Earnings Transcript for RSW.L - Q2 Fiscal Year 2021

Chris Pockett: Good morning, everyone. My name is Chris Pockett. I'm Head of Communications for the Renishaw Group. I'd like to welcome you to this live webcast presentation of Renishaw's Interim Financial Results for the 6 Months Ended December 2020. Today's presenters are Will Lee, Chief Executive; and Allen Roberts, Group Finance Director. Before I hand over to Will, I'd like to go through some basic housekeeping for the event. After the presentation, which will last around 25 minutes, there will be a question-and-answer session in which we'll try to answer as many questions as possible before we close at 12 mid-day. No questions will be answered during the formal presentation. [Operator Instructions]. I should just point out that all financial information given during this presentation will be in pound sterling. Thank you again for joining this event, and I will now hand over to Will.

Will Lee: Thank you very much, Chris, and good morning, everyone. So I'm really pleased to announce our group revenue for the first half of this financial year as just over GBP 255 million. Now this is slightly down, at 2% down from the equivalent period last year. But we must remember that, that period last year was at pre-pandemic levels, before the pandemic impacted us. So if we look inside the numbers in a bit more detail, we can see a marked difference in the regional performance for this half of the year. APAC region, which went into the pandemic earlier, has recovered both quicker and stronger, has shown a really good performance for us. It has also benefited from more investment going into a very strong electronics and semiconductor capital equipment market. EMEA, on the other hand, is taking longer to recover and more of the underlying markets there are still struggling with challenges due to the pandemic. So if we have a look-through the revenue numbers in more detail and look at the 2 reporting sectors. Then first of all, metrology. Metrology revenue was down 2% at GBP 235.6 million. Now we did see growth in demand for many of our metrology products, most noticeably our optical and laser encoder product lines. These get used in a whole range of semiconductor electronics capital equipment and what we saw was a real strong recovery in that market. And a lot of this activity happens in the APAC region, and that's why one of the reasons why we saw that improvement in the APAC region over the half. We also saw improvement in our machine tool product line, which is really good to see. But despite this, we do still see that many sectors are still being quite heavily impacted by the pandemic, the worst of which, for sure, is the commercial aerospace sector. When we look at the health care, revenue up 10% at GBP 19.5 million. So good growth in the spectroscopy line, and this was a general recovery in that market for Raman equipment and also a really positive sales and adoption of our new Virsa instrument. Now we did see challenges with COVID here again in terms of installing and servicing equipment. Most of that we have managed to cope with by having regional-based service engineers in place. We also saw some impact on the neuro product line with a cancellation or postponement of neurosurgical procedures during the worst of the pandemic. So it's clearly been a challenging period for all companies, and we're no exception to that with the COVID-19 pandemic. Very clearly, priority, health and welfare of the employees and the wider community. Now with that, and to make sure we are adhering to that, we have put in a wide range of very COVID-secure work practices to make sure that we are keeping the productivity up and allowing and adopting to homeworking very quickly where practical. Our manufacturing sites critically, to keep our customers supplied with products, have been up and running throughout the pandemic. And actually, our distribution and local sales offices have been excellent in terms of supporting customers both remotely using technology and on-site as well to make sure that we can service them throughout this challenging period. Clearly, it's driven an adoption of far more digital technologies throughout the group, both for marketing, support and for internal processes, too. So also in addition to the COVID-19 pandemic to navigate, we also had Brexit. Now as we've talked about with Brexit, we very much prepared last year for a no-deal Brexit. This meant that we switched the direct shipment of products from our U.K.-based warehouses over to a new warehouse established at our Ireland manufacturing facility. That transfer, that all went live towards the end of last year, so that by the 1st of January, everything was in place and working well. We also built up safety stocks in our Dublin facility and also elsewhere in Europe to make sure that if there are any short-term travel disruptions, that we could keep supplying critically to our customers, and that all went very well for us. So as we've talked about previously, we've also been busy implementing our Fit for the Future strategy. So with this, we're looking at trying to drive the focus of the group with a real aim of driving our productivity. So this has included some strategic changes. We've talked about with additive manufacturing, wanting to focus on our 500Q system, a multi-data system, and take advantage of its high productivity and its competitive advantage and really focusing our sales effort on these high potential customers who are really looking at taking AM into volume production. That strategic change is pretty much implemented. We have, therefore, seen the expected reduced turnover from that strategy, but we have seen an improved performance from that business. Now the neurological product line, again, we've become more focused there. For the future here, for the growth, this is very much dependent on our drug delivery technology, which has huge potential. Here, we have looked at working rather than with a large number of smaller organizations, we are focusing our efforts on a much-reduced number of large pharmaceutical companies to really try and accelerate taking this technology through to market. We've also really had a look at how we bring products to market and how we can accelerate that. One of the real strengths of Renishaw is our creativity and we have no shortage of really innovative new ideas of new products that we'd like to develop. What we've been really pushing to get better at is prioritizing and focusing on fewer of those to try and accelerate getting them into the market. We've also been shifting around where we have been investing, and we're making sure that they are really high-growth opportunities that we have. There's particularly some there with position measurement and some of the adjacent markets around there are getting the focus and the attention, the resources that they need to allow us to grow really profitably there in the future. And we're talking about the new FORTiS machine tool and the encoder later, which is a great example of one of these products. So as part of the strategy, we've also been looking at efficiency across the group and making sure we are managing our costs very well. We have had a significant restructuring, a reduction in the group headcount. You can see at the end of the calendar year 2020, we had 4,000 -- just over 4,300 employees. We've also been looking at how to become more productive through this. Certainly, even before the pandemic, we were looking at using far more digital technologies for communicating, both internally and externally. That has clearly ramped up, and our expenditure on both travel and exhibitions is also significantly down for this half year. So we are investing now for the future in systems to make us more productive and allow us to be really productive with the more modern working practices, both homeworking and more flexible working. So with our push on productivity, efficiency and cost control, with that has come through that in terms of the profit numbers are showing that on the turnover of down a couple of percent. Actually, we have adjusted profit before tax up from GBP 14.3 million to GBP 43.4 million for this half year. So a real improvement there. CapEx, also lower at GBP 4.8 million. This is very much planned. As we've talked about in the past, we've put in significant infrastructure investments over the last few years for both our sales organization and our manufacturing. So we have the manufacturing capacity and the sales support network now invested in. Very much our focus now is on getting the most out of those investments. We ended then the calendar year, so 31st of December, with a strong end-of-period cash of GBP 186.6 million. Right. I'm going to hand over now to Allen, Allen Roberts, who is going to talk us through the financial numbers in more detail.

Allen Roberts : Thank you, Will, and good morning, everybody. By way of introduction, as Will has already commented on, it has been another challenging trading period due to the impact of the pandemic. And I am pleased to say that due to the skills and dedication of our people, the group has maintained strong customer support, global supply chains and all other business operations. This, along with the benefits we've achieved through the implementation last year of our Fit for the Future strategy has resulted in revenues only slightly lower than our first half last year, a notable increase in adjusted profit before tax and an increase in cash and deposit balances of over GBP 66 million. Revenue in the half year amounted to GBP 255 million compared to GBP 259 million last year, which is stronger than initially anticipated. Adjusted profit before tax was GBP 43.4 million, compared to GBP 14.3 million in the prior year. This gives a return on revenue of 17% compared to 6% for the previous year. Adjusted profit before tax is one of the key performance measures used by the Board to monitor the underlying trading performance of the group. And the following items are excluded from adjusted profit before tax

Will Lee: Thank you much, Allen. So look, we've talked earlier about our Fit for the Future strategy and the changes that we have done there in the business. I really wanted to have a little look forward now and see where we are going. First part, really understanding our purpose as an organization. So we see our role in the future of making sure that we can allow our customers to develop the products of the future, the materials of the future and the therapies of the future. This, we have together under the strapline of Transforming Tomorrow Together, that together really stressing the collaboration that we want to have with our customers to learn their challenges to make sure that we can innovate for the future to meet their needs. So within here, within the products, of helping our customers make the products of the future, we have our industrial metrology, so the measurement part of helping manufacturers meet the challenging demands, position measurement with our encoder systems, additive manufacturing with our metal laser powder bed fusion technology. And then for the materials, we have our spectroscopy equipment and, for the therapies, our neurological solutions. So if we're going to look at what we need to do to be successful in the future. First important thing for it is to understand for us what tomorrow is going to look like and what the demands for us are going to be for our products or solutions. So if we look at the drivers as we see them and clearly, sustainability, absolutely huge in terms of everyone moving towards a net 0 economy. That's clearly going to generate technical challenges for our customers and the need for products and solutions for us is going to be high there. High performance. People trying to do more with less, whether that's semiconductors, machine parts or utilizing new structures using additive manufacturing technologies, another key driver for the future. Intelligence, embedding of sensors, semiconductor processing and so many more devices and as we see that this steady increase in the need for semiconductor manufacturing capability. And then personalized devices rather than just an off-the-shelf standard solution, very much a tailored bespoke solution for a particular challenge. So for us to be successful in this really exciting future, then we see 3 key drivers that are critical for us

A - Chris Pockett : Thanks very much, Will, and thanks, Allen, as well. So we're now going to move on to questions, as Will says. And just to clarify, it's actually 11

Will Lee: Thanks, Chris. Yes. So here, clearly, we had a really good partnership with Herantis, which was very useful for us in improving the efficacy of our drug delivery devices, for getting the drug accurately and repeatedly to the right part of the brain. That's now finished, and they are looking at the partnership clearly with Nanoform, which I don't think I'll comment on so much now. In terms of us going forward, as I mentioned during the presentation, our focus really now is looking at working with some big pharma companies, on a very small set of large pharma companies. That work is progressing very well with them. So we're pleased with the progress that we are making here now on the future side of our neuro business. Been less focus recently on the new partners and investment here. If someone comes along in the future that is right and brings some of the commercial experience that will be very beneficial for us longer term in bringing this to market, then that is something we would definitely look at.

Chris Pockett : Okay. Thanks very much, Will. And another question here from Lydia. Are you able to quantify how many production staff are being hired? What would you expect the group headcount to be at year-end versus the 4,324 as at 31st of December? And I think, again, you're going to take that one.

Will Lee: Yes. Thanks. So look, we're in the process. We're bringing in and around about 100 production staff to meet the increases in demand that we are seeing. These will at be many of our different manufacturing sites, U.K., Ireland, India. In terms of the group headcount, then I think having got through some of the uncertainties that we've seen over the last 12 months, we are recruiting. We have a number of strategic roles that we want to fill. We are looking being more specific here, and there are real key growth areas of the business that we want to invest and accelerate the products that we want to bring to market and delivery to customers.

Chris Pockett : Okay. Thanks, Will. And the third of Lydia Kenny's questions. There is no mention of automotive in the statement. Please, can you give some idea as to how this is currently trending and also a very rough estimate of automotive sales on a regional basis. And I think you're going to take that one, Will.

Will Lee: Okay. So thanks. Yes, we single out aerospace, this is clearly the market that is in the most challenging position at the moment. As we often mention, one of our challenges in understanding really what's going on at the end user level for our products, is so many of our sales go through, for example machine tool builders, CMM builders, and various different capital equipment builders, before it ends up going to the actual end user. So a lot of the time, we don't know for sure exactly our exposure to some of these different markets. We estimate, we talk to our customers to try and work it out as well as we can. So just going back to the original part of the question then with automotive. I think we are certainly seeing signs that when we talk to the end customers, there is certainly more investment going on in automotive. China, in particular, and as I said, the EV and people understanding their metrology challenges better now in terms of an EV market. So yes, I think I think automotive is picking up. Aero is -- definitely commercial Aero is definitely still very much struggling.

Chris Pockett : Okay. Thanks, Will. And I think in answering that, you've also answered a question that we've received from Mark Davis Jones. So there was a second question though from Mark Davis Jones. You report very strong growth in China. Are there any lumpy projects within that? Or is it broad-based and expected to be ongoing? I think, Will, you're going to take that one.

Will Lee: Yes. So absolutely seeing the strong growth in China. It's not so much made up of the large lumpy projects, but there's nothing really significant there. There is business, but non-exceptional stuff. A lot of this, as I talked about, is being driven by semiconductor electronics display investment and a general overall strength in the market and broader economies there. So it's pretty broad-based. How long it's going to go on for? So hard to know. And it's one of the reasons that I think at the moment we have the most uncertainty going forward. We talked about our strong order book and the confidence that gives us, but looking further ahead of that, it's really hard to know exactly what the future in some of these different markets is going to be.

Chris Pockett : Okay. Thank you, Will. So we'll now go on to a question from Richard Paige. Please, could you provide more detail regarding the full year guidance you have provided, both pressures upwards and downwards. At the midpoint it would suggest the H2 performance similar to that generated in Q2 despite your usual H2-weighting. And I think, Will, you're going to start with that.

Will Lee: Yes. That's certainly right. Normally, we see a better H2. Clearly, we've had a really good Q2 this year, and we expect those drivers and things from Asia that we're seeing in semiconducts, the electronics markets to continue certainly for some time. We know they are very volatile markets and can switch quickly up and down, which gives us that uncertainty, which is why we have put out a relatively broad range for the end of the year. We also still see some markets here. So EMEA, as we've talked about, that actually we do have in the EMEA market slightly weaker still. And we would be hoping that, that may start to recover later on this year. So I think we have some upwards possibilities from general market recoveries outside of Asia. And then there's always that uncertainty on how different investment waves pan out and when they accelerate or when they slow down.

Chris Pockett : Okay. Thanks, Will, and thanks to Richard for the question. So now I'm going to go on to Jonathan Hurn, who has a -- it looks like a 4-part question. So thanks for that, Jonathan. So the first part, you state that you have a strong order book. Can you give us an indication of size? Is it all for delivery in this fiscal year? Or does it stretch into 2022? And does it include any large one-off orders? Second part of the question. You have resized the AM business and profitability has improved. Can you give us a rough indication of size? Is profitability in line with the group average? And what is the growth outlook? Third part of the question. On semiconductor and aerospace sector, how do you see these markets developing for Renishaw products over the next 12 months? And then the final part of the question. How many production heads are you looking to add? And do you have any capacity constraints for any of your product lines? So Will, would you like to...

Will Lee: Thanks, Chris. So yes, in terms of the order book and roughly what we're looking, I guess, is 30%, 40% up from where we would normally expect it to be. So that's very promising for us. So yes, as we often say, our order book typically is for relatively short-term delivery. So certainly, the majority of it will be for this financial year. And certainly, sooner -- this, you can see, with this, still gives us a degree of uncertainty for how the end of the financial year pans out, whether it accelerates or not. We've talked about large one-off orders earlier. So there aren't any significant ones there in our order book at the moment. The AM business and the change in strategy there and the profitability improvement. So in terms of this, look, within Renishaw, we have a number of very established business which typically run a certain level of profitability. And then we have some more emerging businesses, which we see as excellent potential for the future. And the AM one is one of those which clearly is operating in a different -- a lower level of profitability at the moment compared to some of those more established businesses. A lot of our businesses, the ones that are highly profitable now went through this phase and took time for them to grow into the profitable businesses they are now. So yes, we do have differences within the group there. Regarding semicon, aerospace, how do we see these markets developing for us? So semicon, we feel we're really well placed. We have our encoder family, the optical encoders, the laser encoders going into the CapEx equipment there over so many different platforms. So we think we're well positioned there with our product portfolio. And really, we will see how the overall market goes there. Aerospace, it will be interesting to see. Again, from our industrial metrology side, we think we're well positioned with our technology and also with some exciting technologies to come throughout this calendar year. And then finally, in terms of production, as we've talked, about 100 people that we are bringing in. In terms of capacity constraints, very much people at the moment. So we have the investments in terms of the equipment that we need. So it's very much just bringing in the people at the moment to man things up.

Chris Pockett : Thanks, Will. You can take a breath now. Okay. So we've just discussed the obviously manufacturing business, but there is a question here from Will Turner. Is your decision to scale back from the AM business due to the returns being achieved in the business or the aerospace market weakness? And I think that's probably coming your way.

Will Lee: Yes. This wasn't an aerospace-specific decision that we made. As I talked about in the presentation, we wanted to focus actually where we had a competitive advantage in the market, on a narrower sector of the real production side of the business there. So that was the decision that was made there, actually before the pandemic and the challenges with the aerospace. I think it's worth trying to highlight there, actually, the market for the AM stuff is broadening and the number of different applications coming in from many different sectors are certainly growing there. So whereas maybe traditionally aerospace has been thought of as a large part of AM in terms of the uniqueness that AM parts can give and the advantages, there are many other sectors now there looking to exploit the advantages of what can be done, often different drivers, cost per part, really being more important in a lot of other areas than maybe it is as much in aerospace.

Chris Pockett : Okay. Okay. Thanks very much, Will. The question here, actually, and I guess we might have anticipated this one from [John Thurston]. He says thank you for a very interesting informative presentation. First time I remember without Sir David or John Deer. Are they well? So I think we're going to put that one over to Will.

Will Lee: Thanks, yes, they're both very well. Allen and I talk to them both very frequently. Chatting with David only yesterday morning about the presentation today. So due to COVID restrictions, David is not here today, but he will definitely be listening in, and we will be catching up later on this afternoon. So we'll pass on your regards. Thank you, John.

Chris Pockett : Okay. Thanks very much, Will. And thanks, as Will says to John for his concern. A question now from Xing Lu. Can you quantify the level of temporary cost savings versus underlying restructuring savings in the first half? And to what extent do you expect these costs to reverse going forward, particularly in the permanent costs as you increase production hiring? I think Allen is going to take [indiscernible].

Allen Roberts : Thank you, Chris. The -- most of the temporary cost savings have come in our other overheads. Our labor cost is -- has reduced as part of the restructuring exercise that we -- were undertaken over the last 12 months. And as you say, there is some reduction overhead coming back in by way of labor. But in terms of other overheads, mainly most of the cost savings there have been associated with our exhibition and traveling costs, which I highlighted a little earlier on. And we do foresee some of that returning, not to the same extent as it was before, where we do expect to see some return as COVID restrictions are lifted.

Chris Pockett : Okay. Thanks very much, Allen. And so a question from Robert Davies. You've had quite divergent spreads in terms of regional growth prints. Could you give us some color as to approximately how much is down to COVID impacts and how much is down to specific end market trends in each region? And I think I'll hand that one to [indiscernible].

Will Lee: Yes. So look, if we look at the European region, probably the one most impacted for us at the moment, as we can see, then I guess we have a couple of things here going on. First is for our end-user business, clearly, customers are -- there's less stuff going on in terms of going into customers and delivering on projects and stuff being either mainly postponed. And then we also have the impact that for the end-user market there, for the machine tool builders, the CMM builders and all our customers at that level, their sales teams are also not able to get out as much within Europe as well there. So we have both of those. I think probably that's more of an impact than particular sector investment, apart from the one we fully highlighted with aerospace there. So we're hoping lots of pent-up demand projects, certainly. In the U.S., For example, it feels like things are starting to free up and demand growing and looking positive there.

Chris Pockett : Okay. Thanks, Will. We have another question here from Xing Lu. You talked about good demand in semicon and weak aerospace. Could you talk about trends in other end markets? And I think that's one for Will.

Will Lee: Yes. I think we've probably talked about this one a reasonable amount. I guess that -- because as I talked about, we go through intermediaries, then there's not too much more I can out of back probably a lot of the end markets there. I would say when you look at the industry stats, so the machine tool building and consumption indices are very key for us. JMTBA [indiscernible] number of months of improvement, particularly for export markets there, with China driving a good deal of that. And it seems like with the American consumption, American is going in the right direction. And hopefully, also the German machine tool builder stuff will start to show an improvement as export markets pick up for them as well which is all good news for us.

Chris Pockett : Okay. Thanks, Will. Another question here from Richard Paige. There is much talk of how the COVID pandemic is accelerating technology change in certain markets, for example, electric vehicles. To what extent have you seen or expect to see this impact customer demand in your key markets? And again, that's one for [indiscernible].

Will Lee: Yes. I guess we are sort of speculating here a bit, but certainly it feels like what we're seeing from everyone's personal life and working life that this technology change is absolutely accelerating. And one must assume that, that is, therefore, driving a lot of the investment going into the need for semiconductors, electronics, displays across the board on so many different applications. So that's clearly the standout change that we're seeing at the moment is that investment there, electric vehicles being one of those, but many other areas in terms of data servers, online gaming, all sorts of different things that they're just creating this worldwide increased demand for semicon.

Chris Pockett : Okay. Thanks, Will. Another question actually from [John Thurston.] In the longer term, how will currency movement affect future competitiveness and profitability? That's one for [indiscernible].

Allen Roberts : Thank you, Chris. Thank you, John. Yes, I think that it's very difficult to predict what the future currency movements are going to be. But I think we've been through a lot of cycles, movements of currency over -- over the number of years. Competitiveness, we don't impact our end-user pricing significantly as opposed with relation to currency movements. And one thing that we do have in place is forward contracts going forward for the next 2 to 3 years. So we're reasonably comfortable from that perspective. And we don't see any major competitive or profitability impacts.

Chris Pockett : Okay. Thanks, Allen. Another question from Xing Lu. Can you quantify your order book level relative to sales, i.e., how many months of sales? That's one, I think [indiscernible].

Will Lee: Yes. So that we're going up to a couple of months' worth of sales now, could be slightly over, but rough roughly that sort of level.

Chris Pockett : Thanks. Question from Sanjay Jha relating to our additive manufacturing line. Can you tell us more about next-gen products in this area? And that's one for [indiscernible].

Will Lee: Yes. So we've got a really exciting road map. We've got new technologies under development that we want to bring in to our 500Q platform, very much targeted at driving its productivity and its precision, so that there's more stuff to come there in the shorter term. And then we are very much now ramping up our design activities on new next-generation technology with a focus on sort of automation and productivity for the future. So a lot of exciting stuff to come. Lots of really good engineering effort on that. And yes, we look forward to seeing stuff coming through over the next few years.

Chris Pockett : Okay. Thanks, Will. Another question from Robert Davies. Do you see scope for any larger type orders over 2021? That's one for Will.

Will Lee: I think probably unlikely. So we still see good investment into the projects in our business, but it's much more a -- more numbers, but smaller quantities in each order.

Chris Pockett : Okay. Thanks, Will. Another question from Xing Lu. Could you comment on sequential trends in January, particularly in Europe and North America and whether you see recovery picking up pace. That's one for [indiscernible].

Will Lee: We would love to know. I guess, at the moment, more positive signs from North America that things are recovering and there is more investment going on. Europe, expectation is, from our group in Europe, is probably spring, early summer, they are expecting things to be improving, both from an export point of view and from a domestic point of view. So yes, we'd love to have more certainty on this. As you can see from some of the earlier answers, that we do have a relatively, still, even with our increased order book, it's still relatively short term. So yes, we're hoping for recoveries there, but we're not counting on it at the moment.

Chris Pockett : Okay. Thanks, Will. I think this is probably going to be a question for Allen. A question from [John Thurston] again. What do you propose to do with all your cash? Acquisitions?

Allen Roberts : John, our cash, at the moment, is very safely deposited in the bank. And given these uncertain times, I think that's probably the best place for it to be. As you all have heard just earlier, we are reinstating a dividend policy which will consume a little bit of it. But -- and we do not have a team or a special task force looking at acquisitions at this point in time. But if anything potentially did come along of interest, then obviously it's something we could look at. I don't know if you want to add anything to that, Will?

Chris Pockett : Okay. Thanks. Another question from Xing Lu. Do you see any supply chain issues and raw material cost inflation? And if yes, could you quantify the headwinds?

Will Lee: So look, I think it's been, one of the things we've been so relieved about, is actually throughout this -- the pandemic that actually our supply chain has held up very well. We've always made sure we held a big buffer stock of components because we know we have slightly volatile demand from our markets. So yes, we did have a few challenges throughout the pandemic, but nothing that caused any challenges to our customers then. So in terms of material cost inflation, I'm seeing nothing significant there to flag up.

Chris Pockett : Okay. Thanks very much, Will. We have a few more questions, so we'll try to answer all those before we finish. And here's a first question from Anthony Plom. Hydrogen seems to be the topic of the day at the moment. How much of a role do Renishaw's metrology products play in the production of fuel cells, electrolyzers, carbon capture technology, et cetera? Are you supplying some of the big players here? That's one for Will.

Will Lee: Yes, I think really interesting, particularly aerospace, hydrogen, synthetic fuels and the generation thereof. Look, for us, anywhere where there are sophisticated features, tight tolerances and usual geometries then our technologies are required. So we see some of the challenges coming forward that will hopefully be beneficial for the need of our products. I think it's probably too early to say for sure exactly on some of those technologies there.

Chris Pockett : Okay. Thanks very much, Will. Another question from Will Turner. Is there any area of the aerospace market that you're overexposed to? For example, wide body due to Rolls-Royce? And that's one for Will.

Will Lee: Yes. I don't think so. So in general, I think what we've seen is our exposure to aerospace has gradually began getting less over the last few years and certainly to the electronic semiconductor, consumer electronics market has been growing. Our technology is equally applicable across the different sectors of commercial aviation and military aviation as well. Certainly not military. The defense side of aviation is -- there's quite a bit of investment at the moment, so that's a positive. So I don't think we're particularly exposed to wide body with the long haul there. I do think we've got some nice technologies coming through for the inevitable recovery that we will see in aviation, particularly as they push for a cleaner future and a more carbon-neutral future, with some of the stuff we talked about with the new fuels or whatever of the future.

Chris Pockett : Okay. Thanks, both Wills. Another question from Robert Davies. How do you expect your business improvement actions will feed through to your operational leverage going forward? That one -- that's for Allen or...

Allen Roberts : Sure. Okay. Yes, I think what we -- the Fit for Future strategy that we've been working on for the last probably 18 months is pulling through by way of improvements in efficiencies and productivity improvements. And we do expect those to see -- to progress forward and is reflected in our operational profitability, and we expect that to continue. And with control going forward on future cost increases.

Chris Pockett : Okay. Thanks, Allen. And another question from Xing Lu. How do you see your R&D costs going forward? Should we expect a lower percentage of sales going forward given you are taking a more focused approach? And I think that's one for...

Will Lee: So let's ignore so much this in terms of a percentage of sales. Clearly, our sales will vary as we go through strong patches in terms of economies weaker. For sure, our commitment here is for the future. So we want to continue investing on R&D across sectors there. What we have done is to really look at how do we prioritize to get the most from those R&D activities by prioritizing on fewer projects and also working out which areas of the business we most want to invest in. And those will be areas that we'll want to grow the investment in because, as I said earlier, we do have some excellent technology concepts and things that we want to push through into the market, majority of which is very much focused around sort of the industrial metrology, position measurement part of the business there. That's where we want to invest more. So yes, no, we are going to continue investing significantly into the future with R&D.

Chris Pockett : Okay, Will, thanks for clarifying that. And then last question that we have this morning, and it's a question from [David Robinson]. Can you give an indication of the reduction in the additive manufacturing revenue base from the decision to scale back certain activities? Who's going to take that one?

Will Lee: If I talk through this in general, I'll start with, the stuff we scaled back from here is more the commodity machines, the single laser machines to smaller customers. And just trying to think in terms of the numbers here, then we're looking at, yes, 20 -- okay, so yes, in terms of -- sorry, just getting the numbers. In terms of this, then we're looking at sort of roughly about a 40% reduction here from scaling back from this side and focusing on the higher productivity queue with the strategic accounts.

Chris Pockett : Okay. Thanks, Will. And actually, there is one more question that we've had in. We've had an e-mail. And that's from a private shareholder [Alan Cane]. He asks, have there been lessons learned from dealing with the pandemic and Brexit that will help Renishaw into the future? I'll throw that one out.

Will Lee: I think the pandemic is the biggest one here by far in terms of learning how we operate as a business. It certainly showed us that we can be -- make decisions quickly, become more decentralized in decision-making and authority to get things done when things need to happen really, really quickly. And it's also shown actually that, I talked about it earlier, our embracing of technology for the future has so much accelerated as it has with so many businesses. So what we've seen is with internally a digital technology and externally. So our investment profile will, for sure, be different going forward with this. So yes, we certainly moved on a good few years' worth of development in a very short period of time.

Chris Pockett : Okay. Thanks very much, Will. So that ends the Q&A session and ends this morning's webcast event. We will, as ever, aim to publish a recording of today's presentation and the Q&A session on the IR section of our website by tomorrow morning at the latest. So on behalf of Renishaw, I'd just like to thank you all for attending this event. And hopefully, it's been a value to all of you who have attended. And finally, just a reminder that you can download the interim report and a copy of the financial presentation that you've just seen from our Investor Relations web pages. Again, thank you for attending. And have a good day.