Renishaw plc

Right. Good morning everyone. Welcome to our interim results presentation. It's great to be back here in person seeing you all after I think it's been quite a long gap. It's also very handy to be doing it on the back of a good set of H1 results which always helps So let's crack on and have a little look through these. In terms of structure, actually I'm going to go through some of the highlights. Mark's going to talk through the financials in more detail. And then I'm going to give some highlights before we do the Q&A on our progress against some of our strategic priorities. First of all, positive news in terms of revenue with this real pickup that we saw in Q2. Still underlying quite mixed market conditions. Two standout areas probably for us has been the demand from our customers who make the equipment, the semiconductor manufacturing equipment, and that's for our encoder product line. And also significant interest from the defense industry, which is a more broader cross-sector of products. A real significance, I think, for us, though, is not just the responding to the market conditions and the great job we do there, but it's actually on our emerging businesses and the progress that we're making there. So these are the bets that we are placing, the investments that we're making for the future, for the long term of Renishaw. And I'm going to go through with you later on some of the progress that we have made there. Thirdly, just wanted to stress, clearly, we are an organization. We pride ourselves in our investment in engineering and R&D for our long-term growth. The output of that is what is key, and we have had some really significant new product launches recently. Genuine excitement, particularly from our sales team on the opportunities that they now see from making the most of these. In terms of operating margin, improvements there despite currency headwinds, and we'll look through there. And actually, we're really looking forward to strong revenue and profit growth for the year ahead, and we've released our guidance for that. If we have a little look through some of the key performance indicators and some of the themes coming through here. First of all, very much that strong growth coming through in Q2. As I said, some areas strong. Other areas, such as our sales of machine tool sensors, CMM sensors to the machine tool builders, the CMM builders. It's still quite sluggish overall, actually. The one we always talk about as the extreme is the German machine tool market, which is still quite challenging. In terms of operating margin and flow through onto the bottom line, morning, then we have taken actions there to improve, to support this. We had a 20 million pound cost reduction exercise and also the closure of our drug delivery business, which has supported that margin development. Also as a business, we very much are focusing on cash and cash flow conversion of making sure we are making the most of the assets that we've invested in over the last few years. We have seen some pressure on that though. We have had the impact of restructuring costs on that number. And also we are investing at the moment in working capital as we respond to the production demands of our customers. Okay, that's some of the highlights. I'm going to hand over to Mark now to go through the financial numbers.

Great, thank you, Will. So I'm going to start by looking at some of the highlights from our income statement. As Will has said, we've had a record first half with reported revenue growth at 7.1%, rising to 11.5% at constant currency. We've seen growth in all three segments, and we've also seen an improving order book in all three segments and also all three regions. When we look at regional revenue performance, however, the picture's a bit more mixed. So if we look at the Americas first, really strong growth here, 15% reported rates, more than 15%, more than 20% at constant currency. And that was driven by strong demand coming through for high-value capital equipment, so things like our additive manufacturing machines, our 5-axis coordinate measuring machines. So that's been a real success there. This region has also benefited from around £5 million of higher pricing and surcharging to offset tariff duties that were introduced during 2025. When we look at APAC, also a really strong performance here, so growth of more than 10% at reported rates, more than 15% at constant currency, and here the key positives were rising demand from the semiconductor and electronics manufacturing equipment sector for our positioning coders, and also really good growth, really good demand for our Equator flexible gauge from the consumer electronics subcontract manufacturers. So that's the story in APAC. EMEA is a bit of a different picture. Here, turnover down around 5% at both reported and constant currency basis. We've been reporting some subdued demand here in the EMEA region for a little while, and that continued throughout the first part of the half, but we did see a pickup in demand later in the period, and we ended the period with the order book stronger. We also implemented a new sales ERP system in September in some territories, and that did have an impact during the half. But hopefully you can see from the Q2 versus Q1 performance, we've seen a real step up here in the regions, actually the biggest step up of all of our regions from Q1 to Q2. So we're moving in the right direction there. On an operating profit level, an increase of 11.4% to £57.5 million, and an improved operating margin by 0.6 percentage points. The moving parts there, as Will has touched on, currency in one direction, organic margin improvement in another. More of that in just a moment. But when we look at the income statement, perhaps the most notable thing you'll see is an 8.5% reduction in our gross engineering costs, which reflects some of the cost reduction action that we've taken in the last six months. Sorry, profit before tax grew by a similar amount, 11.5% to 64.1. Effective tax rate in the period was 21.1% at a reported rate, rising to 21.8% on an adjusted basis, and that's perhaps more representative of what we expect to see coming through in H2. And then finally, our dividend payment remains unchanged at 16.8 pence. Right, let's take a look at the operating margin evolution. And I'm comparing now the first half of the prior year with the first half of this year. So we're starting with 15.1% that we reported last year. And on the left-hand side of this bridge, you can see the external headwinds that we face largely from currency, but then being offset by the organic margin improvement we've generated through cost reduction and operating leverage. starting with currency that's been a headwind for us for some years now we've seen progressive weakening of the us dollar and the japanese yen against sterling over several years and we are exposed of course to this currency fluctuations because many of our costs are in sterling most of our revenues are in other currencies and so we seek to manage that through the use of hedging contracts forward currency contracts over 24 months And over the last few years those contracts have done a good job in helping to offset some of the movements we've seen on a year-to-year basis. And indeed, last year, when we looked at the prior year, we saw particularly strong performance from our contracts, and that was as a result of us taking them out at a time when sterling was much weaker than it is today. So they paid out handsomely last year. That has not been repeated to the same extent, but when we look at this year, our contracts have still done a good job, raising about 5 million of revenue to offset roughly 5.2 million of operating margin change as a result of moving exchange rates. But overall, when we wrap that up, we've got 8 million less in currency income, in contract income, 5.2 million of movement in currency, so 13.2 million, 3.6 percentage points of margin. So a significant headwind. With tariffs, that's impacted our revenues by around 1.4%, but had no impact on operating profit, and as a result has had a small degrading effect on operating margin. Moving to the positive side of the equation, cost reduction, Will's mentioned. We ran two cost reduction programs over the last year, a company-wide operating cost reduction initiative aiming to remove 20 million of cost from our run rate on an annualized basis. And we also closed down the loss making drug delivery aspect of our neurological business, aiming to save around 3 million on an annualized basis. Pleased to say those savings are starting to come through. The combined impact of those programs has been roughly a 7% headcount reduction for us at a group level to just below 5,000 employees at the end of December. And we've seen £9 million of saving coming through, so 2.4 percentage points in the first half. And we expect to achieve that £23 million of annualized savings on an ongoing basis here forward. So that's coming through as planned. The other side of it has been operating leverage. So we've generated an 11.5% constant currency growth in the period. That has resulted, obviously, in more gross profit, which has more than offset inflationary pressures that we've seen in our cost base around things like pay, benefits, health insurance. All right, so that's the margin story. I'm going to now just walk through each of the three segment performances for you, starting with industrial metrology, our biggest segment. So here the story is solid revenue performance growth of 4.3% rising to 8.8% on a constant currency basis. The growth drivers here were our emerging systems and software businesses. So these are our 5-axis coordinate measuring machines, our flexible gauges, and metrology software that supports both of those products and helps users to make the most of them. It's really pleasing to see growth in this area. These are emerging businesses and we're really targeting top line growth and here's a key part of our growth strategy. So it's really pleasing to see that coming through. Another success story here is our calibration products. This is an established product line and we've seen growing demand here particularly coming from the semiconductor and electronics manufacturing sector. So those machine builders actually use our calibration products in their factories to help them to make and pass off their machines. So we've seen rising demand coming from there as activity levels have risen. By contrast, we've seen flat sales for the sensor parts of this segment. So that's our coordinate measuring machine, machine tool probes, and also the skyline accessories that go with them. So that's been flat overall, some high points in Asia in consumer electronics, but weaker general demand, particularly in Europe and particularly in the automotive sector. So when we look at the operating performance of this business, it's roughly flat in margin terms. We saw essentially currency headwinds being pretty much offset by the combination of cost saving and operating leverage, but we ended up at pretty much the same operating margin. Let's move on to position measurements or other large segments. This did strong growth in the period. So we saw 7.4% rising to more than nearly 12% at a constant currency basis. And this was something of a game of two halves. We definitely saw a really notable pickup in this business in the second quarter. And we've got great momentum going into the second half. The drivers of growth here were strong performances from our established open optical and magnetic encoder businesses. We've mentioned semiconductor and electronics manufacturing equipment. That's been a key driver. But actually, we've also seen strong demand from general factory automation and robotics, particularly for the magnetic encoder line. By contrast, laser encoders have seen a reduction compared to a really abnormally strong period in the prior year. These are used in front-end semi, in wafer inspection, and we have an abnormally strong comparator to go against, but we're actually really confident in the long-term future of this business. We think this is volatility rather than a trend. We've seen riding order book, and we've launched new products in this area, so we're really confident about the long-term prospects. When we look at operating performance, we've seen similar effects that we saw in the metrology business, so currency headwinds offset by cost savings to an extent. But here the product mix change has been quite significant in this period comparator. So we've reduced by about 4 percentage points, that's 23.4%, so still a strong operating performance here. And I think the more meaningful comparison to take is if you look at the comparison against the whole of last year, which was 22.5%. So the first half really was a bit of an abnormal period. So we've got good momentum here, good top line growth, and improving underlying margins. Finally, specialized tech, so the smaller segment, but the one that's grown the fastest in this period, so growth of more than 25% at a constant currency basis, so really strong growth. And that has been almost largely coming from our additive manufacturing business within here. So we have a strategy here of selling to key accounts, and we've seen many of those adding to their fleet of machines as they ramp up production. But we're also targeting new customers, and we've seen quite a lot of those coming in in this period. And we've seen particularly strong demand from both new and existing customers in the aerospace and defense sector. That's been the notable change in demand in the period. Spectroscopy down slightly, slightly stronger in America, slightly weaker elsewhere. But we've seen good order momentum on that recently, normally has a stronger H2. So looking forward to that this year. And in neurological, that's the smallest part of this product group. And the key sort of thing here is that we completed the closure of the loss-making drug delivery aspect in the period. So when we wrap all of that up and look at the moving parts on margin, we can see a real step change in performance here, 22 percentage points of margin improvement. We're now just short of break-even on this segment. The moving parts there, yep, currency again, slightly less proportionately than the others because of slightly different regional sales patterns. We've seen cost reduction obviously coming through with both the company-wide program and the focused drug delivery activity. But the large majority of the margin improvement coming through here is from operating leverage with the growing AM business. So that's been the key driver of margin improvement. Right, lastly for me, just a quick look at return on capital and cash generation. So we focus on return on invested capital to make sure that we're allocating resources to profitable investments. We saw an improvement here to 13.2%, so 0.6 percentage points. We have a target of 15%, so clearly we have some way to go. And the way we're going to get there is by driving our operating margins up to our target range and also keeping a lid on investment in capital. We have had a period of higher investment in recent years in property. That's now behind us, and we're operating at a lower level of capex. So in the first half, CapEx was 17 million, and we're expecting to run at a rate of about 40 million for the year as a whole, and that's focused mainly on plant and equipment to support capacity and productivity growth. And that's part of the cash generation story. The other side is working capital. We have ramped up working capital in the period. Obviously, we've seen a bit of an inflection in demand in Q2. And so that's triggered us, obviously, to increase our production rate, drawing in more piece paths, more work in progress, et cetera. So we've seen that during the period. So our cash conversion overall, just below our target at 68%. but we think we're doing all the right things here in terms of keeping a lid on capex and making sure we're supporting growth with our balance sheet. Finally, our cash balances, currently just over 240 million at the end of the period, so down compared to the summer, and this reflects the outflows that we've seen on the cost reduction activities, on working capital, and on the dividend payment in respect of H2 last year. All right, I think that's enough from me. I'll hand back to Will.

Lovely. Thank you very much, Mark. So as I said, I'd like to now talk through some of our strategic priorities and a little bit of look more into the future. I'm going to focus on the first three of these because I think the cash generation and ROIC we have already touched on. So the first area here is the key strategy for us, which we've always talked about, of long-term growth through product innovation. It's our key overriding strategy. To set the scene for this, I just want to reflect back, firstly, on our long-term value creation model, something we've shared and many of you will be familiar with. Just to go through, if we look on the left here, then we can see that the markets that we operate in, that $6 billion addressable market, and really most importantly, the fact that they are favorable markets that we think on average are growing by more than 5% a year. You can see the drivers in the four boxes around the addressable market. What we've seen recently probably is acceleration here. All the news on AI and the data centers there really feels like it's accelerating the growth from the electrification area there. We are certainly seeing, I think, continued acceleration of our customers also looking at the adoption of automation and how to automate processes right across from machining to metrology, a range of things there. And we're also seeing probably a broader one, which maybe cuts across slightly differently with all these of the expenditure on defense. And it's really how do we help customers there with manufacturing agility, ramp ups, new technologies to go in there. So positives and some changes going on there from our market. The key bit for us then is how do we outperform? And on the top right, you can see those key three themes. So the first is growing in existing markets. This is how do we sell more sensor technology normally to the machine tool, the machine builders around the world, whether that's semiconductor or machine tool. And we'll often talk about this in terms of the number of dollars we get per machine tool spindle sold for the machine tool industry, for example. Next, increasing technology value is about us selling the increasingly complicated systems, so capital goods together with the software to enable them. And then thirdly is looking in terms of moving into new markets. And to be clear, this is very close adjacent new markets to where we already operate. With all of these, the innovation side being disruptive, having the USPs is absolutely key for us to succeed and give our sales teams around the world the strongest advantage that we can. I'm really pleased that actually, despite reducing engineering expenditure, what we are seeing is a really strong pipeline of products that we have recently launched. And also we've got a really healthy pipeline of products to come through for the future. I just want to highlight a few that I think are really key for our strategy and for our success. So if we first of all look at industrial metrology, we've had a really strong reception for the Equator X and Modus IM Equator software that goes with it. Equator X brings very high speed measurement to the shop floor and it does it without the need for a master part to compare with. So our customers immediately get the benefit that it brings. The real enabler with it is the software, which dramatically de-skills the level of knowledge needed to be able to program the device. So what we have with the combination of these two is amazing performance on the shop floor, metrology where you need it at the point of manufacture, and also far simpler for our customers to deploy and far more flexible in terms of the range of different parts that they can measure. This is really key for us. You can see there's excitement from our existing sales team all around the world and what they can do, the customers that liked our existing products but need this. But there's also excitement in terms of the new routes to market that we can open up. So people who are selling already a machining and manufacturing solution where this can be a part of it, they can own it, they can sell it. So a lot going on there and a lot to do. From position measurement, Mark talked earlier about with our laser encoder product line being sold into wafer inspection. The great thing here is this is always a market where the challenges of the next generation of wafer technology is getting smaller. These customers always have really tough metrology challenges, and we've really stepped forward with our next generation of laser encoder in terms of the performance that we are now giving to those customers. Again, had the chance to meet some of them recently, really positive on the relationship that we have with them. Astria, we have talked about. So this is actually a new area for us using inductive. Again, it's been really well received by the market in terms of the metrology performance that it delivers. And then finally, from a specialized technology point of view, Strada is our new Raman instrument. Raman traditionally is an instrument used for the Raman expert. in the Raman lab who will do things. Strada is designed to simplify. It automates the Raman process from the hardware, dramatically simplifies the software. So it's Raman for the non-Raman person. So if you want to solve a problem, you can do it with this. You don't need to know anything about the technology that is inside. So this is open up different opportunities, different markets for us with Raman. And finally, Libertas is new software that we have launched to go with our additive manufacturing business. So what this does is when you are making a part additively, you have to put in supports to hold it in place. And what Libertas does is by doing very clever novel scanning strategies, dramatically reduces the number of supports that you need. So what this does is it speeds up the cycle time. You don't have to build these supports. You save time. You save waste because you're not processing the material. And you also save post-processing time because there's a lot less then of support material to remove after the build. So it's pushing forward the productivity of our machine for our customers. what it also does actually is really improve that the tricky service about to party bottom and the surface finish of that with our new software is really noticeably moved that change before this was really well received by customers so strong healthy a up product launches that much more to come in the future So while we absolutely see that our future is the growth, what we've been clear on and talked to you about is making sure that the business is as focused and as lean as it can be to support that growth. If we look at the initiatives that we have going forward, then in terms of this graph, you can see that I guess Mark earlier brought us up in terms of the 15.7% that we end up with this half year now that we've just announced on. For the rest of this year, we still see continuing to have some currency headwinds, some benefit from the cost reduction program. And then actually the flow through of the margin from the revenue development taking us up to our end of year results. The interesting bit really is going forward. We set ourselves targets on this. Some of that will be achieved by the revenue flow in the future of looking at the growth strategy, that innovation led growth strategy. But the other bit is then the development on productivity across the group. We're in early stages on this. I guess we've already done some activities, which we've talked about. We are very much now in the planning stage of what are the best opportunities that we have as a business going through that and then working on the program to deploy that. So when we're back up here for Capital Markets Day in June, it's going to be a great chance to update you in more detail on those plans and what we intend to do. Thirdly, I want to spend a little bit of time on the emerging businesses. As I highlighted at the start, I think overall this is the bit that is the most encouraging for me with the developments that we have seen here. Right across the board on our different reporting segments, we have emerging businesses. What we have looked at here over the last several years is quite a bit of work and focus on these areas. And you'll have seen, if you've been monitoring for a while, that some of these businesses are ones that we have divested or closed. Some of them are ones that we've had for a while, but we've made quite significant strategic changes on them. And those ones I would classify as the metrology, CMM engaging systems, and additive manufacturing have both had, and in some respects quite a similar, of really focusing down, understanding what our differentiators are, targeting key customers, and making sure we are very clear what we are about. It's been great to see both of them really starting to do well. Additive in particular, this time that strategy of focusing on customers with volume opportunity, focusing on a highly productive single size machine is really starting to pay dividends. And what we're now seeing is those repeat orders coming through, both from actually the customers that we talked about in the past, whether that's after medical that we talk about, but it's really also being accelerated now with interest and customers in defense understanding the opportunities that additive gives for them. Now, what we also did when we exited from some of the business that we didn't feel were going to meet the criteria for what we wanted for the long-term business was was we did pick out some of the best areas of innovation that we felt we had across the group and tried to accelerate those. And as Mark talked about when he was talking about position measurement, both in closed optical encoders, really starting to go well. But I think, for me, the start here is definitely on the inductive encoders, Fortis. I talked about it in the innovation. We've launched this as our MVP of saying, we're just going to do one size. We're going to get it out. We're going to really hit the deadlines. The team did a fantastic job of doing it. The feedback from customers, the metrology is superb. The ease of use is superb. And now we have customers saying that they really want to switch over to our technology, design us in on existing platforms, design us in on new platforms. Now, this is designed for a broad range of industries. The one at the moment where it feels like it's hitting the sweet spot is on the defence industry. We have actually recently made the decision that we need to invest more from an engineering and a manufacturing point of view to make the most of the immediate opportunities that we have here. These businesses all take time to come through, but this is one that feels like it is working at a different pace to what we are used to. really important for us and when we're talking through with the team internally moving these emerging businesses through into established is key we have a lot of exciting r d going on for the future some of which is going to power existing businesses but some of it is the new emerging businesses of the future so we need to make space for it to come through so we can invest in it by migrating some of these at the moment So lots of positivity going forward. With us, there's always the uncertainty in the markets that we operate in, but we certainly feel like we have momentum going into H2. And I'm really pleased to give a positive revenue and profit trading guidance for the year ahead. Thank you very much. We now have time for Q&A. which is great to be doing in person.