TIDMOXIG
RNS Number : 0941B
Oxford Instruments PLC
08 June 2021
Oxford Instruments plc
Announcement of Preliminary Results for the year ended 31 March
2021
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 2021.
% change
Year ended Year ended % change constant
31 March 31 March
Adjusted(1) (continuing operations) 2021 2020 reported currency(4)
------------------------------------ ---------- ---------- -------- -----------
Revenue GBP318.5m GBP317.4m +0.3% +1.7%
Adjusted operating profit GBP56.7m GBP50.5m +12.3% +13.3%
Adjusted operating profit margin 17.8% 15.9% +190 bps
Adjusted profit before taxation GBP55.9m GBP49.5m +12.9%
Adjusted basic earnings per share 78.6p 70.2p +12.0%
Cash conversion(2) 101% 124%
Net cash(3) GBP97.6m GBP67.5m
------------------------------------ ---------- ---------- -------- -----------
Year ended Year ended % change
31 March 31 March
Statutory (continuing operations) 2021 2020 reported
---------------------------------- ---------- ---------- --------
Revenue GBP318.5m GBP317.4m +0.3%
Operating profit GBP53.0m GBP39.8m +33.2%
Operating profit margin 16.6% 12.5% +410 bps
Profit before taxation GBP52.2m GBP38.8m +34.5%
Basic earnings per share 72.8p 55.9p +30.2%
Dividend per share for the year 17.0p - n/a
---------------------------------- ---------- ---------- --------
FINANCIAL HIGHLIGHTS
-- Revenue growth of 1.7% at constant currency against
challenging backdrop. Strong growth in orders of 5.3% to GBP353.7m
(+6.7% at constant currency).
-- Reported order book grew by 13.2% (17.8% at constant currency) to GBP198.1m
-- Strong growth in adjusted operating profit, with margin rising to 17.8% (2020: 15.9%).
-- Cash conversion remains high, with increase in net cash to GBP97.6m.
-- Dividend for the year of 17.0p per share (comprising interim
dividend of 4.1p and proposed final dividend of 12.9p).
OPERATIONAL HIGHLIGHTS
-- Robust performance in the face of significant covid
disruption reflects resilience of business model and strong
position in diverse, attractive end markets.
-- Strong profit growth and enhanced margin performance driven
by significant gains from Horizon initiatives in a number of the
businesses and the accelerated transformation of our service
offering.
-- Strengthened order book provides increased visibility for the year ahead.
-- Order growth across academic and commercial customers driven
by buoyant demand across semiconductor, quantum and advanced
materials markets; good growth in North America and Asia offset by
modest decline in Europe.
-- Maintained investment in R&D with increased focus on
strategic product development driven by enhanced market intimacy,
providing a healthy pipeline of future product launches.
-- Underlying long-term growth drivers in our end markets remain strong.
-- Considerable progress with our sustainability agenda, with
significant reduction in our environmental footprint.
Summary and Outlook:
Ian Barkshire, Chief Executive of Oxford Instruments plc,
said:
We have made good progress during the year as our people have
demonstrated outstanding agility to adapt to new ways of working to
protect each other and our customers, whilst driving forward with
our strategy for increased end market focus and operational
effectiveness.
Our robust performance, strong order book and breadth of
attractive end markets demonstrate the resilience of our business
model, positioning us well for good progress in the year despite
anticipated currency headwinds and the ongoing uncertainties as
global economies look to recover from covid.
- Ends -
Issued for and on behalf of Oxford Instruments plc
Enquiries:
Oxford Instruments plc Tel: 01865 393200
Ian Barkshire, Chief Executive
Gavin Hill, Group Finance Director
MHP Communications Tel: 020 3128 8100
Katie Hunt/ James Midmer/ Florence Mayo Email: oxfordinstruments@mhpc.com
Number of pages: 40
(1) Adjusted items exclude the amortisation and impairment of
acquired intangible assets, acquisition items, profit or loss on
disposal of operations, other significant non--recurring items, and
the mark-to-market movement of financial derivatives. A full
definition of adjusted numbers can be found in the Finance Review
and Note 1.
(2) Cash conversion measures the percentage of adjusted cash
from operations to adjusted operating profit, as set out in the
Finance Review.
(3) Net cash includes total borrowings, cash at bank and bank
overdrafts but excludes IFRS 16 lease liabilities.
(4) Constant currency numbers 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.
CHAIR'S STATEMENT
Oxford Instruments is a provider of high technology products and
services to the world's leading industrial manufacturers and
scientific research institutes.
We have a reputation for innovation and product excellence,
helping our customers accelerate their R&D, increase their
productivity in high tech manufacturing and deliver
ground--breaking scientific advances.
Our technologies enable our customers to address some of the
world's most pressing challenges, by facilitating a greener
economy, increasing connectivity, improving health, and empowering
leaps in scientific understanding.
Our deep insight into our markets and customers enables us to
stay ahead of developments, with practical solutions that meet
their needs both today and tomorrow.
Strong performance through exceptional challenges
In response to the covid pandemic, the Board and executive team
made it our priority to protect the health and wellbeing of our
employees and to continue to support our customers and other
stakeholders, whilst maintaining our investment in the long-term
future of the business. The Group responded with agility to the
evolving situation including the rapid implementation of a hybrid
workplace model, new working practices and tailored support for
those working in our facilities and remotely. Our approach has
enabled us to maintain business continuity throughout the year and
support our customers around the new challenges covid has
brought.
I have been extremely pleased with the resilience of our
strategic approach, the capabilities it has embedded across the
Group and the operational improvements it continues to deliver. Our
focus on diversified, attractive end markets and our continuous
drive to improve operational performance, has enabled us to deliver
both growth and improved profitability, despite the significant
disruption caused by the pandemic.
Having made several changes over recent periods, I am encouraged
by the strength of the leadership team now in place across the
Group, the breadth of skills they offer, and how they are
continuing to drive sustainable growth and margin improvement
through the execution of our strategy.
We delivered a strong set of results despite the backdrop of the
covid pandemic. Adjusted operating profit grew by 12.3% to GBP56.7m
(2020: GBP50.5m) and statutory operating profit grew by 33.2% to
GBP53.0m (2020: GBP39.8m). Alongside a strong order book, which
provides continued confidence, and further strengthening in our
financial position, the Board has proposed a final dividend of
12.9p per share, which is subject to Shareholder approval at the
Annual General Meeting. Together with the 4.1p per share interim
dividend, this would result in a total dividend of 17.0p per
share.
Our purpose
As a leading technology company, the Board recognises the role
we play in creating a better future for all in society, and through
our Horizon strategy we have positioned the Group to support our
customers in addressing many of the world's most pressing
challenges.
I am proud of the part we play in enabling a greener economy,
improving health, increasing connectivity, and empowering leaps in
scientific understanding. In the year, this has included:
-- the use of our key enabling technologies directly in the global fight against covid;
-- the development and manufacture of semiconductors to support
the dramatic increases in digital communication; and
-- accelerating the development of advanced materials and
quantum technologies, which have the potential to disrupt a broad
range of end markets, from transport and construction to drug
discovery, logistics and financial services.
Benefitting from new ways of working
The Group has been quick to embrace the digital evolution over
the past year, demonstrating tremendous agility in adapting to new
ways of working and using these as an opportunity to establish new
and improved approaches to the business.
We have utilised remote working and digital connectivity to keep
our employees safe and connected, and to maintain exceptional
support for our customers, including remote installations and
remote access to their systems. With travel restrictions in place,
the Board has used digital meetings to maintain direct
communication with employees throughout the year and has used
virtual meetings as an opportunity to engage with a broader cohort
of employees, providing increased insights and wider
engagement.
Board changes
As a Board, we recognise the importance of diversity and
inclusion as a key element in delivering business excellence. In
the year we welcomed Alison Wood to the Board, and in January she
assumed the role of Chair of the Remuneration Committee. I have
been delighted by the engagement Alison has achieved across the
Group and the wealth of experience and expertise she has brought to
the Board.
Thomas Geitner, who was appointed in January 2013, has agreed
that given the length of his tenure, he will stand down at the
forthcoming Annual General Meeting. Steve Blair has also advised
the Board that he will not be putting himself forward for
re-election. At the AGM, Alison Wood will assume the role of Senior
Independent Director. We will commence recruitment for a new
Non-Executive Director, taking this opportunity to increase the
diversity of the Board across several areas.
Oxford Instruments has always had a strong sustainability
agenda, driven by our purpose, values and culture. In the year we
formed a Board sustainability committee, which I chair, bringing
together the various aspects of our sustainability initiatives.
This will support our commitment as a Group to increase the
positive impact we have on the world whilst reducing our
environmental footprint. You can read more about this and how we
are embedding sustainability across the Group in the Chief
Executive's Review.
Emerging stronger
I would like to thank the Board for their continual support
during the year and, on behalf of the Board, I would like to thank
all our people for their commitment and magnificent response to the
challenges covid has brought. Our agility in responding to change
rapidly, enabling our teams to work safely and remain operational,
has ensured that we continued to support our customers, often
finding new and innovative ways to help them address the challenges
the pandemic has brought them.
Our robust performance this year is testament to the resilience
of Oxford Instruments' positioning in its diversified markets and
gives me confidence that we will emerge from this as an even
stronger Group, with a platform for sustainable growth and further
margin improvement.
Neil Carson
Non-Executive Chair
7 June 2021
CHIEF EXECUTIVE'S REVIEW
Introduction
I have been extremely pleased with the robust performance and
resilience of the Group in the year. The continued execution of our
Horizon strategy has provided the capabilities to deliver continued
progress in the face of exceptional challenges from the global
pandemic. This, together with the commitment and agility of our
employees, and our diversified end markets, has enabled us to
deliver a robust performance in the year.
We delivered strong order, profit, and margin growth, with
revenue slightly ahead of the previous year. The momentum in orders
reflected the underlying strength and breadth of our chosen end
markets and their fundamental growth drivers. Increased profit and
margins were supported by tangible gains realised as a direct
result of the improved commercial processes and operational
efficiencies that we have implemented through Horizon. Whilst
revenue was ahead of last year, growth was subdued due to the
impact of covid, which has included reduced access to customer
sites, protracted administrative processes and travel
restrictions.
The pandemic has impacted all aspects of our business throughout
the year. From the onset, we prioritised the health and wellbeing
of our employees whilst maintaining business continuity and
supporting our customers' changing needs wherever possible. To
support this, we implemented and continued to develop our hybrid
workplace model to adapt to the evolving situation.
The Group's H1 performance was impacted by changes at our
customer sites, as well as reduced manufacturing capacity at our
own sites, as we implemented covid-safe working practices,
particularly in the first quarter. Through our actions and revised
working practices, we delivered sustained order growth and revenue
momentum with quarter-on-quarter growth.
Our sustainability agenda is focused on ensuring that we
proactively manage our business risks and the impact on the world
and communities in which we operate. We have clear goals with
respect to our environmental impact, the effect on our employees,
the communities and societies we operate in; and governance
practices that ensure we operate to our own high standards and
within the relevant legislative requirements.
Within the year we have continued to make significant progress
in our drive to reduce our environmental footprint, with a
reduction in emissions from our own facilities and reducing our
waste to landfill levels.
However, our sustainability strategy goes beyond the impact of
how we operate, with our core purpose being to support our
customers in addressing some of the world's most pressing
challenges:
-- Enabling a greener economy, leading to enhanced energy
efficiency, increased productivity, and reduced resource
consumption.
-- Increasing connectivity, supporting current and future
technologies to meet the exponentially growing demand for digital
data and communications.
-- Improving health, providing the insights and understanding of
fundamental disease mechanisms leading to new paradigms for the
rapid and cost-effective development of medicines and
immunotherapies, such as vaccines.
-- Making leaps in scientific understanding, providing the
pathway to new technologies that create opportunities for
dramatically improving the quality of life for all in society.
Our actions during the year have been aligned with our purpose
and values, helping us contribute to a positive future for all our
stakeholders. I have been encouraged by how our teams have come
together to support each other, and our customers. I am proud of
the role Oxford Instruments has played in the fight against covid,
both in helping researchers understand more about the virus and in
supporting those essential services that keep people safe and
connected.
Adapting to covid and building a better-connected business
At the start of the pandemic, I established a dedicated covid
leadership team to direct and co-ordinate our rapid and agile
response to the evolving business situation. Throughout the year we
have prioritised the health and wellbeing of our employees, and the
support for our customers with their own evolving needs, as well as
maintaining investment in the business for the long-term. Through
our phased approach we took swift action to help keep employees
safe, provide continuity of service for our customers globally and
control our discretionary costs. The implementation of social
distancing guidelines within our facilities, revised working
practices, shift working, the enablement of our teams to work
efficiently and securely from home and embracing a digital
marketing and sales approach allowed us to maintain business
continuity and progress our strategic product developments even at
the peaks of the pandemic.
In the early stages of the pandemic, we undertook several
measures to protect the business, including a freeze on
non-critical recruitment and capex spend, a deferral in the payment
of performance--related bonus schemes related to the 2019/20 year
and a reduction in non-executive Board fees and salary for myself
and the Finance Director by 20% for a three-month period.
In the first quarter we prudently utilised the Government's Job
Retention Scheme (JRS) as we established safe working practices
across our sites and as we chose to retain our employees on full
pay.
As business conditions and market uncertainty improved through
Q2, we reversed the cash conservation measures, moving our focus to
future growth. This included investment in a new purpose--built,
state-of-the-art manufacturing, development and research facility
for our Plasma Technology business, providing the capacity for
further growth. Furthermore, in line with our values, we chose to
repay the UK Government JRS support to allow it to be used for
those in need across our communities.
In line with our customer-centric approach, we extended our
engagement with customers to help them address new and urgent
requirements resulting from the pandemic. This included enhancing
our digital connectivity with customers to maintain their
productivity, as well as using our expertise and systems to support
them to connect securely into their equipment and local digital
infrastructure, allowing effective data sharing and remote working.
Through this approach, we have been able to create additional value
for our customers, as well as valuable insights into the future
needs across our diverse customer base, which we are incorporating
into our digital and customer services transformation programmes.
We are creating new value through our customer relationships by
helping them to find ways to adapt to and plan for their new
working environments and challenges. In support of this, we
enhanced our market intimacy programmes and accelerated the
delivery of our customer services transformation.
The processes and procedures that had been put in place through
Horizon have provided us with the capabilities and digital
infrastructure needed to ensure continuity in our operations, with
the strategic work to streamline our supplier base enabling us to
build closer, mutually beneficial relationships, which helped
ensure continuity in supply throughout the year.
By further developing and embracing these changes and through
continuing to evolve our business practices, we have become more
connected with our employees globally and have created a more
effective and efficient means of reaching and supporting customers.
We continue to enhance our support for customers, through increased
remote and local service delivery, as we embrace this new way of
working. I have been pleased at how these changes have helped to
build stronger links between our businesses and functions,
delivering further synergies across the Group.
Moving forward, we will build on the approaches we developed
during the pandemic, retaining a flexible but structured hybrid
working model, creating an attractive working environment for our
employees and higher quality customer relationships.
Results
Orders of GBP353.7m grew by 5.3% (2020: GBP336.0m), representing
an increase of 6.7% at constant currency, with our customer-centric
approach supporting strong growth from both commercial and academic
customers. Revenue was impacted by covid-related disruptions,
resulting in subdued growth relative to orders of 0.3% to GBP318.5m
(2020: GBP317.4m). Growth in adjusted operating profit of 12.3% to
GBP56.7m (2020: GBP50.5m) and an increase in operating margin of
190 basis points to 17.8% (2020: 15.9%) was driven by continued
execution of our Horizon strategy. Statutory operating profits grew
33.2% to GBP53.0m (2020: GBP39.8m) and statutory operating margins
increased 410 basis points to 16.6% (2020: 12.5%). Adjusted profit
before tax grew by 12.9% to GBP55.9m (2020: GBP49.5m). Statutory
profit before tax increased by 34.5% to GBP52.2m (2020:
GBP38.8m).
Whilst the underlying growth drivers for our end markets remain
robust, covid--related issues such as temporary end customer site
closures and restricted access, combined with protracted
administrative processes, impacted individual application segments
and customers across different regions by varying amounts
throughout the year.
From an end market perspective, we saw strong, reported order
growth across Semiconductor & Communications (up 17%), Quantum
Technology (up 16%) and Advanced Materials (up 8%) segments, with
growth in Healthcare & Lifescience (up 2%). Overall order
growth was partially offset by a slightly lower contribution from
the Energy & Environment (down 4%) segment and a significant
reduction from Research & Fundamental Science (down 24%), where
end customers were more significantly impacted by covid-related
disruptions.
Positive market conditions and our market-leading product
portfolio led to 14.4% constant currency order growth in the
Materials & Characterisation sector, despite covid-related
reductions within some end applications. Customers and end markets
in the Research & Discovery sector were more impacted by covid,
particularly in the first quarter of the year, but with positive
momentum building through the year in line with the easing of
customer-related restrictions resulting in a net decline in
reported orders of 5.1% at constant currency. The initial phase of
the transformation of our customer services approach and broader
portfolio of support products was well aligned with the changing
needs of our customers, resulting in 11.8% constant currency order
growth in the Service & Healthcare sector.
At a regional level, continued strong order growth across Asia
and North America was partially offset by a modest decline in
Europe where customer activity, local restrictions and reduced
access have been more pronounced. Within Asia, reported orders in
China grew 14%, supported by strong growth within the Semiconductor
and Advanced Materials end markets.
Revenue for the Group was impacted throughout the year due to
covid-related disruption to the fulfilment of orders and delays in
obtaining export licence approvals. The former was most pronounced
in the first quarter of the year due to access restrictions at
customer sites and as we implemented covid-safe working practices
at our manufacturing sites, which reduced capacity. With
restrictions easing at customer sites and a ramping to normal
capacity at our manufacturing sites, revenue momentum built
strongly throughout the second half of the year, more than
offsetting the first--half decline.
Revenue for Materials & Characterisation was slightly ahead
of the previous year, up 1.9%, representing 3.2% at constant
currency. Research & Discovery revenue was down 3.7%, 2.0% at
constant currency, representing a strong second half. The Service
& Healthcare sector delivered good revenue growth, up 5.0% and
5.9% on a reported and constant currency basis, supported by
increased demand for services related to our own products.
The disruption to fulfilling orders was more pronounced to
commercial customers, resulting in the proportion of revenue from
academic customers increasing slightly to 54.8% (2020: 52.0%).
From an end market perspective, we had strong constant currency
revenue growth for the Semiconductor & Communications and
Quantum Technology customer segments, representing 27.6% and 11.4%
of Group revenue, respectively. Healthcare & Lifescience (21.6%
of revenue) and Advanced Materials (27.6% of revenue) built
momentum through the second half of the year as customer site
access improved, ending marginally behind the previous year despite
strong order growth. Revenue for Research & Fundamental Science
(8.2% of revenue) was down in line with orders, due in part to
delays in the release of grant funding and deferred tendering
processes.
From a geographic perspective, regional government and customer
responses to the pandemic dominated revenue profiles in the first
half of the year, particularly impacting North America and Europe.
Customer site access improved through the second half of the year,
resulting in revenue in Europe being broadly in line with the
previous year with North America down 15.2%, representing a fall of
11.9% at constant currency. Customer site access and government
restrictions eased earlier across Asia, supporting strong revenue
growth across the region, up 13.1% on a constant currency
basis.
Growth in adjusted operating profit and operating margin were
supported by tangible improvements in the performance across
several business units as well growth and improved efficiencies
within our service sector. This resulted in an increase in adjusted
operating profit of 34.5% within Research & Discovery to
GBP19.5m (2020: GBP14.5m) and an adjusted operating margin of 17.2%
(2020: 12.3%), an increase of 490 basis points. Statutory operating
profit of GBP13.1m (2020: GBP13.3m) was down 1.5% owing to the
profit on disposal of our shareholding in Scienta in the
comparative period. Within Materials & Characterisation, the
disproportionate delay in the shipment of higher-margin products
and increased investment within the sector for future growth held
back adjusted operating profit at GBP20.3m (2020: GBP21.0m).
This also impacted adjusted operating margin in the year to
13.7% (2020: 14.4%). Statutory operating profit grew by 35% to
GBP16.6m (2020: GBP12.3m). Revenue growth and improved efficiencies
related to our own products within the Service & Healthcare
sector increased adjusted operating profit by 12.7% to GBP16.9m
(2020: GBP15.0m) with adjusted operating margin up 200 basis points
to 29.9% (2020: 27.9%). Statutory operating profit was GBP16.9m
(2020: GBP15.0m), up 12.7%.
The combination of strong end customer demand for our products
and the covid-related impact on the fulfilment of orders in the
period resulted in a positive book-to-bill ratio of 1.11, with the
order book, representing orders for future deliveries, up 13.2% to
GBP198.1m (2020: GBP175.0m), 17.8% growth at constant currency.
Order book growth was predominantly within the Materials &
Characterisation sector, up 40% in the year, supported by 9% growth
for Service & Healthcare, with Research & Discovery's order
book in line with the previous year.
Continued focus on operational and commercial improvements
within the year supported strong cash conversion, which after an
additional payment to the pension fund, resulted in an improved net
cash after borrowings position of GBP97.6m (2020: GBP67.5m) at year
end.
Strategy: well positioned in diverse, attractive end markets
with clear drivers only accentuated by covid
We have continued to focus on attractive end markets where our
technology and services can create long-term value for our
customers across materials and life science applications. By
proactively engaging with customers across the full technology
cycle, including academic, commercial R&D and high--tech
manufacturing, we are well positioned to benefit from each wave of
commercialisation and technology disruption.
Realising the benefits of the Horizon programme
In the year we have seen tangible financial gains due to the
realisation of ongoing improvements in the commercial processes and
operational efficiencies in a number of our business units.
Throughout the year, we continued to invest in and further
develop the capabilities across the Group to drive growth and
progress our business improvement journey. This included the
investment in the development of our employees as well as selective
recruitment to further enhance essential skills.
Our agile and flexible approach throughout the pandemic has
enabled us to maintain our focus on improved market intimacy,
enhanced delivery of R&D programmes, operational excellence and
our customer services transformation.
Market intimacy
We have used the cessation of traditional face-to-face meetings
during the year to develop effective new ways of communicating with
our customers for sales and marketing activities, which enabled us
to reach a wider audience and to gain valuable market insights. Our
approach included running our own online conferences, increasing
our portfolio of digital content and establishing new ways to reach
our customers, including webinars and virtual product
demonstrations, which proved invaluable in the launch of new
products and the ongoing promotion of our portfolio.
By changing our approach, we have strengthened our relationships
with many of our existing customers, improved our lead generation
efficiency and gained valuable market insights to better inform our
product and service roadmaps.
Whilst we look forward to being able to engage in face-to-face
meetings and attend conferences in the near future, we will deploy
a hybrid model building on our experiences and successful
deployment of enhanced digital approaches in the past year.
Innovation and product development
Providing highly innovative products and key enabling
technologies with differentiated technical and performance
leadership that are driven by customer insight, remains a central
theme within our strategy. Throughout the year, we have remained
focused on our strategic R&D programme maintaining our progress
and investment, providing a healthy pipeline of future products.
Our experience with, and utilisation of, secure remote working
practices and collaboration tools in previous years, which has
aided the exploitation of technical synergies across the Group,
helped us to maintain progress across our strategic product
development programme through the pandemic.
We continued to develop our long-term product roadmaps in line
with our usual business timetable, refining priorities according to
the changing demands within our markets, including the acceleration
of further digital connectivity across our portfolio. We continue
to develop and protect our portfolio through the identification and
generation of valuable IP, which allows us to create barriers to
entry and support the sustainable differentiation of our
products.
Operational excellence
The continued execution of our operational improvement programme
has contributed to tangible financial gains in year. Our ongoing
procurement strategy focuses on developing our supply chain to
build long-term strategic partnerships with fewer suppliers. This
helps to reduce lead times and allows us to better leverage our
scale.
The strengthened relationships cultivated with our suppliers has
strongly supported our performance during the year and, by working
closely with our suppliers, including being sensitive to their
covid challenges and offering our support where appropriate, we
have ensured our supply chain has remained robust throughout the
year.
Customer support
We have made excellent progress with the early phase of our
customer services transformation, with changes in the market and to
customers' perceptions having allowed us to accelerate the
development and deployment of our digital and remote service
capabilities.
Our ability to deliver remote support has been an essential part
of our portfolio during the pandemic and we will continue to grow
this part of our portfolio as we look to create ongoing value for
customers through the lifetime utilisation of our products.
We have driven synergies across our global customer support
teams, enhancing our local support capabilities and response times,
whilst reducing our own travel requirements. We also invested in
additional resources to help drive our thinking, appointing
regional leaders across our service teams to augment our existing
capabilities and to drive efficiencies and synergies.
End markets
Whilst the pandemic has affected individual applications and
regions to a greater or lesser extent, our end markets have overall
remained robust with long-term underlying fundamental growth
drivers. In many cases, the pandemic has strengthened or enhanced
the drivers; this includes increased recognition around the world
and across funding bodies of:
-- the capabilities of new technologies to improve healthcare
and accelerate drug development as highlighted by the rapid
development of covid vaccines;
-- the surge in demand for improved connectivity and bandwidth,
which will continue to grow with the further development of the
Internet of Things, increases in remote communications and the
migration towards autonomous vehicles and factories;
-- the imperative to address global warming and the re-energised
commitments, initiatives and directives to deliver a greener
economy; and
-- the significant breakthroughs in the development of quantum
technologies, increasing the level of global investment and
accelerating practical commercial exploitation of this
technology.
As part of our strategy, we have repositioned the Group to focus
on markets with long-term growth drivers where we can maintain
leading positions within global niches. The markets include
Healthcare & Lifescience; Semiconductor & Communications;
Quantum Technology; Energy & Environment; Advanced Materials;
and Research & Fundamental Science.
In the semiconductor market the push for more power-efficient
devices, increased connectivity and the increased demand for
semiconductor chips across consumer electronics are increasingly
relevant.
With advanced materials being the building blocks of modern
society, enabling higher and often disruptive performance is
driving increased investment into new materials as well as the need
for manufacturers to consider more sustainable use of valuable and
finite natural resources.
For energy and environmental markets, the recognition of
dramatic changes to our energy requirements and the global urgency
regarding carbon emissions are accelerating the move to new energy
and environmental solutions.
As a result of an increasing and ageing population, healthcare
markets are looking to develop more affordable and effective
therapies and treatments, through gathering more detailed
understanding of the fundamental disease mechanisms as well as
enabling a new paradigm in the speed, cost, and efficacy of drug
development. The rapid delivery of covid vaccines is an example of
how researchers are working together to accelerate medical
advances.
The progress that researchers have made with quantum technology
has led to significant advances and has brought forward the promise
of practical commercial quantum computers, with the potential to
disrupt industries and markets such as drug discovery, logistics,
and financial services. This has led to an increase in national
programmes and additional funding from commercial
organisations.
With the rate of change in technology and the potential to
disrupt entire markets, governments are increasing their investment
in fundamental research to equip themselves and their workforces,
and provide the technical leadership required to support
sustainable economic growth.
Significant progress with our sustainability agenda
We have continued to execute our initiatives around
sustainability despite the covid disruption. As an organisation, we
recognise the role we play and the impact we have on the
environment, society and the world around us. As part of our
purpose, we are driving positive outcomes for all our stakeholders,
with a focus on how we do business and by looking after our
employees, customers, external partners, and the environment.
We have aligned with three of the UN's Sustainability
Development Goals in areas where we have the most potential to
influence and shape a sustainable future. The three we have chosen
are:
3. Ensure healthy lives and promote well-being for all at all ages
7. Ensure access to affordable, reliable, sustainable and modern energy for all
9. Build resilient infrastructure, promote inclusive and
sustainable industrialisation and foster innovation.
Within the year we have continued to make significant progress
in our drive to reduce our environmental footprint. Building on the
progress over the past five years, this included a further 90%
reduction in CO2 emissions from our own facilities in the year with
all consumed electricity at our manufacturing sites now being
sourced from certified renewables, and with continued progress with
our actions to reduce our waste to landfill levels. We are
committed to ensuring new facilities are environmentally sensitive,
including our new site in Bristol which will incorporate a range of
energy-saving technologies to reduce environmental impact.
Whilst the impact our facilities have on the environment is
relatively small, the positive impact we make through our customers
is considerable and we aim to support our customers to deliver
their sustainability objectives. We continue to explore
opportunities to further embed sustainability into our products and
our increasing portfolio of digital support offerings reflects our
commitment to this.
In the year we restructured the leadership of our sustainability
programme, creating a Board sub-committee and executive-led
sub-groups with a focus on the environmental, social and governance
activities across the Group. This has provided increased visibility
of our sustainability initiatives across all levels of the
organisation from the Board to each of our operating sites and
increased engagement with employees.
We recognise the importance of diversity and inclusion as a key
element in delivering business excellence. Our objective is to
ensure that we have a high capability, diverse workforce that
enables us to better understand our customers and markets. Building
an organisation with a broad range of perspectives and experiences
increases our ability to innovate, make the right decisions and
exceed customers' expectations. In order to retain, attract and
enable the best people to perform, we worked hard to create an
inclusive environment and culture, where difference is valued and
everyone can contribute to their full potential.
In response to the unprecedented challenges in the year we put
in place a number of additional measures to support our employees.
We increased the connectivity between our teams, building a
structure to ensure each employee had regular contact with
colleagues, we enhanced our focus on and range of mental health
support, offering it to our employees and members of their family.
When several of our employees in California were impacted by
flooding and forest fires, we ensured that they were well supported
by providing temporary shelter and food.
We are committed to making further progress with our
sustainability agenda, setting meaningful targets that reflect our
commitment to having a positive impact on those around us, making
the world a better place now and for future generations.
R&D
Our enhanced customer-centric, market-driven approach is
identifying increasingly attractive development opportunities,
enriching our IP portfolio and driving our investment decisions
across the Group. In the year we invested GBP28.9m in R&D
(2020: GBP26.8m), representing 9.1% of sales. 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 was 39% (2020: 39%) representing a continued healthy
pipeline and performance of newly launched products.
People
I have been extremely proud of how our employees and leadership
teams have embraced the changes we have had to make and for their
professionalism and fortitude during these challenging times. They
have worked tirelessly to help meet the changing needs of all our
stakeholders. We have built a culture, where our employees are
trusted to deliver and are held accountable for their actions; this
has helped us to deliver the strong financial results and maintain
business continuity during the year.
I would like to thank all our employees for their commitment and
resilience during the year. It is through their efforts that we
have been able to ensure our customers, and each other, have felt
supported despite the challenges we have all faced.
Summary and outlook
We have made good progress during the year as our people have
demonstrated outstanding agility to adapt to new ways of working to
protect each other and our customers, whilst driving forward with
our strategy for increased end market focus and operational
effectiveness.
Our robust performance, strong order book and breadth of
diversified end markets demonstrate the resilience of our business
model, positioning us well for good progress in the year despite
anticipated currency headwinds and the ongoing uncertainties as
global economies look to recover from covid.
Ian Barkshire
Chief Executive
7 June 2021
OPERATIONS REVIEW
MATERIALS & CHARACTERISATION
Orders: GBP175.0m
(2020: GBP154.7m)
+13.1% Growth
+14.4% Constant currency growth(1)
Revenue: GBP148.6m
(2020: GBP145.8m)
+1.9% Growth
+3.2% Constant currency growth(1)
Adjusted(2) operating profit: GBP20.3m
(2020: GBP21.0m)
Adjusted(2) operating margin: 13.7%
(2020: 14.4%)
Statutory operating profit: GBP16.6m
(2020: GBP12.3m)
(1) For definition refer to note on page 2.
(2) Details of adjusting items can be found in Note 1 to the
Financial Statements.
Materials & Characterisation provides products and solutions
that enable the fabrication and characterisation of materials and
devices down to the atomic scale, predominantly supporting
customers across applied R&D, as well as the production and
manufacture of high technology products.
The Materials & Characterisation sector comprises Asylum
Research, NanoAnalysis, Magnetic Resonance and Plasma Technology.
In the period we transferred the Magnetic Resonance business to
this sector, better aligning the portfolio with end customer
applications and enabling further exploitation of synergies across
the sales, marketing, and service teams.
The 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 and analysis
systems includes 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 and magnetic resonance analysers.
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, through advanced
analytics, to aid in the interpretation of acquired data and
provide actionable insights.
This sector's products are used in a wide range of applications,
including the following:
-- Advanced compound semiconductor power devices to enable
faster charging times and improved energy efficiency for consumer
electronics and electric vehicles.
-- Semiconductor laser and high-speed devices used within
communication systems and hyperscale data centres to support the
exponential growth in data volumes and digital services.
-- Advanced polymers used within medical implants and higher
performing displays through to car bumpers and tyres.
-- Quality control and assurance within high technology
manufacturing of batteries, semiconductor devices and
pharmaceutical tablets.
Materials & Characterisation delivered strong growth in
reported orders, up 13.1% to GBP175.0m (2020: GBP154.7m),
reflecting buoyant demand for our products from our Semiconductor
& Communications, Advanced Materials, Healthcare &
Lifescience, and Quantum Technology end markets in particular.
Covid-related disruptions held back the shipment to and
installation of product at customers' facilities, resulting in more
subdued growth in reported revenue, up 1.9% to GBP148.6m (2020:
GBP145.8m). The disproportionate delay in shipments of our
higher-margin imaging and analysis systems, alongside increased
investment within the sector to enhance future growth, led to
adjusted operating profit and margin slightly behind the previous
year at GBP20.3m (2020: GBP21.0m) and 13.7% (2020: 14.4%). However,
the combination of the buoyant demand and the delayed shipments
drove a 40% increase in the order book to GBP74.7m (2020:
GBP53.4m), giving us greater visibility into the current financial
year, as we leverage our investments.
Strong reported order growth was supported by the success of
recently launched products and our relentless customer-centric
approach, which exploits our market insights to tailor product
offerings for specific end customer applications, increasing the
product value and expanding our addressable markets.
We had strong order growth from both academic and commercial
customers, which translated into good revenue growth from academic
customers whilst covid-related disruption to shipments held back
revenue growth from commercial customers. Academic customers
accounted for 44.2% of the sector's revenue (2020: 44.0%).
Order growth was particularly strong across Asia, supported by
good growth in North America with Europe broadly in line with the
previous year. Covid--related disruption varied by region,
resulting in revenue growth in Asia and Europe and a decline in
North America despite the underlying demand and positive order
intake.
Looking at our end markets, building on a positive first half to
the year we continued to see sustained underlying demand for our
products leading to strong order growth in the year across the
Semiconductor & Communications, Advanced Materials, Healthcare
& Lifescience, and Quantum Technology end market segments.
Orders from customers in Energy & Environment markets were
marginally below previous year despite strong growth into battery
applications.
The combination of regional variations within our end markets
and the varying extent of covid-related disruptions resulted in
strong revenue growth in Semiconductor & Communications
(representing 48.3% of sales for the sector), Healthcare &
Lifescience (5.8% of sales) and Quantum Technology (1.7% of sales)
market segments. Revenues to customers in Advanced Materials and
Energy & Environment were disproportionally impacted by
covid--related disruption relative to order intake and represented
35.5% and 8.5% of sales, respectively (2020: 38.6% and 11.1%).
The Semiconductor & Communications segment remains a
significant focus for the sector. The continued drive for improved
energy efficiency, increased connectivity, faster data transmission
and growing consumer electronics volumes continues to elevate the
importance of semiconductors within the global economy. Our
expertise in semiconductor processing and the characterisation of
devices, as well as the breadth of our reach across research,
development and production leaves us in a strong position to
capitalise on the long-term growth opportunities.
In the year we had strong order and revenue growth with
increased demand across our imaging and analysis solutions in the
silicon semiconductor and consumer electronics markets, as well as
our portfolio of semiconductor etch and deposition processing
solutions in the compound semiconductor markets. The increased
volumes and improved performance requirements of semiconductor
chips needed to satisfy the growing consumer electronics markets as
well as the proliferation of use with the trend towards autonomous
vehicles is driving both increased production capacity and the
investment in next generation devices. We have had strong growth
across our imaging and analysis systems in support of new and next
generation device R&D as well as in the quality control and
quality assurance (QA and QC) in high volume manufacturing where
our solutions are used to inspect wafers and devices for defects
and structural integrity down to the nanoscale. With device
dimensions shrinking to provide the necessary improvements in
processing power, speed and reduced cost, the ability to
characterise and control the composition and structure at
ever-smaller dimensions becomes increasingly important. We have
continued to develop new solutions to meet these new challenges.
For example, Jupiter, our recently launched large sample atomic
force microscope system, is being used to detect and remove
contamination on photomasks with particles below a nanometre in
scale, which are now
leading to critical defects in device production.
Governments around the world are identifying improved
connectivity as a critical component for future economic growth,
whilst exponential growth in data volumes and digital services is
being driven by increased demands from digital streaming, online
conferencing, autonomous vehicles, and gaming. This is increasing
investment in production capacity and the development of higher
performing compound semiconductor devices. As a result of these
trends, we have had strong growth in our indium phosphide and
gallium arsenide compound semiconductor processing solutions to
commercial customers developing and manufacturing the optical
devices such as lasers, switches, amplifiers, and receivers
utilised within hyperscale data centres and within fibre optic
communication systems. These compound semiconductor devices enable
faster and more efficient transfer of vast data volumes above and
beyond that of conventional silicon-based devices. We have also
seen good growth across other optoelectronics applications
including 3D sensors for facial recognition and micro LEDs for use
in displays and consumer electronics.
The pressing need to find solutions to enable a greener economy
is driving a move away from higher polluting fuels such as oil and
gas towards sustainable electricity generation and the need for
higher energy efficiency power conversion devices. Power
electronics are the enabling technologies to efficiently use,
distribute and generate electrical energy. With a significant and
increasing proportion of global energy consumption being
electrical, the move to advanced compound semiconductors utilising
silicon carbide (SiC) or gallium nitride (GaN) devices have the
potential to improve electrical efficiency by up to 30%, providing
a significant contribution towards meeting the world's global
emission targets. In the year we continued to improve the
performance of our SiC process solutions used for high power
devices enabling faster electric vehicle charging times and larger
driving ranges and our GaN solutions being deployed in the more
cost-sensitive consumer electrics markets aiding faster charging
and better battery life for mobile phones, tablets and laptops. Our
advanced solutions are providing the required device performance
improvements with increased yields and reduced manufacturing
costs.
Within the Advanced Materials segment we continued to see strong
growth across our market-leading portfolio of imaging and analysis
systems, supported by the strive to develop and manufacture
stronger, lighter and higher-performing materials, whilst
increasing productivity, sustainable manufacturing and the
reduction in the use of essential and finite resources. Our key
enabling technologies allow researchers to image and manipulate
materials that are used in everything we do, own or use down to the
nanoscale. Within the sector, we saw good growth in our advanced
solutions with manufacturers developing new steels and super
alloys. These advanced high strength materials offer significant
improvements in strength and allow parts to be made with less
material, at lower weight and cost, and improving fuel/energy
efficiency. Our systems are also enabling the analysis of the
layered structures in 2D materials such as graphene, offering ten
times better resolution to improve accuracy in the characterisation
of these revolutionary materials. We have also seen increased sales
into the development of advanced polymers across a diverse range of
end applications.
Advanced polymers provide the opportunity to replace more
conventional materials because of their lower cost and ability to
be flexible, biocompatible and biodegradable, with a high
strength--to--weight ratio. These polymers have applications from
medical devices and implants, to membranes within batteries through
to displays to car tyres. Our products are used to characterise and
control the structure and composition of polymers at the nanoscale
which determines their value and utility for each application.
Through our market intimacy focus we continue to look for
additional opportunities to expand into more routine testing
markets, extending our reach to customers that would not have used
our equipment before. This has driven increased demand for our
cost-effective tools for routine material analysis where our
solutions are helping undertake the QA and QC of products ranging
from simple screws through to components for driverless vehicles.
The growth in demand for our products across steels and polymers
has been partially offset by the ongoing weakness in the mainstream
automotive and aerospace markets, which have been severely impacted
by covid.
We continue to see good growth in quantum technology markets,
where we have developed dedicated solutions building on our
expertise in semiconductor processing and characterisation. For
many quantum applications, such as computers and sensors, the
uniformity, high purity, and surface structure are critical to
achieve the desired quantum properties with useable lifetimes.
Within Energy & Environment, orders and revenue were down,
with strong growth across battery applications being more than
offset by subdued markets across forensics, environmental
monitoring, and photovoltaic R&D. With batteries offering
affordable and flexible energy storage and delivery, they form a
key element in the transition to a greener economy. This is leading
to increased production volumes and investment in battery
innovation to provide higher-performing and more energy efficient
systems. We are using our experience from other markets to provide
dedicated research and production support solutions for this
exciting market.
This has led to good growth in the quality control of the raw
materials used for anode and cathode manufacturing, improving
yield, minimising manufacturing waste, and avoiding catastrophic
failure. Our analysis solutions are also being used to develop next
generation battery materials and structures with the goal of
improved lifetime, increased storage capacity, faster charging
times and lower environmental impact.
Our continued focus on tailored solutions for the Healthcare
& Lifescience market has resulted in strong revenue growth in
the segment across a range of end applications. Our AFM systems are
helping researchers develop the scaffolding materials that are used
in cell growth, increasing throughput from hours to minutes. We
have also seen increased demand for our dedicated
regulatory--approved pharmaceutical software used by manufacturers
to screen for foreign body contamination within and on the surface
of medicine tablets. Another growth area for our solutions has been
in the characterisation of biomaterials, especially those used in
medical devices. Here it is important to understand the size and
distribution of the nanoscale precipitates that are contained in
medical devices, as some can cause variable and unpredictable
reactions in the body.
RESEARCH & DISCOVERY
Orders: GBP115.7m
(2020: GBP124.3m)
(6.9)% Growth
(5.1)% Constant currency growth(1)
Revenue: GBP113.4m
(2020: GBP117.8m)
(3.7)% Growth
(2.0)% Constant currency growth(1)
Adjusted(2) operating profit: GBP19.5m
(2020: GBP14.5m)
Adjusted(2) operating margin: 17.2%
(2020: 12.3%)
Statutory operating profit: GBP13.1m
(2020: GBP13.3m)
(1) For definition refer to note on page 2.
(2) Details of adjusting items can be found in Note 1 to the
Financial Statements.
Research & Discovery provides advanced solutions that create
unique environments and enable imaging and analytical measurements
down to the atomic and molecular level, predominantly used across
scientific research and applied R&D.
The Research & Discovery sector includes Andor Technology,
NanoScience and X-Ray Technology. 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.
The sector's products play a key role in applications
including:
-- Supporting the global fight against covid, including the use
of scientific cameras within diagnostic testing equipment, and a
range of products helping researchers to study the virus.
-- Rapid gene sequencing for research into cancer and other disease states.
-- Advancing quantum technologies and the development of commercially viable quantum computers.
-- Fundamental research into material properties, disease mechanisms and space exploration.
Revenues and orders for the sector were impacted by significant
covid-related disruptions to certain end application segments at
the start of the year which were not fully offset by a return to
growth in the second half of the year in most markets. The severity
of the impact in the first quarter was a combination of reduced
activity at many of our customers' sites, due to temporary
closures, reduced occupancy, or restricted access, and constraints
to our manufacturing capacity, as we adapted sites to covid-safe
workplaces and established new working practices.
This resulted in a 6.9% reduction in reported orders to
GBP115.7m (2020: GBP124.3m) and a 3.7% decline in reported revenue
to GBP113.4m (2020: GBP117.8m). However, profitability for the
sector was significantly improved through the realisation of the
culmination of business improvements in commercial practices and
operational efficiencies made through our ongoing Horizon
programme. This supported an increase in reported adjusted
operating profit of 34.5% to GBP19.5m (2020: GBP14.5m) and an
improvement in reported adjusted operational margin of 490 basis
points to 17.2% (2020: 12.3%), representing an increase of 450
basis points at constant currency.
Revenue growth into academic customers was more than offset by a
decrease to commercial customers, resulting in an increased
proportion of sales within the sector into academic or
government-funded customers of 74%.
From a geographical perspective, strong revenue growth in Asia
was more than offset by the reduction across North American and
Europe, due primarily to end customer disruption.
The disruption to orders was most severe in the first quarter,
with continued improvement quarter on quarter across most of our
end markets; however, there continued to be subdued activity from
customers involved in Research & Fundamental Science
applications. The strong recovery in end markets in the second half
resulted in significant full--year order growth across Quantum
Technology and Advanced Materials, good growth into Semiconductor
and an in-line performance in Healthcare & Lifescience.
Research & Fundamental Science ended significantly down on
the previous year, reflecting continued subdued customer activity
from customers.
Healthcare & Lifescience saw significant covid disruption to
the working practices of our customers in the first quarter, as
well as the reallocation of resources and deferred funding
programmes throughout the year. This included the temporary or
partial site closures at some research facilities and central
laboratories in the first quarter in particular. The long-term
fundamental market drivers of improving the health and wellbeing of
society remain robust, driven by the need to better understand
fundamental disease mechanisms at the cellular and molecular level,
and for the development of new treatments, therapies, and
personalised medicines. The positive momentum that built over the
year, with many laboratories starting to reopen, brought good
year-on-year growth in the second half, with orders for the year
broadly in line with previous year but constant currency revenue
down 7.7% due primarily to the phasing of orders.
We had strong growth for products that were used to support the
global fight against covid, including the use of our scientific
cameras within diagnostic testing equipment, and our broad range of
products helping researchers study the virus to understand its
genetic sequence, mutations, impact on patient cells and the immune
response it generates.
We had increased demand for our Dragonfly 200 microscopy system
for rapid gene sequencing, which is used for research into cancer
and other disease states. Dragonfly can provide very fast,
easy-to-use multicolour imaging and when synchronised with complex
fluid handling systems provides an easy--to--use platform for this
advanced application which helps drive forward a much deeper
understanding of how genes influence the behaviours of individual
cells and the corresponding responses to cancer. We also increased
sales of our cameras in the growing application of cancer
diagnostics and drug discovery in the year. The closure of customer
facilities as well as the reprioritisation of work and resources
towards covid-related initiatives negatively impacted sales in
Europe and in North America into central research facilities as
well as customers involved in cell biology. This impacted sales
across the portfolio including our higher-end research microscopy
systems in the year. In support of our customers' changing working
practices, sales of our analysis and visualisation software
increased in the year with our 'satellite manager function' being
particularly popular, allowing customers to work remotely and share
data efficiently across their teams and with collaborators
regardless of location.
The quantum market is in a state of acceleration, with
significant scientific and technical breakthroughs in the field
dramatically accelerating the timeline for disruptive quantum
computers and sensor--based systems and making useful systems a
possibility today. This progress has driven a rise in the number of
national and corporate programmes and an increase in the associated
funding being made available, which resulted in very strong growth
in demand for our cryogenic platforms and high field magnet systems
across fundamental research, and increasingly across applied
R&D. The achievements already delivered in this area have
resulted in governments and commercial organisations looking to
harness the 'quantum advantage' in the near term where marginal
practical improvements can be achieved relative to existing
computers, such as the calculations to quote derivative prices in
real time rather than taking several hours. In the year, we have
made good progress with the consortium project with Rigetti to
deliver the UK's first commercial quantum computer which will
provide cloud-based access for customers. We have completed the
facility build at our Tubney Woods site near Oxford, installed the
cryogenic platform, with Rigetti working on installation of the
quantum computing device.
Collaboration partners from financial, materials design, energy
and pharmaceuticals applications are awaiting access to the
machine. Most experts believe we are a number of years away from
systems with 1000 qubits which could fundamentally disrupt a number
of end markets, with the potential to benefit all in society by
removing the limitations that hold back progress in a plethora of
areas from drug discovery, through financial services, to climate
change and logistics.
Growth in the Advanced Materials segment reflected the ongoing
demand for our cryogenic platforms, high field magnet systems,
scientific cameras and optical components. With end applications
such as sensors, semiconductors and batteries, our solutions are
helping researchers analyse and characterise the fundamental
properties of exotic materials such as graphene and their use in
next generation devices.
Whilst not a significant market for the sector, our sales into
Energy & Environment were impacted by the dramatic reduction in
global air travel and airport footfall which led to significantly
reduced demand from our OEM customers for our technologies used
within airport security solutions. However, we expect to see the
market strengthen once travel restrictions are lifted.
Covid-related site closures at many research institutions
impacted sales into Research & Fundamental Science. However, we
have continued to see long-term interest in our key enabling
technologies, such as our magnet systems and high-end scientific
cameras across a wide range of areas, including fundamental physics
and chemistry. There was positive momentum in the second half of
the year, as multi-site collaborative teams progressed research
remotely. In the year, a third of the systems for the Institute of
Physics in Beijing were installed as part of the multisystem order
into their extreme environments laboratory.
SERVICE & HEALTHCARE
Orders: GBP63.0m
(2020: GBP57.0m)
+10.5% Growth
+11.8% Constant currency growth(1)
Revenue: GBP56.5m
(2020: GBP53.8m)
+5.0% Growth
+5.9% Constant currency growth(1)
Adjusted(2) operating profit: GBP16.9m
(2020: GBP15.0m)
Adjusted(2) operating margin: 29.9%
(2020: 27.9%)
Statutory operating profit: GBP16.9m
(2020: GBP15.0m)
(1) For definition refer to note on page 2.
(2) Details of adjusting items can be found in Note 1 to the
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; and the support and service of
third-party MRI scanners in Japan.
Throughout the pandemic we maintained high levels of support for
our customers, meeting increased demand for services related to our
own products, the ongoing requirements for the essential MRI
equipment for our hospital customers in Japan, and for our broader
range of service products. This was reflected in a 10.5% increase
in reported orders to GBP63.0m (2020: GBP57.0m) and a 5.0% increase
in reported revenue to GBP56.5m (2020: GBP53.8m).
Our increased local provision of services, combined with
enhanced digital and remote offerings, supported improved
profitability, leading to a 12.7% increase in reported adjusted
operating profit to GBP16.9m (2020: GBP15.0m), with the operating
margin up 200 basis points to 29.9% (2020: 27.9%).
Our service offerings are a key differentiator for us in our
markets and covid has provided us with new opportunities to further
enhance the value of our relationships with our customers. In the
year we continued with the accelerated transformation of our
customer support services, adapting existing and developing new
service offerings to ensure we continued to meet our customers'
changing needs. This has included the provision of increased
digital products, remote servicing and installations, and better
leveraging of our global footprint.
We have helped our customers work outside their laboratories,
providing remote access to their systems and facilitating data
sharing between teams to allow them to progress their research.
Whilst covid has made access to our customer sites challenging,
by improving online accessibility to our technical support teams
and developing the capabilities of our in-country support teams, we
have been able to respond quickly to customer queries without the
same requirement for travel. Our customers are increasingly getting
used to having their issues fixed much quicker than pre-covid,
which is driving the continual development of our support to meet
this demand.
As we continue to build a better understanding of how our
customers are using our products, we are tailoring our service
offerings for the individual needs of the different groups. Our
goal is to increase our customers' productivity, enhance their
capabilities and create more value from their initial investment.
In support of this, and as part of our transformation, we are
developing our managed services offering which provides enhanced
lifetime support options. This allows us to take care of training
users, upgrading their software and hardware where appropriate,
providing more relevant data, with more actionable insights and
assurance of result accuracy. Whilst we are at the early stages of
our services transformation, we have built a healthy pipeline of
opportunities to further support our customers in the future.
FINANCE REVIEW
We delivered strong growth in profit and margin, with good cash
conversion enhancing our robust financial strength.
Summary
Oxford Instruments uses certain alternative performance measures
to help it effectively monitor the performance of the Group, as
management believe that these represent a more consistent measure
of underlying performance. Adjusted items exclude the amortisation
and impairment of acquired intangible assets; acquisition items;
profit or loss on disposal of operations; other significant
non-recurring items; and the mark-to-market revaluation of
financial derivatives. All of these are included in the statutory
figures. Note 1 provides further analysis of the adjusting items in
reaching adjusted profit measures. Definitions of the Group's
material alternative performance measures along with reconciliation
to their equivalent IFRS measure are included within the Finance
Review.
The Group trades in many foreign currencies and makes reference
to constant currency numbers to remove the impact of currency
effects in the year. 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.
In January 2020, the Group disposed of its minority equity stake
in the Scienta Omicron joint venture to existing shareholders. In
the following month, the Group completed the disposal of its OI
Healthcare business in the US. For the purpose of comparative
reporting, OI Healthcare is classified as a discontinued
operation.
Orders increased by 5.3% to GBP353.7m (2020: GBP336.0m), an
increase of 6.7% at constant currency. At the end of the period,
the Group's order book for future deliveries stood at GBP198.1m (31
March 2020: GBP175.0m). The order book grew 13.2% on a reported
basis and 17.8% at constant currency.
Revenue on a continuing basis increased by 0.3% to GBP318.5m
(2020: GBP317.4m). Revenue from continuing operations, excluding
currency effects, increased by 1.7%, with the movement in average
currency exchange rates over the year reducing reported revenue by
GBP4.4m.
Adjusted operating profit from continuing operations increased
by 12.3% to GBP56.7m (2020: GBP50.5m). Adjusted operating profit,
excluding currency effects, increased by 13.3%, with a currency
headwind in the year of GBP0.5m. Adjusted operating margin from
continuing operations increased by 190 basis points to 17.8% (2020:
15.9%). Excluding currency effects, adjusted operating margin
increased by 180 basis points to 17.7%.
Statutory operating profit includes the amortisation of acquired
intangibles of GBP8.4m, business reorganisation items of GBP0.4m,
impairment of capitalised development costs of GBP1.3m and a credit
of GBP6.4m relating to the movement in the mark-to-market valuation
of uncrystallised currency hedges for future years. Statutory
operating profit of GBP53.0m (2020: GBP39.8m) grew by 33.2%.
Adjusted profit before tax from continuing operations grew by
12.9% to GBP55.9m (2020: GBP49.5m), representing a margin of 17.6%
(2020: 15.6%).
Statutory profit before tax from continuing operations grew by
34.5% to GBP52.2m (2020: GBP38.8m), representing a margin of 16.4%
(2020: 12.2%).
Continuing adjusted basic earnings per share grew by 12.0% to
78.6p (2020: 70.2p). Continuing basic earnings per share were 72.8p
(2020: 55.9p), growth of 30.2%.
Cash generated from operations of GBP49.7m (2020: GBP62.3m)
represents 101% (2020: 124%) cash conversion.
Net cash increased from GBP67.5m on 31 March 2020 to GBP97.6m,
aided by good operating cash flow, and is stated after an
additional contribution to the UK defined benefit pension scheme of
GBP8.1m that was made in March 2021.
At the end of March, our revolving credit facility remained
undrawn, leaving approximately GBP100m of committed facilities.
This represents total headroom of just under GBP200m. At the end of
March 2021, the Group repaid outstanding private placement loan
notes of GBP27.9m from its cash balances.
Income Statement
The Group's Income Statement is summarised below.
Year ended Year ended
31 March 31 March
2021 2020
GBPm GBPm Change
----------------------------------------------- ---------- ---------- ------
Revenue 318.5 317.4 +0.3%
----------------------------------------------- ---------- ---------- ------
Adjusted operating profit 56.7 50.5 +12.3%
----------------------------------------------- ---------- ---------- ------
Amortisation of acquired intangible assets (8.4) (8.7)
Non-recurring items (1.7) (0.6)
Mark-to-market movement of currency hedges 6.4 (1.4)
----------------------------------------------- ---------- ---------- ------
Statutory operating profit 53.0 39.8 +33.2%
----------------------------------------------- ---------- ---------- ------
Net finance costs (0.8) (1.0)
----------------------------------------------- ---------- ---------- ------
Adjusted profit before taxation 55.9 49.5 +12.9%
----------------------------------------------- ---------- ---------- ------
Statutory profit before taxation 52.2 38.8 +34.5%
----------------------------------------------- ---------- ---------- ------
Adjusted effective tax rate 19.3% 18.8%
Effective tax rate 19.9% 17.5%
Continuing adjusted earnings per share - basic 78.6p 70.2p +12.0%
Continuing earnings per share - basic 72.8p 55.9p +30.2%
Dividend per share (total) 17.0p -
----------------------------------------------- ---------- ---------- ------
Orders and revenue
An internal reorganisation during the year means that our
Magnetic Resonance business and research and development facility
in Finland are now reported within the Materials &
Characterisation segment, having been previously presented within
Research & Discovery. This has led to a small change in the
comparative split of revenue across the two segments.
Total orders grew by 5.3% (+6.7% at constant currency) to
GBP353.7m. Orders grew by 13.1% (+14.4% at constant currency) for
Materials & Characterisation and by 10.5% (+11.8% at constant
currency) for Service & Healthcare but declined by 6.9% (-5.1%
at constant currency) for Research & Discovery.
Revenue of GBP318.5m (2020: GBP317.4m) increased by 0.3% (+1.7%
at constant currency). Revenue grew by 1.9% for Materials &
Characterisation (+3.2% at constant currency), with growth for our
semiconductor processing tools and scanning probe microscopes
offsetting a small decline in deliveries of our analysers for
electron microscopes due to covid-related customer site access
restrictions and supply chain constraints. Growth in revenue was
also moderated by the impact of delays and frustrations in
obtaining export licences. Strong revenue growth for our cryogenic
and complex magnets was offset by a decline in deliveries from our
imaging and microscopy business, resulting in a fall in reported
revenue for Research & Discovery of 3.7% (-2.0% at constant
currency). The decline in shipments of our imaging products was
impacted by a slowdown in production due to supply chain
constraints and the adoption of covid working practices. Revenue
growth from service of our own products resulted in growth of 5.0%
(+5.9% at constant currency) for Service & Healthcare.
The book-to-bill ratio (orders received to goods and services
billed in the period) for the year was 111% (2020: 106%).
On a geographic basis, revenue grew by 2.7% in Europe (+1.2% at
constant currency). Revenue for North America declined by 14.3% on
a reported basis and by 10.8% at constant currency, partly impacted
by covid-related delays to customer acceptances; orders for the
region grew by 3.0% (+6.9% at constant currency). Asia delivered
strong growth of 9.9% (+11.9% at constant currency) and remains our
largest region by revenue.
Geographic revenue growth
% growth
at
2020/21 2019/20 Change % constant
----------------- -----------------
GBPm GBPm % of total GBPm % of total GBPm growth currency
-------------- ----- ---------- ----- ---------- ------ ------- --------
Europe 87.2 27% 84.9 27% +2.3 2.7% 1.2%
North America 76.7 24% 89.5 28% (12.8) (14.3%) (10.8%)
Asia 150.2 47% 136.6 43% +13.6 10.0% 11.9%
Rest of World 4.4 2% 6.4 2% (2.0) (31.2%) (31.3%)
-------------- ----- ---------- ----- ---------- ------ ------- --------
318.5 100% 317.4 100% +1.1 0.3% 1.7%
-------------- ----- ---------- ----- ---------- ------ ------- --------
The total order book grew by 13.2% (17.8% at constant currency)
to GBP198.1m. The order book, at constant currency, compared to 31
March 2020, increased by 39.9% for Materials &
Characterisation, with strong growth across all constituent
businesses. Strong order growth in the final quarter means that
related shipments are scheduled to be made in the 2021/22 financial
year. Research & Discovery was broadly flat, with strong growth
for our imaging and microscopy products offset by a decline in our
X-Ray Technology business due to the phasing of a large regular
order that slipped into the following year. Continued focus on own
product service resulted in growth of 9.4% from Service &
Healthcare.
Materials Research Service
& & &
GBPm Characterisation Discovery Healthcare Total
-------------------------------------- ---------------- --------- ---------- -----
Revenue(1) : 2019/20 145.8 117.8 53.8 317.4
Constant currency growth/(decline) 4.7 (2.4) 3.2 5.5
-------------------------------------- ---------------- --------- ---------- -----
Revenue at constant currency: 2020/21 150.5 115.4 57.0 322.9
-------------------------------------- ---------------- --------- ---------- -----
Foreign exchange (1.9) (2.0) (0.5) (4.4)
-------------------------------------- ---------------- --------- ---------- -----
Revenue: 2020/21 148.6 113.4 56.5 318.5
-------------------------------------- ---------------- --------- ---------- -----
Revenue growth: reported 1.9% (3.7%) 5.0% 0.3%
Revenue growth: constant currency 3.2% (2.0%) 5.9% 1.7%
-------------------------------------- ---------------- --------- ---------- -----
(1) From continuing operations.
Gross profit
Gross profit grew by 4.0% to GBP164.8m (2020: GBP158.4m),
representing a gross profit margin of 51.7%, an increase of 180
basis points over last year, assisted by procurement savings and
operating efficiencies delivered from our operational excellence
programme.
Adjusted operating profit and margin
An internal reorganisation during the year resulted in our
Magnetic Resonance business and research and development facility
in Finland being reported within the Materials &
Characterisation segment, having been previously presented within
Research & Discovery. This has led to a small change in the
comparative split of adjusted operating profit across the two
segments.
Adjusted operating profit from continuing operations increased
by 12.3% to GBP56.7m (2020: GBP50.5m), representing an adjusted
operating profit margin of 17.8%, an increase of 190 basis points
against last year. At constant currency, the adjusted operating
profit margin was 17.7%, an increase of 180 basis points.
Materials & Characterisation adjusted operating profit fell
by 3.3% (a decline of 1.9% at constant currency) with margin
declining by 70 basis points to 13.7% (2020: 14.4%). This was
attributable to lower revenue from our higher margin imaging and
analysis systems, additional investment in the sector, and a
warranty provision on a particular product in their portfolio which
had been withdrawn from sale in the year.
Research & Discovery's adjusted operating margin increased
to 17.2% (2020: 12.3%), growth of 490 basis points. At constant
currency, the margin was 16.8%, an increase of 450 basis points.
Our cryogenic and complex magnet business has delivered a material
uplift in profitability, supported by improved commercial
practices, operational efficiencies, and a high level of customer
acceptances in the year. In addition, lower discretionary costs in
our optical imaging business have led to an improvement in margin.
These positive performances more than offset the loss of profit
following the sale of our shareholding in ScientaOmicron at the end
of last year (recording a profit of GBP0.7m in the comparative
period).
Service & Healthcare margin increased by 200 basis points to
29.9% (2020: 27.9%). At constant currency, the margin was 30.2%, an
increase of 230 basis points, owing to our focus on improving
service revenue on our own products.
Currency effects (including the impact of transactional currency
hedging) have reduced reported adjusted operating profit by GBP0.5m
when compared to blended hedged exchange rates for the comparative
period.
Materials Research Service
& & &
GBPm Characterisation Discovery Healthcare Total
-------------------------------------------------------- ---------------- --------- ---------- -----
Adjusted operating profit(1): 2019/20 21.0 14.5 15.0 50.5
Constant currency growth/(decline) (0.4) 4.9 2.2 6.7
-------------------------------------------------------- ---------------- --------- ---------- -----
Adjusted operating profit at constant currency: 2020/21 20.6 19.4 17.2 57.2
-------------------------------------------------------- ---------------- --------- ---------- -----
Foreign exchange (0.3) 0.1 (0.3) (0.5)
-------------------------------------------------------- ---------------- --------- ---------- -----
Adjusted operating profit: 2020/21 20.3 19.5 16.9 56.7
-------------------------------------------------------- ---------------- --------- ---------- -----
Adjusted margin(2) : 2019/20 14.4% 12.3% 27.9% 15.9%
Adjusted margin(2) : 2020/21 13.7% 17.2% 29.9% 17.8%
Adjusted margin(2) : (constant currency): 2020/21 13.7% 16.8% 30.2% 17.7%
-------------------------------------------------------- ---------------- --------- ---------- -----
(1) From continuing operations.
(2) Adjusted margin is calculated as adjusted operating profit
divided by revenue. Adjusted margin at constant currency is defined
as adjusted operating profit at constant currency divided by
revenue at constant currency.
Statutory operating profit and margin
Statutory operating profit from continuing operations increased
by 33.2% to GBP53.0m (2020: GBP39.8m), representing an operating
profit margin of 16.6%, an increase of 410 basis points against
last year. Continuing statutory operating profit includes the
amortisation and impairment of acquired intangible assets;
acquisition items; profit or loss on disposal of operations; other
significant non-recurring items; and the mark-to-market of
financial derivatives. The growth in statutory operating profit is
primarily due to an increase in the operating margin and a large
credit from the mark-to-market gain on the valuation of financial
derivatives.
Adjusting items
Amortisation of acquired intangibles of GBP8.4m relates to
intangible assets recognised on acquisitions, being the value of
technology, customer relationships and brands.
Non-recurring items include GBP0.4m of one-off professional fees
and property-related costs, and an impairment charge of GBP1.3m
relating to delays in market launch of some specific development
projects within the Materials & Characterisation segment.
The Group uses derivative products to hedge its short-term
exposure to fluctuations in foreign exchange rates. Our hedging
policy allows for forward contracts to be entered into up to 18
months forward from the end of the next reporting period. The Group
policy is to have in place at the beginning of the financial year
hedging instruments to cover approximately 80% of its forecast
transactional exposure for the following twelve months and, subject
to pricing, up to 20% of exposures for the next six months. 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 mark-to-market derivatives in respect of
transactional currency exposures of the Group in future periods are
disclosed in the Income Statement as foreign exchange and excluded
from our calculation of adjusted profit before tax. In the current
year this amounted to a credit of GBP6.4m (2020: GBP1.4m charge).
The year-end asset reflects an uncrystallised gain arising from a
rise in the value of Sterling at the balance sheet date against a
blended rate achieved on US Dollar, Euro and Japanese Yen forward
contracts that will mature over the next 18 months.
Net finance costs
The Group's adjusted net interest costs rose by GBP0.7m to
GBP1.7m (2020: GBP1.0m) due to the inclusion of a refund of
overpaid interest of GBP0.4m in last year's comparative. Interest
credit on pension scheme net assets of GBP0.9m (2020: GBPnil)
arising from the pension surplus brings net finance charges to
GBP0.8m (2020: GBP1.0m).
Adjusted profit before tax and margin
Continuing adjusted profit before tax increased by 12.9% to
GBP55.9m (2020: GBP49.5m). The adjusted profit before tax margin of
17.6% (2020: 15.6%) was above last year due to an increase in the
adjusted operating margin and lower net finance costs.
Year ended Year ended
31 March 31 March
2021 2020
Reconciliation of statutory profit before tax to adjusted profit before tax GBPm GBPm
---------------------------------------------------------------------------- ---------- ----------
Statutory profit before tax 52.2 38.8
Add back:
Amortisation of acquired intangible assets 8.4 8.7
Non-recurring items (Note 1) 1.7 0.6
Mark-to-market movement of currency hedges (6.4) 1.4
---------------------------------------------------------------------------- ---------- ----------
Adjusted profit before tax 55.9 49.5
---------------------------------------------------------------------------- ---------- ----------
Statutory profit before tax and margin
The continuing statutory profit before tax increased by 34.5% to
GBP52.2m (2020: GBP38.8m). Continuing statutory profit before tax
includes the amortisation and impairment of acquired intangible
assets; acquisition items; profit or loss on disposal of
operations; other significant non-recurring items; and the
mark-to-market of financial derivatives. The profit before tax
margin of 16.4% (2020: 12.2%) was above last year due to an
increase in the operating margin, lower net finance costs and a
large credit from the mark-to market gain on the valuation
financial derivatives.
Taxation
The adjusted tax charge from continuing operations of GBP10.8m
(2020: GBP9.3m) represents an effective tax rate of 19.3% (2020:
18.8%). The tax charge from continuing operations of GBP10.4m
(2020: GBP6.8m) represents an effective tax rate of 19.9% (2020:
17.5%). The movements reflect a change in the geographical mix of
profits earned.
Earnings per share
Continuing adjusted basic earnings per share increased by 12.0%
to 78.6p (2020: 70.2p); continuing adjusted diluted earnings per
share grew by 11.7% to 77.6p (2020: 69.5p). Continuing basic
earnings per share increased by 30.2% to 72.8p (2020: 55.9p);
continuing diluted earnings per share grew by 30.0% to 71.9p (2020:
55.3p).
The number of undiluted weighted average shares increased to
57.4m (2020: 57.3m).
Foreign exchange
The Group faces transactional and translational currency
exposure, most notably against the US Dollar, Euro and Japanese
Yen. For the year, approximately 19% of Group revenue was
denominated in Sterling, 46% in US Dollars, 21% in Euros, 12% 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's foreign currency exposure for the full year is
summarised below.
Adjusted
operating
GBPm (equivalent) Revenue profit
------------------ ------- ---------
Sterling 61.5 (69.3)
US Dollar 145.0 64.1
Euro 68.4 36.8
Japanese Yen 37.9 21.9
Chinese Renminbi 4.8 2.7
Other 0.9 0.5
------------------ ------- ---------
318.5 56.7
------------------ ------- ---------
The Group maintains a hedging programme against its net
transactional exposure using internal projections of currency
trading transactions expected to arise over a period extending from
12 to 24 months. As at 31 March 2021, the Group had currency hedges
in place extending up to 18 months forward.
For the full year 2021/22, our assessment of the currency impact
is, based on hedges currently in place and current currency rates,
a headwind of approximately GBP18.5m to revenue and GBP2.5m to
profit. Current rates are: GBP:USD 1.42; GBP:EUR 1.17; GBP:JPY 155.
For the full year 2022/23, using the same assumptions, there is an
additional headwind of GBP6.4m to profit owing to the unwinding of
currency hedges that have a positive benefit in 2021/22. This
impact does not affect the underlying future growth of the Group
and is prior to mitigating actions. Uncertain volume and timing of
shipments and acceptances, currency mix and FX volatility may
significantly affect full-year currency forecast effects.
Disposal of Scienta Omicron
On 29 January 2020, the Group sold its 47% share in Scienta
Omicron to a group of existing Shareholders in the joint venture
for a consideration of SEK 147m (GBP11.7m). Within adjusted
operating profit for the comparative period the Group recorded a
profit of GBP0.7m. A gain of GBP6.5m on disposal is treated as a
non--recurring item in the comparative period.
Disposal of OI Healthcare - discontinued operations
On 24 February 2020, the Group sold the OI Healthcare business
in the US to MXR Imaging, Inc, for a consideration of $14.9m
(GBP11.5m). The business has been treated as a discontinued
operation. A loss of GBP0.5m after taxation has been recorded under
discontinued operations in the prior year.
Dividend
The Group's policy is to increase the dividend each year in line
with the increase in underlying earnings, considering movements in
currency. Following the high uncertainty created by the impact of
covid, the Group did not pay a dividend for the 2019/20 financial
year. After a resilient year of trading, the Board has proposed a
final dividend of 12.9p per share. This results in a total dividend
of 17.0p per share, equivalent to a two-year compound annual growth
rate of 8.7% from 2018/19. An interim dividend of 4.1p per share
was paid on 14 April 2021. The final dividend will be paid, subject
to Shareholder approval, on 15 October 2021 to Shareholders on the
register as at 10 September 2021.
Cash flow
The Group cash flow is summarised below.
Year ended Year ended
31 March 31 March
2021 2020
GBPm GBPm
--------------------------------------------------------------------- ---------- ----------
Adjusted operating profit 56.7 50.5
Depreciation and amortisation 9.1 9.9
--------------------------------------------------------------------- ---------- ----------
Adjusted(1) EBITDA 65.8 60.4
Working capital movement (2.7) 10.1
Equity settled share schemes 1.8 3.1
Share of profit from associate - (0.7)
Non-recurring items 0.3 (0.6)
Pension scheme payments above charge to operating profit (15.5) (10.0)
--------------------------------------------------------------------- ---------- ----------
Cash from operations 49.7 62.3
Interest (1.6) (1.0)
Tax (6.3) (6.1)
Capitalised development expenditure (0.9) (2.8)
Expenditure on tangible and intangible assets (4.0) (4.3)
Proceeds from sale of associate - 11.7
Decrease in long-term receivables - 1.4
Dividends paid - (8.2)
Proceeds from issue of share capital and exercise of share options 0.2 0.7
Payments made in respect of lease liabilities (2.8) (3.3)
Decrease in borrowings (27.9) (0.6)
--------------------------------------------------------------------- ---------- ----------
Net increase in cash and cash equivalents from continuing operations 6.4 49.8
--------------------------------------------------------------------- ---------- ----------
(1) Adjusted EBITDA is defined as adjusted operating profit
before depreciation and amortisation of capitalised development
costs. The Consolidated Statement of Cash Flows provides further
analysis of the definition of adjusted EBITDA.
Cash from operations
Cash from operations of GBP49.7m (2020: GBP62.3m) represents
101% (2020: 124%) cash conversion. Cash conversion is defined as
cash from operations before non-recurring items and pension scheme
payments above charge to operating profit, less capitalised
development expenditure, capital expenditure and payments made in
respect of leases liabilities, divided by adjusted operating
profit.
Year ended Year ended
31 March 31 March
2021 2020
Reconciliation of cash generated from operations to adjusted operating cash flow GBPm GBPm
--------------------------------------------------------------------------------- ---------- ----------
Cash from operations 49.7 62.3
Non-recurring items (0.3) 0.6
Pension scheme payments above charge to operating profit 15.5 10.0
Capitalised development expenditure (0.9) (2.8)
Expenditure on tangible and intangible assets (4.0) (4.3)
Payments made in respect of lease liabilities (2.8) (3.3)
--------------------------------------------------------------------------------- ---------- ----------
Adjusted cash from operations 57.2 62.5
--------------------------------------------------------------------------------- ---------- ----------
Cash conversion % (adjusted cash from operations/adjusted operating profit) 101% 124%
--------------------------------------------------------------------------------- ---------- ----------
Working capital increased by GBP2.7m. Inventories rose by
GBP1.3m and receivables increased by GBP10.5m following a high
number of shipments and acceptances at the year end compared to the
corresponding period, which was impacted by covid. Payables and
customer deposits increased by GBP9.1m.
Looking forward, we would expect capital expenditure of
approximately GBP32m to complete the construction and fit-out of
our new facility near Bristol for our Plasma Technology business.
It is expected that costs of approximately GBP20m will be incurred
in the financial year 2021/22, with the remainder falling into the
following year. The business will enter a 20-year lease on
completion of construction, which is anticipated to commence at the
end of the first half of the 2022/23 financial year.
Pension
Pension payments above charge to operating profit of GBP15.5m
included a one-off contribution of GBP8.1m to the UK defined
benefit pension scheme, in addition to the current recovery
payments.
Interest
Net interest paid was GBP1.6m (2020: GBP1.0m), the increase
reflecting a receipt of overpaid interest of GBP0.4m in the
comparative period.
Tax
Tax paid was GBP6.3m (2020: GBP6.1m), with cash tax in both
years benefiting from utilisation of prior year losses carried
forward.
Investment in Research and Development (R&D)
Total cash spend on R&D in the year was GBP28.9m, equivalent
to 9.1% of sales (2020: GBP26.8m, 8.4% of sales). A reconciliation
between the adjusted amounts charged to the Income Statement and
the cash spent is given below:
Year ended Year ended
31 March 31 March
2021 2020
GBPm GBPm
-------------------------------------------------------------------- ---------- ----------
R&D expense charged to the Income Statement 30.0 26.6
Depreciation of R&D-related fixed assets (0.1) -
Amounts capitalised as fixed assets 0.6 0.1
Amortisation and impairment of R&D costs capitalised as intangibles (2.5) (2.7)
Amounts capitalised as intangible assets 0.9 2.8
-------------------------------------------------------------------- ---------- ----------
Total cash spent on R&D during the year 28.9 26.8
-------------------------------------------------------------------- ---------- ----------
Net cash and funding
Net cash
Good cash generation in the year increased the Group's net cash
position from GBP67.5m to GBP97.6m. Cash generated from operations
was GBP49.7m (2020: GBP62.3m) after the inclusion of an additional
contribution to the UK defined benefit pension scheme that
increased deficit recovery payments to GBP15.5m. The Group invested
in capitalised development costs of GBP0.9m and tangible and
intangible assets of GBP4.0m, with investments in semiconductor
processing development tools, quantum computing related assets and
infrastructure, and expenditure to increase production
capacity.
Movement in net cash GBPm
------------------------------------------------------ -----
Net cash after borrowings as at 31 March 2020 67.5
Cash generated from operations 49.7
Interest (1.6)
Tax (6.3)
Capitalised development expenditure (0.9)
Capital expenditure on tangible and intangible assets (4.0)
Other items (6.8)
------------------------------------------------------- -----
Net cash after borrowings as at 31 March 2021 97.6
------------------------------------------------------- -----
In early 2021, the Financial Reporting Council (FRC) conducted a
review on the Group's Report and Financial Statements for the year
ended 31 March 2020. Following completion of this review we have
concluded that overdraft balances should be presented gross, rather
than netted off against cash and cash equivalents. As a result, the
Consolidated Statement of Financial Position as at 31 March 2020
has been restated. Full details will be included in the Accounting
Policies note in the 2021 Report and Financial Statements. The
restatement did not result in any change to reported profit,
earning per share, net assets or cash flows reported in the 2020
financial year.
Return on capital employed (ROCE)
ROCE measures effective management of capital employed relative
to the profitability of the business. ROCE is calculated as
adjusted operating profit less amortisation of intangible assets
divided by average capital employed. Capital employed is defined as
assets (excluding cash, pension, tax and derivative assets) less
liabilities (excluding tax, debt and derivative liabilities).
Average capital employed is defined as the average of the closing
balance at the current and prior year end. ROCE has risen to 32.7%,
with the change principally reflecting a higher level of
earnings.
Year ended Year ended
31 March 31 March
2021 2020
Return on capital employed GBPm GBPm
--------------------------------------------------------------------------- ---------- ----------
Adjusted operating profit 56.7 50.5
Amortisation of acquired intangible assets (8.4) (8.7)
--------------------------------------------------------------------------- ---------- ----------
Adjusted operating profit after amortisation of acquired intangible assets 48.3 41.8
--------------------------------------------------------------------------- ---------- ----------
Property, plant and equipment 21.1 21.8
Right-of-use assets 7.3 8.2
Intangible assets 122.6 135.5
Inventories 58.7 58.8
Trade and other receivables 75.6 71.1
Non-current lease payables (4.9) (6.5)
Non-current provisions (0.7) (0.9)
Trade and other payables (126.1) (125.1)
Current lease payables (2.6) (2.1)
Current provisions (8.7) (7.5)
Return on capital employed (ROCE) 32.7% 24.0%
--------------------------------------------------------------------------- ---------- ----------
Capital employed 142.3 153.3
--------------------------------------------------------------------------- ---------- ----------
Average capital employed 147.8 174.1
--------------------------------------------------------------------------- ---------- ----------
Return on capital employed (ROCE) 32.7% 24.0%
--------------------------------------------------------------------------- ---------- ----------
Return on invested capital (ROIC)
ROIC measures the after-tax return on the total capital invested
in the business. It is calculated as adjusted operating profit
after tax divided by average invested capital. Invested capital is
total equity less net cash, including lease liabilities. Average
invested capital is defined as the average of the closing balance
at the current and prior year end. Oxford Instruments aims to
deliver high returns, measured by a return on capital in excess of
our weighted average cost of capital.
Year ended Year ended
31 March 31 March
2021 2020
Return on invested capital GBPm GBPm
------------------------------------------------ ---------- ----------
Adjusted operating profit 56.7 50.5
Taxation (10.8) (9.3)
------------------------------------------------ ---------- ----------
Adjusted operating profit after taxation 45.9 41.2
------------------------------------------------ ---------- ----------
Total equity 266.2 251.6
Net cash (including lease liabilities) (90.1) (58.9)
------------------------------------------------ ---------- ----------
Invested capital 176.1 192.7
------------------------------------------------ ---------- ----------
Average invested capital 184.4 198.8
------------------------------------------------ ---------- ----------
Return on invested capital (ROIC) 24.9% 20.7%
------------------------------------------------ ---------- ----------
Year ended Year ended
31 March 31 March
2021 2020
Net cash including lease liabilities GBPm GBPm
------------------------------------------------ ---------- ----------
Net cash after borrowings 97.6 67.5
Lease liabilities (7.5) (8.6)
------------------------------------------------ ---------- ----------
Net cash and lease liabilities after borrowings 90.1 58.9
------------------------------------------------ ---------- ----------
Funding
On 2 July 2018, the Group entered into an unsecured
multi-currency revolving facility agreement, which is committed
until June 2024 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 (GBP43m) and a US Dollar-denominated multi-currency
facility of $80.0m (GBP56m).
We are in discussions to extend the facility by one year to June
2025.
The Group repaid bilateral private placement notes of GBP27.9m
on 31 March 2021 from its cash balance.
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 2021 the
business had net cash.
Pensions
The Group has a defined benefit pension scheme in the UK. This
has been closed to new entrants since 2001 and closed to future
accrual from 2010.
On an IAS 19 basis, the surplus arising from our defined benefit
pension scheme obligations on 31 March 2021 was GBP16.3m (2020:
GBP30.7m). The value of scheme assets increased to GBP340.2m (2020:
GBP321.4m). Scheme liabilities increased to GBP323.9m (2020:
GBP290.7m) due to movements in the discount rate and inflation
rate. The discount rate decreased from 2.5% to 2.1%, because of a
reduction in bond yields that followed low central bank rates due
to the covid pandemic. The inflation rate has increased from 2.6%
to 3.1%, reflecting economic conditions at the balance sheet
date.
The scheme's actuarial valuation review, rather than the
accounting basis, determines our cash payments into the scheme. The
cash contributions into the scheme are expected to continue until
early 2026, at which point we expect, based on current assumptions,
the scheme to achieve self-sufficiency. In 2021, these
contributions amounted to GBP15.5m, of which GBP8.1m was an
additional one-off payment made at the end of the year, following
which we will further de-risk the investment strategy of the
scheme. The scheme rules provide that in the event of a surplus
remaining after settling contractual obligations to members, the
Group may determine how the surplus is utilised.
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 Finance
Review.
Trading for the Group has remained robust during the covid
pandemic. The Group has prepared and reviewed a number of scenarios
for the Group based on key risks noted for the business and the
potential impact on orders, trading and cash flow performance. In
addition, the Group has overlaid the risk of long-term adverse
movements in foreign exchange rates to our cash flow forecasts. The
Board is satisfied, having considered the sensitivity analysis, as
well as its funding facilities, 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
7 June 2021
CONSOLIDATED STATEMENT OF INCOME
Year ended 31 March 2021
2021 2020
-------- --------- ------- -------- --------- -------
Adjusting Adjusting
Adjusted items(1) Total Adjusted items(1) Total
Note GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------------------------- ---- -------- --------- ------- -------- --------- -------
Revenue 3 318.5 - 318.5 317.4 - 317.4
Cost of sales (153.7) - (153.7) (158.6) (0.4) (159.0)
---------------------------------------------------- ---- -------- --------- ------- -------- --------- -------
Gross profit 164.8 - 164.8 158.8 (0.4) 158.4
Research and development 5 (30.0) (1.3) (31.3) (26.6) (7.1) (33.7)
Selling and marketing (44.5) - (44.5) (47.7) - (47.7)
Administration and shared services (34.5) (8.8) (43.3) (34.7) (8.3) (43.0)
Share of profit of associate, net of tax - - - 0.7 6.5 7.2
Foreign exchange gain/(loss) 0.9 6.4 7.3 - (1.4) (1.4)
---------------------------------------------------- ---- -------- --------- ------- -------- --------- -------
Operating profit 56.7 (3.7) 53.0 50.5 (10.7) 39.8
Interest credit on pension scheme net assets 0.9 - 0.9 - - -
Other financial income 0.2 - 0.2 0.3 - 0.3
---------------------------------------------------- ---- -------- --------- ------- -------- --------- -------
Financial income 1.1 - 1.1 0.3 - 0.3
---------------------------------------------------- ---- -------- --------- ------- -------- --------- -------
Financial expenditure (1.9) - (1.9) (1.3) - (1.3)
---------------------------------------------------- ---- -------- --------- ------- -------- --------- -------
Profit/(loss) before income tax 3 55.9 (3.7) 52.2 49.5 (10.7) 38.8
Income tax (expense)/credit 13 (10.8) 0.4 (10.4) (9.3) 2.5 (6.8)
---------------------------------------------------- ---- -------- --------- ------- -------- --------- -------
Profit/(loss) for the year from continuing
operations 45.1 (3.3) 41.8 40.2 (8.2) 32.0
(Loss)/profit from discontinued operations after tax 7 - - - (0.5) 2.3 1.8
---------------------------------------------------- ---- -------- --------- ------- -------- --------- -------
Profit/(loss) for the year attributable to equity
holders of the parent 45.1 (3.3) 41.8 39.7 (5.9) 33.8
---------------------------------------------------- ---- -------- --------- ------- -------- --------- -------
Earnings per share pence pence pence pence
---------------------------------------------------- ---- -------- --------- ------- -------- --------- -------
Basic earnings per share 2
- From continuing operations 78.6 72.8 70.2 55.9
- From discontinued operations - - (0.9) 3.1
---------------------------------------------------- ---- -------- --------- ------- -------- --------- -------
From profit for the year 78.6 72.8 69.3 59.0
---------------------------------------------------- ---- -------- --------- ------- -------- --------- -------
Diluted earnings per share 2
- From continuing operations 77.6 71.9 69.5 55.3
- From discontinued operations - - (0.9) 3.1
---------------------------------------------------- ---- -------- --------- ------- -------- --------- -------
From profit for the year 77.6 71.9 68.6 58.4
---------------------------------------------------- ---- -------- --------- ------- -------- --------- -------
Dividends per share 14
Dividends paid - 14.4
Dividends proposed 17.0 -
---------------------------------------------------- ---- -------- --------- ------- -------- --------- -------
(1) Adjusted numbers are stated to give a better understanding
of the underlying business performance. Details of adjusting items
can be found in Note 1.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year ended 31 March 2021
2021 2020
GBPm GBPm
-------------------------------------------------------------------------------------------------- ------ -----
Profit for the year 41.8 33.8
Other comprehensive (expense)/income:
Items that may be reclassified subsequently to profit or loss
Foreign exchange translation differences (4.9) 2.5
Net cumulative foreign exchange gain on disposal of subsidiaries recycled to the Income Statement - (4.4)
Items that will not be reclassified to profit or loss
Remeasurement (loss)/gain in respect of post-retirement benefits (30.8) 26.8
Tax credit/(charge) on items that will not be reclassified to profit or loss 5.5 (5.1)
-------------------------------------------------------------------------------------------------- ------ -----
Total other comprehensive (expense)/income (30.2) 19.8
-------------------------------------------------------------------------------------------------- ------ -----
Total comprehensive income for the year attributable to equity Shareholders of the parent 11.6 53.6
-------------------------------------------------------------------------------------------------- ------ -----
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Year ended 31 March 2021
2020
2021 as restated(1)
Note GBPm GBPm
----------------------------------------------------------------------- ---- ----- --------------
Assets
Non-current assets
Property, plant and equipment 15 21.1 21.8
Right-of-use assets 28 7.3 8.2
Intangible assets 16 122.6 135.5
Investment in associate 6 - -
Long-term receivables 19 - -
Derivative financial instruments 22 1.1 -
Retirement benefit asset 25 16.3 30.7
Deferred tax assets 17 13.1 17.3
----------------------------------------------------------------------- ---- ----- --------------
181.5 213.5
----------------------------------------------------------------------- ---- ----- --------------
Current assets
Inventories 18 58.7 58.8
Trade and other receivables 19 75.6 71.1
Current income tax receivable 1.9 0.2
Derivative financial instruments 22 5.0 0.9
Cash and cash equivalents 20 128.0 119.5
269.2 250.5
----------------------------------------------------------------------- ---- ----- --------------
Total assets 450.7 464.0
----------------------------------------------------------------------- ---- ----- --------------
Equity
Capital and reserves attributable to the Company's equity Shareholders
Share capital 23 2.9 2.9
Share premium 62.4 62.2
Other reserves 0.2 0.2
Translation reserve 6.6 11.5
Retained earnings 194.1 174.8
----------------------------------------------------------------------- ---- ----- --------------
266.2 251.6
----------------------------------------------------------------------- ---- ----- --------------
Liabilities
Non-current liabilities
Bank loans 24 - -
Lease payables 28 4.9 6.5
Derivative financial instruments 22 - 0.9
Provisions 27 0.7 0.9
Deferred tax liabilities 17 4.9 10.2
----------------------------------------------------------------------- ---- ----- --------------
10.5 18.5
----------------------------------------------------------------------- ---- ----- --------------
Current liabilities
Bank loans and overdrafts 24 30.4 52.0
Trade and other payables 26 126.1 125.1
Lease payables 28 2.6 2.1
Current income tax payables 6.2 4.6
Derivative financial instruments 22 - 2.6
Provisions 27 8.7 7.5
----------------------------------------------------------------------- ---- ----- --------------
174.0 193.9
----------------------------------------------------------------------- ---- ----- --------------
Total liabilities 184.5 212.4
----------------------------------------------------------------------- ---- ----- --------------
Total liabilities and equity 450.7 464.0
----------------------------------------------------------------------- ---- ----- --------------
(1) Details of restatement of prior year numbers can be found in the accounting policies.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
As at 31 March 2021
Translation Retained
Share capital Share premium Other reserves reserve earnings Total
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------------- ------------- ------------- -------------- ----------- -------- ------
As at 1 April 2020 2.9 62.2 0.2 11.5 174.8 251.6
Total comprehensive income/(expense):
Profit for the year - - - - 41.8 41.8
Other comprehensive (expense)/income:
- Foreign exchange translation
differences - - - (4.9) - (4.9)
- Net cumulative foreign exchange gain on
disposal of subsidiaries recycled to the
Income
Statement - - - - - -
- Remeasurement loss in respect of
post--retirement benefits - - - - (30.8) (30.8)
- Tax credit on items that will not be
reclassified to profit or loss - - - - 5.5 5.5
----------------------------------------- ------------- ------------- -------------- ----------- -------- ------
Total comprehensive(expense)/income
attributable to equity Shareholders of
the parent - - - (4.9) 16.5 11.6
Transactions with owners recorded
directly in equity:
- Proceeds from exercise of share options - - - - - -
- Credit in respect of employee service
costs settled by award of share options - - - - 1.8 1.8
- Tax credit in respect of share options - - - - 1.0 1.0
- Proceeds from shares issued - 0.2 - - - 0.2
- Dividends - - - - - -
Total transactions with owners recorded
directly in equity: - 0.2 - - 2.8 3.0
----------------------------------------- ------------- ------------- -------------- ----------- -------- ------
As at 31 March 2021 2.9 62.4 0.2 6.6 194.1 266.2
----------------------------------------- ------------- ------------- -------------- ----------- -------- ------
As at 1 April 2019 2.9 61.7 0.2 13.4 124.0 202.2
Total comprehensive income/(expense):
Profit for the year - - - - 33.8 33.8
Other comprehensive income/(expense):
- Foreign exchange translation
differences - - - 2.5 - 2.5
- Net cumulative foreign exchange gain on
disposal of subsidiaries recycled to the
Income
Statement - - - (4.4) - (4.4)
- Remeasurement gain in respect of
post--retirement benefits - - - - 26.8 26.8
- Tax charge on items that will not be
reclassified to profit or loss - - - - (5.1) (5.1)
----------------------------------------- ------------- ------------- -------------- ----------- -------- ------
Total comprehensive (expense)/income
attributable to equity Shareholders of
the parent - - - (1.9) 55.5 53.6
Transactions with owners recorded
directly in equity:
- Proceeds from exercise of share options - - - - 0.2 0.2
- Credit in respect of employee service
costs settled by award of share options - - - - 3.1 3.1
- Tax credit in respect of share options - - - - 0.2 0.2
- Proceeds from shares issued - 0.5 - - - 0.5
- Dividends - - - - (8.2) (8.2)
----------------------------------------- ------------- ------------- -------------- ----------- -------- ------
Total transactions with owners recorded
directly in equity: - 0.5 - - (4.7) (4.2)
----------------------------------------- ------------- ------------- -------------- ----------- -------- ------
As at 31 March 2020 2.9 62.2 0.2 11.5 174.8 251.6
----------------------------------------- ------------- ------------- -------------- ----------- -------- ------
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.
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 52,631 (2020: 72,121) of its own shares in an
employee benefit trust. The cost of these shares is included within
retained earnings. Company number: 775598
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended 31 March 2021
2021 2020
Note GBPm GBPm
--------------------------------------------------------------------------------------- ---- ------ ------
Profit for the year 41.8 33.8
Profit for the year from discontinued operations 7 - (1.8)
--------------------------------------------------------------------------------------- ---- ------ ------
Profit for the year from continuing operations 41.8 32.0
Adjustments for:
Income tax expense 13 10.4 6.8
Net financial expense 0.8 1.0
Fair value movement on financial derivatives (6.4) 1.4
Restructuring costs 0.4 0.2
Adjustments relating to defined benefit pension schemes - (0.6)
Profit on disposal of associate 6 - (6.5)
Impairment of inventory - 0.4
Impairment of capitalised development costs 1.3 7.1
Amortisation of acquired intangibles 16 8.4 8.7
Depreciation of right-of-use assets 28 2.8 3.4
Depreciation of property, plant and equipment 15 3.8 3.5
Amortisation of capitalised development costs 16 2.5 2.7
Amortisation of capitalised software costs 16 - 0.3
--------------------------------------------------------------------------------------- ---- ------ ------
Adjusted earnings before interest, tax, depreciation and amortisation 65.8 60.4
Charge in respect of equity settled employee share schemes 12 1.8 3.1
Share of profit of associate - (0.7)
Restructuring costs received/(paid) 0.3 (0.6)
Cash payments to the pension scheme more than the charge to operating profit (15.5) (10.0)
--------------------------------------------------------------------------------------- ---- ------ ------
Operating cash flows before movements in working capital 52.4 52.2
Increase in inventories (1.3) (2.3)
(Increase)/decrease in receivables (10.5) 3.3
Increase in payables and provisions (includes FX movement of GBP3.3m (2020: (GBP1.9m)) 11.3 2.5
(Decrease)/increase in customer deposits (2.2) 6.6
--------------------------------------------------------------------------------------- ---- ------ ------
Cash generated from operations 49.7 62.3
Interest paid (1.6) (1.0)
Income taxes paid (6.3) (6.1)
Net cash from operating activities - continuing operations 41.8 55.2
--------------------------------------------------------------------------------------- ---- ------ ------
Net cash from operating activities 41.8 55.2
--------------------------------------------------------------------------------------- ---- ------ ------
Cash flows from investing activities
Proceeds from sale of property, plant and equipment 0.2 0.1
Acquisition of property, plant and equipment (4.2) (4.4)
Net cash flow on disposal of associate - 11.7
Capitalised development expenditure (0.9) (2.8)
Decrease in long-term receivables - 1.4
--------------------------------------------------------------------------------------- ---- ------ ------
Net cash (used in)/generated from investing activities - continuing operations (4.9) 6.0
Net cash generated from investing activities - discontinued operations - 8.7
--------------------------------------------------------------------------------------- ---- ------ ------
Net cash (used in)/generated from investing activities (4.9) 14.7
--------------------------------------------------------------------------------------- ---- ------ ------
Cash flows from financing activities
Proceeds from issue of share capital 0.2 0.5
Proceeds from exercise of share options - 0.2
Payments made in respect of lease liabilities 28 (2.8) (3.3)
Repayment of borrowings (27.9) (0.6)
Dividends paid - (8.2)
--------------------------------------------------------------------------------------- ---- ------ ------
Net cash used in financing activities - continuing operations (30.5) (11.4)
Net cash generated from financing activities - discontinued operations - -
--------------------------------------------------------------------------------------- ---- ------ ------
Net cash used in financing activities (30.5) (11.4)
--------------------------------------------------------------------------------------- ---- ------ ------
Net increase in cash and cash equivalents 6.4 58.5
Cash and cash equivalents at beginning of the year 95.4 35.2
Effect of exchange rate fluctuations on cash held (4.2) 1.7
--------------------------------------------------------------------------------------- ---- ------ ------
Cash and cash equivalents at end of the year 20 97.6 95.4
--------------------------------------------------------------------------------------- ---- ------ ------
2021 2020
Note GBPm GBPm
--------------------------------------------------------------------------------------- ---- ------ ------
Cash and cash equivalents as per the Balance Sheet 20 128.0 119.5
Bank overdrafts 24 (30.4) (24.1)
--------------------------------------------------------------------------------------- ---- ------ ------
Cash and cash equivalents in the Consolidated Statement of Cash Flows 97.6 95.4
--------------------------------------------------------------------------------------- ---- ------ ------
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 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, depreciation of right-of-use assets
and amortisation of intangible assets to adjusted operating profit,
and can be found in the Consolidated Statement of Cash Flows. The
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. The definition of cash conversion is set out in the
Finance Review.
Reconciliation between operating profit and profit before income
tax and adjusted profit from continuing operations
2021 2020
------------------ ------------------
Profit Profit
Operating before Operating before
income income
profit tax profit tax
GBPm GBPm GBPm GBPm
-------------------------------------------------------- --------- ------- --------- -------
Statutory measure from continuing operations 53.0 52.2 39.8 38.8
-------------------------------------------------------- --------- ------- --------- -------
Business reorganisation items 0.4 0.4 0.2 0.2
Adjustments relating to defined benefit pension schemes - - (0.6) (0.6)
Impairment of inventory - - 0.4 0.4
Impairment of capitalised development costs 1.3 1.3 7.1 7.1
Profit on disposal of associate - - (6.5) (6.5)
Amortisation and impairment of acquired intangibles 8.4 8.4 8.7 8.7
Fair value movement on financial derivatives (6.4) (6.4) 1.4 1.4
-------------------------------------------------------- --------- ------- --------- -------
Total non-GAAP adjustments 3.7 3.7 10.7 10.7
-------------------------------------------------------- --------- ------- --------- -------
Adjusted measure from continuing operations 56.7 55.9 50.5 49.5
Income tax expense (10.8) (9.3)
-------------------------------------------------------- --------- ------- --------- -------
Adjusted profit for the year from continuing operations 56.7 45.1 50.5 40.2
-------------------------------------------------------- --------- ------- --------- -------
Adjusted effective tax rates 19.3% 18.8%
-------------------------------------------------------- --------- ------- --------- -------
Business reorganisation items
These represent the costs of professional fees on an acquisition
project and property-related one-off costs.
In the year to 31 March 2020, these represent the costs of
one-off changes to senior management within the Research &
Discovery segment.
Adjustments relating to defined benefit pension schemes
During the year to 31 March 2020, the Group recognised a one-off
accounting gain on the termination of its US defined benefit
pension scheme. See note 25 for further details.
Impairment of inventory
During the year to 31 March 2020, the Group implemented a new
ERP system at a site within the Research & Discovery division.
In reconciling the inventory on the new system, a need for an
impairment in respect of certain historic inventory differences was
identified. This has been treated as an adjusting item due to its
one-off nature.
Impairment of capitalised development costs
During the year, the Group reviewed the capitalised development
costs to ensure they remained directly related to targeted product
or software developments. The one-off non-cash impairment relates
to delays in market launch of specific development projects within
the Materials & Characterisation segment.
During the year to 31 March 2020, the Group reviewed the
capitalised development costs to ensure they remained directly
related to targeted product or software developments. The one-off
non-cash impairment relates to the Materials & Characterisation
segment; comprising software intangibles in Asylum Research,
historical balances on general process development in Plasma
Technology and product development in NanoAnalysis that has been
affected by a reduction in orders as a result of covid.
Profit on disposal of associate
During the year to 31 March 2020, the Group made a profit on
disposal of its shareholding in Scienta Scientific AB; see Note 6.
This has been treated as an adjusting item due to its non-recurring
nature.
Amortisation and impairment of acquired intangibles
Adjusted profit excludes the non-cash amortisation and
impairment of acquired intangible assets and goodwill.
Fair value movement on financial derivatives
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.
Share of taxation
Adjusting items include the income tax on each of the items
described above.
Reconciliation of changes in cash and cash equivalents to
movement in net cash
2021 2020
GBPm GBPm
-------------------------------------------------- ----- ----
Net increase in cash and cash equivalents 6.4 58.5
Effect of exchange rate fluctuations on cash held (4.2) 1.7
-------------------------------------------------- ----- ----
2.2 60.2
Repayment of borrowings 27.9 0.6
Movement in accrued interest - -
-------------------------------------------------- ----- ----
Movement in net cash in the year 30.1 60.8
Net cash at start of the year 67.5 6.7
-------------------------------------------------- ----- ----
Net cash at the end of the year 97.6 67.5
-------------------------------------------------- ----- ----
Reconciliation of net cash to Statement of Financial
Position
2021 2020
2021 as restated(1)
GBPm GBPm
-------------------------------- ------ --------------
Loan notes - unsecured - (27.9)
Overdrafts (30.4) (24.1)
Cash and cash equivalents 128.0 119.5
-------------------------------- ------ --------------
Net cash at the end of the year 97.6 67.5
-------------------------------- ------ --------------
(1) Prior year numbers have been restated. Details can be found in the accounting policies.
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 Consolidated Statement of Income. 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.
2021 2020
GBPm GBPm
---------------------------------------------------------------------- ----- -----
Profit for the year attributable to equity Shareholders of the parent 41.8 33.8
Discontinued operations - (1.8)
Adjusting items:
Business reorganisation items 0.4 0.2
Adjustments relating to defined benefit pension schemes - (0.6)
Impairment of inventory - 0.4
Impairment of capitalised development costs 1.3 7.1
Profit on disposal of associate - (6.5)
Amortisation and impairment of acquired intangibles 8.4 8.7
Fair value movement on financial derivatives (6.4) 1.4
Adjusted income tax expense (0.4) (2.5)
---------------------------------------------------------------------- ----- -----
Adjusted profit for the year from continuing operations 45.1 40.2
---------------------------------------------------------------------- ----- -----
The weighted average number of shares used in the calculation
excludes shares held by the Employee Share Ownership Trust, and is
as follows:
2021 2020
Shares Shares
million million
---------------------------------------------------------------------------------- ------- -------
Weighted average number of shares outstanding 57.5 57.4
Less: weighted average number of shares held by Employee Share Ownership Trust (0.1) (0.1)
---------------------------------------------------------------------------------- ------- -------
Weighted average number of shares used in calculation of basic earnings per share 57.4 57.3
---------------------------------------------------------------------------------- ------- -------
The following table shows the effect of share options on the
calculation of diluted earnings per share:
2021 2020
Shares Shares
million million
---------------------------------------------------------------------- ------- -------
Number of ordinary shares per basic earnings per share calculations 57.4 57.3
Effect of shares under option 0.7 0.6
---------------------------------------------------------------------- ------- -------
Number of ordinary shares per diluted earnings per share calculations 58.1 57.9
---------------------------------------------------------------------- ------- -------
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 eight 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. The aggregated operating segments
are as follows:
-- the Materials & 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 & 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 & Healthcare segment provides customer
service and support for the Group's products and the service 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 based on 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. 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.
The results of the year to 31 March 2020 have been restated to
reflect Magnetic Resonance moving from the Research & Discovery
segment to the Materials & Characterisation segment. Further
information can be found in the accounting policies.
Results from continuing operations
Materials Research Service
& & &
Characterisation Discovery Healthcare Total
Year to 31 March 2021 GBPm GBPm GBPm GBPm
------------------------------------------------------------- ---------------- --------- ---------- -----
Total segment revenue 148.6 113.4 56.5 318.5
------------------------------------------------------------- ---------------- --------- ---------- -----
Segment adjusted operating profit from continuing operations 20.3 19.5 16.9 56.7
------------------------------------------------------------- ---------------- --------- ---------- -----
Materials Research Service
& & &
Characterisation Discovery Healthcare Total
Year to 31 March 2020 as restated GBPm GBPm GBPm GBPm
------------------------------------------------------------- ---------------- --------- ---------- -----
Total segment revenue 145.8 117.8 53.8 317.4
------------------------------------------------------------- ---------------- --------- ---------- -----
Segment adjusted operating profit from continuing operations 21.0 14.5 15.0 50.5
------------------------------------------------------------- ---------------- --------- ---------- -----
The adjusted profit after tax of GBPnil (2020: GBP0.7m) 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.
As at 31 March 2021, the Group had unfulfilled performance
obligations under IFRS 15 of GBP198.1m (2020: GBP175.0m). It is
anticipated that GBP178.9m (2020: GBP144.8m) of this balance will
be satisfied within one year. The remainder is anticipated to be
satisfied in the following financial year.
Reconciliation of reportable segment profit from continuing
operations
Materials Research Service
& & & Unallocated
Characterisation Discovery Healthcare Group items Total
Year to 31 March 2021 GBPm GBPm GBPm GBPm GBPm
--------------------------------------------------------- ---------------- --------- ---------- ----------- -----
Segment adjusted operating profit from continuing
operations 20.3 19.5 16.9 - 56.7
Restructuring costs (0.4) - - - (0.4)
Impairment of capitalised development costs (1.3) - - - (1.3)
Amortisation of acquired intangibles (2.0) (6.4) - - (8.4)
Fair value movement on financial derivatives - - - 6.4 6.4
Financial income - - - 1.1 1.1
Financial expenditure - - - (1.9) (1.9)
--------------------------------------------------------- ---------------- --------- ---------- ----------- -----
Profit before income tax from continuing operations 16.6 13.1 16.9 5.6 52.2
--------------------------------------------------------- ---------------- --------- ---------- ----------- -----
Materials Research Service
& & & Unallocated
Characterisation Discovery Healthcare Group items Total
Year to 31 March 2020 as restated GBPm GBPm GBPm GBPm GBPm
--------------------------------------------------------- ---------------- --------- ---------- ----------- -----
Segment adjusted operating profit from continuing
operations 21.0 14.5 15.0 - 50.5
Restructuring costs (0.1) (0.1) - - (0.2)
Adjustments relating to defined benefit pension schemes - - - 0.6 0.6
Impairment of inventory - (0.4) - - (0.4)
Impairment of capitalised development costs (6.3) (0.8) - - (7.1)
Profit on disposal of associate - 6.5 - - 6.5
Amortisation of acquired intangibles (2.3) (6.4) - - (8.7)
Fair value movement on financial derivatives - - - (1.4) (1.4)
Financial income - - - 0.3 0.3
Financial expenditure - - - (1.3) (1.3)
--------------------------------------------------------- ---------------- --------- ---------- ----------- -----
Profit/(loss) before income tax from continuing
operations 12.3 13.3 15.0 (1.8) 38.8
--------------------------------------------------------- ---------------- --------- ---------- ----------- -----
2020
2021 as restated
Depreciation GBPm GBPm
-------------------------------------------------------------------------- ----- ------------
Materials & Characterisation 3.3 2.9
Research & Discovery 1.3 1.4
Service & Healthcare 0.6 1.1
Unallocated Group items 1.4 1.5
-------------------------------------------------------------------------- ----- ------------
Total 6.6 6.9
-------------------------------------------------------------------------- ----- ------------
2020
2021 as restated
Capital expenditure GBPm GBPm
-------------------------------------------------------------------------- ----- ------------
Materials & Characterisation 3.2 2.7
Research & Discovery 1.3 1.1
Service & Healthcare 0.1 0.1
Unallocated Group items 0.2 0.5
-------------------------------------------------------------------------- ----- ------------
Total 4.8 4.4
-------------------------------------------------------------------------- ----- ------------
2020
2021 as restated
Amortisation and impairment GBPm GBPm
-------------------------------------------------------------------------- ----- ------------
Materials & Characterisation 5.6 10.7
Research & Discovery 6.6 7.8
Service & Healthcare - -
Unallocated Group items - 0.3
-------------------------------------------------------------------------- ----- ------------
Total 12.2 18.8
-------------------------------------------------------------------------- ----- ------------
2020
2021 as restated
Capitalised development costs GBPm GBPm
-------------------------------------------------------------------------- ----- ------------
Materials & Characterisation 0.8 2.4
Research & Discovery 0.1 0.4
Service & Healthcare - -
Unallocated Group items - -
-------------------------------------------------------------------------- ----- ------------
Total 0.9 2.8
-------------------------------------------------------------------------- ----- ------------
2021 2020
Revenue from continuing operations from external customers by destination GBPm GBPm
-------------------------------------------------------------------------- ----- ------------
UK 14.5 13.4
China 76.8 69.7
Japan 39.6 38.5
USA 72.1 83.5
Germany 32.8 26.7
Rest of Europe 39.9 44.8
Rest of Asia 33.8 28.4
Rest of World 9.0 12.4
-------------------------------------------------------------------------- ----- ------------
Total 318.5 317.4
-------------------------------------------------------------------------- ----- ------------
2021 2020
Non-current assets (excluding deferred tax) GBPm GBPm
-------------------------------------------------------------------------- ----- ------------
UK 146.0 170.2
Germany 2.9 4.0
USA 8.7 9.7
Japan 0.6 1.4
China 0.3 0.5
Rest of Europe 7.8 8.8
Rest of Asia 0.2 0.3
Rest of World 0.9 1.3
-------------------------------------------------------------------------- ----- ------------
Total 167.4 196.2
-------------------------------------------------------------------------- ----- ------------
4 RESEARCH AND DEVELOPMENT (R&D)
The total research and development spend by the Group is as
follows:
Materials Research
& &
Characterisation Discovery Total
Year to 31 March 2021 GBPm GBPm GBPm
---------------------------------------------------------------------- ---------------- --------- -----
R&D expense charged to the Consolidated Statement of Income 20.2 9.8 30.0
Less: depreciation of R&D-related fixed assets - (0.1) (0.1)
Add: amounts capitalised as fixed assets - 0.6 0.6
Less: amortisation of R&D costs previously capitalised as intangibles (2.3) (0.2) (2.5)
Add: amounts capitalised as intangible assets 0.8 0.1 0.9
---------------------------------------------------------------------- ---------------- --------- -----
Total cash spent on R&D during the year 18.7 10.2 28.9
---------------------------------------------------------------------- ---------------- --------- -----
Materials Research
& &
Characterisation Discovery Total
Year to 31 March 2020 as restated(1) GBPm GBPm GBPm
---------------------------------------------------------------------- ---------------- --------- -----
R&D expense charged to the Consolidated Statement of Income 16.0 10.6 26.6
Less: depreciation of R&D-related fixed assets - - -
Add: amounts capitalised as fixed assets 0.1 - 0.1
Less: amortisation of R&D costs previously capitalised as intangibles (2.1) (0.6) (2.7)
Add: amounts capitalised as intangible assets 2.4 0.4 2.8
---------------------------------------------------------------------- ---------------- --------- -----
Total cash spent on R&D during the year 16.4 10.4 26.8
---------------------------------------------------------------------- ---------------- --------- -----
(1) Details of restatement of prior year numbers for changes in
reporting segments can be found in the accounting policies.
5 INVESTMENT IN ASSOCIATE
The Group held 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. On 28 January 2020, the
Group sold its holdings in Scienta Scientific AB for GBP11.7m in
cash.
The Group's share of profit in its equity accounted associate
for the period to 28 January 2020 was GBP0.7m. The Group did not
receive any dividend from the associate in the current or prior
periods.
The profit on disposal recognised in the accounts to 31 March
2020 was GBP6.5m.
6 DISPOSAL OF SUBSIDIARY AND DISCONTINUED OPERATIONS
On 21 February 2020, the Group disposed of its OI Healthcare
business in the US for a final consideration of $14.9m, of which
$1.5m was held in escrow for 18 months pending any claims from the
purchaser. By 31 March 2021, the balance held in escrow had reduced
to $0.6m given the resolution of certain purchase price
adjustments.
In the year to 31 March 2020 the OI Healthcare business was
classified as a discontinued operation. It was considered a major
class of business on the basis of its size and that it was
previously an operating segment and referred to in the Group's
Strategic Report.
During the year to 31 March 2021 there were no transactions
relating to discontinued operations.
2021 2020
------------------------- -------------------------
Industrial Industrial
OI Healthcare Analysis OI Healthcare Analysis
Results of discontinued operations GBPm GBPm GBPm GBPm
------------------------------------------------ ------------- ---------- ------------- ----------
Revenue - - 14.8 -
Expenses - - (15.5) -
------------------------------------------------ ------------- ---------- ------------- ----------
Adjusted (loss)/profit before tax - - (0.7) -
Income tax credit/(charge) - - 0.2 -
------------------------------------------------ ------------- ---------- ------------- ----------
Adjusted (loss)/profit after tax - - (0.5) -
------------------------------------------------ ------------- ---------- ------------- ----------
Adjusting items:
Restructuring costs - - (0.1) (0.2)
Amortisation of acquired intangibles - - (0.8) -
Income tax on adjusting items - - 0.3 -
------------------------------------------------ ------------- ---------- ------------- ----------
(Loss)/profit after tax - - (1.1) (0.2)
Gain on disposal - - 3.1 -
Tax on gain on disposal - - - -
------------------------------------------------ ------------- ---------- ------------- ----------
Profit from discontinued operations after tax - - 2.0 (0.2)
------------------------------------------------ ------------- ---------- ------------- ----------
Cash flows from discontinued operations
Net cash generated from operating activities - - - -
Net cash generated from investing activities - - 7.4 1.3
Net cash used in financing activities - - - -
------------------------------------------------ ------------- ---------- ------------- ----------
2021 2020
Earnings per share from discontinued operations pence pence
------------------------------------------------ ------------- ---------- ------------- ----------
Adjusted basic loss per share - (0.9)
Adjusted diluted loss per share - (0.9)
Total basic earnings per share - 3.1
Total diluted earnings per share - 3.1
------------------------------------------------ ------------- ---------- ------------- ----------
7 INCOME TAX EXPENSE
2021 2020
GBPm GBPm
---------------------------------------------------------------------------- ----- -----
Recognised in the Consolidated Statement of Income
Current tax expense
Current year 9.7 9.1
Adjustment in respect of prior years (3.2) (0.8)
---------------------------------------------------------------------------- ----- -----
6.5 8.3
---------------------------------------------------------------------------- ----- -----
Deferred tax expense
Origination and reversal of temporary differences 2.0 (1.6)
Adjustment in respect of prior years 1.9 0.1
---------------------------------------------------------------------------- ----- -----
3.9 (1.5)
---------------------------------------------------------------------------- ----- -----
Total tax expense 10.4 6.8
---------------------------------------------------------------------------- ----- -----
Reconciliation of effective tax rate
Profit before income tax 52.2 38.8
Income tax using the weighted average statutory tax rate of 21% (2020: 22%) 11.0 8.5
Effect of:
Tax rates other than the weighted average statutory rate 0.4 0.1
Change in rate at which deferred tax recognised 0.1 0.1
Profit on disposal - (1.3)
Non-taxable income and expenses 0.3 0.6
Movement in unrecognised deferred tax (0.1) -
Adjustment in respect of prior years (1.3) (1.2)
---------------------------------------------------------------------------- ----- -----
Total tax expense 10.4 6.8
---------------------------------------------------------------------------- ----- -----
Taxation (credit)/charge recognised directly in other comprehensive income
Deferred tax - relating to employee benefits (5.5) 5.1
---------------------------------------------------------------------------- ----- -----
Taxation credit recognised directly in equity
Deferred tax - relating to share options (1.0) (0.2)
---------------------------------------------------------------------------- ----- -----
Reductions in the UK corporation tax rate from 19% to 17%
(effective from 1 April 2020) was substantively enacted on 6
September 2016. However, in the Budget on 11 March 2020, it was
announced that this reduction would be reversed, which was
substantively enacted on 17 March 2020. Consequently, the UK
corporation tax rate will remain at 19%. The UK deferred tax
liability at 31 March 2020 was calculated based on that rate.
On 5 March 2021 it was announced that the rate of UK corporation
tax would be increased to 25% from 1 April 2023; however, at the
reporting date, this change has not been substantively enacted. As
such, the UK deferred tax assets and liabilities have been
calculated based on the enacted rate of 19%.
The Group carries tax provisions in relation to uncertain tax
positions arising from the possible outcome of negotiations with
tax authorities. The provisions have been calculated based on the
probable outcome of those negotiations from a range of
possibilities and assume that the tax authorities have full
knowledge of the facts. 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.
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 2020 was GBP1.2m in respect of tax and
GBP0.1m in respect of interest unless the decision is successfully
challenged in the EU Courts. The Group believed that GBP0.2m might
ultimately have been payable and a provision was made for that
amount in the year to 31 March 2020. In early 2021, HM Revenue and
Customs advised the Group that it agreed with the Group's position
that it had not in fact been a beneficiary of State Aid. The
provision of GBP0.2m has accordingly been released in the year to
31 March 2021.
In addition to the provision release following the enactment of
the Coronavirus Aid, Relief, and Economic Security Act (CARES Act),
the Group was able to carry back tax losses in the US to earlier
years, which resulted in a prior year adjustment of GBP2.7m.
8 DIVIDS PER SHARE
The following dividends per share were paid by the Group:
2021 2020
pence pence
--------------------------------- ----- -----
Previous period interim dividend - 3.8
Previous period final dividend - 10.6
--------------------------------- ----- -----
- 14.4
--------------------------------- ----- -----
The following dividends per share were proposed by the Group in
respect of each accounting period presented:
2021 2020
pence pence
----------------- ----- -----
Interim dividend 4.1 -
Final dividend 12.9 -
----------------- ----- -----
17.0 -
----------------- ----- -----
The interim dividend was not provided for at the year end and
was paid on 14 April 2021. The final proposed dividend of 14.9
pence per share was not provided at the year end and will be paid
on 15 October 2021, subject to authorisation by the Shareholders at
the forthcoming Annual General Meeting.
9 Exchange rates
This preliminary announcement does not constitute the Company's
statutory accounts for the years ended 31 March 2021 or 2020.
Statutory accounts for 2020 have been delivered to the registrar of
companies and those for 2021 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 2021 is based on, and is
consistent with, that in the Group's audited Financial Statements
for the year ended 31 March 2021. No revisions to adopted IFRS that
became applicable in 2021 had a significant impact on the Group's
Financial Statements for the year ended 31 March 2021.
In early 2021, the Financial Reporting Council submitted a
request for further information on the Group's Report and Financial
Statements for the year ended 31 March 2020. The Group responded
fully to the matters raised in the correspondence and has restated
the relevant sections of this year's accounts to reflect this. The
restatement impacted the cash and overdraft balances disclosed in
the balance sheet as reported in the 2020 Report and Financial
Statements. Full details of the restatement will be provided in the
Accounting Policies Note to the 2021 Report and Financial
Statements. The FRC's enquiry did not result in any changes to
reported profit, earnings per share, net assets, or the cash flows
reported in the 2020 financial year.
The Company is registered in England, Registration Number
775598.
The principal exchange rates to Sterling used were:
Year-end rates 2021 2020
--------------- ---- ----
US Dollar 1.38 1.24
Euro 1.17 1.13
Japanese Yen 152 134
--------------- ---- ----
Average translation rates
Japanese
Year to 31 March 2021 US Dollar Euro Yen
-------------------------- --------- ---- --------
April 1.25 1.14 134
May 1.25 1.13 134
June 1.24 1.11 133
July 1.27 1.11 136
August 1.33 1.11 140
September 1.32 1.11 139
October 1.29 1.11 136
November 1.34 1.12 139
December 1.35 1.12 140
January 1.37 1.12 142
February 1.39 1.14 146
March 1.39 1.16 151
-------------------------- --------- ---- --------
Average translation rates
Japanese
Year to 31 March 2020 US Dollar Euro Yen
-------------------------- --------- ---- --------
April 1.30 1.16 144
May 1.28 1.15 142
June 1.27 1.13 138
July 1.26 1.12 136
August 1.23 1.11 132
September 1.23 1.12 132
October 1.26 1.14 136
November 1.28 1.16 139
December 1.30 1.17 142
January 1.32 1.18 143
February 1.30 1.19 144
March 1.27 1.16 139
-------------------------- --------- ---- --------
10. ANNUAL GENERAL MEETING
The Annual General Meeting will be held on 21 September 2021.
Detailed arrangements in respect of the AGM will be advised in due
course.
11. PRINCIPAL RISKS AND UNCERTAINTIES
The Group's approach to risk management has evolved over the
course of the last financial year with the aim of making risk
reviews more effective. The result is a more targeted quarterly
risk review by the Audit and Risk Committee, which is underpinned
by a detailed risk review at business unit and Group level. This
approach supports the Group in mitigating against the adverse
impacts of material risks which could hinder the achievement of
strategic plans and objectives. Group risk management also piloted
a sustainability risk review with the NanoScience business unit and
it is planned that sustainability risk reviews will be conducted at
all business units during 2021/22. This forms a key element of the
Group's review of emerging risks.
The first phase of the risk management process has not changed
and continues with a detailed assessment of key risks in all
operating business units which are reported to Group on a quarterly
basis. This standardised approach with scores for the gross risk
and residual risk forms the basis of risk discussions between Group
risk management and the business units and the compilation of the
quarterly Group risk register.
The key change in the risk management process comes in reporting
risks to the Audit and Risk Committee. Group risk management
reports common risks across business units, categorised under key
themes. This reporting facilitates comparison across business units
and the sharing of good practice in one business unit amongst
others.
At a business unit level, the risk management process has not
changed significantly. The update and review of individual business
units' risk registers remains a core part of recurring activities
of the senior management teams. The output is discussed with Group
risk management on a quarterly basis to ensure that key risks have
been effectively communicated and that mitigating actions are
appropriate. These discussions play a key role in informing Group
risk management of the most significant risks to report to the
Audit and Risk Committee.
Response to covid
In addition to the actions taken at Board level to prepare for
the possible adverse impacts that might arise from covid, the Group
established a working group involving senior management and
employee representatives from across head office and all of the
UK's operating business units.
The working group met between May and September 2020 to consider
and address the key issues that arose, notably in relation to
operational practices, health and wellbeing. Further, across the
globe, our service teams adapted and implemented new tools and
techniques to deliver remote support to customers when travel
restrictions were in effect.
Principal risks matrix
For the first time in the Report and Financial Statements, the
principal risks and uncertainties have been mapped onto a
probability and impact matrix ("PI matrix") to facilitate
comparison of the relative importance of the risks at a Group
level. The PI matrix includes arrows which show the direction of
travel for each risk.
The methodology for mapping the risks is based on the Group's
assessment of the residual risk i.e. the probability of the risk
occurring and the potential impact it may have based on the
mitigating actions and controls that are in place to manage the
risk. The output of this assessment is shown in the chart
below.
Specific uncertainty 1: Impact of covid
Context: While the Group has demonstrated resilience to the
economic impact of covid the pandemic might still cause further
disruption to supply chains, production and service operations, and
customers. The Group will continue with the customer-centric
approach that is a key pillar of the Horizon strategy to focus on
growth markets.
Risk factor/uncertainty
-- Fall in demand due to reduced funding for academic customers
in key markets/deferral of capex for industrial customers
-- Short-term supply chain disruption
-- Workforce disruption in production
-- Ongoing travel restrictions for service personnel
Possible impact
-- Short-term reduction in sales volumes and contribution
-- Potentially unable to meet delivery deadlines/reduction in capacity
-- Installations and on-site service activities disrupted
-- Negative cash flow/liquidity risk
-- Management actions
-- Customer intimacy
-- Working closely with key supplier base
-- Safe ways of working and changes to shift patterns to maximise capacity
-- Remote service activities
-- Iterative financing review and review of cost base
Mitigation
-- Sales and operational planning process
-- Contractual protection
-- Strategic procurement, working with supply chain to mitigate risk
-- Strong balance sheet and options for external funding
Change in year: decrease
Specific risk 1: Political risk
Context: The Group operates in global markets and can be
required to secure export licences from governments. As an example,
China accounts for 24% of annual revenue.
Risk
-- Changes in the geopolitical landscape or an escalation in
global trade tensions resulting in major obstacles to trade with
customers in key markets. This could arise from export licence
refusals, trade tariffs or nations seeking to reduce reliance on
foreign imports in strategic technologies through the development
of domestic competition and/or protectionist measures.
Possible impact
-- Lower export volumes or net pricing to key markets adversely affecting revenue
-- Increases to input costs and lower gross margins
-- Limitations on ability to provide after-sales service to existing customers
-- Certain product lines might not be sustainable if access to
key export markets is severely restricted
Control mechanisms
-- Contract review and protection against breach of contract should export licences be withheld
-- Proactive dialogue with relevant government authorities
Mitigation
-- Broad global customer base; contractual protection
-- Improved information flows to decision--makers
Change in the year: increase
Specific risk 2: Routes to market
Context: In some instances, the Group's products are components
of higher--level systems sold by OEMs, and thus the Group does not
control its route to market.
Risk
-- Vertical integration by OEMs
Possible impact
-- Loss of key customers/routes to market
-- Reduction in sales volumes and/or pricing and lower profitability
Control mechanisms
-- Customer intimacy to match product performance to customer needs
-- Positioning of the Oxford Instruments brand and marketing directly to end users
Mitigation
-- Strategic relationships with OEMs to sell performance of combined systems
-- Product differentiation to promote advantages of Oxford Instruments' equipment and solutions
-- Direct marketing to end users
Change in the year: no change
Specific risk 3: Technical risk
Context: The Group provides high technology equipment, systems
and services to its customers.
Risk
-- Failure of the advanced technologies applied by the Group to
produce commercially viable products
Possible impact
-- Loss of market share or negative pricing pressure resulting
in lower turnover and reduced profitability
-- Additional NPI expenditure
-- Adverse impact on the Group's brand and reputation
Control mechanisms
-- "Voice of the Customer" approach and market intimacy to
direct product development activities
-- Formal NPI processes to prioritise investment and to manage R&D expenditure
-- Product lifecycle management
Mitigation
-- Understanding customer needs/expectations and targeted new
product development programme to maintain and strengthen product
positioning
-- Stage gate process in product development to challenge
commercial business case and mitigate technical risks
-- Operational practices around sales--production matching and
inventory management to mitigate stock obsolescence risks
Change in the year: no change
Specific risk 4: 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
-- Operational disruption, due to supply chain shortages
-- Change of ownership resulting in loss of supply
-- Regulatory changes or economic viability causing suppliers to
discontinue production, impacting the long-term availability of key
components
Possible impact
-- Reduction or halt to production output
-- Lost revenue
-- Decreased margins
-- Increased lead times
-- Poor customer service
-- Increased inventory leading to cash flow reduction
-- Negative impact on quality
Control mechanisms
-- Group consolidated risk database plus sales and operational planning process
-- Group strategic sourcing programme to manage key supplier risks
-- Focused efforts on higher-risk suppliers identified
-- Long-term contracts with key suppliers
Mitigation
-- Long-term demand planning
-- Buffer stock in extended supply chain
-- Relationship management with key suppliers
-- Responsive and adaptive engineering change process
Change in the year: increase
Specific risk 5: Cyber risk
Context: Elements of production, financial and other systems
rely on IT availability.
Risk
-- Cyber-attack on the Group's IT infrastructure
-- Ransomware/spread of viruses or malware
Possible impact
-- System failure/data loss and sustained disruption to production operations
-- Loss of business-critical data
-- Financial and reputational damage
Control mechanisms
-- Suite of IT protection mechanisms including penetration
testing, regular backups, virtual machines, and cyber reviews
-- External IT security consultants
-- Internal IT governance to maintain protection systems and our incident response
-- Employee awareness training
Mitigation
-- Managed service with third-party security specialists providing incident monitoring
-- Regular review, monitoring and testing of key security
measures to assess adequacy of protection against known threats
-- End user education and phishing simulation exercises
Change in the year: increase
Specific risk 6: Legal/compliance risk
Context: The Group operates in a complex regulatory and
technological environment. The Group may at times experience
unintentional non--conformance with regulations and competitors may
seek to protect their position through intellectual property
rights.
Risk
-- Infringement of a third party's intellectual property
-- Regulatory breach
Possible impact
-- Potential loss of future revenue
-- Future royalty payments
-- Payment of damages
-- Fines and non-financial sanctions such as restrictions on
trade, disbarment from public procurement contracts
-- Reputational damage
Control mechanisms
-- Formal "Freedom to Operate" assessment to identify potential
IP issues during product development
-- Internal control framework including policies, procedures and
training in risk areas such as bribery and corruption, sanctions,
and export controls
Mitigation
-- Confirmation of "Freedom to Operate" during new product development stage gate process
-- Compliance monitoring programme
Change in the year: no change
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 cost base is
predominantly denominated in Sterling.
Risk
-- Long-term strengthening of Sterling against key currencies
such as the US Dollar, Japanese Yen and the Euro
Possible impact
-- Reduced revenue and profitability
-- Control mechanisms
-- Treasury management of short-term hedging programme
-- Strategic management of currency exposure
Mitigation
-- Review of supply chain currency base
-- Active review of net exposure in key currencies
Change in the year: increase
Specific risk 8: Brexit-related risk
Context: Although the UK has entered into a Free Trade Agreement
with the EU, non-tariff barriers to trade may damage cross-border
trade with EU customers and suppliers.
Risk
-- EU customers might favour competitors within the EU
-- Lower participation in EU-funded research projects
-- Additional costs in the supply chain/additional freight costs
-- UK becomes less attractive to EU nationals as a place to work
Possible impact
-- Lower sales and profitability
-- Increased input costs and reduced margins
-- Salary inflation
-- Loss of key skills and/or increased recruitment and/or salary costs
Control mechanisms
-- Sales production matching and resource planning
-- Customer intimacy and monitoring of funded projects
-- Strategic sourcing programme
-- Product pricing reviews
-- Skills and capabilities reviews
Mitigation
-- Succession management plans
-- Technical career paths
-- UK work permit scheme to facilitate employment of non--UK nationals in place
Change in the year: decrease
Specific risk 9: People
Context: A number of the Group's employees have
business-critical skills.
Risk
-- Key employees leave and effective replacements are not recruited on a timely basis
Possible impact
-- Adverse impact on NPI
-- Operational disruption
-- Lower sales and profitability
Control mechanisms
-- HR people strategy for retention and recruitment of staff with key skills
Mitigation
-- Succession management plans
-- Technical career paths
-- UK work permit scheme to facilitate employment of non--UK nationals in place
Change in the year: no change
Specific risk 10: Operational risk
Context: Business units' production facilities are typically
located at a single site.
Risk
-- Sustained disruption to production arising from a major incident at a site
Possible impact
-- Inability to fulfil orders in the short term, resulting in a
reduction in sales and profitability
-- Additional, non-recurring overhead costs
Control mechanisms
-- Contingency plans are in place for all manufacturing sites
-- Contractual clauses to limit financial consequences of delayed delivery
Mitigation
-- Detailed responses in contingency plans can reduce downtime
arising from incidents and facilitate the restoration or relocation
of production
-- Standard sales contracts include clauses for limitation of
liability, liquidated damages and the exclusion of consequential
losses
-- Business interruption insurance
Change in the year: no change
Specific risk 11: Pensions
Context: The actuarial pension deficit is sensitive to changes
in the actuarial assumptions.
Risk
-- The actuarial pension deficit is sensitive to movements in
actuarial assumptions and returns on investments
Possible impact
-- Variations to the current deficit recovery plan
-- Increase in the annual levy paid to the Pension Protection Fund
Control mechanisms
-- Ongoing review of investment strategy, including active
control of risk, by the trustee's investment sub-committee
-- Liability hedging programme to mitigate exposure to movements
in interest rates and inflation
-- Reduced exposure to equity markets
Mitigation
-- The Group closed its UK defined benefit pension scheme to future accrual in 2010
-- The Group has a funding plan in place to eliminate the actuarial deficit by 2025/26.
Change in the year: decrease
ENDS
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