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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
---|---|---|---|---|---|
Renishaw Plc | LSE:RSW | London | Ordinary Share | GB0007323586 | ORD 20P |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
130.00 | 3.20% | 4,195.00 | 4,175.00 | 4,185.00 | 4,200.00 | 4,095.00 | 4,115.00 | 109,990 | 16:35:02 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
Electrical Machy, Equip, Nec | 688.57M | 116.1M | 1.5966 | 26.21 | 3.04B |
TIDMRSW
RNS Number : 4710H
Renishaw PLC
01 August 2019
RENISHAW plc
1 August 2019
Preliminary announcement of results for the year ended 30 June 2019
Summary
-- Revenue of GBP574.0m, a decrease at constant exchange rates of 7%
-- Revenue growth in the Americas and EMEA regions; weakness in the APAC region (19% decrease at constant exchange rates*)
-- Metrology revenue decreased by 7% to GBP532.9m, largely as a result of a slowdown in demand for encoder and machine tool products in the APAC region
-- Metrology revenue benefited from strong growth in our additive manufacturing line and good growth in our measurement and automation line (Equator gauging systems) and fixturing line
-- Healthcare revenue increased by 15% with strong growth in our spectroscopy and medical dental product lines giving rise to Adjusted operating profits of GBP3.1m (2018: GBP0.3m)
-- Adjusted* profit before tax of GBP103.9m (2018: GBP145.1m), a decrease of 28% -- Statutory profit decreased by 29% to GBP109.9m (2018: GBP155.2m) -- Strong balance sheet, with cash of GBP106.8m, compared with GBP103.8m last year -- Recommended final dividend of 46p per share; total dividend for the year of 60p (2018: 60p) 2019 2018 Change Revenue (GBPm) 574.0 611.5 -6% Adjusted* profit before tax (GBPm) 103.9 145.1 -28% Adjusted* earnings per share (pence) 119.9 170.5 -30% Dividend per share (pence) 60.0 60.0 STATUTORY Profit before tax (GBPm) 109.9 155.2 -29% Earnings per share (pence) 126.7 181.8 -30%
*Note 25, 'Alternative performance measures', defines how adjusted profit before tax, adjusted earnings per share, adjusted operating profit and revenue at constant exchange rates are calculated.
CHAIRMAN'S STATEMENT
Introduction
I am pleased to report our 2019 results. We achieved a turnover for the year of GBP574.0m (2018: GBP611.5m) with a decrease in revenue of 7% at constant exchange rates*, against a backdrop of challenging economic conditions. Adjusted* profit before tax amounted to GBP103.9m (2018: GBP145.1m), a decrease of 28%.
Following the appointment of Will Lee as Chief Executive last year, I have been delighted to see his progress and strong leadership during the year. He is driving change in key areas of the business, including a focus on the skills development of our people, to continue to improve productivity.
Innovation drives our business, from the generation of new technologies to new manufacturing processes. In my role as Executive Chairman, I have enjoyed the opportunity to focus on Group innovation and product strategy, supporting our talented engineering teams. This has included our industrial metrology and additive manufacturing technologies, where there are exciting opportunities for future growth.
During the year, we continued to invest in developing future technologies, with total engineering costs of GBP97.9m (before net capitalised development costs and the R&D (research and development) tax credit), amounting to 17% of total revenue.
Board changes
On 30 June 2019, Geoff McFarland, Group Engineering Director, resigned as a Director of the Board for family reasons. On behalf of the Board, I would like to thank Geoff for the invaluable contribution he has already made to the developments that have helped Renishaw grow into the global technology leader that it is today. I look forward to continuing to work with him in his new role as Director of Group Technology, reporting to Will.
As reported last year, Kath Durrant stepped down from the Board on 31 July 2018. Catherine Glickman joined us as an Independent Non-executive Director on 1 August 2018, becoming Chair of the Remuneration Committee and a member of the Audit and Nomination Committees. Catherine previously held the role of Group HR Director at Genus plc and Tesco PLC and is making a valuable contribution as we strengthen our HR processes and implement a new internal communications and employee engagement strategy.
People, culture and values
We thrive through our collaborative team of 5,000 people. They bring fresh thinking, deep experience and an obsession with quality to every aspect of their work. On behalf of the Board, I would like to thank them all for their professionalism and dedication during the year.
We have created a culture that aims to allow our employees to maximise their potential. We work hard to encourage open communication and innovative thinking and believe everyone in our business should feel valued and be able to grow.
Innovation is at the heart of everything that we do and is one of our core values. We believe our people are fundamental to our disruptive thinking and manufacturing excellence which helps our customers to increase their own innovation, improve quality, expand output and enhance efficiency.
Integrity is another of our core values and is key to the relationships that we have with our people, customers, suppliers, communities and other stakeholders. We strive at all times to be open, honest and consistent.
We are also focused on diversity at all levels. During the year we published our second Gender Pay Gap report. While progress has been made, we and our industry still have much work to do in this area. Our educational outreach programmes engage with children from primary school age onwards to encourage more young people from diverse gender, ethnic and economic backgrounds into the sector.
Corporate governance
The Board is committed to the highest standards of corporate governance to protect our business and its long- term success. The Board has already started to consider the new 2018 UK Corporate Governance Code and steps have been taken to start implementing its requirements.
Investor communications
Our sixth annual investor day on 14 May 2019 was attended by a record 150 people, with an equal mix of private and institutional investors. The day included presentations on Group strategy, industry sectors and key sales regions, as well as demonstrations, opportunities to meet the Board and senior management, and a question and answer (Q&A) session with Board members. Following the event, we conducted a survey with all the attendees to gather further feedback.
The event is one of four key touchpoints across the year where the investment community can learn more about Renishaw's business and strategy, with the Annual General Meeting (AGM) in October, plus live half-year and full-year webcasts.
UK defined benefit pension scheme
Following further engagement with The Pensions Regulator, the Company and trustees have agreed the terms of a new deficit funding plan for the Company's UK defined benefit pension scheme. The Company has agreed to pay GBP8.7m per annum into the scheme for five years with effect from 1 October 2018. Under the terms of the previous agreement the Company paid approximately GBP4m per year.
Dividend
A final dividend of 46.0p net per share will be paid on 31 October 2019, to shareholders on the register at 27 September 2019, giving a total dividend of 60.0p for the year (2018: 60.0p).
Sir David McMurtry
Executive Chairman
* Note 25, Alternative performance measures, defines how Adjusted profit before tax, Adjusted earnings per share, Adjusted operating profit and Revenue at constant exchange rates are calculated.
CHIEF EXECUTIVE'S REVIEW
Introduction
As stated last year, my role is to build on the strong heritage and culture developed by our co-founders, Sir David McMurtry and John Deer, and inspire our people to meet the opportunities and challenges of a changing business environment. During my first full year I have travelled widely within the Group, spending time with our R&D teams, visiting our sales regions, attending trade exhibitions, and listening to what people feel is good about Renishaw and where we can make improvements. This has given me a clear sense of where we need to focus to continue to be a technology world leader that is trusted by our customers and suppliers, and an employer that inspires its people.
Performance overview
As Sir David has already outlined, this was a challenging year with reduced turnover and Adjusted* operating profit for the Group. However, outside APAC, our other regions saw strong growth for some of our product lines, including the additive manufacturing (AM) and spectroscopy lines. We remain focused on the long term with a key focus on developing technologies that provide patented products to support the strategies for our metrology and healthcare segments.
Revenue
We achieved revenue for the year ended 30 June 2019 of GBP574.0m, compared with GBP611.5m last year, against a backdrop of challenging economic conditions including the impact of trade tensions between the USA and China, and ongoing uncertainty surrounding the potential impacts of Brexit. Aside from APAC, we experienced revenue growth in all regions as set out below. The lower revenue in the APAC region is largely a result of a slowdown in demand for our encoder products, which are used in electronics and display manufacturing equipment, and for our machine tool products from large end-user manufacturers of consumer electronic products, due to weaker smartphone demand and the resultant over-capacity in the supply chain. We have not experienced an erosion in our customer base in the region and we continue to work closely with key customers to ensure we are in position to meet their requirements when economic conditions improve.
2019 2018 Change Constant fx GBPm GBPm % change % ==================== ===== ===== ====== =========== APAC 240.1 289.2 -17 -19 ==================== ===== ===== ====== =========== EMEA 167.2 165.1 1 2
==================== ===== ===== ====== =========== Americas 132.6 126.6 5 1 ==================== ===== ===== ====== =========== UK 34.1 30.6 11 11 ==================== ===== ===== ====== =========== Total Group revenue 574.0 611.5 -6 -7 ==================== ===== ===== ====== ===========
Profit and earnings per share
The Group's Adjusted* profit before tax for the year was GBP103.9m compared with GBP145.1m last year. Adjusted* earnings per share on continuing activities was 119.9p compared with 170.5p last year.
Statutory profit before tax for the year was GBP109.9m compared with GBP155.2m last year. Statutory earnings per share on continuing activities was 126.7p compared with 181.8p last year.
This year's tax charge on continuing operations amounts to GBP17.7m (2018: GBP22.9m) representing a tax rate of 16.1% (2018: 14.7%). Lower profits in the UK in the current year resulted in a fall in the patent box benefit of GBP3.9m relative to the previous year, which is the principal factor for the increase in the effective tax rate.
Metrology
Revenue from our metrology business for the year was GBP532.9m compared with GBP575.8m last year. There was strong growth in our AM product line; good growth in our measurement and automation line (Equator gauging systems) and in our fixturing line - reflecting pleasing progress in our end-user focused solutions business. We continue to focus on ensuring that our AM systems satisfy the demands of our customers for the series production of metal components. As previously mentioned, we have seen a slowdown in demand for our encoder products and from large end-user manufacturers of consumer electronic products, which primarily impacts the machine tool revenue.
The geographical analysis of metrology revenue is set out below.
2019 2018 Change GBPm GBPm % ======================== ===== ===== ====== APAC 223.7 276.7 -19 ======================== ===== ===== ====== EMEA 153.0 153.9 -1 ======================== ===== ===== ====== Americas 126.6 119.7 6 ======================== ===== ===== ====== UK 29.6 25.5 16 ======================== ===== ===== ====== Total metrology revenue 532.9 575.8 -7 ======================== ===== ===== ======
Adjusted* operating profit for our metrology business was GBP90.6m (2018: GBP142.8m).
We continued to invest in R&D, with total engineering costs of GBP90.7m (before net capitalised development costs and the R&D tax credit) compared with GBP77.1m in 2018.
A range of new products were launched during the year. The PHS-2 second generation servo positioning head for CMMs is used within the automotive market for body-in-white measurement. We also introduced new calibration products including the XM-600 calibration system for high-speed dynamic CMM error-mapping and fault-finding, and the XK10 alignment laser system for use during the build and alignment of machine tools, replacing the need for artefacts.
The APCA-45 tool setting probe is designed for the very harsh environments surrounding lathes and multi-tasking machine tools, while the new SupaScan QuickPoint macro software package allows superfast probing cycles in machining applications with very short cycle times.
For the motion control market we launched a rotary encoder for our QUANTiC(TM) family of incremental encoders, while for high-end XY stages that require multiple interferometer feedback axes, our new multi-axis periscope (RMAP) enables accurate six degrees of freedom measurements.
Healthcare
Revenue from our healthcare business for the year was GBP41.0m, an increase of 15% over the GBP35.7m last year. There was strong growth in our spectroscopy and medical dental product lines.
There was an Adjusted* operating profit of GBP3.1m, compared with GBP0.3m last year, with two years of continuous profit achieved for the first time. Healthcare also saw continued investment in R&D, with total engineering costs in this business segment of GBP7.2m (before net capitalised development costs and the R&D tax credit) compared with GBP6.5m in 2018.
New products launched during the year include the RA816 Biological Analyser, a compact benchtop Raman imaging system designed exclusively for biological and clinical research, and the new neurolocate(TM) 2D module, which requires just two X-rays to register patient position against the neuromate(R) robot, also obtained a CE mark.
The results of a pioneering clinical trial for which Renishaw manufactured a drug delivery device on behalf of North Bristol NHS Trust, to administer Glial Cell Line-Derived Neurotrophic Factor (GDNF), were made public in February. The results showed that the drug delivery system performed effectively and reliably, and a similar device developed by Renishaw, called neuroinfuse, is now being used in another clinical trial.
Strategy and markets
Our strategy is fundamentally based on long-term investments in patented and innovative products and processes, high-quality manufacturing, and the provision of excellent local support to customers in all our markets around the globe. This strategy is consistent across all the product lines and market sectors in which we operate to deliver our purpose.
Renishaw has moved in recent years, from primarily being a supplier of products to capital equipment manufacturers, to working closely with end-users to solve their complex challenges and deliver solutions and systems that transform their manufacturing capabilities. This is helping to build brand loyalty and opening up new revenue opportunities.
At the same time, we are seeing external market growth drivers - including global skills shortages, digitisation, requirements for more capable products, rising energy costs, a focus on reducing emissions and waste, population growth and rising life expectancy - that are creating positive opportunities for our business.
We continue to spread risk through the diversification of our applications for product lines, our customer base and our routes to market.
Focused investment for long-term growth
The Group firmly believes in its long-term strategy of investing for the future, expanding our global marketing and distribution infrastructure, along with increasing manufacturing capacity and R&D activities. However, with the current global economic uncertainties, our focus for the near-term is on maximising the benefits of the investment we have made over the past few years.
We are also investing in a new human resources (HR) system and development programmes for our people, which we believe, will ultimately boost our productivity.
Capital expenditure on property, plant and equipment and vehicles for the year was GBP56.8m (2018: GBP34.9m), of which GBP25.4m (2018: GBP10.0m) was spent on property and GBP31.4m (2018: GBP24.9m) on plant and equipment and vehicles.
This year saw the commencement of a 94,000 sq ft extension to the Innovation Centre at our New Mills site, the purchase of a new property in Nagoya to support the expansion of our Japanese distribution function, the purchase of land near São Paulo for the future development of a distribution facility in Brazil and the purchase of our existing building in The Netherlands for our Benelux operation.
Working capital
Group inventory increased from GBP110.6m at the start of the year to GBP129.0m, primarily reflecting the impact of Brexit contingency preparations and the reduced demand we experienced in the second half of the financial year. We continue to focus on working capital management while remaining committed to our policy of holding sufficient finished inventory to ensure customer delivery performance, given our short order book. Trade receivables decreased from GBP154.6m to GBP123.2m, with debtor days outstanding at the end of the current year at 73 days (2018: 69 days).
Net cash balances at 30 June 2019 were GBP106.8m, compared with GBP103.8m at 30 June 2018. Additionally, there is an escrow account of GBP10.5m (2018: GBP10.4m) relating to the provision of security to the UK defined benefit pension scheme.
Corporate social responsibility
As a socially responsible business, we recognise the importance of operating in a way that delivers long-term sustainable value for all stakeholders. This year we have: increased investment in developing the skills of our employees; assisted local organisations through charitable donations; reached more than 10,000 children with our educational outreach programmes and donated more than 10,000 hours of paid time to educational and other local organisations; recruited a record number of apprentices on our training schemes; reduced our greenhouse gas (GHG) emissions by 15%; and reduced our accident frequency rate to 24.67.
Our people
Our workforce at the end of June 2019 was 5,041 (2018: 4,862) an increase of 4%. During the year, 119 apprentices and graduates were taken on as part of our ongoing commitment to train and develop skilled resource for the Group in the future. We also took on 73 new paid industrial and summer placements in the year.
In January 2019, we carried out an extensive UK Employee Engagement survey. The results clearly showed that our people believe Renishaw makes a positive impact on society, they have pride in their roles, treat each other with respect and believe that the business acts in a socially responsible manner. They also told us we need to focus more on career development, including progression opportunities, be clearer on performance assessment and improve the way we recognise and ensure people feel valued. This fully validates the HR initiatives we introduced during the year, including a renewed focus on learning and development, and leadership and management training.
I would like to express my thanks to all employees for their invaluable contribution to the success of the Group during the year.
Brexit
The Board continues to oversee the work of the Brexit steering group in identifying the key risks arising from a no-deal Brexit scenario and implementing mitigation plans.
These activities significantly increased in the period leading up to the original Brexit deadline of March 2019 and included the following:
- the establishment of a new distribution warehouse in Ireland which, if required, would significantly reduce the number of direct shipments between the UK and the EU post Brexit; - a general increase in inventory of certain components and finished goods held at our various sites within the EU and the UK; and - continued ongoing assessment and updating of other key issues arising from Brexit and the mitigations against any possible negative impacts.
The steering group will continue to carefully monitor ongoing developments in the Brexit process and consider the impact of these against our current plans as the situation develops in the coming months.
Outlook
The Group is in a strong financial position, despite a challenging year, 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. With the ongoing uncertainty surrounding Brexit, weaker economic indicators, exchange rate volatility and trade tensions between the USA and China, we expect market conditions to remain difficult throughout this financial year.
Your Directors remain confident in the long-term prospects for the Group due to the high quality of our people, our innovative product pipeline, extensive global sales and marketing presence and relevance to high-value manufacturing.
Will Lee
Chief Executive
* Note 25, Alternative performance measures, defines how Adjusted profit before tax, Adjusted earnings per share, Adjusted operating profit and Revenue at constant exchange rates are calculated.
FINANCIAL REVIEW
Overview
We have achieved revenue amounting to GBP574.0m and Adjusted profit before tax of GBP103.9m. Statutory profit before tax was GBP109.9m. We have a strong balance sheet with total equity growing by GBP34.7m to GBP583.3m, with net cash balances of GBP106.8m (2018: GBP103.8m). In line with our progressive dividend policy, the Board is proposing an unchanged dividend of 60.0p per share for the year.
Revenue
We achieved revenue for the year of GBP574.0m, compared with GBP611.5m last year. This fall is largely a result of a slowdown in demand for our encoder products and from large end-user manufacturers of consumer electronic products, primarily driven by economic uncertainty in the APAC region. The table below shows the analysis of Group revenue by geographical market.
In our metrology business segment, revenue was GBP532.9m, compared with GBP575.8m last year. Revenue in our healthcare business segment increased by 15% from GBP35.7m last year to GBP41.0m.
Revenue analysis by region
2019 2018 Change Constant fx GBPm GBPm % change % ==================== ===== ===== ====== =========== APAC 240.1 289.2 -17 -19 ==================== ===== ===== ====== =========== EMEA 167.2 165.1 1 2 ==================== ===== ===== ====== =========== Americas 132.6 126.6 5 1 ==================== ===== ===== ====== =========== UK 34.1 30.6 11 11 ==================== ===== ===== ====== =========== Total Group revenue 574.0 611.5 -6 -7 ==================== ===== ===== ====== ===========
Profit and tax
The adjusted profit before tax amounted to GBP103.9m compared with GBP145.1m in 2018. Statutory profit before tax was GBP109.9m compared with GBP155.2m in the previous year.
In our metrology business, Adjusted operating profit was GBP90.6m, compared with GBP142.8m last year. I am pleased to report further growth in our healthcare business, with an adjusted operating profit of GBP3.1m compared with GBP0.3m last year.
The overall effective rate of tax on continuing operations was 16.1% (2018: 14.7%). The Group operates 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. Lower profits in the UK in the current year resulted in a fall in the patent box benefit to GBP1.8m (2018: GBP5.7m) and is the principal factor for the increase in the overall effective tax rate. Note 8 provides further analysis of the effective tax rate.
Alternative performance measures
In 2017, the Board introduced alternative performance measures (Adjusted profit before tax, Adjusted operating profit and Adjusted earnings per share) to report the results on the basis that all forward contracts are accounted for as effective hedges. These measures are the basis by which the Board evaluates the Group's performance as they better represent the underlying trading of the Group. The table below shows the details of the adjustments between adjusted profit before tax and statutory profit before tax.
2019 2018 GBPm GBPm ========================================= ===== ===== Adjusted profit before tax 103.9 145.1 ========================================= ===== ===== Fair value gains and losses on financial instruments not eligible for hedge accounting: ========================================= ===== ===== - reported in revenue 5.0 5.3 ========================================= ===== ===== - reported in gains from the fair value of financial instruments 1.0 4.8 ========================================= ===== ===== Statutory profit before tax 109.9 155.2 ========================================= ===== =====
See note 25 for further details on this and Revenue at constant exchange rates.
Earnings per share and dividend
Adjusted earnings per share from continuing operations is 119.9p, compared with 170.5p last year. Statutory earnings per share from continuing operations is 126.7p, compared with 181.8p last year.
A final dividend of 46.0p net per share (2018: 46.0p) results in a total dividend for the year of 60.0p (2018: 60.0p). Dividend cover is 2.0 times (2018: 2.8 times) on an adjusted basis.
Research and development
Gross expenditure on engineering costs, including R&D on new products, was GBP97.9m (2018: GBP83.6m). The gross charge amounts to 17% of Group revenue (2018:14%).
The capitalisation of development costs (net of amortisation charges) amounted to GBP2.9m (2018: GBP2.1m). The R&D tax credit in 2019 amounted to GBP5.1m compared with GBP4.1m in 2018. The net charge in the Consolidated income statement amounted to GBP89.8m compared with GBP77.4m in 2018.
Between the business segments gross expenditure on engineering costs was GBP90.7m (2018: GBP77.1m) in the metrology segment and GBP7.2m (2018: GBP6.5m) in our healthcare segment.
New product R&D expenditure amounted to GBP67.0m, which compares with GBP59.1m spent last year. There have been a number of new product releases in both our metrology and healthcare business segments, and a number of new product introductions are anticipated during the 2020 financial year.
Group headcount
Group headcount has increased from 4,862 at 30 June 2018 to 5,041 at 30 June 2019, with the average for the year of 4,968, compared with 4,639 last year. The increase during the year of 179 comprised additional employees of 122 in the UK and 57 overseas. In the UK we took on 119 apprentices and graduates in the year, and are also funding the further education of 117 employees in engineering, software and commercial/professional disciplines.
Labour costs, the most significant cost for the Group, increased by 5% to GBP237.4m (2018: GBP226.8m) reflecting a pay increase in July 2018 and the incremental cost of the employees recruited in both 2018 and 2019, partially offset by a reduction in bonuses.
Business systems transformation
In recent years, we have made significant progress in enhancing and simplifying financial reporting processes and systems, to further improve the analysis of business performance. With a focus on increasing productivity and efficiency, further major system deployments are in progress for our HR, engineering change management and marketing activities. We have recently committed to a new ERP system to replace our global finance, sales & marketing and CRM systems. This will deliver many benefits to the business including enhanced customer support and inventory management and will provide the infrastructure to support our growing solution selling activities.
Consolidated balance sheet
The Group's shareholders' funds at the end of the year were GBP583.3m, compared with GBP548.6m at 30 June 2018. Reserves benefited from our trading results, with a retained profit after tax of GBP92.2m and were reduced by dividends paid of GBP43.7m.
Additions to property, plant and equipment and vehicles totalled GBP56.8m, of which GBP25.4m was spent on property and GBP31.4m on plant and machinery, IT equipment and infrastructure, and vehicles.
The main additions were:
- in the UK, a 94,000 sq ft extension to our Renishaw Innovation Centre due for completion in December 2019; - in The Netherlands, the purchase of our existing facility; - in Brazil, the purchase of land for the future development of a new distribution facility; and - in Japan, the purchase of property in Nagoya to support the expansion of our distribution function, funded by local third-party borrowing.
Within working capital, inventories increased to GBP129.0m from GBP110.6m at the beginning of the year primarily reflecting the impact of Brexit contingency preparations and the reduced demand we experienced in the second half of the financial year. 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 decreased from GBP154.6m to GBP123.2m reflecting record revenue in the final quarter of 2018. Debtor days were 73 at the end of the year, compared with 69 at the end of last year.
Net cash balances at 30 June 2019 were GBP106.8m (2018: GBP103.8m).
Pensions
At the end of the year, the Group's defined benefit pension schemes, now closed for future accrual, showed a deficit of GBP51.9m, compared with a deficit of GBP67.4m at 30 June 2018. Defined benefit pension schemes' assets at 30 June 2019 increased to GBP181.6m from GBP172.8m at 30 June 2018, representing investment performance during the year net of GBP7.2m benefit payments including transfers. Pension fund liabilities decreased from GBP240.2m to GBP233.5m. Following further engagement with The Pensions Regulator, the Company and trustees have agreed the terms of a new deficit funding plan for the UK defined benefit pension scheme, based on the triennial valuation as at 30 September 2018. The Company has agreed to pay GBP8.7m per annum into the scheme for five years with effect from 1 October 2018. Under the terms of the previous agreement, the Company paid approximately GBP4.0m per year.
In line with the previous agreement, the new agreement will continue until 30 June 2031 and any outstanding deficit paid at that time. The agreement will end sooner if the actuarial deficit (calculated on a self-sufficiency basis) is eliminated in the meantime.
On 26 October 2018, the High Court reached a judgement in relation to Lloyds Banking Group's defined benefit pension schemes which concluded that the schemes should be amended to equalise pension benefits for men and women as regards guaranteed minimum pension benefits. The issues determined by the judgment arise in relation to most other defined benefit pension schemes and are relevant to the Company's UK defined benefit pension scheme. Following discussions between the Company, the trustees and their respective advisors, we have estimated incremental liabilities to be GBP0.8m, which have been recognised in the Consolidated Income Statement in Administrative expenses. The estimate has increased the scheme's liabilities by 0.4% and is based on the C2 method which has been approved by the courts and likely to be the most commonly used approach. The Company and Trustees along with their respective advisors continue to assess the most appropriate method to achieve the equalisation of benefits.
Treasury policies
The Group's treasury policies are designed to manage financial risks to the Group that arise from operating in a number of foreign currencies and to maximise interest income on cash deposits. As an international group, the main exposure is in respect of foreign currency risk on the trading transactions undertaken by Group companies and on the translation of the net assets of overseas subsidiaries.
Weekly Group-wide cash management reporting and forecasting is in place to facilitate management of this currency risk. The operations of Group Treasury, which is situated at head office, are governed by Board- approved policies.
All Sterling and foreign currency balances not immediately required for Group operations are placed on short-term deposit with leading international highly-rated financial institutions. See note 15 for an analysis of cash balances at the year end.
The Group uses forward exchange contracts to hedge a significant proportion of anticipated foreign currency cash inflows. There are forward contracts in place to hedge against the Group's Euro, US Dollar and Japanese Yen cash inflows. The Group does not speculate with derivative financial instruments. See note 20 for further details on financial instruments.
Capital allocation strategy
The 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.
Our capital allocation approach has been consistently applied for many years. We are committed to investment in the R&D of new products, manufacturing processes and global support infrastructure in order to generate growth in future returns. This is evidenced in the year with capital investments and additional R&D spend cited previously. Actual and forecast returns, along with our strong financial position, then support our progressive dividend policy, which aims to increase the dividend per share, whilst maintaining a prudent level of dividend cover.
Allen Roberts
Group Finance Director
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Group and Company Financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare Group and Company Financial statements for each financial year. Under that law the Directors have prepared the Group Financial statements in accordance with International
Financial Reporting Standards (IFRSs) as adopted by the European Union (EU) and have prepared the Company Financial statements in accordance with UK Accounting Standards, including FRS 101 'Reduced Disclosure Framework'.
Under company law the Directors must not approve the Financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of their profit or loss for that period.
In preparing each of the Group and Company Financial statements, the Directors are required to:
- select suitable accounting policies and then apply them consistently; - make judgements and accounting estimates that are reasonable and prudent; - for the Group Financial statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU, subject to any material departures disclosed and explained in the Financial statements; - for the Company Financial statements, state whether applicable UK Accounting Standards, including FRS 101 'Reduced Disclosure Framework', have been followed, subject to any material departures disclosed and explained in the Company Financial statements; and - prepare the Financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and the Company and enable them to ensure that the Financial statements comply with the Companies Act 2006.
They are also responsible for taking such steps as are reasonably open to them to safeguard the assets of the Group and the Company to prevent and detect fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
We confirm that to the best of our knowledge the Financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group and of the Company and the undertakings included in the consolidation taken as a whole.
Allen Roberts
Group Finance Director
CONSOLIDATED INCOME STATEMENT
for the year ended 30 June 2019
from continuing operations Notes 2019 2018 GBP'000 GBP'000 Revenue 2 573,959 611,507 Cost of sales (289,832) (284,889) Gross profit 284,127 326,618 Distribution costs (126,822) (121,352) Administrative expenses (58,593) (56,911) Gains from the fair value of financial instruments 20 1,081 4,834 Operating profit 99,793 153,189 Financial income 4 7,238 653 Financial expenses 4 (902) (1,587) Share of profits of associates and joint ventures 3,815 2,970 Profit before tax 5 109,944 155,225 Income tax expense 8 (17,712) (22,870) Profit for the year from continuing operations 92,232 132,355 Profit for the year from discontinued operations 7 - 582 Profit for the year 92,232 132,937 -------------------------------------------------- ------ ---------- ---------- Profit attributable to: Equity shareholders of the parent company 92,232 132,924 Non-controlling interest 21 - 13 Profit for the year 92,232 132,937 ------------------------------------------- --- ------- -------- pence pence Dividend per share arising in respect of the
year 21 60.0 60.0 Dividend per share paid in the year 60.0 53.5 Earnings per share from continuing operations (basic and diluted) 6 126.7 181.8 Earnings per share from discontinued operations (basic and diluted) 6 - 0.8 Earnings per share from continuing and discontinued operations (basic and diluted) 126.7 182.6 ----------------------------------------------------- --- ------ ------
All discontinued operations relate to operations discontinued as at June 2017. See note 7 'Discontinued operations' for further details
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME AND EXPENSE
for the year ended 30 June 2019
Notes 2019 2018 GBP'000 GBP'000 Profit for the year 92,232 132,937 ---------------------------------------------------- ------ --------- -------- Other items recognised directly in equity: Items that will not be reclassified to the Consolidated income statement: Remeasurement of defined benefit pension scheme liabilities 13 10,273 (3,813) Deferred tax on remeasurement of defined benefit pension scheme liabilities (1,534) 783 Total for items that will not be reclassified 8,739 (3,030) ---------------------------------------------------- ------ --------- -------- Items that may be reclassified to the Consolidated income statement: Exchange differences in translation of overseas operations 2,045 2,107 Exchange differences in translation of overseas joint venture 72 48 Current tax on translation of net investments (205) - in foreign operations Effective portion of changes in fair value of cash flow hedges, net of recycling 21 (27,573) 14,470 Deferred tax on effective portion of changes in fair value of cash flow hedges 21 4,561 (2,810) Total for items that may be reclassified (21,100) 13,815 ---------------------------------------------------- ------ --------- -------- Total other comprehensive income and expense, net of tax (12,361) 10,785 ---------------------------------------------------- ------ --------- -------- Total comprehensive income and expense for the year 79,871 143,722 ---------------------------------------------------- ------ --------- -------- Attributable to: Equity shareholders of the parent company 79,871 143,709 Non-controlling interest 21 - 13 Total comprehensive income and expense for the year 79,871 143,722 ---------------------------------------------------- ------ --------- --------
CONSOLIDATED BALANCE SHEET
at 30 June 2019
Notes 2019 2018 GBP'000 GBP'000 ------------------------------------------ -------- --------- --------- Assets Property, plant and equipment 10 263,477 232,557 Intangible assets 11 59,056 54,511 Investments in associates and joint ventures 12 13,095 9,822 Long-term loans to associates and joint ventures 24 750 4,207 Deferred tax assets 9 29,855 27,428 Derivatives 20 1,311 9,578 Total non-current assets 367,544 338,103 ------------------------------------------ -------- --------- --------- Current assets Inventories 16 129,026 110,563 Trade receivables 20 123,151 154,587 Contract assets 352 - Short-term loans to associates and joint ventures 24 6,644 - Current tax 4,553 730 Other receivables 20 24,461 21,988 Derivatives 20 2,778 1,368 Pension scheme cash escrow account 13 10,490 10,413 15, Cash and cash equivalents 20 106,826 103,847 Total current assets 408,281 403,496 ------------------------------------------ -------- --------- --------- Current liabilities Trade payables 20 21,513 25,232 Contract liabilities 5,631 - Current tax 4,538 9,256 Provisions 17 2,846 3,453 Derivatives 20 18,920 22,478 Borrowings 19 1,043 - Other payables 18 41,065 47,979 Total current liabilities 95,556 108,398 ------------------------------------------ -------- --------- --------- Net current assets 312,725 295,098 ------------------------------------------ -------- --------- --------- Non-current liabilities Borrowings 19 9,356 - Employee benefits 13 51,870 67,378 Deferred tax liabilities 9 539 188 Derivatives 20 35,227 17,041 Total non-current liabilities 96,992 84,607 ------------------------------------------ -------- --------- --------- Total assets less total liabilities 583,277 548,594 ------------------------------------------ -------- --------- --------- Equity Share capital 21 14,558 14,558 Share premium 42 42 Own shares held 21 (404) - Currency translation reserve 21 14,577 12,665 Cash flow hedging reserve 21 (42,401) (19,389) Retained earnings 597,784 541,755 Other reserve 21 (302) (460) Equity attributable to the shareholders of the parent company 583,854 549,171 ------------------------------------------ -------- --------- --------- Non-controlling interest 21 (577) (577) Total equity 583,277 548,594 ------------------------------------------ -------- --------- ---------
These financial statements were approved by the Board of directors on 1 August 2019 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 2019
Cash Own Currency flow Non- Share Share Shares translation hedging Retained Other controlling capital premium Held reserve reserve earnings reserve interest Total Year ended 30 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 June 2018 Balance at 1 July 2017 14,558 42 - 10,510 (31,049) 450,803 (460) (590) 443,814 ----------------- -------- -------- -------- ------------ --------- --------- -------- ------------ --------- Profit for the year - - - - - 132,924 - 13 132,937 Other comprehensive income and expense (net of tax) ----------------- -------- -------- -------- ------------ --------- --------- -------- ------------ --------- Remeasurement of defined benefit pension scheme liabilities - - - - - (3,030) - - (3,030) Foreign exchange translation differences - - - 2,107 - - - - 2,107 Relating to associates and joint ventures - - - 48 - - - - 48 Changes in fair value of cash flow hedges - - - - 11,660 - - - 11,660 Total other comprehensive income and expense - - - 2,155 11,660 (3,030) - - 10,785 Total comprehensive income and
expense - - - 2,155 11,660 129,894 - 13 143,722 Dividends paid - - - - - (38,942) - - (38,942) Balance at 30 June 2018 14,558 42 - 12,665 (19,389) 541,755 (460) (577) 548,594 Adjustment for IFRS 15 - - - - - (1,270) - - (1,270) Balance at 1 July 2018 restated 14,558 42 - 12,665 (19,389) 540,485 (460) (577) 547,324 Year ended 30 June 2019 Profit for the year - - - - - 92,232 - - 92,232 Other comprehensive income and expense (net of tax) ----------------- -------- -------- -------- ------------ --------- --------- -------- ------------ --------- Remeasurement of defined benefit pension scheme liabilities - - - - - 8,739 - - 8,739 Foreign exchange translation differences - - - 1,840 - - - - 1,840 Relating to associates and joint ventures - - - 72 - - - - 72 Changes in fair value of cash flow hedges - - - - (23,012) - - - (23,012) Total other comprehensive income and expenses - - - 1,912 (23,012) 8,739 - - (12,361) Total comprehensive income and expenses - - - 1,912 (23,012) 100,971 - - 79,871 Share-based payments charge - - - - - - 158 - 158 Purchase of own shares - - (404) - - - - - (404) Dividends paid - - - - - (43,672) - - (43,672) Balance at 30 June 2019 14,558 42 (404) 14,577 (42,401) 597,784 (302) (577) 583,277 ----------------- -------- -------- -------- ------------ --------- --------- -------- ------------ ---------
More details of share capital and reserves are given in note 21.
CONSOLIDATED STATEMENT OF CASH FLOW
for the year ended 30 June 2019
Notes 2019 2018 GBP'000 GBP'000 ----------------------------------------------- -------- --------- --------- Cash flows from operating activities Profit for the year 92,232 132,937 ----------------------------------------------- -------- --------- --------- Adjustments for: Amortisation of development costs 11 15,144 12,483 Amortisation of other intangibles 11 1,518 2,142 Impairment of goodwill - 1,559 Impairment of property, plant and equipment 10 1,155 - Depreciation 10 22,597 26,140 Loss on sale of property, plant and equipment 148 37 Profit on sale of other intangibles (455) - Remeasurement of defined benefit pension scheme liabilities from GMP equalisation 13 751 - Gains from the fair value of financial instruments 25 (6,081) (10,143) Share of profits from associates and joint ventures 12 (3,815) (2,970) Financial income 4 (7,238) (653) Financial expenses 4 902 1,587 Share-based payment expense 14 158 - Tax expense 8 17,712 22,870 42,496 53,052 ----------------------------------------------- -------- --------- --------- Increase in inventories (18,463) (22,866) Decrease/(increase) in trade and other receivables 30,028 (25,921) Increase/(decrease) in trade and other payables (7,183) 17,770 Increase/(decrease) in provisions 17 (607) 493 3,775 (30,524) ----------------------------------------------- -------- --------- --------- Defined benefit pension contributions 13 (6,831) (4,471) Income taxes paid (25,183) (18,882) Cash flows from operating activities 106,489 132,112 ----------------------------------------------- -------- --------- --------- Investing activities Purchase of property, plant and equipment 10 (56,792) (34,852) Development costs capitalised 11 (18,091) (14,602) Purchase of other intangibles (4,161) (1,700) Sale of other intangibles 2,000 - Sale of property, plant and equipment 4,713 2,889 Interest received 4 1,222 653 Dividend received from associates and joint ventures 12 614 507 Payments (to)/from pension scheme escrow account (77) 2,437 Cash flows from investing activities (70,572) (44,668) ----------------------------------------------- -------- --------- --------- Financing activities Interest paid 4 (57) (338) Increase in borrowings 19 10,486 - Repayment of borrowings 19 (87) - Dividends paid 21 (43,672) (38,942) Purchase of own shares 21 (404) - Cash flows from financing activities (33,734) (39,280) ----------------------------------------------- -------- --------- --------- Net increase in cash and cash equivalents 2,183 48,164 Cash and cash equivalents at beginning of the year 103,847 51,942 Effect of exchange rate fluctuations on cash held 796 3,741 Cash and cash equivalents at end of the year 15 106,826 103,847 ----------------------------------------------- -------- --------- ---------
NOTES (FORMING PART OF THE FINANCIAL STATEMENTS)
1. Accounting policies
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 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 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 (GBP'000). These do not represent the company's statutory accounts, which have not yet been delivered to the registrar for 2019. An unqualified auditor's report was signed on 1 August 2019.
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.
Renishaw GmbH, Pliezhausen, Germany has chosen to exercise the right under section 264 - sub-section 3 of the German Commercial Code (HGB) on exemption and preparation. The consolidated financial statements of the Group include the financial statements of Renishaw GmbH, Pliezhausen, Germany.
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 summarised below, with further details included within accounting policies as indicated.
Item Key judgements (J) and estimates (E) ------------------------- ------------------------------------------- Revenue recognition J - Timing of satisfaction of performance obligations Intangibles E - Estimates of useful life of intangible assets Research and development J - Whether a project meets appropriate costs criteria for capitalisation Goodwill and capitalised E - Estimates of future cash flows development costs for impairment testing Inventory E - Determination of net realisable inventory value Defined benefit pension E - Valuation of defined benefit pension schemes schemes' liabilities Taxation E - Estimates of future profits to utilise deferred tax assets ------------------------- -------------------------------------------
New, revised or changes to existing accounting standards
The following accounting standards have been applied for the first time, with effect from 1 July 2018, and have been adopted in the preparation of these financial statements.
IFRS 15 'Revenue from Contracts with Customers'
The Group adopted IFRS 15 on 1 July 2018 using the modified retrospective transition approach. taking advantage of the practical expedient in IFRS 15 C7 to apply the standard retrospectively only to contracts that are not completed as at 1 July 2018.
IFRS 15 provides a single, principles-based five-step model to be applied to all sales contracts with customers, against which the Group has reviewed the following:
- individually-significant contracts by value;
- customers with cumulatively-significant contracts;
- variable consideration arrangements;
- warranty arrangements, analysing such arrangements between assurance-type warranties already accounted for under IAS 37 and 'service-type' warranties as defined by IFRS 15, to which revenue should be attributed to and deferred over the service period; and
- sale of software licences and maintenance.
The impact on the Group's results and net assets is not material, with a cumulative catch-up adjustment of GBP1,270,000 made to equity at 1 July 2018. This primarily relates to the impact of more revenue being allocated to extended warranties under IFRS 15 than under IAS 18. See note 26 for a comparison between IFRS 15 and IAS 18 on the 2019 financial statements.
Balances IFRS 15 Balances as at Adjustment as at Consolidated balance sheet extract 30 June 2018 GBP'000 1 July 2018 GBP'000 GBP'000 -------------------------------------- -------------- ------------ ------------- Non-current assets Deferred tax assets 27,428 372 27,800 Current liabilities Contract liabilities - 1,642 1,642 Equity Retained earnings 541,755 (1,270) 540,485 - related to Revenue - (1,642) - - related to Income tax expense - 372 - -------------------------------------- -------------- ------------ -------------
IFRS 9 'Financial Instruments'
The Group adopted IFRS 9 on 1 July 2018. The Standard introduced new requirements for the classification and measurement of financial assets, impairment of financial assets and hedge accounting.
For the classification and measurement requirements, no changes have arisen from IFRS 9, while for the new impairment requirements, the Group recognises an 'expected credit loss' (ECL) for trade receivables under the Standard's 'simplified approach'. IFRS 9 does not impact hedge accounting in the Group's financial statements because all hedging relationships that were eligible under IAS 39 remain eligible under IFRS 9 and the change in fair value of foreign currency contracts continues to hedge movements in the forward currency rate. No adjustments have been made in respect of IFRS 9 to the Group's opening reserves at 1 July 2018 as the impairment adjustment calculated from a simple ECL model which considered historic credit loss rates was not material to the Group.
In addition to IFRS 15 and IFRS 9, the Group has adopted the following IFRS amendments, which have not had a material impact on amounts reported or disclosures in these financial statements:
- IFRS 2 (amendments) - Classification and Measurement of Share-based Payment Transactions;
- IAS 40 (amendments) - Transfers of Investment Property;
- IAS 28 (amendments) - Investments in Associates and Joint Ventures; and
- IFRIC 22 'Foreign Currency Transactions and Advance Consideration'.
The following accounting standards and interpretations have been issued but are not yet effective for the Group and have not been applied in these financial statements:
- IFRS 16 'Leases';
- IFRS 17 'Insurance Contracts';
- IFRS 9 (amendments) - Prepayment Features with Negative Compensation;
- IAS 28 (amendments) - Long-term Interests in Associates and Joint Ventures;
- IAS 19 (amendments) - Plan Amendment, Curtailment or Settlement;
- IFRS 10 and IAS 28 (amendments) - Sale or Contribution of Assets between an Investor and its Associate or Joint Venture;
- Annual Improvements - Amendments to IFRS 3 Business Combinations, IFRS 11 Joint Arrangements, IAS 12 Income Taxes and IAS 23 Borrowing Costs; and
- IFRIC 23 'Uncertainty over Income Tax Treatments'.
These are not expected to have a material impact on the financial statements of the Group, except in relation to IFRS 16.
IFRS 16 is effective for accounting periods beginning on or after 1 January 2019 and will be adopted by the Group for the financial year commencing 1 July 2019. Where the Group acts as a lessor, the accounting treatment is substantially unchanged. Where the Group acts as a lessee, the new standard will eliminate the classification of leases as either operating or finance leases and instead the Group will recognise a right of use asset and a lease liability for all leases (except for low-value assets and leases less than 12 months), similar to the accounting for finance leases under IAS 17.
At 1 July 2019 right-of-use assets and lease liabilities of GBP13,079,000 are expected to be recognised by the Group under the new standard, of which GBP11,088,000 relates to property and GBP1,880,000 relates to vehicles. Depreciation on the right-of-use assets will then be charged to the Consolidated income statement on a straight line basis over the lower of the asset's useful life or the life of the lease contract, while interest will be accreted to the lease liability across the same period. The aggregate of depreciation and interest expense will generally result in higher expenses in the earlier periods of a lease, however this is not expected to be material for the Group. No transition adjustment will be required to opening reserves in 2020.
Going concern
The Group's business activities, together with the factors likely to affect its future development, performance and position, are set out in the Strategic report, where details of the financial and liquidity positions are also given. In addition, note 20 in the financial statements includes the Group's objectives and policies for managing its capital, details of its financial instruments and hedging activities and its exposures to credit risk and liquidity risk. The Group has considerable financial resources at its disposal and the directors have considered the current financial projections. As a consequence, the directors consider 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 a period of at least 12 months from the date of approval of the financial statements. Accordingly, they continue to adopt the going concern basis in preparing the Annual Report.
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 noncontrolling 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 obligations or made payments on behalf of an investee.
Transactions eliminated on consolidation - Intragroup balances and transactions, and any unrealised income and expenses arising from intragroup 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.
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 in order 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 uses these financial measures, along with the most directly comparable GAAP financial measures, in evaluating our performance (see note 25).
Revenue
The Group generates revenue from the sale of metrology and healthcare goods, capital equipment and services. These can be sold both on their own and together as bundled packages.
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 assessment of which is documented in the Key judgement below. 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 as a bundled package with associated products. Where the software licence and/or maintenance is provided as part of a bundled package then the transaction price is allocated on the same basis as described in a) above.
The Group's 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) Programming contracts
Programming is typically a distinct performance obligation and revenue for this work is recognised at a point in time, being when the completed program is supplied to the customer.
d) 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 continue to be 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.
e) Contract fulfilment costs
Contract fulfilment costs are recognised as an asset when they directly relate to a contract, will be used to fulfil one or more performance obligations in a contract in the future, and are expected to be recoverable. Contract fulfilment costs for the Group therefore typically relate to contracts in which programming is a distinct performance obligation and the associated labour costs have been incurred but the program has not yet been provided to the customer. Such assets are amortised to the income statement when the corresponding performance obligation is fulfilled.
f) 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.
g) Disaggregation of revenue
The Group disaggregates revenue from contracts with customers between:
- goods, capital equipment and installation, and aftermarket services;
- reporting 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.
Key judgement - Timing of satisfaction of performance obligations
The majority of the Group's revenue is recognised at a point in time, and to determine that point an assessment is made as to when the customer obtains control of promised products or services. This assessment is made primarily by reference to the shipping terms applied to the specific contract for products that do not require customer acceptance.
Where the contract requires customer acceptance, management assess whether the Group can objectively determine that the criterion of the testing can be successfully met at the point of transferring the equipment to the customer. Where this can be objectively determined, customer acceptance testing is considered a formality and does not delay the recognition of revenue. Where this cannot be objectively determined control of the product is not deemed to have transferred to the customer and therefore the portion of the transaction price that relates to this performance obligation is not recognised until the acceptance criteria are met.
For revenue recognised over time, such as servicing contracts, the Group recognises the revenue on a basis that depicts the Group's performance in transferring control of the goods or services to the customer, having assessed the nature of the promised goods or service. The Group applies the relevant output or input method consistently to similar performance obligations in other contracts.
The point at which control of performance obligations is transferred to customers under IFRS 15 is the same as under IAS 18 for the majority of our contracts with customers.
Foreign currencies
Consolidation - Overseas subsidiaries' results are translated into Sterling at weighted average exchange rates for the year, which is effected 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 ruling at that date. Differences on exchange resulting from the translation of overseas assets and liabilities are recognised in Other comprehensive income and accumulated in equity.
Transactions and balances - 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.
Financial instruments and fair value measurements
The Group measures financial instruments such as forward exchange contracts at fair value at each balance sheet date in accordance with IFRS 9. Fair value, as defined by IFRS 13, is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Note 20, Financial instruments, provides detail on the IFRS 13 fair value hierarchy.
Trade and other current receivables are initially recognised at fair value and are subsequently held at amortised cost less any provision for bad and doubtful debts and expected credit losses according to IFRS 9. Long-term loans to associates and joint ventures are initially recognised at fair value and are subsequently held at amortised cost. Trade and other current payables are initially recognised at fair value and are subsequently held at amortised cost.
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 and foreign currency denominated assets and liabilities. The Group does not enter into derivatives for speculative purposes. Foreign currency derivatives are stated at their fair value, being the estimated amount that the Group would pay or receive to terminate them at the balance sheet date, based on prevailing foreign currency rates.
Changes in the fair value of foreign currency derivatives which are designated and effective as hedges of future cash flows are recognised in Other comprehensive income and in the 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 within revenue 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 IFRS 9 'Financial instruments', are recognised in the Consolidated income statement within Gains/losses from the fair value of financial instruments.
In addition to derivatives held for cash flow hedging purposes, the Group uses short-term derivatives not designated as hedging instruments to offset gains and losses from exchange rate movements on foreign currency denominated assets and liabilities. Gains and losses from currency movements on underlying assets and liabilities, realised gains and losses on these derivatives and fair value gains and losses on outstanding derivatives of this nature are all recognised in Financial income in the Consolidated income statement. See note 20 for further detail on financial instruments.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and short-term (with an original maturity of less than 12 months) deposits. Bank overdrafts that are repayable on demand form part of cash and cash equivalents for the purpose of the Consolidated statement of cash flow.
Pension scheme cash escrow account
The Company holds a pension scheme escrow account as part of the security given for the UK defined benefit pension scheme. This account is shown within current assets in the Consolidated balance sheet as it may be used to settle pension scheme liabilities immediately upon enforcement of the charge over the account.
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, trade marks, know-how and intellectual property that are acquired by the Group are stated at cost less amortisation and impairment losses. Amortisation is charged to the Consolidated income statement on a straight-line basis over the estimated useful lives of the intangible assets. The estimated useful lives of the intangible assets included in the Consolidated balance sheet reflect the benefit derived by the Group and vary from five to ten years.
Key estimate - Estimates of useful life of intangible assets
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 reasonably predicted.
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.
Key judgement - Whether a project meets appropriate criteria for capitalisation
Product development costs are capitalised once a project has reached a certain stage of development and these costs are subsequently amortised over 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.
Intangible assets - software licences
Intangible assets, comprising software licences that are acquired by the Group, are stated at cost less accumulated amortisation and impairment losses. Amortisation is charged on a straight-line basis over the estimated useful life of the assets. The useful life of each of these assets is assessed on an individual basis and they range from 2 to 10 years.
Impairment of 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.
Goodwill and capitalised development costs are subject to an annual impairment test.
Key estimate - Estimates of future cash flows used for impairment testing
Determining whether goodwill is impaired requires an estimation of the value in use of cash-generating units (CGUs) to which goodwill has been allocated. The value in use calculation involves an estimation of the future cash flows of CGUs and also the selection of appropriate discount rates, which involves judgement, to calculate present values (see note 11). Similarly, determining whether capitalised development costs are impaired requires an estimation of their value in use which involves significant judgement.
Property, plant and equipment
Freehold land is not depreciated. Other assets are stated at cost less accumulated depreciation. Depreciation is provided to write off the cost of assets less their estimated residual value on a straight-line basis over their estimated useful economic lives as follows:
Freehold buildings 50 years, Plant and equipment 3 to 25 years, Vehicles 3 to 4 years.
Inventory and work in progress
Inventory and work in progress is valued at the lower of actual cost on a first-in, first-out (FIFO) basis and net realisable value. In respect of work in progress and finished goods, cost includes all production overheads and the attributable proportion of indirect overhead expenses that are required to bring inventories to their present location and condition. Overheads are absorbed into inventories on the basis of normal capacity or on actual hours if higher.
Key estimate - Determination of net realisable inventory value
Determining the net realisable value of inventory requires 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 significantly from product to product.
Warranty provisions
The Group provides a warranty from the date of purchase, except for those products that are installed by the Group where the warranty starts from the date of completion of the installation. This is typically for a 12-month period, although up to three years is given for a small number of products. A warranty provision is included in the Group financial statements, which is calculated on the basis of historical returns and internal quality reports.
Employee benefits
The Group operates contributory pension schemes, largely for UK, Ireland and USA employees, which were of the defined benefit type up to 5 April 2007, 31 December 2007 and 30 June 2012 respectively, at which time they ceased any future accrual for existing members and were closed to new members.
The schemes are administered by trustees who are independent of the Group finances. Investment assets of the defined benefit schemes are measured at fair value using the bid price of the unitised investments, quoted by the investment manager, at the reporting date. Pension scheme liabilities are measured using a projected unit method and discounted at the current rate of return on a high-quality corporate bond of equivalent term and currency to the liability. Remeasurements arising from defined benefit schemes comprise actuarial gains and losses, the return on scheme assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest). The Company recognises them immediately in Other comprehensive income and all other expenses related to defined benefit schemes are included in the Consolidated income statement.
The pension schemes' surpluses, to the extent that they are considered recoverable, or deficits are recognised in full and presented on the face of the Consolidated balance sheet under employee benefits. Where a guarantee is in place in relation to a pension scheme deficit, liabilities are reported in accordance with IFRIC 14 'The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction'. To the extent that contributions payable will not be available as a refund after they are paid into the plan, a liability is recognised at the point the obligation arises, which is the point at which the minimum funding guarantee is agreed. Overseas-based employees are covered by state, defined benefit and private pension schemes in their countries of residence. Actuarial valuations of overseas pension schemes were not obtained, apart from Ireland and USA, because of the limited number of members. For defined contribution schemes, the amount charged to the Consolidated income statement represents the contributions payable to the schemes in respect of the accounting period.
Accruals are made for holiday pay, based on a calculation of the number of days holiday earned during the year, but not yet taken and also for the annual performance bonus, if applicable.
Key estimate - Valuation of defined benefit pension schemes' liabilities
Determining the value of the future defined benefit obligation requires judgement in respect of the assumptions used to calculate liabilities and their present values. These include future mortality, discount rate and inflation. Management makes these judgements in consultation with independent actuaries. Details of the estimates and judgements in respect of the current year are given in note 13. Based on a review of the terms of the UK scheme trust deed, management has concluded that there are no likely circumstances which would result in the Company having an unconditional right to a refund in the event of a fund surplus.
Share-based payments
The Group provides share-based payment arrangements to certain employees in accordance with the Renishaw plc deferred annual equity incentive plan (the Plan). The share awards are subject only to continuing service of the employee and are equity settled. The fair value of the awards at the date of grant, which is estimated to be equal to the market value, is charged to the Consolidated income statement on a straight-line basis over a three year vesting period, with appropriate adjustments made to reflect expected or actual forfeitures. The corresponding credit is to Other reserve. The Renishaw Employee Benefit Trust (EBT) is responsible for purchasing shares on the open market on behalf of the Company to satisfy the Plan awards. Own shares held are recognised as an element in equity until they are transferred at the end of the vesting period, and such shares are excluded from earnings per share calculations.
Government grants
Government grants, comprising R&D tax credits, are recognised in the Consolidated income statement as a deduction against expenditure. Where grants are received in advance of the related expenses, they are initially recognised in the balance sheet and released to match the related expenditure.
Taxation
Tax on the profit for the year comprises current and deferred tax. Tax is recognised in the Consolidated income statement except to the extent that it relates to items recognised directly in Other comprehensive income, in which case it is recognised in the Consolidated statement of comprehensive income and expense. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in previous years.
Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination; and differences relating to investments in subsidiaries, to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.
Key estimate - Estimates of future profits to support the recognition of deferred tax assets
Deferred tax assets are recognised to the extent it is probable that future taxable profits will be available, against which the deductible temporary differences can be utilised, based on management's assumptions relating to the amounts and timing of future taxable profits.
Estimates of future profitability on an entity basis are required to ascertain whether it is probable that sufficient taxable profits will arise to support the recognition of deferred tax assets relating to the corresponding entity.
Discontinued activities
Where a line of the Group's business is treated as a discontinued operation, the financial statements are 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 profit or loss after tax from discontinued operations in the Consolidated income statement.
2. SEGMENTAL ANALYSIS
The Group manages its business in two segments, comprising metrology and healthcare products. The results of these are regularly reviewed by the Board to allocate resources to segments and to assess their performance. 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 bases are similar.
Year ended 30 June 2019 Metrology Healthcare Total GBP'000 GBP'000 GBP'000 ---------------------------------- ---------- ----------- --------- Revenue 532,940 41,019 573,959 Depreciation and amortisation 37,714 2,700 40,414 Operating profit before gains from fair value of financial instruments 95,345 3,367 98,712 Share of profits from associates and joint ventures 3,815 - 3,815 Net financial gain - - 6,336 Gains from the fair value of financial instruments - - 1,081 Profit before tax - - 109,944 ---------------------------------- ---------- ----------- --------- Year ended 30 June 2018 Metrology Healthcare Total GBP'000 GBP'000 GBP'000 ---------------------------------- ---------- ----------- ---------
Revenue 575,839 35,668 611,507 Depreciation and amortisation 38,690 2,075 40,765 Operating profit before gains from fair value of financial instruments 147,841 514 148,355 Share of profits from associates and joint ventures 2,970 - 2,970 Net financial expense - - (934) Gains from the fair value of financial instruments - - 4,834 Profit before tax - - 155,225 ---------------------------------- ---------- ----------- ---------
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 following table shows the disaggregation of group revenue by category:
2019 2018 GBP'000 GBP'000 ------------------------------------------- -------- -------- Goods, capital equipment and installation 519,782 564,664 Aftermarket services 54,177 46,843 -------------------------------------------- -------- -------- Total Group revenue 573,959 611,507 -------------------------------------------- -------- --------
Aftermarket services include repairs, maintenance and servicing, programming, training, extended warranties, and software licences and maintenance.
The analysis of revenue by geographical market was:
2019 2018 GBP'000 GBP'000 --------------------- -------- -------- APAC 240,115 289,177 EMEA 167,211 165,126 Americas 132,589 126,638 UK 34,044 30,566 Total Group revenue 573,959 611,507 ---------------------- -------- --------
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:
2019 2018 GBP'000 GBP'000 --------- -------- -------- USA 113,235 108,118 China 111,002 150,183 Japan 63,650 60,855 Germany 60,916 64,394 ---------- -------- --------
There was no revenue from transactions with a single external customer which amounted to more than 10% of the Group's total revenue
The following table shows the analysis of non-current assets, excluding deferred tax and derivatives, by geographical region:
2019 2018 GBP'000 GBP'000 -------------------------- -------- -------- UK 196,214 183,874 Overseas 140,164 117,223 Total non-current assets 336,378 301,097 --------------------------- -------- --------
No overseas country had non-current assets amounting to 10% or more of the Group's total non-current assets.
3. PERSONNEL EXPENSES
The aggregate payroll costs for the year were:
2019 2018 GBP'000 GBP'000 ------------------------------------------ -------- -------- Wages and salaries 193,035 183,873 Compulsory social security contributions 21,485 21,809 Contributions to defined contribution pension schemes 22,701 21,127 Share-based payment charge 158 - ------------------------------------------- -------- -------- Total payroll costs 237,379 226,809 ------------------------------------------- -------- --------
The average number of persons employed by the Group during the year was:
2019 2018 Number Number ----------------------------- ------- ------- UK 3,126 2,934 Overseas 1,842 1,705 Average number of employees 4,968 4,639 ------------------------------ ------- -------
Key management personnel have been assessed to be the Executive Directors of the Company. The total remuneration of the Directors was:
2019 2018 GBP'000 GBP'000 ------------------------------------- -------- -------- Short-term employee benefits 2,590 5,589 Post-employment benefits 205 180 Share-based payment charge 158 - Total remuneration of the directors 2,953 5,769 -------------------------------------- -------- -------- 4. FINANCIAL INCOME AND EXPENSES 2019 2018 Financial income GBP'000 GBP'000 ----------------------------------------------- -------- -------- Currency gains 5,940 - Fair value gains from 1 month forward 76 - currency contracts (note 20) Interest receivable 1,222 653 ----------------------------------------------- -------- -------- Total financial income 7,238 653 ----------------------------------------------- -------- -------- Financial expenses Net interest on pension schemes' liabilities (note 13) 845 1,249 Bank interest payable 57 338 Total financial expenses 902 1,587 ----------------------------------------------- -------- --------
Currency gains relates to revaluations of foreign currency denominated balances using latest reporting currency exchange rates. The gains recognised in 2019 largely relate to a depreciation of Sterling relative to the dollar affecting dollar denominated intragroup balances in the Company. In previous reporting periods, such movements were recognised in Administrative expenses (2018: GBP604,000 loss).
Certain intragroup balances were reclassified as 'net investments in foreign operations' on 3 December 2018, such that revaluations from currency movements on designated balances after this date accumulate in the Currency translation reserve in Equity. Additionally, from 1 January 2019, a policy of entering rolling one month forward currency contracts began, with fair value gains and losses being recognised in financial income, to offset currency movements on remaining intra group balances. See note 20 for further detail.
5. PROFIT BEFORE TAX
Included in the profit before tax are the following costs/(income):
Notes 2019 2018 GBP'000 GBP'000 ----------------------------------------------------- -------- -------- Depreciation and impairment of property, plant and equipment (a) 23,752 26,140 Amortisation of intangible assets (a) 16,662 14,625 Research and development expenditure (b) 66,965 59,127 Research and development tax credit (b) (5,137) (4,149) Impairment of goodwill (c) - 1,559 Loss on sale of property, plant and equipment (c) 148 37 Profit on sale of other intangibles (c) (455) - Auditor: Audit of these financial statements (c) 226 199 Audit of subsidiary undertakings pursuant to legislation (c) 329 266 Other assurance (c) 4 4 All other non-audit fees (c) 1 1 ------------------------------------------- --------- -------- --------
These costs/(income) can be found under the following headings in the Consolidated income statement:
(a) within cost of sales, distribution costs and administrative expenses; (b) within cost of sales; and (c) within administrative expenses.
6. EARNINGS PER SHARE
Basic and diluted earnings per share from continuing operations are calculated on earnings of GBP92,232,000
(2018: GBP132,342,000) and on 72,778,904 shares (2018: 72,788,543 shares), being the number of shares in issue. The 2019 number of shares excludes 9,639 shares held by the EBT, which were purchased on 10 December 2018.
Basic and diluted earnings and losses per share from discontinued operations for 2018 were calculated on losses of GBP582,000 and on 72,788,543 shares in issue.
There is no difference between the weighted average earnings per share and the basic and diluted earnings per share.
7. DISCONTINUED OPERATIONS
In October 2016, the Group decided to discontinue the operations of 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 businesses were sold. Financial information relating to the discontinued operations is set out below:
2019 2018 GBP'000 GBP'000 -------------------------------------------------- -------- -------- Revenue - 4,326 Expenses - (3,664) Goodwill impairment - - --------------------------------------------------- -------- -------- Profit before tax - 662 Tax charge - (80) --------------------------------------------------- -------- -------- Profit for the year from discontinued operations - 582 --------------------------------------------------- -------- -------- 2019 2018 Cash flow GBP'000 GBP'000 --------------------------------------------------- -------- -------- Profit for the year - 582 Adjustments for operating activities - (250) --------------------------------------------------- -------- -------- Cash flows from operating activities - 332 Cash flows from investing activities - - --------------------------------------------------- -------- -------- Net Increase in cash and cash equivalents from discontinued operations - 332 --------------------------------------------------- -------- -------- 8. INCOME TAX EXPENSE 2019 2018 GBP'000 GBP'000 --------------------------------------------- -------- -------- Current tax: UK corporation tax on profits for the year 4,691 10,806 UK corporation tax - prior year adjustments (622) (411) Overseas tax on profits for the year 11,980 16,142 Total current tax 16,049 26,537 ---------------------------------------------- -------- -------- Deferred tax: ---------------------------------------------- -------- -------- Origination and reversal of temporary differences 2,719 (2,548) Prior year adjustments (882) (665) Recognition of previously unrecognised tax losses (55) (1,855) Effect on deferred tax for changes in tax rates (119) 1,401 ---------------------------------------------- -------- -------- 1,663 (3,667) Tax charge on profit 17,712 22,870 ---------------------------------------------- -------- -------- 2019 2018 GBP'000 GBP'000 --------------------------------------------- -------- -------- Total tax charge: Income tax expense reported in the Consolidated income statement 17,712 22,870 Tax attributable to discontinued operations - 80 17,712 22,950 --------------------------------------------- -------- --------
The tax for the year is lower (2018: lower) than the UK standard rate of corporation tax of 19% (2018: 19%).
The differences are explained as follows:
2019 2018 GBP'000 GBP'000 ---- -------- -------- Profit before tax from continuing operations 109,944 155,225 Profit before tax from discontinued operations - 662 ------------------------------------------------ -------- -------- Total profit before tax 109,944 155,887 Tax at 19% (2018: 19%) 20,889 29,619 Effects of: Different tax rates applicable in overseas subsidiaries (124) (849) UK patent box (1,787) (5,678) Expenses not deductible for tax purposes 583 672 Companies with unrelieved tax losses 231 448 Share of profits of associates and joint ventures (631) (534) Items with no tax effect (203) 195 Prior year adjustments (1,504) (283) Effect on deferred tax for change in tax rates (119) 1,401 Recognition of previously unrecognised tax losses (55) (1,855) Recognition of previously unrecognised deductible temporary differences - (767) Other differences 432 581 Tax charge on profit 17,712 22,950 ------------------------------------------------ -------- -------- Effective tax rate 16.1% 14.7% ------------------------------------------------ -------- --------
The Group's future effective tax rate (ETR) will mainly depend on the geographic mix of profits and whether there are any changes to tax legislation in the Group's most significant countries of operations. The UK patent box benefit has a significant impact on the ETR and is unpredictable due to factors such as currency rate movements, trading profits in the Company and the level of capital allowances claimed in any given year. The fall of GBP3,891,000 in the patent box benefit is the primary driver for the increase in the ETR for 2019.
Deferred tax assets and liabilities have been calculated at the rate expected to be applicable when the relevant item reverses. A reduction in the UK rate of corporation tax to 17% (from 1 April 2020) has previously been substantively enacted and will have further impact on the ETR in future years.
The Group is not materially impacted by the changes to the international tax landscape resulting from the package of measures developed under the OECD base erosion and profit shifting project.
9. DEFERRED TAX ASSETS AND LIABILITIES
Balances at the end of the year were:
2019 2018 ------------------------- --------------------------------- -------------------------------- Assets Liabilities Net Assets Liabilities Net GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 ------------------------- -------- ------------ --------- -------- ------------ -------- Property, plant and equipment 184 (13,265) (13,081) 184 (8,896) (8,712) Intangible assets - (2,494) (2,494) 17 (3,456) (3,439) Intragroup trading (inventory) 16,686 - 16,686 17,394 - 17,394 Intragroup trading (fixed assets) 2,309 - 2,309 2,322 - 2,322 Defined benefit pension schemes 8,526 - 8,526 11,233 (138) 11,095 Derivatives 8,816 - 8,816 5,410 - 5,410 Tax losses 3,255 - 3,255 1,855 - 1,855 Other 5,927 (628) 5,299 1,330 (15) 1,315 Balance at the end of the year 45,703 (16,387) 29,316 39,745 (12,505) 27,240 ------------------------- -------- ------------ --------- -------- ------------ --------
The movements in the deferred tax balance during the year were:
2019 2018 GBP'000 GBP'000 ---------------------------------------------- ---- -------- -------- Balance at the beginning of the year 27,240 25,271 IFRS 15 transition adjustment 372 - Reallocation from current tax 340 329 Movements in the Consolidated income statement (1,663) 3,667 Movement in relation to the cash flow hedging reserve 4,561 (2,810) Movement in relation to the defined benefit pension schemes (1,534) 783 ---------------------------------------------------- -------- -------- Total movement in the Consolidated statement of comprehensive income and expense 3,027 (2,027) Balance at the end of the year 29,316 27,240 ---------------------------------------------------- -------- --------
The deferred tax movement in the Consolidated income statement is analysed as:
2019 2018 GBP'000 GBP'000 ----------------------------------- -------- -------- Property, plant and equipment (4,369) 196 Intangible assets 945 891 Intragroup trading (inventory) (708) 1,378 Intragroup trading (fixed assets) (13) 1,383 Defined benefit pension schemes (1,036) (712) Derivatives (1,155) (1,927) Tax losses 1,400 1,855 Other 3,273 603 ------------------------------------ -------- -------- Total movement for the year (1,663) 3,667 ------------------------------------ -------- --------
A US deferred tax net asset of GBP6,007,000 is recognised in respect of losses and other temporary differences. The US business has generated losses in the current and prior period. It is considered likely that the business will generate sufficient future taxable profits to recognise the deferred tax net asset in full, as product lines which have been introduced in recent years are expected to contribute greater returns.
Deferred tax assets have not been recognised in respect of tax losses carried forward of GBP21,028,000 (2018: GBP21,809,000), of which approximately half are time limited, due to uncertainty over their offset against future taxable profits and therefore their recoverability.
Deferred tax assets and liabilities are offset where there is a legally enforceable right of offset and there is an intention to net settle the balances. After taking these offsets into account, the net position of GBP29,316,000 asset (2018: GBP27,240,000 asset) is presented as a GBP29,855,000 deferred tax asset (2018: GBP27,428,000 asset) and a GBP539,000 deferred tax liability (2018: GBP188,000 liability) in the Group's consolidated balance sheet. Where deferred tax assets are recognised, the directors are of the opinion, based on recent and forecast trading, that the level of profits in current and future years make it more likely than not that these assets will be recovered.
10. PROPERTY, PLANT AND EQUIPMENT Freehold Assets in the land and Plant Motor course and of buildings equipment vehicles construction Total Year ended 30 June 2019 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 ------------------------- ---------- ---------- --------- ------------- -------- Cost At 1 July 2018 174,156 218,018 9,736 6,800 408,710 Additions 19,603 27,596 903 8,690 56,792 Transfers 2,846 3,886 - (6,732) - Disposals (1,520) (6,016) (1,241) - (8,777) Currency adjustment 2,389 1,543 157 - 4,089 At 30 June 2019 197,474 245,027 9,555 8,758 460,814 ------------------------- ---------- ---------- --------- ------------- -------- Depreciation At 1 July 2018 30,776 138,576 6,801 - 176,153 Charge for the year 741 20,701 1,155 - 22,597 Impairment - 1,155 - - 1,155 Released on disposals (106) (2,628) (1,182) - (3,916) Currency adjustment 482 763 103 - 1,348 ------------------------- ---------- ---------- --------- ------------- -------- At 30 June 2019 31,893 158,567 6,877 - 197,337 ------------------------- ---------- ---------- --------- ------------- -------- Net book value At 30 June 2019 165,581 86,460 2,678 8,758 263,477 ------------------------- ---------- ---------- --------- ------------- -------- At 30 June 2018 143,380 79,442 2,935 6,800 232,557 ------------------------- ---------- ---------- --------- ------------- --------
At 30 June 2019, properties with a net book value of GBP75,200,000 (2018: GBP66,759,000) were subject to a fixed charge to secure the UK defined benefit pension scheme liabilities.
Additions to assets in the course of construction of GBP8,690,000 (2018: GBP7,122,000) comprise GBP5,806,000 (2018: GBP3,034,000) for freehold land and buildings and GBP2,884,000 (2018: GBP4,088,000) for plant and equipment.
Freehold Assets in the land and Plant Motor course and of buildings equipment vehicles construction Total Year ended 30 June 2018 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 Cost At 1 July 2017 165,661 201,022 9,893 8,222 384,798 Additions 4,516 21,853 1,361 7,122 34,852 Transfers 6,340 2,204 - (8,544) - Disposals (1,115) (6,580) (1,409) - (9,104) Currency adjustment (1,246) (481) (109) - (1,836) At 30 June 2018 174,156 218,018 9,736 6,800 408,710 ------------------------- ---------- ---------- --------- ------------- -------- Depreciation At 1 July 2017 28,462 121,611 6,675 - 156,748 Charge for the year 3,181 21,545 1,414 - 26,140 Released on disposals (644) (4,320) (1,213) - (6,177) Currency adjustment (223) (260) (75) - (558) At 30 June 2018 30,776 138,576 6,801 - 176,153 ------------------------- ---------- ---------- --------- ------------- -------- Net book value At 30 June 2018 143,380 79,442 2,935 6,800 232,557 ------------------------- ---------- ---------- --------- ------------- -------- At 30 June 2017 137,199 79,411 3,218 8,222 228,050 ------------------------- ---------- ---------- --------- ------------- -------- 11. INTANGIBLE ASSETS Internally Software Other generated licences and Goodwill intangible development Intellectual on consolidation assets costs property Total Year ended 30 June GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 2019 Cost At 1 July 2018 19,763 11,795 131,951 24,658 188,167 Additions - 2,014 18,091 2,147 22,252 Disposals - - - (6,000) (6,000) Currency adjustment 464 14 - 22 500 ---------------------- -------------- ----------- ------------ ------------- -------- At 30 June 2019 20,227 13,823 150,042 20,827 204,919 ---------------------- -------------- ----------- ------------ ------------- -------- Amortisation At 1 July 2018 8,220 11,256 93,810 20,370 133,656 Charge for the year - 18 15,144 1,500 16,662 Released on disposal - - - (4,455) (4,455) Currency adjustment - (14) - 14 - At 30 June 2019 8,220 11,260 108,954 17,429 145,863 ---------------------- -------------- ----------- ------------ ------------- -------- Net book value At 30 June 2019 12,007 2,563 41,088 3,398 59,056 ---------------------- -------------- ----------- ------------ ------------- -------- At 30 June 2018 11,543 539 38,141 4,288 54,511 ---------------------- -------------- ----------- ------------ ------------- -------- Other intangible Internally Software Total assets generated licences Goodwill development and intellectual on consolidation costs property Year ended 30 June GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 2018 Cost At 1 July 2017 19,919 11,647 117,349 23,066 171,981 Additions - 104 14,602 1,596 16,302 Currency adjustment (156) 44 - (4) (116)
At 30 June 2018 19,763 11,795 131,951 24,658 188,167 --------------------- ------------------- ----------------- ------------- ------------------ -------- Amortisation At 1 July 2017 6,661 11,187 81,327 18,299 117,474 Charge for the year - 69 12,483 2,073 14,625 Impairments 1,559 - - - 1,559 Currency adjustment - - - (2) (2) At 30 June 2018 8,220 11,256 93,810 20,370 133,656 --------------------- ------------------- ----------------- ------------- ------------------ -------- Net book value At 30 June 2018 11,543 539 38,141 4,288 54,511 --------------------- ------------------- ----------------- ------------- ------------------ -------- At 30 June 2017 13,258 460 36,022 4,767 54,507 --------------------- ------------------- ----------------- ------------- ------------------ --------
Goodwill acquired has arisen on the acquisition of a number of businesses and has an indeterminable useful life. Therefore 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 cash generating units (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 following table, only the goodwill relating to the acquisition of Renishaw Fixturing Solutions, LLC is expected to be subject to tax relief.
The analysis of acquired goodwill on consolidation is:
2019 2018 GBP'000 GBP'000 ----------------------------------- -------- -------- itp GmbH 3,092 3,065 Renishaw Mayfield S.A. 1,930 1,725 Renishaw Fixturing Solutions, LLC 5,453 5,247 Other smaller acquisitions 1,532 1,506 Total acquired goodwill 12,007 11,543 ------------------------------------ -------- --------
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.
Rate applied to key assumptions
The rates applied to key assumptions utilised in the value in use calculations are:
Discount rates
The following pre-tax discount rates have been used in discounting the projected cash flows:
2019 2018 Discount Discount rate rate ----------------------------------- --------- --------- itp GmbH 12% 12% Renishaw Fixturing Solutions, LLC 12% 12% Renishaw Mayfield S.A. 15% 15% 2019 2018 Forecast cash flows and future Basis of forecast Basis of forecast growth rates --------------------------------- ------------------- ------------------- itp GmbH 5 % growth rate 5 % growth rate Renishaw Fixturing Solutions, 5 year business 5 year business LLC plan plan Renishaw Mayfield S.A. 5 year business 5 year business plan 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
2019 2018 Average revenue growth Average revenue growth ------------------------------- ------------------------ ----------------- Renishaw Fixturing Solutions, LLC 20% 20% ------------------------------- ------------------------ -----------------
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 the likelihood of 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 there to be an impairment there would need to be a reduction of 70% for Renishaw Fixturing Solutions, LLC. Management deem the likelihood of this reduction to be remote.
12. 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 30 June, except where noted otherwise, were:
Country of Ownership Ownership incorporation 2019 2018 & principal place % % of business ----------------------------- ----------------- ---------- ---------- RLS Merilna tehnika d.o.o. Slovenia 50.0 50.0 Metrology Software Products Limited England & Wales 50.0 50.0 HiETA Technologies Limited (31 December) England & Wales 24.9 24.9 ----------------------------- ----------------- ---------- ----------
Movements during the year were:
2019 2018 GBP'000 GBP'000 -------------------------------- -------- -------- Balance at the beginning of the year 9,822 7,311 Dividends received (614) (507) Share of profits of associates and joint ventures 3,815 2,970 Other comprehensive income and expense 72 48 Balance at the end of the year 13,095 9,822 --------------------------------- -------- --------
The Group has recognised its share of losses in its associate in its share of profits of associates and joint ventures reported above to the extent of its interest in the associate.
Summarised aggregated financial information for associates and joint ventures:
Joint ventures Associate 2019 2018 2019 2018 GBP'000 GBP'000 GBP'000 GBP'000 ------------------------------------------- -------------- ------------- ------------- ------------- Assets 30,570 23,567 3,083 2,114 Liabilities (5,180) (4,722) (8,669) (5,720) ------------------------------------------- -------------- ------------- ------------- ------------- Net assets/(liabilities) 25,390 18,845 (5,586) (3,606) ------------------------------------------- -------------- ------------- ------------- ------------- Group's share of net assets/(liabilities) 12,695 9,423 (1,391) (868) ------------------------------------------- -------------- ------------- ------------- ------------- Revenue 26,886 23,414 1,032 816 Profit/(loss) for the year 7,630 6,442 (1,980) (1,655) ------------------------------------------- -------------- ------------- ------------- ------------- Other comprehensive income and expense 144 96 - - ------------------------------------------- -------------- ------------- ------------- ------------- Total comprehensive income and expense for the year 7,774 6,538 (1,980) (1,655)
------------------------------------------- -------------- ------------- ------------- ------------- Group's share of profit/(loss) for the year 3,815 3,221 (493) (251) Group's share other comprehensive income and expense 72 48 - - ------------------------------------------- -------------- ------------- ------------- ------------- Group's share of total comprehensive income and expense for the year 3,887 3,269 (493) (251) ------------------------------------------- -------------- ------------- ------------- ------------- 13. 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 members. The major scheme, which covers qualifying UK-based employees, is of the defined benefit type. This scheme, along with the Ireland and USA defined benefit pension 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 GBP22,701,000 (2018: GBP21,127,000), of which GBP205,000 (2018: GBP180,000) related to directors and GBP6,440,000 (2018: GBP5,983,000) related to overseas schemes.
The latest full actuarial valuation of the UK defined benefit pension scheme was carried out as at 30 September 2018 and updated to 30 June 2019 by a qualified independent actuary. The mortality assumption used for 2019 is S2PMA and S2PFA tables, CMI (core) 2018 model with long-term improvements of 1% per annum. Major assumptions used by the actuary for the UK and Ireland schemes were:
30 June 2019 30 June 2018 30 June 2017 ---------------------- -------------------- --------------------- -------------------- UK scheme Ireland UK scheme Ireland UK scheme Ireland scheme scheme scheme Rate of increase in pension payments 3.3% 1.5% 3.3% 2.0% 3.3% 1.6% Discount rate 2.3% 1.2% 2.8% 1.9% 2.7% 2.2% Inflation rate (RPI) 3.4% 1.5% 3.4% 2.0% 3.4% 1.6% Inflation rate (CPI) 2.4% - 2.4% - 2.4% - Retirement age 64 65 64 65 64 65
The life expectancies implied by the mortality assumption at age 65 are:
2019 2018 years years -------------------------- ------ ------ Male currently aged 65 21.3 21.8 Female currently aged 65 23.2 23.7 Male currently aged 45 22.3 22.8 Female currently aged 45 24.4 24.9
The weighted average duration of the defined benefit obligation is around 24 years.
The assets and liabilities in the defined benefit schemes at the end of the year were:
30 June % of total 30 June % of total 2019 GBP'000 assets 2018 GBP'000 assets -------------------------------- -------------- ----------- -------------- ----------- Market value of assets: Equities 111,209 61 107,982 62 Multi-asset funds 64,708 36 61,232 35 Bonds 3,135 2 2,759 2 Cash and other 2,536 1 869 1 -------------------------------- -------------- ----------- -------------- ----------- 181,588 100 172,842 100 Actuarial value of liabilities (233,458) - (240,220) - -------------------------------- -------------- ----------- -------------- ----------- Deficit in the schemes (51,870) - (67,378) - -------------------------------- -------------- ----------- -------------- ----------- Deferred tax thereon 8,526 - 11,096 - -------------------------------- -------------- ----------- -------------- -----------
All equities are held in externally-managed funds and primarily relate to UK and US equities. Bonds relate to UK and Eurozone government-linked securities, again held in externally-managed funds and to which the majority relates to the UK. The fair values of these equity and fixed income instruments are determined using the bid price of the unitised investments, quoted by the investment manager, at the reporting date and therefore represent 'Level 2' of the fair value hierarchy defined in note 20.
Multi-asset funds are also held in externally-managed funds, with active asset allocation to diversify growth across asset classes such as equities, bonds and money-market instruments. The fair value of these funds is determined on a comparable basis to the equity and fixed income funds, and therefore are also 'Level 2' assets.
No scheme assets are directly invested in the Group's own equity.
For the UK scheme, the investment strategy is determined by the trustees and has been set in agreement with the Company. The main investment objective is to ensure that benefits payable to members are paid as they fall due. Currently, the scheme is considered to be relatively immature and therefore the focus of the investment strategy is growth. The strategy is to hold 64% of the assets in equities; 35% in Diversified Growth Funds; and 1% in index-linked gilts. The actual allocations measured at fair value may vary from this due to market price movements and intervals between rebalancing the portfolio. The Company and trustees are discussing strategies for reducing investment risk as and when appropriate.
The movements in the schemes' assets and liabilities were:
Assets Liabilities Total Year ended 30 June 2019 GBP'000 GBP'000 GBP'000 ------------------------------------------ -------- ------------ --------- Balance at the beginning of the year 172,842 (240,220) (67,378) Contributions paid 6,831 - 6,831 Interest on pension schemes 4,902 (5,747) (845) Remeasurement loss from GMP equalisation - (751) (751) Remeasurement gain under IAS 19 and IFRIC 14 4,219 6,054 10,273 Benefits paid (7,206) 7,206 - ------------------------------------------ -------- ------------ --------- Balance at the end of the year 181,588 (233,458) (51,870) ------------------------------------------ -------- ------------ --------- Assets Liabilities Total Year ended 30 June 2018 GBP'000 GBP'000 GBP'000 --------------------------------- --------- ------------ --------- Balance at the beginning of the year 170,708 (237,495) (66,787) Contributions paid 4,471 - 4,471 Interest on pension schemes 4,573 (5,822) (1,249) Remeasurement gain/(loss) under IAS 19 and IFRIC 14 5,979 (9,792) (3,813) Benefits paid (12,889) 12,889 - Balance at the end of the year 172,842 (240,220) (67,378) --------------------------------- --------- ------------ ---------
The analysis of the amount recognised in the Consolidated statement of comprehensive income and expense was:
2019 2018 GBP'000 GBP'000 ------------------------------------------------------- --------- --------- Actuarial gain/(loss) arising from: - Changes in demographic assumptions 2,937 1,533 - Changes in financial assumptions (22,941) 556 - Experience adjustment (4,677) 2,601 Return on plan assets excluding interest income 3,454 6,797 Adjustment to liabilities for IFRIC 14 31,500 (15,300) Total amount recognised in the consolidated statement of comprehensive income and expense 10,273 (3,813) ------------------------------------------------------- --------- ---------
The cumulative amount of actuarial gains and losses recognised in the Consolidated statement of comprehensive income and expense was a loss of GBP100,804,000 (2018: loss of GBP111,077,000).
The total deficit of the Group's defined benefit pension schemes, on an IAS 19 basis (excluding any adjustments for IFRIC 14), has increased from GBP35,878,000 at 30 June 2018 to GBP51,870,000 at 30 June 2019, primarily as a result of a reduction of in the UK scheme discount rate from 2.8% to 2.3%. The latest actuarial report prepared in September 2018 shows a deficit of GBP70,700,000, which is based on funding to self sufficiency and uses prudent assumptions. IAS 19 requires best estimate assumptions to be used, resulting in the IAS 19 deficit being lower than the actuarial deficit.
For the UK defined benefit scheme, a guide to the sensitivity of the value of the respective liabilities is as follows:
Approximate Variation effect on liabilities ---------------------- ---------------------- ---------------------- UK - discount rate Increase/decrease -GBP21.0m/+GBP24.3m by 0.5% UK - future inflation Increase/decrease +GBP18.1m/-GBP18.8m by 0.5% UK - mortality Increased life by +GBP9.5m one year UK - early retirement One year earlier than +GBP5.9m assumed ---------------------- ---------------------- ----------------------
Following engagement with The Pensions Regulator, the Company and trustees have agreed the terms of a new deficit funding plan for the UK defined benefit pension scheme which supersedes all previous arrangements. The Company has agreed to pay GBP8,700,000 per annum into the scheme for five years with effect from 1 October 2018. Under the terms of the previous agreement the Company paid all monthly pensions payments and lump sum payments, and transfer payments up to a limit of GBP1,000,000 in each year. Under the new agreement, all such payments will be met by the scheme.
A number of UK properties owned by the Company with a book value of GBP75,200,000 at 30 June 2019 are subject to registered fixed charges and will continue to provide security to the scheme under the new plan. The Company also has an escrow bank account with a balance of GBP10,490,000 at the end of the year (2018: GBP10,413,000) which is subject to a registered floating charge. Under the previous plan, the funds were to be released back to the Company over a period of five years. There is no scheduled release of funds back to the Company under the new plan.
In the event a subsequent actuarial valuation results in the combined value of the properties and the escrow bank account exceeding 120% of the actuarial deficit, some of the contingent assets will be released back to the Company. Any remaining contingent assets will be released from charge when the deficit no longer exists.
In line with the previous agreement, the new agreement will continue until 30 June 2031 and any outstanding deficit paid at that time. The agreement will end sooner if the actuarial deficit (calculated on a self-sufficiency basis) is eliminated in the meantime.
The charges may be enforced by the trustees if one of the following occurs: (a) the Company does not pay funds into the scheme in line with the agreed plan; (b) an insolvency event occurs in relation to the Company; or (c) the Company does not pay any deficit at 30 June 2031.
The value of the guaranteed payments under the new plan is lower than the IAS 19 pension scheme deficit at 30 June 2019 and as such, in accordance with IFRIC 14, no adjustment to the scheme's liabilities has been necessary. At 30 June 2018, the increase in liabilities under IFRIC 14 was GBP31,500,000.
Under the Ireland defined benefit pension scheme deficit funding plan, a property owned by Renishaw (Ireland) Designated Activity Company is subject to a registered fixed charge to secure the Ireland defined benefit pension scheme's deficit.
On 26 October 2018, the High Court reached a judgment in relation to Lloyds Banking Group's defined benefit pension schemes which concluded that the schemes should be amended to equalise pension benefits for men and women as regards guaranteed minimum pension benefits. The issues determined by the judgment arise in relation to most other defined benefit pension schemes and are relevant to the Company's UK defined benefit pension scheme. Following discussions between the Company, the trustees and their respective advisors, we have estimated incremental liabilities to be GBP751,000, which have been recognised in the Consolidated income statement in Administrative expenses. The estimate has increased the scheme's liabilities by 0.4% and is based on the C2 method which has been approved by the courts and likely to be the most commonly used approach. The Company and Trustees along with their respective advisors continue to assess the most appropriate method to achieve the equalisation of benefits.
14. SHARE-BASED PAYMENTS
Deferred annual equity incentive plan
In accordance with the remuneration policy approved by shareholders at the 2017 AGM, the deferred annual equity incentive plan (the Plan) was implemented in relation to the financial year ending 30 June 2018. The 20 July 2018 Remuneration Committee meeting recommended plan rules that were adopted by a resolution of the Board on 24 July 2018. The Committee also approved the grant of awards under the Plan to the participating Executive Directors.
The number of shares to be awarded is calculated by dividing the relevant amount of annual bonus under the Plan by the average price of a share during a period determined by the Committee of not more than five dealing days ending with the dealing day before the award Date. These shares must be purchased on the open market and cannot be satisfied by issuance of new shares or transfer of existing treasury shares.
An employee benefit trust (EBT) has been set up to purchase and hold such shares, until transferring to the employees, which will normally be on the third anniversary of the award date, subject to continued employment. Malus and clawback provisions can be operated by the Committee within five years of the award date. During the vesting period, no dividends are payable on the shares. However, upon vesting, employees will be entitled to additional shares or cash, equivalent to the value of dividends paid on the awarded shares during this period.
The total cost recognised in the 2019 Consolidated income statement in respect of the Plan was GBP157,523 (2018: nil). No awards have been awarded in respect of 2019.
15. CASH AND CASH EQUIVALENTS
An analysis of cash and cash equivalents at the end of the year was:
2019 2018 GBP'000 GBP'000 -------------------------------- -------- -------- Bank balances and cash in hand 49,897 63,417 Short-term deposits 56,929 40,430 Balance at the end of the year 106,826 103,847 --------------------------------- -------- --------
The UK defined benefit pension scheme cash escrow account is shown separately within assets. GBP52,500,000 of the Group short-term deposits balance is held in the Company, with GBP12,500,000, GBP20,000,000 and GBP20,000,000 maturing on 19 July 2019, 14 October 2019 and 6 April 2020 respectively.
16. INVENTORIES
An analysis of inventories at the end of the year was:
2019 2018 GBP'000 GBP'000 -------------------------------- -------- -------- Raw materials 46,102 28,094 Work in progress 23,431 29,193 Finished goods 59,493 53,276 Balance at the end of the year 129,026 110,563 --------------------------------- -------- --------
During the year, the amount of inventories recognised as an expense in the Consolidated income statement was GBP185,344,000 (2018: GBP187,834,000) and the amount of write-down of inventories recognised as an expense in the Consolidated income statement was GBP1,276,000 (2018: GBP1,711,000). At the end of the year, the gross cost of inventories which had provisions held against them totalled GBP14,137,000 (2018: GBP14,126,000).
17. PROVISIONS
Warranty provision
Movements during the year were:
2019 2018 GBP'000 GBP'000 --------------------------------- -------- -------- Balance at the beginning of the year 3,453 2,960 Created during the year 2,236 2,775 Utilised in the year (2,843) (2,282) ---------------------------------- -------- -------- (607) 493 Balance at the end of the year 2,846 3,453 ---------------------------------- -------- --------
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.
18. OTHER PAYABLES
Balances at the end of the year were:
2019 2018 GBP'000 GBP'000 ----------------------------------- -------- -------- Payroll taxes and social security 7,333 7,297 Other creditors and accruals 33,732 40,682 Total other payables 41,065 47,979 ------------------------------------ -------- --------
Other creditors and accruals include decreases in the Group bonuses payable. The Group's exposure to currency and liquidity risk related to trade and other payables is disclosed in note 20.
19. BORROWINGS
Third party borrowings at 30 June 2019 amounted to GBP10,399,000. This relates to a five year loan entered into on 31 May 2019 by Renishaw KK, with original principal of JPY 1,447,000,000 (GBP10,486,000).
For the period 31 May 2019 to 31 July 2019, principal of JPY 12,000,000 is repayable each month, with a variable interest rate of TIBOR +0.32% also paid on monthly accretion. For the period 31 July 2019 to 31 May 2024, principal of JPY 12,000,000 is repayable each month, with a fixed interest rate of 0.81% also paid on monthly accretion.
The remaining principal at 31 May 2024 of JPY 739,000,000 can either be repaid in full at that time, or extended for another five years.
Borrowings are held at amortised cost. There is no difference between the book value and fair value of borrowings, which is estimated by discounting contractual future cash flows, which represents 'Level 2' of the fair value hierarchy defined in note 20.
Movements during the year were:
2019 2018 GBP'000 GBP'000 -------------------------------- -------- -------- Balance at the beginning of the - - year Additions 10,486 - Interest 3 - Repayments (90) - Currency - - Balance at the end of the year 10,399 - -------------------------------- -------- -------- 20. FINANCIAL INSTRUMENTS
The Group has exposure to credit risk, liquidity risk and market risk arising from its use of financial instruments. This note presents information about the Group's exposure to these risks, along with the Group's objectives, policies and processes for measuring and managing the risks.
Fair value
There is no significant difference between the fair value of financial assets and financial liabilities and their carrying value in the Consolidated balance sheet. All financial assets and liabilities are held at amortised cost, apart from the forward exchange contracts, which are held at fair value, with changes going through the Consolidated income statement unless subject to hedge accounting.
The fair values of the forward exchange contracts have been calculated by a third party expert, discounting estimated future cash flows on the basis of market expectations of future exchange rates, representing level 2 in the IFRS 13 fair value hierarchy. The IFRS 13 level categorisation relates to the extent the fair value can be determined by reference to comparable market values. The classifications are: level 1 where instruments are quoted on an active market; level 2 where the assumptions used to arrive at fair value have comparable market data; and level 3 where the assumptions used to arrive at fair value do not have comparable market data.
Credit risk
The Group's liquid funds are substantially held with banks with high credit ratings and the credit risk relating to these funds is therefore limited. The Group carries a credit risk relating to non-payment of trade receivables by its customers. Credit evaluations are carried out on all new customers before credit is given above certain thresholds. There is a spread of risks among a large number of customers with no significant concentration with one customer or in any one geographical area. The Group establishes an allowance for impairment in respect of trade receivables where recoverability is considered doubtful.
An analysis by currency of the Group's financial assets at the year end is as follows:
Trade receivables Other receivables Cash Currency 2019 2018 2019 2018 2019 2018 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 ---------------- --------- --------- --------- --------- -------- -------- Pound Sterling 10,628 7,917 12,704 11,466 64,919 67,649 US Dollar 38,724 76,139 935 1,034 7,666 7,693 Euro 29,516 25,944 4,120 3,540 7,846 10,005 Japanese Yen 18,087 20,463 740 691 3,966 4,516 Other 26,196 24,124 5,962 5,257 22,429 13,984 ---------------- --------- --------- --------- --------- -------- -------- 123,151 154,587 24,461 21,988 106,826 103,847 ---------------- --------- --------- --------- --------- -------- --------
The above trade receivables, other receivables and cash are predominately held in the functional currency of the relevant entity, with the exception of GBP20,262,000 of US Dollar denominated trade receivables being held in Renishaw (Hong Kong) Limited and GBP6,109,000 of Euro-denominated trade receivables being held in Renishaw UK Sales Limited, along with some foreign currency cash balances which are of a short-term nature.
The ageing of trade receivables past due, but not impaired, at the end of the year was:
2019 2018 GBP'000 GBP'000 -------------------------------- -------- -------- Past due 0-1 month 14,999 21,620 Past due 1-2 months 4,438 6,111 Past due more than 2 months 16,486 6,388 --------------------------------- -------- -------- Balance at the end of the year 35,923 34,119 --------------------------------- -------- --------
Movements in the provision for impairment of trade receivables during the year were:
2019 2018 GBP'000 GBP'000 --------------------------------- -------- -------- Balance at the beginning of the year 3,301 3,115 Changes in amounts provided 292 525 Amounts utilised (512) (339) ---------------------------------- -------- -------- Balance at the end of the year 3,081 3,301 ---------------------------------- -------- --------
The above provision includes an element of impairment against the net debtor position using a provision matrix to measure expected credit losses, according to IFRS 9. The provision rates are based on historic rates of default, being 0.14% of trade receivables.
The maximum exposure to credit risk is GBP265,171,000, comprising the Group's trade and other receivables, cash and cash equivalents and derivative assets.
The maturities of non-current other receivables, being long-term loans to associates and joint ventures and derivatives, at the year end were:
2019 2018 GBP'000 GBP'000 ---------------------------------- -------- -------- Receivable between 1 and 2 years 1,075 232 Receivable between 2 and 5 years 1,485 11,240 ----------------------------------- -------- -------- 2,560 11,472 ---------------------------------- -------- --------
Liquidity risk
The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, without incurring unacceptable losses or risking damage to the Group's reputation. The Group uses monthly cash flow forecasts to monitor cash requirements.
In respect of net cash, the carrying value approximates to fair value because of the short maturity of the deposits. A significant proportion of net cash is affected by interest rates that are either fixed or floating and based on LIBOR, which can change over time, affecting the Group's interest income. Of the net cash subject to floating interest rate charges, an increase of 1% in interest rates would result in an increase in interest income of approximately GBP220,000.
The contractual maturities of financial liabilities at the year end were:
Effect Gross Contractual of cash flows Carrying discounting maturities Up to 1 1-2 years 2-5 years amount year Year ended 30 June GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 2019 -------------------- --------- ------------ ----------- -------- ---------- ---------- Trade payables 21,513 - 21,513 21,513 - - Other payables 41,065 - 41,065 41,065 - - Borrowings 10,399 310 10,709 1,120 1,115 8,474 Forward exchange contracts 54,147 - 54,147 18,920 12,626 22,601 -------------------- --------- ------------ ----------- -------- ---------- ---------- 127,124 310 127,434 82,618 13,741 31,075 -------------------- --------- ------------ ----------- -------- ---------- ---------- Effect Gross of Carrying discounting maturities Up to 1 1-2 years 2-5 years amount year Year ended 30 June GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 2018 -------------------- --------- ------------ ----------- -------- ---------- ---------- Trade payables 25,232 - 25,232 25,232 - - Other payables 47,979 - 47,979 47,979 - - Borrowings - - - - - - Forward exchange contracts 39,519 - 39,519 22,478 10,490 6,551 -------------------- --------- ------------ ----------- -------- ---------- ---------- 112,730 - 112,730 95,689 10,490 6,551 -------------------- --------- ------------ ----------- -------- ---------- ----------
Borrowings relate to a single loan in Renishaw KK, with a fixed interest rate of 0.81% for the majority of the loan contract. Interest is payable on accretion each month, along with monthly principal repayments. See note 19 for further detail.
Market risk
As noted under Principal risks and uncertainties (note 27), the Group operates in a number of foreign currencies with the majority of sales being made in these currencies, but with most manufacturing being undertaken in the UK, Ireland and India.
The Group enters into US Dollar, Euro and Japanese Yen derivative financial instruments to manage its exposure to foreign currency risk, including:
i. Forward foreign currency exchange contracts to hedge a significant proportion of the Group's
forecasted US Dollar, Euro and Japanese Yen revenues over the next three and a half years;
ii. Foreign currency option contracts, entered into alongside the forward contracts above until May 2018
as part of the Group revenue hedging strategy, are ineffective for cash flow hedging purposes. Note 25 'Alternative performance measures' gives an adjusted measure of profit before tax to reflect the original intention that these derivatives being for hedging purposes. The final option contract will mature in November 2021; and
iii. One-month forward foreign currency exchange contracts to offset the gains/losses from exchange rate
movements arising from foreign currency denominated intragroup balances of the Company.
For both the Group and the Company, the following table details the fair value of these forward foreign currency derivatives according to their accounting treatment.
2019 2018 Nominal Fair value Nominal Fair value GBP'000 value value GBP'000 GBP'000 GBP'000 ------------------------------------------ --------- ----------- --------- --------- Forward currency contracts in a designated cash flow hedge (i) Non-current derivative assets 36,152 319 241,930 6,562 Current derivative assets 37,060 340 - - Current derivative liabilities 198,339 (18,749) 197,285 (22,325) Non-current derivative liabilities 671,442 (34,967) 401,817 (16,111) --------- ----------- --------- --------- 942,993 (53,057) 841,032 (31,874) Amounts recognised in the Consolidated statement of comprehensive income and expense - (27,573) - 14,470 Foreign currency options ineffective as a cash flow hedge (ii) Non-current derivative assets - 991 - 3,016 Current derivative assets - 2,365 - 1,368 Current derivative liabilities - (104) - (153) Non-current derivative liabilities - (260) - (930) --------- ----------- --------- --------- - 2,992 - 3,301 Amounts recognised in Gains from the fair value of financial instruments in the Consolidated income statement - 1,081 - 4,834 Forward currency contracts not in a designated cash flow hedge (iii) Current derivative assets 26,671 73 - - Current derivative liabilities 19,463 (67) - - --------- ----------- --------- --------- 46,134 6 - - Amounts recognised in Financial income in the Consolidated income - 76 - - statement Total forward contracts and options Non-current derivative assets 36,152 1,310 241,930 9,578 Current derivative assets 63,731 2,778 - 1,368 Current derivative liabilities 217,802 (18,920) 197,285 (22,478) Non-current derivative liabilities 671,442 (35,227) 401,817 (17,041) --------- ----------- --------- --------- 989,126 (50,059) 841,032 (28,573) ------------------------------------------ --------- ----------- --------- ---------
The amounts of foreign currencies relating to these forward contracts and options are, in Sterling terms:
2019 2018 Nominal Fair value Nominal Fair value GBP'000 value value GBP'000 GBP'000 GBP'000 ----- --------- ----------- --------- --------- USD 678,323 (43,689) 578,421 (22,836) EUR 187,833 (3,501) 163,283 (6,879) JPY 122,970 (2,868) 99,328 1,142 ----- --------- ----------- --------- --------- 989,126 (50,059) 841,032 (28,573) ----- --------- ----------- --------- ---------
The following are the exchange rates which have been applicable during the financial year.
2019 2018 Average Year end Average Average Year Average Currency forward exchange exchange forward end exchange exchange contract rate rate contract rate rate rates rates ------------ ----------- ---------- ---------- ---------- -------------- ---------- USD 1.39 1.27 1.29 1.50 1.32 1.35 EUR 1.12 1.12 1.13 1.22 1.13 1.13 JPY 139 138 144 150 146 149 ------------- ---------- ---------- ---------- ---------- -------------- ----------
For the Group's foreign currency forward contracts and options at the balance sheet date, if Sterling appreciated by 5% against the US Dollar, Euro and Japanese Yen, this would increase pre-tax equity by GBP39,100,000 and decrease profit before tax by GBP300,000.
Hedging
In relation to the forward currency contracts in a designated cash flow hedge, the hedged item is a layer component of forecast sales transactions. Forecast transactions are deemed highly probable to occur and Group policy is to hedge at least 75% of net foreign currency exposure for USD, EUR and JPY. The hedged item creates an exposure to receive USD, EUR or JPY, while the forward contract is to sell USD, EUR or JPY and buy GBP. Therefore, there is a strong economic relationship between the hedging instrument and the hedged item. The hedge ratio is 100%, such that, by way of example, GBP10m nominal value of forward currency contracts are used to hedge GBP10m of forecast sales. Fair value gains or losses on the forward currency contracts are offset by foreign currency gains or losses on the translation of USD, EUR and JPY based sales revenue, relative to the forward rate at the date the forward contracts were arranged. Foreign currency exposures in HKD and USD are aggregated and only USD forward currency contracts are used to hedge these currency exposures. Sources of hedge ineffectiveness include: changes in timing of the hedged item; reduction in the amount of the hedged sales considered to be highly probable; a change in the credit risk of Renishaw or the bank counterparty to the forward contract; and differences in assumptions used in calculating fair value. For the year-end outstanding cash flow hedges, the change in fair value of the hedged item, being a GBP27,573,000 gain, is equal to the change in fair value of the forward currency hedge, being a GBP27,573,000 loss. No ineffectiveness has been recognised in the reporting period.
Capital management
The Group defines capital as being the equity attributable to the owners of the Company, which is captioned on the Consolidated balance sheet. The Board's policy is to maintain a strong capital base and to maintain a balance between significant returns to shareholders, with a progressive dividend policy, whilst ensuring the security of the Group is supported by a sound capital position. The Group may adjust dividend payments due to changes in economic and market conditions which affect, or are anticipated to affect, Group results.
21. SHARE CAPITAL AND RESERVES
Share capital
2019 2018 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.
Dividends paid
Dividends paid comprised:
2019 2018 GBP'000 GBP'000 ------------------------------------ -------- -------- 2018 final dividend paid of 46.0p per share (2017: 39.5p) 33,483 28,752 Interim dividend paid of 14.0p per share (2018: 14.0p) 10,189 10,190 Total dividends paid 43,672 38,942 ------------------------------------- -------- --------
A final dividend in respect of the current financial year of GBP33,482,729 (2018: GBP33,482,729) at the rate of 46.0p net per share (2018: 46.0p) is proposed to be paid on 31 October 2019 to shareholders on the register on 27 September 2019.
Own shares held
The EBT is responsible for purchasing shares on the open market on behalf of the Company to satisfy the plan awards, see note 15 for further detail on this. Own shares held are recognised as an element in equity until they are transferred at the end of the vesting period.
Movements during the year were:
2019 2018 GBP'000 GBP'000 ------------------------------------- -------- -------- Balance at the beginning of the year - - Acquisition of own shares (404) - ------------------------------------- -------- -------- Balance at the end of the year (404) - ------------------------------------- -------- --------
On 10 December 2018, 9,639 shares were purchased on the open market by the EBT at a price of GBP41.66, costing a total of GBP404,348.
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 expense and accumulated in equity, on account of them being classified as hedging instruments. The policy to hedge net overseas assets was ended in December 2017. Movements in the currency translation reserve after this date therefore only arise from translation of financial statements of foreign operations and currency movements on intragroup loan balances classified as net investments in foreign operations from December 2018 (see note 4).
Movements during the year were: 2019 2018 GBP'000 GBP'000 -------------------------------------------------------- -------- -------- Balance at the beginning of the year 12,665 10,510 -------------------------------------------------------- -------- -------- Gain on net assets of foreign currency operations 1,218 4,008 Loss on foreign currency overdrafts held for the purpose of net investment hedging - (1,901) Gain on intragroup loans classified as net investments 827 - in foreign operations Current tax on translation of net investments (205) - in foreign operations -------------------------------------------------------- -------- -------- Gain in the year relating to subsidiaries 1,840 2,107 Currency exchange differences relating to associates and joint ventures 72 48 Balance at the end of the year 14,577 12,665 -------------------------------------------------------- -------- --------
Cash flow hedging reserve
The cash flow hedging reserve, for both the Group and the Company, comprises all foreign exchange differences arising from the valuation of forward exchange contracts which are effective hedges and mature after the year end. See note 20 for further detail on this. These are valued on a mark-to-market basis, are accounted for in Other comprehensive income and expense and accumulated in equity, and are recycled through the Consolidated income statement and Company income statement when the hedged item affects the income statement.
Movements during the year were:
2019 2018 GBP'000 GBP'000 -------------------------------------------------------- --------- --------- Balance at the beginning of the year (19,389) (31,049) Losses on contract maturity recognised in revenue during the year 19,782 14,598 Gains transferred to the Consolidated income statement during the year - (4,834) Deferred tax transferred to the consolidated income statement - 1,927 Revaluations during the year (47,355) 2,779 Deferred tax movement 4,561 (2,810) -------------------------------------------------------- --------- --------- Balance at the end of the year (42,401) (19,389) -------------------------------------------------------- --------- ---------
Other reserve
The other reserve relates to additional investments in subsidiary undertakings and share-based payments charges according to IFRS 2 in relation to the Plan.
Movements during the year were:
2019 2018 GBP'000 GBP'000 -------------------------------------- -------- -------- Balance at the beginning of the year (460) (460) Share-based payments charge 158 - -------------------------------------- -------- -------- Balance at the end of the year (302) (460) --------------------------------------- -------- --------
Non-controlling interest
Movements during the year were:
2019 2018 GBP'000 GBP'000 -------------------------------------- -------- -------- Balance at the beginning of the year (577) (590) Share of profit for the year - 13 Balance at the end of the year (577) (577) --------------------------------------- -------- --------
The non-controlling interest represents the minority shareholdings in Renishaw Diagnostics Limited - 7.6%.
22. LEASES
Leases as lessee
The Group acts as lessee for land and buildings and vehicles in certain subsidiaries and recognises payments as an expense in the Consolidated income statement. The total of future minimum lease payments payable under non-cancellable operating leases were:
2019 2018 --------------------- --------------------- Leasehold Vehicles Leasehold Vehicles property GBP'000 property GBP'000 GBP'000 GBP'000 ------------------------------------- ---------- --------- ---------- --------- Due in less than one year 3,338 1,442 3,363 1,329 Due between one and five years 5,211 2,309 4,929 2,988 Due in more than five years 4,090 - 4,019 354 ------------------------------------- ---------- --------- ---------- --------- Total future minimum lease payments payable 12,639 3,751 12,311 4,671 ------------------------------------- ---------- --------- ---------- --------- 2019 2018 --------------------- --------------------- Leasehold Vehicles Leasehold Vehicles property GBP'000 property GBP'000 GBP'000 GBP'000 ------------------------------------- ---------- --------- ---------- --------- Payments recognised in Consolidated income statement 3,904 1,536 3,799 1,409 ------------------------------------- ---------- --------- ---------- ---------
Leases as lessor
The Group acts as lessor for Renishaw manufactured plant and equipment on both an operating and finance lease basis.
Operating leases
Where the Group retains the risks and rewards of ownership of leased assets, it continues to recognise the leased asset in property, plant and equipment, while the lease payments made during the term of the operating lease are recognised in revenue (2019: GBP1,231,000, 2018: GBP1,365,000). Operating leases are on one to five year terms. The total of future minimum lease payments receivable under non-cancellable operating leases were:
operating leases were:
2019 2018 GBP'000 GBP'000 ------------------------------------------------ -------- -------- Receivable in less than one year 804 1,406 Receivable between one and five years 700 1,383 Total future minimum lease payments receivable 1,504 2,789 ------------------------------------------------ -------- --------
Finance leases
Where the Group transfers the risks and rewards of ownership of leased assets to a third party, the Group recognises a receivable in the amount of the net investment in the lease in Trade receivables. The lease receivable is subsequently reduced by the principal received, while an interest component is recognised as financial income in the Consolidated income statement. Standard contract terms are up to five years and there is a nominal residual value receivable at the end of the contract. The total future lease payments are split between the principal and interest amounts below:
2019 2018 Gross Net investment Gross Net investment investment Interest GBP'000 investment Interest GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 ---------------------------- ------------ ----------- --------------- ------------ ----------- --------------- Receivable in less than one year 1,348 118 1,230 979 91 888 Receivable between one and five years 5,469 477 4,992 2,115 196 1,919 ---------------------------- ------------ ----------- --------------- ------------ ----------- --------------- Total future minimum lease payments receivable 6,817 595 6,222 3,094 287 2,807 ---------------------------- ------------ ----------- --------------- ------------ ----------- --------------- 23. CAPITAL COMMITMENTS
Authorised and committed capital expenditure at the end of the year, for which no provision has been made in the Financial statements, was:
2019 2018 GBP'000 GBP'000 ------------------------------------- -------- -------- Property 18,087 5,142 Plant and equipment 3,995 5,577 Other 280 136 -------------------------------------- -------- -------- Total committed capital expenditure 22,362 10,855 -------------------------------------- -------- -------- 24. RELATED PARTIES
Associates, joint ventures and other related parties had the following transactions and balances with the Group:
Joint ventures Associate 2019 2018 2019 2018 GBP'000 GBP'000 GBP'000 GBP'000 --------------------------------------- -------- -------- -------- -------- Purchased goods and services from the Group during the year 908 923 2,970 577 Sold goods and services to the Group during the year 19,212 19,069 1 8 Paid dividends to the Group during the year 614 507 - - Amounts owed to the Group at the year end 167 118 2,481 314 Amounts owed by the Group at the year end 1,933 324 - - Loans owed to the Group at the year end 1,250 1,549 6,144 4,729 --------------------------------------- -------- -------- -------- --------
Of the loan to the associate party, GBP3,600,000 relates to a working capital loan agreement set up in March 2017 and extended by GBP500,000 in March 2018 and GBP1,000,000 in January 2019. GBP475,000 of the working capital loan is ring fenced for fixed asset capital expenditure. Interest is charged at 3.5% until 31 December 2019 and at 3% above the Bank of England rate thereafter. The loan is repayable on a three month notice with a repayment date no earlier than 31 December 2019.
There were no bad debts relating to related parties written off during the year (2018: GBPnil).
By virtue of their long-standing voting agreement, Sir David McMurtry (Executive Chairman 36.23% shareholder) and John Deer (Deputy Chairman, together with his wife, 16.80%), are the ultimate controlling party of the Group. The only significant transactions between the Group and these parties are in relation to their respective remuneration.
25. 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.
2019 2018 Revenue at constant exchange rates GBP'000 GBP'000 -------------------------------------------------- --------- -------- Statutory revenue as reported 573,959 611,507 Adjustment for forward contract losses 19,782 14,598 Adjustment to restate current year at previous year exchange rates (10,346) -------------------------------------------------- --------- -------- Revenue at constant exchange rates 583,395 626,105 -------------------------------------------------- --------- -------- Year on year revenue growth at constant exchange rates -6.8% -------------------------------------------------- --------- --------
Year-on-year revenue growth at constant exchange rates for 2018 was 17.7%.
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 the forward currency contracts which did not qualify for hedge accounting.
The gains or 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.
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.
2019 2018 Adjusted profit before tax: GBP'000 GBP'000 ------------------------------------------------------- -------- -------- Statutory profit before tax 109,944 155,225 Fair value gains on financial instruments not eligible for hedge accounting: - reported in revenue (5,001) (5,310) - reported in gains from the fair value in financial instruments (1,081) (4,834) Adjusted profit before tax 103,862 145,081 -------------------------------------------------------- -------- -------- 2019 2018 Adjusted earnings per share: pence pence ------------------------------------------------- ------ ------ Statutory earnings per share 126.7 181.8 Fair value gains on financial instruments not eligible for hedge accounting: - reported in revenue (5.6) (5.9) - reported in gains in fair value in financial instruments (1.2) (5.4) Adjusted earnings per share 119.9 170.5 -------------------------------------------------- ------ ------ 2019 2018 Adjusted operating profit: pence pence ------------------------------------------------- -------- -------- Statutory operating profit 99,793 153,189 Fair value gains on financial instruments not eligible for hedge accounting: - reported in revenue (5,001) (5,310) - reported in gains in fair value in financial instruments (1,081) (4,834) Adjusted operating profit 93,711 143,045 -------------------------------------------------- -------- --------
Adjustments to the segmental operating profit:
2019 2018 Metrology GBP'000 GBP'000 Operating profit before loss from fair value of financial instruments 95,345 147,841 Fair value gains on financial instruments not eligible for hedge accounting: - reported in revenue (4,745) (5,066) Adjusted metrology operating profit 90,600 142,775 -------------------------------------------------- -------- -------- 2019 2018 Healthcare GBP'000 GBP'000 Operating profit before loss from fair value of financial instruments 3,367 514 Fair value gains on financial instruments not eligible for hedge accounting: - reported in revenue (256) (244) Adjusted healthcare operating profit 3,111 270 -------------------------------------------------- -------- -------- 26. IMPACT OF NEW ACCOUNTING POLICIES
Comparison to previous revenue recognition standard
As noted earlier in 'Changes to accounting policies' the Group now accounts for all volume rebates and early settlement discounts within Revenue rather than Cost of Sales. This reclassification, together with the net movement in deferred extended warranties referred to in note 1, accounts for the majority of the difference between the results for the period as reported under IFRS 15 and how they would have been reported under IAS 18.
Consolidated balance sheet extract Balance IFRS 15 Balance at 30 June adjustment at 30 June 2019 per GBP'000 2019 per IFRS 15 IAS 18 GBP'000 GBP'000 ------------------------------------- ------------ ------------ ---------------- Assets Deferred tax assets 29,855 (429) 29,426 Contract assets 352 (352) - Liabilities Contract liabilities 5,631 (2,248) 3,383 Equity Retained earnings 597,784 1,467 599,251 related to current year 197 Related to transition adjustment 1,270 ------------------------------------- ------------ ------------ ---------------- Consolidated income statement extract ---------------------------------------- ---------- -------- ---------- Revenue 573,959 1,644 575,603 Cost of sales (294,969) (1,390) (296,359) Gross profit 278,990 254 279,244 Profit before tax 109,944 254 110,198 Income tax expense (17,712) 57 (17,655) Profit for the year from continuing operations 92,232 197 92,429 ---------------------------------------- ---------- -------- ----------
Revenue recognised in 2019 that was included in the contract liability balance at the beginning of the reporting period, being GBP1,640,000, was GBP1,081,000. The remaining balance at 30 June 2019 relates to ongoing extended warranties and maintenance contracts.
27. PRINCIPAL RISKS AND UNCERTAINTIES
Our performance is subject to a number of risks - the principal risks and factors impacting on them are set out in the table below. The Board has conducted a robust assessment of the principal risks facing the business.
Area of Description Potential impact Mitigation risk Current Revenue growth Global market The Group is expanding trading is conditions continue and diversifying its levels unpredictable to highlight risks product range in and order and orders to growth and order to maintain a book from customers demand that can world-leading generally lead to fluctuating position in its sales involve short levels of revenue of metrology lead times and profit. The products. Targeted investment with the outstanding potential impacts in sales and marketing order book at include those resources any time being arising from Brexit continues in order to around one month's and trade and support the breadth of worth of tariff disputes the product offerings. revenue value. resulting in an increased risk The Group is applying rating for this its measurement expertise year. to grow its healthcare and additive Future growth manufacturing business is difficult to activities. predict, especially with such a short-term The Group retains a strong order book. This balance sheet and has limited forward the ability to flex order visibility manufacturing resource results in uncertainty levels and shift patterns. in revenue and profit forecasts. The Group has implemented If the Group does programmes in relation not manage to the its cost base management of costs and and optimise with the aim of maximising operational efficiency, profitability. this may adversely impact profitability. Research The development As a Group at Patent and intellectual and development of new the leading edge property generation are products and of new technology core to new product developments. processes in metrology and involves risk, healthcare, there R&D programmes are regularly such as are uncertainties reviewed against milestones development timescales, whether all new and, meeting the required R&D programmes when necessary, projects technical specification will provide an are suspended or cancelled. and the impact economic return. of alternative Medium-term to long-term technology developments. R&D strategies are monitored regularly by both the Board and the Executive Board, 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 with customers to ensure as much as possible that they will meet the needs of the market. Market developments are closely monitored. Enhanced collaboration and knowledge-sharing between R&D teams. Supply Customer deliveries Inability to meet Production facilities chain management may customer are maintained with fire be threatened deliveries could and flood risk in mind. by a failure result in loss in the supply of revenue and Critical production processes chain. profit. are replicated at different locations Supply chain disruption where practical. caused by a no-deal Brexit with respect The Group is highly vertically to customs and integrated providing border clearances increased control and uncertainty over many aspects of over UK and EU the supply chain. product approvals, which has given The Group has the ability rise to an increased to flex manufacturing risk rating for resource levels and this year. 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. The Group has undertaken a review of the supply chain to identify key suppliers to ensure they have their own risk management process in place for a no-deal Brexit. Regulation The Group's healthcare Regulatory approval Specialist legal and of healthcare business involves can be very expensive regulatory expertise a and time-consuming. is in place to support significant increase This area is also the in very complex and healthcare business. compliance requirements there is a risk to obtain regulatory the correct approvals The Group has experience approval prior are not obtained. of healthcare regulatory to the sale Failure to matters at of these products comply could have Board level. and reputational and the need to comply financial consequences Healthcare operations with for the Group. in the UK and France the relevant have ISO13485 certification legal and In a worst case for their quality management regulatory obligations. no-deal Brexit systems, with Ireland scenario, a UK-based and other subsidiary notified body healthcare operations can no longer falling under the UK CE mark a product quality for sale in the management system. EU which would invalidate our Notified body for approving current CE mark. medical device products has been changed from BSi UK to the BSi Netherlands ensuring the Group will be able to keep valid certificates without interruption. UK defined Investment returns Volatility in The investment strategy benefit and investment returns is managed by the pension pension actuarial valuations and actuarial scheme trustees who operate scheme of the defined assumptions can in line with a statement benefit pension significantly of investment principles scheme liability affect the and take appropriate are subject defined benefit independent professional to economic and pension scheme advice when necessary. social deficit, impacting factors that on future funding A new recovery plan was are outside the requirements. agreed in June 2019 with control of the the trustees in relation Group. to the September 2018 actuarial deficit based on funding to self-sufficiency. This, combined with Company funding during the year, results in a decrease in the risk rating this year. Exchange Fluctuating foreign With c.94% of The Group enters into rate fluctuations exchange rates revenue generated forward contracts in
may affect the outside the UK, order to hedge varying results of the there is an exposure proportions of forecast Group. to major currency US Dollar, Euro and Japanese fluctuations, Yen revenue. Forward mainly in respect contracts which are ineffective of the US Dollar, for accounting purposes Euro and Japanese provide the protection Yen. against rate changes Such fluctuations that management intended could adversely when entering the contracts. impact both the Group's income Currency rates and hedging statement and position are regularly balance sheet. monitored. The potential impacts are likely to increase during periods of market uncertainty such as Brexit and trade and tariff disputes, which has given rise to an increased risk rating this year. Cyber security For the Group Reduced service There is substantial threats to operate to customers due resilience and back-up effectively it to lack of reliable built into Group systems. requires continuous management access to timely information putting Cyber risk and security and reliable the Group at a is discussed with the information at competitive disadvantage. Board every six months. all times. We seek to ensure Delay or impact External penetration continuous availability, on decision-making testing is utilised on security and through lack of an appropriate basis. operation of availability of information systems. sound data or The Group operates central disruption in/or IT policies in all aspects denial of service. of information security. Loss of commercially sensitive and/or Regular monitoring of personal information all Group systems takes leading to place with regular implications including reporting and analysis. reputational damage, claims or fines. Operating systems are continuously updated Theft of commercial and refreshed in line or sensitive information/data with current threats. or fraud causing loss and disruption. The Group employs a number of physical, logical and control measures to protect its information and systems. E-learning courses are rolled out as required to all employees on all cyber risks. The Group continues to focus on compliance with the General Data Protection Regulation and other existing and emerging data legislation. Workforce Our people drive Not filling key Attracting, rewarding the roles, having and retaining people success of our a significantly with the right skills business. changing workforce globally in a planned Inability to or not effectively and targeted way. identify, attract, deploying or organising retain, develop the workforce Developing and enhancing and apply the could lead to organisational, leadership, critical capabilities delays in new technical and skills needed products, and functional capability in appropriate quality issues, to deliver global programmes. numbers to effectively reduced sales organise, deploy levels, poor customer An increased focus on and service and individual development incentivise our reduced profitability. and succession people would planning, recognising threaten the the changing nature of delivery of our careers and strategic goals. expectations at work. Incentivising and effectively deploying the critical capabilities, skills and people needed to deliver our strategic priorities, including benchmarking. Listening to our people and seeking to understand their views through active leadership and engagement including a new regular survey. Extensive apprentice,
graduate and industrial placement programmes. Commitment to equality, diversity and inclusion.
Financial calendar
Publication of 2019 Annual Report 21 August 2019 Annual General Meeting 24 October 2019 Half year results January 2020 Trading update May 2020
Final dividend
Ex-div date 26 September 2019 Record date 27 September 2019 Payment date 31 October 2019
Registered office:
Renishaw plc
New Mills
Wotton-under-Edge
Gloucestershire
GL12 8JR
UK
Registered number: 01106260 LEI number: 21380048ADXM6Z67CT18 Telephone: +44 1453 524524 Email: uk@renishaw.com Website: www.renishaw.com
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
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