Surprising, well, no one, AVEVA Group today said that parts of its business are “significantly more challenging due to the well-documented budget constraints among Owner Operator customers in the Oil & Gas industry”.
On the plus side, its Engineering & Design Systems division was operating to expectations — and, since it accounts for roughly 90% of AVEVA revenue, that’s a very good thing. AVEVA, in its interim management statement, also said that rental renewals are “at similar levels to last year” and that the March quarter, FQ4, “remains the most significant with a number of key rental renewals. At this point we expect these to renew in line with our historical experience”.
Outside of oil and gas, AVEVA says its other verticals are performing as planned: steady growth in Power and subdued growth in Marine.
Quite interesting to note that the sales transition mentioned a lot last year didn’t come up at all in today’s IMS. I’m taking that as a sign that the new sales leadership is settling in, transitions are complete and that it’s back to focusing on the customer.
The only real number in the statement was the cash position: net cash was £120 million on 31 December 2014. That’s up slightly from £116.4 million on September 30, 2014.
What does it all mean? There truly is no question that oil production will continue to grow — all of the efforts to reduce reliance on hydrocarbons in the US and Europe are no match for the escalating demands of the emerging economies. Data I’ve seen show that it costs less that $60 per barrel to get most types of oil out of the ground and that producers are likely to keep producing at prices as low as $20 per barrel, the marginal cost of getting that one barrel out of the ground. So the risk for AVEVA is that producers will hold on to their cash and stall new projects long enough to create a real problem in the design/construction supply chain. Those investments have to happen; the question is, when? We’ll know more about that as the oil companies start issuing earnings announcements later this week. They’ll have to explain to investors how they plan to conserve cash given low oil prices today while still preparing to meet escalating future demand.
Buried in the economic lead are E3D and 8over8. E3D is the new design platform; the company says they’ve seen “continued traction … with continued growth in revenue during the period”. 8over8 was acquired earlier this month and enables contract management, key to keeping a handle on project cost and schedule. I’ve had a couple of presentations and demos of 8over8’s ProCon, and am impressed with its easy interaction and configuration capabilities. It’s not clear how material either E3D or ProCon will be to AVEVA’s 2014/5 revenue but both interesting additions for the future.