REG - Oxford Instruments - Preliminary Results
11/06/2024 07:00
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RNS Number : 8841R Oxford Instruments PLC 11 June 2024
Oxford Instruments plc
11 June 2024
Announcement of full-year results for the 12 months to 31 March 2024
Robust performance and market-leading technology in structural growth markets
provide excellent platform for revenue growth and margin expansion
Adjusted(1) Full year to 31 March 2024 Full year to 31 March 2023 % change reported % change constant currency(4)
Revenue £470.4m £444.7m +5.8% +9.8%
Adjusted operating profit £80.3m £80.5m (0.2%) +3.7%
Adjusted operating profit margin 17.1% 18.1% (100bps) (100bps)
Adjusted profit before taxation £83.3m £82.0m +1.6%
Adjusted basic earnings per share 109.0p 112.7p (3.3%)
Cash conversion(2) 64% 88%
Net cash(3) £83.8m £100.2m
Statutory Full year to 31 March 2024 Full year to 31 March 2023 % change reported
Revenue £470.4m £444.7m +5.8%
Operating profit £68.3m £72.4m (5.7%)
Operating profit margin 14.5% 16.3% (180bps)
Profit before taxation £71.3m £73.5m (3.0%)
Basic earnings per share 87.7p 101.6p (13.7%)
Dividend per share for the year (total) 20.8p 19.5p +6.7%
Summary and outlook
Richard Tyson, CEO of Oxford Instruments plc, said:
"I am pleased with the results for the full year and the development of the
business during the year. We have reported strong revenue growth of 9.8% at
constant currency, with adjusted operating profit in line with expectations. I
am grateful to my colleagues across Oxford Instruments for their commitment
and energy through a busy year.
We have rebalanced our positions in regional markets in the face of
geopolitical shifts, focusing our resources on non-sensitive areas in China,
and successfully growing revenue and orders in Europe and elsewhere in Asia.
We have continued to make organic investments to support our future growth,
with our state-of-the-art compound semiconductor facility now operational.
Underlying order intake has remained robust, with a positive book to bill even
though we had stronger growth in the second half, and the orderbook gives us
good visibility into the year ahead.
I am hugely impressed with the strong platform at Oxford Instruments, anchored
by our market-leading technologies and our talented and committed workforce.
My work with leadership teams around the business has confirmed our view that
there is significant opportunity to build on our core strengths. I have today
outlined a new strategy, setting targets to improve the returns from the
business in the medium term. As part of this strategy, we are reorganising the
Group into two distinct business divisions to simplify and enhance our
operations. We will target growth by focusing on fewer markets and a sharpened
product portfolio, tackling key areas where improvement is required and
delivering a step change in operational and service performance.
We are in a strong position to improve and grow the business, putting it on a
sustainable growth footing through our market-leading offering together with
operational and efficiency improvements. Given our strong order book and
pipeline, coupled with positive business improvement actions, we expect to
make good constant currency progress in the full year ending March 2025."
Financial highlights
· Revenue growth of 9.8% at constant currency
· Underlying book-to-bill positive at 1.03(5), despite our
strategic decision to move away from sensitive product areas in China
· Order book at £302m (2023: £320m), providing good visibility
for year ahead
· Adjusted operating profit of £80.3m broadly in line with last
year (2023: £80.5m); growth of 3.7% at constant currency
· Adjusted operating profit margin 17.1% (2023: 18.1%) down 100bps,
primarily reflecting losses incurred in our quantum business as a result of
ceasing commercial activities in China and continued operational investment
· Normalised cash conversion of 64%, excluding expenditure on
facility expansion, reflects increase in working capital to support major site
move and growth
· 6.7% increase in the total dividend to 20.8p (2023: 19.5p)
Operational highlights
· 7% semiconductor revenue growth reflects greater exposure to
compound semiconductor market and improved H2 demand for analysis tools
· Double-digit growth in materials analysis and healthcare &
life science markets underpinned by strong research funding
· New state-of-the-art compound semiconductor facility in Severn
Beach now operational
· Further investment for growth includes expansion of Belfast
microscopy and scientific camera facility
· Withdrawal of quantum commercial activities in China, in response
to geopolitical dynamics, resulted in in-year losses
· Action taken to focus resources on non-sensitive areas in China
and grow revenue in other regions
· Agreement to purchase FemtoTools AG, a leading developer of
nanoindentation instruments
· Carbon reduction goals accelerated to achieve net zero in Scopes
1 and 2 by 2030
Strategy update
· A new lens on Oxford Instruments with a plan for significant
value creation, focusing on two distinct business divisions - Imaging and
Analysis and Advanced Technologies:
o 'Build on and improve' our excellent Imaging and Analysis business (recent
adjusted operating profit margin history 22-24%)
o 'Fix, improve and grow' in Advanced Technologies (recent adjusted
operating profit margin history 0-4%)
· Driving improved organisational execution:
o Deeper focus on fewer markets and product technologies to enhance growth
o Customer service and operational performance step change
o Simplified organisation and improved cost efficiency
o Capital allocation priorities designed to create long-term value creation,
maximising shareholder returns
· Medium-term targets:
o Organic growth of 5-8% CAGR
o Adjusted operating margin improvement to 20%+
o Cash conversion of over 85%
o Continuing to invest in growth including 8-9% of revenue in R&D
o Strong ROCE (currently 29%)
o Selective acquisitions bringing complementary capabilities
Notes
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 2.
2. Normalised 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.
5. Adjusted for the impact of £23m orders from China removed from
orderbook due to export licence controls.
The financial information in this preliminary announcement has been prepared
in accordance with UK adopted international accounting standards and IAS 34
interim financial reporting. The Group has applied all accounting standards
and interpretations issued relevant to its operations and effective for
accounting periods beginning on 1 April 2023. The IFRS accounting policies
have been applied consistently to all periods.
LEI: 213800J364EZD6UCE231
Oxford Instruments management will present its full-year results at Deutsche
Numis to analysts and investors at 9.00am today (Tuesday 11 June), The
presentation will be streamed live at https://brrmedia.news/OXIG_PR_23/24
(https://protect.checkpoint.com/v2/___https:/brrmedia.news/OXIG_PR_23/24___.bXQtcHJvZC1jcC1ldXcyLTE6bmV4dDE1OmM6bzo3NTJlYzYxMmM3ZWI1NjA5MzZjMDMzYzI3ZmRjY2U5MTo2OjBiODg6YzNjNTg0MTkwMDk4M2Q1MDMwMjkzMmQ5NmU1YTc0MzgyZDJkZWJlNzc4MzhlMTkyY2VjNjVlNWQxZDE2MTkwNzpwOkY)
and a recording will be made available later today at
www.oxinst.com/investors-content/financial-reports-and-presentations
(https://protect.checkpoint.com/v2/___http:/www.oxinst.com/investors-content/financial-reports-and-presentations___.bXQtcHJvZC1jcC1ldXcyLTE6bmV4dDE1OmM6bzo3NTJlYzYxMmM3ZWI1NjA5MzZjMDMzYzI3ZmRjY2U5MTo2OjMyYmU6OWJjNjQ1NGE2M2I3YjFiYmU5ZGM5ZjkwYWM4Y2NlNGZkM2NlYWY2ZjBkZGMzODA0MTAyMWYxY2FlOTAyYzgzMjpwOkY)
.
Enquiries:
Oxford Instruments plc
Tel: 01865 393200
Richard Tyson, Chief Executive Officer
Gavin Hill, Chief Financial Officer
Stephen Lamacraft, Head of Investor
Relations
stephen.lamacraft@oxinst.com (mailto:stephen.lamacraft@oxinst.com)
MHP
Group
Tel: 020 3128
8100
Tim Rowntree/Katie Hunt/Eleni Menikou/Veronica Farah
oxfordinstruments@mhpc.com
(mailto:oxfordinstruments@mhpc.com)
Notes to Editors
About Oxford Instruments plc
Oxford Instruments provides academic and commercial organisations worldwide
with market-leading scientific technology and expertise across its key market
segments: Materials Analysis, Healthcare & Life Science and
Semiconductors.
Innovation is the driving force behind Oxford Instruments' growth and success,
supporting its core purpose to accelerate the breakthroughs that create a
brighter future for our world. The vigorous search for new ways to make our
world greener, healthier and more productive is driving unprecedented levels
of R&D investment in new materials and techniques to support productivity
and decarbonisation worldwide, creating a significant opportunity for Oxford
Instruments to grow.
Oxford Instruments holds a unique position to anticipate global drivers and
connect academic researchers with commercial applications engineers, acting as
a catalyst that powers real world progress.
Founded in 1959 as the first technology business to be spun out
from Oxford University, Oxford Instruments is now a global company listed
on the FTSE250 index of the London Stock Exchange (OXIG).
For more information, visit www.oxinst.com
Chief Executive Officer's Review
Robust financial performance and a refreshed strategy through a new lens
I am pleased to report a robust set of results for Oxford Instruments. We have
delivered 9.8% revenue growth at constant currency, driven by a 7% increase in
semiconductor revenue, reflecting our greater exposure to the compound
semiconductor market, and double-digit growth in materials analysis and
healthcare & life science markets, underpinned by strong research funding.
Adjusted operating profit of £80.3m was in line with expectations, up 3.7% on
a constant currency basis. Adjusted operating margin was down 100bps at 17.1%
(2023: 18.1%), in line with guidance, primarily reflecting losses incurred in
our quantum business as a result of ceasing certain commercial activities for
these products in China and continued operational investment.
The successful transition of our compound semiconductor business to a new
purpose-built facility has been a key operational highlight of the year,
delivering streamlined production and increased capacity and presenting
significant opportunity to scale. A further focus has been the action we have
taken in response to the shifting geopolitical landscape, pivoting to less
sensitive applications in China and growing revenue in other regions. Our
robust revenue growth in Europe and the rest of Asia, bears out the success of
this programme, which will continue into FY 24/25.
Underlying order intake (excluding the pivot from China) remained robust,
supported by a good performance in Europe and the rest of Asia. Underlying
book to bill is positive, despite the strong revenue growth, and the orderbook
provides good visibility into the year ahead. Our pipeline is strong across
all geographies and markets.
Group Full year to Reported growth Constant currency growth
vs full year to
31 March 2024
vs full year to
31 March 2023
31 March 2023
Orders £459.1m (10.3%) (2.5%(1))
Revenue £470.4m +5.8% +9.8%
Adjusted operating profit £80.3m (+0.2%) +3.7%
Adjusted operating margin 17.1% (100bps) (100bps)
1. Underlying order growth is adjusted for the impact of prior year
China orders removed from current year order intake due to export licence
restrictions.
A strong platform for growth
Since joining Oxford Instruments in October, I have carried out a thorough
review of our business model and markets, working collaboratively with our
leadership team and gathering input from across the business.
Our work confirms that academic research is the bedrock of Oxford Instruments'
success. Representing more than a third of our revenue, it is resilient across
cycles and grows steadily at 3-6% a year. Our market-leading technology and
expertise, developed over 60 years, spans all areas of fundamental research
and provides unrivalled reach into academic institutions worldwide.
In recent years, by developing and leveraging our market insight, we have
strengthened our position in commercial markets applied R&D, where the
technology is used to develop new products for industrial applications (a
market four times larger than the academic research market), which now
represents c. 45% of our revenue. We have also started to make early inroads
into the even larger commercial production market, representing c.20% of our
revenue today. The volume potential in commercial applied R&D and
production markets is significantly bigger, offering high single digit growth
underpinned by structural growth drivers requiring new technologies to support
decarbonisation and productivity globally.
Our deep dive review highlights that 90% of our revenue is generated in three
primary markets - materials analysis, semiconductors, and healthcare &
life science. All three have clear sustainability drivers with high single
digit structural growth potential. Quantum technology, a much smaller
contributor to our current revenue, also represents a growth opportunity,
though its trajectory is less linear.
Our strategy for the future
Our exceptional technology, strong talent base, well-distributed regional
infrastructure and choice of markets give us a strong platform from which to
grow. There are significant opportunities ahead - but to capture them in full
and achieve industry-leading margins, we need to structure Oxford Instruments
differently. As we set out below, the different areas of our business fall
naturally into two distinct groupings, reflecting different drivers and
business models. This new structure will also facilitate targeted actions to
unlock the potential in each.
Our future divisional structure
We are restructuring the business and will be creating two new divisions:
Imaging and Analysis and Advanced Technologies.
Imaging and Analysis will comprise our microscopy and cameras business (Andor)
and our materials analysis businesses (Asylum Research, Magnetic Resonance,
NanoAnalysis and WITec). On an indicative and unaudited basis, recent adjusted
operating margin for this division is in the range 20-24%.
Advanced Technologies will comprise our compound semiconductor business
(Plasma Technology) and our quantum-focused business (NanoScience), together
with the much smaller X-Ray Technology business. On an indicative and
unaudited basis, recent adjusted operating margin for this division is in the
range 0-4%.
Moving forward, service revenue will be reported within each respective
division. We will report against the new structure at our half-year results in
November 2024. The indicative and unaudited pro-forma numbers under the
proposed divisional structure for the full year 2024 are disclosed in the
finance review and the annual results presentation.
The rationale for the planned reporting change is as follows.
The businesses which will form the new Imaging and Analysis division represent
c. 70% of group revenue, and have strong existing synergies and a track record
of success. They provide similar relatively small scale imaging and analysis
equipment and software, have common business models, go to market strategies
and margins, and they address a similar client base in their three key markets
in materials analysis, healthcare & life science, and semiconductors.
In recent years, particularly since the acquisition of WITec in 2021, the
materials analysis businesses have collaborated more closely, driving
cross-selling opportunities and efficiencies. Joining forces with our
scientific camera and microscopy business will facilitate further synergies
and simplification. Together, they will provide an unrivalled range of
microscopy, scientific cameras, spectroscopy and analytical tools and
software.
Action plans for these high-performing business units are underway. It will
result in improved growth and operational leverage supporting strong margins.
Strategic priorities will include:
· improving sales and service channels by going to market through
streamlined regional customer-facing teams and generating more whole life
revenue from a better customer experience;
· greater focus to leverage maximum opportunity from the existing
product portfolio and R&D programme;
· simplifying the organisation by streamlining business processes
and removing duplication;
· increasing cross-selling through shared marketing initiatives;
· delivering a step change in operational performance by optimising
production and enhancing performance management and value engineering;
· increasing commercial sales through sharing of best go-to-market
practice across regions and targeted key account management.
The businesses which will form our new Advanced Technologies division
(representing c. 30% of Group revenue) have a very different profile. They
sell much lower volumes of larger-scale complex systems into very specialised
markets (compound semiconductor and quantum) with unique growth drivers and
principally separate customer bases. These businesses each require a
dedicated, focused approach to leverage their well-invested base, deliver
improved margins and achieve their full growth and margin potential.
Our compound semiconductor business is growing strongly. Scale is important to
reap the benefits and recover the costs of our new, larger dedicated facility
in Severn Beach, outside Bristol, UK. The business is poised to take advantage
of the structural growth in the compound semiconductor market, which does not
have the cyclicality inherent in the silicon semiconductor market. The
leadership team have identified key areas of specialism within the compound
semiconductor landscape where we have leading capability, or have the
potential to do so.
Here, we will maximise productivity and output following the site move, taking
advantage of the process and efficiency opportunities the site provides, look
to optimise our supply chain, and continue to simplify our product range, in
order to deliver good growth and strong margin progression. A further key
focus area is customer service, which requires a step change to meet the
stretching requirements of the business's growing commercial production
customer base.
Our quantum business has been impacted by export restrictions which have
limited our ability to sell these capabilities into China. This, combined with
operational challenges, larger project timescales and strong competition in
the high potential, but uncertain quantum market, has impacted performance in
2023/24. We have already started to restructure the cost base and commenced a
major operational turnaround programme in operations and refocused sales teams
on Europe and the USA. This will continue at pace, focusing on value
engineering, cost reduction and performance management.
While leveraging our regional sales and marketing infrastructure, the
businesses in the Advanced Technologies division will operate with greater
independence than their counterparts in Imaging and Analysis, enabling them to
address their specialist markets in ways which will maximise their ability to
grow both scale and margin and removing this complexity from the wider
business.
Structuring our business in these two new divisions will improve our
customers' experience and facilitate the delivery of targeted action plans
designed to suit the opportunities and the challenges in each, whilst
supporting greater transparency of their different paths to significant value
creation for investors.
We will provide a progress update on the development of the new divisions via
our interim reporting in November, at which point we will report in the new
divisional structure.
Group-level strategic priorities
While our action plans are targeted at divisional level, the following core
priorities underpin our strategy Group-wide.
Improve our customers' experience
Further growing our reach into commercial markets requires on-time delivery
paired with exceptional customer service and responsiveness, particularly in
production environments, where deadlines are non-negotiable and down time is
not tolerated.
More broadly, we will focus on delivering deep customer insight and
best-in-class customer service through our regional teams around the world. We
also see significant opportunity to extend whole-life revenue via our services
proposition.
Drive a step change in operational performance and productivity
The Group's rapid growth has challenged both capacity and capabilities in some
of our manufacturing facilities, opening up significant opportunities in both
divisions to reconfigure production areas, design more efficient production
processes and upskill colleagues to increase their productivity. We have
appointed a Chief Transformation Officer who is leading a broad-ranging
transformation programme covering all aspects of operational performance and
productivity, from the layout of our facilities to value engineering to reduce
our cost of goods. In addition, we have appointed a dedicated customer service
lead who will focus on our after sales support infrastructure and
capabilities, and target significant improvements in our service to our
customers.
Simplify our organisational structure
With significant overlap between business units and markets, the structure of
Oxford Instruments had become overly complex over a number of years, making it
confusing for stakeholders to understand and leading to duplication of
processes internally. Consolidating our eight business units and six previous
end markets into just two divisions and three core markets, supported by a
simplified customer-facing regional structure, will drive efficiencies and
operational gearing, and provide greater transparency of Oxford Instruments as
an investment proposition.
Focus on our key strengths
We will continue to protect, invest and enhance our core strengths by
investing c. 8-9% of revenue annually in R&D, and working closely with our
regional teams and our customers to ensure we focus our efforts on the most
economically attractive opportunities, delivering strong return on capital
employed.
Focusing on our core markets - materials analysis, healthcare & life
science, and semiconductors - will enable us to maximise our impact in all
three markets, while deriving efficiencies from this more targeted approach.
Capital allocation priorities
These can be summarised as follows:
· Invest in the business Our businesses are well invested, as
evidenced by the capital investments we are making in new facilities at Severn
Beach and Belfast. We will continue to invest c.8-9% of revenue in R&D,
and make targeted operational investments to support growth.
· Drive shareholder returns We are committed to delivering strong
shareholder returns, taking account of underlying earnings, dividend cover,
currency movements and demands on our cash.
· Make selective acquisitions Our acquisition strategy is highly
selective and disciplined. We will focus on adding capabilities in Imaging and
Analysis, with a good pipeline of owner-managed businesses under
consideration.
· Maintain strong balance sheet Our strong balance sheet gives us
flexibility. We will continually assess the appropriateness of returns to
shareholders in the context of the strategy.
Journey to growth and higher margins
We expect to deliver revenue growth and higher margins from both divisions
over the medium term, with the Group capable of delivering a revenue CAGR of
5-8% and an adjusted operating profit margin of 20%+. Actions to support
growth have begun. Changes in focus and sharing of best practice are expected
to be implemented over the next 18 months. Operational performance
improvements will require investment in the short term, meaning the margin
improvement profile will not be linear. The initial efforts of the last year
or so have been supplemented with a dedicated Chief Transformation Officer and
we have added resources and built a more extensive change team who have
started improvement actions in our Belfast facility first.
As evidenced by the recent financial performance in Advanced Technologies,
specific restructuring and improvement activities are required in the short
term which have been commenced and are expected to have some impact in the
coming financial year.
Overall, we expect these actions to deliver good sustainable organic growth in
the medium term, coupled with the opportunity to generate significant value
through operating margin enhancement to 20%+.
Our anticipated mid-term outcomes can be summarised as follows:
o Organic growth of 5-8% CAGR
o Adjusted operating margin improvement to 20%+
o Cash conversion of over 85%
o Continuing to invest in growth including 8-9% on R&D
o Strong return on capital employed (currently 29%).
o Selective acquisitions bringing complementary capabilities
A clear purpose
We make a tremendous positive impact through our products and services - from
supporting Nobel Prize-winning scientific endeavours and the development of
personalised treatments for cancer to accelerating the path to decarbonisation
through our extensive role in the battery ecosystem. Our technology and
scientific expertise enable our customers to discover and bring to market
exciting new advances that drive human progress. I am proud of the unique
contribution we make. As we set out on our new strategy, I am delighted to
share a new purpose for Oxford Instruments:
To accelerate the breakthroughs that create a brighter future for our world.
Our position is unique among UK-based technology companies - and it is my hope
that this new purpose, which has been warmly embraced by colleagues around the
world, will highlight our positive impact, and focus the energy of everyone at
Oxford Instruments.
People and planet
I have visited almost all our global sites since joining last autumn and have
been impressed by the energy and commitment of the colleagues I have met at
every level of the organisation. Our engagement scores are high, at 78%, based
on the organisation-wide survey carried out last September. But there is no
room for complacency, and in recent months I have led a deep dive exercise, as
part of the development of our strategy, to understand our organisational
culture and to drive action where there is scope to improve. We have many
strengths. Our workforce is highly skilled, with deep expertise in a wide
range of disciplines, from science and engineering to marketing and sales, and
our people are passionate about what we do and the impact we have. However,
there are areas we need to focus on as we move forward in line with our new
strategy. We are clear on our new strategic priorities, and have worked
collaboratively with focus groups around the business to set out new ways of
working to deliver them.
We are committed to creating a values-driven, inclusive culture. To that end,
we have launched a new equity, diversity and inclusion policy, and
successfully piloted new Inclusive Leadership training to be rolled out over
the coming year. Our employees have launched impact groups focused on women's
issues and neurodiversity this year, adding to the network begun with our race
and ethnicity and LGBTQ+ impact groups.
Our products and services have a remarkably positive impact on the world
around us. We want to generate a brighter future through our own operations,
too. To that end, we are accelerating our progress to net zero, in all the
areas we can control. Last year, we committed to achieve a 50% reduction in
Scope 1 emissions and a 70% reduction in Scope 2 emissions by 2030. Today, we
are setting a new target to achieve net zero in Scopes 1 and 2 by 2030, and
sooner if we can. We will continue to work with our product development teams
and our supply chain to minimise our Scope 3 emissions, with the goal of
accelerating our overall target to achieve net zero faster than our current
target year of 2045.
Summary and outlook
I am pleased with the results for the full year and the development of the
business during the period. We have reported strong revenue growth of 9.8% at
constant currency, with adjusted operating profit in line with expectations. I
am grateful to my colleagues across Oxford Instruments for their commitment
and energy through a busy year.
We have rebalanced our positions in regional markets in the face of
geopolitical shifts, focusing our resources on non-sensitive areas in China,
and successfully growing revenue and orders in Europe and elsewhere in Asia.
We have continued to make organic investments to support our future growth,
with our state-of-the-art compound semiconductor facility now operational.
Underlying order intake has remained robust, with a positive book to bill even
though we had stronger growth in the second half, and the orderbook gives us
good visibility into the year ahead.
I am hugely impressed with the strong platform at Oxford Instruments, anchored
by our market-leading technologies and our talented and committed workforce.
My work with leadership teams around the business has confirmed our view that
there is significant opportunity to build on our core strengths. I have today
outlined a new strategy, setting targets to improve the returns from the
business in the medium term. As part of this strategy, we are reorganising the
Group into two distinct business divisions to simplify and enhance our
operations. We will target growth by focusing on fewer markets and a sharpened
product portfolio, tackling key areas where improvement is required and
delivering a step change in operational and service performance.
We are in a strong position to improve and grow the business, putting it on a
sustainable growth footing through our market-leading offering together with
operational and efficiency improvements. Given our strong order book and
pipeline, coupled with positive business improvement actions, we expect to
make good constant currency progress in the full year ending March 2025.
Richard Tyson
Chief Executive Officer
10 June 2024
Operations Review
The Operations Review provides performance headlines at Group level, and
updates from each of our three current segments: Materials &
Characterisation, Research & Discovery, and Services & Healthcare.
As outlined, in the coming months we will move to a new divisional structure:
Imaging and Analysis and Advanced Technologies. Indicative and unaudited
pro-forma numbers under the proposed structure for the full year are disclosed
in the annual results presentation. Interim reporting in November will reflect
the new structure and will provide comparators to the current reporting
structure.
Group performance
The Group performed well in the year, delivering strong revenue growth, and
operating profit 3.7% ahead of last year at constant currency. Reported
adjusted operating margin of 17.1% (2023: 18.1%) was behind the previous year
as a result of trading losses attributable to prior year orders to China
removed from the orderbook due to export licence restrictions, where long
customer lead times meant that these could not be replaced with short-term
revenue. In addition, we have continued to invest in capability and systems
across the business. With underlying book-to-bill at 1.03, orderbook levels
provide good visibility for the year ahead.
Orders
Orders intake of £459.1m (2023: £511.6m) was 2.5% below a strong comparator
on a constant currency basis, and after the removal of £23m cancelled prior
year orders to China from our 2024/25 order intake. Underlying book-to-bill
remains positive, at 1.03, and our strong pipeline across all regions
demonstrates good demand for our products and services.
Revenue
Reported revenue grew by 5.8% to £470.4m (2023: £444.7m), representing
growth of 9.8% at constant currency. At constant currency, there was growth of
11.4% in Materials & Characterisation, 5.7% in Research & Discovery,
and 12.6% in Service & Healthcare.
Profitability
The strong revenue performance, particularly in the second half of the year,
supported full-year adjusted operating profits of £80.3m (2023: £80.5m),
representing 3.7% growth on a constant currency basis.
End market Revenue % constant currency(1) growth vs full year to 31 March 2023 % of Group
revenue
full year to 31 March 2024
Materials Analysis £201.0m 14.4% 43%
Semiconductors £126.9m 6.9% 27%
Healthcare & Life Science £90.6m 10.7% 19%
Other £51.9m (0.6%) 11%
Sector review
Materials & Characterisation
The Materials & Characterisation sector's products comprise:
· A range of microscopy and analysis techniques and software to
identify and interpret the properties of materials and samples (Asylum
Research, NanoAnalysis, Magnetic Resonance and WITec, collectively known as
our Materials Analysis businesses)
· Advanced etch and deposition systems for compound semiconductor
devices (Plasma Technology)
With a strong focus on accelerating our customers' applied R&D, our
products and services in this sector enable the development of new devices and
next generation higher performing materials, as well as enhancing productivity
in advanced manufacturing, quality assurance (QA) and quality control (QC).
Key highlights
Full year to 31 March 2024 Full year to 31 March 2023 % reported growth % constant currency(1) growth
Orders £245.3m(2) £272.8m (10.1%) (7.0%)
Revenue £252.2m £234.5m +7.5% +11.4%
Adjusted(2) operating profit £46.4m £40.5m +14.6% +20.2%
Adjusted(2) operating margin 18.4% 17.3%
Statutory operating profit £41.7m £35.7m
Statutory operating margin 16.5% 15.2%
1. For definition refer to note on page 2.
2. Orders adjusted for the impact of £23m prior year China orders
removed from the order book.
3. Details of adjusting items can be found in Note 2 to the full year
financial statements.
Materials & Characterisation has performed strongly, with revenue of
£252.2m (2023: £234.5m), up 11.4% at constant currency, with a strong second
half weighting, as anticipated. Growth was driven by investment from
governments and academia (up 29.9% at constant currency), with commercial
revenue slightly down year-on-year (-1.7%).
Adjusted operating profit was up 20.2% on the year, at £46.4m (2023:
£40.5m), generating a margin of 18.4% (2023: 17.3%).
Adjusted orders were 7.0% behind a strong comparator period at constant
currency.
Regionally, our footprint is shifting as we adapt to new geopolitical
dynamics, pivoting to non-sensitive areas in China, and removing some orders
from the opening order book due to export licence refusals. We have focused
successfully on growing revenue elsewhere in Asia (most notably in Korea and
Taiwan), in Europe and in the UK, and on growing commercial applications such
as battery and materials analysis in China, which remains an important market
for the businesses in the Materials & Characterisation segment.
Performance in North America was behind last year, primarily due to economic
uncertainty, and later than anticipated release of CHIPs Act funding.
Internally improvements are required to the organisation capacity and
structure to capitalise on this important geographical market; a new leader
has been appointed and this region will be a focus area within our updated
strategy.
Market drivers and performance
Our key markets in Materials & Characterisation are materials analysis
(representing 52% of revenue) and semiconductors (representing 40% of
revenue).
In materials analysis, revenue was up 19% at constant currency, reflecting
strong demand across a range of applications.
Our products and services address the growing structural demand to understand
and improve the properties of materials across a wide range of markets.
Sustainability is a key driver of growth, as researchers in both academic and
commercial settings seek to make better use of the world's resources while
delivering advanced capabilities that accelerate human progress. Customers are
using our equipment to develop greener alternatives, such as lighter, stronger
steels, superalloys and low-carbon concrete, and safer, longer lasting
batteries with a lower carbon footprint.
Our ability to image and analyse a wide range of materials at the nanoscale
(that is, to billionths of a metre) enables academic scientists to drive
breakthroughs in understanding. In the commercial world, we support the
translation of such academic research into product development and help
manufacturers to address quality control in production processes.
A good example of this end-to-end applications journey is our tailored support
at every stage of the battery life cycle, from helping academic customers
understand how raw materials perform right through the R&D process to
quality control and failure analysis. This market continues to grow at pace,
particularly in raw materials and geology, as customers invest in critical
minerals analysis.
In semiconductor, we have delivered a strong performance overall, with
constant currency revenue up 7% year on year.
Our activity in this market is split between the production of etch and
deposition equipment for the rapidly growing compound semiconductor market
(representing c. 65% of our exposure) and the provision of imaging and
analysis solutions (c. 35%), primarily into the well-established silicon
semiconductor market.
The drivers for these two distinct markets differ. Compound semiconductors
present a particularly exciting market opportunity, with demand growing by
more than 10% annually. More complex than silicon semiconductors, they are
driving rapid advances in technology, enabling the production of higher
performing devices, with lower energy use. Compound semiconductors are at the
forefront of developments in assisted and virtual reality, 5G connectivity,
power electronics, optoelectronics and hyperscale datacentres.
Our new facility (see below) is focused entirely on harnessing the growing
compound semiconductor market, which is not impacted by the cyclicality
typically seen in the silicon market. We are playing a key role in all the
developments set out above, right across the life cycle from early-stage
academic R&D to volume manufacturing, yield and quality control. A
particular area of strength, and source of pricing power, is our ability to
improve outcomes for the layers within devices which have the biggest impact
on performance and yield.
The silicon semiconductor market is extremely well established, with silicon
devices present in every aspect of consumer electronics. Here, our materials
analysis business' imaging and analysis tools are used to assess the
properties and performance of devices at the nanoscale, supporting R&D,
quality control and defect analysis as customers seek to make ever smaller
devices and improve yield. This drives the remaining 35% of our semiconductor
revenue.
The breadth of our offering, which supports customers at every stage of the
life cycle, offers some buffer to the cyclical nature of the silicon market.
There has been robust demand for our imaging and analysis suite of products in
the year, despite a downturn in the wider silicon market. As we head into
2024/25, demand indicators are improving. Several Tier 1 customers have
ordered systems, and the pipeline is strong across all stages of the life
cycle.
Operational developments
This has been a strong year for Materials & Characterisation.
Our compound semiconductor business has successfully transitioned production
to a new facility at Severn Beach, near Bristol. The new site triples
production capacity and will more than double clean room laboratory space,
taking us to world-class levels of compound semiconductor processing ability.
The benefits of operating from the new facility, with its much-improved layout
and process flow versus the legacy site, contributed to a strong second half
performance and double-digit revenue growth for the year.
In parallel with the site move, the business has focused on streamlining both
product ranges and target markets to support efficiency and future growth. A
notable success in the year has been the launch of a new, faster atomic layer
deposition system.
A further operational development has been on repositioning our regional focus
as we pivot to less sensitive applications within China and grow our business
elsewhere. We have delivered strong double digit order growth in Europe, Asia
Pacific and Japan, while China remains an important market with a healthy
pipeline.
Our materials analysis businesses have generated double digit revenue growth
as they continue to maximise synergies and cross-selling opportunities in
areas such as battery research and semiconductor applications. Two new
materials analysis innovation centres were launched in High Wycombe, in the
UK, and Tokyo, joining existing centres in China, the US, France and Germany,
and strengthening our ability to demonstrate the breadth of our product ranges
to customers.
Alongside maximising synergies between businesses, we have also focused on
extending sales from academic into commercial customers. A notable example is
in electron backscatter diffraction microscopy (EBSD), which we are
successfully transitioning from a purely academic technique to one used by
major Tier 1 commercial semiconductor customers.
Key developments in R&D include the launch of:
· Unity, a new detector for scanning electron microscopes (SEM)
which combines backscattered electron and X-ray signals for the first time to
deliver high resolution colour images at 'live' speed;
· Vero, a new atomic force microscope which enables more accurate
and repeatable results;
· A bespoke Raman microscope to target the semiconductor market.
We were delighted that our track record for innovation was recognised with the
King's Award for Enterprise: Innovation for our Symmetry detector, which
enables material properties to be studied at the nanoscale.
Research & Discovery
The sector's products comprise:
· Scientific cameras, microscopy and accompanying software (Andor)
· Cryogenic and superconducting magnet technology (NanoScience)
· X-ray tubes for a wide range of applications (X-Ray Technology).
This product portfolio enables our customers to capture imaging and analytical
measurements down to the atomic and molecular level, as well as to create
ultra-low temperature and high magnetic field environments. Products from
Research & Discovery are used in scientific research, applied R&D, and
commercial environments across a wide range of fields, from accelerating
developments in healthcare, life science and material science to facilitating
the growing commercialisation of quantum technology.
Key highlights
Full year to 31 March 2024 Full year to 31 March 2023 % reported growth % constant currency(1) growth
Orders £158.4m(2) £160.4m (1.2%) (1.9%)
Revenue £142.1m £139.4m +1.9% +5.7%
Adjusted(3) operating profit £13.6m £18.0m (24.4%) (26.1%)
Adjusted(3) operating margin 9.6% 12.9%
Statutory operating profit £9.4m £11.3m
Statutory operating margin 6.6% 8.1%
1. For definition refer to note on page 2.
2. Orders adjusted for the impact of prior year China orders removed
from the order book.
3. Details of adjusting items can be found in Note 2 to the full year
financial statements.
With £142.1m of revenue (2023: £139.4m), Research & Discovery has
delivered constant currency growth of 5.7%, primarily driven by academic
funding into scientific cameras and microscopy. The sector's performance has
been adversely impacted by the removal of orders to China from the order book
as we proactively pivot away from sensitive areas (notably quantum) impacting
revenue and resulting in a trading loss for the quantum business. This impact,
together with lower OEM life science orders, inflationary material costs and
our ongoing investment to support future growth, has resulted in a 25.0%
reduction in adjusted operating profit, with margin 330bps behind last year.
Orders were down 1.9% at constant currency, excluding the impact of
unfulfilled Chinese orders. This reflects strong underlying demand amidst a
period of transition as we rebalance our regional presence, moving away from
restricted markets within China and growing our business elsewhere. Constant
currency order growth of 21.7% in Europe has partially offset the reduction in
China orders, and reflects our increased marketing activity in this region.
North America orders were slightly down on the year (-2.4% at constant
currency), due to economic uncertainty. Internally improvements are required
to the organisation capacity and structure to capitalise on this important
geographical market; a new leader has been appointed and this region will be a
focus area within our updated strategy.
Market drivers and performance
The primary markets served by Research & Discovery are healthcare &
life science (38% of revenue) and materials analysis (32%). Quantum
constituted 18% of revenue in the year.
In healthcare & life science revenue grew by 10% at constant currency,
with strong sales of our confocal microscope systems and Imaris software. OEM
orders and revenue were down year-on-year, reflecting wider destocking
dynamics as customers consume inventory built up during supply chain
shortages. We anticipate a stronger performance in 24/25 as OEMs restock, and
with BC43 beginning to be deployed in OEM assemblies, such as in the cancer
diagnostics market.
In this market, our equipment and software have a key role to play in
accelerating progress towards a healthier society, as academic researchers,
scientists and pharmaceutical companies seek to address the challenges of a
growing and ageing population and develop new and increasingly personalised
treatments and vaccines. Our advanced imaging systems, including scientific
cameras and microscopes, support these developments by helping to reveal
sub-cellular detail and observe real-time interactions.
In materials analysis, revenue was broadly flat year-on-year; however, orders
have grown by 12% at constant currency, reflecting strong and growing demand.
Demand is underpinned by performance and sustainability drivers as customers
look to develop stronger, higher performing materials and make better use of
the earth's resources. In Research & Discovery, customers primarily use
our equipment to support their understanding of the properties of new
materials and enhance the capabilities of existing materials.
In quantum technology, revenue grew by 5.5% at constant currency. We are well
placed to benefit from the growing commercialisation of quantum computing, as
it evolves from a pure research discipline into practical applications in
chemistry, logistics and finance. The world's largest technology companies all
have quantum computing programmes as they explore the potential of this
emerging discipline, with a plethora of smaller companies also active in the
market.
With our range of products for quantum extending from compact refrigerators to
large systems for commercial customers, we are supporting customers across the
spectrum from pure academic research to early stage start-ups and a large
technology company.
Operational developments
Commitment to delivering a step change in operational performance is a key
pillar of our strategy, as set out in the Chief Executive Officer's Review
above. In line with this, a wide-ranging operational programme has recently
begun in Belfast, which will be the pilot site, with learnings rolled out to
other manufacturing businesses in priority order.
In Belfast, we are also investing £15m in the purchase and fit out of an
additional building, adjacent to our current site, to increase capacity to
support demand growth. Plans are taking shape and the facility is expected to
be operational in autumn 2025.
The acquisition of First Light Imaging in January 2024 for a consideration of
€15.7m (with a further earn out of up to €3m if specific performance
conditions are met) will further support our imaging capabilities. First Light
specialises in high-speed, low-noise scientific cameras for infrared and
visible imaging, with applications in astronomy and life sciences, and its
acquisition will enable us to extend our product line to existing and new
customers, accelerate our R&D product roadmap and expand into adjacent
markets.
In other developments, a framework order has been received for BC43 into a
cancer diagnostics OEM. Separately, two new models of the BC43 have been
launched, to make fluorescence, confocal, and super resolution microscopy
accessible to a much wider user base across different research areas and
experience levels.
Significant action is required to restore profitability at our cryogenics and
magnet business based in Oxford, following our exit from China for quantum
products, and in order to address operational challenges. This year we have
focused on restructuring our cost base, including targeted headcount
reductions.
Further key developments in this business include the launch of a new, smaller
cryogenic dilution refrigerator, Proteox S, ideally suited to small research
laboratories. Alongside quantum applications, materials measurement is a core
focus area. We are working in partnership with Lake Shore Cryotronics to
create an integrated cryomagnetic measurement system with a broad range of
applications in materials science.
Our X-ray tube business, based in the US, has delivered double digit revenue
growth and strong double digit order growth.
Service & Healthcare
The Service & Healthcare sector comprises the Group's service and support
related to Oxford Instruments' own products, and the support and service of
third-party MRI scanners in Japan. We offer tailored support packages for all
our products, delivered by a global network of product experts, application
experts and service engineers, both in person and via digital channels,
including online training, webinars and remote service support.
Key highlights
Full year to 31 March 2024 Full year to % reported growth % constant currency growth
31 March
2023
Orders £78.6m £78.4m +0.3% +4.3%
Revenue £76.1m £70.8m +7.5% +12.6%
Adjusted(2) operating profit £20.3m £22.0m (7.7%) (2.3%)
Adjusted(2) operating margin 26.7% 31.1%
Statutory operating profit £20.3m £22.4m
Statutory operating margin 26.7% 31.6%
The sector has delivered double digit constant currency revenue growth;
however, order growth was slower than the prior year. Latent demand addressed
by the investments made in recent years has now largely been addressed, and a
period of consolidation and regrouping is underway as we set ourselves up to
deliver an improved operational performance from which we can maximise value
potential from service. Operating profit and margin were down as a result of
the investments we are making in capabilities and infrastructure in pursuit of
this goal, and the continued elevated costs for liquid helium required to
support MRI customers in Japan, as signalled at half year.
Revenue growth to academic customers has continued in the second half, as we
grow point-of-sales service contracts for our benchtop systems and tailored
life science packages for our Imaris imaging software. Sales to academic
customers account for 53% of revenue in the year (2023: 48%).
Our medium-term goal is to generate a greater proportion of Oxford
Instruments' revenue from service and deliver market-leading service
performance. As set out in our strategy, we see good opportunity to enhance
whole-life service offerings and subsequent revenue once we strengthen our
regional infrastructure, deliver cross training and share best practice.
The programmes already underway provide a good platform from which to support
growth and enhanced performance. These include:
· The implementation of fully integrated service management systems
combined with knowledge management to ensure that service colleagues have
ready access to the technical information needed to support customers;
· Combining our services workforce in the regions and cross
training them to make the most of their skills and talent, and investing in
headcount to ensure maximum customer coverage;
· Continued growth in remote connectivity for diagnostics and
problem resolution, and the provision of integrated connectivity in our
customer solutions and products: the launch of OI View, a digital platform
which delivers real-time insights on Oxford Instruments systems health and
utilisation to a customer's phone, tablet, or PC, was a notable highlight.
Moving forward, service revenue will be reported within Imaging and Analysis
and Advanced Technologies, supporting a fully integrated approach as the whole
organisation aligns around 'customer-first' ways of working.
Finance review
We delivered a good constant currency financial performance with growth in
revenue and adjusted operating profit. We continue to invest in resources and
infrastructure across the business to support future growth. Our balance sheet
remains strong to support organic and non-organic growth opportunities.
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;
transaction costs; other significant non-recurring items; and the
mark‑to‑market movement of financial derivatives. All of these are
included in the statutory figures. Note 2 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.
Reported orders decreased by 10.3% to £459.1m (2023: £511.6m), 7.0% down at
constant currency. Underlying orders at constant currency fell by 2.5% after
adjusting for £23.0m of prior year orders cancelled due to UK export licence
rejections and our commercial decision to withdraw from the China quantum
market. Orders were lower against a strong comparator period and a slowdown in
life-science OEM orders. Nevertheless, our underlying book-to-bill was a
positive 1.03. At the end of the year, the Group's order book was £301.5m
(31 March 2023: £319.6m), down 5.7% on a reported basis and 3.5% at constant
currency.
Reported revenue increased by 5.8% to £470.4m (2023: £444.7m). Revenue,
excluding currency effects, increased by 9.8%, with the movement in average
currency exchange rates over the year reducing reported revenue by £17.8m.
This strong growth was broadly equally split between price and volume.
Adjusted operating profit was broadly flat at £80.3m (2023: £80.5m).
Adjusted operating profit, excluding currency effects, increased by 3.7%,
with a currency headwind in the year of £3.2m. Adjusted operating margin
fell to 17.1% (2023: 18.1%), reflecting trading losses incurred in our quantum
business as a result of ceasing commercial activities in China and continued
operational investment.
Statutory operating profit of £68.3m (2023: £72.4m) includes the
amortisation of acquired intangibles of £9.1m (2023: £9.3m) and a charge of
£0.7m (2023: credit of £3.0m) relating to the movement in the mark-to-market
valuation of uncrystallised currency hedges for future years. Other adjusting
non-recurring items totalled £2.2m (2023: £1.8m).
Adjusted profit before tax grew by 1.6% to £83.3m (2023: £82.0m),
representing a margin of 17.7% (2023: 18.4%).
Statutory profit before tax decreased by 3.0% to £71.3m (2023: £73.5m),
impacted by the mark-to-market non-cash charge on financial derivatives
against a credit last year. This represents a margin of 15.2% (2023: 16.5%).
Adjusted basic earnings per share fell by 3.3% to 109.0p (2023: 112.7). Basic
earnings per share were 87.7p (2023: 101.6p), a decrease of 13.7%.
Cash from operations of £59.4m (2023: £72.9m) represents 47% (2023: 58%)
cash conversion. During the year, we incurred expenditure of £14.1m on the
construction of our new semiconductor systems facility near Bristol and
facility expansion in Belfast; cash conversion on a normalised basis
that excludes this expenditure was 64%, primarily due to an increase in
inventories. Net cash after borrowings decreased from £100.2m on 31 March
2023 to £83.8m on 31 March 2024, with consideration paid on the acquisition
of First Light Imaging in January 2024.
In March 2024, we entered into a new revolving credit facility. This provides
for approximately £200m of committed facilities. This represents total
headroom of just around £284m.
Consolidated Statement of Income
The Group Consolidated Statement of Income is summarised below.
Year ended Year ended Change
31 March 2024 31 March 2023
£m £m
Revenue 470.4 444.7 +5.8%
Adjusted operating profit 80.3 80.5 (0.2%)
Amortisation of acquired intangible assets (9.1) (9.3)
Non-recurring items (2.2) (1.8)
Mark-to-market of currency hedges (0.7) 3.0
Statutory operating profit 68.3 72.4 (5.7%)
Net finance income(1) 3.0 1.1
Adjusted profit before taxation 83.3 82.0 +1.6%
Statutory profit before taxation 71.3 73.5 (3.0%)
Adjusted effective tax rate 24.4% 20.7%
Effective tax rate 28.9% 20.3%
Adjusted earnings per share - basic 109.0p 112.7p (3.3%)
Earnings per share - basic 87.7p 101.6p (13.7%)
Dividend per share (total) 20.8p 19.5p +6.7%
1. Net finance income for 2023 include a non-cash charge of £0.4m against
the unwind of discount on WITec contingent consideration.
Orders and revenue
Total reported orders fell by 10.3% (7.0% at constant currency) to £459.1m.
Underlying orders at constant currency, excluding prior year orders of £23.2m
removed due to UK export licence rejections, fell by 2.5%.
Materials & Characterisation reported orders fell by 13.7%
(10.6% at constant currency), with orders impacted by a strong comparator
period, particularly in China for our portfolio of electron microscope
analysers and atomic force microscopes. Furthermore, orders were depressed by
£9.9m of prior year orders removed as a result of UK export licence
restrictions. In Research & Discovery, orders declined by 9.5% (6.5% at
constant currency). Primarily due to a cessation of commercial activities in
the China quantum market, we removed £13.3m of prior year orders; in
addition, we experienced weak order intake from our life science OEM
customers. Service & Healthcare orders increased by 0.3% (+4.3% at
constant currency).
Reported revenue of £470.4m (2023: £444.7m) increased by 5.8% (+9.8% at
organic constant currency).
Reported revenue grew by 7.5% for Materials & Characterisation (+11.4% at
constant currency), with strong growth across the portfolio of product ranges,
including electron microscope analysers, atomic force microscopes, Raman
systems and our compound semiconductor processing systems.
Research & Discovery reported revenue grew by 1.9% (+5.7% at constant
currency), supported by shipments of our optical imaging and microscopy
products and X-Ray tubes. Growth in these products was partially offset by
lower revenue from our cryogenic systems resulting from a significant number
of order cancellations as we retrench from the quantum market in China due to
UK export licence restrictions. With long customer lead times in this segment,
this foregone revenue could not be replaced in-year.
Revenue growth from service of our own products, including revenue from our
MRI service business in Japan, grew by 7.5% reported (+12.6% at constant
currency).
The book-to-bill ratio (orders received to goods and services billed in the
period) for the year was 0.98 (2023: 1.15). After the exclusion of prior year
orders cancelled due to UK export licence restrictions, underlying
book-to-bill was 1.03, supported by a good order performance in Europe and the
rest of Asia.
On a geographical basis, revenue grew by 10.7% in Europe (+11.2% at organic
constant currency), supported by additional deliveries of our compound
semiconductor processing systems and optical imaging and microscopy products.
Reported revenue for North America decreased by 5.7% (1.5% at constant
currency) with fewer shipments of our semiconductor processing systems.
Asia remains our largest region at 27% of total Group revenue, 58% of which
comes from the China market. Asia delivered revenue growth of 10.1% (+15.7% at
constant currency), with strong demand for our electron microscope analysers
and atomic force microscopes, Raman systems and semiconductor processing
systems.
Geographic revenue growth
£m 2023/24 £m 2023/24 % of total 2022/23 2022/23 Change £m % % growth at constant currency
£m
% of total growth
Europe 116.1 25% 104.9 24% +11.2 10.7% 11.2%
North America 122.9 26% 130.3 29% (7.4) (5.7%) (1.5%)
Asia 221.5 47% 201.2 45% +20.3 10.1% 15.7%
Rest of World 9.9 2% 8.3 2% +1.6 19.3% 26.5%
470.4 444.7 +25.7 5.8% 9.8%
The total reported order book declined by 5.7% (3.5% at constant currency).
During the year £23m of orders were removed due to UK export licence
restrictions. We have also seen lower lead times for our products, closer to
more normalised levels, reducing the need for customers to order ahead. The
order book, at constant currency, compared to 31 March 2023, decreased by
11.3% for Materials & Characterisation, against a strong comparator
period. Research & Discovery grew by 1.3% at constant currency, with
lower demand for our imaging and microscopy products due to life science OEM
weakness, offset by good demand from North America for cryogenic systems for
the quantum market, as well as good growth from our X-Ray tubes business.
Continued focus on own product service resulted in order book growth of 7.9%
(+11.0% at constant currency) from Service & Healthcare.
£m Materials & Characterisation Research & Discovery Service & Healthcare Total
Revenue: 2022/23 234.5 139.4 70.8 444.7
Constant currency growth 26.7 7.9 8.9 43.5
Currency (9.0) (5.2) (3.6) (17.8)
Revenue: 2023/24 252.2 142.1 76.1 470.4
Revenue growth: reported 7.5% 1.9% 7.5% 5.8%
Revenue growth: constant currency 11.4% 5.7% 12.6% 9.8%
Gross profit
Gross profit grew by 5.3% to £242.4m (2023: £230.2m), representing a gross
profit margin of 51.5%, a decrease of 30 basis points against last year due to
a small increase in raw material costs and stock provisioning.
Adjusted operating profit and margin
Adjusted operating profit was broadly flat at £80.3m (2023: £80.5m),
representing an adjusted operating profit margin of 17.1% (2023: 18.1%). At
constant currency, adjusted operating profit margin was 17.1%, a reduction of
100 basis points. The lower operating margin reflects losses incurred in our
quantum business as a result of ceasing commercial activities in China, as
well as continued investment in operations, IT and infrastructure.
Reported Materials & Characterisation adjusted operating profit increased
by 14.6% (+20.2% at constant currency) with reported margin increasing by 110
basis points to 18.4% (2023: 17.3%). We have seen strong demand across the
portfolio of businesses encompassing electron microscope analysers, atomic
force microscopes, Raman systems and compound semiconductor processing
systems.
Within Research & Discovery, our imaging and microscopy business did not
see a rise in profitability despite an increase in revenue. A shortfall in
life science OEM orders against a backdrop of operations and sales, marketing
and R&D investment has put a brake on short-term profit growth.
Furthermore, an increase in material costs and stock provisioning due to an
inventory build-up resulting from lower than expected order demand and
previous high levels of electronic purchases to protect output and mitigate
cost inflation, also impacted profitability. Our cryogenic business has a high
exposure to quantum markets and experienced a large trading loss as a result
of ceasing commercial activities in China. Long customer lead times meant that
we were unable to replace foregone production slots within the financial year
as we pivot away from markets in China for our product range. We saw strong
growth of 20% at constant currency from our X-Ray Technology business. As a
result, adjusted operating profit for the segment declined by 24.4% (26.1% at
constant currency) and reported margin fell to 9.6% (2023: 12.9%).
Service & Healthcare reported adjusted operating profit fell by 7.7% (2.3%
at constant currency) due to a significant increase in helium costs under MRI
service contracts and higher than expected spare parts usage. Margin decreased
by 440 basis points to 26.7% (2023: 31.1%).
Transaction and translation currency effects (including the impact of
transactional currency hedging) have reduced reported adjusted operating
profit by £3.2m when compared to blended hedged exchange rates for the prior
period.
£m Materials & Characterisation Research & Service & Total
Discovery Healthcare
Adjusted operating profit: 2022/23 40.5 18.0 22.0 80.5
Constant currency growth 8.2 (4.7) (0.5) 3.0
Currency (2.3) 0.3 (1.2) (3.2)
Adjusted operating profit: 2023/24 46.4 13.6 20.3 80.3
Adjusted operating margin(1): 2022/23 17.3% 12.9% 31.1% 18.1%
Adjusted operating margin(1): 2023/24 18.4% 9.6% 26.7% 17.1%
Adjusted operating margin(1) (constant currency): 2023/24 18.6% 9.0% 27.0% 17.1%
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.
Divisional change (indicative and unaudited)
For the FY25 financial year we are changing our organisational structure to
two divisions: Imaging and Analysis and Advanced Technologies. Our Materials
Analysis businesses, Andor and Japan MRI will form the Imaging and Analysis
division, with Plasma Technology, NanoScience and X-Ray Technology comprising
the Advanced Technologies division. We will report under the new divisional
structure for the 2024/25 interims. For comparative purposes, we show the FY
23 and FY24 pro-forma results on an indicative and unaudited basis below.
£m Imaging & Analysis Advanced Total
Technologies
Revenue: 2023/24 327.9 142.5 470.4
Adjusted operating profit: 2023/24 80.1 0.2 80.3
Adjusted operating margin(1): 2023/24 24.4% 0.1% 17.1%
1. Adjusted margin is calculated as adjusted operating profit divided by
revenue.
£m Imaging & Analysis Advanced Total
Technologies
Revenue: 2022/23 308.3 136.4 444.7
Adjusted operating profit: 2022/23 75.1 5.4 80.5
Adjusted operating margin(1): 2022/23 24.4% 4.0% 18.1%
1. Adjusted margin is calculated as adjusted operating profit divided by
revenue.
Statutory operating profit and margin
Statutory operating profit declined by 5.7% to £68.3m (2023: £72.4m),
representing an operating profit margin of 14.5% (2023: 16.3%). Statutory
operating profit is after the amortisation and impairment of acquired
intangible assets; transaction costs; other significant non-recurring items;
and the mark-to-market of financial derivatives. The decline in profit was
largely driven by a charge on the mark-to-market of financial derivatives.
Adjusting items
Amortisation of acquired intangibles of £9.1m (2023: £9.3m) relates to
intangible assets recognised on acquisitions, being the value of technology,
customer relationships and brands.
Non-recurring items within operating profit total £2.2m (2023: £1.8m). We
recorded net income of £2.9m on settlement of a third-party IP patent
dispute. This was offset by acquisition costs of £1.0m, CEO dual running
costs of £2.0m (incorporating six months of overlap and buy-out compensation
costs) and one-off costs of £1.7m relating to the move of our semiconductor
processing business to a new site. Finally, we recorded a charge of £0.4m
reflecting past service costs on our defined benefit pension scheme as a
consequence of removing the pension increase exchange option for deferred
members.
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 12 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 £0.7m (2023:
credit of £3.0m). The net asset movement for derivative financial instruments
over the year reflects: (i) the crystallisation of forward contracts that were
hedging the 2023/24 financial year, which are recognised in adjusted operating
profit; and an uncrystallised increase in the mark-to-market valuation of
forward contracts from a rise in the value of sterling at the balance sheet
date against a blended rate achieved on forward contracts that will mature
over the next 12 months.
Net finance income
The Group recorded net interest income of £3.0m (2023: £1.1m) due to an
increase in interest income on our net cash balance. In addition, we recorded
an increase in interest on lease liabilities owing to an increase in right of
use assets.
Adjusted profit before tax and margin
Adjusted profit before tax increased by 1.6% to £83.3m (2023: £82.0m). The
adjusted profit before tax margin of 17.7% (2023: 18.4%) was below last year
due to a decrease in the adjusted operating margin, partially offset by an
increase in net finance income.
Reconciliation of statutory profit before tax to adjusted profit before Year ended Year ended
tax
31 March 2024 31 March 2023
£m £m
Statutory profit before tax 71.3 73.5
Add back:
Amortisation of acquired intangible assets 9.1 9.3
Non-recurring items in operating profit (Note 2) 2.2 2.2
Mark-to-market of currency hedges 0.7 (3.0)
Adjusted profit before tax 83.3 82.0
Statutory profit before tax and margin
Statutory profit before tax decreased by 3.0% to £71.3m (2023: £73.5m).
Statutory profit before tax is after the amortisation and impairment of
acquired intangible assets; transaction costs; other significant non-recurring
items; and the mark-to-market of financial derivatives. The statutory profit
before tax margin of 15.2% (2023: 16.5%) was below last year due to a lower
operating margin and the charge from the mark-to market valuation movement on
financial derivatives.
Taxation
The adjusted tax charge of £20.3m (2023: £17.0m) represents an effective tax
rate of 24.4% (2023: 20.7%). The increase primarily reflects a rise in the UK
rate of corporation tax to 25%. The tax charge of £20.6m (2023: £14.9m)
represents an effective tax rate of 28.9% (2023: 20.3%). The increase in the
effective tax rate is due to the increase in the UK tax rate, expenditure not
deductible for tax purposes and the impact of prior year adjustments. We
expect the adjusted effective tax rate to increase in 2024/25 to approximately
25.1%.
Earnings per share
Adjusted basic earnings per share decreased by 3.3% to 109.0p (2023: 112.7p);
adjusted diluted earnings per share decreased by 3.4% to 107.5p (2023:
111.3p). Basic earnings per share declined by 13.7% to 87.7p (2023: 101.6p);
diluted earnings per share declined by 13.8% to 86.5p (2023: 100.3p).
The number of undiluted weighted average shares increased to 57.8m (2023:
57.7m).
Currency
The Group faces transactional and translational currency exposure, most
notably against the US dollar, euro and Japanese yen. For the year,
approximately 17% of Group revenue was denominated in sterling, 52% in US
dollars, 20% in euros, 9% 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 translation and transaction foreign currency exposure for the full
year 2023/24 is summarised below.
£m (equivalent) Revenue Adjusted operating profit
Sterling 81.0 (91.5)
US dollar 243.3 115.3
Euro 93.5 31.5
Japanese yen 42.1 23.1
Chinese renminbi 5.2 0.9
Other 5.3 1.0
470.4 80.3
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 12 to 24 months. As at 31 March 2024, the Group
had currency hedges in place extending up to 18 months forward.
For the full year 2024/25, our assessment of the currency impact is, based on
hedges currently in place and forecast currency rates, a headwind of £8.4m to
revenue and £6.2m to profit. Forecast currency rates on unhedged positions
for the full year are - GBP:USD 1.28; GBP:EUR 1.17; GBP:JPY 200. The headwind
to operating profit is due to stronger sterling currency rates on hedged
transactional US dollar, euro and Japanese yen exposures against hedged
currency rates achieved in 2023/24. In addition, we face stronger sterling
currency rates on unhedged transactional and translational US dollar, euro and
Japanese yen exposures against actual currency rates achieved in 2023/24. 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 2025/26, based on the above
currency assumptions, we would expect currency effects to have a neutral
impact to revenue and operating profit.
Acquisition of First Light Imaging SAS
On 9 January 2024, the Group completed the purchase of 100% of the share
capital in First Light Imaging SAS for an initial consideration of €15.7m.
Additional consideration of €3.0m may be paid after a period of one year if
specific conditions on trading performance are met.
Acquisition of FemtoTools AG
On 7 June 2024, the Group agreed to purchase 100% of the shared capital of
FemtoTools AG for an initial consideration of CHF 17m, subject to certain
closing conditions which are expected to be satisfied within four weeks of
signing these financial statements. Additional consideration of up to CHF 7m
is conditional on trading performance over a period of 33 months.
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. The
Board remains confident in the long-term performance of the business and has
proposed a final dividend of 15.9p (2023: 14.9p) per share. This results in a
total dividend of 20.8p (2023: 19.5p) per share, growth of 6.7%. An interim
dividend of 4.9p per share was paid on 12 January 2024. The final dividend
will be paid, subject to shareholder approval, on 20 August 2024 to
shareholders on the register as at 12 July 2024.
Consolidated Statement of Cash Flows
The Group Consolidated Statement of Cash Flows is summarised below.
Year ended Year ended
31 March 2024 31 March 2023
£m £m
Adjusted operating profit 80.3 80.5
Depreciation and amortisation 11.0 10.8
Adjusted(1) EBITDA 91.3 91.3
Working capital movement (24.7) (9.1)
Non-recurring costs (2.2) -
Equity settled share schemes 3.0 2.4
Pension scheme payments above charge to operating profit (8.0) (11.7)
Cash from operations 59.4 72.9
Interest 2.2 0.4
Tax (16.1) (5.7)
Capitalised development expenditure (0.7) (0.6)
Net expenditure on tangible and intangible assets (26.5) (32.1)
Acquisition of subsidiaries, net of cash acquired (13.4) (4.8)
Dividends paid (11.4) (10.6)
Proceeds from issue of share capital - 0.1
Payments made in respect of lease liabilities (4.8) (5.6)
Decrease in borrowings (1.8) (0.5)
Net (decrease)/increase in cash and cash equivalents (13.1) 13.5
1. Adjusted EBITDA is defined as Adjusted operating profit before
depreciation and amortisation of capitalised development costs.
Cash from operations
Cash from operations of £59.4m (2023: £72.9m) represents 47% (2023: 58%)
cash conversion. Cash conversion on a normalised basis was 64%, which excludes
capital expenditure relating to our new semiconductor systems facility and
facility expansion in Belfast. 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
Reconciliation of cash generated from operations to adjusted operating cash 31 March 2024 31 March 2023
flow
£m £m
Cash from operations 59.4 72.9
Add back/(Deduct):
Pension scheme payments above charge to operating profit 8.0 11.7
Non-recurring costs 2.2 -
Capitalised development expenditure (0.7) (0.6)
Expenditure on tangible and intangible assets (26.5) (32.1)
Repayment of lease payables (4.8) (5.6)
Payment of capital element of leases (4.0) (5.1)
Adjusted cash from operations 37.6 46.3
Cash conversion % (adjusted cash from operations/adjusted operating profit) 47% 58%
Cash conversion % (normalised(1)) 64% 88%
1. Cash conversion calculated on a normalised basis excludes expenditure
in the year of £14.1m (2023: £24.7m) on the new semiconductor systems
facility in Bristol and site expansion in Belfast.
Working capital increased by £24.7m, with inventories increasing by £26.3m.
Approximately half the inventory increase was due to higher raw materials from
customer OEM overstocking within our optical imaging business leading to an
unexpected decline in orders against an already-planned production cycle, raw
material investment ahead of the move to the new semiconductor systems
facility in Bristol, and the impact of UK export licence restrictions to China
which resulted in an increase in finished goods. A quarter of the increase
related to investment in work-in-progress on a one-off quantum related
long-term contract, additional demo stock (principally for our newer life
science products), higher levels of service stock within our regions, and
additional safety stock to limit operational risk. The remaining increase
supports the revenue growth that the business has delivered over the year.
Interest
Net interest received was £2.2m (2023: £0.4m), the improvement reflecting
the higher interest income received on our net cash balance.
Tax
Tax paid was £16.1m (2023: £5.7m). In the prior year the Group benefitted
from accelerated capital allowances on the new semiconductor facility
currently under construction, partly contributing to cash tax being lower than
the accounting charge.
Investment in Research and Development (R&D)
Total cash spend on R&D in the year was £39.2m, equivalent to 8.3% of
sales (2023: £34.8m, 7.8% 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 2024 31 March 2023
£m £m
R&D expense charged to the Consolidated Statement of Income 39.1 36.7
Depreciation of R&D-related fixed assets (0.2) (0.3)
Amounts capitalised as fixed assets 0.2 -
Amortisation and impairment of R&D costs capitalised as intangibles (0.6) (2.2)
Amounts capitalised as intangible assets 0.7 0.6
Total cash spent on R&D during the year 39.2 34.8
Net cash and funding
Net cash
Cash from operations in the year was partially offset by an increase in
capital expenditure and payment of initial consideration for the acquired
First Light Imaging business, resulting in a decrease in the Group's net cash
position at 31 March 2024 to £83.8m (31 March 2023: £100.2m).
The Group invested in tangible and intangible assets of £26.5m, of which
£11.7m relates to payments associated with the new semiconductor systems
facility in Bristol and £2.4m against the facility expansion in Belfast. For
the financial year ended 31 March 2025, we expect payments of approximately
£7m to complete the facility in Bristol and expenditure of approximately
£10m on the Belfast expansion.
Movement in net cash £m
Net cash after borrowings as at 31 March 2023 100.2
Cash generated from operations 59.4
Interest 2.2
Tax (16.1)
Capitalised development expenditure (0.7)
Net expenditure on tangible and intangible assets (26.5)
Acquisition of subsidiaries, net of cash acquired (13.4)
Dividend paid (11.4)
Payments made in respect of lease liabilities (4.8)
Foreign exchange & other (5.1)
Net cash after borrowings as at 31 March 2024 83.8
Net cash including lease liabilities Year ended Year ended
31 March 2024 31 March 2023
£m £m
Net cash after borrowings 83.8 100.2
Lease liabilities (33.4) (31.4)
Net cash and lease liabilities after borrowings 50.4 68.8
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 fallen to 29.1%
(2023: 35.2%), with the change principally reflecting an increase in assets
from the acquisition of First Light Imaging SAS, the large investment in the
new semiconductor systems facility in Bristol which has increased property,
plant and equipment, as well as a higher level of inventories at the year end.
Return on capital employed Year ended Year ended
31 March 2024 31 March 2023
£m £m
Adjusted operating profit 80.3 80.5
Amortisation of acquired intangible assets (9.1) (9.3)
Adjusted operating profit after amortisation of acquired intangible assets 71.2 71.2
Property, plant and equipment 80.5 59.3
Right-of-use assets 32.4 31.4
Intangible assets 137.9 132.1
Long-term receivables 1.3 0.5
Inventories 108.4 81.4
Trade and other receivables 114.7 113.2
Non-current lease payables (28.6) (26.2)
Trade and other payables (166.2) (159.4)
Current lease payables (4.8) (5.2)
Current provisions (6.4) (7.6)
Capital employed 269.2 219.5
Average capital employed 244.4 202.1
Return on capital employed (ROCE) 29.1% 35.2%
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 was lower than the
previous year due to an increase in property assets and leases, and higher
working capital.
Return on invested capital Year ended Year ended
31 March 2024 31 March 2023
£m £m
Adjusted operating profit 80.3 80.5
Taxation (20.3) (17.0)
Adjusted operating profit after taxation 60.0 63.5
Total equity 365.7 344.0
Net cash after borrowings (including lease liabilities) (50.4) (68.8)
Invested capital 315.3 275.2
Average invested capital 295.3 262.1
Return on invested capital (ROIC) 20.3% 24.2%
Funding
On 19 March 2024, the Group entered into a new four year unsecured
multi-currency revolving facility agreement, with two extension options. The
facility has been entered into with four banks and comprises a
euro-denominated multi-currency facility of €95.0m (£81m) and a US
dollar-denominated multi-currency facility of $150.0m (£118m).
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 2024 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 2024 was £16.1m (2023: £26.4m). The value of
scheme assets fell to £239.7m (2023: £251.5m) due to a fall in value of the
scheme's gilt holdings and other liability matching assets. Scheme liabilities
decreased to £223.6m (£225.1m), principally due to a decrease in the
inflation-linked assumptions.
Pension recovery payments above charge to operating profit total £8.0m (2023:
£11.7m). In the comparative year, an advance payment of £4.0m was made to
allow the Trustees to meet collateral calls to swap counterparties under the
Liability Driven Investment scheme. These funds were not required and while
the company has the right to recover this advance through making reduced
payments in the future, it is not expected to do so.
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, at which point we expect, based on
current assumptions, for the scheme to achieve self-sufficiency. 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 Officer's Review and Operations Review
sections of this announcement. 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
10 June 2024
Consolidated Statement of Income
Year ended 31 March 2024
2024 2023
Adjusted Adjusting items (note 2) Total Adjusted Adjusting items (note 2) Total
£m £m £m £m £m £m
Revenue 470.4 - 470.4 444.7 - 444.7
Cost of sales (228.0) - (228.0) (214.5) - (214.5)
Gross profit 242.4 - 242.4 230.2 - 230.2
Other operating income - 3.3 3.3 - - -
Research and development (39.1) - (39.1) (35.9) (0.8) (36.7)
Selling and marketing (74.5) - (74.5) (65.4) - (65.4)
Administration and shared services (58.7) (14.6) (73.3) (52.9) (10.3) (63.2)
Foreign exchange gain/(loss) 10.2 (0.7) 9.5 4.5 3.0 7.5
Operating profit 80.3 (12.0) 68.3 80.5 (8.1) 72.4
Financial income 4.7 - 4.7 2.7 - 2.7
Financial expenditure (1.7) - (1.7) (1.2) (0.4) (1.6)
Profit/(loss) before income tax 83.3 (12.0) 71.3 82.0 (8.5) 73.5
Income tax (expense)/credit (20.3) (0.3) (20.6) (17.0) 2.1 (14.9)
Profit/(loss) for the year attributable to equity Shareholders of the parent 63.0 (12.3) 50.7 65.0 (6.4) 58.6
Earnings per share pence pence pence pence
Basic earnings per share
From profit for the year 109.0 87.7 112.7 101.6
Diluted earnings per share
From profit for the year 107.5 86.5 111.3 100.3
Consolidated Statement of Comprehensive Income
Year ended 31 March 2024
2024 2023
£m £m
Profit for the year 50.7 58.6
Other comprehensive (expense)/income:
Items that may be reclassified subsequently to Consolidated Statement of
Income
Foreign exchange translation differences (5.6) 5.3
Items that will not be reclassified to Consolidated Statement of Income
Remeasurement loss in respect of post-retirement benefits (19.4) (38.6)
Tax credit on items that will not be reclassified to Consolidated Statement of 4.8 9.7
Income
Total other comprehensive expense (20.2) (23.6)
Total comprehensive income for the year attributable to equity shareholders of 30.5 35.0
the parent
Consolidated Statement of Financial Position
As at 31 March 2024
2024 2023
£m £m
Assets
Non-current assets
Property, plant and equipment 80.5 59.3
Intangible assets 137.9 132.1
Right-of-use assets 32.4 31.4
Long-term receivables 1.3 0.5
Derivative financial instruments 0.2 0.4
Retirement benefit asset 16.1 26.4
Deferred tax assets 13.7 12.5
282.1 262.6
Current assets
Inventories 108.4 81.4
Trade and other receivables 114.7 113.2
Current income tax receivable 1.0 0.5
Derivative financial instruments 2.3 1.6
Cash and cash equivalents 97.8 112.7
324.2 309.4
Total assets 606.3 572.0
Equity
Capital and reserves attributable to the company's equity shareholders
Share capital 2.9 2.9
Share premium 62.6 62.6
Other reserves 0.2 0.2
Translation reserve 7.4 12.9
Retained earnings 292.6 265.4
365.7 344.0
Liabilities
Non-current liabilities
Bank loans 0.9 0.9
Lease payables 28.6 26.2
Deferred tax liabilities 12.9 7.8
42.4 34.9
Current liabilities
Bank loans and overdrafts 13.1 11.6
Trade and other payables 166.2 159.4
Lease payables 4.8 5.2
Current income tax payables 7.6 8.1
Derivative financial instruments 0.1 1.2
Provisions 6.4 7.6
198.2 193.1
Total liabilities 240.6 228.0
Total liabilities and equity 606.3 572.0
Consolidated Statement of Changes in Equity
Year ended 31 March 2024
Share capital Share premium Other reserves Translation reserve Retained earnings Total
£m £m £m £m £m £m
As at 1 April 2023 2.9 62.6 0.2 12.9 265.4 344.0
Profit for the year - - - - 50.7 50.7
Foreign exchange translation differences - - - (5.5) - (5.5)
Remeasurement loss in respect of post-retirement benefits - - - - (19.4) (19.4)
Tax credit on items that will not be reclassified to Consolidated Statement of - - - - 4.8 4.8
Income
Total comprehensive (expense)/income - - - (5.5) 36.1 30.6
Share-based payment transactions - - - - 3.0 3.0
Income tax on share-based payment transactions - - - - (0.5) (0.5)
Issue of share capital - - - - - -
Dividends - - - - (11.4) (11.4)
Total transactions with owners: - - - - (8.9) (8.9)
As at 31 March 2024 2.9 62.6 0.2 7.4 292.6 365.7
As at 1 April 2022 2.9 62.5 0.2 7.6 243.2 316.4
Profit for the year - - - - 58.6 58.6
Foreign exchange translation differences - - - 5.3 - 5.3
Remeasurement loss in respect of post-retirement benefits - - - - (38.6) (38.6)
Tax credit on items that will not be reclassified to Consolidated Statement of - - - - 9.7 9.7
Income
Total comprehensive income - - - 5.3 29.7 35.0
Share-based payment transactions - - - - 2.4 2.4
Income tax on share-based payment transactions - - - - 0.7 0.7
Proceeds from shares issued - 0.1 - - - 0.1
Dividends - - - - (10.6) (10.6)
Total transactions with owners: - 0.1 - - (7.5) (7.4)
As at 31 March 2023 2.9 62.6 0.2 12.9 265.4 344.0
Consolidated Statement of Cash Flows
Year ended 31 March 2024
2024 2023
£m £m
Cash flows from operating activities
Profit for the year 50.7 58.6
Adjustments for:
Income tax expense 20.6 14.9
Net financial income (3.0) (1.1)
Fair value movement on financial derivatives 0.7 (3.0)
WITec post-acquisition gross margin adjustment - 0.5
Impairment of capitalised development costs - 0.8
Amortisation of right-of-use assets 5.0 4.6
Depreciation of property, plant and equipment 5.3 4.8
Amortisation of intangible assets 9.8 10.7
Charge in respect of equity settled employee share schemes 3.0 2.4
Cash payments to the pension scheme more than the charge to operating profit (8.0) (11.7)
Increase in inventories (26.3) (15.6)
Increase in receivables (2.7) (19.6)
(Decrease)/increase in payables and provisions (2.8) 17.4
Increase in customer deposits 7.1 9.2
Cash generated from operations 59.4 72.9
Interest paid (0.9) (0.7)
Income taxes paid (16.1) (5.7)
Net cash from operating activities 42.4 66.5
Cash flows from investing activities
Proceeds from sale of property, plant and equipment 0.5 0.2
Acquisition of property, plant and equipment (27.0) (32.3)
Acquisition of subsidiaries, net of cash acquired (13.4) (4.8)
Capitalised development expenditure (0.7) (0.6)
Interest received 3.1 1.1
Net cash used in investing activities (37.5) (36.4)
Cash flows from financing activities
Proceeds from issue of share capital - 0.1
Interest paid on lease liabilities (0.8) (0.5)
Payment of capital element of leases (4.0) (5.1)
Repayment of borrowings (1.8) (0.5)
Dividends paid (11.4) (10.6)
Net cash used in financing activities (18.0) (16.6)
Change in cash and cash equivalents (13.1) 13.5
Cash and cash equivalents at beginning of the year 101.5 87.7
Effect of exchange rate fluctuations on cash held (2.9) 0.3
Cash and cash equivalents at end of the year 85.5 101.5
Comprised of:
Cash and cash equivalents as per the Consolidated Statement of Financial 97.8 112.7
Position
Bank overdrafts (12.3) (11.2)
85.5 101.5
1 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
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 Executive Directors. Discrete financial information
is available for each segment and used by the Executive 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 Executive Directors.
On 9th January 2024, the Group acquired 100% of the issued share capital of
First Light Imaging which has been integrated into the Research &
Discovery segment.
Materials & Characterisation Research & Discovery Service & Healthcare Total
2024
£m £m £m £m
Total segment revenue 252.2 142.1 76.1 470.4
Segment adjusted operating profit 46.4 13.6 20.3 80.3
Materials & Characterisation Research & Discovery Service & Healthcare Total
2023
£m £m £m £m
Total segment revenue 234.5 139.4 70.8 444.7
Segment adjusted operating profit 40.5 18.0 22.0 80.5
Revenue in the Materials & Characterisation and Research & Discovery
segments represents the sale of products. Revenue in the Service &
Healthcare segment relates to service income. No individual customer accounts
for more than 10% of revenue.
As at 31 March 2024, the Group had unfulfilled performance obligations under
IFRS 15 of £301.5m (2023: £319.6m). It is anticipated that £277.3m (2023:
£303.0m) 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
2024 Materials & Characterisation Research & Discovery Service & Healthcare Unallocated Group items Total
£m £m £m £m £m
Segment adjusted operating profit 46.4 13.6 20.3 - 80.3
Intellectual property litigation settlement - 3.3 - - 3.3
Adjustments relating to defined benefit pension schemes - - - (0.4) (0.4)
Transaction related costs - (1.0) - - (1.0)
Restructuring costs and charges associated with management changes (1.7) - - (2.0) (3.7)
Intellectual property litigation costs - (0.4) - - (0.4)
Amortisation and impairment of acquired intangibles (3.0) (6.1) - - (9.1)
Fair value movement on financial derivatives - - - (0.7) (0.7)
Financial income - - - 4.7 4.7
Financial expenditure - - - (1.7) (1.7)
Profit/(loss) before income tax 41.7 9.4 20.3 (0.1) 71.3
2023 Materials & Characterisation Research & Discovery Service & Healthcare Unallocated Group items Total
£m £m £m £m £m
Segment adjusted operating profit 40.5 18.0 22.0 - 80.5
Restructuring costs and charges associated with management changes (0.4) - - - (0.4)
Release of provision on disposal - - 0.4 - 0.4
Intellectual property litigation - (0.5) - - (0.5)
Impairment of capitalised development costs (0.8) - - - (0.8)
WITec post-acquisition gross margin adjustment (0.5) - - - (0.5)
Amortisation and impairment of acquired intangibles (3.1) (6.2) - - (9.3)
Fair value movement on financial derivatives - - - 3.0 3.0
Financial income - - - 2.7 2.7
Financial expenditure - - - (1.6) (1.6)
Profit before income tax 35.7 11.3 22.4 4.1 73.5
2024 Materials & Characterisation Research & Discovery Service & Healthcare Unallocated Group items Total
£m £m £m £m £m
Capital expenditure (18.0) (6.6) (0.1) (2.3) (27.0)
Depreciation of property, plant and equipment (3.3) (1.5) - (0.5) (5.3)
Amortisation of right-of-use assets (2.4) (0.4) - (2.2) (5.0)
Amortisation and impairment of intangibles (3.5) (6.2) - - (9.7)
Capitalised development expenditure (0.1) (0.6) - - (0.7)
2023 Materials & Characterisation Research & Discovery Service & Healthcare Unallocated Group items Total
£m £m £m £m £m
Capital expenditure (28.6) (2.7) - (1.0) (32.3)
Depreciation of property, plant and equipment (3.0) (1.2) - (0.6) (4.8)
Amortisation of right-of-use assets (2.1) (0.5) - (2.0) (4.6)
Amortisation and impairment of intangibles (6.0) (6.3) - - (12.3)
Capitalised development expenditure (0.4) (0.2) - - (0.6)
Revenue 2024 2023
£m £m
UK 30.4 29.4
China 127.4 107.4
Japan 43.5 46.7
USA 111.6 121.2
Germany 35.5 32.1
Rest of Europe 50.3 43.4
Rest of Asia 50.6 47.1
Rest of World 21.1 17.4
470.4 444.7
Non-current assets (excluding deferred tax) 2024 2023
£m £m
UK 191.0 189.6
Germany 32.1 34.8
USA 12.5 13.9
Japan 6.2 1.9
China 4.0 2.9
Rest of Europe 22.1 6.5
Rest of Asia 0.2 0.2
Rest of World 0.3 0.3
268.4 250.1
2 Adjusting items
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. In determining whether an event or transaction is an adjusting item,
the Directors consider quantitative as well as qualitative factors such as the
frequency or predictability of occurrence. Examples of exceptional items
include acquisition related costs, one-time past service costs on definded
benefit pension schemes, and one-time intellectual property litigation costs.
These adjusting items are excluded in the calculation of adjusted operating
profit, adjusted profit before tax, adjusted profit for the year, 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, amortisation 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 10. 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
2024 2023
Operating profit Profit before income tax Operating profit Profit before income tax
£m £m £m £m
Statutory measure 68.3 71.3 72.4 73.5
Intellectual property litigation settlement (3.3) (3.3) - -
Release of provision on disposal - - (0.4) (0.4)
Adjustments relating to defined benefit pension schemes 0.4 0.4 - -
Transaction related costs 1.0 1.0 - -
WITec post-acquisition gross margin adjustment - - 0.5 0.5
Restructuring costs and charges associated with management changes 3.7 3.7 0.4 0.4
Intellectual property litigation costs 0.4 0.4 0.5 0.5
Impairment of capitalised development costs - - 0.8 0.8
Amortisation and impairment of acquired intangibles 9.1 9.1 9.3 9.3
Fair value movement on financial derivatives 0.7 0.7 (3.0) (3.0)
Unwind of discount in respect of contingent consideration - - - 0.4
Total adjusting items 12.0 12.0 8.1 8.5
Adjusted measure 80.3 83.3 80.5 82.0
Adjusted income tax expense (20.3) (17.0)
Adjusted profit 80.3 63.0 80.5 65.0
Adjusted effective tax rates 24.4% 20.7%
Intellectual property litigation settlement
This represents one-off settlement income in the Research & Discovery
segment from defending our intellectual property.
Release of provision on disposal
The costs in the prior year represent the release of the provision on disposal
of the OI Healthcare business in the US in 2020.
Adjustments relating to defined benefit pension schemes
During the year, the Group recognised a one-off charge of £0.4m in respect of
removing the pension increase exchange at retirement option for deferred
members. This past service cost is reflected in the retirement benefit
obligations.
Transaction related costs
These represent the costs of one-off charges incurred at the balance sheet
date relating to transactional work.
WITec post-acquisition gross margin adjustment
The finished goods and work in progress inventories were revalued to fair
value, based on selling price less costs to sell. The adjustments in the prior
period relate to the gross margin which would have been earned on
post-acquisition sales to 31 March 2023, but which has been absorbed into the
acquisition date fair value. This has not occurred, as all such inventory at
the acquisition date had been delivered to customers by 31 March 2023.
Restructuring costs and charges associated with management changes
In the current year, these represent £1.7m of costs associated with the
relocation of production facilities within the semiconductor business and
charges of £2.0m incurred in respect of the recruitment of the new CEO and
one-off dual-running costs associated with this appointment. In the prior
year, these represent the costs of one-off restructuring charges within the
Materials & Characterisation segment.
Intellectual property litigation costs
These represent one-off legal costs to defend our intellectual property.
Impairment of capitalised development costs
During the prior year, the Group reviewed the capitalised development costs to
ensure they remained directly related to targeted product or software
developments. The one-off non-cash impairment relates to delays in market
launch of specific development projects within the Materials &
Characterisation segment.
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 in the prior year excludes the unwind of the discount in
respect of the contingent consideration on the acquisition of WITec.
Adjusted income tax expense
Statutory income tax is adjusted for the income tax impact on the adjusting
items described above. In the current year, adjusted income tax also includes
a prior year adjustment in relation to deferred tax recognised on the Asylum
intangibles.
Reconciliation of changes in cash and cash equivalents to movement in net cash
after borrowings
2024 2023
£m £m
Net (decrease)/increase in cash and cash equivalents (13.0) 13.5
Effect of exchange rate fluctuations on cash held (3.0) 0.3
Movement in net cash in the year (16.0) 13.8
Bank loans at First Light Imaging acquired (2.2) -
Repayment of borrowings 1.8 0.5
Net cash after borrowings at the start of the year 100.2 85.9
Net cash after borrowings at the end of the year 83.8 100.2
Reconciliation of net cash after borrowings to Statement of Financial Position
2024 2023
£m £m
Bank loans at First Light Imaging (0.7) -
Covid-19 loan at WITec (1.0) (1.3)
Overdrafts (12.3) (11.2)
Cash and cash equivalents 97.8 112.7
Net cash after borrowings at the end of the year 83.8 100.2
3 Research and development (R&D)
The total research and development spend by the Group is as follows:
2024 Materials & Characterisation Research & Discovery Total
£m £m £m
R&D expense charged to the Consolidated Statement of Income 28.0 11.1 39.1
Less: depreciation of R&D related fixed assets - (0.2) (0.2)
Add: amounts capitalised as fixed assets 0.2 - 0.2
Less: amortisation and impairment of R&D costs previously capitalised as (0.5) (0.1) (0.6)
intangibles
Add: amounts capitalised as intangible assets 0.1 0.6 0.7
Total cash spent on R&D during the year 27.8 11.4 39.2
2023 Materials & Characterisation Research & Discovery Total
£m £m £m
R&D expense charged to the Consolidated Statement of Income 26.5 10.2 36.7
Less: depreciation of R&D related fixed assets - (0.3) (0.3)
Add: amounts capitalised as fixed assets - - -
Less: amortisation of R&D costs previously capitalised as intangibles (2.1) (0.1) (2.2)
Add: amounts capitalised as intangible assets 0.4 0.2 0.6
Total cash spent on R&D during the year 24.8 10.0 34.8
4 Income tax expense 2024 2023
£m £m
Recognised in the Consolidated Statement of Income
Current tax expense
Current year 17.1 10.2
Adjustment in respect of prior years 1.1 0.3
18.2 10.5
Deferred tax expense
Origination and reversal of temporary differences 1.6 5.1
Adjustment in respect of prior years 0.8 (0.7)
2.4 4.4
Total tax expense 20.6 14.9
Reconciliation of effective tax rate
Profit before income tax 71.3 73.5
Income tax using the weighted average statutory tax rate of 25% (2023: 21%) 17.8 15.4
Effect of:
Tax rates other than the weighted average statutory rate (0.2) 0.3
Change in rate at which deferred tax recognised - 1.0
Transaction costs, deferred consideration and impairments not deductible for 0.4 -
tax
Non-taxable income and expenses 0.7 (1.4)
Adjustment in respect of prior years 1.9 (0.4)
Total tax expense 20.6 14.9
Taxation credit recognised directly in other comprehensive income
Current tax - relating to employee benefits (2.1) -
Deferred tax - relating to employee benefits (2.7) (9.7)
Taxation (credit)/charge recognised directly in equity
Current tax - relating to share options (0.6) -
Deferred tax - relating to share options 1.1 (0.7)
The rate of UK corporation tax increased to 25% from 1 April 2023. The UK
deferred tax assets and liabilities have been calculated based on the enacted
rate of 25%.
The Group carries tax provisions in relation to uncertain tax positions
arising from the possible outcome of negotiations with tax authorities. The
provision is calculated using the expected value method from a range of
possibilities and assumes that the tax authorities have full knowledge of the
facts. Such provisions reflect the geographical spread of the Group's
operations and the variety of jurisdictions in which it carries out its
activities.
5 Dividends
The following dividends per share were paid by the Group:
2024 2023
pence pence
Previous period final dividend 14.9 13.7
Current period interim dividend 4.9 4.6
19.8 18.3
The following dividends per share were proposed by the Group in respect of
each accounting period presented:
2024 2023
pence pence
Interim dividend 4.9 4.6
Final dividend 15.9 14.9
20.8 19.5
The final dividend for the year to 31 March 2023 of 14.9 pence per share was
approved by shareholders at the Annual General Meeting on 19 September 2023
and was paid on 12 October 2023. The interim dividend for the year to 31 March
2024 of 4.9 pence was approved by a sub-committee of the Board on 13 November
2023 and was paid on 12 January 2024.
The proposed final dividend for the year ended 31 March 2024 of 15.9 pence per
share was not provided at the year end and is subject to shareholder approval
at the Annual General Meeting on 25 July 2024. It is expected to be paid on 20
August 2024, to shareholders on the register on the record date of 12 July
2024, with an ex-dividend date of 11 July 2024 and with the last date of
election for the Dividend Reinvestment Plan (DRIP) being 30 July 2024.
6 Earnings per share
Basic earnings per ordinary share (EPS) is calculated by dividing the profit
attributable to equity shareholders of the parent by the weighted average
number of ordinary shares in issue during the year, excluding ordinary shares
held by the Employee Benefit Trust, which have been treated as if they had
been cancelled.
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.
The following table shows the weight average number of shares used in the
calculation and the effect of share options on the calculation of diluted
earnings per share:
2024 2023
Shares Shares
million million
Weighted average number of shares outstanding 57.9 57.7
Less: weighted average number of shares held by Employee Benefit Trust (0.1) -
Weighted average number of shares used in calculation of basic earnings per 57.8 57.7
share
Effect of shares under option 0.8 0.7
Number of ordinary shares per diluted earnings per share calculations 58.6 58.4
Basic and diluted EPS are based on the profit for the period attributable to
equity shareholders of the parent, as reported in the consolidated statement
of income. Adjusted and diluted adjusted EPS are based on adjusted profit for
the period, as reported in note 2:
2024 2023
£m Pence £m Pence
Profit attributable to equity shareholders of the parent/Basic EPS 50.7 87.7 58.6 101.6
Total underlying adjustments to profit before tax (Note 2) 12.0 20.8 8.5 14.7
Related tax effects 0.3 0.5 (2.1) (3.6)
Adjusted profit attributable to equity shareholders of the parent/adjusted EPS 63.0 109.0 65.0 112.7
Diluted basic EPS 86.5 100.3
Diluted adjusted EPS 107.5 111.3
7 Acquisitions
Acquisition of First Light Imaging
On 9 January 2024, the Group acquired 100% of the issued share capital of
First Light Imaging SAS ('First Light Imaging') on a cash-free, debt-free
basis for consideration of €18.7m (£16.0m), of which €3.0m (£2.5m) was
conditional on trading performance over a period of 12 months from the
acquisition. The conditions for the deferred consideration were meeting
certain revenue, order and margin thresholds. In the calculations below, it
has been assumed that these thresholds have been met.
The book and provisional fair value of the assets and liabilities acquired is
given in the table below. Provisional values have been used for all assets and
liabilities, including deferred tax, because the initial acquisition
accounting is incomplete at the date of this announcement. Fair value
adjustments have been 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.
Book value Provisional adjustments Provisional fair value
£m £m £m
Intangible assets 0.1 10.3 10.4
Property, plant and equipment 0.5 - 0.5
Right-of-use assets 0.7 - 0.7
Inventories 1.7 - 1.7
Trade and other receivables 2.9 - 2.9
Deferred tax - (2.6) (2.6)
Trade and other payables (2.1) - (2.1)
Lease liabilities (0.7) - (0.7)
Bank loans (2.2) - (2.2)
Cash 0.6 - 0.6
Net assets acquired 1.5 7.7 9.2
Goodwill 5.4
Total consideration 14.6
Net debt acquired 1.6
Deferred consideration after discounting to transaction date (2.8)
Net cash outflow relating to the acquisition 13.4
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 in the year of £0.7m were expensed to the
Consolidated Statement of Income as an adjusting item in the administration
and shared services cost line. There were no acquisition related costs in the
prior year.
The acquisition contributed revenue of £0.6m, adjusted operating loss of
£0.6m and a statutory loss before tax of £0.6m to the Group's profit for the
prior year.
If the acquisition had occurred on the first day of the year the acquisition
would have contributed revenue of £5.7m, adjusted operating profit of £0.3m
and a statutory result before tax of £0.3m in the year.
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 €42m (£36.0m), of which
€5m (£4.3m) was conditional on trading performance over a period of 12
months from the acquisition. The conditions for the deferred consideration
were meeting certain revenue, order and margin thresholds.
In the prior year, contingent consideration of £4.8m was paid based on the
performance of the Oxford Instruments WITec business in the year to 31 August
2022. The difference of £0.5m between contingent consideration provided at
acquisition and that paid in January 2023 was due to an adjustment to the net
assets purchased.
Risk Management
Audit, risk and internal control
An ongoing process for identifying, evaluating and managing the significant
risks faced by the Group is embedded throughout the organisation. Day-to-day
management of this process has been delegated by the Board to the Executive
Directors. Our risk management and internal control systems have been in place
throughout the financial year and up to the date of approval of this Annual
Report, and are subject to annual review by the Audit and Risk Committee. In
respect of the year ended 31 March 2024, the Board considered that these
processes remained effective. A summary of our risk management framework and
process can be found below.
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 Audit
and Risk Committee throughout the year. Below we provide an overview of the
major risks and uncertainties faced by the Group. All business units follow a
standard process for risk identification and reporting. The process is further
described on page xx . On a regular basis, each business unit reviews and
updates its risk register which is then consolidated and assessed in the
context of the wider Group and reported to the Chief Executive Officer. If a
material risk changes or arises, a review of the adequacy of the mitigating
actions taken is completed with the Chief Executive Officer.
The Board and Audit and Risk Committee also consider any risks which may
impact delivery against our strategic objectives at a Group level, and
consider the approach to managing and mitigating these risks.
Priorities during financial year ended 31 March 2024
During the year ended 31 March 2024 our priorities included continuing to
strengthen the Group's internal audit provision by engaging external expertise
to support and enhance the delivery of our internal audit plan, developing and
commencing execution of a Group-wide compliance training programme and working
to enhance the risk management and internal control structures associated with
our enterprise resource planning (ERP) system. During the year ahead, we will
focus further on our plans to adopt the changes we consider necessary to
comply with the revised UK Corporate Governance Code as published in January
2024
Risk governance framework
The key accountabilities and features of our risk governance framework are
summarised below.
Operational management
Responsible for risk management and control within the business and, through
the Management Board, implementing Board policies on risk and control.
Guided by the internal audit and assurance function, completes detailed risk
reviews on a quarterly basis.
Internal audit and assurance function
Assesses the adequacy and effectiveness of the management of significant risk
areas and provides oversight of operational management's frontline and
assurance activities.
Further information regarding the scope of internal audit and assurance
activities is set out below.
Audit and Risk Committee
Reviews the internal financial controls and systems that identify, assess,
manage and monitor financial risks, and other internal control and risk
management systems.
More information regarding the work of the Committee can be found in its
report in the Annual Report.
Board
Oversees the internal control framework and determines the nature and extent
of the principal risks the company is willing to take in order to achieve its
long-term strategic objectives.
Ultimately accountable for approving the adequacy and effectiveness of
internal controls operated by the Group.
Internal control
Our internal control framework includes central direction, oversight and risk
management of the key activities within the Group. It 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, and are subject to separate review by subject matter
experts where required (e.g. trade compliance and health and safety).
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 announcement.
The key components designed to provide effective internal control within the
Group include:
• a formal schedule of matters reserved for 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 Officer, 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. Day-to-day responsibility for the management of the
Group is delegated to the Management Board. 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 largely
report to their own operational head, there is also a well-established and
acknowledged functional reporting relationship to the Chief Financial Officer;
• the Board reviews strategic issues and options both as part of
the annual strategic planning process and on an ongoing basis throughout the
year. 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 12 months against the original proposal is reviewed by the Board;
• internal audits are carried out through a system of regular
reviews of the financial and non-financial internal controls at individual
businesses.
• the Board and its Committees receive regular updates on trade
compliance, sustainability, business ethics, health and safety, treasury, tax,
insurance and litigation, amongst other topics;
• 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) are subject to enhanced approval requirements;
• 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 scheme's Corporate Trustee; 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.
Our methodical approach to risk management is summarised below. The principal
risks and uncertainties detailed below are identified, reported, and monitored
through this process.
The broad range of potential factors which could impact the Group are
considered and those which have a significant effect on its ability to deliver
its strategy are determined to be principal risks and uncertainties.
Evaluation of risk
Careful consideration is given to:
i) the specific scenarios in which the risk could arise; and
ii) the various potential impacts which the risk could
present.
Mitigation implementation
Suitable management actions or robust control mechanisms are determined,
developed and implemented.
Review risk
An embedded, cyclical process review
i) determination of principal risks and uncertainties; and
ii) effectiveness of the implemented mitigation
mechanisms.
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 is set
out below.
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,
Assurance and Trade Compliance 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. A formal review of emerging risks is
conducted annually, with the outputs shared and discussed with the Audit and
Risk Committee as part of its review of the Group risk register and principal
risks and uncertainties.
During the latest review the Audit and Risk Committee considered whether
generative artificial intelligence ("Generative AI") may represent an emerging
risk. They concluded that whilst this presents significant risks and
opportunities for the Group, these are already contemplated by some of our
other principal risks, such as new product introduction and legal and
regulatory compliance, and therefore it is not necessary to consider it a
principal risk in its own right.
The Committee also considered management's proposal to add operational
transformation as a new principal risk, that was identified as part of the
emerging risk review. It is disclosed as principal risk 2 and further details
are set out below. The Committee agreed with management's assessment that
business transformation constitutes a principal risk and considers the
detailed disclosure to be appropriate.
Principal risks and uncertainties
Principal risks are reported and discussed at every meeting of the Audit and
Risk Committee. We generally consider that principal risks are those which
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 annually. Risks relating to the use of
generative AI were identified but were not considered to represent a principal
risk to the Group.
Four risks which were separately identified in the Report and Financial
Statements 2023 have now been combined into two risks, as their nature and
potential impacts were considered to be similar. Market risk and the risk of
adverse movements in long-term foreign currency are considered to be part of
macroeconomic risk. Risks relating to disruption from a global pandemic or
disaster have been incorporated into business interruption risk. The Board no
longer considers risks relating to the funding of the Group's defined benefit
pension scheme to be a significant risk and it is no longer identified nor
disclosed as a principal risk.
Principal risks and uncertainties matrix
Our principal risks and uncertainties are mapped onto a probability and impact
matrix, so that we can meaningfully assess their relative importance. The
arrows used in this matrix indicate the change in the risk by comparison to
the prior year's assessment. Our methodology uses the Group's assessment of
the residual risk, being the probability of the risk occurring and the
potential impact it may have, taking account of any mitigating actions and
controls that have been implemented.
A simplified version of this matrix is included in the Annual Report 2024, to
be published in June. The most significant risks are positioned in its top
right quadrant and the least significant in the bottom left. It shows that
based on our assessment, the likelihood of the Cyber and IT risk materialising
has increased compared to the prior year, due to external factors, while the
residual risk for all existing risk categories remains the same as the prior
year. We have also added a new risk related to business transformation. Our
assessment of that risk is that should it materialise, the impact is likely to
be major, while the likelihood is considered to be possible.
The risk management process identified 11 principal risks. We summarise each
risk below, explaining why it is relevant for the Group, setting out the
potential consequences should it materialise and detailing the risk mitigation
mechanisms. Risks are managed at Board level and are not assigned an
individual risk owner.
1: Geopolitical
Context: The Group operates in global markets and is required to comply with
relevant regulations including, but not limited to, sanctions, embargoes, and
export controls. Government policy on the export of specific technologies and
the approval of particular end users is subject to foreign policy objectives
which can change over time.
Risk
Changes in the geopolitical landscape, or an escalation in global trade
tensions, may result in major obstacles to trade with specific customers or
end users in key markets. Events such as conflicts and regime change can
trigger changes in foreign policy objectives relating to sanctions, trade
embargoes, export licensing, and trade tariffs. Further, as a consequence of
such restrictions, affected nations may seek to reduce reliance on imports in
strategic technologies through the development of domestic competition and/or
implement protectionist measures. This risk is particularly relevant to the
export of certain technologies to China for end uses in both quantum computing
and advanced semiconductor manufacturing. With manufacturing operations in the
UK, the US, Germany and France, the Group is exposed to changes in the
sanctions, embargoes and export controls imposed by those jurisdictions.
Possible impact
· A contraction in export volumes to key markets and consequential
loss of revenue and reputational damage
· Restrictions on the provision of after-sales service, leading to
lower service contract revenues
· Reduced volumes may impact research and development (R&D)
investment decisions due to adverse impacts on business cases
· Lower net pricing to markets adversely affected by tariffs,
reducing contribution margins
· Increases to input costs and lower gross margins
· Counter measures by countries affected, such as restrictions on
supply of key raw materials and investment in domestic alternatives, the
latter leading to longer term reduction in export opportunities to specific
markets
Control mechanisms
· Engagement with UK Government and regulatory authorities
· Contract review and protection against breach of contract should
export licences be withheld
· Long-term investment planning strategies
Mitigation
· Focus on lower-risk markets and end users
· Broad global customer base; contractual protection
· Market diversification
Change in the year: Unchanged
2: Operational transformation
Context: Following its latest strategy review an operational transformation
program is in progress that aims to improve operating efficiencies. Business
plans include revenue growth and operating margin improvements that are, in
part, dependent on realising those efficiencies in production, service and
support functions.
Risk
· The programme may fail to generate operational efficiencies
intended to improve operational gearing through measures such as lead time
reduction and reduced overheads in relative terms
Possible impact
· Lower sales volumes than planned due to higher lead times
· Higher costs of production leading to lower gross margins
· Higher overhead costs leading to lower operating profit
Control mechanisms
· CEO and steering group oversight of operational excellence program
Mitigation
· Programme headed by Chief Transformation Officer with a proven
track record in operational improvement with dedicated support in key areas
such as manufacturing and strategic sourcing
Change in the year: new
3: Supply chain
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. Disruption may be triggered by global events
such as conflict, natural disaster, or a pandemic.
Risk
· Operational disruption or price increases, due to supply chain
shortages, particularly in electronic components
· Suppliers de-committing orders due to their inability to supply as
a result of internal production issues
· 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
· Poor customer service
· Reputational damage
· Lost revenue
· Downward pressure on margins
Control mechanisms
· Sales and operational planning process
· Group strategic sourcing programme to consolidate demand and manage
key supplier risks
· Sourcing of alternative options and/or buffer stocks in relation to
high-risk suppliers
· Long-term contracts with key suppliers
· Increased lead times and potential of being unable to fulfil orders
· Increased stock holding adversely impacting cash conversion
Mitigation
· Strategic, selective and diversified supplier base
· 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: unchanged
4: Routes 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 insight 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 promote the benefits of
combined systems
· Product differentiation to promote advantages of
· Oxford Instruments' equipment and solutions
· Direct marketing to end users
Change in the year: unchanged
5: New product introduction
Context: The Group provides high‑technology equipment, systems and services
to its customers.
Risk
· Failure of the Group's R&D programme 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' customer listening approach and deep market
knowledge 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: Unchanged
6: Macroeconomic
Context: Macroeconomic factors such as recession, inflation and government
budget priorities may affect demand or place upward pressure on key elements
of the cost base such as labour and materials. A high proportion of the
Group's revenue is in foreign currencies, notably US dollars, while the cost
base is predominantly denominated in GBP.
Risk
· Lower demand for the Group's products and services
· Rises in key cost drivers such as people costs, energy, components,
and raw materials
· For sales of long lead-time items, requirement to make inflationary
estimates when pricing, which may be inaccurate
· Long-term strengthening of sterling against key foreign currencies
Possible impact
· Decrease in sales volumes
· 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
· Strategic focus on growth markets
· Price reviews
· Inflation protection in commercial response to long lead-time
tenders and long-term agreements
· Strategic management of currency exposure
Mitigation
· Ability to address inflationary pressures through price
· management reviews
· Reviews of key drivers of financial performance
· Reviews of supply chain currency base
· Active review of net exposure in key currencies
Change in the year: Unchanged
7: Cyber / information technology
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
· Data privacy breach
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
· Upgrade of enterprise resource planning (ERP) and other internal
systems
· End user education and phishing simulation exercises
Change in the year: Unchanged
8: Legal and regulatory compliance
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 (IP) 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,
exclusion 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 training, communications, and monitoring programmes for
key compliance risks
Change in the year: Unchanged
9: People and capability
Context: Delivering and protecting core capability and knowledge is a
strategic priority for the Group.
Risk
· Challenges in attracting and retaining high-quality
· talent in a tight labour market
· Shortage of key capabilities required to meet the Group's strategic
priorities
Possible impact
· Salary inflation and/or additional recruitment costs
· Adverse impact on NPI
· Operational disruption
· Lower sales and profitability
Control mechanisms
· Strategic focus on the employee experience, including career
development, communications, and competitive remuneration, to differentiate
Oxford Instruments
Mitigation
· Talent management and succession processes
· Leadership and technical development programmes
· Hybrid and remote working policies to facilitate location-agnostic
appointments
· Visa sponsorship registration for employee mobility
· Comprehensive internal communications
· Regular updates to benefits packages to maintain competitiveness
Change in the year: Unchanged
10. Business interruption
Context: Business units' production facilities are typically located at a
single site and are dependent on availability of parts sourced from global
supply chains.
Risk
· Sustained disruption to production arising from a major incident at
a site
· Hiatus in production due to shortage of supply
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
· Business continuity plans for all manufacturing sites
· Contractual protection to limit financial consequences of delayed
delivery
· Group strategic sourcing programme
Mitigation
· Business continuity 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: unchanged
11. Climate change
Context: Climate change generates both risks and opportunities. Our response
needs to address risks and optimise opportunities. More detail on our approach
is set out in our Task Force on Climate‑Related Disclosures Statement in the
Annual Report.
Risk
· The transition from fossil fuels to a low-carbon/net zero economy
may require significant changes in materials used and production methods that
may impact our own operations and those of 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
CO2 emissions linked to our products
· Delayed production and/or installation leading to delayed revenue
· Reduction in sales volumes if we fail to meet customer's
environmental expectations / requirements
· Reputational damage or loss of investment arising from failure to
anticipate or address climate risk
· Increased freight and packaging costs
Control mechanisms
· Sustainability Committee and management-level Sustainability
Leadership Forum
· Climate-related risks and opportunities evaluation and reporting
embedded in operating businesses
· 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
· Investment in CO2 reduction solutions
Change in the year: unchanged
ENDS
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