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
Adjusted1
|
Full year to 31 March
2024
|
Full year
to 31 March 2023
|
% change
reported
|
% change
constant currency4
|
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
conversion2
|
64%
|
88%
|
|
|
Net
cash3
|
£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 1.035, 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 and a recording will be made available later today at
www.oxinst.com/investors-content/financial-reports-and-presentations.
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
MHP
Group
Tel: 020 3128
8100
Tim Rowntree/Katie Hunt/Eleni
Menikou/Veronica Farah
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
31 March
2024
|
Reported
growth
vs full year to
31 March
2023
|
Constant
currency growth
vs full
year to
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 currency1 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 currency1
growth
|
|
|
|
|
|
Orders
|
£245.3m2
|
£272.8m
|
(10.1%)
|
(7.0%)
|
Revenue
|
£252.2m
|
£234.5m
|
+7.5%
|
+11.4%
|
Adjusted2 operating
profit
|
£46.4m
|
£40.5m
|
+14.6%
|
+20.2%
|
Adjusted2 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 currency1
growth
|
|
|
|
|
|
Orders
|
£158.4m2
|
£160.4m
|
(1.2%)
|
(1.9%)
|
Revenue
|
£142.1m
|
£139.4m
|
+1.9%
|
+5.7%
|
Adjusted3 operating
profit
|
£13.6m
|
£18.0m
|
(24.4%)
|
(26.1%)
|
Adjusted3 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
31 March
2023
|
% reported
growth
|
% constant currency
growth
|
Orders
|
£78.6m
|
£78.4m
|
+0.3%
|
+4.3%
|
Revenue
|
£76.1m
|
£70.8m
|
+7.5%
|
+12.6%
|
Adjusted2 operating
profit
|
£20.3m
|
£22.0m
|
(7.7%)
|
(2.3%)
|
Adjusted2 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
31 March
2024
£m
|
Year
ended
31 March
2023
£m
|
Change
|
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
income1
|
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
£m
|
2022/23
% of
total
|
Change £m
|
%
growth
|
% growth at constant
currency
|
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
&
Discovery
|
Service
&
Healthcare
|
Total
|
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
margin1: 2022/23
|
17.3%
|
12.9%
|
31.1%
|
18.1%
|
Adjusted operating
margin1: 2023/24
|
18.4%
|
9.6%
|
26.7%
|
17.1%
|
Adjusted operating
margin1 (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
Technologies
|
Total
|
Revenue: 2023/24
|
327.9
|
142.5
|
470.4
|
Adjusted operating profit:
2023/24
|
80.1
|
0.2
|
80.3
|
|
|
|
|
Adjusted operating
margin1: 2023/24
|
24.4%
|
0.1%
|
17.1%
|
1. Adjusted margin is
calculated as adjusted operating profit divided by
revenue.
£m
|
Imaging
& Analysis
|
Advanced
Technologies
|
Total
|
Revenue: 2022/23
|
308.3
|
136.4
|
444.7
|
Adjusted operating profit:
2022/23
|
75.1
|
5.4
|
80.5
|
|
|
|
|
Adjusted operating
margin1: 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
tax
|
Year ended
31 March
2024
£m
|
Year
ended
31 March
2023
£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
31 March
2024
£m
|
Year
ended
31 March
2023
£m
|
Adjusted operating profit
|
80.3
|
80.5
|
Depreciation and
amortisation
|
11.0
|
10.8
|
Adjusted1 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.
Reconciliation of cash generated
from operations to adjusted operating cash flow
|
Year ended
31 March
2024
£m
|
Year
ended
31 March
2023
£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 % (normalised1)
|
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
31 March
2024
£m
|
Year
ended
31 March
2023
£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
31 March
2024
£m
|
Year
ended
31 March
2023
£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
31 March
2024
£m
|
Year
ended
31 March
2023
£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
31 March
2024
£m
|
Year
ended
31 March
2023
£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 Income
|
4.8
|
9.7
|
Total other comprehensive expense
|
(20.2)
|
(23.6)
|
|
|
|
Total comprehensive income for the year attributable to equity
shareholders of the parent
|
30.5
|
35.0
|
|
|
|
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 Income
|
-
|
-
|
-
|
-
|
4.8
|
4.8
|
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 Income
|
-
|
-
|
-
|
-
|
9.7
|
9.7
|
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 Position
|
97.8
|
112.7
|
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.
2024
|
Materials &
Characterisation
|
Research &
Discovery
|
Service &
Healthcare
|
Total
|
|
£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
|
2023
|
Materials
& Characterisation
|
Research
& Discovery
|
Service
& Healthcare
|
Total
|
|
£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 intangibles
|
(0.5)
|
(0.1)
|
(0.6)
|
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 tax
|
0.4
|
-
|
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 share
|
57.8
|
57.7
|
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