Unlock the Power
of your Digital Asset
AVEVA Annual report
and accounts 2015
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AVEVA is a leading
global provider of
engineering design
and information
management software
Summary
Strategic report
Chairman’s statement
Customers are investing in new
technologies from AVEVA to maximise
their competitiveness and efficiency.
“ The resilience of the
Group’s business
model has been a
key feature of the
past twelve months.”
Philip Aiken
Chairman
19 May 2015
Introduction
Overview
I am pleased to report that AVEVA has
made good progress in difficult market
conditions, and that the resilience of the
Group’s business model has been a key
feature of the past twelve months.
The full year results reflect our particular
focus on execution in the second half
of the financial year. Total recurring
revenue for the second half of the
year was up 5%, demonstrating the
resilience of our business. We were
also able to deliver the £10.0 million of
cost efficiencies we had targeted.
Group revenue of £208.7 million (2014 –
£237.3 million), was in line with our revised
expectations and adjusted* profit before
tax was £62.1 million (2014 – £78.3 million),
resulting in an adjusted profit margin of
29.8% (2014 – 33.0%). The reported profit
before tax was £54.9 million (2014 – £69.0
million). Adjusted basic earnings per share
declined 16% to 74.51 pence (2014 – 89.05
pence). Basic earnings per share declined
17% to 65.07 pence (2014 – 78.12 pence).
We closed the year with net cash of
£103.8 million (2014 – £117.5 million).
This result reflects a reduced market
demand throughout the year due to the
significantly lower oil price and subsequent
reduction in customer activity, as well
as the previously reported weakness in
South America and North East Asia during
the first half. The strength of sterling
also had a pronounced negative effect
on our reported results, trimming Group
revenue by 6%, as our overseas revenue
was translated at less favourable rates
compared to the last financial year.
Strategic progress
Notwithstanding the tougher market
backdrop, I am pleased to report that
AVEVA has continued to make excellent
strategic progress on a number of
fronts. This is particularly evident in the
newly realigned organisation within our
sales, Research & Development and
solution delivery activities. A year ago
we introduced ‘One AVEVA’ to better
support our Engineering, Procurement and
Construction (EPC) and Owner Operator
(OO) customers through a single sales
approach. This has proved to be very
effective at helping us to grow the number
of solution sales we make. In addition, we
have recently unified our development
teams across all of our solutions and
technologies and streamlined our solution
delivery capabilities.
We have continued to make very good
progress with our Global Accounts.
Many customers are responding to more
uncertain markets by investing in new
technologies from AVEVA to maximise
competitiveness and efficiency. AVEVA
E3D has been an outstanding example
of this and has proved to be a powerful
catalyst for us to deepen our relationships
with these key customers. As a result we
are pleased to be able to report significant
new contracts with Aker Solutions,WS
Atkins and KBR, among others.
AVEVA E3D is a clear example of AVEVA’s
position as the leading innovator within
its industry. We have also delivered a
range of new products and functional
enhancements to many of our other
products over the last twelve months. Of
particular note is the Activity Visualisation
Platform and the new Cloud-enabled
version of AVEVA E3D, both of which
have generated much excitement from
customers in recent months.
During the year we were pleased
to acquire 8over8 Limited. Based in
Northern Ireland, 8over8’s core product,
ProCon™, is a software solution designed
to minimise risk and increase control
and capital discipline for some of the
world’s most complex projects. This
demonstrates AVEVA is well placed to use
its balance sheet to deliver well-timed,
strategically important acquisitions with
a strong logical fit. We are confident that
the addition of 8over8 will enable us to
further broaden our relationships with
the OO community, and serve to further
differentiate AVEVA in its markets.
Market environment
The lower oil price has led to a reduction in
global upstream E&P capital expenditure,
and it is well documented that a number of
projects have been postponed or moth-
balled, although the overall effect for
AVEVA is mixed. This has had an impact
on our EPC customers, their backlogs and
general levels of activity.
We have market-leading, well-invested
technology solutions that underpin our
competitive advantage across our target
sectors and geographies. Our mission to
enable our customers to work globally
with less risk, shorter lead-times and
greater business efficiency throughout
the asset lifecycle ensures we are aligned
to robust long-term growth drivers,
particularly given demand for energy,
the increasing complexity of their assets,
the focus on health and safety and
environmental considerations. However,
despite some stabilisation in the oil price,
it is difficult to predict when the delayed
capital projects will be restarted.
Operationally, we demonstrated our ability
to react with agility to changing market
conditions, and our early actions enabled
us to deliver cost efficiencies ahead of our
original plans. This protected profitability
in the second half of the financial year.
The Board
I am pleased to report further progress in
developing the Board’s role in supporting
and reviewing the Group’s strategy for
long-term growth. I believe that the
scope and effectiveness of this process
is now delivering results which can be
clearly seen in the various strategic
and organisational achievements
noted above. As a Board, we continue
to monitor closely the achievement
of business objectives alongside the
oversight of risks and the maintenance
of strong governance processes.
Dividend
AVEVA has a progressive dividend policy,
reflecting the Board’s confidence in the
underlying strength of the business and
its ability to deliver profitable long-term
growth and strong cash generation.
Consequently, the Board is recommending
a final dividend of 25 pence (2014 –
22 pence), an increase of 14% over the
prior year, payable on 3 August 2015 to
shareholders on the register on 3 July
2015. This gives a full year dividend of
30.5 pence (2014 – 27 pence), an increase
of 13% over last year.
Outlook
I believe that the quality and commitment
of the AVEVA team worldwide has
been central to our ability to show the
resilience of our business in the face of
more challenging and uncertain market
conditions, and on behalf of the Board
I would like to thank everyone in the
organisation for the effort and dedication
that has enabled us to achieve this.
The Board is convinced that there continues
to be exciting growth opportunities for
AVEVA in the coming years, and that the
strength of the long-term fundamentals
across our various end markets remains
undiminished. We will continue to focus
on managing our cost base to further
improve efficiency. As a result, we
are confident in our ability to make
further progress in capitalising on these
opportunities in the future.
Philip Aiken
Chairman
19 May 2015
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Over 1,600
employees
£158.2m
Recurring revenue
+8%
5yr growth in
recurring revenue
Group revenue
£208.7m
2014 – £237.3m
Full year dividend
30.5 pence
2014 – 27 pence
Americas
Europe, Middle East & Africa
Asia Pacific
Strategic report
Our markets
Customer case studies
AVEVA’s customers can be found all over
the world, representing a wide range of
industries. The companies referenced
on this map are just a sample of those
that have provided recent articles for the
AVEVA World Magazine in which they
summarise their positive experiences
with our software and service.
www.aveva.com/awm
Read more on
www.aveva.com
IES Engineering
Oil & Gas
OFD Engineering
Oil & Gas
Toyo Setal
Oil & Gas
Minera MILPO
Mining & Minerals
Perstorp and COWI
Chemicals
Ingenieurburo Schlattner
Power Renewable
SEFT
Marine
ADMA-OPCO
Oil & Gas
Daewoo E&C
Oil & Gas
North China Power Company
Power
Iemants
AEC
MAN Diesel & Turbo SE
Power
Ariosh
Oil & Gas
Atkins
Oil & Gas
WorleyParsons
Oil & Gas
Strategic report
Strategy review
Our objectives
Our strategy
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Customer demand for greater
technology innovation
combined with constantly
changing global market
conditions have shaped
AVEVA’s strategy over the last
four decades. Our success
has been achieved by finding
a balance between firm
commitments to our core
strengths and creating an
agile organisation that can
recognise and respond to
new business opportunities.
Expand our geographic presence in
key growth markets
Deliver world-class solutions to
Owner Operators
Extend our Digital Asset footprint
with existing and new customers
Grow our presence in adjacent
capital-intensive industries
KEY GROWTH
MARKETS
PLANT
OPERATORS
EXTEND DIGITAL
ASSET FOOTPRINT
DIVERSIFICATION
OF END MARKETS
Opportunity
AVEVA is investing in the tremendous
opportunities in the downstream
market in North America which is
transformational to the industry.
We also recognise the continued
importance of high growth and
emerging economies worldwide and
will continue to invest in customer
service and support infrastructure
in these important regions.
• Continue to shift investment balance
to high growth markets including
North America, Middle East, India
and China
• Focus building our reputation within
key downstream regions such as
Middle East, Asia and North America
• Continue to expand our reach within
key growth markets to continue
to drive the highest levels of
customer support
• Strengthen our partner ecosystem
to build new channels.
• Continually strengthen our global
brand and localised messaging
Opportunity
AVEVA’s technology and global
sales network is extremely well
positioned to help Owner Operators
meet their safety, production and
plant availability targets. With asset
life cycles greater than 25 years and an
addressable market longer than the
design market, the plant operations
domain represents a major opportunity
for our digital asset solutions.
• Continue to innovate our information
management solutions based
upon our customers’ need for
reliable, available and known
maturity of information.
• Continue to execute on the step-wise
approach from Asset Visualisation
through to Asset Lifecycle
information management using
strengths in information standards
and master data management.
• Firmly establish thought leadership
around visual asset management
taking gaming and touch screen
technology to a new generation of
asset owners and operators.
• Strengthen our partner ecosystem
to develop our “Enterprise scalability”
and build new channels.
• Support Plant operations, the
integrity of project information and
the contractual relationships with
their engineering suppliers.
Opportunity
The launch of AVEVA E3D has helped
AVEVA grow to a market-leading
position in 3D design solutions.
This position, combined with our
investment in our world-class
information management, schematics
and structural solutions, means
that AVEVA has an unrivalled
product portfolio for the creation
and management of the digital asset.
Looking ahead we seek to strengthen
our position here by:
• Extending our 3D dominance with
AVEVA E3D
• Build upon our ‘lean’ positioning to
expand our design install base with
Integrated Engineering & Design
• Reach new users with our
collaborative design vision combining
our core engineering and information
management technologies, known
as Design in Context
• Continually appraise acquisition
opportunities to build out our install
base within AVEVA core verticals
Opportunity
We have an opportunity to continue to
grow our presence in complimentary
adjacent verticals such as Steel
Fabrication and AEC infrastructure
markets, who share a similar need to
the energy markets for solutions that
address the challenges of executing
complex capital intensive projects.
• Extend our successful Digital Asset
solutions into the wider AEC market
• Continue to grow our footprint in
adjacent capital intensive industries
using our Contract Risk Management
and our Digital Asset solutions
• Develop our visual thinking position
for asset visualisation and project
collaboration into the BIM (Building
Information Management) market
• Target steel fabrication market
with steel detailing and fabrication
management
• Building on our strength to manage
laser data and automate the
production of intelligent 3D into all
capital intensive industries
• Continue to appraise acquisition
opportunities to increase our
exposure to wider capital
intensive industries
• Strengthen our partner ecosystem
to reach new markets
Building on our strengths
Helping our customers to create a Digital
Asset that improves project predictability
and operational reliability is core to our
vision and mission, and central to our
key business objectives: to build on our
technology strengths and effectively align
priorities that drive decisions and guide
our planning. As we grow our business,
our strategic goals are to expand our
geographic presence in strong markets,
target new customer profiles, expand the
role we play with existing customers, and
diversify our end market exposure. These
ambitious objectives touch on virtually
every aspect of our business and are a
priority for all our employees around the
world. To ensure the greatest possible
success, these objectives are clearly
understood throughout our organisation
and they underpin all of our business
planning processes.
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Geographic markets
Industry sectors
AMERICAS
North America has remained a buoyant
market supported by our Global Accounts.
Latin America remains challenging with
particular weakness in Brazil.
EUROPE, THE MIDDLE EAST
AND AFRICA
We have seen a mixed market in Europe,
with weakness from Oil & Gas in the UK
and Norway. This was offset by growth
from our global EPC accounts.
ASIA PACIFIC
Greater China offers good opportunities
for long-term growth. We experienced a
more mixed demand backdrop in North
East Asia through reduction in offshore
engineering spend.
Revenue breakdown
Revenue breakdown
Revenue breakdown
OIL & GAS
The lower oil price is currently
impacting investment in
offshore exploration and
production, while refining
has benefited from lower
feedstock prices.
% of Total revenue
POWER
Solid long-term growth
expected in all sectors,
driven by increasing demand
for electricity generation,
particularly in Asia.
% of Total revenue
MARINE
The global shipbuilding
industry is cyclical and is
currently subdued, while there
are pockets of growth in naval
shipbuilding and fuel efficient
design.
% of Total revenue
OTHER
AVEVA is active across a range
of other industry sectors,
including Metals & Mining,
Pulp & Paper, Chemical, and
other process plant and major
infrastructure projects.
% of Total revenue
£37.3m
£103.8m
£67.6m
Read more on
www.aveva.com
Annual fees
15%
Rental fees
66%
Initial fees
10%
Training and
services
9%
Annual fees
29%
Rental fees
49%
Initial fees
10%
Training and
services
12%
Annual fees
37%
Rental fees
32%
Initial fees
25%
Training and
services
6%
4 AVEVA Group plc Annual report and accounts 2015
5 AVEVA Group plc Annual report and accounts 2015
10 AVEVA Group plc Annual report and accounts 2015
11 AVEVA Group plc Annual report and accounts 2015
14 AVEVA Group plc Annual report and accounts 2015
15 AVEVA Group plc Annual report and accounts 2015
Chairman’s statement
pages 4–5
Read more about Our markets
pages 10–13
Read more about our Strategy review
pages 14–15
Contents
1
2
3
4
6
8
10
14
16
21
22
24
30
Strategic report
Highlights
Investor proposition
Chairman’s statement
Customer proposition
Business model
Our markets
Strategy review
Chief Executive’s strategic review
Key performance indicators
Principal risks and uncertainties
Finance review
Corporate responsibility
34
35
40
42
45
60
Directors’ report
Corporate governance
Board of Directors
Audit Committee report
Remuneration Committee report
Other statutory information
64
65
69
70
71
72
73
74
Financial statements
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
100 Company balance sheet
Notes to the Company
101
financial statements
Five year record
Statement of Accounting Policies
105
106
IBC Company information and advisers
The front cover
image is a shot
from AVEVA’s latest
corporate video.
To watch this video, visit
www.aveva.com/vision
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.
AVEVA Group plc Annual report and accounts 2015
Our vision
AVEVA’s vision is to power
Digital Assets that help
shape our world
Our mission
AVEVA’s mission is to
unlock the potential of
every customer with a
Digital Asset that transforms
their creation and operation
of complex assets
UNLOCK THE POWER OF
YOUR DIGITAL ASSET
The Digital Asset is the information core of every project and facility.
It unifies trusted information that runs through every system, populates every
application, and is embedded in every document and model. It removes barriers
to information flow and provides access to that information, both for capital
project execution and asset lifecycle management.
Digital Asset
Online
Digital Asset
Video
Learn more about the Digital Asset
at www.aveva.com/digitalasset
To watch AVEVA’s Digital Asset video,
visit www.aveva.com/video
1 AVEVA Group plc Annual report and accounts 2015
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS Strategic report
Highlights
This has been a year of good strategic progress, delivering increased
value to our customers through technology innovation and greater
business efficiency in more challenging markets.
Financial
Revenue
£208.7m
On an organic constant currency basis
£220.4 million (2014 – £237.3 million)
Recurring revenue
£158.2m
On an organic constant currency basis
£166.6 million (2014 – £167.0 million)
Strategic
AVEVA Everything3D™
Adoption of AVEVA E3D by existing and
new customers continues to accelerate.
In the past year AVEVA has announced
the adoption of AVEVA E3D by leading
global companies including: AMEC Foster
Wheeler, Atkins, D3 Engineering,
JSC NIIK, KBR, Tekfen Engineering,
and Tianchen, among others.
www.aveva.com/news
Profit before tax
£54.9m
Adjusted to exclude certain non-cash
and exceptional items £62.1 million
(2014 – £78.3 million)
Audited* profit margin
29.8%
2014 – 33.0%
Net assets
£189.9m
Strong balance sheet (2014 – £185.0 million)
Final dividend
25 pence
up 14% from 2013/14 (22 pence)
Global Accounts
We have made significant progress
in deepening our relationship with our
Global Accounts, by offering a complete
solution across all disciplines and
through continued innovation.
Partners
The development of solutions together
with key partners remains critical to our
market strategy. EMC, Capgemini and
Meridium are just three such partners
that are helping us to achieve our Digital
Asset vision. www.aveva.com/partners
Acquisitions
Acquisitions are a key part of AVEVA’s
growth strategy and this year we added
8over8 to our organisation. 8over8’s
flagship product is ProCon™, a risk
management software platform that
connects Owner Operators (OOs),
and Engineering, Procurement and
Construction (EPC’s) throughout the
project life cycle. www.8over8.com
Innovation
We have an enviable reputation for
providing creative software solutions.
This year our greatly enhanced versions of
AVEVA NET and AVEVA Engineering took
centre stage, along with AVEVA E3D™ in
the Cloud and new visualisation tools.
Operational
‘One AVEVA’
‘One AVEVA’ translates into greater
coordination of our global sales team
with a focus on delivering a Digital Asset
approach across our customers’ entire
project and asset lifecycle.
Solutions & Technology
Our Solutions & Technology R&D
operation provides a unified approach to
promoting the tighter integration of our
software solutions, as well as providing
natural efficiencies and flexibility as our
organisation continues to grow.
Digital Asset Projects
Our Digital Asset Projects team
focuses on maximising the value we
can provide to our customers through
a world-class professional services
and consulting offering.
* Adjusted profit before tax, adjusted profit margin 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. In addition, adjusted basic earnings per
share also include the tax effects of these adjustments.
2 AVEVA Group plc Annual report and accounts 2015
Strategic report
Investor proposition
AVEVA is a technology leader, providing mission-critical software
solutions to the world’s largest engineering companies and owner
operators, in the most demanding and complex process industries.
OUR
MARKETS
DELIVERING
VALUE TO OUR
CUSTOMERS
INDUSTRY
LEADING
STRONG
FINANCIAL
MODEL
GLOBAL
REACH
3 AVEVA Group plc Annual report and accounts 2015
AVEVA’s products are most applicable in industries
where scale and complexity are at their greatest: Oil & Gas,
Shipbuilding, Power, Chemical, Petrochemical, Paper &
Pulp, Mining & Metals and major infrastructure projects.
Read more about Our Markets
pages 10–13
We have over 3,500 customers who rely on our software
solutions to make accurate and timely design, engineering
and business decisions across entire project and asset
lifecycles – improving productivity and minimising both
risk and cost.
Read more about Delivering Value to our Customers
pages 6–7
Since the Company’s inception AVEVA has been the
leading innovator in its industry, from delivering the
world’s first 3D plant design system through to today’s
mobile, touch and Cloud-based technology.
Read more about Industry Leading
pages 16–20
Our licensing model generates high levels of recurring
revenue. As the majority of revenue is derived from software
sales, we have enjoyed historically high profit margins that
have enabled us to deliver strong cash generation and
reinvestment in our competitive advantage.
Read more about Strong Financial Model
pages 8–9
Our broad international reach enables us to support
our customers locally wherever they may happen to be,
and operating from offices in 30 countries.
Read more about Global Reach
pages 9–10
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS Strategic report
Chairman’s statement
“ The resilience of the
Group’s business
model has been a
key feature of the
past twelve months.”
Philip Aiken
Chairman
19 May 2015
4 AVEVA Group plc Annual report and accounts 2015
Introduction
Overview
I am pleased to report that AVEVA has
made good progress in difficult market
conditions, and that the resilience of the
Group’s business model has been a key
feature of the past twelve months.
The full year results reflect our particular
focus on execution in the second half
of the financial year. Total recurring
revenue for the second half of the
year was up 5%, demonstrating the
resilience of our business. We were
also able to deliver the £10.0 million of
cost efficiencies we had targeted.
Group revenue of £208.7 million (2014 –
£237.3 million), was in line with our revised
expectations and adjusted* profit before
tax was £62.1 million (2014 – £78.3 million),
resulting in an adjusted profit margin of
29.8% (2014 – 33.0%). The reported profit
before tax was £54.9 million (2014 – £69.0
million). Adjusted basic earnings per share
declined 16% to 74.51 pence (2014 – 89.05
pence). Basic earnings per share declined
17% to 65.07 pence (2014 – 78.12 pence).
We closed the year with net cash of
£103.8 million (2014 – £117.5 million).
This result reflects a reduced market
demand throughout the year due to the
significantly lower oil price and subsequent
reduction in customer activity, as well
as the previously reported weakness in
South America and North East Asia during
the first half. The strength of sterling
also had a pronounced negative effect
on our reported results, trimming Group
revenue by 6%, as our overseas revenue
was translated at less favourable rates
compared to the last financial year.
Strategic progress
Notwithstanding the tougher market
backdrop, I am pleased to report that
AVEVA has continued to make excellent
strategic progress on a number of
fronts. This is particularly evident in the
newly realigned organisation within our
sales, Research & Development and
solution delivery activities. A year ago
we introduced ‘One AVEVA’ to better
support our Engineering, Procurement and
Construction (EPC) and Owner Operator
(OO) customers through a single sales
approach. This has proved to be very
effective at helping us to grow the number
of solution sales we make. In addition, we
have recently unified our development
teams across all of our solutions and
technologies and streamlined our solution
delivery capabilities.
We have continued to make very good
progress with our Global Accounts.
Many customers are responding to more
uncertain markets by investing in new
technologies from AVEVA to maximise
competitiveness and efficiency. AVEVA
E3D has been an outstanding example
of this and has proved to be a powerful
catalyst for us to deepen our relationships
with these key customers. As a result we
are pleased to be able to report significant
new contracts with Aker Solutions,WS
Atkins and KBR, among others.
AVEVA E3D is a clear example of AVEVA’s
position as the leading innovator within
its industry. We have also delivered a
range of new products and functional
enhancements to many of our other
products over the last twelve months. Of
particular note is the Activity Visualisation
Platform and the new Cloud-enabled
version of AVEVA E3D, both of which
have generated much excitement from
customers in recent months.
Customers are investing in new
technologies from AVEVA to maximise
their competitiveness and efficiency.
Over 1,600
employees
£158.2m
Recurring revenue
+8%
5yr growth in
recurring revenue
Group revenue
£208.7m
2014 – £237.3m
Full year dividend
30.5 pence
2014 – 27 pence
During the year we were pleased
to acquire 8over8 Limited. Based in
Northern Ireland, 8over8’s core product,
ProCon™, is a software solution designed
to minimise risk and increase control
and capital discipline for some of the
world’s most complex projects. This
demonstrates AVEVA is well placed to use
its balance sheet to deliver well-timed,
strategically important acquisitions with
a strong logical fit. We are confident that
the addition of 8over8 will enable us to
further broaden our relationships with
the OO community, and serve to further
differentiate AVEVA in its markets.
Market environment
The lower oil price has led to a reduction in
global upstream E&P capital expenditure,
and it is well documented that a number of
projects have been postponed or moth-
balled, although the overall effect for
AVEVA is mixed. This has had an impact
on our EPC customers, their backlogs and
general levels of activity.
We have market-leading, well-invested
technology solutions that underpin our
competitive advantage across our target
sectors and geographies. Our mission to
enable our customers to work globally
with less risk, shorter lead-times and
greater business efficiency throughout
the asset lifecycle ensures we are aligned
to robust long-term growth drivers,
particularly given demand for energy,
the increasing complexity of their assets,
the focus on health and safety and
environmental considerations. However,
despite some stabilisation in the oil price,
it is difficult to predict when the delayed
capital projects will be restarted.
Operationally, we demonstrated our ability
to react with agility to changing market
conditions, and our early actions enabled
us to deliver cost efficiencies ahead of our
original plans. This protected profitability
in the second half of the financial year.
The Board
I am pleased to report further progress in
developing the Board’s role in supporting
and reviewing the Group’s strategy for
long-term growth. I believe that the
scope and effectiveness of this process
is now delivering results which can be
clearly seen in the various strategic
and organisational achievements
noted above. As a Board, we continue
to monitor closely the achievement
of business objectives alongside the
oversight of risks and the maintenance
of strong governance processes.
Dividend
AVEVA has a progressive dividend policy,
reflecting the Board’s confidence in the
underlying strength of the business and
its ability to deliver profitable long-term
growth and strong cash generation.
Consequently, the Board is recommending
a final dividend of 25 pence (2014 –
22 pence), an increase of 14% over the
prior year, payable on 3 August 2015 to
shareholders on the register on 3 July
2015. This gives a full year dividend of
30.5 pence (2014 – 27 pence), an increase
of 13% over last year.
Outlook
I believe that the quality and commitment
of the AVEVA team worldwide has
been central to our ability to show the
resilience of our business in the face of
more challenging and uncertain market
conditions, and on behalf of the Board
I would like to thank everyone in the
organisation for the effort and dedication
that has enabled us to achieve this.
The Board is convinced that there continues
to be exciting growth opportunities for
AVEVA in the coming years, and that the
strength of the long-term fundamentals
across our various end markets remains
undiminished. We will continue to focus
on managing our cost base to further
improve efficiency. As a result, we
are confident in our ability to make
further progress in capitalising on these
opportunities in the future.
Philip Aiken
Chairman
19 May 2015
5 AVEVA Group plc Annual report and accounts 2015
Read more on
www.aveva.com
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS Strategic report
Customer proposition
Digital Assets that shape
our world
Managing continual change
Recent major fluctuations in the global energy market clearly
demonstrate the difficulty of our customers’ business. They are
building and operating highly complex assets costing billions of
dollars that require an army of skilled professionals across a huge
range of disciplines and specialities. Managing this environment in
the best of times is difficult, but when changing market conditions
demand business agility, the challenge grows even more difficult.
At AVEVA we are helping our customers take on these challenges
with software solutions that give them the engineering, design
and information management tools they need to create a more
agile business. This is what our Digital Asset approach is all about.
By partnering with AVEVA our customers can create a trusted
source of information that is accessible throughout the entire life
cycle of an asset; from front-end design until decommissioning.
This strategy means that EPCs and Shipbuilders can achieve
greater project predictability and OOs can improve productivity,
safety and reliability.
However, no organisation can achieve these results on their own.
The complexities of the constantly evolving challenges demand
that we work closely with our customers in a genuine partnership.
To do this we must understand their organisation, the technical
disciplines and the local culture and business climate. Operating
in over 50 locations around the world staffed by a team of industry
experts, we are uniquely positioned to understand the needs
of our customers and respond with solutions that help them
achieve their goals. This infrastructure is a major investment for
AVEVA, but it also brings great benefits to our business and that
of our customers. Over the decades we have formed long-term
relationships with our customers and our shared vision of a
Digital Asset is truly shaping the world around us.
Read more on
www.aveva.com
6 AVEVA Group plc Annual report and accounts 2015
INCREASE
Predictability and reliability
across the entire life cycle
Read more on
www.aveva.com/digitalasset/strategies
CAPEX
While there is a great diversity in the types of
major capital projects, one thing they all have
in common is the need to find an effective
balance between quality, time and cost. AVEVA’s
project solutions are all focused on increasing
predictability through a wide range of features
and capabilities. They give project stakeholders
the design, engineering and information
standards they need to understand and
control their project environment.
OPEX
The operational demands of a complex asset
are relentless. They are in a constant state of
change, requiring continual maintenance and
improvement. Operators must be in a position to
thoroughly monitor and manage the life cycle of
the asset to reduce risk, optimise efficiency and
comply with regulatory authorities. To support
this process, AVEVA’s solutions for operational
activities are designed to increase asset reliability,
by ensuring that OOs have the information they
need to easily visualise the status of an asset to
make rapid and informed decisions.
ENABLE
CONTROL
Digital Asset strategies targeted
at different audiences
The processes and capabilities
that ensure success
Read more on
www.aveva.com/digitalasset/strategies
Read more on
www.aveva.com/digitalasset/solutions
INTEGRATED PROJECT EXECUTION
The IPE strategy employs best practice standards
to improve on-schedule completion and the
quality of deliverables for major capital projects.
The ability to access project data across all
engineering disciplines allows efficient control,
communication and response to change and
inconsistencies, enabling business processes
to collaborate in a highly efficient way and
improved communication with the asset owner.
INTEGRATED SHIPBUILDING
AVEVA offers the most complete solution for
integrating all aspects of the shipbuilding process,
enabling effective information sharing and
workflow management. By creating a trusted
and open Digital Asset, AVEVA’s Integrated
Shipbuilding strategy delivers maximum
capability and effective collaboration within the
shipyard and across globally distributed suppliers.
OPERATIONS INTEGRITY
MANAGEMENT
At the centre of an OIM strategy is the
Digital Asset, connecting capabilities and
processes to enhance operational reliability.
Removing the barriers between information
silos is crucial to a successful OIM strategy,
improving information quality to provide reliable
information for decision support, delivering
safe, reliable and efficient operations.
INTEGRATED ENGINEERING
& DESIGN
The IE&D solution dramatically improves design
and engineering process efficiency for major
capital projects, as well as for asset modification
and revamps. A unique ‘Compare & Update’ and
‘Change Highlighting’ functionality allows project
disciplines to easily and dynamically share design
and engineering information in order to control
the iterative design spiral.
ENTERPRISE RESOURCE
MANAGEMENT
The ERM solution delivers measurable ROI
throughout every step of the material management,
planning and construction process. This easy-
to-use solution ensures efficient planning and
execution of a marine or plant project and optimum
management of multiple projects to create
significant competitive advantage.
DIGITAL ASSET SOLUTIONS
The information management capabilities offer a
range of solutions for EPCs, OOs and shipbuilders
based on our unique AVEVA NET technology.
They create an open environment that provides
access to information regardless of the
application source. The result is a single, trusted
source of information that reduces risk through
rapid and better-informed decision making.
7 AVEVA Group plc Annual report and accounts 2015
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS Strategic report
Business model
Our organisation and business model
Creating a business that responds to the
needs of our customers
GLOBAL SALES
Focused on
selling our
full product
and solution
portfolio to all
of our EPC, OO
and Shipbuilding
customers
SOLUTIONS &
TECHNOLOGY
DIGITAL ASSET
PROJECTS
A unified
technology
organisation
responsible for
the development
and integration
of all our
software and
solutions
A single service
organisation
delivering a
full range of
consulting and
implementation
services to all
our customers
around the world
BUSINESS
STRATEGY
& MARKETING
Defining our
business
strategy and
communicating
AVEVA’s vision
internally and
to our target
markets
FINANCE
& LEGAL
BUSINESS
SERVICES
Meeting the
essential
financial
management,
legal and
contractual
requirements of
a growing global
organisation
Delivering the
people, talent
and IT business
systems that are
critical to the
efficiency and
growth of the
organisation
OPERATIONS
Driving AVEVA’s business strategy across all geographic regions to support the
long-term success of the Company
Business model
At the core of AVEVA’s business is the
intellectual property generated in our
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. This strategy provides
customers with local sales and support
and helps AVEVA to work closely with
leading companies principally in the Oil
& Gas, Power and Marine markets.
We operate a ‘right-to-use’ licensing model
for our software. Typically, customers
licence 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.
The amount of service required to deploy
our software varies depending on the
type of solution. Typically our services
consist of consulting, implementation
and customisation, which are provided
either on a fixed contract or on a time
and material basis.
8 AVEVA Group plc Annual report and accounts 2015
Driving innovation
Innovation across our business
Innovation
Innovation is one of our core values and
underpins the culture and behaviours
of our employees around the globe.
Our history is marked with a series of
impressive firsts, from the world’s first 3D
plant design system, first internet-based
engineering information management
platform, first integrated plant and marine
design solution through to the release of
AVEVA E3D in 2013. It is what drives our
success and has continued to differentiate
us in the markets we serve.
Flexible ‘right-to-use’ revenue model
Our right-to-use software licensing model
provides not only a secure and consistent
revenue stream for AVEVA, but also gives
our customers the flexibility to select
products and licence configurations.
This can be a major advantage for both
projects and operations as companies
can choose the required software
resources for the different phases of
their project and asset life cycle. Extra
licensing agility helps to improve the
competitiveness of our customers.
Long-term relationships
AVEVA is particularly proud of the long-
term relationships we have established
with our customers. Some companies
have used our software for more than
30 years and there are many with
relationships that have lasted well
beyond a decade. These connections
are based on mutual trust and are rooted
in the lasting value that our software
and support provides. Our customer-
centric business approach is designed
specifically to create and foster these
critically important relationships.
Committed team
The AVEVA team is our greatest asset.
To meet the changing and demanding
needs of our customers, we have built
a team of discipline experts from Sales
and Marketing to Development and
Services and all of the critical support
functions that enable our success. While
our people are geographically dispersed
around the world, we remain informed
and coordinated through our matrix
organisational structure.
AVEVA’S DIGITAL
ASSET APPROACH
AVEVA’s unique Digital Asset approach builds
an integrated information framework that
continuously represents the true current state
of the physical asset.
OPEX
PHASE
It provides deep application integration
where real-time information sharing between
disciplines is critical to success. It is open,
enabling data and documents created in
almost any software to be easily accessed
and validated. www.aveva.com/digitalasset
CAPEX
PHASE
U I L D I N G
U C T
R
O
COM
MIS
S
I
O
N
P
E
R
A
T
I
O
N
S
I
DIGITAL
ASSET
B
ATED S H I P
CO N S T
E
R
U
C
O
R
P
R
G
E
T
N
I
/
N
O
T
U
C
I
E
X
E
N
T
E
G
R
I
T
Y
M
A
N
A
O
P
E
R
A
T
E
M
GEMENT
T
C
E
J
O
R
P
D
N
DESIG
AIN
TAIN
E
T
A
INTEGR
9 AVEVA Group plc Annual report and accounts 2015
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS
Strategic report
Our markets
Customer case studies
AVEVA’s customers can be found all over
the world, representing a wide range of
industries. The companies referenced
on this map are just a sample of those
that have provided recent articles for the
AVEVA World Magazine in which they
summarise their positive experiences
with our software and service.
www.aveva.com/awm
Read more on
www.aveva.com
Americas
Europe, Middle East & Africa
Asia Pacific
IES Engineering
Oil & Gas
OFD Engineering
Oil & Gas
Toyo Setal
Oil & Gas
Minera MILPO
Mining & Minerals
Geographic markets
AMERICAS
North America has remained a buoyant
market supported by our Global Accounts.
Latin America remains challenging with
particular weakness in Brazil.
EUROPE, THE MIDDLE EAST
AND AFRICA
We have seen a mixed market in Europe,
with weakness from Oil & Gas in the UK
and Norway. This was offset by growth
from our global EPC accounts.
ASIA PACIFIC
Greater China offers good opportunities
for long-term growth. We experienced a
more mixed demand backdrop in North
East Asia through reduction in offshore
engineering spend.
Revenue breakdown
Revenue breakdown
Revenue breakdown
£37.3m
£103.8m
£67.6m
Annual fees
15%
Rental fees
66%
Initial fees
10%
Training and
services
9%
Annual fees
29%
Rental fees
49%
Initial fees
10%
Training and
services
12%
Annual fees
37%
Rental fees
32%
Initial fees
25%
Training and
services
6%
10 AVEVA Group plc Annual report and accounts 2015
Iemants
AEC
Perstorp and COWI
Chemicals
Ingenieurburo Schlattner
Power Renewable
MAN Diesel & Turbo SE
Power
SEFT
Marine
ADMA-OPCO
Oil & Gas
Ariosh
Oil & Gas
Daewoo E&C
Oil & Gas
North China Power Company
Power
Atkins
Oil & Gas
WorleyParsons
Oil & Gas
IES Engineering
Oil & Gas
OFD Engineering
Oil & Gas
Toyo Setal
Oil & Gas
Minera MILPO
Mining & Minerals
Americas
Europe, Middle East & Africa
Asia Pacific
Iemants
AEC
Perstorp and COWI
Chemicals
Ingenieurburo Schlattner
Power Renewable
MAN Diesel & Turbo SE
Power
SEFT
Marine
ADMA-OPCO
Oil & Gas
Ariosh
Oil & Gas
Daewoo E&C
Oil & Gas
North China Power Company
Power
Atkins
Oil & Gas
WorleyParsons
Oil & Gas
Industry sectors
OIL & GAS
The lower oil price is currently
impacting investment in
offshore exploration and
production, while refining
has benefited from lower
feedstock prices.
Total revenue (%)
POWER
Solid long-term growth
expected in all sectors,
driven by increasing demand
for electricity generation,
particularly in Asia.
MARINE
The global shipbuilding industry
is cyclical and is currently
subdued, while there are pockets
of growth in naval shipbuilding
and fuel efficient design.
Total revenue (%)
Total revenue (%)
OTHER
AVEVA is active across a range
of other industry sectors,
including Metals & Mining,
Pulp & Paper, Chemical, and
other process plant and major
infrastructure projects.
Total revenue (%)
11 AVEVA Group plc Annual report and accounts 2015
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS
Strategic report
Our markets continued
Customer case studies
Take a closer look at some of our recent customer success stories. These
companies represent a cross-section of the industries and geographies and have
impressive stories to tell about how AVEVA’s solutions play a strategic role in their
projects and operational success.
Read more on
www.aveva.com
MAN Diesel power facility
Photography courtesy of MAN Diesel & Turbo SE
MAN Diesel & Turbo SE
Pipe-ing Hot Success
MAN Diesel & Turbo SE rapidly benefits
from AVEVA’s IE&D solution
“The result is not only a faster project
but also higher quality design, which
considerably reduces rework.”
The case study can be found in the
AVEVA World Magazine 2014, Issue 2
www.aveva.com/awm/2014/2/man
INDUSTRY
Power
SOLUTION
Integrated Engineering
& Design
COUNTRY
Germany
Perstorp and COWI
Project Valerox – Asset Expansion
with AVEVA Software
How a combination of AVEVA PDMS, AVEVA P&ID
and laser scanning is efficiently extending Perstop
Oxo’s valeraldehyde plant
“Laser scanning saved a considerable amount of
time because clashes could be easily avoided,
minimising any rework at the site. And the precise
measurements made fabrication and installation
much faster…”
INDUSTRY
Chemical
SOLUTION
2D Engineering, 3D Design
and Laser Scanning
COUNTRY
Sweden
Perstorp Oxo valeraldehyde plant
Photography courtesy of Perstorp and COWI
The case study can be found in the
AVEVA World Magazine 2014, Issue 2
www.aveva.com/awm/2014/2/perstorp
SEFT
AVEVA to the Rescue
How SEFT is using AVEVA Marine to design
MOSHIP, the first all-in-one, multifunctional
submarine rescue vessel
INDUSTRY
Marine
SOLUTION
Ship Engineering and Design
“With AVEVA Marine we were able to reduce the
cost of the prototype, reduce rework and avoid
waste by preparing exact materials lists.”
COUNTRY
Turkey
The case study can be found in the
AVEVA World Magazine 2015, Issue 1
www.aveva.com/awm/2015/1/seft
MOSHIP submarine rescue vessel
Photography courtesy of SEFT
12 AVEVA Group plc Annual report and accounts 2015
DIGITAL ASSET
“AVEVA is proud to play such an important role in the amazing achievements of our customers.
Using our software technology as part of a larger Digital Asset approach, we are helping companies
around the world to improve the predictability of their capital projects and reliability of their operations.
This translates directly to their bottom line by saving time, increasing quality and controlling risk.”
Richard Longdon
Chief Executive
Aspire Tower in Qatar
Photography courtesy of Iemants
Zakum West platform
Photography courtesy of WorleyParsons
Iemants
The AVEVA Bocad Advantage
How Iemants owes its success
to AVEVA Bocad
INDUSTRY
AEC
SOLUTION
Structural Steel Design
“AVEVA Bocad allows you to turn these designs
into great deliverables and ultimately into
high-quality, on-time construction…”
COUNTRY
Belgium
The case study can be found in the
AVEVA World Magazine 2015, Issue 1
www.aveva.com/awm/2015/1/iemants
WorleyParsons
The Digital Asset Brings
Concrete Benefits
AVEVA and WorleyParsons Digital Enterprise
collaborate to turn the Digital Asset vision into reality
“The project also created a sound basis for
future modification; a higher quality of input data
increases the quality of revamp design, which
reduces downtime and the exposure of engineering
personnel to potentially hazardous environments.”
The case study can be found in the
AVEVA World Magazine 2015, Issue 1
www.aveva.com/awm/2015/1/wp
IES Engineering
Towards the Lean Revamp
How AVEVA technology and laser scanning
enables IES Engineering to apply Lean processes
to revamp projects
“3D data not only offers the ability to create
design and fabrication that will bolt up with
no issues, it also enables the creation of highly
detailed demolition plans, providing the clients
with more control to define the scope of work
on a project…”
INDUSTRY
Oil & Gas
SOLUTION
Digital Asset creation with 2D
Engineering and 3D Design
COUNTRY
Australia
INDUSTRY
Oil & Gas
SOLUTION
Brownfield Data Capture
COUNTRY
USA
Water plant vessel installation
Photography courtesy of IES Engineering
The case study can be found in the
AVEVA World Magazine 2014, Issue 2
www.aveva.com/awm/2014/2/IES
13 AVEVA Group plc Annual report and accounts 2015
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS Strategic report
Strategy review
Our objectives
Our strategy
Customer demand for greater
technology innovation
combined with constantly
changing global market
conditions have shaped
AVEVA’s strategy over the last
four decades. Our success
has been achieved by finding
a balance between firm
commitments to our core
strengths and creating an
agile organisation that can
recognise and respond to
new business opportunities.
Expand our geographic presence in
key growth markets
Deliver world-class solutions to
Owner Operators
Extend our Digital Asset footprint
with existing and new customers
Grow our presence in adjacent
capital-intensive industries
KEY GROWTH
MARKETS
PLANT
OPERATORS
Opportunity
AVEVA is investing in the tremendous
opportunities in the downstream
market in North America which is
transformational to the industry.
We also recognise the continued
importance of high growth and
emerging economies worldwide and
will continue to invest in customer
service and support infrastructure
in these important regions.
• Continue to shift investment balance
to high growth markets including
North America, Middle East, India
and China
• Focus building our reputation within
key downstream regions such as
Middle East, Asia and North America
• Continue to expand our reach within
key growth markets to continue
to drive the highest levels of
customer support
• Strengthen our partner ecosystem
to build new channels.
• Continually strengthen our global
brand and localised messaging
Opportunity
AVEVA’s technology and global
sales network is extremely well
positioned to help Owner Operators
meet their safety, production and
plant availability targets. With asset
life cycles greater than 25 years and an
addressable market longer than the
design market, the plant operations
domain represents a major opportunity
for our digital asset solutions.
• Continue to innovate our information
management solutions based
upon our customers’ need for
reliable, available and known
maturity of information
• Continue to execute on the step-wise
approach from Asset Visualisation
through to Asset Lifecycle
information management using
strengths in information standards
and master data management
• Firmly establish thought leadership
around visual asset management
taking gaming and touch screen
technology to a new generation of
asset owners and operators
• Strengthen our partner ecosystem
to develop our ‘Enterprise scalability’
and build new channels
• Support Plant operations, the
integrity of project information and
the contractual relationships with
their engineering suppliers
14 AVEVA Group plc Annual report and accounts 2015
Building on our strengths
Helping our customers to create a Digital
Asset that improves project predictability
and operational reliability is core to our
vision and mission, and central to our
key business objectives: to build on our
technology strengths and effectively align
priorities that drive decisions and guide
our planning. As we grow our business,
our strategic goals are to expand our
geographic presence in strong markets,
target new customer profiles, expand the
role we play with existing customers, and
diversify our end market exposure. These
ambitious objectives touch on virtually
every aspect of our business and are a
priority for all our employees around the
world. To ensure the greatest possible
success, these objectives are clearly
understood throughout our organisation
and they underpin all of our business
planning processes.
EXTEND DIGITAL
ASSET FOOTPRINT
DIVERSIFICATION
OF END MARKETS
Opportunity
The launch of AVEVA E3D has helped
AVEVA grow to a market-leading
position in 3D design solutions.
This position, combined with our
investment in our world-class
information management, schematics
and structural solutions, means
that AVEVA has an unrivalled
product portfolio for the creation
and management of the digital asset.
Looking ahead we seek to strengthen
our position here by:
• Extending our 3D dominance with
AVEVA E3D
• Build upon our ‘lean’ positioning to
expand our design install base with
Integrated Engineering & Design
• Reach new users with our
collaborative design vision combining
our core engineering and information
management technologies, known
as Design in Context
• Continually appraise acquisition
opportunities to build out our install
base within AVEVA core verticals
Opportunity
We have an opportunity to continue to
grow our presence in complimentary
adjacent verticals such as Steel
Fabrication and AEC infrastructure
markets, who share a similar need to
the energy markets for solutions that
address the challenges of executing
complex capital intensive projects.
• Extend our successful Digital Asset
solutions into the wider AEC market
• Continue to grow our footprint in
adjacent capital intensive industries
using our Contract Risk Management
and our Digital Asset solutions
• Develop our visual thinking position
for asset visualisation and project
collaboration into the BIM (Building
Information Management) market
• Target steel fabrication market
with steel detailing and fabrication
management
• Building on our strength to manage
laser data and automate the
production of intelligent 3D into all
capital intensive industries
• Continue to appraise acquisition
opportunities to increase our
exposure to wider capital
intensive industries
• Strengthen our partner ecosystem
to reach new markets
15 AVEVA Group plc Annual report and accounts 2015
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS Strategic report
Chief Executive’s
strategic review
“ We have
demonstrated
our ability to
capitalise on
our strengths.”
Richard Longdon
Chief Executive
19 May 2015
Total revenue
Recurring
76%
Initial license fees
15%
Services
9%
Summary of
Performance
Resilience in difficult markets
The financial year 2014/15 proved the
resilience of AVEVA’s business model,
given the mixed trading environment we
experienced. Our revenue mix, broad
international reach and strong competitive
positioning proved to be key strengths.
Our emphasis was on execution in the
second half of the year and I am pleased
to say that we were able to deliver the
£10.0 million of cost efficiencies we had
targeted. Full year constant currency
revenue of £220.4 million (2014 –
£237.3 million) reflected a second half
performance in line with the previous
year, with an increase in annual fees and
rental licences broadly flat despite the
difficult market backdrop. Rental deals that
had shifted into the second half closed
successfully in line with expectations.
We were also able to demonstrate that
the significant investment we have made
in Research & Development in recent
years has been well-timed, enabling us
to expand our penetration within Global
Accounts despite the difficult economic
backdrop facing many of our customers.
Overall, I am pleased with the strategic
and operational progress we have made
during the period. We have continued to
expand our sales to OOs through a more
coordinated approach, founded upon the
‘One AVEVA’ sales strategy, implemented
at the start of the year.
This has had the effect of increasing
solution sales to customers and positions
us well for the future. We also continued
our strategy of reinvesting cash in
strategically important acquisitions, with
the addition of 8over8 Limited in January
2015, an industry-leading provider of
contract risk management solutions.
Over the course of the year, we have seen
substantially more challenging conditions
in our Oil & Gas end market, which
represents around 45% of Group revenue,
with the material weakening in the oil price
leading to sharp reductions in exploration
and production capital expenditure. In
addition to this, our business in Latin
America was further impacted by Brazil’s
ongoing political difficulties. In the Marine
market, global shipbuilding activity
remained subdued, driven by ongoing
over-capacity, reduction in new orders for
specialist off-shore vessels and relatively
low global GDP growth. In the Power
market, we continued to see steady single
digit growth.
We have an international business with
over 50 offices operating in more than
30 countries worldwide. Sterling has
strengthened materially during the course
of our financial year, in particular against
the Euro but also against many other
currencies in which we do business, and
we saw a 6% negative translation impact
on our reported revenue. This is covered in
more detail in the Finance Review.
16 AVEVA Group plc Annual report and accounts 2015
Our vision of the Digital Asset is enabling our
customers to manage continued change as
they deliver and operate some of the world’s
most complex assets.
£220.4m
Constant currency revenue
76%
Recurring revenue
Why customers in our end markets buy
our software
Our software is used by our customers
as they design, build and operate large
capital-intensive assets, in the Process,
Power and Marine industries. We sell our
solutions principally to the EPC companies,
shipyards and OO customers worldwide.
Our vision of the Digital Asset is enabling
our customers to manage continual
change as they deliver and operate some
of the world’s most complex assets.
Increasingly, our customers are
demanding a combination of our products
and this, backed by our ‘One AVEVA’ sales
strategy, is driving wider adoption of the
entire AVEVA product portfolio delivering
strong upsell opportunities. This has been
particularly evident in the success we
have achieved in expanding our footprint
within our Global Accounts. Other notable
customers opting for a broader portfolio of
our products include Southern California
Gas Company, a good example of an OO
combining a range of AVEVA applications
in order to improve capital efficiency,
reliability and compliance.
Engineering & Design Systems (EDS)
review and drivers
As a result of the difficult end markets our
EDS business was subdued. Revenue for
this line of business declined by 14% to
£182.7 million, reflecting in particular the
downturn in Brazil and South Korea where
rental licence renewals were depressed in
the first half of the year. Our initial licence
business was influenced principally by
the reduced levels of activity among our
Asian shipyard customers compared to
the previous year. Nevertheless, sales of
AVEVA E3D continued to gain momentum
throughout the year and we have achieved
significant strategic progress with our
Global Accounts. In general, rental
renewals remained robust among our key
accounts, and we concluded significant
deals with Aker Solutions, Jacobs
Engineering, Technip, WorleyParsons and
AMEC Foster Wheeler, among others.
Enterprise Solutions (ES) review
and drivers
The market backdrop for our information
management products has been
challenging, with lengthy sales cycles
and pressures on discretionary spend
amongst our customers. This was
reflected in the financial performance
for this line of business which did not
deliver the level of growth that we
expected, with revenue of £24.8 million
(2014 – £25.9 million), excluding the
impact of the acquired 8over8 business.
However, the innovations delivered to our
customers this year are driving increased
demand for our solutions to create and
manage our customers’ Digital Assets.
Despite the tough market backdrop, there
were a number of notable projects during
the period including Husky, Davie, BASF
and BAE. We also successfully completed
important milestones at Chevron’s
Wheatstone project and at ConocoPhillips.
17 AVEVA Group plc Annual report and accounts 2015
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS Strategic report
Chief Executive’s strategic review
continued
Our business remains strongly positioned in
its target markets, where the fundamentals
support long-term growth.
Divisional revenue split
Engineering &
Design
Systems
88%
Enterprise
Solutions
12%
Innovation leadership driving
new opportunities
Our commitment to being the leading
innovator in our industry remains
undiminished and customer feedback on
the products showcased at our AVEVA
World Summit in October 2014 was
hugely positive. With AVEVA E3D gaining
momentum in the market, the next step
will be the Cloud-enabled version. We
demonstrated a full function version of
AVEVA E3D on a Cloud platform proving
no difference in performance to a locally
installed solution. The addition of a Cloud-
based solution will offer customers rapid
deployment as well as the flexibility to mix
both cloud and on premise users in the
same project. The Cloud technology is
already being tested by several customers
as part of our early adopter programme.
Building on our position as the industry
leader in visualisation technology, we
demonstrated our new ability to ‘walk
through’ laser scans in an environment
indistinguishable from the actual facility.
We also demonstrated combined AVEVA
E3D and AVEVA NET™ technology on a
large touchscreen that is now with early
adopter clients, including Lundin and Shell,
to demonstrate the next generation in
navigating project and asset information
in context.
We also announced major enhancements
to AVEVA NET with improved 3D interaction
and faster, more powerful search,
visualisation and navigation capabilities.
Elsewhere, the launch of our new
Information Standards Manager has been
well received by customers. AVEVA ISM™
bridges the gap between OOs and EPCs,
enabling greater control over critical
engineering information standards across
their projects and enterprises.
We have an exciting product pipeline
over the medium term, particularly as our
design tools and information management
solutions continue to converge.
Regional performance
Across our three main regions, we saw a
mixed performance. Asia Pacific was down
20% in the year on a constant currency
basis, which reflected a reduction in initial
licence fees compared to a very strong
performance a year ago, as well as a
particular weakness in South Korea where
our shipyard customers have experienced
lower activity levels due to a reduction in
offshore Oil & Gas projects.
Revenue in EMEA and the Americas
on a constant currency basis was
broadly flat compared to the prior
year, reflecting weakness in Brazil
and parts of EMEA offset by growth
from our Global Accounts.
Further details on our regional performance
are contained in the Finance Review.
Our Focus
Long-term opportunity in global
growth markets
Our business remains strongly
positioned in its target markets, where
the fundamentals support long-term
growth. Despite the near-term effects
of a weaker oil price, over the long term,
with increased energy usage and a
growing global population, significant
infrastructure investment will be
required in order to meet demand; the
International Energy Authority (IEA)
estimates that global energy demand
will increase by 37% by 2040, with the
majority of this increase occurring in
China and India. Oil & Gas is increasingly
difficult to extract, necessitating more
hours to be spent in detailed design.
This is set against a backdrop where the
IEA forecast that liquids demand alone
is set to rise from 87 million to 98 million
barrels per day within just five years. Our
software is critical to solving the biggest
engineering challenges in the harshest
environments. With similar fundamental
drivers, Power offers attractive growth
opportunities over the long term as the
world’s emerging economies invest in
their power generation requirements and
the ageing infrastructure of the developed
world is maintained and replaced. Our
global presence and international reach
positions us well to capitalise on these
opportunities. Meanwhile, in times of
18 AVEVA Group plc Annual report and accounts 2015
uncertainty we are focused on supporting
our customers as they seek to become
more efficient and adapt to the fast
changing environment.
Our strong position in engineering design
also offers us a unique opportunity to
support the lifecycle of the assets our
software tools are used to create. Our
information management solutions,
with the support of our growing partner
network, are increasingly relevant to a
wide range of asset-intensive industries
beyond the core markets we have
traditionally served.
Solution sales, our organisation and the
convergence of technologies
We have been pursuing a strategy of
increasing the number of solution sales
we make, whereby customers opt for a
number of our products and we increase
our footprint within our customer base.
With this in mind, we reported at the
interim stage that we had realigned
our sales organisation behind a ‘One
AVEVA’ approach in order to better
promote the entire AVEVA product
range to all customers, supporting both
design and operations. As previously
indicated, we have also unified our
technology organisation, following the
convergence of our two key product
areas, detailed engineering design and
information management. Finally, the
Digital Asset is now firmly reinforced
as the vision that lies at the heart of
our service organisation, to better
focus on service delivery and grow our
specialist service capabilities over time.
We expect that this streamlined solutions
and product strategy will deliver major
benefits to our business in coming years as
our technologies are used increasingly in
combination. Our future financial reporting
will, from 2015/16, also be re-aligned
behind this convergence and this year
is the last in which we will disclose EDS
and ES as our primary segments. From
2015/16, we are monitoring the business
on a regional basis and, therefore, this will
become our primary method of segmental
financial reporting.
Management of our cost base
Recognising the more difficult trading
conditions in the first half of the financial
year, we took early action to achieve cost-
efficiencies. This, combined with lower
sales commissions and bonuses during
the period, has enabled us to limit the
impact on profitability caused by lower
than planned revenue. In addition, we have
taken further action to address the cost
base by rationalising some of our regional
offices and reducing headcount in some
areas of the business. This will deliver
annualised savings of approximately
£3.0 million which will help offset the cost
increases we face in 2015/16 as a result of
inflation, increased bonus and commission
costs and the annualised effect of new
hires made in 2014/15.
Our Achievements
Strategic progress with Global Accounts
Our Global Accounts EPC program
continued to bear fruit over the past
year. The challenges seen in our end
user markets are prompting our Global
Accounts to take the opportunity to
invest in the latest AVEVA technologies in
order to maximise their competitiveness
and business advantage. The integrated
Bubbleview™ laser capability within AVEVA
E3D is now making this solution the de
facto standard for all future brownfield
projects, eliminating or reducing re-
modelling activities by over 90%. Beyond
AVEVA E3D, there is also increased uptake
and deployment of AVEVA NET across our
Global Accounts, as they continue their
journey towards true data-centric working
built around a trusted digital asset.
I am especially pleased to be able to
report a new significant contract with Aker
Solutions of Norway which builds on the
fantastic relationship we have enjoyed
with them over the last 20 years. Aker
has invested in PDMS™ throughout this
period and is now using this platform to
develop and deploy AVEVA E3D across
their business. This is a good example of
how we are deepening the relationships
with our customers whilst increasing the
revenue opportunity.
Development of the partner channel
We continue to strengthen our
partnerships with leading consulting,
technology and outsourcing companies as
we build our presence in the operational
lifecycle of the asset. During the period
we announced a global alliance with
Capgemini to cover asset-intensive
industries. Capgemini’s Digital Asset
Lifecycle Management (DiALM) solution
is based on AVEVA’s information
management technology and enables
OOs to control and manage project and
operational performance of their assets.
We are already supporting Capgemini on
the Nuclear New Build programme in the
UK and we expect this agreement to help
extend our presence within our existing
markets and into the other asset-intensive
industries served by Capgemini, for
example transport. We also announced a
new collaboration with EMC to deliver an
integrated software solution for capital
projects and asset operations. Under
the terms of this agreement, AVEVA
and EMC have combined the two best-
in-class product suites, AVEVA NET and
EMC® Documentum® Engineering, Plant
and Facilities Management (EPFM), into a
single solution. Elsewhere, we formalised
our partnership agreement with ETAP
for seamless data exchange on the most
complex electrical installations in all types
of process and power plants, ships and
offshore facilities.
Strong growth from AVEVA E3D
As mentioned above, AVEVA E3D has
proven to be a catalyst for more solution
sales particularly within our Global
Accounts business, but we are also making
progress across the rest of our customer
base. Notable deals in the period included
WS Atkins, who have chosen AVEVA E3D
and Laser Modeller™ to support lean
construction processes. KBR selected
AVEVA E3D for global projects as part of
a complete integrated engineering and
design environment. Tianchen, one of
China’s largest engineering contractors
in the chemical processing industry,
standardised on AVEVA E3D. D3SCOM
Engineering Sdn. Bhd., a specialist in
intelligent modelling engineering services,
also adopted AVEVA E3D and Laser
Modeller for brownfield projects with
Owner Operators in Malaysia.
19 AVEVA Group plc Annual report and accounts 2015
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS It is a testament to the dedication of all of
our people around the world that we were
able to deliver significant cost efficiencies
in the second half of the year and looking
ahead we shall have an even greater
focus on costs during the current financial
year. Whilst we recognise the challenges
in our markets, we are focused on the
opportunities that lie before us both
strategically and operationally. As a result,
the Board is confident that we can achieve
our growth targets over the medium term.
Richard Longdon
Chief Executive
19 May 2015
Strategic report
Chief Executive’s strategic review
continued
Increasingly our customers are demanding a
combination of our products and this, backed
by our ‘one AVEVA’ sales strategy, is driving
wider adoption of all our products.
We now have more than 230 customers
who have licensed AVEVA E3D, and
the cumulative revenue to date since
launch has exceeded £11.0 million. Thus,
as we look at the current financial year
AVEVA E3D is expected to be a material
contributor to revenue for the first time
and the long-term outlook is exciting.
Strategic development through M&A
The acquisition of 8over8 Limited in
January 2015 was strategically important
and is being integrated according to
plan. 8over8’s core software platform,
ProCon, is sold principally to organisations
that design, build and operate high
value assets, where it is used as a risk
management tool for increased project
control and capital discipline. Acquiring
this business is an example of how we can
use M&A as a strategic tool for growing
our business into related technologies and
market areas and shows our disciplined
approach to acquisitions. There is a
strong logical fit and we have several
AVEVA NET customers who have ProCon
implemented alongside our solution.
AVEVA has always had the capabilities for
managing changes in design and other
data via our existing tools and solutions
and now ProCon brings us the capability
to manage the impact of those changes
on a project’s cost and outcome. We are,
therefore, optimistic that this acquisition
opens up a range of new opportunities
for growth both in our existing markets
and other related industries.
The Future
Adapting to shifting customer priorities
Efficiency is even more important than
ever for our customers and it is AVEVA’s
goal to provide the tools to deal with ever
shorter time-frames and greater cost
constraints. Via the creation of the Digital
Asset we help our customers to focus on
profitability and a lean organisation. This
is a journey for our customers, many of
whom are now placing the Digital Asset
at the heart of their technology vision.
Our solutions in the design world are
increasingly being called upon to integrate
information about the ‘as-built’ asset, via
integrated laser modelling capabilities, as
well as operational asset information, via
AVEVA NET. As a result OOs can extend
the life of their assets whilst our EPC
customers can use our solutions to design
more efficient assets, handling the data in
the project phase far more efficiently and
incorporating operational lessons learned
ready to handover to the operator.
Summary and outlook
For much of the year under review AVEVA
has faced more challenging market
conditions. We have been particularly
affected by the reduction in activity in the
upstream Oil & Gas sector. Over time we
expect capital investment in Oil & Gas
infrastructure to return to growth, but
the timing of this is uncertain. Despite
the mixed trading environment, we have
demonstrated our ability to capitalise on
our strengths: a broad international reach
and strong competitive positioning in all
of our markets. We aim to continue to
lead through innovation and, as has been
demonstrated by the milestones achieved
with AVEVA E3D, to drive growth through
exciting new offerings.
20 AVEVA Group plc Annual report and accounts 2015
Strategic report
Key performance indicators
£11.0m
Cumulative revenue
from E3D
Key performance indicators
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. Our
markets have proven to be more difficult
over the past year, particularly in Oil & Gas,
and that is reflected in the KPI trends. It is
noteworthy that our recurring revenue was
relatively stable, with the majority of the
revenue decline related to initial licence
fees, and despite a modest reduction in the
adjusted profit before tax margin as a result
of lower revenues, our business remains
highly profitable.
Revenue (£m)
Growth in Group revenue
£208.7m (–12%)
Reflects difficult markets
Adjusted profit before tax (£m)
We adjust to exclude non-operating items
Dividend per share (p)
AVEVA has a progressive dividend policy
£62.1m (–21%)
Due to lower revenue
30.5p (+13%)
Reflects long-term confidence
Recurring revenue (£m)
Provides visibility
£158.2m (–5%)
Resilient performance
R&D expenses (£m)
Investment in innovation
£32.7m (–15%)
Lower cost operations
Adjusted profit before tax margin (%)
We aim to deliver profitable growth
Cash conversion (%)
A measure of our ability to turn profits into cash
29.8% (–10%)
Remains highly profitable
83% (–19%)
Should return closer to 100%
Adjusted basic EPS (p)
We adjust to exclude certain non-cash and
exceptional items
74.5p (–16%)
Lower profit in year
Operating cash flow (£m)
AVEVA remains a highly cash generative business
£45.1m (–36%)
Significant March 2015 billings
21 AVEVA Group plc Annual report and accounts 2015
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
Likelihood Impact Change Mitigation
Dependency on key markets
AVEVA generates a substantial amount of its income
from customers whose main business is derived from
capital projects in the Oil & Gas, Power and Marine
markets. World economic conditions or funding
constraints for new capital projects may adversely
affect our financial performance, as we have
experienced during 2014/15.
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. Further threats
are posed by the entrance, into AVEVA’s markets, of a
much larger technology competitor or transformational
technology, such as Cloud-based solutions.
Professional Services
The development of the Group’s Enterprise Solutions
represents a significant opportunity for the Group but
this is a market with different characteristics compared to
our traditional Engineering & Design software products.
It therefore brings different challenges and opportunities
for the Group which we must manage effectively.
Most significantly, the deployment for our customers
of an enterprise solution will involve some degree of
consulting and/or implementation work. This requires
specialist knowledge to be available and well managed
potentially in many geographic locations. In some
instances we may opt to partner with a third party for
this work and this relationship also requires careful
management and maintenance.
Identification and successful integration of acquisitions
In recent years, the Group has 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.
Likelihood Impact Change
Likelihood Impact Change
AVEVA is expanding into new market segments
such as mining, petrochemicals and AEC, albeit
from a relatively small base. 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 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 E3D.
This, together with a number of other new
products, will help cement our relationships with
our customers and reinforce our market position.
We employ experienced industry professionals
within our professional services team and continue
to build commercial partnerships with third party
systems integrators and other vendors.
We have rigorous processes and controls for the
appraisal of potential commercial opportunities
prior to any bid being submitted. Bids are appraised
on grounds of technical complexity, as well as
financial and commercial risk.
Likelihood Impact Change
While each acquisition and integration is unique,
AVEVA 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.
22 AVEVA Group plc Annual report and accounts 2015
Risk change from 2014
No change
Low
Risk decreased
Medium
Risk increased
High
Operational risks
Risk
Likelihood Impact Change 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 has offices in 30 countries 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 and damage to the
Group’s reputation.
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. In
addition, we have a number of senior employees who have
strong domain knowledge of and expertise in the industries
that we serve. Managing this pool of highly skilled and
motivated individuals across all disciplines and geographies
remains key to our ongoing success.
Financial risks
Risk
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.
23 AVEVA Group plc Annual report and accounts 2015
Likelihood Impact Change
Likelihood Impact Change
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.
Likelihood Impact Change
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.
Short term and long term incentive arrangements
help to ensure the success of the Group and individual
achievement is appropriately rewarded.
Likelihood Impact Change Mitigation
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 and Indian Rupee.
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS Strategic report
Finance review
“ Good sales execution
and tight cost
management
supported a resilient
performance.”
Summary
The strength of AVEVA’s business model, good sales execution and tight cost
management supported a resilient financial performance in the second half of the
financial year, following a disappointing first half. The business is well positioned for future
growth with a sound financial footing and solid business model capable of dealing with
short term volatility in our end markets.
The results for the year are summarised as follows:
2014/15
Organic
2014/15
8over8
2014/15
Total
60.2
97.2
157.4
31.1
19.1
207.6
(15.2)
192.4
(130.0)
0.3
0.5
0.3
0.8
–
0.3
1.1
(0.3)
0.8
(1.4)
–
60.7
97.5
158.2
31.1
19.4
208.7
(15.5)
193.2
(131.4)
0.3
2014/15
Organic
constant
currency**
64.4
102.2
166.6
33.5
20.3
220.4
Organic
constant
currency
change
13%
(7%)
–
(31%)
(7%)
(7%)
(7%)
(7%)
2013/14
Total
57.1
109.9
167.0
48.4
21.9
237.3
(17.4)
219.9
(142.1)
0.5
(2%)
(40%)
£m
Revenue
Annual fees
Rental licence fees
Recurring revenue
Initial licence fees
Training and services
Total revenue
Cost of sales
Gross profit
Operating
expenses*
Net finance interest
Adjusted profit/(loss)
before tax
62.7
(0.6)
62.1
78.3
(16%)
* Operating expenses adjusted to exclude amortisation of intangible assets (excluding other software),
share-based payments, gain/loss on forward foreign exchange contracts and exceptional items.
** Organic constant currency is defined as the period’s reported results restated to reflect the previous
year’s average exchange rates and excludes the contribution from 8over8.
Total revenue for the year was £208.7 million which was down 12% compared to 2013/14
(2014 – £237.3 million). Included in the results is £1.1 million from 8over8 Limited, the
business we acquired in January 2015. Our organic revenue on a constant currency basis
was £220.4 million, which was down 7% compared to 2013/14.
Following H1 revenue of £92.3 million (2014 – £108.5 million) on an organic, constant
currency basis, the second half of the year delivered organic, constant currency revenue
of £128.1 million. This was broadly flat compared to 2013/14 (2014 – £128.8 million)
and was a good, resilient performance considering the market conditions we faced,
particularly in Oil & Gas.
James Kidd
Chief Financial Officer
19 May 2015
24 AVEVA Group plc Annual report and accounts 2015
Our business is well positioned for future
growth with a sound financial footing and
solid business model.
+13%
Annual fees
constant currency
–7%
Rental licence fees
constant currency
Engineering & Design
Systems
£182.7m
2014 – £211.5m
Enterprise Solutions
(organic)
£24.9m
2014 – £25.9m
Operating expenses
£138.6m
2014 – £151.4m
Adjusted profit before tax
£62.1m
2014 – £78.3m
Adjusted profit before tax was £62.1 million (2014 – £78.3 million) and on a reported
basis, profit before tax was £54.9 million (2014 – £69.0 million). Within this, the acquired
8over8 business contributed a loss of £0.6m in the short period since the acquisition on
5 January 2015.
Revenue
An analysis of organic revenue by geography is set out below:
£m
EMEA
Americas
Asia Pacific
Total revenue
2014/15
Reported
103.5
36.8
67.3
207.6
2014/15
Organic
constant
currency
112.9
38.2
69.3
220.4
2013/14
Reported
112.0
38.4
86.9
237.3
Organic
constant
currency
change
1%
(1%)
(20%)
(7%)
As highlighted within the interim results, revenue was impacted by foreign exchange on
the retranslation of our overseas subsidiaries by £12.8 million or 6%. EMEA was impacted
most significantly as a result of the weakness of the Euro and Russian rouble.
EMEA
In EMEA, reported revenue was down 8%. On a constant currency basis, revenue was
broadly flat at £112.9 million (2014 – £112.0 million) and reflected a mixed performance
across the countries we operate in. Annual fees grew by 8% which was principally from
the larger Owner Operators. Rental fees increased by 3% mainly driven by growth from
the Global EPC accounts, many of whom have signed multi-year contracts, and an
acceleration in sales of AVEVA E3D. This was offset by reduced usage by some EPCs in the
UK and Norway with offshore Oil & Gas exposure. Initial licence fees were down 7% due
to tougher market conditions generally in Central Europe which was offset by a robust
performance in Russia despite the political situation and the threat of sanctions for some
of our customers. Services were down 16% due to lower levels of activity for Enterprise
Solutions within some of the Owner Operators.
Americas
In the Americas, reported revenue was down 4%. On a constant currency basis, the
performance was broadly flat with revenue of £38.2 million (2014 – £38.4 million). Within
this we saw a good level of renewals within our Global EPC accounts based in the US
which was offset by the performance in Latin America which was down 28% compared to
last year. Our Brazilian customers continued to be impacted by the lower levels of activity
in Oil & Gas and this resulted in Americas’ rental fee revenue declining by 6%. Initial
licence fees grew by 34% and services by 8% illustrating our success in selling into Owner
Operators in North America demonstrating that the increased focus is beginning to show
benefits. Annual fees increased by 2% following the increase in initial licence fees.
25 AVEVA Group plc Annual report and accounts 2015
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS Strategic report
Finance review
continued
We saw double digit growth in China
driven by customers in the Power and
Process industries.
Annual fees
£64.4m
constant currency
Rental licences
£102.2m
constant currency
Recurring revenue
£166.6m
constant currency
Initial licence fees
£33.5m
constant currency
Asia Pacific
Revenue in Asia Pacific was down 23%
on a reported basis and down 20% on
a constant currency basis which reflected
a mixed picture across the geographies
that we operate in. As indicated at the
half year, we have seen lower levels
of activity in the offshore Oil & Gas
projects in South Korea and parts of
South East Asia. In 2013/14, we benefited
from some large initial licence fees in
South Korea which have not repeated
in 2014/15 resulting in a decline of 46%.
On a positive note we saw double digit
growth in China driven by customers
in the Power and Process industries.
Annual fees increased by 22% due
to the strong initial licence fees in
2013/14, and we also benefitted by
approximately £3.0 million from Chinese
customers who had stopped paying
annual fees and wanted to reactivate,
for which we charge a catch-up fee.
As highlighted in the interim results,
customers in Asia Pacific often use rental
licences to flex their usage over and
above their core entitlement under the
initial/annual licences. Because of the
lower levels of activity, some customers
have not renewed their rental licences.
We also had one large customer who,
towards the end of 2013/14, changed
the structure of their arrangement
from a rental to an initial licence model.
As a result, rental licence fees were
down 26% compared to last year.
Revenue by category
The Group’s recurring revenue, which
consists of annual fees, and rental licence
fees was flat year on year on a constant
currency basis at £166.6 million (2014 –
£167.0 million) and represented 76% of
revenue (2014 – 70%).
Annual fees grew by 13% to £64.4
million on a constant currency basis
which reflects the strong initial licence
performance a year ago, particularly
in South Korea and the catch-up fees
in China. Annual fees have continued
to grow reflecting the continued
resilience of our business model.
Rental licence fee revenue fell by 7% to
£102.2 million on a constant currency
basis. Following a disappointing first half,
we saw a good second half performance
with growth of 8% delivering revenue of
£67.8 million compared to £62.7 million in
second half of 2013/14. This was mostly
generated from Global Account customers
through the benefits of the new multi-
year contracts and overall a good level
of renewals, although we did see some
reduced activity levels within those EPCs
with a higher level of exposure to offshore
Oil & Gas projects. Also included within
rental licences are the two customers
that renewed as planned in second half
which we referenced in the interim results.
Despite the robust performance in rental
licences in the second half, we remain
cautious as we enter 2015/16 because
of the mixed outlook within our EPC
customers who are exposed to Oil & Gas.
Initial licence fee revenue felt the largest
impact of the Oil & Gas market, down 31%
to £33.5 million. This was mostly felt in
Asia Pacific, which is a market that prefers
the initial licence fee model and we had
a tough comparable following the very
strong growth in South Korea in 2013/14.
We did see good growth in initial licences
in North America.
Training and services revenue was broadly
flat at £20.3 million (2014 – £21.9 million).
26 AVEVA Group plc Annual report and accounts 2015
+22%
Asia Pacific Annual fees
Growth in constant currency
–15%
R&D expenses
savings from Hyderabad
Net cash
£103.8m
2014 – £117.5m
Net assets
£189.9m
2014 – £185.0m
Deferred revenue
£48.2m
2014 – £36.5m
Operating cash flow
£45.1m
2014 – £70.2m
Segment performance
The organic performance of our primary segments is set out below:
£m
EDS
Revenue
Segment costs
Contribution
ES
Revenue
Segment costs
Contribution
2014/15
Reported
2014/15
constant
currency
2013/14
Reported
Constant
currency
change
182.7
(45.7)
137.0
24.9
(25.5)
(0.6)
193.9
(47.9)
146.0
211.5
(48.5)
163.0
26.5
(26.9)
(0.4)
25.9
(29.3)
(3.4)
(8%)
(1%)
(10%)
3%
(8%)
(91%)
Engineering & Design Systems (EDS)
Revenue from EDS on a constant currency basis was £193.9 million (2014 – £211.5 million),
a decrease of 8%.
On a constant currency basis, segment costs for EDS were £47.9 million, a reduction of
1% compared to the previous year and delivered a segment contribution of £146.0 million
(2014 – £163.0 million).
Enterprise Solutions (ES)
ES revenue for the year was £26.5 million on an organic constant currency basis compared
to £25.9 million in 2013/14. The backlog at 31 March 2015 was £10.8 million (31 March 2014
– £10.7 million).
ES costs fell by 8% to £26.9 million on an organic constant currency basis compared to
£29.3 million last year. We maintained tight discipline over the ES cost base during the
year which has delivered these savings.
ES incurred a segment loss of £0.4 million (2014 – £3.4 million), which reflects the tight
control of costs during the year in light of the difficult market conditions we faced.
The consolidated results include the results from 8over8 with revenue of £1.1 million
and segment costs of £1.1 million.
New segment reporting
As described in the Chief Executive’s review, from 1 April 2015, the ES and EDS lines of
business will merge. As a result we will no longer be disclosing these as our primary
segments in our financial statements. From 1 April 2015, the Executive management team
will monitor and appraise the business based on geographic performance and therefore
this will become the basis for our primary segments in our financial statements.
27 AVEVA Group plc Annual report and accounts 2015
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS Strategic report
Finance review
continued
Cost analysis
An analysis of organic operating expenses on a normalised basis is set out below:
£m
Research & Development
Selling and distribution
Administrative expenses
Total costs
2014/15
Reported
28.1
85.3
16.6
2014/15
Organic
constant
currency
29.3
90.3
19.3
2013/14
Reported
32.9
90.4
18.8
130.0
138.9
142.1
Organic
constant
currency
change
(11%)
–
3%
(2%)
Following the disappointing first half results driven by weaker revenue, we completed a
review of our planned investment in staff and discretionary spend in the second half of
the year with a view to reducing operating expenses by £10.0 million compared to the
original plan. We successfully delivered against this target and as a result our overall cost
base reduced by 2% or £3.3 million from £142.1 million to £138.9 million on a constant
currency basis. Compared to 2013/14, the savings were made in the following areas:
– Reduction in discretionary spend in areas of travel, contractors and consulting/
professional fees
– Lower Research & Development costs from moving to in-house facility in Hyderabad
from outsourcing.
We also saw a one-off effect from reduced levels of sales commissions and bonuses
which reflected the business performance during the year.
Our Research & Development activities are carried out in the UK, Sweden, Norway,
Denmark, USA and India and therefore costs are exposed to movements in exchange
rates. Research & Development costs fell by 11% on a constant currency basis due to
savings made by moving projects from third-party outsource providers in India to our
in-house facility in Hyderabad as indicated above, as well as savings from lower
discretionary costs such as travel within Research & Development.
Selling and distribution expenses were flat on a constant currency basis. This was
principally due to lower sales commissions and bonuses because of the reduced level
of revenue offset by the cost of additional sales and marketing staff to ensure that we
take advantage of growth opportunities in key markets such as North America.
Administrative expenses increased by 3% on a constant currency basis because of
some one-off costs and continued investment in our information systems offset by
lower bonus costs.
The business faces a mixed outlook in its end markets together with an increased cost
base from inflation and the annualised impact of the cost of hires made in H1 of 2014/15.
Further, we do not expect all of the savings from reduced bonuses and commissions
in 2014/15 to recur. As a result in March 2015, we initiated further action by executing
on a number of cost saving initiatives including rationalisation of some of our regional
offices and reduction in the number of employees in specific areas of the business.
These initiatives took place in March, April and May and will result in annual savings of
approximately £3.0 million. We have incurred an exceptional charge for redundancy and
related costs and property lease costs of £0.8 million in the year to 31 March 2015 and
we expect to incur further exceptional costs of approximately £2.5 million in 2015/16 in
respect of these initiatives.
Acquisition of 8over8 Limited
The Group acquired 8over8 Limited on 5
January 2015 for consideration of £26.9
million. The acquired business held £1.3
million of cash at that date. Prior to being
acquired, the business had a calendar
financial year and therefore the quarter to
31 March has historically been seasonally
the lowest quarter. Since becoming part of
the AVEVA Group, 8over8 contributed £1.1
million of revenue and incurred an adjusted
loss before tax of £0.6 million. 8over8 has,
so far, mainly sold to Owner Operators
within Oil & Gas, but we believe that there
are good opportunities to cross-sell the
solution into Mining and other capital
intensive industries.
Costs for 8over8 Limited include £0.3
million in cost of sales, £0.8 million in
Research & Development, £0.5 million
in selling and distribution costs and £0.1
million in administrative expenses.
Exceptional items
During the year the Group incurred
exceptional costs of £1,990,000 (2014
– £3,395,000), relating to acquisition
costs for 8over8 of £371,000 (2014 –
£102,000), exceptional restructuring
costs of £851,000 (2014 – £1,762,000) and
a provision for underpaid sales taxes in
an overseas location of £768,000 (2014 –
£1,531,000).
The acquisition and integration fees relate
to fees paid to professional advisers for
legal and due diligence advice related to
the acquisition of 8over8 Limited.
The exceptional restructuring costs
incurred during 2014/15 relate to
the redundancy and related costs in
connection to the rationalisation of offices
and reduction in employees in specific
areas of the business.
The Group has provided for a potential
underpaid sales tax liability, in respect of
prior periods, related to the local sales of
one of the Group’s subsidiary companies.
The provision includes an estimate of the
underpaid tax as well as related interest for
late payment.
28 AVEVA Group plc Annual report and accounts 2015
Profit before tax
Adjusted profit before tax for the year
ended 31 March 2015 was £62.1 million
(2014 – £78.3 million), a decrease of 21%.
This resulted in an adjusted profit margin
of 29.8% on a reported basis compared to
33.0% for 2013/14.
Reported profit before tax was £54.9
million (2014 – £69.0 million).
Taxation
The effective tax rate for the year was
24.2% (31 March 2014 – 26.1%) as the
Group benefited from the reduction of 2%
in the underlying UK corporate tax rate to
21%. Our effective rate was higher than
the underlying UK rate because of profits
earned in higher tax jurisdictions and non-
deductible expenses.
Dividends
The Board is declaring a final dividend of
25 pence per share (2014 – 22 pence per
share), an increase of 14%. The dividend
will be payable on 3 August 2015, to
shareholders on the register on 3 July 2015.
Earnings per share
Basic earnings per share were 65.07 pence
(2014 – 78.12 pence) and diluted earnings
per share were 64.92 pence (2014 – 77.99
pence). Adjusted basic earnings per share
were 74.51 pence (2014 – 89.05 pence).
Balance sheet and cash flows
AVEVA continues to maintain a strong
balance sheet and has no debt. Net assets at
31 March 2015 were £189.9 million compared
to £185.0 million at 31 March 2014.
Non-current assets
Non-current assets increased from £74.0
million to £90.9 million mainly due to the
goodwill and intangible assets acquired as
part of the acquisition of 8over8 Limited in
January 2015.
Working capital
Gross trade receivables at 31 March were
£94.2 million (2014 – £82.9 million). The
increase was due to the strong finish to
the year resulting in our billings in the final
quarter being more weighted towards the
end of the period. In addition the balance
includes trade receivables of £1.3 million
related to 8over8 Limited. The bad debt
provision at 31 March 2015 was £5.6 million
compared to £5.2 million at 31 March 2014.
Deferred income at 31 March 2015 was
£48.2 million compared to £36.5 million at
31 March 2014. This includes £4.5 million
related to 8over8 Limited, the impact of
rental contracts moving to the second half
and £0.9 million related to the change of
rate for deferring post contractual support
used when accounting for rental licences.
Trade payables and other liabilities were
lower than last year due to lower accruals
for bonuses and commissions.
Cash generation
Net cash (including treasury deposits) at 31
March 2015 was £103.8 million compared
to £117.5 million at 31 March 2014. Cash
generated from operating activities after
tax was £30.9 million (2014 – £52.0 million).
The Group showed strong cash generation
in the first half of the year but the phasing
of billings as noted above meant that
overall our cash generation for the year
was lower than previous years. There
has been no change in the credit terms
offered to customers and cash collection
has generally been in line with previous
periods. In addition, during the year the
Group paid additional contributions to the
UK defined benefit pension scheme of
£5.9 million (31 March 2014 – £2.5 million).
The cash conversion for the year was 83%
(2014 – 102%). The cash balance at 30 April
2015 was £117.6 million reflecting strong
cash collections since the year end.
Pensions
On an accounting basis, the Group’s
pension liabilities increased from
£8.8 million last year to £14.2 million
at the year-end. This was principally
caused by the UK defined benefit scheme
deficit increasing from £5.9 million to
£11.3 million driven by a reduction in
government gilt and corporate bond
yields, leading to a corresponding
reduction in the discount rate used to
discount our long-term liabilities, and is
despite a strong asset performance.
the Group’s balance sheet, with a view to
ultimately effecting an insurance buy-
out. Previously accrued pension benefits
will continue to be revalued in line with
RPI. The Group agreed a deficit recovery
plan with the trustees following the
triennial valuation in 2013 with the plan
to contribute £12 million over the 5 year
period to March 2019. As part of this plan
the Group paid lump sum contributions
of £3.9 million during the year (2013/14 –
£2.5 million) as well as a further voluntary
contribution of £2.0 million to further
improve the funding level of the scheme.
Capital structure
At 31 March 2015, the Group had
63,948,241 shares of 3 5/9p each in issue
(31 March 2014 – 63,873,360 shares).
During the year the AVEVA Group
Employee Benefit Trust 2008 (“the Trust”)
purchased 13,991 ordinary shares in
the Company in the open market at an
average price of £21.72 per share for total
consideration of £305,000 in order to
satisfy awards made under the AVEVA
Group Management Bonus Deferred
Share Scheme 2008. At 31 March 2015,
the Trust owned 44,722 ordinary shares
in the Company.
In the prior year the Company paid a
special dividend of £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 by
approximately 4.3 million.
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 be, cash positive and at 31
March 2015 held net cash of £103.8 million.
The treasury policy includes strict counter
party limits.
On 31 March 2015, the Group closed the
UK defined benefit pension scheme to
future accrual. This decision was taken
to manage the current and future risk on
James Kidd
Chief Financial Officer
19 May 2015
29 AVEVA Group plc Annual report and accounts 2015
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS Strategic report
Corporate responsibility
AVEVA CSR framework
Following the AVEVA CSR framework,
this section provides a report on each
of our targeted areas and continues
to demonstrate the broad range of
activities we get involved in at AVEVA
within our local communities and as
an ethically responsible business.
X T E R N A L STAKEHOLDER
E
Internal stakeholders
We believe it is important that everyone in
AVEVA feels valued and supported, while
appreciating the unique perspective and
skills that each individual can bring to a
business. AVEVA is a diverse organisation
with offices in 30 countries and employees
from many different cultures and it is
important that we have representation
from all regions in how we shape our
business. The introduction of Regional
Operations Managers (ROMs) helps to
ensure that every area of AVEVA has a
clear communication strategy to give local
staff a voice. This year we launched a new
Global Ambassador Network to support
the ROMs in communicating, sharing
success stories and providing feedback on
our employee’s views of the organisation.
As of 31 March 2015, we increased our
headcount globally by 9% to 1,623 and we
operate from 55 locations in 30 countries.
73% of our employees are male and 27%
are female.
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
9%
We increased our headcount
globally by 9% to 1,623
37
We operate in 37 countries in 55 locations
Y
30 AVEVA Group plc Annual report and accounts 2015
External stakeholders
To embed and reinforce our corporate
policy against accepting or payment of
bribes we have enhanced and improved
our eLearning tools. Every employee
must complete the Global Corporate
Governance and Group IT Compliance
training each year to ensure that we
maintain our high ethical standards.
To protect the interest of our customers,
our Anti-Piracy and Compliance team
monitor the illegal use of AVEVA software
and enforce compliance within our
terms and conditions. The illegal use
of our software throughout the globe is
an ongoing challenge, however, AVEVA
is becoming much more successful
in the detection of such cases.
Transparency and disclosure is
fundamental to our relationships with
customers and suppliers and we continue
to maintain open, honest and fair
discussions to maintain our reputation
as a trusted and ethical organisation.
Employee engagement
Work has continued on developing ways to
improve in areas that were highlighted by
our 2013 Employee Engagement Survey.
Improving the visibility of our Executive
Team across our diverse workforce
and locations was one area that our
people told us they would like to see. In
response to this, over the past year we
have provided regular updates from each
member of the executive team, through
different channels of communication.
This has been a mix of both face-to-face
sessions and cascaded team briefings
throughout the whole of AVEVA. These
activities provide an opportunity for our
Executive Team to update employees on
priorities and areas of focus, as well as
facilitating two-way dialogue between
employees and the Executive Team.
Communications
Internal Communications remains
an area of focus as our organisation
expands. It is important that everyone
understands the Vision and Mission
of AVEVA and the role each individual
plays in contributing to our success.
The Internal Communications Team
have introduced a number of new
communication channels to engage
with employees more effectively and are
now equipped to measure how effective
these channels are operating across
the organisation. Through a number of
internal campaigns this year we have
seen a significant increase in the use of
our intranet and other channels. This
has been particularly encouraging in our
rapidly growing Indian team, which has
demonstrated increased engagement
with both local and corporate activities.
31 AVEVA Group plc Annual report and accounts 2015
Guangzhou Pottery Workshop
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS
Strategic report
Corporate responsibility
continued
AVEVA CSR framework
Learning and development
During this year, we have expanded
the AVEVA Springboard programme
to support individual professional
development. This programme is now
available at main hubs in Kuala Lumpur,
Houston and Rio de Janeiro. We have
also strengthened our Learning and
Development at these locations to
provide targeted and relevant learning
for our people, supporting our strategy
to develop and continually progress the
skills of our people across AVEVA.
Last year we saw:
813
hours of eLearning completed
1,697
hours of technical development training
(PluralSight) completed
Wellness
AVEVA’s support for employee well-being
remains a key priority and this year we saw
a record number of employees participate
in the Global Corporate Challenge (GCC).
Over 560 colleagues took part making
up 80 teams. Our collective support
provided fresh drinking water for 11,000
schoolchildren in 33 schools throughout
Zimbabwe and Cambodia.
The AVEVA global team covered a distance
of 383,553 km and achieved a total weight
loss of 1,255 kg.
AVEVA in the Community
We are proud to acknowledge and support
the inspiring charitable work of the AVEVA
team. Over the past year, our colleagues
have been involved in fun runs, marathons,
team events to support disadvantaged
children, raffles, charity auctions and other
activities to raise money for local, national
and international charities. In many cases,
AVEVA matches the funds raised by our
employees and makes separate donations
for specific charities throughout the year.
As well as matching employee fundraising
we also support volunteering within our
workforce. AVEVA colleagues have spent
time supporting their local communities
in many different ways. Here is just one
example of where AVEVA’s talented and
committed team have gone the extra mile
to improve their community.
In December 2014, a team from our
Hyderabad office decided to support the
cleaning up of the Nanakramguda IT Zone.
They cleaned the roads, footpaths and
roadside garbage working alongside the
local municipal corporation authorities.
37
colleagues completing our management
development training
02
01 Hyderabad Office team participation
02 Shanghai Huge Grace Disabled Children
Welfare Centre
01
32 AVEVA Group plc Annual report and accounts 2015
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
Tonnes of CO2 by region
Tonnes of CO2 equivalent
2,000
1,500
1000
500
0
Americas Asia
Pacific
Scope 2
EMEA Greater
China
Scope 3
Scope 1
Scope 1
859
Scope 2
1,424
Scope 3
257
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 purpose 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
Conversion Factors. We have aimed for
the GHG emissions to be captured for all of
our UK and overseas offices between April
2014 and March 2015.
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 second year in which we have
collected and published our emissions
data, with the 2013/14 financial year
serving as the baseline for our 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. In 2014/15 this
intensity ratio increased to 10.36 tonnes
CO2e/£ million (2014 – 8.74). This increase
partly reflects the reduction in our revenue
during the year as well as the increase in
our headcount.
For period 1 April 2014 to 31 March 2015
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 & Distribution losses
Intensity Measurement (Scopes 1 and 2)
– Tonnes CO2e/£m revenue
Tonnes CO2e
2013–14
859
1,424
257
2,540
543
1,531
265
2,339
10.36
8.74
This Strategic Report has been approved
by the Board of Directors and is signed
on its behalf by:
Philip Aiken
Chairman
19 May 2015
33 AVEVA Group plc Annual report and accounts 2015
STRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTS
Directors’
report
34 AVEVA Group plc Annual report and accounts 2015
Directors’ report
Corporate governance
“ I am pleased to
introduce the 2015
Corporate Governance
statement.”
Philip Aiken
Chairman
19 May 2015
Introduction
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 45 to 59.
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).
Brief biographical details of all Board
members are set out on pages 40 and 41.
The membership of all Board Committees
is set out on page 39.
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 seven 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 Directors visit an
AVEVA office outside the UK at least
once per year and in September 2014
the entire Board travelled to India and
visited the AVEVA offices in Mumbai
and Hyderabad. The September Board
meeting was held in Hyderabad.
– 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.
35 AVEVA Group plc Annual report and accounts 2015
STRATEGIC REPORTFINANCIAL STATEMENTSDIRECTORS’ REPORT Directors’ report
Corporate governance continued
– To enable the Board to discharge its duties, all Directors
– The Chairman ensures that the Directors take independent
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.
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.
– A monthly reporting pack containing management accounts
– Non-Executive Directors and Executive Directors are
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.
Group structure 2015
encouraged annually to undertake training in furtherance of
their specific roles and general duties as a director.
The Board
Executive Directors
Richard Longdon
James Kidd
Non-Executive Directors
Philip Aiken (Chairman)
Jonathan Brooks
Philip Dayer
Jennifer Allerton
Executive management team
Chief Executive
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
Executive Vice
President
Regional Operations
Executive Vice
President
Human Resources
and Business Services
36 AVEVA Group plc Annual report and accounts 2015
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 40 and 41 demonstrate a range
of experience and sufficient calibre to bring 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.
Board meetings
Meetings held
Meetings attended:
Philip Aiken
Jonathan Brooks
Philip Dayer
Jennifer Allerton
Richard Longdon
James Kidd
7
7
7
7
7
7
7
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 principal risks and uncertainties the Group faces are set out
on pages 22 and 23.
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: Revised Guidance for
Directors on the Combined Code.
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.
37 AVEVA Group plc Annual report and accounts 2015
STRATEGIC REPORTFINANCIAL STATEMENTSDIRECTORS’ REPORT
Directors’ report
Corporate governance continued
The Board has also performed a specific assessment for the
purpose of this annual report. This involved reviewing the
Group’s risk matrix that had been reviewed/updated 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.
Performance evaluation
The Board undertakes a formal and rigorous review of its
performance and that of its Committees and Directors each
financial year. In the prior year, an extensive review was externally
facilitated by Armstrong Bonham Carter LLP, the independent
board performance consultants. The most recent review was
carried out in March 2015, was led by the Chairman and was
conducted following one-on-one interviews with each Director.
Overall, the review concluded that the Board and its committees
had demonstrated a high degree of effectiveness. There
were some recommendations on how to further improve the
development of strategy and monitoring of risks which the
Board is addressing.
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.
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 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. 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 Chairman of the Nominations Committee and the remainder
of the Board 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.
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 2014, the Company held a capital
markets day in London, where analysts and shareholders
were updated on the activities of the Group including its Sales
operations and latest technological developments. 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, when necessary, the
Group consults 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.
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 60 and 61.
Committees of the Board
The Board has three Committees: Audit, Remuneration and
Nominations. 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.
38 AVEVA Group plc Annual report and accounts 2015
The Board
Audit
Committee
Nominations
Committee
Remuneration
Committee
Executive
Team
Audit Committee
Nominations Committee
Remuneration Committee
No. of meetings: 4
No. of meetings: 2
No. of meetings: 4
Committee Chairman:
Jonathan Brooks
Committee members:
Philip Dayer
Jennifer Allerton
4
4
4
Committee Chairman:
Philip Aiken
Committee members:
Jonathan Brooks
Philip Dayer
Jennifer Allerton
Committee Chairman:
Philip Dayer
Committee members:
Philip Aiken
Jonathan Brooks
Jennifer Allerton
2
2
2
2
4
4
4
4
Main responsibilities:
Financial reporting
– Assisting the Board in its oversight and
monitoring of financial reporting
– Reviewing significant areas of
judgement and accounting policies
– Advising the Board as to whether the
draft Annual Report is fair, balanced and
understandable
Main responsibilities:
– Board and committee composition,
particularly in relation to the diversity
of background, skills and experience
– Nomination, selection and
appointment of Non-Executive and
Executive Directors
– Succession planning for Board and
– Monitoring announcements in respect
senior management roles
of financial performance
– Diversity policy and monitoring
of progress
Financial controls and risk
– Monitoring the effectiveness of internal
financial controls
– Reviewing financial risks, including
fraud risks and treasury risks
– Oversight of internal audit activities
– Managing the external audit exercise,
its objectivity and effectiveness
Main responsibilities:
– Make recommendations to the Board
on the Group’s policy for Executive and
senior management remuneration
– On behalf of the Board, determine the
individual remuneration packages,
within the policy, for the Executive
Directors of the Group
– Set annual and long-term incentive
targets and awards and determine
outcomes with support from the
Audit Committee
– Report on remuneration matters and
constructively engage with shareholders
39 AVEVA Group plc Annual report and accounts 2015
STRATEGIC REPORTFINANCIAL STATEMENTSDIRECTORS’ REPORT 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 Non-Executive Director
of National Grid plc, 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 Newcrest Mining Limited and
Chairman of Balfour Beatty plc.
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. Richard
was appointed as Chairman to Process
Systems Enterprises Ltd in London in
January 2015.
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
until 2011 when he was appointed CFO. 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
3 Years (appointed 1 May 2012)
Length of tenure
21 Years (appointed 16 August 1994)
Length of tenure
4 Years (appointed 1 January 2011)
40 AVEVA Group plc Annual report and accounts 2015
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. He is currently a Non-
Executive Director, Chair of the Audit
Committee and Interim Chair of the
Remuneration Committee of IP Group plc,
which commercialises intellectual property
from leading universities, as well as a Non-
Executive Director and Chair of the Audit
Committee of FDM Group (Holdings) plc,
an IT professional services provider.
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 is a Non-Executive Director of
Kazmunaigas Exploration Production JSC,
The Parkmead Group plc, VTB Capital plc
and PAO Severstal.
Jennifer Allerton has more than thirty-
eight years of Information Technology
experience, most recently as Chief
Information Officer at F. Hoffmann-La
Roche in Switzerland with responsibility for
IT strategy and operations for the Pharma
division and all Group IT operations from
June 2002 to July 2012. Prior to Roche,
she served as Technology Director at
Barclaycard with responsibility for Fraud
Operations and IT. Currently, Jennifer
serves as an Independent Director on
the Board of Iron Mountain and as a
Non-Executive Director of Oxford
Instruments and Sandvik. She holds
Bachelor degrees in Mathematics from
Imperial College, London, and a Masters
degree in Physics from the University
of Manitoba, Canada.
Length of tenure
8 Years (appointed 12 July 2007)
Length of tenure
7 Years (appointed 7 January 2008)
Length of tenure
2 Years (appointed 9 July 2013)
Board tenure
Board composition
0-3 years
33%
3-6 years
17%
7+ years
50%
Chairman
Executive Directors
Non-Executive
Directors
41 AVEVA Group plc Annual report and accounts 2015
STRATEGIC REPORTFINANCIAL STATEMENTSDIRECTORS’ 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
19 May 2015
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. In September 2014, the Audit Committee
met at the Group’s offices in Mumbai, and so were able to meet
members of the finance team there.
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.
Audit Committee report
The Audit Committee assists the Board in its oversight and
governance of these critical areas.
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
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. The Committee also assesses
the process that has been established to ensure that the Annual
Report is fair, balanced and understandable, reporting to the
Board their findings.
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. Brief
biographical details for all the members of the Committee are
included on page 41.
42 AVEVA Group plc Annual report and accounts 2015
Directors’ report Overview of the year’s activities
The Audit Committee undertook several additional projects during the year in addition to its prescribed duties.
Responsibility
Activity in the year
Revenue recognition The Committee received regular updates from management as to its consideration of implications of the new
accounting standard for revenue recognition – IFRS 15.
Following the extensive review of the Group’s revenue recognition policies in 2014, a significant exercise was
conducted during 2014/15 on the subject of post contractual support (PCS). Where not specifically indicated in a
contract, a proportion of any licence fee is allocated to cover PCS. The exercise comprised analysing the actual
percentage figure of PCS in contracts where similar PCS was separately identified and invoiced to refresh the
basis of the accounting estimate used.
External audit
The Committee spent considerable time discussing the merits of tendering the audit in the summer of 2015,
when the current audit partner is required to rotate off, or waiting until 2020. See conclusion below.
Risks and internal
controls
The Committee received, reviewed and discussed the findings of the extended external audit procedures
conducted in France and Japan (March and May 2015 respectively). Some minor opportunities for improvement,
particularly in credit control, were identified.
Following the loss of a major contract within the Enterprise Solutions Division earlier in the year, the Committee
commissioned an internal review of what lessons should be learned for future enterprise-wide implementation
projects.
In May 2015, the Committee received a report covering management’s annual cyber security review.
In March 2015, management presented a Group taxation update and assessment of current risks for the Group.
During the latter half of 2014, the Committee’s attention was drawn to internal control issues in South East Asia,
specifically with respect to the timing of revenue recognition and the payment of commissions to sales people.
Following a thorough internal investigation, a special Audit Committee was held in December 2014 to review
how practices could be improved. While the issue was not material to the Group and was contained, control
improvements were identified, including better security over the use of digital signatures, better credit control
processes and more rigour in getting contracts signed and sealed.
Annually the Committee undertakes a treasury review which was completed in March 2015. This year this also
included a detailed review of risk and mitigations by an external party in the area of foreign exchange management.
Valuation of assets
and liabilities
The difficult trading conditions faced by the Enterprise Solutions business led to several reviews of whether
its goodwill and intangible assets of £9.9 million required impairment. A third party valuation was undertaken
towards the end of the year to assess the recoverable value of these assets.
The Committee gave oversight of the acquisition of 8over8, reviewing and approving its completion balance
sheet in March 2015.
The Committee discussed and challenged the accounting assumptions underlying the valuation of the Group’s
UK defined benefit pension scheme and any potential consequences of the closure of the scheme to future
accrual which, following a process of member consultation, was finalised in March 2015.
Financial reporting
Review and approval of financial reporting, particularly the 6 month interim report, full year preliminary
announcement and 2015 Annual Report.
Consideration of segmental disclosures for 2015/16 and beyond, following the planned reorganisation.
Risk and internal controls
The key elements of the Group’s internal control framework
and procedures are set out on page 37. The principal risks the
Group faces are set out on pages 22 and 23. 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
– Agrees action plans to deliver the necessary or recommended
enhancements.
43 AVEVA Group plc Annual report and accounts 2015
The Committee plans to consider any enhancement to its current
processes that are encouraged by the FRC’s guidance on risk
management and viability as part of its 2015/16 programme.
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.
STRATEGIC REPORTFINANCIAL STATEMENTSDIRECTORS’ REPORT Directors’ report
Audit Committee report continued
Key estimates and judgements
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 retirement benefit obligations and the
uncertainty of tax treatments 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.
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
review of controls being undertaken by teams with specific local
regulatory knowledge and without any local language barrier.
The Committee believes that this favours the provision of
assurance from external sources, which is considered to be both
more efficient and effective than having its own central internal
audit team. 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.
– Peer and head office reviews of key risk areas of financial
internal control. During the year we conducted an internal
review of an Enterprise Solutions project and an internal
review of our sales processes in South East Asia.
– The use of qualified third parties to undertake specialist
reviews in more technical areas. During 2014/15 third party
technical reviews were undertaken on tax risks in India, the
management of foreign exchange risk as well as work on
cyber security.
– 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 2014/15
extended external audit procedures were undertaken in
France and Japan following similar exercises in Brazil,
South Korea, China and Russia in prior years.
– 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: strict controls over the extent and nature of non-
audit work performed by the auditor; semi-annual review of audit
independence by the Committee; and an annual assessment of
the quality of the audit service. An analysis of audit and non-audit
fees is provided in note 5 to the financial statements.
44 AVEVA Group plc Annual report and accounts 2015
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 permitted
non-audit work which mainly consisted of tax compliance work
for subsidiaries of the Group and some other statutory filing
work. In light of expected regulation and developing practice, the
Audit Committee considers that any permitted non-audit work
should not exceed 70% of the audit fee, except with the possible
exception of reporting accountants’ work, which would have to be
approved by the Committee – as do any projects with fees greater
than £50,000. 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.
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, has completed his fifth year with the Group this year.
It is therefore a logical time for the Group to consider putting
the Group’s audit out to tender prior to the half year reporting
schedule. While the Committee has been very happy with the
quality of the work undertaken by its auditor, EY, it has concluded
that there are advantages to conducting an audit tender process
in the summer of 2015. The tender process will consider the
option of rotating in a new lead audit partner from EY versus
appointment of a different audit firm. The Committee’s prime
objective is to ensure the quality of the audit is maintained
at a reasonable cost.
At the May 2015 meeting, the Committee assessed the
effectiveness of the external auditor. This assessment was based
upon 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. Every second
year a more detailed exercise is conducted across key units of
the Group.
Audit planning and main audit issues
At the November 2014 meeting of the Committee the auditor
presented their audit plan for 2014/15. 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 significant judgements surrounding revenue recognition
and the valuation of intangible assets associated with the ES
business. The Audit Committee’s response to these areas is
addressed in the table on page 43.
Remuneration Committee report
I am pleased to present
this year’s Report on
Directors’ Remuneration.
Remuneration review
The Remuneration Committee believes that the remuneration
arrangements voted on and agreed in 2014 continue to align
Executive Directors with the delivery of the long-term strategy
and creation of shareholder value while rewarding Executives fairly
if success is achieved. Overall, the Committee has decided this year
not to make any changes to the principles or the Remuneration
Policy approved at the 2014 AGM and the policy will continue to be
operated as set out in the 2013/14 Remuneration Committee report.
The Committee appreciates that the AVEVA business has been faced
with challenges in 2014/15 in respect of a general slowdown in its
end markets. The underlying business does, however, remain strong.
It is the view of the Remuneration Committee that the Executive
Management Team have continued to perform to high standards
with commitment and leadership through a challenging period.
Against this backdrop the Committee has concluded the following:
– As set out in my consultation letter last year, and as
communicated in the 2014 Remuneration Committee report,
the Committee decided to increase the base salary for the
CEO and CFO as follows over two years.
With effect from
1 April 2014
1 April 2015
CEO
CFO
£445,000
(c.9.7% increase)
£280,000
(c.7.7% increase)
£485,000
(c.9.0% increase)
£300,000
(c.7.1% increase)
The first stage of the change was implemented in 2014/15. Given
the strong performance of each of the Executive Directors and
the underlying operational performance of the Group over the
course of the year in light of a very difficult external climate, the
Committee has considered it appropriate to proceed with the
second stage of this increase with effect from 1 April 2015.
– The long-term incentive opportunity for the CEO and CFO for
the coming year will remain unchanged.
– 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 2015 awards. The
threshold and maximum performance targets for awards to be
granted in 2015 will remain 12% and 20% per annum over three
years respectively.
45 AVEVA Group plc Annual report and accounts 2015
Philip Dayer
Remuneration Committee Chairman
19 May 2015
2014/15 Out-turns
As a result of mixed, but generally weaker, trading conditions
in the markets in which the Company operates, particularly in
Oil & Gas, together with a strong foreign currency headwind,
performance in 2014/15 fell below expectations. Total revenue for
the year was £208.7 million which was down 12% compared to
2013/14. Adjusted profit before tax for the year ended 31 March
2015 was £62.1 million (2014 – £78.3 million), a decrease of 21%.
In this context, the Committee determined that none of the
financial element of the annual incentive award will be paid
as targets were not met. The Executive Directors were given
individual performance objectives which were specific in nature
and important for the long term growth and sustainability of the
business. The Remuneration Committee are satisfied that these
objectives were met in full and determined that for both the CEO
and CFO, 10% of the core award will be paid.
Further, none of the LTIP awards granted in 2012, under the
previous Long-Term Incentive Plan, shall vest as growth in diluted
EPS over the three year period to 31 March 2015 did not reach the
9.5% p.a. growth needed for threshold levels of awards to vest.
Remuneration reporting
The 2013/14 financial year was the first year in which AVEVA was
required to report under the new remuneration reporting regulations.
– The Directors’ remuneration policy which, approved by the
shareholders with votes in favour of 97.31%, will apply for three
years from the 2014 AGM until 2017 and is available to view on
the Company website, www.aveva.com;
– 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 2014/15 financial year, is set out below.
The Committee is appreciative of the significant shareholder
support that it received in respect of the Director Remuneration
Policy and Annual Report and the Remuneration Committee
circulated the principal shareholders with information in respect of
the 2015 remuneration review ahead of this published report.
Agenda for 2015/16
The Committee will continue to keep the structure and details of
our remuneration arrangements under review and will continue to
communicate and consult with shareholders as appropriate.
STRATEGIC REPORTFINANCIAL STATEMENTSDIRECTORS’ REPORTDirectors’ report
Directors’ report
Remuneration Committee report continued
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,
and 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 2014/15 were Philip Dayer (Chairman), Philip Aiken, Jonathan Brooks and Jennifer Allerton.
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.
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. In 2014/15, Deloitte received
fees of £8,750 in relation to advice provided to the Committee.
Shareholder voting
The table below sets out the results of the voting outcome for the Directors’ remuneration policy and the Directors’ Remuneration
Report at the 2014 AGM.
Directors’ Remuneration policy
Directors’ Remuneration Report
No. votes in
favour and
discretionary
51,530,628
37,396,670
% of votes
cast
97.31%
96.58%
No. votes
against
% of votes
cast
Total
number of
votes cast
No. votes
withheld
1,422,153
1,326,082
2.69%
3.42%
52,952,781
38,722,752
53,176
14,283,205
46 AVEVA Group plc Annual report and accounts 2015
The Directors’ remuneration policy
Set out below is a copy of the policy table from the Directors’ remuneration policy (the Policy), which was approved by shareholders at
the 2014 AGM, held on 14 July 2014. To provide consistency with the remainder of the report, salaries shown have been updated for 2015
salaries, the scenario charts have been updated for the operation of the policy in 2015/16 and Non-Executive Director fees have been
updated for 2015 fees.
We highly value shareholders’ comments on and overwhelming support for our Remuneration Policy. This was demonstrated at the
2014 AGM where the resolution to approve our Remuneration Policy received 97.31% of votes cast in favour. It is our belief that it is the
preference of shareholders that we should not make frequent changes to the Remuneration Policy and we will propose changes only
if we believe that they would lead to a better alignment between pay, strategy and long-term business performance. No changes have
been proposed for 2015/16.
Full details of the Directors’ remuneration policy, as approved by shareholders at the 2014 AGM, can be found on our website
www.aveva.com.
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 achievement of the Company’s strategy and the future creation of shareholder value; enhanced
performance is encouraged; and, the Executive Management team is, 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.
Purpose and link
to strategy
Operation
Maximum opportunity
Performance measures
Base salary
– 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 2015 are:
– CEO (Richard Longdon) £485,000
– CFO (James Kidd) £300,000
47 AVEVA Group plc Annual report and accounts 2015
STRATEGIC REPORTFINANCIAL STATEMENTSDIRECTORS’ REPORT Directors’ report
Remuneration Committee report continued
The Directors’ remuneration policy continued
Purpose and link
to strategy
Operation
Maximum opportunity
Performance measures
None
CEO
– The current CEO is entitled to a 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.
– The cost of benefit provision will depend
on the cost to the Company of providing
individual items and the individual’s
circumstances and therefore there is no
maximum value.
None
Pensions
– Provides a
competitive
retirement benefit
in a way that is
cost effective to
the Company.
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
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.
– 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.
– In the event that an Executive Director
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.
48 AVEVA Group plc Annual report and accounts 2015
Purpose and link
to strategy
Operation
Annual Incentive Scheme & Deferred Share Scheme
Maximum opportunity
Performance measures
– The maximum bonus opportunity is
125% of base salary (core award of 100%
of salary, outperformance award of 25%
of base salary).
– Incentivises
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.
– The Committee determines an
individual’s 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.
Core Award
– The core bonus award is
based on a mix of financial
and individual objectives.
For 2015/16, 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.
The AVEVA Group Long Term Incentive Plan 2014 (the 2014 LTIP)
– Establishes a
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.
– From 2014 onwards, the Committee will
make awards under the 2014 LTIP (which
replaces the previous 2004 LTIP), which
was approved by shareholders 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.
49 AVEVA Group plc Annual report and accounts 2015
– The maximum limit under the plan rules
– Awards vest based
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.
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.
STRATEGIC REPORTFINANCIAL STATEMENTSDIRECTORS’ REPORT 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 malus or clawback.
– 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 plans 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 periods apply. 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.
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 opposite show hypothetical values of the remuneration package for Executive Directors under three assumed
performance scenarios:
Maximum award opportunities % of salary Annual Bonus
Minimum
LTIP
– No annual incentive pay-out
– No vesting under the LTIP
CEO
125%
150%
CFO
125%
120%
Mid performance
– 50% of salary pays out under the Annual Bonus (40% of maximum i.e. half of the core
Maximum performance
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
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 in advance. Where targets have been met and
awards are payable, targets will be disclosed retrospectively.
No share price growth has been assumed. Potential benefits under all employee share schemes and dividend equivalents have
not been included.
50 AVEVA Group plc Annual report and accounts 2015
KEY
Fixed Pay
Annual Bonus
Long-term incentive
Performance-related rewards
CEO – Richard Longdon
Maximum
performance
Mid
performance
28%
33%
39%
58%
28%
14%
Minimum
100%
CFO – James Kidd
Maximum
performance
Mid
performance
32%
35%
33%
61%
26%
13%
Minimum
100%
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
– Non-Executive Directors do not receive
incentive pay or share awards.
– 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.
limit in the Company’s Articles of
Association. Any changes in this
limit would be subject to shareholder
approval.
– 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 – £170,000
– Basic Non-Executive Director
fees – £48,000
– Committee Chairman fee
(Audit and Remuneration) – £11,000
– Senior Independent Director
fee – £11,000
– Fees may be increased in future years
in line with the policy outlined above.
51 AVEVA Group plc Annual report and accounts 2015
STRATEGIC REPORTFINANCIAL STATEMENTSDIRECTORS’ REPORT Directors’ report
Remuneration Committee report continued
The Directors’ remuneration policy continued
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
Philip Aiken
Philip Dayer
Jonathan Brooks
Jennifer Allerton
Date of appointment
Date of contract
1 May 2012
7 January 2008
12 July 2007
6 March 2014
1 May 2015
2 January 2014
11 July 2013
6 March 2014
Expiry/review date of
current contract
30 April 2018
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.
52 AVEVA Group plc Annual report and accounts 2015
Annual report on remuneration
Executive Directors
Statement of implementation of remuneration policy in 2014/15
The Remuneration Committee aims to ensure that: members of the Executive management team are provided with appropriate
incentives to align them with the achievement of the Company’s strategy and the future creation of shareholder value; enhanced
performance is encouraged; and the Executive management team is, in a fair and responsible manner, rewarded for their individual
contributions to the success of the Group.
Base salary
As set out in the Directors’ Remuneration Report last year, a detailed review of market positioning was undertaken during the course of
2013/14 for the first time since 2011 given the increase in the size and complexity of the Group over the period, and it was determined
that the positioning of the Executive Directors’ remuneration, particularly base salary, had fallen significantly behind market practice.
In light of this, the Committee considered it appropriate to increase the base salary for the CEO and CFO as follows:
Base salary with effect from
1 April 2014
1 April 2015
CEO
CFO
£445,000 (c.9.7% increase)
£485,000 (c.9.0% increase)
£280,000 (c.7.7% increase)
£300,000 (c.7.1% increase)
The first stage of the change was implemented in 2014. Given the strong performance of each of the Executive Directors and the
underlying operational performance of the Group over the course of the year in light of a very difficult external climate, the Committee
has considered it appropriate to proceed with the second stage of this increase with effect from 1 April 2015.
Benefits
In line with benefits provided for other senior employees, in 2015/16 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 on page 48, 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 2015/16, 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 2015/16, 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 were 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 2015/16.
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 in advance. Where targets have been met and awards are
payable, targets will be disclosed retrospectively.
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.
53 AVEVA Group plc Annual report and accounts 2015
STRATEGIC REPORTFINANCIAL STATEMENTSDIRECTORS’ REPORT
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%
% Bonus achievement
Years
0
1
2
3
Long-Term Incentive Plan
In line with our Policy, the award opportunity for the CEO will be 150% of base salary and for the CFO will be 120% of base salary.
As with previous years, the performance conditions for the award will be based on average adjusted diluted EPS growth over the three-
year period from 2015/16 to 2017/18. The performance ranges for the awards to be granted in 2015 are as follows:
Performance
Threshold
Maximum
Proportion
of vesting
(% of total
award)1
25%
100%
Targets
12%
20%
1
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 2014/15 and 2013/14 financial years.
Executive Directors
2014/2015
Richard Longdon
James Kidd
2013/2014
Richard Longdon
James Kidd
Base salary
(£’000)
Benefits
(£’000)
Pension
(£’000)
Annual
incentive
(£’000)
Long-term
incentive
(£’000)
445
280
27
20
—
28
45
28
—
—
Base salary
(£’000)
Benefits
(£’000)
Pension
(£’000)
Annual
incentive
(£’000)
Long-term
incentive
(£’000)
406
260
27
17
—
26
254
163
476
190
Total
(£’000)
517
356
Total
(£’000)
1,163
656
Elements of single figure of remuneration
Base salary
The CEO’s salary in 2014/15 was £445,000 (2013/14 – £405,600). The CFO’s salary in 2014/15 was £280,000 (2013/14 – £260,000).
Benefits
In 2014/15 and 2013/14 Executive Directors were provided with a company car or a car 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 2014/15 the Company
contributed 10% of salary to the plan.
54 AVEVA Group plc Annual report and accounts 2015
Annual incentive
This reflects the total annual incentive paid and payable in 2015 based on performance in the year ended 31 March 2015. 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 dependent on achieving the half year Group adjusted profit before tax (PBT) performance target, and
80% dependent on achieving the full year Group adjusted PBT performance target. Following a review of performance in the year,
the Committee determined that none of the financial element award will be made as neither of the targets were met. The Executive
Directors were given individual performance objectives which were specific in nature and important for the long term growth and
sustainability of the business. The Remuneration Committee are satisfied that these objectives were met in full and determined that for
both the CEO and CFO, this element of the core award (10%) will be paid. None of the outperformance award will be paid as targets were
not met. Achievement for 2014/15 was 10% of the core award and 8% of the maximum payable for both Executive Directors (2013/14 –
63% and 50%).
2015
Richard Longdon
James Kidd
Cash bonus
(£’000)
Deferred
bonus
(£’000)
Total bonus
(£’000)
34
21
11
7
45
28
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 in advance. Where targets have been met and awards are
payable, targets will be disclosed retrospectively.
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 2015.
These awards were subject to the delivery of EPS growth. 0% of awards vest for diluted adjusted EPS growth of less than 9.5% p.a., with
100% of awards vesting for diluted adjusted EPS growth of 16.5% p.a. Average diluted EPS growth for the three year performance period
did not reach the minimum 9.5% p.a. growth needed and therefore 0% of the LTIP awards will vest in the period relating to 2014/15.
For 2013/14, 94% of the maximum LTIP awards granted to the Executives in 2011/12 vested. The value included in the single total figure
of remuneration in respect of 2013/14 has been restated to reflect the actual number of shares that vested and the market value of the
shares on the date of vesting 22 July 2014. The figure included in last year’s Directors’ Remuneration Report was estimated based on
the average share price for the period from 1 January 2014 to 31 March 2014 as the vesting date was post the publication of the 2013/14
Annual Report and Accounts.
Other information in relation to 2014/15
Scheme interests awarded in the year (audited)
The following tables set out details of the LTIP 2014 and deferred share awards made to the Executive Directors during 2014/15:
LTIP 2014
Performance measures are based on diluted adjusted EPS growth. 25% vests for diluted adjusted EPS growth of 12% p.a. and 100% vests
for diluted adjusted EPS growth of more than 20% p.a. Linear interpolation applies between these points.
Executive Director
Richard Longdon
James Kidd
Date of
grant
Basis of
Award
Face Value
of Awards
21 August 2014
120% of base salary £534,0001
100% of base salary £280,0001
Performance
Period
1 April 2014 –
31 March 2017
1 Using the average market share price for the 5 days preceding the award of 2,030p, this equates to 26,302 shares for Richard Longdon and 13,791 shares for
James Kidd.
Deferred Share Awards
Executive Director
Richard Longdon
James Kidd
Date of
grant
Basis of
Award
Face Value
of Awards
Performance
Period
20 June 2014
Deferred element of
2013/14 annual incentive
£111,6732
£62,6112
No performance period.
Awards vest in equal tranches on 27 May
2015, 27 May 2016 and 27 May 2017
2 This is calculated as the number of outstanding deferred shares, multiplied by the closing share price at 31 March 2014 of 2,094p.
55 AVEVA Group plc Annual report and accounts 2015
STRATEGIC REPORTFINANCIAL STATEMENTSDIRECTORS’ REPORT Directors’ report
Remuneration Committee report continued
Annual report on remuneration continued
Shareholding guidelines and interests in shares (audited)
Richard Longdon
James Kidd
Share ownership
guideline as a %
of base salary
200%
100%
Have
guidelines
been met?
Yes
On-target
Actual share
ownership (as a %
of base salary)
834%1
70%1
Shares owned
outright at
1 April 2014
246,349
6,901
Shares owned
outright at
31 March 2015
249,632
13,108
1 Calculated using the closing share price on 31 March 2015 of 1,486p and base salary for the 2014/15 year.
Outstanding scheme interests (audited)
Richard Longdon
LTIP
Deferred shares
James Kidd
LTIP
Deferred shares
As at
1 April
2014
Granted
during the
year
Exercised
during the
year
Lapsed/
forfeited
during the
year
As at
31 March
2015
Exercise
price
(p)
80,920
11,542
32,879
2,932
–
(6,209)
(1,507)
–
112,292
8,265
0.3556
nil
34,256
5,308
16,550
1,880
(9,438)
(2,318)
(602)
–
40,766
4,870
0.3556
nil
Summary of LTIP targets
The following table sets out a summary of the performance targets attached to outstanding long-term incentive awards
Date of award
6 July 2011
Options granted to
Executive Directors
Period of performance
measurement
35,155
2011/12 –
2013/14
9 July 2012
41,180
2012/13 –
2014/15
21 August 2013
30,578
2013/14 –
2015/16
21 July 2014
49,429
2014/15 –
2016/17
Performance targets/measures
Achievement
Target partially met, 94% of
award vested
Target not met, 0% of award
expected to vest
Performance period not yet
completed
Performance period not yet
completed
– 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.
– 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.
– 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.
– 0% for diluted adjusted EPS growth of less
than 12% p.a.
– 25% for diluted adjusted EPS growth of
12% 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 12%
and 20% p.a.
56 AVEVA Group plc Annual report and accounts 2015
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 2014/15.
Payments for loss of office (audited)
No payments were made during 2014/15.
Total shareholder return v. techMARK All-Share Index 2009–2015
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 six year history
Table below shows the six 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
2014/15
818
100%
100%
695
100%
0%
1,003
68%
100%
963
94%
33%
1,163
50%
94%
517
8%
0%
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 2013/14 financial year through to the end of
the 2014/15 financial year). The UK Group has been chosen because AVEVA is headquartered, and employs around one-quarter 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 (2013/14 to 2014/15)
% change in benefits (2013/14 to 2014/15)
% change in annual bonus (2013/14 to 2014/15)
Executive
management
group
UK
employees
5.2%
0%
-84%
2.0%
0%
-100%
CEO
9.7%
0%
-84%
57 AVEVA Group plc Annual report and accounts 2015
STRATEGIC REPORTFINANCIAL STATEMENTSDIRECTORS’ REPORT Directors’ report
Remuneration Committee report continued
Annual report on remuneration continued
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
93.9
78.3
62.1
116.5
KEY
2013/14
2014/15
17.6
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 is, since January 2015, Chairman of the Board of Process Systems Enterprise Limited. Prior to his appointment to this
position, 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. Richard Longdon receives fees for this role, which, as he performs this role independently of his
duties to the Company, the Committee determined he was entitled to receive.
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
2015
£
Accumulated
accrued pension
at 31 March
2014
£
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
166,354
164,300
2,054
–
–
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
2015
£
31 March
2014
£
Movement,
less Directors’
contributions
£
3,964,246
3,137,520
826,726
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 2014/15 received employer contributions of £28,000
(2013/14 – £26,000).
58 AVEVA Group plc Annual report and accounts 2015
Non-Executive Directors
Implementation of remuneration policy for NEDs in 2015
As noted in the Policy Report, the fees for the Chairman and the Non-Executive Directors are determined taking account of the
individuals’ responsibilities, time devoted to the role and prevalent market rates.
Role
Chairman
Basic Non-Executive Director fee
Committee Chairman fee (Audit and Remuneration)
Senior Independent Director
2014/15
fees
£
165,880
47,150
10,700
10,700
Fees for 2015/16 shall increase by the same rate as the salary increase for UK employees (2%).
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 2014/15 and 2013/14.
Philip Aiken (Chairman)
Jennifer Allerton
Jonathan Brooks
Hervé Couturier
Philip Dayer
* From date of appointment.
2014/15
fees
£
165,880
47,150
57,850
–
68,550
2013/14
fees
£
150,800
34,320*
56,160
11,440
66,560
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 2015.
Philip Aiken (Chairman)
Jennifer Allerton
Jonathan Brooks
Philip Dayer
Shares owned
outright at
31 March
2015
Shares owned
outright at
1 April
2014
1,537
3,000
1,500
7,696
937
1,000
–
6,562
There have been no changes to Directors’ holdings between the year end date and the publication of this report.
This Remuneration Committee report has
been approved by the Board of Directors
and is signed on its behalf by:
Philip Dayer
Remuneration Committee Chairman
19 May 2015
59 AVEVA Group plc Annual report and accounts 2015
STRATEGIC REPORTFINANCIAL STATEMENTSDIRECTORS’ REPORT Directors’ report
Other statutory information
Results and dividends
The Group made a profit for the year after taxation of £41.6 million
(2014 – £51.0 million). Revenue was £208.7 million (2014 – £237.3
million) and comprised software licences, software maintenance
and services.
The Directors recommend the payment of a final dividend of
25 pence per ordinary share (2014 – 22.0 pence). If approved at the
forthcoming Annual General Meeting, the final dividend will be
paid on 3 August 2015 to shareholders on the register at close of
business on 3 July 2015.
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 include total revenue,
recurring revenue, adjusted profit before tax, adjusted earnings
per share and headcount. The figures for the year ended 31 March
2015 are set out on page 21, together with figures for the previous
year and a discussion of the principal risks and uncertainties facing
the Group is included on pages 22 and 23.
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 2015 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
2015
ordinary
shares
At 31 March
2014
ordinary
shares
1,537
7,696
1,500
3,000
249,632
13,108
937
6,562
–
1,000
246,349
6,901
No changes took place in the interests of Directors in the shares of
the Company between 31 March 2015 and 19 May 2015.
Directors’ share options are disclosed in the Remuneration
Committee report on pages 45 to 59.
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 40 and 41.
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 24 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 2015
the Group had cash and treasury deposit balances of £103.8
million (2014 – £117.5 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:
Share capital
Details of the issued share capital can be found in note 28 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.
Philip Aiken (Chairman)
Philip Dayer (Non-Executive Director and Senior
Independent Director)
Jonathan Brooks (Non-Executive Director)
Jennifer Allerton (Non-Executive Director)
Richard Longdon (Chief Executive)
James Kidd (Chief Financial Officer)
60 AVEVA Group plc Annual report and accounts 2015
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.
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
2015
Percentage
held %
As at
19 May
2015
Percentage
held %
Number
Aberdeen Asset
Management
Threadneedle
Investments
1818 Partners
Allianz Global
6,738,494
10.5 6,738,494
10.5
4,070,850
3,579,808
6.4 4,070,850
5.6 3,579,808
Investors Europe
3,325,180
Oppenheimer Funds 3,282,080
BlackRock
3,141,009
Standard Life
Investments
2,023,327
HMI Capital Partners 1,955,000
5.2 3,325,180
5.1 3,282,080
4.9 3,141,009
3.2 2,023,327
1,955,000
3.1
6.4
5.6
5.2
5.1
4.9
3.2
3.1
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.
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.
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.
61 AVEVA Group plc Annual report and accounts 2015
STRATEGIC REPORTFINANCIAL STATEMENTSDIRECTORS’ REPORT Directors’ report
Other statutory information continued
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 2015 to
stand for re-election.
Listing Rules disclosures
For the purpose of LR9.8.4C R, the only applicable information
required to be disclosed in accordance with LR9.8.4 R can be
found in the section below titled Employee benefit trust. The
information concerned is in respect of shareholder waiver of
dividends and future dividends.
Annual General Meeting
The Annual General Meeting will be held on 9 July 2015 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 44,722 ordinary shares in AVEVA Group plc
representing 0.07% (2014 – 72,626 shares representing 0.11%) 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.
Greenhouse gas emissions reporting
The Company is required to state the annual quantity of emissions
in tonnes of carbon dioxide equivalent from activities for which
the Group is responsible, including the combustion of fuel, the
operation of any facility, and resulting from the purchase of
electricity, heat, steam or cooling. Details of our emissions are set
out within the Corporate Responsibility section of the Strategic
Report and form part of the Directors’ Report disclosures.
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.
62 AVEVA Group plc Annual report and accounts 2015
Statement of Directors’ responsibilities in relation to the
financial statements
The Directors are responsible for preparing the annual report
and the financial statements in accordance with applicable law
and regulations.
The Directors are required to prepare Consolidated financial
statements for each financial year in accordance with International
Financial Reporting Standards (IFRSs) as adopted by the
European Union. The Directors have elected to prepare the
parent company financial statements in accordance with United
Kingdom General Accepted Accounting Practice (United Kingdom
Accounting Standards and applicable law). Under company law
the Directors must not approve the financial statements unless
they are satisfied that they give a true and fair view of the state
of affairs of the Company and of the undertakings included in the
consolidation as a whole as at the end of the financial year and
the profit or loss of the undertakings included in the consolidation
as a whole, so far as concerns members of the Company, for
the financial year. In preparing those Consolidated financial
statements, the Directors are required to:
– select and apply accounting policies in accordance with IAS 8;
– present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information; and
– 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.
In preparing the parent company financial statements, the
Directors are required to:
– select suitable accounting policies and then apply
them consistently;
– make judgments and accounting estimates that are
reasonable and prudent;
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 60. 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
Having taken advice from the Audit Committee, the Board
considers the Annual Report and Accounts, taken as a whole,
is fair, balanced and understandable and that it provides the
information necessary for shareholders to assess the Company’s
position and 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 profit of the Company
and the undertakings included in the consolidation taken as
a whole; and
– the Strategic Report and the Directors’ report include a fair
review of the development and performance of the business
and the position of the Company and the undertakings
included in the consolidation taken as a whole, together
with a description of the principal risks and uncertainties
that they face.
– state whether applicable UK Accounting Standards have
On behalf of the Board
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 adequate accounting
records which are sufficient to 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 and, as regards the Group
financial statements, Article 4 of the IAS Regulation. 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.
63 AVEVA Group plc Annual report and accounts 2015
James Kidd
Chief Financial Officer
19 May 2015
Richard Longdon
Chief Executive
19 May 2015
This Directors’ Report has been approved
by the Board of Directors and is signed on
its behalf by:
David Ward
Company Secretary
19 May 2015
STRATEGIC REPORTFINANCIAL STATEMENTSDIRECTORS’ REPORT Financial
statements
64 AVEVA Group plc Annual report and accounts 2015
Financial statements
Independent auditor’s report
Opinion on financial statements
In our opinion:
– the financial statements give a true and fair view of the state of
the group’s and of the parent company’s affairs as at 31 March
2015 and of the group’s profit for the year then ended;
– the group financial statements have been properly prepared in
accordance with International Financial Reporting Standards
(IFRSs) as adopted by the European Union;
– the parent company financial statements have been properly
prepared in accordance with United Kingdom Generally
Accepted Accounting Practice; and
– the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006 and,
as regards the group financial statements, Article 4 of the
IAS Regulation.
What we have audited
We have audited the financial statements of AVEVA Group plc for
the year ended 31 March 2015 which comprise the Consolidated
income statement, the Consolidated statement of comprehensive
income/(expense), the Consolidated balance sheet, the
Consolidated cash flow statement, the Consolidated statement of
changes in shareholders’ equity and the parent company balance
sheet, the Group related notes 1 to 29, the parent company
related notes 1 to 9 and the Statement of Group accounting
policies. The financial reporting framework that has been applied
in the preparation of the group financial statements is applicable
law and IFRSs as adopted by the European Union. The financial
reporting framework that has been applied in the preparation of
the parent company financial statements 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 63, the directors are responsible for
the preparation of the 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 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 and 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.
65 AVEVA Group plc Annual report and accounts 2015
STRATEGIC REPORTFINANCIAL STATEMENTSDIRECTORS’ REPORT Financial statements
Independent auditor’s report continued
Our assessment of risks of material misstatement and our response to that risk
We identify below the risks of material misstatement which had the greatest effect on the overall audit strategy, the allocation of
resources in the audit, and directing the efforts of the engagement team.
Risk
Response
The risk of inappropriate revenue recognition on software licence contracts
In particular:
– We review and walkthrough the central process over the approval and recognition of revenue contracts
across the group.
– inappropriate application of the
– We performed licence revenue sample transaction testing at a local and group level to ensure that
group revenue recognition policy
and IAS 18 (Revenue) for licence
revenue recognition, which could
result in, for example, revenue
being recorded when performance
conditions have not been satisfied,
incorrect deferral of revenue for
support and maintenance and other
obligations; and
revenue had been recorded in accordance with the revenue recognition principles as detailed in note 2
and had been appropriately recorded in the current year income statement or deferred on the balance
sheet as appropriate. This was achieved by:
– agreeing licence revenues through to signed contracts;
– agreeing the revenue through to subsequent payment as evidence of collectability;
– checking evidence to support delivery and therefore correct timing of revenue recognition; and
– reviewing contract terms for any conditions that would impact the timing of the revenue recognition
and ensuring appropriate allocation and recognition of revenue for other deliverables included
within the contract.
– inappropriate licence revenue
recognition in relation to cut off,
as revenue may not have been
recognised in the correct accounting
period (AC, AP, SAE)*
– Given the significant risk concentration and centralised oversight of revenue recognition, the group
audit team performed additional substantive audit work on all contracts across the group where
invoices over £0.4 million were issued in the year, to ensure consistency of application of the revenue
recognition policy.
– We performed cut-off testing for a sample of revenue items booked either side of year end to ensure
that licence revenue was recognised for software where the contract was signed by both AVEVA and the
customer prior to year end and the software had been delivered prior to the year end.
– We performed journals testing by selecting a sample of revenue journals and assessed the
appropriateness of the journal by checking to supporting evidence and ensuring compliance with the
revenue recognition principles in note 2.
– We tested the assertions made by management surrounding the fair value of the support and
maintenance element of the revenue contracts by reviewing actual data from recent periods; and
– To better understand the nature of the contractual relationships with customers, any contractual issues
or any ongoing contractual obligations, we made enquiries of management within the business, including
the sales team to ensure that appropriate obligations and commitments had been recorded in the
financial statements.
The assessment of the carrying value of goodwill in relation to the Enterprise Solutions business segment
In particular there is a risk that the
carrying value of goodwill on the
balance sheet is not recoverable based
on reasonable assumptions applied
to an appropriate methodology, in
accordance with IAS 36 (Impairment
of assets) and hence is impaired
(AC, AP, SAE)*.
– We examined group management’s “fair value less costs to sell” (FVLCS) valuation, based on the advice
of a third party valuation specialist, of significant goodwill and indefinite lived assets in relation to the
Enterprise Solutions business segment.
– We critically assessed and challenged the methodology and assumptions used by the third party specialist
to arrive at the FVLCS valuation by using our own valuation specialist to assist us with determining the
appropriateness of the approach adopted, based on their own knowledge and experience.
– We tested a sample of the input data, including transaction and third party company data, used for the
valuation back to source documentation or third party evidence.
– We challenged management’s conclusion over the likelihood of reasonable sensitivities.
– We ensured that the financial statement disclosures met the requirements of the accounting standard.
* These risks are discussed in other areas of the Annual Report as noted by the following key.
AC – See Audit Committee Report
AP – See Statement of Group accounting policies
SAE – See note 2(d) significant accounting estimates
Our assessment of revenue recognition as a risk of material misstatement is consistent with the prior year. However, due to the
Enterprise Solutions segment not achieving its current year forecast result, this resulted in an increased risk of material misstatement of
the carrying value of goodwill and therefore greater audit focus and effort was incurred in this area.
66 AVEVA Group plc Annual report and accounts 2015
Our application of materiality
We determined materiality for the group to be £3.05 million (2014:
£3.5 million), which is approximately 5% (2014: 5%) of pre-tax
profit. We used pre-tax profits because, in our view, this is the
most relevant measure of the underlying financial performance
of the group. This provided the basis for determining the nature,
timing and extent of our audit procedures, and identifying and
assessing the risk of material misstatement.
On the basis of our assessments of risk and the group’s
overall control environment, our judgement was that overall
performance materiality (i.e. our tolerance for misstatement
in an individual account or balance) for the group should be
50% (2014: 75%) of planning materiality, namely £1.5 million
(2014: £2.6 million). We reduced the performance materiality
factor from 75% to 50% given prior year Income Statement
differences of £1.3 million (of which £0.6 million related to one
revenue contract and £0.7 million related to corporate tax), all of
which were corrected. Our objective in adopting this approach
was to ensure that the total of any detected (but unadjusted)
and undetected audit differences was unlikely to exceed our
assessment of materiality for the financial statements as a whole.
Audit work at individual components is undertaken based on a
percentage of our total performance materiality. The performance
materiality set for each component is based on the relative size
of the component and our view of the risk of misstatement at
that component. In the current year the range of performance
materiality allocated to components was £0.3 million to
£0.7 million (2014: £0.4 million to £1 million).
We agreed with the Audit Committee that we would report to
the Committee all audit differences in excess of £0.15 million
(2014: £0.17 million), as well as differences below that threshold
that, in our view, warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the
quantitative measures of materiality discussed above and in the
light of other relevant qualitative considerations.
An overview of the scope of our audit
In assessing the risk of material misstatement to the group financial
statements, our group audit scope focused on twelve locations:
– the UK was subject to a full scope audit.
– nine locations were subject to a specific scope audit, where
the extent of the audit work was based on our assessment
of the risk of material misstatement and the materiality of
the operations at those locations. For these locations audit
work was primarily focussed on revenue, debtors, cash,
accruals and payroll.
– two locations were subject to a limited scope audit, which
involved analytical review procedures and audit work focussed
on risks specific to the locations concerned. For the current
year, in both instances this was around debtor recoverability.
Together with the group functions which were also subject
to a full scope audit, these locations represent the principal
business locations of the group and account for 81% (2014:
79%) of the group’s revenue, 96% (2014: 84%) of the group’s
profit before tax and 105% (2014: 81%) of the group’s net assets,
reflective of two net liability companies which have not been
subject to scoped procedures.
Revenue coverage by scope
Full scope
21%
Specific scope
60%
Not significant scope
19%
The Senior Statutory Auditor leads the audit at one full scope
location, one specific scope location and the two limited scope
locations as well as the group functions. The group audit team
visits other key locations on a rotational basis and visited two
specific locations during the year. In addition the group audit team
held a group planning meeting with the audit teams of the twelve
locations to ensure direction and input into the local audit teams’
audit approach, including their assessment of the risk of material
fraud or error. The group audit team also participated in five of
the local audit team closing meetings and reviewed key working
papers where necessary.
67 AVEVA Group plc Annual report and accounts 2015
STRATEGIC REPORTFINANCIAL STATEMENTSDIRECTORS’ REPORT
Independent auditor’s report continued
Opinion on other matters prescribed by the Companies Act 2006
In our opinion:
Under the Companies Act 2006 we are required to report to you if,
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
– 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 information given in the Strategic Report and the
– the parent company financial statements and the part of
Directors’ Report for the financial period for which the financial
statements are prepared is consistent with the financial
statements; and
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
– the information given in the Corporate Governance Report
set out on page 37 with respect to internal control and risk
management systems in relation to financial reporting
processes and about share capital structures is consistent with
the financial statements.
law are not made; or
– we have not received all the information and explanations
we require for our audit; or
– a Corporate Governance Report has not been prepared by
the company.
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the Listing Rules we are required to review:
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.
– the directors’ statement, set out on page 60, in relation to
going concern; and
– the part of the Corporate Governance Report relating to the
company’s compliance with the ten provisions of the UK
Corporate Governance Code specified for our review.
Bob Forsyth (Senior Statutory Auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
Cambridge
19 May 2015
68 AVEVA Group plc Annual report and accounts 2015
Financial statements
Consolidated income statement
for the year ended 31 March 2015
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
(Loss)/gain 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
Adjusted earnings per share (pence)
– basic
– diluted
All activities relate to continuing activities.
The accompanying notes are an integral part of this Consolidated income statement.
Notes
3, 4
2015
£000
2014
£000
208,686
(15,538)
237,336
(17,378)
193,148
219,958
(32,696)
(87,863)
(18,036)
(38,278)
(92,967)
(20,186)
(138,595)
(151,431)
5
7
8
54,553
765
(456)
68,527
1,208
(746)
62,098
(4,707)
441
(980)
(1,990)
54,862
(13,303)
78,257
(4,677)
(2,317)
1,121
(3,395)
68,989
(17,978)
41,559
51,011
65.07
64.92
74.51
74.34
78.12
77.99
89.05
88.90
6
10
12
12
12
12
69 AVEVA Group plc Annual report and accounts 2015
STRATEGIC REPORTFINANCIAL STATEMENTSDIRECTORS’ REPORT Financial statements
Consolidated statement of comprehensive income
for the year ended 31 March 2015
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 (loss)/gain 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
The accompanying notes are an integral part of this Consolidated statement of comprehensive income.
Notes
2015
£000
2014
£000
41,559
51,011
(9,393)
(6,933)
26
10(a)
(11,496)
2,657
5,672
(1,275)
(8,839)
4,397
23,327
48,475
70 AVEVA Group plc Annual report and accounts 2015
Financial statements
Consolidated balance sheet
31 March 2015
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
2015
£000
2014
£000
14
15
16
25
18
18
19
20
20
28(a)
50,589
27,506
7,595
3,800
1,440
38,474
21,540
8,395
4,131
1,498
90,930
74,038
96,468
–
45,248
58,519
2,195
83,596
547
40,238
77,309
2,162
202,430
203,852
293,360
277,890
2,274
27,288
1,655
158,713
2,271
27,288
10,589
144,829
189,930
184,977
21
22
81,613
432
5,718
72,954
–
9,108
87,763
82,062
25
26
1,480
14,187
2,003
8,848
15,667
10,851
293,360
277,890
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 19 May 2015. They were signed on its
behalf by:
Philip Aiken
Chairman
Richard Longdon
Chief Executive
Company number
2937296
71 AVEVA Group plc Annual report and accounts 2015
STRATEGIC REPORTFINANCIAL STATEMENTSDIRECTORS’ REPORT Consolidated statement of changes in shareholders’ equity
31 March 2015
At 1 April 2013
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 2014
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 2015
Share
capital
£000
2,269
–
–
Share
premium
£000
27,288
–
–
Merger
reserve
£000
3,921
–
–
–
2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,271
–
–
27,288
–
–
3,921
–
–
–
3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Note
28
27
28
11
28
27
28
11
Other reserves
Cumulative
translation
adjustments
£000
Treasury
shares
£000
Total other
reserves
£000
15,042
–
(6,933)
(6,933)
–
–
–
–
–
–
8,109
–
(9,393)
(9,393)
–
–
–
–
–
–
(1,251)
–
–
–
–
–
–
(717)
527
–
(1,441)
–
–
–
–
–
–
(305)
764
–
Retained
earnings
£000
204,337
51,011
4,397
55,408
–
2,317
(255)
–
Total
equity
£000
251,606
51,011
(2,536)
48,475
2
2,317
(255)
(717)
17,712
–
(6,933)
(6,933)
–
–
–
(717)
527
–
(527)
(116,451)
–
(116,451)
10,589
–
(9,393)
(9,393)
–
–
–
(305)
144,829
41,559
(8,839)
184,977
41,559
(18,232)
32,720
–
(441)
(73)
–
23,327
3
(441)
(73)
(305)
764
–
(764)
(17,558)
–
(17,558)
2,274
27,288
3,921
(1,284)
(982)
1,655
158,713
189,930
The accompanying notes are an integral part of this Consolidated statement of changes in shareholders’ equity. Details of other reserves
is contained in note 28.
72 AVEVA Group plc Annual report and accounts 2015
Financial statements
Consolidated cash flow statement
for the year ended 31 March 2015
Cash flows from operating activities
Profit for the year
Income tax
Net finance revenue
Amortisation of intangible assets
Depreciation of property, plant and equipment
Loss/(gain) 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
(Purchase)/maturity 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 (decrease)/increase in cash and cash equivalents
Net foreign exchange difference
Opening cash and cash equivalents
Closing cash and cash equivalents
The accompanying notes are an integral part of this Consolidated cash flow statement.
Notes
2015
£000
2014
£000
41,559
13,303
(309)
5,335
2,914
191
(441)
(6,565)
(930)
(11,752)
852
980
45,137
(14,231)
51,011
17,978
(462)
4,879
2,932
(83)
2,317
(2,993)
(875)
(3,221)
(159)
(1,121)
70,203
(18,217)
30,906
51,986
(2,571)
(522)
(25,651)
345
765
(5,010)
(3,118)
(2,119)
–
427
1,208
95,847
(32,644)
92,245
(73)
(305)
3
(17,558)
(98)
(717)
2
(116,451)
(17,933)
(117,264)
(19,671)
881
77,309
26,967
(3,930)
54,272
58,519
77,309
10(a)
7, 8
15
16
5
27
16
15
13
7
20
8
28(b)
28(a)
11
20
20
73 AVEVA Group plc Annual report and accounts 2015
STRATEGIC REPORTFINANCIAL STATEMENTSDIRECTORS’ REPORT 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 Key accounting policies
Explained below are the key accounting policies of the Group. The full Statement of Group Accounting Policies is included on pages 106
to 112.
a) 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
2015. 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 12, is calculated having adjusted profit after
tax for the same items and their tax effect. The term adjusted profit is not defined under IFRS and may not be comparable with similarly
titled profit measures reported by other companies. It is not intended to be a substitute for, or superior to, GAAP measures of profit.
The 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 2015. 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 100 to 104.
b) 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 licence 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.
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.
74 AVEVA Group plc Annual report and accounts 2015
2 Key accounting policies continued
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.
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) Significant accounting estimates
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.
We periodically review our estimate of the fair value of the element of a customer rental fee attributable to the continuing right to use
and customer support and maintenance. On average, this element as a proportion of the initial software delivery element has increased
from 15% to 17%. This revised estimate has been used for revenue recognition purposes from 1 April 2014. The impact of this change
was that revenue recognised during 2014/15 was lower by £894,000, and deferred revenue at 31 March 2015 increased by £894,000.
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 2015 was £5,636,000 (2014 – £5,161,000).
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 14.
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.
75 AVEVA Group plc Annual report and accounts 2015
STRATEGIC REPORTFINANCIAL STATEMENTSDIRECTORS’ REPORT Notes to the consolidated financial statements continued
2 Key accounting policies continued
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 26 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 net carrying
amount of retirement benefit obligations at 31 March 2015 was £14,187,000 (2014 – £8,848,000).
e) 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.
3 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
2015
£000
2014
£000
60,724
97,489
158,213
31,122
19,351
208,686
765
57,084
109,936
167,020
48,394
21,922
237,336
1,208
209,451
238,544
Services consist of consultancy, implementation services and training fees.
Included within revenue for the year ended 31 March 2015 are annual fees of £534,000, rental fees of £296,000 and services of £321,000
related to the acquired business of 8over8 Limited.
76 AVEVA Group plc Annual report and accounts 2015
4 Segment information
During the year, the Group was 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 2015
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
54,662
92,730
27,376
7,925
6,062
4,759
3,746
11,426
60,724
97,489
31,122
19,351
182,693
(45,660)
25,993
(26,637)
208,686
(72,297)
137,033
(644)
136,389
(58,236)
(16,364)
309
62,098
(7,236)
54,862
# Normalised adjustments include amortisation of intangible assets (excluding other software), share-based payments and (losses)/gains on fair value of forward
foreign exchange contracts.
Enterprise Solutions includes revenue of £1,151,000 and contribution of £21,000 relating to the acquired business of 8over8 Limited.
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 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
77 AVEVA Group plc Annual report and accounts 2015
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
STRATEGIC REPORTFINANCIAL STATEMENTSDIRECTORS’ REPORT Notes to the consolidated financial statements continued
4 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 2015
Asia Pacific
£000
EMEA
£000
Americas
£000
Total
£000
25,137
21,625
16,855
3,992
29,838
51,365
10,537
12,034
5,749
24,499
3,730
3,325
60,724
97,489
31,122
19,351
67,609
103,774
37,303
208,686
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
Other segmental disclosures
The Company’s country of domicile is the UK. Revenue attributed to the UK and all foreign countries amounted to £16,038,000 and
£192,648,000 (2014 – £20,667,000 and £216,669,000) respectively. In 2013/14 South Korea accounted for 16% of the Group’s total
revenue. No individual 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 £46,594,000 and £40,536,000
(2014 – £22,723,000 and £47,184,000) 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 (2014 – none).
Further information concerning revenue by type of product and service is disclosed in note 4.
5 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
Loss/(gain) on disposal of property, plant and equipment
Net foreign exchange (gains)/losses
78 AVEVA Group plc Annual report and accounts 2015
2015
£000
2014
£000
2,914
2,932
3,783
924
628
93,904
6,113
191
(2,547)
3,824
88
967
100,245
5,880
(83)
1,833
5 Profit from operations continued
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
– other services pursuant to legislation
2015
£000
297
241
57
107
34
736
2014
£000
265
220
81
106
3
675
6 Exceptional items
During the year the Group incurred exceptional costs of £1,990,000 (2014 – £3,395,000), relating to acquisition and integration activities
of £371,000 (2014 – £102,000), exceptional restructuring costs of £851,000 (2014 – £1,762,000) and a provision for underpaid sales taxes
in an overseas location of £768,000 (2014 – £1,531,000).
The acquisition and integration fees paid during the year, relate to fees paid to professional advisers for legal and due diligence advice
related to the acquisition of 8over8 Limited with prior year costs related to Bocad.
The exceptional restructuring costs incurred during 2014/15 relate to the accrued redundancy and related costs in connection to the
rationalisation of offices and reduction in headcount in specific areas of the business.
The Group has provided for a potential underpaid sales tax liability in respect of prior periods, related to the local sales of one of the
Group’s subsidiary companies. The provision includes an estimate of the underpaid tax as well as related interest for late payment.
7 Finance revenue
Bank interest receivable and other interest earned
8 Finance expense
Net interest on pension scheme liabilities
Bank interest payable and similar charges
9 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
79 AVEVA Group plc Annual report and accounts 2015
2015
£000
765
2015
£000
383
73
456
2014
£000
1,208
2014
£000
661
85
746
2015
£000
76,709
10,026
7,610
(441)
2014
£000
80,620
10,079
7,229
2,317
93,904
100,245
2015
Number
2014
Number
562
770
265
505
665
262
1,597
1,432
STRATEGIC REPORTFINANCIAL STATEMENTSDIRECTORS’ REPORT Notes to the consolidated financial statements continued
9 Staff costs continued
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
10 Income tax expense
a) Tax on profit
The major components of income tax expense for the years ended 31 March 2015 and 2014 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 25)
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
Current tax on pension contributions
Tax credit reported in Consolidated statement of comprehensive income
2015
£000
845
28
–
873
2014
£000
1,127
26
714
1,867
2015
Number
2014
Number
1
1
2015
£000
2014
£000
5,362
3
5,365
6,667
553
7,220
12,585
785
(67)
718
8,440
(503)
7,937
9,962
267
10,229
18,166
(246)
58
(188)
13,303
17,978
2015
£000
2014
£000
380
1,085
1,192
2,657
236
(1,511)
–
(1,275)
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 21% (2014 – 23%)
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
2015
£000
2014
£000
11,521
15,866
646
132
387
–
128
489
823
256
933
(147)
425
(178)
Income tax expense reported in Consolidated income statement
13,303
17,978
80 AVEVA Group plc Annual report and accounts 2015
11 Dividends paid and proposed on equity shares
Declared and paid during the year
Interim 2014/15 dividend paid of 5.5 pence (2013/14 – 5.0 pence) per ordinary share
Final 2013/14 dividend paid of 22.0 pence (2012/13 – 19.5 pence) per ordinary share
Special dividend paid of 147.0 pence per share
2015
£000
2014
£000
3,515
14,043
–
3,178
13,261
100,012
17,558
116,451
Proposed for approval by shareholders at the Annual General Meeting
Final proposed dividend 2014/15 of 25 pence (2013/14 – 22.0 pence) per ordinary share
15,976
14,052
The proposed final dividend is subject to approval by shareholders at the Annual General Meeting on 9 July 2015 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
3 August 2015 to shareholders on the register at the close of business on 3 July 2015.
12 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
2015
Pence
2014
Pence
65.07
64.92
74.51
74.34
78.12
77.99
89.05
88.90
2015
Number
2014
Number
63,872,070
146,272
65,297,504
112,020
64,018,342
65,409,524
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 £41,559,000 (2014 – £51,011,000). 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 27.
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
Loss/(gain) on fair value of forward foreign exchange contracts
Exceptional items
Tax effect on exceptional items
Tax effect on other normalised items
Adjusted profit after tax
2015
£000
41,559
4,707
(441)
980
1,990
(134)
(1,067)
2014
£000
51,011
4,677
2,317
(1,121)
3,395
(781)
(1,351)
47,594
58,147
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.
81 AVEVA Group plc Annual report and accounts 2015
STRATEGIC REPORTFINANCIAL STATEMENTSDIRECTORS’ REPORT Notes to the consolidated financial statements continued
13 Business combinations
On 5 January 2015, the Group acquired 100% of the issued share capital of 8over8 Limited headquartered in Northern Ireland.
The acquisition consideration was cash of £26.9 million.
Acquisition costs (including due diligence and professional fees) and integration costs have been included in the Consolidated
income statement.
Details of the fair values of the net assets acquired and goodwill is set out below, which includes purchased intangibles consisting
of developed technology and customer relationships. Fair value adjustments of £6.9 million have been made to align with the
Group’s accounting policies, particularly in respect of revenue recognition.
Intangible assets
Property, plant and equipment
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Current tax liabilities
Deferred tax assets/(liabilities)
Net assets acquired
Goodwill
Total consideration
Satisfied by:
Cash
Net cash outflow arising on acquisition
Cash consideration
Less cash and cash equivalents acquired
Book value
£000
Fair value
£000
–
72
8,547
1,286
(4,956)
(266)
640
5,323
12,138
72
3,540
1,286
(5,711)
(266)
(456)
10,603
16,334
26,937
26,937
26,937
(1,286)
25,651
From the date of acquisition to 31 March 2015, the business contributed £1,151,000 to revenue and a loss before tax of £586,000. It is not
practical to disclose the revenue and profit/(loss) before tax of the business as if it had been acquired at the beginning of the reporting
period due to the nature of the fair value adjustment to align accounting policies.
Goodwill represents the value of the assembled workforce and the future synergy benefits of integrating the business in the AVEVA
Group. The assembled workforce brings product development skills and expertise, service delivery skills and domain knowledge of the
end user markets to the Group.
14 Goodwill
At 1 April 2013
Exchange adjustment
At 31 March 2014
Acquisition of 8over8 Limited
Exchange adjustment
At 31 March 2015
Engineering
& Design
Systems
£000
31,514
(1,604)
29,910
–
(3,375)
Enterprise
Solutions
£000
9,013
(449)
8,564
16,334
(844)
Total
£000
40,527
(2,053)
38,474
16,334
(4,219)
26,535
24,054
50,589
The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired. 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.
Engineering & Design Systems
During 2014/15 the contribution of the Engineering & Design Systems CGU was £137.0 million (2014 – £163.0 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 goodwill acquired relating to 8over8 Limited has been allocated to the Enterprise Solutions (‘ES’) segment. However, the carrying
values of the ES intangibles have for 2014/15 been assessed for impairment excluding both the very recently acquired 8over8 intangibles
and the related acquired cash flows.
82 AVEVA Group plc Annual report and accounts 2015
14 Goodwill continued
The review for the Enterprise Solutions CGU was conducted prior to the year end and the recoverable amount, as per IAS 36, was
determined to be the fair value less costs to sell (FVLCS), being greater than the value in use that had been employed in the prior
year. The FVLCS assessment was prepared by a third-party valuation specialist who performed his work by reference to market data.
The specialist employed two methods to inform his valuation: one based on companies; and the second based on transactions:
– Under the Guideline Company method companies in a similar market sector were observed and those that were identified as
loss-making were used to derive an estimated average revenue multiple that could be applied to the ES CGU. A revenue multiple of
1.1 times revenue was selected. As the multiple selected was based on observable quoted company multiples, the resulting valuation
was then adjusted upward to reflect a 15% premium for any potential acquirer having acquired full control. Conversely, the valuation
estimate multiple was discounted by 7% to reflect a potential lack of marketability, due to a lack of a ready market for the asset. Both
the control premium and lack of marketability adjustments are standard in such a valuation technique.
– Under the Guideline Transaction method (GTM), actual corporate transactions in a similar industry or sector and of a similar scale
were observed and valuation multiples assessed. Focus was given to the total invested capital to revenue multiples, due to the lack
of profitability of the ES CGU. These were found to range from 1.0 times to 3.01 times revenue. On the basis that the Enterprise
Solutions CGU is currently loss making, it was deemed appropriate to select a lower quartile multiple of revenue, 1.09 times.
From this process, the FVLCS valuation was assessed as between £28.8 million and £30.3 million, indicating headroom of between
£18.9 million and £20.4 million against the carrying value of goodwill and intangibles of £9.9m.
As the valuation approach described above has used lower quartile assessments of valuation multiples, the Directors do not consider
that any reasonably possible change in the valuation assumptions used by the valuation specialist would lead to impairment. Currently
the carrying values of the goodwill and intangibles attributable to the ES CGU represent 0.38 times revenue reported in 2014/15.
15 Intangible assets
Cost
At 1 April 2013
Additions
Disposals
Exchange adjustment
At 31 March 2014
Additions
Acquisitions
Exchange adjustment
At 31 March 2015
Amortisation
At 1 April 2013
Charge for the year
Disposals
Exchange adjustment
At 31 March 2014
Charge for the year
Exchange adjustment
At 31 March 2015
Net book value
At 31 March 2013
At 31 March 2014
At 31 March 2015
Developed
technology
£000
Customer
relationships
£000
Purchased
Brand
£000
Other
software
£000
31,185
230
–
(1,307)
30,108
–
7,941
(1,952)
12,526
–
–
(769)
11,757
–
2,994
(1,542)
36,097
13,209
16,690
3,210
–
(991)
18,909
3,181
(1,376)
4,730
853
–
(353)
5,230
864
(770)
20,714
5,324
14,495
11,199
15,383
7,796
6,527
7,885
–
–
–
–
–
–
1,203
–
1,203
–
–
–
–
–
60
–
60
–
–
1,143
Purchased
software
rights
£000
7,383
1,215
–
–
8,598
235
–
–
Total
£000
53,209
2,119
(4)
(2,118)
53,206
522
12,138
(3,532)
2,115
674
(4)
(42)
2,743
287
–
(38)
2,992
8,833
62,334
1,384
202
(4)
(33)
1,549
628
(27)
2,150
731
1,194
842
5,364
614
–
–
5,978
602
–
28,168
4,879
(4)
(1,377)
31,666
5,335
(2,173)
6,580
34,828
2,019
2,620
2,253
25,041
21,540
27,506
For the purposes of the adjusted earnings per share calculation (note 12), intangible asset amortisation excludes the charge relating to
other software of £628,000 (2014 – £202,000).
Developed technology
Developed technology includes the 8over8 technology acquired in 2014/15, 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.
83 AVEVA Group plc Annual report and accounts 2015
STRATEGIC REPORTFINANCIAL STATEMENTSDIRECTORS’ REPORT Notes to the consolidated financial statements continued
15 Intangible assets continued
Customer relationships
The customer relationships intangible asset includes those relationships acquired as part of the acquisitions of 8over8 in 2014/15,
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.
Brands
The purchased brand represents that acquired as part of the 8over8 Limited acquisition in 2014/15 and is being amortised over 5 years.
16 Property, plant and equipment
Long leasehold
buildings and
improvements
£000
Computer
equipment
£000
Fixtures,
fittings
and office
equipment
£000
3,109
552
(132)
368
(88)
3,809
646
–
–
178
4,633
544
335
(132)
24
(21)
750
446
–
–
105
12,532
1,555
(522)
–
(405)
13,160
1,334
53
(8,680)
(181)
8,826
651
(182)
(368)
(509)
8,418
379
4
(2,598)
(44)
5,686
6,159
10,135
1,498
(335)
–
(237)
11,061
1,435
(8,522)
4
(129)
5,247
830
(160)
(24)
(224)
5,669
809
(2,273)
(4)
(35)
1,301
3,849
4,166
2,565
3,059
3,332
2,397
2,099
1,837
3,579
2,749
1,993
Motor
vehicles
£000
1,285
360
(546)
–
(142)
957
212
15
(311)
(1)
872
676
269
(411)
–
(65)
469
224
(255)
–
1
439
609
488
433
Total
£000
25,752
3,118
(1,382)
–
(1,144)
26,344
2,571
72
(11,589)
(48)
17,350
16,602
2,932
(1,038)
–
(547)
17,949
2,914
(11,050)
–
(58)
9,755
9,150
8,395
7,595
Cost
At 1 April 2013
Additions
Disposals
Reclassification
Exchange adjustment
At 31 March 2014
Additions
Acquisitions
Disposals
Exchange adjustment
At 31 March 2015
Depreciation
At 1 April 2013
Charge for the year
Disposals
Reclassification
Exchange adjustment
At 31 March 2014
Charge for the year
Disposals
Reclassification
Exchange adjustment
At 31 March 2015
Net book value
At 31 March 2013
At 31 March 2014
At 31 March 2015
84 AVEVA Group plc Annual report and accounts 2015
17 Investments
At 31 March 2015 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:
Country of
incorporation
or registration
AVEVA Solutions Limited*
United Kingdom
8over8 Limited
United Kingdom
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 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.
Australia
Belgium
Brazil
China
China
Denmark
France
Germany
Hong Kong
India
India
Japan
Korea
Malaysia
Malaysia
Norway
Russia
Singapore
Sweden
USA
Principal activity
Software development
and marketing
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 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 £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 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.
18 Trade and other receivables
Current
Amounts falling due within one year:
Trade receivables
Prepayments and other receivables
Accrued income
2015
£000
2014
£000
88,618
6,590
1,260
77,762
5,402
432
96,468
83,596
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
85 AVEVA Group plc Annual report and accounts 2015
2015
£000
2014
£000
1,440
1,498
STRATEGIC REPORTFINANCIAL STATEMENTSDIRECTORS’ REPORT Notes to the consolidated financial statements continued
18 Trade and other receivables continued
Non-current prepayments and other receivables include rental deposits for operating leases.
As at 31 March 2015 the provision for impairment of receivables was £5,636,000 (2014 – £5,161,000) and an analysis of the movements
during the year was as follows:
At 1 April 2013
Charge for the year, net of amounts reversed
Utilised
Exchange adjustment
At 31 March 2014
Arising from business combination
Charge for the year, net of amounts reversed
Utilised
Exchange adjustment
As at 31 March 2015
As at 31 March, the ageing analysis of trade receivables (net of provision for impairment) was as follows:
£000
4,771
1,302
(399)
(513)
5,161
1,011
3,327
(3,612)
(251)
5,636
2015
2014
19 Financial assets
Current
Fair value of forward foreign exchange contracts
20 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
88,618
65,058
20,712
77,762
53,304
20,264
1,650
3,322
Eight to
twelve
months
£000
1,176
780
More than
twelve
months
£000
22
92
2015
£000
2014
£000
–
547
2015
£000
2014
£000
50,635
7,884
58,519
45,248
64,293
13,016
77,309
40,238
103,767
117,547
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 £103,767,000 (2014 – £117,547,000).
21 Trade and other payables
Current
Trade payables
Social security, employee taxes and sales taxes
Accruals and other payables
Deferred revenue
Deferred consideration
86 AVEVA Group plc Annual report and accounts 2015
2015
£000
2014
£000
3,251
14,500
15,232
48,213
417
4,116
11,347
20,521
36,490
480
81,613
72,954
21 Trade and other payables continued
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.
22 Financial liabilities
Current
Fair value of forward foreign exchange contracts
2015
£000
432
2014
£000
–
Borrowing facilities
As at 31 March 2015 the Group had no committed bank overdraft or loan facilities.
23 Obligations under leases
As at 31 March 2015 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
2015
2014
Land and
buildings
£000
Plant and
machinery
£000
Land and
buildings
£000
Plant and
machinery
£000
4,951
8,050
261
13,262
291
353
–
644
4,308
6,195
553
11,056
284
345
–
629
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.
24 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 analysis 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 £765,000
(2014 – £727,000) and profit after tax by £604,000 (2014 – £560,000).
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.
87 AVEVA Group plc Annual report and accounts 2015
STRATEGIC REPORTFINANCIAL STATEMENTSDIRECTORS’ REPORT Notes to the consolidated financial statements continued
24 Financial risk management continued
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. The Group enters into forward foreign
exchange contracts to sell US Dollars and Euros to match forecast cash flows arising from its recurring revenue base. In addition,
it enters into specific forward foreign exchange contracts for individually significant revenue contracts, when the timing of forecast
cash flows is reasonably certain. Other currency exposures are less easy to hedge cost effectively. At 31 March 2015, the Group had
outstanding currency exchange contracts to sell $22.8 million (2014 – $9.0 million), €9.7 million (2014 – €9.75 million) and YEN0 million
(2014 – YEN100.0 million). It also had outstanding currency exchange contracts to buy, Swedish kr0 million (2014 – kr11.5 million),
Danish kr4.5 million (2014 – kr0 million). Non-deliverable forward contracts were used to hedge the purchase of INR30 million
(2014 – INR0 million)
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 2013/14.
31 March 2015
US Dollar
Euro
31 March 2014
US Dollar
Euro
Increase/
(decrease)
in average
rate
Profit/(loss)
£000
10%
(10%)
10%
(10%)
(2,190)
2,450
(70)
77
Increase/
(decrease) in
average rate
Profit/(loss)
£000
10%
(10)%
10%
(10)%
(869)
956
(241)
265
Equity
£000
(2,190)
2,450
(70)
77
Equity
£000
(869)
956
(241)
265
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.
88 AVEVA Group plc Annual report and accounts 2015
24 Financial risk management continued
The Group does not require collateral in respect of its financial assets.
Disclosures relating to the credit associated with trade receivables are in note 18.
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 date to the contractual maturity date. The amounts disclosed in the table are the contractual
undiscounted cash flows:
As at 31 March 2015
Trade and other payables
As at 31 March 2014
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
32,983
35,984
–
–
–
–
–
–
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:
As at 31 March 2015
Forward foreign exchange contracts (GBP/EUR)
Outflow
Inflow
Forward foreign exchange contracts (GBP/USD)
Outflow
Inflow
Forward foreign exchange contracts (DKK/EUR)
Outflow
Inflow
Non-deliverable forward foreign exchange contracts (INR/GBP)
Outflow
Inflow
As at 31 March 2014
Forward foreign exchange contracts (GBP/EUR)
Outflow
Inflow
Forward foreign exchange contracts (GBP/USD)
Outflow
Inflow
Forward foreign exchange contracts (GBP/SEK)
Outflow
Inflow
Forward foreign exchange contracts (GBP/JPY)
Outflow
Inflow
89 AVEVA Group plc Annual report and accounts 2015
Less than
three
months
000
Between
three
months and
six months
000
Between
six months
and one year
000
€3,925
£3,059
€2,925
£2,247
€2,850
£2,117
$7,700
£4,845
$6,350
£4,065
$8,750
£5,725
€600
Kr4,462
£310
INR30,000
–
–
–
–
–
–
–
–
€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
–
–
–
–
–
–
STRATEGIC REPORTFINANCIAL STATEMENTSDIRECTORS’ REPORT
Notes to the consolidated financial statements continued
24 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 2015
Fixed rate
Cash and short-term deposits
Treasury deposits
Floating rate
Cash and short-term deposits
Treasury deposits
Year ended 31 March 2014
Fixed rate
Cash and short-term deposits
Treasury deposits
Floating rate
Cash and short-term deposits
Treasury deposits
Within
one year
£000
3,768
32,788
47,015
20,196
Within
one year
£000
3,455
18,038
95,838
215
One to
two years
£000
Two to
three years
£000
–
–
–
–
–
–
–
–
One to
two years
£000
Two to
three years
£000
–
–
–
–
–
–
–
–
Total
£000
3,768
32,788
47,015
20,196
Total
£000
3,455
18,038
95,838
215
e) Fair values
The book values of the Group’s financial assets and liabilities consist of bank and cash balances of £58,519,000 (2014 – £77,309,000)
and treasury deposits of £45,248,000 (2014 – £40,238,000). 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 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 2015 the Group had forward foreign exchange contracts, which were measured at Level 2 fair value subsequent to initial
recognition. The fair value of the liability in respect of foreign exchange contracts was £433,000 at 31 March 2015 (2014 – £547,000 asset).
The resulting loss of £980,000 (2014 – gain of £1,121,000) 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 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 2014 or 2015.
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.
90 AVEVA Group plc Annual report and accounts 2015
25 Deferred tax
The following are the major deferred tax liabilities and assets recognised by the Group and the movements thereon during the current
and previous year:
At 1 April 2013
Acquisition
Credit/(charge) to Income statement
Credit/(charge) to other comprehensive income
Charged to equity
Exchange adjustment
At 31 March 2014
Acquisition
Credit/(charge) to Income statement
Credit/(charge) to other comprehensive income
Charge to equity
Exchange adjustment
Decelerated
capital
allowances
£000
Land and
buildings*
£000
Retirement
benefit
obligations
£000
Intangible
assets
£000
(27)
–
99
–
–
(14)
58
–
176
–
–
(25)
(155)
–
25
–
–
–
(130)
–
–
–
–
–
3,040
–
(358)
(1,511)
–
–
1,171
–
–
1,085
–
–
(2,953)
–
246
236
–
–
(2,471)
(2,428)
64
380
–
–
Share
options
£000
1,183
–
(27)
–
(412)
–
744
644
(1,065)
–
(126)
–
Other
£000
3,122
(193)
203
–
–
(376)
2,756
1,328
107
–
–
52
Total
£000
4,210
(193)
188
(1,275)
(412)
(390)
2,128
(456)
(718)
1,465
(126)
27
At 31 March 2015
209
(130)
2,256
(4,455)
197
4,243
2,320
* 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
2015
£000
(1,480)
3,800
2014
£000
(2,003)
4,131
2,320
2,128
At the balance sheet date, the Group has unused tax losses of £1,654,000 (2014 – £865,000) available for offset against future profits.
Of the total deferred tax asset of £533,000 (2014 – £276,000), £40,000 (2014 – £68,000) 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 £37,003,000 (2014 – £37,693,000). 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.
91 AVEVA Group plc Annual report and accounts 2015
STRATEGIC REPORTFINANCIAL STATEMENTSDIRECTORS’ REPORT Notes to the consolidated financial statements continued
26 Retirement benefit obligations
The movement on the provision for retirement benefit obligations was as follows:
At 31 March 2013
Current service cost
Net interest on pension scheme liabilities
Actuarial remeasurements
Employer contributions
Exchange adjustment
At 31 March 2014
Current service cost
Net interest on pension scheme liabilities
Actuarial remeasurements
Employer contributions
Exchange adjustment
At 31 March 2015
UK defined
benefit
scheme
£000
German
defined
benefit
schemes
£000
South
Korean
severance
pay
£000
13,214
1,628
562
(5,573)
(3,978)
–
5,853
1,487
276
11,389
(7,724)
–
1,945
55
36
10
(951)
(21)
1,074
–
42
122
(47)
(132)
1,800
312
63
(109)
(60)
(85)
1,921
246
65
(15)
(526)
156
Total
£000
16,959
1,995
661
(5,672)
(4,989)
(106)
8,848
1,733
383
11,496
(8,297)
24
11,281
1,059
1,847
14,187
a) UK defined benefit scheme
The Group operated 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, was converted to a Career Average Revalued Earnings basis on 30 September
2004 and then closed to future accrual from 31 March 2015. No service cost or curtailment gain arose upon closure of the scheme,
due to all previously accrued past service benefits retaining the same link to future inflation or future earnings. 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
to be made starting April 2014. The Company made an additional unscheduled contribution of £2 million in March 2015.
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:
2015
%
2014
%
Main assumptions:
Rate of salary increases
Rate of increase of pensions in payment
Rate of increase of pensions in deferment
Discount rate
Inflation assumption
5.30
3.10
2.30
3.10
3.30
For the years ended 31 March 2015 and 2014, the following weighted average life expectancy at age 65 for mortality has been used:
Male pensioners
Female pensioners
Non-retired males
Non-retired females
2015
Years
23.8
25.0
25.1
26.5
5.60
3.30
2.60
4.30
3.60
2014
Years
23.7
24.9
25.1
26.4
Member contributions were 7.5% (2014 – 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 £7,724,000 (2014 – £3,978,000). The total
contributions in 2016 are expected to be approximately £1,580,000. The PPF levy will be payable in addition (2014 – £21,298).
92 AVEVA Group plc Annual report and accounts 2015
26 Retirement benefit obligations continued
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 2015 and 2014 were as follows:
Equities
Bonds
Other
Total fair value of assets
Present value of scheme liabilities
Net pension liability
Impact on deficit
increase/(decrease)
2015
£000
2014
£000
(3,813)
2,858
2,240
(3,152)
2,281
1,717
2015
£000
30,526
22,098
24,310
2014
£000
28,931
16,257
17,317
76,934
(88,215)
62,505
(68,358)
(11,281)
(5,853)
Of the £30,526,000 invested in equity assets at 31 March 2015 set out above, £30,417,000 is invested in listed equities and £109,000
invested in unlisted equities. The other assets shown above relate to cash holdings which is held in a cash fund to achieve a diversified
exposure to money markets.
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
2015
£000
2014
£000
927
365
195
964
568
96
1,487
1,628
276
562
8,219
(2,673)
5,546
(16,935)
542
(2,489)
(1,947)
7,520
(11,389)
5,573
93 AVEVA Group plc Annual report and accounts 2015
STRATEGIC REPORTFINANCIAL STATEMENTSDIRECTORS’ REPORT Notes to the consolidated financial statements continued
26 Retirement benefit obligations continued
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 loss/(gain)
At 31 March
The above defined benefit obligation arises from a plan that is wholly funded.
The weighted average duration of the defined benefit plan obligation is 17.5 years (2014 – 17.5 years).
Changes in the fair value of plan assets are as follows:
At 1 April
Interest income on scheme assets
Contributions by employer
Contributions by employees
Benefits paid
Premiums paid
Actuarial loss/(gain)
At 31 March
2015
£000
68,358
1,487
11
2,949
(1,504)
(21)
16,935
2014
£000
72,421
1,628
4
3,051
(1,193)
(33)
(7,520)
88,215
68,358
2015
£000
62,505
2,673
7,724
11
(1,504)
(21)
5,546
2014
£000
59,207
2,489
3,978
4
(1,193)
(33)
(1,947)
76,934
62,505
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
2015
2014
1.25%–2.5% 1.34%–2.5%
3.00%
15 years
N/A
1.25%–3.00%
14–18 years
N/A
The retirement age for the Tribon Solutions GmbH and AVEVA GmbH schemes was 60 and 63 years of age respectively (2014 – 60 and 63
years of age).
94 AVEVA Group plc Annual report and accounts 2015
26 Retirement benefit obligations continued
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
2015
%
4.00
2.81
2014
%
5.00
3.99
The retirement age for AVEVA Korea Limited employees is 60 years of age (2014 – 60 years of age).
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 2015, Alecta’s surplus in the
form of collective funding level was 148% (2014 – 147%) which was calculated in accordance with the Swedish Annual Accounts Act for
Insurance Companies. The total cost charged to the income statement was £603,278 (2014 – £836,000).
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 £5,136,000 (2014 – £4,398,000)
represents contributions payable to these schemes by the Group at the rates specified in the rules of the plans.
27 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
Granted during year
Forfeited during year
Exercised during year*
Outstanding at end of year
Exercisable at end of year
* The weighted average share price at the date of exercise for the options exercised is £19.85 (2014 – £23.02).
2015
Number
516,751
203,731
(21,011)
(114,828)
584,643
70,703
2015
WAEP
Pence
3.12
3.31
3.31
2.60
3.28
3.54
2014
Number
510,975
173,631
(80,520)
(87,335)
516,751
29,205
2014
WAEP
Pence
2.82
2.90
3.56
2.10
3.12
2.40
95 AVEVA Group plc Annual report and accounts 2015
STRATEGIC REPORTFINANCIAL STATEMENTSDIRECTORS’ REPORT Notes to the consolidated financial statements continued
27 Share-based payment plans continued
Share options have been granted under both plans to certain employees of the Group and remain outstanding as follows:
Date of grant
7 July 2009
26 July 2010
4 July 2011
6 July 2011
6 July 2012
9 July 2012
20 June 2013
21 August 2013
4 July 2014
21 July 2015
Share option plan
LTIP
LTIP
Deferred Share Scheme
LTIP
Deferred Share Scheme
LTIP
Deferred Share Scheme
LTIP
Deferred Share Scheme
LTIP
Number
of options
2015
Number
Number
of options
2014
Number
Exercise
price
Pence
3,611
16,116
–
50,740
10,970
149,939
20,436
133,870
13,660
185,301
3,611
16,116
18,106
131,563
25,106
154,137
31,226
136,886
–
–
584,643
516,751
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 2015 is 4.77 years (2014 – 4.71 years).
The average fair value of options granted during the year was £19.07 (2014 – £22.80). 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 (2014 – £nil to £0.0356).
The Group recognised a credit of £441,000 related to equity-settled share-based payment transactions in the year ended 31 March 2015
(2014 – expense of £2,317,000).
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.
2014/15 awards
In 2014/15, a total of 189,740 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 2014/15 to 2016/17. 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 12% then none of the shares will vest. For growth rates between 12% and 20% the number of shares that vest will be
determined by linear interpolation between 25% and 100%.
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%.
96 AVEVA Group plc Annual report and accounts 2015
27 Share-based payment plans continued
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%.
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
2014/15
awards
2013/14
awards
2012/13
awards
2011/12
awards
1.36%
32%
0.76%
3 years
£19.79
£0.04
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
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 July 2014, the AVEVA Group Employee Benefit Trust 2008 awarded 13,991 (2013 – 31,937) deferred shares to the Executive Directors and
senior management in respect of the bonus earned in the year ended 31 March 2014 (2013 – bonus earned in year ended 31 March 2013).
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).
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
2014/15
awards
2013/14
awards
1.27%
32%
0.76%
3 years
£21.31
£0.00
1.06%
28%
0.76%
3 years
£22.71
£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.
97 AVEVA Group plc Annual report and accounts 2015
STRATEGIC REPORTFINANCIAL STATEMENTSDIRECTORS’ REPORT Notes to the consolidated financial statements continued
2015
£000
2014
£000
2,274
2,271
2015
Number
63,873,360
74,881
–
2015
£000
2,271
3
–
2014
Number
68,079,078
51,511
(4,257,229)
63,948,241
2,274
63,873,360
Number of
shares
2015
60,303
7,514
2,601
1,948
2,515
74,881
Nominal
value
2015
£
Share
premium
2015
£
2,144
267
92
69
89
2,661
–
–
–
–
–
–
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
–
–
–
–
–
–
–
–
–
–
–
2014
£000
2,269
2
–
2,271
Market
price
£
20.17
20.13
21.68
13.15
14.77
Market
price
£
25.11
23.59
24.82
24.65
23.59
25.60
26.02
22.61
21.77
21.16
28 Share capital and reserves
a) Share capital
Allotted, called-up and fully paid
63,948,241 (2014 – 63,873,360) ordinary shares of 3.56 pence each
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 2015
Date of issue
22 July 2014
5 August 2014
11 September 2014
24 December 2014
12 March 2015
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
98 AVEVA Group plc Annual report and accounts 2015
28 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, 13,991 shares were purchased by the EBT at a price of £21.72 and 41,895 shares (2014 – 35,824) with an attributable cost of £763,588
were issued to employees in satisfying share options that were exercised.
At 1 April 2013
Own shares purchased 20 June 2013
Shares issued to employees
At 31 March 2014
Own shares purchased 9 July 2014
Shares issued to employees
At 31 March 2015
£000
1,251
717
(527)
1,441
305
(764)
982
29 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
2015
£000
2,008
183
2,191
2014
£000
2,586
1,151
3,737
99 AVEVA Group plc Annual report and accounts 2015
STRATEGIC REPORTFINANCIAL STATEMENTSDIRECTORS’ REPORT Company balance sheet
31 March 2015
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
2015
£000
2014
£000
5
6
7
8
9
9
9
9
31,386
31,726
250,079
9
219,994
9
250,088
(196,369)
220,003
(178,270)
53,719
41,733
85,105
73,459
85,105
73,459
2,274
27,288
3,921
51,622
2,271
27,288
3,921
39,979
85,105
73,459
The financial statements on pages 100 to 104 were approved by the Board of Directors on 19 May 2015 and signed on its behalf by:
Philip Aiken
Chairman
Richard Longdon
Chief Executive
Company number
2937296
The accompanying notes are an integral part of this Company balance sheet.
100 AVEVA Group plc Annual report and accounts 2015
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.
101 AVEVA Group plc Annual report and accounts 2015
STRATEGIC REPORTFINANCIAL STATEMENTSDIRECTORS’ REPORT Notes to the Company financial statements continued
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 2015 of £29,641,000 (2014 – £59,149,000).
Audit fees of £7,000 (2014 – £7,000) are borne by another Group Company.
The Company does not have any employees (2014 – 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 2014/15 dividend paid of 5.5 pence (2013/14 – 5.0 pence) per ordinary share
Final 2013/14 dividend paid of 22.00 pence (2012/13 – 19.5 pence) per ordinary share
Special dividend paid of 147.0 pence per share
Proposed for approval by shareholders at the Annual General Meeting
Final 2014/15 proposed dividend of 25 pence (2013/14 – 22.0 pence) per ordinary share
2015
£000
2014
£000
3,515
14,043
–
3,178
13,261
100,012
17,558
116,451
15,976
14,052
The proposed final dividend is subject to approval by shareholders at the Annual General Meeting on 9 July 2015 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
3 August 2015 to shareholders on the register at the close of business on 3 July 2015.
5 Fixed asset investments
Cost and net book value
At 1 April 2014
Additions
Share-based payments
At 31 March 2015
£000
31,726
–
(340)
31,386
Details of the Company’s subsidiary undertakings are set out in note 17 in the Consolidated financial statements of the Group.
2015
£000
2014
£000
250,079
219,994
2015
£000
2014
£000
158
196,211
110
178,160
196,369
178,270
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
102 AVEVA Group plc Annual report and accounts 2015
8 Called-up share capital
Allotted, called-up and fully paid
63,978,241 (2014 – 63,873,360) ordinary shares of 3.56 pence each
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 2015
Date of issue
22 July 2014
5 August 2014
11 September 2014
24 December 2014
12 March 2015
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
2015
£000
2014
£000
2,274
2,271
2015
Number
63,873,360
74,881
–
2015
£000
2,271
3
–
2014
Number
68,079,078
51,511
(4,257,229)
63,948,241
2,274
63,873,360
Number of
shares
2015
60,303
7,514
2,601
1,948
2,515
74,881
Nominal
value
2015
£
Share
premium
2015
£
2,144
267
92
69
89
2,661
–
–
–
–
–
–
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
–
–
–
–
–
–
–
–
–
–
–
2014
£000
2,269
2
–
2,271
Market
price
£
20.17
20.13
21.68
13.15
14.77
Market
price
£
25.11
23.59
24.82
24.65
23.59
25.60
26.02
22.61
21.77
21.16
During the year the Company issued 74,881 (2014 – 51,511) ordinary shares of 3.56 pence each with a nominal value of £2,661
(2014 – £1,815) pursuant to the exercise of share options. The total proceeds were £2,661 (2014 – £1,815), which included a premium of
£nil (2014 – £nil).
Details of share options awarded to Executive Directors during the year are contained in the Directors’ remuneration report. Note 27
of the Consolidated financial statements for the Group includes details of share option awards made during the year.
103 AVEVA Group plc Annual report and accounts 2015
STRATEGIC REPORTFINANCIAL STATEMENTSDIRECTORS’ REPORT
Notes to the Company financial statements continued
9 Reconciliation of shareholders’ funds and movements on reserves
At 1 April 2013
Profit for the year
Share issues
Share-based payments
Share options granted to employees of subsidiary companies
Dividends paid
At 31 March 2014
Profit for the year
Share issues
Share-based payments
Share options granted to employees of subsidiary companies
Dividends paid
Share
capital
£000
Share
premium
£000
Merger
reserve
£000
Profit and
loss account
£000
2,269
–
2
–
–
–
2,271
–
3
–
–
–
27,288
–
–
–
–
–
27,288
–
–
–
–
–
3,921
–
–
–
–
–
3,921
–
–
–
–
–
94,965
59,149
–
334
1,982
(116,451)
39,979
29,641
–
(101)
(340)
(17,557)
Total
shareholders’
funds
£000
128,443
59,149
2
334
1,982
(116,451)
73,459
29,641
3
(101)
(340)
(17,557)
At 31 March 2015
2,274
27,288
3,921
51,622
85,105
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.
104 AVEVA Group plc Annual report and accounts 2015
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
2015
£000
2014
£000
2013
£000
2012
£000
2011
£000
208,686
158,213
(32,696)
62,098
54,862
(13,303)
41,559
65.07p
74.51p
30.50p
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
90,930
103,767
114,667
189,930
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
* 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.
105 AVEVA Group plc Annual report and accounts 2015
STRATEGIC REPORTFINANCIAL STATEMENTSDIRECTORS’ REPORT Statement of Group accounting policies
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.
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
2015. 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 12, 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.
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 2015. 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.
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.
Adoption of new and revised standards
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
IFRS 14
IAS 16 & IAS 38
IFRS 11
IAS 27
IFRS 15
Effective for periods
commencing after
Financial Instruments (classification and measurement)
Regulatory Deferral Accounts
Amendments – Clarification of Accounting Methods of Depreciation
and Amortisation
Amendments – Accounting for Acquisition of Interests in Joint
Operations
Amendments – Equity Method in Separate Financial Statements
Revenue from Contracts from Customers
1 January 2015
1 January 2016
1 January 2016
1 January 2016
1 January 2016
1 January 2018
The Group intends to adopt these standards in the first accounting period after the effective date. Except for IFRS 15, 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.
106 AVEVA Group plc Annual report and accounts 2015
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:
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 26 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 net carrying
amount of retirement benefit obligations at 31 March 2015 was £14,187,000 (2014 – £8,848,000).
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 2015 was £5,636,000 (2014 – £5,161,000).
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.
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.
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 14.
107 AVEVA Group plc Annual report and accounts 2015
STRATEGIC REPORTFINANCIAL STATEMENTSDIRECTORS’ REPORT Statement of Group accounting policies continued
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.
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.
108 AVEVA Group plc Annual report and accounts 2015
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.
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.
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.
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.
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
Years
5–12
10–20
3
5–10
109 AVEVA Group plc Annual report and accounts 2015
STRATEGIC REPORTFINANCIAL STATEMENTSDIRECTORS’ REPORT Statement of Group accounting policies continued
Research expenditure
Research expenditure is written off in the year of expenditure.
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.
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.
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.
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.
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.
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.
110 AVEVA Group plc Annual report and accounts 2015
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.
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.
111 AVEVA Group plc Annual report and accounts 2015
STRATEGIC REPORTFINANCIAL STATEMENTSDIRECTORS’ REPORT Statement of Group accounting policies continued
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 and closed to
future accrual from 31 March 2015. 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.
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.
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 27.
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.
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.
112 AVEVA Group plc Annual report and accounts 2015
Company information and advisers
DIRECTORS
Philip Aiken
Philip Dayer
Chairman
Non-Executive Director and Senior
Independent Director
Jonathan Brooks Non-Executive Director
Jennifer Allerton Non-Executive Director
Richard Longdon Chief Executive
James Kidd
Chief Financial Officer
FINANCIAL PR
Hudson Sandler
29 Cloth Fair
London EC1A 7NN
Headquartered in Cambridge, England, AVEVA Group plc and its
operating subsidiaries currently employ staff worldwide in:
COMPANY SECRETARY
David Ward
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
Botanic House
100 Hills Road
Cambridge CB2 1PH
STOCKBROKER
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
Australia
Austria
Belgium
Brazil
Canada
Chile
China
Colombia
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
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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