Annual Report 2009

Directors' remuneration report

This report has been prepared in accordance with Schedule 7A of the Companies Act 1985 and the relevant requirements of the Listing Rules of the Financial Services Authority (together the Regulations). The report also describes how the Board has applied the Principles of Good Governance relating to Directors' remuneration. As required by the Regulations, a resolution to approve the report will be proposed at the Annual General Meeting of the Company at which the financial statements of the Company will be approved.

The Regulations require the auditors to report to the Company members on the 'auditable part' of the Directors' remuneration report and to state whether, in their opinion, that part of the report has been properly prepared in accordance with the Companies Act 1985 (as amended). The report has therefore been divided into separate sections for audited and unaudited information.

UNAUDITED INFORMATION
Remuneration Committee

The Remuneration Committee's principal responsibility is to determine the remuneration of both the Company's Executive Directors and its senior management within broad policies agreed with the Board. In addition, it reviews the remuneration policy for the Company as a whole. The remuneration of the Non-Executive Directors is determined by the Executive Directors and the Chairman, not the Committee.

The conclusions and recommendations of the Remuneration Committee were finalised in two formal meetings during the year, but these were preceded by several informal discussions, including some with advisers (none of whom had any other connection with the Company). The members of the Committee were David Mann (Chairman), Nick Prest, Jonathan Brooks and Philip Dayer.

The Chief Executive (Richard Longdon) is invited to submit recommendations to the Remuneration Committee and both he and the members of the Committee take into consideration relevant external market data as well as the reviews of remuneration for employees of the Group generally.

Remuneration policy

The Remuneration Committee aims to ensure that members of the Executive management are provided with appropriate incentives to encourage enhanced performance and are, in a fair and responsible manner, rewarded for their individual contributions to the success of the Group. It also aims for a combination of fixed and variable payments, benefits and share-based awards that will achieve a balance in incentives to achieve short and long term goals.

The Remuneration Committee has access to detailed external research from independent consultants and during the year engaged Hewitt New Bridge Street to review the remuneration of the Executive Directors and senior management and to benchmark their remuneration against comparable companies' remuneration. Hewitt New Bridge Street do not provide other services to the Group.

In 2008 the Board introduced the AVEVA Group Management Bonus Deferred Share Scheme 2008 (the Deferred Share Scheme) for Executive Directors and selected employees incorporating a deferred bonus component. Subject to the achievement of performance conditions relating to a single financial year, these incentive arrangements are intended to reward the recipient partly in cash, payable on announcement of interim and/or final results, and partly in ordinary shares in the Company to be delivered on a deferred basis under the Deferred Share Scheme.

Under these incentive arrangements, depending on the extent to which performance conditions are achieved, an overall bonus amount is determined. Part of this overall bonus amount is payable in cash; an amount equal to the balance (which may be up to 50%) is used to calculate the number of ordinary shares which the bonus recipient is eligible to receive on a deferred basis. This is calculated by identifying the number of ordinary shares which could be purchased with the balance at the mid-market closing price of an ordinary share on the dealing day immediately preceding the preliminary announcement of the Company's results for the relevant financial year.

An Employee Benefit Trust (EBT) was established on 10 July 2008 following shareholder approval at the Annual General Meeting. Awards of deferred shares are made by the trustee of EBT using shares purchased in the market. The awards, which take the form of nil-cost options, will normally deliver the deferred shares to participants in three equal tranches, one in each of the three years following the year in which an award is made by the EBT. These awards are made solely in respect of performance in the financial year immediately prior to their grant. Delivery of the deferred shares is not subject to further performance conditions provided that the participant remains an employee or Director of the Group. If the participant ceases to be an employee or Director, entitlement to all outstanding tranches would fall away unless the cessation occurs by reason of his or her death. Following the death of a bonus participant, or on a takeover, reconstruction or amalgamation, or voluntary winding up of the Company, the period for which the participant must remain an employee or Director would be reduced below the normal three years and entitlement to delivery of the shares would be accelerated. There are no arrangements for the delivery of additional matching shares to a participant in any circumstances.

The Board believes that these incentive arrangements more closely align the interests of Executive Directors and employees with shareholders' interests.

The individual components of the remuneration packages offered are:

Basic salaries/fees

It is the policy of the Committee to pay base salaries to the Executive Directors taking account of the nature and scale of the business of the Group, the performance of the individual in achieving financial and non-financial goals within his areas of responsibility and comparable market data.

In 2008/09 both Executive Directors received basic salary increases of 5% based on advice received on their overall remuneration package from Hewitt New Bridge Street and in consideration of other pay awards made across the Group.

Fees for the Chairman and the Non-Executive Directors are determined taking account of the individual's responsibilities, time devoted to the role and comparable market rates.

Benefits

Executive Directors are provided with a Company car or a mobility allowance and a fuel allowance. Non-Executive Directors do not receive any benefits.

Bonus payments

The Executive Directors participate in annual performance-related bonus arrangements determined by the Committee. The arrangements are based substantially or entirely on the performance of the Group as a whole geared towards exceeding internal and external expectations of normalised profit before tax with 10% based on achievement for the six months to 30 September and 90% on the full year results.

For the annual performance bonus arrangements for 2008/09, the targets were set after considering the Group's budgeted normalised profit before tax and market expectations. The budget was agreed based upon objectives which were considered to be appropriate and stretching against the background of a profit before tax of £45 million achieved in the prior year and market conditions prevailing at that time. For 2008/09, the maximum bonus amount which an Executive Director could earn was 100% of basic salary. Performance targets were achieved in full resulting in a cash bonus equal to 60% (2008 - 58%) of basic salary with the remaining 40% (2008 - 42%) of the bonus amount being used to calculate the number of deferred shares for which each Executive Director was eligible.

Pensions

During the year, the two Executive Directors (Richard Longdon and Paul Taylor) were members of AVEVA Solutions Limited's defined benefit pension scheme. It is a contributory, funded, occupational pension scheme registered with HM Revenue and Customs (HMRC) and, since 1 October 2004, Career Average Revalued Earnings benefits apply. Under this scheme they are entitled to a pension on normal retirement, or on retirement due to ill health, equivalent to two-thirds of their pensionable salary provided they have completed (or would have completed in the case of ill health) 25 years' service. A pension earnings cap (in line with historic HMRC's earning cap) applies to Paul Taylor when calculating pensionable salary. Similarly, a scheme-specific earnings limit applies to the benefits earned by Richard Longdon. A lower pension is payable on earlier retirement after the age of 50 by agreement with the Company and subject to HMRC guidelines. Pensions are payable to dependants on the Director's death in retirement and a lump sum is payable if death occurs in service. No other Directors were members of a pension scheme during the year (2008 - nil).

Share awards

The Remuneration Committee considers that periodic grants of share-related incentives should constitute an important element of the remuneration of the Company's senior Executives, in line with common practice in comparator companies. The Company's share schemes have therefore been used to provide long term incentives to assist in creating and sustaining growth in share value. There are three schemes in existence, the AVEVA Group plc Executive Share Option Scheme (the ability to grant shares under this scheme has now expired), the AVEVA Group plc Long Term Incentive Plan and the AVEVA Group plc Executive Share Option Scheme 2007. No awards have been made under the AVEVA Group plc Executive Share Option Scheme 2007 and the performance conditions that would apply to them remain to be determined. The number of shares which may be allocated on exercise of any options granted under any of the Company's share option schemes (including employee schemes) shall not, when aggregated with the number of shares which have been allocated in the previous ten years under these schemes, exceed 10% of the ordinary share capital of the Company in issue immediately prior to that date. The share schemes are used to provide incentives to Senior Managers as well as Executive Directors. As recipients of these awards, Executive Directors and Executive Board members are required to hold or use the schemes to build share ownership with a value of at least 100% of their then current salary. Details of the awards made under these schemes are as follows:

2004/05 awards

In 2004 the Remuneration Committee commissioned a study by Deloitte LLP to review the Company's share option schemes and to make recommendations on their development. The Board accepted those recommendations and, following consultation with shareholders, the Company established the AVEVA Group plc Long Term Incentive Plan (LTIP) which was approved at the Extraordinary General Meeting held in 2004. Under the LTIP, options are granted to selected individuals to acquire ordinary shares at an exercise price equal to the nominal value of the shares; these options will be exercisable only if stringent performance criteria are met.

In 2004/05, a total of 63,000 options were awarded to Executive Directors under the LTIP. The condition of exercise for these awards was based on the ranking of the Company in terms of its total shareholder return measured against the techMARK 100 Index. The options 'vested' in accordance with the following scale:

Total shareholder return ranking	Percentage vesting of shares subject to option
75% and above	100%
Median to 75%	Pro rata on a straight-line basis
Median	0
Below median	Nil

The performance conditions were measured in accordance with the terms of the grant and all awards vested in full.

2005/06 awards

In 2005/06, a total of 162,816 options were awarded to Executive Directors under the AVEVA Group plc Executive Share Option Scheme. This Scheme was established in 1996 at the time of the Company's listing on the Official List of the London Stock Exchange and at the Extraordinary General Meeting in 2004 the shareholders approved the extension of its dilution limits so that further awards could be made under the scheme. The Remuneration Committee felt that such awards made as market value options were better suited than those under the LTIP to the Company's circumstances in 2005/06. The performance conditions required to be achieved for the exercise of the option was that Earnings per Share (EPS) in the financial year ending 31 March 2008 would have grown to no less than 5% above the Retail Price Index per annum from that achieved in the financial year ended 31 March 2005. The performance condition was judged to be appropriately stretching because of the investment planned in the VNET programme during the period.

The performance conditions were measured in accordance with the terms of the grant and all awards vested in full.

2006/07 awards

In 2006/07 a total of 42,588 share options were awarded to the Executive Directors under the LTIP. The Committee decided to revert to this scheme, with performance conditions based on growth in EPS, but in this case the average growth in EPS achieved over the three years from 2006/07 to 2008/09. If average EPS growth is greater than 15% per annum then all of the shares shall vest. If average EPS growth is less than 7.5% per annum none of the shares shall vest. If average EPS growth is between 7.5% and 15% then the number of shares that shall vest will be determined by linear interpolation. The Remuneration Committee considered that these were challenging performance conditions in the context of the Company's budget and market expectations at the time of the awards.

The performance conditions were measured in accordance with the terms of the grant and all awards vested in full.

2007/08 awards

In 2007/08, a total of 18,234 share options were awarded to the Executive Directors under the LTIP. The performance conditions are based on average growth in earnings per share over the years from 2007/08 to 2009/10. If average EPS growth is greater than 11.5% per annum then all of the shares shall vest. If average earnings per share is less than 9% per annum then none of the shares shall vest. If average earnings per share growth is between 9% and 11.5% per annum then the number of shares that shall vest shall be determined by linear interpolation. The Remuneration Committee considered that these were challenging performance conditions in the context of Company's budget and external expectations at the time of the awards.

2008/09 awards

In 2008/09, a total of 17,929 share options were awarded to the Executive Directors under the LTIP. The performance conditions are based on average growth in earnings per share over the years from 2008/09 to 2010/11. If average EPS growth is greater than 14% per annum then all of the shares shall vest. If average earnings per share is less than 10% per annum then none of the shares shall vest. If average earnings per share growth is between 10% and 14% per annum then the number of shares that shall vest shall be determined by linear interpolation. The Remuneration Committee considered that these were challenging performance conditions in the context of internal and external expectations at the time of the awards.

Deferred annual bonus share plan

As described above, part of the annual bonus earned by Executive Directors in the year is used to determine eligibility for an award of deferred shares under the Deferred Share Scheme.

On 15 July 2008 the EBT awarded 12,262 and 7,923 deferred shares to Richard Longdon and Paul Taylor respectively in respect of the bonus arrangements for the year ended 31 March 2008.

Following the achievement of the objectives for 2008/09, it is anticipated that 22,487 and 14,508 deferred shares will be awarded to Richard Longdon and Paul Taylor respectively in respect of the bonus arrangements for the year ended 31 March 2009.

Total shareholder return performance graph

The Directors' Remuneration Report Regulations 2002 require the presentation of a performance graph of total shareholder return compared with a broad equity market index for a period of five years. The following graph shows the Company's performance, measured by total shareholder return, compared with the performance of the techMARK All-Share Index. Total shareholder return is the share price plus dividends reinvested compared against the techMARK All-Share Index, rebased to the start of the period.

Total shareholder return v techMARK All-Share Index 2004-2009

The Directors consider the techMARK All-Share Index to be an appropriate choice as the Index includes AVEVA Group plc.

Service contracts

The service contracts and letters of appointment of the Directors include the following terms:

	Date of contract	Date of appointment	Expiry/review date	Notice period (months)
Nick Prest	10 January 2006	11 January 2006	11 January 2012	3
David Mann	17 May 2000	8 June 1999	Rolling	3
Jonathan Brooks	12 July 2007	12 July 2007	12 July 2010	3
Philip Dayer	27 December 2007	7 January 2008	7 January 2011	3
Richard Longdon	28 November 1996	28 November 1996	Rolling	12
Paul Taylor	17 October 1989	1 March 2001	Rolling	9

The Committee considers that the notice periods of the Executive Directors are in line with those in other companies of a similar size and nature and are in the best interests of the Group to ensure stability in senior management.

There are no predetermined special provisions for Executive or Non-Executive Directors with regard to compensation in the event of loss of office. The Remuneration Committee would be responsible for considering the circumstances of the early termination of an Executive Director's contract and determining whether in exceptional circumstances there should be compensation payments in excess of the Company's contractual obligations.

AUDITED INFORMATION
Directors' remuneration

The total amounts for Directors' emoluments and other benefits were as follows:

	Basic salary £000	Fees £000	*Cash bonus £000	Benefits in kind £000	2009 Total £000	**2008 Total £000
Nick Prest	—	85	—	—	85	75
David Mann	—	33	—	—	33	30
Jonathan Brooks	—	35	—	—	35	***22
Philip Dayer	—	30	—	—	30	****8
Richard Longdon	326	—	195	20	541	547
Paul Taylor	210	—	126	17	353	357
Aggregate emoluments	536	183	321	37	1,077	1,039

Aggregate emoluments disclosed above do not include any amounts for the value of options to acquire ordinary shares in the Company granted to or held by the Directors.

Share options

The interests of Directors in options to acquire ordinary shares were as follows:

	Scheme	As at 1 April 2008 Number	Granted Number	Exercised Number	Lapsed Number	As at 31 March 2009 Number	Gain on exercise £	Exercise price Pence	Earliest date of exercise	Date of expiry
Richard Longdon	Executive	98,745	—	(98,745)	—	—	1,286,318	265.33	20.07.08	20.07.12
	LTIP	25,548	—	—	—	25,548	—	3.33	28.06.09	28.06.13
	LTIP	11,083	—	—	—	11,083	—	3.33	02.07.10	02.07.14
	LTIP	—	10,891	—	—	10,891	—	3.33	07.07.11	07.07.15
Deferred Share Scheme		—	12,282	—	—	12,282	—	0	26.05.09	Note
Paul Taylor	Executive	64,071	—	(64,071)	—	—	834,632	265.33	20.07.08	20.07.12
	LTIP	17,040	—	—	—	17,040	—	3.33	28.06.09	28.06.13
	LTIP	7,151	—	—	—	7,151	—	3.33	02.07.10	02.07.14
	LTIP	—	7,038	—	—	7,038	—	3.33	07.07.11	07.07.15
Deferred Share Scheme		—	7,923	—	—	7,923	—	0	26.05.09	Note

Note: The last date of the exercise is the end of the 42-day period following the announcement of the financial results of the Group in the third calendar year following that in which the option was granted or (if applicable) such later date as the Remuneration Committee may specify.

The market price as at 31 March 2009 was £5.64 (31 March 2008 - £11.39) with a high-low spread for the year of £4.65 to £16.18.

During the year Paul Taylor and Richard Longdon exercised options over 98,745 and 64,071 ordinary shares respectively at an exercise price of £2.65. The market price on the date of exercise was £15.68 which resulted in an aggregate gain on exercise of £1,286,318 for Richard Longdon and £834,632 for Paul Taylor. Mr Longdon retained 34,000 of the resultant shares and Mr Taylor sold all of the shares arising.

At 31 March 2009, Mr Longdon owned 350,000 ordinary shares (2008 - 316,000 ordinary shares) and options over 59,804 ordinary shares (2008 - 135,376 options). Mr Taylor owned 50,000 ordinary shares (2008 - 50,000 ordinary shares) and options over 39,152 ordinary shares (2008 - 88,262 options).

Options under the LTIP are normally exercisable in full or in part between the third and tenth anniversaries of the date of grant; options under the previous Executive Share Option Scheme are normally exercisable in full or in part between the third and seventh anniversaries of the date of grant. Details of the performance conditions of share option awards are set out in the Share options table.

Pensions

The Directors had accrued entitlements under the pension scheme as follows:

	Accumulated accrued pension at 31 March £	Accumulated accrued pension at 31 March £	Increase in accrued pension during year £	Increase in accrued pension during the year, after removing the effects of inflation £	Transfer value of increase, after removing the effects of inflation, less Directors' contributions £
Richard Longdon	135,536	125,351	10,185	5,296	63,959
Paul Taylor	49,269	44,514	4,755	3,019	22,781

The pension entitlement shown is that which would be paid annually, based on service to the end of the year.

The transfer value as at date of retirement of each Director's accrued benefits at the end of the financial year is as follows:

	31 March 2009 £	31 March 2008 £	Movement, less Directors' contributions £
Richard Longdon	1,720,009	1,407,892	296,640
Paul Taylor	470,242	393,234	68,188

The transfer values have been calculated on the basis of actuarial advice in accordance with Actuarial Guidance Note GN11. Members of the scheme have the option to pay Additional Voluntary Contributions. Neither the contributions nor the resulting benefits are included in the above table.

By order of the Board