## We are ## transforming ## tomorrow ## together ### Renishaw plc ### Annual Report 2023 ## About us ## We are ## a world leader in ## measuring and ## manufacturing systems ## Our products give high accuracy and ## precision, gathering data to provide ## customers and end users with ## traceability and confidence in what ## they’re making. This technology also ## helps our customers to innovate their ## products and processes. The front cover shows one of our people using Renishaw Central – our smart factory platform. See pages 10, 11 and 35 or our website for more information. # Why we do it We are guided by our purpose: Transforming Tomorrow Together. This means working with our customers to make the products, create the materials, and develop the therapies that are going to be needed for the future. We believe that our purpose is incredibly relevant in today's environment where the pace of change in technology is faster than ever. We also know that the future will be a world of scarce resources, needing high-performance, intelligent, personalised solutions that make the best use of these resources, and our expertise can help deliver this. Our vision is to innovate and transform the capabilities of our customers and end users through unparalleled levels of: Precision Productivity Practicality # How we do it While our vision sets our direction, our strategy is our route to getting there. We set out our strategy on pages 22 to 25. Our strategy supports our sustainable long-term growth by ensuring we have the agility and resources to identify and respond to opportunities in our markets. Our purpose, vision and strategy are supported by our values of innovation, inspiration, integrity and involvement. These values guide the way we behave and the decisions we make, both as a business and as individual employees. # Contents IFC About us 2 Renshaw at a glance # Strategic Report 6 Chairman's statement 9 Chief Executive's review 12 Investment case 14 Our products and where they are used 18 A history of innovation 20 Business model 22 Our strategy for creating long-term value 26 Key performance indicators 28 Financial review 32 Performance review 48 Risk management 52 Principal risks and uncertainties 60 Viability statement 62 Managing our resources and relationships 72 Task Force on Climate-related Financial Disclosures statement 85 Section 172 statement 89 Non-financial and sustainability information statement # Governance 92 Directors' Corporate Governance Report 94 Board of Directors 96 Executive Committee 103 Nomination Committee Report 108 Audit Committee Report 114 Directors' Remuneration Report 136 Other statutory and regulatory disclosures 139 Directors' responsibilities # Financial statements 142 Independent Auditor's Report 153 Financial statements contents 154 Consolidated income statement 155 Consolidated statement of comprehensive income and expense 156 Consolidated balance sheet 157 Consolidated statement of changes in equity 158 Consolidated statement of cash flow 159 Notes (forming part of the financial statements) 195 Company balance sheet 196 Company statement of changes in equity 197 Notes to the Company financial statements # Shareholder information 207 10-year financial record 208 Glossary 269 Shareholder information We use abbreviations and trademarks within this document. For privacy, we don't define or identify these every time they are used, please refer to the glossary on page 266 for this information. In our narrative commentaries in this report, as an example, P-05503 means the financial year ended 30 June 2023. Other dates in our narrative commentary, such as 2023, refer to the calendar year. Renshaw plc Annual Report 2023 Shareholder information 1 Strategic Report ## Renishaw at a glance ## Americas ## We are ## a global business ### We work closely with our customers around ### the world to solve complex engineering and ### science challenges and improve their products ### and processes. We operate in three regions: ### the Americas, EMEA and APAC. Most of our ### R&D and manufacturing takes place in the UK, ### and we have other major manufacturing sites ### inIreland and India. ### We have two operating segments: ### Manufacturing technologies, and Analytical ### instruments and medical devices. You can find ### an overview of these on pages 14 to 17. Key locations Worldwide employees¹ ### Our customers in Mexico benefit from ## 67 5,175 ### our technologies through each stage ### of their manufacturing process. They 2 Revenue Adjusted profit before tax ### expect support from us when they need it. ### Weunderstand their requirements and, as | £688.6m | £141.0m | a result, we have built strong relationships | | --- | --- | --- | | (FY2022: £671.1m) | (FY2022: £163.7m) | with them.” | | | Total dividend per share | Diego Barron | | Statutory profit before tax | forthe year | Product Manager, Mexico | | £145.1m | 76.2p | | | (FY2022: £145.6m) | (FY2022: 72.6p) | | Graduates and | apprentices employed | R&D expenditure | | | | --- | --- | --- | --- | | | | Total Americas revenue FY2023 | Americas locations | | 343 | £72.5m | | | | (FY2022: 296) | (FY2022: £59.4m) | £161.5m | 7 | (FY2022:£148.2m) Leo Somerville 1 As at 30 June 2023. 2 Note29,Alternativeperformancemeasures,defineshowAdjustedprofitbeforetax President, Americas is calculated. 2 Renishaw plc Annual Report 2023 Strategic Report ## EMEA APAC ### Although our head office is outside of APAC, ### our customers here know and trust that we can ### handle challenges and provide quality support. ### We provide a better service to customers ### by sharing know-how and collaborating with ### colleagues across the region with similar ### markets to Japan.” Hayata Hattori Applications Engineer, Japan ### To stand out from the competition, ### ittakesmuch more than just good ### products. Our customers deserve to ### be heard and understood. Our EMEA ### team respond to their needs and go ### above and beyond. The fast, reliable ### and comprehensive support provides ### a valuable basis of trustfor long-term ### customer loyalty.” Yvonne Fischer Business Development Manager, Germany | Total EMEA revenue FY2023 Total APAC revenue FY2023 | EMEA locations | | APAC locations | | --- | --- | --- | --- | | £216.5m | 22 | £310.6m | 29 | | (FY2022:£205.8m) | | (FY2022:£317.0m) | | Rainer Lotz Andy Buttrey President, EMEA President, APAC 3Renishaw plc Annual Report 2023 Strategic Report ## We are ## delivering our values ### Our values underpin our purpose of Transforming Tomorrow Together. They guide the way ### wedobusiness and how our employees act. They help our business to grow and evolve. ## Innovation Integrity ### We encourage our people to be innovative We will act with integrity at all times. ### and challenge convention. ## Inspiration Involvement ### We should aim to inspire each other, We encourage everyone to be fully ### ourcustomersandthepeoplewe involvedandtosupporteachotherin ### workwithoutsideofthebusiness. contributingtothesuccessofourbusiness ### andthecommunitiesweoperatein. w 4 Renishaw plc Annual Report 2023 ## Strategic ## Report 6 Chairman’s statement ## Celebrating our 9 Chief Executive’s review 12 Investment case ## values in action 14 Our products and where they are used To recognise and celebrate real-life examples of our values in action, we launched a competition where teams around 18 A history of innovation the world provided examples of how they are demonstrating our values. 20 Business model We selected one winning team for each of our four values, 22 Our strategy for creating long-term value andmadeadonationof£5,000(orlocalcurrencyequivalent) 26 Key performance indicators to a charity of that team’s choice. 28 Financial review Wereceived34entries,withjudgingcarriedoutbythe ExecutiveCommitteeandseniorleaders.Thefinaldecisions 32 Performance review were made by our Executive Chairman, Sir David McMurtry, 48 Risk management Chief Executive, Will Lee, and Group Finance Director, Allen Roberts. 52 Principal risks and uncertainties Total charity donation 60 Viability statement 62 Managing our resources and relationships 72 Task Force on Climate-related Financial Disclosures statement ## £20,000 85 Section 172 statement 89 Non-financial and sustainability informationstatement ### This new competition has been a fantastic ### way for the business to share success and ### celebrate how our people around the world ### demonstrate our values.” Diane Canadine Head of Group HR You can read about the competition winners on pages 90–91 and 140–141. Renishaw plc Annual Report 2023 5 Strategic Report ## Chairman’s statement ## We are ## reflecting on 50 ## years of success ### It’s a pleasure for me to use this opportunity ### tothank every one of our talented and inspiring ### people who have helped to make our business ### what it is today. Since co-founding Renishaw in 1973 with John Deer, I continue to be immensely proud of how far we have come. From the early days of production taking place in John’s family home (with dust seals made from the underlay of my carpets!), we have grown into a truly global and respected business. We’ve been pioneers and innovators on behalf of our customers throughout our 50 years. To play a part in this and to transform the capabilities of manufacturing – making the products, creating the materials and developing the therapies that are going to be needed for the future – is a true honour. This has been a year of celebration for the Board and me, and it has also been a year of revenue growth despite challenging market conditions. Throughout FY2023 we have continued to build upon our strategy and deliver our purpose ofTransforming Tomorrow Together. The Board, like our people, embodies our values of innovation, inspiration, integrity and involvement. As we continue to grow, it’simportant that we stay true to the principles that have ensured our success over the past 50 years. 50 years of innovation Innovation has always been central to what we do. Our products have revolutionised component manufacturing and scientific research, helping to make the high-performing, precision products that we all use in our daily lives. Each year we launch new products, and this year has been no different. We’ve released innovative new products for smart factories and robot metrology and introduced new technologies to strengthen our established product ranges. Will Lee, our Chief Executive, shares more details on pages 9 to 11. ## This year marks a significant I am a passionate engineer, and it’s a privilege to continue ## milestone in Renishaw’s working on product developments that will transform our customers’ capabilities. This year, I have worked ## history as we celebrate closely with our Additive Manufacturing (AM) team on our next-generation machine. To be involved in, and directly witness, ## our 50th anniversary.” thetechnological advancements our engineers make, means every day is very exciting. Sir David McMurtry Executive Chairman 6 Renishaw plc Annual Report 2023 Strategic Report 50th anniversary celebrations in Taichung, Taiwan. Inspiring each other, our customers This year we held an externally-facilitated Board evaluation which highlighted that the Board is working effectively. It found andourcommunities that meetings were conducted with a good dynamic, facilitating Last year, I talked about how embedding and communicating challenge but also encouraging the effective contribution of the our values are of particular importance tothe Board. whole Board. It also highlighted our culture of trust, openness To demonstrate that importance, we launched a new annual and debate. global values competition this year to encourage employees Following feedback from investors, including at our Capital toshare ways in which they have exemplified our values Markets Day, the Board has also this year reviewed our throughtheir work. approach to investor relations, and we will be looking at how The competition was a great success, and I was delighted wecan increase engagement with investors over the next year. to review the entries from across the business with my fellow Involvement of all our people is key to success Executive Directors. More information about the competition can be found on pages 90 to 91, and 140 to 141. As part of Equality, Diversity and Inclusion (EDI) remains an important the contest, each winning team chose a charity to receive a area of focus for the Board. We pride ourselves on our open £5,000 (or local currency equivalent) donation. So, through our and collaborative culture. This year, we were pleased to values, we also aim to inspire our local communities by making appoint a dedicated EDI Lead, who will be instrumental in the adifference to people’s lives. development of our global approach to EDI. This will help us provide an inclusive, rewarding environment for all our people. We want to share our success with the communities where we operate, who have been highly supportive of our growth. I am delighted to welcome Professor Karen Holford CBE to the Therefore, as part of our anniversary celebrations, the Board Board as a Non-executive Director with effect from 1 September wasdelighted to approve a ‘50 at 50’ charity initiative. During 2023. Karen brings extensive experience with her strong our 50th year, we will donate £150,000 to 50 not-for-profit background in engineering research and development. A Fellow organisations in our local communities. of the Royal Academy of Engineering, Karen received a CBE for services to engineering and the advancement of women in Integrity is at the heart of what we do engineering in 2017, and her appointment also enhances the Our ambition to be more sustainable is testament to how we diversity of views we have on the Board. put integrity at the heart of our business. It is also central to our We acknowledge that we still have a way to go as a business. purpose as we work closely with our customers to help them on In appointing Directors, the Board considers diversity at all their own sustainability journeys and are focused on promoting stages of the process while being mindful that the right person the sustainability benefits that our products offer. For example, for the long-term success of the Company should be appointed. as I have seen first-hand in my work with the AM team, this The Nomination Committee continues to take diversity in all its technology has the potential to reduce energy and material forms into consideration when considering Board succession consumption compared to traditional subtractive manufacturing. plans in FY2024. We are also playing our part in creating a sustainable future. To improve involvement across the business, we also This year we have made excellent progress in reducing our reorganised our existing product groups during the year. environmental impact. You can read more about our approach We believe this will bring synergies between teams and tosustainability and Net Zero ambitions on pages 68 to 80. technologies and simplify reporting to the Board. We are also We expect our employees to always act with integrity. To support currently reviewing succession plans throughout the business. this, we are currently working on our new Code of Conduct which we will launch globally in FY2024. This will apply to our employees, customers and suppliers. It will provide guidance ondecision-making and behaviours and bring all our key ## policies and compliance expectations together in one place. We pride ourselves on our ## open and collaborative culture.” Renishaw plc Annual Report 2023 7 Strategic Report ## Chairman’s statement continued Celebrating 50 years The Board met eight times this year Our anniversary year has given us a wonderful opportunity to Highlights include: celebrate. Throughout 2023, employees across the world have taken part inlocal events and activities to mark the occasion. – approving significant investments to create sustainable From dressing up in 1970s clothing to family open days, it’s long-term growth. This included agreeing significant beenfantastic to see our people come together and celebrate. capital expenditure on manufacturing equipment to both increase capacity and improve productivity; This year also marked the anniversary of the opening of several – approving the appointment of Professor Karen Holford CBE of our global subsidiaries including China, who are celebrating as a Non-executive Director; 30 years in the market, and Austria, Canada, Hungary, Israel and Sweden which are each marking 20 years. – overseeing the Executive Committee’s progress of our strategy and objectives. This included attending regular It’s been wonderful to reflect on and celebrate our success, ‘show and tells’ from our product development teams; but we wouldn’t be where we are today without our customers, – monitoring the progress of our flagship product suppliers and other stakeholders. We’ve had close relationships development. These are the products that we expect with many of them for most of our history and they continue to tobemost commercially or strategically important; support us today. – progressing our work to achieve Net Zero, including We’ve achieved a great deal over 50 years. I would like to approving our commitment to reduce our Scope 3 thankeveryone who has been a part of Renishaw’s story and emissions by 50% by 2030; I’mproud of thedifference we continue to make to the world. – participating in an externally-facilitated Board evaluation, It’s important to look back and mark these milestones, but we which helped us evaluate our progress since last year. have always been focused on the future. So, as we move into This confirmed that we have made good progress against our sixth decade, I am eager to see what Renishaw and our our FY2022 evaluation actions and gave us a greater customers will accomplish next. appreciation of the Board’s positive dynamic, and culture of openness and trust; and Sir David McMurtry – engaging with employees around the world, including Executive Chairman visits to our facility in Pliezhausen, Germany, and our manufacturing site in Miskin, Wales. The Non-executive 18 September 2023 Directors also featured in a global employee video to talk about their roles in the business and the function ofthe Board. | 50th anniversary | 50th anniversary | | --- | --- | | celebrations in | picnic at | | Pune, India. | NewMills, our | headquarters in Gloucestershire, UK. 8 Renishaw plc Annual Report 2023 ## Chief Executive’s review Strategic Report ## We are ## continuing to pursue our ## long-term growth strategy ### I’m pleased to look back on a year in ### which we’ve made further progress, as we ### continue to fulfil our purpose, execute our ### strategy, andinvest in our long-term success. ### We’veachieved 3% revenue growth at ### actual exchange rates, although this was ### a1%reduction at constant currency. We delivered good growth in systems sales, one of our strategic priority areas, which was offset by weaker demand for optical encoders from the semiconductor sector. Our performance demonstrates the resilience of our business model, our excellent position in attractive markets, and the hard work and dedication of our teams around the world. Our purpose of Transforming Tomorrow Together remains central to everything that we do. We continue to work closely with our customers, helping them to create the products, materials and therapies of the future. We play a leading role in the transition towards a sustainable future in which manufacturing processes are increasingly efficient, automated and self-governing. Group performance Total revenue this year was £688.6m, compared with £671.1m in FY2022, with both our operating segments delivering growth. While this is record revenue for the Group, at constant currency rates our revenue was 1% lower than last year. At actual currency rates we had growth in the EMEA and Americas regions but saw a small reduction in the APAC region. ## In challenging trading We introduced targeted price increases in H1 FY2023 which have contributed to the revenue growth. ## conditions, our performance Our Manufacturing technologies segment delivered 2.2% ## demonstrates the resilience revenue growth. There were notable advances for our REVO 5-axis co-ordinate measuring machine (CMM) inspection ## of our business model, our systems, additive manufacturing (AM) machines, and machine calibration solutions. By contrast, we have seen lower capital ## excellent position in attractive investment in the key semiconductor market this year. This has reduced demand for our open optical encoders, most notably ## markets, and the hard work inthe APAC region. ## and dedication of our teams Meanwhile, our Analytical instruments and medical devices segment delivered 10.5% revenue growth. Our Spectroscopy ## around the world.” product line achieved record revenue, with growing research and industrial applications for Raman spectroscopy, while our Will Lee Neurological product line also grew. Chief Executive Renishaw plc Annual Report 2023 9 Strategic Report # Chief Executive's review continued This year's Adjusted® profit before tax was £141.0m compared with £163.7m last year. Adjusted® earnings per share was 155.1p compared with 185.5p last year. Adjusted measures are the ones we use as a Board to measure our underlying trading performance. Statutory profit before tax was £145.1m compared with £146.8m last year, leading to Statutory earnings per share of 159.7p compared with 165.4p last year. Profits felt this year due to a combination of modest revenue growth and inflationary increases in our labour costs and expenses. For more details, see the Financial review on pages 28 to 31. ## Strategic progress Innovation has always been the lifeblood of our business, and we continue to focus on developing new solutions for emerging customer needs. We have grown our R&D teams, and increased total engineering expenditure by 14.8%. This year, we've introduced new products to strengthen our market-leading product ranges. These include the RMI-QE machine tool radio transmission system (see page 37), and inLux scanning electron microscope interface for our Raman spectrometers (see page 45). We have a strong pipeline of significant new products under development, which we will introduce over the next few years. The use of industrial robots is accelerating as manufacturers automate work handling, fabrication, and assembly operations. This year, we launched our new Industrial Automation product line to enhance the accuracy and productivity of industrial robots. Our new products enable rapid robot cell installation, and reduce the time taken to recover from unplanned stoppages from several days to just a few minutes. We can also compensate for errors in a robot's motion. This improves positioning accuracy so that robots can be used for higher precision tasks. We are excited about our prospects in this high-growth market. Over the years we've pioneered in-process control of machining processes, helping manufacturers to minimise waste and boost productivity. We are now taking this a step further with Renshaw Central, our new smart factory software platform Central consolidates actionable data from almost any shop-floor metrology device, enabling fast, robust process control feedback. This means we can help customers improve process outcomes, rather than simply monitoring them. We believe this is a major step towards autonomous manufacturing. Our global sales and marketing teams support our customers' success around the world. Our metrology probes and position encoders are primarily sold via machine builders and distributors, and our priority here is to boost fitment levels and gain market share. For example, our open optical encoders are being designed into a wide range of manufacturing equipment in the automotive, semiconductor, robotics, and automation sectors. Meanwhile, more than 100 machine tool builders have evaluated our FORTIS enclosed optical encoders and a growing number of early adopters are fitting them to machines being produced in volume. We also supply complete machines and software, mostly sold direct to end users, and serviced by our global teams. We have significant opportunities to gain market share in substantial, high-growth markets, so our priority is to grow these products towards market leadership positions. Shop-floor metrology systems are a key growth area for us. We've been particularly successful this year with our AGILITY CMMs equipped with REVO 5-axis systems, where we have gained repeat sales from key customers in the automotive, aerospace and consumer electronics sectors. Our unique combination of rapid scanning and multi-sensor measurement, including optical and ultrasonic sensors, enables complete inspection in a single automated process. We've also increased sales of Equator flexible gauges for electric vehicle (EV) applications. ![img-0.jpeg](img-0.jpeg) ◀ This year we introduced a new Industrial Automation product line to enhance robot precision. * Note 28, alternative performance measures, derives from Adjusted profit before tax and Adjusted earnings per share are measured. 10 Renshaw plc Annual Report 2023 ![img-1.jpeg](img-1.jpeg) ► We've gained repeat sales from key customers for our REV3 3-axis CMM inspection systems this year. It's been a similar story for our RenAM family of multi-laser AM machines this year, with growth of repeat sales to the medical and consumer electronics sectors. Meanwhile, our Spectroscopy business has seen rising sales of the Virsa Raman analyser, which takes research-grade materials analysis out of the lab and onto the factory floor. Our in-house manufacturing is also critical to our success, giving us the flexibility to meet changing demands, while maintaining our exacting standards. The current inflationary environment makes it essential that we improve our productivity, so we can absorb higher costs while remaining price competitive. We continue to upgrade our machine tools and expand our automated encoder assembly systems, which will enable us to rapidly ramp production up and down to track cyclical demand. We've also been running Renshaw Central in our machine shops over the last year, reducing our own unplanned stoppages and batch changeover times. Meanwhile, we are making our biggest ever capital investment. We are progressing well with building works at our site in Mokin, Wales, that will, in a phased manner, increase our manufacturing floorspace by 50%, giving us room to grow in the years ahead. #### Sustainability Sustainability is at the heart of our purpose, and we are committed to making our entire business Net Zero by no later than 2050. We've made good progress on our plan, reducing greenhouse gas (GHG) emissions relating to our own operations and purchased energy, by 21% in FY2023 (see page 68). A major focus this year has been our work towards fully: quantifying the emissions relating to our supply chain and the distribution and use of our products, known as Scope 3 emissions. We estimate that these accounted for 97% of our total carbon emissions in our baseline year (FY2020). We are targeting a 50% reduction in these emissions by 2030, and will publish our full climate transition plan next year. #### People Sir David has already acknowledged the tremendous contribution our employees have made this year and throughout the past 50 years. I'd also like to add my own thanks for everything they've done to drive us forward towards our vision to innovate and transform the capabilities of our customers. To pursue our purpose of Transforming Tomorrow Together, we need to attract and develop outstanding people. We are focused on modernising our approach to pay and reward, improving our performance reviews, and supporting career development to help our people fulfil their potential. We've increased our average pay by around 10.2% in FY2023 compared to FY2022, excluding other factors, such as headcount growth. Our global voluntary turnover rate has fallen from 10.7% to 6.8% this year. We've responded to slowing customer demand for our optical encoders this year by reducing direct manufacturing headcount through non-replacement of leavers. We continue to take a long-term view for success, and our early careers programmes provide a vital pipeline of new talent to maintain and grow our teams. As of 30 June 2023, we employ 343 apprentices and graduates and in FY2023 we took on 45 industrial placement students. #### Outlook FY2023 has seen mixed conditions for our markets. Demand for most of our product lines has risen, with good growth in systems sales, but the semiconductor equipment sector has been notably weaker this year. We have seen a steady start to FY2024 and our order book remains solid. We continue to see positive trends for investment in low emission transportation, defence, additive manufacturing and robotics. Meanwhile, demand from semiconductor equipment suppliers for position encoders remains subdued. While the short-term macroeconomic picture remains unclear, we continue to manage costs prudently, we are implementing further price rises, and remain focused on improving our productivity. I'm confident in our strategy and the actions we're taking to deliver sustainable long-term growth, including our investments in people, infrastructure and product innovation. #### Will Lee Chief Executive 18 September 2023 Renshaw plc Annual Report 2023 11 Strategic Report ## Investment case ## We are ## creating a sustainable, ## autonomous future ### We pursue innovation-led ## Global Proven ### growth in attractive markets ## presence innovators ### that are driven by key | globaltrends. | We have a global network of sales | Innovation is part of our heritage and | | --- | --- | --- | | | and support offices. This helps us | culture, and we’ve been transforming | | We’re a leader in many of our | access and support local markets, | technology for 50 years. We’ve always | | | and build trusted relationships | understood the value of our intellectual | ### markets, with diversification | | with our customers. Our global | property, holding nearly 1,800 patents. | | --- | --- | --- | | opportunities in high-growth, | presence means that we can support | We reinvest a significant proportion | | | demand wherever it arises, helping | of our revenue into engineering, | ### close-adjacent sectors. us to respond to changing global including R&D, to deliver a pipeline ofinnovative new products. ### We take a long-term approach, supply chains. Our technology delivers precision, ### focusing on product innovation, Our manufacturing sites in the UK, productivity and practicality to Ireland, and India, alongside our ### cost-effective in-house customers, and helps them to global purchasing teams, make ### manufacturing, and building innovate and transform capabilities usresilient to supply challenges. in manufacturing and healthcare. ### trusted relationships with We also apply innovation to our own ### ourcustomers. processes, developing automated machining and robotic assembly processes. This ensures we can manufacture high-quality products withhigh profit margins. . 12 Renishaw plc Annual Report 2023 Strategic Report ## Market Strong financial Sustainable ## opportunities record business Our product development is driven by Our in-house innovation and Our products allow our customers strong market opportunities and key manufacturing approach allows us to to improve their manufacturing global trends, including: generate high gross profit margins, efficiencies and develop efficient which we can reinvest to grow the new products, supporting them as – skills shortages driving business. We’ve primarily grown they build a more sustainable future. demand for automated, organically and financed this growth We expect these demand drivers intelligent manufacturing; with our own reserves. tocreate strong growth opportunities – rising energy and material costs asbusinesses develop their approach We have a robust balance sheet, increasing the need for higher to sustainability. with significant cash reserves to fund performing products and efficient future growth. Our focus on the long term means manufacturing processes; we have always worked hard to – rapidly upgraded semiconductor This solid financial base has also develop sustainable operations. manufacturing equipment to meant that we can focus on taking We self-generate 11% of our electricity support new computing and a long-term view and helps us to consumption and purchase most communications technologies; weather shorter-term economic of our remaining electricity from challenges. It also supports our – relocation of manufacturing as renewable sources. Our Net Zero progressive dividend policy. companies seek to secure their commitments promise that we will supply chains; and goeven further. – an ageing global population needing innovative new healthcare therapies. Renishaw plc Annual Report 2023 13 Strategic Report ## Our products and where they are used ## We are ## transforming ## tomorrow together ### Over the next four pages we illustrate typical environments in which the products from our two ### segments (Manufacturingtechnologies and Analytical instruments and medical devices) are used. ### We also explain the applications for those products. Below is a graphic of a machining facility ### withinwhichmanyofour Manufacturing technologies would be present. 2 5 3 4 | Equator 500 | TONiC super- | REVO 5-axis | Build chamber for | | --- | --- | --- | --- | | gauging system. | compact | CMM inspection | RenAM 500Q additive | | | optical encoder. | system. | manufacturing system. | 5 3 7 2 4 6 7 1 1 RCS T-90 robot diagnostic system, fitted in a working robot cell. OSP60 on-machine 6 probe with SPRINT technology. QC20 ballbar diagnostic tool. 14 Renishaw plc Annual Report 2023 Strategic Report ## Industrial Metrology 2 ## Manufacturing Our Industrial Metrology hardware and For applications where different batches ## technologies software solutions allow manufacturers of parts are produced, a flexible and to precisely measure machined parts, easy-to-use part measurement system is ### This segment consists of four generate inspection reports, and control essential. Our Equator gauging system ### areas: Industrial Metrology, the performance of production machines. can be used on the factory floor next to CNC machines to inspect parts at ### Additive Manufacturing, We design and make a range of speed and feed back data to keep ### Position Measurement and technologies that allow customers to processes within tolerance. Hundreds of make measurements at the most suitable ### the new Industrial Automation manufacturers worldwide are replacing point in a production process – either traditional custom gauges and manual ### line. Across these areas we directly on the machine, on the shop floor, measurement devices with our flexible or in a separate quality lab. ### provide our customers with Equator system. ### technologies tomaximise their 1 Find out more about our Equator gauging systems. ### manufacturing capabilities. Computer numerical control (CNC) machines enable consistent automatic ### Our hardware and software machining of features using different We also provide systems for CNC ### solutions help tocreate more cutting tools to remove material. machine performance measurement and ### efficient, sustainable and calibration, ranging from regular health Our probes are used on CNC machine checks through to in-depth analysis and ### innovative factories. tools before machining to set up the calibration tools. These systems ensure machine and locate material, and to that the repeatability and accuracy of a ### Here we explain how the measure cutting tools. During or after CNC machine is maintained throughout machining, they check that parts are ### different technologies you see its life. being produced as expected. They also ### in the graphic opposite are generate data that allows the process Find out more about our to be monitored and self-corrected, or machine diagnostics and ### used by our customers. they can prompt for human intervention. preventative maintenance. Our software allows probes to be used for a wide range of applications on machines from multiple manufacturers. Integrated probing dramatically cuts manual intervention and reduces the skills needed to support CNC machining processes. Our technologies automate these processes and control the quality output. Find out more about our SPRINT technology for CNC machine tools. Renishaw Central is our smart manufacturing data platform that collects, presents andactions accurate process and metrology data. Renishaw plc Annual Report 2023 15 Strategic Report ## Our products and where they are used continued AM is used to produce complex shapes 3 that cannot be made by traditional A co-ordinate measuring machine (CMM) manufacturing, such as machining. is used to monitor quality and identify Find out more about our process problems. CMMs measure the AM solutions. dimensions of a manufactured part using a contact probe or other sensor. ## Position Measurement CMM inspection is an important part of the manufacturing process. Machines for high-precision Measuring machined parts ensures manufacturing need accurate position they conform to design specifications, data to create and align features and including feature size, position, form and components. Our encoder and calibration surface finish. technologies give manufacturers this CENTRUM bolted disc with an ATOMDX encoder, our smallest incremental optical precise feedback to enable motion We offer market-leading CMM multi- encoder series. controland allow automated operation. sensor systems using contact and non-contact measurement. Our software 6 5 tools allow measurement planning, data Our calibration systems are used by collection, data presentation and analysis. An encoder is a device that converts machine builders and users of precision linear or rotary motion into an electrical We also sell styli, the part of the contact machinery to ensure machines are signal that provides accurate and probe measuring system that touches the working as intended. immediate feedback on position, measured parts, and fixtures that secure speedand direction of motion. They can be used at different times the parts in place on the CMM. including during the construction of a We design and manufacture optical and Find out more about our machine, in a working machine before laser encoder systems, while our joint CMM technologies. a process starts, during a machining venture, RLS, designs and produces process to diagnose errors, or as part magnetic encoders. ofongoing machine maintenance. 4 These devices are used for very small Find out more about our units of measurement in a variety of machine calibration and ## Additive applications, including the assembly and optimisation systems. manufacture of flat panel displays, factory ## Manufacturing automation, CMMs and surgical robots. Additive manufacturing (AM), also 7 Find out more about our motion known as 3D printing, is the creation control solutions. Robots are used throughout production of components by building up layers processes to minimise errors, increase of material. Our AM machines use production speed, reduce costs, and laser powder-bed fusion technology. enhance safety. This works by spreading a thin layer of metal powder, and then using lasers to Our new Industrial Automation products selectively melt sections of the powder. bring our metrology solutions into the This is repeated, with each layer built world of robotic manufacturing cells. ontop of the one before it, to build up We are focused on developing products ahigh-strength solid metal part. that provide fast and easy robot set-up RenAM 500Q AM machine. and recovery, and introduce in-process metrology for improved accuracy within automation cells. Find out more about our range of industrial automation solutions. You can read more about our Manufacturing technologies in the Performance review on pages 32–41. 16 Renishaw plc Annual Report 2023 Our products are used for R&D Strategic Report ## Spectroscopy ## Analytical and in-field analysis in many diverse We sell high-performance Raman areas from engineering new materials, ## instruments and spectroscopy systems which are used monitoring chemical processes and in a laboratory or in-situ to analyse the optimising battery performance, to ## medical devices chemical and structural properties of early-stage cancer detection and sample materials. cultural heritage. ### This segment consists inLux SEM Find out more about ### of Spectroscopy and 1 Raman interface. Raman spectrometers. ### Neurological, where we ### supply our customers with ### innovative technologies to ### improve materials analysis ### andneurological therapies. ### Our customers in this segment ### tend to be end users of our 1 ### technologies working in ### healthcare and academia. ### Customer engagement and ### support is a key differentiator ### for us and we can configure ### our products according to ### different needs. ### Here you can see example ### environments in which our ## Neurological 3 ### technologies could be used – Our neurological solutions focus Drug delivery ### a laboratory (right) using our on neurosurgery, where we mainly Our drug delivery product focuses on the ### spectroscopy systems and an sell to hospitals, and a drug direct delivery of therapies to target areas delivery system which we sell to ### operating theatre (below) with within the patient’s brain for the treatment pharmaceutical companies. of conditions such as Parkinson’s ### our neurological products. disease. Drug delivery continues to be 2 an area of investment for us with an aim to provide a strong revenue stream from Neurosurgery consumable products. Includes our neuromate stereotactic robot and neuroinspire surgical planning neuroinfuse drug 3 software. These products are used delivery system port for procedures such as tissue biopsy, and application set. deep-brain stimulation (DBS) and stereoelectroencephalography (SEEG). neuromate 2 stereotactic robot. Find out more about our neurological products. 2 3 You can read more about Analytical instruments and medical devices in thePerformance review on pages 42–47. Renishaw plc Annual Report 2023 17 Strategic Report ## A history of innovation ## We are ## celebrating fifty ## years of innovation ### Our company was established 1973 Renishaw Electrical Ltd registered. ### in 1973 by Sir David McMurtry, | | 1973 –1983 | | TP1, the first probe for co-ordinate | | --- | --- | --- | --- | | Executive Chairman, and | | | measuring machines, made | | JohnDeer, Non-executive | | | commercially available. | | Deputy Chairman. | | 1977 First dedicated probe for machine | | tools – enabling automated setting In 1972, Sir David invented our very first and inspection. product, the touch-trigger probe, to solve a dimensional measurement problem for 1979 Start of our early careers the Olympus engines used in Concorde. programme with the first apprentices employed (our Since then, our people have helped sponsored student scheme started design and develop a host of precision in 1984). instruments that have transformed the manufacturing and healthcare industries. 1981 International expansion, with a The first touch-trigger probe and patent. manufacturing facility in Ireland We are proud of that legacy and are | committed to continue that track record | | and the first sales subsidiary, | | --- | --- | --- | | by realising our purpose to transform | | Renishaw Inc, established in | | tomorrow together. | | Chicago, USA. | | Here we take a look back at just some | 1983 Flotation on the London Stock | | | of the key moments from our history. | | Exchange’s Unlisted Securities | Market (full listing in 1984). Our first intake of sponsored students. 1987 First laser interferometer system – transforming the speed and ## 1984 –1993 accuracy of machine calibration. 1989 Introduced the first range of encoder readheads and interfaces. 1991 QC10 ballbar system launched, enabling rapid analysis of machine tool positioning performance. 1991 Raman microscope introduced to provide detailed chemical and structural characterisation. RAMTIC. 1992 Introduced Renishaw’s Automated Milling, Turning and Inspection Centre (RAMTIC) – an in- house system still in use for component production. 18 Renishaw plc Annual Report 2023 1994 – 2003 1995 First laser scale system introduced. 1997 1,000 employees worldwide. 2000 Global revenue reaches £100 million. 2003 Largest international expansion in one year, opening offices in Austria, Canada, Hungary, Israel and Sweden. ![img-2.jpeg](img-2.jpeg) ▲ Our office in Canada in 2003. 2004 – 2013 2005 Launch of our REVO 5-axis measurement system, enabling a 10x increase in tactile measurement speeds. 2007 Entered the neurological market. 2011 Gauging and additive manufacturing products introduced. 2011 Miskin manufacturing site purchased in Wales. 2013 Metrology fixtures products introduced. ![img-3.jpeg](img-3.jpeg) ▲ Our Equator gauging system. 2014 – 2023 2018 Launch of our RenAM 500Q multi-laser additive manufacturing system. 2019 5,000 employees worldwide. 2021 Record year for UK graduate and apprentice opportunities – 96 graduates and 80 apprentices. 2021 Launched the FORTIS range of next-generation enclosed linear absolute encoders. 2022 Announced detailed Net Zero emissions commitments. ![img-4.jpeg](img-4.jpeg) ▲ We now have more than 5,000 employees worldwide. “ This is a year to reflect on the tremendous achievements of our co-founders and employees past and present, and to look forward with confidence to future decades of innovation and growth.” Will Lee Chief Executive Rentshaw plc Annual Report 2023 19 Strategic Report ## Business model ## We are ## solution providers ### We work with our customers to understand their technological challenges, then design, ### manufacture and sell innovative products and processes to solve them. ### Our business model helps us focus our resources and make the most of our strengths ### todelivervalue for all our stakeholders. ## Our resources Customer People Supplier Research Financial ## relationships relationships & development resources V a ## l u ## e ## c ## We’re able to invest in Our 5,175 talented Our global and local Our strong IP portfolio We’ve funded r e ## a ## t i ## long-term relationships people around the suppliers provide us and significant our growth and o ## n ## with our customers. world are committed to with the high-quality commitment to infrastructure by a ## n ## This helps us to delivering our purpose, components and R&D expenditure reinvesting our profits. d ## understand their needs vision and strategy. materials we need, helps set us apart We also have a strong c ## o ## and design solutions to as well as supporting from competitors cash position, helping m ## solve their challenges. our infrastructure and and delivers long- us to fund future p ## e operations. We build term value. development and ## t ## i ## long-term relationships deliver our strategy. t ## i ## v and many of our ## e suppliers have ## a ## grown with us. d ## v ## a ## n ## t ## a ## g ## e ## Delivering value for... | Our customers | Our people | Our communities | | --- | --- | --- | | – £100.6m spent on developing | – £278.8m in salaries, bonuses, social | – Ongoing education outreach | | new products and improving our | security and pension contributions. | initiatives in countries such as Brazil, | | existing products. | | India, Mexico, UK, and USA. | – Introduced a new job architecture allowing | – 67 key locations worldwide providing | us to align jobs globally based on types of | – £0.3m in charitable donations during | | --- | --- | --- | | local customer support and technical | work. This will provide our employees with | the year. | | expertise. We recently opened a new | clearer career pathways and will improve | | Our planet | technology centre in Bangalore to | retention and development. | | | --- | --- | --- | | support our growing customer base | | – 21% reduction in our market-based | | | Our suppliers | statutory greenhouse gas emissions | in India. – £47.0m committed to global capital compared to FY2022. Our shareholders expenditure projects. – Self-generating 11% of our global – Total dividends of £55.5m for the – 493 global suppliers for direct goods and electricity consumption through year, an increase of 5% from FY2022. services to UK manufacturing operations. renewable sources. 20 Renishaw plc Annual Report 2023 Strategic Report ## V a ## l u ## e ## c ## r e ## a ## t i ## o ## n ## a ## n ## Our resources d ## c ## o ## m ## p ## e ## Customer needs t ## i ## t ## i ## We work closely with our v ## e customers to understand ## a the challenges they face in ## d ## manufacturing, materials v ## analysis and healthcare. a ## n ## t ## a ## g ## e Routes to market Innovative engineering We have local support and Using this understanding from technical experts based our customers and world- inour main markets, helping class engineering, wedesign us to respond quickly to innovative productsthat solve ourcustomers’ and end these problems andprovide users’ needs. precision, productivity and practicality. ## Delivering value for... High-quality manufacturing We then manufacture these products ourselves. This gives us control over their quality, cost and delivery. Renishaw plc Annual Report 2023 21 Strategic Report ## Our strategy for creating long-term value ## We are ## led by a solid strategy ### Our strategy ensures we have the agility and resources to identify and respond to opportunities ### in our markets by focusing on four key strategic pillars: sales and marketing, engineering, ### manufacturing, and corporate services. These pillars are underpinned by our people and ### cultureand our sustainability approach, including our commitment to Net Zero. Our strategy ## Manufacturing technologies see pages 32 to 41 for the Performance review ## Analytical instruments and medical devices see pages 42 to 47 for the Performance review ## Engineering ## Manufacturing ## Corporate services ## Sales and marketing ## People and culture ## Our sustainability approach 22 Renishaw plc Annual Report 2023 Strategic Report ## Sales and marketing Manufacturing What we do What we do ### Support our customers’ success Deliver quality products through ### aroundtheworld cost-effectivemanufacturing Our priorities Our priorities – Ensure that we provide expert and quick customer – Maintain our quality standards. support, aligning our sales and support teams with – Ensure we have the capacity and inventory to thelocations where our customers are located. respondtochanges in demand. – Maximise our opportunities in high-growth markets, – Enhance our productivity to make better use of suchas semiconductor manufacturing equipment, existingresources and maintain gross profit margins. robotics and additive manufacturing (AM). – Invest in our factory capacity to support our – Expand our sales of shop-floor metrology systems, long-term growth. bothdirect to key end users and through distributors. – Enter close-adjacent markets with non-substitutional new products, such as enclosed encoders for machine tools. Our progress Our progress – Added new technical support facilities in India to support – Rebuilt inventory levels following recent supply chain customers as they increase their supply chain security. disruption. Bringing delivery lead times down to target levels and building resilience in readiness for future – Built a growing list of customers using multiple AM demand increases. machines in series production applications. – Some inventory levels are currently above target and – Achieved good growth of our REVO 5-axis co-ordinate will be progressively reduced for certain components measuring machine (CMM) systems into the automotive, over the next year, while retaining resilience for future aerospace and consumer electronics sectors. demand increases. – More than 100 machine tool builders tested FORTiS – Implemented automation projects in high-volume enclosed encoders, and FORTiS incorporated into assembly and machining operations, reducing direct regularproduction with several early adopters. labour requirements and quality costs. – Started construction of additional factory space at Miskin, Wales, with the first hall due to complete in December 2023. This will help us expand manufacturing capacity in our growing CMM systems, enclosed encoder and AM products. | Link to KPIs | Link to KPIs | | --- | --- | | Revenue (£m) | Revenue (£m) | | Adjusted profit before tax (£m) | Adjusted profit before tax (£m) | | Statutory profit before tax (£m) | Statutory profit before tax (£m) | | Read more on page 26 | Read more on page 26 | | Link to risks | Link to risks | | Our relevant principal risks for this area are marked SM | Our relevant principal risks for this area are marked M | | onpages 52 to 59. | onpages 52 to 59. | Renishaw plc Annual Report 2023 23 Strategic Report ## Our strategy for creating long-term value continued ## Engineering Corporate services What we do What we do ### Develop innovative products and processes Enable an efficient, intelligent ### andresponsible business Our priorities Our priorities – Complete our flagship product development projects – Ensure that we meet our legal, ethical on time. These are the products that either bring faster andregulatory obligations. revenue benefits or are strategically important to us. – Improve our IT systems and infrastructure to help – Continue to invest in new and disruptive technologies. our people work more efficiently, and to enhance our cyber security. – Introduce non-substitutional new products to enable diversification into close-adjacent markets. – Embed sustainability into our business strategy and operations. – Expand our research teams in key areas, such as materials science, artificial intelligence, and application- – Manage risks effectively within our risk appetite, focusing specific integrated circuit (ASIC) design. on sustainable growth. Our progress Our progress – Launched new RMI-QE radio transmission system for – Strengthened ‘Responsible Renishaw’, our global our market-leading machine tool probing range (see compliance brand, with consolidation of our policies into page 37). a new Code of Conduct. This will be introduced globally in FY2024. – Launched Renishaw Central, a new smart factory software platform, which has already proven its value in – Planned a phased implementation of Microsoft Dynamics our own factories. 365 to streamline customer-facing and back office business processes, with initial deployments due – Introduced our new Industrial Automation business, in FY2024. based on novel techniques researched by our Group Technology team. – Scoped a new Global Supplier Compliance Portal as a single source of information for supplier performance – Continued to invest in growing our research teams, in areas such as modern slavery, product safety increasing engineering headcount by 4% to pursue long- and sustainability. term growth opportunities. – Expanded ASIC design team to develop devices to enhance the performance of key products. Link to KPIs Link to KPIs Total engineering costs (£m) Adjusted profit before tax (£m) Adjusted profit before tax (£m) Statutory profit before tax (£m) Statutory profit before tax (£m) | Read more on pages 26 to 27 | Read more on page 26 | | --- | --- | | Link to risks | Link to risks | | Our relevant principal risks for this area are marked E | Our relevant principal risks for this area are marked CS | | onpages 52 to 59. | onpages 52 to 59. | 24 Renishaw plc Annual Report 2023 Strategic Report ## People and culture Our sustainability approach What we do What we do ### Provide a great place to work, Support the transition to a sustainable future ### growandcontribute Our priorities Our priorities – Ensure that we offer competitive pay and benefits, – Make our business Net Zero by no later than 2050. toattract, retain and motivate our people. – Reduce emissions relating to our business activities and – Support career progression to foster growth. purchased energy (Scope 1 and 2) to Net Zero by 2028. – Simplify our performance review process, to encourage – Reduce emissions relating to our supply chain and the better engagement and help people understand how distribution and use of our products (Scope 3) by 50% their contributions support our strategy. by 2030. – Nurture an inclusive culture with a diverse workforce – Mitigate climate-related risks and capitalise on climate- inanenvironment that supports our people’s wellbeing. related opportunities. – Help our customers reduce their carbon emissions. – Contribute to our broader commitment to sustainability by supporting the UN Sustainable Development Goals (UN SDGs) 8, 12 and 13. Our progress Our progress – Conducted global salary benchmarking and increased – Reduced Scope 1 and 2 emissions by 21% this year. global average pay by 10.2%. This helped to reduce – Invested £4.2m in infrastructure improvements related to voluntary employee turnover from 10.7% to 6.8% Net Zero. this year. – Introduced our ULEV scheme in the UK, with more than – Introduced a new job architecture and started to develop 150 employees ordering electric vehicles (EVs) through competency frameworks to support career progression. this programme, with similar schemes to be launched – Embedded a simpler annual and mid-year performance elsewhere in the Group in coming years. review process. – Worked towards fully quantifying our Scope 3 emissions – Appointed an Equality, Diversity and Inclusion (EDI) Lead and developed our climate transition plan. and strengthened our EDI champions network, focus – Assessed climate-related transition and physical risks groups and awareness activities. and opportunities. – Strengthened our wellbeing programme with internal – Created various strategy and working groups who have training, mental health first aiders and external advice, identified projects and strategic aims contributing to UN support and information. SDGs 8, 12 and 13. Link to KPIs Link to KPIs Global voluntary employee turnover (%) Statutory emissions (tCO 2 e per £m revenue) Adjusted profit before tax (£m) Statutory profit before tax (£m) | Read more on pages 26 to 27 | Read more on page 27 | | --- | --- | | Link to risks | Link to risks | | Our relevant principal risks for this area are marked P | Our relevant principal risks for this area are marked S | | onpages 52 to 59. | on pages 52 to 59. | Renishaw plc Annual Report 2023 25 Strategic Report ## Key performance indicators ### Our KPIs are used by the Board to track and measure performance progress. Ourmanagement ### teams also use other metrics to monitor and assess performance at more granular levels. | Revenue £m | | | | F | Adjusted profit before tax £m | | | | | F | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 2023 | | | 688.6 | | 2023 | | | | 141.0 | | | 2022 | | | 671.1 | | 2022 | | | | | 163.7 | | 2021 | | 565.6 | | | 2021 | | | 119.7 | | | | 2020 | 510.2 | | | | 2020 | 48.6 | | | | | | 2019 | | 574.0 | | | 2019 | | 103.9 | | | | | Why we measure this | | | | | Why we measure this | | | | | | | Sustainable long-term growth is a key part of our strategy. | | | | | This helps demonstrate the underlying trading performance | | | | | | | Revenue growth helps increase our profits, which we reinvest | | | | | of the business. | | | | | | in our business to deliver that strategy and use to pay How we measure this dividends to our shareholders. We adjusted Statutory profit before tax for: fair value gains How we measure this and losses from forward currency contracts that did not Revenue generated from operations, at actual rates qualify for hedge accounting and which have yet to mature; of exchange. a revised estimate of FY2020 restructuring provisions; and a one-off past service cost for the US defined benefit (DB) How we performed pension scheme. Revenue grew to £688.6m, an increase of 2.6% from FY2022. How we performed We experienced a significant benefit to revenue this year due As a result of increased costs in a year of modest revenue to changes in exchange rates. We also had good sales of growth, this has decreased by 13.9%. The main driver of AM machines, and CMM and machine calibration systems. this is increased labour costs, following our global salary These factors have helped to increase revenue overall for the benchmarking review. Like many businesses, we have also Group, despite lower demand from the semiconductor sector experienced significant inflationary pressures on other costs. resulting in lower revenue from encoder products. Statutory profit before tax £m F Profit margin % F 30.0 2023 145.1 25.0 2022 145.6 20.0 15.0 2021 139.4 10.0 2020 3.2 5.0 0.0 | 2019 | 109.9 | | | | | | --- | --- | --- | --- | --- | --- | | | | | 2019 20232022 | | 20212020 | | Why we measure this | | Why we measure this | | | | | Profit demonstrates how our strategy is delivering value for | | Profit demonstrates how our strategy is delivering value for | | | | | our stakeholders. | | our stakeholders. | | | | | How we measure this | | How we measure this | | | | | This is the Statutory profit before tax as reported on | | These are Adjusted and Statutory profit before tax, expressed | | | | | page 154. | | as a percentage of Revenue. | | | | | How we performed | | How we performed | | | | | This has decreased by 0.4%, a lower decrease than our | | Both measures have decreased this year, with operating | | | | | Adjusted profit measure. This is primarily because last year’s | | costs increasing at a greater rate than revenue growth this | | | | | Statutory profit before tax included an £11.7m cost relating to | | year. This was mainly due to higher labour costs (where we | | | | | the UK DB pension scheme. Other year-on-year movements | | are investing to attract and retain people to deliver future | | | | | are explained further in Note 29 to the Financial statements. | | growth) and other inflationary pressures. | | | | | | | | Statutory PBT | Adjusted PBT | | 26 Renishaw plc Annual Report 2023 Strategic Report Key F Financial NF Non-financial Total engineering costs including R&D £m F Dividend per share in respect of the year pence F 100.6 2023 2023 76.2 90.2 85.8 2022 2022 72.6 78.6 76.6 2021 2021 66.0 72.0 82.4 2020 2020 0.0 87.3 97.9 2019 2019 60.0 89.8 Why we measure this Why we measure this Investing in engineering is fundamental to our growth, To track the underlying performance of the business and helping us to develop innovative new products and support measure whether profit growth translates into improving our existing products. shareholder returns. How we measure this How we measure this Annual expenditure on engineering, including R&D that Interim dividend paid in the year, plus the proposed has been capitalised in the year, and net of amortisation final dividend. oncapitalised R&D. How we performed How we performed We paid an interim dividend of 16.8 pence per share in 2023 Gross expenditure increased significantly, which is consistent and the Directors propose a final dividend of 59.4 pence per with our expectations. This mainly reflects an increase in share. If approved, this would bring the overall dividend per labour costs, helping us to retain and develop engineers to share to 76.2 pence, an increase of 5% per share from the develop new technologies for future growth. total dividend for FY2022. Included in the Consolidated income statement Gross expenditure Although both adjusted and statutory profit before tax have reduced this year, the Directors have considered the Company’s future growth plans and our strong cash reserves, and so have increased the dividend per share this year in line with our progressive dividend policy. | Global voluntary employee turnover % | | | | NF | Statutory GHG emissions tCO2e per £m revenue | | | | NF | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 2023 | | 6.8 | | | 2023 | 8.4 | | | | | 2022 | | | | 10.7 | 2022 | | 10.9 | | | | 2021 | | | 8.0 | | 2021 | | | 12.9 | | | 2020 | | 7.0 | | | 2020 | | | | 14.7 | | 2019 | 5.5 | | | | 2019 | | | | 14.8 | | Why we measure this | | | | | Why we measure this | | | | | | The success of our strategy relies on our people feeling | | | | | This helps us to ensure we are doing business responsibly | | | | | | thatRenishaw is a great place to work, grow and contribute. | | | | | and tracks how we are progressing with our Net Zero targets. | | | | | | How we measure this | | | | | How we measure this | | | | | | The number of voluntary leavers (excluding voluntary | | | | | Tonnes of Scope 1 and 2 (‘Statutory’) CO | | 2 e emissions | | | | redundancy, if applicable) in the year, as a percentage of our | | | | | from our operations, per £m of revenue, using the market- | | | | | | total headcount. | | | | | based method. | | | | | | How we performed | | | | | How we performed | | | | | | After investing heavily in pay and reward this year, our | | | | | We’re delighted that our approach to Net Zero has continued | | | | | | turnover rate has improved and we continue with activities to | | | | | to deliver a reduction of our Statutory GHG emissions as | | | | | | promote further engagement. More information can be found | | | | | a proportion of revenue. Our GHG emissions have also | | | | | | on pages 65 to 67. | | | | | reduced in absolute terms, with the introduction of 100% | | | | | renewable electricity at major sites in India and the USA contributing significantly to this. Renishaw plc Annual Report 2023 27 Strategic Report ## Financial review ## We are ## in a strong ## financial position ### We have achieved revenue for the year of ### £688.6m, compared with £671.1m last year. ### However, revenue at constant exchange rates* ### was £662.8m, a reduction of 1% from last year. ### The weakening of the semiconductor market ### during the year has resulted in challenging ### trading conditions, however we have seen ### goodgrowth in our systems sales. We have made significant investments in our production infrastructure and our people during the year. We continue to be in a strong financial position, with cash and cash equivalents and bank deposit balances of £206.4m at 30 June 2023 (30 June 2022: £253.2m). Revenue analysis Manufacturing technologies revenue grew by 2.2% to £648.2m this year at actual rates. Our optical encoder revenue has fallen, mainly due to lower demand from the semiconductor market, notably in the APAC region. However, we are pleased that this has been largely offset by good growth in sales of our multi- laser AM systems, machine calibration systems, laser encoder systems, and CMM inspection systems. Revenue from our Analytical instruments and medical devices segment grew by 10.5% to £40.3m this year, with record revenue for our Spectroscopy products. We also saw growth in our Neurological business. Further details of our performance by segment can be found on pages 32 to 47. The below table shows revenue by geographic region. | | 2023 | | | | 2022 | Underlying | | | --- | --- | --- | --- | --- | --- | --- | --- | | revenue | | | | revenue | | change at | | | at actual | | Change | | at actual | | constant | | | exchange | | | from | exchange | | exchange | | | | rates | | 2022 | | rates | | rates | | | £m | | % | | £m | | % | ## We have seen good APAC 310.6 -2 317.0 -4 ## systemssales performance EMEA 216.5 +5 205.8 +3 Americas 161.5 +9 148.2 0 ## ina year of challenging Total Group revenue 688.6 +3 671.1 -1 ## marketconditions.” Operating costs Allen Roberts Our labour costs are our largest cost. We have taken a cautious Group Finance Director approach to recruitment during the year and our headcount was 5,175 at 30 June 2023, compared with 5,097 at the end of June 2022. This growth includes continued investment in our early careers programmes. 28 Renishaw plc Annual Report 2023 We have carried out global salary benchmarking, which has Sometimes infrequently occurring events can affect our Strategic Report helped improve employee retention. This, together with an financial statements, recognised according to applicable IFRSs. increase in average headcount of 205, are the main drivers for We exclude such events from adjusted performance measures total labour costs (excluding bonuses) increasing by 13% to to give the Board and other stakeholders another useful metric £268.2m from £236.5m last year. Accordingly, our production, tounderstand and compare our underlying performance. engineering, distribution and administrative costs have all This year, the items we excluded from Adjusted profit before increased. A reduction in performance bonuses of £6.6m has tax include: gains of £5.5m from forward contracts deemed partially offset the total labour cost increases. ineffective for cash flow hedging (FY2022: £8.3m losses); a This year’s gross margin (excluding engineering costs) was revised estimate of FY2020 restructuring provisions of £0.7m 64%, compared with 65% last year. This change is mostly gain (FY2022: £1.7m gain); and a defined benefit (DB) pension due to a reduction in production volumes (leading to a lower scheme past service cost relating to termination of the US DB recovery of fixed overheads) and the higher labour pay pension scheme totalling £2.1m. These have not affected cash rates. We helped minimise the effect of these by introducing flow during the financial year. Additional items excluded in the targeted price increases and not replacing leavers in our direct previous year are detailed in Note 29. The table below reconciles manufacturing teams. Adjusted profit before tax to Statutory profit before tax. We remain committed to our long-term strategy of delivering 2023 2022 growth by developing innovative and patented products. £’000 £’000 To that end, we invested £72.5m in research and development Adjusted profit before tax 140,983 163,742 expenditure, compared with £59.4m last year (see Note Revised estimate of FY2020 restructuring 4 to the Financial statements). We also incurred £28.1m provisions 717 1,688 (FY2022: £26.4m) of other engineering expenditure, to support existing products and technologies. Third-party FSP (formal sale process) costs – 200 US/UK DB pension schemes’ past service Travel and exhibition costs are higher this year as cost (2,139) (11,695) COVID-19-related restrictions have been lifted and we Fair value gains/(losses) on financial have been able to engage in more customer facing activity. instruments 5,504 (8,349) In addition to the labour cost growth, this has increased our distribution costs by 12%. Statutory profit before tax 145,065 145,586 We have also experienced inflationary increases across other Adjusted operating profit in our Manufacturing technologies cost categories, notably software licences, health insurance segment was £125.5m, compared with £158.6m last year. andprofessional fees. Meanwhile, in our Analytical instruments and medical devices segment, Adjusted operating profit was £4.9m, compared with Profit and tax £2.8m last year. As a result of the increased costs in a year of modest revenue growth, Adjusted* profit before tax amounted to £141.0m, Financial income for the year was £9.7m, compared with £0.9m compared with a record £163.7m in FY2022. This is a reduction last year, and includes a £5.5m increase in interest on bank of 13.9%. Statutory profit before tax was £145.1m, compared deposits mainly due to higher interest rates. with £145.6m in the previous year. The FY2023 effective tax rate has increased to 20.0% (FY2022: 17.3%) mostly as a result of a reduction in patent box tax incentives and an increase in the UK tax rate from 19% to 25%. Note 7 provides further analysis of the effective tax rate. £m 1.0 163.7 160.0 Adjusted profit before tax bridge (11.6) 9.8 141.0 140.0 (1.6) (15.3) (5.0) 120.0 100.0 | FY2022 | | | | FY2023 | | --- | --- | --- | --- | --- | | | | | Share of profits of joint ventures | | | | Engineering costs | Distribution costs | | | Change in revenue less Administration expenses change in production costs Financial income and expenses Increase Decrease Total Renishaw plc Annual Report 2023 29 Strategic Report ## Financial review continued £m 500.0 226.7 (52.2) 400.0 (72.5) 300.0 253.2 (74.0) | | | | | 6.8 | 206.4 | | --- | --- | --- | --- | --- | --- | | 200.0 | (53.4) | | | | | | | | (25.9) | (2.3) | | | 100.0 Other Tax paid Working capital Dividends paid development costs Capital expenditure Pension contributions Operating profit, before non- Cash and bank deposits c/fd Cash and bank deposits b/fd cash items and research and Research and development costs Sources of cash Capital allocation strategy Other uses of cash Consolidated balance sheet Pensions We have invested £74.0m (FY2022: £31.0m) in capital At the end of the year, our DB pension schemes, now closed for expenditure, including production plant and equipment and the future accrual, showed a net surplus of £57.4m, compared with ongoing development of our production facility in Miskin, Wales. £42.2m at 30 June 2022. Within working capital, we have increased our inventories to In October 2022, following a significant improvement in the UK £185.8m from £162.5m at the beginning of the year. This is scheme’s funding position due to rising gilt yields, the Trustees mainly a result of targeted increases in components and sub- (in consultation with the Company) de-risked the investment assemblies for our optical encoder products following global strategy by disinvesting from the scheme’s equity and diversified supply chain shortages in previous years. Given the reduction growth holdings and investing the proceeds into index- in demand for optical encoders some of our components are linked gilts. The overall impact of these changes is to reduce currently overstocked. Now that supply chain challenges have investment risk, with the assets better matching the expected eased, we have plans to reduce safety stock levels of critical movements in the liabilities. We now believe the scheme is fully components. However, we remain committed to our policy of funded and are in the process of seeking to insure the liabilities. holding sufficient finished goods to ensure customer delivery During the year, pension schemes’ liabilities decreased from performance, given our short order book. £174.5m to £139.0m, on an IAS 19 basis, primarily reflecting the Trade receivables reduced from £127.6m to £123.4m due to increase in the UK scheme discount rate from 3.6% to 5.1%. lower levels of trading in the fourth quarter of FY2023 relative to Our DB pension schemes’ assets at 30 June 2023 decreased the previous year. Debtor days remained constant year-on-year to £196.3m from £216.7m at 30 June 2022, with UK asset at 64 days. We continue to experience low levels of defaults, values falling (in line with expectations) given the liability and hold a provision for expected credit losses at 0.4% of trade matching approach. receivables (FY2022: 0.2%). A termination of the US DB pension scheme was formally Total equity at the end of the year was £896.7m, compared with commenced during the year. The Trustees of the scheme and £815.2m at 30 June 2022. This is primarily a result of profit for Renishaw Inc agreed that the surplus will be distributed to the the year of £116.1m, offset by dividends paid of £53.4m. members of the scheme, resulting in a change to members’ Sources and uses of cash benefits. Accordingly, this change has resulted in a charge of Cash and liquidity £2.1m to the Consolidated income statement, which has been We continue to have a strong liquidity position, with cash and excluded from Adjusted profit before tax. cash equivalents, and bank deposit balances at 30 June 2023 of £206.4m (30 June 2022: £253.2m). This is a result of our trading See Note 23 for further details on employee benefits. performance, offset by our previously noted capital investments and working capital movements, and dividends paid of £53.4m. Treasury policies Our treasury policies are designed to manage the financial In line with our capital allocation strategy, the chart above risks that arise from operating in multiple foreign currencies. summarises our sources and uses of cash for the year. The majority of sales are made in these currencies, while most We disclose details of ‘severe but plausible’ scenario forecasts manufacturing and engineering is carried out in the UK, Ireland used in our going concern and viability assessments on pages and India. 60–61 and 161. We conclude that we have a reasonable We use forward exchange contracts to hedge a proportion of expectation that we will retain a liquid position and be able to anticipated foreign currency cash inflows and the translation of continue in operation for at least the next three years. foreign currency denominated intercompany balances. 30 Renishaw plc Annual Report 2023 ![img-5.jpeg](img-5.jpeg) ▶ We're investing to expand our manufacturing facility in Miskin, Wales. There are forward contracts in place to hedge against our Euro, US Dollar and Japanese Yen cash inflows, and to offset movements on Renishaw plc's Euro, US Dollar and Japanese Yen intercompany balances. We do not speculate with derivative financial instruments. Our treasury policies are also designed to maximise interest income on our cash and bank deposits and to ensure that appropriate funding arrangements are available for each of our companies. # Sustainability With our Sustainability team doing more work this year to better understand the risks and opportunities of climate change, we have reviewed the effect on our financial statements and financial planning. Our five-year financial plan includes estimates of the capital expenditure needed in this period to help deliver our own Net Zero plans. We have also considered the potential impact on topics such as the expected useful lives of tangible assets and the headroom on intangible assets, and have not identified a material effect on this year's financial statements. We will continue to review this as the Group further develops its work on both our own Net Zero plans and the wider impact of climate change on our risks and opportunities. # Capital allocation strategy Our Board regularly reviews the capital requirements of the Group, to maintain a strong financial position to protect the business and provide flexibility to fund future growth. We've consistently applied our capital allocation strategy for many years. Organic growth is our first priority and we're committed to R&D investment for new products, manufacturing processes and global support infrastructure to generate growth in future returns and improve productivity. This is evidenced in the year by our capital expenditure, the increase in working capital and investments in R&D. We may supplement organic growth with acquisitions in current and adjacent market niches that are aligned to our strategy. We have always valued having cash in the bank to protect the core business from downturns, and we monitor our cash against a minimum holding according to forecast overheads and revenue downturn scenarios. This cash also allows us to react swiftly as investment or market capture opportunities arise. Actual and forecast returns, along with our strong financial position, support our progressive dividend policy, which aims to increase the dividend per share while maintaining a prudent level of dividend cover. # Earnings per share and dividend Adjusted earnings per share is 155.1p, compared with 185.5p last year, while Statutory earnings per share is 159.7p, compared with 165.4p last year. We paid an interim dividend of 16.8 pence per share (FY2022: 16.0p) on 11 April 2023 and are pleased to propose a final dividend of 59.4 pence per share in respect of the year (FY2022: 56.6p). # Looking forward Given the uncertain market conditions, we continue to be cautious as we enter FY2024, and are currently recruiting for critical roles only. Where possible, we are implementing further price rises to mitigate ongoing inflation, and are focused on delivering productivity improvements across the business. However, we have many drivers in our key markets to deliver long-term revenue growth and we continue to invest in the infrastructure required to meet the expected future demand. We expect to spend around £35m to complete phase 1 of our new production facility at Miskin, Wales, which is expected to be operational from early 2024, and continue to invest in automation and productivity opportunities. # Allen Roberts Group Finance Director 18 September 2023 * Note 36: Alternative performance measures, derives from revenue at constant exchange rates. Adjusted profit Reference. Adjusted operating profit and Adjusted earnings per share are calculated. Renishaw plc Annual Report 2023 31 Strategic Report ## Performance review ## Manufacturing technologies ## We are ## well positioned ## in key sectors ## Our markets ## Automotive ### Our unique blend of product innovation, ### pioneering research and world-class There are multiple applications for our products in this sector ### engineering means we are well positioned as manufacturers rely on precision parts and automated ### to help create the smart and efficient factories processes to help them achieve performance targets. ### ofthe future. Automotive customers are also looking for products to help reduce manufacturing costs and manage the rapid evolution Like every global business, demand for our products of component design. is affected by world trends. The common trends for our Manufacturing technologies segment are: The use of electronics, sensors and displays is rising in both the electric vehicle (EV) and internal combustion engine (ICE) – skills shortages and rising labour costs – customers markets. While we expect demand in the ICE market to fall are increasingly interested in automation, intelligent over time, as governments adapt policy to meet sustainability manufacturing, robotics and easier-to-use technology targets, manufacturers continue to upgrade their existing ICE tohelp manage these challenges; production to improve engine efficiency. – rising energy and material costs – this increases Our products are used throughout EV manufacture and offer the need for higher performing products and efficient our customers significant benefits in productivity and quality. manufacturing processes; For example, our REVO and Equator products are used to – upgraded semiconductor manufacturing – inspect EV motors, and our position measurement devices arapid advance in semiconductor production are used in highly-automated EV battery assembly. equipment is required to support new computing andcommunications technologies; During this period of rapid market change, component designs are evolving quickly and vehicle design life cycles – relocation of manufacturing – world politics, trade are decreasing. This is driving demand for more flexible relations and some supply chain concerns are driving manufacturing, which supports the shift towards adaptable self-sufficiency in critical technologies (e.g. semiconductors) shop-floor measurement technologies. as companies seek to secure their supply chains. This is driving investment around the world towards more Read more www.renishaw.com/automotive localised manufacturing; – global competitiveness and greater efficiency – manufacturers want products to improve efficiency, ## reliability and reduce scrap. We are also seeing a Electronics continued trend of measurement moving closer to the shop floor. There is increased demand for more direct process control and results from measurements to be fed back from With consumers expecting increasingly lightweight and automated processes; and compact products with more features, greater reliability, and longer battery life, regular updates and upgrades are – sustainable manufacturing and Net Zero required faster than ever before. commitments – customers are setting sustainability targets and looking for products that maximise efficiency Our consumer electronics customers therefore demand and automation, while reducing emissions and waste. flexible manufacturing systems that can adapt to shorter product life cycles, yet still deliver high-quality, high- Our products are used across manufacturing processes volume components. to make a wide range of products, from smartphones to solar panels, and jet engines to dental implants. We sell our Consumer electronics is one of our largest sectors and manufacturing technologies into five principal markets, which includes products such as mobile phones and flat panel we explain in more detail in the panels opposite. displays. The introduction of new generations of electronic devices will be key drivers for future growth. Read more www.renishaw.com/electronics 32 Renishaw plc Annual Report 2023 Strategic Report ## Semiconductors Aerospace and defence This is a highly demanding sector that relies on Our heritage lies in the aerospace business and, 50 years speed, precision and reliability. Our range of encoder later, efficiency and safety remain this industry’s key drivers. technologies can be found inside equipment at all stages of Our customers are looking for greater fuel efficiency, lighter semiconductor production, from silicon wafer manufacturing components and ways to reduce costs. The fall in demand to the cutting of individual semiconductor chips. during the COVID-19 pandemic has eased, and there are significant order backlogs and strong global demand for Supply chain uncertainty and shortages have now eased for fuel-efficient, narrow-body, single-aisle aircraft. most electronics components. As a result, short-term demand for new equipment has fallen, although we expect to see We have seen increased defence spending due to growth in our encoder products over the long term. This will geopolitical tensions, including the Russia-Ukraine conflict. be driven by increasing use of electronics and sensors in Our products are used throughout the aerospace and consumer and automotive markets. defence sector. The manufacture and assembly of engines, Most major industrialised nations have announced wings, control systems and landing gear rely on process significant investments in semiconductor chip production control and post-process inspection using our products. facilities, which should lead to a resumption of demand for Our systems enable manufacturers to carry out repeatable, manufacturing equipment in the medium and long term. traceable and efficient processes to the tightest tolerances. Read more www.renishaw.com/semiconductors Read more www.renishaw.com/aerospace ## Precision manufacturing Other markets Precision manufacturing covers a range of industries. Heavy industry Our customers within this sector (machine builders and end New machinery and ‘smart’ farming technologies are users) are faced with common challenges. These include needed to increase agricultural yields and reduce increased demand for innovative new products with more environmental footprint. Many key components used in complex parts, a shortage of skilled operators, tighter part high-end agricultural equipment rely on our products for tolerances for higher performing products, and the demand process control. to be more efficient to meet sustainability targets. The construction industry is investing in sustainable Machine builders use our products to manufacture specialist infrastructure and there is increased automation to equipment, such as machine tools and robots. For example, counteract skills shortages. We make products for the our encoders provide precision motion and our calibration manufacture of high-value construction equipment, such products ensure machines are built to specification. aschassis for heavy earth moving equipment. They may also integrate our products to help end users operate their machinery efficiently. Power generation and resource extraction Our end user customers use our precision technologies The manufacture of components for wind turbines requires to help them manufacture precise and complex parts our metrology products, including probes on machine for different applications within multiple industries. tools. Our optical encoders are also being used to control Our manufacturing technologies are used throughout solar panel manufacture. production for process control and component measurement. Oil and gas equipment must be made to stringent safety Demand for our AM machines is rising as more customers standards, which requires accurate, cost-effective and are finding ways to use AM to revolutionise product design traceable processes. The sector is also looking to improve and efficiency. the efficiency of large diesel engines, which requires We are also helping our customers use our solutions greater component accuracy. Our products are well placed to implement smart manufacturing and automation in to assist with this. their operations. Healthcare Read more www.renishaw.com/precision-manufacturing Healthcare is a key sector for our AM business. Here, our machines are used to produce custom dental prosthetics and orthopaedic implants optimised for bone integration. Rising obesity rates and ageing populations are pushing up demand for orthopaedic procedures and we are well placed to meet this need. Renishaw plc Annual Report 2023 33 Strategic Report ## Performance review ## Manufacturing technologies continued How we deliver precision, productivity products, together with our inventory policies, means we’re able to supply customers faster than many of our competitors. andpracticality That means we’re well placed tobenefit when consumer We work with our customers across different markets demand does increase. tounderstand their technological challenges. Reduced demand for our optical encoders was partly offset by Our unique blend of precision, productivity and practicality, rising demand for our AM systems, machine calibration, laser coupled with our long-term approach to customer relationships, encoder, and REVO 5-axis CMM systems. helps us to gain new customers and outperform market growth. Many of the supply chain challenges that we have experienced We provide: in recent years have eased. We responded to these challenges precision through products that give customers by using our engineering teams to redesign some of our accurate production processes to deliver higher products using alternative components. During this time, performance and sustainability; wecontinued developing our flagship projects – those that weexpect to be most commercially or strategically important. productivity through products that give manufacturers As supply chain challenges have eased, we have been able higher process yields, faster cycle times and more togrow our R&D teams and increase our engineering spend. automation; and We continue to invest in using our own processes practicality through products that are easier to use tomanufacture our products. This is key in demonstrating and have embedded knowledge and data analytics. to our customers the value we can add to their production processes. For example, we’ve been using Renishaw Central (our new smart factory software platform) in our own factories. Market conditions and performance This is important for us as it provides early feedback and is an invaluable source for future requirements in product Our Manufacturing technologies segment delivered overall development. We also additively manufacture parts for our revenue growth this year, despite a downturn in the key ownAM machines. semiconductor market, where our position encoders are used extensively. As mentioned in Our markets (page 32), we’re seeing a move towards more localised manufacturing. This is an opportunity We saw weaker demand for semiconductor equipment for our business, as we are well positioned around the world to and computing, which affected sales of our optical take advantage of this trend. Our existing network of technology encoders, most notably in the APAC region. This is not centres and local experts can work with customers at their unusual in this cyclical market. Weaker demand has been manufacturing locations, and we have opened new facilities this coupled with the overstocking of components and finished year to support this. machines by manufacturers following shortages during theCOVID-19 pandemic. We continue to take a long-term approach to customer support and invest heavily in these relationships. You can read more We expect to see an upturn in demand in the medium term, as about this on page 81. machine builders reduce stock levels and begin to place new orders. Our own highly-automated production, using our own REVO probe inspecting an electric vehicle stator. 34 Renishaw plc Annual Report 2023 Strategic Report Performance We saw growth this year with asignificant proportion coming ## Industrial Metrology from direct end user sales. We’ve been particularly successful with our REVO CMM systems with MODUS software and have seen repeat sales from key customers in the automotive, aerospace and consumer electronics sectors. In many cases, this is due to REVO’s ability to combine tactile, surface finish and ultrasonic thickness measurement onto one inspection platform. At CIMT, China’s largest exhibition for the machine tool industry held in April 2023, we were pleased to showcase AGILITY, our Derek Marshall own CMM system. The AGILITY system is designed to deliver Director of Industrial Metrology high-performance, fully-integrated measurement using REVO measurement systems and we’ve seen growing demand this year, with repeat orders from key customers. What we do Industrial Metrology is one of our most established areas Metrology is critical to smart manufacturing. We’re seeing a ofthebusiness and has customers across almost every sector continuing trend towards using measurement systems as an ofmanufacturing. Our metrology solutions transform automation integral part of production processes rather than in a quality for our customers, allowing them to precisely measure assurance lab. To support this, we’re continuing to work closely production parts and control the performance of their machines. with third-party metrology software providers to increase the range of software options for the Equator gauging system. We offer a market-leading range of sensors for CMMs and This approach continues to open up market opportunities for this computer numerical control (CNC) machine tools, as well as a system and gives greater flexibility to our customers. growing suite of measurement systems and metrology software. We’re also driving the smart factory agenda, focusing on This year we launched our new smart factory software platform, metrology, machine connectivity and process control. Renishaw Central. This captures actionable data from shop-floor metrology and AM systems, and provides insights into the entire Our technologies also enable customers to improve the manufacturing process. Central’s key point of difference is that sustainability of their processes by helping to reduce part it enables direct, fast and robust process control feedback – variation and waste. For example, customers use our products improving process outcomes, not just monitoring them. We’ve to compensate for process changes during long production been using Central in our own manufacturing operations this runs, to ensure high quality throughout production. There is year and it has helped to guide our own process improvement also continued growth in metrology applications for machine work – with positive results in our own production capacity. set-up and performance management, which helps to ensure Using the product ourselves is a great way to demonstrate the continued stability over a machine’s lifetime. benefits of manufacturing connectivity and consistent data We lead the way in shop-floor metrology, and continue to collection to our customers. We’re now expanding the global develop our range of probing systems and software, working availability of Renishaw Central through our technology centres closely with CMM builders. They are seeing high demand for and distribution channels. 5-axis measurement from their customers looking to automate We were pleased to launch our RMI-QE flagship product last and manufacture more complex parts. Our revolutionary REVO year, which underpins our next generation of machine tool 5-axis multi-sensor system enables comprehensive inspection probes and reduces power consumption. Following the launch, ofcomplex components in a single automated process. we are developing more components to enable new capabilities We also sell to end users, and a significant part of our approach from our radio transmission product range. You can read more is to continue to work closely with these customers. By doing about RMI-QE in the case study on page 37. this, we learn more about the end applications for our products A key part of our strategy is to move into new and adjacent and understand their future challenges and requirements. markets, using our expertise across different business areas Software forms an increasingly important part of our approach. to offer new products to existing customers. Our Position We’re investing heavily in developing dedicated metrology Measurement team recently launched FORTiS, our enclosed software, smart factory solutions and our market-leading apps optical encoder designed for the machine tool market. for mobile and on-machine platforms. This product has further strengthened the long-term relationships we hold with our CNC machine tool builder customers. Renishaw plc Annual Report 2023 35 Strategic Report Strategic Report ## Performance review ## Manufacturing technologies continued 36 Renishaw plc Annual Report 2023 ## Performance review ## Manufacturing technologies continued Strategic Report ## We are ## improving battery life Increase in battery life of up to 400% ### Industrial Metrology case study when used with the RMI-QE interface ### Machine tool spindle probing technologies ### arekey to process automation. Spindle probing allows data to be collected at different points ## 400% in a manufacturing process to check the condition of parts and tools, and machine performance. It can also process trends resulting from environmental changes and manual interventions. This data can be used to automatically adapt processes to the current situation, to avoid producing a bad part. This helps eliminate waste, re-work and manual intervention. Measurements can also be stored for later analysis and used tohelp identify longer-term process improvements. CNC machine tools that use our spindle probes with radio signal transmission need a radio machine interface for the machine’s controller to receive data from the probe. Our QE series radio transmission probing system acts asacombined radio transceiver and machine interface. It alsoprovides the communication for sensors, offering reliable, automated on-machine tool setting, tool breakage detection, part set-up, and part verification. Updates to the probes’ electronics and radio transmission deliver an increase in battery life of up to 400% when used with the RMI-QE interface (compared to the previous generation). This gives an industry-leading battery life of up tofive years, based on typical usage. ### We are proud of the technological ### advancements this system delivers, and, with ### the battery life improvements achieved, equally ### proud of minimising its environmental impacts.” Steve Petersen Marketing Manager Renishaw plc Annual Report 2023 37 Strategic Report ## Performance review ## Manufacturing technologies continued Performance We’ve seen record sales this year for our laser calibration ## Position Measurement systems. This demonstrates the high levels of activity at machine builders and the growing market acceptance of our XM-60 multi- axis calibrator. The XM-60 is the only system of its kind on the market that can measure all geometric errors along an axis. It also enables faster and easier error mapping and diagnostics. Demand for our optical encoder products in the semiconductor and electronics industries has fallen in line with the global downturn in those sectors. This is due to weaker consumer demand, coupled with the overstocking of components and Steve Oakes finished machines by manufacturers after the shortages Director of experienced during the COVID-19 pandemic. The reopening of Position Measurement the Chinese market, after strict COVID-19 lockdowns were lifted, has already started to stimulate some growth. We believe the What we do semiconductor outlook remains strong in the medium term as Our Position Measurement technologies enable fast, accurate machine builders use up existing stock and begin to place more motion control of industrial machinery in applications ranging orders. However, the timing of this recovery is uncertain. from semiconductor processing and flat panel display As nations invest in more localised manufacturing, our manufacture, through to robotics and factory automation. recent focus has been on preparing to meet this demand. We design and manufacture a range of position encoders The productivity improvements we put in place during the to meet the different needs of machine builders across pandemic, and our ownership of the whole production process, these applications: means we are ready to respond with short lead-times and high capacity. – cost-effective magnetic encoders designed and built inSlovenia by our joint venture, RLS, for robotics Sales of our laser encoders have grown, as manufacturers andgeneral automation; look to increase production of the most advanced devices for increased transistor density and reduced power consumption. – mid-market optical encoders for a wide-range of uses including back-end semiconductor processing, electronics Demand for RLS magnetic encoders reduced with a notable packaging and precision machine control; and softening from APAC in the final quarter of the year. Despite this, – high-specification laser encoders for state-of-the-art front-end the global drivers for growth remain, as manufacturers look semiconductor manufacturing. to improve productivity and ensure continuity in the event of future lockdowns through greater automation and the use of We also make market-leading laser calibration systems. collaborative robots, also known as cobots. These help machine builders and end users build, calibrate and check the performance of machine tools and CMMs at different stages of precision manufacturing. We continue to invest in software, developing our CARTO package to increase functionality and ease-of-use of data capture, analysis and compensation for all our calibration devices. A key strategic objective for Position Measurement is to adapt our existing technologies for areas where we already have presence and market knowledge, such as the machine tool industry. Our FORTiS range of enclosed encoders, and SpinCo rotary sensors, have been very well received by machine tool builders. We have gained key accounts at significant customers thanks to these products. We continue to add to our existing product ranges. This year we introduced CENTRUM, the world’s first self-centring metal disc scale, as an alternative to fragile glass encoder discs. CENTRUM discs have innovative, patented mounting features that automatically centre and align the scale during installation. This process removes the need for a skilled operator and allows assembly in seconds rather than minutes. 38 Renishaw plc Annual Report 2023 Strategic Report ## We are ## reducing ## energy costs Reduction in compressed ### Position Measurement case study airconsumption ### The FORTiS encoder series has been designed to improve ### machine tool performance, productivity and energy consumption. In terms of sustainability challenges, the largest source of electricity consumption over ## 70% an enclosed encoder’s lifetime is the compressed air that is fed through the encoder torepel contamination, known as air purge. Thanks to our new DuraSeal seals, the FORTiS encoder enclosure offers dramatically reduced air consumption, resulting in lower operating costs and greater system longevity. The FORTiS encoder system offers a 70% reduction in compressed air consumption compared to other optical enclosed encoders. As a result, this can reduce the encoder’s attributable CO 2 e emissions and lower the total cost of ownership for themachine user, since less electricity is required to provide the air purge. ### Five years of accelerated life testing have enabled the ### development of our new advanced DuraSeal lip seals. ### These offer excellent resistance to wear and machine tool ### lubricants, superior sealing and contamination protection.” Ian Eldred Principal Mechanical Engineer Renishaw plc Annual Report 2023 39 Strategic Report ## Performance review ## Manufacturing technologies continued Performance AM was our fastest growing product line in FY2023 and our ## Additive Manufacturing focus on multiple machine sales is continuing to gain traction. We’ve seen significant repeat orders from customers in the medical and electronics industries. We recently launched our new machine calibration package, which allows users to quickly verify the performance of lasers on their machines. This makes the most of our expertise in process control to enable traceability to a metrology standard. This capability is essential for customers in regulated industries and helps to reduce our support costs. Louise Callanan We’ve also expanded the range of metals that can be used Director of Additive Manufacturing in our machines and boosted their productivity to support accelerating AM use in volume production. What we do There are still barriers to AM adoption, including cost per part. AM, or 3D printing, is the creation of 3D components by building We’ve seen good revenue growth in high-value part sectors up layers of material. Our AM machines use laser powder-bed such as medical and dental where AM is highly suited to fusion technology, which works by spreading a thin layer of fine patient-specific dental prosthetics and orthopaedic implants. metal powder, and then using lasers to selectively melt sections. The business case for AM here is well established. We’re now This is repeated, with each layer built on top of the previous focused on optimising our AM systems to boost productivity, layer, to build up a solid metal part. The process uses a digital enable higher throughput and reduce cost per part to open build file to control what sections of each layer are melted. opportunities across more sectors. This allows AM to produce high-strength and complex shapes We’re engaged with international standards committees to that can’t be produced by traditional manufacturing techniques, establish best practice for AM to reduce the cost and complexity such as machining or casting. of adopting this technology. We’re also working to encourage AM has huge growth potential as an increasing number of designers to think additively as most engineers are trained to manufacturers embrace the benefits. These include lighter design for subtractive machining. Through our applications weight aerospace components to increase fuel efficiency, and training support, and intuitive software, we’re reducing the andimproved patient outcomes for orthopaedic devices. barriers that our customers face when considering the transition to AM. Our aim is to accelerate adoption of AM as a high-volume production process. We deliver solutions that offer maximum The AM market is growing rapidly, and we’re confident this will value for manufacturing higher numbers of parts and provide continue over the coming years, particularly in the electronics tools to make the adoption of AM easier for new users. and precision manufacturing markets. Expanding our AM Our extensive range of products for improving production assembly capacity, as part of investment to expand our site processes uniquely enables us to offer end-to-end support for in Miskin, Wales, is evidence of this confidence. Our next- high-volume AM production. Our family of RenAM 500 machines generation AM machine will help to further accelerate adoption, and software provide market-leading productivity in a compact and with our strong global team we are well placed to benefit footprint. The platform supports manufacturers as they adopt from future growth. AM and make the transition from lab through pre-production to volume manufacture. We are now developing our next generation machine that is focused on reducing AM part costs, which remains the most significant barrier to broader adoption. Maximising the value of AM requires integration with other manufacturing technologies that form the smart manufacturing environment. Our software enables users to prepare files for 3D printing and analyse data from machines. This combination allows them to modify build files and produce high-quality parts as quickly as possible. Our open approach also supports connection to third-party design and smart manufacturing software. We work in partnership with customers to build parts and prove out applications as part of the sales process. Our training and services help our customers expand their AM capabilities. A key part of our approach is to invest resources to build relationships with customers who need multiple systems for volume production, targeting repeat purchases. 40 Renishaw plc Annual Report 2023 Strategic Report ## We are ## helping customers ## make more ## efficient products ### Over its lifetime, each ### ofthese game-changing ### valves has the potential ### to save multiple tonnes of ### CO 2 e. Using them we can ### spearhead the advance ### of the fluid power industry ### towards a sustainable future.” Marcus Pont Chief executive officer of Domin Fluid Power Ltd ### Additive Manufacturing case study ### With help from our metal AM technology, UK-based Domin ### FluidPower Ltd (Domin) has disrupted the hydraulics ### industry byredesigning servo valves from first principles. ### Thishasachieved a better performing, more sustainable ### productatalower price point. Due to its inherent design freedom, AM allows Domin to build complex parts, free of tooling and with minimal operations and assembly. For example, metal AM provides the ability to design complex geometries with internal features that can significantly enhance efficiency in fluid applications. It produces parts with good strength-to-weight ratio and requires less material than conventional machining, as it only forms metal where required. “We believed that metal additive manufacturing was the final puzzle piece and were confident we could generate true industry change and make a positive impact,” explains Marcus Pont, chief executive officer of Domin. “By combining additive manufacturing with other innovations like high-speed motor control, modern electronics, big data and connected technology, there is real potential for disruption.” “Most hydraulic systems today only operate at 23% efficiency, resulting in the wastage of billions of kilowatt-hours every year,” adds Pont. “Globally, hydraulics produces twice 1 the CO 2 e emissions of the aerospace industry.” This year, Domin installed a RenAM 500Q AM system at its new Technology Centre near Bristol, UK. Read more at www.renishaw.com/domin 1 Oak Ridge National Laboratory, Estimating the Impact (Energy, Emissions and Economics) of the U.S. Fluid Power Industry, December 2012. Renishaw plc Annual Report 2023 41 Strategic Report ## Performance review ## Analytical instruments and medical devices ## We are ## supporting scientific ## and medical progress ## Our markets ## Healthcare ### We provide our customers with ### comprehensive chemical analysis technology Healthcare providers and hospitals are looking for faster ### and neurological therapies that are needed and more precise surgical therapies to increase procedure ### now and for the future. efficiency and improve patient outcomes. Demand is growing for more economical and patient-specific treatments, as well as technologies to reduce the potential for human error. Our neurosurgical robot and planning software support ## Academia these trends. Our Spectroscopy products are also used in the healthcare Our Spectroscopy business was born out of academia, and sector for studies into early cancer detection, disease there is still a strong demand in this sector for flexible and diagnostics and drug discovery. powerful systems that support research and development. Our customers need cutting-edge tools to advance their research, so we continue to add new features and functionality to our inVia Raman microscope. This keeps our ## High-tech manufacturing system relevant in the market and makes it easier for our customers to conduct world-leading research and justify further funding and investment. Our Raman spectroscopy systems are well placed to benefit from the way material analysis is moving away from R&D and onto the shop-floor. Manufacturers that make high-tech products want to use Raman data to better understand their products and processes, and solve problems quickly. They also need easy-to-use and intuitive systems for data collection. This type of customer now represents a fast growing and significant part of our target market, and our flexible Raman product range can already meet this need. ## Pharmaceutical As global life expectancy rises, we expect pharmaceutical customers to need more innovative products to help develop new treatments for neurological diseases. There areopportunities here for our drug delivery system, which is already being used in trials to develop therapies forneurological conditions, such as Parkinson’s disease. Within spectroscopy, our tools are embedded in R&D and our dedicated pharmaceutical analysers are being used to analyse drugs and vaccines more efficiently by speeding up the chemical analysis process. Chemical analysis using a Raman spectrometer. 42 Renishaw plc Annual Report 2023 Strategic Report Market conditions We continue to grow and see more research and industrial ## Spectroscopy applications for Raman spectroscopy. One example of this is the growing need for research into battery technology, as demand for electric vehicles (EV) rises. Our customers are using our flexible systems to research new materials and optimise their recipes, to improve performance and capacity, enable faster charging, and extend battery life. China is an important market for us, and the sales challenges we saw due to local COVID-19 lockdowns have now ended. Trade relations between the USA and China have resulted in increased export control requirements, which are slowing Tim Batten some shipments. We entered and ended this financial year with Director of Spectroscopy astrong order book for China, which is an important market for our Spectroscopy products. What we do Performance Our aim is to advance materials analysis to help our customers better understand the chemical and structural information of a We saw record revenue this year, with strong growth across all material sample at a molecular level. ofour markets. We provide: Our core academic market served by our inVia Raman microscope has been growing steadily. We’ve had a very good precision through spectroscopy products that give second half of the year, with a strong order book that will be high-resolution sampling; carried forward into FY2024. There has been strong demand for our Virsa Raman analysers productivity through systems that give automated from a broad range of applications such as solar cell analysis, analysis andrapid, reliable results; and plant science and cultural heritage. This validates our approach of taking Raman technology away from laboratory-only use and into applications where sampling can take place in-situ. practicality through products that are flexible and meet a wide range of customer needs. Our revenue is not only generated through Raman system sales, but through the ongoing service and support contracts we have with our customers. To further maximise these opportunities, We believe we supply the most flexible and best-performing we have increased resource in our EMEA region, which will be Raman spectrometers on the market. We are focused on focused on increasing service revenue. making it easier to integrate our systems with other analytical techniques, including scanning electron microscopes (SEM). inLux is our new SEM Raman interface that brings the structural and chemical analysis of Raman spectroscopy to the inside of a SEM. It combines highly correlated SEM and Raman data, enabling users to better understand their samples and advance their scientific endeavours. This year, we were pleased to announce a further enhancement to our award-winning inVia Raman microscope. We collaborated with Becker & Hickl GmbH, who are leaders in fluorescence lifetime imaging microscopy (FLIM) technology, to produce a combined FLIM-Raman microscope. This can be used to better characterise samples in applications, such as life sciences and semiconductors. One of our objectives is to make easy-to-use, flexible and compact benchtop systems for dedicated applications and we’re continuing to look at new markets beyond the laboratory. We aim to get more of our Virsa Raman analysers, a portable product for sample analysis, into industrial applications such as bio-fermentation, a process used for vaccine production by pharmaceutical companies. This fits with the continuing trend of Raman systems moving from high-tech and scientific research environments, to real-life applications in the field. We continue to develop high-performance and intuitive systems for users without specialist Raman knowledge. Renishaw plc Annual Report 2023 43 Strategic Report ## Performance review ## Analytical instruments and medical devices continued 44 Renishaw plc Annual Report 2023 Strategic Report ## We are ## making cost-effective ## Raman solutions ### Spectroscopy case study ### The new inLux interface is a cost-effective and universally ### compatible solution for in-situ Raman analysis inside scanning ### electron microscopes (SEMs). Co-located Raman analysis with scanning electron microscopy can help to differentiate microplastics, identify industrial contaminants, find valuable minerals in geological drill cores, and identify defects in semiconductor wafers. All of which means that more SEM users can quickly access chemical and structural information to fully understand their materials. The inLux interface has many practical advantages over its predecessors.Due to the shared SEM and Raman probe Z-axis, users are assured that the same sub-micrometre features are imaged by both techniques. Truly in-situ scanning electron microscopy and Raman imaging can fully use SEM chambers for larger samples like semiconductor wafers or cultural heritage items. Recent advances in optics and engineering have led to vast improvements in speed and sensitivity during Raman analysis, making it practical to image a wide range of sample types. Together, the inLux interface coupled to a Virsa Raman analyser can bring in-situ Raman analysis to many existing SEM users for the cost of a typical SEM accessory. Read more at www.renishaw.com/inlux ### We have been making ### combined SEM Raman ### solutions for more than 20 ### years. Our latest innovation, ### the inLux interface, is the ### culmination of our expertise ### and has been specifically ### designed as an easy-to-use ### accessory. The inLux interface ### provides a wealth of chemical ### information to SEM users to ### help them to better understand ### their samples and solve ### theirchallenges.” Pete Johnson Optical Engineering Team Leader Renishaw plc Annual Report 2023 45 Strategic Report ## Performance review ## Analytical instruments and medical devices continued We also work closely with healthcare providers. At our Charfield site in Gloucestershire, UK, where most of our team are ## Neurological based, we recently created a state-of-the-art training facility for customers. This is a great asset for us and will help usto continue to build our pipeline of prospective customers. Market conditions This year, we have seen reduced investment across healthcare and pharmaceutical markets, with geopolitical concerns especially affecting the USA, where many of our target customers are based. This has affected the speed and magnitude at which pharmaceutical companies are investing innew drug development and trial programmes. Rupert Jones Managing Director of Renishaw Medical There is however increased market awareness of our drug delivery platform, and we remain confident in our strategy of developing ongoing relationships with What we do pharmaceutical companies. We design and make products that support transformative, cutting-edge therapies to help patients suffering from As ever, one of the key challenges for our business is the neurological diseases and enable research into previously changing regulatory landscape, and we are mindful of the very untreatable conditions. long timescales involved with trials. Our model of taking a long- term approach and being able to generate revenue throughout We provide: the trials process, means our risk profile is far lower than that precision through products that give accurate device of a pharmaceutical company. Our approach means that we delivery and improved procedure safety; don’t rely on a successful trial outcome to generate revenue. Growing the number of trials we participate in is key for our long- term success. productivity through products that enable fast We are seeing new competition emerging in the area of surgical planning, automated placement and shorter surgeries; robotics, but we are well established in brain surgery. and Performance practicality through products that support image- guided planning for surgery and help to give more We have seen increased revenue for our neurosurgery products. predictable patient outcomes. This is due to renewed growth in our robot sales and steady growth in our service and support revenue. We have two focus areas: neurosurgery and drug delivery. Our supply chain challenges have eased this year, although Our neurosurgery business includes our neuromate surgical we are still seeing shortages of some key components. robot and neuroinspire planning software. These help surgeons Recruitment for certain specialist roles is still presenting with precision tool positioning and implant placement and can some challenges. also help surgeons to plan a procedure ahead of surgery, Revenue from our drug delivery business continues to be slow saving time in theatre. We have an extensive number of due to the long lead-time of pharmaceutical programmes, neuromate stereotactic robots worldwide with patients benefiting but we remain confident in our opportunity pipeline. Due to from our technology. We also have a range of accessories that the uncertainty of the near-term cash flows, we have partially allow our robotic platform to be used for surgical procedures impaired related capitalised development costs amounting such as brain tissue biopsy, deep brain stimulation and to£1.6m. stereoelectroencephalography (SEEG). Our drug delivery device has been proven to work well in trials Our drug delivery system is used to deliver therapies or drugs and there is a need for this device in the market. However, each directly to a patient’s brain. These are consumable devices clinical trial we have been involved with has not progressed that can be used for gene therapies, which are delivered as a due to drug-related issues. Conversations with pharmaceutical single dose, or for drugs and agents that need repeated delivery companies are progressing well and we continue to be over time. We are the only provider of this kind of device, and optimistic about revenues in FY2024. our system has been used in drug trials to treat neurological conditions, including Parkinson’s disease. We take a long-term approach to customer support and understanding. We work closely with pharmaceutical companies to improve outcomes for patients and one of the ways we do this is through our Lab2Clinic programme. This programme provides guidance and training to pharmaceutical businesses, to help them through the many steps involved in the successful delivery of a drug to its target area. Most clinical trials fail, but through successful adoption of this programme, we are mitigating the business risk associated with trial failure. 46 Renishaw plc Annual Report 2023 Strategic Report ## We are ## reducing operating ## times for patients ### Neurological case study ### The Children’s Epilepsy Surgery Service (CESS) was started ### People often forget that ### with the intention of democratising access to paediatric surgical ### Renishaw stretches beyond ### treatments for epilepsy. For children with drug resistant epilepsy, ### industrial applications. ### there are very few treatment options, and this can seriously ### Working within neurological ### affect their education and social development. ### products, I’m lucky enough Therefore, four centres, consisting of six hospitals, were set up in the UK to support ### to see the real-life benefits specialist treatment. ### to our customers and their We have supported the service for many years, with each of the hospitals using ### patients. The future of robot- ourneuromate stereotactic robotic system. ### assisted surgery looks bright The neuromate system helps to streamline SEEG procedures, which are key to CESS ### activities. SEEG involves implanting between 10 and 20 diagnostic electrodes into a and I’m proud tobe a part ### patient’s brain with the aim of determining the origin of epileptic seizures. of it.” While the electrodes are in place, the brain activity is monitored and data gathered. Nina Sainte-Marie When seizures occur, the epilepsy team can use the data from these events to Operations Manager determine the origin of the seizure. This area, or zone, is then removed, with the goal ofmaking the patient seizure-free. In November 2022, we were proud to help the CESS celebrate its 10th anniversary with an event at our New Mills headquarters in Gloucestershire, UK. The event, organised by Professor Helen Cross OBE, of Great Ormond Street Children’s Hospital and University College London, included an agenda of educational talks and shared experiences to help further the capability of the service. Renishaw plc Annual Report 2023 47 Strategic Report ## Risk management ## We are ## effectively identifying ## and managing risk Risk management in FY2023 As well as identifying our principal risks and their anticipated impact and likelihood, we conduct a formal risk appetite With the world coming out of the COVID-19 pandemic, and with assessment. The results are shown in the table on pages 52 ongoing geopolitical, climate and economic concerns, we have to59. This lets us assess if we’re taking the right amount of risk, been particularly conscious of a competitive labour market, and and consider opportunities as well as mitigation strategies. supply chains under stress. Due to the programme of global initiatives led by our HR colleagues (detailed on pages 65 to We recognise how vital risk management is in achieving our 66), we have seen our People risk mitigated over the last year. strategic objectives. Considering both risks and opportunities We have also seen an easing in supply challenges, which has isan essential part of our operations and decision-making. decreased our Supply chain dependencies risk. Over the last year, however, we have seen an increase in the Economic and How do we identify risks? political uncertainty risk and have also increased our focus on Our risk identification process comprises two stages: climate-related risks and opportunities. 1. Top-down process Our approach – risk management and risk appetite The Chair of the Risk Committee conducts risk interviews Our annual risk review process starts with our strategic with senior managers, focusing on the risks that are most objectives. We look at external risks and the global environment, significant for us. The anonymised output from these interviews as well as internal risks across our business. is aggregated to identify key themes and trends, as well as any new or emerging risks. Our risk identification process aims to identify risks that represent the most significant threat to achieving our strategic 2. Bottom-up process objectives. This, combined with evolving global challenges, has Regional and product group managers complete risk reports, resulted in some changes to our principal risks this year, as set with a focus on key day-to-day operational risks. These results out in the table on pages 52 to 59. are aggregated to identify trends and any new principal or Each principal risk has an owner, who is periodically invited emerging risks. to attend Risk Committee meetings to discuss their risk, latest The results from both processes shape our principal risks. developments or issues, and the work they’re coordinating to The proposed principal risks are assessed by the Risk Committee mitigate it. and then considered by our Audit Committee and Board. Hot air balloons at New Mills, our headquarters in Gloucestershire, UK. 48 Renishaw plc Annual Report 2023 Strategic Report Oversight Board Audit Committee – Overarching responsibility for risk management. – Assesses the changing status of various principal risks throughout the year (e.g. risks relating to cyber, people, – Determines our risk appetite and identifies our compliance with laws, and climate). principal risks and opportunities. – Reviews the effectiveness of our risk management – Evaluates proposed strategies against andinternal control processes. risk appetite. – Supports the Board in monitoring and assessing risk exposure and makes recommendations to the Board Top-down Governance onproposed principal risks. – Oversight of matters discussed at Risk Committee. – Oversight of key areas – including internal controls, riskmanagement, and Internal Audit. Risk Committee Ethics Committee – Comprises executive members (including our – Comprises four members of the Senior Leadership Group Finance Director and members of our Team (all of whom also sit on the Risk Committee). Executive Committee) and senior management – Considers matters that are referred to it, usually by from across the business. internal stakeholders. – Manages our risk identification process. – Considers particular ethical issues and makes a – Collects and aggregates risk information. recommendation to the Executive Committee on how to proceed. – Helps senior management govern, identify, manage and report on principal and – Most matters referred to the Ethics Committee involve a emerging risks. risk appetite decision, for example where the proposed course of conduct is lawful but may involve some – Manages central repository of risk data from reputational risk. across the product groups and regions in terms oftheir respective principal risks. Bottom-up Operational managers – Effective day-to-day risk management. – Design and implement key controls. Operational risk management – Identify risks at an early stage. – Embed risk management. – Monitor risks, mitigating or escalating as appropriate, and respond to manage those risks. – Provide updates to the Risk Committee. Independent oversight Internal Audit – Provides input on the effectiveness of the risk programme. – Assesses the effectiveness of controls for certain principal risks, particularly financial risks. – Holds scheduled audits of our largest Group companies annually, and of other Group companies biennially, and gives executive summaries to the Audit and Risk Committees. Significant shortcomings are discussed and acted upon promptly. – Facilitates process enhancements. – Requires all operating companies to complete annual self-certification questionnaires regarding compliance with certain key policies and procedures. Oversight from the Audit Committee This year, we have increased the reporting of Risk Committee activities to the Audit Committee, to better ensure that our Non- executive Directors are kept up-to-date with developments in risk management. As well as reviewing the principal risks and approving their ranking, the Audit Committee has monitored the programme of management’s work in this area in FY2023. The minutes of all Risk Committee meetings are shared with the Audit Committee, which has also received regular updates throughout the year on specific risks, including Cyber and Climate change. Renishaw plc Annual Report 2023 49 Strategic Report ## Risk management continued Risk management activities carried out throughout the year Risk identification Risk oversight Risk reporting Risk monitoring – Top-down interviews with – Risk appetite is – Consultation with each – In-depth reviews by the senior managers. considered by the principal risk owner to Risk Committee; risk Risk Committee. prepare draft wording for owners give updates – Bottom-up risk reports are the Annual Report. ontheir principal risks. refreshed by regional and – Risk Committee agrees product line managers. a schedule of in-depth – ‘Severe but plausible – Biannual updates from risk reviews for the scenarios’ are Responsible Renishaw – Consolidated outputs year ahead. identified for our Forum, Speak Up and from the bottom-up viability assessment. Internal Audit. and top-down process – Composition, membership are considered by the and effectiveness of – Annual updates on Risk Committee. the Risk Committee business continuity is considered. andcrisis management, – Risk Committee agrees and insurance cover. draft principal risks. – Audit Committee reviews minutes from all Risk – Draft principal risks are Committee meetings. considered by the Audit Committee and Board. Risk movement Key themes in FY2023 Increased risks Because of the complex global environment in which we operate, effective risk management is fundamental to the Economic and political uncertainty – this risk has increased delivery of our strategic objectives. Our continued focus on as we are seeing some disruption to trade routes involving risk identification and management, processes that require China. This disruption, along with other geopolitical issues, could collaboration with the Board and senior management, has significantly influence our strategy and its implementation. meant that our risk framework has been at the top of the agenda Cyber – activity in this area (including attempted attacks) this year. has continued to increase. We remain focused on reviewing Climate change and strengthening our control environment but recognise that one successful attack could have a material impact on We continue to be conscious of the increasing global threat of our operations. climate change. We acknowledge that climate change, without any mitigating actions, poses a risk to our ability to achieve our Decreased risks strategic growth objectives. People – this risk has decreased, partly due to the considerable This year we have carried out significant work to further our work led by our HR team in the last year (see pages 65 to 67 for understanding of our exposure to climate-related risks and more information). These actions have resulted in a significant opportunities across several scenarios and time horizons. drop in leaver numbers, and the changes we have made to Our approach to assessing and managing climate risk has been pay through our global salary benchmarking activities have informed by the disclosure recommendations created by the contributed positively to our ability to attract new talent. Task Force for Climate-related Financial Disclosures (TCFD). Supply chain dependencies – our responses to the challenges Our full disclosure is on pages 72 to 80. faced during, and as a result of, COVID-19 have demonstrated Cyber security and data protection that we manage this risk well, therefore reducing its impact and likelihood. We have seen an increase in the number of sophisticated phishing attacks against us, our customers and our supplier Loss of manufacturing output – we have demonstrably base. Because of this, we are particularly conscious of the need managed this risk well in the face of challenges over the last few to maintain our high level of vigilance against cyber security years. As a result, both the potential impact and likelihood of this threats. The Risk Committee is provided with regular updates on risk being triggered have reduced. thestrength of our controls. Pensions – during FY2023, the Company and Trustees of We continually monitor and adopt good industry practices, the UK defined benefit pension scheme agreed to de-risk the and respond quickly to threats. We have continued to invest in investment strategy by disinvesting from the scheme’s equity training and technologies to mitigate, detect, and respond to this and diversified growth holdings and investing the proceeds into risk. This has included physical and logical control measures index-linked gilts. This followed a significant improvement in the to protect our information and systems. Through phishing UK scheme’s funding position due to rising gilt yields. The Board simulation exercises, training and communications, we continue has agreed to seek to insure the scheme liabilities and, as a to regularly promote awareness among our people. result, this risk is unlikely to be a principal risk in FY2024. One of the potential consequences of a cyber attack could be a breach affecting our data. We have made an ongoing commitment to achieving high standards of compliance with the General Data Protection Regulation (GDPR) and other data protection laws in the countries where we operate. 50 Renishaw plc Annual Report 2023 As part of this, we have a Privacy team that keeps policies, Strategic Report Priorities for the year ahead procedures, training and other compliance requirements under Alongside our usual annual risk identification and monitoring review. This year, we have also been working on a new Code activities, in FY2024 we will: of Conduct, which will set out, among other things, how we can preserve the privacy of our stakeholders. – increase our focus on the potential impact ofgeopolitical crises; Business continuity – continue to assess the Climate change risk, particularly Early in FY2023, the Risk Committee resolved to annually in relation to our TCFD disclosure work, and strengthen review the topic of business continuity and crisis management. responses to a potential climate event; Having reviewed our Group Crisis Management Policy and – conduct in-depth reviews on all our internal principal risks; Procedure, which already included the lessons learned from – review and monitor management’s response to the UK the COVID-19 pandemic, the Committee agreed that the policy Government’s audit and corporate governance reforms, should be enhanced to provide more detail in certain areas. inrelation to non-financial controls; As such, a project is currently underway to incorporate the stepswe are already taking to mitigate the risks in terms of – consider data protection and cyber security risks further, cyber security, manufacturing, and finance operations, into particularly in light of an increase in the frequency and our policy. sophistication of attacks; and – continue to monitor and assess emerging risks. Emerging risks We continue to assess our emerging risks. These are uncertain in nature and have the potential to develop over time and affect our performance. While they may increase the impact and likelihood of our principal risks occurring, we do not currently expect them to become future principal risks. As part of our risk management process, we maintain a dynamicapproach to monitoring emerging risks. This includes regular consideration at Risk Committee, Audit Committee, and Board meetings. For example, we continue to monitor the effect that changing work patterns, including hybrid working, has on our principal risks (including People, Innovation strategy, and Cyber). We continue to look at ways to manage this so that our people can collaborate and innovate. We also consider developments in disruptive technology and software, including identifying future opportunities as well as risks. A member of our IT and Security team. Renishaw plc Annual Report 2023 51 Strategic Report ## Principal risks and uncertainties Risk movement Link to strategy Increased risk SM Sales and marketing E Engineering P People and culture Decreased risk M Manufacturing CS Corporate Services S Sustainability Stable risk Economic and political uncertainty Appetite Link to strategy Risk owner HIGH All Chief Executive Risk description As a global business, we may be affected by global political, economic or regulatory developments. This could include a global recession, USA-China trade relations, or the Russia-Ukraine conflict. This risk can also drive industry fluctuations. Potential impact What we are doing to manage this risk – Loss of financial and physical – Monitoring external economic and commercial environments and markets in which assets in a region. weoperate, and identifying relevant headwinds. – Supply issues leading to failures – Maintaining sufficient headroom in our cash balances. tomeet contractual obligations. – Maintaining appropriate levels of buffer inventory. – Reduced revenue, profit and – Resilient business model and clear strategy, both of which are subject cash generation. toregular scrutiny. – Increased risk to credit, liquidity and currency. Innovation strategy Appetite Link to strategy Risk owners HIGH E Directors of Industrial Metrology, Position Measurement and Additive Manufacturing Risk description Failure to create new cutting-edge, high-quality products, or failing to protect the intellectual property that underpins these products, which allows us to differentiate ourselves from our competitors. As a business driven by innovation, there is a higher risk when venturing outside our traditional field of expertise where the science and engineering are less proven. Potential impact What we are doing to manage this risk – Failure to lead the market in – Increase in R&D expenditure with a continued focus on investment for new innovation of products in our core product development. and adjacent sectors. – Establishing a ‘Product Group Directors Team’, which focuses on R&D productivity – Loss of market share. initiatives around the Group. Topics in FY2023 included: embedding the flagship projects programme and establishing in-depth quarterly reviews with the Chief – Reduced revenue, profit and Executive; and evolving hybrid working. We will see the impact of these initiatives cash generation. in FY2024. – Failing to recover investment – Monthly monitoring of the ‘key technologies’ R&D targets, with an aim of identifying inR&D. business value and accelerating our promising new technologies and associated patents very early in the life-cycle. – Continuing the drive towards incremental development and more open customer collaboration at early stages of R&D projects, to ensure our innovations are successful inthe market. 52 Renishaw plc Annual Report 2023 Strategic Report Appetite LOW Minimal risk exposure is considered the safest approach, which may mean lower returns. MEDIUM A balanced approach that carefully considers the risks and rewards. HIGH Greater risk tolerance, which may involve maximum risk for maximum return. People Appetite Link to strategy Risk owner MEDIUM P Head of Group HR Risk description Our people are fundamental to the success of our business. Inability to attract, retain and develop key talent at all levels of the organisation, as well as a failure to ensure we have appropriate succession plans in place, could mean we fail to successfully deliver our strategic objectives. Potential impact What we are doing to manage this risk – Loss of expertise, skills, and – Continuing our focus on attracting, rewarding and retaining our people globally. specialist talent could affect – Continuing our global salary benchmarking programme, with our largest investment delivery of objectives. in reward, to date. We have seen an improvement in retention since conducting our – Poor retention and engagement benchmarking exercises. could slow the delivery of – Working towards implementing a global engagement platform. our strategic objectives and – Continuing to invest in our education and early career programmes as well as talent product delivery. development and succession planning. For example, we opened our dedicated STEM – Failure to develop future leaders, Centre at our headquarters in Gloucestershire, UK. insufficient talent progression. – Developing a competency framework to complement our new job architecture. – Loss of market share, reduced – Advancing our employee engagement through multi-media communications, surveys, revenue, poor customer service, promoting wellbeing, evolving feedback mechanisms and further developing our work and reduced profit. to build an inclusive culture. – Establishing continuity plans to enable rapid adaptation to changing circumstances. Industry fluctuations Appetite Link to strategy Risk owner HIGH SM, M, E Chief Executive Risk description We’re exposed to the cyclical nature of demand from the aerospace, automotive, semiconductor and consumer electronics markets, which may be more severe if downcycles in these key industries coincide. This risk can also be influenced by economic and political uncertainty. Potential impact What we are doing to manage this risk – Reduced revenue, profit and – Closely monitoring market developments. cash generation. – Expanding our product range to serve different industry sectors and markets. – Increased competition on prices. – Identifying and meeting the needs of rapidly growing markets, for example – Loss of market share if unable to inrobotic automation. meet rapid increases in demand. – Maintaining a strong balance sheet and strategic inventories with the ability to flex manufacturing resource levels. Renishaw plc Annual Report 2023 53 Strategic Report ## Principal risks and uncertainties continued Risk movement Link to strategy Increased risk SM Sales and marketing E Engineering P People and culture Decreased risk M Manufacturing CS Corporate Services S Sustainability Stable risk Route to market/customer satisfaction model Appetite Link to strategy Risk owner MEDIUM SM Chief Executive Risk description Failure to implement appropriate and efficient sales and support processes relating to systems integration and the sale of capital goods could restrict growth opportunities in these areas. Potential impact What we are doing to manage this risk – Low capital efficiency – high people – Focusing on key customers to generate repeating revenues. costs and low productivity. – Closely monitoring customer feedback. – High application engineering – Collaborating with complementary third parties. anddistribution costs. – Adopting new approaches to the sale of capital goods. – Adversely affects customer satisfaction levels, revenue, and profits. Cyber Appetite Link to strategy Risk owner LOW All Director of Group Operations Risk description External and internal threats that could result in a loss of (i) data, including IP; or (ii) our ability to operate our systems, which could severely affect our business. Potential impact What we are doing to manage this risk – Loss of IP and/or commercially – Ensuring substantial resilience and back-up is built into our systems, which are sensitive data and/or personal data. continuously updated for current threats and good industry practice. This includes duplication of hardware, dual and diverse connections where possible, and regular – Inability to access, or disruption back-up schedules. to, our systems leading to reduced service to customers. – Regularly discussing cyber and security risks at Board and Audit Committee meetings, including the strength of our control environment. – Financial loss and reputational damage. – Deploying physical and logical control measures to protect our information andsystems. Real-life restores of data and services are carried out regularly. – Impact on decision-making due tolack of clear and accurate data, – Conducting regular security awareness training, including phishing simulation or disruption caused by the lack exercises, which are proving effective. We also conduct external penetration testing of service. as appropriate. 54 Renishaw plc Annual Report 2023 Strategic Report Appetite LOW Minimal risk exposure is considered the safest approach, which may mean lower returns. MEDIUM A balanced approach that carefully considers the risks and rewards. HIGH Greater risk tolerance, which may involve maximum risk for maximum return. IT transformation failure Appetite Link to strategy Risk owner LOW All Director of Group Operations Risk description The upgrade of our Sage CRM and Sage ERP systems to Microsoft Dynamics 365, to remove legacy systems and ensure our global operations are better integrated, could affect our business if there are major technical issues, or it is poorly integrated. This risk could also result in problems if there are significant delays to the programme or it runs significantly over budget. Potential impact What we are doing to manage this risk – Major disruption to our systems, – Maintaining close project management between ourselves, Microsoft and our causing delays to our operations. system integrator. – Affect our ability to process or issue – Working to a clear, risk-elimination-based roadmap with measurable milestones. invoices and customer orders, or to – Strengthening the deployment team to accelerate roll out, with targeted recruitment procure goods and services. and upskilling. – Increased costs, including to fix – Obtaining commitment from the Board to invest as necessary. technical issues and restore or upgrade other affected systems. Supply chain dependencies Appetite Link to strategy Risk owner LOW M, S Head of Group Manufacturing Risk description Critical components, or some components that we buy from single-source suppliers, make us vulnerable to an interruption in supply. Potential impact What we are doing to manage this risk – Inability to fulfil customer orders, – Maintaining a risk dashboard for our key manufacturing sites, to help us prioritise leading to a reduction in revenue anddetermine stock levels. and profits, and damage – Adapting stock levels for high-risk items, to take account of supply lead times to reputation. and time to redesign in the event of loss of supply. We actively seek cost-effective – Failure to meet alternative sources of supply (including in-house manufacturing), to reduce contractual requirements. dependency on single-source suppliers, with a continued focus on key components. – Increased cost of alternative – Collaborating with product groups on an ongoing basis to review risks and, where sourcing or redesign. appropriate, carry out reviews and updates to specifications where necessary to facilitate alternative sourcing or redesign. – Loss of market share. Renishaw plc Annual Report 2023 55 Strategic Report ## Principal risks and uncertainties continued Risk movement Link to strategy Increased risk SM Sales and marketing E Engineering P People and culture Decreased risk M Manufacturing CS Corporate Services S Sustainability Stable risk Competitive activity Appetite Link to strategy Risk owner LOW All Chief Executive Risk description Failure to adapt to market and/or technological changes. Potential impact What we are doing to manage this risk – Reduced revenue, profits – Ensuring we are diversified across a range of products, industries and geographies. andcash generation. – Closely monitoring market developments, particularly across our core product groups. – Loss of market share. – Maintaining local sales and engineering support to quickly identify changing – Price erosion. local needs. – Loss of reputation as a leader – Continuing to build our product portfolio through our strong historic and ongoing in innovation. commitment to R&D (seeNote 4 to the Financial statements for details of R&D expenditure). Capital and resource allocation Appetite Link to strategy Risk owner MEDIUM E Group Finance Director Risk description This risk could be triggered by a failure to properly allocate budget and resource between core and emerging activities. Potential impact What we are doing to manage this risk – Investing in declining or less – Defining, prioritising, and developing strategies for all core and emerging areas profitable areas at the expense of ofthe business. more profitable and strategically – Scrutinising all expenditure, including regular reporting on labour costs and important areas. capital expenditure. – Reduced profits. – Regular reporting of cash balances. – Loss of market share. – Tracking performance objectives, including regular reporting on flagship – Impact on innovation. project progress. 56 Renishaw plc Annual Report 2023 Strategic Report Appetite LOW Minimal risk exposure is considered the safest approach, which may mean lower returns. MEDIUM A balanced approach that carefully considers the risks and rewards. HIGH Greater risk tolerance, which may involve maximum risk for maximum return. Exchange rate fluctuations Appetite Link to strategy Risk owner MEDIUM SM Group Finance Director Risk description We report our results and pay dividends in Sterling and, with more than 90% of our revenue generated outside the UK, we’re exposed to volatility in exchange rates that could have a significant impact on our results. Movements of Sterling against our major trading currencies cause cash flow, currency translation, and intercompany balance translation risks. Potential impact What we are doing to manage this risk – Significant variations in profit. – Maintaining rolling forward contracts for cash-flow hedges in accordance with Board-approved policy, and one-month forward contracts to manage risks on – Reduced cash generation. intercompany balances. – Increased competition on – Tracking overseas net assets value compared to the market capitalisation. product prices. – Obtaining input from external sources, including our banks. – Increased costs. Climate change Appetite Link to strategy Risk owner LOW All Head of Group Manufacturing Risk description We could be exposed to climate-related physical risks, such as hurricanes, floods, wildfires and pandemics, which could potentially affect our ability to operate. Other risks related to a transition to a low-carbon economy could also affect us if we fail to react adequately to new climate- related legislation, technology or market factors. Potential impact What we are doing to manage this risk – Increased costs of key raw – Our Sustainability team supports the Risk Committee in evaluating and understanding materials, due to climate- the possible effect of climate-related risks and opportunities. related legislation affecting the – Climate-related hazards have been a driver in developing our manufacturing macroeconomic landscape with approach. More detail on our risk mitigation work can be found in the descriptions theintroduction of carbon taxes. ofour Loss of manufacturing output and Supply chain dependencies risks. – Disruption to operations caused – Using our product groups’ priorities to manage climate-related transitional risks. by climate-related hazards could – Reviewing and maintaining business interruption and other insurance cover. reduce our revenue, create safety risks to our people and increase – Investing to reduce energy consumption and increase renewable energy our operational costs. generation across the Group. For example, we are aiming for all new buildings andrefurbishments to achieve Net Zero emissions in operation. – If we fail to achieve Net Zero commitments, we could experience damage to reputation and loss of business. Renishaw plc Annual Report 2023 57 Strategic Report ## Principal risks and uncertainties continued Risk movement Link to strategy Increased risk SM Sales and marketing E Engineering P People and culture Decreased risk M Manufacturing CS Corporate Services S Sustainability Stable risk Loss of manufacturing output Appetite Link to strategy Risk owner LOW M Head of Group Manufacturing Risk description Manufacturing output can be adversely affected by factors including environmental hazards, technical delays or outages, plant or equipment failure, inadequate resourcing levels, or factors affecting the workforce, such as a pandemic. Potential impact What we are doing to manage this risk – Inability to fulfil customer orders – Duplicating high-dependency processes, such as component manufacturing and leading to a reduction in revenue, finishing, electronic printed circuit board assembly, and microelectronics assembly, failure to meet contractual across multiple manufacturing locations. requirements and damage – Ensuring we have flexible manufacturing capacity and sufficient resilience across to reputation. ourmanufacturing sites. – Increased costs of alternative – Ensuring standardised approaches to assembly, annual risk assessments, sourcing or redesign. andbusiness continuity planning. – Impact on maintenance – Reviewing and maintaining business interruption and otherinsurance cover. ofbuffer inventory. – Loss of market share. Non-compliance with laws and regulations Appetite Link to strategy Risk owners LOW All General Counsel & Company Secretary and Managing Director – Renishaw Medical Risk description We operate in a large number of territories and in some highly-regulated sectors. We are subject to a wide variety of laws and regulations, including those relating to anti-bribery, anti-money laundering, sanctions, competition law, privacy, health and safety, product safety and medical devices. There is a risk that somewhere in the Group we may not be fully compliant with these laws and regulations. Potential impact What we are doing to manage this risk – Damage to reputation and loss of – Maintaining our whistleblowing hotline (Speak up), available to all employees future business. andthirdparties who provide services for or on behalf of the Group, which means thatour people and other stakeholders can make us aware of any potential – Potential penalties and fines, and non-compliance issues. cost of investigations. – Establishing global compliance programmes for all high-risk areas, which includes – Management time and attention policies, key controls and effective communication. Training also includes refreshed in dealing with reports ofnon- mandatory anti-bribery and anti-corruption modules. compliance. – Promoting all compliance functions under the umbrella brand ‘Responsible Renishaw’. – Inability to attract and retain talent. This helps to raise awareness about compliance, and makes it easier for our people tofind the information they need to comply. – Maintaining our global privacy programme. 58 Renishaw plc Annual Report 2023 Strategic Report Appetite LOW Minimal risk exposure is considered the safest approach, which may mean lower returns. MEDIUM A balanced approach that carefully considers the risks and rewards. HIGH Greater risk tolerance, which may involve maximum risk for maximum return. Product failure Appetite Link to strategy Risk owners LOW E, M Group Quality Manager and Quality Manager – Healthcare Regulatory Risk description The quality of our products could be adversely affected by internal threats, such as inadequate quality management processes. Product quality could also be affected by external threats, such as substandard performance from third-party suppliers. We could also be affected by other external risk factors, including grey market and counterfeit goods in our supply chain, and this may result in latent risks where product failures are not yet realised. This risk is particularly notable in our neurological products, where failure could result in significant personal injury claims orregulatory action. Potential impact What we are doing to manage this risk – Damage to reputation. – Ensuring we have rigorous internal product development and testing procedures (during development, manufacturing and release) to international standards where – Claims, including personal injury. applicable, to ensure high levels of quality assurance. This includes following ISO – Potential penalties and fines, cost 14971 and ISO 13485 for all medical devices. of investigations and high recall – Interacting with customers and regulators to obtain and address feedback. costs for medical devices. – Conducting a thorough vendor approval process, and regular monitoring of third-party – Increase in non-revenue-generating suppliers to ensure incoming parts and sub-contracted activity meet requirements. warranty activity. – Applying grey market product verification activity where component sourcing is not – Inability to fulfil customer orders from original equipment manufacturers (OEMs) or franchised providers. leading to a reduction in sales. – Limiting our liability through our terms and conditions of sale and we also have product liability insurance. For clinical studies, we have separate trial insurance. Pensions Appetite Link to strategy Risk owner MEDIUM P Group Finance Director Risk description Investment returns and actuarial assumptions of our defined benefit (DB) pension schemes are subject to economic and social factors outside our control. Potential impact What we are doing to manage this risk – Any deficit may need additional – Implementing recovery plan for the UK DB scheme in June 2019, with the aim funding in the form of offunding to self-sufficiency by 2031. supplementary cash payments – Appointing a corporate Trustee in June 2022, which has reduced management time to the plans, or the provision of and support costs. additional security. – Engaging with the corporate Trustee on investment strategy. – Significant management time. – The corporate Trustee works to a statement of investment principles, and the – External support costs. Company and corporate Trustee seek appropriate independent professional advice, – Damage to reputation. if needed. – During FY2023, the Company and Trustees of the UK DB scheme agreed to de-risk the investment strategy by disinvesting from the scheme’s equity and diversified growth holdings and investing the proceeds into index-linked gilts. This followed asignificant improvement in the scheme’s funding position due to rising gilt yields. As aresult, the Trustees agreed to £8.7m of funding due between 1 October 2022 and30 September 2023 being deferred to 2026. Renishaw plc Annual Report 2023 59 Strategic Report ## Viability statement The Directors have assessed our prospects and viability, Assessment period in accordance with the UK Corporate Governance Code. The Directors used a three-year period, to the end of September This assessment took account of our current position and 2026, in making their viability assessment. While a five-year principal risks, and the details of the assessment and the business plan has been prepared, the Directors feel that a conclusion reached are set out as follows. three-year period is more suitable for this assessment and better reflects our business model, where we typically have short-term Context contracts with customers, a short order book, and can adapt our In making the assessment, the Directors considered the manufacturing to meet demand in months rather than years. following factors that they felt provided important context. Principal risks Financial resources – we have significant financial resources, with cash and cash equivalents and bank deposits at the start The Directors reviewed our principal risks and considered of the viability assessment period of £206.4m. We have a strong which could have a significant effect on the Group’s financial history of creating cash for the business. The only external position, business model and/or future performance if they source of finance included in the viability assessment is the were to crystallise within the period to September 2026. existing property mortgage in Japan (see Note 20 on page 178), Financial models, described below, were used in assessing which is assumed to be repaid in full in the assessment period. thepotential impact. We have no debt covenants. Financial modelling Business model and markets – our business model includes Each scenario used the same starting point, being the designing and manufacturing products ourselves, giving us pessimistic version of our five-year business plan (with the the flexibility to respond to customers’ needs and control over revenue in this pessimistic forecast also referred to as the ‘highly where we direct our manufacturing resources. We can also probable’ revenue forecast for hedge accounting). For context, direct our sales and marketing resources where needed, should revenue in the first year of this pessimistic base scenario is market trends and conditions change. In addition, we are also similar to FY2023 revenue of £688.6m, while costs and other diversified over a range of markets, as explained on pages 32, cash outflows still reflect ambitious growth plans. 33 and 42. Business planning – our business planning process uses a top-down approach (the ‘corporate view’) as well as detailed forecasts from both our product groups and our sales regions, to ensure we consider a range of perspectives. We also use external sources of information, such as market trends and economic growth rates, in our business planning process. Risk management – we have a robust risk assessment and management process, as set out on pages 48 to 51. As we explain in the scenarios section below, the crystallisation of our principal risks has been considered in the viability assessment. Manufacturing employee at our Woodchester, UK site. 60 Renishaw plc Annual Report 2023 The three scenarios then took this same starting point and revised the forecasts to reflect: Strategic Report Scenario Summary 1 A significant reduction in revenue, incorporating: – a worsening of the global economy; – a disruptive event that causes both a short-term Group-wide disruption of trade and a sustained significant loss of revenue from key customers after the event; – a strengthening of Sterling; – a delay in launching key new products; and – no revenue growth from capital equipment. 2 Significant increase in costs, incorporating: – a significant fine or penalty; – a sustained increase in inflation; – additional professional fees; – reduced operating profit margins on the sale of capital equipment; and – additional costs to respond to a one-off disruptive event. 3 Combined reduction in profitability, incorporating: – a reduction in revenue less significant than scenario one and an increase in costs less significant than scenario two. We incorporated appropriate, realistic mitigating actions into Outcomes, mitigating actions and upsides each scenario, such as reducing capital expenditure, bonuses The financial modelling demonstrated that should the Group and dividends relative to the revised performance and position experience ‘severe but plausible’ conditions in the period to in these scenarios. September 2026, positive cash and bank deposit balances can This modelling showed that cash balances remained positive be maintained throughout. As a vertically integrated business in all three scenarios, and exceeded £100m at the end of the that typically funds future growth through cash reserves, assessment period (30 September 2026) in each scenario. we have a good degree of control on how we use cash, and a range of mitigating actions we can take to respond to We also performed a ‘reverse stress test’, identifying the challenging conditions. reduction in profit, after mitigating actions, needed to exhaust cash in the assessment period. This identified a trading level so In making their viability assessment, the Directors also low that the Directors feel that the events that could trigger this considered recent trading performance and how well the Group would be highly unlikely. The Directors also concluded that a responded to challenges in recent years such as the COVID-19 one-off cash outflow that would exhaust the Group’s cash in the pandemic and global supply chain disruption. assessment period was also highly unlikely. Conclusion Based on this assessment, incorporating a review of the current position, the scenarios, our principal risks and mitigation, the Directors have a reasonable expectation that we’ll be able to continue operating and meet our liabilities as they fall due over the period to 30 September 2026. Renishaw plc Annual Report 2023 61 Strategic Report ## Managing our resources and relationships ## We are ## committed to ## our stakeholders ### We’ve summarised our stakeholder relationships below, and on pages 85 to 88 set ### outhowtheBoard has considered our stakeholders when making principal decisions ### (our‘Section 172statement’). ## People Planet Why we engage Why we engage We want to provide an inclusive environment that allows We want to carry on our transformation into a sustainable ourpeople to thrive and achieve their potential. business that continues to create positive change for people as well as the planet. How we engage How we engage – Hold employee briefings and equality, diversity and – Review and monitor our emissions, waste and energy inclusion (EDI) forums. Catherine Glickman, Non-executive consumption. Director and employee engagement ambassador, – Inform our shareholders about our climate transition plan attends these and gives regular briefings to the Board through our Capital Markets Day and external reporting. onrecruitment and project progress. – Deliver employee engagement sessions covering – Form working groups with stakeholders from across sustainability topics, including sustainable innovation, thebusiness on key people projects. lifecycle assessments and how we support the UN SDGs. – Consult with Works Forums for UK sites, with – Respond to our customers’ sustainability assessments representation from different business areas. andshare our progress and plans. – Continue our Non-executive Director mentoring of senior – Research and reflect on our customers’ major climate- leaders to support development of talent management and related risks and opportunities. succession planning. Outcomes Outcomes – Conducted global salary benchmarking with our largest – Met with our largest institutional investor to answer ever spend on reward. This better aligns our global roles questions about our climate transition plan. with market rates, making us more competitive. – Engaged with key customers across the world through – Introduced a job architecture framework that helps us align their sustainability supply chain disclosures. roles, based on the types of work performed. This means – Assessed some of our major customers’ climate-related that all roles will be consistent, with the same job profile risks and opportunities to strengthen our understanding used for people with similar skillsets. ofthese areas. – Introduced core competencies for all roles to ensure we – Delivered 11 sustainability education sessions have people with the right skills and behaviours. for employees. Read more on pages 65 to 67 Read more on pages 68 to 80 62 Renishaw plc Annual Report 2023 Will Lee, Chief Strategic Report Executive, at the opening of our new technical centre in Bangalore, India. ## Customers Communities Why we engage Why we engage We work closely with our customers to understand We are committed to conducting business in a socially their production processes. We use this to develop responsible way. precise, productive and practical technologies to solve their challenges. How we engage How we engage – Support our customers where they are located through – Deliver science, technology, engineering and maths ourglobal technology centres. (STEM) education through our global education outreach programme. – Visit customer sites to understand their challenges. – Give financial support for charities and not-for-profit – Board visits – this year the Board visited two major organisations. customers in Germany to see first-hand their production challenges. – Participate in local community and business initiatives including a ‘Women empowering other women’ event – Invite customers to our factories to see how we use our in Mexico. technologies in our own production. – Included our communities in our 50th anniversary – Gather feedback through a mix of face-to-face celebrations through our ‘50 at 50’ charity initiative. anddigital channels. Outcomes Outcomes – Opened a new technology centre in Bangalore, India, – Opened our new Gloucestershire STEM Centre. This will tosupport our growing customer base. strengthen our outreach and allow more children to learn about STEM subjects and associated careers. – Through visits the Board gained a greater appreciation of the strength of our customer relationships, and how these – Donated £0.3m to more than 290 charitable and not-for- benefit both us and our customers. profit organisations. – Hosted industry-specific events, including an event for – Education Outreach teams in Wales and Gloucestershire aircraft maintenance, repair and overhaul. Focusing on supported 221 school-related activities, including seven applications for specific markets means we can present a work experience weeks for students. range of solutions for customer needs. – The Board approved £150,000 to be donated to 50 not-for- – Worked with early adopters of our new Industrial profit organisations in the countries where we operate. Automation products, including adapting project plans to address their feedback. Read more on page 81 Read more on page 82 Renishaw plc Annual Report 2023 63 Strategic Report ## Managing our resources and relationships continued Our Non- executive Directors hosted Q&A sessions during this year’s Capital Markets Day. ## Shareholders Suppliers Why we engage Why we engage We recognise the trust that our shareholders have placed in We build effective relationships with our suppliers to help us, and aim to provide sustainable long-term growth in return. ensure we can manufacture the products our customers need, as well as to support our infrastructure and operations. How we engage How we engage – Held our annual Capital Markets Day in June 2023, where – Regularly communicate with our suppliers around the our Directors took part in dedicated Q&A sessions. world, through our global teams and buyers in our suppliers’ markets. – Sir David Grant wrote to our largest institutional investors who voted against resolutions 6 and 7 at our 2022 AGM, – Engage with suppliers early. We work closely with inviting them to discuss their concerns (see page 98). suppliers to ensure the ongoing supply of quality goods and services we need now and for the future. – The Board consulted with our largest institutional shareholders on the new Directors’ Remuneration Policy – Chair ‘Together Gloucestershire’, a UK SME proposals (see page 127). purchasing initiative. – Webcast presentations for our interim and annual results, – Conduct ongoing compliance audit and risk which include online Q&A sessions. management processes. – Gave shareholders the ability to submit proxy voting – Engage with suppliers about challenges, and update instructions electronically, and hosted a dedicated email the Board on significant matters that may affect our inbox for them to submit questions before the AGM proxy supply chain. voting deadline. Outcomes Outcomes – Board reviewing its approach to investor relations – Developing an education programme for suppliers to following feedback from investors, including at the Capital support them to achieve their sustainability ambitions. Markets Day. – Added 47 new UK SME suppliers this year. – Board continues to monitor diversity, a key issue for our – Ensured we have a diverse and secure supply chain of shareholders, as a result of investor feedback. high-quality, safe and ethical materials that has been – The ability to vote and ask questions electronically at our unaffected since the start of the Russia-Ukraine conflict. AGM makes it easier for shareholders to engage. Read more on page 83 Read more on page 84 64 Renishaw plc Annual Report 2023 Functional competencies are the skills, knowledge, and Strategic Report behaviours that are specific to an area of work (i.e. a job family group). These are being developed and we aim to complete competency mapping for all groups during 2024. ## People Once complete, these competencies will help our people to Our overall aim is to attract and retain people with the right better understand the requirements of their current role and skills and to ensure that we continue to be a great place to provide insights into potential future roles. work, grow and contribute. Succession This year we’ve made good progress with three key global Our Non-executive Directors have continued to mentor members projects that focus on: of our Senior Leadership Team, to support development of – improving our performance review process; talent management and succession planning. We also continue to develop succession plans to ensure there is a pipeline for – developing competitive rewards and benefits; and business-critical roles. This involves our HR Business Partners – supporting career progression. working closely with our people to identify potential and develop personal development plans for business-critical roles. We are continuing to embed our values of innovation, inspiration, integrity and involvement, and our focus on our three key We are conscious of the need to consider all forms of diversity projects will help to foster a productive and collaborative in our succession planning. It is, however, unfortunate that working environment. the number of women in STEM remains low in proportion to the number of men, despite efforts made to promote the field Developing and motivating our people to women by the Group and external bodies over previous Having made changes to our performance review process years. This leads to a shallower than ideal talent pool of female in FY2022, we continued to simplify the process this year, engineers. We are ourselves taking steps to attract and retain following feedback from our employees. For example, using our women in engineering, and have recently appointed a new global HR system, Workday, we have minimised the number Non-executive Director, Professor Karen Holford, who will be an of steps involved in the review process. We’ve also coached excellent role model to our female and male engineers alike. and supported managers to help them move away from annual conversations on performance towards ongoing conversations Early careers throughout the year. We’ve also worked with them to promote a Our early career pathways are designed to provide an ongoing focus on the importance of setting clear objectives. pipeline of specific skills. In March 2023, we formed an Early Careers Network (ECN) within the UK to create a community of We’ve also been working to address feedback from our people people from different schemes, sites and departments. The ECN that highlighted a lack of clarity around career progression provides an inclusive space where members can: and how to access development training. In response to this feedback, we are working to improve the following areas: – take part in events and activities with their peers; Job architecture – we have implemented a new global job – participate in sports and special interest groups; and architecture, which helps us to align roles in our business, based – meet other people in their cohort from around the business. on the types of work performed. This means that all roles, no matter where employees are based, will be consistent, with the FY2023 worldwide early careers profile same job profile used for people with similar skill sets. Apprentices Industrial placements Competencies – we are also developing a global competency framework for all roles. This complements our new job architecture and will ensure we have people with the right skills and behaviours throughout the business. Assessing these ## 185 45 competencies will also help to drive desired behaviours and knowledge in our people, as well as to develop Summer placements Graduates the skills required to progress with our strategy and our business objectives. These competencies will be defined in two groups: core and ## functional. Core competencies are a set of attributes that 18 158 we expect every employee to have. We have defined four core competencies, which we will incorporate into our next performance review cycle. Renishaw plc Annual Report 2023 65 Strategic Report ## Managing our resources and relationships continued ## People continued Rewarding and recognising our people Engaging with our people Last year, we reported on our work to move away from annual It’s essential that our people are engaged to fulfil their own inflationary salary reviews towards a new benchmarking potential and contribute to our success. programme. Having first introduced the programme in the UK in We use a variety of channels to engage with employees. FY2022, we have now rolled it out globally. This will better align In thelast year we: our global roles with market rates. As a result of this work, our average pay in FY2023 has increased by 10.2%. – issued global video updates from members of our Executive Committee following their monthly meetings; This year, we have also started to review our employee benefits. This is initially focused in the UK, and consists of two phases: – collaborated on our three key projects (set out on page 65) by forming working groups made up of stakeholders from around Phase one – FY2023 the business; – New UK employee benefits portal bringing our offering – consulted with our Works Forums at different UK sites, with together on one platform. representation from different business areas elected by – Modernised death in service benefit that reflects the needs employees. Catherine Glickman, Non-executive Director and ofour employees. employee engagement ambassador, also attends employee briefings and Equality, Diversity and Inclusion (EDI) forums. – Implemented a health cash plan that gives all UK employees She provides regular briefings to the Board on recruitment and access to healthcare. We designed this plan in response to project progress; asurvey asking employees what types of cover they wanted. – provided updates on Channel R, our global video channel. – Retail discounts in response to the ongoing cost-of- This year our independent Non-executive Directors featured living challenges. ina video about their roles and responsibilities; and Phase two – FY2024 – developed communications for employees without regular – We are working towards a flexible benefits platform, online access, such as announcements via our Workday which will allow employees to choose benefits to suit mobile app. their circumstances. We always look for ways to hear what our employees think – We are looking to provide our people with more options to so that we can keep strengthening our approach to people help manage their financial wellbeing. matters. For example, the feedback we received from our – We are aiming to implement a total reward statement, which regional HR teams this year led us to roll out new regional will provide employees with information about the value of their absence, recruitment and onboarding processes more quickly employment package, including remuneration and benefits. than planned. Meanwhile, the work we’re doing to strengthen our approach to reward and career progression is in direct – We are planning to review our global benefits in FY2024. response to feedback from employees asking for more clarity Our projects to modernise how we develop and motivate oncareer progression. employees (including early careers), and our continued We have engaged on remuneration matters specifically with investment in rewarding our people, will help us to progress with theworkforce in a range of ways: the UN SDGs where we can have the most impact. These are to promote fair and equitable earnings in employment and to – the operation of a reward working group involving both reduce the proportion of youth not in employment, education UK and international members. This reviews our approach or training. See pages 69 to 70 for more information on the to reward, proposes improvements, and enables senior UN SDGs. management to receive feedback from the wider workforce; As well as improving engagement with these projects, we – engagement with stakeholder groups from all parts of the have set ourselves the objective to implement a dedicated business, including Works Forums; engagement platform in FY2024. This will keep strengthening – running consultations on benchmarking of pay and UK death our approach to employee engagement and help us to better in service changes; understand our employees’ needs. – discussing various pay and benefit changes in town halls; and – a Channel R video to all colleagues specifically discussing reward matters. Sir David Grant, Juliette Stacey, Stephen Wilson and Catherine Glickman – our independent Non- executive Directors in FY2023. 66 Renishaw plc Annual Report 2023 ![img-6.jpeg](img-6.jpeg) ◀ Employees at our office in Tokyo, Japan. ### Nurturing an inclusive culture We aim to create an inclusive environment where everyone can be themselves at work. By fostering a culture of respect, and building a workplace that is diverse in thought, we will encourage our people to achieve their full potential. In the last year we: - delivered awareness events through our network of voluntary EDI champions. Our champions support and promote EDI activities in their business areas and contribute to our future EDI objectives; - continued our inclusive leadership training programme for managers; - commenced an allyship training programme with EDI champions. This involves re-learning how we see the world to appreciate other people's perspectives; and - progressed with the selected UN SDG to promote inclusive growth and decent work for all through the implementation of global safety benchmarking and new job architecture, which drives more consistency. This year we also appointed a new EDI Lead. As well as supporting our UK EDI group, they will be responsible for developing, implementing and monitoring EDI activities. Our EDI policy sets out our commitment to equality, diversity and inclusion. The policy will also help to form EDI-related competencies into the career frameworks we are developing. This will complement our new job architecture and drive consistency and accountability of EDI practices. Our HR colleagues also updated the Board on the steps we are taking as a business to attract and retain women in engineering. At 30 June 2023 our gender diversity split was: | | Male | Male % | Female | Female % | | --- | --- | --- | --- | --- | | Board^{1} | 6 | 75 | 2 | 25 | | Executive Committee^{2} | 6 | 86 | 1 | 14 | | Senior managers^{3} and subsidiary directors^{4} | 44 | 92 | 4 | 8 | 1 Including the Executive Directors. 2 Including the Executive Directors. 3 As defined by the Companies Act 2006. 4 Means statutory directors. Although we acknowledge that we do have some way to go, as evidenced by the table above, we are pleased to recognise women in senior management positions, including Louise Callanan, the Director of Additive Manufacturing, which was our fastest growing product line in FY2023. ### All employee gender diversity ratio ![img-7.jpeg](img-7.jpeg) ### Supporting wellbeing The wellbeing of our people remains a priority. As part of the processes in place to support the wellbeing of our people, we have: - extended counselling eligibility, through our global Employee Assistance Programme (EAP), to our employees' children aged 12 and above (previously 16 and above); - appointed mental health first aiders across all UK sites, with ongoing training being rolled out globally as part of a longer term plan; - created reflection rooms at our largest UK sites. These provide a calm and private space for employees who are experiencing sensory overload or need to pray during their working day; - enhanced our UK paternity pay to include a further two weeks' leave at full pay; and - offered mental health awareness training for managers. ### Providing a safe working environment We recognise the importance of promoting safe working practices and how these contribute to our overall success. We integrate health and safety into our daily activities through our robust and effective health and safety management system. This ensures that our activities are carried out in a way that protects the health, safety, welfare and wellbeing of our people. We have remained compliant with health and safety legislation, through our strategies for managing our health and safety risks across our sites with a focus on improving safety culture. Following a global near miss campaign that commenced in March 2022 we have seen an increase in the number of near misses reported. Our people are encouraged to raise near misses so we can take the necessary corrective actions to prevent accidents before they occur. There have been 272 reports compared to 178 last year. This year we experienced 182 accidents (FY2022: 145) against a year-end headcount of 5,175 (FY2022: 5,097). This equates to an Accident Frequency Rate of 21.12 per million hours worked (FY2022: 24.27). This is very low compared to the average for the UK manufacturing sector of 221.5 per million hours worked. There were seven reportable accidents under the UK RIDDOR reporting requirements. ### Focus for FY2024 - Continue to develop our approach to wellbeing. - Develop and implement a more rigorous internal health and safety auditing approach within the UK. This will focus on more regular audits for higher risk areas of the business with a more targeted approach to key risks. - Introduce manual handling refresher training within the UK to further reduce risks associated with manual handling activities. Remishaw plc Annual Report 2023 67 Strategic Report ## Managing our resources and relationships continued 2 1.6k4.2k 3.3k4.0k ## Planet 3.6k3.7k In November 2021, we announced our Net Zero targets and the UN SDGs that we are actively contributing towards. 3.5k4.0k This means (i) minimising our environmental impact, and (ii) working in partnership with our customers, suppliers and 3.9k4.6k local communities to create positive change for people as well as the planet. 2 Developing our sustainability delivery plan This year, our sustainability delivery plan has continued to 8.4 evolve as we learn how to embed sustainability into our 10.9 business. We have moved towards a business-function-led, and sustainability-team-supported approach. This means we are 12.9 now focused on enabling business functions to own specific sustainability challenges they are uniquely placed to solve. 14.7 To support this, we have changed our approach to sustainability 14.8 governance, which you can see in more detail on page 76. We have refined our science-based targets ahead of sending them for approval to the Science Based Targets initiative (SBTi) in August 2023. Our intended targets, all set against an FY2020 baseline, are: 19.5m38.7m – achieve Net Zero in Scope 1 and 2 emissions by 2028; 19.4m39.0m – achieve a 50% reduction in Scope 3 emissions by 2030; and 35.7m 18.9m – achieve Net Zero across all scopes by 2050 at the latest. 33.9m 19.3m To achieve our targets, we need to reduce our greenhouse gas (GHG) emissions by 90% compared to our FY2020 baseline. 21.1m37.2m We will also invest in credible carbon capture and removal programmes to address the remaining 10% of emissions. More detail on how we’ve progressed towards achieving these targets this year, along with our longer-term plans, can be found in our climate transition plan on page 71. 37.6m 20.5m Quantifying our Scope 3 emissions 23.2m35.3m We have completed a more comprehensive assessment of our 32.2m 22.4m Scope 3 emissions. A breakdown of these emissions is available at www.renishaw.com/sustainability, along with the full details of 30.1m 23.2m our Scope 1 and 2 emissions and our calculation methodology. 25.4m32.9m In brief, our GHG emissions have been calculated according to the principles set out in the GHG Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard. We took a hybrid approach, using primary data if it was available and secondary 2 data when it was not. Our secondary data was sourced from 8.4k averaged data sets or financial modelling using the Scope 3 Evaluator from the GHG Protocol and Quantis. 9.0k We have not been able to determine the emissions associated 9.0k with how our products are used, or what happens when the customer or end user disposes of them. We found these 9.3k emissions particularly difficult to quantify as we sell tens of 11.4k thousands of products into dozens of countries and a wide range of applications. Our initial estimates suggest these emissions will be a significant part of our overall Scope 3 footprint. This is why we are taking more time before disclosing these emissions to | Total statutory emissions tCO Energy source kWh Group energy consumption kWh | ensure our calculations are complete, consistent and transparent. | e | | | --- | --- | --- | --- | | Statutory GHG emissions tCO Total measured Scope 2 GHG emissions tCO | In line with our Group Environmental Data Policy, we calculate our GHG emissions using the GHG Protocol Corporate Accounting and Reporting Standard (revised edition) and the GHG | e per £m revenue | e location-based | | 2023 2023 2023 | | | | Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard. We use the latest IPCC GWP 100-year horizon conversion factors, DESNZ, GHG Protocol, supplier-specific 2023 2023 and factors taken from a respective country’s National Inventory Report or national government/agency/regulator to calculate our emissions. We base as much data as we can on direct 2022 2022 2022 sources, such as meter readings and utility bills. We use estimated figures for June’s Scope 1 and 2 emissions each year to ensure timely data capture, but we’ll update this data in the next Annual Report. Data for previous years has been subject to a ‘true up’ due to improvements in data capture methodologies, official retrospective updates to carbon emission factors and 2022 2022 the correction of historical data errors. Our ‘statutory emissions’ mean our Scope 1 and 2 emissions, and we use the market-based methodology to account for our efforts in generating and 2021 2021 2021 purchasing low-carbon energy. The location-based method is provided for disclosure only. All our emission data this year has been externally assured and received limited assurance against | 2021 2021 | | the ISO 14064-1:2019 standard. | | --- | --- | --- | | 2020 2020 2020 | | | | 2020 2020 | 68 | Renishaw plc Annual Report 2023 | | 2019 2019 2019 | | | | 2019 2019 | | | | Scope 1 Scope 2 UK Non-UK Renewable Non-renewable | | | From this initial assessment of our Scope 3 emissions, we average data with some component-level LCAs to calculate Strategic Report estimate that in our baseline year (FY2020) they accounted the carbon impact of what we buy with enough accuracy and for 97% of our total GHG emissions. While these figures are greater speed. We expect this to be a more effective way for estimates, they give us a good indication of where our carbon usto establish carbon pricing and embed low-carbon hotspots are. Our Scope 3 emissions have risen by 9% decision-making into our business processes such as compared to last financial year and there are two key reasons for productdesign and capital expenditure approvals. this. Firstly, we have increased capital expenditure significantly Supporting the UN SDGs compared to last year predominantly to support the expansion of our Miskin site. Secondly, there has been a 4-5% on average Reducing GHG emissions is just one part of a balanced price increase for purchased goods for our UK manufacturing sustainability delivery plan. That’s why, last year, we identified which has artificially increased the emissions that have been three UN SDGs – 8, 12 and 13 – as most relevant to our financially modelled. A breakdown of our emissions since business and where we can have the most impact. We have our baseline year can be viewed at: www.renishaw.com/ continued to work to support these goals. sustainability. UN SDG 8 – Sustainable economic growth Carbon hotspots are the largest sources of emissions and our anddecentwork figures suggest our hotspots are within purchased goods and We are committed to doing business responsibly with various services, specifically the metals, electrical components and projects to support the achievement of this goal spread optical equipment we buy. We are now determining how to throughout the business. For instance, elements of UN SDG increase the accuracy of this data by moving away from financial 8 cover equality, diversity and inclusion (EDI). For more modelling and instead sourcing primary data where possible. information on our work to promote EDI see page 67. As part of our work to quantify our Scope 3 emissions, We also have the opportunity to provide technology that allows we’ve completed life cycle assessments (LCAs) on a small for inclusive employment by designing products that are equally sample of our products. This was more complex than easy to use regardless of characteristics such as gender, age anticipated, mainly due to the lack of data available for most and race. This year we created a ‘design for inclusivity’ guide for purchased components. our product designers, to ensure they design our products with Due to those challenges, we are instead developing a carbon equality in mind. accounting methodology based on the principles set out in the Our education outreach and early careers programmes help GHG Protocol Product Life Cycle Accounting and Reporting tosupport youth employment – see more on page 82. Standard. This approach will use more readily available industry Some of our new electric vehicle charging stations helping us achieve Net Zero in Scope 1 and 2 emissions by 2028. Renishaw plc Annual Report 2023 69 Strategic Report ## Managing our resources and relationships continued ## Planet continued Our Sustainability team running a workshop for local students at our New Mills STEM Centre in Gloucestershire, UK. We also established our Global Purchasing Working Group this UN SDG 13 – Climate action year, which has been building their sustainability knowledge We know that our growth objectives are at risk unless urgent and enhancing our approach to mitigating modern slavery – action is taken to mitigate against the worst impacts of seemore on page 84. climate change. This year, we have significantly improved our understanding of climate change mitigation and adaptation UN SDG 12 – Responsible consumption andproduction which we have shared on pages 77 to 80. UN SDG 13 also In a world of increasingly scarce resources, we believe reducing covers educational goals aimed at ensuring people have waste through our own production processes and helping access to the relevant information to raise awareness and customers to manage their resources are the most effective drive sustainable development and lifestyle choices that are actions we can take to support this goal. inharmony with nature. We are contributing to this through: Predominantly due to increasing our manufacturing capacity at – running employee engagement sessions covering Miskin, Wales, our waste levels increased to 3,029 tonnes this sustainability topics, including sustainable innovation, life year (FY2022: 2,616 tonnes). In line with our Management of cycle assessments and how we support the UN SDGs; Waste Policy, we diverted 86.4% of our waste away from landfill, – developing sustainability training programmes for our buyers by finding ways to reuse, recycle, and compost, as well as to learn how to engage with our suppliers on sustainability and recovering energy from waste. support them to create their own sustainability plans; Customers use our products to increase efficiency and accuracy – reviewing how sustainability can be included in the core which reduces their energy consumption and scrappage. competencies and job architecture being developed by our Find out more about this in our performance reviews on pages HR colleagues, as explained in more detail on page 65; and 32 to 47. – delivering our award-winning education outreach programme We’re working on a series of projects to reduce waste and to local schools and colleges, which educates students on increase the amount of material we recycle in our own how we can achieve a sustainable planet together. operations, as well as helping customers reduce their own waste. For example, we are: – providing a product dismantling programme at our West Dundee site in the USA to improve the recyclability of customer-returned products. Returned products are disassembled into their constituent parts, which maximises recycling rates. This year, we have separated and recycled more than 10 tonnes of waste through this programme; – established our product packaging approach to ensure all product packaging is optimised for recyclability. We intend to minimise packaging volume and weight, which means there will be less packaging waste attributed to our products. This could also help lower our GHG emissions from logistics; and – drafting our supplier packaging specification, so that our suppliers will use 100% recyclable and/or reusable/returnable materials in the packaging they send us. 70 Renishaw plc Annual Report 2023 Strategic Report ## We are ## committed to Net Zero ### Supporting the transition to a low-carbon future is a fundamental way in which we can demonstrate ### our purpose to transform tomorrow together. Our climate transition plan establishes our approach ### to achieving Net Zero in our own operations and how we are supporting decarbonisation with our ### supply chain and customers. | This year | | | | | What we are doing Going further What we will achieve | | | | --- | --- | --- | --- | --- | --- | --- | --- | | GHG | Tonnes | | Comparison to | | – Replacing all gas | – Improving the efficiency | – Delivering on our | | Emissions | CO | 2 e | | FY2022 | | | | | | | | | | and heating oil | of our logistics and | purpose by providing | | Scope 1 | 4,177 161 tonnes | | | | systems with lower | distribution globally. | world-leading solutions | | Direct | | | | | carbon alternatives. | | that maximise efficiency | – Embedding carbon | Scope 2 | 1,613 1,691 tonnes | | | | and reliability. | | --- | --- | --- | --- | --- | --- | | | | | – Ensuring all new | accountancy into | | | Indirect | | | buildings are built to | business processes | – Using low-carbon | | Scope 3 | 600,020 54,951 | | be zero emissions | such as product | materials and | | Value chain | | tonnes | in operation. | design and capital | manufacturing methods | | | | | | expenditure approvals. | to offer low-carbon | – Introducing ultra-low products to market. emission vehicles – Making better use What we have done across the Group. of technologies to – Maximising the – Invested a further £4.2m into reduce the need for circularity of our – Achieving 100% certified projects that are driving us business travel. products through repair, renewable electricity by | towards Net Zero for Scope 1 | | | reuse and recycling. | | --- | --- | --- | --- | | | the end of 2024. | – Using our Repair by | | | and 2. | | Exchange service to | – Establishing low- | – Obtaining SBTi approval – Increased the proportion of further support a more carbon supply chains for our Net Zero targets our electricity that is renewably circular economy. that support the by the end of 2023. certified to over 90%. achievement of global – Supporting our – Understanding the Net Zero targets. – Installed more solar panels at our supply chain and feasibility of using more UK sites. customers through recycled aluminium to education and target – Renovated our site in Breda, make our products. setting for Net Zero Netherlands, with an air source – Developing our and decarbonisation. heat pump, solar panels, carbon accounting enhanced insulation and EV methodology. charging ports. – Identifying credible – Installed over 170 EV charging carbon offset schemes ## By 2030 we ports across our UK sites. for our residual Scope ## – Introduced an ultra-low emissions 1 and 2 emissions. will reduce vehicle (ULEV) scheme for UK ## our Scope 3 By 2050 employees with more than 150 e 2 ## people ordering vehicles. emissions by we will reach FY2020 Baseline ## 50% Net ## By 2028 we Tonnes of CO GHG emissions Tonnes CO e 2 ## will reach Net Scope 1 4,027 ## Scope 2 3,507 Zero for our ## Zero Scope 3 212,488 ## Scope 1 and ## 2 emissions Journey to Net Zero 2020 2028 20302023 2050 Renishaw plc Annual Report 2023 71 Strategic Report ## Managing our resources and relationships continued ## Planet continued Task Force on Climate-related Financial Disclosures statement We knew when we set out our sustainability commitments, that to achieve our goals we would need to focus a lot of our effort on significantly reducing our GHG emissions and effectively managing our climate-related risks and opportunities. In this section, we disclose how we are identifying, assessing and managing our climate-related risks and opportunities through our climate-related governance, strategy, risk management, and metrics and targets. These are our TCFD-aligned disclosures for the purposes of Listing Rule 9.8.6R(8) which we consider to be consistent with all the TCFD recommendations and recommended disclosures. The table below summarises our disclosures against the TCFD recommendations and recommended disclosures and demonstrates the significant progress we have made in the last 12 months. Our climate-related risks and opportunities will evolve over time, which means we will need to continue developing our approach to identifying, assessing and managing them. Governance Recommendation Disclose the organisation’s governance around climate-related risks and opportunities. Recommended disclosure Reference Summary A) Describe the Board’s – Full details of the – Our Board has overall responsibility for determining strategy and key focus oversight of climate- climate-related areas and considered climate-related matters on four separate occasions. related risks and matters our Board – Allen Roberts, Group Finance Director and Board member, maintained opportunities. have considered executive responsibility for managing the assessment and disclosure of our can be found on climate-related financial risks and opportunities. page 76. – Our Audit Committee reviewed the effectiveness of our risk management, – Audit Committee including climate-related risk. responsibilities are – For FY2023, our strategic objectives, which formed 10% of the incentive described further on opportunity for the Executive Directors, included a specific objective on page 109. sustainability.This included targets for Scope 1 and 2 emissions reduction, – Executive quantification of Scope 3 emissions and development of a plan to achieve Directors’ incentive the Net Zero targets we have set (see page 71). opportunity related to strategic objectives are on page 130. B) Describe – See our full – We have managed climate-related risks and opportunities through our management’s role sustainability sustainability governance structure. in assessing and governance – Our Sustainability Steering Committee provided strategic oversight of our managing climate- structure on sustainability approach, including climate-related matters. The Committee related risks and page 76. included members of the Executive Committee and senior managers. opportunities. – More detail on – The Committee was chaired by our General Counsel & Company our forthcoming Secretary followed by the Director of Group Strategic Development and sustainability met monthly. The Committee was specifically responsible this year for governance ensuring we developed progress reporting against our target to reach improvements Net Zero in our Scope 1 and 2 emissions by 2028, and quantifying our can be found on Scope 3 emissions. page 76. – It received progress updates covering our sustainability delivery plan from the Chair of our Sustainability Committee. – It also provided monthly climate-related updates to the Executive Committee. – We have decided to enhance our sustainability governance further inFY2024 through the creation of our ESG Steering Committee. 72 Renishaw plc Annual Report 2023 Strategic Report Strategy Recommendation Disclose the actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses, strategy, andfinancial planning where such information is material. Recommended disclosure Reference Summary A) Describe the – Our processes for – We have identified an initial set of physical and transitional climate-related climate-related risks identifying the risks risks and opportunities across the short (FY2023 – FY2028), medium | and opportunities | and opportunities | (FY2029 – FY2049) and long term (FY2050+). We selected our short-term | | --- | --- | --- | | the organisation | and determining | period to align with our five-year financial forecasts. Our medium and long- | | has identified over | their potential impact | term time periods align with our Net Zero emission targets. | | the short, medium, | is explained further | | – Our physical risk assessment has identified which of our manufacturing or andlong term. on pages 77 and 79. major inventory-holding sites are or will be at ‘high’ risk from physical climate – Our significant risks. Across all warming scenarios and timescales, including our current physical risks are state, the risk of river flooding is ‘high’ for several sites and four of our sites in detailed further on APAC are also ‘highly’ exposed to chronic climate risks such as heat stress, pages 77 and 78. flash flooding, wildfires and sea level rise. – Our significant – Our transitional climate scenario analysis has identified several technology transitional risks and and legal climate-related trends that we have assessed as net opportunities opportunities are to our business in the medium to long term: the shift from ICE vehicles to detailed further on EVs, growth in additive manufacturing and increasing carbon taxation. pages 79 and 80. – In the medium to long term, we identified, but haven’t financially quantified, – Our definition of that failure to achieve our Net Zero commitments could result in damage to ‘high’ risk for the our reputation and loss of business. physical risks – Other risks and opportunities identified are either not deemed as ‘high’ risk assessed can by our physical risk modelling or have been estimated using our five-year be viewed at financial forecasts to be associated with less than 3% of our potential www.renishaw.com/ operating profit (excluding bonuses) in FY2028. We will continually monitor sustainability. all emerging risks and opportunities. – In FY2024, we will enhance our understanding of current and emerging risks and opportunities by assessing how they could materialise in different ways across our supply chain, business applications, sectors, and geographies. | B) Describe the | | – Further explanation | – For climate-related physical risks, 37% of the asset value we assessed is | | --- | --- | --- | --- | | | impact of climate- | of physical risk | considered at ‘high’ risk of flooding. 8% of asset value assessed has ‘high’ | | | related risks and | impacts are on | exposure to various chronic climate risks. | | | opportunities on | pages 77 and 78. | | – Physical climate risks could affect our revenue and costs in numerous the organisation’s – Further explanation ways, including causing losses of manufacturing output, disrupting businesses, of transitional risk transport networks, creating supply chain delays and increasing our strategy, and and opportunities insurance premiums. financial planning. impacts are on – Our initial transitional risk and opportunity analysis indicates that we are pages 79 and 80. well positioned to mitigate the risks and capitalise on the opportunities – See our climate related to a transition to a low-carbon economy. Our response to these risks transition plan on and opportunities have been incorporated into our overall strategy and page 71. decision making. – A transition from ICE vehicles to EVs may reduce demand for some parts of our business and carbon taxation could increase the cost of our materials. However, we believe these risks will be outweighed by the significant opportunities both these climate trends present to our business. – Our first climate transition plan describes our targets and planned activities for the transition to a low-carbon economy, and will be developed further in FY2024. – Estimates of the capital expenditure needed to support our Net Zero targets have been included in our five-year financial plan. – We have not yet identified any additional material climate-related factors to include in this financial plan. Renishaw plc Annual Report 2023 73 Strategic Report ## Managing our resources and relationships continued ## Planet continued Strategy continued Recommended disclosure Reference Summary | C) Describe the | | – Further explanation | – We assessed our physical climate risks using specialist climate modelling | | --- | --- | --- | --- | | | resilience of the | covering our | that covered 1.5 ºC, 2 ºC to 3 ºC and 4 ºC warming pathways across current | | | organisation’s | resilience and | day, 2030, 2050 and 2100 time horizons. | | | strategy, taking | response to physical | | – The climate modelling indicated that the sites at ‘high’ physical risk remained into consideration risks is on pages 77 mostly static when compared to our current risk exposure. Only one further different climate- and 78. site was considered at ‘high’ risk for river flooding under the various time related scenarios, – Further explanation horizons and warming pathways. including a 2°C or covering our – We have identified the potential impacts of these risks on our business and lower scenario. resilience and our response aimed at enhancing our resilience. The steps we are taking response to to improve our resilience to climate-related risks include our duplication of transitional risks and manufacturing processes, flood defences and liaising with local teams to opportunities is on ascertain the validity of the risk exposure suggested in this modelling. pages 79 and 80. – Transitional risks and opportunities were analysed using a 1.5 ºC warming pathway to assess the potential likelihood and their financial/strategic impact. – We believe that each climate-related trend disclosed is a net opportunity for our business and could be associated with 3-10% of our operating profit (excluding bonuses) by FY2028 and could increase to over 10% in the medium to long-term under a 1.5 ºC pathway. – Our response to these climate-related trends includes developing our carbon accounting approach, completing life cycle assessments (LCAs) to demonstrate the sustainability benefits of AM and testing the feasibility of using more recycled aluminium in our products. Risk management Recommendation Disclose how the organisation identifies, assesses, and manages climate-related risks. Recommended disclosure Reference Summary A) Describe the – More detail on our – Climate change, alongside our other principal risks, has been identified and organisation’s risk management assessed using our risk management framework. processes for approach can be – Further work has taken place using our ‘bottom-up’ risk identification process by identifying and found on pages 48 engaging with our Risk Committee and operational managers to establish climate- assessing climate- and 49. related risks that underpin the principal risk of climate change. related risks. – Transitional risks, including those associated with climate regulations such as carbon taxation, were presented under a 1.5 ºC scenario to our internal stakeholders. Likelihood and impact scores were attributed to these risks and other climate risks identified through the engagement process. Using the impact scoring and our five-year financial forecasts, we quantified the potential low, medium, and high financial effects of these risks to our business in FY2028. – For our assessment of physical risks, we used the Munich Re climate hazard scoring system, which identified our operations with ‘high’ exposure to climate risks. We also incorporated financial values covering our buildings, fixed assets and inventory into the modelling. By combining these datasets, we were able to identify our high-value sites that have ‘high’ exposure to climate risks. B) Describe the – More detail on how – Our Head of Group Manufacturing is now the principal risk owner for climate organisation’s we are managing change since they manage our Sustainability team and are responsible processes for physical climate risks for managing the physical climate risks that affect our operations and managing climate- can be found on supply chain. Previously, this risk was owned by our General Counsel & related risks. page 57. Company Secretary. – For further detail – The transitional risks and opportunities disclosed are managed through on our how we our product group approaches, which are the responsibility of our Product are executing our Group Directors. product group approaches see pages 34 and 43. 74 Renishaw plc Annual Report 2023 Strategic Report Risk management continued Recommendation Disclose how the organisation identifies, assesses, and manages climate-related risks. Recommended disclosure Reference Summary | C) Describe how | | – More detail on our | – We have used our risk management framework to integrate climate-related | | --- | --- | --- | --- | | | processes for | risk management | risks, with our Risk Committee and Audit Committee reviewing the proposed | | | identifying, assessing, | framework can be | risks and recommending these to the Board for approval. | | | and managing | found on pages 48 | | – Climate change risk is also integrated into the principal risks of loss of climate-related risks to 50. manufacturing output and supply chain dependencies as both risks could be are integrated into the triggered or worsened by the physical risks associated with climate change. organisation’s overall – Our Board also completed a ‘top-down’ review and approved our climate- risk management. related risks in June 2023. Metrics and targets Recommendation Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material. Recommended disclosure Reference Summary A) Disclose the – Most of our climate- – We have disclosed cross-industry TCFD metrics used to manage our metrics used by related metrics are climate-related risks and opportunities. These metrics cover: the organisation located on pages – Scope 1, 2 and 3 GHG emissions (page 71); | to assess climate- | 68 to 71. | | | --- | --- | --- | | related risks and | | – energy use (page 68); | | opportunities in line | | – waste (page 70); | with its strategy and – climate-related executive management remuneration (page 130); risk management – assets considered at ‘high risk’ to physical climate-related risks (pages 77 process. to 78); and – capital expenditure towards achieving Net Zero for Scope 1 and 2 (page 71). – We have provided an explanation of our approach for establishing carbon accounting, which will help us create our internal carbon price (pages 68 to 69). | B) Disclose Scope 1, | | – More detail on our | – Our emissions this year have been externally assured and are: | | | | | --- | --- | --- | --- | --- | --- | --- | | | Scope 2, and, if | Scope 3 emission | | | | | | | | | – Scope 1: 4,177 tCO | 2 e | | | | | appropriate, Scope | hotspots can be | | | | | | | 3 greenhouse gas | found on page 69. | – Scope 2 (market-based): 1,613 tCO | | | 2 e | | | (GHG) emissions, | | – Scope 3: 600,020 tCO | | 2 e | | – External assurance and the related risks. opinion can be viewed at www.renishaw.com/ sustainability. C) Describe the – Our climate – Our Net Zero targets, all set against our FY2020 baseline, are: targets used by transition plan – achieve Net Zero in Scope 1 and 2 emissions by 2028; | the organisation to | demonstrates | | | --- | --- | --- | | manage climate- | our roadmap for | – achieve a 50% reduction in Scope 3 emissions by 2030; and | | related risks and | achieving our Net | – achieve Net Zero across all scopes by 2050 at the latest. | | opportunities and | Zero targets on | | – The strategic objectives for the FY2023 annual incentive opportunity for our performance against page 71. Executive Directors included: targets – Remuneration Policy – delivering targeted reductions in Scope 1 and 2 emissions, which were and non-financial achieved, to support progress towards our Net Zero target by 2028; and strategic objectives are expanded – quantifying Scope 3 emissions and developing a plan which will enable us further on page 130. to achieve a reduction in Scope 3 emissions by 50% by 2030. Renishaw plc Annual Report 2023 75 Strategic Report ## Managing our resources and relationships continued ## Planet continued Climate-related governance Since approving our sustainability delivery plan last year, our Board has maintained oversight and overall accountability for our approach to climate change. This year, our Board considered climate-related matters on four occasions: – in March 2023, it reviewed and approved our SBTi targets and Net Zero plan for Scope 1, 2 and 3 emissions (more detail on page 68); – in April 2023, it reviewed and updated our five-year financial forecast which contains our capital expenditure plans to achieve Net Zero Scope 1 and 2 by the end of 2028; – in April 2023, it reviewed and approved the draft principal risks, including climate change, with input from the Chair of the Audit Committee (more detail on page 49); and – in June 2023, it agreed to a revised sustainability governance structure to further embed responsibility across our business areas. The Board also reviewed a paper detailing our progress in preparing our TCFD reporting and considered a newly established set of climate-related risks and opportunities that contribute to the principal risk of climate change. We established our initial sustainability governance structure last year. Since then, we’ve been working to enhance that structure to embed sustainability more effectively into our everyday business practices. Key improvements include: – deciding that in FY2024 Will Lee, Chief Executive, will hold executive responsibility for sustainability, including climate-related financial disclosures, taking over from Allen Roberts, Group Finance Director; – agreeing to formalise the management of sustainability including climate-related financial disclosures in FY2024 through our new ESG Steering Committee. This will be chaired by Will Lee and membership will include Stephen Wilson, one of our Non-executive Directors, to provide independent oversight; and – establishing new climate-related objectives for our Executive Committee covering the submission of our SBTi plans by August 2023 and creating our long-term climate transition plan by March 2024. Sustainability governance structure The governance of our sustainability commitments, including climate-related risks and opportunities, extends from the Board down to a number of Committees and Strategy Groups as shown below. Renishaw plc Board Maintains oversight of all sustainability matters, including our commitments, objectives, policies, procedures, performance, risks and opportunities, and disclosures. Remuneration Committee Executive Committee Audit Committee Sets the remuneration policy in Holds sustainability objectives and Oversees the effectiveness of our risk alignment with strategic objectives, oversees our approach to embedding our management including climate-related including sustainability. sustainability commitments. risks, and climate-related reporting. Sustainability Steering Risk Committee Committee Supports our sustainability delivery plan Comprising members of the Executive by ensuring that climate-related risks Committee and senior managers, the are effectively managed through our risk Committee provides oversight of our management framework. sustainability delivery plan. Sustainability Committee Sustainability team Comprising members of the Sustainability team and chairs of our Sustainability Dedicated sustainability professionals, Strategy Groups, who monitor who coordinate and support our performance against all our sustainability sustainability delivery plan. commitments and offer advice, support and challenges to these groups. Sustainability Strategy Groups Comprising subject matter experts who Informing are responsible for delivering specific elements of our sustainability delivery plan. Reporting 76 Renishaw plc Annual Report 2023 Strategic Report Climate-related physical risks To better understand the impact of climate change on our business we used climate scenario analysis to identify climate-related physical and transitional risks and opportunities. To help us assess our physical risks we worked with specialist consultants who are experts in climate modelling. We have assessed our potential exposure to chronic and acute physical climate risks at all our 1 manufacturing and major inventory-holding sites, considering various warming scenarios and timescales . We have disclosed the 2 physical risks to our sites that our climate modelling has identified as having ‘high’ exposure . Increased severity of extreme weather events What are the risks? – Across all assessed warming pathways and time horizons, the risk from river flooding to several of our operations is considered 3 ‘high’. Four of our sites, accounting for 37% of asset value assessed, are currently considered ‘highly’ exposed to flood risk. – This increases to five sites, accounting for 42% of the asset value assessed, in 2030 under a warming pathway that would see an increase of 2 ºC to 3 ºC by the end of the century. Under warmer scenarios and future time horizons, the modelling indicates that no further sites are considered ‘highly’ exposed to flood risk. – Our sites in Ireland and Scotland are considered to be at ‘high’ risk from extratropical cyclones across all warming pathways and time horizons. – We have not yet assessed the acute climate risks posed to our supply chain. We are establishing an approach that will ensure we receive reliable information that we can use to make meaningful decisions. Potential effects on our business – Loss of manufacturing output due to temporary shutdowns could reduce our revenue. – The transport networks we rely on could also be disrupted, causing delays and reducing revenue. – Extreme weather events could also damage our assets and pose safety risks to our employees. – We could face more expensive insurance premiums if extreme weather events are expected to increase. – Our supply chain could face the same challenges, which could reduce our revenue due to delays and an inability to fulfil orders. Our response – Flooding is a considerable risk to several of our significant sites. In response, we have: (i) installed sensors to always monitor and inform us of the height of water; (ii) appointed teams of trained operatives who manage the installation and maintenance of our flood barriers; and (iii) ensured we have the ability at some sites to divert flood water into holding areas, away from our critical assets. – Flood risk has also been a driver for developing our duplication of manufacturing processes approach, where we duplicate certain assembly lines, expertise and capacity at different manufacturing sites, to reduce the risk of disruption from an issue at one site. – We have flood management plans in place at key sites that detail responsibilities and actions to be taken depending on the severity of the predicted flood event. – We have carried out adaptation and mitigation works at our ‘high’-risk sites. This has ensured our resilience against flooding, but the climate modelling indicates this will need to be increased in the future. 1 To assess physical risk, WTW’s Climate Diagnostic Tool assesses present day and future exposure to a range of extreme (acute) weather-related events, as well as chronic climate-related hazards. The selected scenarios for the physical risk assessment were based on Representative Concentration Pathways RCP2.6 (1.5°C), RCP4.5 (2 °C – 3°C) and RCP8.5 (4ºC) using modified climate risk models to simulate future climate under 2030, 2050 and 2100 time horizons. 2 The definitions of exposure used to describe the physical climate risks in this modelling can be viewed at www.renishaw.com/sustainability. 3 Asset value includes i) land and buildings (with buildings included at insured reinstatement value), ii) other fixed assets (at net book value), iii) inventory (at Group cost), at 31 March 2023. Renishaw plc Annual Report 2023 77 Strategic Report ## Managing our resources and relationships continued ## Planet continued More pronounced chronic climate risk What are the risks? – Across all assessed warming pathways and time horizons, we identified four of our key sites within APAC (accounting for 8% of asset value assessed) as ‘highly’ exposed to various chronic climate risks. These include heat stress, wildfire weather, storm surges and flash flooding. – Drought does not present a ‘high’ risk to any of the sites we assessed, and we do not have water-intensive operations. However, we have not yet assessed drought or other chronic climate risks within our supply chain. Potential effects on our business – Frequent and persistent chronic climate risks could reduce productivity of employees, increase machinery downtime and ultimately reduce our revenue. – Our ongoing costs and capital expenditure may increase if we have to invest more into climate adaptation measures at ‘highly’ exposed sites. – Sites affected by chronic climate risk could also limit our ability to manufacture and transport products, reducing our growth potential. – We could face more expensive insurance premiums if chronic climate risks are expected to increase. – Our supply chain could face the same challenges, which could reduce our revenue due to delays, see a lowering of output from our suppliers and an increase in our material costs. Our response – We will review our business continuity plans at our highest risk sites, considering the climate modelling results and feedback from local teams to identify any gaps or areas that we need to develop further. – We will then be able to identify suitable mitigation and adaptation measures that will reduce our risk. This may include enhancing our climate control capabilities at sites that are potentially exposed to high heat stress. – In the coming year we will start to better understand the chronic risks in our supply chain, especially drought since we source from several water-intensive sectors such as the electronics and semiconductor manufacturing industries. 78 Renishaw plc Annual Report 2023 # Climate-related transitional risks and opportunities For assessing our climate-related transitional risks and opportunities, we have completed in-house assessments with all our product groups. Participants in these assessments identified risks and opportunities that could have a financial impact on our business. They also reviewed the climate-related risks and opportunities that our major customers disclose, where available. These risks and opportunities were analysed further using a 1.5 "C warming pathway" and our five-year financial forecasts to assess the potential likelihood and the financial/strategic impact across the short (FY2023 - FY2028), medium (FY2029 - FY2049) and long (FY2050+) term. Detailed below are the transitional risks and opportunities we believe could be associated with at least 3% of our potential operating profit, excluding bonuses, in FY2028. Key: the percentage of the Group's operating profit, excluding bonuses, associated with climate-related trend Low: <3% Medium: 3-10% High: >15% # Climate-related trend # Technology – Development of additive manufacturing (AM) We believe that AM is becoming a more mainstream option for volume manufacturing. External forecasts predict a 20% growth in the AM market by 2030 and we believe that environmental sustainability will be a key driver for this growth. To achieve global sustainability targets, there will be significant disruption to established production processes. AM has the potential to reduce energy and material consumption compared to established subtractive manufacturing processes, as AM uses only the material you need rather than machining it away. Using AM could help our customers lower GHG emissions associated with their direct manufacturing processes. It would also avoid the generation of waste materials such as swarf, which would reduce embodied GHG emissions related to their material consumption. Another significant benefit of AM is its ability to make lighter products compared to other production methods. We are already seeing the positive effects this can have on our customers' sustainability objectives within the aerospace sector, where lighter AM parts reduce the energy in use and associated Scope 3 emissions required to fly. Lighter parts also create opportunities to use alternative materials with lower embodied carbon that wouldn't be viable in other production methods. AM can also offer superior thermal management performance due to the design freedoms that the net shape process offers. With the ability to form complex lattice and thin-wall structures, AM can produce very high surface area components which enables enhanced heat transfer compared with traditionally-made parts. This could create growth opportunities across markets such as EV and renewable energy generation, where electrical components need cooling to maximise efficiency. We also believe that the more established manufacturing processes our other products support will be complementary to AM. AM applications are likely to drive demand for alternative subtractive finishing solutions for removing small amounts of metal from complex shapes at higher speeds. This may drive new opportunities for on-machine process control. We also believe that, as AM designs continue to evolve, our uniquely flexible 5-axis inspection solutions and our automated path planning software will benefit from being able to reach features which would otherwise be inaccessible. # Financial velocity under a 1.5 °C pathway Current state FY2023 – FY2028 (short-term) FY2029 – FY2049 (medium-term) FY2050+ (long-term) # Our outcomes and roadways We have established our roadmap to reduce the barriers to AM adoption with more detail on page 40. We are focused on demonstrating the climate-related opportunities of adopting AM to our customers. One way in which we intend to do this is by completing life-cycle assessments on the AM components that we design into our own products. 4 1.5 °C warming pathway scenarios. The assessed climate-related trends were generated using the pre-reviewed International Energy Agency (IEA) Trial Zero by 2050 – A Roadmap for the Global Energy Sector impact and the 1.5 °C aligned targets our major customers have committed to. Rensshew.plo Annual Report 2023 79 Financial Trends Strategic Report # Managing our resources and relationships continued ## Planet continued Climate-related trend Technology – Transition from manufacturing internal combustion engine (ICE) vehicles to electric vehicles (EVs) The transition to EVs is creating new processes, assembly plants, supply chains, research, and customers which offers significant opportunities for all our relevant products. - Our Position Measurement products and services are expected to benefit from this transition as EVs contain more semiconductors, sensors, and flat panel displays than ICE vehicles. An increasing demand for semiconductors and the continual miniaturation of components could result in the need for increased performance for production and inspection equipment, which would further benefit us. - The reduction in piece parts and the longer lifespans of EVs compared to ICE vehicles could result in a net reduction in consumption of machined parts for powertrain applications. This is a revenue risk for Industrial Metrology. - However, we believe that our Industrial Metrology products will benefit from new EV manufacturing processes that are expected to drive an uptake in process control and inspection equipment. Shifting supply chains are also expected to create opportunities to grow our market share in areas such as the control and gauging of EV component assemblies. We expect that these additional high-value metrology systems sales will more than offset any reductions in sensor sales for ICE applications. - We are also benefitting from increased EV research funding with our Spectroscopy products used for battery research. - The global trend towards automation and robot-use also creates opportunities for our newly launched Industrial Automation products. This will benefit from increased automation in new assembly plants for EVs. Agencies' revenue under a 1.4.10 pathway Current state FY2023 – FY2028 (short-term) FY2028 – FY2049 (medium-term) FY2050+ (long-term) Our resources and resilience - We will continue our engagement in EV applications development to provide the best solutions to our customers. - As this EV market expands we will need to increase our resources dedicated to supporting this sector. We'll continue to form and maintain relationships with key customers to ensure our products meet their needs and will be incorporated into their future processes. Climate-related trend Policy and legal – Increasing carbon taxation - Carbon taxation will affect us globally. In the short-term, the European Union's (EU) newly legislated Carbon Border Adjustment Mechanism (CBAM) could create risks by increasing costs in our supply chains, which could be passed on to us. - The CBAM will initially cover a range of carbon-intensive commodities imported into the EU including aluminium and steel. While we only source 15% of our metals from outside the EU, producers within the EU will see a phasing out of the free carbon credits they have received historically. This will increase their costs. - However, we believe that carbon taxation could ultimately create more opportunity for us. It may act as a driving force for increased use of metrology to reduce manufacturing process variation and scrap, driven by the high cost and carbon impact of input materials. - Carbon taxation also incentivises repair and reclamation, which tends to require further automation and metrology solutions. Agencies' revenue under a 1.4.10 pathway Current state FY2023 – FY2028 (short-term) FY2028 – FY2049 (medium-term) FY2050+ (long-term) Our resources and resilience - Alongside the potential financial implications of the CBAM, we have also identified that our metal purchases are a large carbon hotspot in our Scope 3 emissions. We are investigating how we could incorporate aluminium with a higher recycled content and, therefore, lower embodied carbon into our products. - We are also developing our approach to carbon accounting, which will help us establish our internal carbon pricing. This will help us gain more visibility of the embodied carbon in the materials we use and make more informed design and purchasing decisions. - We will continue to promote the sustainability benefits that our products offer and the impact this could have for our customers' sustainability journeys. 80 Rennatnew.pix Annual Report 2023 This year, our Board were pleased to meet with two major Strategic Report customers in Germany and see their production challenges first hand. This experience gave our Directors a greater appreciation of the strength of our customer relationships, as well as ## Customers how these close working relationships benefit both us and our customers. We work with our customers to understand their requirements and technological challenges. We then use our experience As the world has moved out of the COVID-19 pandemic, and our precise, productive and practical technologies to we have continued to build up our participation at in-person support them. events. As well as attending trade exhibitions, we’ve also invited customers to our technology centres around the world. This year, we hosted industry-focused events, such as aerospace and Our long-term approach automotive days. This included an event at our Singapore office Because we invest in our relationships we become a trusted for companies involved in aircraft maintenance, repair and supplier and many of our customers have been with us for overhaul. Focusing on applications in particular markets means decades. For example LK Metrology, a CMM manufacturer, we can present a range of solutions for specific customer needs. has been a customer since 1973, when they ordered our first touch trigger probe to fit to their machines. LK Metrology is still We are also investing in digital marketing technologies. acustomer to this day. Our new sales enablement software will make it easier for our global sales teams to access product information and share Our expert engineers initially work closely with our customers to it with customers. It will also allow us to better track customer understand their processes and where we might be able to help engagement and sales effectiveness. solve their challenges. This year’s opportunities and challenges Once we’ve made a sale, we can support our customers wherever they’re based through our global network of FY2023 has been challenging for our customers. The lack of technology centres and people. One of our great strengths is stability in the macroeconomic environment made them hesitant our ability to talk to our customers in their own language, and to invest and led to stressed supply chains. Meanwhile, our by respecting local business practices we can better tailor our customers in China have spent the year coming out of COVID-19 sales, marketing and solutions. lockdowns. Our ability to ramp up production quickly remains a key differentiator for us, meaning we have been able to meet We also invite customers to visit our manufacturing facilities in demand and support customers when needed. the UK. Here they can see how we use our own technologies to ensure efficient, high-quality production. This year, we welcomed In response to the market trend for more localised customers from Germany, Mexico, the Netherlands, Norway, manufacturing, and to support our growing customer base and the USA. in India, we opened a new technology centre in Bangalore this year. The opening event was a great opportunity to meet Customer engagement local manufacturers and talk to them about maximising their We engage with our customers in different ways to meet production and metrology processes. This new facility and our their needs. existing network of offices in India will be crucial in supporting the country’s future growth. It will also enable us to expand End users buy solutions directly from us to help them our customer base in a country where logistics and travel can manufacture precision parts and enhance chemical analysis be challenging. and neurological therapies. Working closely with our end users helps us understand how our technologies can improve their We have worked closely with automotive customers this production, processes and procedures. year, who are adapting their internal combustion engine measurement technologies to inspect parts for electric Machine builders use our manufacturing technologies to make vehicles. Repurposing existing capital equipment is an ongoing their machinery. We also work closely with their R&D teams to opportunity for our metrology products. integrate our technologies into their machines to help users operate them efficiently. Machine builders sell this equipment totheir customers. Distributors and channel partners sell to customers on our behalf. We carefully select this type of customer based on their sector-specific experience. Working closely with our customers on testing new products provides feedback into our product development plans and helps us to understand how our technologies can meet their future needs. This gives our machine builder customers particular confidence in us as a technology partner, as they develop their own equipment to meet their customers’ needs. Product leaders regularly work with customers to get feedback on how we can help improve their performance. As an example, we have been gathering feedback from early adopters of our Board members and regional leaders at our office Industrial Automation products for the set-up and calibration of inPliezhausen,Germany. robotics. Our Chief Executive, Will Lee, and senior colleagues are also in touch with our customers and share regular updates on their conversations with our Board. Renishaw plc Annual Report 2023 81 Strategic Report # Managing our resources and relationships continued # Communities Quoted by our values, we strive to be open, honest and consistent in our relationships with our local communities. # Supporting our communities in FY2023 We aim to support the communities that we're part of, and do this through: - education outreach; - financial support for charities and not-for-profit organisations; and - local community and business initiatives. Each country takes a tailored approach to community engagement, as activities need to suit site resources and the local areas's culture and needs. A key focus around the world are projects that support and encourage more young people to study science, technology, engineering and maths (STEM) subjects and consider a career in engineering. We proactively work with more diverse audiences such as special educational needs and disability (SEND) schools and people from socio-economically disadvantaged areas. This helps us to give young people in our communities access to career options they may never have considered. It also helps to feed our talent pipeline for our early careers programmes and meet the future recruitment and diversity needs for our business. This also supports our commitment to support a UN SDG (SDG II), which includes a target to substantially reduce the proportion of youth not in employment, education, or training by 2030 (see page 69). Our education outreach programmes continue to grow. As result of the programme's success in the UK, we were delighted to open a dedicated STEM Centre at our headquarters in Gloucestershire to enable us to increase engagement in the area. This facility will host engineering workshops and give young people a unique insight into the world of STEM-based careers. We also hosted our first ever UK STEM Day for black, Asian and minority ethnic students. In October 2022, we supported the China National Skills Competition held in Chengdu. This event aims to improve skills to fulfil the labour requirements of the manufacturing industry in China. Our products were used throughout the competition, which was a good opportunity to showcase our manufacturing technologies to customers and potential employees in the region. We also support charities and not-for-profit organisations via our charities committees, employee fundraising and one-off donations. In the UK, we run an additional fund that supports people affected by global disasters. Our India charities committee donated £125,000 this year to local organisations. The biggest donation was given to Apala Ghar, an organisation we have supported for six years, which helps orphaned children and senior citizens. ![img-8.jpeg](img-8.jpeg) ▲ Attendees at our 'Women empowering other women' event in Mexico. Around the world, we also engage with our communities through local business initiatives, membership of trade associations and our connections with local and national governments. In October 2022, our site in San Pedro Garcia Garcia, Mexico, hosted 'Women empowering other women' in conjunction with the British Consulate. 120 female students studying engineering and business attended and listened to speakers from Renishaw, local engineering businesses, the Secretary of Economy in Monterrey and the Department of International Trade. In February 2023, the Welsh Government chose to launch its new innovation strategy for Wales at our Miskin site. At this event, Ministers outlined their aspirations to become an innovation-based nation and bring better healthcare, jobs and prosperity for businesses and local communities. It was a great opportunity to showcase our work in education outreach and site sustainability and how this will benefit our local community. # Sharing our 50th anniversary with our communities Our 50th anniversary has been a fantastic opportunity to bring our communities together, and, in particular, to share our success with the areas that have been highly supportive of our growth. Community engagement can be challenging, as some of our smaller sites have fewer employees and resources. So the Board was pleased to approve our '50 at 50' charity initiative, through which we will donate £150,000 to at least 50 not-for-profit organisations in the countries we operate in during the 2023 calendar year. Some of our larger sites, including India, Mexico and the UK, also hosted community and family open days, as well as customer and channel partner events. Amount donated in FY2023 Organisations supported # £0.3m 297 This included £5,000 each to four charities chosen by each of the winning global values competition teams. More information on pages 90, 91 and 140. '50 at 50' donations will be made during FY2024. 82 Renishaw plc Annual Report 2023 ## Shareholders As our shareholders are the ultimate owners of the business, it is important that the Board understands the views of its shareholders so it can operate the business in a way that delivers long-term value growth and sustainable returns. Around 53% of our shares are held by our founders, Sir David McMurtry and John Deer (our Executive Chairman and Non-executive Deputy Chairman respectively), who are both on the Board and able to contribute to Board debate and the decision-making process. ### Investing in long-term, sustainable growth Our Directors run the business on behalf of the shareholders to achieve long-term sustainable success, generate value for shareholders, and contribute to wider society. In a day-long meeting specifically concentrating on strategic matters, the Board debated and reaffirmed the five-year financial plan (see page 86 for more details on the plan and pages 22 to 25 for our strategy). We have continued to invest in our people, facilities and sustainability targets (including our climate transition plan, and targeted research and development with the aim of providing long-term sustainable growth for shareholders as explained on pages 86 and 88). We have also continued to concentrate on our flagship product projects, focusing on the products that bring faster revenue benefits or are strategically important to the Group; pages 32 to 47 illustrate the latest updates. Our interim dividend was 16.8 pence per share, and the Board proposes a final dividend of 59.4 pence per share, in line with our progressive dividend policy. We continue to be in a strong financial position, with cash and cash equivalents and bank deposit balances of £206.4m at 30 June 2023 (30 June 2022: £253.2m). We have always valued having cash in the bank to protect the business from downturns, and we monitor our cash against a minimum holding according to forecast overheads and revenue downturn scenarios. This cash also enables us to react swiftly where investment or market capture opportunities arise, and we expect to continue our investments in capital expenditure in the coming years to meet expected future demand. ### Engaging with shareholders Following feedback from the investment community, we have reviewed our approach to investor relations during the year, recognising the important role that engagement can play to both our understanding of investor views and external understanding of our business and future prospects. In deciding to increase engagement, Will Lee, our Chief Executive, along with the Director of Group Strategic Development, held face-to-face meetings with several analysts, and reported insights back to the Board. We expect to hold further meetings in future and are developing a more formal engagement programme with analysts and investors. In addition, we were pleased to welcome current and potential shareholders, analysts, brokers and financial advisers to our Capital Markets Day in June to give them a more in-depth understanding of our business and products and the opportunity to ask questions. The day was held at our headquarters at New Mills and included tours of the site. During the day, Will held a key note session to all attendees providing an overview of our strategy. We also held eight smaller workshops throughout the day, on subjects covering finance, our strategy, individual product groups and sales priorities and our path to Net Zero. Juliette Stacey, Chair of the Audit Committee, attended the finance workshops to address any questions relating to audit. The remaining Non-executive Directors hosted a Q&A session for each group of attendees. The day was designed to help investors gain a more in-depth understanding of our business and products and allowed them to ask detailed questions of senior management. The Board subsequently considered investor feedback collated by our broker UBS, which confirmed that the Capital Markets Day was very well received. We held open webcasts for our FY2022 full-year results and FY2023 interim results, which also included Q&A sessions. Recordings of these are made available on our website. We were again pleased to welcome our shareholders in person at our 2022 AGM. Our shareholders were able to submit questions in advance via email using our Q&A facilities. Shareholders were also able to submit proxy instructions electronically, which encouraged engagement from those who could not attend in person. Questions on the day were also encouraged as part of the AGM, and more informally with all Directors pleased to speak to shareholders afterwards. Details of this year's AGM can be found in the Notice of Meeting, which will be provided separately to shareholders in due course. As well as these engagement opportunities, Sir David Grant, our Senior Independent Director, wrote to 11 of our largest institutional shareholders following our 2022 AGM to invite them to discuss the concerns that led them to vote against resolutions 6 and 7. More details regarding how we intend to address Board diversity can be found in our Nomination Committee report on pages 106 to 107. We also contacted some of our large institutional shareholders in June 2023 to update them on our proposals for our new Remuneration Policy. Further details about this engagement can be found on page 116. Total dividend per share in respect of FY2023 76.2p ![img-9.jpeg](img-9.jpeg) ▲ Sir David McMurtry talks to an attendee at our Capital Markets Day. Renaissance Annual Report 2023 83 Strategic Report ## Managing our resources and relationships continued ## Suppliers We aim to build effective long-term relationships with our suppliers to help ensure we can manufacture the products our customers need, and support our infrastructure and operations. Approach to procurement We classify the goods and services that we buy into three categories: – direct – materials and components that are used tomanufacture our products; Checking deliveries at our Woodchester, UK manufacturing facility. – indirect – goods and services that support our infrastructure We are also developing an education programme for our and operations; and suppliers to help them achieve their own sustainability ambitions, – product development – goods and services to support with particular focus on Net Zero emissions and contributing to the development of products before they are manufactured the UN SDGs. We will be trialling this programme with a pilot in volume. group of suppliers next year. While we procure most of our materials in the UK, we also In response to UN SDG 8 to help promote policies that support have teams around the world where our suppliers are based. the growth of micro, small and medium-sized enterprises This means we can regularly engage with our suppliers, no (MSMEs), we are chairing Together Gloucestershire. This is a matter where they are, in their local time zone and language. project close to our main purchasing operation that supports We use tens of thousands of different raw materials and smaller businesses and helps them to grow and supply larger components, and we recognise that we can’t take a ‘one size fits local companies, including Renishaw. all’ approach to supplier relationships. For some suppliers we’ll Supplier engagement be a relatively small part of their business, while for others we could be a major customer. We regularly engage with our suppliers to build effective andtrusted relationships through: Our approach to building strong relationships means our number of suppliers hasn’t changed significantly as our business has – compliance – in line with our value of integrity we ask grown; instead, many of our suppliers have grown with us. our suppliers to comply with our trading terms and Group Business Code. This covers areas such as modern Supply chain improvements and challenges slavery (which is also covered by our Modern Slavery The significant supply chain challenges that we faced last andHumanTrafficking Statement), conflict minerals, year have eased somewhat, particularly in the shortages of anti-bribery, tax evasion, trade compliance, data protection electrical components and the lingering effects of the COVID-19 and dangerous goods; pandemic. While we have continued to experience some pinch – self assessments – we ask new direct suppliers, and some points in our supply chains, the balance of supply and demand indirect suppliers, to complete a self-assessment. This looks has been more positive this year. The cost of our supply chain is at the commercial aspects of their business, such as their also becoming more stable and predictable. financial position, to ensure they meet our requirements before we engage; Like many other businesses, we have faced increased costs in energy and other goods and services this year, due to the – early engagement – our purchasing and engineering teams high inflationary environment. The Russia-Ukraine conflict has work closely with suppliers to ensure a consistent supply of also affected the availability of some raw materials. Our strong the quality goods and services we need now and in the future; supplier relationships and capacity to hold stock has meant – risk management processes – we work with our suppliers the continuity of our supply hasn’t been affected since the start toregularly assess supply chain risks and, where possible, we of the conflict. The Board is regularly updated on significant look to introduce secondary sources. This helps to protect the matters that may affect our supply chain. interests of our employees, customers and shareholders; and – supplier performance programmes – our suppliers are Developing ethical and sustainable supply chains assessed on a regular basis to ensure they meet expectations We’re committed to doing business responsibly by minimising for delivery, quality, corrective actions and responsiveness. the negative environmental and social effects on our supply Where we find shortcomings, we engage with suppliers to chain. We have, therefore, formed a working group, with ensure they are trained in good practice and that improvement representatives from our global purchasing teams, to embed programmes are put in place. sustainability into our business practices and processes. The group’s first project has been to strengthen our mitigation of Number of global suppliers to UK operations the risks of modern slavery and labour exploitation in our supply for direct goods and services chains. We have commissioned a review of our current practices from the Slave Free Alliance and will develop a new approach using its feedback and guidance. ## 493 84 Renishaw plc Annual Report 2023 ## Section 172 statement Directors are required by Section 172 of the Companies Act 2006 to act in a way that they consider, in good faith, is most likely to promote the success of the Company for the benefit of its members as a whole. In doing so, they must also have regard to wider responsible business behaviour including the following factors: - the likely consequences of any decision in the long term; - the interests of our people; - the need to foster business relationships with suppliers, customers and other stakeholders; - the impact of our operations on the community and the environment; - the desirability of maintaining a reputation for high standards of business conduct; and - the need to act fairly between the Company's members. Not only is this the Directors' statutory duty, but it is also the right way to conduct business to achieve long-term, sustainable success. Effective and inclusive decision-making is at the heart of our governance structures and is a foundation for effective value creation over the longer term. During this financial year, with continuing global economic uncertainty, inflationary pressure and the Russia-Ukraine conflict, balancing the needs and expectations of our stakeholders continues to be an important and challenging task. The Board takes its role of ensuring that it fulfils its obligations to those affected by our business in its stakeholder consideration and engagement very seriously. It has ensured that such consideration is embedded throughout the business, with the Executive Committee and senior management actively engaged in communication and engagement initiatives. ### How has the Board had regard to Section 172 matters? We explain our engagement with employees, suppliers, and customers during the year in the Managing our resources and relationships section on pages 62 to 64. Details of how the Board operates and matters considered by the Board are set out in the Directors' Corporate Governance Report from page 100. The Directors regularly consider reports on health and safety, environment, and security. This supports the Directors in their decision-making, helping them understand the impact those decisions have on our local communities and the environment. It is critical to our success that we promote and ensure high standards of business conduct. Further information can be found on pages 50 to 51, 58, and 67 to 71. The Group Legal and Company Secretariat, Quality, Compliance, HR and Sustainability teams also report regularly to the Board. Our Non-financial and sustainability information statement on page 89 identifies policies and guidelines governing our approach to climate-related financial disclosures, environmental matters, our people, anti-corruption and anti-bribery, social matters and human rights. Considering the long-term effect of the decisions made by the Board is an integral part of the approval of strategy, and our strategic progress this year is disclosed on pages 22 to 25. ### How did the Directors discharge their Section 172 duty during the year? The Directors recognise that the decisions they make today will affect the business into the long term. We have identified our key stakeholders on pages 62 to 64 and set out reasons for, and methods of, engagement with each group. We acknowledge that different stakeholders have different needs, so our Board tries to understand these needs and priorities through engagement to inform its decision-making. This, together with considering the long-term consequences of decisions and maintaining our values and reputation for high standards of business conduct, underpins the way we operate and our governance framework. In understanding the needs and priorities of our stakeholders, we also acknowledge that situations may arise where stakeholder groups have conflicting priorities. When this happens, we consider the priorities of each group. We assess them individually and collectively from the perspective of our strategic objectives and the continued long-term sustainable success of the business. This statement explains how our Directors: - have engaged with our employees, shareholders, customers, suppliers, our communities and others (for more information about our engagement, see pages 62 to 64); and - have considered our employees' interests, the need to act fairly between members of the Company, the need to foster business relationships with suppliers, customers and our communities, the impact of our operations on the community and environment, our reputation for high standards of business conduct, and the outcomes of those considerations on the principal decisions taken during the financial year. In this statement, we define principal decisions of our Board as those taken in this financial year, which relate to matters of key strategic importance, and which are significant to any of our key stakeholders. Set out on the following pages are examples of how key stakeholders, Section 172 duties, and other matters were considered by the Board when making its principal decisions in 2023. ![img-10.jpeg](img-10.jpeg) ▲ Employees on our early careers programme. Renssnow plc Annual Report 2023 85 Strategic Report ## Section 172 statement continued Five-year financial plan What was the principaldecision? The Board considered: The review and updating of our five-year financial plan. Shareholders; customers; suppliers; employees; the environment and communities; and the long- term sustainable success of the Company. How were the above matters considered? The five-year financial plan is reviewed by the Board twice a year. In the second quarter, a refresh of the plan is performed, followed by a more detailed update in the fourth quarter. The Board conducted an in-depth review of proposals and updates on capital allocation, capital expenditure, competitive outlook, operating expenses and shareholder distributions. This included reviews in Board meetings leading up to the April 2023 Board strategy meeting, at which the strategic direction of the Group, and the corresponding five-year financial plan, were discussed. Discussions included a review of the macroeconomic environment, market drivers, current sales trends, and the financial strength of the organisation (including revenue risk analysis and a review of pessimistic revenue scenarios). The Board, based on input from the Executive Committee, balanced key priorities, including capital and operating expenditure plans, and rewarding our people competitively, alongside shareholder distributions. The Board also considered the short-term actions to mitigate the pessimistic revenue scenarios, such as only recruiting critical roles. As part of the strategy evaluation, the Board also considered the development of our employees and internal manufacturing capabilities, as well as expanding the range of markets and applications that we serve to drive sustained long-term growth and meet the current and future needs of our business. The Board engaged with employees, suppliers, investors and customers during the year to better understand their views on some key considerations, such as pay and reward, and use of cash. What was the outcome? The outcome was an updated five-year financial plan (and approved related proposals), which will help enable delivery of our purpose and strategic priorities. This plan incorporates our long-standing commitment to research and development, and takes account of the views of our stakeholders. The Group capital expenditure element of the plan includes a significant investment to develop our manufacturing site in Miskin, Wales. This will create local employment opportunities and supports our Net Zero targets. The Board also affirmed strategic focus areas, to drive growth beyond the five-year financial plan window. Related outcomes approved via proposals presented to the Board during the past year include: – agreeing significant capital expenditure on manufacturing equipment to both increase capacity and improve productivity; – completing global employee salary benchmarking programme, using external data (which resulted in an average pay increase of 10.2% in FY2023) and a new global job architecture (for more information, see page 65); – maintaining a progressive dividend policy; – agreeing an additional £1.3m for pay increases for the apprentices and graduates in our UK early careers programme; and – increasing investment in engineering, including research and development. For more information, see pages 28 to 31 86 Renishaw plc Annual Report 2023 Strategic Report Proposals relating to the UK defined benefit (DB) pension scheme What was the principaldecision? The Board considered: The approval of a proposal to seek to insure the liabilities of the UK DB Employees and former employees participating pension scheme. in the pension scheme; the important stakeholder relationships with the Trustee and the Pensions Regulator in the UK; the long-term sustainable success of the Company; and maintaining high standards of business conduct. How were the above matters considered? The Board reviewed the funding position on several occasions throughout the year. The March 2023 proposal was prepared with input from the Company’s UK pension and legal advisors, and the corporate Trustee. The Board continues to monitor progress, take advice, and engage as appropriate. The key advantages of the proposal are to protect members’ benefits and, at the same time, remove the risk of funding a deficit, as well as reducing the ongoing governance costs and time required to manage the pension scheme. What was the outcome? The Board supported and approved the proposal, subject to a price point that would require no further Company funding. It was noted that, if successful, it would result in a positive outcome for the pension scheme (its members and Trustees) and theCompany as mentioned above. The process to seek insurance is ongoing at the time of this Report. For more information, see pages 30 and 59 Employees at our New Mills site, UK. Renishaw plc Annual Report 2023 87 Strategic Report ## Section 172 statement continued Approval of our climate transition plan What was the principaldecision? The Board considered: Whether to approve the climate transition plan, which considers how we Shareholders; our relationship with suppliers; should reduce our environmental impact and align with the UK and global the environment and communities; government; commitments to reach Net Zero greenhouse gas emissions. the long-term sustainable success of the Company; and maintaining high standards ofbusiness conduct. How were the above matters considered? The Board engaged with the Sustainability Steering Committee in March 2023 to review and challenge the proposed Science Based Target initiative targets for Net Zero emissions across Scope 1, 2 and 3. In particular, the Board considered the actions we could take, and the collaboration that would be needed with suppliers and customers, to achieve a 50% reduction of Scope 3 emissions by 2030, as well as the potential effects on our costs and business processes. So that we and our investors, employees and customers can understand performance against the targets, the Board discussed the need for verifiable data. When reviewing the climate transition plan, the Board took the UK’s Net Zero commitment into consideration. The Board also engaged with: (i) shareholders regarding the climate transition plan, including at our AGM, specific briefings and other communications; (ii) our employees, including through our regular sustainability briefings and ultra-low emission vehicle (ULEV) briefings; and (iii) customers, including responding to customer sustainability assessments. The Board considered feedback from the various engagement activities. The Board anticipates that it will benefit the communities in which we operate, as well as customers and our people. Like many of our stakeholders, our employees want to work for a business that takes its environmental responsibilities seriously. What was the outcome? The Board approved the climate transition plan, including our commitment to reduce Scope 3 emissions by 50% by 2030. The Board is confident that the climate transition plan, and its challenging targets, will have a positive impact on all stakeholder groups. During the year, we have continued to make progress towards our target of Net Zero for Scope 1 and 2 emissions by 2028. This included switching to renewable energy contracts for our main sites in India and the USA, as well as finalising such contracts for all UK sites. We are also moving to ULEV fleet vehicles in the UK. As part of our commitment to reduce Scope 3 emissions, we have also introduced a ULEV salary sacrifice scheme, initially in the UK, which will help our employees to reduce their commuting emissions. We have installed EV charging points at many of our UK sites, including more than 80 ports at our New Mills site. For more information, see page 71 Solar panels at our manufacturing facility in Pune, India. 88 Renishaw plc Annual Report 2023 ## Non-financial and sustainability information statement We are required by sections 414CA and 414CB of the Companies Act 2006 to include in our Annual Report certain non-financial and Strategic Report sustainability information. The table below shows where this information can be found in this Report. Our business model is set out on pages 20 to 21 and our non-financial KPIs are disclosed on page 27. Reporting requirement(s) Further information Policies Related principal risk(s) Climate-related TCFD statement (pages 72 to 80) n/a Climate change (page 57) financial disclosures | Environmental | Managing our resources and | Group Business Code | Climate change (page 57) | | --- | --- | --- | --- | | matters | relationships – planet (pages 68 | Group Environmental Data Policy | | | | and 70) | Group Management of Waste Policy | | | Our employees Managing our resources and | | Group Business Code | People (page 53) | | | relationships – people (page 67) | Equality, Diversity and Inclusion | | PolicySpeak Up Policy Directors’ Corporate Governance Group Occupational Health and Report (page 99) SafetyPolicy Other statutory and regulatory disclosures (page 137) | Social matters Managing our resources and | | Group Business Code | People (page 53) | | --- | --- | --- | --- | | | relationships – people (pages 65 to | Equality, Diversity and Inclusion | | | | 67) and communities (page 82) | PolicySpeak Up Policy | | Group Occupational Health and Directors’ Corporate Governance SafetyPolicy Report (page 99) Other statutory and regulatory disclosures (page 137) | Respect for | Managing our resources and | Group Business Code | People (page 53) Non- | | --- | --- | --- | --- | | humanrights | relationships – people (page 67) | Equality, Diversity and Inclusion | compliance with laws and | | | and suppliers (page 84) | PolicySpeak Up Policy | regulations (page 58) | Group Modern Slavery and Directors’ Corporate Governance HumanTrafficking Policy Report (page 99) Anti-corruption Directors’ Corporate Governance Group Business Code Non-compliance with laws andanti-bribery Report (page 99) Group Anti-Bribery and and regulations (page 58) CorruptionPolicy Allen Roberts Group Finance Director The Strategic Report on pages 1 to 89 was approved by the Board on 18 September 2023 and signed on its behalf by: Sir David McMurtry Executive Chairman Renishaw plc Annual Report 2023 89 Governance ## We are ## celebrating our values ## competition winners ### The values competition was a great ### way to give our employees an insight ### into some of the inspirational work ### happening around the business. We ### received 10 entries for the innovation ### category and seven for inspiration. ### Innovation was not only demonstrated ### in our product areas, but through ### our peoples’ continuous challenging ### of processes to improve the way ### we do things.” Marc Saunders Director of Group Strategic Development The software ‘Motion Planner’ team in Pune, India. Our values competition winners: ## Innovation The competition winners for innovation were one of our software teams, based in Pune, India. They submitted an entry for their work developing off-surface and on-surface planners for measuring systems used to inspect complex components. The planners fully automate motion planning, which manufacturers currently perform manually through trial and error. Using these planners results in almost exact simulation and saves time, since an operator no longer needs to go to a machine beforehand. They also eliminate the need for experts to plan complex parts, deskilling the planning process and saving further time. The team chose Smt. Patashibai Lunkad Blind School as the charity to receive £5,000 in local currency equivalent. This is a residential school based in Pune that aims to improve the lives of young people who are blind or partially sighted, enabling them to be self-sufficient and live a life of respect, with employment. 90 Renishaw plc Annual Report 2023 ## Governance 92 Directors’ Corporate Governance Report 94 Board of Directors 96 Executive Committee 103 Nomination Committee Report 108 Audit Committee Report Our values competition winners: 114 Directors’ Remuneration Report 136 Other statutory and regulatory disclosures ## Inspiration 139 Directors’ responsibilities The competition winners for inspiration were a team of apprentices based at our manufacturing sites in Gloucestershire and South Wales. As part of our manufacturing apprentice development programme, theydelivered nine continuous improvement projects usinglean manufacturing principles. All the apprentices’ projects delivered benefits to our business, either by reducing waste or increasing productivity. The winning team chose Velindre Cancer Centre toreceive£5,000. Based in Cardiff, UK, Velindre is the premier cancer centre in Wales, providing high-quality radiotherapy and chemotherapy treatments, care and support to cancer patients. It also gives more than £1m per year to fund cancerresearch programmes. You can read about the other values competition winners on pages 140–141. Manufacturing apprentices inMiskin,Wales. 91 91Renishaw plc Annual Report 2023 Governance ## Directors’ Corporate Governance Report ## We are ## contributing to success ## through good governance The Board and the Executive Committee have worked hard to maintain and build on a resilient and sustainable governance framework, which we believe makes us stronger and better placed to take sound decisions in the interests of the Company and its stakeholders. As COVID-19 restrictions have lifted, it’s been a pleasure to return to in-person Board meetings. In September 2022 I, along with other Board members,visited our site at Pliezhausen, Germany, and met with our EMEA senior management colleagues who are responsible for 21 of our sales and marketing locations. We also held our Board and Committee meetings in March 2023 at our Pliezhausen site. These visits provided us with valuable insights into the opportunities and challenges our overseas subsidiaries are experiencing in the current business climate. We also enjoyed meeting some of our key customers in Germany. We really appreciated being able to see first-hand the strength of our customer relationships and the benefits our customers gain from a range of our products. We held our April meetings at our Miskin site in Wales, where we also saw the good progress being made in the ambitious ## Throughout the year the Board expansion of this manufacturing site. ## made sure we assessed Our people Our people remain our greatest asset in pursuing long-term ## shareholder and stakeholder growth opportunities. As communicated last year, the Board approved the major investments in our reward packages that we ## interests with long-term, have made; this has continued this year to ensure that our pay remains competitive, so that we can retain and attract talented ## sustainable success in mind.” people. The Board continues to monitor this to maintain our competitive position and we have acquired benchmarking data Sir David Grant for all roles (including those overseas) during FY2023, with the Senior Independent Director aspiration that pay across our global locations will be locally competitive. For more information onthese activities, please The year in review seepage 66. I am pleased to introduce the Directors’ Corporate Governance Board changes Report for the year ended 30 June 2023. The Board’s focus on supporting management’s disciplined delivery of our We have also continued to progress succession planning strategy has remained despite continued external challenges: with another new appointment to add to those made last year. economic issues such as rising inflation and a growing cost- We welcomed Professor Karen Holford as an Independent of-living squeeze; geopolitical issues such as the continuing Non-executive Director on 1 September 2023. Karen’s impact of the Russia-Ukraine conflict and global challenges in appointment further enhances the breadth of experience, with semiconductor manufacturing; and growing concerns in cyber, her background in engineering and research and development, energy supply, and climate change. Cognisant of these and as well as the diversity of views we have on the Board. other challenges, we have made good progress in our strategy; Further information on our Board’s skills and experience can introducing new products into close-adjacent markets, and befound on pages 94 to 95. taking advantage of long-term growth opportunities in additive manufacturing, shop-floor measurement, materials research, and semiconductor manufacturing. We continue to invest in ourpeople, product development, and infrastructure to deliver long-term growth. 92 Renishaw plc Annual Report 2023 ## Board effectiveness This year, Gould Consulting conducted an independent Board and Committee effectiveness evaluation. An external evaluation was originally scheduled to take place last year. However, we considered that the evaluation would be more robust and insightful once Juliette Stacey and Stephen Wilson (appointed in January and June 2022 respectively) had spent more time with the Board. I am pleased to report that the evaluation concluded that the Board and its Committees continue to operate effectively. Details of the evaluation, including the areas identified for improvement and the progress made against last year's actions, can be found in the Nomination Committee Report on pages 105 to 106. ## Stakeholders You will read on pages 85 to 88 about how we consider the views of our stakeholders in our decision-making process. Our engagement with stakeholders, including our people, provides the Board with enhanced context and background when making decisions. Further information on our stakeholder engagement can be found on pages 62 to 64 and in our Section 172 statement on pages 85 to 88. ## Risk management and sustainability Regular reporting has provided the Board and its Committees with information to help to guide management in responding to the events of the year, as well as to monitor our principal risks. These are more fully described on pages 52 to 59. We recognise climate change as a principal risk and are committed to helping address this global threat. We have focused on our sustainability plans. It is important to recognise that the drive to Net Zero represents many opportunities for our business as our products positively contribute to our customers' own sustainability ambitions by reducing energy consumption, minimising waste, and improving the inherent performance of the products that they supply to their customers. For more information on sustainability see pages 68 to 80. ## Our purpose and values The Board remains committed to helping Renishaw embed its purpose and values, both of which are key to delivering our strategy. This year, that included support for a global competition, encouraging our people to share how they demonstrate our values: innovation, inspiration, integrity and involvement. We received entries from across the Group, and we announced the winning teams in December 2022. Each winning team chose a charity to receive a £5,000 (or local currency equivalent) donation, including a school for blind children in India and a cancer treatment centre in Wales. You can read more about our purpose and values on pages 1, 4 and 9. ## Succession planning and diversity We continue our focus on diversity and inclusion. We support the aspirations of gender and ethnic diversity as set out in the FTSE Women Leaders Review and Parker Review respectively and are reporting for the first time against the Financial Conduct Authority's diversity targets set out in the Listing Rules. This diversity focus does not stop with the Board and you will read on pages 97, 106 and 107 about the steps we are taking to address diversity across the business. As reported last year, in October 2021 the Board approved our global Equality, Diversity and Inclusion (EDI) Policy. We have updated this in FY2023 to include in particular the responsibilities of the Board in relation to EDI, and to reflect the FCAs requirements in terms of the diversity considerations that should apply at Board and Board Committee level. The appointment of Professor Karen Holford, mentioned above, was made against this new policy. Further details of the updated policy can be found in the Nomination Committee Report on page 106. ## Director remuneration Our Remuneration Committee has carried out a thorough review of our policy in the context of market practice, feedback from our people on benefit initiatives, wider workforce pay policies, and views received from our investors as part of the consultation exercise conducted on our Remuneration Policy proposals. The 2023 Remuneration Policy is set out on pages 120 to 126. ## Looking forward In FY2024, the Board will focus on: - continuing to consider succession plans, including Non-executive Director recruitment; - increasing our oversight of sustainability matters; - finalising the proposal to insure the liabilities of the UK defined benefit pension scheme (see page 87 for more details); - the UK government's audit and governance reforms. We will continue to oversee management's key activities and timeline to address the proposed reforms. For more information see page 108; and - considering the proposed changes to the Governance Code once proposals have been finalised by the FRC. The progress we have made this year has provided us with a sound platform from which we look forward with confidence. The 2023 AGM will be held on 29 November 2023 and I look forward to meeting many of you then. **Sir David Grant** Senior Independent Director 18 September 2023 2023年1月1日 Renishaw plc Annual Report 2023 93 Governance ## Directors’ Corporate Governance Report continued ## Board of Directors as at 18 September 2023 ## We are ## driven by strong leadership 1 2 3 4 5 6 7 8 9 10 11 Read more extensive Board biographies online. Visit www.renishaw.com/directors. | 1. Sir David McMurtry | N* | 2. John Deer | 3. Will Lee | | --- | --- | --- | --- | | Executive Chairman | | Non-executive Deputy Chairman | Chief Executive | | Appointed September 1975 | | Appointed July 1974 | Appointed August 2016 as Group Sales | and Marketing Director; February 2018 Areas of expertise Areas of expertise as Chief Executive Strategy, product development, engineering, Manufacturing, strategy, international Areas of expertise science/technology Contribution, skills and experience Sales and marketing, strategy, Contribution, skills and experience – Co-founder of Renishaw, contributes to engineering,operations – Co-founder of Renishaw, provides strong Board leadership and strategic decisions Contribution, skills and experience leadership to the Board, and responsible for growing the business. for Group innovation, product strategy – Effective and strong leadership and – Extensive manufacturing and quality and Group technology. management, both technical and experience contributes to the delivery of commercial, with an acute awareness – Significant contribution to the long-term, efficient, high-quality manufacturing. of the industry and its opportunities sustainable success of the Company and – Strategic vision, and commercial and and challenges. all aspects of the business. international experience. – Maintains a wide breadth of knowledge, – Strategic vision, and technical and External appointments as well as strong stakeholder relationships industry knowledge. – None that continue to develop the business. External appointments – Joined the Renishaw graduate scheme – None in 1996 and since then has held various senior management positions in engineering, operations, and sales and marketing, resulting in an in-depth understanding of the Group’s business, products and markets. External appointments – None 94 Renishaw plc Annual Report 2023 | 4. Allen Roberts | 5. Sir David Grant | A N R | 6. Catherine Glickman | A N R* | | --- | --- | --- | --- | --- | | Group Finance Director | Senior Independent Director | | Independent Non-executive Director | | | Appointed October 1980 | Appointed April 2012 | | Appointed August 2018 | | | Areas of expertise | Areas of expertise | | Areas of expertise | | | Finance, strategy, internal controls, | Engineering, people, science/technology | | People, remuneration, pensions, strategy | | operations, compliance Contribution, skills and experience Contribution, skills and experience Contribution, skills and experience – Contributes to talent recruitment, – Breadth of human resources experience – Chartered accountant, with an invaluable increasing diversity and development in other listed companies and as a non- contribution to financial planning and of workforce. executive director is particularly valued strategy, including adept management of bythe Board. – Extensive engineering experience financial risks and business development. and recognised for his contributions – Skilled at developing reward structures – Deep understanding of the Group’s to industry. that align leadership motivation with businesses, products, relationships and Group strategy. – Various previous leadership positions the sectors in which Renishaw operates. at international engineering companies – Extensive HR, remuneration and – Experienced in the management of and government-related science and pensions experience, as well as previous Governance financial risks, reporting and planning. technology bodies. international experience with Genus plc and Tesco plc. External appointments External appointments External appointments – None – None – Non-executive director and remuneration committee chair of TheWorks.co.uk plc. – Non-executive director of East of England Ambulance Service NHS Trust. 7. Juliette Stacey A* N R 8. Stephen Wilson A N R 9. Professor Karen Holford A N R Independent Non-executive Director Independent Non-executive Director Appointed January 2022 Appointed June 2022 Independent Non-executive Director Appointed September 2023 Areas of expertise Areas of expertise Finance, M&A, strategy, corporate Software, finance, strategy, business Areas of expertise governance, internal controls, compliance development, IT transformation, international Engineering, research and development, science/technology, people and diversity Contribution, skills and experience Contribution, skills and experience – Chartered accountant with an in- – Extensive experience in the software Contribution, skills and experience depth understanding of finance, sector, including strategic, financial – Engineering experience across industry M&Aand strategy. and business development and and higher education. IT transformation. – Career experience in finance, as well as – Leadership and strategic advisory executive roles in both listed and non- – Career experience in finance and positions including within government- listed company environments. business development, including in related science and technology bodies. global businesses. – Roles as chair of audit committees at – Skilled at advancing diversity in other listed companies brings a wider – Executive and non-executive roles in the workforce. industry perspective. listed company environments. External appointments External appointments External appointments – Chief executive and vice chancellor of – Senior independent director and audit – Executive director of Genus plc. Cranfield University. committee chair of Fuller, Smith & – Non-executive director of Canonical Turner plc. Holdings Ltd. – Non-executive director and audit committee chair of Sanderson Design Group plc. | 10. Jacqueline Conway | 11. Karen Atterbury | Committees | | --- | --- | --- | | General Counsel | Interim Company Secretary | A Audit Committee | | & Company Secretary | Appointed April 2023 | | N Nomination Committee Appointed November 2019 Areas of expertise (on sabbatical from April to October 2023) R Remuneration Committee Corporate governance, compliance, M&A Areas of expertise * Chair of Committee Contribution, skills and experience Corporate governance, risk and compliance – Substantial experience in supporting and Contribution, skills and experience advising boards and senior management of listed companies. – Responsible for providing legal and governance advice to the Board and – Extensive M&A, compliance and senior management, as well as leading corporate governance experience. the legal function. – Specialised in corporate governance, riskand compliance. – Substantial experience of operating inalisted environment. Renishaw plc Annual Report 2023 95 Governance ## Directors’ Corporate Governance Report continued ## Executive Committee 1 2 3 | 1. Gareth Hankins | 2. Leo Somerville | 3. Dave Wallace | | --- | --- | --- | | Head of Group Manufacturing | President, Americas | Director of Group Operations | | Appointed February 2018 | Appointed March 2004 | Appointed January 2008 | | Contribution, skills and experience | Contribution, skills and experience | Contribution, skills and experience | | – Responsible for manufacturing operations, | – Responsible for development of the | – Responsible for Group Operations, | | procurement, facilities management and | Americas region. | with oversight of Group Commercial | | sustainability across the Group. | | Development, Group Quality, Group | – Strong leadership and business Compliance, our centralised Group – Skilled leader with acute insight into development skills, combined with Engineering teams, Group IT and operations and manufacturing. in-depth market and product knowledge. Security, and Group Commercial Services – Experience in engineering, production, – Experience as project manager for and Marketing. and operations and business machine tool probing in the UK, and – Deep insight into Renishaw’s products, management, including previous role as business manager for machine tool markets, and product development, as as operations manager for styli and probing and calibration products at well as strong management skills. custom products. Renishaw, Inc. – Has worked in various functions of the business, including asDirector and General Manager for the CMM Products Division and previously held Executive Committee responsibility for the Industrial Metrology business. | 4. Will Lee* (Chair) | 5. Sir David McMurtry* | 6. Allen Roberts* | | --- | --- | --- | | Chief Executive | Executive Chairman | Group Finance Director | | See page 94 for biography | See page 94 for biography | See page 95 for biography | 7. Jacqueline Conway * These members of the Executive Committee were also Board Directors General Counsel during FY2023. & Company Secretary Further information on the See page 95 for biography ExecutiveCommittee can be found onpage 99. 96 Renishaw plc Annual Report 2023 ## Scope of disclosures In the Corporate Governance Report, we have incorporated: - the Audit Committee Report (page 108); - the Nomination Committee Report (page 103); and - the Directors' Remuneration Report (page 114). This report is structured in accordance with the five sections of the UK Corporate Governance Code (Governance Code) and we describe how we have applied its principles. The Governance Code can be viewed at: www.frc.org.uk. We report on the operation of our business in the following ways: ### The Group's business and likely future developments The Chairman's statement (pages 6 to 8), the Chief Executive's review (pages 9 to 11) and other sections of the Strategic Report give a review of the Group's business and likely future developments. Results are also reported by operating segment in Note 2 to the Financial statements, together with an analysis of revenue by geographical market. ### Management Report The Strategic Report includes a management report, as required by the Financial Conduct Authority's Disclosure Guidance and Transparency Rules (DTR). ### Directors' Report The Directors' Corporate Governance Report and Other statutory and regulatory disclosures as set out on pages 136 to 138 together form the Directors' Report. ### Corporate Governance Report The Company's corporate governance practices are set out in the Directors' Corporate Governance Report (on pages 91 to 139), which forms part of the Directors' Report, as required by the DTR. ### Shareholder information Certain information, which the FCA's Listing Rules (LR) require that the Company provides to its shareholders, is contained in the Directors' Corporate Governance Report (pages 91 to 139), the Directors' Remuneration Report (pages 114 to 135), and Other statutory and regulatory disclosures (pages 136 to 138). This includes information relating to arrangements with controlling shareholders. ## Reporting against the Governance Code To avoid duplication in this report, the table below cross-references explanations given elsewhere of how we have sought to apply the principles and comply with the provisions of the Governance Code. We report against other relevant Governance Code principles and provisions within this Directors' Corporate Governance Report. | Topic | Page(s) | | --- | --- | | Company purpose | 1 | | Values | 4, 5 | | Workforce engagement | 62, 66 | | Other stakeholder engagement | 62-65 | | Strategy and business model | 20-25 | | Effective controls | 102 | | Sustainability | 68-80 | | Capital allocation | 31, 56 | | Workforce policies and practices | 65-67, 89, 137 | | Risk management | 48-51 | ## 1. Board leadership and Company purpose ### Purpose, values and culture Renishaw's purpose of Transforming Tomorrow Together, as well as its values of innovation, inspiration, integrity and involvement, help guide the Board and our people when making decisions. These principles will help Renishaw grow and evolve without losing focus on what is important. A strong culture is needed to ensure Renishaw can achieve its purpose. The Board is responsible for monitoring and assessing culture. The Chair sets the culture for the Board, promoting openness and debate. This informs the culture that the Chief Executive embeds throughout the business with the support of the Directors. This year, the Board approved the introduction of a new Code of Conduct, to be launched in FY2024. This will set out the ethical expectations not only for employees but all key stakeholders. It will provide a foundation for 'Responsible Renishaw', the Group's global compliance brand, which guides employees on doing business responsibly in line with Renishaw's culture and core values, fostering alignment. Throughout the year, the Board received updates covering all aspects of Responsible Renishaw, and communications took place around the Group to engage and educate employees on Responsible Renishaw topics. Employees are also invited to share their feedback on compliance through an annual survey, the feedback from which is shared with senior leadership and used to shape future communications. Engagement with employees underlies the Board's understanding of Renishaw's culture. In March 2023, the Board visited our site at Piezhausen, Germany, where the Directors held an open forum for employees to ask questions. The Board has also been engaging with our people through our global values competition, which aims to recognise and celebrate examples of our values in action across the business. The Board was pleased to receive updates from our HR colleagues on the steps we are taking as a business to attract and retain women in engineering. Renishaw plc Annual Report 2023 97 FINANCIAL Governance # Directors' Corporate Governance Report continued ## Stakeholder engagement, including the AGM ### Shareholders The Board consulted with the Company's largest institutional shareholders and most influential proxy advisory firms on the new Directors' Remuneration Policy proposals, to ensure their feedback was considered. Further information on the new Remuneration Policy can be found in the Directors' Remuneration Report on pages 120 to 126. The Board hopes that the new Remuneration Policy will be widely supported at our AGM held later this year. The AGM takes place at the Company's headquarters or one of its other main sites, and we send our shareholders appropriate advance notice of the meeting. The Chief Executive and other nominated presenters give presentations on the business, and the Chairs of the Audit, Remuneration, and Nomination Committees are available for questions during and after the meeting. The Board was pleased to return to normality for our 2022 AGM, this being the first held without any attendance restrictions since the COVID-19 pandemic. We experienced higher attendance numbers compared to our 2021 AGM, and the Board greatly appreciated the opportunity to speak with more of the Company's shareholders. Due to positive feedback from the wider investor community, we have kept the Q&A facility, which was first introduced at the 2020 AGM. This allows the Company's shareholders to submit questions via email before the proxy voting deadline and also helps them to engage with the Board, even when they are not able to attend the AGM. Details of this year's AGM can be found in the Notice of Meeting, which will be provided to shareholders separately in due course. Each year, different resolutions are proposed for each substantially separate issue, and all resolutions are taken on a poll. We report on the number of votes lodged in respect of each resolution, the balance for and against each resolution, and the number of votes withheld. This information is published via a Regulatory Information Service (RIS) and on our website following the meeting. At the 2022 AGM, the Board was again pleased that the majority of resolutions were passed with a high level of support from the Company's shareholders. The Board considered the votes against resolutions 6, the re-election of Sir David McMurtry (29.75%) and 7, the re-election of John Deer (25.86%). In order to better understand the reasons for these votes against, the Board reviewed the voting recommendations of relevant proxy voting agencies, where these had been made available. Following the AGM, Sir David Grant wrote to those proxy advisory firms and the Company's largest institutional shareholders who voted against these resolutions or recommended doing so, inviting them to discuss their concerns with him in his role as Senior Independent Director. Discussions have been constructive, providing the Board with a greater understanding of stakeholders' concerns, and stakeholders with a greater appreciation of Renishaw's position. From these discussions, it was clear that although many of our stakeholders have an understanding and appreciation of Renishaw's unique history and culture, some of the Company's governance arrangements do not reflect the expectations of some investors and their concerns about governance. Sir David provided feedback on these conversations to the Board. The Company published an update as required under the Governance Code in May 2023. The Board continues to monitor the situation and engage with shareholders to understand their views on this issue and any other significant matters. In addition to the AGM, we also hold an annual Capital Markets Day aimed at current and potential shareholders, analysts, brokers and financial advisers. All of the Directors usually attend, and representatives from across the Group give presentations and answer questions from participants throughout the day. Details of our June 2023 Capital Markets Day can be found on page 83. At this year's Capital Markets Day, all the Directors were available to speak to stakeholders. This included Juliette Stacey, in her role as Chair of the Audit Committee, attending finance workshops to address any finance and audit related topics. The remaining Non-executive Directors also held Q&A sessions throughout the day, where they engaged directly with small groups of attendees. Information about our 2024 Capital Markets Day will be published in due course. We also hold online Q&A sessions with the Executive Chairman, Chief Executive, and Group Finance Director as part of the full- and half-year results webcasts. The Board continues to monitor progress with engagement mechanisms and regularly review our investor relations policy. The Company's overall approach to shareholder engagement is set out on page 83. ### Other stakeholders The Board remains committed to engaging effectively with other stakeholders to ensure we continue delivering value for them. Catherine Glickman remains our designated employee engagement ambassador. Catherine has extensive HR and remuneration experience, and because of this the Board considers that this engagement mechanism is the most appropriate for Renishaw. The Board believes her background and expertise make her ideally suited for this role, ensuring our employee's views reach the boardroom. Catherine gives the Board helpful feedback from workforce engagement activities, including joining employee briefings and through her attendance at EDI forums. She provides regular briefings to the Board on recruitment, retention, and the progress of our key people projects. Further information on Catherine's engagement activities can be found on pages 66 to 67 and 127. The Board also takes a close interest in the Group's customers, the challenges they face, and how best Renishaw can support them. The Board receives regular updates on conversations that Will Lee and senior colleagues have with our customers. More details on the above engagements, and other activities, can be found in the Managing our resources and relationships section on pages 62 to 84. How the Board has considered stakeholders in discussions and decision-making can be found on pages 85 to 88. ### Anti-bribery and corruption Renishaw is committed to acting professionally, fairly and with integrity in all its business dealings and relationships wherever we operate, and to implementing and enforcing effective systems to counter bribery and corruption. Renishaw's policy is to conduct all its business in an honest and ethical manner. We take a zero-tolerance approach to bribery and corruption which must be communicated to third parties with whom we do business. Our Group Anti-Bribery and Corruption Policy prohibits the offering, paying, solicitation and receipt of bribes in any form. 98 Renishaw plc Annual Report 2023 In addition, Renishaw’s Gifts and Hospitality Policy requires A chart showing the governance structure is set out below. any giving or receipt of gifts, benefits or hospitality to be Board reasonable and proportionate. As part of an update to the policy in FY2022, we introduced a Gifts and Hospitality Register and a straightforward process for employees to seek approval when required. We require third parties to sign up and adhere to anti-bribery Executive Audit Nomination Remuneration and corruption clauses, and to comply with anti-bribery and Committee Committee Committee Committee corruption laws, in all relevant Group companies’ standard terms and conditions, standard form and negotiated agreements (including relationship agreements such as agency, distribution Risk Committee, product and consultancy agreements). Anti-bribery and corruption groups and subsidiary Governance training is mandatory for all employees. undertakings The Group has due diligence procedures for the onboarding of third-party agents and distributors to control bribery and corruption risks, which includes third-party screening. We are The formal schedule of matters reserved for the Board includes: currently reviewing our approach to ‘Know your customer’ – the approval of full-year and half-year results, and matters, to enhance our customer-related due diligence. trading statements; Employee whistleblowing – company and business acquisitions and disposals; The Board encourages our people to raise concerns about – major capital expenditure; suspected unlawful or unethical behaviour and has outlined its – borrowing facilities; expectations in our whistleblowing policy, our Speak Up Policy. – reviewing the effectiveness of workforce engagement The Group’s confidential global hotline service, ‘Speak Up’, is mechanisms; there for people to raise any concerns about suspected unlawful – reviewing whistleblowing policy and processes; or unethical behaviour. The service is also available to officers, suppliers, customers, consultants, contractors, volunteers, job – ensuring maintenance of a sound and effective system applicants, and any third parties who provide services for or on ofinternal control and risk management; behalf of the Group. This year we logged 18 cases, all of which – forecasts, business plans and budgets; were promptly followed up. All cases are reviewed by our triage – material agreements; coordinators (currently the Head of Group Finance and Director & General Manager of Styli and Fixturing Product Division) and – director and company secretary appointments and removals; are then allocated to an appropriate investigator. Every matter – patent-related disputes and other material litigation; and reported is investigated, unless it is considered outside of the – major product development projects. scope of Speak Up (for example, if someone raises an issue that falls under our Grievance Policy). Regular meetings are held with The formal schedule of matters reserved for the Board and the key stakeholders to track the progress of investigations to help terms of reference for each of the Audit Committee, Nomination ensure cases are closed in a timely manner. The Board monitors Committee, and Remuneration Committee are available on the operation of this Policy and concerns raised, with the Audit our website at: www.renishaw.com/corporategovernance. Committee reviewing significant incidents and their outcomes. The Committees reviewed their terms in July and August 2023. A framework of delegated authorities maps out the structure Conflicts of interest below the Board and includes the matters reserved to the The Board has a conflicts of interest policy and a register Executive Committee. It also includes the level of authorities of situational conflicts. This includes procedures for the given to management below the Executive Committee. disclosure and review of any conflicts and potential conflicts, and authorisation by the Board (if considered appropriate). The table below shows the number of meetings of the Board The Board reviews all authorisations granted, and their and its Committees, alongside Directors who attended and the associated terms, every year. New disclosures are made number of meetings they were eligible to attend, during FY2023. where applicable. Audit Nomination Remuneration Director¹ Board Committee Committee Committee 2. Division of responsibilities Sir David McMurtry 8/8 N/A 4/4 N/A Governance structure Will Lee 8/8 N/A N/A N/A While the Board has overall responsibility for governance Allen Roberts 8/8 N/A N/A N/A across the Group, it delegates certain matters to its three formally constituted Committees – the Audit Committee, the 2 John Deer 7/8 N/A N/A N/A Remuneration Committee, and the Nomination Committee. Catherine Glickman 8/8 7/7 4/4 6/6 Our Executive Committee is responsible for the executive Sir David Grant 8/8 7/7 4/4 6/6 management of our businesses. It usually meets once a month Juliette Stacey 8/8 7/7 4/4 6/6 and is chaired by the Chief Executive. Members also include the Executive Directors and senior managers, as noted on page Stephen Wilson 8/8 7/7 4/4 6/6 96. It considers the performance and strategic direction of our 1 Professor Karen Holford was appointed after the end of FY2023, with effect from operating segments, performance against objectives, and other 1 September 2023, and so was not eligible to attend any meetings in FY2023. matters of general importance to the Group. 2 John Deer was absent from the Board meeting on 13 September 2022 due to a pre-existing commitment. Renishaw plc Annual Report 2023 99 Governance # Directors' Corporate Governance Report continued # Board and Committee meetings The table below sets out the Board and Committee meetings which occurred in FY2023. | July 2022 | August 2022 | | --- | --- | | | | | September 2022 | October 2022 | | | | | November 2022 | December 2022 | | | | | January 2023 | February 2023 | | | | | March 2023 | April 2023 | | | | | May 2023 | June 2023 | | | | # Key | | Board | | --- | --- | | | Audit Committee | | | Nomination Committee | | | Remuneration Committee | | | Unscheduled meeting | # Subjects discussed by the Board during the year Below is a high-level summary of the subjects the Board discussed during the year. For an in-depth look into some key decisions made by the Board in FY2023, see our Section 172 statement on pages 85 to 88. # Strategy - Reviewed and updated our five-year financial plan. - Reviewed and approved our strategic objectives. - Received regular updates from Executive Committee and product groups regarding progress towards FY2023 objectives. # Opportunities and results - Received regular flagship project updates from product groups. - Received regular regional sales updates. - Approved approach to key product sales. - Oversaw expansion progress at our site in Miskin, Wales. - Undertook a deep dive into health and safety performance. # Progress - Approved our full and half-year results, as well as our interim and final dividends. - Considered the ongoing Russia-Ukraine conflict and the effect on our businesses, including the financial impact of cessation of trade in Russia in FY2022. - Considered our capital allocation strategy. - Approved pension buy-in proposal (see page 87). - Reviewed and approved our tax strategy. # Leadership and people - Reviewed plans for Board-level succession planning. - Approved amendments to our EDI Policy. - Reviewed HR proposals to improve attraction and retention of women in engineering. - Supported proposed investment in a new employee engagement platform to better understand employee concerns and issues. # Internal control and risk management - Approved our 2023 principal risks. - Considered reports on compliance with financial, regulatory, corporate responsibility, and sustainability commitments. - Approved new Code of Conduct. # Governance and stakeholders - Approved the external provider for the FY2023 Board and Committees effectiveness review. Participated in and reviewed the resulting report. - Received updates on key governance matters at every meeting. - Reviewed our registers of Directors' situational conflicts and related parties. - Considered investor relations practices. # Sustainability and the environment - Approved our SBTi targets and Net Zero plan for Scope 1, 2 and 3 emissions. - Received updates from the Sustainability team regarding the work carried out to identify and quantify the climate-related risks and opportunities facing the Group. # Composition and commitment of the Board The Governance Code recommends that at least half of a board, excluding the chairman, should comprise independent non-executive directors. The Board currently comprises nine Directors; two Executive Directors in addition to the Executive Chairman and six Non-executive Directors, five of whom are considered to be independent. Sir David Grant, Catherine Glickman, Juliette Stacey, Stephen Wilson and Professor Karen Holford are considered to be independent in character and judgement, and there are no relationships or circumstances that are likely to affect their judgement. 100 Renewable pro Annual Report 2023 Senior Independent Director and Non-executive Directors Length of tenure reviews Sir David Grant is the Senior Independent Director. He is Sir David Grant available to discuss material concerns with shareholders, As Sir David Grant has served as an Independent Non- including if the normal channels of the Executive Chairman, the executive Director for more than 11 years, the Nomination Chief Executive, or the Group Finance Director fail to resolve any Committee, without Sir David participating in discussions, shareholders’ concerns. carried out a rigorous review of his independence, The Non-executive Directors and Executive Chairman meet effectiveness and commitment. Following recommendation without the other Executive Directors present to discuss by the Nomination Committee, the Board believes Sir David performance, corporate governance, and other matters. continues to be independent in character and judgement, The Independent Non-executive Directors also regularly meet and there are no relationships or circumstances that are likely without the Executive Directors, Executive Chairman or other to affect, or could appear to affect, his judgement. The Board Directors present. Governance also benefits from his extensive knowledge of the Company and expertise in engineering. Given that Professor Karen Division of responsibilities Holford has joined the Board relatively recently, the Board There was a clear division of responsibilities at Board level believes it is in the best interests of the Company for Sir throughout FY2023. This ensured that there was an appropriate David to remain on the Board to provide some continuity and balance of power and authority, so there is no one person facilitate succession planning. with unfettered powers of decision-making. The Board and Sir David McMurtry Executive Committee each meet on a regular basis to make Sir David McMurtry has held the position of Executive decisions of significance to our business segments and review Chairman since the Company listed in 1984. Following careful management actions. consideration of Provision 19 of the Governance Code You can find written statements of our Chief Executive’s and (relating to a chairman’s tenure), the Board concluded that Executive Chairman’s key responsibilities, which also detail the Sir David’s continued service as Executive Chairman remains key responsibilities of the Senior Independent Director, on our in the best interests of the Company and its shareholders. website at: www.renishaw.com/corporategovernance. This is in part because of his unique history as a co-founder of Renishaw and continued effective leadership of the Board, Development but equally importantly his contribution to the Group’s long- The Company offers its Directors the opportunity to attend formal term, sustainable success from his role and responsibilities training courses regarding their duties. The Company also for innovation and product strategy. See page 105 for provides them with guidance notes, papers and presentations more information. on changes to law and regulations, as appropriate. Non- executive Directors are invited to attend internal events, which The Board continues to actively consider succession plans, are a great way to keep up to date with product development in particular for the Non-executive Directors, having refreshed and marketing initiatives. These events are also an opportunity the composition of the Board last year with the appointments of for the Non-executive Directors to engage with business units Juliette Stacey and Stephen Wilson. The Board has continued its and functions. succession planning this year with the appointment of Professor This year, members of the Board, including the Independent Karen Holford. These appointments have not only increased Non-executive Directors, twice visited our site at Pliezhausen, the independence of the Board, but also the range of skills and Germany. This allowed the Directors to get first-hand experience backgrounds, helping with diversity of thought and constructive of how the subsidiaries within the Group operate and to meet challenge of management. This year’s external Board evaluation key employees and customers in the EMEA sales region. As well conducted by Gould Consulting concluded that the Board as this visit, the Board and Committees held their April meetings remains effective. More details about the Board evaluation can at the Miskin, Wales site, which was a great opportunity for all be found on pages 105 and 106. Directors to see the progress of this production facility expansion The terms of appointment of the Non-executive Directors set out first hand. Further information on these visits can be found on the expected time commitment, as well as the requirement to page 92. discuss any changes to other significant commitments with the Business leaders (including from the finance and legal functions, Executive Chairman and Chief Executive in advance. They are product groups, and sales regions) give regular presentations available for inspection at the Company’s AGM and its registered at Board meetings, to update the Directors on their areas office upon written request. of responsibility, including updates regarding products and None of the Executive Directors holds a directorship in a business strategies. These also give the Directors the chance to FTSE100 company. discuss latest developments, and current and future initiatives. The Board considers that all Renishaw’s Non-executive A tailored induction pack is given to new Directors, and Directors demonstrate commitment to their roles and dedicate the induction programme (together with the continuing sufficient time to their Company duties. Each of them provides development programme) includes site visits and briefings by support to the Board particularly on areas related to their skills senior managers, attendance at internal senior management and experience, which for Sir David Grant is engineering conferences and external trade shows, as well as overseas technologies, for Catherine Glickman is HR matters, for Juliette subsidiary visits, as applicable. We will provide Professor Karen Stacey is finance, for Stephen Wilson is the software sector, Holford with an induction pack and programme as she settles global business and investor relations, and for Professor into her new role in FY2024. Karen Holford is engineering and research and development. Further details of their contribution, skills and experience are summarised in their biographies on pages 94 to 95. Renishaw plc Annual Report 2023 101 Governance # Directors' Corporate Governance Report continued # Information and support Board members receive business updates, financial information, and forecasts with relevant commentaries in advance of each Board meeting. These allow the Directors to review financial performance, current trading, and key business initiatives. Directors also have access to the Company Secretary, who advises the Board on all governance matters. Where necessary, the Directors have access to independent professional advice, at the Company's expense, to discharge their responsibilities as Directors. The Company maintains liability insurance for the Directors and officers and have entered into indemnities as disclosed in Other statutory and regulatory disclosures on page 136. # 3. Composition, succession and evaluation # Nomination Committee A description of the membership and activities of the Nomination Committee, as well as the Board's commitment to diversity, can be found in the Report on pages 103 to 107. # Re-election In accordance with the Governance Code, all of the Directors retire from the Board at each AGM and offer themselves for re-election and re-appointment. # 4. Audit, risk and internal control # Audit Committee A description of the membership and activities of the Audit Committee is set out in the Report on pages 108 to 113. # Financial and business reporting The respective responsibilities of the Directors and auditor in connection with the financial statements are set out in the Directors' responsibilities section on page 139 and the Independent Auditor's Report on pages 142 to 152. # Risk management and internal control The Board is responsible for risk management and internal control, and for reviewing the effectiveness of these systems. The Group has an established process for the review of business risks throughout the Group, which includes the Risk Committee. Further information on Renshaw's risk management and internal controls can be found in the Risk Management section on pages 48 to 51. Any system of internal control is designed to manage rather than eliminate the risk of failure to achieve business objectives and can only give reasonable, but not absolute, assurance against material misstatement or loss. The Board has conducted a robust assessment of the principal and emerging risks that Renshaw faces, including those that would threaten the Group's business model, future performance, solvency, or liquidity. Renshaw's principal risks and uncertainties can be found on pages 52 to 59. The Board is satisfied that there is an ongoing process for identifying, evaluating, and managing the significant risks that the Group faces. This is regularly reviewed and accords with the FRC Guidance on Risk Management, Internal Control and Related Financial and Business Reporting. The Board verifies that necessary action has been or is being taken to remedy any significant failings or weaknesses identified from its review. The Group has defined lines of responsibility and delegation of authorities. The Group also has established and centrally documented control procedures, including approvals of capital and other expenditure, information and technology security, and legal and regulatory compliance. The Internal Audit function helps to give independent and objective assurance that the control procedures are appropriate and effectively applied. The Group Internal Audit Manager attends Audit Committee meetings to present annual internal audit plans and the results of such audits. The Audit Committee monitors actions on an ongoing basis. Further information can be found in the Audit Committee Report on page 113. The Board ensures that the Group has effective internal controls over the financial reporting and consolidation processes. Monthly accounts and forecasts are presented to the Board for review. The Internal Audit function carries out a review of our subsidiaries' accounting processes and financial statements to give assurance to the Board on the integrity of the information supplied. The Board reviews the effectiveness of the system of internal controls, including via the Audit Committee. It receives regular reports from the Internal Audit function, external auditors, and other advisers, and carries out an updated risk and controls analysis every year. The review covers material controls, including financial, operational, and compliance controls, and risk management systems. The Audit Committee has regularly received updates upon the UK government's audit and governance reforms, designed to restore trust in audit and corporate governance, focusing on the key required activities and timeline for the internal controls aspect of the reforms, as well as Renshaw's proposed approach to managing fraud risk. The Company continues to refine its compliance plans as the reforms become clearer. # Going concern The Directors have assessed the Group's position as a going concern, and updated the assessment before signing this report. The Board considered the Group's forecast profits and cash flows for the period from the date of approval of the Annual Report to 30 September 2024. The Board is satisfied that the Group has adequate resources to continue operating as a going concern for the foreseeable future, and that no material uncertainties exist with respect to this assessment. More detail is provided on page 161. # Viability statement The Board approved the Company's viability statement on pages 60 to 61. # 5. Remuneration The methods used to apply the Governance Code principles relating to remuneration are set out in the Directors' Remuneration Report. A description of the membership and activities of the Remuneration Committee is set out on page 117. # Compliance statement The Board considers that it has complied with the provisions of the Governance Code throughout FY2023 except in relation to the following matter: Provision 19 (that the chain should not remain in post beyond nine years from the date of their first appointment). A full explanation of the reasons for this is given on page 101 and 105. # Sir David Grant Senior Independent Director 18 September 2023 102 Renshaw plc Annual Report 2023 ## Nomination Committee ReportNomination Committee Report ## We are ## developing the ## skills for success Governance In an engineering career spanning both industry and academia, Karen has previously held engineering roles with Rolls-Royce andAB Electronic Products Limited, which culminated in a senior engineering management position leading a large mechanical design team. Moving into academia, and concentrating on research and development, Karen more recently held leadership positions with Cardiff University and is currently chief executive and vice chancellor of Cranfield University. A Fellow of the Royal Academy of Engineering, Karen received a CBE for services to engineering and the advancement of women in engineering in 2017. We are delighted to welcome Karen to the Board. Board and senior management succession While our priority during FY2023 was to continue our search fora suitable Non-executive Director to join the Board, we have continued to make improvements in our succession planning forsenior management and key operational roles. Additionally, we have recently completed a contingency succession planning review of all Board level roles. These exercises are described later in this Report. ## Building a strong Board Board evaluation ## with the skills for long-term We have concluded a comprehensive interview-based ## sustainable success.” external Board Evaluation exercise during the year involving Directors and members of senior management. Following the publication of the final report, we considered the results as Sir David McMurtry they were relevant to the Committee and as they related to Chair of the Nomination Committee Board composition, size, diversity, and succession planning. The results are outlined in detail later in this Report. Generally, Introduction I am pleased to report that the Board evaluation confirmed that I am delighted to present our Nomination Committee Report the Board and each Committee continued to function effectively. for the year ended 30 June 2023. The Nomination Committee continues to play a pivotal role in the stewardship of the Group. Priorities for FY2024 It does this by ensuring the optimal skills and experience are Over the coming year, our priorities will be to: present around the Board table, and at senior management – concentrate on increasing Board diversity; level, to set and achieve our strategic objectives. Not only have we completed a full external, interview-based evaluation of the – strengthen the breadth and diversity of the talent pipeline Board and its Committees, but we have recently concluded forsenior management roles; and succession planning exercises and completed the appointment – continue to progress the Company’s processes for succession of a further Non-executive Director to the Board. planning, with a focus on the development of key talent. Board appointment The following Report sets out in detail the work that we have Further to our disclosures in our FY2022 Report, in FY2023 undertaken during FY2023. the Committee continued its search for a new Non-executive Director with skills in engineering research and development. Sir David McMurtry An external search was undertaken and we considered a list of Chair of the Nomination Committee candidates. Following this review, the Committee recommended to the Board that Professor Karen Holford CBE be appointed as 18 September 2023 a Non-executive Director with effect from 1 September 2023. Renishaw plc Annual Report 2023 103 Governance ## Nomination Committee Report continued Role and responsibilities Governance The Committee met on four occasions during FY2023 to fulfil its responsibilities delegated by the Board. It operates under written – Reviewed the Committee Terms of Reference. terms of reference, which are regularly reviewed and published – Reviewed the time commitment required of the Non- on www.renishaw.com/corporategovernance. executive Directors and evaluated whether enough time was being committed to deliver their duties. The Committee’s primary duties are: – Assessed the independence of each Non-executive – reviewing the size, structure and composition – including the Director, agreeing that all Non-executive Directors balance of skills, knowledge, experience, and diversity – of (excluding John Deer) remain independent (see page 101 the Board and its Committees (taking into consideration and 105 for further information on the Chair, and page 101 the outcome of the Board evaluation exercise), and for further information regarding Sir David Grant). recommending changes to the Board, as appropriate; – Recommended the re-election of each Director due to – overseeing succession planning for the Board and other retire at the AGM. senior management. In doing so, it pays due consideration to the creation of a pipeline for succession which promotes Board evaluation diversity of gender, social and ethnic backgrounds, and cognitive and personal strengths. The Committee also takes – Monitored the implementation of the action plan arising out into account the leadership skills and expertise required in the of the FY2022 internal Board evaluation. future to achieve the Group’s strategic goals; – Arranged the FY2023 external interview-based – recommending to the Board its policy on equality, diversity Board evaluation. and inclusion (EDI) as it applies to the Board and its – Reviewed the results of the evaluation in relation to its own Committees, its objectives, and link to strategy; performance, and any items relating to the composition of – recommending to the Board its policy on EDI as it applies to the Board and succession planning. appointments and nominating candidates for appointment; – Recommended an action plan arising out of the FY2023 – leading the process for new Board appointments and Board evaluation to the Board for approval. nominating candidates for appointment; and – reviewing the performance of, and making recommendations Succession planning to the Board on, the re-election of Directors at the AGM. Ensuring thefuture leadership and stewardship of the business is vital to support long-term effectiveness and the achievement Committee composition of the Company’s strategic goals. It also supports the Group’s The Nomination Committee is chaired by Sir David McMurtry. EDI objectives and ensures the business is well placed to take It comprises a majority of Independent Non-executive Directors advantage offuture opportunities. as required by the Governance Code, with the other five members being the Independent Non-executive Directors. The Committee is mindful of its role, not only to plan for Only Committee members are entitled to attend meetings, succession for Board and senior management roles, but also to although Will Lee is regularly invited to attend by the Chair of ensure a diverse pipeline of quality leaders capable of leading the Committee, unless discussions are due to take place on his the Group in the future. When considering succession planning, role. The Committee membership is shown below, along with the Committee has regard to both contingency and long-term | attendance at meetings during the year: | succession planning. | | --- | --- | | Committee member* Attended | Contingency succession planning aims to identify suitable | | Sir David McMurtry (Chair) 4/4 | individuals who could assume the responsibilities of another on | a short-term basis in the case of a sudden absence. A review Sir David Grant 4/4 of key senior management and operational roles has been Catherine Glickman 4/4 undertaken and suitable individuals identified who could Juliette Stacey 4/4 effectively assume additional responsibilities until the incumbent Stephen Wilson 4/4 is in a position to return. * Professor Karen Holford was appointed after the end of FY2023, with effect from Long-term succession planning aims to plan and identify internal 1 September 2023, and so was not eligible to attend any meetings in FY2023. candidates who could be appointed to the role for the longer- term in the case of a vacancy. The Committee carried out an Key activities exercise for the Senior Leadership Team and key operational Skills assessment and succession roles to identify potential successors, assess their suitability in the short, medium and long term, identify their development – Reviewed talent and succession plans for key senior plans and consider the need for an external candidate. operational and executive roles. Board succession – Considered Non-executive Director recruitment. A succession planning exercise was undertaken in August 2023 – Reviewed the structure, size and composition of the Board for all Board roles. When reviewing the Non-executive Directors’ and its Committees. succession, a review of each Director’s length of tenure was – Reviewed the skills necessary to support the achievement undertaken to plan for the progressive refreshment of the Board. of strategic objectives. 104 Renishaw plc Annual Report 2023 The Committee considered that two new Non-executive The Committee’s procedure for Board appointments, which was Directors had been appointed in FY2022 and that an active followed in respect of the recent appointment of Professor Karen process was underway to appoint a further Non-executive Holford, includes the following steps: Director. Professor Karen Holford was appointed to the Board – engaging external recruitment consultants, Kingsley Gate, with effect from 1 September 2023. with whom there is no connection with the Company, to assist In reviewing the length of tenure of each Director, the Committee with the recruitment of Karen Holford; was mindful that a number of Directors had held their positions – appointing a sub-committee of the Board to oversee for significant periods of time. This was taken into consideration the process; when looking at the succession plan. Further information is set – evaluating the balance of skills, knowledge, experience and out in the Directors’ Corporate Governance Report on page 101. diversity on the Board, including considering the skills and experience required of the candidates; Tenure of the Chairman Governance – agreeing role specifications for the proposed appointment; The Governance Code sets out the governance principles that applied to the Company during FY2023. Provision 19 – reviewing a longlist of candidates provided by the consultant; recommends that the Chairman should not remain in post – reviewing candidate profiles and considering a shortlist of beyond nine years from the date of his first appointment to diverse candidates, where applicable; the Board. – interviewing the candidate or candidates who best fit the role The Executive Chairman, Sir David McMurtry, co-founded specification against objective criteria, with due regard to the Renishaw together with John Deer in 1973. Sir David was benefits of diversity on the Board; appointed to the Board in September 1975 and has been – inviting the preferred candidate to meet the whole Board; and Executive Chairman since the Company listed in 1984. – recommending the preferred candidate to the Board. He also served as Chief Executive from 1975 to 2018, when Will Lee was appointed. All Non-executive Directors are appointed to the Board for an initial three-year period subject to annual performance review While Sir David’s tenure exceeds the nine years and re-election by shareholders at the AGM. recommended under the Governance Code, his length of service reflects that he continues to be a major driver Following the thorough Board level skills review reported of innovation and growth in the business. He is focusing last year, the Committee agreed that it was important to find on the next generation project for AM, which will help to a candidate who was well known in the field of engineering ensure Renishaw becomes a technical leader for selected research and development, and who had specialist skills in this applications within this field. Sir David’s unique skills, regard. The Committee is pleased to report that Professor Karen experience and knowledge of the industry explain the Holford has joined the Board with effect from 1 September 2023. rationale for his lengthy tenure and the unanimous support of Karen’s expertise in pioneering engineering innovation makes the rest of the Board for him remaining in post. her ideally-placed for this role. Board evaluation Board appointment process The Board undertakes an annual evaluation of its performance The Board has an established process for identifying and and effectiveness to identify opportunities for improvement. evaluating candidates for appointment to the Board and senior The intention is that this is conducted externally at least every management roles. Equally, Board and senior management three years as outlined by the Governance Code. appointments are subject to the principles set out in the EDI Policy, which formalises the Group’s commitment to diversity at Key findings from the FY2022 review all levels (more information on this policy is set out on page 106). The 2022 Annual Report reported on the FY2022 internal Board evaluation. Progress on the main findings is outlined in the table below: Timeliness and conciseness ofBoard papers Strategic matters Succession and talent | FY2022 outcomes Continued focus on timeliness | | Continued focus on | Continued focus on | | --- | --- | --- | --- | | | and conciseness of | strategic matters. | talent management and | | | Board papers. | | succession planning. | | Actions for FY2023 Clear timetables for | | Invite Senior Leadership Team | To extend the mentoring scheme, | | | submission of papers and | members to Board meetings to | review succession plans for all | | | agree a new format for | participate in discussions on | critical roles, and complete the | | | performance update and Chief | key strategic matters. | recruitment of a third new Non- | | | Executive’s commentary. | | executive Director. | | Progress made in FY2023 New format for performance | | Senior Leadership Team | Mentoring scheme extended, | | | update agreed and greater | members invited to the Board | succession plans reviewed by | | | emphasis on discussion with | to discuss key strategic | the Nomination Committee, and | | | pre-reads being taken as read. | matters within their speciality | Professor Karen Holford appointed | | | | such as the Company’s | to the Board. | sustainability strategy. Renishaw plc Annual Report 2023 105 Governance ## Nomination Committee Report continued FY2023 Board evaluation a questionnaire. Gould Consulting then used the answers to frame their subsequent individual interviews. As part of the Having deferred the external Board evaluation in 2022 to allow review, Gould Consulting also attended meetings of the Board the Directors appointed during the year to fully take part, the and the Nomination Committee as silent observers. The General Nomination Committee commissioned an external review of the Counsel & Company Secretary ensured that Gould Consulting Board and its Committees during FY2023. had the necessary access and support during the evaluation. The General Counsel & Company Secretary and Senior Gould Consulting then presented their final report to the Independent Director led the search for an external Board Committee in April 2023. evaluator and met virtually with a number of specialist providers. The external review concluded that the Board was effective Two shortlisted providers were presented to the Committee in the way it performed its role. In particular, it was noted that for consideration. The Committee agreed to appoint Gould meetings were being chaired well, and conducted with a Consulting Ltd (‘Gould Consulting’). Gould Consulting has good dynamic that allowed a culture of trust, openness, and no connection to the Company or its Directors and has effective debate and challenge. The areas noted in the table not been previously engaged by Renishaw to undertake below were highlighted as opportunities to further enhance aBoard evaluation. Board performance. Preparation for the review included discussions with the An action plan was compiled and agreed by the Board in August Executive Chair, General Counsel & Company Secretary, 2023 based on the report’s recommendations. The Company and Senior Independent Director to scope the review and Secretary is responsible for tracking these actions and reporting agree the approach. Gould Consulting were asked to carry back to the Board periodically on progress made. out a comprehensive review, including the effectiveness of the Board and each of the Committees. Each Director (and Gould Consulting have reviewed the disclosures made certain members of the Senior Leadership Team) completed regarding this Board evaluation exercise. Strategic planning Succession planning Relationship with investors | FY2023 outcomes To enhance the Board’s | | To continue focusing on | Increase interaction with | | --- | --- | --- | --- | | | oversight of strategy by taking | identifying successors | investors to gain a better | | | ahigher-level view for the | for Directors and senior | understanding of their views of | | | Groupas a whole. | leaders, considering future | the Company and its markets. | skills requirements. | Actions for FY2024 Increase Board time dedicated | | Update and refresh the | Establish an investor relations | | --- | --- | --- | --- | | | to items of strategic importance. | succession plans for the | programme with regular updates | | | Develop ongoing oversight | Boardand senior leaders. | to the Board. | mechanisms for achievement of targets. Equality, diversity and inclusion This culminated in the appointment of Professor Karen Holford to the Board on 1 September 2023, increasing the proportion of Renishaw recognises the importance and value of all forms of women on the Board. diversity, including gender, sexual orientation, age, ethnicity, religion or belief, disability and educational/professional Additionally, across the Group, steps have been taken to further background, as well as the importance of creating a culture implement the EDI Policy. Information on actions throughout the of inclusion. The Group’s EDI Policy confirms our commitment year is set out on page 67. to establish an inclusive work culture that supports our strategic goals; is free from discrimination, harassment and Board diversity victimisation; and sets out the values and principles that apply The Committee recognises the valuable contribution that toall employees. diversity can bring to Board and Committee discussions, and the decision-making process. The role of diverse perspectives In March 2023, the Board reviewed and updated the EDI Policy in quality decision-making is widely understood by reducing which now confirms the Board’s responsibility for: the risk of ‘groupthink’. Therefore, the Committee aims to build – supporting the Chief Executive and Head of Group HR in a diverse Board, with a wide range of skills and experience, relation to their responsibilities in promoting a culture that is who can truly add value to the long-term sustainable success of supportive of the benefits of equality, diversity and inclusion; the business by demonstrating a true diversity of perspectives. The Committee confirms that it applies the Group’s EDI – considering diversity issues at Board and Committee level, Policy and operates to its standards, while recognising that and recognising the benefits of diversity in all of its forms; appointments should continue to be made on merit and against – developing a diverse pipeline for succession to senior objective criteria. Recruitment consultants engaged by the management and Board-level roles; and Company for senior positions are selected on the basis that – working towards the achievement of the diversity targets set they will present a diverse list of candidates, including female out in theFCA’s Listing Rules. candidates and those from ethnic minority backgrounds. The EDI Policy was applied by the Committee when As shown in the table on page 107, as at 30 June 2023 the recommending the appointment of an additional Non- proportion of women on the Board was 25%. Following Professor executive Director during FY2023. The EDI principals, as Karen Holford’s appointment on 1 September 2023, this set out in the Policy were discussed with the recruitment increased to 33%. consultant at Kingsley Gate, who took account of its provisions when preparing a long list of candidates for discussion. 106 Renishaw plc Annual Report 2023 Although the proportion has increased, the Company has Senior management diversity not yet met the Listing Rules’ target of 40% female Directors. The Executive Committee consists of six men and one woman The Company also does not have a director on the Board from (14% women). For the purposes of the Governance Code, a minority ethnic background, nor one of the senior Board the Executive Committee (including Executive Directors) and positions (Chairman, Chief Executive, Senior Independent their direct reports (excluding those in administrative or non- Director or Group Finance Director) held by a woman (each managerial roles), is made up of 36 men and seven women as required by the Listing Rules). The Company’s pre-existing (16% women). internal records provided the information required to make these disclosures. For the purposes of the Listing Rules, gender identity and ethnic background as at 30 June 2023 is reported in the The Board has appointed three Non-executive Directors since tables below. Our pre-existing internal records provided the the start of FY2022, all of whom add valuable experience and information required for this report. References to the Board in insight. It is regretful that these appointments, while increasing the table below include all Executive Directors, and executive Governance the percentage of women on the Board, have not enabled the management includes the members of the Executive Committee achievement of the targets set out in the Listing Rules despite (including the Executive Directors). The Listing Rules use the Board’s focus on increasing diversity. However, the Board acronyms for roles which the Group describes differently is confident that these Non-executive Directors were the right internally. The terminology from the Listing Rules is used in individuals for the roles. In appointing Directors, the Board the table below, but please note that references to ‘CEO’ refer considers diversity at all stages of the process while being to our Chief Executive, references to ‘CFO’ refer to our Group mindful that the right person for the long-term success of the Finance Director, and references to ‘SID’ refer to our Senior Company should be appointed. The Board and Committee Independent Director. remain fully supportive of continuing to increase this and all other aspects of diversity as suitable candidates present For the engineering sector to reach its full potential, it is themselves and as vacancies arise. The Committee continues to important that it reflects the society in which it operates. take diversity in all its forms into consideration when considering The Committee will continue to focus on improving all forms Board succession plans. of diversity at senior management level across the Group and ensure that policies are in place to support a diverse intake into our industry. Number of senior positions onthe Percentage Number of Percentage of Board (CEO, CFO, Number in executive of executive Gender identity Boardmembers the Board SIDand Chair) management management Men 6 67 4 6 86 Women 2 25 – 1 14 Not specified/prefer not to say – – – – – Number of senior | | | | | | positions onthe | | | Percentage | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | Number of | | Percentage | Board (CEO, CFO, | Number in executive | | of executive | | Ethnic background | Boardmembers | | | ofthe Board | SIDand Chair) | | management | management | | White British or other White | | | 9 100 4 7 100 | | | | | | (including minority-white groups) Mixed/Multiple Ethnic Groups – – – – – Asian/Asian British – – – – – Black/African/Caribbean/Black – – – – – British Other ethnic group including Arab – – – – – Not specified/prefer not to say – – – – – 1 3 3 3 4 6 6 2 8 Executive Female 0–3 years British Tenure* Non-executive Male 3–6 years Irish Board composition* Gender* Nationality* 9+ years * Figures correct as of 18 September 2023. Sir David McMurtry Chair of the Nomination Committee 18 September 2023 Renishaw plc Annual Report 2023 107 Governance ## Audit Committee Report ## We are ## balanced in our ## scrutiny and oversight In last year’s Report we noted that Renishaw had yet to take all the necessary actions to fully comply with all aspects of mandatory reporting for the Task Force on Climate-Related Financial Disclosures (TCFD). This year the Committee has overseen the further development of our TCFD reporting (see pages 72 to 80) and management’s assessment of climate change risks under various scenarios and the potential financial impact of these risks. We were pleased with management’s decision to use external consultants to support this work. We have also focused on management’s response to the UK government’s consultation on ‘Restoring trust in audit and corporate governance’. That includes approving the scope of the financial controls part of this programme as well as approving management’s approach to developing an Audit and Assurance Policy, the Resilience Statement, and an updated fraud risk management framework. The Internal Audit team have been able to conduct the majority of its work programme in person this year, now that COVID-19- related travel restrictions have fallen away, with 20 overseas ## I’m particularly pleased with subsidiaries and joint ventures visited since our last report, andthe Committee welcomes the increase in assurance that ## theprogress we’ve made in in-person working brings. Looking ahead to FY2024, we anticipate further internal ## developing the Committee’s assurance benefit to arise from our considered response to theFRC’s proposed changes to the UK Corporate Governance ## scrutiny of non-financial areas.” Code, noting that at the time of preparing this report its consultation is ongoing. Juliette Stacey Chair of the Audit Committee I will be attending the AGM on 29 November 2023 and look forward to answering any questions about the work of the I’m pleased to present the Audit Committee report for the year Audit Committee. ended 30 June 2023. Our work during the year has focused on oversight of the Group’s principal risks and key financial Juliette Stacey and non-financial reporting risks, and we commissioned a Chair of the Audit Committee deeper review and response from management on cyber risk in particular. We also maintained our challenge of 18 September 2023 management’s response to judgements and estimates and scenarios supporting the Company’s Viability and Going Concern assessments. 108 Renishaw plc Annual Report 2023 ## The role of our Committee and how we work | Committee member* | Attended | | --- | --- | | Juliette Stacey (Chair) | 7/7 | | Catherine Glickman | 7/7 | | Sir David Grant | 7/7 | | Stephen Wilson | 7/7 | * Professor Karen Holford was appointed after the end of FY2020, with effect from 1 September 2023, and so was not eligible to attend any meetings in FY2023. ### Committee membership The Audit Committee comprises of the Independent Non-executive Directors, and the Board considers that, as a whole, the Committee has competencies relevant to Renishaw's sector to fulfil its responsibilities, including relevant professional qualifications and experience in senior finance roles. The Independent Non-executive Director biographies can be found on pages 94 to 95. Professor Karen Holford was appointed to the Board as a Non-executive Director on 1 September 2023. Professor Holford was appointed to the Audit Committee on the same date, and attended the September 2023 Committee meeting. The Audit Committee is advised internally by the General Counsel & Company Secretary, and the Deputy Company Secretary acts as secretary to the Committee. ### Committee meetings The Committee met seven times during FY2023, increasing the number of meetings this year to cover the additional work on cyber risk and the UK government's proposed audit and governance reforms, with a further three meetings held since the year-end that mainly focused on the full-year external audit and Annual Report. The Chief Executive, Group Finance Director, Head of Group Finance, Group Internal Audit Manager, General Counsel & Company Secretary, and External Audit Partner and Manager are regular attendees. The Committee also invites other managers to attend the Committee and provide updates when needed. ### Committee effectiveness The effectiveness of the Audit Committee was reviewed in the year by Gould Consulting as part of the Board Evaluation process detailed in the Nomination Committee report on page 106. A number of improvements had already been adopted by the Committee prior to the external review, such as reducing the number of attendees at each meeting and developing the Committee's relationship with the new external audit partner. ### Key duties of the Audit Committee - Maintaining the integrity of financial reporting for the Group. - Managing the relationship with the external auditors. - Internal control and risk management. - Overseeing the effectiveness of risk management and internal controls systems, including Internal Audit. An overview of our work in these areas during the year is set out opposite and our terms of reference can be found on our website at www.renishaw.com/corporategovernance. ## Key activities ### Internal control and risk assessment - Reviewing the Risk Committee's assessment of principal and emerging risks. - Reviewing the effectiveness of internal controls. ### Internal audit - Agreeing the scope and resourcing of Internal Audit's work. - Evaluating Internal Audit's findings and monitoring the responses from management, and discussing these with the Group Internal Audit Manager. ### Financial reporting - Reviewing the Annual Report, Interim Report, and trading updates before publication. - Discussing management's assessment of significant judgements, estimates, and financial reporting topics (as explained in more detail on the next page) and challenging management's view. - Assessing whether the Annual Report is fair, balanced, and understandable. - Reviewing the assumptions and financial modelling for the viability and going concern assessments. ### External audit - Reviewing EY's audit plan, including their scope and methodology, ahead of the FY2023 audit. - Discussing with EY their progress and findings throughout the audit. - Assessing the effectiveness of EY and reviewing any non-audit services they provide. The Audit Committee reports to the Board on a timely basis on all of these activities, and more detail on the above work follows on pages 110 to 113. As part of the Committee's oversight of financial reporting, we reviewed how management had considered a letter received during the year from the FRC regarding its review of the Interim Report to 31 December 2022. No questions or queries were raised by the FRC, and we have considered their observations when preparing this Annual Report. The FRC's review was based solely on the Group's Interim Report for the six months to 31 December 2022 and provides no assurance that the Interim Report was correct in all material respects. The Committee also reviewed the steps management had taken to develop the Group's TCFD reporting, following a letter received from the FCA during the year regarding the Group's FY2022 TCFD statement. Further details are included on page 112. Financial reporting Renishaw plc Annual Report 2023 109 Governance ## Audit Committee Report continued Financial reporting, and critical judgementsandestimates The Audit Committee monitors the integrity of the financial information published in the interim and annual financial statements andconsiders the extent to which suitable accounting policies have been adopted, presented and disclosed. We consider the issues below as the most significant in relation to this year’s financial statements. Each of these has been discussed with management and the external auditors. Management’s work on these areas has been reviewed, and challenged where relevant. Cash flow hedges Description Our review and conclusions Most of the Group’s sales are generated outside of the UK. Revenue forecasts, including ‘more likely than not’ and ‘highly This means most invoices to, and payments from, customers probable’ levels had been presented by management at Board are in foreign currency. Forward currency contracts are meetings. We discussed the rationale for the ‘highly probable’ therefore used to manage the effect on Revenue of movements and ‘more likely than not’ levels, and the assumptions used in in exchange rate. generating the forecasts. Where these contracts are designated as hedges of We also confirmed with management that they had used these future cash flows, and therefore intended by management Board-approved forecasts to support the hedge accounting to be eligible for hedge accounting, the hedged item treatment, and agreed with management’s conclusion that is a layer component of forecast sales transactions. the contracts designated as hedges of future cash flows were Management need to estimate both ‘more likely than not’ and eligible for hedge accounting. ‘highly probable’ revenue forecasts to determine the correct accounting treatment. If contracts are no longer eligible for hedge accounting, futuremovements in the fair value of these contracts would berecognised through the Consolidated income statement, rather than Other comprehensive income and expense. Defined benefit pension schemes Description Our review and conclusions To determine the value of the defined benefit pension liability, We reviewed the assumptions of discount rates, inflation management need to estimate the present value of the future rates and mortality rates, including the movement in obligations. Assumptions of discount rates, inflation rates and these assumptions since FY2022. We also confirmed with mortality rates are used in this estimate, and are determined by management that these assumptions had been determined management in consultation with independent actuaries. inconsultation with independent actuaries. With a gross defined benefit pension liability of £139.0m at 30 June 2023, small changes in these assumptions could have a material effect on the value of the liability. Goodwill Description Our review and conclusions Where the Group recognises goodwill from the acquisition of There are three main cash-generating units (CGUs) for which a business, an estimate of the discounted future cash flows of goodwill is recognised, relating to the acquisitions of itp GmbH, this business (representing a ‘cash-generating unit’) is needed. Renishaw Mayfield S.A. and Renishaw Fixturing Solutions LLC. We reviewed the discounted future cash flows for these CGUs, This is compared to the carrying value of goodwill, to identify and the key assumptions behind these forecasts. whether an impairment to goodwill is needed. At 30 June 2023 goodwill totalled £11.2m. We then reviewed the headroom between the capitalised costs and the discounted future cash flows, and agreed with management’s assessment that no impairment was needed. 110 Renishaw plc Annual Report 2023 Inventories Description Our review and conclusions The Group holds a significant amount of inventory (£185.8m We reviewed the year-end provision in both absolute terms at 30 June 2023). Estimates of future demand are used and as a proportion of gross inventory, and also compared to determine the provision needed for slow-moving and this to previous periods. We discussed the rationale for the potentially obsolete inventory, so that inventory is appropriately movements with management, noting the increase in gross valued at the lower of actual cost and net realisable value. inventory since 30 June 2022 and slower than expected demand in H2 of FY2023. Management generates an estimate of the next 12 months’ demand for individual inventory items based upon historic We also asked Internal Audit to confirm that during the year usage levels, demand from existing customer orders, and they had reviewed the inventory provision workings prepared Governance manufacturing build plans. Adjustments to this estimate are by subsidiaries, confirming that there had been no change made where needed, for example where significant purchases inhow this estimate is prepared. of critical components have been made for ‘safety stock’. Overall, we concluded that the provision was reasonable. At 30 June 2023, the inventory provision was £24.5m. Research and development projects Description Our review and conclusions The Group undertakes a significant amount of R&D work each We reviewed the costs of the projects capitalised in the year, year, and two key decisions are needed to determine the and agreed that they had been capitalised at the appropriate appropriate accounting treatment for related costs. point in their development. The first decision is a judgement as to whether expenditure We also reviewed the discounted future cash flows for during the year on R&D activities meets the requirement for this both these projects and the ones that had previously been expenditure to be capitalised. capitalised, together with the key assumptions behind these forecasts. We then reviewed the headroom between the The second decision, for projects that have met the criteria for capitalised costs and the discounted future cash flows, and capitalisation, is to estimate the discounted future cash flows agreed with management’s assessment that an impairment of of the project and compare this to its capitalised development £1.6m was needed for capitalised drug delivery costs due to costs. If the future cash flows are lower than the capitalised uncertainty over short-term cash flows. development cost, an impairment should be recognised. Taxation Description Our review and conclusions At the year end, some of our Group companies had the We reviewed management’s assessment, discussing the potential to recognise deferred tax assets, relating to assumptions made in generating taxable profit forecasts unused tax losses and other temporary timing differences. for therelevant companies. We also reviewed how these Management prepares forecasts of probable taxable profits company-level forecasts tied into the Group’s overall for each of these companies and uses these forecasts to business plan. determine the value of the deferred tax asset that can be We were satisfied with how management has accounted recognised. When management think it’s probable that a for deferred tax, and with the disclosures made in the company will have enough taxable profit to use its tax losses, financial statements. a deferred tax asset can then be recognised. This deferred tax asset represents the value of the tax loss that is expected to be used in the future to offset future taxable profits. With net deferred tax assets at 30 June 2023 of £18.8m, the estimates supporting the recognition of these assets are a key estimate. Renishaw plc Annual Report 2023 111 Governance ## Audit Committee Report continued Going concern and viability Internal controls and risk management The Committee reviewed the financial modelling undertaken The Board has overall responsibility for the Group’s approach to by management, which the Board used in making their risk management and internal control. The Risk Committee has going concern and viability assessments. This review operational responsibility for risk management, and the Board included assessing the basis of the severe but plausible has delegated responsibility to the Audit Committee for the scenarios and how they addressed the principal risks, and oversight of this work and the effectiveness of internal controls. the key assumptions and main mitigating actions included This section of our report explains our role in risk management in each scenario. We confirmed with management that cash and the Group’s internal control environment. It also summarises balances were positive in each month in the assessment the work of Internal Audit, and how we assess the effectiveness period. We also reviewed the reverse stress tests that of this function. management had prepared for the period to 30 September 2024 and 30 September 2026 for going concern and viability Risk management respectively, noting that the sustained falls in revenue (and The Risk Committee has a well-established process to identify therefore profit and operating cashflows) in the reverse stress and manage risks. Using a top-down approach, the Chair of tests are more severe than the levels experienced during the the Risk Committee interviews senior managers from across the COVID-19 pandemic. Group to identify the more prevalent and strategic topics to be The Committee also considered the other elements of the considered. In addition, detailed risk reports are received from going concern and viability assessments, including the lack regional and product line managers, focusing on key operational of significant external borrowing, the absence of covenants, risks. Each principal risk owner is invited to Risk Committee and the current trading performance of the Group. Overall, meetings to provide updates and present risk mitigation the Committee concluded that the use of the going concern action plans. basis for preparing the financial statements is appropriate, The Risk Committee combines this work with identifying trends andsupported the viability assessment reviewed and and any new emerging risks, to draft the Group’s principal authorisedby the Board. risks. During the year, the Audit Committee has considered and Fair, balanced and understandable assessment endorsed these principal risks presented by the Risk Committee. The Audit Committee reviewed whether the FY2023 Internal controls Annual Report, taken as a whole, was fair, balanced and The Group’s systems and processes are designed to provide understandable and also whether it provided the information reasonable but not absolute assurance of: necessary for shareholders to assess the Company’s position and performance, business model and strategy. In making its – reduced risk of material misstatements, errors or losses; assessment the Committee took into account: – mitigation of risk that might cause a failure of business objectives; – agreeing a suitable timetable for the production of the FY2023 Annual Report, agreed between the Finance team and the – safeguarding assets against unauthorised use or disposal; external auditors; – maintenance of proper accounting records and the – using corporate reporting specialists to support the revised reliability of financial information used within the business structure and content in the Strategic Report; forpublication; and – ensuring that the fair, balanced and understandable – compliance with applicable laws and regulations. requirements were a key part of the Annual Report project Internal controls are embedded throughout the business’s team’s focus; systems, and the Group Business Code explains how we – involving senior management and the Board in preparing expect our people to behave with honesty and integrity and andreviewing the Annual Report, and explicitly asking provides specific requirements on topics such as trade controls whether they felt that the Annual Report was fair, balanced and legal compliance. Everyone in the business undertakes and understandable; and relevant training and assessment within three months of joining – engaging our remuneration and legal advisers, and corporate Renishaw. We further embed our expectation of people’s reporting specialists, in reviewing the Annual Report. behaviour by having integrity as one of our values. As noted earlier, TCFD reporting has been a focus for the On a day-to-day basis, management is responsible for Committee this year. To support the fair, balanced and implementing internal controls. The Group Internal Control understandable assessment we received update reports Manual sets out key financial processes and controls, mainly from management on their progress in meeting the TCFD aimed at financial management and financial reporting. requirements, which were discussed in detail with the The manual is available to all employees and the Internal Audit Committee, culminating in the review of the disclosures. We also team test subsidiary compliance with these controls during its reviewed management’s work in assessing the impact of climate audit work. Self-assessment of compliance is certified by each change on the financial statements. Group company on an annual basis. Following its review, the Audit Committee confirmed to the During the year, management has continued to develop the Board that the 2023 Annual Report was fair, balanced and financial controls framework, focusing on supporting teams to understandable, and the Board’s statement is set out on better document their existing processes and controls. This work page 139. is expected to continue in FY2024 with a focus on the balance between preventative and detective controls, and how controls will operate when Microsoft Dynamics 365 has been rolled-out across the Group. 112 Renishaw plc Annual Report 2023 The Committee oversees the effectiveness of other material controls, including operational and compliance controls, by receiving regular updates from our Responsible Renshaw Forum on compliance topics, including its assessment of the maturity of the control environment. In addition, principal risk owners provide confirmation to the Committee that they are not aware of any significant deficiencies in the key controls for their respective risks. #### Whistleblowing The Committee has oversight of the Group's whistleblowing process. This is set out in more detail on page 99, with the Committee reviewing significant whistleblowing incidents and their outcomes. #### Internal audit Internal Audit work is performed in-house, led by the Group Internal Audit Manager. The Audit Committee agrees the Internal Audit team's plan of work at the start of each financial year and checks their progress against this plan during Committee meetings. With COVID-19-related restrictions largely having eased, the team undertook all but one of their scheduled overseas subsidiary visits in person this year, and with most of the Group's trading taking place outside of the UK the Committee welcomed the return to this in-person work. The Committee receives periodic reports on audit work completed and discusses areas of significance in the audit findings. At each committee meeting, the Group Internal Audit Manager provides updates on the responses to the findings from local teams. At the end of each financial year, the Committee assesses Internal Audit's effectiveness, considering if its work was effective by reviewing the volume, age and severity of findings, and then provides feedback to the Group Finance Director. The Audit Committee also reviews the responses to questionnaires completed by those teams audited in the year. Overall, the Committee agreed that this year's Internal Audit work was effective and will continue to support its ongoing efforts in speedier resolution of findings in FY2024. #### External audit ##### Appointment, reappointment and tendering EY was first appointed as our auditors at our 2016 AGM, and the first audit engagement partner rotation took effect for FY2022. We consider that the Company has complied with the Competition & Markets Authority's Statutory Audit Services Order for the financial year under review. We also note the FRC's 'Audit Committees and the External Audit: Minimum Standard' ('the Standard') that was published shortly before the end of FY2023, and its requirements regarding audit tendering. The Committee intends to adopt the requirements for the next tender and will monitor management's use of firms for non-audit work ahead of the tender, to ensure that there is a sufficient choice of potential auditors. We currently expect to carry out our next audit tender process in 2026 for the FY2027 audit. As noted in the following sections, the Committee is satisfied with the external auditors' independence, objectivity and effectiveness, and so considers this proposed tender timeline to be in the best interests of the Company's shareholders. #### Independence and objectivity Both the Group and EY take action to ensure that EY are independent and objective. Anup Sodhi has been in the role of lead audit partner since July 2022, after the previous lead audit partner rotated off the audit after five years. Having previously served as EY's Engagement Quality Control Reviewer on our audit, Anup will rotate off the engagement this year. The Group has a non-audit services policy, which was reviewed during the year to confirm its continued appropriateness. Some non-audit work is permitted by the policy in line with the FRC's Guidance on Audit Committees and the requirements of the FRC's Revised Ethical Standard 2019. EY require non-audit work to be approved by the Group's lead audit partner before the work starts; approval is not granted if the lead audit partner concludes there's a risk to the independence and objectivity of the audit. Separation of EY's specialist teams also ensures that members of the audit team do not perform non-audit work for the Group. This year, EY's fees for non-audit work were £11,500. This was for two engagements; Wotton Travel Limited's annual ABTA reporting, and review procedures for VAT s56a certification for Renshaw UK Sales Limited. #### Quality and effectiveness The external auditors are invited to attend our Audit Committee meetings, and report their plan for the full year audit and interim results review. I meet with the lead audit partner on a regular basis, and the Committee meets with them at least annually, without management present, to allow both Committee members and the external auditors to raise any issues directly. We also discuss their remit during these meetings. The Standard sets out how the Committee should assess the effectiveness of the external audit, in the context of the Group's circumstances. The Committee's review of the effectiveness of the FY2023 external audit reflects the points that a Committee should undertake per the Standard, and took into account: - the quality and scope of EY's audit plan, and an evaluation of delivery and performance against the plan; - EY's identified risks to audit quality and how these had been addressed; - the skills, mindset, efficiency and performance of the audit team; - the communication between the Group and EY; - EY's understanding of the Group's business and industry sector; - specific observations from the FRC's inspection of the FY2020 audit conducted by EY; and - the FRC's Audit Quality Inspection and Supervision report into EY, published in July 2023. After considering these matters, our Committee was satisfied with the effectiveness of the year-end process and recommended to the Board that EY be reappointed at the Company's AGM on 29 November 2023. **Juliette Stacey** Chair of the Audit Committee 18 September 2023 Renshaw plc Annual Report 2023 113 Governance ## Directors’ Remuneration Report ## Committee Chair’s statement ## We are ## rewarding sustainable ## profit and strategic delivery our growth objectives, while managing costs carefully and focusing on productivity. Remuneration in context We take a fair, prudent and balanced approach to remuneration, considering our people, our shareholders andother stakeholders. Our people are well trained and highly-skilled, and over the past months they have been targeted by competitors and external recruiters. Our focus, therefore, has been and continues to be onretention, addressed through three streams of work: – defining, recognising and rewarding high performance; – defining career development options which will be supported by structured development programmes; and – globally benchmarking our reward packages and investing toensure we are competitive. We have made major investments in pay over the last year, as explained in our trading updates, with the result that our average ## Our proposed Policy is simple pay increase in FY2023 was 10.2%. I am pleased to confirm that we are retaining our people, and our employee turnover ## and responsible, designed to has reduced, meeting the targets that we set. The experience of our people and their reward is a major factor when we consider ## incentivise the achievement of the remuneration of the Executive Directors annually, together with our strategy, founder views, shareholder and executive ## our objectives while supporting feedback and market practice. ## our culture.” FY2023 annual incentive opportunity for ExecutiveDirectors Catherine Glickman Our Executive Directors have delivered record revenue, Chair of the Remuneration Committee continued to work closely with customers developing products that meet current and future needs, while making progress on Introduction the strategic objectives. On behalf of the Board, I am pleased to present our Directors’ This year’s annual incentive was made up of two elements: a Remuneration Report for FY2023. I would like to thank financial element worth 90% awarded against Adjusted profit shareholders for their continued support and engagement as before tax (PBT) targets and 10% against strategic objectives. we bring the Remuneration Policy (the Policy) to the AGM for a The latter only pays out if the threshold Adjusted PBT is met. binding vote and the Directors’ Remuneration Report (excluding the Policy) for an advisory vote. Unfortunately this year the threshold Adjusted PBT was not met. As a result, despite good progress on many of the strategic Performance for FY2023 objectives, there is no award under either element of the annual We have seen revenue at actual exchange rates continue to incentive. We aligned the Senior Leadership Team with the grow despite lower demand from the semiconductor sector. Executive Directors’ bonus in FY2022; as the metrics are the There has been growth across both our Manufacturing same, they will not receive an award this year either. The full technologies – specifically in system sales and additive details of the targets and performance against the strategic manufacturing machines – and Analytical instruments and objectives are explained in the Annual Report on remuneration. medical devices segments. FY2023 employee bonus awards We’ve continued to invest in our people, our capabilities, and in As we normally do, a percentage of our annual profit has been set innovative new products and manufacturing capacity to support aside to invest in bonus awards for eligible Renishaw employees. 114 Renishaw plc Annual Report 2023 Awards are dependant on seniority and performance, with the UK minimum award this year being £950 (pro-rated). Due to our Adjusted PBT for FY2023 being lower than FY2022, the average employee bonus award this year is less than it was last year. ## Proposed changes to Policy In line with the normal three-year cycle, we are required to put a new Policy forward to a binding shareholder vote at the 2023 AGM. During the year, we have reviewed the Policy, taking into account: i) feedback provided by shareholders; ii) the views of our founders, Non-executive Directors and executive team; iii) our business and talent strategy; iv) market practice; and v) remuneration arrangements in place for the wider Renishaw workforce. Our conclusions are summarised in the following paragraphs. ## No changes to the overarching framework We operate a simple framework of base salary, benefits, pension, and an annual incentive with an opportunity of 150% of salary for the non-founder Executive Directors. The annual incentive is delivered 50% in cash and the remainder deferred into shares for three years. For Sir David McMurtry, the maximum annual incentive opportunity is 100% of base salary, which is paid in cash. We have considered whether now is the right time to introduce a separate long-term incentive plan, following feedback from some shareholders. We have concluded that the current framework is simple, consistent with the approach to remuneration for the wider workforce, and is working effectively. Therefore, we have determined that it is not the right time to introduce a new element. We are mindful that the absence of a separate long-term incentive plan means that the overall value of the total package for Executive Directors at Renishaw is modest compared to businesses of similar size and complexity. Considering our growth ambitions over the next three years, the following changes are proposed to provide sufficient flexibility in the Policy. This flexibility is intended to ensure we can continue to attract and retain high-calibre executives and recognises the competitive market for talent in our sector. ## Flexibility to increase the incentive opportunity The new Policy will include flexibility to increase the annual incentive opportunity up to 225% of salary, if considered necessary in future years. For the avoidance of doubt, there is no current intention to use this headroom. The annual incentive opportunity for FY2024 will remain at 150% of salary (i.e. unchanged from FY2023). The inclusion of this additional headroom is proposed to ensure there is appropriate flexibility in the Policy to continue to offer an appropriately competitive overall package with reward aligned to performance and good stewardship of the business. The Committee would consider the use of this additional headroom in certain scenarios including, but not limited to, recruitment and retention, where there has been a significant growth in the size and/or complexity of the business, and where additional stretch has been included in performance conditions. In the event this headroom is used in the future, there would be no increase in the maximum incentive opportunity element that is paid in cash. As illustrated in the table below, in order to provide an additional retention element, any enhanced incentive opportunity award would be delivered in deferred shares, subject to continued employment and a performance underpin. The Committee would also review the stretch in the performance targets (taking into account market conditions at the time) to ensure that any increase in quantum is commensurate with the level of performance required. The new Policy will also include the flexibility for up to 20% of the maximum annual incentive to pay-out at an appropriately stretching level of threshold performance. This change is aligned with market practice. Should the additional headroom be used, a full explanation would be provided in the following year's Directors' Remuneration Report. | | FY2024 - no change | Additional flexibility in the Policy - no current intention to use this headroom | | --- | --- | --- | | Maximum opportunity | 150% of salary for the non-founder Executive Directors. For Sir David McMurtry, the maximum opportunity is 100% of base salary, which is paid in cash. | Overall maximum up to 225% of salary (50% of maximum for on-target performance) for the non-founder Executive Directors. No change for Sir David McMurtry. | | % of bonus paid in cash | 50% of the bonus earned (i.e. up to 75% of salary) for the non-founder Executive Directors paid in cash. For Sir David McMurtry, the bonus earned is paid in cash. | In the event the overall maximum opportunity is increased to 225% of salary, one-third (i.e. up to 75% of salary – no change from current % of salary that can be paid in cash). No change for Sir David McMurtry. | | % of bonus deferred into shares for three years | 50% of the bonus earned (i.e. up to 75% of salary) for the non-founder Executive Directors. The deferred shares have a three-year deferral period and are subject to continued employment. | In the event the overall maximum opportunity is increased to 225% of salary, two-thirds (i.e. 150% of salary) for the non-founder Executive Directors. In this case, half of the deferred shares would be subject to a three-year deferral period subject to continued employment, while the other half would be subject to continued employment and a performance underpin. The performance underpin would be determined by the Committee at each award date. The Committee would consider what was important for that year, which could include but not be limited to: underlying performance; progress on new products against their targeted 'gate' milestones; quality of new product launches, performance against the business case and sales forecasts; progress against the sustainability targets; and quality of research into disruptive technologies. | Renishaw plc Annual Report 2023 115 Governance # Committee Chair's statement continued ## Other changes ### Shareholding guidelines Under the current Policy the Chief Executive and any new Executive Directors are expected to build up and maintain a level of share ownership of at least 200% of base salary. All other incumbent Executive Directors are expected to build up and maintain a level of share ownership of at least 50% of base salary. Under the new Policy, the share ownership guideline for all Executive Directors will be 200% of base salary. Under the current Policy, 50% of any net vested share awards (after disposal to meet tax liabilities) must be retained until the shareholding guidelines are met. Under the new Policy, for any new awards, this will be increased to 100% of any net vested share awards (after disposal to meet tax liabilities) until the shareholding guidelines are met. No changes are proposed to the post-employment holding period. Executive Directors (excluding Sir David McMurtry) will be required to maintain a personal shareholding in Renishaw at a level of at least the lower of their actual shareholding and the level of their minimum shareholding guideline for one year after they step down from the Board, and 50% of that level for a further year. ### Aligning Chief Executive and Group Finance Director pension opportunity with the wider workforce Our Policy allows for a maximum pension contribution for incumbent Executive Directors of 11%, in line with contributions available to long-serving employees (i.e. those who joined the business before 2007). We plan to align the contribution with that of the UK wider workforce, currently 9% of salary, no later than 1 January 2025. ### Other minor changes The following minor changes to the Policy are proposed to ensure there is sufficient flexibility built into other areas: - additional flexibility to allow the introduction of additional benefits based on individual circumstances (in line with market practice); - the maximum level of benefits is set at a level the Committee considers appropriate based on the nature and location of the role and individual circumstances. The updated Policy includes the option for non-founder Executive Directors to participate in all-employee share plans, on the same terms as those available to the wider workforce; - in line with market practice, other remuneration elements may be included in exceptional circumstances as set out on page 123; - the ability to pay an outplacement fee; and - flexibility to pay a bonus in cash rather than deferred shares on cessation of employment in compassionate circumstances (e.g. death or ill-health). ## Our approach to Executive Director remuneration for FY2024 ### Base salary We plan to align the Executive Directors' salary review with the wider workforce. There was no review effective July 2023. We will review salaries, informed by salary increases for the wider workforce, market competitiveness and affordability later in 2023, with any increase effective from 1 January 2024. We have also aligned our Non-executive Directors' fee review with this timetable. ## Annual incentive opportunity As outlined above, for the non-founder Executive Directors the annual incentive opportunity for FY2024 will remain at 150% of salary (i.e. unchanged from FY2023). For Sir David McMurtry, the maximum opportunity will remain at 100% of base salary, paid in cash. Metrics for FY2024 will be materially the same, but with an increase in the weighting of the strategic objectives from 10% to 20%, and a corresponding decrease in the financial objectives to 80%. This reflects the Committee's view that the strategic objectives are now rigorous, stretching and quantifiable, and grouped under strategic direction, innovation, people and culture, sustainability and productivity. Specific targets for FY2024 will include new product development against gated milestones, product launches meeting their sales and financial targets, delivery of environmental targets and corporate initiatives, including the rollout of Microsoft Dynamics 365. The Senior Leadership Team will have the same Adjusted PBT targets and strategic objectives as the Executive Directors to ensure everyone is working to the same targets. In line with the new Policy, for achieving an appropriately stretching level of threshold performance 20% of the bonus based on Adjusted PBT will be earned. ## Engaging with our people and our shareholders The Committee values the insight received from its engagement activities with its people and our shareholders and takes all feedback received seriously. We use various methods to engage with our people and as employee engagement ambassador, I attend meetings with the Head of Group HR and Senior Leadership Team alongside other methods of engagement. Additionally, we have consulted with our largest 20 shareholders and proxy advisory firms on our new Policy and considered all feedback received in developing our final proposals which are being put to the AGM for approval. See page 127 for more information. ## Looking ahead – key focus areas for the Committee During FY2024 our key focus will be on ensuring that the Policy is working, specifically that the strategic objectives are driving the right behaviours and outcomes for the longer term. We will also focus on ensuring we retain talented people by: - getting better employee insight through new engagement tools; - improving the quality of performance management; - delivering the career development programmes that capitalise on our strength of offering early responsibility and interesting work; and - continuing the benchmarking work to ensure competitive pay In setting our Policy, our aim is to always consider the wider workforce, our shareholders, and other stakeholders, and to remunerate executives fairly and responsibly. We remain committed to a responsible approach to executive pay, as I trust the Directors' Remuneration Report demonstrates. I hope that our shareholders will approve the Policy, which aims to attract, motivate and retain Executive Directors while supporting the creation of long-term sustainable shareholder value and reinforcing our culture. On behalf of the Committee, thank you for your continued support. As always, I am happy to answer questions or receive feedback, please contact me at CompanySecretary@Renishaw.com. Catherine Glickman Chair of the Remuneration Committee 18 September 2023 116 Renishaw plc Annual Report 2023 # Committee members, advisers and meetings ## What does the Committee do? The Remuneration Committee helps Renishaw attract, retain and motivate talented people through the review and implementation of competitive remuneration arrangements and motivating incentive structures. Any performance-related element is linked to overall financial performance and in the case of the Executive Directors and senior leaders, key strategic objectives. This helps to align the interests of colleagues with those of all shareholders The Committee is responsible for: - designing the framework and policy for executive remuneration; - determining the remuneration for each of the Executive Directors and other senior management; - ensuring that suitable financial and strategic objectives are in place to reward and encourage strong performance; and - reviewing workforce remuneration and related policies. The Committee terms of reference are published on our website at www.renishaw.com/corporategovernance. To avoid duplication, the table below cross refers to disclosures given elsewhere of how we have sought to comply with Provision 41 of the Governance Code. | Topic | Page(s) | | --- | --- | | An explanation of the strategic rationale for executive directors' remuneration policies, structures and any performance metrics. | 116, 120-123 | | Reasons why the remuneration is appropriate using internal and external measures, including pay ratios and pay gaps. | 132 | | A description, with examples, of how the Remuneration Committee has addressed the factors in Provision 40. | 128 | | Whether the Remuneration Policy operated as intended in terms of company performance and quantum, and, if not, what changes are necessary. | 129 | | What engagement has taken place with shareholders and the impact this has had on Remuneration Policy and outcomes. | 127 | | What engagement with the workforce has taken place to explain how executive remuneration aligns with wider company pay policy. | 66, 127 | | To what extent discretion has been applied to remuneration outcomes and the reasons why. | n/a | ## Members All members of the Committee are Independent Non-executive Directors: Catherine Glickman (Chair), Sir David Grant, Juliette Stacey, Stephen Wilson, and Professor Karen Holford (with effect from 1 September 2023). The Committee met six times in FY2023 and we set out on this page a summary of the topics discussed in those meetings. Jacqueline Conway, General Counsel & Company Secretary, acts as secretary to the Committee. During Jacqueline's sabbatical from April to October 2023, Karen Atterbury, Interim Company Secretary, fulfilled the role of secretary to the Committee. Executive Directors may attend Committee meetings by invitation (to advise on the remuneration and performance of senior management and to take part in specific discussions), although they do not take part in any specific discussions that directly relate to their own remuneration. ## Advisers The Committee use independent advisers as needed and our current adviser is Deloitte LLP (Deloitte). Deloitte is a founder member of the Remuneration Consultants Group and, as such, voluntarily operates under the code of conduct in relation to executive remuneration consulting in the UK. The Committee believe that the advice received from Deloitte is objective and independent. Total professional fees and expenses paid to Deloitte for advice received was £40,200. Deloitte was appointed by the Committee in March 2021 following a competitive tender process and has provided other remuneration advice during FY2023. ## Key activities ### Governance - Reviewed the output from the FY2022 effectiveness evaluation. - Took part in the FY2023 effectiveness evaluation. - Reviewed and approved the Directors' Remuneration Report. ### Remuneration Policy and its operation - Approved the Executive Directors' and Senior Leadership Team's deferred equity awards for FY2022. - Considered the achievement of the financial and strategic objectives for FY2023. - Considered and approved the updated Directors' Remuneration Policy, to be submitted to the Company's shareholders for their approval. ### People - Reviewed employee turnover statistics. - Approved people objectives for FY2023. - Approved the employee salary benchmarking scheme. - Approved the Senior Leadership Team salaries. - Reviewed the gender pay gap statistics. - Approved a new global employee engagement platform. - Approved the employee bonus proposal for FY2023. ### Committee meeting attendance record | Committee member* | Attended | | --- | --- | | Catherine Glickman (Chair) | 6/6 | | Sir David Grant | 6/6 | | Juliette Stacey | 6/6 | | Stephen Wilson | 6/6 | * Professor Karen Holford was appointed after the end of FY2023, with effect from 1 September 2023, and as was not eligible to attend any meetings in FY2023. Renishaw plc Annual Report 2023 117 Governance # Remuneration at a glance ## Executive Director remuneration in FY2023 ### Base salary The Executive Directors received salary increases of 5%, effective 1 July 2022. This was lower than the average increase effective January 2023 for the wider workforce at 10.2%. #### Sir David McMurtry Executive Chairman **£766,194** #### Will Lee Chief Executive **£703,500** #### Allen Roberts Group Finance Director **£447,676** ### Annual incentive Our incentive opportunity is based on financial and strategic objectives, although the award is only payable if the threshold Adjusted$^{®}$ PBT financial objective is met. \* Note 26 (Alternative performance measures) defined how Adjusted PBT is calculated. ### Financial objectives In FY2023, Adjusted PBT was weighted 90% in the annual incentive opportunity. The Adjusted PBT for FY2023 is £141.0m. As this is less than the threshold target of £146m, no award was made. ### Strategic objectives 10% of the annual incentive opportunity is based on achievement of the strategic objectives. Because the Adjusted PBT did not reach the threshold, there is no award for achievement of the strategic objectives. The Committee did review performance against the strategic objectives. Significant progress has been made on many objectives, with good progress on system sales, sustainability, and people and culture, and slower progress on manufacturing productivity and the timing of certain flagship projects. A detailed commentary is given on page 130. ### Total remuneration The graph below shows a comparison of the Executive Directors' total remuneration (including a breakdown of the components) for FY2023 and FY2022. ![img-11.jpeg](img-11.jpeg) ### Executive Directors' shareholdings (as of 30 June 2023) The table below shows the Executive Directors' shareholdings against the minimum shareholding guidelines for Executive Directors. Sir David McMurtry and Allen Roberts have achieved their minimum shareholding guidelines, and Will Lee is in the process of building towards his. His proportionate shareholding has increased since FY2022. | | Current Executive Directors | | | | --- | --- | --- | --- | | | Sir David McMurtry | Will Lee | Allen Roberts | | Shares | 26,377,291 | 7,695 | 6,840 | | Actual (x salary) | 1,343.3 | 0.427 | 0.596 | | Requirement (x salary) | 8.5 | 2.0 | 0.5 | 118**Rentshaw plc Annual Report 2023** # Executive Director remuneration in FY2024 ## Proposed Remuneration Policy The 2023 Policy was developed over the course of the year taking into account our business and talent strategy and market practice. The Remuneration Committee discussed the proposals with the founders and took into account the themes from its workforce engagement activities and the pay policies across the Group. The Remuneration Committee consulted with shareholders and proxy advisory firms during the year on the proposals and the feedback received was largely supportive. The Remuneration Committee also assessed the Policy for clarity, simplicity, risk management, predictability, proportionality and alignment to culture, as set out on page 128. A summary of the proposed changes is set out in the Committee Chair's statement on pages 114 to 116 and the full Policy for shareholder approval is set out on pages 120 to 126. ## Base salary No salary increase will be awarded to our Executive Directors at the time of the writing of this report. A review, aligned with awards to the wider workforce and affordability, and informed by consideration of market conditions, will be carried out later in 2023, to be effective 1 January 2024. ## Benefits No changes are proposed for FY2024. ## Pension Under the new Policy, we are proposing to align pension contributions for Executive Directors to those available to the majority of the UK wider workforce (currently 9% of salary). This change will be made with effect no later than 1 January 2025. For FY2024 until then, the pension contributions for Executive Directors will be 11% of salary, in line with other long-serving employees. ## Annual incentive ### Maximum opportunity The maximum opportunity for FY2024 will be 150% of salary for non-founder Executive Directors and 100% of salary for Sir David McMurtry. ### Composition For the non-founder Executive Directors, 50% of any bonus earned will be deferred into shares. Any award made to Sir David McMurtry will be made in cash. ### Metrics The annual incentive opportunity will continue to be based on financial and strategic objectives with the award only being payable if the Adjusted PBT meets the threshold. ### Financial objectives In FY2024, Adjusted PBT will be the sole financial objective and be weighted as 80% of the annual incentive opportunity. ### Strategic objectives In FY2024, 25% of our annual incentive opportunity will be subject to the achievement of strategic objectives. This weighting has doubled from FY2023 (10%) to ensure an appropriate and meaningful proportion of the bonus is based on the achievement of specific strategic drivers of sustainable value creation (including but not limited to the Company's Net Zero ambitions). The objectives will be grouped under strategic direction, sales, innovation, people and culture, sustainability and productivity. Specific targets will be disclosed in next year's report. ## Shareholding guidelines ### Minimum shareholding Share ownership guidelines for all Executive Directors will be 200% of salary. They must retain 100% (50% for shares awarded prior to 30 September 2023) of any net vested share awards (after disposal to meet tax liabilities) until the shareholding guidelines are met. ### Post-employment shareholding No changes are proposed to the post-employment holding period: Executive Directors (excluding Sir David McMurtry) will be required to maintain a personal shareholding in Renishaw at a level of at least the lower of their actual shareholding and the level of their minimum shareholding guideline for one year after they step down from the Board, and 50% of that level for a further year. ## Matus and clawback Part or all of any annual incentive payment (whether paid in cash or deferred into shares) may be subject to repayment in the event of any: (i) material financial misstatement; (ii) error in calculation; (iii) misconduct; (iv) corporate failure; (v) material loss; and/or (vi) reputational damage. Renishaw plc Annual Report 2023 119 Governance ## Remuneration Policy Executive Directors’ Remuneration Policy account of shareholder feedback arising out of the consultation undertaken in June 2023. The Committee further reviewed the This section of the Directors’ Remuneration Report sets out the Policy against the six themes set out in provision 40 of the UK proposed Directors’ Remuneration Policy of the Company, to be Corporate Governance Code as described on page 128. approved at the 2023 AGM. If approved by shareholders, this Policy will come into force after the 2023 AGM, for a period of The Committee has the discretion to amend the Policy with up to three years. Changes to the Policy approved at the AGM regard to minor or administrative matters where it would, in in 2020 (and subsequent variations) are summarised in the the opinion of the Committee, be inappropriate to seek or Committee Chair’s statement. The 2023 Policy was determined await shareholder approval. To ensure conflicts of interest are by the Committee after reviewing the impact of the 2020 Policy, managed, the Committee ensures no Director determines the key governance factors, market practice, and after taking Policy regarding their own remuneration. Executive Directors’ policy table Base salary Purpose and To provide a competitive remuneration package to motivate and retain Executive Directors of the relevanceto strategy required calibre to help the Group meet its objectives to deliver the Group’s strategy. Operation Salaries are normally reviewed and set annually – from FY2024, they will be reviewed in November/ December and effective from 1 January. Base salary is set in the context of pay for similar roles in companies of similar size and complexity. Maximum Base salary increases will normally be capped at the level of salary increases for the broader workforce in the Executive Director’s home market, unless the Committee in its absolute discretion determines that circumstances warrant a higher increase. Example circumstances include: to reflect a significant change in a director’s role or responsibilities, or if (in shareholders’ interests) a director was intentionally appointed on a salary that is below what the Committee considers to be the appropriate level of market salary and their subsequent performance in the role warrants a higher salary increase. The rationale for any such higher increase will be disclosed in the relevant annual remuneration report. Performance measures Continued good performance. Benefits Purpose and To provide market-competitive benefits that motivate and retain Executive Directors and enable them relevanceto strategy to give maximum attention to their role. Operation Benefits provided on an ongoing basis include: – a car or car allowance; – private medical insurance; – life assurance; and – long-term disability cover. If, on the appointment of a new Executive Director, relocation is required to the director’s place ofwork, reasonable and proportionate relocation support may be provided. Additional benefits may be provided in the future taking into account individual circumstances. If the Company establishes an ‘all employee’ share plan, any non-founder Executive Director may participate on the same basis as any other qualifying employee. Maximum The maximum level of benefits will be set at a level that the Committee considers appropriate, taking into account the nature and location of the role and the individual circumstances of the Executive Director. Excluding accommodation and relocation costs, benefits are not expected to exceed £50,000 per annum. Performance measures Not applicable. Renishaw plc Annual Report 2023120 # **Annual incentive opportunity (comprising cash bonus and deferred equity awards)** | **Purpose and relevance to strategy** | To incentivise and reward execution of the Group's objectives, reward outperformance and encourage Executive Director share ownership. | | --- | --- | | **Operation** | Targets are normally reviewed annually and any payout is determined by the Committee after the year end. For the non-founder Executive Directors, for any financial year where the opportunity is 150% of salary, 50% of any earned payout will be deferred into shares for three years. For any financial year where the opportunity is more than 150% of salary, up to two-thirds of any earned amount will be deferred into shares for three years. Dividends may accrue on deferred shares over the deferral period and, if so, will be paid as additional shares on vesting. The number of additional shares may be calculated assuming reinvestment into shares on such basis as the Committee determines. If an opportunity of more than 150% of salary is awarded, an underpin will apply via enhanced underpin/malus provisions, as set out below. The Committee sets Group performance targets. In the case of financial measures, for achieving an appropriately stretching level of threshold performance, up to 20% of the maximum opportunity is earned, increasing typically on a straight line basis to a target at which 50% of the maximum opportunity would be earned, and to a cap at which the maximum opportunity could be earned. The targets for payouts above 100% of salary to maximum will incentivise and reward even greater outperformance of expectations for any year. For strategic measures, payouts are determined by the Committee between 0% and 100% based on the Committee's assessment of the extent to which the relevant metric or objective has been met. Sir David McMurtry participates in the annual bonus plan: his incentive opportunity is capped at a maximum of 100% of salary, to be paid in cash. In line with the Governance Code, the Committee retains discretion to amend payouts should any formulaic output not reflect the Committee's assessment of overall business performance or if the Committee considers the formulaic outturn is not appropriate in the context of circumstances that were unexpected or unforeseen, or is inappropriate for any other reason. Part or all of any annual incentive payment (whether paid in cash or deferred into shares) may be subject to repayment in the event of any: - material financial misstatement; - error in calculation; - misconduct; - corporate failure; - material loss; and/or - reputational damage. If an opportunity of more than 150% of salary is awarded, half of any deferred amount will be subject to a further repayment provision, such that repayment may be required if an underpin is not met over the deferral period, the terms of any such underpin would be confirmed in the relevant Directors' Remuneration Report. These provisions may be applied to a deferred equity award at any time up to the third anniversary of its grant and to a cash bonus at any time up to the third anniversary of its payment. | | **Maximum** | 150% of salary for non-founder Executive Directors for the financial year ending 30 June 2024. Flexibility for up to 225% of salary for any non-founder Executive Directors for any other financial year. 100% of salary for Sir David McMurtry. | | **Performance measures** | Based on Group performance, which will ordinarily include Adjusted PBT (one of the key measures of performance used by the Board) as the primary measure. The Committee may introduce other metrics (financial and strategic) to reflect the Group's priorities, or make adjustments to or substitute performance measures applying to existing annual incentive opportunities to appropriately reflect underlying performance, provided that the bonus will always be subject to achievement of the threshold financial performance. Targets will be set around the Group's internal strategic plan. Any strategic metrics shall not form more than 25% of the overall bonus opportunity. | REVISIONS Rentshaw plc Annual Report 2023 121 Governance ## Remuneration Policy continued Executive Directors’ policy table continued Pension Purpose and To provide a pension contribution/allowance in line with the wider workforce of the home country of the relevance to strategy Executive Director and to motivate and retain Executive Directors of the required quality to meet the Group’s objectives. Operation Executive Directors receive pension contributions into the Company’s defined contribution scheme, orall or part as an allowance paid in lieu. Will Lee is a deferred member of the Company’s defined benefit scheme, which closed for future accruals on 5 April 2007. Sir David McMurtry receives no pension contribution or allowance in lieu. Maximum The maximum contribution to the defined contribution scheme, or, where applicable, additional salary payment in lieu of contributions, is: – until 1 January 2025 at the latest, 11% of base salary for Executive Directors who joined Renishaw prior to 2007, in alignment with other long-serving employees; – with effect from 1 January 2025 at the latest, for Executive Directors who joined Renishaw prior to 2007 a level not exceeding that available to the majority of the wider workforce (currently 9% of base salary); and – for Executive Directors who joined Renishaw after 2007 a level not exceeding that available to the majority of the wider workforce (currently 9% of base salary). The Committee retains discretion to determine the approach and calculation of the wider workforce pension level, including, if relevant, the methodology for international directors. Performance Not applicable. measures Minimum shareholding guideline Purpose and Supports the alignment of Executive Director and shareholder interests. relevance to strategy Operation Each Executive Director is expected to build up and maintain a level of share ownership of at least 200% of base salary. Until the minimum shareholding guideline is met, net vested share awards (after sales to meet tax liabilities) must be retained. In the case of awards granted after 30 September 2023, all of the net vested awards must be retained. In the case of awards granted on or before 30 September 2023, 50% of the net vested awards must be retained. Executive Directors’ shareholdings are reviewed annually by the Committee to ensure progress is being made towards achievement of the guideline level of shareholding. The Committee retains the discretion to modify the application of this guideline in exceptional compassionate circumstances. Shares that are subject to deferred annual equity awards can count towards the shareholding guideline on a net of assumed tax basis. Maximum Not applicable. Performance Not applicable. measures 122 Renishaw plc Annual Report 2023 Post-employment shareholding policy Purpose and Supports the principle of long-term share ownership that is promoted by the 2018 UK Corporate relevanceto strategy Governance Code. Operation Executive Directors (excluding Sir David McMurtry) will be required to maintain a personal shareholding in Renishaw at a level of at least the lower of their actual shareholding and the level of their minimum shareholding guideline for one year after they step down from the Board, and 50% of that level for a further year. The post-employment shareholding policy applies to shares acquired pursuant to deferred annual equity awards granted after 30 September 2020. The Committee retains the discretion to modify the post-employment shareholding requirement in Governance exceptional circumstances; for example, on a change of control or if a conflict of interest arises with an Executive Director’s next appointment; or in compassionate circumstances. Maximum Not applicable. Performance measures Not applicable. Operation of share plans The Committee may also alter the performance criteria and deferral period applicable to the annual incentive opportunity All discretions under any share plan established by the if the Committee considers that the circumstances of the Company will be available to the Committee under this Policy, recruitment merit such alteration. Any use of this discretion except where explicitly limited by this Policy. Share plan would be accompanied by a full rationale in the relevant annual awards may be settled, in whole or in part, in cash, although remuneration report. the Committee would only settle an Executive Director’s award in cash in appropriate circumstances, such as where there is a The Committee will not offer non-performance related incentive regulatory restriction on the delivery of shares or in respect of the payments (for example a ‘guaranteed sign-on bonus’). tax liability arising in connection with an award. Salary, pension and benefits Policy for the remuneration of employees For an external hire, base salary will be set in line with the factors moregenerally set out in the Policy table, taking into account the individual’s The Group aims to provide a remuneration package that is experience and the amount required to attract the individual to competitive in an employee’s country of employment, which join the Company. Pension and benefits will be provided in line is appropriate to promote the long-term success of the with the Policy table. Group. The Company intends to apply this Policy fairly and Where a new Executive Director is required to relocate from consistently ensuring that it can compete successfully in the their home location to take up their role, the Committee may marketplace and sufficiently retain and motivate employees. provide reasonable relocation assistance and other appropriate In respect of the Executive Directors, a greater proportion of the allowances if business needs require it. remuneration package is ‘atrisk’ and determined by reference toperformance conditions. Variable remuneration Approach to recruitment remuneration Variable remuneration will ordinarily be provided in accordance with the Policy table and up to the maximum permitted by the When agreeing the remuneration package for a new Executive Policy table. Any award in respect of forfeited remuneration Director, the Committee will ordinarily apply the Policy for as described below is excluded from the maximum permitted the existing Executive Directors to ensure a consistent variable remuneration. In exceptional circumstances, approach. The Committee retains discretion to award other along-term incentive may be offered as described on elements of pay that it considers are appropriate. However, thefollowing page. this discretion is capped and is subject to the limits referred to below. Circumstances in which these other elements may be Forfeited remuneration awarded include: The Committee may make payments or awards to buy-out – an interim appointment being made to fill an Executive remuneration forfeited by new hires in connection with leaving Director role on a short-term basis; a previous employer. Any such buyout awards would ordinarily have a fair value no higher than that of the awards being – if exceptional circumstances require that the Chair or a Non- replaced, and would be structured as far as possible to replicate executive Director takes on an executive function on a short the remuneration being forfeited, in terms of any vesting horizons term basis; and or performance linkage. – if an Executive Director is recruited at a time in the year when it would be inappropriate to provide a bonus for that year as Existing obligations there would not be sufficient time to assess performance. When an internal appointment is made, any pre-existing Subject to the limit on variable remuneration set out below, the obligations will be honoured and payment will be permitted quantum in respect of the months employed during the year under the Policy. may be transferred to the subsequent year so that reward is provided on a fair and appropriate basis. Renishaw plc Annual Report 2023 123 Governance ## Remuneration Policy continued Committee discretion in exceptional circumstances The Executive Directors’ service contracts reflect the Company’s policy regarding notice periods. No payment will be made for The Committee retains discretion in exceptional circumstances a termination by the Company for a breach by the Executive to offer a long-term incentive to support Renishaw in securing Director of their service contract. In other cases, payment in the best Executive Director candidate, if the Committee lieu of notice will be considered up to the 12 months’ notice considers it to be in shareholders’ best interests to do so. period to cover base salary, benefits and pension contributions. The annual quantum of any long-term incentive award grant If additional compensation is required to be considered, such would be set so that the aggregate variable remuneration for the as on a settlement agreement, the Committee will consider Executive Directors in any year did not exceed 350% of salary. all relevant commercial factors affecting the specific case. Any use of this discretion would be accompanied by a full Directors’ service contracts are available for inspection at rationale in the relevant annual remuneration report. the Company’s registered office upon written request to the Service contracts and policy on payment Company Secretary. A table containing the dates of the current forlossofoffice service contracts for each of the Executive Directors is set out on page 135. The Executive Directors’ service contracts are for an indefinite period and require 12 months’ notice of termination A summary of the key elements of the Policy for loss of office is by either party. There are no obligations in any Executive set out below. Director’s service contract, or Non-executive Director’s letter of appointment, which would require the Company to pay aspecific amount of compensation for loss of office. Provision Policy Notice period 12 months’ notice by either party. No obligation to pay a specific amount in compensation for loss of office. Pension Pension will continue to apply until the termination date; payment in lieu of notice will be considered upto a period of 12 months. Treatment of No annual incentive is payable for the financial year, unless the Committee determines otherwise in annual incentive certain ‘good leaver’ circumstances. These include ill health, death, disability, retirement in agreement plan awards with the Committee, redundancy, or any other reason as the Committee in its absolute discretion may determine. For ‘good leavers’, any payment would normally be pro-rated for time and reflect the Company’s performance against the targets set at the start of the year. It would also take into account the circumstances of the individual’s loss of office. The Committee retains discretion to pay any bonus earned for the year of cessation wholly in cash, but would do so only in circumstances it considers compassionate, such as in the event of death or ill-health. Unvested deferred equity awards normally lapse, unless the Committee determines otherwise for a ‘good leaver’. In such cases, unvested awards would normally be pro-rated to reflect the portion of the deferral period that has elapsed on cessation of employment, and vest on the normal vesting date (except in the event of death, when vesting would be brought forward). Unvested awards normally vest early on a change of control of the Company or other relevant event in accordance with the rules of the plan. Benefits Benefits will continue to apply until the termination date; payment in lieu of notice will be considered upto a period of 12 months. If the Company establishes an ‘all employee’ share plan, the treatment of any awards under it on cessation of employment and on a change of control of the Company or other relevant event would bedetermined in accordance with the rules of the plan. In appropriate circumstances, the Committee may continue the provision of certain benefits (forexample, private medical insurance) for a period following cessation. Other payments In appropriate circumstances, payments may also be made to a departing Director in respect ofaccrued holiday pay, and outplacement and legal fees. 124 Renishaw plc Annual Report 2023 Statement of consideration of employment Illustrations of application of Remuneration Policy conditions elsewhere in the Group The bar charts below for each Executive Director show The Committee takes into account the pay and employment remuneration for the financial year ending 30 June 2024 under conditions of the Group in the country in which the Executive different performance scenarios: Director resides, and is satisfied that the approach taken is – firstly, the minimum remuneration payable in respect of salary, fair and reasonable based on market conditions and practice, benefits and pension; and the best interests of shareholders. When considering – secondly, the remuneration payable if performance is on the annual salary review, the average base salary increase target and in line with the Company’s expectations; and awarded to employees provides a guide when determining the salaries of the Executive Directors (located in the same – thirdly, the remuneration payable if the maximum cash bonus country). The approach of the Committee to engagement with and deferred annual equity incentive is payable. employees in relation to executive remuneration is described in Note that deferred equity incentive plan awards granted in Governance the Committee Chair’s statement on page 116. a year will not normally vest until the third anniversary of the Statement of consideration of shareholder views date of grant, and the projected value excludes the impact of share price movement. As the Executive Directors are not The Committee has taken into account feedback provided in receipt of a long-term incentive, the fourth scenario under by external shareholders when drawing up the revised the reporting regulations (requiring the impact on the value Remuneration Policy for 2023. The 20 largest external of long-term incentives of 50% share price growth over the shareholders, as well as the main proxy voting agencies, were performance period) is not shown; this is unchanged from the consulted in June 2023 regarding the proposed changes. third scenario above. The Committee is grateful for the feedback received as part of this process, which included both written responses and Legacy remuneration arrangements conversations with the Chair of the Remuneration Committee. The Committee reserves the right to make remuneration The feedback indicated broad support for the initial proposals. payments and payments for loss of office notwithstanding that While no substantive changes were made to the Policy as a they are not in line with the provisions set out above where the result of the feedback, the questions raised by shareholders and terms of payments were agreed: proxy voting agencies helped to clarify certain points and shape the Committee’s understanding of investor preferences when – before the Policy came into effect (provided that, in the case finalising Policy proposals. of any payments agreed on or after 16 October 2014 they are in line with any applicable shareholder approved Directors’ The Committee will continue to monitor trends and developments remuneration policy in force at the time they were agreed or in corporate governance and market practice to ensure the were otherwise approved by shareholders); or structure of executive remuneration remains appropriate. – at a time when the relevant individual was not a Director of the Company and, in the opinion of the Committee, the payment was not in consideration for the individual becoming a Director of the Company. For these purposes, ‘payments’ includes the satisfaction of variable remuneration and, in relation to an award over shares, the terms of the payment are ‘agreed’ no later than the time the award is granted. Illustrations of application of Remuneration Policy (£’000) 1,857 1,535 1,330 57% 1,152 1,188 50% 40% 33% 853 769 802 57% 39% 517 | | 100% | 67% | 50% | 100% 43% | 60% | | | --- | --- | --- | --- | --- | --- | --- | | Sir David McMurtry | | | | | | 100% 43%61% | | Will Lee Allen Roberts | | | | | | | | | Minimum On-target Maximum | | | Minimum On-target Maximum | | Minimum On-target Maximum | Renishaw plc Annual Report 2023 125 Annual incentive opportunity Minimum remuneration Governance ## Remuneration Policy continued Non-executive Directors’ policy table re-elections at AGMs, unless terminated earlier by either party on one month’s written notice. Appointments will not normally The fees for any Non-executive Chair would be determined by continue beyond nine years in office, although there may be the Committee and the fees for other Non-executive Directors exceptions where a certain skillset is difficult to replace and/ are determined by the Chair and the Executive Directors. Set out or in order to allow Renishaw to conduct a comprehensive below is a table summarising the approach to fees for the Non- recruitment exercise. In the event of the appointment of a Non- executive Directors. executive Chair, a longer notice period may be agreed of up to The Non-executive Directors are appointed for an initial three- six months. year period subject to annual performance review and Board fees Operation – Fees are set taking into account the responsibilities of the role, the expected time commitment and prevailing market rates. – The Non-executive Directors are currently all paid a single all-inclusive fee. A basic fee with additional fees paid for the chairing of Committees and assuming the role of Senior Independent Director may be introduced in the future. Additional fees may also be paid for other Board responsibilities, roles or time commitments, if this is considered appropriate. – Fees are reviewed at appropriate intervals, usually on an annual basis, with reference to fees payable to non-executive directors of companies of a similar size and complexity. – Non-executive Directors do not receive incentive pay or share awards and do not currently receive any benefits or pension arrangements. – Travel and other reasonable expenses (including fees incurred in obtaining professional advice in the furtherance of their duties) incurred in the course of performing their duties are reimbursed to Non- executive Directors (including any associated tax liability). – Performance measures are not applicable. – Maximum: basic fees are subject to the aggregate limit set in accordance with the Company’s Articles of Association, as amended by shareholder approval from time to time. Link to strategy To provide a competitive fee to attract and retain Non-executive Directors of the required calibre to meet the Group’s objectives. 126 Renishaw plc Annual Report 2023 # Approach to remuneration and consideration of stakeholders ## Introduction When the Committee makes decisions on Executive Director pay, it also takes into account the policies and practices in place for the wider workforce. The Committee considers a variety of stakeholder views when determining executive pay, including those of our shareholders, colleagues, and external bodies. See pages 62 to 84 for more information on how we consider our stakeholders' views more generally. ## Employee engagement As Chair of the Committee, Catherine Glickman acts as employee engagement ambassador and has attended meetings with HR and members of the Senior Leadership Team during the year to be briefed on the feedback received from consultations and engagement on reward initiatives. During FY2023, particular consultation and feedback was sought in relation to the implementation of pay benchmarking and the change in the UK death in service benefit. This feedback provides Catherine with the background and context when shaping the reward framework for the Executive Directors and senior management. Feedback from engagement activities is communicated to the Committee via the Head of Group HR and Chair of the Remuneration Committee. Further information on employee engagement, including remuneration matters, can be found on page 66. In FY2024, Catherine looks forward to further personal engagement with our people through various forums, including the planned new engagement platform due to be implemented. Additionally, the Company will engage with employees regarding the proposed Directors' Remuneration Policy that we will present at the 2023 AGM. That will include its alignment with wider company pay policy. ## Engagement case study: benchmarking In deciding to move from annual cost-of-living pay awards to a benchmarking-based system, the Company formed working groups with representation from around the business to gather views on the proposals and explain the impact. In advance of the initiation of benchmarking, a Channel R video was produced and circulated to all colleagues in June 2022 recording a discussion between the Head of Group HR and the Chief Executive explaining how benchmarking would operate. The changes that would be required to job grading structures and how they would take place were also covered, together with the process that we would follow starting in the UK in July 2022. ## Consideration of employment conditions The Committee is involved in setting the remuneration for our Senior Leadership Team. The Committee also reviews the remuneration and related policies of the wider workforce, with particular reference to the UK, since it is the market in which the Executive Directors are based. This allows the Committee to ensure sufficient alignment between the remuneration policies of the wider workforce and the Executive Directors. It also gives additional context for making informed decisions on executive pay, and ensures performance objectives are aligned with our culture and strategy. The pension arrangements for the Executive Directors are currently aligned to those available to longer serving members of the Company's workforce as set out on page 116. As explained in the Chair's statement in the Directors' Remuneration Report, the proposal in the new Policy is that commencing no later than 1 January 2025, the pension contribution rate for the Executive Directors will reduce further and be fully aligned with those available to the UK workforce as a whole. ## Employee pay To reward and recognise performance this financial year, eligible employees received an annual bonus paying out a UK minimum of £950 (pro-rated). During FY2023 we continued working on our goal to reach our targets for pay by aligning pay to market-competitive rates. A benchmarking exercise of our pay and benefits was undertaken using global, industry-wide comparison, which resulted in a major investment in pay for employees. This work has helped to reduce our voluntary employee turnover rate. The Committee is regularly updated on turnover rates and reasons for leaving so that it remains vigilant and can make informed decisions. Further details of the work carried out on pay in FY2023 and the priorities for FY2024 are on page 66. While the Executive Directors' remuneration package is more heavily weighted towards variable and share-based payments compared to our wider workforce, the Committee has increased the alignment of our Senior Leadership Team remuneration to shareholder interests and the Executive Directors through participation in our Senior Leadership Team Annual Bonus Plan. This operates on the same basis as the Executive Directors' annual incentive. See page 116 for more information on the Senior Leadership Team Annual Bonus Plan. ## Consideration of shareholder views The Committee has considered feedback provided by external shareholders when drawing up the proposed Policy. The largest 20 external shareholders, as well as proxy advisory firms, were consulted in June 2023 regarding the proposed changes. Feedback was received in both written form and via conversations with Catherine Glickman. The Committee is grateful for the feedback received, which was generally supportive of the proposed changes and provided helpful and constructive suggestions. While no substantive changes were made to the Policy as a result of the feedback, the questions raised to clarify certain points, such as the use of the additional headroom under the annual incentive opportunity, were taken into account in shaping the language used in the Policy. ## Alignment with strategy The strategic alignment of each element of pay is set out in on pages 120 to 123. The strategic objectives for FY2023, which represented 10% of the bonus opportunity, are set out on page 130. The strategic objectives for FY2024 will similarly be linked to our strategy. The opportunity will be increased to 20% of the annual incentive opportunity to more closely align executive remuneration with delivery of the Group strategy. FY2024's objectives will be grouped, as in previous years, under strategic direction, sales, innovation, people and culture, sustainability and productivity. Further details, including the targets, will be discussed in next year's Directors' Remuneration Report. Both the FY2023 and FY2024 strategic objectives drive long-term growth, new product development, and our work on sustainability (including our Net Zero targets). They are all linked to the strategy and values of the Group, which underpin our culture and drive behaviours consistent with our purpose. In addition to the strategic objectives, as described earlier in this Report, were we to offer a bonus opportunity above 150% of salary, up to two-thirds of the bonus earned would be paid in deferred shares with half of those shares subject to a performance underpin. This underpin would be determined by the Committee and encourage performance that is sustainable over the long term. Renshaw plc Annual Report 2023 127 Governance # Approach to remuneration and consideration of stakeholders continued Principles underlying our remuneration framework The Committee has reviewed our Executive Director Remuneration Policy and practices in the context of the UK Corporate Governance Code, particularly Provision 40, as follows: | Factor | How did we address this factor? | | --- | --- | | Clarity and simplicity | We operate simple and transparent reward mechanisms that are well understood by our investors and workforce. We consulted with investors in relation to the new Policy and engage with the workforce on remuneration as described on pages 66, 116 and 127. | | Risk | There is an appropriate mix of fixed and variable pay, and financial and strategic objectives. The new Policy maintains robust measures to manage risk and to ensure alignment with long-term shareholder interests including: (i) discretion to override formulaic outcomes; (ii) malus and clawback provisions; (iii) minimum shareholding requirement and bonus deferral into shares; and (iv) in-employment and post-employment shareholding requirements. | | Predictability | The charts on pages 125 and 134 clearly show the amounts that could be earned by the Executive Directors under the new Policy. | | Proportionality | Payouts from the annual bonus require performance against stretching targets. The Committee assesses performance holistically at the end of the period, taking into account performance against the financial and strategic objectives. There is no payout if the threshold financial objectives are not met. The Committee may exercise discretion to ensure that payouts are appropriate. | | Alignment with culture | The strategic alignment of each element of pay has been clearly laid out in the proposed Remuneration Policy on pages 126 to 123. The strategic objectives for FY2023 are set out on page 130 and are all linked to our strategy and values, which underpin our culture. The weighting of the FY2024 strategic objectives will increase from 10% to 20%, further encouraging the successful implementation of our strategy and driving behaviours consistent with our purpose, values and culture. | 128 Renishaw plc Annual Report 2023 ## Annual Report on remuneration This section of the report sets out the remuneration of the Directors in FY2023 and also contains details of how the Committee intends to implement the proposed Remuneration Policy for FY2024. During FY2023, the Remuneration Policy operated as intended in terms of performance and quantum. The information on pages 129 to 135 has been audited where required under the regulations and is indicated as audited where applicable. This Remuneration Report has been prepared in accordance with Schedule 8 to the Large and Medium sized Companies and Groups (Accounts and Reports) Regulations 2008 (as amended), LR 9.8 of the Listing Rules and the Governance Code. Single total figure table (audited) – Executive Directors Total fixed Total variable Total * | | Salary Benefits Pension Bonus | | | | | | | | remuneration | | remuneration | | remuneration | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | FY2023 | | FY2022 | FY2023 | FY2022 | FY2023 | FY2022 | FY2023 | FY2022 | FY2023 | FY2022 | FY2023 | FY2022 | FY2023 | FY2022 | | £’000 | | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | Governance Sir David McMurtry 766 730 3 3 n/a n/a 0 730 769 733 0 730 769 1,463 Will Lee 704 670 21 20 77 74 0 1,006 802 764 0 1,006 802 1,770 Allen Roberts 448 426 20 20 49 47 0 640 517 493 0 640 517 1,133 Total 1,918 1,826 44 43 126 121 0 2,376 2,088 1,990 0 2,376 2,088 4,366 * The value of the bonus includes both the value of the annual cash bonus and the face value of shares to be awarded under the Deferred Annual Equity Incentive Plan (DAEIP) in respect of the relevant financial year. Deferred shares will normally vest on the third anniversary of grant, subject to continued employment. Single total figure table (audited) – Non-executive Directors 1 Fees Expenses Total remuneration FY2023 FY2022 FY2023 FY2022 FY2023 FY2022 £’000 £’000 £’000 £’000 £’000 £’000 John Deer 75 70 0 0 75 70 Catherine Glickman 75 70 0 0 75 70 Sir David Grant 75 70 0 0 75 70 2 Juliette Stacey 75 35 0 0 75 35 3 Stephen Wilson 75 6 0 0 75 6 Total 375 251 0 0 375 251 1 The Non-executive Directors are not eligible for any variable remuneration and only receive fixed remuneration. 2 Juliette Stacey was appointed as a Non-executive Director on 1 January 2022. Therefore, these figures reflect remuneration received during the period from 1 January 2022 to 30 June 2022. 3 Stephen Wilson was appointed as a Non-executive Director on 1 June 2022. Therefore, these figures reflect remuneration received during the period from 1 June 2022 to 30 June 2022. Benefits | | Car | Private medical cover applies to all Executive Directors and | | | | --- | --- | --- | --- | --- | | allowance | | | insurance on personal cars apply to some Directors | | | | £’000 | | | £’000 | Sir David McMurtry 0 3 Will Lee 20 1 Allen Roberts 20 0 Incentive outcomes for FY2023 The incentive opportunity is based on financial and strategic objectives, although the award is only payable provided the financial threshold is met (irrespective of performance against the strategic objectives). The financial objective, based on stretching Adjusted PBT targets, comprised 90% of the award; the strategic objectives comprised 10%. The threshold Adjusted PBT target was not met, and therefore the strategic objectives did not pay out. Thus, there will be no award under the annual incentive programme for FY2023. Full details of the financial objectives, strategic objectives and performance against them are set out in the following tables. Financial objectives Threshold Stretch Maximum Achieved in FY2023 Adjusted PBT £146.0m £177.0m £186.0m £141.0m % of bonus payable for Adjusted PBT performance 0% 60% 90% 0% The Adjusted PBT for FY2023 was £141.0m. This result is less than the threshold target set by the Committee and therefore no bonus was payable in FY2023. In assessing the bonus pay-outs, the Committee considered the experience of other stakeholders and the wider workforce and determined that no discretion would be applied. Renishaw plc Annual Report 2023 129 Governance ## Annual Report on remuneration continued Strategic objectives Because the threshold level of Adjusted PBT for FY2023 was not met, there is no award under the strategic objectives. Performance against the strategic targets is set out in the table below: % of % of bonus bonus Strategic objective Outcome of objective payable paid out Group strategy – Launched Renishaw Central, the smart factory software platform. Deliver the Group – Grew AGILITY sales to target customers. strategic plan for – Accelerated a programme of migration with customers to latest technologies, enabling FY2023 obsolescence of legacy products. Innovation – Progress on flagship products in Manufacturing technologies: in Industrial Metrology with Drive innovation REVO 5-axis multi-sensor system, launch of RME-QE flagship product; in AM with work with a focus on both on existing and next generation RenAM machines; in Industrial Automation with a new product range of products to deliver rapid robot cell commissioning. development – In the Analytical instruments and medical devices segment, we launched inLux, the new and disruptive SEM Raman interface. technology People and – Significant progress on our people priorities: implementation of a global career framework; culture developing the competency framework; global salary benchmarking completed Develop our with targeted investment in reward; reduced voluntary turnover from 10.7% to 6.8%, people’s leadership, exceeding target. development andcapability Sustainability – Achieved a 21% reduction of Scope 1 and 2 GHG emissions this year through initiatives 10% 0% Deliver our including purchasing more renewable electricity for our sites, and renovating our site in sustainability Breda, Netherlands with an air source heat pump, solar panels, enhanced insulation and plan, developing EV charging ports. the Scope 3 – Progress made towards fully quantifying our Scope 3 emissions, with most of the relevant reduction plan and data captured; developing Scope 3 reduction plans against our long term reduction goals. delivering Scope – SBTi five year plan pending submission. 1 and 2 emissions reductions Productivity – Miskin expansion progressing well. Increase capacity – Decreased demand in the semiconductor industry required adjustments in production and productivity during the year, which affected manufacturing productivity. of manufacturing – Renishaw Central installation, upgrading of machine tools, automation projects and using facilities and AM for AM part production have all improved manufacturing productivity. progress implementation of – Substantial progress on deployment of Microsoft Dynamics 365 platform. Microsoft Dynamics 365 Total pension entitlements Will Lee is a member of our UK closed defined benefit scheme. The normal retirement age is 65. On death, pension benefits would pass to that member’s dependents. Since the closure of the defined benefit scheme, contributions have been made to a defined contribution scheme or paid in cash. | | Value of defined benefit | | | | | Pension | | --- | --- | --- | --- | --- | --- | --- | | | | pension entitlement | | | contributions in | | | At 30 June 2023: | | | £’000 per year | respect of FY2023* | | | Will Lee 11 Paid in cash * as disclosed in the single figure table. Payments to past Directors No payments were made to past Directors during the year. Loss of office payments There were no loss of office payments during the year. 130 Renishaw plc Annual Report 2023 ## Performance graph The graph below shows our TSR performance, compared with the FTSE 250 index. The Committee believes this is the most appropriate broad index for comparison, as Renshaw is a member of this index. TSR performance was rebased to 100 at 30 June 2013. ### TSR performance ![img-12.jpeg](img-12.jpeg) ## Chief Executive total remuneration The table below sets out information relating to the remuneration of the Chief Executive for each of the years in question: | Year | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 | FY2019 | FY2020 | FY2021 | FY2022 | FY2023 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | **Will Lee (from 1 February 2018)** | | | | | | | | | | | | Single figure of total remuneration (£'000) | | | | | 594 | 653 | 601 | 1,488 | 1,770 | **802** | | Annual incentive payout (includes annual cash bonus and deferred equity incentive) % of maximum | | | | | 95 | 0 | 0 | 100 | 100 | **0** | | Long-term incentive vesting % of maximum | | | | | n/a | n/a | n/a | n/a | n/a | **n/a** | | **Sir David McMurtry (until 31 January 2018)** | | | | | | | | | | | | Single figure of total remuneration (£'000)^{1} | 632 | 1,298 | 668 | 1,207 | 818 | | | | | | | Annual bonus payout % of maximum | 0 | 100 | 0 | 77 | 100 | | | | | | | Long-term incentive vesting % of maximum | n/a | n/a | n/a | n/a | n/a | | | | | | 1 The remuneration shown is on a pro-rated basis for the period when Sir David McMurtry stepped down and Will Lee took office to the end of the financial year. 2 Represents the total remuneration received by Sir David McMurtry in relation to this rate. Renshaw plc Annual Report 2023 131 Governance ## Annual Report on remuneration continued ### Chief Executive pay ratio The table below sets out the Chief Executive pay ratios as at 30 June in the years 2020 to 2023. The report will build up over time to show a rolling 10-year period. The ratios compare the single total figure of remuneration of the Chief Executive with the equivalent figures for the lower quartile (P25), median (P50) and upper quartile (P75) employees. Ratios are also presented using base salary only. Option B has been selected as this method of calculation is considered to be the most robust method of identifying the individual reference points in a Group, such as Renishaw, with multiple operating segments. #### Total remuneration | Financial year | Employee remuneration | | | Pay ratio | | | | --- | --- | --- | --- | --- | --- | --- | | | P25 | P50 | P75 | P25 | P50 | P75 | | **FY2023** | **£27,484** | **£45,554** | **£55,940** | **29.2** | **17.6** | **14.3** | | **FY2022** | £31,099 | £42,246 | £48,457 | 58.9 | 41.9 | 36.5 | | **FY2021** | £28,438 | £37,720 | £45,170 | 52.3 | 39.4 | 32.9 | | **FY2020** | £27,476 | £35,619 | £51,563 | 21.9 | 16.9 | 11.6 | #### Base salary | Financial year | Employee remuneration | | | Pay ratio | | | | --- | --- | --- | --- | --- | --- | --- | | | P25 | P50 | P75 | P25 | P50 | P75 | | **FY2023** | **£24,134** | **£39,100** | **£48,205** | **29.1** | **18.0** | **14.6** | | **FY2022** | £27,213 | £36,276 | £41,331 | 24.6 | 18.5 | 16.2 | | **FY2021** | £24,420 | £32,670 | £42,480 | 23.0 | 17.2 | 13.2 | | **FY2020*** | £24,650 | £32,634 | £47,092 | 20.5 | 15.5 | 10.7 | * Where necessary, adjustments were made to the underlying data to reflect a reduction in working hours during April 2020 to June 2020 in connection with the COVID-19 pandemic. The reductions in salary and employer pension contributions during this time have been added back to give a full-time equivalent figure. No other adjustments were made to the underlying data. The base salary for the Chief Executive increased by 5% in July 2022. This was lower than the average for the wider workforce. The P25, P50 and P75 employees are identified from the April 2022 Gender Pay Gap reporting data. In the 12 months to April 2022, we significantly increased our production workforce, which has had the effect of lowering the P25 base salary. The P50 and P75 base salaries have increased, primarily as a result of significant investment in employee pay, benchmarked to market pay rates. The ratios for total remuneration have reduced significantly this year due to the nil bonus for the Chief Executive who received the maximum bonus in FY2022. Taking into account the above, the Committee considers the median pay ratio consistent with the Company's approach to pay and reward. The Committee will continue to monitor the ratios on an annual basis. 132 Renishaw plc Annual Report 2023 Statement of Directors’ shareholding and share interests The interests of Directors and their connected persons in the Company’s ordinary shares as at 30 June 2023 are set out below. There have been no changes to those interests between 30 June 2023 and the date of signing of this Annual Report. Unvested and | Number of ordinary | subject to continued | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | shares of 20p each | | employment | | Minimum | | | Minimum | | beneficially owned | (awarded under the | | shareholding | | Current | shareholding | | * (as at 30 June 2023) DAEIP) guideline shareholding guideline met Sir David McMurtry 26,377,291 n/a 0.5× salary 1,343.3× salary Yes Will Lee 7,695 22,580 2× salary 0.427× salary Building Allen Roberts 6,840 15,255 0.5× salary 0.596× salary Yes John Deer 12,076,790 n/a n/a n/a n/a Governance Catherine Glickman 675 n/a n/a n/a n/a Sir David Grant – n/a n/a n/a n/a Juliette Stacey – n/a n/a n/a n/a Stephen Wilson 1,500 n/a n/a n/a n/a * Current shareholdings for comparison with the shareholding requirements for Executive Directors are calculated based on annualised salary as at 30 June 2023 and by reference to the closing share price on 30 June 2023 (3,902p). DAEIP awards granted during the year On 26 October 2022, the Executive Directors, excluding Sir David McMurtry, were granted DAEIP awards of shares under the annual incentive opportunity for performance over FY2022. The details of these awards are summarised below and reflected in the above table. Face value Face value 1 Executive Director Number of shares £’000 % of salary² Vesting date Will Lee 14,324 503 75 27 October 2025 Allen Roberts 9,115 320 75 27 October 2025 1 Based on the five-day average share price of 3,508p preceding the award date. 2 Expressed as a percentage of salary at 30 June 2022. In line with our Remuneration Policy, awards normally vest on the third anniversary of the award date, subject to continued employment only. Percentage change in remuneration of the Directors The following table sets out the percentage change in the Directors’ remuneration, compared with the percentage change in average remuneration to Renishaw plc employees from FY2019 to FY2023. The figures shown in the table below refer to the base salary actually received by each Director, therefore these figures do not include the fees (whether all or part) that were waived for any financial years. Where an item is not relevant for that Director or where it has changed from or to a zero figure in the timeframe, the change is shown as not applicable. All percentages in the table are rounded to the nearest whole number and all references to years are to the financial years. Salaries/Fees Benefits/Expenses Annual bonus 2022/23 2021/22 2020/21 2019/20 2022/23 2021/22 2020/21 2019/20 2022/23 2021/22 2020/21 2019/20 % % % % % % % % % % % % 1 Sir David McMurtry 5 n/a n/a -23 0 0 0 0 n/a 2 n/a 0 Will Lee 5 19 11 -8 5 0 0 0 n/a 19 n/a 0 Allen Roberts 5 2 5 -2 0 0 0 0 n/a 2 n/a 0 2 John Deer 7 n/a n/a -38 -21 -37 -94 -43 n/a n/a n/a 0 Catherine Glickman 7 25 5 6 n/a 0 0 0 n/a n/a n/a n/a Sir David Grant 7 25 5 -4 n/a 0 0 0 n/a n/a n/a n/a | | 3 | | 6 | | | --- | --- | --- | --- | --- | | Juliette Stacey | | 114 | | n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a | | | 4 | | 6 | | | Stephen Wilson | | 1,186 | | n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a | Renishaw plc 5 employee (average) 11 9 1 3 4 4 1 1 -15 22 n/a n/a 1 Sir David McMurtry waived his salary from 1 July 2020 to 30 June 2021. As disclosed in our FY2021 Annual Report, Sir David’s base salary increased by 2.1% from £714,700 (for the year ended 30 June 2021) to £729,709 (for the year ended 30 June 2022). 2 John Deer stepped down as an Executive Director on 29 January 2020 (becoming a Non-executive Director). Therefore, the FY2020 figure was calculated on the basis of the salary received as an Executive Director during the period from 1 July 2019 to 29 January 2020 and the fees received as a Non-executive Director during the period from 30 January 2020 to 30 June 2020. John Deer waived his fee from 1 July 2020 to 30 June 2021. He did not waive his fee for the year ended 30 June 2022 and therefore was paid a fee of £70,000 in line with the other Non-executive Directors. 3 Juliette Stacey was appointed as a Non-executive Director on 1 January 2022. Therefore, these figures reflect remuneration received during the period from 1 January 2022 to 30 June 2022. 4 Stephen Wilson was appointed as a Non-executive Director on 1 June 2022. Therefore, these figures reflect remuneration received during the period from 1 June 2022 to 30 June 2022. 5 Reflects the average percentage change in salary, benefits and bonus for employees of Renishaw plc (excluding the Board). 6 The Non-executive Director fees for Juliette Stacey and Stephen Wilson have increased by 7% since their appointments on 1 January 2022 and 1 June 2022 respectively. The remaining percentage differences are due to their FY2022 fees having been pro-rated for the portion of the year they were on the Board. Renishaw plc Annual Report 2023 133 Governance # Annual Report on remuneration continued # Executive Directors serving as non-executive directors of other companies During the year none of the Executive Directors were paid to serve as a non-executive director of any other company. # Relative importance of spend on pay The following table sets out the total amount spent in FY2023 and FY2022 on remuneration to all Group employees and on dividends to shareholders: | | FY2023 £'000 | FY2022 £'000 | Change % | | --- | --- | --- | --- | | Employee remuneration | 278,847 | 254,268 | 10 | | Shareholder dividends paid | 53,407 | 49,494 | 8 | * Does not include dividends declared but not yet paid. Except as shown above, no other distributions have been made to shareholders, or other payments or uses of profit or cash flow, that affect the understanding of the relative importance of spend on pay. # Statement of implementation of Remuneration Policy in the next year # Base salary During the year under review, the Remuneration Committee considered the timing of the Executive Directors' base salary review and agreed to align this with the annual pay review for the wider workforce. Therefore any FY2024 increases will be considered in November/December 2023 and take effect from 1 January 2024. # Annual incentive opportunity There are no changes planned for the annual incentive opportunity for FY2024; the maximum opportunity will be 150% of salary for non-founder Executive Directors and 100% of salary for Sir David McMurtry. Measures will continue to be Adjusted PBT and strategic objectives. However, for FY2024 a greater weighting will apply to the strategic objectives, which will represent 20% of the annual incentive opportunity with Adjusted PBT reducing to 80% of the incentive opportunity. This is to more closely align outcomes to the achievement of stretching strategic targets that underpin Group strategy. The FY2024 strategic objectives will relate to strategic direction, sales, innovation, people and culture, sustainability and productivity. These drive long-term growth, new product development, and our work on sustainability, specifically on our environmental targets, and are all linked to the strategy and values of the Group, which underpin our culture and drive behaviours consistent with our purpose. Further details (including the targets) will be disclosed in next year's Directors' Remuneration Report. Awards are subject to the achievement of the threshold target of Adjusted PBT, should this be met, achievement against the strategic objectives will be judged. The Committee will then review the out-turn against underlying business performance and the wider stakeholder experience. In line with the new Policy, for achieving an appropriately stretching level of threshold performance, 20% of the bonus based on Adjusted PBT will be earned. Matus and clawback provisions will also apply. The chart below shows the potential remuneration for the Executive Directors for FY2024, in the event that the maximum incentive opportunity were achieved. ![img-13.jpeg](img-13.jpeg) # Pension and benefits No changes will be made to the implementation of the pension and benefits elements of the Policy. For FY2024, non-founder Executive Directors will receive 11% of salary, in line with other long-serving employees, although the Committee has confirmed that, no later than 1 January 2025, the Executive Directors' pension entitlement will be reduced to that of the wider workforce, currently 9% in the UK. # Non-executive Directors In line with the decision to move the pay review for the Executive Directors to align it with the annual pay review of the wider workforce, the review of fees for the Non-executive Directors will also take place later in the year and any change will take effect on 1 January 2024. 134 Rennshaw plc Annual Report 2023 ### Executive Director service contracts The Executive Directors' service contracts are for an indefinite period and require 12 months' notice of termination by either party. There are no obligations in any Executive Director's service contract that would require the Company to pay a specific amount of compensation for loss of office. The Executive Directors' service contracts reflect our policy regarding notice periods. No payment will be made for a termination by the Company for a breach by the Executive Director of their service contract. In other cases, payment in lieu of notice will be considered up to the 12 months' notice period to cover base salary, benefits and pension contributions. If additional compensation must be considered, such as on a settlement agreement, the Committee will consider all relevant commercial factors affecting that case. Executive Directors' service contracts are available for inspection at our registered office upon written request to the Company Secretary. | Executive Director | Date of current service contract | | --- | --- | | Sir David McMurtry | 18 October 2018 | | Will Lee | 1 June 2020 | | Allen Roberts | 20 April 2021 | ### Non-executive Director letters of appointment The Non-executive Directors' letters of appointment require 1 month notice of termination by either party. There are no obligations in any Non-executive Director's letter of appointment that would require the Company to pay a specific amount of compensation for loss of office. Non-executive Directors' letters of appointment are available for inspection at our registered office upon written request to the Company Secretary. | Non-executive Director | Date first appointed to the Board | Expiry date of current term of office | | --- | --- | --- | | John Daer | 1 July 1974 | 31 January 2025 | | Catherine Glickman | 1 August 2018 | 1 August 2024 | | Sir David Grant | 25 April 2012 | 25 April 2025 | | Juliette Stacey | 1 January 2022 | 1 January 2025 | | Stephen Wilson | 1 June 2022 | 1 June 2025 | | Professor Karen Holford | 1 September 2023 | 1 September 2026 | ### Statement of voting at general meeting At the AGM held on 30 September 2020, votes cast in respect of the Directors' Remuneration Policy were as follows: | Resolution | Votes for | % for | Votes against | % against | Total votes cast | Votes withheld | | --- | --- | --- | --- | --- | --- | --- | | Approval of Remuneration Policy | 59,462,931 | 92.78 | 4,627,677 | 7.22 | 64,090,608 | 894,466 | At the AGM held on 30 November 2022, votes cast in respect of the Directors' Remuneration Report were as follows: | Resolution | Votes for | % for | Votes against | % against | Total votes cast | Votes withheld | | --- | --- | --- | --- | --- | --- | --- | | Approval of Remuneration Report | 60,623,585 | 96.23 | 2,377,891 | 3.77 | 63,001,476 | 694,153 | This report was approved by the Board and has been signed on its behalf by: Chair of the Remuneration Committee Renistraw plc Annual Report 2023 135 Governance # Other statutory and regulatory disclosures ## Review of the business A review of the business and likely future developments is given in the Chairman's statement, the Chief Executive's review and the other sections of the Strategic Report. Segmental information by geographical market is given in Note 2 to the Financial statements. The principal activities of the Company are the design, manufacture, sale, distribution and service of manufacturing technologies products and services, and analytical instruments and medical devices, as outlined on pages 32 to 47 of the Strategic Report. The Group has overseas subsidiaries to manufacture, market, and distribute some of the Group's products and support customers in the following major markets outside the UK: - Americas: Brazil, Canada, Mexico, and USA; - APAC: Australia, China, Hong Kong, India, Japan, Malaysia, Singapore, South Korea, and Taiwan; and - EMEA: Austria, Czech Republic, Finland, France, Germany, Hungary, Ireland, Israel, Italy, the Netherlands, Poland, Spain, Sweden, Switzerland, Turkey and UAE. There are also representative offices in Indonesia, Slovakia, Thailand and Vietnam. In addition, in Slovenia the Group has a joint venture, RLS Merlina tehnika d.o.o. (RLS), and a subsidiary that designs and arranges the procurement of application-specific integrated circuits. ▶ Further information is available on our website: www.renishaw.com. ## Research and development The Group continues to invest significantly in developing future technologies, with R&D activities located primarily in the UK. We develop technologies that lead to patented products and methods to help deliver our segmental strategies. Further information on R&D expenditure is contained in Note 4 to the Financial statements on page 165. The amount of R&D expenditure capitalised, the amount amortised, and impairment charges in the year are given in Note 12 on page 173. ## Dividends The Directors propose a final dividend of £43,236,395 or 59.4p per share which, together with the interim dividend of £12,228,475 or 16.8p per share, gives a total dividend for the year of £56,464,870 or 76.2p per share. In comparison, last year the Board agreed a total dividend for the year of £52,844,482 or 72.6p per share. As at 30 June 2023, 68,978 shares were held by the Renishaw plc Employee Benefit Trust (EBT). These shares may be used to satisfy awards made to employees under the Company's employee share plan – namely, the Renishaw Deferred Annual Equity Incentive Plan (DAEIP). Under the terms of the EBT, any dividends payable on these shares are waived. ## Directors and their interests The Directors at the end of the year are listed on pages 94 and 95. In accordance with the provisions of the Governance Code, all Directors will retire and, being eligible, offer themselves for re-election to office or, in the case of any Director who was first appointed to the Board since the last AGM, election to office at the AGM to be held on 29 November 2023. Details of these Directors are shown on pages 94 and 95 and full biographical details are available at www.renishaw.com/directors. The rules on appointment, reappointment and retirement by rotation of the Directors and their powers are set out in the Company's Articles of Association. There are no powers given to the Directors that are regarded as unusual. The Directors' interests in our share capital (with the equivalent number of voting rights), as notified to the Company, are listed on page 133. There has been no change in the holdings shown on page 133 in the period 1 July 2023 to 18 September 2023. All the interests were beneficially held, except for 2,278,161 shares (2022: 2,278,161 shares) which were non-beneficially held by John Deer but in respect of which he has voting rights. As announced on 12 July 2023, Sir David McMurtry, as one party, and John Deer and Mrs M E Deer, as the other party, have entered into a voting agreement. Under this agreement the parties agree that: (i) John Deer and Mrs M E Deer will vote their shares in favour of any ordinary resolution if requested to do so by Sir David McMurtry, and (ii) Sir David McMurtry will vote his shares against any special or extraordinary resolution if requested to do so by John Deer. The voting arrangement is for a period of five years unless it terminates earlier in accordance with its terms. ## Directors' and officers' indemnity insurance and Directors' indemnities Subject to the provisions of the Companies Act 2006, the Company's Articles of Association provide for the Directors and officers of the Company to be appropriately indemnified. In accordance with the Company's Articles of Association and to the extent permitted by law, Directors (excluding the founders) have been granted an indemnity in respect of loss and liability incurred as a result of their office. Neither the Company's indemnity nor insurance provides cover in the event that a Director is proven to have acted dishonestly, fraudulently or negligently. Copies of all indemnities granted are available for inspection at the Company's registered office. The Company also maintains insurance for its Directors and officers in respect of their acts and omissions during the performance of their duties. ## Responsibility statement As required under the Financial Conduct Authority's Disclosure Guidance and Transparency Rules, a statement made by the Board regarding the preparation of the Financial statements is set out on page 159. 136 Renishaw plc Annual Report 2023 ## Share capital and change of control Details of the Company's share capital, including rights and obligations, is given in Note 26 to the Financial statements. The Company is not a party to any significant agreements that might terminate upon a change of control. A shareholder authority for the purchase by the Company of a maximum of 10% of its own shares was in existence during FY2023. However, the Company did not purchase any of its own shares during that time. ## Auditor A resolution to reappoint Ernst & Young LLP as the auditor of the Company will be proposed at the forthcoming AGM. ## Disclosure of information to auditor The Directors who held office at the date of approval of this statement confirm that, so far as they are each aware, there is no relevant audit information of which the Company's auditor is unaware. Each Director has taken all the steps that he or she ought to have taken as a Director to make himself/herself aware of any relevant audit information and to establish that our auditor is aware of that information. ## Annual General Meeting Shareholders will receive the notice convening the AGM and an explanation of our proposed resolutions separately. At the meeting, the Company will be seeking shareholder approval for, among other things, the ability to make market purchases of its ordinary shares, up to a total of 10% of the issued share capital. ## Substantial shareholdings Apart from the shareholdings (and corresponding voting rights) of Sir David McMurtry and John Deer (36.23% and 16.59% respectively), the table below discloses the voting rights that have been notified to the Company under the requirements of the Financial Conduct Authority's Disclosure Guidance and Transparency Rules DTR 5. These represent 3% or more of the voting rights attached to issued shares in the Company, as at 30 June 2023. Please note that these holdings may have changed since being notified to the Company. However, notification of any change is not required until an applicable threshold is crossed. | Substantial shareholdings | % of issued share capital | Number of shares | | --- | --- | --- | | BlackRock, Inc. | 4.92% | 3,578,133 | | Capital Research and Management Company | 4.76% | 3,465,738 | | Standard Life Investments Limited | 4.99% | 3,631,612 | There have been no changes notified to the Company, in the holdings shown above, in the period 1 July 2023 to 18 September 2023. ## Employees The retention of our highly skilled people is essential to our future. The Directors place great emphasis on the continuation of our training programme and competitive rewards. Health and safety matters are another key area of focus, and well-established systems of safety management are in place throughout the Group to safeguard employees, customers and others. Employment policies are designed to provide equal opportunities irrespective of race, religion, gender, age, socio-economic background, disability or sexual orientation. The Company gives full and fair consideration to applications for employment from people with disabilities, where suitable, for appropriate vacancies. Employees who become disabled while with the Company will be given every opportunity to continue their employment through reasonable adjustments to their working conditions and equipment. Where this is not possible, the Company offers retraining for other positions. They will also be afforded opportunities to continue training and gain promotion on the same basis as any other employee. Details on how the Directors have engaged with employees and had regard to their interests are set out in various sections of this Annual Report, including pages 65 to 67. Information provided to employees on the performance of the business, consultation with employees and performance incentives is set out in various sections of the Annual Report, including pages 127. There are no agreements with employees providing for compensation for any loss of employment that may occur because of a takeover bid. ## Suppliers, customers and other stakeholders Details on how the Directors have had regard to the need to promote the Group's relationships with suppliers, customers, and others is set out on pages 62 and 89. In this same section, the effect of that consideration on the Directors' principal decisions during FY2023 is also contained. ## Political donations No political donations were made during the year. ## Events after the balance sheet date There have been no material events affecting the Company since the year end. ## Financial risk management, objectives and policies Descriptions of the following can be found in Note 25 to the Consolidated financial statements on pages 184 to 189: - the use of financial instruments; - the Group's financial risk management objectives and policies; - policies in relation to hedge accounting; and - exposure to market risk, including credit and liquidity risk. Renishawglo Annual Report 2023 137 Governance # Other statutory and regulatory disclosures continued ## Controlling shareholders' arrangements The LR require that premium listed companies with 'controlling shareholders' must enter into a relationship agreement containing specific independence provisions. A controlling shareholder is a shareholder who individually or with any of their concert parties exercises or controls 30% or more of the votes that may be cast on all, or substantially all, the matters at a company's general meeting. The independence provisions required by the LR are that: - (i) transactions and arrangements with the controlling shareholder (and/or any of its associates) will be conducted at arm's length and on normal commercial terms; - (ii) neither the controlling shareholder nor any of its associates will take any action that would have the effect of preventing the Company from complying with its obligations under the LR; and - (iii) neither the controlling shareholder nor any of its associates will propose or procure the proposal of a shareholder resolution which is intended or appears to be intended to circumvent the proper application of the LR. Sir David McMurtry (Executive Chairman, 36.23% shareholder) is a controlling shareholder. John Deer (Non-executive Deputy Chairman, together with his wife, 16.59% shareholder) is also a controlling shareholder by virtue of a long-standing voting agreement between him (and his wife) and Sir David McMurtry. The Board confirms that the Company has not been able to enter into a relationship agreement with its controlling shareholders, containing the independence provisions required by the LR. The Company has notified the FCA of this, as required by the LR. The controlling shareholders have informed the Board that they are not willing to enter into a relationship agreement. They are of the view that the requirement to enter into a relationship agreement infringes upon their rights as shareholders and their track record demonstrates that they act in the best interests of the Company. As there is no relationship agreement in place, the LR provide that certain enhanced oversight measures will apply. This means, unless, and to the extent the FCA agrees otherwise, all transactions with the controlling shareholders must be approved by the Company's shareholders (excluding the controlling shareholders) in accordance with the related party transaction requirements of the LR, and none of the normal exemptions apply. The FCA has given the Company guidance about the application of the enhanced oversight measures to the remuneration and benefits received by the controlling shareholders in their capacity as Directors (in accordance with the Company's approved remuneration policy). The FCA has also advised on other ordinary course corporate matters, such as the payment of dividends to all of our shareholders. The FCA has confirmed that either: (i) these are not transactions or arrangements that fall within the enhanced oversight measures; or (ii) they will permit a modification of the enhanced oversight measures so these will not apply, provided the arrangements remain in the ordinary course of business and, in the case of salary reviews and bonuses, they fall within the small transaction exemption in the Annex to LR 11. This guidance continues to apply in respect of remuneration awarded under the existing Remuneration Policy (see pages 114 to 135). ## Greenhouse gas emissions and energy consumption Disclosures concerning GHG emissions and energy consumption are set out on pages 68 to 80 ## Disclosure of information under LR 9.8.4R The information that fulfils the reporting requirements under this rule can be found on the pages identified in the table below. Section Topic | (1) | Interest capitalised | Not applicable | | --- | --- | --- | | (2) | Publication of unaudited financial information | Not applicable | | (4) | Details of long-term incentive schemes | Not applicable | | (5) | Waiver of emoluments by a director | Not applicable | | (6) | Waiver of future emoluments by a director | Not applicable | | (7) | Non pre-emptive issues of equity for cash | Not applicable | | (8) | As item (7), in relation to major subsidiary undertakings | Not applicable | | (9) | Parent participation in a placing by a listed subsidiary | Not applicable | | (10) | Contracts of significance | Not applicable | | (11) | Provision of services by a controlling shareholder | Directors' Remuneration Report, starting on page 92 | | (12) | Shareholder waivers of dividends | Other statutory and regulatory disclosures, starting on page 136 | | (13) | Shareholder waivers of future dividends | Other statutory and regulatory disclosures, starting on page 136 | | (14) | Agreements with controlling shareholders | Other statutory and regulatory disclosures, starting on page 136 | Signed on behalf of the Board. ## Karen Altenbury Interim Company Secretary 18 September 2023 Renshaw plc Registered number 01106260 England and Wales 138 Renshaw plc Annual Report 2023 ## Directors’ responsibilities Statement of Directors’ responsibilities in respect Directors’ confirmations of the Annual Report and Financial statements Each of the Directors, whose names and functions can be The Directors are responsible for preparing the Annual found on pages 94 and 95, confirms that, to the best of his Report and the Group and Company Financial statements orher knowledge: inaccordance with applicable law and regulations. – the Financial statements, prepared in accordance with the Company law requires the Directors to prepare Group and applicable set of accounting standards, give a true and fair Company Financial statements for each financial year. view of the assets, liabilities, financial position and profit or Under that law the Directors are required to prepare the loss of the Group and of the Company and the undertakings Group financial statements in accordance with UK-adopted included in the consolidation taken as a whole; and international accounting standards, and have elected to prepare – the Strategic Report and the Directors’ Report include a fair the parent Company financial statements in accordance with review of the development and performance of the business United Kingdom Generally Accepted Accounting Practice during the year and the position of the Group and of the Governance (United Kingdom Accounting Standards and applicable Company at the year end, together with a description of the law) including Financial Reporting Standard 101, ‘Reduced principal risks and uncertainties that they face. Disclosure Framework’. The Directors consider that the Annual Report, taken as a Under company law the Directors must not approve the whole, is fair, balanced and understandable, and provides the Financial statements unless they are satisfied that they give information necessary for shareholders to assess the Group’s atrue and fair view of the state of affairs of the Group and the position and performance, business model and strategy. Company and of their profit or loss for that period. Signed on behalf of the Board. In preparing each of the Group and Company Financial statements, the Directors are required to: Allen Roberts – select suitable accounting policies and then apply Group Finance Director them consistently; 18 September 2023 – make judgements and accounting estimates that are reasonable and prudent; – state whether they have been prepared in accordance with applicable accounting standards; and – prepare the Financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and the Company, and enable them to ensure that the Financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Group and the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors’ Report, Directors’ Remuneration Report and corporate governance statement that comply with the relevant laws and regulations. Renishaw plc Annual Report 2023 139 Financial statements Our values competition winners: ## Integrity The rise in demand for electronic components means that we have sometimes needed to redesign products, substitute components from existing suppliers, or purchase components from alternative sources. The Quality Assurance and Assembly team at our Woodchester manufacturing facility in the UK, performed essential work to manage this risk. They made sure product quality was maintained to our high standards throughout component shortages. The winning team chose James Hopkins Trust to receive £5,000. Based in Gloucester, UK, the charity provides care for babies and children up to the age of five who have life-limiting or life-threatening conditions, while also providing support for their families. ## We are ## sharing our success Our values competition winners: ## Involvement Our COVID-19 Committee won our involvement category for their work developing global guidance and taking action to prevent the spread of the virus at our sites around the world. Formed in February 2020, the team’s work meant that, when compared with similar-sized businesses and local community rates, we kept transmission levels low within our business. This helped to protect our people and ensure we could continue to operate as fully as possible. The winners selected the Stroke Association to receive £5,000. A UK national charity based in London, the charity works to prevent stroke, and to support everyone touched by stroke, fund research, and campaign for the rights of stroke survivors ofall ages. You can read about the other values competition winners on pages 5, 90 and 91. COVID-19 Committee members. 140 Renishaw plc Annual Report 2023140 Renishaw plc Annual Report 2023 ## Financial ## statements 142 Independent Auditor’s Report 153 Financial statements contents 154 Consolidated income statement 155 Consolidated statement of comprehensive income and expense 156 Consolidated balance sheet 157 Consolidated statement of changes in equity 158 Consolidatedstatementofcashflow 159 Notes(formingpartofthefinancialstatements) 195 Company balance sheet 196 Company statement of changes in equity 197 NotestotheCompanyfinancialstatements The Quality Assurance and Assembly team in Woodchester, Gloucestershire. ### Itwasaprivilegetobeacompetition ### judgeandreviewtheentriesthisyear. ### Notonlyhasthecompetitionallowedus ### to celebrate living our values internally, ### it’s also been a fantastic opportunity to ### shareoursuccesswithourcommunities ### throughthecharitabledonations.” Rob Macdonald Head of Group Finance 141Renishawplc Annual Report 2023 Financial statements ## Independent Auditor’s Report to the members of Renishaw plc Opinion In our opinion: – Renishaw plc’s Group financial statements and Parent Company financial statements (the “financial statements”) give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 30 June 2023 and of the Group’s profit for the year then ended; – the Group financial statements have been properly prepared in accordance with UK adopted international accounting standards; – the Parent Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and – the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. We have audited the financial statements of Renishaw plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’) for the year ended 30 June 2023 which comprise: Group Parent Company Consolidated balance sheet as at 30 June 2023 Balance sheet as at 30 June 2023 Consolidated income statement for the year then ended Statement of changes in equity for the year then ended Consolidated statement of comprehensive income and Related notes C.30 to C.45 to the financial statements including expensefor the year then ended asummary of significant accounting policies Consolidated statement of changes in equity for the year thenended Consolidated statement of cash flows for the year then ended Related notes 1 to 29 to the financial statements, including asummary of significant accounting policies The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and UK adopted international accounting standards. The financial reporting framework that has been applied in the preparation of the Parent Company financial statements is applicable law and United Kingdom Accounting Standards, including FRS 101 “Reduced Disclosure Framework” (United Kingdom Generally Accepted Accounting Practice). Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Group and Parent in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the Parent Company and we remain independent of the Group and the Parent Company in conducting the audit. 142 Renishaw plc Annual Report 2023 ## Conclusions relating to going concern In auditing the financial statements, we have concluded that the Directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the Directors' assessment of the Group and Parent Company's ability to continue to adopt the going concern basis of accounting included the following procedures: - We understood the process undertaken by management to perform the going concern assessment. - We obtained management's going concern assessment, including the cash flow forecasts for the going concern period, which covers the period from approval of the 2023 financial statements through to 30 September 2024. The Group has modelled a base scenario, based on the pessimistic version of the business plan, three 'severe but plausible' downside scenarios linked to the principal risks identified by management reflecting: a significant reduction in revenue; a significant increase in costs; and a combined reduction in profitability. The Group has also modelled a reverse stress test based on liquidity in order to determine how much additional downside in trading could be absorbed before the Group exhausted its cash and cash equivalents and bank deposit balances. - We assessed the appropriateness of the duration of the going concern assessment period to 30 September 2024. - We evaluated the key assumptions underpinning the Group's base case forecast. In particular we compared the revenue growth projections to external industry forecasts and latest economic data for indicators of contradictory information. - We considered the results of management's reverse stress test, assessing whether such a scenario was remote with reference to management's forecasts, the Group's historic trading and other information obtained throughout the audit, such as how the Group has responded to market challenges. - We analysed management's historic revenue and profit forecasting accuracy to obtain support over management's ability to forecast accurately and the reliability of their going concern assessment. - We tested the clerical accuracy of the model used to prepare the Group's going concern assessment and the appropriateness of the model for this purpose; and - We assessed the appropriateness of the Group's disclosures concerning the going concern basis of preparation. We observed that the Group held cash and cash equivalents and bank deposits of £209m and had borrowings of £5m at 30 June 2023 which are not subject to financial covenants. Revenue for FY2023 increased by 2.7% to £689m compared to FY2022 (2022: £671m) and the Group generated a statutory profit before tax of £145m for the year ended 30 June 2023 (2022: £149m). Management's reverse stress test indicated the Group would have to suffer a trading level so low (between 50 and 60% of FY2023 revenue) before it depleted its cash and cash equivalents and bank deposit balances. The Directors feel that the events that could trigger this would be remote. The Directors also concluded that the risk of a one-off cash outflow that would exhaust the Group's cash and cash equivalents and bank deposit balances in the assessment period, was also remote. Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Group and Parent Company's ability to continue as a going concern for the period to 30 September 2024. In relation to the Group and Parent Company's reporting on how they have applied the UK Corporate Governance Code, we have nothing material to add or draw attention to in relation to the Directors' statement in the financial statements about whether the Directors considered it appropriate to adopt the going concern basis of accounting. Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this report. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group's ability to continue as a going concern. ## Overview of our audit approach | Audit scope | We performed an audit of the complete financial information of eight components and audit procedures on specific balances for a further six components. The components where we performed full or specific audit procedures accounted for 96% of adjusted profit before tax (as defined in Note 29 of the financial statements), 88% of Revenue and 93% of Total assets. | | --- | --- | | Key audit matters | Management override via revenue recognition through the posting of manual journals. Valuation of the defined benefit pension liability. | | Materiality | Overall Group materiality of £7.1m which represents 5% of Adjusted profit before tax. | Renistow plc Annual Report 2023 143 Financial statements ## Independent Auditor’s Report to the members of Renishaw plc ## continued An overview of the scope of the Parent Company and Group audits Tailoring the scope Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for each company within the Group. Taken together, this enables us to form an opinion on the consolidated financial statements. We take into account size, risk profile, the organisation of the Group and effectiveness of Group-wide controls, changes in the business environment and other factors such as recent internal audit results when assessing the level of work to be performed ateach company. In assessing the risk of material misstatement to the Group financial statements, and to ensure we had adequate quantitative coverage of significant accounts in the financial statements, of the 54 reporting components of the Group, we selected 14 components covering entities within the UK, Ireland, USA, Japan, Germany, Hong Kong, China, India, France, Italy and South Korea which represent the principal business units within the Group. Of the 14 components selected, we performed an audit of the complete financial information of eight components (“full scope components”) which were selected based on their size or risk characteristics. For the remaining six components (“specific scope components”), we performed audit procedures on specific accounts within that each component that we considered had the potential for the greatest impact on the significant accounts in the financial statements either because of the size of these accounts or their risk profile. The reporting components where we performed audit procedures accounted for 96% (2022: 98%) of the Group’s Adjusted profit before tax, 88% (2022: 88%) of the Group’s Revenue and 93% (2022: 93%) of the Group’s Total assets. For the current year, the full scope components contributed 94% (2022: 94%) of the Group’s Adjusted profit before tax, 79% (2022: 80%) of the Group’s Revenue and 85% (2022: 86%) of the Group’s Total assets. The specific scope components contributed 2% (2022: 4%) of the Group’s Adjusted profit before tax, 9% (2022: 8%) of the Group’s Revenue and 8% (2022: 7%) of the Group’s Total assets. The audit scope of these components may not have included testing of all significant accounts of the component but will have contributed tothe coverage of significant accounts tested for the Group. Of the remaining 40 components that together represent 4% of the Group’s Adjusted profit before tax, none are individually greater than 0.6% of the Group’s Adjusted profit before tax. For these components, we performed other procedures, analytical review of revenue for eight review scope components where revenue exceeded Group performance materiality, aggregated overall analytical review for the remaining components, testing of consolidation journals and intercompany eliminations to respond to any potential risks of material misstatement to the Group financial statements. The charts below illustrate the coverage obtained from the work performed by our audit teams. Full scope components Full scope components Full scope components Specific scope components Specific scope components Specific scope components Adjusted profit before tax Revenue Total assets Other procedures Other procedures Other procedures Changes from the prior year There was no change in our scoping of full scope components as compared to the prior year. Two specific scope components were added, andone specific scope component was removed from our scope, resulting in an increase from five specific scope components inthe prior year to six in the current year. Two review scope components were added and two review scope components were removed from our scope, resulting in a total ofeight review scope components in the current year, consistent with the total number in the prior year. | 144 | Renishaw plc Annual Report 2023 | 94% 79% 85% | | --- | --- | --- | | | | 2% 9% 8% | | | | 12% 4% 7% | Involvementwithcomponentteams In establishing our overall approach to the Group audit, we determined the type of work that needed to be undertaken at each of the components by us, as the primary audit engagement team, or by component auditors from other EY global network firms operating under our instruction. Of the eight full scope components, audit procedures were performed on three of these directly by the primary audit team. Of the six specific scope components, audit procedures were performed on five of these by the primary team. For the five full scope components and one specific scope component, where the work was performed by component auditors, we determined the appropriate level of involvement to enable us to determine that sufficient audit evidence had been obtained as a basis for our opinion on the Group as a whole. The Group audit team continued to follow a programme of planned visits that has been designed to ensure that the Group audit team visits the full scope locations in the Far East in the current year. These locations were last physically visited by the primary team during the 30 June 2019 audit cycle due to travel restrictions caused by the COVID-19 pandemic. Following easing of travel restrictions, during the current year audit cycle, visits were undertaken by the primary audit team to the full scope components in China, Hong Kong and Japan. These visits involved discussing the audit approach with the component team and any issues arising from their work, meeting with local management and, reviewing relevant audit working papers on risk areas. The primary team interacted regularly with the component teams where appropriate during various stages of the audit, reviewed relevant working papers and were responsible for the scope and direction of the audit process. This, together with the additional procedures performed at Group level, gave us appropriate evidence for our opinion on the Group financial statements. Climate change Stakeholders are increasingly interested in how climate change will impact Renishaw plc. The Group has determined that the most significant future impacts from climate change on their operations will be from extreme weather events, technological developments of additive manufacturing and from transition to electric vehicles and increasing carbon taxation. These are explained on pages 72 to 80 in the required Task Force for Climate related Financial Disclosures and on page 57 in the principal risks and uncertainties. They have also explained their climate commitments on pages 68 to 71. All of these disclosures form part of the “Other information,” Financial statements rather than the audited financial statements. Our procedures on these unaudited disclosures therefore consisted solely of considering whether they are materially inconsistent with the financial statements or our knowledge obtained in the course of the audit or otherwise appear to be materially misstated, in line with our responsibilities on “Other information”. In planning and performing our audit we assessed the potential impacts of climate change on the Group’s business and any consequential material impact on its financial statements. The Group has explained in Note 1 to the financial statements on climate change how they have reflected the impact of climate change in their financial statements including how this aligns with their commitment to the aspirations of the Paris Agreement to achieve net zero emissions by 2050. The Group has concluded that climate change did not have a material effect on the accounting judgements and estimates, nor on the carrying value of assets and liabilities for the year ended 30 June 2023, but recognise that climate change may pose a greater risk to the Group over time. Our audit effort in considering the impact of climate change on the financial statements was focused on evaluating management’s assessment of the impact of climate risk, physical and transitional, their climate commitments, the effects of material climate risks disclosed on pages 72 to 80 and the significant judgements and estimates disclosed in Note 1 on asset values, including goodwill, capitalised development costs and deferred tax assets, where these are impacted by future cash flows, and the effect on inventories and right of use assets, and the useful economic lives and residual values of property, plant and equipment following the requirements of the UK-adopted International Accounting Standards. As part of this evaluation, we performed our own risk assessment, supported by our climate change internal specialists, to determine the risks of material misstatement in the financial statements from climate change which needed to be considered in our audit. We also challenged the Directors’ considerations of climate change risks in their assessment of going concern and viability and associated disclosures. Where considerations of climate change were relevant to our assessment of going concern, these are described above. Based on our work we have not identified the impact of climate change on the financial statements to be a key audit matter or to impact a key audit matter. Renishaw plc Annual Report 2023 145 Financial statements ## Independent Auditor’s Report to the members of Renishaw plc ## continued Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due tofraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation ofresources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters. Risk direction Increased risk Decreased risk Stable risk Management override via revenue recognition through the posting of manual journals (2023: £688.6 million, 2022: £671.1 million) Refer to the Accounting policies (page 162); and Note 2 of the Consolidated Financial Statements (page 163) There is an incentive for management to manipulate the revenue recognised through manual journals posted throughout the year, to improve financial performance. We consider that the vast majority of the Group’s revenue transactions are non-complex by nature, with revenue recognised at a point in time with no significant judgement required to be exercised by management. The risk level is consistent with prior year. Our response to the risk We obtained an understanding of the processes and assessed the design and implementation of key controls for each of the material revenue streams. To test the appropriateness of revenue recognition throughout the period, we performed the following audit procedures: – For components contributing 87% of total Group revenue, we used data analytics to analyse 100% of the revenue transactions recorded in the year, testing the correlation between revenue, trade receivables and cash and performing tests of detail over non-correlated transactions. – We verified that cash receipts that correlate to trade receivables are recorded accurately, and relate to revenue, through testing a sample of cash journal entries to cash received during the period and testing a sample of trade receivable balances at year end to debtor confirmations or cash received post year end or evidence of delivery of goods to the customer. – We used data analytics to identify potential instances of management override, by performing searches for: i) manual journals based on the transaction type ii) journals recorded outside of normal working hours iii) journals posted by inappropriate individuals – These journals were then agreed to underlying supporting documentation and business rationale, selecting those exceeding 10% of performance materiality for manual journals. – We performed representative sampling for the one remaining in-scope component where we did not use data analytics, tracing revenue transactions recorded throughout the year to cash receipts. We also performed the same procedures, as listed above, for manual journal entries to test for potential instances of management override. In addressing this key audit matter, audit procedures were performed by a combination of the Primary Team and each of the component audit teams under our supervision. We performed full and specific scope audit procedures over this risk area, which covered 88% of total consolidated Group revenue, of which components contributing 51% of Group revenue were tested by overseas component teams under our supervision. Key observations communicated to the Audit Committee Based on the procedures performed, revenue recognised in the period is appropriate. We noted a strong correlation between revenue, trade receivables and cash across the Group. Our procedures did not identify instances of inappropriate management override across the Group. 146 Renishaw plc Annual Report 2023 ## Valuation of the defined benefit pension liability (2023: £139.0 million, 2022: £174.5 million) ### Refer to the Audit Committee Report (page 108); Accounting policy (page 159); and Note 23 of the Consolidated Financial Statements (page 180) A total defined benefit pension liability of £139.0 million was recognised at 30 June 2023 (2022: £174.5 million) in respect of the Group's schemes, primarily in the UK and Ireland. There is an increased risk of material misstatement due to the size of the liability, the level of judgement involved in estimating the key assumptions to calculate the liability, and the fact that relatively small movements in assumptions can result in a material impact to the financial statements. In the prior year there was increased complexity in accounting for a change to the UK Trust Deed. The risk has decreased in the current year due to this matter not recurring. #### Our response to the risk We obtained an understanding of the processes and assessed the design and implementation of key controls for estimating the defined benefit pension liability. To test the appropriateness of the defined benefit pension liability, our audit procedures included: - Evaluating the competence and objectivity of management's external actuarial specialists. - Assessing the completeness and accuracy of the member data used by the actuaries to estimate the scheme liabilities by testing the clinical accuracy of the member data schedules, checking there were no additions to the participants in the year and performing an analytical review of the year-on-year movements in the data. - Involving EY actuarial specialists as part of our audit team to: i) independently estimate an acceptable range for each of the significant assumptions used in estimating the UK and Irish scheme liabilities, which included the discount rate, rate of inflation, and mortality assumptions. We compared each of the significant assumptions used by management's actuarial specialist to our independent acceptable range. ii) Perform a roll forward of the UK and Irish scheme liabilities from 30 June 2022 to 30 June 2023 and independently reconcile the output to the amounts calculated by management's external actuarial specialist. Evaluating whether the disclosures in the Group financial statements are in accordance with those required by IAS 19. In addressing this key audit matter, audit procedures were performed by the Primary Team. #### Key observations recommended to the Audit Committee We concluded management's external actuarial specialists are competent, the key assumptions used to estimate the defined benefit pension liability are within our acceptable range and the movement in the liability from prior year to current year is reasonable. The disclosures provided in Note 23 to the Group financial statements are in accordance with those required by IAS 19. In the prior year, our auditor's report included a key audit matter in relation to the assessment of hedge effectiveness of forward currency contracts. In the current year, we concluded this risk has decreased due to the maturity in the year of the legacy foreign currency options that were considered ineffective as a cash flow hedge. The remaining financial instruments are less complex, plain vanilla forward currency contracts and do not require significant direction of efforts of the engagement team. Statement of Auditors Renistraw plc Annual Report 2023 147 Financial statements # Independent Auditor's Report to the members of Renishaw plc continued ## Our application of materiality We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit and in forming our audit opinion. ### Materiality The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our audit procedures. We determined materiality for the Group to be £7.1 million (2022: £8.2 million), which is 5% (2022: 5%) of Adjusted profit before tax. We believe that Adjusted profit before tax is the most relevant performance measure to the stakeholders of the Group. Adjusted profit before tax excludes fair value gains and losses on financial instruments that are not eligible for hedge accounting. These instruments are significantly impacted by the volatility in valuation and this is outside the Group's control and is not reflective of the Group's recurring performance. A past service cost arising from the termination of the US pension plan has also been excluded from Adjusted profit before tax, along with an adjustment for the revision of an estimate related to a restructuring provision. We consider these costs to be non-recurring by nature and therefore not reflective of the Group's recurring or underlying performance. We determined materiality for the Parent Company to be £8.9 million (2022: £8.9 million), which is 1% (2022: 1%) of equity. | Starting basis | Statutory profit before tax - £145.1m | | --- | --- | | Adjustments | Adjustments (refer to Note 29) - decrease basis by £4.1m Fair value gain on financial instruments (£5.5m) Pension past service cost £2.1m Revised estimate of restructuring provision (£0.7m) | | Materiality | Total adjusted profit before tax £141.0m Materiality of £7.1m (5% of adjusted profit before tax) | ### Performance materiality The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality. On the basis of our risk assessments, together with our assessment of the Group's overall control environment, our judgement was that performance materiality was 75% (2022: 75%) of our planning materiality, namely £5.3m (2022: £6.2m). We have set performance materiality at this percentage due to the past history of few misstatements indicating a lower risk of misstatement in the financial statements. Audit work at component locations for the purpose of obtaining audit coverage over significant financial statement accounts is undertaken based on a percentage of total performance materiality. The performance materiality set for each component is based on the relative scale and risk of the component to the Group as a whole and our assessment of the risk of misstatement at that component. In the current year, the range of performance materiality allocated to components was £0.4m to £3.3m (2022: £0.4m to £3.7m). ### Reporting threshold An amount below which identified misstatements are considered as being clearly trivial. We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of £0.4m (2022: £0.4m), which is set at 5% of planning materiality, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other relevant qualitative considerations in forming our opinion. 148 Renishaw plc Annual Report 2023 Other information The other information comprises the information included in the Annual Report set out on pages 1 to 210, including the Strategic Report set out on pages 1 to 91, the Directors’ Corporate Governance Report set out on pages 92 to 141, and the Shareholder information set out on pages 209 to 210, other than the financial statements and our auditor’s report thereon. The Directors are responsible for the other information contained within the Annual Report. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in this report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of the other information, we are required to report that fact. We have nothing to report in this regard. Opinions on other matters prescribed by the Companies Act 2006 In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006. In our opinion, based on the work undertaken in the course of the audit:: – the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and – the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements. Financial statements Matters on which we are required to report by exception In the light of the knowledge and understanding of the Group and the Parent Company and its environment obtained in the course of the audit, we have not identified material misstatements in the Strategic Report or the Directors’ Report. We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion: – adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or – the Parent Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or – certain disclosures of Directors’ remuneration specified by law are not made; or – we have not received all the information and explanations we require for our audit. Renishaw plc Annual Report 2023 149 Financial statements ## Independent Auditor’s Report to the members of Renishaw plc ## continued Corporate Governance Statement We have reviewed the Directors’ statement in relation to going concern, longer-term viability and that part of the Corporate Governance Statement relating to the Group and Company’s compliance with the provisions of the UK Corporate Governance Code specified for our review by the Listing Rules. Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance Statement is materially consistent with the financial statements or our knowledge obtained during the audit: – Directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material uncertainties identified set out on page 102; – Directors’ explanation as to its assessment of the Company’s prospects, the period this assessment covers and why the period is appropriate set out on pages 60 and 61; – Director’s statement on whether it has a reasonable expectation that the Group will be able to continue in operation and meets its liabilities set out on pages 60 and 61; – Directors’ statement on fair, balanced and understandable set out on page 139; – Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on pages 48 to 59; – The section of the Annual Report that describes the review of effectiveness of risk management and internal control systems set out on page 102; and – The section describing the work of the Audit Committee set out on pages 108 to 113. Responsibilities of directors As explained more fully in the Directors’ responsibilities statement set out on page 139, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Directors are responsible for assessing the Group and Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so. 150 Renishaw plc Annual Report 2023 Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. Explanationastowhatextenttheauditwasconsideredcapableofdetectingirregularities,includingfraud Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect irregularities, including fraud. The risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below. However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the company and management. – We obtained an understanding of the legal and regulatory frameworks that are applicable to the group and determined that the most significant are those that relate to the reporting framework (UK adopted international accounting standards, FRS 101 and the Companies Act 2006, the UK Corporate Governance Code and the relevant tax compliance regulations in the UK and overseas jurisdictions in which the Group operates. In addition, we concluded that there are certain significant laws and regulations which may have an effect on the determination of the amounts and disclosures in the financial statements being the Listing Rules of the London Stock Exchange, the Bribery Act 2010, Occupational Health and Safety Regulations, General Data Protection Regulation and export controls. Financial statements – We understood how Renishaw plc is complying with those frameworks by reading internal policies and codes of conduct and assessing the entity level control environment, including the level of oversight of those charged with governance. We made enquiries of management, internal audit, the Group’s legal counsel and those responsible for legal and compliance procedures. We corroborated our enquiries through our review of board minutes and papers provided to the Audit Committee and noted that there was no contradictory evidence. – We assessed the susceptibility of the group’s financial statements to material misstatement, including how fraud might occur by considering the programs and controls that the Group has established to address risks identified by the entity, or that otherwise prevent, deter and detect fraud; how senior management monitor those programs and controls, evaluating conditions in the context of incentive and/or pressure to commit fraud, considering the opportunity to commit fraud and the potential rationalisation of the fraudulent act, and by making enquiries of senior management, including the Group Finance Director, Head of Group Finance, Group Internal Audit Manager and Chair of the Audit Committee. We planned our audit to identify risks of management override, tested higher risk journal entries and performed audit procedures to address the potential for management bias, particularly over areas involving significant estimation. Further discussion of our approach to address the identified risks of management override are set out in the key audit matters section of our report. – Based on this understanding we designed our audit procedures to identify non-compliance with such laws and regulations. Our procedures involved: making enquires of management, including the Group’s legal counsel, internal audit and full scope component management, of known instances of non-compliance or suspected non-compliance with laws and regulations; attendance at audit committee meetings; review of committee and board meeting minutes, including board meeting minutes for full scope components to identify any non-compliance with laws and regulations; journal entry testing, with a focus on journals meeting our defined risk criteria based on our understanding of the business; and review of the volume and nature of complaints received by the whistleblowing hotline during the year. Our procedures also included reading investigation reports from management and management’s legal specialist and involving our internal specialists to support our assessment of the conclusions reached in the reports. We also completed procedures to conclude on the compliance of significant disclosures in the Annual Report and Accounts with the requirements of the relevant accounting standards, UK legislation and the UK Corporate Governance Code. – We communicated regularly with the full scope component teams and attended key meetings with the component audit teams and local management in order to identify and communicate any instances of non-compliance with laws and regulations. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. Renishaw plc Annual Report 2023 151 Financial statements ## Independent Auditor’s Report to the members of Renishaw plc ## continued Other matters we are required to address – Following the recommendation from the Audit Committee we were appointed by the Parent Company on 13 October 2016 to audit the financial statements for the year ending 30 June 2017 and subsequent financial periods. – The period of total uninterrupted engagement including previous renewals and reappointments is seven years, covering the years ending 30 June 2017 to 30 June 2023. – The audit opinion is consistent with the additional report to the Audit Committee. Use of our report This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Anup Sodhi (SeniorStatutoryAuditor) for and on behalf of Ernst & Young LLP, Statutory Auditor Luton 18 September 2023 152 Renishaw plc Annual Report 2023 ## Financial statements contents Introduction The Directors are responsible for preparing the Annual Report and the Group and Company financial statements in accordance with applicable law and regulations. The full statement of Directors’ responsibilities can be found on page 139. The notes (forming part of the financial statements) provide additional information required by statute, accounting standards or other regulations to assist in a more detailed understanding of the primary financial statements. | Consolidated financial statements | Company financial statements | | --- | --- | | Primary statements | Primary statements | | 154 Consolidated income statement | 195 Company balance sheet | | 155 Consolidated statement of comprehensive income and expense | 196 Company statement of changes in equity | 156 Consolidated balance sheet Notes to the Company financial statements 157 Consolidated statement of changes in equity 197 C.30. Accounting policies 158 Consolidated statement of cash flow 199 C.31. Property, plant and equipment | Notes (forming part of the financial statements) | 199 C.32. Intangible assets | | | --- | --- | --- | | 159 1. Accounting policies | 200 C.33. Investments in subsidiaries | | | 162 2. Revenue disaggregation and segmental analysis | 200 C.34. Investments in associates and joint ventures | | | 164 3. Employee costs | 200 C.35. Deferred tax | | | 165 4. Cost of sales | 200 C.36. Inventories | | | 165 5. Financial income and expenses | 201 C.37. Trade receivables | | | 166 6. Profit before tax | 201 C.38. Provisions | | | 166 7. Taxation | 201 C.39. Other payables | | | 169 8. Earnings per share | 201 C.40. Employee benefits | Financial statements | | 169 9. Property, plant and equipment | 202 C.41. Share capital | | | 170 10. Right-of-use assets | 203 C.42. Related parties | | | 171 11. Investment properties | 203 C.43. Capital commitments | | | 172 12. Intangible assets | 203 C.44. Subsidiary undertakings | | | 175 13. Investments in joint ventures | 206 C.45. Associated undertakings and joint ventures | | 176 14. Leases (as lessor) 176 15. Cash and cash equivalents and bank deposits 177 16. Inventories 177 17. Provisions 178 18. Contract liabilities 178 19. Other payables 178 20. Borrowings 179 21. Leases (as lessee) 180 22. Changes in liabilities arising from financing activities 180 23. Employee benefits 183 24. Share-based payments 184 25. Financial instruments 190 26. Share capital and reserves 191 27. Capital commitments 192 28. Related parties 193 29. Alternative performance measures Renishaw plc Annual Report 2023 153 Financial statements ## Consolidated income statement for the year ended 30 June 2023 | from continuing operations | notes | 2023 £'000 | 2022 £'000 | | --- | --- | --- | --- | | **Revenue** | 2 | **688,573** | 671,076 | | Cost of sales | 4 | **(337,908)** | (313,527) | | **Gross profit** | | **350,665** | 357,549 | | Distribution costs | | **(137,744)** | (122,455) | | Administrative expenses | | **(74,894)** | (69,736) | | UK defined benefit pension scheme past service cost | 23 | – | (11,695) | | US defined benefit pension scheme past service cost | 23 | **(2,139)** | – | | Losses from the fair value of financial instruments | 25 | **(1,399)** | (10,413) | | **Operating profit** | | **134,489** | 143,250 | | Financial income | 5 | **9,669** | 932 | | Financial expenses | 5 | **(1,861)** | (2,938) | | Share of profits of joint ventures | 13 | **2,768** | 4,342 | | **Profit before tax** | | **145,065** | 145,586 | | Income tax expense | 7 | **(28,963)** | (25,235) | | **Profit for the year** | | **116,102** | 120,351 | | **Profit attributable to:** | | | | | Equity shareholders of the parent company | | **116,102** | 120,351 | | Non-controlling interest | 26 | – | – | | **Profit for the year** | | **116,102** | 120,351 | | | | **pence** | pence | | **Dividend per share arising in respect of the year** | 26 | **76.2** | 72.6 | | **Dividend per share paid in the year** | 26 | **73.4** | 68.0 | | **Earnings per share (basic and diluted)** | 8 | **159.7** | 165.4 | Adjusted profit before tax for the year was £140,983,000 (2022: £163,742,000). See note 29 Alternative performance measures for more details. 154 Rennishaw plc Annual Report 2023 ## Consolidated statement of comprehensive income and expense for the year ended 30 June 2023 | | 2023 €'000 | 2022 €'000 | | --- | --- | --- | | **Profit for the year** | **116,102** | 120,351 | | **Other items recognised directly in equity:** | | | | **Items that will not be reclassified to the Consolidated income statement:** | | | | Current tax on contributions to defined benefit pension schemes | – | 1,653 | | Deferred tax on contributions to defined benefit pension schemes | – | (1,653) | | Remeasurement of defined benefit pension scheme assets/liabilities | 23 | 13,612 | | Deferred tax on remeasurement of defined benefit pension scheme assets/liabilities | | (3,071) | | **Total for items that will not be reclassified** | | 10,541 | | **Items that may be reclassified to the Consolidated income statement:** | | | | Exchange differences in translation of overseas operations | 26 | (8,000) | | Exchange differences in translation of overseas joint venture | 26 | – | | Current tax on translation of net investments in foreign operations | 26 | 313 | | Effective portion of changes in fair value of cash flow hedges, net of recycling | 26 | 23,167 | | Deferred tax on effective portion of changes in fair value of cash flow hedges | 7, 26 | (5,692) | | **Total for items that may be reclassified** | | 9,788 | | **Total other comprehensive income and expense, net of tax** | | 20,329 | | **Total comprehensive income and expense for the year** | | 136,431 | | **Attributable to:** | | | | Equity shareholders of the parent company | | 136,431 | | Non-controlling interest | 26 | – | | **Total comprehensive income and expense for the year** | | 136,431 | Renistraw plc Annual Report 2023 155 Financial statements ## Consolidated balance sheet | | notes | 2023 £'000 | 2022 £'000 | | --- | --- | --- | --- | | **Assets** | | | | | Property, plant and equipment | 9 | **286,085** | 243,853 | | Right-of-use assets | 10 | **8,402** | 9,950 | | Investment properties | 11 | **10,323** | 10,568 | | Intangible assets | 12 | **46,468** | 44,218 | | Investments in joint ventures | 13 | **22,414** | 20,570 | | Finance lease receivables | 14 | **9,935** | 6,961 | | Employee benefits | 23 | **57,416** | 43,241 | | Deferred tax assets | 7 | **19,944** | 22,893 | | Derivatives | 25 | **9,443** | — | | **Total non-current assets** | | **470,430** | 402,254 | | **Current assets** | | | | | Inventories | 16 | **185,757** | 162,482 | | Trade receivables | 25 | **123,427** | 127,551 | | Finance lease receivables | 14 | **3,764** | 3,348 | | Contract assets | | **861** | 578 | | Short-term loans to joint ventures | | **—** | 302 | | Current tax | | **19,558** | 8,901 | | Other receivables | 25 | **27,979** | 27,068 | | Derivatives | 25 | **5,373** | 7,121 | | Bank deposits | 15 | **125,000** | 100,000 | | Cash and cash equivalents | 15, 25 | **81,388** | 153,162 | | **Total current assets** | | **573,107** | 590,513 | | **Current liabilities** | | | | | Trade payables | 25 | **21,551** | 30,947 | | Contract liabilities | 18 | **9,971** | 12,956 | | Current tax | | **7,118** | 10,078 | | Provisions | 17 | **2,758** | 4,244 | | Derivatives | 25 | **5,089** | 17,890 | | Lease liabilities | 21 | **3,009** | 3,714 | | Borrowings | 20 | **4,694** | 919 | | Other payables | 19 | **48,130** | 51,949 | | **Total current liabilities** | | **102,320** | 132,697 | | **Net current assets** | | **470,787** | 457,816 | | **Non-current liabilities** | | | | | Lease liabilities | 21 | **5,624** | 6,466 | | Borrowings | 20 | **—** | 5,160 | | Employee benefits | 23 | **45** | 996 | | Deferred tax liabilities | 7 | **38,770** | 22,815 | | Derivatives | 25 | **120** | 9,463 | | **Total non-current liabilities** | | **44,559** | 44,900 | | **Total assets less total liabilities** | | **896,658** | 815,170 | | **Equity** | | | | | Share capital | 26 | **14,558** | 14,558 | | Share premium | | **42** | 42 | | Own shares held | 26 | **(2,963)** | (750) | | Currency translation reserve | 26 | **6,772** | 14,459 | | Cash flow hedging reserve | 26 | **6,552** | (10,923) | | Retained earnings | | **871,777** | 798,541 | | Other reserve | 26 | **497** | (180) | | **Equity attributable to the shareholders of the parent company** | | **897,235** | 815,747 | | Non-controlling interest | 26 | **(577)** | (577) | | **Total equity** | | **896,658** | 815,170 | These financial statements were approved by the Board of Directors on 18 September 2023 and were signed on its behalf by: Sir David McMurtry Allen Roberts Directors 156**Rennshaw plc**^{}[] Annual Report 2023 ## Consolidated statement of changes in equity ## for the year ended 30 June 2023 | | | | | Own | Currency | | Cash flow | | | | | | Non- | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Share | | Share | shares | translation | | hedging | | Retained | | Other | controlling | | | | | capital | premium | | held | reserve | | | reserve | earnings | | reserve | | interest | Total | | Year ended 30 June 2022 | £’000 | | £’000 | £’000 | | £’000 | | £’000 | | £’000 | £’000 | | £’000 | £’000 | Balance at 1 July 2021 14,558 42 (404) 3,719 11,345 674,603 44 (577) 703,330 Profit for the year − − − − − 120,351 − − 120,351 Other comprehensive income andexpense (net of tax) Remeasurement of defined benefit pension schemeassets/liabilities – – – – – 53,081 – – 53,081 Foreign exchange translation differences – – – 10,622 – – – – 10,622 Relating to joint ventures – – – 118 – – – – 118 Changes in fair value of cash flow hedges – – – – (22,268) – – – (22,268) Total other comprehensive income and expense – – – 10,740 (22,268) 53,081 – – 41,553 Total comprehensive income and expense – – – 10,740 (22,268) 173,432 – – 161,904 Share-based payments charge – – – – – – 180 – 180 Financial statements Own shares transferred on vesting – – 404 – – – (404) – – Own shares purchased – – (750) – – – – – (750) Dividends paid – – – – – (49,494) – – (49,494) Balance at 30 June 2022 14,558 42 (750) 14,459 (10,923) 798,541 (180) (577) 815,170 Year ended 30 June 2023 Profit for the year – – – – – 116,102 – – 116,102 Other comprehensive income andexpense (net of tax) Remeasurement of defined benefit pension schemeassets/liabilities – – – – – 10,541 – – 10,541 Foreign exchange translation differences – – – (7,687) – – – – (7,687) Changes in fair value of cash flow hedges – – – – 17,475 – – – 17,475 Total other comprehensive income and expense – – – (7,687) 17,475 10,541 – – 20,329 Total comprehensive income and expense – – – (7,687) 17,475 126,643 – – 136,431 Share-based payments charge – – – – – – 677 – 677 Own shares purchased – – (2,213) – – – – – (2,213) Dividends paid – – – – – (53,407) – – (53,407) Balance at 30 June 2023 14,558 42 (2,963) 6,772 6,552 871,777 497 (577) 896,658 More details of share capital and reserves are given in note 26. Renishaw plc Annual Report 2023 157 Financial statements ## Consolidated statement of cash flow | | 2023 £'000 | 2022 £'000 | | --- | --- | --- | | **Cash flows from operating activities** | | | | Profit for the year | **116,102** | 120,351 | | Adjustments for: | | | | Depreciation of property, plant and equipment, and investment properties | 9,11 **19,882** | 25,898 | | Loss on sale of property, plant and equipment | 9 **155** | 157 | | Impairment of property, plant and equipment | 9 **-** | 1,259 | | Depreciation of right-of-use assets | 10 **4,223** | 4,205 | | Impairment of right-of-use assets | - | 1,837 | | Amortisation of development costs | 12 **5,150** | 4,698 | | Amortisation of other intangibles | 12 **1,012** | 1,225 | | Impairment of development costs | 12 **1,611** | - | | Write-off of intangible assets | - | 3,510 | | Loss on disposal of intangible assets | **550** | - | | Share of profits from joint ventures | 13 **(2,768)** | (4,342) | | Profit on disposal of investment in associate | - | (562) | | Write-off of lease liabilities | - | (1,985) | | Defined benefit pension schemes past service cost | 23 **2,437** | 11,695 | | Financial income | 5 **(9,669)** | (932) | | Financial expenses | 5 **1,861** | 2,938 | | (Gains)/losses from the fair value of financial instruments | 25 **(5,504)** | 8,349 | | Share-based payment expense | 24 **677** | 180 | | Tax expense | 7 **28,963** | 25,235 | | | **48,580** | 83,345 | | Increase in inventories | **(23,275)** | (48,919) | | Increase in trade, finance lease and other receivables | **(12,379)** | (11,301) | | (Decrease)/increase in trade and other payables | **(15,013)** | 12,288 | | Decrease in provisions | **(1,486)** | (2,015) | | | **(52,153)** | (49,947) | | Defined benefit pension scheme contributions | 23 **(2,341)** | (8,866) | | Income taxes paid | **(25,891)** | (23,410) | | **Cash flows from operating activities** | **84,287** | 121,473 | | **Investing activities** | | | | Purchase of property, plant and equipment, and investment properties | 9,11 **(74,024)** | (30,960) | | Sale of property, plant and equipment | 7,948 | 687 | | Development costs capitalised | 12 **(10,448)** | (7,966) | | Purchase of other intangibles | 12 **(379)** | (829) | | (Increase)/decrease in bank deposits | 15 **(25,000)** | 20,000 | | Interest received | 5 **6,302** | 834 | | Dividends received from joint ventures | 13 **924** | 525 | | Proceeds from sale of shares in associate | - | 582 | | Payments from pension scheme cash escrow account | - | 10,578 | | **Cash flows from investing activities** | **(94,677)** | (6,649) | | **Financing activities** | | | | Repayment of borrowings | 20 **(914)** | (974) | | Interest paid | 5 **(656)** | (591) | | Repayment of principal of lease liabilities | 22 **(4,206)** | (4,081) | | Own shares purchased | 26 **(2,213)** | (750) | | Dividends paid | 26 **(53,407)** | (49,494) | | **Cash flows from financing activities** | **(61,396)** | (55,890) | | **Net (decrease)/increase in cash and cash equivalents** | **(71,776)** | 58,934 | | Cash and cash equivalents at the beginning of the year | **153,162** | 95,008 | | Effect of exchange rate fluctuations on cash held | 2 | (780) | | **Cash and cash equivalents at the end of the year** | **15 **81,388**** | 153,162 | 158**Rennshaw plc**^{}[] Annual Report 2023 Financial statements Renishaw plc Annual Report 2023 159 Notes (forming part of the consolidated financial statements) 1. Accounting policies This section sets out our significant accounting policies that relate to the financial statements as a whole, along with the critical accounting judgements and estimates that management has identified as having a potentially material impact on the Group’s consolidated financial statements. Where an accounting policy is applicable to a specific note in the financial statements, the policy is described within that note. Basis of preparation Renishaw plc (the Company) is a company incorporated in England and Wales. The Group financial statements consolidate those of the Company and its subsidiaries (together referred to as the Group, and ‘we’) and equity account the Group’s interest in joint ventures. The parent company financial statements present information about the Company as a separate entity and not about the Group. The Group financial statements have been prepared and approved by the Directors in accordance with UK-adopted International Accounting Standards (IAS). The parent company financial statements have been prepared in accordance with Financial Reporting Standard 101 ‘Reduced Disclosure Framework’. The consolidated financial statements are presented in Sterling, which is the Company’s functional currency and the Group’s presentational currency, and all values are rounded to the nearest thousand (£’000). The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these Group financial statements. Judgements made by the Directors, in the application of these accounting policies, that have a significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are noted on page 161. Basis of consolidation Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to or has rights to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. In assessing control, the Group takes into consideration potential voting rights that are exercisable. The acquisition date is the date on which control is transferred to the acquirer. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Losses applicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interests even if doing so causes the non-controlling interests to have a deficit balance. Joint ventures are accounted for using the equity method (equity-accounted investees) and are initially recognised at cost. The Group’s investment includes goodwill identified on acquisition, net of any accumulated impairment losses. The consolidated financial statements include the Group’s share of the total comprehensive income and equity movements of equity accounted investees, from the date that significant influence commences until the date that significant influence ceases. When the Group’s share of losses exceeds its interest in an equity accounted investee, the Group’s carrying amount is reduced to nil and recognition of further losses is discontinued (except to the extent that the Group has incurred legal obligations or made payments on behalf of an investee). Intragroup balances and transactions, and any unrealised income and expenses arising from intragroup transactions, are eliminated on consolidation. Unrealised gains arising from transactions with equity accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. Foreign currencies On consolidation, overseas subsidiaries’ results are translated into Sterling at weighted average exchange rates for the year by translating each overseas subsidiary’s monthly results at exchange rates applicable to each of the respective months. Assets and liabilities denominated in foreign currencies at the balance sheet date are translated into Sterling at the foreign exchange rates prevailing at that date. Differences on exchange resulting from the translation of overseas assets and liabilities are recognised in Other comprehensive income and are accumulated in equity. Monetary assets and liabilities denominated in foreign currencies are reported at the rates prevailing at the time, with any gain or loss arising from subsequent exchange rate movements being included as an exchange gain or loss in the Consolidated income statement. Foreign currency differences arising from transactions are recognised in the Consolidated income statement. Financial statements # Notes continued ## 1. Accounting policies continued ### New, revised or changes to existing accounting standards The following accounting standard amendments became effective as at 1 January 2022 and have been adopted in the preparation of these financial statements, with effect from 1 July 2022: - amendments to IFRS 3, References to the Conceptual Framework; - amendments to IAS 16, Property, Plant and Equipment - Proceeds before Intended Use; and - amendments to IAS 37, Onenous Contracts - Costs of Fulfilling a Contract. These have not had a material effect on these financial statements. At the date of these financial statements, the following amendments that are potentially relevant to the Group, and which have not been applied in these financial statements, were in issue but not yet effective: - amendments to IAS 1, Classification of Liabilities as Current or Non-current (not yet endorsed by the UK); - amendments to IAS 1 and IFRS Practice Statement 2, Disclosure of Accounting Policies; - amendments to IAS 7, Statement of Cash Flows and IFRS 7 Financial Instruments: Disclosures (not yet endorsed by the UK); - amendments to IAS 8, Definition of Accounting Estimates; - amendments to IAS 12, International Tax Reform Pillar Two Model Rules; - amendments to IAS 12, Deferred Tax related to Assets and Liabilities arising from a Single Transaction; and - amendments to IFRS 16, Lease Liability in a Sale and Leaseback. The adoption of these Standards and Interpretations in future periods is not expected to have a material impact on the financial statements of the Group. The Finance (No 2) Bill 2023, that includes Pillar Two legislation, was substantively enacted on 20 June 2023 for IFRS purposes. As permitted by the amendments to IAS 12 International Tax Reform Pillar Two Model Rules the Group has applied the exemption from recognising and disclosing information about deferred tax assets and liabilities related to Pillar Two income taxes. ### Alternative performance measures The financial statements are prepared in accordance with adopted IFRS and applied in accordance with the provisions of the Companies Act 2006. In measuring our performance, the financial measures that we use include those which have been derived from our reported results, to eliminate factors which distort year-on-year comparisons. These are considered non-GAAP financial measures. We believe this information, along with comparable GAAP measurements, is useful to stakeholders in providing a basis for measuring our operational performance. The Board use these financial measures, along with the most directly comparable GAAP financial measures, in evaluating our performance (see note 29). ### Separately disclosed items The Directors consider that certain items should be separately disclosed to aid understanding of the Group's performance. Gains and losses from the fair value of financial instruments are therefore separately disclosed in the Consolidated income statement, where these gains and losses relate to certain forward currency contracts that are not effective for hedge accounting. Restructuring costs are also separately disclosed where significant costs have been incurred in rationalising and reorganising our business as part of a Board-approved initiative, and relate to matters that do not frequently recur. During the period, a change to the US defined benefit pension scheme rules, per note 23, resulted in a significant non-recurring amount being recognised in the Consolidated income statement. In the previous period, a change to the UK defined benefit pension scheme rules resulted in a significant non-recurring amount being recognised in the Consolidated income statement. These have also been separately disclosed. These items are also excluded from Adjusted profit before tax, Adjusted operating profit and Adjusted earnings per share measures, as explained in note 29 Alternative performance measures. 160 Rensselaer plc Annual Report 2023 ## 1. Accounting policies continued ### Critical accounting judgements and estimation uncertainties The preparation of financial statements in conformity with UK-adopted IAS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and other factors that are believed to be reasonable under the circumstances. The results of this form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may therefore differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. The areas of key estimation uncertainty and critical accounting judgement that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities in the next financial year are summarised below, with further details included within accounting policies as indicated. | Item | Key judgements (J) and estimates (E) | Page | | --- | --- | --- | | Taxation | E – Estimates of future profits to use deferred tax assets | 166 | | Research and development costs | J – Whether a project meets the criteria for capitalisation | 172 | | Goodwill and capitalised development costs | E – Estimates of future cash flows for impairment testing | 172 | | Inventories | E – Determination of net realisable value | 177 | | Defined benefit pension schemes | E – Valuation of defined benefit pension schemes' liabilities | 180 | | Cash flow hedges | E – Estimates of highly probable forecasts of the hedged item | 184 | ### Climate change We have considered the potential effect of physical and transitional climate change risks when preparing these consolidated financial statements and have also considered the effect of our own Net Zero commitments. Our consideration of the potential effect of climate change on these consolidated financial statements included reviewing: - discounted cashflow forecasts, used in accounting for goodwill, capitalised development costs, and deferred tax assets; - useful economic lives and residual values of property, plant and equipment; - planned use of right-of-use assets; and - expected demand for inventories. We also considered the estimated capital expenditure needed in the next five years to deliver our Net Zero plan. Overall, we do not believe that climate change has a material effect on our accounting judgements and estimates, nor in the carrying value of assets and liabilities in the consolidated financial statements for the year ended 30 June 2023. We will continue to review the effect of climate change on financial statements in the future, and update our accounting and disclosures as the position changes. ### Going concern In preparing these financial statements, the Directors have adopted the going concern basis. The decision to adopt the going concern basis was made after considering: - the Group's business model and key markets, as set out on pages 20 to 21 and 32 to 33 respectively; - the Group's risk management processes and principal risks, disclosed on pages 48 – 59; - the Group's financial resources and strategies (pages 62 – 84); and - the process undertaken to review the Group's viability, including scenario testing, as set out on pages 60 – 61. The financial models for the viability review were based on the pessimistic version of the five-year business plan, but covering a period to 30 September 2026. For context, revenue in the first year of this pessimistic base scenario is similar to FY2023 revenue of £688.6m, while costs and other cash outflows still reflect ambitious growth plans. In the going concern assessment, the Directors reviewed the same version of the plan but to 30 September 2024, as well as the 'severe but plausible' scenarios used in the viability review, again to 30 September 2024. These scenarios reflected a significant reduction in revenue, a significant increase in costs, and a third scenario incorporating both a reduction to revenue and an increase in costs but to a less degree than the first two scenarios. In each scenario the Group's cash balances remained positive throughout the period to 30 September 2024. The Directors also reviewed a reverse stress test for the period to 30 September 2024, identifying what would need to happen in this period for the Group to deplete its cash and cash equivalents and bank deposit balances. This identified a trading level so low (between 50 and 60% of FY2023 revenue) that the Directors feel that the events that could trigger this would be remote. The Directors also concluded that the risk of a one-off cash outflow that would exhaust the Group's cash and cash equivalents and bank deposits balances in the assessment period was also remote. Based on this assessment, incorporating a review of the current position, the scenarios, the principal risks and mitigation, the Directors have a reasonable expectation that the Group will be able to continue operating and meet its liabilities as they fall due over the period to 30 September 2024. Renistraw plc Annual Report 2023 161 Financial statements ## Notes continued 162 Renishaw plc Annual Report 2023 2. Revenue disaggregation and segmental analysis We manage our business by segment, comprising Manufacturing technologies and Analytical instruments and medical devices, and by geographical region. The results of these segments and regions are regularly reviewed by the Board to assess performance and allocate resources, and are presented in this note. Accounting policy The Group generates revenue from the sale of goods, capital equipment and services. These can be sold both on their own and together. a) Sale of goods, capital equipment and services The Group’s contracts with customers consist both of contracts with one performance obligation and contracts with multiple performance obligations. For contracts with one performance obligation, revenue is measured at the transaction price, which is typically the contract value except for customers entitled to volume rebates, and recognised at the point in time when control of the product transfers to the customer. This point in time is typically when the products are made available for collection by the customer, collected by the shipping agent, or delivered to the customer, depending upon the shipping terms applied to the specific contract. Contracts with multiple performance obligations typically exist where, in addition to supplying products, we also supply services such as user training, servicing and maintenance, and installation. Where the installation service is simple, does not include a significant integration service and could be performed by another party then the installation is accounted for as a separate performance obligation. Where the contracts include multiple performance obligations, the transaction price is allocated to each performance obligation based on the relative stand-alone selling prices. The revenue allocated to each performance obligation is then recognised when, or as, that performance obligation is satisfied. For installation, this is typically at the point in time in which installation is complete. For training, this is typically the point in time at which training is delivered. For servicing and maintenance, the revenue is recognised evenly over the course of the servicing agreement except for ad-hoc servicing and maintenance which is recognised at the point in time in which the work is undertaken. b) Sale of software The Group provides software licences and software maintenance to customers, sold both on their own and together with associated products. For software licences, where the licence and/or maintenance is provided as part of a contract that provides customers with software licences and other goods and services then the transaction price is allocated on the same basis as described in a) above. The Group’s distinct software licences provide a right of use, and therefore revenue from software licences is recognised at the point in time in which the licence is supplied to the customer. Revenue from software maintenance is recognised evenly over the term of the maintenance agreement. c) Extended warranties The Group provides standard warranties to customers that address potential latent defects that existed at point of sale and as required by law (assurance-type warranties). In some contracts, the Group also provides warranties that extend beyond the standard warranty period and may be sold to the customer (service-type warranties). Assurance-type warranties are accounted for by the Group under IAS 37 ‘Provisions, Contingent Liabilities and Contingent Assets’. Service-type warranties are accounted for as separate performance obligations and therefore a portion of the transaction price is allocated to this element, and then recognised evenly over the period in which the service is provided. d) Contract balances Contract assets represent the Group’s right to consideration in exchange for goods, capital equipment and/or services that have been transferred to a customer, and mainly includes accrued revenue in respect of goods and services provided to a customer but not yet fully billed. Contract assets are distinct from receivables, which represent the Group’s right to consideration that is unconditional. Contract liabilities represent the Group’s obligation to transfer goods, capital equipment and/or services to a customer for which the Group has either received consideration or consideration is due from the customer. e) Disaggregation of revenue The Group disaggregates revenue from contracts with customers between: goods, capital equipment and installation, and aftermarket services; operating segment; and geographical location. Management believe these categories best depict how the nature, amount, timing and uncertainty of the Group’s revenue is affected by economic factors. ## 2. Revenue disaggregation and segmental analysis continued Within the two operating segments there are multiple product offerings with similar economic characteristics, similar production processes and similar customer bases. Our Manufacturing technologies business consists of industrial metrology, position measurement and additive manufacturing (AM) product groups, while our Analytical instruments and medical devices business consists of spectroscopy and neurological product lines. More details of the Group's products and services are given in the Strategic Report. | Year ended 30 June 2023 | Manufacturing technologies €'000 | Analytical instruments and medical devices €'000 | Total €'000 | | --- | --- | --- | --- | | Revenue | 648,240 | 40,333 | 688,573 | | Depreciation, amortisation and impairment | 28,431 | 3,447 | 31,878 | | Operating profit before losses from fair value of financial instruments and US defined benefit pension scheme past service cost | 132,843 | 5,184 | 138,027 | | Share of profits of joint ventures | 2,768 | – | 2,768 | | Net financial income/(expense) | – | – | 7,808 | | US defined benefit pension scheme past service cost | – | – | (2,139) | | Losses from the fair value of financial instruments | – | – | (1,399) | | Profit before tax | – | – | **145,065** | | Year ended 30 June 2022 | Manufacturing technologies €'000 | Analytical instruments and medical devices €'000 | Total €'000 | | --- | --- | --- | --- | | Revenue | 634,588 | 36,488 | 671,076 | | Depreciation, amortisation and impairment | 36,552 | 2,570 | 39,122 | | Operating profit before losses from fair value of financial instruments and UK defined benefit pension scheme past service cost | 162,549 | 2,809 | 165,358 | | Share of profits of joint ventures | 4,342 | – | 4,342 | | Net financial income/(expense) | – | – | (2,006) | | UK defined benefit pension scheme past service cost | – | – | (11,695) | | Losses from the fair value of financial instruments | – | – | (10,413) | | Profit before tax | – | – | 145,586 | There is no allocation of assets and liabilities to operating segments. Depreciation, amortisation and impairments are allocated to segments on the basis of the level of activity. The following table shows the analysis of non-current assets, excluding deferred tax, derivatives and employee benefits, by geographical region: | | 2023 €'000 | 2022 €'000 | | --- | --- | --- | | UK | **231,619** | 181,530 | | Overseas | **152,008** | 155,725 | | Total non-current assets | **383,627** | 337,255 | No overseas country had non-current assets amounting to 10% or more of the Group's total non-current assets. The following table shows the disaggregation of Group revenue by category: | | 2023 €'000 | 2022 €'000 | | --- | --- | --- | | Goods, capital equipment and installation | **624,992** | 615,641 | | Aftermarket services | **63,581** | 55,435 | | Total Group revenue | **688,573** | 671,076 | Aftermarket services include repairs, maintenance and servicing, programming, training, extended warranties, and software licences and maintenance. There is no significant difference between our two operating segments as to their split of revenue by type. Summary of Results Renssnew plc Annual Report 2023 163 Financial statements # Notes continued ## 2. Revenue disaggregation and segmental analysis continued The analysis of revenue by geographical market was: | | 2023 £'000 | 2022 £'000 | | --- | --- | --- | | APAC total | 310,637 | 317,623 | | UK (country of domicile) | 38,899 | 31,538 | | EMEA, excluding UK | 177,582 | 174,290 | | EMEA total | 216,481 | 205,820 | | Americas total | 161,455 | 148,227 | | Total Group revenue | 688,573 | 671,076 | Revenue in the previous table has been allocated to regions based on the geographical location of the customer. Countries with individually significant revenue figures in the context of the Group were: | | 2023 £'000 | 2022 £'000 | | --- | --- | --- | | China | 155,360 | 152,772 | | USA | 138,721 | 128,531 | | Japan | 67,915 | 69,829 | | Germany | 61,565 | 58,636 | There was no revenue from transactions with a single external customer which amounted to more than 10% of the Group's total revenue. ## 3. Employee costs The remuneration costs of our people account for a significant proportion of our total expenditure, which are analysed in this note. The aggregate employee costs for the year were: | | 2023 £'000 | 2022 £'000 | | --- | --- | --- | | Wages and salaries | 226,126 | 207,783 | | Compulsory social security contributions | 26,579 | 24,497 | | Contributions to defined contribution pension schemes | 26,142 | 21,988 | | Share-based payment charge | 677 | 180 | | Total payroll costs | 279,524 | 254,448 | Wages and salaries and compulsory social security contributions include £11,338,000 (2022: £17,914,000) relating to performance bonuses. The average number of people employed by the Group during the year was: | | 2023 Number | 2022 Number | | --- | --- | --- | | UK | 3,332 | 3,132 | | Overseas | 1,804 | 1,799 | | Average number of employees | 5,136 | 4,931 | Key management personnel have been assessed to be the Directors of the Company and the Senior Leadership Team (SLT), which includes an average of 21 people (2022: 21 people). The total remuneration of the Directors and the SLT was: | | 2023 £'000 | 2022 restated* £'000 | 2022 £'000 | | --- | --- | --- | --- | | Short-term employee benefits | 5,659 | 8,061 | 3,763 | | Post-employment benefits | 511 | 444 | 121 | | Share-based payment charge | 677 | 180 | 180 | | Total remuneration of key management personnel | 6,847 | 8,685 | 4,064 | Short-term employee benefits include nil (2022: £2,791,000) relating to performance bonuses payable in cash. The share-based payment charge relates to share awards granted in previous years, not yet vested. No shares (2022: £1,915,000 equivalent) are to be awarded in respect of 2023 (see note 24). Further details of Directors' remuneration are given in the Directors' Remuneration Report. * The assessment of key management personnel was updated during the year to include the SLT, who are, along with the Directors, deemed to have authority and responsibility for planning, directing and controlling the activities of the Renishaw Group. This also follows the expansion of the deferred annual equity incentive plan (DAEIP) to include the SLT, as explained in the Governance section. Accordingly, 2022 figures have been restated. 164 Renishaw plc Annual Report 2023 #### 4. Cost of sales Our cost of sales includes the costs to manufacture our products and our engineering spend on existing and new products, net of capitalisation and research and development tax credits. Included in cost of sales are the following amounts: | | 2023 £'000 | 2022 £'000 | | --- | --- | --- | | Production costs | 247,665 | 234,919 | | Research and development expenditure | 72,500 | 59,415 | | Other engineering expenditure | 28,063 | 26,356 | | Gross engineering expenditure | 100,563 | 85,771 | | Development expenditure capitalised (net of amortisation) | (5,298) | (3,268) | | Development expenditure impaired | 1,611 | – | | Research and development tax credit | (6,633) | (3,895) | | Total engineering costs | 90,243 | 78,608 | | Total cost of sales | 337,908 | 313,527 | Production costs includes the raw material and component costs, payroll costs and sub-contract costs, and allocated overheads associated with manufacturing our products. Research and development expenditure includes the payroll costs, material costs and allocated overheads attributed to projects identified as relating to new products or processes. Other engineering expenditure includes the payroll costs, material costs and allocated overheads attributed to projects identified as relating to existing products or processes. #### 5. Financial income and expenses Financial income mainly arises from bank interest on our deposits. We are also exposed to realised currency gains and losses on translation of foreign currency denominated intragroup balances and offsetting financial instruments. Included in financial income and expenses are the following amounts: | Financial income | Notes | 2023 £'000 | 2022 £'000 | | --- | --- | --- | --- | | Bank interest receivable | | 6,302 | 834 | | Interest on pension schemes' assets | 23 | 1,639 | – | | Fair value gains from one-month forward currency contracts | 25 | 1,728 | 98 | | Total financial income | | 9,669 | 932 | | Financial expenses | Notes | 2023 £'000 | 2022 £'000 | | --- | --- | --- | --- | | Interest on pension schemes' liabilities | 23 | 29 | 306 | | Currency losses | | 1,130 | 1,414 | | Lease interest | 21 | 348 | 481 | | Interest payable on borrowings | 20 | 46 | 52 | | Other interest payable | | 308 | 110 | | Realised currency reserve losses from discontinuation of foreign operation | | – | 575 | | Total financial expenses | | 1,861 | 2,938 | Currency losses relate to revaluations of foreign currency-denominated balances using latest reporting currency exchange rates. The losses recognised in 2022 and 2023 largely related to an appreciation of Sterling relative to the US dollar affecting US dollar-denominated intragroup balances in the Company. Certain intragroup balances are classified as 'net investments in foreign operations', such that revaluations from currency movements on designated balances accumulate in the Currency translation reserve in Equity. Rolling one-month forward currency contracts are used to offset currency movements on remaining intragroup balances, with fair value gains and losses being recognised in financial income or expenses. See note 25 for further details. Financial Summary Renshaw plc Annual Report 2023 165 Financial statements # Notes continued ## 6. Profit before tax Detailed below are other notable amounts recognised in the Consolidated income statement Included in the profit before tax are the following costs/(income): | | notes | 2023 £'000 | 2022 £'000 | | --- | --- | --- | --- | | Depreciation and impairment of property, plant and equipment, and investment properties (a) | 9, 11 | **19,882** | 27, 157 | | Loss on sale of property, plant and equipment (a) | 9 | **155** | 157 | | Depreciation and impairment of right-of-use assets (a) | 10 | **4,223** | 6, 042 | | Amortisation, impairment and write-off of intangible assets (a) | 12 | **7,773** | 5, 923 | | Profit from sale of shares in associate (c) | | – | 582 | | Impairment of net assets of foreign operation (b) | | – | 2, 126 | | Grant income (a) | | **(3,017)** | (2, 840) | These costs/(income) can be found under the following headings in the Consolidated income statement: (a) within cost of sales, distribution costs and administrative expenses, (b) within distribution costs, and (c) within administrative expenses. Further detail on each element can be found in the relevant notes. Grant income relates to government grants, relating to R&D activities, which are recognised in the Consolidated income statement as a deduction against expenditure. Where grants are received in advance of the related expenses, they are initially recognised in the Consolidated balance sheet and released to match the related expenditure. Where grants are expected to be received after the related expenditure has occurred, and there is reasonable assurance that the entity will comply with the grant conditions, amounts are recognised to offset the expenditure and an asset recognised. Costs within Administrative expenses relating to auditor fees included: | | 2023 £'000 | 2022 £'000 | | --- | --- | --- | | Audit of these financial statements | **707** | 718 | | Audit of subsidiary undertakings pursuant to legislation | **576** | 526 | | Other assurance | **6** | 32 | | All other non-audit fees | – | – | | Total auditor fees | **1,289** | 1,276 | ## 7. Taxation The Group tax charge is affected by our geographic mix of profits and other factors explained in this note. Our expected future tax charges and related tax assets are also set out in the deferred tax section, together with our view on whether we will be able to make use of these in the future. ### Accounting policy Tax on the profit for the year comprises current and deferred tax. Tax is recognised in the Consolidated income statement except to the extent that it relates to items recognised directly in Other comprehensive income, in which case it is recognised in the Consolidated statement of comprehensive income and expense. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in previous years. Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: - the initial recognition of goodwill; - the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination; and - differences relating to investments in subsidiaries, to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. **Key estimate – Estimates of future profits to support the recognition of deferred tax assets** Deferred tax assets are recognised to the extent it is probable that future taxable profits (including the future release of deferred tax liabilities) will be available, against which the deductible temporary differences can be used, based on management's assumptions relating to the amounts and timing of future taxable profits. Estimates of future profitability on an entity basis are required to ascertain whether it is probable that sufficient taxable profits will arise to support the recognition of deferred tax assets relating to the corresponding entity. 166 Rentschweijks Annual Report 2023 ## 7. Taxation continued The following table shows an analysis of the tax charge: | | 2023 £'000 | 2022 £'000 | | --- | --- | --- | | **Current tax:** | | | | UK corporation tax on profits for the year | 5,814 | 9,288 | | UK corporation tax – prior year adjustments | (1,307) | (28) | | Overseas tax on profits for the year | 14,161 | 16,734 | | Overseas tax – prior year adjustments | 291 | (176) | | Total current tax | 18,959 | 25,818 | | **Deferred tax:** | | | | Origination and reversal of temporary differences | 9,140 | (1,372) | | Prior year adjustments | (1,052) | 166 | | Derecognition of previously recognised tax losses and excess interest | 439 | 623 | | Recognition of previously unrecognised tax losses and excess interest | (591) | – | | Effect on deferred tax of changes in tax rates | 2,068 | – | | | 10,004 | (583) | | Tax charge on profit | 28,963 | 25,235 | The tax for the year is lower (2022: lower) than the weighted UK standard rate of corporation tax of 20.5% (2022: 19%); | | 2023 £'000 | 2022 £'000 | | --- | --- | --- | | Profit before tax | 145,065 | 145,586 | | Tax at 20.5% (2022: 19.0%) | 29,738 | 27,661 | | Effects of: | | | | Different tax rates applicable in overseas subsidiaries | (1,695) | (1,834) | | Permanent differences | 1,595 | 978 | | Companies with unrelieved tax losses | 292 | – | | Share of profits of joint ventures | (567) | (825) | | Tax incentives (patent box and capital allowances super-deduction) | (679) | (1,400) | | Prior year adjustments | (2,068) | (38) | | Effect on deferred tax of changes in tax rates | 2,068 | – | | Recognition of previously unrecognised tax losses and excess interest | (591) | – | | Derecognition of previously recognised tax losses and excess interest | 439 | 623 | | Irrecoverable withholding tax | 609 | 2 | | Other differences | (178) | 68 | | Tax charge on profit | 28,963 | 25,235 | | Effective tax rate | 20.0% | 17.3% | We operate in many countries around the world and the overall effective tax rate (ETR) is a result of the combination of the varying tax rates applicable throughout these countries. The FY2023 effective tax rate has increased mostly as a result of a reduction in patent box tax incentives and an increase in the UK tax rate from 19% to 25%. The Group's future ETR will mainly depend on the geographic mix of profits and whether there are any changes to tax legislation in the Group's most significant countries of operations. ### Deferred tax Deferred tax assets and liabilities are offset where there is a legally enforceable right of offset and there is an intention to net settle the balances. After taking these offsets into account, the net position of £18,826,000 liability (2022: £78,000 asset) is presented as a £19,944,000 deferred tax asset (2022: £22,893,000 asset) and a £38,770,000 deferred tax liability (2022: £22,815,000 liability) in the Consolidated balance sheet. Where deferred tax assets are recognised, the Directors are of the opinion, based on recent and forecast trading, that the level of profits in current and future years make it more likely than not that these assets will be recovered. Renistraw plc Annual Report 2023 167 Financial statements # Notes continued ## 7. Taxation continued Deferred tax balances at the end of the year were: | | 2023 | | | 2022 | | | | --- | --- | --- | --- | --- | --- | --- | | | Assets €'000 | Liabilities €'000 | Net €'000 | Assets €'000 | Liabilities €'000 | Net €'000 | | Property, plant and equipment | 735 | (25,124) | (24,389) | 517 | (19,966) | (19,449) | | Intangible assets | – | (3,922) | (3,922) | – | (2,980) | (2,980) | | Intragroup trading (inventories) | 16,765 | – | 16,765 | 20,158 | – | 20,158 | | Intragroup trading (fixed assets) | 1,770 | – | 1,770 | 1,457 | – | 1,457 | | Defined benefit pension schemes | 6 | (14,354) | (14,348) | 125 | (11,173) | (11,048) | | Derivatives | – | (2,184) | (2,184) | 3,508 | – | 3,508 | | Tax losses | 2,281 | – | 2,281 | 3,893 | – | 3,893 | | Other | 5,894 | (693) | 5,201 | 4,993 | (414) | 4,539 | | Balance at the end of the year | 27,451 | (46,277) | (18,826) | 34,611 | (34,533) | 78 | Other deferred tax assets include temporary differences relating to inventory provisions totalling £2,256,000 (2022: £1,774,000), other provisions (including bad debt provisions) of £913,000 (2022: £975,000), and employee benefits relating to Renshaw KK of £806,000 (2022: £853,000), with the remaining balance relating to several other smaller temporary differences. The movements in the deferred tax balance during the year were: | | 2023 €'000 | 2022 €'000 | | --- | --- | --- | | Balance at the beginning of the year | 78 | 10,890 | | Movements in the Consolidated income statement | (10,004) | 583 | | Movement in relation to the cash flow hedging reserve | (5,692) | 6,155 | | Movement in relation to the defined benefit pension scheme liabilities | (3,071) | (17,650) | | Movements in the Consolidated statement of comprehensive income and expense | (8,763) | (11,495) | | Currency translation | (137) | 100 | | Balance at the end of the year | (18,826) | 78 | The deferred tax movement in the Consolidated income statement is analysed as: | | 2023 €'000 | 2022 €'000 | | --- | --- | --- | | Property, plant and equipment | (4,940) | (2,328) | | Intangible assets | (942) | (371) | | Intragroup trading (inventories) | (3,393) | 5,619 | | Intragroup trading (fixed assets) | 313 | 205 | | Defined benefit pension schemes | (229) | 2,255 | | Derivatives | – | 284 | | Tax losses | (1,612) | (4,472) | | Other | 799 | (609) | | Total movement for the year | (10,004) | 583 | Deferred tax assets of £2,281,000 (2022: £3,899,000) in respect of losses are recognised where it is considered likely that the business will generate sufficient future taxable profits. Deferred tax assets have not been recognised in respect of tax losses carried forward of £6,563,000 (2022: £4,815,000), due to uncertainty over their offset against future taxable profits and therefore their recoverability. These losses are held by Group companies in France, Brazil, Australia, Canada and the US, where for 97% of losses there are no time limitations on their utilisation. In determining profit forecasts for each Group company, the key variable is the revenue forecasts, which have been estimated using consistently applied external and internal data sources. Sensitivity analysis indicates that a reduction of 5% to relevant revenue forecasts would result in an impairment to deferred tax assets recognised in respect of losses and intragroup trading (inventories) of less than £300,000. An increase of 5% to relevant revenue forecasts would result in additions to deferred tax assets in respect of tax losses not recognised of less than £200,000. It is likely that the majority of unremitted earnings of overseas subsidiaries would qualify for the UK dividend exemption. However, £65,555,000 (2022: £61,204,000) of those earnings may still result in a tax liability principally as a result of withholding taxes levied by the overseas jurisdictions in which those subsidiaries operate. The tax liabilities for the earnings for which management intend to repatriate in the foreseeable future are not material and consequently no deferred tax liability has been recognised. 168 Renshaw plc Annual Report 2023 ## 8. Earnings per share Basic earnings per share is the amount of profit generated in a financial year attributable to equity shareholders, divided by the weighted average number of shares in issue during the year. Basic and diluted earnings per share are calculated on earnings of £116,102,000 (2022: £120,351,000) and on 72,719,585 shares (2022: 72,774,147 shares), being the number of shares in issue. The number of shares excludes 68,978 (2022: 14,396) shares held by the Employee Benefit Trust (EBT). On this basis, earnings per share (basic and diluted) is calculated as 159.7 pence (2022: 165.4 pence). There is no difference between the weighted average earnings per share and the basic and diluted earnings per share. For the calculation of adjusted earnings per share, per note 29, earnings of £116,102,000 (2022: £120,351,000) are adjusted by post-tax amounts for: - fair value (gains)/losses on financial instruments not eligible for hedge accounting (reported in Revenue), which represents the amount by which revenue would change had all the derivatives qualified as eligible for hedge accounting, £5,488,000 gain; - fair value (gains)/losses on financial instruments not eligible for hedge accounting (reported in Gains/(losses) from the fair value of financial instruments), £1,133,000 loss; - a revised estimate of 2020 restructuring costs, £570,000 gain; and - a US defined benefit pension scheme past service cost, £1,626,000 loss. ## 9. Property, plant and equipment The Group makes significant investments in distribution and in-house manufacturing infrastructure. During the year we have significantly expanded our production facility in Wales and invested in our manufacturing equipment in the UK. We expect to complete this facility and continue our investments in property, plant and equipment in the coming year. ### Accounting policy Freehold land is not depreciated. Other assets are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Depreciation is provided to write off the cost of assets less their estimated residual value on a straight-line basis over their estimated useful economic lives as follows: freehold buildings, 50 years; plant and equipment, 3 to 25 years; and vehicles, 3 to 4 years. | Year ended 30 June 2023 | Freehold land and buildings £'000 | Plant and equipment £'000 | Motor vehicles £'000 | Assets in the course of construction £'000 | Total £'000 | | --- | --- | --- | --- | --- | --- | | **Cost** | | | | | | | At 1 July 2022 | 217,820 | 263,557 | 7,520 | 7,481 | 496,378 | | Additions | 1,730 | 16,934 | 1,033 | 54,075 | 73,772 | | Transfers | 3,240 | 4,847 | – | (8,087) | – | | Disposals | (5,383) | (9,681) | (1,369) | – | (16,433) | | Currency adjustment | (4,022) | (2,501) | (72) | – | (6,595) | | **At 30 June 2023** | **213,385** | **273,156** | **7,112** | **53,469** | **547,122** | | **Depreciation** | | | | | | | At 1 July 2022 | 43,816 | 202,214 | 6,495 | – | 252,525 | | Charge for the year | 4,175 | 14,891 | 576 | – | 19,642 | | Disposals | (1,619) | (5,544) | (1,167) | – | (8,330) | | Currency adjustment | (725) | (2,015) | (60) | – | (2,800) | | **At 30 June 2023** | **45,647** | **209,546** | **5,844** | **–** | **261,037** | | **Net book value** | | | | | | | **At 30 June 2023** | **167,738** | **63,610** | **1,268** | **53,469** | **286,085** | | At 30 June 2022 | 174,004 | 61,343 | 1,026 | 7,481 | 243,853 | Losses on disposals of Property, plant and equipment amounted to £155,000 (2022: £157,000). Additions to assets in the course of construction comprise £42,646,000 (2022: £826,000) for land and buildings and £11,429,000 (2022: £6,318,000) for plant and equipment. At 30 June 2023, properties with a net book value of £88,778,000 (2022: £54,208,000) were subject to a fixed charge to secure the UK defined benefit pension scheme liabilities. Rentshaw plc Annual Report 2023 169 Financial statements # Notes continued ## 9. Property, plant and equipment continued | Year ended 30 June 2022 | Freehold land and buildings €'000 | Plant and equipment €'000 | Motor vehicles €'000 | Assets in the course of construction €'000 | Total €'000 | | --- | --- | --- | --- | --- | --- | | **Cost** | | | | | | | At 1 July 2021 | 216,783 | 242,432 | 7,421 | 7,109 | 473,745 | | Additions | 5,715 | 16,756 | 1,150 | 7,144 | 30,765 | | Transfers | 2,800 | 3,972 | – | (6,772) | – | | Transfers to Investment properties | (11,563) | – | – | – | (11,563) | | Disposals | 97 | (3,587) | (1,269) | – | (4,759) | | Currency adjustment | 3,988 | 3,984 | 218 | – | 8,190 | | **At 30 June 2022** | **217,820** | **263,557** | **7,520** | **7,481** | **496,378** | | **Depreciation** | | | | | | | At 1 July 2021 | 38,530 | 182,557 | 6,416 | – | 227,503 | | Charge for the year | 4,623 | 20,029 | 1,056 | – | 25,708 | | Impairment | 1,259 | – | – | – | 1,259 | | Transfers to Investment properties | (1,222) | – | – | – | (1,222) | | Disposals | 81 | (2,837) | (1,180) | – | (3,936) | | Currency adjustment | 545 | 2,465 | 203 | – | 3,213 | | **At 30 June 2022** | **43,816** | **202,214** | **6,495** | **–** | **252,525** | | **Net book value** | | | | | | | **At 30 June 2022** | **174,004** | **61,343** | **1,025** | **7,481** | **243,853** | | At 30 June 2021 | 178,253 | 59,875 | 1,005 | 7,109 | 246,242 | ## 10. Right-of-use assets The Group leases mostly properties and cars from third parties and recognises an associated right-of-use asset where we are afforded control and economic benefit from the use of the asset. ### Accounting policy At the commencement date of a lease arrangement the Group recognises a right-of-use asset for the leased item and a lease liability for any payments due. Right-of-use assets are initially measured at cost, being the present value of the lease liability plus any initial costs incurred in entering the lease and less any incentives received. See note 21 for further detail on lease liabilities. Right-of-use assets are subsequently depreciated on a straight-line basis from the commencement date to the earlier of the end of the useful life or the end of the lease term. | Year ended 30 June 2023 | Leasehold property €'000 | Plant and equipment €'000 | Motor vehicles €'000 | Total €'000 | | --- | --- | --- | --- | --- | | **Net book value** | | | | | | At 1 July 2022 | 8,055 | 117 | 1,778 | 9,950 | | Additions | 261 | 64 | 2,907 | 3,232 | | Reductions in consideration | (308) | – | (13) | (321) | | Depreciation | (2,737) | (93) | (1,392) | (4,222) | | Currency adjustment | (202) | 1 | (36) | (237) | | **At 30 June 2023** | **5,069** | **89** | **3,244** | **8,402** | | **Year ended 30 June 2022** | | | | | | Net book value | Leasehold property €'000 | Plant and equipment €'000 | Motor vehicles €'000 | Total €'000 | | At 1 July 2021 | 10,297 | 102 | 2,030 | 12,429 | | Additions | 1,293 | 115 | 1,058 | 2,466 | | Depreciation | (2,805) | (102) | (1,298) | (4,205) | | Impairment | (1,837) | – | – | (1,837) | | Currency adjustment | 1,107 | 2 | (12) | 1,097 | | At 30 June 2022 | 8,055 | 117 | 1,778 | 9,950 | 170**Rentshaw plc**^{}[] Annual Report 2023 ## 11. Investment properties The Group's investment properties consist of five properties in the UK, Ireland and India, which are occupied by rent-paying third parties. ### Accounting policy Where property owned by the Group is deemed to be held to earn rentals or for long-term capital appreciation it is recognised as investment property. Where a property is part-occupied by the Group, portions of the property are recognised as investment property if they meet the above description and if these portions could be sold separately and reliably measured. If the portions could not be sold separately, the property is recognised as an investment property only if a significant proportion is held for rental or appreciation purposes. The Group has elected to value investment properties on a cost basis, initially comprising an investment property's purchase price and any directly attributable expenditure. Depreciation is provided to write off the cost of assets on a straight-line basis over their estimated useful economic lives, being 50 years. Amounts relating to freehold land is not depreciated. | | 2023 £'000 | 2022 £'000 | | --- | --- | --- | | **Cost** | | | | Balance at the beginning of the year | 11,905 | – | | Transfers from Property, plant and equipment | – | 11,563 | | Additions | 252 | 196 | | Disposals | – | (102) | | Currency adjustment | (261) | 249 | | **Balance at the end of the year** | **11,896** | **11,906** | | **Depreciation** | | | | Balance at the beginning of the year | 1,337 | – | | Transfers from Property, plant and equipment | – | 1,222 | | Charge for the year | 240 | 190 | | Disposals | – | (81) | | Currency adjustment | (4) | 6 | | **Balance at the end of the year** | **1,573** | **1,337** | | **Net book value** | **10,323** | **10,568** | The Group has no restrictions on the realisability of its investment properties and no contractual obligations to purchase, construct or develop investment properties. Amounts recognised in the Consolidated income statement relating to investment properties: | | 2023 £'000 | 2022 £'000 | | --- | --- | --- | | Rental income derived from investment properties | 915 | 453 | | Direct operating expenses (including repairs and maintenance) | 258 | 105 | | Profit arising from investment properties | 657 | 348 | The fair value of the Group's investment properties totalled £14,718,000 at 30 June 2023 (2022: £14,626,000). Fair values of each investment property have been determined by independent valuers who hold recognised and relevant professional qualifications and have recent experience in the location and category of each investment property being valued. Renistraw plc Annual Report 2023 171 Financial Analysis Financial statements ## Notes continued 172 Renishaw plc Annual Report 2023 12. Intangible assets Our Consolidated balance sheet contains significant intangible assets, mostly in relation to goodwill, which arises when we acquire a business and pay a higher amount than the fair value of its net assets, and capitalised development costs. We make significant investments into the development of new products, which is a key part of our business model, and some of these costs are initially capitalised and then expensed over the lifetime of future sales of that product. Accounting policy Goodwill arising on acquisition represents the difference between the cost of the acquisition and the fair value of the net identifiable assets acquired, net of deferred tax. Identifiable intangibles are those which can be sold separately or which arise from legal rights regardless of whether those rights are separable. Goodwill is stated at cost less any accumulated impairment losses. It is not amortised but is tested annually for impairment or earlier if there are any indications of impairment. The annual impairment review involves comparing the carrying amount to the estimated recoverable amount and recognising an impairment loss if the recoverable amount is lower. Impairment losses are recognised in the Consolidated income statement. Intangible assets such as customer lists, patents, trade marks, know-how and intellectual property that are acquired by the Group are stated at cost less amortisation and impairment losses. Amortisation is charged to the Consolidated income statement on a straight-line basis over the estimated useful lives of the intangible assets. The estimated useful lives of the intangible assets included in the Consolidated balance sheet reflect the benefit derived by the Group and vary from five to 10 years. Expenditure on research activities is recognised in the Consolidated income statement as an expense as incurred. Expenditure on development activities is capitalised if: the product or process is technically and commercially feasible; the Group intends and has the technical ability and sufficient resources to complete development; future economic benefits are probable; and the Group can measure reliably the expenditure attributable to the intangible asset during its development. Development activities involve a plan or design for the production of new or substantially improved products or processes. The expenditure capitalised includes the cost of materials, direct labour and an appropriate proportion of overheads. Other development expenditure is recognised in the Consolidated income statement as an expense as incurred. Capitalised development expenditure is amortised over the useful economic life appropriate to each product or process, ranging from five to 10 years, and is stated at cost less accumulated amortisation and less accumulated impairment losses. Amortisation commences when a product or process is available for use as intended by management. Capitalised development expenditure is removed from the balance sheet 10 years after being fully amortised. All non-current assets are tested for impairment whenever there is an indication that their carrying value may be impaired. An impairment loss is recognised in the Consolidated income statement to the extent that an asset’s carrying value exceeds its recoverable amount, which represents the higher of the asset’s fair value less costs to sell and its value-in-use. An asset’s value- in-use represents the present value of the future cash flows expected to be derived from the asset or from the cash-generating unit to which it relates. The present value is calculated using a discount rate that reflects the current market assessment of the time value of money and the risks specific to the asset concerned. Goodwill and capitalised development costs are subject to an annual impairment test. Key judgement – Whether a project meets the criteria for capitalisation Product development costs are capitalised once a project has reached a certain stage of development, being the point at which the product has passed testing to demonstrate it meets the technical specifications of the project and it satisfies all applicable regulations. Judgements are required to assess whether the new product development has reached the appropriate point for capitalisation of costs to begin. These costs are subsequently amortised over their useful economic life once ready for use. Should a product be subsequently obsoleted, the accumulated capitalised development costs would need to be immediately written off in the Consolidated income statement. Key estimate – Estimates of future cash flows used for impairment testing Determining whether goodwill and capitalised development costs are impaired requires an estimation of the value-in-use of cash-generating units (CGUs) to which goodwill has been allocated. To calculate the value-in-use we need to estimate the future cashflows of each CGU and select the appropriate discount rate for each CGU. # **12. Intangible assets continued** | Year ended 30 June 2023 | Goodwill €'000 | Other Intangible assets €'000 | Internally generated development costs €'000 | Software licences and intellectual property €'000 | Total €'000 | | --- | --- | --- | --- | --- | --- | | **Cost** | | | | | | | At 1 July 2022 | 20,475 | 4,629 | 168,212 | 22,379 | 215,695 | | Additions | – | 254 | 10,448 | 125 | 10,827 | | Disposals | – | – | – | (10,518) | (10,518) | | Currency adjustment | (214) | (8) | – | (8) | (230) | | **At 30 June 2023** | **20,261** | **4,875** | **178,060** | **11,978** | **215,774** | | **Amortisation** | | | | | | | At 1 July 2022 | 9,028 | 2,240 | 139,460 | 20,749 | 171,477 | | Charge for the year | – | 179 | 5,150 | 833 | 6,162 | | Impairment | – | – | 1,611 | – | 1,611 | | Disposals | – | – | – | (9,969) | (9,969) | | Currency adjustment | – | 33 | – | (8) | 25 | | **At 30 June 2023** | **9,028** | **2,452** | **146,221** | **11,605** | **169,306** | | **Net book value** | | | | | | | **At 30 June 2023** | **11,233** | **2,423** | **32,439** | **373** | **46,468** | | At 30 June 2022 | 11,447 | 2,389 | 28,752 | 1,630 | 44,218 | | Year ended 30 June 2022 | Goodwill €'000 | Other Intangible assets €'000 | Internally generated development costs €'000 | Software licences and intellectual property €'000 | Total €'000 | | --- | --- | --- | --- | --- | --- | | **Cost** | | | | | | | At 1 July 2021 | 19,533 | 15,783 | 177,291 | 24,962 | 237,569 | | Additions | – | 53 | 7,966 | 876 | 8,895 | | Write-off | – | – | – | (3,510) | (3,510) | | Disposals | – | (11,211) | (17,045) | – | (28,256) | | Currency adjustment | 942 | 4 | – | 51 | 997 | | **At 30 June 2022** | **20,475** | **4,629** | **168,212** | **22,379** | **215,695** | | **Amortisation** | | | | | | | At 1 July 2021 | 9,028 | 13,254 | 151,807 | 19,685 | 193,774 | | Charge for the year | – | 201 | 4,698 | 1,024 | 5,923 | | Disposals | – | (11,211) | (17,045) | – | (28,256) | | Currency adjustment | – | (4) | – | 40 | 36 | | **At 30 June 2022** | **9,028** | **2,240** | **139,460** | **20,749** | **171,477** | | **Net book value** | | | | | | | **At 30 June 2022** | **11,447** | **2,389** | **28,752** | **1,630** | **44,218** | | At 30 June 2021 | 10,505 | 2,529 | 25,484 | 5,277 | 43,795 | # **Goodwill** Goodwill has arisen on the acquisition of several businesses and has an indeterminable useful life. It is therefore not amortised but is instead tested for impairment annually and at any point during the year when an indicator of impairment exists. Goodwill is allocated to cash generating units (CGUs), as set on page 174. This is the lowest level in the Group at which goodwill is monitored for impairment and is at a lower level than the Group's operating segments. The analysis of goodwill according to business acquired is: | | 2023 €'000 | 2022 €'000 | | --- | --- | --- | | Rp GmbH | 2,985 | 2,985 | | Renishaw Mayfield S.A. | 2,089 | 2,055 | | Renishaw Fixturing Solutions, LLC | 5,454 | 5,677 | | Other smaller acquisitions | 705 | 730 | | **Total goodwill** | **11,233** | **11,447** | Renishaw plc Annual Report 2023 173 Financial statements # Notes continued # 12. Intangible assets continued The recoverable amounts of acquired goodwill are based on value-in-use calculations. These calculations use cash flow projections based on the financial business plans approved by management for the next five financial years. The cash flows beyond this forecast are extrapolated to perpetuity using a nil growth rate on a prudent basis, to reflect the uncertainties over forecasting beyond five years. The following pre-tax discount rates have been used in discounting the projected cash flows: | Business acquired | CGU | 2023 Discount rate | 2022 Discount rate | | --- | --- | --- | --- | | IIp GmbH | IIp GmbH entity ('ITP') | 13.2% | 11.3% | | Renishaw Fixturing Solutions, LLC | Renishaw plc ('PLC') | 14.3% | 11.5% | | Renishaw Mayfield S.A. | Renishaw Mayfield S.A. entity ('Mayfield') | 26.3% | 22.9% | The Group post-tax weighted average cost of capital, calculated at 30 June 2023, is 10.7% (2022: 9.0%). The increase is mainly driven by higher risk-free rates in the market. Pre-tax discount rates for Manufacturing technologies CGUs (ITP and PLC) are calculated from this basis, given that they are aligned with the wider Group's industries, markets and processes. The Analytical instruments and medical devices' CGU (Mayfield) has a higher risk weighting, reflecting the less mature nature of this segment. During the period, the CGU relating to the goodwill arising on the acquisition of Renishaw Fixturing Solutions, LLC has been changed from the Renishaw fixturing product line to Renishaw plc. This follows the closure of Renishaw Fixturing Solutions, LLC, with production of fixturing products now undertaken by the manufacturing division of Renishaw plc. For there to be an impairment in the PLC, ITP or Mayfield CGUs the discount rate would need to increase to at least 20%, 18% and 32% respectively. The following bases have been used in determining cash flow projections: | CGU | 2023 Basis of forecast | 2022 Basis of forecast | | --- | --- | --- | | IIp GmbH entity | five-year business plan | five-year business plan | | Renishaw plc | five-year business plan | five-year business plan | | Renishaw Mayfield S.A. entity | five-year business plan | five-year business plan | These five-year business plans are considered fair estimates based on management's view of the future and experience of past performance of the individual CGUs, and are calculated at a disaggregated level. Within these plans, revenue forecasts are calculated with reference to external market data, Renishaw past outperformance, and new product launches, consistent with revenue forecasts across the Group. Production costs, engineering costs, distribution costs and administrative expenses are calculated based on management's best estimates of what is required to support revenue growth and new product development. Estimates of capital expenditure and working capital requirements are also included in the cash flow projections. The key estimate within these business plans is the forecasting of revenue growth, given that the cost bases of the businesses can be flexed in line with revenue performance. Given the average revenue growth assumptions included in the five-year business plans, management's sensitivity analysis involves modelling a reduction in the forecast cash flows utilised in those business plans and therefore into perpetuity. For there to be an impairment there would need to be a reduction to these forecast cash flows of 29% for ITP, 30% for PLC and 21% for Mayfield. Management deems the likelihood of these reductions to be unlikely. # Internally generated development costs The key assumption in determining the value-in-use for internally generated development costs is the forecast unit sales over the useful economic life, which is determined by management using their knowledge and experience with similar products and the sales history of products already available in the market. Resulting cash flow projections over five to 10 years, the period over which product demand forecasts can be reasonably predicted and internally generated development costs are written off, are discounted using pre-tax discount rates, which are calculated from the Group post-tax weighted average cost of capital of 10.7% (2022: 9.0%). There was an impairment of £1,611,000 (2022: nil) of internally generated development costs in the year, which wholly related to a drug delivery project in our Neurological business. Revenue from our drug delivery business continues to be slow due to the long lead-time of pharmaceutical programmes, although we remain confident in our opportunity pipeline. The uncertainty of the near-term cash flows resulted in this partial impairment of £1,611,000, with the remaining net book value totalling £1,984,000 at 30 June 2023. For the largest projects, comprising 56% of the net book value at 30 June 2023, a 10% reduction to forecast unit sales, or an increase in the discount rate by 5%, would result in an impairment of less than £800,000. 174 Renishaw plc Annual Report 2023 ### 13. Investments in joint ventures Where we make an investment in a company which gives us significant influence but not full control, we account for our share of their post-tax profits in our financial statements. We have joint venture arrangements with two companies, RLS and MSP. The Group's investments in joint ventures (all investments being in the ordinary share capital of the joint ventures), whose accounting years end on 30 June, were: | | Country of incorporation and principal place of business | Ownership % 2023 | Ownership % 2022 | | --- | --- | --- | --- | | RLS Merlina tehnika d.o.o. ('RLS') – joint venture | Slovenia | 50.0 | 50.0 | | Metrology Software Products Limited ('MSP') – joint venture | England & Wales | 70.0 | 70.0 | Although the Group owns 70% of the ordinary share capital of MSP, this is accounted for as a joint venture as the 'control' requirements of FRS 10 are not satisfied. This is primarily because the shareholders agreement includes that for so long as the Group's holding is less than 75% of the total shares of MSP. Renshaw agrees to exercise its voting rights such that it only votes as if it has the same aggregate shareholding as the remaining Management Shareholders. Movements during the year were: | | 2023 £'000 | 2022 £'000 | | --- | --- | --- | | Balance at the beginning of the year | 20,570 | 16,634 | | Dividends received | (924) | (525) | | Share of profits of joint ventures | 2,768 | 4,342 | | Currency differences | – | 119 | | Balance at the end of the year | 22,414 | 20,570 | Summarised financial information for joint ventures: | | RLS | | MSP | | | --- | --- | --- | --- | --- | | | 2023 £'000 | 2022 £'000 | 2023 £'000 | 2022 £'000 | | Assets | 43,168 | 42,308 | 4,539 | 4,601 | | Liabilities | (4,969) | (7,422) | (378) | (963) | | Net assets | 38,199 | 34,886 | 4,161 | 3,638 | | Group's share of net assets | 19,100 | 17,443 | 2,913 | 2,547 | | Revenue | 35,764 | 35,247 | 2,554 | 2,492 | | Profit/(loss) for the year | 5,162 | 7,886 | 264 | 570 | | Group's share of profit/(loss) for the year | 2,583 | 3,943 | 185 | 399 | For the nature of the activities, see note C.45. The financial statements of RLS have been prepared on the basis of Slovenian Accounting Standards. The financial statements of MSP have been prepared on the basis of FRS 102. Renshaw plc Annual Report 2023 175 Financial statements ## Notes continued ### 14. Leases (as lessor) The Group acts as a lessor for Renishaw-manufactured equipment on finance and operating lease arrangements. This is principally for high-value capital equipment such as our additive manufacturing machines. #### Accounting policy Where the Group transfers the risks and rewards of ownership of lease assets to a third party, the Group recognises a receivable in the amount of the net investment in the lease. The lease receivable is subsequently reduced by the principal received, while an interest component is recognised as financial income in the Consolidated income statement. Standard contract terms are up to five years and there is a nominal residual value receivable at the end of the contract. Where the Group retains the risks and rewards of ownership of lease assets, it continues to recognise the leased asset in Property, plant and equipment. Income from operating leases is recognised on a straight-line basis over the lease term and recognised as Revenue rather than Other revenue as such income is not material. Operating leases are on one to five year terms. The total future lease payments are split between the principal and interest amounts below: | | 2023 | | | 2022 | | | | --- | --- | --- | --- | --- | --- | --- | | | Gross investment £'000 | Interest £'000 | Net investment £'000 | Gross investment £'000 | Interest £'000 | Net investment £'000 | | Receivable in less than one year | 4,375 | 611 | 3,764 | 3,703 | 355 | 3,348 | | Receivable between one and two years | 3,600 | 447 | 3,153 | 2,882 | 252 | 2,630 | | Receivable between two and three years | 3,283 | 289 | 2,994 | 2,015 | 148 | 1,867 | | Receivable between three and four years | 2,478 | 151 | 2,327 | 1,779 | 70 | 1,709 | | Receivable between four and five years | 1,502 | 41 | 1,461 | 770 | 15 | 755 | | Total future minimum lease payments receivable | 15,238 | 1,539 | 13,699 | 11,149 | 840 | 10,309 | Finance lease receivables are presented as £9,935,000 (2022: £6,961,000) non-current assets and £3,764,000 (2022: £3,348,000) current assets in the Consolidated balance sheet. The total of future minimum lease payments receivable under non-cancellable operating leases were: | | 2023 £'000 | 2022 £'000 | | --- | --- | --- | | Receivable in less than one year | 1,394 | 1,246 | | Receivable between one and four years | 1,569 | 2,365 | | Total future minimum lease payments receivable | 2,963 | 3,611 | During the year, £974,000 (2022: £1,184,000) was recognised in Revenue from operating leases. ### 15. Cash and cash equivalents and bank deposits We have always valued having cash in the bank to protect the Group from downturns and enable us to react swiftly to investment of market capture opportunities. We currently hold significant cash and cash equivalents and bank deposits, which is mostly in the UK and spread across several banks with high credit ratings. #### Accounting policy Cash and cash equivalents comprise cash balances, and deposits with an original maturity of less than three months or with an original maturity date of more than three months where the deposit can be accessed on demand without significant penalty for early withdrawal and where the original deposit amount is recoverable in full. #### Cash and cash equivalents An analysis of cash and cash equivalents at the end of the year was: | | 2023 £'000 | 2022 £'000 | | --- | --- | --- | | Bank balances and cash in hand | 80,196 | 141,208 | | Short-term deposits | 1,192 | 11,054 | | Balance at the end of the year | 81,388 | 153,162 | #### Bank deposits Bank deposits at the end of the year amounted to £125,000,000 (2022: £100,000,000), of which £30,000,000 matured on 7 August 2023, £45,000,000 matures in December 2023, and £50,000,000 matures in March 2024. 176 Renishaw plc Annual Report 2023 ## 16. Inventories We have increased our inventories in the year, in line with increases in global demand and reflecting planned increases in certain component safety stock levels to mitigate global supply shortages, and remain committed to high customer delivery performance. ### Accounting policy Inventory and work in progress is valued at the lower of actual cost on a first-in, first-out (RIFO) basis and net realisable value. In respect of work in progress and finished goods, cost includes all production overheads and the attributable proportion of indirect overhead expenses that are required to bring inventories to their present location and condition. Overheads are absorbed into inventories on the basis of normal capacity or on actual hours if higher. ### Key estimate – Determination of net realisable inventory value Determining the net realisable value of inventory requires management to estimate future demand, especially in respect of provisioning for slow moving and potentially obsolete inventory. When calculating an inventory provision, management use historic usage levels (capped at 18 months), demand from customer orders and manufacturing build plans as a basis for estimating the future annual demand of individual stock items, except in the following instances: - for key products and their components, provisions are typically made for quantities held in excess of three years' demand. - A demand basis lower than three years is used for those key products and related components where the sales history is more volatile; and - where strategic purchases of critical components have been made, an outlook beyond three years is considered where appropriate. An analysis of inventories at the end of the year was: | | 2023 £'000 | 2022 £'000 | | --- | --- | --- | | Raw materials | 66,210 | 56,034 | | Work in progress | 35,354 | 31,002 | | Finished goods | 84,193 | 75,446 | | Balance at the end of the year | 185,757 | 162,482 | At the end of the year, the gross cost of inventories which had provisions held against them totalled £24,525,000 (2022: £17,520,000). During the year, the amount of write-down of inventories recognised as an expense in the Consolidated income statement was £8,228,000 (2022: £481,000). A 10% reduction in the value of exceptions in the Renishaw plc inventory provision calculation would result in an increase in the write-down of inventories of £1,130,000. Inventories in Renishaw plc account for 64% of the total Inventories of the Group. ## 17. Provisions A provision is a liability recorded in the Consolidated balance sheet, where there is uncertainty over the timing or amount that will be paid, and is therefore often estimated. The main provision we hold is in relation to warranties provided with the sale of our products. ### Accounting policy The Group provides a warranty from the date of purchase, except for those products that are installed by the Group where the warranty starts from the date of completion of the installation. This is typically for a 12-month period, although up to three years is given for a small number of products. A warranty provision is included in the Group financial statements, which is calculated on the basis of historical returns and internal quality reports. Warranty provision movements during the year were: | | 2023 £'000 | 2022 £'000 | | --- | --- | --- | | Balance at the beginning of the year | 4,244 | 6,259 | | Created during the year | 2,382 | 1,975 | | Unused amounts reversed | (717) | (1,688) | | Utilised in the year | (3,151) | (2,302) | | | (1,486) | (2,015) | | Balance at the end of the year | 2,758 | 4,244 | The warranty provision has been calculated on the basis of historical return-in-warranty information and other internal reports. It is expected that most of this expenditure will be incurred in the next financial year and all expenditure will be incurred within three years of the balance sheet date. Renishaw plc Annual Report 2023 177 Financial Summary Financial statements ## Notes continued ### 18. Contract liabilities Contract liabilities represent the Group's obligation to transfer goods, capital equipment and/or services to a customer for which the Group has either received consideration or consideration is due from the customer. Our balances mostly comprise references received from customers and payments for services yet to be completed. Balances at the end of the year were: | | 2023 £'000 | 2022 £'000 | | --- | --- | --- | | Goods, capital equipment and installation | 615 | 1,470 | | Aftermarket services | 4,793 | 4,471 | | Deferred revenue | 5,408 | 5,941 | | Advances received from customers | 4,563 | 7,015 | | Balance at the end of the year | 9,971 | 12,956 | The aggregate amount of the transaction price allocated to performance obligations that are unsatisfied at the end of the year is £9,971,000 (2022: £12,956,000). Of this, £2,214,000 (2022: £1,620,000) is not expected to be recognised in the next financial year. ### 19. Other payables Separate to our trade payables and contract liabilities, which directly relate to our trading activities, our Other payables mostly comprises amounts payable to employees, or relating to employees. Balances at the end of the year were: | | 2023 £'000 | 2022 £'000 | | --- | --- | --- | | Payroll taxes and social security | 6,677 | 6,823 | | Performance bonuses | 11,338 | 16,179 | | Holiday pay and retirement accruals | 7,383 | 7,810 | | Indirect tax payable | 4,486 | 1,762 | | Other creditors and accruals | 18,246 | 19,375 | | Total other payables | 48,130 | 51,949 | Holiday pay accruals are based on a calculation of the number of days' holiday earned during the year, but not yet taken. Other creditors and accruals includes a number of other individually smaller accruals. ### 20. Borrowings The Group's only source of external borrowing is a fixed-interest loan facility in our Japanese subsidiary, entered into to directly finance the purchase of a new distribution facility in Japan in 2019. Third-party borrowings at 30 June 2023 consist of a five year loan entered into on 31 May 2019 by Renishaw KK, with original principal of JPY 1,447,000,000 (£10,486,000). Principal of JPY 12,000,000 is repayable each month, with a fixed-interest rate of 0.81% also paid on monthly accretion. The residual principal at 31 May 2024 of JPY 739,000,000 can either be repaid in full at that time, or extended for another five years. There are no covenants attached to this loan. Movements during the year were: | | 2023 £'000 | 2022 £'000 | | --- | --- | --- | | Balance at the beginning of the year | 6,079 | 7,449 | | Interest | 46 | 52 | | Repayments | (914) | (974) | | Currency adjustment | (517) | (448) | | Balance at the end of the year | 4,694 | 6,079 | Borrowings are held at amortised cost. There is no significant difference between the book value and fair value of borrowings, which is estimated by discounting contractual future cash flows, which represents level 2 of the fair value hierarchy defined in note 25. 178 Renishaw plc Annual Report 2023 ## 21. Leases (as lessee) The Group leaves distribution properties and cars from third parties and recognises an associated lease liability for the total present value of payments the lease contracts commit us to ### Accounting policy At the commencement date of a lease arrangement the Group recognises a right-of-use asset for the leased item and a lease liability for any payments due. Lease liabilities are initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the incremental borrowing rate of the applicable entity. The lease liability is subsequently measured at amortised cost using the effective interest method and is remeasured if there is a change in future lease payments arising from a change in an index or rate (such as an inflation-linked increase) or if there is a change in the Group's assessment of whether it will exercise an extension or termination option. When this happens there is a corresponding adjustment to the right-of-use asset. Where the Group enters into leases with a lease term of 12 months or less, these are treated as 'short-term' leases and are recognised on a straight-line basis as an expense in the Consolidated income statement. The same treatment applies to low-value assets, which are typically IT equipment and office equipment. Lease liabilities are analysed as below: | 2023 | Leasehold property £'000 | Plant and equipment £'000 | Motor vehicles £'000 | Total £'000 | | --- | --- | --- | --- | --- | | Due in less than one year | 1,737 | 21 | 1,520 | 3,278 | | Due between one and two years | 691 | 13 | 1,192 | 1,896 | | Due between two and three years | 510 | 13 | 858 | 1,381 | | Due between three and four years | 351 | 6 | 387 | 744 | | Due between four and five years | 110 | 1 | 66 | 177 | | Due in more than five years | 3,481 | – | – | 3,481 | | Total future minimum lease payments payable | 6,880 | 54 | 4,023 | 10,957 | | Effect of discounting | (1,566) | (1) | (756) | (2,324) | | Lease liabilities | 5,314 | 53 | 3,267 | 8,633 | | 2022 | Leasehold property £'000 | Plant and equipment £'000 | Motor vehicles £'000 | Total £'000 | | Due in less than one year | 2,916 | 33 | 930 | 3,879 | | Due between one and two years | 1,857 | 18 | 523 | 2,398 | | Due between two and three years | 805 | 10 | 278 | 1,093 | | Due between three and four years | 624 | 9 | 78 | 711 | | Due between four and five years | 553 | 3 | 7 | 563 | | Due in more than five years | 3,611 | – | – | 3,611 | | Total future minimum lease payments payable | 10,366 | 73 | 1,816 | 12,255 | | Effect of discounting | (1,993) | (1) | (81) | (2,075) | | Lease liabilities | 8,373 | 72 | 1,735 | 10,180 | Lease liabilities are also presented as a £3,939,000 (2022: £3,714,000) current liability and a £5,624,000 (2022: £5,466,000) non-current liability in the Consolidated balance sheet. Amounts recognised in the Consolidated income statement relating to leases were: | | 2023 £'000 | 2022 £'000 | | --- | --- | --- | | Depreciation of right-of-use assets | 4,223 | 4,295 | | Impairment of right-of-use assets | – | 1,837 | | Derecognition of lease liabilities | – | (1,985) | | Interest expense on lease liabilities | 348 | 481 | | Expenses relating to short-term and low-value leases | 471 | 51 | | Total expense recognised in the Consolidated income statement | 5,042 | 4,589 | | Total cash outflows for leases | 5,025 | 4,613 | During the previous year we withdrew from Russia, including moving out of a leased property by August 2022. We therefore derecognised amounts relating to the leased property totalling £1,985,000, with a corresponding impairment to the right-of-use asset of £1,837,000. Renistow plc Annual Report 2023 179 Financial statements # Notes continued ## 22. Changes in liabilities arising from financing activities | | 1 July 2022 | Cash flows | Other | Currency | 30 June 2023 | | --- | --- | --- | --- | --- | --- | | Lease liabilities | 10,180 | (4,206) | 2,918 | (259) | 8,633 | | Borrowings | 6,079 | (914) | 46 | (517) | 4,694 | | | 16,259 | (5,120) | 2,964 | (776) | 13,327 | | | 1 July 2021 | Cash flows | Other | Currency | 30 June 2022 | | Lease liabilities | 12,562 | (4,081) | 513 | 1,186 | 10,180 | | Borrowings | 7,449 | (974) | 52 | (448) | 6,079 | | | 20,011 | (5,055) | 565 | 738 | 16,259 | See notes 20 and 21 for further details on borrowing and leasing activities. ## 23. Employee benefits The Group operates contributory pension schemes, largely for UK, Ireland and USA employees, which were of the defined benefit type up to 5 April 2007, 31 December 2007 and 30 June 2012 respectively, as which time they ceased any future accrual for existing members and was closed to new members. The Group's largest defined benefit scheme is in the UK. ### Accounting policy Defined benefit pension schemes are administered by trustees who are independent of the Group finances. Investment assets of the schemes are measured at fair value using the bid price of the unitised investments, quoted by the investment manager, at the reporting date. Pension scheme liabilities are measured using a projected unit method and discounted at the current rate of return on a high-quality corporate bond of equivalent term and currency to the liability. Remeasurements arising from defined benefit schemes comprise actuarial gains and losses, the return on scheme assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest). The Company recognises them immediately in Other comprehensive income and all other expenses related to defined benefit schemes are included in the Consolidated Income statement. The pension schemes' surpluses, to the extent that they are considered recoverable, or deficits are recognised in full and presented on the face of the Consolidated balance sheet under Employee benefits. Where a guarantee is in place in relation to a pension scheme deficit, liabilities are reported in accordance with IRRIC 14 'The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction'. To the extent that contributions payable will not be available as a refund after they are paid into the plan, a liability is recognised at the point the obligation arises, which is the point at which the minimum funding guarantee is agreed. Overseas-based employees are covered by a combination of state, defined benefit and private pension schemes in their countries of residence. Actuarial valuations of overseas pension schemes were not obtained, apart from Ireland and USA, because of the low number of members. For defined contribution schemes, the amount charged to the Consolidated income statement represents the contributions payable to the schemes in respect of the accounting period. ### Key estimate – Valuation of defined benefit pension schemes' liabilities Determining the value of the future defined benefit obligation requires estimation in respect of the assumptions used to determine the present values. These include future mortality, discount rate and inflation. Management makes these estimates in consultation with independent actuaries. The total pension cost of the Group for the year was £26,142,000 (2022: £21,988,000), of which £126,000 (2022: £121,000) related to Directors and £5,220,000 (2022: £5,292,000) related to overseas schemes. The latest full actuarial valuation of the UK defined benefit pension scheme was carried out as at 30 September 2021 and updated to 30 June 2023 by a qualified independent actuary. The mortality assumption used for 2023 is the S3P+A base tables and CMI 2022 model, with long-term improvements of 1% per annum. Adjustments have been made to both the core base tables and CMI 2022 model to allow for the scheme's membership profile and best estimate assumptions of future mortality improvements. Major assumptions used by actuaries for the UK, Ireland and US schemes were: | | 30 June 2023 | | | 30 June 2022 | | | | --- | --- | --- | --- | --- | --- | --- | | | UK scheme | Ireland scheme | US scheme | UK scheme | Ireland scheme | US scheme | | Rate of increase in pension payments | 3.05% | 2.70% | – | 3.05% | 2.45% | – | | Discount rate | 5.10% | 3.60% | – | 3.60% | 3.20% | 4.50% | | Inflation rate (IRR) | 3.25% | 2.70% | – | 3.10% | 2.45% | – | | | 2.25% pre-2008 | | | 2.10% pre-2008 | | | | Inflation rate (CPI) | 3.25% post-2008 | – | – | 3.10% post-2008 | – | – | | Retirement age | 64 | 65 | 65 | 64 | 65 | 65 | 180**Rennishaw plc**^{}[] Annual Report 2023 ### 23. Employee benefits continued The life expectancies from the retirement age of 65 for the UK scheme implied by the mortality assumption at age 65 and 45 are: | | 2023 years | 2022 years | | --- | --- | --- | | Male currently aged 65 | **21.1** | 21.5 | | Female currently aged 65 | **23.5** | 23.8 | | Male currently aged 45 | **21.8** | 22.2 | | Female currently aged 45 | **24.3** | 24.7 | The weighted average duration of the UK defined benefit obligation is around 17 years (2022: 22 years). The assets and liabilities in the defined benefit pension schemes were: | | 30 June 2023 £'000 | % of total assets | 30 June 2022 £'000 | % of total assets | | --- | --- | --- | --- | --- | | Market value of assets: | | | | | | Index linked gifts | **55,183** | **28** | 1,489 | 1 | | Credit and fixed income funds | **54,656** | **28** | 19,489 | 9 | | Cash and other | **40,576** | **20** | 802 | – | | Multi-asset funds | **26,966** | **14** | 82,442 | 38 | | Fixed interest gifts | **13,219** | **7** | 1,502 | 1 | | Equities | **5,729** | **3** | 111,025 | 51 | | | **196,329** | **100** | 216,749 | 100 | | Actuarial value of liabilities | **(138,958)** | – | (174,504) | – | | Surplus in the schemes | **57,371** | – | 42,245 | – | | Deferred tax thereon | **(14,348)** | – | (11,048) | – | Note C.40 gives the analysis of the UK defined benefit pension scheme. For the other schemes, the market value of assets at the end of the year was £14,642,000 (2022: £22,888,000) and the actuarial value of liabilities was £14,687,000 (2022: £20,973,000). The UK scheme was in a net surplus position at 30 June 2023 totalling £57,416,000, (2022: surplus £40,331,000), and is therefore presented in non-current assets in the Consolidated balance sheet. The Ireland scheme was in a net deficit position at 30 June 2023 (2022: deficit), totalling £45,000, and is therefore presented in non-current liabilities. Equities are held in externally-managed funds and primarily relate to UK and US equities. Credit and fixed income funds, fixed interest gifts, and index-linked gifts relate to UK, US and Eurozone government-linked securities, again held in externally-managed funds. The fair values of these equity and fixed income instruments are determined using the bid price of the unitised investments, quoted by the investment manager, at the reporting date and therefore represent 'Level 2' of the fair value hierarchy defined in note 25. Multi-asset funds are also held in externally-managed funds, with active asset allocation to diversify growth across asset classes such as equities, bonds and money-market instruments. The fair value of these funds is determined on a comparable basis to the equity and fixed income funds, and therefore are also 'Level 2' assets. Cash and other at 30 June 2023 mostly comprises a Sterling liquidity fund, in which the principal is preserved and same day liquidity is available. In October 2022, following a significant improvement in the UK scheme's funding position due to rising gilt yields, the Trustees (in consultation with the Company) de-risked the investment strategy by disinvesting from the scheme's equity and diversified growth holdings and investing the proceeds into index-linked gifts. The overall impact of these changes is to reduce investment risk, with the assets better matching the expected movements in the liabilities. We now believe the scheme is fully funded and are in the process of seeking to insure the liabilities. No scheme assets are directly invested in the Group's own equity. The movements in the schemes' assets and liabilities were: | Year ended 30 June 2023 | Assets £'000 | Liabilities £'000 | Total £'000 | | --- | --- | --- | --- | | Balance at the beginning of the year | 216,749 | (174,504) | 42,245 | | Contributions paid | 2,341 | – | 2,341 | | Interest on pension schemes | 7,745 | (6,135) | 1,610 | | Remeasurement loss from augmentation of members' benefits (US) | – | (1,930) | (1,930) | | Remeasurement gain/(loss) under IAS 19 | (16,722) | 30,334 | 13,612 | | Scheme administration expenses | (398) | – | (398) | | (Loss)/gain on settlements | (1,098) | 989 | (109) | | Benefits paid | (12,288) | 12,288 | – | | **Balance at the end of the year** | **196,329** | **(138,958)** | **57,371** | Rentshaw plc Annual Report 2023 181 Financial statements # Notes continued ## 23. Employee benefits continued | Year ended 30 June 2022 | Assets £'000 | Liabilities £'000 | Total £'000 | | --- | --- | --- | --- | | Balance at the beginning of the year | 231,355 | (255,053) | (23,698) | | Contributions paid | 8,866 | – | 8,866 | | Interest on pension schemes | 4,337 | (4,643) | (306) | | Remeasurement loss from augmentation of members' benefits (UK) | – | (11,695) | (11,695) | | Remeasurement gain/(loss) under IAS 19, the asset ceiling and IFRIC 14 | (17,264) | 86,342 | 69,078 | | Benefits paid | (10,545) | 10,545 | – | | Balance at the end of the year | 216,749 | (174,504) | 42,245 | The analysis of the amount recognised in the Consolidated statement of comprehensive income and expense was: | | 2021 £'000 | 2022 £'000 | | --- | --- | --- | | Actuarial gain/(loss) arising from: | | | | Changes in demographic assumptions | 2,028 | 3,860 | | Changes in financial assumptions | 37,318 | 67,442 | | Experience adjustment | (9,012) | (7,818) | | Return on plan assets excluding interest income | (16,722) | (17,264) | | Adjustment for the asset ceiling | – | 3,280 | | Adjustment to liabilities for IFRIC 14 | – | 19,578 | | Total amount recognised in the Consolidated statement of comprehensive income and expense | 13,612 | 69,078 | The cumulative amount of actuarial gains and losses recognised in the Consolidated statement of comprehensive income and expense was a loss of £8,807,000 (2022: loss of £22,419,000). The net surplus of the Group's defined benefit pension schemes, on an IAS 19 basis, has increased from £42,245,000 at 30 June 2022 to £57,371,000 at 30 June 2023, primarily reflecting the effect of an increase in the UK discount rate, based on increases in corporate bond yields, which was partially offset by a reduction in investment asset values. In 2022, the Company agreed to an augmentation of UK scheme members' benefits to reflect current and historic administrative revaluation practice. The impact on liabilities of this plan amendment, totalling £11,695,000, was recognised as a past service cost in the Consolidated income statement. In 2023, a termination of the US plan (other than distribution of surplus) was completed, with most members opting for lump sum payments, and it was agreed that the surplus will be distributed to qualifying scheme members. Accordingly, the surplus of £1,900,000 has been treated as an augmentation to member benefits. This, together with related expenses of £209,000, has been reported separately in the Consolidated income statement as a past service cost and excluded from adjusted profit measures. For the UK scheme, the latest actuarial report prepared in September 2021 shows a deficit of £52,800,000, which is based on funding to self-sufficiency and uses prudent assumptions. IAS 19 requires best estimate assumptions to be used, resulting in the IAS 19 net surplus being higher than the actuarial deficit. The existing deficit funding plan for the UK defined benefit pension scheme is in place until 30 June 2031, at which time any outstanding deficit will be paid. The agreement will end sooner if the actuarial deficit (calculated on a self-sufficiency basis) is eliminated in the meantime. The net book value of properties subject to fixed charges under this agreement at 30 June 2023 was £88,778,000 (2022: £54,208,000). The charges may be enforced by the Trustees if one of the following occurs: (a) the Company does not pay funds into the scheme in line with the agreed plan; (b) an insolvency event occurs in relation to the Company; or (c) the Company does not pay any deficit at 30 June 2031. Under the Ireland defined benefit pension scheme deficit funding plan, a property owned by Renishaw Ireland (DAC) is subject to a registered fixed charge to secure the Ireland defined benefit pension scheme's deficit. For the UK defined benefit scheme, a guide to the sensitivity of the value of the respective liabilities is as follows: | | Variation | Approximate effect on liabilities | | --- | --- | --- | | UK – discount rate | Increase/decrease by 0.5% | –£9.6m/–£10.7m | | UK – future inflation | Increase/decrease by 0.5% | +£8.2m/–£7.6m | | UK – mortality | Increased/decreased life by one year | +£4.0m/–£3.8m | 182 Renishaw plc Annual Report 2023 Financial statements Renishaw plc Annual Report 2023 183 24. Share-based payments The Group provides share-based payment arrangements to certain employees in accordance with the Renishaw plc deferred annual equity incentive plan. The Governance section provides information of how these awards are determined. Accounting policy Renishaw shares are granted in accordance with the Renishaw plc deferred annual equity incentive plan (the Plan). The share awards are subject only to continuing service of the employee and are equity settled. The fair value of the awards at the date of grant, which is estimated to be equal to the market value, is charged to the Consolidated income statement on a straight- line basis over a three-year vesting period, with appropriate adjustments made to reflect expected or actual forfeitures. The corresponding credit is to Other reserve. The number of shares to be awarded is calculated by dividing the relevant amount of annual bonus under the Plan by the average price of a share during a period determined by the Remuneration Committee of not more than five dealing days ending with the dealing day before the award date. These shares must be purchased on the open market and cannot be satisfied by issuance of new shares or transfer of existing treasury shares. The Renishaw Employee Benefit Trust (EBT) is responsible for purchasing shares on the open market on behalf of the Company to satisfy the Plan awards. These are held by the EBT until transferring to the employee, which will normally be on the third anniversary of the award date, subject to continued employment. Malus and clawback provisions can be operated by the Committee within five years of the award date. During the vesting period, no dividends are payable on the shares. However, upon vesting, employees will be entitled to additional shares or cash, equivalent to the value of dividends paid on the awarded shares during this period. This amount is accrued over the vesting period. Own shares held are recognised as an element in equity until they are transferred at the end of the vesting period, and such shares are excluded from earnings per share calculations. The total cost recognised in the 2023 Consolidated income statement in respect of the Plan was £677,000 (2022: £180,000). See note 26 for reconciliations of amounts recognised in Equity. In accordance with the Plan, no shares (2022: £1,915,000 equivalent) are to be awarded in respect of 2023. See the Directors’ Remuneration Report for further details of the Plan. Financial statements ## Notes continued 184 Renishaw plc Annual Report 2023 25. Financial instruments The Group has exposure to credit risk, liquidity risk and market risk arising from its use of financial instruments. This note presents information about the Group’s exposure to these risks, along with the Group’s objectives, policies and processes for measuring and managing the risks. Accounting policy The Group measures financial instruments such as forward exchange contracts at fair value at each balance sheet date in accordance with IFRS 9 ‘Financial Instruments’. Fair value, as defined by IFRS 13 ‘Fair Value Measurement’, is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This note provides detail on the IFRS 13 fair value hierarchy. Trade and other current receivables are initially recognised at fair value and are subsequently held at amortised cost less any provision for bad and doubtful debts and expected credit losses according to IFRS 9. Loans to associates and joint ventures are initially recognised at fair value and are subsequently held at amortised cost. Trade and other current payables are initially recognised at fair value and are subsequently held at amortised cost. Financial liabilities in the form of loans are initially recognised at fair value and are subsequently held at amortised cost. Financial liabilities are assessed for embedded derivatives and whether any such derivatives are closely related. If not closely related, such derivatives are accounted for at fair value in the Consolidated income statement. Foreign currency derivatives are used to manage risks arising from changes in foreign currency rates relating to overseas sales and foreign currency-denominated assets and liabilities. The Group does not enter into derivatives for speculative purposes. Foreign currency derivatives are stated at their fair value, being the estimated amount that the Group would pay or receive to terminate them at the balance sheet date, based on prevailing foreign currency rates. Changes in the fair value of foreign currency derivatives which are designated and effective as hedges of future cash flows are recognised in Other comprehensive income and in the Cash flow hedging reserve, and subsequently transferred to the carrying amount of the hedged item or the Consolidated income statement. Realised gains or losses on cash flow hedges are therefore recognised in the Consolidated income statement within revenue in the same period as the hedged item. Hedge accounting is discontinued when the hedging instrument expires or when the hedging instrument or hedged item no longer qualify for hedge accounting. If the forecast transaction is still expected to occur, but is no longer highly probable, the cumulative gain or loss in the cash flow hedge reserve remains in that reserve until the transaction occurs. If the forecast transaction is no longer expected to occur, the cumulative gain or loss in the cash flow hedge reserve is immediately reclassified to the Consolidated income statement. Changes in fair value of foreign currency derivatives, which are ineffective or do not meet the criteria for hedge accounting in IFRS 9, are recognised in the Consolidated income statement within Gains/losses from the fair value of financial instruments. In addition to derivatives held for cash flow hedging purposes, the Group uses short-term derivatives not designated as hedging instruments to offset gains and losses from exchange rate movements on foreign currency-denominated assets and liabilities. Gains and losses from currency movements on underlying assets and liabilities, realised gains and losses on these derivatives, and fair value gains and losses on outstanding derivatives of this nature are all recognised in Financial income and expenses in the Consolidated income statement. Key estimate – Estimates of highly probable forecasts of the hedged item Derivatives are effective for hedge accounting to the extent that the hedged item is ‘highly probable’ to occur, with ‘highly probable’ indicating a much greater likelihood of occurrence than the term ‘more likely than not’. Determining a highly probable sales forecast for Renishaw plc and Renishaw UK Sales Limited, being the hedged item, over a multiple year time period, requires judgement of the suitability of external and internal data sources and estimations of future sales. Fair value There is no significant difference between the fair value of financial assets and financial liabilities and their carrying value in the Consolidated balance sheet. All financial assets and liabilities are held at amortised cost, apart from the forward foreign currency exchange contracts, which are held at fair value, with changes going through the Consolidated income statement unless the contracts are subject to hedge accounting. The fair values of the forward foreign currency exchange contracts have been calculated by a third-party expert, discounting estimated future cash flows on the basis of market expectations of future exchange rates, representing level 2 in the IFRS 13 fair value hierarchy. The IFRS 13 level categorisation relates to the extent the fair value can be determined by reference to comparable market values. The classifications are: level 1 where instruments are quoted on an active market; level 2 where the assumptions used to arrive at fair value have comparable market data; and level 3 where the assumptions used to arrive at fair value do not have comparable market data. ## 25. Financial instruments continued ### Credit risk The Group's liquid funds are substantially held with banks with high credit ratings and the credit risk relating to these funds is therefore limited. The Group carries a credit risk relating to non-payment of trade receivables by its customers. The Group's policy is that credit evaluations are carried out on all new customers before credit is given above certain thresholds. Risk is spread across a large number of customers with no significant concentration with one customer or in any one geographical area. The Group establishes an allowance for impairment in respect of trade receivables where recoverability is considered doubtful. An analysis by currency of the Group's financial assets at the year end is as follows: | Currency | Trade & finance lease receivables | | Other receivables | | Cash and cash equivalents and bank deposits | | | --- | --- | --- | --- | --- | --- | --- | | | 2023 £'000 | 2022 £'000 | 2023 £'000 | 2022 £'000 | 2023 £'000 | 2022 £'000 | | Pound Sterling | 17,530 | 21,391 | 20,592 | 19,565 | 161,489 | 201,668 | | US Dollar | 49,609 | 45,433 | 814 | 867 | 12,465 | 13,965 | | Euro | 28,418 | 28,314 | 1,433 | 1,568 | 6,481 | 8,712 | | Japanese Yen | 16,555 | 19,460 | 137 | 457 | 6,481 | 5,720 | | Other | 25,014 | 23,242 | 5,003 | 4,611 | 19,472 | 23,097 | | | **137,126** | **137,860** | **27,979** | **27,068** | **206,388** | **253,162** | The above trade & finance lease receivables, other receivables and cash and bank deposits are predominately held in the functional currency of the relevant entity, with the exception of £19,669,000 (2022: £21,271,000) of US Dollar-denominated trade receivables being held in Renishaw (Hong Kong) Limited and £1,697,000 (2022: £1,852,000) of Euro-denominated trade receivables being held in Renishaw UK Sales Limited, along with some foreign currency cash balances which are of a short-term nature. The ageing of trade receivables past due at the end of the year was: | | 2023 £'000 | 2022 £'000 | | --- | --- | --- | | Past due zero to one month | 11,808 | 9,548 | | Past due one to two months | 3,880 | 3,879 | | Past due more than two months | 9,732 | 5,252 | | Balance at the end of the year | **25,420** | **18,679** | Movements in the provision for impairment of trade receivables during the year were: | | 2023 £'000 | 2022 £'000 | | --- | --- | --- | | Balance at the beginning of the year | 2,540 | 3,826 | | Changes in amounts provided | 1,784 | (834) | | Amounts used | (886) | (452) | | Balance at the end of the year | **3,438** | **2,540** | The Group applies the simplified approach when measuring the expected credit loss for trade receivables, with a provision matrix used to determine a lifetime expected credit loss. For this provision matrix, trade receivables are grouped into credit risk categories, with category 1 being the lowest risk and category 5 the highest. Risk scores are allocated to the customer's country of operation, their type (such as distributor, end user and OEM), their industry and the proportion of their debt that was past due at the year-end. These scores are then weighted to produce an overall risk score for the customer, with the lowest scores being allocated to category 1 and the highest scores to category 5. The matrix then applies an expected credit loss rate to each category, with this rate being determined by adjusting the Group's historic credit loss rates to reflect forward-looking information. Financial Summary Renishaw plc Annual Report 2023 185 Financial statements # Notes continued ## 25. Financial instruments continued Where certain customers have been identified as having a significantly elevated credit risk these have been provided for on a specific basis. Both elements of expected credit loss are shown in the matrix below and have been shown separately so as not to distort the expected credit loss rate. | Year ended 30 June 2023 | Risk category 1 £'000 | Risk category 2 £'000 | Risk category 3 £'000 | Risk category 4 £'000 | Risk category 5 £'000 | 2023 Total £'000 | | --- | --- | --- | --- | --- | --- | --- | | Gross trade receivables | 3,126 | 60,826 | 57,991 | 4,922 | – | 126,865 | | Expected credit loss rate | 0.34% | 0.38% | 0.41% | 0.44% | – | 0.39% | | Expected credit loss allowance | 11 | 228 | 240 | 22 | – | 501 | | Specific loss allowance | – | 219 | 1,313 | 1,405 | – | 2,937 | | Total expected credit loss | 11 | 447 | 1,553 | 1,427 | – | 3,438 | | Net trade receivables | 3,115 | 60,379 | 56,438 | 3,495 | – | 123,427 | | Year ended 30 June 2022 | Risk category 1 £'000 | Risk category 2 £'000 | Risk category 3 £'000 | Risk category 4 £'000 | Risk category 5 £'000 | 2022 Total £'000 | | Gross trade receivables | 2,742 | 51,598 | 70,298 | 5,453 | – | 130,091 | | Expected credit loss rate | 0.19% | 0.20% | 0.22% | 0.24% | – | 0.21% | | Expected credit loss allowance | 5 | 104 | 154 | 13 | – | 276 | | Specific loss allowance | – | – | 1,502 | 762 | – | 2,264 | | Total expected credit loss | 5 | 104 | 1,656 | 775 | – | 2,540 | | Net trade receivables | 2,737 | 51,494 | 68,642 | 4,678 | – | 127,551 | Finance lease receivables are subject to the same approach as noted above for trade receivables. Derivative assets are assessed based on the credit risk of the banks counterparty to the forward contracts. Other receivables include mostly prepayments and indirect tax receivables. Prepayment balances are reviewed at each reporting period to confirm that prepaid goods or services are still expected to be received, while tax balances are reviewed for recoverability. Other receivables at the year end comprised: | | 2023 £'000 | 2022 £'000 | | --- | --- | --- | | Indirect tax receivable | 9,304 | 9,010 | | Software maintenance | 5,857 | 7,430 | | Grants | 1,426 | 1,250 | | Other prepayments | 11,392 | 9,378 | | Total other receivables | 27,979 | 27,068 | The maximum exposure to credit risk is £386,309,000 (2022: £425,211,000), comprising the Group's trade, finance and other receivables, cash and cash equivalents and derivative assets. The maturities of non-current other receivables, being only derivatives, at the year end were: | | 2023 £'000 | 2022 £'000 | | --- | --- | --- | | Receivable between one and two years | 9,443 | – | | Receivable between two and five years | – | – | | | 9,443 | – | 186**Rennishow**^{}[] (inc. Annual Report 2023) ## 25. Financial instruments continued ### Liquidity risk Our approach to managing liquidity is to ensure, as far as possible, that we will always have sufficient liquidity to meet our liabilities when due, without incurring unacceptable losses or risking damage to the Group's reputation. We use monthly cash flow forecasts on a rolling 12-month basis to monitor cash requirements. With cash and cash equivalents and bank deposits at 30 June 2023 totalling £206,388,000 and £84,297,000 cash flows generated from operating activities in the period, the Group remains in a strong liquidity position. In respect of cash and cash equivalents and bank deposits, the carrying value is materially the same as fair value because of the short maturity of the bank deposits. Bank deposits are affected by interest rates that are either fixed or floating, which can change over time, affecting the Group's interest income. An increase of 1% in interest rates would result in an increase in interest income of approximately £1,250,000. The contractual maturities of financial liabilities at the year end were: | Year ended 30 June 2023 | Carrying amount £'000 | Effect of discounting £'000 | Gross maturities £'000 | Contractual cash flows | | | | --- | --- | --- | --- | --- | --- | --- | | | | | | Up to 1 year £'000 | 1-2 years £'000 | 2-5 years £'000 | | Trade payables | 21,551 | – | 21,551 | 21,551 | – | – | | Other payables | 48,130 | – | 48,130 | 48,130 | – | – | | Borrowings | 4,694 | 36 | 4,730 | 4,730 | – | – | | Forward exchange contracts | 5,209 | – | 5,209 | 5,089 | 120 | – | | | **79,584** | **36** | **79,620** | **79,500** | **120** | **–** | | Year ended 30 June 2022 | Carrying amount £'000 | Effect of discounting £'000 | Gross maturities £'000 | Contractual cash flows | | | | --- | --- | --- | --- | --- | --- | --- | | | | | | Up to 1 year £'000 | 1-2 years £'000 | 2-5 years £'000 | | Trade payables | 30,947 | – | 30,947 | 30,947 | – | – | | Other payables | 51,949 | – | 51,949 | 51,949 | – | – | | Borrowings | 6,079 | 82 | 6,161 | 926 | 5,235 | – | | Forward exchange contracts | 27,353 | – | 27,353 | 17,890 | 9,463 | – | | | **116,328** | **82** | **116,410** | **101,712** | **14,698** | **–** | ### Market risk As noted in the Strategic Report under Principal risks and uncertainties, the Group operates in several foreign currencies with the majority of sales being made in these non-Sterling currencies, but with most manufacturing being undertaken in the UK, Ireland and India. A large proportion of sales are made in US Dollar, Euro and Japanese Yen, therefore the Group enters into US Dollar, Euro and Japanese Yen derivative financial instruments to manage its exposure to foreign currency risk, including: i. forward foreign currency exchange contracts to hedge a significant proportion of the Group's forecasted US Dollar, Euro and Japanese Yen revenues over the next 24 months; ii. foreign currency option contracts, entered into alongside the forward contracts above until May 2018 as part of the Group hedging strategy, are ineffective for cash flow hedging purposes. Note 29, 'Alternative performance measures', gives an adjusted measure of profit before tax to reflect the original intention that these derivatives were entered into for hedging purposes. The final option contract matured in November 2021; and iii. one-month forward foreign currency exchange contracts to offset the gains/losses from exchange rate movements arising from foreign currency-denominated intragroup balances of the Company. Financial Summary Renshaw plc Annual Report 2023 187 Financial statements # Notes continued # 25. Financial instruments continued The amounts of foreign currencies relating to these forward contracts and options are, in Sterling terms: | | 2023 | | 2022 | | | --- | --- | --- | --- | --- | | | Nominal value €'000 | Fair value €'000 | Nominal value €'000 | Fair value €'000 | | US Dollar | 345,010 | 5,009 | 306,270 | (26,248) | | Euro | 179,992 | 1,389 | 129,799 | 1,711 | | Japanese Yen | 30,318 | 3,209 | 37,941 | 4,306 | | | **555,320** | **9,607** | **474,010** | **(28,232)** | The following are the exchange rates which have been applicable during the financial year: | Currency | 2023 | | | 2022 | | | | --- | --- | --- | --- | --- | --- | --- | | | Average forward contract rate | Year end exchange rate | Average exchange rate | Average forward contract rate | Year end exchange rate | Average exchange rate | | US Dollar | 1.24 | 1.27 | 1.21 | 1.34 | 1.22 | 1.33 | | Euro | 1.13 | 1.16 | 1.15 | 1.12 | 1.16 | 1.18 | | Japanese Yen | 141 | 183 | 166 | 132 | 165 | 156 | # Hedging In relation to the forward currency contracts in a designated cash flow hedge, the hedged item is a layer component of forecast sales transactions. Forecast transactions are deemed highly probable to occur and Group policy is to hedge around 75% of net foreign currency exposure for USD, EUR and JPY. The hedged item creates an exposure to receive USD, EUR or JPY, while the forward contract is to sell USD, EUR or JPY and buy GBP. Therefore, there is a strong economic relationship between the hedging instrument and the hedged item. The hedge ratio is 100%, such that, by way of example, £10m nominal value of forward currency contracts are used to hedge £10m of forecast sales. Fair value gains or losses on the forward currency contracts are offset by foreign currency gain or losses on the translation of USD, EUR and JPY based sales revenue, relative to the forward rate at the date the forward contracts were arranged. Foreign currency exposures in HKD and USD are aggregated and only USD forward currency contracts are used to hedge these currency exposures. Sources of hedge ineffectiveness according to IFRS 9 Financial Instruments include: - changes in timing of the hedged item; - reduction in the amount of the hedged sales considered to be highly probable; - a change in the credit risk of Renishaw or the bank counterparty to the forward contract; and - differences in assumptions used in calculating fair value. During 2020, global macroeconomic uncertainty resulted in a reduction to the 'highly probable' revenue forecasts of Renishaw plc and Renishaw UK Sales Limited, being the hedged item, which resulted in proportions of forward contracts failing hedge effectiveness testing, with nominal value amounting to £247,547,000. These contracts have matured in the periods since, and the remaining nominal value of ineffective forward contracts at 30 June 2023 was nil (2022: £63,045,000). Fair value gains of £5,504,000 (2022: £8,349,000 losses) recognised in the Consolidated income statement relate to the unwinding of the mark-to-market valuations of the ineffective contracts. No contracts have become ineffective during the period. A decrease of 10% in the highly probable forecasts would result in around £30,000,000 nominal value of forward contracts becoming ineffective. 188 Renishaw plc Annual Report 2023 ## 25. Financial instruments continued For both the Group and the Company, the following table details the fair value of these forward foreign currency derivatives according to the categorisations of instruments noted on page 187: | | 2023 | | 2022 | | | --- | --- | --- | --- | --- | | | Nominal value t'000 | Fair value t'000 | Nominal value t'000 | Fair value t'000 | | **Forward currency contracts in a designated cash flow hedge (i)** | | | | | | Non-current derivative assets | 268,908 | 9,443 | – | – | | Current derivative assets | 118,271 | 4,461 | 77,460 | 7,077 | | Current derivative liabilities | 109,434 | (5,048) | 128,950 | (12,046) | | Non-current derivative liabilities | 21,148 | (120) | 179,149 | (9,463) | | | 517,761 | 8,736 | 385,559 | (14,432) | | Amounts recognised in the Consolidated statement of comprehensive income and expense | – | 23,167 | – | 28,423 | | **Forward currency contracts ineffective as a cash flow hedge (i)** | | | | | | Current derivative liabilities | – | – | 63,045 | (5,504) | | Amounts recognised in Losses from the fair value of financial instruments in the Consolidated income statement | – | (1,399) | – | (11,551) | | **Foreign currency options ineffective as a cash flow hedge (ii)** | | | | | | Amounts recognised in Losses from the fair value of financial instruments in the Consolidated income statement | – | – | – | 1,138 | | **Forward currency contracts not in a designated cash flow hedge (iii)** | | | | | | Current derivative assets | 17,134 | 912 | 4,880 | 44 | | Current derivative liabilities | 20,425 | (41) | 20,526 | (340) | | | 37,559 | 871 | 25,406 | (296) | | Amounts recognised in Financial income/(expense) in the Consolidated income statement | – | 1,728 | – | 98 | | **Total forward contracts and options** | | | | | | Non-current derivative assets | 268,908 | 9,443 | – | – | | Current derivative assets | 135,405 | 5,373 | 82,340 | 7,121 | | Current derivative liabilities | 129,859 | (5,089) | 212,521 | (17,890) | | Non-current derivative liabilities | 21,148 | (120) | 179,149 | (9,463) | | | 555,320 | 9,607 | 474,010 | (20,232) | The total losses recognised in Revenue in the Consolidated income statement relating to cash flow hedges previously recognised through other comprehensive income amounted to £21,553,000 (2022: £3,385,000). For the Group's foreign currency forward contracts at the balance sheet date, if Sterling appreciated by 5% against the US Dollar, Euro and Japanese Yen, this would increase pre-tax equity by £24,655,000 and increase profit before tax by £1,789,000, while a depreciation of 5% would decrease pre-tax equity by £27,251,000 and decrease profit before tax by £1,977,000. Rentshaw plc Annual Report 2023 189 Financial statements # Notes continued ## 26. Share capital and reserves The Group defines capital as being the equity attributable to the owners of the Company, which is captioned on the Consolidated balance sheet. The Boards policy is to maintain a strong capital base, ensuring the security of the Group, and to maintain a balance between significant returns to shareholders, with a progressive dividend policy. This note presents figures relating to this capital management, along with an analysis of all elements of Equity attributable to shareholders and non-controlling interests. ### Share capital | | 2023 £'000 | 2022 £'000 | | --- | --- | --- | | Allotted, called-up and fully paid 72,788,543 ordinary shares of 20p each | 14,558 | 14,558 | The ordinary shares are the only class of share in the Company. Holders of ordinary shares are entitled to vote at general meetings of the Company and receive dividends as declared. The Articles of Association of the Company do not contain any restrictions on the transfer of shares nor on voting rights. ### Dividends paid Dividends paid comprised: | | 2023 £'000 | 2022 £'000 | | --- | --- | --- | | 2022 final dividend paid of 56.6p per share (2021: 52.0p) | 41,190 | 37,850 | | Interim dividend paid of 16.8p per share (2022: 16.0p) | 12,217 | 11,644 | | Total dividends paid | 53,407 | 49,494 | A final dividend of 59.4p per share is proposed in respect of 2023, which will be payable on 7 December 2023 to shareholders on the register on 3 November 2023. ### Own shares held The EBT is responsible for purchasing shares on the open market on behalf of the Company to satisfy the Plan awards, see note 24 for further detail. Own shares held are recognised as an element in equity until they are transferred at the end of the vesting period. Movements during the year were: | | 2023 £'000 | 2022 £'000 | | --- | --- | --- | | Balance at the beginning of the year | (750) | (404) | | Disposal of own shares on vesting of awards | – | 404 | | Acquisition of own shares | (2,213) | (750) | | Balance at the end of the year | 2,963 | (750) | In November 2021, 14,396 shares were purchased on the open market by the EBT at a price of £52.10, costing a total of £750,017. The fair value of these awards at the grant date, being 28 October 2021, was £734,317. These shares will vest on 28 October 2024, with no forfeitures expected at 30 June 2023. In November 2022, 54,582 shares were purchased on the open market by the EBT at a price of £40.24, costing a total of £2,212,831. The fair value of these awards at the grant date, being 26 October 2022, was £1,915,000. These shares will vest on 26 October 2025, with no forfeitures expected at 30 June 2023. ### Other reserve The other reserve relates to share-based payments charges according to IFRS 2 in relation to the Plan, along with historical amounts relating to investments in subsidiary undertakings not eliminated on consolidation. Movements during the year were: | | 2023 £'000 | 2022 £'000 | | --- | --- | --- | | Balance at the beginning of the year | (180) | 44 | | Share-based payments charge in respect of shares vesting in 2022 | – | 16 | | Transfer of own shares on vesting of awards | – | (404) | | Share-based payments charge in respect of shares vesting in 2024 | 245 | 164 | | Share-based payments charge in respect of shares vesting in 2025 | 432 | – | | Balance at the end of the year | 497 | (180) | 190**Rennshaw plc**^{}[] Annual Report 2023 ## 26. Share capital and reserves continued ### Currency translation reserve The currency translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of the overseas operations and currency movements on intragroup loan balances classified as net investments in overseas operations. Movements during the year were: | | 2023 £'000 | 2022 £'000 | | --- | --- | --- | | Balance at the beginning of the year | **14,459** | 3,719 | | (Loss)/gain on net assets of foreign currency operations | **(5,905)** | 3,529 | | Transfer of accumulated loss relating to net assets of Russian operation | — | 575 | | (Loss)/gain on intragroup loans classified as net investments in foreign operations | **(2,095)** | 8,047 | | Tax on translation of net investments in foreign operations | **313** | (1,529) | | (Loss)/gain in the year relating to subsidiaries | **(7,687)** | 10,622 | | Currency exchange differences relating to joint ventures | — | 118 | | Balance at the end of the year | **6,772** | 14,459 | See note 5 for further information on intragroup loans classified as net investments. ### Cash flow hedging reserve The cash flow hedging reserve, for both the Group and the Company, comprises all foreign exchange differences arising from the valuation of forward exchange contracts which are effective hedges and mature after the year end. These are valued on a mark-to-market basis, are accounted for in Other comprehensive income and expense and accumulated in Equity, and are recycled through the Consolidated Income statement and Company income statement when the hedged item affects the income statement, or when the hedging relationship ceases to be effective. See note 25 for further detail. Movements during the year were: | | 2023 £'000 | 2022 £'000 | | --- | --- | --- | | Balance at the beginning of the year | **(10,923)** | 11,345 | | Losses on contract maturity recognised in revenue during the year | **(21,553)** | (3,385) | | Revaluations during the year | **44,720** | (25,038) | | Deferred tax movement | **(5,692)** | 6,155 | | Balance at the end of the year | **6,552** | (10,923) | ### Non-controlling interest Movements during the year were: | | 2023 £'000 | 2022 £'000 | | --- | --- | --- | | Balance at the beginning of the year | **(577)** | (577) | | Share of profit for the year | — | — | | Balance at the end of the year | **(577)** | (577) | The non-controlling interest represents the minority shareholdings in Renishaw Diagnostics Limited – 7.6%. ## 27. Capital commitments At the end of a financial year, we typically have obligations to make payments in the future, for which no provision is made in the financial statements. In 2022, we committed to the expansion of one of our production facilities in Wales, UK, which is expected to cost an additional £35m over the next year. Authorised and committed capital expenditure at the end of the year were: | | 2023 £'000 | 2022 £'000 | | --- | --- | --- | | Freehold land and buildings | **35,607** | 65,328 | | Plant and equipment | **11,423** | 22,760 | | Motor vehicles | **14** | 319 | | Total committed capital expenditure | **47,044** | 88,407 | Financial Analysis Renishaw plc Annual Report 2023 191 Financial statements # Notes continued # 28. Related parties We report our two-part venture companies, RLS Merlina Sahnika d.o.o. and Metrology Software Products Limited, as related parties. Joint ventures and other related parties had the following transactions and balances with the Group: | | 2023 £'000 | 2022 £'000 | | --- | --- | --- | | Purchased goods and services from the Group during the year | 117 | 553 | | Sold goods and services to the Group during the year | 24,271 | 29,355 | | Paid dividends to the Group during the year | 924 | 525 | | Amounts owed to the Group at the year end | 35 | 1 | | Amounts owed by the Group at the year end | 2,837 | 3,950 | | Loans owed to the Group at the year end | - | 350 | There were no bad debts relating to related parties written off during 2023 or 2022. By virtue of their long-standing voting agreement, Sir David McMurtry (Executive Chairman 38.23% shareholder) and John Deer (Non-executive Deputy Chairman, together with his wife, 16.59%), are the ultimate controlling party of the Group. See page 137 of the Governance Report for further details in relation to this. The only significant transactions between the Group and these parties are in relation to their respective remuneration, as detailed in the Governance Report. # 29. Alternative performance measures There are sometimes a frequently occurring events which impact our financial statements, recognised according to applicable IFRS, that we believe should be excluded from adjusted performance measures to give readers additional useful and comparable views of our underlying performance. In accordance with Renshaw's alternative performance measures (APMs) policy and ESMA Guidelines on Alternative Performance Measures (2015), APMs we use are Revenue at constant exchange rates, Adjusted profit before tax, Adjusted earnings per share and Adjusted operating profit. Revenue at constant exchange rates is defined as revenue recalculated using the same rates as were applicable to the previous year and excluding forward contract gains and losses. | Revenue at constant exchange rates: | 2023 £'000 | 2022 £'000 | | --- | --- | --- | | Statutory revenue as reported | 688,573 | 671,076 | | Adjustment for forward contract gains | 7,815 | (744) | | Adjustment to restate current year at previous year exchange rates | (33,549) | - | | Revenue at constant exchange rates | 662,839 | 670,332 | | Year-on-year revenue growth at constant exchange rates | -1.1% | - | Year-on-year revenue growth at constant exchange rates for 2022 was +18.3%. Adjusted profit before tax, Adjusted earnings per share and Adjusted operating profit are defined as the profit before tax, earnings per share and operating profit after excluding: - costs relating to a revision to a provision made in 2020 relating to restructuring (a); - third-party costs relating to the formal sales process ('FSP') (b); - a UK defined benefit pension scheme past service cost (c); - a US defined benefit pension scheme past service cost (d); and - gains and losses in fair value from forward currency contracts which did not qualify for hedge accounting and which have yet to mature (e). a) Restructuring costs, where applicable during a year, are reported separately in the Consolidated income statement and excluded from adjusted measures on the basis that they relate to matters that do not frequently recur. During 2022, a revised estimate of a warranty provision relating to restructuring in 2020 resulted in a reduction to this provision of £1,888,000, then in 2023 a further revision resulted in a reduction of £717,000. As this provision was initially excluded from adjusted measures, the revised estimates have also been excluded. b) Third-party legal and advisory costs relating to the 2021 FSP were excluded from adjusted measures in 2021. During 2022, £200,000 was released from an accrual made in respect of these costs relating to indirect tax, which was also excluded in the previous year. 192 Renshaw plc Annual Report 2023 ## 29. Alternative performance measures continued c) In 2020, the Company agreed to an augmentation of UK defined benefit pension scheme members' benefits. This was effected in the scheme Rules through a Deed of Amendment to the Trust Deed and Rules, signed by the Trustees and Company on 20 June 2022, therefore relates to a matter which is not expected to frequently recur. The impact on liabilities of this plan amendment, totalling £11,895,000, were recognised as a past service cost, reported separately in the Consolidated income statement and excluded from adjusted profit measures. d) In 2023, a termination of the US plan (other than distribution of surplus) was completed, with most members opting for lump sum payments. It was agreed that the surplus will be distributed to qualifying scheme members. Accordingly, the surplus of £2,139,000 has been treated as an augmentation to member benefits, reported separately in the Consolidated income statement and excluded from adjusted profit measures. See note 23 for further detail. e) From 2017, the gains and losses from the fair value of financial instruments not effective for cash flow hedging have been excluded from statutory profit before tax, statutory earnings per share and statutory operating profit in arriving at Adjusted profit before tax. Adjusted earnings per share and Adjusted operating profit to reflect the Board's intent that the instruments would provide effective hedges. This is classified as 'Fair value (gains)/losses on financial instruments not eligible for hedge accounting (i)' in the following reconciliations. The amounts shown as reported in revenue represent the amount by which revenue would change had all the derivatives qualified as eligible for hedge accounting. Gains and losses which recycle through the Consolidated income statement as a result of contracts deemed ineffective during 2020, as described in note 25, are also excluded from adjusted profit measures, on the basis that all forward contracts are still expected to be effective hedges for Group revenue. This is classified as 'Fair value (gains)/losses on financial instruments not eligible for hedge accounting (ii)' in the following reconciliations. The Board considers these alternative performance measures to be additional useful measures to analyse the underlying performance of the Group. | Adjusted profit before tax: | 2023 £'000 | 2022 £'000 | | --- | --- | --- | | Statutory profit before tax | 145,065 | 145,586 | | Revised estimate of 2020 restructuring provisions | (717) | (1,688) | | Third-party FSP costs | – | (200) | | UK defined benefit pension scheme past service cost | – | 11,695 | | US defined benefit pension scheme past service cost | 2,139 | – | | Fair value (gains)/losses on financial instruments not eligible for hedge accounting (i): | | | | – reported in revenue | – | 2,621 | | – reported in (gains)/losses from the fair value of financial instruments | – | (1,138) | | Fair value (gains)/losses on financial instruments not eligible for hedge accounting (ii): | | | | – reported in revenue | (6,903) | (4,685) | | – reported in (gains)/losses from the fair value of financial instruments | 1,399 | 11,551 | | Adjusted profit before tax | 140,983 | 163,742 | | Adjusted earnings per share: | 2023 pence | 2022 pence | | --- | --- | --- | | Statutory earnings per share | 159.7 | 165.4 | | Revised estimate of 2020 restructuring provisions | (0.8) | (0.3) | | Third-party FSP costs | – | (1.9) | | UK defined benefit pension scheme past service cost | – | 13.0 | | US defined benefit pension scheme past service cost | 2.2 | – | | Fair value (gains)/losses on financial instruments not eligible for hedge accounting (i): | | | | – reported in revenue | – | 2.9 | | – reported in (gains)/losses from the fair value of financial instruments | – | (1.3) | | Fair value (gains)/losses on financial instruments not eligible for hedge accounting (ii): | | | | – reported in revenue | (7.5) | (5.2) | | – reported in (gains)/losses from the fair value of financial instruments | 1.5 | 12.9 | | Adjusted earnings per share | 155.1 | 185.5 | Summary of Results Renistnew plc Annual Report 2023 193 Financial statements # Notes continued ## 29. Alternative performance measures continued | Adjusted operating profit: | 2023 £'000 | 2022 £'000 | | --- | --- | --- | | Statutory operating profit | **134,489** | 143,250 | | Revised estimate of 2020 restructuring provisions | **(717)** | (1,688) | | Third-party FSP costs | — | (200) | | UK defined benefit pension scheme past service cost | — | 11,695 | | US defined benefit pension scheme past service cost | **2,139** | — | | Fair value (gains)/losses on financial instruments not eligible for hedge accounting (i): | | | | — reported in revenue | — | 2,621 | | — reported in (gains)/losses from the fair value of financial instruments | — | (1,138) | | Fair value (gains)/losses on financial instruments not eligible for hedge accounting (ii): | | | | — reported in revenue | **(6,903)** | (4,685) | | — reported in (gains)/losses from the fair value of financial instruments | **1,399** | 11,551 | | Adjusted operating profit | **130,407** | 161,406 | ## Adjustments to the segmental operating profit: | Manufacturing technologies | 2023 £'000 | 2022 £'000 | | --- | --- | --- | | Operating profit before losses from fair value of financial instruments and UK and US defined benefit pension schemes' past service cost | **132,843** | 162,549 | | Revised estimate of 2020 restructuring provisions | **(717)** | (1,688) | | Third-party FSP costs | — | (197) | | Fair value (gains)/losses on financial instruments not eligible for hedge accounting (i): | | | | — reported in revenue | — | 2,576 | | Fair value (gains)/losses on financial instruments not eligible for hedge accounting (ii): | | | | — reported in revenue | **(6,644)** | (4,605) | | Adjusted manufacturing technologies operating profit | **125,482** | 158,635 | | Analytical instruments and medical devices | 2023 £'000 | 2022 £'000 | | --- | --- | --- | | Operating profit before losses from fair value of financial instruments and UK and US defined benefit pension schemes' past service cost | **5,184** | 2,809 | | Third-party FSP costs | — | (3) | | Fair value (gains)/losses on financial instruments not eligible for hedge accounting (i): | | | | — reported in revenue | — | 45 | | Fair value (gains)/losses on financial instruments not eligible for hedge accounting (ii): | | | | — reported in revenue | **(259)** | (80) | | Adjusted analytical instruments and medical devices operating profit | **4,925** | 2,771 | 194**Rennishow**^{}[] (e) Annual Report 2023 ## Company balance sheet | | notes | 2023 €'000 | 2022 €'000 | | --- | --- | --- | --- | | **Assets** | | | | | Property, plant and equipment | C.31 | **177,288** | 133,171 | | Right-of-use assets | | **2,151** | 1,814 | | Investment properties | | **5,758** | 5,657 | | Intangible assets | C.32 | **34,137** | 28,442 | | Investments in subsidiaries | C.33 | **298,174** | 288,174 | | Investments in joint ventures | C.34 | **1,453** | 1,453 | | Long-term loans to Group undertakings | | **74,173** | 95,919 | | Employee benefits | C.40 | **57,416** | 40,331 | | Derivatives | 25 | **9,443** | – | | **Total non-current assets** | | **659,993** | 594,961 | | **Current assets** | | | | | Inventories | C.36 | **122,905** | 100,034 | | Trade receivables | C.37 | **35,675** | 81,864 | | Short-term loans to Group undertakings | | **–** | 774 | | Current tax | | **16,087** | 7,501 | | Other receivables | | **19,490** | 18,739 | | Derivatives | 25 | **5,373** | 7,121 | | Bank deposits | 15 | **125,000** | 100,000 | | Cash and cash equivalents | | **16,267** | 111,162 | | **Total current assets** | | **340,797** | 427,195 | | **Current liabilities** | | | | | Trade payables | | **13,810** | 21,618 | | Short-term loans from Group undertakings | | **–** | 1,026 | | Provisions | C.38 | **2,130** | 3,727 | | Lease liabilities | | **15** | 15 | | Derivatives | 25 | **5,089** | 17,890 | | Other payables | C.39 | **47,620** | 54,046 | | **Total current liabilities** | | **68,664** | 98,322 | | **Net current assets** | | **272,133** | 328,873 | | **Non-current liabilities** | | | | | Deferred tax liabilities | C.35 | **41,875** | 24,944 | | Lease liabilities | | **2,152** | 1,797 | | Long-term loans from Group undertakings | | **100** | 346 | | Derivatives | 25 | **120** | 9,463 | | **Total non-current liabilities** | | **44,247** | 36,550 | | **Total assets less total liabilities** | | **887,879** | 887,284 | | **Equity** | | | | | Share capital | C.41 | **14,558** | 14,558 | | Share premium | | **42** | 42 | | Own shares held | 26 | **(2,963)** | (750) | | Cash flow hedging reserve | 26 | **6,552** | (10,923) | | Retained earnings | | **868,733** | 884,077 | | Other reserve | | **957** | 280 | | **Total equity** | | **887,879** | 887,284 | The Company reported a profit for the financial year ended 30 June 2023 of £27,559,000 (2022: £115,526,000). These financial statements were approved by the Board of Directors on 18 September 2023 and were signed on its behalf by: Sir David McMurtry Allen Roberts Directors Rentshaw plc Annual Report 2023 195 Financial statements ## Company statement of changes in equity ## for the year ended 30 June 2023 | | | | | Own | Cash flow | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Share | | Share | shares | hedging | | Retained | | Other | | | | capital | premium | | held | | reserve | earnings | | reserve | Total | | Year ended 30 June 2022 | £’000 | | £’000 | £’000 | | £’000 | | £’000 | £’000 | £’000 | Balance at 1 July 2021 14,558 42 (404) 11,345 770,262 504 796,307 Profit for the year − − − − 115,520 − 115,520 Other comprehensive income andexpense (net of tax) Remeasurement of defined benefit pension scheme assets/ liabilities − − − − 47,789 − 47,789 Changes in fair value of cash flow hedges − − − (22,268) − − (22,268) Total other comprehensive income andexpense − − − (22,268) 47,789 − 25,521 Total comprehensive income andexpense − − − (22,268) 163,309 − 141,041 Share-based payments charge − − − − − 180 180 Own shares transferred on vesting − − 404 − − (404) − Own shares purchased − − (750) − − − (750) Dividends paid − − − − (49,494) − (49,494) Balance at 30 June 2022 14,558 42 (750) (10,923) 884,077 280 887,284 Year ended 30 June 2023 Profit for the year − − − − 27,559 − 27,559 Other comprehensive income andexpense (net of tax) Remeasurement of defined benefit pension scheme assets/ liabiities − − − − 10,504 − 10,504 Changes in fair value of cash flow hedges − − − 17,475 − − 17,475 Total other comprehensive income andexpense − − − 17,475 10,504 − 27,979 Total comprehensive income andexpense − − − 17,475 38,063 − 55,538 Share-based payments charge − − − − − 677 677 Own shares purchased − − (2,213) − − − (2,213) Dividends paid − − − − (53,407) − (53,407) Balance at 30 June 2023 14,558 42 (2,963) 6,552 868,733 957 887,879 196 Renishaw plc Annual Report 2023 # Notes to the Company financial statements ## C.30. Accounting policies The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the financial statements of the Company. ### Basis of preparation The financial statements were prepared in accordance with the Companies Act 2006 and Financial Reporting Standard 101 'Reduced Disclosure Framework' (FRS 101). The Company has applied the exemptions available under FRS 101 in respect of the following disclosures: - a cash flow statement and related notes; - comparative period reconciliations for share capital, tangible fixed assets and intangible fixed assets; - disclosures in respect of transactions with wholly-owned subsidiaries; - disclosures in respect of capital management; - the effects of new but not yet effective IFRS; and - disclosures in respect of the compensation of key management personnel. As the consolidated financial statements of the Company include the equivalent disclosures, the Company has also taken the exemptions under FRS 101 available in respect of certain disclosures required by IFRS 13 'Fair Value Measurement' and the disclosures required by IFRS 7 'Financial Instruments: Disclosures'. The financial statements have been prepared on the historical cost basis, except for the fair value of financial instruments. Historical cost is based on the fair value of the consideration given in exchange for the assets. The principal accounting policies are set out below. Under section 408 of the Companies Act 2006 the Company is exempt from the requirement to present its own profit and loss account. ### Critical accounting judgements and estimation uncertainties The areas of key estimation uncertainty and critical accounting judgement that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities in the next financial year for the Company are consistent with those of the Group, as summarised on page 161. ### Going concern In preparing these financial statements, the Directors have adopted the going concern basis. The decision to adopt the going concern basis was made as part of the assessment of the Group's going concern status, details of which are set out on page 161. Having considered the impact on the Company of the same factors set out on page 161, and the Company's business model, risk management and principal risks, and significant financial resources and cash balances, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period to 30 September 2024. Accordingly, they continue to adopt the going concern basis in preparing these financial statements. ### Investments Investments in subsidiary and associated undertakings are stated at cost less any provision for permanent impairment losses. ### Property, plant and equipment, and depreciation Property, plant and equipment assets are stated at cost less accumulated depreciation. Depreciation is provided to write off the cost of assets less their estimated residual value on a straight-line basis over their estimated useful economic lives as follows: - freehold buildings, 50 years; - plant and equipment, 3 to 25 years; - motor vehicles, 3 to 4 years; and - no depreciation is provided on freehold land. ### Inventories Inventories are valued at the lower of actual cost (on a FIFO basis) and net realisable value. Cost comprises direct materials and labour plus overheads applicable to the stage of manufacture reached. ### Research and development Expenditure on research activities is recognised in the income statement as an expense as incurred. Expenditure on development activities is capitalised if the product or process is technically and commercially feasible and the Company intends and has the technical ability and sufficient resources to complete development, future economic benefits are probable and the Company can measure reliably the expenditure attributable to the intangible asset during its development. Financial Analysis Renistraw plc Annual Report 2023 197 Financial statements ## Notes to the Company financial statements continued C.30. Accounting policies (continued) Taxation The charge for taxation is based on the Company’s profit for the year. Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax assets are recognised to the extent that it is regarded as probable that they will be recovered. Employee benefits The Company operated a contributory pension scheme, of the defined benefit type up to 5 April 2007, after which this scheme was closed for future accruals to existing members and was closed to new members. Since 5 April 2007, the Company has operated a defined contribution scheme. The scheme is administered by trustees who are independent of the Company finances. Pension scheme assets in the defined benefit scheme are measured at fair value using market value. Pension scheme liabilities are measured using a projected unit method and discounted at the current rate of return on a high-quality corporate bond of equivalent term and currency to the liability. The expected return on the scheme’s assets and the interest on the scheme’s liabilities arising from the passage of time are included in other finance income. The pension scheme’s surplus, to the extent that it is considered recoverable, or deficit is recognised in full and presented on the face of the balance sheet. Where a guarantee is in place in relation to a pension scheme deficit, liabilities are reported in accordance with IFRIC 14. To the extent that contributions payable will not be available as a refund after they are paid into the plan, a liability is recognised at the point the obligation arises, which is the point at which the minimum funding guarantee is agreed. Accruals are made for holiday pay, based on a calculation of the number of days’ holiday earned during the year but not yet taken, and also for performance bonuses, if applicable. Derivative financial instruments In accordance with its treasury policy, the Company does not hold or issue derivative financial instruments for speculative purposes. The Company uses forward exchange contracts to hedge its exposure to foreign exchange risk arising from operational and financing activities. Forward exchange contracts are recognised at fair value, being the estimated amount that the Company would pay or receive to terminate them at the balance sheet date based on prevailing foreign currency rates. Changes in the fair value of foreign currency derivatives which are designated and effective as hedges of future cash flows are recognised in Other comprehensive income and in the currency hedging reserve, and subsequently transferred to the carrying amount of the hedged item or the income statement. The ineffective part of any gain or loss is recognised in the income statement immediately. Other financial instruments Loans to joint ventures are initially recognised at fair value and are subsequently held at amortised cost. Loans to Group undertakings are initially recognised at fair value and are subsequently held at amortised cost using the effective interest rate method. Where such intercompany loans are repayable on demand the Company determines whether any impairment provision is required by assessing the company’s ability to repay the loan. Where it is determined that a recipient company does not have the capacity to repay the loan at the balance sheet date, or the loan is not repayable on demand, an expected credit loss model is used to calculate the impairment provision required. Trade and other current receivables are initially recognised at fair value and are subsequently held at amortised cost less any provision for bad and doubtful debts. Trade and other current payables are initially recognised at fair value and are subsequently held at amortised cost. Warranty The Company provides a warranty from the date of purchase, except for those products that are installed by the Company where the warranty starts from the date of completion of the installation. This is typically for a 12-month period, although up to three years is given for a small number of products. A warranty provision is included in the accounts, which is calculated on the basis of historical returns and internal quality reports. Foreign currencies Transactions in foreign currencies are translated at the rate of exchange prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated into Sterling at the foreign exchange rate prevailing at that date. Foreign exchange differences arising on such translation are recognised in the income statement. 198 Renishaw plc Annual Report 2023 C.31. Property, plant and equipment | | Freehold | | | | | Assets in the | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | land and | | Plant and | | Motor | | course of | | | | | buildings | | equipment | | vehicles | construction | | | Total | | Year ended 30 June 2023 | | £’000 | | £’000 | £’000 | | | £’000 | £’000 | Cost At 1 July 2022 107,114 200,969 3,843 7,382 319,308 Additions 101 9,542 − 48,262 57,905 Transfers of assets in the course of construction 1,409 4,774 − (6,183) − Disposals (249) (3,070) (541) − (3,860) At 30 June 2023 108,375 212,215 3,302 49,461 373,353 Depreciation At 1 July 2022 24,250 158,405 3,482 − 186,137 Charge for the year 2,001 10,904 202 − 13,108 Released on disposals (34) (2,606) (539) − (3,179) At 30 June 2023 26,217 166,703 3,145 − 196,065 Net book value At 30 June 2023 82,158 45,512 157 49,461 177,288 At 30 June 2022 82,864 42,564 361 7,382 133,171 At 30 June 2023, properties with a net book value of £88,778,000 (2022: £54,208,000) were subject to a fixed charge to secure the UKdefined benefit pension scheme liabilities. See note 23 for additional information. Financial statements Additions to assets in the course of construction comprise: 2023 2022 £’000 £’000 Freehold land and buildings 37,474 826 Plant and equipment 10,788 5,978 48,262 6,804 C.32. Intangible assets Software licences, | | | | | Internally | | | intellectual | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | generated | | | property and | | | | | | | development | | | other intangible | | | | | | Goodwill | | | | costs | | | assets | Total | | Year ended 30 June 2023 | | £’000 | | | £’000 | | | £’000 | £’000 | Cost At 1 July 2022 9,305 162,384 25,255 196,944 Additions − 10,448 1,653 12,101 Disposals − − (10,439) (10,439) At 30 June 2023 9,305 172,832 16,469 198,606 Depreciation At 1 July 2022 9,305 137,485 21,712 168,502 Charge for the year − 4,892 1,001 5,893 Released on disposals − − (9,926) (9,926) At 30 June 2023 9,305 142,377 12,787 164,469 Net book value At 30 June 2023 − 30,455 3,682 34,137 At 30 June 2022 − 24,899 3,543 28,442 Renishaw plc Annual Report 2023 199 Financial statements ## Notes to the Company financial statements continued ### C.33. Investments in subsidiaries Movements during the year were: | | 2023 £'000 | 2022 £'000 | | --- | --- | --- | | Balance at the beginning of the year | 288,174 | 288,548 | | Additions | 10,000 | – | | Impairment | – | (374) | | Balance at the end of the year | 298,174 | 288,174 | During the year, the Company made an additional investment of £10,000,000 in Renishaw UK Sales Limited. Details of the Company's subsidiaries are given in note C.44. ### C.34. Investments in joint ventures Investments in joint ventures at 30 June 2023 were £1,453,000 (2022: £1,453,000). There were no movements during the year. Details of the Company's joint ventures are given in note C.45. ### C.35. Deferred tax Balances at the end of the year were: | | 2023 | | | 2022 | | | | --- | --- | --- | --- | --- | --- | --- | | | Assets £'000 | Liabilities £'000 | Net £'000 | Assets £'000 | Liabilities £'000 | Net £'000 | | Property, plant and equipment | – | (22,506) | (22,506) | – | (15,792) | (15,792) | | Intangible assets | – | (3,592) | (3,592) | – | (2,311) | (2,311) | | Defined benefit pension scheme | – | (14,354) | (14,354) | – | (10,474) | (10,474) | | Derivatives | – | (2,184) | (2,184) | 3,508 | – | 3,508 | | Other | 761 | – | 761 | 125 | – | 125 | | Balance at the end of the year | 761 | (42,636) | (41,875) | 3,633 | (28,577) | (24,944) | Deferred tax assets and liabilities are offset where there is a legally enforceable right of offset and there is an intention to net settle the balances. After taking these offsets into account, the net position of £41,875,000 liability (2022: £24,944,000 liability) is presented as a deferred tax liability in the Company's balance sheet. Where deferred tax assets are recognised, the Directors are of the opinion, based on recent and forecast trading, that the level of taxable profits in current and future years make it more likely than not that these assets will be recovered. Movements during the year were: | | 2023 £'000 | 2022 £'000 | | --- | --- | --- | | Balance at the beginning of the year | (24,944) | (11,687) | | Movements during the year | (16,931) | (13,257) | | Balance at the end of the year | (41,875) | (24,944) | ### C.36. Inventories An analysis of inventories at the end of the year was: | | 2023 £'000 | 2022 £'000 | | --- | --- | --- | | Raw materials | 52,193 | 43,845 | | Work in progress | 35,303 | 30,672 | | Finished goods | 35,409 | 25,517 | | Balance at the end of the year | 122,905 | 100,034 | 200 Renishaw plc Annual Report 2023 ### C.37. Trade receivables An analysis of trade receivables at the end of the year was: | | 2023 £'000 | 2022 £'000 | | --- | --- | --- | | Trade receivables | 37 | 13 | | Amounts owed by Group undertakings | 35,638 | 81,851 | | Balance at the end of the year | 35,675 | 81,864 | ### C.38. Provisions Warranty provision movements during the year were: | | 2023 £'000 | 2022 £'000 | | --- | --- | --- | | Balance at the beginning of the year | 3,727 | 5,795 | | Created in the year | 2,253 | 1,860 | | Unused amounts reversed | (717) | (1,688) | | Used in the year | (3,133) | (2,240) | | | (1,597) | (2,068) | | Balance at the end of the year | 2,130 | 3,727 | The warranty provision has been calculated on the basis of historical return-in-warranty information and other quality reports. It is expected that most of this expenditure will be incurred in the next financial year and all expenditure will be incurred within three years of the balance sheet date. ### C.39. Other payables An analysis of other payables due within one year at the end of the year was: | | 2023 £'000 | 2022 £'000 | | --- | --- | --- | | Amounts owed to Group undertakings | 24,075 | 26,373 | | Amounts owed to joint ventures | - | 190 | | Other taxes and social security | 3,902 | 3,849 | | Other creditors and accruals | 19,643 | 23,674 | | Balance at the end of the year | 47,620 | 54,046 | Other creditors and accruals includes £7,039,000 (2022: £10,054,000) relating to performance bonus accruals ### C.40. Employee benefits The Company operated a defined benefit pension scheme, which, at 5 April 2007, ceased any future accrual for current members and was closed to new members. Employees of the Company are now covered by a defined contribution scheme. The total pension cost of the Company for the year was £18,923,000 (2022: £15,891,000), of which £135,000 (2022: £121,000) related to Directors. The latest full actuarial valuation of the scheme was carried out at 30 September 2021 and updated to 30 June 2023 by a qualified independent actuary. The major assumptions used by the actuary for the scheme were: | | 30 June 2023 | 30 June 2022 | | --- | --- | --- | | Rate of increase in pension payments | 3.05% | 3.05% | | Discount rate | 5.10% | 3.60% | | Inflation rate (RPI) | 3.25% | 3.10% | | Inflation rate (CPI) | 2.25% | 2.10% | | Retirement age | 64 | 64 | The mortality assumption used for 2023 is the S3PVA base tables and CMI 2022 model, with long-term improvements of 1% per annum. Adjustments have been made to both the core base tables and CMI 2022 model to allow for the scheme's membership profile and best estimate assumptions of future mortality improvements. The weighted average duration of the defined benefit scheme obligation is around 17 years (2022: 22 years). See note 23 for further details of mortality assumptions and sensitivities. Financial Analysis Renshaw plc Annual Report 2023 201 Financial statements ## Notes to the Company financial statements continued C.40. Employee benefits (continued) The assets and liabilities in the scheme were: | 30 June | | % of | 30 June | | % of | | --- | --- | --- | --- | --- | --- | | | 2023 | total | | 2022 | total | | | £’000 | assets | | £’000 | assets | Market value of assets: Credit and fixed income funds 54,656 30 9,147 5 Index linked gilts 53,738 30 1,489 1 Cash and other 38,642 21 754 − Multi-asset fund 21,432 12 79,613 41 Fixed interest gilts 13,219 7 − − Equities − − 102,859 83 181,687 100 193,862 100 Actuarial value of liabilities (124,271) − (153,531) − Surplus/(deficit) in the scheme 57,416 − 40,331 − Deferred tax thereon (14,354) − (10,474) − All equities had quoted prices in active markets in the UK, North America, Europe, Asia Pacific, Japan and emerging markets. The movements in the scheme were: Assets Liabilities Total Year ended 30 June 2023 £’000 £’000 £’000 Surplus in scheme at the beginning of the year 193,862 (153,531) 40,331 Contributions 2,177 − 2,177 Interest on pension scheme 6,962 (5,443) 1,519 Remeasurement gain/(loss) under IAS 19 (16,432) 30,119 13,687 Scheme administration expenses (298) − (298) Benefits paid (4,584) 4,584 − Surplus in scheme at the end of the year 181,687 (124,271) 57,416 Assets Liabilities Total Year ended 30 June 2022 £’000 £’000 £’000 Deficit in scheme at the beginning of the year 204,959 (224,122) (19,163) Contributions 8,702 − 8,702 Interest on pension scheme 3,812 (4,086) (274) Remeasurement loss from augmentation of members’ benefits − (11,695) (11,695) Remeasurement gain/(loss) under IAS 19, the asset ceiling and IFRIC 14 (16,809) 79,570 62,761 Benefits paid (6,802) 6,802 − Surplus in scheme at the end of the year 193,862 (153,531) 40,331 The analysis of the amount recognised in Other comprehensive income and expense was: 2023 2022 £’000 £’000 Actuarial gain/(loss) arising from: Changes in demographic assumptions 1,802 3,987 Changes in financial assumptions 36,137 59,797 Experience adjustment (7,820) (7,072) Return on plan assets excluding interest income (16,432) (16,809) Adjustment for the asset ceiling − 3,280 Adjustment to liabilities for IFRIC 14 − 19,578 Total recognised in the Other comprehensive income and expense 13,687 62,761 C.41. Share capital 2023 2022 £’000 £’000 Allotted, called-up and fully paid 72,788,543 ordinary shares of 20p each 14,558 14,558 The ordinary shares are the only class of share in the Company. Holders of ordinary shares are entitled to vote at general meetings of the Company and receive dividends as declared. The Articles of Association of the Company do not contain any restrictions on the transfer of shares nor on voting rights. 202 Renishaw plc Annual Report 2023 C.42. Related parties During the year, related parties, these being the Group’s joint ventures (see note 13), had the following transactions and balances with the Company: 2023 2022 £’000 £’000 Purchased goods and services from the Company during the year 81 76 Sold goods and services to the Company during the year 2,138 3,898 Amounts owed by the Company at the year end 154 150 Loans owed to the Company at the year end − 350 C.43. Capital commitments Capital commitments at the end of the year, for which no provision has been made in the financial statements, were: 2023 2022 £’000 £’000 Authorised and committed 43,662 87,299 C.44. Subsidiary undertakings The following are the subsidiary undertakings of Renishaw plc as at 30 June 2023, all of which are wholly-owned and held by a subsidiary undertaking, unless otherwise stated. The country in which each subsidiary has its registered/principal office is its domicile and country of incorporation. The accounting year-end for each subsidiary undertaking is 30 June unless otherwise stated. The shareholdings in all the subsidiary undertakings are in the ordinary share capital of those undertakings unless otherwise stated. The principal activities for all the subsidiary undertakings are those of the Company, as set out in the Other statutory and regulatory Financial statements disclosures, except as indicated below: D Dormant company * 31 March year end | F | ^ | | --- | --- | | Finance company | 31 December year end | | H | † | | Holding company | Ordinary-A shares | | T | ‡ | | Travel agency | Ordinary-C shares | Company Registered Office Owned by Renishaw plc D MTT Investments Limited D Renishaw Advanced Materials Limited F Renishaw International Limited D Renishaw Medical Limited New Mills, Wotton-under-Edge, Gloucestershire, GL12 8JR D Renishaw PT Limited United Kingdom D Renishaw Software Limited D Renishaw Transducer Systems Limited Renishaw UK Sales Limited T Wotton Travel Limited D | Measurement Devices Limited | | Research Park North, Riccarton, Edinburgh, Scotland, EH14 4AP | | --- | --- | --- | | | †‡ | United Kingdom | | Renishaw Diagnostics Limited | (92.4%) | | Renishaw Tehnicni Inženiring d.o.o. 4th Floor, Faculty of Electrical Engineering, University of Ljubljana, Tržaška cesta 25, Ljubljana, 1000 Slovenia Renishaw Neuro Solutions Limited Wotton Road, Charfield, Wotton-under-Edge, Gloucestershire, GL128SP United Kingdom Renishaw plc Annual Report 2023 203 Financial statements ## Notes to the Company financial statements continued C.44. Subsidiary undertakings (continued) Company Registered Office Owned by MTT Investments Limited D MTT Technologies Limited New Mills, Wotton-under-Edge, Gloucestershire, GL12 8JR United Kingdom Owned by Renishaw International Limited itp GmbH Rathausstraße 75-79, 66333, Völklingen Germany ^ OOO Renishaw (not actively trading) Kantemirovskaya Ulitsa, 58, 115477, Moskva, Russian Federation Renishaw (Austria) GmbH Industriestraße 9, Top 4.2, 2353, Guntramsdorf Austria Renishaw (Canada) Limited 2196 Dunwin Drive, Mississauga, Ontario, L5L 1C7 Canada Renishaw (Hong Kong) Limited Ever Gain Plaza Tower 2, 28/F, 88 Container Port Road, KwaiChung Hong Kong Renishaw (Ireland) DAC Swords Business Park, Mountgorry, Swords, County Dublin, K67 FX67 Ireland Renishaw (Israel) Limited HaTnufa Street 3, Kraytek Building, PO Box 4, Yokne’am Illit, 2069204 Israel Renishaw (Korea) Limited RM#1314, Woolim e-Biz Center, 28 Digital-ro 33-gil, Guro-gu, Seoul Republic of Korea Renishaw AB Biskop Henriks väg 2, 176 76, Järfälla Sweden Renishaw AG Stachelhofstrasse 2, 8854, Siebnen, Schübelbach Switzerland Renishaw Benelux BV Nikkelstraat 3, 4823 AE, Breda Netherlands Renishaw GmbH (5.1% owned by Renishaw plc) Karl-Benz Straße 12, 72124, Pliezhausen Germany Renishaw Gulf Measuring & Control Systems Office 501, 5th Floor, Block B, Business Village, Port Saeed, Deira, Dubai ^ Trading LLC United Arab Emirates Renishaw Healthcare, Inc. c/o C T Corporation System (Chicago), 208 South LaSalle Street, Suite 814, Cook County, Chicago IL 60604 United States Renishaw Hungary Kft Gyár utca 2, Budaörs, 2040 Hungary Renishaw Ibérica S.A.U. Gavà Park, Carrer de la Recerca, 7, Gavà, 08850, Barcelona Spain Renishaw K.K. 4 Chome-29-8 Yotsuya, Shinjuku-ku, Tokyo, 160-0004 Japan ^ Renishaw Latino Americana Ltda. Calçada dos Cravos, 141, Alphaville Comercial, Barueri, São Paulo, 06453-053 Brazil Renishaw Metrology Systems Limited* S.No.283, Hissa no.2, S.No.284, Hissa no.2 & 3A, Raisoni Industrial Estate, Village Mann, Taluka Mulshi, Pune, 411057 India ^ Renishaw México S. de R.L. de C.V. (0.001% Iridium 5004, Parque Industrial Milenium, Apodoca, Nuevo León, 66600 owned by Renishaw, Inc.) Mexico 204 Renishaw plc Annual Report 2023 C.44. Subsidiary undertakings (continued) Company Registered Office Renishaw Oceania Pty Limited c/o KPMG, Tower Two, Collins Square, 727 Collins Street, Docklands VIC 3008 Australia Renishaw Oy c/o WaBuCo Oy, Energiakuja 3, Helsinki, 00180 Finland Renishaw S.A.S. 15 Rue Albert Einstein, 77420, Champs-sur-Marne France Renishaw S.p.A. Via dei Prati 5, 10044 Pianezza, Torino Italy Renishaw s.r.o. Olomoucká 1164/85, Brno-Černovice, Brno, 627 00 Czech Republic Renishaw Sp. z o.o. ul. Osmańska 12, 02-823, Warszawa Poland Renishaw SRL (0.1% owned by Renishaw UK Sales Section A.2.13, 2nd Floor, Building A, Central Business Park, Limited) Calea Șerban Vodă 133, București, 040205 Romania Renishaw Teknoloji Çözümleri LŞ Turgut Özal Blv. No:193, Şerifali Mahallesi, Dudullu Osb, Ümraniye, İstanbul, 34775 Turkey H Renishaw US Holdings, Inc. c/o The Corporation Trust Company, 1209 Orange Street - Corporation Trust Center, New Castle County, Wilmington DE 19801 Financial statements United States Renishaw, Inc. c/o C T Corporation System (Chicago), 208 South LaSalle Street, Suite 814, Cook County, Chicago IL 60604 United States Owned by Renishaw (Hong Kong) Limited Renishaw (Malaysia) Sdn. Bhd. Upper Penthouse, Wisma RKT, 2, Jalan Raja Abdullah, Chow Kit, 50300 Kuala Lumpur, Wilayah Persekutuan Malaysia Renishaw (Shanghai) Management Company 288 Jiang Chang San Lu, Zhabei Qu, Shanghai, 20436 ^ Limited China ^ Renishaw (Shanghai) Trading Company Limited 286 Jiang Chang San Lu, Zhabei Qu, Shanghai, 20436 China Renishaw (Singapore) PTE Limited 988 Toa Payoh North, #06-07/08, 319002 Singapore Renishaw (Taiwan) Inc 2F. No. 2, Jingke 7th Road, Nantun District, Taichung, 40852 Taiwan Renishaw plc Annual Report 2023 205 Financial statements ## Notes to the Company financial statements continued ### C.44. Subsidiary undertakings (continued) | Company | Registered Office | | --- | --- | | **Owned by Renishaw US Holdings, Inc.** | | | Renishaw Fixturing Solutions, LLC | c/o The Corporation Company, 40600 Ann Arbor Road East, Suite 201, Plymouth, MI, 48170 United States | | Renishaw Properties, Inc. | c/o The Corporation Trust Company, 1209 Orange Street - Corporation Trust Center, New Castle County, Wilmington DE 19801 United States | | **Owned by Renishaw (Ireland) DAC** | | | Renishaw Mayfield SA | Stachelhofstrasse 2, 8854, Siebnen, Schübelbach Switzerland | | **Owned by Renishaw Medical Limited** | | | Renishaw Medical AM Solutions Limited^{1} | New Mills, Wotton-under-Edge, Gloucestershire, GL12 8JR United Kingdom | | **Owned by Renishaw Neuro Solutions Limited** | | | Renishaw Mayfield SARL | 31 Rue Ampère, 69680, Chassieu France | ### C.45. Joint ventures The following are the joint ventures of Renishaw plc at 30 June 2023. The country in which each entity has its registered/principal office is its domicile and country of incorporation. The accounting year-end for each joint venture is 30 June unless otherwise stated. The shareholdings are in the ordinary share capital of those undertakings unless otherwise stated. The principal activities for the joint ventures are those of the Company, as set out in the Other statutory and regulatory disclosures. | Company | Registered Office | | --- | --- | | **Owned by Renishaw plc** | | | Metrology Software Products Limited (70%) | 6F Greensfield Court, Alnwick, Northumberland, NE66 2DE United Kingdom | | **Owned by Renishaw International Limited** | | | RLS Merlina tehnika d.o.o. (50%) | Poslovna cena Žeje pri Komendi, Pod vrtsami 2, Komenda, 1218 Slovenia | 206 Renishaw plc Annual Report 2023 ## 10-year financial record | | note | note | note | note | note | note | note | note | | note | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | 2023 | 2022 | 2021 | 2020 | 2019 | 2018 | 2017 | 2016 | 2015 | 2014 | | Results | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | Overseas revenue 649,674 639,540 538,636 482,784 539,915 580,940 509,212 404,472 469,221 331,682 UK and Ireland revenue 38,899 31,536 26,923 27,431 34,044 30,567 27,595 22,752 25,499 23,816 Total revenue 688,573 671,076 565,559 510,215 573,959 611,507 536,807 427,224 494,720 355,498 Adjusted operating profit 130,407 161,406 118,568 51,700 93,711 143,045 108,733 86,952 143,924 70,388 Adjusted profit before tax 140,983 163,742 119,666 48,614 103,862 145,081 109,079 87,475 144,196 70,106 Taxation (excluding adjusted items) 28,126 28,685 23,611 11,547 16,557 20,942 12,819 14,880 22,850 10,720 Profit for the year (excluding adjusted items and tax on adjusted items) 112,857 135,057 96,055 37,067 87,305 124,139 96,260 72,595 121,346 59,386 2023 2022 2021 2020 2019 2018 2017 2016 2015 2014 Capital employed £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 Share capital 14,558 14,558 14,558 14,558 14,558 14,558 14,558 14,558 14,558 14,558 Share premium 42 42 42 42 42 42 42 42 42 42 Reserves 882,058 800,570 688,730 532,264 568,677 533,994 429,214 366,785 413,918 336,163 Total equity 896,658 815,170 703,330 546,864 583,277 548,594 443,814 381,385 428,518 350,763 Statistics 2023 2022 2021 2020 2019 2018 2017 2016 2015 2014 Overseas revenue as a percentage of total revenue 94.4% 95.3% 95.2% 94.6% 94.1% 95.0% 94.9% 94.7% 94.8% 93.3% Adjusted earnings pershare 155.1p 185.5p 132.0p 51.0p 119.9p 170.5p 132.4p 100.4p 167.5p 82.3p Proposed dividend 76.2p 72.6p 66.0p 0.0p 60.0p 60.0p 52.0p 48.0p 46.5p 41.2p Note The results and adjusted earnings per share for the years 2014, 2016, 2017, 2018, 2019, 2020, 2021, 2022 and 2023 exclude certain items. These were: − 2014 profit on disposal of shareholding in Delcam plc (£26.3m); and − 2016 (£25.8m pre tax loss), 2017 (£8.0m pre tax gain), 2018 (£10.1m pre tax gain), 2019 (£6.1m pre tax gain), 2020 (£21.6m pre tax loss), 2021 (£23.0m pre tax gain) and 2022 (£8.3m pre-tax loss) gains and losses from financial instruments not effective for cash flow hedging; Shareholder information No years prior to 2016 have been adjusted for gains and/or losses from financial instruments not effective for cash flow hedging. − 2020 (£23.8m loss), 2022 (£1.7m gain) and 2023 (£0.7m) restructuring costs; − 2021 (£3.2m loss) and 2022 (£0.2m gain) third-party FSP costs; − 2022 (£11.7m loss) UK defined benefit pension scheme past service cost; − 2023 (£2.1m loss) US defined benefit pension scheme past service cost. Renishaw plc Annual Report 2023 207 Shareholder information ## Glossary AGM Annual General Meeting KPI(s) key performance indicator(s) AM additive manufacturing (3D printing) kW kilowatt – an amount of power equal to 1,000watts APAC Asia Pacific kWh kilowatt hour – an amount of energy equivalent APMs alternative performance measures to delivering 1 kW of power for anhour ASIC application-specific integrated circuit LR the FCA’s Listing Rules Governance UK Corporate Governance Code 2018 M&A mergers and acquisitions Code NCI non-controlling interest CO 2 e carbon dioxide equivalent OCI other comprehensive income Company Renishaw plc OEM original equipment manufacturer CMM co-ordinate measuring machine P&L profit and loss account CNC computer numerically controlled PBT profit before tax CPI consumer price index RIS Regulatory Information Service DESNZ Department for Energy Security and Net Zero R&D research and development DTR the FCA’s Disclosure Guidance andTransparency Rules RIDDOR Reporting of Injuries, Diseases and Dangerous Occurrences Regulations 2013 EBT Employee Benefit Trust SBTi Science Based Targets initiative EDI Equality, diversity and inclusion Scope 1 Direct GHG emissions occur from sources that EMEA Europe, Middle East and Africa are owned or controlled by the Company, for EPS EPS – earnings per share example, emissions from combustion in owned ERP enterprise resource planning or controlled boilers, generators, vehicles, etc. EU European Union Scope 2 GHG emissions from the generation of purchased electricity consumed by the EUR Euro Company EV electric vehicle Scope 3 indirect GHG emissions are a consequence EY Ernst & Young LLP of the activities of the Company, but occur FCA Financial Conduct Authority from sources not owned or controlled by the Company FRC Financial Reporting Council SEEG stereoelectroencephalography FSP formal sale process SEM scanning electron microscopy FX foreign exchange SME small and medium-sized enterprise GBP Great British Pound or Pound Sterling STEM science, technology, engineering and GHG greenhouse gas mathematics GMP Guaranteed minimum pension tCO 2 e tonnes of carbon dioxide equivalent Group Renishaw plc and its subsidiaries TCFD Task Force on Climate-related Financial H&S health and safety Disclosures HKD Hong Kong Dollar TPR The Pensions Regulator HQ headquarters TSR total shareholder return, calculated as change HR human resources in share price, assuming dividends are immediately reinvested ICE internal combustion engine ULEV ultra-low emission vehicle IFRIC International Financial Reporting Interpretations Committee UK The United Kingdom of Great Britain and Northern Ireland IFRS International Financial Reporting Standards UN SDG United Nations Sustainable Development Goal IP intellectual property USD United States Dollar IPCC Intergovernmental Panel on Climate Change US United States of America JPY Japanese Yen Trademarks The following registered and unregistered trademarks, which are owned by Renishaw plc and its subsidiaries, appear throughout this Annual Report. ® AGILITY CARTO™ CENTRUM™ DuraSeal™ Equator™ FORTiS™ inLux™ ® ® ® TM inVia™ neuroinspire™ neuromate RenAM REVO SpinCo™ Virsa 208 Renishaw plc Annual Report 2023 ## Shareholder information Ordinary shares Financial calendar The Company has one class of ordinary 20p shares listed Annual General Meeting on the London Stock Exchange under code RSW, ISIN 29 November 2023 number GB0007323586. Half year Registrars 31 December 2023 For all enquiries about shareholders’ holdings, transfer and registration of shares, and changes of name and address, Half-year results contact the Company’s registrars, Equiniti Limited: February 2024 Equiniti Trading update Aspect House May 2024 Spencer Road Lancing Final dividend West Sussex Ex-div date 2 November 2023 BN99 6DA Record date 3 November 2023 Telephone: +44 (0)371 384 2169 Payment date 7 December 2023 Website: www.shareview.co.uk Interim dividend (provisional) Calls are charged at the standard geographic rate. Ex-div date 7 March 2024 Calls outside the UK will be charged at the applicable Record date 8 March 2024 international rate. Lines are open from 8:30am to 5:30pm Payment date 9 April 2024 (UK time), Monday to Friday (excluding English and Welsh Registration details and CompanySecretary public holidays). General Counsel & Company Secretary AGM Jacqueline Conway (on sabbatical from April to October 2023) Our 2023 AGM will be held on Wednesday, 29 November 2023 at our headquarters at New Mills, Wotton-under- Interim Company Secretary Edge, Gloucestershire, GL12 8JR at 10am. Further details Karen Atterbury can be found in the Notice of Meeting, which will be set out in a separate circular to shareholders in due course. Registered office Shareholders holding shares in the Company through a New Mills nominee service should arrange to be appointed as a corporate Wotton-under-Edge representative or a proxy in respect of their shareholding in Gloucestershire order to attend and vote at the meeting. GL12 8JR Financial reports Shareholder information Telephone: +44 (0)1453 524524 The Annual Report and copies of previous financial reports Email: companysecretary@renishaw.com are available at www.renishaw.com/investor. The half-year Website: www.renishaw.com/investor results and the preliminary announcement of the full-year results Registered number are published on our website promptly after they have been | released through a Regulatory Information Service. | 01106260 (England and Wales) | | --- | --- | | Electronic communications | Auditor and corporate advisers | | All shareholder communications, including the Company’s | Auditor | Annual Report, are made available on the Renishaw website, Ernst & Young LLP and you may opt to receive email notifications informing you when shareholder communications are available to view and Solicitors download rather than receiving paper copies through the post. Norton Rose Fulbright LLP Receiving communications electronically provides certain Herbert Smith Freehills LLP advantages to shareholders and Renishaw, including accessing documents more quickly, reducing our environmental impact Corporate broker and reducing the cost of printing and delivery of documents. UBS If you would like to sign up for this service, visit Equiniti’s Shareview Portfolio website. You may change the way you Principal bankers receive communications at any time by contacting Equiniti. Lloyds Bank BNP Paribas Dividend mandate HSBC Shareholders can arrange to have their dividends paid directly into their bank or building society account by completing a bank mandate form. This is the most secure and efficient method of payment. A mandate form can be obtained from Equiniti or you will find one on your last dividend confirmation. Renishaw plc Annual Report 2023 209 Shareholder information # Shareholder information continued Shareholder profile ![img-14.jpeg](img-14.jpeg) | Shareholdings | % | | --- | --- | | 1 1 - 5,000 | 1.12 | | 2 5,001 - 25,000 | 2.31 | | 3 25,001 - 50,000 | 2.17 | | 4 50,001 - 100,000 | 3.86 | | 5 100,001 - 500,000 | 15.95 | | 6 500,001 - 1,000,000 | 4.89 | | 7 1,000,001 - 3,000,000 | 13.51 | | 8 more than 3,000,000 | 56.18 | ![img-15.jpeg](img-15.jpeg) | Shareholdings | % | | --- | --- | | 1 Directors | 52.85 | | 2 Individuals | 0.99 | | 3 Institutions | 46.15 | # Share fraud We are aware some of our shareholders have received unsolicited calls or correspondence, offering to buy or sell their shares for a price in excess of the current market price. The callers can be very persuasive and extremely persistent and often have professional websites and telephone numbers to support their activities. These callers will sometimes imply a connection to Renishaw and provide incorrect or misleading information. Please be aware this is likely to be a scam – the safest thing to do is hang up. You are advised to be wary of unsolicited advice or offers to buy shares. See www.fca.org.uk/consumers/protect-yourself-scams for further advice. Find out more or report suspected fraud to the FCA on their consumer helpline 0800 111 6768 (overseas callers dial +44 207 066 1000) or using the share fraud reporting form available at www.fca.org.uk/consumers/report-scam. If you have already paid money to share fraudsters contact Action Fraud on 0300 123 2040 (overseas callers dial +44 300 123 2040) or their online fraud reporting tool at www.actionfraud.police.uk/reporting-fraud-and-cyber-crime. Cautionary note and safe harbour: this Annual Report has been prepared for the purpose of assisting the Company's shareholders to assess the strategies adopted by the Company and the potential for those strategies to succeed and no one, including the Company's shareholders, may rely on it for any other purpose. This Annual Report has been prepared on the basis of the knowledge and information available to the Directors at the time. Given the nature of some forward-looking information, which has been given in good faith, the Company's shareholders should treat this information with due caution. 210 Renishaw plc Annual Report 2023 Design and production by Radley Yeldar | ry.com ® Printed by Park Communications on FSC certified paper. Park is an EMAS certified company and its Environmental Management System is certified to ISO 14001. 100% of the inks used are vegetable oil based, 95% of press chemicals are recycled for further use and, on average 99% ofany waste associated with this production will be recycled. ® This document is printed on Splendorgel, a paper which is certified by the FSC . The pulp used in this product is bleached using a totally chlorinefree (TCF) process. Renishaw plc New Mills, Wotton-under-Edge, Gloucestershire GL12 8JR United Kingdom T: +44 (0) 1453 524524 F: +44 (0) 1453 524401 E: uk@renishaw.com For more information visit : ## www.renishaw.com