REG - Oxford Instruments - Final Results <Origin Href="QuoteRef">MASAM.L</Origin> <Origin Href="QuoteRef">OXIG.L</Origin> - Part 1
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Oxford Instruments PLC
10 June 2014
Release Date: 7am Tuesday 10 June 2014
Oxford Instruments plc
Announcement of Preliminary Results for the year to 31 March 2014
Oxford Instruments plc, a leading provider of high technology tools and
systems for industry and research, today announces its Preliminary Results for
the year to 31 March 2014.
Highlights:
· Orders grew by 2.5% to £342.2 million (2013: £334.0 million)
· Revenue grew by 2.7% to £360.1 million (2013: £350.8 million);
4.3% on a constant currency basis
· Adjusted profit before tax* of £47.1 million (2013: £47.0
million)
· Adjusted operating margin* of 14.0% (2013: 14.1%), in line with
14 Cubed objectives
· Adjusted EPS* up 1.8% at 67.7 pence (2013: 66.5 pence)
· Andor Technology acquisition integrating well and performing
ahead of plan
· Investment in R&D, up 11.2% to £27.9 million (2013: £25.1
million)
· Proposed final dividend of 9.04 pence (2013: 8.15 pence), giving
a total dividend for the year of 12.4 pence (2013: 11.2 pence)
· Strategy seeks to exploit the convergence of the sciences which
will enhance demand for nanotechnology tools
*Adjusted numbers are stated to give a better understanding of the underlying
business performance. Details of adjusting items can be found in Note 1.
Jonathan Flint, Chief Executive of Oxford Instruments plc, said:
"The Group delivered another successful result, with orders, sales and profits
all ahead of the prior year. We are very pleased to welcome Andor to Oxford
Instruments and see the acquisition as an important part of the next phase of
our growth.
We will continue to focus on developing innovative new products and growing
market share in our core areas of physical science. In addition, we will seek
to extend our reach into adjacent new markets by applying our tools and
technologies to life science research and analysis.
This convergence of the sciences will enhance long term demand for our
nanotechnology tools and enable us to reach a new set of customers working in
the nano-bio arena."
Enquiries:
Oxford Instruments plc Tel: 01865 393200
Jonathan Flint, Chief Executive
Kevin Boyd, Group Finance Director
MHP Communications Tel: 020 3128 8100
Rachel Hirst
Rory King
Performance and Strategy
Performance: The Group delivered another successful result, with orders, sales
and profit all up on the prior year. Orders grew by 2.5% to £342.2 million
(2013: £334.0 million). Our closing order book was £126.1 million. Revenues
grew 2.7% to £360.1 million (2013: £350.8 million) against a currency headwind
caused by the relative strength of the pound compared to our major trading
currencies. Revenue growth on a constant currency basis was 4.3%.
As previously reported, during the first two months of 2013/14 we experienced
weak demand, particularly from government funded research. Since then, as
expected, we have seen gradual sustained improvement throughout the year.
Adjusted operating profit grew 2.0% to £50.3 million (2013: £49.3 million).
In line with our 14 Cubed objectives we delivered an adjusted operating margin
of 14.0% (2013: 14.1%).
During the year we saw strong revenue growth in the USA of 10.9%, and modest
declines in Europe and Asia. In Asia, continued weakness in the High
Brightness Light Emitting Diodes (HBLED) market suppressed growth, while in
Europe, government spending, particularly in the first half, was muted.
Revenues elsewhere in the world grew by 18.5%, helped in particular by strong
performances in South America and Australia.
We have now reached the end of the period covered by our 14 Cubed plan which
set a target of achieving an average compound annual sales growth rate of 14%
in the years 2011 to 2014 and a return on sales of 14% by 2014. We delivered
the targeted 14% return on sales. We achieved 11% compound annual growth
rate.
Strategy and Business Model: Across the world, people are focused on
addressing the great challenges of the 21st century. Constant advances are
needed to keep pace with our rapidly evolving world. With finite resources,
we need to achieve more with fewer raw materials. Oxford Instruments offers
the means for customers to address these challenges at the atomic and
molecular level. We use innovation to turn our smart science into commercial
tools and systems that analyse and manipulate matter at the nano scale. The
continued expansion of our capabilities and expertise allows us to address
customers' needs in a wide variety of markets that have an interest in working
at this scale.
In the research field, our tools are used to advance the frontiers of science.
We count many winners of the Nobel Prize amongst our customers. In the
industrial field, our tools are used to improve production efficiency, ensure
high standards of quality control and demonstrate compliance to environmental
legislation. The end user markets for our tools include life sciences, metals,
construction, semiconductors, green energy and environmental services, as well
as research and academic institutions round the world.
Our staff deploy a high level of technical skill and deep understanding of
technology trends to convert our intellectual property into new tools using
the latest nanotechnology techniques. We enjoy a high Vitality Index measured
by the proportion of revenues coming from products introduced in the last
three years. This stands at 42%. Our Voice of the Customer programme
constantly calibrates emerging customer requirements against available
technology to ensure our R&D activities are focused on the most commercially
attractive areas.
We adopt a business model whereby the Group sells tools to customers who wish
to exploit the opportunities offered by Nanotechnology. This model enables us
to generate revenues from emerging industries utilising nanotechnology without
undue exposure to any one application or market. The Oxford Instruments' brand
is well recognised and valued, particularly in the research and academic
communities.
Our Group operates in three sectors: Nanotechnology Tools, Industrial
Products and Service. Our Nanotechnology Tools sector sells high technology
tools, primarily to research customers (74% of its revenues come from research
and academia). It provides a unique insight into emerging trends in public and
privately funded research, thus informing our approach to innovation and
product application. Our Industrial Products sector sells more mature, though
still technically advanced products, primarily to industrial customers (58% of
its revenues come from industry). The tools and systems produced by this
sector enable us to benefit from the economies of scale offered by trading in
larger industrial markets, thereby maximising the returns from our R&D
programmes. Our Service sector addresses the aftermarket for both our own and
third party high technology equipment, notably MRI and CT scanners. The
complexity and uniqueness of our products mean our customers increasingly
purchase multiyear service contracts.
Improvement of our operational excellence forms a key part of our strategy.
Following the successful introduction of continuous improvement and lean six
sigma activities in selected Nanotechnology Tools and Industrial Products
businesses, we have initiated a global Operational Excellence programme that
develops and deploys best practice lean six sigma methodologies throughout the
Group to ensure our processes are continually improved and deliver the
benefits of economies of scale as the business grows.
This year we announced the evolution of our strategy to exploit the current
convergence of the sciences, especially at the nanoscale, which is driving
increased demand for nanotechnology tools. 'Convergence' is an increasingly
important aspect of scientific research. It is the merging of previously
distinct areas of research and technology into a unified discipline that
creates new scientific and commercial opportunities.
This new model is being adopted by many research institutions around the world
in different forms. The past decade has seen the emergence of
interdisciplinary research areas such as nanobiology, bioinfomatics,
engineered biomaterials and the human genome project. In these new fields the
underlying research models have converged. This creates significant
commercial opportunities for Oxford Instruments as tools that were once
restricted to one discipline can now be utilised across a number of research
areas, increasing our addressable market. For example, the Andor Zyla sCMOS
camera is a tool used in both the life and physical science arenas.
Application areas include Live-Cell Microscopy and Semiconductor Analysis.
Advances in information technology, new materials, imaging, and quantum
physics, have transformed physical science in recent years. Oxford Instruments
is a leading tool provider for this change. These same advances are now
beginning to transform the life sciences. Convergence gives the Group an
opportunity to take the technical tools and the disciplined design approach
traditional to engineering and physics, and apply them to life science
research. This provides the Group with a unique opportunity to access a new
set of customers who need to work at the molecular scale. The use of
techniques previously associated with the physical sciences, where the Group
has great strength, in the biological sciences produces an important area of
growth. For example, the convergence of nanotechnology and biotechnology
('Nano-Bio') will lead to innovative advances in medicine, energy production,
agriculture, aerospace and manufacturing. Oxford Instruments' acquisitions of
Asylum in 2012, and Andor in the year just ended, support this strategy of
extending our reach into analysis tools for Nano-Bio research.
Nanotechnology, applied to both the physical sciences and life sciences, will
continue to yield long term structural growth in demand for high technology
tools. Our strategy is focused on growing the business in our core markets of
physical and materials science, and exploiting convergence to expand into life
sciences.
Acquisitions: The acquisition of Andor Technology (Andor), an AIM listed
company based in Belfast, Northern Ireland, was completed on 21 January 2014.
Andor is a market leading supplier of high performance optical cameras,
microscope systems and software. For example, its cameras are being used to
understand protein distribution in cells, giving insights into diseases such
as Alzheimer's, Parkinson's and Cancer. Live Cell Super Resolution
microscopy, using Andor's iXon emCCD camera, gives much higher accuracy than
previously attained. The acquisition of Andor is strategically important to
Oxford Instruments and offers substantial opportunities to expand the Group's
current markets and technologies in both the physical science and life science
arenas. A tailored integration programme is in place that focuses on building
relationships that create a firm foundation for common processes, shared staff
talent and joint future development opportunities. Integration is going to
plan and current performance is ahead of our acquisition assumptions.
In the year, the Group also made two bolt-on acquisitions to the Industrial
Analysis business to broaden the product offerings in metals analysis and
coating thickness measurement. RMG, a small UK based company, adds a unique
hand-held analyser branded mPulse to our portfolio. Using the technique of
Laser Induced Breakdown Spectroscopy (LIBS), it is initially targeted at the
scrap metals industry and sales are already contributing to the business ahead
of acquisition assumptions. Another recent addition is Germany-based
Roentgenanalytik, which strengthens Oxford Instruments' range of X-ray
Fluorescence (XRF) materials and coating thickness analysers. It will become a
centre of excellence for our benchtop XRF analysers, enabling the development
of a new generation of manufacturing tools for our customers.
Asylum Research, acquired in December 2012, has integrated well and has made a
good contribution to the Group's performance this year. The launch of new
products in its leading portfolio of atomic force microscopes has extended the
range of applications available to our customers in the materials and
bioscience markets.
As previously reported, and uniquely amongst our recent acquisitions, Omicron
Nanotechnology, acquired in 2011, has underperformed against our acquisition
assumptions. As a result, we made changes to its management earlier in the
year and have laid out a new strategy. This business will now seek to
establish a leadership position, along with other Group businesses in the
Nanotechnology Tools Sector, in the study and fabrication of complex atomic
scale materials and devices. For example, it will target the emerging
technology of quantum computing, where Oxford Instruments already has a strong
position. The strategic actions we have taken should enable the business to
break even in the current year and we anticipate that it will return to
profitability in the 2015/16 financial year. Once complete, we will have a
world class surface science business, which complements our material science
and bio-science activities. This will enable us to offer our customers a
unique portfolio of Nanotechnology Tools.
People: The dedication and hard work demonstrated by our employees is key to
the success of Oxford Instruments, and we thank them for their continued
contribution to our success. Developing our employees is central to our
strategy for market leadership and profitable growth across all our sectors.
We believe that our increased focus on diversity and inclusion across our
global territories will further strengthen our business.
On 11 June 2013, Jennifer Allerton joined the Board of Oxford Instruments as a
Non Executive Director. She has a broad range of technological, commercial
and international experience with large multinational businesses. Jennifer
sits on the Audit, Remuneration and Nomination Committees.
Thomas Geitner, who was appointed to the Board on 1 January 2013, took over
the Chair of the Remuneration Committee on 9 September 2013.
At this year's AGM Professor Sir Mike Brady will step down from the Board. He
was appointed in August 1995 and became Deputy Chairman in 2000. He was a
member of the Nomination Committee until 2011, and is a member of the Audit
and Remuneration Committees. We would like to thank Mike for his outstanding
service and commitment to the Group over the last 20 years.
During the year, a new post of Chief Information Officer was created to
strengthen the IT infrastructure of the Group, investigate ways in which we
can better use IT to differentiate our products and manage the implementation
of a new Group wide ERP system.
Outlook
Orders for the first two months of the year are ahead of the same period last
year on both a reported and constant currency organic basis.
Our strategy, which sets the stage for the next phase of growth for Oxford
Instruments, will continue to focus on developing innovative new products and
growing market share in our core areas of physical science. In addition, we
will seek to extend our reach into adjacent new markets by applying our tools
and technologies to life science research and analysis.
This convergence of the sciences will drive long term demand for our
nanotechnology tools and enable us to reach a new set of customers. Despite
the headwind from foreign exchange at current levels, these factors, together
with a full year contribution from recent acquisitions, complemented by our
talented people and our focus on operational excellence will underpin our
continued growth in the current year.
Operations Review
The Group operates in three sectors: Nanotechnology Tools, Industrial Products
and Service.
Nanotechnology Tools: The Nanotechnology Tools sector produces our highest
technology products and serves research and industrial customers in both the
public and private sectors. Since the year end this sector has been managed
as the NanoCharacterisation division (comprising NanoAnalysis, Asylum Research
and Andor Technology), and the NanoSolutions division (comprising Plasma
Technology and Omicron NanoScience). This allows us to bring together our
three microscopy techniques (optical, atomic force and electron) under a
unified structure in NanoCharacterisation, whilst NanoSolutions focuses on
advanced research environments and systems.
This sector delivered an encouraging performance in 2014, despite weaker
government spending in research and development, with revenues of £180.6
million (2013: £166.1 million) and an adjusted operating profit of £21.2
million (2013: £20.6 million). New products introduced by the NanoAnalysis and
Asylum businesses have been particularly successful, rapidly contributing to
the overall performance of the sector.
Our NanoAnalysis business produces leading-edge tools that enable materials
characterisation and sample manipulation at the nanoscale. Its products are
used on electron microscopes and ion-beam systems in academic institutions and
industrial applications including semiconductors, renewable energy, mining,
metallurgy and forensics. Our new Layerprobe tool works with our market
leading Aztec electron microscopy software platform. It gives customers the
ability to measure the thickness and composition of nanoscale thin films and
membranes in a scanning electron microscope. We are the only company
providing this capability in our software. For the first time, it unlocks
information about variations in sample depth by showing composition in the
third dimension. This is vital for applications involving photovoltaic
devices, light emitting diodes, and power electronics where device performance
depends on both the thickness and composition of ultra thin films.
Asylum's Cypher ES environmental atomic force microscope (AFM) is the best
commercial AFM on the market. It makes atomic scale imaging routine for the
average user. It combines fast, ultra stable, high resolution imaging in
gaseous or liquid environments with cooling, heating and other sample control
capabilities. It is used in a variety of disciplines, including material
science, energy research, biology and biophysics.
Andor Technology brings the Group a strong capability in optics. This,
combined with our capability in atomic force microscopy and spectrometers for
electron microscopy, means the Group can offer our customers a spectrum of
tools with which to observe the nano world. Andor has continued to drive
innovation with the launch of the ultra-sensitive Zyla 4.2 sCMOS camera.
Offering the highest sensitivity available, this camera is the technology
leader in the fast growing life science imaging market. Andor was also
recognised with the "Best in the World" award from Yokogawa as the leading
Global Distributor of laser spinning disk systems for high resolution living
cell imaging. Its Imaris software was used in the Clarity Brain analysis
project at Stanford University, providing accurate 3D images and analyses of
specifically labelled neurons in an otherwise transparent brain.
The Omicron NanoScience business which specialises in analytical measurement
in high vacuum, at low temperatures and in high magnetic fields, had a
challenging year, due in part to reduced government spending and a general
slowdown in research markets in its field. However, this business delivered
its largest ever single order, to a customer in Germany to facilitate the
fabrication and characterisation of materials for nano electronics. This could
revolutionise the industry and provide key components into the nascent field
of Quantum Computing. Quantum Computers have the potential to make safer
aeroplanes, detect cancers through complex computational modelling and design
software that allows cars to drive themselves.
Plasma Technology, which produces nanofabrication equipment for specialist
semiconductor research and manufacturing, had a challenging year due primarily
to the continued weakness in demand for High Brightness Light Emitting Diodes
(HBLED). However, Plasma Technology spearheaded an evolution in semiconductor
etch technology with the launch of the PlasmaPro1000 Astrea etch system. This
tool enables large batches of advanced semiconductors to be etched
simultaneously and will offer manufacturers of HBLEDs market leading
productivity and cost efficiencies.
Industrial Products: Our Industrial Products sector, comprising our Industrial
Analysis and Industrial Components divisions, supplies analytical systems for
quality control, environmental and compliance testing, and components for
industry and research. Industrial Analysis comprises our X-ray Fluorescence
(XRF), Optical Emission Spectroscopy (OES) and Magnetic Resonance (NMR)
businesses. Industrial Components comprises our Superconducting Wire, Austin
Scientific and X-Ray Technology businesses.
This sector delivered revenues of £114.7 million (2013: £125.1 million) and an
adjusted operating profit of £15.6 million (2013: £17.3 million). Deliveries
of superconducting wire to the ITER programme, which seeks to develop a
commercially viable source of energy from Nuclear Fusion, were completed in
the first quarter of the year. Revenue from the ITER programme totalled £40
million over the last three years. Excluding the effect of the ITER project,
underlying growth in this sector was 2.3%.
The Industrial Analysis business achieved growth in all geographic
territories, despite a downturn in its steel markets. A new portable optical
emission spectrometer, PMI-Master Smart, was launched in the year as a result
of a breakthrough in the miniaturisation of OES instrumentation, based on the
use of optics made of carbon fibre reinforced plastics. The improved mobility
offered by this product brings advantages to customers in the fields of metals
analysis, positive material identification, rapid material verification and
sorting. During the year we also launched Pulsar, a cost effective nuclear
magnetic resonance (NMR) analyser. One specific application is its ability to
identify different species in raw meat. The analysis can be completed
locally, on site in a few seconds, whereas current testing methods for food
samples are costly and can take several days. We have seen significant
interest from testing laboratories, supermarkets and government bodies. Other
NMR based tools are being used in numerous applications ranging from
monitoring octane levels in power stations to measuring salt levels in
cheese.
The Industrial Components division delivered a strong performance. Austin
Scientific was successful in winning more orders for tools used in the mobile
phone industry. X-ray Technology also did well, with sales from Shasta, a new
power supply system, exceeding our targets. Our Superconducting Wire business
also had a good year, increasing productivity as a result of operational
efficiency programmes and with continuing strong demand for MRI wire.
Service: The Service sector comprises the service, support, training,
refurbishment, consumables and accessories elements of our business, together
with a business providing service for MRI and CT machines. This sector
performed well across all territories with revenue of £66.4 million (2013:
£60.6 million) and an adjusted operating profit of £13.5 million (2013: £11.4
million). This was driven in part by our clinical instrumentation service
business which has grown its servicing of GE Healthcare MRI machines in the
USA and selling refurbished parts and systems to the healthcare market.
Successful initiatives such as the OI Training Academy and remote monitoring
have increased revenues and added to the customer experience, increasing our
Net Promoter Score (customer satisfaction) from 62 to 66 this year.
Financial Review
Trading Performance: Orders in the period were up 2.5% to £342.2 million
(2013: £334.0 million). Including inter-segment trade, the split between
sectors was: Nanotechnology Tools £166.3 million, down 0.2%; Industrial
Products £110.0 million, up 7.6%; and Service £67.5 million, up 0.9%. At the
end of the year the Group order book for future deliveries fell to £126.1
million (2013: £130.8 million) partly reflecting the reduced lead times
demanded by our customers.
Revenues in the year grew by 2.7% to £360.1 million (2013: 350.8 million).
The increase in revenues due to acquisitions in the comparator periods was
£27.4 million. Adverse foreign currency exchange rate movements reduced
reported sales by £5.9 million.
In Nanotechnology Tools, revenues grew 8.7% aided by a full year's
contribution from Asylum, an acquisition made in December 2012, and just over
two months of Andor revenues. We saw growth in both our NanoAnalysis and
Omicron Nanoscience businesses but this was offset by a decline at Plasma
Technology as the forecast recovery in the HBLED market failed to materialise.
On a constant currency organic basis and excluding the fall in HBLED sales,
growth was 1.0%.
In Industrial Products, revenues reduced by 8.3%. This was expected due to
the completion of the ITER contract in the first quarter of the year. The RMG
and Roentgenanalytik acquisitions made in November 2013 and December 2013
respectively, made a small contribution in the year. On a constant currency
organic basis and excluding the ITER contract, growth was 1.6%.
Service revenues increased by 9.6% as we continued to increase the proportion
of extended service contracts in the Nanotechnology Tools and Industrial
Products sectors, and saw continued growth in Platinum Medical Imaging in the
USA. On a constant currency organic basis, growth was 10.1%.
Adjusted Group gross margins increased from 44.7% to 45.4% despite adverse
currency movements. We saw a positive mix variance due to a reduction in lower
value superconducting wire sales following the completion of the ITER contract
and an increase in contributions from our higher margin businesses.
Adjusted operating expenses rose by £4.2 million reflecting an increase of
£10.9 million spend due to the inclusion of the acquired businesses, a £0.3
million benefit from foreign exchange rate movements and a saving of £6.4
million in underlying costs.
Adjusted operating profit increased by 2.0% to £50.3 million with an adjusted
operating profit margin of 14.0% (2013: 14.1%).
Adjusting Items: The Directors believe that adjusted profit before tax gives a
clearer indication of the underlying performance of the business. A
reconciliation of reported profit before tax to adjusted profit before tax is
given below:
2014£m 2013 (Restated)£m
Profit before income tax 24.0 28.4
Reversal of acquisition related fair value adjustments to inventory 3.7 0.5
Acquisition related costs 7.8 2.1
Amortisation and impairment of acquired intangibles 14.7 13.8
Unwind of discount in respect of deferred consideration 0.9 0.2
Mark to market (gain)/loss in respect of derivative financial instruments (4.1) 2.0
Settlement loss on US pension scheme 0.1 -
Adjusted profit before income tax 47.1 47.0
Share of taxation (8.7) (9.7)
Adjusted profit for the year 38.4 37.3
Financial income and expenditure: Within financial income and expenditure, the
cost of interest on loans and overdrafts and the commitment fee for our
revolving credit facility, offset by deposit interest, amounted to £1.2
million (2013: £0.6 million). The interest charge on net pension scheme
liabilities was £2.0 million, a movement of £0.3 million over the prior year.
The Group uses derivative products to hedge its exposure to fluctuations in
foreign exchange rates. It is Group policy to have in place at the beginning
of a financial year hedging instruments to cover 80% of its forecast
transactional exposure for that year. On acquisition, Andor had limited
foreign exchange hedges in place. Hedges will be put in place during the
first half of 2014/15 so that by the end of the half year they will be in line
with Group policy. Based on current spot rates and the hedging we have in
place, we believe that foreign exchange will adversely impact profits in the
year to March 2015 by approximately £5 million.
In common with a number of other companies, the Group has decided that the
additional costs of meeting the extensive documentation requirements of IAS 39
to apply hedge accounting to these foreign exchange hedges cannot be
justified. Accordingly the Group does not use hedge accounting for these
derivatives. Net movements on marking to market such derivatives at the
balance sheet date are disclosed in the income statement as Financial
Expenditure and excluded from our calculation of adjusted profit before tax
(Note 1). The mark to market gain in respect of derivative financial
instruments was £4.1 million (2013: £2.0 million loss).
The Group also uses derivative products to hedge its exposure to fluctuations
in the price of copper, a major component for the Superconducting Wire
business. Given the small number of contracts involved, we apply hedge
accounting for these transactions and consequently the results of marking to
market are excluded from the Income Statement.
Taxation: The Group's weighted average statutory tax rate was 29% (2013: 30%).
The underlying rate on the profit before tax for the Group before adjusting
items was 18% (2013: 21%). This difference is due to brought forward tax
losses (see below), tax incentives relating to income earned from technology
assets and a tax efficient financing structure.
In the year ended March 2011, due to the improved performance of the Group's
UK businesses, we recognised a deferred tax asset of £11.3 million in respect
of brought forward tax losses in the UK and a corresponding credit to the
Income Statement. We believe that this was exceptional both in nature and
quantum and therefore excluded it from our calculation of adjusted earnings
per share. Of this asset value £2.2 million reversed in the year ended March
2014 and to be consistent we have excluded it from the calculation of adjusted
earnings per share (see Note 2). We expect the final £1.2 million to reverse
in the year ending March 2015.
Earnings: After a tax charge of £5.8 million (2013: £7.4 million), the
reported net profit for the financial year was £18.2 million (2013: £21.0
million). With a weighted average number of shares of 56.8 million (2013:
56.2 million), the reported basic earnings per share were 32.1 pence (2013:
37.4 pence).
Adjusted profit before tax (Note 1) grew by £0.1 million to £47.1 million
which equates to adjusted earnings per share of 67.7 pence (2013: 66.5 pence),
an increase of 1.8%.
Dividends: In 2011 the Group moved to a progressive dividend policy, whereby
we seek to raise dividends as adjusted earnings per share rise, although not
necessarily in the same proportion. In recommending the dividend, the
Directors take account of the perceived need for cash to expand the business
both organically and through acquisition. For the year just ended, the
proposed final dividend of 9.04 pence per share (2013: 8.15 pence), payable on
23 October 2014 to shareholders who are on the register on 26 September 2014,
gives a total dividend for the year of 12.4 pence per share (2013: 11.2
pence). Dividend cover before adjusting items was 5.5 times (2013: 5.9
times).
Investment in research and development (R&D): Total cash spend on R&D in the
year was £27.9 million or 7.7% of sales (2013: £25.1 million, 7.2%).
A reconciliation between the amounts charged to the Income Statement and the
cash spent is given below:
2014£m 2013£m
R&D expense charged to the consolidated statement of income. 25.1 24.3
Less: depreciation of R&D related fixed assets (0.8) (0.7)
Add: amounts capitalised as fixed assets 2.1 0.8
Less: amortisation of R&D costs capitalised as intangibles (3.9) (3.9)
Add: amounts capitalised as intangible assets 5.4 4.6
Total cash spent on R&D during the year 27.9 25.1
The net book value of capitalised development costs at the end of the
financial year was £14.1 million (2013: £12.3 million).
Balance sheet: Net assets rose from £137.7 million to £140.2 million in the
year.
Net working capital (excluding derivative financial instruments, contingent
consideration and tax payable/receivable) rose to £41.0 million.
Inventory turns decreased by 0.4 to 2.9 while debtor days reduced from 51 days
to 45 days.
Acquisitions and Disposals: On 21 January 2014 the Group acquired Andor
Technology plc for a net cash consideration of £158.1 million. Andor is a
market leading supplier of high performance optical cameras, microscope
systems and software. The acquisition was funded from a mixture of cash and a
new debt facility.
On 31 December 2013 the Group acquired Roentgenanalytik Systeme GmbH for a net
cash consideration of £1.6 million. The company specialises in designing and
supplying instruments for coating thickness measurement and material analysis,
using X-ray fluorescence. The acquisition was funded from existing
facilities.
On 8 November 2013 the Group acquired RMG Technology Limited for an initial
net cash consideration of £5.7 million. RMG is a UK business specialising in
Laser Induced Breakdown Spectroscopy. The acquisition was funded from
existing facilities.
Pensions: The Group has defined benefit pension schemes in the UK and the USA.
Both have been closed to new entrants since 2001 and closed to future accrual
from July 2010. The total deficit, before tax, under IAS19 on these pension
schemes fell in the year by £1.6 million to £46.3 million. There is a
corresponding deferred tax asset of £9.6 million.
Assets of the schemes at 31 March 2014 were £196.6 million (2013: £198.0
million), while liabilities reduced from £245.9 million to £242.9 million.
The latest triennial actuarial valuation of the UK scheme was carried out as
at 31 March 2012 and resulted in an actuarial deficit of £48.8 million. A
long-term plan for recovering the deficit over 8 years has been agreed between
the Company and the Pension Trustee. Under the deficit recovery plan,
payments will increase for the three years to March 2015 by the greater of 10
percent or the percentage increase in dividend per share. Thereafter, the
payment will increase by 3.05% per annum. The payment in 2013/14, the second
year of the new plan, was £5.6 million.
Cash: Adjusted earnings before interest, tax, depreciation and amortisation
(EBITDA) increased by 2.4% to £59.2 million. Working capital increased by
£20.9 million.
Cash generated from operations was £28.4 million (2013: £50.4 million). The
ratio of operating cash to adjusted operating profit, which is one of our Key
Performance Indicators, was 51.9% (2013: 84.6%). Performance in the year was
impacted by an increase in working capital, in particular a decrease in
customer deposits of £10.9 million primarily due to individually significant
customer deposits received in the prior year.
Net debt at the year-end was £124.3 million (2013: net cash £39.2 million).
During the year the Group entered into a committed Revolving Credit Facility
with a club of three banks. The facility, which extends to December 2018, is
for £100 million and is extendable to £150 million by mutual consent. On 31
March 2014 the Group issued a £44.5 million seven year fixed rate loan note to
Pricoa Capital. In August 2013 the Group borrowed £25 million from the
European Investment Bank. This fixed rate loan has a seven year term with
amortisation starting in the fourth year.
These facilities were entered into to support the acquisition of Andor
Technology plc. In addition, the Group has overdraft facilities totalling
£15.7 million.
Employees: The average number of people employed during the year was 2,050, an
increase of 123 over the prior year. As a result of acquisitions made in the
year, 434 employees joined the Group.
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 and Strategy and Operations sections. The financial
position of the Group, its cash flows, liquidity position and borrowing
facilities are described in this Financial Review.
The diverse nature of the Group, combined with its financial strength,
provides a solid foundation for a sustainable business. The Directors have
reviewed the Group's forecasts and flexed them to incorporate a number of
potential scenarios relating to changes in trading performance. The Directors
believe that the Group will be able to operate within its existing debt
facilities. This review also considered hedging arrangements in place. The
Directors believe that the Group is well placed to manage its business risks
successfully.
The Financial Statements have been prepared on a going concern basis, based on
the Directors' opinion, after making reasonable enquiries, 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.
Consolidated Statement of Income year ended 31 March 2014
Year ended 31 March 2014 Year ended 31 March 2013 (restated)*
Notes Adjusted** AdjustingItems** Total Adjusted** AdjustingItems** Total
£m £m £m £m £m £m
Revenue 3 360.1 - 360.1 350.8 - 350.8
Cost of sales (196.6) (3.7) (200.3) (194.0) (0.5) (194.5)
Gross profit 163.5 (3.7) 159.8 156.8 (0.5) 156.3
Research and development 4 (25.1) - (25.1) (24.3) - (24.3)
Selling and marketing (56.7) - (56.7) (51.1) - (51.1)
Administration and shared services (33.1) (22.6) (55.7) (35.3) (15.9) (51.2)
Foreign exchange 1.7 - 1.7 3.2 - 3.2
Operating profit 50.3 (26.3) 24.0 49.3 (16.4) 32.9
Other financial income 0.3 4.1 4.4 0.3 - 0.3
Financial income 0.3 4.1 4.4 0.3 - 0.3
Interest charge on pension scheme net liabilities (2.0) - (2.0) (1.7) - (1.7)
Other financial expenditure (1.5) (0.9) (2.4) (0.9) (2.2) (3.1)
Financial expenditure (3.5) (0.9) (4.4) (2.6) (2.2) (4.8)
Profit before income tax 47.1 (23.1) 24.0 47.0 (18.6) 28.4
Income tax (expense)/credit 6 (8.7) 2.9 (5.8) (9.7) 2.3 (7.4)
Profit for the year attributable to equity shareholders of the parent 38.4 (20.2) 18.2 37.3 (16.3) 21.0
pence pence pence pence
Earnings per share
Basic earnings per share 2 67.7 32.1 66.5 37.4
Diluted earnings per share 2 67.3 31.9 65.7 37.0
Dividends per share
Dividends paid 7 11.2 10.0
Dividends proposed 7 12.4 11.2
* See note 8 for details of restatement of comparative information.
** Adjusted numbers are stated to give a better understanding of the
underlying business performance. Details of adjusting items can be found in
Note 1.
Consolidated Statement of Comprehensive Income
year ended 31 March 2014
2014£m 2013 (Restated)*£m
Profit for the year 18.2 21.0
Other comprehensive income/(expense):
Items that may be reclassified subsequently to profit or loss
Gain on effective portion of changes in fair value of cash flow hedges, net of amounts recycled - -
Foreign exchange translation differences (8.4) 3.4
Tax on items that may be reclassified to profit or loss - -
Items that will not be reclassified subsequently to profit or loss
Remeasurement loss in respect of post-retirement benefits (1.9) (15.7)
Tax on items that will not be reclassified to profit or loss (1.0) 3.5
Total other comprehensive expense (11.3) (8.8)
Total comprehensive income for the year attributable to equity shareholders of the parent 6.9 12.2
*See Note 8 for details of restatement of comparative information.
Consolidated Statement of Financial Position
as at 31 March 2014
2014£m 2013 £m
Assets
Non-current assets
Property, plant and equipment 34.4 32.9
Intangible assets 247.9 91.9
Deferred tax assets 11.2 25.0
293.5 149.8
Current assets
Inventories 68.3 58.1
Trade and other receivables 80.9 71.8
Current income tax recoverable 1.0 0.4
Derivative financial instruments 5.3 2.2
Cash and cash equivalents 32.6 39.2
188.1 171.7
Total assets 481.6 321.5
Equity
Capital and reserves attributable to the Company's equity shareholders
Share capital 2.9 2.8
Share premium 61.3 60.6
Other reserves 0.1 0.1
Translation reserve (4.4) 4.0
Retained earnings 80.3 70.2
140.2 137.7
Liabilities
Non-current liabilities
Bank loans 141.4 -
Other payables 13.1 11.1
Retirement benefit obligations 46.3 47.9
Deferred tax liabilities 12.0 6.2
212.8 65.2
Current liabilities
Bank loans 15.5 -
Trade and other payables 99.2 101.4
Current income tax payables 3.7 4.3
Derivative financial instruments 0.5 2.6
Provisions 9.7 10.3
128.6 118.6
Total liabilities 341.4 183.8
Total liabilities and equity 481.6 321.5
The Financial Statements were approved by the Board of Directors on 10 June
2014 and signed on its behalf by:
Jonathan Flint Kevin Boyd
Director Director
Company Number: 775598
Consolidated Statement of Changes in Equity
year ended 31 March 2014
Sharecapital£m Sharepremiumaccount£m Otherreserves£m Foreignexchangetranslationreserve£m Retainedearnings£m Total£m
Balance at 1 April 2013 2.8 60.6 0.1 4.0 70.2 137.7
Total comprehensive income:
Profit for the year - - - - 18.2 18.2
Other comprehensive income:
- Foreign exchange translation differences - - - (8.4) - (8.4)
- Gain on effective portion of changes in fair value of cash flow hedges, net of amounts recycled - - - - - -
- Remeasurement loss in respect of post-retirement benefits - - - - (1.9) (1.9)
- Tax on items recognised directly in other comprehensive income - - - - (1.0) (1.0)
Total comprehensive income/(expense) attributable to equity shareholders of the parent - - - (8.4) 15.3 6.9
Transactions with owners recorded directly in equity:
- Credit in respect of employee service costs settled by award of share options - - - - 1.6 1.6
- Tax charge in respect of share options - - - - (0.4) (0.4)
- Proceeds from shares issued 0.1 0.7 - - - 0.8
- Dividends paid - - - - (6.4) (6.4)
Total transactions with owners recorded directly in equity: 0.1 0.7 - - (5.2) (4.4)
Balance at 31 March 2014 2.9 61.3 0.1 (4.4) 80.3 140.2
Other reserves comprise the capital redemption reserve, which represents the
nominal value of shares repurchased and then cancelled during the year ended
31 March 1999, and the hedging reserve in respect of the effective portion of
changes in value of commodity contracts.
The foreign exchange translation reserve comprises all foreign exchange
differences arising since 1 April 2004 from the translation of the Group's net
investments in foreign subsidiaries into Sterling.
The Group holds 183,145 (2013: 183,145) of its own shares in an employee
benefit trust. The cost of these shares is included within retained earnings.
There was no movement in the shares held by the trust during the year.
Consolidated Statement of Changes in Equity
year ended 31 March 2013 - as restated*
Sharecapital£m Sharepremiumaccount£m Otherreserves£m Foreignexchangetranslationreserve£m Retainedearnings£m Total£m
Balance at 1 April 2012 2.8 60.2 0.1 0.6 63.4 127.1
Total comprehensive income:
Profit for the year - - - - 21.0 21.0
Other comprehensive income:
- Foreign exchange translation differences - - - 3.4 - 3.4
- Gain on effective portion of changes in fair value of cash flow hedges, net of amounts recycled - - - - - -
- Remeasurement loss in respect of post-retirement benefits - - - - (15.7) (15.7)
- Tax on items recognised directly in other comprehensive income - - - - 3.5 3.5
Total comprehensive incomeattributable to equity shareholders of the parent - - - 3.4 8.8 12.2
Transactions with owners recorded directly in equity:
- Credit in respect of employee service costs settled by award of share options - - - - 1.4 1.4
- Tax credit in respect of share options - - - - 2.2 2.2
- Proceeds from shares issued - 0.4 - - - 0.4
- Dividends paid - - - - (5.6) (5.6)
Total transactions with owners recorded directly in equity: - 0.4 - - (2.0) (1.6)
Balance at 31 March 2013 2.8 60.6 0.1 4.0 70.2 137.7
*See Note 8 for details of restatement of comparative information.
Consolidated Statement of Cash Flows year ended 31 March 2014
2014£m 2013 (Restated)*£m
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