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Edited Transcript of RSW.L earnings conference call or presentation 31-Jan-19 9:15am GMT

Half Year 2019 Renishaw PLC Earnings Call

Gloucestershire Feb 1, 2019 (Thomson StreetEvents) -- Edited Transcript of Renishaw PLC earnings conference call or presentation Thursday, January 31, 2019 at 9:15:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Allen C. G. Roberts

Renishaw plc - Group Finance Director, Member of the Executive Board, Secretary & Director

* Chris Pockett

Renishaw plc - Head of Communications

* David R. McMurtry

Renishaw plc - Co-Founder, Executive Chairman & Chairman of Executive Board

* William Lee

Renishaw plc - Chief Executive, Member of the Executive Board & Director

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Conference Call Participants

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* Robert John Davies

Morgan Stanley, Research Division - Equity Analyst

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Presentation

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Chris Pockett, Renishaw plc - Head of Communications [1]

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Good morning, everyone, from a beautiful but cold Gloucestershire. My name is Chris Pockett, I'm Head of Communications for the Renishaw Group, and I would like to thank you for attending this live webcast presentation of Renishaw's interim financial results for the 6 months ended December 2018.

Present in the room today are Sir David McMurtry, Renishaw's Executive Chairman, who will say a few introductory words and then chair the later question-and-answer session. He will be followed by today's main presenters, Will Lee, Chief Executive; and Allen Roberts, Group Finance Director.

Before they speak, I would like to go through some basic housekeeping for the event. After the presentation, which will last between 25 and 30 minutes, there will be a question-and-answer session in which we will try to answer as many questions as possible before we close at 10:15. No questions will be answered during the formal presentation. (Operator Instructions) I should also point out that all financial information given during this presentation will be in pound sterling.

Thank you again for joining the presentation. And I will now hand over to Sir David.

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David R. McMurtry, Renishaw plc - Co-Founder, Executive Chairman & Chairman of Executive Board [2]

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All right, thanks, Chris. Well, welcome, and we have a lot to get through this morning. And I'm looking forward to hearing your questions later. I will now hand over to Will, who will take you through the interim statement.

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William Lee, Renishaw plc - Chief Executive, Member of the Executive Board & Director [3]

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Thank you very much, David. So quickly going through some of the highlights, the revenue growth of -- we had revenue growth of 6% for the half with revenue of GBP 296.7 million. This was made up by -- from an increase of 5% in our metrology revenue.

Particularly pleasing here was the strong growth that we showed in additive manufacturing and also our measurement and automation product lines. Measurement and automation is our Equator flexible gauging. So these are 2 of our newer product divisions. So it was great to see them contributing so well. We did, on the other hand, see a slowdown in demand for our encoder products, particularly in Asia with a weaker semiconductor and electronics market, and also from our large end-user manufacturers of consumer electronics products.

Healthcare revenue, again very pleasing, rose 25%, really due to strong growth in our spectroscopy product line. We have adjusted profit before tax of GBP 59.6 million. And Allen will go into details on the breakdown of the profit shortly. And also we finished the half year with a strong balance sheet with just over GBP 100 million of cash in the bank. And we have decided to maintain the dividend at 14p per share.

So I shall hand over to Allen to go through the financial numbers in more detail.

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Allen C. G. Roberts, Renishaw plc - Group Finance Director, Member of the Executive Board, Secretary & Director [4]

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Thank you, Will, and good morning, everybody. By way of introduction, the results in this presentation are based on activities from continuing operations only. The adjusted profit before tax and adjusted earnings per share, alternative performance measures have been consistently calculated year-on-year and eliminate the profit and loss impact of forward contracts classified as ineffective in the statutory results. These performance -- alternative performance measures are the basis by which the board evaluates the group performance.

As Will said, we've achieved revenue in the first half of GBP 296.7 million, a growth of 6% over last year against a backdrop of uncertain economic conditions. And we're seeing growth at constant exchange rates at 4%.

Adjusted profit before tax is GBP 59.6 million compared to GBP 62.3 million last year. The statutory profit before tax is GBP 61.6 million compared to GBP 66.2 million in the corresponding period last year. I would like to point out that the results do include a currency gain of approximately GBP 5 million, which I will refer to later.

The forecast effective rate of tax for the year is 15.5%. And this rate is being used in the first half year results. The tax rate for the year ended June '18 was 14.7%. Our adjusted earnings per share was 69.3p and -- against 71.5p on a statutory basis. An interim dividend of 14p per share is proposed, which is unchanged from the prior year, and it will be paid on the 8th of April 2019.

Group revenue analysis. Growth in turnover was achieved in all regions with the exception of the Far East, where we did experience a slowdown in demand for encoder products from large end-user manufacturers of consumer electronic products. We achieved revenue growth at constant exchange rates of 9% in the Americas; 7% in Continental Europe; and 20% in the U.K. and Ireland.

By country, China remains the highest revenue generator at GBP 65 million with the U.S.A. contributing GBP 55 million in the first half. By region, the Far East represents 43% of total turnover in the first half compared to 45% last year. And Continental Europe remained at 26% and the Americas increasing from 21% to 22%.

By business sector, metrology sales of GBP 278 million were GBP 13 million higher than last year with a growth of 5%. Pleased to report the strong growth in our additive manufacturing and measurement and automation product lines, as Will just referred to or alluded to earlier. And we have now have witnessed a slowdown in demand from the Far East for our encoder product lines and from large end-user manufacturers' consumer electronic products. Adjusted profits generated from our metrology operations were 52 point -- GBP 52 million compared to GBP 63 million last year.

Sales in the healthcare sector were GBP 19 million and 25% up on last year with strong growth in our spectroscopy product line, including high demand from a number of sectors in China. In terms of results, we have achieved breakeven this year compared to an adjusted operating loss of GBP 1.9 million last year.

Interestingly, we're now showing an adjusted profit before tax bridge, which just summarizes the movements that reconcile the adjusted profit before tax of GBP 62.3 million to GBP 59.6 million this year. I'll cover these items in more detail shortly. However, to summarize the significant items, the margin achieved on incremental sales has increased profits by GBP 9.1 million. Engineering costs have increased by GBP 8.7 million or net 22%. Distribution costs are up by GBP 4.6 million, administration costs up GBP 4.9 million, and financial income is GBP 5.8 million higher largely due to the gains in intra-group balances.

Moving on to our income statement, where we can see that we achieved a cost of sales percentage consistent with the prior year at 34%. I'll cover other operating expenses later in the presentation. As I mentioned earlier, net financial income includes currency gains of approximately GBP 5 million in relation to intra-group balances. In previous year, low-value intra-group currency gains or losses have been reported in administrative expenses.

The current period gains are largely in relation to U.S. dollar-denominated loans between Renishaw plc and Renishaw Inc., our U.S. subsidiary, which have increased significantly in recent years to provide funding for the expansion of our U.S. operations. To mitigate future income statement volatility, a number of intra-group loans, including the loan with Renishaw Inc., have been reclassified as permanent investments. As a result, we do not anticipate seeing intra-group currency gains or losses of this scale going forward.

Our share of profits of associates and joint ventures increased by 38% to GBP 2.2 million, reflecting strong performance in our partner companies, RLS and MSP.

Engineering and distribution costs. Our commitment to research and development remains the core strategy for the business. And this half year, we've had a total spend of 51 point -- GBP 51 million, up GBP 9.3 million over last year and represents 17% of total turnover. The amount of net R&D capitalized was GBP 1.2 million. And we have gained R&D tax credits of GBP 2 million. Net engineering costs are therefore GBP 47.8 million compared to GBP 39 million last year, a growth of 22%.

Engineering headcount has increased by 134 compared to December '17. Distribution costs were up by 8% to GBP 63.8 million as well as normal inflationary increases, which is across-the-board with a salary increase in July 1 this year and impacts this first half year. We have made a small increment to global headcount to support the growth in sales volumes, and in particular our end-user business. We have also additional running costs arising from the expansion of our overseas facilities in recent years.

In terms of our administration overheads, there's been an increase of GBP 4.9 million to GBP 29 million. The main factors giving rise to the increase are inflationary increases, headcount increases in the U.K. and overseas to support business growth and complexities and to support increasing corporate governance requirements. There's also a point eight -- GBP 800,000 charge for the estimated increase in the U.K. defined pension scheme liabilities arising from the GMP equalization. And that's a one-off for this half year.

Employees. The group now employs a total of 4,941 people, which represents a net increase of 79 from last June. In the U.K., headcount has increased by 102 since June, which includes 96 graduates and apprentices as we continue to invest in the skills for the future. Overseas, we have seen a net reduction of 23, primarily arising from decrease in fixed-term manufacturing employees and a small increase in sales and marketing staff. Over recent years, we have recruited high-caliber people to support growth opportunities. We are now well-placed to benefit from these additions and are not playing a significant headcount increase in the second half of the year.

Moving on to the balance sheet, where I'll discuss significant movements since June '18, our last published balance sheet. Inventory has increased by GBP 12 million since June to support revenue growth and future demand. We have also started to increase the holdings of certain inventory lines as we plan for potential disruption around Brexit. Debtors and current creditors have decreased by GBP 22 million and GBP 18 million respectively since June, primarily reflecting trading levels. Creditors have also reduced following the payment of the 2018 bonuses in July.

Net pension scheme benefits have reduced from GBP 67 million at June '18 to GBP 53 million. The new funding plan for the U.K. scheme deficit has resulted in the elimination of the IFRIC 14 adjustment at December. And at June, the adjustment increased liabilities by GBP 31 million. More on -- and we'll discuss this more on shortly. Net derivatives balances, which represent the fair value of the forward currency contracts yet to mature, now total GBP 50 million liability compared to GBP 29 million at June. This increase arises mainly from the weakening of sterling against the U.S. dollar in the 6 months to December.

Cash balances are now GBP 101 million compared to GBP 104 million at the end of June. I'll run through the cash flow statement shortly. And total equity at the end of the period was GBP 558 million compared to GBP 549 million at June and reflects the payment in October '18 of the final dividend of GBP 33.5 million in respect of the year ended June '18.

Moving on to the defined benefit schemes, particularly U.K. Following further engagement with the regulator -- The Pension Regulator, the company and the trustees have agreed to terms of a new deficit funding plan for the company's U.K. defined benefit pension scheme. The company has agreed to pay GBP 8.7 million per annum into the scheme for 5 years with effect from the 1st of October 2018.

Under the terms of the current agreement, the company pays approximately GBP 4 million per annum. Under the current arrangement with a GBP 10 million balance in escrow bank account which is scheduled to be released back to the company in 4 annual statements, the funds will now be retained in the escrow account which, together with certain U.K. properties, provides security to the fund.

In the event of a subsequent actuarial valuation results in a combined value of the properties and the escrow bank account exceeding 120% of the actuarial deficit, some or all of the funds in the escrow bank account may be released back to the company and one or more of the properties may be released from the fixed charge. All properties and escrow bank account will be released from charge when the deficit no longer exists. At 31 of December '18, the net present value of the future committed payments into the fund under the new plan are less than the IAS 19 deficit. And therefore, the IFRIC 14 adjustment to liabilities is no longer required.

In October '18, the High Court judgment in relation to the Lloyds Banking Group defined benefit pension scheme concluded that the scheme should be amended to equalize pension benefits for men and women as regards guaranteed minimum pension benefits for the years from 1990 to '97. The estimated impact on the company's U.K. defined benefit scheme's liability is GBP 0.8 million, which is equivalent to 0.4% of the scheme's liabilities and is based upon the C2 method of calculation.

Turning to cash flow. The cash flow bridge tracks the movements from our opening cash balances of GBP 104 million to the closing position of GBP 101 million, with GBP 104 million being June '18. Our profit after tax of GBP 52 million adjusted for depreciation, amortization, tax and hedged currency gains or losses and other noncash items totaling GBP 20 million give a cash inflow of GBP 72 million. Larger cash outflows included net capital expenditures of GBP 16 million, more on this shortly; R&D capitalized of GBP 8 million; dividend payments of nearly GBP 34 million; and tax payments of GBP 14 million. This half year, we have seen a net GBP 2 million cash outflow from changes in working capital with a decrease in debtor balances largely offsetting a decrease in creditors' balances and increase in inventory.

To finish our results review, a few words on capital expenditure for the year. We have invested GBP 19.6 million on fixed assets in the period compared to GBP 34.9 million in the year ended June '18. Expenditure on property totaled GBP 5.6 million for the period, including the commencement of a 92,000-square foot extension to our Innovation Centre at Wotton-under-Edge and the acquisition of our property previously rented in Breda in the Netherlands.

Expenditure on plants and equipment for the year was GBP 13.6 million as we continue to expand manufacturing facilities mainly in the U.K. and continue to invest in our global IT and distribution infrastructure. We are currently in the process of rolling out a number of IT systems, including global HR, global future systems related to distribution and supply chain and financials globally and also in the U.K., particularly engineering change, improvements to our R&D software packages. We are also well advanced in establishing a new European distribution facility at our existing Irish location to address the potential implications of leaving the European Union.

And I will now -- just this is an artist's impression of what the new extension to our Innovation Centre will be, which is an appropriate time now to hand back to Will for him to go through all the innovations that's going to arise in this building.

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William Lee, Renishaw plc - Chief Executive, Member of the Executive Board & Director [5]

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Thank you very much, Allen. And to start with, I'm going to look at industrial metrology, which is our grouping of machine tools, CMM, Equator gauges and styli, fixturing products.

Really a great strength for us is this combination of different products that when we are trying to solve manufacturing problems, that the range of products and applications knowledge that we have puts us in that excellent position. The nice thing for us here is that these manufacturers are still facing the same challenges. The increasing component complexity, tighter tolerances and the skills shortages to solve those problems means that our existing products and our new products are in strong demand.

Now what we do see across the manufacturing industry is that those drivers are the same. But actually, the markets are performing somewhat differently. Probably the most interesting at the moment for us is on the automotive powertrain market, where electrification is certainly taking a pace very quickly. The investment in traditional internal combustion engines has very, very much slowed down. But thankfully, we're in a good place where our technology is well-suited to the challenges of measurement for electric motors and new gearboxes required there.

So when we look at this, one of the things that we talk about strongly with industrial metrology and we've preached is the need not to do a final QC check in the inspection room but to make sure that metrology is built into your manufacturing process. This has been strengthened over the year with the launch of our Equator 500 gauge, which you can see at the top right, designed to work on the shop floor and do measurement of parts right next to where they're being machined and then feed back with our new IPC software to keep the process under control.

And also in terms of actually directly on the machine, we've also launched our new RMP400 probe, which is a compact radio strain gauge probe, so ultimate precision in our compact platform using our latest radio technology to do parts setup and parts inspection actually on the machine tool itself.

So one of the other drivers that we talk about, getting metrology on the shop floor, the other is automation. In the press, we read about the unfortunate redundancies that are being announced in manufacturing people but also increased expenditure in the field of automation. So one of the things that we have now is more for automatic loading, both for our Equator systems and our CMM systems and are in either semiautomatic or fully automatic integration and loading of our systems.

And also what we have very nice is with the launch recently of more different sensor types. We've talked about optical and also surface finish probes for our REVO. What it means is that actually is in the same place on a CMM, which traditionally could only have done one measurement, you can now do multiple measurements. So what this means is this eradicates actually the need for moving a part between multiple stations. So it removes the need for additional automation cost. So I think we're very well-placed with that.

Ease-of-use is also key, particularly on the shop floor. What we've also launched from the machine tool side is a new interface for the very popular Fanuc control. So what we have here is rather than a traditional line and code-based interfacing program, we have now the graphical user interface, which can go on the Fanuc controls, which is proving very popular. We also then, in terms of a fixturing, have a new, much simpler and automatic fixturing system, which can allow our fixtures or parts to be put on, on preset fixturing plates onto a CMM automatically in the right place. And that's our QuickLoad rail and plate system.

So if we look on then to our position measurement market. So what we see is these are all our encoder systems, ranging from our magnetic lower end with our RLS products to our optical encoders and our high-end laser interferometer encoders. And what we see here in general is a steady increase in the number of applications for these devices and the size of all those markets as well.

So as the market grows, what we do see recently is some changes. These markets are slightly cyclical. What we see is strong demand, particularly at the moment for the magnetic encoders, which are used in a lot of automation products. But actually some -- with the cyclical markets, both the semiconductor and electronics market appear quite flat at the moment, our expectation is that these will pick up. Exactly when, everyone is unsure. Whether it's later on this financial year is our assumption at the moment.

So what we see here is a couple of new products that we have launched. So QUANTiC was a product that we talked about, which is a much easier readhead to a line. So it uses actually some novel optics, which give pretty much the same level of accuracy as our traditional encoders but is much, much easier to set up, reducing therefore the installation and the design cost for using the encoder. What we now launch is the QUANTiC with -- designed to be used with our rotary encoders as well.

What we're also seeing from the semiconductor inspection market is the as the line width tolerances on semiconductors go down and die are actually now the requirement is that rather than just measuring the XY position of the wafer, more degrees of freedom of the wafer position are acquired and therefore more axes of interferometer are needed on each system to measure that. We have just launched the new multi-axis periscope, which means that all the beams are close together, minimizing the size of the window, making it convenient for people to do this on an SEM system.

We also have taken the six degrees of freedom technology from the XM-60 and we have integrated this into the XM-600 products. The XM-600 is designed to automatically communicate with our UCC. So if you're using a Renishaw-controlled CMM, it aligns from very, very simple and easy calibration, automatic calibration and error mapping of your CMM.

So looking then next on to additive manufacturing. So just clarify, the sort of additive manufacturing that we do is laser powder bed fusion. So these are really designed for high-end parts. This is where actually that the sort of parts we can make are unique and cannot be manufactured with traditional technologies. This allows you to make unique parts, which we've talked through with you in the past.

Where we are now is we feel that -- well, the market is moving on and actually, it's going very much from the R&D phase into production phase. What starts to become important is actually that the key parameters that we have with our new systems. So the first is actually with the RenAM 500Q. The actual productivity of the machine means that actually the cost per part is significantly lower than traditionally. And what we are seeing is that this allows people to: a, reduce the cost of part; but also reduce -- which just comes from reducing the build time significantly as well. So we make sure that we're making cost-effective parts.

The other thing is building these expensive parts, you want to make sure you built in the metrology. So with the InfiniAM Spectral, what we're looking at is for each of those four layers, as we are checking the melt-pool they are generating to make sure that as we build the part, the quality is understood as we go through. And if there's any challenges, we can stop or just build as we go.

So when we look at then adoption of AM, a few -- most customers are confidential, but for the few here that we can talk about, recently that we've been working with. So Knust-Godwin, a supplier of drilling technology into oil and gas, have taken a number of our machines, including our latest Q systems, really allowing them to do some fantastic new technology development and what they can do with drill bits.

Siemens, there's been a lot of news recently on the investment from Siemens up in Worcester on developing their U.K. material solutions, their additive manufacturing center. We were up there recently. So they have one of our new quad systems there, which is going very well. And then also from a healthcare side of view over in the U.S., PrinterPrezz are using our 500M system for looking at the manufacture of a number medical devices and prosthetics.

Now one of the key bits for us here is actually, that one of the things with AM is most of the talk is about the front-end and the actual printing of the device. Actually, a fair chunk of the cost in the manufacture of AM is the post-inspection machining and finishing operations. This is something where at Renishaw, we are very well placed because actually all of that is where we have extreme levels of expertise. So we can help our customers develop the whole solution from actually helping them with design to maximize the opportunity for AM, all the way through using our technology to have a finished part ready for use.

If we move on then next to Raman spectroscopy. What we see here is actually a real focus. So we make high-end Raman equipment. What we are looking at always is new applications for this. A couple of areas at the moment that we are looking at in terms of R&D with customers is both in healthcare for cancer diagnosis and also for the environment with microplastics. So with the microplastics, you can see that there's studying going on up in Scandinavia. We're looking at how we can diagnose some of these microplastics in terms of environmental.

Now what we then are doing is with our RA800 series, the 800 series is a range of different equipments designed very much not for the lab scientist but for the technician to do standard tests, is that once a process is proven in the lab, we're looking for is a much simpler, easier automated dew system for more like a process control tool. The latest one we have launched here is the 816 biological analyzer for this area, which you can see in the bottom right.

So finally, in terms of neurosurgery. So one of the key bits for us here is actually getting the regulatory approval and the CE marking on particularly our drug delivery equipment. So we're very pleased that the trial that's going on in Scandinavia is progressing very well. It's taking up Parkinson's disease. And the data coming out of this will allow us to get the information that we need for getting the CE marking on our drug delivery equipment. And there is another trial which we are preparing well for, for looking at children's cancer, DIPG, which will take place in London. We've also got a new 2D patient registration module, neurolocate 2D, which allows simple location of the robot to the patient in the operating theater.

Okay, just quickly on Brexit. Clearly, a lot of discussion on Brexit at the moment. We have been taking Brexit very seriously here, many a planning group with many different actions going on. I guess, the key thing to highlight probably is our commitment to our customers. Our customers rely on us, so we need to make sure that whatever happens after the end of March, that we are in a position to continue to supply to them seamlessly.

What we have done, as Allen mentioned, is many months ago, we took the decision to invest in Ireland to create another European warehouse so that the shipments that we do at the moment directly from the U.K. to the European customers can now be done from Ireland. So that will be in place. We will also be making sure we have also increased stock levels, as Allen mentioned, to make sure -- and that stock will be placed in suitable locations to make sure that we have significant contingency [for] in a month or so's time. What we then look at, I guess, is the long-term impact for the group. And actually, with the WTO tariffs on our products, really we don't expect any material change on the profitability of the group because of Brexit, once we get through the disruption that undoubtedly will be caused over the next few months.

So finishing off, I guess, notwithstanding these current economic uncertainties, whether that's Brexit, uncertainties in China at the moment and the U.S.-China trade wars, the board remains confident in the future prospects of the group. The full year revenue range, a target that we have published is between GBP 635 million to GBP 665 million with an adjusted profit before tax in the range of GBP 140 million to GBP 160 million and statutory, GBP 146 million to GBP 166 million.

Thank you very much.

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Chris Pockett, Renishaw plc - Head of Communications [6]

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Okay. Thank you, everyone. So we're now going to move on to questions. We have just under 30 minutes remaining. So I'll split the questions as evenly as possible as ever between webcast and the conference call. Well, as usual, a lot more people in the webcast who are asking questions. So I'm going to start with some of those webcast questions. Throughout as ever, I will try to group some of the questions together because inevitably there are some that are very similar. So we may not answer all the individual questions. But I'm going to start with a few questions that, or a couple of questions that we have on China.

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Questions and Answers

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Chris Pockett, Renishaw plc - Head of Communications [1]

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And we're going to start with a question now from a private shareholder, [Michael Moises]. And his question: I believe dramatic expansion of Renishaw business in China can be achieved by appointing a suitable partner to promote the company's business or products in China. This is a traditional method adopted by overseas companies to meet the protocol of Chinese business culture. And Michael says that Chinese buyers prefer to deal with Chinese sellers. Have you considered appointing a Chinese partner or agent? Or have you already appointed one?

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David R. McMurtry, Renishaw plc - Co-Founder, Executive Chairman & Chairman of Executive Board [2]

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Okay, Will, I think this is aimed at you.

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William Lee, Renishaw plc - Chief Executive, Member of the Executive Board & Director [3]

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Yes, okay. Let's go through this. Good question. So look, just to start with, when we started we were very early getting into China, which I might let Allen talk about it in a minute with some of the early days. But what we'd said is actually, so we never did any joint venture. We were very much on our own in China. We invested in China in our own people and grew together with distributors. So we now, I'd actually say, are in a very strong place with China. So we have our 2 head offices, a head office in Shanghai, we have a significant office in Beijing. But we have a number of regional offices. Clearly, it's a massive country which needs significant coverage. We also then complement that with a number of distributors, some with different distributors for different parts of the business there. So we continue to invest in China in both our own people and looking at the best distributors to support us there.

So yes, I would agree exactly with what you're saying in the question. I would say we very much do that at the moment and that's how we will continue to grow the business in China. Actually, the interesting bit at the moment for us is with wage inflation going on in China, with manufacturing moving, actually, often into some of the other lower-cost economies over in Asia. The important challenge for us is making sure that there, where we have the vision -- and Allen can say exactly how many years ago, but 20, 30 years ago to make sure we're investing in China at that time is to make sure we were in investing in the other lower-cost economies where this manufacturing is just starting now in Asia. So I'd say that's the most important thing for us now.

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Allen C. G. Roberts, Renishaw plc - Group Finance Director, Member of the Executive Board, Secretary & Director [4]

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Yes. Just to add to that, we took the decision to go into the Far East many, many years ago. It was in early '90s, '91, '92, when we first established our location in Hong Kong and then very shortly after in Beijing and Shanghai. And we've had -- was a number of offices since that time. At that time actually, our turnover in the Far East was around -- excluding Japan was about GBP 200,000, GBP 300,000. So we've had dramatic growth over the last 30 years, which is now our leading global -- greatest turnover sector of our business.

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Chris Pockett, Renishaw plc - Head of Communications [5]

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And a question also on China from Richard Paige from Numis. Please, can you provide an update on market conditions in China as you see them, given weakening market commentary from others?

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David R. McMurtry, Renishaw plc - Co-Founder, Executive Chairman & Chairman of Executive Board [6]

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Will again?

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William Lee, Renishaw plc - Chief Executive, Member of the Executive Board & Director [7]

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Yes. And so yes, clearly China is not in the buoyant place it was a year or 2 ago. Companies are far more thoughtful on investment. So yes, it's still a very healthy market for us, doing well. But it is not the same strength as it has been. I think key for us probably actually, the Chinese-U. S. trade conditions actually from both sides, both countries, which are both key markets for us is very important. So we see concerns from the Chinese side there in terms of that. And we also see concerns from our U.S. customers. I think also, as I spoke earlier, that some of it we also see particularly in the coastal regions of China with wage inflation, that some of the more external investment of more contract manufacturing is also considering right now where is the best place, particularly with trade wars and wage inflation, is where should they be investing in Asia. And we need to make sure that we are well-placed to support them in the Asian region.

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Chris Pockett, Renishaw plc - Head of Communications [8]

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Okay. Thank you, Will. I'm going to look at a couple of questions now on profitability and PBT forecasts. So a very similar question here from [Tom Fagan] and Richard Paige. So I'll take the one from Richard. It says please, can you provide more color on your full year PBT guidance of GBP 140 million to GBP 160 million? This looks to assume a very strong second half in particular, due to metrology where EBITA fell GBP 11 million year-on-year in the first half of this year and had a strong second half last year. Metrology also appears to have slowed in Q2. What visibility do you have here?

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Allen C. G. Roberts, Renishaw plc - Group Finance Director, Member of the Executive Board, Secretary & Director [9]

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Okay, Will?

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William Lee, Renishaw plc - Chief Executive, Member of the Executive Board & Director [10]

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Yes, [all at] the moment. I guess, from -- and if I start with the overview here, I guess, which is that, I mean, we notoriously have a short order book. So our -- this is our assumptions on where things are going and are considered to debate on this in terms of working out our guidance going forward. The market, as we've talked about, is softer for some of our product lines. We expect some recovery in some of these and we have some areas factored in here. In terms of this, we also believe that in terms of a cost side of the business that we have a majority of the people that we need to deliver on the revenue that we're talking about. So we don't see any significant increase in costs as well. So this is our guidance at the moment and...

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Allen C. G. Roberts, Renishaw plc - Group Finance Director, Member of the Executive Board, Secretary & Director [11]

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Yes. Typically, we do see a much stronger second half than the first half. And indications are that we are seeing indications of that right now, or as Will said, we do have a short order book. But we do have indications from all our subsidiaries on a very regular daily basis what the expectations are for the next -- for the rest of the year. Our fixed costs are relatively, as I said, fixed. And so any incremental turnover coming through in the second half, most of that drops through to our bottom line. So right now, that's how we do foresee growth in the second half as to where we've indicated and given the range of both turnover and profitability. And I did see, there's another question, Chris, about the GBP 5 million currency. That was -- that is included in the first half profit and is also included in the year-end forecast as well.

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Chris Pockett, Renishaw plc - Head of Communications [12]

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Okay. Thank you, Allen. Yes, that was a question from Vivek Midha, Deutsche Bank. So hopefully, Vivek, that's answered your question. So I'm going to go on to -- we've had a couple of questions regarding additive systems. I'm sorry, we have a slight system issue at the moment. But I'm still going to read this out.

This is a question from Sonia Fasolo. You said that the new additive manufacturing machines, so that's the 500Q system, is lowering significantly the cost per part. Could you quantify this benefit and also quantify how it makes -- how it evolves the economics for the customer in terms of a return for the customer?

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David R. McMurtry, Renishaw plc - Co-Founder, Executive Chairman & Chairman of Executive Board [13]

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Okay. I'll have a little go, this is of particular interest. We're really focusing on the top end of the additive market, on critical materials such as superalloys, and for the healthcare, titanium. But the main thing, as Will said earlier, is that we've got control of how we control the total process and how we feed back and maintain the quality within the build. This is where now -- we're now working on the next generation, of course. And this is something that's going to go at quite a pace. So we really want to use all our expertise controlling the processes right through -- and [additive] processes that we're actually looking for, like the areas we're looking for, have to have -- be finished as well. And then you have to have the whole feedback of all the information. And we can handle that, I think, better than anybody else because of our previous experience. And this gives us a nice background or a nice -- to go forward. And we are now, of course, laying the keel for our next generation's product. It's going to be quite a journey. Do you want to add something, Will?

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William Lee, Renishaw plc - Chief Executive, Member of the Executive Board & Director [14]

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No, I totally agree. I think the interesting bit, it's hard actually to answer the specific bit on the exact quantitative because it depends very much on the parts that the customer is are trying to make, the ratio of the cost which has to do with the additive side and the post-processing side. What we're intending to do is work with our customers very closely to understand the benefit of a laser's [GIF]. So typically, a four-laser machine is going to roughly, somewhere up to 4x quicker for your part manufacture cost, which is normally a very significant part of the cost of the part. So it is going to make a very significant productivity gain. The other bit, I think, that you start to realize, is once you realize that people are going into mass production and the space at the factory, these are expensive factories needed for AM manufacturing, the infrastructure around. The size of our machine compared to competitor machines is massively a smaller footprint.

It's a bit like you saw with the machine tool industry many, many years ago. Machine tools were huge and gradually it became much smaller and compact as the cost of the surrounding infrastructure becomes an important part of the factor. So with our Q, we have a fantastically small footprint. So actually, there's the knock-on benefit of that as well. So can't give a quantitative, we have to go through this with a customer and help them through and help them understand what are the right decisions to make. There is also actually this designed for manufacture part of deciding what AM can do for them and how to optimize and get the best performance out of our machine in the whole process, will have a massive impact on their cost and their productivity going forward. So yes, that's the only bit I got...

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David R. McMurtry, Renishaw plc - Co-Founder, Executive Chairman & Chairman of Executive Board [15]

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Yes. No, that's fine. Yes, we are looking for the production side of it rather than the runoff.

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William Lee, Renishaw plc - Chief Executive, Member of the Executive Board & Director [16]

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Yes.

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Chris Pockett, Renishaw plc - Head of Communications [17]

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Okay, thank you. And another question on additive here from Mark Davies Jones at Stifel. Could you please update us on the evolving competitive environment for metal additive manufacturing? Some major machine tool companies, notably TRUMPF, appear to be growing their position in this market quite aggressively. Is this not a more natural evolution of their traditional business than of Renishaw's core market strengths in metrology? How do you position yourselves against this kind of competitor? And what are the main differentiators of the Renishaw product offer currently?

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David R. McMurtry, Renishaw plc - Co-Founder, Executive Chairman & Chairman of Executive Board [18]

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Well, as we said before, I mean, in terms of coming from a completely different area, we're coming from a quality control aspect of it. And they're coming, of course, from their experience with laser, laser cutters particularly. And they did introduce an interesting machine at the last show. But it will be interesting to see how the top-end market comes out. I think we can help the top end better because of our overall quality experience.

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William Lee, Renishaw plc - Chief Executive, Member of the Executive Board & Director [19]

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Yes, I would agree. I think that, that's the [inroad] we have a growing market. It's actually quite a diverse market in terms of the different things that people are trying to do and demands from different industry sectors, for example, aerospace versus medical, versus more quality products and versus the different materials. So actually, there are different niches and different bits opening up whereas some machine architectures are better for one and some machines architectures are maybe better for others. So it's a nice growing market. I would agree with David. I think we're well-placed with the products that we have and the technology we're developing to compete really nicely. We need to make sure that we are developing the skills that are needed to complement that, either by partnering or by developing in-house on the stuff that goes with it. So it is quite a different process when you think of traditional machine tools. This is a very different knowledge base that is needed. So for a traditional machine tool company, it is a very big change.

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David R. McMurtry, Renishaw plc - Co-Founder, Executive Chairman & Chairman of Executive Board [20]

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And it's very important that we do progress very sharply in this market.

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William Lee, Renishaw plc - Chief Executive, Member of the Executive Board & Director [21]

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What we actually find is predominately -- actually it's a collaboration with machine tool builders. So the additive stage is one and then the automation and machining is a second. So actually, our collaboration with machine tool builders is key on this, often to deliver a complete solution for a customer or the customer will be working with 2 of us to make sure that they can develop the finished parts.

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Chris Pockett, Renishaw plc - Head of Communications [22]

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Okay. Thank you. Got another question here from private shareholder, [Michael Moises]. I think we probably covered most of this so far, but I'll read it out anyway. Michael asked, what are your Brexit plans? What are your options? What is your preferred option? Good luck!

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William Lee, Renishaw plc - Chief Executive, Member of the Executive Board & Director [23]

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Thank you.

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David R. McMurtry, Renishaw plc - Co-Founder, Executive Chairman & Chairman of Executive Board [24]

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Yes, agree with that. Do you want to pick up on that?

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William Lee, Renishaw plc - Chief Executive, Member of the Executive Board & Director [25]

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I think probably covered the key outline about -- at the new warehouses that's in Dublin, our increased stocks for contingency. So I think we are pretty well-placed there in terms of having everything in place. I'd say, it has consumed resource to get that done. But we have to prepare for a no deal.

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Allen C. G. Roberts, Renishaw plc - Group Finance Director, Member of the Executive Board, Secretary & Director [26]

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Yes, we've got many subsidiaries in Europe. A lot of them, to a lot of our customers in Europe, we ship directly from the U.K. at the moment. And so we're looking to be able to distribute directly to customers through Ireland as opposed to the U.K. post-Brexit or in the event of a hard Brexit or whatever. So we're well-placed to put that into effect. Well, we are well-placed right now.

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William Lee, Renishaw plc - Chief Executive, Member of the Executive Board & Director [27]

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On that, actually, one thing to note is we do have -- for a long time we've had established a warehouse in...

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Allen C. G. Roberts, Renishaw plc - Group Finance Director, Member of the Executive Board, Secretary & Director [28]

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Germany.

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William Lee, Renishaw plc - Chief Executive, Member of the Executive Board & Director [29]

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Yes, which -- because of those German -- so a lot of this, from the shipping is -- for example, the machine tool probe to a machine tool customer, it has to get there. They need to ship their machine tool on time. So that's sort of in place. We are building up safety stock over in Germany as well.

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Chris Pockett, Renishaw plc - Head of Communications [30]

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Okay. Thanks very much for that. So going to look at a question now -- a couple of questions on the healthcare market. So this is a question from Peter Gusev at Capital World Investors. What is the total addressable market for the neuromate robot in terms of annual procedures?

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William Lee, Renishaw plc - Chief Executive, Member of the Executive Board & Director [31]

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So maybe if I answer this question maybe slightly differently, which I would say actually -- our challenge probably is not the volume of different procedures that the neuromate can do. The neuromate is suitable, there are so many different brain surgery things that are possibilities for neuromate. Our challenge, and what we are looking at the moment, is making sure that we are focusing on a few of them and putting all the resources that we can to make sure that those are a success.

So the potential addressable market is huge. What we have is to make sure in the areas that we're looking at with deep brain stimulation again, which can do a number of different treatments: from drug delivery, which can do a number of different treatments; from epilepsy, that we are making sure that we are doing a complete solution and making a success of a few of them and really becoming in a strong place with those. So that will be my key bit for that one.

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David R. McMurtry, Renishaw plc - Co-Founder, Executive Chairman & Chairman of Executive Board [32]

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Yes, I mean, the traditional brain surgery is done with stereotactic frames, and the robot is very efficient in terms of getting that job done. So from a cost point of view, we think we've really got great advantages and we're just looking forward to making sure this -- get into this market and get through all the regulatory stuff.

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Allen C. G. Roberts, Renishaw plc - Group Finance Director, Member of the Executive Board, Secretary & Director [33]

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And accuracy.

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David R. McMurtry, Renishaw plc - Co-Founder, Executive Chairman & Chairman of Executive Board [34]

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Well, accuracy is something where we actually score highly on.

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Chris Pockett, Renishaw plc - Head of Communications [35]

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Okay. Another healthcare-related question now from Sonia Fasolo again. Good to see the healthcare EBT breakeven. How sustainable is this?

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David R. McMurtry, Renishaw plc - Co-Founder, Executive Chairman & Chairman of Executive Board [36]

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Will?

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William Lee, Renishaw plc - Chief Executive, Member of the Executive Board & Director [37]

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Well, yes, again I might change this as saying we don't really want our healthcare division to breakeven. We want it to be making significant profits. We wouldn't be investing in it if we didn't think there was significant profits there for the long term. It's very nice to see spectroscopy growing and also neuro doing well. Clearly, there is a fantastic opportunity longer term with neuro. And we have some exciting stuff coming through with spectroscopy as well. So clearly, there will be ups and downs, but this is a longer-term growth business for us.

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David R. McMurtry, Renishaw plc - Co-Founder, Executive Chairman & Chairman of Executive Board [38]

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It's been a long journey, but we can see light at the end of the tunnel, basically.

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William Lee, Renishaw plc - Chief Executive, Member of the Executive Board & Director [39]

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Yes. What we also see actually in terms of our healthcare AM business, which is very much moving more and more into the selling of AM machines into healthcare and the regulatory side, that we see a strong take-up there as well.

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Chris Pockett, Renishaw plc - Head of Communications [40]

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Okay, thank you. Going into a question now related to margins and another question from Mark Davies Jones. How significant are product mix effects within the decline in margins at metrology during the period? Would it be fair to assume that strong revenue growth at additive manufacturing has a negative impact on reported profitability while the encoder business, which has slowed, typically carries above divisional average margins?

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David R. McMurtry, Renishaw plc - Co-Founder, Executive Chairman & Chairman of Executive Board [41]

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Well, Allen, I think that's you.

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Allen C. G. Roberts, Renishaw plc - Group Finance Director, Member of the Executive Board, Secretary & Director [42]

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Yes, I mean, for the 6 months on 6 months, we've actually seen margins in line with the -- our 6 months just ended in line with the previous. We -- they are stable. And we are having continuing efforts to reduce costs. And basically that's where we're at, really. We are pretty stable on margins. And product mix does have a little bit of an impact. But we are trying to push product costs down.

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Chris Pockett, Renishaw plc - Head of Communications [43]

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Okay, thank you. A question now on R&D again from Sonia Fasolo. You've been stepping up R&D expenditure. Could you help us in assessing if this is more of a one-off or rather the new normal? And what should we expect for this financial year and the next one when it comes to R&D?

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David R. McMurtry, Renishaw plc - Co-Founder, Executive Chairman & Chairman of Executive Board [44]

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Okay, Will, that's your control unit.

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William Lee, Renishaw plc - Chief Executive, Member of the Executive Board & Director [45]

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Yes. Well, look, clearly, our R&D remains our passion. And we make no excuses for steadily increasing our expenditure in R&D. That's the long-term health of this business, making sure we have the best products. What we do see in the short term is we believe we've got pretty much all the key resourcing that we need for the rest of this financial year. So we don't see any significant headcount increase for the rest of this year. What we do see, I mean, we have seen -- I think for perhaps the first half is actually particularly on some of the newer product lines, the project spend is higher. So things like AM, our project spend, because of the cost of the parts, is larger. So that has contributed to a larger R&D bill, it's not just been the labor spend that has been up. And that probably is going to continue as we continue to invest in those growing AM product lines for the future. So yes, I think we expect and we've talked about this, a very stable R&D spend for the rest of the year. And then we'll see what things will take us on in the future.

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David R. McMurtry, Renishaw plc - Co-Founder, Executive Chairman & Chairman of Executive Board [46]

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Our R&D is taking us where we are today. And I'm delighted it's continuing.

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Chris Pockett, Renishaw plc - Head of Communications [47]

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Okay. A question now from [Melwin Mehta]. It says it's his first presentation, so welcome. Far East sales weakness, how much is this weakness due to: a, lower customer demand; b, customer choosing cheaper replacement products instead of Renishaw?

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William Lee, Renishaw plc - Chief Executive, Member of the Executive Board & Director [48]

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Yes, I think this is one of the nice things for us here. So what we saw in terms of results we're saying, okay, some of our newer product lines growing and actually where we saw reductions in some of the more established product lines, it was because of lower customer demand rather than us having lost any key accounts. So what we do just see is -- and these are accounts that we often have quite good relationships with, but obviously don't know exactly when things are going to pick up. So actually, it's very much an a in there, lower customer demand rather than the fact that we have been displaced from accounts. And clearly, there's always the threat of us being displaced. And we're always working hard both in terms of innovation for the future and in terms of supporting and servicing our customers that we have with existing products to make sure that we maintain that. And that's good for us.

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David R. McMurtry, Renishaw plc - Co-Founder, Executive Chairman & Chairman of Executive Board [49]

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Our product pipeline is essential to make sure that we keep our position.

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Chris Pockett, Renishaw plc - Head of Communications [50]

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Okay, thank you. Eventually got to your questions, Michael, so Michael Blogg at Investec. A couple of questions, which I'll read out from Michael. Regarding the help that you give to customers in design for manufacture and understanding the financial benefits of AM, that's the solution centers, can you monetize this support? Or is it all rolled up in sales of machines?

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William Lee, Renishaw plc - Chief Executive, Member of the Executive Board & Director [51]

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So I guess, it depends. So we have probably a couple of different ways that we might engage with customers once we get through an initial engagement period. So one is that they may decide to engage with us in our solution centers, in which case they will pay for a number of different options, which could be time on our machines, making, training, us teaching them, their engineers how to think about designing for additive manufacturing, so getting that mindset in process, not just designing parts that could have been machined traditionally. So that may be one, or the other could well be that if they are keen to do that themselves and invest in the equipment sooner, that we will often give them help and support as part of the sales process in terms of, "Okay, let's go through our spreadsheets and our financial models to show what we can best to do for you." So this really does vary depending on the customer, what the customer wants to do and probably the strategic importance of that customer. I would say in general, because it's a new industry, there tends to be an acceptance that people need to help and support and are often willing to pay for that guidance and knowledge.

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David R. McMurtry, Renishaw plc - Co-Founder, Executive Chairman & Chairman of Executive Board [52]

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I love that the customers have to come up the learning curve. And it does mean opportunities for help and support, yes.

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Chris Pockett, Renishaw plc - Head of Communications [53]

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Okay. Another question from Michael, I'll just read this one out. Please, could you run over again your assumptions, re-revival or stabilization of demand in encoders for consumer electronics?

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William Lee, Renishaw plc - Chief Executive, Member of the Executive Board & Director [54]

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So look, with the encoders, that's keeping encoders separate from consumer electronics, the encoder that we sell are going into often equipment used for electronics, semiconductor manufacturing. So with those products which go in through a range of stuff, which yes, consumer electronics is a big driver, but we see a number of different areas where that demand is being driven for as well. So our customers there are saying -- and look, this has stabilized. It is sluggish at the moment. It's not disastrous. It's sluggish markets here that we see at the moment. The expectation from customers probably in when things pick up is either in a couple of months to the end of the financial year. So we expect some recovery over this half but probably not a strong recovery.

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David R. McMurtry, Renishaw plc - Co-Founder, Executive Chairman & Chairman of Executive Board [55]

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Yes.

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Chris Pockett, Renishaw plc - Head of Communications [56]

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Okay. Another question from Richard Paige at Numis. Returning to the FX gain of GBP 5.3 million in the first half, can you please quantify how much of this was recognized in Q1 adjusted PBT of GBP 32.6 million? And how much in the Q2 PBT of GBP 27 million?

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Allen C. G. Roberts, Renishaw plc - Group Finance Director, Member of the Executive Board, Secretary & Director [57]

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Yes, that's quite [I would say that] in quarter 1, it's about GBP 2 million and in quarter 2, GBP 3 million.

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Chris Pockett, Renishaw plc - Head of Communications [58]

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Okay, thank you. That's straightforward. I have a question here from William Turner, Goldman Sachs, who says clearly, there has been a deterioration in some markets. FANUC ROBODRILL's volumes have been reported, but they could be down more than 50% into Asia in December. How important is your growth geared to the OE demand from your end users versus replacement demand or updating existing production lines or CMMs?

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William Lee, Renishaw plc - Chief Executive, Member of the Executive Board & Director [59]

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Okay. Yes, it's probably on me. So if we look through this -- let's start with this. So in terms of this machine tool side of things, so FANUC ROBODRILLs are one of the machine tools that gets supplied in here. The FANUC ROBODRILL is probably the strongest in terms of machining of metal parts. There are a number of more domestic Chinese, perhaps this is that are particularly -- actually good at some of the glass processes. There's more and more glass in the newer designs of phones, where probably FANUC isn't as strong. So actually, what we see is alternative machine tool supplies there. We do also see that often, if a line will be being repurposed, then there may well be the demand for existing machine tools to be reequipped with metrology equipment. Now underlying that, there's still a concern of okay, how much capacity is there out there? Not with some of the larger subcontracted manufacturers, but on the number of investment that's been put in on a number of the smaller ones.

So there are different models with different stuff in terms of the actual smartphone manufacturers, who have different supply chain models, use different people. It's a complicated picture of understanding actually how much capacity will be needed in the future. Clearly, a change of technology from metal to glass benefits us because it's different machinery that is needed. And as tolerance is still pushed forward, then more and more of the existing lines need our metrology equipment. There's also a growing stuff with the Equator here particularly as well. The Equator really has the benefit of its flexibility as changes -- as designs change quickly during the design process and actually designs aren't current for that long, the Equator with its flexibility in terms of gauging offers a real advantage for these customers to [take advantage].

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David R. McMurtry, Renishaw plc - Co-Founder, Executive Chairman & Chairman of Executive Board [60]

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Yes, there's also emerging strong demand for very large screens for the future cars right across the whole dashboard, and again a lot of glass. But the FANUC machines are not really, as just mentioned, suitable for glass grinding, and not ourselves coming in. So it's interesting to see which way this will all pan out. But there seems to be a lot of activity particularly now that the electric cars are coming in with the big screens.

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William Lee, Renishaw plc - Chief Executive, Member of the Executive Board & Director [61]

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So in terms of confidence there, I guess, we are as uncertain as we always are, of what happens is the honest answer. But we will be ready and placed for the orders and the support that we do need to give.

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Chris Pockett, Renishaw plc - Head of Communications [62]

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Okay, thank you. Right. I'm very conscious of time. We've run over already. But I've got unusually large number of questions. And I think, at this point, to be fair to people on the conference call who've been waiting very, very patiently, we're going to move across to them. So I'm just going to ask Courtney, who's the conference call operator, to ask the next question. So over to you, Courtney.

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Operator [63]

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(Operator Instructions) We do have a question in the queue. And that comes from the line of Robert Davies, calling for Morgan Stanley.

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Robert John Davies, Morgan Stanley, Research Division - Equity Analyst [64]

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Just a few from me. First one is if you could give us a little more detail around the first half, second half growth split trends, in the Far East in particular, and just maybe what you're seeing in the early part of January in terms of recent trading. I'd just be interested to get the sort of quarterly sequential dynamics, if you could give us some more color. Then the second one was around FX as well. Just on the adjusted operating profit, I saw you mentioned that the difference between constant FX and reported FX in the sales number was about 2%. Just wondering if you could confirm what it was in the operating profit line as well. And then finally, just if we could get some further color just around some of the latest trends you're kind of hearing, specifically on the sort of semi side/consumer electronics. If you could, that would be super helpful.

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David R. McMurtry, Renishaw plc - Co-Founder, Executive Chairman & Chairman of Executive Board [65]

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Who would like to go first?

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William Lee, Renishaw plc - Chief Executive, Member of the Executive Board & Director [66]

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Shall I start with one, which I guess, we don't go into specific details on numbers so far that we haven't released. But there's certainly, I think, what we are seeing so far in January, January gives us confidence that what we're forecasting, we are still happy with for the end of the year. So I think that's okay there. If I maybe pick up three and then hand -- question three and then hand over to Allen for number two on the FX.

So number three, in terms of the semiconductor market, I'm honestly not sure I have too much more to add there. We get a slightly mixed message from probably some of our customers that we deal with, who are probably uncertain themselves. These things have the habit of moving very quickly. And the recovery and demand that we can suddenly face very quickly is -- switches on very quickly. We don't see that probably in the next couple of months. After that, who knows? At the moment, I don't think I could add any more to that.

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Allen C. G. Roberts, Renishaw plc - Group Finance Director, Member of the Executive Board, Secretary & Director [67]

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And as the -- as regards to currency effect on the profitability, it's not significant. Because some -- when you're looking at the currency rates, our overseas overheads are impacted and translated into sterling. And so when you net off the difference between the turnover and the overheads and other costs, the impact on P&L, operating profit is not significant.

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Operator [68]

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We have no further questions coming through on the audio line.

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Chris Pockett, Renishaw plc - Head of Communications [69]

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Okay. Well, thanks very much to Courtney for controlling that brief session. I think given the timing, I think we've given enough airtime. We've covered off, I think, most topics. I think there may be a couple we've missed. I think maybe just one more. I think we probably haven't covered off one from Michael Blogg. What should we read into the reduced overseas headcount in manufacturing? What has changed?

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William Lee, Renishaw plc - Chief Executive, Member of the Executive Board & Director [70]

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Yes, this does vary. I wouldn't read too much into it. Yes, there's some in terms of Ireland contracts but also over in India as well, where we'll have variations. In India, a lot lower margin or actually some of the assemblies, for example, cable assemblies are made. So we are going to need a reduction on some of these volumes. And we may have a few less people there. I wouldn't read anything significant into that.

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Chris Pockett, Renishaw plc - Head of Communications [71]

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Okay, thank you. I think we really covered off most of the other topics. There may be a couple of questions that we didn't specifically read out. But I think, hopefully, the answers to other questions covered those off. So that now ends today's question-and-answer session and this morning's webcast and teleconference event. We'll as ever aim to publish a recording of today's presentation and the Q&A session on the Investor Relations section of our website by the end of today.

So on behalf of Renishaw and the board, I would just like to thank you all for attending this event and, hopefully, has been of value to you. Finally, just a reminder that you can download the report and a copy of the financial presentation that you've just seen from our Investor Relations web pages under Latest News. Again, thank you for attending, and have a good day.