Renishaw plc        

12 September 2024

Preliminary announcement of results for the year ended 30 June 2024

Solid strategic progress in challenging market conditions

Performance highlights

·      Revenue of £691.3m (FY2023: £688.6m):

•     Record revenue, 0.4% higher than FY2023, boosted by a strong final quarter;

•     Revenue at constant exchange rates, excluding the impact of forward contracts, was £25.4m (3.7%) higher than the previous year; and

•     Good revenue growth from systems sales, offset by weaker demand from the semiconductor sector for Position Measurement products.

·      Manufacturing technologies revenue flat at £648.1m, with:  

•     Record revenue for shop-floor gauging and co-ordinate measuring machine (CMM) inspection systems;

•     Good growth in sales of multi-laser additive manufacturing (AM) systems, with a strong second half for sales from key customers in the medical sector; and

•     Weaker demand for Position Measurement products overall, but with four quarters of sequential growth amid signs of recovering demand from the semiconductor sector.

·      Analytical instruments and medical devices revenue increased by 7% to £43.2m, with:

•     Record sales for our Spectroscopy product line, with stronger demand in EMEA where we have expanded our sales team;

•     Growth for our Neurological product line, including sales of our neuromate® surgical robot to diagnose patients with epilepsy.

·      Adjusted^* profit before tax 13% lower at £122.6m (FY2023: £141.0m):

•     Profit reduction primarily resulting from a combination of the impact of currency on revenues and increased employee pay, including £2.1m of severance costs.

•     Gross engineering expenditure increased by 6% as we continue to invest in innovation, whilst distribution cost were 2% higher and administration costs were flat.

·    Statutory profit before tax of £122.6m (FY2023: £145.1m).

·    Strong balance sheet with cash and cash equivalents and bank deposit balances of £217.8m, compared with £206.4m at 30 June 2023:

•     Invested £65.2m (FY2023: £73.8m) in capital expenditure, including completion and occupation of the first phase of expansion of our production facility in Miskin, Wales.

·    Proposed final dividend of 59.4p per share.

*Note 29, Alternative performance measures, defines how each of these measures is calculated.

Strategic progress

·    Our ambition is to deliver high single-digit growth through the business cycle, combined with >20% operating margins.  This year, we introduced a long-term value creation model to explain how we will achieve these goals, including three areas of strategic focus:

1.    Growing in our existing markets - aiming to increase revenue by driving up probe fitment levels, offering higher value sensors, and by winning more machine builder customers.

•       Launched the RMP24-micro, the world's smallest wireless machine tool probe, designed for compact machine tools that make high-precision miniature components, where probe fitment was not previously possible.

•       We also continued to grow revenue from our FORTiS™ enclosed position encoders, where we see significant opportunities, and won new business for our magnetic, optical and laser position encoders from machine builders in a wide range of sectors.

2.     Increasing the value of the technology we sell - aiming to provide our end-user customers with complete solutions to capture a greater proportion of their investment.

•     Strong growth in sales of our Equator™ gauge, helped by the continuing trend for greater automation of process control on shop-floor machinery.

•     Began rolling out our new generation of metrology software, MODUS™ IM Gauge & Control, which aims to simplify programming of our Equator gauging system.

•     Launched the RenAM 500 Ultra additive manufacturing machine, featuring our new TEMPUS™ technology, which reduces build times by up to 50%.

3.    Extending into new, high-growth markets - aiming to diversify into close-adjacent markets where we have strong market understanding and brand awareness.

•     Our new industrial automation products, which we launched at the end of FY2023, have generated a positive response from customers during the first year, and we are now focused on expanding our sales teams and developing routes to market.

·    Other strategic progress this year includes:

•     Completed the first phase of expansion of production facility at Miskin on time and under budget.  The first of two new halls is now operational, providing additional production capacity for our physically larger CMM, AM and encoder products.  

•     Established a comprehensive new ESG strategy and continued to make progress on reducing carbon emissions in line with our Net Zero targets.

Will Lee, Chief Executive, commented:

"The start of FY2025 has seen continuing improvement in demand for our encoder products from the semiconductor manufacturing sector, primarily in the APAC region. This, together with a range of growth opportunities that we are pursuing, especially for metrology and additive manufacturing systems, means that we are expecting to achieve solid revenue growth in the year ahead. 

We continue to focus on improving productivity in all areas. We expect these efforts, together with higher sales volumes, to drive our operating profit margin towards our target, although inflationary pressures, especially people costs, will affect the rate of improvement in the near term. 

The progress we've made against our three key strategic focus areas this year gives me confidence in our organic growth strategy, and we continue to invest for long-term success."

About Renishaw

We are a world leading supplier of measuring and manufacturing systems. Our products give high accuracy and precision, gathering data to provide customers and end users with traceability and confidence in what they're making. This technology also helps our customers to innovate their products and processes. We are a global business, with customer-facing locations across our three sales regions; the Americas, EMEA, and APAC. Most of our R&D work takes place in the UK, with our largest manufacturing sites located in the UK, Ireland and India.

Further information can be found at www.renishaw.com

Results presentation

See below a video presentation of these results, presented by Will Lee, Chief Executive, and Allen Roberts, Group Finance Director.  

Live Q&A session

There will be a live audio-only question and answer session with Will and Allen at 10:30 BST on 12 September 2024. Details of how to register for this webcast are available at the following link: 

 www.renishaw.com/en/register-for-the-2024-full-year-results-webcast--49399  

Questions can be submitted in advance of the webcast either through the webcast platform or to [email protected] (if sending by email, please submit by 9:30 BST on 12 September).

A recording of the Q&A session will be made available by 13 September 2024 at: www.renishaw.com/investors.

Enquiries: [email protected]

COMMENTARY BY THE CHAIRMAN

It's been another busy year for Renishaw, in which we achieved record sales despite a challenging trading environment. We continued to make solid progress against our long-term strategy, which includes delivering innovative new products and developing our sales and manufacturing infrastructure to support future growth. While profit is lower this year, we propose to maintain our dividend. We remain committed to our growth strategy and are confident in our future prospects.

Our progress this year was once again due to the talent and dedication of our people, and I would like to thank them all for their hard work.

I am inspired by their passion and have always been impressed with their pioneering spirit. And I am also proud that our collective determination to push technological boundaries and help our customers solve problems is driven by our purpose of Transforming Tomorrow Together, and built on our values of innovation, inspiration, integrity and involvement. Our employees demonstrate these values every day, as shown again this year by the excellent entries in our annual global values competition.

At the end of our financial year, Sir David McMurtry informed the Board that he was stepping down from his role as Executive Chairman. On behalf of all Board members, employees, customers, shareholders, indeed all stakeholders, I would like to thank him for his exceptional leadership of the Company. Since co-founding Renishaw in 1973, he has been instrumental in building what is today a world-class business, and we are delighted that we will retain the benefit of his vast knowledge and experience as he remains on the Board as a Non-executive Director. Recognising the huge achievements of Sir David and John Deer, our founders, I am honoured to have been asked to take on the role of Interim Chairman of the Board from 1 July 2024 while we search for a new independent Non-executive Chair. We also welcomed Richard McMurtry to the Board as a Non-executive Director, also with effect from 1 July 2024. Richard is a highly experienced director and investor who supports start-ups committed to developing the future of innovation in the UK. He trained as an engineer with significant involvement in product development and robotic systems.

Innovation: thinking creatively, and sparking new ideas

We put innovation at the heart of everything we do. It's what sparks new ideas and leads to new products. That's why we continue to invest in research and development and engineering, with total expenditure rising 6% this year to £106.8m. We introduced a range of new products, many of them showcased at the EMO Hannover and Formnext exhibitions. Having seen Sir David McMurtry work alongside our Additive Manufacturing (AM) team this year, I was especially pleased to see the launch of our TEMPUS technology, which helps significantly reduce build times. This is a big step forward in an increasingly important market for us. Sir David has told me how it has been a pleasure to work alongside our AM team, and, in particular, to help our graduates and apprentices develop their ideas and creative thinking.

Inspiring the next generation of engineers

I am also pleased to see the progress our Early Careers team is making in their work to encourage and support the next generation of engineers and scientists. Our company and the sector as a whole rely on a strong pipeline of talent, and we need to help ensure that pipeline is filled from as wide a pool as possible, since diversity of thought is essential for creativity and innovation. So this year, our team has focused particularly on working with all-girls' and special education needs and disability (SEND) schools, as well as schools located in socio-economically disadvantaged areas. Meanwhile, our new STEM Centre at our headquarters in Gloucestershire and established STEM Centre at our site in Miskin, Wales, give us more opportunities to engage with young people from underrepresented groups. The feedback we receive from schools demonstrates why this work matters, with one teacher telling us that her students are too often underestimated and that their visit to the Centre had helped them "to look to their future and what they can achieve."

A responsible business that acts with integrity

We are committed to acting with integrity and doing the right thing - for our people, customers, suppliers, shareholders and society. In November 2023, we reinforced that commitment with the global launch of our new Code of Conduct. Called 'Doing Business Responsibly', the Code is a guide to help our employees and business partners to do business in line with our values.

Acting with integrity includes complying with all the relevant laws and regulations wherever we work. With that in mind, the Board welcomes the publication of the 2024 UK Corporate Governance Code and is now working on plans to apply this new Code from FY2026, except for provision 29, which will apply to us from 1 July 2026.

I am also delighted that we have a new environmental, social and governance (ESG) strategy, and an ESG Steering Committee to oversee progress. The strategy has three overarching goals: to work with our customers and suppliers towards Net Zero; develop a diverse and inclusive team that is inspired to work for a responsible business; and ensure we have the appropriate governance arrangements in place to provide accountability, transparency, compliance and integrity as a responsible business. We've structured our sustainability-related information in this year's Annual Report around our new strategy in our ESG review. We also provide further details on our goals and progress.

Involving our stakeholders to create a stronger company

One of the most important aspects of our ESG strategy is its focus on our people. Our employees are our most valuable asset and it is essential that they feel able to share their views and are confident that we will respond.

As a Board, we regularly hear from employees, including through Catherine Glickman, as our employee engagement ambassador. We also use site visits to hear what's on people's minds and our engagement with some of our senior leaders provides further opportunities to understand what employees think.

We are a growing, global organisation, and I was pleased to see the response to our first global employee engagement survey in April 2024. Our overall engagement score of 74% places us above the global average recorded by our survey provider. We intend to use this as our benchmark in future surveys and will respond to feedback over the coming year to ensure we continue to attract and retain the most talented individuals.

That includes attracting diverse and experienced talent to support our Board. So I am pleased to also welcome our newest independent Non-executive Director, Professor Dame Karen Holford, who brings key engineering and research and development skills to the Board.

Succession is an important topic for us, and following a review of our Board composition, we've now begun work to identify and recruit a new independent Non-executive Director, in addition to the independent Chair that I mentioned earlier.

One of the best ways we can retain people is with a supportive, inclusive working environment, which is why we are focusing particularly on inclusion in our ESG strategy. This year, we have continued to develop our equality, diversity and inclusion programme including the launch of new UK employee-led resource groups to support our neurodiverse and disabled colleagues and new workshops for our growing network of 'allies'. We've also marked key events to build a sense of global community, such as Deaf Awareness Week and various religious festivals.

Effective leadership is critical to employee engagement and our long-term success. This year, our Senior Leadership Team worked with a specialist consultancy to strengthen their leadership and teamwork skills. They also set ambitious internal targets to make changes in areas like product innovation and employee productivity across the whole organisation, and are developing a new framework to drive strategy delivery across the Group.

The views of all our stakeholder groups inform our decision-making. This year, following feedback from shareholders, we made important changes in our Investor Relations Policy to allow for more engagement about our strategy for growth with key shareholders and potential investors. We also appointed Peel Hunt as our new joint corporate broker to work alongside our existing broker, UBS, to help us strengthen our links with the wider investment community. We aim to provide attractive returns for our shareholders and pursue a progressive dividend policy.

A strategy for the long term

Our business has always been focused on sustainable, long-term value creation. The Board is confident that our strategy of organically growing in existing markets, increasing the value of our technology and extending into adjacent markets will continue to maximise the potential of our sensors and software-enabled systems, and deliver further growth. It is an ambitious strategy for a pioneering company. Our success will depend on all our stakeholders, and our continuing determination to innovate in everything we do.

Sir David Grant

Interim Non-executive Chairman

COMMENTARY BY THE CHIEF EXECUTIVE

This has been a year of solid strategic progress, despite challenging conditions in the semiconductor manufacturing equipment markets and currency headwinds. We maintained our investments for long-term success and achieved record revenue of £691.3m, boosted by a strong fourth quarter, with 0.4% annual growth at actual exchange rates and underlying annual growth of 3.7% at constant currency*. Adjusted* profit before tax of £122.6m was 13% lower than last year, while statutory profit before tax of £122.6m was 16% lower, with both measures primarily affected by currency movements and increased employee pay.

Achieving these results in a challenging environment is testament to the skill and efforts of our teams and I am fortunate to meet many of them during my travels around the Group. I am always inspired by their passion, energy and commitment to our purpose, and would like to thank them for their contributions to our progress.

We again delivered good growth in systems sales - one of our strategic priorities - including our Additive Manufacturing (AM) products and record sales for our Spectroscopy product line. While we saw a gradual recovery in our optical encoder sales as the year progressed, weaker demand from the semiconductor sector affected sales of our laser encoder and calibration products.

At the end of the year, we announced some changes to the Board, including the decision by Sir David McMurtry to step down from his role as Executive Chairman. Since founding Renishaw with John Deer over 50 years ago, he has been instrumental in driving the success of our business. Sir David has been a constant inspiration throughout my own career, which is why I am delighted that he is remaining on the Board as a Non-executive Director and that he will continue to share his expertise in product innovation with us. I would like to thank Sir David Grant for taking on the role of Interim Non-executive Chairman while we appoint a permanent successor.

Group performance

Total revenue for the year was £691.3m, compared with £688.6m in FY2023. Revenue at constant exchange rates, excluding the impact of forward contracts, was £25.4m higher than the previous year. At actual and constant currency rates we had growth in our APAC region, with growth in Manufacturing technologies revenue, boosted by sales from the Industrial Metrology (IM) product group. We continue to see pricing pressures in China from emerging local competitors. The Americas also achieved growth at both actual and constant currency rates. This followed a very strong second half of the year, with constant currency growth from Manufacturing technologies, most notably from the AM product group and shop-floor gauging and co-ordinate measuring machine (CMM) systems product line. Our EMEA region had lower revenue at both actual and constant currency rates, with lower Manufacturing technologies revenue than FY2023. This was due to reduced sales from the IM, AM and Position Measurement (PM) product groups, which offset strong growth in the Analytical instruments and medical devices segment.

Revenue for our Manufacturing technologies segment was £648.1m, with no growth over the previous year, but 3.4% higher at constant currency rates. All our IM product lines grew, with record revenue for our shop-floor gauging and CMM systems product line boosted by demand from the consumer electronics sector. Our AM systems also had good growth, with a strong second half for sales from key customers in the medical sector. PM revenue was lower compared to FY2023, with weaker demand for laser encoders, which are supplied into front-end semiconductor applications. Revenue was also lower in calibration products, which saw lower demand from manufacturers of machine tools and semiconductor equipment. However, during the year we saw four quarters of sequential growth from PM, with signs of recovery in demand for our position encoders from semiconductor equipment builders.

Meanwhile, our Analytical instruments and medical devices segment achieved record revenue of £43.2m, delivering 7.2% growth at both actual and constant currency. We have once again achieved record Spectroscopy revenue, with a general market improvement within EMEA for sales of Raman spectrometers, where we have expanded our sales team, and growing sales for our Virsa Raman Analyser. This product, which is used for in-situ analysis, is being adopted for a wide range of applications, from chemical processing to art restoration. We are seeing increasing sales of our inLux interface, used inside scanning electron microscopes (SEMs). Sales of our Neurological products also grew, including sales of our neuromate surgical robot in EMEA, driven by its use in stereoelectroencephalography (SEEG) procedures to diagnose patients with epilepsy.

This year's Adjusted profit before tax was £122.6m, compared with £141.0m last year. Adjusted* earnings per share was 133.2p, compared with 155.1p last year. Adjusted measures are the ones we use as a Board to measure our underlying trading performance.

This reduction in profit primarily relates to the impact of currency and increased employee pay, including £2.1m of severance costs. Statutory profit before tax was £122.6m, compared with £145.1m last year, leading to Statutory earnings per share of 133.2p, compared with 159.7p last year. For more details see the commentary by the Group Finance Director.

A strategy underpinned by our purpose and ambition

Our purpose of Transforming Tomorrow Together underpins our business. By working closely with our customers to help them to achieve their goals, we are well positioned to meet our growth ambitions, pursuing attractive opportunities arising from global trends such as industrial automation and decarbonisation.

For example, our products, such as Equator gauges, position encoders and AM systems, support our customers to create the factories and products of the future, helping them to automate repetitive tasks and use energy and materials more efficiently.

We are a manufacturing technology powerhouse, developing and expanding into new, close-adjacent markets. We are solving customer problems with innovative products, delivered through world-class in-house manufacturing and global service. Our portfolio includes market-leading sensors, which we are augmenting with a growing range of high-value systems products, enabled by innovative software.

In financial terms, our goal is to continue our track record of long-term organic revenue growth. We operate in cyclical markets and are targeting high single-digit average growth through these cycles, combined with Adjusted* operating profit margins in excess of 20%. Our track record of through-cycle growth over several decades gives us the confidence that we have both the opportunity and the capability to continue to deliver at this rate in the future.

Our long-term value creation model, detailed as part of the strategy, explains our three areas of strategic focus, and the technical and commercial activities that will drive our growth. These are:

1.   growing our existing markets;

2.   increasing the value to Renishaw of the technology that we sell; and

3.   extending into new, high-growth markets.

As I explain in the next sections, we have made good progress against each of these during the year.

Growing our existing markets

Here, we are aiming to increase revenue by driving up probe fitment levels, offering higher value sensors, and by winning more customers that build machinery. This requires strong, ongoing investment in research and development to keep creating the products that will differentiate us from our competitors and help us to make the most of new opportunities as they arise.

This year, that continued investment led to the launch of the RMP24-micro, the world's smallest wireless machine tool probe. This allows us to target compact machine tools, used to make high-precision miniature components for the medical, watchmaking and micro-mechanics sectors, where probe fitment wasn't previously possible. This compact probe is the first of a new generation of smart factory sensors to use our RMI-QE radio transmission technology. Introduced in FY2022, this technology allows the use of much smaller batteries due to its lower power consumption.

We continued to grow revenue from our FORTiS enclosed position encoders, where we see significant opportunities. We also won new business for our position encoders from machine builders in a wide range of sectors.

Increasing the value of the technology we sell

Our second strategic focus is designed to help us increase revenue by providing our end-user customers with complete solutions to capture a greater proportion of their investment. In IM, for example, we are focused on growing our sales of systems like our AGILITY CMMs and Equator gauges and expanding our metrology software offering. We are also developing our Renishaw Central smart factory software platform, which helps users identify trends in their measurement data and provides intelligent feedback to machining processes.

As I mentioned earlier, we had a good year for systems sales, with above-market rates of growth in some areas. Given our relatively low market share in our newer markets, we see significant opportunities to continue this growth. The strong growth we're seeing in our Equator gauge sales is helped by the continuing trend for greater automation of process control on shop-floor machinery.

During the year, we began rolling out our new generation of metrology software, MODUS IM Gauge & Control, which aims to widen the process control market for our Equator gauging system through simpler programming. A number of customers have been trialling the software, and their feedback has reinforced our confidence in the significant benefits that it delivers and helped us further refine its capabilities. One US-based subcontract manufacturer has been impressed with the ease with which it could quickly develop its own programmes for gauging its precision bearings.

We've also seen some early market interest in Renishaw Central, which we launched in FY2023. This is a conservative market that takes time to adopt new ways of working, so early customer feedback is helping us learn the right way to position and market this product.

It was a good year for AM systems sales growth, with a strong second half, thanks to repeat business with key customers within the medical sector. We also took an important step forward with the launch of our new TEMPUS technology for our RenAM 500 series products, which allows a machine's lasers to continue to operate, even while a new layer of metal powder is being laid down. As a result, the technology can reduce the time it takes to build a component by up to 50%, helping our customers to improve productivity and reduce cost per part. Historically that cost has been a significant barrier to AM adoption, so we see substantial opportunities for TEMPUS technology to broaden AM's application, particularly since it is both a standard fitment on the new RenAM 500 Ultra machine and available as a paid upgrade.

Extending into new, high-growth markets

Our third strategic focus is to diversify into close-adjacent markets where we have strong market understanding and brand awareness. Our new industrial automation products, which we launched at the end of FY2023, are a good example. We have seen a positive response from customers during the first year, and we are confident that we have an effective range of products to enhance robot precision. That confidence was boosted when FANUC, one of the world's largest manufacturers of industrial robots, chose to include our products in a demonstration at Automatica, the world's leading trade show for smart automation and robotics. Our current focus is to expand our regional sales teams, continue to build relationships and develop routes to market.

Sustainability

We will only achieve our ambition, and deliver on our strategy and purpose, by supporting our stakeholders, all of whom have a role to play in our continuing success.

Increasingly, that engagement includes discussions on the part Renishaw can play in supporting the transition to a more sustainable future. So, I was very pleased to become Chair of our new ESG Steering Committee. This formalises our management of sustainability-related issues, including our climate-related financial disclosures. One of the Committee's first tasks was to oversee the development of a new, comprehensive ESG strategy, with support from specialist advisers, which we explain in more detail in our new ESG review.

We have continued to make strong progress towards our target of Net Zero for Scope 1 and 2 emissions by 2028. And we see significant commercial opportunities as decarbonisation is one of the structural drivers that underpin our markets, with more of our customers pursuing their own Net Zero goals.

Outlook for the next 12 months

The start of FY2025 has seen continuing improvement in demand for our encoder products from the semiconductor manufacturing sector, primarily in the APAC region. This, together with a range of growth opportunities that we are pursuing, especially for metrology and additive manufacturing systems, means that we are expecting to achieve solid revenue growth in the year ahead.

We continue to focus on improving productivity in all areas. We expect these efforts, together with higher sales volumes, to drive our operating profit margin towards our target, although inflationary pressures, especially people costs, will affect the rate of improvement in the near term.

The progress we've made against our three key strategic focus areas this year gives me confidence in our organic growth strategy, and we continue to invest for long-term success.

Will Lee

Chief Executive

*Note 29, Alternative performance measures, defines how each of these measures is calculated.

COMMENTARY BY THE GROUP FINANCE DIRECTOR

Following a strong final quarter, we have achieved record revenue for the year of £691.3m (FY2023: £688.6m). We have continued to invest in our people, increasing employee pay, which together with adverse currency effects, is the main reason for the reduction in Adjusted* profit before tax to £122.6m (FY2023: £141.0m).

We have maintained our strong financial position, with cash and cash equivalents and bank deposit balances at the year end of £217.8m (30 June 2023: £206.4m), and net current assets of £485.7m (30 June 2023: £470.8m). Our inventory holding has been a focus area in working capital this year, which we reduced by £23.8m over the year, as explained in more detail below.

We've continued to invest in capital expenditure that supports our long-term growth plans, with additions to property, plant and equipment this year of £65.2m (FY2023: £73.8m), and continued to apply our treasury strategy to mitigate near-term market risk.

Revenue

As Will has explained in the Chief Executive's review, we achieved 0.4% growth in our revenue to £691.3m (FY2023: £688.6m). Despite challenging market conditions at the beginning of the year, we have seen recovering demand from our key semiconductor market towards the end of the year, and good growth in our systems sales.

At constant exchange rates*, revenue would have been 3.7% higher than the previous year. This is mostly as a result of an appreciation of GBP relative to USD, from an average of 1.21 in FY2023 to 1.26 in FY2024. The effect of currency has been partly mitigated by our treasury strategy. Without our forward cash flow hedging contracts, revenue would have reduced by 0.7% year-on-year.

The below table shows revenue by geographic region.

Operating costs

As noted last year, our labour costs are our largest cost and this year we've focused on striking the right balance of investing in our people to retain, reward and motivate while seeking sustainable profit growth. Salary increases, in addition to an increase in average headcount of 77, are the main drivers for total labour costs (excluding bonuses) increasing by 4% to £279.5m from £268.2m last year. This also includes severance costs of £2.1m, which mostly related to a mutually agreed severance scheme in the UK, and a £4.6m currency translation benefit.

This year's gross margin (excluding engineering costs), as a percentage of revenue, was 61%, compared with 64% last year. This change is mostly due to the adverse impact of currency on revenue, combined with higher labour pay rates. We have made targeted price rises, although this has been offset by pricing pressures, particularly in the APAC region.

Supporting our strategy of delivering growth by developing innovative and patented products, we invested £71.1m in research and development expenditure, compared with £72.5m last year (see Note 4 to the Financial statements). We also incurred £35.7m (FY2023: £28.1m) of other engineering expenditure, to support existing products and technologies. Net engineering spend also includes a £2.7m reduction in capitalised development expenditure, net of amortisation and impairments, as explained in Note 12. This is partly offset by a £1.1m year-on-year increase in the R&D tax credit, totalling £7.7m for FY2024, which is primarily as a result of the rate applicable to qualifying spend increasing from 13% to 20% in April 2023.

In distribution and administrative expenses, we have also spent an additional £4.7m in consultancy and software this year, notably on our new global ERP system and an upgraded e-commerce platform, as part of our initiative to improve productivity across the business. We deployed the first instance of the new ERP system during the year and have developed in-house expertise to reduce third-party costs as we deploy this globally over the next few years.

Profit and tax

As a result of the increased costs and impact of currency in a year of marginal revenue growth, Adjusted* operating profit was 16.7% lower this year at £108.7m (FY2023: £130.4m). At constant exchange rates*, Adjusted operating profit would have been 8.8% lower than the previous year.

Adjusted* operating profit in our Manufacturing technologies segment was £103.2m, compared with £125.5m last year. In our Analytical instruments and medical devices segment, Adjusted* operating profit was £5.5m, compared with £4.9m last year.

Financial income for the year was £12.3m, compared with £9.7m last year, and includes a £2.8m increase in interest on bank deposits mainly due to higher interest rates.

Adjusted profit before tax was £122.6m, compared with £141.0m in FY2023. Statutory profit before tax was also £122.6m, compared with £145.1m in the previous year.

Certain infrequent events can sometimes affect our financial statements, prepared according to applicable International Financial Reporting Standards. We exclude these events from adjusted profit and earnings measures to give the Board and other stakeholders another useful metric to understand and compare our underlying performance. This year, there were no items excluded from Adjusted profit before tax, while additional items excluded in the previous year are detailed in Note 29.

The FY2024 effective tax rate has increased to 21.0% (FY2023: 20.0%) mostly as a result of an increase in the effective UK tax rate from 20.5% to 25.0%. Note 7 provides further analysis of the effective tax rate.

Consolidated balance sheet

We have invested £65.2m (FY2023: £73.8m) in capital expenditure, which mostly relates to new production plant and equipment, and the expansion of our Miskin production facility in Wales, UK. The Miskin project will ultimately increase our global manufacturing floorspace by 50%, with the first of the two new halls becoming operational during the year. I would like to thank the project team who were responsible for delivering the first phase of this project on time and within budget. We have also purchased a distribution facility in the United Arab Emirates and completed the construction of a distribution facility in Brazil.

As I mentioned earlier, we've focused this year on reducing our inventory holding. Whilst we continue to recognise the importance to our current and potential customers of holding sufficient finished products to meet their needs, we have reduced both finished good and component inventories following the easing of supply chain challenges experienced in recent years. This has meant we've reduced inventory from £185.8m at the start of the year to £161.9m.

Trade receivables increased from £123.4m to £134.1m due to increased trading in the fourth quarter of FY2024 relative to the previous year. With good credit management practices across the Group, debtor days remained constant year-on-year at 63 days. We continue to experience low levels of defaults, and hold a provision for expected credit losses at 0.5% of trade receivables (FY2023: 0.4%).

Total equity at the end of the year was £902.8m, compared with £896.7m at 30 June 2023. This is primarily a result of profit for the year of £96.9m, less dividends paid of £55.4m and the remeasurement of defined benefit (DB) pension scheme liabilities of £36.3m.

Cash flow and liquidity

We continue to have a strong liquidity position, with cash and cash equivalents and bank deposit balances at 30 June 2024 of £217.8m (30 June 2023: £206.4m). This is a result of our cash flows from operating activities of £124.1m, partly offset by our previously noted capital investments and dividends paid of £55.4m.

We have introduced a new key performance indicator (KPI) this year relating to cash flow. Adjusted cash flow conversion* from operating activities assesses our efficiency at converting operating profit into cash. We achieved our target of 70% this year, which was a significant improvement from the previous year (FY2023: 26%).

Pensions

At the end of the year, our defined benefit pension schemes showed a net surplus of £10.8m, compared with £57.4m at 30 June 2023.

During the year, the Trustee of the UK defined benefit pension scheme ('UK scheme') undertook a buy-in and insured around 99% of the Scheme's liabilities by purchasing an insurance policy. This contract was effective from 19 October 2023 and the value of the contract is recognised as a UK scheme asset. For a buy-in insurance contract such as this, where the income received from the policy matches exactly the benefit payments due to the members it is covering, the value attributable to the contract recognised as an asset is the equivalent IAS 19 value of the corresponding liabilities.

The IAS 19 liabilities in respect of the buy-in policy were lower than the transaction price of the insurance contract. Consequently, the value attributable to the insurance contract reduced from the actual price paid, and the resulting remeasurement loss of £31.9m was recognised in the remeasurement of defined benefit pension scheme liabilities element in the Consolidated Statement of Comprehensive Income and Expense. See Note 23 for further detail.

Treasury strategy

Our treasury policies are designed to manage the financial risks that arise from operating in multiple foreign currencies. The majority of sales are made in these currencies, while most manufacturing and engineering is carried out in the UK, Ireland and India.

We use forward exchange contracts to hedge both a proportion of anticipated foreign currency cash inflows and the translation of foreign currency-denominated intercompany balances. There are forward contracts in place to hedge against our Euro, US Dollar and Japanese Yen cash inflows over a two-year forward period, where our forward rate cap policy allows, and to offset movements on Renishaw plc's Euro, US Dollar and Japanese Yen intercompany balances. We do not speculate with derivative financial instruments.

Our treasury policies are also designed to maximise interest income on our cash and bank deposits and to ensure that appropriate funding arrangements are available for each of our companies.

Sustainability

We continue to progress with our transition to Net Zero. Our five-year financial plan includes estimates of the capital expenditure needed to deliver this plan, and at this stage we have not identified a material effect of other climate-related matters on our financial statements.

Capital allocation strategy

Our Board regularly reviews the capital requirements of the Group, to maintain a strong financial position to protect the business and provide flexibility to fund future growth. We've consistently applied our capital allocation strategy for many years. Organic growth is our first priority and we're committed to R&D investment for new products, manufacturing processes and global support infrastructure to generate growth in future returns and improve productivity, as well as committing to the investment needed to transition to Net Zero. We demonstrated this during the year through our capital expenditure and investments in R&D.

We introduced Return on invested capital* as a new KPI this year. This assesses our efficiency in allocating capital to profitable investments. We achieved 12.3% this year, which was lower than last year (FY2023: 16.1%), due to a combination of lower pre-tax profits, higher tax rates and recent increases in our non-current asset base. We expect to drive this metric back towards our target of 15% with higher profits and lower levels of future capital expenditure.

We may supplement organic growth with acquisitions in current and adjacent market niches that are aligned to our strategy.

We have always valued having cash in the bank to protect the core business from downturns, and we monitor our cash against a minimum holding according to forecast overheads and revenue downturn scenarios. This cash also allows us to react swiftly as investment or market capture opportunities arise. Actual and forecast returns, along with our strong financial position, support our progressive dividend policy, which aims to increase the dividend per share while maintaining a prudent level of dividend cover.

Earnings per share and dividend

Adjusted* earnings per share is 133.2p, compared with 155.1p last year, while Statutory earnings per share is 133.2p, compared with 159.7p last year. We paid an interim dividend of 16.8 pence per share (FY2023: 16.8 pence) on 9 April 2024 and are pleased to propose a final dividend of 59.4 pence per share in respect of the year (FY2023: 59.4 pence). This would bring the overall dividend per share to 76.2 pence, equal to the total dividend for FY2023. Despite lower profit this year, we have considered the Company's future growth plans and strong cash reserves, and so have proposed to maintain the dividend per share this year.

Looking forward

We remain committed to our organic growth strategy and will continue to invest in our people, infrastructure and product innovation. 

In recent years we have made significant investments in our manufacturing capacity and our global ERP system to position the business for long-term growth and improved productivity. We expect these investments to drive a higher return on invested capital in the years ahead.

As we reduce capital expenditure from its recent exceptional levels and continue to focus on controlling working capital, we aim to further improve cash flow conversion.   

With the infrastructure in place to deliver growth, we are targeting an improved Adjusted operating profit margin this year.

Allen Roberts

Group Finance Director

*Note 29, 'Alternative performance measures', defines how each of these measures is calculated.

Principal risks and uncertainties

Our performance is subject to a number of risks - the principal risks, factors impacting on them and mitigations are listed in the table below, as well as an indication of the movement of the risk in the last year, our appetite towards that risk, and how the risk links to our strategy. The Board has conducted a robust assessment of the principal risks facing the business.

CONSOLIDATED INCOME STATEMENT

for the year ended 30 June 2024

Adjusted profit before tax for the year was £122,594,000 (2023: £140,983,000). See note 29 Alternative performance measures for more details.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME AND EXPENSE

for the year ended 30 June 2024

CONSOLIDATED BALANCE SHEET

*2023 Other receivables have been reclassified to include Contract assets. See Note 25.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the year ended 30 June 2024

More details of share capital and reserves are given in Note 26.

CONSOLIDATED STATEMENT OF CASH FLOW

for the year ended 30 June 2024

Cash and cash equivalents and bank deposits at the end of the year were £217.8m (2023: £206.4m). See Note 15 for more details.

NOTES (FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS)

1. Accounting policies

This section sets out our significant accounting policies that relate to the financial statements as a whole, along with the critical accounting judgements and estimates that management has identified as having a potentially material impact on the Group's consolidated financial statements. Where an accounting policy is applicable to a specific note in the financial statements, the policy is described within that note.

Basis of preparation

Renishaw plc (the Company) is a company incorporated in England and Wales. The Group financial statements consolidate those of the Company and its subsidiaries (together referred to as the Group, and 'we') and equity account the Group's interest in joint ventures. The parent company financial statements present information about the Company as a separate entity and not about the Group.  

The financial information set out in the announcement does not constitute the Group's statutory accounts for the years ended 30 June 2024 or 30 June 2023. The financial information for the year ended 30 June 2023 is derived from the statutory accounts for that year, which have been delivered to the Registrar of Companies. The auditor reported on those accounts; their report was unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain a statement under s498 (2) or (3) Companies Act 2006. In respect of the year ended 30 June 2024, an unqualified auditor's report was signed on 11 September 2024. The statutory accounts will be delivered to the Registrar of Companies following the Group's annual general meeting.

The consolidated financial statements are presented in Sterling, which is the Company's functional currency and the Group's presentational currency, and all values are rounded to the nearest thousand (£'000).

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

Basis of consolidation

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

Joint ventures are accounted for using the equity method ('equity-accounted investees') and are initially recognised at cost. The Group's investment includes goodwill identified on acquisition, net of any accumulated impairment losses.

The consolidated financial statements include the Group's share of the total comprehensive income and equity movements of equity accounted investees, from the date that significant influence commences until the date that significant influence ceases. When the Group's share of losses exceeds its interest in an equity accounted investee, the Group's carrying amount is reduced to nil and recognition of further losses is discontinued (except to the extent that the Group has incurred legal obligations or made payments on behalf of an investee).

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

Foreign currencies

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

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

New, revised or changes to existing accounting standards

The following accounting standard amendments became effective as at 1 January 2023 and have been adopted in the preparation of these financial statements, with effect from 1 July 2023:

- IFRS 17 Insurance Contracts;

- amendments to IAS 1 and IFRS Practice Statement 2, Disclosure of Accounting Policies;

- amendments to IAS 1, Classification of Liabilities as Current or Non-current;

- amendments to IAS 8, Definition of Accounting Estimates;

- amendments to IAS 12, Deferred Tax related to Assets and Liabilities arising from a Single Transaction; and

- amendments to IAS 12, International Tax Reform Pillar Two Model Rules;

These have not had a material effect on these financial statements.

At the date of these financial statements, the following amendments that are potentially relevant to the Group, and which have not been applied in these financial statements, were in issue but not yet effective:

- IFRS 18 Presentation and Disclosures in Financial Statements (not yet endorsed by the UK);

- amendments to IAS 7 and IFRS 7, Supplier Finance Arrangements; and

- amendments to IFRS 16, Lease Liability in a Sale and Leaseback.

The adoption of these Standards and Interpretations in future periods is not expected to have a material impact on the financial statements of the Group.

The Finance (No 2) Bill 2023, that includes Pillar Two legislation, was substantively enacted on 20 June 2023 for IFRS purposes. The Group has performed an analysis of the potential exposure to Pillar Two income taxes, which is presented in Note 7 Taxation.

As permitted by the amendments to IAS 12 International Tax Reform Pillar Two Model Rules, the Group has applied the exemption from recognising and disclosing information about deferred tax assets and liabilities related to Pillar Two income taxes.

Alternative performance measures

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

These are considered non-GAAP financial measures. We believe this information, along with comparable GAAP measurements, is useful to stakeholders in providing a basis for measuring our operational performance. The Board uses these financial measures, along with the most directly comparable GAAP financial measures, in evaluating our performance (see Note 29).

Separately disclosed items

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

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

In the previous period, a change to the US defined benefit pension scheme rules resulted in a significant non-recurring amount being recognised in the Consolidated income statement. This was also separately disclosed.

These items are also excluded from Adjusted profit before tax, Adjusted operating profit and Adjusted earnings per share measures, as explained in Note 29 Alternative performance measures.

Critical accounting judgements and estimation uncertainties

The preparation of financial statements in conformity with UK-adopted IAS 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 other factors that are believed to be reasonable under the circumstances. The results of this 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 therefore differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis.

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

Climate change

We have considered the potential effect of physical and transitional climate change risks when preparing these consolidated financial statements and have also considered the effect of our own Net Zero commitments. Our consideration of the potential effect of climate change on these consolidated financial statements included reviewing:

- discounted cash flow forecasts, used in accounting for goodwill, capitalised development costs, and deferred tax assets;

- useful economic lives and residual values of property, plant and equipment;

- planned use of right-of-use assets; and

- expected demand for inventories.

We also considered the estimated capital expenditure needed in the next five years to deliver our Net Zero plan.

Overall, we do not believe that climate change has a material effect on our accounting judgements and estimates, nor in the carrying value of assets and liabilities in the consolidated financial statements for the year ended 30 June 2024. We will continue to review the effect of climate change on financial statements in the future, and update our accounting and disclosures as the position changes.

Going concern

In preparing these financial statements, the Directors have adopted the going concern basis. The decision to adopt the going concern basis was made after considering:

- the Group's business model and key markets;

- the Group's risk management processes and principal risks;

- the Group's financial resources and strategies; and

- the process undertaken to review the Group's viability, including scenario testing.

The financial models for the viability review were based on the pessimistic version of the five-year business plan, but covering a period to 30 September 2027. For context, revenue in the first year of this pessimistic base scenario is similar to FY2024 revenue of £691.3m, while costs and other cash outflows still reflect ambitious growth plans. In the going concern assessment, the Directors reviewed this same version of the plan but to 30 September 2025, as well as the 'severe but plausible' scenarios used in the viability review, again to 30 September 2025. These scenarios reflected a significant reduction in revenue, a significant increase in costs, and a third scenario incorporating both a reduction to revenue and an increase in costs but to a lesser degree than the first two scenarios. In each scenario the Group's cash balances remained positive throughout the period to 30 September 2025.

The Directors also reviewed a reverse stress test for the period to 30 September 2025, identifying what would need to happen in this period for the Group to deplete its cash and cash equivalents and bank deposit balances. This identified a trading level so low that the Directors feel that the events that could trigger this would be remote. The Directors also concluded that the risk of a one-off cash outflow that would exhaust the Group's cash and cash equivalents and bank deposits balances in the assessment period was also remote.

Based on this assessment, incorporating a review of the current position, the scenarios, the principal risks and mitigation, the Directors have a reasonable expectation that the Group will be able to continue operating and meet its liabilities as they fall due over the period to 30 September 2025.

2.         Revenue disaggregation and segmental analysis

We manage our business by segment, comprising Manufacturing technologies and Analytical instruments and medical devices, and by geographical region. The results of these segments and regions are regularly reviewed by the Board to assess performance and allocate resources, and are presented in this note.

Accounting policy

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

a) Sale of goods, capital equipment and services

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

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

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

b) Sale of software

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

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

c) Extended warranties

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

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

d) Contract balances

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

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

e) Disaggregation of revenue

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

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

Within the Manufacturing technologies business there are multiple product offerings with similar economic characteristics, similar production processes and similar customer bases. Our Manufacturing technologies business consists of industrial metrology, position measurement and additive manufacturing (AM) product groups. Analytical instruments and medical devices represents all other operating segments within the Group, which consists of spectroscopy and neurological product lines.

There is no allocation of assets and liabilities to the segments identified above. Depreciation, amortisation and impairments are allocated to segments on the basis of the level of activity.

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

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

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

Aftermarket services include repairs, maintenance and servicing, programming, training, extended warranties, and software licences and maintenance. There is no significant difference between our two operating segments as to their split of revenue by type.

The analysis of revenue by geographical market was:

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

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

3.         Personnel expenses

The remuneration costs of our people account for a significant proportion of our total expenditure, which are analysed in this note.

The aggregate payroll costs for the year were:

Wages and salaries and compulsory social security contributions include £10.0m (2023: £11.3m) relating to performance bonuses.

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

Key management personnel have been assessed to be the Directors of the Company and the Senior Leadership Team (SLT), which includes an average of 22 people (2023: 21 people).

The total remuneration of the Directors and the SLT was:

Short-term employee benefits include £0.2m (2023: nil) relating to performance bonuses payable in cash.

The share-based payment charge relates to share awards granted in previous years, not yet vested. Shares equivalent to £0.2m (2023: nil equivalent) are to be awarded in respect of FY2024 (see Note 24). 

4.         Cost of sales

Our cost of sales includes the costs to manufacture our products and our engineering spend on existing and new products, net of capitalisation and research and development tax credits.

Included in cost of sales are the following amounts:

Production costs includes the raw material and component costs, payroll costs and sub-contract costs, and allocated overheads associated with manufacturing our products.

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

5.         Financial income and expenses

Financial income mainly arises from bank interest on our deposits, while we are exposed to realised currency gains and losses on translation of foreign currency denominated intragroup balances and offsetting financial instruments.

Included in financial income and expenses are the following amounts:

Currency losses relate to revaluations of foreign currency-denominated balances using latest reporting currency exchange rates. The losses recognised in FY2023 and FY2024 largely related to an appreciation of Sterling relative to the US dollar affecting US dollar-denominated intragroup balances in the Company.

Rolling one-month forward currency contracts are used to offset currency movements on certain intragroup balances, with fair value gains and losses being recognised in financial income or expenses. See Note 25 for further details.

6.         Profit before tax

Detailed below are other notable amounts recognised in the Consolidated income statement.

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

These costs/(income) can be found within cost of sales, distribution costs and administrative expenses in the Consolidated income statement. Further detail on each element can be found in the relevant notes.

Grant income relates to government grants, for R&D activities, which are recognised in the Consolidated income statement as a deduction against expenditure. Where grants are received in advance of the related expenses, they are initially recognised in the Consolidated balance sheet and released to match the related expenditure. Where grants are expected to be received after the related expenditure has occurred, and there is reasonable assurance that we will comply with the grant conditions, amounts are recognised to offset the expenditure and an asset recognised. Research and development tax credit (RDEC) is accounted for in accordance with IAS 20 Accounting for Government Grants and Disclosure of Government Assistance.

Costs within Administrative expenses relating to auditor fees included:

7.         Taxation

The Group tax charge is affected by our geographic mix of profits and other factors explained in this note. Our expected future tax charges and related tax assets are also set out in the deferred tax section, together with our view on whether we will be able to make use of these in the future.

Accounting policy

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

Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for:

- the initial recognition of goodwill;

- the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination; and

- differences relating to investments in subsidiaries, to the extent that they will probably not reverse in the foreseeable future.

The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.

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