TIDMOXIG
RNS Number : 7279O
Oxford Instruments PLC
14 June 2022
Oxford Instruments plc
Announcement of Preliminary Results for the year ended 31 March
2022
Strong performance over the year provides the foundation for
sustainable growth and continued medium-term margin expansion
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 2022.
% change
Year ended Year ended organic
31 March 31 March % change constant
Adjusted(1) 2022 2021 reported currency(4)
---------------------------------- ---------- ---------- --------- ------------
Revenue GBP367.3m GBP318.5m +15.3% +14.5%
Adjusted operating profit GBP66.3m GBP56.7m +16.9% +15.2%
Adjusted operating profit margin 18.1% 17.8% +30bps
Adjusted profit before taxation GBP65.9m GBP55.9m +17.9%
Adjusted basic earnings per share 94.3p 78.6p +20.0%
Cash conversion(2) 84% 102%
Net cash(3) GBP85.9m GBP97.6m
---------------------------------- ---------- ---------- --------- ------------
Year ended Year ended
31 March 31 March % change
Statutory 2022 2021 reported
-------------------------------- ---------- ---------- ---------
Revenue GBP367.3m GBP318.5m +15.3%
Operating profit GBP48.3m GBP53.0m (8.9%)
Operating profit margin 13.2% 16.6%
Profit before taxation GBP47.6m GBP52.2m (8.8%)
Basic earnings per share 67.1p 72.8p (7.8%)
Dividend per share for the year 18.1p 17.0p +6.5%
-------------------------------- ---------- ---------- ---------
1. Adjusted items exclude the amortisation and impairment of
acquired intangible assets, acquisition items, 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. Organic numbers
remove the impact of the acquisition of WITec.
FINANCIAL HIGHLIGHTS
-- Organic revenue growth of 14.5%, partially constrained by
supply chain disruption. Reported revenue growth bolstered by WITec
acquisition
-- Strong growth in orders of 19.9% at organic constant currency
-- Reported order book of GBP260.2m, growth of 26.6% at organic constant currency
-- Strong growth in adjusted operating profit of 16.9%, with margin rising to 18.1%
-- Statutory profit measures include a GBP6.4m charge as a
result of the unwind of the brought forward GBP6.1m financial
derivative asset
-- Growth and phasing of orders and revenue led to an increase
in working capital, resulting in normalised cash conversion of
84%
-- Growth in total dividend for the year of 6.5%
OPERATIONAL HIGHLIGHTS
-- Resilience of our business model and product strength
underpinned improved financial performance despite significant
inflationary pressures
-- Strong order growth across each of our end markets supported
by long-term structural growth drivers and global sustainability
agenda
-- Investment in semiconductor markets drives strong growth
across our materials analysis and etch and deposition portfolio
-- Research and development of advanced materials supports
strong demand for our range of analysis and imaging systems
-- Launch of advanced benchtop microscopy system complements our
imaging technology, increasing our product reach and capability
into Healthcare & Lifescience
-- Quantum computing research and evolving commercial market
drive demand for our cryogenic systems and scientific cameras
-- Strong performance from WITec acquisition in first year with
key applications across advanced materials and life science
research
Ian Barkshire, Chief Executive of Oxford Instruments plc,
commented on performance and outlook:
"We have successfully navigated the turbulence of the last two
years, and, through the dedication of our talented global team and
the successful execution of our Horizon strategy, we have emerged
as a stronger, more focused business, even better aligned to meet
the needs of our customers in attractive end markets with long-term
structural growth drivers.
"The business has performed strongly this year, despite supply
chain disruption impacting the conversion of orders into revenue
and cost inflation holding back margin progression. Looking ahead,
we do not foresee short term relief from the current economic
headwinds and ongoing supply chain constraints. However, our
diverse end-markets remain resilient, and we enter the year with
good visibility due to a strong order book and continued order
growth. This supports full year outlook in line with our
expectations.
"Our products play a critical role for our customers in enabling
a greener, healthier, more connected, and advanced society which
puts us at the heart of creating a more sustainable future. Our
leading product portfolio, the strength of our brand and our
relentless drive for continuous operational improvement provide the
foundation for sustainable organic growth and continued margin
expansion over the medium-term, while our strong financial position
supports augmenting growth through synergistic acquisitions."
The financial information set out above does not constitute the
group's statutory accounts for the years ended 31 March 2022 or
2021, but is derived from those accounts. Statutory accounts for
2021 have been delivered to the Registrar of Companies and those
for 2022 will be delivered following the company's Annual General
Meeting. The auditors have reported on those accounts: their
reports were unqualified, did not draw any attention to any matters
by way of emphasis and do not contain statements under s498(2) or
(3) of the Companies Act 2006.
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 / Eleni Menikou / Charlie Email: oxfordinstruments@mhpc.com
Protheroe
------------------------------------ ---------------------------------
Number of pages: 41
CHAIR'S STATEMENT
I am proud of the role we play in making a positive impact on
the world around us, driven by our core purpose to enable a
greener, healthier, more connected, advanced society.
Neil Carson
Chair
This is further enhanced by the deep insights we gain through
the value-driven relationships we have with our customers. By
nurturing these relationships, and through strategic
collaborations, we build a unique understanding of our customers'
current and future needs, informing our development efforts and
enabling us to sustain our leadership positions, and allowing our
customers to deliver on their goals.
Impressive performance against a challenging backdrop
The strength of our end markets, the quality of our
market-leading portfolio and the resilience of our business model
are demonstrated by the Group's strong performance in the year,
which has been delivered despite global supply chain shortages and
inflationary pressures.
The unprovoked attack on Ukraine by Russia has shocked the world
and, as a global company committed to upholding our values, the
Board strongly condemns this abhorrent action and fully supports
the decision to cease trading in the territories of the Russian
Federation and Belarus.
Throughout the ongoing covid-related disruptions, with regional
lockdowns intermittently in place across some of our territories,
we have remained committed to protecting the health, safety and
wellbeing of all our employees and for the Group to provide
additional support where required.
We have further developed our hybrid workplace model, driving
efficiencies across the Group, maintaining business continuity
throughout, and providing improved support for our customers.
Clear opportunities ahead with execution of Horizon strategy
The successful execution of our strategy to date has driven a
track record of improved financial performance by keeping our focus
on attractive end markets with strong growth drivers, many of which
are further strengthened by the global sustainability agenda,
alongside driving operational efficiency improvements and the
transformation of our service offering.
The Board remains fully supportive of the ongoing delivery and
evolution of Horizon and is excited by the expansive opportunities
ahead as we build scale and enhance the capabilities across our
well-established platform. We believe the investments being made in
the business will continue to drive future growth, including our
growing, commercially driven R&D programme, our new facilities,
and the successful execution of selective acquisitions, as
demonstrated by the acquisition of Wissenschaftliche Instrumente
und Technologie GmbH (WITec).
We can also see the clear benefits of the investment that has
been made in enhancing the talent and capabilities within the
Group, including commercial, technical and service, as well as in
the transformation of our customer services' infrastructure.
As per the announcements made in February and March 2022, we
note the unsolicited proposal from Spectris plc which was
withdrawn. The Board remains highly confident that the Group has a
clear and compelling strategy to achieve growth and create value
for Shareholders over the medium term.
Advancing our sustainability agenda
The establishment of the Board's Sustainability Committee has
elevated the oversight and leadership of the Group's sustainability
agenda and re -- emphasises our view that embedding sustainability
throughout the Group creates long-term value for all our
stakeholders and will secure our long -- term success.
This year, the Group has focused on developing our frameworks
and processes to adopt and align with the various reporting
frameworks. We are delighted to be publishing our first Task Force
on Climate-Related Financial Disclosures (TCFD) Statement in our
Report and Financial Statements and our first standalone
Sustainability Report this year.
Diversity throughout the organisation
The Board and executive team have spent considerable time this
year looking at ways to build on the culture of diversity that is
already strong within the Group. With inclusivity being a key
value, the Group encourages all employees to bring their authentic
self to work, recognising how mutually beneficial diversity is to
us and our employees.
We are committed to promoting diversity, equality, and
inclusion, both on the Board and throughout the Group. We also have
a clear action plan which will help us to reach gender and
diversity representation recommendations at Board level, as
proposed by the FTSE Women Leaders Review and the Parker Review. In
the immediate-term, we are aiming to exceed 33% female
representation on the Board by July 2022, with the appointment of a
further female Director with specific capabilities and experiences
which meet the needs of the Board now and in the future.
Board changes
During the year Thomas Geitner and Steve Blair stepped down from
the Board. I thank them for their valued service to the Group.
Alison Wood has also taken up the role of Senior Independent
Director and has already made a much-valued contribution in this
position. We also welcomed Nigel Sheinwald in September as a Non --
Executive Director and Chair of the newly formed Sustainability
Committee.
Sir Martin Wood: 1927-2021
The Board and I were saddened to learn of the passing of the
Oxford Instruments founder, Sir Martin Wood, in November 2021.
Martin's brilliance, innovations and enthusiasm provided the
foundation for ground-breaking developments that have saved
millions of lives and transformed our understanding of chemistry.
As a company we were fortunate to benefit from his vision and
consider him one of the great minds in scientific advancement. We
again offer our sincere condolences to his wife, Lady Audrey Wood,
and their extended family.
Our employees
The Board and I are extremely grateful for the commitment and
innovation of our employees in their approach to maintaining and
growing the business despite the many challenges we have all faced.
We thank them for embracing new approaches to working and for
adapting quickly to new ways of supporting our customers. In
recognition of the impact the rising cost of living has had, we
fully support the action the executive team have taken to help our
employees, implementing a notable pay rise ahead of the usual time
to do so.
During the year, we took the opportunity to engage further with
employees, gathering their feedback to ensure we can best consider
their interests as part of our decision-making process. The Board
looks forward to continuing this programme in the year ahead, by
visiting sites and meeting employees in person.
Dividend
In line with our progressive dividend policy and robust trading
performance in the year, the Board is proposing a final dividend of
13.7 pence per share (2021: 12.9 pence per share), which is subject
to shareholder approval at our Annual General Meeting on 28 July
2022.
Looking ahead
Over the last five years, we have delivered a compound annual
growth rate for revenue and adjusted profit before tax of 6% and
16% respectively. Our operating margin has grown from 13.6% in 2017
to 18.1% in 2022, along with sustained high cash conversion year on
year.
Despite the challenges during the past two years, the Group has
delivered significant progress, emerging even stronger and further
aligned with structurally growing end markets. This reflects the
excellent execution of Horizon, the highly talented employees we
have around the world, our high -- quality products and services,
and our brand leadership. The Board remains confident in the
Group's strategic direction as a platform to deliver sustainable
growth and further margin enhancement.
Neil Carson
Chair
13 June 2022
CHIEF EXECUTIVE'S REVIEW
As I look back on the past twelve months, I am extremely proud
of the Group's performance and am even more excited about the
future growth and margin expansion opportunities that lie
ahead.
We have successfully navigated the turbulence of the last two
years, and, thanks to the dedication of our talented global team
and the successful execution of our Horizon strategy, we have
emerged as a stronger, more focused business. We are now even
better aligned to meet the needs of our customers in attractive end
markets with long-term structural growth drivers.
As a global provider of high technology products and services we
are aware of the critical role we play in the overall advancement
of society by enabling leading industrial companies and scientific
research institutes to tackle some of the world's most complex
challenges and growth opportunities.
From healthcare to climate change to digital communications and
quantum computing, we work with our customers to create the
products they need to generate meaningful change and market growth.
This fuels our mission to enable a greener, healthier, more
connected, and advanced world - and puts us at the heart of
creating a more sustainable future.
During the year we delivered strong order, revenue and profit
growth with further improvement in operating margin despite
inflationary pressures, supply chain challenges and ongoing covid
-- related disruptions. This is testament to the resilience of our
business model, the quality of our product portfolio, the strength
of our end markets and our commitment to continuous improvement.
The results also represent considerable growth relative to the 2020
pre-covid year.
Our resilience and commitment have been demonstrated throughout
the year, including through the way in which our employees embraced
new ways of working, how we have optimised our internal operations
in response to supply chain challenges, and the transformation of
our sales, marketing and customer service approaches to support the
shifting needs of our customers.
At the end of August 2021, we completed the acquisition of
Wissenschaftliche Instrumente und Technologie GmbH, (WITec), a
leading Raman and optical imaging business, further enhancing our
materials analysis product portfolio. The business has performed in
line with our expectations, and I have been delighted with its
integration into the Group. Their additional capabilities are
already benefitting our existing customers as well as allowing us
to expand into adjacent markets.
We have also made significant investments to support our future
growth, including in talent, product R&D, business systems and
remote digital support capabilities, as well as building a new
state-of-the-art facility in Bristol, UK for our compound
semiconductor systems business.
I am particularly pleased with the progress across the Group in
our multi -- faceted approach to sustainability, including the
further development of our roadmaps across environmental, social
and governance aspects of our agenda, not least as it is a topic
that I am personally very passionate about.
Our holistic approach to building a stronger business has helped
us to make significant improvements not only in our financial
performance, but also in how we support our customers, key markets,
employees, communities, and strategic partners. These will all
strengthen our position for future growth.
Bringing higher value to markets with long-term structural
growth drivers
The health and resilience of our chosen end markets has played a
critical role in our improved performance. The global economic
recovery and increasing sustainability agenda have reinforced their
structural drivers in both the academic and commercial sectors.
This has stimulated increased funding within our target markets,
accelerating our customers' roadmaps, and increasing demand for our
solutions and services across each of our end markets. To meet the
evolving needs and expand our global leadership, we are building
scale and capability in each of our chosen markets, increasing the
value we bring through a more targeted portfolio of higher
performing, easier-to-use solutions.
-- Within Semiconductor & Communications the exponential
increases in digital data and connectivity, the requirement for
more energy-efficient power devices and the increased deployment of
human -- machine interfaces (e.g. facial recognition) is driving
strong demand for our specialised analysis solutions as well as our
compound semiconductor processing systems.
-- Within Healthcare & Lifescience, an understanding of the
fundamental disease mechanisms and the efficacy of treatments at
the cellular and molecular levels is helping accelerate the
creation of new medicines and therapies at a fraction of the cost,
driving growth across our portfolio of optical microscopy systems
and scientific cameras.
-- The deployment of and search for new Advanced Materials,
which serve as the building blocks for modern society, are driving
improved performance and more sustainable use of valuable and
finite resources in nearly all end markets and continues to drive
demand across our materials analysis portfolio.
-- In the Quantum Technology market, we are working with the
leaders in the field as the market continues its evolution from
earlier stage research into applied R&D and the rapidly
evolving commercial market. We are well positioned to power this
growing market and take advantage of its growth, as it remains
poised to disrupt applications from drug discovery to logistics and
financial services across government and commercial entities
alike.
-- In the Energy & Environment market, the transition away
from fossil fuels is accelerating the investment in batteries,
solar cells and more energy -- efficient devices, where our systems
provide invaluable insights for research and applied R&D, as
well as the critical quality assurance measurements needed for high
-- volume manufacturing.
As we look to the future, we believe our strong position in
these end markets - and their structural growth drivers - will
continue to create value for our customers and present significant
opportunities for sustainable economic growth.
Strong order, revenue and profit growth
We delivered continued financial progress with strong order,
revenue and operating profit growth and further improvement in
operating margin despite the challenging external operating
environment. The results also reflect significant growth for each
of these key metrics relative to the financial year ended 31 March
2020, highlighting the underlying health of our end markets and the
strength of our portfolio. The enhanced performance was delivered
across our portfolio with an improved performance in each of the
Materials & Characterisation, Research & Discovery and
Service & Healthcare sectors.
Constant Constant
currency currency
Growth Growth
Group FY22 vs 2021 vs 2020
-------------------------- --------- --------- ---------
Orders GBP423m 24% 32%
Revenue GBP367m 19% 21%
Adjusted operating profit GBP66.3m 20% 35%
Operating margin 18.1% 30bps 220bps
-------------------------- --------- --------- ---------
Reported orders increased by 19.6% to GBP423.1m (2021:
GBP353.7m), representing growth of 24.0% on a constant currency
basis with strong increased global demand resulting in high
double-digit growth in North America, Europe and Asia. We had
strong growth across all of our target markets apart from Research
& Fundamental Science, which reduced in the period due in part
to lower external investment in these projects and our own
increased focus on our other, higher-value end markets.
The superior performance of our products and the notable funding
into our target markets supported high double-digit growth to
academic customers. Our heightened market intimacy focus on
commercial applications, combined with the launch of new targeted
products and services for high-volume manufacturing, Quality
Assurance (QA) & Quality Control (QC), as well as corporate
R&D, drove even stronger growth with commercial customers,
which grew to account for 50% of orders in the year (2021:
46%).
Reported revenue grew 15.3% to GBP367.3m, representing growth of
19.2% at constant currency despite the global supply chain
challenges for materials and electronic components which hindered
conversion of the growing order book throughout the period.
Revenue grew in each of our sectors, up 28.9% in Materials &
Characterisation, 9.3% in Research & Discovery and 13.5% in
Service & Healthcare on a constant currency basis. There was
strong growth to both commercial and academic customers, with the
proportion of revenue to commercial customers increasing to 47%
(2021: 45%) in the year.
From an end markets perspective, we had particularly strong
growth in the Semiconductor & Communications, Advanced
Materials and Quantum Technology markets. Revenue in both Energy
& Environment and Healthcare & Lifescience markets grew
strongly, ending the year ahead of their 2020 levels after a
subdued 2021. Revenue in Research & Fundamental Science
declined in line with reduced customer activity and our own
decreased focus in this area.
Group revenue by segment
2022 segment
revenue 2022 proportion 2021 proportion
Market segment growth of revenue of revenue
------------------------------- ------------ --------------- ---------------
Healthcare & Lifescience 5.4% 20% 22%
Semiconductor & Communications 21.4% 29% 28%
Quantum Technology 36.2% 9% 7%
Energy & Environment 13.9% 8% 8%
Advanced Materials 21.9% 28% 27%
Research & Fundamental Science (20.0)% 6% 8%
------------------------------- ------------ --------------- ---------------
Revenue profiles were distorted by region relative to demand due
to the staggered timing and extent of easing of covid-related
restrictions. This resulted in strong revenue growth in Asia and
North America and good growth in Europe, strengthened by an
improving situation through the second half of the year.
Our continued focus on driving operational efficiencies and a
policy of proactive offsetting of inflationary pressures through
price management supported growth in reported adjusted operating
profit, up 16.9% to GBP66.3m and further margin enhancement to
18.1%, an increase of 30 basis points, notwithstanding our
continued investment to fuel future growth.
The strength of our end markets and continued positive order
momentum resulted in a book-to-bill ratio of 1.15 and order book
growth of 31.5% to GBP260.3m (2021: GBP197.9m). Continued focus on
quality of profits resulted in strong cash conversion of 84%
(excluding the investment in our new facility for our semiconductor
systems business) and a net cash position of GBP85.9m at year end
after the acquisition of WITec GmbH at the end of August 2021.
Horizon: our strategy for creating value
Our financial success is underpinned by our Horizon strategy,
launched in 2017 to drive sustainable growth and the margins
commensurate with a high technology company and the value we create
for our customers.
The key elements of our strategy are:
-- The transformation of the business into a customer-centric,
market driven Group, whereby we deliberately focus on building
scale and capability in specific end markets, with long-term
structural growth drivers where we can sustain leadership positions
for technologies and products that create high value for
customers.
-- Proactive engagement with customers across the full
technology cycle, from research to applied R&D to high - volume
manufacturing, to maximise the returns from our core technologies
whilst positioning us to benefit from rapid growth and each wave of
technology disruption.
-- Our own unique operating framework which creates expertise
and balance across the four pillars of Market Intimacy, Innovation
& Product Development, Operational Excellence and Customer
Service & Support.
-- A relentless dedication to continuous improvement driving
ongoing synergies, efficiencies, and strong commercial processes
across the Group.
-- Drive above-market growth through organic investments further
augmented by synergistic acquisitions.
We made continued progress in the execution of our Horizon
strategy in the year, further strengthening our capabilities within
the four pillars of our operating model.
-- Through our commitment to market intimacy, we have developed
stronger, more personalised relationships with our target
customers, deepened our understanding of core markets, and opened
opportunities for expansion into new and adjacent markets. By
establishing an intimate knowledge of our customers' worlds,
anticipating their challenges, and responding with a portfolio of
products and solutions that helps them achieve their goals, we have
grown our business in all our major markets. In addition to
nurturing these relationships, we have used our market knowledge to
expand into adjacent markets, driving new and incremental sales.
This expansion supports our growth objectives and is currently
being applied with great success in larger, faster growth
commercial markets. In the year, we built on our market intimacy
strength, bringing in new talent with specific domain knowledge to
augment our existing team.
-- Innovation and product development is central to our business
strategy and our heritage of innovation. We invest in creating
differentiated products and key enabling technologies, informed by
our customer and market intimacy. By understanding not just
customer requirements, but also the challenges and opportunities
they face - near and long-term - we have been able to invest in the
development of more strategic solutions that deliver greater value
and returns on investment. These are the products and solutions
that shift the paradigm of what is possible for our customers,
transforming their capabilities and fuelling their growth and ours.
In the year, we have increased our investment in strategic R&D,
with a dual focus on new products and solutions that not only
create maximum value for our existing customers but also enable us
to expand into new or adjacent markets and support future growth,
such as our new optical microscopy system, BC43, which offers
research-level performance in a revolutionary ease of use
benchtop
system, with a significantly more accessible price point.
Our R&D spend increased 9.7% to GBP31.7m (2021: GBP28.9m),
growing broadly in line with sales and representing 8.6% of
revenue. To underpin our barriers to entry, we are more focused on
protecting and expanding our intellectual property portfolio across
our core markets. Our vitality index, representing the revenue from
products launched in the last three years, was a healthy 34% of
increased Group revenues (2021: 38%).
-- Our operational excellence programme has enabled us to drive
efficiencies and synergies across the Group which directly impact
performance and growth. This includes strengthening our supply
chain through executing a procurement strategy focused on
leveraging our scale and building long-term strategic relationships
with fewer suppliers, which has enabled us to mitigate the
industry-wide supply chain challenges. In addition, we embedded
improved manufacturing processes and created centres of excellence
to promote delivery across the wider Group. As we emerge from the
pandemic, these investments in operational excellence will continue
to support our performance this year and beyond.
-- The covid-related travel restrictions of the past two years
have heightened the importance of service continuity and the
expectations from global customers. Through our customer service
transformation programme, we are exploiting our market intimacy to
provide service offerings tailored to the specific needs and goals
of our customers for their usage, application and region,
throughout the lifetime use of our products. We have increased our
investment in our regional service teams and have embedded remote
digital support capabilities across our portfolio, ensuring we can
deliver our global expertise locally, enhancing customer
capabilities and productivity, with improved operational
efficiency.
Through Horizon, we have delivered substantial tangible gains
across the Group, leading to improved financial performance. In the
year, we undertook a comprehensive review of our strategy,
capabilities and opportunities for further improvement in order to
deliver our full potential. This confirmed the compelling
opportunities that still lie ahead to extract further value as we
continue with our strategy, driving sustainable growth and margin
enhancement, while uncovering efficiency opportunities Company
wide.
Shaping a sustainable future
Sustainability is a cornerstone of our long-term strategy to
drive stakeholder value. We recognise the role we, and our
technologies, can play to create a positive impact on the
environment and society and, in line with our values and purpose,
we are passionate about being a positive influence on the world. By
taking a holistic approach to sustainability, led by myself and the
executive team, with enhanced oversight at Board level through our
newly established Sustainability Committee, we review all aspects
of our business to drive positive change and believe that embedding
sustainability throughout the Group is the best way to secure our
long-term success.
I am delighted with the progress we have made in the development
and execution of our sustainability initiatives as well as the
enthusiasm across the business for a progressive and ambitious
sustainability agenda.
Since its establishment during the financial year, our
Board-level Sustainability Committee has embraced the importance of
its role in driving the Group's sustainability agenda at Board
level and overseeing activity within the Company. Upon his
appointment to the Board in September 2021, Nigel Sheinwald has
chaired this committee and brings a wealth of experience to our
organisation from his previous role as chair of Shell's
sustainability committee.
Environment
We have embraced the adoption of the Task Force on
Climate-Related Financial Disclosures (TCFD) recommendations and
reporting framework to help to expand the environmental aspects of
our sustainability agenda and effectively communicate our work in
this area. We are delighted to be publishing our first TCFD
Statement as well as our first standalone Sustainability
Report.
Whilst the impact our facilities have on the environment is
relatively small, we have made great strides in reducing our carbon
footprint and waste products from our manufacturing processes and
facilities (Scope 1 and 2 emissions) and are committed to building
on this progress. To accurately assess our overall environmental
impact, and in support of the TCFD reporting framework, we have
engaged with the specialist advisers EcoAct. Working together we
have confirmed our Scope 1 and 2 emissions and have made good
progress in mapping the contribution through our supply chain,
distribution, and customer use of our products (Scope 3). Once this
phase is completed, we will set our targets in line with the best
practice guidance, validated by the Science Based Targets
initiative. We also recognise our role in supporting our customers
in achieving their sustainability ambitions, as well as encouraging
similar commitments from our supply chain. We have created ethical
and environmental standards for our suppliers and partners to
follow and are building broad sustainability considerations into
our product development guidelines.
Social and governance
Whilst our environmental focus is extremely important, it is
only one part of our overarching sustainability agenda. We believe
how we do business is as important as what we do. This is embedded
within our approach to the social and governance aspects of
business too.
Being inclusive, and creating a diverse workplace where
difference is valued and people are recognised for what they bring
to the team, is a core Company value and a key element in
delivering business excellence. Through our recruitment, employment
policies and a Company culture based on respect and creating a
sense of belonging, we look to attract and retain an incredibly
talented, diverse workforce.
Communication has also been critical to our overall success. We
have invested in increasing connectivity and communication between
our teams and have embraced our hybrid workplace model, focused on
an outcomes-based approach to work and management. This shift,
along with additional investments in technology, has enabled us to
create a more rewarding and collaborative working environment for
our people, where employees can build successful careers, make a
personal impact on the world and enjoy a healthy work-life balance.
At the same time, this increases efficiencies across our teams and
unlocks new synergies across business units and regions. It has
also led to accelerated innovation and cross-business product
developments which further enhance our market intimacy and improve
the way in which we reach, work with, and support our
customers.
In line with our values, after the unprovoked attack on Ukraine
by Russia, we decided to cease trading in the territories of the
Russian Federation and Belarus (this represents less than 1% of
Group revenue). In addition, the Board approved a charitable
donation of GBP30,000 (with GBP10,000 of this dedicated to matching
employee donations) to the International Red Cross or UNICEF, to
support those displaced or otherwise in need, because of the
conflict.
Sustainability, in its broadest sense, is one of the most
transformative opportunities in our lifetimes, and one that brings
us closer to realising our mission of "changing the art of the
possible". It is with this mindset that we are committed to making
even greater progress this year and beyond.
Investing in building our capabilities
The capabilities and dedication of our employees are critical to
our success and the delivery of our strategy, which is underpinned
by the combination of our technical, market and commercial
expertise. To support our growth, we have continued to invest in
our existing team to build on their skills and experience as well
as providing the development opportunities to enable them to reach
their full potential. This has included the launch of a Group-wide
project aiming to better facilitate and promote employee mobility
within the organisation and throughout their careers. During the
past year, we have been delighted to see over 11% of our employees
being promoted or taking on new responsibilities to augment their
development. In addition, we have continued to build on our team
with the recruitment of individuals with specific knowledge or
capabilities. Our goal for all our employees is simple: to create a
safe and vibrant workplace environment where employees can build
successful careers, make a personal impact on the world, and enjoy
a healthy work-life balance.
I am extremely proud of how our employees and leadership team
have navigated through the ongoing challenges caused by the
external operating environment to deliver our improved performance.
By embracing alternative ways of working, which provide additional
flexibility, we have been able to better meet the needs of our
customers as well as increase the essential connectivity needed
between teams to drive and foster innovation.
I would like to thank all our employees for their continued
support, commitment, and resilience during the year, and for their
ongoing investment in a culture that helps underpin our
success.
Summary and outlook
We have successfully navigated the turbulence of the last two
years, and, through the dedication of our talented global team and
the successful execution of our Horizon strategy, we have emerged
as a stronger, more focused business, even better aligned to meet
the needs of our customers in attractive end markets with long-term
structural growth drivers.
The business has performed strongly this year, despite supply
chain disruption impacting the conversion of orders into revenue
and cost inflation holding back margin progression. Looking ahead,
we do not foresee short term relief from the current economic
headwinds and ongoing supply chain constraints. However, our
diverse end-markets remain resilient, and we enter the year with
good visibility due to a strong order book and continued order
growth. This supports full year outlook in line with our
expectations.
Our products play a critical role for our customers in enabling
a greener, healthier, more connected, and advanced society which
puts us at the heart of creating a more sustainable future. Our
leading product portfolio, the strength of our brand and our
relentless drive for continuous operational improvement provide the
foundation for sustainable organic growth and continued margin
expansion over the medium-term, while our strong financial position
supports augmenting growth through synergistic acquisitions.
Ian Barkshire
Chief Executive
13 June 2022
OPERATIONS REVIEW
MATERIALS & CHARACTERISATION
Key highlights
Orders
GBP219.2m
+25.3%
(2021: GBP175.0m)
Constant currency growth(1)
vs 2021: 29.8%
(vs 2020: 48.4%)
Revenue
GBP185.5m
+24.8%
(2021: GBP148.6m)
Constant currency growth(1)
vs 2021: 28.9%
(vs 2020: 32.7%)
Adjusted(2) operating profit
GBP26.1m
+28.6%
(2021: GBP20.3m)
Constant currency growth(1)
vs 2021: 30.4%
(vs 2020: 26.1%)
Adjusted(2) operating margin
14.1%
(2021: 13.7%)
Statutory operating profit
GBP20.8m
(2021: GBP16.6m)
1. For definition refer to note on page 1.
2. Details of adjusting items can be found in Note 1.
The Materials & Characterisation sector delivered strong
growth, underpinned by the strength of our portfolio and increased
demand across all our target end markets.
Materials & Characterisation overview
The Materials & Characterisation sector has a broad customer
base across a wide range of applications for:
-- the imaging and analysis of materials down to the atomic
level where our leading product performance, ease of use and
advanced analytics enhance our customers' capabilities, provide
actionable insights and increase their productivity. Our portfolio
of systems (across Asylum Research, NanoAnalysis, Magnetic
Resonance and newly acquired WITec) include our range of
market-leading X-ray and electron analysis systems, used in
conjunction with electron microscopes, and our performance-leading
atomic force and Raman microscopes, and magnetic resonance
analysers
-- the fabrication of semiconductor devices and structures,
where our portfolio of advanced semiconductor etch and deposition
process systems (Plasma Technology) provide our customers with the
ability to create and manipulate materials with atomic scale
accuracy to fabricate advanced compound semiconductor devices
The sector has a strong focus on accelerating our customers'
applied R&D, enabling the development of new devices and next
generation higher performing materials, and enhancing productivity
in advanced manufacturing, quality assurance (QA) and quality
control (QC).
Operational and strategic progress
During the year, we broadened the capabilities that we offer our
existing customers through the acquisition of WITec, which brought
complementary leading Raman microscopy solutions to our portfolio
and can be used in conjunction with our existing characterisation
solutions. The acquisition, which completed on 31 August 2021,
enables the further exploitation of synergies across the sales,
marketing and service teams, and increases the role we can play in
supporting our customers, and provides access into new adjacent
markets.
In line with our Horizon strategy, we have enhanced our
market-leading semiconductor etch and deposition processing systems
for R&D and now also provide a suite of dedicated systems for
use in high-volume manufacturing. Construction on our new
state-of-the-art facility for the business has progressed well,
with completion expected later in 2022.
A strong performance in the year
The Materials & Characterisation sector delivered strong
growth, underpinned by the strength of our portfolio and increased
demand across all our target end markets, with particularly strong
growth from semiconductor, electronics, and advanced materials.
Strong order growth reflected significant uplift in demand across
North America and Asia as well as strong growth in Europe. Order
growth was also supported by our increased market focus and the
launch of new products tailored for specific end applications and
customers workflows, for example our portfolio semiconductor
processing systems dedicated for high -- volume manufacturing. Our
market intimacy approach and end application focus supported strong
double-digit growth to academic customers with twice the growth
into commercial customers as we continued to nurture existing
accounts and expand into new adjacent opportunities.
Despite the well-publicised global shortages of semiconductors
and electronics, the sector delivered strong revenue growth through
positive engagement with our strategic suppliers. The phasing of
the easing of travel and access restrictions to customers' sites
strongly influenced the regional delivery of the growing order
book, resulting in strong revenue growth into Asia with good growth
into North America and Europe as the situation improved in these
regions through the second half of the year. In line with orders,
we had strong double-digit revenue growth to academic customers
with even stronger growth to commercial organisations, resulting in
the proportion of revenue to commercial customers increasing
slightly to 57% in the year (2021: 56%). The continued growth of
the sector over the past two years reflects the resilience of the
end market drivers and the positive positioning of our products
within them. The order book for future deliveries increased by more
than 50% in the year to GBP116.0m (2021: GBP74.3m).
From an end market perspective, the sector had strong
double-digit order growth into each of our target end markets, with
a similar pattern for revenue growth apart from the Quantum
Technologies segment, which remained in line with the previous year
due to the phasing of shipments. Revenue in the sector is dominated
by the Semiconductor & Communications and Advanced Materials
markets, representing 46% and 33% of revenue, respectively. Energy
& Environment and Healthcare & Lifescience both grew
strongly to represent 14% and 6% of revenue, with Quantum
Technology and Research & Fundamental Science each representing
1%.
The book-to-bill of 1.18 led to a 56.1% increase in the order
book for future deliveries to GBP116.0m (2021: GBP74.3m).
Profitability for the sector was further enhanced in the period
with reported profit increasing to GBP26.1m (2021: GBP20.3m),
representing an adjusted operating margin of 14.1% (2021:
13.7%).
Semiconductor & Communications
This market is a key focus for us, in which we delivered strong
double-digit order and revenue growth across both our imaging and
analysis portfolio and semiconductor processing systems. Growth was
aided by the long-term structural drivers within this market,
including the ramp up in global demand due to their burgeoning use
into everyday consumer products such as cars and computers, as well
as commercial products. This is leading to an increase in
production capacity as well as the development of the next
generation of devices with the relentless drive to reduce feature
sizes to drive manufacturing efficiency, increased processing power
and reduced costs. Our imaging and analysis solutions are used to
measure the composition and structure of the devices down to the
nanoscale which, as dimensions shrink in size, becomes ever more
critical in the development of next generation devices, their
successful transfer to manufacturing, and for quality control in
high volume production. The leading precision and resolution of our
solutions is a core differentiator and allows us to support our
customers to deliver their demanding roadmaps and increase their
productivity.
In addition to the mainstream silicon market, exponential
increases in digital data flow, driven by surging demand for
connectivity, the requirement for more energy-efficient devices,
and the increased deployment of human -- machine interfaces (e.g.
facial recognition), are all driving strong demand for compound
semiconductors with improved performance and higher manufacturing
yields. This is leading to strong orders for our compound
semiconductor processing systems, specifically designed for
commercial R&D and high-volume production. Within these
applications, our market intimacy has helped us to focus on
developing solutions for the critical layers within devices that
have the biggest impact on end device performance, cost, and yield.
For example, we have seen strong growth in demand for our indium
phosphide (InP) solutions which are used to manufacture the optical
devices with the fibre optic networks that are supporting 5G and
cloud-based systems. Furthermore, infrastructure with improved
connectivity is a critical enabler to the introduction of electric
vehicles and expansion of the Internet of Things. For example, a
moving, connected electric vehicle produces 25GB of data per hour
(more than 5x the average person's monthly usage) and this is
forecast to rise to between 1TB and 19TB per hour with the
introduction of autonomous vehicles.
We have also seen strong growth in demand for our gallium
nitride (GaN) solutions which enable manufacturers to produce more
efficient power devices for consumer electronics products, and our
silicon carbide (SiC) solutions are enabling the production of
faster charging and enhanced power management to improve the range
and reliability of electric vehicles. In addition, the expansion of
human-device interaction, such as virtual reality and facial
recognition on mobile phones and within autonomous driving
vehicles, is driving growth into vertical cavity lasers (VCSELs)
and 3D sensing devices where our proprietary processes offer
significant performance and yield advantages.
Advanced Materials
Double-digit order and revenue growth into advanced materials
applications were underpinned by them being the building blocks of
modern society, enabling everything from the screens we watch and
the cars we drive to the batteries that power our world. Of
increasing importance is the pivotal role that advanced materials
will play in enabling a sustainable, net zero future through their
ability to transform product performance and providing a roadmap to
the more sustainable use of our valuable and finite resources. All
materials and products undergo some form of analysis, driving
increasing demand for our market -- leading product portfolio of
imaging and analysis systems, which allows our customers to measure
down to the nanoscale, optimising the performance and the
subsequent economic production of these lighter, stronger and
higher functioning materials across a diverse range of end
applications.
The automotive industry is a good example of a market
undertaking transformational change due to increasingly stringent
emissions regulations and customer demand for higher electric
vehicle range and improved safety. This drives the need for
dramatic reductions in weight whilst also improving structural
integrity, which is particularly relevant for electric and hybrid
vehicles where lighter and stronger materials must offset the
additional weight of the batteries. This is driving the increased
use of carbon fibre composites and lightweight alloys, and new
advanced steels. As such, there is significant investment into the
understanding and control of composition and structure at the
nanoscale, which enables the design of materials with performance
tailored for the end application, such as stronger car safety cages
or crash absorption crumple sections. Steel manufacturers are also
investing in transforming their highly emission -- intensive
manufacturing processes, which contribute about 8% of global CO(2)
emissions.
This is leading to further investment in the characterisation of
nanostructures and precise composition of their products,
supporting increased demand for our imaging and analysis systems.
Our growth has been further supported by our new products which
provide the ability to observe even smaller features, with
dramatically faster throughput and ease of use, making them ideal
for both research and development as well as QA and QC.
Another area of increasing focus is additive manufacturing,
which is gaining both government and commercial impetus. The
approach requires the creation of complex, strong and lightweight
structures with optimised production methods which dramatically
reduce material usage and waste.
Our electron microscopy products are helping researchers unlock
the full potential of 3D printing, allowing them to quickly
understand the microstructure impact of key properties ensuring
they deliver the same performance as traditional materials, for
example checking the risk of corrosion damage or the potential for
a reduced lifetime of new products.
Our products are also used in the research and development of
exotic new materials such as graphene-like structures, with the
long-term goal of transforming the performance of next generation
semiconductors and batteries.
Energy & Environment
Strong growth in the Energy & Environment segment for our
analysis products has been underpinned by sustained investment
within the global battery market and the continued recovery of
markets such as forensics and environmental science, after reduced
customer activity during the peak of the covid-related
lockdowns.
Batteries play a key role in the transition from fossil fuels,
enabling sustainable travel and providing efficient and affordable
storage to complement renewable energy generation. This is driving
continued investment into new, improved materials and battery
structures in the pursuit of lower cost, higher performing, more
environmentally friendly solutions.
As is the case for steels, battery performance is determined by
the material properties at the nanoscale and how these change
through the lifetime of charging cycles. This has led to strong
growth across our Materials & Characterisation portfolio and
investment into development and production control applications.
Over the past few years, as a result of our market intimacy, we
have supported this growing market by launching a tailored
portfolio of solutions dedicated to the nuances of the battery
market, from our new "Feature Express" product that reduces the
time to identify contaminants by a factor of four, to our benchtop
NMR and newly acquired Raman systems which characterise the
performance of the analyte which enables the flow of charge across
the battery. Our portfolio supports our customers' roadmaps,
providing insights to give them a competitive edge and eliminating
defects that compromise safety and performance.
In addition to the environmental impacts of global warming,
reducing pollution remains a key part of a sustainable future. We
have started to develop analysis solutions for this critical
market, including our benchtop NMR systems which can measure the
fats, oils and grease in wastewater, providing a cost-effective
solution for environmental authorities and industries to monitor
pollution releases into river and sewer systems as well as
preventing harmful blockages.
Healthcare & Lifescience
We have continued to see strong growth in this segment, with
dedicated solutions for the pharmaceutical industry. Our Raman
imaging techniques are used to assess and ensure the safety and
therapeutic effect of medications. This is further supported by our
dedicated, regulatory-approved pharmaceutical software for our
electron microscopy products, which screens for foreign body
contamination within and on tablet surfaces. Our material
characterisation tools are also being used to develop and monitor
the performance of the increasing range and complexity of medical
implants such as micro-sized stents and joint replacements, to
understand the size and distribution of nanoscale precipitates that
can cause a reaction.
Quantum Technology
We continue to see opportunities in quantum technology markets.
Through the combination of our expertise in semiconductor
processing and characterisation, and our intimacy with customers
within the quantum market, we are providing compound semiconductor
processing systems for the fabrication of high performing qubits
and their subsequent characterisation.
RESEARCH & DISCOVERY
Key highlights
Orders
GBP133.9m
+15.7%
(2021: GBP115.7m)
Constant currency growth(1)
vs 2021: 19.6%
(vs 2020: 13.0%)
Revenue
GBP120.3m
+6.1%
(2021: GBP113.4m)
Constant currency growth(1)
vs 2021: 9.3%
(vs 2020: 6.9%)
Adjusted(2) operating profit
GBP21.3m
+9.2%
(2021: GBP19.5m)
Constant currency growth(1)
vs 2021: 10.5%
(vs 2020: 48.7%)
Adjusted(2) operating margin
17.7%
(2021: 17.2%)
Statutory operating profit
GBP15.0m
(2021: GBP13.1m)
1. For definition refer to note on page 1.
2. Details of adjusting items can be found in Note 1.
The sector, which comprises Andor Technology, NanoScience and
X-Ray Technology, provides advanced solutions and technologies that
enable imaging and analytical measurements down to the atomic and
molecular level, as well as ultra-low temperature and high magnetic
field environments, used across scientific research, applied
R&D, and commercial applications.
Research & Discovery overview
There are a higher proportion of sales to academia and a growing
proportion to commercial customers as we develop
application-specific, easy-to-use solutions based on our high-end
research orientated platforms.
Our imaging and analytical systems portfolio includes
market-leading scientific cameras, confocal microscopes,
spectrometers, lasers and X-ray tubes. Our ultra-low temperature
cryogenic and high magnetic field platforms provide both versatile
research platforms as well as dedicated systems for more applied
and increasingly routine use. In addition to selling directly to
end customers, where we have a strong brand presence, we also
exploit our position across a broad range of additional end markets
by providing our key enabling technologies to strategic OEM
partners.
The sector's products play a key role across a broad range of
life, material and physical science applications, with a critical
role in the development and advancement of quantum
technologies.
A positive performance
The Research & Discovery sector delivered a good performance
with double-digit order growth, good growth in revenue and improved
profitability.
Positive market drivers led to increased demand, which, combined
with our leading product portfolio and targeted product launches,
have led to strong order growth relative to the previous year
across each of our end markets. The exception being Research &
Fundamental Science, which declined in the year due in part to our
increased focus on higher value markets as well as slower customer
activity in the period. Europe continued its first half recovery
with particularly strong growth in the year, complemented by
double-digit growth in both North America and Asia. This included
strong order growth to academia with even stronger growth to
commercial customers, with commercial customers growing to 33% of
orders for the sector (2021: 26%).
The sector delivered strong constant currency revenue growth, up
9.3%. Supply chain challenges through the second half of the year
and ongoing customer site restrictions hindered revenue despite
strong demand and impacted regional profiles.
This resulted in strong growth in North America and Asia, with
Europe improving in the second half and ending in line with the
previous year. Revenue grew strongly to both academic and
commercial customers, with the proportion to commercial customers
only increasing slightly to 26% (2021: 25%) due to the phasing of
delivery of the orders.
From an end market perspective, Healthcare & Lifescience
represented 37% of revenue, with Advanced Materials and Quantum
Technology 23% and 21% respectively. Research & Fundamental
Science fell to 14%, with Semiconductor & Communications and
Energy & Environment representing 4% and 1% of revenue
respectively.
The book-to-bill ratio of 1.11 led to a 12.9% increase in the
order book for future deliveries to GBP108.7m (2021: GBP96.2m).
Profitability for the sector was further enhanced in the period
with adjusted operating profit increasing to GBP21.3m (2020:
GBP19.5m), representing an adjusted operating margin of 17.7%
(2020: 17.2%). This was supported by the continued realisation of
tangible gains through our Horizon strategy despite considerable
inflationary headwinds.
Healthcare & Lifescience
The positive momentum of the first half continued with increased
demand and strong double-digit order growth in the year. This was
supported by an increasing number of customer sites re-opening and
recommencing programmes after temporary covid-related closures in
the previous year. Long-term market growth drivers, such as a focus
on improving the health and wellbeing of society, driven by an
ageing population and an increased focus on improved and
cost-effective healthcare provision, also strengthened. The
emergence of covid showed that understanding fundamental disease
mechanisms at a molecular level and using this knowledge to rapidly
develop effective treatments transformed the global approach to
dealing with a pandemic. Our products and technologies have been
key to this and are being increasingly applied by our customers to
accelerate similar transformations across a range of conditions
including cancer, Alzheimer's, cystic fibrosis and diabetes. This
has supported strong growth in supply to the research community of
our imaging solutions and scientific camera portfolio. Furthermore,
we have seen strong growth into the broader life science and pharma
markets through our strategic OEM partnerships where our key
enabling technologies sit at the heart of their products; for
example, gene sequencers and 3D micro-CT scanners, which are
increasingly being used to undertake breast cancer screening as
well as biopsy sample analysis.
Through our market intimacy focus, we have continued to develop
solutions and key enabling technologies that specifically address
the needs of customers in cell biology, neuroscience, immunology
and personalised medicine.
Our new benchtop microscopy system, BC43, has been designed to
provide research grade capability, with unprecedented ease of use
at a much more affordable price point. This is already proving
popular with those working in early cancer research by dramatically
improving productivity and the understanding of cell dynamics and
response to stimuli. The new details and insights that our products
facilitate are accelerating personalised treatment plans, which
will deliver optimal outcomes for cancer patients and those
battling other debilitating conditions such as cystic fibrosis.
In addition to the success of BC43, our Dragonfly portfolio has
continued to grow, and is targeting the most challenging of
applications as well as central research facilities, where several
different teams utilise the equipment. Its ability to undertake
high-speed imaging over and through large samples with
unprecedented resolution has supported particularly strong growth
into cell biology and neuroscience applications.
In the year we had a reduction in sales to covid-related
applications, such as on chip diagnostic testing and screening, and
are now seeing volumes similar to the pre-covid era.
Quantum Technology
The quantum market continues its evolution into applied R&D
and more commercial applications with growing investment across
governments and increasingly commercial organisations such as
Google, Amazon, IBM and a plethora of smaller enterprises. The
driver continues to be the realisation of the potential and
increasing likelihood that quantum computers could radically
disrupt existing markets such as pharmaceuticals, logistics and
financial services, as well as providing the ability to maintain
long-term data security. This is leading to an increase in research
and development investment as nations and corporates seek to gain
leadership positions as well as an emerging commercial cloud-based
quantum computing market and ecosystem with pay-per-use
services.
This has supported strong growth across our portfolio of
cryogenic platforms and scientific cameras. Thanks to our strong
collaborations with many of the key players in the market, we can
use the insights gained to develop solutions tailored for the
specific needs of customers. This ranges from rapid exchange
systems enabling a tenfold increase in productivity for qubit
development through to highly stable platforms for commercial
quantum computers and high-speed cameras for secure communication
applications.
We remain well positioned to support the growth of this exciting
market and are building our plans for future products to enable our
customers' roadmaps.
Advanced Materials
Strong growth in the Advanced Materials segment reflects
increased investment and customer demand to explore and
characterise the more fundamental properties of materials for a
broad range of applications from sensors, semiconductors, and
batteries. This has led to increased demand for our materials
analysis systems which combine ultra-low temperatures and high
magnetic fields environments, allowing researchers to fully
characterise the fundamental properties of existing materials and
gain the necessary insights to design future candidates that will
transform markets and create new possibilities. To support our
evolving market, we have developed easier to operate systems with
increased automation and data analytics capabilities to improve
productivity and broaden the accessibility of the product. We also
received increased demand for our scientific cameras and optical
spectrometers to customers developing more efficient catalysts and
new chemicals.
Energy & Environment
In the year we saw strong order growth for our scientific
cameras across a range of applications in this segment. This
included a recovery in OEM demand for airport security scanners
after being heavily subdued during the travel restrictions of the
past few years, and our ultrafast cameras that are used to study
and optimise the critical phases of nuclear fusion experiments. Due
to the timing of orders, revenue remained extremely low in the
year.
Research & Fundamental Science
The Research & Fundamental Science market has been subdued
in recent years, especially for those programmes that have required
multi-institution and international collaboration. This, combined
with our own decision to accept fewer orders for one-off
specialised cryogenic and high magnetic field systems that do not
benefit our own product roadmap or margin expectations, led to a
decline in orders and revenue in the year. Within these parameters
we continue to see a healthy forward-looking pipeline for our
portfolio across a broad range of research themes including
astronomy, chemistry, and physics.
Within astronomy, our Balor large area camera is being used on
the Extremely Large Telescope (ELT) in Chile to align the mirrors
to ensure precision measurements. The ELT is the largest
ground-based telescope in the world and will gather a billion times
more light than the human eye. It will help tackle some of the
greatest scientific challenges today, including the search for
other earth-like planets and measuring the properties of the
earliest stars and galaxies.
SERVICE & HEALTHCARE
Key highlights
Orders
GBP70.0m
+11.1%
(2021: GBP63.0m)
Constant currency growth(1)
vs 2021: 16.0%
(vs 2020: 29.3%)
Revenue
GBP61.5m
+8.8%
(2021: GBP56.5m)
Constant currency growth(1)
vs 2021: 13.5%
(vs 2020: 20.6%)
Adjusted(2) operating profit
GBP18.9m
+11.8%
(2021: GBP16.9m)
Constant currency growth(1)
vs 2021: 19.3%
(vs 2020: 34.5%)
Adjusted(2) operating margin
30.7%
(2021: 29.9%)
Statutory operating profit
GBP18.9m
(2021: GBP16.9m)
1. For definition refer to note on page 1.
2. Details of adjusting items can be found in Note 1.
The Service & Healthcare sector comprises the Group's
service and support products related to Oxford Instruments' own
products, and the support and service of third-party MRI scanners
in Japan.
Service & Healthcare overview
The sector delivered continued strong order, revenue and
increased profitability, driven by the service activities related
to our products, with orders and revenues related to the service of
third-party MRI systems broadly in line with the previous year.
With customer support being more highly appreciated than it ever
has been before, our service transformation programme provides the
opportunity to create significant additional customer value,
support our expansion into commercial markets, and provide
meaningful growth and margin enhancement for the Group. We made
excellent progress with our transformational programme in the year,
which underpinned constant currency order growth of 19% for
services related to our own products, with strong double-digit
growth in Europe, North America and Asia, and into both academic
and commercial customers. Revenue growth, as was the case for the
other sectors, was restricted by supply chain challenges in the
year. Adjusted operating margin increased to 30.8% (2021: 29.9%)
despite significant investments in our service infrastructure.
As part of our service transformation, we utilised our deep
market knowledge to develop a portfolio of tailored service
offerings for specific end markets, customer types and regions that
better address the full life cycle use of our products, creating
value linked to their specific situation and workflows. This
included building on our digital and remote service capabilities,
with connectivity across our products increasing response times and
enabling us to reach customers that have previously been difficult
to support effectively because of their location. We have also
developed digital analytics packages which are providing actional
insights for end users and OEM partners, increasing productivity
and efficiency.
Secondly, we have also adopted a flexible approach to service
bundling to better address our full install base by optimising the
service elements that create value for individual customers. As an
example, our self-sufficiency packages that are designed to provide
fast response and parts guarantees have driven strong growth to
production customers with their own in-house support teams.
Thirdly, building on our positive experiences throughout the
pandemic we have transitioned to a regionally led service model,
where our global processes are implemented and delivered locally.
By exploiting synergies across our local teams, investing in
digital infrastructure and cross-product training for our field
engineers, we can respond more quickly to our customer requests and
improve our efficiency whilst dramatically reducing our travel
footprint.
FINANCE REVIEW
We delivered a strong financial performance with growth in
orders, revenue and underlying cash flow. We have increased capital
investment and maintained a robust balance sheet and enter the new
financial year with a healthy order book.
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;
other significant non-recurring items; and the mark -- to -- market
movement 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 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.
The acquisition of WITec was completed on 31 August 2021. Growth
rates expressed on an organic basis remove the impact of the
acquired business for the period under ownership.
Reported orders increased by 19.6% to GBP423.1m (2021:
GBP353.7m), an increase of 19.9% at organic constant currency. At
the end of the period, the Group's order book for future deliveries
stood at GBP260.2m (31 March 2021: GBP198.0m). The order book grew
31.4% on a reported basis and 26.6% at organic constant
currency.
Reported revenue increased by 15.3% to GBP367.3m (2021:
GBP318.5m). Organic revenue, excluding currency effects, increased
by 14.5%, with the movement in average currency exchange rates over
the year reducing reported revenue by GBP12.4m.
Adjusted operating profit increased by 16.9% to GBP66.3m (2021:
GBP56.7m). Organic adjusted operating profit, excluding currency
effects, increased by 15.2%, with a currency headwind in the year
of GBP1.9m. Adjusted operating margin increased by 30 basis points
to 18.1% (2021: 17.8%). Excluding currency effects, adjusted
operating margin increased by 20 basis points to 18.0%.
Statutory operating profit includes the amortisation of acquired
intangibles of GBP9.5m, acquisition-related costs of GBP0.4m, a
margin adjustment relating to the sale of WITec inventories in the
period of GBP1.7m, and a charge of GBP6.4m relating to unwind of
the brought forward financial derivative asset.Statutory operating
profit of GBP48.3m (2021: GBP53.0m) fell by 8.9%, principally due
to the mark-to-market charge on currency hedges relative to a large
credit the previous year.
Adjusted profit before tax grew by 17.9% to GBP65.9m (2021:
GBP55.9m), representing a margin of 17.9% (2021: 17.6%).
Statutory profit before tax fell by 8.8% to GBP47.6m (2021:
GBP52.2m), following the non-cash uncrystallised charge on currency
hedges and increase in amortisation of acquired intangibles
following the acquisition of WITec. This represents a margin of
13.0% (2021: 16.4%).
Adjusted basic earnings per share grew by 20.0% to 94.3p (2021:
78.6p). Basic earnings per share were 67.1p (2021: 72.8p), a
decline of 7.8%.
Cash from operations of GBP58.4m (2021: GBP49.7m) represents 72%
(2021: 101%) cash conversion. During the year, we incurred
expenditure of GBP7.4m on the construction of our new semiconductor
facility near Bristol; cash conversion on a normalised basis that
excludes this expenditure was 84%. Net cash decreased from GBP97.6m
on 31 March 2021 to GBP85.9m on 31 March 2022, after the EUR37.0m
initial consideration for the acquisition of WITec.
At the end of March, our revolving credit facility remained
undrawn, leaving approximately GBP103m of committed facilities.
This represents total headroom of just under GBP190m.
Income Statement
The Group's Income Statement is summarised below.
Year ended Year ended
31 March 31 March
2022 2021
GBPm GBPm Change
------------------------------------------- ---------- ---------- ------
Revenue 367.3 318.5 +15.3%
------------------------------------------- ---------- ---------- ------
Adjusted operating profit 66.3 56.7 +16.9%
------------------------------------------- ---------- ---------- ------
Amortisation of acquired intangible assets (9.5) (8.4)
Non-recurring items (2.1) (1.7)
Mark-to-market of currency hedges (6.4) 6.4
------------------------------------------- ---------- ---------- ------
Statutory operating profit 48.3 53.0 (8.9%)
------------------------------------------- ---------- ---------- ------
Net finance costs(1) (0.7) (0.8)
------------------------------------------- ---------- ---------- ------
Adjusted profit before taxation 65.9 55.9 +17.9%
Statutory profit before taxation 47.6 52.2 (8.8%)
------------------------------------------- ---------- ---------- ------
Adjusted effective tax rate 17.8% 19.3%
Effective tax rate 18.9% 19.9%
Adjusted earnings per share - basic 94.3p 78.6p +20.0%
Earnings per share - basic 67.1p 72.8p (7.8%)
Dividend per share (total) 18.1p 17.0p +6.5%
------------------------------------------- ---------- ---------- ------
1. Net finance costs for 2022 include a non-cash charge of
GBP0.3m against the unwind of discount on WITec contingent
consideration.
Revenue and orders
Following the acquisition of WITec, the business is reported
within the Materials & Characterisation segment. Growth rates
expressed on an organic basis exclude the impact of WITec.
Reported revenue of GBP367.3m (2021: GBP318.5m) increased by
15.3% (+14.5% at organic constant currency). Reported revenue grew
by 24.8% for Materials & Characterisation (+18.9% at organic
constant currency), with strong growth for our electron microscope
analysers and semiconductor processing tools. Good demand for our
optical imaging and microscopy systems, and cryogenic and complex
magnets as we progress with fulfilment of the large order from the
Institute of Physics in China, resulted in reported revenue growth
for Research & Discovery of 6.1% (+9.3% at constant currency).
Revenue growth from service of our own products resulted in
reported growth of 8.8% (+13.5% at constant currency) for Service
& Healthcare.
Total reported orders grew by 19.6% (+19.9% at organic constant
currency) to GBP423.1m. Reported orders grew by 25.3% (+21.5% at
organic constant currency) for Materials & Characterisation and
by 15.7% (+19.6% at constant currency) for Research &
Discovery. Service & Healthcare increased by 11.1% (+16.0% at
constant currency).
The book-to-bill ratio (orders received to goods and services
billed in the period) for the year was 115% (2021: 111%).
On a geographical basis, revenue grew by 2.1% in Europe (down
2.2% at organic constant currency), impacted by fewer shipments of
semiconductor process tools due to supply constraints, in addition
to a strategic move away from tenders with high-configured systems.
Organic constant currency orders grew by 14.9%.
Revenue for North America increased by 10.7% on a reported basis
and by 12.3% at organic constant currency, with good demand for our
electron microscope analysers, and imaging and microscopy products.
Orders grew by 22.8% at organic constant currency, with strong
demand across the breadth of our product portfolio.
Asia delivered strong growth of 25.6% (+25.6% at organic
constant currency) with strong demand for our electron microscope
analysers, semiconductor processing tools, and cryogenic systems.
Asia remains our largest region by revenue, with China constituting
55% of regional revenue and 28% of total Group revenue. Orders for
the region at organic constant currency grew by 21.5%, driven by
demand for electron microscope analysers, semiconductor processing
tools, and our imaging and microscopy products.
Geographic revenue growth
2021/22 2021/22 2020/21 2020/21 Change %
% organic
% growth growth
at constant constant
GBPm GBPm % of total GBPm % of total GBPm growth currency currency
-------------- -------- ------------ ------- ----------- ------- -------- ------------ ----------
Europe 89.0 24% 87.2 27% +1.8 2.1% 5.5% (2.2%)
North America 84.9 23% 76.7 24% +8.2 10.7% 14.6% 12.3%
Asia 188.6 51% 150.2 47% +38.4 25.6% 29.6% 25.6%
Rest of
World 4.8 2% 4.4 2% +0.4 9.1% 18.2% 11.4%
-------------- -------- ------------ ------- ----------- ------- -------- ------------ ----------
367.3 100% 318.5 100% +48.8 15.3% 19.2% 14.5%
-------------- -------- ------------ ------- ----------- ------- -------- ------------ ----------
The total reported order book grew by 31.4% (26.6% at organic
constant currency). The order book, at organic constant currency,
compared to 31 March 2021, increased by 45.2% 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 2022/23 financial
year, the timing of which will be subject to timely deliveries of
components. Research & Discovery grew by 12.9% (+12.3% at
constant currency), with strong demand for our imaging and
microscopy products and X-ray tubes. Supply chain disruption has
led to slower order conversion than would normally be expected,
placing upward pressure on the order book. Continued focus on own
product service resulted in growth of 29.5% (+26.6% at constant
currency) from Service & Healthcare.
Materials Research Service
& & &
GBPm Characterisation Discovery Healthcare Total
---------------------------------------------- ---------------- --------- ---------- ------
Revenue: 2020/21 148.6 113.4 56.5 318.5
Constant currency growth 28.1 10.6 7.6 46.3
---------------------------------------------- ---------------- --------- ---------- ------
Revenue at organic constant currency: 2020/21 176.7 124.0 64.1 364.8
Acquisition 14.9 - - 14.9
Currency (6.1) (3.7) (2.6) (12.4)
---------------------------------------------- ---------------- --------- ---------- ------
Revenue: 2021/22 185.5 120.3 61.5 367.3
---------------------------------------------- ---------------- --------- ---------- ------
Revenue growth: reported 24.8% 6.1% 8.8% 15.3%
Revenue growth: organic constant currency 18.9% 9.3% 13.5% 14.5%
---------------------------------------------- ---------------- --------- ---------- ------
Gross profit
Gross profit grew by 14.0% to GBP187.8m (2021: GBP164.8m),
representing a gross profit margin of 51.1%, a reduction of 60
basis points over last year, due to increases to component costs,
particularly for electronics.
Adjusted operating profit and margin
Following the acquisition of WITec, the business is reported
within the Materials & Characterisation segment. Growth rates
expressed on an organic basis exclude the impact of WITec.
Adjusted operating profit increased by 16.9% to GBP66.3m (2021:
GBP56.7m), representing an adjusted operating profit margin of
18.1%, an increase of 30 basis points against last year. At
constant currency, the adjusted operating profit margin was 18.0%,
an increase of 20 basis points.
Reported Materials & Characterisation adjusted operating
profit increased by 28.6% (+16.1% at organic constant currency)
with reported margin increasing by 40 basis points to 14.1% (2021:
13.7%). This was attributable to a revenue scale benefit from our
higher -- margin imaging and analysis systems, and the partial
release of a warranty provision on a particular product in their
portfolio where the liability is less than originally anticipated.
Supply chain disruption led to a weaker than expected performance
from our scanning probe microscopy business.
Research & Discovery's adjusted operating margin increased
to 17.7% (2021: 17.2%), growth of 50 basis points. At constant
currency, the margin was 17.4%, an increase of 20 basis points,
supported by a strong improvement in margin from our X-Ray
Technology business.
Service & Healthcare margin increased by 80 basis points to
30.7% (2021: 29.9%). At constant currency, the margin was 31.5%, an
increase of 160 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 GBP1.9m
when compared to blended hedged exchange rates for the comparative
period.
Materials Research Service
& & &
GBPm Characterisation Discovery Healthcare Total
---------------------------------------------------------------- ---------------- --------- ---------- -----
Adjusted operating profit: 2020/21 20.3 19.5 16.9 56.7
Constant currency growth 3.3 2.1 3.2 8.6
Adjusted operating profit at organic constant currency: 2020/21 23.6 21.6 20.1 65.3
Acquisition 2.9 - - 2.9
Currency (0.4) (0.3) (1.2) (1.9)
---------------------------------------------------------------- ---------------- --------- ---------- -----
Adjusted operating profit: 2021/22 26.1 21.3 18.9 66.3
---------------------------------------------------------------- ---------------- --------- ---------- -----
Adjusted operating margin(1) : 2020/21 13.7% 17.2% 29.9% 17.8%
Adjusted operating margin(1) : 2021/22 14.1% 17.7% 30.7% 18.1%
Adjusted operating margin(1) (constant currency): 2021/22 13.8% 17.4% 31.5% 18.0%
---------------------------------------------------------------- ---------------- --------- ---------- -----
1. 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 fell by 8.9% to GBP48.3m (2021:
GBP53.0m), representing an operating profit margin of 13.2%.
Statutory operating profit is after the amortisation and impairment
of acquired intangible assets; acquisition items; other significant
non-recurring items; and the mark-to-market of financial
derivatives. The reduction in statutory operating profit is
principally due to a large charge arising from the movement in the
mark-to market valuation on financial derivatives.
Adjusting items
Amortisation of acquired intangibles of GBP9.5m relates to
intangible assets recognised on acquisitions, being the value of
technology, customer relationships and brands. The increase in the
charge from last year reflects the intangibles recognised following
the acquisition of WITec.
Non-recurring items comprise GBP0.4m of professional fees on the
acquisition of WITec. In addition, a charge of GBP1.7m has been
taken that eliminates the profit arising in the acquired WITec
business from revaluing their inventories to fair value, in
accordance with accounting standards.
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 24
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 up to 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 year
this amounted to a charge of GBP6.4m (2021: GBP6.4m credit). The
movement from a large net asset to a small net liability for
derivative financial instruments over the year reflects: (i) the
crystallisation of forward contracts that were hedging the 2021/22
financial year, which are recognised in adjusted operating profit;
and an uncrystallised reduction in the mark-to-market valuation of
forward contracts from a fall in the value of Sterling at the
balance sheet date against a blended rate achieved on US Dollar
contracts that will mature over the next eighteen months. The
mark-to-market valuation of financial derivatives that are hedging
contracts that will mature over the next eighteen months is a
liability of GBP0.4m.
Net finance costs
The Group's adjusted net interest costs (excluding credit on
pension scheme net assets) fell by GBP0.9m to GBP0.8m (2021:
GBP1.7m), principally due to the repayment of private placement
notes at the previous year end. An interest credit on pension
scheme net assets of GBP0.4m (2021: GBP0.9m) arising from the
pension surplus brings net finance charges to GBP0.4m (2021:
GBP0.8m). In addition, we recorded in financial expenditure a
non-cash charge of GBP0.3m against the unwind of discount on WITec
contingent consideration.
Adjusted profit before tax and margin
Adjusted profit before tax increased by 17.9% to GBP65.9m (2021:
GBP55.9m). The adjusted profit before tax margin of 17.9% (2021:
17.6%) 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
2022 2021
Reconciliation of statutory profit before tax to adjusted profit before tax GBPm GBPm
---------------------------------------------------------------------------- ---------- ----------
Statutory profit before tax 47.6 52.2
Add back:
Amortisation of acquired intangible assets 9.5 8.4
Non-recurring items (Note 1) 2.4 1.7
Mark-to-market of currency hedges 6.4 (6.4)
---------------------------------------------------------------------------- ---------- ----------
Adjusted profit before tax 65.9 55.9
---------------------------------------------------------------------------- ---------- ----------
Statutory profit before tax and margin
Statutory profit before tax decreased by 8.8% to GBP47.6m (2021:
GBP52.2m). Statutory profit before tax is after the amortisation
and impairment of acquired intangible assets; acquisition items;
other significant non-recurring items; and the mark-to-market of
financial derivatives. The statutory profit before tax margin of
13.0% (2021: 16.4%) was below last year, principally due to the
charge from the mark-to market valuation movement on financial
derivatives.
Taxation
The adjusted tax charge of GBP11.7m (2021: GBP10.8m) represents
an effective tax rate of 17.8% (2021: 19.3%). The tax charge of
GBP9.0m (2021: GBP10.4m) represents an effective tax rate of 18.9%
(2021: 19.9%). The reduction in tax rate reflects a prior year
adjustment, primarily relating to the recognition of patent box
claims in respect of sales prior to the grant of the patent.
Earnings per share
Adjusted basic earnings per share increased by 20.0% to 94.3p
(2021: 78.6p); adjusted diluted earnings per share grew by 19.8% to
93.0p (2021: 77.6p). Basic earnings per share decreased by 7.8% to
67.1p (2021: 72.8p); diluted earnings per share fell by 7.9% to
66.2p (2021: 71.9p).
The number of undiluted weighted average shares increased to
57.5m (2021: 57.4m).
Currency
The Group faces transactional and translational currency
exposure, most notably against the US Dollar, Euro and Japanese
Yen. For the year, approximately 23% of Group revenue was
denominated in Sterling, 44% in US Dollars, 20% in Euros, 10% 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 85.2 (57.2)
US Dollar 162.7 58.7
Euro 74.8 41.1
Japanese Yen 36.6 21.7
Chinese Renminbi 5.8 0.8
Other 2.2 1.2
------------------ ------- ----------
367.3 66.3
------------------ ------- ----------
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
twelve to 24 months. As at 31 March 2022, the Group had currency
hedges in place extending up to 18 months forward.
For the full year 2022/23, our assessment of the currency impact
is, based on hedges currently in place and forecast currency rates,
a tailwind of GBP5.1m to revenue, and headwind of GBP4.0m to
profit. Forecast currency rates on unhedged positions for the full
year are - GBP:USD 1.28; GBP:EUR 1.20; GBP:JPY 163. The headwind to
operating profit is due to stronger Sterling currency rates
achieved on hedges in place for 2022/23 and unhedged transactional
exposures, against hedges that crystallised in 2022/21. This
adverse impact to operating profit is partially mitigated by a gain
due to weaker blended Sterling currency rates on unhedged
transactional and translational exposures against actual currency
rates achieved in 2021/22. All currency impacts are prior to
mitigating pricing and cost actions. Uncertain volume and timing of
shipments and acceptances, currency mix and rate volatility may
significantly affect full-year currency forecast effects.
Looking further ahead to the financial year 2023/24, based on
the above currency assumptions, we would expect currency effects to
have a neutral impact to revenue and a GBP1.9m benefit to operating
profit.
Acquisition of WITec
On 31 August 2021, the Group completed the purchase of 100% of
the share capital in WITec for an initial consideration of
EUR37.0m. Additional consideration of up to EUR5m is conditional on
trading performance over a period of twelve months following
completion. Based on current forecasts, this payment is expected to
be made in full. During the period under ownership, the business
contributed constant currency revenue of GBP14.9m and an operating
profit of GBP2.9m.
Dividend
The Group's policy on the dividend takes into account changes to
underlying earnings, dividend cover, movements in currency and
demands on our cash. After a resilient year of trading, the Board
has proposed a final dividend of 13.7p per share. This results in a
total dividend of 18.1p per share, growth of 6.5%. An interim
dividend of 4.4p per share was paid on 14 January 2022. The final
dividend will be paid, subject to Shareholder approval, on 23
August 2022 to Shareholders on the register as at 15 July 2022.
Cash flow
The Group cash flow is summarised below.
Year ended Year ended
31 March 31 March
2022 2021
GBPm GBPm
-------------------------------------------------------------------------------- ---------- ----------
Adjusted operating profit 66.3 56.7
Depreciation and amortisation 9.4 9.1
-------------------------------------------------------------------------------- ---------- ----------
Adjusted(1) EBITDA 75.7 65.8
Working capital movement (11.8) (2.7)
Equity settled share schemes 2.1 1.8
Non-recurring items - 0.3
Pension scheme payments above charge to operating profit (7.6) (15.5)
-------------------------------------------------------------------------------- ---------- ----------
Cash from operations 58.4 49.7
Interest (0.5) (1.6)
Tax (8.8) (6.3)
Capitalised development expenditure (0.7) (0.9)
Expenditure on tangible and intangible assets (13.9) (4.0)
Acquisition of subsidiaries, net of cash acquired (30.6) -
Acquisition-related cost (0.4) -
Dividends paid (12.3) -
Proceeds from issue of share capital and exercise of share options 0.1 0.2
Payments made in respect of lease liabilities (3.4) (2.8)
Decrease in borrowings (0.1) (27.9)
-------------------------------------------------------------------------------- ---------- ----------
Net (decrease)/increase in cash and cash equivalents from continuing operations (12.2) 6.4
-------------------------------------------------------------------------------- ---------- ----------
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 GBP58.4m (2021: GBP49.7m) represents 72%
(2021: 101%) cash conversion. Cash conversion on a normalised basis
was 84% once we exclude expenditure relating to our new
semiconductor facility. Cash conversion is defined as cash from
operations before business reorganisation costs and pension scheme
payments above charge to operating profit, less capitalised
development expenditure, capital expenditure and payments made in
respect of lease liabilities, divided by adjusted operating
profit.
Year ended Year ended
31 March 31 March
2022 2021
Reconciliation of cash generated from operations to adjusted operating cash flow GBPm GBPm
--------------------------------------------------------------------------------- ---------- ----------
Cash from operations 58.4 49.7
Add back/(Deduct):
Non-recurring items - (0.3)
Pension scheme payments above charge to operating profit 7.6 15.5
Capitalised development expenditure (0.7) (0.9)
Expenditure on tangible and intangible assets (13.9) (4.0)
Payments made in respect of lease liabilities (3.4) (2.8)
--------------------------------------------------------------------------------- ---------- ----------
Adjusted cash from operations 48.4 57.2
--------------------------------------------------------------------------------- ---------- ----------
Cash conversion % (adjusted cash from operations/adjusted operating profit) 72% 101%
--------------------------------------------------------------------------------- ---------- ----------
Cash conversion % (normalised(1) ) 84% 102%
--------------------------------------------------------------------------------- ---------- ----------
1. Cash conversion calculated on a normalised basis excludes
expenditure in the year of GBP7.4m (2021: GBP0.8m) on the new
semiconductor facility.
Working capital increased by GBP11.8m with receivables
increasing by GBP21.6m. The receivables movement reflects the high
number of orders, shipments and acceptances in the final month of
the year compared to last year, particularly with reference to
high-value semiconductor process systems, resulting in an increase
in invoicing against customer deposits, installation and
acceptances. This was partially offset by a reduction in payables
and customer deposits of GBP9.9m. Business growth and post-Brexit
transit flows have also resulted in higher VAT balances in
receivables and payables.
Interest
Net interest paid was GBP0.5m (2021: GBP1.6m), the reduction
reflecting the repayment of private placement notes at the end of
the last financial year.
Tax
Tax paid was GBP8.8m (2021: GBP6.3m).
Investment in Research and Development (R&D)
Total cash spend on R&D in the year was GBP31.7m, equivalent
to 8.6% of sales (2021: GBP28.9m, 9.1% of sales). A reconciliation
between the adjusted amounts charged to the Consolidated Statement
of Income and the cash spent is given below:
Year ended Year ended
31 March 31 March
2022 2021
GBPm GBPm
-------------------------------------------------------------------- ---------- ----------
R&D expense charged to the Consolidated Statement of Income 32.8 30.0
Depreciation of R&D-related fixed assets (0.2) (0.1)
Amounts capitalised as fixed assets 0.3 0.6
Amortisation and impairment of R&D costs capitalised as intangibles (1.9) (2.5)
Amounts capitalised as intangible assets 0.7 0.9
-------------------------------------------------------------------- ---------- ----------
Total cash spent on R&D during the year 31.7 28.9
-------------------------------------------------------------------- ---------- ----------
Net cash and funding
Net cash
Cash from operations in the full year was offset by the payment
of initial consideration for the acquisition of WITec, resulting in
a decrease in the Group's net cash position from GBP97.6m at 31
March 2021 to GBP85.9m on 31 March 2022. The Group invested in
capitalised development costs of GBP0.7m and tangible and
intangible assets of GBP13.9m, of which GBP7.4m relates to payments
associated with the new semiconductor facility under
construction.
Up to 31 March 2022, we had incurred costs of GBP8.2m on the new
semiconductor facility under construction. For the financial year
ended 31 March 2023, we expect additional payments of approximately
GBP25m to complete the facility. We are at the early stage of a
process to sell the current site, with completion expected in the
2023/24 financial year.
Movement in net cash GBPm
------------------------------------------------------ ------
Net cash after borrowings as at 31 March 2021 97.6
------------------------------------------------------ ------
Cash generated from operations 58.4
Interest (0.5)
Tax (8.8)
Capitalised development expenditure (0.7)
Capital expenditure on tangible and intangible assets (6.5)
Capital expenditure on new semiconductor facility (7.4)
Acquisition of subsidiaries (net of cash and debt) (30.6)
Dividend paid (12.3)
Other items (3.3)
Net cash after borrowings as at 31 March 2022 85.9
------------------------------------------------------ ------
Year ended Year ended
31 March 31 March
2022 2021
Net cash including lease liabilities GBPm GBPm
------------------------------------------------ ---------- ----------
Net cash after borrowings 85.9 97.6
Lease liabilities (18.4) (7.5)
------------------------------------------------ ---------- ----------
Net cash and lease liabilities after borrowings 67.5 90.1
------------------------------------------------ ---------- ----------
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 34.7%,
with the change principally reflecting a higher level of
earnings.
Year ended Year ended
31 March 31 March
2022 2021
Return on capital employed GBPm GBPm
--------------------------------------------------------------------------- ---------- ----------
Adjusted operating profit 66.3 56.7
Amortisation of acquired intangible assets (9.5) (8.4)
--------------------------------------------------------------------------- ---------- ----------
Adjusted operating profit after amortisation of acquired intangible assets 56.8 48.3
--------------------------------------------------------------------------- ---------- ----------
Property, plant and equipment 31.7 21.1
Right-of-use assets 17.9 7.3
Intangible assets 140.7 122.6
Inventories 65.3 58.7
Trade and other receivables 104.7 75.6
Non-current lease payables (14.9) (4.9)
Non-current provisions (0.1) (0.7)
Trade and other payables (149.5) (126.1)
Current lease payables (3.5) (2.6)
Current provisions (7.7) (8.7)
--------------------------------------------------------------------------- ---------- ----------
Capital employed 184.6 142.3
--------------------------------------------------------------------------- ---------- ----------
Average capital employed 163.5 147.8
--------------------------------------------------------------------------- ---------- ----------
Return on capital employed (ROCE) 34.7% 32.7%
--------------------------------------------------------------------------- ---------- ----------
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. ROIC increased slightly on
the previous year due to the improvement in operating profit and
reduction in taxation rates, more than offsetting any dilution in
ROIC from the recent acquisition.
Year ended Year ended
31 March 31 March
2022 2021
Return on invested capital GBPm GBPm
----------------------------------------- ---------- ----------
Adjusted operating profit 66.3 56.7
Taxation (11.7) (10.8)
----------------------------------------- ---------- ----------
Adjusted operating profit after taxation 54.6 45.9
----------------------------------------- ---------- ----------
Total equity 316.4 266.2
Net cash (including lease liabilities) (67.5) (90.1)
----------------------------------------- ---------- ----------
Invested capital 248.9 176.1
----------------------------------------- ---------- ----------
Average invested capital 212.5 184.4
----------------------------------------- ---------- ----------
Return on invested capital (ROIC) 25.7% 24.9%
----------------------------------------- ---------- ----------
Funding
On 2 July 2018, the Group entered into an unsecured
multi-currency revolving facility agreement, which is committed
until June 2025. The facility has been entered into with two banks
and comprises a Euro-denominated multi-currency facility of
EUR50.0m (GBP42m) and a US Dollar-denominated multi-currency
facility of $80.0m (GBP61m).
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 2022 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 2022 was GBP51.7m (2021:
GBP16.3m). The value of scheme assets increased to GBP351.7m (2021:
GBP340.2m). Scheme liabilities decreased to GBP300.0m (GBP323.9m),
principally due to an increase in the discount rate from 2.1% to
2.8%. This was offset slightly by an increase in the inflation
assumption, from 3.0% to 3.4%.
Pension recovery payments above charge to operating profit total
GBP7.6m (2021: GBP15.5m). The comparative period included a one-off
contribution of GBP8.1m to the UK defined benefit pension scheme,
in addition to the annual recovery payments.
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
2025/26, at which point we expect, based on current assumptions,
for the scheme to achieve self-sufficiency. In 2022, these
contributions amounted to GBP8.0m. 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 Highlights, Chief Executive's Review
and Operations Review sections of this Report. 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 been strong during the year. 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 currency
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
Chief Financial Officer
13 June 2022
CONSOLIDATED STATEMENT OF INCOME
Year ended 31 March 2022
2022 2021
---------------------------- ----------------------------
Adjusting Adjusting
Adjusted items(1) Total Adjusted items(1) Total
Note GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------------------------- ---- -------- --------- ------- -------- --------- -------
Revenue 3 367.3 - 367.3 318.5 - 318.5
Cost of sales (179.5) - (179.5) (153.7) - (153.7)
---------------------------------------------------- ---- -------- --------- ------- -------- --------- -------
Gross profit 187.8 - 187.8 164.8 - 164.8
Research and development 5 (32.8) - (32.8) (30.0) (1.3) (31.3)
Selling and marketing (52.5) - (52.5) (44.5) - (44.5)
Administration and shared services (42.2) (11.6) (53.8) (34.5) (8.8) (43.3)
Foreign exchange gain/(loss) 6.0 (6.4) (0.4) 0.9 6.4 7.3
---------------------------------------------------- ---- -------- --------- ------- -------- --------- -------
Operating profit 66.3 (18.0) 48.3 56.7 (3.7) 53.0
Interest credit on pension scheme net assets 0.4 - 0.4 0.9 - 0.9
Other financial income 0.1 - 0.1 0.2 - 0.2
---------------------------------------------------- ---- -------- --------- ------- -------- --------- -------
Financial income 7 0.5 - 0.5 1.1 - 1.1
---------------------------------------------------- ---- -------- --------- ------- -------- --------- -------
Financial expenditure 8 (0.9) (0.3) (1.2) (1.9) - (1.9)
---------------------------------------------------- ---- -------- --------- ------- -------- --------- -------
Profit/(loss) before income tax 3 65.9 (18.3) 47.6 55.9 (3.7) 52.2
Income tax (expense)/credit 12 (11.7) 2.7 (9.0) (10.8) 0.4 (10.4)
---------------------------------------------------- ---- -------- --------- ------- -------- --------- -------
Profit/(loss) for the year attributable to equity
Shareholders of the parent 54.2 (15.6) 38.6 45.1 (3.3) 41.8
---------------------------------------------------- ---- -------- --------- ------- -------- --------- -------
Earnings per share pence pence pence pence
---------------------------------------------------- ---- -------- --------- ------- -------- --------- -------
Basic earnings per share 2
From profit for the year 94.3 67.1 78.6 72.8
---------------------------------------------------- ---- -------- --------- ------- -------- --------- -------
Diluted earnings per share 2
From profit for the year 93.0 66.2 77.6 71.9
---------------------------------------------------- ---- -------- --------- ------- -------- --------- -------
Dividends per share 13
---------------------------------------------------- ---- -------- --------- ------- -------- --------- -------
Dividends paid 21.4 -
Dividends proposed 13.7 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.
The attached notes form part of these Financial Statements.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year ended 31 March 2022
2022 2021
GBPm GBPm
----------------------------------------------------------------------------------------------- ----- ------
Profit for the year 38.6 41.8
Other comprehensive income/(expense):
Items that may be reclassified subsequently to Consolidated Statement of Income
Foreign exchange translation differences 1.0 (4.9)
Items that will not be reclassified to Consolidated Statement of Income
Remeasurement gain/(loss) in respect of post-retirement benefits 27.3 (30.8)
Tax (charge)/credit on items that will not be reclassified to Consolidated Statement of Income (6.8) 5.5
----------------------------------------------------------------------------------------------- ----- ------
Total other comprehensive income/(expense) 21.5 (30.2)
----------------------------------------------------------------------------------------------- ----- ------
Total comprehensive income for the year attributable to equity Shareholders of the parent 60.1 11.6
----------------------------------------------------------------------------------------------- ----- ------
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 March 2022
2022 2021
Note GBPm GBPm
----------------------------------------------------------------------- ---- ----- -----
Assets
Non-current assets
Property, plant and equipment 14 31.7 21.1
Right-of-use assets 29 17.9 7.3
Intangible assets 15 140.7 122.6
Derivative financial instruments 22 - 1.1
Retirement benefit asset 25 51.7 16.3
Deferred tax assets 16 13.7 13.1
----------------------------------------------------------------------- ---- ----- -----
255.7 181.5
----------------------------------------------------------------------- ---- ----- -----
Current assets
Inventories 17 65.3 58.7
Trade and other receivables 18 104.7 75.6
Current income tax receivable 0.8 1.9
Derivative financial instruments 22 1.0 5.0
Cash and cash equivalents 19 96.4 128.0
----------------------------------------------------------------------- ---- ----- -----
268.2 269.2
----------------------------------------------------------------------- ---- ----- -----
Total assets 523.9 450.7
----------------------------------------------------------------------- ---- ----- -----
Equity
Capital and reserves attributable to the Company's equity Shareholders
Share capital 23 2.9 2.9
Share premium 62.5 62.4
Other reserves 0.2 0.2
Translation reserve 7.6 6.6
Retained earnings 243.2 194.1
----------------------------------------------------------------------- ---- ----- -----
316.4 266.2
----------------------------------------------------------------------- ---- ----- -----
Liabilities
Non-current liabilities
Bank loans 24 1.3 -
Lease payables 29 14.9 4.9
Derivative financial instruments 22 0.3 -
Provisions 28 0.1 0.7
Deferred tax liabilities 16 15.4 4.9
----------------------------------------------------------------------- ---- ----- -----
32.0 10.5
----------------------------------------------------------------------- ---- ----- -----
Current liabilities
Bank loans and overdrafts 24 9.2 30.4
Trade and other payables 26 149.5 126.1
Lease payables 29 3.5 2.6
Current income tax payables 4.5 6.2
Derivative financial instruments 22 1.1 -
Provisions 28 7.7 8.7
----------------------------------------------------------------------- ---- ----- -----
175.5 174.0
----------------------------------------------------------------------- ---- ----- -----
Total liabilities 207.5 184.5
----------------------------------------------------------------------- ---- ----- -----
Total liabilities and equity 523.9 450.7
----------------------------------------------------------------------- ---- ----- -----
The Financial Statements were approved by the Board of Directors
on 13 June 2022 and signed on its behalf by:
Ian Barkshire
Director
Gavin Hill
Director
Company number: 775598
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Year ended 31 March 2022
Translation Retained
Share Share Other
capital premium reserves reserve earnings Total
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------------------------------- -------- -------- --------- ----------- -------- ------
As at 1 April 2021 2.9 62.4 0.2 6.6 194.1 266.2
Total comprehensive income/(expense):
Profit for the year - - - - 38.6 38.6
Other comprehensive income/(expense):
- Foreign exchange translation differences - - - 1.0 - 1.0
- Net cumulative foreign exchange gain on disposal of
subsidiaries recycled to the Income
Statement - - - - -
- Remeasurement gain in respect of post-retirement
benefits - - - - 27.3 27.3
- Tax charge on items that will not be reclassified to
Consolidated Statement of Income - - - - (6.8) (6.8)
-------------------------------------------------------- -------- -------- --------- ----------- -------- ------
Total comprehensive income attributable to equity
Shareholders of the parent - - - 1.0 59.1 60.1
-------------------------------------------------------- -------- -------- --------- ----------- -------- ------
Transactions with owners recorded directly in equity:
- Credit in respect of employee service costs settled by
award of share options - - - - 2.1 2.1
- Tax credit in respect of share options - - - - 0.2 0.2
- Proceeds from shares issued - 0.1 - - - 0.1
- Dividends - - - - (12.3) (12.3)
-------------------------------------------------------- -------- -------- --------- ----------- -------- ------
Total transactions with owners recorded directly in
equity: - 0.1 - - (10.0) (9.9)
-------------------------------------------------------- -------- -------- --------- ----------- -------- ------
As at 31 March 2022 2.9 62.5 0.2 7.6 243.2 316.4
-------------------------------------------------------- -------- -------- --------- ----------- -------- ------
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)
- Remeasurement loss in respect of post -- retirement
benefits - - - - (30.8) (30.8)
- Tax credit on items that will not be reclassified to
Consolidated Statement of Income - - - - 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:
- 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
-------------------------------------------------------- -------- -------- --------- ----------- -------- ------
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 2,370 (2021: 52,631) of its own shares in an
employee benefit trust. The cost of these shares is included within
retained earnings.
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended 31 March 2022
2022 2021
Note GBPm GBPm
---------------------------------------------------------------------------------- ---- ------ ------
Profit for the year 38.6 41.8
---------------------------------------------------------------------------------- ---- ------ ------
Profit for the year from continuing operations 38.6 41.8
Adjustments for:
Income tax expense 12 9.0 10.4
Net financial expense 0.7 0.8
Fair value movement on financial derivatives 6.4 (6.4)
WITec post-acquisition gross margin adjustment 1.7 -
Acquisition-related costs 0.4 0.4
Impairment of capitalised development costs - 1.3
Amortisation and impairment of acquired intangibles 15 9.5 8.4
Depreciation of right-of-use assets 29 3.4 2.8
Depreciation of property, plant and equipment 14 4.1 3.8
Amortisation of capitalised development costs 15 1.9 2.5
---------------------------------------------------------------------------------- ---- ------ ------
Adjusted earnings before interest, tax, depreciation and amortisation 75.7 65.8
Charge in respect of equity settled employee share schemes 11 2.1 1.8
Restructuring costs (paid)/received - 0.3
Cash payments to the pension scheme more than the charge to operating profit (7.6) (15.5)
---------------------------------------------------------------------------------- ---- ------ ------
Operating cash flows before movements in working capital 70.2 52.4
Increase in inventories 20 (0.1) (1.3)
Increase in receivables 20 (21.6) (10.5)
Increase in payables and provisions 20 11.4 11.3
Increase/(decrease) in customer deposits 20 (1.5) (2.2)
---------------------------------------------------------------------------------- ---- ------ ------
Cash generated from operations 58.4 49.7
Interest paid (0.5) (1.6)
Income taxes paid (8.8) (6.3)
---------------------------------------------------------------------------------- ---- ------ ------
Net cash from operating activities 49.1 41.8
---------------------------------------------------------------------------------- ---- ------ ------
Cash flows from investing activities
Proceeds from sale of property, plant and equipment - 0.2
Acquisition of property, plant and equipment (13.9) (4.2)
Acquisition of subsidiaries, net of cash acquired 6 (30.6) -
Acquisition-related costs (0.4) -
Acquisition of intangibles (0.1) -
Capitalised development expenditure (0.7) (0.9)
Interest received 0.1 -
---------------------------------------------------------------------------------- ---- ------ ------
Net cash used in investing activities (45.6) (4.9)
---------------------------------------------------------------------------------- ---- ------ ------
Cash flows from financing activities
Proceeds from issue of share capital 0.1 0.2
Payments made in respect of lease liabilities 29 (3.4) (2.8)
Repayment of borrowings (0.1) (27.9)
Dividends paid (12.3) -
---------------------------------------------------------------------------------- ---- ------ ------
Net cash used in financing activities (15.7) (30.5)
---------------------------------------------------------------------------------- ---- ------ ------
Net (decrease)/increase in cash and cash equivalents (12.2) 6.4
Cash and cash equivalents at beginning of the year 97.6 95.4
Effect of exchange rate fluctuations on cash held 2.3 (4.2)
---------------------------------------------------------------------------------- ---- ------ ------
Cash and cash equivalents at end of the year 19 87.7 97.6
---------------------------------------------------------------------------------- ---- ------ ------
Comprised of:
Cash and cash equivalents as per the Consolidated Statement of Financial Position 19 96.4 128.0
Bank overdrafts 24 (8.7) (30.4)
87.7 97.6
---------------------------------------------------------------------------------- ---- ------ ------
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
2022 2021
------------------ ------------------
Profit Profit
Operating before Operating before
income income
profit tax profit tax
GBPm GBPm GBPm GBPm
---------------------------------------------------------- --------- ------- --------- -------
Statutory measure 48.3 47.6 53.0 52.2
---------------------------------------------------------- --------- ------- --------- -------
Acquisition-related costs 0.4 0.4 0.4 0.4
WITec post-acquisition gross margin adjustment 1.7 1.7 - -
Impairment of capitalised development costs - - 1.3 1.3
Amortisation and impairment of acquired intangibles 9.5 9.5 8.4 8.4
Fair value movement on financial derivatives 6.4 6.4 (6.4) (6.4)
Unwind of discount in respect of contingent consideration - 0.3 - -
---------------------------------------------------------- --------- ------- --------- -------
Total non-GAAP adjustments 18.0 18.3 3.7 3.7
---------------------------------------------------------- --------- ------- --------- -------
Adjusted measure 66.3 65.9 56.7 55.9
Adjusted income tax expense (11.7) (10.8)
Adjusted profit for the year 66.3 54.2 56.7 45.1
---------------------------------------------------------- --------- ------- --------- -------
Adjusted effective tax rates 17.8% 19.3%
---------------------------------------------------------- --------- ------- --------- -------
Acquisition-related costs
These represent the costs of one-off charges incurred at the
balance sheet date relating to the acquisition of WITec.
WITec post-acquisition gross margin adjustment
The finished goods and work in progress inventories were
revalued to provisional fair value, based on selling price less
costs to sell. The GBP1.7m adjustment relates to the gross margin
which would have been earned on post-acquisition sales to 31 March
2022, but which has been absorbed into the acquisition date fair
value. This will not recur, once all such inventory at the
acquisition date has been delivered to customers.
Impairment of capitalised development costs
During the year to 31 March 2021, 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.
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.
Unwind of discount in respect of contingent consideration
Adjusted profit excludes the unwind of the discount in respect
of the contingent consideration on the acquisition of WITec.
Adjusted income tax expense
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
2022 2021
GBPm GBPm
----------------------------------------------------- ------ -----
Net (decrease)/increase in cash and cash equivalents (12.2) 6.4
Effect of exchange rate fluctuations on cash held 2.3 (4.2)
----------------------------------------------------- ------ -----
Movement in net cash in the year (9.9) 2.2
Net cash at start of the year 97.6 95.4
----------------------------------------------------- ------ -----
Net cash at the end of the year 87.7 97.6
----------------------------------------------------- ------ -----
Reconciliation of net cash to Statement of Financial
Position
2022 2021
GBPm GBPm
-------------------------------- ----- ------
Overdrafts (8.7) (30.4)
Cash and cash equivalents 96.4 128.0
-------------------------------- ----- ------
Net cash at the end of the year 87.7 97.6
-------------------------------- ----- ------
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.
2022 2021
GBPm GBPm
---------------------------------------------------------------------- ----- -----
Profit for the year attributable to equity Shareholders of the parent 38.6 41.8
Adjusting items:
Business reorganisation items 0.4 0.4
WITec post-acquisition gross margin adjustment 1.7 -
Impairment of capitalised development costs - 1.3
Amortisation and impairment of acquired intangibles 9.5 8.4
Fair value movement on financial derivatives 6.4 (6.4)
Unwind of discount in respect of contingent consideration 0.3 -
Adjusted income tax expense (2.7) (0.4)
---------------------------------------------------------------------- ----- -----
Adjusted profit for the year 54.2 45.1
---------------------------------------------------------------------- ----- -----
The weighted average number of shares used in the calculation
excludes shares held by the Employee Share Ownership Trust, and is
as follows:
2022 2021
Shares Shares
million million
---------------------------------------------------------------------------------- -------- -------
Weighted average number of shares outstanding 57.7 57.5
Less: weighted average number of shares held by Employee Share Ownership Trust (0.2) (0.1)
---------------------------------------------------------------------------------- -------- -------
Weighted average number of shares used in calculation of basic earnings per share 57.5 57.4
---------------------------------------------------------------------------------- -------- -------
The following table shows the effect of share options on the
calculation of diluted earnings per share:
2022 2021
Shares Shares
million million
---------------------------------------------------------------------- -------- -------
Number of ordinary shares per basic earnings per share calculations 57.5 57.4
Effect of shares under option 0.8 0.7
---------------------------------------------------------------------- -------- -------
Number of ordinary shares per diluted earnings per share calculations 58.3 58.1
---------------------------------------------------------------------- -------- -------
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 nine 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.
On 31 August 2021, the Group acquired 100% of the issued share
capital of WITec, which has been integrated into the Materials
& Characterisation segment.
Results from continuing operations
Materials Research Service
& & &
Characterisation Discovery Healthcare Total
2022 GBPm GBPm GBPm GBPm
------------------------------------------------------------- ---------------- --------- ---------- -----
Total segment revenue 185.5 120.3 61.5 367.3
------------------------------------------------------------- ---------------- --------- ---------- -----
Segment adjusted operating profit from continuing operations 26.1 21.3 18.9 66.3
------------------------------------------------------------- ---------------- --------- ---------- -----
Materials Research Service
& & &
Characterisation Discovery Healthcare Total
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
------------------------------------------------------------- ---------------- --------- ---------- -----
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 2022, the Group had unfulfilled performance
obligations under IFRS 15 of GBP260.2m (2021: GBP198.1m). It is
anticipated that GBP250.5m (2021: GBP178.9m) 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
Group
Characterisation Discovery Healthcare items Total
2022 GBPm GBPm GBPm GBPm GBPm
--------------------------------------------------------- ---------------- --------- ---------- ----------- -----
Segment adjusted operating profit from continuing
operations 26.1 21.3 18.9 - 66.3
Acquisition-related costs (0.4) - - - (0.4)
WITec post-acquisition gross margin adjustment (1.7) - - - (1.7)
Amortisation and impairment of acquired intangibles (3.2) (6.3) - - (9.5)
Fair value movement on financial derivatives - - - (6.4) (6.4)
Financial income - - - 0.5 0.5
Financial expenditure - - - (1.2) (1.2)
--------------------------------------------------------- ---------------- --------- ---------- ----------- -----
Profit/(loss) before income tax from continuing
operations 20.8 15.0 18.9 (7.1) 47.6
--------------------------------------------------------- ---------------- --------- ---------- ----------- -----
Materials Research Service
& & & Unallocated
Group
Characterisation Discovery Healthcare items Total
2021 GBPm GBPm GBPm GBPm GBPm
--------------------------------------------------------- ---------------- --------- ---------- ----------- -----
Segment adjusted operating profit from continuing
operations 20.3 19.5 16.9 - 56.7
Acquisition-related costs (0.4) - - - (0.4)
Impairment of capitalised development costs (1.3) - - - (1.3)
Amortisation and impairment 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
--------------------------------------------------------- ---------------- --------- ---------- ----------- -----
2022 2021
Depreciation GBPm GBPm
------------------------------ ---- ----
Materials & Characterisation 3.8 3.3
Research & Discovery 1.5 1.3
Service & Healthcare 0.7 0.6
Unallocated Group items 1.5 1.4
------------------------------ ---- ----
Total 7.5 6.6
------------------------------ ---- ----
2022 2021
Capital expenditure GBPm GBPm
------------------------------ ---- ----
Materials & Characterisation 11.4 3.2
Research & Discovery 1.7 1.3
Service & Healthcare 0.1 0.1
Unallocated Group items 0.7 0.2
------------------------------ ---- ----
Total 13.9 4.8
------------------------------ ---- ----
2022 2021
Amortisation and impairment GBPm GBPm
------------------------------ ---- ----
Materials & Characterisation 5.0 5.6
Research & Discovery 6.4 6.6
Service & Healthcare - -
Unallocated Group items - -
------------------------------ ---- ----
Total 11.4 12.2
------------------------------ ---- ----
2022 2021
Capitalised development costs GBPm GBPm
------------------------------ ---- ----
Materials & Characterisation 0.7 0.8
Research & Discovery - 0.1
Service & Healthcare - -
Unallocated Group items - -
------------------------------ ---- ----
Total 0.7 0.9
------------------------------ ---- ----
2022 2021
Revenue from continuing operations from external customers by destination GBPm GBPm
-------------------------------------------------------------------------- ----- -----
UK 20.2 14.5
China 103.9 76.8
Japan 39.0 39.6
USA 79.9 72.1
Germany 28.1 32.8
Rest of Europe 40.7 39.9
Rest of Asia 45.7 33.8
Rest of World 9.8 9.0
-------------------------------------------------------------------------- ----- -----
Total 367.3 318.5
-------------------------------------------------------------------------- ----- -----
2022 2021
Non-current assets (excluding deferred tax) GBPm GBPm
-------------------------------------------- ----- -----
UK 182.8 146.0
Germany 32.7 2.9
USA 14.2 8.7
Japan 2.4 0.6
China 1.8 0.3
Rest of Europe 7.2 7.8
Rest of Asia 0.3 0.2
Rest of World 0.6 0.9
-------------------------------------------- ----- -----
Total 242.0 167.4
-------------------------------------------- ----- -----
4. RESEARCH AND DEVELOPMENT (R&D)
The total research and development spend by the Group is as
follows:
Materials Research
& &
Characterisation Discovery Total
2022 GBPm GBPm GBPm
---------------------------------------------------------------------- ---------------- --------- -----
R&D expense charged to the Consolidated Statement of Income 23.0 9.8 32.8
Less: depreciation of R&D-related fixed assets - (0.2) (0.2)
Add: amounts capitalised as fixed assets - 0.3 0.3
Less: amortisation of R&D costs previously capitalised as intangibles (1.8) (0.1) (1.9)
Add: amounts capitalised as intangible assets 0.7 - 0.7
---------------------------------------------------------------------- ---------------- --------- -----
Total cash spent on R&D during the year 21.9 9.8 31.7
---------------------------------------------------------------------- ---------------- --------- -----
Materials Research
& &
Characterisation Discovery Total
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
---------------------------------------------------------------------- ---------------- --------- -----
5. ACQUISITION OF WITEC
On 31 August 2021, the Group acquired 100% of the issued share
capital of WITec Wissenschaftliche Instrumente und Technologie GmbH
("WITec") on a cash-free, debt-free basis for consideration of
EUR42m (GBP36.0m), of which EUR5m (GBP4.3m) is conditional on
trading performance over a period of twelve months from the
acquisition. The conditions for the deferred consideration are
meeting certain revenue, order and margin thresholds. In the
calculations below, it has been assumed that these thresholds have
been met. WITec is a leading designer and manufacturer of Raman
microscopy imaging solutions, based in Ulm, Germany.
The book and fair value of the assets and liabilities acquired
is given in the table below. Fair value adjustments will be made to
better align the accounting policies of the acquired business with
the Group accounting policies and to reflect the fair value of
assets and liabilities acquired. The business has been integrated
into the Materials & Characterisation segment.
Book value Adjustments Fair value
GBPm GBPm GBPm
------------------------------------------------------------- ---------- ----------- ----------
Intangible assets - 8.3 8.3
Property, plant and equipment 0.2 - 0.2
Right-of-use assets 2.8 - 2.8
Inventories 5.3 2.6 7.9
Trade and other receivables 3.0 - 3.0
Deferred tax 0.2 (3.0) (2.8)
Trade and other payables (2.1) - (2.1)
Lease liabilities (2.8) - (2.8)
Provisions (0.5) - (0.5)
Bank loans (1.9) - (1.9)
Cash 1.7 - 1.7
------------------------------------------------------------- ---------- ----------- ----------
Net assets acquired 5.9 7.9 13.8
------------------------------------------------------------- ---------- ----------- ----------
Goodwill 20.6
------------------------------------------------------------- ---------- ----------- ----------
Total consideration 34.4
------------------------------------------------------------- ---------- ----------- ----------
Net debt acquired 0.2
Deferred consideration after discounting to transaction date (3.6)
Creditor in respect of working capital adjustment (0.4)
------------------------------------------------------------- ---------- ----------- ----------
Net cash outflow relating to the acquisition 30.6
------------------------------------------------------------- ---------- ----------- ----------
The goodwill arising is considered to represent the value of the
acquired workforce and the value of technology that has not been
individually fair valued.
Acquisition-related costs of GBP0.4m (2021: GBP0.4m) were
expensed to the Consolidated Statement of Income as an adjusting
item in the administration and shared services cost line.
The acquisition contributed revenue of GBP14.3m, adjusted
operating profit of GBP2.8m and a statutory loss before tax of
GBP0.3m to the Group's profit for the year.
If the acquisition had occurred on the first day of the year the
acquisition would have contributed revenue of GBP19.6m, adjusted
operating profit of GBP3.1m and a statutory result before tax of
GBPnil.
6. INCOME TAX EXPENSE
2022 2021
GBPm GBPm
---------------------------------------------------------------------------- ----- -----
Recognised in the Consolidated Statement of Income
Current tax expense
Current year 9.0 9.7
Adjustment in respect of prior years (1.0) (3.2)
---------------------------------------------------------------------------- ----- -----
8.0 6.5
---------------------------------------------------------------------------- ----- -----
Deferred tax expense
Origination and reversal of temporary differences 1.2 2.0
Adjustment in respect of prior years (0.2) 1.9
---------------------------------------------------------------------------- ----- -----
1.0 3.9
---------------------------------------------------------------------------- ----- -----
Total tax expense 9.0 10.4
---------------------------------------------------------------------------- ----- -----
Reconciliation of effective tax rate
Profit before income tax 47.6 52.2
Income tax using the weighted average statutory tax rate of 21% (2021: 21%) 10.0 11.0
Effect of:
Tax rates other than the weighted average statutory rate 0.1 0.4
Change in rate at which deferred tax recognised 0.6 0.1
Non-taxable income and expenses (0.3) 0.3
Tax incentives not recognised in the Consolidated Statement of Income (0.2) -
Movement in unrecognised deferred tax - (0.1)
Adjustment in respect of prior years (1.2) (1.3)
---------------------------------------------------------------------------- ----- -----
Total tax expense 9.0 10.4
---------------------------------------------------------------------------- ----- -----
Taxation charge/(credit) recognised directly in other comprehensive income
Deferred tax - relating to employee benefits 6.8 (5.5)
---------------------------------------------------------------------------- ----- -----
Taxation credit recognised directly in equity
Deferred tax - relating to share options (0.2) (1.0)
---------------------------------------------------------------------------- ----- -----
On 5 March 2021, it was announced that the rate of UK
corporation tax would be increased to 25% from 1 April 2023. This
change was substantively enacted on 24 May 2021. As such, the UK
deferred tax assets and liabilities have been calculated based on
the enacted rate of 19% where they are anticipated to be utilised
prior to 31 March 2023, but at 25% when utilisation is expected to
occur after that date.
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 was accordingly 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. The
Group received a cash tax refund of $2.1m in July 2021.
7. DIVIDS PER SHARE
The following dividends per share were paid by the Group:
2022 2021
pence pence
--------------------------------- ----- -----
Previous period interim dividend 4.1 -
Previous period final dividend 12.9 -
Current period interim dividend 4.4 -
--------------------------------- ----- -----
21.4 -
--------------------------------- ----- -----
The following dividends per share were proposed by the Group in
respect of each accounting period presented:
2022 2021
pence pence
----------------- ----- -----
Interim dividend 4.4 4.1
Final dividend 13.7 12.9
----------------- ----- -----
18.1 17.0
----------------- ----- -----
The final dividend for the year to 31 March 2021 of 12.9 pence
per share was approved by Shareholders at the Annual General
Meeting on 21 September 2021 and was paid on 15 October 2021. The
interim dividend for the year to 31 March 2022 of 4.4 pence was
approved by the Board on 8 November 2021 and was paid on 14 January
2022.
The proposed final dividend of 13.7 pence per share was not
provided at the year end and is subject to Shareholder approval at
the Annual General Meeting on 28 July 2022. It is expected to be
paid on 23 August 2022, to Shareholders on the register on the
record date of 15 July 2022, with an ex-dividend date of 14 July
2022 and with the last date of election for the Dividend
Reinvestment Plan (DRIP) being 02 August 2022.
8. EXCHANGE RATES
The principal exchange rates to Sterling used were:
Year-end rates 2022 2021
--------------- ---- ----
US Dollar 1.32 1.38
Euro 1.18 1.17
Japanese Yen 160 152
--------------- ---- ----
Average translation rates
Japanese
2022 US Dollar Euro Yen
-------------------------- --------- ---- --------
April 1.38 1.16 152
May 1.40 1.16 153
June 1.40 1.16 154
July 1.39 1.17 153
August 1.38 1.17 152
September 1.36 1.16 151
October 1.36 1.17 153
November 1.35 1.18 153
December 1.34 1.18 153
January 1.35 1.19 155
February 1.34 1.20 155
March 1.33 1.19 157
-------------------------- --------- ---- --------
Average translation rates
Japanese
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
-------------------------- --------- ---- --------
9. ANNUAL GENERAL MEETING
The Annual General Meeting will be held on 28 July 2022.
Detailed arrangements in respect of the AGM will be advised in due
course.
10. RISK MANAGEMENT
Audit, risk and internal control
Approach to risk management
Within the Group there is an ongoing process for identifying,
evaluating and managing the significant risks faced by the Group
that is embedded in all business units. Day-to-day management of
this process has been delegated by the Board to the Executive
Directors. Details of the process are set out in the Audit and Risk
Committee Report in the Report and Financial Statements. The
current risk management and internal control systems have been in
place throughout the financial year and up to the date of approval
of the Report and Financial Statements and are subject to annual
review by the Board. In respect of the year ended 31 March 2022,
the Board considered that these processes remained effective.
Summaries of our risk management framework and risk management
process can be found below and on page 35 respectively.
The Board has carried out a robust assessment of the principal
risks facing the Group, including those which threaten its business
model, future performance, solvency and liquidity. Details of all
major risks identified, and the mitigating actions adopted, are
reported to and reviewed by the Board and the Audit and Risk
Committee on at least a quarterly basis. The principal risks set
out below provide an overview of the major risks and uncertainties
faced by the Group. All operating businesses follow a standard
process for risk identification and reporting. The process is
further described on pages 35 to 36. On a regular basis, each
business reviews and updates its risk register which is then
reported to the Chief Executive. If a material risk changes or
arises, this is reported to the Chief Executive, at which time
there is a discussion on the adequacy of the mitigating actions
taken. In addition, the Board and the Audit and Risk Committee
consider risks to the Group's strategic objectives which arise at a
Group level and develop appropriate actions to manage and mitigate
these risks where possible.
Priorities during financial year ended 31 March 2022
During the year ended 31 March 2022 the principal priority was
the development of the risk management framework required for the
Taskforce for Climate-Related Financial Disclosures (TCFD)
reporting. Having conducted a pilot with the NanoScience business
unit in the prior year, the main objective was to enhance the
process and extend it across all business units and the larger
regional offices in 2021/22. The risk management function
collaborated with the environmental working group that reports into
the Sustainability Committee to deliver a process for identifying,
evaluating, and reporting on climate -- related risks and
opportunities across the Group. The output from this process
provided the inputs for the risks and opportunities that are set
out in the TCFD statement.
In compliance with the Financial Conduct Authority's Listing
Rule 14.3.27, the climate-related financial disclosures consistent
with the TCFD Recommendations and Recommended Disclosures have been
included within the TCFD statement in the Report and Financial
Statements, which also encompasses further information regarding
the Group's exposure to climate-related risks and
opportunities.
Risk governance framework
The diagram below summarises the key accountabilities and
features of our risk governance framework.
Internal
audit and Audit and
Operational assurance Risk
management function Committee Board
-------------------- -------------------- ----------------- -------------------
Assesses Oversees
the adequacy Reviews the the internal
Responsible and effectiveness internal control framework,
for risk of the management financial and determines
management of significant controls the nature
and control risk areas systems that and extent
within their and provides identify, of the principal
business oversight assess, manage risks the
and, through of operational and monitor Company is
the Management management's financial willing to
Board, implementing front line risks, and take in order
Board policies and assurance other internal to achieve
on risk and activities. control and its long-term
control. risk management strategic
Further information systems. objectives.
Guided by regarding
the internal the scope More information Ultimately
audit and of internal regarding accountable
assurance audit and the work for approving
function, assurance of the Committee the adequacy
completes activities can be found and effectiveness
detailed is set out in its report of internal
risk reviews in the Report in the Report controls
on a quarterly and Financial and Financial operated
basis. Statements. Statements. by the Group
-------------------- -------------------- ----------------- -------------------
Internal control
The internal control framework includes central direction,
oversight and risk management of the key activities within the
Group. This framework includes a financial planning process which
comprises a five -- year planning model and a detailed annual
budget which is subject to Board approval. All Group businesses'
results are reported monthly and include variance analysis to
budget and the prior year. Management also prepares monthly
reforecasts.
Control activities include policies and procedures for
appropriate authorisation and approval of transactions, the
application of financial reporting standards and reviews of
significant judgements and financial performance. Financial,
regulatory and operational controls, procedures and risk activities
across the Group are reviewed by the Group's internal audit and
assurance function.
The internal control framework has been designed to manage
rather than eliminate material risks to the achievement of
strategic and business objectives and can provide only reasonable,
and not absolute, assurance against material misstatement or loss.
Due to inherent limitations, internal controls over financial
reporting may not prevent or detect all misstatements. There has
been no material change to the Group's internal control framework
during the period covered by this Report and Financial
Statements.
The key components designed to provide effective internal
control within the Group include:
-- a formal schedule of matters reserved to the Board for
decision and specific terms of reference for each of its
Committees; other than these matters, the Board delegates to the
Chief Executive, who in turn reviews the delegation of authorities
throughout the management structure;
-- the Group's internal management beneath the Board is led by
the Management Board. Its membership comprises the Executive
Directors, senior managers with Group -- wide functional
responsibilities and the heads of the principal businesses of the
Group's activities. Day -- to -- day responsibility for the
management of the Group is delegated to the Management Board. The
responsibility is based on the identification of separate
businesses for each of the Group's activities for which there are
clearly defined lines of management responsibilities at all levels
up to and including the Group Board and the Group's accounting and
reporting functions reflect this organisation;
-- whilst financial executives within Group businesses report to
their own operational head, there is also a well -- established and
acknowledged functional reporting relationship through to the Chief
Financial Officer;
-- the Board reviews strategic issues and options formally once
a year during the annual strategic planning process and during the
year as appropriate. In addition, the Executive Directors maintain
a five -- year planning model of the Group and its individual
businesses;
-- annual budgets are prepared for each of the Group's
businesses which include monthly figures for turnover, profit,
capital expenditure, cash flow and borrowings. The budgets are
reviewed through the Group management structure and result in a
Group financial budget which is considered and approved by the
Board;
-- the businesses prepare monthly management accounts which
compare the actual operating result with both the budget and prior
year. They also prepare rolling reforecasts for orders, turnover,
operating profit and cash. These are reviewed by the Board at each
of its scheduled meetings;
-- the Board approves all acquisition and divestment proposals
and there are established procedures for the planning, approval and
monitoring of capital expenditure;
-- for all major investments, the performance of at least the
first twelve months against the original proposal is reviewed by
the Board;
-- an internal audit is carried out through a system of regular
reviews of the financial and non -- financial internal controls at
each site. This is further explained in the Audit and Risk
Committee Report in the Report and Financial Statements. These
reviews are co-ordinated by the Group Head of Risk and
Assurance;
-- the Board receives regular updates on pensions,
sustainability, business ethics and health and safety and the Audit
and Risk Committee receives regular updates on treasury, tax,
insurance and litigation;
-- authorisation limits are set at appropriate levels throughout
the Group; compliance with these limits is monitored by the Chief
Financial Officer and the Group assurance function;
-- there is a detailed and risk -- based delegation of authority
structure in place for sales contracts and managing commercial
risks. Contracts with onerous terms and conditions (such as
unlimited liability contracts) require approval by either the Chief
Executive or Chief Financial Officer;
-- the International Trade Committee monitors, considers action
and makes recommendations around the management of key risks
relating to international trade, including sanctions, export
controls and customs; and
-- as regards the UK pension scheme, the Group nominates half of
the trustee directors of the corporate trustee to the pension
scheme, involves as appropriate its own independent actuary to
review actuarial assumptions, agrees the investment policy with the
trustee, works with the trustee on its investment sub -- committee
to deal with day -- to -- day investment matters, ensures there is
an independent actuarial valuation every three years and agrees
funding levels to provide adequate funding to meet the benefit
payments to the members as they fall due.
Risk management process
The table below summarises our methodical approach to risk
management. The principal risks and uncertainties detailed on pages
36 to 41 of this report are monitored utilising this risk
management process.
Alignment with Evaluation of risk Mitigation implementation Review risk
strategy
------------------------- -------------------------- --------------------------- ------------------------
The broad range Careful consideration Suitable management An embedded,
of potential factors is given to: actions or robust cyclical process
which could impact control mechanisms review:
the Group are considered i) the specific scenarios are determined,
and those which in which the risk developed and implemented. i) determination
have a significant could manifest of principal
effect on its ability ii) the various potential risks and uncertainties
to deliver its strategy impacts which the ii) the effectiveness
are determined to risk could present of the implemented
be principal risks mitigation mechanisms
and uncertainties
------------------------- -------------------------- --------------------------- ------------------------
Emerging risks
The Board is required to complete a robust assessment of the
Company's emerging and principal risks and confirms that it
performed such an evaluation during the financial year.
It is recognised that emerging risks can also be principal
risks. A detailed description of the principal risks and the
activities to mitigate these are set out on pages 36 to 41.
The identification and evaluation of emerging risks is derived
from the Group's quarterly risk reporting framework. The output
from the business units' detailed risk registers is reviewed by the
Group Head of Risk and Assurance and the Chief Financial Officer
every quarter. Any new risks reported by the business units are
specifically identified and discussed as part of this process.
Further, there is a formal review of emerging risks at the year
end, with commentary provided to the Audit and Risk Committee as
part of its review of the Group risk register and principal risks
and uncertainties.
The emerging risks identified from the latest review include
climate change and inflationary pressures which are disclosed as
principal risks. The key climate change related risks are also
disclosed in the TCFD statement in the Report and Financial
Statements. Inflationary risks are managed through regular reviews
of product pricing and, with regard to the supply chain, via the
Group's strategic sourcing strategy, which manages long-term
arrangements with key suppliers.
Principal risks and uncertainties
Principal risks are reported and discussed at every meeting of
the Audit and Risk Committee. For Oxford Instruments, principal
risks are generally those that could have a significant adverse
impact on the Group's business model, financial performance,
liquidity or reputation. The Audit and Risk Committee also
considers emerging risks within the risk management framework. A
formal review of emerging risks is conducted around the year end.
For the year ended 31 March 2022, the output of this assessment was
the identification of inflation and climate change as emerging
risks that are also considered to be principal risks. Further
information is set out below.
The principal risks and uncertainties are set out on pages 36 to
41.
The key change in the Group's approach to risk management in
2021/22 has been in TCFD reporting. The Group has implemented a
climate-related risks and opportunities reporting process across
all business units and regional offices. Initially this has been
established to operate alongside the wider enterprise risk
management processes, although in 2022/23 we aim to integrate it
into the wider process. Further details are set out in the
Sustainability Report.
In terms of the wider risk management process there have been no
significant changes during the year ended 31 March 2022. Business
units continue to perform a detailed assessment of key risks using
a standardised methodology. The output is reported to the Group and
is the basis for the compilation of the quarterly Group risk
register by the risk management function, in collaboration with the
Executive Directors. The resulting Group risk register is reported
to the Audit and Risk Committee every quarter.
Principal risks and uncertainties matrix
To facilitate meaningful comparison of the relative importance
of the principal risks and uncertainties at a Group level, these
have been mapped onto a probability and impact matrix. This matrix
includes arrows which indicate the change in the risk in comparison
to the prior year's assessment. The methodology for mapping the
risks uses the Group's assessment of the residual risk, being the
probability of the risk occurring and the potential impact it may
have and taking account of any mitigating actions and controls that
have been implemented.
The output of this assessment can be found in the Risk
Management section of the Report and Financial Statements. It shows
that the Group's assessment that geopolitical risk, supply chain
risk and legal/compliance risk have increased compared to the prior
year. In contrast, the risks relating to Covid-19 and pensions have
decreased. All other recurring risks are assessed to be static.
Further, two new risks, relating to inflation and climate change
have been added.
The risk management process identified 13 principal risks that
are set out below. The narrative provides a summary of the risk,
explains why it is relevant to the Group and also sets out the
potential consequences should the risk materialise, together with
the mechanisms used for risk mitigation. Risks are managed by the
Board and are not assigned an individual risk owner.
Specific risk 1: Geopolitical risk
Context: The Group operates in global markets and can be
required to secure licences for relevant exports. Government policy
on the export of specific technologies or the wider issue of
tariffs can change over time.
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, trade embargoes, or nations seeking to reduce
reliance on foreign imports in strategic technologies through the
development of domestic competition and/or protectionist measures.
This is potentially relevant to customers in key export markets
including, but not limited to, China, the European Union, Japan and
the USA.
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:
increased
Specific risk 2: Supply chain risk
Context: The Group operates a global supply chain, sourcing from
many suppliers across a wide range of categories. For certain
technologies, there are limited alternative sources.
Risk
-- Operational disruption or price increases, due to supply
chain shortages, particularly in electronic components
-- Suppliers de-committing orders due to demand pressures in other sectors.
-- Change of supplier 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
-- Short-term delays or hiatus in our production arising from component shortages
-- Lost revenue
-- Downward pressure on margins
-- Increased lead times and potential of foregone orders
-- Poor customer service/reputational damage
-- Increased stock holding adversely impacting cash conversion
Control mechanisms
-- Sales and operational planning process
-- Group strategic sourcing programme to consolidate demand and 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:
increased
Specific risk 3: 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 4: 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 life cycle 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 5:Inflation
Context: Global inflation placing upward pressure on principal
elements of the cost base such as labour and materials.
Risk
-- Rises in key cost drivers such as people costs, energy, components, and raw materials
-- For long lead time items, required to make inflationary estimates which may be inaccurate
Possible impact
-- Increased cost of production leading to a reduction in
operating profit if not offset by sufficient price increases
-- Potential for under-recovery of increases if inflation
estimates are too low or reduction in order volumes if competitors
do not react similarly
Control mechanisms
-- Price reviews
-- Inflation protection in commercial response to long lead time
tenders and long-term agreements
Mitigation
-- Ability to address inflationary pressures through price management reviews
-- Reviews of key drivers of financial performance
Change in the year:
new
Specific risk 6: Legal/compliance risk
Context: The Group operates in a complex technological and
regulatory environment, particularly in areas such as export
controls and product compliance. Competitors may seek to protect
their position through intellectual property rights and the Group
may at times experience unintentional regulatory or IP compliance
issues.
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
-- Product compliance teams
Mitigation
-- Confirmation of "Freedom to Operate" during new product development stage gate process
-- Compliance monitoring programme over key risk areas
Change in the year:
increased
Specific risk 7: New covid variant causes major disruption
Context: Variants of covid may be highly transmissible and have
a greater impact than current variants, even on vaccinated
populations.
Government response to covid outbreaks may lead to further
lockdowns/travel restrictions.
Risk
-- Potential disruption to supply chains, Group operations and
customers, leading to delays in production and/or installation at
customer sites
Possible impact
-- Delays in both manufacturing and service activity leading to
lost or delayed product and service revenue
Control mechanisms
-- Working closely with key suppliers
-- Safe ways of working and changes to shift patterns to maximise capacity
-- Remote service activities
-- Strategic review of location of service personnel compared to installed base
Mitigation
-- Sales and operational planning process
-- Contractual protection
-- Strategic procurement, working with supply chain to mitigate risk
Change in the year:
decreased
Specific risk 8: 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:
no change
Specific risk 9: IT 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:
no change
Specific risk 10: 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 11: 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 12: Climate change
Context: Climate change generates both risks and opportunities.
Our response needs to address risks and optimise opportunities.
Risk
-- The transition from fossil fuels to a low -- carbon/net zero
economy may require significant changes in materials and production
methods that may impact our own operations and our suppliers
-- Chronic changes in weather and extreme weather events may
disrupt supply chains, operations, and logistics
Possible impact
-- Rises in production costs and product development costs to
reduce all CO2 emissions linked to our products
-- Delayed production and/or installation leading to delayed revenue
-- More expensive freight and packaging costs
Control mechanisms
-- Sustainability Committee
-- Climate-related risks and opportunities evaluation and reporting embedded in business units
-- Strategic sourcing
-- Product compliance groups
Mitigation
-- Product compliance teams have an established methodology to
deal with changes to environmental regulations
-- Investment in product development to capitalise on the
opportunities for our key enabling technologies to help customers
address climate-related challenges
Change in the year:
new
Specific risk 13: 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:
decreased
ENDS
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FR MZGMVFFLGZZZ
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June 14, 2022 02:00 ET (06:00 GMT)
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