Renishaw plc

Okay. Good morning, everyone.

So my name is Chris Pockett. I'm Head of Communications for Renishaw.

I'd like to welcome you to this live Q&A session for Renishaw's full year financial results for the year ended June 30, 2025. Hopefully, you've all had an opportunity to view the video presentation that's released as part of this morning's RNS statement.

Will Lee, CEO; and Allen Roberts, Group FD are here now to answer any queries that you may have in relation to that presentation and the results statement. They'll try to answer as many questions as possible before we close at 11:15 and I'll try to group similar questions together, so we may not answer all individual questions.

[Operator Instructions].

So let's get going. First question here is around our industrial metrology products.

So the markets appear very mixed here with automotive weakness ongoing machine tool data in Germany still soft, offset by the strength in your systems business. So what is your outlook for this Industrial Metrology business in FY 2026?

And I think that's over to you, Will.

Thanks, Chris, and good morning, everyone. So with the industrial metrology market, clearly, yes, for our sensors business selling into machine tools, probably worst case, maybe Germany, also Taiwan, those markets are really quite soft at the moment with our customers facing challenging conditions.

Here, we focus, as we always do, on the medium to long term, working on business development with those customers. And I think we're making good progress there, particularly probably of note is on the laser tool setting side where some of the newer innovations that we've launched with the NC4 Blue product line really starting to help us with gaining market share there in an area where typically we actually unusually are #2 rather the #1, so making really good progress.

The area where we can have the more media impact over the shorter term is on the systems business. Here, focused very much on shop floor metrology, which we see as a high growth area and an area for us to really grow our business quickly.

Making good progress and we are very positive there going forward. In terms of specific outlooks, I think early to say for the year, and we'll be monitoring and pushing that hard there.

Okay. Thanks, Will.

A question now on additive manufacturing. You said that AM revenue was down in FY '25, but finished the year with a good order book.

So what was the book-to-bill for AM for FY '25. I think that's another one for you, Will.

Yes. So AM was a bit softer.

It is one of those businesses that is still relatively small, also with high ticket items. So we expect a bit more variability there.

Seeing some really positive signs. Some of the end markets are strong.

I think defense probably is the one to pick out at the moment as being really after performance, but quicker moving, quicker decision-making than something like an aerospace. So looking forward positively there for this year, again, very early on in the year, really to comment there.

Okay. Thank you.

A question now relating to China. Could you expand on the opportunities that you see in market segments that you do not currently serve in China?

And given rising competition and resulting pricing pressures, are Renishaw margins now lower in China than in other regions? And back to you, Will.

Yes. So if you look at it, really the China relative to the rest of APAC, there is no significant difference in margins there.

So clearly, we do and we've talked about saying, are there some entry level good enough markets where we don't really operate at the moment, and that probably are for both IM and PM. Both areas are quite interesting.

So commercially, we've talked about exploiting more of what appears to be an entry-level market and some of the machine shop factories over in China with lower price alternative to some of our core products, and we will develop that strategy going forward. We also see probably on the encoder market that some applications start to come in, some new applications in electronics and semiconductor come in for our encoders and some applications start to become more commoditized and maybe drop at the bottom, but the overall market there is growing for us.

So it's actually quite a pretty complicated picture. And one, I think, in general, we still see more positives with of opportunities, both as new things start and also with our commercial strategies.

Overall, for us, though, China, we're seeing good growth and are optimistic going forward with the opportunities that we have.

Thanks, Will. A question now regarding consumer electronics markets.

Could you clarify what you're seeing in this end market? It was noted as an area of strength for industrial metrology, but in his prepared remarks, Allen said that this end market was down in 2025 at group level.

So what is going on here? Back to you, Will?

Yes. Our biggest challenge last year was the -- first half of H1 last year was tougher for consumer electronics, seeing a gradual recovery throughout the year with H2 ending up better.

Looking forward, and this is always a really tricky one to predict, but it feels like customers are now facing the necessity to make decisions that they have been off putting. So looking forward, I think we feel more positive here in terms of investment for this over the rest of this financial year than probably we did 3, 6 months ago, just because our customers have no choice, they have to make some decisions, we believe.

So we are monitoring this quite closely. And the one thing we always try and do is make sure we are prepared for whatever happens here.

Okay. Now a question on pricing and tariffs.

Assuming no miracles emerge from today's talks at checkers and U.S. tariffs remain in place.

Can you make surcharges permanent? Or do you have other options to address this headwind such as localizing more production?

And will with you again?

Okay. So we have made the assumption that these will be permanent.

So surcharges have been migrated and are migrating through into price increases here for our customers in the U.S. We've taken that route rather to look at localizing of production.

We will consider our group manufacturing strategy and what we do with changes in geopolitics, but that's certainly a far more long-term decision. So at the moment, this is all being covered by now a price increase, so increased revenue to offset those additional costs that we are facing.

Another question on end markets. Can you talk about the extent of the contraction in automotive and your expectation for FY '26?

Also in relation to defense, how big is it? What is it growing at and a rough split?

And back to you again, Will.

Yes. Okay.

So we -- to be clear, we don't know for sure the size of our exposure to these markets because a lot of our stuff will go through integrators. So when we're selling to a machine tool builder that they will sell on our extrapolation.

And what we think is happening is roughly about 5% for defense, roughly about 13% for automotive. Defense, I think, is a really interesting area at the moment.

Sadly, clearly, a lot more investment going in there. And we talked about a little bit with additive earlier.

Certainly, I know there's a question on this coming up, I think, next on inductive encoders, it feels like there are opportunities also here with us supporting that industry directly with some of our newer encoders as well.

Okay. Thank you.

You've already alluded to the part of the next question. So this relates to new products, new product launches.

And the question is, how are these new products performing that have been recently launched and specifically mentioned Equator-X, the dual-laser RenAM machine and the ASTRiA inductive encoders? So back to you again, Will.

Yes. So we've been very clear.

Our strategy is very much one about using innovation, specifically new product innovation, really here to drive our long-term growth. A lot of focus has been on looking at productivity within the group, really to get some key new products through.

And this is a really exciting time for us with the launches that we have made recently and are making in the next few months. A particular note, very topical Equator-X and importantly, the new software to go through with it, MODUS IM.

Next week, we'll be over at the EMO trade show, a really large machine tool trade show in Germany, first significant public launch of those 2 products. I was actually getting a demo of MODUS IM yesterday on new software for this and going through with the team, simplicity and ease of use is really, really transformative here.

This is really, really important for us in terms of looking at developing new routes to market and getting us more productive and reducing our distribution costs, our applications costs. So exciting times there with those 2.

Also ASTRiA, I think, has been a good example of our minimum viable product, or MVP, strategy with new development of getting out, testing out with customers, we've really seen a sweet spot, we believe, with defense customers here and we've been able to take now from the initial work that we've done. So a robust good working product to make sure we can now do some of the final tailoring and specific for their needs to exploit that opportunity.

Also with this, and the question we do get asked is then, what about next, what's coming through? And it's good here that we get to see -- so only last week, we had our encoder group review of the early-stage technology.

So the exciting bit here is we have an awful lot of new stuff coming through. This is right across the board for the group.

Now our focus is on the productivity. How do we help really talented engineering teams get these products through to market sooner, making both priority goal decisions and also how do we support them to make sure they can operate as productively as possible.

Okay. Thanks, Will.

We've got some similar questions here on relating to costs and specifically the GBP 20 million labor savings. So if I just try and whiz through these and try and join some of these together.

So what is your expectation for underlying cost inflation in FY '26? Can you talk us through the main moving parts of the FY '26 operating profit bridge, including how much of the GBP 20 million savings will be seen in FY '26?

What is engineering cost inflation, labor admin inflation, savings from facility closure and any ERP costs? And also are there other savings within the GBP 20 million that might take time to filter through?

So that's trying to amalgamate a few questions there. So start with Will and I think -- I was going to start with Allen on that one.

Thank you, Chris, and good morning, everybody. Yes, there's good progress on the cost reduction program which, alongside the closure of our drug delivery business and the closure of our facilities -- R&D facilities in Edinburgh, which are going well.

And we expect these to have a cost saving of around about GBP 24 million. However, we do have the pay rise that was put into effect at the beginning of this year and possibly a likely similar percentage coming up in January '26 and also based upon a turnover -- a payroll cost of around GBP 300 million.

In addition, we do have the GBP 3 million of incremental national insurance over and above the previous year that we have to accommodate. On the other side, in addition to these cost reduction measures, we are further looking at productivity initiatives across the business in all areas, including the rollout of our global 1ERP program, further looking at our logistics automation, investments in manufacturing equipment that we've been putting in over the last couple of years and the processes that we're focusing on, which will probably have seen, if you were on CMD a few months ago, when you went through our manufacturing plant, a lot of initiatives are taking place in cost reductions.

And we're starting to see some of those coming through now, which will, in fact, impact our gross margin and with the rollout of our e-commerce platform as well. So there are a lot of initiatives going on across the board with regard to cost management.

Okay. Thanks, Allen.

Tariffs again. Trump implemented increased Section 232 tariffs on certain steel and aluminum, I guess, which is say products in August and post your year-end.

Does that affect any of Renishaw's products? And if so, what is the impact offset mechanisms, including timing?

Will, I think that's for you.

Yes. I think we've probably answered most of this already.

So yes, we do get caught up in the tariffs here. Tariff, we have now switched over to price increases rather than a surcharge.

It's about a 1% impact on revenue, about GBP 9 million. So we feel in a comfortable place there.

Clearly, it's lots of discussions with customers in getting to that position. So I don't think too much more to add on that one.

Okay. Thank you.

A question about cash. There's nearly GBP 300 million of cash on the balance sheet.

Any plans to deploy this via M&A? Or in the absence of that, would the management consider special divi or buyback?

And what would be the preference between these two options? And there's a similar question noting that -- or asking, could we give more color on the "more active capital allocation" that you referred to in today's statement.

So Will, start with you on that one.

Yes. So that's just, I guess, underpin this with the things that we are trying to achieve at the moment.

So in terms of the priorities and initiatives for us here, Allen has talked about a minute ago on the productivity side of saying, yes, our #1 strategy is still very much the revenue growth, profitable revenue growth through innovation, but we will underpin that with being more focused and more productive. Now with that, on top of that, we want to make sure we're pushing up our cash generation from that profit and also being prudent with our capital investment over the next few years.

This is generating cash for us and correct, we are up to now almost GBP 300 million. As I mentioned at Capital Markets Day, we are discussing this.

It is a hot topic of discussion for the Board as to the use of that cash and what we do. I don't have any new information for everyone at the moment on that.

But what I can say is it is something that's being actively discussed with the Board at the moment.

Okay. Thanks, Will.

The question now on our search for the new CFO. And the question is, how is it going?

Yes. So very early stages, and nothing really to add on that at the moment.

A question on expense. I think this is going Allen's way.

Can you remind us of the phasing of IT infrastructure spend and whether this is going above or below the line? Allen?

Thank you, Chris. Yes, the phasing of the ERP rollout is actually very active right now because we went live in the U.K.

[indiscernible], our U.K. sales activity, which is probably one of the most complex implementations that we will have during the whole rollout program and that went live 10 days ago.

So -- and that's -- we're working through it, and we are shipping product. So that's good news.

Then we're going to be rolling it out through Germany and then to America and then progressively through APAC and the rest of EMEA. So that's going well.

And the -- we're looking to do a lot more of the in-house rollout ourselves. So whilst there will be further costs incurred with consultants in this current year.

And it is all above the line actually. So we have been burdened with that over the last couple of years.

And so it will reduce over time, over the next 2 or 3 years as the rollout progresses.

Okay. Thanks, Allen.

Just looking through, I think we've already answered, there's a question. Yes, tariffs, I think we've pretty much answered that.

We've talked through capital allocation. Question, Allen, I think for you.

What do you expect the effect of currency to be during FY '26?

Thank you, Chris. Yes, our forward currency hedging program seeks to mitigate the short-term volatility in our results due to currency.

And at this stage, we don't see a significant debt impact in '26 versus '25. We do have an average forward U.S.

dollar contract rates -- forward rates for '26 and '27 at [ $1.27 ] to the pound and [ $1.28 ] for the following year. This is against the current rate of [ 136 ].

So we're in quite a good position in that respect.

Okay. Thanks, Allen.

I think we've answered everything that's come in, unless there's a late flurry, I'm not seeing anything. So I think that's it.

I think we've now ended -- I think there's -- it looks like there might be a question coming in. Just we'll take this one.

It's just coming through the system. Just wait for that one.

Okay. Just snuck this in before the end.

So how does working capital move as a percentage of sales given potential growth and how does CapEx look beyond the GBP 40 million this year? And Allen, I put that one over to you.

Yes, we're looking at around about GBP 40 million for the current year in terms of CapEx. And for the following couple of years also, that sort of order.

So the major spend, which was at Miskin, as you would have seen at CMD was the build and construction of Holes 3 and 4. So the major element of that expansion program took place in the last couple of years.

So we're well prepared going forward in terms of capacity -- production capacity and the availability of Hole 4, which could come through depending on our growth over the next few years. So GBP 40 million a year.

In terms of working capital, I wouldn't expect to see any significant movement in working capital statistics over the next 2 or 3 years. Very tight control on our debtors and working capital and inventory.

There's quite good control on our inventory management process, which will be further enhanced and improved as the rollout of our ERP program proceeds.

Okay. Thanks, Allen.

Another question has come in on currency. So can you remind us of the FX impact that came through in Q1 of '25?

And then if there could be a similar impact this year?

No, we don't expect there was a sort of -- there was a one-off benefit that we got from autumn in autumn '22 when Liz [indiscernible] mini budget, we took the opportunity to take some good for contracts, which came through in the first quarter of last year. I think it was circa around about GBP 5 million, and we don't expect that to recur this year.

Okay. Thank you, Allen.

Just a question here about order trends. Could you touch upon order trends?

The development was noted to be encouraging in Q3? What has the development been like in Q4 and the last few months?

I think that's one for Will.

Yes, overall positive, slightly up. I think those broad themes we talk about of actually APAC overall being positive at the moment.

Europe is already struggling and the Americas being a bit more complicated, but with some encouraging signs, but also some risks there remain true. I think we would also say that we view the sort of semiconductor electronics as being an [ unusual show ] with steady growth rather than its normal cyclical ramp up and down.

And I think as we talked on earlier, we sort of see consumer electronics as being probably going into a more positive phase, but really not sure. So I think those are the bits I would probably pull out.

Clearly, we've touched on some of these other bits earlier as well.

Okay. Thanks, Will.

I think that really is it this time. So that now ends today's session.

As ever, we'll aim to publish a combined recording of this webcast and results presentation on the IR section of our website by tomorrow morning. And just to point out that whilst we've had no questions today on the new reporting segmentation, we will be publishing results for the new reporting segments at 07:00 BST on Tuesday, 23rd of September.

So if you can look out for that. So on behalf of Renishaw, I'd just like to thank you all for attending this event, and have a great day.