REG - Oxford Instruments - Half-year Report <Origin Href="QuoteRef">OXIG.L</Origin> - Part 3
15/11/2016 07:06
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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;
- 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 £14.9 million. The value of
the shareholding acquired in Scienta was considered to be £14.6 million and as
a result a £0.3 million loss on disposal arose on the transaction. In
addition, a further £0.6 million has been provided in respect of certain
liabilities arising from the transaction.
The Group's share of loss in its equity accounted associate for the period was
£0.5 million (half year to September 2015: £0.2 million; full year to March
2016: £1.5 million).
7 DISPOSAL OF SUBSIDIARY AND DISCONTINUED OPERATIONS - prior period
On 23 November 2015 the Group disposed of its Austin Scientific business for a
final consideration of £0.6 million.
Effect of disposal on the financial position of the Group 2016
£m
Other intangible assets (1.7)
Property, plant and equipment (0.2)
Inventory (1.4)
Trade and other receivables (0.5)
Trade and other payables 0.3
Net assets divested (3.5)
Consideration received, satisfied in cash 0.6
Cash disposed of -
Transaction expenses (0.1)
Net cash inflow 0.5
Carrying value of net assets disposed of (3.5)
Impairment of net assets to fair value less costs to sell 2.8
Currency translation differences transferred from translation reserve 0.7
Gain on disposal before impairment 0.5
Less impairment loss (2.8)
Loss on disposal (2.3)
Tax on loss on disposal 0.4
Loss on disposal net of tax (1.9)
Discontinued operations
At 30 September 2016 the Group's Austin Scientific business was classified as
a discontinued operation. It was considered a major class of business on the
basis that it was previously an operating segment referred to in the Group
Strategic Report.
Half year to Half year to Year to
30 Sept 30 Sept 31 March
Results of discontinued operations 2016 2015 2016
£m £m £m
Revenue - 1.7 2.3
Expenses - (2.1) (2.8)
Loss from operating activities before tax - (0.4) (0.5)
Tax - 0.1 0.2
Loss from operating activities after tax - (0.3) (0.3)
Loss on disposal (2.3)
Tax on loss on disposal 0.4
Loss from discontinued operations after tax (2.2)
Basic loss per share (pence) - (0.5) (3.9)
Diluted loss per share (pence) - (0.5) (3.8)
Half year to Half year to Year to
30 Sept 30 Sept 31 March
Cash flows from discontinued operations 2016 2015 2016
£m £m £m
Net cash used in operating activities - (0.4) (0.9)
Net cash from investing activities - - -
Net cash from financing activities - - -
Net cash flows - (0.4) (0.9)
8 TAXATION
The total effective tax rate on profits for the half year is 40% (2015: 35%).
The weighted average tax rate in respect of adjusted profit before tax (see
note 2) for the half year is 22% (2015: 24%).
9 earnings per share
a) Basic
The calculation of basic earnings per share is based on the profit or loss for
the period after taxation and a weighted average number of ordinary shares
outstanding during the period, excluding shares held by the Employee Share
Ownership Trust, as follows:
Half year to Half year to Year to
30 Sept 30 Sept 31 March
2016 2015 2016
Shares Shares Shares
million million million
Weighted average number of shares outstanding 57.3 57.3 57.3
Less: weighted average number of shares held by Employee Share Ownership Trust (0.2) (0.2) (0.2)
Weighted average number of shares used in calculation of earnings per share 57.1 57.1 57.1
b) Diluted
The following table shows the effect of share options on the calculation of
both adjusted and unadjusted diluted basic earnings per share.
Half year to Half year to Year to
30 Sept 30 Sept 31 March
2016 2015 2016
Shares Shares Shares
million million million
Number of ordinary shares per basic earnings per share calculations 57.1 57.1 57.1
Effect of shares under option 0.1 0.2 0.1
Number of ordinary shares per diluted earnings per share calculations 57.2 57.3 57.2
10 dividends per share
The following dividends per share were paid by the Group:
Half year to Half year to Year to
30 Sept 30 Sept 31 March
2016 2015 2016
pence pence pence
Previous period interim dividend 3.70 3.70 3.70
Previous period final dividend - - 9.30
3.70 3.70 13.00
The following dividends per share were proposed by the Group in respect of
each accounting period presented:
Half year to Half year to Year to
30 Sept 30 Sept 31 March
2016 2015 2016
pence pence pence
Interim dividend 3.70 3.70 3.70
Final dividend - - 9.30
3.70 3.70 13.00
The final dividend for the year to 31 March 2016 was approved by shareholders
at the Annual General Meeting held on 13 September 2016. Accordingly it is no
longer at the discretion of the company and has been included as a liability
as at 30 September 2016. It was paid on 20 October 2016.
The interim dividend for the year to 31 March 2017 of 3.7 pence was approved
by the Board on 15 November 2016, the same value as the previous year and has
not been included as a liability as at 30 September 2016. The interim dividend
will be paid on 7 April 2017 to shareholders on the register at the close of
business on 10 March 2017.
11 FAIR value of financial instruments
The fair values of financial assets and liabilities together with the carrying
amounts shown in the Consolidated Statement of Financial Position are as
follows:
Fairvaluehierarchy Carryingamount30 Sept 2016£m Fairvalue 30 Sept2016£m Carryingamount30 Sept2015£m Fairvalue30 Sept2015£m Carryingamount31 March 2016£m Fairvalue31 March2016£m
Assets carried at amortised cost
Trade receivables 69.2 69.2 58.4 58.4 67.2 67.2
Other receivables 6.4 6.4 5.7 5.7 6.0 6.0
Cash and cash equivalents 20.9 20.9 15.3 15.3 21.8 21.8
Assets carried at fair value
Derivative financial instruments:
- Copper hedging contracts (designated as an IAS 39 hedge) 2 - - 0.2 0.2 - -
- Foreign currency contracts 2 - - 2.1 2.1 1.5 1.5
- - 2.3 2.3 1.5 1.5
Liabilities carried at fair value
Derivative financial instruments:
- Foreign currency contracts 2 (10.9) (10.9) (2.0) (2.0) (5.8) (5.8)
- Copper hedging contracts (designated as an IAS 39 hedge) 2 - - - - (0.1) (0.1)
Contingent consideration 3 - - (19.1) (19.1) (6.6) (6.6)
(10.9) (10.9) (21.1) (21.1) (12.5) (12.5)
Liabilities carried at amortised cost
Trade and other payables (55.9) (55.9) (69.5) (69.5) (82.4) (82.4)
Bank overdraft (1.8) (1.8) - - (1.4) (1.4)
Borrowings (160.2) (160.2) (154.8) (154.8) (148.6) (148.6)
The following summarises the major methods and assumptions used in estimating
the fair values of financial instruments reflected in the above table.
Derivative financial instruments
Derivative financial instruments are marked-to-market using market prices.
Fixed and floating rate borrowings
The fair value of fixed and floating rate borrowings is estimated by
discounting the future contracted principal and interest cash flows using the
market rate of interest at the reporting date.
Trade and other receivables/payables
For receivables/payables with a remaining life of less than one year, the
carrying amount is deemed to reflect the fair value. All other
receivables/payables are discounted to determine their fair value. Advances
received are excluded from other payables above as these are not considered to
be financial liabilities.
Contingent consideration
The fair value of contingent consideration is estimated based on the forecast
future performance of the acquired business over a timeframe determined as
part of the acquisition agreement, discounted as appropriate. Key assumptions
include growth rates, expected selling volumes and prices and direct costs
during the period.
Fair value hierarchy
The table above gives details of the valuation method used in arriving at the
fair value of financial instruments. The different levels have been identified
as follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets and
liabilities;
Level 2: inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices); and
Level 3: inputs for the asset or liability that are not based on observable
market data.
There have been no transfers between levels during the year.
Contingent consideration relates to amounts payable in respect of
acquisitions. It is reassessed at the end of each year to its fair value.
Contingent consideration 30 Sep 2016£m 30 Sep 2015£m 31 March 2016£m
Balance brought forward at beginning of period 6.6 17.5 17.5
Fair value of contingent consideration on acquisitions in the year - 6.7 6.3
Unwind of discount in respect of contingent consideration - 0.7 0.6
Contingent consideration paid (6.5) (2.6) (13.3)
Increase in contingent consideration - 0.7 -
Contingent consideration released to the consolidated statement of income - (3.2) (4.9)
Effect of movement in foreign exchange (0.1) (0.7) 0.4
Balance carried forward at end of period - 19.1 6.6
12 RELATED PARTIES
All transactions with related parties are conducted on an arm's length basis
and in accordance with normal business terms. Transactions between related
parties that are Group subsidiaries are eliminated on consolidation.
During the period, the Group supplied services and materials to its associate,
Scienta Omicron Gmbh, on an arm's length basis. The following transactions
occurred during the period:
Half year to 30 September 2016 Revenue£m Receivables£m
Scienta Omicron GmbH 0.1 3.6
Half year to 30 September 2015 Revenue£m Receivables£m
Scienta Omicron GmbH 0.3 3.4
Included in receivables is a non-current loan receivable of £3.6 million
(2015: £3.1 million). The loan is repayable at the end of May 2020. During the
period the Group received interest charged on the loan of £0.1m (2015:
£0.1m).
Principal Risks and Uncertainties
The Group has in place a risk management structure and internal controls which
are designed to identify, manage and mitigate risk.
In common with all businesses, Oxford Instruments faces a number of risks and
uncertainties which could have a material impact on the Group's long term
performance.
On pages 22 to 24 of its 2016 Annual Report and Accounts (a copy of which is
available at www.oxford-instruments.com), the Company set out what the
Directors regarded as being the principal risks and uncertainties facing the
Group's long term performance and these are reproduced in the table below.
Many of these risks are inherent to Oxford Instruments as a global business
and they remain valid as regards their potential impact during the remainder
of the second half of the year.
The impact of the economic and end market environments in which the Group's
businesses operate are considered in the Half Year Statement of this Half Year
Report, together with an indication if management is aware of any likely
change in this situation.
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' 'Liberating Cash' 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' 'Delivering Shareholder Value' 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' 'Inventing the Future' 'Adding Personal Value' Extensive financial, technical and commercial due diligence is undertaken by the
Group during any acquisition programmes. Each transaction has a comprehensive post
acquisition integration plan which is monitored 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' 'Liberating Cash' 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 option exchange
contracts.
Political Risk The Group operates in global markets and can be required to secure export licences from government. Changes in political relations may affect the granting of licences. An inability to sell certain products to certain countries 'Delivering Shareholder Value' 'Liberating Cash' Maintain a diversified geographical customer base. Ensure low commitment to inventory
before attaining export licences
Customer Concentration The Group's Superconducting Wire business in reliant on a small number of MRI manufacturers as customers . These customers can exert significant customer power in terms of price and volume Lost sales, decreased margins 'Delivering Shareholder Value' 'Liberating Cash' Attempt to broaden customer base to include all OEMS Explore alternative applications
for superconducting wire
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' 'Realising the Brand' 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' 'Liberating Cash' 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' 'Inventing the Future' 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 profitability and financial returns. 'Inventing the Future' 'Realising the Brand' Use of the stage gate process and 'Voice of the Customer' to make sure that the
Group's products are the best in the market. Co-marketing with system integrators to
promote the merits of the Group's products to end customers. Seeking to increase the
number of integrators supplied by the Group .
Responsibility Statement of the Directors in respect of the Half Year
Financial Statements
We confirm that to the best of our knowledge:
• the condensed set of financial statements has been prepared in
accordance with IAS 34 Interim Financial Reporting as adopted by the EU;
• the interim management report includes a fair review of the information
required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an
indication of important events that have occurred during the first six months
of the financial year and their impact on the condensed set of financial
statements; and a description of the principal risks and uncertainties for the
remaining six months of the year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related
party transactions that have taken place in the first six months of the
current financial year and that have materially affected the financial
position or performance of the entity during that period; and any changes in
the related party transactions described in the last annual report that could
do so.
Ian Barkshire, Chief Executive Gavin Hill, Group Finance
Director
15 November 2016
Independent review report to Oxford Instruments plc
Introduction
We have been engaged by the company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
September 2016 which comprises the Condensed Consolidated Statement of Income,
the Condensed Consolidated Statement of Comprehensive Income, Condensed
Consolidated Statement of Financial Position, Condensed Consolidated Statement
of Changes in Equity, Condensed Consolidated Statement of Cash Flows and the
related explanatory notes.
We have read the other information contained in the half-yearly financial
report and considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set of
financial statements.
This report is made solely to the company in accordance with the terms of our
engagement to assist the company in meeting the requirements of the Disclosure
and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority
("the UK FCA"). Our review has been undertaken so that we might state to the
company those matters we are required to state to it in this report and for no
other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the company for our review work,
for this report, or for the conclusions we have reached.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been
approved by, the directors. The directors are responsible for preparing the
half-yearly financial report in accordance with the DTR of the UK FCA.
The annual financial statements of the group are prepared in accordance with
IFRSs as adopted by the EU. The condensed set of financial statements included
in this half-yearly financial report has been prepared in accordance with IAS
34 Interim Financial Reporting as adopted by the EU.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review.
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410 Review of Interim Financial Information
Performed by the Independent Auditor of the Entity issued by the Auditing
Practices Board for use in the UK. A review of interim financial information
consists of making enquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK and Ireland) and consequently
does not enable us to obtain assurance that we would become aware of all
significant matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 September 2016 is not prepared,
in all material respects, in accordance with IAS 34 as adopted by the EU and
the DTR of the UK FCA.
Greg Watts
for and on behalf of KPMG LLP
Chartered Accountants
One Snowhill, Snow Hill Queensway
Birmingham, B4 6GH
15 November 2016
This information is provided by RNS
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