AVEVA today gave a lot of additional color on its results for the year ended March 31, 2010. Some of the news was good (strength in recurring revenue and in the Americas), some not-so-good (overall revenue decline of 10%) and some downright tantalizing. Read on …
As reported last month, total revenue was £148.3 million in 09/10. This represents a net decline of 10% but, according to CEO Richard Longdon, “good growth in developing markets helped to mitigate the impact of global economic uncertainty, particularly on initial fees in marine”. The company benefited from currency fluctuations; on a constant currency basis, revenue was down 14%.
Recurring revenue grew 9% to £102.7 million as customers continue to prefer software rentals over outright acquisitions for the flexibility this offers as workforces contract and expand. Initial license revenue fell 39% to £35.1 million, a decline comparable to that reported by other engineering software companies.
On a verticals basis, just about everything slowed during the year. Oil & gas did pick up somewhat as the year progressed; that and the company’s success in growing its Latin Americas business by capturing oil & gas accounts contributed to the 10% revenue growth seen in that region.
The power industry, because of booming global needs and the longer approval/investment/design cycle, was less affected by the global downturn and AVEVA reports that its power-related business continued to grow.
The company’s marine business suffered from a “dramatic decline in new build orders and concerns over funding for the existing ship order backlog”, leading to a decline in revenue from Asia that was only partly offset by strength in the Chinese power market.
By geography, Asia Pacific revenue fell by 25% to £50.5 million as gains in other verticals could not offset the decline in new license sales to the marine market. Revenue in the Americas was up 10% on good growth in Latin America even as North America remains “subdued”. Revenue from EMEA was down 2% even though the company reports its oil and gas business performed “well” while the marine business was “flat throughout the year”.
In anticipation of lower revenue for the year AVEVA cut its investment in R&D by 23% to £20.9 million or 14% of revenue, a reasonable level when compared to engineering software companies in general but far below Bentley’s level of 20% of revenue. That said, AVEVA intends to invest £5 million in AVEVA NET during fiscal 2011.
During FY2010, AVEVA reports investing in “growth opportunities, particularly in South America, the CIS, where we expanded local resources and AVEVA NET where we increased capacity in solutions delivery.” The company opened a direct sales office in Brazil, for example, doubling sales to that market. As a result of this activity, sales and marketing expenses grew 13%.
Several years of strong cash generation have led shareholders and analysts to ask the company what it plans to do with the £150 million in cash and equivalents on the books. According to the Financial Times of London, many had hoped that Aveva would make a one-time cash payment of up to £75 million. Instead, AVEVA has decided to keep its options open and doubled its final dividend from 6.5 pence to 13.9 pence per share, for a total cost of under £10 million. Total dividends paid out for the year will be 16.9 pence per share, an increase of 81% over last year.
Even with a nearly doubled dividend, AVEVA assures shareholders and customers that it will continue to generate cash — indeed, CEO Longdon hinted at an acquisition spree (not as big as IBM’s but still …) to add capability to the company’s VNET platform and expand its sales reach in critical regions.
[The hyperbole in these articles: The FT calls AVEVA NET “a cloud computing product that has sometimes been labelled a “Google for engineers”.]
AVEVA does not offer guidance for coming years, but “strength in emerging markets, particularly Brazil and CIS, would lead to modest revenue growth this year”, finance director Paul Taylor told reporters in London. City analysts are expecting Aveva to have revenue of £156 million, which would be an increase of 5%.