DJ Renishaw PLC Final Results
Renishaw plc and subsidiary undertakings
Preliminary announcement of results for the year ended 30th June 2016
HIGHLIGHTS
2016 2015 Change
Revenue (GBPm) 436.6 494.7 -12%
Operating profit (GBPm) 79.5 143.9 -45%
Profit before tax (GBPm) 80.0 144.2 -44%
Earnings per share (pence) 94.9 167.5 -43%
Dividend per share (pence) 48.0 46.5 +3.2%
CHAIRMAN'S STATEMENT
I am pleased to report our 2016 annual results, with revenue for the year ended 30th June 2016 of GBP436.6m compared to GBP494.7m for last year. As highlighted in our Interim results, we had a number of large orders from Far East customers in the consumer electronics markets during the previous year which generated exceptional growth in our metrology business sector. Adjusting for these large orders and restating revenue at last year's exchange rates resulted in an underlying revenue growth of 4% for the year and 6% at actual exchange rates.
Geographically, revenue in the Far East was GBP195.3m compared to GBP257.7m last year, but with an underlying growth of 12% when excluding the large orders. Revenue in Europe was GBP112.1m (2015: GBP103.1m), in the Americas was GBP92.2m (2015: GBP96.3m) and in the UK was GBP23.2m (2015: GBP25.5m).
The Group's profit before tax for the year was GBP80.0m compared to GBP144.2m last year.
This year's tax charge amounts to GBP11.5m (2015: GBP22.8m) representing a tax rate of 14.3% (2015: 15.8%). The tax rate has benefited from the continued phasing in of the patent box tax regime, the research and development tax credit and a further reduction in the UK corporation tax rate.
Earnings per share were 94.9p compared to 167.5p last year.
Metrology
Revenue from our metrology business for the year was GBP408.2m compared to GBP467.0m last year.
Revenue in the Far East was GBP187.6m compared to GBP249.9m last year, a decrease of 25%, but an underlying increase of 13% after excluding the large orders. Revenue in the Americas was GBP87.4m (2015: GBP89.4m), in Europe was GBP103.1m (2015: GBP96.2m) and in the UK was GBP18.5m (2015: GBP20.7m).
There was good growth in our measurement automation, additive manufacturing (AM) and encoder products lines.
Operating profit for our metrology business was GBP85.9m (2015: GBP150.7m).
We have continued to invest in research and development, with total engineering costs in this business segment of GBP60.1m net of capitalised costs (2015: GBP55.0m) and a number of new product launches during the year. The CMM products line launched both REVO-2, a new version of the REVO(R) multi-sensor 5-axis measurement system with a vision probe option, and MODUS 2(TM), a new CMM metrology software package. Our spatial measurements products line launched Merlin, a marine surveying system. In relation to the AM products line we launched the AM400 and demonstrated the RenAM 500M and established four innovative AM solution centres to support the adoption of AM technology in volume production.
Healthcare
Revenue from our healthcare business for the year was GBP28.4m, an increase of 3% over the GBP27.7m last year. We experienced growth in our medical dental and neurological products lines.
Healthcare also saw continued investment in research and development, with total engineering costs in this business segment of GBP9.0m net of capitalised costs (2015: GBP8.3m).
We have continued to expand the market for our neuromate(R) surgical robot, including sales in the UK and Spain, along with our neuroinspire(TM) surgical planning software. Our neuroinspire software has now been approved for sale in Australia.
In our medical dental products line we increased sales of AM machines for the manufacture of dental products and maxillofacial and cranial products.
In our spectroscopy products line, we introduced the inVia Qontor confocal Raman microscope, with the addition of Renishaw's latest innovation, LiveTrack(TM) focus tracking technology, which enables users to analyse samples with uneven, curved or rough surfaces.
There was an operating loss of GBP6.4m, compared to a loss of GBP6.8m last year. We remain focused on moving this business sector into profit.
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. During the year, we established new sales and marketing subsidiary companies in Denmark, Finland and Hungary.
Our workforce at the end of June 2016 was 4,286, an increase of 174, of which 106 were apprentices and graduates taken on as part of our on-going aim and commitment to train and develop skilled resource for the Group in the future.
Capital expenditure on property, plant and equipment for the year was GBP53.0m, of which GBP17.4m was spent on property and GBP35.6m on plant and equipment. New premises for our USA headquarters near Chicago are nearing completion.
In the UK, the refurbishment of the remaining half of the facility at Miskin, South Wales, was completed and incorporates product display, training, research and development areas and a Healthcare Centre of Excellence. Also at Miskin we obtained planning consent for 1.74m sq ft building development at the site.
Working capital
Group inventory increased from GBP77.7m at the start of the year to GBP95.0m, as we continued 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 GBP101.2m to GBP114.9m, with debtor days outstanding at the end of the current year at 70 days (2015: 67 days).
Net cash balances at 30th June 2016 were GBP21.3m, compared to GBP82.2m at 30th June 2015. Additionally, there is an escrow account of GBP15.3m (2015: GBP14.7m) relating to the provision of security to the UK defined benefit pension scheme. The lower cash balance reflects the high capital expenditure during the year, along with higher working capital demands.
Directors and employees
During the year we have made several changes at Board and senior management level to enhance the operations of the business. Will Lee, formerly the head of our machine tool products line and laser and calibration products line, was appointed as Director of Sales and Marketing to support Ben Taylor in the transition to his retirement from the Board at the end of July this year. I am now delighted to announce that Will is to be appointed to the Board as Group Sales and Marketing Director with effect from 1st August 2016.
I would like to take this opportunity to thank Ben for his outstanding contribution to the Group's performance over the last 31 years. Ben has helped me to articulate the vision for Renishaw and has been a partner in developing longstanding relationships with customers worldwide. He will be missed by all within the Group, both personally and professionally. We wish him well in his retirement.
Also at board level, Kath Durrant took on the role of chair of the Remuneration Committee. This role was previously held by Sir David Grant, our senior independent director, who we are delighted to congratulate on his knighthood in the Queen's Birthday Honours 2016 for his contribution to engineering, technology and education.
We have reviewed the management of our overseas sales operations and appointed Leo Somerville as President – Renishaw North America to oversee our sales subsidiaries in Canada, USA and Mexico and Howard Salt as President – Renishaw Inc. our principal USA sales subsidiary. These new appointments will provide strategic focus to our sales activities in these regions.
The directors would also like to thank employees for their invaluable support and contribution during the year.
UK defined benefit pension scheme
The Company and the trustees of the UK defined benefit pension scheme have entered into a funding agreement to conclude the latest triennial valuation of the fund as at 30th September 2015. This agreement came into effect on 30th June 2016 and provides for a 15-year recovery plan under which the Company will pay member pensions, retirement lump sums and transfer payments (up to GBP1m per annum) over this period.
In addition, the Company has provided security over UK property to the value of GBP62 million, and the fund will retain the cash held in an escrow account providing further security for a period of 6 years, over which time this escrow account will be scaled back to zero.
The Company and the trustees have agreed a higher funding target than agreed previously in order to make the fund self-sufficient over the 15-year period (or earlier, if achieved in the meantime) and will measure this at each triennial actuarial valuation. The funding agreement has been submitted to The Pensions Regulator.
Investor communications
In line with our commitment to improve investor communications, our third investor day was held on 12th May 2016, for existing and potential new investors. This involved presentations on group strategy, business segments and product lines, given by members of the Board and senior management, as well as tours covering the Group's activities and various Q&A sessions. The event was again well attended and gives shareholders another opportunity, in addition to the AGM and half-year and year-end webcasts, to learn more about Renishaw's business and strategy.