Renishaw plc

Good morning, everyone. My name is Chris Pockett and I'm head of communications for the Renishaw Group. And I would like to welcome you to this live webcast presentation of Renishaw's preliminary financial results for the year ended June 2022. Before we start today's event, I would like to read a short statement on behalf of the company. We are deeply saddened by the passing of Her Majesty the Queen and we would like to offer our condolences to her family and friends at this very difficult time. She was a remarkable woman whose hard work, dedication, compassion and integrity over more than 70 years of service shone through and gained a huge respect around the world. Rest in peace, Your Majesty. 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 will 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 should also 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.

Thanks, Chris. So let's start looking at the financial summary of last year. So good news all round here. Loss of record, revenue up 19%, adjusted profitable tax up 37%, end of period cash up by 18%. Start with if we have a look at the revenue. Then very much a similar story to here for the underlying drivers as to what we talked about at the half year. Semiconductor electronics remaining strong and the other markets really starting to catch up and throughout the year. We also saw across the regions strong growth. So it's nice to see all the different regions continuing to grow as they have been. Most pleasing was the ability of our manufacturing and our design teams to overcome the challenges that we experience, particularly with the well-publicized supply chain challenges around the electronics industry. We did see a number of challenges and all the occasions we've managed to keep production going by engineering change, designing in alternative components, a great effort there by the team. What we have seen is delivery times increased throughout the year, but we have now actually in a place where these delivery times are coming down and are really allowing us to explore the opportunities that are out there in the market. And I think just to summarize and finalize on this, that the most pleasing thing about the revenue growth we've seen here is really starting to see all the benefit of the hard work of the new accounts that we have gained, the full impact of them coming through as the markets have improved. So a really positive set of results reflecting all the hard work that's gone on across the group. So if we next take a look at the group profitability, our record profits of 163.7 million, then probably really important here is to have a look at some of those well-publicized inflationary pressures that everyone is feeling and the impact that they have had on us. You can see some of the details in the bottom right here. If we look from a positive point of view, yes, we have seen rising input costs into manufacturing. But actually, if you look at the productivity measures that we have put in place, these are very much offset those increases. We have, as we talked about last time, we gave an update, seen increasing salary costs, both from a rising headcount as we invest more for the future and also pay benchmarking. So that has come across the board as increased salary costs for the year. We've also seen some impacts from some of the geopolitical uncertainty that's going on. And we did immediately stop shipments to our office in Russia. And we have now actually closed our offices in Moscow and in Perm. Some provisions were placed in for these changes. And Alan will go through this in more detail in his financial review later. If we look at our manufacturing technologies business in a little bit more detail, then actually it's a very similar message, again, to the half year. Similar breakdown as to where we're selling. Still, we saw the really strong markets for Semicon, for Electronics CapEx investment, driving the demand for our Encoder products. Flexible gauging machine tool products, really with that need for automated, more productive machining, still strong demand. And also the strategy of selling high-value solutions, very much to targeted key accounts, getting in repeat business. That's for Additive and our Revo 5-axis system, really starting to work well with repeat business coming through. And I'll talk about where that's going later on in the presentation. So we seriously hear long-term growth drivers really positive in the stuff that we've talked about with new technologies coming through like additive manufacturing, robotics, semiconductor. These are all positive growth markets and key technologies to empower the future. If we now take a look at the analytical instruments and medical devices sector, then again, really the message here is very similar to the one that we gave at the last update. End markets are similar. One update to start with on spectroscopy, though, the challenge we raised about some of the duty free exemptions, certificates, that's now eased. So we did see a good second half for spectroscopy. We did, however, as we were highlighting, see some more challenges with the neuro business from the drug delivery side. So the trial that we had that was really improving the profitability of the group, that stopped. No issue with the device. There was a drug issue, which meant that trial stopped. We do have a number of these opportunities in the pipeline, and we are really looking forward to getting some of these more trials coming through and the profitability, therefore, of that group improving. Okay, I will now hand over to Alan.

Thank you, Will, and good morning, everybody. As Will has already stated, we have delivered a very strong performance this year, resulting in record revenue and record adjusted profit before tax. Meeting this strong demand has been a real challenge given the global supply chain pressures we've seen, and I would like to thank our people for their continued dedication to meeting our customers' needs. Revenue amounted to $671.1 million compared to $565.6 million last year, an increase of 19% or 18% of constant exchange rates. Adjusted profit before tax is $163.7 million, 37% up from $119.7 million last year. This is mainly as a result of additional gross margin from revenue growth. However, we have seen an impact on our costs from inflationary pressures, particularly labour and utilities, and there's more on this later. This gives a return on revenue of 24% compared to 21% 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 $8.3 million from forward contracts, mostly US dollar denominated, which are deemed ineffective for cash flow hedging, compared with gains of $22.9 million in the previous year. The movement has been caused mainly by the weakening of sterling against the dollar. These gains and losses have had no impact on our cash balances and no additional contracts have been designated as ineffective this year. an £11.7 million past service costs relating to the UK defined benefit pension scheme, and more on this shortly, and a credit of £1.9 million for the third party advisory fees relating to the formal sale process and the release of provisions for restructuring made in our financial year 2020. The resultant statutory profit before tax was £145.6 million, compared to 139.4 million last year. The effective tax rate for the year is 17.3% compared to 20.1% in the previous year. This reduced rate mainly rises from the impact of the profit split by country and different tax rates in those countries, an increase in the patent box and CapEx super detection incentives in the UK and an increase in the profits from associates and joint ventures which are reported net of tax within the profit before tax. Earnings per share on an adjusted basis is 185.5 pence, an increase of 41% compared with last year, and on a statutory basis is 165.4 pence up from 153.2 pence last year. In line with our progressive dividend policy, the Board has proposed a final dividend of 56.6 pence per share, giving a total dividend for the year of 72.6 pence per share, a 10% increase over last year. Returning to pensions. The company and trustees have successfully implemented a number of changes to the UK defined benefit pension scheme during the year. Following the Queen's Council opinion received last year, mainly relating to how revaluation and late retirement factors are applied, the liabilities of the scheme reduced by £14.3 million last year with a credit reported in the other comprehensive income and expense. This year, the scheme rules have been changed to align with the historic administrative method for calculating the revaluations and early retirement factors. The resulting increase in liabilities, totalling £11.7 million, has been recognised as a past service cost in the consolidated income statement. This cost has been excluded from the adjusted profit before tax. We also agree that the company will have the unconditional right to a refund of any surplus on wind-up of the scheme, allowing for the recognition of 40 million IS-19 scheme surplus this year. Following the agreement of the September 21 actuarial evaluation, the £10.6 million held in escrow as security has now been released from charge. In addition, the net book value of UK properties subject to charge has reduced from £81.7 million last year to £54.2 million this year. This slide presents details of our income statement and the profit bridge shows the movements that reconcile the adjusted profit before tax of $119.7 million for last year to the $163.7 million this year. We have seen a $66 million improvement in gross margin, excluding engineering costs, which is attributable to the increase in revenue. Our gross margin of 35% of revenue is in line with the previous year. However, we have seen an increase in the cost of a number of purchased items, particularly electronic components, aluminium and steel, and an adverse currency impact. These have been offset by improved efficiencies resulting from higher production volumes and process improvements. The group headcount has increased to 5,097 at the end of June 2022, compared with 4,664 at the end of June 2021. The increase mostly comprises manufacturing staff to ensure we have sufficient capacity to meet demand and also an intake of 145 graduates and apprentices continuing our investment in future talent. Labour costs, including bonus provisions, were £254.4 million, an increase of 14% versus last year. This has been driven by an average headcount increase of 11%, plus salary review and performance-related bonus increases. We remain committed to our long-term strategy of developing new innovative and patented products to create strong market positions with net engineering costs of £78.6 million compared to £72.1 million last year. Gross engineering expenditure increased by 12% to $85.8 million. This total expenditure was consistent with our plans, but we spent more than originally planned on existing product support, with the need to redesign a number of existing products to maintain supply to our customers. As a result, our $59.4 million expenditure on new products was similar to last year. 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 due to current inflationary pressures. Distribution costs have increased by 12.4 million this year, including 2.1 million of impairments following the cessation of our operations in Russia. An increase in travel and exhibitions as some restrictions relating to the pandemic have been lifted. Adverse currency impacts, particularly from the weakening of sterling against the dollar. and increased labour costs following pay reviews and performance-related bonuses. Within administrative costs, we incurred 3.7 million last year nil of expenditure on services relating to the implementation of a group-wide ERP software package. In the previous year, administrative costs included 4.7 million of impairments relating to an associate company, which have not been repeated this year. Profits from associates and joint ventures has increased by 2.7 million, primarily due to strong demand for the magnetic encoders designed and manufactured by our RLS based in Slovenia. Looking forward, as a result of benchmarking other pay reviews already completed and excluding other factors such as headcount growth, we expect annual labour costs to increase by around £19 million in 2023 compared with this year. Where possible, we are mitigating cost inflation by increasing the sale price of our products and are focused on delivering productivity improvements across the business. Moving on to capital expenditure. Of the 30.8 million expenditure in the year, 25.1 million related to plant and equipment, primarily to support our manufacturing processes and IT infrastructure, and 3.7 million on property for the completion of our new distribution facility in South Korea, providing demonstration capability for our products, in particular capital goods products. Looking forward we have commenced the expansion of our production facilities at the Miskin site in South Wales to support future business growth. The committed spend is around 64 million of which over 30 million is likely to be incurred in the financial year 2023. On the slide you will see the latest progress on the development of the site. We are also planning significant investment in production equipment to increase both capacity and productivity with a focus on automation and further investment in our IT systems and group-wide ERP systems. Turning to cash flow, this bridge tracks the movements from our opening cash and bank deposits balance of $215 million at the 1st of July to the closing position of $253 million at the 30th of June. before non-cash items and research and development costs gave a cash inflow of $254 million. We have seen a net $48.8 million cash outflow from changes in working capital, primarily relating to an increase in inventory levels of $48.9 million. This reflects increases in global demand and planned uplifts to strategic safety stock levels to mitigate global supply shortages. Significant cash outflows relating to our capital allocation strategy include 59.4 million of R&D costs, 31 million of CapEx, including intangibles, and 49.5 million of dividends paid. Other significant cash outflows include £23.4 million of tax payments and £8.9 million of pension scheme funding. Our strong cash position leaves us well placed to invest in the infrastructure needed to meet our future growth plans. I'll now hand back to Will.

Thanks, Alan. So next, let's take a look at the progress we've made on delivering our strategy. So look across the board, whether it's manufacturing technologies or analytical instruments, three key things we've always talked about, about product innovation, global support and manufacturing remain absolutely key for us. What I'm going to go into a bit more detail, starting with manufacturing technologies, though, is how we're using those to really grow by looking at two routes of the market where we sell components to machine builders. And secondly, when we sell complete solutions to end users. I'm also going to touch a little bit on how we're both continuing to grow those existing markets by innovating with the next generation of products coming through and how we are also innovating to allow us to expand to go into close adjacent markets and accelerate our growth. So first, let's have a look at our focus on machine builders. So by machine builders, we're actually covering quite a wide range of different companies. We have here people making machine tools for cutting metal. And we also have companies making, for example, semiconductor manufacturing machines to go into the semiconductor manufacturing industry. Now, here we've got long, good relationships with these customers. So this allows when we bring new innovations through, like the RMI-QE radio transmission system that we talked about a year ago, we can really allow our customers to push the game on, secure those accounts with this next generation of technology. It also means on areas where actually we've got markets to grow into, like with our laser toolsetter. When we come up with a really innovative, disruptive product like the NC4 Plus Blue, we can start to take market share and grow our place in that market. Since launching that, actually, our sales team has done a really good job working with global accounts, and that's really starting to grow our market share there. One particular German company called Valter make high-end grinding machines. And they have recently chosen and selected us as the laser toolsetter for their machines going forward. So very positive news for us in terms of us outperforming the market. Now, more from a semiconductor side, a wide range of optical encoders are used across the board here for position feedback in these machines. And here, a combination of the innovation in the product and long-term account management really is allowing us to grow here. And again, very confident that we're growing market share with new accounts coming through all of the time here. And this is really helping us on this wave of semiconductor investment really outperform the market as well. Now, we also have the exciting programs here for the future, both on the new major products to come through in the shorter term and also on the disruptive technology for the longer term, too. We've also talked in the past about diversification within our manufacturing technology sector. So what we mean here is really introducing new non-substitutional products into very close adjacent market segments. A couple of examples here that we talked about that are really going well. First of all, Fortis, the enclosed encoder designed for these harsh environments where we're selling and promoting to machine tool builders predominantly Fortis. So what we're seeing is the product innovation we talked about has been really well received, particularly actually the simplification and the ease of installation. What we're seeing, and you can see names of some of our customers for Fortis in the top right, is that we are displacing incumbent suppliers and people like us for both the product innovation and our known and trusted support that we can give them globally. Really challenge actually here is ramping up the manufacturing capacity to cope with the demand that has been higher than we expected. Also from our associate company, RLS, we have a new magnetic rotary encoder, SpinCo, which is designed again to be sold into these machine tool builders. So real advantage for this means with our existing sales force, we can really increase the revenue from each machine tool that is sold. Now separately, but aligned from a machine verification point of view, where we're a world leader in machine calibration and verification, we've also launched the XK10 alignment laser system. Now, whereas typically the calibration side is used at the end of the manufacturing process, this allows some of the fundamental setup to be done at the start of the machine building process. So again, a complementary product to areas we already are. So positive feedback here on a product that we talked to you about that we had launched. And we also have a nice positive roadmap of products and technology here for ideas on new products along this idea of diversifying into close adjacent markets. So staying with manufacturing technology, let's have a look at what we're doing with end users direct. Now clearly we sell all our products also direct to end users, but there's a couple of really interesting areas that I wanted to focus on. First, Revo 5X system going very well. Combination of things here of the productivity advantages of the speed of Revo that can give, and also the additional measurement capability that some of the newer sensors that we've launched are really giving to our customers. Really wide adoption across a large different range of customers, Ford, GM, Pratt & Whitney, GE, all key customers for this technology. EV, you can see on the right a picture of actually, because it's a very flexible system, so traditionally Revo is very good at measuring internal combustion engine parts, also very flexible and good for measuring EV parts as well. We always talk about the metrology challenges that there are with EV and how we solve those. But EV is pulling through business for us in many different areas. So I'm interested in batteries recently with our encoders being designed into machines for battery manufacture. And also our Raman equipment is being used for analysis of parts within the battery. So a good, strong driver for us there going forward. Now, secondly, in terms of going back to the end user on manufacturing tech, additive manufacturing here, we've talked about this as saying we have a strategic change a few years ago of focusing on what we felt were really key accounts with potential for multiple system sales. And this, I think, from the success that we've had and are having with accounts was the right call to make. And we are now seeing that benefit of repeat business coming in from some of these. One that we talk about dentistry, Bego, ordering more machines from us, a very large, successful dental company. So next, let's have a look at our analytical instruments, medical devices segment. So first of all, with spectroscopy, the message we've been talking about is, look, how do we grow this into slightly newer markets and develop that opportunity for repeat business? The Versa instruments we've launched to start with has really helped with that, and it lets us try and move out of just the research environment with a more flexible machine. So That is going well. We've also launched a new product, the Inlux. So this is the product you can see in the picture on the right here. This is designed to be integrated with scanning electron microscopes. So it allows you, if you're using a scanning electron microscope, to get the benefit also of RAM analysis on the sample that you're looking at. This allows Tuny route to markets to open up for us both selling direct to end customers who already have an SEM and also through our collaboration with the SEM builders of it being sold as a solution as new. And then secondly, from a neurological side, as I touched on this earlier, the absolutely key bit for us here is getting the accounts in and getting the trials going with the drug companies. That is key for the success of this business. Clearly, implementing our strategy, it's really important that we do this in a sustainable way. And we've touched on this before. We've got agreed targets in place now for Scope 1 and 2 by 2028 and for all scopes by 2050 at the latest. We're continuing to invest. by switching over to renewable sources where we can and also in self-generation of solar panels, insulation changes and heating systems to make sure that we are accelerating towards that 2028 target. When we're looking at the scope three, one of the important things is understanding the benefit that our product gives, whether that's reducing away through novel AM adoption or in terms of the efficiency by making more accurate parts for engines, then we really feel the stuff that we are doing, the products that we're making and how we are helping our customers really allows the world to develop for this net zero future. So if we take a look at our people, then I think you can see from everything that we've achieved this year, the effort that our staff has put in has been absolutely fantastic. Also, I think it's important to stress that when we're looking at our business going forward, our primary growth strategy is one of organic growth. And this is because we feel we are operating in some really attractive markets and we have the technology pipeline to really exploit these markets. We also have a pretty good track record of making a success of this through disruptive innovation. This holds for both those existing markets that we talked about and those close adjacent market opportunities that we want to also exploit. To do this, we've got to make sure we have the people to do this and we've got to make sure we're making the most out of those people. We've been putting in initiatives across the group, both designed to really help people develop and succeed and also to minimize our churn. Now, this includes staff development, but it also concludes the financial benchmarking exercise that we went through that is going to cost us more money, the additional £19 million that Alan mentioned earlier. We also plan to continue targeted recruitment. Our graduates and apprentices to our early careers are the lifeblood of the future of the organisation and are our primary recruitment exercise throughout the year. We will also be doing targeted recruitment of key skills that we need that are vital for the delivering of our plan. Okay, so if we now take a look at the business environment and the outlook going forward, I guess to start with from a positive point of view, look, we have a really high order book at the moment. Our order intake is still strong. If it has eased a little bit from where it was, the order intake that is from earlier on in the year. We also report analysts predicting more uncertainty in all the markets, particularly the semiconductor and the electronics capex. And we'll have to see what happens there going forward in the medium term. What we do benefit for here, though, is that some of the markets we're exposed to, we've talked about ULAV stuff earlier, some of the defence stuff from geopolitical, feel like they are still strongly being invested into. Now, some of the challenges we've faced last year feel like they're easing, particularly from a supply chain point of view. They are still a challenge, though, but hopefully they gradually get better throughout the year. Certainly, as I mentioned, in terms of product lead time, things have improved an awful lot for us in order to make sure we make the most of the opportunities that we have in the market. Now, in this world of inflation that we're moving into, clearly for us, productivity is key and making the most of the resources that we have. We are likely to see some increase in things like material prices, which so far we've offset a lot of with our investments. productivity enhancements and some benefits that we see from where we've locked in costs on contracts such as energy going forward. So we talked about price rises back at the last update. They have now been implemented by our sales regions. Bit of phasing here, working through some of order books and previous orders, but we're expecting a couple of slant of additional revenue from these targeted price increases. And we will be reviewing this as we go through the year to see what additional measures we can take. So let's summarise. Overall, as always, long term growth opportunities. Great with the markets we're in, with the innovation that we've got coming through. We feel very confident with our strategy and also the actions that we're taking to deliver a really sustainable long term growth for rent for initial. So I'm going to hand over now to Chris, who is going to host our Q&A session.

Okay, well, thank you, Will and Alan. We've now been joined by Sir David. So good morning to you, David. We have around half an hour or so remaining. And perhaps as usual, I'll try to group similar questions together. So we may not be able to answer all individual questions. Just a reminder that you can submit questions via the question icon that you can see on the control panel on the right of your screen. So we're going to start with a question that's come in. If revenue is up 6%, I believe that's comparing H2 and H1, why were distribution costs up 19%? Seems out of line. I think that's going to go to... Thank you, Chris.

Yes, this is where we're looking at the revenue for the first half of the year compared to the second half, where revenue did increase from £325 million to £345 million, which was a 6% increase, and distribution costs increased by 19%. There's a number of component elements in that 19%, particularly the write-off of our Russian impairment to the closure of Russia. That was about 2.6 million. We have seen more travel being undertaken this year post-pandemic. There was also an impairment of some property in Michigan for our factoring business, which is relocating. There's an element of currency impact as well and some increase in headcount. In summary, they all add up to around about 19% increase.

Okay, thanks, Alan. And a question here relating to cash. So net cash on the balance sheet is at a record high. Could we give or could, yes, we give some of that cash or could some of that cash be returned in a special dividend or a share buyback?

And I think, Will, you're going to take that one?

Okay, yes, so look, it's been really positive seeing how the business has generated significant cash recently. We have been discussing this as a board. Clearly, we want to make sure that we have the cash there to support our aggressive growth plans. and also contingency, that if there are harder economic times ahead. We've been looking at setting limits, and then we will just be discussing over the next half what things we can do with cash that is in excess of its target that we need.

So I don't know that you want to talk any more about CapEx plans you've gone through already, some of those. Okay.

Yes. We've got some pretty extensive capital expenditure plans this year. As I mentioned in the commentary, we've committed to around about $30 million expenditure on Miskin for the current year. But that's part of a much bigger total of between $60 and $70 million for construction. We're almost doubling the size of our Miskin plant. This is the biggest CapEx program we've undertaken. But we're looking to complete halls three and four by the end of December next year. In addition to that, we've got We're building a new office block down in Brazil and we're doing some refurbishment in the Netherlands. Additionally, we've got some very extensive pre-implanted machinery expenditure, not just for volume, but also for further automation of processes. although not quite capital, but we're putting a significant investment into our ERP programs with the first deployment of our D365 taking place this year. And this is likely to be slightly less than the 3.7 million that we spent last year.

Okay, thanks, Alan.

Another question here relating to cash. Given increases in bank base rates with more to come, is the company expecting to generate significant increases in interest income in the coming year? And I'm going to give that one back to Alan.

Very simple answer to this one. And the answer is yes. We are expecting to see an extra 2 or 3 or 4 million

additional interest income this current year okay thanks very much Alan a question here on ownership in the chairman's section of the release David states that he and John Deere remain committed to Renishaw Does that mean you have now completely finished exploring all options?

And I think Will, you'll take that one. So no, it certainly doesn't.

This is something that we are having discussing frequently as a board as to what options there are and how we can work together to find the best solution here for all stakeholders, as we have been doing so that those discussions continue. I see there's a few other questions on here. There's not really much more we could add on that position today.

Okay. Thanks, Will.

Question here. We've got a market share. I think this is going to go to you as well, Will. Can you remind us, please, what your market share is in each product area?

Yes, we don't talk about exact market shares.

We did go through an investor day and show that in our established businesses, our traditional businesses, we are very much number one or number two in everything that we do. And for newer areas, we have to have a plan as to how we're going to get there, such as additive manufacturing for the future. And actually, a couple of businesses where we didn't think we had the opportunity to do that, then a few years ago, we divested.

So, yeah, that's where we are at the moment. Okay. Thanks, Will.

Question on additive manufacturing here. Can you talk about what rates of growth you are seeing within the additive manufacturing business? Has there been a notable step up versus fiscal FY21?

I'm guessing Will, you're gonna take that.

Yeah, the change here has been more actually the migration of the strategy that we talked about of the focus on key accounts with the opportunity for repeat business. And that's been a really pleasing thing to see last financial year, and that's what we expect to see accelerating through this year. Just been out visiting our U.S. team at the large IMTS trade show over in Chicago, and you can see we're now starting to really get the repeat business coming through from a number of customers over there, as we are also in our Europe region. So I think a real positive outlook there for this one actually.

Okay, thanks. Sounds very good.

Okay, some questions now on China. Are your facilities there back at full levels of operation? And if global OEMs shift incremental production investment to other markets, such as India and Vietnam, how well are you set up to support that?

Okay, yes.

So last time we spoke, we had all those challenges over in China. Really pleased to say we are back up at full levels over in China now. There's occasionally small little lockdowns regionally, but we're well-placed to support and get products and support customers. So, yes, and also a good point here with production, which we are seeing moves of certain people to countries such as India and Vietnam. India, we have long been established in and have really good coverage. Vietnam, over the last 10 years, we've been steadily growing our capabilities there. as it started to show signs of becoming more and more with the manufacturing there.

Yeah, so we are well placed in Vietnam to make sure we can support our customers. Okay, thanks Will.

There's a question now on Semicon. Can you be more specific about the level of weakness in order intake from Semicon electronic sector so far in FY23? And has it been across all product groups who supply these end markets? And I'll pass that one to Will.

Yeah, so when we talk about this weakness, predominantly we're talking about where we supply our different range of encoders into semiconductor electronics, CapEx. So it's very much focused on the encoder market here. There has been a weakness, not huge, but it is certainly the order intake has been reducing significantly. We think bits of probably overstocking that has gone on, but a bit more uncertainty also with those capital equipment manufacturers. Talk is of recovery because clearly the long term demand drivers are very much still there. And the information we seem to get at the moment suggests that this is just a phasing issue and things will pick up actually in the shorter term.

But we will see. Okay, thanks Will.

And actually this question is relating to the SEMICON as well. Do you still have significant backlog of SEMICON and electronics orders? to support revenues in this area over the coming months, or will weaker input have a fairly immediate impact on sales trends here?

I'll give that one to you. Yeah.

So we as a group, we still got a really strong order book, two and a half, three months or so at the moment. So we yes, we have that. And there's a significant amount there, which is to do with with some electronics. So, yeah, we've got some good coverage. And still, as I spoke about before, we are getting better visibility. from these customers than we used to and more dialogue as I think they've realized how important it is to give the supply chain more clarity to make sure we have the ability to make sure we can supply to them.

Okay, thanks.

Slightly different question here. Why do you think the share price is so low given the stellar performance?

Will, do you want to take that one? Yeah, I can pick that up.

So we're really pleased with the performance of the group. Where the share price is, harder for us to speculate. I guess you can look at the companies with long-term growth plans seem to have been more hit recently. Leave that for the analysts to judge. All I can really comment on here is we're very positive on the performance this year. And we're extremely excited with the opportunities that we've got going forward. Particularly, I think the innovation, the new products coming through and the ability to outperform the market growth rates, which are nice as well.

So, who knows? Okay, thank you.

Question here relating to our two core sectors. Can you remind us of any synergies between the core manufacturing technology division and the spectroscopy business in particular?

I think we'll take that one first.

So Spectroscopy is quite a different business from the manufacturing technology area of our business. Because of that, we have been increasingly separating it and running it as a standalone business. So it still benefits from some of the group functions and the support from our global overseas sales operations. But in general, we run it far more separately. It does some of the trends and some of the information coming through. I talked earlier in presentation about actually battery. So we will be selling in to the same companies and gaining market information and leads and sharing them. But in general, it's run very much as a separate part of the business, as is Neuro, which is now being split off into a separate company even.

Okay, thanks, Will.

Question now on currency. This one's gonna go to Alan. With significant movement on the US dollar, even since your year end, what impact is this having on Renishaw, including forward contract coverage?

Thank you, Chris.

Yes, we've got a hedging strategy in place whereby we cover approximately 75% of our forecast cash inflows. And what we've experienced last year that the average cash inflow In particular, our dollar, we cover US dollar, euros and yen, our principal currencies, where we have hedging strategies in place. The significant one being US dollar. Last year, we saw an average forward rate of around about 142. And for the current year, we're looking at an average rate of around about 132. So we should see some sort of benefit for that. We have a currency hedging strategy going forward for two years. And we have set caps at which we will undertake contracts. So, yeah, I think potentially year on year we should see a benefit. But we're based on current exchange rates. We don't know where they're going to be going over the next six, nine months.

Okay, Alan, thank you.

Question here on strategy. You have stated you are focused on organic development. Do you think that risks that risks missing inorganic opportunities that could accelerate your time to market versus internal development? There are laser technology peers for component inspection on much cheaper valuations at this point in the cycle. Cash is also at an all-time high. Is this good capital allocation? Will, do you want to start with that one?

Yeah, go on.

Okay, so yeah, good question.

So we're looking at this and we're always evaluating to see are there some small companies developing some new technology that we think we could really benefit and utilize our route to market on that is complementary. So we are reviewing this. As you can see, nothing at the moment that we have done yet. Our period here for growth is the excellent R&D that we've got going on across the group, and that will be fueling the majority of our growth. Areas that we think maybe we are weak from internal review, we will see if there's someone that we think brings something really quite disruptive from outside, but that will probably be the only reason that we will look at acquisition.

Okay, thanks Will.

There's a question on labour costs. I think this is one going to Alan. You speak about 19 million of additional labour costs expected in FY23 year on year. Can I ask the extent to which these increased costs were already being incurred in Q4 of the year just completed?

uh thank you yes um actually this is uh uh an incremental cost versus last year and as a result of our uh july 22 annual pay review and uh so that's uh that is an absolute amount based upon that review. And additionally to that, we are recruiting, continuing to recruit, but we're not sure at this time what the cost of that incremental headcount increase will be.

Okay. Thanks, Alan.

One, I think, for Will. So the Capital Markets Day, Investor Day, you talked about visibility on the order book having increased and never been higher. Has this reduced again?

Order book? Sorry, sorry, Chris.

So, yes, the order book has reduced. It's still really healthy, as I mentioned, I think, earlier on in the Q&A, about two and a half, three months. So we've still got reduced on order book. We are... We've got the advantage of our run rate of getting our manufacturing run rate of getting products out is increased. That's really good. And we have seen that slight easing off in the Semicon, so our encoder product line order intake, which is predominantly an APAC region issue for us at the moment.

Okay, thanks, Will.

I'll just randomly direct questions that just keep you all on your toes. Okay, some more questions on China. I think some of these have already been answered, but are you seeing any changes in the competitive market? is there anywhere you are gaining or losing market share most? Sterling has depreciated a lot, for example, 15%. versus the US dollar year to date, and most of your costs are in sterling. Can you confirm that you have shorter FX hedges now? Do you have any estimates of the benefits you'll get from this? So first question, I guess, on China to you, Will, and then we have currency question, which we'll put to Alan. So we'll start with Will.

I think there's two different China talks about is fully up and running and demand is strong. The concern that they're being order intake on Semicon where there's manufacturing done there. In terms of competitive dynamics, gaining and losing market share. So, like I said, this is really important for us, and we do monitor as well as we can. Most promising, I think, is some of the newer products that we have launched, because where we have going to areas where we're not already there, like Fortis and Closed Encoder, clearly a lot of market share to take. And that actually, I think of all the The products that we've launched that I can remember, which are designed into other people's equipment to be sold on, that is having the fastest uptake rate and the biggest impact that I can ever remember. So that is by far the most positive at the moment. We're also, though, with our open encoders really doing well in terms of gaining accounts. It's often long-term relationship building. As I said, what we can see now is as this market has done well, really the full impact of those coming through over the last couple of years. In terms of losing market share, nothing significant. We have had areas where when demand was very strong then there's probably a couple of accounts which ended up getting shared where we would love to have had more of the business but we were up against it in terms of supply but long-term positive and very much a sales organization focused on making the most of those opportunities I think second half here is over to Alan

Thanks. I think I covered this in a previous answer to a question, but just to confirm that our foreign exchange hedges are now down to two years. We used to have about three and a half year coverage, but the last couple of years we've been, we've shortened it down to two years for currency contracts.

Hey, thanks, Alan.

Okay, a lot of questions here to get through. Sorry, I'm just looking through seeing if there's any that we've already covered. Slightly different question. Can you spit out the revenue growth between price and volume?

And Will, I think you're going to give it a take.

Yeah, but by far, the most of this is due to volume, which is both good market conditions and also gain in market share. The price increases that we talked about, are really only coming into effect now. So that extra couple of percent, that will be for this financial year relative to last year. So there wasn't anything at all significant last year.

Okay, thank you.

Another question here, which I think is going to be for Will, in terms of end market exposure. What are the markets that are slowing down, for example, Semicon, which I think we've already discussed, and those that could be accelerating auto, aerospace? What does that mean for the order intake over the next 12 months?

That's going to be running for a while. Okay, thanks. Yeah.

So quite topical this. I've just got back from a trade show. So auto EV investment still very strong. Lots of new metrology challenges there, which everyone is trying to understand that the best technologies for solving those. We think Revo and Accra are really well placed for those. And we've had some good demonstrations, good customer visits on that. how we've been solving those challenges. Actually, also, as I mentioned, again, we often overlook the battery side of things and that's driving demand for some of our Raman encoders and also industrial metrology there as well. Aerospace feedback from this week actually at the show was that the demand for projection in terms of airplane orders is going to need significant investment to be able to keep up with that demand. And that's going to be a real challenge. So we think actually the aerospace market is going to do particularly well. And also, I mean, sadly, but talk on the political environment that a lot of expenditure into defense. So, and for stuff for immediate orders, and that's going to benefit both machine tool side inspection with our CMM and also manufacturing. So, yeah, a few of the highlights, as opposed to some of that stuff that we talked about with a bit more uncertainty.

Okay, thanks, Will.

Okay. question here relating to additive manufacturing. You mentioned dentistry specifically, but how wide in scope to other sectors is your AM division?

That's going to be another one for Will.

Yeah, so AM is going through a really interesting change at the moment where we find customers are starting to embrace and understand the philosophy of the benefits that AM can give them if they embrace new design philosophy and philosophy in how to design parts, not for a traditional machine tool, but design optimized for an AM machine. And this can really give them productivity advantages, cost advantages, and performance advantages. What's really nice from that output is actually that means that across all sectors really AM is starting to become very relevant. So yes, dentistry within healthcare is a traditional area where the advantages are understood, but now it's becoming far more broader than this. And actually the applications really cut across all areas.

Okay, thank you.

Question here on electric vehicle market in terms of metrology. Could you explain in simple terms why metrology in EVs is more complex than petrol diesel engines? Is the potential revenue growth from EVs a net benefit, or will this simply replace revenues from petrol diesel engines?

That would be one for Will.

To make it clear, I don't think the metrology demands are more complex in an EV than a petrol diesel. They're just different. And in the petrol diesel world, there's been many, many years of trying to trying to optimize, understand and work out the best way of coping with the metrology challenges. What we have is with EVs is far newer. So the metrology challenges coming through are different, requiring different approaches. ways of using our technologies. Now, advantage for us is the same technologies that we've developed for the petrol diesel engines, because they're flexible and programmable, they can be redeployed to measuring EV. But if you imagine on an electric motor and you've got the cables, the wires in it, sorry, and you're trying to measure the different heights of some of those, that they're just different things than manufacturers are used to with traditional internal combustion engines. So in terms of revenue, I mean, there is still research going on on the traditional drivetrain that's been complemented then with the new investment going in on EVs and both and batteries. exactly how it pans out in terms of overall investment in terms of um probably probably ends up being a reduction number of machined uh parts but new investment going on into different styles of drivetrain okay thanks will um here's one

I think is certainly Alan could talk to. What are the revenue and cost implications of closing your Russian operations?

Thank you, Chris. Yes, the revenue invitations were, Russia contributed approximately 1% of our revenue. And in terms of costs and the write-off, it's primarily the um these whole premises that we we occupied some uh demo and uh stock write-offs and uh also some um obviously the uh uh looking after the staff that were employed in russia and because the closures of our permanent uh mosque offices additionally there was some residual cash In the balance sheet and we've impaired all of those costs.

Okay. Thanks, Alan. I'm very conscious of time. We are starting to lose people. So I think we're just going to take a couple more questions. I'm unfortunately not going to be able to answer everything on here. We've had an exceptionally high number of questions today, but I'm conscious of time. The question here, which is different to anything that's been asked to date, How many of your main products are now compatible with third party software?

I'm going to put that one across to.

Okay, so two areas here ready to comment on. Firstly is our Revo five axis high productivity CMM. sensors so here we now have for example with a company a metrology company was seeing just this week some really good stuff that we're doing in collaboration solving some challenges for a customer where their experience with that software but wanted the advantages of Revo immediately so you can now have that with that software or our own software which most people are using Also from the Equator, we now have actually a broader range of the Equator because it's a simpler product for shop floor gauging. And again, what we're starting to see is customers who are favor one particular sort of software are now starting to evaluate and look at the Equator platform as a standalone, non-turnkey solution for us, just buying the Equators from us and programming it themselves. So, yeah, really good progress. there in terms of the development work and hopefully we'll see a good increase from sales this year from that.

okay um so this will have to be the the last question as i say it's nearly 11 10 past 11 we've overrun and we're losing quite a lot of people online now so um is there any geographical variance in the uh weakening order intake and more cautious sentiment you are experiencing and that's going to be one for

Yes, this is more in Asia-Pacific here, which is partly because far more of the semiconductor, CapEx business is over there, and the economy business, more of it goes there. But we're also, I mean, having just come back from the U.S., it feels a more positive economy and market conditions over there and a pretty more optimistic outlook going forward.

So, yes, a bit of geographical variance there. Okay, well, thanks very much.

I think we'll need to end it there. So that ends the webcast. As ever, we'll aim to publish a recording of today's presentation in the Q&A session on the IR section of our website by tomorrow morning. On behalf of Renshaw, I'd like to thank you all for attending this event, and hopefully it's been valuable to all of you. Finally, just a reminder that you can download the report, the full year results report, and a copy of the financial presentation that you have seen from our investor relations web pages, and those will be available later today. Again, thank you for attending, and have a good day.