Renishaw, a UK engineering company held in the Global Leaders portfolio, held its annual Capital Markets Day on the 14th May in their Gloucestershire Innovation Centre, showcasing a selection of their machines. The company sells high precision measuring, gauging and calibration equipment to the high-end industrial and manufacturing sectors, enabling their customers to optimise processes and output, significantly reducing time and cost of production.

Metrology has been core to Renishaw’s business since the founding of the company in 1973, when the original touch-trigger probe was invented by Sir David McMurtry, to test the integrity of finished aerospace components. Traditionally, finished parts are inspected at the end of the production line, if a defect is found, the entire batch is likely to be scrapped. For expensive components such as jet engine blades that cost northward of £250,000 a piece, this can become a costly undertaking.

Exhibit: Renishaw Equator Gauging system next to a Fanuc Robodrill

Source: Renishaw

Renishaw’s value proposition to their customers is to integrate product inspection into the manufacturing process, tracking errors in real-time. Their probes and gauging systems are often found sitting alongside manufacturer’s machines on the factory floor. For instance, their flexible 5-axis probe (shown above), takes up to 4000 measurements in a single second with precision tolerances within a micron (1/60th the diameter of a human hair).

This data is then fed through to the accompanying Renishaw software that flags unusual datapoints to identify faulty products. Errors can arise from a multitude of factors, whether environmental such as temperature/humidity variations altering a product’s material composition, or wear on the machine that causes the margin of error to widen over time. Renishaw’s software enables the appropriate adjustment to be made automatically to correct for these variations, rapidly enhancing reaction time.

Aside from technological improvements on their tools, Renishaw has focused their efforts to make their tools more accessible to their customers. Providing timely onsite support and incorporating software to offer industrial automation solutions, has been the key differentiating quality of the company versus their peers as they seek to build long-term relationships. Their in-house developed software platform captures up to 2 terabytes per machine per day. This new data-driven efficiencies target quality assurance and pre-emptive maintenance for downtime reduction.

Over the years, Renishaw’s product lines have evolved into a diversified portfolio of sensors, encoders and additive manufacturing applications. The company has become the leading equipment provider in many niches with unique offerings. Their foray into healthcare is also starting to pay off, the division broke even for the first time in 2018 after 10 years in development. Unlike some of its peers who have been very active in M&A, this is not high on Renishaw’s agenda, as the company prefers partnerships and in-house R&D. They are targeting new routes to market, selling solutions to end-users which is potentially margin accretive, whilst avoiding direct competition with existing OEM customers.

As a supplier into the global manufacturing value chain, the company is not immune from industry cyclicality and macroeconomic impacts. The semiconductor down cycle and the US-China trade war uncertainty have dampened orders, given that over 40% of their sales are into Asia. Despite short-term trading difficulties, the company is taking the opportunity to acquire new accounts where manufacturers are investing counter-cycle, supported by a robust balance sheet (no debt) and sticking to what it knows best: continuous investments in intellectual property and providing high quality service.

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