I'm Head of Communications for the Renishaw Group, and I'd like to welcome you to this live Q&A Web Session for Renishaw's Full Year Financial Results for the Year ended June 30, 2024. Hopefully, you've all had the opportunity to view the video presentation that was released as part of this morning's RNS statement. And Will Lee, Chief Executive, and Allen Roberts, Group Finance Director, are here now to answer any queries that you may have in relation to that presentation and the result statement. We'll try to answer as many questions as possible before we close at 11:15 P.M. Oh, A.M. even. 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. So we're gonna start with a question around system sales. Is the shift to having a larger share of system sales in your revenue having a negative mix effect on operating margins, and is this likely to be an ongoing headwind? So we'll start with Will. Thanks, Chris, and good morning, everyone. Just firstly, put this into context a bit, worth remembering, as we talked about in the presentation, our Q4 margins were impacted by some specific costs, so we did have a lower drop through than we would have expected. Actually, if you took these out, if you took out the impairments and restructuring, the operating profit margin would have been at 20%. Specifically with systems, then the margin on systems is good, similar to the rest of the business. It does vary. AM is slightly lower, and some others are slightly higher. But overall, as I said, about average. Going forward, really for us here, with these systems businesses, it's all about growth. These are newer markets where we have quite an opportunity to gain market share, and making sure that we get the operating leverage coming through. Okay. Thank you, Will. Next question is around capital expenditure. You mentioned that CapEx is forecast to be around GBP 40 million this year. Could you expand on your plans? I think that one's going to Allen. Thank you, Chris, and good morning, everybody. On this particular issue, as we reported, the property spend at Miskin is now largely complete. This year, we will be further investing in manufacturing equipment for the site and to provide some additional capacity for long-term growth and also productivity benefits. Elsewhere, we're investing in a centralized logistics hub for our EMEA operations, which will be based in our site at Pliezhausen, in Germany. We're also looking at expansion plans in India, where we do see some significant growth opportunities for our products. We're looking at some automated stores also at our Miskin site, and there is some capital expenditure aimed at helping us to achieve our sustainability goals. In addition, although not capitalized, we're continuing to roll out our new ERP system, Microsoft 365, and we're also development of our new Web shop capability. Okay, thanks, Allen. Next question is around China and the competition. So the question: Has the local competition in China intensified, and is your profitability in China lower than in other regions? Is the price pressure focused on specific product areas or across the board? And I think that one's gonna go to Will. Okay, yeah. So we've talked about Chinese competition quite a bit. It is general. It's across the board. Some areas where it's a bit stronger, some of it weaker. I think to take a step back, though, China really is a market where we are doing well, up 14% last year. Profitability, we don't report on, but China is good for us. It is strong there. Our discussions have been much about understanding local competition as the opportunity that we still have there for growth going forward. Specifically with the pricing pressure, it's always quite complex, and that's actually even within individual product lines. Example, recently visiting a customer making electronics manufacturing equipment, and even within that one customer on one product, for them, where they were buying encoders from us, you could see on certain axes, actually good enough was fine. On other bits of the machine, they were really pushing the limits of what could be done with the measurement performance of our technology. So one area, price is more important, one area, it's all about performance, and us moving on, keeping the innovation engine going. So very varied, even within specific areas. Okay. Thanks, Will. I think this one's coming back to you as well. The U.S. appears to have seen a strong end to the year, but recent data from that region suggests a slowing in growth momentum and reduction in investment levels. This may be exacerbated by uncertainty through the upcoming election. Has Renishaw seen any deterioration in order intake in that region, and is this a concern through H1 2025? So we did see a strong end of the financial year in the U.S. and the Americas. Slightly softer start of this financial year. Quite topical, this. I just got back from the IMTS show in Chicago, where I did also manage to get COVID, so apologies if I'm coughing and spluttering a bit during this webcast. Discussions there with customers and the team. Lots of talk on quite significant projects going on, but uncertainty on when the green light is gonna be given by customers for those investments. So probably a bit more uncertainty than we've had. For sure, the election is weighing on that. Most important for us in this market, though, is it's a strong one with the team that we have there on some of our newer, capital goods areas. It was great to catch up with the team and seeing the progress they are making there. That outperformance, where we've got a lot of opportunity, for growth, is gonna be key, really key for the group. Okay, thanks, Will, and moving on to the next question. This is around currency. I think this is probably one for Allen. Can you provide detail of the impact of currency on the FY 2024 results and your expectation of the currency impact in the current year? Could you also provide an overview of how you manage currency risk? Thank you, Chris. The adverse currency impact on the adjusted operating profit in 2024 was a net GBP 9 million, which was made up of a number of components. Firstly, there was a GBP 31 million reduction in revenue, excluding the forward contracts. We saw a GBP 7 million gain on the translation of overseas costs, which includes our labor, and there was a GBP 15 million gain from the forward contracts that we entered into. Looking forward to this year, we have better rates on the forward contracts for the U.S. $ and the EUR compared to last year. However, the latest spot rates are adverse compared to last year's average rates, and based on the current rates on our contracts, we would expect to see a small currency benefit to the profit to this year compared to last year. Our hedging strategy covers the main trading currencies of the group, which is the U.S. $, and EUR, and the JPY. And using forward contracts over a rolling 24-month period, we target 75% coverage of the forward net cash inflows. Given our short order book, the risk of forward contracts being ineffective for hedging purposes, we mitigate by using staggered approach. For each month of forecast inflows, we place one contract for 24 months in advance, and a second top-up contract 12 months in advance, when we have better visibility of the future trading conditions. We also use caps, above which contracts are not entered into. Okay, thanks very much, Allen. The next question is around the gross margin. So your gross margin fell by over 400 basis points to 46.8% in FY 2024, which was, by some way, the lowest level over the past decade, including the COVID-disrupted year of 2020. What were the reasons for this, and what measures are you putting in place to recover this? And whether that's going to Will. Yes, so there are two significant ones here. Actually, topically, Allen has just talked about currency. The other is our labor costs within manufacturing, is the manufacturing here. In terms of going forward addressing this, then really two key themes for us here. One is operational gearing. We have invested here and we've got to make sure that the business, the sales, is driving the efficiency of those investments that we've made. Secondly, key right across the group: productivity. So having a real focus on driving productivity. For the gross margin here, the two key areas I think worth highlighting is investments we've made from a automation point of view, both in assembly, driving down manufacturing costs, and also, as Allen's actually already mentioned, in logistics as well. Allen, I'm not sure if there's anything you want to add in terms of currency-specific or labor? No, I think we covered that on the previous one, Will. ... Okay, thanks both. And just link to this, as gross margin's a key measure of value add, do you expect an improvement in gross margin in FY 2025? Allen, can you talk to that one? Yeah, I think this is very, very much critical to the volume growth that we're expecting. So yeah, we do, we do expect to see improvement in margin. Whether we get to 20% is, might be a bit of a struggle, but we're heading that way. Okay, thank you. Our next question is around cash conversion. So this relates to the KPI that is mentioned in the presentation. Given the adjusted cash conversion target of 70% and the GBP 218 million that you already hold, can you give an indication of how the board plans to utilize this cash? I think that one's going to Allen. At the end of 2024, we did see an increase in the cash balance year on year from GBP 11 million, which was largely due to receipt of GBP 9 million from a deposit from our joint venture, where we're earning interest. We anticipate a significant proportion of the cash generated from the operating activities this year will be needed for tax and dividends, and in addition, we're unlikely to see a repeat of the working capital injections that we saw last year. As mentioned earlier, we are planning a CapEx of around GBP 40 million this year, and we will consider our future plans for the cash once this program has progressed. But we do not have any immediate plans to return cash to shareholders. Okay. Thanks, Allen. Currency question here. Organic growth at constant currency for the first nine months was reported at 0%, compared to 3.7% for the full year. The question is, what was the organic growth in Q4 2024? Who's gonna take that? Will? Yeah. So we don't report on the constant currency on its own for Q4. What I can talk about is what the underlying causes were there, and I think two themes are really worth mentioning. First, very pleasingly, we saw an uptick in our encoder sales into the electronics and semiconductor manufacturing areas. And we also, actually, as we already mentioned, saw a very strong finish to the year from our Americas region. Okay. Thanks, Will. There's a question here. On slide eight of the presentation, Allen said the through cycle growth target of greater than 7% was imminently achievable. Can you contextualize this further? I think for clarification, what he actually said in the presentation was eminently achievable. But perhaps, Allen or Will would like to talk to that one. Will? Yeah, I can pick this up. So clearly, this is a long-term growth target that we have through the cycles. Two things here: so we're fortunate, as we talked about at Capital Markets Day, in the areas that we operate, have good underlying growth. These continue to be true. One of the themes coming back very much recently from the AMB Machine Tool Show over in Europe was really even Europe, which is quite a depressed market at the moment, was the focus on automation and the need to drive productivity there. So really strong, those long-term drivers. The really important bit for us is the bits where we can then outperform, and we've talked about those strategies that we have there, in terms of increasing our technology value growing some of our existing businesses. So those strategies are. are. I think we're making really good progress with, and we are very confident in the long-term growth rates that we're gonna achieve. Okay, thanks, Will. Question here on revenue growth: Please provide more detail to how you see revenue growth phase throughout the year ahead. I guess, phasing throughout the year ahead. Will, you want to take that one? Yes, so I think probably our normal cautionary tale of having said we had a good Q4, semiconductor and electronics doing well, The Americas' doing well. I've already mentioned The Americas, slightly softer at the start. Really just be cautious extrapolating. We do tend to have a short order book. Markets can change positively and negatively quite quickly, so I think it's always tricky with us to extrapolate too far into the future. We do tend to have a bit of seasonality, so you would expect a stronger H2 than H1. Okay, thanks. I think this one's probably gonna stay with you. This one's around medical devices business. Can you elaborate on the strong performance within medical devices and the outlook for that business, given the recovery in clinical trials more broadly? Sure. So if we're looking here within the medical devices part of analytical instruments and medical devices, then it was really good to see with this business that although it's relatively small, we did see a good increased demand for robots this year. And still continue with some good prospects for drug delivery, which is the much longer term opportunity that we have here for the real growth in the business. Okay. Thanks, Will. There's a question here on order book. Please comment on how order book visibility and customer order behavior is evolving. Is that one for Will again? Yeah, no, no real changes here. We're around about two months, similar to long-term average. The increased visibility that we had in the post-pandemic, when supply chains were more challenging, it is no longer the case for us. So we're really back to our normal degree of uncertainty, and making sure that we are well-placed to meet customers when they surprise us with short-term visibility on orders. Okay, thanks. Margin question again: How do you expect product mix to impact margins going forward? Do you expect gross margins to stay at the current levels or a directional recovery to historical levels? Will's gonna take that one. So we've talked about targets here, getting back to the mid sixties. I think that's less due to the product mix that we're going to see, and more about some of those topics we talked about earlier. So the operational gearing, making sure that we are making most of these investments that we've made, and driving productivity through getting more focused within the business and making the most of the resources that we have. So I would say that's the most key there. Okay. Thank you. Pricing. Do you expect pricing to be a margin headwind or a tailwind going forward? Will? So, maybe the best place to start here is looking at what we've seen. So we have got better at introducing targeted price rises over the last couple of years. So there's certain areas that we have ability to increase pricing in. What we've typically seen, though, is some areas where we have more pricing pressure, that actually the positives are being offset by those areas where we are needing to do a bit more discounting. So overall, we have seen neutral over the last couple of years. I don't see any signs that is dramatically changing. So still the ability to put in targeted price rises, but some areas, particularly ones where volumes are starting to grow, becoming a bit more price sensitive. Thanks, Will. Okay, employee levels. Now, do you anticipate further meaningful hiring in the current year, or is Renishaw now well and fully invested with regards to production capacity and people for the anticipated demand uptick? I'm gonna take that one. Will. We expect to see here limited additional recruitment. There's always some as we are planning for growth. There will tend to be some in direct manufacturing, some as we increase our install base and capital goods, from a servicing and retrofitting install base point of view, and targeted specific initiatives, particularly from a sales side of investing, both in what... In India, where we are seeing significant growth opportunities, and also in China as well. In terms of U.K. and engineering, then really what we have is from the churn during the year, the majority of that should be filled by our early careers intake, which we have in September. So targeted increases, nothing significant there. Okay, thank you. Linked to that, please, can you elaborate on the level of wage inflation you anticipate for FY 2025? How much of that can be absorbed by productivity? Who's gonna take that one? We'll start with that one. In terms of just some of the data here, it'll be January the first will be our next pay review for the group, not decided on that yet. We'll really have a look later on this autumn on market data and see where we are. Clearly, our staff, the people at Renishaw are the single most important things. We wanna make sure we reward well. That does need us to make sure we are becoming increasingly more productive. A lot of this is in the stuff we've talked about in becoming more focused, more focused on our innovation engine, to make sure we're really driving and investing in the right products that are gonna make the biggest difference. And also from a sales point of view, making sure, particularly with our capital goods, that we're focused on the customers that are gonna drive the volume business from us going forward. And also developing with some of the new products coming through, newer routes to market, maximizing the sales per employee. Okay. Thanks, Will. Back to margins now, slightly different take. In FY 2021, adjusted operating profit margin improved to 21% from 10.1% in the prior year. How fast do you expect the margin recovery to materialize from the current cycle trough? Allen's gonna pick this one up. Yes, on this one, I think, reflecting back, of course, 2020 was the year of the COVID and had significant impact on us. For the, so going from 10.1%- 21% was quite a dramatic improvement. We don't see a. We're seeing. We'll likely see a steady improvement, not a rapid improvement, in the current year. Volume, of course, is critical to us, 'cause we get a high drop through on increased volumes, and we are still seeing some fixed cost inflation and pay increases, which Will's just referred to. So yes, we don't see a dramatic improvement, but there's a steady improvement in margins as we covered already. Okay. Thanks, Allen. And Allen, I think, very much linked to this, and I think it's probably one for you as well, is 20% adjusted operating profit margin achievable in FY 2025 if growth tracks in line with your expectations? And also, what are the other key moving parts for your profit margin recovery? So back to you, Allen. Well, we are expecting a steady increase. As I said, volume is critical. The other moving parts are the pay inflation and there's some element of stock provisioning, which we did have a little bit last year, and some sort of one-off costs, but nothing particularly foreseen for the current year. Okay, thank you. There's a question here on the R&D impairments that were mentioned in the presentation. What do the R&D impairment and cost relate to? Do you expect any further cost in this regard, or were these largely one-off in nature? Is that one for you, Will? Allen. Oh, no, Allen's gonna take that one. All right. Okay. Yeah, there were a couple of projects that we went when we undertook our review in the last quarter, which we considered that the board considered that we would be impairing, basically based on sort of extended paybacks and didn't meet the particular criteria that we apply to R&D payback calculations. So we took the decision to impair them. I guess the other part of that, Allen, do we expect that to- Oh, sorry. Sorry. Yeah. No, well, we regularly review our impairments, and you know, as we are right now, we don't foresee any at this particular time. Okay. Thank you. Question here on capital allocation. So can you elaborate on the capital allocation, given the well-invested working capital, high cash position, and Miskin expansion that's now largely complete? How do you assess returning some of the excess cash to shareholders at some point? That one from- Yeah, I think I covered this with Chris earlier, when we were talking about our cash conversion targets. We don't have any plans, immediate plans, to return cash to shareholders. So we will be considering this when we've finished our capital expenditure program this year and when we have an opportunity to discuss future plans, but nothing imminent. ... Okay, thank you. Right, a multi-part question here. What level of labor inflation do you anticipate for FY 2025? Could you please quantify savings that will be achieved from increased assembly and logistics automation? When were these implemented, please? Do you have any large new product launches planned for the next thirteen months that we should be aware of in terms of launch and marketing costs, and potential revenue impact? Now, I think some of those we've already dealt with, so I think probably part three there. Do you have any large new product launches planned? I think maybe that's one for Will. So if I throw that over to Will. Sure. Yeah, we, we do. We can't talk about them 'cause we keep these things secret until they come through, but there's certainly some ones that we are extremely excited about, that we think should have a significant impact on the business going forward in the longer term. Importantly, these are ones that our, our route to market is already there for, so it's not going to require additional investment from a sales and marketing point of view to make the most of these new products which are coming through. Okay, thanks, Will. I think the other ones have been answered, that we've talked about pay review already. So yeah. Yeah, yeah, we'd already dealt with those, I believe. So, I think this one's gonna stay with you then, Will, around semiconductor market. Could you provide a bit more granularity on the semiconductor end markets, that Renishaw is exposed to, and which segments have seen a recovery ultimately benefiting organic growth in H2? Yes, good question. So when we look at this from a front-end point of view, actually, what we've seen here is far more of a steady performance, all the way through the last couple of years. So this is a lot for us in terms of wafer inspection with our higher end encoder systems, higher value equipment in the end as well. The area that we have seen the more recent improvement for globally is more for the back end, so for some of the latter stages of more when the silicon is actually being prepped and made into an electronic chip itself. So it's that many of those stages which feel like they are more commoditized for our customers, and the ramp up and down therefore feels like it is much quicker with those areas that their customers demands on them. So that's where we've seen, and that's from the optical encoder. High volumes here, so lower price per encoder, significantly higher volumes. Okay, thanks, Will. I guess, well, linked to this is, it's a question around our end markets, key end markets. So, please, can you elaborate on the outlook for key end markets? So, precision manufacturing, semicon, consumer electronics, automotive, aerospace, others. Where do you see the strongest and weakest traction? That's one for Will. Okay. So we've talked about semi, recent growth from back-end equipment. General predictions from 2025 feels positive. But hey, these things can move quite quickly. Aero still feel, feels pretty solid. Higher end machine tools, so this is the five-axis machine tools, and also in terms of increased capability with coordinate measuring machines, so pretty good. Auto certainly more sluggish. Interesting investment both we're seeing in EV and ICE as well. The ICE is broader actually than just automotive, so ICE is being used for other areas too there. Consumer electronics was pretty good last year. Now, this can change quite quickly. We haven't seen a strong start to this year here, but this tends to be quite rapid in terms of the rate of its change, and of all the areas, the hardest to predict. Okay. Thank you, Will. Okay, well, this will be the last question for the webcast, unless there's any other questions out there. Just a reminder that you can submit questions via the question icon that's on the control panel on the right of your screen. But this may well be the last question. And this one is again on semiconductor, but slightly different slant. So what is your current assessment of the risk to your semiconductor-related business, or indeed other product lines, from tightening restrictions on exports to China? And that one's to Will. Okay, so there's probably two sides to this. So first of all, you've got that we will sell equipment to non-Chinese manufacturers, who will then export it into China. And then also we will directly sell our technologies to companies in China to integrate with their equipment, so domestic electronics. Easier to comment on the second, 'cause we're not really aware of so much on the first. What we do see is our higher-end encoders, our laser encoders, are export-controlled. And certainly we have seen a increased level of restrictions there in terms of selling those products to customers in China. So that has had some impact on our sales directly to China over the last 18 months or so. Okay. Thank you, Will. We have had just received one more question, just made the cut. I think this is going back to you, Will. Could you elaborate on the strategic decision to enter the coordinate measuring machine, CMM, market? Could your customers perceive this as a threat? Yes. So we've talked this through with our customers. The area of the market that we are going after when we sell a CMM solution, as opposed to CMM components, to CMM manufacturers onto customers, is the high-end, high productivity, high measurement flexibility, market. Now, what we see here, these sales offer the most benefit to the end customer, but they're often the most complicated, and quite long-term sales. So that's the area that we are focusing on, and then we're very much focusing on supporting our customers. So our CMM customers, if they want to sell into those, then we will support them with that, and we will but also really focusing them, them, on what we call the three-axis market, which is, less productivity, but the far larger, sector of the CMM market. So we thought this through. It's going quite well at the moment. It's really starting to increase the impact of our REVO five-axis technology in the market, which when we talk through with our CMM customers, they, we all see the benefit of that, as the REVO becoming the established technology for high productivity, and also the ability to automate many measurements on one platform. Thanks, Will. And we have another question. Could you please explain the pricing versus volumes dynamics? You mentioned that high volumes can lead to- Yeah ... higher customer price sensitivity. Is this simply function of large volume orders coming in at lower... I assume that's actual sale price, please. Who's going to pick that one up? Will. Yeah, yeah, I think there's probably a bit of a couple of bits here. This is actually some of the higher volume encoder stuff is often at a lower price point just because of the products that we are selling there. We certainly do see this, though, if we look at this more generally, then clearly, our customers that have the large-end customers have the opportunity to buy significant volumes of our products do have more pricing influence with us. Example of this would be things like Equators going into consumer electronics factories. We've seen a growth in India recently on that. So yes, there will be pricing pressure on some of those areas, more than offset by the large volumes that we get from those. Okay. Sorry, there was a clarification from the questioner that ASP was average selling price. That is the last question. So that now ends this morning's Q&A session. As ever, we'll aim to publish a recording of this webcast on the investor relations section of our website by tomorrow morning. So on behalf of Renishaw, I'd just like to thank you all for attending this event. Have a good day.