Renishaw Regulatory News (RSW)

Renishaw plc

Trading update

12 May 2020

Renishaw plc, the global high-precision metrology and healthcare technology group, publishes this trading update for the nine months ended 31 March 2020. It contains unaudited information that covers the first three quarters of the financial year and the period since.

Trading activity

Revenue for the first three quarters of the current financial year was £389.9m, compared to £431.1m for the corresponding period last year.

In our metrology business revenue amounted to £365.9m compared to £404.5m last year and in our healthcare business revenue was £24.0m compared with £26.6m last year.

Adjusted profit before tax for the first three quarters amounted to £31.8m compared with £79.6m last year and the statutory profit before tax amounted to £19.7m (2019: £84.8m).

Adjusted profit in the third quarter benefitted from reduced operating costs, primarily arising from initiatives undertaken before the outbreak of the global pandemic, and a favourable currency impact from forward contracts compared to the first half year.

The global macroeconomic environment has been challenging for the Group during this nine-month period. Even before the pandemic, we were facing trading challenges including the ongoing uncertainty caused by the trade tensions between the USA and China and weaker demand in the machine tool sector. We also faced tough comparators with the 2019 trading year, which benefitted from a number of large orders from end-user manufacturers of consumer electronic products in the APAC region which have not been repeated this year. However, despite subdued demand conditions overall, we have seen growth in our optical and laser encoder product lines due to a recovery in the semiconductor market.

During the third quarter we initially experienced reduced demand in China due to the Chinese Government's actions to deal with the COVID-19 outbreak, but we have since seen a good recovery as factories have reopened. In our EMEA and Americas markets we did not experience a significant change in demand as a result of the pandemic during the quarter, but we believe that the effects will begin to be felt in the coming months.

Despite the challenges to global supply chains caused by the pandemic, we did not have any significant issues supplying our customers, although it was necessary to delay shipments of some capital goods, including additive manufacturing and spectroscopy products, due to customer site closures.

Financial position 

During this period of high uncertainty, the Board has focused on cash preservation with capital expenditure being significantly lower in the third quarter and with stock levels lower than at the half year. As communicated on 25 March, the Board decided to cancel the 14.0p interim dividend. The interim dividend was expected to result in a payment of £5.1m, which reflects the previously announced decision for all Directors to waive their rights to this interim dividend

The Group balance sheet remains strong with net cash balances of £94.0m as at 31 March 2020 (30 June 2019: £106.8m).

Covid-19 update

Renishaw's number one priority continues to be the health and welfare of our employees, their families and the wider communities in which we operate. Since January we have implemented a wide range of measures to protect against the spread of COVID-19 at our sites around the world and we continue to monitor the impact of the pandemic, including a response and mitigation committee which has met daily since February.

All our manufacturing facilities around the world are open, although most are operating at lower capacity due to reductions in staff numbers caused by a combination of school closures, shielding due to health conditions, or local operating restrictions. At all manufacturing sites we have implemented robust measures to protect the welfare of our employees and mitigate against business risk. We have been able to maintain supply to customers during this challenging period, but this is a constantly evolving situation and we continue to closely monitor all aspects of our supply chain and are taking mitigating actions where necessary.

In March, Renishaw became a founder member of Ventilator Challenge UK, a consortium of companies that is producing 20,000 ventilators for the UK's National Health Service, to treat serious cases of COVID-19. Our main role has been to produce machined components at our Stonehouse and Miskin sites, where staff have been working seven days a week to meet the urgent deadlines.

To closely manage costs and to mitigate against the risks of redundancies, the majority of our non-manufacturing staff across the Group are either working reduced hours (in some cases supported by local Government support schemes) or are part of the UK Government's Coronavirus Job Retention Scheme. Where possible staff are working from home and our people have adapted well and are working productively.

The members of the Renishaw Board and the senior management team across the Group have all agreed to have their salaries reduced during the period that employees have reduced working hours. This includes co-founders, Sir David McMurtry and John Deer, who will take no salary/fees during this period.

The Board would like to thank all employees for their understanding and commitment during this extremely challenging period.

Outlook

Based on recent order trends and customer feedback, we now expect full year revenue to be in the range of approximately £490m to £505m. Adjusted profit before tax is now expected to be in the range of approximately £45m to £55m with profits in quarter four expected to benefit from ongoing reduced operating costs and a repeat of the favourable currency impact from forward contracts seen in the third quarter. Statutory profit before tax is expected to be in the range of approximately £31m to £41m.

Given the uncertain macroeconomic backdrop, we expect very challenging market conditions, particularly in the automotive and aerospace sectors, in the coming periods. The Group is in a strong financial position and the Board remains confident in the Group's long-term prospects due to the high quality of our people, our innovative product pipeline, extensive global sales and marketing presence and relevance to high-value manufacturing across all sectors.

In light of the COVID-19 outbreak, we now anticipate the preliminary results for the year ending 30 June 2020 will be released mid-August 2020 compared to the previously published date of 3 August 2020.

* Adjusted profit before tax

The adjustment to statutory profit relates to the accounting treatment of certain forward currency contracts used as hedging instruments which do not qualify for hedge accounting as they do not meet the hedge effectiveness criteria set out in the International Accounting Standard IFRS 9 'Financial Instruments'.

Restructuring costs relating to the closure of the Staffordshire site and other redundancy programmes undertaken in the third quarter have also been excluded from adjusted profit before tax.

The Board deems that the adjusted profit before tax better reflects the underlying performance of the Group. The following table reconciles statutory profit before tax to adjusted profit before tax: