Well, good morning, everyone. My name is Chris Pockett. I'm Head of Communications for the Renishaw Group. I'd like to welcome you to this live question- and- answer session event for Renishaw's interim financial results for the six months ended December 2022. Hopefully by now, you've all had an opportunity to view the video presentation that was released as part of this morning's RNS statement. Will Lee, Chief Executive, and Allen Roberts, Group Finance Director, are here now to answer any questions that you may have in relation to that presentation and the interim results statement. They will try to answer as many questions as possible before we close at 11:15 A.M. I will try to group similar questions together, so we may not answer all individual questions. If you haven't already done so, you can submit questions via the question icon that you can see on the control panel on the right of your screen. Just a note that based on past feedback, it may help to refresh your browser should you lose sound or the connection. I'm now going to start with the first question. This is a question relating to the competitive environment. Has the competitive environment become tougher or easier in the last two to three years, and why? Is competition likely to become tougher going forward, and what can Renishaw do to manage these risks? I think that one's going to go to Will. Thanks, Chris. For many years, we've faced really good competitors. I don't think this has changed significantly over the last few years. Probably the theme to draw out here, as we've mentioned before, is the emergence of new competition in China. I think we're pleased with how we are doing here, differentiating ourselves on performance from the innovation we invest in, global support, and also the quality and reliability of the product that we supply that's often integrated into quite high value equipment. Going forward, we always assume the competition is going to do a really good job. Our strategy is going to remain unchanged here to counter that we're going to continue to invest in the R&D to make sure that we are supplying a differentiated product and make sure we're there to support our customers around the world with the high quality products, and also investing in our manufacturing to make sure that we can maintain that and respond to their needs, so. Okay. Thanks, Will. You touched on R&D then, and we have a question relating to that. That is: for many years, your R&D has averaged around 10% of sales. Will that be sufficient going forward? Yes. As you say, links in well with the previous question there. We certainly believe so, that the positive for us probably in this half is we talked in the past about the last few years, we've had a lot of challenges with the supply chains, and actually more of our engineering spend has actually been on making sure we keep products going out the door. You can see from the numbers now, we've actually got more of the engineering effort back onto innovating for the future. We believe with this, it is a matter about the productivity of making sure we're getting the key disruptive products coming through from our investment, and we think that will really place us well going forward. We don't see long-term significant change in the amount of% that we are going to be investing in R&D. Okay. Thanks, Will. Got a question here, which I think is going to go to Allen. You've been building a network in capital inventory for an extended period of time, citing safety stock, including around GBP 49 million in FY 2022 and a further GBP 49 million+ in H1 2023. Trade working capital seems to have reached a new all-time high relative to sales. When or where do you expect working capital to peak or normalize in light of destocking trends at your customers? Thank you, Chris. Yes, it's a good question. Increase in our net working capital is being primarily driven by our inventory increases, as you rightly say. Over the last two years, the supply chain has been very difficult for us and for many organizations. We have been building safety stock and quite extended safety stock levels, to be perfectly honest with you. What we are seeing now is there's more stability. It's becoming more normalized. We do expect not particularly this year, but into next year, a more normalized inventory level to turnover and which is the particularly driver for our net working capital increases. We must bear in mind also that we do have a very short order book, typically two to three months for most products. Planning is also quite difficult. We have to, or get appropriate inventory and to map what our planned production plans are. Okay. Thanks, Allen. I think, Will, you'd like to add something to this. I think that building on what Allen said, actually, this is a real area of competitive advantage for us. If you look, we have a very automated manufacturing that's capable of ramping up quickly. We need the inventory to allow us to do that. Now, as we've seen at the moment, for example, our electronics, the business of selling encoders is weaker. We know when that ramps up, it ramps up very, very quickly, and our ability to respond to that is key in making sure that we're keeping our customers supplied and gaining market share often when we can supply and others can't. It's vital for us. It's a really tricky bAllence, but it is a core part of our strategy going forward. In the first half, the increase in inventory was primarily in our position measurement product line, so we should be in a very good position when the market uptake arrives. Thanks very much both. We're going to go on to a question that we received in relation to CapEx. I think that's probably going to come to you, Allen. The question, previous guide for Miskin was for GBP 30 million CapEx in FY 2023 and over GBP 60 million in total, versus now GBP 65 million for FY 2023. Are you accelerating build out or what is driving the change in phasing? Not been any change in the phasing of the development. We spent about GBP 7 million in the first half. We're planning to spend around about GBP 25 million in the second half. The balance is other production equipment. Whilst we're expecting GBP 65 million for the total of the year, GBP 25 million of that is destined for the Miskin investment, with the balance being paid in the first half next year with completion due to take place at the end of December for Hall 3. Okay. Thanks, Allen. Different area now to move on to. This question, I think it's going to go to Will. The question is, what is the likely impact on Renishaw's business of the U.S. government's export control measures versus the Chinese semiconductor and telecom industries? Thanks. Look, the semiconductor stuff here, it doesn't affect us directly. This is affecting our customers. Particularly this is really the customers that we sell encoders and laser encoders to. In terms of how it's going to affect those customers and their demand, probably the most relevant information is from looking at where they are selling to and their markets. What is interesting also coming through here probably though is the growth of the sort of domestic Chinese industry here. Chinese manufacturers of semiconductor and electronics equipment, which seems to be accelerating and going well. These are customers of ours as well for our encoder family of products. We are seeing interesting growth there in some accounts of the more domestic markets. Whether that's to do with U.S. government export control on U.S. controlled equipment or it's just the natural of what is happening in the growing Chinese market, don't know, but that's what I would comment of what we are seeing on the ground there. Thanks, Will. I will stay with you, I think, for this one. Please comment on how your order book is trending, growing, declining or flattish. If the order book is growing again already, when did it trough? I think that was meant to say. Okay. So look, we talked about we have a really healthy order book at the moment. It did peak back in the summer. But at the moment it's relatively flattish, we would say. No great changes there at the moment. It's not really ramping up quickly at the moment, though. Okay. Thank you, Will. This question on price rises. How come you choose to raise prices only by 2% given the highly inflationary environment? I think that Will's going to take that one. Yes. The 2% was the round that we have done, of which is coming through at the moment. Actually the impact of that in the first half has been relatively limited. We'd expect to see more of that coming through as that lag of orders comes through into the system. It's always tricky for us to choose what to do on pricing. Clearly we're always looking at increasing pricing, but w e also wanna be making sure that we operate in high margin markets. The margin we make on our products is high. The number one thing we're really looking at here is trying to grow market share, so getting new accounts and new business in. Now, our real strategy for doing that is through the innovation that we put in and the quality of the products that we make, and the support we give our customers. But actually, there are other reasons why we end up gaining market s ometimes that's because a competitor lets a potential customer down through quality and reliability, and the other is through pricing, which tends to open up the opportunity for us to get in there and get that business. At the margins we're looking at, t hat is a more profitable growth strategy for us often than trying to look at the pricing. We're always balancing these things. Decisions have been made, pricing increases have been cut in, and we'll be looking at this again and going forward and seeing what we think we can put, and it will be different on all our different product lines. Okay. Thanks, Will. Got a couple of questions now on margins, which I'm sure are going to go to Allen. First of these, do you expect margins to improve sequentially in H2 versus H1? The second related question is, what is the long-term adjusted PBT margin that the group targets? Okay, taking the first point. In terms of margins, our gross margin will look to be somewhat similar to the first half in the second half compared to what it was in the first half. With the profit before tax, we're looking at a similar. Depends on the range. We're looking at a range from around 21%-23%, depending on the extremities of the forecast. With regard to long-term adjusted profit before tax, group target, internally, we've got this target of around 20%-25% ROS, which sometimes we achieve, but over the medium term, we've been around 20%, between 20%-25%. Okay. Thanks, Allen. next question, which I'm sure Will will pick up, c an you specify the growth rate for semiconductor encoders in the half year and your outlook for recovery in this segment? That's going across to Will. Yes. With semiconductor encoders, what we're talking about here is our encoder family that we sell into the semiconductor electronics market, that's why I'm taking the question, of which we have two separate product lines actually. It's interesting to look at the difference here. We have laser encoders. These go into early stage, front-end equipment for semiconductor manufacturing. What we're seeing here is we have actually seen good growth over the first half. What we think probably is happening here is the lead time that our customers give their customers on these products is quite long, and this is part of a very long strategic planning on these. Whereas the encoders, a lot of the encoders goes into the more back-end semiconductor, so packaging up of the semiconductors and a whole range of different equipment there. We think actually that the lead times from our customers to their customers on these are much shorter, and actually this is an area that has seen a significant reduction in this first half. Now, because of these lead times, this is the one that we always see it will cycle very quickly. Now what we don't know, and we are struggling to understand from those customers that don't think they know themselves, is exactly when this is going to recover. We know it will. We know when it does, it will recover very aggressively, and our customers will expect those products very quickly in high volumes. We just don't know at the moment any clarity from them exactly when this will happen. They never tend to forecast more than a few months from where we are at the moment. They just don't know. Okay. Thanks, Will. We had a question earlier about CapEx and Miskin. I think, Will, probably this is more relevant for you since it's related to that expenditure and expansion at Miskin. The question is: Given Miskin expands the production footprint by 60%, is it reasonable to assume that is the level of growth you're aiming for in the medium term, defined as two to three years, by the questioner, and conscious revenue might not scale proportionately with production space? Then one for Will. Okay. Clearly our plans are for aggressive growth. That is us. You should not draw a correlation between our manufacturing space and our growth targets. One of the bits here will be actually if you look at it, some of our newer products that are growing well, ranging from additive machines to gauging systems to enclosed encoders are significantly larger than the products that we're used to making and therefore need more floor space. Yeah, don't draw a correlation between those two. Okay. Thank you. going to move on to a question now around currency. Given 1% overall constant currency growth, is it correct to assume that volumes overall were negative? I think Allen is going to pick that one up. I think that the volumes are pretty similar, given the 1% growth. There is probably a small impact because of the price increases, but overall, we've seen sort of in certain market segments increased volumes and particularly in the semicon, we've seen a reduction in volumes. Overall, depending on the market, volumes are sort of similar. Okay. Thanks, Allen. There's a question here I think we'll put to Will. How has trading developed in the early weeks of 2023? No huge changes here since what we saw at the end. Clearly the big bit this time of year is Chinese New Year, which is always with the importance of Asia to us is a quiet time for that region. That's coming back, and we probably expect with a combination of the COVID peak having been and gone in a lot of the China areas that we are working with, and year over, then it's going to be interesting to see how things start to accelerate going forward now. Okay, thank you. Currency question here, which I'm sure Allen will pick up. The H1 results show 6% of the revenue growth is due to favorable currency. Can you give an indication of the currency impact on profit, with sterling strengthening against the U.S. dollar in recent months, are you expecting currency headwinds in the second half? That's going to go to Allen. Okay. Thanks, Chris. The 6% currency gain, which is around GBP 20 million, is measured excluding the impact of the forward contracts that we use. In our adjusted profit, we've four contract losses of circa GBP 13 million, compared to a small gain of about GBP 300 last year. Additionally, our overseas costs have increased by around GBP 4.5 million due to currency. The net benefit of these items on profit is around about GBP 2 million. Looking to the second half, sterling has strengthened against the U.S. dollar, but is weaker against the euro and yen, and we also have better forward contract rates in half two. Based on the current rates, we would expect to see a benefit in profit in the second half. Okay. Thanks, Allen. There's another question here on capital expenditure. We possibly may have answered most of this, but I'll read it out anyway. Capital expenditure is estimated at around GBP 45 million in the second half. Can you provide more detail on this and give an indication of ongoing CapEx plans? I'll put that one onto Allen. Thank you. In the first half we spent around about GBP 20 million of which most of that was on plant and equipment and about GBP 7 million-GBP 8 million on property expenditure. I've covered earlier the spend on Miskin in the second half, which is going to be around about GBP 25 million. We're also building a small facility down in Brazil, which is due to come online later in this fiscal year and to further production equipment requirements. Going into next year, we're seeing the finalization of our Miskin development, primarily in the first half, so most of the spend will be in the first half. Of course, we've got the subsequent fit out to take place in the second half. We're looking at probably a similar CapEx spend next year compared to what we're doing this year. Okay. Thanks, Allen. Question here on semi fabs. I think we've answered that one already. There's a question. Yeah. I think a question here on profitability at within our analytical instruments business. The question is, why did it fall so sharply on flat sales? I think who's going to take that one? Is that Will going to... I'll take that one. Okay. We saw the profitability drop year on year from GBP 1.6 million in 2022 to just over GBP 100,000 in this year, primarily due to labor costs and increased marketing expenditure. Yeah. Just so that I answer the question, I think, the positive part of it is we do have strong orders that have come in for Raman, really strong order book and planning for a really good second half there to really pull things through. Yeah. Great. Thank you. A question now about relation to our metrology business. Could you expand on the difference you are seeing in the metrology business between strong five-axis demand and weaker three-axis job shop trends? Is the strong high-end demand sustainable in current economic conditions? I'll put that one across to Will. Maybe if we start with the three-axis job shop. Our belief here is what we're seeing from talking to the, to the manufacturers is that these are more often bought with credit, as smaller companies, and that credit has become more expensive and more difficult to obtain. They have cut back in some investment there. These also are on relatively short lead times. The, the five-axis machine tools are far more complicated, much longer lead time, and often going into more sophisticated, larger companies. What we've got here is there is quite an order backlog here. If you were to go along and try and buy a high-end five-axis machine tool at the moment, you're still going to be quoted a long lead time, probably more than a year. I think in terms of the current economic conditions supporting that, then actually what we've seen is some markets that have been weak for quite a long time. Defense, I think we've mentioned, are saying actually that is really driving the need of some of these high-end machine tools. In general, we're not seeing much change there. This market tends to move far slower than the stuff we're talking about, particularly with the electronics manufacturing earlier on in the webcast. Okay. Thanks, Will. There was a long question on price impact from Richard Paige. Richard, I see that you've actually said that we have answered that one already. If you're happy with that, we'll move on. We'll take another question here. Says that, Bland information on markets suggests no wider development of targeted business. Are you able to provide any more encouraging details on your current strategies? I think, Will, you're going to take that one. Yes. The bland information goes back to where we are selling the end markets, which is our estimate from many of the channels we go through or where we sell to end users direct. Always take that in context of that is our estimate. We are never sure on that. In terms of the encouraging on the current strategy, I'd say that I think it's very positive at the moment. We have seen, as we've talked about, existing customers taking less product from us because their demand is less. What we have managed to do despite that downturn is some of our newer product line strategies, which have been coming through, which we've been investing in, have made that up and have compensated for that. That's new market share, new products coming through. Some of this is from enclosed encoders, some of this is from the more high value capital equipment that we are selling. I think actually what it shows is in a depressed market in certain areas, we've managed to power through with the really important stuff that we are in control of gaining customers. Thanks, Will. Question here about China. You mentioned increased competition in Chinese markets. Are you experiencing attempts to copy your patented products? How difficult are they to defend? I'll put that one to Will. Yes. We'll certainly see people looking at Renishaw as the premium brand and the most recognized in many of the industries, and therefore, we are the people that they try and copy. What we see there is I think two things. In terms of copying, yes. In terms of trying to infringe patents, less actually. They will understand where we have patents. If they're going to try and make success out of it by copying us, they have to be able to market it, or with it ending up often outside of China. Typically they are not trying to infringe patents. There have been occasions of software copyright issues or patent stuff, and we have had discussions on that. Okay. Thanks, Will. Right. We got a very large question here. Thanks Jonathan for this. There's about four parts to it, and they're quite different. I think if we take them perhaps one part at a time. Can you talk about the level of revenue generated from your multi-laser AM machine, and how profitable is this product line, and what is the expected growth rate going forward? Will it continue at double digits? I think, Will, that's quite a substantial question there. We will stop at that point, and we'll go back to the other bits. Will, I'll hand over to you to take that first part. Okay. I'm afraid on the first bit then we don't talk about revenue profitability within the segments that we comment on. It is a significantly smaller part of the business than some of our more established areas, which is why it's been particularly pleasing to see that the growth and it really starting to accelerate at the moment. For us, it's looking at maybe not at the immediate, it's looking at the medium and longer term with this. We see a few key things coming through here. The first part of our strategy of working with significant potential volume accounts and repeat business is definitely working. We are now getting the sales that people are established with our equipment. They need more capacity, they are buying. There's then two themes that we are putting in in terms of engineering research and development, which is focusing on sort of continual improvement and some quite neat new features that we'll be bringing forward on our existing platform, adding more productivity to customers. Secondly, we are also working on then the next generation, which is learning on all the stuff from the existing and really looking at the automation that we're going to put in to make this the sort of light site manufacturing of the future, which is where we think the real high volume growth is going to come from here. That was the first part of the question. Okay. Yeah. If I go on to the second part then, Will, if I just read that out. You are putting through price rises, but are you also repricing the existing order book? Also what level of revenue visibility in months does the order book give you for page 2? No, we are not repricing existing order books. That is why there has been a lag on the price increase coming through and why it's coming through stronger in this second half of this financial year than it did in the first. As I said, order book is still healthy for the group. We've got three months or so of order book going forward now, which for us is good. Okay, thanks. The third part of this question, I think it's probably going to be a quite a short answer, but when we last heard from you said discussions were ongoing about the 53% stake held by Sir David and John Deer. Are these discussions still ongoing? Yes, these discussions are still ongoing. We're discussing it regularly, have good discussions on it. Unfortunately, as I think everyone knows, we really can't comment on this at the moment. Okay, thanks. The final part of this question. Can you give us a percentage split of encoder revenue between laser and optical enc-? Yes. It's optical encoders is much the bigger here. It's not 80/20, something like that between the two. Okay. Thanks, Will. We've already touched on AM, but here's a slightly different question relating to additive manufacturing. What types of end products are your AM machines being used for? I'm sure Will's going to take that one. A vast range actually already from the sort of traditional ones, of aerospace, defense, dental, ortho implants, through to sort of some of the newer stuff that we talked about six months ago of consumer electronics, where the volumes are clearly much higher. A wide range. I think the important thing here maybe is looking at the future, when this becomes more and more a proven way for all sorts of parts of the future and becomes a really established manufacturing process. Not just where you want neat new features or something special, but as a way of making parts more sustainably, using less material and energy in the long term in the future. That's great. Thank you. Okay. We're down to what appear to be the last couple of questions now. If you do have any more questions, please send them through. Question here on working from home. So what percentage of your employees still working from home, if any? I'll start with Will Lee on that one. You've got to look really at the job function and the role of that employee within the business. We still, and we will, I think forever, have a high percentage of our software engineers working remotely, all connected on Teams, reviewing code on each other's screens, and it's a highly effective way of working. At the other extreme, clearly manufacturing, we're always in, have always been in to make product. What we're seeing now is actually really from a developing hardware versus the software development and the hardware people are in, working together, developing new products, and that's the most productive way of doing that. Really a split across the board. Okay, thanks. This may well be our last question unless anyone would like to submit anything quite quickly. Distribution costs seem to have increased 20% against sales increasing 7%. Should we assume distribution costs have stabilized here? Was there any abnormal expenses in the first half as you caught up on expenditures? I think that one's probably going to go to Allen. Okay. What we are seeing here is an increase in more customer-facing activities and hence we're seeing an increase in exhibition costs and travel costs because not a lot took place during the pandemic. We're not back to pre-pandemic levels right now. There is nothing abnormal in the first half, so we're more normalized. Of course, there is an impact of the annual pay review that took effect in the first half of this year. Okay, Allen. Well, that is all the questions that we've had submitted, so thank you very much to everyone that's attended. Obviously, we've done this in a slightly different way this year, so if there is any feedback, positive or negative, then please do send that through to the communications@renishaw.com email address. That'd be much appreciated. As ever, we'll aim to publish a recording of this webcast on the Investor Relations section of our website by tomorrow morning. On behalf of... Oh, we've had actually, we've had one question submitted just before the end. We'll take it. We have a few minutes. The question is on a special dividend. Question was asked during last webinar when the board was reported to be considering such a payment. Any update on that, Allen? I'll put that- Yes, I think this sort of forms part of what we of our capital allocation strategy, and maybe I'll just spend a moment just going through that. Our priority is focusing on our organic growth and the investment that's required in our existing businesses, including capital expenditure. We also then look at the minimum cash target that we've set internally to accommodate any particular severe downturns that may occur, so that we've got, if you like, rainy day money for that and of a contingency fund to protect us in severe downside scenario We also looking at maybe supplementing the organic growth with some small acquisitions maybe. We also have what we call a progressive dividend policy, for delivering regular cash returns to our shareholders. We do have significant cash balances, and we do have minimum cash holdings that we determined internally. Possibly there could be a return or distribution to shareholders, but currently there are no plans to do so. Okay. Thanks, Allen. That really is it now. No more questions have come in. I hope you've enjoyed the session. We've almost gone to the full 45 minutes. Thanks again for attending and have a good day everyone.