Half Yearly Report

Renishaw plc

29th January 2015

Interim report 2015 - for the six months ended 31st December 2014

Highlights 

• Record first half revenue and profit.

• Revenue up 36% over last year, 40% at constant exchange rates.

• Profit before tax of £56.6m (2014: £25.6m).

• Strong balance sheet, with cash of £38.8m at the end of the period.

• Capital expenditure of £18.8m.

• Increased dividend of 12.5 pence per share.

Note

Adjusted figures are in respect of the year ended 30th June 2014 only and exclude the exceptional profit of £26.3m on the disposal of the Company's shareholding in Delcam plc.

Interim management report

I am very pleased to report group results for the six months to 31st December 2014.

Highlights

· First half year revenue increased 36%, from £164.0m to £223.8m.

· First half year profit before tax increased 121%, from £25.6m to £56.6m.

· Net cash of £38.8m, after capital expenditure of £18.8m.

· Interim dividend increased by 10%, from 11.33p net per share to 12.5p.

Trading results

Revenue for the six months ended 31st December 2014 was £223.8m, compared with £164.0m for the corresponding period last year, an increase of 36% and a record first half. Revenue at previous year's exchange rates would have been £6.4m higher.

Revenue growth in the first half year, compared to the corresponding period last year, was 90% in the Far East, 14% in the Americas and 16% in the UK. In Europe, revenue was marginally lower by 2%, although 4% higher at constant exchange rates. More specifically, revenue in the Far East increased from £59.1m to £112.4m, in the Americas from £40.4m to £46.1m and in the UK from £10.5m to £12.1m. Revenue in Europe was £47.7m, compared with £48.8m last year.

The Group's profit before tax for the first half year was £56.6m compared with £25.6m last year. Profit before tax at constant exchange rates would have been £4.1m higher. Earnings per share were 64.2p, compared with 29.5p last year.

Metrology

Revenue in our metrology sector for the first six months was £213.9m (2013: £150.7m) an increase of 42%. Operating profit was £62.3m, compared with £27.8m for the comparable period last year.

In our product lines, there was exceptionally good growth in our machine tool products line, due to large orders from a number of Far East customers particularly in the consumer electronics markets. There was also good growth in our measurement automation, additive manufacturing and encoder products lines. After adjusting for the large orders in the Far East, we experienced growth in our metrology business of 12%, or 16% when comparing at constant exchange rates.

In our coordinate measuring machine products line, we introduced the RSP3-6 REVO® scanning probe for ultra-long styli and PH10M-iQ Plus, the latest addition to our range of PH10 heads.

In our measurement automation products line, we launched a new touch trigger probe kit for our Equator machine, ESS 1.5, our latest software suite incorporating both Modus 1.6 and also Feature Compare (a new method for much easier master part calibration), along with updated EZ-IO 4.0 automation software.

In our additive manufacturing products line, we continue to develop the AM250 system, with the recent introduction of an upgrade pack.

In our spatial measurements products line, we launched new 3D laser scanning software, Cavity Profiler, to speed up underground mapping and modelling operations and our laser calibration products line launched the RVI20 vacuum compatible interferometer assembly.

Healthcare

Revenue in our healthcare sector for the first six months was £9.9m, compared with £13.3m last year and there was an operating loss of £5.7m, compared with a loss of £2.3m for the comparable period last year.

There was growth in our neuro and dental products lines, but, as noted in our October Interim management statement, our spectroscopy products line experienced order delays, which has impacted on the first half year, but we expect growth in this products line for the full year.

Our neuroinspire™ V4.0 surgical planning software, which includes significant new functionality, is now CE marked and available for sale in the EU. This software now integrates with our neuromate robot, allowing direct control of the neuromate robot from surgical plans prepared in neuroinspire. 

In our dental products line, we have entered into an agreement with DENTSPLY Implants, one of the world's leading companies in implant dentistry, which will see them purchase Renishaw additive manufacturing technology for the manufacture of dental products, to further the exciting opportunity that 3D metal printing offers in the field of custom-made medical devices.

Our spectroscopy products line released WiRE 4.1, continuing its development of the WiRE suite of software for Raman spectroscopy, and launched a number of applications for the biological and material science industries.

Continued investment for long-term growth

Capital expenditure on property, plant and equipment for the first half year was £18.8m, of which £9.2m was spent on property and £9.6m on plant, equipment and vehicles.

In the UK, the additional 153,000 sq ft facility at New Mills has been completed and is now largely occupied. In Ireland, the Group purchased additional premises, which are adjacent to our existing property, to accommodate continuing growth in our Irish manufacturing facility.

Expenditure on plant, equipment and vehicles of £9.6m was mainly focused on expanding our manufacturing facilities in the UK to support increasing demand.

Research and development expenditure during the period rose from £26.7m to £29.9m. Before capitalisation of £1.4m of costs, gross R&D expenditure was £31.3m, which represented 14% of revenue.

Group headcount at the end of December 2014 was 3,775, an increase of 283 from the 3,492 at the start of the financial year to support all areas of the business. This increase includes 72 new graduates and apprentices.

Cash

Net cash balances at 31st December 2014 were £38.8m, compared with £13.4m at December 2013 and £43.6m at 30th June 2014. Additionally there is an escrow account of £13.3m (31st December 2013: £10.3m, 30th June 2014: £9.5m) relating to the provision of security to the UK defined benefit pension scheme.

Employees

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

Outlook

We have experienced a strong first half year and, as we indicated in our last trading statement, the trend in revenue growth is expected to continue into the second half of this financial year. We currently anticipate full year revenue to be in the range of £480m to £510m and profit before tax to be in the range of £130m to £150m. Research and development continues at a strong pace and a number of additional products will be introduced this year. Furthermore, we are expanding our sales and marketing activities throughout the Group. 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, an increase of 10% over the 11.33 pence net per share last year, will be paid on 7th April 2015, to shareholders on the register on 6th March 2015.

Investor Day

An investor day is being held at the New Mills facility on 14th May 2015 and registration details will be published in due course.

Sir David R McMurtry

CBE, RDI, FRS, FREng, CEng, FIMechE

Chairman & Chief Executive,

29th January 2015

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

29th January 2015

Notes

1. Status of Interim report and accounting policies

The Interim report, which has not been audited, was approved by the directors on 29th January 2015.

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 2014, 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 2014 and the comparative figures for the six months to 31st December 2013 are unaudited. The comparative figures for the financial year ended 30th June 2014 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

TheGroup 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 2014.

2. Segmental information

Renishaw's business is metrology, the science of measurement. The Group manufactures a comprehensive range of high-precision probing systems and accessories, calibration and measuring systems and other innovative products which enable customers worldwide to carry out dimensional measurements to traceable standards.

In addition to developing the Group's traditional core metrology business, the Group has also been investing in the development of additional applications for new market sectors based upon its core metrology expertise. The additional investment has been focused on the healthcare sector and products for the dental and neurosurgical markets, together with our spectroscopy product offerings. The Group thus 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, to reduce significantly the time taken to produce and inspect components, and to 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") metal cutting 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 machines ("CMM") products

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

Styli for probe systems

Precision styli that attach to probe sensors for CMMs and machine tools 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 and wireless telescoping ballbar.

Gauging

Innovative flexible gauging technology, based on the comparison of production parts to a reference master part that can greatly increase throughput and reduce scrap rates at a fraction of the cost of an equivalent custom gauging system.

Spatial measurement

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

Fixtures

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

Position encoders

Position feedback 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")

AM and rapid prototyping systems that allow the rapid manufacture of components as part of a product development process or for full-scale production, including laser melting machines, a range of vacuum, nylon and metal casting machines and a range of materials to support these technologies. AM services are also offered, including design and simulation, and the contract manufacture of metal prototypes and production parts.

Our products / Healthcare

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

The product range includes the following:

Dental scanners

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

Dental 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 strength calculations.

Dental structures manufacturing service

A central manufacturing service that can handle CAD files from various dental scanning systems to produce structures for crowns and bridges in zirconia, cobalt chrome, PMMA (a transparent thermoplastic) and wax, and abutments and implant bridges in cobalt chrome.

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 delivery of therapeutics deep into the brain.

Neurosurgical planning software

Planning 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. It is already in use at Renishaw Diagnostics Limited ("RDL"), where it forms part of RDL's RenDx® RUO Multiplex Assay System, developed as a tool for research into infectious diseases.

Diagnostic systems

RDL is in the process of developing the RenDx Multiplex Assay System, an automated diagnostic platform for clinical diagnosis of infectious diseases and has launched the RUO research system as mentioned above.

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 no revenue from transactions with a single external customer amounting to 10% or more of the Group's total revenue.

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. Exceptional item (previous year)

In February 2014, Autodesk Development B.V., a wholly owned subsidiary of Autodesk, Inc. acquired the whole of the issued share capital of Delcam plc at a price of £20.75 per share. Renishaw held 1,543,032 Delcam shares (19.4%) which resulted in a total consideration of £32.0m. The investment held in the balance sheet was £5.7m, giving a profit on disposal of £26.3m, which was disclosed as an exceptional item. Delcam plc was accounted for as an associate undertaking.

4. Financial income and expenses

5. Income tax expense

The income tax expense has been estimated at a rate of 18.0% (December 2013: 17.5%), the rate expected to be applicable for the full year. There was no income tax expense accounted for in respect of the exceptional item in the previous year.

6. Earnings per share

Earnings per share are calculated on earnings of £46,726,000 (December 2013: £21,443,000) 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 2014 are calculated on earnings of £86,215,000 and on 72,788,543 shares, being the number of shares in issue during that year.

7. Property, plant and equipment

Additions to assets in the course of construction of £10,942,000 (December 2013: £9,690,000) comprise £6,962,000 (December 2013: £4,457,000) for freehold land and buildings and £3,980,000 (December 2013: £5,233,000) for plant and equipment.

At the end of the period, assets in the course of construction, not yet transferred, of £3,251,000 (December 2013: £9,697,000) comprise £1,007,000 (December 2013: £4,251,000) for freehold land and buildings and £2,244,000 (December 2013: £5,446,000) for plant and equipment.

8. Intangible assets

The analysis of acquired goodwill on consolidation is:

9. Investments in associates

10. 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 2015 of £9,098,568 (12.5p net per share) will be paid on 7th April 2015, to shareholders on the register on 6th March 2015, with an ex-div date of 5th March 2015.

Other reserve

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

11. 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 2014 by a qualified independent actuary. The major assumptions used by the actuary were:

The assets and liabilities in the defined benefit schemes were: