AVEVA Group plc Results for the Financial Year Ended 31 March 2005

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18 May 2005

Financial News

AVEVA Group plc Results for the Financial Year Ended 31 March 2005

AVEVA Group plc announced its audited results for the year ended 31 March 2005.

Highlights

• Record results with increased revenue, profits before goodwill and cash

• Revenues up 51% to £57.5 million (2004: £38.1 million), with recurring revenues up 42% to £32.6 million

• Profit before tax, exceptional restructuring costs and goodwill £10.7 million (£6.7 million) an increase of 60%

• Adjusted earnings per share of 36.7p (2004: 26.2p)

• Basic earnings per share of 13.4p (2004: 22.4p)

• Strong cash generation with net cash at year-end at £11.2m (2004: £8.7m)

• Increased final dividend of 4.3p proposed, bringing the total dividend to 6.1p (2004: 5.8p)

• Excellent growth in target sectors of oil and gas, power and marine, with notable success in the Asia Pacific region

• Successful integration of marine business, Tribon. Performance and synergy benefits ahead of expectations, with full year cost savings at £3.3 million

• Exciting opportunity for acceleration of VNET business with additional investment of £2m in the next twelve months and the strategic acquisition of Realitywave, Inc. for £3.2m

Richard King, Chairman, commented: "AVEVA has made excellent progress this past year, achieving record levels of turnover, profit and cash.

Our continued strong performance reflects AVEVA's dominant position in growth markets, leading innovative technologies and an infrastructure geared towards expanding and maintaining relationships with blue chip customers across the globe.

We look to the future with confidence and are particularly excited by the prospects for VNET."

CHAIRMAN'S STATEMENT

Overview

AVEVA has made excellent progress this past year, achieving record levels of turnover, profit and cash.

During the year under review we saw a healthy increase in demand for our VANTAGE solutions in all our major target sectors of oil and gas, power and marine. Our marine business (Tribon), acquired at the beginning of the year, performed ahead of plan and has benefited from a smooth integration into the enlarged group. Its success has contributed to a particularly outstanding performance in the Asia Pacific region.

Key Financials

Turnover for the year increased by 51% to £57.5 million (2004: £38.1 million). In terms of organic growth (excluding Tribon), turnover increased by a very commendable 15% to £43.7 million. Recurring revenues increased by 42% to £32.6 million (2004: £23 million). Recurring revenues excluding Tribon amounted to £25.7 million, an actual increase of 14% when using consistent exchange rates.

Following the acquisition of Tribon in May 2004 and as highlighted at last year's preliminary results, an exceptional charge of £2.3 million has been expensed this year in order to facilitate a smooth integration of the business. I am delighted to report that the restructuring of the enlarged group has resulted in full year savings ahead of initial expectations at £3.3 million.

As a result of the acquisition, goodwill and intangible amortization for the year was £2.7 million (2004: £0.6 million).

Profit before tax, exceptional restructuring costs and goodwill amortization increased by 60% to £10.7 million (2004: £6.7 million), generating adjusted earnings per share of 36.7p pence (2004: 26.2p)-an increase of 40%.

AVEVA continued to be strongly cash generative with net cash as of the year-end at £11.2 million (2004: £8.7 million).

Dividend

Following another excellent year and ongoing confidence in the outlook for AVEVA, the Board is proposing an increased final dividend of 4.3p per share (2004: 4.0p). Together with the interim dividend of 1.8p, this gives a full year dividend of 6.1p (2004: 5.8p).

Subject to final approval at the Annual General Meeting, the final dividend will be paid on 1 August 2005 to shareholders on the register at 1 July 2005.

International Financial Reporting Standards ("IFRS")

Preparations continue for the introduction of the International Financial Reporting Standards that will first impact the Group's interim statement for the six months to 30 September 2005. The Group will advise its shareholders on any changes in advance of its half-year statement.

Prospects

The successful integration of Tribon and the subsequent restructuring of the enlarged group, has undoubtedly enhanced AVEVA's leading position in the engineering data and IT markets. Our exposure to high growth, dynamic market economies such as China and Korea, leadership in key target sectors, strong blue chip client partnerships, innovative approach and greater global scale and reach, give me confidence that we are well positioned to deliver further turnover and profit growth, and ultimately, shareholder value. In the current year the investment required to exploit the exciting opportunity within VNET will affect profitability, however we are confident of a significant return on this investment from the next financial year.

CHIEF EXECUTIVE'S REVIEW

Introduction

This year has been characterized by excellent growth, record financial results and corporate development to further strengthen our strategic position.

The acquisition of Tribon in May 2004 transformed AVEVA's presence in the fast growing marine market and further exposed the business to some of the world's most dynamic economies in the Asia Pacific region.

This year could prove to be equally exciting, as we increase the roll out of our unique VANTAGE Enterprise NET ("VNET") to a wider customer base and begin to reap the benefits of bringing together Tribon technology with AVEVA's core VANTAGE offer.

Delivering 'A Complete Solution'

For four decades, AVEVA has been delivering industry leading solutions to some of the world's largest full service engineering, procurement and contracting (EPCs) companies, playing a vital role in bringing engineering projects to safe, early, cost effective completion. However over the last 3 years, traditional EPC customers and more specifically owner operators, are increasingly demanding vendors to be able to co-ordinate multiple products and provide engineering data in a neutral format for ongoing maintenance and operations. With this in mind, we developed our VNET product. Launched in 2003, VNET now has a proven track record of acceptance within our customer base and is helping improve efficiencies in some of the largest capital projects in the world.

VNET and strategic acquisition of Realitywave

Historically there have been integration problems in the handover of a project from an EPC to an owner operator. VNET is an innovative technology application that enables integration and collaboration between users of engineering information through an internet based portal, regardless of its format and without the customer requiring to license expensive and complex authoring applications. The response from customers to date has been very positive.

To support the development of this opportunity we have acquired Realitywave for £3.2 million. Realitywave's patented technology is a critical component of our VNET offering. The technology allows users to efficiently access and manipulate large amounts of information (be it data or designs) by way of a unique streaming technology. This acquisition supports existing business requirements and secures a key technology as we develop this capability.

VNET is now ready for a wider customer roll out. In order to maximize the opportunity for growth, we intend to invest an additional £2 million over and above our current commitments during the next 12 months in strengthening solution integrators and recruiting additional sales people. Whilst this will constrain earnings growth in the short term, it represents a significant opportunity to accelerate profitability in future years.

Performance and Sales

We have continued to gain market share in our target sectors and across geographies, particularly in the Asia Pacific region.

Geographic review

Asia Pacific-35% of group revenue: £20.3 million (2004: £8.7 million)

The migration of engineering design and major contracts away from more traditional markets toward the emerging economies of the Far East has continued again this year. We were particularly pleased with our performance in China, Korea and Japan.

AVEVA's successful penetration of Asian Pacific markets stems from the investment we have made in the region over the last few years and is largely a result of three factors. Firstly, an unrivalled network of over 10 offices throughout 9 countries including China, Japan, Korea, Malaysia and Australia. Secondly, a highly experienced and culturally astute management team led by Peter Finch. And finally, a better than planned performance from our marine business, Tribon.

In terms of organic growth, process (oil and gas and power) revenues continued to strengthen. As we roll out combined AVEVA and Tribon solutions this year, we are confident that we will be able to build on our already dominant position in the marine market in the region. Our success has been highlighted by concluding the sale to four subsidiaries of Sinopec, China's largest producer and marketer of oil products, the country's leading supplier of major petrochemical products and the second largest crude oil producer.

EMEA-49% of group revenue: £27.9 million (2004: £19.5 million)

Organic revenues in the EMEA region were up 19% on the prior year. Although the market in Europe is mature and our growth less pronounced than in Asia Pacific, existing customers are taking up a broader range of AVEVA products. This is in part a response to a growing demand amongst customers, particularly in Central and Southern Europe, to improve efficiency in engineering projects.

Growth in Europe is also being driven by a demand for extra power capacity, which will in turn lead to significant additional investment in the energy infrastructure. We are already seeing a pan European revival of nuclear power, with the first new design of a European pressurized reactor currently being built in Finland. All AVEVA products are being used extensively for the design. Similar projects elsewhere on the continent are expected this year and we hope to benefit given our reputation for delivering safe, cost effective and efficient solutions. Our unique VNET offering also gives us a platform through which to exploit more diverse opportunities as they arise.

In terms of the marine industry, there is a very healthy demand for shipbuilding worldwide. Lack of capacity in the Asia Pacific region is beginning to result in a re-emergence of European shipyards.

Americas-16% of group revenue: £9.3million (2004: 9.1million*)

The weakness of the US dollar impacted revenues for the year and there is an ongoing pressure on large contractors to migrate projects away from the US in order to utilize more inexpensive local resources. Despite this, our aim is to strengthen our position in a market where we see good long-term prospects.

A number of important new contracts in the oil and gas and chemical markets were signed during the year.

(*at this year's exchange rates)

Sector Focus

The enlarged group targets three main markets that contribute broadly similar proportions of revenue (oil and gas, marine and power), amounting to 85% of the overall business. Our performance in these three markets has been very strong with a good inflow of new business and renewal of rental contacts. Our reputation for excellence and ability to deliver a 'complete solution' provides us with a good platform to grow our business in all three of our core markets.

Power : A notable success for AVEVA has been in China in the power industries, both nuclear and fossil fuelled. We now dominate this market and work with over 75% of the country's power design institutes. China's fast growing economy and the subsequent phenomenal demand for extra power capacity, should result in further opportunities going forward.

At the year-end we signed contracts totaling US$0.3 million with the Dongfang and Harbin Boiler Companies, as well as the Shangai Boiler Works. AVEVA is now effectively the biggest provider of engineering IT solutions to the £1bn Chinese industrial boiler market. All three companies purchased our flagship product, VANTAGE PDMS, with Harbin Boiler Works also investing in other integrated AVEVA solutions.

Oil and Gas : Turning to the oil and gas sector, prior to the year-end we signed a US$1 million deal with four subsidiaries of the Sinopec Corporation to provide a suite of VANTAGE products, including PDMS.

We have seen a steady increase in confidence for long term oil and gas projects around the world, particularly in the Asia Pacific region, and the Sinopec deal outlined above and our investment in globalizing our products to meet the differing needs of customers, bodes well for another excellent year. The World Floating Production Report published in May 2005 by energy business consultants Douglas-Westwood, forecasts that the production of floating offshore fields will almost double in the next five years. We believe we can take advantage of this potential new inflow of business given that over the last ten years 80% of all new offshore projects have relied on AVEVA solutions.

Marine : The marine business (Tribon), a new market for AVEVA, has performed ahead of expectations this year generating revenues of £14 million. As the Chairman has already stated, the synergy benefits of bringing the two businesses together under the AVEVA brand and its overall performance, have exceeded expectations.

Tribon is the world's leading provider of marine design solutions and specializes in hull design. Over 80% of the world's top 20 shipbuilders currently use Tribon and we are finding that AVEVA's existing core technology is hugely complementary to Tribon's own produce suite. This bringing together of the two technologies is progressing to plan and we believe it will lead to improved functionality, and in turn, increased sales.

Recurring revenues have also increased as our customers become more aware of the enhanced offer. This is demonstrated by a new contract signed in the latter half of the year with Daewoo.

In December we entered into a strategic development partnership with Hyundai, the world's largest shipbuilder. Under the partnership agreement, Hyundai has collaborated with AVEVA in the development of the next generation of VANTAGE Marine, committing US$8 million to development costs, on top of paying annual rental fees, initially to 2011. We have been excited by the progress so far, and I am pleased to report that Hyundai have started to use AVEVA products well before they originally intended. This endorsement from the world's most influential shipbuilder demonstrates that our own VANTAGE technology is not only highly complementary to the marine industry, but is increasingly becoming viewed as 'must have'. We are positive that this will lead to significant new business opportunities during the course of this year.

Whilst we have secured some significant new contracts in our non-core markets of paper and pulp, mining, food processing, chemical and pharmaceutical, these sectors are not growing as strongly as AVEVA business in oil and gas, power and marine.

Technology and Products

AVEVA has a long and proud history of providing innovative and advanced solutions. With the acquisition of both Tribon and Realitywave, AVEVA has extended its capability in the marine market and added patented streaming technology. These additions will provide a broader set of applications now and the availability of new technology for future products.

At the heart of AVEVA's VANTAGE solution suite is its proven database technology, still regarded as the best in the industry. We have already proven the value of the database in the future versions of marine products, as our integration of marine and process products have moved ahead much faster than originally planned. Another value at the core of our technology has been our principle of providing customers with an upgrade path to future products wherever possible, maintaining their investment in data and procedures. Whilst we are committed to providing 'best in class' applications and protecting our valuable IPR, we also support openness in our applications and have invested heavily over the year in providing new tools for data exchange.

Our unrivalled domain expertise has enabled us to combine the application knowledge built into our products over many years with new technologies such as Microsoft.NET, which is appearing across the range of products delivering wide-ranging benefits for customers. In order to introduce new technology and bring products to market faster, we have enhanced our technical skills in Eastern Europe and India and we expect to grow our outsourcing capacity considerably over the coming years.

In order to maintain our competitiveness in product development we have introduced 'best practice', along with the industry leading software methodology, to ensure our very high degree of quality assurance.

Over the last few years we have been working much more closely with partners, with this being evidenced by the joint development with AutoDesk. Recently we have been working very closely with a number of vendors in the field of laser data capture, an area of great interest to customers looking to capture information from existing plants and rebuild data models in AVEVA products.

With an enlarged team and a broader product set AVEVA has all the essentials in place to build on its competitive advantage and further strengthen its market position.

People and Organization

The most important factor behind both the growth this year and the thoroughly professional way in which the Tribon organization has been combined within AVEVA, has been the people. There is a passion within the group to provide the best solutions for our customers, to continue our product evolution using innovative ideas and new technologies to the best advantage for our customers' futures.

We have welcomed many new staff from Tribon into the AVEVA organization and new domain knowledge of the marine market.

I would like to thank all AVEVA staff for an excellent performance throughout the year.

The Future

Our unrivalled technology, leading competitive position, global scale and reach, focus on high growth key target sectors and planned wider roll out of our unique VNET product, combined with a favorable environment where our main competitor is forcing its customers into a technology refresh program, imbues me with confidence that we will make significant progress again this year.

Full financials are available at http://www.aveva.com/newsroom/index.htm .

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