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19 September, 2018 - 11:38 By Tony Quested

AVEVA continues to pack on financial muscle

Cambridge’s AVEVA Group, which leads the world in engineering and industrial software, delivers more good news to shareholders today via a fresh upsurge in trade and revenue.

The news was posted ahead of a capital markets day. 

AVEVA has continued to deliver constant currency revenue growth in the financial year to date and the full year outlook remains in line with the board's expectations.

The group aims to grow medium term revenue on a constant currency basis at least in line with the blended growth rate of the industrial software market, which it currently estimates to be growing at a mid-single digit rate.

This revenue target reflects AVEVA’s expectation to grow its underlying software business in excess of market growth rates, driven by a combination of the strength of the group’s market positions, sales execution, revenue synergies and additional value levers, including pricing.

This above-market growth will be partly offset in terms of reported revenue by the impact of a phased transition towards greater rental & subscription revenue, together with potentially lower growth rates in services revenue.

AVEVA aims to increase Adjusted EBIT margins to 30 per cent. This margin improvement is expected to be driven by a combination of revenue growth, previously announced cost savings, cost control and a focus on high margin revenue growth through pricing and revenue mix optimisation.

The Group also aims to increase its recurring revenue as a percentage of total revenue over the medium-term. This will be driven by growing software as part of the revenue mix and by increasing the mix of rental & subscription revenue as a proportion of new software revenue in a financial year.

The plan is to grow the proportion of recurring revenue to total revenue from 52 per cent (FY18 on a pro forma basis) to over 60 per cent in the medium term.

The transition to greater levels of recurring revenue is expected to increase long-term free cash flow generation. 

Rental & subscription offers customers benefits including greater flexibility, lower up-front costs and simplicity in pricing. These benefits are reflected in higher customer life-time value of a rental & subscription model versus a perpetual licence model, the company says.

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