Renishaw plc

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00:01 Well, good morning, everyone. My name is Chris Pockett and I'm 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 twenty twenty one.

Present in the room today are today’s main presenters Will Lee, Chief Executive; and Allen Roberts, Group Finance Director. And they will be joined for the later question and answer session by Sir David McMurtry, Renishaw’s Executive Chairman.

00:30 Before I hand over to Will, I would like to go through some basic housekeeping for the event. After the presentation, which will last around twenty five minutes, there will be a question-and-answer session in which we'll try to answer as many questions as possible before we close around eleven A.M.

No questions will be answered during the formal presentation. [Operator Instructions] I would also like to point out that all financial information given during this presentation will be in pound sterling.

01:08 Thank you again for joining this webcast event, and I will now hand over to Will.

01:13 Thanks very much, Chris. So, look this has been a really positive year of recovery for us, revenue up eleven percent to five sixty point six million.

Strong growth in APAC throughout the year. You can see twenty one percent growth there, while we have seen very much second half growth in EMEA and Americas.

01:39 Clearly still challenges throughout this year with the pandemic, a fantastic effort from all of our employees all across the world to make sure that we've been supporting our customers during this time. 01:52 Adjusted profit before tax up one hundred and forty six percent to one hundred and nineteen point seven million.

This has clearly been driven by our strong turnover growth and also benefits from fit for the future initiatives in terms of improving productivity across the group. 02:09 A return on sales, up twenty one percent with H2 of twenty five percent and we've finished the year with a strong cash position of two fifty million really coming from a strong trading performance and a year of reduced capital expenditure and dividends.

Throughout the year, we also held a formal sale process. This commence back in March, and was included in July with no suitable offers found.

02:36 Over the last eighteen months, we've been introducing our new purpose of transforming tomorrow together. As part of this, we've been reclassifying our metrology business as manufacturing technologies, and this includes industrial metrology, position measurement and additive manufacturing.

We've also reclassified our healthcare business as analytical instruments and medical devices, and this includes spectroscopy, neurological and medical dental. 03:02 So, let's have a look at manufacturing technologies to start with.

Here, we saw an increase in revenue of eleven percent up to five twenty six point two million, an increase in profit of one hundred and twenty four percent up to one hundred and twelve point six million. This came with a record demand for encoders really driven by both very strong markets in semicon and electronics CapEx investment.

We'll talk more on that later. 03:27 We also saw rising sales of our flexible gauging product line that's the equator product and also for our machine tool probes.

These were both strong in APAC in particular with a real focus on the consumer electronics sector. We did see lower AM sales.

This was very much in line with our strategy and focusing on a smaller number of key accounts. 03:51 In the analytical instruments and medical devices area of the business, we saw revenue up by twelve percent to thirty nine point four million and profit increased from one point four to five point nine million.

This was driven by good recovery in spectroscopy investment and particularly pleasing good adoption of versa on new Raman instrument and also growth in our neuro product line. 04:16 So, I've just talked about we’ve seen very strong demand for our encoder product family.

This really is coming from a very strong semiconductor electronics CapEx market, very much due to so much demand for a semiconductor chips at the moment very well publicized and therefore significant of the investment going into new fabs. Great news for us because our encoders are used throughout all the different products used in the manufacturing supply chain for semiconductors.

Our current challenge is very much actually keeping up with this demand keeping our customers supplied. 04:55 Another area from a market development point of view is the rising use of automation.

This is very much driven by skill shortages everywhere across the world whether that's in more traditional, high volume manufacturing, locations or in more recent initiatives. This is good news for us because actually, when you automate, you have to build in metrology to the process, to make sure that it works robustly and reliably.

05:22 Where this leaves us, it is an increased demand for our machine tool products, and our gauging product lines which are ideal for metrology on the shop floor next to the process. What it also drives is more use of robotics, which again is good for us as we're getting an increasingly strong position, selling our encoders into robots.

05:46 One of the challenges that we're facing and this is a really good challenge to have is responding to this rising demand. We have seen a steady strong order intake from our customers resulting in a record order book.

To respond to this, we've recruited. So, our manufacturing headcount has increased by twenty five percent throughout the year.

06:06 We like everyone else at the moment, are seeing supply chain challenges, we're therefore working very closely with our suppliers to make sure we can keep our critical components coming in on our customer supply. 06:19 I'll now hand over to Allen, who's going to go through the financials in more detail.

06:24 Thank you, Will, and good morning, everybody. As well as already noted, we’ve experienced a year of strong recovery with significant growth in revenue, profitability, and cash generation.

Throughout this pandemic due to the skills and dedication of our people, the group has maintained our strong customer support global supply chains and all other business operations. 06:49 Revenue in the year amounted to five hundred and sixty point six million, compared to five ten point two million last year, an increase of eleven percent or thirteen percent at constant exchange rates, which has resulted in an adjusted profit before tax of one hundred and nineteen point seven million compared to forty eight point six million in the prior year.

This gives a return on revenue of twenty one percent compared to ten percent for the previous year. 07:19 Adjusted profit before taxes is one of the key performance measures used by the board to monitor the underlying trading performance of the group.

And the following items are excluded from adjusted profit before tax. Gains of twenty two point nine million from forward contracts most U.S.

dollar denominated deemed ineffective for cash flow hedging with losses of twenty one point six million in the previous year. These gains and losses have had no impact on our cash balances and no additional contracts have been designated as ineffective this year.

07:58 Twenty three point eight million of restructuring costs in twenty twenty, which have not been repeated this year. And finally, third party advisory fees relating to the formal sale process of three point two million in the current year only.

The result in statutory profit before tax was one hundred and thirty nine point four million compared to three point two million last year. 08:25 The effective tax rate for the year is twenty point one percent compared to ninety one percent in the previous year.

Last year's tax rate was adversely impacted by an impairment of deferred tax assets on tax losses. Earnings per share on an adjusted basis was one hundred and thirty two pence, up from five one pence last year and on a statutory basis is one hundred and fifty three point two pence up from zero point four last year.

08:56 An interim dividend of fourteen pence per share was paid during the year, and the board are proposing a final dividend of fifty two pence per share in respect of the year, giving a full year dividend of sixty six pence, representing a ten percent increase over the twenty nineteen dividend. 09:16 Moving on to the income statement.

This slide shows details of our income statement and the profit bridge shows the movement that reconcile the adjusted profit before tax of forty eight point six million for last year to one hundred and nineteen point seven million this year. 09:34 We have achieved a forty five point nine million improvement in gross margin attributable to go to fifty five point four million increase in revenue, and a one percent improvement in gross margin as result of both cost reductions and improved manufacturing efficiencies.

09:51 We have also seen other cost savings resulting from our fit for the future restructuring and resizing activities undertaken in twenty twenty. The average headcount for this year has reduced to four thousand four hundred and thirty seven from four thousand seven hundred and ninety seven in the previous year.

10:13 With labor costs, excluding bonuses and grants, reducing to two hundred eight point two million compared to two hundred and twenty five point eight million last year. By cost category, we have seen a fifteen point two million reduction in engineering costs, which is consistent with our expectations and focus on key design projects.

10:35 In addition to labor cost savings, impairments relating to capitalized development costs amounting to one point one million this year compared with nine point nine million in twenty twenty. A net expenditure of seventy two point one million in the year includes our continuing commitment to support existing products and technologies, a fourteen point two million reduction in distribution costs, which is the result of significantly reduced travel and exhibition spend during the pandemic, reduced labor costs, and favorable currency movements.

11:12 A seven point four million increase in the administration overheads, excluding FSP related costs which reflects labor cost reductions offset by impairments relating to an associated company and the reinstatement of performance bonuses this year. A three point three million reduction in net financial expense with a small net expense zero point six million this year, mostly relating to revaluations of foreign currency denominated group balances being offset by rolling forward currency contracts.

11:51 Turning to cash flow. This sources and uses of cash and bank deposit bridge tracks the movements from our opening cash and bank deposit balances of one hundred and twenty million to our closing position of two fifteen million.

Our operating profit before non-cash items and research and development costs gave a cash inflow of two zero six million and we have seen a net three million cash outflow from changes in working capital, excluding currency translation effects. 12:23 Significant cash outflows in the year relating to our capital allocation strategy include fifty nine million pounds of research and development costs, eleven million pounds of CapEx and ten point two million of dividends paid.

Other significant cash outflows include ten million of tax payments and eight point nine million of pension scheme funding. Our strong cash and bank deposit balance at the end of the year, together with our future trading prospects underpin our latest going concern of viability assessments.

13:01 Now moving on to capital expenditure, of the ten point nine million CapEx in the year, nine point nine million related to plant and equipment. This overall lower expenditure in the year is in line with our expectations following significant infrastructure investments in recent years.

13:22 We are planning to increase our capital expenditure in the current financial year including new production equipment to support business growth, the final stage payment of our new distribution facility in South Korea, and additional investment in IT infrastructure includes our new global ERP system. 13:42 I’ll now hand back, back to Will.

13:46 Thank you, Allen. So, we touched on the Renishaw purpose earlier.

Now, we're going to have a look at the strategy. And two really strong themes here, engineering.

We've always and we will continue to invest strongly in our engineering to make sure that we've got the world class products to take us forward and grow the business. One of the key things we're looking at though is driving here is focus, particularly on making sure that a small number of really strategically important key new products have all the resources assigned to them to get them out soon as possible to the market.

14:23 From a sales and marketing point of view, again, we're going to make sure that we invest to support our customers all around the world. One of our real pushes here at the moment is making sure that we are getting the design wins winning new business, particularly with a number of our OEM new products that are coming through to make sure they are getting the push from the sales organization to generate, the revenue and profit of the future.

14:51 So, in our Position Measurement business, we've recently launched the FORTiS enclosed optical encoder. So, this is an encoder designed from really harsh environments.

A significant market here is the machine tool market. So, we've launched now this product we've been working closely.

Our sales organization have been collaborating with machine tool builders to prove this out, show the advantages that it has over the competition and start getting it designed in on to machine tools. 15:21 Objective here really is to get this such that it's either an option that when someone is specifying a machine to buy they specify the Renishaw FORTiS encoder or such that on higher end machines, it is a standard fitment.

This is a significant market. It's a large market.

We have an excellent new product coming through and there are strong opportunities for growth here. 15:44 Staying with product design to go on to the machine tool, but switching to our IM product line, we've also been really pushing our new NC4+ Blue non-contact tool measurement system.

By switching to the blue laser, we've really pushed forward the performance to the precision that you can measure particularly small cutting tools too. We've also introduced new software cycles here, which add much more functionality for the end user.

16:13 So, we're seeing some really good performance advantages with the NC4+ Blue, sales organization are very much aligned for making sure that this is designed in and integrated into machine tool builders. A great example here is with DMG MORI, you can see in a picture, this is a DMU 50, which is a high end, small and high volume also five axis machine.

16:38 Within our industrial metrology business, we're also really pushing on the new sensors for our REVO platform. Firstly, you can see here one that we have launched and it is a very much commercialization phase, which is a vision sensor to go on to REVO.

Here really we're saying, look, when you want to measure high speed [indiscernible] points with REVO we can now complement it with some vision measurements as well. 17:03 Application you can see here, which we think is really important going forward.

This is part of the high investment that we're seeing in EV at the moment. Is actually on measuring some of the delicate insulating materials that go on to an electric motor.

17:18 We've also just launched our REVO ultrasonic probe, so this allows internal measurements to be taken as well. So, you can measure the thickness of something.

Here you can see in the picture it's measuring part of an undercarriage. What the REVO can do with its five axis positioning is making sure you're getting absolutely right measurement normal to the surface of the part.

Here, applications also are for such parts as hollow aerospace blades, where clearly the non-destructive ability to measure those on a CMM is gathering a lot of interest. 17:53 So, we've also just launched our new radio transmission system for our machine tools probes.

So just based on context, this is the communication that allows the probe and the spin of machine tool to communicate wirelessly back to the machine tool control. New system is very much a platform for the future allowing us to add a new functionality in the upcoming years.

But the immediate stuff offers the customer a smaller radio interface with improved battery life. 18:23 It also offers our new logic., which is a much, much easier way of configuring a probe by holding a mobile phone up to the spindle probe, now the probe can be configured paired with the receiver.

A real step forward in terms of ease of use and something our customers have been very keen on. 18:41 We've also launched our Renishaw central software.

This allows remote connection to Renishaw devices such as the equator machine tool probe on the shop floor. This we're being quite open with this.

We can either run it ourselves or we will collaborate with others, it will run on other people's platforms as well. Our real area of expertise and a bit we bring something really quite unique we believe this is that it was with process control.

So, how do you use metrology to keep a manufacturing process on track. 19:13 So, exciting developments here, still early days.

And lots of collaboration work ongoing here. And also, development with trial customers.

19:23 And finally, looking at our additive manufacturing business, as I talked about earlier, very much our focus here has been on supporting a number of key accounts on making sure they're developing improving out the products of the future for them, using our AM equipment, and that's very much focused on our 500Q platform. The 500Q is very much designed for mass volume manufacturing.

The 500Q flags, which is new delivers a version of Q where it's much easier to change the type of powder that is in the machine. So, for some early prove-out builds, this aligns our customers more flexibility before they move on to a production process with a 500Q itself.

20:10 Clearly, sustainability is key for all of us going forward. We're going to be announcing a date for the Renishaw Net Zero emissions target soon.

In the meantime, I think is worth looking at what we have done to actually reduce our greenhouse emissions over the last few years. So, we have spent significant CapEx, and this has allowed us with initiatives such putting soda panels on many of our buildings to reduce our emissions by thirty nine percent since twenty fifteen.

20:42 Really also worth noting the products we have such as additive manufacturing allowing products to be made lighter, for example in aerospace, or engines we made more efficient through our metrology products that actually we have a really key role to play here with our products helping our customer meet their own net zero ambitions going forward. 21:10 Looking now at this financial year, we started with a strong first quarter.

Revenue is up thirty five percent to one hundred and fifty seven point eight million, adjusted profit before tax up from eighteen point three million to forty one point seven million. We've also got a record order book and strong cash balances of two thirty four point eight million.

As a board, we remain confident of the long term prospects of the group and we think we're really well placed to take advantages of the opportunities that are coming forward with the recovery that we're seeing in the global economy.

21:47 Thanks very much Will, and thanks also to Allen for his presentation. As Will said, we're now going to move to the question-and-answer session.

We're now joined by Sir David McMurtry, Renishaw’s Executive Chairman for this Q and A session. We’re willing to answers as many questions as possible by our scheduled close time of eleven o'clock.

So, we'll kick off with a question from Tim Owen. Good morning Tim.

22:19 And he asks, can you give more information on the review led to a three week delay in issuing the annual results, are they significant for in the share price, and I think that one's going to go to Allen. So, over to you Allen.

22:39 Thank you, Chris. And thank you Tim for the question.

The results delay was not related to the foremost air process. In the final stages of our audit an issue was highlighted which required some additional amount of time and audit time for them to review and also fully document the files.

I'm pleased to report that nothing of any significance arose from the review.

23:18 Okay. Thanks, Allen.

And we'll move now to the next question, which is another question from Tim. Will the interim dividend usually paid at the start of April be paid in the current tax year to avoid the extra one point two five percent dividend tax?

This has been done before when dividend taxes were reduced? And I think that's another one that's going to Allen.

23:42 Yeah. Thank you, Time.

This – we will consider this when we discuss our interim dividend at our half year results.

23:58 Okay. Thanks, Allen.

And a question now from Mark Davis Jones. Given supply chain and logistics issues currently, would you expect the record order book to ship over a longer period than normal i.e., for sales growth to be constrained by these factors in the current year?

I think that one is for Will.

24:27 Thanks, Chris. So, yes, look if we look at our order book, I think the first thing is there’s a slightly different profile to normal.

Really handy for us, we are getting more forward visibility from some of our bigger encoder customers, those semiconductor electronic CapEx customers. So, we are getting more certainty from them if they have more certainty in their businesses going forward than usual.

24:52 So that clearly will affect the delivery schedule there. As I mentioned, as everyone one is seeing there are supply issues on manufacturing group with the support of our engineering teams are doing an absolutely fantastic job of keeping product going smoothly at the door, keeping our customer supplied.

For sure at the moment, if we could accelerate things, we would be shipping more. So, yes, and but I have greater confidence with all the efforts with our engineering and manufacturing teams that will do a really good job getting all that done.

25:29 Thanks very much, Will. We now have a question relating to 3D printing, again from Tim Owen.

You have significant technology in the 3D printing area, how do you plan to exploit this more in the future? I'm thinking that's probably one for Will.

25:51 Yes, a really interesting area of the business. So, yes, we have some really great technology here.

Really a lot of it focused around the productivity, which is key for our customers getting cost effective parts made absolutely. They understand the advantages you can get from unique features.

And now it's opening up the market for more parts with that. With the technology as we've got coming through what we're really trying to do is open up a mass market of making it just cheaper to print everything the machine traditionally.

26:23 So, yes, there's a stuff we have currently available in the market, market leading in terms of that, and then we're really looking investing of how we take that forward, and we have some need stuff internally, which we really can't talk about yet, but it is a really exciting future for this part of business.

26:40 Okay. Thanks very much Will.

So, another the supply chain related to question now. Are most of your components sourced in the UK?

Will?

26:57 All over everywhere. Clearly, we've got a whole range of different parts coming in from the more raw materials to electronics, all over the place.

So, a real mixture there. And yeah, clearly supply chain challenges, but in general, we're doing a good job of coping with that.

27:19 Thanks Will. And question here from Jonathan [indiscernible].

Good morning Jonathan. Can you talk about what you are seeing in aerospace?

Are you starting to see signs of a recovery coming through? Also, how are automotive production issues impacting demand for your metrology products?

I think that's another one for Will.

27:44 Yeah. So, look as we talked about before, we have I guess complementary routes to market when we go into aerospace automotive and other industries.

So, a lot of our product is being sold through machine tool builders, CMM builders going there in which we have less visibility as to exactly how some of the underlying markets are doing. 28:06 What we are seeing now though is, for example with aerospace.

with additive manufacturing and with our REVO product we are dealing more and more direct firsthand with these customers. And certainly, what we see is that, yes, there are challenges in aerospace at the moment, but they need to invest for the future, particularly from that zero point of view and our technologies can allow them to deliver significant benefits.

Really exciting one here being the probe that we talked about earlier and the capabilities I can give them. 28:38 Automotive again, very interesting.

So, certainly, we are seeing a period really of understanding what the metrology challenges are for all these new parts that they are having to manufacture for the EV. The motors are particularly interesting area where the combination of REVO and the buybacks as REVO with touch and vision is proving of a successful solution for some of that challenges with the insulation on the top parts there.

29:14 Okay. Thanks, Will.

It's another question here from [Mark Davis James] [ph]. R and D declined as a percentage of sales in twenty twenty one.

Is some of this temporary or do you expect a more lasting reduction in this metric as you focus your spend? That's probably one for Will.

29:37 So, this is a really key area for us. We have no shortage of really exciting projects that we want to gear up and accelerate.

We have focused over last years of getting more productive with the resource that we have of trying to get more prioritization in place and getting some of the significant projects through to the market. 30:00 We're now at a point where the technology, the research stuff is coming to a point where it needs to be resourced more and accelerated through and we have real confidence on these projects.

So, yes, we will be investing and carrying on what we've done through our history making sure we push that through and do spend on R and D.

30:22 Hey thanks, Will. Another question from Jonathan [indiscernible].

You talk about implementing a new ERP system this financial year, will these costs be expensed under IAS thirty eight? Will they be treated as exceptional and what will the cost be?

And I think this one is going to go to Allen.

30:51 Thank you Chris. Thank you, Jonathan.

We will be looking at the accounting standards shortly to determine the treatment for the current year, if significant costs are incurred in the income statement we will consider how fast to communicate in our next announcement. We are not talking huge at sums on this investment.

31:21 Okay, Allen, thank you. And it is an FSP related question now, this is from [Louis Via] [ph].

Good morning. Hello.

I understand you have received bid offers that were not deemed appropriate. Can you please elaborate as to level of the offers received and why they did not meet stakeholders’ interests?

Thank you. That one, I think going to Will.

31:51 So, there's really not too much we can talk about more here than we have already put that in public due to confidentiality. All I can say is that we have some very good conversations as a board with the principles that we put out in the first place of making sure that all stakeholders were considered.

And at the end decided to close the process and continue and make sure that we focus on delivering our plan and the vision for the company.

32:23 Thanks, Will. There’s a question here on this financial year, do you expect FY twenty twenty two to show the normal seasonality, will that be offset by the strength of the record order book?

And that one I think is going to Will.

32:45 Yes. So, we are really trying to understand at the moment quite where the market will be going over the next period.

Certainly, all indications are at the moment that we are with a very strong position. As I said earlier, we're getting more visibility for some of the semi-con customers.

And also, the general feedback from the last machine tool show recently, the [EMO] show was positive going forward at the moment. So, our real priority is to make sure that we are well placed from a manufacturing point of view to make sure we can support all our customers quickly.

33:33 Hey, thanks Will. Next question, well number of questions actually from Will Turner.

Good morning, Will. Who asks, can I ask three questions, yes, you can Will.

First one, you've reduced capacity in additive manufacturing, are there signs that this market is coming back and are you continuing to invest R and D in additive manufacturing? Second part of the question is, how has automotive markets performed in Q1 of this year?

And [indiscernible], what are you seeing on the ground in China? Any changes in market access?

And I'll start this one with Will.

34:22 So, let's pick up the additive manufacturing part first. So, look, I wouldn't rephrase it as reduced capacity, what we did was we focused on manufacturers looking at higher volume parts here rather than small volume potential customers.

So, from a sales point of view, we got more focused and the R and D assets that we're putting in are focused around that as well. 34:49 Certainly, I mean, very timely, we just have actually an R and D tech showcase on the – on our additive manufacturing [pilot] [ph] business yesterday seeing that the great technologies that are coming through, which we can't talk about yet, very much they're looking at how do we drive the product activity forward by improving the science and maximizing the use of the laser on the multiple and optimizing productivity there.

And also, on the optimization of the optimization of the machines. 35:19 So, yeah, we've got some really good investment going in there into our new products coming through.

So, a good place there and also a growing maturity in the industry. And as I've mentioned earlier also about that cost of par, opening up more and more opportunities for us.

35:40 Secondly, automotive markets hard for us to say, I'd say majority of our sales have asked if the ends up in automotive is going through machine tool builders? So, we don't get the first-hand data there, certainly, there are significant investment, an opportunity more for investment going forward from our gauging and our CMM systems product lines.

So, in terms of China, market access, everything is still very positive. So, we are not seeing any issues there at the moment.

36:25 Okay. Thanks for that, Will.

Question here from Antony [indiscernible]. Good morning Antony.

I can see average headcount or twenty twenty one financial year was four thousand four hundred and thirty seven people, what was it at year end though and how more staff do you think will be added in the current financial year? That one can go to Allen.

37:04 Thank you for the question. We, at the end of June, we had four thousand six hundred and sixty four staff, and we are currently recruiting, primarily in manufacturing arena, so there will be, certainly another two or three hundred people by the end of this financial year.

37:34 Okay. Thanks, Allen.

There’s a question here from Neil [indiscernible]. It’s a follow-up question to one of the earlier answers.

I have a suggestion for paying the next interim dividend early in the current tax year to avoid an increase in dividend. However, getting the dividend early, will push up the income received in the current tax year possibly causing the dividend of four within a higher tax bracket?

And I'll push that one over to Allen.

38:11 Yes, thank for the follow-up. As I said, earlier, we will be considering these issues when we discuss the interim, it was into the time of announcing our year results.

38:26 Alright. Thanks Allen.

And the question here comes from, interesting news on the neurological product line working with a major pharma company, how quickly, do you think this could move on what milestones should we look out for? And I think that's one Will.

38:51 So, yes, this is positive news here. This is early stages, but the good news for us is that we get revenue coming in.

So, people are paying for working with us and using our technology at early stages, preclinical stages, what we really want and what we're working on for this year is to make sure that we have a number of pharma companies working with us on these programs. So that's really a strategic priority for the newer group.

That's what's going to fuel the long term growth of that business.

39:30 Thanks, Will. Question here from Charlie.

Good morning. Semicon is performing strongly as an end market, are you able to quantify your latest exposure in terms of share of revenues or share of the order book?

And that's one for Will.

39:58 Yeah. I said, the challenge we always have are talking about the end markets in some areas we know, so sometimes we'll sell like, with our encoder directly to people where we know what they are doing with our products, but a lot of the stuff so mean total order book, a lot of our stuff is going through intermediaries like machine tool builders, system integrators and then going on the end users.

40:23 So, in terms of overall percentage, we can't say, certainly for our encoder product line, then semiconductor or electronics capital equipment and display technology is a large share. What we will see as a diversification there over time.

So, the market that we have launched into with are enclosed encoders of which a primary end market is the machine tool end market is a very large market. So, we will see a shift over time there from our encoder product line and diversification.

41:04 Okay. Thanks, Will.

Okay. Sorry.

Just sort of shifting through questions here. So, got a question here from Brendan Burges.

Good morning, Brendan. Who comments that uncertainty and lack of information creates a lack of confidence.

The three week delay was unprecedented. You need to give some more information if only to kill off speculation, the [indiscernible] gets filled with speculation and rumors.

For example, could this issue recur? I’m going to push that one over to Allen.

42:01 Thanks Chris. We can't disclose the specific nature of the issue, but I can assure you that it's an issue that we do not expect to reoccur.

42:22 Okay, Allen. We have questions on semicon.

Slightly, there's a slightly different angle on this one though, so it is from Michelle. Good morning.

What is the extent of double ordering going on and do you see any risks of an inventory correction this current year? And I’ll through that one to Will.

42:56 Yeah. So, good question.

In one way, we are really asking ourselves. We think it's limited.

But clearly it's a natural human reaction in these times just to try and increase safety stocks everywhere when supplies are shorter. We think we have a good relationship with all of our large customers.

And we are managing that well, so we don't end up with this, but it's a very good question to ask.

43:28 Okay. Thanks, Will.

Another question here from Tim [indiscernible]. Would Sir David and John Deer allow their shareholdings to go below fifty percent if an institution wanted to acquire a significant holding?

I think that one's going to go to Will.

43:54 Look, as I said earlier, unfortunately, we can't talk about this. This is all confidential.

It goes back to what we talked about before. The nice thing is the strong position we are in, is it allows the board to make the decision for the future of the company is what is in the best interest of all the stakeholders?

Really, we can't add anything more to that today.

44:24 Okay, Will. Next question here from Richard Page.

Good morning Richard. It would appear that you have delivered stronger profitability in the first quarter of twenty two, compared with the implied level of profitability in Q4 of twenty one financial year, PVT of forty one point seven million, margin twenty six point four percent in Q1, against thirty five point three million, margin twenty two point three percent in Q4 of a similar level of sales, hundred fifty eight million, could you provide a bit more color here, please?

Is this driven by mix or efficiency improvements? That's going to Allen?

45:21 Thank you. We would – the quarter four, we did see additional bonus payments and the JV impairments and year-end adjustments, which were not recurring in the first quarter of this year.

So, we have seen an improvement quarter on quarter.

45:55 Okay. Thanks Allen.

Question here from John Kirsten. Good morning, John.

This is also FSP related, but with a slightly different angle. It says, I've of a similar age, I do empathize with the founder’s desire to consider retirement on the four sale process.

Also, concur with their conditionality, do you consider that company performance and market conditions were more influential on the lack of a satisfactory offer than the conditions? And that one is going to Will.

46:45 I don't think so here. So, a company performance, we're pleased with good market conditions at the moment, but actually, the really positive thing, positive feedback was very much on the future.

So, what we have planned on the technology we have coming through that's going to underpin our growth over the next many years. 47:11 So, I guess what I would add to this is, sorry.

What I will add to this one here is that what we have is really as our focus at the moment is making sure that on the plan of bringing forward these new products developing the markets is really successfully delivered. So, we are really in a good place, and we can see with the results and of the first quarter so that the things are going well.

47:45 Okay. Thanks, Will.

Okay. It is a question from Mark Davis James.

Could Sir David please comment on his ongoing role in the strategy and management of the company, and how he thinks about the longer term options for his substantial shareholding post the end of the FSP. So, I’m going to bring Sir David in on this one.

48:24 I'm delighted to be able to support Will and what he intends to do, but I'm taking that specific interest in additive and spending most amount of time, trying to making sure that the next generation from it, and then we [indiscernible] is a real success.

48:47 Okay. Thanks very much, David.

I think that’s all the questions. I think we've pretty much covered everything.

Didn’t answer every specific question, but the things were picked up in various questions. So, thanks everyone for attending today's event.

We will as ever aim to post a recording of today's webinar, including question answer session on our investor relations pages by tomorrow morning. But just left me to say on behalf of the company, thank you for attending and have a good day.