Half Yearly Report

Renishaw plc

28th January 2016

Interim report 2016 - for the six months ended 31st December 2015

Highlights 

Chairman's statement

I report group results for the six months to 31st December 2015.

Highlights

· First half year revenue of £198.5m, compared with previous year of £223.8m.

· Underlying growth of 5%, after adjusting for significant Far East orders in the previous year and at constant currency.

· First half year profit before tax of £26.1m, compared with £56.6m last year.

· Net cash of £33.3m.

Trading results

Revenue for the six months ended 31st December 2015 was £198.5m, compared with £223.8m for the corresponding period last year. Revenue at previous year's exchange rates would have been £1.2m higher. Revenue last year benefitted from a number of large orders in the Far East, which have not been repeated to the same extent this year. Underlying growth, after adjusting for these factors, was 5%.

Geographically, revenue grew by 9% in Europe, from £47.7m last year to £52.1m (16% at constant exchange rates). In the Far East, whilst revenue reduced by 24%, from £112.4m to £85.5m (25% at constant exchange rates), there was underlying growth of 10%. In the Americas, revenue was lower by 5%, from £46.1m to £43.7m (7% at constant exchange rates) and in the UK revenue was lower by 9%, from £12.1m to £11.0m.

Whilst Group headcount has increased by 51 from 4,112 at the start of the financial year to 4,163 at the end of the period, there is an increase of 388 from December 2014. The consequent increase in the cost base, combined with the impact of the product sales mix and lower revenue, has contributed to the reduction in the Group's profit before tax for the first half year, which fell to £26.1m compared with £56.6m last year. Earnings per share were 30.7p, compared with 64.2p last year.

Metrology

Revenue in our metrology sector for the first six months was £184.9m, compared with £213.9m last year. After adjusting for the Far East large orders and exchange rate changes, underlying growth in our metrology business was 3%. Operating profit was £29.8m, compared with £62.3m for the comparable period last year.

There was good growth in our measurement automation and additive manufacturing ("AM") products lines.

A number of new products were released during the period, and we announced plans to open a global network of Renishaw Solution Centres for our AM business, which will provide a development environment in which customers can explore the benefits that additive manufacturing can bring to their products and quickly build their knowledge and confidence in AM as a production technology.

We have also established new subsidiaries in Finland and Denmark to expand our marketing, sales, service and distribution infrastructure.

Healthcare

Revenue in our healthcare sector for the first six months grew by 37% to £13.6m, compared with £9.9m last year and there was an operating loss of £3.9m, compared with a loss of £5.7m for the comparable period last year.

We have experienced strong growth in our medical dental products line, reflecting increased adoption of AM technology in this sector. Also, our spectroscopy products line had good growth.

In our neurological products line, we made a first installation of the stereotactic robot into Spain and in our diagnostics products line, we introduced the CE-marked RenDx Multiplex Assay System together with its first assay, Fungiplex, a multiplex diagnostic test for the detection of Candida and Aspergillus fungal infections.

Continued investment for long-term growth

We continue to maintain our investment in research and development, where net expenditure increased by 14% to £34.1m, compared with £29.9m last year.

Capital expenditure on property, plant, equipment and vehicles for the first half year was £28.7m.

Of this expenditure, £12.8m was spent on property. In the UK, we have substantially completed the refurbishment of our facility at Miskin, near Cardiff, South Wales, to provide a healthcare training centre and an AM production facility for medical and dental products, and to accommodate continued growth of our production capability. In the USA, work has commenced on the construction of a new USA headquarters near Chicago and a regional office has been acquired in Dallas, Texas, which will be an AM solution centre for this region.

Expenditure on plant, equipment and vehicles was £15.9m, where we continue to expand our manufacturing facilities, mainly in the UK, and global IT and distribution infrastructure.

Cash

Net cash balances at 31st December 2015 were £33.3m, compared with £38.8m at 31st December 2014 and £82.2m at 30th June 2015. The lower cash balances at the end of the period is after payment for capital expenditure, referred to above, an increase in working capital, payment of the 2015 final dividend and higher tax payments.

Additionally there is an escrow account of £13.9m (31st December 2014: £13.3m, 30th June 2015: £14.7m) relating to the provision of security to the UK defined benefit pension scheme, which was closed to future accrual in 2007.

Employees

The directors thank employees for their valued support and contribution as the Group continues to develop and expand.

Outlook

We anticipate an improvement in our underlying growth during the second half of the year and, as we indicated in our October trading statement, we currently expect full year revenue to be in the range of £440m to £465m and profit before tax to be in the range of £85m to £105m. We remain confident of the Group's prospects for both this year and the future.

Dividends

An interim dividend of 12.5 pence net per share (2014: 12.5p) will be paid on 7th April 2016, to shareholders on the register on 4th March 2016.

Investor Day

An investor day is being held at our Miskin facility on 12th May 2016 and registration details will be published in due course.

Sir David R McMurtry

CBE, RDI, FRS, FREng, CEng, FIMechE

Chairman and Chief Executive,

28th January 2016

Consolidated income statement

Unaudited

Consolidated statement of comprehensive income and expense

Consolidated balance sheet

Unaudited

Consolidated statement of changes in equity

Unaudited

Consolidated statement of cash flow

Unaudited

Responsibility statement

We confirm that to the best of our knowledge:

• As required by DTR 4.2 of the Disclosure Rules and Transparency Rules, the condensed set of financial statements, which has been prepared in accordance with the applicable set of accounting standards, gives a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation as a whole. The Interim report has been prepared in accordance with the EU endorsed standard IAS 34, 'Interim financial reporting'.

• The Interim report includes a fair review of the information required by:

(a) DTR 4.2.7 of the Disclosure Rules and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b) DTR 4.2.8 of the Disclosure Rules and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

On behalf of the Board

A C G Roberts FCA

Group Finance Director

28th January 2016

Notes

1. Status of Interim report and accounting policies

The Interim report, which has not been audited, was approved by the directors on 28th January 2016.

General information

The Interim report has been prepared in accordance with the EU endorsed standard IAS 34, 'Interim financial reporting'. This interim financial information has been prepared on the basis of the accounting policies adopted in the most recent annual financial statements, these being for the year ended 30th June 2015, as revised for the implementation of specified new amended endorsed standards or interpretations.

Given the nature of some forward-looking information included in this report, which the directors have given in good faith, this information should be treated with due caution. The Interim report is available on our website www.renishaw.com.

The interim financial information for the six months to 31st December 2015 and the comparative figures for the six months to 31st December 2014 are unaudited. The comparative figures for the financial year ended 30th June 2015 are not the Company's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditors and delivered to the registrar of companies. The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006, relating to the accounting records of the Company.

Going concern

The Group has considerable financial resources at its disposal and the directors have considered the current financial projections. As a consequence, the directors believe that the Group is well placed to manage its business risks successfully.

After making enquiries, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Interim report.

Accounting policies

The accounting policies applied and significant estimates used by the Group in this Interim report are the same as those applied by the Group for the year ended 30th June 2015.

2. Segmental information

Renishaw's business is metrology, the science of measurement. The Group manages its business in two business segments, Metrology, being the traditional core business, and Healthcare.

Our products / Metrology

Our metrology products help manufacturers to maximise production output, significantly reduce the time taken to produce and inspect components, and keep their machines running reliably. In the fields of industrial automation and motion systems, our position measurement and calibration systems allow builders to manufacture highly accurate and reliable products.

The product range includes the following:

Machine tool probe systems

Sensors and software for computer numerically controlled ("CNC") metalcutting machine tools that allow the automation of setting and on-machine measurement operations, leading to more productivity from existing machines and reductions in scrap and rework. These include laser tool setters, contact tool setters, tool breakage detectors, touch probes, contact scanning systems and high‑accuracy inspection probes.

Co-ordinate measuring machine ("CMM") products

Sensors, software and control systems for three-dimensional CMMs, including touch-trigger and scanning probes, automated probe changers, motorised indexing probe heads and 5-axis measurement systems, which enable the highly accurate measurement of manufactured components and finished assemblies.

Styli for probe systems

Precision styli that attach to probe sensors for CMMs, machine tools, scanning probes and Equator™ gauging systems to ensure that accurate measurement data is acquired at the point of contact.

Performance testing products

Calibration and testing products to determine the positioning accuracy of a wide range of industrial and scientific machinery to international standards, including a laser interferometer, rotary axis calibrator and wireless telescoping ballbar.

Gauging

Equator™ enables process control by delivering highly repeatable, thermally insensitive, versatile and reprogrammable gauging to the shop floor. New INTUO™ software is an ideal alternative to traditional manual gauging, with training in a few hours, allowing engineers to program parts in minutes.

Spatial measurement

High-speed laser measurement and surveying systems for use in extreme environments, such as mine and quarry surveying, marine positioning and mobile mapping.

Fixtures

Modular and custom fixtures used to hold parts securely for dimensional inspection on CMM, vision and gauging systems.

Position encoders

Position encoders that ensure accurate linear and rotary motion control in a wide range of applications from electronics, flat panel displays, robotics and semiconductors to medical, precision machining and print production. These include magnetic encoders, incremental optical encoders, absolute optical encoders and laser interferometer encoders.

Additive manufacturing ("AM")

Advanced metal AM systems for direct manufacturing of 3D-printed metallic components. A total solution is offered from systems, materials, ancillaries and software through to consultancy, training and support for a range of industries including industrial, healthcare and mould tooling.

Vacuum casting

Vacuum casting machines from entry-level to high capacity for rapid prototyping and production of polymer end-use parts.

Our products / Healthcare

Our technologies are helping within applications such as craniomaxillofacial surgery, dentistry, neurosurgery, chemical analysis and nanotechnology research. These include engineering solutions for stereotactic neurosurgery, diagnosis of infectious diseases, analytical tools that identify and characterise the chemistry and structure of materials, supply of implants to hospitals and specialist design centres for craniomaxillofacial surgery, and products and services that allow dental laboratories to manufacture high-quality dental restorations.

The product range includes the following:

Dental scanners

3D contact scanners and non-contact optical scanners used for digitising of dental preparations and the measurement of implant locations for tooth-supported frameworks and custom abutments.

Dental computer-aided design ("CAD") software

Dental CAD software that allows set‑up of scanning routines and enables laboratory staff to design abutments and structures for crowns and bridges, including powerful anatomic design functions.

Dental structures manufacturing service

A central manufacturing service that can handle CAD files from a wide variety of dental CAD systems to produce structures for crowns and bridges in zirconia, cobalt chrome, PMMA (used for temporary restorations) and wax, and abutments in cobalt chrome.

Craniomaxillofacial custom-made implants

Additively manufactured from titanium, custom-made craniomaxillofacial implants are structural implants that are used in the reconstruction of a patient's head, face or jaw. These are most commonly required after oncology treatment or as a result of trauma.

Neurosurgical robot

A stereotactic robot that provides a platform solution for a broad range of functional neurosurgical procedures including deep brain stimulation ("DBS"), stereoelectroencephalography ("SEEG"), neuroendoscopy, stereotactic biopsies and is being used to trial the delivery of therapeutics deep into the brain.

Neurosurgical planning software

Software that allows advanced planning of targets and trajectories for stereotactic neurosurgery.

Neurosurgical implants

Implantable devices that allow surgeons to verify expected DBS electrode position relative to targeted anatomy using magnetic resonance imaging ("MRI") for the treatment of Parkinson's disease, other movement disorders and neuropathic pain.

Neurosurgical accessories

Specialist electrodes and instruments for use in epilepsy neurosurgery, manufactured by DIXI Medical.

Raman microscopes

Scientists and engineers worldwide use Renishaw's research-grade inVia Raman microscope for the non-destructive chemical analysis and imaging of materials. Its high-speed, high-quality results and upgradeability are valued in fields as diverse as nanotechnology, biology and pharmaceuticals.

Hybrid Raman systems

Renishaw's hybrid systems unite the chemical analysis power of Raman spectroscopy with the high spatial resolution of other techniques, such as atomic force microscopy and scanning electron microscopy. These new instruments are vital tools for investigating materials and devices for nanotechnology applications.

Turnkey Raman analysis

The RA800 benchtop platform provides companies with a high performance chemical imaging and analysis system that can be tailored for the needs of their customers. RA800 gives research-grade Raman microscopy performance in a Class 1 laser-safe, simple-to-use form.

Diagnostic systems

Renishaw Diagnostics Limited has developed the RenDx Multiplex Assay System, an automated, multiplex platform for clinical diagnosis of infectious disease. The platform's first assay, Fungiplex, an aid to diagnosis of invasive fungal disease, has recently obtained a CE mark.

Segmental financial results were:

There is no allocation of assets and liabilities to operating segments. Depreciation is included within certain other overhead expenditure which is allocated to segments on the basis of the level of activity.

The following table shows the analysis of revenue by geographical market:

Revenue in the above table has been allocated to regions based on the geographical location of the customer. Countries with individually material revenue figures in the context of the Group were:

There was revenue from transactions with a single external customer amounting to 10% or more of the Group's total revenue for the year ended 30th June 2015 only. This was in the metrology segment and amounted to £62,607,000.

The following table shows the analysis of non-current assets, excluding deferred tax and derivatives, by geographical area:

No overseas country had non-current assets amounting to 10% or more of the Group's total non-current assets.

3. Financial income and expenses

4. Income tax expense

The income tax expense has been estimated at a rate of 15.4% (December 2014: 18.0%), the rate expected to be applicable for the full year.

5. Earnings per share

Earnings per share are calculated on earnings of £22,381,000 (December 2014: £46,726,000) and on 72,788,543 shares, being the number of shares in issue during the period.

Earnings per share for the year ended 30th June 2015 are calculated on earnings of £121,908,000 and on 72,788,543 shares, being the number of shares in issue during that year.

6. Property, plant and equipment

Additions to assets in the course of construction of £23,137,000 (December 2014: £10,942,000) comprise £10,688,000 (December 2014: £6,962,000) for freehold land and buildings and £12,449,000 (December 2014: £3,980,000) for plant and equipment.

At the end of the period, assets in the course of construction, not yet transferred, of £18,374,000 (December 2014: £3,251,000) comprise £10,673,000 (December 2014: £1,007,000) for freehold land and buildings and £7,701,000 (December 2014: £2,244,000) for plant and equipment. 

7. Intangible assets

The analysis of acquired goodwill on consolidation is:

8. Investments in associates

9. Capital and reserves

The ordinary shares are the only class of share in the Company. Holders of ordinary shares are entitled to vote at general meetings of the Company and receive dividends as declared. The Articles of Association of the Company do not contain any restrictions on the transfer of shares nor on voting rights.

Currency translation reserve

The currency translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of the foreign operations, offset by foreign exchange differences on bank liabilities which have been accounted for directly in equity on account of them being classified as hedging items.

Cash flow hedging reserve

The cash flow hedging reserve comprises all foreign exchange differences arising from the valuation of forward exchange contracts which are effective hedges and mature after the period end. These are valued on a mark-to-market basis, are accounted for directly in equity and are recycled through the Consolidated income statement when the hedged item affects the Consolidated income statement. The forward contracts mature over the next three and a half years.

The cash flow hedging reserve is analysed as:

An interim dividend for 2016 of £9,098,568 (12.5p net per share) will be paid on 7th April 2016, to shareholders on the register on 4th March 2016, with an ex-div date of 3rd March 2016.

Other reserve

The other reserve is in relation to additional investments in subsidiary undertakings.

10. Employee benefits

The Group operates a number of pension schemes throughout the world. The major scheme, which covers the UK-based employees, was of the defined benefit type. This scheme, along with the Ireland and USA defined benefit schemes, has ceased any future accrual for current members and all these schemes are now closed to new members. UK, Ireland and USA employees are now covered by defined contribution schemes.

The latest full actuarial valuation of the UK defined benefit scheme was carried out at September 2012 and updated to 31st December 2015 by a qualified independent actuary. The major assumptions used by the actuary were:

The assets and liabilities in the defined benefit schemes were:

The movements in the schemes' assets and liabilities were:

Under the UK and Ireland defined benefit pension scheme deficit funding plans, there are certain UK properties, owned by the Company, and a property owned by Renishaw (Ireland) Limited, which are subject to registered fixed charges to secure the UK and Ireland defined benefit pension schemes' deficits respectively. The Company has also established an escrow account, which is subject to a registered floating charge to secure the UK defined benefit pension scheme liabilities.

The Company has given a guarantee relating to a recovery plan for the UK scheme and the trustees have the right to enforce the charges to recover any deficit up to £47,300,000 if an insolvency event occurs in relation to the Company before 1st November 2016 or if the Company has not made good any deficit up to £47,300,000 by midnight on 1st November 2016. No scheme assets are invested in the Group's own equity.

At 31st December 2015, the UK defined benefit pension scheme's liabilities were increased by £15,600,000 to represent the maximum discounted liability, as the value of the guarantee was that amount higher than the value of the pension scheme's deficit.

11. Deferred tax

On 26th October 2015, the reduction in the UK rate of corporation tax to 19% from 1st April 2017 and 18% from 1st April 2020 was substantively enacted. Deferred tax assets and liabilities have been calculated based on the rate of 19%. 

12. Related party transactions

The only related party transactions which have taken place during the first half year were normal business transactions between the Group and its associates, which have not had a material effect on the results of the Group for this period.

13. Principal risks and uncertainties

Financial calendar

Record date for 2016 interim dividend 4th March 2016

2016 interim dividend payment 7th April 2016

Announcement of 2016 full year results 27th July 2016

Mailing of 2016 Annual report Late August 2016

Annual general meeting 13th October 2016

2016 final dividend payment 17th October 2016

Registered office:

Renishaw plc

New Mills

Wotton-under-Edge

Gloucestershire

UK

GL12 8JR

Registered number: 1106260

Telephone. +44 1453 524524

Fax. +44 1453 524901

email. [email protected]

Website. www.renishaw.com