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Renishaw PLC (RSW)

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Thursday 13 August, 2020

Renishaw PLC

Final Results

RNS Number : 9903V
Renishaw PLC
13 August 2020
 

Renishaw plc 

 

13 August 2020

 

Preliminary announcement of unaudited results for the year ended 30 June 2020

 

Summary

 

· Revenue was £510.2m, 11% lower than 2019 revenue of £574.0m.

· Revenue was lower in all regions, with the challenging global macroeconomic conditions throughout the year and the COVID-19 pandemic impacting most product lines.

· Metrology revenue was lower by 11% at £475.2m, largely as a result of trade tensions between the USA and China, weaker demand in the machine tool sector and the impact of the pandemic. However, we experienced good growth in our position encoder product line due to a recovery in the semiconductor market.

· Healthcare revenue decreased by 15% to £35.0m, with COVID-19 causing delays in orders, shipments, installations and postponements of elective surgery.

· Adjusted* profit before tax of £48.6m (2019: £103.9m), a reduction of 53%.

· Statutory profit was £3.2m compared with £109.9m last year.

· Actions taken in the year to protect the long-term health of the business by preserving cash, improving productivity and reducing the Group's cost base, including:

Reductions in direct manufacturing staff in the UK, Ireland and India;

Restructure of our additive manufacturing business;

Business resizing that led to a global headcount reduction;

Targeted reductions in other operating costs; and

Cancellation of the interim dividend and decision not to declare a final dividend.

· Strong balance sheet, with net cash and bank deposits of £120.4m at 30 June 2020, compared with £106.8m at 30 June 2019.

· Since January 2020 we have implemented a wide range of measures to protect against the spread of COVID-19 at our sites around the world and continue to monitor the impact of the pandemic.

 

"It has been a particularly challenging year for the Group and we are extremely proud of the commitment our employees have shown during these exceptional times.  Looking ahead, there are many exciting opportunities to grow our business, due to our new product pipeline, excellent manufacturing and commercial operations, and highly skilled people." Sir David McMurtry, Executive Chairman

 

 

 

2020

 

2019

 

Change

Revenue (£m)

510.2

574.0

  -11%

 

 

 

 

Adjusted* profit before tax (£m)

48.6

103.9

-53%

 

 

 

 

Adjusted* earnings per share (pence)

51.0

119.9

-57%

 

 

 

 

Dividend per share (pence)

0

60.0

 

 

 

 

 

STATUTORY

 

 

 

 

 

 

 

Profit before tax (£m)

3.2

109.9

-97%

 

 

 

 

Earnings per share (pence)

0.4

126.7

-100%

 

*Note 25, 'Alternative performance measures', defines how adjusted profit before tax, adjusted earnings per share, adjusted operating profit and revenue at constant exchange rates are calculated.

 

COMMENTARY BY THE CHAIRMAN

 

Introduction

I am pleased to report our 2020 results. Revenue for the year was £510.2m, 11% lower than the 2019 revenue of £574.0m (13% lower at constant exchange rates), against a backdrop of very challenging economic conditions. Adjusted profit before tax amounted to £48.6m (2019: £103.9m), a decrease of 53%.

 

We have taken some difficult decisions to preserve cash and protect the longer-term health of the business. These measures included cancelling the interim dividend, as well as deciding not to pay a final dividend. We also undertook a resizing programme, which has regrettably led to a number of redundancies across the Group.

 

In my role as Executive Chairman, I continue to focus on Group innovation and product strategy, supporting our talented engineering teams. The pandemic has required us all to develop new approaches and learn new skills. Since March I have enjoyed collaborating with our engineers and with other Board members via digital platforms.

 

During the year, we continued to invest in developing future technologies, with gross engineering costs of £82.4m amounting to 16% of total revenue.

 

Board changes

On 29 January 2020, John Deer, Deputy Chairman, informed the Board that he wished to step back from his executive responsibilities with immediate effect. He remains on the Board as Non-executive Deputy Chairman on the same or similar terms as the other Non-executive Directors. Although John is spending less time on day-to-day operational matters, I am delighted that, as the co-founder of Renishaw, he is continuing to help set the strategic direction of the Group and provide support and guidance for Will Lee and his leadership team, and I look forward to continuing to work with John to achieve further success for Renishaw. With this change, the Board now comprises two Executive and five Non-executive Directors in addition to my role as Executive Chairman.

 

People, culture and values

In such a challenging environment, our collaborative team of people has been key to helping the business remain resilient. The way that our employees around the world have risen to the challenge of maintaining supply and support to our customers despite the huge challenges faced has made me immensely proud. On behalf of the Board, I would like to thank them all for their professionalism, dedication and understanding during this most challenging year.

 

We have created a culture that aims to allow our employees to maximise their potential. We work hard to encourage open communication and innovative thinking, and believe everyone in our business should feel valued and be able to grow.

 

During the year we have reviewed our values and we are in the process of consulting with various stakeholders on a proposal to add to our existing core values of innovation and integrity. Integrity is key to the relationships that we have with our people, customers, suppliers, communities and other stakeholders. We strive at all times to be open, honest and consistent, and this has been especially important this year due to the number of changes that we have been required to make within the business and our response to the pandemic.

 

Innovation remains at the heart of everything that we do and has been fundamental to our success over the last 47 years. We believe our people are fundamental to our disruptive thinking and manufacturing excellence which helps our customers to increase their own innovation, improve quality, expand output and enhance efficiency.

 

We are committed to equality and diversity initiatives at all levels of the company. During the year, we established a diversity and inclusion group to help drive improvements within our business. Our educational outreach programmes continue to focus on encouraging more young people from diverse gender, ethnic and economic backgrounds into the sector.

 

Corporate governance

The Board is committed to high standards of corporate governance. It has further considered the 2018 UK Corporate Governance Code, which it started to implement last year, and has put in place a number of governance enhancements aimed at contributing to the Group's long-term sustainable success.

 

Investor communications

Due to the pandemic, our annual investor day, scheduled for 12 May 2020, was postponed until later in the year. We expect this to be an online event because of the ongoing requirement for social distancing, and the date will be communicated once confirmed. The event is one of four key touchpoints across the year where the investment community can learn more about Renishaw's business and strategy, along with the Annual General Meeting (AGM) in October, plus live half-year and full-year webcasts.

 

Dividend

In view of the ongoing macroeconomic uncertainty, the Board has decided that there will be no final dividend declared in respect of the year ending 30 June 2020. The Board will review its position on dividends during the 2021 fiscal year, with the intention of reinstating the dividend as soon as it is appropriate to do so. This means that there was no dividend paid for the year (2019: 60.0p).

 

Sir David McMurtry

Executive Chairman

 

 

COMMENTARY BY THE CHIEF EXECUTIVE

 

Introduction

This has been a year unlike any that most of us will ever have encountered. We were facing challenging trading conditions prior to the pandemic and had already taken actions to improve productivity and reduce the Group's cost base. These included not replacing staff who had left the business, reductions in direct manufacturing staff in the UK, Ireland and India, the restructuring of our additive manufacturing (AM) business, and a business resizing that required the difficult decision to instigate redundancy programmes. The overall impact was a total headcount reduction of 578 during the year.

 

Since the pandemic started, our number one priority has been the health and welfare of our employees, their families and the wider communities in which we operate. It has also been critical to support our customers and manage the business impacts to ensure that we can survive this exceptional period and be well placed to benefit when global markets recover.

 

COVID-19 pandemic

From January onwards, we implemented a wide range of measures to protect against the spread of COVID-19 at our sites around the world and we continue to monitor the impact of the pandemic, with our response and mitigation committee meeting most days since February.

 

All our manufacturing facilities around the world are open, although most are operating at lower capacity due to reductions in staff numbers caused by a combination of COVID-secure working practices, school closures, shielding due to health conditions and local operating restrictions. At many of our other sites we have limited operations, with many employees continuing to work productively from home. At all sites we have implemented robust measures to protect the welfare of our employees and mitigate against business risk. We have been able to maintain supply to customers during this challenging period, but this is a constantly evolving situation and we continue to closely monitor all aspects of our supply chain and are taking mitigating actions where necessary.

 

To closely manage costs and to mitigate against the risk of redundancies, the majority of our non-manufacturing staff across the Group have worked reduced hours (in some cases supported by local Government support schemes). We have also utilised the UK Government's Coronavirus Job Retention Scheme. The members of the Renishaw Board and many staff across the Group also agreed to have their salaries reduced during the period that employees were working reduced hours.

 

Performance overview

As already outlined by Sir David, this was a very challenging year with reduced revenue and Adjusted operating profit for the Group. However, while all regions experienced a reduction in revenue, our position encoder product line did achieve good growth due to a recovery in the semiconductor market. Despite the challenges, we remain focused on the long term with a key priority being the development of technologies that provide patented products to support the strategies for our metrology and healthcare segments.

Revenue

We achieved revenue for the year ended 30 June 2020 of £510.2m, compared with £574.0m last year, against a backdrop of very challenging economic conditions including the COVID-19 pandemic, the ongoing uncertainty caused by the trade tensions between the USA and China, and weaker demand in the machine tool sector. We experienced revenue reductions in all regions as set out below. We continue to work closely with key customers to ensure we are in position to meet their requirements when economic conditions improve.

 

 

2020
£m

2019
£m

Change
%

Constant
fx change
%

APAC

227.7

240.1

-5

-7

EMEA

167.3

201.3

-17

-17

Americas

115.2

132.6

-13

-14

Total Group revenue

510.2

574.0

-11

-13

 

Profit and earnings per share

The Group's Adjusted profit before tax for the year was £48.6m compared with £103.9m last year. Adjusted earnings per share was 51.0p compared with 119.9p last year.

 

Statutory profit before tax for the year was £3.2m compared with £109.9m last year. Statutory earnings per share was 0.4p compared with 126.7p last year.

 

This year's tax charge amounts to £2.9m (2019: £17.7m) representing a tax rate of 91.0% (2019: 16.1%).

 

Metrology

Revenue from our metrology business for the year was £475.2m compared with £532.9m last year. It was a difficult trading year for most of our metrology lines. The important machine tool market was impacted by reduced global demand for new machines, particularly from China, with weakness in key sectors including aerospace, automotive, consumer electronics, and oil and gas. This affected many of our metrology product lines, including our machine tool probe systems that are primarily installed on new machines and our calibration products, which saw reduced demand due to lower sales and utilisation of production machinery.

 

The AM line continued to benefit from the adoption of our RenAM 500Q multi-laser system, but demand was impacted by the global macroeconomic environment. During the year we undertook a restructure of the AM business including the closure of our Staffordshire site, a rationalisation of the product range to focus on the successful RenAM 500Q platform and a restructure of our AM teams across the Group, including the simplification of reporting structures. As previously mentioned, there was, however, good growth in our position encoder product line, with sales of our optical and laser encoder products benefiting from a recovery in the semiconductor market.

 

The geographical analysis of metrology revenue is set out below.

 

2020
£m

2019
£m

Change
%

APAC

213.6

223.7

-5

EMEA

152.5

182.6

-16

Americas

109.1

126.6

-14

Total metrology revenue

475.2

532.9

-11

 

Adjusted operating profit for our metrology business was £50.3m (2019: £90.7m).

 

We continued to invest in R&D, with gross engineering costs of £75.9m compared with £90.7m in 2019.

 

We launched a range of new products during the year. The RFP fringe probe for our REVO® measuring head allows the inspection of freeform surfaces and complex geometry on co-ordinate measuring machines (CMMs), including delicate surfaces. Our machine tool product line introduced the NC4+ Blue system, which features industry-first, blue laser technology to deliver significant improvements in tool measurement accuracy, including for very small tools.

It was a busy year for new launches within our position encoder line, including the addition of new Functional Safety (FS) certified encoders for use in safety-critical applications, including medical robots and collaborative robots (cobots). We also added ATOM DX™, our smallest all-in-one digital incremental encoder which eliminates the need for bulky interfaces, new robust RKLC and RKLA stainless steel tape scales for linear and partial arc applications, and diagnostics tools (interfaces and software) to optimise set-up and analysis of position encoders.

 

Healthcare

Revenue from our healthcare business for the year was £35.0m, a decrease of 15% over the £41.0m last year. There were reductions in all our healthcare product lines - medical dental, neurological and spectroscopy.

 

The pandemic had a marked impact on our healthcare lines including the postponement of non-essential operations, which impacted orders for additively manufactured medical implants and dental structures. The neurological product line was most impacted, with orders for the neuromate stereotactic robot delayed and consumable sales reduced due to elective surgeries being put on hold. The spectroscopy product line saw some impact from the pandemic due to delayed shipments, primarily in China.

 

There was an Adjusted operating profit of £1.4m, compared with a profit of £3.1m last year, with three years of continuous profit now achieved.

 

Healthcare also saw continued investment in R&D, with gross engineering costs in this business segment of £6.5m compared with £7.2m in 2019.

 

New Raman spectroscopy products launched during the year include: the Virsa™ Raman Analyser, a versatile, fibre-optic-coupled system designed for reliable, detailed analysis away from the confines of the laboratory and the inVia™ InSpect system, which is specifically targeted at the forensic crime laboratory.

 

In February the initial results were published of a joint Phase 1-2 clinical study with Herantis Pharma plc, for the investigation of cerebral dopamine neurotrophic factor (CDNF) as a treatment for Parkinson's disease. The initial results indicate predictable and accurate placement of our drug delivery device as well as its positive performance and safety, allowing us to build towards its CE marking.

 

Strategy and markets

Our strategy is fundamentally based on long-term investments in patented and innovative products and processes, and high-quality manufacturing in all markets around the globe (which has been a real strength during the pandemic). This strategy is consistent across all the product lines and market sectors in which we operate to deliver our purpose.

 

Renishaw has moved from primarily being a supplier of products to capital equipment manufacturers, to working closely with end users to solve their complex challenges and deliver solutions and systems that transform their manufacturing capabilities. This is helping to deepen brand loyalty and open up new revenue opportunities.

 

Despite the current challenges resulting from the macroeconomic environment and the pandemic, we continue to see external market growth drivers - including global skills shortages, digitisation, requirements for more capable products, near-shoring and reshoring, a focus on reducing emissions and waste, population growth and increasing life expectancy - that are creating positive opportunities for our business.

 

We continue to reduce risk through the diversification of applications for our products, our customer base and our routes to market.

 

Focused investment for long-term growth

The Group firmly believes in its long-term strategy of investing appropriately for the future, expanding our global marketing and distribution infrastructure, along with increasing manufacturing capacity and R&D activities. However, with the current global economic uncertainties, our focus for the short term is on maximising the benefits of the investment we have made over the past few years and clearly prioritising those projects that will either bring faster revenue benefits or are strategically important to the business.

 

We continue to invest in the global roll-out of a new human resources (HR) system and development programmes for our people, which we believe will ultimately boost our productivity.

 

Capital expenditure on property, plant and equipment and vehicles for the year was £38.7m (2019: £56.8m), of which £24.6m (2019: £25.4m) was spent on property and £14.1m (2019: £31.4m) on plant and equipment and vehicles.

 

This year we completed the 94,000 sq ft extension to the Innovation Centre at our New Mills site (although full occupation was delayed to save costs), purchased land in Pune to provide for future expansion of our Indian manufacturing operations, and completed the build of a new design, manufacturing and demonstration facility in Michigan, USA, for Renishaw Fixturing Solutions.

 

Working capital

Group inventory reduced from £129.0m at the start of the year to £105.5m, primarily reflecting the reduced demand we experienced during the year. We continue to focus on working capital management while remaining committed to our policy of holding sufficient finished inventory to ensure customer delivery performance, given our short order book. Trade receivables decreased from £123.2m to £111.9m, with debtor days of 76 days (2019: 67 days) at the end of the current year.

 

Net cash balances and bank deposits at 30 June 2020 were £120.4m, compared with £106.8m at 30 June 2019. Additionally, there is an escrow account of £10.6m (2019: £10.5m) relating to the provision of security to the UK defined benefit pension scheme.

 

Corporate social responsibility

As a socially responsible business, we recognise the importance of operating in a way that delivers long-term sustainable value for all stakeholders. This year we have: assisted local organisations through charitable donations; invested in developing the skills of our employees; recruited apprentices and graduates on our training schemes; reduced our absolute greenhouse gas (GHG) emissions by 8%; reduced our accident frequency rate to 15.55. We reached more than 20,000 children with our educational outreach programmes, as well as donating more than 10,000 hours of paid time to educational organisations during the 2018/19 academic year.

 

Our people

Our workforce at the end of June 2020 was 4,463 (2019: 5,041), a decrease of 11.5%. During the year, 96 apprentices and graduates were taken on as part of our ongoing commitment to train and develop skilled resource for the Group in the future. We also took on 74 industrial and summer placements in the year.

 

With the exceptional challenges that we faced this year, including: tough trading conditions, the first pandemic for 100 years, a Group-wide redundancy programme, plus reduced working hours and many UK employees being furloughed; it is testament to the skill, resilience and compassion of our employees that they still continue to introduce innovative new products, support our customers in very trying circumstances, and assist our communities at a time of crisis. We recognise the potential impacts of the pandemic on the health of our people and we have developed a COVID-19 Wellbeing Programme to add to our existing Employee Assistance Programme.

 

I am truly grateful for the understanding and commitment of our people during this exceptionally challenging year.

 

Brexit

The Board continues to oversee the work of the Brexit Steering Group in identifying the key risks and mitigation plans arising from a possible no-deal Brexit at the end of the transition period. This includes the following actions already taken in 2019: a new distribution warehouse in Ireland which will significantly reduce the number of direct shipments between the UK and the EU post Brexit (we are currently supplying a number of EU customers from this warehouse and this will increase during 2020); and a general increase in inventory of certain components and finished goods held at our various sites within the EU and the UK, which is being maintained dynamically in line with required demand.

 

The Steering Group will continue to carefully monitor ongoing developments in the Brexit process and consider their impact against our current plans as the situation becomes clearer through the remainder of 2020.

 

Outlook

As a result of the timely actions detailed above, despite a very challenging year, the Group is in a strong financial position. We continue to invest in the development of new products and applications, along with targeted investment in production, and sales and marketing facilities around the world. Given the uncertain macroeconomic backdrop, including the pandemic and the risks posed by reduced freedom of global trade, we expect very challenging market conditions, particularly in the automotive and aerospace sectors.

 

Your Directors remain confident in the long-term prospects for the Group due to the high quality of our people, our innovative product pipeline, extensive global sales and marketing presence and relevance to high-value manufacturing.

 

Will Lee

Chief Executive

 

 

 

 

COMMENTARY BY THE GROUP FINANCE DIRECTOR

 

Overview

Revenue for the year amounted to £510.2m and Adjusted profit before tax of £48.6m with statutory profit before tax of £3.2m. Adjusted profit before tax is a key alternative performance measure by which the Board evaluates the Group's performance as it better represents the underlying trading of the Group, with restructuring costs and fair value gains and losses on financial instruments not eligible for hedge accounting excluded from this measure. Further details of alternative performance measures are provided in note 25. Cash preservation has always been a key focus for the Board, particularly this year due to the high level of uncertainty caused by the COVID-19 pandemic, with net cash and bank deposit balances at the year-end of £120.4m (2019: £106.8m). The balance sheet remains strong with total equity of £546.9m (2019: £583.3m).

 

Revenue

Revenue for the year amounted to £510.2m, compared with £574.0m last year. It has been a very challenging trading year for the Group due to the global macroeconomic environment, initially due to the ongoing uncertainty caused by the trade tensions between the USA and China and weaker demand in the machine tool sector, compounded in the second half of the year by the impact of the COVID-19 pandemic. The previous year also benefited from a number of large orders from end-user manufacturers of consumer electronic products in the APAC region which have not been repeated to the same extent this year.

In our metrology business segment, revenue was £475.2m, compared with £532.9m last year. Revenue in our healthcare business segment was £35.0m, compared with £41.0m last year.

Revenue analysis by region

A geographical analysis of our metrology and healthcare businesses is shown below.

 

2020
revenue
at actual
exchange
rates
£m

Change
from
2019
%

2019
revenue
at actual
exchange
rates
£m

Underlying
change at
constant
exchange
rates
%

APAC

227.7

-5

240.1

-7

EMEA

167.3

-17

201.3

-17

Americas

115.2

-13

132.6

-14

Total Group revenue

510.2

-11

574.0

-13

 

 

Operating costs

During the year we have taken a number of actions to improve productivity and reduce the Group's cost base in response to the challenging trading conditions we were facing which were compounded in the second half of the year by the pandemic. Group headcount has decreased from 5,041 at 30 June 2019 to 4,463 at 30 June 2020, with the average for the year of 4,797 compared with 4,968 last year. Headcount reductions were mostly attributable to the activities described in the restructuring costs section of this review and the non-replacement of staff who left the business. Labour costs were also mitigated by reduced working hours and many employees being furloughed.

 

The resultant labour costs for the year were down 7% to £221.3m (2019: £237.4m), including global job retention grant income totalling £4.5m this year (2019: nil).

 

The ongoing macroeconomic conditions have resulted in a higher level of uncertainty around the recoverability of certain assets including capitalised development costs and trade receivables. Excluding amounts included in restructuring costs, impairments of capitalised development costs totalled £9.9m (2019: nil) relating primarily to metrology products of a capital nature and where the high-volume growth previously anticipated is now less predictable. Movements in the provision for trade receivables resulted in a charge to the Consolidated income statement of £2.9m, mainly as a result of an increase in the expected credit loss allowance, and this year also included a £1.6m charge from the impairment of other intangible assets.

 

Actions were also put in place to significantly reduce discretionary spend such as travel and exhibitions which has also contributed to the decrease in operating costs.

 

Restructuring

Restructuring costs arose following the reorganisation and rationalisation of certain operating activities, particularly related to our additive manufacturing (AM) business including the closure of our Staffordshire site and a rationalisation of the AM product range to focus on our successful multi-laser platform.

The AM restructuring costs, including write-downs of tangible fixed assets, inventories and capitalised development costs, totalled £17.5m.

 

Also included in restructuring costs are redundancy costs of £6.3m, mostly relating to the wider redundancy programme.

 

Total restructuring costs for the year were £23.8m and have been reported separately in the Consolidated income statement. Further details are provided in note 26. The comparatives for each of these items in 2019 was nil.

 

Research and development

Gross expenditure on engineering costs, including R&D on new products, was £82.4m (2019: £97.9m). The gross charge amounts to 16% of Group revenue (2019: 17%). The R&D tax credit in 2020 amounted to £4.4m compared with £5.1m in 2019. Further details are provided in note 4.

 

Gross expenditure on engineering costs was £75.9m (2019: £90.7m) in our metrology segment and £6.5m (2019: £7.2m) in our healthcare segment.

 

New product R&D expenditure amounted to £66.6m, which compares with £75.0m spent last year. There have been a number of new product releases in both our metrology and healthcare business segments, and a number of new product introductions are anticipated during the 2021 financial year.

 

Profit and tax

Adjusted profit before tax amounted to £48.6m compared with £103.9m in 2019. Statutory profit before tax was £3.2m compared with £109.9m in the previous year.

 

Last year benefited from a £6.0m currency gain, primarily in respect of intra-group balances, compared with a loss of £2.6m this year. This year also included a net gain of £2.3m arising from the fair value adjustment of a convertible loan, a partial disposal of shares and a subsequent partial impairment of the investment and loans, all relating to our associate company.

 

In our metrology business, Adjusted operating profit was £50.3m compared with £90.6m last year, while in our healthcare business, Adjusted operating profit was £1.4m compared with £3.1m last year.

 

The overall effective rate of tax was 91.0% (2019: 16.1%). The Group operates in many countries around the world and the overall effective tax rate is a result of the combination of the varying tax rates applicable throughout these countries. The year on year rate increase primarily arises from an increase in the deferred tax rate in the UK from 17% to 19% resulting in a charge of £1.1m, UK losses resulting in no patent box benefit this year (2019: £1.8m credit) and the partial derecognition of deferred tax assets for US tax losses and excess interest totalling £3.0m. Note 8 provides further analysis of the effective tax rate.

 

Consolidated balance sheet

Total equity at the end of the year was £546.9m, compared with £583.3m at 30 June 2019, primarily as a result of dividends paid of £33.5m and an increase in pension liabilities due to changes in the discount rate and inflation assumptions.

 

As a result of the high levels of uncertainty arising from the COVID-19 pandemic, the Board has focused on cash preservation, with capital expenditure significantly lower in the second half of the financial year, reduced inventory levels compared with December 2019 and the cancellation of the interim dividend.

 

Net cash and bank deposit balances at 30 June 2020 were £120.4m (2019: £106.8m). In line with our capital allocation strategy, the chart below summarises our sources and uses of cash for the year, reconciling opening to closing cash and bank deposits balances.

 

Additions to property, plant and equipment and vehicles totalled £38.7m, of which £24.6m was spent on property and £14.1m on plant and machinery, IT equipment and infrastructure, and vehicles.

 

£28.4m of the additions were incurred in the first half of the year, with spend in the second half significantly lower at £10.3m.
 

The main additions were:

 

- in the UK, completion of the 94,000 sq ft extension to our Renishaw Innovation Centre; 

- acquisition of property in Pune, India to provide capacity for future growth; 

- refurbishment of the building purchased in Nagoya, Japan last year; and

- completion of the new facility for Renishaw Fixturing Solutions in Michigan, USA.

 

Within working capital, inventories decreased to £105.5m from £129.0m at the beginning of the year, primarily as a result of the lower trading levels. We continue to focus on inventory management while remaining committed to our policy of holding sufficient finished goods to ensure customer delivery performance, given our short order book.

 

Trade receivables decreased from £116.9m to £105.1m, while debtor days were 76 at the end of the year, compared with 67 at the end of last year.

 

Pensions

At the end of the year, the Group's defined benefit pension schemes, now closed for future accrual, showed a deficit of £64.9.m, compared with a deficit of £51.9m at 30 June 2019. Defined benefit pension schemes' assets at 30 June 2020 increased to £188.6m from £181.6m at 30 June 2019, primarily reflecting funding of £11.8m less benefits paid of £6.9m.

 

Pension scheme liabilities increased from £233.5m to £253.5m, primarily reflecting the net impact of decreases in the discount rate, RPI and CPI for the UK defined benefit scheme since 30 June 2019. According to the terms of the deficit funding plan agreed with The Pensions Regulator, the Company will pay £8.7m per annum into the scheme for five years, effective from 1 October 2018. In line with the previous agreement, the new agreement will continue until 30 June 2031 and any outstanding deficit will be paid at that time. The agreement will end sooner if the actuarial deficit (calculated on a self-sufficiency basis) is eliminated in the meantime.

 

Treasury policies

The Group's treasury policies are designed to manage financial risks to the Group that arise from operating in a number of foreign currencies, to maximise interest income on cash deposits and to ensure appropriate funding arrangements are available for each Group company.

 

The Group uses forward exchange contracts to hedge a proportion of anticipated foreign currency cash inflows and the translation of foreign currency denominated intercompany balances. There are forward contracts in place to hedge against the Group's Euro, US Dollar and Japanese Yen cash inflows and to offset movements on Renishaw plc's Euro, US Dollar and Japanese Yen intercompany balances. The Group does not speculate with derivative financial instruments.

 

Most of these forward contracts are subject to hedge accounting under IFRS 9 Financial Instruments. The hedged item in these contracts is the revenue forecasts of Renishaw plc and Renishaw UK Sales Limited, and during the year these forecasts were reduced due to the global macroeconomic uncertainty. This has resulted in proportions of forward contracts failing hedge effectiveness testing according to IFRS 9.

 

Gains and losses which recycle through the Consolidated income statement as a result of ineffectiveness are excluded from adjusted profit measures. See note 20 for further details on financial instruments and note 25 on alternative performance measures.

 

Earnings per share and dividend

Adjusted earnings per share is 51.0p compared with 119.9p last year.

 

Statutory earnings per share is 0.4p compared with 126.7p last year.

 

In light of the increased global macroeconomic uncertainty experienced in the first half of the year, and with redundancy programmes in progress, the Directors elected to waive their right to the interim dividend. Following the outbreak of the COVID-19 pandemic, and according to the Board's priority of conserving cash and managing the Group in a prudent manner through this period of uncertainty, the interim dividend for the year was then cancelled, and no final dividend is declared in respect of the year.

 

The Board will review its position on dividends during the next financial year with the intention of reinstating its long-term progressive dividend policy as soon as it is appropriate to do so. While we have confirmed eligibility to participate in the Coronavirus Corporate Finance Facility (CCFF), we do not anticipate issuing commercial paper under the scheme. If commercial paper were to be issued with a maturity date on or after 19 May 2021, no dividends could be declared until all related financing was repaid.

 

Capital allocation strategy

The Board regularly reviews the capital requirements of the Group, in order to maintain a strong financial position to protect the business and provide flexibility to fund future growth.

 

Our capital allocation approach has been consistently applied for many years. We are committed to investment in the research and development of new products, manufacturing processes and global support infrastructure in order to generate growth in future returns, and to improve productivity, while managing expenditure appropriate to trading conditions. This is evidenced in the year with investments in capital and R&D. Actual and forecast returns, along with our strong financial position, then support our progressive dividend policy, which aims to increase the dividend per share, while maintaining a prudent level of dividend cover. In exceptional circumstances the Board may deem it appropriate to not issue a dividend.

Allen Roberts

Group Finance Director

 

 

 

 

 

 

 

 

 

PRINCIPAL RISKS AND UNCERTAINTIES

 

Our performance is subject to a number of risks - the principal risks, factors impacting on them and mitigations are ranked in the table below. The Board has conducted a robust assessment of the principal risks facing the business.

 

Risk description

Risk ranking

Risk owner

Potential impact

COVID-19 impact

Mitigation

Supply chain dependencies

 

We are exposed to the risk that some components we source are provided by a single-source supplier and we are vulnerable to an interruption in supply.

 

We also manufacture components at some sites (such as cables) for use in a wide range of our products, so our ability to supply products to customers could be impacted by a significant disruption at any of these sites.

1

Group Manufacturing Directors

Inability to fulfil customer orders leading to a reduction in sales.

 

Failure to meet contractual requirements.

 

Increased costs of alternative sourcing.

 

Loss of market share.

 

Damage to reputation.

Manufacture of cables in India was adversely impacted by the shutdown in that market. Contingency plans were implemented in Ireland and with a third-party supplier to ensure ongoing supply. Longer term, dual sourcing will be fully implemented

Continued focus on, and review of, sourcing of key components.

 

Maintenance of buffer inventory.

 

Cost-effective alternative sources of supply actively sought to reduce dependency on single-source suppliers.

 

Specifications may need to be reviewed and updated to facilitate alternative sourcing.

Industry fluctuations

We are exposed to the cyclical nature of demand from aerospace, automotive and consumer electronics industries, which may be more severe if the downcycles of these key industries coincide.

 

2

Chief Executive

Volatility in profitability.

 

Reduced sales and cash flow.

 

Loss of market share.

 

Increased competition on prices.

COVID-19 has had a severe impact on many industries, but particularly the aerospace and automotive industries. It is not yet clear whether this impact will be short or long term.

 

Closely monitoring market developments.

 

Expanding and diversifying the Group's product range in order to meet the demands of a number of different industry sectors.

 

Identifying and meeting the needs of emerging markets, for example in robotic automation.

 

Maintaining a strong balance sheet with the ability to flex manufacturing resource levels.

Capital allocation

 

Failure to properly allocate budget between core and emerging activities.

3

Group Finance Director

Investing in declining or less profitable areas at the expense of more profitable and strategically important areas.

 

Reduced profits and increased operating costs.

 

Loss of market share.

COVID-19 has meant that we have continued to ensure all capital expenditure across the Group is kept to a minimum.

Defining and prioritising core and emerging areas of the business.

 

Identifying the return on investment across core and emerging areas of the business.

 

Developing strategies for all core and emerging areas, including whether to increase, decrease or maintain the previous levels of investment in these areas.

 

Greater scrutiny of all capital expenditure.

People

 

Our people drive the success of our business.

 

Inability to attract, retain and develop key talent at all levels of the organisation could mean we fail to successfully deliver on our strategic goals.

4

Group Head of HR

Loss of expertise, skills and specialist talent could impact our ability to deliver on objectives.

 

Poor retention and engagement could slow the delivery of our strategic objectives, product delivery and slow our change agenda.

 

Failure to develop future leaders through insufficient talent progression.

Loss of market share, reduced sales, poor customer service and reduced profitability.

The pandemic is one of the most significant external risks currently facing the business and has a significant impact on our people.

 

Lockdown, and furloughing specifically, has affected employee availability, attendance and engagement. Sometimes this has had an adverse impact, including where significant time was spent away from the business, in other cases it has had a positive impact with an opportunity to engage and interact in new and different ways.

 

Increased visibility of senior leaders actively being seen to manage a crisis.

 

Given employees greater confidence in the ability of our systems and processes to support home working.

Continued communication with our employees and taking of steps to safeguard their wellbeing during the COVID-19 pandemic.

 

Robustness of our business continuity plans to enable rapid adaptation to changing circumstances.

 

Ensure that robust talent planning and people development processes are established across the Group.

 

Investment in direct employee engagement; exit interviews, feedback mechanisms and adherence to our inclusion strategy to ensure we provide equal opportunities for growth and development of all our people.

 

Continued investment in our graduate and apprentice programmes.

 

Commitment to executive-level succession planning.

 

Attracting, rewarding and retaining people with the right skills globally in a planned and targeted way.

 

Developing and enhancing organisational, leadership, technical and functional capability to deliver global programmes.

Innovation strategy

 

Failure to innovate to create new cutting-edge, high-quality products, or failing to protect the intellectual property that underpins these products, which allows us to differentiate ourselves from our competitors. As a business driven by leading-edge innovation, there is a higher risk with new ventures outside of our traditional field of expertise where the science and engineering is less proven.

5

Executive Chairman/Director of Group Technology

Failing to meet customer needs for high-quality and complex products - leading to a loss of market share.

 

Reduced profitability and cash flow.

 

Failing to recover investment in R&D.

The furloughing of some staff and reduction in hours for other employees has meant that some of the flagship projects have been slightly delayed.

R&D projects are better prioritised and rationalised and regularly reviewed against milestones. Flagship projects are now receiving greater focus from management and the plc Board.

 

Medium- to long-term R&D strategies are monitored regularly by the Board and the Executive Committee to ensure they remain aligned with the Company's strategy.

 

Developing products based on input from customers to ensure we develop solutions to meet their needs.

 

New products involve beta testing with customers to ensure as far as possible that they meet the needs of the market.

 

Market developments are closely monitored.

 

Patent and intellectual property protection are core to new product development.

 

Recruiting, training and developing talented engineers with the appropriate skills.

Economic and political uncertainty

 

As a global business, we may be affected by political, economic or regulatory developments in one or more countries in which we operate. This could include a global recession, Brexit, and US/China trade relations.

6

Chief Executive

Reduced sales, profitability and cash balances.

 

Increased competition on prices.

 

Loss of assets in a region.

As a pandemic, COVID-19 has had severe health and economic consequences, and is potentially the driver for a global recession.

Monitoring external economic and commercial environments and identifying relevant headwinds.

 

Maintaining sufficient headroom in our cash flow.

Route to market/customer satisfaction model

 

Inherent complexity in the move to systems integration and the sale of capital goods.

7

Chief Executive

Low capital efficiency.

 

High people costs and low productivity.

 

High R&D and distribution costs.

 

Lower return on capital employed than proposed target.

 

Adversely affects customer satisfaction levels, sales and profitability.

COVID-19 has provided an opportunity for the Group to review and refine our business model for how we are vertically integrated regarding the sale of capital goods.

Closely monitoring customer feedback.

 

Reviewing our business model and global strategy for this area of the business.

 

Analysing our return on capital employed figures.

Competitive activity

 

Failure to adapt to market and/or technological changes.

8

Chief Executive

Reduced sales, profitability and cash flow.

 

Loss of market share.

 

Erosion on prices.

The impact of COVID-19 will accelerate business change in many areas and therefore technology requirements are likely to develop more quickly.

The Group is diversified across a number of core products, industries and geographies.

 

Closely monitoring market developments, particularly across our core product areas.

 

Having local sales and engineering support which can quickly respond to a crisis and cope with changing local needs.

 

Strong historic and ongoing commitment to R&D investment to continue to build our product portfolio.

Exchange rate fluctuations

 

Due to the global nature of our operations, in which over 90% of the revenue is generated outside of the UK, we are exposed to volatility in exchange rates which could have a significant impact on the reported results of the Group.

 

The Group is exposed to a number of exchange rate risks, including currency cash flow, currency translation risk and the currency risk on intercompany balances.

9

Group Finance Director

Significant variations in the Group's income statement and balance sheet.

 

Reduced cash flow and profitability.

Impacts are likely to increase during periods of market uncertainty such as during the pandemic in which some countries will be more affected by exchange rate fluctuations than others.

Rolling forward contracts for cash flow hedges.

 

We only enter contracts if the rate is below the plc Board approved caps

 

Currency pricing reviews with some large customers.

 

Tracking of overseas net assets value compared to the market capitalisation.

 

One-month forward contracts to manage currency risks on inter-company balances

Fit for the future strategy

 

Failure to deliver on our new Fit for the future strategy may mean that our operating costs are not aligned with our trading levels, potentially inhibiting our growth and investment in key strategic areas.

10

Chief Executive/Group Finance Director

Cost savings not realised, leading to reduced profits.

 

Reduced capacity to invest in strategic areas.

 

Inefficient and inflexible operating model.

Additional cost-saving measures have been implemented in response to the pandemic, such as furloughing staff and reducing working hours and salaries for some staff.

Regular tracking and reporting of cost-control measures across the Group.

 

Greater focus on managing the highest spend areas, such as labour and capital expenditure.

 

Identifying the return on investment across a number of areas of the business.

 

Reducing overheads such as travel and exhibition costs.

IT transformation failure

 

The upgrade to our IT systems to Dynamic 365 to remove legacy systems and ensure our business is better integrated and Fit for the future could impact our business if there are major technical issues, or it is poorly integrated, or there are significant delays to the programme, or it runs significantly over budget.

11

Group Business Systems Manager

Major disruption to our systems (including our financial and HR systems) causing delay to our operations such as our ability to process or issue invoices and customer orders, or to procure goods and services.

 

Increased costs, including to fix any technical issues and restore or upgrade other impacted systems.

Having to progress the transformation programme remotely without physical access to the central site made it more difficult to meet milestones and undertake appropriate testing.

Risk assessments undertaken of all key systems likely to be impacted by the upgrade.

 

A clear roadmap with measurable milestones.

 

Assigning project managers who have clear oversight of the project and any potential or actual issues.

 

Promptly identifying and dealing with any red flags.

Cyber

 

External and internal threat which could result in a loss of data including intellectual property, or our ability to operate our systems which could severely impact our business.

12

Group Business Systems Manager

Loss of intellectual property/commercially sensitive data leading to reputational damage, claims or fines.

 

Inability to access, or disruption to, our systems leading to reduced service to customers and therefore financial and reputational damage.

 

Delay or impact on decision-making due to lack of availability of sound data or disruption in the denial of service.

Increased vigilance and awareness of the risks associated with remote working were required to help manage this risk during the pandemic.

Substantial resilience and back-up built into the Group systems.

 

Cyber risk and security is regularly discussed at plc Board meetings.

 

External penetration testing is conducted as appropriate.

 

Operating systems are continuously updated and refreshed in line with current threats.

 

A number of physical, logical and control measures are deployed to protect our information and systems.

 

Regular security awareness training is conducted, including in relation to the specific risks associated with remote working.

Pensions

 

Investment returns and actuarial variations of the Group's defined benefit scheme are subject to economic and social factors outside of the Group's control.

13

Group Finance Director

Any deficit may require additional funding or security.

Reduced returns on investment assets.

Recovery plan was implemented in June 2019 with the aim of funding to self-sufficiency.

 

Active engagement with the Trustees.

 

The Trustees operate in line with a statement of investment principles and take appropriate independent professional advice when necessary.

Non-compliance with laws and regulations

 

We operate in a large number of territories, and in some highly regulated sectors, and are subject to a wide variety of laws and regulations, including those relating to anti-bribery, anti-money laundering, sanctions, competition law, privacy, health and safety, product safety and medical devices.

 

There is a risk that somewhere in the Group we may not be fully compliant with these laws and regulations.

14

Group General Counsel and Company Secretary/Director of Renishaw Neuro Solutions

Damage to reputation.

 

Potential penalties and fines.

 

Cost of investigations.

 

Management time and attention in dealing with reports of non-compliance.

 

Inability to attract and retain talent.

 

No specific impact due to COVID-19.

Whistleblowing hotline − available for use by all employees, with a new global provider appointed in 2020.

 

Regular compliance training for all employees.

 

Controls in place to mitigate some of the risks, and audits conducted to review some of these controls.

 

Implementation of a global GDPR programme (and its equivalent in non-EU countries).

 

Insurance cover for some of the risks.

Loss of manufacturing output

 

Manufacturing output can be adversely affected by a number of factors including environmental hazards, technical delays or outages, plant or equipment failure, inadequate resourcing levels, or factors affecting the workforce such as a pandemic.

15

Group Manufacturing Directors

Inability to fulfil customer orders leading to a reduction in sales.

Failure to meet contractual
requirements.

Increased costs of alternative sourcing.

Maintenance of buffer inventory.

Loss of market share.

Damage to
reputation.

Manufacture of cables in India was adversely impacted by the shutdown in that market. Contingency plans were implemented in Ireland and with a third-party supplier to ensure ongoing supply. Longer term, dual sourcing will be fully implemented.

Duplication of high-dependency processes such as component manufacturing and finishing, electronic PCB assembly, and microelectronics assembly across more than one manufacturing location.

 

Ensuring we have flexible manufacturing capacity in various sites across numerous territories, and sufficient resilience across these sites. Capacity planning.

 

Standardised approaches to product assembly.

 

Annual risk assessments and business continuity planning.

 

Reviewing and maintaining business interruption and other insurance cover.

 

 

 

 

CONSOLIDATED INCOME STATEMENT

for the year ended 30 June 2020

 

 

 

Notes

 

2020

 

2019

 

 

£'000

£'000

 

 

 

 

Revenue

2

510,215

573,959

 

 

 

 

Cost of sales

4

(271,633)

(289,832)

 

 

 

 

Gross profit

 

238,582

284,127

 

 

 

 

Distribution costs

 

(123,276)

(126,822)

Administrative expenses

 

(58,584)

(58,593)

Restructuring costs

26

(23,797)

-

Gains/(losses) from the fair value of financial instruments

20

(26,631)

1,081

 

 

 

 

Operating profit

 

6,294

99,793

 

 

 

 

Financial income

5

913

7,238

Financial expenses

5

(4,840)

(902)

Share of profits of associates and joint ventures

12

841

3,815

 

 

 

 

Profit before tax

6

3,208

109,944

 

 

 

 

Income tax expense

8

(2,920)

(17,712)

 

 

 

 

Profit for the year

 

288

92,232

 

 

Profit attributable to:

 

 

 

Equity shareholders of the parent company

 

288

92,232

Non-controlling interest

21

-

-

 

 

 

 

Profit for the year

 

288

92,232

 

 

 

 

Pence

pence

Dividend per share arising in respect of the year

21

0.0

60.0

Dividend per share paid in the year

 

46.0

60.0

 

 

 

 

Earnings per share (basic and diluted)

7

0.4

126.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME AND EXPENSE

for the year ended 30 June 2020

 

 

Notes

 

2020

 

2019

 

 

£'000

£'000

 

 

 

 

Profit for the year

 

288

92,232

 

 

 

 

Other items recognised directly in equity:

 

 

 

 

 

 

 

Items that will not be reclassified to the Consolidated income statement:

 

 

 

 

 

 

 

Remeasurement of defined benefit pension scheme liabilities

13

(23,978)

10,273

 

 

 

 

Deferred tax on remeasurement of defined benefit pension scheme liabilities

 

5,484

(1,534)

 

 

 

 

Total for items that will not be reclassified

 

(18,494)

8,739

 

 

 

 

Items that may be reclassified to the Consolidated income statement:

 

 

 

 

 

 

 

Exchange differences in translation of overseas operations

21

3,369

2,045

 

 

 

 

Exchange differences in translation of overseas joint venture

21

186

72

 

 

 

 

Current tax on translation of net investments in foreign operations

21

-

(205)

 

 

 

 

Deferred tax on translation of net investments in foreign operations

21

(403)

-

 

 

 

 

Effective portion of changes in fair value of cash flow hedges,

 

 

 

net of recycling

21

13,924

(27,573)

 

 

 

 

Deferred tax on effective portion of changes in fair value of cash flow hedges

21

(1,978)

4,561

 

 

 

 

Total for items that may be reclassified

 

15,098

(21,100)

 

 

 

 

Total other comprehensive income and expense, net of tax

 

(3,396)

(12,361)

 

 

 

 

Total comprehensive income and expense for the year

 

(3,108)

79,871

 

 

 

 

Attributable to:

 

 

 

Equity shareholders of the parent company

 

(3,108)

79,871

Non-controlling interest

21

-

-

 

 

 

 

Total comprehensive income and expense for the year

 

(3,108)

79,871

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CONSOLIDATED BALANCE SHEET

at 30 June 2020

 

 

 

Notes

 

2020

Restated*

2019

 

 

£'000

£'000

Assets

 

 

 

Property, plant and equipment

10

270,049

263,477

Intangible assets

11

43,364

59,056

Right of use assets

2,22

12,672

-

Investments in associates and joint ventures

12

16,604

13,095

Long-term loans to associates and joint ventures

12

2,818

750

Finance lease receivables

22

4,801

4,992

Deferred tax assets

9

39,641

29,855

Derivatives

20

1,242

1,311

Total non-current assets

 

391,191

372,536

 

 

 

 

Current assets

 

 

 

Inventories

16

105,497

129,026

Trade receivables

20

105,077

116,929

Finance lease receivables

22

1,982

1,230

Contract assets

 

606

352

Short-term loans to associates and joint ventures

 

318

6,644

Current tax

 

3,878

4,553

Other receivables

20

23,196

24,461

Derivatives

20

3,758

2,778

Pension scheme cash escrow account

13

10,568

10,490

Bank deposits

15

10,000

52,500

Cash and cash equivalents

15,20

110,386

54,326

Total current assets

 

375,266

403,289

Current liabilities

 

 

 

Trade payables

20

16,998

21,513

Contract liabilities

20

5,976

5,631

Current tax

 

2,905

4,538

Provisions

17

5,591

2,846

Derivatives

20

22,546

18,920

Lease liabilities

2,22

4,241

-

Borrowings

19

1,061

1,043

Other payables

18

34,372

41,065

Total current liabilities

 

93,690

95,556

Net current assets

 

281,576

307,733

 

 

 

 

Non-current liabilities

 

 

 

Borrowings

19

10,482

9,356

Lease liabilities

2,22

8,925

-

Employee benefits

13

64,895

51,870

Deferred tax liabilities

9

499

539

Derivatives

20

41,102

35,227

Total non-current liabilities

 

125,903

96,992

Total assets less total liabilities

 

546,864

583,277

 

 

 

 

Equity

 

 

 

Share capital

21

14,558

14,558

Share premium

 

42

42

Own shares held

21

(404)

(404)

Currency translation reserve

21

17,729

14,577

Cash flow hedging reserve

21

(30,455)

(42,401)

Retained earnings

 

546,100

597,784

Other reserve

21

(129)

(302)

Equity attributable to the shareholders of the parent company

 

547,441

583,854

Non-controlling interest

21

(577)

(577)

Total equity

 

546,864

583,277

*2019 cash and cash equivalents and bank deposits have been restated following a change in accounting policy, see note 1, and trade receivables have been reclassified, with finance lease receivables reported as separate line items, see note 22.

 

 

 

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the year ended 30 June 2020

 

 

 

 

 

Cash

 

 

 

 

 

 

 

Own

Currency

flow

 

 

Non-

 

 

Share

Share

Shares

translation

hedging

Retained

Other

controlling

 

 

capital

premium

Held

reserve

reserve

earnings

reserve

interest

Total

Year ended 30 June 2019

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

 

 

 

 

Balance at 1 July 2018

14,558

42

-

12,665

(19,389)

540,485

(460)

(577)

547,324

 

 

 

 

 

 

 

 

 

 

Profit for the year

-

-

-

-

-

92,232

-

-

92,232

 

 

 

 

 

 

 

 

 

 

Other comprehensive income and expense (net of tax)

 

 

 

 

 

 

 

 

 

Remeasurement of defined benefit pension scheme liabilities

-

-

-

-

-

8,739

-

-

8,739

 

 

 

 

 

 

 

 

 

 

Foreign exchange translation differences

-

-

-

1,840

-

-

-

-

1,840

 

 

 

 

 

 

 

 

 

 

Relating to associates and joint ventures

-

-

-

72

-

-

-

-

72

 

 

 

 

 

 

 

 

 

 

Changes in fair value of cash flow hedges

-

-

-

-

(23,012)

-

-

-

(23,012)

 

 

 

 

 

 

 

 

 

 

Total other comprehensive income and expense

-

-

-

1,912

(23,012)

8,739

-

-

(12,361)

Total comprehensive income and expense

-

-

-

1,912

(23,012)

100,971

-

-

79,871

 

 

 

 

 

 

 

 

 

 

Share-based payments charge

-

-

-

-

-

-

158

-

158

Purchase of own shares

-

-

(404)

-

-

-

-

-

(404)

Dividends paid

-

-

-

-

-

(43,672)

-

-

(43,672)

Balance at 30 June 2019

14,558

42

(404)

14,577

(42,401)

597,784

(302)

(577)

583,277

 

 

 

 

 

 

 

 

 

 

Year ended 30 June 2020

 

 

 

 

 

 

 

 

 

Profit for the year

-

-

-

-

-

288

-

-

288

 

 

 

 

 

 

 

 

 

 

Other comprehensive income and expense (net of tax)

 

 

 

 

 

 

 

 

 

Remeasurement of defined benefit pension scheme liabilities

-

-

-

-

-

(18,494)

-

-

(18,494)

 

 

 

 

 

 

 

 

 

 

Foreign exchange translation differences

-

-

-

2,965

-

-

-

-

2,965

 

 

 

 

 

 

 

 

 

 

Relating to associates and joint ventures

-

-

-

187

-

-

-

-

187

 

 

 

 

 

 

 

 

 

 

Changes in fair value of cash flow hedges

-

-

-

-

11,946

-

-

-

11,946

Total other comprehensive income and expenses

-

-

-

3,152

11,946

(18,494)

-

-

(3,396)

Total comprehensive income and expenses

-

-

-

3,152

11,946

(18,206)

-

-

(3,108)

 

 

 

 

 

 

 

 

 

 

Share-based payments charge

-

-

-

-

-

-

173

-

173

Dividends paid

-

-

-

-

-

(33,478)

-

-

(33,478)

Balance at 30 June 2020

14,558

42

(404)

17,729

(30,455)

546,100

(129)

(577)

546,864

 

More details of share capital and reserves are given in note 21.

 

 

 

 

 

 

 

CONSOLIDATED STATEMENT OF CASH FLOW

for the year ended 30 June 2020

 

 

 

Notes

 

2020

Restated*

2019

 

 

£'000

£'000

Cash flows from operating activities

 

 

 

Profit for the year

 

288

92,232

Adjustments for:

 

 

 

Depreciation of property, plant and equipment and right of use assets

10

30,578

22,597

Loss on sale of property, plant and equipment

 

22

148

Impairment of property, plant and equipment

10

2,590

1,155

Amortisation of development costs

11

16,861

15,144

Impairment of development costs

11

15,881

-

Amortisation of other intangibles

11

1,566

1,518

Loss/(profit) on disposal of other intangibles

 

53

(455)

Impairment of other intangibles

11

1,600

-

Impairment of goodwill

11

808

-

Share of profits from associates and joint ventures

12

(841)

(3,815)

Profit on disposal of investment in associate

12

(1,053)

-

Fair value gain on revaluation of investment in associate

12

(2,775)

-

Impairment of investment in associate

12

257

-

Remeasurement of defined benefit pension scheme liabilities from GMP equalisation

13

 

-

 

751

Financial income

5

(913)

(7,238)

Financial expenses

5

4,840

902

Losses/(gains) from the fair value of financial instruments

25

21,609

(6,081)

Share-based payment expense

14

173

158

Tax expense

8

2,920

17,712

 

 

94,176

42,496

 

 

 

 

Decrease/(increase) in inventories

 

23,529

(18,463)

Decrease in trade and other receivables

 

17,639

30,028

Decrease in trade and other payables

 

(11,297)

(7,183)

Increase/(decrease) in provisions

17

2,745

(607)

 

 

32,616

3,775

 

 

 

 

Defined benefit pension contributions

13

(11,814)

(6,831)

Income taxes paid

 

(10,607)

(25,183)

Cash flows from operating activities

 

104,659

106,489

 

 

 

 

Investing activities

 

 

 

Purchase of property, plant and equipment

10

(38,657)

(56,792)

Sale of property, plant and equipment

 

3,633

4,713

Development costs capitalised

11

(17,405)

(18,091)

Purchase of other intangibles

 

(3,338)

(4,161)

Sale of other intangibles

 

-

2,000

Decrease/(increase) in bank deposits

15

42,500

(52,500)

Interest received

5

835

1,145

Dividend received from associates and joint ventures

12

512

614

Proceeds from sale of shares in associate

12

986

-

Cash flows from investing activities

 

(10,934)

(123,072)

 

 

 

 

Financing activities

 

 

 

Increase in borrowings

19

1,894

10,486

Repayment of borrowings

19

(1,136)

(87)

Interest paid

5

(549)

(57)

Repayment of lease liabilities

22

(4,896)

-

Dividends paid

21

(33,478)

(43,672)

Purchase of own shares

21

-

(404)

Cash flows from financing activities

 

(38,165)

(33,734)

 

 

 

 

Net increase in cash and cash equivalents

 

55,560

(50,317)

Cash and cash equivalents at beginning of the year

 

54,326

103,847

Effect of exchange rate fluctuations on cash held

 

500

796

Cash and cash equivalents at end of the year

15

110,386

54,326

*2019 cash and cash equivalents and bank deposits figures have been restated, see note 1.

 

 

 

NOTES (FORMING PART OF THE FINANCIAL STATEMENTS)

 

1. Accounting policies

Basis of preparation

Renishaw plc (the Company) is a company incorporated in England and Wales. The Group financial statements consolidate those of the Company and its subsidiaries (together referred to as the Group) and equity account the Group's interest in associates and joint ventures.

 

The financial information set out in the announcement does not constitute the Group's statutory accounts for the years ended 30 June 2020 or 30 June 2019. The financial information for the year ended 30 June 2019 is derived from the statutory accounts for that year, which have been delivered to the Registrar of Companies, but restated for the impact of a change in accounting policy. The auditor reported on those accounts; their report was unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain a statement under s498 (2) or (3) Companies Act 2006. The audit of the statutory accounts for the year ended 30 June 2020 is not yet complete. These accounts will be finalised on the basis of the financial information presented by the Directors in this preliminary announcement and will be delivered to the Registrar of Companies following the Group's annual general meeting.   The consolidated financial statements are presented in Sterling, which is the Company's functional currency and the Group's presentational currency, and all values are rounded to the nearest thousand (£'000).

 

The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these Group financial statements. Judgements made by the directors, in the application of these accounting policies, that have a significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are noted below.

 

Critical accounting judgements and estimation uncertainties

The preparation of financial statements in conformity with adopted IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis.

 

The areas of key estimation uncertainty and critical accounting judgement that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities in the next financial year are summarised below, with further details included within accounting policies as indicated.

 

Item

 

Key judgements (J) and estimates (E)

Revenue recognition

J - Timing of satisfaction of performance obligations

Intangibles

E - Estimates of useful life of intangible assets

Research and development costs

J - Whether a project meets appropriate criteria for capitalisation

Goodwill and capitalised development costs

E - Estimates of future cash flows for impairment testing

Inventories

E - Determination of net realisable inventory value

Cash flow hedges

E - Estimates of highly probable forecasts of the hedged item

Defined benefit pension schemes

E - Valuation of defined benefit pension schemes' liabilities

Taxation

E - Estimates of future profits to utilise deferred tax assets

 

The impact of COVID-19 has been considered as part of the estimates and judgements above, and factored into sensitivity analyses included in the following notes. Global macroeconomic uncertainty preceding COVID-19, and furthered by COVID-19, has impacted the revenue, profit and cashflow forecasts which underpin most of the above estimates. The valuation of defined benefit pension schemes' liabilities are not affected by these forecasts, however COVID-19 has affected the key assumptions of discount rate and inflation rate. The timing of satisfaction of performance obligations has not been affected by COVID-19.

 

New, revised or changes to existing accounting standards

The following accounting standards have been applied for the first time, with effect from 1 July 2019, and have been adopted in the preparation of these financial statements

IFRS 16 'Leases'

IFRS 16 'Leases' replaces IAS 17 and related standards, and provides an accounting model under which substantially all leases are recognised on the balance sheet of the lessee. A 'right of use' asset is recognised, being the right to use the underlying asset of the lease, and a lease liability is also recognised on the balance sheet, being the obligation to make payments in respect of the use of the underlying asset.

The Group adopted IFRS 16 on 1 July 2019 using the modified retrospective transition approach (and has therefore not restated comparatives for the prior period) with the principal change being that leases previously classified as operating leases under IAS 17 were brought on to the balance sheet at 1 July 2019. The impact of IFRS 16 is disclosed later in this note.

In adopting IFRS 16 the Group took advantage of the following practical expedients permitted by the standard:

- The right of use assets were measured at an amount based on the lease liability at adoption, and initial direct costs incurred when obtaining leases were excluded from this measurement;

- Reliance was placed on previous assessments of whether leases are onerous (the assessment of which determined that the impact of onerous leases was trivial); and

- Operating leases with a remaining lease term of less than 12 months at 1 July 2019 were accounted for as 'short-term leases'.

As IFRS 16 no longer distinguishes between operating leases and finance leases, operating lease commitments disclosed at 30 June 2019 were replaced with a lease liability and recognised at 1 July 2019, as follows:

 

 

£'000

Operating lease commitments as disclosed at 30 June 2019

16,390

Less: effect of discounting

(149)

Less: recognition differences and assumptions

(1,994)

Total lease liability recognised at 1 July 2019

14,247

 

Recognition differences include leases now classified as low value or short-term and re-evaluations of non-cancellable lease terms according to IFRS 16. The weighted average incremental borrowing rate applied to the Group's lease liabilities recognised in the consolidated balance sheet at 1 July 2019 was 2.4%.

The impact on the primary statements of adopting IFRS 16 at 1 July 2019 is summarised below:

 

Impact on the Consolidated balance sheet

 

 

At 30 June 2020 £'000

At 1 July 2019 £'000

Right of use assets

12,672

14,550

Deferred tax assets

139

-

Non-current assets

12,811

14,550

Lease liabilities

4,241

4,799

Other payables

203

303

Current liabilities

4,444

5,102

Lease liabilities

8,925

9,448

Non-current liabilities

8,925

9,448

Total assets less total liabilities

(558)

-

Currency translation reserve

10

-

Retained earnings

(568)

-

Total equity

(558)

-

 

Right of use assets at 1 July 2019 consisted of £11,377,000 relating to property leases occupied for trading purposes, £3,013,000 relating to vehicle leases and a small amount relating to machinery leases.

 

Impact on the Consolidated income statement

 

The impact on the Consolidated income statement for the financial year ended 30 June 2020 is to increase operating profit by £62,000 and increase financial expenses by £766,000, therefore reducing profit before tax by £704,000. The aggregate of depreciation and interest expense will generally result in higher expenses in the earlier periods of leases than would have been the case under IAS 17.

 

Impact on the Consolidated cash flow statement

 

There is no change to net cash flow from the adoption of IFRS 16. Under IAS 17 operating lease payments were treated as operating cash outflows, however under IFRS 16 payments made at lease inception and subsequently (both principal and interest) are classified as financing outflows. The Group therefore shows both higher cash inflows from operating activities and higher cash outflows from financing activities under IFRS 16.

In addition to IFRS 16, the Group has adopted the following IFRS amendments, which have not had a material impact on amounts reported or disclosures in these financial statements:

- IFRS 17 'Insurance Contracts'; 

- IFRS 9 (amendments) - Prepayment Features with Negative Compensation;

- IAS 28 (amendments) - Long-term Interests in Associates and Joint Ventures;

- IAS 19 (amendments) - Plan Amendment, Curtailment or Settlement;

- IFRS 10 and IAS 28 (amendments) - Sale or Contribution of Assets between an Investor and its Associate or Joint Venture;

-  Annual Improvements - Amendments to IFRS 3 Business Combinations, IFRS 11 Joint Arrangements, IAS 12 Income Taxes and IAS 23 Borrowing Costs; and

- IFRIC 23 'Uncertainty over Income Tax Treatments'.

 

Going concern

The Group's Principal risks and uncertainties are set out earlier in the announcement, and details of the financial and liquidity positions are given in the Group Finance Director's commentary. Note 20 sets out the Group's objectives and policies for managing its capital, details of its financial instruments and hedging activities and its exposures to credit risk and liquidity risk.

 

As explained in note 26 Restructuring costs, changes were made to the Group's strategy for Additive Manufacturing and resulted in impairments to capitalised development costs, goodwill and property and equipment relating to this part of the business. The Board do not consider that this will have a significant adverse effect on the Group's profitability or liquidity in the period covered by either the going concern assessment or the viability statement, and have taken account of these strategic changes when preparing the forecast models. This consideration is also applicable to the impact on the 12-month forecast period of the impairment in 2020 of other capitalised development costs.

 

As at 30 June 2020 the Group has a strong balance sheet, with net current assets of £286.4m, including net cash and bank deposits of £120.4m. Whilst the Group has secured eligibility to the Bank of England Covid Corporate Financing Facility (CCFF), no commercial papers have been issued and the Group does not anticipate making use of this facility. Access to the CCFF has not been taken into consideration in the downside scenarios discussed below.

 

Against the backdrop of the aforementioned strong financial position, as part of the directors' consideration of the appropriateness of adopting the going concern basis in preparing these financial statements, severe but plausible scenarios have been considered that estimate the potential impact of the principal risks on the financial forecasts over the assessment period, as well as the potential impact of the COVID-19 pandemic.

 

Third-party research and publications were reviewed, in which the most severe scenario considered that a 'second wave' of the pandemic would be experienced in the remainder of the calendar year 2020, before easing from the start of the calendar year 2021. The Board's most severe scenario therefore assumed that lockdown measures and other COVID-19 related restrictions would reoccur in calendar year 2020, resulting in reduced demand for that period, particularly in the aerospace and automotive markets. Principal risks most relevant to short-term revenue, being supply chain dependencies and exchange rate fluctuations were also assumed to crystallise in the first six months of the forecast period, reflecting the risks relating to Brexit and the impact on revenue of a 15% strengthening of sterling. Other principal risks of industry fluctuations and economic and political uncertainty are reflected in the assumption that trading in the second six months of the forecast period would be comparable to the first half of financial year 2020.

 

From this combination of assumptions, a revenue forecast of c£350m was determined for the 12 months to August 2021. In assessing liquidity for the going concern period the other key assumptions under this scenario were a deterioration in debtor days to 85 days (worse than was experienced by the Group in the 2009 global financial crisis), continued funding of the UK defined benefit pension scheme in line with the agreed recovery plan, no reduction in the Group's operating expenses beyond the cost-reduction initiatives that are already underway, and the impact on costs of a 15% strengthening in sterling against the major trading currencies of the Group. This scenario also assumes that the Group will conserve its cash by not paying dividends and by restricting capital expenditure to £10m per annum, a level which would support the Group's manufacturing facilities and IT infrastructure. No additional borrowings or financing are assumed in this severe scenario, and the cash flow forecast shows positive cash balances, net of working capital requirements, throughout the 12-month going concern period.

 

Reverse stress testing has also been applied to the model and was updated to reflect actual sales in July 2020. This stress testing demonstrated that the Group would retain a positive liquidity position until revenue decreased to c£169m for the 12 months to August 2021. The Board considers the possibility of this revenue forecast to be highly unlikely, and mitigating actions to further reduce operating costs would be put in place if actual trading in the period was consistent with this scenario.

 

As a result of the assessments undertaken, the Directors consider that the Group is well placed to manage its business risks successfully. After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for a period of at least 12 months from August 2020. Accordingly, they continue to adopt the going concern basis in preparing these financial statements.

 

Basis of consolidation

Subsidiaries - Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to or has rights to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. In assessing control, the Group takes into consideration potential voting rights that are exercisable. The acquisition date is the date on which control is transferred to the acquirer. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Losses applicable to the noncontrolling interests in a subsidiary are allocated to the non-controlling interests even if doing so causes the non-controlling interests to have a deficit balance.

 

Application of the equity method to associates and joint ventures - Associates and joint ventures are accounted for using the equity method (equity accounted investees) and are initially recognised at cost. The Group's investment includes goodwill identified on acquisition, net of any accumulated impairment losses. The consolidated financial statements include the Group's share of the total comprehensive income and equity movements of equity accounted investees, from the date that significant influence commences until the date that significant influence ceases. When the Group's share of losses exceeds its interest in an equity accounted investee, the Group's carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal obligations or made payments on behalf of an investee.

 

Transactions eliminated on consolidation - Intragroup balances and transactions, and any unrealised income and expenses arising from intragroup transactions, are eliminated. Unrealised gains arising from transactions with equity accounted investees are eliminated against the investment to the extent of the Group's interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

 

Separately disclosed items

 

The directors consider that certain items should be separately disclosed to aid users' understanding of the Group's performance.

 

Gains and losses from the fair value of financial instruments are therefore separately disclosed in the Consolidated income statement, where these gains and losses relate to certain forward currency contracts that are not effective for hedge accounting. Restructuring costs are also separately disclosed where significant costs have been incurred in rationalising and reorganising our business as part of a Board-approved strategy and relate to matters that do not frequently recur.

 

These items are also excluded from Adjusted profit before tax, Adjusted operating profit and Adjusted earnings per share measures, as explained in Note 25 Alternative Performance Measures.

 

Alternative performance measures

The financial statements are prepared in accordance with adopted IFRS and applied in accordance with the provisions of the Companies Act 2006. In measuring our performance, the financial measures that we use include those which have been derived from our reported results in order to eliminate factors which distort year-on-year comparisons.

 

These are considered non-GAAP financial measures. We believe this information, along with comparable GAAP measurements, is useful to stakeholders in providing a basis for measuring our operational performance. The Board use these financial measures, along with the most directly comparable GAAP financial measures, in evaluating our performance (see note 25).

 

Revenue

The Group generates revenue from the sale of metrology and healthcare goods, capital equipment and services. These can be sold both on their own and together.

a) Sale of goods, capital equipment and services

The Group's contracts with customers consist both of contracts with one performance obligation and contracts with multiple performance obligations.

For contracts with one performance obligation, revenue is measured at the transaction price, which is typically the contract value except for customers entitled to volume rebates, and recognised at the point in time when control of the product transfers to the customer. This point in time is typically when the products are made available for collection by the customer, collected by the shipping agent, or delivered to the customer, depending upon the shipping terms applied to the specific contract.

 

Contracts with multiple performance obligations typically exist where, in addition to supplying product, we also supply services such as user training, servicing and maintenance, and installation services. Where the installation service is simple, does not include a significant integration service and could be performed by another party then the installation is accounted for as a separate performance obligation. Where the contracts include multiple performance obligations, the transaction price is allocated to each performance obligation based on the relative stand-alone selling prices, the assessment of which is documented in the Key judgement. The revenue allocated to each performance obligation is then recognised when, or as, that performance obligation is satisfied. For installation, this is typically at the point in time in which installation is complete. For training, this is typically the point in time at which training is delivered. For servicing and maintenance, the revenue is recognised evenly over the course of the servicing agreement except for ad-hoc servicing and maintenance which is recognised at the point in time in which the work is undertaken.

 

b) Sale of software

The Group provides software licences and software maintenance to customers, sold both on their own and together with associated products. Where the software licence and/or maintenance is provided as part of a contract that provides customers with software licences and other goods and services then the transaction price is allocated on the same basis as described in a) above.

The Group's software licences provide a right of use, and therefore revenue from software licences is recognised at the point in time in which the licence is supplied to the customer. Revenue from software maintenance is recognised evenly over the term of the maintenance agreement.

c) Programming contracts

Programming is typically a distinct performance obligation and revenue for this work is recognised at a point in time, being when the completed program is supplied to the customer.

d) Extended warranties

The Group provides standard warranties to customers that address potential latent defects that existed at point of sale and as required by law (assurance-type warranties). In some contracts, the Group also provides warranties that extend beyond the standard warranty period and may be sold to the customer (service-type warranties).

Assurance-type warranties continue to be accounted for by the Group under IAS 37 'Provisions, Contingent Liabilities and Contingent Assets'. Service-type warranties are accounted for as separate performance obligations and therefore a portion of the transaction price is allocated to this element, and then recognised evenly over the period in which the service is provided.

e) Contract balances

Contract assets represent the Group's right to consideration in exchange for goods and services that have been transferred to a customer, and mainly includes accrued revenue in respect of goods and services provided to a customer but not yet fully billed. Contract assets are distinct from receivables, which represent the Group's right to consideration that is unconditional.

Contract liabilities represent the Group's obligation to transfer goods or services to a customer for which the Group has either received consideration or consideration is due from the customer.

f) Disaggregation of revenue

The Group disaggregates revenue from contracts with customers between: goods, capital equipment and installation, and aftermarket services; reporting segment; and geographical location.

Management believe these categories best depict how the nature, amount, timing and uncertainty of the Group's revenue is affected by economic factors.

 

Key judgement - Timing of satisfaction of performance obligations

The majority of the Group's revenue is recognised at a point in time, and to determine that point an assessment is made as to when the customer obtains control of promised products or services. This assessment is made primarily by reference to the shipping terms applied to the specific contract for products that do not require customer acceptance.

Where the contract requires customer acceptance, management assess whether the Group can objectively determine that the criterion of the testing can be successfully met at the point of transferring the equipment to the customer. Where this can be objectively determined, customer acceptance testing is considered a formality and does not delay the recognition of revenue. Where this cannot be objectively determined control of the product is not deemed to have transferred to the customer and therefore the portion of the transaction price that relates to this performance obligation is not recognised until the acceptance criteria are met.

For revenue recognised over time, such as servicing contracts, the Group recognises the revenue on a basis that depicts the Group's performance in transferring control of the goods or services to the customer, having assessed the nature of the promised goods or service. The Group applies the relevant output or input method consistently to similar performance obligations in other contracts.

 

Foreign currencies

Consolidation - Overseas subsidiaries' results are translated into Sterling at weighted average exchange rates for the year, which is effected by translating each overseas subsidiary's monthly results at exchange rates applicable to each of the respective months. Assets and liabilities denominated in foreign currencies at the balance sheet date are translated into Sterling at the foreign exchange rates prevailing at that date. Differences on exchange resulting from the translation of overseas assets and liabilities are recognised in Other comprehensive income and are accumulated in equity.

Transactions and balances - Monetary assets and liabilities denominated in foreign currencies are reported at the rates prevailing at the time, with any gain or loss arising from subsequent exchange rate movements being included as an exchange gain or loss in the Consolidated income statement. Foreign currency differences arising from transactions are recognised in the Consolidated income statement.  

Financial instruments and fair value measurements

The Group measures financial instruments such as forward exchange contracts at fair value at each balance sheet date in accordance with IFRS 9 'Financial instruments'. Fair value, as defined by IFRS 13 'Fair Value Measurement', is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Note 20, Financial instruments, provides detail on the IFRS 13 fair value hierarchy.

Trade and other current receivables are initially recognised at fair value and are subsequently held at amortised cost less any provision for bad and doubtful debts and expected credit losses according to IFRS 9. Long-term loans to associates and joint ventures are initially recognised at fair value and are subsequently held at amortised cost. Trade and other current payables are initially recognised at fair value and are subsequently held at amortised cost.

Financial liabilities in the form of loans are initially recognised at fair value and are subsequently held at amortised cost. Financial liabilities are assessed for embedded derivatives and whether any such derivatives are closely related. If not closely related, such derivatives are accounted for at fair value in the Consolidated income statement.

Foreign currency derivative cash flow hedges

Foreign currency derivatives are used to manage risks arising from changes in foreign currency rates relating to overseas sales and foreign currency denominated assets and liabilities. The Group does not enter into derivatives for speculative purposes. Foreign currency derivatives are stated at their fair value, being the estimated amount that the Group would pay or receive to terminate them at the balance sheet date, based on prevailing foreign currency rates.

Changes in the fair value of foreign currency derivatives which are designated and effective as hedges of future cash flows are recognised in Other comprehensive income and in the Cash flow hedging reserve, and subsequently transferred to the carrying amount of the hedged item or the Consolidated income statement. Realised gains or losses on cash flow hedges are therefore recognised in the Consolidated income statement within revenue in the same period as the hedged item.

Hedge accounting is discontinued when the hedging instrument expires or no longer qualifies for hedge accounting. At that time, any cumulative gain or loss on the hedging instrument previously recognised in equity is retained in equity until the hedged transaction occurs. If the hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is then transferred to the Consolidated income statement.

Changes in fair value of foreign currency derivatives, which are ineffective or do not meet the criteria for hedge accounting in IFRS 9, are recognised in the Consolidated income statement within Gains/losses from the fair value of financial instruments.

 

In addition to derivatives held for cash flow hedging purposes, the Group uses short-term derivatives not designated as hedging instruments to offset gains and losses from exchange rate movements on foreign currency denominated assets and liabilities. Gains and losses from currency movements on underlying assets and liabilities, realised gains and losses on these derivatives and fair value gains and losses on outstanding derivatives of this nature are all recognised in Financial income in the Consolidated income statement. See note 20 for further detail on financial instruments.

 

Key estimate - Estimates of highly probable forecasts of the hedged item

 

Derivatives are effective for hedge accounting to the extent that the hedged item is 'highly probable' to occur, with 'highly probable' indicating a much greater likelihood of occurrence than the term 'more likely than not'. Determining a highly probable sales forecast for Renishaw plc and Renishaw UK Sales Limited, being the hedged item, over a multiple year time period, requires judgement of the suitability of external and internal data sources and estimations of Renishaw's future sales. Relevant sensitivity analysis is included in note 20.

 

Cash and cash equivalents

During the FRC's review of our 2019 Annual Report we clarified that while we considered that certain bank deposits met the requirements of IAS 7 to be treated as cash equivalents, the expiry date of two of these short-term deposits exceeded 3 months. We have therefore amended our accounting policy to the following:

Cash and cash equivalents comprise cash balances, and deposits meeting the following criteria

- deposits with an original maturity of less than 3 months; and

- deposits with an original maturity date of more than 3 months where the deposit can be accessed on demand without significant penalty for early withdrawal and where the original deposit amount is recoverable in full

Bank overdrafts that are repayable on demand form part of cash and cash equivalents for the purposes of the Consolidated statement of cash flow.

This change in accounting policy has been applied retrospectively and therefore the comparatives in the Consolidated statement of cash flow has been amended to show a cash outflow of £52.5m in investing activities for the amounts placed on deposits exceeding 3 months and not accessible on demand, and the comparatives in the Consolidated balance sheet show £52.5m of Bank deposits separately from Cash and cash equivalents.

Pension scheme cash escrow account

The Company holds a pension scheme escrow account as part of the security given for the UK defined benefit pension scheme. This account is shown within current assets in the Consolidated balance sheet as it may be used to settle pension scheme liabilities immediately upon enforcement of the charge over the account.

 

Goodwill and other intangible assets

Costs related to the acquisition, other than those associated with the issue of debt or equity securities, are expensed as incurred. Deferred consideration relating to acquisitions is subject to discounting to the date of acquisition and subsequently unwound to the date of the final payment. Goodwill arising on acquisition represents the difference between the cost of the acquisition and the fair value of the net identifiable assets acquired, net of deferred tax. Identifiable intangibles are those which can be sold separately or which arise from legal rights regardless of whether those rights are separable.

Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group.

Goodwill is stated at cost less any accumulated impairment losses. It is not amortised but is tested annually for impairment or earlier if there are any indications of impairment. The annual impairment review involves comparing the carrying amount to the estimated recoverable amount and recognising an impairment loss if the recoverable amount is lower. Impairment losses are recognised in the Consolidated income statement.

 

Intangible assets such as customer lists, patents, trade marks, know-how and intellectual property that are acquired by the Group are stated at cost less amortisation and impairment losses. Amortisation is charged to the Consolidated income statement on a straight-line basis over the estimated useful lives of the intangible assets. The estimated useful lives of the intangible assets included in the Consolidated balance sheet reflect the benefit derived by the Group and vary from five to ten years.

 

Key estimate - Estimates of useful life of intangible assets

 

The periods of amortisation of intangible assets require judgements to be made on the estimated useful lives of the intangible assets to determine an appropriate rate of amortisation. Future assessments of impairment may lead to the writing off of certain amounts of intangible assets and the consequent charge in the Consolidated income statement for the accelerated amortisation. Capitalised development costs are written off over five years, the period over which demand forecasts can be reasonably predicted.

 

Intangible assets - research and development costs

 

Expenditure on research activities is recognised in the Consolidated income statement as an expense as incurred. Expenditure on development activities is capitalised if the product or process is technically and commercially feasible and the Group intends and has the technical ability and sufficient resources to complete development, future economic benefits are probable and the Group can measure reliably the expenditure attributable to the intangible asset during its development.

 

Development activities involve a plan or design for the production of new or substantially improved products or processes. The expenditure capitalised includes the cost of materials, direct labour and an appropriate proportion of overheads. Other development expenditure is recognised in the Consolidated income statement as an expense as incurred.

 

Capitalised development expenditure is amortised over five years and is stated at cost less accumulated amortisation and less accumulated impairment losses. Capitalised development expenditure is removed from the balance sheet ten years after being fully amortised.

 

Key judgement - Whether a project meets appropriate criteria for capitalisation

 

Product development costs are capitalised once a project has reached a certain stage of development and these costs are subsequently amortised over a five-year period. Judgements are required to assess whether the new product development has reached the appropriate point for capitalisation of costs to begin. Should a product be subsequently obsoleted, the accumulated capitalised development costs would need to be immediately written off in the Consolidated income statement.

 

Intangible assets - software licences

 

Intangible assets, comprising software licences that are acquired by the Group, are stated at cost less accumulated amortisation and impairment losses. Amortisation is charged on a straight-line basis over the estimated useful life of the assets. The useful life of each of these assets is assessed on an individual basis and they range from two to ten years.

 

Impairment of non-current assets

 

All non-current assets are tested for impairment whenever there is an indication that their carrying value may be impaired. An impairment loss is recognised in the Consolidated income statement to the extent that an asset's carrying value exceeds its recoverable amount, which represents the higher of the asset's net realisable value and its value in use. An asset's value in use represents the present value of the future cash flows expected to be derived from the asset or from the cash-generating unit to which it relates. The present value is calculated using a discount rate that reflects the current market assessment of the time value of money and the risks specific to the asset concerned.

 

Goodwill and capitalised development costs are subject to an annual impairment test.

 

Key estimate - Estimates of future cash flows used for impairment testing

 

Determining whether goodwill is impaired requires an estimation of the value-in-use of cash-generating units (CGUs) to which goodwill has been allocated. The value-in-use calculation involves an estimation of the future cash flows of CGUs and also the selection of appropriate discount rates, which involves judgement, to calculate present values (see note 11). Similarly, determining whether capitalised development costs are impaired requires an estimation of their value-in-use which involves significant judgement. Relevant sensitivity analysis is included in note 11.

 

Property, plant and equipment

 

Freehold land is not depreciated. Other assets are stated at cost less accumulated depreciation. Depreciation is provided to write off the cost of assets less their estimated residual value on a straight-line basis over their estimated useful economic lives as follows:

 

Freehold buildings 50 years, Plant and equipment 3 to 25 years, Vehicles 3 to 4 years.

 

Inventory and work in progress

 

Inventory and work in progress is valued at the lower of actual cost on a first-in, first-out (FIFO) basis and net realisable value. In respect of work in progress and finished goods, cost includes all production overheads and the attributable proportion of indirect overhead expenses that are required to bring inventories to their present location and condition. Overheads are absorbed into inventories on the basis of normal capacity or on actual hours if higher.

 

Key estimate - Determination of net realisable inventory value

 

Determining the net realisable value of inventory requires judgement, especially in respect of provisioning for slow moving and potentially obsolete inventory. Management use the higher of previous 12-month usage levels or demand from customer orders and manufacturing build plans as a basis for estimating the future annual demand of individual stock items. For most products and their components, provisions are typically made for quantities held in excess of three years' demand. A demand basis lower than three years is used for those products and related components where the sales history is more volatile. Where strategic purchases of critical components have been made, an outlook beyond three years is considered where appropriate.

 

Leases

 

As a lessee

 

At the lease commencement date the Group recognises a right of use asset for the leased item and a lease liability for any lease payments due.

 

Right of use assets are initially measured at cost, being the present value of the lease liability plus any initial costs incurred in entering the lease and less any lease incentives received. Right of use assets are subsequently depreciated on a straight-line basis from the commencement date to the earlier of i) the end of the useful life of the asset, or ii) the end of the lease term.

 

Lease liabilities are initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the incremental borrowing rate of the applicable entity. The lease liability is subsequently measured at amortised cost using the effective interest method and is remeasured if there is a change in future lease payments arising from a change in an index or rate (such as an inflation-linked increase), of if there is a change in the Group's assessment of whether it will exercise an extension or termination option. When this happens there is also a corresponding adjustment to the right-of-use asset.

 

Where the Group enters into leases with a lease term of 12 months or less, these are treated as 'short term' leases and are recognised on a straight-line basis as an expense in the Consolidated income statement. The same treatment applies to low-value assets, which are typically IT equipment and office equipment.

 

As a lessor

 

The Group acts as a lessor for Renishaw-manufactured plant and equipment and determines at inception whether the lease is a finance or an operating lease.

 

Where the Group transfers the risks and rewards of ownership of lease assets to a third party, the Group recognises a receivable in the amount of the net investment in the lease. The lease receivable is subsequently reduced by the principal received, while an interest component is recognised as financial income in the Consolidated income statement.

 

Where the Group retains the risks and rewards of ownership of lease assets, it continues to recognise the leased asset in Property, plant and equipment. Income from operating leases is recognised on a straight-line basis over the lease term and recognised as Revenue rather than Other revenue as such income is not material.

 

Employee benefits

The Group operates contributory pension schemes, largely for UK, Ireland and USA employees, which were of the defined benefit type up to 5 April 2007, 31 December 2007 and 30 June 2012 respectively, at which time they ceased any future accrual for existing members and were closed to new members.

 

The schemes are administered by trustees who are independent of the Group finances. Investment assets of the defined benefit schemes are measured at fair value using the bid price of the unitised investments, quoted by the investment manager, at the reporting date. Pension scheme liabilities are measured using a projected unit method and discounted at the current rate of return on a high-quality corporate bond of equivalent term and currency to the liability. Remeasurements arising from defined  benefit schemes comprise actuarial gains and losses, the return on scheme assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest). The Company recognises them immediately in Other comprehensive income and all other expenses related to defined benefit schemes are included in the Consolidated income statement.

 

The pension schemes' surpluses, to the extent that they are considered recoverable, or deficits are recognised in full and presented on the face of the Consolidated balance sheet under employee benefits. Where a guarantee is in place in relation to a pension scheme deficit, liabilities are reported in accordance with IFRIC 14 'The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction'. To the extent that contributions payable will not be available as a refund after they are paid into the plan, a liability is recognised at the point the obligation arises, which is the point at which the minimum funding guarantee is agreed. Overseas-based employees are covered by state, defined benefit and private pension schemes in their countries of residence. Actuarial valuations of overseas pension schemes were not obtained, apart from Ireland and USA, because of the limited number of members. For defined contribution schemes, the amount charged to the Consolidated income statement represents the contributions payable to the schemes in respect of the accounting period.

 

Accruals are made for holiday pay, based on a calculation of the number of days holiday earned during the year, but not yet taken and also for the annual performance bonus, if applicable.

 

Key estimate - Valuation of defined benefit pension schemes' liabilities

 

Determining the value of the future defined benefit obligation requires judgement in respect of the assumptions used to calculate liabilities and their present values. These include future mortality, discount rate and inflation. Management makes these judgements in consultation with independent actuaries. Details of the estimates and judgements in respect of the current year are given in note 13. Based on a review of the terms of the UK scheme trust deed, management has concluded that there are no likely circumstances which would result in the Company having an unconditional right to a refund in the event of a fund surplus. Relevant sensitivity analysis is included in note 13.

 

Share-based payments

 

The Group provides share-based payment arrangements to certain employees in accordance with the Renishaw plc deferred annual equity incentive plan (the Plan) (see the Governance section for further detail). The share awards are subject only to continuing service of the employee and are equity settled. The fair value of the awards at the date of grant, which is estimated to be equal to the market value, is charged to the Consolidated income statement on a straight-line basis over a three-year vesting period, with appropriate adjustments made to reflect expected or actual forfeitures. The corresponding credit is to Other reserve. The Renishaw Employee Benefit Trust (EBT) is responsible for purchasing shares on the open market on behalf of the Company to satisfy the Plan awards. Own shares held are recognised as an element in equity until they are transferred at the end of the vesting period, and such shares are excluded from earnings per share calculations.

 

Warranty provisions

 

The Group provides a warranty from the date of purchase, except for those products that are installed by the Group where the warranty starts from the date of completion of the installation. This is typically for a 12-month period, although up to three years is given for a small number of products. A warranty provision is included in the Group financial statements, which is calculated on the basis of historical returns and internal quality reports.

 

Government grants

 

Government grants are recognised in the Consolidated income statement as a deduction against expenditure. Where grants are received in advance of the related expenses, they are initially recognised in the Consolidated balance sheet and released to match the related expenditure. Where grants are expected to be received after the related expenditure has occurred, and there is reasonable assurance that the entity will comply with the grant conditions, amounts are recognised to offset the expenditure and an asset recognised. Accordingly, amounts relating to the UK Coronavirus Job Retention Scheme are recognised as grants.

 

Taxation

 

Tax on the profit for the year comprises current and deferred tax. Tax is recognised in the Consolidated income statement except to the extent that it relates to items recognised directly in Other comprehensive income, in which case it is recognised in the Consolidated statement of comprehensive income and expense. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in previous years.

 

Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination; and differences relating to investments in subsidiaries, to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.

 

Key estimate - Estimates of future profits to support the recognition of deferred tax assets

 

Deferred tax assets are recognised to the extent it is probable that future taxable profits (including the future release of deferred tax liabilities) will be available, against which the deductible temporary differences can be utilised, based on management's assumptions relating to the amounts and timing of future taxable profits. Estimates of future profitability on an entity basis are required to ascertain whether it is probable that sufficient taxable profits will arise to support the recognition of deferred tax assets relating to the corresponding entity. Relevant sensitivity analysis is included in note 9.

 

2.  SEGMENTAL ANALYSIS

The Group manages its business in two segments, comprising metrology and healthcare products. The results of these are regularly reviewed by the Board to allocate resources to segments and to assess their performance. Within the operating segment of metrology, there are multiple product offerings with similar economic characteristics, and where the nature of the products and production processes and their customer bases are similar.

 

Year ended 30 June 2020

Metrology

Healthcare

Total

 

£'000

£'000

£'000

 

 

 

 

Revenue

475,203

35,012

510,215

Depreciation, amortisation and impairment

67,327

2,557

69,884

 

 

 

 

Operating profit before losses from fair value of financial instruments

31,188

1,737

32,925

Share of profits from associates and joint ventures

841

-

841

Net financial expense

-

-

(3,927)

Losses from the fair value of financial instruments

-

-

(26,631)

Profit before tax

-

-

3,208

 

 

 

 

Year ended 30 June 2019

Metrology

£'000

Healthcare

£'000

Total

£'000

 

 

 

 

Revenue

532,940

41,019

573,959

Depreciation and amortisation

37,714

2,700

40,414

 

 

 

 

Operating profit before gains from fair value of financial instruments

95,345

3,367

98,712

Share of profits from associates and joint ventures

3,815

-

3,815

Net financial gain

-

-

6,336

Gains from the fair value of financial instruments

-

-

1,081

 

 

 

 

Profit before tax

-

-

109,944

 

There is no allocation of assets and liabilities to operating segments. Depreciation is included within certain other overhead expenditure which is allocated to segments on the basis of the level of activity.

 

The following table shows the disaggregation of group revenue by category:

 

 

2020

2019

 

 

£'000

£'000

 

 

 

 

Goods, capital equipment and installation

 

457,024

519,782

Aftermarket services

 

53,191

54,177

Total Group revenue

 

510,215

573,959

 

Aftermarket services include repairs, maintenance and servicing, programming, training, extended warranties, and software licences and maintenance.

 

The analysis of revenue by geographical market was:

 

 

2020

2019

 

 

£'000

£'000

APAC

 

227,650

240,115

EMEA

 

167,253

201,255

Americas

 

115,312

132,589

Total Group revenue

 

510,215

573,959

 

Revenue in the previous table has been allocated to regions based on the geographical location of the customer. Countries with individually material revenue figures in the context of the Group were:

 

 

2020

2019

 

 

£'000

£'000

China

 

102,840

111,002

USA

 

101,153

113,235

Japan

 

57,833

63,650

Germany

 

49,397

60,916

There was no revenue from transactions with a single external customer which amounted to more than 10% of the Group's total revenue.

The following table shows the analysis of non-current assets, excluding deferred tax and derivatives, by geographical region:

 

 

2020

2019

 

 

£'000

£'000

UK

 

186,249

196,214

Overseas

 

159,258

140,164

Total non-current assets

 

345,507

336,378

 

No overseas country had non-current assets amounting to 10% or more of the Group's total non-current assets.

 

 

3.  PERSONNEL EXPENSES

 

The aggregate payroll costs for the year were:  

 

 

 

2020

 

2019

 

 

£'000

£'000

Wages and salaries

 

183,165

193,035

Compulsory social security contributions

 

21,373

21,485

Contributions to defined contribution pension schemes

 

21,103

22,701

Government grants - employment support

 

(4,532)

-

Share-based payment charge

 

173

158

Total payroll costs

 

221,282

237,379

 

Amounts recognised as 'Government grants - employment support' mostly relates to the UK Coronavirus Job Retention Scheme. 2020 total payroll costs do not include redundancy costs relating to restructuring, see note 26.

 

The average number of persons employed by the Group during the year was:

 

 

 

2020

 

2019

 

 

Number

Number

UK

 

3,001

3,126

Overseas

 

1,796

1,842

Average number of employees

 

4,797

4,968

 

Key management personnel have been assessed to be the Directors of the Company.

 

The total remuneration of the Directors was:

 

 

 

2020

 

2019

 

 

£'000

£'000

Short-term employee benefits

 

1,980

2,810

Post-employment benefits

 

136

205

Share-based payment charge

 

173

158

Total remuneration of the directors

 

2,289

3,173

 

Full details of Directors' remuneration are given in the Directors' remuneration report.

 

 

 

 

 

 

 

4.  COST OF SALES

Included in cost of sales are the following amounts:

 

 

2020

 

2019

 

£'000

£'000

Production costs

184,326

200,050

Research and development expenditure

66,614

75,049

Other engineering expenditure

15,755

22,817

Gross engineering expenditure

82,369

97,866

Research and development expenditure capitalised (net of amortisation)

(544)

(2,947)

Research and development expenditure impaired (see note 11)

9,881

-

Research and development tax credit

(4,399)

(5,137)

Total engineering costs

87,307

89,782

Total cost of sales

271,633

289,832

 

Research and development expenditure includes the payroll costs, material costs and allocated overheads attributed to projects identified as being related to new products or processes. Other engineering expenditure includes the payroll costs, material costs and allocated overheads attributed to projects identified as being related to existing products or processes.

 

Research and development expenditure impaired excludes amounts relating to Restructuring costs, per note 26.

 

5.  FINANCIAL INCOME AND EXPENSES

 

 

 

2020

 

2019

Financial income

 

£'000

£'000

Currency gains

 

-

5,940

Fair value gains from 1 month forward currency contracts (note 20)

 

-

76

Interest receivable

 

913

1,222

Total financial income

 

913

7,238

Financial expenses

 

 

 

Net interest on pension schemes' liabilities (note 13)

 

861

845

Currency losses

 

2,433

-

Fair value losses from 1 month forward currency contracts (note 20)

 

154

-

Lease interest

 

765

-

Interest payable

 

627

57

Total financial expenses

 

4,840

902

 

Currency gains and losses relate to revaluations of foreign currency denominated balances using latest reporting currency exchange rates. The gains recognised in 2019 largely relate to a depreciation of Sterling relative to the US dollar affecting US dollar-denominated intragroup balances in the Company.

 

Certain intragroup balances were reclassified as 'net investments in foreign operations' during 2019, such that revaluations from currency movements on designated balances after this date accumulate in the Currency translation reserve in Equity. Additionally, from 1 January 2019, a policy of entering into rolling one month forward currency contracts began, with fair value gains and losses being recognised in financial income or expenses, to offset currency movements on remaining intragroup balances. See note 20 for further details.

 

6.  PROFIT BEFORE TAX

Included in the profit before tax are the following costs/(income):

 

 

Notes

 

2020

 

2019

 

 

£'000

£'000

Depreciation and impairment of property, plant and equipment and right of use assets

(a)

33,168

23,752

Amortisation and impairment of intangible assets

(a)

36,716

16,662

Loss on sale of property, plant and equipment

(b)

22

148

Profit on sale of other intangibles

(b)

-

(455)

Auditor:

 

 

 

Audit of these financial statements

(b)

293

226

Audit of subsidiary undertakings pursuant to legislation

(b)

398

329

Other assurance

(b)

12

4

All other non-audit fees

(b)

3

1

 

These costs/(income) can be found under the following headings in the Consolidated income statement: (a) within cost of sales, distribution costs and administrative expenses and (b) within administrative expenses.

 

7.   EARNINGS PER SHARE

Basic and diluted earnings per share are calculated on earnings of £288,000 (2019: £92,232,000) and on 72,778,904 shares (2019: 72,778,904 shares), being the number of shares in issue. The number of shares excludes 9,639 shares held by the EBT, which were purchased on 10 December 2018.

There is no difference between the weighted average earnings per share and the basic and diluted earnings per share.

For the calculation of adjusted earnings per share, per note 25, earnings of £288,000 (2019: £92,232,000) are adjusted by post-ax amounts for Fair value (gains)/losses on financial instruments not eligible for hedge accounting (reported in revenue), Fair value (gains)/losses on financial instruments not eligible for hedge accounting (reported in Gains/(losses) from the fair value of financial instruments) and restructuring costs, amounting to £592,000 gain, £18,095,000 loss and £19,276,000 loss respectively. 

8.   INCOME TAX EXPENSE

 

 

 

2020

 

2019

 

 

£'000

£'000

Current tax:

 

 

 

UK corporation tax on profits for the year

 

-

4,691

UK corporation tax - prior year adjustments

 

333

(622)

Overseas tax on profits for the year

 

9,236

11,980

Overseas tax - prior year adjustments

 

(89)

-

Total current tax

 

9,480

16,049

Deferred tax:

 

 

 

Origination and reversal of temporary differences

 

(9,349)

2,719

Prior year adjustments

 

(185)

(882)

Derecognition of previously recognised tax losses and excess interest

 

2,953

-

Recognition of previously unrecognised tax losses

 

(1,127)

(55)

Effect on deferred tax for changes in tax rates

 

1,148

(119)

 

 

(6,560)

1,663

Tax charge on profit

 

2,920

17,712

 

The tax for the year is higher (2019: lower) than the UK standard rate of corporation tax of 19% (2019: 19%).

 

The differences are explained as follows:

 

 

2020

 

2019

 

£'000

£'000

Profit before tax

3,208

109,944

Tax at 19% (2019: 19%)

610

20,889

Effects of:

 

 

Different tax rates applicable in overseas subsidiaries

(312)

(124)

UK patent box

-

(1,787)

Expenses not deductible for tax purposes

576

583

Companies with unrelieved tax losses

189

231

Share of profits of associates and joint ventures

(85)

(631)

Items with no tax effect

(596)

(203)

Prior year adjustments

58

(1,504)

Effect on deferred tax for change in tax rates

1,148

(119)

Recognition of previously unrecognised tax losses

(1,127)

(55)

Derecognition of previously recognised tax losses and excess interest

2,953

-

Utilisation of unrecognised losses

(399)

-

Other differences

(95)

432

Tax charge on profit

2,920

17,712

Effective tax rate

91.0%

16.1%

 

The Group's future effective tax rate (ETR) will mainly depend on the geographic mix of profits and whether there are any changes to tax legislation in the Group's most significant countries of operations. Whilst the UK patent box benefit normally has a significant impact on the ETR, UK losses in 2020 have resulted in nil patent box benefit for 2020 (2019: £1,787,000 credit). In the Spring Budget 2020, the Government announced that from 1 April 2020 the UK corporation tax rate would remain at 19%, rather than reducing to 17% as previously enacted. This has resulted in a deferred tax charge of £1,059,000. A partial derecognition of the deferred tax asset totalling £2,953,000 relating to US tax losses, further contributed to the year-on-year increase in the ETR.

 

The deferred tax asset derecognition has arisen from uncertainty over the recoverability of a portion of previously recognised losses against future taxable profits in our US business, as a consequence of recent macroeconomic uncertainty and AM restructuring (see note 26).

 

9.  DEFERRED TAX

Deferred tax assets and liabilities are offset where there is a legally enforceable right of offset and there is an intention to net settle the balances. After taking these offsets into account, the net position of £39,142,000 asset (2019: £29,316,000 asset) is presented as a £39,641,000 deferred tax asset (2019: £29,855,000 asset) and a £499,000 deferred tax liability (2019: £539,000 liability) in the Group's consolidated balance sheet.

Where deferred tax assets are recognised, the Directors are of the opinion, based on recent and forecast trading, that the level of profits in current and future years make it more likely than not that these assets will be recovered.

Balances at the end of the year were:

 

2020

2019

 

Assets

Liabilities

Net

Assets

Liabilities

Net

 

£'000

£'000

£'000

£'000

£'000

£'000

Property, plant and equipment

306

(14,234)

(13,928)

184

(13,265)

(13,081)

Intangible assets

-

(1,264)

(1,264)

-

(2,494)

(2,494)

Intragroup trading (inventories)

14,249

(289)

13,960

16,686

-

16,686

Intragroup trading (fixed assets)

2,071

-

2,071

2,309

-

2,309

Defined benefit pension schemes

11,951

(55)

11,896

8,526

-

8,526

Derivatives

6,344

-

6,344

8,816

-

8,816

Tax losses

14,077

-

14,077

3,255

-

3,255

Other

6,023

(37)

5,986

5,927

(628)

5,299

Balance at the end of the year

55,021

(15,879)

39,142

45,703

(16,387)

29,316

 

Other deferred tax assets include timing differences relating to inventory provisions totalling £1,876,000, other provisions of £1,628,000, employee benefits relating to Renishaw KK of £731,000, and uniform capitalisation relating to Renishaw Inc of £729,000, with the balance relating to a number of other temporary differences.

 

The movements in the deferred tax balance during the year were:

 

 

2020

2019

 

 

£'000

£'000

Balance at the beginning of the year

 

29,316

27,240

IFRS 15 transition adjustment

 

-

372

Reallocation from current tax

 

163

340

Movements in the Consolidated income statement

 

6,560

(1,663)

Movement in relation to the cash flow hedging reserve

 

(1,978)

4,561

Movement in relation to the currency translation reserve

 

(403)

-

Movement in relation to the defined benefit pension schemes

 

5,484

(1,534)

Total movement in the Consolidated statement of comprehensive income and expense

 

3,103

3,027

Balance at the end of the year

 

39,142

29,316

         

 

The deferred tax movement in the Consolidated income statement is analysed as:

 

 

2020

2019

 

 

£'000

£'000

Property, plant and equipment

 

(847)

(4,369)

Intangible assets

 

1,230

945

Intragroup trading (inventories)

 

(2,725)

(708)

Intragroup trading (fixed assets)

 

(238)

(13)

Defined benefit pension schemes

 

(2,114)

(1,036)

Derivatives

 

(494)

(1,155)

Tax losses

 

10,822

1,400

Other

 

926

3,273

Total movement for the year

 

6,560

(1,663)

 

A deferred tax asset of £11,225,000 is recognised in respect of losses made in the Company in 2020. It is considered likely that the business will generate sufficient future taxable profits to recognise the deferred tax asset in full, as losses made in 2020 include a number of costs, such as restructuring costs per note 26, which are unlikely to reoccur in future years. Further deferred tax net assets in respect of losses of £2,852,000 have been recognised across other group companies where it is considered likely that the business will generate sufficient future taxable profits.

 

Deferred tax assets have not been recognised in respect of tax losses carried forward of £20,930,000 (2019: £21,028,000), due to uncertainty over their offset against future taxable profits and therefore their recoverability, of which 98% is accounted for by group companies in the US, Brazil, Canada, Switzerland and Australia. US and Canada losses, accounting for 65%, can be carried forward for minimum of 20 years, Switzerland (17%), for 7 years (with the existing losses expiring by 2023), while there are no time limitations on the remainder.

 

In determining profit forecasts for each group company, revenue forecasts have been estimated using consistently applied external and internal data sources, which is the key variable in the profit forecasts, while cost forecasts reflect cost reduction measures and AM restructuring undertaken during the year (see note 26). A reduction of 5% to relevant revenue forecasts, would result in an impairment to deferred tax assets recognised in respect of losses of less than £2,000,000, while an increase of 5% would result in additions to deferred tax assets in respect of tax losses not recognised of less than £1,100,000.

 

10.  PROPERTY, PLANT AND EQUIPMENT

 

Freehold

 

 

Assets in the

 

 

land and

Plant and

Motor

course of

 

 

buildings

equipment

vehicles

construction

Total

Year ended 30 June 2020

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

Cost

 

 

 

 

 

At 1 July 2019

197,474

245,027

9,555

8,758

460,814

Additions

11,808

7,818

309

18,722

38,657

Transfers

15,948

5,169

-

(21,117)

-

Disposals

(297)

(10,061)

(1,305)

-

(11,663)

Currency adjustment

623

33

(33)

-

623

At 30 June 2020

225,556

247,986

8,526

6,363

488,431

 

 

 

 

 

 

Depreciation

 

 

 

 

 

At 1 July 2019

31,893

158,567

6,877

-

197,337

Charge for the year

3,985

20,796

1,061

-

25,842

Impairment

-

2,590

-

-

2,590

Disposals

(386)

(6,389)

(1,235)

-

(8,010)

Currency adjustment

350

300

(27)

-

623

At 30 June 2020

35,842

175,864

6,676

-

218,382

 

 

 

 

 

 

Net book value

 

 

 

 

 

At 30 June 2020

189,714

72,122

1,850

6,363

270,049

At 30 June 2019

165,581

86,460

2,678

8,758

263,477

 

At 30 June 2020, properties with a net book value of £83,200,000 (2019: £75,200,000) were subject to a fixed charge to secure the UK defined benefit pension scheme liabilities.

 

Additions to assets in the course of construction of £18,722,000 (2019: £8,690,000) comprise £12,836,000 (2019: £5,806,000) for freehold land and buildings and £5,886,000 (2019: £2,884,000) for plant and equipment.

 

Impairments in the year relate to restructuring costs described in note 26.

 

 

Freehold

 

 

Assets in the

 

 

land and

Plant and

Motor

course of

 

 

buildings

equipment

vehicles

construction

Total

Year ended 30 June 2019

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

Cost

 

 

 

 

 

At 1 July 2018

174,156

218,018

9,736

6,800

408,710

Additions

19,603

27,596

903

8,690

56,792

Transfers

2,846

3,886

-

(6,732)

-

Disposals

(1,520)

(6,016)

(1,241)

-

(8,777)

Currency adjustment

2,389

1,543

157

-

4,089

At 30 June 2019

197,474

245,027

9,555

8,758

460,814

 

 

 

 

 

 

Depreciation

 

 

 

 

 

At 1 July 2018

30,776

138,576

6,801

-

176,153

Charge for the year

741

20,701

1,155

-

22,597

Impairment

-

1,155

-

-

1,155

Disposals

(106)

(2,628)

(1,182)

-

(3,916)

Currency adjustment

482

763

103

-

1,348

At 30 June 2019

31,893

158,567

6,877

-

197,337

 

 

 

 

 

 

Net book value

 

 

 

 

 

At 30 June 2019

165,581

86,460

2,678

8,758

263,477

At 30 June 2018

143,380

79,442

2,935

6,800

232,557

 

 

 

 

 

11.  INTANGIBLE ASSETS

 

 

 

 

Other

Internally

generated

Software licences and

 

 

Goodwill on

intangible

development

Intellectual

 

 

consolidation

assets

costs

property

Total

Year ended 30 June 2020

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

Cost

 

 

 

 

 

At 1 July 2019

20,227

13,823

150,042

20,827

204,919

Additions

-

1,986

17,405

1,352

20,743

Disposals

-

-

-

(140)

(140)

Currency adjustment

291

20

-

24

335

At 30 June 2020

20,518

15,829

167,447

22,063

225,857

 

 

 

 

 

 

Amortisation

 

 

 

 

 

At 1 July 2019

8,220

11,260

108,954

17,429

145,863

Charge for the year

-

267

16,861

1,299

18,427

Impairment

808

1,600

15,881

-

18,289

Disposals

-

-

-

(87)

(87)

Currency adjustment

-

(22)

-

23

1

At 30 June 2020

9,028

13,105

141,696

18,664

182,493

 

 

 

 

 

 

Net book value

 

 

 

 

 

At 30 June 2020

11,490

2,724

25,751

3,399

43,364

At 30 June 2019

12,007

2,563

41,088

3,398

59,056

 

 

 

 

Goodwill on consolidation

Other intangible assets

Internally generated development costs

Software licences and intellectual property

Total

Year ended 30 June 2019

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

Cost

 

 

 

 

 

At 1 July 2018

19,763

11,795

131,951

24,658

188,167

Additions

-

2,014

18,091

2,147

22,252

Disposals

-

-

-

(6,000)

(6,000)

Currency adjustment

464

14

-

22

500

At 30 June 2019

20,227

13,823

150,042

20,827

204,919

 

 

 

 

 

 

Amortisation

 

 

 

 

 

At 1 July 2018

8,220

11,256

93,810

20,370

133,656

Charge for the year

-

18

15,144

1,500

16,662

Disposals

-

-

-

(4,455)

(4,455)

Currency adjustment

-

(14)

-

14

-

At 30 June 2019

8,220

11,260

108,954

17,429

145,863

 

 

 

 

 

 

Net book value

 

 

 

 

 

At 30 June 2019

12,007

2,563

41,088

3,398

59,056

At 30 June 2018

11,543

539

38,141

4,288

54,511

 

 

 

Goodwill

 

Goodwill acquired has arisen on the acquisition of a number of businesses and has an indeterminable useful life. Therefore, it is not amortised but is tested for impairment annually and at any point during the year when an indicator of impairment exists. Goodwill is allocated to the cash generating units (CGUs), which are mainly the statutory entities acquired. This is the lowest level in the Group at which goodwill is monitored for impairment and is at a lower level than the Group's operating segments. In the following table, only the goodwill relating to the acquisition of Renishaw Fixturing Solutions, LLC is expected to be subject to tax relief.

 

The analysis of acquired goodwill on consolidation is:

 

 

2020

2019

 

 

£'000

£'000

itp GmbH

 

3,148

3,092

Renishaw Mayfield S.A.

 

2,039

1,930

Renishaw Fixturing Solutions, LLC

 

5,585

5,453

Other smaller acquisitions

 

718

1,532

Total acquired goodwill

 

11,490

12,007

 

The recoverable amounts of acquired goodwill are based on value-in-use calculations. These calculations use cash flow projections based on either the financial business plans approved by management for the next five financial years, or estimated growth rates over the five years, which are set out below. The cash flows beyond this forecast are extrapolated into perpetuity using a nil growth  rate on a prudent basis, to reflect the uncertainties over forecasting beyond five years.

The following pre-tax discount rates have been used in discounting the projected cash flows:

 

 

 

2020

2019

 

 

Discount rate

Discount rate

itp GmbH

 

8%

12%

Renishaw Fixturing Solutions, LLC

 

8%

12%

Renishaw Mayfield S.A.

 

15%

15%

 

Discount rates for metrology CGUs (itp GmbH and Renishaw Fixturing Solutions, LLC) are based on a Group weighted average cost of capital. The healthcare CGU (Renishaw Mayfield S.A.) has a higher risk weighting, reflecting the less mature nature of this segment.

 

An increase of 5% in the discount rate would not result in an impairment on any of the CGUs. Management believes the likelihood of any increase in discount rates above 5% to be remote.

 

The following bases have been used in determining cash flow projections:

 

Forecast cash flows and future growth rates

2020

Basis of forecast

2019

Basis of forecast

 

 

 

itp GmbH

5 % growth rate

5 % growth rate

Renishaw Fixturing Solutions, LLC

5 year business plan

5 year business plan

Renishaw Mayfield S.A.

5 year business plan

5 year business plan

 

These forecast cash flows are considered prudent estimates based on management's view of the future and experience of past performance of the individual CGUs and are calculated at a disaggregated level.

 

The key judgement within these business plans is the forecasting of revenue growth, given that the cost bases of the businesses can be flexed in line with revenue performance. Given the average revenue growth assumptions included in the five-year business plans, management's sensitivity analysis involves a reduction of 10% in the forecast cash flows utilised in those business plans and therefore into perpetuity. For there to be an impairment there would need to be a reduction to these forecast cash flows of 53% for itp GmbH, 70% for Renishaw Fixturing Solutions, LLC and 67% for Renishaw Mayfield S.A. Management deems the likelihood of these reductions to be remote.

 

Internally generated development costs

 

The key assumption in determining the value-in-use for internally generated development costs is the forecast unit sales over five years, which is determined by management using their knowledge and experience with similar products and the sales history of products already available in the market. Resulting cash flow projections over five years, the period over which product demand forecasts can be reasonably predicted and internally generated development costs are written off, are discounted based on a Group weighted average cost of capital, being 8%.

 

Impairments of internally generated development costs in the year totalled £15,881,000 (2019: nil), of which £9,881,000 was recognised in Cost of sales and £5,999,000 was recognised in Restructuring costs (see note 26) in the Consolidated income statement. Amounts recognised in Cost of sales primarily relate to metrology products of a capital nature, where the high-volume growth previously anticipated is now less predictable as a result of global macroeconomic uncertainty.

 

For the largest projects, comprising over 75% of the net book value at 30 June 2020, a 10% reduction to forecast unit sales, or an increase in the discount rate by 5%, would result in a further impairment of less than £1,000,000.

 

12.  INVESTMENT IN ASSOCIATES AND JOINT VENTURES

 

The Group's investments in associates and joint ventures (all investments being in the ordinary share capital of the associate and joint ventures), whose accounting years end on 30 June, except where noted otherwise, were:

 

 

Country of

Ownership

Ownership

 

incorporation and

2020

2019

 

principal place of business

%

%

RLS Merilna tehnika d.o.o. (joint venture)

Slovenia

50.0

50.0

Metrology Software Products Limited (joint venture)

England & Wales

50.0

50.0

HiETA Technologies Limited (31 December) (associate)

England & Wales

33.3

24.9

 

Movements during the year were:

 

2020

2019

 

£'000

£'000

Balance at the beginning of the year

13,095

9,822

Additions

4,299

-

Dividends received

(512)

(614)

Share of profits of associates and joint ventures

841

3,815

Impairment

(1,306)

-

Exchange differences

187

72

Balance at the end of the year

16,604

13,095

 

On 6 January 2020 a third party acquired shares in Renishaw's associate company, HiETA Technologies Limited (HiETA). As part of the transaction, Renishaw plc converted a loan to share capital in HiETA, disposed of a proportion of its shareholding, and the remaining shareholding was diluted following a share issue to the third party. This resulted in an addition to Renishaw's investments in associates and joint ventures of £4,299,000, which represents the converted loan of £1,524,000 and the fair value gain of £2,775,000 on the loan option, with the latter being recognised in the Consolidated income statement. Following the transaction, Renishaw plc has a 33.33% shareholding in HiETA.

 

A revision to HiETA's five year business plan at 30 June 2020 in light of macroeconomic uncertainty resulted in a subsequent impairment to Renishaw's investment of £1,306,000 and an impairment in the long-term loan of £1,297,000. The residual carrying value of this long-term loan at 30 June 2020 is £2,500,000, which is expected to be repaid by December 2022.

 

Other Long-term loans to associates and joint ventures amounts of £318,000 relate to RLS Merilna tehnika d.o.o.

 

Long-term loans to associates and joint ventures are tested for impairment using discounted cash flow projections at each reporting period, according to five-year business plans approved by management, or where there are indicator of impairments.

 

In respect of HiETA, a 30% reduction in forecast cashflows would result in additional impairments to the investment and loan carrying values of £1,961,000 and £587,000 respectively, while an increase of 3% to the discount factor would result in additional impairments to the investment and loan carrying values of £552,000 and £333,000 respectively.

 

Summarised aggregated financial information for associates and joint ventures:

 

 

    Joint ventures

  Associate

 

2020

2019

2020

2019

 

£'000

£'000

£'000

£'000

Assets

32,861

30,570

5,171

3,083

Liabilities

(5,053)

(5,180)

(7,494)

(8,669)

Net assets/(liabilities)

27,808

25,390

(2,323)

(5,586)

Group's share of net assets/(liabilities)

13,904

12,695

(767)

(1,391)

 

 

 

 

 

Revenue

23,899

26,886

1,926

1,032

Profit/(loss) for the year

3,068

7,630

(3,685)

(1,980)

Group's share of profit/(loss) for the year

1,534

3,815

(1,088)

(493)

 

The aggregate of the group's share or profit/(loss) for the year does not total to amounts recognised as share of profits of associates and joint ventures in the Consolidated income statement and the table above, with losses of £395,000 recognised in administrative expenses as an impairment against loan amounts until the carrying value of Renishaw's investment in HiETA was in a positive position.

 

13.  EMPLOYEE BENEFITS

 

The Group operates a number of pension schemes throughout the world. As noted in the accounting policies, actuarial valuations of foreign pension schemes are not obtained for the most part because of the limited number of members. The major scheme, which covers qualifying UK-based employees, is of the defined benefit type. This scheme, along with the Ireland and USA defined benefit pension schemes, has ceased any future accrual for current members and these schemes are closed to new members. UK, Ireland and USA employees are now covered by defined contribution schemes.

 

The total pension cost of the Group for the year was £21,103,000 (2019: £22,701,000), of which £136,000 (2019: £205,000) related to Directors and £5,253,000 (2019: £6,440,000) related to overseas schemes.

 

The latest full actuarial valuation of the UK defined benefit pension scheme was carried out as at 30 September 2018 and updated to 30 June 2020 by a qualified independent actuary. The mortality assumption used for 2020 is S2PMA and S2PFA tables, CMI (core) 2019 model with long-term improvements of 1% per annum.

 

Major assumptions used by the actuary for the UK and Ireland schemes were:

 

 

30 June 2020

  30 June 2019

 

UK scheme

Ireland scheme

US scheme

UK scheme

Ireland scheme

US scheme

Rate of increase in pension payments

2.8%

1.3%

-

3.3%

1.5%

-

Lump sum - assumed settlement rate

-

-

0.8%

-

-

1.3%

Discount rate

1.5%

1.1%

2.8%

2.3%

1.2%

3.3%

Inflation rate (RPI)

2.8%

1.3%

-

3.4%

1.5%

-

Inflation rate (CPI)

2.2%

-

-

2.4%

-

-

Retirement age

64

65

65

64

65

65

               

 

The life expectancies implied by the mortality assumption at age 65 are:

 

 

2020

2019

 

 

years

years

Male currently aged 65

 

21.4

21.3

Female currently aged 65

 

23.4

23.2

Male currently aged 45

 

22.4

22.3

Female currently aged 45

 

24.6

24.4

 

The weighted average duration of the defined benefit obligation is around 24 years.

 

The assets and liabilities in the defined benefit schemes at the end of the year were:

 

30 June 2020 £'000

% of total assets

30 June 2019 £'000

% of total assets

Market value of assets:

 

 

 

 

  Equities

110,027

58

111,209

61

  Multi-asset funds

54,822

29

64,708

36

  Bonds

17,756

10

3,135

2

  Cash and other

6,014

3

2,536

1

 

188,619

100

181,588

100

Actuarial value of liabilities

(253,514)

-

(233,458)

-

Deficit in the schemes

(64,895)

-

(51,870)

-

Deferred tax thereon

11,896

-

8,526

-

 

Equities are held in externally-managed funds and primarily relate to UK and US equities. Bonds relate to UK, US and Eurozone government-linked securities, again held in externally-managed funds. The fair values of these equity and fixed income instruments are determined using the bid price of the unitised investments, quoted by the investment manager, at the reporting date and therefore represent 'Level 2' of the fair value hierarchy defined in note 20.

 

Multi-asset funds are also held in externally-managed funds, with active asset allocation to diversify growth across asset classes such as equities, bonds and money-market instruments. The fair value of these funds is determined on a comparable basis to the equity and fixed income funds, and therefore are also 'Level 2' assets.

 

'Cash and other' investment assets were higher at the year-end than in 2019 primarily due to the partial reallocation of investment assets in the US, with a portion of funds being temporarily transferred from previous holdings in to highly liquid assets at the year-end, before being invested primarily in equities in the next financial year.

 

No scheme assets are directly invested in the Group's own equity.

 

The UK scheme is closed for future accrual and is expected to mature over the coming years, and therefore while the focus of the investment strategy remains on growth the trustees intend to start gradually de-risking the investments where appropriate.

 

The overall target investment strategy for the period to 30 June 2020 was therefore to still hold 64% of investment assets in equities, 35% in diversified growth funds and 1% in index-linked gilts, excluding the investment of the £8.7m annual deficit contributions agreed as part of the 2019 funding arrangement. These contributions for the year ended 30 June 2020 were invested in a fund classified as 'Fixed income' as a short-term approach, and are expected to be invested in an externally-managed high lease-to-value property fund in the future.

 

The movements in the schemes' assets and liabilities were:

 

Assets

Liabilities

Total

Year ended 30 June 2020

£'000

£'000

£'000

Balance at the beginning of the year

181,588

(233,458)

(51,870)

Contributions paid

11,814

-

11,814

Interest on pension schemes

4,371

(5,232)

(861)

Remeasurement loss under IAS 19

(2,237)

(21,741)

(23,978)

Benefits paid

(6,917)

6,917

-

Balance at the end of the year

188,619

(253,514)

(64,895)

 

 

Assets

Liabilities

Total

Year ended 30 June 2019

£'000

£'000

£'000

Balance at the beginning of the year

172,842

(240,220)

(67,378)

Contributions paid

6,831

-

6,831

Interest on pension schemes

4,902

(5,747)

(845)

Remeasurement loss from GMP equalisation

-

(751)

(751)

Remeasurement gain under IAS 19 and IFRIC 14

4,219

6,054

10,273

Benefits paid

(7,206)

7,206

-

Balance at the end of the year

181,588

(233,458)

(51,870)

 

The analysis of the amount recognised in the Consolidated statement of comprehensive income and expense was:

 

2020

2019

 

£'000

£'000

Actuarial gain/(loss) arising from:

 

 

- Changes in demographic assumptions

(682)

2,937

- Changes in financial assumptions

(22,402)

(22,941)

- Experience adjustment

1,648

(4,677)

Return on plan assets excluding interest income

(2,542)

3,454

Adjustment to liabilities for IFRIC 14

-

31,500

Total amount recognised in the Consolidated statement of comprehensive income and expense

(23,978)

10,273

 

The cumulative amount of actuarial gains and losses recognised in the Consolidated statement of comprehensive income and expense was a loss of £124,782,000 (2019: loss of £100,804,000).

 

The total deficit of the Group's defined benefit pension schemes, on an IAS 19 basis, has increased from £51,870,000 at 30 June 2019 to £64,895,000 at 30 June 2020, primarily reflecting the net impact of decreases in the discount rate, RPI and CPI for the UK defined benefit scheme since 30 June 2019. The latest actuarial report prepared in September 2018 shows a deficit of £70,700,000, which is based on funding to self sufficiency and uses prudent assumptions. IAS 19 requires best estimate assumptions to be used, resulting in the IAS 19 deficit being lower than the actuarial deficit.

 

For the UK defined benefit scheme, a guide to the sensitivity of the value of the respective liabilities is as follows:

 

 

Approximate

Variation

effect on liabilities

UK - discount rate

Increase/decrease by 0.5%

-£24.0m/+£28.1m

UK - future inflation

Increase/decrease by 0.5%

+£23.3m/-£23.1m

UK - mortality

Increased life by one year

+£10.5m

One year earlier than assumed

+£5.8m

 

A deficit funding plan for the UK defined benefit pension scheme was agreed with The Pensions Regulator in 2018, which superseded all previous arrangements. The Company agreed to pay £8,700,000 per annum into the scheme for five years with effect from 1 October 2018.

 

A number of UK properties owned by the Company with a book value of £83,200,000 at 30 June 2020 are subject to registered fixed charges and continue to provide security to the scheme under the current plan. The Company also has an escrow bank account with a balance of £10,568,000 at the end of the year (2019: £10,490,000) which is subject to a registered floating charge. There is no scheduled release of funds back to the Company under the plan.

 

In the event a subsequent actuarial valuation results in the combined value of the properties and the escrow bank account exceeding 120% of the actuarial deficit, some of the contingent assets will be released back to the Company. Any remaining contingent assets will be released from charge when the deficit no longer exists.

 

The current agreement will continue until 30 June 2031 and any outstanding deficit paid at that time. The agreement will end sooner if the actuarial deficit (calculated on a self-sufficiency basis) is eliminated in the meantime.

 

The charges may be enforced by the trustees if one of the following occurs: (a) the Company does not pay funds into the scheme in line with the agreed plan; (b) an insolvency event occurs in relation to the Company; or (c) the Company does not pay any deficit at 30 June 2031.

 

The value of the guaranteed payments under the plan is lower than the IAS 19 pension scheme deficit at 30 June 2020 and as such, in accordance with IFRIC 14, no adjustment to the scheme's liabilities has been necessary. At 30 June 2019, the increase in liabilities under IFRIC 14 was also nil.

 

Under the Ireland defined benefit pension scheme deficit funding plan, a property owned by Renishaw (Ireland) Designated Activity Company is subject to a registered fixed charge to secure the Ireland defined benefit pension scheme's deficit.

 

14.    SHARE-BASED PAYMENTS

 

Deferred annual equity incentive plan

 

In accordance with the remuneration policy approved by shareholders at the 2017 AGM, the deferred annual equity incentive plan (the Plan) was implemented in relation to the financial year ending 30 June 2018. The 20 July 2018 Remuneration Committee meeting recommended plan rules that were adopted by a resolution of the Board on 24 July 2018. The Committee also approved the grant of awards under the Plan to the participating Executive Directors.

 

The number of shares to be awarded is calculated by dividing the relevant amount of annual bonus under the Plan by the average price of a share during a period determined by the Committee of not more than five dealing days ending with the dealing day before the award date. These shares must be purchased on the open market and cannot be satisfied by issuance of new shares or transfer of existing treasury shares.

 

An employee benefit trust (EBT) exists to purchase and hold such shares, until transferring to the employee, which will normally be on the third anniversary of the award date, subject to continued employment. Malus and clawback provisions can be operated by the Committee within five years of the award date. During the vesting period, no dividends are payable on the shares. However, upon vesting, employees will be entitled to additional shares or cash, equivalent to the value of dividends paid on the awarded shares during this period.

 

The total cost recognised in the 2020 Consolidated income statement in respect of the Plan was £173,000 (2019: £158,000).

 

No awards have been made in respect of 2020.

 

15.  CASH AND CASH EQUIVALENTS

 

An analysis of cash and cash equivalents at the end of the year was:

 

 

2020

2019

 

 

£'000

£'000

 

 

 

 

Bank balances and cash in hand

 

108,609

49,897

Short-term deposits

 

1,777

4,429

Balance at the end of the year

 

110,386

54,326

 

The UK defined benefit pension scheme cash escrow account is shown separately within assets.

*2019 cash and cash equivalents figures have been restated, where the original expiry date of short-term deposits totalling £52,500,000 exceeded 3 months, see note 1. Accounting policies. Consequently, bank deposits amounting to £52,500,000 are shown separately within current assets at 30 June 2019, which have reduced to £10,000,000 at 30 June 2020. This amount is held by the Company, maturing on 28 July 2020.

16.  INVENTORIES

 

An analysis of inventories at the end of the year was:

 

 

2020

2019

 

 

£'000

£'000

Raw materials

 

37,717

46,102

Work in progress

 

18,737

23,431

Finished goods

 

49,043

59,493

Balance at the end of the year

 

105,497

129,026

 

During the year, the amount of inventories recognised as an expense in the Consolidated income statement was £169,769,000 (2019: £185,344,000) and the amount of write-down of inventories recognised as an expense in the Consolidated income statement was £7,473,000 (2019: £1,276,000), which includes £4,910,000 related to restructuring costs, see note 26. At the end of the year, the gross cost of inventories which had provisions held against them totalled £21,133,000 (2019: £14,137,000).

 

17.  PROVISIONS

 

Warranty provision movements during the year were:

 

2020

2019

 

£'000

£'000

Balance at the beginning of the year

2,846

3,453

Created during the year

5,308

2,236

Utilised in the year

(2,563)

(2,843)

 

2,745

(607)

Balance at the end of the year

5,591

2,846

 

The warranty provision has been calculated on the basis of historical return-in-warranty information and other internal reports. It is expected that most of this expenditure will be incurred in the next financial year and all expenditure will be incurred within three years of the balance sheet date. Included within the warranty provision created during the year is £3,400,000 (2019: nil) where the warranty cost has been reassessed to be the cost of replacing certain AM machines where the business will not have the capability to honour the warranty on these machines going forward as a result of the Board's decision before the year-end to fundamentally change the direction of the AM business. As we will not have the ability to repair or maintain these machines, the warranty cost reflects the cost of replacing these machines. These warranty costs are expected to be incurred in the next financial year.

 

 

18.  OTHER PAYABLES

 

Balances at the end of the year were:

 

 

2020

2019

 

 

£'000

£'000

Payroll taxes and social security

 

5,833

7,333

Other creditors and accruals

 

28,539

33,732

Total other payables

 

34,372

41,065

 

19.  BORROWINGS

Third party borrowings at 30 June 2020 include a five year loan entered into on 31 May 2019 by Renishaw KK, with original principal of JPY 1,447,000,000 (£10,486,000), and a loan drawn down in stages throughout 2020 by Renishaw (Korea) Limited, amounting to KRW 2,835,636,000 (£1,894,000).

 

For the Renishaw KK loan, principal of JPY 12,000,000 is repayable each month, with a fixed interest rate of 0.81% also paid on monthly accretion. The residual principal at 31 May 2024 of JPY 739,000,000 can either be repaid in full at that time, or extended for another five years. For the Renishaw (Korea) Limited loan, repayment in full is required on completion of a new property, expected to be in the year ended 30 June 2022, with no interest payable.

 

Borrowings are held at amortised cost. There is no significant difference between the book value and fair value of borrowings, which is estimated by discounting contractual future cash flows, which represents level 2 of the fair value hierarchy defined in note 20.

 

Movements during the year were:

 

 

2020

2019

 

 

£'000

£'000

Balance at the beginning of the year

 

10,399

-

Additions

 

1,894

10,486

Interest

 

78

3

Repayments

 

(1,136)

(90)

Currency

 

308

-

Balance at the end of the year

 

11,543

10,399

 

 

20.   FINANCIAL INSTRUMENTS

 

The Group has exposure to credit risk, liquidity risk and market risk arising from its use of financial instruments. This note presents information about the Group's exposure to these risks, along with the Group's objectives, policies and processes for measuring and managing the risks.

 

Fair value

 

There is no significant difference between the fair value of financial assets and financial liabilities and their carrying value in the Consolidated balance sheet. All financial assets and liabilities are held at amortised cost, apart from the forward exchange contracts, which are held at fair value, with changes going through the Consolidated income statement unless subject to hedge accounting.

 

The fair values of the forward exchange contracts have been calculated by a third party expert, discounting estimated future cash flows on the basis of market expectations of future exchange rates, representing level 2 in the IFRS 13 fair value hierarchy. The IFRS 13 level categorisation relates to the extent the fair value can be determined by reference to comparable market values. The classifications are: level 1 where instruments are quoted on an active market; level 2 where the assumptions used to arrive at fair value have comparable market data; and level 3 where the assumptions used to arrive at fair value do not have comparable market data.

 

Credit risk

 

The Group's liquid funds are substantially held with banks with high credit ratings and the credit risk relating to these funds is therefore limited. The Group carries a credit risk relating to non-payment of trade receivables by its customers. The Group's policy is that credit evaluations are carried out on all new customers before credit is given above certain thresholds. There is a spread of risks among a large number of customers with no significant concentration with one customer or in any one geographical area. The Group establishes an allowance for impairment in respect of trade receivables where recoverability is considered doubtful.

 

An analysis by currency of the Group's financial assets at the year end is as follows:

 

 

Trade & finance lease receivables

Other receivables

Cash & bank deposits

 

2020

2019

2020

2019

2020

2019

Currency

£'000

£'000

£'000

£'000

£'000

£'000

Pound Sterling

9,293

10,628

16,974

12,704

75,052

64,919

US Dollar

33,358

38,724

946

935

7,096

7,666

Euro

15,607

29,516

1,663

4,120

6,324

7,846

Japanese Yen

20,416

18,087

337

740

4,553

3,966

Other

33,186

26,196

3,276

5,962

27,361

22,429

 

111,860

123,151

23,196

24,461

120,386

106,826

 

The above trade receivables, finance lease receivables, other receivables and cash are predominately held in the functional currency of the relevant entity, with the exception of £18,142,000 of US Dollar-denominated trade receivables being held in Renishaw (Hong Kong) Limited and £3,940,000 of Euro-denominated trade receivables being held in Renishaw UK Sales Limited, along with some foreign currency cash balances which are of a short-term nature.

Other receivables include mostly prepayments and indirect tax receivables. Prepayment balances are reviewed at each reporting period to confirm that prepaid goods or services are still expected to be received, while indirect tax balances are reviewed for recoverability.

 

The ageing of trade receivables past due, but not impaired, at the end of the year was:

 

 

2020

2019

 

 

£'000

£'000

Past due 0-1 month

 

11,703

14,999

Past due 1-2 months

 

4,510

4,438

Past due more than 2 months

 

15,495

16,486

Balance at the end of the year

 

31,708

35,923

 

Movements in the provision for impairment of trade receivables during the year were:

 

 

2020

2019

 

 

£'000

£'000

Balance at the beginning of the year

 

3,081

3,301

Changes in amounts provided

 

3,254

292

Amounts utilised

 

(370)

(512)

Balance at the end of the year

 

5,965

3,081

 

The Group applies the simplified approach when measuring the expected credit loss for trade receivables, with a provision matrix used to determine a lifetime expected credit loss.

 

For this provision matrix, trade receivables are grouped into credit risk categories, with category 1 being the lowest risk and category 5 the highest. Risk scores are allocated to the customer's country of operation, their type (such as distributor, end-user and OEM), their industry and the proportion of their debt that was past due at the year-end. These scores are then weighted to produce an overall risk score for the customer, with the lowest scores being allocated to category 1 and the highest scores to category 5.

 

The matrix then applies an expected credit loss rate to each category, with this rate being determined by adjusting the Group's historic credit loss rates to reflect forward-looking information. This includes management's assessment of the impact of COVID-19 and the associated global macroeconomic uncertainty and has resulted in an increase in the expected credit loss rate, and the expected credit loss allowance, compared to the prior year.

 

Where certain customers have been identified as having a significantly elevated credit risk these have been provided for on a specific basis. Both elements of expected credit loss are shown in the matrix below and have been shown separately so as not to distort the expected credit loss rate.

 

The Group has no material contract assets, and finance lease receivables are subject to the same approach as noted above for trade receivables.

 

 

Risk category 1

Risk category 2

Risk category 3

Risk category 4

Risk category 5

2020 Total

2019 Total

Year ended 30 June 2020

£'000

£'000

£'000

£'000

£'000

£'000

£'000

Gross trade receivables

714

39,931

64,908

5,187

302

111,042

113,848

Expected credit loss rate

1.24%

1.35%

1.42%

1.58%

1.69%

1.49%

0.19%

Expected credit loss allowance

9

541

922

82

5

1,559

220

Specific loss allowance

-

-

3,730

676

-

4,406

2,861

Total expected credit loss

9

541

4,652

758

5

5,965

3,081

Net trade receivables

705

39,390

67,038

4,429

297

105,077

116,929

 

The maximum exposure to credit risk is £259,200,000, comprising the Group's trade and other receivables, cash and cash equivalents and derivative assets.

 

The maturities of non-current other receivables, being long-term loans to associates and joint ventures and derivatives, at the year end were:

 

 

2020

2019

 

 

£'000

£'000

Receivable between 1 and 2 years

 

905

1,075

Receivable between 2 and 5 years

 

3,155

1,485

 

 

4,060

2,560

 

 

Liquidity risk

 

The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, without incurring unacceptable losses or risking damage to the Group's reputation. The Group uses monthly cash flow forecasts on a rolling 12-month basis to monitor cash requirements.

 

In respect of net cash and bank deposits, being £120,386,000, the carrying value approximates to fair value because of the short maturity of the deposits. Net cash is affected by interest rates that are either fixed or floating and based on LIBOR, which can change over time, affecting the Group's interest income. Of the net cash subject to floating interest rate charges, an increase of 1% in interest rates would result in an increase in interest income of approximately £1,200,000.

 

Changes in liabilities arising from financing activities

 

Movements during the year were:

 

 

 

1 July 2019

Cash flows

Additions

Interest

Currency

30 June 2020

Lease liabilities

14,247

(4,896)

3,234

766

(185)

13,166

Borrowings

10,399

(1,136)

1,894

78

308

11,543

 

24,646

(6,032)

5,128

844

123

24,709

 

There is no comparative for lease liabilities and the comparative for borrowings is disclosed in note 19.

 

The contractual maturities of financial liabilities at the year end were:     

 

 

 

 

Contractual cash flows

 

Carrying amount

Effect of discounting

Gross maturities

Up to 1 year

1-2 years

2-5 years

Year ended 30 June 2020

£'000

£'000

£'000

£'000

£'000

£'000

Trade payables

16,998

-

16,998

16,998

-

-

Other payables

34,372

-

34,372

34,372

-

-

Borrowings

11,543

226

11,769

1,149

3,034

7,586

Forward exchange contracts

63,648

-

63,648

22,546

29,220

11,882

 

126,561

226

126,787

75,065

32,254

19,468

 

 

 

 

Effect of

Gross

 

 

 

 

Carrying amount

discounting

maturities

Up to 1 year

1-2 years

2-5 years

Year ended 30 June 2019

£'000

£'000

£'000

£'000

£'000

£'000

Trade payables

21,513

-

21,513

21,513

-

-

Other payables

41,065

-

41,065

41,065

-

-

Borrowings

10,399

310

10,709

1,120

1,115

8,474

Forward exchange contracts

54,147

-

54,147

18,920

12,626

22,601

 

127,124

310

127,434

82,618

13,741

31,075

 

Borrowings relate to loans in Renishaw KK and Renishaw (Korea) Limited, see note 19 for further detail.

 

Contract liabilities

 

Movements during the year were:

 

 

Extended

 

Maintenance

 

Volume

Point in time performance

 

Total

 

Warranties

Contracts

rebates

Obligations

 

Year ended 30 June 2019

£'000

£'000

£'000

£'000

£'000

Balance at the beginning of the year

1,226

2,668

678

1,059

5,631

Released during the year

(950)

(1,299)

(675)

(878)

(3,802)

New items added

316

1,668

182

1,934

4,100

Currency

9

38

-

-

47

Balance at the end of the year

601

3,075

185

2,115

5,976

 

Contract liabilities relating to volume rebates are the rebate agreements treated as a distinct performance obligation rather than variable consideration. The aggregate amount of the transaction price allocated to performance obligations that are unsatisfied at the end of the year amounts to £7,416,000, of which £1,489,000 is not expected to be recognised in the next 12 months.

 

Market risk

 

The Group operates in a number of foreign currencies with the majority of sales being made in these currencies, but with most manufacturing being undertaken in the UK, Ireland and India.

 

The Group enters into US Dollar, Euro and Japanese Yen derivative financial instruments to manage its exposure to foreign currency risk, including:

 

i.  Forward foreign currency exchange contracts to hedge a significant proportion of the Group's forecasted US Dollar, Euro and Japanese Yen revenues over the next three and a half years.

 

ii.  Foreign currency option contracts, entered into alongside the forward contracts above until May 2018 as part of the Group revenue hedging strategy, are ineffective for cash flow hedging purposes. Note 25, 'Alternative performance measures', gives an adjusted measure of profit before tax to reflect the original intention that these derivatives were entered into for hedging purposes. The final option contract will mature in November 2021.

 

iii.  One-month forward foreign currency exchange contracts to offset the gains/losses from exchange rate movements arising from foreign currency denominated intragroup balances of the Company.

 

For both the Group and the Company, the following table details the fair value of these forward foreign currency derivatives according to their accounting treatment, and according to the categorisations of instruments noted in the previous market risk section.

 

2020

 

2019

 

 

Nominal value

£'000

Fair value

£'000

Nominal value

£'000

Fair value

£'000

Forward currency contracts in a designated cash flow hedge (i)

 

 

 

 

Non-current derivative assets

78,527

1,133

36,152

319

Current derivative assets

19,467

283

37,060

340

Current derivative liabilities

154,045

(11,415)

198,339

(18,749)

Non-current derivative liabilities

290,499

(24,925)

671,442

(34,967)

 

542,538

(34,924)

942,993

(53,057)

 

 

 

 

 

Amounts recognised in the Consolidated statement of comprehensive income and expense

 

-

 

13,924

 

-

 

(27,573)

 

 

 

 

 

Forward currency contracts ineffective as a cash flow hedge (i)

 

 

 

 

Current derivative liabilities

93,962

(10,030)

-

-

Non-current derivative liabilities

153,585

(16,021)

-

-

 

247,547

(26,051)

-

-

Amounts recognised in Gains/(losses) from the fair value of financial instruments in the Consolidated income statement

 

 

-

 

 

(24,361)

 

 

-

 

 

-

 

 

 

 

 

Foreign currency options ineffective as a cash flow hedge (ii)

 

 

 

 

Non-current derivative assets

-

108

-

991

Current derivative assets

-

3,394

-

2,365

Current derivative liabilities

-

(122)

-

(104)

Non-current derivative liabilities

-

(155)

-

(260)

 

-

3,225

-

2,992

 

 

 

 

 

 

 

 

 

 

Amounts recognised in Gains/(losses) from the fair value of financial instruments in the Consolidated income statement

 

 

-

 

 

2,021

 

 

-

 

 

1,081

 

 

 

 

 

Forward currency contracts not in a designated cash flow hedge (iii)

 

 

 

 

Current derivative assets

5,127

80

26,671

73

Current derivative liabilities

62,549

(979)

19,463

(67)

 

67,676

(899)

46,134

6

 

 

 

 

 

Amounts recognised in Financial income in the Consolidated income statement

 

-

 

(154)

 

-

 

76

 

 

 

 

 

Total forward contracts and options

 

 

 

 

Non-current derivative assets

78,527

1,242

36,152

1,310

Current derivative assets

24,594

3,758

63,731

2,778

Current derivative liabilities

310,556

(22,546)

217,802

(18,920)

Non-current derivative liabilities

444,085

(41,102)

671,442

(35,227)

 

857,762

(58,648)

989,127

(50,059)

             

 

In addition to amounts noted above as recognised in Gains/(losses) from the fair value of financial instruments in the Consolidated income statement, totalling £22,340,000 net loss, an additional loss of £4,291,000 was recognised in Gains/ (losses) from the fair value of financial instruments relating to ineffective portions of forward currency contracts which matured during the year. Therefore, the total amounts recognised in Gains/(losses) from the fair value of financial instruments in the Consolidated income statement amounts to £26,631,000.

 

The amounts of foreign currencies relating to these forward contracts and options are, in Sterling terms:

 

2020

2019

 

Nominal value

£'000

Fair value

£'000

Nominal value

£'000

Fair value

£'000

US Dollar

596,032

(56,562)

678,323

(43,689)

Euro

159,221

409

187,833

(3,501)

Japanese Yen

102,509

(2,495)

122,971

(2,868)

 

857,762

(58,648)

989,127

(50,059)

 

The following are the exchange rates which have been applicable during the financial year.

 

2020

2019

 

Currency

Average forward contract rates

Year end exchange rate

Average exchange rate

Average forward contract rates

Year end exchange rate

Average exchange rate

US Dollar

1.37

1.24

1.26

1.39

1.27

1.29

Euro

1.09

1.10

1.14

1.12

1.12

1.13

Japanese Yen

136

134

136

139

138

144

               

 

For the Group's foreign currency forward contracts and options at the balance sheet date, if Sterling appreciated by 5% against the US Dollar, Euro and Japanese Yen, this would increase pre-tax equity by £25,800,000 and increase profit before tax by £12,000,000, while a depreciation of 5% would decrease pre-tax equity by £28,500,000 and decrease profit before tax by £18,300,000.

 

Hedging

 

In relation to the forward currency contracts in a designated cash flow hedge, the hedged item is a layer component of forecast sales transactions. Forecast transactions are deemed highly probable to occur and Group policy is to hedge at least 75% of net foreign currency exposure for USD, EUR and JPY. The hedged item creates an exposure to receive USD, EUR or JPY, while the forward contract is to sell USD, EUR or JPY and buy GBP. Therefore, there is a strong economic relationship between the hedging instrument and the hedged item. The hedge ratio is 100%, such that, by way of example, £10m nominal value of forward currency contracts are used to hedge £10m of forecast sales. Fair value gains or losses on the forward currency contracts are offset by foreign currency gain or losses on the translation of USD, EUR and JPY based sales revenue, relative to the forward rate at the date the forward contracts were arranged. Foreign currency exposures in HKD and USD are aggregated and only USD forward currency contracts are used to hedge these currency exposures. Sources of hedge ineffectiveness according to IFRS 9 Financial instruments include: changes in timing of the hedged item; reduction in the amount of the hedged sales considered to be highly probable; a change in the credit risk of Renishaw or the bank counterparty to the forward contract; and differences in assumptions used in calculating fair value.

 

During 2020, global macroeconomic uncertainty resulted in a reduction to the 'highly probable' revenue forecasts of Renishaw plc and Renishaw UK Sales Limited, being the hedged item, which has resulted in proportions of forward contracts failing hedge effectiveness testing, with nominal value amounting to £247,547,000.

 

Accumulated fair value losses on forward currency contracts ineffective as a cash flow hedge amounting to £24,361,000 were recycled from the Cash flow hedging reserve to the Consolidated income statement to the extent that the hedged item was no longer 'expected to occur', in accordance with IFRS 9.6.5.12.

 

Based on forward currency contracts outstanding at 30 June 2020, a reduction of 10% to the highly probable revenue forecasts of the hedged item would result in an additional nominal value of £16,600,000 of forward currency contracts becoming ineffective, with an additional £1,565,000 loss recycled to the Consolidated income statement.

 

Capital management

The Group defines capital as being the equity attributable to the owners of the Company, which is captioned on the Consolidated balance sheet. The Board's policy is to maintain a strong capital base and to maintain a balance between significant returns to shareholders, with a long-term progressive dividend policy, while ensuring the security of the Group is supported by a sound capital position. The Group may adjust dividend payments due to changes in economic and market conditions which affect, or are anticipated to affect, Group results.

 

In light of the increased global macroeconomic uncertainty experienced in the first half of the year, and with redundancy programmes in progress, the Director's elected to waive their right to the 2020 interim dividend. Following the outbreak of the COVID-19 pandemic, and according to the Board's priority of conserving cash and managing the Group in a prudent manner through this period of uncertainty, the interim dividend payable during the year was then  cancelled, and no final dividend is declared in respect of the year. The Board will review its position on dividends during the next fiscal year with the intention of reinstating its long-term progressive dividend policy as soon as it is appropriate to do so.

 

21.  SHARE CAPITAL AND RESERVES

 

Share capital

 

2020

2019

 

£'000

£'000

Allotted, called-up and fully paid 72,788,543 ordinary shares of 20p each

14,558

14,558

 

The ordinary shares are the only class of share in the Company. Holders of ordinary shares are entitled to vote at general meetings of the Company and receive dividends as declared. The Articles of Association of the Company do not contain any restrictions on the transfer of shares nor on voting rights.

 

Dividends paid

 

Dividends paid comprised:

 

 

2020

2019

 

 

£'000

£'000

2019 final dividend paid of 46.0p per share (2018: 46.0p)

 

33,478

33,483

Interim dividend paid of nil per share (2019: 14.0p)

 

-

10,189

Total dividends paid

 

33,478

43,672

 

No final dividend is proposed in respect of the current financial (2019: £33,482,729)

 

Currency translation reserve

 

The currency translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of the foreign operations and currency movements on intragroup loan balances classified as net investments in foreign operations from December 2018 (see note 5).

 

Movements during the year were:

2020

2019

 

£'000

£'000

Balance at the beginning of the year

14,577

12,665

Gain on net assets of foreign currency operations

996

1,218

Gain on intragroup loans classified as net investments in foreign operations

2,373

827

Tax on translation of net investments in foreign operations

(403)

(205)

Gain in the year relating to subsidiaries

2,966

1,840

Currency exchange differences relating to associates and joint ventures

186

72

Balance at the end of the year

17,729

14,577

 

Cash flow hedging reserve

 

The cash flow hedging reserve, for both the Group and the Company, comprises all foreign exchange differences arising from the valuation of forward exchange contracts which are effective hedges and mature after the year end. These are valued on a mark-to-market basis, are accounted for in Other comprehensive income and expense and accumulated in Equity, and are recycled through the Consolidated income statement and Company income statement when the hedged item affects the income statement, or when the hedging relationship ceases to be effective. See note 20 for further detail.

 

Movements during the year were:

 

2020

 

2019

 

£'000

£'000

Balance at the beginning of the year

(42,401)

(19,389)

16,216

19,782

Losses transferred to the Consolidated income statement during the year

24,361

-

Deferred tax transferred to the consolidated income statement

(4,629)

-

Revaluations during the year

(26,653)

(47,355)

Deferred tax movement

2,651

4,561

Balance at the end of the year

(30,455)

(42,401)

 

Other reserve

 

The other reserve relates to additional investments in subsidiary undertakings and share-based payments charges according to IFRS 2 in relation to the Plan.

 

Movements during the year were:

 

 

2020

2019

 

 

£'000

£'000

Balance at the beginning of the year

 

(302)

(460)

Share-based payments charge

 

173

158

Balance at the end of the year

 

(129)

(302)

 

Own shares held

 

The EBT is responsible for purchasing shares on the open market on behalf of the Company to satisfy the Plan awards, see note 14 for further detail. Own shares held are recognised as an element in equity until they are transferred at the end of the vesting period.

 

Movements during the year were:

 

 

2020

2019

 

 

£'000

£'000

Balance at the beginning of the year

 

(404)

-

Acquisition of own shares

 

-

(404)

Balance at the end of the year

 

(404)

(404)

 

On 10 December 2018, 9,639 shares were purchased on the open market by the EBT at a price of £41.66, costing a total of £404,348.

 

Non-controlling interest

 

Movements during the year were:

 

 

2020

2019

 

 

£'000

£'000

Balance at the beginning of the year

 

(577)

(577)

Share of profit for the year

 

-

-

Balance at the end of the year

 

(577)

(577)

 

The non-controlling interest represents the minority shareholdings in Renishaw Diagnostics Limited - 7.6%.

 

22.   LEASES AND RIGHT OF USE ASSETS

Leases as lessor

 

The Group acts as lessor for Renishaw manufactured plant and equipment on both an operating and finance lease basis.

 

Operating leases

 

Where the Group retains the risks and rewards of ownership of leased assets, it continues to recognise the leased asset in property, plant and equipment, while the lease payments made during the term of the operating lease are recognised in revenue (2020: £1,183,000 and 2019: £1,231,000). Operating leases are on one to five year terms. The total of future minimum lease payments receivable under non-cancellable  operating leases were:

 

 

2020

2019

 

£'000

£'000

Receivable in less than one year

742

804

Receivable between one and five years

152

700

Total future minimum lease payments receivable

894

1,504

 

Finance leases

 

Where the Group transfers the risks and rewards of ownership of leased assets to a third party, the Group recognises a receivable in the amount of the net investment in the lease in Finance lease receivables. The lease receivable is subsequently reduced by the principal received, while an interest component is recognised as financial income in the Consolidated income statement. Standard contract terms are up to five years and there is a nominal residual value receivable at the end of the contract. The total future lease payments are split between the principal and interest amounts below:

 

 

 

2020

 

 

2019

 

 

Gross investment

£'000

 

Interest

£'000

Net investment

£'000

Gross investment £'000

 

Interest

£'000

Net investment

£'000

Receivable in less than one year

2,113

131

1,982

1,348

118

1,230

Receivable between one and five years

5,118

317

4,801

5,469

477

4,992

7,231

448

6,783

6,817

595

6,222

 

Finance lease receivables are now identified as separate line items in the Consolidated balance sheet. 2019 figures have been reclassified to recognise £4,992,000 as Finance lease receivables in non-current assets and £1,230,000 as Finance lease receivables in current assets, reducing Trade receivables by the total amount of £6,222,000.

 

Leases as lessee

 

The Group acts as lessee for land and buildings and vehicles in certain subsidiaries and from 1 July 2019 recognises leases as a liability in the Consolidated balance sheet, with a corresponding amount recognised as a right of use asset.

 

Total amounts recognised in the Consolidated income statement include depreciation expense of right of use assets of £4,736,000, interest expense on lease liabilities of £766,000, and expenses relating to short-term and low-value leases of £80,000, totalling £5,582,000. Total cash outflows for leases amounted to £4,896,000, while non-cash additions to right of use assets and lease liabilities amounted to £3,234,000.

 

Lease liabilities are analysed as below:

 

2020

2019

 

Leasehold property £'000

Vehicles £'000

Leasehold property £'000

Vehicles

£'000

Due in less than one year

3,011

1,325

3,338

1,442

Due between one and five years

4,754

1,130

5,211

2,309

Due in more than five years

7,182

-

4,090

-

Total future minimum lease payments payable

14,947

2,455

12,639

3,751

Effect of discounting

(4,189)

(47)

na

na

Lease liability

10,758

2,408

na

na

 

Right of use assets are analysed as below:

 

Year ended 30 June 2020

Leasehold property £'000

Vehicles £'000

Total

£'000

Net book value

 

 

 

At 1 July 2019

11,537

3,013

14,550

Additions

2,270

779

3,049

Depreciation

(3,351)

(1,385)

(4,736)

Currency adjustment

(169)

(22)

(191)

At 30 June 2020

10,287

2,385

12,672