Thank you, DeeKie. I enjoy writing them, even the painful ones.I love reading your posts Colm.
Yes, I did attend the AGM and I did ask my question. To be honest, it was more a statement than a question. I wrote down what I planned to say in advance, and here it is:I’m curious as to whether you got to ask the questions that you wanted answered at the Reinshaw AGM?
"Sir David. I’ve been an admirer of Renishaw ever since I bought my first shares in the company 20 years ago for the princely sum of £4.05 a share. The annual dividend yield on the original investment is now almost 15%. That has helped fuel my admiration!
I have particularly admired the Board’s and management’s determination to do what’s right for the business in the long-term, and not getting too concerned about the short-term impact on the Profit & Loss account or the share price. This year’s Annual Report makes me wonder however if you’re paying too much attention to short-term results and showing far too much respect to what Warren Buffett disparagingly calls “Mr Market”.
For example, the opening paragraph of your chairman’s statement refers glowingly to the Total Shareholder Return of 48% in the year. Total Shareholder Return is calculated by taking the change in the share price over the year, adding dividends, and expressing the result as a percentage of the share price at the start of the year. The same calculation for the period from 30 June last to 15 October shows a Total Shareholder Return of minus 23% for the period, and that includes the dividend of 46p a share coming into our bank accounts next week. I’m sure you’ll agree that neither the plus 48% for 2018 nor the minus 23% for the first three-and-a-half months of 2019 has any relevance to the real long-term value of the business or your stewardship of it. Yet, the very fact that you give the figure such prominence in your chairman’s statement makes me fear that even you are being seduced by short-termism.
On the same lines, but more worrying in some ways, is the sharp cut in R&D expenditure in the healthcare division in FY 2018. As people in this room know, some analysts have criticised Renishaw over the years for the continuing losses in its healthcare Division. Long-standing shareholders didn’t agree with the criticisms. We were prepared to be patient: we recognised that healthcare requires considerable up-front investment in developing new products. We also recognised that there are long lead times in getting regulatory approvals in various jurisdictions, etc. Patience is required. It is reasonable to expect losses for a number of years before investments start to pay off.
When I looked at this year’s accounts, I was pleased initially to see that the healthcare division had turned the corner and had made a profit, albeit a small one, in 2018. Then I looked again and saw that R&D Expenditure in the Division had been cut by more than 20% (and that’s after excluding the restructuring costs from last year’s figure. The cut was closer to 30% based on the figures in the accounts.) If R&D expenditure hadn’t been cut, healthcare would have produced a loss in 2018 also.
I was left wondering if R&D expenditure had been cut specially to appease “the market” and to show a profit for the year. I asked the question at the results presentation in July. Will assured me that I was wrong, that it was more a case of focusing R&D in areas of healthcare where you believe that Renishaw can succeed in the long-term. I believe him, and I agree that it would be wrong to continue investing in areas that are unlikely to generate a long-term return. At this time of transition, however, with Will taking over as Managing Director, I would ask the Board and management to keep its focus firmly on the long-term and not be seduced by short-term considerations.
Finally, I presume there will be no reference to Total Shareholder Return in next year’s Chairman’s statement!"
I don't recall the chairman's exact reply, but I know he shares my views. I suspect that it was an over-eager junior accountant who put the bit about Total Shareholder Return into the Chairman's Statement. I am confident that it won't appear in next year's Chairman's statement, irrespective of what the price does between now and year end. In answer to my question on healthcare, the MD (Will Lee) reiterated what he told me at the time of the results announcement. He amplified it by saying that, at later stages of the product development cycle, the focus of "development" cost moves more to distribution, which doesn't count as R&D (At least, I think that that's what he said; I'm not familiar with that type of business, so the reply was over my head to some extent).
In answer to your final question as to whether they impressed me in person, the quick answer is yes. I've got to know quite a number of the senior team at this stage and they're 100% committed to doing the right thing for the long-term prosperity of the business. I want to keep it that way!!
 Price 29/6 £52.80; Price 15/10 £40.06, Div. £0.46. TSR: 23.25%. FY 2018: (52.80 + 0.60)/36.20 = 47.51%