Tel: 020 7796 4133Andrew HayesSandrine GallienJames Hill An analysts' briefing will be held at the offices of Hudson Sandler at 29 ClothFair, London EC1A 7NN at 8:45 am on 18 May 2006. For further information please contact Alix Hayward on 020 7796 4133. CHAIRMAN'S STATEMENT I am pleased to announce another excellent year for AVEVA. We have seen goodgrowth in all our regions and continued expansion of our VANTAGE suite ofproducts delivering record sales, profits and cash generation. This has beendriven by our leadership positions in the high growth marine, oil and gas andpower sectors, where we have long-term partnerships with blue chip customers. KEY FINANCIALS Group revenues increased by 15% to £65.9 million (2005: £57.2 million). Furtherdeveloping our recurring revenues remains a key strategic objective and theseincreased by 26% to £40.9 million (2005: £32.4 million) during the year. Profit from operations before amortisation, goodwill adjustment, restructuringcosts and past service credit up 36% to £13.9 million (2005: £10.2 million),leading to a strong increase in adjusted earnings per share of 74% to 48.44p(2005: 27.86p). Strong cash flow generated from operations resulted in net cash at the year endof £23.5 million (2005: £11.2 million). Investment in research and development continued with new releases of all ourmajor products within the VANTAGE suite. This demonstrates our commitment tomaintaining our leadership position and will progressively contribute toperformance. Total research and development expenditure for the year amountedto £13.9 million (2005: £10.4 million) - up 34%. DIVIDEND Following another year of sustained growth and with continued confidence in theoutlook for AVEVA, the Board is proposing an increased final dividend of 5.2p(2005: 4.3p). Together with the interim dividend of 2.2p, this gives a full yeardividend of 7.4p (2005: 6.1p) - an increase of 21%. Subject to approval at the Annual General Meeting, the final dividend will bepaid on 1 August 2006 to shareholders on the register at 30 June 2006. SHARE SPLIT The Board has been considering how best to improve the market liquidity of theGroup's shares. Following the rise in the share price in recent months, theBoard consider a share split to be in the best interests of shareholders and weare therefore planning to implement a three-for-one sub-division of the Group'sissued and authorised share capital, subject to gaining shareholder approval atthe Annual General Meeting. BOARD CHANGES On the 1 April 2006, Richard King retired from the Board of AVEVA after nearlyten years of service. During this period AVEVA has developed into a trulyglobal leader in its chosen markets. We would like to thank Richard for all hisefforts and guidance over this period. I was pleased to be asked to succeedRichard as Chairman and look forward to working with the Board and the executiveteam to develop the business. OUTLOOK AVEVA continues to be at the forefront of technological improvements thatsupport the creation and operation of major capital assets, such as power andprocess plants and naval and commercial ships. The marine, oil and gas and powersectors we operate within are forecast to enjoy good levels of long-term growth. We have a broad range of partnerships with blue chip clients that are leadersin each of these markets. The international infrastructure we have developed inrecent years enables us to work with these customers effectively at a locallevel. It is also serving to expand our customer base and increase our exposureto high growth emerging economies. As a result, the Board believes that theoutlook for the business continues to be positive for this year and beyond. Nick PrestChairman CHIEF EXECUTIVE'S REVIEW In my report last year I said 2005/6 could be an exciting year of developmentfor AVEVA. This has proved to be the case, with excellent progress beingachieved across the business as we continued to consolidate our leadershipposition in providing lifecycle engineering IT solutions and services to the oiland gas, marine and power industries. Once again, AVEVA's market positions,along with the quality of its products and people, have enabled the Company toreport record growth in turnover, profit and cash. We entered the last financial year in a strong position, with good tradingmomentum across all our regions and major industry sectors. These sectors havestrong underlying growth drivers and we have the products and internationalinfrastructure to continue to exploit these high growth opportunities. Inaddition, we are seeing acceleration in orders from emerging markets such asRussia and South America. ESTABLISHED PRODUCTS WIN AVEVA is committed to focusing vigorously on developing lifecycle engineeringsolutions and services that are innovative, flexible and reliable. During the year under review, we were highly successful in securing newcustomers as well as persuading a number of competitors' customers to adoptAVEVA products for future projects. This progress reflects our product quality,understanding of customers' businesses and excellence in delivering supportservices and training. We continue to make significant ongoing investment in our product suite andbelieve we offer one of the most comprehensive and proven solutions available.Through the strategic relationships AVEVA enjoys with many of its customers, weknow our future product roadmap is aligned with customers' upcomingrequirements. Ongoing investment in research and development as well as anevolutionary approach to product improvement, ensures our products remain 'bestof class' and attractive to users worldwide. GLOBAL REACH AVEVA supports many of the world's leading engineering companies in the marine,oil and gas and power sectors. Each of these sectors continues to benefit fromstrong underlying growth supporting massive investment in new facilities andequipment. In oil and gas alone over £130 billion of projects are envisaged overthe next 10 years for new refineries and petrochemical plants. LNG projectsfeature heavily throughout the AVEVA process and marine customer base, with LNGbeing the world's fastest growing fuel. Annual capex on LNG terminals andcarriers is set to top £9 billion by 2009. To support the deployment of our products on these major projects we haveestablished a high quality international network of sales and service support.Consequently, customers can be assured of high quality service across theirpartnerships with AVEVA. The industries and customers that AVEVA serves are global; in the projects theywork on and in the way they operate with partners to execute these projects. Thetrust that customers place in AVEVA is driven by the high quality andavailability of our local support and services. Over recent years the AVEVAnetwork has been developed to provide a full range of services in locallanguages in the world's fastest growing economies. This investment in ourinternational infrastructure sets us apart and provides significant growthopportunities and operational strength across the globe. PERFORMANCE AND SALES AVEVA's customer facing business is managed as four distinct regional businessunits: Americas; Asia Pacific; Central, Eastern and Southern Europe; WesternEurope, Middle East and Africa Americas - revenue: £11.1 million (2005: £9.4 million) Last year was a big step up for the Americas business, which represented 17% ofturnover during the year. We achieved very good revenue growth whilst putting inplace strategies for the longer-term development of this business. This wasachieved in a year that presented some significant challenges to our majorindustries, including Hurricane Katrina, which affected many of our customersand their facilities. During the year we negotiated a three-year extension of our managed servicescontract with DuPont. Some of the DuPont facilities in the Mississippi area wereseverely impacted by Katrina. AVEVA received a special commendation for itsoutstanding round the clock support in recovering a plant designed using AVEVA'stools which had been totally submerged. We also made a lot of progress during the year selling a broader range ofproducts into our customer base. As a consequence, Jacobs has become asignificant client for both design products and the new VANTAGE Enterprise NET("VNET") product. Jacobs has been a development partner for VNET since 2004 andwill be deploying it on multiple projects over the coming year. In Canada AVEVA has continued to invest in the office in Calgary to address theupsurge in oil and gas projects in Alberta. We also signed a partner in Montrealthat provides services in the Eastern Provinces - a new area for AVEVA. In South America AVEVA was also successful in encouraging customers to useseveral AVEVA products on multiple projects. This business grew in excess of themarket across the region. Overall, across the Americas we did very well selling our broader productsolutions and have also started to ramp up our resources to support VNET salesinto both owner operators and large engineering contractors. Asia Pacific - revenue: £23.7 million (2005: £20.2 million) Our Asia Pacific business continues to deliver good growth and now represents36% of turnover. We continue to invest in this expanding region where we nowemploy a team of 130 highly qualified and motivated people, spread across theCompany's eleven offices in the region. Korea has been one of the best performing regions over the past few years withrevenues now accounting for almost 30% of the total Asia Pacific business.AVEVA's long-standing experience in the region has allowed us to successfullyimplement this operational restructuring, delivering products and services tokey businesses in the region, with the potential for greater expansion. Our success in the Korean shipbuilding market is now being translated to Japanas the country enters a major investment phase in its marine industries. AVEVAis strongly positioned to capitalise on the replacement systems market, whereJapan has more in-house technology than any other region. We were very pleasedto secure the order for a new system at Kawasaki Ship Building Corporation. Thisorder, worth almost £1 million, came in slightly earlier than expected boostingthe year end result. China continues to be an area of significant growth in process, marine and powersectors. We are focused on the design institutes and companies active in therapidly growing market for power generation in China. Customers haveestablished a Power Users China Group to both share their experiences and topromote the use of AVEVA products, therefore strengthening our base in China andenlarging the skills pool. This Group is now working with AVEVA to introduce ourVNET technology to China's power market. Chinese shipbuilders are investing heavily in new plant and technology andAVEVA's leadership position in both shipbuilding and offshore allows us tocontinue to take a large share of this rapidly growing market. AVEVA customerswill feature heavily in China's 5-3-1 plan, which is aimed at making China theleading global producer of commercial tonnage by 2015. The uptake of the VANTAGE Marine ("VM") solution is moving ahead of planfollowing the successful release of VM 11.6 and collaboration with the world'slargest shipbuilder, Hyundai Heavy Industries. Our rapid growth and development in Asia Pacific continues to build momentum. Central, Eastern and Southern Europe - revenue: £17.0 million(2005: £14.7 million) We have seen a good performance from our operations in Central and SouthernEurope with growth in revenues of 16%. The regional team has led the way inconverting a significant number of competitor customers to AVEVA solutions. Thistrend was reported at the half year and has continued. The professionalismdisplayed at all levels is making new customers feel their future is secureworking with AVEVA, rather than taking an upgraded solution from their existingsupplier. In addition, AVEVA is winning new business in connection with the growingnuclear power industry. Framatome is one of our major customers in this area andwe continue to deploy our complete product suite across the sector. We are alsocapturing more projects with other companies related to Framatome through itsparent Areva. Further East, we have now completed the opening of a Moscow office, focused onthe process industry, which complements our presence in St Petersburg focused onmore specialist marine products. Western Europe, Middle East and Africa - revenue: £14.2 million (2005: £12.9 million) The main driver for business in the WEMEA region continues to come from the oiland gas industry. During the year all customers reported very high workloads. AsWEMEA includes the UK this region has a very significant level of recurringbusiness coming from a long established customer base, with many of thesecustomers increasing their usage during the year. We have also secured contractsfor VNET implementations in the Middle East. The strength of the oil and gassector led to a slightly stronger order intake in the last six months of theyear than we expected. MAJOR PRODUCT LAUNCHES During the year AVEVA continued to deliver new innovative and advancedsolutions. In particular, the first stage of the combination of AVEVA andTribon Hull technology was delivered, with the release of Vantage Marine 11.6 inJune 2005. Both the new Marine product and an upgraded version of ourmainstream product, PDMS 11.6, have been released and are already being used bycustomers. Since the launch of VNET in June 2005, we have continued to increase investmentin both product development and sales. Whilst initial recruitment of resourceswas slower than anticipated, we believe we now have a structure in place to meetfuture growth expectations. We also released a new version of VNET, version3.4, which provides users with an unprecedented level of interaction andmanipulation of engineering data without the need for the source application.This was shipped at the end of the year and is also being used on mainstreamproduction projects. The AVEVA database technology remains at the heart of our product strategy as weprovide further product integration to our customers. We are also innovating toallow easier and faster integration with other technologies, such as Microsoft's.NET and our partner AutoDesk's AutoCAD. Last year we launched a new solution, the Laser Model Interface (LMI), whichtranslates existing plants into a detailed 3D model using laser basedphotogrammetry. The product allows easier maintenance and modification ofinstallations. So far the solution has proved successful and is gaining goodmomentum in the market. It was recently deployed as part of the rebuildingprogramme following Hurricane Katrina in New Orleans. Our commitment to provide customers with industry leading solutions remains atop priority. As a result, we continue to set the standards across the sectorin which we operate. To re-enforce this commitment, we invested £13.9 millionin research and development against £10.4 million in the prior year. In the UKDepartment of Trade and Industry Research and Development Scoreboard publishedin 2005, AVEVA showed an increase in research and development spend of 64% overthe previous year with the combination of AVEVA and Tribon development teams.Indeed, the research and development spend per employee at AVEVA is more thandouble that of the nearest competitor. BOARD AND ORGANISATION On 31 March 2006 Nick Prest was appointed Chairman of AVEVA. On behalf of theBoard and the rest of the team at AVEVA, I would like to thank Richard King forhis contribution to our development since our MBO in 1994. The Company has madetremendous progress during his tenure and we have greatly valued his unstintingsupport and wise counsel. We are delighted to welcome Nick Prest, whoseinternational business experience will be an invaluable asset for the Companygoing forward. I would like to thank colleagues across the Group for their commitment andprofessionalism. In particular I would like to thank our US based employeeswho, with the Hurricane and storms in Houston, had to temporarily evacuate ouroffice whilst supporting customers in very challenging situations. PROSPECTS The last year has been one of excellent growth and consolidation for AVEVA, bothin terms of product innovation and development of customer relationships. Wehave invested further in people and research and development across the Group,and are ideally positioned to benefit from buoyant markets in oil and gas, powerand marine worldwide. The VNET product continues to generate encouraginginterest and our established products are proving increasingly attractive andefficient for our customers. Trading so far this year is good and order books are in line with expectations.AVEVA today is a global leader well positioned in growth markets to continue itssuccessful development. We look to the future with confidence. FINANCIAL REVIEW A very strong set of financial results for the year show growth in revenue of15%, from £57.2 million to £65.9 million, and growth in profit from operationsbefore amortisation, goodwill adjustment, restructuring costs and past servicecredit up 36% to £13.9 million. Cash generation also remained strong with netcash balance at the end of year up 110% to £23.5 million. TURNOVER Revenue for the year amounted to £65.9 million (2005: £57.2 million) - anincrease of 15% from 2005. Recurring revenues remained a key element of our continued growth and nowaccount for 62% of our total revenues at £40.9 million (2005: £32.4 million), up26% on the prior year. Licence fee revenues remained relatively flat and broadly in line withexpectations. These fees remain predominantly driven by new customer wins inAsia. Revenues generated from services continued to be driven by new product sales andincreased this year by 14% to £7.5 million (2005: £6.6 million). GROSS MARGIN, OPERATING EXPENSES AND PROFIT FROM OPERATIONS Operating margins remained broadly in line with previous years, after charging,increased research and development costs of £13.9 million (2005: £10.4 million).As already indicated this has been a year of substantial investment. Operating costs increased to £33.2 million (2005: £29.6 million) which reflectsincreased investment in both technology and our global sales structure.Operating costs for the year include a charge for reduction in goodwill of £0.6million (2005: £nil). IFRS now prescribes that where the tax charge has beenreduced due to the utilisation of previously unrecognised pre-acquisitionlosses, the carrying value of goodwill should be reduced by a charge tooperating expenses of the same amount. Profit from operations were £13.9 million, an increase of 36% (2005: £10.2million), which is before amortisation of intangibles, adjustment to goodwill,restructuring costs and past service credit on UK defined benefit pension schemeof £2.7 million (2005: £0.8 million). The Group investment in research and development is now at an all time high,with new releases across all our Vantage suite of products, including VantageMarine which saw its first major release and subsequent sales in the year.Investment in research and development has increased by 34% to £13.9 million(2005: £10.4 million). Staff costs remain our single biggest expenditure. Total staff headcount hasincreased from 459 in March 2005 to 491 at 31 March 2006. Total costs, includingrelated costs, amounted to £29.0 million (2005 - £20.3 million). Continuedinvestment in this area remains in line with current growth rates and ensuresAVEVA, its people and technologies remain world class. TAXATION The effective tax rate is lower than the UK standard rate due to a number ofone-off credits, including the benefit of tax losses, other unrecogniseddeferred tax assets, and the write back of overseas tax previously written offas irrecoverable. After adjusting for these items the effective rate beforeamortisation of intangibles is 31%, which is higher than the UK standard rateand due to a significant proportion of the Group's profits being earned inoverseas entities subject to higher rate of tax. EARNINGS PER SHARE Adjusted earnings per share (which is before amortisation of intangibles,adjustment to goodwill, restructuring costs and past service credit) was 48.44pcompared with 27.86p in 2005 - an increase of 74%. Basic earnings per share was36.41p (2005: 23.91p). The directors believe that adjusted earnings per shareprovides a more meaningful measurement of performance of the underlyingbusiness. DIVIDENDS The Board recommends a final dividend of 5.2p per ordinary share, resulting in atotal dividend per share for the year of 7.4p (2005: 6.1p). The final dividendwill be paid on 1 August 2006 to shareholders on the register at the close ofbusiness on 30 June 2006. The cost of dividends paid and proposed in respect ofthe financial year was £1.6 million (2005: £1.3 million). BALANCE SHEET An integral part of the Group's success over the past few years has been thestrength of its balance sheet. It has given us the ability to investorganically and use cash to acquire key technology to enhance our productoffering. The Group balance sheet continues to remain strong, with total assetsincreasing from £78.9 million to £89.7 million at 31 March 2006. Trade andother receivables at 31 March 2006 were £26.9 million, compared with £26.3million at 31 March 2005. Deferred revenue increased to £12.5 million from £11.2million at 31 March 2005. CASH FLOWS Overall net cash balances increased by £12.3 million to £23.5 million. Cashflow for the year from operating activities was £12.3 million (2005: £8.5million) reflecting strong collection of accounts receivable by the year end.Net capital expenditure was £1.0 million (2005: £0.9 million), which wasprincipally related to the renewal of computer equipment. Tax paid was £1.4million (2005: £3.2 million) and equity dividends paid were £1.4 million (2005:£1.3 million). TREASURY POLICY The Group continues to finance its operations through a combination of retainedprofits, new equity and bank overdraft facilities. During the year the Grouphad a bank overdraft and revolving loan facility of £6.0 million in the UK andapproximately £2.2 million (SEK 30 million) in Sweden, which was utilised tomanage short-term fluctuations in cash before remittances from the overseasentities. Where considered surplus to working capital requirements, the Groupconverts US Dollars and Euro balances into Sterling on an ongoing basis. Cashis held on short-term deposits with reputable banks to maintain a balancebetween accessibility to the funds and competitive rates of return. The Grouptreasury policy ensures that the capital is not put at risk. REVIEW OF RISK AND UNCERTAINTIES AVEVA has a very strong position in the market. We have over recent yearsdelivered good growth in revenue, profits and cash, but as with any organisationwe do have some inherent risks and uncertainties which can affect theperformance of the Company. The Board considers the following to be the morerelevant to the business at this time. The Company's success has been built upon the knowledge developed in itsintellectual property rights; protection of this remains critical. The Companyuses third party technology to encrypt, protect and restrict access to itsproducts. Access limitations and rights are also defined within the terms of thecontract. AVEVA generates a substantial amount of its income from customers whose mainbusiness is derived from capital projects driven by growth in the oil, gas,power and marine markets. Whilst the global complexity of these projects affordssome protection against short-term issues, future success is dependent on growthwithin these markets. As with most software companies, timings of contractual signing and delivery iskey to recognising revenue. With the majority of costs being people, sales atthe end of the year tend to generate very high margin business. Timing ofclosure of these can materially affect profit, whilst the increasing recurringnature of our business mitigates this to some extent. Exposure to foreign currency gains and losses can be material to the Group, withapproximately £57.8 million (88%) of the Group's revenues denominated in aforeign currency, of which our two largest are dollars £22 million and Euro £18million. The Group enters into forward foreign currency contracts to manage the currencyrisk where material. The overseas subsidiaries trade their own currencies andthat also acts as a natural hedge against currency movements. The Group is also exposed to foreign currency translation risk on thetranslation of its net investment overseas into sterling. This is managed tosome extent by the overseas entities incurring costs denominated in their localcurrency. AVEVA's success has been built on the quality and reputation of its products andservices, which rely almost entirely on the quality of the people deliveringthese. Maintaining and growing this pool of highly skilled and motivatedindividuals across all disciplines and geographies remains key to our ongoingsuccess. Consolidated income statementFor the year ended 31 March 2006 2006 2005 Notes £000 £000 Revenues 2,3 65,930 57,163 Cost of sales 4 (21,514) (18,221) Gross profit 44,416 38,942 Operating expensesSelling and distribution costs 4 (21,742) (18,788)Administrative expenses 4 (11,439) (10,799) Total operating expenses (33,181) (29,587) Profit from operations 11,235 9,355 Analysis of profit from operationsProfit from operations before amortisation, goodwill 13,902 10,200adjustment, restructuring costs and past service creditPast service credit on defined benefit - 3,100pension schemeRestructuring costs - (2,287)Adjustment to carrying value of goodwill in respect of utilisation of tax losses (602) -Amortisation of intangibles (2,065) (1,658) Profit from operations 11,235 9,355 Finance revenue 1,498 1,170Finance expense (1,578) (1,401) Profit before tax 11,155 9,124 Income tax expense 5 (3,079) (4,011) Profit for the year attributable to equity 8,076 5,113holders of the parent Earnings per share (pence)- basic 6 36.41 23.91- diluted 6 36.13 23.78 All activities relate to continuing activities. The accompanying notes are an integral part of this Consolidated incomestatement. Consolidated statement of recognised income and expensesFor the year ended 31 March 2006 2006 2005 £000 £000 Deferred tax on items recognised directly in equity (60) (102)Exchange differences arising on translation of foreign operations 454 242Actuarial gain on defined benefit pension schemes 1,328 900 Net income recognised directly in equity 1,722 1,040Profit for the year 8,076 5,113 Total recognised income and expenses relating to the yearattributable to equity holders 9,798 6,153 The accompanying notes are an integral part of this Consolidated statement ofrecognised income and expenses. Consolidated balance sheet31 March 2006 2006 2005 £000 £000Non-current assetsGoodwill 16,612 17,157Other intangible assets 13,584 15,802Property, plant and equipment 4,905 4,879Deferred tax assets 2,876 1,738Other receivables 268 177 38,245 39,753Current assetsTrade and other receivables 26,896 26,312Current tax assets 428 749Cash and cash equivalents 24,173 12,114 51,497 39,175 TOTAL ASSETS 89,742 78,928 EquityIssued share capital 2,225 2,204Share premium 25,353 24,323Other reserves 4,617 4,163Retained earnings 18,665 10,679 Total equity 50,860 41,369 Current liabilitiesTrade and other payables 24,192 23,410Financial liabilities 832 944Current tax liabilities 5,643 2,293Provisions - 1,050 30,667 27,697 Non-current liabilitiesDeferred tax liabilities 3,795 4,354Financial liabilities 265 -Provisions 294 232Retirement benefit obligations 3,861 5,276 8,215 9,862 TOTAL EQUITY AND LIABILITIES 89,742 78,928 The accompanying notes are an integral part of this Consolidated balance sheet. Consolidated cash flow statementFor the year ended 31 March 2006 2006 2005 £000 £000 Cash flows from operating activitiesProfit from operations 11,235 9,355Depreciation of property, plant and equipment 926 1,498 Amortisation of intangible assets 2,276 1,658Loss/(profit) on disposal of non-current assets 6 (35)Share-based payments 84 24Difference between pension contributions paid and amounts recognised in income statement (266) (2,928)Adjustment to carrying value of goodwill 602 -Changes in working capital:Inventories - 217Trade and other receivables (999) (4,097)Trade and other payables 807 5,086Provisions (988) 856 Cash generated from operating activities before tax 13,683 11,634before taxIncome taxes paid (1,353) (3,159) Net cash generated from operating activities 12,330 8,475 Cash flows from investing activitiesAcquisition of Tribon Solutions AB - (17,043)Acquisition of Realitywave, Inc - (3,192)Purchase of property, plant and equipment (1,026) (1,080)Interest received 170 70Proceeds from disposal of property, plant and equipment 49 150Purchase of intangible assets (38) - Net cash used in investing activities (845) (21,095) Cash flows from financing activitiesInterest paid (60) (101)Proceeds from the issue of shares 1,051 16,491Payment of finance lease liabilities (14) (71)Proceeds from sale and leaseback 364 -Dividends paid to equity holders of the parent (1,442) (1,274) Net cash flows from financing activities (101) 15,045 Net increase in cash and cash equivalents 11,384 2,425Net foreign exchange difference 908 73Opening cash and cash equivalents 11,211 8,713 Closing cash and cash equivalents 23,503 11,211 The accompanying notes are an integral part of this Consolidated cash flowstatement. Notes to the financial information 1 BASIS OF PREPARATION AVEVA Group plc has previously prepared its primary financial statements underUK generally accepted accounting principles ("UK GAAP"). From 2005 the Group isrequired to prepare its consolidated financial statements in accordance withIFRS as adopted by the European Union ("EU"). For the purposes of this documentthe term IFRS includes International Accounting Standards ("IAS"). These audited results represent the first annual financial statements the Grouphas prepared in accordance with its accounting policies under IFRS. Adescription of how the Group's reported performance and financial position areaffected by this change, including reconciliations from UK GAAP to IFRS forprior year results and the revised summary of significant accounting policiesunder IFRS was published in September 2005. The Group is required to apply allrelevant standards in force at its first reporting date of 31 March 2006. The preliminary announcement covers the period 1 April 2005 to 31 March 2006 andwas approved by the Board on 17 May 2006. The financial information contained in this preliminary announcement of auditedresults does not constitute the Group's statutory accounts for the years ended31 March 2006 or 31 March 2005 as defined in section 240 of the Companies Act1985. The accounts for the year ended 31 March 2005 have been delivered to theRegistrar of Companies. The statutory accounts for the years ended 31 March 2006and 2005 have been reported on by the Company's auditors; the reports on theseaccounts were unqualified and they did not contain any statement under section237(2) or (3) of the Companies Act 1985. The accounts for the year ended 31 March 2006 are expected to be posted toshareholders in due course and will be delivered to the Registrar of Companiesafter they have been laid before the shareholders in a general meeting on 14July 2006. Copies will be available from the registered office of the Company,High Cross, Madingley Road, Cambridge, CB3 0HB and can be accessed on the AVEVAWebsite, www.aveva.com. The registered number of AVEVA Group plc is 2937296. 2 REVENUE ANALYSIS An analysis of the Group's revenue is as follows:- 2006 2005 £000 £000Annual fees 15,436 14,775Rental fees 22,224 14,583Recurring services 3,215 2,997Total recurring revenues 40,875 32,355Initial licence fees 17,570 18,171Services 7,485 6,637 Total revenues 65,930 57,163Finance revenue 1,498 1,170 67,428 58,333Services consist of consultancy and training fees. 3 SEGMENT INFORMATION For management purposes, the Group is organised on a geographical basis intofour main regions: Asia Pacific, Americas, Central Eastern and Southern Europe(CES) and Western Europe, Middle East and Africa (WEMEA). Each of theseoperating regions are organised and managed separately due to the differinglocal requirements in each market and therefore these are the primary segments.The Group operates in one business segment; that of the supply of EngineeringIT Solutions that supports the creation and operation of major capital assetssuch as power plants, process plants and ships of both naval and commercialtype. Following the acquisition of Tribon in 2004, the Group has successfullycompleted the integration of the Tribon operations into the AVEVA Groupstructure, which has included merging of the intellectual property to developVantage Marine, a new product which combines the Tribon and AVEVA Technology,integration and rationalisation of its offices into the AVEVA office network andrationalisation of headcount. Geographical segments Year ended 31 March 2006 Asia Pacific WEMEA CES Americas Unallocated TotalProfit and loss account £000 £000 £000 £000 £000 £000RevenueSegment revenue 23,675 14,205 16,996 11,054 - 65,930 ResultSegment result 14,314 9,092 9,065 6,405 - 38,876 Unallocated expensesCorporate overheads (13,692) (13,692)Research and development costs (13,949) (13,949) Profit from operations 11,235 Finance revenue 1,498Finance expense (1,578) Profit before income tax 11,155 Income tax expense (3,079)Net profit for the year 8,076 Assets and liabilitiesSegment assets 26,029 4,352 13,965 4,214 48,560Unallocated corporate assets 41,182 41,182 Consolidated total assets 89,742 Segment liabilities (10,382) (1,710) (4,818) (1,793) (18,703)Unallocated corporate liabilities (20,179) (20,179) Consolidated total liabilities (38,882) Other segment informationCapital expenditure Property, plant and equipment 219 35 237 89 446 1,026 Intangible assets - - - - 38 38 Depreciation (210) (18) (125) (71) (502) (926)Amortisation - - - - (2,276) (2,276) Year ended 31 March 2005 Asia Pacific WEMEA CES Americas Unallocated TotalProfit and loss account £000 £000 £000 £000 £000 £000RevenueSegment revenue 20,243 12,901 14,664 9,355 - 57,163 ResultSegment result 11,365 8,018 8,510 5,357 - 33,250 Unallocated expensesCorporate overheads (13,529) (13,529)Research and development costs (10,366) (10,366) Profit from operations 9,355Finance revenue 1,170Finance expense (1,401) Profit before income tax 9,124 Income tax expense (4,011)Net profit for the year 5,113 Assets and liabilitiesSegment assets 21,079 5,169 11,652 2,828 40,728Unallocated corporate assets 38,200 38,200 Consolidated total assets 78,928 Segment liabilities (9,553) (2,094) (5,146) (1,775) (18,568)Unallocated corporate liabilities (18,991) (18,991) Consolidated total liabilities (37,559) Other segment informationCapital expenditureProperty, plant and equipment 303 8 73 26 670 1,080Intangible assets - - - - 15,080 15,080 Depreciation (171) (8) (77) (75) (1,167) (1,498)Amortisation - - - - (1,658) (1,658) 4. COST OF SALES AND OTHER OPERATING EXPENSES Group operating profit for the year was £13,902,000 (2005 - £10,200,000) beforerestructuring costs and intangible amortisation of £2,065,000 (2005 -£3,945,000), adjustment to carrying value of goodwill in respect of utilisationof tax losses of £602,000 (2005 - £nil) and past service credit relating to theUK defined benefit pension scheme of £nil (2005 - £3,100,000). An analysis of cost of sales and other operating expenses is set out below: 2006 2005 £000 £000Cost of salesCost of sales (excluding restructuring) 21,514 17,855Restructuring costs - 366 21,514 18,221 Other operating expensesSelling and distribution costs (excluding restructuring) 21,742 17,829Restructuring costs - 959 Selling and distribution costs 21,742 18,788 Administrative expenses (excluding restructuring) 10,837 9,837Adjustment to carrying value of goodwill in respect of tax lossesutilisation of tax losses 602 -Restructuring costs - 962 Administrative expenses 11,439 10,799 Total operating expenses 33,181 29,587 Restructuring costs relate to the rationalisation and integration of TribonSolutions AB in 2004 and consist of redundancy and other employment relatedcosts, onerous leases and other associated expenses. The adjustment to the carrying value of goodwill is in respect of the benefitreceived from the utilisation of tax losses in the Tribon Group since the dateof acquisition. 5 INCOME TAX EXPENSE (a) Tax on profit The major components of income tax expense for the years ended 31 March 2006 and2005 are as follows: 2006 2005 £000 £000Tax charged in income statementCurrent taxUK corporation tax 1,963 -Adjustments in respect of prior periods (15) (6) 1,948 (6)Foreign Tax 2,902 2,858Adjustments in respect of prior periods (14) 518 Total current tax 4,836 3,370Deferred taxOrigination and reversal of temporary differences (1,757) 641 Total income tax expense reported in consolidated income statement 3,079 4,011 Tax relating to items charged or credited directly to equity 2006 2005 £000 £000 Deferred taxDeferred tax on share options 298 219Deferred tax on retranslation of intangible assets 40 (51)Deferred tax on actuarial gain on defined benefit pension scheme (398) (270) Tax credit directly to equity (60) (102) (b) Reconciliation of the total tax charge The differences between the total current tax shown above and the amountcalculated by applying the standard rate of UK corporation tax to the profitbefore tax are as follows: 2006 2005 £000 £000Tax on Group profit before tax at standard UK corporation 3,347 2,737 tax rate of 30% (2005 - 30%)Effects of:Expenses not deductible for tax purposes 861 288Irrecoverable withholding tax - 562Movement on unprovided deferred tax balances (387) 42(Lower)/higher tax rates on overseas earnings (97) 223Relief for losses previously not recognised (602) -Unrelieved tax losses 64 (472)Adjustments in respect of prior years (107) 631 Income tax expense reported in the consolidated income statement 3,079 4,011 The effective tax rate is lower than the UK standard rate due to a number ofone-off credits; including the benefit of tax losses and other unrecogniseddeferred tax assets and the write back of overseas tax previously written off asrecoverable. After adjusting for these items the effective rate is higher thanthe UK standard rate due to a significant proportion of the Group's profit beingearned in overseas entities, subject to higher rates of tax. 6 EARNINGS PER SHARE The calculations of earnings per share from continuing operations are based onthe profit after tax for the year of £8,076,000 (2005 - £5,113,000) and thefollowing weighted average numbers of shares: 2006 2005 Number Number Weighted average number of ordinary shares for basic earnings per share 22,177,542 21,387,290Effect of dilution: Employee share options 177,463 111,882 Weighted average number of ordinary shares adjusted for the effect of dilution 22,355,005 21,499,172 Adjusted earnings per share for the year:Basic 48.44p 27.86pDiluted 48.06p 27.71p Adjusted basic and adjusted diluted earnings share is calculated based on anadjusted profit after tax of £10,743,000 (2005 - £5,958,000) obtained by addingback restructuring costs of £nil (2005 - £2,287,000), intangible amortisation(excluding other software) of £2,065,000 (2005 - £1,658,000) adjustment tocarrying value of goodwill of £602,000 (2005 - £nil) and past service creditrelating to the UK defined benefit pension scheme of £nil (2005 - £3,100,000) tothe profit after tax for the year of £8,076,000 (2005 - £5,113,000). Thedenominators used are the same as those detailed above for both basic anddiluted earnings per share. The adjustment made to profit after tax in calculating adjusted basic anddiluted earnings per share have not been adjusted for tax in either the currentor preceding year. The directors believe that adjusted earnings per share is a fairer presentationof the underlying performance of the business. 7 DIVIDENDS Declared and paid during the year 2006 2005 £000 £000Interim dividend paid of 2.2p (2005 - 1.8p) per ordinary share 490 396Final dividend paid of 4.3p (2005 - 4.0p) per ordinary share 952 878 1,442 1,274 Proposed for approval by shareholders at the AGMFinal proposed dividend of 5.2p (2005 - 4.3p) per ordinary share 1,157 948 The proposed final dividend is subject to approval by shareholders at the AnnualGeneral Meeting on 14 July 2006 and has not been included as a liability inthese financial statements. If approved at the Annual General Meeting, thefinal dividend will be paid on 1 Ausut 2006 to shareholders on the register atthe close of business on 30 June 2006. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
AVV.L