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Mastering change
DIGITAL
ASSET
Digital Asset
www.aveva.com
DIGITAL
ASSET
AVEVA develops the world’s most
advanced engineering, design and
information management software
for the creation and management of
process plants, power plants and
marine vessels.
Our solutions support many stages
of the project and operational life cycle
by creating, collating, managing and
exploiting the value of the Digital Asset.
At the heart of our technology strategy
is a principle that the Digital Asset must
evolve in tandem with the physical
asset, enabling our customers to master
the continual change that drives
their business.
01
Digital Asset www.aveva.com Life cycle strategies
EPC AND
SHIPBUILDERS
CAPEX
U I L D I N G
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Digital Asset
www.aveva.com
DIGITAL
ASSET
The execution of major engineering
projects requires hundreds of decisions
– large and small – every day. Thousands
more are required in the subsequent
decades of operation, maintenance,
modification and end of life. Throughout,
accurate and timely decisions depend
on the quality, completeness and
accessibility of the information that
forms the Digital Asset.
AVEVA’s deep understanding of the
industries we serve underpins our
strategies for Integrated Project
Execution, Operations Integrity
Management and Integrated
Shipbuilding. The world’s capital
intensive industries depend on AVEVA
technology to continually anticipate
and respond to market challenges by
creating ever-more powerful tools to
harness their Digital Asset.
03
Digital Asset www.aveva.com World-class solutions
CONSTRUCTION/PRODUCTION
MANAGEMENT
PLANNING
OPERATIONAL
READINESS
MATERIAL
MANAGEMENT
PROJECT
INFORMATION
MANAGEMENT
DESIGN
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VISUALISATION
& SIMULATION
BROWNFIELD
DATA CAPTURE
ENGINEERING
ASSET MODIFICATIONS
04
Digital Asset
www.aveva.com
DIGITAL
ASSET
For more than 45 years AVEVA has
created world-class software to meet the
demanding needs of the engineering
industries on which the global economy
depends. Our Integrated Engineering &
Design solutions provide an essential
platform for the execution of major
capital projects, and is complemented
by our Enterprise Resource Management
offering one of the most productive
solutions for projects, and are designed
to continually master change and
ensure the integrity of the information
being created.
Owner Operators (OOs) are also
supported by innovative AVEVA
technologies that exploit the rich
resources of the Digital Asset to
optimise operations, maintain
regulatory compliance and reduce
business risk.
AVEVA’s industry-led strategies and
solutions are rooted in the vision of an
evolving Digital Asset that helps our
customers to master change and deliver
value across the entire life cycle.
Find out more on page 6
of the annual report
05
Digital Asset www.aveva.com The Digital Asset
To explore the life cycle
and AVEVA’s strategies and
solutions that support a
Digital Asset, visit
www.aveva.com
Look for the Digital Asset highlights
referenced through the annual report.
06
Digital Asset
www.aveva.com
ANNUAL REPORT & ACCOUNTS 2014
AVEVA is a leading global
provider of engineering,
design and information
management software
Online documents
Download this report
www.aveva.com
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Strategic report
INCREASE
Increasing
our customers’
competitiveness
QUALITY
COLLABORATION
INDUSTRY-LEADING GLOBAL
COLLABORATION ANYWHERE IN THE
WORLD
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DECISION
MAKING
INFORMED AND TIMELY DECISIONS BASED
ON TRUSTWORTHY INFORMATION
DIGITAL
ASSET
HIGH-QUALITY DELIVERABLES
FOR RIGHT-FIRST-TIME
CONSTRUCTION
ANNUAL REPORT & ACCOUNTS 2014
Setting new standards for performance
and capability
Mat Truche-Gordon
Executive Vice President
Business Strategy
How we do it…
Q. How does AVEVA improve the quality of
deliverables?
A. Both in our engineering and design
products and our Information Management
solutions, AVEVA builds in rules, templates
and best practice functionality that leave
nothing to chance. Fully detailed
construction deliverables are generated
directly from the 3D model, ensuring
accuracy and completeness. Operational
procedures are supported by applications
that demand correct use and approvals, and
which create permanent audit trails.
Q. How is AVEVA responding to the new
mobile generation of technology?
A. Tablet devices, pervasive internet access
and Cloud technology are poised to
revolutionise the engineering industries.
AVEVA is driving this revolution with new
technologies that put trustworthy
information right in the hands of decision
makers and front-line personnel. One
outstanding example is AVEVA E3D Insight
– the world’s first tablet app for design
review, anywhere, anytime. This new app
has already been recognised by our industry
with prestigious innovation awards and
universal praise from industry analysts.
Q. How is laser technology being used by
AVEVA customers to increase quality and
collaboration?
A. High-definition 3D laser surveying has
come of age and AVEVA leads the market
with technologies for exploiting the huge
potential value represented by photorealistic
laser scans of as-built assets. These
powerful technologies are delivering new
capabilities and new levels of efficiency, both
in ‘greenfield’ projects and in-life extension
and upgrades of existing ‘brownfield’ assets.
Our customers are visualising and rapidly
modelling existing assets to streamline
maintenance and revamp projects, saving
time and money and reducing risk.
Q. Is there a single process or
methodology that your customers should
use to make decisions when working with
your technology?
A. No. In fact this is exactly the point of the
Digital Asset. Each decision must be made
with the information available at the time
and based on the key business objectives.
AVEVA technology provides users with the
most trustworthy information in an easily
accessible way, enabling rapid, informed
decisions that will drive their business
forward. We give people what they need to
do their job as effectively as possible without
constraining them with entirely impractical
processes that demand rules and standards
be defined up front.
10 AVEVA Group plc Annual report and accounts 2014
11 AVEVA Group plc Annual report and accounts 2014
Contents
01
02
03
04
06
14
16
18
20
25
26
28
32
36
37
42
44
47
65
Strategic report
Highlights
Investor proposition
Chairman’s statement
Customer focus
Business model
Our markets
Strategy review
Chief Executive’s statement
Key performance indicators
Principal risks and uncertainties
Finance review
Corporate responsibility
Directors’ report
Corporate governance
Board of Directors
Audit Committee report
Remuneration Committee report
Other statutory information
AVEVA Group plc Annual report and accounts 2014
68
69
70
72
73
74
75
76
77
105
Financial statements
Statement of Directors’
responsibilities
Independent auditor’s report
Consolidated income statement
Consolidated statement of
comprehensive income
Consolidated balance sheet
Consolidated statement of
changes in shareholders’ equity
Consolidated cash flow statement
Notes to the consolidated
financial statements
Statement of Directors’
responsibilities
Independent auditor’s report
106
107 Company balance sheet
Notes to the Company
108
financial statements
Five year record
Company information and advisers
112
IBC
S
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Our mission
AVEVA enables the creation and
management of complex digital
assets, allowing our customers
to work globally with less risk,
shorter lead times and greater
business efficiency throughout
the life cycle of the physical asset.
Our vision
Always the leading innovator
and our customers’ most
trusted partner.
Offices
Countries
30 We operate close to our
customers’ businesses
Number of employees
48
1,491
13% growth in the
last financial year
01 AVEVA Group plc Annual report and accounts 2014
DIRECTORS’ REPORTFINANCIAL STATEMENTS
Strategic report
Highlights
In line with our strategy for profitable
growth, AVEVA has continued to deliver
on a number of key financial metrics, as
well as achieving further strategic and
operational milestones.
Financial
Revenue (£m)
Adjusted* profit
before tax (£m)
Adjusted* basic
earnings per share (p)
Net cash
deposits (£m)
+10% constant
currency
+8% : £237.3m
220.2
237.3
195.9
+11% : £78.3m
+19% : 89.05 pence
(39%) : £117.5m
70.6
78.3
62.4
74.70
63.96
89.05
179.0
190.4
117.5
2012
2013
2014
2012
2013
2014
2012
2013
2014
2012
2013
2014
Strategic
AVEVA Everything3D™
Strong momentum with our cutting-edge
new design platform, a number of Global
Accounts have now licenced the solution
and cumulative revenue is building.
Innovation
AVEVA is the market leader through
innovation, recent product launches include
the tablet-based mobile solution, AVEVA
E3D Insight™, as well as AVEVA AVP™ for
avatar-based training.
Partners
Our investment in growing and educating
our partner network is beginning to
pay dividends, and we have seen
particular progress in Nuclear working
alongside Capgemini.
17% growth in
reported EPS
Global accounts
Our continued focus on Global Accounts
saw us successfully expand the number of
multi-year licensing arrangements, and we
expect to make further progress with these
accounts in the future.
Growing market share
AVEVA successfully grew its presence in
under-penetrated markets during 2012/13,
particularly North America and India.
We are investing
in high growth
markets
Operational
‘One AVEVA’
The sales and marketing efforts of AVEVA
are firmly aligned behind selling all of our
products to all of our customers, as we seek
to grow across the life cycle of the asset.
R&D capabilities
We invested further in our R&D facilities
in Hyderabad, India, by opening a second
facility as well as an office in Mumbai.
We expect future cost savings as a result.
Planning for growth
During 2013/14 we embarked on a period
of extra investment in internal systems, in
order to prepare the business for the next
phase of growth.
* Adjusted profit before tax and adjusted basic 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.
02 AVEVA Group plc Annual report and accounts 2014
Strategic report
Investor proposition
We provide mission-critical solutions to
some of the world’s biggest engineering
companies and Owner Operators. AVEVA is
a technology leader within these markets.
OUR MARKETS
DELIVERING VALUE
TO OUR CUSTOMERS
INDUSTRY-LEADING
AVEVA’s products are most applicable in
industries where scale and complexity
are greatest: Oil & Gas, Marine and
Power. Other markets include
Chemicals, Pharmaceuticals, Metals &
Mining and Pulp & Paper. Page 16
Our software empowers more than
3,500 customers to make accurate and
timely design, engineering and business
decisions, across entire project and
asset life cycles – improving
productivity, minimising risk and
reducing costs. Page 6
In the 1970s AVEVA delivered the
world’s first 3D plant design system.
Innovation remains at the heart of our
organisation, and over the last five years
we have invested over £150 million in
R&D. Case studies throughout report.
STRONG
FINANCIAL MODEL
GLOBAL REACH
Recurring revenues are currently around
70% of total sales. AVEVA principally
licenses software and thus achieves
operating margins over 30%. This, in
turn, translates into strong cash
generation. Page 25
Regionally, AVEVA’s business is broadly
spread – selling into all major territories
around the world – and we now have 48
offices in 30 countries, offering local
support wherever our customers
operate. Page 17
03 AVEVA Group plc Annual report and accounts 2014
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS Strategic report
Chairman’s statement
Philip Aiken
Chairman
27 May 2014
It has been a year of
significant progress on
a number of fronts
Introduction
Overview of performance
I am pleased to report that this has been
another year of good growth and strategic
development. We delivered record revenue
of £237.3 million (2013 – £220.2 million) and
adjusted profit before tax up 11% to £78.3
million (2013 – £70.6 million), generating an
improvement in the profit margin for the
year to 33% (2013 – 32%). Reported profit
before tax increased 9% to £69.0 million
(2013 – £63.5 million). Adjusted basic EPS
rose 19% to 89.05 pence (2013 – 74.70
pence). Basic earnings per share increased
17% to 78.12 pence (2013 – 66.80 pence).
We closed the year with net cash of £117.5
million, after the 147 pence special dividend,
amounting to £100 million, paid to
shareholders in August 2013.
AVEVA is recognised as the leading
innovator in its industry. During the year we
made excellent progress with our major new
3D design platform, AVEVA Everything3D
(AVEVA E3D). It has been encouraging to see
that a number of our major customers –
including KBR, Jacobs Engineering, Foster
Wheeler, Worley Parsons, Siemens Energy
and Shell – now include AVEVA E3D in their
licence agreements, providing them with
the opportunity to take advantage of the
many new capabilities and efficiencies that
the platform can deliver. AVEVA is also at the
forefront in delivering the benefits of Cloud
and Mobile technologies to our customers
and we expect further progress in this area
during the current financial year.
It has been a year in which we have seen
mixed economic situations in many of the
regions in which we operate around the
world. However, the broad spread of our
business has enabled us to deliver good
growth. I am particularly pleased to report an
outstanding performance from Engineering
& Design Systems (EDS), which continued to
outpace the competition, and delivered 14%
organic growth in constant currency as we
further enhanced the portfolio of products
we offer.
As previously reported, Enterprise Solutions
(ES) was impacted by lengthening sales
cycles and the loss of two key customer
contracts in the first half of the financial
year. This resulted in the division reporting
a loss for the year. However, there was a
significant roll-out of AVEVA NET™ at
Chevron (Gorgon) as well as milestone
projects in China and the Middle East.
Our sales teams are focused towards selling
a combination of all AVEVA products to
Engineering Procurement & Construction
(EPC), Shipyard and Owner Operator
customers. This ‘One AVEVA’ philosophy
allows us to adapt our approach to reflect
the commercial reality of the industries
in which we operate, and will be beneficial
to all of our customers including fully
exploiting the ‘pull-through’ between our
products and solutions, which is significant.
The Board
I spoke last year about how the Board was
giving more focus to key areas including
technology, strategy and people. This is
starting to show clear benefits as the Board’s
role, from the perspective of supporting and
reviewing the Group’s growth strategy, has
deepened and broadened in both scope and
effectiveness. As a Board we closely monitor
the achievements of business objectives as
well as the oversight of risks and maintain
strong governance processes.
During the year Hervé Couturier notified us
of his intention to retire from the Board at
the 2013 AGM to pursue other challenges,
and he leaves with our good wishes for
the future. We were delighted to welcome
Jennifer Allerton who joined the Board as an
Independent Non-Executive Director at the
AGM in July 2013.
04 AVEVA Group plc Annual report and accounts 2014
AVEVA harnesses innovation
to deliver value to our
customers, both existing and
new, thus driving sustainable
growth in our business over
the long term.
R&D investment is
critical to delivering
future growth
£155m
5-year spend on R&D
+8%
Increase in R&D
Over 500
R&D employees
Dividend
AVEVA has a progressive dividend
policy which reflects our confidence in
the underlying strength of the business
including cash generation as well as the
outlook for future growth and profitability.
The Board is recommending a final dividend
of 22 pence (2013 – 19.5 pence), an increase
of 13% over the prior year, payable on
25 July 2014 to shareholders on the register
on 27 June 2014. This gives a full year
dividend of 27 pence (2013 – 24 pence),
when combined with the interim dividend
of 5 pence, an increase of 12.5% over last
year. In addition to the ordinary dividend,
we paid a special dividend of 147 pence
per share, returning £100 million to
shareholders in August 2013, in light of the
Group’s strong performance and strong
cash generation over many years.
Outlook
It has been a year of significant progress on
a number of fronts – operationally, through
innovation as well as strategically and
financially. This is principally due to the
quality and commitment of our people and
on behalf of the Board I would like to thank
everyone throughout the organisation for
their efforts and dedication. This is an
exciting time to be part of AVEVA and
tremendous opportunities lie ahead. With
strong long-term market drivers and a
broadening product footprint we are
confident in our ability to deliver further
progress against our growth plans in
the future.
05 AVEVA Group plc Annual report and accounts 2014
DIVIDEND PER SHARE
+12.5%
27 pence
Our progressive
dividend policy
reflects our
confidence in
the underlying
strength of
the business
27p
24p
2013
2014
ADJUSTED PBT
+11%
£78.3m
The profit margin
for the year
showed further
improvement to
33% (2013 – 32%)
78.3
70.6
2013
2014
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS Strategic report
Customer focus
REDUCE
INCREASE
Eliminating waste and
barriers to efficiency
Read more on page 8
Setting new standards for
performance and capability
Read more on page 10
COST
Optimising costs is critical to both successful projects
and asset operation. AVEVA’s Integrated Engineering
& Design solution cuts rework costs through efficient
collaboration between project disciplines, while our
Information Management technologies save costs
through access to reliable asset information
throughout the entire life cycle.
TIME
Missing or unreliable information is the principal
cause of project overruns and excessive asset
downtime. AVEVA’s engineering information
management solutions provide relevant, trustworthy
and complete information to the right people, at the
right time, to get the job done on time.
RISK
Capital engineering projects carry huge commercial
risk. Large engineering assets, often in challenging
environments, carry their own operating risks.
AVEVA technology helps to reduce both project and
operational risks by bringing under control the many
complex interdependencies within the digital asset.
We help our customers
transform risk into
opportunity
QUALITY
Quality must be designed in from the start. AVEVA’s
engineering and design solutions not only enable
high-quality design through built-in industry standards
and rigorous compliance validation, they also create
best-in-class deliverables for high-quality fabrication
and construction. AVEVA’s powerful Information
Management technologies enable asset operators to
achieve ‘right every time’ execution of life cycle
management activities.
COLLABORATION
Ever larger, more complex projects demand
seamless collaboration between design, engineering
and management organisations around the world,
both for project delivery and asset management.
AVEVA leads the industry with tightly integrated
solutions that support efficient global collaboration,
whether in the office or on the move.
DECISION MAKING
Building engineering assets involves thousands of
decisions, from the overall project plan down to the
smallest detail. Managing these assets through
decades of safe, productive operation requires
many thousands more. AVEVA’s Information
Management solutions increase the quality and
timeliness of decision making through ready access
to information that is relevant, consistent, verified
and easily understood.
06 AVEVA Group plc Annual report and accounts 2014
Improving project
efficiency and optimising
asset operations for
our customers.
Mastering change to deliver value
The only thing that is constant for AVEVA’s customers is change.
They are responsible for increasingly complex engineering projects,
often in harsh environments under tight deadlines with potentially
catastrophic consequences. This demands partners that understand
their business and have the technology and support to reduce risk,
increase quality and enable greater efficiency. AVEVA has been
helping our customers with precisely these challenges for decades.
The AVEVA vision to be “Always the leading innovator…” is
documented by generations of award-winning software technology
that has been used to design, construct and operate some of the
world’s most impressive engineering achievements. Rooted in
object-based technology, an evolving Digital Asset is at the heart
of our products and solutions. Our customers are not only able to
solve very specific engineering problems, but are also able to realise
a much bigger vision of mastering change by creating, managing,
maintaining and exploiting their Digital Asset.
To realise our goal of becoming “…our customers’ most trusted
partner”, AVEVA has established sales and support offices in all the
major engineering centres around the world. We have more than 48
offices in 30 countries, close to where our customers operate. We
understand their technical and business priorities and speak their
languages. AVEVA has an outstanding team of professionals that
works hand-in-hand with our customers. This represents a major
investment, but we believe that there are no short cuts to providing
great customer support and we have been rewarded with many
long-term customer relations, some that span three decades.
Our vision to be “Always the leading innovator and our customers’
most trusted partner” is ambitious, but we are confident in our
technology and in the abilities of our people to master the ever-
changing engineering and operational challenges that lie ahead.
ENABLE
More powerful
technologies for better
management of projects
and assets
Read more on page 12
PROJECT EFFICIENCY
While EPCs and shipbuilders operate in different
markets, they share a common business objective:
to deliver high-quality capital projects on time and on
budget. AVEVA enables this through its Integrated
Project Execution strategy for EPCs and Integrated
Shipbuilding strategy for shipyards. Each combines
best-in-class specialist software and built-in best
practice working methods to maximise project
efficiency and profitability.
ASSET OPTIMISATION
Engineering assets are complex entities, subject to
continual maintenance and improvement throughout
their working lives. Owner Operators must therefore
continually re-optimise their asset management
processes. AVEVA’s Operations Integrity Management
strategy provides Owner Operators (OOs) with the
tools to do this, ensuring sustained regulatory
compliance, optimum asset productivity,
minimum total cost of ownership and safe
extension of operational life.
Mastering change
across the project and
asset life cycle
07 AVEVA Group plc Annual report and accounts 2014
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS Strategic report
REDUCE
COST
RISK
REDUCED PROJECT
AND OPERATIONAL RISK
BY MANAGING COMPLEXITY
TIME
We help our customers
transform risk into
opportunity
REDUCED COSTS OF PROJECT
REWORK AND THROUGHOUT
THE ASSET LIFE CYCLE
Improved decision
making reduces
time and cost
TRUSTWORTHY INFORMATION
DELIVERED TO THE RIGHT PEOPLE
AT THE RIGHT TIME
08 AVEVA Group plc Annual report and accounts 2014
Eliminating waste and barriers to efficiency
Dave Wheeldon
Chief Technology Officer and
Head of Engineering & Design Systems
putting the live 3D design model literally at
a manager’s fingertips, anytime, anywhere.
These same core principles also apply to
other areas of our business such as our
Enterprise Resource Management
solutions. In this case, it is essential to
deliver the right information at the right
time, helping our customers to make the
informed decisions that reduce risk.
Q. Owner Operators have a very different
set of requirements. How is the AVEVA
technology used in an operational
environment?
A. A well established and maintained
Digital Asset is as important to OPEX
activities as it is to CAPEX. Our Owner
Operator customers use the information
within their digital asset to actively manage
their complex facilities. For example, with
millions of operationally critical pieces of
equipment, we give them the tools to
monitor, track and control all aspects of
their maintenance activities and intelligently
interface into discipline specific applications.
This is not just about saving cost, it also
helps to deliver a safer working environment.
How we do it…
Q. How exactly does AVEVA help EPCs
and shipbuilders deliver more efficient
capital projects?
A. Creating a complex facility such as a
chemical plant is an iterative, multi-
discipline process that progressively
develops and refines a design from initial
concept to operational readiness. Each
discipline must not only be aware of the
maturity status of information created by
others, but must also be able to manage its
own workflows to accommodate continual
changes in a controlled, efficient manner.
Our unique Compare & Update capability
within our Integrated Engineering & Design
solutions delivers this cross-discipline
management, helping our customers to
control their ‘design spiral’.
Q. AVEVA talks about Engineering
& Design for Lean Construction.
What does Lean Construction mean
for your customers?
A. Lean Construction is the capital projects
industries’ long-sought equivalent to Lean
Manufacturing, which has transformed
efficiency in volume manufacturing.
AVEVA’s next-generation 3D design
solution, AVEVA Everything3D, supports
Lean methodologies by providing essential
capabilities for closing the feedback
loop between design, fabrication and
construction. And our recently announced
AVEVA E3D Insight eliminates bottlenecks
in the design review and approval stages by
DIGITAL
ASSET
09 AVEVA Group plc Annual report and accounts 2014
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS Strategic report
INCREASE
Increasing
our customers’
competitiveness
QUALITY
DIGITAL
ASSET
HIGH-QUALITY DELIVERABLES
FOR RIGHT-FIRST-TIME
CONSTRUCTION
Setting new standards for performance
and capability
Mat Truche-Gordon
Executive Vice President
Business Strategy
10 AVEVA Group plc Annual report and accounts 2014
COLLABORATION
INDUSTRY-LEADING GLOBAL
COLLABORATION ANYWHERE IN
THE WORLD
DECISION
MAKING
INFORMED AND TIMELY DECISIONS BASED
ON TRUSTWORTHY INFORMATION
How we do it…
Q. How does AVEVA improve the quality
of deliverables?
A. Both in our engineering and design
products and our Information Management
solutions, AVEVA builds in rules, templates
and best practice functionality that leave
nothing to chance. Fully detailed
construction deliverables are generated
directly from the 3D model, ensuring
accuracy and completeness. Operational
procedures are supported by applications
that demand correct use and approvals, and
which create permanent audit trails.
Q. How is AVEVA responding to the new
mobile generation of technology?
A. Tablet devices, pervasive internet access
and Cloud technology are poised to
revolutionise the engineering industries.
AVEVA is driving this revolution with
new technologies that put trustworthy
information right in the hands of decision
makers and front-line personnel. One
outstanding example is AVEVA E3D Insight
– the world’s first tablet app for design
review, anywhere, anytime. This new app
has already been recognised by our industry
with prestigious innovation awards and
universal praise from industry analysts.
Q. How is laser technology being used
by AVEVA customers to increase quality
and collaboration?
A. High-definition 3D laser surveying has
come of age and AVEVA leads the market
with technologies for exploiting the huge
potential value represented by photorealistic
laser scans of as-built assets. These
powerful technologies are delivering new
capabilities and new levels of efficiency, both
in ‘greenfield’ projects and in-life extension
and upgrades of existing ‘brownfield’ assets.
Our customers are visualising and rapidly
modelling existing assets to streamline
maintenance and revamp projects, saving
time and money and reducing risk.
Q. Is there a single process or
methodology that your customers should
use to make decisions when working with
your technology?
A. No. In fact this is exactly the point of the
Digital Asset. Each decision must be made
with the information available at the time
and based on the key business objectives.
AVEVA technology provides users with the
most trustworthy information in an easily
accessible way, enabling rapid, informed
decisions that will drive their business
forward. We give people what they need to
do their job as effectively as possible without
constraining them with entirely impractical
processes that demand rules and standards
be defined up front.
11 AVEVA Group plc Annual report and accounts 2014
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS Strategic report
ENABLE
DIGITAL
ASSET
Helping OOs, EPCs &
Shipbuilders
PROJECT
EFFICIENCY
HIGH-QUALITY CAPITAL
PROJECTS ON TIME
AND ON BUDGET
12 AVEVA Group plc Annual report and accounts 2014
More powerful technologies for better management
of projects and assets
ASSET
OPTIMISATION
REGULATORY COMPLIANCE
AND ASSET PRODUCTIVITY
WITH LOW TOTAL COST OF
OWNERSHIP
Helmut Schuller
Executive Vice President
Sales
Q. Can you give a few examples of how
an Operations Integrity Management
strategy delivers tangible benefits to
your customers?
A. AVEVA Information Management
technology enables OOs to develop
and operate robust asset management
strategies based on rigorously controlled,
quality assured and readily accessible
information. The unique AVEVA NET
technology aggregates, validates,
contextualises and makes readily available
all types of asset information, from whatever
source, and independent of the original
authoring programmes, to support all
aspects of asset operation. New industrial
gaming technology – AVEVA Activity
Visualisation Platform (AVEVA AVP) now
brings an unmatched level of capability to
operator training, task rehearsal and Work
Order visualisation.
How we do it…
Q. What are the principles that define an
Integrated Project Execution (IPE) strategy
for your customers?
A. AVEVA technology provides a common
environment for the sharing and use of
information by all disciplines and business
processes, from initial order taking through
to final handover. Information is created and
controlled by the relevant disciplines and
made available, at specified levels of
maturity, for use across the entire project.
Information accuracy and reliability is
assured; double-handling and duplication of
data is eliminated. Planning, procurement,
scheduling, fabrication and construction all
work with definitive information created and
updated by engineering and design. It is
very rewarding to see how our customers
use our products and solutions to
implement IPE strategies that meet
their specific business objectives.
Q. How does the priority and reality of EPC
and shipyard projects differ?
A. The business objectives of an EPC or
shipyard project are very similar; both
focus on project efficiency in order to meet
schedules and budgets. Many of the specific
skills and processes are, of course, very
different. This is where the industry expertise
of our global team is so important. We have
talented, experienced professionals who
know the plant and marine industries that
we serve. They speak our customers’
industry and cultural languages and work
closely with them to implement the right
technology for their business.
13 AVEVA Group plc Annual report and accounts 2014
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS Strategic report
Business model
Organisation
Operations
Driving AVEVA’s business
strategy across all geographic
regions to support the long-
term growth of the Company
Business Strategy & Marketing
Defining our business strategy and communicating AVEVA’s vision internally
and externally
Global Sales
Focused on selling AVEVA’s full product and solution portfolio to all of our EPC,
OO and Shipbuilding customers
EDS – Engineering & Design Systems
Supporting the creation and evolution of the Digital Asset with engineering and
design solutions for the entire life cycle
ES – Enterprise Solutions
Building solutions that create, manage, maintain and exploit the Digital Asset for
business processes across the life cycle
Sharing talent &
resource across the
organisation
Finance & Legal
Meeting the essential financial management, legal and contractual requirements
of a growing global organisation
Business Services
Delivering the people, talent and IT business systems that are critical to the
efficiency and growth of the organisation
Business model
At the core of AVEVA’s business is the
intellectual property generated in its
software products. The Group sells its
proprietary software products by licensing
rights to use the software directly to
customers through our network of global
sales offices rather than through resellers
or distributors. This strategy provides
customers with local sales and support and
helps AVEVA to work closely with the leading
companies principally in the Oil & Gas, Power
and Marine markets.
We operate a ‘right to use’ licensing model
for both Enterprise Solutions software and
engineering and design products. Customers
license our software for a specified number of
users by paying an initial licence fee followed
by an obligatory annual fee or by paying a
rental fee over a fixed period of time. In both
cases, the customer has to continue to pay a
fee in order to use the software. This model
continues to provide a strong recurring
revenue base for AVEVA which allows us to
invest in the future roadmap of our products.
Our Enterprise Solutions software involves a
higher degree of services compared to our
engineering and design tools. These services
consist of implementation and customisation
of these solutions and are provided either on
a time and materials basis or under fixed
price contracts.
14 AVEVA Group plc Annual report and accounts 2014
Continual Progression
Number of employees
Turnover
1,491
Total number of employees globally
1,102 Male
389 Female
7.6%
Longevity
38%
Percentage of people that left the
Company throughout the financial year
Percentage of people that have been
with AVEVA for more than five years
New employees
Learning & Development
Engagement survey
309
13% net growth
Number of additional new employees
over the financial year
>1,200 training course places were provided
for AVEVA employees
– Employee Induction
– Graduate Development Programme
– Management Development Programmes
– Advanced Leadership Programmes
– Personal and Skills Development
Workshops
– Mentoring Programmes
– eLearning Modules
– Technical Training
84%
Employee engagement index of 84%, 3% up
from 2011
Investing in people
AVEVA is driven by our ambition for
constant improvement – Continual
Progression. This is a theme that runs
throughout our organisation and can be
seen in the software and services we have
delivered to our customers over the last
five decades and how we develop the skills
and talents of the AVEVA team. We have
a well-established track record for
success, but we do not rest on our past
achievements. Instead, we are constantly
innovating with the technology we develop
and with the programmes and activities
for our employees. In the same way that
success with our customers can be
measured by their increasing investment
in AVEVA technology, success with our
colleagues can be viewed through their
increasing commitment to the Company
and training is a key area of focus. AVEVA
is proud of the skills and talents of our
employees and we invest in their
Continual Progression to empower them
as individuals so we can meet the business
challenges that lie ahead.
15 AVEVA Group plc Annual report and accounts 2014
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS Market drivers
A key driver of the Oil & Gas market is the
increasing complexity of the engineering
challenges involved in extracting the
resources from remote and hostile
environments, as well as an ever-tighter
regulatory and safety regime.
Power is experiencing long-term secular
growth in demand driven by increasing
consumption, with the world’s energy
consumption expected to expand by 40%
by 2035. Drivers include the need to build
new power infrastructure in emerging
markets, as well maintain and extend the
lifespan of ageing infrastructure in
developed markets.
Marine is traditionally a cyclical industry,
and has been experiencing a prolonged
period of downturn in demand for
conventional shipbuilding. Many of our
shipyard customers in South Korea have
successfully retuned their capacity towards
offshore projects, building FPSO, LNG and
FLNG platforms for Oil & Gas customers.
Strategic report
Our markets
Scale and complexity
Customer types and routes to market
EPCs
AVEVA’s products are most applicable in
industries where scale and complexity are
greatest, and as a result many of the world’s
largest Engineering, Procurement &
Construction companies are our customers.
Our 3D design technology enables EPCs to
achieve many of the advanced engineering
developments necessary to meet the
global energy and infrastructure demands
of a rapidly growing population.
This can be seen in our customers’ end
markets: Oil & Gas reserves are increasingly
remote and difficult to extract, and here
offshore projects have proven to be a key
business driver for us. AVEVA’s tools are
also used to design power plants and we
are a preferred supplier to the world’s
nuclear industry, where we expect
significant investment in complex
infrastructure over the long term. The
majority of the world’s major shipyards
also use AVEVA technology for both
conventional shipbuilding and, increasingly,
complex specialist offshore platforms.
Our EPC customers are involved in
delivering plants for the world’s process
industries. Given the nature and scale of
these assets, a key feature of our industry
is that design, fabrication and construction
occur concurrently. This presents a number
of challenges for our customers in terms of
both design and delivery, and the focus of
AVEVA’s technology is to enable error-free
design and apply the principles of lean
construction to the industries we serve
through an Integrated Engineering & Design
approach. The solutions we deliver to our
EPC customers enable them to compress
schedules, eliminate expensive rework
and drive efficiency across major
engineering projects and through-life
‘in-plant’ engineering.
Owner Operators
AVEVA’s Enterprise Solutions help our
customers to effectively manage their
business and access timely and accurate
project and asset information. Our
technology and expertise thus helps to
bring tremendous value to these customers
through the efficient support of operational
processes and execution of in-plant
engineering projects. In recent years we
have been successful in extending our
involvement with this operational phase in
the life cycle of our customers’ assets.
Partners
As AVEVA increases its involvement in the
operational phase of these complex assets,
we are increasingly working with expert
partners who can help us to identify
opportunities, act as a channel into new
markets, and implement our Enterprise
Solutions products across large-scale
deployments. This is a key part of our
strategy to accelerate the adoption of
our technology by Owner Operators.
We have seen our partner strategy begin
to bear fruit, particularly in the Nuclear and
Oil & Gas markets.
Key markets
Oil & Gas, Marine, Power, Other
Revenue split
AVEVA has a strong association with the
global Oil & Gas industry, which currently
accounts for around 45–50% of the usage of
our software by our customers. The Power
sector currently represents around 10–15%,
and Marine around 20–25% of our
customers’ usage of our software products.
We estimate that around 15–20% of the
usage of our products is derived from a
number of other industries, including
Chemicals, Metals & Mining Processing,
Pulp & Paper, and other specialist
manufacturing sectors.
16 AVEVA Group plc Annual report and accounts 2014
Geographic markets
Americas
Europe, Middle East
and Africa
Asia Pacific
£38.4m
KEY
£112.0m
£86.9m
Annual fees
Rental fees
Initial fees
Training and services
2013 : £39.3m (2%)
2013 : £107.6m +4%
2013 : £73.3m +19%
North America mid-teens growth,
Latin America broadly flat +
effect of currency
Robust growth in Central and
Western EMEA, soft demand
in Russia and Middle East
Strong performance in
South Korea
AVEVA continues
to benefit from
the breadth of its
international
operations.
Strong growth in Asia Pacific
We saw an excellent performance from our
Asia Pacific operations during 2013/14, with
revenue up 19% over the prior year to £86.9
million (2013 – £73.3 million). North East Asia
was a particular area of strength as our South
Korean shipyard customers benefited from
an increase in prime contracting activities
related to large Oil & Gas projects. This was
balanced by weaker economic conditions
contributing to softer growth in China.
Our investment in India has continued,
dramatically increasing the number of
employees in our Hyderabad offices.
EMEA and Americas
EMEA was affected by more difficult
economic conditions compared to previous
years, particularly in Russia and the Middle
East, as well as the impact of the reduction
in revenue in Enterprise Solutions. Our core
markets remained resilient, with further
growth in sales of our design tools to our
global EPC customers. In Brazil there
remains a sizable opportunity, but delays
in the new project investment has impacted
regional performance. This was balanced
by our North American operations which
delivered robust growth during the year,
reflecting our renewed focus and investment
in developing our presence in the region.
17 AVEVA Group plc Annual report and accounts 2014
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS
Strategic report
Strategy review
Our objectives
Our strategy
AVEVA has been a
consistent leader in the
markets we serve, but we
cannot afford to rest on
our past success. This is
why we are driven by a
clear set of strategic
growth objectives that are
designed to ensure that
we continue to expand our
presence in both new and
established markets.
Be the world’s fastest-growing
provider of engineering, design and
information management solutions
Create a Digital Asset for each of our
customers that enables them
to master change to deliver clear
business value
Expand our solutions through
world-class technology innovation
and targeted acquisitions
Extend our presence in North America
and high-growth markets
Expand our business to target
more Owner Operators
High growth markets
Plant operations
Extending the design
Accelerating Life Cycle
footprint
Solutions
– Build a stronger presence in
North America
– Target Asset Information
Management using AVEVA NET
– Continue to invest in growing economies
– Further develop our Integrated Project
Execution strategy
– Invest early in next-generation high
growth markets
– Expand our operations within our
customers’ growing markets to deliver
the highest level of customer support
– Further position laser technology as
best-practice for brownfield projects
– Deliver Integrated Engineering &
Design to Owner Operators for
in-plant engineering
– Support the capture of knowledge
and share experience between
design and operations
– Deliver a highly differentiated SaaS
based in-plant engineering solution
Investing in
key markets for
AVEVA
Opportunity
Opportunity
Opportunity
Opportunity
AVEVA will be working to exploit the
tremendous opportunities in the shale oil
and gas market in North America which
could be transformational to the industry.
We also recognise the continued importance
of BRIC markets (Brazil, Russia, India, China)
and the growth of the MIST markets (Mexico,
Indonesia, South Korea, Turkey) and will
continue to invest in customer service
and support infrastructure in these
important regions.
AVEVA’s technology and global sales
network is extremely well positioned
to help Owner Operators meet their
safety, production and uptime targets.
With asset life cycles greater than
25 years and an addressable market that
is more than twice the size of the design
market, the plant operations domain
represents a major opportunity for our
digital asset solutions.
– Strengthen the position of AVEVA NET
– Increase focus on Owner Operators
and Enterprise Resource Management
with the Digital Asset proposition
(ERM) within the Integrated Project
Execution Strategy
– Leverage AVEVA Engineering to drive
Integrated Engineering & Design
– Further strengthen the integration
between our Engineering Design and
Information Management solutions to
accelerate cross-selling opportunities
– Expand technology footprint through
– Invest in a partner ecosystem to
development and acquisition
increase scalability and build
– Establish third party partners to drive
AVEVA adoption with operators
new channels
– Continue to prioritise AVEVA NET
development further expanding
Cloud capabilities
– Accelerate penetration with
Owner Operators through
targeted acquisitions
The introduction of AVEVA Everything3D
last year further cemented our dominant
role as a global provider of 3D design
AVEVA has always had a clear objective
and underpinning values to be firmly
established as a partner to our customers.
solutions. This position, combined with our
The power of our solutions, particularly in
investment in schematics and structural
solutions, means that we can use our
combination, gives our customers the
ability to transform business processes
relationships with engineering and design
across the entire life cycle. Success in this
budget holders to extend the reach of our
area is fundamental to the long-term
products within the design discipline and
objectives of AVEVA in our core markets.
into adjacent markets. We are able to
further penetrate our traditional design
market and extend our reach into other
disciplines such as in-plant engineering,
materials and construction.
Accelerating our Life Cycle Solutions
enables us to create new opportunities for
cross-selling and market expansion. This
will secure new customers and increase
the use of our technology far beyond the
project phase, supporting the entire asset
life cycle.
18 AVEVA Group plc Annual report and accounts 2014
– Build a stronger presence in
North America
– Target Asset Information
Management using AVEVA NET
– Continue to invest in growing economies
– Further position laser technology as
– Further develop our Integrated Project
Execution strategy
– Invest early in next-generation high
growth markets
– Expand our operations within our
customers’ growing markets to deliver
the highest level of customer support
best-practice for brownfield projects
– Deliver Integrated Engineering &
Design to Owner Operators for
in-plant engineering
– Support the capture of knowledge
and share experience between
design and operations
– Deliver a highly differentiated SaaS
based in-plant engineering solution
AVEVA will be working to exploit the
AVEVA’s technology and global sales
tremendous opportunities in the shale oil
network is extremely well positioned
and gas market in North America which
to help Owner Operators meet their
could be transformational to the industry.
safety, production and uptime targets.
We also recognise the continued importance
With asset life cycles greater than
of BRIC markets (Brazil, Russia, India, China)
25 years and an addressable market that
and the growth of the MIST markets (Mexico,
is more than twice the size of the design
Indonesia, South Korea, Turkey) and will
market, the plant operations domain
continue to invest in customer service
represents a major opportunity for our
and support infrastructure in these
digital asset solutions.
important regions.
High growth markets
Plant operations
Extending the design
footprint
Accelerating Life Cycle
Solutions
– Strengthen the position of AVEVA NET
and Enterprise Resource Management
(ERM) within the Integrated Project
Execution Strategy
– Leverage AVEVA Engineering to drive
Integrated Engineering & Design
– Expand technology footprint through
development and acquisition
– Establish third party partners to drive
AVEVA adoption with operators
Expanding
our traditional
markets
– Increase focus on Owner Operators
with the Digital Asset proposition
– Further strengthen the integration
between our Engineering Design and
Information Management solutions to
accelerate cross-selling opportunities
– Invest in a partner ecosystem to
increase scalability and build
new channels
– Continue to prioritise AVEVA NET
development further expanding
Cloud capabilities
– Accelerate penetration with
Owner Operators through
targeted acquisitions
Opportunity
Opportunity
Opportunity
Opportunity
Building on our strengths
In order to carve out our position around the
creation and management of the Digital
Asset, we will build upon our core strengths.
With the majority of our installed base
involved in the execution of major capital
projects, this gives us a competitive
advantage to establish our technology
earlier in the life cycle. As we continue to
expand our reach in engineering, while also
targeting the needs of the operator, we have
the opportunity to gain larger market share
and drive the mandate of our solutions
throughout engineering. By helping our
customers master change with a Digital
Asset we are further establishing AVEVA as
the leading supplier in the creation, data
assimilation and management of the digital
asset. We are greatly strengthening our
ability to sell across the entire life cycle and
benefit from the ongoing management and
modification of assets well beyond the initial
project phase.
The introduction of AVEVA Everything3D
last year further cemented our dominant
role as a global provider of 3D design
solutions. This position, combined with our
investment in schematics and structural
solutions, means that we can use our
relationships with engineering and design
budget holders to extend the reach of our
products within the design discipline and
into adjacent markets. We are able to
further penetrate our traditional design
market and extend our reach into other
disciplines such as in-plant engineering,
materials and construction.
AVEVA has always had a clear objective
and underpinning values to be firmly
established as a partner to our customers.
The power of our solutions, particularly in
combination, gives our customers the
ability to transform business processes
across the entire life cycle. Success in this
area is fundamental to the long-term
objectives of AVEVA in our core markets.
Accelerating our Life Cycle Solutions
enables us to create new opportunities for
cross-selling and market expansion. This
will secure new customers and increase
the use of our technology far beyond the
project phase, supporting the entire asset
life cycle.
19 AVEVA Group plc Annual report and accounts 2014
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS Strategic report
Chief Executive’s statement
Summary of performance
This is a strong result and reflects
the robust underlying drivers of the
markets we serve as well as the
value our technology brings
Constant currency
growth
+19%
Adjusted basic EPS
A period of strong growth combined with
margin improvement.
+10%
Strong headline revenue growth
Underlying constant-currency organic growth
achieved in EDS was an impressive 14% during
the year.
Richard Longdon
Chief Executive Officer
27 May 2014
Another period of
strong growth in both
revenue and profitability
Overview
It has been another period of strong growth
in both revenue and profitability for AVEVA
in 2013/14. Our customer base can be
broadly categorised as the complete supply
chain involved in building and operating
large capital-intensive facilities in the
Process, Power and Marine industries. Our
primary customers fall into three broad
categories: Engineering, Procurement and
Construction companies (EPCs); Shipyards;
and Owner Operator customers. AVEVA’s
industry-leading technology solutions are
tied to our vision of an evolving Digital
Asset, undergoing continual change to
support the creation and operation of
our customers’ capital intensive assets.
In the face of this challenge, increasingly
our customers require a combination of
products from Engineering & Design
Systems (EDS) and Enterprise Solutions (ES).
Going forward we will be selling more of the
‘One AVEVA‘ solution comprising common
products sold to each type of customer by
a single sales force. This approach is being
particularly successful in driving wider use of
the entire AVEVA product portfolio where
customers are adopters of AVEVA NET.
Engineering & Design Systems performed
strongly during the year with revenue
increasing 12% to £211.5 million (2013 –
£189.5 million). This was driven by strong
sales in Asia Pacific and further expansion
within our global EPC customers.
A key priority for us has been to develop the
opportunity for our new, market-leading 3D
design platform, AVEVA Everything3D
(AVEVA E3D). I am pleased to report
that significant progress has been made.
Some of our biggest customers are now
beginning to licence the platform and
benefit from the competitive advantage it
offers. AVEVA intends to continue to lead
the industry through innovation, and we
see particular opportunities in Cloud and
Mobile technologies.
Our Enterprise Solutions (ES) division –
which provides solutions for information
management throughout the operational
life of an asset – experienced more difficult
market conditions and longer sales cycles in
the second half of the year. This, combined
with the loss of two key customer contracts
in the first half, resulted in the division
recording a loss for the year. Since the year
end we have implemented some further
refinements to our delivery model for all of
AVEVA’s solutions, in order to maximise their
impact across our customer base.
Overall, our broad balance across
geographies, market verticals, EPCs and
Owner Operators enabled us to make
excellent progress despite mixed economic
situations. Regionally, we saw continued
strength in North East Asia, particularly South
Korea where many of the major shipyards are
increasingly involved in large offshore Oil &
Gas related projects, and in North America
where we achieved acceleration in growth
mainly because of the buoyant Oil & Gas
market, including the shale gas revolution
driving more downstream facilities
investment. This contrasted with a more
challenging year in China and softer markets
in EMEA and Latin America, with generally
weak economic conditions in Brazil, Russia
and the Middle East.
In Oil & Gas we continued to see strong
rental renewals as well as initial licence sales,
notably in Asia Pacific. Our EPC customers
are seeing the effects of lower capital
expenditure growth amongst the Super
Majors, although in offshore, where we
are traditionally strong, investment has
continued to grow. In Power we have been
encouraged to see some early indications of
increasing activity in new Nuclear builds in
Europe and Asia, and we are starting to see
very early signs of a potential pick up in
conventional shipbuilding in Marine,
although it is still too early to predict when
a cyclical recovery might occur and how
quickly this might feed through to an
increase in licence usage for AVEVA.
20 AVEVA Group plc Annual report and accounts 2014
What we are focused on
Innovation
We are proud of the fact that over the course
of the past five years AVEVA has invested
over £150 million on Research & Development
to broaden the number of products we offer
and deepen our involvement with our
customers to help them to compete more
effectively. The benefit of this investment is
clear: we have delivered ground-breaking new
products like AVEVA E3D and our product
pipeline is now stronger than ever. At the
heart of our technology strategy is a principle
that the Digital Asset must evolve in tandem
with the physical asset, enabling our
customers to adapt to continual change.
With this in mind AVEVA intends to continue
to lead the industry through innovation, and
we see additional opportunities in Cloud and
Mobile technologies. We recently delivered
a new tablet-based application, AVEVA E3D
Insight, and we are now working with a
Super Major oil company to develop novel
collaboration applications built with AVEVA
E3D and AVEVA NET technology, using large
form-factor touch-screens. We are also
continuing our successful collaboration
with Microsoft to Cloud-enable additional
solutions on the Microsoft Azure™ platform.
As we deepen our relationship with Owner
Operators we have aligned much of our
acquired technology to meet the demand for
software tools which enhance the safety and
operation of complex brownfield facilities, as
well as improving safety in the construction
and fabrication of new build assets. We
recently introduced the AVEVA Advanced
Recurring revenue
Recurring
70%
24% annual fees
46% rental fees
Initial licence fees
20%
Services
10%
Divisional revenue split
Derived from EDS
89%
£211.5m
Derived from ES
11%
£25.9m
+90bps
Improvement in profit margin
During 2013/14 we delivered a tangible
improvement in profitability, with a rise in the
adjusted PBT margin to 33%.
A measure of
profitable growth
Visualisation Platform (AVEVA AVP),
which utilises our Global Majic virtual avatar
technology to enable customers to provide
training within the 3D model of their plant
facility, increasing safety and reducing cost.
Further innovative visualisation techniques
are in the pipeline and will be showcased later
this year.
A new version of AVEVA NET is also close
to beta testing and will be available in the
second half of the year. One focus of this
product has been to make installation and
start-up much easier reenforcing this
competitive advantage. Another focus area
is to improve the graphical interaction.
We have also continued to invest heavily
in our Research & Development facilities in
India, where we expanded significantly our
operations in Hyderabad and Mumbai during
the year.
Global growth opportunities
A fundamental strength of our business
lies in our global presence and the truly
international market reach we enjoy. We take
pride in the fact that we can, as a result of past
investment, support our customers locally
wherever they are in the world, and we see
this as a key point of differentiation for AVEVA.
We aim to target expansion in high growth
economies, and during the past year saw
good growth in a number of regions,
particularly North East Asia, where the
Korean shipyards have seen a resurgence in
business as they become prime contractors
CUSTOMER CASE STUDY
EDC
Daring to be Great
Industry: Steel Fabrication and
Solution:
Construction
Structural steel design
with AVEVA Bocad
Country: Australia
“AVEVA Bocad give us so much
competitive advantage that we would not
be the business we are today without it.
No other solution could do this, and the
support we have had from the local
AVEVA team has been outstanding.”
Construction of a refinery module
Photograph courtesy of EDC
The case study can be found in the AVEVA
World Magazine 2013, Issue 2
www.aveva.com/awm/2013/2/edc
21 AVEVA Group plc Annual report and accounts 2014
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS
Strategic report
Chief Executive’s statement
continued
What we are focused on continued
DSME’s shipyard in Geoje Island
Photograph courtesy of DSME
CUSTOMER CASE STUDY
DSME
DSME’s migration from Tribon
to AVEVA Marine
Industry: Marine
Solution:
Country: Korea
Migration to AVEVA Marine
“It was particularly helpful that local
engineers were located close to us.
We had regular meetings with AVEVA to
review the status of the project and to
exchange information. Migration was a
complex project, but AVEVA’s support
team worked hard to enable a smooth
and effective implementation process.”
The case study can be found in the AVEVA
World Magazine 2013, Issue 2
www.aveva.com/awm/2013/2/dsme
CUSTOMER CASE STUDY
KOSPO
Integrated Information
Management for Power Projects
Industry: Power
Solution:
Project Information
Management with AVEVA NET
Country: Korea
“As an integrated Information Management
system, AVEVA NET Portal was appealing
to KOSPO for its cost-effectiveness, simple
installation and easy-to-use interface.
AVEVA NET’s strong reputation in the
global market and positive reference cases
from other companies were also key in our
final decision.”
The Samcheok thermal power plant project
Image courtesy of KOSPO
The case study can be found in the AVEVA
World Magazine 2013, Issue 2
www.aveva.com/awm/2014/1/kospo
for large, complex offshore Oil & Gas
projects, and North America, where we
benefited from major investment directed
towards the energy sector infrastructure
as the shale gas opportunity drives new
business for our customers. Elsewhere,
we expect to see a number of long-term
growth opportunities unfold in Latin
America, through infrastructure investment
driven by the liberalisation of the energy
industry particularly in Brazil, Indonesia,
India and China, and potentially in Mexico,
where we are well positioned to capitalise
on these opportunities.
Optimising our organisation
The dynamics of the markets we serve are
changing. The evolution towards token-
licensing and the convergence between
product sets means that our solutions are
increasingly including products from both
EDS and ES. In response to this we have a
more clearly defined sales approach,
focused on Owner Operators and EPCs,
where we sell the entire AVEVA product
range to all of our customers.
Evolution of Enterprise Solutions
The industries we serve are undergoing
constant change, often facilitated by
technology which creates new ways of
doing business and managing risk. There is
a major opportunity for AVEVA to exploit its
unquestioned strength in design by helping
our Owner Operator customers to manage
the ever-changing information about their
assets. During the year Chevron went live
with AVEVA NET on the Gorgon project,
one of the world’s largest ever LNG projects
with an estimated life of forty years. We
also signed a follow-on deal with another
Super Major Oil & Gas company to provide
AVEVA NET.
ES has been affected by cuts in discretionary
spend amongst Operators over the past year,
which has tempered the outlook for growth
pending an improvement in the market
backdrop. However, ES products are
strategically essential including having a
‘pull-through’ effect on sales of our other
solutions. In Korea we have made a number
of sales of AVEVA NET which have driven the
use and mandating of our EDS products
across entire projects.
22 AVEVA Group plc Annual report and accounts 2014
What we have achieved
Competitive and strategic wins
Our focus on EPC global accounts continues
to pay off. Over the course of the last year
AVEVA has seen successful wins with a
number of the large global players, signing
strategic multi-year licence agreements
with AMEC (UK), Fluor (USA ) and Jacobs
(USA). These new contractual agreements
provide a platform for our largest customers
to realise the value delivered from the
AVEVA Integrated Engineering & Design™
solution-set as well as AVEVA Everything3D.
In addition to these deals we have
continued to see increased adoption
of AVEVA technology amongst other
customers, for example Technip and Worley
Parsons, across all areas of the portfolio.
We also closed a large deal in South Korea
with a major shipyard for our design tools
which reflects their increased workload
from Oil & Gas projects.
On track with AVEVA E3D
A number of AVEVA’s major existing global
EPC customers have now licensed AVEVA
E3D. We expect these customers to begin
to use AVEVA E3D on new projects
beginning in 2014/15. One of our Swiss
customers in the chemical industry
migrated fully from AVEVA PDMS to
AVEVA E3D mid-project, citing the benefits
of generating design drawings directly from
the 3D model. In China, a major chemical
EPC is scheduled to migrate the bulk of its
design licences to AVEVA E3D over the next
12 months.
Delivering on our investment in innovation
Utilising the technology we acquired with
Global Majic at the end of 2012, we unveiled
our new AVEVA Advanced Visualisation
Platform during 2013 which transforms
operator training by enabling users to create
immersive, multi-person environments from
an AVEVA Everything3D or AVEVA PDMS
model, as well as models created using
third-party software. In November 2013,
AVEVA won the coveted UK Tech award
for ‘Tech Innovation of the Year’, for the
release of its new AVEVA E3D Insight tablet
application, selected from an impressive
field of technology companies in the
software, manufacturing and engineering
sectors. During the year we also released
significant enhancements across many of
our other products, including major new
capabilities within AVEVA PDMS, AVEVA NET
and AVEVA Bocad™.
23 AVEVA Group plc Annual report and accounts 2014
CUSTOMER CASE STUDY
AMEC
Offshore Asset Management
Industry: Offshore Oil & Gas
Solution:
Enterprise Asset Management
with AVEVA WorkMate
Country: United Kingdom
“AVEVA WorkMate is absolutely
critical for a well-planned and prepared
shutdown. In years gone by we used
spreadsheets, which worked, but
WorkMate is so much more effective.
Planning and preparation has moved into
a new era…”
The Dunlin A platform
Photograph courtesy of AMEC
The case study can be found in the AVEVA
World Magazine 2013, Issue 2
www.aveva.com/awm/2014/1/amec
CUSTOMER CASE STUDY
OFD
How Oil Field Development
Engineering (OFD) is Driving
Down Rework Time
Industry: Offshore Oil & Gas
Solution:
Project Optimisation with
AVEVA PDMS
Country: United States of America
“The accuracy of the information produced
from the PDMS design model enables
fabrication and construction to proceed
confidently, with little or no rework due to
design errors or clashes, leading to a truly
lean construction process.
The Castor Gas storage facility
Photograph courtesy of OFD
The case study can be found in the AVEVA
World Magazine 2013, Issue 2
www.aveva.com/awm/2014/1/amec
£167.0m
Recurring revenue
Recurring revenue remained strong at 70%
of total revenue
Provides a sustainable
base to invest in R&D
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS Strategic report
Chief Executive’s statement
continued
The future
Embracing change
Our markets are changing. New
technologies, such as Cloud and Mobile, are
beginning to enable our customers to
achieve more than ever before with their
Digital Assets. More connected devices,
more data, more intuitive interfaces, all
combine to mean that there are more
opportunities for us to add value within the
industries we serve. For example, by
enabling new forms of collaboration within
the design department via gesture-based
navigation on large touchscreens and tablet
devices; improving workflows and
expanding our user base; integrating key
aspects of operational data back into the
design phase of a major project, improving
efficiency; immersing the designer in the
as-built, real world environment using 3D
laser modelling technologies, thus reducing
the need for reworking the design due to
errors in fabrication and construction, or
even using the latest gaming technologies
to extend the use of the 3D model into
areas such as avatar-based operational
training, to improve safety and reduce risk
and cost. AVEVA is doing all of these things
today, and it is shaping our future direction,
and giving a glimpse at the exciting range of
new capabilities our customers can benefit
from by using our industry-leading
Engineering & Design Systems and
Information Management tools.
The challenge for us is to deliver new
technologies to our customers in a
well-judged and measured way, ensuring
that we preserve our reputation for
reliability as well as the essence of what
they appreciate most about the solutions
we offer today. We call this ‘continual
progression’ and protecting the investment
our customers have already made in
technology is fundamental to our vision of
the future.
Taking a disciplined approach to
acquisitions
We take a highly disciplined approach to the
acquisitions that we make, and over the
years have built up a strong track record of
identifying the right assets to add value to
the AVEVA product and solution suite. This
has produced tangible results as we have
successfully introduced a number of
acquired technologies into the AVEVA
product portfolio in recent years. The
evidence of this can be seen in the ‘Bubble
View™’ laser modelling capabilities in the
AVEVA E3D platform, which were made
possible through our acquisition of LFM
in 2011, as well as in the recent release of
AVEVA AVP, utilises the avatar technology
we acquired with Global Majic in 2012.
Acquisitions remain a high priority for us
as we execute our strategy to build our
presence in operations, and scale our
business around the world, particularly in
North America and we expect them to
continue to complement our own Research
& Development efforts.
Efficient development
As our business scales, we need to continue
to invest in making AVEVA as efficient as it
possibly can be. Over the past year we have
started a project to upgrade many of our
internal systems, to ensure they are able to
scale as we continue to grow and handle
the increased complexity of the business.
We expect this process to continue as we
grow still further.
Summary and outlook
The broad international spread of our
business combined with robust underlying
market drivers, has once again proved
effective in enabling us to deliver strong
underlying growth and an improvement in
profit margin, despite varied economic
conditions across some of the regions in
which we operate, and different rates of
expansion across our chosen markets.
This reflects the strong competitive
position of the Group, and the value that
our Engineering & Design and Information
Management solutions deliver to our
customers. We are confident we can
achieve our targets for further growth given
our resources, technology leadership and
the many exciting opportunities across the
markets we address.
CUSTOMER CASE STUDY
OKG
Creative Engineering
Dramatically Reduces Reactor
Outage Time at OKG
Industry: Nuclear Power
Solution:
Asset Modification with AVEVA
Everything3D, AVEVA Laser
Model Interface
Country: Sweden
“When AVEVA E3D was launched, OKG
realised that they could use it to further
improve the efficiency of the design work
and to cause the photorealistic
installation images and printouts used by
the installation teams to be of an even
higher quality and more intuitive…”
Okarshamns nuclear power plant
Photograph courtesy of OKG
The case study can be found in the AVEVA
World Magazine 2013, Issue 2
www.aveva.com/awm/2014/1/okg
24 AVEVA Group plc Annual report and accounts 2014
33%
Adjusted profit before tax margin
The adjusted profit before tax margin improved
by 90bps to 33%
We continue to deliver
operational leverage
Strategic report
Key performance indicators
Measuring our financial health
We aim to deliver good sustainable growth,
balanced by our need to continue to invest
in innovation, sales and marketing in order
to achieve this. The goal is to deliver
profitable growth as the business expands,
whilst maintaining a healthy balance sheet.
We have set out a range of the financial key
performance indicators (KPIs) that help to
present a meaningful picture of how AVEVA
is performing. Taken overall, we believe that
this range of KPIs – which offers insights
into our revenue, investment, profitability,
and cash generation – illustrates the high
levels of recurring revenue, strong margins
and ability to convert profits to cash
effectively that are features of our business.
Particular highlights over the past year
include the increase in the adjusted net
profit margin to 33%, through operational
gearing and careful cost control, and
the fact that recurring revenue has been
maintained at 70% of total revenue.
We were also pleased to see strong
cash conversion of 102%, reflecting
our continued focus on working capital
during the period.
Revenue (£m)
Consistent growth in Group revenue
220.2
237.3
Recurring revenue (£m)
Recurring revenue provides visibility
R&D expenses (£m)
Investment in innovation
35.5
38.3
+8%
Constant currency +10%
153.2
167.0
+9%
We have maintained
a high level of
recurring revenue
+8%
Innovation enables
us to maintain our
competitive lead
2013
2014
Strong organic
growth
2013
2014
2013
2014
Adjusted* profit before tax (£m)
We adjust to exclude non-operating items
Adjusted* profit before
tax margin (%)
We aim to deliver profitable growth
70.6
78.3
+11%
This best represents
the underlying profitability
of the group
32.1
33.0
+90BPS
We have improved the
margin whilst investing
for growth
2013
2014
2013
2014
2013
2014
Adjusted* basic EPS (p)
We adjust to exclude non-operating items
89.05
74.70
+19%
We have delivered
another year of solid
organic earnings growth
Solid earnings
growth
Dividend per share (p)
AVEVA has a progressive dividend policy
Cash generated from
operating activities (£m)
AVEVA is a highly cash generative business
24.0
27.0
+12.5%
70.2
60.3
During the year we returned
£100 million to shareholders
via a special dividend
+16%
Growth in cash from
operations reflects a
healthy business
Cash conversion (%)
A measure of our ability to turn profits into cash
95.0
102.0
+7%
This reflects our
ability to convert
profits into cash
2013
2014
2013
2014
2013
2014
* Adjusted profit before tax and adjusted basic 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.
25 AVEVA Group plc Annual report and accounts 2014
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS
Strategic report
Principal 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 are as follows:
Strategic and market risks
Risk
Dependency on key markets
AVEVA generates a substantial amount of its income from
customers whose main business is derived from capital projects
driven predominantly by growth in the Oil & Gas, Power and
Marine markets. World economic conditions or funding
constraints for new capital projects may adversely affect
our financial performance.
Enterprise Solutions
The development of the Group’s Enterprise Solutions business
represents a significant opportunity for the Group. This is a
relatively new market with different characteristics compared to
our traditional Engineering & Design Systems business. This brings
different challenges and opportunities for the Group which we
believe we are well positioned to manage and exploit. However,
there remains a risk that our investment in this area does not
produce the financial returns as quickly as expected.
Competition
AVEVA operates in highly competitive markets that serve the
Oil & Gas, Power and Marine markets. We believe that there are
a relatively small number of significant competitors serving our
markets. However, some of these competitors could, in the
future, pose a greater competitive threat, particularly if they
consolidate or form strategic or commercial relationships among
themselves or with larger, well capitalised companies. A further
threat is posed by the entrance, into AVEVA’s markets, of a much
larger technology competitor.
Identification and successful integration of acquisitions
In recent years, the Group has successfully completed a number
of acquisitions and expects to continue to review acquisition
targets as part of its strategy. The integration of acquisitions
involves a number of unique risks, including diversion of
management’s attention, failure to retain key personnel of the
acquired business, failure to realise the benefits anticipated to
result from the acquisition, and successful integration of the
acquired intellectual property.
Mitigation
AVEVA already has a broad spread across existing
and new market segments. It is central to our
strategy to diversify our customer offerings into
Owner Operators and Plant operations. This will
help secure a longer-term income stream that
extends beyond the design/build phase of these
capital projects. In addition, our ever-expanding
global presence provides some mitigation from
over-reliance on key geographic markets.
We continue to manage our investment into
Enterprise Solutions carefully: employing
experienced industry professionals; building
commercial partnerships with third party systems
integrators; and carefully selecting our target
markets and customers. In 2013/14, Enterprise
Solutions’ financial results were disappointing
but the pipeline of opportunities remains strong.
For 2014/15, we have put more focus within our
salesforce into selling our solutions into Owner
Operators. We are optimistic that Enterprise
Solutions will return to a positive contribution
in 2014/15.
We carefully monitor customers and other
suppliers operating within our chosen markets.
We stay close to our customers and ensure we
have a strong understanding of their needs and
their expectations from the AVEVA product
development roadmap.
Recently we have launched AVEVA Everything3D
and our vision for the future of plant design. This,
together with a number of other new products,
will help cement our relationships with our
customers and reinforce barriers to competition.
While each acquisition and integration is
unique, AVEVA now has an experienced team to
appraise and complete acquisitions. The Group’s
experience of previous ‘bolt-on’ acquisitions
provides a good understanding of potential
integration risks and as a result we feel well
placed to successfully manage these risks. Were
the Group to undertake a much larger acquisition,
we would ensure that appropriate resources and
experience were applied to manage the risks and
that we had access to the best possible
professional advice.
26 AVEVA Group plc Annual report and accounts 2014
Risk change from 2013
No change
Risk decreased
Risk increased
Operational risks
Risk
Mitigation
Protection of intellectual property
The Group’s success has been built upon the development of its
substantial intellectual property rights and the future growth of
the business requires the continual protection of these tools.
Research & Development
The Group makes substantial investments in Research &
Development in enhancing existing products and introducing
new products and must effectively appraise its investment
decisions and ensure that we continue to provide class-leading
solutions that meet the needs of our markets.
Our software products are complex and new products or
enhancements may contain undetected errors, failures,
performance problems or defects which may impact our strong
reputation with our customers.
International operations
The Group operates in over 30 countries globally and must
determine how best to utilise its resources across these diverse
markets. Where necessary, the business must adapt its market
approach to best capitalise on local market opportunities,
particularly in the strategically key growth economies.
In addition, the Group is required to comply with the local laws,
regulations and tax legislation in each of these jurisdictions.
Significant changes in these laws and regulations or failure to
comply with them could lead to additional liabilities and penalties.
Recruitment and retention of employees
AVEVA’s success has been built on the quality and reputation
of its products and services, which rely almost entirely on the
quality of the people developing and delivering them. Managing
this pool of highly skilled and motivated individuals across all
disciplines and geographies remains key to our ongoing success.
The protection of the Group’s proprietary software
products is achieved by licensing rights to use the
application, rather than selling or licensing the
computer source code. The Group uses third party
technology to encrypt, protect and restrict access
to its products. Access limitations and rights are
also defined within the terms of the software
licence agreement. The Group seeks to ensure
that its intellectual property rights are appropriately
protected by law and seeks to vigorously assert its
proprietary rights wherever possible.
AVEVA continually reviews the alignment of the
activities of our Research & Development teams to
ensure that they remain focused on areas that will
meet the demands of our customers and deliver
appropriate financial returns. This process is
managed by developing a product roadmap that
identifies the schedule for new products and the
enhancements that will be made to successive
versions of existing products. Products are
extensively tested prior to commercial launch.
The Group manages its overseas operations by
employing locally qualified personnel who are able
to provide expertise in the appropriate language
and an understanding of local culture, custom and
practice. Local management is supported by local
professional advisers and further oversight is
maintained from the Group’s corporate legal and
finance functions.
The Group endeavours to ensure that employees
are motivated in their work and there are regular
appraisals, with staff encouraged to develop
their skills. Annually there is a Group-wide salary
review that rewards strong performance and
ensures salaries remain competitive. Commission
and bonus schemes help to ensure the success
of the Group and individual achievement is
appropriately rewarded.
Financial risks
Risk
Mitigation
Foreign exchange risk
Exposure to foreign currency gains and losses can be material
to the Group, with more than 80% of the Group’s revenue
denominated in a currency other than sterling, of which our two
largest are US Dollar and Euro. The Group also trades in a number
of other currencies that over the past year have shown greater
volatility in exchange rates with GBP – notably Japanese Yen,
Indian Rupee, Brazilian Real and Australian Dollar.
The overseas subsidiaries predominantly trade in
their own local currencies, which acts as a partial
natural hedge against currency movements. In
addition, the Group enters into forward foreign
currency contracts to manage the risk where material
and practical. The Group limits its hedging of revenue
to US Dollar, Euro, Japanese Yen and its hedging of
costs to Swedish Krona. As the Group expands its
product development team in India we plan to hedge
forecast outflows of Indian Rupee where appropriate.
27 AVEVA Group plc Annual report and accounts 2014
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS
Strategic report
Finance review
James Kidd
Chief Financial Officer
Summary of review
Total revenue increased 8% to £237.3
million (10% growth on a constant
currency basis), adjusted profit before
tax increased 11% to £78.3 million and
operating cash inflows were £52.0 million
resulting in a year-end cash balance of
£117.5 million which was after a special
dividend payment of £100 million.
Strong growth
in profit
£237.3m
Revenue
Revenue increased by 8% to £237.3 million
£78.3m
Adjusted profit before tax
Adjusted profit before tax increased by 11% to
£78.3 million
27 May 2014
AVEVA has reported
a strong financial
performance in 2013/14
during which we
continued to deliver
against our key
financial metrics
Revenue
AVEVA’s revenue increased 8% in the year to
£237.3 million (2013 - £220.2 million). During
the second half of the year we faced a
foreign currency headwind which negatively
impacted reported revenue by £7.1 million
following a £2.3 million benefit in the first
half. This resulted in an overall negative
impact for the year of £4.8 million. This was
mainly due to the strengthening of sterling
against a number of currencies including
Brazilian Real, Australian Dollar, Japanese
Yen and Russian Rouble. Constant currency
revenue growth for the year was 10%.
The Group has continued to maintain high
levels of recurring revenue, which increased
9% to £167.0 million (2013 – £153.2 million)
and continues to represent 70% of
total revenue.
The geographic performance across
the Group was mixed where some territories
performed very strongly whilst others faced
tougher economic conditions. In EMEA
revenue increased by 4% during the year
to £112.0 million (2013 – £107.7 million) and
we saw good performances in Central
and Western Europe driven by further
expansion within the global EPCs and
our other customers involved in Oil & Gas,
petrochemicals, chemicals and conventional
power projects. On a constant currency
basis, revenue growth in EMEA was 4%.
Asia Pacific revenue was £86.9 million, an
increase of 19% (2013 – £73.3 million). South
Korea had an outstanding year benefitting
from many of the major shipyards working
on Oil & Gas offshore projects. Although
the overall long-term growth opportunity
in China remains strong, we had a tougher
year in the face of generally weaker
economic conditions and with shipbuilding
remaining subdued. We saw good growth
in India where our customers are busy
on naval, downstream Oil & Gas and
conventional and nuclear power projects.
On a constant currency basis, revenue
growth in Asia Pacific was 23%.
Americas’ revenue decreased by 2% from
£39.3 million in 2012/13 to £38.4 million.
North America had a good year which
reflects the increased focus and investment
that we have put into the region. We have
benefitted from increased activities in
shale gas projects and in Oil & Gas more
generally. In Latin America, we continued to
face a tougher economic environment in
Brazil where the delays in Oil & Gas projects
continue to make trading challenging. On a
constant currency basis, revenue growth in
the Americas was 2%.
Total revenue from end user markets
remained in line with previous periods with
Oil & Gas accounting for approximately
45–50%, Marine 20–25%, Power 10–15%
and Other, consisting of Mining,
Petrochemical, Chemical and Paper
and Pulp, 15–20%.
Engineering & Design Systems (EDS)
EDS had a successful year despite facing a
currency headwind, with revenue increasing
12% to £211.5 million (2013 – £189.5 million).
On a constant currency basis, revenue
growth was 14%.
A key component of this growth was the
strong sales of initial licences in the year, up
25% on 2012/13. This was primarily driven
by the performance in South Korea where a
number of the large shipyards purchased
additional licences for Oil & Gas projects.
28 AVEVA Group plc Annual report and accounts 2014
Engineering & Design Systems
Revenue
172.5
189.5
211.5
£211.5m
+12%
2012
2013
2014
Constant
currency growth
was 14%
Enterprise Solutions
Revenue
30.7
25.9
23.5
2012
2013
2014
£25.9m
(16)%
serious financial difficulties and a major Oil
& Gas operator abandoned its plan to
roll-out an enterprise-wide information
management solution. There are
indications that some International Oil
Companies are more focused on limiting
discretionary spend.
The ES business is inherently more difficult
to forecast with the purchase often more
discretionary in nature (compared to EDS)
and with this comes longer sales cycles.
Individual customer sales can be significant
(£1 million+) and are often on initial licences.
For a division still growing in scale, this is
causing ‘lumpier’ revenue growth trends.
Nevertheless, developing our Enterprise
Solutions offerings for Owner Operators
remains an important component of
medium-term growth for AVEVA and is
strategically fundamental to our offering
across the entire portfolio in playing an
important role in generating a ‘pull-through’
effect on the sales of our other products.
The performance of ES also had an impact
on the revenue backlog, which we define to
include all contracted ES revenue (including
software licences, annual fees and services)
that has not yet been recognised. The
backlog in ES at 31 March 2014 was
£10.7 million, compared to £11.4 million
at 30 September 2013 and £14.7 million at
31 March 2013.
ES costs were £29.2 million compared to
£28.7 million in the prior year, an increase
of 2%. We have continued to apply tight
cost control in ES and have continued to
improve the efficiency and effectiveness
of service delivery as well as our business
development and sales processes. We have
made some additional cost savings through
expanding our Research & Development
and service and support teams in
Hyderabad, India.
ES incurred a segment loss of £3.4 million
compared to a segment contribution of
£2.0 million in the previous year.
Rental licences increased by 13% to £105.5
million (2013 – £93.3 million). Our focus on
the key global EPC customers continues
to prove successful in driving both
revenue growth and token usage as well as
expansion within some of those accounts.
Pleasingly, we have also secured some
of the global accounts on longer-term
contracts which gives us improved visibility
of future revenue.
EDS costs increased by 7% to £48.5 million
(2013 – £45.4 million). During the year we
completed the establishment of our
dedicated Research & Development centre
in Hyderabad, India where we have added
additional headcount. This was later than
anticipated as a result of delays in obtaining
beneficial tax status for this operation.
We are now in the process of transitioning
projects away from third party providers
to the new operation and there have been
additional costs incurred in the handover.
We expect to benefit from cost savings
in future years as the centre becomes
fully operational.
We continue to invest in innovation to
create new software as well as develop
our existing portfolio to take advantage of
new technologies and new approaches.
We launched AVEVA E3D Insight, our first
tablet-based mobile application, as well as
releasing a significant upgrade to AVEVA
PDMS and fully integrating AVEVA Bocad
software with AVEVA’s range of 3D design
tools including AVEVA Everything3D.
We also made further investment in
technical sales resources to support selling
our wider portfolio of schematic products
and Bocad. In addition, we focused on
improving our internal training and sales
collateral to help our sales teams promote
the wider product portfolio and this activity
will continue into FY15 when we expect to
see the benefits come through.
EDS had a segment contribution of £163.0
million (2013 – £144.1 million), up 13% and
representing a contribution margin of 77%
(2013 – 76%).
Enterprise Solutions (ES)
Enterprise Solutions had a disappointing
year with revenue falling by 16% to £25.9
million (2013 – £30.7 million). As highlighted
in our interim results, the performance was
impacted by two customer-specific factors
which together partially explain the
disappointing result. A major Latin
American shipyard customer ran into
29 AVEVA Group plc Annual report and accounts 2014
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS
Strategic report
Finance review
continued
£70.2m
Cash generated from operating activities
Investment in R&D (£m)
Adjusted profit before tax margin (%)
35.5
38.3
32.1
£38.3m
+2.8
31.8
32.1
33.0
33%
+90BPS
Net cash deposits decreased
to £117.5m but only after
payment of dividends of
£116.5m
2012
2013
2014
2012
2013
2014
Shared operating costs
Shared selling and distribution expenses
increased by 5% to £58.0 million (2013
– £55.0 million). We have continued to
invest in our sales organisation, principally
in North America where we can see strong
growth opportunities principally in Oil &
Gas, the Middle East where we are focusing
on Owner Operators, and India to capture
the growing investment in Oil & Gas and
Power infrastructure. These investments
have been offset by lower bonuses and
commissions in certain sales areas, such as
Latin America and China, where results
have been below plan.
Other shared operating expenses increased
by 10% to £23.8 million (2013 – £21.7 million).
Exceptional items totalled £3.4 million in
the year (2013 – £1.1 million). This included: a
charge of £0.1 million incurred in respect of
the final phase of the Bocad acquisition
and integration; a charge of £1.8 million in
respect of redundancy costs relating to the
reorganisation of Bocad and transfer of
roles and responsibilities to a lower cost
product development centre in India; and a
charge of £1.5 million as the Group provided
against a potential underpaid sales tax
liability, together with interest for late
payment, in respect of sales at one of the
Group’s subsidiary companies.
Headcount
Total headcount at 31 March 2014 was 1,491
(2013 – 1,317), a net increase of 174 from the
previous year. The average headcount during
the year was 1,432 (2013 – 1,238) with 505
(2013 – 407) in Research & Development and
product support, 665 (2013 – 597) in sales,
marketing and customer support and
262 (2013 – 234) in administration.
Staff costs for the year were £100.2 million
(2013 – £92.8 million), an increase of 8%.
This was due to the increased headcount
and annual salary increases where the
average pay rise across the Group was 4%.
The average total cost per head (including
salary, bonus, social security and pension)
was £70,000 compared to £75,000 in
2012/13; reflecting lower sales commissions
paid in certain sales areas, the foreign
currency translation impact of our
overseas staff costs and our strategy to
use resources in India for Research &
Development and service delivery.
Profit before tax and margins
The adjusted profit before tax (as disclosed
and defined within the income statement)
for the year was £78.3 million (2013 – £70.6
million), an increase of 11%. Reported
profit before tax was £69.0 million
(2013 – £63.5 million).
The adjusted profit margin was 33.0%
compared to 32.1% for last year;
demonstrating that the business continues
to deliver operational leverage. Reported
profit margin was 29.1% (2013 – 28.9%).
Taxation
The Group’s effective tax rate for the
year was 26% (2013 – 28.5%) which is
higher than the underlying UK tax rate of
23% (2013 – 24%) due to profits earned
in higher tax jurisdictions as well as
non-deductible expenses.
The UK Government has substantively
enacted a 2% reduction in the main rate of
corporation tax from 23% to 21% effective
from 1 April 2014. It has further proposed
reducing the UK rate by a further 1% to 20%
from 1 April 2015. These changes have no
material impact on the tax charge in 2013/14
but the Group expects to benefit from
these reductions in future periods as future
UK profits are earned and subject to the
lower rates of corporation tax.
30 AVEVA Group plc Annual report and accounts 2014
Adjusted basic earnings per share (pence)
Deferred revenue
Cash generated from operating activities
89.05
89.05p
+19%
74.70
63.96
33.5
36.6
36.5
£36.5m
(2)%
47.8
40.8
52.0
£52.0m
+27%
2012
2013
2014
2012
2013
2014
£39.3m
(7% growth)
on a constant
currency basis
2012
2013
2014
Earnings per share and final dividend
Basic earnings per share were 78.12 pence
(2013 – 66.80 pence), an increase of 17%,
and diluted earnings per share were 77.99
pence (2013 – 66.65 pence). Adjusted basic
earnings per share rose 19% to 89.05 pence
(2013 – 74.70 pence) and by 16%, after
excluding the impact of the share
consolidation and the related reduction in
interest income following the associated
special dividend of £100 million paid during
the year. Adjusted diluted earnings per
share was 88.80 pence (2013 – 74.53 pence).
During the year the Company paid a special
dividend of 147 pence per share; totalling
£100 million, which was also accompanied
by a share consolidation of 15 new ordinary
shares for every 16 ordinary shares held.
This reduced the number of shares in issue
at the time of the share consolidation from
68,115,648 shares to 63,858,420 ordinary
shares and also amended the nominal value
of the shares to 3 5/9 pence each.
The Board is declaring a final dividend of
22.0 pence per share (2013 – 19.5 pence per
share), an increase of 13%. The dividend will
be payable on 25 July 2014 to shareholders
on the register on 27 June 2014.
Balance sheet and cash flows
AVEVA continues to maintain a strong
Balance sheet supported by net assets
at 31 March 2014 of £185.0 million
(2013 – £251.6 million), having paid out a
special dividend during the year of £100
million as noted above.
Gross trade receivables at 31 March 2014
were £82.9 million (2013 – £78.8 million).
We have increased the bad debt provision
to £5.1 million (2013 – £4.8 million) to cover
the risk of non-payment of certain debts.
Deferred revenue was £36.5 million at
31 March 2014 compared to £36.6 million
in the prior year mainly due to movements
in foreign exchange rates. If the foreign
currency spot rates at 31 March 2013 were
applied to the balances at 31 March 2014,
the deferred revenue balance would have
been £39.3 million.
Net cash (including treasury deposits) at
31 March 2014 was £117.5 million compared
to £190.4 million at 31 March 2013 with the
reduction reflecting the special dividend
payment in the year offset by strong
operating cash inflows. During the year
we have paid £116.5 million out in dividends
(2013 – £14.6 million), corporate tax
payments of £18.2 million (2013 – £19.6
million), capital expenditure of £5.2 million
(2013 – £5.2 million) and a one-off pension
payment of £2.5 million (2013 – £0.6 million).
Total cash and treasury deposits held in the
UK represented 66% of the total balance
held (2013 – 80%). The Group continues
to have no debt.
Non-current liabilities include retirement
benefit obligations of £8.8 million
(2013 – £17.0 million) which relate to defined
benefit pension obligations in the UK and
Germany and the South Korean severance
pay provision. The significant reduction in
pension liabilities reflects principally a
reduction in the liability associated with the
UK defined benefit scheme where, during
the year, the liability reduced as a result of
an additional cash contribution from the
Company of £2.5 million along with some
improvement in actuarial assumptions used
to value the liabilities. In addition, during the
year we fully insured a defined benefit
liability in Germany relating to Bocad which
we had inherited through the acquisition.
The Group continues to remain highly
cash generative and generated £52.0 million
(2013 – £40.8 million) from operating
activities after tax, an increase of 27%. This
was as a result of our continued focus on
cash collection from customers during
the year. Cash conversion, measured by
cash generated from operating activities
before tax as a percentage of profit from
operations, was 102% compared to 97% in
the previous year, which is in line with our
internal targets.
Capital structure
At 31 March 2014, the Group had 63,873,360
shares of 3.56 pence each in issue (2013 –
68,079,078 shares of 3.33p each). As noted
above, the special dividend paid during
the year was accompanied by a share
consolidation of 15 new ordinary shares
for every 16 ordinary shares held which
reduced the number of shares in issue by
approximately 4.3 million shares. During
the year the AVEVA Group Employee Benefit
Trust 2008 purchased 31,937 ordinary shares
in the Company in the open market at an
average price of £22.46 per share for total
consideration of £717,000 in order to satisfy
awards made under the AVEVA Group
Management Bonus Deferred Share Scheme
2008. At 31 March 2014, the Trust owned
72,626 ordinary shares in the Company.
Treasury policy
The Group treasury policy aims to ensure
that the capital held is not put at risk and
the treasury function is managed under
policies and procedures approved by the
Board. These policies are designed to
reduce the financial risk arising from the
Group’s normal trading activities, which
primarily relate to credit, interest, liquidity
and currency risk. The Group is, and
expects to continue to be, cash positive and
currently holds net deposits. The treasury
policy includes strict counter-party limits.
31 AVEVA Group plc Annual report and accounts 2014
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS
Strategic report
Corporate responsibility
AVEVA CSR framework
Last year we introduced our four-module
approach to Corporate Social Responsibility
(CSR). This covered our relationship with both
internal and external stakeholders, as well as
our focus on the environment and the local
and global community.
Continuing to use this framework, this section
provides a report on each of these areas and
demonstrates the broad range of activities
we get involved with in this field, as well as
emphasising our continued efforts to operate
ethically and responsibly in all areas of the
business and community.
X T E R N A L STAKEHOLDER
E
E
T
IN
R N A L STAKEHO
L
D
E
R
CSR
E
N
VIR
ONMENT C O M M U N I T
Y
32 AVEVA Group plc Annual report and accounts 2014
External stakeholders
Maintaining our dedication to be honest
and fair in our relationships with our
customers and suppliers is fundamental
to how we build trusted relationships and
increase our reputation as an organisation
with high ethical practices.
We have a clear corporate policy against
accepting payment or bribes. We are 100%
committed to conducting our business with
honesty and integrity. We expect all staff,
suppliers and customers to share these high
standards of ethical behaviour and foster a
culture of openness and accountability.
Our anti-piracy and compliance team have
made further steps to protect our software
and our customers’ interest by continuing to
seek out illegal use of AVEVA software, and
enforcing compliance of our terms and
conditions. Dedicated to meeting our
customers’ needs, we continue to develop
the skills within our training and product
support teams to provide a high level of
customer service to our customers and
ensure they are using their AVEVA products
to maximum benefit.
Internal stakeholders
Last year we increased our headcount
by 13% to 1,491 colleagues 74% of our
employees are male and 26% are female.
Amongst our senior management these
proportions are 78% and 22% respectively
operating in 48 offices in 30 countries.
As we continue to grow we maintain our
focus on our internal stakeholders, our
people, and this dedication has been
demonstrated in our latest Employee
Engagement Results and our low turnover
rate of only 7.6%.
Employee engagement
In May 2013 we held our second ’My
AVEVA, Your AVEVA, Our AVEVA’
Employee Engagement Survey. We had
a fantastic response rate with 91% of
colleagues completing the survey. We
scored an engagement index of 84%, 3%
up from 2011, which after the growth over
the last two years is a great achievement.
In line with our philosophy of continual
progression we have reviewed the results
and highlighted areas in which to make
further improvements. Our Internal
Communications and Global HR team have
been conducting focus groups around the
business to gain a greater understand of
specific feedback and active plans focused
on specific themes have been put in place
for key locations and functional levels.
01
02
01 Movember fund raiser
02 Chariots of Fire charity run
Communication
Communication with our colleagues is
an essential activity to ensure we maintain
an engaged workforce. The Internal
Communications (IC) team continues to
develop our OneSpace intranet and through
this channel we are able to deliver timely and
effective communications to the Group.
Through OneSpace we have been able to
increase our Executive team communications
by providing Executive video updates,
blogs and articles on the key business-
related topics.
As well as the development programmes,
we offer individual training courses via
classroom or eLearning. Colleagues’ needs
and interest in development and training are
identified via our performance management
procedure and last year we had record levels
of participation:
– 234 colleagues attending our global
Central Induction.
– 80 colleagues participating in a Colour
Insight; a personal awareness and
communication workshop.
– 53 new joiners on the Graduate
Programme.
Learning and development
Dedicated to the development of all
colleagues, we offer a broad range of
development opportunities to all
employees, including four well-established
development programmes:
– 39 colleagues involved in the ILM-
accredited Springboard Programme.
– 15 colleagues completing the
intermediate Management Development
Programme.
– 38 classroom courses held with 433
participants.
– 578 colleagues participating in eLearning
courses.
1) The Graduate Programme that offers
four, six-monthly rotations across
different areas of our business.
2) The Springboard Programme for
graduates that is accredited by the
Institute of Leadership & Management.
3) Management Development Programme
– available for managers as individual
courses or as a full development
programme.
4) AVEVA ALP, the Advanced Leadership
Programme, for future leaders.
33 AVEVA Group plc Annual report and accounts 2014
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS Strategic report
Corporate responsibility
continued
02
01 Kuala Lumpur Health Campaign –
Hiking in Bukit Gasing
02 Global Corporate Challenge 2013 Award
The three key objectives for the AVEVA
Academic Initiative are:
– work with universities to promote the
use of AVEVA products during under and
post-graduate studies by providing both
software and training support;
– work with government agencies to
re-skill engineers for employment in
other disciplines by providing free
training courses; and
– work with engineering bodies to
encourage graduates to pursue careers
in engineering.
We continue to work with Young Enterprise,
a business and enterprise educational
charity. Our involvement consists of
colleagues volunteering to be Business
Advisors to students studying for a range
of qualifications, providing insight into the
commercial world for these young people.
01
AVEVA is committed
to minimising its
carbon emissions,
increasing the use of
recycling opportunities
and reducing the
use of valuable
natural resources
Wellness
Our focus on wellness has increased
over the last year. At a global level, for the
second year running we took part in the
Global Corporate Challenge, a well-being
initiative that encourages healthy living
and an active lifestyle. In 2013 we had 357
colleagues take part and as an organisation
we became 356% more active and achieved
a total weight loss of 1,725 lbs.
Locally, our HR departments were busy
in 2013 hosting a variety of wellness
programmes. These included free fruit
baskets in the UK, a ‘Step into Spring’
programme in Houston, health checks in
Hyderabad, Pilates classes in Cambridge,
and a general wellness programme in
Malaysia that encouraged weight loss and
introduced bike rides and hikes for teams
of colleagues.
Community
We are committed to the development of our
global and local communities, and continually
extend our involvement in educational
partnerships and charitable giving.
Education partnerships
The AVEVA Academic Initiative is a strategic
investment that provides benefits to
AVEVA, universities, and the broader
engineering discipline.
34 AVEVA Group plc Annual report and accounts 2014
Tonnes of CO2e by region
Scope 1
Scope 2
Scope 3
For period 1 April 2013 to 31 March 2014
Emissions from:
Scope 1 – Combustion of fuel and operation of facilities
Scope 2 – Electricity, heat, steam and cooling purchased for own use
Scope 3 – Transmission and Distribution losses
Intensity Measurement (Scopes 1 and 2)
Tonnes CO2e/£m revenue
Tonnes CO2e
543
1,531
265
2,339
8.74
1,500
1,200
900
600
300
0%
Americas
Asia
Pacific
EMEA
Greater
China
Tonnes of CO2 equivalent
Scope 1
543
Scope 2
1,531
Scope 3
265
Over £70,000 was raised last year, and here
are some of our highlights:
– For the second year running a group of
colleagues took part in the Cambridge
Byte Night, an IT industry charity event
raising money for Action for Children.
– Teams of men took part in Movember, a
global charity event that raises money
for men’s health.
– In South America our colleagues initiated
an ‘Adopt a Child’ campaign whereby
colleagues collected money, clothes,
and toys and then presented these to
children in an orphanage. AVEVA also
donated furniture for the orphanage to
build their own computer centre.
– Colleagues in the Middle East raised
funds and relief items following Typhoon
Haiyan in the Philippines.
– Individual activities ranged from running
marathons, climbing Kilimanjaro and a
24-hour golf challenge.
As an organisation, we continue to sponsor
a range of charities by giving corporate
donations. Organisations we have supported
over the last year include the Villiers Park
Educational Trust, the Outward Bound Trust,
MAGPAS and Macmillan Cancer Support.
Charitable giving
As teams and individuals, 2013 saw AVEVA
colleagues from around the globe give their
money and time to raise money for charities.
Environment
Carbon emissions
AVEVA is committed to minimising its
carbon emissions, increasing the use of
recycling opportunities and reducing the
use of valuable natural resources. We are
continually improving the way in which we
capture and record our emissions data. For
the purposed of this report, the emissions
have been calculated according to the
‘Environmental Reporting Guidelines:
Including mandatory greenhouse gas
emissions reporting guidance’ issued by
the Department for Environment, Food and
Rural Affairs (DEFRA), and by applying
DEFRA’s 2013 Conversion Factors.
We have aimed for the GHG emissions to
be captured for all of our UK and overseas
offices between April 2013 and March 2014.
On the rare occasion that the information
was not available for a particular AVEVA
office, an estimate has been produced
based on the ratio between the local office
size, and our Cambridge HQ office.
This is the first year in which we have
collected and published our emissions data,
and hence the 2013/14 financial year will
form the baseline for future year targets.
For our carbon intensity ratio we have
measured our carbon usage as it relates to
our business performance, citing tonnes of
CO2e/£million of revenue.
Scope 1: Combustion of fuel and operation
of facilities
Scope 2: Electricity, heat, steam and
cooling purchased for own use
Scope 3: Transmission and distribution
losses
35 AVEVA Group plc Annual report and accounts 2014
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS
Directors’
report
36 AVEVA Group plc Annual report and accounts 2014
Directors’ report
Corporate governance
Philip Aiken
Chairman
27 May 2014
Board meeting attendance
8 meetings held
Philip Aiken
Jonathan Brooks
Philip Dayer
Hervé Couturier (100% up to retirement)
Jennifer Allerton (100% after appointment)
Richard Longdon
James Kidd
Introduction
I am pleased to introduce the 2014
Corporate Governance statement.
The Company is committed to the
principles of Corporate Governance
contained in the UK Corporate Governance
Code provided by the Financial Reporting
Council and for which the Board is
accountable to shareholders. The Company
has complied with the provisions of the UK
Corporate Governance Code throughout
the year and to the date of this report.
Further explanation of how the principles
have been applied is set out below and, in
connection with Directors’ remuneration, in
the Remuneration Committee report on
pages 47 to 64.
Composition of the Board
During the year the Board comprised the
Chairman, three Non-Executive Directors
(including the Senior Independent Director)
and two Executive Directors (being the Chief
Executive and the Chief Financial Officer).
As announced on 30 May 2013, Jennifer
Allerton was appointed to the Board in July
2013 and at the same meeting Hervé
Couturier stepped down from the Board.
Further details of the process for the
appointment of Jennifer Allerton are
contained in the Nominations Committee
report below.
Brief biographical details of all Board
members are set out on pages 42 and 43.
The membership of all Board Committees
is set out on pages 40 and 41.
Operation of the Board
The Chairman, along with the Executive
Directors and Company Secretary, ensures
that the Board functions effectively and has
established Board processes designed to
maximise its performance and effectiveness.
Key aspects of these processes are:
– The AVEVA Group Board meets regularly
in combination with the Board of AVEVA
Solutions Limited, the main operating
company in the Group which owns the
entire Group’s trading subsidiaries. The
AVEVA Solutions Limited Board includes
as members the Chief Technical Officer
and Head of Engineering & Design
Systems and the Chief Operations Officer
and Head of Enterprise Solutions as well
as all the members of the Group Board.
This ensures that the AVEVA Group Board
is well informed on technical and market
factors driving the Group’s performance
as well as on financial outcomes.
– The Board met eight times during the
year. These meetings, together with any
Committee meetings, are generally held
at the Group’s Head Office in Cambridge
or in our London office and are
approximately one day in duration.
– Each Board meeting has an over-arching
theme. These include annual technology
review, business plan/strategy day,
succession planning, annual budget,
presentations from Engineering &
Design Systems and Enterprise Solutions
and interim and final results.
– The Board aims that once per year a Board
meeting will be held outside the UK at one
of the Group’s overseas offices. During
2013/14, the September Board meeting
was held in Houston, Texas, USA.
– In addition, the Board holds a full-day
strategy meeting every year at which
Executive Directors and members of
the senior management team make
presentations covering progress against
current strategy and objectives and
ideas for future investment.
– The Board delegates the day-to-day
responsibility for managing the Group
to the Executive Directors.
– To enable the Board to discharge its
duties, all Directors receive appropriate
and timely information. Briefing papers
are distributed by the Company
Secretary to all Directors usually four
working days in advance of Board and
Committee meetings.
– A monthly reporting pack containing
management accounts with
commentary and reports from each
Executive is distributed to the Board on
a monthly basis.
– Meetings were held between the
Chairman and the Non-Executive
Directors during the year, without the
Executives being present, to discuss
appropriate matters as necessary.
– The Chairman ensures that the Directors
take independent professional advice
where they judge it necessary to
discharge their responsibilities as
Directors at the Group’s expense. All
members of the Board have access to
the advice of the Company Secretary.
– Non-Executive Directors and Executive
Directors are encouraged annually to
undertake training in furtherance of their
specific roles and general duties as
a director.
37 AVEVA Group plc Annual report and accounts 2014
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS
Directors’ report
Corporate governance
continued
Group structure 2014
The Board
Executive Directors
Richard Longdon
James Kidd
Non-Executive Directors
Philip Aiken (Chairman)
Jonathan Brooks
Philip Dayer
Jennifer Allerton
Company Secretary
Helen Barrett-Hague
Executive management team
Chief Executive Officer
Richard Longdon
Chief Financial Officer
James Kidd
Chief Operations
Officer and Head of
Enterprise Solutions
Chief Technology
Officer and
Head of Engineering
& Design Systems
Executive Vice
President
Global Sales
Executive
Vice President
Business Strategy
Head of
Regional Operations
Executive
Vice President
Human Resources
and Business Services
The attendance of individual Directors at Board meetings and
Committee meetings during the year is set out in the table below.
Independence of Non-Executive Directors and segregation of duties
The Board has considered the independence of the Chairman and the
Non-Executive Directors and believes that all are currently
independent of management and free from any material business or
other relationships that could materially interfere with the exercise of
their independent judgement. Their biographies on pages 42 and 43
demonstrate a range of experience and sufficient calibre to bring the
independent judgement on issues of strategy, performance,
resources and standards of conduct which is vital to the Group.
The roles of the Chairman and the Chief Executive are distinct and
the division of responsibility between these roles has been clearly
established, set out in writing and agreed by the Board. The Chairman
is responsible for the effectiveness of the Board and ensuring that it
meets its obligations and responsibilities. The Chief Executive is
responsible to the Board for the day-to-day management of the
business, leadership of the executive team and execution of the
Group’s strategic and operating plans. The Chairman and Chief
Executive meet regularly to discuss any issues pertaining to the
Company’s performance, reputation and organisation.
Matters reserved for the Board
The Board is responsible to shareholders for the proper
management of the Group. There is a formal schedule of matters
specifically reserved for the Board’s decision that covers key areas
of the Group’s affairs, which include:
– overall responsibility for the strategy of the Group;
– corporate governance;
– review of trading performance and forecasts;
– risk management;
– Board membership;
– communications with shareholders;
– approval of major transactions, including mergers and
acquisitions; and
– approval of the financial statements and annual operating and
capital expenditure budgets.
Meetings held
Meetings attended
Philip Aiken
Jonathan Brooks
Philip Dayer
Hervé Couturier (100% up to retirement)
Jennifer Allerton (100% after appointment)
Richard Longdon
James Kidd
Board
meetings
8
8
8
8
2
6
8
8
38 AVEVA Group plc Annual report and accounts 2014
Performance evaluation
The Board undertakes a formal and rigorous review of its
performance and that of its Committees and Directors each
financial year. Armstrong Bonham Carter LLP, the independent
board performance consultants who have no other connection with
the Company, conducted the review between November 2013 and
March 2014. This took the form of a series of structured interviews
with all the Directors and various members of the senior executive
team covering the performance of the Board, each of the Board’s
Committees and a peer group review of each Director's individual
performance. Armstrong Bonham Carter collated and analysed the
results from each interview and prepared separate reports on the
performance of the Board as a whole, one for each Committee and
reports on each Director.
The reports on the performance of the Board and those of the
Committees were subsequently presented and discussed at the
March 2014 Board meeting. The individual Director’s performance
reports were provided to the Chairman, which the Chairman then
discussed with each Director as appropriate. The Chairman’s
performance was discussed initially with the Senior Independent
Director before he provided feedback to the Chairman.
Overall, the review concluded that the Board had demonstrated a
high degree of effectiveness. There were some recommendations
on how to further improve the development of strategy, Board
composition and how operations are monitored. Subsequently the
Board has addressed some of these issues and for others these are
being managed by an action plan which will be regularly monitored.
Indemnities to Directors
In accordance with the Company’s Articles of Association, Directors
are granted an indemnity from the Company to the extent permitted
by law in respect of liabilities incurred as a result of the performance
of their duties in their capacity as Directors to the Company. The
indemnity would not provide any coverage to the extent the Director
is proven to have acted fraudulently or dishonestly. The Company has
maintained Directors’ and officers’ liability insurance cover
throughout the year.
Internal control and risk management
The Board has overall responsibility for the Group’s system of
internal control and for monitoring its effectiveness. However, such
a system is designed to manage rather than eliminate the risk of
failure and by its very nature can only provide reasonable and not
absolute assurance against material misstatement or loss.
The Board has established a continuous process for identifying,
evaluating and managing the significant risks the Group faces. The
Board regularly reviews the effectiveness of the Group’s internal
controls, which have been in place from the start of the year to the
date of approval of this report, and believes that it is in accordance
with the Internal Control: Guidance to Directors.
The key elements of the system of internal controls currently include:
– each member of the Executive Board has responsibility for
specific aspects of the Group’s operations. They meet on a
regular basis and are responsible for the operational strategy,
reviewing operating results, identification and mitigation of risks
and communication and application of the Group’s policies
and procedures. Where appropriate, matters are reported
to the Board;
– regular reports to the Board from the Executive Board on key
developments, financial performance and operational issues in
the business;
– operational and financial controls and procedures which include
authorisation limits for expenditure, sales contracts and capital
expenditure, signing authorities, IT application controls,
organisation structure, Group policies, segregation of duties and
reviews by management;
– an annual budget process which is reviewed, monitored and
approved by the Board;
– regular meetings between the Executive Board, sales area
managers and line of business managers to discuss actual
performance against forecast, budget and prior years. The
operating results are reported on a monthly basis to the Board and
compared to the budget and the latest forecast as appropriate;
– targeted internal audit reviews and extended external audits
which focus on confirming the operation of controls in key
process areas; and
– maintenance of insurance cover to insure all major risk areas of
the Group based on the scale of the risk and availability of the
cover in the external market.
The Board’s monitoring covers all material controls, including
financial, non-financial, operational and compliance controls and risk
management. It is based principally on reviewing reports from
management to consider whether significant risks are identified,
evaluated, managed and controlled and whether any significant
weaknesses are promptly remedied and indicate a need for more
extensive monitoring. The Board periodically carries out visits to the
Group’s subsidiaries and receives presentations on their operations.
The Board has also performed a specific assessment for the
purpose of this annual report. This involved reviewing a risk
matrix for the Group that was prepared during a risk assessment
workshop involving the Executive Board and senior managers. This
assessment considered all significant aspects of internal control
necessary for the Company to successfully carry out the key
business strategies of the Group together with more generic
inherent risks of the Group’s operations. The Audit Committee
assists the Board in discharging its review responsibilities.
39 AVEVA Group plc Annual report and accounts 2014
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS Constructive use of the Annual General Meeting
The Board seeks to use the Annual General Meeting to communicate
with investors and all shareholders are encouraged to participate.
The Chairmen of the Audit, Remuneration and the Nominations
Committees will be available at the Annual General Meeting to
answer any questions.
Share capital structure
Further information on the share capital structure of the Company is
contained on pages 65 and 66.
Committees of the Board
The Board commenced the year with four Committees: Audit,
Remuneration, Nominations and Treasury Risk Management. During
the course of the year the activities of the Treasury Risk Management
Committee were assumed by the Audit Committee. In accordance
with the UK Corporate Governance Code, the duties of the
Committees are set out in formal terms of reference. They are
available on request from the Company’s registered office during
normal business hours and are available on the Company’s website
at www.aveva.com.
Audit Committee
Committee Chairman:
Committee members:
No. of meetings: 4
4
4
1
3
Jonathan Brooks
Philip Dayer
Hervé Couturier
(100% to the date
of resignation)
Jennifer Allerton
(100% from the date
of appointment)
The Audit Committee assists the Board in its oversight and
monitoring of financial reporting, risk management and internal
controls. It tests and challenges these areas in conjunction with
management and the auditor as appropriate. The Audit Committee
met four times during the year. Following the decision in May 2013
to absorb the Treasury Risk Management Committee (TRMC), the
Audit Committee commenced oversight of the Group’s treasury
activities and associated risks.
The Audit Committee report on pages 44 to 46 sets out in more
detail the Audit Committee’s policies, practices and areas of focus.
Directors’ report
Corporate governance
continued
Policy on appointment and reappointment
In accordance with the Articles of Association, all Directors are
required to retire and submit themselves for re-election at least
every three years by rotation and also following their appointment. In
addition, as in the prior year and in accordance with the UK Corporate
Governance code, all of the remaining Board members are offering
themselves for re-election at the Annual General Meeting.
On appointment, all Directors are asked to confirm that they
have sufficient time to devote to the role, which is confirmed
together with details of their duties in the letter of appointment.
All Directors undergo an induction as soon as practical following
their appointment. As part of the induction process, Directors are
provided with background information on the Group and attend the
Group’s headquarters in Cambridge for meetings and presentations
from senior management. Jennifer Allerton received a briefing on
the role, responsibilities and duties of being a Company director
from the Company Secretary and reviewed the financials and
business models with the Chief Financial Officer. She met with the
Executive Vice Presidents of Business Strategy; Human Resources
and Business Services; the Chief Operations Officer and the Vice
President of Corporate Marketing. In addition, where appropriate,
meetings are also arranged with the Group’s advisers.
Non-Executive Directors are appointed for a term of three years.
The terms and conditions of appointment of Non-Executive
Directors are available for inspection at the Company’s registered
office during normal business hours and will be available for
inspection on the day of the forthcoming Annual General Meeting.
Dialogue with institutional shareholders
Communication with shareholders is given high priority by the
Board. The Chief Executive, Chief Financial Officer and Head of
Investor Relations have meetings with representatives of institutional
shareholders and hold analyst briefings at least twice a year, following
the announcement of the interim and full year results, but also at
other times during the year as necessary. Senior managers from
Product Development, Business Strategy and Finance also attended
analyst and shareholder meetings during the year. In September
2013, the Company held a capital markets day in Houston, Texas,
USA; where analysts and shareholders were updated on the activities
of the Group including its North American operations. All of these
meetings seek to build a mutual understanding of objectives with
major shareholders by discussing long-term strategy and obtaining
feedback. The Board also receives formal feedback from analysts and
institutional shareholders through the Company’s financial PR adviser
and financial advisers. The Board is appraised of discussions with
major shareholders to ensure that Executive and Non-Executive
Directors consider any matter raised by shareholders and to enable
all Directors to understand shareholder views. In addition, during
2014, the Group consulted with shareholders in respect of proposals
for the remuneration of Executive Directors. The Senior Independent
Non-Executive Director, Philip Dayer, is available to shareholders if
they have concerns which contact through the normal channels of
Chairman, Chief Executive or Chief Financial Officer has failed to
resolve or if such contact would be inappropriate. The Chairman,
Senior Independent and Non-Executive Directors are available for
dialogue with shareholders at any time and attend (together with
the other members of the Board) the Annual General Meeting, but
are not routinely involved in investor relations or shareholder
communications. Corporate information is also available on the
Company’s website, www.aveva.com.
40 AVEVA Group plc Annual report and accounts 2014
Nominations Committee
Treasury Risk Management Committee (TRMC)
Committee Chairman:
Committee members:
Philip Aiken
Jonathan Brooks
Philip Dayer
3
3
3
Committee Chairman:
Committee members:
Philip Dayer
Jonathan Brooks
James Kidd
1
1
1
No. of meetings: 3
No. of meetings: 1
The activities of the Nominations Committee include nomination,
selection and appointment of Non-Executive and Executive
Directors, succession planning and the composition of the Board,
particularly in relation to the diversity of background, skills and
experience. The Nominations Committee are committed to
attracting, recruiting and retaining the best people by creating
and sustaining an inclusive work environment offering equal
opportunities regardless of race, gender, gender identity or
reassignment, age, disability, religion or sexual orientation. The
Nominations Committee meets periodically when required. In
addition to the meetings there are a number of adhoc meetings to
address specific matters. The Chief Executive is invited to attend
meetings as appropriate to the business being considered.
The TRMC was formed to oversee the Group’s treasury function.
In addition to the above members, the Head of Finance and Group
Treasurer attended the meetings. The TRMC reviewed the Group’s
overall financial risk management, including:
– foreign exchange risk and related hedging policy;
– credit risk, which includes monitoring the Group’s counter party
exposure to banks; and
– liquidity risk, which includes reviewing the cash management
structure in the Group.
The policies of the Group in relation to these areas are explained in
note 26 to the financial statements.
In May 2013 it was decided in the interests of efficiency to merge the
Treasury Risk Management Committee with the Audit Committee.
During 2013 Hervé Couturier communicated his desire to retire
from the Board at the forthcoming AGM. The Nominations
Committee met under Philip Aiken’s Chairmanship and with
the participation of the Chief Executive Officer, to consider an
appropriate process for choosing a successor. Spencer Stuart, an
external executive search firm with a strong Board practice was
appointed to assist with the identification of appropriate candidates,
having considered the requisite skills, knowledge and experience
for the position with a particular focus on information technology
and global operations. Spencer Stuart has no connection with the
Company. The Chairman and the Chief Executive Officer interviewed
the short-listed individuals. The other members of the Nominations
Committee then interviewed the final candidate. As a result, the
Nominations Committee recommended the appointment of Jennifer
Allerton to the Board, subject to shareholder approval at the AGM on
9 July 2013. Upon her appointment Jennifer Allerton was considered
to be independent.
The Chairman of the Committee and the remainder of the Board also
considered the independence of Philip Dayer and Jonathan Brooks
now that both are in their third term of office. It was concluded that
both remained independent and continued to contribute to the
operation of the Board.
Remuneration Committee
Committee Chairman:
Committee members:
Philip Dayer
Philip Aiken
Jonathan Brooks
No. of meetings: 4
4
4
4
The Remuneration Committee makes recommendations to the
Board on the Group’s policy for Executive and senior management
remuneration and determines the individual remuneration packages
on behalf of the Board for the Executive Directors of the Group.
The Chief Executive attends meetings by invitation, except when
the Chief Executive’s own remuneration package is being discussed.
The Committee has access to professional advice, both inside and
outside the Company, in the furtherance of its duties. During the
year the Committee asked Deloitte LLP to conduct an executive
remuneration bench marking survey in accordance with the
Remuneration Committee’s policy to commission such a survey
triennially. The Directors’ remuneration report sets out in more
detail the Remuneration Committee’s policies and practices on
Executive remuneration.
41 AVEVA Group plc Annual report and accounts 2014
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS Directors’ report
Board of Directors
Philip Aiken
Chairman
Richard Longdon
Chief Executive
James Kidd
Chief Financial Officer
Philip Aiken has over 40 years’ experience in
industry and commerce having been, from
1997 to 2006, President of BHP Petroleum
and then Group President Energy of BHP
Billiton. Prior to that he held senior positions
with BTR plc (1995 to 1997) and BOC Group
(1970 to 1995). Other roles have included
Chairman of Robert Walters plc, Senior
Independent Director of Kazakymys plc,
Senior Independent Director of Essar Energy
plc, Senior Adviser for Macquarie Capital
Europe, Chairman of the 2004 World Energy
Congress and serving on the Boards of the
Governor of Guangdong International
Council, World Energy Council and Monash
Mt Eliza Business School. He is a Non-
Executive Director of National Grid plc and
Newcrest Mining Limited.
Richard Longdon received engineering
training in the defence industry and
then gained experience in the project
management of high-value engineering
projects. He moved into sales and held a
series of international sales and marketing
positions. He joined AVEVA in 1984 and
shortly afterwards was made Marketing
Manager for the process products. In
January 1992, he relocated to Frankfurt
where he was responsible for setting up
and running the Group’s German office.
He returned to the UK as part of the
management buyout team in 1994, taking
responsibility for the Group’s worldwide
sales and marketing activities, before being
appointed Managing Director in May 1999.
He took over as Group Chief Executive in
December 1999.
James Kidd is a Chartered Accountant
and joined AVEVA in 2004. Prior to his
appointment to the Board, James held
several senior finance roles within the
Group and was Head of Finance from 2006.
He joined the Group at the time of the
Tribon acquisition and played a significant
part in the completion of this transaction
and the subsequent integration of the
acquired business. His responsibilities
have included investor relations, the
development of the Group’s overseas
subsidiaries, standardisation of financial
processes and procedures as well as being
heavily involved in the Group’s recent
acquisitions. Prior to joining AVEVA James
worked for both Arthur Andersen and
Deloitte, serving technology clients in both
transactional and audit engagements.
Length of tenure
Length of tenure
Length of tenure
2 Years (appointed 1 May 2012)
20 Years (appointed 16 August 1994)
3 Years (appointed 1 January 2011)
42 AVEVA Group plc Annual report and accounts 2014
Jonathan Brooks
Non-Executive Director
Philip Dayer
Non-Executive Director
Jennifer Allerton
Non-Executive Director
Jonathan Brooks is a Fellow of the Chartered
Institute of Management Accountants and has
some 20 years’ experience in the technology
sector. Between 1995 and 2002, he was Chief
Financial Officer and a Director of ARM
Holdings Plc where he was a key member of
the team that developed ARM to be a leader in
its sector. Since 2002, he has been a director of
a number of technology companies in both the
software and hardware sectors. Most recently,
he was Chairman of Xyratex Limited, a Nasdaq-
listed provider of enterprise class data storage
sub-systems and network technology, which
was acquired by Seagate at the end of March
2014. He is currently a Non-Executive Director
and Chair of the Audit Committee of IP Group
PLC, which commercialises intellectual
property from leading universities.
Philip Dayer qualified as a Chartered
Accountant and pursued a corporate
finance career in investment banking,
specialising in advising UK-listed
companies. He was first appointed an
Advisory Director in 1983 of Barclays
Merchant Bank Limited and since then
has held the position of Corporate Finance
Director with a number of banks. He retired
from Hoare Govett Limited in 2004. Philip
was a financial consultant to OJSC Rosneft
Oil Company, the Russian state-owned oil
and gas company, on their flotation in 2006.
Philip is a Non-Executive Director of
Kazmunaigas Exploration Production JSC,
The Parkmead Group plc, Navigators
Underwriting Agency Limited, VTB Capital
plc and Chairman of IP PLUS plc.
Jennifer Allerton has more than 38 years'
information technology experience, gaining
extensive knowledge of working in large
companies across the globe, particularly in
emerging markets. Between 2002 and 2012
she was Chief Information Officer at F.
Hoffmann-La Roche with responsibility for
IT strategy and operations for the Pharma
division and all Group IT operations. Jennifer
holds a B.Sc in Mathematics and a B.Sc in
Geosciences as well as an M.Sc in Physics.
Jennifer is a member of the Advisory Board
of the University of Bath Management
School. Jennifer is also Non-Executive
Director of Oxford Instruments plc.
Length of tenure
Length of tenure
6 Years (appointed 12 July 2007)
6 Years (appointed 7 January 2008)
Length of tenure
Appointed 9 July 2013
Balance of Executive and
and Non-Executive Directors
Chairman
Executive Directors
Non-Executive Directors
43 AVEVA Group plc Annual report and accounts 2014
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS Audit Committee terms of reference
The Audit Committee monitors the integrity of the financial
statements of the Group and the Committee members (as part of
the full Board) review all proposed announcements to be made by
the Group and consideration is given to any significant financial
reporting judgements contained in them.
The Committee considers the effectiveness of financial
reporting and internal controls, compliance with legal requirements,
accounting standards and the Listing, Disclosure and Transparency
Rules of the Financial Conduct Authority (FCA) and also reviews any
proposed change in accounting policies and any recommendations
from the Group’s auditor regarding improvements to internal
controls and the adequacy of resources within the Group’s
finance function.
In May 2013, the Audit Committee assumed the responsibilities
of the Treasury Risk Management Committee which had been
established following the financial crisis of 2008. A full copy of the
Committee’s terms of reference is available from the Company’s
website at www.aveva.com.
Committee membership
The Committee is formed of three independent Non-Executive
Directors. As Chairman of the Committee, I am deemed by the
Board to have recent and relevant financial experience. I am a Fellow
of the Chartered Institute of Management Accountants and I have
held a number of senior financial positions in my career, the most
relevant of which being the Chief Financial Officer of ARM Holdings
Plc between 1995 and 2002. ARM is a major global technology
company as well as having a similar software licensing business
model to AVEVA. Philip Dayer and Jennifer Allerton make up the
other two members of the Audit Committee, Jennifer having joined
the Committee in place of Hervé Couturier who stepped down from
the Board at the AGM in July 2013. Brief biographical details of all the
members of the Committee are included on pages 42 and 43.
Information flows to the Audit Committee
The Audit Committee meets at least four times per annum. The
Company Chairman and CFO are invited to attend all meetings.
The external auditor and the Group’s Head of Finance are also
invited to attend. Members of senior management are invited
from time to time to make presentations such as the Committee’s
agenda necessitates. For example, in March 2014, the Audit
Committee met during the Group’s annual Corporate Finance
Conference held in the UK, and so were able to meet the most
senior members of the global finance team, representing the
EMEA, Asia Pacific, Chinese, Latin American and Enterprise
Solutions businesses.
The Committee meets quarterly with the auditor without any
members of the executive management team being present.
I also meet with the external auditor two or three times each year
away from the Company’s offices.
Directors’ report
Audit Committee report
The Board places a very high priority
on the integrity of the Group’s
financial statements, the quality and
transparency of its financial reporting
and the effectiveness of AVEVA’s risk
management and internal
control systems.
Jonathan Brooks
Audit Committee Chairman
27 May 2014
The Audit Committee assists the Board in its oversight and
governance of these critical areas.
In line with the requirement in the UK Corporate Governance Code
applicable to financial years commencing on or after 1 October 2012,
based on confirmations from management and external audit review,
the Committee and the Board consider that the Annual Report and
Accounts, taken as a whole, is fair, balanced and understandable and
provides the information necessary for shareholders to assess the
Company's performance, business model and strategy.
Overview of the year’s activities
In addition to its prescribed duties, the Audit Committee undertook
several additional projects during the year. Firstly, it commissioned
an extensive review of the Group’s revenue recognition policies,
undertaken in association with a third party professional services
firm, so as to enable the Group to be better prepared for the new
accounting standard for revenue recognition which is expected to
be released in 2014. Secondly, following the BIS initiative, work was
undertaken on assessing the potential cyber risks open to the
Group. Thirdly, following a decision to tender the audit from the
2016 year end, efforts were made to develop relationships with
other accounting firms in anticipation of a tender process which
will be held in 2015. Fourthly, with the general need to upgrade the
Group’s IT systems, attention was devoted to the major project
to upgrade the Business Systems. Finally, the challenging trading
conditions in which the Enterprise Solutions business found itself
led to an extensive review of whether its goodwill and intangible
assets required impairment.
44 AVEVA Group plc Annual report and accounts 2014
Risk and internal controls
The key elements of the Group’s internal control framework and
procedures are set out on page 39. The principal risks the Group
faces are set out on pages 26 and 27. Annually, the Audit Committee
considers the Group risk register and related management controls.
Throughout the process, the Board or the Audit Committee:
– gives consideration to whether areas should be looked at more
closely through specific control reviews;
– identifies areas where enhancement of internal controls is
required; and
Audit Committee meeting dates 2013/14 and summary agendas
September 2013
– Scoping of project to review revenue recognition policies
– Scoping of project to review cyber security
– Business systems update: presentation from management
– Consideration of FRC recommendations on auditor rotation
– Internal audit planning for coming year/extended external audit
– Consideration of the potential financial reporting risks for the
six-month interim report
– agrees action plans to deliver the necessary or recommended
– Review and confirmation of Audit Committee terms
enhancements.
of reference
November 2013
– Receipt of the report from the auditors on their interim
review procedures
– Review and approval of the six-month interim report
– Report from Deloitte LLP following their review of Group‘s
cyber security
– Progress report from management on interim review of
revenue recognition project
March 2014
– Presentation of reports on extended external audit procedures
– China and South Korea
– Full review by the Committee of Group risk register
– Discussion of the auditor’s 2013/14 audit plan
– Consideration of potential financial reporting risks and
regulatory changes for the full year report
– Presentation from management on the Group’s tax status and
current risks
– Progress report from management on revenue recognition
project following external input from PwC
– Review of treasury function and formal adoption of Group
treasury policy
– Ratification of priorities for 2014/15 procedures over system of
internal financial and operational controls
– Assessment of effectiveness of external auditor
– Presentation by senior members of regional finance teams
based in Brazil, China, Dubai, Germany and Malaysia
May 2014
– Receipt of reports from management considering significant
financial reporting risks
– Formal going concern review and internal audit function review
– Review of annual goodwill impairment test, particularly with
respect to the Enterprise Solutions business
– Receipt of the report from the auditors on their audit findings
– Review and approval of the preliminary announcement and
2014 annual report
There is a formal whistle-blowing policy which has been
communicated to employees. This policy provides information
on the process to follow in the event that any employee feels it is
appropriate to make a disclosure. The Audit Committee is satisfied
that the policy provides an adequate basis for employees to make
representations in confidence to the Group and for appropriate and
proportionate investigations.
Valuation of assets and liabilities
The Audit Committee discusses with management and the auditor
the approach that has been taken in assessing all key estimates.
These include revenue recognition, provisions for impairment of
receivables, the valuation of intangible assets and retirement
benefit obligations and the uncertainty of taxation items in
certain jurisdictions.
Annually, the Committee considers the going concern principle
on which the financial statements are prepared and also considers
and approves the impairment review of goodwill prepared
by management.
Revenue recognition
Revenue recognition represents a key risk to the integrity of the
financial statements and as such the Committee spends a great
deal of time in this area. This includes reviewing any non-standard
or very large contracts as and when they arise. During the year
the audit focused on ten locations which represented 79% of the
Group's revenue and the auditor consulted with the Committee on
the larger or non-standard contracts which arose during the course
of their work.
Impairment review of Enterprise Solutions (ES) business
During the year, particular attention was paid to the carrying value of
goodwill related to the Enterprise Solutions line of business for which
there is lower headroom in the impairment test calculations. The ES
business suffered a significant drop in revenues in 2013/14 compared
to the prior year, and this precipitated a thorough review, since one of
the key elements in supporting the carrying value of its intangible
assets of £12.8 million was its revenue growth rate. The difficulty for
the Committee lay in judging to what extent the drop in revenues in
2013/14 reflected a near-term issue rather than a fundamental change
in the ES future outlook. One factor which reassured the Committee
was the ability to reduce cost being carried by ES in an environment
where the growth rate was reduced to no more than 10% per annum.
In such a case, there was still no requirement for impairment, though
the Committee agreed that any further deterioration in the growth
rate in 2015 was likely to require an impairment. Further details can be
found in note 16 to the Accounts – ‘Goodwill’.
45 AVEVA Group plc Annual report and accounts 2014
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS Audit partners are rotated every five years and a formal statement
of independence is received from the auditor each year. The Board
and the Audit Committee are satisfied that the independence of
the auditor has been maintained. The current audit partner, Bob
Forsyth, will commence his fifth year with the Group in 2014/15
before rotating off the audit.
At the March 2014 meeting, the Committee assessed the
effectiveness of the external auditor. This assessment was
based upon individual questionnaire feedback from key members
of the Group’s finance team as well as from the Audit Committee
members. The overall conclusion was that while the audit process
was effective, some areas of potential improvement were identified.
The audit was last tendered in 2002/03. The Audit Committee
considers the re-appointment or tendering of the audit each year.
The Committee’s intention is currently to tender the audit starting
from the 2016 financial year, being the first year following the
current audit partner’s five-year term. At the time of writing, the
Committee expects that the current auditors, Ernst & Young, will be
invited to tender along with two other firms of auditors.
Audit planning and main audit issues
At the March 2014 meeting of the Committee the auditors
presented their audit plan for 2013/14. This included a summary
of the proposed audit scopes for the year for each of the Group’s
subsidiaries and a summary of what the auditor considered to be
the most significant financial reporting risks facing the Group,
together with the auditor’s proposed audit approach to these
significant risk areas. The main areas of audit focus for the year
were the areas of significant judgements of revenue recognition,
valuation of intangible assets, provisions for impairment of
receivables, the uncertainty of taxation items in certain jurisdictions
and retirement benefit obligations. These areas are described in
more detail in note 3 to the financial statements.
Jonathan Brooks
Audit Committee Chairman
Directors’ report
Audit Committee report
continued
Internal audit
The Group does not maintain a separate internal audit function.
This is principally due to the geographical spread of the Group’s
operations which means that there is a clear advantage in any
internal audit work or review of controls being undertaken by
teams with specific local regulatory knowledge and without any
local language barrier. The Group uses a combination of extended
external audit procedures and outsourced internal audit projects
to meet its control review needs, as this is considered most
cost-effective. However, the Audit Committee does review the
need to have its own separate internal audit function each year.
The Audit Committee has developed a framework to gain assurance
over the system of internal financial and operational controls.
This comprises:
– A risk assessment performed by operational management and
the Board to identify key areas for assurance.
– A series of peer and head office reviews of key risk areas of
financial internal control.
– The use of qualified third parties to undertake specialist reviews in
more technical areas. During 2013/14 the Committee appointed
Deloitte LLP to conduct a review of cyber security and PwC to
assist in the review of the Group’s revenue recognition policies.
– An extension of the external auditors’ work in certain areas and
geographies to cover other key financial risks, such as operations
in fast growth areas as well as new taxation risks arising from
trading in emerging markets. During 2013/14, following a similar
exercise in Brazil and Russia in the prior year, additional testing
was carried out in South Korea and China.
– An annual assessment by the Audit Committee of the whole
system of internal financial and operational controls.
External audit
The Audit Committee advises the Board on the appointment of
the external auditor and on its remuneration both for audit and
non-audit work and discusses the nature, scope and results of
the audit with the external auditor. The Committee keeps under
review the cost effectiveness and the independence and objectivity
of the external auditor. Controls in place to ensure this, include:
monitoring the independence and effectiveness of the audit;
implementing a policy on the engagement of the external auditor
to supply non-audit services; and a review of the scope of the audit
and fee and performance of the external auditor. An analysis of
non-audit fees is provided in note 7 to the financial statements.
The Audit Committee monitors fees paid to the auditor for
non-audit work and delegates the authority for approval of such
work to the Chief Financial Officer where the level of fees involved
are insignificant. During the year the auditor did perform non-audit
work which mainly consisted of tax compliance work for subsidiaries
of the Group and some other statutory filing work. Any significant
non-audit work such as reporting accountant engagements would
require prior approval from the Audit Committee. The Group
engages other independent firms of accountants to perform tax
consulting work and other consulting engagements to ensure that
the independence of the auditor is not compromised. For example,
during 2013/14, the Audit Committee authorised a review of the
Group’s revenue recognition policies by PwC, a review of Cyber
security by Deloitte and advice related to defined benefit pension
scheme matters with KPMG.
46 AVEVA Group plc Annual report and accounts 2014
Directors’ report
Remuneration Committee report
Introduction
I am pleased to present this year’s
Report on Directors’ Remuneration.
The Remuneration Committee
believes that remuneration
arrangements should align Executive
Directors with the delivery of the
long-term strategy and creation of
shareholder value while rewarding
Executives fairly if success is achieved.
Philip Dayer
Remuneration Committee Chairman
27 May 2014
Remuneration review
During the course of 2013/14 the Remuneration Committee
undertook a detailed review of the current remuneration
arrangements in operation at AVEVA, which included a review of the
market positioning of remuneration. The last review of the market
positioning of the remuneration arrangements was undertaken three
years ago and since this time there has been a significant increase in
terms of the size (market capitalisation and earnings have increased
materially) and the complexity of the Group (we now operate in new
product areas and have increased the spread of the Group’s operation
overseas). In light of this, the positioning of the Executive Directors’
total remuneration arrangements, and in particular base salary, has
fallen significantly behind market practice.
To ensure that the remuneration arrangements at AVEVA continue
to be competitive to attract and retain executives of an appropriate
calibre to run a business the size and complexity of AVEVA, we have
made a number of changes to our remuneration arrangements going
forward. The Committee believes that the changes, set out below,
are in the best interests of our shareholders and are appropriate for
the Executive Directors given their experience and performance.
– The CEO’s base salary will be increased from £405,600 to
£485,000 and the CFO’s salary will be increased from £260,000 to
£300,000. These increases will be implemented over the course of
the next two years subject to continued good performance.
– The long-term incentive opportunity for the CEO will be increased
to 150% of base salary (from 120% of base salary) and for the CFO
will be increased to 120% of base salary (from 100% of salary).
47 AVEVA Group plc Annual report and accounts 2014
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– In line with previous years, the Committee continues to believe
that earnings per share remains the most appropriate performance
measure for the long-term incentives and as such this will continue
to be the sole measure for 2014 awards. However, to reflect the
increased opportunity under the plan, the Committee is proposing
to increase the maximum performance target for awards to be
granted in 2014 from 18% per annum to 20% per annum.
Following these increases, the remuneration opportunity for each
of the Executive Directors will be positioned around market median
against other companies of a similar size and scale.
The Committee feels that the above increases will ensure that the
remuneration arrangements are more reflective of the size and
scale of AVEVA and will further align the Executive Directors with
the creation of long-term shareholder value.
The current Group Long Term Incentive Plan (LTIP) is due to expire
at the end of the year. The Committee is therefore proposing to
replace the current LTIP with a new LTIP (the 2014 LTIP) which will be
subject to shareholder approval at the 2014 AGM. The 2014 LTIP
reflects the provisions of the current LTIP but the plan has been
updated to reflect current best practice. Awards for the Executive
Directors will now be subject to a two-year holding period following
the end of the three-year performance period. Further details of the
proposed 2014 LTIP are set out in the Notice of AGM.
2013/14 out-turns
2013/14 has been a year of strong progress for AVEVA with
demonstrable development against a number of our strategies for
growth as well as growth in Adjusted Profit before Tax by £7.7m to
£78.3m. Further details of the Company’s progress and successes
are described in the Strategic Report.
In this context, the Committee decided to pay bonuses of 63%
of salary (50% of the maximum) to both the CEO and CFO. The
Committee feels that this outcome is an appropriate reflection of
the underlying performance of the business over the year.
Over the longer term, AVEVA has delivered EPS growth in excess
of RPI of 12.6% p.a. over the past three years, which the Committee
considered to be exceptional performance, particularly in light of an
ever-changing external environment. The Committee therefore
determined that 94% of the LTIP awards granted to Executive
Directors in 2011 should vest.
Remuneration reporting
The 2013/14 financial year is the first year in which AVEVA is required to
report under the new remuneration reporting regulations. Accordingly
the Directors' Remuneration Report is now split into two sections:
– The Directors’ remuneration policy which, subject to shareholder
approval, will apply for three years from the 2014 AGM; and
– The annual report on remuneration, which sets out payments
and awards made to the Directors and explains the linkage
between the Group’s performance and remuneration in respect
of the 2013/14 financial year.
The Committee is appreciative of the significant shareholder
support that it received for the 2012/13 Directors' Remuneration
Report at the 2013 AGM which received 97% of votes in favour. We
hope that you find this year’s report clear and informative and that
you will continue to support us by voting in favour of the resolutions
at the 2014 AGM.
Agenda for 2014/15
The Committee will continue to keep the structure and details
of our remuneration arrangements under review and will remain
committed to strong communication with shareholders and will
continue to consult with investors as appropriate.
Directors’ report
Remuneration Committee report continued
Introduction continued
The Committee has access to external advisers as required. During
the year the Committee received advice from Deloitte LLP. Deloitte
also provided unrelated advisory services to the Group in respect of
taxation during the year. Deloitte is one of the founding members of
the Remuneration Consultants Code of Conduct and adheres to this
Code in its dealings with the Committee. The Committee is satisfied
that the advice provided by Deloitte is independent. The fees paid
to Deloitte LLP were calculated based on time spent and expenses
incurred for the majority of advice provided but on occasion for
specific projects a fixed fee may be agreed.
Shareholder voting
The table below sets out the results of the vote on the 2012/13
Remuneration Report at the 2013 AGM:
Votes in favour
Votes against
Total votes
1,624,729 votes were withheld.
Votes
50,376,404
1,590,216
%
96.94
3.06
51,966,620
100.00
The Remuneration Committee
The Board sets the remuneration policy for the Group. The
Remuneration Committee makes recommendations to the Board
within its agreed terms of reference, details of which are available at
www.aveva.com.
The Remuneration Committee’s principal responsibility is to
determine the remuneration package of both the Company’s
Executive Directors and its senior management within broad
policies agreed with the Board.
When reviewing and setting remuneration policy the Committee
considered a range of factors including the Company’s strategy
and circumstances, the prevailing economic environment and the
evolving landscape in best practice guidelines to ensure that it
remains appropriate. In addition, it reviews the remuneration
policy for the Company as a whole and oversees and approves
the Company’s share incentive plans for all participants. The
remuneration of the Non-Executive Directors is determined by the
Executive Directors and the Chairman, rather than the Committee.
The conclusions and recommendations of the Remuneration
Committee were finalised in four formal meetings during the year,
but these were preceded by several informal discussions, including
some with advisers (none of whom had any other connection with
the Company).
The members of the Committee during 2013/14 were Philip Dayer
(Chairman), Philip Aiken, Jonathan Brooks and Jennifer Allerton, who
was appointed as a member of the Committee on 6 March 2014.
The Chief Executive (Richard Longdon) is invited to submit
recommendations to the Remuneration Committee and to attend
meetings when appropriate. He was not present when his own
remuneration was discussed.
48 AVEVA Group plc Annual report and accounts 2014
The Directors’ remuneration policy
The following sets out our Directors’ remuneration policy (the Policy). This Policy will be put forward for shareholder approval at the 2014
AGM in accordance with section 439A of the Companies Act 2006. Subject to shareholder approval at the AGM, this Policy will apply to
payments made from 15 July 2014.
The annual report on remuneration (pages 57 to 64) includes further details on how this Policy will be operated for the 2014/15 financial year.
AVEVA’s Executive Remuneration philosophy
The Remuneration Committee aims to ensure that members of the Executive management team are provided with appropriate incentives
to align them with the Company’s strategy and the future creation of shareholder value, encourage enhanced performance and are, in a fair
and responsible manner, rewarded for their individual contributions to the success of the Group.
It also aims for a combination of fixed and variable payments, benefits and share-based awards that will achieve a balance in incentives to
deliver short and long-term goals. The Company’s policy is that a substantial proportion of remuneration of Executive Directors should be
performance related and should be delivered in shares to create alignment with shareholders’ interests. Remuneration for Executive
Directors is set in the context of the economic environment in which the Group operates, the outcome of the wider pay review for all Group
employees as well as the financial performance of the Group. When determining remuneration arrangements, the Committee takes into
consideration relevant external market data as well as the remuneration for employees of the Group generally.
Remuneration commitments made which were consistent with the approved Remuneration policy in force at that time shall be honoured,
even if they would not otherwise be consistent with the policy prevailing when the commitment is fulfilled.
Base salary
Purpose and link
to strategy
Operation
Maximum opportunity
Performance measures
– Helps recruit and
retain employees.
– Reflects experience
and role.
– Base salary is normally reviewed annually
with changes effective from 1 April, although
salaries may be reviewed more frequently or
at different times of the year if the Committee
determines this is appropriate.
– The Committee determines base salary
taking into account factors including, but not
limited to:
• The individual’s role, experience and
performance in achieving financial and
non-financial goals within his areas of
responsibility.
• Salaries at other companies of a similar
size and complexity as well as global
technology peers.
• Remuneration of different groups of
employees within the Company.
• Total organisational salary budgets.
– Paid in cash.
None
– In determining salary increases the
Committee generally considers the
factors outlined in the ‘operation’
column.
– While there is no maximum salary
level, salary increases will normally be
in-line with the range of increases in
the broader workforce salary.
– The Committee retains the discretion
to make increases above this level in
certain circumstances, for example,
but not limited to:
• an increase in the individual’s
scope of responsibilities;
in the case of new executive
directors who are positioned on a
lower initial salary while they gain
experience in the role; or
•
• where the Committee considers
that salary is behind appropriate
market positioning for a company
of AVEVA’s size and complexity.
Salaries with effect from 1 April 2014
are:
– CEO (Richard Longdon) – £445,000
– CFO (James Kidd) – £280,000
49 AVEVA Group plc Annual report and accounts 2014
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS Directors’ report
Remuneration Committee report continued
The Directors’ remuneration policy continued
Purpose and link
to strategy
Operation
Maximum opportunity
Performance measures
Pensions
– Provides a
competitive
retirement benefit
in a way that is cost
effective to the
Company.
CEO
– The current CEO is entitled to a
None
pension on normal retirement, or on
retirement due to ill heath, equivalent
to two-thirds of his pensionable
salary provided he has completed (or
would have completed in the case of
ill health) 25 years’ service.
– A lower pension is payable on earlier
retirement after the age of 55 by
agreement with the Company and
subject to HMRC guidelines.
– Pensions are payable to dependants
on the Director’s death in retirement
and a lump sum is payable if death
occurs in service.
CFO
The Company currently contributes 10%
of base salary to the plan.
CEO
– The CEO, Richard Longdon, participated in the
CadCentre Pension Scheme, a defined benefit
pension scheme, until 2010 when he accrued
the maximum benefits that he is entitled to
under the scheme. The plan is a contributory,
funded, occupational scheme registered with
HM Revenue and Customs (HMRC) and, since
1 October 2004, Career Average Revalued
Earning benefits apply.
– Mr Longdon is now a deferred member of
the scheme and is no longer accruing any
further benefits.
CFO
– The CFO is a member of the AVEVA Group
Personal Pension Plan (a defined contribution
scheme).
New appointment
– The intention is that new appointments to the
Board would participate in the AVEVA Group
Personal Pension Plan or receive an equivalent
cash payment. However, if appropriate the
Committee may determine that alternative
arrangements for the provision of retirement
benefit may apply. When determining pension
arrangements for new appointments the
Board will give regard to the cost of the
arrangements, market practice and the
pension arrangements received elsewhere
in the Group.
Benefits
– Help recruit and
retain employees
– Provide a
competitive range of
valued benefits
– Assist toward early
return to work in
the event of illness
or injury
– The benefit policy is to provide an appropriate
level of benefit taking into account market
practice at similar sized companies and the
level of benefits provided for other employees
in the Group.
– In line with benefits provided for other senior
employees in the Group, Executive directors
currently receive a mobility allowance or
company car, a fuel allowance and a £500
annual allowance toward a range of benefits.
– The cost of benefit provision will
None
depend on the cost to the Company
of providing individual items and
the individual’s circumstances and
therefore there is no maximum value.
– In the event that an Executive was required
to re-locate to undertake their role, the
Committee may provide additional benefits
to reflect the relevant circumstances (on a
one-off or ongoing basis).
– Benefits are reviewed by the Committee in
the context of market practice from time to
time and the Committee may introduce or
remove particular benefits if it is considered
appropriate to do so.
– If the Company were to operate an all-
employee share plan in the future, Executive
Directors would be entitled to participate
in the plan on the same terms as other
employees.
50 AVEVA Group plc Annual report and accounts 2014
Purpose and link
to strategy
Operation
Annual Incentive Scheme & Deferred Share Scheme
Maximum opportunity Performance measures
– Incentivises
– The Committee determines an individual’s
– The maximum bonus
opportunity is 125% of base
salary (core award of 100%
of salary, outperformance
award of 25% of base salary).
and rewards the
achievement of
annual financial
and strategic
business targets and
delivery of personal
objectives.
– Deferred element
encourages long-
term shareholding,
helps retention
and discourages
excessive risk taking.
maximum incentive opportunity taking into
account the responsibilities of the role and
market practice at comparable companies.
– Performance targets are set by the
Committee on an annual basis.
– The Committee determines the level of
bonus paid taking into account performance
against targets, the underlying performance
of the business and Executive Directors’
performance during the year.
– The annual bonus is generally paid in a mix of
cash and deferred shares.
– For the core award, at 100% achievement
of bonus performance targets, 60% of the
bonus amount is payable in cash and the
balance, 40%, is used to calculate the number
of deferred shares. If the bonus amount is
less than or equal to 70% of the potential
maximum bonus, then 75% of the total
bonus is paid in cash and 25% is deferred
into shares. If the bonus amount is between
70% and 100% of the potential maximum
then the proportion paid in deferred shares is
determined by linear interpolation between
25% and 40%. The Committee may determine
that a different balance of cash and deferred
shares should apply.
– The whole outperformance award would
normally be delivered in deferred shares.
– Further details of how the deferred share
element operates are included as a footnote
to this table.
The AVEVA Group Long Term Incentive Plan 2014 (the 2014 LTIP)
– Establishes a
– Up to 2013, the Company’s long term incentive
motivational and
performance-
orientated structure
to incentivise
Directors to focus
on the creation of
shareholder value
aligned with the
longer term strategy
for the Group.
arrangement was the AVEVA Group Long
Term Incentive Plan adopted with shareholder
approval in 2004 (the 2004 LTIP).
– Subject to shareholder approval, from 2014
onwards the Committee intends to make
awards under the 2014 LTIP, which will be put
to shareholders for approval at the 2014 AGM.
– Awards normally vest based on performance
over a period of three years and are subject
to a subsequent two-year holding period.
Awards may be subject to a different
vesting period as may be determined by
the Committee.
– Awards under the 2014 LTIP may be granted
in the form of conditional awards or nominal
cost options or phantom options which will be
settled in cash.
– The Committee determines targets
each year to ensure that targets are
stretching and represent value creation for
shareholders while remaining motivational
for management.
– The Committee shall determine the extent
to which the awards will vest based on
performance against targets and taking
into consideration the wider performance
of the Group.
– Awards are subject to malus and clawback
provisions (details set out on page 52).
– The maximum limit under
the plan rules is 250% of
base salary.
– The current intention is that
awards will be limited to:
• 150% of base salary for
the CEO
• 120% of base salary for
the CFO
– The intention is the
maximum award will only
be awarded in exceptional
circumstances (e.g.
recruitment).
– The Committee retains the
discretion to grant awards
up to the maximum limit
under the plan rules. The
Committee’s intention
would be to consult with
shareholders in the event
that awards were to
be increased.
Core Award
– The core bonus award is based on
a mix of financial and individual
objectives. For 2014/15, 90% of
the bonus is based on financial
measures with 10% based on
individual measures agreed by the
Committee at the start of the year.
The Committee reserves the right
to vary these proportions for future
years. However, in any year, financial
performance will always account for
at least 70% of the bonus.
– For the financial performance
element, up to 10% of the bonus can
be earned based on interim financial
performance. Other than for this
element performance is assessed
over a financial year.
– The core award starts being earned
for entry level performance from
0% of salary and accrues linearly up
to 100% for achievement of stretch
target. Around 50% of the core
award bonus is paid if target levels of
performance are achieved.
Outperformance award
– The outperformance award is
based on financial performance
over the financial year and is only
delivered for the over-achievement
of stretch targets.
For further details of metrics for the 2014/15
annual bonus please see page 57.
– Awards vest based on earnings per
share performance.
– The Committee retains the discretion
to introduce alternative or additional
performance measures if it considers
that these would be better aligned
with strategy and incentivise
Executive Directors to deliver long-
term shareholder value. However, in
any, year financial performance will
always account for at least 75% of
an award.
– For threshold levels of performance
25% of the award vests, increasing
to 100% of the award for maximum
performance. There is straight-
line vesting of awards between
these points.
51 AVEVA Group plc Annual report and accounts 2014
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS Directors’ report
Remuneration Committee report continued
The Directors’ remuneration policy continued
Policy table footnotes
– The deferred share element for both the core and outperformance
annual incentive will be structured as a nil-cost option.
– Deferred awards will normally deliver the shares to participants
in three equal tranches, one in each of the three years following
the year in which an award is granted. The Committee has
discretion to determine an alternative vesting profile.
– Awards granted from 2012 onwards under the LTIP and the
deferred share scheme are subject to malus and clawback
provisions. Those provisions may apply at the discretion of the
Committee if accounts are corrected or published that indicate
the relevant performance was materially worse than in the
accounts used to assess vesting.
– Other elements of remuneration are not subject to clawback
or malus.
– The Committee may operate the 2014 LTIP and the deferred
share scheme in accordance with its terms. This includes
amending the scheme and the terms of awards (including
adjustments to take account of any variation of capital, demerger
or special dividend).
Legacy plans
Up to 2013, the Company’s long term incentive arrangement
was the AVEVA Group Long Term Incentive Plan adopted with
shareholder approval in 2004 (2004 LTIP). Awards under the plan
were granted in the form of nominal priced options and vest based
on the achievement of EPS performance over a three-year period.
No holding period applies. At the 2007 AGM, shareholders approved
the Executive Share Option Scheme 2007 (2007 ESOS). No grants
have been made under the scheme. The Committee may operate
the 2004 LTIP and 2007 ESOS in accordance with its terms.
This includes amending the scheme and the terms of awards or
performance conditions (including adjustments to take account of
any variation of capital, demerger or special dividend).
Committee discretion
The Committee reserves the right to make any remuneration
payments and payments for loss of office (including the exercise
of any discretions available to it in connection with such payments)
notwithstanding that they are not in line with the Policy set out
above where the terms of the payment were agreed (i) before the
policy came into effect or (ii) at a time when the relevant individual
was not a director of the Company and, in the opinion of the
Committee, the payment was not in consideration for the
individual becoming a director of the Company. For these purposes
'payments' include the Committee satisfying awards of variable
remuneration and an award over shares is 'agreed' at the time the
award is granted.
The Committee may make minor amendments to the policy set
out above (for regulatory, exchange control, tax or administrative
purposes or to take account of a change in legislation) without
obtaining shareholder approval for that amendment.
Information supporting the policy table
Remuneration arrangements throughout the Group
Throughout the Group remuneration is determined based on
the same principles – that remuneration arrangements should be
appropriate for the role without paying more than is necessary and
that pay should be structured to incentivise individuals to deliver
the objectives of their role. AVEVA employs over 1,500 employees
in over 40 locations with roles ranging from administrators to
technical specialists and sales staff. The structure and level of
reward therefore differs from role to role depending on skills,
experience, level of seniority and market practice for the role.
AVEVA’s sales employees participate in commission plans that are
designed to encourage the growth objectives of the Group. Around
200 employees have annual bonus plans with 19 receiving a portion
of bonus in shares which is deferred for up to three years; all other
employees are eligible for a Company Discretionary Award subject
primarily to the Group’s financial performance and secondarily
52 AVEVA Group plc Annual report and accounts 2014
subject to individual performance. Around 40 members of senior
management also participate in the LTIP based on the same
performance targets as Executive Directors. All staff participate
in a similar benefit structure to the Executive Directors.
Selection of performance measures
The Committee’s guiding principle is that remuneration
arrangements that operate throughout the Group should support
the delivery of our long-term business strategy and therefore the
creation of shareholder value. Our key long-term strategic priority is
to deliver strong but sustainable EPS growth to support the delivery
of this strategic priority.
Our annual bonus arrangements incentivise the delivery of financial
performance and the achievement of key individual objectives that
are aligned with the delivery of our strategy. EPS growth is the
primary measure used for long-term incentive arrangements
(although the Committee retains discretion to use different
performance measures for future awards). The payment of bonuses
and the vesting of long-term incentives are subject to stretching
targets established by the Committee at the beginning of each
performance period. These targets are set taking account of internal
forecasts of performance over the performance period, the markets
in which the Group operates, our long-term growth ambitions and
the expectations of the investment community on the Group’s
future potential performance.
Remuneration policy for new hires
When determining the remuneration package for a newly appointed
Executive Director, the Committee would seek to apply the
following principles:
– The package should be market competitive to facilitate the
recruitment of an individual of sufficient calibre to lead the
business. At the same time, the Committee would intend to pay
no more than it believes is necessary to secure the required talent.
– The structure of the on-going remuneration package would
normally include the components set out in the policy table for
Executive Directors.
– Where an individual forfeits outstanding variable pay
opportunities or contractual rights as a result of their
appointment, the Committee may offer compensatory
payments or awards, in such form as the Committee considers
appropriate taking into account relevant factors, which may
include the form of awards, expected value and vesting
timeframe of forfeited opportunities. When determining such
‘buy-outs’ the guiding principle would be that awards would
generally be on a ‘like for like’ basis to those forfeited unless not
considered appropriate.
– The maximum level of variable remuneration which may be
awarded (excluding any “buy-out” awards) is 375% of salary.
– Where an Executive Director is required to relocate to take-up
their role the Committee may provide reasonable assistance
with relocation (either via one-off or on-going payments or
benefits) taking into account the individual’s circumstances and
prevailing market practice.
– In the event that an internal candidate was promoted to
the Board legacy terms and conditions would normally be
honoured, including pension entitlements and any outstanding
incentive awards.
To facilitate awards outlined above, in the event of recruitment,
the Committee may grant awards to a new executive director in
accordance with Listing Rule 9.4.2. This provision permits the
granting of long term incentive plan awards, to facilitate, in unusual
circumstances, the recruitment of an Executive Director, without
seeking prior shareholder approval, or under any other appropriate
Company incentive plan. Awards under Listing Rule 9.4.2 would
normally be limited to ‘buy-out’ awards.
The remuneration package for a newly appointed Non-Executive Director would normally be in line with the structure set out in the policy
table for Non-Executive Directors.
Remuneration outcomes in different performance scenarios
The remuneration package at AVEVA is structured so that the majority of the package is related to the delivery of performance over the
short and long-term to ensure that reward is aligned with shareholder value creation.
The charts below show hypothetical values of the remuneration package for Executive Directors under three assumed performance scenarios:
Maximum award opportunities % of salary
Minimum
Mid performance
Maximum performance
Annual Bonus
LTIP
– No annual incentive pay-out
– No vesting under the LTIP
CEO
125%
150%
CFO
125%
120%
– 50% of salary pays out under the Annual Bonus (40%
of maximum i.e. half of the core award and none of the
outperformance award)
– 0–50% of maximum vesting under the LTIP
– 100% of maximum annual incentive pay-out
– 100% of maximum LTIP vesting
No share price growth has been assumed. Potential benefits under all employee share schemes and dividend equivalents have not been included.
Performance – related rewards 2014/2015
CEO – Richard Longdon
KEY
Fixed Pay
Annual Bonus
Long-term incentive
Total
£1,696,000
Total
£917,000
Total
£472,000
Total
£1,011,000
Total
£584,000
Total
£325,000
Salary
(Salary with
effect from
1 April 2014)
Pension
(Based on
salary with
effect from
1 April 2014)
Benefits
(Paid in
2013/14)
Total fixed
pay
£445,000
£27,000
£0 £472,000
£280,000
£17,000
£28,000 £325,000
Maximum
performance
Mid
performance
30%
36%
34%
56%
28%
16%
Minimum
100%
CFO – James Kidd
Maximum
performance
Mid
performance
34%
37%
29%
61%
26%
13%
Minimum
100%
Fixed pay is comprised of the following:
CEO (Richard Longdon)
CFO (James Kidd)
53 AVEVA Group plc Annual report and accounts 2014
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS Directors’ report
Remuneration Committee report continued
The Directors’ remuneration policy continued
Executive Director Service contracts and policy on payment for loss of office
When determining leaving arrangements for an Executive Director the Committee takes into account any contractual agreements including
the provisions of any incentive arrangements, typical market practice and the performance and conduct of the individual.
The service contracts for Executive Directors include the following terms:
Name
Date of contract
Date of appointment
Expiry/review date of current contract
Continuous service date
Richard Longdon
James Kidd
28 November 1996
1 January 2011
28 November 1996
1 January 2011
Rolling
Rolling
29 May 1984
5 January 2004
The service agreements are available to shareholders to view on request from the Company Secretary.
Notice period
The CEO’s service contract can be terminated by the Company or the Executive Director on
12 months’ notice.
Payment in lieu of notice
Annual Bonus
Deferred Share Scheme
2014 Long Term Incentive Plan
The CFO’s service contract can be terminated by the Company or the Executive Director on
9 months’ notice.
The service agreements provide for a period of garden leave not exceeding six months.
The Committee will determine the appropriate notice period for any new director taking into account the
circumstances of the individual and market practice. Any notice period will normally be no longer than
12 months. The Committee reserves the right to provide a longer initial notice period of up to 24 months
reducing to 12 months over the first 12 months of employment if it considers this to be appropriate.
In the event of termination of contract without notice, the Executive shall be entitled to a payment
in respect of salary and benefits for the period of notice. Such payment will normally be made in
instalments and subject to mitigation but the Committee shall have discretion to make a single payment
if this is considered appropriate.
The Executive Director may, at the discretion of the Committee, remain eligible to receive an annual
bonus for the financial year in which they ceased employment. Such Annual Bonus award will be
determined by the Committee taking into account the circumstances for leaving, time in employment
and performance.
Death
In the event of a participant’s death unvested awards shall vest. Where awards are in the form of options
they may be exercised for a period of up to 12 months from death.
‘Good leaver‘
At the discretion of the Committee, leaving by reason of injury, or disability, redundancy, the
Company or business for which the participant works leaving the group & any other reasons
determined by the Committee.
Awards shall continue in full and vest on the originally anticipated vesting dates.
Alternatively, the Committee may determine that awards should vest when the participant ceases
employment. Awards in the form of options may be exercised in accordance with the rules of the scheme.
Leavers in other circumstances
Awards will normally lapse.
Good leavers
If a participant leaves as a ‘good leaver‘, unvested awards shall continue in existence for the remainder
of the performance period. At the end of the performance period, the awards may be permitted to vest
to the extent determined in accordance with the applicable performance conditions and, unless the
Committee determines otherwise, then reduced to reflect the period that elapsed from the start of the
performance period to the date of cessation as a proportion of the performance period.
‘Good leavers‘ are those that leave the employment of the company as a result of death, injury,
disability, redundancy, retirement, the Company or business he works for being transferred from the
Group or any other reason at the discretion of the Committee.
Leavers in other circumstances
Awards will normally lapse. Vested but unexercised options held by participants who leave employment
other than due to gross misconduct may be exercised for a period following cessation of employment.
54 AVEVA Group plc Annual report and accounts 2014
Other payments
An Executive Director who joined the Company before January 2008 and who is made redundant, may
receive, in addition to a payment in lieu of notice, any statutory redundancy payment and any other
payment to which he is entitled, a payment under the Company’s enhanced redundancy policy. This
policy applies to all employees who joined the Company before January 2008. Under the policy, an
eligible person will receive a payment calculated by reference to their length of service and weekly pay
(by reference to gross annual salary) as follows:
– 7 weeks’ pay for service of up to 6 years; plus
– 1.5 weeks’ pay for each completed year of service over 7 years up to 20 years; plus
– 2 weeks’ pay for each completed year of service over 20 years.
Under the Company’s enhanced redundancy policy, eligible participants, including Executive Directors,
may also receive a payment in lieu of a 90 day redundancy consultation period.
In the event of termination of an Executive Director’s employment, a payment may be made in lieu of
any accrued but untaken holiday.
The Remuneration Committee would be responsible for considering the circumstances of the early
termination of an Executive Director’s contract and determining whether in exceptional circumstances
there should be compensation payments in excess of the Company’s contractual obligations.
Prior to 2014, long-term incentive awards were granted under the 2004 LTIP. Under this plan, if a participant leaves for any reason other than
gross misconduct, unvested awards will vest to the extent performance conditions have been met at the date of cessation. To the extent
performance conditions have not been met at the date of cessation, if the participant is a 'good leaver', unvested awards will vest at the date
of cessation to the extent determined by the Committee at its absolute discretion taking into account the extent to which any performance
condition has been satisfied on cessation and, unless the Committee determines otherwise, the period of time that has elapsed from grant
to cessation. For these purposes, a person is a 'good leaver' if he leaves because of death, injury, disability, redundancy, retirement, the
Company or business he works for being transferred from the Group or any other reason at the discretion of the Committee.
Change of control
In the event of a change of control or a voluntary winding-up of the Company and ultimately at the discretion of the Remuneration Committee:
1. Unvested awards under the Deferred Share Scheme will vest in full at the time of change of control.
2. Unvested awards granted under the 2004 LTIP will vest having regard to the extent to which performance conditions have been met and,
in the case of awards granted after 16 May 2012, unless the Committee determines otherwise, the time elapsed between the date of
award and the date of the change of control or winding-up.
3. Unvested awards granted under the 2014 LTIP will vest having regard to the extent to which performance conditions have been met and
unless the Committee determines otherwise, the proportion of the performance period that has elapsed at the date of the change of
control or winding-up.
Employee context
When setting Executive Directors' pay, the Committee considers the remuneration arrangement of other senior managers and employees in
the Group more generally to ensure that Executive remuneration arrangements are appropriate in this context.
AVEVA undertakes an annual salary review in April each year and uses this opportunity to reward strong performance and ensure salaries are
in line with market rates. It manages this in a competitive environment particularly in the fast-growing economic areas. When determining
salary increases for Executive Directors the Committee considers the outcome of the wider pay review for the Group.
The Committee does not consult directly with employees regarding Executive Directors’ remuneration. However, at regular intervals the
Company conducts a survey of the views of employees in respect of their experience of working at AVEVA including their own reward.
Dialogue with shareholders
The views of our shareholders on remuneration matters is important to the Committee and prior to making any material changes to
remuneration arrangements the Committee consults with major shareholders and their representative bodies to obtain their views.
Over the past few years we have regularly consulted with shareholders regarding the operation of remuneration arrangements including
the structure and stretch of the annual bonus plan, performance measures for the LTIP and the level of stretch in LTIP targets. In 2014 the
Committee consulted with shareholders regarding the increases in basic salary for the Executive Directors and the implementation of a new
LTIP in light of the expiry of the 2004 LTIP.
The Company remains committed to engaging with shareholders in relation to remuneration issues.
55 AVEVA Group plc Annual report and accounts 2014
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS Directors’ report
Remuneration Committee report continued
The Directors’ remuneration policy continued
Remuneration Policy for Non-Executive Directors
Approach to setting fees
Basis of fees
Other items
– Fees for the Chairman and
the Non-Executive Directors
are determined taking
account of the individual’s
responsibilities, the expected
time commitment for the role
and prevalent market rates.
– The Board is responsible
for setting fees for the
Non-Executive Directors
with the Committee being
responsible for setting fees
for the Chairman.
– Fees are reviewed at
appropriate intervals.
– Basic fees are subject to the aggregate limit in the Company’s
Articles of Association. Any changes in this limit would be
subject to shareholder approval.
– Non-Executive Directors do
not receive incentive pay or
share awards.
– Non-Executive Directors are paid a basic fee for
membership of the Board with additional fees being paid
to Non-Executive Directors who hold the position of
Committee Chairman to take into account the additional
responsibilities and workload. Additional fees may also
be paid for other board responsibilities or roles if this is
considered appropriate.
– The Non-Executive Chairman receives an all-inclusive fee
for the role.
– Fees are paid in cash.
– Current fees are follows:
• Chairman’s fees – £165,880
• Basic non-executive director fees – £47,150
• Committee Chairman fee (Audit and Remuneration) –
£10,700
• Senior Independant Director fee – £10,700
– Fees may be increased in future years in line with the policy
outlined above.
– Non-Executive Directors do not
currently receive any benefits.
Benefits may be provided in the
future if, in the view of the Board
(or, in the case of the Chairman,
the Committee), this was
considered appropriate.
– Travel and other reasonable
expenses (including fees incurred
in obtaining professional advice
in the furtherance of their
duties) incurred in the course
of performing their duties are
reimbursed to Non-Executive
Directors.
Non-Executive Director Letters of appointment
The Non-Executive Directors have appointment letters, the terms of which recognise that their appointments are subject to the Company’s
Articles of Association and their services is at the direction of the shareholders.
The letters of appointment for Non-Executive Directors include the following terms:
Name
Date of contract
Date of appointment
Philip Aiken
Philip Dayer
Jonathan Brooks
Jennifer Allerton
1 May 2012
2 January 2014
11 July 2013
6 March 2013
1 May 2012
7 January 2008
12 July 2007
6 March 2014
Expiry/review date
of current contract
30 April 2015
2 January 2017
11 July 2016
1 July 2016
Notice period months
3
3
3
3
All Non-Executive Directors submit themselves for election at the Annual General Meeting following their appointment and subsequent
intervals of no more than three years.
There are no pre-determined special provisions for Non-Executive Directors with regard to compensation in the event of loss of office.
Non-Executive Directors are not entitled to any payments in lieu of notice.
The letters of appointment are available for shareholders to view from the Company Secretary upon request.
56 AVEVA Group plc Annual report and accounts 2014
Annual report on remuneration
Executive Directors
Statement of implementation of remuneration policy in 2014
Base salary
As set out in the introductory letter from the Remuneration Committee Chairman, during the course of 2013/14 the Remuneration
Committee undertook a detailed review of the current remuneration arrangements in operation at AVEVA, which included a review of the
market positioning of the current remuneration arrangements.
A review of market positioning was last undertaken three years ago and since this time there has been a significant increase in terms of
both the size and the complexity of the Group illustrated by a near doubling of the Group’s market capitalisation to c.£1.4bn, the employee
base of the Group increasing from c.800 employees to around 1,500 in 2013/14, the Group diversifying into new product areas including
Enterprise Solutions and developing AVEVA Everything3D and an increase in the spread of the Group’s operations overseas. As a result
of this, the positioning of the Executive Directors’ remuneration arrangements, particularly base salary, has fallen significantly behind
market practice.
In light of the above and taking into account the strong performance of the business and the Executives in recent years, the Committee
considered it appropriate to increase the base salary for the CEO and CFO as follows:
Base salary with effect from
CEO
CFO
1 April 2014
1 April 2015
£445,000 (c.9.7% increase)
£485,000 (c.9% increase)
£280,000 (c.7.6% increase)
£300,000 (c.7% increase)
The salary increases with effect from 1 April 2015 will be subject to continued strong performance by the Executive and the Group.
Benefits
In line with benefits provided for other senior employees, in 2014/15 Executive Directors will be provided with a company car or a mobility
allowance, a fuel allowance and a £500 annual allowance towards a range of flexible benefits.
Pension
As noted in the Policy Table above, Richard Longdon participated in the AVEVA Solutions Limited defined benefit pension scheme until 2010
when he accrued the maximum benefits that he is entitled to under the scheme. He is now a deferred member of the scheme and is no
longer accruing any further benefits.
James Kidd is a member of the AVEVA Group Personal Pension Plan (a defined contribution scheme). For 2014/15, the Company contribution
to the plan will be 10% of salary. James will continue to be provided with the flexibility to contribute to this plan via salary sacrifice.
Annual Incentive Scheme
For 2014/15, the maximum opportunity for Executive Directors under the annual bonus will be 125% of base salary (which will be made up of
a core award of 100% of salary and an outperformance award of 25% of base salary).
It was agreed that for the core award 90% of bonus shall be based on achieving stretching Group adjusted profit before tax (PBT) targets.
10% of the core award is contingent upon achievement of key individual performance objectives which had been agreed by the
Remuneration Committee at the start of the financial year.
Of the 90% of the core award based on financial performance, 10% is based on achievement for the six months to 30 September and the
remaining 80% is based on the full year results for 2014/15.
The performance targets for the core and outperformance award are based on Group adjusted profit before tax (PBT) targets and the
outperformance award will only be delivered for the achievement of stretch targets over and above the targets for the core award.
The Remuneration Committee believes that, given the annual incentive scheme rewards the achievement of the annual business plan,
the targets are commercially sensitive and therefore should not be disclosed.
Deferral
For the core award, at 100% achievement of bonus performance conditions 60% of the bonus amount is payable in cash and the balance,
40%, is deferred into shares. If the bonus amount is less than or equal to 70% of the potential maximum core bonus, then 75% of the bonus
is paid in cash and 25% paid in deferred shares. If the bonus amount is between 70% and 100% of the potential maximum core bonus then
the proportion paid in deferred shares is determined by linear interpolation between 25% and 40%.
Any outperformance award will be paid in deferred shares.
Deferred awards vest pro-rata over three years.
57 AVEVA Group plc Annual report and accounts 2014
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS
Directors’ report
Remuneration Committee report continued
Annual report on remuneration continued
Proportion of core bonus award payable in deferred shares
Period of deferral
50%
40%
30%
20%
10%
0%
One-third
One-third
One-third
20%
40%
60%
80%
100%
0
1
2
3
% Bonus achievement
Years
Long-Term Incentive Plan
Subject to shareholder approval, it is intended that awards will be made under the 2014 LTIP following the 2014 AGM.
As set out in the introductory letter from the Remuneration Committee Chairman the award opportunity for the CEO will be 150% of base
salary (increased from 120% of base salary) and for the CFO will be 120% of base salary (increased from 100% of salary).
As with previous years, the performance conditions for the award will be based on EPS growth over the three-year period from 2014/15 to
2016/17. To reflect the increased opportunity under the plan, the Committee is proposing to increase the performance range for awards to
be granted in 2014 as follows:
Performance
Threshold
Maximum
Average adjusted diluted
earnings per share growth
per annum
Current
targets*
Proposed
targets
Proportion
of vesting
(% of total
award)#
12%
18%
12%
20%
25%
100%
* For comparative purposes, current targets have been adjusted down by 2% to eliminate the effect of the share consolidation completed in 2013 and which affected the
base year for performance measurement targets.
If average EPS growth is between threshold and maximum then vesting shall be on a straight-line basis.
#
Single total figure of remuneration for Executive Directors (Audited)
The following table sets out the single figure for total remuneration for Directors for the 2013/14 and 2012/13 financial years.
Executive Directors
2014
Richard Longdon
James Kidd
2013
Richard Longdon
James Kidd
Base salary
(£’000)
Benefits
(£’000)
Pension
(£’000)
Annual
incentive
(£’000)
Long-term
incentive
(£’000)
406
260
27
17
—
26
254
163
510
204
Base salary
(£’000)
Benefits
(£’000)
Pension
(£’000)
Annual
incentive
(£’000)
Long-term
incentive
(£’000)
390
230
25
17
—
23
365
215
183
18
Total
(£’000)
1,197
670
Total
(£’000)
963
503
58 AVEVA Group plc Annual report and accounts 2014
Elements of single figure of remuneration
Base salary
The CEO’s salary over 2013/14 was £405,600 (2012/13 – £390,000). The CFO’s salary over 2013/14 was £260,000 (2012/13 – £230,000).
Benefits
In 2013/14 and 2012/13 Executive Directors were provided with a company car or a mobility allowance, a fuel allowance and a £500 annual
allowance towards a range of flexible benefits.
Pension
James Kidd is a member of the AVEVA Group Personal Pension Plan (a defined contribution scheme) and during 2013/14 the Company
contributed 10% of salary to the plan.
Annual incentive
This reflects the total annual incentive paid and payable in 2014
based on performance in the year ended 31 March 2014. This
includes both the cash element of the bonus and the portion
deferred into shares under the deferred share scheme.
10% of the core award was paid for achieving the half year
performance target. The Committee determined that for both the
CEO and CFO, 10% of the core award will be paid following
achievement of individual performance targets and 43% of the core
award will be paid based on the full year financial performance as the
target was only partially met. None of the outperformance award
will be paid as targets were not met. Achievement for 2013/14 was
63% of the core award and 50% of the maximum payable for both
Executive Directors (2012/13 – 94%).
Adjusted profit before tax (£m)
11% : £78.3m
70.6
78.3
62.4
2012
2013
2014
2014
Richard Longdon
James Kidd
Cash bonus
(£’000)
Deferred
bonus
(£’000)
Total bonus
(£’000)
190
122
64
41
254
163
The Remuneration Committee believes that, given the annual incentive scheme rewards the achievement of the annual business plan, the
targets are commercially sensitive and therefore should not be disclosed.
Long-term incentives
This includes the LTIP awards, granted under the previous Long-Term Incentive Plan, vesting based on performance in the three-year period
ending 31 March 2014.
The values included in the single figure table are calculated by multiplying the number of shares granted on 9 July 2011 by the level of vesting
(94% of maximum awards) and the three-month average share price to 31 March 2014 of 2,094p.
These awards were subject to the delivery of EPS growth. 0% of awards vest for diluted EPS growth of less than RPI plus 5%, with 100% of awards
vesting for diluted EPS growth of more than RPI plus 12%. These targets were both subsequently increased by 1% (to 6% and 13% respectively)
to reflect the effect of the share consolidation completed in July 2013. Average diluted EPS growth for the three year performance period
exceeded RPI by 12.6% per annum and therefore 94% of the award shall vest on 6 July 2014. The Committee considered this level of vesting in
the context of the wider performance of the business and returns to shareholders during the period and considered that it was appropriate.
For 2012/13, 33% of the maximum LTIP awards granted to the Executives in 2010/11 vested.
59 AVEVA Group plc Annual report and accounts 2014
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS Directors’ report
Remuneration Committee report continued
Annual report on remuneration continued
Other information in relation to 2013/14
Scheme interests awarded in the year (audited)
The table below sets out details of the LTIP 2004 and deferred share awards made to the Executive Directors during 2013/14:
Plan and type of
award
Participant
Date of grant
Basis of award
Face value
of awards (£)
Threshold vesting
(% of face value)
Performance
period
Richard
Longdon
The CEO was
made an award
of 120% of
base salary
£486,7201
LTIP (nominal
cost options)
21 August 2013
25%
1 April 2013 –
31 March 2016
James Kidd
The CFO was
made an award
of 100% of
base salary
£260,0001
Details on
performance
measures
Diluted adjusted
EPS growth.
25% vests for
diluted adjusted
EPS growth of
14% p.a.
100% vests for
diluted adjusted
EPS growth of
more than
20% p.a.
Linear
interpolation
between these
points.
Richard
Longdon
£137,192
Deferred Share
Scheme
20 June 2013
Deferred
element of
2012/13 annual
incentive
James Kidd
£80,908
N/A
No performance
period. Awards
vest in equal
tranches on
27 May 2014,
27 May 2015 and
27 May 2016
N/A
1 Richard Longdon was awarded options over 19,931 shares and James Kidd options over 10,647 shares. The number of options awarded were determined using the
average market share price for the 5 days preceding the award of 2,442p.
Shareholding guidelines and interests in shares (audited)
2013
Richard Longdon
James Kidd
Share
ownership
guideline as
a % of base
salary
Have
guidelines
been met?
Actual share
ownership
(as a % of
base salary)
Shares
owned
outright at
1 April 2013
Shares
owned
outright at
31 March
2014
200%
Yes
100% On-target
1270%1
56%1
353,159
6,168
246,349
6,901
1 Calculated using the closing share price on 31 March 2014 of 2,094p and base salary for the 2013/14 year.
60 AVEVA Group plc Annual report and accounts 2014
Outstanding scheme interests (audited)
Richard Longdon
LTIP
Deferred shares
James Kidd
LTIP
Deferred shares
As at
1 April 2013
Granted
during the
year
Exercised
during the
year
Lapsed/
forfeited
during the
year
As at
31 March
2014
Exercise
price (p)
77,764
14,037
19,931
5,903
—
(8,398)
(16,775)
—
80,812
11,542
0.3556
nil
26,044
3,231
10,647
3,481
(804)
(1,404)
(1,631)
—
34,256
5,308
0.3556
nil
Summary of LTIP targets
Performance conditions related to LTIP awards originally granted in 2011/12 and 2012/13 have been adjusted to reflect the impact of the
special dividend of £100m and share consolidation during 2013/14. In respect of the July 2012 award, target growth rates were increased by
1.5% to 9.5% and 16.5%. In respect of the July 2011 award, target growth rates above RPI were increased by 1% to 6% and 13%.
Date of award
Options granted to
Executive Directors
Period of performance
measurement
Performance targets/measures
Achievement
26 July 2010
37,961
2010/11 – 2012/13
6 July 2011
35,155
2011/12 – 2013/14
– 0% vest for diluted EPS growth
of less than RPI plus 4% p.a.
– 100% vest for diluted EPS growth
of more than RPI plus 12% p.a.
– Linear interpolation to determine the
number of shares that vest between
RPI plus 4% and RPI plus 12% p.a.
– 0% vest for diluted EPS growth
of less than RPI plus 6% p.a.
– 100% vest for diluted EPS growth
of more than RPI plus 13% p.a.
– Linear interpolation to determine the
number of shares that vest between
RPI plus 6% and RPI plus 13% p.a.
9 July 2012
41,180
2012/13 – 2014/15
– 0% for diluted adjusted EPS growth
of less than 9.5% p.a.
– 25% for diluted adjusted EPS growth
of 9.5% p.a.
– 100% for diluted adjusted EPS
growth of more than 16.5% p.a.
– Linear interpolation to determine the
number of shares that vest between
9.5% and 16.5% p.a.
21 August 2013
30,578
2013/14 – 2015/16
– 0% for diluted adjusted EPS growth
of less than 14% p.a.
– 25% for diluted adjusted EPS growth
of 14% p.a.
– 100% for diluted adjusted EPS
growth of more than 20% p.a.
– Linear interpolation to determine the
number of shares that vest between
14% and 20% p.a.
Target partially
met, 33% of award
vested
Target partially
met, 94% of award
expected to vest
Performance period
not yet completed
Performance period
not yet completed
61 AVEVA Group plc Annual report and accounts 2014
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS Directors’ report
Remuneration Committee report continued
Annual report on remuneration continued
Dilution
The number of shares which may be allocated on exercise of any options granted under any of the Company’s share option schemes
(including employee schemes) shall not, when aggregated with the number of shares which have been allocated in the previous ten years
under these schemes, exceed 5% of the ordinary share capital of the Company in issue immediately prior to that date.
Payments made to past directors (audited)
No payments were made during 2013/14.
Payments for loss of office (audited)
No payments were made during 2013/14.
Total shareholder return v. techMARK All-Share Index 2009–2014
The graph below shows performance, measured by total shareholder return, compared with the performance of the techMARK All-Share
Index. Total shareholder return is the share price plus dividends reinvested compared against the techMARK All-Share Index, rebased to the
start of the period.
The Directors consider the techMARK All-Share Index to be an appropriate choice as the Index includes AVEVA Group plc.
500
400
300
200
100
0
KEY
AVV TSR
FTSE techMARK
All-Share TSR
CEO single figure five year history
Table below shows the five year history of the CEO single figure of total remuneration:
CEO Single figure of total remuneration (£‘000)
Annual incentive pay-out (% of maximum)
LTIP pay-out (% of maximum)
2009/10
2010/11
2011/12
2012/13
2013/14
818
100%
100%
695
100%
0%
1,003
68%
100%
963
94%
33%
1,197
50%
94%
Change in remuneration of the CEO
The table below illustrates the percentage change in salary, benefits and annual bonus for the Group CEO and two selected sub-sets of
employees (including only those employees who were employed at the start of the 2012/13 financial year through to the end of the 2013/14
financial year). The UK Group has been chosen because AVEVA is headquartered, and employs around one-third of its employees, in the UK.
Typical salary inflation in some other AVEVA locations is materially higher than the UK, which would distort the comparison.
% change in base salary (2012/13 to 2013/14)
% change in benefits (2012/13 to 2013/14)
% change in annual bonus (2012/13 to 2013/14)
Executive
management
group
UK
employees
5%
0%
-30%
4%
0%
-11%
CEO
4%
8%
-30%
62 AVEVA Group plc Annual report and accounts 2014
Relative importance of spend on pay
The chart below illustrates the year on year change in total remuneration for all employees in the Group compared to adjusted profit before
tax and distributions to shareholders for 2013/14 and 2012/13. The Committee determined to include adjusted profit before tax in this chart
as it is one of the Group’s key performance indicators and is the primary measure for the annual incentive scheme.
100.2
92.8
78.3
70.6
116.5
KEY
2012/13
2013/14
14.6
Employee staff costs
Adjusted profit
before tax
Dividends paid
Outside appointments
The Board believes that accepting non-executive appointments with other companies enhances the experience of Executive Directors and
therefore they are entitled to accept appointments outside of the Company provided that Board approval is sought prior to accepting the
appointment. Whether or not the Director concerned is permitted to retain their fees is considered on a case by case basis.
Richard Longdon was appointed as an adviser to Detica, a division of BAE Systems in July 2011, a position he subsequently resigned from during
2013/14. Prior to his appointment, the Board considered the impact on his role as CEO and concluded that he could still devote sufficient time
to his role and therefore approved his appointment. Mr Longdon did not receive a salary for this role but was paid a daily fee for attendance.
As Mr Longdon performed these services independently of his duties to the Company, he was entitled to receive such compensation.
Total pension entitlements
Richard Longdon is a deferred member of the CadCentre Pension Scheme, a defined benefit pension scheme for which AVEVA Solutions Ltd
is the principal employer, and has accrued the maximum benefit he is entitled to. The Directors had accrued entitlements under the pension
scheme as follows:
Accumulated
accrued
pension at
31 March
2014
£
Accumulated
accrued
pension at
31 March
2013
£
Increase
in accrued
pension
during year
£
Increase
in accrued
pension during
the year, after
removing
the effects of
inflation
£
Transfer value
of increase,
after removing
the effects
of inflation,
less Directors’
contributions
£
Richard Longdon
164,300
159,974
4,326
—
—
The pension entitlement shown is that which would be paid annually, based on service to the end of the year.
The transfer value as at date of retirement of each Director’s accrued benefits at the end of the financial year is as follows:
Richard Longdon
31 March
2014
£
31 March
2013
£
Movement,
less Directors’
contributions
£
3,137,520
3,147,575
(10,055)
The transfer values have been calculated on the basis of actuarial advice in accordance with Actuarial Guidance Note GN11. Members of the
scheme have the option to pay Additional Voluntary Contributions. Neither the contributions nor the resulting benefits are included in the
above table.
Richard Longdon is entitled to a pension on normal retirement at age 62, or on retirement due to ill heath, in accordance with the
arrangements under the scheme. A lower pension is available after the age of 55 by agreement with the Company and subject to
HMRC guidelines.
James Kidd is a member of the AVEVA Group Personal Pension Plan and during 2013/14 received employer contributions of £26,000 (2012/13
– £23,000).
63 AVEVA Group plc Annual report and accounts 2014
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS Directors’ report
Remuneration Committee report continued
Annual report on remuneration continued
Non-Executive Directors
Implementation of remuneration policy for NEDs in 2014
As noted in the Policy Report, the fees for the Chairman and the Non-Executive Directors are determined taking account of the individual’s
responsibilities; time devoted to the role and prevalent market rates. Non-Executive Directors received a basic fee of £45,760 per annum.
Additional fees are paid to Non-Executive Directors who hold the position of Committee Chairman (£10,400) and Senior Independent
Director (£10,400).
Single total figure of remuneration for Non-Executive Directors (Audited)
The table below shows a single figure of remuneration for each of our Non-Executive Directors, for the years 2013/14 and 2012/13.
Philip Aiken (Chairman)
Jennifer Allerton
Jonathan Brooks
Hervé Couturier
Philip Dayer
Nick Prest
2013/14 fees
£
2012/13 fees
£
150,800
34,320
56,160
11,440
66,560
—
127,000
—
54,000
44,000
54,000
32,000
NEDs' interests in shares
The table shows the interests in AVEVA ordinary shares of Non-Executive Directors and their connected persons as at 31 March 2014.
Philip Aiken (Chairman)
Jennifer Allerton
Jonathan Brooks
Philip Dayer
There have been no changes to Directors’ holdings between the year end date and the publication of this report.
Shares
owned
outright at
31 March
2014
Shares
owned
outright at
1 April 2013
937
1,000
—
6,562
1,000
—
—
7,000
64 AVEVA Group plc Annual report and accounts 2014
Directors’ report
Other statutory information
Results and dividends
The Group made a profit for the year after taxation of £51.0 million
(2013 – £45.5 million). Revenue was £237.3 million (2013 – £220.2
million) and comprised software licences, software maintenance
and services.
The Directors recommend the payment of a final dividend of 22.0
pence per ordinary share (2013 – 19.5 pence). If approved at the
forthcoming Annual General Meeting, the final dividend will be paid
on 25 July 2014 to shareholders on the register at close of business
on 27 June 2014.
Business review and future developments
A review of the Group’s operations during the year and its plans for
the future is given in the Chairman’s statement, the Chief
Executive’s statement and the Finance review.
The Key Performance Indicators used by AVEVA to measure its own
performance at the Group level are total revenue, recurring revenue,
segment profit contribution, adjusted profit before tax, adjusted
earnings per share and headcount. The figures for the year ended
31 March 2014 are set out on page 25, together with figures for the
previous year and a discussion of the principal risks and
uncertainties facing the Group is included on pages 26 and 27.
Research & Development
The Group continues an active programme of Research &
Development which covers the updating of and extension to the
Group’s range of products.
The interests (all of which are beneficial) in the shares of the
Company of Directors who held office at 31 March 2014 in respect of
transactions notifiable under Disclosure and Transparency Rule 3.1.2
that have been disclosed to the Company are as follows:
Philip Aiken
Philip Dayer
Jonathan Brooks
Jennifer Allerton
Richard Longdon
James Kidd
At 31 March
2014
ordinary
shares
At 31 March
2013
ordinary
shares
937
6,562
—
1,000
246,349
6,901
1,000
7,000
—
—
353,159
6,168
No changes took place in the interests of Directors in the shares of
the Company between 31 March 2014 and 27 May 2014.
Directors’ share options are disclosed in the Remuneration
Committee report on pages 60 to 61.
No Director had a material interest in any significant contract, other
than a service contract or contract for services, with the Company
or any of its subsidiaries at any time during the year.
Resolutions will be submitted to the Annual General Meeting for the
re-election of all current Directors. Brief biographical details of all
Directors appear on pages 42 and 43.
Intellectual property
The Group owns intellectual property both in its software tools and
the products derived from them. The Directors consider such
properties to be of significant value to the business and have a
comprehensive programme to protect it.
Conflict of interest
Throughout the year the Company has operated effective
procedures to deal with potential or actual conflicts of interest.
During the year no conflict arose requiring the Board to exercise its
authority or discretion.
Financial instruments
The Group’s financial risk management objectives and policies are
discussed in note 26 to the consolidated financial statements.
Going concern
The Group has significant financial resources, is profitable and has a
strong position in the markets it serves. At 31 March 2014 the Group
had cash and treasury deposit balances of £117.5 million (2013 –
£190.4 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 financial statements.
Directors and their interests
The Directors who served during the year under review are
shown below:
Philip Aiken (Chairman)
Philip Dayer (Non-Executive Director and Senior Independent Director)
Jonathan Brooks (Non-Executive Director)
Jennifer Allerton (Non-Executive Director)
Hervé Couturier (Non-Executive Director)
Richard Longdon (Chief Executive)
James Kidd (Chief Financial Officer)
Share capital
Details of the issued share capital can be found in note 30 to the
consolidated financial statements. The rights attaching to the
Company’s shares are set out in its Articles of Association.
Subject to any restrictions referred to in the next section, members
may attend any general meeting of the Company.
There are no restrictions on the transfer of ordinary shares in the
Company other than: certain restrictions which may from time to
time be imposed by laws and regulations (for example, insider
trading laws); and pursuant to the Listing Rules of the Financial
Conduct Authority whereby Directors and certain employees of
the Company require the approval of the Company to deal in the
ordinary shares and pursuant to the Articles of Association where
there is default in supplying the Company with information
concerning interests in the Company’s shares there are no
special control rights in relation to the Company’s shares.
Voting rights
Subject to any restrictions below, on a show of hands every
member who is present in person or by proxy at a general meeting
has one vote on each resolution and, on a poll, every member who
is present in person or by proxy has one vote on each resolution for
every share of which he/she is the registered member. A proxy will
have one vote for and one vote against a resolution on a show
of hands in certain circumstances specified in the Articles of
Association. The Notice of Annual General Meeting specifies
deadlines for exercising rights.
65 AVEVA Group plc Annual report and accounts 2014
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS Directors’ report
Other statutory information
continued
A resolution put to the vote of a general meeting is decided on a
show of hands, unless before or on the declaration of the result of
the show of hands, a poll is demanded by the Chairman of the
meeting. The Articles of the Company also allow members, in
certain circumstances, to demand that a resolution is decided by
a poll.
A member may vote personally or by proxy at a general meeting.
Any form of proxy must be delivered to the Company not less
than 48 hours before the time appointed for holding the meeting or
adjourned meeting at which the person named in the appointment
proposes to vote (for this purpose, the Directors may specify that no
account shall be taken of any part of a day that is not a working day).
A corporation which is a member of the Company may authorise
such persons as it thinks fit to act as its representatives at any general
meeting of the Company.
No member shall be entitled to attend or vote, either personally
or by proxy, at a general meeting in respect of any share if any call or
other sum presently payable to the Company in respect of such
share remains unpaid or in certain other circumstances specified
in the Articles of Association where there is default in supplying
the Company with information concerning interests in the
Company’s shares.
Dividends, distributions and liquidation
Members can declare final dividends by passing an ordinary
resolution but the amount of the dividends cannot exceed the
amount recommended by the Board. The Board can pay interim
dividends provided the distributable profits of the Company justify
such payment. The Board may, if authorised by an ordinary resolution
of the members, offer any member the right to elect to receive new
shares, which will be credited as fully paid, instead of their cash
dividend. Any dividend which has not been claimed for 12 years after
it became due for payment will be forfeited and will then revert to the
Company. Members may share in surplus assets on a liquidation.
If the Company is wound up, the liquidator can, with the sanction of
the members by special resolution and any other sanction required
by law, divide among the members all or any part of the assets of
the Company and he/she can value any assets and determine how
the divisions shall be carried out as between the members or
different classes of members. The liquidator can also transfer the
whole or any part of the assets to trustees upon any trusts for the
benefit of the members. No members can be compelled to accept
any asset which would give them any liability.
There are no agreements between holders of securities that are
known to the Company which may result in restrictions on the
transfer of securities or on voting rights, save as described below
in relation to the Employee Benefit Trust.
Change of control
All of the Company’s share-based plans contain provisions relating
to change of control. Outstanding awards and options normally
vest and become exercisable on a change of control, subject to the
satisfaction of any relevant performance conditions at that time.
There are no other significant agreements to which the Company is
a party that take effect, alter or terminate upon a change of control
of the Company following a takeover bid.
There are no agreements between the Company and its Directors
or employees providing for compensation for loss of office or
employment that occurs because of a takeover bid.
66 AVEVA Group plc Annual report and accounts 2014
Substantial shareholdings
Interests in the ordinary share capital of the Company are set out in
the table below.
The Company had been notified, in accordance with Disclosure and
Transparency Rule 5, of the following interests in the ordinary share
capital of the Company:
Name of holder
Number
As at
31 March
2014
Percentage
held %
As at
27 May
2014
Percentage
held %
Number
BlackRock
7,247,348
11.3% 6,879,961
10.8%
4,695,313
7.4% 5,100,245
8.0%
4,314,964
6.8% 3,690,884
5.8%
Standard Life
Investments
Allianz Global
Investors
Threadneedle
Investments
2,281,905
3.6% 2,209,783
Oppenheimer Funds 2,203,700
3.5% 2,191,120
3.5%
3.4%
T Rowe Price Global
Investments
Legal & General
Investment
Management
2,035,221
3.2% 2,034,210
3.2%
1,961,328
3.1% 1,945,528
3.0%
Articles of Association
Any amendments to the Articles of Association of the Company
may be made in accordance with the provisions of the Companies
Act by way of special resolution.
Powers of the Directors
The business of the Company is managed by the Directors, who
may exercise all powers of the Company, subject to the Company’s
Articles of Association, relevant statutory law and to any direction
that may be given by the Company in general meeting by special
resolution. Subject to the Companies Act, shares may be issued by
Board resolution. At the Company’s last Annual General Meeting,
powers were granted to the Directors (subject to limits set out in
the resolutions) to issue and to buy back its own shares; similar
powers are proposed to be granted at the forthcoming Annual
General Meeting. The buy-back authority was limited to 10% of the
Company’s issued share capital. No shares have been bought back
under this authority.
Appointment of Directors
The Articles of Association limit the number of Directors to not
less than two and not more than ten save where members decide
otherwise. Members may appoint Directors by ordinary resolution
and may remove any Director (subject to the giving of special
notice) and, if desired, replace such removed Director by ordinary
resolution. New Directors may be appointed by the Board but are
subject to election by members at the first Annual General Meeting
after their appointment. A Director may be removed from office if
requested by all other Directors.
The Company’s Articles of Association require that at each AGM
there shall retire from office (and be subject to re-election by
members) any Director who shall have been a Director at the
preceding two Annual General Meetings and who was not
appointed or re-appointed then or subsequently. However, in
accordance with the UK Corporate Governance Code, the Company
requires all Directors who held office at 31 March 2014 to stand for
re-election.
Annual General Meeting
The Annual General Meeting will be held on 14 July 2014 at The
Trinity Centre, 24 Cambridge Science Park, Milton Road, Cambridge
CB4 0FN. The Notice of the Annual General Meeting is being sent to
shareholders along with this annual report, which contains details of
the resolutions proposed.
Employee benefit trust
The AVEVA Group Employee Benefit Trust 2008 was established
in 2008 to facilitate satisfying the transfer of shares to employees
within the Group on exercise of vested options under the various
share option and deferred bonus share plans of the Company. The
Trust holds a total of 72,626 ordinary shares in AVEVA Group plc
representing 0.11% (2013 – 81,420 shares representing 0.12%) of the
issued share capital at the date of this report. Under the terms of
the Trust deed governing the Trust, the trustees are required (unless
the Company directs otherwise) to waive all dividends and abstain
from voting in respect of ordinary shares in AVEVA Group plc held
by the Trust except where beneficial ownership of any such ordinary
shares was passed to a beneficiary of the Trust. In the same way as
other employees, the Executive Directors of the Company are
potential beneficiaries under the Trust.
Disabled employees
The Group gives full consideration to applications for employment
from disabled persons where the candidate’s particular aptitudes
and abilities are consistent with adequately meeting the
requirements of the job. Opportunities are available to disabled
employees for training, career development and promotion.
Where existing employees become disabled, it is the Group’s policy
to provide continuing employment wherever practicable in the
same or an alternative position and to provide appropriate training
to achieve this aim as well as reasonable adjustments to the
workplace and other support mechanisms.
Employee involvement
The Group places considerable value on the involvement of its
employees and has continued to keep them informed of matters
affecting them as employees and on the various factors affecting
the performance of the Group. This is achieved through formal and
informal meetings, employee newsletters, the Group intranet and
presentations from senior management. There is an employee
representative committee which meets on a regular basis to discuss
a wide range of matters affecting their current and future interests.
All employees are entitled to receive an annual discretionary award
related to the overall profitability of the Group subject to the
performance of the individual and the Group. The Group conducts
employee-wide surveys from time to time to gauge the success or
otherwise of its policies and uses this information to improve
matters as appropriate.
Directors’ indemnity
The Company has granted an indemnity to its Directors against
liability in respect of proceedings brought by third parties, subject to
the conditions set out in the Companies Act. Such qualifying third
party indemnity provision remains in force as at the date of
approving the Directors’ report.
Auditor
A resolution to re-appoint Ernst & Young LLP as auditor for
the ensuing year will be put to the members at the Annual
General Meeting.
Disclosure of information to auditor
The Directors who were members of the Board at the time of
approving the Directors’ report are listed on page 65. Having made
enquiries of fellow Directors and of the Company’s auditor, each of
these Directors confirms that:
– so far as he is aware, there is no relevant audit information (as
defined by Section 418 of the Companies Act 2006) of which the
Company’s auditor is unaware; and
– he has taken all the steps he ought to have taken as a Director
in order to make himself aware of any such relevant audit
information and to establish that the Company’s auditor is aware
of that information.
Fair and balanced reporting
The Directors are responsible for preparing the Annual Report in
accordance with applicable law and regulations. Having taken advice
from the Audit Committee, the Board considers the Annual Report
and Accounts, taken as a whole, to be fair, balanced and
understandable and that it provides the information necessary for
shareholders to assess the Company's performance, business
model and strategy.
Responsibility statement pursuant to FCA’s Disclosure and
Transparency Rule 4 (DTR 4)
Each Director of the Company (whose names and functions appear
on pages 42 and 43) confirms that (solely for the purpose of DTR 4)
to the best of their knowledge:
– the financial statements in this document, prepared in
accordance with the applicable UK law and applicable accounting
standards, give a true and fair view of the assets, liabilities,
financial position and result of the Company and of the Group
taken as a whole; and
– the Chairman’s statement, Chief Executive's statement and
Finance review include a fair review of the development and
performance of the business and the position of the Company
and Group taken as a whole, together with a description of the
principal risks and uncertainties that they face.
On behalf of the Board
James Kidd
Chief Financial Officer
27 May 2014
Richard Longdon
Chief Executive
67 AVEVA Group plc Annual report and accounts 2014
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS Financial
statements
68 AVEVA Group plc Annual report and accounts 2014
Financial statements
Statement of Directors’ responsibilities
Statement of Directors’ responsibilities in relation to the Consolidated financial statements
The Directors are responsible for preparing the annual report and the Consolidated financial statements in accordance with applicable
United Kingdom law and those International Financial Reporting Standards (IFRSs) as adopted by the European Union.
The Directors are required to prepare Consolidated financial statements for each financial year which present fairly the financial position of
the Group and the financial performance and cash flows of the Group for that period. In preparing those Consolidated financial statements,
the Directors are required to:
– select suitable accounting policies in accordance with IAS 8 and then apply them consistently;
– present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable
information;
– provide additional disclosures when compliance with the specific requirements in IFRSs is insufficient to enable users to understand the
impact of particular transactions, other events and conditions on the entity’s financial position and financial performance; and
– state that the Group has complied with IFRSs, subject to any material departures disclosed and explained in the financial statements.
The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial
position of the Group and enable them to ensure that the Consolidated financial statements comply with the Companies Act 2006 and
Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for
the prevention and detection of fraud and other irregularities.
This annual report contains forward-looking statements. These forward-looking statements are not guarantees of future performance. Rather, they are based on current
views and assumptions and are subject to a number of known and unknown risks, uncertainties and other factors that may cause actual results to differ materially from
any future results or developments expressed or implied from the forward-looking statements. Each forward-looking statement speaks only as of the date of the particular
statement and, save to the extent required by the applicable law or regulation, we do not undertake any obligation to update or renew any forward-looking statement.
69 AVEVA Group plc Annual report and accounts 2014
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS Financial statements
Independent auditor’s report
to the members of AVEVA Group plc
Opinion on financial statements
In our opinion the Group financial statements:
– give a true and fair view of the state of the Group’s affairs as at
31 March 2014 and of its profit for the year then ended;
– have been properly prepared in accordance with IFRSs as
adopted by the European Union; and
– have been prepared in accordance with the requirements of the
Companies Act 2006 and Article 4 of the IAS Regulation.
What we have audited
We have audited the Group financial statements of AVEVA
Group plc for the year ended 31 March 2014 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 31.
The financial reporting framework that has been applied in their
preparation is applicable law and International Financial Reporting
Standards (IFRSs) as adopted by the European Union.
This report is made solely to the Company’s members, as a body, in
accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
Company’s members those matters we are required to state to
them in an auditor’s report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company and the Company’s members as
a body, for our audit work, for this report, or for the opinions we
have formed.
Respective responsibilities of Directors and auditor
As explained more fully in the Statement of Directors’ responsibilities
set out on page 69, the Directors are responsible for the preparation
of the Group financial statements and for being satisfied that they
give a true and fair view. Our responsibility is to audit and express an
opinion on the Group financial statements in accordance with
applicable law and International Standards on Auditing (UK and
Ireland). Those standards require us to comply with the Auditing
Practices Board’s Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give reasonable
assurance that the financial statements are free from material
misstatement, whether caused by fraud or error. This includes an
assessment of: whether the accounting policies are appropriate to
the Group’s circumstances and have been consistently applied and
adequately disclosed; the reasonableness of significant accounting
estimates made by the Directors; and the overall presentation of
the financial statements. In addition, we read all the financial and
non-financial information in the annual report to identify material
inconsistencies with the audited financial statements and to identify
any information that is apparently materially incorrect based on, or
materially inconsistent with, the knowledge acquired by us in the
course of performing the audit. If we become aware of any apparent
material misstatements or inconsistencies we consider the
implications for our report.
Our assessment of risks of material misstatement
We identified the following risk that we believe to have had the
greatest impact on our overall audit strategy, the allocation of
resources in the audit and directing the efforts of the audit team:
– revenue recognition on software and service contracts in line
with the AVEVA accounting policies and relevant accounting
standards and the risk of management override in relation to
revenue recognition.
70 AVEVA Group plc Annual report and accounts 2014
Our application of materiality
We apply the concept of materiality both in planning and
performing our audit, and in evaluating the effect of misstatements
on our audit and on the financial statements. For the purposes of
determining whether the financial statements are free from material
misstatement we define materiality as the magnitude of
misstatement that makes it probable that the economic decisions
of a reasonably knowledgeable person, relying on the financial
statements, would be changed or influenced.
When establishing our overall audit strategy, we determined a
magnitude of uncorrected misstatements that we judged would
be material for the financial statements as a whole. We determined
materiality for the Group to be £3.5 million (2013 – £3.2 million),
which is approximately 5% of pre-tax profit. On the basis of our risk
assessment, together with our assessment of the Group’s overall
control environment, our judgement is that overall performance
materiality for the Group should be 75% of materiality, namely
£2.6 million (2013 – £2.4 million). Our objective in adopting this
approach is to reduce to an appropriately low level the total
undetected and uncorrected audit differences such that they do
not exceed our materiality of £3.5 million (2013 – £3.2 million) for
the financial statements as whole.
We agreed with the Audit Committee that we would report to the
Committee all audit differences in excess of £173,000, as well as
differences below that threshold that, in our view, warranted
reporting on qualitative grounds.
An overview of the scope of our audit
We used a risk-based approach for determining our audit strategy,
ensuring that our audit teams performed consistent procedures and
focused on addressing the risks that are relevant to the business.
This approach focused our audit effort towards higher risk areas,
such as revenue recognition and on locations that were considered
material based upon size, complexity and risk. Our Group audit
scope focused on ten locations, which represent 84% of the
Group’s profit before tax, 79% of the Group’s revenue and 81%
of the Group’s net assets. Eight of the ten locations were subject
to specific audit work which was based on our assessment of the
risk of material error at the Group level. The other two of the ten
locations were subject to full scope audit procedures. For the
remaining locations, we performed other procedures to confirm
there were no significant risks of material misstatement in the
Group financial statements.
The audit work at the ten locations was executed at levels of
performance materiality applicable to each individual entity, which
were lower than Group materiality.
The Group audit team visits key locations on a rotational basis. In the
last year, the Senior Statutory Auditor or his designate visited two
locations. In addition, the Group audit team held a Group planning
meeting with the audit teams of all in-scope locations to ensure
direction and input into the local audit team’s audit approach,
including their assessment of the risk of material fraud or error. The
Group audit team also participated in the local audit team’s closing
meeting if any significant issues were identified.
Our response to the risks of material misstatement identified above
was as follows:
Under the Companies Act 2006 we are required to report to you if,
in our opinion:
– certain disclosures of Directors’ remuneration specified by law
are not made; or
– we have not received all the information and explanations we
require for our audit.
Under the Listing Rules we are required to review:
– the Directors’ statement, set out on page 65, in relation to going
concern; and
– the part of the Corporate Governance Statement relating to the
Company’s compliance with the nine provisions of the UK
Corporate Governance Code specified for our review.
Other matter
We have reported separately on the parent Company financial
statements of AVEVA Group plc for the year ended 31 March 2014
and on the information in the Directors’ Remuneration Report that
is described as having been audited.
Bob Forsyth (Senior Statutory Auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
Cambridge
27 May 2014
– the Group audit and local teams performed detailed substantive
testing over revenue recognition (including the timing of revenue
recognition, proof of delivery, the fair value of undelivered
elements, the assessment of collectability and accounting for
multiple element arrangements), analytical review procedures
and an assessment of whether the revenue recognition policies
adopted complied with IFRS;
– the Group audit team carried out analytical procedures and
journal entry testing in order to identify and test the risk of
material fraud arising from management override of control in
respect of revenue recognition; and
– given the significant risk concentration around revenue
recognition, the Group audit team performed additional
substantive audit work on all contracts over £1 million of
recognised revenue in the year.
The Audit Committee’s consideration of these judgements is set
out on page 45.
Opinion on other matter prescribed by the Companies Act 2006
In our opinion the information given in the Strategic Report and
the Directors’ Report for the financial year for which the Group
financial statements are prepared is consistent with the Group
financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the ISAs (UK and Ireland), we are required to report to you if,
in our opinion, information in the annual report is:
– materially inconsistent with the information in the audited
financial statements; or
– apparently materially incorrect based on, or materially
inconsistent with, our knowledge of the Group acquired in the
course of performing our audit; or
– is otherwise misleading.
In particular, we are required to consider whether we have
identified any inconsistencies between our knowledge acquired
during the audit and the Directors’ statement that they consider
the annual report is fair, balanced and understandable and whether
the annual report appropriately discloses those matters that we
communicated to the Audit Committee which we consider should
have been disclosed.
71 AVEVA Group plc Annual report and accounts 2014
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS Financial statements
Consolidated income statement
for the year ended 31 March 2014
Revenue
Cost of sales
Gross profit
Operating expenses
Research & development costs
Selling and distribution expenses
Administrative expenses
Total operating expenses
Profit from operations
Finance revenue
Finance expense
Analysed as:
Adjusted profit before tax
Amortisation of intangibles (excluding other software)
Share-based payments
Gain/(loss) on fair value of forward foreign exchange contracts
Exceptional items
Profit before tax
Income tax expense
Profit for the year attributable to equity holders of the parent
Earnings per share (pence)
– basic
– diluted
Notes
5, 6
2014
£000
2013*
£000
237,336
(17,378)
220,230
(16,141)
219,958
204,089
(38,278)
(92,967)
(20,186)
(35,539)
(87,588)
(18,570)
(151,431)
(141,697)
7
9
10
68,527
1,208
(746)
62,392
1,722
(619)
78,257
(4,677)
(2,317)
1,121
(3,395)
70,562
(3,946)
(1,226)
(796)
(1,099)
68,989
(17,978)
63,495
(18,098)
51,011
45,397
78.12
77.99
66.80
66.65
8
12
14
14
* Restated for the impact of IAS 19 Employee benefits (revised 2011). This is in respect of retirement benefit obligations, see note 2c for further details.
All activities relate to continuing activities.
The accompanying notes are an integral part of this Consolidated income statement.
72 AVEVA Group plc Annual report and accounts 2014
Financial statements
Consolidated statement of comprehensive income
for the year ended 31 March 2014
Profit for the year
Items that may be reclassified to profit or loss in subsequent periods:
Exchange differences arising on translation of foreign operations
Items that will not be reclassified to profit or loss in subsequent periods:
Actuarial gain/(loss) on retirement benefit obligations
Tax on items relating to components of other comprehensive income
Total of items that will not be reclassified to profit or loss in subsequent periods
Total comprehensive income for the year, net of tax
* Restated for the impact of IAS 19 (revised 2011). See note 2c.
The accompanying notes are an integral part of this Consolidated statement of comprehensive income.
Notes
2014
£000
2013*
£000
51,011
45,397
(6,933)
2,886
28
12(a)
5,672
(1,275)
(5,878)
1,312
4,397
(4,566)
48,475
43,717
73 AVEVA Group plc Annual report and accounts 2014
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS Financial statements
Consolidated balance sheet
31 March 2014
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Deferred tax assets
Other receivables
Current assets
Trade and other receivables
Financial assets
Treasury deposits
Cash and cash equivalents
Current tax assets
Total assets
Equity
Issued share capital
Share premium
Other reserves
Retained earnings
Total equity
Current liabilities
Trade and other payables
Financial liabilities
Current tax liabilities
Non-current liabilities
Deferred tax liabilities
Retirement benefit obligations
Total equity and liabilities
Notes
2014
£000
2013
£000
16
17
18
27
20
20
21
22
22
30(a)
38,474
21,540
8,395
4,131
1,498
40,527
25,041
9,150
6,291
1,113
74,038
82,122
83,596
547
40,238
77,309
2,162
80,277
—
136,085
54,272
1,865
203,852
272,499
277,890
354,621
2,271
27,288
10,589
144,829
2,269
27,288
17,712
204,337
184,977
251,606
23
24
72,954
—
9,108
73,543
574
9,858
82,062
83,975
27
28
2,003
8,848
2,081
16,959
10,851
19,040
277,890
354,621
The accompanying notes are an integral part of this Consolidated balance sheet.
The financial statements were approved by the Board of Directors and authorised for issue on 27 May 2014. They were signed on its behalf by:
Philip Aiken
Chairman
Richard Longdon
Chief Executive
Company number 2937296
74 AVEVA Group plc Annual report and accounts 2014
Financial statements
Consolidated statement of changes in shareholders’ equity
31 March 2014
At 1 April 2012
Profit for the year
Other comprehensive income
Total comprehensive income
Issue of share capital
Share-based payments
Tax arising on share options
Investment in own shares
Cost of employee benefit trust shares issued
to employees
Equity dividends
At 31 March 2013
Profit for the period
Other comprehensive income
Total comprehensive income
Issue of share capital
Share-based payments
Tax arising on share options
Investment in own shares
Cost of employee benefit trust shares issued
to employees
Equity dividends
At 31 March 2014
Share
capital
£000
2,266
—
—
Share
premium
£000
27,288
—
—
Merger
reserve
£000
3,921
—
—
—
3
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,269
—
—
27,288
—
—
3,921
—
—
—
2
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Other reserves
Cumulative
translation
adjustments
£000
Treasury
shares
£000
Total other
reserves
£000
12,156
—
2,886
2,886
—
—
—
—
—
—
15,042
—
(6,933)
(6,933)
—
—
—
—
—
—
(1,106)
—
—
—
—
—
—
(615)
470
—
(1,251)
—
—
—
—
—
—
(717)
527
—
Retained*
earnings
£000
176,937
45,397
(4,566)
40,831
—
1,226
415
—
Total*
equity
£000
221,462
45,397
(1,680)
43,717
3
1,226
415
(615)
14,971
—
2,886
2,886
—
—
—
(615)
470
—
(470)
(14,602)
—
(14,602)
17,712
—
(6,933)
(6,933)
—
—
—
(717)
204,337
51,011
4,397
55,408
—
2,317
(255)
—
251,606
51,011
(2,536)
48,475
2
2,317
(255)
(717)
527
(527)
— (116,451)
—
(116,451)
2,271
27,288
3,921
8,109
(1,441)
10,589
144,829
184,977
* Restated for the impact of IAS 19 (revised 2011). See note 2c.
The accompanying notes are an integral part of this Consolidated statement of changes in shareholders’ equity.
75 AVEVA Group plc Annual report and accounts 2014
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS Financial statements
Consolidated cash flow statement
for the year ended 31 March 2014
Cash flows from operating activities
Profit for the year
Income tax
Net finance revenue
Amortisation of intangible assets
Depreciation of property, plant and equipment
(Gain)/loss on disposal of property, plant and equipment
Share-based payments
Difference between pension contributions paid and amounts charged to operating profit
Research & development expenditure tax credit
Changes in working capital:
Trade and other receivables
Trade and other payables
Changes to fair value of forward foreign exchange contracts
Cash generated from operating activities before tax
Income taxes paid
Net cash generated from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Purchase of intangible assets
Acquisition of subsidiaries and business undertakings, net of cash acquired
Proceeds from disposal of property, plant and equipment
Interest received
Maturity/(purchase) of treasury deposits (net)
Net cash flows from/used in investing activities
Cash flows from financing activities
Interest paid
Purchase of own shares
Proceeds from the issue of shares
Dividends paid to equity holders of the parent
Net cash flows used in financing activities
Net increase in cash and cash equivalents
Net foreign exchange difference
Opening cash and cash equivalents
Closing cash and cash equivalents
* Restated for the impact of IAS 19 (revised 2011). See note 2c.
The accompanying notes are an integral part of this Consolidated cash flow statement.
Notes
2014
£000
2013*
£000
12(a)
9, 10
17
18
7
29
51,011
17,978
(462)
4,879
2,932
(83)
2,317
(2,993)
(875)
(3,221)
(159)
(1,121)
70,203
(18,217)
45,397
18,098
(1,103)
4,022
2,599
254
1,226
(261)
—
(11,136)
429
796
60,321
(19,567)
51,986
40,754
(3,118)
(2,119)
—
427
1,208
95,847
(3,862)
(1,341)
(12,485)
693
1,736
(5,803)
92,245
(21,062)
18
17
15
9
22
10
30(b)
30(a)
13
(98)
(717)
2
(116,451)
(165)
(615)
3
(14,602)
(117,264)
(15,379)
26,967
(3,930)
54,272
4,313
1,290
48,669
77,309
54,272
22
22
76 AVEVA Group plc Annual report and accounts 2014
Financial statements
Notes to the consolidated financial statements
1 Corporate information
AVEVA Group plc is a public limited Company incorporated and domiciled in the United Kingdom. The address of the registered office is
given on the inside back cover. AVEVA Group plc’s shares are publicly traded on the Official List of the London Stock Exchange.
2 Basis of preparation
The accounting policies which follow set out those policies which apply in preparing the financial statements for the year ended 31 March
2014. The Consolidated financial statements are presented in Pounds Sterling (£) and all values are rounded to the nearest thousand (£000)
except when otherwise indicated.
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, as disclosed in note 14, 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.
a) Statement of compliance
The Consolidated financial statements of AVEVA Group plc and all its subsidiaries (the Group) have been prepared in accordance with
International Financial Reporting Standards, as adopted by the European Union, as they apply to the financial statements of the Group for
the year ended 31 March 2014. The Group’s financial statements are also consistent with IFRSs as issued by the IASB.
The parent Company financial statements of AVEVA Group plc have been prepared in accordance with UK Generally Accepted Accounting
Practice (UK GAAP) and are included on pages 107 to 111.
b) Basis of consolidation
The Consolidated financial statements comprise the financial statements of AVEVA Group plc and its subsidiaries as at 31 March each year.
The financial statements of subsidiaries are prepared using existing GAAP for each country of operation. Adjustments are made to translate
any differences that may exist between the respective local GAAP and IFRSs.
Inter-company balances and transactions, including unrealised profits arising from intra-Group transactions, have been eliminated in full.
Subsidiaries are consolidated from the date on which control is obtained by the Group and cease to be consolidated from the date on which
control is transferred out of the Group.
On acquisition, assets and liabilities of subsidiaries are measured at their fair values at the date of acquisition, with any excess of the cost of
acquisition over this value being capitalised as goodwill.
c) Adoption of new and revised standards
The Consolidated income statement, the Consolidated statement of comprehensive income, the Consolidated statement of changes in
shareholders’ equity and affected notes have been restated for the year ended 31 March 2014 to reflect changes in the way in which returns
on scheme assets are recognised in accordance with IAS 19 ‘Employee Benefits (revised)’. The effect of this has been to reduce the element
of finance revenue associated with retirement benefit obligations by £152,000 in the year to 31 March 2013. The tax charge for the same year
has been adjusted accordingly (£36,000) and each measure of earnings per share has also been restated. The results of the Group for prior
periods have been restated for this change in accounting policy. There was no impact on the disclosed defined benefit pension obligation at
either period end.
The amendments to IAS 1 introduce a grouping of items presented in Other Comprehensive Income (OCI). Items that could be reclassified
(or recycled) to profit or loss at a future point in time are now presented separately from items that will never be reclassified. The
amendment affected presentation only and had no impact on the Group’s financial position or performance.
In all other respects the accounting policies adopted are consistent with those of the previous financial year. New standards and
interpretations which came into force during the year did not have a significant impact on the Group’s financial statements.
New standards and interpretations not yet effective
The IASB have issued the following standards (although in some cases not yet adopted by the EU) which are expected to have implications
for the reporting of the financial position or performance of the Group or which will require additional disclosures in future financial years:
IFRS 9
IAS 32
Financial Instruments (classification and measurement)
Financial Instruments: presentation – amendment
Effective for periods
commencing after
1 January 2015
1 January 2014
The Group intends to adopt these standards in the first accounting period after the effective date. The Directors do not anticipate that the
adoption of these standards and interpretations listed will have a material effect on the Consolidated financial statements in the period of
initial application.
77 AVEVA Group plc Annual report and accounts 2014
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS Financial statements
Notes to the consolidated financial statements
continued
3 Significant accounting estimates
The key assumptions concerning the future and other key sources of judgement and estimation uncertainty at the balance sheet date that
have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are
discussed below:
a) Retirement benefit obligations
The determination of the Group’s obligations and expense for defined benefit pensions is dependent on the selection, by the Board of
Directors, of assumptions used by the pension scheme actuary in calculating these amounts. The assumptions applied, together with
sensitivity analysis, are described in note 28 and include, amongst others, the discount rate, the inflation rate, rates of increase in salaries
and mortality rates. While the Directors consider that the assumptions are appropriate, significant differences in the actual experience or
significant changes in assumptions may materially affect the reported amount of the Group’s future pension obligations, actuarial gains and
losses included in the Consolidated statement of comprehensive income in future years and the future staff costs. The carrying amount of
retirement benefit obligations at 31 March 2014 was £8,848,000 (2013 – £16,959,000).
b) Provision for impairment of receivables
The Group makes provision for the impairment of receivables on a customer specific basis. The determination of the appropriate level
of provision involves an estimate of the potential risk of default or non-payment by the Group’s customers and management consider a
number of factors, including the financial strength of the customers, the level of default that the Group has suffered in the past, the age of
the receivable outstanding and the Group’s trading experience with that customer. The provision for impairment of receivables at 31 March
2014 was £5,161,000 (2013 – £4,771,000).
c) Revenue recognition
Revenue from sales of software licences when these are combined with the delivery of significant implementation or customisation services
is recognised in line with the delivery of the services to the customer. This policy involves the assessment of which customer projects
include significant customisation or implementation and also an assessment of the stage of completion of such projects. We generally only
enter into this type of contract in Enterprise Solutions but the assessments and estimates used by the Group could have a significant impact
on the amount and timing of revenue recognised on a project.
d) Income taxes
The Group is subject to income tax in numerous jurisdictions and significant judgement is required in determining the provision for tax.
There are many transactions and calculations for which the ultimate tax determination is uncertain – particularly when doing business in
emerging economies. The Group recognises provisions for tax based on estimates of taxes that are likely to become due. Where the final
tax outcome is different from the amounts that were initially recorded, such differences will impact the current income tax and deferred tax
provisions in the period in which such determinations are made.
e) Intangible assets
IFRS 3 requires the identification of acquired intangible assets as part of a business combination. The methods used to value such intangible
assets require the use of estimates including forecast performance and customer attrition rates. Future results are impacted by the
amortisation periods adopted and changes to the estimated useful lives would result in different effects on the income statement.
Goodwill is tested annually for impairment. Tests for impairment are based on discounted cash flows and assumptions (including discount
rates, timing and growth prospects) which are inherently subjective. Further details about the assumptions used are set out in note 16.
4 Summary of significant accounting policies
a) Revenue
The Group generates its revenue principally from licensing the rights to use its software products directly to end users and to a lesser extent
indirectly through resellers. Revenue is measured at fair value of the consideration received or receivable and represents the amounts
receivable for goods and services provided in the ordinary course of business, net of discounts and sales taxes. It comprises initial licence
fees, annual fees and rental licence fees, together with income from consultancy and other related services.
For each revenue stream, revenue is not recognised unless and until:
– a clear contractual arrangement can be evidenced;
– delivery has been made in accordance with that contract;
– if required, contractual acceptance criteria have been met; and
– the fee has been agreed and collectability is probable. Where extended payment terms beyond 180 days exist, revenue recognition is
deferred until payment is due.
Initial/annual licence agreements
Users are charged an initial licence fee upon installation for a set number of users together with an obligatory annual fee, which is charged every
year. Annual fees consist of the continuing right to use and customer 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.
Initial licence fees are recognised once the above conditions have been met. Annual fees are recognised on a straight-line basis over the
period of the contract, which is typically twelve months. If annual fees are charged at a discount, an amount is allocated out of the initial
licence fee at fair market value based on the value established when annual fees are charged separately to customers.
78 AVEVA Group plc Annual report and accounts 2014
Rental licence agreements
As an alternative to the initial licence fee plus annual fee model, the Group also supplies its software under three different types of rental
licence agreement.
Rental licence fees which are invoiced monthly and which are cancellable by the customer are recognised on a monthly basis.
Other rental licence agreements are invoiced at the start of the contracted period, which is typically one year, are non-cancellable and
consist of two separate components; the initial software delivery, and the continuing right to use with customer support and maintenance.
Revenue in respect of the continuing right to use and customer support and maintenance element is valued at fair market value based on
the value established when annual fees are charged separately to the customer. This component is recognised on a straight-line basis over
the period of the contract. The residual amount representing the implied initial fee element is recognised upfront, provided all of the above
criteria have been met. Where uncertainty exists and it is not possible to reliably determine the fair value of the customer support and
maintenance element, all revenue is recognised on a straight-line basis over the period of the contract.
The Group also licenses its software using a token licensing model. Under this model, a ‘basket’ of tokens representing licences to use
different software products over a defined period is granted, which enables the customer to draw these down as and when required. Where
the customer commits in advance to a specified number of tokens over a defined period, a proportion of revenue is recognised with an
appropriate element deferred for customer support and maintenance obligations, subject to the above recognition conditions being met.
Where the customer is charged in arrears, revenue is recognised based on actual number of tokens used.
Services
Services consist primarily of consultancy, implementation services and training and are performed under separate service arrangements.
Revenue from these services is recognised as the services are performed and stage of completion is determined by reference to the costs
incurred as a proportion of the total estimated costs of the service project. If a contract cannot be reliably estimated, revenue is recognised
only to the extent that costs have been incurred. Provision is made as soon as a loss is foreseen.
If an arrangement includes both licence and service elements, licence fee revenue is recognised upon delivery of the software provided that
services do not include significant customisation or modification of the base product and the payment terms for licences are not subject to
acceptance criteria. In all other cases, revenues from both licence and service elements are recognised as services are performed.
b) Foreign currencies
The functional and presentational currency of AVEVA Group plc is Pounds Sterling (£). Transactions in foreign currencies are initially recorded at the
functional currency rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at
the functional currency rate of exchange ruling at the balance sheet date. All differences are taken to the Consolidated income statement.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date
of the initial transaction.
The subsidiaries have a number of different functional currencies. As at the reporting date, the assets and liabilities of these overseas
subsidiaries are translated into Pounds Sterling (£) at the rate of exchange ruling at the balance sheet date, and their Income statements are
translated at the weighted average exchange rates for the year. Exchange differences arising on the retranslation are taken directly to the
Consolidated statement of comprehensive income.
c) Exceptional items
The Group discloses items of both income and expense which are exceptional by virtue of their size or incidence so as to allow a better
understanding of the underlying trading performance of the Group. The Group includes the costs of significant restructuring exercises,
fees associated with business combinations and costs incurred in integrating acquired companies.
d) Goodwill
Goodwill on acquisitions is initially measured at cost, being the excess of the cost of the business combination over the acquirer’s interest in
the net fair value of the identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less
any accumulated impairment losses.
Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated
with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the
operation. Goodwill disposed of in this circumstance is measured on the basis of the relative values of the operation disposed of and the
portion of the cash-generating unit retained.
If the potential benefit of tax losses or other deferred tax assets does not satisfy the criteria in IFRS 3 for separate recognition when a
business combination is initially accounted for but is subsequently realised, the Group recognises the deferred tax income in the
Consolidated income statement.
e) Intangible assets
Intangible assets acquired separately are capitalised at cost and from a business acquisition are capitalised at fair value as at the date of
acquisition. Following initial recognition, the cost model is applied to each class of intangible asset as set out below.
Expenditure on internally developed intangible assets, excluding development costs, is taken to the Consolidated income statement in the
year in which it is incurred. Internal software development expenditure is recognised as an intangible asset only after its technical feasibility
and commercial viability can be demonstrated.
79 AVEVA Group plc Annual report and accounts 2014
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS Financial statements
Notes to the consolidated financial statements
continued
4 Summary of significant accounting policies continued
Useful lives are also examined on an annual basis and adjustments, where applicable, are made on a prospective basis. Amortisation is
calculated on a straight-line basis over the estimated useful economic lives of the asset, which are as follows:
Developed technology
Customer relationships
Other software
Purchased software rights
f) Research expenditure
Research expenditure is written off in the year of expenditure.
Years
5–12
10–20
3
5–10
g) Government grants
Grants in respect of specific research & development projects are recognised as receivable when there is reasonable assurance that they will
be received and the conditions to obtain them have been complied with. They are credited to the income statement in the same period as
the related research & development costs for which the grant is compensating. The grant income is presented as a deduction from the
related expense.
h) Property, plant and equipment
Property, plant and equipment is stated at cost less depreciation and any accumulated impairment losses.
Depreciation is calculated on a straight-line basis to write down the assets to their estimated residual value over the useful economic life of
the asset as follows:
Computer equipment
Fixtures, fittings and office equipment
Motor vehicles
Years
3
6–8
4
Leasehold buildings and improvements are amortised on a straight-line basis over the period of the lease (3 to 49 years) or useful economic
life, if shorter.
i) Impairment of assets
Goodwill arising on acquisition is allocated to cash-generating units expected to benefit from the combination’s synergies and represents
the lowest level at which goodwill is monitored for internal management purposes and generates cash flows which are independent of other
cash-generating units. The recoverable amount of the cash-generating unit to which goodwill has been allocated is tested for impairment
annually or when events or changes in circumstance indicate that it might be impaired. The carrying values of property, plant and equipment
and intangible assets other than goodwill are reviewed for impairment when events or changes in circumstance indicate the carrying value
may be impaired. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets or
cash-generating units are written down to their recoverable amount. The recoverable amount is the greater of net selling price and value
in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate
largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.
Impairment losses are recognised in the Income statement in the administrative expenses line item.
j) Trade and other receivables
Trade receivables, which generally have 30 to 90 day terms, are recognised and carried at original invoice amount less an allowance for any
uncollectible amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are
written off when identified.
k) Cash and cash equivalents
Cash and short-term deposits in the Consolidated balance sheet comprise cash at bank and in hand and short-term deposits with an original
maturity of three months or less. The carrying amount of these approximates their fair value. For the purpose of the Consolidated cash flow
statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts.
l) Derivative financial instruments
The only derivative financial instruments the Group holds are forward foreign exchange contracts to reduce exposure to foreign exchange
risk. The Group does not hold or issue derivative financial instruments for speculative purposes. All forward foreign exchange contracts have
been marked-to-market and are held at fair value on the consolidated balance sheet. The Group has not applied hedge accounting during
the year and therefore movements in fair value are being recorded in the Consolidated income statement. Fair value is estimated using the
settlement rates prevailing at the period end.
m) Leases
Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating
lease payments are recognised as an expense in the Consolidated income statement on a straight-line basis over the lease term.
80 AVEVA Group plc Annual report and accounts 2014
n) Taxation
Deferred income tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of
assets and liabilities and their carrying amounts for financial reporting purposes.
During the period, legislation was enacted to allow UK companies to elect for the Research & Development Expenditure Credit (RDEC) on
qualifying expenditure incurred since 1 April 2013, instead of the existing super-deduction rules. At the balance sheet date management has
concluded that the election will be made and therefore the RDEC is recorded as income included in profit before tax, netted against research &
development expenses as the RDEC is of the nature of a government grant. In previous periods there was a reduction in the income tax expense.
Deferred income tax liabilities are recognised for all taxable temporary differences:
– except where the deferred income tax liability arises from goodwill amortisation or the initial recognition of an asset or liability in a
transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit
or loss; and
– in respect of taxable temporary differences associated with investments in subsidiaries, except where the timing of the reversal of the
temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax
losses to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, carry-forward
of unused tax assets and unused tax losses can be utilised:
– except where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset
or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor
taxable profit or loss; and
– in respect of deductible temporary differences associated with investments in subsidiaries, deferred tax assets are only recognised to the
extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against
which the temporary differences can be utilised.
The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or
the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.
The income tax effects of items recorded in either other comprehensive income or equity are recognised in the Consolidated statement of
comprehensive income or the Consolidated statement of changes in shareholders’ equity respectively. Otherwise, income tax is recognised
in the Consolidated income statement.
Revenue, expenses and assets are recognised net of the amount of sales taxes except:
– where the sales tax incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the sales
tax is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and
– receivables and payables are stated with the amount of sales taxes included.
The net amount of sales taxes recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the
Consolidated balance sheet.
o) Post retirement benefits
The Group operates defined benefit pension schemes in the UK, Sweden and Germany. The Group also provides certain post employment
benefits to its South Korean employees.
The UK defined benefit pension scheme, previously available to all UK employees, was closed to new applicants in 2002. UK employees are
now offered membership of a defined contribution scheme.
The German unfunded defined benefit schemes are closed to new applicants and provide benefits to nine deferred members. These schemes
were acquired as part of previous business combinations. No current employees participate in the schemes. Full provision has been made for
the liability on the Consolidated balance sheet. The Group also operates a defined benefit pension scheme for one German employee.
The Group provides pension arrangements to its Swedish employees through an industry-wide defined benefit scheme. It is not possible to
identify the share of the underlying assets and liabilities in the scheme which is attributable to the Group on a fair and reasonable basis.
Therefore the Group has applied the provisions in IAS 19 to account for the scheme as if it was a defined contribution scheme.
For the defined benefit schemes, the defined benefit obligation is calculated annually for each plan by qualified external actuaries using the
projected unit credit method which attributes entitlement to benefits to the current period (to determine current service cost) and to the
current and prior periods (to determine the present value of defined benefit obligation). The retirement benefit liability in the Consolidated
balance sheet represents the present value of the defined benefit obligation (using a discount rate derived from a published index of AA
rated corporate bonds) as reduced by the fair value of plan assets out of which the obligations are to be settled directly. Fair value is based
on market price information and in the case of quoted securities is the published bid price. The value of a net pension benefit asset is
restricted to the present value of any amount the Group expects to recover by way of refunds from the plan or reductions in the future
contributions. The current service cost is recognised in the Consolidated income statement as an employee benefit expense. The net
interest element of the defined benefit cost is calculated by applying the discount rate to the net defined benefit liability or asset.
81 AVEVA Group plc Annual report and accounts 2014
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS Financial statements
Notes to the consolidated financial statements
continued
4 Summary of significant accounting policies continued
Actuarial gains and losses arising from experience adjustments or changes in actuarial assumptions are credited or charged in the
Consolidated statement of comprehensive income in the period in which they arise.
The Group also operates defined contribution pension schemes for a number of UK and non-UK employees. Contributions to defined
contribution plans are charged to profit before tax as they become payable.
p) Share-based payments
The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted,
further details of which are given in note 29.
The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the
performance conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (vesting date).
The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which
the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest.
No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition,
which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance conditions
are satisfied.
Where the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified.
In addition, an expense is recognised for any increase in the value of the transaction as a result of the modification, as measured at the date
of modification.
Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation and any expense not yet recognised
for the award is recognised immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement
award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as
described in the previous paragraph.
The dilutive effect of outstanding options is reflected as additional share dilution in the computation of earnings per share, subject to an
estimate of whether performance conditions will be met.
q) Employee benefit trust
The Group has established an employee benefit trust (AVEVA Group Employee Benefit Trust 2008), which is a separately administered trust
and is funded by loans from Group companies. The assets of the trust comprise shares in AVEVA Group plc and cash balances. The Group
recognises assets and liabilities of the trust in the Consolidated financial statements and shares held by the trust are recorded at cost as a
deduction from shareholders’ equity.
Consideration received for the sale of shares held by the trust is recognised in equity, with any difference between the proceeds from the
sale and the original cost being taken to retained earnings.
5 Revenue
An analysis of the Group’s revenue is as follows:
Annual fees
Rental licence fees
Total recurring revenue
Initial licence fees
Training and services
Total revenue
Finance revenue
* Restated for the impact of IAS 19 (revised 2011), see note 2c.
Services consist of consultancy, implementation services and training fees.
2014
£000
2013*
£000
57,084
109,936
167,020
48,394
21,922
237,336
1,208
54,391
98,833
153,224
42,431
24,575
220,230
1,722
238,544
221,952
82 AVEVA Group plc Annual report and accounts 2014
6 Segment information
The Group is organised into two lines of business, being Engineering & Design Systems and Enterprise Solutions, which are considered to be
the two reportable segments for the Group. The products of each of the lines of business are taken to market by a shared sales force that is
itself organised into three geographical sales divisions: Asia Pacific; Americas; and Europe, Middle East and Africa (EMEA).
The Executive Board monitors the operating results of the lines of business for the purposes of making decisions about performance
assessment and resource allocation. Performance is evaluated based on adjusted profit 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.
Year ended 31 March 2014
Income statement
Revenue
Annual fees
Rental licence fees
Initial licence fees
Training and services
Segment revenue
Operating costs
Segment profit/(loss) contribution
Reconciliation of segment profit contribution to profit before tax
Shared selling and distribution expenses
Other shared operating expenses
Net finance revenue
Adjusted profit before tax
Exceptional items and other normalised adjustments#
Profit before tax
Engineering
& Design
Systems
£000
Enterprise
Solutions
£000
Total
£000
51,382
105,489
45,525
9,090
5,702
4,447
2,869
12,832
57,084
109,936
48,394
21,922
211,486
(48,457)
25,850
(29,233)
237,336
(77,690)
163,029
(3,383)
159,646
(58,016)
(23,835)
462
78,257
(9,268)
68,989
# Normalised adjustments include amortisation of intangible assets (excluding other software), share-based payments and (losses)/gains on fair value of forward foreign
exchange contracts.
Year ended 31 March 2013
Income statement
Revenue
Annual fees
Rental licence fees
Initial licence fees
Training and services
Segment revenue
Operating costs
Segment profit contribution
Reconciliation of segment profit contribution to profit before tax
Shared selling and distribution expenses
Other shared operating expenses
Net finance revenue
Adjusted profit before tax
Exceptional items and other normalised adjustments#
Profit before tax
* Restated for the impact of IAS 19 (revised 2011), see note 2c.
83 AVEVA Group plc Annual report and accounts 2014
Engineering
& Design
Systems
£000
Enterprise
Solutions
£000
Total*
£000
49,032
93,343
36,268
10,902
5,359
5,490
6,163
13,673
54,391
98,833
42,431
24,575
189,545
(45,439)
30,685
(28,670)
220,230
(74,109)
144,106
2,015
146,121
(54,957)
(21,705)
1,103
70,562
(7,067)
63,495
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS Financial statements
Notes to the consolidated financial statements
continued
6 Segment information continued
Analysis of revenue by geographical location
Revenue
Annual fees
Rental licence fees
Initial licence fees
Training and services
Total revenue
Revenue
Annual fees
Rental licence fees
Initial licence fees
Training and services
Total revenue
Year ended 31 March 2014
Asia Pacific
£000
EMEA
£000
Americas
£000
Total
£000
21,013
30,036
32,364
3,443
30,400
53,047
13,135
15,454
5,671
26,853
2,895
3,025
57,084
109,936
48,394
21,922
86,856
112,036
38,444
237,336
Year ended 31 March 2013
Asia Pacific
£000
EMEA
£000
Americas
£000
Total
£000
22,962
26,083
20,237
3,993
26,707
46,787
18,027
16,148
4,722
25,963
4,167
4,434
54,391
98,833
42,431
24,575
73,275
107,669
39,286
220,230
Other segmental disclosures
The Company’s country of domicile is the UK. Revenue attributed to the UK and all foreign countries amounted to £20,667,000 and
£216,669,000 (2013 – £19,190,000 and £201,040,000) respectively. South Korea accounted for 16% of the Group’s total revenue. No other
country accounted for more than 10% of the Group’s total revenue. Revenue is allocated to countries on the basis of the location of
the customer.
Non-current assets (excluding deferred tax assets) held in the UK and all foreign countries amounted to £19,978,000 and £49,929,000
(2013 – £21,966,000 and £53,865,000) respectively. There are no material non-current assets located in an individual country outside of
the UK.
No single external customer accounted for 10% or more of the Group’s total revenue (2013 – none).
Further information concerning revenue by type of product and service is disclosed in note 5.
7 Profit from operations
Profit from operations is stated after charging:
Depreciation of owned property, plant and equipment
Amortisation of intangible assets:
– included in research & development costs
– included in selling and distribution expenses
– included in administrative expenses
Staff costs
Operating lease rentals – minimum lease payments
(Gain)/loss on disposal of property, plant and equipment
Net foreign exchange losses
2014
£000
2013
£000
2,932
2,599
3,824
88
967
100,245
5,880
(83)
1,833
3,126
71
825
92,769
5,003
254
1,247
During the year the Group (including its subsidiaries) obtained the following services from the Group’s auditor at costs as detailed below:
Fees payable to the Company auditor for the audit of parent Company and consolidated financial statements
Fees payable to the Company auditor and its associates for other services:
– the audit of Company’s subsidiaries pursuant to legislation
– tax, compliance services
– tax, advisory services
– corporate finance services (transaction support)
– other services pursuant to legislation
2014
£000
265
220
81
106
—
3
675
2013
£000
265
205
73
66
114
63
786
84 AVEVA Group plc Annual report and accounts 2014
8 Exceptional items
During the year the Group incurred exceptional costs of £3,395,000 (2013 – £1,099,000), relating to acquisition and integration costs of
£102,000 (2013 – £1,099,000), exceptional restructuring costs of £1,762,000 and a provision for underpaid sales taxes in an overseas location
of £1,531,000.
The restructuring costs relate to rationalisation of the Group’s resources and principally relate to Bocad and the transfer of some roles and
responsibilities to a lower cost product development centre in India.
The Group has provided for a potential underpaid sales tax liability, mostly 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.
9 Finance revenue
Bank interest receivable and other interest earned
* Restated for the impact of IAS 19 (revised 2011), see note 2c.
10 Finance expense
Net interest on pension scheme liabilities
Bank interest payable and similar charges
* Restated for the impact of IAS 19 (revised 2011), see note 2c.
11 Staff costs
Staff costs relating to employees (including Executive Directors) are shown below:
Wages and salaries
Social security costs
Pension costs
Share-based payments expense
The average monthly number of persons (including Executive Directors) employed by the Group was as follows:
Research, development and product support
Sales, marketing and customer support
Administration
Directors’ remuneration
Directors’ remuneration
Aggregate contributions to defined contribution pension scheme
Aggregate gains on the exercise of share options
Number of Directors accruing benefits under defined contributions
85 AVEVA Group plc Annual report and accounts 2014
2014
£000
2013*
£000
1,208
1,722
2014
£000
661
85
746
2013*
£000
468
151
619
2014
£000
2013
£000
80,620
10,079
7,229
2,317
75,879
9,312
6,352
1,226
100,245
92,769
2014
Number
2013
Number
505
665
262
407
597
234
1,432
1,238
2014
£000
2013
£000
1,127
26
714
1,867
2014
No.
1
1,242
23
201
1,466
2013
No.
1
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS Financial statements
Notes to the consolidated financial statements
continued
12 Income tax expense
a) Tax on profit
The major components of income tax expense for the years ended 31 March 2014 and 2013 are as follows:
Tax charged in Consolidated income statement
Current tax
UK corporation tax
Adjustments in respect of prior periods
Foreign tax
Adjustments in respect of prior periods
Total current tax
Deferred tax
Origination and reversal of temporary differences
Adjustment in respect of prior periods
Total deferred tax (note 27)
Total income tax expense reported in Consolidated income statement
Tax relating to items (charged)/credited directly to Consolidated statement of comprehensive income
Deferred tax on retranslation of intangible assets
Deferred tax on actuarial remeasurements on retirement benefit obligation
Tax credit reported in Consolidated statement of comprehensive income
2014
£000
2013*
£000
8,440
(503)
7,937
9,962
267
10,229
18,166
(246)
58
(188)
8,432
(66)
8,366
9,871
920
10,791
19,157
(1,253)
194
(1,059)
17,978
18,098
2014
£000
2013*
£000
236
(1,511)
(44)
(1,268)
(1,275)
(1,312)
b) Reconciliation of the total tax charge
The differences between the total tax charge shown above and the amount calculated by applying the standard rate of UK corporation tax
to the profit before tax are as follows:
Tax on Group profit before tax at standard UK corporation tax rate of 23% (2013 – 24%)
Effects of:
– expenses not deductible for tax purposes
– irrecoverable withholding tax
– movement on unprovided deferred tax balances
– change in UK tax rate for deferred tax balances
– differing tax rates on overseas earnings
– adjustments in respect of prior years
Income tax expense reported in Consolidated income statement
* Restated for the impact of IAS 19 (revised 2011), see note 2c.
2014
£000
2013*
£000
15,866
15,239
823
256
933
(147)
425
(178)
870
228
5
42
666
1,048
17,978
18,098
At the balance sheet date the UK government had substantively enacted a 2% reduction in the main rate of UK corporation tax from 23% to
21% effective from 1 April 2014 and a further reduction in the UK corporation tax rate to 20% from 1 April 2015.
86 AVEVA Group plc Annual report and accounts 2014
13 Dividends paid and proposed on equity shares
Declared and paid during the year
Interim 2013/14 dividend paid of 5.0 pence (2012/13 – 4.5 pence) per ordinary share
Final 2012/13 dividend paid of 19.5 pence (2011/12 – 17.0 pence) per ordinary share
Special dividend paid of 147.0 pence per share
2014
£000
2013
£000
3,178
13,261
100,012
3,030
11,572
—
116,451
14,602
Proposed for approval by shareholders at the Annual General Meeting
Final proposed dividend 2013/14 of 22.0 pence (2012/13 – 19.5 pence) per ordinary share
14,052
13,260
The proposed final dividend is subject to approval by shareholders at the Annual General Meeting on 14 July 2014 and has not been included
as a liability in these financial statements. If approved at the Annual General Meeting, the final dividend will be paid on 25 July 2014 to
shareholders on the register at the close of business on 27 June 2014.
14 Earnings per share
Earnings per share for the year:
– basic
– diluted
Adjusted earnings per share for the year:
– basic
– diluted
Weighted average number of ordinary shares for basic earnings per share
Effect of dilution: employee share options
Weighted average number of ordinary shares adjusted for the effect of dilution
2014
Pence
2013*
Pence
78.12
77.99
89.05
88.90
66.80
66.65
74.70
74.53
2014
Number
2013
Number
65,297,504
112,020
67,962,515
153,801
65,409,524
68,116,316
The calculations of basic and diluted earnings per share are based on the net profit attributable to equity holders of the parent for the year
of £51,011,000 (2013 – £45,397,000). Basic earnings per share amounts are calculated by dividing the net profit attributable to equity holders
of the parent by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share amounts are
calculated by dividing the net profit attributable to equity holders of the parent by the weighted average number of ordinary shares
outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the
potentially dilutive share options into ordinary shares. Details of the terms and conditions of share options are provided in note 29.
Details of the calculation of adjusted earnings per share are set out below:
Profit after tax for the year
Intangible amortisation (excluding software)
Share-based payments
(Gain)/loss on fair value of forward foreign exchange contracts
Exceptional items
Tax effect
Adjusted profit after tax
* Restated for the impact of IAS 19 (revised 2011), see note 2c.
2014
£000
51,011
4,677
2,317
(1,121)
3,395
(2,132)
2013*
£000
45,397
3,946
1,226
796
1,099
(1,696)
58,147
50,768
The denominators used are the same as those detailed above for both basic and diluted earnings per share.
The adjustment made to profit after tax in calculating adjusted basic and diluted earnings per share has been adjusted for the tax effects of
the items adjusted.
The Directors believe that adjusted earnings per share is a more representative presentation of the underlying performance of the business.
87 AVEVA Group plc Annual report and accounts 2014
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS Financial statements
Notes to the consolidated financial statements
continued
15 Business combinations
On 22 May 2012, the Group acquired 100% of the issued share capital of the Bocad group of companies based in Belgium and Germany.
The acquisition consideration was cash of €17.5 million (£14.0 million) on a debt free/cash free basis.
Acquisition costs (including due diligence and professional fees) and integration costs were included in the Consolidated income statement.
The fair value of the assets acquired of £3,762,000 consisted mainly of developed technology and customer relationships. Goodwill of
£8,136,000 was recorded from this acquisition.
Fair value adjustments of £2.4 million were made to align with the Group’s accounting policies as well as an adjustment to increase the value
of an acquired property by £0.2 million to an estimate of market value.
16 Goodwill
At 1 April 2012
Acquisition of Bocad group of companies
Exchange adjustment
At 31 March 2013
Exchange adjustment
At 31 March 2014
Engineering
& Design
Systems
£000
21,975
8,136
1,403
31,514
(1,604)
Enterprise
Solutions
£000
8,864
—
149
Total
£000
30,839
8,136
1,552
9,013
(449)
40,527
(2,053)
29,910
8,564
38,474
Goodwill acquired in a business combination is allocated, at acquisition, to the cash-generating units (CGUs) that are expected to benefit
from that business combination.
The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired.
Considering the sensitivity levels for the two cash-generating units:
Engineering & Design Systems
During 2013/14 the contribution of the Engineering & Design Systems CGU was £163.0 million (2013 – £144.1 million). This is far in excess of
the attributable goodwill value. Therefore, the Directors believe that no reasonably foreseeable changes to key assumptions would result in
an impairment of goodwill, such is the margin by which the estimated recoverable amount exceeds the carrying value.
Enterprise Solutions
The recoverable amount of the Enterprise Solutions CGU is determined from a value in use calculation. The key assumptions for this
calculation are those regarding discount rates and growth rates. Management estimates discount rates using pre-tax rates that reflect
current market assessments of the time value of money and the risks specific to the CGU.
The Group prepares cash flow forecasts derived from the most recent financial budgets approved by management for the year ending
31 March 2015 together with the most recent three year business plan and extrapolates cash flows for future years based on an average
estimated new business growth rate of 4% (2013 – 4%). In addition, revenue is also forecast to grow from the impact of sales of initial
licences driving increased annual fees in future periods. In total the revenue growth in periods beyond the period covered by the business
plan is 7%. The long-term average growth rate is based on typical growth rates for companies with strong software and technology
services that are exposed to high growth sectors (such as Oil & Gas and Power) and high growth economies such as Asia Pacific, India and
Latin America.
Future cash flows are discounted in line with the weighted average cost of capital of approximately 12% pre-tax (2013 – 12%).
Headroom for goodwill based on current forecasts is £21 million. Sensitivity levels on these calculations indicate that impairment would
need to be considered if:
– instead of 12%, a discount rate of 18% or higher had been used;
– if revenue growth during the three-year period covered by the budget and business plan was less than 10% per annum; or
– instead of 4%, a long-term new business growth rate of 2.5% or lower had been used.
88 AVEVA Group plc Annual report and accounts 2014
17 Intangible assets
Cost
At 1 April 2012
Additions
Acquisitions
Disposals
Exchange adjustment
At 31 March 2013
Additions
Disposals
Exchange adjustment
At 31 March 2014
Amortisation
At 1 April 2012
Charge for the year
Disposals
Exchange adjustment
At 31 March 2013
Charge for the year
Disposals
Exchange adjustment
At 31 March 2014
Net book value
At 31 March 2012
At 31 March 2013
At 31 March 2014
Developed
technology
£000
Customer
relationships
£000
Other
software
£000
Purchased
software
rights
£000
22,163
—
8,059
—
963
31,185
230
—
(1,307)
11,505
—
438
—
583
12,526
—
—
(769)
1,422
709
20
(46)
10
2,115
674
(4)
(42)
6,751
632
—
—
—
7,383
1,215
—
—
Total
£000
41,841
1,341
8,517
(46)
1,556
53,209
2,119
(4)
(2,118)
30,108
11,757
2,743
8,598
53,206
13,113
2,890
—
687
16,690
3,210
—
(991)
3,654
818
—
258
4,730
853
—
(353)
1,343
76
(46)
11
1,384
202
(4)
(33)
18,909
5,230
1,549
9,050
14,495
11,199
7,851
7,796
6,527
79
731
5,126
238
—
—
5,364
614
—
—
5,978
1,625
2,019
23,236
4,022
(46)
956
28,168
4,879
(4)
(1,377)
31,666
18,605
25,041
1,194
2,620
21,540
For the purposes of the adjusted earnings per share calculation (note 14), intangible asset amortisation excludes the charge relating to other
software of £202,000 (2013 – £76,000).
Developed technology
Developed technology includes the Bocad technology acquired in 2012/13, the MARS technology which was acquired as part of the
acquisition of Logimatic Software A/S in 2010/11, the ADB technology that was also acquired in 2010/11 and the LFM software acquired in
2011/12. All amortisation is calculated using the straight-line method over periods between five and twelve years.
Customer relationships
The customer relationships intangible asset includes those relationships acquired as part of the acquisition of Bocad in 2012/13, Logimatic
Software A/S during 2010/11 and those acquired in 2011/12 as part of the acquisition of LFM Software Limited. The value of these
relationships is being amortised using the straight-line method over lives between five and ten years.
89 AVEVA Group plc Annual report and accounts 2014
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS Financial statements
Notes to the consolidated financial statements
continued
18 Property, plant and equipment
Cost
At 1 April 2012
Additions
Acquisition
Disposals
Exchange adjustment
At 31 March 2013
Additions
Disposals
Reclassification
Exchange adjustment
At 31 March 2014
Depreciation
At 1 April 2012
Charge for the year
Disposals
Exchange adjustment
At 31 March 2013
Charge for the year
Disposals
Reclassification
Exchange adjustment
At 31 March 2014
Net book value
At 31 March 2012
At 31 March 2013
At 31 March 2014
Long leasehold
buildings
and
improvements
£000
Computer
equipment
£000
Fixtures,
fittings
and office
equipment
£000
3,855
199
555
(1,517)
17
3,109
552
(132)
368
(88)
11,663
1,721
90
(1,045)
103
12,532
1,555
(522)
—
(405)
7,984
1,561
14
(877)
144
8,826
651
(182)
(368)
(509)
Motor
vehicles
£000
1,146
381
—
(291)
49
1,285
360
(546)
—
(142)
Total
£000
24,648
3,862
659
(3,730)
313
25,752
3,118
(1,382)
—
(1,144)
3,809
13,160
8,418
957
26,344
1,241
214
(918)
7
544
335
(132)
24
(21)
750
2,614
2,565
3,059
9,767
1,284
(984)
68
10,135
1,498
(335)
—
(237)
4,985
818
(637)
81
5,247
830
(160)
(24)
(224)
11,061
5,669
1,896
2,397
2,099
2,999
3,579
2,749
613
283
(244)
24
676
269
(411)
—
(65)
469
533
609
488
16,606
2,599
(2,783)
180
16,602
2,932
(1,038)
—
(547)
17,949
8,042
9,150
8,395
90 AVEVA Group plc Annual report and accounts 2014
19 Investments
At 31 March 2014 the Group had the following principal investments, which are held by AVEVA Solutions Limited unless stated and all of
which have been included in the consolidation:
AVEVA Solutions Limited*
AVEVA Pty Limited
AVEVA Belgium SA
AVEVA do Brasil Informática Ltda
AVEVA (Shanghai) Consultancy
Co Limited***
AVEVA Solutions (Shanghai) Co. Ltd
AVEVA Denmark A/S
AVEVA SA
AVEVA GmbH
AVEVA Software GmbH****
AVEVA East Asia Limited
AVEVA Software India Limited
AVEVA Information Technology India
Private Limited
AVEVA KK
AVEVA Korea Limited
AVEVA Sendirian Berhad**
AVEVA Asia Pacific Sendirian Berhad
AVEVA AS
AVEVA Limited Liability Company
AVEVA Pte Limited***
AVEVA AB
AVEVA Inc.
Country of
incorporation
or registration
Great Britain
Australia
Belgium
Brazil
China
China
Denmark
France
Germany
Germany
Hong Kong
India
India
Japan
Korea
Malaysia
Malaysia
Norway
Russia
Singapore
Sweden
USA
Principal activity
Software development
and marketing
Software marketing
Software development
and marketing
Software marketing
Services and training
Software marketing
Software marketing
and development
Software marketing
Software marketing
Software development
and marketing
Software marketing
Software development
Software marketing
Software marketing
Software marketing
Software marketing
Software marketing
Software marketing and
development, training
and consultancy
Software marketing
Software marketing
Software development
and marketing
Software marketing
Description and proportion of
shares and voting rights held
100% ordinary shares of £1 each
100% ordinary shares of AUD$1 each
100% ordinary shares of €1 each
100% of ordinary shares of BRL 1 each
100% of issued share capital
100% of ordinary shares
100% of ordinary shares of DKK 1 each
100% ordinary shares of €30 each
100% ordinary shares of €25,565 each
100% ordinary shares of €1 each
100% ordinary shares of HK$1 each
100% ordinary shares of 10 Rupees each
100% ordinary shares of 10 Rupees each
100% ordinary shares of 50,000 Yen each
100% ordinary shares of KRW 500,000 each
49% ordinary shares of MYR1 each
100% ordinary shares of MYR1 each
100% ordinary shares of NOK 500 each
100% of ordinary shares
100% of ordinary shares of SGD 10 each
100% of ordinary shares of SEK 10 each
100% common stock of US$1 each
*
**
Held by AVEVA Group plc.
AVEVA Sendirian Berhad has been consolidated on the basis that the Group exercises control over its financial and operating policies under the terms of the
shareholders’ agreement.
*** Held by AVEVA AB.
**** Held by AVEVA GmbH.
20 Trade and other receivables
Current
Amounts falling due within one year:
Trade receivables
Prepayments and other receivables
Accrued income
2014
£000
2013
£000
77,762
5,402
432
74,066
5,155
1,056
83,596
80,277
Trade receivables are non-interest bearing and generally on terms of between 30 and 90 days. The Directors consider that the carrying
amount of trade and other receivables approximates their fair value.
Non-current
Prepayments and other receivables
Non-current prepayments and other receivables consist of rental deposits for operating leases.
2014
£000
2013
£000
1,498
1,113
91 AVEVA Group plc Annual report and accounts 2014
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS Financial statements
Notes to the consolidated financial statements
continued
20 Trade and other receivables continued
As at 31 March 2014 the provision for impairment of receivables was £5,161,000 (2013 – £4,771,000) and an analysis of the movements during
the year was as follows:
At 1 April 2012
Arising from business combination
Charge for the year, net of amounts reversed
Utilised
Exchange adjustment
At 31 March 2013
Charge for the year, net of amounts reversed
Utilised
Exchange adjustment
As at 31 March 2014
As at 31 March, the ageing analysis of trade receivables (net of provision for impairment) was as follows:
£000
3,431
427
2,625
(1,844)
132
4,771
1,302
(399)
(513)
5,161
2014
2013
21 Financial assets
Current
Fair value of forward foreign exchange contracts
22 Cash and cash equivalents and treasury deposits
Cash at bank and in hand
Short-term deposits
Net cash and cash equivalents per cash flow
Treasury deposits
Past due not impaired
Neither past
due nor
impaired
£000
Total
£000
Less than
four months
£000
Four to eight
months
£000
77,762
53,304
20,264
74,066
47,046
24,261
3,322
2,393
Eight to
twelve
months
£000
780
308
More than
twelve
months
£000
92
58
2014
£000
2013
£000
547
—
2014
£000
2013
£000
64,293
13,016
77,309
40,238
51,458
2,814
54,272
136,085
117,547
190,357
Treasury deposits represent bank deposits with an original maturity of over three months.
Short-term deposits are made for varying periods of between one day and three months, depending on the immediate cash requirements of
the Group, and earn interest at the respective short-term deposit rates.
The fair value of cash and cash equivalents and treasury deposits is £117,547,000 (2013 – £190,357,000).
23 Trade and other payables
Current
Trade payables
Social security, employee taxes and sales taxes
Accruals and other payables
Deferred revenue
Deferred consideration
2014
£000
2013
£000
4,116
11,347
20,521
36,490
480
4,093
8,827
23,160
36,585
878
72,954
73,543
Trade payables are non-interest bearing and are normally settled on terms of between 30 and 60 days. Social security, employee taxes and
sales taxes are non-interest bearing and are normally settled on terms of between 19 and 30 days. The Directors consider that the carrying
amount of trade and other payables approximates their fair value.
92 AVEVA Group plc Annual report and accounts 2014
24 Financial liabilities
Current
Fair value of forward foreign exchange contracts
2014
£000
2013
£000
—
574
Borrowing facilities
As at 31 March 2014 the Group had no committed bank overdraft or loan facilities.
25 Obligations under leases
As at 31 March 2014 the Group had the following future minimum rentals payable under non-cancellable operating leases as follows:
Not later than one year
After one but not more than five years
More than five years
2014
2013
Land and
buildings
£000
Plant and
machinery
£000
Land and
buildings
£000
Plant and
machinery
£000
4,308
6,195
553
11,056
284
345
—
629
4,049
4,124
—
8,173
277
337
—
614
The Group has entered into commercial leases on certain properties, motor vehicles and items of equipment. These leases have a duration
of between one and five years. Certain property leases contain an option for renewal.
26 Financial risk management
The Group’s principal financial instruments comprise cash and short-term deposits, treasury deposits and forward foreign exchange contracts.
The Group has various other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations.
The Group enters into forward foreign currency contracts to manage currency risks arising from the Group’s operations.
It is, and has been throughout the period under review, the Group’s policy that no speculative trading in financial instruments shall
be undertaken.
The main risks arising from the Group’s financial instruments are market risk, credit risk and liquidity risk. The Board reviews and agrees
policies for managing such risks on a regular basis as summarised below:
a) Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates, will affect the Group’s income or the
value of its holding of financial instruments. The objective of market risk management is to manage and control market risk exposures within
acceptable parameters.
Interest rate risk
The Group holds net funds and hence its interest rate risk is associated with short-term cash deposits and treasury deposits. The Group’s
overall objective with respect to holding these deposits is to maintain a balance between security of funds, accessibility and competitive
rates of return.
For the presentation of market risks, IFRS 7 requires sensitivity analyses that show the effects of hypothetical changes of relevant risk
variables on profit or loss and shareholders’ equity. The Group is exposed to fluctuations in interest rates on its cash and cash equivalents
and treasury deposits. The Group does not have any borrowings. The impact is determined by applying sensitised interest rates to the cash
and cash equivalents and treasury deposit balances.
A 1% point decrease in the Sterling and US Dollar interest rates would have reduced interest income by approximately £727,000 (2013 –
£1,148,000) and profit after tax by £560,000 (2013 – £872,000).
Foreign currency risk
Foreign currency risk arises from the Group undertaking a significant number of foreign currency transactions in the course of operations.
These exposures arise from sales by business units in currencies other than the Group’s functional currency of Sterling. The majority of costs
are denominated in the functional currency of the business unit. The main exposures relate to the US Dollar, Euro, South Korean Won, and
Yen, reflecting the fact that a significant proportion of the Group’s revenue and cash receipts are denominated in these currencies, whilst a
large proportion of its costs, such as Research & Development, are settled in Sterling, Indian Rupees and Swedish Krona.
The Group manages exchange risks, where possible, by using currency exchange contracts for the sale of US Dollar, Euro and Yen as
appropriate. Other currency exposures the Group faces are less easy to hedge cost effectively. The Group enters into specific forward
foreign exchange contracts for individually significant revenue contracts when the timing of forecast cash flows is reasonably certain.
In addition, the Group enters into forward foreign exchange contracts to sell US Dollars and Euro to match forecast cash flows arising from
its recurring revenue base. These are renewed on a revolving basis as required. At 31 March 2014, the Group had outstanding currency
exchange contracts to sell $9.0 million (2013 – $21.0 million), €9.75 million (2013 – €14.25 million) and ¥100.0 million (2013 – ¥304.0 million).
It also had outstanding currency exchange contracts to buy, kr11.5 million (2013 – kr24.0 million).
93 AVEVA Group plc Annual report and accounts 2014
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS Financial statements
Notes to the consolidated financial statements
continued
26 Financial risk management continued
a) Market risk continued
Foreign currency risk continued
The Group has not applied hedge accounting during the current year and therefore all gains and losses on forward foreign exchange
contracts have been included in the Consolidated income statement.
The Group has investments in foreign operations whose net assets are exposed to currency translation risk. Gains and losses arising from
these structural currency exposures are recognised in the Consolidated statement of comprehensive income.
Foreign currency sensitivity analysis
For the presentation of market risks, IFRS 7 requires sensitivity analyses that show the effects of hypothetical changes in the foreign
exchange rates in profit or loss or shareholders’ equity. The impact is determined by applying the sensitised foreign exchange rate to the
monetary assets and liabilities at the balance sheet date.
Currency risks as defined by IFRS 7 arise on account of financial instruments being denominated in a currency that is not the functional
currency and being of a monetary nature; differences resulting from the translation of financial statements into the Group’s presentation
currency are not taken into consideration.
A 10% change in the US Dollar against Sterling, Euro against Sterling, and Swedish Krona against Sterling would have impacted equity and
profit after tax by the amounts shown below as at the reporting date shown. In management’s opinion, this is a reasonably possible change
given current market conditions. This analysis assumes that all other variables, in particular interest rates and other foreign currencies,
remain constant. The analysis is performed on the same basis for 2012/13.
31 March 2014
US Dollar
Euro
31 March 2013
US Dollar
Euro
Swedish Krona
Increase/
(decrease)
in average
rate
10%
(10)%
10%
(10)%
Increase/
(decrease)
in average
rate
10%
(10)%
10%
(10)%
10%
(10)%
Profit/(loss)
£000
(869)
956
(241)
265
Profit/(loss)
£000
(766)
843
448
(492)
79
(88)
Equity
£000
(869)
956
(241)
265
Equity
£000
(766)
843
448
(492)
79
(88)
b) Credit risk
The Group’s principal financial assets are cash equivalents, treasury deposits, trade and other receivables.
Counter-parties for cash and cash equivalents and treasury deposits are governed by the treasury policy, which has been approved by the
Board, and are limited to financial institutions which have a high credit rating assigned by international credit rating agencies. As set out in the
Group’s treasury policy, the amount of exposure to each counter-party is subject to a specific limit, up to a maximum of 50% of the Group’s
total counter-party risk. Within this overall limit, some counter-parties are subject to more restrictive caps on counter-party exposure.
The Group trades only with recognised, creditworthy third parties and provides credit to customers in the normal course of business.
The amounts presented in the Consolidated balance sheet are net of allowances for doubtful receivables. An allowance for impairment is
made where there is an identified loss event, which, based on previous experience, is evidence of a reduction in the recoverability of the
cash flows. The Group has credit control functions to monitor receivable balances on an ongoing basis. Credit checks are performed before
credit is granted to new customers. The Group has no significant concentration of credit risk, with exposure spread over a large number of
customers. The maximum exposure to credit risk is represented by the carrying amount of each financial asset. The exposure to credit risk is
mitigated where necessary by either letters of credit or payments in advance.
The Group does not require collateral in respect of its financial assets.
Disclosures relating to the credit associated with trade receivables are in note 20.
94 AVEVA Group plc Annual report and accounts 2014
c) Liquidity risk
The Group manages liquidity risk by maintaining adequate cash reserves and by continuously monitoring forecast and actual cash flows and
matching the maturity of financial assets and liabilities. The Group has no borrowings from third parties and therefore liquidity risk is not
considered a significant risk at this time.
The table below analyses the Group’s financial liabilities, which will be settled on a net basis, into relevant maturity groupings based on the
remaining period at the Balance sheet to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted
cash flows:
As at 31 March 2014
Trade and other payables
As at 31 March 2013
Trade and other payables
Less than
three
months
£000
Between
three
months and
six months
£000
Between
six months
and one year
£000
Greater than
one year
£000
35,984
36,080
—
—
—
—
—
—
The table below analyses the Group’s forward foreign exchange contracts, which will be settled on a gross basis, into relevant maturity
groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are
the contractual undiscounted cash flows:
Less than
three
months
000
Between
three
months and
six months
000
Between
six months
and one
year
000
€3,250
£2,768
€3,000
£2,545
€3,500
£2,931
$4,000
£2,630
$3,250
£2,067
$1,750
£1,078
£638
Kr6,500
£469
Kr5,000
¥100,000
£636
—
—
—
—
—
—
€4,500
£3,739
€3,750
£3,116
€6,000
£5,036
$6,750
£4,285
$8,000
£5,007
$6,250
£3,954
£571
Kr6,000
£571
£1,141
Kr6,000 Kr12,000
¥101,000 ¥101,000 ¥102,000
£722
£713
£713
As at 31 March 2014
Forward foreign exchange contracts (Euro)
Outflow
Inflow
Forward foreign exchange contracts (US Dollar)
Outflow
Inflow
Forward foreign exchange contracts (SEK)
Outflow
Inflow
Forward foreign exchange contracts (JPY)
Outflow
Inflow
As at 31 March 2013
Forward foreign exchange contracts (Euro)
Outflow
Inflow
Forward foreign exchange contracts (US Dollar)
Outflow
Inflow
Forward foreign exchange contracts (SEK)
Outflow
Inflow
Forward foreign exchange contracts (JPY)
Outflow
Inflow
95 AVEVA Group plc Annual report and accounts 2014
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS
Financial statements
Notes to the consolidated financial statements
continued
26 Financial risk management continued
d) Interest rate profile of financial assets and liabilities
The interest rate profile of the financial assets and liabilities of the Group as at 31 March is as follows:
Year ended 31 March 2014
Fixed rate
Cash and short-term deposits
Treasury deposits
Floating rate
Cash and short-term deposits
Treasury deposits
Year ended 31 March 2013
Fixed rate
Cash and short-term deposits
Treasury deposits
Floating rate
Cash and short-term deposits
Treasury deposits
Within
one year
£000
One to
two years
£000
Two to
three years
£000
3,455
18,038
95,838
215
Within
one year
£000
7,498
138,717
43,959
183
—
—
—
—
—
—
—
—
One to
two years
£000
Two to
three years
£000
—
—
—
—
—
—
—
—
Total
£000
3,455
18,038
95,838
215
Total
£000
7,498
138,717
43,959
183
e) Fair values
The book values of the Group’s financial assets and liabilities consist of bank and cash balances of £77,309,000 (2013 – £54,272,000) and
treasury deposits of £40,238,000 (2013 – £136,085,000). The carrying amounts of these financial assets and liabilities in the Group’s financial
statements approximates their fair values.
In addition the Group’s financial assets also include forward foreign exchange contracts. 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).
At 31 March 2014 the Group had forward foreign exchange contracts, which were measured at Level 2 fair value subsequent to initial
recognition. The fair value of the asset in respect of foreign exchange contracts was £547,000 at 31 March 2014 (2013 – £574,000 liability).
The resulting gain of £1,121,000 (2013 – loss of £796,000) on the movement of the fair value of forward foreign exchange contracts is
recognised in the Consolidated income statement within administrative expenses.
f) Capital management
The Group’s policy is to maintain a strong capital base so as to maintain investor market, creditor, customer and employee confidence and
to sustain future development of the business. The capital structure of the Group consists of equity attributable to the equity holders of
AVEVA Group plc comprising of issued share capital, other reserves and retained earnings.
To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or
issue new shares. No changes were made in the objectives, policies or processes during the years ended 31 March 2013 or 2014.
During 2013/14 a special dividend of 147 pence per share, totalling £100 million, was paid and this was accompanied by a share consolidation
of 15 new ordinary shares for every 16 ordinary shares held. This reduced the number of shares in issue at the time of the share consolidation
from 68,115,648 to 63,858,420 and also amended the nominal value of the shares to 3.56 pence each.
The Board monitors the capital structure on a regular basis and determines the level of annual dividend. The Group is not exposed to any
externally imposed capital requirements.
96 AVEVA Group plc Annual report and accounts 2014
27 Deferred tax
The following are the major deferred tax liabilities and assets recognised by the Group and the movements thereon during the current year:
Accelerated
capital
allowances
£000
Land and
buildings*
£000
Retirement
benefit
obligations
£000
Intangible
assets
£000
Share
options
£000
At 1 April 2012
Acquisition
Credit/(charge) to Income statement
Credit to other comprehensive income
Credit to equity
Exchange adjustment
At 31 March 2013
Reclassification from current tax liabilities
Credit/(charge) to Income statement
Credit/(charge) to other comprehensive income
Change to equity
Exchange adjustment
At 31 March 2014
(94)
—
68
—
—
(1)
(27)
—
99
—
—
(14)
58
(194)
—
39
—
—
—
(155)
—
25
—
—
—
1,874
—
(102)
1,268
—
—
3,040
—
(358)
(1,511)
—
—
(2,864)
(582)
445
44
—
4
(2,953)
—
246
236
—
—
785
—
193
—
205
—
1,183
—
(27)
—
(412)
—
Other
£000
2,647
—
416
—
—
59
3,122
(193)
203
—
—
(376)
Total
£000
2,154
(582)
1,059
1,312
205
62
4,210
(193)
188
(1,275)
(412)
(390)
(130)
1,171
(2,471)
744
2,756
2,128
* A deferred tax liability arises on the difference between the tax base and the accounting base of a long leasehold property that was acquired in 1994.
Other deferred tax assets consist principally of deferred tax on bad debt provision, forward foreign exchange contracts, staff bonus accrual
and timing differences in respect of revenue recognition.
Certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances (after offset) for financial
reporting purposes:
Deferred tax liabilities
Deferred tax assets
2014
£000
(2,003)
4,131
2013
£000
(2,081)
6,291
2,128
4,210
At the balance sheet date, the Group has unused tax losses of £865,000 (2013 – £4,109,000) available for offset against future profits. Of the
total deferred tax asset of £276,000 (2013 – £1,237,000), £68,000 (2013 – £1,051,000) has been recognised and is included in ‘other’ above.
These losses may be carried forward indefinitely.
At the balance sheet date, the aggregate amount of temporary differences associated with undistributed earnings of overseas subsidiaries
for which deferred tax liabilities have not been recognised was approximately £37,693,000 (2013 – £42,612,000). No liability has been
recognised in respect of these differences because the Group is in a position to control the timing of the reversal of the temporary
differences and it is probable that such differences will not reverse in the foreseeable future. It is likely that the majority of the overseas
earnings would qualify for the UK dividend exemptions but may be subject to foreign withholding taxes.
97 AVEVA Group plc Annual report and accounts 2014
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS Financial statements
Notes to the consolidated financial statements
continued
28 Retirement benefit obligations
The movement on the provision for retirement benefit obligations was as follows:
At 31 March 2012
Arising from business combination
Current service cost
Net interest on pension scheme liabilities
Actuarial remeasurements
Employer contributions
Exchange adjustment
At 31 March 2013
Current service cost
Net interest on pension scheme liabilities
Actuarial remeasurements
Employer contributions
Exchange adjustment
At 31 March 2014
UK*
defined
benefit
scheme
£000
German
defined
benefit
schemes
£000
South
Korean
severance
pay
£000
7,808
—
1,580
370
5,516
(2,060)
—
13,214
1,628
562
(5,573)
(3,978)
—
759
880
40
37
297
(77)
9
1,945
55
36
10
(951)
(21)
1,308
—
295
61
65
(30)
101
1,800
312
63
(109)
(60)
(85)
Total
£000
9,875
880
1,915
468
5,878
(2,167)
110
16,959
1,995
661
(5,672)
(4,989)
(106)
5,853
1,074
1,921
8,848
* Restated for the impact of IAS 19 (revised 2011), see note 2c.
a) UK defined benefit scheme
The Group operates a UK defined benefit pension plan providing benefits based on final pensionable pay which is funded. This scheme was
closed to new employees on 30 September 2002 and was converted to a Career Average Revalued Earnings basis on 30 September 2004.
Pensions are payable to dependants on death in retirement and a lump sum is payable if death occurs in service. There is an insurance policy
in place which covers this liability. Administration on behalf of the members is governed by a trust deed, and the funds are held and
managed by professional investment managers who are independent of the Group.
The latest triennial valuation of the scheme’s liabilities was completed as at 31 March 2013, and showed a funding deficit of £13,231,000.
To eliminate this funding shortfall the Trustees and the Company agreed that additional cash contributions will be paid to the scheme.
£2.5 million was contributed in February 2014, £2.5 million was contributed in April 2014 and 60 additional monthly payments of £116,667
will be made starting April 2014.
Contributions to the scheme are made in accordance with advice from an external, professionally qualified actuary, Broadstone Investment
Management Limited, at rates which are calculated to be sufficient to meet the future liabilities of the scheme using the projected unit credit
method. The employees’ contributions are fixed as a percentage of salary, the balance being made up by the employer. Scheme assets are
stated at their market values at the respective balance sheet dates.
The principal assumptions used in determining the pension valuation were as follows:
2014
%
2013
%
Main assumptions:
Rate of salary increases
Rate of increase of pensions in payment
Rate of increase of pensions in deferment
Discount rate
Inflation assumption
5.60
3.30
2.60
4.30
3.60
For the years ended 31 March 2014 and 2013, the following weighted average life expectancy at age 65 for mortality has been used:
Male pensioners
Female pensioners
Non-retired males
Non-retired females
98 AVEVA Group plc Annual report and accounts 2014
2014
Years
23.7
24.9
25.1
26.4
5.50
3.30
2.50
4.20
3.50
2013
Years
24.5
25.5
26.7
27.8
Member contributions were 7.5% (2013 – 7.5%) of pensionable salary. From 1 September 2011 most members’ contributions were made by
the Company through a salary sacrifice arrangement. Company contributions were £3,978,000 (2013 – £2,060,000). The total contributions
in 2015 are expected to be approximately £5,747,000.
The assumed discount rate, inflation rate and mortality all have a significant effect on the IAS 19 accounting valuation. The following table
shows the sensitivity of the valuation to changes in these assumptions:
0.25 percentage point increase to:
– discount rate
– inflation (including pension increases linked to inflation)
Additional one year increase to life expectancy
The assets and liabilities of the scheme at 31 March 2014 and 2013 were as follows:
Equities
Bonds
Other
Total fair value of assets
Present value of scheme liabilities
Net pension liability
Impact on deficit
increase/(decrease)
2014
£000
2013
£000
(3,152)
2,281
1,717
(3,543)
2,204
1,441
2014
£000
2013
£000
28,931
16,257
17,317
22,232
26,414
10,561
62,505
(68,358)
59,207
(72,421)
(5,853)
(13,214)
The amounts recognised in the Consolidated income statement and Consolidated statement of comprehensive income for the year are
analysed as follows:
Recognised in the Consolidated income statement
Current service cost
Research & development costs
Selling and distribution expenses
Administrative expenses
Total operating charge
Finance costs
Net interest on pension scheme liabilities
Taken to Consolidated statement of comprehensive income
Actual return on pension scheme assets
Less: amounts included in net interest expense
Changes in assumptions and experience adjustments on liabilities
Actuarial gain/(loss) recognised in Consolidated statement of comprehensive income
2014
£000
2013
£000
964
568
96
974
465
141
1,628
1,580
562
370
542
(2,489)
(1,947)
7,520
7,710
(2,323)
5,387
(10,903)
5,573
(5,516)
Analysis of movements in the present value of the defined benefit pension obligations during the year are analysed as follows:
At 1 April
Current service costs
Contributions by employees
Interest on pension scheme liabilities
Benefits paid
Premiums paid
Actuarial (gain)/loss
At 31 March
The above defined benefit obligation arises from a plan that is wholly funded.
99 AVEVA Group plc Annual report and accounts 2014
2014
£000
72,421
1,628
4
3,051
(1,193)
(33)
(7,520)
2013
£000
58,253
1,580
4
2,693
(979)
(33)
10,903
68,358
72,421
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS Financial statements
Notes to the consolidated financial statements
continued
28 Retirement benefit obligations continued
a) UK defined benefit scheme continued
Changes in the fair value of plan assets are as follows:
At 1 April
Expected return
Contributions by employer
Contributions by employees
Benefits paid
Premiums paid
Actuarial (loss)/gain
At 31 March
The history of experience adjustments is as follows:
Fair value of scheme assets
Present value of defined benefit obligations
Deficit in the scheme
Experience adjustments on scheme liabilities
Experience adjustments on scheme assets
2014
£000
59,207
2,489
3,978
4
(1,193)
(33)
(1,947)
2013
£000
50,445
2,475
2,060
4
(979)
(33)
5,235
62,505
59,207
2014
£000
2013
£000
2012
£000
2011
£000
2010
£000
62,505
(68,358)
59,207
(72,421)
50,445
(58,253)
47,898
(49,306)
40,736
(52,428)
(5,853)
(13,214)
(7,808)
(1,408)
(11,692)
4,279
(1,947)
(1,702)
5,235
(107)
(697)
3,353
1,729
1,452
8,506
b) German defined benefit schemes
There are two defined benefit pension schemes in AVEVA GmbH. Tribon Solutions GmbH operated an unfunded defined benefit scheme
that provides benefits to three deferred members following an acquisition in 1992. No current employees participate in the scheme and it is
closed to new applicants. Benefit payments are made as they fall due. The scheme was transferred to AVEVA GmbH when Tribon Solutions
GmbH and AVEVA GmbH merged in 2005.
Since the acquisition of Bocad in May 2012, AVEVA Software GmbH has been responsible for the pension obligations of six former Bocad
employees. At the time of the acquisition, the pension obligations were only partly financed via external funding vehicles. In March 2013,
AVEVA concluded an agreement with an external insurance provider which results in the insurance company being obliged to provide all
benefits as detailed in the individual pension commitments, with AVEVA only having an obligation if the external insurance provider defaults.
In addition, AVEVA GmbH operates a defined benefit pension scheme for one employee. This scheme is closed to new members.
Details of the actuarial assumptions used to value these schemes in accordance with IAS 19 are set out below:
Rate of increase of pension in payment
Discount rate
Mortality
Rate of salary increases
2014
2013
1.34%–2.5% 2.0%–2.5%
3.25%
14.8 years
0%–2.5%
3.00%
15 years
N/A
The retirement age for the Tribon Solutions GmbH and AVEVA GmbH schemes was 60 and 63 years of age respectively (2013 – 60 and
63 years of age).
The contributions in 2014 are expected to be approximately £80,000.
c) South Korean severance pay
South Korean employees are entitled to a lump sum on severance of their employment equal to one month’s salary for each year of service.
The IAS 19 valuation of the liability has been carried out using the following assumptions:
Rate of salary increases
Discount rate
The retirement age for AVEVA Korea Limited employees is 60 years of age (2013 – 60 years of age).
2014
%
5.00
3.99
2013
%
5.00
3.68
100 AVEVA Group plc Annual report and accounts 2014
d) Other retirement schemes
All Swedish employees employed by AVEVA AB aged 28 or over are members of the ITP, an industry scheme for salaried employees which
provides benefits in addition to the state pension arrangements. The ITP scheme is managed by Alecta, a Swedish insurance company. It is
a multi-employer defined benefit scheme with a supplementary defined contribution component. AVEVA AB pays monthly premiums to
the insurers which vary by age, service and salary of the employee. AVEVA AB is unable to identify its share of the underlying assets and
liabilities in the scheme on a fair and reasonable basis because this information is not provided by the scheme and therefore has accounted
for the scheme as if it was a defined contribution pension scheme. At 31 March 2014, Alecta’s surplus in the form of collective funding level
was 147% (2013 – 135%) which was calculated in accordance with the Swedish Annual Accounts Act for Insurance Companies. The total cost
charged to the income statement was £836,000 (2013 – £733,000).
e) Defined contribution schemes
The Group operates defined contribution retirement schemes for certain UK, US, German, French, Norwegian and Asian employees. The
assets of the schemes are held separately from those of the Group. The total cost charged to income of £4,398,000 (2013 – £3,704,000)
represents contributions payable to these schemes by the Group at the rates specified in the rules of the plans.
29 Share-based payment plans
The Group has three equity-settled share schemes: the AVEVA Group plc Long-Term Incentive Plan (LTIP); the AVEVA Group Management
Bonus Deferred Share Scheme; and the AVEVA Group plc Executive Share Option Scheme 2007. No grants have been made under the 2007
scheme which was approved at the Annual General Meeting on 12 July 2007. Details of these plans are set out below.
The following table illustrates the number and weighted average exercise prices (WAEP) of, and movements in, share options for both plans
during the year:
Outstanding at start of year
Effect of share consolidation (July 2013)
Granted during year
Forfeited during year
Exercised during year*
Outstanding at end of year
Exercisable at end of year
2014
Number
510,975
—
173,631
(80,520)
(87,335)
516,751
29,205
2014
WAEP
Pence
2.82
0.21
2.90
3.56
2.10
3.12
2.40
2013
Number
460,029
—
201,615
(13,275)
(137,394)
510,975
47,714
2013
WAEP
Pence
2.67
—
2.73
3.33
0.00
2.82
2.80
*The weighted average share price at the date of exercise for the options exercised is £23.02 (2013 – £17.71).
Share options have been granted under both plans to certain employees of the Group and remain outstanding as follows:
Date of grant
2 July 2007
7 July 2009
15 June 2010
26 July 2010
4 July 2011
6 July 2011
6 July 2012
9 July 2012
20 June 2013
21 August 2013
Share option plan
LTIP
LTIP
Deferred Share Scheme
LTIP
Deferred Share Scheme
LTIP
Deferred Share Scheme
LTIP
Deferred Share Scheme
LTIP
Number
of options
2014
Number
Number
of options
2013
Number
Exercise
price
Pence
—
3,611
—
16,116
18,106
131,563
25,106
154,137
31,226
136,886
5,413
34,769
16,185
94,108
25,795
137,630
36,345
160,730
—
—
516,751
510,975
3.56
3.56
—
3.56
—
3.56
—
3.56
—
3.56
The weighted average remaining contractual life for the options outstanding at 31 March 2014 is 4.71 years (2013 – 4.62 years).
The average fair value of options granted during the year was £22.80 (2013 – £16.67). In calculating the fair value, the expected life of the
options is based on historical data and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the
assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome.
The range of exercise prices for options outstanding at the end of the year was £nil to £0.0356 (2013 – £nil to £0.0333).
The Group recognised total expenses of £2,317,000 and £1,226,000 related to equity-settled share-based payment transactions in the years
ended 31 March 2014 and 2013 respectively.
101 AVEVA Group plc Annual report and accounts 2014
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS
Financial statements
Notes to the consolidated financial statements
continued
29 Share-based payment plans continued
Details of the share option plans are as follows:
a) Long-Term Incentive Plan (LTIP)
The following awards have been made under the LTIP. The exercise price is equal to the nominal value of the underlying shares, which is 3.56
pence. Options under the LTIP are normally exercisable in full or in part between the third and tenth anniversaries of the date of grant.
Performance conditions related to LTIP awards originally granted in 2011/12 and 2012/13 have been adjusted to reflect the impact of the
special dividend of £100 million and share consolidation during 2013/14.
2013/14 awards
In 2013/14, a total of 136,886 share options were awarded to Executive Directors and senior management under the LTIP. The performance
conditions attached to this award are based on EPS growth over the three years from 2013/14 to 2015/16. If average adjusted diluted EPS
growth is more than 20% then all shares shall vest. If average adjusted diluted EPS growth over the same period is less than 14% then none
of the shares will vest. For growth rates between 14% and 20% the number of shares that vest will be determined by linear interpolation
between 25% and 100%.
2012/13 awards
In 2012/13, a total of 160,730 share options were awarded to Executive Directors and senior management under the LTIP. The performance
conditions attached to this award are based on EPS growth over the three years from 2012/13 to 2014/15. If average diluted EPS growth is
more than 15% then all shares shall vest. If average diluted EPS growth over the same period is less than 8% then none of the shares will
vest. For growth rates between 8% and 15% the number of shares that vest will be determined by linear interpolation between 25% and
100%. Following the share consolidation in July 2013, target growth rates were increased by 1.5% to 9.5% and 16.5%.
2011/12 awards
In 2011/12, a total of 140,820 share options were awarded to Executive Directors and senior management under the LTIP. The performance
conditions attached to this award are based on EPS growth over the three years from 2011/12 to 2013/14. If average diluted EPS growth is
more than 12% above RPI for the same period then all the shares under this option will vest. If average diluted EPS growth is less than 5%
above RPI then none of the shares will vest. If average EPS growth is between 5% and 12% per annum above RPI then the number of shares
that shall vest shall be determined by linear interpolation. Following the share consolidation in July 2013, target growth rates above RPI were
increased by 1% to 6% and 13%.
2010/11 awards
In 2010/11, a total of 112,576 share options were awarded to Executive Directors and senior management under the LTIP. The performance
conditions are based on average EPS growth over the three years from 2010/11 to 2012/13. If average diluted EPS growth is more than 12%
above RPI for the same period then all of the shares under this option will vest. If average diluted EPS growth is less than 4% above RPI then
none of the shares will vest. If average EPS growth is between 4% and 12% per annum then the number of shares that shall vest shall be
determined by linear interpolation. During 2012/13, the vesting conditions were tested and 33% of the award vested.
The fair value of each of these option awards is measured at grant date using the Black-Scholes option pricing model taking into account
the terms and conditions upon which the instruments were granted. The following table lists the inputs to the model used for each of the
LTIP awards:
Dividend yield
Expected volatility
Risk-free interest rate
Expected life of the option
Weighted average share price
Weighted average exercise price
2013/14
awards
2012/13
awards
2011/12
awards
2010/11
awards
1.01%
28%
0.76%
3 years
£23.72
£0.04
1.21%
28%
1.51%
3 years
£17.29
£0.03
1.03%
34.5%
1.51%
3 years
£17.73
£0.03
0.70%
47.9%
1.51%
3 years
£13.55
£0.03
b) Deferred annual bonus share plan
In 2008, the Company established the AVEVA Group Management Bonus Deferred Share Scheme 2008 (the Deferred Share Scheme).
Directors and senior management participate in this scheme. Subject to the achievement of performance conditions relating to a single
financial year, these incentive arrangements are intended to reward the recipient partly in cash and partly in ordinary shares in the Company
to be delivered on a deferred basis.
In June 2013, the AVEVA Group Employee Benefit Trust 2008 awarded 31,937 (2012 – 36,345) deferred shares to the Executive Directors and
senior management in respect of the bonus earned in the year ended 31 March 2013 (2012 – bonus earned in year ended 31 March 2012).
The awards of deferred shares take the form of nil-cost options exercisable by participants in three equal tranches, one in each of the three
years following the year in which the award is made. The option may be exercised in the 42-day period beginning on the announcement of
the financial results of the Group in each of the three calendar years after that in which the option was granted. The last date of the exercise
is the end of the 42-day period following the announcement of the financial results of the Group in the third calendar year following that in
which the option was granted or (if applicable) such later date as the Remuneration Committee may specify. These awards are made solely
in respect of performance in the financial year immediately prior to their grant. Delivery of the deferred shares is not subject to further
performance conditions but each participant is required to remain an employee or Director of the Group during the three-year vesting period
in order to receive his deferred shares in full (except in the case of death or the occurrence of a takeover, reconstruction or amalgamation, or
voluntary winding up of the Company).
102 AVEVA Group plc Annual report and accounts 2014
The fair value of these option awards is measured at grant date using the Black-Scholes option pricing model taking into account the terms
and conditions upon which the instruments were granted. The following table lists the inputs to the model used for each of the Deferred
Bonus Share Plan awards:
Dividend yield
Expected volatility
Risk-free interest rate
Expected life of the option
Weighted average share price
Weighted average exercise price
2013/14
awards
2012/13
awards
1.06%
28%
0.76%
3 years
£22.71
£0.00
1.21%
28%
1.51%
3 years
£17.29
£0.00
c) AVEVA Group plc Executive Share Option Scheme 2007
The above scheme was approved by shareholders at the Annual General Meeting in 2007. No awards have yet been made under this scheme
and performance conditions will be set when awards are made under this scheme.
30 Share capital and reserves
a) Share capital
Allotted, called-up and fully paid
63,873,360 (2013 – 68,079,078) ordinary shares of 3.56 pence (2013 – 3.33 pence) each
2014
£000
2013
£000
2,271
2,269
On 15 July 2013, a consolidation of the Company’s ordinary share capital was completed. The share consolidation replaced every 16 existing
ordinary shares with 15 new ordinary shares. At the same date, the nominal value of the ordinary shares changed from 3.33 pence to 3.56 pence.
Details of the shares issued during the year and the prior year are as follows:
At 1 April
Exercise of share options
Effect of share consolidation
At 31 March
Year ended 31 March 2014
Date of issue
5 June 2013
21 June 2013
9 August 2013
12 August 2013
29 August 2013
16 September 2013
26 September 2013
8 January 2014
30 January 2014
25 March 2014
Year ended 31 March 2013
Date of issue
24 July 2012
22 August 2012
7 September 2012
13 September 2012
14 December 2012
103 AVEVA Group plc Annual report and accounts 2014
2014
Number
68,079,078
51,511
(4,257,229)
2014
£000
2,269
2
—
2013
Number
67,990,372
88,706
—
63,873,360
2,271
68,079,078
Number of
shares
2014
Nominal
value
2014
£
Share
premium
2014
£
3,973
3,183
37,875
773
920
1,510
682
954
1,106
535
51,511
131
105
1,348
28
33
54
24
34
39
19
1,815
—
—
—
—
—
—
—
—
—
—
—
Number of
shares
2013
Nominal
value
2013
£
Share
premium
2013
£
58,516
12,654
9,841
2,548
5,147
88,706
1,951
422
328
85
179
2,965
—
—
—
—
—
—
2013
£000
2,266
3
—
2,269
Market
price
£
25.11
23.59
24.82
24.65
23.59
25.60
26.02
22.61
21.77
21.16
Market
price
£
17.98
18.29
19.07
19.20
20.88
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS Financial statements
Notes to the consolidated financial statements
continued
30 Share capital and reserves continued
b) Other reserves
Other reserves consist of the following:
Cumulative translation adjustment reserve
The cumulative translation adjustment reserve is used to record exchange differences which arose from 1 April 2004 from the translation of
the financial statements of foreign subsidiaries.
Merger reserve
This represents the difference between the fair value and the nominal value of shares issued in connection with the acquisition of AVEVA AB
in 2004.
Own shares held
Own shares held reserve represents the cost of the shares in AVEVA Group plc purchased in the open market and held by the AVEVA Group
Employee Benefit Trust 2008 (EBT) to satisfy deferred shares under the Group’s deferred annual bonus share plan. During the year, 31,937
shares were purchased by the EBT at a price of £22.46 and 35,824 shares (2013 – 48,688) with an attributable cost of £526,550 were issued to
employees in satisfying share options that were exercised.
At 1 April 2012
Own shares purchased 6 July 2012
Shares issued to employees
At 31 March 2013
Own shares purchased 20 June 2013
Shares issued to employees
At 31 March 2014
£000
1,106
615
(470)
1,251
717
(527)
1,441
31 Related party transactions
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not
disclosed in this note.
Remuneration of key management personnel
The remuneration of the Directors and other members of the Executive Board, who are the key management personnel of the Group, is set
out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures. In addition to their salaries, the Group also
provides non-cash benefits and contributes to defined benefit or defined contribution pension schemes on their behalf. Members of the key
management team also participate in the Group’s share option schemes and deferred annual bonus share plan.
Further information about the remuneration of individual Directors is provided in the audited part of the Remuneration Committee report on
pages 58 and 61.
Short-term employee benefits
Share-based payments
2014
£000
2,586
1,151
3,737
2013
£000
2,498
1,009
3,507
104 AVEVA Group plc Annual report and accounts 2014
Financial statements
Statement of Directors’ responsibilities
Statement of Directors’ responsibilities in relation to the Company financial statements
The Directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to
prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting
Standards and applicable law). The financial statements are required by law to give a true and fair view of the state of affairs of the Company
and of the profit or loss of the Company for that period. In preparing those financial statements, the Directors are required to:
– select suitable accounting policies and then apply them consistently;
– make judgements and estimates that are reasonable and prudent;
– state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the
financial statements; and
– prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue
in business.
The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial
position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also
responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud
and other irregularities.
105 AVEVA Group plc Annual report and accounts 2014
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS Financial statements
Independent auditor’s report
to the members of AVEVA Group plc
We have audited the parent Company financial statements of AVEVA Group plc for the year ended 31 March 2014 which comprise the
Balance sheet and the related notes 1 to 10. The financial reporting framework that has been applied in their preparation is applicable law
and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our
audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an
auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other
than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of Directors and auditor
As explained more fully in the Directors’ responsibilities statement set out on page 105, the Directors are responsible for the preparation of
the parent Company financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express
an opinion on the parent Company financial statements in accordance with applicable law and International Standards on Auditing (UK and
Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance
that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of:
whether the accounting policies are appropriate to the parent Company’s circumstances and have been consistently applied and adequately
disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial
statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with
the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent
with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or
inconsistencies we consider the implications for our report.
Opinion on financial statements
In our opinion the parent Company financial statements:
– give a true and fair view of the state of the Company’s affairs as at 31 March 2014;
– have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and
– have been prepared in accordance with the requirements of the Companies Act 2006.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion:
– the part of the Directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006; and
– the information given in the Strategic report and the Directors’ report for the financial year for which the financial statements are
prepared is consistent with the parent Company financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:
– adequate accounting records have not been kept by the parent Company, or returns adequate for our audit have not been received from
branches not visited by us; or
– the parent Company financial statements and the part of the Directors’ remuneration report to be audited are not in agreement with the
accounting records and returns; or
– certain disclosures of Directors’ remuneration specified by law are not made; or
– we have not received all the information and explanations we require for our audit.
Other matter
We have reported separately on the Group financial statements of AVEVA Group plc for the year ended 31 March 2014.
Bob Forsyth (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
Cambridge
27 May 2014
Company number 2937296
106 AVEVA Group plc Annual report and accounts 2014
Financial statements
Company balance sheet
31 March 2014
Fixed assets
Investments
Current assets
Debtors
Cash at bank and in hand
Creditors: amounts falling due within one year
Net current assets
Total assets less current liabilities
Net assets
Capital and reserves
Called-up share capital
Share premium account
Merger reserve
Profit and loss account
Shareholders’ funds
Notes
2014
£000
2013
£000
5
6
7
8
9
9
9
9
31,726
29,743
219,994
9
159,841
146
220,003
(178,270)
159,987
(61,287)
41,733
98,700
73,459
128,443
73,459
128,443
2,271
27,288
3,921
39,979
2,269
27,288
3,921
94,965
73,459
128,443
The financial statements on pages 107 to 111 were approved by the Board of Directors on 27 May 2014 and signed on its behalf by:
Philip Aiken
Chairman
Richard Longdon
Chief Executive
The accompanying notes are an integral part of this Company balance sheet.
Company number 2937296
107 AVEVA Group plc Annual report and accounts 2014
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS
Financial statements
Notes to the Company financial statements
1 Corporate information
AVEVA Group plc (the Company) is a limited Company incorporated in England and Wales whose shares are publicly traded. The principal
activity of the Company is that of a holding company.
2 Accounting policies
A summary of the principal accounting policies, which have all been applied consistently throughout the current and the preceding year, is
set out below:
a) Basis of accounting
The separate financial statements of the Company are presented as required by the Companies Act 2006. They have been prepared under
the historical cost convention and in accordance with applicable United Kingdom accounting standards and law.
As permitted by FRS 1 (Revised) Cash flow statements, the Company has not included a Cash flow statement as part of its financial
statements because the Consolidated financial statements of the Group (of which the Company is a member) include a Cash flow statement
and are publicly available.
The Company has taken advantage of the exemption available under FRS 8 Related Party Disclosures and not disclosed related party
transactions with wholly owned subsidiary undertakings.
b) Taxation
Current tax including UK corporation tax and foreign tax is provided at amounts expected to be paid (or recovered) using the tax rates and
laws that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where
transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the
balance sheet date. Timing differences are differences between the Company’s taxable profits and its results as stated in the financial
statements that arise from the inclusion of gains and losses in tax assessments in periods different from those in which they are recognised
in the financial statements.
A deferred tax asset is regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it can be
regarded as more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences
can be deducted.
Deferred tax is not recognised when fixed assets are sold and it is more likely than not that the taxable gain will be rolled over, being charged
to tax only if and when the replacement assets are sold.
Deferred tax is recognised in respect of the retained earnings of overseas subsidiaries and associates only to the extent that, at the balance
sheet date, dividends have been accrued as receivable or a binding agreement to distribute past earnings in the future has been entered into
by the subsidiary or associate.
Deferred tax is measured at the average tax rates that are expected to apply in the periods in which the timing differences are expected to
reverse based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax is measured
on a non-discounted basis.
c) Foreign currency
Transactions denominated in foreign currencies are recorded at actual exchange rates as of the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies at the year end are reported at the rates of exchange prevailing at the year end. Any gain or loss
arising from a change in exchange rates subsequent to the date of the transaction is included as an exchange gain or loss in the profit and
loss account.
d) Share-based payments
The expense for share-based payments is recognised in accordance with the accounting policy for the Consolidated financial statements of
the Group and is recognised in the subsidiary companies employing the relevant employees. The Company recognises the expense relating
to the Executive Directors. The Company also records a corresponding increase in its investments in subsidiaries with a credit to equity
which is equivalent to the FRS 20 cost in the subsidiary undertakings.
e) Investments
Fixed asset investments in subsidiaries are shown at cost less provision for impairment.
108 AVEVA Group plc Annual report and accounts 2014
3 Result for the year
As permitted by Section 408 (3) of the Companies Act 2006, the Company has elected not to present its own profit and loss account for the
year. AVEVA Group plc reported a profit for the financial year ended 31 March 2014 of £59,149,000 (2013 – £29,207,000).
Audit fees of £7,000 (2013 – £7,000) are borne by another Group Company.
The Company does not have any employees (2013 – nil). Directors’ emoluments are disclosed in the Annual report on remuneration on
pages 57 to 64 and are paid by a UK subsidiary company.
4 Dividends
Declared and paid during the year
Interim 2013/14 dividend paid of 5.0 pence (2012/13 – 4.5 pence) per ordinary share
Final 2012/13 dividend paid of 19.5 pence (2011/12 – 17.0 pence) per ordinary share
Special dividend paid of 147.0 pence per share
Proposed for approval by shareholders at the Annual General Meeting
Final 2013/14 proposed dividend of 22.0 pence (2012/13 – 19.5 pence) per ordinary share
2014
£000
2013
£000
3,178
13,261
100,012
3,030
11,572
—
116,451
14,602
14,052
13,260
The proposed final dividend is subject to approval by shareholders at the Annual General Meeting on 14 July 2014 and has not been included
as a liability in these financial statements. If approved at the Annual General Meeting, the final dividend will be paid on 25 July 2014 to
shareholders on the register at the close of business on 27 June 2014.
5 Fixed asset investments
Cost and net book value
At 1 April 2013
Additions
Share-based payments
At 31 March 2014
£000
29,743
1
1,982
31,726
Details of the Company’s subsidiary undertakings are set out in note 19 in the Consolidated financial statements of the Group.
2014
£000
2013
£000
219,994
159,841
2014
£000
2013
£000
110
178,160
141
61,146
178,270
61,287
6 Debtors: amounts falling due within one year
Amounts owed by Group undertakings
7 Creditors: amounts falling due within one year
Accruals
Amounts owed to Group undertakings
109 AVEVA Group plc Annual report and accounts 2014
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS Financial statements
Notes to the Company financial statements
continued
8 Called-up share capital
Allotted, called-up and fully paid
63,873,360 (2013 – 68,079,078) ordinary shares of 3.56 pence (2013 – 3.33 pence) each
2014
£000
2013
£000
2,271
2,269
On 15 July 2013, a consolidation of the Company’s ordinary share capital was completed. The share consolidation replaced every 16
existing ordinary shares with 15 new ordinary shares. At the same date, the nominal value of the ordinary shares changed from 3.33 pence
to 3.56 pence.
Details of the shares issued during the year and the prior year are as follows:
At 1 April
Exercise of share options
Effect of share consolidation
At 31 March
Year ended 31 March 2014
Date of issue
5 June 2013
21 June 2013
9 August 2013
12 August 2013
29 August 2013
16 September 2013
26 September 2013
8 January 2014
30 January 2014
25 March 2014
Year ended 31 March 2013
Date of issue
24 July 2012
22 August 2012
7 September 2012
13 September 2012
14 December 2012
2013
Number
2013
£000
2014
Number
68,079,078
51,511
(4,257,229)
2014
£000
2,269
2
—
67,990,372
88,706
—
63,873,360
2,271
68,079,078
Number of
shares
2014
Nominal
value
2014
£
Share
premium
2014
£
3,973
3,183
37,875
773
920
1,510
682
954
1,106
535
51,511
131
105
1,348
28
33
54
24
34
39
19
1,815
—
—
—
—
—
—
—
—
—
—
—
Number of
shares
2013
Nominal
value
2013
£
Share
premium
2013
£
58,516
12,654
9,841
2,548
5,147
88,706
1,951
422
328
85
179
2,965
—
—
—
—
—
—
2,266
3
—
2,269
Market
price
£
25.11
23.59
24.82
24.65
23.59
25.60
26.02
22.61
21.77
21.16
Market
price
£
17.98
18.29
19.07
19.20
20.88
During the year the Company issued 51,511 (2013 – 88,706) ordinary shares of 3.56 pence (2013 – 3.33 pence) each with a nominal value of
£1,815 (2013 – £2,965) pursuant to the exercise of share options. The total proceeds were £1,815 (2013 – £2,965), which included a premium of
£nil (2013 – £nil).
Details of share options awarded to Executive Directors during the year are contained in the Directors’ remuneration report. Note 29 of the
Consolidated financial statements for the Group includes details of share option awards made during the year.
110 AVEVA Group plc Annual report and accounts 2014
9 Reconciliation of shareholders’ funds and movements on reserves
Share
capital
£000
Share
premium
£000
Merger
reserve
£000
Profit and loss
account
£000
At 1 April 2012
Profit for the year
Share issues
Share-based payments
Share options granted to employees of subsidiary companies
Dividends paid
At 31 March 2013
Profit for the year
Share issues
Share-based payments
Share options granted to employees of subsidiary companies
Dividends paid
At 31 March 2014
2,266
—
3
—
—
—
2,269
—
2
—
—
—
2,271
27,288
—
—
—
—
—
27,288
—
—
—
—
—
27,288
3,921
—
—
—
—
—
3,921
—
—
—
—
—
3,921
Total
shareholders’
funds
£000
112,519
29,207
3
305
1,011
(14,602)
128,443
59,149
2
334
1,982
(116,451)
79,044
29,207
—
305
1,011
(14,602)
94,965
59,149
—
334
1,982
(116,451)
39,979
73,459
10 Related party transactions
There were no transactions with related parties in either the current or the preceding financial year that require disclosure within these
financial statements.
111 AVEVA Group plc Annual report and accounts 2014
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS Five year record
Summarised consolidated results
Revenue
Recurring revenue
Research & development expense
Adjusted* profit before tax
Profit before tax
Income tax expense
Profit for the financial year
Basic earnings per share
Adjusted* basic earnings per share
Total dividend per share
Summarised consolidated balance sheet
Non-current assets
Cash and cash equivalents and treasury deposits (net)
Net current assets
Shareholders’ funds
2014
£000
2013#
£000
2012#
£000
2011#
£000
2010#
£000
237,336
167,020
(38,278)
78,257
68,989
(17,978)
51,011
78.12p
89.05p
27.00p
220,230
153,224
(35,539)
70,562
63,495
(18,098)
45,397
66.80p
74.70p
24.00p
195,935
137,890
(32,121)
62,419
57,880
(17,806)
40,074
59.02p
63.96p
21.00p
173,988
117,199
(28,082)
54,556
49,631
(15,257)
34,374
50.68p
55.90p
18.25p
148,334
102,701
(20,946)
50,892
49,781
(16,192)
33,589
49.58p
51.14p
16.90p
74,038
117,547
121,790
184,977
82,122
190,357
188,524
251,606
62,306
178,951
170,886
221,462
58,356
153,187
149,844
202,372
42,067
149,724
141,663
169,222
* Adjusted profit before tax is stated before amortisation of intangibles (excluding other software), share-based payments, adjustment to goodwill, the gain/loss on the
fair value of forward foreign currency contracts and exceptional items. Adjusted basic earnings per share is also adjusted for the tax effect of these items.
# Restated for the impact of IAS 19 (revised 2011).
112 AVEVA Group plc Annual report and accounts 2014
Company information and advisers
DIRECTORS
Philip Aiken
Philip Dayer
Chairman
Non-Executive Director and Senior Independent
Director
FINANCIAL PR
Hudson Sandler
29 Cloth Fair
London EC1A 7NN
Jonathan Brooks Non-Executive Director
Jennifer Allerton Non-Executive Director
Richard Longdon Chief Executive
James Kidd
Chief Financial Officer
Headquartered in Cambridge, England, AVEVA Group plc and its
operating subsidiaries currently employ staff worldwide in:
Australia
Austria
Belgium
Brazil
Canada
Chile
China
Columbia
Denmark
Finland
France
Germany
Hong Kong
Hungary
India
Italy
Japan
Malaysia
Mexico
Norway
Poland
Russia
Saudi Arabia
Singapore
Spain
Sweden
South Korea
United Arab Emirates
United Kingdom
United States of America
AVEVA also has representatives in additional countries around
the world.
For more details on AVEVA worldwide offices, visit
www.aveva.com/offices
SECRETARY
Helen Barrett Hague
REGISTERED OFFICE
High Cross
Madingley Road
Cambridge CB3 0HB
REGISTERED NUMBER
2937296
AUDITOR
Ernst & Young LLP
One Cambridge Business Park
Cambridge CB4 0WZ
BANKERS
Barclays Bank plc
9–11 St Andrews Street
Cambridge CB2 3AA
SOLICITORS
Ashurst LLP
Broadwalk House
5 Appold Street
London EC2A 2HA
Mills & Reeve LLP
Francis House
112 Hills Road
Cambridge CB2 1PH
JOINT STOCKBROKERS
Goldman Sachs International
Peterborough Court
133 Fleet Street
London EC4A 2BB
Numis Securities Limited
The London Stock Exchange Building
10 Paternoster Square
London EC4M 7LT
REGISTRARS
Capita Registrars Limited
The Registry
34 Beckenham Road
Beckenham BR3 4TU
Engineering and information
management software for the
Plant and Marine industries
www.aveva.com
AVEVA Group plc
High Cross, Madingley Road,
Cambridge CB3 0HB, UK
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