Yesterday morning we announced our provisional financial results for the year ending June 30th 2010, with revenues up 6% to £181.6 million and adjusted operating profit more than trebling to finish at £28.1 million.
It was a positive set of results and for those of you interested in the full details, you can download the relevant documents from the Investor relations section of our website. However, today I just wanted to mention one specific item contained within Chairman Sir David McMurtry’s statement, which I believe is worth highlighting.
This is our strong growth in the Far East, which is largely due to China where our sales rose 75% in the year ending 30th June 2010, lifting from £19.5 million to £34.1 million, meaning that they are now just £1 million behind our sales into the USA.
We always seem to hear about the concerns raised about the threats posed to Western manufacturers by China and other low-cost manufacturing countries, but how often do you hear about the opportunities? With increasing personal wealth amongst China’s enormous populations (there are cities there larger than New York and London that most people have never heard about), including a middle-class estimated at some 300 million people, the market for cars, consumer electronics products and luxury brands is huge.
There are many significant sized Chinese manufacturing companies producing high quality products, much of which is actually destined for domestic consumption. A good example is Han’s Laser, the country’s largest producer of laser machining equipment, who I visited in 2008.
Based in the city of Shenzhen, and three times named by Forbes (China) magazine as one of the “100 Most Promising Small and Medium Size Enterprises (SMEs)”, Han’s Laser primarily supplies laser-based manufacturing systems to industries as diverse as textiles, electronics and medical devices. Only formed in 1996, even 2 years ago it had a turnover before tax of RMB 1.68 billion (c. £159 million) and employed some 5,000 people at its 10 manufacturing sites located in the Shenzhen environs.
In 2007, Han’s sold 6,000 machines, double that of the previous year, for applications as diverse as laser marking, drilling, engraving, welding and wafer slicing, with well over 90% of total turnover within China, fuelled by strong local market growth, including large electronics companies such as Foxconn and Panasonic.
Speaking to me at the time, Qun Lei, Vice General Manager of Han’s Laser’s PCB Division told me, “We have grown by offering our customers strong local service, by being committed to continuous improvement and by offering much better price to performance ratios than our competitors.”
However, to achieve a competitive offering with high performance specifications, what many Chinese companies do need is high quality Western technology, such as our own products. In the case of Han’s Laser, this meant a combination of laser calibration and position encoders on various machines, including printed circuit board (PCB) drilling machines, one of the only contact based manufacturing systems produced by Han’s Laser.
These machines operated at speeds of up to 2 metres/second, and the position and depth of the drilled holes (or ‘vias’) were critical to ensure the integrity of the interconnecting circuit traces between the multiple copper layers of the circuit boards. To achieve this positioning performance on the higher-end machines, which could be as accurate as ± 5 microns, each of the machine’s two axes were fitted with a Renishaw optical linear encoder.
During research and development, and as part of the machine ‘sign-off’ at the end of the manufacturing process, our laser calibration systems are also used by Han’s Laser to check for linear measurement accuracy, straightness and angular performance. “We have always used a laser calibration system on our high-end machines, such as laser cutters, wafer cutters and PCB drillers”, said Mr Lei. At that time the company owned eight Renishaw calibration systems, having added four of the latest XL-80 systems in 2007-2008 for their various business units, including the PME Division which specialises in the manufacture of linear motors and X-Y stages, and a then new ‘Imaging’ Division which was developing printing technologies including digital printers.
It was very clear then, as now, that companies such as Han’s Laser hardly conform to the common Western perception of low quality, low technology Chinese products. But whilst there are opportunities, you have to work hard to develop business in this huge market, and what we have achieved is no ‘overnight success’, and indeed started with ‘a single step’.
We first opened a Hong Kong subsidiary in 1993, but prior to this had been selling into China for many years via local distributors (a now retired colleague told me that Renishaw attended a trade show in Beijing during the 1980s where local residents peered at the Western exhibitors through the hotel blinds, so unusual was it to see a white face).
By 1994 we had opened our first representative office in Beijing, and today we have well over 50 staff in six offices, including a wholly owned trading company based in Shanghai which was established in late 2005 (although a Shanghai representative office was created in 2000), and branch offices in Chengdu, Shenyang, Qingdao and Guangzhou. Our Chinese name is shown in the image above, which is phonetically pronounced as 'Lei Ni Shao'.
The classic saying that "A journey of a thousand miles begins with a single step" is attributed to the Chinese philosopher Lao Tzu, who is widely recognised as the father of Taoism. The original Chinese quote referred to a “1,000 li journey”, where a li is an old Chinese measure of distance which actually converts to just 360 miles.