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Renishaw PLC — Earnings Release 2013
Jul 24, 2013
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Earnings Release
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RNS Number : 9838J
Renishaw PLC
24 July 2013
RENISHAW plc
New Mills, Wotton-under-Edge
Gloucestershire GL12 8JR
United Kingdom
Tel +44 (0) 1453 524524
Fax +44 (0) 1453 524901
Email [email protected]
www.renishaw.com
24th July 2013
Renishaw plc and subsidiary undertakings
Preliminary announcement of results for the year ended 30th June 2013
HIGHLIGHTS
• Record revenue of £346.9m (2012 £331.9m)
• Continued investment in R&D and new product launches
• Further expansion of our marketing infrastructure
• Integration of acquired businesses
• Adjusted profit before tax £81.5m (2012 £86.0m)
• Capital expenditure investment of £28.0m
• Strong balance sheet with £26.6m cash (2012 £21.1m)
• Receipt of 16th Queen's Award
• Appointment of 2 new non-executive directors
• New investor communication policy
• Dividend for the year of 40.0p (2012 38.5p), 4% increase
| 2013 | 2012 | Change | |
| Revenue (£m) | 346.9 | 331.9 | +5% |
| Adjusted operating profit (£m)* | 79.1 | 83.2 | -5% |
| Adjusted profit before tax (£m)* | 81.5 | 86.0 | -5% |
| Adjusted earnings per share (pence)* | 91.4 | 95.6 | -4% |
| Dividend per share (pence) | 40.0 | 38.5 | +4% |
| STATUTORY | |||
| Profit before tax (£m) | 84.4 | 86.0 | -2% |
| Basic earnings per share (pence) | 95.4 | 95.6 | - |
* Adjusted figures are stated after excluding the exceptional item in 2013, a gain on deferred consideration settlement.
CHAIRMAN'S STATEMENT
I am pleased to report the Group's results for the year ended 30th June 2013, with record annual revenue in this, the Group's 40th anniversary, year.
Total Group revenue for the year amounted to £346.9m, 5% ahead of the £331.9m for last year although this was not as high a level as expected earlier in the year. Good growth was realised in the Far East, especially China, where sales were £138.8m, 7% ahead of last year's total of £130.2m. Elsewhere, revenue growth in the Americas was 3% ahead of last year at £79.2m (2012 £76.8m) and 9% ahead in the UK at £20.7m (2012 £18.9m). In Europe, revenue of £96.0m (2012 £95.7m) was at a similar level to last year.
Adjusted Group profit before tax for the year was £81.5m, compared with £86.0m last year, which with the inclusion of an exceptional gain of £2.9m reported in our half-yearly financial report gives a statutory profit before tax of £84.4m (2012 £86.0m).
Adjusted earnings per share were 91.4p compared with last year's earnings per share of 95.6p. Reported earnings per share for the year were 95.4p (2012 95.6p).
Segmental analysis
Metrology
Revenue from our metrology business was £317.9m, compared with £305.8m last year, an increase of 4%. Operating profit was £84.5m, which compares with £91.8m in 2012; this was lower than expected due to our investment for a higher level of revenue than actually achieved.
Investment in the electronic and semiconductor industries has contributed to increased revenue for our encoder product line during this year, whilst our machine tool product line continued to return good growth, particularly in the consumer electronics market in the Far East.
We saw good growth in our measurement automation product line which is beginning to gain more widespread acceptance and which has been augmented by the introduction of the Equator 300 extended height version.
Demand for our additive manufacturing products continues to grow. This product line was recently expanded by the £1.6m purchase of certain business assets of LBC LaserBearbeitungsCenter GmbH (LBC) in Germany. LBC specialises in the field of additive manufacturing for tool and mould making. This purchase will create a new business, LBC Engineering, comprising former employees of LBC and enables Renishaw to offer additional additive manufacturing services, including design and simulation, and the contract manufacture of metal prototypes and production parts.
In November 2012, the Company purchased the remaining 34% shareholding in Measurement Devices Limited (MDL) for a cash payment of £4.5m; this released an exceptional gain of £2.9m compared to the deferred consideration liability at 30th June 2012. The MDL business has subsequently undergone a reorganisation and from 1st July 2013 has been integrated into Renishaw plc.
New product releases during the year include the RTS radio toolsetting probe, the PH10 PLUS probe head and controller, new off-axis rotary software for the XR20-W rotary calibrator, the RESOLUTE™ ultra-high vacuum encoder readhead and new software releases, being the UCCsuite 4.5 for the UCC CMM controller and Productivity+™ v1.90 for machine tool applications.
Healthcare
Revenue from our healthcare business for the year was £29.0m, compared with £26.1m last year, an increase of 11%. This year saw a reduced operating loss of £5.4m (2012 £8.6m), as the Board continues to focus on achieving at least break-even in our healthcare business sector over the next two years.
Spectroscopy sales continued to be the main driver in this business segment and were at a record level. During the year, this product line launched powerful new WiRE4 software for its inVia Raman system and Eclipse filters for improved Raman analysis.
We are continuing to invest in our neurological products and have seen good progress in this area over the last year. We have had a number of successes with sales of our neuromate® robot and neuroinspire™ software; new machines being sold in Europe and the Middle East which assist surgeons with a variety of neurological procedures. We are also supplying devices to deliver therapies directly into the brain and expanding our product range by pursuing development work on devices capable of delivering an expanded range of therapies for treatment of neuro degenerative conditions.
Our dental product line has also introduced a number of new products during the year. This has included products manufactured using additive manufacturing as well as supplying our additive manufacturing machines to other companies involved in the manufacture of dental structures.
Investment for growth
Capital expenditure
The Group invested a further £28.0m (2012 £30.3m) in property, plant and machinery, and information technology to provide for future growth expectations:-
· At Miskin, South Wales, a further 66,000 sq ft has been refurbished to add to the initial 68,500 sq ft which was refurbished and brought into operation last year. A new anodising plant and electronic production facility has been commissioned and production of additive manufacturing machines has commenced at this facility.
· In York, construction of 20,000 sq ft of new premises was completed and occupied by MDL.
· In Dublin, a 26,000 sq ft extension of our manufacturing facility was completed and is being brought into use.
· At New Mills, construction has recently started on a 120,000 sq ft facility to provide expansion for additional research and development activities and relocation of the spectroscopy product line. Completion is due in the current financial year.
Research and development
During the year the Group continued to invest for the future with an expenditure of a total of £51.8m (2012 £47.9m) on engineering, including research and development, current product engineering and manufacturing processes. Part of the continuing investment has resulted in an increasing amount of advanced software, including applications software, to support the Group's range of products.
Sales and marketing
We continued to grow and expand our global marketing and distribution activities to support the new products introduced and the expansion of our applications engineering capabilities as the Group becomes increasingly involved in the provision of system solutions:-
· Distribution costs increased by 12%, from £62.2m last year to £69.4m which included the recruitment of a further 94 sales and marketing staff.
· In China, the Group opened its eleventh office, with a new office in Wuhan.
Balance sheet
Net cash balances at 30th June 2013 were £26.6m, compared with £21.1m in 2012. In addition, there is an escrow account amounting to £11.0m (30th June 2012 £11.5m) relating to the provision of security to the Company's defined benefit pension scheme.
Non-executive directors
David Snowden and Terry Garthwaite did not seek re-election at the AGM in October 2012, having each completed 9 years on the Board. The Board has subsequently made two new non-executive appointments:-
· Carol Chesney, chartered accountant and company secretary at the manufacturing group Halma plc, joined the Board on 19th October 2012 as non-executive director and chair of the Audit committee.
· John Jeans CBE CEng was appointed on 11th April 2013. John is currently Chair of the Council of Cardiff University and Imanova (an imaging research partnership between three London universities and the Medical Research Council). In addition he chairs the board of MRC Technology and is a non-executive director of the Alliance Medical Group. He is also a board member of the University and College Employers Association.
Dr David Grant was appointed the chair of the Remuneration committee in place of David Snowden.
Resolutions relating to the election and re-election of all directors will be put to shareholders at the AGM.
Employees
The directors thank the Group's employees for their continuing support and significant contribution during this year.
Headcount at the end of June 2013 was 3,235, an increase of 331 during the year, from 2,904 at 30th June 2012.
Awards
On 21st April 2013 the Company was honoured with its 16th Queen's Award. The Queen's Award for Enterprise has been granted in the Innovation category for the REVO® five-axis multi-sensor probing system for co-ordinate measuring machines.
In September 2012 Renishaw's assembly facility at Woodchester in Gloucestershire won, against strong competition, the award for the UK's Best Electronics & Electrical Plant Factory at the prestigious Best Factory Awards 2012.
Investor communication
During the year the Board has reviewed its policy on communications with shareholders and the analyst and investor community. The Board will provide all shareholders with information at the same time, in the same forum or medium, and ensure that the level and quality of information provided is significantly enhanced.
As a consequence, no private meetings will be held by directors with investors, potential investors or analysts, however, shareholder meetings with the Chairman, the Senior independent director and/or any other non-executive director may be arranged where a shareholder wishes to communicate their views.
The corporate website is being significantly expanded. The Group's year end and half year results will continue to be delivered by way of webcasts with time allowed for questions and answers. In addition to the AGM, normally held in October, at which company presentations and tours are arranged, a corporate shareholder and investor day will be held annually in May.
Outlook
During the year the Group has further consolidated its leading position in its principal markets, as well as investing for future growth and expansion. There is an extensive new product pipeline and strategy for each of our business segments and a number of new product introductions are anticipated in this current financial year. The Group faces tough comparators going into the first half of this financial year, however, we look forward with confidence to a successful 2014.
Dividends
A final dividend of 28.67 pence net per share will be paid on 21st October 2013 to shareholders on the register on 20th September 2013, resulting in a total dividend for the year of 40.00 pence net per share (2012 38.50 pence).
Sir David R McMurtry, CBE, RDI, FRS, FREng, CEng, FIMechE
Chairman & Chief Executive
24th July 2013
CONSOLIDATED INCOME STATEMENT
for the year ended 30th June 2013
| 2013 | 2012 | ||
| £'000 | £'000 | ||
| Revenue | 346,881 | 331,892 | |
| Cost of sales | (164,704) | (154,996) | |
| Gross profit | 182,177 | 176,896 | |
| Distribution costs | (69,386) | (62,155) | |
| Administrative expenses including exceptional item | (30,817) | (31,553) | |
| Operating profit excluding exceptional item | 79,071 | 83,188 | |
| Exceptional item: Gain on deferred consideration settlement | 2,903 | - | |
| Operating profit | 81,974 | 83,188 | |
| Financial income | 7,592 | 8,979 | |
| Financial expenses | (6,169) | (6,811) | |
| Share of profits of associates | 1,022 | 690 | |
| Profit before tax | 84,419 | 86,046 | |
| Income tax expense | (15,594) | (17,008) | |
| Profit for the year from continuing operations | 68,825 | 69,038 |
| Profit attributable to: | 2013 | 2012 | |
| £'000 | £'000 | ||
| Equity shareholders of the parent company | 69,418 | 69,555 | |
| Non-controlling interest | (593) | (517) | |
| Profit for the year from continuing operations | 68,825 | 69,038 |
| Pence | Pence | ||
| Dividend per share arising in respect of the year | 40.0 | 38.5 | |
| Dividend per share paid in the year | 39.5 | 35.0 | |
| Earnings per share (basic and diluted) | 95.4 | 95.6 |
CONSOLIDATED BALANCE SHEET
at 30th June 2013
| 2013 | 2012 | ||
| £'000 | £'000 | ||
| # Assets | |||
| Property, plant and equipment | 117,926 | 100,972 | |
| Intangible assets | 56,143 | 54,407 | |
| Investments in associates | 7,403 | 6,790 | |
| Deferred tax assets | 18,276 | 17,777 | |
| Derivatives | 7,976 | 3,532 | |
| # Total non-current assets | 207,724 | 183,478 | |
| Current assets | |||
| Inventories | 65,268 | 53,983 | |
| Trade receivables | 68,082 | 83,407 | |
| Current tax | 1,160 | 2,791 | |
| Other receivables | 10,871 | 10,590 | |
| Derivatives | 3,583 | 3,157 | |
| Pension fund cash escrow account | 10,982 | 11,523 | |
| Cash and cash equivalents | 26,605 | 21,127 | |
| # Total current assets | 186,551 | 186,578 | |
| # Current liabilities | |||
| Trade payables | 18,481 | 22,900 | |
| Current tax | 2,629 | 5,662 | |
| Provisions | 1,630 | 1,170 | |
| Derivatives | 2,018 | 1,052 | |
| Other payables | 19,017 | 25,596 | |
| # Total current liabilities | 43,775 | 56,380 | |
| # Net current assets | 142,776 | 130,198 | |
| # Non-current liabilities | |||
| Employee benefits | 41,718 | 41,988 | |
| Deferred tax liabilities | 20,032 | 19,492 | |
| Derivatives | 10,442 | 2,313 | |
| Other payables | 1,589 | 7,484 | |
| # Total non-current liabilities | 73,781 | 71,277 | |
| # Total assets less total liabilities | 276,719 | 242,399 | |
| # Equity | |||
| Share capital | 14,558 | 14,558 | |
| Share premium | 42 | 42 | |
| Currency translation reserve | 2,929 | 2,583 | |
| Cash flow hedging reserve | (694) | 2,526 | |
| Retained earnings | 261,607 | 223,820 | |
| Other reserve | (389) | (389) | |
| Equity attributable to the owners of the Company | 278,053 | 243,140 | |
| Non-controlling interest | (1,334) | (741) | |
| # Total equity | 276,719 | 242,399 |
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME AND EXPENSE
for the year ended 30th June 2013
| 2013 | 2012 | ||
| £'000 | £'000 | ||
| Profit for the year | 68,825 | 69,038 | |
| Other items recognised directly in equity: | |||
| Items that will not be reclassified to the Consolidated income statement: | |||
| Foreign exchange translation differences | 346 | (1,779) | |
| Actuarial loss in the pension schemes | (3,183) | (7,781) | |
| Deferred tax on items that will not be reclassified | 427 | 1,001 | |
| Relating to associates, net of tax | (102) | (1,229) | |
| Total for items that will not be reclassified | (2,512) | (9,788) | |
| Items that may be reclassified to the Consolidated income statement: | |||
| Effective portion of changes in fair value of cash flow | |||
| hedges, net of recycling | (4,225) | 9,039 | |
| Deferred tax on items that may be reclassified | 1,005 | (2,398) | |
| Total for items that may be reclassified | (3,220) | 6,641 | |
| Total other comprehensive income and expense, net of tax | (5,732) | (3,147) | |
| Total comprehensive income and expense for the year | 63,093 | 65,891 | |
| Attributable to: | |||
| Equity shareholders of the parent company | 63,686 | 66,408 | |
| Non-controlling interest | (593) | (517) | |
| Total comprehensive income and expense for the year | 63,093 | 65,891 |
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 30th June 2013
| Cash | ||||||||
| Currency | flow | Non- | ||||||
| Share | Share | translation | hedging | Retained | Other | controlling | ||
| capital | premium | reserve | reserve | earnings | reserve | interest | Total | |
| Year ended 30th June 2012 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
| Balance at 1st July 2011 | 14,558 | 42 | 4,362 | (4,115) | 187,750 | (389) | (490) | 201,718 |
| Profit/(loss) for the year | - | - | - | - | 69,555 | - | (517) | 69,038 |
| Other comprehensive income and expense: | ||||||||
| Actuarial loss in the pension schemes (net of tax) | - | - | - | - | (6,780) | - | - | (6,780) |
| Foreign exchange translation differences | - | - | (1,779) | - | - | - | - | (1,779) |
| Changes in fair value of cash flow hedges (net of tax) | - | - | - | 6,641 | - | - | - | 6,641 |
| Relating to associates | - | - | - | - | (1,229) | - | - | (1,229) |
| Total other comprehensive income | - | - | (1,779) | 6,641 | (8,009) | - | - | (3,147) |
| Total comprehensive income | - | - | (1,779) | 6,641 | 61,546 | - | (517) | 65,891 |
| Acquisition of non-controlling interest | - | - | - | - | - | - | 266 | 266 |
| Dividends paid | - | - | - | - | (25,476) | - | - | (25,476) |
| Transactions with owners recorded directly in equity | - | - | - | - | (25,476) | - | 266 | (25,210) |
| Balance at 30th June 2012 | 14,558 | 42 | 2,583 | 2,526 | 223,820 | (389) | (741) | 242,399 |
| Year ended 30th June 2013 | ||||||||
| Profit/(loss) for the year | - | - | - | - | 69,418 | - | (593) | 68,825 |
| Other comprehensive income and expense: | ||||||||
| Actuarial loss in the pension schemes (net of tax) | - | - | - | - | (2,756) | - | - | (2,756) |
| Foreign exchange translation differences | - | - | 346 | - | - | - | - | 346 |
| Changes in fair value of cash flow hedges (net of tax) | - | - | - | (3,220) | - | - | - | (3,220) |
| Relating to associates | - | - | - | - | (102) | - | - | (102) |
| Total other comprehensive income | - | - | 346 | (3,220) | (2,858) | - | - | (5,732) |
| Total comprehensive income | - | - | 346 | (3,220) | 66,560 | - | (593) | 63,093 |
| Transactions with owners recorded directly in equity - dividends paid | - | - | - | - | (28,773) | - | - | (28,773) |
| Balance at 30th June 2013 | 14,558 | 42 | 2,929 | (694) | 261,607 | (389) | (1,334) | 276,719 |
CONSOLIDATED STATEMENT OF CASH FLOW
for the year ended 30th June 2013
| 2013 | 2012 | ||
| £'000 | £'000 | ||
| # Cash flows from operating activities | |||
| Profit for the year | 68,825 | 69,038 | |
| Adjustments for: | |||
| Amortisation of development costs | 7,558 | 6,747 | |
| Amortisation of other intangibles | 3,280 | 3,901 | |
| Depreciation | 10,293 | 9,518 | |
| Profit on sale of property, plant and equipment | (36) | (94) | |
| Share of profits from associates | (1,345) | (1,030) | |
| Exceptional gain on deferred consideration settlement | (2,903) | - | |
| Financial income | (7,592) | (8,979) | |
| Financial expenses | 6,169 | 6,811 | |
| Tax expense | 15,594 | 17,008 | |
| 31,018 | 33,882 | ||
| Increase in inventories | (11,285) | (4,006) | |
| Decrease/(increase) in trade and other receivables | 15,339 | (24,704) | |
| (Decrease)/increase in trade and other payables | (6,562) | 7,919 | |
| Increase in provisions | 460 | 400 | |
| (2,048) | (20,391) | ||
| Defined benefit pension contributions | (2,508) | (1,359) | |
| Income taxes paid | (15,711) | (14,079) | |
| # Cash flows from operating activities | 79,576 | 67,091 | |
| # Investing activities | |||
| Purchase of property, plant and equipment | (27,976) | (30,328) | |
| Development costs capitalised | (10,615) | (9,679) | |
| Purchase of other intangibles | (1,226) | (1,123) | |
| Investment in subsidiaries and associates | - | (2,611) | |
| Payments in respect of deferred consideration | (7,500) | (2,746) | |
| Sale of property, plant and equipment | 299 | 414 | |
| Interest received | 1,009 | 695 | |
| Dividend received from associate | 307 | 108 | |
| Contributions to pension fund escrow account (net) | 541 | (705) | |
| # Cash flows from investing activities | (45,161) | (45,975) | |
| # Financing activities | |||
| Interest paid | (259) | (296) | |
| Dividends paid | (28,773) | (25,476) | |
| # Cash flows from financing activities | (29,032) | (25,772) | |
| # Net increase/(decrease) in cash and cash equivalents | 5,383 | (4,656) | |
| Cash and cash equivalents at beginning of the year | 21,127 | 23,733 | |
| Effect of exchange rate fluctuations on cash held | 95 | 2,050 | |
| # Cash and cash equivalents at end of the year | 26,605 | 21,127 |
STATUS OF THIS PRELIMINARY ANNOUNCEMENT
The financial information set out above does not constitute the Company's statutory accounts for the years ended 30th June 2013 or 2012 but is derived from those accounts. Statutory accounts for 2012 have been delivered to the registrar of companies, and those for 2013 will be delivered in due course. The auditors have reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
This preliminary announcement and the presentation of results will be available on the Company's website www.renishaw.com.
NOTES TO THE FINANCIAL STATEMENTS
1. Accounting policies
Basis of preparation
Renishaw plc (the "Company") is a company incorporated in the UK.
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.
The group financial statements have been prepared and approved by the directors in accordance with International Financial Reporting Standards as adopted by the EU ("adopted IFRS") and those parts of the Companies Act 2006 applicable to companies reporting under IFRS.
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.
Basis of accounting
The financial statements have been prepared under the historical cost convention, subject to items referred to in the derivative financial instruments note below. The accounting policies set out below have been consistently applied in preparing both the 2012 and 2013 financial statements.
Critical accounting judgements
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 estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities in the next financial year are listed below:
(i) Impairment of goodwill
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.
(ii) Defined benefit pension scheme liabilities
Determining the value of the future defined benefit obligation requires judgement in respect of the assumptions used to calculate present values. These include future mortality, discount rate, inflation and salary increases. Management makes these judgements in consultation with an independent actuary.
(iii) Amortisation of intangibles and impairment
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.
(iv) Capitalisation of development costs
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.
(v) Pension fund cash escrow account
The Company holds a pension fund cash 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 fund liabilities at any time.
New, revised or changes to existing accounting standards
The following adopted IFRS has been issued but has not been applied by the Group in these financial statements. Its adoption is expected to have an effect on the financial statements as indicated below:
Amendments to IAS 19 'Employee Benefits' (mandatory for years commencing on or after 1 January 2013), for defined benefit schemes, the amendments introduce various changes.
(i) past service costs are recognised immediately and no longer deferred;
(ii) the expected return on plan assets and the interest cost on liabilities in the income statement are replaced by interest on the net defined benefit asset / liability using the discount rate used to measure the defined benefit obligation; this changes the allocation of the total return on plan assets between the income statement and other comprehensive income;
(iii) asset management costs are recognised in other comprehensive income while other administrative costs are charged to operating profits. Both were previously charged to operating profits;
(iv) the Group continues to assess the impact of the amended standard's requirement to recognise employee contributions over the employee's period of service, rather than as the contributions are received;
(v) removal of the accounting policy choice for recognition of actuarial gains and losses is not expected to have any impact on the Group, since it already recognises them immediately in other comprehensive income.
The amended standard is required to be applied retrospectively. Had the standard been applied to the 2013 results, the currently quantifiable effect (items (i) to (iii) above) is that profit for the year would have been approximately £2.8m lower, with a compensating credit in other comprehensive income.
Consolidation
Subsidiaries are entities controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.
Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. The consolidated financial statements include the Group's share of the total recognised income and expense of associates on an equity accounted basis, from the date that significant influence commences until the date that significant influence ceases.
Derivative financial instruments
Derivative financial instruments are recognised at fair value. The gain or loss on remeasurement to fair value is recognised immediately in the Consolidated income statement. However, where derivatives qualify for hedge accounting, recognition of any resultant gain or loss depends on the nature of the item being hedged.
Hedge of net investment in foreign operation
The portion of the gain or loss on an instrument used to hedge a net investment in a foreign operation that is determined to be an effective hedge is recognised directly in equity. Any ineffective portion is recognised immediately in the Consolidated income statement. The effectiveness of the hedging is tested monthly.
Goodwill and other intangible assets
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.
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.
Where there exists an option to purchase the non-controlling interest of a subsidiary and the option is deemed to have been exercised, the Group has adopted the anticipated-acquisition method. Any changes to the carrying amount of the liability are recognised in the Consolidated income Statement.
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 through 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 5 to 10 years.
On a transaction by transaction basis, the Group elects to measure non-controlling interests, which have both present ownership interests and are entitled to a proportionate share of net assets of the acquiree in the event of liquidation, either at its fair value or at its proportionate interest in the recognised amount of the identifiable net assets of the acquiree at the acquisition date. All other non-controlling interests are measured at their fair value at the acquisition date.
Going concern
The Group's business activities, together with the factors likely to affect its future development, performance and position, are set out in the Business review, where also given are details of the financial and liquidity positions.
The Group has considerable financial resources at its disposal and the directors have considered the current financial projections. As a consequence, the directors believe 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 the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Annual report and accounts.
2. SEGMENTAL ANALYSIS
Renishaw manages its operations in two segments, comprising metrology and healthcare products. The results of these segments are regularly reviewed by the Board to allocate resources to segments and to assess their performance. The Group evaluates performance of the segments on the basis of revenue and profits. Within metrology, there are multiple operating segments that are aggregated into a reporting segment for reportable purposes, where the nature of the products and their customer base are similar. The revenue, depreciation and amortisation, and operating profit for each reportable segment were:
| # Year ended 30th June 2013 | Metrology | Healthcare | Total |
| £'000 | £'000 | £'000 | |
| # Revenue | 317,857 | 29,024 | 346,881 |
| # Depreciation and amortisation | 17,776 | 3,355 | 21,131 |
| # Operating profit/(loss) before exceptional item | 84,528 | (5,457) | 79,071 |
| # Share of profits from associates | 1,022 | - | 1,022 |
| # Exceptional gain on deferred consideration settlement | 2,903 | - | 2,903 |
| # Net financial income | - | - | 1,423 |
| # Profit before tax | - | - | 84,419 |
| # Year ended 30th June 2012 | Metrology | Healthcare | Total |
| £'000 | £'000 | £'000 | |
| # Revenue | 305,832 | 26,060 | 331,892 |
| # Depreciation and amortisation | 16,360 | 3,806 | 20,166 |
| # Operating profit/(loss) | 91,845 | (8,657) | 83,188 |
| # Share of profits from associates | 690 | - | 690 |
| # Net financial income | - | - | 2,168 |
| # Profit before tax | - | - | 86,046 |
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 analysis of revenue by geographical market was:
| 2013 | 2012 | ||
| £'000 | £'000 | ||
| # Far East, including Australasia | 138,806 | 130,169 | |
| # Continental Europe | 96,003 | 95,702 | |
| # North, South and Central America | 79,220 | 76,841 | |
| # UK and Ireland | 20,668 | 18,885 | |
| # Other regions | 12,184 | 10,295 | |
| # Total group revenue | 346,881 | 331,892 |
Revenue in the above table has been allocated to regions based on the geographical location of the customer. Individual countries which comprised more than 10% of group revenue were:
| 2013 | 2012 | ||
| £'000 | £'000 | ||
| # China | 75,228 | 65,166 | |
| # USA | 66,426 | 64,581 | |
| # Germany | 41,085 | 42,539 | |
| # Japan | 35,655 | 38,496 | |
There was no revenue from transactions with a single customer amounting to 10% or more of the Group's total revenue.
The following table shows the analysis of non-current assets by geographical region:
| 2013 | 2012 | ||
| £'000 | £'000 | ||
| # United Kingdom | 128,875 | 114,329 | |
| # Overseas | 52,597 | 47,840 | |
| # Total non-current assets | 181,472 | 162,169 |
3. EXCEPTIONAL ITEM
In November 2012, the Group purchased the remaining 34% shareholding in Measurement Devices Limited for the sum of £4,500,000, paid in cash. The original shareholders' agreement provided Renishaw with the option to purchase the remaining shareholding in three tranches in May 2012, May 2013 and May 2014. The price per share to be paid was calculated as 7 times earnings before interest and tax, with a minimum price per share of £2 and a maximum price per share of £8.94.
The Group had applied the anticipated-acquisition method to this transaction, and an estimate of the outstanding purchase price, based on MDL's 3-year forecast, was provided within the financial statements as deferred contingent consideration. This consideration totalled £7,403,000 in November 2012 (June 2012 £7,200,000) and the subsequent re-measurement resulted in an exceptional gain of £2,903,000 recognised in the Consolidated income statement.
4. FINANCIAL INCOME AND EXPENSES
| 2013 | 2012 | ||
| # Financial income | £'000 | £'000 | |
| # Expected return on assets in the pension schemes | 6,583 | 8,284 | |
| # Bank interest receivable | 1,009 | 695 | |
| # Total financial income | 7,592 | 8,979 | |
| # Financial expenses | |||
| # Interest on pension schemes' liabilities | 5,638 | 6,186 | |
| # Bank interest payable | 259 | 296 | |
| # Unwinding of deferred acquisition cost interest | 272 | 329 | |
| # Total financial expenses | 6,169 | 6,811 |
5. INCOME TAX EXPENSE
| 2013 | 2012 | ||
| £'000 | £'000 | ||
| # Current tax: | |||
| # UK corporation tax on profits for the year | 4,875 | 7,906 | |
| # Overseas tax on profits for the year | 9,245 | 5,049 | |
| # Total current tax | 14,120 | 12,955 | |
| # Deferred tax | |||
| # Origination and reversal of other temporary differences | 2,085 | 4,982 | |
| # Effect on deferred tax for change in UK tax rate to 23% (2012 24%) | (611) | (929) | |
| 1,474 | 4,053 | ||
| # Tax charge on profit | 15,594 | 17,008 | |
| # Effective tax rate (based on profit before tax) | 18.5% | 19.8% |
The tax for the year is lower (2012 lower) than the weighted average UK standard rate of corporation tax of 23.75% (2012 25.5%). The differences are explained as follows:
| 2013 | 2012 | ||
| £'000 | £'000 | ||
| # Profit before tax | 84,419 | 86,046 | |
| # Tax at 23.75% (2012 25.5%) | 20,049 | 21,942 | |
| # Effects of: | |||
| # Different tax rates applicable in overseas subsidiaries | (2,082) | (3,776) | |
| # Research and development tax credit and patent box | (1,942) | (1,342) | |
| # Expenses not deductible for tax purposes | 558 | 312 | |
| # Companies with unrelieved tax losses | 469 | 527 | |
| # Items with no tax effect | (932) | - | |
| # Effect on deferred tax for change in UK tax rate to 23% (2012 24%) | (611) | (929) | |
| # Other differences | 85 | 274 | |
| # Tax charge on profit | 15,594 | 17,008 |
At 30th June 2013 the reduction to 23% effective 1st April 2013 had been substantively enacted and further reductions to 21% from 1st April 2014 and 20% from 1st April 2015 had been proposed. These latter reductions were substantively enacted on 3rd July 2013. It has not yet been possible to quantify the full anticipated effect of the announced further 3% rate reduction, although this will further reduce the company's future current tax charge and reduce the company's deferred tax liability accordingly.
6. EARNINGS PER SHARE
Basic and diluted earnings per share are calculated on earnings after tax of £69,418,000 (2012 £69,555,000) and on 72,788,543 shares, being the number of shares in issue during both years. There is no difference between the weighted average earnings per share and the basic and diluted earnings per share. The adjusted earnings per share figure excludes the exceptional item.
7. PROPERTY, PLANT AND EQUIPMENT
| Freehold | Assets in the | ||||
| land and | Plant and | Motor | course of | ||
| buildings | equipment | vehicles | construction | Total | |
| Year ended 30th June 2013 | £'000 | £'000 | £'000 | £'000 | £'000 |
| Cost | |||||
| At 1st July 2012 | 85,854 | 96,615 | 7,056 | 3,996 | 193,521 |
| Additions | 5,690 | 12,696 | 1,280 | 8,310 | 27,976 |
| Transfers | 1,742 | 5,260 | - | (7,002) | - |
| Disposals | - | (805) | (706) | - | (1,511) |
| Currency adjustment | (604) | 685 | 79 | - | 160 |
| At 30th June 2013 | 92,682 | 114,451 | 7,709 | 5,304 | 220,146 |
| Depreciation | |||||
| At 1st July 2012 | 18,738 | 69,580 | 4,231 | - | 92,549 |
| Charge for the year | 1,762 | 7,544 | 987 | - | 10,293 |
| Released on disposals | - | (741) | (507) | - | (1,248) |
| Currency adjustment | 142 | 442 | 42 | - | 626 |
| At 30th June 2013 | 20,642 | 76,825 | 4,753 | - | 102,220 |
| Net book value | |||||
| At 30th June 2013 | 72,040 | 37,626 | 2,956 | 5,304 | 117,926 |
| At 30th June 2012 | 67,116 | 27,035 | 2,825 | 3,996 | 100,972 |
At 30th June 2013, properties with a net book value of £25,825,000 (2012 £25,625,000) were subject to a registered charge to secure the UK defined benefit pension scheme liabilities.
Additions to assets in the course of construction of £8,310,000 (2012 £19,437,000) comprise £1,208,000 (2012 £8,285,000) for freehold land and buildings and £7,102,000 (2012 £11,152,000) for plant and equipment.
8. INTANGIBLE ASSETS
| Internally | Software licences | |||||
| Other | generated | In the | ||||
| Goodwill on | intangible | development | course of | |||
| consolidation | assets | costs | In use | acquisition | Total | |
| Year ended 30th June 2013 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
| Cost | ||||||
| At 1st July 2012 | 19,414 | 10,347 | 55,743 | 19,652 | 31 | 105,187 |
| Additions | 403 | 373 | 10,615 | 449 | 1 | 11,841 |
| Transfers | - | - | - | 32 | (32) | - |
| Currency adjustment | 365 | 48 | - | 19 | - | 432 |
| At 30th June 2013 | 20,182 | 10,768 | 66,358 | 20,152 | - | 117,460 |
| Amortisation | ||||||
| At 1st July 2012 | 198 | 5,907 | 34,468 | 10,207 | - | 50,780 |
| Charge for the year | - | 1,347 | 7,558 | 1,610 | - | 10,515 |
| Currency adjustment | - | 5 | - | 17 | - | 22 |
| At 30th June 2013 | 198 | 7,259 | 42,026 | 11,834 | - | 61,317 |
| Net book value | ||||||
| At 30th June 2013 | 19,984 | 3,509 | 24,332 | 8,318 | - | 56,143 |
| At 30th June 2012 | 19,216 | 4,440 | 21,275 | 9,445 | 31 | 54,407 |
There were no significant acquisitions in the year. In May 2013, the Group purchased certain business assets of
LBC LaserBearbeitungsCenter GmbH, resulting in goodwill of £403,000.
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 Group's cash generating units (CGUs), which are currently 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 table below, only the goodwill relating to the acquisition of R&R Fixtures, LLC (formerly R&R Sales LLC) is expected to be subject to tax relief.
The analysis of acquired goodwill on consolidation is:
| 2013 | 2012 | ||
| £'000 | £'000 | ||
| # itp GmbH | 2,960 | 2,886 | |
| # Renishaw Diagnostics Limited (92.4%) | 1,784 | 1,784 | |
| # Renishaw Mayfield S.A. (75%) | 1,569 | 1,559 | |
| # Measurement Devices Limited | 6,661 | 6,661 | |
| # Renishaw Software Limited | 1,559 | 1,559 | |
| # R&R Fixtures, LLC | 4,556 | 4,275 | |
| # Other smaller acquisitions | 895 | 492 | |
| # Total acquired goodwill | 19,984 | 19,216 |
The recoverable amounts of acquired goodwill are based on value in use calculations. These calculations use cash flow projections with assumptions as follows:
- itp GmbH (part of the metrology reportable segment) - actual operating results and an average growth rate of 5% for 5 years with a nil growth rate to perpetuity (2012 same basis).
- Renishaw Diagnostics Limited, Renishaw Mayfield S.A. (both in the healthcare reportable segment), Measurement Devices Limited and R&R Fixtures, LLC (both in the metrology reportable segment) - 5-year business plans with a nil growth rate to perpetuity (2012 same basis).
These are considered prudent estimates based on management's view of the future and experience of past performance. The growth rates used in the business plans vary from 11% to 28%, except for Renishaw Diagnostics Limited, which is in its research and development phase and thus has negligible revenue to date.
A pre-tax discount rate of 12% has been used in discounting the projected cash flows of itp GmbH, Measurement Devices Limited and R&R Fixtures, LLC (2012 12% where applicable). A pre-tax discount rate of 15% has been used for Renishaw Diagnostics Limited and Renishaw Mayfield S.A. (2012 15%). These have been set on the basis of them being appropriate rates for a market participant. On this basis, no impairment write-downs are required.
There is significant headroom in all the above and for an impairment to arise, there would need to be a significant material deterioration in business; this is considered to be remote. An increase of 5% in the discount rate would not result in an impairment. For goodwill to be impaired in the CGU with the minimum headroom, the discount rate would have to increase to 30%.
9. INVESTMENT IN ASSOCIATES
The Group has the following investments in associates (all investments being in the ordinary share capital of the associate), whose accounting years end on 30th June unless otherwise stated:
| Ownership | Ownership | ||
| Country of | 2013 | 2012 | |
| incorporation | % | % | |
| # RLS merilna tehnika d.o.o. | Slovenia | 50 | 50 |
| # Metrology Software Products Limited | England & Wales | 50 | 50 |
| # Delcam plc (31st December) | England & Wales | 20 | 20 |
Delcam plc is listed on AIM at the London Stock Exchange. Its share price on 30th June 2013 was £13.45 (2012 £7.525). The Company holds 1,543,032 shares (2012 1,543,032). Equity accounting has been applied in the Group's results based on Delcam plc's management accounts to 30th June 2013.
Movements during the year were:
| 2013 | 2012 | ||
| £'000 | £'000 | ||
| # Balance at the beginning of the year | 6,790 | 7,437 | |
| # Dividends received | (307) | (108) | |
| # Share of profits of associates | 1,345 | 1,030 | |
| # Amortisation of intangibles | (323) | (340) | |
| # Other comprehensive income and expense | (102) | (1,229) | |
| # Balance at the end of the year | 7,403 | 6,790 |
Summarised aggregated financial information for associates:
| 2013 | 2012 | ||
| £'000 | £'000 | ||
| # Revenue | 13,545 | 12,287 | |
| # Share of profits for the year | 1,345 | 1,030 | |
| # Assets | 11,882 | 10,771 | |
| # Liabilities | 5,976 | 6,161 | |
10. DEFERRED TAX ASSETS AND LIABILITIES
Balances at the end of the year were:
| 2013 | 2012 | |||||
| Assets | Liabilities | Net | Assets | Liabilities | Net | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Property, plant and equipment | - | (4,678) | (4,678) | - | (4,561) | (4,561) |
| Intangible assets | - | (8,445) | (8,445) | - | (7,630) | (7,630) |
| Intragroup trading (inventory) | 8,415 | - | 8,415 | 7,261 | - | 7,261 |
| Pension schemes | 8,973 | - | 8,973 | 9,519 | - | 9,519 |
| Other | 888 | (6,909) | (6,021) | 997 | (7,301) | (6,304) |
| Balance at the end of the year | 18,276 | (20,032) | (1,756) | 17,777 | (19,492) | (1,715) |
The movements in the deferred tax balance during the year were:
| 2013 | 2012 | |||
| £'000 | £'000 | |||
| # Balance at the beginning of the year | (1,715) | 6,539 | ||
| # Movements in the Consolidated income statement | (1,474) | (4,053) | ||
| # Intangible assets acquired | - | (2,804) | ||
| # Movement in relation to the cash flow hedging reserve | 1,005 | (2,398) | ||
| # Movement in relation to the pension schemes | 428 | 1,001 | ||
| # Total movement in the Consolidated statement of comprehensive income and expense | 1,433 | (1,397) | ||
| # Balance at the end of the year | (1,756) | (1,715) | ||
No deferred tax asset has been recognised in respect of tax losses carried forward of £10,113,000 (2012 £8,104,000) due to the uncertainty over their recoverability, as a significant proportion may only be carried forward for a limited period of time.
11. DERIVATIVES
| 2013 | 2012 | ||
| Derivatives comprising the fair value of outstanding forward contracts with positive fair values are shown within: | £'000 | £'000 | |
| # Non-current assets | 7,976 | 3,532 | |
| # Current assets | 3,583 | 3,157 | |
| Total of derivatives with positive fair values | 11,559 | 6,689 | |
| 2013 | 2012 | ||
| Derivatives comprising the fair value of outstanding forward contracts with negative fair values are shown within: | £'000 | £'000 | |
| # Non-current liabilities | 10,442 | 2,313 | |
| # Current liabilities | 2,018 | 1,052 | |
| Total of derivatives with negative fair values | 12,460 | 3,365 |
12. 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 foreign employees. This year, the Board decided that for the USA defined benefit pension scheme, whilst the net financial position of the scheme is not material, the gross asset and liability amounts have become more material in relation to the Consolidated balance sheet and so have now been included.
The major scheme, which covers the UK-based employees, was of the defined benefit type. This scheme, along with the Ireland and USA defined benefit 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 £11,273,000 (2012 £9,674,000), of which £169,000 (2012 £162,000) related to directors and £4,482,000 (2012 £3,059,000) related to overseas schemes.
The latest full actuarial valuation of the UK defined benefit scheme was carried out at September 2009 and updated to 30th June 2013 by a qualified independent actuary. The mortality assumption used for 2013 is PCA00, year of birth, medium cohort, which reflects increasing life expectancy.
The major assumptions used by the actuary for the UK and Ireland schemes were:
| 2013 | 2012 | |||
| UK scheme | Ireland scheme | UK scheme | Ireland scheme | |
| # Rate of increase in pension payments | 3.5% | 2.5% | 2.7% | 1.7% |
| # Discount rate | 4.8% | 3.6% | 4.3% | 3.4% |
| # Inflation rate (RPI) | 3.7% | 2.5% | 2.7% | 1.7% |
| # Inflation rate (CPI) | 2.7% | - | 1.7% | - |
| # Expected return on equities | 7.3% | 5.5% | 6.7% | 5.8% |
| # Retirement age | 64 | 65 | 64 | 65 |
The assets and liabilities in the defined benefit schemes at the end of the year were:
| 2013 | 2012 | ||
| £'000 | £'000 | ||
| # Market value of assets: | |||
| # Equities | 117,114 | 93,827 | |
| # Bonds and cash | 1,653 | 1,409 | |
| 118,767 | 95,236 | ||
| # Actuarial value of liabilities | (160,485) | (137,224) | |
| # Deficit in the schemes | (41,718) | (41,988) | |
| # Deferred tax thereon | 8,973 | 9,519 |
The expected rates of return on each asset category are based on market conditions at 30th June 2013 and represent the best estimate of future returns, allowing for risk premiums where appropriate.
The movements in the schemes' assets and liabilities were:
| Assets | Liabilities | Total | |
| # Year ended 30th June 2013 | £'000 | £'000 | £'000 |
| # Balance at the beginning of the year | 95,236 | (137,224) | (41,988) |
| # Contributions paid | 2,508 | - | 2,508 |
| # Expected return on pension schemes' assets | 6,583 | - | 6,583 |
| # Interest on pension schemes' liabilities | - | (5,638) | (5,638) |
| # Opening amounts for USA scheme | 4,763 | (5,831) | (1,068) |
| # Actuarial gain/(loss) | 11,459 | (13,574) | (2,115) |
| # Benefits received/(paid) | (1,782) | 1,782 | - |
| # Balance at the end of the year | 118,767 | (160,485) | (41,718) |
Under the UK and Ireland defined benefit pension scheme deficit funding plans, there are certain UK properties, owned by the Company, and a property owned by Renishaw (Ireland) Limited, which are subject to registered fixed charges to secure the UK and Ireland defined benefit pension schemes' deficits respectively. The Company has also established an escrow account, into which it has paid £11,400,000 in 2011 and into which it was obliged to pay approximately £158,000 per month until September 2012. This account is subject to a registered floating charge to secure the UK defined benefit pension scheme liabilities. The balance of this account was £10,982,000 at the end of the year (2012 £11,523,000).
The Company has given a guarantee relating to recovery plans for the UK defined benefit pension scheme and the trustees have the right to enforce the charges to recover any deficit up to £42,540,000 if an insolvency event occurs in relation to the Company before 1st November 2016 or if the Company has not made good any deficit up to £42,540,000 by midnight on 1st November 2016. No scheme assets are invested in the Group's own equity.
The value of the guarantee discussed above is greater than the value of the pension fund's deficit. As such, in line with IFRIC 14, the UK defined benefit pension scheme's liabilities have been increased by £10,300,000, to represent the maximum discounted liability as at 30th June 2013 (30th June 2012 £9,700,000).
13. INVENTORIES
An analysis of inventories at the end of the year was:
| 2013 | 2012 | ||
| £'000 | £'000 | ||
| # Raw materials | 25,067 | 25,758 | |
| # Work in progress | 15,415 | 11,511 | |
| # Finished goods | 24,786 | 16,714 | |
| # Balance at the end of the year | 65,268 | 53,983 |
During the year, the amount of inventories recognised as an expense in the Consolidated income statement was £104,881,000 (2012 £99,211,000) and the amount of write-down of inventories recognised as an expense in the Consolidated income statement was £397,000 (2012 £567,000).
14. CASH AND CASH EQUIVALENTS
An analysis of cash and cash equivalents at the end of the year was:
| 2013 | 2012 | ||
| £'000 | £'000 | ||
| # Bank balances and cash in hand | 13,641 | 10,118 | |
| # Short-term deposits | 12,964 | 11,009 | |
| # Balance at the end of the year | 26,605 | 21,127 |
The UK defined benefit pension scheme cash escrow account is shown separately within current assets.
15. PROVISIONS
Warranty provision
Movements during the year were:
| 2013 | 2012 | ||
| £'000 | £'000 | ||
| # Balance at the beginning of the year | 1,170 | 770 | |
| # Created during the year | 826 | 526 | |
| # Utilised in the year | (366) | (126) | |
| 460 | 400 | ||
| # Balance at the end of the year | 1,630 | 1,170 |
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.
16. OTHER PAYABLES
Balances at the end of the year were:
| 2013 | 2012 | ||
| £'000 | £'000 | ||
| # Payroll taxes and social security | 3,712 | 3,965 | |
| # Other creditors and accruals | 15,305 | 21,631 | |
| # Total other payables | 19,017 | 25,596 |
Included in other creditors and accruals is £988,000 (2012 £5,432,000) in respect of deferred consideration. The amount in 2012 included £1,896,000 for Measurement Devices Limited and £3,000,000 for Renishaw Software Limited.
17. OTHER PAYABLES (NON-CURRENT)
The deferred consideration of £1,589,000 is in respect of the investment in R&R Fixtures, LLC, which is payable over the next four years (2012 £1,938,000).
The previous year also included £5,301,000 in respect of the investment in Measurement Devices Limited, which has now been fully settled by the early purchase of the remaining shares and £245,000 in respect of the investment in Thomas Engineering and Construction Limited, which is now classified as a current payable.
18. CAPITAL AND RESERVES
Share capital
| 2013 | 2012 | ||
| £'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.
Currency translation reserve
The currency translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of the foreign operations, offset by foreign exchange differences on bank liabilities which have been accounted for directly in equity on account of them being classified as hedging items. The movement in the year of a gain of £346,000 (2012 loss £1,779,000) comprises a gain on the net assets of foreign currency operations of £193,000 (2012 loss £3,829,000) and a gain on foreign currency bank accounts of £153,000 (2012 gain £2,050,000).
Cash flow hedging reserve
The cash flow hedging reserve 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 directly in equity and are recycled through the Consolidated income statement when the hedged item affects the Consolidated income statement. The forward contracts mature over the next three and a half years.
Movements during the year were:
| 2013 | 2012 | ||
| £'000 | £'000 | ||
| # Balance at the beginning of the year | 2,526 | (4,115) | |
| # Amounts transferred to the Consolidated income statement | (2,106) | 3,835 | |
| # Revaluations during the year | (2,119) | 5,204 | |
| # Deferred tax movement | 1,005 | (2,398) | |
| # Balance at the end of the year | (694) | 2,526 |
Dividends paid
Dividends paid comprised:
| 2013 | 2012 | ||
| £'000 | £'000 | ||
| # 2012 final dividend paid of 28.2p per share (2011 24.7p) | 20,526 | 17,979 | |
| # Interim dividend paid of 11.33p per share (2012 10.3p) | 8,247 | 7,497 | |
| # Total dividends paid | 28,773 | 25,476 |
A final dividend in respect of the current financial year of 28.67p net per share is proposed, to be paid on 21st October 2013 to shareholders on the register on 20th September 2013, with an ex-dividend date of 18th September 2013.
Non-controlling interest
Movements during the year were:
| 2013 | 2012 | ||
| £'000 | £'000 | ||
| # Balance at the beginning of the year | (741) | (490) | |
| # Share of investments | - | 266 | |
| # Share of loss for the year | (593) | (517) | |
| # Balance at the end of the year | (1,334) | (741) |
The non-controlling interest represents the minority shareholdings in Renishaw Diagnostics Limited -7.6%, Renishaw Mayfield S.A. - 25% and Renishaw Advanced Materials Limited - 45%.
19. RELATED PARTIES
During the year, associates and other related parties purchased goods and services from the Group to the value of £247,000 (2012 £319,000) and sold goods and services to the Group to the value of £5,024,000 (2012 £4,328,000). At 30th June 2013, associates owed £54,000 to the Group (2012 £73,000). Associates were owed £167,000 by the Group (2012 £253,000). Dividends of £307,000 were received from associates during the year (2012 £108,000). Loans to related parties from the Company at 30th June 2013 were £2,991,000 (2012 £2,745,000).
There were no bad debts written off during the year (2012 £nil).
20. PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks and uncertainties are considered by management to be:
| Risk or uncertainty | Potential impact | Mitigation |
| Current trading levels and order book Revenue growth is unpredictable and orders from customers generally involve short lead-times with the outstanding order book at any time being around one month's worth of revenue value. |
Global market conditions continue to highlight risks to growth and demand, especially in the Far East, with a forecast economic slowdown in China, and in the Eurozone where governments are introducing substantial cuts in public expenditure budgets. Against this background, revenue growth for the Group for the year was below expectation and future growth is difficult to predict, especially with such a short-term order book. This limited forward order visibility leaves the annual revenue forecasts uncertain. |
· The Group is expanding and diversifying its product range in order to maintain a world-leading position in its sales of metrology products. · The Group is applying its measurement expertise to grow its healthcare business activities. · The Group is integrating recent acquisitions which expand its product range in new and complementary market sectors. |
| Research and development (R&D) The development of new products and processes involves risk, such as development timescales, meeting the required technical specification and the impact of alternative technology developments. |
Being at the leading edge of new technology in metrology and healthcare, there are uncertainties whether new developments will provide an economic return. | · Patent and intellectual property generation is core to new product developments. · R&D programmes are regularly reviewed against milestones and forecast business plans and, when necessary, projects are cancelled. · New products involve beta testing at customers to ensure they will meet the needs of the market. · Market developments are closely monitored. |
| Supply chain management Customer deliveries may be threatened by a failure in the supply chain. |
Inability to meet customer deliveries could result in loss of revenue and profit. | · Production facilities are maintained with fire and flood risk in mind. · Critical production processes are replicated at different locations where practical · Regular vendor reviews are performed for critical part suppliers · Stock policies are reviewed by the Board on a regular basis · Product quality is closely monitored. |
| Regulatory legislation for healthcare products The expansion of the Group's business into the healthcare markets involves a significantly increased requirement to obtain regulatory approval prior to the sale of these products. |
Regulatory approval can be very expensive and time-consuming. This area is also very complex and there is a risk that the correct approvals are not obtained. | · Specialist legal and regulatory staff have been recruited to support the healthcare business. · Appointment of a new non-executive director to the main board with relevant healthcare experience. · Healthcare operations in UK, Ireland and France have ISO13485 certification for their quality management systems. |
| Defined benefit pension schemes Investment returns and actuarial valuations of the defined benefit pension fund liabilities are subject to economic and social factors which are outside of the control of the Group. |
Volatility in investment returns and actuarial assumptions can significantly affect the defined benefit pension fund deficit, impacting on future funding requirements. | · The investment strategy is managed by the pension fund trustees who operate in line with a statement of investment principles which is agreed by the Company · Recovery plans are in place for the 2006 and 2009 actuarial valuations. · The 2012 actuarial valuation and investment strategy is currently under review with the pension fund trustees. |
| Treasury Fluctuating foreign exchange rates may affect the results of the Group. |
With over 94% of revenue generated outside of the UK, there is an exposure to major currency fluctuations, mainly in respect of the US Dollar, Euro and Japanese Yen. Such fluctuations could adversely impact both the Group's income statement and balance sheet. | · The Group enters into forward contracts to hedge varying proportions of forecast US Dollar, Euro and Japanese Yen revenue. · The Group uses currency borrowings and swap contracts to hedge the foreign currency denominated assets held in the Group's balance sheet. |
Enquiries: B R Taylor 01453 524445
A C G Roberts 01453 524445
Registered office: New Mills, Wotton-under-Edge, Gloucestershire. GL12 8JR
Telephone: 01453 524524
Registered number: 1106260, England and Wales
Website: www.renishaw.com
This information is provided by RNS
The company news service from the London Stock Exchange
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