(Sharecast News) - Industrial software company Aveva Group warned of lower revenue growth and margins due to sanctions on Russia over its invasion of Ukraine and rising costs.
The company confirmed it had ceased new business in Russia, but was continuing to support existing non-sanctioned companies where there was no legal basis to terminate contracts.
Russia was a "relatively small market" in the context of the group, representing around 2% of revenue in the 2022 financial year.
"Adjusted EBIT for the 2023 financial year will also be impacted by some additional costs. These include wage inflation due to very competitive software labour market conditions; increased travel and event costs post-Covid; together with investment in cloud research and development, sales and operations," Aveva said.
"Wage inflation will be more than offset by pricing over time; however, most salary increases feed through at the beginning of the financial year, while list price increases only take effect when contracts are renewed, or new business is signed."
While the additional investment in cloud services was planned, the board said it had decided to pull the investment forward , resulting in around £20m of additional costs in the current financial year.
"Taking all of these factors into account, revenue growth is expected to be lower in the 2023 financial year than in 2022, and adjusted EBIT margin is expected to reduce, before resuming growth in 2024. Cash conversion is expected to significantly improve in 2023 and beyond."
The group said it expected its adjusted EBIT margin to be consistent with the previous year, at just below 30%, resulting in an overall adjusted EBIT performance in line with market expectations.
Annual recurring revenue was ahead 9% year-on-year, however, which was below the levels targeted in Aveva's five-year plan.
The board said the majority of that growth was driven by the heritage Aveva business, which grew annual recurring revenue significantly ahead of revenue.
Aveva said its net debt as at 31 March totalled £405m.
Looking ahead, Aveva said it would drive an acceleration in annual recurring revenue growth in the 2023 financial year, to a level of 15% to 20%.
