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AVEVA sells approximately 30% of its products to each of the Oil & Gas, Power and Marine markets. All products are licensed to customers on the basis of an initial licence fee (ILF) and annual fees or a rental model. The split between ILF and rental varies between end user markets and geographies.
In the Marine sector AVEVA has a majority of new business booked as ILF revenue. Over the year this sector started very strongly, with a particular emphasis on ILF business in China. During the second half the market conditions toughened considerably. However, we did have some very good sales of both the new AVEVA Marine product and AVEVA NET into Marine customers in China during the course of the year. We expect the ILF business to be impacted by a lack of significant new orders in the Marine business, although customers' order books and backlog are considerable.
The oil & gas market was running at an all time high at the start of the year, but has reverted to the more usual levels of business in most areas as the oil price declined and some projects were delayed or postponed. Unlike previous downturns, this time the oil majors and national oil companies are cash rich and the return of some stability in the oil price shows signs of a better market as we enter 2009/10.
The structural global shortage of power still exists, even with a lower level of economic activity. AVEVA has the most experience of any engineering software supplier in both the fossil fuel and nuclear sectors. We have seen a constant level of business in fossil fuelled power facilities and a slow but steady build up of order flow in the nuclear market. The relationship with AREVA and the order build up during the last year augurs well for AVEVA this year and beyond.
The year ended 31 March 2009 saw the completion of the merging of AVEVA database technology with the Marine products acquired in 2004. This has been an incremental progression of the technology to provide Marine customers with a secure path to migrate to the latest technology. Other benefits have included using some of the methods used in Marine in the AVEVA Plant suite of products. Once again, during the year our technology teams have worked extremely hard to deliver class leading solutions in both the Plant and Marine product suites, as well as a new version of AVEVA NET and many customer specific requests during the year.
Since we have been investing ahead of the industry average we now have the 'best in class' products which, as well as introducing many innovative features, allow customers to transition smoothly to new technology at a time which fits with their long project cycles.
The AVEVA product roadmap, as set out three years ago, has evolved into new products and a platform technology base, upon which we can progressively build new technology as well as integrate acquired applications and technology. AVEVA has always recognised the advantages of openness in its products and is a leading member of the industry bodies driving the use and adoption of standards as an integration enabler for customers.
AVEVA NET is gaining traction in the market and proving to be a truly beneficial tool for customers wanting to integrate data from multiple sources on both new and brownfield projects. The AVEVA NET solution is targeted at the growing PLM (Product Lifecycle Management) market in Process, Power and Marine. As these industries seek to address the issues of data inconsistency, availability of data in the design process, supply chain integration and data handover from EPC (Engineering, Procurement and Construction) contractors to owner operators, AVEVA NET offers an incremental solution to these issues. AVEVA NET uses 'mash up' technology and industry standards such as ISO 15926 to integrate data from many differing sources. Such is the broad appeal of AVEVA NET many of the successful implementations are on projects where no other AVEVA products are being used.
During the second half of the year under review, the Products Group senior management has been investigating routes to introduce greater flexibility into the product development cycle, through restructuring the resources within the Group and through greater use of outsourced development.
The Company closed the year with 843 employees, an increase of 113 over last year. Against a backdrop of shortage of supply for skilled staff in the engineering industries, AVEVA continued hiring to plan until early in the second half of the year, at which point most recruitment was suspended due to the potential slowdown in our end user markets.
Following a review of the business and the likely effects of the global economic slowdown we took steps in April 2009 to reduce the cost base to ensure that AVEVA is better equipped and has an appropriate structure for the more difficult market conditions. The restructuring programme, due to be completed in the first quarter of the current financial year, will result in annualised cost savings of approximately £5.0 million. These initiatives include increasing the flexibility of the organisation through restructuring across the business and reducing the use of high cost subcontractors. Further reductions in the cost base will come through pay freezes, some part-time working, career breaks, voluntary redundancy and some compulsory redundancy.
We have continued to strengthen the human resources teams in the regions, as well as adding capability in the area of personnel development in order to ensure maximum value from the highly successful induction, management development and other training schemes initiated last year.
In the trading statement at the end of the financial year AVEVA indicated that during the coming year it expects business opportunities for some end user industries to be significantly lower than during recent years, in particular initial licence fees from new sales to the shipbuilding industries. We expect the product sales mix to alter over the coming year and we have reorganised the Company to put a greater emphasis on providing products and services for the enhancement of brownfield plant and providing more AVEVA NET based tools in the area of operations and maintenance. AVEVA has a good presence within the owner operator community, which has committed levels of spend similar to recent years.
The reshaping of the business will position the Company to capitalise on the global infrastructure which it has built over recent years. The Company's strength in all these areas, coupled with sound finances, experienced management and a healthy cash balance, will continue to present many opportunities.
Richard Longdon
Chief Executive
26 May 2009
We have been investing ahead of the industry average delivering best in class products. The AVEVA product roadmap has evolved into new products and a platform technology base upon which we can progressively build new technology.
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