Coronavirus Update

Renishaw PLC Interim Report 2021

This content has been sourced from: https://www.investegate.co.uk/renishaw-plc--rsw-/r...

Highlights

 

 

 

 

6 months to

31 December

2020

6 months to

31 December

2019

Year ended

30 June

2020

 

 

 

 

Revenue (£m)

255.1

259.4

510.2

 

 

 

 

Adjusted1 profit before tax (£m)

43.4

14.3

48.6

 

 

 

 

Adjusted1 earnings per share (pence)

49.2

15.1

51.0

 

 

 

 

Dividend per share (pence)

14.0

0.0

0.0

 

 

 

 

Statutory profit before tax (£m)

63.9

9.9

3.2

 

 

 

 

Statutory earnings per share (pence)

72.1

10.2

0.4

 

 

· First half-year revenue of £255.1m (H1 2019/20: £259.4m)

 

· Significant improvement in profitability in the first half as the benefits of our Fit for the Future strategy continued to be felt:

-  adjusted1 profit before tax of £43.4m (H1 2019/20: £14.3m)

-  statutory profit before tax of £63.9m (H1 2019/20: £9.9m )

· Robust balance sheet with net cash and bank deposit balances of £186.6m, compared with £120.4m at 30 June 2020

 

· Interim dividend of 14.0p per share.

 

 

 

Note 11, 'Alternative performance measures', defines how adjusted profit before tax and earnings per share are calculated.

 

 

Overview for the six months ended 31 December 2020

 

Revenue for the six months ended 31 December 2020 was £255.1m, compared with £259.4m for the corresponding period last year.  We achieved good revenue growth in our APAC region, where we continue to see strong demand for our encoder product lines which are benefitting from increased investments in the semiconductor and electronics capital equipment markets. We experienced continuing weaker demand in our EMEA and Americas regions, which have been affected by the ongoing uncertainty caused by the pandemic and consequent challenges to key sectors, particularly aerospace. Our Fit for the Future strategy has delivered improved productivity and significant reductions in the Group's cost base. This is reflected in the much-improved profitability compared to the same period last year.

 

 

First half
2020/21

First half
2019/20

Change %

Constant fx change %

Group revenue

£255.1m

£259.4m

-2

-2

Comprising:

 

 

 

 

  APAC

£125.9m

£106.8m

+18

+16

  Americas

£54.7m

£63.6m

-14

-9

  EMEA

£74.5m

£89.0m

-16

-18

 

Metrology

Revenue in our metrology business for the first six months was £235.6m, compared with £241.5m last year. Adjusted operating profit was £41.2m, compared with £17.4m for the comparable period last year. We have seen growth in demand for many of our metrology products, notably in our machine tool product line and our optical and laser encoder product lines. The latter have seen good growth due to a continuing recovery in the semiconductor and electronics capital equipment market. We have experienced reduced demand for our CMM product line due to the challenges in some sectors, particularly aerospace, but our strong portfolio of measurement products and global customer base means that we are well placed to benefit from a recovery in sector investments. Our additive manufacturing (AM) product line revenue was also lower than the same period last year, but was in-line with our expectations following the restructuring of the business that was implemented in FY 2019/20. 

 

Healthcare

Revenue from our healthcare business for the first six months was £19.5m, compared with £17.8m last year. The adjusted operating profit was £2.2m in the first half of this year compared with a £1.5m loss for the comparable period last year. We have seen growth in our neurological product line and good growth in our spectroscopy product line which has seen a recovery in Raman spectrometer investment across all our regions, plus increasing adoption of the Virsa™ Raman Analyzer which was launched during FY 2019/20. We are also seeing that those surgeries and procedures that were delayed due to the pandemic have started to be rescheduled.

 

COVID-19 update

Our priorities continue to be the health and welfare of our employees, their families and the wider communities in which we operate, and to maintain high service levels to our global customer base. Our response and mitigation committee continues to meet at least twice weekly to review any developments caused by the pandemic and to take any necessary mitigating actions. We have a wide-range of COVID-secure working practices in place to protect against the spread of the virus and, within the UK, where we have higher numbers of employees, we have introduced weekly testing for all employees who must work on-site due to the nature of their roles. All our manufacturing facilities around the world are operating as normal and despite many challenges, supply to customers has been maintained throughout the pandemic. We have expanded the use of digital collaborative tools for customer support, and we are continuing to ensure a supply of high-quality sales opportunities using virtual exhibitions, webinars and enhanced digital marketing activities.

 

Productivity and operating costs

Our Fit for the Future strategy, which commenced in FY 2019/20, has resulted in a number of actions which improved productivity and reduced the Group's cost base. This included a resizing of the business, a restructure of our AM product line, and a focus on prioritising design projects to accelerate the market launch of significant products. The Group headcount has reduced further during the first half of this financial year and was 4,324 at the end of December 2020 compared to 4,463 at the end of June 2020, due to the non-replacement of some leavers and a small number of redundancies. We are currently recruiting production staff to ensure we have sufficient capacity to meet demand.  Labour costs were £109.0m in this half-year compared to £119.4m last year and the average headcount in the first half-year was 4,371 (H1 2019/20: 4,990). This year's labour cost includes £1.0m of global job retention grant income (H1 2019/20: £nil), all of which originated overseas, and a £3.5m one-off 'thank you payment' for employees to recognise their exceptional commitment to the Group during the pandemic.

 

Certain other operating costs, such as travel and exhibitions, are lower this half-year compared to last year due to restrictions resulting from the pandemic. We expect these costs to increase once restrictions are lifted, although we do not expect travel to return to pre-pandemic levels as the use of online meetings has proven an effective tool for many communications. No significant asset impairments have been recognised this year.

 

The Group remains committed to our long-term strategy of delivering growth through the development and introduction of innovative and patented products and during the first six months of this year we incurred net engineering expenditure of £37.7m compared with £46.1m last year. This reduction is consistent with our expectations given the focus on key design projects, and the net expenditure includes our continuing commitment to support existing products and technologies. Our engineering teams have continued to develop products during the pandemic and last month we launched the FORTiS™ enclosed optical encoder which provides high-performance measurement in harsh environments, including machine tools and semiconductor wafer dicing.

 

The Directors would like to thank our employees for their dedication, professionalism, understanding and much valued contributions during this exceptionally challenging period for them and the business.

 

Profit and tax

Adjusted profit before tax1 for the first half-year was £43.4m compared with £14.3m last year, primarily due to the reduced operating costs. Statutory profit before tax for the first half-year was £63.9m, compared with £9.9m last year, which includes a £20.5m fair value gain on financial instruments not effective for hedge accounting and not included in adjusted profit before tax. The gain relates primarily to proportions of forward contracts which failed hedge effectiveness testing in the previous financial year, after the global macroeconomic uncertainty resulted in reductions to the highly probable forecasts of the hedged item. No further contracts have been designated as ineffective in the six months to 31 December 2020.

 

The income tax expense (before deferred tax asset impairment movements) in the Consolidated income statement has been estimated at a rate of 19.0% (H1 2019/20: 17.4%) and is based on management's best estimate of the full year effective tax rates by geographical unit applied to half-year profits. The tax expense in the first half also includes a £0.7m credit for the recognition of deferred tax assets for losses previously impaired.

 

Adjusted earnings per share were 49.2p, compared with 15.1p last year. Statutory earnings per share were 72.1p, compared with 10.2p last year.

 

Balance sheet

Capital expenditure for this half-year was £4.8m (H1 2019/20: £28.4m) and was primarily on plant and equipment to support our manufacturing processes and IT infrastructure. The lower spend this year is in line with expectations following significant infrastructure investments in recent years.

 

Inventory balances have reduced by £7.3m since 30 June 2020, primarily reflecting a planned reduction in certain component safety stock levels. Trade receivables have decreased by £9.5m in the same period, mainly as a result of a reduction in debtor days and currency exchange rate movements.

 

Net cash and bank deposit balances at 31 December 2020 were £186.6m, compared with £71.3m at 31 December 2019 and £120.4m at 30 June 2020, reflecting the cash generated from operating profit, a reduction in working capital items, and the reduced level of capital expenditure.

 

Dividend

The Board is reinstating the dividend programme and has approved an interim dividend of 14.0 pence net per share (2020: nil) which will be paid on 6 April 2021 to shareholders on the register on 5 March 2021.

 

Principal risks and uncertainties

The Board has considered the risks and uncertainties which could have a material effect on the Group's performance and position. Whilst there is continuing uncertainty regarding both the impact of COVID-19 and Brexit, as well as global macroeconomic conditions and trade tensions, the overall impact and likelihood of our principal risks is not considered to have changed significantly. This conclusion also reflects the mitigation undertaken by the Group in response to these risks. The principal risks and uncertainties set out on pages 26 to 36 of the 2020 Annual Report therefore remain relevant.

 

Brexit

To mitigate against the potential impacts of the UK leaving the EU we established a warehouse in Ireland, expanded the existing warehouse in Germany and increased the inventory of certain finished goods and components at sites within the EU and the UK. Although there have been some delays at the UK borders for shipments into the EU since 1 January 2021, the measures that we have taken have minimised the impact on customer service.

 

Going concern

The Directors have prepared the unaudited interim financial information on a going concern basis. In considering the going concern basis, the Directors have considered the above-mentioned principal risks and uncertainties, as well as the Group's current trading performance and updated cashflow forecasts.

 

In the 2020 Annual Report we disclosed details of 'severe scenario' forecasts used in the Director's going concern assessment, and viability statement, as at August 2020. Both Metrology and Healthcare are expected to outperform the 'severe scenario' forecasts for the year to 30 June 2021, and performance in subsequent periods is also expected to outperform the respective 'severe scenario' forecasts.

 

The Directors have also considered the financial resources available to the Group, with net current assets of £331.5m at 31 December 2020 (compared to £281.6m at 30 June 2020), including £186.6m net cash and bank deposits at 31 December 2020, an increase from £120.4m at 30 June 2020. In addition, the going concern assessment does not rely upon any external financial support.

 

Outlook

The Board remains confident in the long-term prospects for the Group due to its strong financial position, the high quality of our people, our innovative product pipeline, extensive global sales and marketing presence and relevance to high-value manufacturing.

 

Whilst the trading environment remains uncertain as a result of the pandemic, we currently have a strong order book, and we are well placed to take advantage of the opportunities presented by any recovery in the global economy. At this stage, we expect full year revenue to be in the range of £515m to £545m. Adjusted profit before tax is expected to be in the range of £85m to £105m .

 

Sir David McMurtry

Will Lee

Allen Roberts

Executive Chairman

Chief Executive

Group Finance Director

 

 

 

4 February 2021

 

 

 

 

 

1 Note 11, 'Alternative performance measures', defines how adjusted profit before tax, operating profit and earnings per share are calculated.

 

 

Consolidated income statement

 

 

 

 

 

 

 

 

 

 

Notes

 

Unaudited

6 months to

31 December

2020

£'000

 

Unaudited

6 months to

31 December

2019

£'000

 

Audited

Year ended

30 June

2020

£'000

 

Revenue

2

255,123

259,380

510,215

 

 

 

 

 

Cost of sales

 

(128,043)

(144,504)

(271,633)

 

 

 

 

 

Gross profit

 

127,080

114,876

238,582

 

 

 

 

 

Distribution costs

 

(54,250)

(65,580)

(123,276)

Administrative expenses

 

(29,436)

(31,933)

(58,584)

Restructuring costs

 

-

-

(23,797)

Gains/(losses) from the fair value of financial instruments - derivatives

9

20,526

(8,570)

(26,631)

Gains from the fair value of financial assets

 

-

2,700

-

 

 

 

 

 

Operating profit

 

63,920

11,493

6,294

 

 

 

 

 

Financial income

3

3,629

1,083

913

Financial expenses

3

(3,641)

(3,590)

(4,840)

Share of profits from associates and joint ventures

 

39

947

841

 

 

 

 

 

Profit before tax

 

63,947

9,933

3,208

 

 

 

 

 

Income tax expense

4

(11,487)

(2,538)

(2,920)

 

 

 

 

 

Profit for the period

 

52,460

7,395

288

 

 

 

 

 

Profit attributable to:

 

 

 

 

Equity shareholders of the parent company

 

52,460

7,395

 288

Non-controlling interest

 

-

-

-

Profit for the period

 

52,460

7,395

288

 

 

 

 

 

 

 

Pence

pence

Pence

Dividend per share arising in respect of the period

6

14.0

14.0

0

 

 

 

 

 

Earnings per share (basic and diluted)

5

72.1

10.2

0.4

 

 

Consolidated statement of comprehensive income and expense

 

 

Unaudited

6 months to

31 December

2020

£'000

Unaudited

6 months to

31 December

2019

£'000

Audited

Year ended

30 June

2020

£'000

 

 

 

 

Profit for the period

52,460

7,395

288

 

 

 

 

Other items recognised directly in equity:

 

 

 

 

 

 

 

Items that will not be reclassified to the Consolidated income statement:

 

 

 

Remeasurement of defined benefit pension scheme liabilities

101

2,417

(23,978)

Deferred tax on remeasurement of defined benefit pension scheme liabilities

(171)

(319)

5,484

 

 

 

 

Total for items that will not be reclassified

(70)

2,098

(18,494)

 

 

 

 

Items that may be reclassified to the Consolidated income statement:

 

 

 

Exchange differences in translation of overseas operations

(8,148)

(9,154)

3,369

Exchange differences in translation of overseas joint venture

(217)

(524)

186

Current tax on translation of net investments in foreign operations

1,157

763

-

Deferred tax on translation of net investments in foreign operations

-

-

(403)

Effective portion of changes in fair value of cash flow hedges, net of recycling

40,712

47,910

13,924

Deferred tax on effective portion of changes in fair value of cash flow hedges

(7,736)

(8,479)

(1,978)

 

 

 

 

Total for items that may be reclassified

25,768

30,516

15,098

 

 

 

 

Total other comprehensive income and expense, net of tax

25,698

32,614

(3,396)

 

 

 

 

Total comprehensive income and expense for the period

78,158

40,009

(3,108)

 

 

 

 

Attributable to:

 

 

 

Equity shareholders of the parent company

78,158

40,009

(3,108)

Non-controlling interest

-

-

-

 

 

 

 

Total comprehensive income and expense for the period

78,158

40,009

(3,108)

 

 

Consolidated balance sheet

 

 

 

 

Notes

 

Unaudited

At 31 December

2020

£'000

Restated*

Unaudited

At 31 December

2019

£'000

 

Audited

At 30 June

2020

£'000

Assets

 

 

 

 

Property, plant and equipment

7

257,668

272,255

270,049

Intangible assets

8

43,125

58,626

43,364

Right of use assets

 

13,489

12,950

12,672

Investments in associates and joint ventures

 

16,426

13,006

16,604

Long-term loans to associates and joint ventures

 

2,056

519

2,818

Finance lease receivables

 

5,292

-

4,801

Deferred tax assets

 

25,799

21,157

39,641

Derivatives

9

9,653

13,187

1,242

Total non-current assets

 

373,508

391,700

391,191

 

 

 

 

 

Current assets

 

 

 

 

Inventories

 

98,152

117,794

105,497

Trade receivables

9

95,582

101,508

105,077

Finance lease receivables

 

1,731

-

1,982

Contract assets

 

432

99

606

Short-term loans to associates and joint ventures

 

781

10,203

318

Current tax

 

5,131

7,550

3,878

Other receivables

 

20,684

20,337

23,196

Derivatives

9

3,192

4,965

3,758

Pension scheme cash escrow account

 

10,575

10,490

10,568

Bank deposits

 

80,000

30,000

10,000

Cash and cash equivalents

 

106,619

41,307

110,386

Total current assets

 

422,879

344,253

375,266

 

 

 

 

 

Current liabilities

 

 

 

 

Trade payables

 

18,441

15,141

16,998

Contract liabilities

 

6,235

6,723

5,976

Current tax

 

3,881

4,506

2,905

Provisions

 

6,279

2,473

5,591

Derivatives

9

7,771

5,975

22,546

Lease liabilities

 

4,150

4,463

4,241

Borrowings

 

3,628

1,073

1,061

Other payables

 

40,974

27,849

34,372

Total current liabilities

 

91,359

68,203

93,690

Net current assets

 

331,520

276,050

281,576

 

 

 

 

 

Non-current liabilities

 

 

 

 

Borrowings

 

7,562

9,628

10,482

Lease liabilities

 

9,569

8,469

8,925

Employee benefits

10

60,895

42,831

64,895

Deferred tax liabilities

 

499

539

499

Derivatives

9

1,394

16,391

41,102

Total non-current liabilities

 

79,919

77,858

125,903

 

 

 

 

 

Total assets less total liabilities

 

625,109

589,892

546,864

 

 

 

 

 

Equity

 

 

 

 

Share capital

 

14,558

14,558

14,558

Share premium

 

42

42

42

Own shares held

 

(404)

(404)

(404)

Currency translation reserve

 

10,521

5,661

17,729

Cash flow hedging reserve

 

2,521

(2,970)

(30,455)

Retained earnings

 

598,490

573,798

546,100

Other reserve

 

(42)

(216)

(129)

Equity attributable to the shareholders of the parent company

 

625,686

590,469

547,441

Non-controlling interest

 

(577)

(577)

(577)

Total equity

 

625,109

589,892

546,864

 

* December 2019 cash and cash equivalents and bank deposits have been restated following a change in accounting policy explained in the 2020 Annual report, p.111, to show £30,000,000 of Bank deposits separately from Cash and cash equivalents.

 

Consolidated statement of changes in equity

 

Unaudited

 

Share

capital

£'000

 

Share

premium

£'000

 

Own

shares

held

£'000

Currency

translation

reserve

£'000

Cash flow

hedging

reserve

£'000

 

Retained

earnings

£'000

 

Other

reserve

£'000

Non-

controlling

interest

£'000

 

 

 

Total

£'000

 

Balance at 1 July 2019

14,558

42

(404)

14,577

(42,401)

597,784

(302)

(577)

583,277

 

 

 

 

 

 

 

 

 

 

Profit for the period

-

-

-

-

-

7,395

-

-

7,395

 

 

 

 

 

 

 

 

 

 

Other comprehensive income and expense (net of tax)

 

 

 

 

 

 

 

 

 

Remeasurement of defined benefit pension liabilities

-

-

-

-

-

2,097

-

-

2,097

Foreign exchange translation differences

-

-

-

(8,392)

-

-

-

-

(8,392)

Relating to associates and joint ventures

-

-

-

(524)

-

-

-

-

(524)

Changes in fair value of cash flow hedges

-

-

-

-

39,431

-

-

-

39,431

Total other comprehensive income and expense

-

-

-

(8,916)

39,431

2,097

-

-

32,612

 

 

 

 

 

 

 

 

 

 

Total comprehensive income and expense

-

-

-

(8,916)

39,431

9,492

-

-

40,007

 

 

 

 

 

 

 

 

 

 

Transactions with owners recorded in equity

 

 

 

 

 

 

 

 

 

Share-based payments charge

-

-

-

-

-

-

86

-

86

Dividends paid

-

-

-

-

-

(33,478)

-

-

(33,478)

Balance at 31 December 2019

14,558

42

(404)

5,661

(2,970)

573,798

(216)

(577)

589,892

 

 

 

 

 

 

 

 

 

 

Profit for the period

-

-

-

-

-

(7,107)

-

-

(7,107)

 

 

 

 

 

 

 

 

 

 

Other comprehensive income and expense (net of tax)

 

 

 

 

 

 

 

 

 

Remeasurement of defined benefit pension liabilities

-

-

-

-

-

(20,591)

-

-

(20,591)

Foreign exchange translation differences

-

-

-

11,357

-

-

-

-

11,357

Relating to associates and joint ventures

-

-

-

711

-

-

-

-

711

Changes in fair value of cash flow hedges

-

-

-

-

(27,485)

-

-

-

(27,485)

Total other comprehensive income and expense

-

-

-

12,068

(27,485)

(20,591)

-

-

(36,008)

 

 

 

 

 

 

 

 

 

 

Total comprehensive income and expense

-

-

-

12,068

(27,485)

(27,698)

-

-

(43,115)

 

 

 

 

 

 

 

 

 

 

Transactions with owners recorded in equity

 

 

 

 

 

 

 

 

 

Share-based payments charge

-

-

-

-

-

-

87

-

87

Balance at 30 June 2020

14,558

42

(404)

17,729

(30,455)

546,100

(129)

(577)

546,864

 

 

 

 

 

 

 

 

 

 

Profit for the period

-

-

-

-

-

52,460

-

-

52,460

 

 

 

 

 

 

 

 

 

 

Other comprehensive income and expense (net of tax)

 

 

 

 

 

 

 

 

 

Remeasurement of defined benefit pension liabilities

-

-

-

-

-

(70)

-

-

(70)

Foreign exchange translation differences

-

-

-

(6,991)

-

-

-

-

(6,991)

Relating to associates and joint ventures

-

-

-

(217)

-

-

-

-

(217)

Changes in fair value of cash flow hedges

-

-

-

-

32,976

-

-

-

32,976

Total other comprehensive income and expense

-

-

-

(7,208)

32,976

(70)

-

-

25,698

 

 

 

 

 

 

 

 

 

 

Total comprehensive income and expense

-

-

-

(7,208)

32,976

52,390

-

-

78,158

 

 

 

 

 

 

 

 

 

 

Transactions with owners recorded in equity

 

 

 

 

 

 

 

 

 

Share-based payments charge

-

-

-

-

-

-

87

-

87

Balance at 31 December 2020

14,558

42

(404)

10,521

2,521

598,490

(42)

(577)

625,109

 

 

 

 

 

Consolidated statement of cash flow

 

 

Unaudited

6 months to

31 December

2020

£'000

Restated*

Unaudited

6 months to

31 December

2019

£'000

 

Audited

Year ended

30 June

2020

£'000

Cash flows from operating activities

 

 

 

Profit for the period

52,460

7,395

288

Adjustments for:

 

 

 

Depreciation of property, plant and equipment and right of use assets

11,392

14,580

30,578

(Profit)/loss on sale of property, plant and equipment

(8)

(46)

22

Impairment of property, plant and equipment

-

-

2,590

Amortisation of development costs

4,577

8,118

16,861

Impairment of development costs

-

-

15,881

Amortisation of other intangibles

735

606

1,566

Profit on disposal of other intangibles

-

-

53

Impairment of other intangibles

-

1,973

1,600

Impairment of goodwill

-

-

808

Share of profits from associates and joint ventures

(39)

(947)

(841)

Profit on disposal of investment in associate

-

-

(1,053)

Fair value gain on revaluation of investment in associate

-

-

(2,775)

Impairment of investment in associate

-

-

257

Remeasurement of defined benefit pension scheme liabilities from GMP equalisation

82

-

-

Financial income

(3,629)

(1,083)

(913)

Financial expenses

3,641

3,590

4,840

(Gains)/losses from the fair value of financial instruments

(20,537)

2,120

21,609

Gains from the fair value of financial assets

-

(2,700)

-

Share based payment expense

87

86

173

Tax expense

11,487

2,538

2,920

 

7,788

28,835

94,176

Decrease/(increase) in inventories

7,345

11,232

23,529

Decrease/(increase) in trade and other receivables

6,678

18,709

17,639

(Decrease)/increase in trade and other payables

9,481

(14,795)

(11,297)

(Decrease)/increase in provisions

688

(676)

2,745

 

24,192

14,470

32,616

Defined benefit pension contributions

(4,436)

(7,081)

(11,814)

Income taxes paid

(4,627)

(4,708)

(10,607)

Cash flows from operating activities

75,377

38,911

104,659

 

 

 

 

Investing activities

 

 

 

Purchase of property, plant and equipment

(4,825)

(28,398)

(38,657)

Sale of property, plant and equipment

2,474

990

3,633

Development costs capitalised

(5,074)

(7,948)

(17,405)

Purchase of other intangibles

(810)

(2,864)

(3,338)

Decrease/(increase) in bank deposits

(70,000)

22,500

42,500

Interest received

359

575

835

Dividends received from associates and joint ventures

-

512

512

Proceeds from sale of shares in associate

-

-

986

Cash flows from investing activities

(77,876)

(14,633)

(10,934)

 

 

 

 

Financing activities

 

 

 

Increase in borrowings

636

1,169

1,894

Repayment of borrowings

(550)

(425)

(1,136)

Interest paid

(13)

(99)

(549)

Repayment of principal portion of lease liabilities

(2,604)

(2,480)

(4,896)

Dividends paid

-

(33,478)

(33,478)

Cash flows from financing activities

(2,531)

(35,313)

(38,165)

 

 

 

 

Net (decrease)/increase in cash and cash equivalents

(5,030)

(11,035)

55,560

Cash and cash equivalents at the beginning of the period

110,386

54,326

54,326

Effect of exchange rate fluctuations on cash held

1,263

(1,984)

500

106,619

41,307

110,386

 

* December 2019 cash and cash equivalents and bank deposits have been restated following a change in accounting policy explained in the 2020 Annual report, p.111, such that the Consolidated statement of cash flow has been amended to show a cash inflow of £22,500,000 in investing activities for the amounts maturing from deposits exceeding three months and not accessible on demand.

 

Responsibility statement

 

The condensed set of financial statements is the responsibility of, and has been approved by, the Directors. 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 IAS 34, 'Interim Financial Reporting', as issued by the International Accounting Standards Board and as adopted by the EU.

 

-  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

 

Allen Roberts FCA

Group Finance Director

4 February 2021

 

 

 

 

 

 

 

Notes

 

1.  Basis of preparation

 

The Interim Report, which includes the condensed consolidated financial statements for the six months ended 31 December 2020, was approved by the Directors on 4 February 2021.

 

The condensed consolidated financial statements for the six months ended 31 December 2020 were prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting' (IAS 34) as issued by the International Accounting Standards Board and as adopted by the European Union, and apply the same accounting policies, presentation and methods of calculation as were applied in the preparation of the Group's consolidated financial statements for the year ended 30 June 2020, except for income taxes which are accrued using the forecast tax rate for the financial year, and except for the adoption of new accounting standards.

 

The condensed consolidated financial statements included in this Report have not been audited and do not constitute the Group's statutory accounts as defined in section 434 of the Companies Act 2006. The information relating to the year ended 30 June 2020 is an extract from the Group's published Annual Report for that year, which has been delivered to the Registrar of Companies, and on which the auditor's report was unqualified and did not contain any emphasis of matter or statements under section 498(2) or 498(3) of the Companies Act 2006.

 

Going concern

 

The Directors have prepared the unaudited interim financial information on a going concern basis. In considering the going concern basis, the Directors have considered the above-mentioned principal risks and uncertainties, as well as the Group's current trading performance and updated cashflow forecasts.

 

In the 2020 Annual Report we disclosed details of 'severe scenario' forecasts used in the Director's going concern assessment, and viability statement, as at August 2020. Both Metrology and Healthcare are expected to outperform the 'severe scenario' forecasts for the year to 30 June 2021, and performance in subsequent periods is also expected to outperform the respective 'severe scenario' forecasts.

 

The Directors have also considered the financial resources available to the Group, with net current assets of £331.5m at 31 December 2020 (compared to £281.6m at 30 June 2020), including £186.6m net cash and bank deposits at 31 December 2020, an increase from £120.4m at 30 June 2020. In addition, the going concern assessment does not rely upon any external financial support.

 

Having made appropriate enquiries, the Directors are satisfied that, at the time of approving the unaudited condensed consolidated financial statements, it is appropriate to continue to adopt a going concern basis of accounting.

 

New accounting standards and policies

 

The following new standards and amendments became effective as at 1 January 2020 and have been adopted for the financial year commencing 1 July 2020.

 

-  Amendments to IFRS 3 Definition of a Business

-  Amendments to IFRS 7, IFRS 9 and IAS 39 Interest Rate Benchmark Reform

-  Amendments to IAS 1 and IAS 8 Definition of Material

-  Amendments to References to the Conceptual Framework for Financial Reporting

-  Amendments to IFRS 16 COVID-19-Related Rent Concessions

These have not had an impact on these financial statements.

 

 

2.  Segmental information

 

The Group manages its business in two segments, comprising metrology and healthcare products. The results of these are regularly reviewed by the Board to allocate resources to segments and to assess their performance. Within the operating segment of metrology, there are multiple product offerings with similar economic characteristics, and where the nature of the products and production processes and their customer bases are similar. More details of the Group's products and services are given in the Strategic report of the 2020 Annual report.

 

In normal trading conditions, whilst future revenue is difficult to predict given that the Group's outstanding order book is typically around one month's worth of revenue value, larger consumer electronics orders in the APAC region within the metrology segment typically fall in the first or last quarter of the financial year. In addition, the Group typically experiences lower demand in August and December, and so revenue and operating profits are typically lower in the first half of the year. This information is provided to allow for a better understanding of the results, and management do not believe that the business is 'highly seasonal' in accordance with IAS 34. Whilst this is the case during normal trading conditions, COVID-19 may introduce some additional fluctuations in the short-term.

 

 

 

 

 

6 months to 31 December 2020

Metrology

Healthcare

Total

 

£'000

£'000

£'000

 

 

 

 

Revenue

235,641

19,482

255,123

Depreciation and amortisation

13,884

1,640

15,524

 

 

 

 

Operating profit before gains from fair value of financial instruments

41,209

2,185

43,394

Share of profits from associates and joint ventures

39

-

39

Net financial expense

-

-

(12)

Gains from the fair value of financial instruments

-

-

20,526

 

 

 

 

Profit before tax

-

-

63,947

 

 

 

 

6 months to 31 December 2019

 

 

 

 

 

 

 

Revenue

241,545

17,835

259,380

Depreciation and amortisation

21,954

1,116

23,070

 

 

 

 

Operating profit/(loss) before losses from fair value of financial instruments

21,350

(1,286)

20,064

Share of profits from associates and joint ventures

947

-

947

Net financial expense

-

-

(2,508)

Losses from the fair value of financial instruments

-

-

(8,570)

 

 

 

 

Profit before tax

-

-

9,933

 

 

 

 

Year ended 30 June 2020

 

 

 

 

 

 

 

Revenue

475,203

35,012

510,215

Depreciation and amortisation

67,327

2,557

69,884

 

 

 

 

Operating profit before losses from fair value of financial instruments

31,188

1,737

32,925

Share of profits from associates and joint ventures

841

-

841

Net financial expense

-

-

(3,927)

Losses from the fair value of financial instruments

-

-

(26,631)

 

 

 

 

Profit before tax

-

-

3,208

 

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 disaggregation of group revenue by category:

 

 

6 months to

31 December

2020

£'000

6 months to

31 December

2019

£'000

Year ended

30 June

2020

£'000

 

 

 

 

Goods, capital equipment and installation

229,828

232,145

457,024

Aftermarket services

25,295

27,235

53,191

Total group revenue

255,123

259,380

510,215

 

Aftermarket services include repairs, maintenance and servicing, programming, training, extended warranties, and software licences and maintenance.

 

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

 

 

6 months to

31 December

2020

£'000

6 months to

31 December

2019

£'000

Year ended

30 June

2020

£'000

 

 

 

 

APAC

125,924

106,801

227,650

EMEA

74,508

88,998

167,253

Americas

54,691

63,581

115,312

Total Group revenue

255,123

259,380

510,215

 

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:

 

6 months to

31 December

2020

£'000

6 months to

31 December

2019

£'000

Year ended

30 June

2020

£'000

 

 

 

 

China

69,488

43,259

102,840

USA

46,891

52,698

101,153

Japan

24,200

30,635

57,833

Germany

23,038

27,178

49,397

 

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

for the period.

 

3.  Financial income and expenses

 

 

 

 

6 months to

31 December

2020

£'000

6 months to

31 December

2019

£'000

Year ended

30 June

2020

£'000

Financial income

 

 

 

Fair value gains from one-month forward currency contracts

3,263

508

-

Interest receivable

366

575

913

Total financial income

3,629

1,083

913

Financial expenses

 

 

 

Interest on pension schemes' liabilities

454

459

861

Currency losses

2,720

2,476

2,433

Fair value losses from one-month forward currency contracts

-

-

154

Lease interest

417

557

765

Interest payable

50

98

627

Total financial expenses

3,641

3,590

4,840

 

Currency losses relate to revaluations of foreign currency denominated balances using latest reporting currency exchange rates. The losses recognised in both the six months to 31 December 2020 and the six months to 31 December 2019 largely related to an appreciation of sterling relative to the dollar affecting dollar-denominated intragroup balances in the Company (Renishaw plc). These losses are partially offset by rolling one-month forward currency contracts, with fair value gains recognised in financial income. After these mitigating activities, net currency gains in the six months to 31 December 2020 amounted to £543,000 (December 2019: £1,968,000 net loss).

 

4.  Taxation

 

The income tax expense in the Consolidated income statement has been estimated at a rate of 19.0% (December 2019: 17.4%), before the net recognition of deferred tax assets of £693,000 (December 2019: impairment of £809,000), based on management's best estimate of the full year effective tax rates by geographical unit applied to half-year profits. The net deferred tax asset recognition arises mainly from increased certainty over the recoverability of a portion of previously unrecognised losses in our US business, following better than previously expected current year taxable profit forecasts. The overall effective tax rate for the six months to 31 December 2020 is 18.0% (December 2019: 25.6%).

 

5.  Earnings per share

 

The earnings per share for the six months ended 31 December 2020 is calculated on earnings of £52,460,000 (December 2019: £7,395,000) and on 72,778,904 shares (December 2019: 72,778,904 shares), being the number of shares in issue during the period. This excludes 9,639 shares held by the Renishaw Employee Benefit Trust.

 

6.  Dividends

 

 

Dividends paid during the period were:

 

6 months to

31 December

2020

£'000

6 months to

31 December

2019

£'000

Year ended

30 June

2020

£'000

 

 

 

 

2020 final dividend paid of nil per share

-

33,478

33,478

Interim dividend paid of nil per share

-

-

-

Total dividends paid during the period

-

33,478

33,478

 

All shareholders on the register on 5 March 2021 will be paid an interim dividend of 14.0p net per share on 6 April 2021, resulting in a dividend payable of £10,189,047.

 

 

7.  Property, plant and equipment

 

 

 

 

Freehold

land and

buildings

 

Plant and

equipment

 

Motor

vehicles

Assets in the

course of construction

 

 

Total

 

£'000

£'000

£'000

£'000

£'000

Cost

 

 

 

 

 

At 1 July 2020

225,556

247,986

8,526

6,363

488,431

Additions

512

1,186

87

3,040

4,825

Transfers

225

2,515

-

(2,740)

-

Disposals

(133)

(7,879)

(729)

-

(8,741)

Currency adjustment

(5,064)

(3,349)

(167)

-

(8,580)

 

 

 

 

 

 

At 31 December 2020

221,096

240,459

7,717

6,663

475,935

 

 

 

 

 

 

Depreciation

 

 

 

 

 

At 1 July 2020

35,842

175,864

6,676

-

218,382

Charge for the period

2,216

6,298

322

-

8,836

Released on disposals

(122)

(5,630)

(530)

-

(6,282)

Currency adjustment

(734)

(1,812)

(123)

-

(2,669)

 

 

 

 

 

 

At 31 December 2020

37,202

174,720

6,345

-

218,267

 

 

 

 

 

 

Net book value

 

 

 

 

 

At 31 December 2020

183,894

65,739

1,372

6,663

257,668

At 30 June 2020

189,714

72,122

1,850

6,363

270,049

 

Additions to assets in the course of construction of £3,040,000 (December 2019: £10,628,000) comprise £251,000 (December 2019: £8,412,000) for freehold land and buildings and £2,789,000 (December 2019: £2,216,000) for plant and equipment. At the end of the period, assets in the course of construction, not yet transferred, of £6,663,000 (December 2019: £18,275,000) comprise £2,804,000 (December 2019: £14,269,000) for freehold land and buildings and £3,859,000 (December 2019: £4,006,000) for plant and equipment.

 

8.  Intangible assets

 

 

 

Goodwill on consolidation

 

Other intangible assets

Internally

generated

development costs

Software

licences and intellectual property

 

 

 

Total

 

£'000

£'000

£'000

£'000

£'000

Cost

 

 

 

 

 

At 1 July 2020

20,518

15,829

167,447

22,063

225,857

Additions

-

-

5,074

810

5,884

Currency adjustment

(740)

(33)

-

(43)

(816)

 

 

 

 

 

 

At 31 December 2020

19,778

15,796

172,521

22,830

230,925

 

 

 

 

 

 

Amortisation

 

 

 

 

 

At 1 July 2020

9,028

13,105

141,696

18,664

182,493

Charge for the period

-

38

4,577

697

5,312

Currency adjustment

-

33

-

(38)

(5)

 

 

 

 

 

 

At 31 December 2020

9,028

13,176

146,273

19,323

187,800

 

 

 

 

 

 

Net book value

 

 

 

 

 

At 31 December 2020

10,750

2,620

26,248

3,507

43,125

At 30 June 2020

11,490

2,724

25,751

3,399

43,364

 

As detailed in the 2020 Annual report, the key assumption in determining the value-in-use of intangible assets are sales forecasts. As noted previously in this report, both Metrology and Healthcare are now expected to outperform the forecasts at 30 June 2020, which is also the case for the constituent business units relating to the intangible assets above. As a result, no impairments have been recognised in the six months to 31 December 2020 (December 2019: £1,973,000).

 

 

 

9.  Financial instruments

 

There is no significant difference between the fair value of financial assets and financial liabilities and their book value in the Consolidated balance sheet. All financial assets and liabilities are held at amortised cost, apart from the forward exchange contracts which are held at fair value, with changes going through the Consolidated income statement unless subject to hedge accounting. The fair values of the forward exchange contracts have been calculated by a third party expert, discounting estimated future cash flows on the basis of market expectations of future exchange rates, representing level 2 in the IFRS 13 fair value hierarchy. There were no transfers between levels during any period disclosed.

 

At 31 December 2020 the total nominal value of USD, EUR and JPY forward contracts held for cash flow hedging purposes was £654,888,000. During the 2020 financial year, global macroeconomic uncertainty resulted in a reduction to the 'highly probable' revenue forecasts of Renishaw plc and Renishaw UK Sales Limited, being the hedged item, resulting in proportions of forward contracts failing hedge effectiveness testing, with nominal value amounting to £247,547,000. Accumulated fair value losses on forward currency contracts ineffective as a cash flow hedge amounting to £24,361,000 were consequently recycled from the Cash flow hedging reserve to the Consolidated income statement in the previous financial year. Subsequent fair value movements on outstanding ineffective forward contracts accumulate in the Consolidated income statement, with a resultant £23,289,000 gain in the six months to 31 December 2020. A loss of £2,763,000, mostly relating to fair value movements on options contracts previously entered into with the forward contracts, was also reported in 'Gains/(losses) from the fair value of financial instruments - derivatives'. At 31 December 2020 the remaining nominal value of USD, EUR and JPY forward contracts ineffective for cash flow hedging and yet to mature amounted to £189,162,000, with no additional forward contracts becoming ineffective for hedge accounting purposes in the six months to 31 December 2020.

 

On an ongoing basis, a 10% depreciation of GBP against USD, EUR and JPY would result in a £18,916,000 loss being recognised in the Consolidated Income Statement, while a 10% appreciation would result in a £17,197,000 gain.

Fair value gains and losses relating to this have been excluded from adjusted profit measures, see note 11 for further detail.

 

Credit risk

The Group carries a credit risk relating to non-payment of trade receivables by its customers and establishes an allowance for impairment in respect of trade receivables where recoverability is considered doubtful. In the six months to 31 December 2020, the Group has not experienced a deterioration in debtor repayments nor in the assumptions used in calculating allowances for expected credit losses. At 31 December 2020, total expected credit losses amounted to £5,166,000, being 5.1% of gross trade receivables, compared with £5,964,000 at 30 June 2020, being 5.4% of gross trade receivables.

 

Liquidity risk

The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, and the Group continues to use monthly cash flow forecasts on a rolling 12-month basis to monitor cash requirements. With net cash and bank deposits at 31 December 2020 totalling £186,619,000, an increase of £66,233,000 from 30 June 2020, and bank deposits of maximum three-month maturity, the Group's liquidity has improved in the six months to 31 December 2020.

 

10.  Employee benefits

 

In October 2020 the trustees of the Renishaw Pension Fund notified the Company of a difference between the calculation of liabilities in the UK Defined Benefit Pension Fund for administration purposes and for accounting purposes. Following an initial review, it appears that corrections may be needed to the way that some pensions are calculated, and the value placed on these pension benefits for accounting purposes and these corrections would relate to the period over which revaluation and late retirement factors are applied. The position is not yet certain and we are working with the trustees to reach an agreed conclusion. Given this current uncertainty over the outcome (and therefore the financial impact), we have not made any adjustments in the financial statements in the six months to 31 December 2020.

 

11.  Alternative performance measures

 

In accordance with Renishaw's Alternative Performance Measures (APMs) policy and ESMA Guidelines on Alternative Performance Measures (2015), APMs are defined as - Revenue at constant exchange rates, Adjusted profit before tax, Adjusted earnings per share and Adjusted operating profit.

Revenue at constant exchange rates is defined as revenue recalculated using the same rates as were applicable to the previous year and excluding forward contract gains and losses.

Revenue at constant exchange rates

 

 

6 months to 31 December 2020

6 months to 31 December 2019

 

 

£'000

£'000

 

 

 

 

Statutory revenue as reported

 

255,123

259,380

Adjustment for forward contract losses

 

1,375

7,324

Adjustment to restate at previous year exchange rates

 

6,186

-

Revenue at constant exchange rates

 

262,684

266,704

Year-on-year revenue growth at constant exchange rates

 

-2%

-

 

Adjusted profit before tax, Adjusted earnings per share and Adjusted operating profit are defined as the profit before tax, earnings per share and operating profit after excluding costs relating to business restructuring, and gains and losses in fair value from forward currency contracts which did not qualify for hedge accounting and which have yet to mature.

 

Restructuring costs reported separately in the Consolidated Income statement have also been excluded from adjusted measures, on the basis that they relate to matters that do not frequently recur. During the 2020 financial year the Board introduced its 'Fit for the future' strategy, which incorporated the rationalisation and reorganisation of certain operating activities, particularly relating to the additive manufacturing (AM) business, and cost control measures which included a UK compulsory redundancy programme. No expenses relating to this restructure have been incurred in the 2021 financial year.

From 2017, the gains and losses from the fair value of financial instruments not effective for cash flow hedging have been excluded from statutory profit before tax, statutory earnings per share and statutory operating profit in arriving at Adjusted profit before tax, Adjusted earnings per share and Adjusted operating profit, to reflect the Board's intent that the instruments would provide effective hedges. This is classified as 'Fair value (gains)/losses on financial instruments not eligible for hedge accounting (i)' in the following reconciliations. The amounts shown as reported in revenue represent the amount by which revenue would change had all the derivatives qualified as eligible for hedge accounting. Gains and losses which recycle through the Consolidated income statement as a result of contracts deemed ineffective during 2020 are also excluded from adjusted profit measures, on the basis that all forward contacts are still expected to be effective hedges for Group revenue, while the potentially high volatility in fair value gains and losses relating to these contracts will otherwise cause confusion for users of the financial statements wishing to understand the underlying trading performance of the Group. This is classified as 'Fair value (gains)/losses on financial instruments not eligible for hedge accounting (ii)' in the following reconciliations.

 

The Board considers these alternative performance measures to be more relevant and reliable in evaluating the Group's performance.

 

Adjusted profit before tax

 

6 months to 31 December 2020

6 months to 31 December 2019

Year ended 30 June 2020

 

£'000

£'000

£'000

 

 

 

 

Statutory profit before tax

63,947

9,933

3,208

Restructuring costs reported in Cost of sales, Distribution costs and Administrative expenses

-

2,249

23,797

Fair value (gains)/losses on financial instruments not eligible for hedge accounting (i)

 

 

 

  - reported in revenue

(11)

(3,133)

(731)

  - reported in (gains)/losses from the fair value of financial instruments - derivatives

2,763

2,223

(2,021)

Fair value (gains)/losses on financial instruments not eligible for hedge accounting (ii)

 

 

 

  - reported in (gains)/losses from the fair value of financial instruments - derivatives

(23,289)

3,030

24,361

Adjusted profit before tax

43,410

14,302

48,614

 

Adjusted earnings per share

 

6 months to 31 December 2020

6 months to 31 December 2019

Year ended 30 June 2020

 

pence

pence

pence

Statutory earnings per share

72.1

10.2

0.4

Restructuring costs reported in Cost of sales, Distribution costs and Administrative expenses

-

2.5

26.5

Fair value (gains)/losses on financial instruments not eligible for hedge accounting (i)

 

 

 

  - reported in revenue

0.0

(3.5)

(0.8)

  - reported in (gains)/losses from the fair value of financial instruments - derivatives

3.1

2.5

(2.2)

Fair value (gains)/losses on financial instruments not eligible for hedge accounting (ii)

 

 

 

  - reported in (gains)/losses from the fair value of financial instruments - derivatives

(25.9)

3.4

27.1

Adjusted earnings per share

49.3

15.1

51.0

 

Adjusted operating profit

 

6 months to 31 December 2020

6 months to 31 December 2019

Year ended 30 June 2020

 

£'000

£'000

£'000

Statutory operating profit

63,921

11,493

6,294

Restructuring costs reported in Cost of sales, Distribution costs and Administrative expenses

-

2,249

23,797

Fair value (gains)/losses on financial instruments not eligible for hedge accounting (i)

 

 

 

  - reported in revenue

(11)

(3,133)

(731)

  - reported in (gains)/losses from the fair value of financial instruments - derivatives

2,763

2,223

(2,021)

Fair value (gains)/losses on financial instruments not eligible for hedge accounting (ii)

 

 

 

  - reported in (gains)/losses from the fair value of financial instruments - derivatives

(23,289)

3,030

24,361

Adjusted operating profit

43,384

15,862

51,700

 

 

Adjustments to segmental operating profit:

Metrology

 

6 months to 31 December 2020

6 months to 31 December 2019

Year ended 30 June 2020

 

£'000

£'000

£'000

Operating profit before gain/loss from fair value of financial instruments

41,209

21,350

31,188

Restructuring costs reported in Cost of sales, Distribution costs and Administrative expenses

-

2,249

23,797

Fair value (gains)/losses on financial instruments not eligible for hedge accounting (i)

 

 

 

  - reported in revenue

(12)

(2,919)

(688)

Fair value (gains)/losses on financial instruments not eligible for hedge accounting (ii)

 

 

 

  - reported in revenue

-

(3,318)

(4,036)

Adjusted metrology operating profit

41,197

17,362

50,261

 

Healthcare

 

6 months to 31 December 2020

6 months to 31 December 2019

Year ended 30 June 2020

 

£'000

£'000

£'000

Operating loss before gain/loss from fair value of financial instruments - derivatives

2,185

(1,286)

1,737

Fair value (gains)/losses on financial instruments not eligible for hedge accounting (i)

 

 

 

  - reported in revenue

1

(214)

(43)

Fair value gains on financial instruments not eligible for hedge accounting (ii)

 

 

 

- reported in revenue

-

 

(255)

Adjusted healthcare operating profit

2,186

(1,500)

1,439