Renishaw plc – Half year report – 31 December 2018
15. Principal risks and uncertainties
A number of potential risks and uncertainties exist which could have an impact on the Group’s performance. The Group has processes in place for identifying, evaluating and managing principal risks. These risks, together with a description of our approach to mitigating them, are set out on pages 32 to 37 of the Annual report and accounts 2018, which is available on the Group’s website at http://www.renishaw.com.
We continue to monitor the current economic uncertainties, particularly those arising from trading conditions between the US and China. If prolonged, this could have an adverse impact on group revenue as a result of reduced demand for products manufactured by our customers, particularly in China.
Following the referendum in June 2016 and the subsequent triggering of Article 50 in March 2017, the UK is scheduled to leave the European Union on 29th March 2019 (“Brexit”). The decision has led to a higher level of uncertainty surrounding trading conditions, particularly between the UK and the EU. In the year ended 30th June 2018, 25% of group revenue resulted from trading with the EU.
Renishaw has a Brexit steering group which assesses and monitors the potential impact on the Group and which manages the implementation of mitigation plans.
To date, the following Brexit risks have been identified as having an actual and/or potential impact on our business:
• Economic conditions: increased uncertainty including the specific impacts on growth, inflation, interest and currency rates
• Laws and regulations: potential changes to UK and EU-based law and regulation including product approvals, patents and import/export tariffs
• Talent: mobility of the workforce and availability of talent
• Short term supply chain disruption: potential changes in customer buying patterns, delays in customs and border clearances and uncertainty over UK and EU product approvals
With a strong direct presence in the EU, the Board believes that Renishaw is well placed to respond to changes to future trading arrangements between the EU and the UK. The establishment of a distribution warehouse in Ireland is in progress which, if required, will significantly reduce the number of direct shipments from the UK to the EU post Brexit. Inventory holdings of certain components and finished goods are being increased above standard levels and located within the EU to mitigate the risk of delays in customs and border clearances. The Group has also assessed the potential cost impact of World Trade Organisation tariffs coming into force for exports from the UK and imports into the UK, and the resultant cost of these potential tariffs is not expected to be material to the Group’s results.
Other than set out above, the Directors do not consider that the principal risks and uncertainties have changed since the publication of the Annual report and accounts 2018 and confirm that they remain relevant for the second half of the financial year.