www.aveva.com GLOBAL LEADER IN ENGINEERING & INDUSTRIAL SOFTWARE AVEVA Group plc Annual Report and Accounts 2018 AVEVA Group plc Annual Report and Accounts 2018 AVEVA IS A GLOBAL LEADER IN ENGINEERING & INDUSTRIAL SOFTWARE FOR PROCESS AND HYBRID INDUSTRIES We give customers the power to create, visualise and manage their assets digitally, which significantly lowers their total cost of ownership throughout the asset life cycle. AVEVA Group plc Annual Report and Accounts 2018 Strategic Report Governance Report Financial Statements 08 09 Our Expanded Product Offerings Strategic Report A GLOBAL LEADER IN ENGINEERING & INDUSTRIAL SOFTWARE 01 Highlights The enlarged Group has a comprehensive product portfolio offering an unmatched set of solutions, covering all aspects of the asset life cycle, from conceptual modelling and 3D design, to process simulation, optimisation and manufacturing operations management. We generate revenue by selling software licences and from maintenance, support and services associated with the software that we sell. 02 Financial Results and Summary results Technology Customers Our people R&D investments Our broad product range serves customers in over a Our 16,000+ customers rely on our service teams and Our 4,400 employees and extensive partner network Our annual R&D investment of around £100m means dozen industries and markets, from submarines and oil rigs, highly specialised software all over the world every day. around the world support our customers with our highly our products are always ready to serve our customers’ to power stations and airports. skilled sales and support staff. latest needs. Our software 03 Explanation of reported, pro forma and Our core strengths within heritage AVEVA lie in providing software to support customers in the capital expenditure phase of the asset Our enlarged portfolio helps our customers to reduce downtime, increase safety and improve returns through efficiency optimisations, life cycle, from conception, schematics, detailed design and build through to asset decommissioning. machine learning and by lowering operating costs. Construction & Conceptual design Basic engineering Detailed design commissioning Operations heritage results 04 Chairman's Statement SimSci AVEVA E3D Avantis Wonderware Spiral Wonderware ePLMS Wonderware Citect, Clear SCADA OASyS AVEVA NET Avantis Ampla, Aquis 06 Our Expanded Global Footprint AVEVA Engineering SimSci AVEVA ERM AVEVA Electrical AVEVA Instrumentation Pre-combination AVEVA solutions Additional post-combination solutions 08 Our Expanded Product Offerings Creates value for... Investors Adjusted profit Customers Customer deployments Community Charitable donations Employees Increase in headcount Through the combination with before tax Our software and solutions Local communities are Following the combination, Schneider Electric Software, create huge efficiencies for important to our workforce, and recognising the need to the Group generated our customers, which is why 100,000 and this year we made +10% create a new, inclusive and +160% considerable value for +6.8% we are the global leader in donations as well as provided diverse organisation, we are shareholders. engineering and industrial matched funding to a number redefining our culture and 10 Our Expanded Market Diversification software. of successful personal values. employee challenges. 12 Chief Executive Officer's Review 16 Chief Executive Officer's Q&A 18 Strategic Framework Our Expanded 20 Technology Review Product Offerings 22 Finance Review 31 Principal Risks, Viability and Going Concern see pages 8–9 35 Key Performance Indicators 36 Corporate Social Responsibility AVEVA Group plc Annual Report and Accounts 2018 Strategic Report Governance Report Financial Statements 10 11 Our Expanded Market Diversification INCREASED DIVERSIFICATION DRIVING THE DIGITALISATION Governance Report OF INDUSTRY Our software is supplied both to companies that operate market conditions impact AVEVA’s revenue in a given in a number of end market sectors, such as OOs and year. For the end market sectors that we serve, the broad EPCs, as well as companies in specific end markets, market dynamics are outlined below. In addition to the such as shipbuilding and city infrastructure. While overall primary market verticals described below, we also have a 44 Board of Directors demand for our products is growing as industry small presence in Paper & Pulp, Water and Utilities, which continues the trend of moving towards digitalisation, end together comprise < 10% of the enlarged Group revenue. Power Marine Buildings & Mining Infrastructure 10–15% 10–15% 5–10% <5% of revenue of revenue of revenue of revenue 46 Chairman’s Introduction to Corporate Upstream Midstream Downstream Food & Beverage Trends in Power are positive As expected, the cyclical Our offerings to our customers Conditions in the Mining sector as the world’s emerging Marine market showed some enable better digitalisation of were broadly positive in the last Oil & Gas Oil & Gas Oil & Gas and Pharma economies invest in their signs of improvement during their businesses through our financial year, supported by power generation calendar year 2017, with new monitoring and control stable to improving commodity requirements and the ageing ship orders increasing, albeit portfolio. With a broad-based prices, following a period of 15–20% 5–10% 15–20% 10–15% infrastructure of the from a very low base versus recovery in the global industrial reduced capital spend. of revenue of revenue of revenue of revenue developed world is historical standards in the manufacturing market, our Digitalisation initiatives have maintained or replaced. There previous year (Source: business in this market showed ramped up in this segment, Governance In line with market forecasts, Our activity in the midstream The downstream Oil & Gas Our technology for this is also an ongoing trend Clarksons Research). AVEVA corresponding recovery. with customers managing global upstream industry Oil & Gas market is primarily market, having rationalised market has traditionally served towards digitalisation as demonstrated good sales geographically dispersed capital expenditure began to around monitoring and and established a baseline for large global companies operators in the sector make execution, achieving a number With the development of smart and highly complex assets. recover in calendar year 2017, control systems for major capital expenditure between operating multiple high- greater use of both design of order wins, particularly in city infrastructure projects in The focus on value chain growing at a low single-digit pipeline operators. Over 2015 2014 and 2016, also recently volume production facilities and information management Asia. These were achieved several locations around the optimisation has driven rate. This followed a fall of and 2016, many of our started to resume capital and traditionally using tools, as they seek to improve through market share gains world, we have started to see demand for our offerings over 40% between 2014 and existing customers undertook expenditure growth, primarily technology for automation asset efficiency. We saw and also finding pockets of increased demand for our around operations planning calendar 2016 (Sources: large upgrades of existing around upgrading existing and operations management. continued growth in the growth, for example around technology to enable the and execution management, monitoring and control assets and improving This segment has been Power market which included cruise ships. visualisation and monitoring of asset performance 47 Corporate Governance Report Barclays, Bank of America Merrill Lynch). This market systems, which drove project operational efficiency. The impacted by a significant shift the benefit of fees from an smart facilities and assets. In management and monitoring stabilisation and the volume in this segment over primary driver for demand for in consumer consumption enlarged customer base addition, specific solutions and control. improving oil price trend had that period. Much of this our technology was based on patterns. This in turn following wins in the previous related to sustainability goals a positive effect on the upgrade activity completed in digitalisation initiatives, translated to re-evaluations of year. Our offerings related to of smart infrastructure, such as workloads of our EPC early 2017, resulting in a targeted at improving traditional operational asset performance energy monitoring and customers, who had been reduction in project volume. operational visibility across technology investments, management based on management, have started to squeezed during the However, this market now geographically distributed further motivated by the predictive analytics continued gain traction in this segment downturn by a sharp represents a significant assets, enabling predictive emergence of digitalisation as to see strong demand and and also in data centres. 51 Nomination Committee Report reduction in design-intensive installed base opportunity for performance and reliability a business imperative. We growth in this sector. upstream and offshore us to sell advanced management of assets, have seen a reduction in the projects, which were most applications for asset integrity enabling better planning and volume of the monitoring and heavily impacted by the lower and risk management, scheduling, and enabling control and operations oil prices. pipeline operations workforce productivity management portfolio