TIDMRSW
RNS Number : 4710H
Renishaw PLC
01 August 2019
RENISHAW plc
1 August 2019
Preliminary announcement of results for the year ended 30 June
2019
Summary
-- Revenue of GBP574.0m, a decrease at constant exchange rates of 7%
-- Revenue growth in the Americas and EMEA regions; weakness in
the APAC region (19% decrease at constant exchange rates*)
-- Metrology revenue decreased by 7% to GBP532.9m, largely as a
result of a slowdown in demand for encoder and machine tool
products in the APAC region
-- Metrology revenue benefited from strong growth in our
additive manufacturing line and good growth in our measurement and
automation line (Equator gauging systems) and fixturing line
-- Healthcare revenue increased by 15% with strong growth in our
spectroscopy and medical dental product lines giving rise to
Adjusted operating profits of GBP3.1m (2018: GBP0.3m)
-- Adjusted* profit before tax of GBP103.9m (2018: GBP145.1m), a decrease of 28%
-- Statutory profit decreased by 29% to GBP109.9m (2018: GBP155.2m)
-- Strong balance sheet, with cash of GBP106.8m, compared with GBP103.8m last year
-- Recommended final dividend of 46p per share; total dividend for the year of 60p (2018: 60p)
2019 2018 Change
Revenue (GBPm) 574.0 611.5 -6%
Adjusted* profit before tax
(GBPm) 103.9 145.1 -28%
Adjusted* earnings per share
(pence) 119.9 170.5 -30%
Dividend per share (pence) 60.0 60.0
STATUTORY
Profit before tax (GBPm) 109.9 155.2 -29%
Earnings per share (pence) 126.7 181.8 -30%
*Note 25, 'Alternative performance measures', defines how
adjusted profit before tax, adjusted earnings per share, adjusted
operating profit and revenue at constant exchange rates are
calculated.
CHAIRMAN'S STATEMENT
Introduction
I am pleased to report our 2019 results. We achieved a turnover
for the year of GBP574.0m (2018: GBP611.5m) with a decrease in
revenue of 7% at constant exchange rates*, against a backdrop of
challenging economic conditions. Adjusted* profit before tax
amounted to GBP103.9m (2018: GBP145.1m), a decrease of 28%.
Following the appointment of Will Lee as Chief Executive last
year, I have been delighted to see his progress and strong
leadership during the year. He is driving change in key areas of
the business, including a focus on the skills development of our
people, to continue to improve productivity.
Innovation drives our business, from the generation of new
technologies to new manufacturing processes. In my role as
Executive Chairman, I have enjoyed the opportunity to focus on
Group innovation and product strategy, supporting our talented
engineering teams. This has included our industrial metrology and
additive manufacturing technologies, where there are exciting
opportunities for future growth.
During the year, we continued to invest in developing future
technologies, with total engineering costs of GBP97.9m (before net
capitalised development costs and the R&D (research and
development) tax credit), amounting to 17% of total revenue.
Board changes
On 30 June 2019, Geoff McFarland, Group Engineering Director,
resigned as a Director of the Board for family reasons. On behalf
of the Board, I would like to thank Geoff for the invaluable
contribution he has already made to the developments that have
helped Renishaw grow into the global technology leader that it is
today. I look forward to continuing to work with him in his new
role as Director of Group Technology, reporting to Will.
As reported last year, Kath Durrant stepped down from the Board
on 31 July 2018. Catherine Glickman joined us as an Independent
Non-executive Director on 1 August 2018, becoming Chair of the
Remuneration Committee and a member of the Audit and Nomination
Committees. Catherine previously held the role of Group HR Director
at Genus plc and Tesco PLC and is making a valuable contribution as
we strengthen our HR processes and implement a new internal
communications and employee engagement strategy.
People, culture and values
We thrive through our collaborative team of 5,000 people. They
bring fresh thinking, deep experience and an obsession with quality
to every aspect of their work. On behalf of the Board, I would like
to thank them all for their professionalism and dedication during
the year.
We have created a culture that aims to allow our employees to
maximise their potential. We work hard to encourage open
communication and innovative thinking and believe everyone in our
business should feel valued and be able to grow.
Innovation is at the heart of everything that we do and is one
of our core values. We believe our people are fundamental to our
disruptive thinking and manufacturing excellence which helps our
customers to increase their own innovation, improve quality, expand
output and enhance efficiency.
Integrity is another of our core values and is key to the
relationships that we have with our people, customers, suppliers,
communities and other stakeholders. We strive at all times to be
open, honest and consistent.
We are also focused on diversity at all levels. During the year
we published our second Gender Pay Gap report. While progress has
been made, we and our industry still have much work to do in this
area. Our educational outreach programmes engage with children from
primary school age onwards to encourage more young people from
diverse gender, ethnic and economic backgrounds into the
sector.
Corporate governance
The Board is committed to the highest standards of corporate
governance to protect our business and its long- term success. The
Board has already started to consider the new 2018 UK Corporate
Governance Code and steps have been taken to start implementing its
requirements.
Investor communications
Our sixth annual investor day on 14 May 2019 was attended by a
record 150 people, with an equal mix of private and institutional
investors. The day included presentations on Group strategy,
industry sectors and key sales regions, as well as demonstrations,
opportunities to meet the Board and senior management, and a
question and answer (Q&A) session with Board members. Following
the event, we conducted a survey with all the attendees to gather
further feedback.
The event is one of four key touchpoints across the year where
the investment community can learn more about Renishaw's business
and strategy, with the Annual General Meeting (AGM) in October,
plus live half-year and full-year webcasts.
UK defined benefit pension scheme
Following further engagement with The Pensions Regulator, the
Company and trustees have agreed the terms of a new deficit funding
plan for the Company's UK defined benefit pension scheme. The
Company has agreed to pay GBP8.7m per annum into the scheme for
five years with effect from 1 October 2018. Under the terms of the
previous agreement the Company paid approximately GBP4m per
year.
Dividend
A final dividend of 46.0p net per share will be paid on 31
October 2019, to shareholders on the register at 27 September 2019,
giving a total dividend of 60.0p for the year (2018: 60.0p).
Sir David McMurtry
Executive Chairman
* Note 25, Alternative performance measures, defines how
Adjusted profit before tax, Adjusted earnings per share, Adjusted
operating profit and Revenue at constant exchange rates are
calculated.
CHIEF EXECUTIVE'S REVIEW
Introduction
As stated last year, my role is to build on the strong heritage
and culture developed by our co-founders, Sir David McMurtry and
John Deer, and inspire our people to meet the opportunities and
challenges of a changing business environment. During my first full
year I have travelled widely within the Group, spending time with
our R&D teams, visiting our sales regions, attending trade
exhibitions, and listening to what people feel is good about
Renishaw and where we can make improvements. This has given me a
clear sense of where we need to focus to continue to be a
technology world leader that is trusted by our customers and
suppliers, and an employer that inspires its people.
Performance overview
As Sir David has already outlined, this was a challenging year
with reduced turnover and Adjusted* operating profit for the Group.
However, outside APAC, our other regions saw strong growth for some
of our product lines, including the additive manufacturing (AM) and
spectroscopy lines. We remain focused on the long term with a key
focus on developing technologies that provide patented products to
support the strategies for our metrology and healthcare
segments.
Revenue
We achieved revenue for the year ended 30 June 2019 of
GBP574.0m, compared with GBP611.5m last year, against a backdrop of
challenging economic conditions including the impact of trade
tensions between the USA and China, and ongoing uncertainty
surrounding the potential impacts of Brexit. Aside from APAC, we
experienced revenue growth in all regions as set out below. The
lower revenue in the APAC region is largely a result of a slowdown
in demand for our encoder products, which are used in electronics
and display manufacturing equipment, and for our machine tool
products from large end-user manufacturers of consumer electronic
products, due to weaker smartphone demand and the resultant
over-capacity in the supply chain. We have not experienced an
erosion in our customer base in the region and we continue to work
closely with key customers to ensure we are in position to meet
their requirements when economic conditions improve.
2019 2018 Change Constant fx
GBPm GBPm % change %
==================== ===== ===== ====== ===========
APAC 240.1 289.2 -17 -19
==================== ===== ===== ====== ===========
EMEA 167.2 165.1 1 2
==================== ===== ===== ====== ===========
Americas 132.6 126.6 5 1
==================== ===== ===== ====== ===========
UK 34.1 30.6 11 11
==================== ===== ===== ====== ===========
Total Group revenue 574.0 611.5 -6 -7
==================== ===== ===== ====== ===========
Profit and earnings per share
The Group's Adjusted* profit before tax for the year was
GBP103.9m compared with GBP145.1m last year. Adjusted* earnings per
share on continuing activities was 119.9p compared with 170.5p last
year.
Statutory profit before tax for the year was GBP109.9m compared
with GBP155.2m last year. Statutory earnings per share on
continuing activities was 126.7p compared with 181.8p last
year.
This year's tax charge on continuing operations amounts to
GBP17.7m (2018: GBP22.9m) representing a tax rate of 16.1% (2018:
14.7%). Lower profits in the UK in the current year resulted in a
fall in the patent box benefit of GBP3.9m relative to the previous
year, which is the principal factor for the increase in the
effective tax rate.
Metrology
Revenue from our metrology business for the year was GBP532.9m
compared with GBP575.8m last year. There was strong growth in our
AM product line; good growth in our measurement and automation line
(Equator gauging systems) and in our fixturing line - reflecting
pleasing progress in our end-user focused solutions business. We
continue to focus on ensuring that our AM systems satisfy the
demands of our customers for the series production of metal
components. As previously mentioned, we have seen a slowdown in
demand for our encoder products and from large end-user
manufacturers of consumer electronic products, which primarily
impacts the machine tool revenue.
The geographical analysis of metrology revenue is set out
below.
2019 2018 Change
GBPm GBPm %
======================== ===== ===== ======
APAC 223.7 276.7 -19
======================== ===== ===== ======
EMEA 153.0 153.9 -1
======================== ===== ===== ======
Americas 126.6 119.7 6
======================== ===== ===== ======
UK 29.6 25.5 16
======================== ===== ===== ======
Total metrology revenue 532.9 575.8 -7
======================== ===== ===== ======
Adjusted* operating profit for our metrology business was
GBP90.6m (2018: GBP142.8m).
We continued to invest in R&D, with total engineering costs
of GBP90.7m (before net capitalised development costs and the
R&D tax credit) compared with GBP77.1m in 2018.
A range of new products were launched during the year. The PHS-2
second generation servo positioning head for CMMs is used within
the automotive market for body-in-white measurement. We also
introduced new calibration products including the XM-600
calibration system for high-speed dynamic CMM error-mapping and
fault-finding, and the XK10 alignment laser system for use during
the build and alignment of machine tools, replacing the need for
artefacts.
The APCA-45 tool setting probe is designed for the very harsh
environments surrounding lathes and multi-tasking machine tools,
while the new SupaScan QuickPoint macro software package allows
superfast probing cycles in machining applications with very short
cycle times.
For the motion control market we launched a rotary encoder for
our QUANTiC(TM) family of incremental encoders, while for high-end
XY stages that require multiple interferometer feedback axes, our
new multi-axis periscope (RMAP) enables accurate six degrees of
freedom measurements.
Healthcare
Revenue from our healthcare business for the year was GBP41.0m,
an increase of 15% over the GBP35.7m last year. There was strong
growth in our spectroscopy and medical dental product lines.
There was an Adjusted* operating profit of GBP3.1m, compared
with GBP0.3m last year, with two years of continuous profit
achieved for the first time. Healthcare also saw continued
investment in R&D, with total engineering costs in this
business segment of GBP7.2m (before net capitalised development
costs and the R&D tax credit) compared with GBP6.5m in
2018.
New products launched during the year include the RA816
Biological Analyser, a compact benchtop Raman imaging system
designed exclusively for biological and clinical research, and the
new neurolocate(TM) 2D module, which requires just two X-rays to
register patient position against the neuromate(R) robot, also
obtained a CE mark.
The results of a pioneering clinical trial for which Renishaw
manufactured a drug delivery device on behalf of North Bristol NHS
Trust, to administer Glial Cell Line-Derived Neurotrophic Factor
(GDNF), were made public in February. The results showed that the
drug delivery system performed effectively and reliably, and a
similar device developed by Renishaw, called neuroinfuse, is now
being used in another clinical trial.
Strategy and markets
Our strategy is fundamentally based on long-term investments in
patented and innovative products and processes, high-quality
manufacturing, and the provision of excellent local support to
customers in all our markets around the globe. This strategy is
consistent across all the product lines and market sectors in which
we operate to deliver our purpose.
Renishaw has moved in recent years, from primarily being a
supplier of products to capital equipment manufacturers, to working
closely with end-users to solve their complex challenges and
deliver solutions and systems that transform their manufacturing
capabilities. This is helping to build brand loyalty and opening up
new revenue opportunities.
At the same time, we are seeing external market growth drivers -
including global skills shortages, digitisation, requirements for
more capable products, rising energy costs, a focus on reducing
emissions and waste, population growth and rising life expectancy -
that are creating positive opportunities for our business.
We continue to spread risk through the diversification of our
applications for product lines, our customer base and our routes to
market.
Focused investment for long-term growth
The Group firmly believes in its long-term strategy of investing
for the future, expanding our global marketing and distribution
infrastructure, along with increasing manufacturing capacity and
R&D activities. However, with the current global economic
uncertainties, our focus for the near-term is on maximising the
benefits of the investment we have made over the past few
years.
We are also investing in a new human resources (HR) system and
development programmes for our people, which we believe, will
ultimately boost our productivity.
Capital expenditure on property, plant and equipment and
vehicles for the year was GBP56.8m (2018: GBP34.9m), of which
GBP25.4m (2018: GBP10.0m) was spent on property and GBP31.4m (2018:
GBP24.9m) on plant and equipment and vehicles.
This year saw the commencement of a 94,000 sq ft extension to
the Innovation Centre at our New Mills site, the purchase of a new
property in Nagoya to support the expansion of our Japanese
distribution function, the purchase of land near São Paulo for the
future development of a distribution facility in Brazil and the
purchase of our existing building in The Netherlands for our
Benelux operation.
Working capital
Group inventory increased from GBP110.6m at the start of the
year to GBP129.0m, primarily reflecting the impact of Brexit
contingency preparations and the reduced demand we experienced in
the second half of the financial year. We continue to focus on
working capital management while remaining committed to our policy
of holding sufficient finished inventory to ensure customer
delivery performance, given our short order book. Trade receivables
decreased from GBP154.6m to GBP123.2m, with debtor days outstanding
at the end of the current year at 73 days (2018: 69 days).
Net cash balances at 30 June 2019 were GBP106.8m, compared with
GBP103.8m at 30 June 2018. Additionally, there is an escrow account
of GBP10.5m (2018: GBP10.4m) relating to the provision of security
to the UK defined benefit pension scheme.
Corporate social responsibility
As a socially responsible business, we recognise the importance
of operating in a way that delivers long-term sustainable value for
all stakeholders. This year we have: increased investment in
developing the skills of our employees; assisted local
organisations through charitable donations; reached more than
10,000 children with our educational outreach programmes and
donated more than 10,000 hours of paid time to educational and
other local organisations; recruited a record number of apprentices
on our training schemes; reduced our greenhouse gas (GHG) emissions
by 15%; and reduced our accident frequency rate to 24.67.
Our people
Our workforce at the end of June 2019 was 5,041 (2018: 4,862) an
increase of 4%. During the year, 119 apprentices and graduates were
taken on as part of our ongoing commitment to train and develop
skilled resource for the Group in the future. We also took on 73
new paid industrial and summer placements in the year.
In January 2019, we carried out an extensive UK Employee
Engagement survey. The results clearly showed that our people
believe Renishaw makes a positive impact on society, they have
pride in their roles, treat each other with respect and believe
that the business acts in a socially responsible manner. They also
told us we need to focus more on career development, including
progression opportunities, be clearer on performance assessment and
improve the way we recognise and ensure people feel valued. This
fully validates the HR initiatives we introduced during the year,
including a renewed focus on learning and development, and
leadership and management training.
I would like to express my thanks to all employees for their
invaluable contribution to the success of the Group during the
year.
Brexit
The Board continues to oversee the work of the Brexit steering
group in identifying the key risks arising from a no-deal Brexit
scenario and implementing mitigation plans.
These activities significantly increased in the period leading
up to the original Brexit deadline of March 2019 and included the
following:
- the establishment of a new distribution warehouse in Ireland
which, if required, would significantly reduce the number
of direct shipments between the UK and the EU post Brexit;
- a general increase in inventory of certain components and
finished goods held at our various sites within the EU and
the UK; and
- continued ongoing assessment and updating of other key issues
arising from Brexit and the mitigations against any possible
negative impacts.
The steering group will continue to carefully monitor ongoing
developments in the Brexit process and consider the impact of these
against our current plans as the situation develops in the coming
months.
Outlook
The Group is in a strong financial position, despite a
challenging year, and continues to invest in the development of new
products and applications, along with targeted investment in
production, and sales and marketing facilities around the world.
With the ongoing uncertainty surrounding Brexit, weaker economic
indicators, exchange rate volatility and trade tensions between the
USA and China, we expect market conditions to remain difficult
throughout this financial year.
Your Directors remain confident in the long-term prospects for
the Group due to the high quality of our people, our innovative
product pipeline, extensive global sales and marketing presence and
relevance to high-value manufacturing.
Will Lee
Chief Executive
* Note 25, Alternative performance measures, defines how
Adjusted profit before tax, Adjusted earnings per share, Adjusted
operating profit and Revenue at constant exchange rates are
calculated.
FINANCIAL REVIEW
Overview
We have achieved revenue amounting to GBP574.0m and Adjusted
profit before tax of GBP103.9m. Statutory profit before tax was
GBP109.9m. We have a strong balance sheet with total equity growing
by GBP34.7m to GBP583.3m, with net cash balances of GBP106.8m
(2018: GBP103.8m). In line with our progressive dividend policy,
the Board is proposing an unchanged dividend of 60.0p per share for
the year.
Revenue
We achieved revenue for the year of GBP574.0m, compared with
GBP611.5m last year. This fall is largely a result of a slowdown in
demand for our encoder products and from large end-user
manufacturers of consumer electronic products, primarily driven by
economic uncertainty in the APAC region. The table below shows the
analysis of Group revenue by geographical market.
In our metrology business segment, revenue was GBP532.9m,
compared with GBP575.8m last year. Revenue in our healthcare
business segment increased by 15% from GBP35.7m last year to
GBP41.0m.
Revenue analysis by region
2019 2018 Change Constant fx
GBPm GBPm % change %
==================== ===== ===== ====== ===========
APAC 240.1 289.2 -17 -19
==================== ===== ===== ====== ===========
EMEA 167.2 165.1 1 2
==================== ===== ===== ====== ===========
Americas 132.6 126.6 5 1
==================== ===== ===== ====== ===========
UK 34.1 30.6 11 11
==================== ===== ===== ====== ===========
Total Group revenue 574.0 611.5 -6 -7
==================== ===== ===== ====== ===========
Profit and tax
The adjusted profit before tax amounted to GBP103.9m compared
with GBP145.1m in 2018. Statutory profit before tax was GBP109.9m
compared with GBP155.2m in the previous year.
In our metrology business, Adjusted operating profit was
GBP90.6m, compared with GBP142.8m last year. I am pleased to report
further growth in our healthcare business, with an adjusted
operating profit of GBP3.1m compared with GBP0.3m last year.
The overall effective rate of tax on continuing operations was
16.1% (2018: 14.7%). The Group operates in many countries around
the world and the overall effective tax rate is a result of the
combination of the varying tax rates applicable throughout these
countries. Lower profits in the UK in the current year resulted in
a fall in the patent box benefit to GBP1.8m (2018: GBP5.7m) and is
the principal factor for the increase in the overall effective tax
rate. Note 8 provides further analysis of the effective tax
rate.
Alternative performance measures
In 2017, the Board introduced alternative performance measures
(Adjusted profit before tax, Adjusted operating profit and Adjusted
earnings per share) to report the results on the basis that all
forward contracts are accounted for as effective hedges. These
measures are the basis by which the Board evaluates the Group's
performance as they better represent the underlying trading of the
Group. The table below shows the details of the adjustments between
adjusted profit before tax and statutory profit before tax.
2019 2018
GBPm GBPm
========================================= ===== =====
Adjusted profit before tax 103.9 145.1
========================================= ===== =====
Fair value gains and losses on financial
instruments not eligible for hedge
accounting:
========================================= ===== =====
- reported in revenue 5.0 5.3
========================================= ===== =====
- reported in gains from the fair
value of financial instruments 1.0 4.8
========================================= ===== =====
Statutory profit before tax 109.9 155.2
========================================= ===== =====
See note 25 for further details on this and Revenue at constant
exchange rates.
Earnings per share and dividend
Adjusted earnings per share from continuing operations is
119.9p, compared with 170.5p last year. Statutory earnings per
share from continuing operations is 126.7p, compared with 181.8p
last year.
A final dividend of 46.0p net per share (2018: 46.0p) results in
a total dividend for the year of 60.0p (2018: 60.0p). Dividend
cover is 2.0 times (2018: 2.8 times) on an adjusted basis.
Research and development
Gross expenditure on engineering costs, including R&D on new
products, was GBP97.9m (2018: GBP83.6m). The gross charge amounts
to 17% of Group revenue (2018:14%).
The capitalisation of development costs (net of amortisation
charges) amounted to GBP2.9m (2018: GBP2.1m). The R&D tax
credit in 2019 amounted to GBP5.1m compared with GBP4.1m in 2018.
The net charge in the Consolidated income statement amounted to
GBP89.8m compared with GBP77.4m in 2018.
Between the business segments gross expenditure on engineering
costs was GBP90.7m (2018: GBP77.1m) in the metrology segment and
GBP7.2m (2018: GBP6.5m) in our healthcare segment.
New product R&D expenditure amounted to GBP67.0m, which
compares with GBP59.1m spent last year. There have been a number of
new product releases in both our metrology and healthcare business
segments, and a number of new product introductions are anticipated
during the 2020 financial year.
Group headcount
Group headcount has increased from 4,862 at 30 June 2018 to
5,041 at 30 June 2019, with the average for the year of 4,968,
compared with 4,639 last year. The increase during the year of 179
comprised additional employees of 122 in the UK and 57 overseas. In
the UK we took on 119 apprentices and graduates in the year, and
are also funding the further education of 117 employees in
engineering, software and commercial/professional disciplines.
Labour costs, the most significant cost for the Group, increased
by 5% to GBP237.4m (2018: GBP226.8m) reflecting a pay increase in
July 2018 and the incremental cost of the employees recruited in
both 2018 and 2019, partially offset by a reduction in bonuses.
Business systems transformation
In recent years, we have made significant progress in enhancing
and simplifying financial reporting processes and systems, to
further improve the analysis of business performance. With a focus
on increasing productivity and efficiency, further major system
deployments are in progress for our HR, engineering change
management and marketing activities. We have recently committed to
a new ERP system to replace our global finance, sales &
marketing and CRM systems. This will deliver many benefits to the
business including enhanced customer support and inventory
management and will provide the infrastructure to support our
growing solution selling activities.
Consolidated balance sheet
The Group's shareholders' funds at the end of the year were
GBP583.3m, compared with GBP548.6m at 30 June 2018. Reserves
benefited from our trading results, with a retained profit after
tax of GBP92.2m and were reduced by dividends paid of GBP43.7m.
Additions to property, plant and equipment and vehicles totalled
GBP56.8m, of which GBP25.4m was spent on property and GBP31.4m on
plant and machinery, IT equipment and infrastructure, and
vehicles.
The main additions were:
- in the UK, a 94,000 sq ft extension to our Renishaw Innovation
Centre due for completion in December 2019;
- in The Netherlands, the purchase of our existing facility;
- in Brazil, the purchase of land for the future development
of a new distribution facility; and
- in Japan, the purchase of property in Nagoya to support the
expansion of our distribution function, funded by local third-party
borrowing.
Within working capital, inventories increased to GBP129.0m from
GBP110.6m at the beginning of the year primarily reflecting the
impact of Brexit contingency preparations and the reduced demand we
experienced in the second half of the financial year. We continue
to focus on inventory management while remaining committed to our
policy of holding sufficient finished goods to ensure customer
delivery performance, given our short order book.
Trade receivables decreased from GBP154.6m to GBP123.2m
reflecting record revenue in the final quarter of 2018. Debtor days
were 73 at the end of the year, compared with 69 at the end of last
year.
Net cash balances at 30 June 2019 were GBP106.8m (2018:
GBP103.8m).
Pensions
At the end of the year, the Group's defined benefit pension
schemes, now closed for future accrual, showed a deficit of
GBP51.9m, compared with a deficit of GBP67.4m at 30 June 2018.
Defined benefit pension schemes' assets at 30 June 2019 increased
to GBP181.6m from GBP172.8m at 30 June 2018, representing
investment performance during the year net of GBP7.2m benefit
payments including transfers. Pension fund liabilities decreased
from GBP240.2m to GBP233.5m. Following further engagement with The
Pensions Regulator, the Company and trustees have agreed the terms
of a new deficit funding plan for the UK defined benefit pension
scheme, based on the triennial valuation as at 30 September 2018.
The Company has agreed to pay GBP8.7m per annum into the scheme for
five years with effect from 1 October 2018. Under the terms of the
previous agreement, the Company paid approximately GBP4.0m per
year.
In line with the previous agreement, the new agreement will
continue until 30 June 2031 and any outstanding deficit paid at
that time. The agreement will end sooner if the actuarial deficit
(calculated on a self-sufficiency basis) is eliminated in the
meantime.
On 26 October 2018, the High Court reached a judgement in
relation to Lloyds Banking Group's defined benefit pension schemes
which concluded that the schemes should be amended to equalise
pension benefits for men and women as regards guaranteed minimum
pension benefits. The issues determined by the judgment arise in
relation to most other defined benefit pension schemes and are
relevant to the Company's UK defined benefit pension scheme.
Following discussions between the Company, the trustees and their
respective advisors, we have estimated incremental liabilities to
be GBP0.8m, which have been recognised in the Consolidated Income
Statement in Administrative expenses. The estimate has increased
the scheme's liabilities by 0.4% and is based on the C2 method
which has been approved by the courts and likely to be the most
commonly used approach. The Company and Trustees along with their
respective advisors continue to assess the most appropriate method
to achieve the equalisation of benefits.
Treasury policies
The Group's treasury policies are designed to manage financial
risks to the Group that arise from operating in a number of foreign
currencies and to maximise interest income on cash deposits. As an
international group, the main exposure is in respect of foreign
currency risk on the trading transactions undertaken by Group
companies and on the translation of the net assets of overseas
subsidiaries.
Weekly Group-wide cash management reporting and forecasting is
in place to facilitate management of this currency risk. The
operations of Group Treasury, which is situated at head office, are
governed by Board- approved policies.
All Sterling and foreign currency balances not immediately
required for Group operations are placed on short-term deposit with
leading international highly-rated financial institutions. See note
15 for an analysis of cash balances at the year end.
The Group uses forward exchange contracts to hedge a significant
proportion of anticipated foreign currency cash inflows. There are
forward contracts in place to hedge against the Group's Euro, US
Dollar and Japanese Yen cash inflows. The Group does not speculate
with derivative financial instruments. See note 20 for further
details on financial instruments.
Capital allocation strategy
The Board regularly reviews the capital requirements of the
Group, in order to maintain a strong financial position to protect
the business and provide flexibility to fund future growth.
Our capital allocation approach has been consistently applied
for many years. We are committed to investment in the R&D of
new products, manufacturing processes and global support
infrastructure in order to generate growth in future returns. This
is evidenced in the year with capital investments and additional
R&D spend cited previously. Actual and forecast returns, along
with our strong financial position, then support our progressive
dividend policy, which aims to increase the dividend per share,
whilst maintaining a prudent level of dividend cover.
Allen Roberts
Group Finance Director
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Group and
Company Financial statements in accordance with applicable law and
regulations.
Company law requires the Directors to prepare Group and Company
Financial statements for each financial year. Under that law the
Directors have prepared the Group Financial statements in
accordance with International
Financial Reporting Standards (IFRSs) as adopted by the European
Union (EU) and have prepared the Company Financial statements in
accordance with UK Accounting Standards, including FRS 101 'Reduced
Disclosure Framework'.
Under company law the Directors must not approve the Financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and the Company and of
their profit or loss for that period.
In preparing each of the Group and Company Financial statements,
the Directors are required to:
- select suitable accounting policies and then apply them
consistently;
- make judgements and accounting estimates that are reasonable
and prudent;
- for the Group Financial statements, state whether they have
been prepared in accordance with IFRSs as adopted by the
EU, subject to any material departures disclosed and explained
in the Financial statements;
- for the Company Financial statements, state whether applicable
UK Accounting Standards, including FRS 101 'Reduced Disclosure
Framework', have been followed, subject to any material
departures disclosed and explained in the Company Financial
statements; and
- prepare the Financial statements on the going concern basis
unless it is inappropriate to presume that the Group and
the Company will continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Group and the Company and enable them to
ensure that the Financial statements comply with the Companies Act
2006.
They are also responsible for taking such steps as are
reasonably open to them to safeguard the assets of the Group and
the Company to prevent and detect fraud and other
irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in the UK governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
We confirm that to the best of our knowledge the Financial
statements, prepared in accordance with the applicable set of
accounting standards, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Group and
of the Company and the undertakings included in the consolidation
taken as a whole.
Allen Roberts
Group Finance Director
CONSOLIDATED INCOME STATEMENT
for the year ended 30 June 2019
from continuing operations Notes 2019 2018
GBP'000 GBP'000
Revenue 2 573,959 611,507
Cost of sales (289,832) (284,889)
Gross profit 284,127 326,618
Distribution costs (126,822) (121,352)
Administrative expenses (58,593) (56,911)
Gains from the fair value of financial
instruments 20 1,081 4,834
Operating profit 99,793 153,189
Financial income 4 7,238 653
Financial expenses 4 (902) (1,587)
Share of profits of associates and joint
ventures 3,815 2,970
Profit before tax 5 109,944 155,225
Income tax expense 8 (17,712) (22,870)
Profit for the year from continuing operations 92,232 132,355
Profit for the year from discontinued operations 7 - 582
Profit for the year 92,232 132,937
-------------------------------------------------- ------ ---------- ----------
Profit attributable to:
Equity shareholders of the parent company 92,232 132,924
Non-controlling interest 21 - 13
Profit for the year 92,232 132,937
------------------------------------------- --- ------- --------
pence pence
Dividend per share arising in respect of the
year 21 60.0 60.0
Dividend per share paid in the year 60.0 53.5
Earnings per share from continuing operations
(basic and diluted) 6 126.7 181.8
Earnings per share from discontinued operations
(basic and diluted) 6 - 0.8
Earnings per share from continuing and discontinued
operations (basic and diluted) 126.7 182.6
----------------------------------------------------- --- ------ ------
All discontinued operations relate to operations discontinued as
at June 2017. See note 7 'Discontinued operations' for further
details
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME AND EXPENSE
for the year ended 30 June 2019
Notes 2019 2018
GBP'000 GBP'000
Profit for the year 92,232 132,937
---------------------------------------------------- ------ --------- --------
Other items recognised directly in equity:
Items that will not be reclassified to
the Consolidated income statement:
Remeasurement of defined benefit pension
scheme liabilities 13 10,273 (3,813)
Deferred tax on remeasurement of defined
benefit pension scheme liabilities (1,534) 783
Total for items that will not be reclassified 8,739 (3,030)
---------------------------------------------------- ------ --------- --------
Items that may be reclassified to the Consolidated
income statement:
Exchange differences in translation of
overseas operations 2,045 2,107
Exchange differences in translation of
overseas joint venture 72 48
Current tax on translation of net investments (205) -
in foreign operations
Effective portion of changes in fair value
of cash flow hedges,
net of recycling 21 (27,573) 14,470
Deferred tax on effective portion of changes
in fair value of cash flow hedges 21 4,561 (2,810)
Total for items that may be reclassified (21,100) 13,815
---------------------------------------------------- ------ --------- --------
Total other comprehensive income and expense,
net of tax (12,361) 10,785
---------------------------------------------------- ------ --------- --------
Total comprehensive income and expense
for the year 79,871 143,722
---------------------------------------------------- ------ --------- --------
Attributable to:
Equity shareholders of the parent company 79,871 143,709
Non-controlling interest 21 - 13
Total comprehensive income and expense
for the year 79,871 143,722
---------------------------------------------------- ------ --------- --------
CONSOLIDATED BALANCE SHEET
at 30 June 2019
Notes 2019 2018
GBP'000 GBP'000
------------------------------------------ -------- --------- ---------
Assets
Property, plant and equipment 10 263,477 232,557
Intangible assets 11 59,056 54,511
Investments in associates and joint
ventures 12 13,095 9,822
Long-term loans to associates and joint
ventures 24 750 4,207
Deferred tax assets 9 29,855 27,428
Derivatives 20 1,311 9,578
Total non-current assets 367,544 338,103
------------------------------------------ -------- --------- ---------
Current assets
Inventories 16 129,026 110,563
Trade receivables 20 123,151 154,587
Contract assets 352 -
Short-term loans to associates and joint
ventures 24 6,644 -
Current tax 4,553 730
Other receivables 20 24,461 21,988
Derivatives 20 2,778 1,368
Pension scheme cash escrow account 13 10,490 10,413
15,
Cash and cash equivalents 20 106,826 103,847
Total current assets 408,281 403,496
------------------------------------------ -------- --------- ---------
Current liabilities
Trade payables 20 21,513 25,232
Contract liabilities 5,631 -
Current tax 4,538 9,256
Provisions 17 2,846 3,453
Derivatives 20 18,920 22,478
Borrowings 19 1,043 -
Other payables 18 41,065 47,979
Total current liabilities 95,556 108,398
------------------------------------------ -------- --------- ---------
Net current assets 312,725 295,098
------------------------------------------ -------- --------- ---------
Non-current liabilities
Borrowings 19 9,356 -
Employee benefits 13 51,870 67,378
Deferred tax liabilities 9 539 188
Derivatives 20 35,227 17,041
Total non-current liabilities 96,992 84,607
------------------------------------------ -------- --------- ---------
Total assets less total liabilities 583,277 548,594
------------------------------------------ -------- --------- ---------
Equity
Share capital 21 14,558 14,558
Share premium 42 42
Own shares held 21 (404) -
Currency translation reserve 21 14,577 12,665
Cash flow hedging reserve 21 (42,401) (19,389)
Retained earnings 597,784 541,755
Other reserve 21 (302) (460)
Equity attributable to the shareholders
of the parent company 583,854 549,171
------------------------------------------ -------- --------- ---------
Non-controlling interest 21 (577) (577)
Total equity 583,277 548,594
------------------------------------------ -------- --------- ---------
These financial statements were approved by the Board of
directors on 1 August 2019 and were signed on its behalf by:
Sir David McMurtry Allen Roberts
Directors
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 30 June 2019
Cash
Own Currency flow Non-
Share Share Shares translation hedging Retained Other controlling
capital premium Held reserve reserve earnings reserve interest Total
Year ended 30 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
June 2018
Balance at 1
July 2017 14,558 42 - 10,510 (31,049) 450,803 (460) (590) 443,814
----------------- -------- -------- -------- ------------ --------- --------- -------- ------------ ---------
Profit for the
year - - - - - 132,924 - 13 132,937
Other
comprehensive
income and
expense
(net of tax)
----------------- -------- -------- -------- ------------ --------- --------- -------- ------------ ---------
Remeasurement
of defined
benefit
pension scheme
liabilities - - - - - (3,030) - - (3,030)
Foreign exchange
translation
differences - - - 2,107 - - - - 2,107
Relating to
associates and
joint ventures - - - 48 - - - - 48
Changes in fair
value of cash
flow hedges - - - - 11,660 - - - 11,660
Total other
comprehensive
income and
expense - - - 2,155 11,660 (3,030) - - 10,785
Total
comprehensive
income and
expense - - - 2,155 11,660 129,894 - 13 143,722
Dividends paid - - - - - (38,942) - - (38,942)
Balance at 30
June 2018 14,558 42 - 12,665 (19,389) 541,755 (460) (577) 548,594
Adjustment for
IFRS 15 - - - - - (1,270) - - (1,270)
Balance at 1
July 2018
restated 14,558 42 - 12,665 (19,389) 540,485 (460) (577) 547,324
Year ended 30
June 2019
Profit for the
year - - - - - 92,232 - - 92,232
Other
comprehensive
income and
expense
(net of tax)
----------------- -------- -------- -------- ------------ --------- --------- -------- ------------ ---------
Remeasurement
of defined
benefit
pension scheme
liabilities - - - - - 8,739 - - 8,739
Foreign exchange
translation
differences - - - 1,840 - - - - 1,840
Relating to
associates and
joint ventures - - - 72 - - - - 72
Changes in fair
value of cash
flow hedges - - - - (23,012) - - - (23,012)
Total other
comprehensive
income and
expenses - - - 1,912 (23,012) 8,739 - - (12,361)
Total
comprehensive
income and
expenses - - - 1,912 (23,012) 100,971 - - 79,871
Share-based
payments charge - - - - - - 158 - 158
Purchase of
own shares - - (404) - - - - - (404)
Dividends paid - - - - - (43,672) - - (43,672)
Balance at 30
June 2019 14,558 42 (404) 14,577 (42,401) 597,784 (302) (577) 583,277
----------------- -------- -------- -------- ------------ --------- --------- -------- ------------ ---------
More details of share capital and reserves are given in note
21.
CONSOLIDATED STATEMENT OF CASH FLOW
for the year ended 30 June 2019
Notes 2019 2018
GBP'000 GBP'000
----------------------------------------------- -------- --------- ---------
Cash flows from operating activities
Profit for the year 92,232 132,937
----------------------------------------------- -------- --------- ---------
Adjustments for:
Amortisation of development costs 11 15,144 12,483
Amortisation of other intangibles 11 1,518 2,142
Impairment of goodwill - 1,559
Impairment of property, plant and equipment 10 1,155 -
Depreciation 10 22,597 26,140
Loss on sale of property, plant and equipment 148 37
Profit on sale of other intangibles (455) -
Remeasurement of defined benefit pension
scheme liabilities from GMP equalisation 13 751 -
Gains from the fair value of financial
instruments 25 (6,081) (10,143)
Share of profits from associates and joint
ventures 12 (3,815) (2,970)
Financial income 4 (7,238) (653)
Financial expenses 4 902 1,587
Share-based payment expense 14 158 -
Tax expense 8 17,712 22,870
42,496 53,052
----------------------------------------------- -------- --------- ---------
Increase in inventories (18,463) (22,866)
Decrease/(increase) in trade and other
receivables 30,028 (25,921)
Increase/(decrease) in trade and other
payables (7,183) 17,770
Increase/(decrease) in provisions 17 (607) 493
3,775 (30,524)
----------------------------------------------- -------- --------- ---------
Defined benefit pension contributions 13 (6,831) (4,471)
Income taxes paid (25,183) (18,882)
Cash flows from operating activities 106,489 132,112
----------------------------------------------- -------- --------- ---------
Investing activities
Purchase of property, plant and equipment 10 (56,792) (34,852)
Development costs capitalised 11 (18,091) (14,602)
Purchase of other intangibles (4,161) (1,700)
Sale of other intangibles 2,000 -
Sale of property, plant and equipment 4,713 2,889
Interest received 4 1,222 653
Dividend received from associates and
joint ventures 12 614 507
Payments (to)/from pension scheme escrow
account (77) 2,437
Cash flows from investing activities (70,572) (44,668)
----------------------------------------------- -------- --------- ---------
Financing activities
Interest paid 4 (57) (338)
Increase in borrowings 19 10,486 -
Repayment of borrowings 19 (87) -
Dividends paid 21 (43,672) (38,942)
Purchase of own shares 21 (404) -
Cash flows from financing activities (33,734) (39,280)
----------------------------------------------- -------- --------- ---------
Net increase in cash and cash equivalents 2,183 48,164
Cash and cash equivalents at beginning
of the year 103,847 51,942
Effect of exchange rate fluctuations on
cash held 796 3,741
Cash and cash equivalents at end of the
year 15 106,826 103,847
----------------------------------------------- -------- --------- ---------
NOTES (FORMING PART OF THE FINANCIAL STATEMENTS)
1. Accounting policies
Basis of preparation
Renishaw plc (the Company) is a company incorporated in England
and Wales. The Group financial statements consolidate those of the
Company and its subsidiaries (together referred to as the Group)
and equity account the Group's interest in associates and joint
ventures.
The Group financial statements have been prepared and approved
by the directors in accordance with International Financial
Reporting Standards as adopted by the EU (adopted IFRS). The
consolidated financial statements are presented in Sterling, which
is the Company's functional currency and the Group's presentational
currency, and all values are rounded to the nearest thousand
(GBP'000). These do not represent the company's statutory accounts,
which have not yet been delivered to the registrar for 2019. An
unqualified auditor's report was signed on 1 August 2019.
The accounting policies set out below have, unless otherwise
stated, been applied consistently to all periods presented in these
Group financial statements. Judgements made by the directors, in
the application of these accounting policies, that have a
significant effect on the financial statements and estimates with a
significant risk of material adjustment in the next year are noted
below.
Renishaw GmbH, Pliezhausen, Germany has chosen to exercise the
right under section 264 - sub-section 3 of the German Commercial
Code (HGB) on exemption and preparation. The consolidated financial
statements of the Group include the financial statements of
Renishaw GmbH, Pliezhausen, Germany.
Critical accounting judgements and estimation uncertainties
The preparation of financial statements in conformity with
adopted IFRS requires management to make judgements, estimates and
assumptions that affect the application of policies and reported
amounts of assets and liabilities, income and expenses. The
estimates and associated assumptions are based on historical
experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the
basis of making the judgements about carrying values of assets and
liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates. The estimates and
underlying assumptions are reviewed on an ongoing basis.
The areas of key estimation uncertainty and critical accounting
judgement that have a significant risk of causing a material
adjustment to the carrying amount of assets and liabilities in the
next financial year are summarised below, with further details
included within accounting policies as indicated.
Item Key judgements (J) and estimates (E)
------------------------- -------------------------------------------
Revenue recognition J - Timing of satisfaction of performance
obligations
Intangibles E - Estimates of useful life of intangible
assets
Research and development J - Whether a project meets appropriate
costs criteria for capitalisation
Goodwill and capitalised E - Estimates of future cash flows
development costs for impairment testing
Inventory E - Determination of net realisable
inventory value
Defined benefit pension E - Valuation of defined benefit pension
schemes schemes' liabilities
Taxation E - Estimates of future profits to
utilise deferred tax assets
------------------------- -------------------------------------------
New, revised or changes to existing accounting standards
The following accounting standards have been applied for the
first time, with effect from 1 July 2018, and have been adopted in
the preparation of these financial statements.
IFRS 15 'Revenue from Contracts with Customers'
The Group adopted IFRS 15 on 1 July 2018 using the modified
retrospective transition approach. taking advantage of the
practical expedient in IFRS 15 C7 to apply the standard
retrospectively only to contracts that are not completed as at 1
July 2018.
IFRS 15 provides a single, principles-based five-step model to
be applied to all sales contracts with customers, against which the
Group has reviewed the following:
- individually-significant contracts by value;
- customers with cumulatively-significant contracts;
- variable consideration arrangements;
- warranty arrangements, analysing such arrangements between
assurance-type warranties already accounted for under IAS 37 and
'service-type' warranties as defined by IFRS 15, to which revenue
should be attributed to and deferred over the service period;
and
- sale of software licences and maintenance.
The impact on the Group's results and net assets is not
material, with a cumulative catch-up adjustment of GBP1,270,000
made to equity at 1 July 2018. This primarily relates to the impact
of more revenue being allocated to extended warranties under IFRS
15 than under IAS 18. See note 26 for a comparison between IFRS 15
and IAS 18 on the 2019 financial statements.
Balances IFRS 15 Balances
as at Adjustment as at
Consolidated balance sheet extract 30 June 2018 GBP'000 1 July 2018
GBP'000 GBP'000
-------------------------------------- -------------- ------------ -------------
Non-current assets
Deferred tax assets 27,428 372 27,800
Current liabilities
Contract liabilities - 1,642 1,642
Equity
Retained earnings 541,755 (1,270) 540,485
- related to Revenue - (1,642) -
- related to Income tax expense - 372 -
-------------------------------------- -------------- ------------ -------------
IFRS 9 'Financial Instruments'
The Group adopted IFRS 9 on 1 July 2018. The Standard introduced
new requirements for the classification and measurement of
financial assets, impairment of financial assets and hedge
accounting.
For the classification and measurement requirements, no changes
have arisen from IFRS 9, while for the new impairment requirements,
the Group recognises an 'expected credit loss' (ECL) for trade
receivables under the Standard's 'simplified approach'. IFRS 9 does
not impact hedge accounting in the Group's financial statements
because all hedging relationships that were eligible under IAS 39
remain eligible under IFRS 9 and the change in fair value of
foreign currency contracts continues to hedge movements in the
forward currency rate. No adjustments have been made in respect of
IFRS 9 to the Group's opening reserves at 1 July 2018 as the
impairment adjustment calculated from a simple ECL model which
considered historic credit loss rates was not material to the
Group.
In addition to IFRS 15 and IFRS 9, the Group has adopted the
following IFRS amendments, which have not had a material impact on
amounts reported or disclosures in these financial statements:
- IFRS 2 (amendments) - Classification and Measurement of
Share-based Payment Transactions;
- IAS 40 (amendments) - Transfers of Investment Property;
- IAS 28 (amendments) - Investments in Associates and Joint
Ventures; and
- IFRIC 22 'Foreign Currency Transactions and Advance
Consideration'.
The following accounting standards and interpretations have been
issued but are not yet effective for the Group and have not been
applied in these financial statements:
- IFRS 16 'Leases';
- IFRS 17 'Insurance Contracts';
- IFRS 9 (amendments) - Prepayment Features with Negative
Compensation;
- IAS 28 (amendments) - Long-term Interests in Associates and
Joint Ventures;
- IAS 19 (amendments) - Plan Amendment, Curtailment or
Settlement;
- IFRS 10 and IAS 28 (amendments) - Sale or Contribution of
Assets between an Investor and its Associate or Joint Venture;
- Annual Improvements - Amendments to IFRS 3 Business
Combinations, IFRS 11 Joint Arrangements, IAS 12 Income Taxes and
IAS 23 Borrowing Costs; and
- IFRIC 23 'Uncertainty over Income Tax Treatments'.
These are not expected to have a material impact on the
financial statements of the Group, except in relation to IFRS
16.
IFRS 16 is effective for accounting periods beginning on or
after 1 January 2019 and will be adopted by the Group for the
financial year commencing 1 July 2019. Where the Group acts as a
lessor, the accounting treatment is substantially unchanged. Where
the Group acts as a lessee, the new standard will eliminate the
classification of leases as either operating or finance leases and
instead the Group will recognise a right of use asset and a lease
liability for all leases (except for low-value assets and leases
less than 12 months), similar to the accounting for finance leases
under IAS 17.
At 1 July 2019 right-of-use assets and lease liabilities of
GBP13,079,000 are expected to be recognised by the Group under the
new standard, of which GBP11,088,000 relates to property and
GBP1,880,000 relates to vehicles. Depreciation on the right-of-use
assets will then be charged to the Consolidated income statement on
a straight line basis over the lower of the asset's useful life or
the life of the lease contract, while interest will be accreted to
the lease liability across the same period. The aggregate of
depreciation and interest expense will generally result in higher
expenses in the earlier periods of a lease, however this is not
expected to be material for the Group. No transition adjustment
will be required to opening reserves in 2020.
Going concern
The Group's business activities, together with the factors
likely to affect its future development, performance and position,
are set out in the Strategic report, where details of the financial
and liquidity positions are also given. In addition, note 20 in the
financial statements includes the Group's objectives and policies
for managing its capital, details of its financial instruments and
hedging activities and its exposures to credit risk and liquidity
risk. The Group has considerable financial resources at its
disposal and the directors have considered the current financial
projections. As a consequence, the directors consider that the
Group is well placed to manage its business risks successfully.
After making enquiries, the directors have a reasonable
expectation that the Company and the Group have adequate resources
to continue in operational existence for a period of at least 12
months from the date of approval of the financial statements.
Accordingly, they continue to adopt the going concern basis in
preparing the Annual Report.
Basis of consolidation
Subsidiaries - Subsidiaries are entities controlled by the
Group. The Group controls an entity when it is exposed to or has
rights to variable returns from its involvement with the entity and
has the ability to affect those returns through its power over the
entity. In assessing control, the Group takes into consideration
potential voting rights that are exercisable. The acquisition date
is the date on which control is transferred to the acquirer. The
financial statements of subsidiaries are included in the
consolidated financial statements from the date that control
commences until the date that control ceases. Losses applicable to
the noncontrolling interests in a subsidiary are allocated to the
non-controlling interests even if doing so causes the
non-controlling interests to have a deficit balance.
Application of the equity method to associates and joint
ventures - Associates and joint ventures are accounted for using
the equity method (equity accounted investees) and are initially
recognised at cost. The Group's investment includes goodwill
identified on acquisition, net of any accumulated impairment
losses. The consolidated financial statements include the Group's
share of the total comprehensive income and equity movements of
equity accounted investees, from the date that significant
influence commences until the date that significant influence
ceases. When the Group's share of losses exceeds its interest in an
equity accounted investee, the Group's carrying amount is reduced
to nil and recognition of further losses is discontinued except to
the extent that the Group has incurred legal obligations or made
payments on behalf of an investee.
Transactions eliminated on consolidation - Intragroup balances
and transactions, and any unrealised income and expenses arising
from intragroup transactions, are eliminated. Unrealised gains
arising from transactions with equity accounted investees are
eliminated against the investment to the extent of the Group's
interest in the investee. Unrealised losses are eliminated in the
same way as unrealised gains, but only to the extent that there is
no evidence of impairment.
Alternative performance measures
The financial statements are prepared in accordance with adopted
IFRS and applied in accordance with the provisions of the Companies
Act 2006. In measuring our performance, the financial measures that
we use include those which have been derived from our reported
results in order to eliminate factors which distort year-on-year
comparisons.
These are considered non-GAAP financial measures. We believe
this information, along with comparable GAAP measurements, is
useful to stakeholders in providing a basis for measuring our
operational performance. The Board uses these financial measures,
along with the most directly comparable GAAP financial measures, in
evaluating our performance (see note 25).
Revenue
The Group generates revenue from the sale of metrology and
healthcare goods, capital equipment and services. These can be sold
both on their own and together as bundled packages.
a) Sale of goods, capital equipment and services
The Group's contracts with customers consist both of contracts
with one performance obligation and contracts with multiple
performance obligations.
For contracts with one performance obligation, revenue is
measured at the transaction price, which is typically the contract
value except for customers entitled to volume rebates, and
recognised at the point in time when control of the product
transfers to the customer. This point in time is typically when the
products are made available for collection by the customer,
collected by the shipping agent, or delivered to the customer,
depending upon the shipping terms applied to the specific
contract.
Contracts with multiple performance obligations typically exist
where, in addition to supplying product, we also supply services
such as user training, servicing and maintenance, and installation
services. Where the installation service is simple, does not
include a significant integration service and could be performed by
another party then the installation is accounted for as a separate
performance obligation. Where the contracts include multiple
performance obligations, the transaction price is allocated to each
performance obligation based on the relative stand-alone selling
prices, the assessment of which is documented in the Key judgement
below. The revenue allocated to each performance obligation is then
recognised when, or as, that performance obligation is satisfied.
For installation, this is typically at the point in time in which
installation is complete. For training, this is typically the point
in time at which training is delivered. For servicing and
maintenance, the revenue is recognised evenly over the course of
the servicing agreement except for ad-hoc servicing and maintenance
which is recognised at the point in time in which the work is
undertaken.
b) Sale of software
The Group provides software licences and software maintenance to
customers, sold both on their own and together as a bundled package
with associated products. Where the software licence and/or
maintenance is provided as part of a bundled package then the
transaction price is allocated on the same basis as described in a)
above.
The Group's software licences provide a right of use, and
therefore revenue from software licences is recognised at the point
in time in which the licence is supplied to the customer. Revenue
from software maintenance is recognised evenly over the term of the
maintenance agreement.
c) Programming contracts
Programming is typically a distinct performance obligation and
revenue for this work is recognised at a point in time, being when
the completed program is supplied to the customer.
d) Extended warranties
The Group provides standard warranties to customers that address
potential latent defects that existed at point of sale and as
required by law ('assurance-type' warranties). In some contracts,
the Group also provides warranties that extend beyond the standard
warranty period and may be sold to the customer ('service-type'
warranties).
Assurance-type warranties continue to be accounted for by the
Group under IAS 37 'Provisions, Contingent Liabilities and
Contingent Assets'. Service-type warranties are accounted for as
separate performance obligations and therefore a portion of the
transaction price is allocated to this element, and then recognised
evenly over the period in which the service is provided.
e) Contract fulfilment costs
Contract fulfilment costs are recognised as an asset when they
directly relate to a contract, will be used to fulfil one or more
performance obligations in a contract in the future, and are
expected to be recoverable. Contract fulfilment costs for the Group
therefore typically relate to contracts in which programming is a
distinct performance obligation and the associated labour costs
have been incurred but the program has not yet been provided to the
customer. Such assets are amortised to the income statement when
the corresponding performance obligation is fulfilled.
f) Contract balances
Contract assets represent the Group's right to consideration in
exchange for goods and services that have been transferred to a
customer, and mainly includes accrued revenue in respect of goods
and services provided to a customer but not yet fully billed.
Contract assets are distinct from receivables, which represent the
Group's right to consideration that is unconditional.
Contract liabilities represent the Group's obligation to
transfer goods or services to a customer for which the Group has
either received consideration or consideration is due from the
customer.
g) Disaggregation of revenue
The Group disaggregates revenue from contracts with customers
between:
- goods, capital equipment and installation, and aftermarket
services;
- reporting segment; and
- geographical location.
Management believe these categories best depict how the nature,
amount, timing and uncertainty of the Group's revenue is affected
by economic factors.
Key judgement - Timing of satisfaction of performance
obligations
The majority of the Group's revenue is recognised at a point in
time, and to determine that point an assessment is made as to when
the customer obtains control of promised products or services. This
assessment is made primarily by reference to the shipping terms
applied to the specific contract for products that do not require
customer acceptance.
Where the contract requires customer acceptance, management
assess whether the Group can objectively determine that the
criterion of the testing can be successfully met at the point of
transferring the equipment to the customer. Where this can be
objectively determined, customer acceptance testing is considered a
formality and does not delay the recognition of revenue. Where this
cannot be objectively determined control of the product is not
deemed to have transferred to the customer and therefore the
portion of the transaction price that relates to this performance
obligation is not recognised until the acceptance criteria are
met.
For revenue recognised over time, such as servicing contracts,
the Group recognises the revenue on a basis that depicts the
Group's performance in transferring control of the goods or
services to the customer, having assessed the nature of the
promised goods or service. The Group applies the relevant output or
input method consistently to similar performance obligations in
other contracts.
The point at which control of performance obligations is
transferred to customers under IFRS 15 is the same as under IAS 18
for the majority of our contracts with customers.
Foreign currencies
Consolidation - Overseas subsidiaries' results are translated
into Sterling at weighted average exchange rates for the year,
which is effected by translating each overseas subsidiary's monthly
results at exchange rates applicable to each of the respective
months. Assets and liabilities denominated in foreign currencies at
the balance sheet date are translated into Sterling at the foreign
exchange rates ruling at that date. Differences on exchange
resulting from the translation of overseas assets and liabilities
are recognised in Other comprehensive income and accumulated in
equity.
Transactions and balances - Monetary assets and liabilities
denominated in foreign currencies are reported at the rates
prevailing at the time, with any gain or loss arising from
subsequent exchange rate movements being included as an exchange
gain or loss in the Consolidated income statement. Foreign currency
differences arising from transactions are recognised in the
Consolidated income statement.
Financial instruments and fair value measurements
The Group measures financial instruments such as forward
exchange contracts at fair value at each balance sheet date in
accordance with IFRS 9. Fair value, as defined by IFRS 13, is the
price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at
the measurement date. Note 20, Financial instruments, provides
detail on the IFRS 13 fair value hierarchy.
Trade and other current receivables are initially recognised at
fair value and are subsequently held at amortised cost less any
provision for bad and doubtful debts and expected credit losses
according to IFRS 9. Long-term loans to associates and joint
ventures are initially recognised at fair value and are
subsequently held at amortised cost. Trade and other current
payables are initially recognised at fair value and are
subsequently held at amortised cost.
Foreign currency derivative cash flow hedges
Foreign currency derivatives are used to manage risks arising
from changes in foreign currency rates relating to overseas sales
and foreign currency denominated assets and liabilities. The Group
does not enter into derivatives for speculative purposes. Foreign
currency derivatives are stated at their fair value, being the
estimated amount that the Group would pay or receive to terminate
them at the balance sheet date, based on prevailing foreign
currency rates.
Changes in the fair value of foreign currency derivatives which
are designated and effective as hedges of future cash flows are
recognised in Other comprehensive income and in the Currency
hedging reserve, and subsequently transferred to the carrying
amount of the hedged item or the Consolidated income statement.
Realised gains or losses on cash flow hedges are therefore
recognised in the Consolidated income statement within revenue in
the same period as the hedged item.
Hedge accounting is discontinued when the hedging instrument
expires or no longer qualifies for hedge accounting. At that time,
any cumulative gain or loss on the hedging instrument previously
recognised in equity is retained in equity until the hedged
transaction occurs. If the hedged transaction is no longer expected
to occur, the net cumulative gain or loss recognised in equity is
then transferred to the Consolidated income statement.
Changes in fair value of foreign currency derivatives, which are
ineffective or do not meet the criteria for hedge accounting in
IFRS 9 'Financial instruments', are recognised in the Consolidated
income statement within Gains/losses from the fair value of
financial instruments.
In addition to derivatives held for cash flow hedging purposes,
the Group uses short-term derivatives not designated as hedging
instruments to offset gains and losses from exchange rate movements
on foreign currency denominated assets and liabilities. Gains and
losses from currency movements on underlying assets and
liabilities, realised gains and losses on these derivatives and
fair value gains and losses on outstanding derivatives of this
nature are all recognised in Financial income in the Consolidated
income statement. See note 20 for further detail on financial
instruments.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and short-term
(with an original maturity of less than 12 months) deposits. Bank
overdrafts that are repayable on demand form part of cash and cash
equivalents for the purpose of the Consolidated statement of cash
flow.
Pension scheme cash escrow account
The Company holds a pension scheme escrow account as part of the
security given for the UK defined benefit pension scheme. This
account is shown within current assets in the Consolidated balance
sheet as it may be used to settle pension scheme liabilities
immediately upon enforcement of the charge over the account.
Goodwill and other intangible assets
Costs related to the acquisition, other than those associated
with the issue of debt or equity securities, are expensed as
incurred. Deferred consideration relating to acquisitions is
subject to discounting to the date of acquisition and subsequently
unwound to the date of the final payment. Goodwill arising on
acquisition represents the difference between the cost of the
acquisition and the fair value of the net identifiable assets
acquired, net of deferred tax. Identifiable intangibles are those
which can be sold separately or which arise from legal rights
regardless of whether those rights are separable.
Business combinations are accounted for using the acquisition
method as at the acquisition date, which is the date on which
control is transferred to the Group.
Goodwill is stated at cost less any accumulated impairment
losses. It is not amortised but is tested annually for impairment
or earlier if there are any indications of impairment. The annual
impairment review involves comparing the carrying amount to the
estimated recoverable amount and recognising an impairment loss if
the recoverable amount is lower. Impairment losses are recognised
through the Consolidated income statement.
Intangible assets such as customer lists, patents, trade marks,
know-how and intellectual property that are acquired by the Group
are stated at cost less amortisation and impairment losses.
Amortisation is charged to the Consolidated income statement on a
straight-line basis over the estimated useful lives of the
intangible assets. The estimated useful lives of the intangible
assets included in the Consolidated balance sheet reflect the
benefit derived by the Group and vary from five to ten years.
Key estimate - Estimates of useful life of intangible assets
The periods of amortisation of intangible assets require
judgements to be made on the estimated useful lives of the
intangible assets to determine an appropriate rate of amortisation.
Future assessments of impairment may lead to the writing off of
certain amounts of intangible assets and the consequent charge in
the Consolidated income statement for the accelerated amortisation.
Capitalised development costs are written off over five years, the
period over which demand forecasts can be reasonably predicted.
Intangible assets - research and development costs
Expenditure on research activities is recognised in the
Consolidated income statement as an expense as incurred.
Expenditure on development activities is capitalised if the product
or process is technically and commercially feasible and the Group
intends and has the technical ability and sufficient resources to
complete development, future economic benefits are probable and the
Group can measure reliably the expenditure attributable to the
intangible asset during its development.
Development activities involve a plan or design for the
production of new or substantially improved products or processes.
The expenditure capitalised includes the cost of materials, direct
labour and an appropriate proportion of overheads. Other
development expenditure is recognised in the Consolidated income
statement as an expense as incurred.
Capitalised development expenditure is amortised over five years
and is stated at cost less accumulated amortisation and less
accumulated impairment losses. Capitalised development expenditure
is removed from the balance sheet ten years after being fully
amortised.
Key judgement - Whether a project meets appropriate criteria for
capitalisation
Product development costs are capitalised once a project has
reached a certain stage of development and these costs are
subsequently amortised over a five-year period. Judgements are
required to assess whether the new product development has reached
the appropriate point for capitalisation of costs to begin. Should
a product be subsequently obsoleted, the accumulated capitalised
development costs would need to be immediately written off in the
Consolidated income statement.
Intangible assets - software licences
Intangible assets, comprising software licences that are
acquired by the Group, are stated at cost less accumulated
amortisation and impairment losses. Amortisation is charged on a
straight-line basis over the estimated useful life of the assets.
The useful life of each of these assets is assessed on an
individual basis and they range from 2 to 10 years.
Impairment of non-current assets
All non-current assets are tested for impairment whenever there
is an indication that their carrying value may be impaired. An
impairment loss is recognised in the Consolidated income statement
to the extent that an asset's carrying value exceeds its
recoverable amount, which represents the higher of the asset's net
realisable value and its value in use. An asset's value in use
represents the present value of the future cash flows expected to
be derived from the asset or from the cash-generating unit to which
it relates. The present value is calculated using a discount rate
that reflects the current market assessment of the time value of
money and the risks specific to the asset concerned.
Goodwill and capitalised development costs are subject to an
annual impairment test.
Key estimate - Estimates of future cash flows used for
impairment testing
Determining whether goodwill is impaired requires an estimation
of the value in use of cash-generating units (CGUs) to which
goodwill has been allocated. The value in use calculation involves
an estimation of the future cash flows of CGUs and also the
selection of appropriate discount rates, which involves judgement,
to calculate present values (see note 11). Similarly, determining
whether capitalised development costs are impaired requires an
estimation of their value in use which involves significant
judgement.
Property, plant and equipment
Freehold land is not depreciated. Other assets are stated at
cost less accumulated depreciation. Depreciation is provided to
write off the cost of assets less their estimated residual value on
a straight-line basis over their estimated useful economic lives as
follows:
Freehold buildings 50 years, Plant and equipment 3 to 25 years,
Vehicles 3 to 4 years.
Inventory and work in progress
Inventory and work in progress is valued at the lower of actual
cost on a first-in, first-out (FIFO) basis and net realisable
value. In respect of work in progress and finished goods, cost
includes all production overheads and the attributable proportion
of indirect overhead expenses that are required to bring
inventories to their present location and condition. Overheads are
absorbed into inventories on the basis of normal capacity or on
actual hours if higher.
Key estimate - Determination of net realisable inventory
value
Determining the net realisable value of inventory requires
judgement, especially in respect of provisioning for slow moving
and potentially obsolete inventory. Management consider historic
and future forecast sales patterns of individual stock items when
calculating inventory provisions. For most inventory lines,
provisions are based on the excess levels held compared to a
maximum three year outlook. Where strategic purchases of critical
components have been made, an outlook beyond three years is
considered where appropriate. The sensitivities around estimates
vary significantly from product to product.
Warranty provisions
The Group provides a warranty from the date of purchase, except
for those products that are installed by the Group where the
warranty starts from the date of completion of the installation.
This is typically for a 12-month period, although up to three years
is given for a small number of products. A warranty provision is
included in the Group financial statements, which is calculated on
the basis of historical returns and internal quality reports.
Employee benefits
The Group operates contributory pension schemes, largely for UK,
Ireland and USA employees, which were of the defined benefit type
up to 5 April 2007, 31 December 2007 and 30 June 2012 respectively,
at which time they ceased any future accrual for existing members
and were closed to new members.
The schemes are administered by trustees who are independent of
the Group finances. Investment assets of the defined benefit
schemes are measured at fair value using the bid price of the
unitised investments, quoted by the investment manager, at the
reporting date. Pension scheme liabilities are measured using a
projected unit method and discounted at the current rate of return
on a high-quality corporate bond of equivalent term and currency to
the liability. Remeasurements arising from defined benefit schemes
comprise actuarial gains and losses, the return on scheme assets
(excluding interest) and the effect of the asset ceiling (if any,
excluding interest). The Company recognises them immediately in
Other comprehensive income and all other expenses related to
defined benefit schemes are included in the Consolidated income
statement.
The pension schemes' surpluses, to the extent that they are
considered recoverable, or deficits are recognised in full and
presented on the face of the Consolidated balance sheet under
employee benefits. Where a guarantee is in place in relation to a
pension scheme deficit, liabilities are reported in accordance with
IFRIC 14 'The Limit on a Defined Benefit Asset, Minimum Funding
Requirements and their Interaction'. To the extent that
contributions payable will not be available as a refund after they
are paid into the plan, a liability is recognised at the point the
obligation arises, which is the point at which the minimum funding
guarantee is agreed. Overseas-based employees are covered by state,
defined benefit and private pension schemes in their countries of
residence. Actuarial valuations of overseas pension schemes were
not obtained, apart from Ireland and USA, because of the limited
number of members. For defined contribution schemes, the amount
charged to the Consolidated income statement represents the
contributions payable to the schemes in respect of the accounting
period.
Accruals are made for holiday pay, based on a calculation of the
number of days holiday earned during the year, but not yet taken
and also for the annual performance bonus, if applicable.
Key estimate - Valuation of defined benefit pension schemes'
liabilities
Determining the value of the future defined benefit obligation
requires judgement in respect of the assumptions used to calculate
liabilities and their present values. These include future
mortality, discount rate and inflation. Management makes these
judgements in consultation with independent actuaries. Details of
the estimates and judgements in respect of the current year are
given in note 13. Based on a review of the terms of the UK scheme
trust deed, management has concluded that there are no likely
circumstances which would result in the Company having an
unconditional right to a refund in the event of a fund surplus.
Share-based payments
The Group provides share-based payment arrangements to certain
employees in accordance with the Renishaw plc deferred annual
equity incentive plan (the Plan). The share awards are subject only
to continuing service of the employee and are equity settled. The
fair value of the awards at the date of grant, which is estimated
to be equal to the market value, is charged to the Consolidated
income statement on a straight-line basis over a three year vesting
period, with appropriate adjustments made to reflect expected or
actual forfeitures. The corresponding credit is to Other reserve.
The Renishaw Employee Benefit Trust (EBT) is responsible for
purchasing shares on the open market on behalf of the Company to
satisfy the Plan awards. Own shares held are recognised as an
element in equity until they are transferred at the end of the
vesting period, and such shares are excluded from earnings per
share calculations.
Government grants
Government grants, comprising R&D tax credits, are
recognised in the Consolidated income statement as a deduction
against expenditure. Where grants are received in advance of the
related expenses, they are initially recognised in the balance
sheet and released to match the related expenditure.
Taxation
Tax on the profit for the year comprises current and deferred
tax. Tax is recognised in the Consolidated income statement except
to the extent that it relates to items recognised directly in Other
comprehensive income, in which case it is recognised in the
Consolidated statement of comprehensive income and expense. Current
tax is the expected tax payable on the taxable income for the year,
using tax rates enacted or substantively enacted at the balance
sheet date, and any adjustment to tax payable in previous
years.
Deferred tax is provided on temporary differences between the
carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes. The following
temporary differences are not provided for: the initial recognition
of goodwill; the initial recognition of assets or liabilities that
affect neither accounting nor taxable profit other than in a
business combination; and differences relating to investments in
subsidiaries, to the extent that they will probably not reverse in
the foreseeable future. The amount of deferred tax provided is
based on the expected manner of realisation or settlement of the
carrying amount of assets and liabilities, using tax rates enacted
or substantively enacted at the balance sheet date.
Key estimate - Estimates of future profits to support the
recognition of deferred tax assets
Deferred tax assets are recognised to the extent it is probable
that future taxable profits will be available, against which the
deductible temporary differences can be utilised, based on
management's assumptions relating to the amounts and timing of
future taxable profits.
Estimates of future profitability on an entity basis are
required to ascertain whether it is probable that sufficient
taxable profits will arise to support the recognition of deferred
tax assets relating to the corresponding entity.
Discontinued activities
Where a line of the Group's business is treated as a
discontinued operation, the financial statements are re-presented
and restated where required as if operations discontinued during
the current year had been discontinued from the start of the
comparative year. Discontinued operations are excluded from the
results of continuing operations and are presented as a single
amount as a profit or loss after tax from discontinued operations
in the Consolidated income statement.
2. SEGMENTAL ANALYSIS
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.
Year ended 30 June 2019 Metrology Healthcare Total
GBP'000 GBP'000 GBP'000
---------------------------------- ---------- ----------- ---------
Revenue 532,940 41,019 573,959
Depreciation and amortisation 37,714 2,700 40,414
Operating profit before gains
from fair value of financial
instruments 95,345 3,367 98,712
Share of profits from associates
and joint ventures 3,815 - 3,815
Net financial gain - - 6,336
Gains from the fair value of
financial instruments - - 1,081
Profit before tax - - 109,944
---------------------------------- ---------- ----------- ---------
Year ended 30 June 2018 Metrology Healthcare Total
GBP'000 GBP'000 GBP'000
---------------------------------- ---------- ----------- ---------
Revenue 575,839 35,668 611,507
Depreciation and amortisation 38,690 2,075 40,765
Operating profit before gains
from fair value of financial
instruments 147,841 514 148,355
Share of profits from associates
and joint ventures 2,970 - 2,970
Net financial expense - - (934)
Gains from the fair value of
financial instruments - - 4,834
Profit before tax - - 155,225
---------------------------------- ---------- ----------- ---------
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:
2019 2018
GBP'000 GBP'000
------------------------------------------- -------- --------
Goods, capital equipment and installation 519,782 564,664
Aftermarket services 54,177 46,843
-------------------------------------------- -------- --------
Total Group revenue 573,959 611,507
-------------------------------------------- -------- --------
Aftermarket services include repairs, maintenance and servicing,
programming, training, extended warranties, and software licences
and maintenance.
The analysis of revenue by geographical market was:
2019 2018
GBP'000 GBP'000
--------------------- -------- --------
APAC 240,115 289,177
EMEA 167,211 165,126
Americas 132,589 126,638
UK 34,044 30,566
Total Group revenue 573,959 611,507
---------------------- -------- --------
Revenue in the previous 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:
2019 2018
GBP'000 GBP'000
--------- -------- --------
USA 113,235 108,118
China 111,002 150,183
Japan 63,650 60,855
Germany 60,916 64,394
---------- -------- --------
There was no revenue from transactions with a single external
customer which amounted to more than 10% of the Group's total
revenue
The following table shows the analysis of non-current assets,
excluding deferred tax and derivatives, by geographical region:
2019 2018
GBP'000 GBP'000
-------------------------- -------- --------
UK 196,214 183,874
Overseas 140,164 117,223
Total non-current assets 336,378 301,097
--------------------------- -------- --------
No overseas country had non-current assets amounting to 10% or
more of the Group's total non-current assets.
3. PERSONNEL EXPENSES
The aggregate payroll costs for the year were:
2019 2018
GBP'000 GBP'000
------------------------------------------ -------- --------
Wages and salaries 193,035 183,873
Compulsory social security contributions 21,485 21,809
Contributions to defined contribution
pension schemes 22,701 21,127
Share-based payment charge 158 -
------------------------------------------- -------- --------
Total payroll costs 237,379 226,809
------------------------------------------- -------- --------
The average number of persons employed by the Group during the
year was:
2019 2018
Number Number
----------------------------- ------- -------
UK 3,126 2,934
Overseas 1,842 1,705
Average number of employees 4,968 4,639
------------------------------ ------- -------
Key management personnel have been assessed to be the Executive
Directors of the Company. The total remuneration of the Directors
was:
2019 2018
GBP'000 GBP'000
------------------------------------- -------- --------
Short-term employee benefits 2,590 5,589
Post-employment benefits 205 180
Share-based payment charge 158 -
Total remuneration of the directors 2,953 5,769
-------------------------------------- -------- --------
4. FINANCIAL INCOME AND EXPENSES
2019 2018
Financial income GBP'000 GBP'000
----------------------------------------------- -------- --------
Currency gains 5,940 -
Fair value gains from 1 month forward 76 -
currency contracts (note 20)
Interest receivable 1,222 653
----------------------------------------------- -------- --------
Total financial income 7,238 653
----------------------------------------------- -------- --------
Financial expenses
Net interest on pension schemes' liabilities
(note 13) 845 1,249
Bank interest payable 57 338
Total financial expenses 902 1,587
----------------------------------------------- -------- --------
Currency gains relates to revaluations of foreign currency
denominated balances using latest reporting currency exchange
rates. The gains recognised in 2019 largely relate to a
depreciation of Sterling relative to the dollar affecting dollar
denominated intragroup balances in the Company. In previous
reporting periods, such movements were recognised in Administrative
expenses (2018: GBP604,000 loss).
Certain intragroup balances were reclassified as 'net
investments in foreign operations' on 3 December 2018, such that
revaluations from currency movements on designated balances after
this date accumulate in the Currency translation reserve in Equity.
Additionally, from 1 January 2019, a policy of entering rolling one
month forward currency contracts began, with fair value gains and
losses being recognised in financial income, to offset currency
movements on remaining intra group balances. See note 20 for
further detail.
5. PROFIT BEFORE TAX
Included in the profit before tax are the following
costs/(income):
Notes 2019 2018
GBP'000 GBP'000
----------------------------------------------------- -------- --------
Depreciation and impairment of property,
plant and equipment (a) 23,752 26,140
Amortisation of intangible assets (a) 16,662 14,625
Research and development expenditure (b) 66,965 59,127
Research and development tax credit (b) (5,137) (4,149)
Impairment of goodwill (c) - 1,559
Loss on sale of property, plant and
equipment (c) 148 37
Profit on sale of other intangibles (c) (455) -
Auditor:
Audit of these financial statements (c) 226 199
Audit of subsidiary undertakings pursuant
to legislation (c) 329 266
Other assurance (c) 4 4
All other non-audit fees (c) 1 1
------------------------------------------- --------- -------- --------
These costs/(income) can be found under the following headings
in the Consolidated income statement:
(a) within cost of sales, distribution costs and administrative
expenses; (b) within cost of sales; and (c) within administrative
expenses.
6. EARNINGS PER SHARE
Basic and diluted earnings per share from continuing operations
are calculated on earnings of GBP92,232,000
(2018: GBP132,342,000) and on 72,778,904 shares (2018:
72,788,543 shares), being the number of shares in issue. The 2019
number of shares excludes 9,639 shares held by the EBT, which were
purchased on 10 December 2018.
Basic and diluted earnings and losses per share from
discontinued operations for 2018 were calculated on losses of
GBP582,000 and on 72,788,543 shares in issue.
There is no difference between the weighted average earnings per
share and the basic and diluted earnings per share.
7. DISCONTINUED OPERATIONS
In October 2016, the Group decided to discontinue the operations
of Renishaw Diagnostics Limited (healthcare segment) and in June
2017, to discontinue the spatial measurements business (metrology
segment), on the basis of continued losses. Certain assets of the
businesses were sold. Financial information relating to the
discontinued operations is set out below:
2019 2018
GBP'000 GBP'000
-------------------------------------------------- -------- --------
Revenue - 4,326
Expenses - (3,664)
Goodwill impairment - -
--------------------------------------------------- -------- --------
Profit before tax - 662
Tax charge - (80)
--------------------------------------------------- -------- --------
Profit for the year from discontinued operations - 582
--------------------------------------------------- -------- --------
2019 2018
Cash flow GBP'000 GBP'000
--------------------------------------------------- -------- --------
Profit for the year - 582
Adjustments for operating activities - (250)
--------------------------------------------------- -------- --------
Cash flows from operating activities - 332
Cash flows from investing activities - -
--------------------------------------------------- -------- --------
Net Increase in cash and cash equivalents
from discontinued operations - 332
--------------------------------------------------- -------- --------
8. INCOME TAX EXPENSE
2019 2018
GBP'000 GBP'000
--------------------------------------------- -------- --------
Current tax:
UK corporation tax on profits for the
year 4,691 10,806
UK corporation tax - prior year adjustments (622) (411)
Overseas tax on profits for the year 11,980 16,142
Total current tax 16,049 26,537
---------------------------------------------- -------- --------
Deferred tax:
---------------------------------------------- -------- --------
Origination and reversal of temporary
differences 2,719 (2,548)
Prior year adjustments (882) (665)
Recognition of previously unrecognised
tax losses (55) (1,855)
Effect on deferred tax for changes
in tax rates (119) 1,401
---------------------------------------------- -------- --------
1,663 (3,667)
Tax charge on profit 17,712 22,870
---------------------------------------------- -------- --------
2019 2018
GBP'000 GBP'000
--------------------------------------------- -------- --------
Total tax charge:
Income tax expense reported in the
Consolidated income statement 17,712 22,870
Tax attributable to discontinued operations - 80
17,712 22,950
--------------------------------------------- -------- --------
The tax for the year is lower (2018: lower) than the UK standard
rate of corporation tax of 19% (2018: 19%).
The differences are explained as follows:
2019 2018
GBP'000 GBP'000
---- -------- --------
Profit before tax from continuing
operations 109,944 155,225
Profit before tax from discontinued
operations - 662
------------------------------------------------ -------- --------
Total profit before tax 109,944 155,887
Tax at 19% (2018: 19%) 20,889 29,619
Effects of:
Different tax rates applicable in
overseas subsidiaries (124) (849)
UK patent box (1,787) (5,678)
Expenses not deductible for tax purposes 583 672
Companies with unrelieved tax losses 231 448
Share of profits of associates and
joint ventures (631) (534)
Items with no tax effect (203) 195
Prior year adjustments (1,504) (283)
Effect on deferred tax for change
in tax rates (119) 1,401
Recognition of previously unrecognised
tax losses (55) (1,855)
Recognition of previously unrecognised
deductible temporary differences - (767)
Other differences 432 581
Tax charge on profit 17,712 22,950
------------------------------------------------ -------- --------
Effective tax rate 16.1% 14.7%
------------------------------------------------ -------- --------
The Group's future effective tax rate (ETR) will mainly depend
on the geographic mix of profits and whether there are any changes
to tax legislation in the Group's most significant countries of
operations. The UK patent box benefit has a significant impact on
the ETR and is unpredictable due to factors such as currency rate
movements, trading profits in the Company and the level of capital
allowances claimed in any given year. The fall of GBP3,891,000 in
the patent box benefit is the primary driver for the increase in
the ETR for 2019.
Deferred tax assets and liabilities have been calculated at the
rate expected to be applicable when the relevant item reverses. A
reduction in the UK rate of corporation tax to 17% (from 1 April
2020) has previously been substantively enacted and will have
further impact on the ETR in future years.
The Group is not materially impacted by the changes to the
international tax landscape resulting from the package of measures
developed under the OECD base erosion and profit shifting
project.
9. DEFERRED TAX ASSETS AND LIABILITIES
Balances at the end of the year were:
2019 2018
------------------------- --------------------------------- --------------------------------
Assets Liabilities Net Assets Liabilities Net
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------- -------- ------------ --------- -------- ------------ --------
Property, plant and
equipment 184 (13,265) (13,081) 184 (8,896) (8,712)
Intangible assets - (2,494) (2,494) 17 (3,456) (3,439)
Intragroup trading
(inventory) 16,686 - 16,686 17,394 - 17,394
Intragroup trading
(fixed assets) 2,309 - 2,309 2,322 - 2,322
Defined benefit pension
schemes 8,526 - 8,526 11,233 (138) 11,095
Derivatives 8,816 - 8,816 5,410 - 5,410
Tax losses 3,255 - 3,255 1,855 - 1,855
Other 5,927 (628) 5,299 1,330 (15) 1,315
Balance at the end
of the year 45,703 (16,387) 29,316 39,745 (12,505) 27,240
------------------------- -------- ------------ --------- -------- ------------ --------
The movements in the deferred tax balance during the year
were:
2019 2018
GBP'000 GBP'000
---------------------------------------------- ---- -------- --------
Balance at the beginning of the year 27,240 25,271
IFRS 15 transition adjustment 372 -
Reallocation from current tax 340 329
Movements in the Consolidated income
statement (1,663) 3,667
Movement in relation to the cash flow
hedging reserve 4,561 (2,810)
Movement in relation to the defined
benefit pension schemes (1,534) 783
---------------------------------------------------- -------- --------
Total movement in the Consolidated statement
of comprehensive income and expense 3,027 (2,027)
Balance at the end of the year 29,316 27,240
---------------------------------------------------- -------- --------
The deferred tax movement in the Consolidated income statement
is analysed as:
2019 2018
GBP'000 GBP'000
----------------------------------- -------- --------
Property, plant and equipment (4,369) 196
Intangible assets 945 891
Intragroup trading (inventory) (708) 1,378
Intragroup trading (fixed assets) (13) 1,383
Defined benefit pension schemes (1,036) (712)
Derivatives (1,155) (1,927)
Tax losses 1,400 1,855
Other 3,273 603
------------------------------------ -------- --------
Total movement for the year (1,663) 3,667
------------------------------------ -------- --------
A US deferred tax net asset of GBP6,007,000 is recognised in
respect of losses and other temporary differences. The US business
has generated losses in the current and prior period. It is
considered likely that the business will generate sufficient future
taxable profits to recognise the deferred tax net asset in full, as
product lines which have been introduced in recent years are
expected to contribute greater returns.
Deferred tax assets have not been recognised in respect of tax
losses carried forward of GBP21,028,000 (2018: GBP21,809,000), of
which approximately half are time limited, due to uncertainty over
their offset against future taxable profits and therefore their
recoverability.
Deferred tax assets and liabilities are offset where there is a
legally enforceable right of offset and there is an intention to
net settle the balances. After taking these offsets into account,
the net position of GBP29,316,000 asset (2018: GBP27,240,000 asset)
is presented as a GBP29,855,000 deferred tax asset (2018:
GBP27,428,000 asset) and a GBP539,000 deferred tax liability (2018:
GBP188,000 liability) in the Group's consolidated balance sheet.
Where deferred tax assets are recognised, the directors are of the
opinion, based on recent and forecast trading, that the level of
profits in current and future years make it more likely than not
that these assets will be recovered.
10. PROPERTY, PLANT AND EQUIPMENT
Freehold Assets
in the
land and Plant Motor course
and of
buildings equipment vehicles construction Total
Year ended 30 June 2019 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------- ---------- ---------- --------- ------------- --------
Cost
At 1 July 2018 174,156 218,018 9,736 6,800 408,710
Additions 19,603 27,596 903 8,690 56,792
Transfers 2,846 3,886 - (6,732) -
Disposals (1,520) (6,016) (1,241) - (8,777)
Currency adjustment 2,389 1,543 157 - 4,089
At 30 June 2019 197,474 245,027 9,555 8,758 460,814
------------------------- ---------- ---------- --------- ------------- --------
Depreciation
At 1 July 2018 30,776 138,576 6,801 - 176,153
Charge for the year 741 20,701 1,155 - 22,597
Impairment - 1,155 - - 1,155
Released on disposals (106) (2,628) (1,182) - (3,916)
Currency adjustment 482 763 103 - 1,348
------------------------- ---------- ---------- --------- ------------- --------
At 30 June 2019 31,893 158,567 6,877 - 197,337
------------------------- ---------- ---------- --------- ------------- --------
Net book value
At 30 June 2019 165,581 86,460 2,678 8,758 263,477
------------------------- ---------- ---------- --------- ------------- --------
At 30 June 2018 143,380 79,442 2,935 6,800 232,557
------------------------- ---------- ---------- --------- ------------- --------
At 30 June 2019, properties with a net book value of
GBP75,200,000 (2018: GBP66,759,000) were subject to a fixed charge
to secure the UK defined benefit pension scheme liabilities.
Additions to assets in the course of construction of
GBP8,690,000 (2018: GBP7,122,000) comprise GBP5,806,000 (2018:
GBP3,034,000) for freehold land and buildings and GBP2,884,000
(2018: GBP4,088,000) for plant and equipment.
Freehold Assets
in the
land and Plant Motor course
and of
buildings equipment vehicles construction Total
Year ended 30 June 2018 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cost
At 1 July 2017 165,661 201,022 9,893 8,222 384,798
Additions 4,516 21,853 1,361 7,122 34,852
Transfers 6,340 2,204 - (8,544) -
Disposals (1,115) (6,580) (1,409) - (9,104)
Currency adjustment (1,246) (481) (109) - (1,836)
At 30 June 2018 174,156 218,018 9,736 6,800 408,710
------------------------- ---------- ---------- --------- ------------- --------
Depreciation
At 1 July 2017 28,462 121,611 6,675 - 156,748
Charge for the year 3,181 21,545 1,414 - 26,140
Released on disposals (644) (4,320) (1,213) - (6,177)
Currency adjustment (223) (260) (75) - (558)
At 30 June 2018 30,776 138,576 6,801 - 176,153
------------------------- ---------- ---------- --------- ------------- --------
Net book value
At 30 June 2018 143,380 79,442 2,935 6,800 232,557
------------------------- ---------- ---------- --------- ------------- --------
At 30 June 2017 137,199 79,411 3,218 8,222 228,050
------------------------- ---------- ---------- --------- ------------- --------
11. INTANGIBLE ASSETS
Internally Software
Other generated licences
and
Goodwill intangible development Intellectual
on
consolidation assets costs property Total
Year ended 30 June GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
2019
Cost
At 1 July 2018 19,763 11,795 131,951 24,658 188,167
Additions - 2,014 18,091 2,147 22,252
Disposals - - - (6,000) (6,000)
Currency adjustment 464 14 - 22 500
---------------------- -------------- ----------- ------------ ------------- --------
At 30 June 2019 20,227 13,823 150,042 20,827 204,919
---------------------- -------------- ----------- ------------ ------------- --------
Amortisation
At 1 July 2018 8,220 11,256 93,810 20,370 133,656
Charge for the year - 18 15,144 1,500 16,662
Released on disposal - - - (4,455) (4,455)
Currency adjustment - (14) - 14 -
At 30 June 2019 8,220 11,260 108,954 17,429 145,863
---------------------- -------------- ----------- ------------ ------------- --------
Net book value
At 30 June 2019 12,007 2,563 41,088 3,398 59,056
---------------------- -------------- ----------- ------------ ------------- --------
At 30 June 2018 11,543 539 38,141 4,288 54,511
---------------------- -------------- ----------- ------------ ------------- --------
Other intangible Internally Software Total
assets generated licences
Goodwill development and intellectual
on consolidation costs property
Year ended 30 June GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
2018
Cost
At 1 July 2017 19,919 11,647 117,349 23,066 171,981
Additions - 104 14,602 1,596 16,302
Currency adjustment (156) 44 - (4) (116)
At 30 June 2018 19,763 11,795 131,951 24,658 188,167
--------------------- ------------------- ----------------- ------------- ------------------ --------
Amortisation
At 1 July 2017 6,661 11,187 81,327 18,299 117,474
Charge for the year - 69 12,483 2,073 14,625
Impairments 1,559 - - - 1,559
Currency adjustment - - - (2) (2)
At 30 June 2018 8,220 11,256 93,810 20,370 133,656
--------------------- ------------------- ----------------- ------------- ------------------ --------
Net book value
At 30 June 2018 11,543 539 38,141 4,288 54,511
--------------------- ------------------- ----------------- ------------- ------------------ --------
At 30 June 2017 13,258 460 36,022 4,767 54,507
--------------------- ------------------- ----------------- ------------- ------------------ --------
Goodwill acquired has arisen on the acquisition of a number of
businesses and has an indeterminable useful life. Therefore it is
not amortised but is tested for impairment annually and at any
point during the year when an indicator of impairment exists.
Goodwill is allocated to the cash generating units (CGUs), which
are mainly the statutory entities acquired. This is the lowest
level in the Group at which goodwill is monitored for impairment
and is at a lower level than the Group's operating segments. In the
following table, only the goodwill relating to the acquisition of
Renishaw Fixturing Solutions, LLC is expected to be subject to tax
relief.
The analysis of acquired goodwill on consolidation is:
2019 2018
GBP'000 GBP'000
----------------------------------- -------- --------
itp GmbH 3,092 3,065
Renishaw Mayfield S.A. 1,930 1,725
Renishaw Fixturing Solutions, LLC 5,453 5,247
Other smaller acquisitions 1,532 1,506
Total acquired goodwill 12,007 11,543
------------------------------------ -------- --------
The recoverable amounts of acquired goodwill are based on value
in use calculations. These calculations use cash flow projections
based on either the financial business plans approved by management
for next five financial years, or estimated growth rates over the
five years, which are set out below. The cash flows beyond this
forecast are extrapolated to perpetuity using a nil growth rate on
a prudent basis, to reflect the uncertainties over forecasting
further than five years.
Rate applied to key assumptions
The rates applied to key assumptions utilised in the value in
use calculations are:
Discount rates
The following pre-tax discount rates have been used in
discounting the projected cash flows:
2019 2018
Discount Discount
rate rate
----------------------------------- --------- ---------
itp GmbH 12% 12%
Renishaw Fixturing Solutions, LLC 12% 12%
Renishaw Mayfield S.A. 15% 15%
2019 2018
Forecast cash flows and future Basis of forecast Basis of forecast
growth rates
--------------------------------- ------------------- -------------------
itp GmbH 5 % growth rate 5 % growth rate
Renishaw Fixturing Solutions, 5 year business 5 year business
LLC plan plan
Renishaw Mayfield S.A. 5 year business 5 year business
plan plan
These forecast cash flows are considered prudent estimates based
on management's view of the future and experience of past
performance of the individual CGUs and are calculated at a
disaggregated level. The key judgement within these business plans
is the forecasting of revenue growth, given that the cost bases of
the businesses can be flexed in line with revenue performance.
The average growth rates included in the significant CGUs'
business plans are as follows
2019 2018
Average revenue growth Average revenue
growth
------------------------------- ------------------------ -----------------
Renishaw Fixturing Solutions,
LLC 20% 20%
------------------------------- ------------------------ -----------------
These business plans are recognised as key inputs to the
impairment calculation. They are monitored by management regularly
and updated for expected variances in future performance.
Sensitivity to key assumptions
Management have performed sensitivity analysis on the key
assumptions detailed above.
Discount rate
An increase of 5% in the discount rate would not result in an
impairment on any of the CGUs. Management believe the likelihood of
any increase in discount rates above 5% to be remote.
Forecast cash flows and future growth rates
Given the average revenue growth assumptions included in the
five-year business plans, management's sensitivity analysis
involves a reduction of 10% in the forecast cash flows utilised in
those business plans and therefore into perpetuity. For there to be
an impairment there would need to be a reduction of 70% for
Renishaw Fixturing Solutions, LLC. Management deem the likelihood
of this reduction to be remote.
12. INVESTMENT IN ASSOCIATES AND JOINT VENTURES
The Group's investments in associates and joint ventures (all
investments being in the ordinary share capital of the associate
and joint ventures), whose accounting years end on 30 June, except
where noted otherwise, were:
Country of Ownership Ownership
incorporation 2019 2018
&
principal place % %
of business
----------------------------- ----------------- ---------- ----------
RLS Merilna tehnika d.o.o. Slovenia 50.0 50.0
Metrology Software Products
Limited England & Wales 50.0 50.0
HiETA Technologies Limited
(31 December) England & Wales 24.9 24.9
----------------------------- ----------------- ---------- ----------
Movements during the year were:
2019 2018
GBP'000 GBP'000
-------------------------------- -------- --------
Balance at the beginning
of the year 9,822 7,311
Dividends received (614) (507)
Share of profits of associates
and joint ventures 3,815 2,970
Other comprehensive income
and expense 72 48
Balance at the end of the
year 13,095 9,822
--------------------------------- -------- --------
The Group has recognised its share of losses in its associate in
its share of profits of associates and joint ventures reported
above to the extent of its interest in the associate.
Summarised aggregated financial information for associates and
joint ventures:
Joint ventures Associate
2019 2018 2019 2018
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------- -------------- ------------- ------------- -------------
Assets 30,570 23,567 3,083 2,114
Liabilities (5,180) (4,722) (8,669) (5,720)
------------------------------------------- -------------- ------------- ------------- -------------
Net assets/(liabilities) 25,390 18,845 (5,586) (3,606)
------------------------------------------- -------------- ------------- ------------- -------------
Group's share of net assets/(liabilities) 12,695 9,423 (1,391) (868)
------------------------------------------- -------------- ------------- ------------- -------------
Revenue 26,886 23,414 1,032 816
Profit/(loss) for the year 7,630 6,442 (1,980) (1,655)
------------------------------------------- -------------- ------------- ------------- -------------
Other comprehensive income and expense 144 96 - -
------------------------------------------- -------------- ------------- ------------- -------------
Total comprehensive income and expense
for the year 7,774 6,538 (1,980) (1,655)
------------------------------------------- -------------- ------------- ------------- -------------
Group's share of profit/(loss) for
the year 3,815 3,221 (493) (251)
Group's share other comprehensive income
and expense 72 48 - -
------------------------------------------- -------------- ------------- ------------- -------------
Group's share of total comprehensive
income and expense for the year 3,887 3,269 (493) (251)
------------------------------------------- -------------- ------------- ------------- -------------
13. EMPLOYEE BENEFITS
The Group operates a number of pension schemes throughout the
world. As noted in the accounting policies, actuarial valuations of
foreign pension schemes are not obtained for the most part because
of the limited number of members. The major scheme, which covers
qualifying UK-based employees, is of the defined benefit type. This
scheme, along with the Ireland and USA defined benefit pension
schemes, has ceased any future accrual for current members and
these schemes are closed to new members. UK, Ireland and USA
employees are now covered by defined contribution schemes.
The total pension cost of the Group for the year was
GBP22,701,000 (2018: GBP21,127,000), of which GBP205,000 (2018:
GBP180,000) related to directors and GBP6,440,000 (2018:
GBP5,983,000) related to overseas schemes.
The latest full actuarial valuation of the UK defined benefit
pension scheme was carried out as at 30 September 2018 and updated
to 30 June 2019 by a qualified independent actuary. The mortality
assumption used for 2019 is S2PMA and S2PFA tables, CMI (core) 2018
model with long-term improvements of 1% per annum. Major
assumptions used by the actuary for the UK and Ireland schemes
were:
30 June 2019 30 June 2018 30 June 2017
---------------------- -------------------- --------------------- --------------------
UK scheme Ireland UK scheme Ireland UK scheme Ireland
scheme scheme scheme
Rate of increase
in pension payments 3.3% 1.5% 3.3% 2.0% 3.3% 1.6%
Discount rate 2.3% 1.2% 2.8% 1.9% 2.7% 2.2%
Inflation rate
(RPI) 3.4% 1.5% 3.4% 2.0% 3.4% 1.6%
Inflation rate
(CPI) 2.4% - 2.4% - 2.4% -
Retirement age 64 65 64 65 64 65
The life expectancies implied by the mortality assumption at age
65 are:
2019 2018
years years
-------------------------- ------ ------
Male currently aged 65 21.3 21.8
Female currently aged 65 23.2 23.7
Male currently aged 45 22.3 22.8
Female currently aged 45 24.4 24.9
The weighted average duration of the defined benefit obligation
is around 24 years.
The assets and liabilities in the defined benefit schemes at the
end of the year were:
30 June % of total 30 June % of total
2019 GBP'000 assets 2018 GBP'000 assets
-------------------------------- -------------- ----------- -------------- -----------
Market value of assets:
Equities 111,209 61 107,982 62
Multi-asset funds 64,708 36 61,232 35
Bonds 3,135 2 2,759 2
Cash and other 2,536 1 869 1
-------------------------------- -------------- ----------- -------------- -----------
181,588 100 172,842 100
Actuarial value of liabilities (233,458) - (240,220) -
-------------------------------- -------------- ----------- -------------- -----------
Deficit in the schemes (51,870) - (67,378) -
-------------------------------- -------------- ----------- -------------- -----------
Deferred tax thereon 8,526 - 11,096 -
-------------------------------- -------------- ----------- -------------- -----------
All equities are held in externally-managed funds and primarily
relate to UK and US equities. Bonds relate to UK and Eurozone
government-linked securities, again held in externally-managed
funds and to which the majority relates to the UK. The fair values
of these equity and fixed income instruments are determined using
the bid price of the unitised investments, quoted by the investment
manager, at the reporting date and therefore represent 'Level 2' of
the fair value hierarchy defined in note 20.
Multi-asset funds are also held in externally-managed funds,
with active asset allocation to diversify growth across asset
classes such as equities, bonds and money-market instruments. The
fair value of these funds is determined on a comparable basis to
the equity and fixed income funds, and therefore are also 'Level 2'
assets.
No scheme assets are directly invested in the Group's own
equity.
For the UK scheme, the investment strategy is determined by the
trustees and has been set in agreement with the Company. The main
investment objective is to ensure that benefits payable to members
are paid as they fall due. Currently, the scheme is considered to
be relatively immature and therefore the focus of the investment
strategy is growth. The strategy is to hold 64% of the assets in
equities; 35% in Diversified Growth Funds; and 1% in index-linked
gilts. The actual allocations measured at fair value may vary from
this due to market price movements and intervals between
rebalancing the portfolio. The Company and trustees are discussing
strategies for reducing investment risk as and when
appropriate.
The movements in the schemes' assets and liabilities were:
Assets Liabilities Total
Year ended 30 June 2019 GBP'000 GBP'000 GBP'000
------------------------------------------ -------- ------------ ---------
Balance at the beginning of the
year 172,842 (240,220) (67,378)
Contributions paid 6,831 - 6,831
Interest on pension schemes 4,902 (5,747) (845)
Remeasurement loss from GMP equalisation - (751) (751)
Remeasurement gain under IAS 19
and IFRIC 14 4,219 6,054 10,273
Benefits paid (7,206) 7,206 -
------------------------------------------ -------- ------------ ---------
Balance at the end of the year 181,588 (233,458) (51,870)
------------------------------------------ -------- ------------ ---------
Assets Liabilities Total
Year ended 30 June 2018 GBP'000 GBP'000 GBP'000
--------------------------------- --------- ------------ ---------
Balance at the beginning of the
year 170,708 (237,495) (66,787)
Contributions paid 4,471 - 4,471
Interest on pension schemes 4,573 (5,822) (1,249)
Remeasurement gain/(loss) under
IAS 19 and IFRIC 14 5,979 (9,792) (3,813)
Benefits paid (12,889) 12,889 -
Balance at the end of the year 172,842 (240,220) (67,378)
--------------------------------- --------- ------------ ---------
The analysis of the amount recognised in the Consolidated
statement of comprehensive income and expense was:
2019 2018
GBP'000 GBP'000
------------------------------------------------------- --------- ---------
Actuarial gain/(loss) arising from:
- Changes in demographic assumptions 2,937 1,533
- Changes in financial assumptions (22,941) 556
- Experience adjustment (4,677) 2,601
Return on plan assets excluding interest income 3,454 6,797
Adjustment to liabilities for IFRIC 14 31,500 (15,300)
Total amount recognised in the consolidated statement
of comprehensive income and expense 10,273 (3,813)
------------------------------------------------------- --------- ---------
The cumulative amount of actuarial gains and losses recognised
in the Consolidated statement of comprehensive income and expense
was a loss of GBP100,804,000 (2018: loss of GBP111,077,000).
The total deficit of the Group's defined benefit pension
schemes, on an IAS 19 basis (excluding any adjustments for IFRIC
14), has increased from GBP35,878,000 at 30 June 2018 to
GBP51,870,000 at 30 June 2019, primarily as a result of a reduction
of in the UK scheme discount rate from 2.8% to 2.3%. The latest
actuarial report prepared in September 2018 shows a deficit of
GBP70,700,000, which is based on funding to self sufficiency and
uses prudent assumptions. IAS 19 requires best estimate assumptions
to be used, resulting in the IAS 19 deficit being lower than the
actuarial deficit.
For the UK defined benefit scheme, a guide to the sensitivity of
the value of the respective liabilities is as follows:
Approximate
Variation effect on liabilities
---------------------- ---------------------- ----------------------
UK - discount rate Increase/decrease -GBP21.0m/+GBP24.3m
by 0.5%
UK - future inflation Increase/decrease +GBP18.1m/-GBP18.8m
by 0.5%
UK - mortality Increased life by +GBP9.5m
one year
UK - early retirement One year earlier than +GBP5.9m
assumed
---------------------- ---------------------- ----------------------
Following engagement with The Pensions Regulator, the Company
and trustees have agreed the terms of a new deficit funding plan
for the UK defined benefit pension scheme which supersedes all
previous arrangements. The Company has agreed to pay GBP8,700,000
per annum into the scheme for five years with effect from 1 October
2018. Under the terms of the previous agreement the Company paid
all monthly pensions payments and lump sum payments, and transfer
payments up to a limit of GBP1,000,000 in each year. Under the new
agreement, all such payments will be met by the scheme.
A number of UK properties owned by the Company with a book value
of GBP75,200,000 at 30 June 2019 are subject to registered fixed
charges and will continue to provide security to the scheme under
the new plan. The Company also has an escrow bank account with a
balance of GBP10,490,000 at the end of the year (2018:
GBP10,413,000) which is subject to a registered floating charge.
Under the previous plan, the funds were to be released back to the
Company over a period of five years. There is no scheduled release
of funds back to the Company under the new plan.
In the event a subsequent actuarial valuation results in the
combined value of the properties and the escrow bank account
exceeding 120% of the actuarial deficit, some of the contingent
assets will be released back to the Company. Any remaining
contingent assets will be released from charge when the deficit no
longer exists.
In line with the previous agreement, the new agreement will
continue until 30 June 2031 and any outstanding deficit paid at
that time. The agreement will end sooner if the actuarial deficit
(calculated on a self-sufficiency basis) is eliminated in the
meantime.
The charges may be enforced by the trustees if one of the
following occurs: (a) the Company does not pay funds into the
scheme in line with the agreed plan; (b) an insolvency event occurs
in relation to the Company; or (c) the Company does not pay any
deficit at 30 June 2031.
The value of the guaranteed payments under the new plan is lower
than the IAS 19 pension scheme deficit at 30 June 2019 and as such,
in accordance with IFRIC 14, no adjustment to the scheme's
liabilities has been necessary. At 30 June 2018, the increase in
liabilities under IFRIC 14 was GBP31,500,000.
Under the Ireland defined benefit pension scheme deficit funding
plan, a property owned by Renishaw (Ireland) Designated Activity
Company is subject to a registered fixed charge to secure the
Ireland defined benefit pension scheme's deficit.
On 26 October 2018, the High Court reached a judgment in
relation to Lloyds Banking Group's defined benefit pension schemes
which concluded that the schemes should be amended to equalise
pension benefits for men and women as regards guaranteed minimum
pension benefits. The issues determined by the judgment arise in
relation to most other defined benefit pension schemes and are
relevant to the Company's UK defined benefit pension scheme.
Following discussions between the Company, the trustees and their
respective advisors, we have estimated incremental liabilities to
be GBP751,000, which have been recognised in the Consolidated
income statement in Administrative expenses. The estimate has
increased the scheme's liabilities by 0.4% and is based on the C2
method which has been approved by the courts and likely to be the
most commonly used approach. The Company and Trustees along with
their respective advisors continue to assess the most appropriate
method to achieve the equalisation of benefits.
14. SHARE-BASED PAYMENTS
Deferred annual equity incentive plan
In accordance with the remuneration policy approved by
shareholders at the 2017 AGM, the deferred annual equity incentive
plan (the Plan) was implemented in relation to the financial year
ending 30 June 2018. The 20 July 2018 Remuneration Committee
meeting recommended plan rules that were adopted by a resolution of
the Board on 24 July 2018. The Committee also approved the grant of
awards under the Plan to the participating Executive Directors.
The number of shares to be awarded is calculated by dividing the
relevant amount of annual bonus under the Plan by the average price
of a share during a period determined by the Committee of not more
than five dealing days ending with the dealing day before the award
Date. These shares must be purchased on the open market and cannot
be satisfied by issuance of new shares or transfer of existing
treasury shares.
An employee benefit trust (EBT) has been set up to purchase and
hold such shares, until transferring to the employees, which will
normally be on the third anniversary of the award date, subject to
continued employment. Malus and clawback provisions can be operated
by the Committee within five years of the award date. During the
vesting period, no dividends are payable on the shares. However,
upon vesting, employees will be entitled to additional shares or
cash, equivalent to the value of dividends paid on the awarded
shares during this period.
The total cost recognised in the 2019 Consolidated income
statement in respect of the Plan was GBP157,523 (2018: nil). No
awards have been awarded in respect of 2019.
15. CASH AND CASH EQUIVALENTS
An analysis of cash and cash equivalents at the end of the year
was:
2019 2018
GBP'000 GBP'000
-------------------------------- -------- --------
Bank balances and cash in hand 49,897 63,417
Short-term deposits 56,929 40,430
Balance at the end of the year 106,826 103,847
--------------------------------- -------- --------
The UK defined benefit pension scheme cash escrow account is
shown separately within assets. GBP52,500,000 of the Group
short-term deposits balance is held in the Company, with
GBP12,500,000, GBP20,000,000 and GBP20,000,000 maturing on 19 July
2019, 14 October 2019 and 6 April 2020 respectively.
16. INVENTORIES
An analysis of inventories at the end of the year was:
2019 2018
GBP'000 GBP'000
-------------------------------- -------- --------
Raw materials 46,102 28,094
Work in progress 23,431 29,193
Finished goods 59,493 53,276
Balance at the end of the year 129,026 110,563
--------------------------------- -------- --------
During the year, the amount of inventories recognised as an
expense in the Consolidated income statement was GBP185,344,000
(2018: GBP187,834,000) and the amount of write-down of inventories
recognised as an expense in the Consolidated income statement was
GBP1,276,000 (2018: GBP1,711,000). At the end of the year, the
gross cost of inventories which had provisions held against them
totalled GBP14,137,000 (2018: GBP14,126,000).
17. PROVISIONS
Warranty provision
Movements during the year were:
2019 2018
GBP'000 GBP'000
--------------------------------- -------- --------
Balance at the beginning of the
year 3,453 2,960
Created during the year 2,236 2,775
Utilised in the year (2,843) (2,282)
---------------------------------- -------- --------
(607) 493
Balance at the end of the year 2,846 3,453
---------------------------------- -------- --------
The warranty provision has been calculated on the basis of
historical return-in-warranty information and other internal
reports. It is expected that most of this expenditure will be
incurred in the next financial year and all expenditure will be
incurred within three years of the balance sheet date.
18. OTHER PAYABLES
Balances at the end of the year were:
2019 2018
GBP'000 GBP'000
----------------------------------- -------- --------
Payroll taxes and social security 7,333 7,297
Other creditors and accruals 33,732 40,682
Total other payables 41,065 47,979
------------------------------------ -------- --------
Other creditors and accruals include decreases in the Group
bonuses payable. The Group's exposure to currency and liquidity
risk related to trade and other payables is disclosed in note
20.
19. BORROWINGS
Third party borrowings at 30 June 2019 amounted to
GBP10,399,000. This relates to a five year loan entered into on 31
May 2019 by Renishaw KK, with original principal of JPY
1,447,000,000 (GBP10,486,000).
For the period 31 May 2019 to 31 July 2019, principal of JPY
12,000,000 is repayable each month, with a variable interest rate
of TIBOR +0.32% also paid on monthly accretion. For the period 31
July 2019 to 31 May 2024, principal of JPY 12,000,000 is repayable
each month, with a fixed interest rate of 0.81% also paid on
monthly accretion.
The remaining principal at 31 May 2024 of JPY 739,000,000 can
either be repaid in full at that time, or extended for another five
years.
Borrowings are held at amortised cost. There is no difference
between the book value and fair value of borrowings, which is
estimated by discounting contractual future cash flows, which
represents 'Level 2' of the fair value hierarchy defined in note
20.
Movements during the year were:
2019 2018
GBP'000 GBP'000
-------------------------------- -------- --------
Balance at the beginning of the - -
year
Additions 10,486 -
Interest 3 -
Repayments (90) -
Currency - -
Balance at the end of the year 10,399 -
-------------------------------- -------- --------
20. FINANCIAL INSTRUMENTS
The Group has exposure to credit risk, liquidity risk and market
risk arising from its use of financial instruments. This note
presents information about the Group's exposure to these risks,
along with the Group's objectives, policies and processes for
measuring and managing the risks.
Fair value
There is no significant difference between the fair value of
financial assets and financial liabilities and their carrying 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.
The IFRS 13 level categorisation relates to the extent the fair
value can be determined by reference to comparable market values.
The classifications are: level 1 where instruments are quoted on an
active market; level 2 where the assumptions used to arrive at fair
value have comparable market data; and level 3 where the
assumptions used to arrive at fair value do not have comparable
market data.
Credit risk
The Group's liquid funds are substantially held with banks with
high credit ratings and the credit risk relating to these funds is
therefore limited. The Group carries a credit risk relating to
non-payment of trade receivables by its customers. Credit
evaluations are carried out on all new customers before credit is
given above certain thresholds. There is a spread of risks among a
large number of customers with no significant concentration with
one customer or in any one geographical area. The Group establishes
an allowance for impairment in respect of trade receivables where
recoverability is considered doubtful.
An analysis by currency of the Group's financial assets at the
year end is as follows:
Trade receivables Other receivables Cash
Currency 2019 2018 2019 2018 2019 2018
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------- --------- --------- --------- --------- -------- --------
Pound Sterling 10,628 7,917 12,704 11,466 64,919 67,649
US Dollar 38,724 76,139 935 1,034 7,666 7,693
Euro 29,516 25,944 4,120 3,540 7,846 10,005
Japanese Yen 18,087 20,463 740 691 3,966 4,516
Other 26,196 24,124 5,962 5,257 22,429 13,984
---------------- --------- --------- --------- --------- -------- --------
123,151 154,587 24,461 21,988 106,826 103,847
---------------- --------- --------- --------- --------- -------- --------
The above trade receivables, other receivables and cash are
predominately held in the functional currency of the relevant
entity, with the exception of GBP20,262,000 of US Dollar
denominated trade receivables being held in Renishaw (Hong Kong)
Limited and GBP6,109,000 of Euro-denominated trade receivables
being held in Renishaw UK Sales Limited, along with some foreign
currency cash balances which are of a short-term nature.
The ageing of trade receivables past due, but not impaired, at
the end of the year was:
2019 2018
GBP'000 GBP'000
-------------------------------- -------- --------
Past due 0-1 month 14,999 21,620
Past due 1-2 months 4,438 6,111
Past due more than 2 months 16,486 6,388
--------------------------------- -------- --------
Balance at the end of the year 35,923 34,119
--------------------------------- -------- --------
Movements in the provision for impairment of trade receivables
during the year were:
2019 2018
GBP'000 GBP'000
--------------------------------- -------- --------
Balance at the beginning of the
year 3,301 3,115
Changes in amounts provided 292 525
Amounts utilised (512) (339)
---------------------------------- -------- --------
Balance at the end of the year 3,081 3,301
---------------------------------- -------- --------
The above provision includes an element of impairment against
the net debtor position using a provision matrix to measure
expected credit losses, according to IFRS 9. The provision rates
are based on historic rates of default, being 0.14% of trade
receivables.
The maximum exposure to credit risk is GBP265,171,000,
comprising the Group's trade and other receivables, cash and cash
equivalents and derivative assets.
The maturities of non-current other receivables, being long-term
loans to associates and joint ventures and derivatives, at the year
end were:
2019 2018
GBP'000 GBP'000
---------------------------------- -------- --------
Receivable between 1 and 2 years 1,075 232
Receivable between 2 and 5 years 1,485 11,240
----------------------------------- -------- --------
2,560 11,472
---------------------------------- -------- --------
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, without incurring unacceptable losses or
risking damage to the Group's reputation. The Group uses monthly
cash flow forecasts to monitor cash requirements.
In respect of net cash, the carrying value approximates to fair
value because of the short maturity of the deposits. A significant
proportion of net cash is affected by interest rates that are
either fixed or floating and based on LIBOR, which can change over
time, affecting the Group's interest income. Of the net cash
subject to floating interest rate charges, an increase of 1% in
interest rates would result in an increase in interest income of
approximately GBP220,000.
The contractual maturities of financial liabilities at the year
end were:
Effect Gross Contractual
of cash flows
Carrying discounting maturities Up to 1 1-2 years 2-5 years
amount year
Year ended 30 June GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
2019
-------------------- --------- ------------ ----------- -------- ---------- ----------
Trade payables 21,513 - 21,513 21,513 - -
Other payables 41,065 - 41,065 41,065 - -
Borrowings 10,399 310 10,709 1,120 1,115 8,474
Forward exchange
contracts 54,147 - 54,147 18,920 12,626 22,601
-------------------- --------- ------------ ----------- -------- ---------- ----------
127,124 310 127,434 82,618 13,741 31,075
-------------------- --------- ------------ ----------- -------- ---------- ----------
Effect Gross
of
Carrying discounting maturities Up to 1 1-2 years 2-5 years
amount year
Year ended 30 June GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
2018
-------------------- --------- ------------ ----------- -------- ---------- ----------
Trade payables 25,232 - 25,232 25,232 - -
Other payables 47,979 - 47,979 47,979 - -
Borrowings - - - - - -
Forward exchange
contracts 39,519 - 39,519 22,478 10,490 6,551
-------------------- --------- ------------ ----------- -------- ---------- ----------
112,730 - 112,730 95,689 10,490 6,551
-------------------- --------- ------------ ----------- -------- ---------- ----------
Borrowings relate to a single loan in Renishaw KK, with a fixed
interest rate of 0.81% for the majority of the loan contract.
Interest is payable on accretion each month, along with monthly
principal repayments. See note 19 for further detail.
Market risk
As noted under Principal risks and uncertainties (note 27), the
Group operates in a number of foreign currencies with the majority
of sales being made in these currencies, but with most
manufacturing being undertaken in the UK, Ireland and India.
The Group enters into US Dollar, Euro and Japanese Yen
derivative financial instruments to manage its exposure to foreign
currency risk, including:
i. Forward foreign currency exchange contracts to hedge a
significant proportion of the Group's
forecasted US Dollar, Euro and Japanese Yen revenues over the
next three and a half years;
ii. Foreign currency option contracts, entered into alongside
the forward contracts above until May 2018
as part of the Group revenue hedging strategy, are ineffective
for cash flow hedging purposes. Note 25 'Alternative performance
measures' gives an adjusted measure of profit before tax to reflect
the original intention that these derivatives being for hedging
purposes. The final option contract will mature in November 2021;
and
iii. One-month forward foreign currency exchange contracts to
offset the gains/losses from exchange rate
movements arising from foreign currency denominated intragroup
balances of the Company.
For both the Group and the Company, the following table details
the fair value of these forward foreign currency derivatives
according to their accounting treatment.
2019 2018
Nominal Fair value Nominal Fair
value GBP'000 value value
GBP'000 GBP'000 GBP'000
------------------------------------------ --------- ----------- --------- ---------
Forward currency contracts in
a designated cash flow hedge
(i)
Non-current derivative assets 36,152 319 241,930 6,562
Current derivative assets 37,060 340 - -
Current derivative liabilities 198,339 (18,749) 197,285 (22,325)
Non-current derivative liabilities 671,442 (34,967) 401,817 (16,111)
--------- ----------- --------- ---------
942,993 (53,057) 841,032 (31,874)
Amounts recognised in the Consolidated
statement of comprehensive income
and expense - (27,573) - 14,470
Foreign currency options ineffective
as a cash flow hedge (ii)
Non-current derivative assets - 991 - 3,016
Current derivative assets - 2,365 - 1,368
Current derivative liabilities - (104) - (153)
Non-current derivative liabilities - (260) - (930)
--------- ----------- --------- ---------
- 2,992 - 3,301
Amounts recognised in Gains from
the fair value of financial instruments
in the Consolidated income statement - 1,081 - 4,834
Forward currency contracts not
in a designated cash flow hedge
(iii)
Current derivative assets 26,671 73 - -
Current derivative liabilities 19,463 (67) - -
--------- ----------- --------- ---------
46,134 6 - -
Amounts recognised in Financial
income in the Consolidated income - 76 - -
statement
Total forward contracts and options
Non-current derivative assets 36,152 1,310 241,930 9,578
Current derivative assets 63,731 2,778 - 1,368
Current derivative liabilities 217,802 (18,920) 197,285 (22,478)
Non-current derivative liabilities 671,442 (35,227) 401,817 (17,041)
--------- ----------- --------- ---------
989,126 (50,059) 841,032 (28,573)
------------------------------------------ --------- ----------- --------- ---------
The amounts of foreign currencies relating to these forward
contracts and options are, in Sterling terms:
2019 2018
Nominal Fair value Nominal Fair
value GBP'000 value value
GBP'000 GBP'000 GBP'000
----- --------- ----------- --------- ---------
USD 678,323 (43,689) 578,421 (22,836)
EUR 187,833 (3,501) 163,283 (6,879)
JPY 122,970 (2,868) 99,328 1,142
----- --------- ----------- --------- ---------
989,126 (50,059) 841,032 (28,573)
----- --------- ----------- --------- ---------
The following are the exchange rates which have been applicable
during the financial year.
2019 2018
Average Year end Average Average Year Average
Currency forward exchange exchange forward end exchange exchange
contract rate rate contract rate rate
rates rates
------------ ----------- ---------- ---------- ---------- -------------- ----------
USD 1.39 1.27 1.29 1.50 1.32 1.35
EUR 1.12 1.12 1.13 1.22 1.13 1.13
JPY 139 138 144 150 146 149
------------- ---------- ---------- ---------- ---------- -------------- ----------
For the Group's foreign currency forward contracts and options
at the balance sheet date, if Sterling appreciated by 5% against
the US Dollar, Euro and Japanese Yen, this would increase pre-tax
equity by GBP39,100,000 and decrease profit before tax by
GBP300,000.
Hedging
In relation to the forward currency contracts in a designated
cash flow hedge, the hedged item is a layer component of forecast
sales transactions. Forecast transactions are deemed highly
probable to occur and Group policy is to hedge at least 75% of net
foreign currency exposure for USD, EUR and JPY. The hedged item
creates an exposure to receive USD, EUR or JPY, while the forward
contract is to sell USD, EUR or JPY and buy GBP. Therefore, there
is a strong economic relationship between the hedging instrument
and the hedged item. The hedge ratio is 100%, such that, by way of
example, GBP10m nominal value of forward currency contracts are
used to hedge GBP10m of forecast sales. Fair value gains or losses
on the forward currency contracts are offset by foreign currency
gains or losses on the translation of USD, EUR and JPY based sales
revenue, relative to the forward rate at the date the forward
contracts were arranged. Foreign currency exposures in HKD and USD
are aggregated and only USD forward currency contracts are used to
hedge these currency exposures. Sources of hedge ineffectiveness
include: changes in timing of the hedged item; reduction in the
amount of the hedged sales considered to be highly probable; a
change in the credit risk of Renishaw or the bank counterparty to
the forward contract; and differences in assumptions used in
calculating fair value. For the year-end outstanding cash flow
hedges, the change in fair value of the hedged item, being a
GBP27,573,000 gain, is equal to the change in fair value of the
forward currency hedge, being a GBP27,573,000 loss. No
ineffectiveness has been recognised in the reporting period.
Capital management
The Group defines capital as being the equity attributable to
the owners of the Company, which is captioned on the Consolidated
balance sheet. The Board's policy is to maintain a strong capital
base and to maintain a balance between significant returns to
shareholders, with a progressive dividend policy, whilst ensuring
the security of the Group is supported by a sound capital position.
The Group may adjust dividend payments due to changes in economic
and market conditions which affect, or are anticipated to affect,
Group results.
21. SHARE CAPITAL AND RESERVES
Share capital
2019 2018
GBP'000 GBP'000
Allotted, called-up and fully paid 72,788,543 ordinary
shares of 20p each 14,558 14,558
-------------------------------------------------------- -------- --------
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.
Dividends paid
Dividends paid comprised:
2019 2018
GBP'000 GBP'000
------------------------------------ -------- --------
2018 final dividend paid of 46.0p
per share (2017: 39.5p) 33,483 28,752
Interim dividend paid of 14.0p per
share (2018: 14.0p) 10,189 10,190
Total dividends paid 43,672 38,942
------------------------------------- -------- --------
A final dividend in respect of the current financial year of
GBP33,482,729 (2018: GBP33,482,729) at the rate of 46.0p net per
share (2018: 46.0p) is proposed to be paid on 31 October 2019 to
shareholders on the register on 27 September 2019.
Own shares held
The EBT is responsible for purchasing shares on the open market
on behalf of the Company to satisfy the plan awards, see note 15
for further detail on this. Own shares held are recognised as an
element in equity until they are transferred at the end of the
vesting period.
Movements during the year were:
2019 2018
GBP'000 GBP'000
------------------------------------- -------- --------
Balance at the beginning of the year - -
Acquisition of own shares (404) -
------------------------------------- -------- --------
Balance at the end of the year (404) -
------------------------------------- -------- --------
On 10 December 2018, 9,639 shares were purchased on the open
market by the EBT at a price of GBP41.66, costing a total of
GBP404,348.
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 in
Other comprehensive income and expense and accumulated in equity,
on account of them being classified as hedging instruments. The
policy to hedge net overseas assets was ended in December 2017.
Movements in the currency translation reserve after this date
therefore only arise from translation of financial statements of
foreign operations and currency movements on intragroup loan
balances classified as net investments in foreign operations from
December 2018 (see note 4).
Movements during the year were: 2019 2018
GBP'000 GBP'000
-------------------------------------------------------- -------- --------
Balance at the beginning of the year 12,665 10,510
-------------------------------------------------------- -------- --------
Gain on net assets of foreign currency operations 1,218 4,008
Loss on foreign currency overdrafts held for the
purpose of net investment hedging - (1,901)
Gain on intragroup loans classified as net investments 827 -
in foreign operations
Current tax on translation of net investments (205) -
in foreign operations
-------------------------------------------------------- -------- --------
Gain in the year relating to subsidiaries 1,840 2,107
Currency exchange differences relating to associates
and joint ventures 72 48
Balance at the end of the year 14,577 12,665
-------------------------------------------------------- -------- --------
Cash flow hedging reserve
The cash flow hedging reserve, for both the Group and the
Company, comprises all foreign exchange differences arising from
the valuation of forward exchange contracts which are effective
hedges and mature after the year end. See note 20 for further
detail on this. These are valued on a mark-to-market basis, are
accounted for in Other comprehensive income and expense and
accumulated in equity, and are recycled through the Consolidated
income statement and Company income statement when the hedged item
affects the income statement.
Movements during the year were:
2019 2018
GBP'000 GBP'000
-------------------------------------------------------- --------- ---------
Balance at the beginning of the year (19,389) (31,049)
Losses on contract maturity recognised in revenue
during the year 19,782 14,598
Gains transferred to the Consolidated income statement
during the year - (4,834)
Deferred tax transferred to the consolidated income
statement - 1,927
Revaluations during the year (47,355) 2,779
Deferred tax movement 4,561 (2,810)
-------------------------------------------------------- --------- ---------
Balance at the end of the year (42,401) (19,389)
-------------------------------------------------------- --------- ---------
Other reserve
The other reserve relates to additional investments in
subsidiary undertakings and share-based payments charges according
to IFRS 2 in relation to the Plan.
Movements during the year were:
2019 2018
GBP'000 GBP'000
-------------------------------------- -------- --------
Balance at the beginning of the year (460) (460)
Share-based payments charge 158 -
-------------------------------------- -------- --------
Balance at the end of the year (302) (460)
--------------------------------------- -------- --------
Non-controlling interest
Movements during the year were:
2019 2018
GBP'000 GBP'000
-------------------------------------- -------- --------
Balance at the beginning of the year (577) (590)
Share of profit for the year - 13
Balance at the end of the year (577) (577)
--------------------------------------- -------- --------
The non-controlling interest represents the minority
shareholdings in Renishaw Diagnostics Limited - 7.6%.
22. LEASES
Leases as lessee
The Group acts as lessee for land and buildings and vehicles in
certain subsidiaries and recognises payments as an expense in the
Consolidated income statement. The total of future minimum lease
payments payable under non-cancellable operating leases were:
2019 2018
--------------------- ---------------------
Leasehold Vehicles Leasehold Vehicles
property GBP'000 property GBP'000
GBP'000 GBP'000
------------------------------------- ---------- --------- ---------- ---------
Due in less than one year 3,338 1,442 3,363 1,329
Due between one and five years 5,211 2,309 4,929 2,988
Due in more than five years 4,090 - 4,019 354
------------------------------------- ---------- --------- ---------- ---------
Total future minimum lease payments
payable 12,639 3,751 12,311 4,671
------------------------------------- ---------- --------- ---------- ---------
2019 2018
--------------------- ---------------------
Leasehold Vehicles Leasehold Vehicles
property GBP'000 property GBP'000
GBP'000 GBP'000
------------------------------------- ---------- --------- ---------- ---------
Payments recognised in Consolidated
income statement 3,904 1,536 3,799 1,409
------------------------------------- ---------- --------- ---------- ---------
Leases as lessor
The Group acts as lessor for Renishaw manufactured plant and
equipment on both an operating and finance lease basis.
Operating leases
Where the Group retains the risks and rewards of ownership of
leased assets, it continues to recognise the leased asset in
property, plant and equipment, while the lease payments made during
the term of the operating lease are recognised in revenue (2019:
GBP1,231,000, 2018: GBP1,365,000). Operating leases are on one to
five year terms. The total of future minimum lease payments
receivable under non-cancellable operating leases were:
operating leases were:
2019 2018
GBP'000 GBP'000
------------------------------------------------ -------- --------
Receivable in less than one year 804 1,406
Receivable between one and five years 700 1,383
Total future minimum lease payments receivable 1,504 2,789
------------------------------------------------ -------- --------
Finance leases
Where the Group transfers the risks and rewards of ownership of
leased assets to a third party, the Group recognises a receivable
in the amount of the net investment in the lease in Trade
receivables. The lease receivable is subsequently reduced by the
principal received, while an interest component is recognised as
financial income in the Consolidated income statement. Standard
contract terms are up to five years and there is a nominal residual
value receivable at the end of the contract. The total future lease
payments are split between the principal and interest amounts
below:
2019 2018
Gross Net investment Gross Net investment
investment Interest GBP'000 investment Interest GBP'000
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- ------------ ----------- --------------- ------------ ----------- ---------------
Receivable in less than
one year 1,348 118 1,230 979 91 888
Receivable between one
and five years 5,469 477 4,992 2,115 196 1,919
---------------------------- ------------ ----------- --------------- ------------ ----------- ---------------
Total future minimum lease
payments receivable 6,817 595 6,222 3,094 287 2,807
---------------------------- ------------ ----------- --------------- ------------ ----------- ---------------
23. CAPITAL COMMITMENTS
Authorised and committed capital expenditure at the end of the
year, for which no provision has been made in the Financial
statements, was:
2019 2018
GBP'000 GBP'000
------------------------------------- -------- --------
Property 18,087 5,142
Plant and equipment 3,995 5,577
Other 280 136
-------------------------------------- -------- --------
Total committed capital expenditure 22,362 10,855
-------------------------------------- -------- --------
24. RELATED PARTIES
Associates, joint ventures and other related parties had the
following transactions and balances with the Group:
Joint ventures Associate
2019 2018 2019 2018
GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------- -------- -------- -------- --------
Purchased goods and services from the
Group during the year 908 923 2,970 577
Sold goods and services to the Group
during the year 19,212 19,069 1 8
Paid dividends to the Group during
the year 614 507 - -
Amounts owed to the Group at the year
end 167 118 2,481 314
Amounts owed by the Group at the year
end 1,933 324 - -
Loans owed to the Group at the year
end 1,250 1,549 6,144 4,729
--------------------------------------- -------- -------- -------- --------
Of the loan to the associate party, GBP3,600,000 relates to a
working capital loan agreement set up in March 2017 and extended by
GBP500,000 in March 2018 and GBP1,000,000 in January 2019.
GBP475,000 of the working capital loan is ring fenced for fixed
asset capital expenditure. Interest is charged at 3.5% until 31
December 2019 and at 3% above the Bank of England rate thereafter.
The loan is repayable on a three month notice with a repayment date
no earlier than 31 December 2019.
There were no bad debts relating to related parties written off
during the year (2018: GBPnil).
By virtue of their long-standing voting agreement, Sir David
McMurtry (Executive Chairman 36.23% shareholder) and John Deer
(Deputy Chairman, together with his wife, 16.80%), are the ultimate
controlling party of the Group. The only significant transactions
between the Group and these parties are in relation to their
respective remuneration.
25. ALTERNATIVE PERFORMANCE MEASURES
Alternative performance measures are - 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.
2019 2018
Revenue at constant exchange rates GBP'000 GBP'000
-------------------------------------------------- --------- --------
Statutory revenue as reported 573,959 611,507
Adjustment for forward contract losses 19,782 14,598
Adjustment to restate current year at previous
year exchange rates (10,346)
-------------------------------------------------- --------- --------
Revenue at constant exchange rates 583,395 626,105
-------------------------------------------------- --------- --------
Year on year revenue growth at constant exchange
rates -6.8%
-------------------------------------------------- --------- --------
Year-on-year revenue growth at constant exchange rates for 2018
was 17.7%.
Adjusted profit before tax, Adjusted earnings per share and
Adjusted operating profit - These measures are defined as the
profit before tax, earnings per share and operating profit after
excluding gains and losses in fair value from the forward currency
contracts which did not qualify for hedge accounting.
The gains or losses from 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.
The Board consider these Alternative performance measures to be
more relevant and reliable in evaluating the Group's
performance.
The amounts shown below as reported in revenue represent the
amount by which revenue would change had all the derivatives
qualified as eligible for hedge accounting.
2019 2018
Adjusted profit before tax: GBP'000 GBP'000
------------------------------------------------------- -------- --------
Statutory profit before tax 109,944 155,225
Fair value gains on financial instruments not
eligible for hedge accounting:
- reported in revenue (5,001) (5,310)
- reported in gains from the fair value in financial
instruments (1,081) (4,834)
Adjusted profit before tax 103,862 145,081
-------------------------------------------------------- -------- --------
2019 2018
Adjusted earnings per share: pence pence
------------------------------------------------- ------ ------
Statutory earnings per share 126.7 181.8
Fair value gains on financial instruments not
eligible for hedge accounting:
- reported in revenue (5.6) (5.9)
- reported in gains in fair value in financial
instruments (1.2) (5.4)
Adjusted earnings per share 119.9 170.5
-------------------------------------------------- ------ ------
2019 2018
Adjusted operating profit: pence pence
------------------------------------------------- -------- --------
Statutory operating profit 99,793 153,189
Fair value gains on financial instruments not
eligible for hedge accounting:
- reported in revenue (5,001) (5,310)
- reported in gains in fair value in financial
instruments (1,081) (4,834)
Adjusted operating profit 93,711 143,045
-------------------------------------------------- -------- --------
Adjustments to the segmental operating profit:
2019 2018
Metrology GBP'000 GBP'000
Operating profit before loss from fair value of
financial instruments 95,345 147,841
Fair value gains on financial instruments not
eligible for hedge accounting:
- reported in revenue (4,745) (5,066)
Adjusted metrology operating profit 90,600 142,775
-------------------------------------------------- -------- --------
2019 2018
Healthcare GBP'000 GBP'000
Operating profit before loss from fair value of
financial instruments 3,367 514
Fair value gains on financial instruments not
eligible for hedge accounting:
- reported in revenue (256) (244)
Adjusted healthcare operating profit 3,111 270
-------------------------------------------------- -------- --------
26. IMPACT OF NEW ACCOUNTING POLICIES
Comparison to previous revenue recognition standard
As noted earlier in 'Changes to accounting policies' the Group
now accounts for all volume rebates and early settlement discounts
within Revenue rather than Cost of Sales. This reclassification,
together with the net movement in deferred extended warranties
referred to in note 1, accounts for the majority of the difference
between the results for the period as reported under IFRS 15 and
how they would have been reported under IAS 18.
Consolidated balance sheet extract Balance IFRS 15 Balance
at 30 June adjustment at 30 June
2019 per GBP'000 2019 per
IFRS 15 IAS 18 GBP'000
GBP'000
------------------------------------- ------------ ------------ ----------------
Assets
Deferred tax assets 29,855 (429) 29,426
Contract assets 352 (352) -
Liabilities
Contract liabilities 5,631 (2,248) 3,383
Equity
Retained earnings 597,784 1,467 599,251
related to current year 197
Related to transition adjustment 1,270
------------------------------------- ------------ ------------ ----------------
Consolidated income statement extract
---------------------------------------- ---------- -------- ----------
Revenue 573,959 1,644 575,603
Cost of sales (294,969) (1,390) (296,359)
Gross profit 278,990 254 279,244
Profit before tax 109,944 254 110,198
Income tax expense (17,712) 57 (17,655)
Profit for the year from continuing
operations 92,232 197 92,429
---------------------------------------- ---------- -------- ----------
Revenue recognised in 2019 that was included in the contract
liability balance at the beginning of the reporting period, being
GBP1,640,000, was GBP1,081,000. The remaining balance at 30 June
2019 relates to ongoing extended warranties and maintenance
contracts.
27. PRINCIPAL RISKS AND UNCERTAINTIES
Our performance is subject to a number of risks - the principal
risks and factors impacting on them are set out in the table below.
The Board has conducted a robust assessment of the principal risks
facing the business.
Area of Description Potential impact Mitigation
risk
Current Revenue growth Global market The Group is expanding
trading is conditions continue and diversifying its
levels unpredictable to highlight risks product range in
and order and orders to growth and order to maintain a
book from customers demand that can world-leading
generally lead to fluctuating position in its sales
involve short levels of revenue of metrology
lead times and profit. The products. Targeted investment
with the outstanding potential impacts in sales and marketing
order book at include those resources
any time being arising from Brexit continues in order to
around one month's and trade and support the breadth of
worth of tariff disputes the product offerings.
revenue value. resulting in an
increased risk The Group is applying
rating for this its measurement expertise
year. to grow its
healthcare and additive
Future growth manufacturing business
is difficult to activities.
predict, especially
with such a short-term The Group retains a strong
order book. This balance sheet and has
limited forward the ability to flex
order visibility manufacturing resource
results in uncertainty levels and shift patterns.
in revenue and
profit forecasts. The Group has implemented
If the Group does programmes in relation
not manage to the
its cost base management of costs and
and optimise with the aim of maximising
operational efficiency, profitability.
this may adversely
impact profitability.
Research The development As a Group at Patent and intellectual
and development of new the leading edge property generation are
products and of new technology core to new product developments.
processes in metrology and
involves risk, healthcare, there R&D programmes are regularly
such as are uncertainties reviewed against milestones
development timescales, whether all new and,
meeting the required R&D programmes when necessary, projects
technical specification will provide an are suspended or cancelled.
and the impact economic return.
of alternative Medium-term to long-term
technology developments. R&D strategies are monitored
regularly by both the
Board and the Executive
Board, including reviews
of the allocation of
R&D resource to key projects.
Product development processes
around the Group are
reviewed and aligned
where possible to provide
consistency and efficiency.
New products involve
beta testing with customers
to ensure as much as
possible that they will
meet the needs of the
market.
Market developments are
closely monitored.
Enhanced collaboration
and knowledge-sharing
between R&D teams.
Supply Customer deliveries Inability to meet Production facilities
chain management may customer are maintained with fire
be threatened deliveries could and flood risk in mind.
by a failure result in loss
in the supply of revenue and Critical production processes
chain. profit. are replicated at different
locations
Supply chain disruption where practical.
caused by a no-deal
Brexit with respect The Group is highly vertically
to customs and integrated providing
border clearances increased control
and uncertainty over many aspects of
over UK and EU the supply chain.
product approvals,
which has given The Group has the ability
rise to an increased to flex manufacturing
risk rating for resource levels and
this year. shift patterns.
Regular vendor reviews
are performed for critical
part suppliers.
Stock policies are reviewed
by the Board on a regular
basis.
Product quality is closely
monitored.
The Group has undertaken
a review of the supply
chain to identify key
suppliers to ensure they
have their own risk management
process in place for
a no-deal Brexit.
Regulation The Group's healthcare Regulatory approval Specialist legal and
of healthcare business involves can be very expensive regulatory expertise
a and time-consuming. is in place to support
significant increase This area is also the
in very complex and healthcare business.
compliance requirements there is a risk
to obtain regulatory the correct approvals The Group has experience
approval prior are not obtained. of healthcare regulatory
to the sale Failure to matters at
of these products comply could have Board level.
and reputational and
the need to comply financial consequences Healthcare operations
with for the Group. in the UK and France
the relevant have ISO13485 certification
legal and In a worst case for their quality management
regulatory obligations. no-deal Brexit systems, with Ireland
scenario, a UK-based and other subsidiary
notified body healthcare operations
can no longer falling under the UK
CE mark a product quality
for sale in the management system.
EU which would
invalidate our Notified body for approving
current CE mark. medical device products
has been changed from
BSi UK to the BSi Netherlands
ensuring the Group will
be able to keep valid
certificates without
interruption.
UK defined Investment returns Volatility in The investment strategy
benefit and investment returns is managed by the pension
pension actuarial valuations and actuarial scheme trustees who operate
scheme of the defined assumptions can in line with a statement
benefit pension significantly of investment principles
scheme liability affect the and take appropriate
are subject defined benefit independent professional
to economic and pension scheme advice when necessary.
social deficit, impacting
factors that on future funding A new recovery plan was
are outside the requirements. agreed in June 2019 with
control of the the trustees in relation
Group. to the September 2018
actuarial deficit based
on funding to self-sufficiency.
This, combined with Company
funding during the year,
results in a decrease
in the risk rating this
year.
Exchange Fluctuating foreign With c.94% of The Group enters into
rate fluctuations exchange rates revenue generated forward contracts in
may affect the outside the UK, order to hedge varying
results of the there is an exposure proportions of forecast
Group. to major currency US Dollar, Euro and Japanese
fluctuations, Yen revenue. Forward
mainly in respect contracts which are ineffective
of the US Dollar, for accounting purposes
Euro and Japanese provide the protection
Yen. against rate changes
Such fluctuations that management intended
could adversely when entering the contracts.
impact both the
Group's income Currency rates and hedging
statement and position are regularly
balance sheet. monitored.
The potential
impacts are likely
to increase during
periods of market
uncertainty such
as Brexit and
trade and tariff
disputes, which
has given rise
to an increased
risk
rating this year.
Cyber security For the Group Reduced service There is substantial
threats to operate to customers due resilience and back-up
effectively it to lack of reliable built into Group systems.
requires continuous management
access to timely information putting Cyber risk and security
and reliable the Group at a is discussed with the
information at competitive disadvantage. Board every six months.
all times. We
seek to ensure Delay or impact External penetration
continuous availability, on decision-making testing is utilised on
security and through lack of an appropriate basis.
operation of availability of
information systems. sound data or The Group operates central
disruption in/or IT policies in all aspects
denial of service. of
information security.
Loss of commercially
sensitive and/or Regular monitoring of
personal information all Group systems takes
leading to place with regular
implications including reporting and analysis.
reputational damage,
claims or fines. Operating systems are
continuously updated
Theft of commercial and refreshed in line
or sensitive information/data with current threats.
or fraud causing
loss and disruption. The Group employs a number
of physical, logical
and control
measures to protect its
information and systems.
E-learning courses are
rolled out as required
to all employees on all
cyber risks.
The Group continues to
focus on compliance with
the General
Data Protection Regulation
and other existing and
emerging
data legislation.
Workforce Our people drive Not filling key Attracting, rewarding
the roles, having and retaining people
success of our a significantly with the right skills
business. changing workforce globally in a planned
Inability to or not effectively and targeted way.
identify, attract, deploying or organising
retain, develop the workforce Developing and enhancing
and apply the could lead to organisational, leadership,
critical capabilities delays in new technical
and skills needed products, and functional capability
in appropriate quality issues, to deliver global programmes.
numbers to effectively reduced sales
organise, deploy levels, poor customer An increased focus on
and service and individual development
incentivise our reduced profitability. and succession
people would planning, recognising
threaten the the changing nature of
delivery of our careers and
strategic goals. expectations at work.
Incentivising and effectively
deploying the critical
capabilities,
skills and people needed
to deliver our strategic
priorities,
including benchmarking.
Listening to our people
and seeking to understand
their views
through active leadership
and engagement including
a new
regular survey.
Extensive apprentice,
graduate and industrial
placement programmes.
Commitment to equality,
diversity and inclusion.
Financial calendar
Publication of 2019 Annual Report 21 August 2019
Annual General Meeting 24 October 2019
Half year results January 2020
Trading update May 2020
Final dividend
Ex-div date 26 September 2019
Record date 27 September 2019
Payment date 31 October 2019
Registered office:
Renishaw plc
New Mills
Wotton-under-Edge
Gloucestershire
GL12 8JR
UK
Registered number: 01106260
LEI number: 21380048ADXM6Z67CT18
Telephone: +44 1453 524524
Email: uk@renishaw.com
Website: www.renishaw.com
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR LFLLXKDFEBBV
(END) Dow Jones Newswires
August 01, 2019 02:02 ET (06:02 GMT)
Renishaw (LSE:RSW)
Historical Stock Chart
From Apr 2024 to May 2024
Renishaw (LSE:RSW)
Historical Stock Chart
From May 2023 to May 2024