AVEVA Group plc

Good morning everybody. Thank you very much for joining us for our full year -- AVEVA's Full Year Results Presentation.

I'd like to draw your attention to the Safe Harbor statement on page two. And without further ado, I'll hand over to Craig Hayman.

Good morning everyone and thank you for joining the call. This is Craig Hayman, CEO of AVEVA and I'm joined by James Kidd, Deputy CEO and CFO here in London.

Let's turn to page four in the presentation. By any measure, fiscal 2019 was a great year for AVEVA and it solidified our position as a market leader in the digitalization of the industrial world.

A new AVEVA has emerged from the combination of the heritage AVEVA and heritage Schneider Electric software business. AVEVA today is three times larger than it was just two short years ago.

It is now strategically aligned to help accelerate the digital transformation of our customers from Oil & Gas to Marine, Power, Metal and Mining and Packaged Goods, and it's operationally aligned and delivering against the medium term roadmap of gross revenue, margin and delivers a higher rate of recurring --. In fiscal 2010, AVEVA delivered 12.4% of revenue growth on a pro forma basis, that's on constant currency.

And adjusted EBIT that was grew by 160 basis points to 23.8%. Recurring revenue, which is the ratio of subscription and rental and maintenance contracts against overall revenue, grew in fiscal 2019 by 270 basis points to 54.3% of total revenue.

Rental and subscription software grew by over 40% for the year. Growth was driven by an increasing demand for industrial software and good sales execution against our portfolio of solutions that deliver a business value across the asset and operations lifecycle.

It's been a busy year with rigorous focus on the integration of the business and I'm pleased to report that it's on track. The management structures require to operate at scale across three major geographies and four business units are now in place.

The back office systems are now substantially integrated, including HR and a new customer relationship management system. The new AVEVA life values of limitless possibilities, integrity always, flexibly together and excellence everyday were established by our 4,500 employees around the world and represent how we work together.

The initiatives to create value through the medium term are well underway, and we benefited from improvements in subscription, cloud, and deeper product integration in FY 2019 with more benefit being delivered in FY 2020. Our outlook remains positive and we are on track to meet the medium term targets of delivering revenue growth at least in line with the industrial software market, while increasing recurring revenue as a percentage of overall revenue to 60% and improving EBIT margin to 30%.

On slide five, we've provided details on execution across the three GOs and the four business units with all geographies and all business units generating revenue growth. In the Americas, wins at Husky Energy, Chevron, KBR, and more delivered 9.9% growth.

Wins at EDF, MV Werften, Covestro, ADNOC, Black Rock Mining and more delivered almost 20% growth for the geography. And wins in Asia-Pacific at Sinopec, CNPC, and more delivered 3.4% of growth for that geography.

Approximately 35% of revenues were generated in the Americas, 41% in EMEA and 24% in Asia-Pacific. Across the business units, Asset Performance Management continues to do well and grew by 20% to over £108 million in revenue.

AVEVA's APM solution is strongly differentiated and addresses the broadest dimensions of APM using design and engineering information, real-time and historical data, and maintenance execution workflows together with a model for machine-based learning for predictive asset analytics. In April, we completed the acquisition of software assets of MaxGrip to further our APM portfolio.

The MaxGrip were a long time partner and pioneering in optimizing asset performance for reliability-centered maintenance. Engineering grew in the high-teens across Engineering and Design together with the process simulation being cross sold into large customers.

And in the second half, we introduced the AVEVA SELECT subscription offerings within the Monitoring & Control business unit. Including some early Flex wins and good channel performance, Monitoring & Control grew in the mid-single-digits Planning & Operations represents around 11% of total revenue, that business unit grew by high a single-digit despite a planned reduction in the sales of services.

2019 was a great foundational year for the new AVEVA; strong performance, meaningful progress on integration, growth across all geographies and all business units, together with a positive outlook for FY 2020 and the medium term. Let me hand over to James Kidd, Deputy CEO and CFO for the financial review.

Thank you, Craig and good morning everyone and thanks for joining the call. I'll now take you to through the financial review.

So, this is the first set of full results with combined group since the transaction completed in March 2018. And just as a reminder, the numbers we'll go through here in the presentation are being prepared on a pro forma basis, which is consistent with the last two sets results following the combination with the Schneider Electric software business.

Pro forma numbers show the combination of both businesses for the 12 months to 31st of March for each year. You recall the statutory numbers are prepared on reverse acquisition basis, which means for accounting purposes, the Schneider Electric software business acquired heritage AVEVA on 1st of March 2018, resulting in FY 2018 numbers on a statutory basis continuing only one month of heritage AVEVA business.

We hope this will be the last year where we present pro forma, and we get back to the statutory numbers next year. As explained in the interim announcement under the acquisition accounting rules, we had to make a fair value adjustment to deferred revenue in the statutory numbers of approximately £8.7 million.

In the pro forma, you will notice the revenue number has been adjusted to back the side and show the true underlying growth in the year. And similarly to the half year, the numbers are presented under the new revenue recognition standard IFRS 15, which came into effect from 1st of April, 2018 and the comparative fees have been restated accordingly.

This resulted in a reduction of £12.1 million to the pro forma revenue in FY 2018 and there is more details in the press release and the presentation. So, let's start by looking at the main highlights before we get into some of the details.

I'm very pleased that we continue to the good progress we saw in the first half to deliver strong financial performance in the first year of combination. These results are in line with our medium term guidance that we provided at the 2018 Capital Markets Day.

Revenue increased by 11.9% to just over £775 million, driven by strong sales execution, stable end markets, and some benefit from multi-year contracts. In the end, the currency headwind we faced in H1 had tailed off by the year-end with only 0.5% headwind compared to 3% in the first half, mainly due to the U.S.

dollar. Constant currency growth in the year was 12.4%.

Recurring revenue is one of our key metrics, and we're pleased to improve this from -- to 54.3% from 51.6% in FY 2018. The strong revenue performance flowed through to profit, driven by decent operating leverage with adjusted EBIT up 19.8% to £184.5 million.

It is also pleasing to see the profit margin up 160 basis points to 23.8% and corresponding strong growth of 27% in adjusted diluted EPS dealt by a lower tax rate. The Board is proposing a final dividend of 29p per share, which is up 7.4% on last year taking the full year dividend to 43p per share.

Our results and dividend cover just over two times. We also confirmed at the Capital Markets Day that AVEVA will continue to maintain its progressive dividend policy.

And finally, we had a pretty good year in terms of cash generation, finishing the year with £127.8 million in net cash with no debt. So, let's move on and look at the pro forma income statement.

As I've mentioned earlier, the revenue growth is driven by strong sales execution with growth across all of our regions and business units. From a regional perspective, EMEA was a standout performer, up almost 20% year-on-year.

Our end markets are relatively stable in FY 2018. Oil & Gas which account for 43% of revenue was moderately positive with increases in CapEx on upstream projects, growth in midstream due to capacity expansion and investment in digitalization in downstream.

We did see a general trend for customers to commit to larger deals and for longer contract terms reflecting their confidence in AVEVA as a trusted partner. The same thing of our revenue was approximately 45/55 between the first and second half with an acceleration in growth of 2% in the second half compared to H1.

This reflects the continued momentum in the business and the increased renewals that closed in the second half. As the integration progresses, it's becoming more difficult to split out the performance of the heritage AVEVA and Schneider businesses.

But in terms of revenue, we saw approximately 14% growth in the heritage AVEVA business and 11% from the heritage Schneider business. Our gross margin improved by 90 basis points to 75.3% as a result of the richer mix of software versus services together the use of more offshoring for service delivery and then focus on higher margin services work.

I'll provide more detail on cost later, but as you can see, OpEx increased by 10.7%, mainly related to the strong performance and investment back into the business. The strong topline performance has driven almost 20% increase in adjusted EBIT with the margin improving by 160 basis points to 23.8%.

Another positive was the adjusted tax rate at 20.2% for the year, which is lower than what we previously guided to due to higher benefits from R&D incentives in both the U.K. and U.S.

We expect the FY 2020 rate to continue at or around this level. The combination of the growth and EBIT and lower tax rate helped drive a 27% increase in the adjusted diluted earnings per share.

So, turning to the breakdown of revenue. Recurring revenue increased by 17.8% to £421.2 million, representing 54.3% of total revenue driven by the strong growth in rental subscription.

I've set out at Capital Markets Day a medium term target of 60% recurring revenue and we've made a good start towards that goal. Our plan is to broadly increase recurring revenue by approximately 2% each year, but that will obviously depend on the rate of subscription transition.

Rentals and subscription growth is 40.2% just over £219 million benefiting from the focusing on recurring revenue and an increase in multi-year contracts. And I just wanted to reiterate what we said previously by the impact of these deals.

We've always had a theory in the past particularly with global account in heritage AVEVA and in the process engineering SimSci business in Schneider. Under the new revenue recognition standard, IFRS 15, on term deals, which are non-cancelable, we recognized more revenue upfront.

Typically, in a three-year contract, we recognized just under 70% upfront with annual payments spread evenly over the term. There has been no change to the profile of cash payments.

In terms of economics, if we're switching a customer from a perpetual term rate towards subscription, we would typically have to sell two and a half to three times as many licenses to achieve the same revenue and even a three-year rental is still worth less than the equipment perpetual, so you can see the potential drag effect on the topline. FY 2019 was a bigger renewal for SimSci business, which helped drive the strong rental performance.

We were also able to secure some of the larger EPCs on bigger multi-year contracts, which combine both the process design tools from Schneider Electric software and the engineering tools from AVEVA. This is one of the key synergy areas for the group, and we expect further expansion in this area.

The key takeaway point in that multi-year contracts are now a feature of the ongoing business and some will occur each year. In fact, commercially, we think they are the right thing to do in that we're able to lock customers in, provide more reliable cash flows and secure escalation pricing.

Relatively aware of the lumpiness that they can cause both in terms of revenue growth and cash conversion, but we'll look carefully to manage that. Support maintenance is flat year-on-year, as in first half, we continue to see end customer switch from support contract to new rental agreements as part of the bigger sale as that was obviously a drag, which partly contributed to the strong rental and subscription growth.

Initial lucence fees grew 6.1% with a strong performance in the indirect channel from Monitoring & Control products particularly in EMEA. We launched the subscription offerings for the channel at the end of the year and therefore the bulk of the growth came from perpetual licenses.

Training & services revenue was up 5.2% to £142.4 million. We saw a growth from implementation projects for Asset Performance Management and planning operation projects such as MES and Spiral.

So, moving on and looking at the cost base. Total adjusted operating cash increased by 9.7% in the reported terms, cost of sales increased by 7.7% due to the higher costs in the channel as a result of the strong revenue, increased third-party royalty costs and some investments into the customer support function.

R&D costs were £114.5 million, up 15.7%. However, the previous year did include some R&D capitalization of £9.9 million, whereas, there was none in FY 2019.

Adjusting for this, the underlying increase is approximately 5% reflecting investment in product integration and new product launches offset by cost synergies. Selling cost increased by 9.8% to £196.7 million due to the higher sales commissions, related to the revenue out performance, hiring of new recruits, strengthening of the marketing team, and investment in customer events offset by the benefits from restructuring.

We controlled our administrative costs to just 2% increase. Many moving parts within that including the benefits of the synergies offset by higher bonuses due to the strong performance, national insurance costs related to share options, and the cost of senior hires.

As we've previously highlighted, we also had to invest in our back office functions to build capability and scale as we move away from the transitional services agreement with Schneider Electric. We've included our cost bridge slide here, which shows the movement in total cost from FY 2018 to FY 2019.

Starting with FY 2018 cost base is £538.5 million. As I mentioned, there was £9.9 million of R&D capitalized in that year.

The group stopped all capitalization when the companies came together and all R&D is now expensed as incurred so effectively this is the cost headwind that we faced in FY 2019. Moving across the next items, cost of sales, as I mentioned, this increased due to the strong revenue performance in the year.

And then next is sales commission and bonuses where we faced increased sales commissions due to the strong revenue performance and higher bonuses due to the strong profit outcome for the group. The investment covers expanding the back-office functions, as I mentioned investment in sales and investment in R&D related to the product integration and new product launches.

We faced inflation on our payroll and overheads and typically that's around about 3.5% each year. The bad debt charge increased by approximately £4 million year-on-year and then finally, we have the benefit from the cost synergy program, which covered each of the functions and geographies, and I'll cover this in more detail later.

So, all those elements take you to the total cost for FY 2019 to £590.7 million. Moving on to look at the cost items we've excluded from the statutory results and arriving at pro forma numbers.

Acquisitions and integration costs and temporary sources were £23 million, mainly related to consultancy fees paid to advisers to support integration. Provision for an onerous lease in Canada related to the real estate program and costs incurred in back office functions as we integrated and exited the transitional service agreement with Schneider.

Out of the £28.9 million costs, approximately £18.9 million were paid out in cash during the year. We're expecting a similar level of integration costs in FY 2020 as we transition away from the Schneider Electric IT environment plus the ERP harmonization project and several office relocations to complete.

Restructuring costs related to the cost of severance incurred in the year arising from the integration activities. And the amortization of intangibles of £88.1 million related to the intangible assets arising from the combination.

We continue to maintain a strong balance sheet. Goodwill reduced by £15.4 million compared to March 2018 due to the net remeasurement adjustments for the reassessment of certain intangible assets and the completion accounts payment to Schneider of £19.4 million.

Contract assets have increased by approximately £33 million to £100.5 million driven by the revenue recognition on the multi-year contracts. Contract liability has also increased by £33 million to £174.6 million at March 19.

This is effectively deferred revenue on our support and maintenance and rental and subscription contracts. We closed the year with a strong cash position as I mentioned, and we still have the £100 million revolving credit facility and none of this drawn down at the year end.

This provides firepower for M&A and since the year end, we've completed small acquisition of the MaxGrip business in The Netherlands. Turning to the cash flow, FY 2019 represents the first true picture of cash flows for the group on a standalone basis.

The FY 2018 numbers on a pro forma basis include the movements related to the Schneider Electric Group funding arrangements, which are obviously no longer in place. That was two years and not really a like-for-like comparison.

Cash from operations in the year was £169.1 million which drew a cash conversion rate of almost 92%. We paid out £18.9 million in exceptional cost related to integration and restructuring.

We had a pretty good year for cash conversion where a lot of the intercompany balances we inherited with Schneider Electric business settled during the course of the year, which mostly offset the effect of the multi-year contracts on cash conversion. And finally onto the integration, I just wanted to provide some of the highlights so far.

We've continued to make very good progress on the integration and we're pleased that it's on track. We've exited 70% of the transitional service agreements with Schneider Electric and our cost saving program is on track to deliver the £25 million annualized savings.

We've been financing more than half of those initiatives in the year with most of that flowing through as a benefit. The program covered each of the main functions, including sales, R&D, real estate services, and the back office and included the removal of duplicate offices -- duplicate roles, office consolidation, and stopping staffing activities.

We have achieved a lot in the first year. I'd like to give a couple of examples of those.

We transferred 83% of the Schneider Electric software staff from Schneider on to AVEVA's payroll benefits. This covered 22 countries and is a huge amount of work for the team.

On real estate, we closed 10 offices and consolidated staff from Schneider Electric software and AVEVA into the same location. One of the key projects have been in Hyderabad, in India where we've consolidated our staff into one site, which has capacity for over 1,000 people and is now one of our main R&D hubs.

There are other sites to be consolidated during the course of this year, including Houston, Seoul, Tokyo, amongst others. We completed the implementation of the single CRM system in November 2018, which is the major achievement to get it done so quickly and has really improved the visibility on the sales pipeline.

Looking forward to key areas of focus around the integration around IT, particularly the TSA exits from Schneider with a still substantial amount of work to do as well as the new ERP implementation, which is on track and we'll progress during the course of this year. So, to sum-up, this has been a good year for the group, strong set of results and the first full year of the combination, which really sets us up well as we progress into FY 2020.

Thanks for your time. I'll now hand back to Craig for his review.

Thank you very much.

Thank you, James. Let's return to the operational review and onto slide 17.

At AVEVA, we see digitalization of the industrial world as an idea whose time has come. Digital technology has, of course, changed all our lives from shopping to the supply chain to advertising, but one of the industrial sector was perhaps the first industry to use digital technology for 3D design and monitoring, it is the last to use it at scale.

With the secular acceleration of cloud analytics and industrial Internet of Things across many industries, customers within the industrial sector are now able to deploy technology at a very low price points and quickly general productivity gains. AVEVA takes all of the best practices that we have learned from our 16,000 customers and works to deliver solutions to optimize the asset and operations lifecycle, while finding a way for the technology to provide more certainty, more value, and less risk for our customers' digital transformation.

We see ourselves as working to make the technology inspire our customers to shape their future Let's revisit one of those customers on slide 18. We've talked before about ADNOC or Abu Dhabi National Oil Company.

They're a diversified and integrated group of energy companies in the United Arab Emirates. We've talked about how within eight weeks, we were able to tap into the data flowing from across thousands of disparate pieces of equipment and over a dozen different operating companies, and together, we mapped that data and used our low code visualization technology and created what you see here, an impressive 50-meter wall of data presented in context across all those operating companies.

Disparate data from heterogeneous operating environments from many different vendors presented in a single view. Its impressive and AVEVA is very proud to have partnered with the world-class leaders from ADNOC in their own digital transformation.

Since that time, ADNOC have announced their digital initiatives as Oil & Gas 4.0 and are bringing the power of digitalization, big data, automation, and the Internet of Things to be part of the disruption of the energy value chain. The AVEVA team has been working hard alongside them to expand their use of AVEVA software, including Asset Performance Management to run machine learning on the data and reduce maintenance costs and downtime.

And then further, they've worked to expand to apply the rich algorithms to optimize production planning and make short-term and long-term decisions much, much easier. By our estimates, each run of the software generates over $50 million of economic value.

It truly is a digital transformation and one that our sales teams and our technical team are proud to be working on together with ADNOC. For video, please to check out our website where you can hear this directly from ADNOC.

The slide 19 summarizes the medium term targets we outlined last September at the Capital Markets Day that James covered. Within the medium term, we remain committed to revenue growth at least in line with the industrial software market, recurring revenue as a percentage of overall revenue to increase to 60%, and to improve AVEVA's adjusted EBIT margin to 30%.

Slide 20 gives an update against these targets. While there are some signs that our estimates for the growth rates for the industrial software market are increasing, it is not yet a clear pattern.

There is, however, certainty on our improved execution, which is outlined here. Sales execution improved due to our integration of sales management earlier in FY 2019 and integration of the sales systems in late Q3 of FY 2019.

Channel execution improved with double-digit growth in the year and we recently added more senior sales leadership and the channel leadership to maintain the focus. I'll cover our great relationship with Schneider Electric shortly.

We ended the year with a product portfolio with meaningful integration to deliver customer use cases, including bringing process simulation into the front end engineering design, and visualization of engineering assets within operations. Recurring revenue grew three times the rate of training and services with a focus on subscription, including AVEVA cloud solutions and the new AVEVA Flex subscription offering for Monitoring & Control.

And while we increased investment in R&D, sales and marketing, we delivered improvement in gross margin and improvement in operating margin due to the work to increase operational leverage that is starting to show through. On slide 21, I'll return briefly to the one of the fastest growing areas of the business, Asset Performance Management, which continues to do well.

Asset Performance Management captures operational data, organizes it and looks at it over time. It uses this knowledge graph to find patterns about the assets that's then made relevant to the engineers and operators.

Most of AVEVA's focus is on machine learning where the software learns from the data, which is a precursor to artificial intelligence. The addition of the MaxGrip Group software assets extends our predictive maintenance capabilities with risk-based maintenance and an asset library of full codes and remediations, which further help customers optimize their assets and prevent unplanned downtime.

APM is now our third-largest business unit at over £108 million in revenue and very well-positioned. Now on to slide 22, at the Capital Markets Day last September, we spoke about the intent to increase the mix of subscription software.

As part of this strategy, we introduced AVEVA Flex during the second half of the year. It's a token-based rental and subscription selling model for the Monitoring & Control business.

We introduced it to both our direct sales team and our channel partners. It makes it easy for them to bring our compelling subscription offering to their customer for the first time and customers benefit from commercial flexibility and technical flexibility.

Partner feedback has been very positive and they're excited about the increased customer access to technology and new products together with flexible deployment options. Early customer wins include a steel manufacturer and two major North American food and beverage companies covering 250 sites.

Let's turn to slide 23 and cover our relationship with Schneider Electric. First, of course, Schneider Electric our customer and a very good one.

AVEVA software is central to the Schneider Electric EcoStruxure platform. They have deployed our lean digitalization solution for discrete manufacturing across 60 factories with more planned and they have deployed our IT to OT condition-based maintenance solution across 30 factories.

And then Schneider Electric are our sales and marketing partner where we jointly sell or distribute AVEVA solutions through the Schneider Electric global partner network. This year, the Schneider Electric relationship drove 10% of total revenue.

The strategy of a focused software company with technical and commercial alignment with an industrial provider and industrial leader is helping the industrial sector move through the digitalization curve with more speed and more certainty. We are very pleased with the relationship which brings me to slide 24 and I'll focus on FY 2020.

We continue driving towards the medium term targets. On revenue growth, the levers of sales -- of channel sales, the Schneider Electric relationship, and product innovation from the R&D team are a focus, together with operational improvements to help us move more quickly, which includes standardized contractual terms for customers and proactive management of discounting during the sales process.

For recurring revenue, the new sales incentives are in place, which means a seller requires more quota when they sell subscription. Their incentive is aligned with AVEVA's commercial strategy.

And margin improvement will be delivered through good cost control, examples; here are our worldwide travel policy, more real estate consolidation and operational marketing metrics. FY 2020 will deliver another step forward to the medium term targets.

In summary, on slide 25, demand for AVEVA's products is strong, driven by the digitalization of the industrial world and stable conditions on key end markets. By any measure, fiscal 2019 was a great year for AVEVA and it solidified our position as a market leader in the digitalization of the industrial world.

The outlook remains positive and AVEVA is on track to meet the medium term targets of revenue growth, at least in line with the industrial software market and increasing recurring revenue as a percentage of overall revenue to 60% and improving AVEVA's adjusted EBIT margin to 30%. We're very proud of what we've achieved so far and excited about what lies ahead, applying digital technology to accelerate our customers' digital transformation around the world.

With that, I'll thank you very much. And operator, let's open up the line to some questions.

Yes, good morning. Thanks for taking the questions.

You referred in the prepared remarks to the fact that obviously, your revenue growth is around a little bit ahead of your initial prognosis when the deal closed. I wonder how much you can put that down to some of the sales execution steps you've been taking, things around pricing, maybe whether cross-selling has been a meaningful part of that out performance in terms of cross-selling the heritage AVEVA and SES assets, perhaps that's in reference to the 10% you've been saying through Schneider, just unpacking the growth would be useful?

Thank you.

Hey John, this is Craig Hayman, I'll start, then I'll hand to James. I think with respect to some of the performance elements, operational performance, all of what you described, we achieved.

We drove cross-sell where we aligned our sales team around a T100 account, planned top 100 accounts. We made that decision earlier, so a single-account team can cross-sell multiple aspects of the portfolio into that same account, and we absolutely achieved that in FY 2019.

We also were able to go with less friction, making it easy for the -- easier for the sales teams to do their jobs. So, for sure, we saw our benefit from that.

I'll go to the Schneider Electric relationship, again, where we're able to show up in partnership with Schneider Electric, joint sales calls, that really helps us pull on expanded buyers within that customer set and that very much helps us reduce any sales friction or sales activity. So, I think, from a -- we feel good that we're able to cross-sell and up-sell those in the enterprise accounts.

On the channel, the channel, which is 30% of our business, the distributive model, that's really -- we really are not seeing a lot of cross-sell yet. We're hopeful about that for the future, but really we are not seeing at that level, but mostly it's in the enterprise accounts.

With that I'll hand to James.

Yes, I think in terms of the overall growth, it's really, I'll say, sales execution that really drove the majority of the topline growth in the year with rigor around account management being the main factor. Pricing, we've had a project on pricing, really in the last six months.

So, that really hasn't really materially kicked into FY 2019 that will come through in FY 2020. In cross-sell, yes, we certainly has some benefit from cross-sell, but I would say, it's not -- again, there is more to come on that in FY 2020.

The bigger deals we closed in the year, we were able to go to customers with combined proposition, particularly the EPCs. We are combining the process design tools and the [Indiscernible] design tools [Indiscernible] strong proposition and help drive some big deals with some of the EPCs.

There are a number of factors driving the overall topline growth.

Helpful. Thank you.

Thank you. First one for Craig, just on Asset Performance Management, that business continues to perform very well.

Perhaps, you could give us a slight update on the MaxGrip acquisition and just how that is progressing? And then separately when you look at your APM product set as it currently stands, do you feel that you have the complete offering there to continue winning in this market?

Or would you say there are additional solutions which you needed to perhaps fully complete that? And then secondly, for James, just on training and services, as you've mentioned, the intention there is to reduce this, the services piece over time.

Just sort of taking a step back from that, where do you think the services segment should fit in size relative to the rest of the business just more over the medium term? Thank you.

Couple of questions there. So on Asset Performance Management, yes, it's doing very, very well.

Look, at the size of revenue we have and the level of growth rate, we consider ourselves one of the leaders, if not the leader in this market. However, it's very early market.

Customers are still being educated about the incredible business benefit from Asset Performance Management. They can put our solution in very rapidly and generate a lot of business value very rapidly.

And sometimes, there's a little bit of lack of belief around that and so that is where pilots and proof-of-concepts really help illustrate this to customers. So, I would characterize the Asset Performance Management market as being one where I'll send others are educating customers about the business benefit of that and of course, we're selling hard into it.

It's really quite early there. In terms of MaxGrip, MaxGrip is a long-time partner.

We already had a level of integration between their assets -- software assets and our APM suite. And we've completed that transaction, we've done a little bit more integration, and we're off and selling MaxGrip.

We have some wins there associated with that, that early integration. And I might say that, it's such a delight working with the MaxGrip team, where we're very culturally aligned with them.

Now, in terms of other potential tuck-ins. On page 29, in the deck, there is the same chart that we presented at the Capital Markets Day, which shows page 29 in the deck, which shows the areas where we already have a market penetration today, but also areas where we're considering.

We're basically doing R&D and also looking at other potential acquisitions. So, those who think of think as the dots there, those are our focus areas where we think we can quite aggressively grow out Asset Performance Management.

With that, James?

Yes. So, on the services business, one of our projects, as probably value creation initiative, is to look at our services business in terms of optimizing that business, looking at doing more off-shoring so you're making use of Hyderabad for service delivery and that's going well.

And generally looking at to do more high-margin services work to help improve margins. I think in the medium term, I would expect our services proportionally total revenue to come down a bit, so I would say, to be approximately 10% to 15% in the overall mix, but obviously, it will depend on the overall growth rate for the company.

That's great. Thank you.

Morning. I want to talk about the recurring revenues shift and to what extent you felt that it had implications to your revenue growth in FY 2019 and if also looking at FY 2020?

To what extent do you think the new pricing models or the shift in sales incentives is going to have a headwind on your revenue growth?

Hey Will, good morning. Again, let me start and have James provide more detail.

If you look at the pro forma or breakdown that James took you through earlier, you'll see that our subscription and rental line here grew by just over 40% in the year. So, when you just -- I know it's not lost on your 40% growth in rental and subscription, but 12% growth in topline.

So, of course, our subscription growth isn't flowing through directly into the topline growth. Well that lowers the dynamic of subscription and it's also the dynamic of our mix in our business.

So, we have already factored that into our medium term guidance. So the way we get back to mid-single digit is we actually grow -- from a topline, we actually grow our recurring software much, much higher than the market rate and it's then, of course, compressed by the dynamics associated with subscription.

That's something we spent a lot of time sort of communicating about.

Yes. So, in terms of recurring revenue shift in FY 2020, we've recently launched AVEVA SELECT offering for Monitoring & Control as Craig mentioned earlier, which is really focused on the Monitoring & Control portfolio that was received very well by our channel and by our salesforce at our pickup event in April and we really had some early wins in that space.

But it's still very early days. It's difficult to really put any trend on that as yet and obviously something we'll monitory pretty closely during the course of this year.

The other factor is, as customers move more to multi-year contract, as we saw in FY 2019 that would also be a factor in terms of driving recurring revenue, which for us is a good thing commercially to obviously lock the customer. These multi-year contracts are very much an ongoing feature of the business and some -- sorry, will occur every year as part of ongoing business.

Thank you.

Hi, thanks very much for taking my question. James, can I just pick you up on the dynamic initiative towards these longer term deals.

When you're selling a longer term deal, what sort of discount you're having to give away to the customer and how do you balance that discounting with locking them in? I'm assuming that your software is strategically important, so there's not that much choice for the customer, anyway.

Why do you feel as though giving them a discount is worthwhile?

Yes. So, I mean commercially for the customer, it's advantageous for them because it assures certainty on pricing from their perspective, but also provides them the flexibility on how they can use the software, and they can spread across basically the whole portfolio.

So, commercially for the customer, it also makes a lot of sense. I think in terms of discounting, we don't see any increased levels of discounting compared to what we normally experience on normal perpetual-type business.

So, we can say there is any increased discounts. So we have to give away in order to learn those deal.

And in terms of magnitude, it looks like it's one a half to two points of growth in fiscal year 2019 as the benefit from bringing forward some revenue recognition. Should we assume its same benefit in fiscal 2020?

Yes, I mean, as I say, there will be some of these contracts which appear every year. So I think it's that sort of level, but obviously it will depend on customer demand and the level of renewals in the year.

FY 2019 did see higher level renewals for the SimSci business just the way the cycle -- renewal cycle worked. So, there will be a few of those.

And just lastly on an unrelated matter, you're talking about improving market backdrop and yet I see the bad debt provision or write-offs effectively gone up during the year. What are the dynamics there?

And is the nonoccurrence of that bad debt write-off an easy source of margin gain this year?

So one change we've had is IFRS 9, which is another new accounting standard, which changes sort of basis of how we provide for bad debts so that's part of the reason. I wouldn't say actual level bad debt write-offs, i.e., when they have to write it over the books.

It hasn't changed in terms of profile compared to what we see the change in the absolute level of provision. Obviously, if you can collect that cash, then it will flow back through to profit in future years.

Great. Thank you.

Thanks Charles.

Great. Thank you very much.

I just wanted to dig into the revenue dynamics a little bit. I mean, clearly the CapEx in your core, Oil & Gas end market is not really inflected -- stabilized.

So, clearly cross-selling, up selling is a key driver for you, while you still sort of manage this transition to more recurring revenue. Maybe could you give us a sense of the runway and the opportunity on cross-selling?

I mean, obviously APM is growing quite nicely at 20%, but what are the opportunities that you see across the different divisions over the medium term and where is the sort of low-hanging fruit so to speak? And then where are the more challenging areas?

And then just coming back on some sort of the contract renewals, are there any significant ones this year in FY 2020 that could cause an upside to the revenue that we saw in FY 2019?

Look, this is Craig. Let me start and again, I'll ask James to fill in.

But just go back to your point, about Oil & Gas. So, just think about -- the total CapEx spend worldwide in Oil & Gas on average is about $250 billion a year.

Now that was $450 billion a year or few years ago, so everyone felt a lot of pain from $450 billion to $250 billion, but pretty much the market is spending approximately $250 billion a year on CapEx. So, as -- now think of digitalization into that, you add up the revenue from us and other software providers around the world, you end up with a number less than $15 billion.

So, you see it's a dramatically under penetrated -- digital is dramatically under penetrated. So, that sort of gives us a view that we -- there is opportunity to drive more digitalization, in this case, into Oil & Gas.

That's just the CapEx side. So, on CapEx, you've got greenfield and brownfield.

So in greenfield, it'll be new start, new capability that's where we've traditionally done well in our engineering software, we continue to do well. I want to give you one example of innovation we've done there is we both process simulation directly into the engineering design tool.

If you think about it's kind of crazy the same way that you wouldn't buy spellcheck piece of software separate from a word processor today that it's all integrated. Today, customers buy that process simulation separate from their front-end engineering design tools.

We have integrated those tools into one tool set. I mean, that's just another example of the evolution of this market.

That's on the CapEx, that's on greenfield. And then you got brownfield, laser scan, the ability to do modification of existing facilities we play well into there.

And then you've got the operational side where we can take risk out on the handover from the design to the operations. And now you think of our commercial strategy, which is around subscription base so that allows the customer to spec in subscription software and they'll have to pay for it until they actually use it.

So, we think we aligned quite well with some of the dynamics around that market. I mentioned ADNOC earlier.

ADNOC just announced that ADIPEC last year, I think it was over $140 billion CapEx program and they intent to improve their -- increase their output from 3 million barrels per day to 4 million barrels per day. That's lot of opportunity for us and that's just the one sector that we will play into.

In terms of the revenue synergies, in the portfolio, as Craig mentioned, the process and plan design is a key driver. Also AVEVA NET we're seeing good traction of AVEVA NET selling into owner operators.

The Schneider Electric software business had lot more owner-operated customers than heritage AVEVA, and we've been able to leverage that to sell AVEVA NET into those customers which is very positive. And then just the whole theme of selling effectively the engineering tools and using the engineering data into operations and also providing a good cross-sell opportunity.

And then on the contract renewal, in terms of FY 2020, basically normal year to be honest, but there is always a few global accounts that will come up for renewal this year. So, FY 2019, as I say, did have some additional SimSci renewals, so it does make a tougher comparative for some of those contracts.

Great. Thank you very much.

Thanks.

Yes, Good morning. Thank you for letting me on.

Just a quick follow-up on Mo's question, and your answer Craig on the process simulation and integrating that into the greenfield operation. What is that the average price uptick you're generating on that, that's one element.

And then the second is, in terms of the subscription license transition, can you give us approximate growth rate for this year for both and what will be the impact on cash flow. I think, you stated for this year that you didn't see any cash flow impact?

And based on that also where do you see them -- the natural cash position you wanted to maintain and should we then expect some share buybacks or increased acquisitions? Thank you.

Okay, some good questions. The first one on the cross-sell into the process simulation in terms of engineering design.

I don't have an answer for you on what the average price is. Actually, we've just started, that's just been available in the market.

Typically, what it's allowed us to make it easier for us to sell, but it hasn't really dramatically changed sort of increasing -- increased pricing with the customers. What it has allowed us to do is when a customer is going through some decisioning, they've looked our refresh portfolio, and they've gained confidence in the future, an example of that would be Covestro which we'll highlight this year in our annual report where they select AVEVA from some sort of top to bottom as part of their digital transformation.

That I think is -- it's really helped them understand how innovation is really critical to the future. So, it's not a financial response view, but that's frankly, how -- where we are in the end market.

Yes, on the subscription question, so growth rate obviously 40% in FY 2019, I think some one-offs in there as we've mentioned, I think FY 2020, we're expecting a more normalized of mid-teens 20% improved in rental and subscription. FY 2019 in terms of working capital impact on the cash flow, as I mentioned in the commentary, we did have some one-off benefit from settlement of Schneider into company balances, which offsets the impact in the multi-year contracts in FY 2019 that's obviously a one-off.

So, there will be a slight impact on the cash flow in FY 2020, albeit we'll have the cash coming in from the FY 2019 contracts. In terms of our cash position, we're sitting at £127 million at the end of March, we're happy about cash position.

We want to maintain that on the balance sheet to use for M&A [Indiscernible] type deals with MaxGrip. So, for now that's basically helped our approach on cash.

Thank you. And just a quick follow-up on the cost slide bridge.

You show quite a large amount of cost inflation so the underlying inflation is almost eating up all the cost savings. Do you expect a similar trend in FY 2020?

Thank you very much.

Yes, I mean -- I think when we announced the cost-savings program as part of the deal, we've basically said that, that would -- the cost savings would cover inflation in over the medium term. So, overall cost will -- would broadly increase by a small amount year-over-year.

Thank you.

Thank you.

Thanks for taking my question. I have a quick question on the cloud side.

I noticed in your report, you said that, annualized cloud revenue is increased nearly threefold over the period. Could you maybe give us some color on how big that revenue base now is and then to what extent this discussion is something that customers are wanting to have?

Thank you.

Yes, George. We -- thanks for the question.

Look, the cloud -- AVEVA cloud is quite a large initiative for us. We've enabled pretty much most of the portfolio now to run in the cloud, and customers are increasingly choosing cloud, of course, cloud sort of you've got subscription and then you've got cloud where it's a four-month subscription, but you've got more benefit from it.

We spent a lot of time integrating around customer security environments. And we've made a choice, we don't provide our own cloud platform.

We use public cloud providers such as Amazon or Microsoft. So, that is -- we're up to -- we grew from -- to 37 customers from 20, I believe, the number was.

Yes.

12 months ago. So, we're -- that's small numbers, the revenue is not meaningful enough that we would call it out.

It's about 1% of our -- of total revenue. You'll hear more from us when frankly when that number becomes more meaningful.

But the fact that we're not talking about it here is sort of under represents the focus that we have on inside the company. We feel like we're really making good progress.

Great. Thanks.

Good morning gentlemen. Just a couple of quick questions on revenue trends in the geographies.

In the Americas, it seems like you had a very strong H2 performance with the rentals and more doubled H2 in H2. Is that a number that you can sort of curve in FY 2020 where there is some sort of one-offs in there.

And if so, how do you expect the seasonality to come into H1, H2 within that rental line within Americas? And conversely within EMEA, it seemed to be all about sort of licenses, very, very strong license performance.

Was that one-off in that number there so also considering you're move towards rental overall should we expect licenses to decline in EMEA in FY 2020?

Thanks Julian. In terms of the Americas, as you've identified, there is some moving parts in revenue by the different streams, similar to maintenance.

There was quite a few customers switch into rental and subscription during the course of the year. That's probably the main factor we were aimed.

Wonder where customers were [Indiscernible] contract moved into rental we've actually seen some of that in first part of FY 2020 as well. In terms of EMEA, the strong growth perpetual was coming through the channel.

Channel is very strong in EMEA. So, the subscription offering, it hasn't kicked in at all really into those numbers.

So, in terms of comps, that will be a challenging comp for EMEA in terms of the initial fees and perpetual number in FY 2019, and we'll see stronger growth in rental and subscription.

And within Americas, you would expect that rental -- part of that rental number is that transformation from maintenance into rental continues?

Yes, I think so. Yes, we have a number that we feel we can grow off sure.

Fine. And just quick housekeeping.

You mentioned the acquisition cost for FY 2020 will be the same as in FY 2019. Can you just clarify, did you mean you're referring to the restructuring charges in FY 2019 or you're referring to the acquisition cost number circa 20-plus?

I'm referring to the integration and restructuring costs, so there will be further restructuring as we progress the cost-saving programs and there will be further integration costs related to TSE exits for IT and real estate.

It's the combination of 20-plus the circa five is it what you're alluding to?

Yes.

Yes, okay. Thanks.

Thank you.

Yes, hi. Thanks.

Good morning. Two points of clarification from me, please.

Of the £212 million in initial fees, how much of that is subscription ready? And I've got about £165 million on Schneider.

So, I don't know if you can comment on that or not? And then secondly, in terms Schneider group being at 10% of sales, does that include sell-through revenue of AVEVA products.

And I apologize I should know, but do the Schneider group sales team do they carry an AVEVA quota?

Yes, I look to that in reverse order, George. Thanks for the questions.

All the 10% of revenue, the bulk of that is sell-through versus sell-to. So, in that situation where Schneider is either themselves or their distributors are selling our software to end customers, that's the bulk of the revenue.

There is a little bit of sell-to, which is what I've highlighted earlier. Can you take the second question?

Yes, in terms of the -- I mean, I would say all of it really ready in terms of conversion to rental contract or subscription. I mean, a lot of that [Indiscernible] performance comes from the Monitoring & Control business, which is entirely perpetual today.

So, that subsequently ready to be converted to the subscription-type contracts.

I skipped your question about whether Schneider or Schneider colleagues carry quota. 12 months ago, that was not the case.

It is something that we have a put in place for FY 2020 where not everyone within Schneider, but select individuals who are carrying our quota, that is unavailable quota.

Many thanks.

Well, thank you very much, operator. And to those of you on the call, thank you so much for joining us.

Thanking you very much for your interest in this journey as we have worked to solidify AVEVA as an industrial leader in the digitalization of our customers. Just to recap, FY 2019, by any measure, strong financial performance.

Integration on track, the bulk of that integration is now behind us. And our outlook remains positive both for FY 2020 and for the -- again in the interim roadmap.

Thanks so very much for your interest and we'll talk to you next time.