EarningsCEOs lead interesting lives. In an interview with the CNBC Squawk Box team in the UK, AVEVA’s CEO Richard Longdon was asked if the company’s new Everything 3D (E3D) product was “CAD for smart people”. Well, yes — but the point of E3D is to make advanced design technology and data management available to a wider audience (that we hope is smart). Mr. Longdon tells investors that E3D showcases AVEVA’s leadership and innovation, that E3D “puts clear water between us and any competitor … and there’s a lot more in the tank”.

E3D doesn’t yet factor into AVEVA’s revenue picture but, even without its contribution, AVEVA had a very good fiscal 2013, ended March 30. As the company hinted earlier, revenue was up around the world and in all categories.

The details:

  • Total revenue was £220 million, up 12%. The company made two small acquisitions during the year (Bocad in May 2012, Global Majic in December 2012) that contributed £5 million.
  • The Engineering & Design Systems business continues to drive AVEVA, accounting for 80% of total revenue. EDS revenue was up 10% (up 9% in constant currencies) to £190 million. Weakness in Brazil (see below) was offset by stronger demand in other regions and by global EPCs.
  • Mr. Longdon says that interest in AVEVA’s next-generation E3D product is high, though the revenue contribution isn’t yet meaningful. The company has priced E3D at roughly 15% more than PDMS’ list price but acknowledges that most AVEVA customers don’t pay list. As with most other software products, savvy customers negotiate discounts based on number of licenses and length of contract; it’s likely that volume discounts will also apply for E3D. Even so, AVEVA sees a significant incremental revenue opportunity for E3D because it believes that E3D extends its footprint into new areas such drafting and further expands its reach with new technologies such as mobile and cloud.
  • Of course, this kind of transition won’t happen quickly. As we’ve written before, CAD is enormously sticky and it takes a lot of persuading to get users to move to a new product. Mr. Longdon believes that most PDMS customers will convert within 5 to 8 years because they cannot convert in mid-project. For now, the focus is on adding new customers who are using competitors’ solutions, leveraging E3D to drive market share gains.
  • Enterprise Solutions revenue exceeded expectations and was up 31% to £31 million. That growth, plus tight cost controls, helped move the business into profitability for the first time.
  • By revenue category, annual fees (aka maintenance) revenue was £54 million, up 14%; rental revenue was £99 million, up 10%; initial license revenue was £42 million, up 14% due to sales in India and China and due to the Bocad acquisition. Services revenue was £25 million, up 19%.
  • By geo, revenue from EMEA was up 15% to £108 million on strong performance in UK, Russia and Middle East; sales of Enterprise Solutions offerings and services; and oil & gas.
  • Revenue from Asia Pacific was up 14% to £73 million. Mr. Longdon commented that operations in China “continue to make progress, with strong licence growth over the previous year despite the continued subdued demand in Marine across the region”. Business from India grew well,as the company saw a relatively large number of small deals, which bodes well for future expansion in these accounts.
  • CFO James Kidd characterized performance in the Americas as a “tale of two halves”. Overall, revenue from the Americas was up 3% for the year to £39 million. North America “performed reasonably” as the company was able to expand in EPC accounts. Latin America was another story, as AVEVA saw the same slowdown in Brazil that’s been reported by other engineering software suppliers, where project delays stalled buying. Mr. Kidd sees conditions in Brazil improving later this year.
  • By end-industry, the company echoed what we’ve heard from other suppliers and read in the news: oil & gas and power are roaring in some parts of the world, while the marine market is flat to down. AVEVA says that oil & gas projects continue to increase in size and complexity, leading to increased demand for global work-sharing and project control as well as sophisticated design technology.
  • The power industry is generally split into nuclear and non-nuclear. AVEVA’s particular strength in nuclear is key to its growth in China, which has resumed the a nuclear power program that was halted after the disaster in Fukushima, Japan. Europe and North America, however, are replacing and augmenting existing conventional (coal-, gas- or oil-fired) power plants, which also drives demand for AVEVA’s solutions.
  • The marine market is generally depressed, with many shipping lines reporting overcapacity and putting parts of the fleet into mothballs. Even so, these companies are investing in newer, more efficient ships so that they are well-positioned when global buying picks up. AVEVA’s take on this is that Chinese shipyards, focused on commercial shipbuilding, are “subdued”, while demand for energy (and, therefore offshore platforms) has driven Korean shipyards to more oil & gas projects. AVEVA doesn’t see this changing, and says it is “focused on selling our other products, such as Enterprise Resource Management which helps shipyards become more efficient through streamlining and improving their planning and construction”.

In conjunction with the earnings release, AVEVA announced that it is proposing to return about £100 million to shareholders in a special dividend. Mr. Longdon says that AVEVA will be left with about £100 million in net cash after the distribution, and will generate more cash during the year — so why not take care of shareholders? Mr. Kidd underscored the fact that AVEVA will have plenty of cash on hand for acquisitions, and that its M&A pipeline remains intact.

AVEVA doesn’t give guidance, other than to say that they expect oil & gas to continue to grow with “solid demand” in power, especially nuclear in China and India. London City analysts, however, are modeling total revenue of between £241 million and £264 million, or growth of between 10% and 20%.

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