Schnitger Corporation

AVEVA: Lower costs, resilience in oil & gas, cautious 2010

AVEVA Group gave further insight into its business performance in the last six months, reporting that revenue had declined 6.5% to £69.9 million as “challenging” market conditions affected its end-user markets. Though decline is markedly lower than that seen by other engineering software vendors, the company said it remains cautious in its outlook for 2010 even as it looks to capture business in developing countries where growth has not slowed.

The details:
• recurring revenue grew 18% to £48.1 million on strong growth in the annual lease and periodic rentals businesses and now accounts for 69% of total revenue. To show just how much AVEVA’s business has changed, in 2008, 55% of revenue was recurring.
• new/initial license revenue fell by 44% to £16.2 million
• service revenue was essentially flat at £5.6 million
• unlike its counterparts in the US, AVEVA issues a dividend to shareholders; this as increased to 3.0 pence per share from 2.86 pence a year ago
• on a geo basis: revenue from Asia Pacific declined 24% to £23.5 million in the six months to September 30 due to the decline in initial licenses in the marine industry. While not separating the data into sectors, initial license fees in this period were half of what they were a year ago, not offsetting modest growth in recurring revenue streams. AVEVA sees future growth potential in the power sector in China
• revenue from EMEA was up 3% to £34.4 million due to strong growth in Russia and Eastern Europe, but the company saw a decline in Central Europe’s oil and gas and power markets
• AVEVA continues to struggle in North America, as strong performance in Latin America offset declines in North America and Canada. Revenue from the Americas increased 15% to £12.0 million, helped by favorable exchange rate changes in the last year
• For those keeping track, AVEVA has a strong cash position, £126.2 million at the end of September 2009.

But the bottom line (pun intended) for investors, and the reason the share is up 7% at 9AM Eastern, is that AVEVA recorded a smaller drop in pre-tax profit than expected as restructuring lowered costs and resilience in the oil and gas sector partly offset weakness in shipbuilding.

AVEVA does not give specific guidance, but analysts in the UK expect revenue for the full year to fall 15% to £140 million. That would require H2 revenue to fall 20% from a year ago to £70 million — certainly possible but perhaps unlikely given the positive indicators from other engineering software companies and from the economists on the nightly news.

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