REG - Oxford Instruments - Final Results <Origin Href="QuoteRef">OXIG.L</Origin> - Part 2
16/07/2015 10:02
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- - - - (10.8) (10.8)
- Tax on items recognised directly in other comprehensive income - - - - 2.3 2.3
Total comprehensive income/(expense) attributable to equity Shareholders of the parent - - 0.1 7.3 (14.8) (7.4)
Transactions with owners recorded directly in equity:
- Charge/(credit) in respect of employee service costs settled by award of share options - - - - (0.2) (0.2)
- Tax charge in respect of share options - - - - (0.2) (0.2)
- Proceeds from shares issued - 0.2 - - - 0.2
- Dividends paid - - - - (7.1) (7.1)
Total transactions with owners recorded directly in equity - 0.2 - - (7.5) (7.3)
Balance at 31 March 2015 2.9 61.5 0.2 2.9 58.0 125.5
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 (2014: 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 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:
- Charge/(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
Consolidated Statement of Cash Flows
year ended 31 March 2015
2015£m 2014£m
(Loss)/Profit for the year (6.3) 18.2
Adjustments for:
Income tax expense (3.4) 5.8
Net financial expense 13.0 -
Acquisition related fair value adjustments to inventory 0.2 3.7
Acquisition related costs 2.2 7.8
Restructuring costs 9.9 -
Contingent consideration - further amount deemed payable 6.8 -
Contingent consideration deemed no longer payable (1.4) -
Settlement loss on US pension scheme - 0.1
Amortisation and impairment of acquired intangibles 21.7 14.7
Depreciation of property, plant and equipment 5.6 5.0
Amortisation and impairment of capitalised development costs 4.7 3.9
Adjusted earnings before interest, tax, depreciation and amortisation 53.0 59.2
Loss on disposal of property, plant and equipment 0.2 0.3
Cost of equity settled employee share schemes (0.2) 1.6
Acquisition related costs paid (1.9) (6.4)
Restructuring costs paid (1.2) -
Cash payments to the pension scheme more than the charge to operating profit (5.9) (5.4)
Operating cash flows before movements in working capital 44.0 49.3
Increase in inventories (3.0) (2.9)
Increase in receivables (4.4) (3.8)
Decrease/(increase) in payables and provisions 0.5 (3.3)
Increase/(decrease) in customer deposits 1.8 (10.9)
Cash generated from operations 38.9 28.4
Interest paid (5.0) (1.0)
Income taxes paid (9.1) (6.2)
Net cash from operating activities 24.8 21.2
Cash flows from investing activities
Acquisition of subsidiaries, net of cash acquired (0.8) (165.7)
Acquisition of property, plant and equipment (4.4) (6.8)
Acquisition of intangible assets (1.0) -
Capitalised development expenditure (8.0) (5.4)
Net cash used in investing activities (14.2) (177.9)
Cash flows from financing activities
Proceeds from issue of share capital 0.2 0.8
(Decrease)/increase in borrowings (12.9) 156.9
Dividends paid (7.1) (6.4)
Net cash from financing activities (19.8) 151.3
Net decrease in cash and cash equivalents (9.2) (5.4)
Cash and cash equivalents at beginning of the year 32.6 39.2
Effect of exchange rate fluctuations on cash held 1.7 (1.2)
Cash and cash equivalents at end of the year 25.1 32.6
Reconciliation of changes in cash and cash equivalents to movement in net debt
Decrease in cash and cash equivalents (9.2) (5.4)
Effect of foreign exchange rate changes on cash and cash equivalents 1.7 (1.2)
(7.5) (6.6)
Cash outflow/(inflow) from decrease/increase in debt 12.9 (156.9)
Movement in net cash in the year 5.4 (163.5)
Net (debt)/cash at start of the year (124.3) 39.2
Net debt at the end of the year (118.9) (124.3)
Notes to the Financial Statements
year ended 31 March 2015
1 NON-GAAP MEASURES
The Directors present the following non-GAAP measures as they consider that
they give a better indication of the underlying performance of the business.
Reconciliation between profit before income tax and adjusted profit
2015£m 2014£m
(Loss)/Profit before income tax (9.7) 24.0
Reversal of acquisition related fair value adjustments to inventory 0.2 3.7
Acquisition related costs 2.2 7.8
Restructuring costs 9.9 -
Amortisation and impairment of acquired intangibles 21.7 14.7
Contingent consideration further amount deemed payable 6.8 -
Contingent consideration deemed no longer payable (1.4) -
Unwind of discount in respect of deferred consideration 1.1 0.9
Mark to market (gain)/loss in respect of derivative financial instruments 4.8 (4.1)
Settlement loss on US pension scheme - 0.1
Adjusted profit before income tax 35.6 47.1
Share of taxation (8.1) (8.7)
Adjusted profit for the year 27.5 38.4
The reversal of acquisition related fair value adjustments to inventory are
excluded from adjusted profit to provide a measure that includes results from
acquired businesses on a consistent basis over time to assist comparison of
performance.
Acquisition related costs comprise professional fees incurred in relation to
mergers and acquisitions activity, post acquisition restructuring costs and
any consideration which, under IFRS 3 (revised), falls to be treated as a post
acquisition employment expense.
In common with a number of other companies adjusted profit excludes the
non-cash amortisation and impairment of acquired intangible assets and
goodwill and the unwind of discounts in respect of contingent consideration
relating to business combinations.
In the current period, a further £6.8m has been provided in respect of
additional contingent consideration expected to be due in respect of the
acquisition of Platinum Medical Imaging in November 2011.
In the current period, £1.4m relating to contingent consideration on the
acquisition of RMG Technology Limited which the directors no longer consider
will be payable, has been released to other operating income.
Restructuring costs comprise the one off costs in respect of the cost
reduction programme referred to in the Review of the Year and the refocusing
of the Plasma Technology business as also described in the Review of the
Year.
During the prior year the Group purchased annuities for 27 members of the US
defined benefit pension scheme. A settlement loss of £0.1m crystallised on
purchase.
Under IAS 39, 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 IAS 39 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.
In calculating the share of tax attributable to adjusted profit before tax in
2011 a one-off recognition of deferred tax assets relating to the Group's UK
businesses of £11.3m was excluded. At that time the Group announced its
intention to exclude the reversal of this deferred tax from the calculation of
the share of tax attributable to adjusted profit before tax in the years in
which it reverses. In the current period tax losses arose in the UK and
consequently no deferred tax reversed. In the prior period £2.2m reversed and
was excluded from the tax attributable to adjusted profit before tax.
2 EARNINGS PER SHARE
The calculation of basic and adjusted earnings per share is based on the
profit for the year as shown in the Consolidated Statement of Income and the
adjusted profit for the year as shown in Note 1 respectively. Basic and
adjusted earnings are divided by the weighted average number of ordinary
shares outstanding during the year, excluding shares held by the Employee
Share Ownership Trust.
2015£m 2014£m
Basic earnings (6.3) 18.2
Adjusted earnings (Note 1 ) 27.5 38.4
Weighted average number of shares 57.1 56.8
pence pence
Basic earnings per share (11.1) 32.1
Adjusted earnings per share 48.2 67.7
The weighted average number of shares used in the calculation excludes shares
held by the Employee Share Ownership Trust, as follows:
2015Sharesmillion 2014Sharesmillion
Weighted average number of shares outstanding 57.3 57.0
Less shares held by Employee Share Ownership Trust (0.2) (0.2)
Weighted average number of shares used in calculation of basic earnings per share 57.1 56.8
The following table shows the effect of share options on the calculation of
diluted earnings per share:
2015Sharesmillion 2014Sharesmillion
Weighted average number of ordinary shares per basic earnings per share calculations 57.1 56.8
Effect of shares under option 0.2 0.4
Weighted average number of ordinary shares per diluted earnings per share calculations 57.3 57.2
In the current year the Group showed a reported loss, and as such reported
basic earnings per share reported earnings per share was equal to reported
diluted earnings per share. This is because the shares under option above
would have an anti-dilutive effect. Adjusted diluted earnings per share has
been calculated in a manner consistent with previous periods.
3 SEGMENT INFORMATION
The Group has nine operating segments. These operating segments have been
combined into three aggregated operating segments to the extent that they have
similar economic characteristics, with relevance to products and services,
type and class of customer, methods of sale and distribution and the
regulatory environment in which they operate. Each of these three aggregated
operating segments is a reportable segment.
The Group's internal management structure and financial reporting systems
differentiate the three aggregated operating segments on the basis of the
economic characteristics discussed below:
· the Nanotechnology Tools segment contains a group of businesses,
supplying similar products, characterised by a high degree of customisation
and high unit prices. These are the Group's highest technology products
serving research customers in both the public and private sectors;
· the Industrial Products segment contains a group of businesses
supplying high technology products and components manufactured in medium
volume for industrial customers; and
· the Service segment contains the Group's service business as well as
service revenues from other parts of the Group.
Reportable segment results include items directly attributable to a segment as
well as those which can be allocated on a reasonable basis. Inter-segment
pricing is determined on an arm's length basis. The operating results of each
are regularly reviewed by the Chief Operating Decision Maker, which is deemed
to be the Board of Directors. Discrete financial information is available for
each segment and used by the Board of Directors for decisions on resource
allocation and to assess performance. No asset information is presented below
as this information is not presented in reporting to the Group's Board of
Directors.
3 SEGMENT INFORMATION (CONTINUED)
a) Analysis by business
Year to 31 March 2015 NanotechnologyTools£m IndustrialProducts£m Service£m Total£m
External revenue 210.9 106.0 68.6 385.5
Inter-segment revenue 0.3 1.1 -
Total segment revenue 211.2 107.1 68.6
Segment adjusted operating profit 20.7 6.3 15.7 42.7
Year to 31 March 2014 NanotechnologyTools£m IndustrialProducts£m Service£m Total£m
External revenue 180.5 113.3 66.3 360.1
Inter-segment revenue 0.1 1.4 0.1
Total segment revenue 180.6 114.7 66.4
Segment adjusted operating profit 21.2 15.6 13.5 50.3
Reconciliation of reportable segment profit
2015£m 2014£m
Adjusted profit for reportable segments 42.7 50.3
Acquisition related costs (2.2) (7.8)
Restructuring costs (9.9) -
Settlement loss on US pension scheme - (0.1)
Reversal of acquisition related fair value adjustments to inventory (0.2) (3.7)
Contingent consideration - further amount deemed payable (6.8) -
Contingent consideration deemed no longer payable 1.4 -
Amortisation and impairment of acquired intangibles (21.7) (14.7)
Financial income 0.1 4.4
Financial expenditure (13.1) (4.4)
(Loss)/Profit before income tax (9.7) 24.0
4 RESEARCH AND DEVELOPMENT
The total R&D spend by the Group is as follows:
2015 2014
NanotechnologyTools£m IndustrialProducts£m Total£m NanotechnologyTools£m IndustrialProducts£m Total£m
R&D expense charged to the Consolidated Statement of Income 22.5 8.3 30.8 17.6 7.5 25.1
Less: depreciation of R&D related fixed assets (0.2) (0.7) (0.9) (0.2) (0.6) (0.8)
Add: amounts capitalised as fixed assets 0.9 1.1 2.0 0.6 1.5 2.1
Less: amortisation of R&D costs previously capitalised as intangibles (3.2) (1.5) (4.7) (3.0) (0.9) (3.9)
Add: amounts capitalised as intangible assets 6.1 1.9 8.0 3.8 1.6 5.4
Total cash spent on R&D during the year 26.1 9.1 35.2 18.8 9.1 27.9
An additional £0.7m impairment of capitalised development is included within
administration and shared services in the Consolidated Statement of Income
relating to the refocusing of the Plasma Technology business.
5 ACQUISITIONS
Andor Technology plc
On 21 January 2014 the Group acquired 100% of the issued listed share capital
of Andor Technology plc for a net cash consideration of £158.1m. Andor is a
market leading supplier of high performance optical cameras, microscope
systems and software.
The book and fair values of the assets and liabilities acquired are given in
the table below. 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. The
business has been acquired for the purpose of integrating into the
Nanotechnology Tools segment where it is believed that synergies can be
obtained particularly in respect of routes to market.
Book value£m Adjustments£m Fair value£m
Intangible fixed assets 9.4 70.2 79.6
Tangible fixed assets 6.0 (4.0) 2.0
Inventories 11.1 2.5 13.6
Trade and other receivables 10.3 0.5 10.8
Trade and other payables (13.5) (2.0) (15.5)
Deferred tax (0.5) (14.2) (14.7)
Cash 17.2 - 17.2
Net assets acquired 40.0 53.0 93.0
Goodwill 82.3
Total consideration 175.3
Cash acquired (17.2)
Net cash outflow relating to the acquisition 158.1
During the year ended 31 March 2015, as a result of access to further
information, management made some amendments to the provisional value
adjustments presented in the prior year. As this was within the hindsight
period, as allowed by IFRS 3, the difference has been included within
goodwill. As the difference is not material, the prior year balance sheet has
not been restated.
The goodwill arising is not tax deductible and is considered to represent the
value of the acquired workforce and synergistic benefits expected to arise
from the acquisition.
RoentgenAnalytik Systeme GmbH
On 31 December 2013 the Group acquired 100% of the issued share capital of
Roentgenanalytik Systeme GmbH for a net cash consideration of £1.6m.The
company specialises in designing and supplying instruments for coating
thickness measurement and material analysis, using X-ray fluorescence (XRF).
The book and fair values of the assets and liabilities acquired are given in
the table below. 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. The
business has been acquired to strengthen Oxford Instruments' range of X-ray
Fluorescence (XRF) materials and coating thickness analysers.
Book value£m Adjustments£m Fair value£m
Intangible fixed assets - 1.2 1.2
Inventories 0.2 - 0.2
Trade and other receivables 0.1 - 0.1
Trade and other payables (0.3) 0.2 (0.1)
Cash 0.1 - 0.1
Net assets acquired 0.1 1.4 1.5
Goodwill 0.2
Total consideration 1.7
Cash acquired (0.1)
Net cash outflow relating to the acquisition 1.6
The goodwill arising is tax deductible in full and is considered to represent
the value of the acquired workforce and synergistic benefits expected to arise
from the acquisition.
5 ACQUISITIONS (CONTINUED)
RMG Technology Ltd
On 8 November 2013 the Group acquired 100% of the issued share capital of RMG
Technology Limited for an initial net cash consideration of £5.7m. RMG is a UK
business specialising in Laser Induced Breakdown Spectrography.
The book and fair values of the assets and liabilities acquired are given in
the table below. Fair value adjustments have been made to better align the
accounting policies of the acquired business with the Group accounting
policies. The business has been acquired for the purpose of integrating into
the Industrial Analysis segment where it will add a unique hand-held analyser
to the Group's product portfolio.
Book value£m Adjustments£m Fair value£m
Intangible fixed assets - 8.2 8.2
Inventories 0.1 - 0.1
Trade and other receivables 0.2 - 0.2
Trade and other payables (0.3) - (0.3)
Deferred tax - (1.6) (1.6)
Cash 0.4 - 0.4
Net assets acquired 0.4 6.6 7.0
Goodwill 0.5
Total consideration 7.5
Cash acquired (0.4)
Contingent consideration at acquisition (1.4)
Net cash outflow relating to the acquisition 5.7
In the current period, it is no longer considered that the £1.4m relating to
contingent consideration on the acquisition of RMG Technology Limited will be
payable, and it has been released to other operating income (see Note 1).
The goodwill arising is not tax deductible and is considered to represent the
value of the acquired workforce and synergistic benefits expected to arise
from the acquisition.
6 INCOME TAX EXPENSE
Recognised in the Consolidated Statement of Income
2015£m 2014£m
Current tax expense
Current year 6.5 6.5
Adjustment in respect of prior years (0.3) (0.1)
6.2 6.4
Deferred tax expense
Origination and reversal of temporary differences (9.0) 0.2
Recognition of deferred tax not previously recognised - -
Adjustment in respect of prior years (0.6) (0.8)
(9.6) (0.6)
Total tax expense (3.4) 5.8
Reconciliation of effective tax rate
Loss before income tax (9.7) 24.0
Income tax using the UK corporation tax rate of 21% (2014: 23%) (2.0) 5.5
Effect of:
Tax rates other than the UK standard rate 1.2 1.7
Change in rate at which deferred tax recognised - (0.2)
Non-taxable income and expenses (1.5) (0.1)
Tax incentives not recognised in the Consolidated Statement of Income - (0.4)
Recognition of deferred tax not previously recognised - -
Movement in unrecognised deferred tax (0.2) 0.2
Adjustment in respect of prior years (0.9) (0.9)
Total tax expense (3.4) 5.8
Taxation charge/(credit) recognised in other comprehensive income
Deferred tax - relating to employee benefits (2.3) 1.0
(2.3) 1.0
Taxation charge/(credit) recognised directly in equity
Deferred tax - relating to share options 0.2 0.4
On 20 March 2013 the Chancellor announced that the UK corporation tax rate
will reduce to 20% by 1 April 2015.
Reductions in the UK corporation tax rate from 26% to 24% (effective from 1
April 2012) and to 23% (effective 1 April 2013) were substantively enacted on
26 March 2012 and 3 July 2012 respectively. Further reductions to 21%
(effective from 1 April 2014) and 20% (effective from 1 April 2015) were
substantively enacted on 2 July 2013. The UK deferred tax balances at 31 March
2015 have been calculated based on the rate of 20% which was substantively
enacted at the balance sheet date.
7 DIVIDENDS PER SHARE
The following dividends per share were paid by the Group:
2015pence 2014pence
Previous year interim dividend 3.36 3.05
Previous year final dividend 9.04 8.15
12.40 11.20
The following dividends per share were proposed by the Group in respect of
each accounting year presented:
2015pence 2014pence
Interim dividend 3.70 3.36
Final dividend 9.30 9.04
13.00 12.40
The interim dividend was not provided for at the year end and was paid on 9
April 2015. The payment of the interim dividend remains discretionary until it
is paid. The final proposed dividend of 9.3p per share (2014: 9.04p) was not
provided at the year end and will be paid on 22 October 2015 subject to
authorisation by the Shareholders at the forthcoming Annual General Meeting.
8 BASIS OF PREPARATION
This preliminary announcement does not constitute the company's statutory
accounts for the years ended 31 March 2015 or 2014. Statutory accounts for
2014 have been delivered to the registrar of companies, and those for 2015
will be delivered in due course. The auditor has reported on those accounts;
their reports were (i) unqualified, (ii) did not include a reference to any
matters to which the auditor drew attention by way of emphasis without
qualifying their report and (iii) did not contain a statement under section
498 (2) or (3) of the Companies Act 2006.
The financial information presented in this preliminary announcement for the
year ended 31 March 2015 is based on, and is consistent with, that in the
Group's audited Financial Statements for the year ended 31 March 2015. No
revisions to adopted IFRS that became applicable in 2015 had a significant
impact on the Group's Financial Statements for the year ended 31 March 2015.
The Company is registered in England Number 775598.
The principal exchange rates to Sterling used were:
Year end rates 2015 2014
US Dollar 1.48 1.67
Euro 1.38 1.21
Yen 178 172
Average translation rates 2015 US Dollar Euro Yen
April 2014 1.68 1.21 172
May 1.68 1.22 172
June 1.69 1.24 172
July 1.69 1.25 173
August 1.67 1.26 173
September 1.64 1.27 175
October 1.61 1.28 179
November 1.58 1.27 183
December 1.56 1.27 186
January 2015 1.53 1.31 182
February 1.52 1.35 181
March 1.51 1.38 181
Average translation rates 2014 US Dollar Euro Yen
April 2013 1.53 1.19 147
May 1.53 1.18 152
June 1.52 1.17 152
July 1.53 1.16 151
August 1.54 1.17 151
September 1.58 1.18 155
October 1.62 1.18 158
November 1.63 1.19 163
December 1.65 1.20 171
January 2014 1.65 1.21 171
February 1.66 1.22 169
March 1.67 1.21 171
9 THE ANNUAL GENERAL MEETING
The Annual General Meeting will be held on Tuesday, 8 September 2015 at 2.30
pm at Group Head Office, Tubney Woods, Abingdon, Oxfordshire, OX13 5QX.
PRINCIPAL RISKS
Specific Risk Context Risk Possible Impact Associated strategic priorities Mitigation
Technical Risk The Group provides high technology equipment and systems to its customers. Failure of the advanced technologies applied by the Group to produce commercial products, capable of being manufactured and sold profitably. Lower profitability and financial returns.Negative impact on the Group's reputation. 'Realising the Brand' - Using 'Voice of the Customer' to drive rapid new product development. 'Liberate Cash' - Support and develop our employees to maximise their value add. The Group has moved away from large scale, single customer development programmes
towards more commercially orientated products. The New Product Introduction programme
that any new R&D projects must pass through provides a framework within which the
commercial viability of projects are scrutinised and assessed.
Economic Environment Government spend on R&D has been constrained. Demand for the Group's products may be lower than anticipated. Lower profitability and financial returns. 'Realising the Brand' - Developing a strong brand in existing and developing markets. 'Delivering Shareholder Value' - Focus on balanced and attractive global markets. The Group has a broad spread of customers, applications and geographical markets.
Acquisitions Part of the growth of Oxford Instruments is planned to come from acquisitions which provide the Group with complementary technologies. Appropriate acquisition targets may fail to provide the planned value. Lower profitability and financial returns.Management focus taken away from the core business in order to manage integration issues. 'Realising the Brand' - Developing a strong brand in existing and developing markets. 'Inventing the Future' - Using "Voice of the Customer" to drive rapid new product development. 'Adding Personal Value' - Supporting and developing our employees. Extensive financial and technical due diligence is undertaken by the Group during any
acquisition programmes. Each transaction has a comprehensive post acquisition
integration plan which is reviewed at the highest level.
Foreign exchange volatility A significant proportion of the Group's profit is made in foreign currencies. Most costs are in Sterling. The Group's profit levels are exposed to fluctuations in exchange rates. Lower profitability and financial returns 'Delivering Shareholder Value' - Focus on balanced and attractive global markets. 'Liberating Cash' -Developing a competitive global supply base that supports our growth. The Group seeks to mitigate the exposure to transactional risk by the use of natural
hedges wherever possible. The remaining transactional foreign exchange risk in any
year is mitigated through the use of forward and non-premium based option exchange
contracts.
Outsourcing The Group's strategic plan includes the outsourcing of a significantly higher proportion of the costs of its products to benefit from economies of scale and natural currency hedges. Failures in the supply chain impacting sales. Disruption to customers.Negative impact on the Group's reputation. 'Liberating Cash' - Developing a competitive global supply base that supports our growth. 'Realising the Brand' - Developing a strong brand in existing and developing markets. Relationships with outsourcing businesses are monitored closely and any potential
issues are acted upon swiftly to avoid disruption. Where practical dual sources are
used for key components and services.
Pensions The Group's calculated pension deficit is sensitive to changes in the actuarial assumptions. Movements in the actuarial assumptions may have an appreciable effect on the reported pension deficit. Additional cash required by the Group to fund the deficit.Reduction in net assets. 'Delivering Shareholder Value' - Focus on balanced and attractive global markets. 'Liberating Cash' - Developing a competitive global supply base that supports our growth. The Group has closed its defined benefit pension schemes in the UK and US to future
accrual. The Group has a funding plan in place to reduce the pension deficit over
the short to medium term.
People A number of the Group's employees are business critical. The employee leaves the Group. Lower profitability and financial returns. 'Adding Personal Value' - Supporting and developing our employees. 'Inventing the Future' - Providing an environment for inventing and innovation. The Group undertakes a regular employee survey and implements and reviews resulting
action plans. A comprehensive succession planning process is in place, together with
a talent network which identifies and manages contacts with people who could provide
external succession for critical current and future roles. A management development
programme provides exposure to key skills needed for growth. Regular individual
performance reviews take place.
Routes to market In some instances the Group's products are components of higher level systems and thus the Group does not control its route to market. The systems integrator switches supplier denying the Group's route to market. Lower
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