Renishaw plc

Chris Pockett - Head of Communications David McMurtry - Chairman and CEO Allen Roberts - Group Finance Director William Lee - Group Sales and Marketing Director

Good morning, everyone. My name is Chris Pockett.

I am Head of Communications for the Renishaw Group, and I would like to welcome you to this live webcast presentation of Renishaw's Preliminary Financial Results for the Year Ended June 2017. Present in the room today are Sir David McMurtry, Renishaw's Chairman and Chief Executive, who will run through the results highlights and chair the later question-and-answer session.

He will be followed by today's main presenters: Allen Roberts, our Group Finance Director; and Will Lee, Group Sales and Marketing Director. Before they speak, I'd just like to go through some basic housekeeping for the event.

After the presentation, which will last around 30 minutes, there will be a question-and-answer session, in which we will try to answer as many questions as possible before we close at 11 o'clock. No questions will be answered during the formal presentation.

However, for those of you joining us via the web, you will be able to submit questions both during and after the presentation via the Ask-a-Question button you can see located at the bottom left corner of your screen. For those of you joining us via the conference call facility, you will only be able to submit a question at the end of the formal presentation.

[Operator Instructions]. I would also like to point out that all financial information given during this presentation will be in pounds sterling.

Thank you again for joining us. And I will now hand over to Sir David.

Thank you, Chris. I'm just delighted to be able to announce, just I'll run through the preliminary review.

Revenue of £536.8 million with an underlying growth of 14%. I'm delighted to report that.

Strong revenue growth in our encoders, measurement and automation and calibration and co-ordinate measuring machine and product lines in our metrology business. Our metrology business is in very good health.

Revenue growth in healthcare product lines, which is very encouraging. 25% increase in adjusted profits before tax and 90% increase in statutory profit before tax, so I think Allen will go into that in more detail later.

Our capital expenditure of £42 million, providing for future growth throughout the world. Our headcount increase is 244, including 91 graduates and apprentices.

We have a strong balance sheet with cash of £51.9 million at the end of the year compared with £21.3 million last year. The dividend increased by 8.3% to 52p compared with last year of 48p.

I'll hand over to Allen, who will go through the financials.

Thank you, David, and good morning to everybody. As David remarked, we've had a record year and our revenues exceeded £500 million mark for the first time in our history, with £537 million reported revenue being better than last year by nearly £110 million, with £60 million related to underlying growth of 14% and £50 million to favorable currency factors.

We will be commenting in more detail on these impressive revenue numbers in a few minutes time. In terms of adjusted profit before tax, we've seen strong increase of 25% from £87.5 million in 2016 to £109.1 million in the current year.

The effective tax rate this year on profit is 12.2% compared to 16.2% last year, primarily reflecting the further reduction in the UK corporation tax rates and increased patent box benefit and a release of a brought forward deferred tax liability no longer required. Adjusted earnings per share is £132.4 compared to £100.4 last year.

We are increasing the dividend to £52 per share, an increase of 8.3% over last year. Statutory earnings per share is £141.3, which now compares with a restated earnings per share of £71.8 in 2016.

I'll now go on to explain some of the rationale behind some of these restatements. So I would like to discuss items resulting in restatements of the 2016 financial statements and the new alternative business performance measures put in place to better reflect the underlying trading of the group.

The restatements for 2016 relate to, one, the research and development tax credit previously reported in the tax charge is now being reclassified. This is now reported in the cost of sales and credited against the group's R&D expenditure in line with accounting practice.

Second one was to allocate profits between the continuing and discontinued operations, which we'll talk about a little later. The impact of these two restatements is to increase the reported 2016 results by £7.4 million to £87.5 million, which we now report as adjusted profit before tax.

The 2017 adjusted profit before tax is now £109.1 million. A further restatement was necessary in respect of certain foreign currency forward contracts uses hedging instruments for future incoming currency cash flows that did not meet criteria for hedge accounting under IAS 39, which has resulted in a prior year profit before tax being restated by £25.7 million with a corresponding credit in the other comprehensive income but no change to the total comprehensive income and expense for the year, given the restated profit before tax of £61.7 million for 2016.

This year we've seen a gain of £8 million, which has been recorded in the statutory profit before tax as a result of this accounting treatment. I would add that there was absolutely no impact on the group net assets, cash balances or future cash flows.

The board has introduced alternative performance measures, adjusted profit before tax, adjusting operating profit and adjusting earnings per share. To report the results on the basis that all forward contracts are accounted for effective hedges, this measure will be the basis upon which the board evaluates the group performance as it better represents the underlying trading of the group.

Taking a look at our income statement. In terms of our production cost, the ratio to sales is 34%, which is the same as last year.

As reported in the interim stage, the following factors have offset the margin benefits to revive from the impact of currency on revenues. Our overseas manufacturing cost base, particularly in India and Ireland, and to part in Germany, France and the US, has increased due to currency movements.

Currency effects have also increased our imported raw materials and component costs. In 2016, manufacturing overheads were observed into inventory reflecting stock increases for new product introductions of safety stock to support special project opportunities.

In contrast, inventory levels are reduced in the current year. Additionally some indirect manufacturing resource has been utilized in ensuring RoHS compliance.

I'll comment on engineering distribution and admin costs shortly. Net financial expense of £1.5 million, up £600,000 primarily relating to pension fund accounting, and our loss and our profits from associates rose from £1.4 million to £1.8 million.

The other adjustments I've touched upon earlier, so restated profit before taxes are £117.1 million against £61.7 million last year and the adjusted profit before taxes are £109.1 million compared to £87.5 million in 2016 represented the alternative performance measure referred to earlier. Adjusted operating profits generated from our metrology divisions were up 29% to £115.9 million from £90 million, driven by strong performance by most divisions in the sector.

Our adjusted healthcare losses have increased to £7.2 million from £3.1 million last year despite higher turnover. Currency issues affected the material boarding costs and overseas sales and marketing costs and overseas manufacturing cost base of the sector and there have also been some restructuring cost provisions made.

A detailed review of our healthcare business is in progress, which is intended to bring these divisions to a breakeven with subsequent profit in the short-term. Engineering costs.

We remain one of the top UK companies in terms of ratio of research and development cost to turnover and we are committed to developing innovative products, which provide solutions to complex engineering and manufacturing challenges. This year, £78 million, 14% of revenue, has been invested in research and development, compared to £69 million last year, 16.1% of revenue giving a year-on-year increase of 13%.

The amount of net R&D capitalized is slightly down to £2.7 million compared to £3.1 million last year and we have gained R&D tax credits of £6.5 million compared to £2.4 million and net engineering costs are therefore £68.8 million compared to £63.3 million in 2016. 88% of our gross engineering spend is within the metrology sector, which is up 13%, while healthcare accounts for the remaining £9.2 million.

Of the total spend, 69% or £53.5 million represents spending on new product development, which is up 20% compared to last year. And Will Lee will elaborate shortly on specific new product introductions.

Distribution costs are up 20% to nearly £130 million, as well as normal pay increases the costs have risen sharply because of the weak pound as a majority of our sales and marketing employees are based overseas. We have added 55 people to support the growth in volumes and incurred additional property-related costs relating to our overseas expansion.

We've also opened a representative office is now being converted to a trading subsidiary to facilitate solution selling in the territory. Administration.

Administration expenses of £52.4 million are up £12 million compared to last year due to a number of factors including adverse currency impacted gain on admin cost particularly in our overseas subsidiaries and there was an increase of £1.8 million in the loss and disposal of fixed assets. Increased bonus provision including the directors who had nil in 2016 and some credits from health insurance pooling which - and some deferred consideration which is not being repeated in the current year.

Employees. The group now employs a total of 4,530 people, which represents a net increase of 244 from last June.

Of the increase, 98 stands within the UK and 146 have been at the overseas. In the UK, we have added 46 apprentices and 45 graduates, which continues our commitment for investing in skills for the future.

These additions account for most of the UK increase and other additions have been mostly offset by leavers during the year. In terms of overseas employees, production employees account for 54% of the new hires mostly in Ireland and India, while sales technical support and marketing additions account for the remainder.

The increases have been necessary to keep pace with the strong growth experienced during the year. To the next slide, our adjusted earnings per share on the continuing activities is now 132.4 pence compared to 100.4 pence in 2016.

As stated previously, our total dividend is 52 pence, an increase of 8.3% over last year, thereby maintaining our progressive dividend policy. The final dividend will be paid on October 25.

I'll now hand over to Will, who will review the group revenue and new product introductions.

Thank you very much, Allen. So as Allen said, I'm going to, first of all, start off having a look at the revenue in a bit more detail, where it came from.

I think the nice thing really here is that even when you look at the percentage growth at constant exchange rates, we saw a double-digit growth across all of the regions. So there was no stand-down region.

This was growth generated across the group. If you look at constant exchange rate, actually UK and Ireland was the highest percentage improvement, but no doubt I guess in terms of importance to the group, it's very good for us to see the growth in the Far East because of the percentage of the market that we have there.

If we then look at the revenue between metrology and healthcare, what we see is again it's nice to see that the both areas of the business have grown in double digits, and again though that there is with the reliance and the importance of the business on metrology, the 26.2% growth in the metrology business is extremely important for us. Looking at metrology what we have seen there is, as Allen mentioned, experience growth in all the product lines, and as particular note, as David mentioned at the start was with strong growth in encoder, measurement and automation, calibration and CMM product lines.

What we also saw is in healthcare, again as Allen mentioned, that we saw growth across all the product lines but a particular note is the medical dental. So if we look inside metrology now and I'll start just with a few more numbers on metrology.

So again metrology here, last thing as I said, double-digit growth across all the regions and an improved operating profit going up from £90 million to almost £116 million, that we have some very healthy numbers there. The most important thing there for us really is how we're going forward and looking at the future.

And for us, this is on the investment that we've talked about into our subsidiary and sales network but a particular importance is the products that we've launched over the last 12 months and the revenue that they are going to generate for us. And the nice thing that we are seeing here is that with all the manufacturers out there whether it's semiconductors, where increasing processing power, efficiencies of engines or cosmetics and consumer electronics, all our customers are pushing really for tighter tolerances.

And what this means is that the products that are looking forward from us require increased capability and improved measurement performance. What they also have is a cost base they need to maintain, so they want to make sure that our products are as quick to use as possible and then also like everyone facing a skills shortage, so the easier that we can make our new products to use, the more accessible they are and the more we will sell.

So the nice thing is there is demanding market out there and we have a market for our new cutting-edge technology. So what have we launched over the last 12 months?

One that we have launched recently is the XM-60 multi-axis calibrator. So this is a product primarily targeted at machine tools.

So typically a machine tool in the past when someone, a manufacturer or a user, wanted to check or improve its accuracy, they could do a simple linear check on how well it moved. But for now for the time since the people increasingly want to achieve, they need to understand how it moves along that axis.

They want to know whether it moves in a straight line or whether it curves as it moves. So with our new system, you can take all these measurements in one single hit with a very simple setup.

So this gives you an awful lot more information and a lot quicker than before, and with the new software that we've developed to go with it, it also makes it much easier for the user to set it up and also make the machine better at the end of it. So we're very pleased with this how well this product is going and we won a German award for this when it was launched at the AMB exhibition at the end of last year.

On our CMM product line, we've talked a lot in the past about our REVO and how transformative REVO has been in terms of the speed that components can be measured. So this is a big step forward for us with the SFP2 surface finish probe.

This allows us now to change the styluses on the REVO and put on a new surface finish, which means that at the same station on the same CMM, our customers can do both dimensional metrology with traditional REVO style and also now surface finishing, particularly difficult to access areas. So the advantage for customers on this is the time it takes and also now there is one single station that can do multiple measurements.

So we see this as a very important technology for us for the future. Encoders, we talked about earlier being a strong growth area for us.

And again here we've launched some new technology this year which we see as a big step forward. So traditionally our encoders, for example the TONiC encoder outputs an analog signal and then the interpolation of that is done in an interface box later on, where it is changed to a digital signal, which tells the user how far it's moved.

With the VIONiC we've shrunk that circuit down into a small ASIC chip, which is now on board on the retail itself. So everything is shrunk down, so that the user directly gets the signals in a digital manner.

By doing this, we've also managed to improve the accuracy of the product. So by shrinking the bulk electronics down to single chip, we have improved the performance of the product.

If we look at our machine tool business, so this is the SPRINT probe is a probe that we have had which is a scanning probe, so it's an analog sensor as opposed to the traditional sensor that goes on a machine, which is a very much a digital sensor which detects a single point. so the SPRINT system we launched a few years ago, but we've now launched a new software called SupaScan, which allows it and makes this technology much, much more accessible to most users, so people can see the benefits of the scanning of SPRINT probe but now it makes a lot more accessible to use on those machine tools.

So what are people doing with this and what is the advantage of scanning? Well, the traditional measurements can be done a lot quicker but by scanning, so for people who are worried about cycle time, that the beauty of this is that they can do their measurements a lot quicker, but at the same time you're also getting a lot of data.

So for example on scanning the top of the part shown on the picture, you can very quickly work out a maximum or minimum height variation and you can also do, as is shown on the software, a surface condition. So if you're worried that you might have some cut or wear and you want to check this on the machine tool before you take the parts off, you can now see this and you got an indication as to whether the part is good or not before you take it off the machine tool.

So staying to machine tool, our Equator gauge is a flexible gauge, which is very much designed to be placed next to the machine tool on the shop floor environment. But the beauty of the gauge here really is not to make sure and tell you if a part that you have made has failed and therefore put it in the scrap bin.

The beauty of the Equator gauge is to make sure that the parts you're making are good. So we've now launched some IPC software, Intelligent Process Control.

And what this does is it feeds back the data from the parts being measured on the Equator next to the machine tool into the machine tool, so that the tool cutter compensation can be updated to make sure that if there is a wear on the tool for example, the process is being updated. So not that the Equator is telling you whether the parts are good or bad, it's making sure that the parts coming through are good and keeping the process on track.

So this is an exciting opportunity for us to developing the Equator business further. Coming back to what we talked about at the start.

So one of the barriers to entry potentially people using our technology is the ease of use. Most people understand the benefit of using their machine tool probe when they are doing machining but sometimes it's just too difficult for them to deal with traditional programming techniques.

So last year we launched Set and Inspect, which was a simple application that could run on PC-based controller to allow people to do very simple measurements using their probe. We've now launched the new Program Builder mode for this, which allows people to generate more complex cycles by jog-wheeling [ph] the probe around to measure features on a part they have on the machine, take the trace and then load this measurement into their automatic program.

So we see this as a very big step forward for Set and Inspect and are working with a number of OEMs to integrate this. Also our new machine so one of the most important things we see going forward is actually accessibility of the information.

So the Reporter app is an application which allows users to very quickly see what the data is, how the parts coming of the machine are looking in a graphical easy to see way. So staying with ease of use, again one of the barriers to entry often for people wanting to get more process control and more QC into their manufacturing is how easy it is to program and implement the solution.

So we've talked about MODUS 2. MODUS 2 becoming our next generation of programming language for CMMs, which has a very simple to use graphical interface and takes programming to a step forward in terms of ease of use.

We've now put in the compare functionality that is needed for this to be the programming tool for Equator. So now you can program both our CMM solutions and our Equator solutions with MODUS 2, which is a real benefit for us to allow the accessibility of the benefits of Equator to a larger market potentially also through distribution.

Looking at additive manufacturing. We're very pleased this year we opened our U.S., German and Canadian additive manufacturing solution centers.

These are really where we can work with our key customers to get them an introduction to additive manufacturing, so they can come and develop their processes with us in an environment that's all setup and ready to go. So where we have these important key customers that we work with here, you can see also that some of these are now coming through where we have.

Then the next stage of that would be to actually have it in AM machines installed at their facilities where they buy stuff from us and that is now transferring - we talked 12 months ago the webcast on AM the launch of RenAM 500 that is now have been launched and we are selling, and of particular interest that back in April we signed a distribution agreement and solution centre partnership agreement with a company in China called FalconTech with a commitment to purchase 10 of these machines over the next 18 months. So moving onto healthcare.

So Allen went through these numbers earlier. I guess when you look at the regional split here we see more of slightly more of a variability.

So the pleasing stuff here is that both in the Far East and Americas we have seen good growth in revenue here. If we look at the highlights, then starting off with our neuro business there and we've had some real strategic sales to some key hospitals over the last few months, which has been very important for us and we've also pleased that the Renishaw drug delivery system is going to be used in clinical trials with Herantis Pharma Plc's Parkinson's disease drug and this has been supported by a Horizon 2020 grant.

We are also pleased to staying with healthcare but both for a neuro point of view and a medical dental that we opened our Healthcare Centre of Excellence in Miskin. Very pleased that Rt.

Hon Carwyn Jones AM, First Minister of Wales, came to visit and open centre and was very impressed with everything that we are doing there. You can see a picture in the bottom right of a mock operating theatre which we can both use for product development, for training and for sales.

So it's a key asset for us in growing the neuro business. If we move onto our spectroscopy business, our Raman, then we have a new product type which is the RA802 Pharmaceutical Analyser.

Now really this product has been made possible by some technology that we launched our standard Raman system last year, which is the LiveTrack technology. And what this enables us to do is a bit like an auto-focus on the camera where it will keep track of an uneven surface.

So this now means there is no need to polish again a very flat sample if you're in the pharma industry and you want to put a tablet in, it will actually track the uneven surface of that tablet, as you can see in the pictures. So the LiveTrack won an award last year for the technology we developed.

We've now put this into this new product, which is very much designed away from the Raman specialist used to a more generic purpose tool for lab use. So what this enables is a pharma company to very quickly diagnose the structural breakdown of a tablet.

Staying with Raman, we've also introduced our new CCD detector, so where we talked about the benefit of LiveTrack really being able to scanning on the uneven surface and make measurements quickly, then the Centrus CCD detector also analyze the speeding up of that Raman measurement to make the technology more and more attractive for users. So if we look then at healthcare, healthcare additive.

Then again we launched the QuantAM software generally 18 months or so ago. So QuantAM is our additive manufacturing software, which effectively use it to take a CAD model or something that they have designed and get it ready for build on a AM machine, get it in the right place of the machine workout where you're going to put it and where the support fixtures are going to go.

So QuantAM Dental is a version of software specifically tailored and developed and modified to make it suitable for doing teeth. So teeth are quite usually build in terms of a large plate but only a very low volume, low height build, so the QuantAM Dental software is specifically targeted for doing those teeth.

We've also, staying with AM and staying with healthcare, with the ADEPT software, developed software to help in terms of doing craniomaxillofacial implants. And you can see on the picture on the left, it's a very free-form surface that is required, very obviously custom because everyone's specific parts is going to be different.

So this allows it to make it very simple and quick for healthcare professionals to design the specific custom plate that's required for a replacement part in a body. So okay I'm going to hand over back to Allen, who is going to finish off going through some of the financials.

Thank you, Will. Turning to cash flow.

The cash flow bridge tracks the movements from our opening cash balances of £21.3 million to the closing position of £51.9 million. Our profit before tax is £101.9 million, which includes both continuing and discontinuing operations.

Adjusted for depreciation and amortization totaling £46.1 million, and the fair value loss of financial instruments £8 million, give the cash inflow of £140 million. Large cash outflows included net capital expenditure of £34 million.

More on this shortly. R&D capitalization of £16 million; dividend payments of £35 million and paying our taxes of £24 million.

This year we've seen a £1.5 million cash inflow from changes in working capital from principally by a reduction in inventories. Debtors days are now at 73 compared to 71 last year and we maintain a policy of paying our suppliers promptly and to their terms [ph].

Other cash outflows include the pension fund contributions in line with the amended and agreed recovery plan that was put in place at the end of last year. Our cash balances at the end of June, therefore is a very healthy £52 million.

On our balance sheet. Our balance sheet has strengthened significantly with total equity now amounting to £444 million, an increase of £62 million compared to 12 months ago.

Total net current assets of £336 million, of which fixed assets represent £228 million compared to £214 million last year. More on this shortly.

And intangible assets and investments at £62 million are down £5 million compared to 2016, mainly due to the goodwill write-offs in respective discontinued activities. Deferred tax assets is slightly lower at £39 million, while derivatives are noted at £3.5 million.

Net current assets are £220 million compared to £200 million last year, principally due to the increase in cash balance, as mentioned earlier there has been a marginal reduction in working capital while the pension fund escrow has decreased by £2.4 million. Long-term liabilities for deferred tax, pension fund deficit and other payables amount to £112.1 million, a reduction of £28 million since last year.

The pension fund deficit liability is similar to last year but the deferred tax liability us lowered by some £8 million. Other payables which represent forward contract liabilities are also down by £19 million.

To finish our results review, a few words on capital expenditure for the year. We have continued to make substantial investments to the tune of £42.6 million in the period in fixed assets, which is £10.4 million lower than the prior year.

In the UK, there have been several facility refurbishments at various sites including Miskin, which is New Mills and [indiscernible]. Overseas we've completed our new USA headquarters, New Chicago, and also completed the build of new premises for RACE, Renishaw Advanced Consulting and Engineering Inc., in Detroit.

Additionally there has been an expansion in refurbishments in Spain, Sweden, Germany and France as well as the new office purchase in our subsidiary in Hungary. We are continuing to invest in plants and machine to support production and equip the additive manufacturing solution centers.

Finally we are constantly updating our group communications and IT infrastructure, both in terms of hardware and software to provide the necessary technology to support our businesses. And on this slide you can actually see some photographs of our new building in Detroit on the top left, which is the Renishaw ACE new building and on the bottom right hand corner you see the demonstration area and product display area in our new Chicago offices in Chicago.

And finally, the outlook for the year coming. The group is in a strong financial position and continues to invest in the development of new products and applications along with targeted investment in production and sales and marketing facilities around the world.

We have experienced good growth in 2017 and whilst noting ongoing uncertainty surrounding Brexit and currency exchange rate volatility, your directors remain confident in the long-term prospects for the group and at this early stage in the year, anticipate growth in both revenue and profits in the current financial year. Thank you very much.

Okay. Thank you, David, Allen and Will.

We are now going to move to questions. We have around 25, 30 minutes, so I'm going to split the questions as evenly as possible between webcast and conference call.

As usual there are many more people on the webcast than the conference call, so I'm going to start with some of those questions. I'll try to group similar questions together so we may not answer all individual questions.

I'm going to start with a couple of questions we've had on the topic of additive manufacturing. So we are going to start with first question from Stephen Swanton.

Good morning, Stephen. Additive manufacturing has ceased being one of the product signs mentioned as fast growing.

Does this mean the growth is ending?

I think additive manufacture is doing very well at the moment. We just launched the 500 and we are relevant to the next generation.

But I'll hand you over to Will, who is seeing the actual growth during the year.

Yes, I think probably the shortest answer is no that the growth definitely isn't ending. I think what we've seen here is this is a very much a high value CapEx business for us with not just the investment the customers need to put in for the AM machine but it's all of learning and investment they need to put in around that.

So probably it's been a slower process but where we are is probably with a very positive outlook on that with both the products that we have and the customer relationships that we now have on that. And I think particularly there is a lot of ideas that we have for the future for the technology as well, which...

Good progress in sales over year-over-year.

Yes.

Okay.

Okay. Thank you.

And another question on additive manufacturing from Andrew David Swift [ph], who asks what proportion of the high-end metal AM market does Renishaw have and what proportion of the whole market does metal AM expect to be in the future?

Okay. Obviously we have our own opinion of where we are today and we are certainly looking for our niche in that market at the high-end and as the whole market progresses, AM will progress.

It isn't going to be forever thinking it won't replace substantive machine essential of course but it is essential for some critical products, particularly in the healthcare and in the aerospace industry. And so I can say very good progress for us and there is plenty of room for other people as well.

Does anybody like to add to that, Will?

No, I think I'd back over and just stressing that really people that there has to be a performance benefit in the part that you're making additively over traditional, otherwise it is not worth doing at the moment unless the cost of power comes down considerably. So we are always looking for something unique that can be done AM-wise we recommend to our customers.

Yes, there is plenty - as Will says, there is plenty of parts that really can only be done that way and they are the ones that are getting attention but there is going to be great progress in the efficiency of the cost of the equipment to make the part. At the moment it is very high.

Okay. We've had a few questions around healthcare, so we'll move onto those next and a couple of sort of similar questions around strategic review of health care.

I'll just take this one from Stephen Swanton again. You mentioned there is a review of healthcare.

How wide-ranging could the steps be that will be taken to improve this business?

Well, yes, we are reviewing healthcare to make it more efficient and to get the work for the actual R&D focused on our opportunities and there are certainly opportunities coming available to us. It's a long-term business and of course we've been through phase two trials and we're now starting again another trial.

But there is very encouraging signs coming through on that but it is longer term. Do you want to add anything to that, Allen?

No, I think sufficed to say that we're looking at getting more focus within the neuro and the additive manufacturing medical dental side. They are working.

So we are restructuring to give more focus to that activity and in particular the drug delivery focus.

Yes, that is absolutely right. Yes, it's progress getting - good progress and more efficiency into that sector.

Those divisions in those particular areas, the dental maxillofacial, but also really the drug delivery is going to show, I think, good progress in the future.

Okay. Allen, you talked about restructuring and we have a question here from Jo Reedman.

Good morning, Jo - who says within the healthcare loss of £7.2 million, you mentioned there were restructuring costs. How much were these restructuring cost please?

There is approximately about £1 million or so of restructuring. Sorry, I dropped my microphone.

There is approximately a £1 million restructuring costs including the current year's charge. One thing we did do of course during year, we did discontinue our Renishaw Diagnostics business line, which was also including the healthcare in previous years.

Okay, thank you. Remaining on healthcare, I think this is possibly being answered, so this is a question from Henry Carver.

So good morning, Henry. So he just said, could you give any more detail on healthcare performance split by dental, neuro and spectroscopy and also where restructuring is being focused?

The second part of that I think we've already dealt with and if you want to comment perhaps on the first?

I don't know if you want to comment on this, Allen?

No. Like with our metrology product lines, we do not disclose the split between these activities in metrology or healthcare.

Okay. Couple of questions now on tax.

So I'm going to go first to a question from Mark Davies Jones. Good morning, Mark.

How sustainable is the very low tax rate seen in 2017 and what is your expectation for the rates in 2018? And actually there is a very much a linked question also from Henry Carver again.

What is an appropriate tax rate to use for FY2018? So linked questions.

That's clearly your zone.

We have had a low tax rate this year as I talked about earlier. It's likely that the tax rate will increase slightly this year.

It is one of those rates is slightly variable. We've got a significant patent box impact in the current year and it is variable due to currency rates, which have impact on revenue and also capital allowances.

So it's likely to be higher. We did have some prior adjustments which are unlikely to occur in this current year.

So I would expect to see go up 1 or 2 percentage points.

Okay. Thanks Allen.

Next question is from Kong Fagon [ph]. Good morning Kong [ph].

In deciding to close the spatial measurement business, the board was presumably influenced by the difficult current trading environment in the oil and gas sectors. It seems that some of the products and systems have been lost in the process including, for example the Merlin marine surveillance system, which was only introduced last year.

Can any residual value be extracted from the company's substantial investment in this business? Could be business be reopened if conditions improve in future?

I think this is over to you, Will, as you are responsible.

Yes. So obviously it was a very tough decision to make on how we went forward there.

The first question there in the residual value, so we do have interested parties in assets, IP, product designs and we're in very positive discussions with a couple of those parties there, so we'll see what comes forward with that. Could the business be reopened?

No. So the stuff we are doing is actually a decision to get out of those markets, so we wouldn't be redoing that in the future.

Okay. Thanks Will.

So we can go to question we received from Ben Tofor [ph]. Good morning, Ben [ph], who asks a question relating to currency.

His question, for clarity, what was the net currency benefit on operating profit in FY17?

Okay. Allen?

I guess about £14 million, Ben [ph], on an adjusted basis.

Okay. That's nice and clear.

Next I've got just a question on capital expenditure. So this question from Jo Reedman.

How much are you budgeting for CapEx in FY18?

You good at that [ph]?

Yes, we are looking for a lower CapEx in the current year, certainly below the £38 million from last year.

Okay. Thanks Allen.

Just bringing it back to question related to healthcare. So I have a question here from Vishal Bhatia [ph].

Good morning, Vishal [ph]. Regarding the QuantAM software for dental, are there alternative uses for this software in other industries and does the group intend to share this IP in non-core markets?

Okay. Well, Will?

Yes. So just to clarify what I was saying earlier, so the dental version of QuantAM is a very specific version of it for the dental industry.

QuantAM in general is a general-purpose tool that can be used for any industry interested in additive manufacturing. So the IP and the technology is very much AM-specific, but that as general tool for anyone interested in AM manufacturing.

QuantAM is part of our strategy of bringing all the necessary technologies in-house to develop the next generation of product and the next business opportunity.

Okay. Thank you.

And the question now on order generation and where orders are coming from. So a question again from Stephen Swanton.

You are generating double-digit growth but how much of this is customer spending more in areas like semiconductors and how much is down to your new products?

So a good question. Very variable I would say depending on the type of products that we're doing.

So we talked earlier about the XM-60. That's and end-user product.

So the uptake from that as a new product is very quick. When you look at some of the stuff that we do on very good markets for us such as encoders, the take-up type for new technologies is a lot longer because actually the customers have to design that technology in to the next generation of their product and it may take several years before what we say as a fantastic new technology gets, then actually volume sales, where the customers final product is being sold into the market.

So very variable depending on the product line, and also often with some of our more disruptive technology, it takes longer for it to come through actually than the more incremental technology because it's a step-change actually that our customers need to put in, in terms of engineering practice or manufacturing practice at their end, so very variable. I mean definitely in terms of the semiconductor market, we know the semiconductor market is strong at the moment.

It's expected to be strong for at least another six months or so and people are speculating it will go on stronger for longer. But time will tell that.

Thank you. Okay thank you.

Now another question relating to sales and this is a question from Richard Paige. Good morning, Richard.

Both Europe and Americas have seen a significant pickup in underlying sales in second half of the year. Could you provide great color on which particular end market industries have driven this please?

That's yours, Will.

I think you can see where we set across all product lines there and there hasn't been any particular ones in there apart from the ones that we mentioned earlier with particularly strong growth. So there hasn't been a particularly regional segmentation.

If I was giving a general synopsis on this, I guess, I'd say Asia has been dominated more by the semiconductor market and therefore the need for our products. We support that particularly encoders.

America has seen strength probably across all of the manufacturing, including growth in AM. And Europe again has been a general steady healthy growth, so we're with no particular standout performer.

Okay. Question now from Stephen Swanton on inventory levels.

So Stephen says your inventory levels are fairly stable, does that mean there is no immediate project orders to be delivered?

Allen, really would be able to [indiscernible].

Will, do you want say on project orders?

Yes, I guess the question is more about project orders there than the inventory level, I'll pick it up. As we talked about at the Investor Day and before, probably the exceptional is that we talk about we tend to see not in the same way anymore and it being a strong healthy consumer electronics market but much more of a underlying business than with smaller individual orders.

So that market does seem to be changing and we don't see such large one-off orders anymore.

There are lot more players in it now.

Yes, it's a much more diversified market with, as David says a lot more people doing sub-contract manufacturing and lot more end-customers.

And [Technical Difficulty] who is looking to try and make our working capital more efficient and get more efficient management of our inventory levels throughout the group so that is also part of the maintaining inventory at reasonably stable levels.

Okay. Thank you.

I think we've covered off all questions actually on the webcast at the moment but if you do have some more, please do send them into us. So I think we are now going to move to people on the conference calls to give them an opportunity to ask questions.

So I'm going to ask Indie, who is the conference call operator to ask the next questions. So over to you, Indie.

Okay. No questions.

Okay. Well, do we have any more questions from people on the webcast?

We'll give you a moment to submit any questions. Okay, no more questions.

Well, we're actually finishing quite early for once. So, well, thank you very much to everyone.

So that now ends the question-and-answer session and ends this morning's webcast and teleconference event. So we will aim to publish a recording of today's presentation including the Q&A session on the Investor Relations section of our website certainly by tomorrow morning and we will aim for this afternoon.

So on behalf of Renishaw, just like to thank you all for attending today's event and hopefully it's been valuable to all of you. And finally just to remind that you can download the preliminary report and a copy of the financial presentation that you've just seen from our Investor Relations web pages.

Again thank you for attending and have a good day.