LONDON BRIEFING: Aveva warns of rising costs, slowing revenue growth

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Aveva on Wednesday said it delivered a ‘solid’ set of results for financial 2022 as the industrial software provider recovered following disruption caused by the Covid pandemic.

Aveva also said its integration of real-time data management manufacturer OSIsoft has progressed well, with both revenue and cost synergies in line, while strong progress was made on product integration, which will drive longer-term synergies.

For the financial year that ended March 31, revenue rose to £1.19 billion from £820.4 million the year before, but Aveva swung to a pretax loss of £18.6 million from a £34.2 million profit.

Annual adjusted earnings before interest and tax was £365.1 million, up from £354.7 million last year.

Aveva said the loss at the pretax level was largely due to the amortisation of intangible assets relating to its combinations with the Schneider Electric industrial software business and OSIsoft, the deferred revenue haircut taken on acquisition of OSIsoft, and other exceptional costs.

Aveva declared a final dividend of 24.5 pence per share, up 4.3% from 23.5p paid out in financial 2021.

Looking ahead, Aveva said adjusted Ebit for financial 2023 will be hurt by some additional costs. These include wage inflation due to ‘very competitive’ software labour market conditions. Aveva said revenue growth is expected to be lower in financial 2023 than in 2022 on an organic constant currency basis, and its adjusted Ebit margin is expected to narrow, before resuming growth in 2024.

‘While the additional investment in cloud was planned, the board has decided to pull this investment forward to accelerate AVEVA's transition and the impact of this acceleration in cloud will result in around £20 million of additional costs in the current financial year,’ the Cambridge, England-based firm said.

Aveva shares were down 1.0% early Wednesday, underperforming the wider FTSE 100 index.

Here is what you need to know at the London market open:

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MARKETS

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FTSE 100: marginally lower, down 3.33 points at 7,595.60

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Hang Seng: up 2.0% at 21,968.70

Nikkei 225: closed up 1.0% at 28,234.29

S&P/ASX 200: closed up 0.4% at 7,121.10

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DJIA: closed up 264.36 points, or 0.8%, at 33,180.14

S&P 500: closed up 1.0% at 4,160.68

Nasdaq Composite: closed up 0.9% at 12,175.23

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EUR: unchanged at $1.0690 ($1.0692)

GBP: unchanged at $1.2575 ($1.2576)

USD: up at JP¥133.20 (JP¥132.57)

Gold: down at $1,849.15 per ounce ($1,850.60)

Oil (Brent): up at $120.95 a barrel ($120.11)

(changes since previous London equities close)

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ECONOMICS AND GENERAL

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Wednesday's key economic events still to come

1100 CEST EU gross domestic product

0930 BST UK S&P Global-CIPS construction purchasing managers' index

1030 EDT US EIA weekly petroleum status report

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UK house prices surged to a fresh record high in May, but growth was showing signs of slowing amid inflationary pressures, according to mortgage lender Halifax. On an annual basis, the Halifax UK house price index rose by 10.5% in May, slowing slightly from 10.8% in April. The house price index increased 1.0% in May month-on-month, easing from a 1.2% rise in April. The average price for a home in the UK stood at a fresh record high of £289,099 in May, up from £261,709 at the same time last year.

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UK Chancellor Rishi Sunak has reaffirmed his commitment to cut taxes for business later in the year as the government seeks to get back on track following Monday's bruising Tory confidence vote in Prime Minister Boris Johnson. In a speech to the Onward think tank, Sunak said he would be bringing forward a range of measures in the autumn to incentivise investment, according to extracts released by the Treasury. It follows criticism from groups such as the CBI and Federation of Small Businesses that his cost-of-living support package last month did not include any help for cash-strapped businesses.

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Johnson is to face Parliament on Wednesday for the first time since the damaging revolt by Tory MPs in Monday's confidence vote. Backers of the prime minister can be expected to stage a noisy show of support when he steps up for his weekly Commons questions. But behind the scenes, tensions are running high after 40% of Conservative MPs refused to support him in the vote of confidence.

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The World Bank has sharply slashed its annual growth forecast for China, warning that Covid disruptions could further slow recovery in the world's second-largest economy. Growth in China is projected to slow to 4.3% in 2022, the World Bank said in a report on Wednesday, marking a steep 0.8 percentage-point drop from the December forecast. The World Bank's forecast adjustment came as concerns grow that China may not meet its official growth target of around 5.5% this year. The World Bank has also cut its global growth forecast to 2.9%, warning that the world economy risks falling into a harmful period of 1970s-style ‘stagflation’ in the wake of the Russian invasion of Ukraine.

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Japan's economy shrank slightly in the first quarter of 2022, revised data from the Japanese cabinet office showed. Gross domestic product declined 0.1% quarter-on-quarter in the January-March period. This is improved from the first preliminary reading, which had estimated a decline of 0.2%. The reduction followed a modest rebound in the final three months of 2021 that proved short-lived, after Japan put Covid restrictions in place as an outbreak fuelled by the Omicron variant took hold in January. Compared to the same period a year ago, GDP shrank by 0.5%, also improved from the first preliminary reading that had estimated a decline of 1.0%.

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The European Parliament in is set to vote on eight different climate protection draft laws on Wednesday. The raft of legislation of the EU's flagship climate change package, dubbed Fit for 55, aims to contribute to the overarching goal of reducing climate-damaging emissions by 55% by 2030, when compared to 1990 levels, and reaching climate neutrality by 2050. Among the draft bills to be voted on are proposals for a de facto ban of combustion engine vehicles from 2035 or reforms of the bloc's emissions trading scheme.

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BROKER RATING CHANGES

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Goldman Sachs starts Kingspan with 'buy' - price target 105 eur

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Jefferies starts PensionBee with 'buy' - price target 220 pence

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COMPANIES - FTSE 100

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Berkeley said it has appointed Michael Dobson as its new non-executive chair, taking up the role after the housebuilder's annual general meeting on September 6. Berkeley said its current chair, Glyn Barker, will step down from the board following Dobson's arrival. Barker was appointed chair in July 2020 for a period of two years to oversee the transition that followed the death of founder Tony Pidgley. Dobson recently stepped down as chair of fund manager Schroders after six years.

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COMPANIES - FTSE 250

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Wizz Air posted a widened annual loss, but the budget airline pledged extra resources to help deal with the chaotic travel disruption seen at airports. For the financial year ended March 31, revenue was €1.66 billion, up from €739.0 million in financial 2021, but its pretax loss widened to €641.5 million from €566.5 million. Looking ahead, Wizz Air said it sees strong consumer demand for the summer, but expects an operating loss for the first quarter of financial 2023. ‘The industry is witnessing supply-chain issues across airports, including in our network. Shortages of staff in air traffic control, security and other parts of the supply-chain are impacting airlines, our employees and our customers directly. We are deploying extra resources to minimize disruptions and urge all other stakeholders to do the same, having customers' best interests always in mind,’ said Chief Executive Jozsef Varadi.

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WH Smith said it has appointed Annette Court as a non-executive director and chair designate. Court will join the board on September 1 and will succeed Henry Staunton as chair on December 1. Staunton will retire from the board on November 30, after nine years as chair. Court is currently chair of insurer Admiral and a non-executive director of accounting software provider Sage.

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COMPANIES - SMALL CAP

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Keywords Studios has agreed to buy US game development studio Forgotten Empires for up to $32.5 million. Keywords will pay $15.8 million in cash initially, plus a mix of cash and shares based on performance in the first year. Ohio-based Forgotten Empires had $7.2 million in revenue in 2021. It has 53 game developers and worked on games such as Age of Empires and Age of Mythology.

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COMPANIES - GLOBAL

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Credit Suisse guided for a loss in its second quarter, as the Swiss bank continues to face ‘challenging’ market conditions. The Zurich headquartered financial services firm listed a slew of reasons for the expected loss in the second quarter, ending June 30, and even called 2022 a ‘transition’ year for the firm. For the first six months of 2021, Credit Suisse posted revenue of €12.68 billion, with pretax income plummeting to €56 million. ‘The combination of the current geopolitical situation following Russia's invasion of Ukraine, significant monetary tightening by major central banks in response to the substantial increase in inflation and the unwind of Covid-related stimulus measures have resulted in continued heightened market volatility, weak customer flows and ongoing client deleveraging, notably in the APAC region,’ Credit Suisse explained. In particular, the bank said its Investment Bank saw an ‘uneven performance,’ with ‘low levels of capital markets issuance and the widening in credit spreads’ resulting in a ‘depressed’ performance. As a result, the unit will record a loss in the period.

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Wednesday's shareholder meetings

Ascent Resources PLC - AGM

Cambridge Cognition Holdings PLC - AGM

City Pub Group PLC - AGM

DP Eurasia NV - AGM

Gem Diamonds Ltd - AGM

Hiro Metaverse Acquisitions I SA - AGM

Itaconix PLC - AGM

M&G Credit Income Investment Trust PLC - AGM

Nostrum Oil & Gas PLC - AGM

Parity Group PLC - AGM

Petards Group PLC - AGM

Safestyle UK PLC - AGM

Savannah Resources PLC - AGM

Third Point Investors Ltd - AGM

Woodbois Ltd - AGM

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