Renishaw Regulatory News (RSW)

Renishaw plc

15 September 2022

Preliminary announcement of results for the year ended 30 June 2022

Record results and strong strategic progress

Performance highlights

· Record revenue of £671.1m, 19% higher than FY2021 revenue of £565.6m

· Manufacturing technologies revenue2 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 revenue2 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

A recording of the webcast and the presentation slides will be made available by Friday 16 September 2022 at: www.renishaw.com/investors. 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

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

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.

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.

CONSOLIDATED INCOME STATEMENT

for the year ended 30 June 2022

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME AND EXPENSE

for the year ended 30 June 2022

CONSOLIDATED BALANCE SHEET

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

More details of share capital and reserves are given in note 26.

CONSOLIDATED STATEMENT OF CASH FLOW

for the year ended 30 June 2022

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.

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.

*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:

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:

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:

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:

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:

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:

Key management personnel have been assessed to be the Directors of the Company.

The total remuneration of the Directors was: