REG - Oxford Instruments - Final Results <Origin Href="QuoteRef">OXIG.L</Origin> - Part 3
13/06/2017 07:05
- Part 3: For the preceding part double click ID:nRSM8713Hb
IndustrialProducts£m Total£m NanoTechnologyTools£m IndustrialProducts£m Total£m
R&D expense charged to the Consolidated Statement of Income 21.0 6.8 27.8 17.6 6.0 23.6
Less: depreciation of R&D related fixed assets (0.1) - (0.1) - (0.8) (0.8)
Add: amounts capitalised as fixed assets 0.1 0.1 0.2 0.1 1.1 1.2
Less: amortisation of R&D costs previously capitalised as intangibles (4.3) (1.2) (5.5) (2.8) (1.1) (3.9)
Add: amounts capitalised as intangible assets 5.3 2.6 7.9 5.8 2.4 8.2
Total cash spent on R&D during the year 22.0 8.3 30.3 20.7 7.6 28.3
In the prior year an additional £0.6m impairment of capitalised development
was included within administration and shared services in the Consolidated
Statement of Income relating to the refocusing of the Plasma Technology
business.
5 Acquisitions - prior period only
Medical Imaging Resources, Inc.
On 1 May 2015 the Group acquired 100% of the issued share capital of Medical
Imaging Resources, Inc. (MIR) for a net cash consideration of £8.7m. Further
consideration of up to £6.3m was payable based on the performance of the
Oxford Instruments Healthcare business in the year to 31 March 2016. MIR
specialises in the build, lease, service and sale of mobile medical imaging
labs.
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 was acquired for the purpose of integrating into the Oxford
Instruments Healthcare business where it was believed that a number of
synergies could be obtained.
Book value£m Adjustments£m Fair value£m
Intangible fixed assets - 5.7 5.7
Tangible fixed assets 3.8 0.5 4.3
Inventories 1.4 0.1 1.5
Trade and other receivables 0.9 - 0.9
Trade and other payables (1.7) - (1.7)
Deferred tax 0.2 (0.4) (0.2)
Net debt (2.6) - (2.6)
Net assets acquired 2.0 5.9 7.9
Goodwill 4.5
Total consideration 12.4
Net debt acquired 2.6
Contingent consideration at acquisition (6.3)
Net cash outflow relating to the acquisition 8.7
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. No deferred tax liability was recognised relating to the
fair value of acquired intangibles due to the company making a S338 election
in the United States of America to treat this acquisition as a trade and
assets purchase for tax purposes.
Contingent consideration of £6.5m was paid during May 2016 based on the
performance of the Oxford Instruments Healthcare business in the year to 31
March 2016. The difference of £0.2m between contingent consideration provided
at acquisition and that paid in May 2016 was due to foreign currency
movements.
The book value of receivables in the tables above represents the gross
contractual amounts receivable.
6 Investment in associate
During the period year the Group entered into a strategic alliance with GD
Intressenter AB of Sweden (GDI) to create the world's largest company in the
highly specialised Ultra High Vacuum Surface Science field. The alliance
comprised Oxford Instruments' Omicron Nanotechnology GmbH ("Omicron") and
associated subsidiaries and GDI's Scienta Scientific AB ("Scienta") and
associated subsidiaries. Scienta Scientific AB is registered and has its
principal place of business in Sweden.
In consideration for new shares in Scienta, Oxford Instruments transferred all
of its shares in the capital of Omicron to Scienta. Oxford Instruments holds a
47% interest in the ordinary share capital of Scienta and GDI holds 53%. The
investment has been accounted for as an associate taking into account the
following factors:
- The Group holds substantial, but minority, voting rights (47%). All
other rights are controlled by a single shareholder;
- The Group has a minority number of non-executive board seats (two of
five), with the remaining seats held by representatives of GDI; and
- Whilst the Group has certain veto rights in respect of key decisions,
it cannot unilaterally direct the activities of the Scienta Group.
The book value of the net assets disposed of was £14.9m. The value of the
shareholding acquired in Scienta was considered to be £14.6m and as a result a
£0.3m loss on disposal arose on the transaction in 2015/16.
During the current year the Group:-
· Settled various claims totalling £0.4m relating to the disposal of its
Omicron business in the prior year; and
· Recognised an impairment charge of £8.0m in respect of its investment
in Scienta.
The Group's share of loss in its equity accounted associate for the year was
£1.2m (2016: £1.5m). The Group did not receive any dividends from the
associate in either period.
2017£m 2016£m
Carrying value at 1 April 13.1 -
Addition - 14.6
Share of loss of associate (net of tax) (1.2) (1.5)
Impairment charge (8.0) -
Dividends received - -
Carrying value at 31 March 3.9 13.1
During the year the Group recognised an impairment charge of £8.0m relating to
its investment in ScientaOmicron due to the associate's financial performance
for the year ended 31 December 2016 and lower projected cash flows. This
resulted in a reassessment of ScientaOmicron's expected future business
performance and the actions and time required to improve profitability and
operational efficiency.
The £8.0m impairment has been reported in the results of the NanoTechnology
Tools segment. As at 31 March 2017, the estimate of the recoverable amount of
the Group's investment in ScientaOmicron, being its value in use, was
calculated as £3.9m. The pre-tax discount rate used to arrive at this estimate
was 15.5%.
Summary financial information for the equity accounted associate is as
follows:
2017 2016
£m £m
Non-current assets 3.5 3.2
Current assets 25.0 27.0
Total assets 28.5 30.2
Current liabilities (21.7) (21.4)
Non-current liabilities (3.6) (4.0)
Total liabilities (25.3) (25.4)
Net assets 3.2 4.8
Income 50.8 34.0
Expenses (53.3) (37.2)
Loss for the year (2.5) (3.2)
Group's share of net assets 1.5 2.3
Group's share of loss (1.2) (1.5)
According to the terms of the transaction, no dividend can be paid by the
associate until 27 May 2017. Following that date, any dividend paid must be
agreed by both Oxford Instruments plc and GD Intressenter AB, up to a maximum
of 50% of the previous year's profit after tax. At the date of signing these
financial statements no dividend has been declared or paid.
7 Disposal of subsidiary and discontinued operations
On 17 November 2016 the Group disposed of its Superconducting Wire business
for a final consideration of £14.0m. In the prior year, on 23 November 2015,
the Group disposed of its Austin Scientific business for a final consideration
of £0.6m.
Superconducting Wire Austin Scientific
Effect of disposal on the financial position of the Group 2017 2016
£m £m
Other intangible assets - (1.7)
Property, plant and equipment (3.1) (0.2)
Inventory (12.6) (1.4)
Trade and other receivables (6.5) (0.5)
Cash and cash equivalents (0.3) -
Trade and other payables 6.6 0.3
Provisions 0.1 -
Net assets divested (15.8) (3.5)
Consideration receivable 14.0 0.6
Deferred consideration (1.0) -
Consideration received, satisfied in cash 13.0 0.6
Cash disposed of (0.3) -
Transaction expenses (0.5) (0.1)
Net cash inflow 12.2 0.5
Carrying value of net assets disposed of (excluding cash and cash equivalents) (15.5) (3.5)
Deferred consideration 1.0 -
Impairment of net assets to fair value less costs to sell - 2.8
Recognition of provision on disposal (0.2) -
Currency translation differences transferred from translation reserve 5.7 0.7
Gain on disposal before impairment 3.2 0.5
Less impairment loss - (2.8)
Gain/(loss) on disposal 3.2 (2.3)
Tax credit on gain/loss on disposal 0.9 0.4
Gain/(loss) on disposal net of tax 4.1 (1.9)
Discontinued operations
In the year to 31 March 2017 the Group's Superconducting Wire business was
classified as a discontinued operation; and in the year to 31 March 2016 the
Group's Austin Scientific business was classified as a discontinued operation.
They were considered major classes of business on the basis that they were
previously operating segments and referred to in the Group Strategic Report.
Results of discontinued operations - Superconducting Wire 2017 2016
£m £m
Revenue 22.2 41.9
Expenses (20.9) (38.5)
Adjusted profit from operating activities before income tax 1.3 3.4
Income tax charge (0.4) (1.2)
Adjusted profit from operating activities after tax 0.9 2.2
Profit on disposal 3.2 -
Tax on profit on disposal 0.9 -
Profit from discontinued operations after tax 5.0 2.2
Results of discontinued operations - Austin Scientific 2017 2016
£m £m
Revenue - 2.3
Expenses (0.2) (2.8)
Adjusted loss from operating activities before income tax (0.2) (0.5)
Income tax credit - 0.2
Adjusted loss from operating activities after tax (0.2) (0.3)
Loss on disposal - (2.3)
Tax on loss on disposal - 0.4
Loss from discontinued operations after tax (0.2) (2.2)
Earnings per share from discontinued operations 2017pence 2016pence
Adjusted basic earnings per share 1.2 3.4
Adjusted diluted earnings per share 1.2 3.4
Total basic earnings per share 8.4 -
Total diluted earnings per share 8.4 -
Cash flows from discontinued operations 2017 2016
£m £m
Net cash generated from operating activities 1.4 5.2
Net cash used in investing activities - (0.3)
Net cash used in financing activities - -
Net cash flows 1.4 4.9
8 Income tax expense
Recognised in the Consolidated Statement of Income
2017£m 2016£m
Current tax expense
Current year 6.5 3.6
Adjustment in respect of prior years (2.2) (0.2)
4.3 3.4
Deferred tax expense
Origination and reversal of temporary differences (5.6) (1.3)
Adjustment in respect of prior years 0.9 0.6
(4.7) (0.7)
Total tax (credit)/expense (0.4) 2.7
Reconciliation of effective tax rate
(Loss)/profit before income tax (25.5) 9.7
Income tax using the weighted average statutory tax rate of 22% (2016: 20%) (5.6) 1.9
Effect of:
Tax rates other than the weighted average statutory rate (0.5) 1.7
Change in rate at which deferred tax recognised (0.2) (0.4)
Loss on disposal of held for sale assets - 0.3
Transaction costs, deferred consideration and impairments not deductable for tax 5.7 -
Non-taxable income and expenses 1.4 (0.4)
Tax incentives not recognised in the Consolidated Statement of Income (0.4) (0.8)
Recognition of deferred tax not previously recognised - (0.1)
Movement in unrecognised deferred tax 0.6 0.3
Adjustment in respect of prior years (1.4) 0.2
Total tax (credit)/expense (0.4) 2.7
Taxation charge recognised in other comprehensive income
Deferred tax - relating to employee benefits 0.9 2.6
0.9 2.6
Taxation charge/(credit) recognised directly in equity
Deferred tax - relating to share options - -
A reduction in the UK corporation tax rate from 21% to 20% (effective from 1
April 2015) was substantively enacted on 2 July 2013. Further reductions to
19% (effective from 1 April 2017) and to 18% (effective from 1 April 2020)
were substantively enacted on 26 October 2015, and an additional reduction to
17% (effective from 1 April 2020) was substantively enacted on 6 September
2016. This will reduce the company's future current tax charge accordingly.
The UK deferred tax liability at 31 March 2017 has been calculated based on
those rates. The Group carries tax provisions in relation to uncertain tax
provisions arising from the possible outcome of negotiations with tax
authorities. Such provisions are a reflection of the geographical spread of
the Group's operations and the variety of jurisdictions in which it carries
out its activities.
9 Dividends per share
The following dividends per share were paid by the Group:
2017pence 2016pence
Previous year interim dividend 3.7 3.7
Previous year final dividend 9.3 9.3
13.0 13.0
The following dividends per share were proposed by the Group in respect of
each accounting year presented:
2017pence 2016pence
Interim dividend 3.7 3.7
Final dividend 9.3 9.3
13.0 13.0
The interim dividend was not provided for at the year end and was paid on 7
April 2017. The final proposed dividend of 9.3 pence per share (2016: 9.3
pence) was not provided at the year end and will be paid on 19 October 2017
subject to authorisation by the Shareholders at the forthcoming Annual General
Meeting.
10 Basis of preparation
This preliminary announcement does not constitute the company's statutory
accounts for the years ended 31 March 2017 or 2016. Statutory accounts for
2016 have been delivered to the registrar of companies, and those for 2017
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 2017 is based on, and is consistent with, that in the
Group's audited Financial Statements for the year ended 31 March 2017. No
revisions to adopted IFRS that became applicable in 2017 had a significant
impact on the Group's Financial Statements for the year ended 31 March 2017.
The Company is registered in England, Registration Number 775598.
The principal exchange rates to Sterling used were:
Year end rates 2017 2016
US Dollar 1.25 1.44
Euro 1.17 1.26
Yen 139 162
Average translation rates 2017 US Dollar Euro Yen
April 2016 1.45 1.27 159
May 1.46 1.30 159
June 1.41 1.27 150
July 1.35 1.21 138
August 1.32 1.18 134
September 1.31 1.16 132
October 1.26 1.13 130
November 1.23 1.14 134
December 1.24 1.17 142
January 2017 1.25 1.17 144
February 1.25 1.18 142
March 1.25 1.18 140
Average translation rates 2016 US Dollar Euro Yen
April 2015 1.50 1.37 180
May 1.52 1.37 186
June 1.55 1.40 192
July 1.57 1.41 194
August 1.55 1.39 190
September 1.53 1.36 184
October 1.53 1.38 184
November 1.53 1.41 186
December 1.49 1.39 181
January 2016 1.45 1.33 175
February 1.40 1.29 165
March 1.41 1.27 160
11 The Annual General Meeting
The Annual General Meeting will be held on Tuesday, 12 September 2017 at
2.00pm at Group Head Office, Tubney Woods, Abingdon, Oxfordshire, OX13 5QX.
12 Principal Risks and Uncertainties
Specific Risk Context Risk Possible Impact Control Mechanisms Mitigation
1 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 returns through loss of market share & reduced profitability. Negative impact on the Group's reputation. Voice of the Customer' approach to drive the product development road map; Formal new product development stage gate process to manage R&D Product lifecycle management 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.
2 Routes to market In some instances the Group's products are components of higher level systems, sold by OEMs and thus the Group does not control its route to market. Backward vertical integration by OEMs Loss of a key route to market; new competitors; lower sales and profitability. Customer intimacy to match product performance to customer needs; Positioning of OI brand and marketing directly to end users Product differentiation to promote advantages of OI
equipment & solutions; Strategic marketing with OEMs to
sell performance of the combined system; Broadening the
OEM customer base; Direct marketing to end users
3 Economic environment Government expenditure may become constrained in key markets Reduction in global research funding Lower sales and profitability Market intimacy and identification of alternative markets Market diversification - increasing penetration into
corporate customers not dependent on external funding
4 Political risk The Group operates in global markets and can be required to secure export licences from governments. Geopolitical changes resulting in sanctions and bar on exports to specific countries or unfavourable changes in tariffs / other controls on exports Lower sales and profitability Contract review and protection against breach in the event that export licence is withheld Broad global customer base; contractual protection
5 Brexit related risks The UK will leave the EU Short-term decline in European research funding; Inflationary pressure on purchases and salaries; Possible changes to EU citizens' rights to work in UK impacting retention & recruitment. Lower sales and profitability Salary inflation; Increased input costs; Loss of key skills / increased recruitment / salary costs Market intimacy and identification of alternative markets Procurement strategy to reduce price volatility Product pricing strategy HR people strategy to facilitate recruitment & retention of staff with key skills Market diversification - increasing penetration into
corporate customers not dependent on external funding
Long term pricing agreements for key suppliers Margin
focused sales targets to mitigate potential increases in
costs Renewal of UK work permit scheme to facilitate
employment of non UK / EU nationals
6 Supply chain risk The Group's operates a strategic make or buy policy and outsources a significant proportion of the costs of production to benefit from economies of scale and natural currency hedges. Supply chain disruption in particular for single source componentsleading to production delays and potentially lost revenue. Disruption to customers. Lower sales and profitability Negative impact on the Group's reputation. Procurement strategy to manage stock availability Buffer stocks of key components; Where possible, dual
source supply is sought
7 People A number of the Group's employees have business critical skills. Key employees leave and effective replacements are not recruited on a timely basis Lower sales and profitability HR people strategy for retention & recruitment of staff with key skills Succession management plans;Technical career
paths;Renewal of UK work permit scheme to facilitate
employment of non UK / EU nationals
8 IT risk Elements of production, financial and other systems rely on IT availability Increasing risk of data loss / breach through cyber-attack, viruses or malware. "Zero-day" incidents, where new viruses or malware can spread before security vendors can respond represent a particularly high risk Loss of business critical data and / or financial loss IT security policy & associated standards and protection systems. Internal IT governance to maintain those protection systems and our incident response On-going evolution of security levels in consultation
with IT security partners to ensure changes are in-line
with current threats. Inter alia, we deliver user
education, improved configuration, internal testing and
new tools where appropriate.
9 Operational risk Business units' production are typically located at a single site Loss of all or part of a major production facility Delayed shipments leading to lower sales and profitability Business Continuity Plans in place Use of contractual protection to mitigate financial consequences of delayed delivery Principal sites have detailed BCPs which include plans
to restore or relocate production in the event of a
major incident. Mechanisms such as clauses for
limitation of liability / liability caps / exclusion of
consequential losses in sales contracts
10 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.
11 Foreign exchange volatility The Group's sterling cost basis is higher than its sterling revenue sources meaning that a significant proportion of the Group's profit is made in foreign currencies. Adverse foreign currency movements Reduced profitability Natural hedging to offset foreign currency sales through procurement in foreign currencies; Hedging programme Strategic procurement in USD, Euros & Yen. Short
-term exposure to volatility is managed by hedging
programme (forward contracts)
12 Legal / compliance risk The Group's operates in a complex technological environment and competitors may seek to protect their position through intellectual property rights Infringement of a third party's intellectual property Potential loss of future revenue; financial compensation
- More to follow, for following part double click ID:nRSM8713HdRecent news on Oxford Instruments
See all newsREG-Oxford Instruments Plc: Total Voting Rights
AnnouncementREG-Oxford Instruments Plc: Transaction in Own Shares
AnnouncementREG-Oxford Instruments Plc: Transaction in Own Shares
AnnouncementREG-Oxford Instruments Plc: Transaction in Own Shares
AnnouncementREG-Oxford Instruments Plc: Director Declaration
Announcement