apply innovation efg 2004 Annual results July 2004

Chairman’s statement apply innovation I have pleasure in announcing a successful set of results for the 12 months ended 30th June 2004. Turnover rose by 15% to £127.7m (2003 £110.6m), an increase of 19% if measured at constant exchange rates. This represents the highest turnover in the Company’s history. Sales rose in all markets with the exception of the UK, most notably in the Far East (including Japan), but also in the emerging markets of Eastern Europe and Russia. This reflected growth in all our product lines, but with above-average growth in Digitising (including dental), Encoders, Calibration and Machine Tool products. Operating profit increased by 15% to £18.1m (2003 £15.6m) despite a reduction in one-off currency profits on forward foreign exchange contracts of £0.4m this year and £3.0m in 2003. Profit before tax rose by 13% to £20.1m (2003 £17.8m). Profit after tax amounted to £16.1m compared with £14.3m in the previous year, giving rise to earnings per share growth of 12% to 22.1p (2003 19.7p). Manufacturing There has been significant investment at the New Mills and Woodchester sites in additional capacity and capability, including CNC lathes, additional machines for incorporation into the Company’s automated milling, turning and inspection system and surface-mount electronic assembly inspection and test equipment. Phase II development at Woodchester is now complete; a further 30,000 sq feet of manufacturing space will become available at this site later in the year. Marketing Our activity in marketing throughout the world has continued at a high level. All our recently established subsidiaries in Czech Republic, Poland, Russia, Austria, Sweden, Canada, Israel and South Korea have grown well in their markets and are already making a significant contribution to the Group’s overall results and distribution infrastructure. The Group is planning to open additional offices in both China and Russia. Research and development The Group’s ongoing commitment to research and development, which has continued through the recent economic downturn, has resulted in the successful launch of a number of new products during the year, including the UCC2 and SPA2 CMM controller system, the NC4 non-contact laser system for high speed toolsetting and tool breakage detection, RMP60/RMI radio system, the invia reflex raman microscope interfaced with scanning electron microscopes for precision single point sample analysis, a range of rotary magnetic encoder products and additional software products. Expenditure on our research and development increased to £22.0m (2003 £20.2m) including related engineering costs.

Chairman’s statement continued apply innovation Chairman’s statement continued Capital expenditure Capital expenditure, including that on new manufacturing equipment, amounted to £15.6m (2003 £8.2m), of which £6.5m (2003 £2.7m) was spent on freehold property, with the new offices in Japan costing £5.1m. Further investment was made in IT hardware and software throughout the Group, but particularly for design systems, marketing and management systems and group infrastructure. Liquidity The Group continues to maintain a high level of liquidity, with net bank balances at the year end of £32.8m (2003 £37.2m). Awards I am delighted to report that the Group has again won a number of awards. The Queen’s Award for Enterprise was won in respect of the OMP40 compact spindle probe. This, I am pleased to say, was the 10th Queen’s Award in the Company’s history. The Metalworking and Production Award at the Mach 2004 Exhibition was awarded in respect of the SP25 scanning probe for “The Best Quality Control Product or System”. The Worshipful Company of Scientific Instrument Makers awarded their 2003 Annual Achievement Award in respect of the RESR angle encoder. In addition, the Company won the 2003 National Training Award and was the regional winner of the National Languages for Export Award. Personnel With recruitment primarily targeted at local production and overseas sales personnel, particularly in the Far East and our recently established subsidiary companies, numbers employed in the Group worldwide have grown to 1,754 (2003 1,639). To all of them I express my gratitude for their commitment and drive in maintaining Renishaw as a world leader in its field. I should also like to congratulate Joe McGeehan on his recent award of a CBE. Prospects and dividend Activity picked up considerably in the second half of the year and forward order books have continued to increase. Although exchange rates continue to limit the Group’s ultimate profitability, we are optimistic for the current year and confident of the Group’s longer term prospects. Your Board proposes a final dividend of 12.39p per share, giving a total for the year of 18.00p (2003 16.7p). Sir David R McMurtry CBE, RDI, CEng, FIMechE, FREng Chairman and Chief Executive 21st July 2004

Financial highlights 2004 2003 change £m £m % Sales 127.7 110.6 +15% apply innovation Financial highlights £m 2004 2003 change £m £m % Sales 127.7 110.6 +15% Operating profit 18.1 15.6 +15% Profit before tax 20.1 17.8 +13% Cash at bank 32.8 37.2 -12% Earnings per share 22.1p 19.7p +12% Dividend per share 18.0p 16.7p +8% £m % of sales Notes

Profit and loss account apply innovation Profit and loss account R&D 2004 2003 £m £m 15.5 14.2 2004 2003 change £m £m % Sales 127.7 110.6 +15% Cost of sales 47.1 39.7 +19% R&D (incl Engineering) 22.0 20.2 +9% Gross profit 58.6 50.7 +16% Distribution costs 25.2 22.9 +10% Administration costs* 15.7 15.2 +3% Operating profit* 17.7 12.6 +40% * before one-off profit on forward exchange contracts £m % of sales Notes

Profit and loss account apply innovation Profit and loss account 2004 2003 £m % £m % Sales 127.7 100 110.6 100 Cost of sales 47.1 37 39.7 36 R&D (incl Engineering) 22.0 17 20.2 18 Gross profit 58.6 46 50.7 46 Distribution costs 25.2 20 22.9 21 Administration costs* 15.7 12 15.2 14 Operating profit* 17.7 14 12.6 11 * before one-off profit on forward exchange contracts £m % of sales Notes

Profit and loss account apply innovation Profit and loss account £m % of sales Further investment in emerging markets and new geographic regions New employees +30 overseas New offices to be opened in China and Russia Notes

Profit and loss account apply innovation Profit and loss account £m Administration expenses, excluding currency gains and redundancy costs (2002) % of sales Notes

Profit and loss account apply innovation Profit and loss account 2004 2003 change £m £m % Operating profit (pre-currency) 17.7 12.6 +40% Interest income 2.0 2.0 - Currency gains 0.4 3.0 -87% FRS 17 - 0.2 - Profit before tax 20.1 17.8 +13% £m % of sales Notes

Profit and loss account apply innovation Profit and loss account Earnings per share Increase +15% +15% +5% +5% +8% cover 2.2 2.2 1.3 1.2 1.2 Notes

Sales analysis Highest turnover in the Company’s history apply innovation Sales analysis Highest turnover in the Company’s history Sales up 15% at actual exchange rates Sales would have been up 19% at the previous year’s exchange rates, i.e. £3.8m higher All geographical regions showed growth, except UK Good growth in: At act fx At p/y fx Far East +29% +36% Europe +18% +15% America +7% +17% UK experienced a reduction of 9% in sales £m Notes

Sales analysis Emerging markets and Russia also showed good growth apply innovation Sales analysis Emerging markets and Russia also showed good growth All product lines grew, especially Digitising (including Dental), Encoders, Calibration and Machine Tool products Order book continued to grow during the year Notes

Group sales 2004 2003 change at p/y fx change fx effect apply innovation Group sales 2004 2003 change at p/y fx change fx effect £m £m % £m % + - Continental Europe 49.0 41.6 +18% 48.0 +15% 1.0 EUR Far East 34.1 26.4 +29% 35.8 +36% 1.7 JPY/USD America (North & South) 33.3 31.2 +7% 36.4 +17% 3.1 USD ROW 2.5 1.7 +40% 2.5 +41% UK & Ireland 8.8 9.7 -9% 8.8 -9% Total 127.7 110.6 +15% 131.5 +19% net -3.8 Notes

apply innovation Capital expenditure Total capital spend £15.6m (2003 £8.2m), of which £6.5m spent on property, £8.2m on plant and £0.9m on vehicles Property additions - Continuing refurbishment of production facilities at Woodchester, Phase 2 now complete. Woodchester will house the UK machine shop,assembly operations and stores Purchase of freehold property in Japan £m Notes

apply innovation Capital expenditure Further investment in manufacturing plant and equipment Additional expenditure on IT systems to support design, marketing and management information systems and group IT infrastructure New property in Japan Assembly operations at Woodchester New Surface mount technology equipment Notes

apply innovation Organisation Headcount now 1,754 (June 2003 1,639), an increase of 115 people, including 68 in manufacturing and 30 overseas Awards received during the year - Queen’s Award for Enterprise for the OMP40 spindle probe Metalworking and Production award for SP25 scanning probe Worshipful Company of Scientific Instrument Makers awarded their 2003 Annual Achievement Award in respect of RESR rotary encoder National Training Award Regional winner of ‘National Languages for Export’ Award Pilot study for Six Sigma quality improvement techniques has proven successful, roll-out to the whole organisation is being planned Presentation of Queen’s Award Award for RESR rotary encoder Award for SP25 scanning probe Notes

New product releases Signum intelligent encoder systems apply innovation New product releases Signum intelligent encoder systems Piccolo 2.1 which adds extra functionality and has the ability to scan dental abutments Magnetic rotary encoder product range UCC2 and SPA2 controllers

New product releases OMP 40 compact spindle probe apply innovation New product releases OMP 40 compact spindle probe NC4 non-contact laser system for high speed tool setting and tool breakage detection RMP60/RMI radio system using FHSS (Frequency hopping spread spectrum) Productivity+ - integrates probing into CAM software.

apply innovation New product releases InVia reflex raman microscope combined with a Leica confocal scanning microscope Release of new laser software, Windows 2000/XP compatible, incorporating Taiwanese and Korean languages. Also, Russian and Czech language versions of Ballbar 5 HPS software released RLE differential interferometer system for vacuum applications in the semiconductor industry Special low power RLE10 laser encoder system integrated into Philips/IBS ISARA Ultra-Precise CMM SensIR’s IlluminatIR FT-IR module fitted to an inVia Raman microscope

Balance sheet 2004 2003 change £m £m % Fixed assets 58.5 50.8 +15% apply innovation Balance sheet £m 2004 2003 change £m £m % Fixed assets 58.5 50.8 +15% Stock 22.3 20.2 +10% Debtors 32.8 29.6 +11% Cash 32.8 37.2 -12% Creditors (26.0) (20.5) +27% Net current assets 61.9 66.5 -7% Provisions (4.3) (3.5) +23% Pension liability (8.4) (8.6) -3% Net assets 107.7 105.2 +2% £m Notes

Cash flow from operating activities apply innovation Cash flow from operating activities 2004 2003 £m £m Operating profit 18.1 15.6 Depreciation 6.8 6.3 Additional pension contributions (0.6) (1.5) (Increase)/decrease in stock (2.1) 1.9 (Increase) in debtors (4.3) (2.7) Increase in creditors 4.3 0.9 Total movement in working capital (2.1) 0.1 Cash from operating activities 22.2 20.5 £m Notes

Cash flow 2004 2003 £m £m Cash from operating activities 22.2 20.5 apply innovation Cash flow 2004 2003 £m £m Cash from operating activities 22.2 20.5 Interest received 2.0 1.9 Tax paid (3.1) (1.4) Dividends paid (12.4) (11.8) Fixed assets purchased (net) (14.7) (8.0) Fx changes 1.6 0.3 Total cash movement (4.4) 1.5 Cash at 1st July 37.2 35.7 Cash at 30th June 32.8 37.2 £m Notes

apply innovation Future business plans Renishaw continues to develop key technologies and processes in each of its business areas to support continued sales growth and to remain the market leader. These include include further growth in our traditional markets as well as continued emphasis in the fields of dental/medical equipment and systems for semiconductor/electronic production. Improvement in manufacturing and assembly efficiencies Continued development and investment in - new product development geographic markets Notes

apply innovation Key objectives Renishaw fundamentally believes that success comes from innovative and patented products and processes, low cost, high quality manufacturing, and the ability to provide excellent local customer support in all our markets. Notes