TIDMRSW
RNS Number : 2249M
Renishaw PLC
27 July 2017
RENISHAW plc
New Mills, Wotton-under-Edge
Gloucestershire GL12 8JR
United Kingdom
Tel +44 (0) 1453 524524
Fax +44 (0) 1453 524901
Email uk@renishaw.com
www.renishaw.com
LEI. 21380048ADXM6Z67CT18
27th July 2017
Renishaw plc and subsidiary undertakings
Preliminary announcement of results for the year ended 30th June
2017
HIGHLIGHTS
-- Record revenue of GBP536.8m, with an underlying growth of 14%
-- Strong growth in encoder, measurement and automation,
calibration and coordinate measuring machine product lines in our
metrology business
-- Revenue growth in all healthcare product lines
-- 25% increase in adjusted profit before tax
-- Capital expenditure of GBP42.6m, providing for future growth
-- Headcount increase of 244, including 91 graduates and apprentices
-- Strong balance sheet, with cash of GBP51.9m, compared with GBP21.3m last year
-- Dividend increased by 8.3% to 52.0p
Restated(1)
2017 2016 Change
Revenue (GBPm) 536.8 427.2 +26%
Adjusted profit before tax (GBPm)(1) 109.1 87.5 +25%
Adjusted earnings per share
(pence) 132.4 100.4 +32%
Dividend per share (pence) 52.0 48.0 +8%
STATUTORY
Profit before tax (GBPm) 117.1 61.7 +90%
Earnings per share (pence) 141.3 71.8 +97%
(1) Details of prior year restatements and profit before tax and
earnings per share adjustments are shown in the footnote to the
Chairman's statement.
CHAIRMAN'S STATEMENT
Performance overview
I am pleased to report our 2017 annual results. We achieved a
record turnover of GBP536.8m with an underlying revenue growth of
14% at constant exchange rates*. We report an adjusted profit
before tax of GBP109.1m* and a statutory profit before tax of
GBP117.1m, an increase of 25% on an adjusted basis. Our total
shareholder return during the year was 67%, ranking Renishaw in the
top 25 in both the FTSE250 and FTSE350.
Renishaw is a long term business and we remain committed to
strategic investments and R&D. In addition, over the past year,
we have focused on underperforming business areas resulting in our
discontinuing the activities of Renishaw Diagnostics Limited and
the spatial measurement business. In spite of the potential
headwinds brought about by the uncertainty of Brexit, we remain
confident of future growth due to our innovative product base,
extensive global sales and marketing presence, and relevance to
high value manufacturing.
Revenue
We achieved record turnover with revenue for the year ended 30th
June 2017 of GBP536.8.m, compared with a restated GBP427.2m for
last year, an increase of 26%. There was underlying revenue growth
of 14% with the balance arising from exchange rate movements
compared to the prior year. The geographical analysis of revenue is
as follows:
Restated Constant
2017 2016 Change fx change
GBPm GBPm % %
Far East 248.9 193.3 +29% +14%
Europe 129.9 110.3 +18% +12%
Americas 113.6 88.0 +29% +13%
UK 27.6 22.8 +21% +21%
Other regions 16.8 12.8 +31% +30%
--------------------- ------- --------- --------- -----------
Total group revenue 536.8 427.2 +26% +14%
--------------------- ------- --------- --------- -----------
Profit and Earnings per share
During the year, it was established that certain foreign
currency forward contracts used as hedging instruments for future
incoming currency cash flows did not qualify for hedge accounting.
This has resulted in the prior year profit before tax being
restated and as a consequence the Board has introduced an
alternative performance measure, adjusted profit before tax, to
report the profitability on the basis that all forward contracts
are accounted for as effective hedges. This measure will be the
basis by which the Board evaluates the Group's performance as it
better represents the underlying trading of the Group. The
consolidated net assets and cash balances were not impacted by the
prior year adjustment and the future cash flows remain
unchanged.
The Group's adjusted profit before tax for the year was
GBP109.1m*, an increase of 25% compared to GBP87.5m last year.
Adjusted earnings per share on continuing activities were 132.4p
compared to 100.4p last year.
Statutory profit before tax for the year was GBP117.1m compared
to a restated GBP61.7m last year. Statutory earnings per share on
continuing activities were 141.3p compared to 71.8p last year.
This year's tax charge on continuing operations amounts to
GBP14.3m (2016 restated: GBP10.0m) representing a tax rate of 12.2%
(2016 restated: 16.2%). The tax rate has benefited from the
continued phasing in of the patent box tax regime and a reduction
in the UK tax rate applied when calculating certain deferred tax
assets and liabilities.
Metrology
Revenue from our metrology business for the year was GBP503.4m
compared with a restated GBP398.9m last year.
We have experienced revenue growth in all product lines and
territories. The geographical analysis of revenue is as
follows:
Restated
2017 2016 Change
GBPm GBPm %
Far East 237.9 185.6 +28%
Europe 121.5 101.3 +20%
Americas 106.9 83.3 +28%
UK 23.2 18.1 +29%
Other regions 13.9 10.6 +31%
--------------------- ------- --------- ---------
Total group revenue 503.4 398.9 +26%
--------------------- ------- --------- ---------
There was strong growth in our encoder, measurement and
automation, calibration and coordinate measuring machine (CMM)
product lines.
Adjusted operating profit for our metrology business was
GBP115.9m (2016 restated: GBP90.0m).
We have continued to invest in research and development, with
total engineering costs in this business segment of GBP68.8m
(before net capitalised development costs and the R&D tax
credit) compared to a restated 2016 of GBP60.9m, with a number of
new product launches during the year.
In our CMM product line, we launched a new, improved surface
finish measurement probe for use with our REVO(R) 5-axis
measurement system. The laser calibration product line launched the
XM-60 multi-axis calibrator. Designed for the machine tool market,
it is a highly accurate laser system used to capture multiple
machine errors in a single set-up. In our encoder product line, we
launched the VIONiC(TM) series, a new range of ultra-high accuracy,
super-compact all-in-one digital incremental encoders. The machine
tool product line introduced the new SPRINT(TM) system with
SupaScan, bringing the benefits of scanning technology to the mass
market. Our additive manufacturing product line introduced the
RenAM 500M machine and opened an additional two AM solutions
centres in Germany and the USA.
Healthcare
Revenue from our healthcare business for the year was GBP33.4m,
an increase of 18% over the GBP28.4m last year. We experienced
growth in all our product lines.
Healthcare also saw continued investment in research and
development, with total engineering costs in this business segment
of GBP9.2m (before net capitalised development costs and the
R&D tax credit) compared to a restated 2016 of GBP7.9m.
In our spectroscopy product line, we introduced the RA802
pharmaceutical analyser, designed exclusively for the
pharmaceutical industry, enabling users to formulate tablets more
efficiently by speeding up the analysis of tablet composition and
structure.
The neurological product line continued to make sales of our
stereotactic robot and associated neuroinspire planning software,
with further sales in the UK, USA and Canada.
The medical dental product line has experienced good growth
resulting from a continued focus on sales of additive manufacturing
technologies into the healthcare market.
There was an adjusted operating loss of GBP7.2m, compared with a
restated loss of GBP3.1m last year. We remain focused on moving
this business sector into profit, where we have implemented a
number of initiatives and are restructuring the neurological and
medical dental businesses.
Discontinued activities
As reported in our October 2016 trading update, the Board
decided to discontinue operations at Renishaw Diagnostics Limited
(RDL), resulting in the closure of the business. Subsequently,
certain assets of the business have been sold.
The RDL business has been accounted for as a discontinued
activity, with comparative figures for the previous year being
restated accordingly. The loss after tax of GBP3.3m accounted for
as a discontinued activity comprises the running costs for RDL,
including cessation costs and impairment write offs for assets and
goodwill, less amounts received. The loss after tax for the prior
year was GBP2.5m.
In June 2017, after an extensive review of the spatial
measurement business, the Board decided to discontinue this line of
business. Including a goodwill impairment charge of GBP6.7m and
provisions for the cessation of the trade, there was a net loss in
this business for the year of GBP10.6m (2016: GBP1.5m).
Continued investment for long-term growth
The Group continues its strategy to invest for the long term,
expanding our global marketing and distribution infrastructure,
along with increasing manufacturing capacity and research and
development activities. This year saw the completion of our new USA
headquarters near Chicago and the sale of the previous premises.
New facilities have also been completed in Detroit (USA) with
expansion and refurbishment in Spain, Sweden, Hungary, Germany and
France. We also converted our representative office in Turkey into
a trading subsidiary to facilitate solution selling in the
territory.
Our workforce at the end of June 2017 was 4,530, an increase of
244 in the year, of which 91 were apprentices and graduates taken
on as part of our on-going commitment to train and develop skilled
resource for the Group in the future.
Capital expenditure on property, plant and equipment for the
year was GBP42.6m, of which GBP24.2m was spent on property and
GBP18.4m on plant and equipment.
Working capital
Group inventory decreased from GBP95.0m at the start of the year
to GBP87.7m. We continue to focus on working capital management
whilst remaining committed to our policy of holding sufficient
finished inventory to ensure customer delivery performance, given
our short order book of approximately five weeks. Trade debtors
increased from GBP114.9m to GBP137.5m, with debtor days outstanding
at the end of the current year at 73 days (2016: 70 days).
Net cash balances at 30th June 2017 were GBP51.9m, compared with
GBP21.3m at 30th June 2016. Additionally, there is an escrow
account of GBP12.9m (2016: GBP15.3m) relating to the provision of
security to the UK defined benefit pension scheme.
Directors and employees
Now that Will Lee has settled into his role as Group Sales &
Marketing Director since his appointment earlier in the year, he
will take over responsibility from John Deer for chairing the
International Sales & Marketing Board from the start of the new
financial year.
The directors would like to express their thanks to all
employees for their invaluable support and contribution during the
year.
Investor communications
Our fourth investor day was held on 11th May 2017, for existing
and potential new investors. This event involves presentations on
group strategy, business segments and product lines as well as
tours covering the Group's activities and an opportunity to meet
the Board and senior management. There was also a Q&A session
with the Board. The event was very well attended, and provided
shareholders with another opportunity, in addition to the AGM,
half-year and full-year webcasts, to learn more about Renishaw's
business and strategy.
Outlook
The Group is in a strong financial position and continues to
invest in the development of new products and applications, along
with targeted investment in production, and sales and marketing
facilities around the world. We have experienced strong growth in
2017 and whilst noting ongoing uncertainty surrounding Brexit and
currency exchange rate volatility, your directors remain confident
in the long-term prospects for the Group and at this early stage in
the year anticipate growth in both revenue and profits in the
current financial year.
Dividend
A final dividend of 39.5 pence net per share will be paid on
25th October 2017, to shareholders on the register on 22nd
September 2017, giving a total dividend of 52.0 pence for the year,
an increase of 8.3% over last year's 48.0 pence.
Sir David R McMurtry
CBE, RDI, FRS, FREng, CEng, FIMechE
Chairman and Chief Executive
27th July 2017
*Footnote
Previous year figures have been restated for the following:
1. The results of Renishaw Diagnostics Limited and the spatial
measurement business have been excluded, as these businesses have
been reclassified as discontinued activities.
2. The R&D tax credit, previously accounted for within the
Income tax expense line, has been reclassified to cost of sales,
thereby showing it as part of the profit before tax. This
reclassification increased the Profit before tax by GBP2.4m for the
year ended 30th June 2016.
3. It has been established that certain foreign currency forward
contracts used as hedging instruments for future incoming currency
cash flows did not qualify for hedge accounting as they did not
meet the hedge effectiveness criteria set out in the International
Accounting Standard IAS39 'Financial Instruments: Recognition and
Measurement'. To ensure technical compliance with this standard it
has been necessary to restate the 2016 financial statements
resulting in a GBP25.8m reduction to the profit before tax for that
year and a corresponding increase in Other Comprehensive Income.
The consolidated net assets and cash balances were not impacted by
the prior year adjustment and the future cash flows remain
unchanged.
Alternative performance measures
Alternative performance measures are -Revenue at constant
exchange rates, Adjusted profit before tax, Adjusted earnings per
share and Adjusted operating profit.
Revenue at constant exchange rates is defined as Revenue
recalculated using the same rates as were applicable to the
previous year and excluding forward contract gains and losses.
Revenue at constant exchange rates 2017 2016
GBPm GBPm
Statutory revenue as reported 536.8 427.2
Adjustment for exchange rate movements and forward
contract gains and losses (52.0) (2.6)
Revenue at constant exchange rates 484.8 424.6
----------------------------------------------------- ------- ------
Adjusted profit before tax, Adjusted earnings per share and
Adjusted operating profit are after excluding gains and losses in
fair value from forward currency contracts which did not qualify
for hedge accounting. The amounts shown below as reported in
revenue represent the amount by which revenue would change had all
the derivatives qualified as eligible for hedge accounting.
Adjusted profit before tax 2017 2016
GBPm GBPm
Statutory profit before tax 117.1 61.7
Fair value gains and losses on financial instruments
not effective for cash flow hedging:
- reported within revenue (11.6) 2.4
- reported as losses in the fair value of financial
instruments 3.6 23.4
Adjusted profit before tax 109.1 87.5
------------------------------------------------------- ------- -----
Adjusted earnings per share and adjusted operating profit are
calculated using the same adjustments (see note 19).
CONSOLIDATED INCOME STATEMENT
for the year ended 30th June 2017
Restated
Continuing operations 2017 2016
GBP'000 GBP'000
Revenue 536,807 427,224
Cost of sales (251,384) (208,565)
Gross profit 285,423 218,659
Distribution costs (112,691) (93,843)
Administrative expenses (52,376) (40,200)
Losses from the fair value of financial
instruments (3,601) (23,436)
Operating profit 116,755 61,180
Financial income 766 872
Financial expenses (2,256) (1,800)
Share of profits of associates and joint
ventures 1,836 1,451
Profit before tax 117,101 61,703
Income tax expense (14,343) (9,983)
Profit for the year from continuing operations 102,758 51,720
Loss for the period from discontinued
operations (13,931) (4,024)
Profit for the year 88,827 47,696
------------------------------------------------- ---------- ----------
Profit attributable to: 2017 2016
GBP'000 GBP'000
Equity shareholders of the parent company 88,955 48,220
Non-controlling interest (128) (524)
Profit for the year 88,827 47,696
-------------------------------------------- -------- --------
2017 2016
Pence Pence
Dividend per share arising in respect
of the year 52.0 48.0
Dividend per share paid in the year 48.0 46.5
Earnings per share from continuing operations
(basic and diluted) 141.3 71.8
Losses per share from discontinued operations
(basic and diluted) (19.1) (5.6)
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME AND EXPENSE
for the year ended 30th June 2017
Restated
2017 2016
GBP'000 GBP'000
Profit for the year 88,827 47,696
------------------------------------------------------- -------- ---------
Other items recognised directly in equity:
Items that will not be reclassified to the
Consolidated income statement:
Remeasurement of defined benefit pension liabilities (1,608) (20,868)
Deferred tax on remeasurement of defined benefit
pension liabilities (835) 3,480
Total for items that will not be reclassified (2,443) (17,388)
------------------------------------------------------- -------- ---------
Items that may be reclassified to the Consolidated
income statement:
Exchange differences in translation of foreign
operations 3,889 8,409
Comprehensive income and expenses of associates
and joint ventures 173 753
Effective portion of changes in fair value
of cash flow
hedges, net of recycling 8,495 (65,396)
Deferred tax on effective portion of changes
in fair value of cash flow hedges (1,573) 12,640
Total for items that may be reclassified 10,984 (43,594)
------------------------------------------------------- -------- ---------
Total other comprehensive income and expense,
net of tax 8,541 (60,982)
------------------------------------------------------- -------- ---------
Total comprehensive income and expense for
the year 97,368 (13,286)
------------------------------------------------------- -------- ---------
Attributable to:
Equity shareholders of the parent company 97,496 (12,762)
Non-controlling interest (128) (524)
Total comprehensive income and expense for
the year 97,368 (13,286)
------------------------------------------------------- -------- ---------
CONSOLIDATED BALANCE SHEET
at 30th June 2017
Restated
2017 2016
GBP'000 GBP'000
Assets
Property, plant and equipment 228,050 213,917
Intangible assets 54,507 61,255
Investments in associates and joint ventures 7,311 5,658
Long-term loans to associates and joint 3,080 -
ventures
Deferred tax assets 39,115 40,996
Derivatives 3,546 76
Total non-current assets 335,609 321,902
----------------------------------------------- --------- ---------
Current assets
Inventories 87,697 94,959
Trade receivables 137,507 114,945
Current tax 2,276 1,166
Other receivables 15,907 18,090
Derivatives - 859
Pension scheme cash escrow account 12,850 15,279
Cash and cash equivalents 51,942 31,278
Total current assets 308,179 276,576
----------------------------------------------- --------- ---------
Current liabilities
Trade payables 19,544 22,379
Overdraft - 9,975
Current tax 2,803 3,558
Provisions 2,960 2,375
Derivatives 25,261 19,987
Other payables 37,304 18,345
Total current liabilities 87,872 76,619
----------------------------------------------- --------- ---------
Net current assets 220,307 199,957
----------------------------------------------- --------- ---------
Non-current liabilities
Employee benefits 66,787 67,823
Deferred tax liabilities 13,844 21,999
Derivatives 31,471 50,652
Total non-current liabilities 112,102 140,474
----------------------------------------------- --------- ---------
Total assets less total liabilities 443,814 381,385
----------------------------------------------- --------- ---------
Equity
Share capital 14,558 14,558
Share premium 42 42
Currency translation reserve 10,510 6,448
Cash flow hedging reserve (31,049) (37,971)
Retained earnings 450,803 401,930
Other reserve (460) (460)
Equity attributable to the shareholders
of the parent company 444,404 384,547
----------------------------------------------- --------- ---------
Non-controlling interest (590) (3,162)
Total equity 443,814 381,385
----------------------------------------------- --------- ---------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 30th June 2017
Cash
Currency flow Non-
Share Share translation hedging Retained Other controlling
capital premium reserve reserve earnings reserve interest Total
Year ended 30th GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
June 2016
Balance at 1st
July 2015 as reported 14,558 42 (2,714) 17,171 402,559 (460) (2,638) 428,518
Restatement - - - (2,386) 2,386 - - -
--------------------------- -------- -------- ------------ --------- --------- -------- ------------ ---------
Balance at 1st
July 2015 restated 14,558 42 (2,714) 14,785 404,945 (460) (2,638) 428,518
Profit/(loss) for
the year - - - - 48,220 - (524) 47,696
Other comprehensive
income and expense
(net of tax)
--------------------------- -------- -------- ------------ --------- --------- -------- ------------ ---------
Remeasurement of
defined benefit
pension liabilities - - - - (17,388) - - (17,388)
Foreign exchange
translation differences - - 8,409 - - - - 8,409
Relating to associates
and joint ventures -- - 753 - - - - 753
Changes in fair
value of cash flow
hedges - - - (52,756) - - - (52,756)
Total other comprehensive
income - - 9,162 (52,756) (17,388) - - (60,982)
Total comprehensive
income - - 9,162 (52,756) 30,832 - (524) (13,286)
Dividends paid - - - - (33,847) - - (33,847)
Balance at 30th
June 2016 14,558 42 6,448 (37,971) 401,930 (460) (3,162) 381,385
Year ended 30th
June 2017
Profit/(loss) for
the year - - - - 88,955 - (128) 88,827
Other comprehensive
income and expense
(net of tax)
--------------------------- -------- -------- ------------ --------- --------- -------- ------------ ---------
Remeasurement of
defined benefit
pension liabilities - - - - (2,443) - - (2,443)
Foreign exchange
translation differences - - 3,889 - - - - 3,889
Relating to associates
and joint ventures - - 173 - - - - 173
Changes in fair
value of cash flow
hedges - - - 6,922 - - - 6,922
Total other comprehensive
income - - 4,062 6,922 (2,443) - - 8,541
Total comprehensive
income - - 4,062 6,922 86,512 - (128) 97,368
Acquisition of
non-controlling
interest - - - - (2,700) - 2,700 -
Dividends paid - - - - (34,939) - - (34,939)
Balance at 30th
June 2017 14,558 42 10,510 (31,049) 450,803 (460) (590) 443,814
--------------------------- -------- -------- ------------ --------- --------- -------- ------------ ---------
CONSOLIDATED STATEMENT OF CASH FLOW
for the year ended 30th June 2017
Restated
2017 2016
GBP'000 GBP'000
Cash flows from operating activities
Profit for the year 88,827 47,696
-------------------------------------------------- --------- ---------
Adjustments for:
Amortisation of development costs 13,645 9,116
Amortisation of other intangibles 10,230 2,313
Depreciation 22,192 18,258
Loss on sale of property, plant and equipment 2,085 166
(Gains)/losses from the fair value of financial
instruments (8,022) 25,772
Share of profits from associates and joint
ventures (1,836) (1,451)
Financial income (766) (872)
Financial expenses 2,256 1,800
Tax expense 13,132 8,988
52,916 64,090
------------------------------------------------- --------- ---------
Decrease/(increase) in inventories 7,262 (17,286)
Increase in trade and other receivables (21,062) (2,951)
Increase/(decrease) in trade and other
payables 14,699 (12,439)
Increase in provisions 585 660
1,484 (32,016)
------------------------------------------------- --------- ---------
Defined benefit pension contributions (4,204) (2,708)
Income taxes paid (23,768) (21,883)
Cash flows from operating activities 115,255 55,179
-------------------------------------------------- --------- ---------
Investing activities
Purchase of property, plant and equipment (42,637) (52,996)
Development costs capitalised (15,886) (12,246)
Purchase of other intangibles (754) (1,294)
Investment in subsidiaries, associates
and joint ventures - (284)
Sale of property, plant and equipment 5,526 826
Sale of property, plant and equipment relating 960 -
to discontinued activities
Interest received 766 872
Dividend received from associates and joint
ventures 356 310
Payments to pension scheme escrow account
(net) 2,429 (548)
Cash flows from investing activities (49,240) (65,360)
-------------------------------------------------- --------- ---------
Financing activities
Interest paid (696) (231)
Dividends paid (34,939) (33,847)
Cash flows from financing activities (35,635) (34,078)
-------------------------------------------------- --------- ---------
Net increase/(decrease) in cash and cash
equivalents 30,380 (44,259)
Cash and cash equivalents at beginning
of the year 21,303 82,171
Effect of exchange rate fluctuations on
cash held 259 (16,609)
Cash and cash equivalents at end of the
year 51,942 21,303
-------------------------------------------------- --------- ---------
STATUS OF THIS PRELIMINARY ANNOUNCEMENT
The financial information set out above does not constitute the
Company's statutory accounts for the years ended 30th June 2017 or
2016 but is derived from those accounts. Statutory accounts for
2016 have been delivered to the registrar of companies, and those
for 2017 will be delivered in due course. The auditors have
reported on those accounts; their reports were (i) unqualified,
(ii) did not include a reference to any matters to which the
auditors drew attention by way of emphasis without qualifying their
report and (iii) did not contain a statement under section 498 (2)
or (3) of the Companies Act 2006.
This preliminary announcement and the presentation of results
will be available on the Company's website www.renishaw.com.
NOTES TO THE FINANCIAL STATEMENTS
1. Accounting policies
Basis of preparation
Renishaw plc (the "Company") is a company incorporated in the
UK.
The group financial statements consolidate those of the Company
and its subsidiaries (together referred to as the "Group") and
equity account the Group's interest in associates and joint
ventures.
The group financial statements have been prepared and approved
by the directors in accordance with International Financial
Reporting Standards as adopted by the EU ("adopted IFRS").
The Group identified a number of prior period adjustments during
the year, resulting in a restatement of the comparative period in
the 2017 financial statements, as detailed in note 20. A third
balance sheet has not been presented as the movements are
identified in the Consolidated statement of changes in equity.
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.
Basis of accounting
The financial statements have been prepared under the historical
cost convention, subject to items referred to in the derivative
financial instruments note below. The accounting policies set out
below have been consistently applied in preparing both the 2016 and
2017 financial statements.
Critical accounting judgements and estimation uncertainties
The preparation of financial statements in conformity with
adopted IFRS requires management to make judgements, estimates and
assumptions that affect the application of policies and reported
amounts of assets and liabilities, income and expenses. The
estimates and associated assumptions are based on historical
experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the
basis of making the judgements about carrying values of assets and
liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates. The estimates and
underlying assumptions are reviewed on an ongoing basis.
The areas of key estimation uncertainty and critical accounting
judgement that have a significant risk of causing a material
adjustment to the carrying amount of assets and liabilities in the
next financial year are listed below:
Critical accounting judgements
(i) Capitalisation of development costs
Product development costs are capitalised once a project has
reached a certain stage of development and these costs are
subsequently amortised over a five-year period. Judgements are
required to assess whether the new product development has reached
the appropriate point for capitalisation of costs to begin. Should
a product be subsequently obsoleted, the accumulated capitalised
development costs would need to be immediately written off in the
Consolidated income statement.
(ii) Discontinued activities
The closure of certain lines of business have been treated as
discontinued operations on the basis that the directors are of the
opinion that the underlying performance of the business is better
reflected by classifying these items as discontinued.
Key sources of estimation uncertainty
(i) Inventory
Determining the value of inventory requires judgement,
especially in respect of provisioning for slow moving and
potentially obsolete inventory. Management consider historic and
future forecast sales patterns of individual stock items when
calculating inventory provisions. For most inventory lines,
provisions are based on the excess levels held compared to a
maximum three year outlook. Where strategic purchases of critical
components have been made, an outlook beyond three years is
considered where appropriate. The sensitivities around estimates
vary from line to line.
(ii) Defined benefit pension scheme liabilities
Determining the value of the future defined benefit obligation
requires judgement in respect of the assumptions used to calculate
present values. These include future mortality, discount rate,
inflation and salary increases. Management makes these judgements
in consultation with an independent actuary.
(iii) Amortisation of intangibles and impairment
The periods of amortisation of intangible assets require
judgements to be made on the estimated useful lives of the
intangible assets to determine an appropriate rate of amortisation.
Future assessments of impairment may lead to the writing off of
certain amounts of intangible assets and the consequent charge in
the Consolidated income statement for the accelerated amortisation.
Capitalised development costs are written off over five years, the
period over which demand forecasts can be predicted with more
certainty.
(iv) Impairment of goodwill
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.
Revenue
Revenue from the sale of goods is recognised in the Consolidated
income statement when the significant risks and rewards of
ownership have been transferred to the buyer, which is normally the
time of despatch. Where certain products require installation, part
of the revenue may be deferred until the installation is complete.
No revenue is recognised if there are significant uncertainties
regarding recovery of the consideration due, or the possible return
of goods.
Revenue from the sale of services is recognised over the period
to which the service relates. Where goods and services are sold as
a bundle, the fair value of services is deferred and recognised
over the period to which the service relates with the remaining
revenue recognised on despatch.
Basis of consolidation
Subsidiaries - Subsidiaries are entities controlled by the
Group. The Group controls an entity when it is exposed to, or has
rights to, variable returns from its involvement with the entity
and has the ability to affect those returns through its power over
the entity. In assessing control, the Group takes into
consideration potential voting rights that are exercisable. The
acquisition date is the date on which control is transferred to the
acquirer. The financial statements of subsidiaries are included in
the consolidated financial statements from the date that control
commences until the date that control ceases. Losses applicable to
the 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.
Application of the equity method to associates and joint
ventures - Associates and joint ventures are accounted for using
the equity method (equity accounted investees) and are initially
recognised at cost. The Group's investment includes goodwill
identified on acquisition, net of any accumulated impairment
losses. The consolidated financial statements include the Group's
share of the total comprehensive income and equity movements of
equity accounted investees, from the date that significant
influence commences until the date that significant influence
ceases. When the Group's share of losses exceeds its interest in an
equity accounted investee, the Group's carrying amount is reduced
to nil and recognition of further losses is discontinued except to
the extent that the Group has incurred legal or constructive
obligations or made payments on behalf of an investee.
Transactions eliminated on consolidation - Intra-group balances
and transactions, and any unrealised income and expenses arising
from intra-group transactions, are eliminated. Unrealised gains
arising from transactions with equity accounted investees are
eliminated against the investment to the extent of the Group's
interest in the investee. Unrealised losses are eliminated in the
same way as unrealised gains, but only to the extent that there is
no evidence of impairment.
Foreign currency derivative cash flow hedges
Foreign currency derivatives are used to manage risks arising
from changes in foreign currency rates relating to overseas sales.
The Group does not enter into derivatives for speculative purposes.
Foreign currency derivatives are stated at their fair value being
the estimated amount that the Group would pay or receive to
terminate them at the balance sheet date based on prevailing
foreign currency rates.
Changes in the fair value of foreign currency derivatives which
are designated and effective as hedges of future cash flows are
recognised in other comprehensive income and in the currency
hedging reserve, and subsequently transferred to the carrying
amount of the hedged item or the Consolidated income statement.
Realised gains or losses on cash flow hedges are therefore
recognised in the Consolidated income statement in the same period
as the hedged item.
Hedge accounting is discontinued when the hedging instrument
expires or no longer qualifies for hedge accounting. At that time,
any cumulative gain or loss on the hedging instrument previously
recognised in equity is retained in equity until the hedged
transaction occurs. If the hedged transaction is no longer expected
to occur, the net cumulative gain or loss recognised in equity is
then transferred to the Consolidated income statement.
Changes in fair value of foreign currency derivatives which are
ineffective or do not meet the criteria for hedge accounting in IAS
39 'Financial instruments: recognition and measurement' are
recognised in the Consolidated income statement.
Inventory and work in progress
Inventory and work in progress is valued at the lower of cost
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 which 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.
Goodwill and other intangible assets
Costs related to the acquisition, other than those associated
with the issue of debt or equity securities, are expensed as
incurred. Deferred consideration relating to acquisitions is
subject to discounting to the date of acquisition and subsequently
unwound to the date of the final payment. Goodwill arising on
acquisition represents the difference between the cost of the
acquisition and the fair value of the net identifiable assets
acquired, net of deferred tax. Identifiable intangibles are those
which can be sold separately or which arise from legal rights
regardless of whether those rights are separable.
Business combinations are accounted for using the acquisition
method as at the acquisition date, which is the date on which
control is transferred to the Group.
Goodwill is stated at cost less any accumulated impairment
losses. It is not amortised but is tested annually for impairment
or earlier if there are any indications of impairment. The annual
impairment review involves comparing the carrying amount to the
estimated recoverable amount and recognising an impairment loss if
the recoverable amount is lower. Impairment losses are recognised
through the Consolidated income statement.
Intangible assets such as customer lists, patents, trademarks,
know-how and intellectual property that are acquired by the Group
are stated at cost less amortisation and impairment losses.
Amortisation is charged to the Consolidated income statement on a
straight-line basis over the estimated useful lives of the
intangible assets. The estimated useful lives of the intangible
assets included in the Consolidated balance sheet reflect the
benefit derived by the Group and vary from five to ten years.
Intangible assets - research and development costs
Expenditure on research activities is recognised in the
Consolidated income statement as an expense as incurred.
Expenditure on development activities is capitalised if the product
or process is technically and commercially feasible and the Group
intends and has the technical ability and sufficient resources to
complete development, future economic benefits are probable and the
Group can measure reliably the expenditure attributable to the
intangible asset during its development.
Development activities involve a plan or design for the
production of new or substantially improved products or processes.
The expenditure capitalised includes the cost of materials, direct
labour and an appropriate proportion of overheads. Other
development expenditure is recognised in the Consolidated income
statement as an expense as incurred.
Capitalised development expenditure is amortised over five years
and is stated at cost less accumulated amortisation and less
accumulated impairment losses. Capitalised development expenditure
is removed from the balance sheet ten years after being fully
amortised.
Employee benefits
The Group operates contributory pension schemes, largely for UK,
Ireland and USA employees, which were of the defined benefit type
up to 5th April 2007, 31st December 2007 and 30th June 2012
respectively, at which time they ceased any future accrual for
existing members and were closed to new members.
The schemes are administered by trustees who are independent of
the group finances. Pension scheme assets of the defined benefit
schemes are measured using market value. 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 plans comprise actuarial gains and
losses, the return on plan 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 plans 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. Foreign-based employees are covered by state, defined
benefit and private pension schemes in their countries of
residence. Actuarial valuations of foreign pension schemes were not
obtained, apart from Ireland and USA, because of the limited number
of foreign employees. For defined contribution schemes, the amount
charged to the Consolidated income statement represents the
contributions payable to the schemes in respect of the accounting
period.
Accruals are made for holiday pay, based on a calculation of the
number of days' holiday earned during the year, but not yet
taken.
Going concern
The Group has considerable financial resources at its disposal
and the directors have considered the current financial
projections. As a consequence, the directors believe that the Group
is well placed to manage its business risks successfully.
After making enquiries, the directors have a reasonable
expectation that the Company and the Group have adequate resources
to continue in operational existence for the next twelve months.
Accordingly, they continue to adopt the going concern basis in
preparing the Annual report and accounts.
Discontinued activities
Where a line of the Group's business is treated as a
discontinued operation, the financial statements have been
re-presented and restated where required as if operations
discontinued during the current year had been discontinued from the
start of the comparative year. Discontinued operations are excluded
from the results of continuing operations and are presented as a
single amount as a loss after tax from discontinued operations in
the Consolidated income statement.
Impairment on non-current assets
All non-current assets are tested for impairment whenever there
is an indication that their carrying value may be impaired. An
impairment loss is recognised in the Consolidated income statement
to the extent that an asset's carrying value exceeds its
recoverable amount, which represents the higher of the asset's net
realisable value and its value in use. An asset's value in use
represents the present value of the future cash flows expected to
be derived from the asset or from the cash generating unit to which
it relates. The present value is calculated using a discount rate
that reflects the current market assessment of the time value of
money and the risks specific to the asset concerned.
2. SEGMENTAL ANALYSIS
Renishaw manages its operations in two segments, comprising
metrology and healthcare products. The results of these segments
are regularly reviewed by the Board to allocate resources to
segments and to assess their performance. The Group evaluates
performance of the segments on the basis of profit before interest,
tax and discontinued operations. Within the operating segment of
metrology, there are multiple product offerings with similar
economic characteristics, and where the nature of the products and
production processes and their customer base are similar. The
revenue, depreciation and amortisation, and operating profit for
each reportable segment were:
Year ended 30th June 2017 Metrology Healthcare Total
GBP'000 GBP'000 GBP'000
Revenue 503,378 33,429 536,807
----------------------------------------- ---------- ----------- ---------
Depreciation and amortisation 32,983 3,831 36,814
----------------------------------------- ---------- ----------- ---------
Operating profit/(loss) before
losses from fair value in financial
instruments 126,830 (6,474) 120,356
Share of profits from associates
and joint ventures 1,836 - 1,836
Net financial expense - - (1,490)
Losses from the fair value of financial
instruments - - (3,601)
Profit before tax - - 117,101
----------------------------------------- ---------- ----------- ---------
Year ended 30th June 2016 (Restated) Metrology Healthcare Total
GBP'000 GBP'000 GBP'000
Revenue 398,853 28,371 427,224
----------------------------------------- ---------- ----------- ---------
Depreciation and amortisation 26,234 3,003 29,237
----------------------------------------- ---------- ----------- ---------
Operating profit/(loss) before
losses from fair value in financial
instruments 87,717 (3,101) 84,616
Share of profits from associates
and joint ventures 1,451 - 1,451
Net financial expense - - (928)
Losses from the fair value of financial
instruments - - (23,436)
Profit before tax - - 61,703
----------------------------------------- ---------- ----------- ---------
There is no allocation of assets and liabilities to operating
segments. Depreciation is included within certain other overhead
expenditure which is allocated to segments on the basis of the
level of activity.
The analysis of revenue by geographical market was:
2017 2016
GBP'000 GBP'000
Far East, including Australasia 248,905 193,274
Continental Europe 129,941 110,315
North, South and Central America 113,577 88,029
UK and Ireland 27,595 22,752
Other regions 16,789 12,854
Total group revenue 536,807 427,224
----------------------------------- -------- --------
Revenue in the above table has been allocated to regions based
on the geographical location of the customer. Countries with
individually material revenue figures in the context of the Group
were:
2017 2016
GBP'000 GBP'000
China 134,984 106,457
USA 95,927 77,856
Germany 56,403 48,205
Japan 52,166 49,318
There was no revenue from transactions with a single external
customer which amounted to more than 10% or more of the Group's
total revenue
The following table shows the analysis of non-current assets by
geographical region:
2017 2016
GBP'000 GBP'000
United Kingdom 183,102 190,396
Overseas 109,846 90,434
Total non-current assets 292,948 280,830
--------------------------- -------- --------
3. FINANCIAL INCOME AND EXPENSES
2017 2016
Financial income GBP'000 GBP'000
Interest receivable 766 872
Financial expenses
Net interest on pension schemes' liabilities 1,560 1,569
Bank interest payable 696 231
Total financial expenses 2,256 1,800
----------------------------------------------- -------- --------
4. INCOME TAX EXPENSE
2017 2016
GBP'000 GBP'000
Current tax:
UK corporation tax on profits for the
year 6,418 6,804
UK corporation tax - prior year adjustments 610 860
Overseas tax on profits for the year 12,997 7,651
Total current tax 20,025 15,315
Deferred tax:
---------------------------------------------- -------- --------
Origination and reversal of other temporary
differences (1,589) (4,403)
Prior year adjustment (3,647) -
Effect on deferred tax for change in
the UK tax rate (446) (929)
---------------------------------------------- -------- --------
(5,682) (5,332)
Tax charge on profit 14,343 9,983
---------------------------------------------- -------- --------
Total tax charge: 2017 2016
GBP'000 GBP'000
Income tax expense reported in the
Consolidated income statement 14,343 9,983
Tax attributable to discontinued operations (1,211) (995)
13,132 8,988
--------------------------------------------- -------- --------
The tax for the year is lower (2016: lower) than the weighted
average UK standard rate of corporation tax of 19.75% (2016: 20%).
The differences are explained as follows:
2017 Restated
2016
GBP'000 GBP'000
Profit before tax from continuing
operations 117,101 61,703
Loss before tax from discontinued
operations (15,142) (5,019)
------------------------------------------- --------- -----------
101,959 56,684
Tax at 19.75% (2016: 20%) 20,137 11,337
Effects of:
Different tax rates applicable in
overseas subsidiaries (1,886) (2,653)
UK patent box (4,025) (423)
Expenses not deductible for tax purposes 310 266
Companies with unrelieved tax losses 1,960 461
Items with no tax effect 226 (290)
Prior year adjustments (3,037) 860
Effect on deferred tax for change
in UK tax rate (446) (929)
Other differences (107) 359
Tax charge on profit 13,132 8,988
------------------------------------------- --------- -----------
Effective tax rate 12.9% 15.9%
------------------------------------------- --------- -----------
Phased reductions in the UK rate of corporation tax to 19% from
1st April 2017 and 17% from 1st April 2020 have been substantively
enacted. Deferred tax assets and liabilities have been calculated
based on the rate expected to be applicable when the relevant items
are expected to reverse.
5. DISCONTINUED OPERATIONS
In October 2016, the Group decided to discontinue operations at
Renishaw Diagnostics Limited (healthcare segment) and in June 2017,
to discontinue the spatial measurements business (metrology
segment), on the basis of continued losses. Certain assets of the
business were sold. Financial information relating to the
discontinued operations is set out below.
2017 2016
GBP'000 GBP'000
Revenue 7,217 7,038
Expenses (13,914) (12,057)
Goodwill impairment (8,445) -
------------------------------------------------- --------- ---------
Loss before tax (15,142) (5,019)
Tax credit 1,211 995
------------------------------------------------- --------- ---------
Loss for the year from discontinued operations (13,931) (4,024)
------------------------------------------------- --------- ---------
Cash flow 2017 2016
GBP'000 GBP'000
Loss for the year (13,931) (4,024)
Adjustments for operating activities 12,155 (635)
------------------------------------------------- --------- ---------
Cash flows from operating activities (1,776) (4,659)
Cash flows from investing activities 420 168
------------------------------------------------- --------- ---------
Net decrease in cash and cash equivalents
from discontinued operations (1,356) (4,491)
------------------------------------------------- --------- ---------
6. EARNINGS PER SHARE
Basic and diluted earnings per share from continuing operations
are calculated on earnings of GBP102,886,000 (2016: GBP52,244,000)
and on 72,788,543 shares, being the number of shares in issue
during both years.
Basic and diluted losses per share from discontinued operations
are calculated on losses of GBP13,931,000 (2016: GBP4,024,000) and
on 72,788,543 shares, being the number of shares in issue during
both years.
There is no difference between the weighted average earnings per
share and the basic and diluted earnings per share.
7. PROPERTY, PLANT AND EQUIPMENT
Freehold Assets
in the
land and Plant Motor course
and of
buildings Equipment vehicles construction Total
Year ended 30th June 2017 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cost
At 1st July 2016 142,665 187,048 9,600 14,886 354,199
Additions 6,273 13,336 1,118 21,910 42,637
Transfers 23,050 5,524 - (28,574) -
Disposals (8,267) (6,489) (1,067) - (15,823)
Currency adjustment 1,940 1,603 242 - 3,785
At 30th June 2017 165,661 201,022 9,893 8,222 384,798
--------------------------- ---------- ---------- --------- ------------- ---------
Depreciation
At 1st July 2016 27,241 107,045 5,996 - 140,282
Charge for the year 2,976 17,727 1,489 - 22,192
Released on disposals (2,292) (4,000) (960) - (7,252)
Currency adjustment 537 839 150 - 1,526
At 30th June 2017 28,462 121,611 6,675 - 156,748
--------------------------- ---------- ---------- --------- ------------- ---------
Net book value
At 30th June 2017 137,199 79,411 3,218 8,222 228,050
--------------------------- ---------- ---------- --------- ------------- ---------
At 30th June 2016 115,424 80,003 3,604 14,886 213,917
--------------------------- ---------- ---------- --------- ------------- ---------
At 30th June 2017, properties with a net book value of
GBP66,606,000 (2016: GBP66,485,000) were subject to a registered
charge to secure the UK defined benefit pension scheme
liabilities.
Additions to assets in the course of construction comprise:
2017 2016
GBP'000 GBP'000
Freehold land and buildings 17,972 12,938
Plant and equipment 3,938 10,256
21,910 23,194
----------------------------- -------- --------
8. INTANGIBLE ASSETS
Internally
Other generated
Goodwill intangible development
on
consolidation assets costs Software Total
Year ended 30th June GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
2017
Cost
At 1st July 2016 21,268 11,249 101,463 22,587 156,567
Additions - 300 15,886 454 16,640
Disposals (1,784) - - - (1,784)
Currency adjustment 435 98 - 25 558
At 30th June 2017 19,919 11,647 117,349 23,066 171,981
---------------------- -------------- ----------- ------------ --------- --------
Amortisation
At 1st July 2016 - 10,939 67,682 16,691 95,312
Charge for the year - 198 13,645 1,587 15,430
Impairments 8,445 - - - 8,445
Released on disposal (1,784) - - - (1,784)
Currency adjustment - 50 - 21 71
At 30th June 2017 6,661 11,187 81,327 18,299 117,474
---------------------- -------------- ----------- ------------ --------- --------
Net book value
At 30th June 2017 13,258 460 36,022 4,767 54,507
---------------------- -------------- ----------- ------------ --------- --------
At 30th June 2016 21,268 310 33,781 5,896 61,255
---------------------- -------------- ----------- ------------ --------- --------
Goodwill acquired has arisen on the acquisition of a number of
businesses and has an indeterminable useful life. It is not
amortised but is tested for impairment annually and at any point
during the year when an indicator of impairment exists. Goodwill is
allocated to the CGUs, which are mainly the statutory entities
acquired. This is the lowest level in the Group at which goodwill
is monitored for impairment and is at a lower level than the
Group's operating segments. In the table below, only the goodwill
relating to the acquisition of R&R Fixtures, LLC is expected to
be subject to tax relief.
The analysis of acquired goodwill on consolidation is:
2017 2016
GBP'000 GBP'000
itp GmbH 3,038 2,886
Renishaw Mayfield S.A. 1,823 1,738
Measurement Devices Limited - 6,661
Renishaw Software Limited 1,559 1,559
R&R Fixtures, LLC 5,327 5,168
Renishaw Diagnostics Limited (92.4%) - 1,784
Other smaller acquisitions 1,511 1,472
Total acquired goodwill 13,258 21,268
--------------------------------------- -------- --------
The recoverable amounts of acquired goodwill are based on value
in use calculations. These calculations use cash flow projections
based on either the financial business plans approved by management
for next five financial years, or estimated growth rates over the
five years, which are set out below. The cash flows beyond this
forecast are extrapolated to perpetuity using a nil growth rate on
a prudent basis, to reflect the uncertainties over forecasting
further than five years.
Key assumptions
The key assumptions utilised in the value in use calculations
are:
Discount rate
The following pre-tax discount rates have been used in
discounting the projected cash flows:
2017 2016
Discount Discount
rate rate
itp GmbH 12% 12%
Renishaw Software Limited R&R Fixtures,
LLC 12% 12%
12% 12%
Renishaw Mayfield S.A. 15% 15%
Forecast cash flows and future growth rates
2017 2016
Basis of forecast Basis of forecast
itp GmbH 5 % growth rate 5% growth rate
Renishaw Software Limited 5 % growth rate 5% growth rate
R&R Fixtures, LLC 5 year business plan 5 year business plan
Renishaw Mayfield S.A. 5 year business plan 5 year business plan
These forecast cash flows are considered prudent estimates based
on management's view of the future and experience of past
performance of the individual CGUs and are calculated at a
disaggregated level. The key judgement within these business plans
is the forecasting of revenue growth, given that the cost bases of
the businesses can be flexed in line with revenue performance.
The average growth rates included in the significant CGUs
business plans are as follows:
2017 2016
Average revenue growth Average revenue growth
R&R Fixtures, LLC 14% 13%
------------------- ------------------------ ------------------------
These business plans are recognised as key inputs to the
impairment calculation. They are monitored by management regularly
and updated for expected variances in future performance.
Sensitivity to key assumptions
Management have performed sensitivity analysis on the key
assumptions detailed above.
Discount rate
An increase of 5% in the discount rate would not result in an
impairment on any of the CGUs. Management believe any increase in
discount rates above 5% to be remote.
Forecast cash flows and future growth rates
Given the average revenue growth assumptions included in the
five-year business plans, management's sensitivity analysis
involves a reduction of 10% in the forecast cash-flows utilised in
those business plans and therefore into perpetuity. For R&R
Fixtures, LLC, for there to be an impairment there would need to be
a reduction of 44% in the forecast cash flows.
9. INVESTMENT IN ASSOCIATES AND JOINT VENTURES
The Group's investments in associates and joint ventures (all
investments being in the ordinary share capital of the associate
and joint ventures), whose accounting years end on 30th June,
except where noted otherwise, were:
Ownership Ownership
Country of 2017 2016
incorporation % %
RLS merilna tehnika d.o.o. Slovenia 50.0 50.0
Metrology Software Products Limited England & Wales 50.0 50.0
HiETA Technologies Limited (31st
December) England & Wales 24.9 24.9
Movements during the year were:
2017 2016
GBP'000 GBP'000
Balance at the beginning of the
year 5,658 3,480
Dividends received (356) (310)
Share of profits of associates
and joint ventures 1,836 1,451
Other comprehensive income and
expense 173 753
Additions - 284
Balance at the end of the year 7,311 5,658
---------------------------------- -------- --------
10. DEFERRED TAX ASSETS AND LIABILITIES
Balances at the end of the year were:
2017 2016
--------------------- -------------------------------- --------------------------------
Assets Liabilities Net Assets Liabilities Net
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Property, plant and
equipment - (9,337) (9,337) - (6,969) (6,969)
Intangible assets - (4,330) (4,330) - (8,061) (8,061)
Intragroup trading
(inventory) 16,016 - 16,016 13,454 - 13,454
Pension schemes 11,024 - 11,024 12,529 - 12,529
Derivatives 10,146 - 10,146 13,244 - 13,244
Other 1,929 (177) 1,752 1,769 (6,969) (5,200)
Balance at the end
of the year 39,115 (13,844) 25,271 40,996 (21,999) 18,997
--------------------- -------- ------------ -------- -------- ------------ --------
The movements in the deferred tax balance during the year
were:
2017 2016
GBP'000 GBP'000
Balance at the beginning of the year 18,997 (2,455)
Reallocation to current tax 3,000 -
Movements in the Consolidated income
statement 5,682 5,332
Movement in relation to the cash flow
hedging reserve (1,573) 12,640
Movement in relation to the pension
schemes (835) 3,480
---------------------------------------------------- -------- --------
Total movement in the Consolidated statement
of comprehensive income and expense (2,408) 16,120
Balance at the end of the year 25,271 18,997
---------------------------------------------------- -------- --------
No deferred tax asset has been recognised in respect of tax
losses carried forward of GBP22,147,000 (2016: GBP16,393,000) due
to the uncertainty over their recoverability, as a significant
proportion held in overseas subsidiaries may only be carried
forward for a limited period of time.
11. DERIVATIVES
2017 2016
Derivatives comprising the fair value GBP'000 GBP'000
of outstanding forward contracts with
positive fair values were:
Derivatives designated as hedging
instruments 2,083 579
Derivatives not designated as hedging
instruments 1,463 356
Total derivatives with positive fair
values 3,546 935
----------------------------------------- -------- --------
Total current - 859
Total non-current 3,546 76
Total of derivatives with positive
fair values 3,546 935
----------------------------------------- -------- --------
2017 2016
Derivatives comprising the fair value GBP'000 GBP'000
of outstanding forward contracts with
negative fair values were:
Derivatives designated as hedging
instruments 41,560 49,079
Derivatives not designated as hedging
instruments 15,172 21,560
Total derivatives with negative fair
values 56,732 70,639
----------------------------------------- -------- --------
Total current 25,261 19,987
Total non-current 31,471 50,652
Total of derivatives with negative
fair values 56,732 70,639
----------------------------------------- -------- --------
12. EMPLOYEE BENEFITS
The Group operates a number of pension schemes throughout the
world. As noted in the accounting policies, actuarial valuations of
foreign pension schemes are not obtained for the most part because
of the limited number of foreign employees.
The major scheme, which covers the UK-based employees, was of
the defined benefit type. This scheme, along with the Ireland and
USA defined benefit schemes, has ceased any future accrual for
current members and these schemes are closed to new members. UK,
Ireland and USA employees are now covered by defined contribution
schemes.
The total pension cost of the Group for the year was
GBP20,238,000 (2016: GBP18,061,000), of which GBP158,000 (2016:
GBP184,000) related to directors and GBP6,292,000 (2016:
GBP4,854,000) related to overseas schemes.
The latest full actuarial valuation of the UK defined benefit
scheme was carried out as at September 2015 and updated to 30th
June 2017 by a qualified independent actuary. The mortality
assumption used for 2017 is S2PMA and S2PFA tables, CMI (core) 2016
model with long term improvements of 1% per annum.
The major assumptions used by the actuary for the UK and Ireland
schemes were:
2017 2016
----------------------------- -------------------- --------------------
UK scheme Ireland UK scheme Ireland
scheme scheme
Rate of increase in pension
payments 3.3% 1.6% 3.2% 1.5%
Discount rate 2.7% 2.2% 3.2% 2.0%
Inflation rate (RPI) 3.4% 1.6% 3.3% 1.5%
Inflation rate (CPI) 2.4% - 2.3% -
Retirement age 64 65 64 65
The assets and liabilities in the defined benefit schemes at the
end of the year were:
2017 2016
GBP'000 GBP'000
Market value of assets:
Equities 169,433 145,914
Bonds and cash 1,275 3,313
170,708 149,227
Actuarial value of liabilities (237,495) (217,050)
Deficit in the schemes (66,787) (67,823)
--------------------------------- ---------- ----------
Deferred tax thereon 11,024 12,528
--------------------------------- ---------- ----------
All equities have quoted prices in active markets in the UK,
North America, Europe, Asia-Pacific, Japan and emerging
markets.
The weighted average duration of the defined benefit obligation
is around 24 years.
The movements in the schemes' assets and liabilities were:
Assets Liabilities Total
Year ended 30th June 2017 GBP'000 GBP'000 GBP'000
Balance at the beginning of the
year 149,227 (217,050) (67,823)
Contributions paid 4,204 - 4,204
Interest on pension schemes 4,681 (6,241) (1,560)
Remeasurement gain/(loss) 19,028 (20,636) (1,608)
Benefits paid (6,432) 6,432 -
Balance at the end of the year 170,708 (237,495) (66,787)
--------------------------------- -------- ------------ ---------
An agreement has been entered into with the trustees of the UK
defined benefit pension scheme in relation to deficit funding plans
which supersede the previous arrangements. The Company has agreed
to pay all monthly pensions payments and lump sum payments, and
transfer payments up to a limit of GBP1,000,000 in each year
(Benefits in Payment).
A number of UK properties owned by the Company are subject to
fixed charges. One or more of the properties may be released from
the fixed charge if on a subsequent valuation, the value of all
properties under charge exceed 120% of the deficit.
The Company has also established an escrow bank account, which
is subject to a floating charge. The balance of this account was
GBP12,850,000 at the end of the year (2016: GBP15,279,000). The
funds will be released back to the Company from the escrow account
over a period of 6 years.
The agreement continues until 30th June 2031, but may end sooner
if the deficit (calculated on a self sufficiency basis as defined
in the agreement) is eliminated in the meantime. At 30th June 2031
the Company is obliged to pay any deficit at that time. All
properties will be released from charge when the deficit no longer
exists. The charges may be enforced by the trustees if one of the
following occurs: (a) the Company does not pay any Benefits in
Payment; (b) an insolvency event occurs in relation to the Company;
or (c) the Company does not pay any deficit at 30th June 2031.
Under the Ireland defined benefit pension scheme deficit funding
plan, a property owned by Renishaw (Ireland) Limited is subject to
a registered fixed charge to secure the Ireland defined benefit
pension scheme's deficit.
No scheme assets are invested in the Group's own equity.
The present value of projected future contributions under the
new agreement relating to the UK defined benefit scheme exceeds the
value of the deficit at the year-end, therefore, under IFRIC 14,
the UK defined benefit pension scheme's liabilities have been
increased by GBP16,200,000, to represent the maximum discounted
liability as at 30th June 2017 (2016: GBP15,400,000).
13. INVENTORIES
An analysis of inventories at the end of the year was:
2017 2016
GBP'000 GBP'000
Raw materials 32,477 35,932
Work in progress 19,705 26,225
Finished goods 35,515 32,802
Balance at the end of the year 87,697 94,959
--------------------------------- -------- --------
During the year, the amount of inventories recognised as an
expense in the Consolidated income statement was GBP167,395,000
(2016: GBP135,718,000) and the amount of write-down of inventories
recognised as an expense in the Consolidated income statement was
GBP6,466,000 (2016: GBP2,454,000). At the end of the year, the
gross cost of inventories which had provisions held against them
totalled GBP15,413,000 (2016: GBP10,134,000).
14. CASH AND CASH EQUIVALENTS
An analysis of cash and cash equivalents at the end of the year
was:
2017 2016
GBP'000 GBP'000
Bank balances and cash in hand 46,492 26,416
Short-term deposits 5,450 4,862
Overdraft - (9,975)
Balance at the end of the year 51,942 21,303
--------------------------------- -------- --------
The UK defined benefit pension scheme cash escrow account is
shown separately within current assets.
15. PROVISIONS
Warranty provision
Movements during the year were:
2017 2016
GBP'000 GBP'000
Balance at the beginning of the
year 2,375 1,715
Created during the year 2,195 1,878
Utilised in the year (1,610) (1,218)
---------------------------------- -------- --------
585 660
Balance at the end of the year 2,960 2,375
---------------------------------- -------- --------
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.
16. OTHER PAYABLES (CURRENT)
Balances at the end of the year were:
2017 2016
GBP'000 GBP'000
Payroll taxes and social security 7,642 6,304
Other creditors and accruals 29,662 12,041
Total other payables 37,304 18,345
------------------------------------ -------- --------
17. CAPITAL AND RESERVES
Share capital
2017 2016
GBP'000 GBP'000
Allotted, called-up and fully paid
72,788,543 ordinary shares of 20p
each 14,558 14,558
------------------------------------- -------- --------
The ordinary shares are the only class of share in the Company.
Holders of ordinary shares are entitled to vote at general meetings
of the Company and receive dividends as declared. The Articles of
Association of the Company do not contain any restrictions on the
transfer of shares nor on voting rights.
Currency translation reserve
The currency translation reserve comprises all foreign exchange
differences arising from the translation of the financial
statements of the foreign operations, offset by foreign exchange
differences on bank liabilities which have been accounted for in
other comprehensive income and accumulated in equity on account of
them being classified as hedging instruments.
Movements during the year were:
2017 2016
GBP'000 GBP'000
Balance at the beginning of the
year 6,448 (2,714)
Gain on net assets of foreign currency
operations 4,848 28,778
Loss on foreign currency borrowings
held for the purpose of net investment
hedging (959) (20,369)
-------------------------------------------- -------- ---------
Gain in the year relating to subsidiaries 3,889 8,409
Currency exchange differences relating
to associates 173 753
Balance at the end of the year 10,510 6,448
-------------------------------------------- -------- ---------
Cash flow hedging reserve
The cash flow hedging reserve comprises all foreign exchange
differences arising from the valuation of forward exchange
contracts which are effective hedges and mature after the year end.
These are valued on a mark-to-market basis, are accounted for in
comprehensive income and accumulated in equity, and are recycled
through the Consolidated income statement when the hedged item
affects the Consolidated income statement. The forward contracts
mature over the next three and a half years.
Movements during the year were:
Restated
2017 2016
GBP'000 GBP'000
Balance at the beginning of the
year (37,971) 14,785
Movements during the year 8,495 (65,396)
Deferred tax movement (1,573) 12,640
Balance at the end of the year (31,049) (37,971)
---------------------------------- --------- ---------
Dividends paid
Dividends paid comprised:
2017 2016
GBP'000 GBP'000
2016 final dividend paid of 35.5p
per share (2015: 34.0p) 25,840 24,748
Interim dividend paid of 12.5p per
share (2016: 12.5p) 9,099 9,099
Total dividends paid 34,939 33,847
------------------------------------- -------- --------
A final dividend in respect of the current financial year of
GBP28,751,474 (2016: GBP25,839,932), at the rate of 39.5p net per
share (2016: 35.5p) is proposed, to be paid on 25th October 2017 to
shareholders on the register on 22nd September 2017.
Non-controlling interest
Movements during the year were:
2017 2016
GBP'000 GBP'000
Balance at the beginning of the year (3,162) (2,638)
Acquisition of remaining shareholding 2,700 -
in Renishaw Mayfield S.A.
Share of loss for the year (128) (524)
Balance at the end of the year (590) (3,162)
---------------------------------------- -------- --------
The non-controlling interest represents the minority
shareholding in Renishaw Diagnostics Limited (7.6%).
18. RELATED PARTIES
Associates, joint ventures and other related parties had the
following transactions and balances with the Group:
2017 2016
GBP'000 GBP'000
Purchased goods and services from
the Group during the year 852 640
Sold goods and services to the Group
during the year 12,450 8,573
Paid dividends to the Group during
the year 310 310
Amounts owed to the Group at the
year end 220 264
Amounts owed by the Group at the
year end 294 411
Loans owed to the Group at the year
end 4,966 4,366
--------------------------------------- -------- --------
There were no bad debts written off during the year (2016:
GBPnil).
19. ALTERNATIVE PERFORMANCE MEASURES
Alternative performance measures used are:
Adjusted profit before tax, Adjusted earnings per share and
Adjusted operating profit - These measures are defined as the
profit before tax, earnings per share and operating profit after
excluding gains and losses in fair value from forward currency
contracts which did not qualify for hedge accounting.
The losses from fair value of financial instruments not
effective for cash flow hedging have been excluded from statutory
profit before tax, statutory earnings per share and statutory
operating profit in arriving at adjusted profit before tax,
adjusted earnings per share and adjusted operating profit to
reflect the Board's intent that the instruments would provide
effective hedges. The Board consider these alternative performance
measures to be more relevant and reliable in evaluating the Group's
performance going forward until the impact of ineffective hedges
unwinds.
The amounts shown below as reported in revenue represent the
amount by which revenue would change had all the derivatives
qualified for hedge accounting.
Adjustments to the profit before tax were: 2017 2016
GBP'000 GBP'000
Statutory profit before tax 117,101 61,703
Fair value gains and losses on financial instruments
not eligible for hedge accounting:
- reported in revenue (11,623) 2,336
- reported in losses in fair value in financial
instruments 3,601 23,436
Adjusted profit before tax 109,079 87,475
------------------------------------------------------- --------- --------
Adjustments to the earnings per share were: 2017 2016
pence pence
Statutory earnings per share 141.3 71.8
Fair value gains and losses on financial instruments
not eligible for hedge accounting:
- reported in revenue (12.9) 2.6
- reported in losses in fair value in financial
instruments 4.0 26.0
Adjusted earnings per share 132.4 100.4
------------------------------------------------------- ------- ------
Adjustments to the operating profit were: 2017 2016
GBP'000 GBP'000
Statutory operating profit 116,755 61,180
Fair value gains and losses on financial instruments
not eligible for hedge accounting:
- reported in revenue (11,623) 2,336
- reported in losses in fair value in financial
instruments 3,601 23,436
Adjusted operating profit 108,733 86,952
------------------------------------------------------- --------- --------
Adjustments to the segmental operating profit 2017 2016
were:
Metrology GBP'000 GBP'000
Operating profit before loss from fair value
of financial instruments 126,830 87,717
Fair value gains and losses on financial instruments
not eligible for hedge accounting:
- reported in revenue (10,921) 2,293
Adjusted metrology operating profit 115,909 90,010
------------------------------------------------------- --------- --------
2017 2016
Healthcare GBP'000 GBP'000
Operating loss before loss from fair value of
financial instruments (6,474) (3,101)
Fair value gains and losses on financial instruments
not eligible for hedge accounting:
- reported in revenue (702) 43
Adjusted healthcare operating loss (7,176) (3,058)
------------------------------------------------------- -------- --------
20. RESTATEMENT OF PREVIOUS YEAR
The previous year's results have been restated for the
following:
Certain foreign currency forward contracts used as hedging
instruments did not qualify for hedge accounting as they did not
meet the hedge effectiveness criteria set out in the International
Accounting Standard IAS39 'Financial Instruments: Recognition and
Measurement. To ensure technical compliance with this standard it
has been deemed necessary to restate the 2016 financial statements
resulting in a GBP25.8m reduction to the profit before tax for that
year and a corresponding increase in other comprehensive
income.
In October 2016, the Board decided to discontinue operations at
Renishaw Diagnostics Limited (RDL), resulting in the closure of the
business. The RDL business has been accounted for as a discontinued
activity, with comparative figures for the previous year being
restated accordingly. In June 2017, after an extensive review of
the spatial measurements business, the Board decided to discontinue
this line of business. This business has also been accounted for as
a discontinued activity, with comparative figures for the previous
year being restated accordingly.
The R&D tax credit, previously accounted for within the
Income tax expense line has been reclassified to be part of cost of
sales, thereby showing it as part of the profit before tax.
The previous year's results have been restated for the
following:
Previously Discontinued R&D tax Forward Restated
reported activities credit contracts total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue 436,598 (7,038) -- (2,336) 427,224
Cost of sales (218,308) 7,323 2,420 - (208,565)
----------------------------------- ----------- ------------- -------- ----------- ----------
Gross profit 218,290 285 2,420 (2,336) 218,659
Distribution costs (97,808) 3,965 - - (93,843)
Administration expenses (40,969) 769 - - (40,200)
Loss from the fair value
of financial instruments - - - (23,436) (23,436)
----------------------------------- ----------- ------------- -------- ----------- ----------
Operating profit 79,513 5,019 2,420 (25,772) 61,180
Finance income and expenses (928) - - - (928)
Share of profits from associates
and joint ventures 1,451 - - - 1,451
----------------------------------- ----------- ------------- -------- ----------- ----------
Profit before tax 80,036 5,019 2,420 (25,772) 61,703
Income tax expense (11,465) (995) (2,420) 4,897 (9,983)
----------------------------------- ----------- ------------- -------- ----------- ----------
Profit for the year from
continuing operations 68,571 4,024 - (20,875) 51,720
Loss from discontinued operations - (4,024) - - (4,024)
Profit for the year 68,571 - - (20,875) 47,696
----------------------------------- ----------- ------------- -------- ----------- ----------
Earnings per share (pence) 94.9 5.6 - (28.7) 71.8
----------------------------------- ----------- ------------- -------- ----------- ----------
21. PRINCIPAL RISKS AND UNCERTAINTIES
Our performance is subject to a number of risks, of which the
principal risks and changes impacting on them are set out in the
table below.
The Board has conducted a robust assessment of the principal
risks facing the business. With the exception of the potential
impacts of Brexit, no new principal risks have emerged during the
financial year. As reported in the Chairman's statement, the full
business implications of Brexit remain uncertain, which will be the
case for some time, and the risks arising will be a key focus area
for the risk committee. Currency fluctuations, trading
arrangements, employment issues and other risks that become
apparent over time will be monitored by the committee and
mitigations put in place where possible.
Area of Description Potential impact Mitigation
risk
Current Revenue growth Global market
trading is unpredictable conditions * The Group is expanding and diversifying its product
levels and orders from continue range in order to maintain a world-leading position
and order customers to highlight in its sales of metrology products. Investment in
book generally risks sales and marketing resources continues in order to
involve short to growth and support the breadth of the product offerings.
lead-times with demand which can
the outstanding lead to
order book at fluctuating
any time being levels of * The Group is applying its measurement expertise to
around one revenue. grow its healthcare and additive manufacturing
month's business activities.
worth of revenue Whilst global
value. investment in
production
systems * The Group retains a strong balance sheet and has the
and processes ability to to flex manufacturing resource levels and
is expected to shift patterns.
expand, future
growth is
difficult
to predict,
especially
with such a
short-term
order book. This
limited forward
order visibility
leaves the annual
revenue forecasts
uncertain.
Research The development Being at the
and development of new products leading * Patent and intellectual property generation is core
and processes edge of new to new product developments.
involves risk, technology
such as in metrology and
development healthcare, there
timescales, are uncertainties * R&D programmes are regularly reviewed against
meeting whether new milestones and, when necessary, projects are
the required developments cancelled.
technical will provide an
specification economic return.
and the impact
of alternative * Medium to long-term R&D strategies are monitored
technology regularly by both the Board and Executive Board,
developments. including reviews of the allocation of R&D resource
to key projects.
* Product development processes around the group are
reviewed and aligned where possible to provide
consistency and efficiency.
* New products involve beta testing at customers to
ensure they will meet the needs of the market.
* Market developments are closely monitored.
Supply Customer Inability to meet
chain management deliveries customer * Production facilities are maintained with fire and
may be deliveries flood risk in mind.
threatened could result in
by a failure loss of revenue
in the supply and profit.
chain. * Critical production processes are replicated at
different locations where practical.
* The group is highly vertically integrated providing
increased control over many aspects of the supply
chain.
* Ability to flex manufacturing resource levels and
shift patterns.
* Regular vendor reviews are performed for critical
part suppliers.
* Stock policies are reviewed by the Board on a regular
basis.
* Product quality is closely monitored.
Regulatory The expansion Regulatory
legislation of the Group's approval * Specialist legal and regulatory employees are in
for healthcare business into can be very place to support the healthcare business.
products the healthcare expensive
markets involves and
a significantly time-consuming.
increased This area is also * Experience of healthcare regulatory matters at board
requirement very complex and level.
to obtain there is a risk
regulatory that the correct
approval prior approvals are
to the sale of not obtained. * Healthcare operations in UK and France have ISO13485
these products. certification for their quality management systems,
with Ireland and other subsidiary healthcare
operations falling under the UK quality management
system.
Defined Investment Volatility in
benefit returns investment * The investment strategy is managed by the pension
pension and actuarial returns fund trustees who operate in line with a statement of
schemes valuations of and actuarial investment principles.
the defined assumptions can
benefit significantly
pension fund affect the
liabilities are defined * A new recovery plan was agreed in June 2016 for the
subject to benefit pension 2015 actuarial valuation based on funding to
economic fund deficit, self-sufficiency.
and social impacting on
factors future
which are funding
outside requirements.
of the control
of the Group.
Exchange Fluctuating With over 94%
rate foreign of revenue * The Group enters into forward contracts in order to
fluctuations exchange rates generated hedge varying proportions of forecast US Dollar, Euro
may affect the outside of the and Japanese Yen revenue. Forward contracts which are
results of the UK, there is an ineffective for accounting purposes provide the
Group. exposure to major protection against exchange rate changes that
currency management intended when entering the contracts.
fluctuations,
mainly in respect
of the US Dollar,
Euro and Japanese * The Group uses currency borrowings to hedge the
Yen. Such foreign currency denominated assets held in the
fluctuations Group's balance sheet.
could adversely
impact both the
Group's income
statement and * Monthly board review of currency rates and hedging
balance sheet. position.
----------------- ----------------- ------------------ ------------------------------------------------------------
Cyber security For the Reduced service * There is substantial reliance and back-up built into
threats Renishaw to customers due group systems.
Group to to a lack of
operate reliable
effectively it management * An IT security committee exists, comprising of IT an
requires information d
continuous putting the business leadership.
access to all Group
information at a competitive
systems disadvantage. * Cyber risk and security is a regular topic for Board
and requires Delay or impact discussion.
timely and on decision
reliable making
information at through lack of * External penetration testing is utilised on an
all times. We availability of appropriate basis.
seek to ensure sound data or
continuous disruption
availability, in/denial * The Renishaw Group operates central IT policies in
security and of service. all aspects of information security.
operations of Loss of
those commercially
information sensitive and/or * Regular monitoring of all group systems takes place
systems. Cyber personal with regular reporting and analysis.
threats information
continue leading to
to show an implications * Operating systems are continuously updated and
increasing including refreshed in line with current threats.
trend. reputational
damage, claims
or fines. * The Group employs a number of physical, logical and
Theft of control measures to protect its information and
commercial systems.
or sensitive
information/data
or fraud causing * E-learning courses covering certain cyber threats
loss and were rolled out to all employees group wide during
disruption. the year as well as management training.
Registered office: New Mills, Wotton-under-Edge,
Gloucestershire. GL12 8JR
Telephone: 01453 524524
Registered number: 1106260, England and Wales
Website: www.renishaw.com
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR LQLLLDDFZBBB
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July 27, 2017 02:03 ET (06:03 GMT)
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