Renishaw plc (RSW) Earnings Call Transcript & Summary

Right. We have a thumbs up from the back. So good morning, everyone, and welcome to Capital Markets Day. First of all, welcome to John, our new CFO. .

Thank you very much, Will. Good morning, everybody, and I'd like to add my own warm welcome to see some familiar faces and looking forward to making some new introductions as well through the day. So thank you for coming.

Thanks, John. Yes, I love to see you all and thankfully, no train issues at this time around. First of all, just a big thank you to for hosting us today and for your support as always. A great time for us to be hosting a Capital Markets Day. It feels like this is a really exciting time for Renishaw. We've got a really strong portfolio of core established businesses that are performing really well. We're seeing a real acceleration in those emerging businesses, so key for our strategy. . And it feels like the decisions that we made a couple of years ago on focusing and direction, they are really starting to pay dividends. And you'll hear firsthand on our AM story in a bit more detail later on. today. We've got a really exciting innovation. Innovation is really part of us. And you'll see there's a strong portfolio coming through there, both on the established businesses and on the newer emerging business -- so exciting times there too. And also, with all this, we're focused really on underpinning that top line growth with productivity initiatives to really drive through the financial performance of the group. We have a busy agenda today. So to start with, we're going to have -- I'm going to go through a recap on the strategic progress of the group. John is then going to go through a little bit on the financial performance, and then I will talk through on the product innovation side. We then have 2 more detailed sessions. The first is looking at our additive manufacturing business, an update there from Luis and Matt. And then Mark is going to talk through trends and growth drivers that we're seeing in our markets. Each of those sessions, we'll have a Q&A, and then we'll have a closing Q&A with all of us at the end. Before passing on those things. I think John was going to say a few words just on your first months of time with us.

Indeed. Actually getting on for 3 months now, but still implied, still holding ourself up a very steep learning curve. But what I would say, maybe there are 3 -- at least 3 fundamental Renishaw truth that I'd like to share with you today from my first 3 months. So first of all, Renishaw really does have great people. And I'd like to thank all my colleagues for the want of their welcome, but maybe even more particularly their patience with my irritatingly persistent questions. Second truth, Renishaw is a great company, and it's got a proud history of technical innovation and commercial success. And thirdly, but perhaps most importantly to you and me here today, Renishaw still has bucket loads of unrealized potential. And if you didn't know that already, I'm sure you will by the end of today. So let's get straight into it, and I'm going to hand back to Will, who's going to recap the Renishaw strategy.

Thank you, John. So let's take a look through. So we use our value creation model, which many of you will be familiar with as a framework to explain our strategy. So this has 2 slides on the left-hand side, we described the market that we operate in, the attractive growth rates we see and the drivers that are powering that. And on the right-hand side is what we are doing to outperform and make the most of this opportunity. . So let's have a look through some of the bits here and highlight some of the things that we think are changing and interesting dynamics. So first of all, from the outside perspective, then clearly, there is significant investment going on at the moment in the world of AI data centers. Now this is flowing through to us. We are quite a long way down the value chain here. but this is really coming through strongly in our encoder business. So we supply our encoders to the people, the companies that are making the equipment to make the semiconductors to make the GPUs, the CPUs, the memory. Now the #1 question we get asked here is how long is this cycle going to go on for? And what do you expect to see? I can categorically say that not only do we not know the answer to that, but certainly, when we meet up with our customers here, they really don't know either. So our focus as a group is making sure that we can keep those customers as happy as we can by helping them support on their manufacturing ramp-ups, helping them and making sure we are a reliable and trustworthy partner for them. That's busy at the moment. Secondly, the other trends that we are seeing in the Americas and EMEA is an increase -- significant increase in defense spending. Here, two areas of impact for us that's worth pointing out. So first of all, AM, we're seeing these defense customers really appreciate the benefits of the design flexibility that AM can give. And the reason of that, will talk a little bit more through that later. And then secondly, what we're also seeing is our new Austria inductive encoder seems to have really hit a sweet spot in terms of its measurement performance, its robustness. And also, it's ease of installation of alignment, and we're seeing a lot of interest there from customers coming through, and I will talk a bit more on that later. So 2 good growth drivers there for us. Now when we look at our strategy, as we've talked about, there are 3 key themes we have here. So growing in existing markets. This is a lot of our traditional businesses, where we are really looking at maximizing the amount of revenue that the pounds per machine sold from our customers. So we typically talk about fitment levels, but this also goes into gaining new accounts as well. Also an increase in technology value. We have some more emerging businesses of metrology systems and software and also additive manufacturing systems. And then extending into new markets, we have the areas such as the new Austrian code that I've just talked about. Now innovation is key to this. And in the bottom right, you can see here our portfolio of growth strategy, starting with early-stage R&D going right the way through to our ambition of business where we are #1 and -- position #1 or #2. Most interesting part of this for us at the moment is that middle section of those emerging businesses, where we are really seeing acceleration coming through, and I'm really pleased with the progress there. So -- sorry, with this, 1 of the key areas here is the link between those 2 and this is our focused execution, but this is where we are making sure we are driving the productivity from the sales organization and the engineering and also from our manufacturing to make sure that we are as productive as we can be as an organization and this is going to be key for driving that flow-through from top line growth through to the bottom line, which leads on nicely to John giving an update on our financial performance.

Thanks, Will. Thank you very much. So the Renishaw strategy and the value creation model are very clear. And what's also clear are the financial outcomes that we're going to expect from them. So I imagine you're all very familiar with our published financial metrics. So revenue growth, operating profit margin cash conversion, all building together to drive return on invested capital. And what I'd like to do now is take you through each one in turn and review with you our progress to date and what opportunities we have perhaps to accelerate them in the future. So starting first with revenue, and our target of high single-digit through-cycle revenue growth measured here by our past 5-year CAGR. And what you can see clearly on the left is a really encouraging positive trend, but also that we're already delivering in our target threshold. And the reason for that were precisely the factors that Will outlined in the strategy. So our core businesses are well positioned in attractive growing markets. And our emerging businesses are expanding rapidly into new markets. the future growth of both is underpinned by an exciting pipeline of innovative new products. So looking forward, our goal here is to continue to press home those advantages, but perhaps with the potential to add to them with smart decisions around pricing and focused R&D investment. Turning next to operating margins. We're on the face of it, at least the progress is less apparent. So margins flat at around 16% against a target of 20% or more. Now it's undoubtedly true that in recent times, currency has offered a stiff headwind to progress on margin, but we are certainly seeing underlying improvement, thanks to both cost management and volume growth, operating leverage. So underlying improvement. Looking forward, what do we see? Well, with our current momentum, we certainly see further opportunity coming out of volume, coming out of operating leverage with the potential to add topspin to that through that pricing that I spoke about, referenced earlier. And then finally, I think also importantly, I do see a real opportunity for us to improve margins to add speed and agility as well as efficiency through simplification and automation throughout the business. Turning next to cash and our target of 70% plus operating cash conversion. Well, here, looking at the historical trend, it appears that cash conversion is somewhat at the mercy of the business cycle with CapEx and working capital using up cash in the boom times and the inverse when times are a bit leaner. So what do we see going -- what do I see going forward? Well, first and foremost, I do think we have the opportunity to drive both higher and more consistent cash generation in the future. First and foremost, actually simply by greater focus, greater focus throughout the company on cash not just profit and backing that up as we are with a higher, more material component of management incentives. But then I'd also like to take a hard look at particularly nonproduction CapEx and also working capital. We're not going to do anything stupid or crude. We're not going to damage investment or customer relations, for example, with arbitrary cuts to inventory, but I would be really surprised if there isn't a material opportunity in cash. Then turning finally to return on capital -- return on invested capital, I should say. And that's a good reminder to me that the 15% that we quote is a post-tax return on invested capital. So please bear that in mind if you happen to be benchmarking us against other companies whose target is a pretax quoted return on capital employed. So 15% post tax. Now I don't actually have too much more to say on this because I've already said it because the first 3 measures that we have definitionally will deliver the fourth. So if we drive high single-digit revenue growth, if we convert that at 20% plus margins, delivering 70% plus cash conversion, we will definitionally arithmetically, we will hit our target for return on invested capital. So I hope you'll agree that our financial outcomes are both clear and very aligned to the strategy that Will outlined. So I'm going to hand back now to Will, who's going to talk about 1 of the key pillars of that strategy, innovation.

Excellent. Thank you very much, John. So let's look at innovation. So innovation clearly is a key for us. It's a large spend for the group because it does underpin so much of our growth strategy. When we get asked about should we be spending on innovation, what our targets are. We always tend to focus on the most important thing is making sure that we are productive and we have an impact that spend. And I think what you'll see coming up, you can see we have some really nice innovations coming through. So I talked through earlier saying 3 pillars to the strategy from growing in existing markets, increasing technology value and extending into new markets. I want to start today looking at the existing market area. Now when we talk about this normally, what we are saying is how do we make sure that when our sales teams are out with customers, they've got the most differentiated products. So we're making their life as easy as possible to generate new business for us. There are developments here and what we're increasingly seeing, particularly in China, is the need for a good enough low-price product as well. So we are investing innovation, engineering time into looking at some novel opportunities there. So products really designed to be very low manufacturing cost and good enough, keeping some really neat IP. So there's stuff that we will do of having maybe, say, very clever integrated customer chips that we will design make locally and then outsource assembly of in China for that domestic market. So that's coming through for the future. We'll talk about that in the future. If we look, though, there's still a really key theme here of making sure we are ahead of the game in the Sansu market. So if we look through, first of all, from an industrial metrology point of view in the first area in the world of machine tool probing, so the probes that go in the spine of the machine to measure something that is in that machine. So we have 2 new machine tool probes, which really fits in with our strategy of trying to allow customers to do more measurements machines. They're both underpinned by our new radio communication protocol. So that's the communication between the device you can see and the spin of the machine and the units on the back wall. And this allows a lot more data to be sent through in real time. So it's a key enabler for us in the world of machine tools. What we have, first, new machine to probe is a small compact 2D scanning probe. This allows customers to do everything that they can do at the moment with their existing products, but they can now also in addition to that, they can scan. So you can see the example here. This is looking at scanning the board of a cylinder. So now rather than taking slow touch points to see where it is, you can actually do a surface condition measurement, so allowing customers to do more measurements. Secondly, we have launched a new thickness probe. So again, same communication, what this allows our customers to do is to measure the thickness of a part. So that's normally quite tricky to do. Imagine there's hidden surfaces, you're trying to measure the difference between the top surface and the bottom surface you can't get to. With this now, we can just measure this with one touch directly. The reason for doing this particularly in the world of aerospace, if you're machining a high-value part, what you don't want to have to do is take it off the machine tool, put it onto your CMN, where you measure it, ideally with your revote. Hopefully, you got a good result when it passes. But if it says no, it's no good, you guys got to take it back to your machine, refixture it, realign it and do your finished machining. So what you really want to do measure it on your machine tool with our new probe, if there's any issues, do you finish machining then, then take it over and make sure you get a good result on your final verification on your CMM. So very much relined strategy of allowing customers to do more on their machine and generating more revenue per spender sold for us. Exciting times there, we're working with machine tool builders around the world, selected end customers to really get that traction publicly in the autumn. If you look then on to the world of card measuring machines, CMMs, so for inspecting those parts. So our strategy here has been. So if you go around most CMMs traditionally around the world, they have indexing heads. They're very accurate, but it means measurements are very slow. Our direction is moving people on from that, what we would consider the older more legacy technology onto the world of 5 axis, which has the same measurement accuracy, but it's far, far more productive. So your throughput of your CMM goes up. So this is our strategy. We have the Rivo. It's a high-end system. You can do all sorts of different measurements with it. The PH20, which we're coming out with now offer something which all the capabilities of the PH10 but allows you also to do these fast moves. So it's in between the two, and we think is a really attractive opportunity for our CMM builder customers who are currently evaluating this to add more value to their customers. So feedback on both of these, very positive from both end users that we're trialing it with and with the machine builders themselves. So next, moving on to the world of position in codes. So first of all, what we're seeing is a growing demand in certain applications in semiconductor factoring, particularly around the world of advanced packaging, people not want to know just not where they are. They also want to know as the stage moves, how it is moving up and down at the same time and sometimes control that. So what we've launched is a new opportunity with a scale, which has both the ability to own codes to measure the normal direction, but also in -- so you can see here 2 encoders. Some are actually using 3 and then you can get a pitch as well. You can see how, again, this all fits in with our strategy of increasing the revenue per customer there. then very much in the world of wafer inspection. So here, our customers are facing ever more fine features that they are trying to inspect and measure. So the metrology requirements are always moving on. So with our new laser encoder product, we have up the game, we've moved on in terms of measurement performance and allowing our customers to meet their measurement needs. At the same time, we've made it a lot easier to install. And actually, this is one of -- I think the only encoder product where we expect routine maintenance because the laser units do wear out, and this actually with detachable fibers and makes that process an awful lot easier for our customers to perform. So next, those ones were all about the first strategy of maximizing revenue for the OEM customers and existing. Now we're looking at the water systems. So I'm not going to touch on AM because Louis will be covering that later. But this is a really important step forward for us world of shop flow metrology. Now we have talked with these products with you, and we showcased them last year, both the Equator-X and Modus IM. So I wanted to give you an update on the progress that we have made here. So for those not -- who don't remember, the Equator-X is the next generation of our Equator platform. So Equator is great. It is extremely quick, fast robust shop fall management parts in unstable temperature environments. The Equator-X takes that and removes the need for customers to do a muster compare process. So it really simplifies that. And the stuff that we talked about you talked through with you when we talked about this last year, is all coming through the feedback from customers, the pull from customers is extremely positive. The excitement from our sales team is there. Work is very much focused on ramping up manufacturing capacity here on this product to meet demand. Key going through with that is motoricitis. So this is a very powerful programming tool, but it's also designed from the ground up. It's a completely new code to enable to really transform the simplicity of programming. So actually, it means someone needs half an hour or so training to get them up and running, measuring complex parts as opposed to the past. So it speeds things up and simplifies. Now both of these two products are actually really platform products for us and are really important for our strategy going forward. So Equator-X, we see as something that will have we should be looking out for the future few years of new innovations coming through there, which will be adding more value to our customers. And Modus, Equator, it's focused on the Equator to start with, but this will be a common programming platform across the board for us. So where we talked about CMM sensors earlier, this will be the way that we'll be the programming of those CMM sensors going forward, our preferred option. And also from the world of machine tools, if you want to do a measurement in the spectrum of machine tool, this will be the same platform. So for our sales force, for our customers. consistency. And finally, I wanted to talk about 1 that I touched on right at the start, which is creating quite a bit of interest at the moment. So this is ASTRiA, our inductive encoder. What we seem to have here is a product that for a number of different defense applications hit exactly their requirements in terms of accuracy needs. The robustness and ruggedness that it needs, but also the real simplicity of alignment. And actually, this feature you can see here with these sort of flagships that labels this, it really is a plug and play. You have a precision shaft, you push it on itself aligns customers love that. We launched this as a new way of doing things with a minimum viable product. So we launched just one size. We are investing significantly in this now because customers comes and I love that size, but I need this size and this size and this size. And we're also with the volumes we're talking about investing significantly now in manufacturing pub. So another one where there's a lot of opportunity and onethat we are very excited about the future for. That is a prime example where we diversify and go into new markets of actually keeping very close to our core with a similar customer base, same sales force, knowing what we're doing and having an immediate impact. So lots of stuff going on across the group, as we said, strategy, new financial vision and an exciting time for all of us. So we look forward to taking some questions from you. And immediately, we have -- sorry, Harry. Look, I was...

Well, John, thank you. John, welcome. First 2 for you, actually. So targeted in the high single-digit through cycle growth, 20% operating margin. cash conversion as well to drive that sort of consistent return on invested capital from your short time in the business and sort of initial assessment, which of those you think will be hardest to achieve and why? So pricing in the operating margin could be the biggest hurdle, but also then the CapEx on things like Astra and ramping up manufacturing could be could be things, but just can to your thoughts on those.

That's a tough question because I do actually believe we can hit all 3. Maybe I have the optimism of being new I certainly think there's plenty to do on margin. It's on multiple fronts. So maybe I'd pick margin. But I think all 3 are definitely within our grasp. The cycle will affect high single-digit revenue growth for sure, but we certainly have momentum right now. And cash. Yes. I think cash, I think 70% is a very attainable target. .

That's helpful. And then thinking about capital allocation, as that cash generation improves, what are kind of initial thinking is that -- around that.

I mean that you'll probably know as I deliberately didn't tackle that subject. And really, my focus right now is on the cash generation. But clearly, that does beg the second question, what are you going to do with the cash? And I think that is a second order question that I actually haven't got to yet, but I want to make it a more urgent question by delivering more cash in the short term.

That's really helpful. Will, and 1 just for you, please. Just on that new sensor launch, I think you said coming in the autumn, but obviously working with machine tool builders on that? I guess it speeds up the throughput and the productivity. Is there a kind of a productivity percentage increase estimate you talk to with customers on that? Is it a bit too early? Does it depend on use case and customer...

Sorry, on the CMM side. .

Yes.

Yes. So we know that, and it will vary very much depending on the part you're measuring. So we always struggle with this because some parts there's an awful lot is less. We know because there is an existing PH20 product that we have. But what we found is that people aren't using it anywhere near as much as they should do it misses some key features. So we kind of know the demand is there. We know where we've been letting it down. So now we really need our CMM customers pushing this through with end users will generate end-user demand as well by showing them what they can do. And the other question is then how do you get the best out of it from software and programming because there's no point having the most amazing head that can measure things really quickly, if you're programming it in a way that doesn't make the most out of that. So there's a few themes there, but we think this is absolutely the future switching over legacy systems. Well, it's choosing -- how about Mark? Harry, I think you know this is going to end.

Sorry, Harry. Well, the focus on innovation there was very product focus is hardware focused. A couple of years ago, there was a lot more talk about selling software on a sort of stand-alone basis and particularly an interesting picture about RenosoCentral. So could we have an update on that? And I guess, related question, will this talk of physical AI ruling the world I can see that drives demand for center inputs from you. Does it threaten any of your software revenue lines?

So let's give the first Resonant Central was is software that we have that allows automation of process control. So if you have a network manufacturing site, you can take data use our algorithms and then use it for applying process control on a machine tool. We have customers who are enjoying who are using it. I think it's fair to say it has been a far more steady sales than a massive success that we were hoping for. The strategy now -- and I think some of this is just the sophistication of most users. It's amazing how conservative, even though you say, actually, this is going to pay back. This is what it does. This is how it can help you. There's quite a slow inertia in much manufacturing. What we're now doing is this will be a component as an option as part of the Modus IM platform. So once we get people doing this, that the other bit that ties in with that is of this allows other people then to start selling those acretiauges, so machine tool builders that we're talking with will be selling as a solution at that point, they can do the networking and the process control. So we see it as a key bit of capability, but not 1 that's been driving revenue growth at the moment. The second was AI. So again, I would say the reality of 99 point whatever percent of if this is far distant is going back to that comment that I just said even of doing -- saying you can automatically update the process control and a bit while still I've got a bit of paper that will do, you can see where so different factories are at the moment. So I think that has a while to come through. In terms of our software offering, it'd be great to see from a productivity point of view, actually, the #1 thing is us really accelerating software development of actually utilizing new software tools, which really feel they are coming to fruition. The fundamental question with AI is that we don't see it as a massive threat at the moment in most of our core businesses. I think that was everything. I can't, not, now kind of Harry.

It's Harry Philips from Peel Hunt. I was going to say thank you, but -- just a couple I'm just intrigued on the pricing comment on 2 of the slides. And just wondering the sort of am I overly reading too much focus into that? Or is this -- and where does that comment really apply? Is that existing products sort of being repriced and reappraised, is it sort of new products sort of a more sort of rounded way of how you pitch it and then throwing also into that sort of emerging market or sort of a China type pricing strategy? And then John, particularly, just the sort of nonproductive CapEx. Just curious as to exactly what nonproductive CapEx is because surely, it should all be productive?

I'd be very careful how I answer. So first of all, general context, what I've put up there is -- those are the questions I'm asking of myself and the company, what can we do? And so in particular, in regard to pricing, I think we have been very good at volume. And we've had less -- probably less focus on pricing. Now I deliver called it smarter pricing. That doesn't mean necessarily higher pricing. It means smarter pricing and choosing the right opportunities. But at the moment, it's a question, and if you like, I'm trying to identify possible seams of opportunity. I would say we're very, very good at volume. We've probably had less focus on price, and I'd like to take a look at that. I'm not sure how to answer your question on nonproduct. Maybe I should say nonproduction, that's what I meant to say was nonproduction CapEx. So not plant to machinery, not specifically and directly linked to capacity and sales. I think you can look back on our financials, and we have spent quite a lot outside of production capacity.

And just to follow up on that. Is that a look at sort of R&D and sort of engineering spend? Or is it just a get a sense it more physical.

We've spent a fair bit of, for example, on property. Is that okay? Well, honestly, it's been great to have a fresh set of eyes looking and challenging and asking new questions. So it's been great seeing how the executive team have really responded to those.

Great. Thank you for the opportunity, and nice to speak again, John. I wanted to ask first about these 2 products that you covered at the end where you clearly said the customers are very excited. It's all about ramping up. What is the TAM capacity for those 2 products? If we try to assess how much revenue is going to add over the next 3 to 5 years? Is there any way you can help us with that?

So we won't tend to break things down at that level, as you probably know. I think the 1 that stands out that has probably outperformed our expectations the most is the inductive encoder with not now, but the potential it has for 5 years' time, I think, is significantly higher than anything we'd envisage when we were launching that product. So that's probably the one we've been asking in a year's time of how is that really going?

How big has come. Okay, yes. And maybe somewhat related do that. But maybe I'd tie back to kind of physical AI. Now human oils are starting to feature a bigger and bigger topic in industrials discussions and certain tech discussions. Could you talk through how you exposed to this theme and what you're doing to potentially become more exposed to it?

So the immediate question we tend to look at here is from an encoder point of view for the axis, we think the price point of those axes is going to be extremely low and competitive, and everyone is going to be trying whatever they can to engineer any sort of ecosystem out. So we don't see that as a significant potential. There may be bits from our magnetic encoder business, our joint venture in Slovenia. There's definitely some metrology challenges that are coming through. I think it's early days of trying to understand and work with the end customers that of seeing. How much of that comes through is indirect business for us. So through others and how much of that is back where we are trying to sell metrology systems to support that, I think, is going to be an interesting learning for us over the next 6 months.

Sounds like more of an opportunity into the manufacturing of humanoids, rather than into the actual...

I think so, but I very much learning here at the moment. .

And if I may, just 1 for John. I think 1 area of margin expansion story that we haven't yet asked about is the self-help side where you talked about high automation and simplification. Could you just update us on where we are in the kind of existing plan for cost reduction? And is that a new initiative to add to it?

Yes. I think that -- so what I was referring to was separate from the cost reduction plan that we have successfully implemented at the start of this fiscal year. So what I particularly see is opportunity across -- I emphasized across the business, not just in manufacturing, for example, but it is to take a hard look at our internal processes and look at how we can simplify them, be clearer about responsibilities, be clear about the process flow and then automate them. And the D365 implementation is kind of the front runner for that. It hasn't frankly been the easiest to date, but we're learning from that. But it does -- it's a good example of process simplification and then automation across the business. Some of it will be directly financial. There will be costs that we take out and costs that we add through that process. But I think a lot of the benefit will be speed and agility as well.

I am getting increasingly high rate signals from the back, which I think means that we are over time for this session. there is time at the end, there'll be a Q&A general with us the end once we've had the other presentations. So it's okay with everybody. I have to introduce Louis and Matt to give an update on our additive business. Thanks.

Okay. Good morning, everybody. Hopefully, you can all hear me. I've got form with microphones not working very well. So if there's any problems, just let me know. My name is Louise Callanan. I'm the Director of Specialized Technologies at Renato, and I'm joined today by Matt Parks, who is the Strategic Development Manager for the additive manufacturing group. Conversely, to John being kind of the new member of the team, Matt and I are both firmly in the camp of long-serving Renishaw employees. So we've both been with the business for quite a long time and both had the privilege of working in different parts of the business as well. So it's nice to have a balance of that kind of deep inherent Renishaw knowledge, combined with the kind of wealth of experience that John and others are bringing. In terms of today, John and Will have gone through the first couple of agenda items. And really, the intention for this session was to have a little bit of a deeper dive into all things additive. So over the course of the next sort of 20 minutes or so, Matt and I will cover things like our high-level vision and strategy and why we believe additive is winning at and more specifically, why it's winning for nasal. But first of all, we thought it was worth kind of introducing where additive fits and sits and how it works with the rest of the business. So Aggregate manufacturing is a part of the newly formed specialized Technologies segment, which sits nicely along the more established industrial metrology and physician measurement section segments as well. Specialized Technologies is made up of neuro, spectroscopy and additive manufacturing. And as you can see, it is currently the smallest of the segments, but with like the other segments, we've kind of got a combination of emerging and established product lines in there. So we're very excited to see how this is going to develop over the next few years. In terms of my own role, it's kind of a dual role. So I've got oversight of the specialized Technologies group, but also day-to-day responsibility for the additive manufacturing business, whereas neuro and spectroscopy have their own kind of heads of business. So where did it all kind of begin. Well, in the early 2000s, Renishaw was a consumer of active manufacturing technology, where we could really kind of see the benefits that it brought in terms of new product development. So helping us to iterate designs more quickly, helping us with one-off tooling, et cetera. And for those of you who knew or met our co-founder, sir David McMurtry, you will definitely know how passionate he was about this technology. And in 2011, we acquired an additive manufacturing company based in Safer, and over the last sort of 15 years or so, we have transferred design and manufacturing activities from there to our new mills and Miskin sites, respectively. So it's probably fair to say that it's one of our bigger bets over the years. But thankfully, that long-term investment is now starting to pay dividends. And additive manufacturing is the largest proportion of piled Technologies group and is also the fastest-growing product line so far in FY '26, something that we're very proud of. But with the addressable market of EUR 1 billion, Matt and I will try and cover a little bit about how we intend to increase our share of that. And AM aiming to become a market leader fits really nicely with the overall ambition in terms of becoming a manufacturing technology powerhouse. So we're also kind of conscious that AM may not have been the highest priority for you guys in terms of the business. and that there might be quite a mix of knowledge about the business and about the technology itself. So for those of you who have come to new mills for these type of events in the past and heard Matt and I talk about it, apologies, but we thought it was worth time just giving a bit of a recap about the technology and our product offering itself. So additive manufacturing is a process where you take a material and a powder form and you use lasers to melt that material layer by layer to build up a 3D component. You can have plastic additive manufacturing, additive manufacturing. Renishaw is very much focused on the metal side of things. And even within metal, there are lots of different out manufacturing technologies. And again, from a rental perspective, we are very focused on laser powder bed fusion. So the very simple graphic on the screen is showing the bed of the machine where the powder is spread in very thin layers, typically about 30 microns. And then you use high-powered lasers to melt sections of that material to build up a 3D component. It's a digital process. So you start with a model of the part you want to make, you convert that to a build file, which is essentially a layer-by-layer recipe for that part, which is sent to the machine and the process begins. As you build a part, the parts that you've built kind of disappear into the body of the machine, which is why sometimes if you've had a look inside some of our systems when you've been at new mills, it can be a little bit underwhelming -- so you see a lot of sparks flying but not very much else because all you're looking at is that particular layer that is being melted. In terms of our particular product offering, it is the RenAM500 series. So this is a compact configurable midsized system with 4 lasers. So a very high density of lasers, which makes it a very productive system. And that, combined with all of the vertical integration and our gas flow system, which also gives us the high quality that Renishaw customers are have accustomed to. So what are the demand drivers? And why is additive winning at the moment. So I'm going to kind of cover some high-level points on this. And then Matt is going to cover a little bit later. There's some specific examples as to why Renish has been particularly strong in this area. In terms of the high-level benefits that additive manufacturing brings, we've kind of got the usual ones terms of design freedom, lightweighting, consolidation of parts, improving efficiency when it comes to design change and then also the supply chain resilience that it can bring. But really, we kind of feel like actually what makes it a winner is when some of these things come together for specific applications. So from a product performance point of view, some early adopters in this space would have been medical aerospace. So they could see the performance benefits that they could gain from the technology. So whether or not that was light weighting for aerospace, which gives you a better bite fly ratio or from a medical perspective, being able to print or build near net shape custom parts for specific patient applications, they could see that those benefits that they got from that technology was what they were looking for. And for those guys, it was not necessarily course limiting. So within reason, that wasn't an issue for them. If we bring now into play some of the supply chain flexibility, or the resilience that you get from a process like this. So whether or not that is being able to print on demand, so stocking less inventory whether or not that is having less individual parts to stop because you can now print assemblies in one go or just being able to print different components at the same time and the same build gives us that supply chain flexibility that for some applications is really key. And then even if you are both of those from a cost perspective, there were some limitations. And as the technology has matured, and some of the innovations that we've been working on to really focus on productivity and getting that cost per part down means that we are now able to open up the technology to more applications and make it accessible to more customers. So for Renishaw specifically in terms of our growth strategy, our high-level vision and strategy hasn't really changed over the last few years. So we're all about trying to accelerate that adoption of in particular as a viable high-volume production process. And we're looking at doing that in kind of 2 different areas. So a few years ago, and we've talked about this before, we adopted a simplified and focused strategy for AM. So that was all about simplifying the product range, which is now the RenAM500 series. And really focusing on that mid-sized system. And we feel like we're in a really good position in terms of our deep technical know-how and competency to work closely with customers on those key pain points of cost per part and consistency. As well as that, we have a global applications team that work closely with the customers and are well placed to optimize the process for their specific applications. On the commercial side, we've talked about key accounts. And this really has started to pull through from us now. We are seeing repeat sales to existing customers. as well as a number of new accounts -- multi-machine accounts coming on board in the last little while. Very focused, have the same vision as us in terms of utilizing the technology for those high-volume applications. And again, from an aftersales perspective, we have a global team, much like a lot of the rest of the Renishaw business located locally to our customers and that we know that our customers really value. I think that might be mean...

Thanks, Louise. Good morning, everyone. Yes. So I'm going to start -- I'm going to talk about, firstly, some of the innovations we've got coming through in a bit of our future investment on how we continue to go after this growth strategy. So I'm going to start then with innovations on our current generation platform, that's the RenAM 500 that Louise just introduced. And we launched that several years ago. And in terms of its core architecture, that's remained relatively stable. But over time, what we've introduced is a series of machine upgrades, license software features and optional ancillaries that have all further boosted that productivity aspect and the scalability of that platform for volume. So starting here on the left-hand side, you see optical system verification kit. So that contains a calibrated artifact therapies you can see here being measured on a CMM. Customers can place on that machine, run an automated routine, and that gives them the ability to quickly and independently verify the accuracy of their machine before they start a production run. And that's a page straight out of our machine tool industrial metrology playbook, where we've known for 50 years that actually to optimize process control, you really have to have a strong process foundation you have to understand and know how accurate your machine is before you start the manufacturing process for the best success. So that's what we brought over to additive manufacturing. In the middle, there's a video playing there of our Tempus technology. So here what we're doing is synchronizing control of a number of machine aspects through our own in-house developed controller that lets us eliminate dead time when the laser is not firing during the process. What that results in is a time saving that can accumulate over a build and add up to a dozen plus hours. And in some applications, it can actually halve the cycle time for production of parts. So you're talking about a really big step-up in terms of productivity of the hardware actually without any modification, all kind of software driven. So it's a big productivity boost for us. And then on the right-hand side, it's our latest software technology, which is Libertis. What that is, is really a framework for giving much greater freedom to process optimization, optimizing the parameters that are used in the printing process. Now that's really key for our volume production users who want to squeeze the absolute maximum productivity and part quality out of their process. And on top of this, we built a series of algorithms to let us reduce the need for support material. That's in the image there. That's highlighted in orange is you can see the reduction from before and NAFTA. What that does as well as reducing waste and improving machine utilization, it actually opens up more pores suitable for AM. That's a big deal because we know right now, 1 of the biggest barriers to the use of AM is having to redesign or modify designs of qualified parts to be suitable for the process. This opens up the -- what's possible to print as is and reduces that barrier a bit further. So each of these are about boosting that productivity, moving further towards that volume production use case. And let me talk you through some of the applications where we're seeing real success with that approach. So there's 2 parts of the story. There's our customer applications and then there's our internal use of AM within Renishaw. Starting on the customer side, what we're seeing now is key accounts as in multi-machine volume production users across a really broad range of sectors. And actually, what we see is that it's not necessarily about a single sector taking on the technology, but there's some really common features across sectors, certain applications that really suit theology. And that's really where they deliver and ams justified based on a combination of product performance, supply chain advantages and then manufacturing cost effectiveness. Take an example, in the top left image there shows some suppressors. That is an application that seems in a really rapid uptake of additive manufacturing. Part of the reason for that is that absent manufacturing gives some really big through-life performance benefits. So you can see there what you're seeing is a cross-section of the suppressor, you see a number of internal channels and battles some complex design that's only really achievable with 3D printing. What that does is alter the flow of gas through the suppressor, which gives through life benefits in terms of service life, the reliability and really importantly, the user comfort, particularly when it comes to noise reduction. So that's a performance benefit just off the bat that helps with AM. But then what we're seeing on top of that is there are advantages from a supply chain point of view. With AM being a digital platform, we can produce a mix of these components, all on the same platform, serving a variety of different endpoints. And it really suits the contracted model of supply chain that we see, particularly in the U.S. So this compounding benefit of using additive. And then finally, in terms of manufacturing costs, because we can produce on our system with its high productivity, very quickly produce net near shape components that only need very minimal amounts of post-processing, it means we're eliminating further manufacturing steps and assembly steps. So we're actually keeping the manufacturing process, very simple and cost-effective. That's why we're seeing strong uptake. If I move on to a medical example. So on the top right, you will see some tibial trays. So these are used to knee reconstruction surgery. And you'll see on the -- there's a sort of a surface texture on top of the tibial trade. That's actually a 3-dimensional lattice. What that's therefore, is when implanted in the body, it actually encourages bone to grow into the implant. That's great because it supports long-term joint stability, which is better for the patient, but also is better for the health care provider because you're much less likely to come back and do a revision surgery later. So there AM is producing geometry that couldn't otherwise be achieved, but also in terms of manufacturing cost effectiveness, you're eliminating an additional process step because we can produce this lattice at the same time as we produce the rest of the implant, you don't have -- you don't need to follow up with some other cladding or other process step to modifying that surface. So again, it's a compound effect of product performance and additional manufacturing benefits. And the last example in the bottom left there, you see support for bladed disc. So these types of components are very common in micro gas turbines, which are used in things like drone applications. Here, AM offers advantages in terms of weight saving, which directly translates to fuel efficiency and range, both really key metrics of performance for that product. But also here, AM is helping to eliminate constraints related to the casting supply chain because it's a digital process because there's no tooling costs associated with different variants or upgrades over time. the AM is really enabling advantages in terms of supply chain. So again, a combination of benefits. Moving on to talk about internal adoption of AM, we continue to see a number of use cases grow for our use today. And here, you can see some examples from our spectroscopy machine tool and gauging product lines. What each to do is that they stand on their own 2 feet in terms of both performance and cost effectiveness. But also by developing these internally, we're, of course, getting really helpful direct feedback on things like challenges are designed for AM, how to scale up volume and production internally, and of course, cross-company collaboration. All of which then feed into our product road map and how we engage with our customers externally. So absolutely an area of focus for us on an ongoing basis. I'm going to move on now just talk about how we're now investing to further and go after our growth strategy. And there's 2 parts to this that I want to talk through. The first is forking R&D. So we're working on a next-generation AM platform where we're really targeting a significant improvement in AM production economics. We think there's a real opportunity to deliver a step change in cost effectiveness of AM with 3 main levers that we can pull. The first is managing the system cost, which we can do through our vertical integration of both design and manufacturing. The second is maximizing productivity and boosting productivity in the in-build process, building on technologies like [indiscernible] and the I mentioned before. And the third is eliminating downtime between builds by increasing the level of automation on the system. And what these 3 factors do is they actually have a more effect up and they maximize the amount of machine utilization. The reason this is our focus and why this is so important is because we know, today, typically, about 50% of an AM components cost is associated with machine use. So it's an area that's really ripe for improvement and an opportunity for us to drive cost down. On top of that, we're also designing the system around scale. That means focusing on things like consistency, variation from machine-to-machine and serviceability as well as integration with the sort of wider digital manufacturing ecosystem. So we can get the advantages of some of those digital tools that we see out there on the additive platforms as well. The second part of the investment I want to talk about is our operational phone manufacturing. So we are continuing to invest in scaling our capability and capacity at our site in South Wales and Biskin. We follow a cell-based manufacturing set up there, which is already great in terms of standardization and managing the flow of components through. But what's also great is that it really suited to scale up because that sale basis can be duplicated and scaled. What's great is that floor capacity isn't a constraint on our plans to scale up. And actually, we've already got allocation from an AM point of view that would support double the demand that we see today. We are working on aspects of our supply chain as well. So we're engaging further with our purchasing forecasting, looking at both short, medium and long-term horizons. And what we're really doing is connecting that with our demand forecast as well as our product road map to make sure those are really well aligned. And we're also making sure that we're limiting our execution risk by looking at things like dual sourcing for key fabrications. So we were not in a situation where we're seeing supply as we're looking at this ramp in production. So essentially, that level of investment on the R&D side of the manufacturing, so we feel like we can maximize the opportunity we have to make most of the growing opportunity around AM. I'll move over to the -- go back to later. So up.

Yes. So just before we kind of open it up to some Q&A, just very quick summary kind of what we talked about. The simplify and focused strategy still remains, and that is starting to really pull through now, a combination of some external macro factors and our ability to react to those. We remain really focused on the things that we think are the most important pain points for customers, so that's cost effectiveness and consistency. And that's on our current platform and any developments in terms of NextGen. We're really passionate about the internal AM for -- all initiative. And like Matt said, that -- in all other parts of Renishaw, we can be really representative of the customers that we're selling to, and that's the same in additive, and we really do learn a lot from that process. And then finally, decisions made early to invest in manufacturing have allowed us now to be really well positioned to react to that kind of growth that we're seeing today. We'll take any questions. And then there's a break.

Michael Blogg. The picture you had among the customer applications, which you didn't actually speak to was a copper product, which to me a bit by surprise. Is that a particular niche? I don't think I've seen 1 of these before.

Yes. So that -- yes, I did skip over that example. I thought I was going to take a lot longer, actually. Yes. So what you're seeing there is that kind of 3-dimensional lattice type structure again, which gives really significant advantages in terms of heat performance. We see AN parts typically in this heat exchanger application can offer double the performance of conventionally made parts. So there's a real opportunity there. And obviously, heat exchange applications are incredibly varied from large to small. Obviously, copper has additional advantages there in terms of its thermal and heat transfer properties. So yes, we certainly see heat exchange very positively. And I think we think copper may be one of the materials that we see particularly opportunities in. There are challenges about processing copper, but we've made some real success of that as well.

Just a couple of quick ones. Firstly, is the internal element of your sales, a material chunk of total sales is a big chunk of what you sell going within Renishaw?

No. No. So to take separate.

And in terms of the competitive position in the particular niche you're focused on, who are you principally competing against? Because I have been to some of these trade fairs and there are millions of different AM offers. But obviously, in your piece, it is more focused.

Yes. So the competitive landscape generally is kind of quite fragmented and a lot of different OEMs are focusing in different areas. So we sort of see a lot of OEMs looking at kind of larger platforms. I'd like to say we're kind of very focused on the midsized. I say the typical ones that we see are EOS SLM. Yes.

Could I just ask about the business model? Is it simply a case of selling the machine to the customers? Or is there a sort of recurring revenue stream? And how long do the machines last.

Yes. So I think that's part of the specialized technologies group, if you like, is that all of the product lines in there are kind of capital equipment focused and therefore, all have that kind of after sales or aftermarket opportunities. So yes, there's a recurring revenue from that. There's recurring revenue from consumables from upgrades or training elements and things like that. So it's a bit different to the rest of the Renishaw model in that respect.

Can I ask on margins earlier when you mentioned group margins, you said FX, but maybe part of it is also a shift towards systems rather than components, which, I guess, sort of margin and combined with AM being the fastest-growing area, like I know you won't say exactly, but how do you think profitability? How do you think about it over time? And then secondly, on the competitive landscape question, how has that changed over time? Do you feel as the industry has matured, you fewer new entrants? Or does defense, as an end market looks so attractive actually it's going the opposite way, and we're seeing more start-ups, more funding going into the sector?

Okay. So the first 1 in terms of the profit. So yes, again, a different model to the rest of Renishaw. So this is kind of lower volume but higher average selling price. I think that in terms of the impact that it has on that in terms of volume. So that's really where we're seeing the improvements in that area that don't take too much in terms of increasing volume to see that come through as long as we're keeping our costs under control. et cetera.

On the operating -- because when you walk around the site, it looks like it's very labor intensive. Is there really operating leverage as you would add -- like how much is the operating leverage? I guess it's much lower than a more Sansi part that you can make.

Yes, there are opportunities to improve that in terms of current product, but also it's a real focus for the next-gen product to make that in a more cost-effective way.

Well, that links potentially to the earlier question about the after-sales component as well as we see this growth, obviously, our installed base is significantly growing those after-sale components, that are things like service contracts, software licenses, et cetera. that are recurring sales to exist to that installed base that I think is a contributing aspect of that as well.

On the competitive side of things, which prime

Whether it's got less -- like more stable as the industry has matured or actually defense is so attractive that you're seeing new entrants come into the space this year, last year?

I think there's still a lot of new entrants of the lower-cost options but not necessarily, I think, affecting that defense side of things. Yes.

Yes. I'm just wondering moon centering is a problem with your system. And if so, are you -- what are you doing to address these 2 issues?

Yes, sure. So actually, I'd say 1 of the key advantages we've currently got with our current generation products and certainly something we definitely want to carry forward to our next generation is we've got a really excellent gas flow setup on our system. What that translates to is really quickly being able to remove smoke and leads to very sort of market-leading part properties, and that's something we hear repeatedly from some of the benchmarking work we do that actually in terms of part quality, we're in a really, really strong position. And that's really driven off eliminating that smoke. So that's -- that's a key part of our technology advantage. Centering not as much because we're working with metal powders as opposed to plastics, obviously, the melting point being that much higher, and actually, some of the technologies we're developing things like Libertas let us manage the delivery of heat to only the places where we really need it. So we don't have quite the same challenges as we would say in other materials. So that one we are lucky to avoid.

Just wondering when you -- have you come across any regulatory hurdles you're playing into medical and A&D, which are obviously quite regulated markets. Is it the customer? Or is it you guys that need to seek that approval? Or what has the process been.

It's the customer. So yes, they are kind of cut industry street in terms of that process validation and qualification. But on the upside, once they adopt technology like that. They don't tend to want to change it. So would that have been kind of hurdle or kind of a delay to adoption up until now, let's say, when I talking through? Yes, I think they have been the early adopters, which takes longer for them to get their products kind of on the market compared to some of the other industries that we're seeing now. But like I said, once they've kind of adopted it stuck with that.

David Farrell from Jefferies. Question is about your kind of customers' adoption. How difficult is it for them to get into the mindset of designing like this, which that would enable them to utilize additive manufacturing. Is there a whole kind of generation or skill set that needs to really come to?

Yes, there definitely is. And I think whilst we've been talking a lot about cost effectiveness consistency has kind of been the main barriers. That cultural one is still a barrier. So it is a disruptive technology that you're trying to introduce -- and linking back to our internal AM for -- all initiative. Actually, we see that even internally. You're kind of fighting against years and years of experience of in a more traditional way and sort of breaking down those barriers can be a challenge. But it's something that we're kind of really interested in because we are also representative of the customer base that we want to sell to. So if we can solve that internally, it really helps with those discussions with our customers.

And we're constantly looking to sort of lower that skill floor Libertas that we were talking about makes more geometry suitable, so you don't have to modify your design as much or some of the software tools nowadays are much more suitable to help you design your part to do that. So we're constantly looking at how we can lower and remove that.

Chris, you've got one.

Yes. So we have a question online from Rory Smith from [indiscernible] Just asking, are we selling into space as a segment distinct from legacy A&D customers. .

Sure. yes. Yes, we definitely see some space applications. The midsized focus of our platform is sort of better suited to things like satellite-type applications than it is to rockets. -- although when we look at the kind of range and mix of products that will be included in space applications, we see that as quite a wide range from small to quite large. So yes, it's obviously -- it's definitely an area of interest. We do have some existing applications, but obviously, it's relatively small today. the potential -- obviously a lot potential to grow .

Okay. I think we've reached the end of this session. And so we'll take a break now. There's some waters at the back of the room, if you'd like to take a water, the bathrooms are out to the right which is where the fire exits are as well, just in case that should arise at any point, hopefully not. So we'll take a 15-minute break, and we'll be back in quarter 2. Thank you. . [Break]

All right then. Hopefully, you can all hear me. Time to get started on our final presentation of the day. For those of you that don't know me, I'm Marc Saunders, and I'm delighted to see so many of you here at our first Capital Markets Day in London. Now our markets are quite dynamic right now. And so we thought it would be helpful to give you some insight into some of the trends and the growth drivers that are supporting our progress. And I'm going to start by looking at our business portfolio. So we have a diverse portfolio of businesses, and that gives us exposure to a wide range of markets and vertical industries, and we organize those into 3 segments. As we've said, within each of these segments, we have a combination of established businesses that support our profitability, but also younger emerging businesses that give us access to growing markets and also support our top line growth. Now industrial metrology is the largest of our segments, and that has been providing solid long-term growth that's actually picking up a little at the moment, thanks to the success that we're having with our high-value capital equipment, CMM engaging systems and software. Position Measurement, that's of growing importance to the group. It's been delivering double-digit long-term growth that's actually accelerating this year, and it's combining that with strong operating margins. And then finally, we have specialized tech, our smallest segment, but the 1 that's actually growing the fastest this year. And we've already heard about the key driver for that, the success that we're having in our additive business. Sorry, move on. So I've touched on addressable markets just now, and I'm going to look at that in a bit more detail on this slide. So the pie chart that you can see here shows the various market sectors that together combine to form our total addressable market. And hopefully, you can see on here that nearly half of those markets are linked to our industrial metrology business, around 1/3 are associated infrastructure. So it's an interesting development there and one to keep an eye on in the future. By contrast, we're seeing slightly lower growth within automotive, the transition towards EVs, means pure oil bits in cars and a bit less metrology, but there's still some positives across the piece. Overall, I would say that this is giving us access to a broad range of industries with durable long-term growth drivers. So a nice diversified position. Another way to think about how we can segment the businesses by geography and we're really well placed here with our worldwide sales network that gives us access to global markets. But I'm going to focus on a couple of key regions for us, China and the U.S.A. And you can see the significance that they have for the group in terms of their size, but also they are growing strongly at the moment, and they are actually key drivers of our growth this year. So if we start with China, that has been our largest renew generator since the 2010s, and that was driven initially by the development of soft contract manufacturing industry that became very strong more recently, of course, they become market or export in things like EVs and robots. Now our strength in China is based around our market-leading positions in metrology and in position measurement. But we also have really deep customer relationships that we've built over many years over the decades that we've been operating there. We've actually been in China for more than 30 years, trading directly. So that gives us a strong position. However, as Will touched on, we are seeing the emergence of local competition there, offering good enough products at attractive prices. And what that is doing is it's actually stimulating demand in a tier of the market that sits below the one that we have traditionally served. So it's both threat and opportunity. So whilst we're doing really well here, we definitely don't -- we're definitely not complacent about the threat that these emerging rivals could pose to us. Right now, it's limiting our pricing, but we obviously can see that they could become stronger and grow and threaten our position. And so our approach to here is twofold as Will touched on both of these earlier. Firstly, it's innovation, developing new, more differentiated products that we can migrate our customers towards and protect those established positions. But we're also going to take the fight to some of these Chinese rivals a bit more directly by developing our own entry-level products that we'll manufacture with a local Chinese supply chain. So that's China. Moving on to the U.S.A., another vital market for us and particularly important for our emerging businesses, the U.S. tends to be an early adopter of new manufacturing tech, so innovators there. And so we're seeing really strong demand coming through there for some of our high-value capital equipment in metrology and particularly in additive manufacturing this year. The other thing that we're navigating, obviously, in the U.S. has been tariffs over the last year, tariffs have come on and gone off and now come back on again. And we've managed that through pricing, and we've been maintaining our operating margins. And I think that demonstrates the resilience of our market position there. Just finally, on geography, we are seeing developments in some other markets. I've not talked about on the slide, perhaps the most notable one being India. Whereas that develops the globally competitive manufacturing industry, particularly in software track manufacturing at the moment. So taking a leaf out of the China playbook, we're seeing that grow, and that's something we're supporting with local business development. All right. So we've talked a bit about how our business is structured, when we looked at our addressable markets. We've looked at the industries that serve and some of the geographies where we are successful. What I'm going to do now is just turn to the wider manufacturing technology landscape and in particular, look at some of the asset classes with which our technologies are associated, and essentially, our addressable market forms a subset of the larger underlying markets. And so trends in those are important to us. They don't define our markets, but they certainly influence them. I've got 4 items here. In the interest of time, I'm only going to talk to the first 2 of them. So you'll be able to find information about additive and industrial robotics in the appendix in the handout that you've received earlier. So let's make a start in the world of machining. And the data I've got on this slide that I know many of you will follow, and it is indeed a really useful bellwether for the industry, but it does require a bit of interpretation. The first thing to say is that obviously, it only relates to the Japanese machine tool industry. So it covers both their domestic demand and their exports, that's a significant part of the global market, but it's not all of it by any means. And the other sort of key factor to consider here is currency. So we're going to look at these 2 charts. So I'll start with the 1 on the left. And that is based around the published data in Japanese yen. Smooth is a bit with a 3-month rolling average, so you can see the trends a little easier. Hopefully, you can see here the cyclical nature of this market. So we had a big peak in the late 2010s, we had the COVID slowdown. We had a recovery where things did well. We've had a sluggish period for the last few years, but you can see a nice uptick in the orange order line there to record order levels in yen. So that's looking good. However, when we -- sorry, the other thing to say is we can also see a gentle upward line through the sales over that period as well. So it sort of points to steady, modest growth. However, when we look at what's happened to the yen over the last few years and we'll reevaluate that data in U.S. dollars, we get a very different picture. So the yen has weakened against the U.S. dollar, actually against other currencies, including sterling. And so we actually see the dollar value of the machine tool output in Japan actually has been falling on average through that period. So -- the other fact here around currency as well to talk about is the impact that has on the competitiveness of Japanese machine tool builders against their rivals in other countries. And we've certainly seen are tough times for machine builders in places like Taiwan, Korea, Germany, where they're often battling against newly competitive Japanese exports. So the overall picture, I think this paints is 1 of -- it's really welcome to see improvement in the Japanese numbers. So that's definitely a positive. But we mustn't over-interpret this into boom times for the machine tool industry. We're not yet back at the levels that we saw in the late 2010s. There are some bright spots, though. And those bright spots are in the exports from Japan. We can see a lot of 5-axis machines going out there. We're seeing those landing in America, in particular, and going into the A&D sector. So there's definitely some bright spots, and those are well aligned with some of our latest product development, so it provides fertile ground for us. All right. So in that context, of quite a tough market in machine tools, how do we grow. And I think it's worth looking at Renishaw's value proposition here. So since our inception 50 years ago now, we've revolutionized the world of component machining with our industrial metrology products. And you can see here, we have a comprehensive range of market-leading sensors, systems and software that are used throughout the manufacturing process before, during and after and those are used to help manufacturers enabling automated manufacture of precision parts. So we can grow in the sensor part of that market by increasing fitment levels, and we're continuing to work on that. And we can also do it by increasing the value of the sensors that we sell, and we'll talk to some of the higher-value machine tool probes and CMM sensors that we're introducing. So that is a route towards growth there. But probably the bigger opportunity for us within this space is in migrating and increasing our share of the larger systems and software business. We already have strong positions and niches here. We're developing new products like Equator-X and expanding our routes to market. So we think that's going to be where the real growth opportunity for us lies in the years ahead. All right. Moving on to semiconductor. So here, the underlying market conditions are very, very different. And you can see the sort of dramatic growth that we've seen in capital investment in wafer fab equipment, in packaging and test equipment over the last 10 years or so. And it's actually been about a 10% CAGR over the last decade. So a really positive attractive underlying market. It's still very cyclical, however. So underneath that such, we can see periods where we have peaks every few years, a correction and then a period of recovery. Now we're certainly in a very strong upturn right at the moment. And you can see a range of forecasts for the next few years because there really isn't all that much clarity or consensus about exactly how it's going to go. There are definitely some out there that are saying this is an AI-driven multiyear super cycle, and we're going to see strong investment through this calendar year, through next year and even beyond. But there are others who are pointing out the fact that these data centers require huge amounts of resources of water, of energy and actually can the infrastructure around the world cope to allow the growth that's being projected. We don't have a magic -- we don't have a crystal ball to give an answer to that one, I'm afraid. So we'll have to wait and see. There's certainly a very interesting and exciting time to be part of this market. The other thing I'd say about this as a constant throughout all of this has been the relentless drive for higher performance devices, and that's really been underpinning the innovation that there is in the manufacturing equipment. So this is still a very, very dynamic sector in terms of innovation from our customers, and that means they're pulling from us more and more demanding motion systems applications. So we're really well positioned in that and we've managed grow both our market share and our share of wallet over the last decade in this attractive market. And so just to sort of point out how we play in this sector. So we have a comprehensive range of nodes that are used throughout the value chain in semiconductors, starting at the left and wafer inspection, Will talked about our latest laser encoders. So these are used in wafer inspection machines, and they're measuring the very fine details that you find on the latest chip, so down to 1.2 nanometer gate sizes, and we can resolve down to peak meters. So that's 1 1 millionth of a micron or a trillionth of a meter. So incredibly fine resolution that we can resolve to, and that's what's needed in these extreme applications. Other hotspots for us are in the front end, in wafer handling robots. So these are basically dealing the wafers from canisters into and out of the various processing steps in the fab. Another growth area for us is advanced packaging. So this is sort of mid-end, I suppose, you call it. And we've heard from, Will, some of the latest things we're doing there with new encoders that are meeting the need for higher performance measurements, and we're also seeing more axis going into these complex machines. And then on the right, there is the vast range of equipment that goes into back-end semi, so that's turning the wafers into devices and then into the downstream electronics production, so that's turning devices into products, very, very wide range of equipment there. The way we compete in all of this is, firstly, by having the product and delivering the right performance, and we have a range of performance price points. But it's also around the practicality. So it's a compact housing, it's broad installation tolerances to make them easy to fit and reducing the total cost of ownership for our customers. And then finally, it's in the expert technical support that we provide around the world. We're a real partner for our customers, and that builds the deep relationships, the decade-long relationships that we have with many of them. And that's what's allowing us to win new customers as well as to retain the ones we have. All right. So as I mentioned, there's going to be details on additive and robotics in the appendix. Just to sort of summarize, I think we're in a position where we have a really diverse portfolio of strong positions, leading positions in many markets, but also ample room to grow in our emerging businesses, and we can really see the traction that we're getting there. So all in all, this provides us with a tremendous long-term growth opportunity. All right. I will stop there and welcome any questions you might have. .

On the end market slide, there was a piece at the bottom, which may just be the rest but it was called precision manufacturing, which was sizable, but steadily declining. Has that become commoditized? Or is it an area you're not focusing on because of other opportunities.

It's definitely not something we're not focusing on, sorry, too many negatives. We are still focusing on it. So probably best to describe what it is first, and then answer the question. So it includes a lot of lower tiers in the supply chain of some of the primary industries. So we -- there are a lot of subcontractors out there that are in second, third tier in the supply chains for major industries. They may well supply multiple industries. So it's hard to put them in a box to say they're automotive or whatever. And there's a lot of machinery and equipment there who are our customers. And there's also machine builders, robot builders, et cetera, who are consuming our products in their own factories as manufacturers. And there's companies like Rene we don't fit in any of the other sectors, but there are a lot of products that aren't in those big verticals that are made in the world that require precision manufacturing. So there's quite a lot in there. So it is another. The reason it's perhaps not growing is that it is growing modestly. It's just not growing as fast as some of the others at the moment. So we're in a period of got strong growth coming through at the moment, and it's not growing as fast as semicon or A&D, but the other thing I would say is that the automotive bit there is a bit squeezed and again, some of the supply chain to that.

Jamie Murray from Bank of America. Just on the semiconductors, obviously, CapEx is really increasing. What sort of market share do you guys actually have? And who are you like competing against with encoders specifically?

Our biggest rival is a company called Heidenheim, a German private company, and they are still a global market leader. We are a strong #2 in the global position in code market. So they're our biggest rival. There are others, but they're the biggest one. .

And how has it changed over the loss like 2 or 3 years?

I think we are steadily doing well. We're gaining share. We have been for decades and that process is a long -- it's a battle every day to keep winning new customers, convincing them to design us in. And we are good at doing that, and we're pretty good at holding on to the customers we've got. So we started with nothing 30 years ago and how we're in a strong market position. .

I think historically on the encoder side, your customers didn't give you much warning about the orders they are about to place, and it's why you've carried so much capital. Has that changed in the current environment? Are they willing to have slightly longer-term conversations around their need given the current CapEx swing? Or is it still you really are operating in the blind.

I wouldn't say we're operating completely in the dark. We've got rather more older coverage now than we have. So they've responded by putting more forward orders. on to us. But honestly, they didn't see it coming the some of this. So there's a real mixture of folks maybe towards the front end, they've got more insight as to what's going on. further towards the back end, there's much less insight for them. So they struggle to give us much in the way of foregoing.

And are they giving visibility on their own working capital position, like do you have a sense that people are just scrambling to get components where they can and...

There's definitely some of that going on where there are multiple companies competing for the same bit of end-user business. There will be a bit of -- so we have to take a realistic view of the order intake we've got and recognize that some of it will not necessarily turn into revenue. We tend to see this in these peak periods. But the order intake is still very strong. .

I know you don't want to have a view on whether this is going to continue or not. But at some point, I guess, you're going to need to make a decision on adding capacity. Can you just help us like when you sat there with the Board despite deciding whether to add CapEx, given the lack of is a bit like what's the thought process today?

Well, the thought process is looking at the order trajectory and the discussions that we do have with customers. So we do have some here, it's not that we're completely blind. So we take those things on board. And we look at what the marginal -- the benefit is going to be from that additional CapEx. So for us, mostly CapEx here involves additional tools to make encoded bodies. And then we've got robotic assembly cells that we had to increase capacity. In relation to the revenue, it's still actually relatively modest amounts of CapEx. Any other questions, all over.

Within metrology systems, who is it that you're disrupting? Is it the sort of Hakan and ZYSYS? And of the addressable market you displayed how much could you feasibly capture?

Yes, to the first Hexagon strategic rivals in that space. They have strong positions, and we are steadily chipping away at those within our sort of differentiated niches. We're not trying to take them on head on across we're focused on particular niches, where we feel we've got a strength. In terms of market share gain, we're not going to put an exact number on it, but we feel there's plenty of runway left in this business to grow. We feel there's plenty of opportunities. We're really excited about the opportunities are quite direct will bring to us. We think that's going to open up more applications and also a wider sales channel for us to serve that market. So we feel that there's lots around by that.

Just on the additive manufacturing market. I know you've got some stats in the back. But just maybe some thoughts about the longevity of the growth, the nascency of the market development. Maybe you can contextualize it in some way.

Okay. We'll try. I mean we think there's decades of growth ahead in this market. It's a long way away from being mature. The evidence we're seeing of the sectors that are starting to come into the market, that's by no means done. And there are other sectors, things like consumer electronics that are starting to look at it. So we really feel that there's a long way to go yet. If you look at the size of additive manufacturing equipment in the -- is about GBP 6 billion compared to GBP 80-odd billion for machine tools and GBP 150 billion for semicon. So it's relatively small still, and we do feel it's got a long way to go.

Would you venture any sort of thoughts over what share of that machine tool or equipment market, it might end up taking as the cost comes down as the performance increases the confidence you talked about the behavioral elements of not trusting it, et cetera.

There's undoubtedly going to be some substitution, but actually, they're complementary technologies. Typically, there's often machining involved in the late ages of some additive products. So they're not all necessarily printed and done. So there can be some complementary aspects to that there. So yes, some substitution is inevitably going to happen, but there's also going to be substitution with forming processes seems like casting and forging and so on as well. And actually, probably that's actually more of a threat where additive is more of a threat to those probably than it is the sensor machine.

Just on the sort of market share expectations, it's very difficult to crystal ball this because technology will probably shift and shift again, et cetera. So you'll have to keep up to speed with that change, et cetera, to go with it. But you would expect to get a -- you stayed in this a long time, right? You've committed a lot of capital to this particular sector. the long-term view. So you wouldn't do that if you weren't expecting to get a material market share. And to an earlier question with a material margin attached to it. So maybe I can push you a little bit more on sort of that journey and the confidence around it? .

Well, we feel we are gaining share at the moment. There's 1 thing to say. We're achieving strong growth right now, and we feel we're outgrowing the market. So we are making headway with the products that we've got and the further road map is going to help with that. The slide in the appendix shows the sort of fragmented nature of the market that Louis described earlier. The market leaders are into double digits, but they're not into dominant market share. So we feel it's very possible for us to get into a #1 or 2 position over time. But I should emphasize, we are focused on a niche within this. We're really going after that midsized machine market. We're not adding big diversifications into other sizes. So we want to go deep in that area where we have an advantage today, and then we may consider spreading later, but that's the focus.

I've got the mic. Can we go back to some of the other or the financial things. Is that right at this moment? Or are you going to.

I'll tell you what, we're going to have a general Q&A in a moment. So if we get back to there. Are there any more on the markets before we could do that, Jonathan, I think we got on that.

Please. Can you talk a little bit about the enclosed encoder market. Essentially, I think you just -- you launched a product into that market probably what, 3, 4 years ago. -- and obviously, it's an area that looks quite significant in terms of I think on your chart, maybe it's a little bit bigger in terms of vessel market. Can you just sort of fill us in on the growth trajectory there, what you're seeing market share?

It's going well. We're certainly picking up market share, winning new customers. obviously, the machine tool builders or customers that we know very well through our metrology business. So we've got a good in there. So we're steadily gaining share. And then on top of that, we've got the inductive encoder side of things that also fits into that sort of harsh and code bracket along with some of that actually some of the magnetic encoders as well that also fit those. So there's a number of technologies come together to serve different elements of that market. So yes, we're making good progress with enclosed optical. So the Fortis family of products that we launched a few years ago are gaining traction after it's much earlier days. It's not contributing significantly this year. But as Will described, we think it's outperforming our expectations in terms of potential. So we think it's going to be material in the next few years.

I think we got a call online? Chris?

So a question from [indiscernible] from Quilter Who is your largest Semicon capital equipment customer, please? .

Okay. I'm from not going to answer that one. So we're afraid we don't have the permission of the customers to talk about them publicly. I'm sorry. There's 1 or 2 that we have case studies with from a few years ago, but I'm afraid I can't answer that one.

Okay. I think we'll perhaps wrap this bit up and Will is going to take to the stage and move us on to closing Q&A. Thank you. So all of us all of us up .

And we don't need -- so I sat at the start exciting times for Renishaw hopefully, you can see from today's updates, why we firmly believe that. Are there questions on general. We certainly know here's 1 here -- and we know exactly where it's going.

So I'll ask -- so just going back to last year's Capital Markets Day, you were very -- you were a lot more detailed about where the margin growth is going to come from. You gave us the sort of components to it you've been less prescriptive about that today. You've stuck to the 20%, but you've not talked about the components above it. You've alluded rather, are we -- are you walking away from those targets? I was never fully sure how dependent they were on volume growth, how much was in your hands. So I guess, there's 2 questions. One, are you walking away from them or do you stick to them having had a new set of financial eyes look at them. And two, could you therefore update on where you are in that and like -- and I suppose how much is dependent on volume growth? -- do you want to answer that?

Well, that's okay I mean, definitely, I would say we are not walking away from those targets. So the short answer to that is no. In terms of updating you on progress I think that is probably best left to when we're back in September to tell you where we stand against the 20% target. You will see that we upgraded our guidance relatively recently, admittedly for adjusted PBT, but you can read into that, both from a Q3 trading update and from where the guidance is that our margins are improving.

Obviously, if you add them all together, they get to a number significantly above 20%. And so if you get the productivity and gross margin, then, of course, you've got the rest of them are targeted on revenue, which is -- so -- how far above 20% is a realistic target? And another way of asking it is you've got a 23% margin business, you've got a 15% margin business going upwards with some efficiencies to come and you've got a 0 margin business, which is your fastest growing and should become a material part of the business with a higher margin. So in that context, 20% doesn't look again like a difficult number.

So you first asked if I was walking away for them, now you're asking...

I think it wasn't about walking away. It was about the mix. actually. It was about how you get there is about how you get there actually. Because the prescriptive nature of it was -- it made me think back then that there was a lot more in your control. You get those production costs down with being very laser-focused on engineering costs, you then get your sort of distribution costs down or whatever it was. So it was about the mix actually.

I mean I think maybe I'll refer back to the first question, which is asking me which was the most difficult target. And it's just -- there is a lot going on in margin. So there's a lot of things. And you're right, they all come together, then we should absolutely view going past but there is a lot going on there. So there's efficiency savings. There's pricing going both ways and there's volume, which could go both ways, so that markets will go up and down. But I do feel with without getting past 20%, yes.

Just 1 final one. You said that you wouldn't buy any more property sort of, would you, therefore, sell property?

So I didn't say we wouldn't buy property, but I am -- I think the first target for our CapEx -- CapEx is scarce resource. We've got to use it carefully. And definitely, I think we -- our first port of call is going to be and particularly in the current environment, is how we invest that in capacity and in manufacturing. So production CapEx is has got the priority call. Of course, it does make -- if our CapEx build, yes. Why not?

So the mic, anyone. I'm just trying to think about how you sort of value 30 to 50 years of buying property in the south of England and.

It's Harry Philips of Peel Hunt. Just thinking, I suppose, not quite as demanding as Alex -- you've got the sort of the 16% number, which is in the slides, obviously, if you're taking sort of share. Coming in that that's all expensed and taken on the chin, whereas a lot of your peers strip it

Yes. So maybe taking the second point first. I'm less concerned with the accounting treatment as long as everybody is aware of what the road map is and where we're going. So I'm I'm actually perfectly content that we expense it. But as long as you're aware of what it is. I think in terms of -- I spoke about the opportunity to simplify and automate. And I think that is across the company. And I think that is going to be a multiyear program.

And so no, I don't think we've repeated yet, I would say, certainly, in terms of activity, we have a lot of opportunity. It will be careful investment it has to deliver that return, but it's certainly a multiyear program. Just talking about costs. I was just wondering if you installed a new ERP system for the company last year or you have done. What about what's the next phase of automation in that sort of efficiency? Are you going to have ERP or new ERP systems? Are they -- will that be a big cost just general.

Yes. This is good. Yes. So the ERP is only live today in about, well, less than 15% of the company. So the ERP covers effectively all our distribution companies. It doesn't at the moment, extend the manufacturing. So that's why we have a we still have a program to roll out the existing ERP to the other 85%. And we then have to roll forward or roll back into manufacturing. So yes, plenty to do.

Can I ask a quick question about governance and the finally, their call. And particularly the extent to which it might govern your capital allocation going forward. I know David was very anti M&A, for example, us about how that's evolving .

Yes, certainly, it's been extremely positive news within the company with employees about the stability that this gives us. And also -- has been really positive discussions with so many of them as well. In terms of M&A, then it's been great discussing this through, and we have 2 family members on the board, really good discussions. And there is an absolute appetite across if we find the right companies that are stick with a very clear focus on how they're going to allow us to accelerate our strategy, then there will be a desire to do that to do that. So I think we're in a really fortunate position.

I just wanted to ask about AI. We talked about external opportunities or threats but is there anything you'd like to highlight that you're doing internally in terms of implementing AI tools?

I think, number one, area of interest for us in terms of internally using, as I think I touched on earlier, is in terms of software development. Where it feels like maybe not that long ago, there was hip and things being taught about the feedback already from the software teams now feels this is going to give significant product improvements in development of our software platforms that are really key for our success. So what stands out for me as being #1 there.

And is that an opportunity to produce more software and opportunity to do it at a lower cost.

So for us, this is about upping the productivity of our teams. In some areas, we are certainly -- in some areas, we are strong in our software and others, we are really trying to leapfrog others. So actually, I think for us, this is a real opportunity to make a difference and really strengthen that software side of our business. .

Are they any changes for Intake for this year.

So a question here on graduate intake. Yes, so we're still looking at taking on a reasonable number of graduates. That is key for our long-term success. Probably more of a balance these days between graduates and bringing in expertise as well with more experience. I don't think the AI side of things is massively impacting us yet in terms of our early careers intake. Definitely. .

I just wanted to go back to the AM sort of revenue and the business model. You mentioned consumables and it being a slightly different model to the older initial model. Maybe you can go into a bit more detail just help us think about what type of consumables I don't know what level of detail you want to go into on the sort of gross margins of those -- just I want to be able to go away from here and just model this a bit more formally. So maybe if you take it from a sort of, I don't know, an average customer, like you make a product sale and then the follow-on years of what happens next or...

Yes. So I guess it's quite different to the rest of retain terms of the business model, whether be in capital equipment and therefore, by its nature, you end up with an opportunity for that aftersales market, whether it's service contracts or consumables. And on the consumables side, I guess there's things like powder, some of which can be purchased through Renishaw, but also things like build plates and filters. And again, the more that these are being used in kind of large-scale production operations, then the more of those kind of things that they consume. Well, we expect that overall to be growing.

And probably quite customer a -- so yes, so there isn't really an absolute number, I don't think we want to give you on that at the moment. Maybe that's 1 we can come back to in the future. .

It's Stefan Deb from BBP Paribas. It's for John, actually. So capital allocation, you said it's a secondary matter, but we're looking still at the balance sheet, which is, let's say, quite nicely capitalized. We're talking about potentially selling property. We're talking about having a good cash generation. So what are you going to with your balance sheet to make it more effective? Or are we sticking to the old Finisar and running around with a lot of net cash on your balance sheet.

So that's why I go back to Alex' question. I don't want to create an expectation that suddenly we're selling all the other state. That's not -- it was hypermarket's you give me a good opportunity to correct. So it -- what I said earlier, genuinely, my focus in the short term is I see a big opportunity for us to really get serious about cash generation across the piece. And I want to drive that very, very hard. I think the -- what happens to our balance sheet and capital, that's something -- it is a second order. We do need to consult and make sure we and I'm not ready to today to give you any answer on that, I'm afraid.

Right. Looks like that is all of the questions went less anything from Chris at the back. Thank you all very much for attending today. I hope you found it useful and look forward seeing you all again soon. Thanks.