Renishaw Stock

Right. I have the thumbs up from the back. So, we're good to go. So, welcome, everyone, to our full year results presentation for 2026. I am going to go through on strategy and outlook after John, our Chief Financial Officer, has given an update on the financial results for the year. Clearly, it's been an excellent year for us. And I just wanted to go through some of the highlights though, before handing over to John. So great progress, revenue and profit growth in all areas. Now clearly, the headline driver and star there has been the investment triggered by AI going into semicon investment.

For me, most pleasing though is the progress that we've made in our portfolio of emerging businesses, and we'll touch more on that later. We remain very well positioned in a range of attractive markets. And I really think we're making the most of that opportunity with our innovation-led strategy, important new products that we've released that are really going well and more coming through. And again, I will touch more on this later.

We are investing. We have been investing in capacity. This is targeted to meet the needs and the demands that we are seeing. We are doing this very cognizant of the fact that we operate in cyclical industries, particularly that semiconductor one, of making sure that we invest in the right way to support our customers there. We are doing this also making sure that we're focusing on the underlying productivity of the group, making sure that we're really well positioned there for the future. So, an exciting time, and John is going to talk through now the financial performance.

Thanks, Will, and good morning, everyone. It's a great pleasure to present my first Renishaw results. And I do so very much on behalf of the wider team who delivered the successful year. So, let's start with the headlines. Revenue increased by 14% to GBP 816 million or 17% at constant FX. Adjusted operating profit grew by 36% to GBP 153 million, lifting margin by 3 percentage points to 18.7% and earnings per share grew 30%.

Reflecting this performance and our strong balance sheet, we're proposing a 5% increase in the regular dividend for the year plus a special dividend of GBP 0.70 per share. These results demonstrate positive progress against our medium-term financial targets. We're delivering high single-digit through-cycle revenue growth. Operating margin is moving closer to the 20% threshold and indeed surpassed it in the second half. Cash conversion fell year-on-year, but remained above our 70% target. And return on invested capital broke back above 15%.

Undoubtedly, our performance was boosted by positive cyclical trends that will reverse at some point. We acknowledge that, and we're focused on driving sustainable through-cycle improvement in all 4 metrics. Let's now look at revenue and profit by segment, starting with Industrial Metrology. Industrial Metrology, which accounts for more than half of the business, delivered steady progress. Revenue grew by 4% or 7% at constant FX, supported by rising demand for 5-axis coordinate measuring machines and Equator gauges.

Metrology sensors were flat with higher demand from consumer electronics customers, offset by weaker sales to machine builders in Europe. Operating margin was broadly stable at just over 17%, with currency headwinds offsetting the benefits of cost reduction. Position Measurement delivered an excellent performance. Revenue increased by 26% or 29% at constant FX. Growth was led by optical encoders for semiconductor equipment and magnetic encoders for automation and robotics.

Laser encoders were lower, but started to recover in the second half, and the order book is in growth. And we also secured early production orders for ASTRiA inductive encoders for aerospace and defense applications. That top line growth converted to even stronger profit growth. Operating profit was up more than 50% and operating margins jumped by 5 percentage points to 27.4%. Specialized Technologies achieved the strongest revenue growth of all 3 segments. It was up 43% or 46% at constant FX.

Additive manufacturing was the engine of this growth with strong demand from aerospace and defense customers. Spectroscopy dipped slightly. But overall, operating margin for Specialized Technologies grew by almost 18 percentage points to 4.4%, driven by the operating leverage in additive manufacturing. It's also pleasing to note that all product lines in this segment are now profitable. Turning back to the group as a whole. You can see the change in operating margin from 15.7% in FY '25 to 18.7% in FY '26.

Currency was a significant headwind because of both forward contracts and in-year average FX rates. That was more than offset by the benefits of restructuring. Gross margin dipped slightly, principally because of product mix, but the biggest impact came from operating leverage as a result of volume growth. That drove margins up to 18.7% for the year and indeed to over 21% in the second half.

Turning to cash. Adjusted operating cash flow was GBP 121 million. Cash conversion dipped to 79% from 91% in the prior year. CapEx was actually down year-on-year, but working capital was up, especially receivables, in line with the very strong sales growth in Q4. After tax, cost reduction expenditure, dividends and other movements, net cash increased by GBP 17 million. We closed the year with cash and deposit balances of GBP 291 million, maintaining a strong financial position. The special dividend of GBP 0.70 per share will reduce H1 FY '27 cash flow by GBP 51 million. Finally, a look at return on invested capital.

There's no doubt we're currently benefiting from the semiconductor super cycle, but our focus is on taking action to improve ROIC through cycle. In FY '26, we successfully restructured our cost base. In FY '27, we'll significantly increase manufacturing capacity, primarily for encoders. That will mean a doubling of CapEx on production assets. And over the medium term, productivity improvements will extend beyond just manufacturing to include sales and the back office.

One Renishaw is a multiyear program to implement standardized, globalized processes that will enable existing and future business. All 3 initiatives are designed to ensure that Renishaw is positioned for long-term sustainable success through the business cycle. I'll hand back to Will.

Thank you, John. So let's now take a look at strategy going forward. So we are very much focused on being a world leader in sensors and systems for both measuring and manufacturing. We have a very strong purpose. I'm very fortunate that I get to see this in action out visiting our customers, and it's then you really realize the important role that we play with them, those long-term relationships that we have and how we help them meet the needs of today and the future, those precision needs, those productivity needs, those challenges that they face.

We have a clear strategy underpinning this, that very clear innovation-led or organic growth strategy, making sure we're disciplined on those investments. Secondly, focusing on the attractive markets, so good through-cycle growth if cyclical. Next, we have the strategy of really accelerating our growth. So really disruptive R&D coming through on close adjacent markets, making sure that we are accelerating the growth broader than just the core. And then finally, of looking at relatively small targeted acquisitions close to our core, really accelerating growth through those as well.

So when we're discussing this, we put this all together in a model that I'm sure many of you are familiar with now, our value creation model. So if we take a look at this, and on the left here, we have what is happening to us from the outside, the markets that we operate in. And on the right, we have our strategy to drive outperformance. So markets, fortunate, definitely growing more than 5% per annum through cycle. Accessible market up to GBP 7 billion.

Certainly on those drivers and trends, and I'll talk through some of the more of the end markets shortly, but definitely AI and the pull-through there is the most significant clearly at the moment. That strategy then for outperformance very much start with our traditional sensor business. These 3 pillars at the top, you can see here, growing in the existing market with that traditional sensor business. Increasing technology value, so the Industrial Metrology and the AM systems, the hardware and software-enabled systems there and then extending into new markets, of which our ASTRiA inductive encoder is a prime example of moving very close to where we are with new disruptive technology.

As John has mentioned, clearly, this middle layer is really important for us, making the most of the investments that we are making for the future with a very targeted focused execution and then that portfolio growth strategy of starting with what has to be very disruptive patented new R&D, driving that through into the future profitable businesses of tomorrow. So if we take a little look about what's happening externally and the range of industries that we serve.

First of all, so with the numbers here before we have a look at some of the changes here, that sort of health warning that these are estimates -- so sometimes we know for sure where we're selling. So if we're selling a position encoder to a company that makes semiconductor manufacturing equipment, we know for sure where that is going to end up. If we're selling a machine tool sensor to a machine tool builder, we don't know. So we are looking then at estimates to try and gauge that.

I think the other thing worth stressing here is when we are selling our products, we have very generic solutions. So an example here would be our Industrial Metrology systems. It's the same hardware and software that we are selling to a consumer electronics as it is to an automotive as to an aerospace. So we're not aligned so much on specific solutions there. If we look at the specific outperformers then for this year, then a few key green ones going up.

Two of those feel very much like they're powered by the AI driver that we talked about before. So clearly, the semiconductor equipment is, but also the energy generation with investment into gas turbines and also into backup power with internal combustion engine units there driving that market well as well. And also, we are seeing definitely a flow-through in aerospace and defense. Efficiency of these products. Let's have a look a little bit more at a couple of those areas. So with -- in the world of semiconductor, so our sales here, this is our position encoders, our range of positioning encoders from optical encoders through to laser encoders right through to a whole range from manufacturers of front-end equipment, back-end equipment, advanced packaging, a whole different range.

What we see here really is the benefit, I think, of investment over many years of the innovation to make sure we've got the products that are needed and customer relationships and working with these customers for many years integrating our solutions with them, making sure they meet their metrology needs. We are now seeing the real benefits of that on this upturn. That is meaning that we are investing significantly in our capital. This is right across from machining -- so machining centers for machining of encoder bodies, electronics manufacturing ramping up and also then the automation equipment for putting together the encoders themselves.

You can see this is actually an ATOM cell here with the robot doing a lot of the heavy lifting in the assembly of an ATOM product. So we have been investing. We continue to invest here. Our strategy is very much to make sure we support our customers on the up cycle. We have to be there. We have to be a trusted partner for them to supply their customers during these cycles that we see. The benefit of this, because clearly we're very cognizant that this is cyclical. We've lived them through this before of the upturns and the downturns, the investments that we're putting in are helping us to under -- to drive the underlying productivity and therefore, the manufacturing efficiency of these products.

If we now just look at aerospace and defense. So certainly, we are seeing a flow-through of investment here, and this is customers investing both in capability and in capacity. Now this has been a very strong traditional market for us. But when you think of this for Renishaw, you think of our IM sensors and you think of our IM systems business. And that is indeed doing well, and we're spending a lot of time with customers of how do we help them support them ramp up in that area. But two areas really wanted to talk on today. So the first is with additive manufacturing. And particularly in the defense space here, what we're seeing is customers really understanding the benefits that additive manufacturing can give in terms of design freedom and what they can achieve.

A couple of examples, some gun suppressors for large guns. This is not how they're supposed to be. They wouldn't work very well at that, obviously. That's just so you can see the insides and also jet -- small jet engines for drones, which can be 3D printed. So lots of investment going in there. The other area with defense to mention is our new ASTRiA inductive encoder. Customers here that we talk to are really appreciating the combination of the metrology, the accuracy.

This is rotational accuracy that we can give them, the robustness and ruggedness of the product and also its ease of installation. So we seem to really hit a sweet spot. We are investing here again in manufacturing ramp-up. This is quite new going through our new product manufacturing facilities at the moment. So we're investing in that and also in a range of sizes that our customers are after there. This really shows, I think, here the benefit of the investment that we put in, in our innovation engine.

So ASTRiA, a prime one there coming through. Also additive, recent advances in terms of the software programs we've talked about with LIBERTAS, for example, and TEMPUS of really driving up the productivity of the machine. This means actually not only are there opportunities coming through, but we feel we're in a really competitive position that in the midsized market, we have the most productive platform. And we think that we are, therefore, gaining share there relative to our competitors. So that investment in long-term innovation is key for us.

We continue to invest over GBP 100 million a year in engineering. That is right the way through from current to the real blue sky thinking. The areas I just talked about and actually the Equator-X that you can see here, which also has been extremely well received. And again, we're in a ramp-up phase with together with the MODUS IM software are very much targeted towards our emerging businesses. So when I said at the start, really pleased with the progress we're making there. That is underpinned and the future of that by what you're seeing here.

Now really importantly, though, for us, if you went back to our strategy, it's that sensors business, that's our core. And what has been really nice was actually we have just launched a new sensors. This is for our CMM and machine tools business. And you can see pictures of these down here. I was over in Germany last week, AMB trade show, meeting up with customers, and they really understood the benefits that we are bringing to them with new measurement capabilities both in what they can measure and how quickly they can measure with these sensor technologies.

Also in our core business, the product you can see here in the middle is our latest generation, which is coming through now released now of our new laser encoder system. So here, we have a strong position with the companies that make -- this is for front-end wafer inspection. So they have phenomenally tough metrology challenges. We are very strong in this market. The new product moves us on to keep us ahead of their metrology challenges ahead of the game and again, shows that strong relationship that we have.

So looking forward, over the long term, we're clearly excited about the opportunities that we have with the market drivers. We're very pleased with the progress that we're making with the strategy here with the innovation that's come through and the innovation that is there for the foreseeing years. In the short term, what we clearly have is a continued growing order book. We are investing in that capacity, as I talked about in a number of different areas to make sure we support our customers through that growth.

But we're doing that very mindful that some of these areas are cyclical. And this year, really, then we are looking at further strong progress on revenue, profit and operating margin. Right. Thank you very much for listening. So John and I now would welcome questions apart from anything to do with the semiconductor cycle and our predictions on how long, how fast, when it will change.

Mark Davies Jones from ODDO BHF. So a few things. Could you talk a little bit about geographic patterns and what you're seeing in China in particular because that's been a big growth market over time, but a little more competitive recently. How is that faring? And on the encoder side, is there any change to the competitive position? It was a sort of 2-horse race at the top end of that market. Is that still the case? Or is that picture changing as the market grows?

So why don't we do this -- let's do the second one. I think these link actually, I would say. So I think we've done very well as a company against our traditional competition. And I think what we are seeing is the benefits of that now coming through in the semiconductor space. We're certainly seeing different competitive landscape from China. And when we discussed this through as an ExCo and Board, certainly, China is one of our biggest opportunities and risks.

There are domestic Chinese competitors across the board. But certainly in the space of encoders, then yes, there are competitors there that are supplying good products to customers in China, and we compete with those on performance, capability, price. So the second -- the first question was on -- sorry, remind me now.

China as a market really because it's been a strong top line, but a tougher profit market for you, I think, for a little while.

Yes. China is still going very well. We are adapting and looking for the future as to what do we do in the strategies. And I think we've talked about here in the future of having some China for China products and looking at domestic supply chains for those to make the most of the entry-level market there, particularly from a sensor point of view. On some of the areas then, so some of the things I talked about with additive manufacturing or inductive encoders, we don't sell over in Asia at all actually at the moment. Anything specific, John, do you want to add on?

It's Jonathan Hurn from Barclays side. I just have 3 questions, please. Firstly, just on orders. Obviously, you don't give an order book, and I'm not going to ask for that. But I don't know if you can just give us a feel for the book-to-bill by division that you saw through the last fiscal year. Anything there would be super helpful. The second one was just on your inductive sensor, ASTRiA. I mean, can you just put a sort of an addressable market to that what you think the revenue opportunity for that sensor could be? And then the third one was just on your software. Obviously, you've put new stuff into the market is going very well. Can you just give us a feel for how that side of the business, the software side is growing within Renishaw?

Okay. So let's...

I will do the order book. You can do the other two.

Yes.

Okay. Great. So yes, you're right. We don't disclose order book or by division. What I would say is that we tend to have a longer order book in Position Measurement and actually more so now in additive manufacturing. It's relatively shorter in Industrial Metrology, but our order book has continued to grow in those divisions.

So next was ASTRiA. So ASTRiA interesting. So we didn't target -- so this wasn't going in thoughtfully saying this is perfect for the defense market. This was us saying, here's something that feels very novel where we have something neat and can make a difference. And then from going out with the early stages where we use the MVP strategy, certainly, then the focus went on to the interest from defense customers. In terms of the size of the market, I don't think it's worth -- we don't know for sure, and I wouldn't want to give numbers.

What I would say is from the interest that we're seeing from a limited number of customers, this has the potential in a few years' time to be a significant revenue generator for us. So we will see on the potential and how that flows through. So it's one that could be a very quick transformer for us. But that's on Renishaw time, not on. And then finally, sorry, number 3 was -- yes, so really interesting time with software. I think the big bet we're putting is on the MODUS IM, which although we're focused on Equator, that is a platform from across the board, a common programming interface for whether you're doing a CMM or a machine tool.

We've targeted making this disruptive because of the ease of use and simplicity and also that it gets the best out of our products by driving them very quickly. This is accelerating through very strong feedback on ease of use. The discussions we're starting to get into now interestingly is not just on how do you open up this so that the person running the machine tool can now program in the manufacturing environment, his shop floor metrology, not have the person from the CMM lab do it. But what's the role of AI in terms of coordinating it and programming this all as well.

So it's a really exciting time, not just from the productivity benefit we're seeing with AI complementing our internal software development, but thinking about that from a user experience as well. So 12 months' time, I think this is going to be a really interesting time to have seen exactly the impact this has had.

Just on Position Measurement, clearly, an excellent year. Can you just talk about how much of the growth is volume versus pricing and how you see that going forward?

Do you want to talk about pricing, John?

Well, I'll talk about volume. So it is all of the growth is volume. If you think of the 2 levers of volume and price, everything that we did in '26 was volume. I think we have more to learn about price and more -- I'd like us to develop more our positive agency on price. At the moment, we're very focused on and I think rightfully focused on trying to meet customer demand in Position Measurement. Price is something that we have more capability to develop on, whether that's up or down.

Richard Paige from Deutsche Numis. Three questions, I think, if I may. Firstly, coming back to Position Measurement. In the Q4, obviously, a big step-up in sales on Q3. I know there's capacity constraints and you're adding capacity, as you made clear there. Is there anything unusual in terms of customer product releases or anything that made that unusual in terms of that step-up? I'm thinking more about how Q1 might look relative to Q4 in that division.

Secondly, then just a view from you because I know this has been very rangy and we're adding capacity on operational gearing, particularly, I guess, I'm thinking about additive manufacturing now profitable, whether that should show -- demonstrate the same processes there. And then finally, on the Industrial Metrology environment. I know it feels pretty down. I know you've been quite down on Europe recently about machine tool manufacturer. Is there any signs of any change there, please?

Should I do that last one and there's probably some finance bits because that's quite topical having just come back from Germany and met a lot of the machine tool builders there and some others. So it feels like Europe is starting to see some green shoots and definitely is on the recovery. I think definitely the one part that isn't is automotive. So anyone that has exposure, whether that's a machine tool builder that has stayed highly exposed to machine -- sorry, to automotive is struggling. All the other ones that are diversified are definitely starting to see pick up.

I think the other area that is probably really struggling is the traditional sort of high-end German job shops doing mold and die for auto because not only have they got a weak auto, but where they have, they're being undercut by imports coming through. So that sort of traditional sort of 5-axis machine with a Heidenhain controller in 10 of them in a German, that's tough.

Okay. So maybe I'll talk to Q4 more generally. So Q4, you'll have seen had a very big impact from additive manufacturing from Specialized Technologies. So that was an unsustainably high level just where capital goods orders came in, in Q4. But having said that, how we started the year, we've started the year in line with the same level of activity overall in Q4 with the other divisions taking up some of that slack from Specialized Technologies. And of course, we will update you on Q1 in about a month's time. But we're about, kind of, at the same level as Q4 year-to-date. That run rate, sorry, not the total run rate. That would be very good.

Then the other question was about operational gearing, particularly in Specialized Technologies. I mean that for us is quite hard to judge. Obviously, it's a big move from a negative operating margin to the 4% you saw for the year. I think for us, we do see additive manufacturing growing. It's on a good trajectory. It's difficult to give you an algorithm for the operating profit conversion, I'm afraid.

Is it going to be significantly different to the other divisions would you say?

I think I would -- yes, I would struggle to answer that, to be honest. It's a new business building scale, and it's hard to gauge that trajectory. It very much is driven by the top line.

It's also probably not going to be smooth.

No. There will be ups and downs with the value of each item, particularly in AM. The...

The value on the individual machines themselves.

Yes.

Harry Philips, Peel Hunt. Just one question, please, which is around sort of One Renishaw and productivity. And obviously you got the sort of additional CapEx going in. And just trying to think about how you sort of -- clearly, you delivered GBP 244 million of revenue in Q4 and the suggestion, I think, from what you're saying, John, is that sort of we continue at that run rate into Q1. There's sort of several aspects, I guess. One is as new CapEx comes on, how quickly does that come on? And sort of how -- is this CapEx for growth? Or is this CapEx to sort of just -- you're almost sort of so busy at the moment, this CapEx comes in to just sort of ease the pressure, if you like. So is that sort of nuance? And then secondly, I suppose once the world settles down, if it ever settles down, that sort of potential impact on margin and sort of that broader productivity program, the one -- and the broader concept of One Renishaw. I suppose what I am trying to get at is...

Is it one question, Harry?

It's got supplementaries in there. It's sort of the 20% plus margin target through cycle, I get and through cycle being the key word there. But here we are 21.7% in the second half, et cetera, et cetera, sort of that's a quantum above. So it's broader productivity and run rate.

Well, I'll try and answer the selected bits of the question. So the CapEx, I mean, this also does relate to Jonathan's question on order book. So the CapEx is going to -- broadly, the capacity is on 12-month lead time. So that capacity isn't going to fully come on stream until the end of this fiscal year. The order book, to Jonathan's question, we have a longer -- we have -- our order book is growing, particularly in Position Measurement. But that order book is not committed orders. And it's important to remember that. It is -- at the moment, there is a scarcity, and it's hard to interpret what that order book actually means, hence, we don't disclose it.

But the CapEx is to increase capacity, and it will fully come on stream by the end of the year. It does have a short payback. So it's a relatively long lead time, but it has a short payback on that capacity. That's in the kind of short run. And then, yes, our focus is on building productivity throughout Renishaw, particularly in the sales and back office. So some of that is efficiency and cost. A lot of it is effectiveness. We want to free our salespeople to sell, not to deal with internal bureaucracy. And we have probably -- I would describe it as a deficit in those areas. We have a historical deficit.

We're brilliant at inventing new products. But our business processes have not kept up with the growth, and they are quite diverse across the world. So it's a big opportunity for us to be more efficient, more agile, particularly when we're faced with business cycles, more agile in our responses up or down. And as I say, then to be more effective in areas like sales. So that is a multiyear program.

Lacie Midgley at Bloomberg Intelligence. John, just following up on that on the ERP process that's now been paused. Is that because you've seen more opportunity and there's different things you can do there? Or a little bit more color on that pausing, how long it's going to be paused for, if you can tell us a bit more on that.

I mean I wouldn't pause it maybe -- well, let me describe it. We have had a lot of challenges. As I think you all know, we went live in the U.K. with a new system. That has been very painful. It took us 10 months to come out of hypercare. And clearly, that is not -- we recognize that design is not fit for purpose for us to continue the rollout around the world. So we are pausing between now and the end of the calendar year to do a diagnosis phase diagnostic on that design. What can we keep and what does -- what needs to redesign. And frankly, everything is on the table in that phase.

Okay. That's helpful. And then just on the CapEx, I think you said majority of that that's going in '27 is for the supporting where you are now. Can you put a number on that? If I think about '28, what are you -- is it too early for you to sort of say what the number might be there...

Yes, yes, afraid so. Yes.

Tried. Okay. And then just on ASTRiA, I thought someone asked on the sort of revenue opportunity. But if I just think about the margin, assuming because of the end markets and where you're selling to there, we -- is it right to assume that, that's stronger than your traditional margin there? And are we seeing any of that in that strong PM margin in Q4? Or is that too early given the size of the orders that we probably...

Yes, it is too early to have any meaningful impact at all at the moment. So this is all for the future. And yes, the margin will be decent there, particularly some markets.

Oliver Swift with Panmure Liberum. Just a few questions, if I may. So firstly, could you give some more color on the M&A you referenced? What could we expect acquisitions to look like in what areas of the business? Secondly, on the special dividend, how should we think about returns going forward? Can we expect more? And at what level of net cash should we expect this? And then lastly, on the sensor side of the business, I guess, why has it been weaker? Should we expect this to inflect with, kind of, more general machine tool demand? Or is it that the business has been over-indexed to Europe?

Okay. Right. Yes. So M&A, I think the very important first statement is that almost exclusively, our focus is on organic growth. We will look to complement that with selective M&A, but we have next to no track record in that area, and we are -- we need to build our capability, and we need to take a long runup. So they will be -- what we would like to be able to do is to find small close-in bolt-on acquisitions, complementary technology, for example. But we are going to build our internal know-how. We're not going to go out and do something radical.

So the second question was about the buyback. Sorry, not the buyback. I think not the buyback. Sorry about that. So I can't -- it's a very short answer. Don't read anything into what we have done or as in project for the future. This is just a particular set of circumstances. And please don't read into what will happen in the future. What you should just understand is we continue to look at our capital allocation, and we will be responsible about it.

And finally, so is the Industrial Metrology sensors that has been that sluggish area for some time now. And we talked, yes, about German machine tool, but also other areas have been relatively weak as well. Certainly feels like if you look at JMTBA numbers, the recent ones are fairly bullish going forward, a bit of recovery in Germany and U.S. consumption pretty strong. So no, I think that's very much for us just we've been through this rather prolonged depressed cycle there.

So just one very quick follow-up. I think last fiscal year, you had GBP 20 million of savings from your cost reduction actions. How do we think about that number in the profit bridge for this year? What kind of level of savings are we going to see, would you say?

So the cost reduction exercise was done at the start of the year. So there isn't any material flow-through.

Dini Magoon from UBS. I just wanted to ask a question on the PM margin. So how can we think about the sustainability of that margin going forward? And once we adjust for the impairment, was there anything that sort of boosted the margin in H2, like accelerated contract closeouts, et cetera?

No, there wasn't. Clearly, we are in a time of high demand and supply constrained, not just within Renishaw, but beyond. But no, there was nothing in the second half that was unusual in terms of boosting it.

Another question, if I may. Just on Position Measurement, you previously flagged quite difficult comps with laser encoders. Does that get easier now? And should that then be supportive to the margin?

I'm afraid I don't know the answer to that off the top of my head, I'm afraid.

Yes. I would say, so laser encoders certainly is favorable from a margin point of view. The demand there coming through from the front-end semi, those wafer inspection companies is strong at the moment. Exactly how that relates back to that one-off cycle we have. But yes, we see that as a positive going forward and also tends to be slightly more stable because of the value of the equipment they're going on to.

That sounds like we are there with questions. So thank you. Have we got anything from -- no? Liza. So thank you all very much for attending today. Clearly, exciting times for us looking forward for that long term and also a strong year ahead for us. Thank you all.

Thank you.

So good morning, everyone, and welcome to Renishaw 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. Good 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 UBS 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 Louise and Matt. And then Marc is going to talk through trends and growth drivers that we're seeing in our markets. Each of those sessions, will have a Q&A, and then will have a closing Q&A with all of us at the end. Before passing on, I was keen for -- I think John was going to say a few words just on your first two months of time with us.

Indeed. Actually getting on for 3 months now, but still [indiscernible], still hauling myself 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 warmth 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 defence spending. Here, two areas of impact for us that's worth pointing out. So first of all, AM, we're seeing these defence customers really appreciate the benefits of the design flexibility that AM can give. And the reason of that, we will talk a little bit more through that later.

And then secondly, what we're also seeing is our new ASTRiA 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 ASTRiA encoder 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 -- positioned #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, one of the key areas here is the link between those 2 and this is our focused execution. So 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 within 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, and 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, where 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 CapEx, particularly non-production 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 one of the key pillars of that strategy, innovation.

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 how much 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 from 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 products 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 sensor 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 these are the probes that go in the spindle 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 on their machines. They're both underpinned by our new radio communication protocol. So that's the communication between the device you can see and the spindle 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 ball 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 CMM, where you measure it, ideally with your REVO thickness measuring probe. Hopefully, you got a good result when it passes. But if it gets -- 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 aligned 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 when we launch these publicly in the autumn. If you look then on to the world of Co-ordinate 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 REVO. It's a high-end system. You can do all sorts of different measurements with it. The PH20 PLUS, which we're coming out with now offer something which has 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 encoders. So first of all, what we're seeing is a growing demand in certain applications in semiconductor manufacturing, 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 allow encoders to measure the normal direction, but also height on top. 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 upped the game, we've moved on in terms of measurement performance, 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 world of systems. So I'm not going to touch on AM because Louise will be covering that later. But this is a really important step forward for us world of shop floor 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 allows extremely quick, fast, robust shop floor management parts in unstable temperature environments. The EQUATOR-X takes that and removes the need for customers to do a master 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 MODUS IM Equator. 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 IM 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 promoting 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 the product 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 defence applications hits 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 [indiscernible] that enables this, it really is a plug and play.

You have a precision shaft, you push it on, it itself aligns and our 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 say 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 ramp-up.

So another one where there's a lot of opportunity and one that 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...

John, welcome. First two for you, actually. So targeting 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? It sounds like pricing in the operating margin could be the biggest hurdle, but also then the CapEx on things like ASTRiA and ramping up manufacturing could be things, but just keen to hear 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, one 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 and some it's 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 because 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 and should be switching over from legacy systems.

Well, it's choosing -- how about Marc? Harry, I think you know this is going to end, don't you?

Sorry, Harry. Well, the focus on innovation there was very product-focused, 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 Renishaw Central. 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 sensor inputs from you. Does it threaten any of your software revenue lines?

So let's go to the first. So Renishaw Central. Renishaw Central was -- is software that we have that allows automation of process control. So if you have a networked 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 Equator gauges, 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 one 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 many 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, no, 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 nod now -- 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 new products a more rounded way of how you pitch it and then throwing also into that emerging market or a China type pricing strategy? And then John, particularly, just the nonproductive CapEx, just curious as to exactly what nonproductive CapEx is because surely, it should all be productive.

I'd be very careful how you answer this, William. 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 deliberately 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 and 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 R&D and engineering spend? Or is it just -- I get a sense...

It is more physical. We've spent a fair bit of, for example, on property. Is that okay, Will?

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. 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 one that stands out that has probably outperformed our expectations the most is the ASTRiA inductive encoder with not now, but the potential it has for 5 years' time, I think, is significantly higher than anything we'd envisaged when we were launching that product.

So that's probably the one to be asking in a year's time of how is that really going?

How big has it become. Okay, yes. And maybe somewhat related to that, but maybe outside, back to kind of physical AI. Now humanoids are starting to feature 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 axes, 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 encoder system 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 there of seeing. How much of that comes through as indirect business for us. So through others and how much of that is direct 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 we are very much learning here at the moment.

And if I may, just one for John. I think one 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 an opportunity across -- I emphasize across the businesses, 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 [indiscernible] 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 if it's okay with everybody. I have to introduce Louise 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 Renishaw, and I'm joined today by Matt Parkes, 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 the moment and more specifically, why it's winning for Renishaw. 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 additive 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 additive 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 Staffordshire, 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 Specialized 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 GBP 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 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 in 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, metal additive manufacturing, Renishaw is very much focused on the metal side of things. And even within metal, there are lots of different additive manufacturing technologies. And again, from a Renishaw perspective, we are very focused on laser powder bed fusion. So the very simple graphic that's 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 the 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 RenAM 500 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 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, some specific examples as to why Renishaw 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 in 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 and aerospace. So they could see the performance benefits that they could gain from the technology. So whether or not that was lightweighting for aerospace, which gives you a better buy-to-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 cost 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 stock 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 have 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 metal AM 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 RenAM 500 series and really focusing on that midsized 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're 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 me to pass over, sorry.

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 and a bit of our future investment and 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, licensed 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'll see our optical system verification kit. So that contains a calibrated artifact or an array of sphere, you can see here being measured on a CMM that customers can place in their machine, run an automated routine, and that gives them the ability to quickly and independently verify the accuracy of their machine before they start the 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 half 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 modifications, 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 LIBERTAS. What that is, is really a framework for giving much greater freedom to process optimization to optimizing the parameters that are used in the printing process. And 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 that image there, that's highlighted in orange as you can see the reduction from before and after. What that does as well as reducing waste and improving machine utilization, it actually opens up more part geometries as suitable for AM. That's a big deal because we know right now, one 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 what's possible to print as is and reduces that barrier a bit further.

So each of these are about boosting that productivity and 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 to 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 the technology. And that's really where they deliver and AM is 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's seen a really rapid uptake of additive manufacturing. Part of the reason for that is that additive 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 contractor model of supply chain that we see, particularly in the U.S. So [indiscernible] of this compounding benefit of using additive.

And then finally, in terms of manufacturing cost, 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 for knee reconstruction surgery. And you'll see on there, there's a sort of a surface texture on top of the tibial tray.

That's actually a 3-dimensional lattice. What that's there for 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 healthcare provider because you're much less likely to need 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 modify 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'll see a support-free bladed disk. So these types of components are very common in microgas 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 the supply chain. So again, a combination of benefits.

Moving on to talking about internal adoption of AM. We continue to see a number of use cases grow for our use of AM. Here, you can see some examples from our spectroscopy machine tool and gauging product lines. What each of these 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 of design for AM, how to scale up volume AM 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 to talk about how we're now investing to further go after our growth strategy. And there's 2 parts to this that I want to talk through. The first is forward-looking R&D. So we're working on a next-generation AM platform where we're really targeting a significant improvement in AM production economics. Now 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 TEMPUS and the [indiscernible] that 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 multiplier 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 investment I want to talk about is our operational [indiscernible] manufacturing. So we're continuing to invest in scaling our capability and capacity at our site in South Wales in Miskin. We follow a cell-based manufacturing setup there, which is already great in terms of standardization and managing the flow of components through. But what's also great is that it's really suited to scale up because that cell 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're 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're not in a situation where we're single supply as we're looking at this ramp in production. So essentially, that level of investment on the R&D side and the manufacturing is how we feel like we can maximize the opportunity we have to make the most of the growing opportunity around AM.

I'll move over to the -- go back to Louise to sum up.

Yes. So just before we kind of open it up to some Q&A, just a very quick summary kind of what we talked about. The simplify and focus 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 took me a bit by surprise. Is that a particular niche? I don't think I've seen one of these before.

Yes. So that -- yes, I did skip over that example. I thought that 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 AM 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 exchanges very positively. And we think copper may be one of the materials that we see particular 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 that's totally 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 a little 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. Can I say the typical ones that we see are [ EOS ], SLM? Yes.

I'm Michael Crawford, Chawton Global Investors. Can 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. I think 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 are low margin and combined with AM being the fastest-growing area. Like I know you won't say exactly, but how do you think about 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're seeing fewer new entrants? Or does defence as an end market look so attractive that actually it's going the opposite way, and we're seeing more start-ups, more funding going into the sector?

Okay. So the first one 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 is that it 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 standardized 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 and 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.

Okay. And second one was on the competitive side of things, which was -- remind me.

Whether it's got less -- like more stable as the industry has matured or actually defence 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 in terms of the lower-cost options but not necessarily, I think, affecting that defence side of things. Yes.

I'm just wondering if smoke and sintering 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 one of the key advantages we've currently got with our current generation product and certainly something we definitely want to carry forward to our next generation is we've got a really excellent gas flow set up 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 a key part of our technology advantage. Sintering, 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 luckily are able 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 difficult industries in terms of that process validation and qualification. But on the upside, once they adopt a technology like that, they don't tend to want to change it.

So would that have been a kind of hurdle or kind of a delay to adoption up until now, let's say, when it's all come through?

Yes, I think they have been the early adopters, which just 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, they're stuck with it.

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 a like this, which would enable them to utilize additive manufacturing. Is there a whole kind of generational skill set that needs to really come through?

Yes, there definitely is. And I think whilst we've been talking a lot about cost effectiveness and consistency as 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 doing things 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 so 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, right? 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 barrier as well.

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 [indiscernible] 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, but potential -- obviously there's 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. 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 insights 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 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 and gauging systems and software. Position Measurement, that's of growing importance to the group. It's been delivering double-digits 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 one 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 with Position Measurement and the remainder are linked to Specialized Tech. Now together, these markets provide us with a diverse range of substantial markets where we have both established strong market positions in our established businesses but also with plenty of headroom for us to grow market share, gain market share in our emerging businesses.

The other bit of good news about all of this is that these markets are themselves growing. We believe that on average, more than 5% through the cycle, and that's across the portfolio. But of course, some of them are doing really well right now. We've already mentioned that we're seeing strong demand for our additive manufacturing equipment and for position encoders. And that growth that we are seeing, we believe, is representative actually of wider growth in those markets.

So those markets are themselves doing well. We're doing particularly well within them, but the markets are growing strongly. The other way we grow our addressable market is through diversification. And perhaps the best example of that is our inductive encoders that Will talked about earlier, and that's giving us access to a multi-hundred-million-pound sector within the harsh encoder environment sector on this chart.

So the combination of growing markets and also accessing new markets is helping us to grow the addressable market for the group. Last year, we had a figure just over GBP 6 billion. We believe it's now around GBP 7 billion today. Right. So let's move on to look at the range of industries that we are exposed to as well. And so the chart here shows some history of the relative importance of different end-use industries to us and how that's varied over time. And one thing we say every year is that these are management estimates. We don't have perfect insight as to where all of our products ended up. Many of them are sold through machine builders and through distributors.

So with that proviso, hopefully, it still gives you useful information about what are the industries that are pulling our technologies. Fairly stable over the years, but I think some interesting trends starting to emerge. We've talked about the strength in semiconductor manufacturing equipment. Yes, that's now over 20% of group turnover being driven by that this year. And we're also seeing strength in aerospace and defense, particularly defense, but actually also the civil aerospace part of that is also doing pretty nicely right now.

I think another really interesting area is energy. It's relatively small, but it's actually growing quite fast for us. Now AI, we think of as a digital technology, but actually, it depends on an awful lot of physical infrastructure. So data centers can't tolerate fluctuations in power. And so quite a lot of our Metrology products at the moment are going into the manufacture of backup generators, both diesel and turbine generators to support this -- the resilience of that critical 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 there's fewer oily 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 business is 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 revenue generator since the 2010s, and that was driven initially by their development of subcontract manufacturing industry that became very strong.

But more recently, of course, they've become market leaders in the homegrown technologies that they're exporting 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. And 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 we'll touch 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 of 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. And 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 that I've not talked about on this slide, perhaps the most notable one being India, whereas that develops a globally competitive manufacturing industry, particularly in subcontract manufacturing at the moment. So taking a leap out of the China playbook, we're seeing that grow, and that's something we're supporting the local business development.

All right. So we've talked a bit about how our business is structured. We've looked at our addressable markets. We've looked at the industries that we 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 these 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 received earlier.

But let's make a start in the world of machining. And the data I've got on this slide is sourced from the Japanese Machine Tool Builders' Association, which is a data source 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. I'll start with the one on the left, and that is based around the published data in Japanese yen. Smoothed 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 reevaluate that data in U.S. dollars, we get a very different picture. So the yen has weakened against the U.S. dollar and 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 effect 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 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 one of -- it's really welcome to see improvement in the Japanese numbers. 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 developments, 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 will 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 extending 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 investments 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 [indiscernible], 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 I've put 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. But it's certainly a very interesting and exciting time to be part of this market.

The other thing I'd say about this that's 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 to 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 encoders that are used throughout the value chain in semiconductors. Starting at the left in 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 chips, so down to 1.2 nanometer gate sizes, and we can resolve down to picometers. So that's a thousandth of the nanometer, a 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 measurement, and we're also seeing more axes 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 right product and delivering the right performance, and we have a range of performance at different 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, 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.

Indeed, yes.

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 Renishaw. 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 quite strong growth coming through at the moment, and it's not growing as fast as semicon or A&D. So 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 Heidenhain, a German private company, and they are still a global market leader. We are a strong #2 in the global position encoder market. So they're our biggest rival. There are others, but they're the biggest one.

And how has it changed over the last 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 now 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 were about to place, and it's why you carried so much working 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 order 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 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...

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 a scramble. 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.

And 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 visibility, 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 visibility 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 machine tools to make encoder bodies. And then we've got robotic assembly cells that we add to increase capacity. In relation to the revenue, it's still actually relatively modest amounts of CapEx. Any other questions?

Within Metrology Systems, who is it that you're disrupting? Is it the sort of Hexagon and Zeiss? And of the addressable market you displayed, how much could you feasibly capture?

Yes, to the first bit, Hexagon and Zeiss, are our primary strategic rivals in that space. They have strong positions, and we are steadily chipping away of those within our sort of differentiated niches. We're not trying to take them on head on across the patch. 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 that Equator-X 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 of runway there.

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, 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 -- it's 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 latter stages of some additive products, and 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, things like casting and forging and so on as well. And actually -- probably that's actually more of a threat -- additive is more of a threat to those probably than it is a -- machine.

Just on the sort of market share expectations, it's very difficult to crystal ball this because the technology will probably shift and shift again, et cetera. So you'll have to keep up to speed with it, change, et cetera, or go with it. But you would expect to get a -- you've stayed in this a long time, right?

You've committed a lot of capital to this particular sector with a 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 all gaining share at the moment, that's one 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 we feel the road map is going to help with that. The slide in the appendix shows the sort of fragmented nature of the market that Louise 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're focused on the niche within this. We're really going after that midsized machine market. We're not planning 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.

While I've got the mic. Can we go back to some of the other sort of 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 we get back and save it for there. Are there any more on the markets before we could do that? Jonathan, I think we got one there.

Yes, one please. Can -- you talked 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?

We did.

Yes. And obviously, it's an area that looks quite significant in terms of size. I think on the chart, maybe it's a little bit bigger in terms of the sort of market -- could you just sort of fit us in on the growth trajectory there, what you're seeing in market share?

It's going well. We're steadily picking up market share, winning new customers. Obviously, the machine tool builders are 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 encoder bracket along with some of that -- some of the magnetic encoders as well that also fit those. So there's a number of technologies that 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. ASTRiA, it's much earlier days, right? 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. Okay. I think we're saying -- we got a call online, Chris?

Yes. So it's a question from Ben Barringer from Quilter Cheviot. Who is your largest semicon capital equipment customer, please?

Okay. I'm afraid I'm not going to answer that one. So I'm 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 the stage and move us on to closing Q&A.

Thank you. All of us up.

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

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 or you've been less prescriptive about that today. You've stuck to the 20%, but you've not talked about he components above it.

You've alluded rather than -- 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 are 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 journey and like -- and I suppose how much is dependent on volume growth?

Would you like to take that?

If that's okay? I mean, definitely, I would say we are not walking away from those targets. So the answer -- 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 our 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%. 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 efficiency 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 from them and 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 -- it was 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 your -- 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 that there is a lot going on in margin. So there's a lot of things. And you're right, if they all come together, then we should absolutely be going past 20%. 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 -- yes, I do feel good about getting past 20%, yes.

Just one 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 a scarce resource. We've got to use it carefully. And definitely, I think we -- our first point 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 bill less if it's a net bill, not a gross bill. So yes, why not?

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's questions, but just seeing the number you put in for the additive manufacturing sort of 16% number out to 2030. And obviously, if you are sort of attempting to take share, I mean, the sort of impression, therefore, I would take from that is that your additive business should be growing nearer 20% than the market rate of 16%.

So I suppose we get into that sort of drop-through point of -- obviously, we could see the numbers a year ago when you gave the new segmentation, you could sort of work that out. You can have a pretty good idea, I think, where the half year took us. And then sort of curious in that sort of growth, not only is there a sort of drop-through tipping point, but is there a sort of market tipping point where suddenly that volume price with the customers starts to sort of balance out or are you such an early stage that is still in a sort of upward trajectory all the way through to 2030?

Louise, so there's probably a few bits of that question to go through.

Yes. I'm just warming about the multi possible questions. So in terms of how we're growing and how that looks over the next few years, I suppose it's back to some of the stuff that we talked about a little bit earlier and kind of all of those factors coming together for a lot of applications, which is allowing that to grow, which is what we're seeing today. In terms of that going forward, we're still seeing quite a strong order book for next year and expecting that to continue as those applications open up. I can't remember the last bit of the question, sorry.

This more -- you've got the sort of the 16% number, which is in the slides. Obviously, if you're taking sort of share, then one can assume you can grow a bit more than that. So you got an idea of the sort of rate on the revenue line? Is the sort of -- when you go to Miskin, you can sort of see that you've got a lot of kick -- on one side of the room, but is pretty empty on the other side. And so the sort of...

Not anymore.

That's good to know. And then just coming back to the sort of -- as volumes go up, then obviously, you get the sort of classic volume price situation? Or is the industry or your product range still in its relative infancy that we're still on that upward curve all the way through to 2030?

Yes. I think we are -- and yes, Miskin is a lot busier in hall 3 at the moment, which is great. And I think also as those volumes increase, there's all that aftermarket opportunity for recurring revenue that we also see kind of pull through. So as that installed base grows, we expect that as a proportion of our revenue to grow as well. Yes, I'm not going to comment necessarily on specific percentages, but...

Can I do a brief one just to get back to John's point of the moving parts within margin. One of the headwinds, I think, has been the tech investment, the ERP spending you're doing at the moment. Where are we in the phasing of that? Has that peaked? Does that cease to be much of a headwind? And are you content coming in that is treated -- that's all expensed and taken on the chin whereas a lot of your peers strip it all out?

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 getting. So 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 reached peak 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 we have done it. What about -- what's the next phase of automation and that sort of efficiency? Are you going to have MRP -- new MRP systems? Are they -- will that be a big cost? Just in general.

Yes. So the ERP is only live today in about less than 15% of the company. So the ERP covers effectively all our distribution companies. It doesn't, at the moment, extend manufacturing. So that's why we have -- we still have a multiyear 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 family vehicle and particularly the extent to which it might govern your capital allocation going forward. I noticed David was very anti M&A for example. Is there anything you can tell us about how that's evolving?

Yes. So certainly, it's been extremely positive news within the company with employees about the stability that this gives us and certainty. And also with our customers, I think the #1 thing is we are a really key supplier to so many large customers that actually stability and ownership 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, we have 2 family members on the Board, really good discussions. And there is absolutely an 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 and support 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 #1 area of interest for us in terms of internally using, as I think I touched on it earlier, is in terms of software development, where it feels like maybe not that long ago, there was hype and things being talked about, the feedback already from the software teams now this is going to give significant productivity improvements and development of our software platforms that are really key for our success. So I'd say that stands out for me as being #1 there.

And is that an opportunity to produce more software and an 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 there any changes [indiscernible] graduate intake for this year?

So a question here on graduate intake. Yes, 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 and with more experience. I don't think the AI side of things is massively impacting us yet in terms of our early careers intake.

Sorry, I just wanted to go back to the sort of revenue and the business model. You mentioned consumables and it being a slightly different model to the old Renishaw model. Maybe you can go into a bit more detail, just to 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. 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 Renishaw in terms of the business model with it being 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 consumable side, I guess there's things like powder, some of which can be purchased through Renishaw, but also things like bill 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. What we expect that overall to be? Growing.

And probably [indiscernible]. 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 one we can come back to in the future.

It's Stefan [indiscernible] from BNP Paribas. It's for John actually. So capital allocation, you said it's a secondary matter, but we're looking still at a 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 do with your balance sheet to make it more effective? Or are we sticking to the old Renishaw and running around with a lot of net cash on your balance sheet?

So first of all, going back to that question. I don't want to create an expectation that suddenly we're going -- we're selling all our real estate. That's not my -- so you give me a good opportunity to correct that. So it is -- 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 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've understood what all shareholders want. And I'm not ready today to give you any answer on that, I'm afraid.

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

Thanks very much, everyone.

All right. Good morning, everyone, and welcome to our interim results presentation. It's great to be back here in-person seeing you all. After -- I think, it's been informed -- quite a long gap. It's also very happy to be doing it on the back of a good set of H1 results, which always helps. So let's crack on and have a little look through these. In terms of structure -- actually, I'm going to go through in terms of some of the highlights. Marc is going to talk through the financials in more detail, and then I'm going to give some highlights before we do the Q&A on our progress against some of our strategic priorities.

So first of all, positive news in terms of revenue with this real pickup that we saw in Q2. Still underlying quite mixed market conditions, two standby areas probably for us has been the demand from our customers who make the equipment, the semiconductor manufacturing equipment, and that's for our encoder product line and also significant interest from the defense industry, which is a more broader cross sector of products.

Real significance, I think, for us, though, is not just the responding to the market conditions and the great job we do there, but it's actually on our emerging businesses and the progress that we are making. So these are the bets that we are placing, the investments that we're making for the future for the long term of Renishaw. And I'm going to go through with you later on some of the progress that we have made there.

And thirdly, I just wanted to stress -- clearly, we are an organization. We pride ourselves in our investment in engineering, in R&D for our long-term growth. The output of that is what is key, and we have had some really significant new product launches recently, genuine excitement, particularly from our sales team on the opportunities that they now see for making the most of these. In terms of operating margin, improvements there despite currency headwinds, and we'll look through there. And actually, we're really looking forward to a strong revenue and profit growth for the year ahead, and we released our guidance for that.

We have a little look through some of the key performance indicators and some of the themes coming through here. First of all, than the -- very much that strong growth coming through in Q2. As I said, some areas strong. Other areas such as our sales of machine tool sensors, CMM sensors, the machine tool builders, the CMM builders, they're still quite sluggish overall actually. But the -- the one we always talk about is the extreme is the German machine tool market, which is still quite challenging.

In terms of operating margin and flow through on to the bottom line, then we have taken actions there to improve to support this. We had a GBP 20 million cost reduction exercise and also the closure of our drug delivery business, which has supported that margin development. Also as a business, we very much are focusing on cash and cash flow conversion of making sure we are making the most of the assets that we've invested in over the last few years. We have seen some pressure on that though. We have had the impact of restructuring costs on that number. And also, we are investing at the moment in working capital as we respond to the production demands of our customers. Okay, that's some of the highlights.

I'm going to hand over to Marc now to go through the financial numbers.

Great. Thank you, Will. So I'm going to start by looking at some of the highlights from our income statement. As well as I said, we've had a record first half with reported revenue growth at 7.1%, rising to 11.5% at constant currency. We've seen growth in all 3 segments, and we've also seen an improving order book in all 3 segments and also all 3 regions. When we look at regional revenue performance, however, the picture is a bit more mixed. So if we look at the Americas first, really strong growth here, 15% at reported rates -- more than 15%, more than 20% at constant currency.

And that was driven by strong demand coming through for high-value capital equipment, so things like our additive manufacturing machines or 5-axis co-ordinate measuring machines. So that's been a real success there. This region has also benefited from around GBP 5 million of higher pricing and surcharging to offset tariff duties that were introduced during 2025. When we look at APAC, also a really strong performance here. So growth of more than 10% at reported rates, more than 15% at constant currency.

And here, the key positives were rising demand from the semiconductor and electronics manufacturing equipment sector for our position encoders and also really good growth, really good demand for our Equator flexible gauge from the consumer electronics subcontract manufacturers. So that's the story in APAC. EMEA was a bit of a different picture. Here, turnover down around 5% at both reported and constant currency basis. We've been reporting some subdued demand here in the EMEA region for a little while and that continued throughout the first part of the half, but we did see a pickup in demand later in the period, and we ended the period with the order book stronger.

We also implemented a new sales ERP system in September in some territories, and that did have an impact during the half. But hopefully, you can see from the Q2 versus Q1 performance, we've seen a real step up here in the region, it's actually the biggest step up of all of our regions from Q1 to Q2. So we're moving in the right direction there. On an operating profit level, an increase of 11.4% to GBP 57.5 million and an improved operating margin by 0.6 percentage points. The moving parts there, as Will has touched on currency in one direction, organic margin improvement and another more of that in just a moment.

But when we look at the income statement, perhaps the most notable thing you'll see is an 8.5% reduction in our gross engineering costs, which reflects some of the cost reduction actions that we've taken in the last 6 months. Operating -- sorry, profit before tax grew by a similar amount, 11.5% to GBP 64.1. Effective tax rate in the period was 21.1% at reported rates rising to 21.8% on an adjusted basis, and that's perhaps more representative of what we expect to see coming through in H2. And then finally, our dividend payment remains unchanged at 16.8p.

Right, let's take a look at the operating margin evolution, and I'm comparing now the first half of the prior year with the first half of this year. So we're starting with 15.1% that we reported last year. And on the left-hand side of this bridge, you can see the external headwinds that we face largely from currency, but then being offset by the organic margin improvement we've generated through cost reduction and operating leverage.

Starting with currency, that's been a headwind for us for some years now. We've seen progressive weakening of the U.S. dollar and the Japanese yen against sterling over several years. And we are exposed, of course, to this currency fluctuations because many of our costs are in sterling. Most of our revenues are in other currencies. And so we seek to manage that through the use of hedging contracts, forward currency contracts over 24 months. And over the last few years, our contracts have done a good job in helping to offset some of the movements we've seen on a year-to-year basis.

And indeed, last year, when we looked at the prior year, we saw a particularly strong performance from our contracts and that was as a result of us taking them out at the time when sterling was much weaker than it is today. So they paid out handsomely last year. That has not been repeated to the same extent, but when we look at this year, our contracts have still done a good job, raising about GBP 5 million of revenue to offset roughly GBP 5.2 million of operating margin change as a result of moving exchange rates.

But overall, when we wrap that up, we've got GBP 8 million less in currency income, in contract income, GBP 5.2 million of movement in currency, so GBP 13.2 million, 3.6 percentage points of margin. So a significant headwind. With tariffs, that's impacted our revenues by around 1.4%, but had no impact on operating profit, and as a result, has had a small degradating -- degrading effect on operating margin.

Moving to the positive side of the equation. Cost reduction. Will mentioned, we ran two cost reduction programs over the last year, a company-wide operating cost reduction initiative aiming to remove GBP 20 million of cost from our run rate on an annualized basis. And we also closed down the loss-making drug delivery aspect of our neurological business, aiming to save around GBP 3 million on an annualized basis.

Pleased to say those savings have started to come through. The combined impact of those programs has been roughly a 7% headcount reduction for us at a group level to just below 5,000 employees at the end of December. And we've seen GBP 9 million of savings coming through, so 2.4 percentage points in the first half, and we expect to achieve that GBP 23 million of annualized savings on an ongoing basis here forward. So that's coming through as planned.

The other side of it has been operating leverage. So we've generated an 11.5% constant currency growth in the period. That has resulted, obviously, in more gross profit, which is more than offset inflationary pressures that we've seen in our cost base around things like pay benefits, health insurance. All right. So that's the margin story. I'm going to now just walk through each of the 3 segment performances for you, starting with Industrial Metrology, our biggest segment.

So here, the story is solid revenue performance growth of 4.3%, rising to 8.8% on a constant currency basis. The growth drivers here were our emerging systems and software businesses. So these are our 5-axis co-ordinate measuring machines, our flexible gauges and metrology software that supports both of those products and helped use us to make the most of them. It's really pleasing to see growth in this area. These are emerging businesses, and we're really targeting top line growth. And here is a key part of our growth strategy. So it's really pleasing to see that coming through.

Another success story here is our calibration products. This is an established product line, and we've seen growing demand here, particularly coming from the semiconductor and electronics manufacturing sector. So those machine builders actually use our calibration products in their factories to help them to make and pass off their machines. So we've seen rising demand coming from there as activity levels have risen.

By contrast, we've seen flat sales for the sensor part of this segment. So that's our co-ordinate measuring machines, machine tool probes and also the styli and accessories that go with them. So that's been flat overall, some high points in Asia, in consumer electronics, but weaker general demand in -- particularly in Europe and particularly in the automotive sector. So when we look at the operating performance of this business, it's roughly flat in margin terms. We saw essentially currency headwinds being pretty much offset by the combination of cost saving and operating leverage, but we ended up at pretty much the same operating margin.

Let's move on to Position Measurements or our other large segment. This did strong growth in the period. So we saw 7.4% rising to more than -- yes nearly 12% sorry, at a constant currency basis. And this was something of a game of two halves. We definitely saw a really notable pickup in this business in the second quarter. And we've got great momentum going into second half. The drivers of growth here were strong performances from our established open optical and magnetic encoder businesses.

We've mentioned semiconductor and electronics manufacturing equipment. That's been a key driver. But actually, we've also seen strong demand from general factory automation and robotics, particularly for the magnetic encoded line. By contrast laser encoders have seen a reduction compared to a really abnormally strong period in the prior year. These are used in front-end semi and wafer inspection. And yes, we had an abnormally strong comparator to go against. But we're actually really confident in the long-term future of this business. We think this is volatility rather than a trend. We've seen rising order book, and we've launched new products in this area. So we're really confident about the long-term prospects.

When we look at operating performance, we've seen similar effects that we saw in the Metrology business. So currency headwinds offset by cost savings to an extent, but here, the product mix change has been quite significant in this period comparator. So we've reduced by about 4 percentage points up to 23.4%. So still a strong for operating performance here. And I think the more meaningful comparison to take is if you look at the comparison against the whole of last year, which was 22.5%. So the first half really was a bit of an abnormal period. So we've got good momentum here, good top line growth and improving underlying margins.

Finally, Specialized Tech. So the smaller segment, but the one that's grown the fastest in this period. So growth of more than 25% at a constant currency basis. So really strong growth. And that has been almost largely coming from our Additive Manufacturing business within here. So we have a strategy here of selling to key accounts, and we've seen many of those adding to their fleet of machines as they ramp up production. But we're also targeting new customers, and we've seen quite a lot of those coming in, in this period, and we've seen particularly strong demand from both new and existing customers in the aerospace and defense sector. That's been the notable change in demand in the period.

Spectroscopy down slightly, slightly stronger in America, slightly weaker elsewhere, but we've seen good order momentum on that recently, normally has a stronger H2. So looking forward to that this year. And in neurological, that's the smallest part of this product group, and the key sort of thing here is that we completed the closure of the loss-making drug delivery aspect in the period. So when we wrap all of that up and look at the moving parts on margin, we can see a real step change in performance here, 22 percentage points of margin improvement.

We're now just short of breakeven on this segment. The moving parts there, yes, currency, again, slightly less proportionately than the others because of slightly different regional sales patterns. We've seen cost reduction, obviously, coming through with both the company-wide program and the focused drug delivery activity. But the large majority of the margin improvement coming through here is from operating leverage with the growing AM business. So that's been the key driver of margin improvement.

Right, lastly from me, just a quick look at return on capital and cash generation. So we focus on return on invested capital to make sure that we're allocating resources to profitable investments. We saw an improvement here to 13.2%, so 0.6 percentage points. We have a target of 15%. So clearly, we have some way to go. And the way we're going to get there is by driving our operating margins, but up to our target range and also keeping a lid on investment in capital. We have had a period of higher investment in recent years in property. That's now behind us, and we're operating at a lower level of CapEx.

So in the first half, CapEx was GBP 17 million, and we're expecting to run at a rate of about GBP 40 million for the year as a whole, and that's focused mainly on plant and equipment to support capacity and productivity growth. And that's part of the cash generation story. The other side is working capital. We have ramped up working capital in the period. Obviously, we've seen a bit of an inflection in demand in Q2 and that's triggered us, obviously, to increase our production rate, drawing in more piece balls, more work in progress, et cetera.

So that has -- we've seen that during the period. So our cash conversion overall is just below our target at 68%, but we think we're doing all the right things here in terms of keeping a lid on CapEx and making sure we're supporting growth with our balance sheet. Finally, our cash balances, currently just over GBP 240 million at the end of the period, so down compared to the summer, and this reflects the outflows that we've seen on the cost reduction activities, on working capital and on the dividend payment in respect of H2 last year.

All right. I think that's enough for me. I'll hand back to Will.

Lovely. Thank you very much, Marc. So, as I said, I'd like to now talk through some of our strategic priorities and a little bit of a look more into the future. And I'm going to focus on the first 3 of these because I think the cash generation and ROIC, we have already touched on. So the first area here is the key strategy for us, which we've always talked about of long-term growth through product innovation. It's our key overriding strategy.

To set the scene for this. I just want to reflect back firstly, on our long-term value creation model, something we've shared and many of you will be familiar with. Just to go through, if we look on the left here, then we can see that the markets that we operate in, that GBP 6 billion addressable market, and really most importantly, the fact that they are favorable markets that we think on average, are growing by more than 5% a year. You can see the drivers in the 4 boxes around the addressable market.

What we've seen recently probably is acceleration here, all the news on AI and the data centers there really feels like it's accelerating the growth from the electrification area there. We are certainly seeing, I think, continued acceleration of our customers also looking at the adoption of the automation and so had to automate processes right across from machining to metrology, but for a range of things there.

And we're also seeing probably a broader one, which maybe cuts across slightly differently with all these of the expenditure on defense. And it's really how do we help customers there with manufacturing agility, ramp-ups, new technologies to go in there. So positives, some changes going on there from our market. The key bit for us then is how do we outperform. And on the top right, you can see those 3 key themes. So the first is growing in existing markets. This is how do we sell more sensor technology normally to the machine tool -- the machine builders around the world, whether that is semiconductor or machine tool. And we'll also talk -- we'll often talk about this in terms of the number of dollars we get per machine tool spend or sold for the machine tool industry, for example.

Next, increasing technology value is about us selling the increasingly complicated systems. So capital goods together with the software to enable them. And then thirdly is looking in terms of moving into new markets. And to be clear, this is very close adjacent to new markets to where we are already operating. With all of these, the innovation side being disruptive, having the USPs is absolutely key for us to succeed and give our sales teams around the world, the strongest advantage that we can.

I'm really pleased that actually, despite reducing engineering expenditure, what we are seeing is a really strong pipeline of products that we have recently launched. And also, we've got a really healthy pipeline of products to come through for the future. I just want to highlight a few that are kind of really key for our strategy and for our success. So if we first will look at Industrial Metrology, we've had a really strong reception for the Equator-X and MODUS IM Equator software that goes with it.

Equator-X brings very high-speed measurement to the shop floor, and it does it without the need for a master part to compare with. So our customers immediately get the benefit that it brings. The real enabler with it is the software, which dramatically deskills the level of knowledge needed to be able to program the device. So what we have with the combination of these two is, amazing performance on the shop floor, Metrology where you need it at the point of manufacture and also far simpler for our customers to deploy and far more flexible in terms of the range of different parts that they can measure.

This is really key for us. You can see there's excitement from our existing sales team all around the world and what they can do with the customers that liked our existing products but need this. But there's also excitement in terms of the new routes to market that we can open up. So people who are selling already a machining and manufacturing solution where this can be a part of it, they can own it and they can sell it. So a lot going on there and a lot to do.

From position measurement, Marc talked earlier about -- with our laser encoder product line being sold into the wafer inspection, the great thing here is this is always a market where the challenges of the next generation of wafer technology is getting smaller, these customers always have really tough metrology challenges. And we've really stepped forward with our next generation of laser encoder in terms of the performance that we are now giving to those customers. Again, had a chance to meet some of them recently, really positive on the relationship that we have with them.

ASTRiA, we have talked about. So this is actually a new area for us using inductive. Again, it's been really well received by the market in terms of the metrology performance that it delivers. And then finally, from a specialized technology point of view, Strada is our new Raman instrument. And Raman traditionally is an instrument used for the Raman expert in the Raman map who will do things. Strada is designed to simplify. It automates the Raman process from a hardware, dramatically simplifies the software. So it's Raman for the non-Raman person. So if you want to solve a problem, you can do it with this, you don't need to know anything about the technology that is inside. So this has opened up different opportunities, different markets for us with Raman.

And finally, LIBERTAS is new software that we have launched to go with our Additive Manufacturing business. So what this does is, when you are making a part additively, you have to put in supports to hold it in place? And what LIBERTAS does is by doing very clever novel scanning strategies dramatically reduces the number of supports that you need. So what this does is it speeds up the cycle time. You don't have to build these supports, you save time. You save waste because you're not processing the material. And you also save post processing time because there's a lot less than the support material to remove after the build. So it's pushing forward the productivity of our machine for our customers.

What it also does actually is really improve. The tricky service on additive part is the bottom and the surface finish of that with our new software is really noticeably moved and a step change in performance there. This was really well received by a number of our customers. So a strong healthy product launches there, much more to come in the future. So while we absolutely see that our future is the growth, what we've been clear on and talked to you about is making sure that the business is as focused and as lean as it can be to support that growth.

If we look at the initiatives that we have going forward, then in terms of this graph, you can see that, I guess, Marc earlier brought this up in terms of the 15.7% that we ended up with this half year now that we've just announced them. For the rest of this year, we still see continuing to have some currency headwinds, some benefit from the cost reduction program and then actually the flow-through of the margin from the revenue development taking us up to our end of year results.

The interesting bit really is going forward, we set ourselves targets on this. Some of that will be achieved by the revenue flow in the future of looking at the growth strategy -- that innovation that growth strategy, but the other bit is on the development on productivity across the group. We're in early stages on this. I guess we've already done some activities, which we talked about, we are very much now in the planning stage of what are the best opportunities that we have as a business going through that and then working on the program to deploy that. So when we're back up here for Capital Markets Day in June, it's going to be a great chance to update you in more detail on those plans and what we intend to do.

And thirdly, I want to spend a little bit of time on the emerging businesses. As I highlighted at the start, I think, overall, this is the bit that is the most encouraging for me with the developments that we have seen here. So right across the board on our different reporting segments, we have emerging businesses. What we have looked at here over the last several years, there's quite a bit of work and focus on these areas.

And you all have seen, if you've been monitoring for a while that some of these businesses are ones that we have divested or closed. Some of them are ones that we've had for a while, but we've made quite significant strategic changes on them. And those ones, I would classify as the Metrology, CMM and gauging systems and Additive Manufacturing that both had and in some respects, quite a similar of really focusing down, understanding what our differentiators are targeting key customers and making sure we are very clear what we are about.

And it's been great to see both of them really starting to do well. Additive, in particular, this time that strategy of focusing on customers with volume opportunity focusing on a highly productive single-sized machine is really starting to pay dividends. And what we're now seeing is a repeat orders coming through, both from actually the customers that we talked about in the past, whether that's of the medical that we talk about, but it's really also being accelerated now with interest and customers in defense, understanding the opportunities that Additive gives for them.

Now what we also did when we exited from some of the businesses that we didn't feel were going to meet the criteria for what we wanted for the long term of the business was we did pick out some of the best areas of innovation that we felt we had across the group and tried to accelerate those. And as Marc talked about when he was talking about the position measurement both in closed optical encoders, really starting to go well.

But I think that for me, the star here is definitely on the inductive encoders, FORTiS, I talked about it in the innovation. We went -- we've launched this as our MVP of saying we're just going to do one size. We're going to get it out. We're going to really hit the deadlines. The team did a fantastic job of doing it. The feedback from customers, the metrology is superb, the ease of use is superb. And now we have customers saying that they really want to switch over to our technology, design us on the existing platforms and designs us on new platforms.

Now this is designed for a broad range of industries. The one at the moment where it feels like it's hitting the sweet spot is on the defense industry. We have actually recently decision that we need to invest more from an engineering and a manufacturing point of view to make the most of the immediate opportunities that we have here. These businesses all take time to come through, but this is one that feels like it is working at a different pace to what we are used to.

Really important for us. I mean we're talking through with the team internally, moving these emerging businesses through into established is key. We have a lot of exciting R&D going on for the future, some of which is going to power existing businesses, but some of it is the new emerging businesses of the future. So we need to make space for it to come through so we can invest in it by migrating some at the moment. So lots of positivity going forward. But with us, there's always the uncertainty in the markets that we operate in, but we certainly feel like we have momentum going into H2. And I'm really pleased to give a positive revenue and profit trading guidance for the year ahead.

Thank you very much. We now have time for Q&A, which is great to be doing in person.

Will and Marc, it's Lacie Midgley here from Bloomberg Intelligence. Just a couple for me. First, I guess, on the China strategy. At the full year, we talked a little bit about the entry-level market there, perhaps kind of looking at lower-priced alternatives to some of your core products. I know we're not quite -- we're not far on from the full year in that description, but is there any update on the strategy there and how that's evolved and any progress you can update us on?

Yes, certainly. So I think -- I'm just trying to think back to exactly what we said at full year, but certainly, what we are looking at now is, we have certain products which are established, but we can tweak and adjust so that they are limited in performance for an entry-level China market, so where we can target and go after business at a lower price to the customer. We're doing that in a quite a limited way in testing things out. So that's very specific.

We're also getting the innovation engine and it's interesting here, particularly probably on some of the more sensor technology side of the business. The innovation engine has come up with some really good ideas on stripping manufacturing costs and simple designs, particularly encoders there is some really quite exciting stuff for the future coming through that allows us to target the entry-level market at a different price point.

Now people always worry about this in terms of what does that mean in terms of threat of the different areas. But actually, this is stuff which is designed such that it's only suitable for entry level. What we always see in things like the encoder market is things gradually moving on. So some areas will become more commoditized and as that happens, we'll have new opportunities elsewhere, so...

That's really helpful. And on Additive Manufacturing, I mean it's clearly moving in the right direction, which is great to see. I think these are obviously much bigger ticket items for you. So not many are going to be needed to kind of move that specialized technologies aisle. I mean you talked to the defense customers. But in terms of size, are these smaller end users?

I'm just trying to think about how significant the move is there? How quickly we get to that becoming an established business? And Is this about kind of expanding AM usage and really embedding the technology with your existing customers? Or is it growing the base and new customers, I think you've talked to both of those, but a bit of extra color on that would be helpful.

Yes, I think both of those are key. And often, we'll try and say, look, we're focusing on existing customers and repeat business and not doing too much and then new customers will come along. So absolutely, we're targeting existing and new. Size of the customers can range from really large to far more dedicated specialists supplying into industries. I think the most important bit across the board on this is people embracing and understanding the benefits designing for AM and showing them to their customers that this is the advantage you can get and what we can do for you now with this.

So it feels like for a long time, and we've had this on machine tool pros, we had it on Equators, we had it on the ballbar product in calibration of us doing the marketing. Once the customer starts saying, this is what it can do, things start to really accelerate. There will, for sure, be ups and downs on that journey. As you say, with big ticket items, it doesn't take that much to change. It's also different for us from a manufacturing point of view, ramping up with encoders is somewhat different to ramping up with the scale and complexity of an AM machine.

Mark Davies Jones at Stifel. A couple of things, please. Firstly, slightly longer-term question, but obviously, it's frustrating in some ways to see all the good organic progress and profitability eaten up by FX and I'm not going to ask you about hedging strategy, but more about the cost space. I mean you are unusual in having so much of your R&D and manufacturing located in the home market rather than pushing that out into the regions. Is there any change in the thinking about that? Or do you think that's caught your ability to sort of control the technology go-to-market?

Yes. That's a very good question and one that we are considering at the moment. My honest though, is probably the reason that we would be moving any manufacturing would be for geopolitical access reasons. Because honestly, as we have things in terms of single point of manufacture, areas, we feel is extremely efficient.

So we are -- this is one of our strategy decision topics of what we should be doing and are there certain products? It could be some of the stuff that was tied in with the question on low cost, which are ones that we decide we make further afield. I don't think we'd be doing this to try and -- the primary reason for doing this would not be to give ourselves more stability from a currency point of view. It would be a nice benefit from it.

Okay. And just a little one. I won't ask you about share buybacks because you can't say anything. And given the strength of the numbers and the strength of the balance sheet, is a flat dividend a bit mean? Is there some sort of reweighting to your thinking around that?

So we target a dividend cover of 2. And if you look at the midpoint on the profit for the end of the year, then this would give us that with a flat divi. Clearly, I guess we have an optimism around the business, but it is 1 quarter that things have happened, we don't want everyone to get carried away. So just, I guess, that the -- probably the fuller answer to that is on a capital allocation point of view, this is more of a strategic question for us to go through as a Board of thinking of how we want to run the business and use that cash or return that cash. So that's the bigger question for the future, not addressed by a divi really.

It's Richard Paige from Deutsche Numis. Two from me as well, please. On the defense, it sounds as though -- I may have been getting this wrong, but your growth is going to be ahead of the market. There's new applications that -- or new customers you're winning within that. Can you just elaborate on sort of end use within the defense market?

Yes, really broad. So we will have -- so ASTRiA, we talked about, which will be something that defense customers could integrate. Additive Manufacturing can be something that parts can be made with versus a lot of indirect stuff probably through machine tool, CMM builders and et cetera, which will allow the metrology and the precision of both machine parts needed for going into defense. So direct and indirect, a real mixture there. In terms of where we are on investment curves, I'm not sure that we really know, to be honest.

And the other word that normally goes with defense, aerospace, we haven't spoken about it much here, but obviously, with the industry ramp and so forth, expect that to be a reasonably strong area of demand for you as well?

Yes, I'm not sure exactly what our aerospace numbers are at the moment, but it's not...

I would say that's probably we're seeing that coming through with our AGILITY sales, particularly in the Americas. That's -- we've got a lot of key customers that are in the aero engine sector in particular, but also airframe to a lesser extent. So that's been a driver of performance more recently in the nondefense element of A&D, although obviously, there's some overlap there in the engine business, they tend to serve both sectors.

I think one key when you're thinking about Additive Manufacturing, and I think this is a good thing for all of us. But if you're working with an aerospace, there is an awful lot of checking balances, review. So it's a very long development time that you're working with a customer before you get sales. Defense is far quicker on things that maybe don't have as long a lifetime.

And perhaps if I could just add as well, I think there's quite a lot of new business formation going on at the moment in some of the later -- the more recent platforms that are being developed for modern warfare. There's new players entering the business, and we're seeing some of that within our customer base as well as repeat business coming from established customers.

It's Bruno Gjani from UBS. Just because we were on that defense topic, I just have a small follow-up. When you mentioned on the inductive encoder side that you were winning some customers and you were now being spec-ed in on some new accounts, does that specifically relate to defense? Because if that's the case, I was wondering whether if now you're being spec-ed in, you could actually see a material rise within that product line? Or how are you sort of thinking about that component?

Yes, this is still small. We have one size of ASTRiA at the moment. And it's great with the customers. They love it. But suddenly, it's okay, I need this size and I need this size and I need this size, which does create some engineering and manufacturing work. So, yes, that's going to be a positive. It's quick in our terms that we think for encoder business development, but it's still not going to have a material impact in the next year or so.

Understood. And it reads as if the emerging product line businesses were really strong within the half and the quarter. I was just wondering if there was any way you could maybe roughly quantify the contribution to growth from those emerging products or might not be?

I think probably at the moment, I think, take the positivity, but probably we're better off keeping it just the reporting segments that we have.

Understood. Were there any subtle differences in terms -- the order trends that were really encouraging or sort of read to be really encouraging ahead of revenue growing really well, the order book was growing. Were there any subtle differences within what you observed in order intake, particularly as it relates maybe to Q2? So for example, I'm thinking of you called out machine sensor as being actually quite flat in the half. Did you see any sort of pickup on the order intake side there that's worthy of calling out or not really? It's sort of similar drivers to revenue?

Not worth calling out, I would say, on the machine tool sensors. Yes, the places that we saw the stronger growth were also the places that the revenue picked up. There's a strong correlation there. So additive and position measurement into semi, those were probably the highlights. But generally, automation demand for the wider position encoder business as well.

And just a final one that I was sort of wondering on is on laser encoders in terms of the mix headwind in the first half, what I wanted to get a sense of is whether the mix in the first half is abnormally low within laser encoders and therefore, there's a potential for that to grow in the coming, say, 12 to 24 months? Or was it that the mix in the first half of last year was abnormally high and actually we're at a normal level today?

No, the latter is more the case. So it was an exceptional period in the prior year. I'd say the laser encoder product line has been a real success story for us over the last sort of 10 years or so. And we have a strong niche position in wafer inspection. And that is obviously tied to front-end semi and the trends in that market look decent at the moment. So -- and we've seen rising order book. So we're optimistic that if you look through the perturbation of the prior year, there's a nice growth story here.

Sorry, can I do a couple more? Defense, I don't remember being in your sort of breakdown of end markets being a big chunk in prior years. So could you give some sort of sense of the scale of that for you? I know it's tricky with your routes to market.

Yes. I think we normally talk about 5%. It feels like that's creeping up at the moment. And it's probably being quite impactful in certain areas that we've talked about.

So it normally sits within what we call -- I mean, aerospace normally is where defense sits. We just -- we haven't called it A&D and perhaps we should. But the bulk of that historically has been civil. But yes, the defense proportion of that is rising. And as a share of the total, it feels like it's increasing overall as well as other segments so, yes less buoyant.

Okay. And the other one is you talked about geopolitical considerations in where you put your manufacturing. How about where your customers do? There's been all this talk about kind of reshoring and much less evidence of it actually driving investment. Are you seeing any of that coming through?

I think it's really hard to say. What we are certainly seeing is some of our customers where we would have shipped product to a certain country now saying, okay, actually, over the next 6 months, we are migrating manufacturing to a different area. Some of that's going the other way. So that's countries moving out actually. So -- and then there's a broadening in other areas.

So it's actually quite complicated. We met with some of the electronics equipment manufacturers recently. And I think we probably need to understand a little bit more about why they are going to certain areas and what those trends are going to be. And for us, that doesn't matter much because we'll do the work with the design teams and then it tends to be just where we deliver the products to.

No, I guess I was also looking at the strength in the U.S. And is that -- do you think more product specific than market?

I think that is -- there's a good capital investment going on there at the moment. Again, probably some of the underlying manufacturing with the component side of it is maybe less. And we see some things going in, some things going out. So clearly, if you're a manufacturer that's going to be exporting, making stuff in the U.S., you may decide you're better off not making it there, which we have seen. Much of the complaints of our U.S. team. They're doing all the work and then moving the business to a...

It's Harry Philips from Peel Hunt. Just one question, please, on the order book. You talk a lot about the order book in the statement, but obviously didn't give us a number. So I'm assuming it's reasonably short cycle. I mean, in terms of the book-to-bill, given the revenue growth you've had in the period, can you at least give us an idea of where the book-to-bill might be against that? And then is it -- would it be right to assume that the order book is reasonably short cycle, maybe Additive Manufacturing apart or is that not?

It's not and it is. I think the one thing we would always put in as a caveat. So you're right with the Additive. On encoder, what we will see is when our customers start to get more stressed because they really think they've got orders coming through and they often don't find out until the last minute, they will start to put on call off orders and they'll give us a 12-month, 18-month order with predicted volumes, which will go on to our order book. Then they will cancel that extremely quickly if they change their mind, but they will also show it when they want to double that. So it's -- we look at the order book and it gives us a feeling, but you can't rely on it either.

We know that some of it will be -- will melt away.

I mean just precisely on that point, I suppose twofold is does that heat, if you like, give you a window around pricing? I mean, if you get extreme demands in terms of potential demand -- I suspect you don't want to sort of mess up online, but -- and then the second is how you plan your manufacturing around that?

Because clearly, if you sort of responded directly to those order flows, you could load your cost base. And then as you say, if you then get a cancellation, you're left with sort of stranded cost type stuff. So how do you sort of -- what's the very sure way of interpreting that sort of front end into manufacturing curve?

You say smooth as though it's anything but -- and normally when these things happen. So clearly, we're trying to work on very uncertain data, and we talk about many things, even if there's investment going in, the end customer may not decide on which supplier they want to use. Those suppliers may all be using our encoders somewhere, but they may be using different encoders from us. So you can't even say, okay, we know it's going to come. Let's make this because then this customer gets it and they want something different.

With us, it is just trying to make sure as much as possible long-term strategy is migrate customers to our latest technology. That's far more designed for automated assembly, so we can ramp up and then it's supply chain holding up for us to be able to respond. Safety stocks and when we look at it in terms of our invested capital, we are high there because we know this happens in the markets that we operate in, we have to deal with that.

So -- and then there's just a lot of panic that goes on to try and make everything happen as quickly as it can. It is on the more commoditized stuff and quite complicated of understanding because often we'll be -- we may even be dual sourced. So it's us and a competitor are both designed into a product and then it may be then who can supply better, quicker and whatever else.

I'll just add, we are also increasing our use of temporary labor in some parts of the supply chain for things like cables for encoders, which are -- there's a lot of them to be made, and we use more temporary labor in our plants in India.

Do you want to go first and then you've got...

Just have a quick follow-up -- not a follow-up, but a question on ERP. Could you perhaps provide an update in regards to how that's planning out in terms of phasing, strategy, sort of key milestones to come?

Yes, we can. So it's certainly been a challenge. We have -- having done a small -- our Canadian office, which went relatively smoothly. We've now done our most complicated U.K. center. We experienced an awful lot of challenges. I think it's fair to say we are through the worst of that now, but we still have a number of challenges that we want to make sure it are resolved and working smoothly before we roll this out further with Germany being our next company that will transfer over to D365. So yes, it has not been a pleasant experience and a lot of lessons have been learned.

On the tool builder market. It sounds as if Europe has been soft for a while. I was just wondering whether you're seeing any signs of green shoots as it relates to German stimulus spending in '26 and beyond? Or are those not apparent yet?

The last conversation I had was back at the end of last year with the head of a German machine tool company, and they were talking about this being a 5-year recession like they saw back in the '90s of a really tough time. I didn't think it was going to get any worse. it's really tough over there, domestic market, export market. It's -- and I think as we talked about, we've seen some of them being taken over. So yes, it's tough.

Lastly, could we touch maybe upon humanoids? There are some companies in the market, sort of traditional industrial companies with, let's say, less expertise in automation and robotics that have been talking about this quite a lot, and the financial market has rewarded them for it. Do you have a suitable product today that could serve that market? Do you have any existing relationships with humanoid OEMs? And do you view it as a potential opportunity, say, over the next 5 to 10 years?

Okay. So I thought the first thing is are we going to do a humanoid robot, which would be easy? No, no. We are definitely not going to do that. So the bit we are talking with some people around here is on the encoder, the retro encoder technology. In our view, probably this is going to end up being a quite commoditized low-end market and the price point they'll be looking at is not going to be attractive, and we've got better opportunities to go after. So it's something we look at, we'll monitor, but I don't see it being significant for us.

Rich Hill from Jefferies. I just a couple of questions just looking at margins. Looking at Position Measurement, obviously, you had one of the largest margin movements kind of out in the division. Just wanted to ask, you kind of talked about FX and the mix. Just whether there's anything else in there, perhaps more costs falling in there comparatively. And I guess to Bruno's question earlier with it perhaps normalizing, just how you kind of see that in the second half, whether kind of that bit of growth in the order book for the laser encoders will kind of offset it a little bit for the second half?

I'll take that. Yes. So I mean, I don't think we see anything sort of particularly different in terms of sort of cost base escalation going on in there. We did reduce costs slightly less in the position measurement sort of side of the organization and some of the other areas in the cost reduction process, but that was because we had some areas that we were really seeking to invest in and some of the emerging elements of the product line that we felt we wanted to allocate resource to. So it had a slightly lower proportionate, but we're talking 1% or so. It's not a huge factor in this. So no, the primary driver in the short term was mix, but we're seeing it's well into the 20s in operating margin and I think long term going in the right direction.

Okay. And then if I may, just chance to question looking at your kind of emerging products, and we've heard the kind of importance to your strategy going forward. Just in terms of margins, and I appreciate not specifics, but the assumption being that they're lower kind of margin to as they come in, as you gain that market share. But just looking at that kind of profile as they become more developed, I guess, what kind of time frame or any other details you could give us there would be great.

So do you mean in terms of gross margin, sorry, or bottom line?

Bottom line.

Okay. Yes. So if they're emerging, they are definitely ones that are not hitting our profitability targets. So at the moment, they're at different stages. So we have targets on when different ones should be getting into better stages of profitability. And ones like CMM engaging are far more established than some of the ones that we have just launched.

Chris, have we got anything online?

Nothing yet.

Okay. All right, then closing remarks.

Yes. So if there are no more questions, I guess in terms of overall, great to be back here in person. As I said at the start, it feels like a really good H1 set of results, still lots of uncertainty as there always is with us going forward in the short term. For me, I think the leading message would be on the medium to long term. If you look at the opportunities we have from the innovation engine and also the progress we're making on those emerging businesses and the focus areas that we have there, that's the excitement that is within the business and the excitement that should be around Renishaw. So thank you all very much.