TIDMOXIG
RNS Number : 0406R
Oxford Instruments PLC
12 June 2018
Release Date: 7am Tuesday 12 June 2018
Oxford Instruments plc
Announcement of Preliminary Results for the year to 31 March
2018
Oxford Instruments plc, a leading provider of high technology
products and systems for industry and research, today announces its
Preliminary Results for the year to 31 March 2018.
Year ended Year ended % change
31 March 2018 31 March 2017
GBPm GBPm
Revenue(1) 296.9 300.2 (1.1%)
Adjusted* operating profit(1) 46.5 38.0 +22.4%
Adjusted* profit before tax(1) 42.3 31.5 +34.3%
Profit/(loss) before tax(1) 34.2 (26.2)
Adjusted* basic earnings per share(1) 56.3p 41.5p +35.7%
Dividend per share (full year) 13.3p 13.0p +2.3%
Cash generated from operations(1) 33.4 34.5
Net debt 19.7 109.3
Financial Highlights:
-- Reported orders up 5.0% to GBP313.0 million (2017: GBP298.0
million), an increase of 5.8% at constant currency.
-- Reported order book of GBP134.0 million as at 31 March 2018,
up 5.0% (10.4% at constant currency). Excluding US Healthcare,
order book up 18.4% on a constant currency basis.
-- Reported revenue in line with previous year at constant currency.
-- Adjusted operating profit from continuing operations up 22.4%
to GBP46.5 million (2017: GBP38.0 million), with a currency benefit
of GBP10.6 million - margin increase of 300 basis points to
15.7%.
-- Adjusted profit before tax from continuing operations up
34.3% to GBP42.3 million (2017: GBP31.5 million), an increase of
0.6% at constant currency.
-- Profit before tax from continuing operations of GBP34.2
million (2017: loss of GBP26.2 million).
-- Net debt down significantly to GBP19.7 million following good
operating cash flow and disposals. Profit after tax from sale of
Industrial Analysis of GBP45.9 million and net proceeds of GBP71.2
million.
-- Full year dividend increased by 2.3% to 13.3 pence.
Operational Highlights:
-- Good progress in the early implementation of our Horizon Strategy, in particular:
- Strong growth in orders and order book demonstrate early
success from our market application focus;
- Increased management and leadership capability across the Group;
- Transitioned to a more commercially focused, market-driven
Group to address a broad range of industrial and academic markets;
and
- Continued investment in R&D with increased focus on customer solutions.
-- Strong financial performance across Materials &
Characterisation driven by leading product portfolio and customer
applications focus in growing markets.
-- Good second half performance in Research & Discovery was
offset by a weaker first half. Constant currency order book up
15.3%.
-- Profit and margin growth in Service & Healthcare driven
by services relating to our own products. Reduction in revenue from
the anticipated decline in the sale of refurbished imaging
systems.
Outlook:
-- Our chosen end markets remain attractive, supported by
commercial and government investment. Our growing order book,
customer application focus and drive for operational efficiencies
provide confidence for the year ahead.
-- We expect to see an improvement in performance on a reported
basis(2) after allowing for the impact of an anticipated currency
headwind, based on current exchange rates.
Ian Barkshire, Chief Executive of Oxford Instruments plc,
said:
"We have made good progress in the year with the early
implementation of the Horizon strategy, which was introduced in May
2017.
We have positioned the Group to become a leading provider of
high technology products and services to the world's leading
industrial companies and scientific research communities to image,
analyse and manipulate materials down to the atomic and molecular
level. Our chosen end markets remain robust and, combined with our
customer applications focus and improved core capabilities, provide
strong long-term drivers for future growth and margin
improvement."
(1) Continuing operations
(2) Before the adoption of IFRS 15 'Revenue for Contracts with
Customers' and IFRS 16 'Leases'
Enquiries:
Oxford Instruments plc Tel: 01865 393200
Ian Barkshire, Chief Executive
Gavin Hill, Group Finance Director
MHP Communications Tel: 020 3128 8100
Rachel Hirst / Luke Briggs
Number of pages: 43
*NOTE: Throughout this preliminary announcement we make
reference to adjusted numbers. A full definition of adjusted
numbers can be found in note 1. Where we make reference to constant
currency numbers these are prepared on a month by month basis using
the translational and transactional exchange rates which prevailed
in the previous year rather than the actual exchange rates which
prevailed in the year. Transactional exchange rates include the
effect of our hedging programme.
Chairman's Statement
It has been a positive year with the Group delivering a
performance in line with our expectations and making good progress
with the Horizon strategy. Management has continued to steer our
business towards a greater focus on market segments and
applications, designed to help our customers advance their
businesses through enhanced R&D and productivity improvement.
As a result, we are already starting to see improved trading in
some of our businesses and we expect progress to continue as the
Horizon strategy gains momentum.
The Group has continued to focus on the core capabilities of its
Horizon strategy: market intimacy, innovation and product
development, customer support, and operational excellence as we
embed best practice across the Group. We have also strengthened our
management with new senior leaders joining the business during the
year and created new leadership roles to sharpen our commercial
focus. We also successfully completed the sale of Industrial
Analysis early in the second quarter of the financial year, marking
a significant change to our portfolio.
Against this backdrop of activity and repositioning for
long-term sustainable growth, the team maintained their focus on
near-term performance. Adjusted profit before tax was up 34.3% at
GBP42.3 million (2017: GBP31.5 million) driven by a strong
performance from our Materials & Characterisation sector and
supported by favourable currency effects. Adjusted profit before
tax increased by 0.6% at constant currency. Profit before tax was
GBP34.2 million (2017: loss of GBP26.2 million) and adjusted basic
earnings per share on a continuing basis was up 35.7% to 56.3 pence
(2017: 41.5 pence). Good operating cash flow and the proceeds from
the sale of Industrial Analysis led to a significant reduction in
net debt to GBP19.7 million (2017: GBP109.3 million). Given the
improvement in net debt and our confidence that the Horizon
strategy is beginning to deliver tangible benefits, the Board has
proposed to raise the final dividend to 9.6 pence (2017: 9.3
pence), giving a full year dividend of 13.3 pence (2017: 13.0
pence), an increase of 2.3%.
As Ian Barkshire sets out in his Chief Executive's Review, the
management team is energised in changing the way we operate,
implementing the key tenets of the Horizon strategy. This will help
position the Group as a leading provider of high technology
products and services to the world's leading industrial companies
and scientific research communities.
I would like to thank the Board and all employees for their
dedication and hard work during this time of change to reposition
Oxford Instruments to deliver long-term profitable growth and
sustainable value that benefits all our stakeholders.
Alan Thomson
Chairman
12 June 2018
Chief Executive's Review
Horizon Progress
We made good progress in the year with the early stages of the
implementation of the Horizon strategy, launched in May 2017, and
we are starting to see tangible benefits. I am encouraged by how
firmly embedded the understanding of our strategy is and how
positive engagement has been across the Group.
Through Horizon, we have progressed a number of areas in support
of our new strategy. We have transitioned to a more commercially
focused, market driven Group through significant portfolio
management and have implemented a new sector structure to align our
businesses with our chosen customer segments and applications. Our
three new reporting sectors are Materials & Characterisation,
Research & Discovery, and Service & Healthcare.
We are now positioned to address a broad range of markets and
industrial sectors, with our key enabling technologies underpinning
the shift to a greener economy, increased digital connectivity, and
advances in materials, life science and healthcare. We do this by
helping our customers to accelerate their applied R&D, increase
their manufacturing productivity and make new scientific
discoveries. Today, nearly half of our customer base comprises
commercial organisations.
We have made good progress in migrating to a market and customer
centric approach, offering solutions rather than tools. This allows
us to provide more value to our existing customers, as well as
creating growth opportunities in new market segments through
application specific solutions with improved workflows, bespoke
analytics, data interpretation and associated support services. For
example, customers developing higher efficiency, power and longer
life batteries need to understand and control the detailed chemical
and electrical interactions at the nano and even atomic scale.
Because battery materials are very reactive and operate within an
active solution this has been extremely difficult to achieve. To
solve this problem, we developed a sealed sample and imaging cell
for our CypherES atomic force microscope that enables the direct
measurement of these electrochemistry processes at the nano scale
for battery materials operating under their real-life conditions.
Within the automotive industry, incoming parts are inspected to
control and maintain suitable levels of cleanliness and when
contamination is present, stopping its re-occurrence at source is
critical to maintain production. Here we developed a bespoke
workflow and data interpretation package for our customer to
measure the cleanliness of parts and importantly identify the
source within the supply chain of any contaminating particles. This
solution was built as an upgrade to our generic particle analysis
solution. Importantly, these examples of a hardware and a software
upgrade for existing product platforms can be delivered on short
time frames relative to new instrument platforms to both expand our
addressable markets and increase the value to our existing
customers.
We have transformed the leadership team at an operational level,
targeting individuals who have the specific capabilities and
experience needed to accelerate our progress with Horizon, largely
through external recruitment. Around 50% of our senior managers are
new in their roles within the last two years; successful placements
in the year include new leaders for our NanoScience and X-ray
Technology businesses and a new senior role, Group Commercial
Director, to lead a sharper commercial focus across our sales teams
and global territories.
Through Horizon we are changing the way we operate and we are
embedding clearly defined core capabilities across our businesses
in market intimacy, innovation and product development, customer
support, and operational excellence.
In market intimacy we are changing the way we reach and
communicate with our customers, more effectively bringing to life
the innovative and value adding solutions that we can provide for
their specific applications. As part of our move from product to
solution-selling, all our sales teams have undertaken bespoke
training. We have also invested in developing our digital marketing
capabilities and new Group and e-commerce websites.
Innovation and product development remain core to our growth
strategy and as part of Horizon we have established cross-sector
roadmaps, which are providing a broader range of high quality
investment opportunities better aligned with our chosen
markets.
In customer support we have increased our breadth and range of
products and services to support our customers more effectively. We
are investing in a range of technologies to improve customer
productivity including remote diagnostics and predictive
monitoring.
Operational excellence is delivering improved customer
satisfaction and operational and logistical efficiencies. We are
implementing a lean approach to our operations and are in the
process of training 50 'green belt' lean leaders in different roles
and functions. We have added a Head of Strategic Sourcing to drive
our Group procurement programme to improve efficiencies and exploit
synergies across our supply chain.
As part of our change programme we have been breaking down
silos, establishing cross business and functional working groups to
extract best practice and better leverage our scale and deliver
synergies. In the year we made GBP1.5 million of central and
regional cost savings through back office and central overhead
efficiencies, this partially offsetting the previous contribution
from and therefore stranded costs associated with the divested
Industrial Analysis business.
In the year we have positioned the Group to become a leading
provider of high technology products and services to the world's
leading industrial companies and scientific research communities to
image, analyse and manipulate materials down to the atomic and
molecular level. Our chosen end markets remain robust and, combined
with our customer applications focus and improved core
capabilities, provide strong long-term drivers for future growth
and margin improvement.
Results
The following results exclude discontinued operations.
The Group delivered a performance in line with expectations,
supported by a currency tailwind and strong second half trading.
This was underpinned by significant growth in the Materials &
Characterisation sector and improved performance from Service &
Healthcare, offset by weaker trading in the Research &
Discovery sector despite a positive uplift in the second half of
the year.
Reported orders for the Group were up 5.0% (5.8% at constant
currency) to GBP313.0 million (2017: GBP298.0 million). Excluding
orders from our US Healthcare business, constant currency orders
were up 8.9% against the previous period. We continue to see
increased demand from commercial and academic customers engaged in
applied R&D as well as production and manufacturing of high
technology products and devices. This has driven a strong
performance within Materials & Characterisation, with
double-digit growth across the US, Europe and Asia, as well as
increased demand for services relating to our own products.
Research & Discovery orders were broadly in line with the
previous year, maintaining a similar geographical split.
Reported revenue was broadly in line with the previous year at
GBP296.9 million (2017: GBP300.2 million), and level at constant
currency supported by a strong second half performance, with good
growth in Materials & Characterisation and services related to
our own products. This was offset by reduced volumes in Research
& Discovery in line with the phasing of orders, the delivery of
longer lead time items and lower revenues associated with the sale
of third party systems in OI Healthcare. On a geographical basis,
underlying revenue growth in Europe and Asia was offset by reduced
sales in North America, with Materials & Characterisation
having strong growth across all territories.
The order book, representing orders for future delivery,
increased by 5.0% to GBP134.0 million (2017: GBP127.6 million),
growth of 10.4% at constant currency. Excluding our US Healthcare
business, constant currency order book is up 18.4%, with strong
growth across Materials & Characterisation, Research &
Discovery, and the service of our own products.
Currency effects drove adjusted operating profit up 22.4% to
GBP46.5 million (2017: GBP38.0 million), a decline of 5.5% at
constant currency. Adjusted operating margin rose to 15.7% for the
Group (2017: 12.7%), supported by the currency tailwind.
Adjusted profit before tax increased by 34.3% to GBP42.3 million
(2017: GBP31.5 million), with an increased contribution from
Materials & Characterisation and Service & Healthcare and a
lower contribution from Research & Discovery. Adjusted profit
before tax was up 0.6% at constant currency. Profit before tax of
GBP34.2 million compared favourably to a loss of GBP26.2 million
last year.
Continuing adjusted basic earnings per share grew strongly by
35.7% to 56.3 pence (2017: 41.5 pence).
We delivered a significant reduction in net debt in the period
to GBP19.7 million (2017: GBP109.3 million) due to ongoing
strengthening of the balance sheet throughout the year, resulting
from good operating cash flow, proceeds from the sale of the
Industrial Analysis business and the sale of two properties.
Sector Performance
Turning to the individual sector performance:
Materials & Characterisation products and solutions enable
the fabrication and characterisation of materials and devices down
to the atomic scale, predominantly supporting customers across
applied R&D as well as the production and manufacture of high
technology products and devices. Building on a positive first half
year, the sector delivered strong growth and overall performance
with positive contributions from NanoAnalysis, Asylum Research and
Plasma Technology. Reported orders grew in the period by 22.7% to
GBP129.5 million (2017: GBP105.8 million). Reported revenue grew by
11.7% to GBP118.1 million (2017: GBP105.7 million), with reported
adjusted operating profit increasing to GBP20.1 million (2017:
GBP12.2 million) and reported adjusted margin up to 17.0%. The
order book for future deliveries increased by 36.8% to GBP34.2
million (2017: GBP25.0 million), providing positive momentum. The
sector is already benefitting from a number of key initiatives
within the Horizon strategy, particularly the focus on
customer-orientated solutions that are tailored to provide
application-specific workflows and process recipes, information and
analytics.
Research & Discovery provides advanced solutions that create
unique environments and enable imaging and analytical measurements
down to the molecular and sub-atomic level, predominantly used in
scientific research and applied R&D. Reported orders of
GBP118.2 million (2017: GBP120.1 million) were broadly in line with
the previous year, with continued growth in quantum solutions, an
increased demand for our benchtop NMR products and an increase in
order intake in the second half for our optical microscopy
products, offset by lower orders for scientific X-ray tubes.
Reported revenue of GBP112.1 million was down 10.5% on the previous
year (2017: GBP125.3 million), due to the softer first half
performance of our optical microscopy products and the higher
proportion of longer lead time customised cryogenic and magnet
system orders. The stronger second half orders resulted in an
increase in order book of 11.7% to GBP59.0 million, (2017: GBP52.8
million). Reported adjusted operating profit was in line with
previous year at GBP13.8 million (2017: GBP13.8 million) with an
improved reported adjusted margin of 12.3% (2017: 11.0%).
Service & Healthcare provides customer service and support
for our own products and the service, sale and rental of third
party healthcare imaging systems. Reported orders for the period of
GBP65.6 million (2017: GBP72.2 million) were down 9.1% as reported
(7.8% at constant currency) due to reduced orders within our US
Healthcare business. Reported orders for services related to our
own products grew 3.7% to GBP39.0 million (2017: GBP37.6 million).
Reported revenue of GBP66.8 million (2017: GBP69.3 million), down
3.6% on the previous year, was due to lower shipments of
refurbished third-party medical imaging systems. This more than
offset reported revenue growth of 6.9% for services related to our
own products to GBP38.8 million (2017: GBP36.3 million). Reported
adjusted operating profit rose to GBP12.6 million (2017: GBP12.0
million), an increase of 5.0%, while reported adjusted operating
margin increased to 18.9% (2017: 17.3%).
R&D
One of the core elements of our Horizon strategy is innovation
and product development. We invested GBP24.8 million (2017: GBP25.8
million), with an increased emphasis on the solutions and
technology that will increase value for our customers through new
capabilities, ease of use, enhanced productivity and
application-specific information. We monitor the proportion of our
revenue which originates from products launched in the last three
years (our vitality index). Our vitality index for the reported
period increased to 37% (2017; 30%), reflecting the successful
uptake of recently launched products.
People
Our staff are fundamental to our business success and I have
been encouraged by how they have engaged with the Horizon strategy
to improve our business. We continue with our focus to enhance the
capabilities of our teams through the development of existing
employees and investment in new talent.
I would like to thank all our employees for their commitment to
Oxford Instruments, and for their ongoing enthusiasm to help our
customers.
Summary
We have made good progress in the year with the early
implementation of the Horizon strategy, which was introduced in May
2017. We have positioned the Group to become a leading provider of
high technology products and services to the world's leading
industrial companies and scientific research communities to image,
analyse and manipulate materials down to the atomic and molecular
level.
Materials & Characterisation performed strongly in
attractive markets. We continue to invest in new product
development within the sector to improve and expand our range of
products and solutions.
Research & Discovery had an improved second half
performance, with recovery in optical microscopy systems and like
for like order growth in Andor. An under performance in NanoScience
and X-ray Technology depressed the sector's result, however we are
addressing the challenges through structural change and business
simplification. These self-help actions, combined with positive end
markets, support improved financial performance.
In Service & Healthcare, OiService continues to focus on
increasing after-market revenue by providing a broader range of
support services, while OI Healthcare is making a strategic shift
towards a higher proportion of service revenue, which is driving
greater visibility of revenue and improved returns.
Outlook
Our chosen end markets remain attractive, supported by
commercial and government investment. Our growing order book,
customer application focus and drive for operational efficiencies
provide confidence for the year ahead.
We expect to see an improvement in performance on a reported
basis after allowing for the impact of an anticipated currency
headwind, based on current exchange rates.
Ian Barkshire
Chief Executive
12 June 2018
Operations Review
The Group reports in the following three sectors: Materials
& Characterisation, Research & Discovery, and Service &
Healthcare. The numbers detailed in the Operations Review refer to
continuing operations.
Materials & Characterisation
2018 2017 Growth Constant
GBPm GBPm Currency
Growth(1)
------------------------------ ------ ------- ------- -----------
Revenue 118.1 105.7 11.7% 13.2%
------------------------------ ------ ------- ------- -----------
Adjusted(2) operating profit 20.1 12.2 64.8% 19.7%
------------------------------ ------ ------- ------- -----------
Adjusted(2) operating margin 17.0% 11.5%
------------------------------ ------ -------
Profit before tax 17.3 (14.0)
------------------------------ ------ -------
(1) For definition refer to note on page 2 of highlights
(2) Details of adjusting items can be found in Note 1 of these
Financial Statements
The Materials & Characterisation sector is comprised of
Asylum Research, NanoAnalysis and Plasma Technology. This sector
has a broad customer base across a wide range of applications for
the imaging and analysis of materials down to the atomic level and
the fabrication of semiconductor devices and structures through our
range of advanced etch and deposition processes and systems. Our
market leading product performance combined with customer focused
solutions is driving strong growth by providing increased value to
existing customers and the identification of and reach into new
markets and applications. We are providing new capabilities, ease
of use and enhanced productivity through application-specific
workflows, processes, analytics and information. Revenue in
Materials & Characterisation comes from a broad range of end
applications with about three quarters from the Semiconductor &
Communications and the Advanced Materials related customer
segments. Industrial and commercial customers represent 49% of
revenue, with the balance either academic or government funded.
Materials & Characterisation delivered strong order, revenue
and profit growth supported by the successful launch of new
products, our increased customer application focus, the tailoring
of products to provide dedicated solutions and general growth
within our end markets. From a geographic perspective, strong
growth was seen across Europe, US and Asia.
Sales of our imaging and analysis products and solutions used in
electron microscopy had strong growth, with placements in the
world's leading academic, semiconductor and advanced manufacturing
facilities, as well as top forensic laboratories, where customers
seek rapid, automated solutions to their analysis challenges. The
launch of Symmetry, our super-fast material structure analyser, was
a key driver in both the advanced materials and environmental
markets, enabling productivity improvements for our customers in
terms of the speed, high-resolution and accuracy of analysis.
The introduction of our Ultim(TM) range of large area X-ray
detectors has driven strong sales within the semiconductor market
by providing unprecedented resolution and analysis of semiconductor
structures and devices. A range of applications are benefiting from
the enhanced capabilities we offer, including fault finding and
failure analysis within devices for the leading semiconductor
manufacturers and cleanliness control in precision manufacturing.
Other applications that are utilising our Ultim(TM) product range
include solar cells and batteries, where researchers are working to
improve performance and storage density by better understanding
their structure at a nanoscale. The sensitivity of the Ultim(TM)
Extreme is providing new market opportunities within the life
science and pharmaceutical markets where it is providing further
insight and understanding of disease processes and can aid the
identification of counterfeit prescription drugs.
We saw strong order, revenue and profit growth for our scanning
probe microscopy products. This has been largely supported by the
strong uptake we have had for our market leading Cypher portfolio
and increased orders for our updated entry level platform, with
advanced ease of use providing marketing leading performance at a
value price point. CypherVRS(TM), the first and only full-featured
video-rate atomic force microscope (AFM), is generating strong
interest across a diverse range of biological and physical science
applications, where the visualisation of dynamic processes at a
molecular or atomic level provides new insights and information for
research and applied R&D. Examples include the imaging of
viruses, molecular and cellular dynamics, and semiconductor etch
processes.
Our electrochemistry sample cell upgrade for our CypherES(TM)
AFM provides high-resolution imaging in real device operating
conditions. The advanced environmental control enables those
researching the development of lithium-ion batteries and emerging
solid-state energy storage systems to better understand and
characterise performance in real life conditions.
We have strengthened our customer application focus with the
release of a photovoltaics package for our MFP(TM) AFM. This offers
a convenient, high-performance turnkey solution for materials
scientists that are seeking to improve the efficiency, reduce
manufacturing costs and lengthen solar cell lifetimes.
In addition to the many varied research applications for our
advanced AFM systems, our entry level portfolio is ideally
positioned to provide the simpler, routine measurements such as
thin film roughness and uniformity at nanometre and even
sub-nanometre length scales that are inaccessible to other
metrology tools. Our updated MFP Origin+(TM) has seen good growth
across a broad range of application areas due to its high level of
performance, ease of use and appropriate price point.
We had good growth from our semiconductor processing systems
that provide etch and deposition process solutions used across a
range of semiconductor, device and materials applications. We have
leading expertise in the processing of compound semiconductors,
which are critical for enabling more compact devices, higher
speeds, larger capacity and higher energy efficiencies required to
deliver the functionality and demands for big data, IoT, AI, high
speed communications and autonomous vehicles.
Growth has been supported by the development of new process
recipes aligned to these growing markets, including the fabrication
of sensors and MEMS, which are used across a broad range of optical
devices and communications systems to provide higher speeds; and
the development of advanced lasers used across a broad range of
photonics markets including Vertical Cavity Surface Emitting lasers
(VCSELs) for facial recognition applications.
Customers working in these markets value our expertise and
development capabilities, large portfolio of processing recipes and
our applications support to help them manufacture new devices
repeatedly, with the required quality for new and demanding
applications. We have seen growth in both applied R&D and the
expanding specialist production markets for the manufacture of
commercial systems, with specialist production now representing
almost half the sales in this market.
Research & Discovery
2018 2017 Growth Constant
GBPm GBPm Currency
Growth(1)
----------------------- ------ ------ -------- -----------
Revenue 112.1 125.3 (10.5%) (9.7%)
----------------------- ------ ------ -------- -----------
Adjusted(2) operating
profit 13.8 13.8 - (36.2%)
----------------------- ------ ------ -------- -----------
Adjusted(2) operating
margin 12.3% 11.0%
----------------------- ------ ------
Profit before tax 4.1 (3.0)
----------------------- ------ ------
(1) For definition refer to note on page 2 of highlights
(2) Details of adjusting items can be found in Note 1 of these
Financial Statements
The Research & Discovery sector includes Andor Technology,
NanoScience & Magnetic Resonance, X-ray Technology and our
minority share in ScientaOmicron. This sector provides advanced
solutions that create unique environments and enable imaging and
analytical measurements down to the molecular and sub-atomic level,
used predominantly in fundamental and applied research. We are able
to build on our relationships with customers working on
breakthrough applications in research to gain insights and support
future commercial applications. We have strong brand recognition
and leading product performance with 73% of sales into research
communities and 23% into industrial customers predominately for use
in applied R&D.
In this sector, 40% of revenue comes from customers working
within Healthcare & Life Science applications. Customers
exploring new semiconductor materials and devices make a
significant contribution, and an increasing share is coming from
customers working in quantum technology applications and research.
Quantum Technology is a strong growth area for the sector due to
increased government and corporate funding for applications such as
quantum information processing and quantum sensors. Research &
Fundamental Science contributes 4% of revenue.
Orders for the sector were broadly in line with the previous
year, with like for like growth in Andor and Magnetic Resonance
offset by lower orders from X-ray Technology, with NanoScience
broadly in line with last year. From a geographic perspective,
orders from Europe and US were broadly in line with previous year,
with increases from Rest of the World offsetting slight declines in
Asia.
Revenue and profitability in the sector were impacted by three
particular product areas that more than offset growth across the
broad range of the portfolio. As previously reported, there was a
softer financial performance from our Andor optical microscopy
systems in the first half of the year as we transitioned from
third-party systems to our own portfolio; lower revenues from
NanoScience as they work through a high volume of complex
specialised systems at lower margins; and lower volumes of our
scientific X-ray tubes in X-ray Technology.
Our NanoScience business is underperforming relative to its
potential and is in transition as part of our Horizon programme.
The quality and complexity of the order book negatively impacted
performance in the year despite an improved second half
performance. The current year is expected to be impacted by the
remaining tail of complex systems within the orderbook. We have a
new leadership team and self-help plan in place to increase the
emphasis on margin, drive a stronger commercial focus and deliver
organisational efficiencies.
We had order growth for our customised high magnetic systems for
national science facilities, building on our strong reputation in
this sector. We increased sales of our ultra-low temperature
portfolio driven by the increasing demand for systems and solutions
to support quantum research and quantum information processing. We
are moving towards more standardised solutions designed
specifically for this growing market. Our combined cryogenic and
magnetic solutions grew in the year with the launch of a new range
of measurement probes, providing more complete solutions for the
measurement of 2D materials, such as graphene.
Andor had significantly higher order intake in the second half
of the year, driven by new product launches and the broadening of
our optical microscopy portfolio. Lower revenue in the period,
partly due to phasing of orders, has resulted in a significant
increase in the order book for future deliveries.
We continue to develop our range of market leading scientific
research cameras and have seen growth from application areas
requiring higher performance, faster collection and increased
sensitivity. Our specialised deep cooled, large area, high
sensitivity cameras have provided good growth in astronomy, as
researchers look for more accurate and detailed information with
better spectral performance to enable deep space imaging, solar
astronomy and near-earth object observation. Our world's first
super-resolution microscopy camera, iXon-SRFF(TM) allows customers
to observe biological features at resolutions significantly smaller
than the wavelength of light to reveal unprecedented details in
living cells, helping to build an understanding of the complex
intracellular mechanisms that underlie a wide range of disease
states. This image enhancement, which is only available on Andor
cameras, overcomes frustrations with the complexity of sample
preparation and the added expense of current super-resolution
microscopes enabling customers to achieve super-resolution
capability with a more affordable microscope and standard sample
preparation techniques.
We continue to benefit from our connections to many Quantum
Imaging centres of excellence that have been established in support
of this rapidly growing and well-funded market. Our single photon
sensitive cameras saw growing demand from researchers investigating
and developing quantum optics, which are required for communication
systems and exotic imaging solutions, for example those that can
look through smoke or around corners.
Our optical microscopy platform, Dragonfly(TM) , saw strong
growth in the second half of the year as we introduced a
complimentary lower price point model to the portfolio, enabling
the product range to address a much broader end market.
Dragonfly(TM) provides the capability to quickly image large
samples and reveal detail previously not seen in applications such
as neuroscience, cancer research and regenerative science. The
product received an R&D Top 100 award, recognising the
revolutionary technology and superior performance. We also saw good
growth from our Imaris(TM) visualisation software due to its
ability to capture, process and visualise the extremely large data
sets captured by modern instrumentation, with data analysis and
interpretation becoming an increasing part and value of the overall
product solution. Imaris(TM) is sold for use on our own and other
optical microscopy systems.
We saw increased demand for our benchtop Nuclear Magnetic
Resonance solutions, which provide essential information about the
identification and quantification of foods and chemicals for
academic and industrial researchers and for quality assurance and
control. Revenue and order growth has been driven by our enhanced
Pulsar(TM) and the recently launched MQC+(TM) systems. In the
second half of the year we saw growth in the energy generation and
storage sector following increasing oil prices, capitalising on
developments made across our application specific Geospec range of
products.
Our X-ray source business continued to grow in the medical and
research market segments but experienced greater than expected head
winds in the material characterisation and industrial applications
leading to a drop in the year on year revenue. This was in part
driven by the delayed introduction of new products for these
markets and pricing pressures in China.
The ScientaOmicron joint venture created the largest player in
the Ultra-High Vacuum surface science field. The Group has a 47%
share in the joint venture. The business delivered an improved
financial performance for the year, with our share of adjusted
operating profit at GBP0.4 million against a loss of GBP0.8 million
last year. After our year end, the business sold its UK based
ultra-high vacuum products division. This is in line with the
strategy to focus on providing core surface science products and
solutions.
Service & Healthcare Sector
2018 2017 Growth Constant
GBPm GBPm Currency
Growth(1)
----------------------- ------ ------ ------- -----------
Revenue 66.8 69.3 (3.6%) (2.9%)
----------------------- ------ ------ ------- -----------
Adjusted(2) operating
profit 12.6 12.0 5.0% 4.2%
----------------------- ------ ------ ------- -----------
Adjusted(2) operating
margin 18.9% 17.3%
----------------------- ------ ------
Profit before tax 10.6 (0.2)
----------------------- ------ ------
(1) For definition refer to note on page 2 of highlights
(2) Details of adjusting items can be found in Note 1 of these
Financial Statements
The Service & Healthcare sector comprises the Group's
maintenance service contracts, billable repairs, training and
support services, and spare part sales related to Oxford
Instruments' own products under the OiService brand; and the sale,
service and rental of refurbished third-party MRI and CT machines
under the OI Healthcare brand.
The Service & Healthcare sector increased profitability and
margin in the period, driven predominantly by increased demand for
the services related to our own products. Revenue and order growth
from our service offerings relating to our own products were more
than offset by a decline from US OI Healthcare business. This was
due to a combination of the timing of sales prospects and the
previously reported structural changes in the market by OEM
providers.
OI Healthcare made good progress, with increased orders in the
second half of the year, in line with the implementation of our
strategy to move to a higher proportion of service contracts
relative to the sale of refurbished systems. Revenue was down in
the year but through structural changes in line with our strategy,
profitability was in line with last year, providing a solid
platform for future growth.
Within OiService we continue to drive our enhanced customer
support offerings, adapting to our customers' needs, for example
with remote diagnostics and online self-help. We are designing
product platforms to enable service upgrades delivering either
performance enhancements or application specific solutions. This
increases value and builds versatility for our customers as well as
growth in aftermarket revenue. Our new e-commerce website makes it
easier for customers to find and purchase consumable items and
accessories and we have seen a corresponding increase in associated
revenue.
Growth in service contracts related to our optical imaging
analysis software has been driven by the value customers place on
having annual updates and access to our inhouse analysis experts.
Across the OI Group we provide extensive customer training
programmes designed to increase their capability and productivity.
This year we also held many very successful global application
seminars with research and application scientists, most notably a
new microscopy summer school run in collaboration with the Chinese
Academy of Sciences.
Finance Review
During the financial year the Group disposed of its Industrial
Analysis business and this has been treated as a discontinued
operation in the financial statements. Accordingly, the numbers
detailed in the Finance Review refer to continuing operations and
exclude the results of Industrial Analysis in both the current and
prior periods.
Reported orders increased by 5.0% to GBP313.0 million (2017:
GBP298.0 million), an increase of 5.8% at constant currency. At the
end of the period the Group's order book for future deliveries
stood at GBP134.0 million (2017: GBP127.6 million), growth of 5.0%
on a reported basis and 10.4% at constant currency.
Reported revenue declined by 1.1% to GBP296.9 million (2017:
GBP300.2 million). Revenue, excluding currency effects, was broadly
in line with last year, with the movement in average currency
exchange rates over the last year reducing reported revenue by
GBP3.1 million.
Adjusted operating profit from continuing operations increased
by 22.4% to GBP46.5 million (2017: GBP38.0 million). Adjusted
operating profit from continuing operations, excluding currency
effects, declined by 5.5%. Adjusted operating margin from
continuing operations increased by 300 basis points to 15.7% (2017:
12.7%).
Adjusted profit before tax from continuing operations grew by
34.3% to GBP42.3 million (2017: GBP31.5 million). A pre-tax
adjusted profit of GBP0.5 million from the Industrial Analysis
business for the three months of ownership, prior to its sale on 3
July 2017, is included in discontinued operations. For the twelve
months to 31 March 2017 the Industrial Analysis and Superconducting
Wire businesses delivered an adjusted profit before tax of GBP5.6
million. Including discontinued operations, the Group achieved
reported adjusted profit before tax of GBP42.8 million (2017:
GBP37.1 million).
Adjusting items include amortisation of acquired intangibles of
GBP10.9 million and a net gain of GBP1.7 million for business
reorganisation items. Our share of an impairment in our equity
accounted associate was GBP2.0 million and the movement in the
mark-to-market valuation of currency hedges for future years gave
rise to a gain of GBP3.1 million.
Adjusted profit before tax from continuing operations of GBP42.3
million (2017: GBP31.5 million) represents a margin of 14.2% (2017:
10.5%). After adjusting items, the Group recorded a profit before
tax of GBP34.2 million from continuing operations (2017: loss of
GBP26.2 million).
Continuing adjusted basic earnings per share grew by 35.7% to
56.3 pence (2017: 41.5 pence). Continuing basic earnings per share
was 34.3 pence (2017: loss of 44.7 pence).
Cash generated from operations fell by GBP1.1 million to GBP33.4
million (2017: GBP34.5 million), representing 68.8% (2017: 90.3%)
cash conversion. Cash conversion is defined as: cash generated from
operations before business reorganisation items and pension scheme
payments, less, capitalised development expenditure and capital
expenditure / adjusted operating profit. Net debt decreased from
GBP109.3 million to GBP19.7 million, representing a net debt to
EBITDA ratio (for banking covenant purposes) of 0.3 times; our
banking covenant is set at 3.0 times.
Adjusted operating profit is stated before impairment and
amortisation of goodwill and acquired intangibles, business
reorganisation items, the mark-to-market valuation of unexpired
currency hedges, and other adjusting items, as set out in Note 1 to
the Financial Statements.
Income Statement
The Group's Income Statement is summarised below.
Year ended Year ended
31 March 31 March
2018 2017
GBPm GBPm Change
--------------------------------------------- ---------- ---------- ------
Revenue 296.9 300.2 (1.1%)
Gross profit 150.9 157.3 (4.1%)
Administrative expenses (105.8) (106.5)
Share of profit/(loss) of associate 0.5 (0.8)
Foreign exchange 0.9 (12.0)
--------------------------------------------- ---------- ---------- ------
Adjusted operating profit 46.5 38.0 +22.4%
Net finance costs (4.2) (6.5)
--------------------------------------------- ---------- ---------- ------
Adjusted profit before tax 42.3 31.5 +34.3%
Amortisation of acquired intangibles (10.9) (12.5)
Impairment of goodwill and intangibles - (36.7)
Impairment of investment of associate - (8.0)
Business reorganisation items 1.7 (1.7)
Share of impairment recognised by associate (2.0) -
Mark-to-market of currency hedges 3.1 1.2
--------------------------------------------- ---------- ---------- ------
Profit/(loss) before tax 34.2 (26.2)
Tax from continuing operations (14.6) 0.7
--------------------------------------------- ---------- ---------- ------
Profit/(loss) for the period from continuing
operations 19.6 (25.5)
--------------------------------------------- ---------- ---------- ------
Adjusted effective tax rate(1) 23.9% 24.8%
Continuing adjusted earnings per share -
basic 56.3p 41.5p +35.7%
Earnings per share - basic 114.5 (35.6)p
Continuing adjusted earnings per share -
diluted 56.1p 41.4p +35.5%
Earnings per share - diluted 114.1p (35.6)p
Dividend per share 13.3p 13.0p +2.3%
--------------------------------------------- ---------- ---------- ------
1. The adjusted effective tax rate is calculated excluding
impairment of non-current assets, amortisation on acquired
intangibles, business reorganisation items, the mark-to-market of
financial derivatives, and other adjusting items.
Revenue
Orders, at constant currency, increased by 22.8% for Materials
& Characterisation with good growth across all business units
and was broadly flat for Research & Discovery. A decline of
7.8% in Service & Healthcare as we reduce the level of sales of
refurbished imaging systems in the US Healthcare business, offset
order growth of 3.7% in service of our own products. Total reported
orders grew by 5.0% (5.8% at constant currency). Excluding orders
from US Healthcare, reported and constant currency orders grew by
8.3% and 8.9% respectively.
Reported revenue of GBP296.9 million (2017: GBP300.2 million)
decreased by 1.1%. Materials & Characterisation grew by 11.7%.
Research & Discovery and Service & Healthcare declined by
10.5% and 3.6% respectively.
Excluding currency effects, revenue grew by 13.2% for Materials
& Characterisation with growth across all constituent
businesses. Lower optical microscopy sales and an increase in the
proportion of customised magnetic and cryogenic systems with longer
production lead times, resulted in a constant currency decline of
9.7% in Research & Discovery revenue. Growth in revenue from
service of our own products was offset by an anticipated decline in
Healthcare revenue from selling fewer refurbished imaging systems,
leading to a constant currency revenue decline of 2.9% in Service
& Healthcare.
On a geographical basis, at constant currency, revenue grew by
4.3% in Europe, 1.2% in Asia and 8.3% for the Rest of World.
Constant currency revenue declined by 5.3% in North America but was
in line with last year when excluding revenue from OI
Healthcare.
The order book, at constant currency, increased by 42.4% for
Materials & Characterisation and 15.2% for Research &
Discovery, with a decline of 10.8% in Service & Healthcare.
Total reported order book grew by 5.0% (10.4% at constant
currency). Excluding the order book from US Healthcare, reported
and constant currency order book growth was 14.0% and 18.4%
respectively.
Materials Research Service &
GBP million & Characterisation & Discovery Healthcare Total*
------------------------- ------------------- ------------ ----------- ------
Revenue: 2016/17 105.7 125.3 69.3 300.2
------------------------- ------------------- ------------ ----------- ------
Underlying movement 13.9 (12.1) (2.0) (0.2)
Foreign Exchange (1.5) (1.1) (0.5) (3.1)
------------------------- ------------------- ------------ ----------- ------
Revenue: 2017/18 118.1 112.1 66.8 296.9
------------------------- ------------------- ------------ ----------- ------
Revenue growth: reported +11.7% (10.5%) (3.6%) (1.1%)
Revenue growth: constant
currency +13.2% (9.7%) (2.9%) (0.1%)
* Excluding inter-sector revenue
Gross profit
Gross profit fell by 4.1% to GBP150.9 million (2017: GBP157.3
million), representing a gross profit margin of 50.8%, a decrease
of 160 basis points over last year.
Operating profit
Adjusted operating profit increased by 22.4% to GBP46.5 million
(2017: GBP38.0 million), representing an adjusted operating profit
margin of 15.7%, an increase of 300 basis points against last year.
Materials & Characterisation margin rose by 550 basis points to
17.0% (2017: 11.5%). Research & Discovery adjusted operating
margin increased by 130 basis points to 12.3% (2017: 11.0%).
Service & Healthcare margin increased by 160 basis points to
18.9% (2017: 17.3%).
Our share of the Scienta Omicron joint venture showed a profit
of GBP0.5 million for the year, an improvement of GBP1.3 million
against the comparative period. After restructuring costs and
impairments, our share of the Scienta Omicron joint venture was a
loss of GBP1.9 million.
Currency effects (including the impact of transactional currency
hedging) have increased reported adjusted operating profit by
GBP10.6 million when compared to blended hedged exchange rates for
the comparative period. Blended hedged exchange rates for the US
Dollar, Euro and Japanese Yen against Sterling are all at stronger
rates than last year.
At constant currency, the adjusted operating profit margin was
12.0%, a decline of 70 basis points.
Materials Research Service &
GBP million & Characterisation & Discovery Healthcare Total
--------------------------- ------------------- ------------ ----------- -----
Adjusted operating profit:
2016/17 12.2 13.8 12.0 38.0
--------------------------- ------------------- ------------ ----------- -----
Underlying movement 2.4 (5.0) 0.5 (2.1)
Foreign Exchange 5.5 5.0 0.1 10.6
--------------------------- ------------------- ------------ ----------- -----
Adjusted operating profit:
2017/18 20.1 13.8 12.6 46.5
--------------------------- ------------------- ------------ ----------- -----
Margin: 2016/17 11.5% 11.0% 17.3% 12.7%
Margin: 2017/18 17.0% 12.3% 18.9% 15.7%
Adjusting items
Amortisation of acquired intangibles of GBP10.9 million relates
to intangible assets recognised on acquisitions, being the value of
technology, customer relationships and brands.
Business reorganisation items were a net gain of GBP1.7 million.
This comprised three main items, the first being a net gain of
GBP3.3 million from the sale of the Superconducting Wire facility
that we initially retained in New Jersey, US, following the sale of
the business, and the disposal of a freehold property in Germany.
Second, costs of GBP0.5 million were incurred within our US
Healthcare business to successfully defend a legal claim relating
to a prior acquisition. Lastly, we incurred restructuring costs of
GBP1.1 million primarily relating to US Healthcare and our Scienta
Omicron joint venture.
During the year our Scienta Omicron associate recognised an
impairment relating to the sale of one of its subsidiaries. The
Group's share of this impairment was GBP2.0 million.
The Group uses derivative products to hedge its short-term
exposure to fluctuations in foreign exchange rates. It is Group
policy to have in place at the beginning of the financial year
hedging instruments to cover 80% of its forecast transactional
exposure for that year. The Group has decided that the additional
costs of meeting the extensive documentation requirements of IAS 39
to apply hedge accounting to these foreign exchange hedges cannot
be justified. Accordingly, the Group does not use hedge accounting
for these derivatives.
Net movements on marking-to-market derivatives in respect of
future periods are disclosed in the Income Statement as foreign
exchange and excluded from our calculation of adjusted profit
before tax.
The mark-to-market gain in respect of derivative financial
instruments was GBP3.1 million (2017: GBP1.2 million gain). This
reflects a movement from a net fair value liability to a small net
asset position on currency derivatives that are hedging future
transactional currency exposures for the Group compared to the
previous year end. The un-crystallised balance sheet asset is
attributable to a rise in the value of Sterling at the balance
sheet date against a blended rate achieved on US Dollar, Euro and
Japanese Yen forward contracts that will mature over the next
twelve months.
Net finance costs
The Group's adjusted net finance costs fell by GBP2.3 million to
GBP4.2 million (2017: GBP6.5 million) with net finance charges
falling by GBP1.8 million to GBP3.6 million and pension financing
charges falling by GBP0.5 million to GBP0.6 million.
Profit before tax
Continuing adjusted profit before tax increased by 34.3% to
GBP42.3 million (2017: GBP31.5 million), up 0.6% at constant
currency. The continuing adjusted profit before tax margin
increased by 370 basis points to 14.2% (2017: 10.5%).
Continuing profit before tax of GBP34.2 million (2017: loss of
GBP26.2 million) is after the mark-to-market movement on derivative
financial instruments, amortisation of acquired intangibles and
other adjusting items.
Tax
The adjusted tax charge from continuing operations of GBP10.1
million (2017: GBP7.8 million) represents an effective tax rate of
23.9% (2017: 24.8%). The current tax liability includes a provision
of GBP2.9 million in respect of a historical financing structure,
of which GBP2.0 million was provided in this financial year. The
statutory effective tax rate from continuing operations is 42.7%
owing to a reduction in deferred tax assets arising from a lowering
of the US tax rate.
Earnings per share
Continuing adjusted basic earnings per share increased by 35.7%
to 56.3 pence (2017: 41.5 pence); adjusted basic earnings per share
increased by 13.5% to 55.6 pence (2017: 49.0 pence). Continuing
adjusted diluted earnings per share were 56.1 pence (2017: 41.4
pence); adjusted diluted earnings per share were 55.4 pence (2017:
48.9 pence).
Undiluted weighted average shares have increased by 0.1 million
to 57.2 million.
Foreign exchange
The Group faces transactional and translational currency
exposure, most notably against the US Dollar, Euro and Japanese
Yen. For the full year, approximately 16% of Group revenue was
denominated in Sterling, 52% in US Dollars, 19% in Euros, 11% in
Japanese Yen and 2% in other currencies. Translational exposures
arise on the consolidation of overseas company results into
Sterling. Transactional exposures arise where the currency of sale
or purchase transactions differs from the functional currency in
which each company prepares its local accounts.
The Group maintains a hedging programme against its net
transactional exposure using internal projections of expected
currency trading transactions expected to arise over a period
extending from 12 to 24 months. As at 31 March 2018 the Group had
currency hedges in place extending up to twelve months forward.
For the 2018/19 financial year, we expect a currency headwind to
operating profit of approximately GBP3 million, based on current
exchange rates.
Dividend
The Group's policy is to increase the dividend each year in line
with the increase in underlying earnings. Given the strong
reduction in net debt and the positive impact from the Horizon
strategy, the Board has proposed to increase the final dividend to
9.6 pence (2017: 9.3 pence). This results in a total dividend of
13.3 pence (2017: 13.0 pence). The final dividend will be paid,
subject to Shareholder approval, on 19 October 2018 to Shareholders
on the register as at 14 September 2018.
Cash flow
The Group cash flow is summarised below.
Year ended Year ended
31 March 31 March
2018 2017
GBPm GBPm
----------------------------------------------------- ---------- ----------
Adjusted operating profit 46.5 38.0
Depreciation and amortisation 9.1 8.9
----------------------------------------------------- ---------- ----------
Adjusted EBITDA 55.6 46.9
Working capital movement (13.2) (4.4)
Purchase of rental assets held for subsequent sale (0.7) (1.0)
Loss on disposal of property, plant and equipment 0.3 0.5
Equity settled share schemes 1.1 0.5
Share of (profit)/loss from associate (0.5) 0.8
Business reorganisation items (1.3) (1.9)
Pension scheme payments above charge to operating
profit (7.9) (6.9)
Cash generated from operations 33.4 34.5
Interest (2.1) (5.0)
Tax (3.8) (2.1)
Capitalised development expenditure (5.8) (5.9)
Expenditure on tangible and intangible assets (4.8) (3.1)
Proceeds from sale of property, plant and equipment 9.3 -
Increase in investment in associate (2.1) -
Acquisition of subsidiaries, net of cash acquired - (9.8)
Proceeds from sale of subsidiary undertaking 71.2 12.2
Decrease in long-term receivables 0.9 -
Dividends paid (7.4) (7.4)
Proceeds from issue of share capital 0.2 -
(Decrease) in borrowings (96.8) (12.8)
----------------------------------------------------- ---------- ----------
Net (decrease)/increase in cash and cash equivalents
from continuing operations (7.8) 0.6
----------------------------------------------------- ---------- ----------
Note: Adjusted EBITDA is earnings before interest, tax,
depreciation, intangible amortisation, mark-to-market of financial
derivatives and other non-cash adjusting items.
Cash generated from operations
Cash generated from operations fell by GBP1.1 million to GBP33.4
million (2017: GBP34.5 million), representing 68.8% (2017: 90.3%)
cash conversion. Cash conversion is defined as: cash generated from
operations before business reorganisation items and pension scheme
payments, less, capitalised development expenditure and capital
expenditure / adjusted operating profit.
The working capital outflow of GBP13.2 million reflects an
increase in inventories of GBP4.5 million, an increase in
receivables of GBP14.4 million, a decrease in payables of GBP2.8
million and an increase in customer deposits of GBP2.9 million. The
increase in inventories reflects an increase in work in progress
and components to support our planned production schedule in the
first quarter of 2018/19 for our customised magnets and cryogenic
systems, as well as an increase in demonstration stock to support
new launches of imaging and analysis products used in electron
microscopy. The movement in receivables consists of an increase of
GBP8.6 million due to good sales growth across our Materials and
Characterisation sector along with a higher proportion of sales
made towards the end of the year compared to the previous period.
In addition, we also shipped a higher proportion of customised
magnets and cryogenic systems that were invoiced but not paid at
the end of the year. Furthermore, an increase of GBP2.3 million
relates to foreign currency forward contracts relating to the
previous year but settled in this financial year, and GBP3.5
million relating to the settlement of foreign currency swaps that
are hedging overseas cash balances.
Interest
Net interest paid was GBP2.1 million (2017: GBP5.0 million). The
difference from last year is due to lower financing costs arising
from a lower level of average net debt compared to the comparative
period following the receipt of proceeds from the sale of
Industrial Analysis part way through the period, and the settlement
of GBP1.0 million of interest payments made just after the year end
close.
Tax
Tax paid was GBP3.8 million (2017: GBP2.1 million), the
comparative period benefiting from tax deductions on allowable
adjusting items and utilisation of brought forward tax losses.
Investment in research and development ("R&D")
Total cash spend on R&D in the year was GBP24.8 million,
equivalent to 8.4% of sales, (2017: GBP25.8 million, 8.6% of
sales). A reconciliation between the amounts charged to the Income
Statement and the cash spent is given below:
Year ended Year ended
31 March 31 March
2018 2017
GBPm GBPm
----------------------------------------------------- ---------- ----------
R&D expense charged to the Income Statement 23.4 24.3
Depreciation of R&D related fixed assets (0.1) (0.1)
Amounts capitalised as fixed assets 0.1 0.2
Amortisation and impairment of R&D costs capitalised
as intangibles (4.4) (4.5)
Amounts capitalised as intangible assets 5.8 5.9
----------------------------------------------------- ---------- ----------
Total cash spent on R&D during the year 24.8 25.8
----------------------------------------------------- ---------- ----------
During the year intangible assets of GBP1.8 million were
impaired within our X-ray Technology Business on a development
project discontinued as a result of the sale of Industrial
Analysis. In addition, we impaired GBP1.4 million in respect of a
development project which has experienced delays and cost
overruns.
Investment in Associate
The shareholders of ScientaOmicron agreed to a capital injection
to strengthen the balance sheet of the joint venture and ensure
future liquidity in support of the business strategy. Our share was
GBP2.1 million and was paid in September 2017.
Disposals
The sale of Industrial Analysis was completed on 3 July 2017. A
post-tax profit of GBP45.9 million has been recorded within
discontinued operations.
New Accounting Standards
Transition to IFRS 9 'Financial Instruments' will take effect
from 1 April 2018 with the half year results for September 2018
being IFRS 9 compliant and the first annual report published in
accordance with IFRS 9 being for the year ended 31 March 2019.
There is no requirement to restate comparatives. The main impact is
likely to be in respect of mark-to-market valuation of currency
derivatives that are hedging future cash flows. The gain or loss on
unrealised forward foreign exchange contracts might qualify for
hedge accounting and so be booked directly to reserves with the
gain or loss recycled to the income statement on maturity.
Currently, gains or losses are treated as adjusting items. Work is
on-going to assess the extent to which the group's hedges will
qualify for hedge accounting.
The Group will also be adopting IFRS 15 'Revenue from Contracts
with Customers' using the modified retrospective approach, which
means that the cumulative impact on adoption will be recognised in
retained earnings on 1 April 2018 with the half year results for
September 2018 being IFRS 15 compliant, and the first annual report
published in accordance with IFRS 15 being for the year ended 31
March 2019. Comparatives will not be restated. We anticipate that
the main differences will be within our NanoScience business where
the revenue recognition on complex customised magnetic and
cryogenic systems will be deferred from being primarily on transfer
of legal title to completion of installation.
The Group will be adopting IFRS 16 'Leases' in the 2018/19
financial year. The main impact will be in respect of property and
vehicle leases which are currently accounted for as operating
leases. Further detail on the impact of these new accounting
standards is set out in the accounting policies of the financial
statements.
Net debt and funding
Net debt
Net debt decreased in the period from GBP109.3 million to
GBP19.7 million. Cash generated from operations was GBP33.4
million. Disposal proceeds of GBP71.2 million relate to the sale of
Industrial Analysis. The Group invested in capitalised development
costs of GBP5.8 million and tangible and intangible assets of
GBP4.8 million.
Movement in net debt GBPm
------------------------------------------------------ ------
Net debt as at 31 March 2017 109.3
------------------------------------------------------ ------
Cash generated from operations (33.4)
Interest 2.1
Tax 3.8
Capitalised development expenditure 5.8
Capital expenditure on tangible and intangible assets 4.8
Proceeds from sale of property, plant and equipment (9.3)
Proceeds from sale of subsidiary undertaking (71.2)
Dividends paid 7.4
Other items 0.4
------------------------------------------------------ ------
Net debt as at 31 March 2018 19.7
------------------------------------------------------ ------
Funding
The Group has in place an unsecured multi-currency revolving
facility agreement which is committed until February 2020. The
facility has been entered into with a group of three banks and
comprises a Sterling denominated multi-currency facility of
GBP100.0 million and a US Dollar denominated multi-currency
facility of $37.0 million.
In this year the Group repaid GBP5.0 million of its bilateral
private placement note, leaving an outstanding note of GBP39.5
million, which matures in 2021. In September 2017, the Group repaid
the balance of its amortising fixed rate loan from the European
Investment Bank. The Group has uncommitted facilities of GBP20.6
million.
Debt covenants are net debt to EBITDA less than 3.0 times and
EBITDA to interest greater than 4.0 times. As at 31 March 2018 net
debt to EBITDA was at 0.3 times and EBITDA to interest was 14.3
times.
Pensions
The Group has defined benefit pension schemes in the UK and USA.
Both have been closed to new entrants since 2001 and closed to
future accrual from 2010.
At 31 March 2018, the net liability arising from our defined
benefit scheme obligations was GBP15.3 million (31 March 2017:
GBP25.1 million), a fall of GBP9.8 million. The reduction in the
deficit was primarily due to the contributions paid in the period
and the actuarial gains on the scheme's liabilities arising from a
change in the accounting assumptions at 31 March 2018. Total scheme
assets at 31 March 2018 were GBP289.5 million (31 March 2017:
GBP287.9 million) while liabilities were GBP304.8 million (31 March
2017: GBP313.0 million).
Prior to the year end the Trustees of the UK defined benefit
scheme, in consultation with the Company, reduced its exposure to
on-risk assets (a portfolio of market focused asset classes, the
majority being equities) with a corresponding increase in its
liability driven investments, with the objective of steering a more
stable journey to being fully funded. The pension fund's gross
exposure to on-risk assets has fallen from 85% to 45%; the majority
of transactions required to make this change were completed in
February 2018. As a result, the level of risk inherent in the
investment strategy is now significantly lower than previously, in
addition to a substantial reduction in funding level
volatility.
Going concern
The Group's business activities, together with the factors
likely to affect its future development, performance and position,
are set out in the Performance, Strategy and Operations sections.
The financial position of the Group, its cash flows, liquidity
position and borrowing facilities are described in the Financial
Review.
The diverse nature of the Group, combined with its financial
strength, provides a solid foundation for a sustainable business.
The Directors have reviewed the Group's forecasts and flexed them
to incorporate a number of potential scenarios relating to changes
in trading performance. The Directors believe that the Group will
be able to operate within its existing debt facilities. This review
also considered hedging arrangements in place. The Directors
believe that the Group is well placed to manage its business risks
successfully.
The Financial Statements have been prepared on a going concern
basis, based on the Directors' opinion, after making reasonable
enquires, that the Group has adequate resources to continue in
operational existence for the foreseeable future.
Forward-looking statements
This document contains certain forward-looking statements. The
forward-looking statements reflect the knowledge and information
available to the Company during the preparation and up to the
publication of this document. By their very nature, these
statements depend upon circumstances and relate to events that may
occur in the future thereby involving a degree of uncertainty.
Therefore, nothing in this document should be construed as a profit
forecast by the Company.
Gavin Hill
Group Finance Director
12 June 2018
Consolidated Statement of Income
year ended 31 March 2018
Adjusting
Adjusted* items* Total
Notes GBPm GBPm GBPm
-------------------------------------------------- ----- --------- --------- -------
Revenue 3 296.9 - 296.9
Cost of sales (146.0) - (146.0)
-------------------------------------------------- ----- --------- --------- -------
Gross profit 150.9 - 150.9
Research and development 4 (23.4) - (23.4)
Selling and marketing (53.9) - (53.9)
Administration and shared services (28.5) (12.1) (40.6)
Share of profit/(loss) of associate, net of
tax 5 0.5 (2.4) (1.9)
Other operating income - 3.3 3.3
Foreign exchange 0.9 3.1 4.0
-------------------------------------------------- ----- --------- --------- -------
Operating profit/(loss) 46.5 (8.1) 38.4
-------------------------------------------------- ----- --------- --------- -------
Other financial income 0.3 - 0.3
-------------------------------------------------- ----- --------- --------- -------
Financial income 0.3 - 0.3
-------------------------------------------------- ----- --------- --------- -------
Interest charge on pension scheme net liabilities (0.6) - (0.6)
Other financial expenditure (3.9) - (3.9)
-------------------------------------------------- ----- --------- --------- -------
Financial expenditure (4.5) - (4.5)
-------------------------------------------------- ----- --------- --------- -------
Profit/(loss) before income tax from continuing
operations 42.3 (8.1) 34.2
Income tax (expense)/credit 7 (10.1) (4.5) (14.6)
-------------------------------------------------- ----- --------- --------- -------
Profit/(loss) for the year from continuing
operations 32.2 (12.6) 19.6
-------------------------------------------------- ----- --------- --------- -------
(Loss)/profit from discontinued operations
after tax 6 (0.4) 46.3 45.9
Profit/(loss) for the year attributable to
equity Shareholders of the parent 31.8 33.7 65.5
-------------------------------------------------- ----- --------- --------- -------
pence pence
-------------------------------------------------- ----- --------- --------- -------
Earnings per share
Basic earnings per share 2
From continuing operations 56.3 34.3
From discontinued operations (0.7) 80.2
--------- -------
From profit/(loss) for the year 55.6 114.5
Diluted earnings per share 2
From continuing operations 56.1 34.1
From discontinued operations (0.7) 80.0
--------- --------- -------
From profit/(loss) for the year 55.4 114.1
Dividends per share
Dividends paid 8 13.0
Dividends proposed 8 13.3
-------------------------------------------------- ----- --------- --------- -------
* Adjusted numbers are stated to give a better understanding of
the underlying business performance. Details of adjusting items can
be found in Note 1 of this Preliminary Statement.
The attached notes form part of the Financial Statements.
Consolidated Statement of Income
year ended 31 March 2017
Adjusting
Adjusted* items* Total
Notes GBPm GBPm GBPm
-------------------------------------------------- ----- --------- --------- -------
Revenue 3 300.2 - 300.2
Cost of sales (142.9) - (142.9)
-------------------------------------------------- ----- --------- --------- -------
Gross profit 157.3 - 157.3
Research and development 4 (23.6) (0.7) (24.3)
Selling and marketing (54.1) - (54.1)
Administration and shared services (28.8) (49.6) (78.4)
Share of loss of associate, net of tax 5 (0.8) (8.4) (9.2)
Other operating income - - -
Foreign exchange (12.0) 1.2 (10.8)
-------------------------------------------------- ----- --------- --------- -------
Operating profit/(loss) 38.0 (57.5) (19.5)
-------------------------------------------------- ----- --------- --------- -------
Other financial income 0.2 - 0.2
-------------------------------------------------- ----- --------- --------- -------
Financial income 0.2 - 0.2
-------------------------------------------------- ----- --------- --------- -------
Interest charge on pension scheme net liabilities (1.1) - (1.1)
Other financial expenditure (5.6) (0.2) (5.8)
-------------------------------------------------- ----- --------- --------- -------
Financial expenditure (6.7) (0.2) (6.9)
-------------------------------------------------- ----- --------- --------- -------
Profit/(loss) before income tax 31.5 (57.7) (26.2)
Income tax (expense)/credit 7 (7.8) 8.5 0.7
-------------------------------------------------- ----- --------- --------- -------
Profit/(loss) for the year from continuing
operations 23.7 (49.2) (25.5)
-------------------------------------------------- ----- --------- --------- -------
Profit from discontinued operations after
tax 6 4.3 0.9 5.2
Profit/(loss) for the year attributable to
equity Shareholders of the parent 28.0 (48.3) (20.3)
-------------------------------------------------- ----- --------- --------- -------
pence pence
-------------------------------------------------- ----- --------- --------- -------
Earnings per share
Basic earnings per share 2
From continuing operations 41.5 (44.7)
From discontinued operations 7.5 9.1
--------- -------
From profit for the year 49.0 (35.6)
Diluted earnings per share 2
From continuing operations 41.4 (44.7)
From discontinued operations 7.5 9.1
--------- -------
From profit for the year 48.9 (35.6)
Dividends per share
Dividends paid 8 13.0
Dividends proposed 8 13.0
-------------------------------------------------- ----- --------- --------- -------
* Adjusted numbers are stated to give a better understanding of
the underlying business performance. Details of adjusting items can
be found in Note 1 of this Preliminary Statement.
During the current year, the Group amended the presentation in
the Income Statement to include the change in fair value
derivatives in operating expenses rather than financial income or
expenditure. Prior year comparatives have been re-presented to be
consistent with this change and, as a result, GBP1.2 million has
now been included on the foreign exchange line. There is no impact
on profit after tax in either period.
Consolidated Statement of Comprehensive Income
year ended 31 March 2018
2018 2017
Notes GBPm GBPm
--------------------------------------------------------------- ----- ------ ------
Profit/(loss) for the year 65.5 (20.3)
--------------------------------------------------------------- ----- ------ ------
Other comprehensive income/(expense):
Items that may be reclassified subsequently to profit
or loss
Gain on effective portion of changes in fair value
of cash flow hedges, net of amounts recycled - 0.1
Foreign exchange translation differences (8.8) 18.8
Net cumulative foreign exchange gain on disposal of
subsidiaries recycled to the Income Statement (4.8) (5.7)
Items that will not be reclassified subsequently to
profit or loss
Remeasurement gain in respect of post-retirement benefits 2.2 4.4
Tax on items that will not be reclassified to profit
or loss 7 (0.9) (0.9)
--------------------------------------------------------------- ----- ------ ------
Total other comprehensive (expense)/income (12.3) 16.7
--------------------------------------------------------------- ----- ------ ------
Total comprehensive income/(expense) for the year attributable
to equity Shareholders of the parent 53.2 (3.6)
--------------------------------------------------------------- ----- ------ ------
Consolidated Statement of Financial Position
as at 31 March 2018
2018 2017
GBPm GBPm
--------------------------------------------------- ----- -----
Assets
Non-current assets
Property, plant and equipment 22.8 32.5
Intangible assets 158.7 181.0
Investment in associate 4.1 3.9
Long-term receivables 1.4 3.6
Deferred tax assets 13.4 26.0
---------------------------------------------------- ----- -----
200.4 247.0
--------------------------------------------------- ----- -----
Current assets
Inventories 45.9 53.9
Trade and other receivables 73.3 81.1
Current income tax recoverable 2.5 4.2
Derivative financial instruments 2.4 0.6
Cash and cash equivalents 20.7 27.2
---------------------------------------------------- ----- -----
144.8 167.0
--------------------------------------------------- ----- -----
Total assets 345.2 414.0
---------------------------------------------------- ----- -----
Equity
Capital and reserves attributable to the Company's
equity Shareholders
Share capital 2.9 2.9
Share premium 61.7 61.5
Other reserves 0.2 0.2
Translation reserve 9.2 22.8
Retained earnings 105.6 45.1
---------------------------------------------------- ----- -----
179.6 132.5
--------------------------------------------------- ----- -----
Liabilities
Non-current liabilities
Bank loans and overdrafts 39.4 129.6
Retirement benefit obligations 15.3 25.1
Provisions 1.7 -
Deferred tax liabilities 6.1 5.6
---------------------------------------------------- ----- -----
62.5 160.3
--------------------------------------------------- ----- -----
Current liabilities
Bank loans and overdrafts 1.0 6.9
Trade and other payables 85.5 93.0
Current income tax payables 6.2 6.5
Derivative financial instruments 0.4 5.0
Provisions 10.0 9.8
---------------------------------------------------- ----- -----
103.1 121.2
--------------------------------------------------- ----- -----
Total liabilities 165.6 281.5
---------------------------------------------------- ----- -----
Total liabilities and equity 345.2 414.0
---------------------------------------------------- ----- -----
The Financial Statements were approved by the Board of Directors
on 12 June 2018 and signed on its behalf by:
Ian Barkshire Gavin Hill
Director Director
Company Number: 775598
Consolidated Statement of Changes in Equity
year ended 31 March 2018
Foreign
Share exchange
Share premium Other translation Retained
capital account reserves reserve earnings Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------------------------------ ------- ------- -------- ----------- -------- -----
Balance at 1 April 2017 2.9 61.5 0.2 22.8 45.1 132.5
------------------------------------------------------------ ------- ------- -------- ----------- -------- -----
Total comprehensive income/(expense):
Loss for the year - - - - 65.5 65.5
Other comprehensive income:
* Foreign exchange translation differences - - - (8.8) - (8.8)
* Net foreign exchange gain on disposal of subsidiaries
recycled to the Income Statement - - - (4.8) - (4.8)
* Remeasurement gain in respect of post-retirement
benefits - - - - 2.2 2.2
* Tax on items recognised directly in other
comprehensive income - - - - (0.9) (0.9)
------------------------------------------------------------ ------- ------- -------- ----------- -------- -----
Total comprehensive income/(expense)
attributable to equity Shareholders
of the parent - - - (13.6) 66.8 53.2
Transactions with owners recorded
directly in equity:
* Proceeds from issue of shares - 0.2 - - - 0.2
* Charge in respect of employee service costs settled
by award of share options - - - - 1.1 1.1
* Dividends paid - - - - (7.4) (7.4)
------------------------------------------------------------ ------- ------- -------- ----------- -------- -----
Total transactions with owners
recorded directly in equity - 0.2 - - (6.3) (6.1)
------------------------------------------------------------ ------- ------- -------- ----------- -------- -----
Balance at 31 March 2018 2.9 61.7 0.2 9.2 105.6 179.6
------------------------------------------------------------ ------- ------- -------- ----------- -------- -----
Consolidated Statement of Changes in Equity
year ended 31 March 2017
Foreign
Share exchange
Share premium Other translation Retained
capital account reserves reserve earnings Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------------------------------ ------- ------- -------- ----------- -------- ------
Balance at 1 April 2016 2.9 61.5 0.1 9.7 68.8 143.0
------------------------------------------------------------ ------- ------- -------- ----------- -------- ------
Total comprehensive income/(expense):
Loss for the year - - - - (20.3) (20.3)
Other comprehensive income:
* Foreign exchange translation differences - - - 18.8 - 18.8
* Net foreign exchange gain on disposal of subsidiaries
recycled to the Income Statement - - - (5.7) - (5.7)
* Gain on effective portion of changes in fair value of
cash flow hedges, net of amounts recycled - - 0.1 - - 0.1
* Remeasurement gain in respect of post-retirement
benefits - - - - 4.4 4.4
* Tax on items recognised directly in other
comprehensive income - - - - (0.9) (0.9)
------------------------------------------------------------ ------- ------- -------- ----------- -------- ------
Total comprehensive income/(expense)
attributable to equity Shareholders
of the parent - - 0.1 13.1 (16.8) (3.6)
Transactions with owners recorded
directly in equity:
* Charge in respect of employee service costs settled
by award of share options - - - - 0.5 0.5
* Dividends paid - - - - (7.4) (7.4)
------------------------------------------------------------ ------- ------- -------- ----------- -------- ------
Total transactions with owners
recorded directly in equity - - - - (6.9) (6.9)
------------------------------------------------------------ ------- ------- -------- ----------- -------- ------
Balance at 31 March 2017 2.9 61.5 0.2 22.8 45.1 132.5
------------------------------------------------------------ ------- ------- -------- ----------- -------- ------
Other reserves comprise the capital redemption reserve, which
represents the nominal value of shares repurchased and then
cancelled during the year ended 31 March 1999, and the hedging
reserve in respect of the effective portion of changes in value of
commodity contracts.
The foreign exchange translation reserve comprises all foreign
exchange differences arising since 1 April 2004 from the
translation of the Group's net investments in foreign subsidiaries
into Sterling.
The Group holds 183,145 (2017: 183,145) of its own shares in an
employee benefit trust. The cost of these shares is included within
retained earnings. There was no movement in the shares held by the
trust during the year.
Consolidated Statement of Cash Flows year ended 31 March
2018
2018 2017
GBPm GBPm
------------------------------------------------------------------------------- ------- ------
Profit/(loss) for the year 65.5 (20.3)
Profit for the year from discontinued operations (note 6) (45.9) (5.2)
------------------------------------------------------------------------------- ------- ------
Profit/(loss) for the year from continuing operations 19.6 (25.5)
Adjustments for:
Income tax expense/(credit) 14.6 (0.7)
Net financial expense 4.2 6.7
Fair value movement on financial derivatives (3.1) (1.2)
Acquisition related costs - 0.3
Restructuring costs 1.2 0.4
Restructuring costs - relating to associate 0.4 0.4
One-off impairment of capitalised development costs - 0.7
Loss on disposal of subsidiary - 0.4
Net profit on disposal of buildings (3.3) -
Share of impairment recognised by associate 2.0 -
Impairment of investment in associate - 8.0
Amortisation and impairment of acquired intangibles 10.9 46.3
Impairment of capitalised intangible software costs - 2.2
Depreciation of property, plant and equipment 4.7 5.1
Amortisation and impairment of capitalised development costs 4.4 3.8
------------------------------------------------------------------------------- ------- ------
Adjusted earnings before interest, tax, depreciation and amortisation 55.6 46.9
Loss on disposal of property, plant and equipment 0.3 0.5
Cost of equity settled employee share schemes 1.1 0.5
Share of (profit)/loss from associate (0.5) 0.8
Restructuring costs paid (1.3) (1.1)
Foreign currency loss on intra-Group dividends - (0.8)
Cash payments to the pension scheme more than the charge to operating profit (7.9) (6.9)
------------------------------------------------------------------------------- ------- ------
Operating cash flows before movements in working capital 47.3 39.9
Increase in inventories (4.5) (1.7)
Increase in receivables (14.4) (1.1)
Increase/(decrease) in payables and provisions 2.8 (2.5)
Increase in customer deposits 2.9 0.9
Purchase of rental assets held for subsequent sale (0.7) (1.0)
------------------------------------------------------------------------------- ------- ------
Cash generated from continuing operations 33.4 34.5
Interest paid (2.1) (5.0)
Income taxes paid (3.8) (2.1)
------------------------------------------------------------------------------- ------- ------
Net cash from operating activities - continuing operations 27.5 27.4
Net cash from operating activities - discontinued operations 3.0 6.1
------------------------------------------------------------------------------- ------- ------
Net cash flow from operative activities 30.5 33.5
------------------------------------------------------------------------------- ------- ------
Cash flows from investing activities
Proceeds from sale of property, plant and equipment 9.3 -
Acquisition of subsidiaries, net of cash acquired - (9.8)
Acquisition of property, plant and equipment (4.3) (3.0)
Acquisition of intangible assets (0.5) (0.1)
Net cash flow on disposal of businesses 71.2 12.2
Capitalised development expenditure (5.8) (5.9)
Increase in investment in associate (2.1) -
Decrease in long-term receivables 0.9 -
------------------------------------------------------------------------------- ------- ------
Net cash generated from/(used in) investing activities - continuing operations 68.7 (6.6)
Net cash used in investing activities - discontinued operations - (2.5)
Net cash generated from/(used in) investing activities 68.7 (9.1)
------------------------------------------------------------------------------- ------- ------
Cash flows from financing activities
Proceeds from issue of share capital 0.2 -
Decrease in borrowings (96.8) (12.8)
Dividends paid (7.4) (7.4)
------------------------------------------------------------------------------- ------- ------
Net cash used in financing activities (104.0) (20.2)
------------------------------------------------------------------------------- ------- ------
Net (decrease)/increase in cash and cash equivalents (4.8) 4.2
Cash and cash equivalents at beginning of the year 26.5 20.4
Effect of exchange rate fluctuations on cash held (1.0) 1.9
----------------------------------------------------- ----- ----
Cash and cash equivalents at end of the year 20.7 26.5
----------------------------------------------------- ----- ----
Reconciliation of changes in cash and cash equivalents to
movement in net debt
2018 2017
GBPm GBPm
--------------------------------------------------------------------- ------- -------
(Decrease)/increase in cash and cash equivalents (4.8) 4.2
Effect of foreign exchange rate changes on cash and cash equivalents (1.0) 1.9
--------------------------------------------------------------------- ------- -------
(5.8) 6.1
Cash outflow from decrease in debt 96.8 12.8
Accrued interest (1.0) -
Amortisation of prepaid issuance fees (0.4) -
--------------------------------------------------------------------- ------- -------
Movement in net debt in the year 89.6 18.9
Net debt at start of the year (109.3) (128.2)
--------------------------------------------------------------------- ------- -------
Net debt at the end of the year (19.7) (109.3)
--------------------------------------------------------------------- ------- -------
Notes to the Financial Statements
year ended 31 March 2018
1 Non-GAAP measures
In the preparation of adjusted numbers the Directors exclude
certain items in order to assist with comparability between peers
and to give what they consider to be a better indication of the
underlying performance of the business. These adjusting items are
excluded in the calculation of adjusted operating profit, adjusted
profit before income tax, adjusted profit for the year from
continuing operations, adjusted EBITDA, adjusted EPS, adjusted cash
conversion, and adjusted effective tax rate. Details of adjusting
items are given below.
Adjusted EBITDA is calculated by adding back depreciation of
property, plant and equipment and amortisation of intangible assets
to adjusted operating profit and can be found in the Consolidated
Statement of Cash Flows. Calculation of Adjusted EPS can be found
in note 2. Adjusted effective tax rate is calculated by dividing
the share of tax attributable to adjusted profit before tax by
adjusted profit before tax.
Reconciliation between profit before income tax and adjusted
profit from continuing operations
2018 2017
----------------- ----------------------------
Profit (Loss)/profit
Operating before Operating before
income income
profit tax (loss)/profit tax
GBPm GBPm GBPm GBPm
--------------------------------------------------------------------- --------- ------ ------------- -------------
Statutory measure from continuing operations 38.4 34.2 (19.5) (26.2)
Acquisition related costs - - 0.3 0.3
Restructuring costs 1.2 1.2 0.4 0.4
Restructuring costs - relating to associate 0.4 0.4 0.4 0.4
Loss on disposal of subsidiary - - 0.4 0.4
Net profit on disposal of buildings (3.3) (3.3) - -
Unwind of discount in respect of contingent consideration and
acquisition related accruals - - - 0.2
--------------------------------------------------------------------- --------- ------ ------------- -------------
Business reorganisation items (1.7) (1.7) 1.5 1.7
Impairment of acquired intangibles - - 33.8 33.8
Impairment of investment in associate - - 8.0 8.0
Share of impairment recognised by associate 2.0 2.0 - -
Impairment of capitalised development costs - - 0.7 0.7
Impairment of capitalised software costs - - 2.2 2.2
Amortisation of acquired intangibles 10.9 10.9 12.5 12.5
Mark-to-market gain in respect of derivative financial instruments (3.1) (3.1) (1.2) (1.2)
--------------------------------------------------------------------- --------- ------ ------------- -------------
Adjusted measure from continuing operations 46.5 42.3 38.0 31.5
Share of taxation (10.1) (7.8)
--------------------------------------------------------------------- --------- ------ ------------- -------------
Adjusted profit for the year from continuing operations 32.2 23.7
--------------------------------------------------------------------- --------- ------ ------------- -------------
Adjusted effective tax rate 23.9% 24.8%
--------------------------------------------------------------------- --------- ------ ------------- -------------
Acquisition related costs comprise professional fees incurred in
relation to mergers and acquisitions activity and any consideration
which, under IFRS 3 (revised), falls to be treated as a
post-acquisition employment expense.
Restructuring costs of GBP1.2m primarily relate to our US
Healthcare business and include GBP0.5m to successfully defend a
legal claim relating to a prior acquisition.
During the prior year the Group settled various claims totalling
GBP0.4m relating to the disposal of its Omicron business in
2016.
The Group recorded a net profit on disposal of GBP3.3m during
the year, following the disposal of two buildings previously held
under property, plant and equipment.
During the year the Group's equity accounted associate
recognised an impairment relating to the disposal of its Vacgen
subsidiary. The Group's share of this impairment was GBP2.0m.
Adjusted profit excludes the non-cash amortisation and
impairment of acquired intangible assets and goodwill and the
unwind of discounts in respect of contingent consideration relating
to business combinations. Impairments in respect of capitalised
development costs would not normally be treated as adjusting items
although in certain circumstances they may be, for example, in the
prior year a project was completely cancelled as part of a wider
restructuring plan.
Adjusting items include the income tax on each of the items
described above. In addition, during the year the tax rate in the
United States reduced from 35% to 21%. As a result this has reduced
the deferred tax asset by GBP5.4m. This has been excluded from the
calculation of share of taxation attributable to adjusted profit
before tax.
During the prior year the Group recognised the following
impairments:
-- GBP8.0m relating to its equity accounted associate
investment. See note 5 for further details
-- GBP0.7m concerning capitalised development costs that related
to a specific internal systems project that was stopped as the
Group focused and directed resources so as to accelerate key
projects.
-- GBP2.2m relating to capitalised software costs, following a
reassessment of the future value expected to be derived from
internally developed software.
The Group reports ineffectiveness of its hedging as an adjusting
item. In the prior year this included losses on certain contracts
relating to the hedging of the Japanese Yen which were not required
for ordinary trading and which were re-allocated for use against
the remittance of net income of the Group's Japan operations.
Additionally, under IAS 39, all derivative financial instruments
are recognised initially at fair value. Subsequent to initial
recognition, they are also measured at fair value. In respect of
instruments used to hedge foreign exchange risk and interest rate
risk the Group does not take advantage of the hedge accounting
rules provided for in IAS 39 since that standard requires certain
stringent criteria to be met in order to hedge account, which, in
the particular circumstances of the Group, are considered by the
Board not to bring any significant economic benefit. Accordingly,
the Group accounts for these derivative financial instruments at
fair value through profit or loss. To the extent that instruments
are hedges of future transactions, adjusted profit for the year is
stated before changes in the valuation of these instruments so that
the underlying performance of the Group can be more clearly
seen.
2 Earnings per share
Basic and diluted EPS from continuing operations are based on
the result for the year from continuing operations, as reported in
the Group Income Statement. Basic and diluted EPS from total
operations are based on the result for the year attributable to
equity shareholders of the parent. Adjusted and diluted adjusted
EPS are based on adjusted profit for the year from continuing
operations. The profit measures noted above are divided by the
weighted average number of ordinary shares outstanding during the
year, excluding shares held by the Employee Share Ownership Trust.
The table below reconciles these different profit measures.
Continuing Discontinued 2018 Continuing Discontinued 2017
operations operations total operations operations total
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- ---------- ------------ ----- ---------- ------------ ------
Profit/(loss) for the year
attributable to equity
Shareholders of the parent 19.6 45.9 65.5 (25.5) 5.2 (20.3)
Adjusting items:
Non-recurring and acquisition
related items (1.7) 1.7
Impairment of acquired
intangibles - 33.8
Impairment of investment
in associate - 8.0
Share of impairment recognised
by associate 2.0 -
Impairment of capitalised
development costs - 0.7
Impairment of capitalised
software costs - 2.2
Amortisation of acquired
intangibles 10.9 12.5
Mark-to-market gain in
respect of derivative financial
instruments (3.1) (1.2)
Income tax charge/(credit) 4.5 (8.5)
--------------------------------- ---------- ------------ ----- ---------- ------------ ------
Adjusted profit for the
year from continuing operations 32.2 23.7
--------------------------------- ---------- ------------ ----- ---------- ------------ ------
The weighted average number of shares used in the calculation
excludes shares held by the Employee Share Ownership Trust, as
follows:
2018 2017
Shares Shares
million million
------------------------------------------------------ ------- -------
Weighted average number of shares outstanding 57.4 57.3
Less shares held by Employee Share Ownership Trust (0.2) (0.2)
------------------------------------------------------ ------- -------
Weighted average number of shares used in calculation
of basic earnings per share 57.2 57.1
------------------------------------------------------ ------- -------
The following table shows the effect of share options on the
calculation of diluted earnings per share:
2018 2017
Shares Shares
million million
------------------------------------------------------- ------- -------
Weighted average number of ordinary shares per basic
earnings per share calculations 57.2 57.1
Effect of shares under option 0.2 0.1
------------------------------------------------------- ------- -------
Weighted average number of ordinary shares per diluted
earnings per share calculations 57.4 57.2
------------------------------------------------------- ------- -------
For the purposes of calculating diluted and diluted adjusted
EPS, the weighted average number of ordinary shares is adjusted to
include the weighted average number of ordinary shares that would
be issued on the conversion of all potentially dilutive ordinary
shares expected to vest, relating to the Company's share-based
payment plans. Potential ordinary shares are only treated as
dilutive when their conversion to ordinary shares would decrease
EPS, or increase loss per share.
3 Segment information
The Group has ten operating segments. These operating segments
have been combined into three aggregated operating segments to the
extent that they have similar economic characteristics, with
relevance to products and services, type and class of customer,
methods of sale and distribution and the regulatory environment in
which they operate. Each of these three aggregated operating
segments is a reportable segment.
Following the disposal of the Industrial Analysis business and
the introduction of the Horizon Strategy in 2017, the Group now
reports under a revised segment structure. The aggregated operating
segments are as follows:
-- the Materials and Characterisation segment comprises a group
of businesses focusing on applied R&D and commercial customers,
enabling the fabrication and characterisation of materials and
devices down to the atomic scale;
-- the Research and Discovery segment comprises a group of
businesses providing advanced solutions that create unique
environments and enable measurements down to the molecular and
atomic level which are used in fundamental research; and
-- the Service and Healthcare segment provides customer service
and support for the Group's products and the service, sale and
rental of third party healthcare imaging systems.
The Group's internal management structure and financial
reporting systems have been amended to differentiate the three
aggregated operating segments on the basis of the economic
characteristics discussed above. Prior year comparatives have been
re-presented due to the change in the Group's segment
structure.
Reportable segment results include items directly attributable
to a segment as well as those which can be allocated on a
reasonable basis. Inter--segment pricing is determined on an arm's
length basis. The operating results of each are regularly reviewed
by the Chief Operating Decision Maker, which is deemed to be the
Board of Directors. Discrete financial information is available for
each segment and used by the Board of Directors for decisions on
resource allocation and to assess performance. No asset information
is presented below as this information is not presented in
reporting to the Group's Board of Directors.
a) Analysis by business
Materials Research Service
& & &
Results from continuing operations Characterisation Discovery Healthcare Total
Year to 31 March 2018 GBPm GBPm GBPm GBPm
--------------------------------------- ---------------- --------- ---------- -----
External revenue 118.1 112.0 66.8 296.9
Inter-segment revenue - 0.1 -
Total segment revenue 118.1 112.1 66.8
--------------------------------------- ---------------- --------- ---------- -----
Segment adjusted operating profit from
continuing operations 20.1 13.8 12.6 46.5
--------------------------------------- ---------------- --------- ---------- -----
Materials Research Service
& & &
Results from continuing operations (re-presented) Characterisation Discovery Healthcare Total
Year to 31 March 2017 GBPm GBPm GBPm GBPm
-------------------------------------------------- ---------------- --------- ---------- -----
External revenue 105.7 125.2 69.3 300.2
Inter-segment revenue - 0.1 -
Total segment revenue 105.7 125.3 69.3
-------------------------------------------------- ---------------- --------- ---------- -----
Segment adjusted operating profit from
continuing operations 12.2 13.8 12.0 38.0
-------------------------------------------------- ---------------- --------- ---------- -----
The adjusted profit after tax of GBP0.5m (2017: GBP0.8m) from
the Group's associate is reported within the Research &
Discovery segment.
Revenue in the Materials & Characterisation and Research
& Discovery segments represents the sale of products. Revenue
in the Service & Healthcare segment relates to service income,
with the exception of leasing of mobile MRIs of GBP6.1m (2017:
GBP9.0m) and equipment sales of GBP3.3m (2017: GBP5.6m).
Reconciliation of reportable segment profit
Materials Research Service
& & & Unallocated
Characterisation Discovery Healthcare Group items Total
Year to 31 March 2018 GBPm GBPm GBPm GBPm GBPm
--------------------------------------- ---------------- --------- ---------- ----------- ------
Adjusted profit for reportable
segments from continuing operations 20.1 13.8 12.6 - 46.5
Restructuring costs (0.3) - (0.9) - (1.2)
Restructuring costs - relating
to associate - (0.4) - - (0.4)
Net profit on disposal of buildings - - - 3.3 3.3
Share of impairment recognised
by associate - (2.0) - - (2.0)
Amortisation of acquired intangibles (2.5) (7.3) (1.1) - (10.9)
Fair value movement on financial
derivatives - - - 3.1 3.1
Financial income - - - 0.3 0.3
Financial expenditure - - - (4.5) (4.5)
--------------------------------------- ---------------- --------- ---------- ----------- ------
Profit before income tax on continuing
operations 17.3 4.1 10.6 2.2 34.2
--------------------------------------- ---------------- --------- ---------- ----------- ------
Materials Research Service
& & & Unallocated
Characterisation Discovery Healthcare Group items Total
Year to 31 March 2017 (re-presented) GBPm GBPm GBPm GBPm GBPm
--------------------------------------- ---------------- --------- ---------- ----------- ------
Adjusted profit for reportable
segments from continuing operations 12.2 13.8 12.0 - 38.0
Acquisition related costs - (0.3) - - (0.3)
Restructuring costs - - (0.4) - (0.4)
Restructuring costs - relating
to associate - (0.4) - - (0.4)
Impairment of capitalised development
costs (0.7) - - - (0.7)
Loss on disposal of subsidiary - (0.4) - - (0.4)
Impairment of investment in associate - (8.0) - - (8.0)
Impairment of capitalised software
costs - - - (2.2) (2.2)
Amortisation of acquired intangibles (2.9) (7.7) (1.9) - (12.5)
Impairment of acquired intangibles (22.6) - (11.2) - (33.8)
Fair value movement on financial
derivatives - - - 1.2 1.2
Financial income - - - 0.2 0.2
Financial expenditure - - - (6.9) (6.9)
--------------------------------------- ---------------- --------- ---------- ----------- ------
Loss before income tax from continuing
operations (14.0) (3.0) (1.5) (7.7) (26.2)
--------------------------------------- ---------------- --------- ---------- ----------- ------
Depreciation, capital expenditure, amortisation and impairment
of intangibles and capitalised development costs arise in the
following segments:
2018 2017 (re-presented)
------------------------- -------------------------
Capital Capital
Depreciation expenditure Depreciation expenditure
GBPm GBPm GBPm GBPm
----------------------------- ------------ ----------- ------------ -----------
Materials & Characterisation 1.5 2.8 1.6 1.7
Research & Discovery 0.8 0.8 1.0 0.7
Service & Healthcare 1.8 1.0 1.9 1.4
Unallocated Group items 0.6 0.9 0.6 0.3
----------------------------- ------------ ----------- ------------ -----------
Total 4.7 5.5 5.1 4.1
----------------------------- ------------ ----------- ------------ -----------
2018 2017 (re-presented)
------------------------- -------------------------
Amortisation Capitalised Amortisation Capitalised
and development and development
impairment costs impairment costs
GBPm GBPm GBPm GBPm
----------------------------- ------------ ----------- ------------ -----------
Materials & Characterisation 5.8 4.8 28.1 5.0
Research & Discovery 8.4 1.0 17.5 0.9
Service & Healthcare 1.1 - 13.2 -
Unallocated Group items - - 2.2 -
----------------------------- ------------ ----------- ------------ -----------
Total 15.3 5.8 61.0 5.9
----------------------------- ------------ ----------- ------------ -----------
b) Geographical analysis
The Group's reportable segments are located across a number of
geographical locations and make sales to customers in countries
across the world.
The analysis below shows revenue and non-current assets
(excluding deferred tax) for individual countries or regions that
represent more than 5% of revenue.
Revenue from continuing operations from external customers by
destination
2018 2017
GBPm GBPm
--------------- ----- -----
USA 89.5 97.1
Rest of Europe 35.9 35.4
Rest of Asia 35.8 32.6
UK 18.1 15.3
Japan 34.9 33.9
China 49.6 53.6
Germany 24.8 23.7
Rest of World 8.3 8.6
--------------- ----- -----
Total 296.9 300.2
--------------- ----- -----
Non-current assets (excluding deferred tax)
2018 2017
GBPm GBPm
--------------- ----- -----
UK 160.4 181.2
Germany 3.3 10.4
USA 11.3 10.3
Japan 0.5 0.6
China 0.2 0.5
Rest of Europe 9.6 15.4
Rest of Asia - 0.1
Rest of World 1.7 2.5
--------------- ----- -----
Total 187.0 221.0
--------------- ----- -----
4 Research and Development ("R&D")
The total R&D spend by the Group as part of continuing
operations is as follows:
2018 2017
---------------------------------- ----------------------------------
Materials Research Materials Research
& & & &
Characterisation Discovery Total Characterisation Discovery Total
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- ---------------- --------- ----- ---------------- --------- -----
R&D expense charged
to the Consolidated
Statement of Income 12.3 11.1 23.4 11.3 13.0 24.3
Less: depreciation
of R&D related fixed
assets (0.1) - (0.1) (0.1) - (0.1)
Add: amounts capitalised
as fixed assets - 0.1 0.1 0.1 0.1 0.2
Less: amortisation
and impairment of
R&D costs previously
capitalised as intangibles (3.2) (1.2) (4.4) (2.6) (1.9) (4.5)
Add: amounts capitalised
as intangible assets 4.8 1.0 5.8 5.0 0.9 5.9
---------------------------- ---------------- --------- ----- ---------------- --------- -----
Total cash spent
on R&D during the
year 13.8 11.0 24.8 13.7 12.1 25.8
---------------------------- ---------------- --------- ----- ---------------- --------- -----
5 Investment in associate
During the 2015/16 financial year the Group entered into a
strategic alliance with GD Intressenter AB of Sweden ("GDI") to
create the world's largest company in the highly specialised ultra
high vacuum surface science field. The alliance comprised Oxford
Instruments' Omicron Nanotechnology GmbH ("Omicron") and associated
subsidiaries and GDI's Scienta Scientific AB ("Scienta") and
associated subsidiaries. Scienta Scientific AB is registered and
has its principal place of business in Sweden.
In consideration for new shares in Scienta, Oxford Instruments
transferred all of its shares in the capital of Omicron to Scienta.
Oxford Instruments holds a 47% interest in the ordinary share
capital of Scienta and GDI holds 53%. The investment has been
accounted for as an associate taking into account the following
factors:
-- the Group holds substantial, but minority, voting rights
(47%). All other rights are controlled by a single shareholder;
-- the Group has a minority number of Non-Executive Board seats
(two of five), with the remaining seats held by representatives of
GDI; and
-- whilst the Group has certain veto rights in respect of
certain decisions, it cannot unilaterally direct the activities of
the Scienta Group.
During the current year the Group invested a further GBP2.1m in
its equity accounted associate. During the prior year the Group
recognised an impairment charge of GBP8.0m in respect of its
investment in Scienta and settled various claims totalling GBP0.4m
relating to the disposal of its Omicron business in 2015/16.
The Group's share of loss in its equity accounted associate for
the year was GBP1.9m (2017: GBP1.2m). The Group did not receive any
dividends from the associate in either period.
2018 2017
GBPm GBPm
---------------------------------------- ----- -----
Carrying value at 1 April 2017 3.9 13.1
Addition 2.1 -
Share of loss of associate (net of tax) (1.9) (1.2)
Impairment charge - (8.0)
Dividends received - -
---------------------------------------- ----- -----
Carrying value at 31 March 2018 4.1 3.9
---------------------------------------- ----- -----
During the prior year the Group recognised an impairment charge
of GBP8.0m relating to its investment in ScientaOmicron due to the
associate's financial performance for the year ended 31 December
2016 and lower projected cash flows. This resulted in a
reassessment of ScientaOmicron's expected future business
performance and the actions and time required to improve
profitability and operational efficiency.
The GBP8.0m impairment was reported in the results of the
Research & Discovery segment. As at 31 March 2017, the estimate
of the recoverable amount of the Group's investment in
ScientaOmicron, being its value in use, was calculated as GBP3.9m.
The pre-tax discount rate used to arrive at this estimate was
15.5%. No further impairment is considered to be required as at 31
March 2018.
Summary financial information for the equity accounted associate
is as follows:
2018 2017
GBPm GBPm
---------------------------- ------ ------
Non-current assets 2.3 3.5
Current assets 23.7 25.0
---------------------------- ------ ------
Total assets 26.0 28.5
Current liabilities (12.1) (21.7)
Non-current liabilities (9.2) (3.6)
---------------------------- ------ ------
Total liabilities (21.3) (25.3)
---------------------------- ------ ------
Net assets 4.7 3.2
---------------------------- ------ ------
Income 51.0 50.8
Expenses (55.0) (53.3)
---------------------------- ------ ------
Loss for the year (4.0) (2.5)
---------------------------- ------ ------
Group's share of net assets 2.2 1.5
Group's share of loss (1.9) (1.2)
---------------------------- ------ ------
According to the terms of the transaction, no dividend could be
paid by the associate until 27 May 2017. Following that date, any
dividend paid must be agreed by both Oxford Instruments plc and GD
Intressenter AB, up to a maximum of 50% of the previous year's
profit after tax. At the date of signing these Financial Statements
no dividend has been declared or paid.
6 Disposal of subsidiary and discontinued operations
On 3 July 2017 the Group disposed of its Industrial Analysis
business for a final consideration of GBP82.8m. On 17 November 2016
the Group disposed of its Superconducting Wire business for a final
consideration of GBP14.0m.
Effect of disposal on the financial position of the Group
Industrial Superconducting
Analysis Wire
2018 2017
GBPm GBPm
---------------------------------------------------- ---------- ---------------
Goodwill (4.3) -
Acquired intangible assets (0.1) -
Other intangible assets (4.7) -
Property, plant and equipment (2.4) (3.1)
Inventory (11.5) (12.6)
Trade and other receivables (9.8) (6.5)
Cash and cash equivalents (6.0) (0.3)
Trade and other payables 8.6 6.6
Provisions 0.8 0.1
Tax balances (0.4) -
---------------------------------------------------- ---------- ---------------
Net assets divested (29.8) (15.8)
---------------------------------------------------- ---------- ---------------
Consideration receivable 82.8 14.0
Deferred consideration - (1.0)
Consideration received, satisfied in cash 82.8 13.0
Cash disposed of (6.0) (0.3)
Transaction expenses (5.6) (0.5)
---------------------------------------------------- ---------- ---------------
Net cash inflow 71.2 12.2
---------------------------------------------------- ---------- ---------------
Carrying value of net assets disposed of (excluding
cash and cash equivalents) (23.8) (15.5)
Deferred consideration - 1.0
Recognition of provision on disposal (2.1) (0.2)
Currency translation differences transferred from
translation reserve 4.8 5.7
---------------------------------------------------- ---------- ---------------
Gain on disposal 50.1 3.2
Tax (charge)/credit on gain on disposal (2.3) 0.9
---------------------------------------------------- ---------- ---------------
Gain on disposal net of tax 47.8 4.1
---------------------------------------------------- ---------- ---------------
The recognition of provisions on disposal primarily relate to
onerous lease contracts. These have been recognised in the Income
Statement under discontinued operations.
Discontinued operations
In the year to 31 March 2018 the Group's Industrial Analysis
business was classified as a discontinued operation; and in the
year to 31 March 2017 the Group's Superconducting Wire business was
classified as a discontinued operation. They were considered major
classes of business on the basis that they were previously
operating segments and referred to in the Group Strategic
Report.
The 2017 Financial Statements have been re-presented to reflect
the classification of the Group's Industrial Analysis business as a
discontinued operation.
Results of discontinued operations - year to 31 March 2018
Industrial
Analysis
GBPm
---------------------------------------------- ----------
Revenue 16.8
Expenses (16.3)
---------------------------------------------- ----------
Adjusted profit before tax 0.5
Income tax charge (0.9)
---------------------------------------------- ----------
Adjusted profit after tax (0.4)
---------------------------------------------- ----------
Adjusting items:
Amortisation of acquired intangibles (0.1)
One off costs arising as a result of disposal (2.2)
Income tax on adjusting items 0.8
---------------------------------------------- ----------
Loss after tax (1.9)
---------------------------------------------- ----------
Gain on disposal 50.1
Tax on gain on disposal (2.3)
Profit from discontinued operations after tax 45.9
---------------------------------------------- ----------
Results of discontinued operations - year to 31 March 2017
Industrial Superconducting Austin
Analysis Wire Scientific Total
GBPm GBPm GBPm GBPm
---------------------------------------- ---------- --------------- ---------- ------
Revenue 48.3 22.2 - 70.5
Expenses (43.8) (20.9) (0.2) (64.9)
---------------------------------------- ---------- --------------- ---------- ------
Adjusted profit/(loss) before tax 4.5 1.3 (0.2) 5.6
Income tax charge (0.9) (0.4) - (1.3)
---------------------------------------- ---------- --------------- ---------- ------
Adjusted profit/(loss) after tax 3.6 0.9 (0.2) 4.3
---------------------------------------- ---------- --------------- ---------- ------
Adjusting items:
Amortisation and impairment of acquired
intangibles (2.4) - - (2.4)
Acquisition related costs (1.2) - - (1.2)
Restructuring costs (0.2) - - (0.2)
Income tax on adjusting items 0.6 - - 0.6
---------------------------------------- ---------- --------------- ---------- ------
Profit/(loss) after tax 0.4 0.9 (0.2) 1.1
---------------------------------------- ---------- --------------- ---------- ------
Gain on disposal - 3.2 - 3.2
Tax on gain on disposal - 0.9 - 0.9
---------------------------------------- ---------- --------------- ---------- ------
Profit/(loss) from discontinued
operations after tax 0.4 5.0 (0.2) 5.2
---------------------------------------- ---------- --------------- ---------- ------
Earnings per share from discontinued operations
2018 2017
pence pence
------------------------------------------- ----- -----
Adjusted basic (loss)/earnings per share (0.7) 7.5
Adjusted diluted (loss)/earnings per share (0.7) 7.5
Total basic earnings per share 80.2 9.1
Total diluted earnings per share 80.0 9.1
------------------------------------------- ----- -----
Cash flows from discontinued operations
2018 2017
GBPm GBPm
------------------------------------------------------- ---- -----
Net cash generated from operating activities 3.0 6.1
Net cash generated from/(used in) investing activities 71.2 (9.7)
Net cash used in financing activities - -
------------------------------------------------------- ---- -----
7 Income tax expense
Recognised in the Consolidated Statement of Income
2018 2017
GBPm GBPm
------------------------------------------------------------ ----- ------
Current tax expense
Current year 7.3 6.2
Adjustment in respect of prior years (1.7) (2.2)
------------------------------------------------------------ ----- ------
5.6 4.0
------------------------------------------------------------ ----- ------
Deferred tax expense
Origination and reversal of temporary differences 7.3 (5.6)
Adjustment in respect of prior years 1.7 0.9
------------------------------------------------------------ ----- ------
9.0 (4.7)
------------------------------------------------------------ ----- ------
Total tax expense/(credit) 14.6 (0.7)
------------------------------------------------------------ ----- ------
Reconciliation of effective tax rate
Profit/(loss) before income tax 34.2 (26.2)
Income tax using the weighted average statutory tax
rate of 22% (2017: 22%) 7.5 (5.8)
Effect of:
Tax rates other than the weighted average statutory
rate 0.3 (0.5)
Change in rate at which deferred tax recognised 5.3 (0.2)
Transaction costs, deferred consideration and impairments
not deductible for tax 1.2 5.6
Non-taxable income and expenses - 1.4
Tax incentives not recognised in the Consolidated Statement
of Income (0.7) (0.4)
Current period losses not available for carry forward 0.4 -
Movement in unrecognised deferred tax 0.6 0.6
Adjustment in respect of prior years - (1.4)
------------------------------------------------------------ ----- ------
Total tax expense/(credit) 14.6 (0.7)
------------------------------------------------------------ ----- ------
Taxation charge recognised in other comprehensive income
Deferred tax - relating to employee benefits 0.9 0.9
------------------------------------------------------------ ----- ------
0.9 0.9
------------------------------------------------------------ ----- ------
Taxation charge recognised directly in equity
Deferred tax - relating to share options - -
------------------------------------------------------------ ----- ------
Reductions in the UK corporation tax rate from 20% to 19%
(effective from 1 April 2017) and to 18% (effective from 1 April
2020) were substantively enacted on 26 October 2015, and an
additional reduction to 17% (effective from 1 April 2020) was
substantively enacted on 6 September 2016. This will reduce the
Company's future current tax charge accordingly. The UK deferred
tax liability at 31 March 2018 has been calculated based on those
rates. The Group carries tax provisions in relation to uncertain
tax positions arising from the possible outcome of negotiations
with tax authorities. Such provisions are a reflection of the
geographical spread of the Group's operations and the variety of
jurisdictions in which it carries out its activities.
Effective 1 January 2018 the rate of federal tax in the US was
reduced from 35% to 21% and, as a result, deferred tax assets were
reduced by GBP5.4m. The Group currently expects that on an on-going
basis the effective tax rate will be reduced by between 1% and 2%
because of this rate reduction.
The current tax liability payable includes a provision of
GBP3.4m for uncertain tax positions. The liability includes an
amount of GBP2.9m in respect of the Group's financing structure.
The range of possible outcomes is between GBPnil and GBP5.1m. It is
possible that if the outcome is different to that estimated by
management there could be a material effect on the financial
statements in the next 12 months.
In October 2017 the EU Commission opened a formal State Aid
investigation into an exemption within the UK's current Controlled
Foreign Company ('CFC') regime (introduced in 2013) for certain
finance income. The investigation is ongoing, but if the Commission
ultimately concludes that the provisions do constitute State Aid
then they would require the UK to recover any such aid from
affected parties. The Group has claimed the benefit of this
exemption, and therefore may be adversely affected by the outcome
of the investigation. If the Commission were to conclude that the
finance exemption with the UK's CFC regime constitutes State Aid
and no other exemptions were available to the
Group then, as at 31 March 2018, an additional liability of
GBP1.7m in respect of tax and GBP0.1m in respect of interest would
arise unless such a decision could be successfully challenged in
the EU Courts. However, no provision has been made in respect of
this investigation since we believe that it is more likely than not
that no additional tax will ultimately be due.
8 Dividends per share
The following dividends per share were paid by the Group:
2018 2017
pence pence
------------------------------- ----- -----
Previous year interim dividend 3.7 3.7
Previous year final dividend 9.3 9.3
------------------------------- ----- -----
13.0 13.0
------------------------------- ----- -----
The following dividends per share were proposed by the Group in
respect of each accounting year presented:
2018 2017
pence pence
----------------- ----- -----
Interim dividend 3.7 3.7
Final dividend 9.6 9.3
----------------- ----- -----
13.3 13.0
----------------- ----- -----
The interim dividend was not provided for at the year end and
was paid on 6 April 2018. The final proposed dividend of 9.6 pence
per share (2017: 9.3 pence) was not provided at the year end and
will be paid on 19 October 2018 subject to authorisation by the
Shareholders at the forthcoming Annual General Meeting.
9 Basis of preparation
This preliminary announcement does not constitute the Company's
statutory accounts for the years ended 31 March 2018 or 2017.
Statutory accounts for 2017 have been delivered to the registrar of
companies and those for 2018 will be delivered in due course. The
auditor has reported on those accounts: their reports were (i)
unqualified, (ii) did not include a reference to any matters to
which the auditor drew attention by way of emphasis without
qualifying their report and (iii) did not contain a statement under
section 498 (2) or (3) of the Companies Act 2006.
The financial information presented in this preliminary
announcement for the year ended 31 March 2018 is based on, and is
consistent with, that in the Group's audited Financial Statements
for the year ended 31 March 2018. No revisions to adopted IFRS that
became applicable in 2018 had a significant impact on the Group's
Financial Statements for the year ended 31 March 2018.
The Company is registered in England, Registration Number
775598.
The principal exchange rates to Sterling used were:
Year--end rates 2018 2017
---------------- ---- ----
US Dollar 1.40 1.25
Euro 1.14 1.17
Yen 149 139
---------------- ---- ----
Average translation rates 2018 US Dollar Euro Yen
------------------------------- --------- ---- ---
April 1.27 1.18 142
May 1.29 1.17 143
June 1.29 1.14 144
July 1.31 1.13 146
August 1.30 1.10 143
September 1.31 1.11 146
October 1.33 1.13 150
November 1.32 1.13 149
December 1.34 1.12 151
January 1.39 1.13 153
February 1.41 1.14 151
March 1.40 1.14 149
------------------------------- --------- ---- ---
Average translation rates 2017 US Dollar Euro Yen
------------------------------- --------- ---- ---
April 1.45 1.27 159
May 1.46 1.30 159
June 1.41 1.27 150
July 1.35 1.21 138
August 1.32 1.18 134
September 1.31 1.16 132
October 1.26 1.13 130
November 1.23 1.14 134
December 1.24 1.17 142
January 1.25 1.17 144
February 1.25 1.18 142
March 1.25 1.18 140
------------------------------- --------- ---- ---
10 The Annual General Meeting
The Annual General Meeting will be held on 11 September 2018 at
Group Head Office, Tubney Woods, Abingdon, Oxfordshire, OX13
5QX.
11 Principal Risks and Uncertainties
Specific risk 1: Technical risk
Context: The Group provides high technology
equipment, systems and services to its customers.
---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------
Risk Possible impact Control mechanisms Mitigation
---------------------------------------------------------------- --------------------------------------------------------- ----------------------------------------------------------- ----------------------------------------------------------
* Failure of the advanced technologies applied by the * Loss of market share or negative pricing pressure * "Voice of the Customer" approach and market intimacy * Understanding customer needs/expectations and
Group to produce commercially viable products. resulting in lower turnover and reduced to direct product development activities. targeted new product development programme to
profitability. maintain and strengthen product positioning.
* Formal NPI processes to prioritise investment and to
* Additional NPI expenditure. manage R&D expenditure. * Stage gate process in product development to
challenge commercial business case and mitigate
technical risks.
* Adverse impact on the Group's brand and reputation. * Product lifecycle management.
* Operational practices around sales-production
matching and inventory management to mitigate stock
obsolescence risks.
---------------------------------------------------------------- --------------------------------------------------------- ----------------------------------------------------------- ----------------------------------------------------------
Specific risk 2: Routes to market
Context: In some instances the Group's products are components
of higher--level systems sold by OEMs, and thus the Group does
not control its route to market.
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Risk Possible impact Control mechanisms Mitigation
---------------------------------------------------------------- --------------------------------------------------------- ----------------------------------------------------------- ----------------------------------------------------------
* Consolidation by OEMs in key markets. * Loss of key customers / route to market. * Customer intimacy to match product performance to * Product differentiation to promote advantages of
customer needs. Oxford Instruments equipment and solutions.
* New competitors.
* Positioning of Oxford Instruments brand and marketing * Strategic marketing with OEMs to sell performance of
directly to end users. the combined system.
* Reduction in sales volumes or pricing and lower
profitability.
* Broadening the OEM customer base.
* Direct marketing to end users.
---------------------------------------------------------------- --------------------------------------------------------- ----------------------------------------------------------- ----------------------------------------------------------
Specific risk 3: Economic environment
Context: Government expenditure may become constrained in key
markets.
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Risk Possible impact Control mechanisms Mitigation
---------------------------------------------------------------- --------------------------------------------------------- ----------------------------------------------------------- ----------------------------------------------------------
* Reduction in research funding in key markets such as * Lower sales and profitability. * Market intimacy and diversification strategy. * Increased focus on customers that are not reliant on
the US, China and the EU (including the UK). government funding.
---------------------------------------------------------------- --------------------------------------------------------- ----------------------------------------------------------- ----------------------------------------------------------
Specific risk 4: Political risk
Context: The Group operates in global markets and can be required
to secure export licences from governments.
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Risk Possible impact Control mechanisms Mitigation
---------------------------------------------------------------- --------------------------------------------------------- ----------------------------------------------------------- ----------------------------------------------------------
* Changes in the geopolitical landscape or a global * Lower exports adversely affecting turnover. * Contract review and protection against breach in the * Broad global customer base; contractual protection.
trade war resulting in a complete embargo on trade event that export licence is withheld.
with specific nations or punitive tariffs.
* Increases to input costs and lower gross margins.
---------------------------------------------------------------- --------------------------------------------------------- ----------------------------------------------------------- ----------------------------------------------------------
Specific risk 5: Brexit related risks
Context: The UK will leave the EU.
---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------
Risk Possible impact Control mechanisms Mitigation
----------------------------------------------------------------- --------------------------------------------------------- ---------------------------------------------------------- ---------------------------------------------------------------
* Lower participation in EU- funded research projects * Lower sales and profitability. * Customer intimacy and monitoring of funded projects. * Market diversification
post Brexit.
* Salary inflation. * Strategic supply chain review; * Long--term pricing agreements for key suppliers and
* Potential short-term hiatus in UK research funding. strategic sourcing review.
* Loss of key skills, and/or increased recruitment, * Product pricing reviews.
* Barriers to existing free movement of goods and and/or salary costs. * Pricing strategy.
services in the EU.
* Skills and capabilities reviews.
* Supply chain disruption * Renewal of UK work permit scheme to facilitate
* Tariffs on exports to EU countries from the UK and employment of non--UK/EU nationals.
vice versa * Brexit Committee.
* Lower net pricing on UK exports to EU and increased
input costs on products sourced from the EU. * Application for Authorised Economic Operator status
* UK becomes less attractive to EU nationals as a place to facilitate movement of goods with EU 27.
to work
----------------------------------------------------------------- --------------------------------------------------------- ---------------------------------------------------------- ---------------------------------------------------------------
Specific risk 6: Supply chain risk
Context: The Group operates a strategic make or buy policy which
places reliance on key partners, notably single source suppliers
in terms of pricing and on time delivery.
---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Risk Possible impact Control mechanisms Mitigation
----------------------------------------------------------------- --------------------------------------------------------- ---------------------------------------------------------- ---------------------------------------------------------------
* Supply chain disruption in particular for single * Disruption to customers. * Procurement strategy to manage stock availability. * Buffer stocks of key components.
source components leading to production delays and
potentially lost revenue.
* Lower sales and profitability. * Where possible, dual source supply is sought.
* Higher input costs.
* Negative impact on the Group's reputation.
----------------------------------------------------------------- --------------------------------------------------------- ---------------------------------------------------------- ---------------------------------------------------------------
Specific risk 7: People
Context: A number of the Group's employees have business critical
skills.
---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Risk Possible impact Control mechanisms Mitigation
----------------------------------------------------------------- --------------------------------------------------------- ---------------------------------------------------------- ---------------------------------------------------------------
* Key employees leave and effective replacements are * Adverse impact on NPI. * HR people strategy for retention and recruitment of * Succession management plans.
not recruited on a timely basis. staff with key skills.
* Operational disruption. * Technical career paths.
* Lower sales and profitability. * UK work permit scheme to facilitate employment of
non--UK/EU nationals in place.
----------------------------------------------------------------- --------------------------------------------------------- ---------------------------------------------------------- ---------------------------------------------------------------
Specific risk 8: IT risk
Context: Elements of production, financial and other systems rely
on IT availability.
---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Risk Possible impact Control mechanisms Mitigation
----------------------------------------------------------------- --------------------------------------------------------- ---------------------------------------------------------- ---------------------------------------------------------------
* Cyber attack on the Group's IT infrastructure. * Disruption to business as usual operations. * IT security policy and associated standards and * Regular review, monitoring and testing of key
protection systems. security measures to assess adequacy of protection
against known threats.
* Spread of viruses or malware through "Zero-day" * Loss of business critical data.
incidents or phishing attacks. * Internal IT governance to maintain those protection
systems and our incident response. * Citadel approach to protect key data.
* Financial and reputational damage.
* Insider threat.
* Employee awareness training. * User education.
----------------------------------------------------------------- --------------------------------------------------------- ---------------------------------------------------------- ---------------------------------------------------------------
Specific risk 9: Operational risk
Context: Business units' production facilities are typically located
at a single site.
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Risk Possible impact Control mechanisms Mitigation
----------------------------------------------------------- ---------------------------------------------------------------- --------------------------------------------------------------- -----------------------------------------------------------
* Sustained disruption to production arising from a * Inability to fulfil orders in the short term, * Business Continuity Plans ("BCPs") exist for all * Detailed response plans in BCPs can reduce downtime
major incident at a site. resulting in a reduction in sales and profitability. manufacturing sites. arising from incidents and facilitate the restoration
or relocation of production.
* Additional, non-recurring overhead costs. * Contractual clauses to limit financial consequences
of delayed delivery. * Standard sales contracts include clauses for
limitation of liability, liquidated damages and the
exclusion of consequential losses.
----------------------------------------------------------- ---------------------------------------------------------------- --------------------------------------------------------------- -----------------------------------------------------------
Specific risk 10: Pensions
Context: The Group's calculated pension deficit is sensitive to
changes in the actuarial assumptions.
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Risk Possible impact Control mechanisms Mitigation
----------------------------------------------------------- ---------------------------------------------------------------- --------------------------------------------------------------- -----------------------------------------------------------
* The reported pension deficit is sensitive to * Increase in net debt as additional Group * Regular review of pension strategy * The Group has closed its defined benefit pension
movements in actuarial assumptions and returns on contributions become payable to fund the deficit. schemes in the UK and US to future accrual.
investments.
* Liability hedging programme to mitigate exposure to
* Increase in the annual levy paid to the Pension movements in interest rates and inflation * The Group has a funding plan in place to reduce the
Protection Fund pension deficit over the short to medium term.
* Reduction in net assets.
----------------------------------------------------------- ---------------------------------------------------------------- --------------------------------------------------------------- -----------------------------------------------------------
Specific risk 11: Adverse movements in long-term foreign currency
rates
Context: A high proportion of the Group's revenue is in foreign
currencies, notably US dollars while the majority of the cost base
is denominated in sterling.
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Risk Possible impact Control mechanisms Mitigation
----------------------------------------------------------- ---------------------------------------------------------------- --------------------------------------------------------------- -----------------------------------------------------------
* Long-term strengthening of Sterling against key * Reduced profitability. * Procurement "make or buy" strategy. * Strategic procurement in USD, Euros and Yen.
currencies such as the US dollar, Japanese Yen
and
the Euro. (Short-term exposure to volatility is * Review of revenue and costs by currency.
managed by hedging programme).
----------------------------------------------------------- ---------------------------------------------------------------- --------------------------------------------------------------- -----------------------------------------------------------
Specific risk 12: Legal/compliance risk
Context: The Group operates in a complex technological environment
and competitors may seek to protect their position through intellectual
property rights.
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Risk Possible impact Control mechanisms Mitigation
----------------------------------------------------------- ---------------------------------------------------------------- --------------------------------------------------------------- -----------------------------------------------------------
* Infringement of a third party's intellectual * Potential loss of future revenue. * Formal 'Freedom to Operate' assessment to identify * Confirmation of 'Freedom to Operate' during new
property. potential IP issues during product development. product development stage gate process.
* Future royalty payments.
* Payment of damages.
----------------------------------------------------------- ---------------------------------------------------------------- --------------------------------------------------------------- -----------------------------------------------------------
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR UAAARWAANAUR
(END) Dow Jones Newswires
June 12, 2018 02:01 ET (06:01 GMT)
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