AVEVA Group plc

Well, good morning, everybody, and thank you for joining us this morning. Before I hand over to Peter Herweck, our CEO, I wanted to share some thoughts with you on AVEVA’s progress and our future.

In the 9 years that I’ve led the Board, we have made tremendous progress. We’ve developed AVEVA from as mid-cap U.K.

company with a focus on deploying software to the energy industry into a global leader in engineering and industrial software. We now supply critical software to run and enhance the operations of many of the world’s largest industrial sectors and our customers are the who’s who of the world’s leading companies.

I’m very excited about the future of AVEVA. We’re seeing an acceleration in the importance of industrial software, driven by megatrends in technology and imperatives such as sustainability.

I’m delighted that Peter Herweck has been able to step up to lead the company. Peter has played a very important role and has been core in creating AVEVA.

He worked with us on the original merger back in 2016-’17 and more recently, the OSIsoft acquisition. As a director, he’s been fully involved in formulating the group’s strategy over the last few years and steps into the role with full knowledge of what AVEVA has done and will achieve in the future.

AVEVA has a great structure as a dynamic independent company, supported by Schneider Electric, our strategic shareholder. The current structure has worked very well for all of our shareholders, and there is no intention to change it.

The Board and I look forward to AVEVA continuing to deliver growth and with it, value, to all of our stakeholders long into the future. So ladies and gentlemen, I’ll now hand over to Peter Herweck.

Thank you.

Well, thank you, Phil, and good morning, everyone. I’m excited to be with you and also excited to be leading AVEVA.

We’ve created really a global independent leader in industrial engineering software and become a clear number one player in operational software that is ready to accelerate the digitalization of, I would say, a connected industry, but not really a digitized industrial world. We’ve got a great business model that still has, certain, attracting on to great talent.

It’s important that we remain hardware agnostic and have an open software and I’ll talk about that. Bringing together engineering and operations software to create an unravel digital twin for our customers, helping them to accelerate their journey in digitalization and for us to move in our journey to owners and operators as we go ahead.

At all the times, the megatrends, such as cloud, IoT, AI, which we’re infusing in all of our offers, and sustainability driving even greater adoption of industrial software. Now it’s about 70 days after closing OSIsoft, and we’ve been able to look behind the curtain, and I can tell you, we like what we see, and we like it a lot.

Customer feedback is overwhelmingly positive, and I’ll comment on this a little bit later. We see really an exciting structural growth opportunity as we accelerate our journey to Software as a Service on the cloud and also to subscription.

Today, we’ll be introducing ARR, annualized recurring revenue, as an additional growth metric for the company to help you understand where we are in this journey. I’m very much focused on delivering on this growth opportunity, creating value for all of our stakeholders.

But let’s take a look at the results because numbers do speak louder than words, if you will. At 2021, and let’s just recap our physical started April 1, that’s -- this was basically the day where we started in the global lockdown.

It was really a tough year for many people, and I’m grateful for all the AVEVA teams across the world for keeping their focus on the customers and on technology, making it, I would say, a successful year for the business as we came out in the second half. So in April 2020, when we started going into the lockdown, it was tough for the teams, but I think we emerged significantly stronger in the second half.

Both the AVEVA and the OSI business have delivered double-digit second half growth on an organic constant currency basis. We increased the full year pro forma operating margin to nearly 30%.

And most significantly, we completed the transformational acquisition of OSIsoft, strengthening our strategic position significantly, and I’ll talk about this later. So training also started well into this fiscal year, supporting a positive full year outlook and more on that later.

But I think now I’ll hand over to James to give you more details on a complex set of financials as we look at AVEVA, ourselves and then also the pro forma of the combined company. James?

Thank you, Peter. Good morning, everyone.

As it has been a transformational year for AVEVA with the acquisition of OSIsoft, therefore makes sense to start with the pro forma results of the combined group. This shows what the group would have looked like for the 12 months to March 2021 as if AVEVA had owned OSIsoft at the start of the period.

We believe the pro forma results provide a better understanding of the combined trading performance and gives the most insight both into the historic performance of the group as it’s structured today, but also creates a base for how the group would look like going forward. We are hosting our Capital Markets Day on the 1st of July, and we’ll speak about more on our longer term financial and operational ambitions then.

So more to follow on that. But today, I’ll provide more commentary on the sector performances for AVEVA and OSIsoft.

So you can see how they both performed in the year. So starting with the summary of results, and I’m very pleased that we had a good second half performance and delivered a robust set of results and one that’s ahead of consensus at the EBIT line.

During the year, the business pivoted very effectively to operating remotely and continuing to deliver value to our customers and other stakeholders. Overall, it was a solid year with pro forma total revenue just under GBP 1.2 billion, which was down 1.4% in a constant currency.

Currency continued to be a headwind in the second half, so on an organic constant currency basis, revenue increased by 2.2% on a pro forma basis for the year. This is the result of the slow first half due to COVID-related disruption, followed by a much stronger second half, where both AVEVA and OSIsoft grew by 10.6%.

We’ve continued to make good progress on our strategy to increase recurring revenue as more of our customers transition to subscription and recurring revenue increased just under 67% on a pro forma basis. Despite the top line being flat, profitability increased, an 8% increase in adjusted EBIT to GBP 355 million, giving a margin of nearly 30%, up 270 basis points.

That’s flowed through to adjusted EPS, which is up just under 12%, also benefiting from a lower effective tax rate. Given the momentum in our subscription to transition, we are disclosing, as Peter said, for the first time, annualized recurring revenue and that increased by 8.6% in the year.

And finally, we’re proposing to pay a final dividend of 23.5p per share, subject to shareholder approval at the AGM, which ramps into a small increase over the prior year by taking into account the bonus factor related to the rights issue. So now let’s move on and look at the full income statement on a pro forma basis.

As I said, revenue was just under GBP 1.2 billion. But when you look at the makeup of that, AVEVA’s revenue was GBP 803 million for the year, down 3.7% in reported terms, while OSIsoft revenue was GBP 393 million, up 3.6% with both businesses facing a currency headwind.

Total adjusted costs reduced cost of sales down 6.4% and OpEx down 1.5% on a constant currency basis. These reductions were due to capital cost management and reduced spend because of the pandemic.

Despite the overall reduction in cost, we continue to invest in the key areas in R&D and sales and marketing to drive longer term growth. So despite a slight reduction in revenue, we managed to improve our adjusted EBIT margin to 29.7%, reflecting good cost control from both businesses.

We saw the AVEVA EBIT margin improve to 27%, while OSIsoft margin increased by 550 basis points to 34.8%. And obviously, some of this improvement is from the savings of reduced travel and customer events.

And we do expect some of these costs to come back this year, hopefully, as things open up, particularly in the second half. The pro forma assumes that we would have drawn down the $900 million term loan, which we used to partly fund the acquisition.

So this year is the interest charge and what it would have been over the last 2 years. And the reduction in FY ‘21 is due to the following LIBOR range.

The pro forma tax rate was just under 6%, which is substantially lower to what it’s been in the last couple of years. The low rate was a result of the tax step-up related to the OSIsoft acquisition and also tax incentives on the intellectual property.

Just to remind you, when we announced the OSIsoft deal, we did provide some guidance that the adjusted tax rate going forward would be approximate 13%, and we expect the FY ‘22 rate to be closer to this level. Moving on to look at the revenue breakdown for the pro forma group, in line with our strategy, we saw an overall increase in recurring revenue of 11%, driven by subscription growth of nearly 20% in organic constant currency terms.

Maintenance grew a modest 4% because of the transition to subscription within AVEVA and some growth from OSIsoft. So overall, our recurring revenue for the pro forma group is 66.9%, up from 61.2% the previous year.

We did see a decline in perpetual licenses, partly due to the COVID disruption and also the transition to subscription. And finally, services reduced by 11%, principally due to the focus on higher margin services and the move to subscription.

Moving on to look at standalone AVEVA breakdown as part of that, the trends were pretty similar for AVEVA in FY ‘21. We saw good growth in subscription helped by the renewal and extension of several large contracts in the second half, particularly in Q3, with our global account customers.

And we saw a decline in perpetual licenses in line with our strategy to move to subscription. In terms of sectors, we found oil and gas tough, particularly on the CapEx side in the first half.

But we have seen during the course of the year, a focus on operational efficiencies within oil and gas, and we’ve won some key projects, including Shell Digital Twin project and also the Unified Operations Center at Saudi Aramco. Our role in energy transition also helped demand.

We saw resilience to our EPC customer base with contract extensions and renewals, the likes of wood, worley and petrofac to name a few. We saw strong growth in other sectors, particularly in food and beverage, consumer packaged goods and power, where more stable market conditions and ongoing digitalization provided a backdrop for growth.

From a regional performance, we saw a good second half from EMEA, which benefited from these contracts, I mentioned, resulting in growth of 5.4% in the year on an organic constant currency basis. We delivered strong double-digit growth during the second half of the year in Asia, following a first half that was impacted due to COVID.

And our end market diversification strategy, particularly in chemicals, metals and mining, helped offset some of the headwinds we faced in oil and gas and marine. We saw growth in South Korea and Japan, whilst our performance in China in the first half was particularly impacted by the pandemic, we saw a strong recovery in the second half, leading to an overall small decline for the region.

And finally, Americas had a tougher year, with revenue declining 3.4% on an organic constant currency basis with some significant reductions in perpetual licenses and services offset by good growth in subscription and cloud sales. Trading conditions were particularly challenging due to the depressed economy.

Moving on to OSIsoft revenue breakdown. OSIsoft has a similar level of recurring revenue to AVEVA.

However, the mix is different where they have a bigger proportion of maintenance revenue and a small amount of subscription, and we see that as an opportunity as part of the integration. OSIsoft’s commercial model is largely perpetual licenses and maintenance, and they have a large installed base with high renewal rates and low churn similar to AVEVA, which reflects the sticky nature of the software.

As we said before, OSIsoft is at the early stages of introducing subscription, and this is an area we think we can help accelerate building on our experience and particularly using the AVEVA subscription pricing module AVEVA Flex, and we’ll provide more details on this at the Capital Markets Day. Subscription saw a very strong growth off a low base and maintenance saw a moderate increase.

This led to an overall increase in recurring revenue of 17% on an organic constant currency basis. Perpetual licenses declined moderately during the year.

And from a geography perspective, the U.S. area represents close to half of the OSIsoft business and grew mid-single digit in FY ‘21.

Asia Pacific is relatively small at around 15%, but it did well in FY ‘21, and we definitely see opportunities to grow our business in China, South Korea and other parts of the region. EMEA also saw mid-single-digit growth with France, Germany and U.K.

being the bigger markets. And finally, from an end market perspective, we saw strong growth in OSIsoft’s larger sector, power and utilities, particularly in transmission and distribution, and in other sectors such as pharma, food and life sciences and chemicals, offset by some softness in oil and gas.

Now let’s move on to look at annualized recurring revenue. So we introduced ARR to make it easier to track growth in our subscription and maintenance revenue, particularly as we go through subscription, transition and in particular, as SaaS becomes a bigger part of our mix.

ARR removed distortions caused by revenue recognition by calculating the annualized value of our subscription and maintenance contracts. So you can see on an annualized basis, the growth of our annual spend with our customers.

At March 2021, ARR for the combined AVEVA was GBP 704.8 million, and we’ve aligned our sales incentives and bonus schemes to include an element on ARR to buy more focus on ARR, which will drive further growth. This represented a 12-month increase of 8.6% on a constant currency basis, and both AVEVA and OSIsoft delivering good growth.

We expect to see continued growth in ARR this year as the journey progressed on the transition, and we’ll provide more detail on this at the upcoming Capital Markets Day. Moving on to costs, the total costs reduced by 3% to GBP 841 million on an organic constant currency basis.

This was due to a reduction of 6% in cost of sale, 1.5% in operating costs. The reduction was due to the tight cost control that we put in place as well as the savings on travel and events associated to the pandemic, offset by investments to drive longer term growth.

I think you do have the cost for AVEVA and OSIsoft separately so you can see the breakdown on that. So starting with AVEVA, at the beginning of the year, we responded quickly to the pandemic and implemented tight control around our costs, given the uncertainties at the time.

This included freeze on recruitment, new salary increases and generally tight control on spend. Cost of sales reduced by 4%, and we’re able to reduce our gross margin on services despite lower services revenue.

This is due to more use of offshore delivery centers and remote delivery of services to our customers. For example, we delivered a major project for Saudi Aramco entirely remotely delivering on time and without the need to travel.

And operating costs were down by 3%, selling and distribution costs reduced by 3%, largely due to the lower travel costs and fewer new physical customer meetings being replaced by the digital events that we hosted and also investment in digital marketing. The pattern was similar in R&D, savings being partly offset by increased investments in cloud and AI.

AI -- sorry, our admin was up, largely due to higher IT costs associated with building our in-house capability, following the exit of the transitional service agreement from Schneider. And there is also some investment in HR and finance to support the business.

Looking at OSIsoft costs, again, the pattern is not similar from that seen at AVEVA with substantial travel savings made. Cost of sale reduced substantially as is selling and distribution costs due to the cancellation of physical customer meetings like PI World and other customer events and less travel.

R&D saw a smaller increase due to investments in cloud and admin also increased due to higher IT and business software costs. And finally, let’s look at the balance sheet, and there obviously have been some major changes over the last year with the impact of the acquisition.

Noncurrent assets increased substantially to GBP 5.8 billion. This reflected the increase in goodwill and intangible assets due to the OSIsoft acquisition.

And for the first time, AVEVA took on debt with a term loan of $900 million over 3 years from Schneider Electric, which is used to partly fund the OSI deal. The debt translates into GBP 654 million at year-end, and we intend to pay this progressively down over the next few years.

Cash and treasury deposits were GBP 287 million at the year-end. A portion of this cash was committed to pay transaction-related costs.

So after the payment of those, net cash and treasury deposits from the 16th of May was GBP 217 million, which is at more normal level. Other points to note were the increase in contract liabilities, reflecting the deferred revenue we acquired with OSIsoft and the increase in contract assets, largely due to the upfront recognition on multiyear contracts signed in the year.

So in summary, AVEVA delivered a solid performance over the last 12 months. We’ve ensured we continue to invest in the key areas of technology and also digital market and also accelerating our transition to subscription whilst also completing the transformational acquisition with OSIsoft.

So with that, thank you for listening. And I’ll now pass it over to Peter.

Well, thank you very much, James. And I’d like to talk a little bit more about the new AVEVA, post-closing OSIsoft, how we’re creating value for our customers and for our stakeholders and of course, then also our plans for integration of this transformational acquisition.

Let’s quickly recap to see how AVEVA is more and more significant in the digitalization of industry, and industry is really at the infancy of the journey on that dev curve. Now if you look at the last 4 years, we’ve grown AVEVA 5x.

When you look back in 2018, we were really focused on engineering efficiency. While we’re now moving really to an owner-operator efficiency as the biggest driver of sustainability and making AVEVA the core of our customers’ Digital Twin.

And also in 2017, you could say we’d probably be 100% CapEx driven with EPCs and a lot of oil and gas, while today, a very large extent of our business is owner-operator OpEx budget focused, if you will, in multiple industries with significant structural growth opportunities. And let me just comment on a couple of end markets.

In power, for example, we expect in an all-electric world that the electricity demand to double the energy growth through 2040. And with OSIsoft coming in, they bring a lot of experience in transmission and more than 90% of the large transition -- transmission companies in the world are clients from OSIsoft.

And in distribution networks and for those of you who know Schneider, a little bit, is one of the strengths there. So both of that really represent growth opportunities for AVEVA.

Now we’ve also enhanced our footprint in food and beverage, consumer packaged goods and life science. You see this is an end market with a steady growth and also with investment in global resiliency through digitalization.

This has accelerated actually through the pandemic. And I’ll talk about a couple of proof points with customers in the deck later on.

Now we’re bringing together AVEVA and OSIsoft. With that, we’re combining 2 trusted partners in the industry, world-class software experts, I would say.

And there is a simple equation, if OSIsoft is basically the custodian of the largest industrial structured operations data repository in the world, we’re sitting on a gazillion of data band structures. We bring this together with the AVEVA leading portfolio for industrial software applications across engineering and also operations.

Together with that, we can really accelerate the industrial digital transformation with proven outcomes and not just technologies. Let me give you just 2 examples of my recent customer interactions since the announcement.

One is with the -- with a large chemical company in Germany. They were excited to tell me that they run tie system in every of their plants and they’re collecting the data for 25 years.

And the opportunity they see with our applications to drive performance of their plants forward is just massive in their journey to become a more sustainable company. That’s really critical.

Now on my third day in AVEVA, I met with a large energy company, European one, both OSIsoft and AVEVA, we’re selling products, then we were really in a vendor relationship with them. And they have transformed us and invited us to be their strategic partner in regards to also formulating a corporate contract because we’ve become mission-critical for their operations, and that’s something to remember.

Now moving on to the next slide, you can see how all of that fits together in one beautiful architecture. And I say beautiful because that’s what our customers said.

To quote some of them, when they see the architecture, they say this is really simple. It’s compelling and it’s game-changing.

And these are not my words, these are the words of the customer, while I’m equally excited about it. It’s important when we start off with the information layer, which to a large extent, is OSIsoft PI System.

It is hardware-agnostic. And you also hear us talk about it’s an open software.

That means it’s agnostic to either AVEVA’s software or also third-party asset life cycle applications as we move forward because we want to become the ultimate standard in the market. Our visualization is world-class, and you’ve seen our Unified Operations Center that is paired with augmented reality, virtual reality or sometimes mixed reality, all of that in the cloud, the edge and on multi-devices, which is really important for our customers.

So -- and then, of course, all of that, and we’ve doubled the product into the cloud in the last year with a single experience called AVEVA Connect, and James mentioned already, the flexibility to consume that software with AVEVA Flex and we’ll also allow third parties to come in there. And I want to touch on our path to subscription and the cloud.

We’re really committed to move forward to subscription business model and to provide even greater flexibility to our customers with AVEVA Connect and the ability to consume software flawlessly. So in terms of delivering, this is something where we made great progress in the last year, significantly increasing recurring revenue and developing our AVEVA Connect cloud platform.

So we’ve launched a number of key products on AVEVA Connect during the year, including Unified Engineering, which we’ve been working on for some time. Unified Supply Chain, Insight Guided and Advanced Analytics and Asset Information Management, really doubling our cloud offers during the year.

That puts us in a strong position to grow our ARR and shareholder value further and our customers move to subscription and also move to the cloud. This has really accelerated during the pandemic time.

Customers that were an opposite of the cloud have changed their mind tremendously. Now before I move on to integration, I want to share a couple of customer examples, including our OSIsoft information layer that can be integrated with AVEVA’s application.

And some of you have seen this Unified Operations Center here in our London office and OSIsoft is all over it. In all applications that you see here, the information layer below is post OSIsoft PI System.

Now looking into some of the OSIsoft’s customers, which have done during my first days as CEO, it’s great to see when you look at the top 20 customers, for example, to give you a data point, 50% of those OSIsoft top customers don’t use any AVEVA application today. That just gives you an idea of how much potential we have.

Now of course, we’ve also moved into all our applications. We moved some AI.

That’s a trend that’s going on. It will help to make our software even better as we drive our real-time process control engineering capabilities forward.

So all of that is drawing from OSIsoft’s data. We see increased adoption here at our Unified Operations Center in 2021.

That’s not abnormal, given the remote control desire of many of our customers. And the beauty is we’ve achieved quite a few of the deployments of our software totally virtually with our clients driving down the cost.

Now let me move to 2 concrete customer examples here, one with EDF, the largest power generator and of course, one of our core customers for many years, where we’ve enjoyed good partnership over several decades. Their program to accelerate its digital transformation allowed us to sign a significant contract extension in ‘21 for AVEVA’s Unified Engineering that I mentioned earlier.

So it provides trusted data-centric design software that gives complete digital continuity, like a digital bread and boost, engineering efficiency from the Digital Twin of their reactors. So we’re moving some of the engineering also to owners, operators.

So EDF runs a fleet-wide monitoring of also solar, wind and energy storage, where we help them in their energy transition using AVEVA’s predictive analytics and also the PI System of OSIsoft. And as I mentioned, there are many customers that have integrated AVEVA and OSIsoft’s PI System themselves like EDF.

You can see that in a very simple equation, the customers run their assets, they use our software to analyze what’s going on to predict how the future is going to evolve, and they simulate the outcome with a couple of changes in order for them to change the future of their operations. And they want to change the future to have more efficiency to generate more profit and, of course, also have a more sustainable operations.

Talking about sustainability, we’ve been helping a customer called Henkel out of Germany. Many of you may not know the brand Henkel, but truly you know Persil or Loctite or Schwarzkopf, which are just 3 of their consumer brands that they have.

Henkel is a great example of how our software can support the realization of sustainability goals that’s high on the agenda. The company uses our software portfolio for some time actually to increase efficiency and reduce waste in production of laundry and home care products.

Now I’ve known Henkel for a long time and Carsten Knobel, who’s the CEO now, is an old colleague of mine from University. And when I introduced the AVEVA team to him 3 years ago, we were talking about this sustainability journey together.

And we developed from just applying the system platform there also to historian MES system and to help Henkel significantly to reduce their energy consumption, as you can see here on the slide and also the elimination of waste in that regard. You clearly see the benefits, more software were deeper into the customer embedded and we become a strategic partner in the sustainability search.

Now moving on to the OSIsoft integration and the value capture that all of you have been interesting on before we come to the outlook. Let me share how we see -- how I see the integration and the value capture going forward.

As I said, we really like what we’ve seen in OSIsoft being able to look behind the curtain and it has certainly validated our acquisition case. So the company, we started swiftly with the integration process, and it’s good that we have the experience of the merge between AVEVA and Schneider, we put the management structure swiftly into place for the combined group.

And the next stage of integration is starting already with the implementation of some of our value capture opportunities. These include both cost synergies as well as what we see quite a bit of revenue synergies.

We expect to deliver on the cost synergies, I think we’ve said this before, not less than GBP 20 million per year on a run rate basis by the end of fiscal ‘23. And we’re pretty confident in this number.

The work to remove some duplicate overhead systems and processes has begun. For example, we have a program to consolidate at the moment, 17 locations globally where we see reasonable overlap without putting business at risk.

And -- but of course, we’re much more excited about the revenue synergies and revenue opportunities, as I’ve outlined earlier, as we cross-sell in the short term and then, of course, taking advantage of AVEVA’s global scale in respect to sales force, but also the partner network, including the partner network of Schneider Electric, where they can also help us with their strong footprint in the electrical world that is new for us with the OSIsoft’s acquisition. Of course, it will take some time to integrate and enhance our product with our customers, but I can tell you they see this already, not a single customer who’s not excited about it.

And of course, a lot of work in front of us and would share more as we come to the Capital Markets Day in July 1 -- on July 1. I’ve spent time with several key customers in our development teams and including our development teams over the last couple of weeks.

And I can tell you, they’re all tremendously excited about this great opportunity that’s in front of us here. And let me share with you also how that translates into our outlook and a little bit the summary.

I think AVEVA has emerged in fiscal ‘21 stronger in the second half, more resilient. We delivered good second half growth, as you’ve heard from James, together with OSIsoft trading, they’re trending very much in the same direction, and we’re excited about the operation to even deliver more value to our customers and stakeholders.

Although it’s early into the year, we have a lot of work to do. I can promise you that one.

Trading has started well in fiscal 2022. And we remain confident in both the full year outlook and AVEVA’s long-term growth opportunity that I’ve outlined here, I’m quite enthusiastic about it.

So for that, thank you for listening. We’ve taken a little bit longer time for a complex year, with a lot of transformations in the company, but we’re happy to take any questions you have and may recourse on to the Capital Markets Day in July, where we’re going to give you much more color on the way forward.

So James and I are happy to take questions from you if you have.

Three for me. First of all, you talked about revenue synergies with OSIsoft.

Is there any way to quantify that or perhaps give us a sense of timing for the cross-selling? And then when you think the new product launches will start coming through?

So that’s one. Number two, can you talk a bit more about how you plan to shift to subscription for OSIsoft and maybe timing on that?

And then number three, how are you thinking about adjusted EBIT and margin progression for 2022 and going forward?

Let me maybe start off. Thank you, Stacy, with the product launches and then also synergies as we see them.

As I outlined, we’re starting off with immediate cross-sell opportunities and the incentive systems for our sellers, both OSIsoft sellers and AVEVA sellers that we’re moving in one joint sales organization is targeted in the direction of immediate cross-sell that is there. And many of the clients are bringing software together by themselves with the interfaces.

Of course, as we’re moving forward to really develop product, we’ve identified quite a few immediate developments and the teams are working on it. First launch is to be expected this calendar year actually as we go forward.

On the subscription conversion, let me hand over to James.

Yes. Thanks for the question, Stacy.

We are very much looking at that as part of the integration plan and particularly getting the OSIsoft products onto AVEVA Flex, which is our subscription pricing module, which it gives the customer the flexibility to switch between products, it’s a credit token system that gives them the ultimate flexibility. So we’re very much looking at that.

And OSI has a very small level of subscription revenue today, we certainly see an opportunity to really develop that. But it’s still relatively early days, but very much part of the plan.

And we’ll certainly give you more color in terms of the actual offering to the Capital Markets Day. The final part of your question on adjusted EBIT margin for FY ‘22, we obviously have had some cost benefits in FY ‘21 with reduced travel and no customer seminars or meetings such like.

We hopefully, we’ll see some of that cost come back in this year. And we’ve also got some inflation in the cost base offset by cost synergies from the deal, obviously.

So net-net, we think that the EBIT margin for FY ‘22 is broadly in the same as what it was for FY ‘21. Just to remind you, FY ‘21 was 29.7%.

Any thoughts on margins going forward? Or do we need to wait for the CMD?

Yes. Watch the space.

We’ll speak a bit more about that at the next call.

And thank you for the ARR number. I just wanted to talk -- ask you to talk a little bit more about that.

In particular, I’m looking at absolute level of ARR of just over GBP 700 million. And then comparing that with your recurring revenue number of around about GBP 800 million, now obviously, there’s timing effects and revenue recognition effects going on there.

But can you just help us to understand the differences between the two, one of the bigger, bigger things that sit between those two?

Yes. Sure.

Will, thanks for the question. So yes, we’ve introduced ARR and we should on a pro forma basis, so given you the AVEVA and OSI ARR numbers that are based, the reason for the difference between ARR and what’s actually booked in the accounts is on the multiyear subscription contracts and the 1-year subscription contracts for that matter, under that new recognition rules, we have to take the license portion of those contracts upfront.

So typically on a 3-year subscription contract, we book 2/3 of that in year 1, whereas obviously in calculating ARR, we’re taking a 3-year contract and divide it by 3 to give you the annualized effect. So basically, it just reflects the fact that on-premise subscription contracts, we’re taking the revenue years in the books ahead of ARR.

Okay. Because obviously, there are some contracts that you haven’t taken that don’t come up for renewal and therefore, you’re getting ARR without revenues for those or so much revenues for those contracts.

Correct. So as we go through the renewal cycle from year-to-year, it will differ depending on which contracts which point.

And I guess the other thing I should just say is that today, SaaS for us is a relatively small number, when we have a big focus on growing our cloud business this year that lot of investment going into that very much focusing on developing our offerings. So we’ll see SaaS become a bigger part of the mix in FY ‘22.

And that will obviously be reflected in the ARR growth this year. And obviously, just to be clear, with SaaS, we’re recognizing that revenue on a ratable basis across the contract term.

So it takes longer for that to feed through the P&L.

And if I can just ask a quick follow-up sort of related question. For the current year, how do you see the phasing of renewals and sort of phasing therefore of revenue growth through the year?

Obviously, you potentially got an easier comp in the first half and then a tough comp in Q3, et cetera.

Yes. So yes, we have a -- certainly an easier comp in the first half for both businesses.

When you look at FY ‘21, it was very much a tale of two halves for both AVEVA and OSIsoft, both were impacted in H1, both saw 10.6% growth in H2. So first half, easier comp, but not forgetting that we’re not out of the pandemic yet, of course.

And most of our teams are still working above. So there’s still some challenges out there.

And so our end markets are still a little bit difficult. But overall, easier comp in the first half.

And then as you called out, Q3 is a -- last year was a very big quarter for us with a large group of renewals. We have a bit of a headwind in Q3.

And then obviously, Q4 is a big quarter for us generally, it’s typically our biggest quarter and large number of renewals in that quarter.

A couple for me as well. James, can you give us an update maybe on where the heritage of the -- your installed base is now on the shift to subscription?

And there’s already a debate about the benefits of multiyear deals sort of bringing forward revenue. But obviously, as you switch off perpetual licenses and go to subscription as a headwind, can you give a sense of the lifetime value of customers as they move away from license and maintenance?

What sort of uplift in revenue would you generate over say, a 3-year or a 5-year period? And then, Peter, welcome.

Just can you talk a bit about how you see Software as a Service and cloud? I know we’re going to hear a lot more at the Capital Markets Day.

But how significant is the shift should investors maybe think will occur over the next 3 to 5 years perhaps?

Michael, thanks for the question. In terms of the transition to subscription for the heritage of AVEVA business, we’ve continued to make good progress during the course of the year and you can see that in our -- both in our ARR growth and also in our subscription growth that’s booked in the accounts.

I think when you look at the business units, as I said to you before, engineering already has a very high level of subscription revenue. Just really the other 3 business units where the opportunity lies, the biggest being monitoring control with Wonderware.

And over the last 2 or 3 years, we have moved a lot of the big enterprise accounts like the Pepsi, Campbell, Network Rail, et cetera, from a maintenance contract on to subscription, and that’s been very successful. And what’s still to do really is the long tail of small customers that we have who buy Wonderware licenses.

And we’ve seen some of that over this last year. And that’s really where the biggest opportunities still lies and still a lot to do there.

This is like the volume business that we have through the channel, which is 1 or 2 licenses they are typically buying and that’s an area where we actually want to get those customers on to subscription. And in terms of the uplift, I mean, typically, when we’re moving from maintenance on to subscription, you’ll see an uplift of 25% to 1/3 in terms of uplift of value, sometimes higher depending on the circumstance.

And that’s obviously something that we’ll continue to do. And it gives us an opportunity to use AVEVA Flex as being the model to be the catalyst to drive customers to do that through the increased flexibility that we have.

And typically, on our 3-year contract with an on-premise subscription, we would typically see sort of 30%, 40% type uplift on that kind of a year compared to the perpetual equipment. Peter, do you like to describe?

Yes. No, absolutely.

Michael, thanks for the question. On my mind, there is no doubt in the direction we’ve taken in respect to the transition to the cloud and then also Software as a Service.

As a matter of fact, the pandemic has accelerated this journey. And just to give you an example, the customers that wanted to have engineering licenses on-prem, they’ve started having work people from home, and we’ve seen a tremendous usage of our cloud offering in that regard.

Now it requires, of course, also quite some R&D work. And we’ve used the year to double the amount of offers that are available in the cloud.

And so they can be consumed through AVEVA Connect, which gives one customer experience for it. And I see that the teams will continue with the same speed going forward.

Now you ask for 3 to 5 years model, of course, that’s something that we will exactly present to you at the Capital Markets Day. That’s why we introduced ARR today as another metric and that will allow you to look at the business from a revenue perspective, from an ARR perspective and then also TCV, and this should give you a realistic view, not only where we end up, but also some midpoints in between.

So you can follow on how we’re doing in respect to that journey. And I think it’s going to be a reasonable path while we are also keeping revenue in mind.

James, just a clarification. Are you still expecting many customers to move from 1-year to 3-year subscription deals?

Or is that now sort of just a cadence of renewals?

We still have some customers who move just per that context, roughly when you look at subscription contract value, roughly just under 1/3 as to a 1-year contract. There’s still quite a reasonable installed base of 1-year contracts.

I have two questions. I think one just back on the guidance for this year for fiscal ‘22 on the revenue side.

Can we try to crystallize that a little more? Because I know you talked about a return to the long-term growth rate.

What does that mean exactly for you guys? I think it would be good to bring that out.

And then number two, I guess it also implies there’s not really a bounce back coming in the revenue, right? It still seems like it’s off of a lower COVID impact base in the past year.

I mean, is that correct? And is that oil and gas driving that?

And then a second, just a follow-up question then. James, you were just talking about the uplift for the conversion of subscription there on the LTV over the perpetual model.

Do you expect a comparable uplift for OSIsoft as well going forward?

Yes, Julian, thanks for your question. I guess, quickly dealing with the second one first.

Yes, we expect us in the model with OSIsoft because same markets, typically very similar customers so that the economics will be reapplied, no dramatic change there. Just in terms of the guidance range, revenue, so we expect the heritage AVEVA business to be around that mid-single-digit type growth, which we’ve seen historically.

OSI, we expect to be around its historic growth range, which if you look back over a number of years being close to double digits, offset by obviously foreign exchange transition headwinds, particularly the dollar going against us, which is probably around -- there’s a slide in the appendix, I assure you that compared to current spot rate, there’s a 4% headwind. So I hope they should give you some figure in terms of how we’re thinking about the overall top line for FY ‘22.

In terms of what’s impacting that, currently, we’re still operating in a COVID environment. Our team is still operating remotely.

That brings some challenges in terms of driving these business and getting out in front of new customers, new prospects, et cetera. Oil and gas, it’s pretty stable actually or we wouldn’t necessarily call out.

It’s been a major headwind. I mean obviously, the CapEx side of the life cycle is under pressure, but it’s relatively stable and certainly a lot of our EPCs are pivoting more to renewable type CapEx projects, which is hydrogen plants, for example.

So I wouldn’t necessarily call it oil and gas headwind. But Peter, do you want to comment on that?

Absolutely. The -- I think one of the things we need to see with our -- and I don’t say oil and gas, I say, energy companies because if you look out, there, all of them, are in a transition, and this transition requires a lot of digital backbone to make it happen.

And when you look at some of the graphics we’ve shared, we’ve also gone away from just saying oil and gas, but we say energy because many of those clients are in a fundamental change of their business model and they rely on us to help them to do that in that regard where they, in the past, just bought assets from EPCs. At the moment, they drive this journey by themselves with our help.

Two questions from me. First of all, do you envisage any sort of organizational changes, particularly on the kind of go-to-market side as you bring OSI and AVEVA together and try to sort of unlock some of the sort of revenue synergies?

And I guess what sort of buffer have you baked in kind of your revenue, are there any potential bombs or risks? And then secondly, just thinking again more along the line, Peter, you talked about the business kind of moving away from the kind of energy-centric focus as historically we had.

But if we look at the business from a kind of product standpoint, you’ve diversified the product set into a lot of adjacent areas beyond from engineering design. So how should we sort of think of the group kind of on a -- is design and kind of engineering a very mature category.

And the bulk of the growth is coming from to APM and OSI, all the kind of the adjacent areas going forward?

Thanks, Mohammed. It was a little bit difficult to understand.

I’m trying to answer your question, and then James can support in case he has understood it a little bit with the different color. The -- your first question, I think, was in respect are we taking organizational changes and so forth.

As I’ve commented earlier, we’ve put in one management structure into OSIsoft. I talk with people at all levels every day.

I’m in frequent contact with the Founder, who’s Chairman Emeritus of AVEVA now. And we’ve jointly designed, in particular, in the beginning, a joint sales force where we have a solid understanding of who has what portfolio at our customers, how can we cross-sell and upsell.

And we’ve set incentives, respectively, with, of course, being very mindful of not changing everything to people as they come together. In general, I would say there is an overwhelmingly positive feedback that we get that we do constant surveys with the people.

The -- I would say we are confident, as I said, on the cost synergies while this is really a revenue growth case, and we’ll bring you a little bit more color that when we come to the Capital Market Day, which you should expect in respect to values there and when they will materialize as we also need to develop some offers as you would imagine. Your second question in the energy centricity.

What I would like to say is, first of all, let’s look at the big numbers. Here, 2/3 of our portfolio is on the operational side, is helping the clients to improve the efficiency of their operations and 1/3 is on the engineering side.

We also tried to outline earlier, we’re really at a transition to moving with our EPC customers, but also to the owner operator. Because if you combine operational performance -- the operational software and the engineering software, you can really bring this Digital Twin to life.

You can use the historic data that’s there where you can basically have the Digital Twin show you how the asset is performing. And then with our APM software, we predict the future.

And then with simulation, we can actually help our clients to improve their future, meaning they improve their efficiency. And again, efficiency is the largest driver for sustainability.

So again, 2/3 operational portfolio, 1/3 engineering portfolio and the engineering portfolio is moving more and more to the owners operators as the drivers is sweet spot of the market. Hope, I understood your question.

Two for me, please. Peter, I’m sure we’ll hear some more about this probably at the CMD as well.

But just given your experience within Schneider, can you give us some thoughts around any areas as to further strategic overlap between AVEVA and Schneider? I mean, specifically thinking perhaps about some of the other industrial software assets that Schneider owns.

Are there any potential tie-ups or combinations, collaborations that you might consider in the future, at least between the businesses? Or maybe a comment on how you think about delineating between AVEVA and Schneider when it comes to M&A in this space?

And the second question is on enterprise agreements of OSIsoft. I seem to recall these are featured quite prominently in the past as you’ve really progressed your work here around OSI, can you talk about the sort of nature and materiality of those today and maybe the pipeline of renewals or new deals on the enterprise agreement side?

How that might affect the growth of the business?

Yes. Thanks, James.

Let me take the first question here. The -- I think it’s been visible from day 1 how much an industrial partner that is active in pretty much similar end markets like ourselves to help us propel growth.

And just to give you a little bit of color, TCV growth of software that went to Schneider, through Schneider or with Schneider to the clients, has grown double digits. We’re not giving these numbers out in detail, but just to give you some color here.

End markets that we haven’t addressed on day 1 of the merger of Schneider and AVEVA have a world over time. And to give you a couple of examples, Schneider’s strength and data center, we’ve built software that helps our Schneider’s clients in the data center world to have a Unified Operations Center across many of their data centers.

Now OSIsoft comes in, and their PI System is installed, many, many data centers. It improves, and it’s very critical to improve the energy footprint of a data center.

These are one of the largest energy eaters today in the market, and it’s expected that the consumption of energy is more than doubling in these data centers in the next 8 to 10 years. We’re not doing anything against it.

So we’re ideally placed to drive on data center. As I outlined before, OSIsoft’s PI System, 35% of the market is in power.

If I talk power in that regard, I’m talking power distribution, I’m talking power transmission and then also power generation of the utilities as opposed to power generation of the energy sector, if you will. That’s a market that will grow because we see energy in the form of electricity is really accelerating, double the speed of other energy sources that are out there.

And in the combination of OSIsoft with Schneider and Heritage AVEVA, we’re ideally placed to capture on the opportunity. Then the Schneider again is very strong in hybrid markets, food and beverage and so forth.

And having said that, it will help us to grow in that regard. Now in respect to overlaps of the portfolio, let’s give us a couple of days to understand what you’re talking about here.

The -- and in regards to M&A capacity, Schneider has been a tremendously good shareholder supporting us in the acquisition of OSIsoft. And I think we’re proving PS accretion pretty much in year 1.

And if we’re presenting such cases, I’m confident that we do get support from our shareholder here as well. And for the enterprise agreements in OSIsoft, James is going to give you a little more color.

Yes. Thanks, James, for the question.

So yes, OSIsoft has 2 perpetual license models. One is a straightforward perpetual license.

Customer buys any number they want plus maintenance. And then they introduced enterprise agreements a few years ago to their larger customers.

And it basically provides a framework agreement with large customers and basically remove the friction in the procurement process for those customers. So it’s typically a 5-year contract, it’s site-specific that it’s all-you-can-eat for those sites, but it also includes the agreed pricing to the maintenance for a 5-year term.

So typically, it’s the large customers are signing up to those. And it’s typically around 15% of their business is EA agreements.

So it’s reasonably material. It is a bit more lumpy because obviously, it’s -- they’re typically big in value and with the big customers.

So it does tend to base grinder a little bit, but there’s a decent pipeline of EA agreements for this year and certainly it’s a model which we will continue to promote.

Just a couple for me, if I can. I just want to understand a little bit more about the cross-sell opportunity.

And I guess the simplest way to put it is what’s the white space? You talked about OSIsoft customers who don’t have AVEVA.

And I assume it’s the same the other way around. But what are they using today?

And how easy is it to displace those customers or that existing incumbent software? How we get to tap into that opportunity?

And then the second question is just around pipeline. If I’m not wrong, you haven’t really mentioned pipeline in the statement today, guess we’ve touched on that a little bit, but any more color you can give us in terms of what’s in the pipe already for FY ‘22 would be interesting.

Absolutely, Michael. Let me start off with the cross-selling opportunities.

If you think about it, let’s take an OSIsoft customer, they have PI System installed. They sit on a great amount of data, usually, the visualization capabilities of PI System and others haven’t been great.

So in regards to visualization of augmented reality, of Unified Operations Center that then gives great opportunity, our Insight platform that could run on top of it, great opportunity doing Asset Performance Management with the APM suite immediately asked by many customers. And then one thing that is pretty hot in the market now is simulation and simulation also requires a lot of historic data immediately with the customer.

So here are a couple of examples. We’ve, of course, a pretty long list of things that need to be done in an agile way.

That’s how we want to move forward. Then other than -- it’s cross-selling to start with, we have a good incentivization system for the sellers.

And now engineering is working to not only interface these offers, but have them flawlessly work together with -- at our clients, and we have good suggestions there.

Yes. Michael, in terms of the pipeline, pipeline is looking pretty good.

It’s around the subnormal levels of coverage that we would expect and the mix is in line with what we’re driving towards. So we have better visibility obviously, on Q1 and Q2.

Beyond Q2 is a bit less clear, the sales cycle, et cetera that we can’t find it in pretty good shape. And operator, can we make this the final question, please?

Congratulations, Peter, on the new role. A couple of just capital questions.

Firstly, on the ARR growth in 2021 to 8.6% constant currency. Can you talk about how that builds up through the year?

And also in terms of whether it was mainly driven by existing customers spending more or new customer growth? And then secondly, going forward, you mentioned you expect considerable growth in cloud orders.

You have that revenue recognition factor so potentially has an impact. With respect to your outlook for FY ‘22, is that a material headwind?

Or is it more of a kind of gradual headwind that could pick up over time?

Yes. George, thanks for the question.

On the ARR growth, yes, 8.6% growth. I mean perhaps pretty much at the lower end of the scale in terms of what we would expect.

And I think FY ‘21, as I said before, really characterized by a lot of businesses with existing customers, contract renewals and extensions. And it was more challenging to win new customers and win new business.

So I would say the majority of that growth will be coming from the existing customers. On the cloud for FY ‘22, it’s still relatively modest numbers in terms of revenue.

But in terms of order value, we are expecting pretty much a doubling in terms of TCV for prior this year, but actually doesn’t translate into that significant SaaS revenue as part of the mix, but there’s not a huge feature in FY ‘22 from a revenue perspective, but increasingly will become bigger over the next few years.

Well, thank you very much for being with us. We realized you spend a little bit more time with us, but I think it was important.

Looking forward to stay in touch and talk to you soon.