We are now two months into the final year of the three year
period covered by the 14 Cubed objectives. Although the year has
started slowly, we are focused on completing our 14 Cubed plan and
delivering further progress in the years to come. Our R&D plan
continues to deliver new products to the market which take market
share from our competitors. We are building on our strong position
in emerging and fast growing economies and we continue to target
growth, both organically and through bolt-on acquisitions.
Jonathan Flint
Chief Executive
11 June 2013
Financial Review
Trading Performance
Orders in the period were GBP334.0 million (2012: GBP337.8
million). Including inter-segment trade, the split between segments
was: Nanotechnology Tools GBP166.6 million, up 5.1%; Industrial
Products GBP102.2 million, down 17.2%; and Service GBP66.9 million,
up 14.8%. At the end of the year the Group order book for future
deliveries stood at GBP130.8 million (2012: GBP136.8 million).The
order book was reduced in the year by GBP15.6 million of sales made
to the ITER project which had been booked as orders in 2009/10.
Revenues in the year grew by 4.0% to GBP350.8 million. The net
increase in revenues due to acquisitions and disposals was GBP5.0
million compared with the prior period while adverse foreign
currency exchange rate movements reduced sales by GBP6.0 million.
Constant currency organic revenue growth was 4.8%.
In Nanotechnology Tools, revenues grew 7.9% aided by the
acquisition of Asylum in December 2012. While we saw strong growth
in both our NanoAnalysis and Plasma Technology businesses, revenues
in the newly combined Omicron Nanoscience business were flat.
Constant currency organic growth was 9.4%.
Following an excellent growth year in 2011/12, revenues in
Industrial Products fell back by 3.1%. On a constant currency
organic basis, we saw growth of 1.4% with the fall in sales in our
Austin Scientific business being compensated for by growth in
superconducting wire sales for MRI applications.
Service revenues increased by 7.6%, due to the Platinum business
we acquired in November 2011. Excluding this, constant currency
organic revenues were flat with growth in the service revenues
within Nanotechnology Tools and Industrial Products being offset by
a small reduction in revenues from our non-Platinum MRI service
business in North America.
Adjusted gross margins increased from 44.2% to 44.7%. These
improved margins were predominantly due to new product
introductions and increased efficiencies with our Value Add Index
Key Performance Indicator increasing from 1.49 to 1.55. This
measure is a reflection of the adjusted operating profit generated
from each unit of employment costs.
Adjusted operating expenses rose by GBP3.7 million reflecting a
GBP4.7 million spend in newly acquired businesses and a GBP1.3
million benefit from foreign exchange rate movements. On an
underlying constant currency growth basis, adjusted operating
expenses increased by GBP0.3 million.
Adjusted operating profit increased by 18.1% to GBP49.7 million
with the adjusted operating profit margin rising from 12.5% to
14.2%.
Adjusting Items
The Directors believe that adjusted profit before tax gives a
clearer indication of the underlying performance of the business. A
reconciliation of reported profit before tax to adjusted profit
before tax is given below:
2013 2012
GBPm GBPm
----------------------------------------------------- ------ ------
Profit before income tax 29.6 36.1
Reversal of acquisition related fair value
adjustments to inventory 0.5 1.7
Gain on disposal of product line - (7.0)
Acquisition related costs 2.1 1.5
Amortisation and impairment of acquired intangibles 13.8 11.2
Unwind of discount in respect of deferred
consideration 0.2 -
Mark to market loss/(gain) in respect of derivative
financial instruments 2.0 (1.5)
----------------------------------------------------- ------ ------
Adjusted profit before income tax 48.2 42.0
Share of taxation (9.9) (8.8)
----------------------------------------------------- ------ ------
Adjusted profit for the year 38.3 33.2
----------------------------------------------------- ------ ------
Financial income and expenditure
Within financial income and expenditure, the cost of interest on
loans and overdrafts and the commitment fee for our revolving
credit facility, offset by deposit interest, amounted to GBP0.6
million (2012: GBP0.8 million). The interest charge on pension
scheme liabilities exceeded the expected return on pension scheme
assets by GBP0.9 million, a movement of GBP1.6 million over the
prior year. Due to the increased pension liabilities at 31 March
2013, combined with the changes in the IAS19 accounting standard,
the net pension charge to the Income Statement in 2013/14 is
expected to increase to GBP2.5 million of which GBP2.2 million will
be reported in financial expenditure and GBP0.3 million in
administration and shared service costs.
The Group uses derivative products to hedge its exposure to
fluctuations in foreign exchange rates. It is Group policy to have
in place at the beginning of a financial year hedging instruments
to cover 80% of its forecast transactional exposure for that
period.
In common with a number of other companies, 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 such derivatives at the balance
sheet date are disclosed in the income statement as Financial
Expenditure and excluded from our calculation of adjusted profit
before tax (Note 1).
The Group also uses derivative products to hedge its exposure to
fluctuations in the price of copper, a major component for the
Superconducting Wire business. Given the small number of contracts
involved, we apply hedge accounting for these transactions and
consequently the results of marking to market are excluded from the
Income Statement.
Taxation
The underlying tax rate on the profit before tax for the Group
before adjusting items was unchanged at 21%.
The Group has brought forward tax losses in the UK to offset
against future taxable profits. In the year ended March 2011, due
to the improved performance of the Group's UK businesses, we
recognised a deferred tax asset of GBP11.3 million and a
corresponding credit to the Income Statement. We believe that this
was exceptional both in nature and quantum and therefore excluded
it from our calculation of adjusted earnings per share. Of this
asset value, GBP3.3 million reversed in the year ended March 2013
and to be consistent we have excluded it from the calculation of
adjusted earnings per share (see Note 1). In the 2013/14 financial
year we expect tax rates to be similar to 2012/13 as we exhaust
these brought forward tax losses. In 2014/15 rates will therefore
rise and we currently expect them to be in the region of
24%-28%.
Earnings
After a tax charge of GBP7.6 million (2012: GBP11.3 million),
the reported net profit for the financial year was GBP22.0 million
(2012: GBP24.8 million). With a weighted average number of shares
of 56.2 million (2012: 54.0 million), the basic earnings per share
were 39.2 pence (2012: 46.0 pence).
Adjusted profit before tax (Note 1) grew by GBP6.2 million to
GBP48.2 million which equates to adjusted earnings per share of
68.3 pence (2012: 61.6 pence), an increase of 10.9%.
Dividends
In 2011 the Group moved to a progressive dividend policy,
whereby we would seek to raise dividends as adjusted earnings per
share rise, although not necessarily by the same proportion,
depending on the Directors' perceived need for cash to expand the
business both organically and through acquisition. For the year
just ended the proposed final dividend of 8.15 pence per share
(2012: 7.23 pence), payable on 24 October 2013 to shareholders who
are on the register on 27 September 2013, gives a total dividend
for the year of 11.2 pence per share (2012: 10.0 pence). Dividend
cover for the underlying business before adjusting items was 6.1
times (2012: 6.2 times).
Investment in research and development (R&D)
Total cash spend on R&D in the year was GBP25.1 million or
7.2% of sales (2012: GBP23.7 million, 7.0%).
A reconciliation between the amounts charged to the Income
Statement and the cash spent is given below:
2013 2012
GBP m GBP m
---------------------------------------------- ------ ------
Research and development expense charged
to the consolidated statement of income. 24.3 25.8
Less: depreciation of R&D related
fixed assets (0.7) (0.2)
Add: amounts capitalised as fixed
assets 0.8 0.9
Less: amortisation of R&D costs capitalised
as intangibles (3.9) (5.2)
Add: amounts capitalised as intangible
assets 4.6 2.4
---------------------------------------------- ------ ------
Total cash spent on research and development
during the year 25.1 23.7
---------------------------------------------- ------ ------
The net book value of capitalised development costs at the end
of the financial year was GBP12.3 million (2012: GBP11.7
million).
Balance sheet
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