TIDMOXIG
RNS Number : 7470B
Oxford Instruments PLC
11 June 2019
Release Date: 7am Tuesday 11 June 2019
Oxford Instruments plc
Announcement of Preliminary Results for the year ended 31 March
2019
Oxford Instruments plc, a leading provider of high technology
products and systems for industry and research, today announces its
Preliminary Results for the year ended 31 March 2019.
Year ended Year ended % change % change
31 March 2019 31 March 2018 reported constant
currency
GBPm GBPm
Revenue(1) 333.6 296.9 +12.4% +10.8%
Adjusted* operating profit(1) 49.7 46.5 +6.9% +9.7%
Adjusted* profit before tax(1) 47.5 42.3 +12.3%
Profit before tax(1) 35.5 34.2 +3.8%
Adjusted* basic earnings per
share(1) 64.9p 56.3p +15.3%
Basic earnings per share(1) 50.1p 34.3p +46.1%
Dividend per share (full year) 14.4p 13.3p +8.3%
Cash generated from operations(1) 56.3 33.4
Net cash/(debt) 6.7 (19.7)
(1) Continuing operations
Financial Highlights:
-- Orders up 12.9% to GBP353.5m (2018: GBP313.0m), an increase of 12.0% at constant currency
-- Order book of GBP171.6m (31 March 2018: GBP153.0m, restated
for IFRS 15) up 12.2% (9.4% at constant currency)
-- Reported revenue increased by 12.4% to GBP333.6m. The Group
has adopted IFRS 15 'Revenue from Contracts with Customers' and
IFRS 16 'Leases'. The impact is to increase revenue by GBP7.0m
-- Adjusted operating profit from continuing operations up 6.9% to GBP49.7m
-- Adjusted operating margin of 14.9% (2018: 15.7%), 15.5% at
constant currency, impacted by a currency headwind and in-year
investment in operational excellence
-- Reported profit before tax up 3.8% to GBP35.5m after
mark-to-market movement on currency derivatives and adjusting
items
-- Net cash of GBP6.7m following strong cash conversion of 103%
-- Full year dividend increased by 8.3% to 14.4p
Operational Highlights:
-- Continued progress with the implementation of our Horizon
strategy, embedding defined capabilities and disciplines across the
businesses
-- Incremental in-year investment in operational excellence with
a focus on strategic procurement and operating processes
-- Strong order, revenue and profit growth in Materials &
Characterisation supported by growth in advanced material and
semiconductor customer segments
-- Healthy end markets across life science, quantum technology
and academia supported strong order and revenue growth across our
Research & Discovery sector. Operating profit was held back in
the period by a lower performance from scientific X-ray tubes and
Scienta Omicron
-- Order, revenue and profit growth, with margin improvement, in
Service & Healthcare, supported by growth in service and
support of our own products and an improved performance from our
healthcare businesses
-- Investment in R&D supporting new and future product
launches; received the Queen's Award for Innovation for our latest
material analyser
Summary and Outlook:
Ian Barkshire, Chief Executive of Oxford Instruments plc, said:
"We have made good progress in the year with the continued
implementation of our Horizon strategy, which is delivering good
growth and improved profitability. We are serving attractive
markets with long-term fundamental growth drivers and focusing on
segments where we can maintain leadership positions.
"Our core purpose is to address some of the world's most
pressing challenges. We have positioned the Group to be a leading
provider of high technology products and services to image, analyse
and manipulate materials down to the atomic and molecular level,
facilitating a greener economy, increased connectivity, improved
health and leaps in scientific understanding.
"While mindful of the backdrop of geopolitical and market
uncertainty, we remain focused on improving the business and expect
to make further progress in the year."
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: 44
*NOTE: Throughout this 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
I was delighted to join Oxford Instruments as Chairman in
December 2018 and this is my first report since taking on the
role.
Oxford Instruments is a business that inspires the greatest
admiration, with 2019 marking the Group's 60th anniversary. Today,
Oxford Instruments' technologies are helping to find cures for
cancer, advance space exploration and develop next generation
electronics, advanced materials and quantum technologies. Our brand
and capabilities are recognised by the world's leading industrial
manufacturers and scientific research institutions, who specify our
products to accelerate their R&D, increase productivity in high
tech manufacturing and achieve ground-breaking innovations.
In my first six months with the Group, I have enjoyed travelling
around our sites and meeting our talented teams. I have been
impressed with the quality of our businesses and the calibre of
management driving our growth strategy.
This is evident in our full year results, which show strong
progress across our businesses and in each of our major
geographies. I am especially heartened by the Group's success in
increasing its commercial customer base and its market share in
segments with long-term growth potential. I am also impressed by
the Group's strong cash position, which represents a major
turnaround over the last couple of years.
As Ian Barkshire sets out in the Chief Executive's Review, the
Group is making good progress transitioning from a product focus to
become a customer centric, market driven Group, increasing the
value for our existing customers whilst expanding our addressable
markets. By building on our innovative technology and targeting
attractive markets, I am confident that the Group will deliver
long-term sustainable growth and margin improvements.
Given our positive cash position and continued confidence, the
Board has proposed to raise the final dividend to 10.6 pence (2018:
9.6 pence), giving a full-year dividend of 14.4 pence (2018: 13.3
pence), an increase of 8.3%.
I would like to thank Steve Blair for his commitment as Interim
Chairman during the year. I also thank the Board and all our
employees for their contribution that has resulted in a successful
year.
Chief Executive's Review
We were delighted to welcome Neil Carson to the Board as our
Non-Executive Chairman in December 2018. His wealth of Board and
strategic leadership experience in high tech companies will be
invaluable in helping us realise our growth aspirations. I, and the
rest of the Board, would like to thank Steve Blair for his
leadership as Interim Chairman.
Embedding the Horizon Strategy
It has been a positive year for Oxford Instruments, with the
Horizon strategy now well embedded across the Group. This is
driving our long-term plans and initiatives and has transformed our
operating processes and day-to-day activities, resulting in a
return to growth and improved financial performance. In particular,
I have been delighted by the level of employee engagement and their
ownership of the execution of our new strategy. Through Horizon we
are building a stronger Oxford Instruments, positioning ourselves
to deliver long-term sustainable growth and improved margins. Our
performance in the year is testament to our progress, with strong
order and revenue growth across each of our three sectors, year on
year profit growth, a closing net cash position, strong orderbook
growth, and a book-to-bill ratio of 1.06.
Horizon is our transformational programme for the Group and has
now been in place for two years. Through our focus on Market
Intimacy, Innovation and Product Development, Customer Support
Services, and Operational Excellence we have been changing the way
we operate and have been embedding clearly defined capabilities and
disciplines across our businesses. Whilst there is still much to
do, we have made significant progress over the past two years and
are already seeing tangible returns.
We are now better positioned to address a broad and diverse
range of attractive end markets and industrial sectors, and we have
seen the share of commercial customers rise to over 50% of revenue.
This was achieved by reshaping our portfolio and focusing on those
areas where our key enabling technologies are driving long-term
success for our customers, where we can achieve and maintain
leadership positions. Within these markets, our products, solutions
and services are facilitating a greener economy, increased
connectivity, improved health and leaps in scientific
understanding.
Through our Horizon focus, we help our customers accelerate
their applied R&D, increase productivity in high tech
manufacturing and make ground-breaking discoveries. Our solutions
are being used by customers to find cures for cancer, advance space
exploration and develop next generation electronics, advanced
materials and quantum technologies.
Market Intimacy
We have made good progress in our transformation to a more
customer-centric, market focused Group. Through a deeper
understanding of our target market segments and the diverse
challenges faced by our customers, we have changed the way we
communicate and reach our prospective and existing customers, more
clearly identifying the value our products can add.
As we get closer to our customers across our target markets we
have been able to identify growth opportunities within our current
markets and into new markets. We are seeing strong revenue growth
from commercial customers as we expand our offerings and
addressable markets. Examples include the analytical solutions we
offer for batteries, additive manufacturing, automotive and
aerospace, neuroscience and cell biology, lasers and optoelectronic
devices, power electronics, and astronomy. Our heightened customer
application-based market intelligence has strengthened our future
product roadmaps by identifying more attractive development
opportunities and driving our priorities and focus for
innovation.
Operational Excellence
In the year, with our cohort of lean champions in place, we
undertook a significant investment to deliver a step change in our
operational excellence programme, targeting three key areas:
strategic procurement, operational efficiency and logistics. This
has re-shaped our operational teams and embedded new operating
practices. Already this has increased our revenue capacity with
improved productivity for the current year. Investment in our
operational excellence programme within the year held back
operating margins but helped to deliver increased revenues and
established the foundations and methodologies to support future
growth and margin improvement.
People Capabilities
Within the Group we continue to build our leadership team, while
enhancing commercial focus and core capabilities across and within
the Group at an operational level. This has been a dual approach of
investing in our existing employees as well as looking outside the
organisation for individuals with specific capabilities and
experience to accelerate our progress.
Innovation & Product Development
Innovation is part of our heritage and remains central to our
strategy. Through Horizon we are more keenly targeting our R&D
investment to create differentiated products and solutions that
will provide significant value for our customers in our chosen
long-term, high growth market segments. In the year, the success of
our recently launched products helped drive our growth across
Advanced Materials, Semiconductor, Life Science and Quantum
Technology applications. Examples of new product innovations are
provided in the Operations Review.
Results
The Group delivered a strong full year performance, with
positive second half trading building on the progress seen in the
first half of the year. This resulted in strong order, revenue and
profit growth, with the Horizon strategy producing tangible
improvements in business performance. This was underpinned by our
chosen end markets and their underlying growth drivers remaining
attractive and robust. In addition, continued success from recently
launched products further strengthened our market leading product
portfolio, supported by an increased commercial focus and progress
in establishing our customer-centric end application approach.
Reported revenue rose to GBP333.6m (2018: GBP296.9m), an
increase of 12.4% (10.8% at constant currency). Materials &
Characterisation and Research & Discovery sectors both
delivered double digit revenue growth supported by the success of
recently launched products and an increased presence and demand
from commercial customers. The Service & Healthcare sector
delivered good growth, driven predominantly by increased demand for
services related to our own products. From an end market
perspective, we had significant growth in Advanced Materials (31%),
with strong growth across the Lifescience (5%), Quantum
Technologies (14%) and Semiconductor (4%) segments. From a
geographical perspective, we had strong constant currency revenue
growth in Asia and North America of 17.7% and 9.8% respectively,
with modest growth of 2.5% in Europe. Within Asia we had strong
growth across the region including China, Japan and South East
Asia. Global distribution of revenues remains broadly in line with
the previous year, with Asia representing 43% of Group revenue,
Europe 24% and North America 31%, which are broadly in line with
global R&D spend profiles.
Increased volumes and our enhanced commercial focus drove
reported adjusted operating profit up 6.9% to GBP49.7m (2018:
GBP46.5m) despite a modest currency headwind, representing an
increase of 9.7% at constant currency. Adjusted operating margin
for the Group of 14.9% (2018: 15.7%) was impacted by an incremental
in-year investment in our operational excellence programme and a
small currency headwind. Operating margin at constant currency of
15.5% was broadly in line with last year. Adjusted profit before
tax increased by 12.3% to GBP47.5m (2018: GBP42.3m), representing
an increase of 15.4% at constant currency.
Continuing adjusted basic earnings per share increased by 15.3%
to 64.9 pence (2018: 56.3 pence).
Reported orders for the Group were up 12.9% (12.0% at constant
currency) to GBP353.5m (2018: GBP313.0m) with strong growth across
all three sectors. We continue to see increased customer demand,
supported by our enhanced customer application and market focus
with good order growth from academic customers and stronger growth
from commercial customers. Orders grew in Europe, North America and
Asia and across each of our market segments.
The orderbook, representing orders for future delivery,
increased by 12.2% to GBP171.6m (2018: GBP153.0m), growth of 9.4%
at constant currency, with strong growth across Materials &
Characterisation, Research & Discovery and services related to
our own products.
Good cash collection resulted in the Group moving to a net cash
position of GBP6.7m from net debt of GBP19.7m at the previous year
end.
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, predominately 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,
the sector delivered a strong financial performance underpinned by
increased demand from commercial customers within the Advanced
Materials and Semiconductor & Communications segments.
The proportion of revenue from commercial customers rose in the
year, representing 58% of sales from the sector. Reported orders
grew in the period by 11.2% to GBP144.0m (2018: GBP129.5m).
Reported revenue increased by 16.8% to GBP137.9m, with reported
adjusted operating profit rising to GBP22.1m (2018: GBP20.1m),
growth of 10.0%. The orderbook for future deliveries increased by
20.5% to GBP41.2m (2018: GBP34.2m). The reported operating margin
of 16.0% (2018: 17.0%) was held back by a currency headwind and
investment in our operational excellence programme, with constant
currency margin of 16.8%.
Growth in Advanced Materials is driven by the increasing demand
for lighter, stronger and higher performing materials to address
customer needs across a broad range of end applications including
autonomous vehicles, increased connectivity and a greener economy.
Order and revenue growth of 8% and 4% respectively within the
Semiconductor & Communications segment was supported by our
breadth of analytical solutions utilised to accelerate the
development of next generation devices, as well as the increasing
demand for compound semiconductor processing solutions required for
5G, autonomous vehicles and higher efficiency energy devices. This
has more than offset a reduction in demand from mainstream
silicon-based chip semiconductor chip manufacture and consumer
electronics.
Research & Discovery provides advanced solutions that create
unique environments and enable imaging and analytical measurements
down to the molecular and subatomic level, predominantly used in
scientific research and applied R&D. Healthy end markets across
Lifescience, Quantum Technologies and academic funded Research
& Fundamental Science drove strong order and revenue growth in
the year. Whilst the proportion of revenue from commercial
customers increased in the year, 69% of sales in the sector are
from academic and government funded research communities. Growth in
Lifescience applications was predominantly driven by increased
demand for our optical microscopy products and scientific cameras;
Quantum Technologies by the continued global investment in
fundamental technologies and applied development in quantum
computing, communication and optics; and Research & Fundamental
Science by the increased funding globally in larger scale national
facilities driving demand across our portfolio of scientific
instruments, cryogenics and high magnetic field platforms. Reported
orders of GBP138.2m (2018: GBP118.2m) represented growth of 16.9%,
with increases from both academic and commercial customers.
Reported revenue increased by 11.8% to GBP125.2m (2018:
GBP112.0m).
The Group has adopted IFRS 15 'Revenue from Contracts with
Customers'. The primary impact is the recognition of revenue on our
complex cryogenic and magnet systems on installation, rather than
shipment. The financial impact in the year between the two
accounting policies is an increase in revenue of GBP7.0m. The
business has fundamentally changed its approach to its operational
processes, from assembly through to testing and on-site
installation. Accordingly, we have seen a significant reduction in
the backlog of uninstalled complex systems.
In addition to the strategic investment in operational
excellence, adjusted operating profit was held back in the period
due to a temporary but sustained period of low manufacturing yield
and increased costs within our scientific X-ray tube business as
well as a lower contribution from our share of the Scienta Omicron
joint venture. As a consequence, operating margin reduced 220 basis
points in the period to 10.1% (2018: 12.3%).
Service & Healthcare provides customer services and support
for our own products and the service, sale and rental of
third-party healthcare imaging systems under the OI Healthcare
brand. The sector had good growth in orders and revenue, resulting
in increased profitability and higher margins through our increased
focus on service products, customer support offerings and
consumables related to our own products. In addition, this was
combined with an improved performance from the US OI Healthcare
business. Reported orders increased by 8.7% to GBP71.3m (2018:
GBP65.6m), reported revenue grew 5.5% to GBP70.5m (2018: GBP66.8m)
and adjusted operating profit increased 18.3% to GBP14.9m (2018:
GBP12.6m). Reported operating margin improved 220 basis points to
21.1% (2018: 18.9%).
R&D
One of the core elements of our Horizon strategy is our
investment in highly targeted innovation and product development in
line with our short, medium and longer-term roadmaps to improve our
market shares and expand our addressable markets. We incurred
expenditure of GBP25.4m (2018: GBP24.8m) with an increased emphasis
on products, solutions and technologies that provide new
capabilities, ease of use and enhanced productivity. We monitor the
proportion of revenue which originates from products launched in
the last three years (our vitality index). In the period, our
vitality index remained in line with previous year at 37% (2018:
37%) representing a continued healthy pipeline and performance of
newly launched products.
People
Our staff are fundamental to our business success and I am
delighted with their engagement, development and implementation of
our Horizon strategy. We have continued to increase the
capabilities of our teams through the development of existing
employees and the targeted recruitment of new talent.
I would like to thank all our employees for their commitment to
Oxford Instruments and their passion to deliver an exceptional
experience for all our customers.
Summary and Outlook
We have made good progress in the year with the continued
implementation of our Horizon strategy, which is delivering good
growth and improved profitability. We are serving attractive
markets with long-term fundamental growth drivers and focusing on
segments where we can maintain leadership positions.
Our core purpose is to address some of the world's most pressing
challenges. We have positioned the Group to be a leading provider
of high technology products and services to image, analyse and
manipulate materials down to the atomic and molecular level,
facilitating a greener economy, increased connectivity, improved
health and leaps in scientific understanding.
While mindful of the backdrop of geopolitical and market
uncertainty, we remain focused on improving the business and expect
to make further progress in the year.
Operations Review
Our Group reports in the following three sectors: Materials
& Characterisation, Research & Discovery, and Service &
Healthcare.
Materials & Characterisation
2019 2018 Growth Constant
GBPm GBPm Currency
Growth(1)
------------------------------ ------ ------ ------- -----------
Revenue 137.9 118.1 16.8% 15.3%
------------------------------ ------ ------ ------- -----------
Adjusted(2) operating profit 22.1 20.1
------------------------------ ------ ------
Adjusted(2) operating margin 16.0% 17.0%
------------------------------ ------ ------
Profit before tax after
adjusting items 19.7 17.3
------------------------------ ------ ------
(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 comprises 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 as well
as the fabrication of semiconductor devices and structures through
our range of advanced semiconductor etch and deposition process
systems. Our portfolio of imaging systems include our range of
market leading X-ray and electron analysis systems used in
conjunction with electron and ion microscopes as well as our
performance leading atomic force microscopes. The sector has a
strong focus on supporting and accelerating our customers' applied
R&D, enabling the development of new devices, next generation
higher performance materials and enhancing productivity in advanced
manufacturing, quality assurance (QA) and quality control (QC). We
provide leading product performance, improved ease of use and
enhanced productivity, with the analytics and information to aid
the interpretation of acquired data.
Materials & Characterisation delivered strong growth in
orders, revenue and profitability. This was supported by our
continued focus on tailoring our product offering to targeted end
customer segments and the success of recently launched products and
solutions. Through our applications focus we have been able to
increase value for our existing customers and expanded our reach
into new addressable markets. This led to significant growth from
industrial and commercial customers, with their proportion of sales
in the period increasing to 58% (2018: 49%). Academic markets
remained robust with orders broadly in line with the previous
year.
The sector had growth across each of our target application
segments, with particularly strong growth within Advanced
Materials, which accounted for 39% of sales in the sector.
Semiconductor & Communications represented 42% of sales, with
Energy, Environment and Healthcare & Lifescience applications
representing 7%, 6% and 5% of sales, respectively. From a
geographic perspective, revenue grew in each of the major regions
of Europe, North America and Asia.
The continued demand for lighter, stronger and higher
functioning materials has driven our growth in Advanced Materials.
Here, our solutions are being used to aid the development of next
generation products and components, as well as in the QC and QA of
current manufactured products. Some of the key market applications
include automotive and aerospace, additive manufacturing, consumer
electronics, displays, and polymers.
As an example, the disruptive transformation within the
automotive industry towards electric, hybrid and autonomous
vehicles is driving manufacturers to use new composite materials
and super alloys, faster dynamic control electronics, and develop
more efficient battery storage and power delivery solutions. This
is driving an increasing demand for our advanced analytical imaging
and etch and deposition systems, with the mechanical properties,
performance and reliability of advanced materials being determined
through the design and precise control of the composition,
microstructure and thin film coatings. In particular, we have had
strong sales growth from our imaging and analysis products used
with electron microscopes, namely our Ultim(TM) range of large area
X-ray detectors and Symmetry(TM) , our super-fast material
structural analysers. These analysers enable productivity
improvement through higher speed, resolution and accuracy of
analysis.
We have also had good growth within additive manufacturing
applications where our imaging systems are being used to measure a
range of critical material properties, assess the performance and
quality of the manufactured components, and help optimise the
manufacturing process. Building on our expertise in particle
analysis, we have developed a tailored solution for the QC of the
raw material feedstock, helping avoid contamination and maintaining
end product performance.
The Semiconductor & Communications segment saw continued
order and revenue growth in the year. Whilst sales to mainstream
silicon chip manufacturing and electronics declined, we received
particularly strong growth from commercial customers across our
portfolio of semiconductor etch and deposition solutions,
underpinned by our leading performance and expertise in compound
semiconductors. Here, materials such as silicon carbide, indium
phosphide and gallium nitride are critical to produce the higher
speeds, larger capacity and improved energy efficiencies required
to realise a greener economy, autonomous vehicles and ubiquitous
unbound connectivity, when compared to current silicon based
technologies. Success in the segment was supported by the breadth
of end applications that we support, as well as our reach across
fundamental research, applied R&D of next generation products,
and the manufacturing support and production of current
products.
Within compound semiconductors we have seen increasing demand
being driven by the long-term transitioning of technology away from
silicon based solutions for power electronics, connectivity and
communication. Power electronics are the enabling technologies to
use, distribute and generate electrical energy. The move to silicon
carbide and gallium nitride based solutions enables a step change
in energy efficiency, with increased sales across a range of end
applications including electric vehicles and distribution networks.
Our gallium arsenide and indium phosphide process solutions support
the increased speed and infrastructure capacity required to deliver
the desired transformation in connectivity, for example 5G networks
and the rise in the data economy. Demand for increased
communication is driving growth across sensors and optoelectronic
devices such as vertical cavity surface emitting lasers (VCSELs),
three-dimensional sensor arrays and microLEDs used across heads up
displays, video walls and smart watches. We have been working with
a number of leading commercial organisations to help develop the
necessary semiconductor device performance, quality and reliability
at commercially effective price points.
In the Energy segment, we saw good growth across energy
generation, storage and battery applications as a result of the
increasing interest in lithium (Li) batteries. Here our material
analysers support two key drivers. First, our advanced high
energy-resolution and ultra-sensitive Extreme(TM) X-ray analyser is
the market leader in imaging of the internal chemistry and active
interfaces at the nanoscale required for the development of new,
higher capacity and faster charging systems. Second, we have
developed a tailored particle analysis solution to aid the
detection of microscale metal impurities, which degrade performance
and can cause catastrophic failure. In recognition of the
innovation encompassed within the Extreme(TM), it has recently
received the Queen's Award for Innovation.
As our analytical systems become increasingly sensitive and
easier to use by non-experts, we have found new opportunities
within several markets for our X-ray analysers and atomic force
microscopes. In Lifescience, researchers are using our video rate
Cypher(TM) atomic force microscope to observe biomolecular
interactions in real-time, furthering their understanding of how
our bodies work. Our large area and high sensitivity X-ray
solutions are being used to observe the role of calcium, sodium and
potassium ions in cardiac, brain and nerve cell functionality;
while in food markets we are helping to improve food integrity and
production yield.
Research & Discovery
2019 2018 Growth Constant
GBPm GBPm Currency
Growth(1)
------------------------- ------ ------ ------- -----------
Revenue 125.2 112.0 11.8% 9.9%
------------------------- ------ ------ ------- -----------
Adjusted(2) operating
profit 12.7 13.8
------------------------- ------ ------
Adjusted(2) operating
margin 10.1% 12.3%
------------------------- ------ ------
Profit before tax after
adjusting items 6.6 4.1
------------------------- ------ ------
(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,
Magnetic Resonance, NanoScience, X-Ray Technology and our minority
share in Scienta Omicron. This sector provides advanced solutions
that create unique environments and enable imaging and analytical
measurements down to the molecular and subatomic level, used
predominantly in fundamental and applied research. We 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 in our chosen market segments, with 69% of sales from
the academic or government funded research community and 31% from
industrial or commercial customers.
The sector had good growth in orders and revenue driven by a
strong performance from our optical microscopy systems, scientific
cameras, cryogenic systems and superconducting research magnets.
Performance was supported by positive academic end markets leading
to strong order growth across the product portfolio, augmented by
further growth into commercial customers for our scientific
cameras, cryogenic and optical microscopy systems. We saw continued
improvement in our NanoScience business under a new leadership
team. However, underlying profit improvement within the sector was
more than offset by a temporary, but sustained, period of low
manufacturing yield at X-Ray Technology, which produces our
scientific X-ray tubes for third party customers, a lower
contribution from the Scientia-Omicron joint venture and an
investment in operational excellence.
We had growth across our three largest customer segments of
Healthcare & Lifescience, Quantum Technology, and Research
& Fundamental Science, which represent 41%, 22% and 19% of
sales respectively. Sales to customers exploring new advanced
materials, semiconductors or developing energy and environmental
applications remained broadly in line with the previous year. From
a geographical perspective we had good growth across Europe, Asia
and North America.
Growth in Healthcare & Lifescience was driven by a strong
performance from our optical microscopy products and solutions,
including our Dragonfly(TM) confocal microscope, our image
visualisation and analysis software and scientific cameras used on
third party measurement solutions. The launch of our Sona(TM)
camera further enhanced our portfolio of high sensitivity cameras
specifically tailored for life science applications.
There is an increasing need from those working in neuroscience,
cell and developmental biology to be able to acquire, visualise and
analyse multiple large samples to better understand the core
biological processes that lead to disease. Dragonfly(TM) has become
a platform of choice for these researchers as it can handle such
sample types while offering ease of use and an exceptional imaging
capability that spans from the millimetre scale right down to the
nanometre scale. The enhanced performance it provides researchers
is enabling improved understanding and the development of new
therapeutic approaches for cancer and neurological conditions, such
as Alzheimer's and Parkinson's.
Building on our understanding of the needs of researchers in
this segment, Imaris(TM), our imaging software, enables the
visualisation and analysis of the huge data set modern optical
microscopy systems create. Imaris(TM) offers enhanced
interpretation of results and our customers are using it to better
understand conditions, such as Autism and Alzheimer's, and
processes, such as cellular activity during wound and organ repair
and immune response to foreign organisms.
Our high sensitivity cameras, which offer enhanced performance
at low light levels, are being used to measure and observe the
interaction with individual biomolecules in real time, increasing
the accuracy and relevance of results. This has proven especially
valuable for our strategic OEM partners. It is providing them with
a core capability for their gene sequencing and clinical screening
solutions, which are used for drug feasibility studies and in the
development of personalised medicines.
With the expanding role of technology in the world we have seen
an increase in academic and government investment in more basic and
fundamental science across a broad range of disciplines, as well as
an ongoing renewal and regeneration of large-scale national user
facilities. While end user applications vary, we are well
positioned to support them with a range of optical, cryogenic,
magnetic resonance imaging and high magnetic field solutions.
During the year we won a significant global tender to supply
several high-performance cryogenic and extreme magnetic field
systems to the renowned Institute of Physics Chinese Academy of
Sciences (IOP-CAS). This builds on the performance and reliability
of the many systems we have previously supplied to the IOP-CAS's
existing laboratories. Our solutions will allow researchers to make
ground breaking discoveries of new materials and novel phenomena,
furthering our understanding of the structure, properties and
performance of these materials on a quantum scale.
We continue to see sales growth in Astronomy, where our
specialised cameras, such as the recently launched Marana(TM), are
allowing the rapid imaging of large areas of the sky with increased
sensitivity. This is enhancing the tracking of small particles of
space junk that had been previously undetectable; space junk can be
very damaging to operational satellites and future space missions.
Exoplanet discovery continues to attract notable funding within
astronomy and our range of large area cameras are well placed for
this application. The drive to find other earth-like planets and
the increased level of privately-funded space developments provide
continued growth opportunities.
Fundamental shifts in technology and capability are driving
increased research and applied development for both academic and
commercial customers. Quantum Technology continues to deliver
strong demand and we had increased order growth in the year for
this segment. Global annual spend on quantum technologies is
estimated to exceed $1.5 billion and is set to continue over the
next decade. Quantum technologies offer the potential for vast
increases in computational speed, new paradigms for secure
information transfer and unprecedented sensor sensitivities
applicable across a broad range of industrial and medical
applications. With our Triton(TM) ultra-low temperature cryogenic
platforms and iXon(TM) cameras, we are well placed to exploit these
growing opportunities.
Within the Energy, Environment and Advanced Materials segments
our broad range of analytical systems are supporting research into
sustainable foods, water cleanliness and advanced fabrics, as well
as ensuring compliance within food supply. For example, our high
field benchtop magnetic resonance analysers are being used to
measure the oil and fat content of foods, contamination within
water, and are aiding the productivity and quality control of
high-performance fabrics for clothing manufacture.
Service & Healthcare Sector
2019 2018 Growth Constant
GBPm GBPm Currency
Growth(1)
------------------------- ------ ------ ------- -----------
Revenue 70.5 66.8 5.5% 4.2%
------------------------- ------ ------ ------- -----------
Adjusted(2) operating
profit 14.9 12.6
------------------------- ------ ------
Adjusted(2) operating
margin 21.1% 18.9%
------------------------- ------ ------
Profit before tax after
adjusting items 14.1 10.6
------------------------- ------ ------
(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.
In the year the sector had order and revenue growth, with
increased profitability and operating margin, as a result of an
improved performance from both OI Healthcare and OiService.
Our US OI Healthcare business continues to return a higher
proportion of revenue from service contracts relative to the sale
of refurbished systems, in line with our strategy. In the year
there has been good improvement in the lease utilisation of our
fleet of mobile imaging systems, and our increased focus on service
capabilities has helped win multi-instrument contracts at larger
imaging centres.
Within Japan, we continue our focus on supporting our key
account customers through the provision of best in class service
support for a range of MRI systems. Our technical expertise,
response times and national coverage has enabled us to win further
accounts within the year.
In OiService we have seen an increased demand for services and
support related to our own products. As part of our Horizon
strategy we continue to develop our customer service offerings,
supporting our customers' needs by focusing on how we can add value
in their day-to-day work and increase their overall productivity.
We offer remote support packages and can undertake dynamic and
remote monitoring of system performance to improve yield and
maximise up-time. We have also created bespoke training packages to
help our customers get the most from their equipment and help with
expert data interpretation. We have built on the ongoing success of
our Chinese Summer Microscopy School by hosting Taiwan's first
School of Microscopy with the National Taiwan University. This
two-day event attracted over 150 participants from academia and
industry. Through our dedicated e-commerce website, our customers
can conveniently find a range of relevant consumables and a
selection of related services.
Finance Review
The Group has adopted IFRS 15 'Revenue from Contracts with
Customers' using the modified retrospective approach. Comparatives
have not been restated. The main difference is within our
NanoScience business where the revenue recognition on complex
customised magnetic and cryogenic systems is deferred from being
primarily on transfer of rights and rewards of ownership to
completion of installation. The Group has also adopted IFRS 16
'Leases' in the 2018/19 financial year. The net accounting impact
of adopting IFRS 15 and IFRS 16 is to increase revenue by GBP7.0m
and profit before tax by GBP2.6m.
Reported orders increased by 12.9% to GBP353.5m (2018:
GBP313.0m), an increase of 12.0% at constant currency. At the end
of the period the Group's order book for future deliveries stood at
GBP171.6m (31 March 2018: GBP134.0m). The order book as at 31 March
2018 restated on an IFRS 15 basis is GBP153.0m, against GBP134.0m
as previously reported. Against this IFRS 15 adjusted comparative,
the order book grew 12.2% on a reported basis and 9.4% at constant
currency.
Reported revenue increased by 12.4% to GBP333.6m (2018:
GBP296.9m). Revenue, excluding currency effects, increased by
10.8%, with the movement in average currency exchange rates over
the year increasing reported revenue by GBP4.7m.
Adjusted operating profit from continuing operations increased
by 6.9% to GBP49.7m (2018: GBP46.5m). Adjusted operating profit
from continuing operations, excluding currency effects, increased
by 9.7%. Adjusted operating margin from continuing operations
decreased by 80 basis points to 14.9% (2018: 15.7%), impacted by a
currency headwind and in-year investment in operational excellence.
Excluding currency effects, adjusted operating margin fell by 20
basis points to 15.5%.
Adjusted profit before tax from continuing operations grew by
12.3% to GBP47.5m (2018: GBP42.3m), representing a margin of 14.2%
(2018: 14.2%).
Adjusting items include amortisation of acquired intangibles of
GBP9.6m and a net charge of GBP0.9m relating to loan note
make-whole settlement payments, a net credit from our associate,
Scienta Omicron, and a charge due to Guaranteed Minimum Pension
equalisation. The movement in the mark-to-market valuation of
un-crystallised currency hedges for future years gave rise to a
charge of GBP1.5m.
After adjusting items, the Group recorded an operating profit of
GBP38.6m (2018: GBP38.4m) and profit before tax of GBP35.5m (2018:
GBP34.2m).
Continuing adjusted basic earnings per share grew by 15.3% to
64.9 pence (2018: 56.3 pence). Continuing basic earnings per share
was 50.1 pence (2018: 34.3 pence).
Cash generated from operations of GBP56.3m (2018: GBP33.4m),
represents 103% (2018: 69%) cash conversion. Net debt decreased
from GBP19.7m on 31 March 2018 to net cash of GBP6.7m.
Adjusted operating profit is stated before impairment and
amortisation of goodwill and acquired intangibles, restructuring
costs, 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 Change
31 March 31 March
2019 2018
GBPm GBPm
-------------------------------------------------- ----------- ----------- -------
Revenue 333.6 296.9 12.4%
Gross profit 177.0 150.9 17.3%
Administrative expenses (126.3) (105.8)
Share of profit of associate 0.2 0.5
Foreign exchange (1.2) 0.9
-------------------------------------------------- ----------- ----------- -------
Adjusted operating profit 49.7 46.5 6.9%
Net finance costs (2.2) (4.2)
-------------------------------------------------- ----------- ----------- -------
Adjusted profit before tax 47.5 42.3 12.3%
Amortisation of acquired intangibles (9.6) (10.9)
Non-recurring items (0.9) (0.3)
Mark-to-market of currency hedges (1.5) 3.1
-------------------------------------------------- ----------- ----------- -------
Profit before tax 35.5 34.2
-------------------------------------------------- ----------- ----------- -------
Tax from continuing operations (6.8) (14.6)
Profit for the period from continuing operations 28.7 19.6
Adjusted effective tax rate(1) 21.9% 23.9%
Continuing adjusted earnings per share -
basic 64.9p 56.3p 15.3%
Continuing earnings per share - basic 50.1p 34.3p 46.1%
Continuing adjusted earnings per share -
diluted 64.3p 56.1p 14.6%
Continuing earnings per share - diluted 49.7p 34.1p 45.7%
Dividend per share 14.4p 13.3p 8.3%
-------------------------------------------------- ----------- ----------- -------
1. The adjusted effective tax rate is calculated excluding
amortisation of acquired intangibles, the mark-to-market of
financial derivatives, and other adjusting items.
Orders and Revenue
Total reported orders grew by 12.9% (12.0% at constant currency)
to GBP353.5m. Orders, at constant currency, increased by 10.3% for
Materials & Characterisation, 16.1% for Research &
Discovery and 7.6% for Service & Healthcare.
Reported revenue of GBP333.6m (2018: GBP296.9m) increased by
12.4% (10.8% at constant currency). Reported revenue increased by
16.8% for Materials & Characterisation, 11.8% for Research
& Discovery and 5.5% for Service & Healthcare.
The book-to-bill ratio (orders received to goods and services
billed in the period) for the year was 1.06.
Revenue, at constant currency, increased by 15.3% for Materials
& Characterisation, with a particularly strong performance from
NanoAnalysis and Plasma Technology. Constant currency growth of
9.9% in Research & Discovery was primarily driven by good
progress from Andor Technology, partially offset by a small decline
in revenue for X-Ray Technology. Service & Healthcare constant
currency revenue grew by 4.2%, with good growth from the service of
our own products.
On a geographical basis, at constant currency, revenue grew by
2.5% in Europe, 9.8% in North America, 17.7% in Asia, with a small
decline in Rest of World of 5.9%.
After adjusting the comparative period for IFRS 15, total
reported order book grew by 12.2% (9.4% at constant currency). The
order book, at constant currency, compared to 31 March 2018,
increased by 16.7% for Materials & Characterisation and 15.3%
for Research & Discovery. Good growth in orders from the
service of our own products was offset by a decline in OI
Healthcare's order book, resulting in a segment decline of
8.0%.
Materials Research Service Total(1)
GBPm & Characterisation & Discovery & Healthcare
----------------------------------- -------------------- ------------- -------------- ---------
Revenue: 2017/18 118.1 112.0 66.8 296.9
----------------------------------- -------------------- ------------- -------------- ---------
Underlying movement 18.1 11.1 2.8 32.0
Foreign exchange 1.7 2.1 0.9 4.7
----------------------------------- -------------------- ------------- -------------- ---------
Revenue: 2018/19 137.9 125.2 70.5 333.6
----------------------------------- -------------------- ------------- -------------- ---------
Revenue growth: reported 16.8% 11.8% 5.5% 12.4%
Revenue growth: constant currency 15.3% 9.9% 4.2% 10.8%
----------------------------------- -------------------- ------------- -------------- ---------
1. Excluding inter-sector revenue.
Gross profit
Gross profit increased by 17.3% to GBP177.0m (2018: GBP150.9m),
representing a gross profit margin of 53.1%, an increase of 230
basis points over last year.
Operating profit
Adjusted operating profit from continuing operations increased
by 6.9% to GBP49.7m (2018: GBP46.5m), representing an adjusted
operating profit margin of 14.9%, a decrease of 80 basis points
against last year. At constant currency, the adjusted operating
profit margin was 15.5%, a decrease of 20 basis points. The margins
across all three segments have been impacted by the allocation of
GBP2.0m of incremental costs associated with our operational
improvement programme. Excluding these costs, adjusted operating
margin would have been 15.5% on a reported basis and 16.1% at
constant currency.
Materials & Characterisation margin declined by 100 basis
points to 16.0% (2018: 17.0%). At constant currency, the margin was
16.8%, a decline of 20 basis points.
Research & Discovery's adjusted operating margin declined to
10.1% (2018: 12.3%), a decline of 220 basis points. At constant
currency, the margin was 11.0%, a decline of 130 basis points. In
addition to the segment's share of operational improvement costs,
the reduction was impacted by a loss in the year incurred within
our X-Ray Technology business.
Service & Healthcare margin increased by 220 basis points to
21.1% (2018: 18.9%). At constant currency, the margin was 21.0%, an
increase of 210 basis points.
During the year the Group received a favourable legal opinion on
a long-term patent dispute. Consequently, a provision of GBP1.5m
was released to adjusted operating profit. As a key element of its
operational excellence programme, the Group is committed to
reducing working capital across its portfolio of businesses.
Inventories and receivables are being closely scrutinised and
measured against set targets. The Group has increased the provision
for a write-down of working capital by GBP1.8m.
Our share of the Scienta Omicron joint venture showed an
adjusted profit after tax of GBP0.2m for the year, against a profit
of GBP0.5m for the comparative period. After adjusting items, our
share of the Scienta Omicron joint venture was a profit of
GBP0.5m.
Currency effects (including the impact of transactional currency
hedging) have reduced reported adjusted operating profit by GBP1.3m
when compared to blended hedged exchange rates for the comparative
period.
Materials Research Service Total
GBPm & & & Healthcare
Characterisation Discovery
---------------------------- ------------------ ----------- -------------- ------
Adjusted operating profit:
2017/18 20.1 13.8 12.6 46.5
---------------------------- ------------------ ----------- -------------- ------
Underlying movement 2.8 (0.3) 2.0 4.5
Foreign exchange (0.8) (0.8) 0.3 (1.3)
---------------------------- ------------------ ----------- -------------- ------
Adjusted operating profit:
2018/19 22.1 12.7 14.9 49.7
---------------------------- ------------------ ----------- -------------- ------
Margin: 2017/18 17.0% 12.3% 18.9% 15.7%
Margin: 2018/19 16.0% 10.1% 21.1% 14.9%
---------------------------- ------------------ ----------- -------------- ------
Adjusting items
Amortisation of acquired intangibles of GBP9.6m relates to
intangible assets recognised on acquisitions, being the value of
technology, customer relationships and brands.
Non-recurring items were a net charge of GBP0.9m. During the
period we repaid GBP11.5m of the principal outstanding on loan
notes as a condition of the sale of Industrial Analysis. The
make-whole settlement cost due at the time of the repayment was
GBP0.9m. Following the High Court's confirmation on Guaranteed
Minimum Pension equalisation between males and females, we have
recognised a charge of GBP0.3m. Our associate recognised a net gain
of GBP0.3m, comprised of a gain of GBP0.6m on a reversal of an
impairment, partially offset by GBP0.3m of restructuring costs.
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 IFRS 9
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 loss in respect of derivative financial
instruments was GBP1.5m (2018: GBP3.1m gain). This reflects the
movement on currency derivatives that are hedging future
transactional currency exposures for the Group - from an opening
net fair value asset of GBP1.5m to a closing neutral position. The
year-end neutral position reflects an un-crystallised loss arising
from a fall in the value of Sterling at the balance sheet date
against a blended rate achieved on US Dollar forward contracts that
will mature over the next twelve months. This has been offset by an
un-crystallised gain attributable to a rise in the value of
Sterling at the balance sheet date against a blended rate achieved
on 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 GBP2.0m to
GBP2.2m (2018: GBP4.2m) with net finance charges falling by GBP1.7m
to GBP1.9m, and pension financing charges falling by GBP0.3m to
GBP0.3m.
Profit before tax
Continuing adjusted profit before tax increased by 12.3% to
GBP47.5m (2018: GBP42.3m). The adjusted profit before tax margin of
14.2% (2018: 14.2%) was in line with last year.
Profit before tax of GBP35.5m (2018: GBP34.2m) 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 GBP10.4m
(2018: GBP10.1m) represents an effective tax rate of 21.9% (2018:
23.9%). In April 2019, the Tax Tribunal adjudicated on a historical
loan arrangement structure. The decision went against Oxford
Instruments and as a result a payment of GBP4.0m was made to HMRC
in April 2019. The liability was broadly covered by historical
provisions and one-off credits.
Earnings per share
Continuing adjusted basic earnings per share increased by 15.3%
to 64.9 pence (2018: 56.3 pence); continuing adjusted diluted
earnings per share grew by 14.6% to 64.3 pence (2018: 56.1 pence).
Continuing basic earnings per share increased by 46.1% to 50.1
pence (2018: 34.3 pence); continuing diluted earnings per share
grew by 45.7% to 49.7 pence (2018: 34.1 pence).
The number of undiluted weighted average shares remained
constant at 57.2m.
Foreign exchange
The Group faces transactional and translational currency
exposure, most notably against the US Dollar, Euro and Japanese
Yen. For the year, approximately 14% of Group revenue was
denominated in Sterling, 55% in US Dollars, 18% 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 2019 the Group had
currency hedges in place extending up to twelve months forward.
Discontinued Operations
In May 2019, the Group received GBP1.6m in relation to the
finalisation of tax affairs outstanding upon the disposal of the
Industrial Analysis business. A gain of GBP1.3m after taxation has
been recorded under discontinued operations. Recorded within the
comparative period under discontinued operations is a post-tax
profit of GBP45.9m from the sale of Industrial Analysis, which was
completed on 3 July 2017.
Dividend
The Group's policy is to increase the dividend each year in line
with the increase in underlying earnings, considering movements in
currency. The Board has proposed to increase the final dividend to
10.6 pence (2018: 9.6 pence). This results in a total dividend of
14.4 pence (2018: 13.3 pence), an increase of 8.3%. The final
dividend will be paid, subject to shareholder approval, on 18
October 2019 to Shareholders on the register as at 13 September
2019.
Cash flow
The Group cash flow is summarised below.
Year Year
ended ended
31 March 31 March
2019 2018
GBPm GBPm
------------------------------------------------------ ---------- ----------
Adjusted operating profit 49.7 46.5
Depreciation and amortisation 11.0 9.1
------------------------------------------------------ ---------- ----------
Adjusted EBITDA 60.7 55.6
Working capital movement 3.7 (13.2)
Purchase of rental assets held for subsequent sale (1.1) (0.7)
Loss on disposal of property, plant and equipment 0.2 0.3
Equity settled share schemes 0.8 1.1
Share of profit from associate (0.2) (0.5)
Restructuring costs (0.7) (1.3)
Pension scheme payments above charge to operating
profit (7.1) (7.9)
------------------------------------------------------ ---------- ----------
Cash generated from operations 56.3 33.4
Interest (3.2) (2.1)
Tax (8.7) (3.8)
Capitalised development expenditure (3.5) (5.8)
Expenditure on tangible and intangible assets (6.3) (4.8)
Proceeds from sale of property, plant and equipment - 9.3
Increase in investment in associate - (2.1)
Proceeds from sale of subsidiary undertaking - 71.2
Decrease in long-term receivables 1.1 0.9
Dividends paid (7.6) (7.4)
Proceeds from issue of share capital and exercise
of share options 0.2 0.2
Payments made in respect of lease liabilities (3.2) -
Decrease in borrowings (11.5) (96.8)
------------------------------------------------------ ---------- ----------
Net increase/(decrease) in cash and cash equivalents
from continuing operations 13.6 (7.8)
------------------------------------------------------ ---------- ----------
Note: Adjusted EBITDA is earnings before interest, tax,
depreciation, amortisation of acquired intangibles, mark-to-market
of financial derivatives, restructuring costs and other non-cash
adjusting items.
Cash generated from operations
Cash generated from operations of GBP56.3m (2018: GBP33.4m),
represents 103% (2018: 69%) cash conversion. The impact of IFRS 16
is to recognise a lease liability and corresponding asset for
leases previously classified as operating leases. As a result, the
depreciation charge for the year includes an additional GBP3.3m
reflecting the increase in asset base. Compared to the comparative
period, cash generated from operations is also higher by GBP3.3m.
Cash conversion is defined as cash generated from operations before
non-recurring items and pension scheme payments, less, capitalised
development expenditure, capital expenditure and payments made in
respect of finance leases / adjusted operating profit. Payments
made in respect of finance leases are now included within our
definition of cash conversion to retain a like-for-like comparison
following the introduction of IFRS 16.
Working capital fell by GBP3.7m, reflecting an increase in
inventories of GBP4.0m and receivables of GBP3.5m, combined with
payables and customer deposits increasing by GBP4.1m and GBP7.1m
respectively.
Interest
Net interest paid was GBP3.2m (2018: GBP2.1m). This includes
loan note make-whole payments of GBP0.9m as a consequence of
repaying loan note principal following the sale of Industrial
Analysis. Net interest paid in the comparative period was low due
to payment timing differences.
Tax
Tax paid was GBP8.7m (2018: GBP3.8m), the comparative period
benefiting from tax deductions on allowable adjusting items and
utilisation of brought forward tax losses. Following the Tax
Tribunal adjudication on historical loan structures, the Group made
a cash settlement to HMRC of GBP4.0m in April 2019, after the end
of the financial year.
Investment in Research and Development (R&D)
Total cash spend on R&D in the year was GBP25.4m, equivalent
to 7.6% of sales (2018: GBP24.8m, 8.4% of sales). A reconciliation
between the amounts charged to the Income Statement and the cash
spent is given below:
Year Year
ended ended
31 March 31 March
2019 2018
GBPm GBPm
------------------------------------------------------ ---------- ----------
R&D expense charged to the Income Statement 25.4 23.4
Depreciation of R&D-related fixed assets (0.1) (0.1)
Amounts capitalised as fixed assets 0.1 0.1
Amortisation and impairment of R&D costs capitalised
as intangibles (3.5) (4.4)
Amounts capitalised as intangible assets 3.5 5.8
------------------------------------------------------ ---------- ----------
Total cash spent on R&D during the year 25.4 24.8
------------------------------------------------------ ---------- ----------
Investment in associate
In the comparative period, the shareholders of Scienta Omicron
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 GBP2.1m and was paid in September
2017.
Disposals
The sale of Industrial Analysis was completed on 3 July 2017. A
post-tax profit of GBP45.9m is recorded within discontinued
operations for the comparative period.
Net debt and funding
Net debt
Good cash generation in the year moved the Group from having
opening net debt of GBP19.7m to net cash of GBP6.7m. Cash generated
from operations was GBP56.3m. The Group invested in capitalised
development costs of GBP3.5m and tangible and intangible assets of
GBP6.3m.
Movement in net debt GBPm
------------------------------------------------------- -------
Net debt as at 31 March 2018 19.7
------------------------------------------------------- -------
Cash generated from operations (56.3)
Interest 3.2
Tax 8.7
Capitalised development expenditure 3.5
Capital expenditure on tangible and intangible assets 6.3
Payments made in respect of lease liabilities 3.2
Decrease in long-term receivables (1.1)
Dividends paid 7.6
Foreign exchange and other items (1.5)
------------------------------------------------------- -------
Net cash as at 31 March 2019 (6.7)
------------------------------------------------------- -------
Funding
On 2 July 2018 the Group entered into a new unsecured
multi-currency revolving facility agreement, which is committed
until June 2023 with one-year extension options at the end of the
first and second years. The facility has been entered into with two
banks and comprises a Euro denominated multi-currency facility of
EUR50.0m and a US Dollar denominated multi-currency facility of
$80.0m.
In the first half of the year the Group repaid, as a
pre-condition relating to the sale of Industrial Analysis, GBP11.5m
of its bilateral private placement note, leaving an outstanding
note of GBP27.9m, which matures in March 2021. Associated
make-whole settlement costs of GBP0.9m have been included within
non-recurring items.
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 2019 the
business had net cash.
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 2019, the net liability arising from our defined
benefit scheme obligations was GBP6.5m (31 March 2018: GBP15.3m), a
fall of GBP8.8m. The reduction in the deficit was primarily due to
the contributions paid in the period. Total scheme assets at 31
March 2019 were GBP311.4m (31 March 2018: GBP289.5m) while
liabilities were GBP317.9m (31 March 2018: GBP304.8m).
As at 31 March 2019, the UK defined benefit pension liability
includes an allowance of GBP0.3m for the expected cost of
equalising Guaranteed Minimum Pension between males and
females.
We have commenced a process to terminate the US defined benefit
pension scheme. This will extinguish all liabilities of the scheme.
The process is in its early stages and is not expected to complete
until the end of March 2020. We estimate that the cash cost of
termination will be approximately US$4.5m, with most of this due to
be paid in the second half of the 2019/20 financial year.
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
11 June 2019
Consolidated Statement of Income
year ended 31 March 2019
Adjusting
Adjusted* items* Total
Notes GBPm GBPm GBPm
-------------------------------------------------- ----- --------- --------- -------
Revenue 3 333.6 - 333.6
Cost of sales (156.6) - (156.6)
-------------------------------------------------- ----- --------- --------- -------
Gross profit 177.0 - 177.0
Research and development 4 (25.4) - (25.4)
Selling and marketing (61.3) - (61.3)
Administration and shared services (39.6) (9.9) (49.5)
Share of profit of associate, net of tax 5 0.2 0.3 0.5
Foreign exchange (1.2) (1.5) (2.7)
-------------------------------------------------- ----- --------- --------- -------
Operating profit/(loss) 49.7 (11.1) 38.6
-------------------------------------------------- ----- --------- --------- -------
Other financial income 0.3 - 0.3
-------------------------------------------------- ----- --------- --------- -------
Financial income 0.3 - 0.3
-------------------------------------------------- ----- --------- --------- -------
Interest charge on pension scheme net liabilities (0.3) - (0.3)
Other financial expenditure (2.2) (0.9) (3.1)
-------------------------------------------------- ----- --------- --------- -------
Financial expenditure (2.5) (0.9) (3.4)
-------------------------------------------------- ----- --------- --------- -------
Profit/(loss) before income tax from continuing
operations 47.5 (12.0) 35.5
Income tax (expense)/credit 7 (10.4) 3.6 (6.8)
-------------------------------------------------- ----- --------- --------- -------
Profit/(loss) for the year from continuing
operations 37.1 (8.4) 28.7
-------------------------------------------------- ----- --------- --------- -------
Profit from discontinued operations after
tax 6 - 1.3 1.3
Profit/(loss) for the year attributable to
equity Shareholders of the parent 37.1 (7.1) 30.0
-------------------------------------------------- ----- --------- --------- -------
pence pence
-------------------------------------------------- ----- --------- --------- -------
Earnings per share
Basic earnings per share 2
From continuing operations 64.9 50.1
From discontinued operations - 2.3
--------- -------
From profit for the year 64.9 52.4
Diluted earnings per share 2
From continuing operations 64.3 49.7
From discontinued operations - 2.3
--------- -------
From profit for the year 64.3 52.0
Dividends per share
Dividends paid 8 13.3
Dividends proposed 8 14.4
-------------------------------------------------- ----- --------- --------- -------
* 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 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 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 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 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 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.
Consolidated Statement of Comprehensive Income
year ended 31 March 2019
2019 2018
Notes GBPm GBPm
---------------------------------------------------------- ----- ----- ------
Profit for the year 30.0 65.5
---------------------------------------------------------- ----- ----- ------
Other comprehensive income/(expense):
Items that may be reclassified subsequently to profit
or loss
Foreign exchange translation differences 4.2 (8.8)
Net cumulative foreign exchange gain on disposal of
subsidiaries recycled to the Income Statement - (4.8)
Items that will not be reclassified subsequently to
profit or loss
Remeasurement gain in respect of post-retirement benefits 2.5 2.2
Tax on items that will not be reclassified to profit
or loss 7 (0.5) (0.9)
---------------------------------------------------------- ----- ----- ------
Total other comprehensive income/(expense) 6.2 (12.3)
---------------------------------------------------------- ----- ----- ------
Total comprehensive income for the year attributable
to equity shareholders of the parent 36.2 53.2
---------------------------------------------------------- ----- ----- ------
Consolidated Statement of Financial Position
as at 31 March 2019
2019 2018
GBPm GBPm
--------------------------------------------------- ----- -----
Assets
Non-current assets
Property, plant and equipment 24.2 22.8
Right of use assets 8.8 -
Intangible assets 152.5 158.7
Investment in associate 4.6 4.1
Long-term receivables 0.3 1.4
Deferred tax assets 15.3 13.4
---------------------------------------------------- ----- -----
205.7 200.4
--------------------------------------------------- ----- -----
Current assets
Inventories 60.8 45.9
Trade and other receivables 78.3 73.3
Current income tax recoverable 2.4 2.5
Derivative financial instruments 1.1 2.4
Cash and cash equivalents 35.2 20.7
---------------------------------------------------- ----- -----
177.8 144.8
--------------------------------------------------- ----- -----
Total assets 383.5 345.2
---------------------------------------------------- ----- -----
Equity
Capital and reserves attributable to the Company's
equity Shareholders
Share capital 2.9 2.9
Share premium 61.7 61.7
Other reserves 0.2 0.2
Translation reserve 13.4 9.2
Retained earnings 124.0 105.6
---------------------------------------------------- ----- -----
202.2 179.6
--------------------------------------------------- ----- -----
Liabilities
Non-current liabilities
Bank loans and overdrafts 27.9 39.4
Lease payables 6.0 -
Retirement benefit obligations 6.5 15.3
Provisions 1.1 1.7
Deferred tax liabilities 6.3 6.1
---------------------------------------------------- ----- -----
47.8 62.5
--------------------------------------------------- ----- -----
Current liabilities
Bank loans and overdrafts 0.6 1.0
Trade and other payables 116.9 85.5
Lease payables 3.0 -
Current income tax payables 4.3 6.2
Derivative financial instruments 1.1 0.4
Provisions 7.6 10.0
---------------------------------------------------- ----- -----
133.5 103.1
--------------------------------------------------- ----- -----
Total liabilities 181.3 165.6
---------------------------------------------------- ----- -----
Total liabilities and equity 383.5 345.2
---------------------------------------------------- ----- -----
The Financial Statements were approved by the Board of Directors
on 11 June 2019 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 2019
Foreign
Share exchange
Share premium Other translation Retained
capital account reserves reserve earnings Total
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------------------------------- -------- -------- -------- ----------- -------- -----
Balance at 1 April 2018 2.9 61.7 0.2 9.2 105.6 179.6
Impact of adoption of IFRS 15 - - - - (7.2) (7.2)
---------------------------------------------------------- -------- -------- -------- ----------- -------- -----
2.9 61.7 0.2 9.2 98.4 172.4
Total comprehensive income/(expense):
Profit for the year - - - - 30.0 30.0
Other comprehensive income:
* Foreign exchange translation differences - - - 4.2 - 4.2
* Remeasurement gain in respect of post-retirement
benefits - - - - 2.5 2.5
* Tax on items recognised directly in other
comprehensive income - - - - (0.5) (0.5)
---------------------------------------------------------- -------- -------- -------- ----------- -------- -----
Total comprehensive income/(expense)
attributable to equity shareholders
of the parent - - - 4.2 32.0 36.2
Transactions with owners recorded
directly in equity:
* Proceeds from exercise of share options - - - - 0.2 0.2
* Charge in respect of employee service costs settled
by award of share options - - - - 0.8 0.8
* Tax on items recognised directly in equity - - - - 0.2 0.2
* Dividends paid - - - - (7.6) (7.6)
---------------------------------------------------------- -------- -------- -------- ----------- -------- -----
Total transactions with owners
recorded directly in equity - - - - (6.4) (6.4)
---------------------------------------------------------- -------- -------- -------- ----------- -------- -----
Balance at 31 March 2019 2.9 61.7 0.2 13.4 124.0 202.2
---------------------------------------------------------- -------- -------- -------- ----------- -------- -----
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):
Profit 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 (expense)/income
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
------------------------------------------------------------ ------- ------- -------- ----------- -------- -----
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 152,710 (2018: 183,145) of its own shares in an
employee benefit trust. The cost of these shares is included within
retained earnings.
Consolidated Statement of Cash Flows year ended 31 March
2019
2019 2018
Notes GBPm GBPm
----------------------------------------------------- ----- ------ -------
Profit for the year 30.0 65.5
Profit for the year from discontinued operations 6 (1.3) (45.9)
----------------------------------------------------- ----- ------ -------
Profit for the year from continuing operations 28.7 19.6
Adjustments for:
Income tax expense 7 6.8 14.6
Net financial expense 3.1 4.2
Fair value movement on financial derivatives 1.5 (3.1)
Restructuring costs - 1.2
Restructuring costs - relating to associate 0.3 0.4
Past service cost on defined benefit pension
scheme 0.3 -
Net profit on disposal of buildings - (3.3)
Share of impairment recognised by associate (0.6) 2.0
Amortisation and impairment of acquired intangibles 9.6 10.9
Depreciation of property, plant and equipment 3.9 4.7
Depreciation of right of use assets 3.3 -
Amortisation and impairment of capitalised
development costs 3.5 4.4
Amortisation and impairment of capitalised
software costs 0.3 -
----------------------------------------------------- ----- ------ -------
Adjusted earnings before interest, tax, depreciation
and amortisation 60.7 55.6
Loss on disposal of property, plant and equipment 0.2 0.3
Cost of equity settled employee share schemes 0.8 1.1
Share of profit from associate (0.2) (0.5)
Restructuring costs paid (0.7) (1.3)
Cash payments to the pension scheme more than
the charge to operating profit (7.1) (7.9)
----------------------------------------------------- ----- ------ -------
Operating cash flows before movements in working
capital 53.7 47.3
Increase in inventories (4.0) (4.5)
Increase in receivables (3.5) (14.4)
Increase in payables and provisions 4.1 2.8
Increase in customer deposits 7.1 2.9
Purchase of rental assets held for subsequent
sale (1.1) (0.7)
----------------------------------------------------- ----- ------ -------
Cash generated from continuing operations 56.3 33.4
Interest paid (3.5) (2.1)
Income taxes paid (8.7) (3.8)
----------------------------------------------------- ----- ------ -------
Net cash from operating activities - continuing
operations 44.1 27.5
Net cash from operating activities - discontinued
operations - 3.0
----------------------------------------------------- ----- ------ -------
Net cash flow from operating activities 44.1 30.5
----------------------------------------------------- ----- ------ -------
Cash flows from investing activities
Proceeds from sale of property, plant and equipment - 9.3
Acquisition of property, plant and equipment (4.1) (4.3)
Acquisition of intangible assets (2.2) (0.5)
Net cash flow on disposal of businesses 6 - 71.2
Capitalised development expenditure (3.5) (5.8)
Increase in investment in associate - (2.1)
Decrease in long-term receivables 1.1 0.9
Interest received 0.3 -
----------------------------------------------------- ----- ------ -------
Net cash (used in)/generated from investing
activities - continuing operations (8.4) 68.7
Net cash used in investing activities - discontinued
operations - -
Net cash (used in)/generated from investing
activities (8.4) 68.7
----------------------------------------------------- ----- ------ -------
Cash flows from financing activities
Proceeds from issue of share capital - 0.2
Proceeds from exercise of share options 0.2 -
Payments made in respect of lease liabilities (3.2) -
Repayment of borrowings (11.5) (96.8)
Dividends paid (7.6) (7.4)
----------------------------------------------------- ----- ------ -------
Net cash used in financing activities (22.1) (104.0)
----------------------------------------------------- ----- ------ -------
Net increase/(decrease) in cash and cash equivalents 13.6 (4.8)
Cash and cash equivalents at beginning of the
year 20.7 26.5
Effect of exchange rate fluctuations on cash
held 0.9 (1.0)
----------------------------------------------------- ----- ------ -------
Cash and cash equivalents at end of the year 35.2 20.7
----------------------------------------------------- ----- ------ -------
Notes to the Financial Statements
year ended 31 March 2019
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
2019 2018
----------------- ----------------------------
Profit (Loss)/profit
Operating before Operating before
income income
profit tax (loss)/profit tax
GBPm GBPm GBPm GBPm
---------------------------------------- --------- ------ ------------- -------------
Statutory measure from continuing
operations 38.6 35.5 38.4 34.2
Restructuring costs - - 1.2 1.2
Restructuring costs - relating to
associate 0.3 0.3 0.4 0.4
Net profit on disposal of buildings - - (3.3) (3.3)
Business reorganisation items 0.3 0.3 (1.7) (1.7)
Past service cost on defined benefit
pension scheme 0.3 0.3 - -
Share of impairment recognised by
associate (0.6) (0.6) 2.0 2.0
Amortisation and impairment of acquired
intangibles 9.6 9.6 10.9 10.9
Mark-to-market loss/(gain) in respect
of derivative financial instruments 1.5 1.5 (3.1) (3.1)
Loan note make-whole payable - 0.9 - -
---------------------------------------- --------- ------ ------------- -------------
Total non-GAAP adjustments 11.1 12.0 8.1 8.1
Adjusted measure from continuing
operations 49.7 47.5 46.5 42.3
Share of taxation (10.4) (10.1)
---------------------------------------- --------- ------ ------------- -------------
Adjusted profit for the year from
continuing operations 37.1 32.2
---------------------------------------- --------- ------ ------------- -------------
Adjusted effective tax rate 21.9% 23.9%
---------------------------------------- --------- ------ ------------- -------------
Restructuring costs
Restructuring costs of GBP1.2m incurred in the prior year
primarily relate to our US Healthcare business and include GBP0.5m
to successfully defend a legal claim relating to a prior
acquisition.
Restructuring costs - relating to associate
These represent the Group's shares of mergers and acquisition
costs and other one-off items incurred by the associate.
Net profit on disposal of buildings
The Group recorded a net profit on disposal of GBP3.3m during
the prior year, following the disposal of two buildings previously
held under property, plant and equipment.
Past service cost on defined benefit pension scheme
As at 31 March 2019, the IAS 19 defined benefit pension balance
sheet liability includes an allowance of GBP0.3m for the expected
cost of equalising Guaranteed Minimum Pension ("GMP") between males
and females.
GMP is a portion of pension that was accrued by individuals who
were contracted out of the UK State Second Pension prior to 6 April
1997. Historically, there was an inequality of benefits between
male and female members who have GMP. A High Court case concluded
on 26 October 2018 and confirmed that GMPs need to be
equalised.
Share of impairment recognised by associate
During the prior 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.
Following the completion and finalisation of the transaction,
GBP0.6m of the impairment has been reversed.
Amortisation of acquired intangibles
Adjusted profit excludes the non-cash amortisation and
impairment of acquired intangible assets and goodwill.
Mark-to-market movements in respect of derivative financial
instruments
Under IFRS 9, 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 IFRS 9 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.
Loan note make-whole payable
During the year to 31 March 2019 the Group repaid GBP11.6m of
the principal outstanding on its loan notes. This payment was
necessary due to material changes to the Group's structure
following the disposal of its Industrial Analysis business during
July 2017. The costs of GBP0.9m relate to the make-whole balance
payable upon settlement of the GBP11.6m principal.
Share of taxation
Adjusting items include the income tax on each of the items
described above. In addition, during the prior year the tax rate in
the United States reduced from 35% to 21%. As a result, this
reduced the Group's deferred tax asset by GBP5.4m This was excluded
from the calculation of share of taxation attributable to adjusted
profit before tax.
Reconciliation of changes in cash and cash equivalents to
movement in net debt
2019 2018
GBPm GBPm
----------------------------------------------------- ------ -------
Net increase/(decrease) in cash and cash equivalents 13.6 (4.8)
Effect of foreign exchange rate changes on cash and
cash equivalents 0.9 (1.0)
----------------------------------------------------- ------ -------
14.5 (5.8)
Repayment of borrowings 11.5 96.8
Movement in accrued interest 0.4 (1.0)
Amortisation of prepaid issuance fees - (0.4)
----------------------------------------------------- ------ -------
Movement in net debt in the year 26.4 89.6
Net debt at start of the year (19.7) (109.3)
----------------------------------------------------- ------ -------
Net cash/(debt) at the end of the year 6.7 (19.7)
----------------------------------------------------- ------ -------
Reconciliation of net cash/(debt) to Statement of Financial
Position
2019 2018
GBPm GBPm
---------------------------------------- ------- -------
Bank loans and overdrafts (28.5) (40.4)
Cash and cash equivalents 35.2 20.7
---------------------------------------- ------- -------
Net cash/(debt) at the end of the year 6.7 (19.7)
---------------------------------------- ------- -------
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 2019 Continuing Discontinued 2018
operations operations total operations operations total
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- ---------- ------------ ----- ---------- ------------ -----
Profit for the year attributable
to equity Shareholders
of the parent 28.7 1.3 30.0 19.6 45.9 65.5
Adjusting items:
Business reorganisation
items 0.3 (1.7)
Past service cost on defined
benefit pension scheme 0.3 -
Share of impairment recognised
by associate (0.6) 2.0
Amortisation and impairment
of acquired intangibles 9.6 10.9
Mark-to-market gain in
respect of derivative
financial instruments 1.5 (3.1)
Loan note make-whole payable 0.9 -
Income tax (credit)/charge (3.6) 4.5
--------------------------------- ---------- ------------ ----- ---------- ------------ -----
Adjusted profit for the
year from continuing operations 37.1 32.2
--------------------------------- ---------- ------------ ----- ---------- ------------ -----
The weighted average number of shares used in the calculation
excludes shares held by the Employee Share Ownership Trust, as
follows:
2019 2018
Shares Shares
million million
------------------------------------------------------ ------- -------
Weighted average number of shares outstanding 57.4 57.4
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 57.2
------------------------------------------------------ ------- -------
The following table shows the effect of share options on the
calculation of diluted earnings per share:
2019 2018
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 0.5 0.2
------------------------------------------------------- ------- -------
Weighted average number of ordinary shares per diluted
earnings per share calculations 57.7 57.4
------------------------------------------------------- ------- -------
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.
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 2019 GBPm GBPm GBPm GBPm
--------------------------------------- ---------------- --------- ---------- -----
External revenue 137.9 125.2 70.5 333.6
Inter-segment revenue - - -
Total segment revenue 137.9 125.2 70.5
--------------------------------------- ---------------- --------- ---------- -----
Segment adjusted operating profit from
continuing operations 22.1 12.7 14.9 49.7
--------------------------------------- ---------------- --------- ---------- -----
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
--------------------------------------- ---------------- --------- ---------- -----
The adjusted profit after tax of GBP0.2m (2018: GBP0.5m) 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 GBP6.4m (2018:
GBP6.1m) and equipment sales of GBP3.6m (2018: GBP3.3m).
As at 31 March 2019 the Group had unfulfilled performance
obligations under IFRS 15 of GBP172.5m.
Reconciliation of reportable segment profit
Materials Research Service
& & & Unallocated
Characterisation Discovery Healthcare Group items Total
Year to 31 March 2019 GBPm GBPm GBPm GBPm GBPm
------------------------------------- ---------------- --------- ---------- ----------- -----
Adjusted profit for reportable
segments from continuing operations 22.1 12.7 14.9 - 49.7
Restructuring costs - relating
to associate - (0.3) - - (0.3)
Past service cost on defined
benefit pension scheme - - - (0.3) (0.3)
Share of impairment recognised
by associate - 0.6 - - 0.6
Amortisation of acquired intangibles (2.4) (6.4) (0.8) - (9.6)
Fair value movement on financial
derivatives - - - (1.5) (1.5)
Financial income - - - 0.3 0.3
Financial expenditure - - - (3.4) (3.4)
------------------------------------- ---------------- --------- ---------- ----------- -----
Profit/(loss) before income
tax on continuing operations 19.7 6.6 14.1 (4.9) 35.5
------------------------------------- ---------------- --------- ---------- ----------- -----
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
------------------------------------- ---------------- --------- ---------- ----------- ------
Depreciation, capital expenditure, amortisation and impairment
of intangibles and capitalised development costs arise in the
following segments:
2019 2018
------------------------- -------------------------
Capital Capital
Depreciation expenditure Depreciation expenditure
GBPm GBPm GBPm GBPm
----------------------------- ------------ ----------- ------------ -----------
Materials & Characterisation 2.5 4.5 1.5 2.8
Research & Discovery 1.3 1.1 0.8 0.8
Service & Healthcare 2.0 0.5 1.8 1.0
Unallocated Group items 1.4 1.3 0.6 0.9
----------------------------- ------------ ----------- ------------ -----------
Total 7.2 7.4 4.7 5.5
----------------------------- ------------ ----------- ------------ -----------
2019 2018
------------------------- -------------------------
Amortisation Capitalised Amortisation Capitalised
and development and development
impairment costs impairment costs
GBPm GBPm GBPm GBPm
----------------------------- ------------ ----------- ------------ -----------
Materials & Characterisation 4.6 2.7 5.8 4.8
Research & Discovery 7.7 0.8 8.4 1.0
Service & Healthcare 0.8 - 1.1 -
Unallocated Group items 0.3 - - -
----------------------------- ------------ ----------- ------------ -----------
Total 13.4 3.5 15.3 5.8
----------------------------- ------------ ----------- ------------ -----------
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
2019 2018
GBPm GBPm
--------------- ----- -----
USA 99.8 89.5
Rest of Europe 38.7 35.9
Rest of Asia 34.4 31.9
UK 14.2 18.1
Japan 38.7 34.9
China 70.0 53.5
Germany 28.3 24.8
Rest of World 9.5 8.3
--------------- ----- -----
Total 333.6 296.9
--------------- ----- -----
Non-current assets (excluding deferred tax)
2019 2018
GBPm GBPm
--------------- ----- -----
UK 157.4 160.4
Germany 3.9 3.3
USA 15.4 11.3
Japan 1.7 0.5
China 0.5 0.2
Rest of Europe 9.4 9.6
Rest of Asia 0.4 -
Rest of World 1.7 1.7
--------------- ----- -----
Total 190.4 187.0
--------------- ----- -----
4 Research and Development ("R&D")
The total R&D spend by the Group as part of continuing
operations is as follows:
2019 2018
---------------------------------- ----------------------------------
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 14.6 10.8 25.4 12.3 11.1 23.4
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
Less: amortisation
and impairment of
R&D costs previously
capitalised as intangibles (2.2) (1.3) (3.5) (3.2) (1.2) (4.4)
Add: amounts capitalised
as intangible assets 2.7 0.8 3.5 4.8 1.0 5.8
---------------------------- ---------------- --------- ----- ---------------- --------- -----
Total cash spent
on R&D during the
year 15.0 10.4 25.4 13.8 11.0 24.8
---------------------------- ---------------- --------- ----- ---------------- --------- -----
5 Investment in associate
The Group holds a 47% interest in the ordinary share capital of
Scienta Scientific AB. Scienta Scientific AB is registered and has
its principal place of business in Sweden. 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 AB Group.
During the prior year the Group invested a further GBP2.1m in
its equity accounted associate.
The Group's share of profit in its equity accounted associate
for the year was GBP0.5m (2018: loss of GBP1.9m). The Group did not
receive any dividends from the associate in either period.
2019 2018
GBPm GBPm
------------------------------------------------- ---- -----
Carrying value at 1 April 2018 4.1 3.9
Addition - 2.1
Share of profit/(loss) of associate (net of tax) 0.5 (1.9)
Dividends received - -
------------------------------------------------- ---- -----
Carrying value at 31 March 2019 4.6 4.1
------------------------------------------------- ---- -----
Summary financial information for the equity accounted associate
is as follows:
2019 2018
GBPm GBPm
------------------------------- ------ ------
Non-current assets 0.9 2.3
Current assets 25.2 23.7
------------------------------- ------ ------
Total assets 26.1 26.0
Current liabilities (20.5) (12.1)
Non-current liabilities (1.8) (9.2)
------------------------------- ------ ------
Total liabilities (22.3) (21.3)
------------------------------- ------ ------
Net assets 3.8 4.7
------------------------------- ------ ------
Income 36.5 51.0
Expenses (35.4) (55.0)
------------------------------- ------ ------
Profit/(loss) for the year 1.1 (4.0)
------------------------------- ------ ------
Group's share of net assets 1.8 2.2
Group's share of profit/(loss) 0.5 (1.9)
------------------------------- ------ ------
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
In the prior year, on 3 July 2017, the Group disposed of its
Industrial Analysis business for a final consideration of
GBP82.8m.
Effect of disposal on the financial position of the Group
Industrial
Analysis
2018
GBPm
-------------------------------------------------------------- -----------
Goodwill (4.3)
Acquired intangible assets (0.1)
Other intangible assets (4.7)
Property, plant and equipment (2.4)
Inventory (11.5)
Trade and other receivables (9.8)
Cash and cash equivalents (6.0)
Trade and other payables 8.6
Provisions 0.8
Tax balances (0.4)
-------------------------------------------------------------- -----------
Net assets divested (29.8)
-------------------------------------------------------------- -----------
Consideration receivable 82.8
Deferred consideration -
Consideration received, satisfied in cash 82.8
Cash disposed of (6.0)
Transaction expenses (5.6)
-------------------------------------------------------------- -----------
Net cash inflow 71.2
-------------------------------------------------------------- -----------
Carrying value of net assets disposed of (excluding cash and
cash equivalents) (23.8)
Deferred consideration -
Recognition of provision on disposal (2.1)
Currency translation differences transferred from translation
reserve 4.8
-------------------------------------------------------------- -----------
Gain on disposal 50.1
Tax (charge)/credit on gain on disposal (2.3)
-------------------------------------------------------------- -----------
Gain on disposal net of tax 47.8
-------------------------------------------------------------- -----------
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. The Industrial
Analysis business was considered a major class of business on the
basis that it was previously an operating segment and referred to
in the Group Strategic Report.
On 24 May 2019 a further GBP1.6m was received by the Group in
relation to the finalisation of tax affairs outstanding upon
disposal.
Results of discontinued operations
2019 2018
GBPm GBPm
---------------------------------------------- ----- ------
Revenue - 16.8
Expenses - (16.3)
---------------------------------------------- ----- ------
Adjusted profit before tax - 0.5
Income tax charge - (0.9)
---------------------------------------------- ----- ------
Adjusted loss 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 1.6 50.1
Tax on gain on disposal (0.3) (2.3)
---------------------------------------------- ----- ------
Profit from discontinued operations after tax 1.3 45.9
---------------------------------------------- ----- ------
Earnings per share from discontinued operations
2019 2018
pence pence
----------------------------------------- ----- -----
Adjusted basic result/(loss) per share - (0.7)
Adjusted diluted result/(loss) per share - (0.7)
Total basic earnings per share 2.3 80.2
Total diluted earnings per share 2.3 80.0
----------------------------------------- ----- -----
Cash flows from discontinued operations
2019 2018
GBPm GBPm
------------------------------------------------------- ---- ----
Net cash generated from operating activities - 3.0
Net cash generated from/(used in) investing activities - 71.2
Net cash used in financing activities - -
------------------------------------------------------- ---- ----
7 Income tax expense
Recognised in the Consolidated Statement of Income
2019 2018
GBPm GBPm
------------------------------------------------------------ ----- -----
Current tax expense
Current year 8.1 7.3
Adjustment in respect of prior years (0.7) (1.7)
------------------------------------------------------------ ----- -----
7.4 5.6
------------------------------------------------------------ ----- -----
Deferred tax expense
Origination and reversal of temporary differences (0.9) 7.3
Adjustment in respect of prior years 0.3 1.7
------------------------------------------------------------ ----- -----
(0.6) 9.0
------------------------------------------------------------ ----- -----
Total tax expense 6.8 14.6
------------------------------------------------------------ ----- -----
Reconciliation of effective tax rate
Profit before income tax 35.5 34.2
Income tax using the weighted average statutory tax
rate of 22% (2018: 22%) 7.8 7.5
Effect of:
Tax rates other than the weighted average statutory
rate (0.1) 0.3
Change in rate at which deferred tax recognised (1.2) 5.3
Transaction costs, deferred consideration and impairments
not deductible for tax 0.6 1.2
Non-taxable income and expenses - -
Tax incentives not recognised in the Consolidated Statement
of Income - (0.7)
Current period losses not available for carry forward - 0.4
Movement in unrecognised deferred tax 0.1 0.6
Adjustment in respect of prior years (0.4) -
------------------------------------------------------------ ----- -----
Total tax expense 6.8 14.6
------------------------------------------------------------ ----- -----
Taxation charge recognised in other comprehensive income
Deferred tax - relating to employee benefits 0.5 0.9
------------------------------------------------------------ ----- -----
0.5 0.9
------------------------------------------------------------ ----- -----
Taxation (credit) recognised directly in equity
Current tax on adoption of IFRS 15 (0.9) -
Deferred tax on adoption of IFRS 15 (0.9) -
Deferred tax - relating to share options (0.2) -
------------------------------------------------------------ ----- -----
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 2019 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, in the prior year
deferred tax assets were reduced by GBP5.4m.
On 2 April 2019 the EU Commission announced that it believes
that in certain circumstances the UK's Controlled Foreign Company
(CFC) regime (introduced in 2013) for certain finance income
constituted State Aid. The Commission instructed the UK Government
to recover any such aid from affected parties. The Group has
claimed the benefit of this exemption, and therefore may be
required to repay State Aid. The maximum amount of State Aid
repayable as at 31 March 2019 was GBP1.2m in respect of tax and
GBP0.1m in respect of interest unless the decision is 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:
2019 2018
pence pence
------------------------------- ----- -----
Previous year interim dividend 3.7 3.7
Previous year final dividend 9.6 9.3
------------------------------- ----- -----
13.3 13.0
------------------------------- ----- -----
The following dividends per share were proposed by the Group in
respect of each accounting year presented:
2019 2018
pence pence
----------------- ----- -----
Interim dividend 3.8 3.7
Final dividend 10.6 9.6
----------------- ----- -----
14.4 13.3
----------------- ----- -----
The interim dividend was not provided for at the year end and
was paid on 8 April 2019. The final proposed dividend of 10.6 pence
per share (2018: 9.6 pence) was not provided at the year end and
will be paid on 18 October 2019 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 2019 or 2018.
Statutory accounts for 2018 have been delivered to the registrar of
companies and those for 2019 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 2019 is based on, and is
consistent with, that in the Group's audited Financial Statements
for the year ended 31 March 2019.
The following standards and interpretations have been adopted by
the Group for the year ended 31 March 2019:
-- IFRS 9 Financial Instruments
The Group adopted IFRS 9 on 1 April 2018. IFRS 9 addresses the
classification, measurement and derecognition of financial
instruments, introduces a new impairment model for financial assets
and new rules for hedge accounting. It replaces IAS 39 Financial
Instruments guidance and comprehensive updates have been made to
IFRS 7 Financial Instruments: Disclosure and IAS 32 Financial
Instruments: Presentation. The adoption of IFRS 9 has had no
material impact on the Group's results.
-- IFRS 15 Revenue from Contracts with Customers
The Group adopted IFRS 15 using the modified retrospective
approach on 1 April 2018, which means that the cumulative impact on
adoption has been recognised in retained earnings as of 1 April
2018. Comparative information has not been restated. IFRS 15
provides a single, principles-based, five step model to be applied
to all sales contracts, based on the transfer of goods and services
to customers, and it replaces the separate model for goods and
services of IAS 18 Revenue. The impact on adoption of IFRS 15 was a
decrease in retained earnings of GBP7.2m, net of tax; an increase
in inventory of GBP11.0m; an increase in customer deposits of
GBP19.0m; an increase in deferred income of GBP1.0m; a reduction in
current tax payable of GBP0.9m and an increase in deferred tax
assets of GBP0.9m.
-- IFRS 16 Leases
The Group adopted IFRS 16 using the modified retrospective
approach on 1 April 2018. IFRS 16 provides a single model for
lessees which recognises a right of use asset and lease liability
for all leases that are longer than one year or that are not
classified as low value. The impact on adoption of IFRS 16 was the
recognition of right of use assets totalling GBP10.7m on the
balance sheet and corresponding lease liabilities of GBP10.7m.
The table below summarises the effect of the adoption of IFRS 15
and IFRS 16 on the Group Income Statement during the year to 31
March 2019.
Pre IFRS IFRS
15 IFRS 15 16
& IFRS
16 adjustment adjustment As reported
Continuing operations - adjusted GBPm GBPm GBPm GBPm
---------------------------------- --------- ----------- ----------- ------------
Revenue 326.6 7.0 - 333.6
Cost of sales (152.5) (4.1) - (156.6)
---------------------------------- --------- ----------- ----------- ------------
Gross profit 174.1 2.9 - 177.0
---------------------------------- --------- ----------- ----------- ------------
Operating profit 46.9 2.9 (0.1) 49.7
Net finance expense (2.0) - (0.2) (2.2)
---------------------------------- --------- ----------- ----------- ------------
Profit before tax 44.9 2.9 (0.3) 47.5
Tax charge (9.8) (0.6) - (10.4)
---------------------------------- --------- ----------- ----------- ------------
Profit after tax 35.1 2.3 (0.3) 37.1
---------------------------------- --------- ----------- ----------- ------------
No other revisions to adopted IFRS that became applicable in
2019 had a significant impact on the Group's Financial Statements
for the year ended 31 March 2019.
The Company is registered in England, Registration Number
775598.
The principal exchange rates to Sterling used were:
Year--end rates 2019 2018
---------------- ---- ----
US Dollar 1.30 1.40
Euro 1.16 1.14
Yen 144 149
---------------- ---- ----
Average translation rates 2019 US Dollar Euro Yen
------------------------------- --------- ---- ---
April 1.39 1.14 150
May 1.36 1.14 148
June 1.33 1.14 146
July 1.32 1.13 146
August 1.30 1.12 144
September 1.29 1.11 146
October 1.29 1.13 145
November 1.28 1.13 144
December 1.28 1.12 142
January 1.30 1.13 142
February 1.31 1.15 145
March 1.30 1.16 144
------------------------------- --------- ---- ---
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
------------------------------- --------- ---- ---
10 The Annual General Meeting
The Annual General Meeting will be held on 10 September 2019 at
Group Head Office, Tubney Woods, Abingdon, Oxfordshire, OX13
5QX.
11 Principal Risks and Uncertainties
Specific risk 1: 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
---------------------------------------------------------------- --------------------------------------------------------- ----------------------------------------------------------- -----------------------------------------------------------
* Vertical integration by OEMs. * Loss of key customers / route to market. * Customer intimacy to match product performance to * Strategic relationships with OEMs to sell performance
customer needs. of the combined system.
* Reduction in sales volumes or pricing and lower
profitability. * Positioning of Oxford Instruments brand and marketing * Product differentiation to promote advantages of
directly to end users. Oxford Instruments equipment and solutions.
* Direct marketing to end users.
---------------------------------------------------------------- --------------------------------------------------------- ----------------------------------------------------------- -----------------------------------------------------------
Specific risk 2: 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 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, barriers to trade with
individual customers, or significant increases in * Increases to input costs and lower gross margins.
tariffs.
* Limitations on ability to provide after sales service
to existing customers
-------------------------------------------------------- ----------------------------------------------------------- ---------------------------------------------------------- ---------------------------------------------------------
Specific risk 5: 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.
* Internal control framework including policies, * Compliance monitoring programmes.
procedures and training in risk areas such as bribery
* Regulatory breach * Payment of damages. and corruption, sanctions and export controls.
* Fines and non-financial sanctions such as
restrictions on trade, disbarment from pu
blic
procurement contracts.
* Reputational damage.
-------------------------------------------------- ----------------------------------------------- ----------------------------------------------------------- -----------------------------------------------------
Specific risk 6: Brexit related risks
Context: The UK will leave the EU.
---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- -----------------------------------------------------------------
Risk Possible impact Control mechanisms Mitigation
----------------------------------------------------------------- --------------------------------------------------------- ---------------------------------------------------------- -----------------------------------------------------------------
* Supply chain disruption * Delays to shipments. * Sales-production matching and resource planning. * Existing stock of raw materials and work in progress.
* 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 7: 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,
currencies such as the US dollar, Japanese Yen Euros and Yen.
and
the Euro. (Short-term exposure to volatility is * Review of revenue and costs by currency.
managed by hedging programme).
----------------------------------------------------------- ---------------------------- ---------------------------------------------- -----------------------------------------
Specific risk 8: 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 9: 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 10: 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 11: 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 12: 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.
------------------------------------------------------- ---------------------------------------------------------------- --------------------------------------------------------------- -----------------------------------------------------------
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 URURRKWANAUR
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