AVEVA Group plc

Good morning, everybody, and thank you for joining us. I'm Craig Hayman, CEO of AVEVA.

The first 6 months of our financial year were challenging, with constant currency organic revenue declining by 12%. While we saw resilience in the Monitoring & Control and Planning & Operations businesses, both of which were broadly flat year-on-year on a constant currency basis, Asset Performance Management and Engineering declined against tough prior year comps.

OSIsoft continued its strong performance with billings increasing 12% in the 9 months to September. We had expected a tough result in the context of a very strong prior year comparative and the COVID crisis.

And this was a little below target, largely due to customers taking longer to make purchasing decisions. Notwithstanding this, our order pipeline for the remainder of the year is strong, and we expect the group to achieve year-on-year growth in the second half of the financial year.

And there were many positives in the period. We've continued to make significant investments and progress in strengthening AVEVA'S position as a global leader in industrial software.

So that we can continue to capture the long-term growth in the market that we expect. For example, we made significant investments in cloud, artificial intelligence and extended reality.

We launched key products in the cloud, including AVEVA Unified Engineering, AVEVA Unified supply Chain and AVEVA Insight guided by advanced analytics. Overall, cloud revenues increased by 50%, and we reached agreement to acquire OSIsoft, a global leader in real-time industrial data software.

This acquisition is another transformational step for AVEVA and remains on track to close at or about the end of the financial year. OSIsoft's trading remains strong.

And now I'll hand over to James to discuss the financials.

Thanks, Craig. Hello, everyone, and thanks for joining the call today.

I'll now take you through the financial review of the first half results. So let's start by looking at the headlines.

Overall, the business has delivered a credible set of results in difficult conditions and against a tough comparative. Trading in the first half was more challenging than in recent periods, with organic constant currency revenue down 11.7%.

This was, of course, against the backdrop of the economic conditions caused by COVID-19. We had planned for a softer first half due to a tougher comp and the timing of contract renewals within the context of the full year.

The actual revenue performance was slightly below our target in relation to our full year plan, largely because of some contract slippage from Q2 into Q3 and a foreign exchange headwind. Our forecast for the full year remains in line with our plans set at the beginning of the year, supported by a strong H2 order pipeline and a higher volume of renewals.

We continue to make progress with recurring revenue, which is now at 64%. The impact of the revenue decline on profitability was partly mitigated by proactive cost control.

However, due to the operating leverage in the business model, the revenue reduction had the expected knock-on impact on adjusted EBIT and EPS. We closed the half with just under GBP 60 million in cash after incurring some costs in relation to the OSIsoft acquisition.

And finally, to the dividend. We are maintaining the interim dividend at 15.5p, reflecting our confidence in the business.

If, as expected, the rights issue to fund the OSI deal completes prior to the record date, the new shares issued will be eligible for the interim dividend, and the dividend share will be adjusted to reflect the bonus element of the rights issue. This is a standard adjustment, and there'll be more detail on this when the prospectus is published.

So moving on to the income statement. Overall, our revenue was GBP 332.6 million, which is down 15% on a reported basis and 11.7% in organic constant currency.

We manage our cost of sales well, but the fall was not sufficient to fully offset the reduction in revenue, resulting in the gross margin reducing slightly to 74.8%. We've also controlled our OpEx well.

Our cost down 5.8% on a constant currency basis whilst maintaining investment in R&D and investing in digital marketing. While this level of percentage cost reduction was not enough to protect EBIT in the half, we expect it to be significant in the context of the full year.

So that resulted in adjusted EBIT for the first half of GBP 56.3 million compared to GBP 90.6 million in the first half of last year. The effective tax rate on an adjusted basis for the first half was 17% compared to our previous guidance of around 20%.

However, as we previously indicated, OSIsoft will have a meaningful benefit to our tax rate, with the pro forma and large group rate expected to be around 13% on an adjusted basis. Let's move on and let me walk you through the revenue bridge, which shows the different moving parts.

Starting on the left, we have last year's revenue of GBP 391.9 million, from that, we take off the disposals to get to the base of GBP 384.5 million. This is the net effect of the disposal of the wholly owned distributors in Italy, Germany and Scandinavia that we sold last year.

We then had an adjusted approximately minus 2% for foreign exchange translation, so we can compare on a like-for-like basis. This results in the organic constant currency revenue decline of 11.7%.

Okay. So that was the revenue bridge showing the year-on-year change.

So let's now look at the breakdown of revenue. As you know, we have said, recurring revenue as one of our key strategic aims as part of our medium-term plan, and recurring revenue increased to 64.2% of the total.

Underneath this, maintenance revenue increased slightly following the sale of perpetual licenses last year, partly offset by the conversion of some deals to subscription. Subscription revenue reduced mainly due to the large number of multiyear contracts in the prior year period.

It's important to point out this is not revenue churn, but rather a feature of IFRS 15, the accounting standard for revenue recognition. Turning to the other revenue categories.

We saw perpetual licenses reduced across each of our 3 regions, this is primarily due to the tough economic environment as well as our focus on driving more subscription revenue. Services revenue reduced by 10.3%.

Services are sold alongside the software licenses to ensure efficient deployment and software and to generate value faster for our customers. This planned reduction was driven by AVEVA focus on increasing the proportion of higher gross margin software as part of the overall revenue mix while still undertaking services that support long-term growth, particularly in the newer areas of the business such as APM and digital twin projects.

The services team has pivoted very effectively to working remotely and have delivered key projects for the likes of Shell and Saudi Aramco, as you'll hear later from Craig. So let's move on and now look at the cost base.

Total adjusted operating cost decreased by approximately GBP 25 million or by 5.8% in constant currency as we exercise tight control over the cost base in the context of the global crisis. Cost of sales decreased by 7.4% on a constant currency basis due to a reduction in the cost of delivering services and support, offset by higher cloud hosting costs.

We maintained our investment in R&D in the first half and continue to prioritize in areas such as cloud, artificial intelligence and extended reality. We also saw an increase in productivity due to factors such as remote working and eliminating commuting time as well as more efficient collaboration across our R&D teams.

Selling and distribution costs decreased by 9%. This is primarily due to reduced sales costs and commissions as a result of the lower performance versus the previous year.

Although overall marketing costs increased as AVEVA invest in digital, including the AVEVA World Digital Events, which we held during the first half year. Administrative costs decreased to reduced provision for bonuses due to the tougher trading environment.

Looking forward to the full year, we intend to continue to take a prudent approach with the cost base while maintaining our investment in R&D and ensuring the business continues to operate digitally, and that will help underpin AVEVA's long-term growth prospects. Moving on to look at exceptional and normalized items.

Acquisition costs were GBP 16.3 million related to the fees on the OSIsoft acquisition and integration costs were GBP 13.8 million related to the ERP implementation and IT costs in relation to the exit of the transitional service agreement with Schneider Electric. Restructuring costs relate to the cost of severance for the reduction of headcount in the year.

And other income is the reimbursement of capital expenditure related to the office fit-out and IT equipment from Schneider as part of the merger agreement. Let's now look at the balance sheet.

And the overall shape of the balance sheet has not changed significantly since March. Net cash and treasury deposits were GBP 60 million, which includes GBP 20 million drawn down under the RCF.

Trade and other receivables were GBP 185 million, down from GBP 242 million at March, mainly due to the decrease in accounts receivable from GBP 181 million to GBP 99 million. We saw strong collections from customers in the first half and no change in our bad debt exposure, despite the change in economic conditions.

Contract assets increased at the end of March, which on the face of it is not what you would expect. The reason for this is twofold.

Firstly, there were some multiyear contracts signed in the first half and included our 2 contracts where the sales involved in schedule has been pushed out in return for longer-term commitments from those customers. And secondly, contract asset balances are also impacted by the timing of invoicing.

Individual contract balances at the end of September are expected to be reduced by invoices due to be issued on the anniversary of the contract that were signed in the second half of FY '20. Contract liabilities were just under GBP 133 million compared to GBP 177 million at the end of March due to the timing of invoices with much higher renewals in the second half.

And finally, the cash flow. Cash flow from operations before tax was GBP 23.7 million, however, we paid GBP 36 million of exceptional costs in the first half, including the integration cost for Schneider.

While we saw a small working capital outflow, this represented an improvement on the prior year, which reflects the good cash collection that we saw in the first half. So to summarize, the group had a fairly challenging start to FY '21.

However, we maintained investment in the key areas in the business that will drive future growth while controlling our overall costs. The outlook for the second half is more positive, supported by a strong order pipeline.

We believe the business is well positioned to navigate through these challenging times and is well prepared for when conditions improve. Thank you for your attention, and I'll now hand back to Craig for his review.

Thank you. Thank you, James.

As James outlined, the first half did see some disruption to business as customers got used to a new way of working, but digitalization remains an imperative. AVEVA software drives efficiency gains for a wide range of industries.

Digitalization is key to enabling with - and working with the challenges that these industries are facing, for example, helping drive efficiency in the current difficult operating environment. The industries that AVEVA serves are making ever greater use of technology to reduce both capital and operating costs in the context of competitive pressures to increase efficiency, output and flexibility and improve overall sustainability.

Now this has been enabled by ongoing technological megatrends that are driving the digitalization of the industrial world. Notably, the industrial Internet of Things, Cloud, data visualization and artificial intelligence.

This is driving long-term growth in demand for industrial software. AVEVA is optimally placed to help its customers digitalize.

Due to its end-to-end product portfolio, which runs from simulation through design and construction into operations, and OSIsoft will further strengthen our position. Now let's turn to look at AVEVA's business units.

We add value to our customers' operations through each of these units, reducing the capital and operating costs and driving efficiency. Now while engineering mainly addresses capital expenditure phase of industrial assets, Monitoring & Control, Asset Performance Management and Planning & Operations mainly drive efficiency into operations.

We saw challenging conditions for the engineering business unit. This was partly due to a tough compare against the previous year, but also due to a reduction in spend associated with the global economic crisis.

The other business units were more resilient, and they all achieved growth in recurring revenue. Monitoring & Control was flat in terms of constant currency organic revenue, taken into account disposals in the prior year.

And this related to a decline in perpetual licenses, offset by growth in subscription, helped by the wide industry diversity that, that business unit has. We saw lots of interest in asset performance management and growth in demand for engineering information software, although, this wasn't enough to offset a decline in perpetual licenses.

And in Planning & Operations, we saw good wins within the energy market, particularly in the supply chain planning software for the oil and gas industry driving some growth. Now let's turn to some examples of customers that we've been working with.

In the energy market, we've been helping our customers drive efficiency in these difficult times, whether they're in the oil and gas sector or in renewables. Shell is evolving its digital twin strategy using AVEVA's cloud-based engineering data warehouse.

With a common digital threat across engineering, operations and maintenance, teams can securely access information in context across Shell's global operations. Now this will enable Shell to drive asset reliability, enhance efficiency and reduce unplanned downtime.

And this also allows actionable insights to be shared from the site operator to the leadership team. At Saudi Aramco, our team working together with their engineers, delivered the world's largest unified operations center.

This is project is a showcase on our ability to deliver digitally with the installation being completely remotely. AVEVA partnered with Aramco's IT department and their engineers to unify data from across their operations into the new Unified Operations Center, which is now in production.

There are considerable sustainability benefits from this remote collaboration with fewer miles, better digital collaboration and the AVEVA team vastly reduced the energy footprint of the installation process. And it also helped to enable Aramco to install and build the new facility even during the pandemic lockdowns, supporting better collaboration and business resiliency.

And Veolia Water Technologies in France, selected AVEVA's common cloud platform, AVEVA Connect and the cloud-based deployment of AVEVA's Unified Engineering Solutions to enable their teams around the world to work remotely, yet together on one platform that spans all of their engineering data. They use data and analytics to share best practices across the team, including reducing water losses at over 90 facilities from Paris to Kuala Lumpur, benefiting more than 100 million people who benefit from their water services.

Now on the next chart, a few comments on how AVEVA and our employees have adapted during the pandemic. First and foremost, we have been focused on the safety and well-being of our employees.

Most employees worked remotely during the first half of the financial year, and the majority will continue to do so for the remainder of the calendar year. In China, our offices in Beijing and Shanghai have opened safely.

Employees have adapted well, helped by technology investments to support remote working, regular communications, including employee engagement surveys and support for mental health. Now for sales enablement and demand generation, we moved quickly with our first digital sales kickoff meeting and the first digital customer events.

AVEVA Ignite in April provided sales and technical teams with the necessary skills, training and product enablement to support selling digitally. The 2 AVEVA Well Digital Online Conferences had over 8,000 attendees, and we launched our digital customer experience center, which provides a virtual experience of the entire product portfolio.

And as we move into the outlook for the year. Let's take a look at our message to customers that is part of our brand-new marketing campaign.

It shows how we're supporting traditional industries to be more efficient in helping new industries grow energy. [Video Presentation] Turning to the outlook.

We continue to see strong demand from our customers for our software to help them digitalize. The long-term structural trend towards digitalization of the industrial world continues to remain very exciting.

The order pipeline for the remainder of the financial year is strong, underpinned by a higher volume of contract renewals including major global account contracts as well as contracts that slip from the second quarter. As such, we expect to see solid revenue growth in the second half of the year and remain confident in the full year outlook.

Furthermore, the acquisition of OSIsoft remains on track, and I'll run you through that progress now. We announced at the end of August that we had reached agreement to acquire the company at an enterprise value of $5 billion.

OSIsoft is a global leader in real-time industrial data software. Its pie system is the system of record for customers for data capture, storage, analysis and end-to-end view of data across operations.

It enables customers to connect disparate sources of time serious data in an efficient and cost-effective. Through OSIsoft's pie system, customers draw insights, they make better decisions, they optimize their operations and they drive their own digital transformation.

As we have previously announced OSIsoft has a long track record of growth associated with the ongoing growth of the industrial Internet of Things. And I'm pleased to be able to say that this has continued with good results in the first 7 months of this financial year.

And 12% billings growth in the 9 months to September 2020. And we're really looking forward to the acquisition completing and then updating you on our plans for the combined business.

Now moving to synergies. We expect significant operational benefits through cost optimization using standard operating practices and the elimination of overlapping costs, expected areas include research and development, customer success and sales and marketing functions, together with the consolidation of overlapping office locations and the elimination of duplicate IT systems for expected cost savings as compared to AVEVA and OSIsoft as stand-alone propositions.

We expect to realize pretax cost synergies from the acquisition of not less than GBP 20 million per annum on a run rate basis by the end of the third year following completion, which is expected to be year-ending 31st of March 2023. Now we also expect significant revenue synergies through our complementary products that offer extensive cross-selling opportunities, such as including AVEVA's predictive analytics, unified operations center and asset performance and reliability and production operations together with OSIsoft's core offering in industrial and infrastructure data management.

We expect to expand OSIsoft's global reach and an enhanced digital twin potential, leveraging our unrivaled combination of engineering and operation data and to deploy our technologies to accelerate OSIsoft's product development road map, particularly in the cloud, and to leverage our go-to-market proposition together with Schneider Electric. Now regarding timing, we've made good progress around the regulatory approvals that we need to complete the acquisition.

We already have received key antitrust clearances and have submitted a CFIUS filing. The rights issue process is also due to begin very shortly.

Our expectation remains that the acquisition will complete at or around the end of the calendar year. It's been a busy first half of the year at AVEVA, with a strong operational focus in a challenging environment.

And while remaining committed to the opportunity in the head in the digitalization of the industrial world, we're most concretely excited with the acquisition of OSIsoft. Thank you for your time.

I will now hand back for questions.

I guess, the first question was on the guidance looking forward, Craig, I believe you had mentioned returning to growth in the second half of this year. I assume you're talking about revenue.

Would that apply to billings as well or not? Because the billings numbers have obviously been much softer so far this year, right?

And it sounds like there's been some extension of payment terms to customers implied in some of the commentary earlier. And I guess just the second question, too, probably related to that, too, is on the slip deals that you mentioned were slipping from 2Q to 3Q, had those closed already?

Or is that something still in progress right now?

Thanks, Julian. The - in reverse order, the deals were slipped from the first half have not closed yet.

They're planned to be closing imminently, and in fact, one is a compliance deal. So we're pretty confident about it.

With regard to growth in the second half, that is based on revenue and, of course, and on bookings. We still have that factored in.

And just as a sort of behind the scenes on that, our pipeline is quite strong. We have pretty good visibility into that pipeline, and of course, the close rate in the first half was lower than it was a year ago.

If you think of this pipe is more digitally generated this year than it is - than it was in prior year. So we've adjusted that to get off our outlook for the second half where we have a much larger pipe in the second half than we did year-over-year.

And we've also applied some sort of a lower conversion rate based on what we saw in the first half, which gives us the confidence in the second half too.

Is that primarily renewals in the 2H pipe? Or is it new business, anything you can share around the mix?

There's a mix in there. So of course, as we, I mean, to state the obvious, right, as we come into the - on a revenue perspective, right, there is, for example, in the services business, those contracts that we've signed before but then as those services are then delivered, that sort of backlog that is then sort of satiated.

Similarly with renewals, and then we have net new business. So it's actually a pretty healthy mix of all those different types of revenue flowing into the second half.

And you can look at that to say, well, how much is sort of "in the bag"? Technical term.

And how much is it yet to be sold? And it's a good mix.

We chose not to break that out for this call here today.

I've got two, please. So firstly, just on the regional performance.

It looks as though South Korea and China were the main drivers of the decline in Asia Pacific, I'd have probably thought that China might have been a region that held up better relatively. Perhaps you could just talk a little bit about what's happening in China and why was it weak?

And then secondly, just on the midterm targets. I know you're not going to be providing any updates on the midterm today, but noticed - your comments in the release basically highlighted that progress against that midterm had been disrupted in the first half.

So perhaps you could just talk a little bit about your current levels of confidence around those targets for AVEVA on a stand-alone basis? And perhaps whether or not that weakness in the first half would be enough to ultimately push back that 30% target?

Thanks for the question. On the regional performance in APAC, yes, Korea and China were weaker.

Korea because of the marine is exposure. That's where we have a lot of marine customers there in that market, here continues to be tough.

So no surprises there. China was actually okay.

The issue of China really was tough comp, so we had a very good first half of last year. So it was coming up against a tough comp.

When you look at the full year for China, we're still expecting year-on-year growth and they're certainly back to some level of normality compared to other country, offices are working up on a restricted basis, and the market does seem to be better than it was. So again, we're expecting growth in China in the second half.

Just turning to the medium-term target. We're not changing our guidance on the medium-term can target.

We're maintaining the 30% EBIT margin. We're obviously already beyond the 60% recurring revenue that we spoke about before, and we'll update you with a revised target next year once we get OSIsoft under our belt.

So there's no change in the medium-term target.

Just on OSI, obviously, you don't own it as yet, but can you say something about why the performance seems so much better than your, I guess, Monitoring & Control business would be the closest overlap. So it grew 13% in H1, it dipped a little bit in Q3, but still looks like double digit.

And then just in terms of the cost synergies there. I think on the Schneider deal, a lot of those savings were reinvested.

Can you talk about to what extent you might sort of retain those rather than reinvest them? And then just finally, James, on the balance sheet, it looked like there's a GBP 20 million increase in both long-term receivables and payables related to some cloud contracts, if you can just maybe expand on that?

Thanks, Michael. So with related to OSI and OSIsoft performance, as you say, we don't own them.

So these are comments observing the company not as an owner of that. So OSIsoft is pretty much entirely operational, OpEx-focused, it has almost no CapEx focus.

In fact, if you look at AVEVA, our challenges were in the CapEx side of our business. But to your point about that even so, they did grow faster than our Monitoring & Control business, which is OpEx-related.

They do have a very broad end market, and also, they have a pretty good penetration in the U.S., which diversifies its risk more, whereas AVEVA has a much more global presence, that's sort of one point. Second point I would say is that if you recall, when we bought AVEVA and Schneider Electric software together, we put in place sort of a management team to drive operational improvement into the business.

And that had some good yield in it for us. But OSIsoft have begun that process last year with new management in place.

And so they have sort of begun in driving sort of better execution in their business, which have been able to sort of offset a tough environment. And then finally, the obvious point here is, look, OSIsoft is largely a perpetual software business whereas we're driving a perpetual - we, AVEVA, are driving a perpetual to recurring revenue, subscription business.

And so any gains that we have in subscription are offset by declines in perpetual. This is a standard process, but they haven't actually sort of begun that transition yet.

And I think the second part was for James.

Yes. Thanks, Michael.

So on the cost synergies, we've confirmed this morning that the cost synergy will be not less than GBP 20 million by March '23. It's on a tax cash basis.

It's a bit early to say whether we'll reinvest versus retain the savings. We're literally starting the integration planning process at a high level.

So we'll come back to you on that once the deal closes in terms of what the overall cost profile looks for the large business. The final question is around the cloud hosting costs.

So we signed a contract with one of the large cloud hosting providers. It's a 3-year contract, is a 3-year commit.

We're seeing our cloud business grow very strongly, so 50% growth in orders in the first half. And also, we're using cloud much more internally.

We have within R&D and within the other functions. Firstly, a commitment to anticipate growing usage across the business.

And so basically, under the accounting standard, you have to set it up as an asset and a liability. And as we burn through that usage, those will - if we draw down and the charge we give through the P&L.

A few questions from me as well, please. Just on subscriptions, minus 18% constant currency.

It does seem like a big move for a recurring revenue line. Now I know there was tough year-on-year comps and IFRS 15 has some implications there.

But is there anything else you can say to describe maybe what happened? And perhaps give us confidence that visibility remains high on that recurring revenue line going forward?

Maybe I'll follow-up with the second one because that was long.

I'll start on that one. So yes, subscription was down in the half and there are couple of factors that play there.

In the prior year, as we called out last year, we did a GBP 20 million pull forward of a renewal from Q3 into Q2. So that had an impact, obviously, in making a very tough comparative.

And then we also had some couple of deal slip from Q2 into Q3, as Craig referenced earlier. So when you look at those factors and account for those, subscription was broadly flat year-on-year, which is more of what you would expect.

We're continuing to see customers pivot towards subscription. That has very much, in that environment, has really changed in that respect.

And we continue to promote subscription very heavily with our sales incentives driving our salespeople to close subscription over perpetual and other types of revenue.

Okay. That's useful to know that the kind of underlying piece.

Second question was on the Shell deal. Who were you competing against?

Or was that an evolution of what we're already doing? And then along the digital thread that you mentioned, are there other software vendors and data sets that contribute into that?

So maybe can you give us some examples of how you work with other vendors? And then the question is sort of how does the customer decide which platform to use from which vendor?

Or do they use pieces of several different platforms? If you can kind of talk about that environment and how the customer makes those decisions?

Stacy, I'll take it. So Shell is - it's a heterogeneous environment.

So they have data and all sorts of different systems, including OSIsoft pie. And we plug into that environment and allow them to create a knowledge graph of that data and then we visualize that data.

And we can do this on a project-by-project basis on a country-by-country basis. So we'll interoperate with all of the major industrial hardware providers, we'll interoperate with pretty much all of the industrial software providers.

And then we provide the sort of view for this enterprise information system for the leaders, in this case, Shell. We've done this in other places, too.

What was new here with Shell is that we reached a level of deployment and certainty with Shell that they were comfortable talking about it externally. And that's based on deployments across a couple of different countries and a couple of different projects and a large flow of information coming out of the plants being visualized.

We also did some work because we already have some technical integration with OSIsoft pie today. So we've also done some advanced technology workaround showing how we can drive ever-increasing levels of artificial intelligence using more data from, in this case, Shell.

So I think, look, in the first half, where we saw a shift for - in customers, especially in oil and gas, look for capital flexibility is how they express it. Flexibility, if they have projects, can they defer those projects?

If they have projects underway, can they pull them down, so they're looking for capital flexibility. They're also - the counter to that is they're looking to reduce operational costs while maintaining safety.

And of course, that means longer maintenance periods, ensuring that you take better care of facilities that you're running, and that's right in our sweet spot. And so that's the Shell example.

And look, we'll be - we'll talk more about Shell sort of as we - it's live in a couple of different locations and facilities, but there's a pretty impressive rollout plan to take that even further.

Firstly, coming back to the outlook in the second half. I took from your comments, it's quite an encouraging breadth actually to the pipeline in the second half.

I just wondered if you could confirm whether there are multiple routes to achieving the H2 expectations? Or whether there are a number of specifically large deals that you sort of need to make happen in the second half?

And to be a bit more specific on that current expectations imply a sort of high single-digit organic growth year-on-year in the second half, is that specifically what's supported by the pipeline at the moment? And the second question is on the cost base evolution as we look into the second half.

I think it was down 5% year-on-year organically in the first half. Is that what you think can be achieved in the second half on those sorts of revenue expectations?

And to what extent, just mechanically, from things like the bonus accrual, will we see even more OpEx savings if perhaps the revenue is not quite at that level in the second half?

I'll take the first half, James, and maybe James will take the second off. So with respect to the pipeline, it is a strong pipeline.

Just a commentary on how we've generated that is, if you can imagine a lot of the piping in a pre-COVID environment is generated by sellers being physically on the road and sort of in-person pipeline generation. As we entered into COVID, that becomes digitally generated through our sales teams and our marketing - and everyone relies on our marketing program.

And so our marketing has become much more pointed and specific. If you heard in that video, where we talked about, in unprecedented times, you can do better supply chain planning, especially in oil and gas, and you can use our value chain optimization software.

And that's an example where a marketing campaign generated pipe that was able to be converted. And that's why we saw good demand in the value chain optimization software.

So just sort of you see the sort of the arc from pipeline generation through to physically impact on the business. As I said earlier, though, it is a digital - it's a different shaped pipe, right, it's a digitally shaped pipe as opposed to a physically shaped pipe.

So that means it has a different conversion rate, and it has different dynamics. So we've offset that, but we've also gotten better at digitally driving the pipe.

So we've had 2 digital events, we referenced that. We have a third one coming up in January.

We get better and better every time we run one of those. In the second half, there are renewals in H2, including a couple of global account contracts that's got some backlog revenue for services and subscription and maintenance.

Now we did see a delay in closing deals in the first half, and we're not planning. We've used that to factor into the close rate into the second half.

And James, do you want to take the second part of it?

Yes, sure. Yes.

So the cost base evolution be, James, you see cost were down 5.8% in constant currency in the first half is that basically what we're expecting for the full year. But that does assume some level of bonus payout too.

If the revenue turns out to be weaker than that, then obviously, that bogus cost would fall away, so the cost base would come down further. So there's a bit of built-in balance on the overall cost profile for the year.

James, let me just add here. Look, as we came into COVID, I think we were pretty clear in communicating that we made rapid change on to our cost base.

So we took, without following people, without laying people off in response to the pandemic or taking governance funds, we made swift changes there, too. And you see that in the sort of reduction in cost but we protected research and development.

So research and development is largely consistent. It really didn't - wasn't decline because we believe this is our - we need to power through here, especially with investments in cloud and the other things we've talked about.

And then also within research and development, we prioritized to focus based on what we learned around the pipe and the commentary I just made to you, and also in sort of the sort of areas that we're learning are much more salient to this environment. So there is, I would say, very proactive activity around the cost base.

Just a couple from me. And I'm sorry to come back on the - one more time.

Craig, you talked about, obviously, a good pipeline, some larger renewals, but also you've kind of adjusted close rates. What about the sales cycles?

How are the sales cycles shifting? I guess to what extent have you sort of handicapped that second half outlook for potential sort of changes in sales cycles leading to sort of further slippage?

And then a second question was for James. You sort of called out H1 cash flow being kind of flattish on an underlying basis.

Should we, given kind of further sort of subscription acceleration in H2, do you still believe that on a full year basis, the cash flow can grow because I know there's obviously the IFRS impact on the free cash flow? And then lastly, related to that, are you planning to give us some sort of billings or bookings metrics just to kind of better understand the underlying growth of the business versus sort of some of the mechanical impacts that are perhaps impacting or restating the growth of the business?

So I'll take the first question. So on the pipeline and sales cycles, so let me sort of break it down a little bit.

Because the business is not all the same. So if you think through Monitoring & Control, Asset Performance Management and Planning & Operations, these are somewhat where we're more on an OpEx-based cycle.

Our revenue growth was sort of some negative single digits on a constant currency, which just continued activity. I put that in a broad environment, macro, it's a continued good activity.

We - yes, it is more challenging out there, but it's sort of just nothing dramatically than what you'd expect. In oil and gas, again, as we've talked about, it's quite a challenging environment.

And so customers have asked for concessions, customer deferring projects and you see that in our numbers. So in - now to your point, in the second half, we factor that into to the pipeline, not all deals are the same.

We have - we leave no-deal behind, right? We want to progress them all, but we have closed dates around them.

We mitigate those close dates. They've got probabilities associated with them.

We're pretty granular on how we roll through the pipeline. So to your point about the conversion rate.

Yes, I mean the whole shape of the fact has changed, right? So I don't know that I would say they take longer or shorter.

It's just they have a different - those deals have different characteristics. And mechanically, I would say, look, a year ago, to close a large deal, you would be sitting in someone's office or waiting in the lobby to close that deal.

That's not happening today. You're on the phone, you're zooming, you're working to procurement.

And to some - in some areas, that's easier because you know where they are; in other areas, that's not part of it because you don't have the personal connection or a digital connection. James, on the second question.

Yes. On the cash flow in the second half, there are a higher level of renewal for subscription and some of those are multiyear.

So they will add to working capital impacting the cash flow. But - and obviously, you just exclude any impact from OSIsoft because we've already incurred GBP 10.5 million of fees and related costs to do the deal and those costs will come through in the second half once the deal completes.

So I think overall, I think we can expect cash flow to be probably broadly flat for H2, excluding the impact of OSI. And then your final question on other metrics around billings and bookings.

Yes, the short answer is yes. We are tracking annualized recurring revenue internally.

And that's, we think, a good metric, which helps explain what's going on particularly within subscription, so we plan to start disclosing that by the end of the year. So I'll give you some insight into what's actually happening to our annualized recurring revenue.

I'm afraid it's another one just on the second half outlook and specifically on the renewals. James, you flagged up that some of the renewals in the second half of the year will be multiyear deals.

I think one of your competitors has been specifically flagging that it's difficult to shift customers to multiyear agreements. If those customers decide to renew, but on annual terms, what do you think the implications are for your second half revenues?

And then when we go into next year, how many more global customers have you got to shift to multiyear agreements? And does this year in some way, represents a tough comp for growth into next year as those multiyear agreements drop away?

Yes, so I'll take that one. So we have 2 large global account contracts renewals in the second half.

So those are existing multiyear contracts, which have come around for renewal. They're both existing 3-year deals.

So it's not like we're trying to convince the customer to move from a 1-year deal to actually do it. We're already on a 3-year deal.

So in terms of that risk, we think that's low in terms of changing the contract term. I think when we look to FY '22, certainly on the global accounts, we've converted most of those deals now into a multiyear contract.

And as I said before, this year was really a sort of final year in terms of these larger customers and getting them on to a multiyear contract. And next year, in FY '22, we'll start lapping some of the deals that we've signed when the 2 businesses came together.

So I am not too worried about next year FY '22 being a tough comp because of that.

And just lastly, on a separate topic. You referenced some compliance-related deals, have you been doing compliance audits in a more proactive way this year to try and stabilize your revenue?

Or is it just the normal cadence of compliance audits that you've been doing?

It just been a normal cadence, Charlie. We have a separate function for compliance, and that's been established for a couple of years now.

There's nothing additional that's coming from that.

Well, thank you, operator. Thank you, everyone, on the call, for your time and your interest.

Look, our sort of - it's been a busy first half at AVEVA. I think you've heard from us a strong operational focus, reshaping the pipeline from physical to digital, operating in a challenging environment, remaining committed to our medium-term road map, remaining committed to the opportunity ahead, invest - taking swift cost actions but maintaining our investment in our future around technology, artificial intelligence and cloud, and also most concretely working on the very exciting strategic acquisition of OSIsoft of which you'll hear more from us on that soon.

So I want to thank you for your time. I want to thank you for your interest, and we'll talk to you soon.

Thank you.