AVEVA updates for FY 2020 (good) and calendar 2020 (cautious)
AVEVA just gave an update on how fiscal 2020 turned out (ended March 31) and hinted at what it expects for the rest of calendar 2020. It was the typical, brief, “we’ll say more later” news release, so there’s not a lot of detail — but here’s what we learned: AVEVA expects total revenue to be up 9% for FY2020, so somewhere around £834 million. Software revenue was up 10% overall, with growth in rental and subscription revenue slightly offset by lower perpetual license and services revenues.
That’s not bad –and more or less meets expectations– but everyone wants to know what the outlook holds. AVEVA said it was maintaining mid-term targets of growing revenue at least in-line with the industrial software sector but that, due to economic disruptions caused by mass shutdowns, fiscal 2021 will see slower growth than previously expected.
In the past, we were all worried about AVEVA during periods of disruption in the oil and gas end-market. AVEVA took pains in today’s release to reassure investors that it is a more diverse company than it used to. Yes, what appears to be a total stop in new upstream oil investment will affect sales of its Engineering products, and sales of Monitoring & Control solutions are likely to be negatively impacted by a dip in the global economy, but sales of APM and Planning and Operations solutions should be steadier. As business deteriorated earlier this year, AVEVA said that its “employees adapted quickly to remote working and key contracts were still able to be negotiated and signed with customers across diverse end markets. These included: consumer packaged goods, food production, water processing, power generation, shipbuilding and oil & gas”. Diversification in action!
To deal with the uncertainty, AVEVA is freezing hiring and pay increases, and cutting unnecessary expenses, all while continuing to invest in what it considers strategic areas like cloud and artificial intelligence. AVEVA said it does not intend to lay off or furlough staff or use government support.
(That last, pledging to not use government support, is the time I’ve seen a statement like that. Let’s keep an eye out to see if others make a similar pledge. I would imagine it has as much to do with the strings attached to any such agreement as it does with needing (or not) the funds.)
All that said, AVEVA has £110 million in net cash on the books and no debt, though it has a revolving credit line of another £100 million. Add that to the fact that over 60% of revenue comes from subscriptions and other recurring revenue sources, and it would seem the AVEVA will be fine.
Bottom line: 2019 was good but, as we’ve heard time and again, things must have fallen off the rails in March 2020, as COVID-19 took hold. Sales in 2020 will be challenging, especially in AVEVA’s fiscal first half (from April to September) but could pick up in the second half of the year.
We’ll get details with the full earnings announcement in early June.