REG - Renishaw PLC - Final Results
15/09/2022 07:00
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RNS Number : 5178Z Renishaw PLC 15 September 2022
Renishaw plc
15 September 2022
Preliminary announcement of results for the year ended 30 June 2022
Record results and strong strategic progress
2022 2021 Change
Revenue (£m) 671.1 565.6 +19%
Adjusted(1) profit before tax (£m) 163.7 119.7 +37%
Adjusted(1) earnings per share (pence) 185.5 132.0 +41%
Dividend per share (pence) 72.6 66.0 +10%
Statutory profit before tax (£m) 145.6 139.4 +4%
Statutory earnings per share (pence) 165.4 153.2 +8%
Performance highlights
· Record revenue of £671.1m, 19% higher than FY2021 revenue of £565.6m
· Manufacturing technologies revenue(2) increased by 20% to £634.6m,
with:
• record demand for encoders, driven by sustained semiconductor and
electronics capital investment;
• rising sales of flexible gauging and machine tool products for
automated machining, notably in the consumer electronics sector; and
• repeat purchases of high-value solutions by key customers in
additive manufacturing and 5-axis metrology.
· Analytical instruments and medical devices revenue(2) increased by 4%
to £36.5m, with:
• strong growth in H2 to give record spectroscopy revenues, as backlog
of duty-exemption certificates in China eased; and
• reduced neurological revenue during FY2022, though we are talking
with multiple large pharmaceutical companies to use our unique drug delivery
technology in clinical trials.
· Record Adjusted profit before tax of £163.7m (FY2021: £119.7m), an
increase of 37%
· Return on sales increased to 24% (FY2021: 21%)
· Statutory profit of £145.6m compared with £139.4m last year
· Strong balance sheet, with net cash and bank deposits of £253.2m at
30 June 2022, compared with £215.0m at 30 June 2021.
(1) Note 29, 'Alternative performance measures', defines how Adjusted profit
before tax, Adjusted earnings per share, Adjusted operating profit and Revenue
at constant exchange rates are calculated.
(2) Results relating to sales of additive manufacturing machines to medical
and dental customers are no longer recognised in the Analytical instruments
and medical devices operating segment. Comparative figures have been
reclassified accordingly, see note 2.
Strategic progress
· Successfully launched new products in the year including an ultrasonic
probe for REVO, our market-leading measurement system for CMMs
· Gained key customer accounts, including in close-adjacent markets,
following the launch of products such as our FORTiS enclosed encoder and the
NC4+ Blue tool setter in recent years
· Made more of our products compatible with third-party software,
helping to open up new markets
· Committed around £64m to increase the footprint of our production
facilities at Miskin, Wales, and are investing in production equipment to
increase both capacity and productivity, with a focus on automation
· Focused on the reward, retention and development of our people,
including a salary benchmarking exercise that we expect to increase FY2023
labour costs by £19m compared with FY2022
· Agreed our Net Zero commitment, aiming to achieve Net Zero for Scope 1
and 2 emissions by 2028, and no later than 2050 for Scope 3.
Sir David McMurtry, Executive Chairman commented: "Our performance has been
built on years of strategic focus. We've developed the innovative products
required to meet the challenges faced by manufacturers in growing markets,
while ensuring that we have the global infrastructure and skilled people to
deliver those opportunities".
About Renishaw
We're a world leading supplier of measuring systems and production systems.
Our products give high accuracy and precision, gathering data to provide
customers and end users with traceability and confidence in what they're
making. This technology also helps our customers to innovate their products
and processes.
We're a global business, with 56 customer-facing locations across our three
sales regions; the Americas, EMEA, and APAC. Most of our R&D work takes
place in the UK, with our largest manufacturing sites located in the UK,
Ireland and India.
We are guided by our purpose: Transforming Tomorrow Together. This means
working with our customers to make the products, create the materials, and
develop the therapies that are going to be needed for the future.
We believe that our purpose is incredibly relevant in today's environment
where the pace of change in technology is faster than ever. We also know that
the future will be a world of scarce resources, needing high-performance,
intelligent, personalised solutions that make the best use of these resources,
and our expertise can help deliver this.
Results presentation today
There will be a webcast presentation of the results together with a question
and answer session at 10:00 a.m. (BST). Details of how to register for and
access the webcast are available at the following link:
https://www.renishaw.com/en/register-for-the-2022-full-year-results-webcast--47618
(https://eur03.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.renishaw.com%2Fen%2Fregister-for-the-2022-full-year-results-webcast--47618&data=05%7C01%7CChris.Pockett%40Renishaw.com%7C359e4134dacd4dd238db08da8f6d9c6d%7Cbe3b1b3bae03462ebf694110e380dc7b%7C0%7C0%7C637979998187465931%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C7000%7C%7C%7C&sdata=LIZApI3MjKJiicA9YFxo7%2FURQITS8HZ4vVXu9ozGREM%3D&reserved=0)
A recording of the webcast and the presentation slides will be made available
by Friday 16 September 2022 at: www.renishaw.com/investors
(https://www.renishaw.com/en/investors--22615) . Here, you will also be able
to find a more user-friendly version of this preliminary results announcement
by the end of today.
Enquiries: communications@renishaw.com (mailto:communications@renishaw.com)
COMMENTARY BY THE CHAIRMAN
Introduction
I'm delighted to report a record year for both revenue and Adjusted profit
before tax. Our revenue for FY2022 was £671.1m. This was 19% higher than
FY2021 revenue of £565.6m and was achieved against a backdrop of a global
recovery in all our key markets. Adjusted profit before tax was £163.7m
(FY2021: £119.7m), an increase of 37%. Statutory profit before tax was
£145.6m (FY2021: £139.4m). Both revenue and Adjusted profit before tax are
consistent with the trading update we provided in May.
Our performance has been built on years of strategic focus. We've developed
the innovative products required to meet the challenges faced by manufacturers
in growing markets, while ensuring that we have the global infrastructure and
skilled people to deliver those opportunities. The right products, the right
place and the right people - all helping us to deliver on our purpose of
Transforming Tomorrow Together.
What is clear to me is that these record results couldn't have been achieved
without the huge commitment of our employees, who have faced enormous personal
and professional challenges over the course of the pandemic. They worked
tirelessly during the year to serve our customers in the face of strong demand
for our products and considerable supply chain challenges. They have made me
very proud, and I would like to convey my thanks and that of the Board, for
everything that they've achieved.
After the end of the formal sale process (FSP) in July 2021, John Deer and I
made it clear to the Board and our employees that we remain committed to
Renishaw. I do not doubt that the process caused some uncertainty among our
employees, and we are very grateful for the commitment they've demonstrated to
Renishaw. As a Board, we were encouraged with how well everyone delivered
'business as usual' during the process, and I feel this excellent set of
results demonstrates this, as well as underlining the strength of our
business.
Board changes bring new experience to Renishaw
A strong and experienced Board is essential to the success of a complex,
global business like Renishaw and I'm delighted with the new appointments that
were made during the year. I would firstly like to thank Carol Chesney and
John Jeans, who, during the year, stepped down from the Board as Non-executive
Directors after nine years' service. In their place we've appointed Juliette
Stacey, currently Senior Independent Director at Fuller, Smith & Turner
plc, and Stephen Wilson, currently Chief Executive of Genus plc. Juliette
brings extensive experience with her strong finance and leadership background,
while Stephen brings strategic, financial and business development experience
in the software sector.
We remain committed to high standards of corporate governance. We always
consider key stakeholders when making decisions, in the belief this will
protect our business and its long-term sustainable success.
Responding positively to a new world
Last year I wrote about the profound changes to our society, trading
environment and business practices brought about by the pandemic. We have
positively embraced those changes and the opportunities that they have
presented for growth and to increase focus on employee welfare. It seems to me
that our vision of transforming capabilities in manufacturing, science and
healthcare through precision, productivity and practicality is absolutely
relevant to helping meet societal needs in the coming years.
We've also responded positively to the global challenges of climate change. We
have achieved significant reductions in our carbon emissions in recent years
but as a large business with a global footprint, we want to make a step change
in our efforts.
This year, the Board approved significant commitments to help deliver this
step change, and Will Lee explains our Net Zero commitment in more detail on
the following pages. I am acutely aware that society has high expectations of
companies like ours when it comes to setting environmental targets, and I'm
pleased to see that we've made this commitment. The Board is determined to
ensure that we make meaningful, measurable progress. That's why we will have
our targets verified by the independent Science Based Targets initiative, and
we will not succumb to 'greenwashing'.
As part of our sustainability commitments, our new Sustainability Committee
identified three of the UN's Sustainable Development Goals (SDGs) that are
most relevant to our business. The Board agreed that we should link our
sustainability commitments and targets to these goals, demonstrating our
support for decent work and economic growth, responsible consumption and
production, and climate action. We're now developing a plan on how we will
measure our progress against these SDGs.
Continuing to embed our values to support our culture
As I mentioned in my introduction, our employees have continued to demonstrate
resilience throughout the pandemic. This has highlighted the importance of our
strong working culture, underpinned by our core values of innovation,
inspiration, integrity and involvement.
This year we've continued to actively communicate and embed these values
across the business, from policy documents and training materials, to the
careers pages of our corporate website. These values embody our culture, where
our people are encouraged:
- to be innovative and challenge convention;
- to always inspire each other, our customers and our wider
communities;
- to act with integrity; and
- to be fully involved and support each other in contributing to the
success of Renishaw and our communities.
Ensuring these values were well communicated and understood was particularly
important to the Board. We listened to feedback from workshops across the
business, and Will helped launch the communications campaign.
Recognition and reward is an important way that a company can embed its
values. That's why, towards the end of the year, we launched a global
competition encouraging teams to share how they demonstrate our values in
action. Our Executive Committee will select one winning team per value, with
each team choosing a charity to receive a £5,000, or local currency
equivalent, donation.
As part of our value of involvement, we are committed to equality and
diversity at all levels of the company. Our UK Diversity & Inclusion group
continued to produce thought-provoking awareness campaigns throughout the
year, including a focus on sexuality and gender, disability, and how inclusion
drives understanding in the workplace.
Looking ahead
While there continues to be some global uncertainties due to the geopolitical
environment and rising costs for consumers and manufacturers, the last two
years have demonstrated the great resilience of our business and people. I
therefore feel that whatever challenges and opportunities we may face in the
coming years, we'll be able to respond positively and continue to deliver on
our purpose.
Sir David McMurtry
Executive Chairman
15 September 2022
COMMENTARY BY THE CHIEF EXECUTIVE
Last year I spoke about the strong position that we were in to take advantage
of the many opportunities presented by the global recovery in our markets.
We've capitalised well on those opportunities this year, delivering the best
set of financial results in our history. It wasn't easy, however, and our
people around the world have had to work incredibly hard to deliver these
record results given the huge challenges we have faced.
The rapid upturn in the global economy placed supply chains under great
stress, with serious shortages of electronic components. Combined with strong
demand and a highly competitive labour market, we faced significant challenges
in meeting our customers' needs. Our teams responded brilliantly, increasing
output and re-engineering certain products when components weren't available.
Our work over the past few years to build our inventory levels also helped us
overcome these problems.
This record set of results also clearly demonstrates that our business is in
an even stronger position than when we launched the FSP last year, and we
continue to be confident in our strategic direction.
Having introduced our new purpose, vision and strategy last year, I'm
encouraged by how well we've embedded these in the business this year. Our
purpose of Transforming Tomorrow Together has helped guide us this year,
reinforcing the importance of working with our customers to help them make the
products, create the materials, and develop the therapies that will be needed
for the future.
A record set of results driven by strong revenue growth
As Sir David has said, we've achieved a record set of results. We had strong
revenue growth in all regions, with the strongest growth in our Manufacturing
technologies segment. This has been driven by increased investments in the
semiconductor and electronics sectors, and demand for industrial automation
due to skills shortages and labour costs. In our Analytical instruments and
medical devices segment, our spectroscopy products also achieved record
revenue with growing research and industrial applications for Raman
microscopy.
Our revenue for the year ended 30 June 2022 was £671.1m, compared with
£565.6m last year. This is a direct result of our new strategy, that builds
from our existing strength in working closely with our customers to develop
the products they need to grow. Our ability to make these products in-house to
tight timescales, while offering local support as a global business, has been
essential to our success this year.
We achieved record Adjusted profit before tax of £163.7m compared with
£119.7m last year, and this means Adjusted earnings per share was 185.5p
compared with 132.0p last year. Adjusted measures are the ones we use as a
Board to measure our underlying trading performance, and we're pleased with
our improvements given that we've faced significant increases in some
production costs and made investments in pay and reward.
Statutory profit before tax for the year was £145.6m compared with £139.4m
last year, leading to Statutory earnings per share of 165.4p compared with
153.2p last year. Allen Roberts provides more detail of our financial
performance in the Commentary by the Group Finance Director.
Excellent progress in our customer-focused strategy
Our strategy is designed to deliver sustainable, profitable growth by ensuring
we have the agility and resources to identify and respond to opportunities in
our markets. I'm really encouraged with the progress our two segments have
made here this year, and in the four strategic pillars that support our
segments.
As I mentioned above, our teams have gone above and beyond this year to
support our customers. Many of the markets we work in have experienced a rapid
and significant recovery from the economic effects of the pandemic, and our
approach of providing local support to our customers has helped us to respond
to this.
We've continued to launch new products, such as an ultrasonic probe for REVO
(our market-leading multi-sensor system for CMMs). Ultrasonic probes offer an
advantage over traditional tactile probes for parts where it's hard to access
internal features, such as drive shafts and hollow aerospace blades. This is a
great example of what we already do so well; understanding the problems our
customers are having and then using our expertise to make a product that helps
them solve the issue.
We've also continued to improve our existing products. When it launched last
year, our NC4+ Blue set the standard for non-contact tool setting, thanks to
its industry-first blue laser. We've since launched the next generation
product this year. Both this and the RUP ultrasonic probe demonstrate how we
can grow our business by developing products in our existing markets.
This innovation, and our approach of building a long-term relationship with
customers, is helping us to gain new customers and outperform market growth.
I'm particularly proud of the success of our Encoder business this year,
gaining key customer accounts in recent months and not just in the
semiconductor sector.
As part of how we're moving into new markets we've also expanded our offer to
customers this year. We've been working on making more of our products
compatible with third-party software, such as our popular Equator gauging
system. Doing this helps us open new opportunities in areas where customers
and end users may already be using a different software system.
Our design and engineering teams have made good progress this year with our
flagship product projects. These are the ones we prioritise because the
products are most important to our long-term growth, or where we expect them
to bring significant revenue growth quickly. One of our first flagship
products to launch last year was FORTiS, our enclosed encoder for use in
machine tools. One of our strategic priorities is to develop
non-substitutional products in adjacent markets, and FORTiS is exactly this.
It's been really well received by our customers and again shows how we can
grow our business within new markets.
The skills and flexibility of our manufacturing teams have been central to
achieving this success. We've recruited around 300 people into these teams
this year, and significantly increased our productive hours ahead of this rise
in headcount. This in-house manufacturing expertise means we've been able to
meet the rising demand this year while still maintaining our exacting
standards, and have kept our gross profit margin at 53% (FY2021: 52%) despite
the global rise in costs, such as raw materials, gas and electricity.
Sustainable, responsible business
We're committed to being a responsible business in everything we do, and want
to ensure that our people understand their role in achieving this. This year
we introduced 'Responsible Renishaw', our global umbrella brand for compliance
matters, guiding our people to do business responsibly in line with our value
of integrity. We launched the new brand with a week of focused communications,
and 'Responsible Renishaw Week' will now be an annual event.
Following the Russian invasion of Ukraine in February 2022, we immediately
stopped the supply of goods from the Group to Russia and certain parts of
Ukraine. We have now ceased our operations in Russia. Although we've spent
many years growing our business in Russia and were conscious of the effect
this would have on our employees in Moscow and Perm, it was the right decision
to make. We are also actively managing any attempts to procure our products
through alternative routes.
Sustainability is an integral part of our business. It's at the heart of our
purpose of Transforming Tomorrow Together, working with our people, customers,
suppliers and communities to create a more sustainable world. This year, we've
committed to a science-based Net Zero emissions target of no later than 2050
for our entire business and a target of 2028 for Scope 1 and 2 emissions.
For us, Net Zero means achieving a 90% reduction in greenhouse gas (GHG)
emissions compared to our FY2020 baseline emissions. For the remaining 10% of
emissions, we will invest in credible carbon offsetting and removal
programmes. Although we've set an overall target of achieving Net Zero by
2050, we expect we can do more. We've therefore set ourselves a target of
measuring our Scope 3 emissions by March 2023, with the aim of then setting an
earlier target year for achieving Net Zero for all our emissions.
The move to Net Zero also represents many opportunities for our business,
since our products positively contribute to our customers' own sustainability
ambitions, by reducing energy consumption and minimising waste.
Our success is testament to our people
Sir David has already acknowledged the huge contribution of our employees
during another highly challenging year. I'd also like to add my own thanks for
everything that they did to help achieve this record year for the business.
With such significant sales growth and supply chain pressures, we've been
stretched in many operational areas. Nonetheless, I've been inspired by the
resilience, skill, dedication and innovation shown by our people this year.
We've made excellent progress this year on responding to feedback from our
people, and have focused on modernising our approach to pay and reward,
improving our performance reviews, and supporting career progression. The
Group-wide pay benchmarking review is a major part of this. As a result of the
reviews to date, and excluding other factors such as headcount growth, we
expect our labour costs to increase by around £19m in FY2023 compared with
FY2022.
To support our growth, we welcomed over 400 additional people into our
business, ending the year with around 5,100 people across the world. We
continue to take a long-term view and plan for the future success of the
Group, so this year we recruited nearly 150 apprentices and graduates, and
also took on more than 40 industrial placements. Having started here as a
sponsored student myself, I know we've always been committed to developing our
people to both build and retain their skills within the business. This
includes supporting people through further study, with more than 200
colleagues currently enrolled on apprenticeship programmes.
COVID-19 update
We continue to monitor the impact of COVID-19 on our people and business, and
retain some measures designed to minimise the risk of in-company
transmissions. However, most of our operations are now operating on a more
normal basis. We were affected by the spring lockdowns in China, with our
local headquarters in Shanghai closed for two months, but were able to respond
well to this. For example, we used technical webinars to stay in touch with
customers, and used our extensive network of offices and employees across the
country to supply key customers and satisfy urgent orders. I'd like to
recognise the huge efforts made by colleagues in China throughout this
challenging period.
Although the pandemic has clearly been a difficult time for so many people, I
think it's important to reflect on what we've learnt from it. We've
demonstrated our resilience, and the ability and dedication of our people to
respond to rapid changes. We've been able to make better use of digital
technology to work with each other, our customers and our suppliers, meaning
we can work in a more environmentally conscious way by travelling less. More
digital engagement with customers is also opening up more sales opportunities,
and our online sales are growing too.
Outlook
We have made a positive start to FY2023 and our order book remains strong. We
have, however, recently seen a weakening in order intake from the
semiconductor and electronics sectors, and general market sentiment is
becoming more cautious. In light of this, we are managing costs carefully and
focusing on productivity.
Having strong cash reserves also helps us take a long-term view and weather
shorter-term challenges. We believe our markets offer very positive long-term
growth opportunities, and that we're making the right investments to benefit
from them. We have some innovative new products in the pipeline to support our
growth in new and adjacent markets with both machine builders and end users.
The work I noted above on retaining, rewarding, and developing our people to
fulfil their potential is a critical part of delivering our growth plans.
Having seen what our people have already achieved this year, I know this
potential is enormous.
Overall, I'm confident in our strategy and the actions we're taking to
deliver sustainable, long-term growth, and I look forward to the year ahead.
Will Lee
Chief Executive
15 September 2022
COMMENTARY BY THE GROUP FINANCE DIRECTOR
I'm delighted to report record revenue for the year amounting to £671.1m, an
increase of 19% compared with £565.6m last year.
We've also achieved record Adjusted profit before tax of £163.7m, an increase
of 37% compared with £119.7m last year. Statutory profit before tax was
£145.6m. We continue to be in a strong financial position, with net cash and
bank deposit balances of £253.2m at 30 June 2022 (FY2021: £215.0m).
Revenue by region
2022 Change 2021 Underlying
revenue
from
revenue
change at
at actual
2021
at actual
constant
exchange
%
exchange
exchange
rates
rates
rates
£m
£m
%
APAC 317.0 +15 274.8 +16
EMEA 205.8 +22 169.1 +22
Americas 148.3 +22 121.7 +18
Total Group revenue 671.1 +19 565.6 +18
Revenue analysis
We've seen strong revenue growth in all our regions this year. Our APAC region
was the first to recover in the previous financial year, but recent growth has
been more evenly spread. This rapid upturn has placed supply chains under
great stress in many sectors, most notably semiconductor and electronics,
where substantial investments are in progress to ease capacity constraints.
Manufacturing technologies revenue grew by 19.6% to £634.6m this year, and we
have seen increased demand for all our product lines. The most notable growth
was in our Position Measurement business, with our encoder product line
benefitting from significant global investments in the electronics capital
equipment market, including semiconductor manufacture. This has been driven by
an increase in both consumer and commercial demand for electronic products.
Magnetic encoders designed and manufactured by our associate company, RLS,
also experienced strong growth due to increased demand for industrial
automation products.
All our Industrial Metrology product lines grew due to a recovery in
investments in metal cutting machinery and the need to measure the outputs
from those processes, including increased investments in shopfloor metrology.
Revenue from our Analytical instruments and medical devices business grew by
4.0% to £36.5m this year. Our Spectroscopy business achieved growth across
our three regions, delivering record revenue, driven by customers releasing
funds on capital expenditure projects. Despite a challenging year for our
neurological business, we still see many opportunities to grow this business
and have a strong pipeline for drug delivery revenue.
Operating costs
Our extensive in-house manufacturing operations, proactive inventory
management and continual assessment of alternative components has allowed us
to mitigate continued supply chain constraints, caused, in large part, by the
global shortage of electronic components.
Against this backdrop, we're pleased to have maintained our production costs
(see note 4) at 35% of revenue. Like many businesses, we've experienced cost
increases, but by improving our efficiency through increasing production
volumes and making process improvements we've been able to mitigate this.
The Group headcount increased during the financial year, reaching 5,097 at the
end of June 2022. This compares to 4,664 at the end of June 2021. We have
recruited additional manufacturing staff to ensure we have sufficient capacity
to meet demand, as well as targeting headcount growth to support product
development, and expanding our future talent programmes. The average headcount
during the year was 4,931, an increase of 11% compared with last year. Total
labour costs (including bonuses) for the year were £254.4m compared with
£223.9m last year. The cost increase results mainly from the headcount
increase, pay reviews for our employees and increased performance related
bonuses.
As part of our reward and retention programmes, we have carried out extensive
salary benchmarking exercises in certain parts of the business, including all
our UK employees. Our intention is to benchmark all Group employees by the end
of this calendar year. As a result of benchmarking and other pay reviews
already completed (and excluding other factors such as headcount growth), we
expect annual labour costs to increase by around £19m in FY2023 compared with
FY2022.
Certain other operating costs, such as travel and exhibitions, are higher this
year compared to last year as some pandemic-related restrictions have been
lifted. We have also experienced a notable increase in utilities costs, caused
by increasing energy prices and usage.
During the financial year, £3.7m (FY2021: nil) of expenditure on services
relating to the implementation of a Group-wide ERP software has been
recognised in Administrative expenses in the Consolidated income statement.
Following the Russian invasion of Ukraine in February 2022, we immediately
stopped the supply of goods from the Renishaw Group to Renishaw Russia and by
30 June 2022 we had ceased our operations in Russia. Typically, combined sales
to Russia and Belarus have represented around 1% of total Group revenue. We
recorded £2.1m of impairments against our assets in Russia, and we do not
anticipate any further costs or impairments.
No other significant asset impairments have been recognised this year, as a
result of upward demand trends across most of our geographic areas and
business units. In the previous year, we recognised impairments of £4.7m in
Administrative expenses relating to an associate company.
Research and development
We remain committed to our long-term strategy of delivering growth through the
development and introduction of innovative and patented products.
During the year, we incurred research and development expenditure of £59.4m,
compared with £58.6m last year (see note 4). We also incurred £26.4m
(FY2021: £18.0m) on other engineering expenditure, to support existing
products and technologies. There has been an increased focus on existing
products and technologies during the year due to global supply chain issues,
which have, in some instances, required product or process redesigns.
Profit and tax
Adjusted profit before tax amounted to £163.7m compared with £119.7m in
FY2021, an increase of 37%. Statutory profit before tax was £145.6m compared
with £139.4m in the previous year.
There are sometimes infrequently occurring events which impact on our
financial statements, recognised according to applicable IFRSs, that we
believe should be excluded from adjusted performance measures in order to give
readers a more understandable and comparable view of our underlying
performance.
Items excluded from Adjusted profit before tax include: losses of £8.3m from
forward contracts deemed ineffective for cash flow hedging (FY2021: £23.0m
gain); third-party fees relating to the FSP of £0.2m gain (FY2021: £3.2m
loss); a revised estimate of 2020 restructuring provisions of £1.7m gain
(FY2021: nil); and a defined benefit (DB) pension scheme remeasurement loss
relating to augmentation of members' benefits totalling £11.7m (FY2021: nil).
These have not affected cash flow during the financial year.
2022 2021
£'000
£'000
Adjusted profit before tax 163,742 119,666
Revised estimate of 2020 restructuring provisions 1,688 -
Third-party FSP costs 200 (3,222)
UK defined benefit pension scheme past service cost (11,695) -
Fair value (losses)/gains on financial instruments (8,349) 22,995
Statutory profit before tax 145,586 139,439
Adjusted operating profit in our Manufacturing technologies segment was
£158.6m compared with £114.1m last year, while in our Analytical instruments
and medical devices segment, Adjusted operating profit was £2.8m compared
with £4.5m last year.
The overall effective rate of tax was 17.3% (FY2021: 20.1%). We operate 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. In addition, the tax rate has benefited from tax incentives (patent
box and capital allowances super-deduction) and higher profits from associates
and joint ventures. Note 7 provides further analysis of the effective tax
rate.
Consolidated balance sheet
We have invested £31.0m in property, plant and equipment and vehicles during
the year, of which £6.7m was spent on property and £24.3m on plant and
machinery, IT equipment and infrastructure, and vehicles. Property expenditure
in the year included the completion of a new distribution facility in South
Korea, amounting to £3.8m, while plant and equipment expenditure mostly
comprised manufacturing equipment in the UK.
Within working capital, we have increased our inventories to £162.5m from
£113.6m at the beginning of the year. This is in line with increases in
global demand and reflecting planned increases in certain component safety
stock levels to mitigate global supply shortages. 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 increased from £114.7m to £127.6m due to increased revenue
and a currency translation gain of £5.3m. Debtor days remained constant
year-on-year at 61 days. We continue to experience low levels of defaults, and
hold a provision for expected credit losses at 0.2% of trade receivables
(FY2021: 0.3%).
Total equity at the end of the year was £815.2m, compared with £703.3m at 30
June 2021. This is primarily a result of profit for the year of £120.4m and
gains from the remeasurement of defined benefit pension scheme liabilities of
£53.1m, offset by dividends paid of £49.5m.
Cash and liquidity
We have further improved our liquidity position this year, with net cash and
bank deposit balances at 30 June 2022 of £253.2m (FY2021: £215.0m). This is
a result of our strong trading performance, offset by our previously noted
investments and working capital movements, and dividends paid of £49.5m.
We disclose details of 'severe but plausible' scenario forecasts used in our
going concern and viability assessments in note 1 and conclude that we have a
reasonable expectation that we will retain a liquid position and be able to
continue in operation for at least the next three years.
Capital allocation strategy
Our 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.
We've consistently applied our capital allocation strategy for many years.
We're committed to R&D investment for new products, manufacturing
processes and global support infrastructure to generate growth in future
returns and improve productivity while managing expenditure appropriate to
trading conditions. This is evidenced in the year by our capital expenditure
and investments in R&D.
Actual and forecast returns, along with our strong financial position, support
our progressive dividend policy, which aims to increase the dividend per share
while maintaining a prudent level of dividend cover.
Pensions
The Company and trustees have successfully implemented a number of changes to
the UK Defined Benefit Pension scheme during the year.
Following the Queen's Counsel opinion received in FY2021, primarily in respect
of the periods over which revaluation and late retirement factors are applied,
the liabilities of the scheme reduced by £14.3m last year with the credit
reported in Other comprehensive income and expense.
This year the scheme rules have been changed to align with the historic
administrative method for calculating the revaluations and early retirement
factors. The resulting increase in liabilities, totalling £11.7m, has been
recognised as a past service cost in the Consolidated income statement. This
cost has been excluded from Adjusted profit before tax (see note 29 for
further details). We also agreed that the Company will have the unconditional
right to a refund of any surplus on wind-up of the scheme, allowing for the
recognition of the IAS 19 scheme surplus this year. Following the agreement of
the September 2021 actuarial valuation, the £10.6m held in escrow as security
has now been released from charge and the net book value of UK properties
subject to charge has reduced from £81.7m last year to £54.2m this year.
At the end of the year, our defined benefit pension schemes, now closed for
future accrual, showed a surplus of £42.2m, compared with a deficit of
£23.7m at 30 June 2021. Our defined benefit pension schemes' assets at 30
June 2022 decreased to £216.7m from £231.4m at 30 June 2021, primarily
reflecting investment performance during the period.
Pension scheme liabilities decreased from £255.1m to £174.5m, on an IAS 19
basis. This primarily reflects the net effect of:
- an increase in the discount rates of the UK and Ireland schemes;
- changes to the UK scheme rules which allows recognition of a
surplus position; and
- the change in the UK scheme rules relating to members' benefits
discussed above.
See note 23 for further details on employee benefits.
Treasury policies
Our treasury policies are designed to manage the financial risks that arise
from operating in a number of foreign currencies, with the majority of sales
made in these currencies, but with most manufacturing and engineering carried
out in the UK, Ireland and India.
We use forward exchange contracts to hedge a proportion of anticipated foreign
currency cash inflows and the translation of foreign currency denominated
intercompany balances. There are forward contracts in place to hedge against
our Euro, US Dollar and Japanese Yen cash inflows, and to offset movements on
Renishaw plc's Euro, US Dollar and Japanese Yen intercompany balances. We do
not speculate with derivative financial instruments.
Most of these forward contracts are subject to hedge accounting under IFRS 9
'Financial Instruments'. The hedged item in these contracts is the revenue
forecasts of Renishaw plc and Renishaw UK Sales Limited, and during the year
these forecasts were increased due to the improved economic conditions.
This means that all forward contracts have passed hedge effectiveness testing
in the year. Gains and losses, which recycle through the Consolidated income
statement as a result of contracts previously found to be ineffective, are
excluded from adjusted profit measures. See note 25 for further details on
financial instruments and note 29 on alternative performance measures.
Our treasury policies are also designed to maximise interest income on our
cash and bank deposits and to ensure that appropriate funding arrangements are
available for each of our companies.
We have always valued having cash in the bank to protect the core business
from downturns, and we monitor our cash against a minimum holding according to
forecast overheads and revenue downturn scenarios. This cash also enables us
to react swiftly as investment or market capture opportunities arise, while we
expect to significantly increase our investments in capital expenditure in the
coming years.
Earnings per share and dividend
Adjusted earnings per share is 185.5p, compared with 132.0p last year, while
statutory earnings per share is 165.4p, compared with 153.2p last year.
We paid an interim dividend of 16.0 pence per share (FY2021: 14.0p) on 11
April 2022 and are pleased to propose a final dividend of 56.6 pence per share
in respect of the year (FY2021: 52.0p).
Looking forward
While there remains some global economic uncertainty, we have many drivers in
our key markets to deliver long-term revenue growth and we continue to invest
in the infrastructure required to meet the expected future demand. Supported
by our strong balance sheet, we have committed around £64m to increasing the
footprint of our production facilities at Miskin, Wales, and are investing in
production equipment to increase both capacity and productivity, with a focus
on automation. Where possible, we are mitigating cost inflation by increasing
the sale price of our products and are focused on delivering productivity
improvements across the business.
Allen Roberts
Group Finance Director
15 September 2022
PRINCIPAL RISKS AND UNCERTAINTIES
Our performance is subject to a number of risks - the principal risks, factors
impacting on them and mitigations are ranked in the table below, as well as an
indication of the movement of the risk in the last year, our appetite towards
that risk, and how the risk links to our strategy. The Board has conducted a
robust assessment of the principal risks facing the business.
Appetite: Link to strategy:
- Low: Minimal risk exposure is considered the safest approach, which may mean - SM: Sales & Marketing
lower returns.
- E: Engineering
- Medium: A balanced approach which carefully considers the risks and rewards.
- P: People and Culture
- High: Greater risk tolerance, which may involve maximum risk for maximum
return. - M: Manufacturing
- SS: Support Services
- S: Sustainability
People
Movement: increased risk Appetite: Medium Link to
strategy: P Risk owner: Head of Group HR
Risk description
Our people are fundamental to the success of our business.
Inability to attract, retain, and develop key talent at all levels of the
organisation could mean we fail to successfully deliver on our strategic
objectives.
Potential impact What we are doing to manage this risk
· Loss of expertise, skills, and specialist talent could affect · Targeted approach to attract, reward, and retain our talent
delivery of objectives. globally, including the roll out of a new benchmarking programme for annual
salary reviews and major investment in reward to ensure our pay is
· Poor retention and engagement could slow the delivery of our competitive.
strategic objectives and product delivery.
· Continued investment in our STEM and Early Career programmes, as
· Failure to develop future leaders, insufficient talent progression. well as talent development and succession planning.
· Loss of market share, reduced revenue, poor customer service, and · Advancing our employee engagement through multi-media
reduced profit. communications, promoting wellbeing, evolving feedback mechanisms, and further
developing our inclusion strategy.
· Establishing continuity plans to enable rapid adaptation to
changing circumstances.
Innovation strategy
Movement: increased risk Appetite: High
Link to strategy: E Risk owner: Product Group Directors
Risk description
Failure to create new cutting-edge, high-quality products, or failing to
protect the intellectual property that underpins these products, which allows
us to differentiate ourselves from our competitors.
As a business driven by innovation, there is a higher risk with new ventures
outside our traditional field of expertise where the science and engineering
are less proven.
Potential impact What we are doing to manage this risk
· Failing to meet customer needs for high-quality and complex · Increasing focus on presenting and understanding technology
products. development and commercialisation roadmaps. R&D and flagship projects are
prioritised and regularly reviewed against milestones. Medium to long-term
· Loss of market share. R&D strategies are monitored regularly by the Board and Executive
Committee.
· Reduced revenue, profit and cash generation.
· All Board meetings now have a standing agenda item to review
· Failing to recover investment in R&D. disruptive technology.
· Market developments are closely monitored and product development
is based on input from customers.
· Patent and intellectual property protection are core to new product
development, with management and review integrated into the Product Innovation
Process (PIP) procedure.
Supply chain dependencies
Movement: stable risk Appetite: Low Link to strategy: M
Risk owner: Head of Group Manufacturing
Risk description
We're exposed to the risk that critical components, or some components that we
buy from single-source suppliers, make us vulnerable to an interruption in
supply.
Potential impact What we are doing to manage this risk
· Inability to fulfil customer orders, leading to a reduction in · Continued focus on, and review of, sourcing of key components.
revenue and profits, and damage to reputation.
· Increase in buffer inventory.
· Failure to meet contractual requirements.
· Cost-effective alternative sources of supply actively sought
· Increased cost of alternative sourcing or redesign. (including in-house manufacturing) to reduce dependency on single-source
suppliers.
· Loss of market share.
· Specifications are reviewed and updated where necessary to
facilitate alternative sourcing.
Industry fluctuations
Movement: decreased risk Appetite: High
Link to strategy: SM, M, E Risk owner: Chief Executive
Risk description
We're exposed to the cyclical nature of demand from aerospace, automotive and
consumer electronics industries, which may be more severe if downcycles in
these key industries coincide.
Potential impact What we are doing to manage this risk
· Increased competition on prices. · Closely monitoring market developments.
· Loss of market share. · Expanding our range in order to meet the demands of a number of
different industry sectors and markets.
· Reduced revenue, profit and cash generation.
· Identifying and meeting the needs of emerging markets, for example
in robotic automation.
· Maintaining a strong balance sheet with the ability to flex
manufacturing resource levels.
Economic and political uncertainty
Movement: stable risk Appetite: High
Link to strategy: All Risk owner: Chief Executive
Risk description
As a global business, we may be affected by political, economic or regulatory
developments in countries that we operate in. This could include a global
recession, US/China trade relations, or the current war in Ukraine.
Potential impact What we are doing to manage this risk
· Loss of financial and physical assets in a region. · Monitoring external economic and commercial environments, and
identifying relevant headwinds.
· Supply issues leading to failures to meet contractual obligations.
· Maintaining sufficient headroom in our cash balances.
· Reduced revenue, profit and cash generation.
· Increase in buffer inventory.
· Closely monitoring all markets in which we operate.
Route to market / customer satisfaction model
Movement: stable risk Appetite: Medium Link
to strategy: SM Risk owner: Chief Executive
Risk description
Inherent complexity in the move to systems integration and the sale of capital
goods.
Potential impact What we are doing to manage this risk
· Low capital efficiency - high people costs and low productivity. · Closely monitoring customer feedback.
· Higher engineering and distribution costs. · Collaborating with complementary third parties.
· Adversely affects customer satisfaction levels, revenue, and · Adopting new approaches to the sale of capital goods.
profits.
Capital allocation
Movement: stable risk Appetite: Medium Link to
strategy: E Risk owner: Group Finance Director
Risk description
This risk could be triggered by a failure to properly allocate budget between
core and emerging activities.
Potential impact What we are doing to manage this risk
· Investing in declining or less profitable areas at the expense of · Defining, prioritising, and developing strategies for all core and
more profitable and strategically important areas. emerging areas of the business.
· Reduced profits. · Scrutinising all expenditure, including regular reporting on labour
costs and capital expenditure.
· Loss of market share.
· Regular reporting of cash balances.
· Impact on innovation.
· Tracking of performance objectives including regular reporting on
flagship project progress.
Competitive activity
Movement: stable risk Appetite: Low Link to
strategy: All Risk owner: Chief Executive
Risk description
Failure to adapt to market and/or technological changes.
Potential impact What we are doing to manage this risk
· Reduced revenue, profits and cash generation. · We are diversified across a range of products, industries, and
geographies.
· Loss of market share.
· Closely monitoring market developments, particularly across our
· Erosion of prices. core product areas.
· Loss of reputation as a leader in innovation. · Local sales and engineering support to quickly identify changing
local needs.
· Strong historic and ongoing commitment to R&D investment to
continue to build our product portfolio.
Cyber
Movement: increased risk Appetite: Low Link to strategy: All
Risk owner: Director of Group Operations
Risk description
External and internal threat which could result in a loss of data including
intellectual property, or our ability to operate our systems which could
severely affect our business.
Potential impact What we are doing to manage this risk
· Loss of intellectual property and/or commercially sensitive data. · Substantial resilience and back-up built into our systems, which
are continuously updated for current threats and good industry practice.
· Inability to access, or disruption to, our systems leading to
reduced service to customers. · Regularly discuss cyber and security risks at Board meetings,
including the strength of our control environment.
· Financial loss and reputational damage.
· Deploy physical, logical, and control measures to protect our
· Impact on decision-making due to lack of clear and accurate data, information and systems, and external penetration testing is conducted as
or disruption caused by the lack of service. appropriate.
· Conduct regular security awareness training, including phishing
simulation exercises, which are proving effective.
IT transformation failure
Movement: stable risk Appetite: Low Link to strategy: All
Risk owner: Director of Group Operations
Risk description
The upgrade of our IT systems to Microsoft Dynamics 365, to remove legacy
systems and ensure our business is better integrated, could affect our
business if there are major technical issues, or it is poorly integrated. This
risk could also result in problems if there are significant delays to the
programme or it runs significantly over budget.
Potential impact What we are doing to manage this risk
· Major disruption to our systems, causing delay to our operations. · Risk assessments carried out for all key systems likely to be
affected by the upgrade.
· Affect our ability to process or issue invoices and customer
orders, or to procure goods and services. · A clear roadmap with measurable milestones, and planning to
implement lower risk companies first.
· Increased costs, including to fix technical issues and restore or
upgrade other affected systems. · Assigning project managers who have clear oversight of the project
and any issues.
· Project delay would leave us supporting legacy systems for longer
than desired. · Promptly identifying and dealing with any significant issues.
Loss of manufacturing output
Movement: decreased risk Appetite: Low Link to strategy: M
Risk owner: Head of Group Manufacturing
Risk description
Manufacturing output can be adversely affected by factors including
environmental hazards, technical delays or outages, plant or equipment
failure, inadequate resourcing levels, or factors affecting the workforce,
such as a pandemic.
Potential impact What we are doing to manage this risk
· Inability to fulfil customer orders leading to a reduction in · Duplication of high-dependency processes, such as
revenue, failure to meet contractual requirements and damage to reputation.
· component manufacturing and finishing, electronic printed circuit
· Increased costs of alternative sourcing or redesign. board assembly, and microelectronics assembly, across multiple manufacturing
locations.
· Impact on maintenance of buffer inventory.
· Ensuring we have flexible manufacturing capacity and sufficient
· Loss of market share. resilience across our manufacturing sites.
· Standardised approaches to assembly, annual risk assessments, and
business continuity planning.
· Reviewing and maintaining business interruption and other insurance
cover.
Exchange rate fluctuations
Movement: decreased risk Appetite: Medium Link to strategy: SM
Risk owner: Group Finance Director
Risk description
Due to the global nature of our operations, with over 90% of the revenue
generated outside the UK, we're exposed to volatility in exchange rates that
could have a significant impact on our results.
We're exposed to exchange rate risks, including the strengthening of Sterling
against our major trading currencies, currency cash flow, currency translation
risk, and the currency risk on intercompany balances.
Potential impact What we are doing to manage this risk
· Significant variations in profit. · Rolling forward contracts for cash flow hedges in accordance with
Board-approved policy, and one-month forward contracts to manage risks on
· Reduced cash generation. intercompany balances.
· Increased competition on product prices. · Tracking of overseas net assets value compared to the market
capitalisation.
· Increased costs.
· Obtaining input from external sources including our banks.
Climate change
New risk Appetite: Low Link to strategy: All
Risk owner: General Counsel & Company Secretary
Risk description
We could be exposed to physical risks, potentially triggering an inability to
operate, and other transition risks regarding our plans to achieve Net Zero.
We could fail to react adequately to new climate-related legislation,
technology or market factors.
Failure to respond to large-scale natural hazards, such as hurricanes, floods,
fires or pandemics, could result in operations failure.
Potential impact What we are doing to manage this risk
· Increased costs - potentially costly and uncertain supplies of · Sustainability and climate change are regularly discussed at Board
renewable energy certificates and/or offsetting schemes to achieve Net Zero and Executive Committee meetings.
commitment, and underestimating Net Zero costs.
· Our Sustainability team supports the Risk Committee in evaluating
· Damage to reputation and loss of future business. and understanding the possible effect of climate-related risks and
opportunities.
· Impact on macroeconomic landscape.
· Reviewing and maintaining business interruption and other insurance
· Disruption to operations caused by natural hazards. cover to minimise any financial loss that may occur in the event of disruption
caused by climate events.
Pensions
Movement: stable risk Appetite: Medium Link to
strategy: P Risk owner: Group Finance Director
Risk description
Investment returns and actuarial assumptions of our defined benefit pension
schemes are subject to economic and social factors outside our control.
Potential impact What we are doing to manage this risk
· Any deficit may need additional funding in the form of · Implemented recovery plan for the UK defined benefit scheme in June
supplementary cash payments to the plans or the provision of additional 2019 with the aim of funding to self-sufficiency by 2031.
security.
· Appointed a corporate Trustee in June 2022, with the previous
· Significant management time. Trustees stepping down. This will help reduce management time and support
costs.
· External support costs.
· Active engagement with the Trustee(s) on investment strategy.
· Damage to reputation.
· The Trustee(s) work to a statement of investment principles, and
the Company and Trustee(s) seek appropriate independent professional advice if
needed.
Non-compliance with laws and regulations
Movement: stable risk Appetite: Low Link to strategy: All
Risk owner: General Counsel & Company Secretary/Director of Renishaw Neuro
Solutions
Risk description
We operate in a large number of territories and in some highly-regulated
sectors. We are subject to a wide variety of laws and regulations, including
those relating to anti-bribery, anti-money laundering, sanctions, competition
law, privacy, health and safety, product safety, and medical devices.
There is a risk that somewhere in the Group we may not be fully compliant with
these laws and regulations.
Potential impact What we are doing to manage this risk
· Damage to reputation and loss of future business. · Whistleblowing hotline available for use by all employees which
means that our people can make us aware of any potential non-compliance
· Potential penalties and fines, and cost of investigations. issues.
· Management time and attention in dealing with reports of · Global compliance programmes in place for all high risk areas,
non-compliance. which includes policies, key controls, and effective communication. Training
also includes refreshed mandatory anti-bribery and anti-corruption modules.
· Inability to attract and retain talent.
· Promotion of all compliance functions under the umbrella brand
'Responsible Renishaw'. This helps to raise awareness about compliance, and
makes it easier for our people to find the information they need to comply.
· Implementing a global privacy programme.
Product failure
Movement: stable risk Appetite: Low Link to strategy: E, M
Risk owner: Group Quality Manager/Renishaw Neuro Solutions Quality Manager
Risk description
The quality of our products could be adversely affected by internal threats,
such as inadequate quality management procedures. Product quality could also
be affected by external threats, such as substandard resourcing from
third-party suppliers.
This risk is particularly notable in our neurological products, where failure
could result in significant personal injury claims.
Potential impact What we are doing to manage this risk
· Damage to reputation. · Rigorous internal product development and testing procedures
(during development, manufacturing, and release) to international standards
· Claims, including personal injury. where applicable, to ensure high levels of quality assurance.
· Potential penalties and fines, and cost of investigations. · Extensive interaction with customers and regulators to obtain and
address feedback.
· Inability to fulfil customer orders leading to a reduction in
sales. · Regular monitoring of third-party suppliers to ensure incoming
parts and sub-contracted activity meet requirements.
· Liability is limited by our terms and conditions of sale and we
have liability insurance. For clinical studies, we have separate trial
insurance.
CONSOLIDATED INCOME STATEMENT
for the year ended 30 June 2022
from continuing operations 2022 2021
notes £'000 £'000
Revenue 2 671,076 565,559
Cost of sales 4 (313,527) (269,852)
Gross profit 357,549 295,707
Distribution costs (122,455) (110,087)
Administrative expenses (69,736) (69,257)
UK defined benefit pension scheme past service cost 23 (11,695) -
(Losses)/gains from the fair value of financial instruments 25 (10,413) 21,978
Operating profit 143,250 138,341
Financial income 5 932 3,406
Financial expenses 5 (2,938) (3,991)
Share of profits of associates and joint ventures 13 4,342 1,683
Profit before tax 145,586 139,439
Income tax expense 7 (25,235) (27,980)
Profit for the year 120,351 111,459
Profit attributable to:
Equity shareholders of the parent company 120,351 111,459
Non-controlling interest 26 - -
Profit for the year 120,351 111,459
pence pence
Dividend per share arising in respect of the year 26 72.6 66.0
Dividend per share paid in the year 26 68.0 14.0
Earnings per share (basic and diluted) 8 165.4 153.2
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME AND EXPENSE
for the year ended 30 June 2022
2022 2021
notes £'000 £'000
Profit for the year 120,351 111,459
Other items recognised directly in equity:
Items that will not be reclassified to the Consolidated income statement:
Current tax on contributions to defined benefit pension schemes 1,653 1,653
Deferred tax on contributions to defined benefit pension schemes (1,653) (1,653)
Remeasurement of defined benefit pension scheme liabilities 23 69,078 33,285
Deferred tax on remeasurement of defined benefit pension scheme liabilities (15,997) (6,052)
Total for items that will not be reclassified 53,081 27,233
Items that may be reclassified to the Consolidated income statement:
Exchange differences in translation of overseas operations 26 12,151 (14,752)
Exchange differences in translation of overseas joint venture 26 118 (728)
Current tax on translation of net investments in foreign operations 26 (1,529) 735
Deferred tax on translation of net investments in foreign operations 26 - 735
Effective portion of changes in fair value of cash flow hedges, net of 26 (28,423) 51,590
recycling
Deferred tax on effective portion of changes in fair value of cash flow hedges 7,26 6,155 (9,790)
Total for items that may be reclassified (11,528) 27,790
Total other comprehensive income and expense, net of tax 41,553 55,023
Total comprehensive income and expense for the year 161,904 166,482
Attributable to:
Equity shareholders of the parent company 161,904 166,482
Non-controlling interest 26 - -
Total comprehensive income and expense for the year 161,904 166,482
CONSOLIDATED BALANCE SHEET
at 30 June 2022
2022 2021
notes £'000 £'000
Assets
Property, plant and equipment 9 243,853 246,242
Right-of-use assets 10 9,950 12,429
Investment properties 11 10,568 -
Intangible assets 12 44,218 43,795
Investments in associates and joint ventures 13 20,570 16,634
Finance lease receivables 14 6,961 6,241
Employee benefits 23 43,241 -
Deferred tax assets 7 22,893 21,292
Derivatives 25 - 12,484
Total non-current assets 402,254 359,117
Current assets
Inventories 16 162,482 113,563
Trade receivables 25 127,551 114,661
Finance lease receivables 14 3,348 1,763
Contract assets 578 332
Short-term loans to associates and joint ventures 302 598
Current tax 8,901 1,600
Other receivables 25 27,068 30,021
Derivatives 25 7,121 9,639
Pension scheme cash escrow account 23 - 10,578
Bank deposits 15 100,000 120,000
Cash and cash equivalents 15,25 153,162 95,008
Total current assets 590,513 497,763
Current liabilities
Trade payables 25 30,947 24,715
Contract liabilities 18 12,956 6,120
Current tax 10,078 4,680
Provisions 17 4,244 6,259
Derivatives 25 17,890 5,594
Lease liabilities 20 3,714 3,904
Borrowings 21 919 992
Other payables 19 51,949 51,716
Total current liabilities 132,697 103,980
Net current assets 457,816 393,783
Non-current liabilities
Lease liabilities 20 6,466 8,658
Borrowings 21 5,160 6,457
Employee benefits 23 996 23,698
Deferred tax liabilities 7 22,815 10,402
Derivatives 25 9,463 355
Total non-current liabilities 44,900 49,570
Total assets less total liabilities 815,170 703,330
Equity
Share capital 26 14,558 14,558
Share premium 42 42
Own shares held 26 (750) (404)
Currency translation reserve 26 14,459 3,719
Cash flow hedging reserve 26 (10,923) 11,345
Retained earnings 798,541 674,603
Other reserve 26 (180) 44
Equity attributable to the shareholders of the parent company 815,747 703,907
Non-controlling interest 26 (577) (577)
Total equity 815,170 703,330
These financial statements were approved by the Board of Directors on 15
September 2022 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 2022
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 June 2021 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 July 2020 14,558 42 (404) 17,729 (30,455) 546,100 (129) (577) 546,864
Profit for the year - - - - - 111,459 - - 111,459
Other comprehensive income and expense (net of tax)
Remeasurement of defined benefit pension scheme liabilities - - - - - 27,233 - - 27,233
Foreign exchange translation differences - - - (13,282) - - - - (13,282)
Relating to associates and joint ventures - - - (728) - - - - (728)
Changes in fair value of cash flow hedges - - - - 41,800 - - - 41,800
Total other comprehensive income and expense - - - (14,010) 41,800 27,233 - - 55,023
Total comprehensive income and expense - - - (14,010) 41,800 138,692 - - 166,482
Share-based payments charge - - - - - - 173 - 173
Dividends paid - - - - - (10,189) - - (10,189)
Balance at 30 June 2021 14,558 42 (404) 3,719 11,345 674,603 44 (577) 703,330
Year ended 30 June 2022
Profit for the year - - - - - 120,351 - - 120,351
Other comprehensive income and expense (net of tax)
Remeasurement of defined benefit pension scheme liabilities - - - - - 53,081 - - 53,081
Foreign exchange translation differences - - - 10,622 - - - - 10,622
Relating to associates and joint ventures - - - 118 - - - - 118
Changes in fair value of cash flow hedges - - - - (22,268) - - - (22,268)
Total other comprehensive income and expenses - - - 10,740 (22,268) 53,081 - - 41,553
Total comprehensive income and expenses - - - 10,740 (22,268) 173,432 - - 161,904
Share-based payments charge - - - - - - 180 - 180
Own shares transferred on vesting - - 404 - - - (404) - -
Own shares purchased - - (750) - - - - - (750)
Dividends paid - - - - - (49,494) - - (49,494)
Balance at 30 June 2022 14,558 42 (750) 14,459 (10,923) 798,541 (180) (577) 815,170
More details of share capital and reserves are given in note 26.
CONSOLIDATED STATEMENT OF CASH FLOW
for the year ended 30 June 2022
2022 2021
notes £'000 £'000
Cash flows from operating activities
Profit for the year 120,351 111,459
Adjustments for:
Depreciation of property, plant and equipment, investment properties 9,11 25,898 24,317
Loss on sale of property, plant and equipment 9 157 31
Impairment of property, plant and equipment 9 1,259 -
Depreciation of right-of-use assets 10 4,205 4,463
Impairment of right-of-use-assets 10 1,837 -
Amortisation of development costs 12 4,698 9,019
Amortisation of other intangibles 12 1,225 1,205
Impairment of development costs 12 - 1,092
Write-off of intangible assets 12 3,510 -
Share of profits from associates and joint ventures 13 (4,342) (1,683)
Profit on disposal of investment in associate 13 (582) -
Impairment of investment in associate - 1,674
Impairment of long-term loan to associate - 2,633
Write-off of lease liabilities 20 (1,985) -
UK defined benefit pension scheme past service cost 23 11,695 78
Financial income 5 (932) (3,406)
Financial expenses 5 2,938 3,991
Losses/(gains) from the fair value of financial instruments 25 8,349 (22,995)
Share-based payment expense 24 180 173
Tax expense 7 25,235 27,980
83,345 48,572
Increase in inventories (48,919) (8,066)
Increase in trade and other receivables (11,301) (25,703)
Increase in trade and other payables 12,288 27,216
(Decrease)/increase in provisions (2,015) 668
(49,947) (5,885)
Defined benefit pension scheme contributions 23 (8,866) (8,866)
Income taxes paid (23,410) (9,991)
Cash flows from operating activities 121,473 135,289
Investing activities
Purchase of property, plant and equipment, and investment properties 9,11 (30,960) (10,873)
Sale of property, plant and equipment 687 33
Development costs capitalised 12 (7,966) (9,844)
Purchase of other intangibles 12 (929) (3,000)
Decrease/(increase) in bank deposits 15 20,000 (110,000)
Interest received 5 834 625
Dividend received from associates and joint ventures 13 525 -
Purchase of additional shareholding in joint venture - (749)
Proceeds from sale of shares in associate 13 582 -
Payments from pension scheme cash escrow account 23 10,578 -
Cash flows from investing activities (6,649) (133,808)
Financing activities
Increase in borrowings 21 - 636
Repayment of borrowings 21 (974) (3,477)
Interest paid 5 (591) (386)
Repayment of principal of lease liabilities 22 (4,081) (4,815)
Own shares purchased 26 (750) -
Dividends paid 26 (49,494) (10,189)
Cash flows from financing activities (55,890) (18,231)
Net increase in cash and cash equivalents 58,934 (16,750)
Cash and cash equivalents at beginning of the year 95,008 110,386
Effect of exchange rate fluctuations on cash held (780) 1,372
Cash and cash equivalents at end of the year 15 153,162 95,008
NOTES (FORMING PART OF THE FINANCIAL STATEMENTS)
1. Accounting policies
This section sets out our significant accounting policies that relate to the
financial statements as a whole, along with the critical accounting judgements
and estimates that management has identified as having a potentially material
impact on the Group's consolidated financial statements. Where an accounting
policy is applicable to a specific note in the financial statements, the
policy is described within that note.
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 'we') and equity account
the Group's interest in associates and joint ventures. The parent company
financial statements present information about the Company as a separate
entity and not about the Group.
The financial information set out in the announcement does not constitute the
Group's statutory accounts for the years ended 30 June 2022 or 30 June 2021.
The financial information for the year ended 30 June 2021 is derived from the
statutory accounts for that year, which have been delivered to the Registrar
of Companies. The auditor reported on those accounts; their report was
unqualified, did not draw attention to any matters by way of emphasis without
qualifying their report and did not contain a statement under s498 (2) or (3)
Companies Act 2006. In respect of the year ended 30 June 2022, an unqualified
auditor's report was signed on 15 September 2022. The statutory accounts will
be delivered to the Registrar of Companies following the Group's annual
general meeting. 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
(£'000).
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.
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 this 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.
Item Key judgements (J) and estimates (E)
Taxation E - Estimates of future profits to use deferred tax assets
Research and development costs J - Whether a project meets the criteria for capitalisation
Goodwill and capitalised development costs E - Estimates of future cash flows for impairment testing
Inventories E - Determination of net realisable value
Defined benefit pension schemes E - Valuation of defined benefit pension schemes' liabilities
Cash flow hedges E - Estimates of highly probable forecasts of the hedged item
When reviewing the above critical judgements and estimates, management also
considered the effect of climate change, including our own Net Zero
commitment. For the year ended 30 June 2022 we concluded that climate change
did not have a material effect on any of the above judgements and estimates.
The Directors reached the same conclusion when reviewing the Group's going
concern and viability assessment.
While the Group could benefit significantly from changing demand as customers
and end-users make progress with their own Net Zero targets, we recognise that
climate change may pose a greater risk to the Group over time. We will
continue to review the effect of climate change on financial statements in the
future, and update our accounting and disclosures as the position changes.
New, revised or changes to existing accounting standards
The following accounting standard amendments became effective as at 1 January
2021 and have been adopted in the preparation of these financial statements,
with effect from 1 July 2021:
- amendments to IFRS 4, IFRS 7, IFRS 9, IFRS 16 and IAS 39, Interest Rate
Benchmark Reform Phase 2; and
- amendments to IFRS 16, COVID-19-Related Rent Concessions.
These have not had a material effect on these financial statements.
Going concern
In preparing these financial statements, the Directors have adopted the going
concern basis. The decision to adopt the going concern basis was made after
considering:
- the Group's business model and key markets;
- the Group's risk management processes and principal risks;
- the Group's financial resources and strategies; and
- the process undertaken to review the Group's viability, including scenario
testing.
In the viability review the Directors assessed the period to 30 September
2025, using the 'highly probable' revenue forecasts used by the Group for
hedge accounting, and 'severe but plausible' downside scenarios. In making the
going concern assessment, the Directors used the same forecasts but assessed
the period to 30 September 2023.
Each scenario used the same starting point, taking the revenue forecast as the
pessimistic view in our five-year business plan (which we also refer to as the
'highly probable' revenue forecast for hedge accounting). The starting point
for overheads, capital expenditure, and other cash outflows was taken from the
optimistic plan. Together, this means that the scenarios started by assuming
that revenue growth is at the lowest end of our corporate view while still
incurring the costs in the next three years that are needed to achieve revenue
growth in later years. For context, revenue in the first year of this starting
point is a small increase from FY2022's revenue of £671.1m.
The seven scenarios then took this same starting point and then added in the
following elements:
A - Reduction in revenue if we were unable to buy certain critical ASIC chips
for twelve months.
B - Reduction in revenue from encoder, CMM, and machine tool products.
C - Economic and political uncertainty, causing a reduction in revenue, an
increase in labour costs, and an increase in materials, utilities, and
logistics costs.
D - A cyber-attack causing a loss of networks and systems for three weeks
(management's assessment of a worst-case scenario for total network loss).
E - The effect on our business if we lost the use of our main hall at Miskin,
our largest factory, for six months.
F - The effect of a further 10% and 15% strengthening in Sterling, compared to
management's existing assumptions.
G - A 50% increase in our estimated Net Zero capital expenditure.
For risks such as People, Innovation strategy, and Capital allocation, the
Directors felt that if these risks crystallised they would result in the
restriction of longer-term growth rather than having a significant financial
effect in the medium term. We therefore didn't include these risks in the
scenarios above.
We also performed reverse stress testing to identify what would need to happen
in the period to 30 September 2023 to result in the Group having negative bank
deposit and cash balances. We found that this would occur if revenue fell to
£19m per month before mitigating actions were taken; this is considerably
lower than forecast.
In making their going concern assessment, the Directors also considered the
strong demand currently being experienced and how well we've responded to
challenges such as the pandemic and global supply chain disruption.
Based on this assessment, incorporating a review of the current position, the
scenarios, our principal risks and mitigation, the Directors have a reasonable
expectation that we'll be able to continue operating and meet our liabilities
as they fall due over the period to 30 September 2023.
Basis of consolidation
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 non-controlling 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.
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.
Intragroup balances and transactions, and any unrealised income and expenses
arising from intragroup transactions, are eliminated on consolidation.
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.
Foreign currencies
On consolidation, overseas subsidiaries' results are translated into Sterling
at weighted average exchange rates for the year 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 prevailing at that date. Differences on exchange resulting from the
translation of overseas assets and liabilities are recognised in Other
comprehensive income and are accumulated in equity.
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.
Separately disclosed items
The Directors consider that certain items should be separately disclosed to
aid understanding of the Group's performance.
Gains and losses from the fair value of financial instruments are therefore
separately disclosed in the Consolidated income statement, where these gains
and losses relate to certain forward currency contracts that are not effective
for hedge accounting. Restructuring costs are also separately disclosed where
significant costs have been incurred in rationalising and reorganising our
business as part of a Board-approved initiative, and relate to matters that do
not frequently recur.
During the period, a change to the UK defined benefit pension scheme rules,
per note 23, resulted in a significant non-recurring amount being recognised
in the Consolidated income statement. This has also been separately disclosed.
These items are also excluded from Adjusted profit before tax, Adjusted
operating profit and Adjusted earnings per share measures, as explained in
note 29 Alternative performance measures.
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, 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 use
these financial measures, along with the most directly comparable GAAP
financial measures, in evaluating our performance (see note 29).
2. Revenue disaggregation and segmental analysis
We manage our business by segment, comprising Manufacturing technologies and
Analytical instruments and medical devices, and by geographical region. The
results of these segments and regions are regularly reviewed by the Board to
assess performance and allocate resources, and are presented in this note.
Accounting policy
The Group generates revenue from the sale of manufacturing technologies and
analytical instruments and medical devices goods, capital equipment and
services. These can be sold both on their own and together.
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
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 with associated products. For software
licences, where the licence and/or maintenance is provided as part of a
contract that provides customers with software licences and other goods and
services then the transaction price is allocated on the same basis as
described in a) above.
The Group's distinct 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) 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 are 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.
d) 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.
e) Disaggregation of revenue
The Group disaggregates revenue from contracts with customers between: goods,
capital equipment and installation, and aftermarket services; operating
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.
Within the two operating segments there are multiple product offerings with
similar economic characteristics, similar production processes and similar
customer bases. Our Manufacturing technologies business consists of industrial
metrology, position measurement and additive manufacturing (AM) product lines,
while our Analytical instruments and medical devices business consists of
spectroscopy and neurological product lines. More details of the Group's
products and services are given in the Strategic Report.
Year ended 30 June 2022 Analytical instruments and medical devices
Manufacturing technologies
Total
£'000 £'000 £'000
Revenue 634,588 36,488 671,076
Depreciation, amortisation and impairment 36,552 2,570 39,122
Operating profit before losses from fair value of financial instruments and UK defined benefit pension scheme past service cost 162,549 2,809 165,358
Share of profits from associates and joint ventures 4,342 - 4,342
Net financial expense - - (2,006)
UK defined benefit pension scheme past service cost - - (11,695)
Losses from the fair value of financial instruments - - (10,413)
Profit before tax - - 145,586
Year ended 30 June 2021* Analytical instruments and medical devices £'000
Manufacturing technologies
£'000 Total
£'000
Revenue 530,445 35,114 565,559
Depreciation, amortisation and impairment 37,909 2,187 40,096
Operating profit before gains from fair value of financial instruments 111,978 4,385 116,363
Share of profits from associates and joint ventures 1,683 - 1,683
Net financial expense - - (585)
Gains from the fair value of financial instruments - - 21,978
Profit before tax - - 139,439
*In previous years, we reported the results of additive manufacturing machines
marketed and sold to medical and dental customers within Analytical
instruments and medical devices (formerly Healthcare), reflecting how we
managed this business. The management of this now sits within the AM product
line, with a similar customer base and risk profile to this product line, with
results and operational matters reported to the Executive Committee and Chief
Operating Decision Maker accordingly. We now therefore report the medical and
dental results within Manufacturing technologies rather than Analytical
instruments and medical devices. Comparative figures have been reclassified
accordingly. For the year ended 30 June 2021, revenue of £4,254,000,
depreciation and amortisation of £993,000, and operating profit before gains
from fair value of financial instruments of £1,480,000 have been reclassified
from Analytical instruments and medical devices to Manufacturing technologies.
There is no allocation of assets and liabilities to operating segments.
Depreciation, amortisation and impairments are included within certain other
overhead expenditure which is allocated to segments on the basis of the level
of
activity.
The following table shows the analysis of non-current assets, excluding
deferred tax, derivatives and employee benefits, by geographical region:
2022 2021
£'000 £'000
UK 181,530 179,039
Overseas 155,725 146,393
Total non-current assets 337,255 325,432
No overseas country had non-current assets amounting to 10% or more of the
Group's total non-current assets.
The following table shows the disaggregation of group revenue by category:
2022 2021
£'000 £'000
Goods, capital equipment and installation 615,641 513,675
Aftermarket services 55,435 51,884
Total Group revenue 671,076 565,559
Aftermarket services include repairs, maintenance and servicing, programming,
training, extended warranties, and software licences and maintenance. There is
no significant difference between our two operating segments as to their split
of revenue by type.
The analysis of revenue by geographical market was:
2022 2021
£'000 £'000
APAC total 317,023 274,765
UK (country of domicile) 31,536 26,923
EMEA, excluding UK 174,290 142,219
EMEA total 205,826 169,142
Americas total 148,227 121,652
Total Group revenue 671,076 565,559
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:
2022 2021
£'000 £'000
China 152,772 141,690
USA 128,531 103,850
Japan 69,829 51,523
Germany 58,636 51,095
There was no revenue from transactions with a single external customer which
amounted to more than 10% of the Group's total revenue.
3. Personnel expenses
The remuneration costs of our people account for a significant proportion of
our total expenditure, which are analysed in this note.
The aggregate payroll costs for the year were:
2022 2021
£'000 £'000
Wages and salaries 207,783 183,235
Compulsory social security contributions 24,497 21,766
Contributions to defined contribution pension schemes 21,988 19,759
Government grants - employment support - (989)
Share-based payment charge 180 173
Total payroll costs 254,448 223,944
Wages and salaries and compulsory social security contributions include
£16,179,000 (2021: £13,208,000) relating to performance bonuses.
The average number of persons employed by the Group during the year was:
2022 2021
Number Number
UK 3,132 2,742
Overseas 1,799 1,695
Average number of employees 4,931 4,437
Key management personnel have been assessed to be the Directors of the
Company.
The total remuneration of the Directors was:
2022 2021
£'000 £'000
Short-term employee benefits 3,763 2,697
Post-employment benefits 121 111
Share-based payment charge 180 173
Total remuneration of the directors 4,064 2,981
4. Cost of sales
Our cost of sales includes the costs to manufacture our products and our
engineering spend on existing and new products, net of capitalisation and
research and development tax credits.
Included in cost of sales are the following amounts:
2022 2021
£'000 £'000
Production costs 234,919 197,805
Research and development expenditure 59,415 58,618
Other engineering expenditure 26,356 18,019
Gross engineering expenditure 85,771 76,637
Development expenditure capitalised (net of amortisation) (3,268) (825)
Development expenditure impaired - 1,092
Research and development tax credit (3,895) (4,857)
Total engineering costs 78,608 72,047
Total cost of sales 313,527 269,852
Production costs includes the raw material and component costs, payroll costs
and sub-contract costs, and allocated overheads associated with manufacturing
our products.
Research and development expenditure includes the payroll costs, material
costs and allocated overheads attributed to projects identified as being
related to new products or processes. Other engineering expenditure includes
the payroll costs, material costs and allocated overheads attributed to
projects identified as being related to existing products or processes.
5. Financial income and expenses
Financial income mainly arises from bank interest on our deposits, while we
are exposed to realised currency gains and losses on translation of foreign
currency denominated intragroup balances and offsetting financial instruments.
Included in financial income and expenses are the following amounts:
2022 2021
Financial income notes £'000 £'000
Fair value gains from one-month forward currency contracts 25 98 2,781
Bank interest receivable 834 625
Total financial income 932 3,406
Financial expenses
Net interest on pension schemes' assets/liabilities 23 306 876
Currency losses 1,414 2,660
Realised currency reserve losses from discontinuation of foreign operation 30 575 -
Lease interest 20 481 335
Interest payable on borrowings 21 52 69
Other interest payable 110 51
Total financial expenses 2,938 3,991
Currency losses relate to revaluations of foreign currency-denominated
balances using latest reporting currency exchange rates. The losses recognised
in 2021 and 2022 largely related to an appreciation of Sterling relative to
the US dollar affecting US dollar-denominated intragroup balances in the
Company.
Certain intragroup balances are classified as 'net investments in foreign
operations', such that revaluations from currency movements on designated
balances accumulate in the Currency translation reserve in Equity. Rolling
one-month forward currency contracts are used to offset currency movements on
remaining intragroup balances, with fair value gains and losses being
recognised in financial income or expenses. See note 25 for further details.
At 30 June 2022, the Group's trading operations in Russia had ceased and the
net assets of OOO Renishaw were written down to nil (see note 30). In
accordance with IAS 21, cumulative translation losses relating to the company
totalling £575,000 have been removed from the currency translation reserve
and realised in the Consolidated income statement.
6. Profit before tax
Detailed below are other notable amounts recognised in the Consolidated income
statement.
Included in the profit before tax are the following costs/(income):
2022 2021
notes £'000 £'000
Depreciation and impairment of property, plant and equipment and investment properties (a) 9,11 27,157 24,317
Loss on sale of property, plant and equipment (a) 157 31
Depreciation and impairment of right-of-use assets (a) 10 6,042 4,463
Amortisation, impairment, and write-off of intangible assets (a) 12 5,923 11,316
Impairment of investment in associates and joint ventures (c) - 1,674
Impairment of long-term loans to associates and joint ventures (c) - 2,633
Profit from sale of shares in associate (c) 13 582 -
Impairment of net assets of foreign operation (b) 30 2,126 -
Grant income (a) (2,840) (1,421)
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 distribution costs, and (c) within
administrative expenses. Further detail on each element can be found in the
relevant notes.
Grant income relates to government grants, which 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 Consolidated balance sheet and released to match the related
expenditure. Where grants are expected to be received after the related
expenditure has occurred, and there is reasonable assurance that the entity
will comply with the grant conditions, amounts are recognised to offset the
expenditure and an asset recognised.
Costs within Administrative expenses relating to auditor fees included:
2022 2021
£'000 £'000
Audit of these financial statements 718 403
Audit of subsidiary undertakings pursuant to legislation 526 458
Other assurance 32 12
All other non-audit fees - -
Total auditor fees 1,276 873
7. Taxation
The Group tax charge is affected by our geographic mix of profits and other
factors explained in this note. Our expected future tax charges and related
tax assets are also set out in the deferred tax section, together with our
view on whether we will be able to make use of these in the future.
Accounting policy
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 (including the future release of deferred tax liabilities)
will be available, against which the deductible temporary differences can be
used, 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.
The following table shows an analysis of the tax charge:
2022 2021
£'000 £'000
Current tax:
UK corporation tax on profits for the year 9,288 7,535
UK corporation tax - prior year adjustments (28) (4,376)
Overseas tax on profits for the year 16,734 13,237
Overseas tax - prior year adjustments (176) 27
Total current tax 25,818 16,423
Deferred tax:
Origination and reversal of temporary differences (1,372) 7,692
Prior year adjustments 166 4,438
Derecognition of previously recognised tax losses and excess interest 623 -
Recognition of previously unrecognised tax losses and excess interest - (3,909)
Effect on deferred tax for changes in tax rates - 3,336
(583) 11,557
Tax charge on profit 25,235 27,980
The tax for the year is lower (2021: higher) than the UK standard rate of
corporation tax of 19% (2021: 19%). The differences are explained as follows:
2022 2021
£'000 £'000
Profit before tax 145,586 139,439
Tax at 19% (2021: 19%) 27,661 26,493
Effects of:
Different tax rates applicable in overseas subsidiaries (1,834) (150)
Permanent differences 978 1,431
Companies with unrelieved tax losses - 100
Share of profits of associates and joint ventures (825) (320)
Tax incentives (patent box and capital allowances super-deduction) (1,400) -
Prior year adjustments (38) 89
Effect on deferred tax for changes in tax rates - 3,336
Recognition of previously unrecognised tax losses and excess interest - (3,909)
Derecognition of previously recognised tax losses and excess interest 623 -
Use of unrecognised losses (25) (162)
Irrecoverable withholding tax 2 1,052
Other differences 93 20
Tax charge on profit 25,235 27,980
Effective tax rate 17.3% 20.1%
We operate in many countries around the world and the overall effective tax
rate (ETR) is a result of the combination of the varying tax rates applicable
throughout these countries. In addition, the 2022 tax rate has benefited from
patent box and capital allowances super-deduction tax incentives and higher
profits from associates and joint ventures.
The Group's future 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.
Deferred tax
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
£78,000 asset (2021: £10,890,000 asset) is presented as a £22,893,000
deferred tax asset (2021: £21,292,000 asset) and a £22,815,000 deferred tax
liability (2021: £10,402,000 liability) in the 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.
Balances at the end of the year were:
2022 2021
Assets Liabilities Net Assets Liabilities Net
£'000 £'000 £'000 £'000 £'000 £'000
Property, plant and equipment 517 (19,966) (19,449) 425 (17,546) (17,121)
Intangible assets - (2,980) (2,980) - (2,609) (2,609)
Intragroup trading (inventories) 20,158 - 20,158 14,539 - 14,539
Intragroup trading (fixed assets) 1,457 - 1,457 1,252 - 1,252
Defined benefit pension schemes 125 (11,173) (11,048) 4,548 (201) 4,347
Derivatives 3,508 - 3,508 - (2,930) (2,930)
Tax losses 3,893 - 3,893 8,365 - 8,365
Other 4,953 (414) 4,539 5,083 (36) 5,047
Balance at the end of the year 34,611 (34,533) 78 34,212 (23,322) 10,890
Other deferred tax assets include timing differences relating to inventory
provisions totalling £1,774,000 (2021: £2,001,000), other provisions
(including bad debt provisions) of £975,000 (2021: £683,000), and employee
benefits relating to Renishaw KK of £853,000 (2021: £668,000), with the
remaining balance relating to a number of other temporary differences.
The movements in the deferred tax balance during the year were:
2022 2021
£'000 £'000
Balance at the beginning of the year 10,890 39,142
Movements in the Consolidated income statement 583 (11,557)
Movement in relation to the cash flow hedging reserve 6,155 (9,790)
Movement in relation to the currency translation reserve - 902
Movement in relation to the defined benefit pension schemes (17,650) (7,705)
Total movement in the Consolidated statement of comprehensive income and expense (11,495) (16,593)
Currency translation 100 (102)
Balance at the end of the year 78 10,890
The deferred tax movement in the Consolidated income statement is analysed as:
2022 2021
£'000 £'000
Property, plant and equipment (2,328) (3,193)
Intangible assets (371) (1,345)
Intragroup trading (inventories) 5,619 579
Intragroup trading (fixed assets) 205 (819)
Defined benefit pension schemes 2,255 156
Derivatives 284 (2,185)
Tax losses (4,472) (5,712)
Other (609) 962
Total movement for the year 583 (11,557)
The Company has fully used the tax losses incurred in 2020, reducing the
deferred tax asset in respect of losses from £3,299,000 at 30 June 2021 to
nil at 30 June 2022. Deferred tax assets of £3,893,000 in respect of losses
are recognised across other Group companies where it is considered likely that
the business will generate sufficient future taxable profits.
Deferred tax assets have not been recognised in respect of tax losses carried
forward of £4,815,000 (2021: £4,459,000), due to uncertainty over their
offset against future taxable profits and therefore their recoverability.
These losses are held by Group companies in France, Switzerland, Brazil,
Australia and the US, where for 95% of the losses there are no time
limitations on their utilisation.
In determining profit forecasts for each Group company, revenue forecasts have
been estimated using consistently applied external and internal data sources,
which is the key variable in the profit forecasts. Sensitivity analysis
indicates that a reduction of 5% to relevant revenue forecasts would result in
an impairment to deferred tax assets recognised in respect of losses and
intragroup trading (inventories) of less than £100,000, while an increase of
5% would result in additions to deferred tax assets in respect of tax losses
not recognised of less than £200,000.
It is likely that the majority of unremitted earnings of overseas subsidiaries
would qualify for the UK dividend exemption. However, £61,204,000 (2021:
£43,858,000) of those earnings may still result in a tax liability
principally as a result of withholding taxes levied by the overseas
jurisdictions in which those subsidiaries operate. The tax liabilities for the
earnings for which management intend to repatriate in the foreseeable future
are not material and consequently no deferred tax liability has been
recognised.
8. Earnings per share
Basic earnings per share is the amount of profit generated in a financial year
attributable to equity shareholders, divided by the weighted average number of
shares in issue during the year.
Basic and diluted earnings per share are calculated on earnings of
£120,351,000 (2021: £111,459,000) and on 72,774,147 shares (2021: 72,778,904
shares), being the number of shares in issue. The number of shares excludes
14,396 (2021: 9,639) shares held by the Employee Benefit Trust (EBT). On this
basis, earnings per share (basic and diluted) is calculated as 165.4 pence
(2021: 153.2 pence).
There is no difference between the weighted average earnings per share and the
basic and diluted earnings per share.
For the calculation of adjusted earnings per share, per note 29, earnings of
£120,351,000 (2021: £111,459,000) are adjusted by post-tax amounts for:
- fair value (gains)/losses on financial instruments not eligible for
hedge accounting (reported in Revenue), which represents the amount by which
revenue would change had all the derivatives qualified for hedge accounting
£1,672,000 gain;
- fair value (gains)/losses on financial instruments not eligible for
hedge accounting (reported in Gains/(losses) from the fair value of financial
instruments), £8,435,000 loss;
- a revised estimate of 2020 restructuring costs, £1,367,000 gain;
- a UK defined benefit pension scheme past service cost, £9,473,000
loss; and
- costs relating to the 2021 formal sales process, £200,000 gain.
9. Property, plant and equipment
The Group makes significant investments in distribution and in-house
manufacturing infrastructure. During the year we completed a new distribution
facility in South Korea and invested in our manufacturing equipment in the UK.
We expect to significantly increase our investments in property, plant and
equipment in the next few years.
Accounting policy
Freehold land is not depreciated. Other assets are stated at costs less
accumulated depreciation and accumulated impairment losses, if any.
Depreciation is provided to write off the costs 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; and
- vehicles, 3 to 4 years.
Freehold Assets in the
land and Plant and Motor course of
buildings equipment vehicles construction Total
Year ended 30 June 2022 £'000 £'000 £'000 £'000 £'000
Cost
At 1 July 2021 216,783 242,432 7,421 7,109 473,745
Additions 5,715 16,756 1,150 7,144 30,765
Transfers of assets in the course of construction 2,800 3,972 - (6,772) -
Transfers to investment properties (11,563) - - - (11,563)
Disposals 97 (3,587) (1,269) - (4,759)
Currency adjustment 3,988 3,984 218 - 8,190
At 30 June 2022 217,820 263,557 7,520 7,481 496,378
Depreciation
At 1 July 2021 38,530 182,557 6,416 - 227,503
Charge for the year 4,623 20,029 1,056 - 25,708
Impairment 1,259 - - - 1,259
Transfers to investment properties (1,222) - - - (1,222)
Disposals 81 (2,837) (1,180) - (3,936)
Currency adjustment 545 2,465 203 - 3,213
At 30 June 2022 43,816 202,214 6,495 - 252,525
Net book value
At 30 June 2022 174,004 61,343 1,025 7,481 243,853
At 30 June 2021 178,253 59,875 1,005 7,109 246,242
During the year, a third-party valuation of one of our properties in the US
resulted in an impairment of £1,259,000.
See note 11 for detail on the reclassification of Property, plant and
equipment to Investment properties.
Freehold Assets in the
land and Plant and Motor course of
buildings equipment vehicles construction Total
Year ended 30 June 2021 £'000 £'000 £'000 £'000 £'000
Cost
At 1 July 2020 225,556 247,986 8,526 6,363 488,431
Additions 194 6,930 143 3,606 10,873
Transfers 345 2,515 - (2,860) -
Disposals (136) (9,628) (951) - (10,715)
Currency adjustment (9,176) (5,371) (297) - (14,844)
At 30 June 2021 216,783 242,432 7,421 7,109 473,745
Depreciation
At 1 July 2020 35,842 175,864 6,676 - 218,382
Charge for the year 4,084 19,407 826 - 24,317
Disposals (124) (9,658) (858) - (10,640)
Currency adjustment (1,272) (3,056) (228) - (4,556)
At 30 June 2021 38,530 182,557 6,416 - 227,503
Net book value
At 30 June 2021 178,253 59,875 1,005 7,109 246,242
At 30 June 2020 189,714 72,122 1,850 6,363 270,049
Additions to assets in the course of construction comprise £826,000 (2021:
£817,000) for land and buildings and £6,318,000 (2021: £2,789,000) for
plant and equipment.
Losses on disposals of Property, plant and equipment amounted to £157,000
(2021: £31,000).
At 30 June 2022, properties with a net book value of £54,208,000 (2021:
£81,679,000) were subject to a fixed charge to secure the UK defined benefit
pension scheme liabilities. The number of properties on fixed charge has
decreased in the year, see note 23.
10. Right-of-use assets
The Group leases properties and cars from third parties and recognises an
associated right-of-use asset where we are afforded control and economic
benefit from the use of the asset.
Accounting policy
At the commencement date of a lease arrangement the Group recognises a
right-of-use asset for the leased item and a lease liability for any payments
due. Right-of-use assets are initially measured at cost, being the present
value of the lease liability plus any initial costs incurred in entering the
lease and less any incentives received. See note 20 for further detail on
lease liabilities. Right-of-use assets are subsequently depreciated on a
straight-line basis from the commencement date to the earlier of the end of
the useful life or the end of the lease term.
Leasehold property Plant and equipment Motor vehicles Total
Year ended 30 June 2022 £'000 £'000 £'000 £'000
Net book value
At 1 July 2021 10,297 102 2,030 12,429
Additions 1,293 115 1,058 2,466
Depreciation (2,805) (102) (1,298) (4,205)
Impairment (1,837) - - (1,837)
Currency adjustment 1,107 2 (12) 1,097
At 30 June 2022 8,055 117 1,778 9,950
Leasehold property Plant and equipment Motor vehicles Total
Year ended 30 June 2021 £'000 £'000 £'000 £'000
Net book value
At 1 July 2020 10,287 - 2,385 12,672
Additions 3,548 232 1,234 5,014
Depreciation (2,903) (121) (1,439) (4,463)
Currency adjustment (635) (9) (150) (794)
At 30 June 2021 10,297 102 2,030 12,429
An impairment of £1,837,000 was recognised in the period relating to a leased
property in Russia. See note 30 for further detail.
11. Investment properties
The Group's investment properties consist of four facilities in the UK,
Ireland and India. During the year, we have transferred these to investment
properties, from property, plant and equipment, following a change in use of
the UK and India properties. This includes the occupation of these properties
by rent-paying third parties during the year.
Accounting policy
Where property owned by the Group is deemed to be held to earn rentals or for
long-term capital appreciation it is recognised as investment property.
Where a property is part-occupied by the Group, portions of the property are
recognised as investment property if they meet the above description and if
these portions could be sold separately and reliably measured. If the portions
could not be sold separately, the property is recognised as an investment
property only if a significant proportion is held for rental or appreciation
purposes.
The Group has elected to value investment properties on a cost basis,
initially comprising an investment property's purchase price and any directly
attributable expenditure. Depreciation is provided to write off the cost of
assets on a straight-line basis over their estimated useful economic lives,
being 50 years. Amounts relating to freehold land is not depreciated.
Total
Year ended 30 June 2022 £'000
Cost
At 1 July 2021 -
Transfers from Property, plant and equipment 11,563
Additions 195
Disposals (102)
Currency adjustment 249
At 30 June 2022 11,905
Depreciation
At 1 July 2021 -
Transfers from Property, plant and equipment 1,222
Charge for the year 190
Disposals (81)
Currency adjustment 6
At 30 June 2022 1,337
Net book value
At 30 June 2022 10,568
At 30 June 2021 -
The Group has no restrictions on the realisability of its investment
properties and no contractual obligations to purchase, construct or develop
investment properties.
Amounts recognised in the Consolidated income statement relating to investment
properties:
2022
£'000
Rental income derived from investment properties 453
Direct operating expenses (including repairs and maintenance) 105
Profit arising from investment properties 348
The fair value of the Group's investment properties totalled £14,626,000 at
30 June 2022. Fair values of each investment property have been determined by
independent valuers who hold recognised and relevant professional
qualifications and have recent experience in the location and category of each
investment property being valued.
12. Intangible assets
Our Consolidated balance sheet contains significant intangible assets, mostly
in relation to goodwill, which arises when we acquire a business and pay a
higher amount than the fair value of its net assets, and capitalised
development costs. We make significant investments into the development of new
products, which is a key part of our business model, and some of these costs
are initially capitalised and then expensed over the lifetime of future sales
of that product.
Accounting policy
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.
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 in 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 10 years.
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; 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 the useful economic life
appropriate to each product or process, ranging from five to 10 years, and is
stated at cost less accumulated amortisation and less accumulated impairment
losses. Amortisation commences when a product or process is available for use
as intended by management. Capitalised development expenditure is removed from
the balance sheet 10 years after being fully amortised.
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 fair value less costs to sell 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 judgement - Whether a project meets the 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 their
useful economic life once ready for use. Costs are capitalised from the point
the product has passed testing to demonstrate it meets the technical
specifications of the project and it satisfies all applicable regulations.
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.
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. Similarly, determining
whether capitalised development costs are impaired requires an estimation of
their value-in-use which involves significant judgement.
Internally Software licences and
Other generated
intangible development Intellectual
Goodwill assets costs property Total
Year ended 30 June 2022 £'000 £'000 £'000 £'000 £'000
Cost
At 1 July 2021 19,533 15,783 177,291 24,962 237,569
Additions - 53 7,966 876 8,895
Write-off - - - (3,510) (3,510)
Disposals - (11,211) (17,045) - (28,256)
Currency adjustment 942 4 - 51 997
At 30 June 2022 20,475 4,629 168,212 22,379 215,695
Amortisation
At 1 July 2021 9,028 13,254 151,807 19,685 193,774
Charge for the year - 201 4,698 1,024 5,923
Disposals - (11,211) (17,045) - (28,256)
Currency adjustment - (4) - 40 36
At 30 June 2022 9,028 2,240 139,460 20,749 171,477
Net book value
At 30 June 2022 11,447 2,389 28,752 1,630 44,218
At 30 June 2021 10,505 2,529 25,484 5,277 43,795
Other intangible assets Internally generated development costs Software licences and intellectual property
Goodwill
Total
Year ended 30 June 2021 £'000 £'000 £'000 £'000 £'000
Cost
At 1 July 2020 20,518 15,829 167,447 22,063 225,857
Additions - - 9,844 3,000 12,844
Currency adjustment (985) (46) - (101) (1,132)
At 30 June 2021 19,533 15,783 177,291 24,962 237,569
Amortisation
At 1 July 2020 9,028 13,105 141,696 18,664 182,493
Charge for the year - 101 9,019 1,104 10,224
Impairments - - 1,092 - 1,092
Currency adjustment - 48 - (83) (35)
At 30 June 2021 9,028 13,254 151,807 19,685 193,774
Net book value
At 30 June 2021 10,505 2,529 25,484 5,277 43,795
At 30 June 2020 11,490 2,724 25,751 3,399 43,364
Disposals of internally generated development costs have been recognised
during the year in accordance with the Group's accounting policy to remove
capitalised development expenditure from the balance sheet 10 years after
being fully amortised.
Goodwill
Goodwill has arisen on the acquisition of a number of businesses and has an
indeterminable useful life. It is therefore not amortised but is instead
tested for impairment annually and at any point during the year when an
indicator of impairment exists. Goodwill is allocated to cash generating units
(CGUs), which are either the statutory entities acquired or the group-wide
product line. 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.
The analysis of goodwill is:
2022 2021
£'000 £'000
itp GmbH 2,985 2,959
Renishaw Mayfield S.A. 2,055 1,873
Renishaw Fixturing Solutions, LLC 5,677 5,018
Other smaller acquisitions 730 655
Total goodwill 11,447 10,505
The recoverable amounts of acquired goodwill are based on value-in-use
calculations. These calculations use cash flow projections based on the
financial business plans approved by management for the next five financial
years. 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 beyond five years.
The following pre-tax discount rates have been used in discounting the
projected cash flows:
2022 2021
Business acquired CGU Discount rate Discount rate
itp GmbH itp GmbH entity ('ITP') 11.3% 10.6%
Renishaw Fixturing Solutions, LLC Renishaw fixturing product line ('RFS') 11.5% 10.2%
Renishaw Mayfield S.A. Renishaw Mayfield S.A. entity ('Mayfield') 22.9% 21.4%
The Group post-tax weighted average cost of capital, calculated at 30 June
2022, is 9% (2021: 8%). Pre-tax discount rates for Manufacturing technologies
CGUs (ITP and RFS) are calculated from this basis, given that they are aligned
with the wider Group's industries, markets and processes. The Analytical
instruments and medical devices CGU (Mayfield) has a higher risk weighting,
reflecting the less mature nature of this segment. This risk weighting is
unchanged from 2021.
For there to be an impairment in the RFS, ITP or Mayfield CGUs the discount
rate would need to increase to at least 11.7%, 26% and 29% respectively. An
increase of 5% in the discount rate would result in an impairment of around
£1.2m in the RFS CGU. At 30 June 2022, there was headroom of £151,000 for
the RFS CGU.
The following bases have been used in determining cash flow projections:
2022 2021
CGU Basis of forecast Basis of forecast
itp GmbH entity five-year business plan five-year business plan
Renishaw Fixturing product line five-year business plan five-year business plan
Renishaw Mayfield S.A. entity five-year business plan five-year business plan
These five-year business plans 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. Within these
plans, revenue forecasts are calculated with reference to external market
data, Renishaw past outperformance, and new product launches, consistent with
revenue forecasts across the Group. Production costs, engineering costs,
distribution costs and administrative expenses are calculated based on
management's best estimates of what is required to support revenue growth and
new product development. Estimates of capital expenditure and working capital
requirements are also included in the cash flow projections.
The key estimate 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. Given the average revenue growth assumptions included in
the five-year business plans, management's sensitivity analysis involves
modelling a reduction 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 to these forecast cash flows of 60% for ITP, 2% for RFS
and 24% for Mayfield. Management deems the likelihood of these reductions to
be unlikely.
Internally generated development costs
During the period, management reassessed the useful economic life of certain
capitalised projects from five to 10 years, to align with latest expectations
of product lifecycles. As a result, amortisation during the period was
£2,211,000 less than under the previous useful economic life.
The key assumption in determining the value-in-use for internally generated
development costs is the forecast unit sales over the useful economic life,
which is determined by management using their knowledge and experience with
similar products and the sales history of products already available in the
market. Resulting cash flow projections over five to 10 years, the period over
which product demand forecasts can be reasonably predicted and internally
generated development costs are written off, are discounted using pre-tax
discount rates, which are calculated from the Group post-tax weighted average
cost of capital of 9% (2021: 8%).
There were no impairments of internally generated development costs in the
year (2021: £1,092,000).
For the largest projects, comprising over 95% of the net book value at 30 June
2022, a 10% reduction to forecast unit sales, or an increase in the discount
rate by 5%, would result in an impairment of less than £100,000.
13. Investments in associates and joint ventures
Where we make an investment in a company which allows us significant influence
but not full control, we account for our share of their post-tax profits in
our financial statements. Following a full divestment in HiETA during the
year, we now have joint venture arrangements with two companies, RLS and MSP.
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 and
principal place of business
2022 2021
% %
RLS Merilna tehnika d.o.o. ('RLS') - joint venture Slovenia 50.0 50.0
Metrology Software Products Limited ('MSP') - joint venture England & Wales 70.0 70.0
HiETA Technologies Limited ('HiETA') (31 December) - associate England & Wales nil 33.3
In January 2022 an agreement was reached between Renishaw plc and Meggitt plc
for the sale of Renishaw's 33.33% shareholding in HiETA Technologies Limited
to Meggitt plc. This resulted in a net gain on disposal of £582,000, which
was recognised in the Manufacturing technologies operating segment.
Although the Group owns 70% of the ordinary share capital of MSP, this is
accounted for as a joint venture as the 'control' requirements of IFRS 10 are
not satisfied. This is primarily because the shareholders agreement includes
that for so long as the Group's holding is less than 75% of the total shares
of MSP, Renishaw agrees to exercise its voting rights such that it only votes
as if it has the same aggregate shareholding as the remaining Management
Shareholders.
Movements during the year were: 2022 2021
£'000 £'000
Balance at the beginning of the year 16,634 16,604
Additions - 749
Dividends received (525) -
Share of profits of associates and joint ventures 4,342 1,683
Impairment - (1,674)
Exchange differences 119 (728)
Balance at the end of the year 20,570 16,634
Summarised financial information for joint ventures:
RLS MSP
2022 2021 2022 2021
£'000 £'000 £'000 £'000
Assets 42,308 31,535 4,601 4,211
Liabilities (7,422) (3,719) (963) (1,056)
Net assets 34,886 27,816 3,638 3,155
Group's share of net assets 17,443 13,908 2,547 2,209
Revenue 35,247 25,145 2,492 2,239
Profit/(loss) for the year 7,886 4,800 570 (182)
Group's share of profit/(loss) for the year 3,943 2,400 399 (91)
The financial statements of RLS have been prepared on the basis of Slovenian
Accounting Standards.
The financial statements of MSP have been prepared on the basis of FRS 102.
14. Leases (as lessor)
The Group acts as a lessor for Renishaw-manufactured equipment on finance and
operating lease arrangements. This is principally for high-value capital
equipment such as our additive manufacturing machines.
Accounting policy
Where the Group transfers the risks and rewards of ownership of lease assets
to a third party, the Group recognises a receivable in the amount of the net
investment in the lease. 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.
Where the Group retains the risks and rewards of ownership of lease assets, it
continues to recognise the leased asset in Property, plant and equipment.
Income from operating leases is recognised on a straight-line basis over the
lease term and recognised as Revenue rather than Other revenue as such income
is not material. Operating leases are on one to five year terms.
The total future lease payments are split between the principal and interest
amounts below:
2022 2021
Gross investment Net investment Gross investment £'000 Net investment
£'000 Interest £'000 Interest £'000
£'000 £'000
Receivable in less than one year 3,703 355 3,348 1,919 156 1,763
Receivable between one and two years 2,882 252 2,630 2,641 215 2,426
Receivable between two and three years 2,015 148 1,867 2,129 173 1,956
Receivable between three and four years 1,779 70 1,709 1,365 111 1,254
Receivable between four and five years 770 15 755 696 91 605
Total future minimum lease payments receivable 11,149 840 10,309 8,750 746 8,004
The total of future minimum lease payments receivable under non-cancellable
operating leases were:
2022 2021
£'000 £'000
Receivable in less than one year 1,246 361
Receivable between one and four years 2,365 306
Total future minimum lease payments receivable 3,611 667
During the year, £1,184,000 (2021: £582,000) was recognised in Revenue from
operating leases.
15. Cash and cash equivalents and bank deposits
We have always valued having cash in the bank to protect the Group from
downturns and enable us to react swiftly to investment or market capture
opportunities. We currently hold significant cash and bank deposits, which is
mostly in the UK and spread across a number of banks with high credit ratings.
Accounting policy
Cash and cash equivalents comprise cash balances, and deposits with an
original maturity of less than three months or with an original maturity date
of more than three months where the deposit can be accessed on demand without
significant penalty for early withdrawal and where the original deposit amount
is recoverable in full.
Cash and cash equivalents
An analysis of cash and cash equivalents at the end of the year was:
2022 2021
£'000 £'000
Bank balances and cash in hand 141,208 93,514
Short-term deposits 11,954 1,494
Balance at the end of the year 153,162 95,008
At 30 June 2021, the Company held a pension scheme escrow account amounting to
£10,578,000 as part of the security given for the UK defined benefit pension
scheme. Following agreement by the Company and Trustees in 2022 (see note 23),
this amount is no longer subject to a registered floating charge, and is
recognised in short-term deposits in cash and cash equivalents at 30 June
2022.
Bank deposits
Bank deposits at the end of the year amounted to £100,000,000 (2021:
£120,000,000), of which £50,000,000 matured on 30 August 2022 and
£50,000,000 is on a 90-day notice account.
16. Inventories
We have increased our inventories in the year, in line with increases in
global demand and reflecting planned increases in certain component safety
stock levels to mitigate global supply shortages, and remain committed to high
customer delivery performance.
Accounting policy
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 management to
estimate future demand, especially in respect of provisioning for slow moving
and potentially obsolete inventory. When calculating an inventory provision,
management use historic usage levels (capped at 18 months), demand from
customer orders and manufacturing build plans as a basis for estimating the
future annual demand of individual stock items, except in the following
instances:
- for key products and their components, provisions are typically
made for quantities held in excess of three years' demand. A demand basis
lower than three years is used for those key products and related components
where the sales history is more volatile; and
- where strategic purchases of critical components have been made, an
outlook beyond three years is considered where appropriate.
An analysis of inventories at the end of the year was:
2022 2021
£'000 £'000
Raw materials 56,034 38,973
Work in progress 31,002 21,750
Finished goods 75,446 52,840
Balance at the end of the year 162,482 113,563
During the year, the amount of inventories recognised as an expense in the
Consolidated income statement was £211,209,000 (2021: £177,963,000) and the
amount of write-down of inventories recognised as an expense in the
Consolidated income statement was £481,000 (2021: £269,000). At the end of
the year, the gross cost of inventories which had provisions held against them
totalled £17,520,000 (2021: £17,389,000).
17. Provisions
A provision is a liability recorded in the Consolidated balance sheet, where
there is uncertainty over the timing or amount that will be paid, and is
therefore often estimated. The main provisions we hold are in relation to
warranties provided with the sale of our products.
Accounting policy
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.
Warranty provision movements during the year were:
2022 2021
£'000 £'000
Balance at the beginning of the year 6,259 5,591
Created during the year 1,975 2,500
Unused amounts reversed (1,688) -
Utilised in the year (2,302) (1,832)
(2,015) 668
Balance at the end of the year 4,244 6,259
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.
Included within the warranty provision is £1,912,000 (2021: £4,200,000)
where the warranty cost has been reassessed to be the cost of replacing
certain AM machines where the business will not have the capability to honour
the warranty on these machines going forward as a result of restructuring
activities in 2020. As we will not have the ability to repair or maintain
these machines, the warranty cost reflects the cost of replacing these
machines. It was expected that these warranty costs would be incurred in 2021,
however this is now expected to be in 2023. During 2022, a revised estimate of
the number of machines we are more-likely-than-not to replace, in addition to
a revision to the cost of replacement, resulted in a net reduction to this
provision of £1,688,000.
18. Contract liabilities
Contract liabilities relate to where we have obligations to transfer goods or
services to a customer, where we have already received consideration. Our
balances mostly comprise advances received from customers and payments for
services yet to be completed.
Balances at the end of the year were: 2022 2021
£'000 £'000
Goods, capital equipment and installation 1,470 1,431
Aftermarket services 4,471 4,689
Deferred revenue 5,941 6,120
Advances received from customers 7,015 -
Balance at the end of the year 12,956 6,120
Advances received from customers have increased this year. As the balance at
30 June 2022 was material, we have included these within Contract liabilities.
In previous years, they were included within Other payables, and amounted to
£3,922,000 in 2021.
The aggregate amount of the transaction price allocated to performance
obligations that are unsatisfied at the end of the year is £12,956,000 (2021:
£6,120,000). Of this, £1,620,000 (2021: £1,682,000) is not expected to be
recognised in the next financial year.
19. Other payables
Separate to our trade payables and contract liabilities, which directly relate
to our trading activities, our Other payables mostly comprises amounts payable
to employees, or relating to employees.
Balances at the end of the year were:
2022 2021
£'000 £'000
Payroll taxes and social security 6,823 7,924
Performance bonuses 16,179 13,208
Holiday pay and retirement accruals 7,810 7,200
Indirect tax payable 1,762 200
Other creditors and accruals 19,375 23,184
Total other payables 51,949 51,716
Holiday pay accruals are based on a calculation of the number of days' holiday
earned during the year, but not yet taken.
Other creditors and accruals includes £1,312,000 (2021: £3,365,000) of
receivables in payable positions where there is no right of offset, and a
number of other smaller accruals.
20. Leases (as lessee)
The Group leases mostly distribution properties and cars from third parties
and recognises an associated lease liability for the total present value of
payments the lease contracts commits us to.
Accounting policy
At the commencement date of a lease arrangement the Group recognises a
right-of-use asset for the leased item and a lease liability for any payments
due. Lease liabilities are initially measured at the present value of the
lease payments that are not paid at the commencement date, discounted using
the incremental borrowing rate of the applicable entity. The lease liability
is subsequently measured at amortised cost using the effective interest method
and is remeasured if there is a change in future lease payments arising from a
change in an index or rate (such as an inflation-linked increase) or if there
is a change in the Group's assessment of whether it will exercise an extension
or termination option. When this happens there is a corresponding adjustment
to the right-of-use asset. Where the Group enters into leases with a lease
term of 12 months or less, these are treated as 'short-term' leases and are
recognised on a straight-line basis as an expense in the Consolidated income
statement. The same treatment applies to low-value assets, which are typically
IT equipment and office equipment.
Lease liabilities are analysed as below:
2022
Leasehold property Plant and equipment Motor
£'000 £'000 vehicles Total
£'000 £'000
Due in less than one year 2,916 33 930 3,879
Due between one and two years 1,857 18 523 2,398
Due between two and three years 805 10 278 1,093
Due between three and four years 624 9 78 711
Due between four and five years 553 3 7 563
Due in more than five years 3,611 - - 3,611
Total future minimum lease payments payable 10,366 73 1,816 12,255
Effect of discounting (1,993) (1) (81) (2,075)
Lease liability 8,373 72 1,735 10,180
2021
Leasehold property Plant and equipment Motor
£'000 £'000 vehicles Total
£'000 £'000
Due in less than one year 3,022 42 1,110 4,174
Due between one and two years 2,497 15 591 3,103
Due between two and three years 1,638 9 249 1,896
Due between three and four years 728 5 55 788
Due between four and five years 571 4 1 576
Due in more than five years 5,026 - - 5,026
Total future minimum lease payments payable 13,482 75 2,006 15,563
Effect of discounting (2,936) (2) (63) (3,001)
Lease liability 10,546 73 1,943 12,562
Lease liabilities are also presented as a £3,714,000 (2021: £3,904,000)
current liability and a £6,466,000 (2021: £8,658,000) non-current liability
in the Consolidated balance sheet.
Amounts recognised in the Consolidated income statement relating to leases
were:
2022 2021
£'000 £'000
Depreciation expense of right-of-use assets 4,205 4,463
Impairment of right-of-use assets 1,837 -
Derecognition of lease liabilities (1,985) -
Interest expense on lease liabilities 481 335
Expenses relating to short-term and low-value leases 51 139
Total expense recognised in the Consolidated income statement 4,589 4,937
Total cash outflows for leases 4,613 5,289
During the year we decided to withdraw from Russia, including moving out of a
leased property by August 2022. We have therefore derecognised amounts
relating to the leased property totalling £1,985,000, with a corresponding
impairment to the right-of-use asset of £1,837,000. See note 30 for further
detail.
21. Borrowings
The Group's only source of external borrowing is a fixed interest loan
facility in our Japanese subsidiary, entered into to directly finance the
purchase of a new distribution facility in Japan in 2019.
Third party borrowings at 30 June 2022 consist of a five year loan entered
into on 31 May 2019 by Renishaw KK, with original principal of JPY
1,447,000,000 (£10,486,000). Principal of JPY 12,000,000 is repayable each
month, with a fixed interest rate of 0.81% also paid on monthly accretion. The
residual 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. All covenants have been
complied with during the year.
Movements during the year were:
2022 2021
£'000 £'000
Balance at the beginning of the year 7,449 11,543
Additions - 636
Interest 52 69
Repayments (974) (3,477)
Currency adjustment (448) (1,322)
Balance at the end of the year 6,079 7,449
Borrowings are also presented as a £919,000 (2021: £992,000) current
liability and a £5,160,000 (2021: £6,457,000) non-current liability in the
Consolidated balance sheet. Borrowings are held at amortised costs.
There is no significant 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 25.
22. Changes in liabilities arising from financing activities
1July 2021 Cash flows Other Currency 30 June 2022
Lease liabilities 12,562 (4,081) 513 1,186 10,180
Borrowings 7,449 (974) 52 (448) 6,079
20,011 (5,055) 565 738 16,259
1July 2020 Cash flows Other Currency 30 June 2021
Lease liabilities 13,166 (4,815) 4,815 (604) 12,562
Borrowings 11,543 (2,841) 69 (1,322) 7,449
24,709 (7,656) 4,884 (1,926) 20,011
See notes 20 and 21 for further details on borrowing and leasing activities.
23. 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
Group's largest defined benefit scheme is in the UK.
Accounting policy
Defined benefit pension schemes are administered by trustees who are
independent of the Group finances. Investment assets of the 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 a combination of 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 low
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.
Key estimate - Valuation of defined benefit pension schemes' liabilities
Determining the value of the future defined benefit obligation requires
estimation in respect of the assumptions used to determine the present values.
These include future mortality, discount rate and inflation. Management makes
these estimates in consultation with independent actuaries.
The total pension cost of the Group for the year was £21,988,000 (2021:
£19,759,000), of which £121,000 (2021: £111,000) related to Directors and
£5,292,000 (2021: £5,256,000) related to overseas schemes.
The latest full actuarial valuation of the UK defined benefit pension scheme
was carried out as at 30 September 2021 and updated to 30 June 2022 by
a qualified independent actuary. The mortality assumption used for 2022 is
the S3PxA base tables and CMI 2021 model, with long-term improvements of 1%
per annum. Adjustments have been made to both the core base tables and CMI
2021 model to allow for the scheme's membership profile and best estimate
assumptions of future mortality improvements.
Major assumptions used by actuaries for the UK, Ireland and US schemes were:
30 June 2022 30 June 2021
Ireland scheme Ireland scheme
UK scheme US scheme UK scheme US scheme
Rate of increase in pension payments 3.05% 2.45% - 3.10% 1.70% -
Lump sum - assumed settlement rate - - 4.50% - - 0.75%
Discount rate 3.60% 3.20% 4.50% 1.85% 1.10% 2.85%
Inflation rate (RPI) 3.10% 2.45% - 3.20% 1.70% -
Inflation rate (CPI) 2.10% pre-2030 - - 2.20% pre-2030 - -
3.10% post-2030 3.10% post-2030
Retirement age 64 65 65 64 65 65
The life expectancies for the UK scheme implied by the mortality assumption at
age 65 and 45 are:
2022 2021
years years
Male currently aged 65 21.5 22.0
Female currently aged 65 23.8 23.9
Male currently aged 45 22.2 22.7
Female currently aged 45 24.7 24.9
The weighted average duration of the UK defined benefit obligation is around
22 years.
The assets and liabilities in the defined benefit schemes at the end of the
year were:
30 June 2022 £'000 % of total assets 30 June 2021 £'000 % of total assets
Market value of assets:
Equities 111,025 51 140,717 61
Multi-asset funds 82,442 38 63,017 27
Credit and fixed income funds 19,489 9 18,833 8
Fixed interest gilts 1,502 1 1,457 1
Index linked gilts 1,489 1 1,843 1
Property - - 802 -
Cash and other 802 - 4,686 2
216,749 100 231,355 100
Actuarial value of liabilities (174,504) - (255,053) -
Surplus/(deficit) in the schemes 42,245 - (23,698) -
Deferred tax thereon (11,048) - 4,347 -
Note C.41 gives the analysis of the UK defined benefit pension scheme. For the
other schemes, the market value of assets at the end of the year was
£22,888,000 (2021: £26,396,000) and the actuarial value of liabilities was
£20,973,000 (2021: £30,930,000). The UK and US schemes were both in net
surplus positions at 30 June 2022 (2021: both net deficit positions),
totalling £43,241,000, and are therefore presented in non-current assets in
the Consolidated balance sheet. The Ireland scheme was in a net deficit
position at 30 June 2022 (2021: net deficit position), totalling £996,000,
and is therefore presented in non-current liabilities.
Equities are held in externally-managed funds and primarily relate to UK and
US equities. Credit and fixed income funds, fixed interest gilts, and index
linked gilts relate to UK, US and Eurozone government-linked securities, again
held in externally-managed funds. 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 25.
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.
The UK scheme is closed for future accrual and is expected to mature over the
coming years, and therefore while the focus of the investment strategy remains
on growth the trustees are gradually de-risking the investment portfolio when
appropriate.
The agreed target investment strategy for the UK scheme as at 30 June 2022 was
to hold 54% of investment assets in equities, 30% in diversified growth funds,
10% in multi-asset credit and 6% in defensive fixed income (government and
corporate bonds). Contributions over the year were predominantly invested in
multi-asset credit, which in combination with a disinvestment from equities
has brought the mandate up to the target allocation of 10% of assets. Post 30
June 2022, the Trustees and Company have agreed to disinvest 10% of assets
from the diversified growth fund allocation, with a view to making a new
investment into a Liability Driven Investment mandate that looks to hedge the
sensitivities of the liabilities to interest rates and inflation, thereby
reducing the volatility of the funding position. No scheme assets are directly
invested in the Group's own equity.
The movements in the schemes' assets and liabilities were:
Assets Liabilities Total
Year ended 30 June 2022 £'000 £'000 £'000
Balance at the beginning of the year 231,355 (255,053) (23,698)
Contributions paid 8,866 - 8,866
Interest on pension schemes 4,337 (4,643) (306)
Remeasurement loss from augmentation of members' benefits - (11,695) (11,695)
Remeasurement gain/(loss) under IAS 19, the asset ceiling and IFRIC 14 (17,264) 86,342 69,078
Benefits paid (10,545) 10,545 -
Balance at the end of the year 216,749 (174,504) 42,245
Assets Liabilities Total
Year ended 30 June 2021 £'000 £'000 £'000
Balance at the beginning of the year 188,619 (253,514) (64,895)
Contributions paid 8,866 - 8,866
Interest on pension schemes 2,933 (3,809) (876)
Remeasurement loss from GMP equalisation - (78) (78)
Remeasurement gain/(loss) under IAS 19, the asset ceiling and IFRIC 14 36,824 (3,539) 33,285
Benefits paid (5,887) 5,887 -
Balance at the end of the year 231,355 (255,053) (23,698)
The analysis of the amount recognised in the Consolidated statement of
comprehensive income and expense was:
2022 2021
£'000 £'000
Actuarial gain/(loss) arising from:
- Changes in demographic assumptions 3,860 (2,669)
- Changes in financial assumptions 67,442 4,643
- Experience adjustment (7,818) 2,631
- Adjustment related to the application of revaluation and late retirement factors - 14,300
Return on plan assets excluding interest income (17,264) 36,823
Adjustment for the asset ceiling 3,280 (3,280)
Adjustment to liabilities for IFRIC 14 19,578 (19,163)
Total amount recognised in the Consolidated statement of comprehensive income and expense 69,078 33,285
The cumulative amount of actuarial gains and losses recognised in the
Consolidated statement of comprehensive income and expense was a loss of
£22,419,000 (2021: loss of £91,497,000).
The net surplus of the Group's defined benefit pension schemes, on an IAS 19
basis, has increased from a £23,698,000 liability at 30 June 2021 to a
£42,245,000 asset at 30 June 2022, primarily reflecting the net effect of:
- an increase in the discount rate of the UK schemes, based on increases in
corporate bond yields;
- changes to the UK scheme rules which allows recognition of a surplus
position; and
- an adjustment for changes in the UK scheme rules relating to members'
benefits, which is discussed further below.
For the UK scheme, the latest actuarial report prepared in September 2021
shows a deficit of £52,800,000, 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 net surplus being higher 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 by 0.5% -£12.9m/+£14.6m
UK - future inflation Increase/decrease by 0.5% +£11.5m/-£11.3m
UK - mortality Increased/decreased life by one year +£5.9m/-£5.9m
In October 2020, the Trustees of the Renishaw Pension Fund ('the UK defined
benefit scheme') notified the Company of a difference between the calculated
estimate of liabilities in the scheme for administration purposes and for
accounting purposes. Specifically, this discrepancy related to the application
of revaluation and early and late retirement factors. In May 2021, following
joint instruction from the Trustees and Company, a Queen's Counsel (QC)
opinion was given on the correct interpretation of the Trust Deed and Rules of
the Fund in relation to this matter. The most significant part of QC's opinion
was that no revaluation increases should be applied between ages 60 and 65 (or
earlier retirement). The 2021 financial statements reflected the impact that
would arise from correcting the benefits in payment and the valuation of
future benefits to be in line with QC's opinion, with a gain of £14,300,000
recognised in the Consolidated statement of comprehensive income and expense.
In 2022, the Company agreed to an augmentation of members' benefits to reflect
current and historic administrative revaluation practice. The augmentation is
a change to the benefits provided in the UK scheme, which has been effected in
the Rules through a Deed of Amendment to the Trust Deed and Rules, signed by
the Trustees and Company on 20 June 2022. The impact on liabilities of this
plan amendment, totalling £11,695,000, has been recognised as a past service
cost in the Consolidated income statement. This amount has been excluded from
adjusted profit measures, see note 29 for further detail.
The deficit funding plan for the UK defined benefit pension scheme is
unaffected by the changes to the Rules. Under the plan, the Company is paying
£8,700,000 per annum into the scheme for five years with effect from 1
October 2018. However, the Deed of Amendment granted the Company the
unconditional right to a refund of any surplus on wind-up of the UK scheme.
IFRIC 14 is an interpretation of IAS 19 which requires consideration of
minimum funding commitments a company has made to its pension scheme and
whether this gives rise to additional liabilities. In particular, whether a
company has an unconditional right to a refund of surplus from a scheme
dictates whether there is an impact on the accounting. As a result of the
change to the Rules to allow recognition of a surplus, a gain of £3,280,000
has been recognised in the year in respect of the removal of the asset ceiling
restriction in place in 2021, and a gain of £19,578,000 recognised in respect
of not needing to recognise an additional liability in consideration of
minimum funding considerations.
The Company and Trustees also agreed reductions to the charges the scheme has
on the Company's assets. An escrow bank account with a balance of £10,578,000
at 30 June 2021 is no longer subject to a registered floating charge, while
the number of UK properties owned by the Company subject to registered fixed
charges has decreased. The net book value of properties subject to fixed
charges at 30 June 2022 was £54,208,000 (2021: £81,679,000).
The current 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.
Under the Ireland defined benefit pension scheme deficit funding plan, a
property owned by Renishaw Ireland (DAC) is subject to a registered fixed
charge to secure the Ireland defined benefit pension scheme's deficit.
24. 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
Governance section provides information of how these awards are determined.
Accounting policy
Renishaw shares are granted 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 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 Remuneration 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.
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. These
are held by the EBT until transferring to the employee, 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. This amount is accrued over the vesting period.
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.
The total cost recognised in the 2022 Consolidated income statement in respect
of the Plan was £180,000 (2021: £173,000). See note 26 for reconciliations
of amounts recognised in Equity.
In accordance with the Plan, amounts equivalent to £1,915,000 (2021:
£734,317) of shares are to be awarded in respect of 2022.
25. 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.
Accounting policy
The Group measures financial instruments such as forward exchange contracts at
fair value at each balance sheet date in accordance with IFRS 9 'Financial
Instruments'. Fair value, as defined by IFRS 13 'Fair Value Measurement', 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. This note 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. 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.
Financial liabilities in the form of loans are initially recognised at fair
value and are subsequently held at amortised cost. Financial liabilities are
assessed for embedded derivatives and whether any such derivatives are closely
related. If not closely related, such derivatives are accounted for at fair
value in the Consolidated income statement.
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 Cash flow 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 when
the hedging instrument or hedged item no longer qualify for hedge accounting.
If the forecast transaction is still expected to occur, but is no longer
highly probable, the cumulative gain or loss in the cash flow hedge reserve
remains in that reserve until the transaction occurs. If the forecast
transaction is no longer expected to occur, the cumulative gain or loss in the
cash flow hedge reserve is immediately reclassified 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, 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 and expenses in the Consolidated income
statement.
Key estimate - Estimates of highly probable forecasts of the hedged item
Derivatives are effective for hedge accounting to the extent that the hedged
item is 'highly probable' to occur, with 'highly probable' indicating a much
greater likelihood of occurrence than the term 'more likely than not'.
Determining a highly probable sales forecast for Renishaw plc and Renishaw UK
Sales Limited, being the hedged item, over a multiple year time period,
requires judgement of the suitability of external and internal data sources
and estimations of future sales.
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 foreign currency 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 foreign currency 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. The Group's policy is that 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 & finance lease receivables Other receivables Cash & bank deposits
2022 2021 2022 2021 2022 2021
Currency £'000 £'000 £'000 £'000 £'000 £'000
Pound Sterling 21,391 16,915 19,565 23,752 201,668 174,905
US Dollar 45,433 39,603 867 815 13,965 9,511
Euro 28,314 23,476 1,568 1,144 8,712 8,118
Japanese Yen 19,480 16,568 457 173 5,720 3,786
Other 23,242 26,103 4,611 4,137 23,097 18,688
137,860 122,665 27,068 30,021 253,162 215,008
Short-term loans to associates and joint ventures and contract assets are
mostly denominated in Pound Sterling.
The above trade receivables, finance lease receivables, other receivables and
cash are predominately held in the functional currency of the relevant entity,
with the exception of £21,271,000 of US Dollar-denominated trade receivables
being held in Renishaw (Hong Kong) Limited and £1,852,000 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:
2022 2021
£'000 £'000
Past due zero to one month 9,548 10,537
Past due one to two months 3,879 2,704
Past due more than two months 5,252 6,283
Balance at the end of the year 18,679 19,524
Movements in the provision for impairment of trade receivables during the year
were:
2022 2021
£'000 £'000
Balance at the beginning of the year 3,826 5,965
Changes in amounts provided (834) (1,994)
Amounts used (452) (145)
Balance at the end of the year 2,540 3,826
The Group applies the simplified approach when measuring the expected credit
loss for trade receivables, with a provision matrix used to determine a
lifetime expected credit loss.
For this provision matrix, trade receivables are grouped into credit risk
categories, with category 1 being the lowest risk and category 5 the highest.
Risk scores are allocated to the customer's country of operation, their type
(such as distributor, end-user and OEM), their industry and the proportion of
their debt that was past due at the year-end. These scores are then weighted
to produce an overall risk score for the customer, with the lowest scores
being allocated to category 1 and the highest scores to category 5. The matrix
then applies an expected credit loss rate to each category, with this rate
being determined by adjusting the Group's historic credit loss rates to
reflect forward-looking information.
Where certain customers have been identified as having a significantly
elevated credit risk these have been provided for on a specific basis. Both
elements of expected credit loss are shown in the matrix below and have been
shown separately so as not to distort the expected credit loss rate.
Risk category 1 Risk category 2 Risk category 3 Risk category 4 Risk category 5 2022
Total
Year ended 30 June 2022 £'000 £'000 £'000 £'000 £'000 £'000
Gross trade receivables 2,742 51,598 70,298 5,453 - 130,091
Expected credit loss rate 0.19% 0.20% 0.22% 0.24% - 0.21%
Expected credit loss allowance 5 104 154 13 - 276
Specific loss allowance - - 1,502 762 - 2,264
Total expected credit loss 5 104 1,656 775 - 2,540
Net trade receivables 2,737 51,494 68,642 4,678 - 127,551
Risk category 1 Risk category 2 Risk category 3 Risk category 4 Risk category 5 2021
Total
Year ended 30 June 2021 £'000 £'000 £'000 £'000 £'000 £'000
Gross trade receivables 9,154 38,759 65,870 3,806 898 118,487
Expected credit loss rate 0.28% 0.31% 0.31% 0.36% 0.39% 0.31%
Expected credit loss allowance 26 119 205 14 3 367
Specific loss allowance - - 2,080 1,138 241 3,459
Total expected credit loss 26 119 2,285 1,152 244 3,826
Net trade receivables 9,128 38,640 63,585 2,654 654 114,661
Finance lease receivables are subject to the same approach as noted above for
trade receivables, while contract assets and short-term loans to associates
and joint ventures are not material to the Group.
Derivative assets are assessed based on the credit risk of the banks
counterparty to the forward contracts.
Other receivables include mostly prepayments, a proportion of the R&D tax
credit receivable, and indirect tax receivables. Prepayment balances are
reviewed at each reporting period to confirm that prepaid goods or services
are still expected to be received, while tax balances are reviewed for
recoverability.
Other receivables at the year end comprised:
2022 2021
£'000 £'000
Indirect tax receivable 9,010 7,458
Software maintenance 7,430 4,917
Grants 1,250 624
R&D tax credit recoverable 442 8,352
Other prepayments 8,936 8,670
Total other receivables 27,068 30,021
The total R&D tax credit recoverable has reduced from £8,352,000 at 30
June 2021 to £4,337,000 at 30 June 2022. As the Company can now offset the
tax credit against its corporation tax liability, £3,895,000 of the total
balance at 30 June 2022 has been recognised in current tax assets, with
£442,000 remaining in Other receivables at 30 June 2022.
The maximum exposure to credit risk is £425,211,000 (2021: £389,817,000),
comprising the Group's trade, finance and other receivables, cash and cash
equivalents and derivative assets.
The maturities of non-current other receivables, being only derivatives, at
the year end were:
2022 2021
£'000 £'000
Receivable between one and two years - 12,484
Receivable between two and five years - -
- 12,484
Liquidity risk
Our approach to managing liquidity is to ensure, as far as possible, that we
will always have sufficient liquidity to meet our liabilities when due,
without incurring unacceptable losses or risking damage to the Group's
reputation. We use monthly cash flow forecasts on a rolling 12-month basis to
monitor cash requirements.
With net cash and bank deposits at 30 June 2022 totalling £253,162,000, an
increase of £38,154,000 from 30 June 2021, the Group's liquidity has improved
in the period.
In respect of net cash and bank deposits, the carrying value is materially the
same as fair value because of the short maturity of the bank deposits. Bank
deposits are affected by interest rates that are either fixed or floating,
which can change over time, affecting the Group's interest income. An increase
of 1% in interest rates would result in an increase in interest income of
approximately £1,000,000.
The contractual maturities of financial liabilities at the year end were:
Contractual cash flows
Carrying amount Effect of discounting Gross maturities Up to 1 year 1-2 years 2-5 years
Year ended 30 June 2022 £'000 £'000 £'000 £'000 £'000 £'000
Trade payables 30,947 - 30,947 30,947 - -
Other payables 51,949 - 51,949 51,949 - -
Borrowings 6,079 82 6,161 926 5,235 -
Forward exchange contracts 27,353 - 27,353 17,890 9,463 -
116,328 82 116,410 101,712 14,698 -
Effect of Gross Contractual cash flows
Carrying amount discounting maturities Up to 1 year 1-2 years 2-5 years
Year ended 30 June 2021 £'000 £'000 £'000 £'000 £'000 £'000
Trade payables 24,715 - 24,715 24,715 - -
Other payables 51,716 - 51,716 51,716 - -
Borrowings 7,449 144 7,593 992 6,601 -
Forward exchange contracts 5,949 - 5,949 5,594 355 -
89,829 144 89,973 83,017 6,956 -
Market risk
As noted in the Strategic Report under Principal risks and uncertainties, the
Group operates in a number of foreign currencies with the majority of sales
being made in these non-Sterling currencies, but with most manufacturing being
undertaken in the UK, Ireland and India.
A large proportion of sales are made in US Dollar, Euro and Japanese Yen,
therefore 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 24 months;
ii. foreign currency option contracts, entered into alongside the forward
contracts above until May 2018 as part of the Group hedging strategy, are
ineffective for cash flow hedging purposes. Note 29, 'Alternative performance
measures', gives an adjusted measure of profit before tax to reflect the
original intention that these derivatives were entered into for hedging
purposes. The final option contract matured 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.
The amounts of foreign currencies relating to these forward contracts and
options are, in Sterling terms:
2022 2021
Nominal value Fair value Nominal value Fair value
£'000 £'000 £'000 £'000
US Dollar 306,270 (26,249) 399,065 4,192
Euro 129,799 1,711 146,120 6,040
Japanese Yen 37,941 4,306 68,938 5,942
474,010 (20,232) 614,123 16,174
The following are the exchange rates which have been applicable during the
financial year.
2022 2021
Average forward contract rates Year end exchange rate Average exchange rate Average forward contract rates Year end exchange rate Average exchange rate
Currency
US Dollar 1.34 1.22 1.33 1.37 1.38 1.36
Euro 1.12 1.16 1.18 1.09 1.17 1.14
Japanese Yen 132 165 156 136 154 145
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
around 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, £10m nominal value of
forward currency contracts are used to hedge £10m of forecast sales. Fair
value gains or losses on the forward currency contracts are offset by foreign
currency gain 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 according to IFRS 9 Financial Instruments
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.
During 2020, global macroeconomic uncertainty resulted in a reduction to the
'highly probable' revenue forecasts of Renishaw plc and Renishaw UK Sales
Limited, being the hedged item, which resulted in proportions of forward
contracts failing hedge effectiveness testing, with nominal value amounting to
£247,547,000. Following maturities during 2021 and 2022, the remaining
nominal value of ineffective forward contracts at 30 June 2022 totalled
£63,045,000 (2021: £153,585,000), with fair value losses of £11,551,000
(2021: £22,824,000 gain) recognised in the Consolidated income statement
relating to movements in the mark-to-market valuations of these outstanding
contracts.
In 2021 and 2022, improvements in global macroeconomic conditions and business
performance have resulted in subsequent increases to the 'highly probable'
revenue forecasts of the hedged item, such that no additional contracts have
become ineffective. A decrease of 10% in the highly probable forecasts would
result in no additional forward contracts becoming ineffective.
The following table details the fair value of these forward foreign currency
derivatives according to the categorisations of instruments noted previously:
2022 2021
Nominal value Fair value Nominal value Fair value
£'000 £'000 £'000 £'000
Forward currency contracts in a designated cash flow hedge (i)
Non-current derivative assets - - 172,165 9,865
Current derivative assets 77,460 7,077 127,548 7,512
Current derivative liabilities 128,950 (12,046) 74,652 (3,063)
Non-current derivative liabilities 179,149 (9,463) 34,245 (322)
385,559 (14,432) 408,610 13,992
Amounts recognised in the Consolidated statement of comprehensive income and
expense
- 28,423 - 51,590
Forward currency contracts ineffective as a cash flow hedge (i)
Non-current derivative assets - - 56,357 2,619
Current derivative assets - - 31,011 428
Current derivative liabilities 63,045 (5,504) 59,529 (1,653)
Non-current derivative liabilities - - 6,687 (33)
63,045 (5,504) 153,585 1,361
Amounts recognised in Gains/(losses) from the fair value of financial
instruments in the Consolidated income statement
- 22,824
- (11,551)
Foreign currency options ineffective as a cash flow hedge (ii)
Non-current derivative assets - - - -
Current derivative assets - - - 1,699
Current derivative liabilities - - - (216)
Non-current derivative liabilities - - - -
- - - 1,483
Amounts recognised in Gains/(losses) from the fair value of financial
instruments in the Consolidated income statement
- 1,138 - (846)
Forward currency contracts not in a designated cash flow hedge (iii)
Current derivative assets 4,880 44 - -
Current derivative liabilities 20,526 (340) 51,929 (662)
25,406 (296) 51,929 (662)
Amounts recognised in Financial income/(expense) in the Consolidated income
statement
- 98 - 2,781
Total forward contracts and options
Non-current derivative assets - - 228,522 12,484
Current derivative assets 82,340 7,121 158,559 9,639
Current derivative liabilities 212,521 (17,890) 186,110 (5,594)
Non-current derivative liabilities 179,149 (9,463) 40,932 (355)
474,010 (20,232) 614,123 16,174
For the Group's foreign currency forward contracts 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 £18,360,000 and increase profit before
tax by £4,212,000, while a depreciation of 5% would decrease pre-tax equity
by £20,293,000 and decrease profit before tax by £4,655,000.
26. Share capital and reserves
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, while
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. This
note presents figures relating to this capital management, along with an
analysis of all elements of Equity attributable to shareholders and
non-controlling interests.
Share capital
2022 2021
£'000 £'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:
2022 2021
£'000 £'000
2021 final dividend paid of 52.0p per share (2020: nil) 37,850 -
Interim dividend paid of 16.0p per share (2021: 14.0p) 11,644 10,189
Total dividends paid 49,494 10,189
A final dividend of 56.6p per share is proposed in respect of 2022, which will
be payable on 5 December 2022 to shareholders on the register on 4 November
2022.
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 24 for further detail. 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:
2022 2021
£'000 £'000
Balance at the beginning of the year (404) (404)
Disposal of own shares on vesting of awards 404 -
Acquisition of own shares (750) -
Balance at the end of the year (750) (404)
On 10 December 2018, 9,639 shares were purchased on the open market by the EBT
at a price of £41.66, costing a total of £404,348. The fair value of these
awards at the grant date, being 2 August 2018, was £519,542. These shares
vested during the period on 2 August 2021 with no forfeitures.
On 25 November 2021, 14,396 shares were purchased on the open market by the
EBT at a price of £52.10, costing a total of £750,017. The fair value of
these awards at the grant date, being 28 October 2021, was £734,317. These
shares will vest on 28 October 2024, with no forfeitures expected at 30 June
2022.
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:
2022 2021
£'000 £'000
Balance at the beginning of the year 44 (129)
Share-based payments charge in respect of share vesting in 2022 16 -
Transfer of own shares on vesting of awards (404) -
Share-based payments charge in respect of share vesting in 2024 164 173
Balance at the end of the year (180) 44
Further explanations for these movements can be found in the above Own shares
held section and note 24.
Currency translation reserve
The currency translation reserve comprises all foreign exchange differences
arising from the translation of the financial statements of the overseas
operations and currency movements on intragroup loan balances classified as
net investments in overseas operations.
Movements during the year were: 2022 2021
£'000 £'000
Balance at the beginning of the year 3,719 17,729
Gain/(loss) on net assets of foreign currency operations 3,529 (7,009)
Transfer of accumulated loss relating to net assets of Russian operation 575 -
Gain/(loss) on intragroup loans classified as net investments in foreign operations 8,047 (7,743)
Tax on translation of net investments in foreign operations (1,529) 1,470
Gain/(loss) in the year relating to subsidiaries 10,622 (13,282)
Currency exchange differences relating to associates and joint ventures 118 (728)
Balance at the end of the year 14,459 3,719
See notes 5 and 30 for further information on intragroup loans classified as
net investments and the cessation of activities in Russia.
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.
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, or when the hedging relationship
ceases to be effective. See note 25 for further detail.
Movements during the year were:
2022 2021
£'000 £'000
Balance at the beginning of the year 11,345 (30,455)
Losses on contract maturity recognised in revenue during the year (3,385) (608)
Revaluations during the year (25,038) 52,198
Deferred tax movement 6,155 (9,790)
Balance at the end of the year (10,923) 11,345
Non-controlling interest
Movements during the year were:
2022 2021
£'000 £'000
Balance at the beginning of the year (577) (577)
Share of profit for the year - -
Balance at the end of the year (577) (577)
The non-controlling interest represents the minority shareholdings in Renishaw
Diagnostics Limited - 7.6%.
27. Capital commitments
At the end of a financial year, we typically have obligations to make payments
in the future, for which no provision is made in the financial statements.
This year, we have committed to the expansion of one of our production
facilities in Wales, UK, which is expected to cost around £64m over the next
three years.
Authorised and committed capital expenditure at the end of the year were:
2022 2021
£'000 £'000
Freehold land and buildings 65,328 412
Plant and equipment 22,760 3,255
Motor vehicles 319 79
Software licences and intellectual property - 68
Total committed capital expenditure 88,407 3,814
28. Related parties
We report our two joint venture companies, RLS Merilna tehnika d.o.o. and
Metrology Software Products Limited, as related parties. A previous associate
company, HiETA Technologies Limited, was entirely sold to a third party during
the year.
Associates, joint ventures and other related parties had the following
transactions and balances with the Group:
Joint ventures Associate
2022 2021 2022 2021
£'000 £'000 £'000 £'000
Purchased goods and services from the Group during the year 553 711 711 642
Sold goods and services to the Group during the year 29,355 22,175 - -
Paid dividends to the Group during the year 525 - - -
Amounts owed to the Group at the year end 1 146 - 2,747
Amounts owed by the Group at the year end 3,950 2,556 - -
Loans owed to the Group at the year end 350 598 - -
There were no bad debts relating to related parties written off during 2022.
Loans and finance leases owed to the Group by an associate totalling
£3,030,000 were impaired in 2021.
By virtue of their long-standing voting agreement, Sir David McMurtry
(Executive Chairman 36.23% shareholder) and John Deer (Non-executive Deputy
Chairman, together with his wife, 16.59%), 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.
29. Alternative performance measures
There are sometimes infrequently occurring events which impact on our
financial statements, recognised according to applicable IFRS, that we believe
should be excluded from adjusted performance measures in order to give readers
a more understandable and comparable view of our underlying performance.
In accordance with Renishaw's alternative performance measures (APMs) policy
and ESMA Guidelines on Alternative Performance Measures (2015), APMs are
defined as - Revenue at constant exchange rates, Adjusted profit before tax,
Adjusted earnings per share and Adjusted operating profit.
Revenue at constant exchange rates is defined as revenue recalculated using
the same rates as were applicable to the previous year and excluding forward
contract gains and losses.
2022 2021
Revenue at constant exchange rates £'000 £'000
Statutory revenue as reported 671,076 565,559
Adjustment for forward contract gains (744) (1,427)
Adjustment to restate current year at previous year exchange rates (2,682) -
Revenue at constant exchange rates 667,650 564,132
Year-on-year revenue growth at constant exchange rates +18.3% -
Year-on-year revenue growth at constant exchange rates for 2021 was +13.0%.
Adjusted profit before tax, Adjusted earnings per share and Adjusted operating
profit are defined as the profit before tax, earnings per share and operating
profit after excluding costs relating to business restructuring, third-party
costs relating to the formal sales process ('FSP'), and gains and losses in
fair value from forward currency contracts which did not qualify for hedge
accounting and which have yet to mature.
Restructuring costs, where applicable during a year, are reported separately
in the Consolidated income statement and excluded from adjusted measures on
the basis that they relate to matters that do not frequently recur. During
2022, a revised estimate of a warranty provision relating to restructuring in
2020 resulted in a reduction to this provision of £1,688,000. As this
provision was initially excluded from adjusted measures, the revised estimate
has also been excluded.
Third-party legal and advisory costs relating to the 2021 FSP were excluded
from adjusted measures in 2021. During 2022, £200,000 was released from an
accrual made in respect of these costs relating to indirect tax, which has
been excluded this year.
In 2022, the Company agreed to an augmentation of UK defined benefit pension
scheme members' benefits. This was effected in the scheme Rules through a Deed
of Amendment to the Trust Deed and Rules, signed by the Trustees and Company
on 20 June 2022, therefore relates to a matter which is not expected to
frequently recur. The impact on liabilities of this plan amendment, totalling
£11,695,000, have therefore been recognised as a past service cost, reported
separately in the Consolidated income statement and excluded from adjusted
profit measures. See note 23 for further detail.
From 2017, the gains and losses from the fair value of financial instruments
not effective for cash flow hedging have been excluded from statutory profit
before tax, statutory earnings per share and statutory operating profit in
arriving at Adjusted profit before tax, Adjusted earnings per share and
Adjusted operating profit to reflect the Board's intent that the instruments
would provide effective hedges. This is classified as 'Fair value
(gains)/losses on financial instruments not eligible for hedge accounting (i)'
in the following reconciliations. The amounts shown as reported in revenue
represent the amount by which revenue would change had all the derivatives
qualified as eligible for hedge accounting.
Gains and losses which recycle through the Consolidated income statement as a
result of contracts deemed ineffective during 2020, as described in note 25,
are also excluded from adjusted profit measures, on the basis that all forward
contracts are still expected to be effective hedges for Group revenue, while
the potentially high volatility in fair value gains and losses relating to
these contracts will otherwise cause confusion for users of the financial
statements wishing to understand the underlying trading performance of the
Group. This is classified as 'Fair value (gains)/losses on financial
instruments not eligible for hedge accounting (ii)' in the following
reconciliations.
The Board considers these alternative performance measures to be more relevant
and reliable in evaluating the Group's performance.
2022 2021
Adjusted profit before tax: £'000 £'000
Statutory profit before tax 145,586 139,439
Revised estimate of 2020 restructuring provisions (1,688) -
Third-party FSP costs (200) 3,222
UK defined benefit pension scheme past service cost 11,695 -
Fair value (gains)/losses on financial instruments not eligible for hedge accounting (i):
- reported in revenue 2,621 1,882
- reported in (gains)/losses from the fair value in financial instruments (1,138) 846
Fair value (gains)/losses on financial instruments not eligible for hedge accounting (ii):
- reported in revenue (4,685) (2,899)
- reported in (gains)/losses from the fair value of financial instruments 11,551 (22,824)
Adjusted profit before tax 163,742 119,666
2022 2021
Adjusted earnings per share: Pence Pence
Statutory earnings per share 165.4 153.2
Revised estimate of 2020 restructuring provisions (0.3) -
Third-party FSP costs (1.9) 4.4
UK defined benefit pension scheme past service cost 13.0 -
Fair value (gains)/losses on financial instruments not eligible for hedge accounting (i):
- reported in revenue 2.9 2.1
- reported in (gains)/losses in fair value in financial instruments (1.3) 0.9
Fair value (gains)/losses on financial instruments not eligible for hedge accounting (ii):
- reported in revenue (5.2) (3.2)
- reported in (gains)/losses from the fair value of financial instruments 12.9 (25.4)
Adjusted earnings per share 185.5 132.0
2022 2021
Adjusted operating profit: £'000 £'000
Statutory operating profit 143,250 138,341
Revised estimate of 2020 restructuring provisions (1,688) -
Third-party FSP costs (200) 3,222
UK defined benefit pension scheme past service cost 11,695 -
Fair value (gains)/losses on financial instruments not eligible for hedge accounting (i):
- reported in revenue 2,621 1,882
- reported in (gains)/losses in fair value in financial instruments (1,138) 846
Fair value (gains)/losses on financial instruments not eligible for hedge accounting (ii):
- reported in revenue (4,685) (2,899)
- reported in (gains)/losses from the fair value of financial instruments 11,551 (22,824)
Adjusted operating profit 161,406 118,568
Adjustments to the segmental operating profit:
2022 2021*
Manufacturing technologies £'000 £'000
Operating profit before loss from fair value of financial instruments and UK defined benefit pension scheme past service cost 162,549 111,978
Revised estimate of 2020 restructuring provisions (1,688) -
Third-party FSP costs (197) 3,061
Fair value (gains)/losses on financial instruments not eligible for hedge accounting (i):
- reported in revenue 2,576 1,797
Fair value (gains)/losses on financial instruments not eligible for hedge accounting (ii):
- reported in revenue (4,605) (2,734)
Adjusted manufacturing technologies operating profit 158,635 114,102
2022 2021*
Analytical instruments and medical devices £'000 £'000
Operating profit before loss from fair value of financial instruments and 2,809 4,385
UK defined benefit pension scheme past service cost
Third-party FSP costs (3) 161
Fair value (gains)/losses on financial instruments not eligible for hedge accounting (i):
- reported in revenue 45 86
Fair value (gains)/losses on financial instruments not eligible for hedge accounting (ii):
- reported in revenue (80) (166)
Adjusted analytical instruments and medical devices operating profit 2,771 4,466
* Results relating to sales of additive manufacturing machines to medical and
dental customers are no longer recognised in the Analytical instruments and
medical devices operating segment. Comparative figures have been reclassified
accordingly, see note 2.
30. Cessation of operations in Russia
The Group has now ceased all operations in Russia, which were previously
carried out through our wholly owned subsidiary, OOO Renishaw. This has not
been classified as a discontinued operation as the results of the company were
not material to the Group.
Following the start of the Russian invasion of Ukraine in February 2022, the
Group immediately took measures to reduce its operations in Russia through its
wholly owned subsidiary, OOO Renishaw. This included:
- stopping the supply of goods from the Renishaw Group to OOO
Renishaw;
- returning advanced payments to customers where local stock was not
available to fulfil orders;
- giving notice on the leased office property in Moscow, which was
vacated in August 2022; and
- relocating or offering redundancy to all employees of OOO Renishaw.
By 30 June 2022, all trading operations had ceased, and by August 2022 the
subsidiary was effectively wound up. The following amounts were recognised in
2022 accordingly:
- cash held locally, with an equivalent value of £1,392,000, was
unable to be repatriated and has been fully impaired;
- outstanding amounts relating to the leased property equivalent to
£1,985,000 were released from lease liabilities, with a corresponding
impairment to the right-of-use asset of £1,837,000;
- fixed assets mostly relating to fit-out and furnishings of the
leased property were impaired, totalling £636,000;
- remaining net assets of the subsidiary equivalent to £98,000 were
impaired; and
- cumulative translation losses relating to the company on
consolidation, totalling £575,000, were removed from the currency translation
reserve and realised in the Consolidated income statement, according to IAS
21.
The net impact on the Consolidated income statement in 2022 totalled
£2,553,000, and net assets and equity relating to OOO Renishaw totalled nil
at 30 June 2022. There is not expected to be any impact of operations in
Russia on future financial statements.
Registered office:
Renishaw plc
New Mills
Wotton-under-Edge
Gloucestershire
GL12 8JR
UK
Registered number: 01106260
LEI number: 21380048ADXM6Z67CT18
Telephone: +44 1453 524524
Email: communications@renishaw.com
Website: www.renishaw.com
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