Renishaw plc

Good morning, everyone. I'm Chris Pockett, Head of Communications for the Renishaw Group, and I would like to welcome you to this live webcast presentation of Renishaw's interim financial results for the period ended December 2021. Today's presenters are Will Lee, Chief Executive, and Alan Roberts, Group Finance Director. Before I hand over to Will, I would like to go through some basic housekeeping for the event. After the presentation, which will last around 25 minutes, Sir David McMurtry, Executive Chairman, will join Will and Alan for a question and answer session, in which we'll try to answer as many questions as possible before we close at 11 o'clock. No questions will be answered during the formal presentation. However, you will be able to submit questions both during and after the presentation via the question icon that you can see on the control panel on the right of your screen. I'd also like to point out that all financial information given during this presentation will be in pound sterling. Thank you again for joining this webcast event and I will now hand over to Will.

Thank you very much, Chris. So let's take a start looking at the numbers. Really good first half for us. Revenue growth of 27% up to £325 million. That is a record for us. We've seen record levels of demand. It's those key markets that we've talked about before really strongly recovering. And also the semiconductor electronics markets remaining strong. This has been across the board in all of our region and continuing the trends that we talked about at the last webcast. At profit, up by 94% from £43 million to £84 million. Again, a record profit for us for the first half. And this has benefited from both the strong sales and also some of the productivity improvements that we put in place a while ago. Cash up to 222 million at the end of the period. This is really driven by the strong trading performance. We have invested more in capital expenditure in the last half than we did last year. And also with the dividend payment. Adam will cover this in more detail later on. Now take a look at our manufacturing technologies segments. We can see here really good performance, strong growth of 30%. Very much similar trends the last time we spoke. So we're seeing sustained investment in semiconductor and electronics capex, and that's very much driving the demand for our encoder technologies. And we're also seeing in the more traditional manufacturing sectors, the need for more automation driving both the need for our flexible gauging, the Equator product, and also our machine tool products. What we have been asked about quite a few times in the past is what our thoughts are on the end markets for our technologies. Now, as we explained here, we have a range of routes to market, and this varies quite a bit actually depending on the product line. So with additive manufacturing, we're selling direct to the end user, and we know exactly where they are going. With products such as encoders, then we know what the equipment is, which is typically into electronics and semiconductor equipment. But with industrial metrology products, particularly with machine tool probes and CMM probes, we are normally selling through a machine tool or CMM builder, and therefore we are less certain on what the actual end use is. Now, in the pie chart, you can see we have our estimate here for the complete manufacturing technology part of the business, and that gives an indication as to what we feel the market sector split is. You can see it's quite diverse. One probably worth explaining a little bit is on the precision manufacturing. Here we have a range of subcontractors making a range of parts, bearings, motors, sensors, etc., going into a range of industries, and also general subcontractors making parts for a range of different industries. So the exciting thing here also is very positive long-term growth rates for the markets we're serving here, and also we've got the great technologies now and the future developments really to exploit those opportunities. So if we now take a look at the analytical instruments and medical devices segment, then we can see here we did see a revenue drop of 10%. Looking behind that a little bit, spectroscopy, the order intake actually was strong in H1. What we did see, though, was a bit of delay in shipments going into China, particularly with educational facilities achieving duty-free exemption certificates. We did also see a reduced turnover in our Neuro product line. We have been really positive news here, as we talked about before, engaging with a number of large pharma. The trial actually that we talked about last time actually has ended. There were issues with the drug there. Positive news was that our technology, the drug delivery technology, worked very well. And this sort of showed a model that we will work with with pharma companies going forward. If we look here at the end market overview, so less sectors naturally here, large one dominated research here very much with our spectroscopy product line. So if we now take a look at the breakdown of the revenue by region. What we can see here, which is very positive, is that where we talked before about the recovery being driven by our Asia Pacific region, we now see that all three of our sales regions are growing nicely. Many similar trends causing that growth across the regions. APAC stands out still as being a bit different, though. That really comes from a significant volume of the manufacturing of semiconductor and electronics. CAPEX equipment is done in the APAC region, and that is meaning that the revenue and demand for our encoders is very strong there. We also see a lot of the manufacturing of consumer electronics happening there, and that is pulling on demand for particularly our greater flexible gauge, but also for machine tool probes. What we're also seeing is these general drivers in all of our regions. What we're seeing is machine tool investments and machine tool consumption going up, meaning increased sales through machine tool builders or machine tool probes. Our AM strategy is really working with repeat orders for our AM machines by the same customers, so that key account strategy working nicely. We're seeing increased investment into the automotive, EV, clearly a lot of investment going on, and also a recovery in the aerospace market and more investment there. And this is really good driving growth in our REVO system, the five-axis technology for highly productive CMO measurement. And we're also seeing increased industrial robots, which is good, particularly for our magnetic encoders. Okay, I will now hand over to Alan.

Thank you, Will, and good morning, everybody. As Will has already mentioned, we have experienced a very strong performance this half year with significant growth in revenue, profitability, and cash generation. Due to the skills and dedication of our people, the group has maintained strong customer support, global supply chains, and all other business operations throughout this period of record first half revenue and order intake. Revenue amounted to £325.2 million compared to £255.1 million last year, an increase of 27% or 30% at concert exchange rates. Adjusted profit before tax is £84.2 million, a record half-year profit and compares with £43.4 million in the prior year, mainly as a result of the additional gross margin from revenue growth. This gives a return on revenue of 26% compared to 17% for the previous year. Adjusted profit before tax is one of the key performance measures used by the board to monitor the underlying trading performance of the group, and the following items are excluded from adjusted profit before tax. Losses of 2.9 million from forward contracts, mostly US dollar denominated, deemed ineffective for cash flow hedging, compared with gains of £20.5 million in the previous year. These gains and losses have no impact on our cash balances and no additional contracts have been designated as ineffective this year. and a credit of £0.2 million for third-party advisory fees relating to the formal sales process in the current half-year only. The resultant statutory profit before tax was £81.5 million compared to £63.9 million last year. The effective tax rate for the half-year is 15.9% compared to 18% in the previous year, representing a best estimate of the full-year effective tax rates by geographical territory applied to the half-year profits. The reduced effective tax rate mainly arises from the forecast increase in the UK patent box benefit from nil in the prior year. Earnings per share on an adjusted basis is £97.2, up from £49.2 last year, and on a statutory basis is £94.2, up from £72.1 last year. The Board has proposed an interim dividend of £16 per share, a 14.3% increase over the last year's £14 per share. Income statement. This slide presents detail of our income statement and the profit bridge shows the movements that reconcile the adjusted profit before tax of £43.4 million for the last half year to the £84.2 million this year. We've seen a £46 million improvement in gross margin, excluding engineering costs, mostly attributable to the increase in revenue. Our gross margin of 35.5% of revenue is similar to the previous year. However, we have seen an increase in the cost of some purchased items, particularly electronic components, aluminium and steel, and an adverse currency impact, which have been offset by improved efficiencies resulting from higher production volumes. The group headcount is increased during the first half of the financial year and was 4,975 at the end of December 2021, compared to 4,664 at the end of June 2021. and 4,324 at the end of December 2020. The increase since June mostly comprises manufacturing staff to ensure we have sufficient capacity to meet demand and also an intake of 127 graduates and apprentices. Labour costs excluding bonus provisions and prior year overseas job retention grant income were £115.1 million in this half year compared to £102.4 million last year. with an average headcount in the first half of 4,832 against the previous half year of 4,371. More on this topic will be covered by Will later on. We remain committed to our long-term strategy of developing new innovative and patented products to create strong market positions and incurred net engineering expenditure of 37.8 million in the first half compared to 37.2 million last year. Certain other operating costs such as travel and exhibitions are higher this half year compared to last year as some restrictions relating to the pandemic have been lifted. We have also experienced an increase in other overhead costs, including higher utility costs due to rising energy prices and higher usage, and other third-party administrative costs rises due to the current inflationary pressures. Turning to cash flow, this bridge tracks the movements from our opening cash and bank deposits balance of £215 million for 1st July to the closing position of £222 million at the end of December. Our operating profit before non-cash items and research and development costs gave a cash inflow of £122.6 million. We have seen a net £17.9 million cash outflow from changes in working capital, primarily relating to an increase in inventory levels of £22.3 million. This reflects increases in global demand and planned uplifts to sustainability. strategic safety stock levels to mitigate global supply shortages. This has been partially offset by a cash inflow of 5.4 million following an improvement in debtor days. Significant cash outflows relating to our capital allocation strategy include 27.9 million of R&D costs, 13 million of CapEx, including intangibles, and 37.8 million of dividends paid. Other significant cash outflows include 10.4 million per tax payments and 4.4 million of pension scheme funding. Turning to capital expenditure, of the 12.2 million capital expenditure in the first half, 8.5 million related to plant and equipment, primarily to support our manufacturing processes and IT infrastructure, and 3.7 million on property for completion of our new distribution facility in South Korea, providing demonstration capability for our capital goods products. We are planning to increase our capital expenditure in the coming 18 months, including new production equipment and property expansion at our MISC site in South Wales to support future business growth. We have detailed planning permission for two additional halls, which will roughly double the space available for production at this site. The first phase of this development could result in spend of up to £20 million next financial year. I'll now hand back to Will.