REG - Oxford Instruments - Half-Year Results
14/11/2023 07:15
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RNS Number : 3008T Oxford Instruments PLC 14 November 2023
Oxford Instruments plc
Announcement of half-year results for the six months to 30 September 2023
Leading positions in structural growth markets drove revenue, profit and order
book increases
Oxford Instruments plc, a leading provider of high technology products and
systems for industry and research, today (14 November 2023) announces its
interim results for the six months to 30 September 2023.
Half year to Half year to % change constant
30 September 30 September
Adjusted(1) 2023 2022 reported currency(4)
Revenue £209.7m £200.5m +4.6% +7.5%
Adjusted operating profit £36.5m £36.8m (0.8%) +6.5%
Adjusted operating profit margin 17.4% 18.4% (100bps) (20bps)
Adjusted profit before taxation £37.5m £37.3m +0.5%
Adjusted basic earnings per share 49.4p 50.8p (2.8%)
Normalised cash conversion(2) 41% 65%
Net cash(3) £79.1m £97.1m
Half year to Half year to
30 September 30 September % change
Statutory 2023 2022 reported
Revenue £209.7m £200.5m +4.6%
Operating profit £28.6m £26.3m +8.7%
Operating profit margin 13.6% 13.1% +50bps
Profit before taxation £29.6m £26.6m +11.3%
Basic earnings per share 38.6p 35.9p +7.5%
Dividend per share for the year 4.9p 4.6p +6.5%
Financial highlights
· Revenue growth of 7.5% at constant currency driven by
particularly good growth in Research & Discovery.
· Constant currency growth in order book of 10% to £332m following
positive book-to-bill of 1.07.
· Orders slightly down (2.3%) at constant currency against strong
comparator period (2022: up 18.7%).
· Adjusted operating profit of £36.5m (2022: £36.8m), growth of
6.5% at constant currency.
· Constant currency adjusted operating profit margin of 18.2% was
broadly in line with last year (2022: 18.4%), reflecting a slightly increased
gross margin offset by investments in the period; reported margin at 17.4%
after currency headwind.
· Normalised cash conversion of 41% reflects an adjustment for
capital expenditure on capacity expansion and inventory build-up ahead of
transfer of operations to new facility and is expected to return to historic
rates in the second half.
· Growth in interim dividend of 6.5% to 4.9p.
Strategic and operational highlights
· Leading positions in key markets in Healthcare & Life
Science, Semiconductor (with a high proportion to compound semiconductor) and
Advanced Materials driving good book-to-bill and 7.5% constant currency
revenue growth.
· Strong revenue growth in Healthcare & Life Science (+22% at
constant currency) and Advanced Materials (+12%); our robust performance in
Semiconductor & Communications (+2%) demonstrates our resilience within
the cyclical semiconductor market.
· Revenue growth primarily driven by Europe and Asia. Strong
constant currency revenue growth of 18% in China, where we have begun to pivot
to a broader customer base, as demonstrated by order growth of 4% at constant
currency.
· Strong customer demand for our leading product portfolio which
supports Advanced Materials research and our latest optical microscopy systems
and imaging software for the Healthcare & Life Science market.
· Strong double-digit growth to academic customers across our
markets, offsetting slower phasing of orders from semiconductor and quantum
commercial customers.
· Investment in infrastructure to support future growth: new £75m
state-of-the-art facility for compound semiconductor systems in Bristol;
beginning £15m extension of production capacity in Belfast to meet growing
Life Science demand. Continued investment (£2m in H1) in operational and IT
capabilities to drive process and cost efficiencies.
Summary and outlook
Richard Tyson, Chief Executive Officer of Oxford Instruments plc, said:
"This is a very robust set of results for Oxford Instruments. Our focus on
specialist niches within structural growth markets has supported strong
revenue and adjusted operating profit growth at constant currency (7.5% and
6.5% respectively), and our positive book-to-bill of 1.07 and order book
growth of 10% demonstrates continued strong global demand for our leading
products and services.
"We enter the second half with a strong order book and a good pipeline,
remaining mindful of the current macroeconomic and political climate. Our
operational improvement programme is expected to support an increase in
production, underpinning our confidence in an improvement in second half
trading, with our normal seasonal second half weighting. Our expectations for
the full year trading performance are unchanged.
"Having joined Oxford Instruments six weeks ago, I have been busy getting to
know the business. I have already spent a considerable amount of time meeting
our people and customers, and immersing myself in the business. These early
meetings have reinforced my reasons for joining and the key strengths which
drive Oxford Instruments' leading position in the marketplace. These include
differentiated, innovative and value-add technologies, outstanding colleagues
with deep expertise, and leading positions in structural growth markets.
"Oxford Instruments has made progress over recent years in becoming more
commercial, with increased customer intimacy and end-market focus. This
remains an important strategic focus, with further opportunity to enhance the
Group's customer interface and new product development.
"I believe there is a substantial opportunity to pair this with enhanced
operational performance and effectiveness to deliver even better outcomes for
customers, together with margin expansion and attractive, sustainable growth.
Our strong financial position also supports the current elevated levels of
organic investment for future growth and our ability to selectively make
acquisitions to augment that growth.
"The Group is in a strong position with exciting prospects. We will continue
to build on Oxford Instruments' excellent reputation amongst the world's
leading companies and scientific research communities. I look forward to
working with the team to build on these strong foundations"
Notes
1. Adjusted items exclude the amortisation and impairment of acquired
intangible assets, acquisition items, other significant non‑recurring items,
and the mark-to-market movement of financial derivatives. A full definition of
adjusted numbers can be found in the finance review and Note 2.
2. Normalised cash conversion measures the percentage of adjusted cash
from operations to adjusted operating profit, as set out in the finance
review.
3. Net cash includes total borrowings, cash at bank and bank
overdrafts but excludes IFRS 16 lease liabilities.
4. Constant currency numbers are prepared on a month-by-month basis
using the translational and transactional exchange rates which prevailed in
the previous year rather than the actual exchange rates which prevailed in the
year. Transactional exchange rates include the effect of our hedging
programme.
The financial information in this preliminary announcement has been prepared
in accordance with UK adopted international accounting standards and IAS 34
interim financial reporting. The Group has applied all accounting standards
and interpretations issued relevant to its operations and effective for
accounting periods beginning on 1 April 2023. The IFRS accounting policies
have been applied consistently to all periods.
LEI: 213800J364EZD6UCE231
Oxford Instruments management will present its interim results in a webcast
available for on-demand viewing from 08.00 UK today (Tuesday 14 November 2023)
at www.oxinst.com/investors-content/financial-reports-and-presentations
(http://www.oxinst.com/investors-content/financial-reports-and-presentations)
.
Enquiries:
Oxford Instruments plc
Tel: 01865 393200
Richard Tyson, Chief Executive Officer; Gavin Hill, Chief Financial Officer
Julian Wais, Head of Investor Relations
Tel: 07720 999764
Julian.wais@oxinst.com (mailto:Julian.wais@oxinst.com)
MHP Group
Tel: 020 3128 8100
Tim Rowntree/Katie Hunt/Eleni Menikou/Veronica Farah
oxfordinstruments@mhpgroup.com (mailto:oxfordinstruments@mhpc.com)
Notes to Editors
About Oxford Instruments plc
Oxford Instruments designs, supplies and supports high-technology products
and systems which allow the world's leading companies and scientific research
communities to image, analyse and manipulate materials down to the atomic and
molecular level. The Group's products and services help its customers to
accelerate R&D, increase manufacturing productivity and make
ground-breaking discoveries across its key market segments: Semiconductor
& Communications, Advanced Materials, Healthcare & Life Science,
Energy & Environment and Quantum Technology.
Innovation is the driving force behind Oxford Instruments' growth and success,
supporting its core purpose to enable a greener, healthier, more connected
advanced society. Founded in 1959 as the first technology business to be spun
out from Oxford University, Oxford Instruments is now a global company
listed on the FTSE250 index of the London Stock Exchange (OXIG). Its
customer-centric, market-focused strategy creates competitive advantage
through understanding the technical and commercial challenges in markets with
long-term structural growth drivers.
For more information, visit www.oxinst.com
Chief Executive Officer's Review
As I write for the first time as Chief Executive Officer, having joined Oxford
Instruments at the start of October, I am pleased to report on the Group's
robust performance in the half year to 30 September 2023.
The company's strategic focus on structural growth markets, together with the
strength and differentiation of the product portfolio, has driven growth in
revenue and adjusted operating profit in a challenging macroeconomic landscape
and provides a strong platform for future growth. Demand is strong across each
of our end markets and geographies despite these macro headwinds, with revenue
growth across our three sectors, and a positive book-to-bill giving good
visibility to the year end and beyond.
The Group's adjusted operating margin has remained broadly flat on a constant
currency basis, despite our ongoing elevated levels of investment in people,
infrastructure and operations as we position the business to capitalise on
future demand for our products and services. There continues to be a range of
opportunities for organic investment in operating infrastructure and systems
that can deliver enhanced future performance for the Group, our customers, and
shareholders.
Value-added products for diversified markets underpinning resilience
Our leading positions in six structural growth end markets, combined with the
breadth of our offer, global footprint and reach into both academic and
commercial markets, provide Oxford Instruments with the ability to adapt and
grow through varying economic cycles within markets and geographies. Our
differentiated, value-adding products accelerate our customers' progress
across the technology development and production cycle from fundamental
research to commercial R&D and high-volume production, providing further
resilience to macroeconomic uncertainty.
These strengths are evident in the performance in the half, where Group
revenue growth at constant currency was driven by particularly strong
performances in Healthcare & Life Science (+22%), Advanced Materials
(+12%) and Research & Fundamental Science (+12%). Semiconductor &
Communications performance was robust (+2%), reflecting its resilient
positioning within the broader, more cyclical market. Energy & Environment
was slightly down (-4%) as was Quantum Technology (-8%), with the quantum
market typically subject to lumpiness due to the value of systems and phasing
of orders.
In the first half we achieved notable growth in revenue from academic
customers across all key segments, reflecting increased global investment in
our markets, as these are closely aligned with national scientific priorities.
This investment aims to drive progress in a range of areas from life sciences
to greener technologies and advanced materials, as well as enhanced
semiconductor capabilities. This has mitigated a lengthening of commercial
order cycles in some markets, particularly semiconductor, which has resulted
in first half orders slightly lower than last year. Overall, a positive
book-to-bill ratio in the first half resulted in a 10% increase in our order
book.
Robust financial performance
Group Half year to Reported growth Constant currency growth
vs half year to
30 September 2023
vs half year to
30 September 2022
30 September 2022
Orders £224.3m (4.7%) (2.3%)
Revenue £209.7m +4.6% +7.5%
Adjusted operating profit £36.5m (0.8%) +6.5%
Adjusted operating margin 17.4% (100bps) (20bps)
Reported revenue for the period was £209.7m (2022: £200.5m), representing
growth of 7.5% on a constant currency basis.
Strong revenue growth from academic customers resulted in a shift in the
relative proportion of sales between academic and commercial customers, with a
55%/45% split in favour of academic customers versus 49%/51% in the
comparative period in 2022.
On a constant currency basis growth was primarily driven by Research &
Discovery, up 17.7% to £66.6m (H1 2022: £58.1m). Materials &
Characterisation revenue grew by 3% to £109.3m (H1 2022: £108.7m). Service
& Healthcare revenue was up 4.2% to £33.8m (2022: £33.7m).
Asia, our largest geographic market, representing 48% of Group revenue, has
performed strongly, with 9% constant currency revenue growth. This is largely
due to 18% constant currency revenue growth in China, where we are entering
new and adjacent markets, and where the Chinese government is increasing
investment in green technologies, semiconductor and healthcare. We have begun
to pivot towards markets within China which are less impacted by UK export
licence restrictions, generating order growth and a healthy order book and
ongoing pipeline. Revenue growth in Europe and Asia more than offset a decline
in North American revenues due to delays in the conversion of pipeline
opportunities into orders.
Structurally growing and resilient end markets
Our resilience has been further borne out by our positive performance in the
Semiconductor & Communications market (27% of revenue), where constant
currency revenue is up 2% on last year, reflecting strong growth in compound
semiconductor applications (which represent more than 60% of our activity in
the semiconductor market) and commercial R&D. We are seeing strong revenue
growth across a range of advanced compound semiconductor applications,
including power semiconductors, augmented and virtual reality applications, as
well as strong academic sales into central facilities and R&D clean rooms
as universities invest in the latest technology to enable them to explore new
applications. Our strengths in the advanced compound semiconductor market more
than offset the widely noted softening in mainstream silicon semiconductor
production markets.
Our biggest growth areas in the half year have been in Healthcare & Life
Science (21% of revenue) and Advanced Materials (33% of revenue). In
Healthcare & Life Science we have delivered strong direct sales of our
microscopy portfolio (notably our new flagship benchtop microscope BC43, which
has made high quality, affordable imaging capabilities accessible to a range
of new audiences). We have also made significant sales of our key
technologies, including BC43, into original equipment manufacturing (OEM)
partners, and have seen continued demand for our Imaris imaging software,
which has now added a dedicated neuroscience edition. Revenue for Healthcare
& Life Science is up 22% at constant currency.
In Advanced Materials, growing numbers of customers are using our technology
to understand how materials perform in both academic and commercial settings.
The breadth of techniques we offer enables customers to characterise and
precisely measure the properties and behaviour of materials and devices.
Customers choose our products to accelerate their progress in optimising and
improving existing materials such as steel and aluminium, as well as to help
them develop the new advanced materials needed to deliver a sustainable
future. This has resulted in continuing strong demand for our imaging and
analytical products, and 12% revenue growth for this segment.
Energy and Environment (10% of revenue) provides a significant market
opportunity as our products have a key role to play in delivering a greener
future, from helping scientists understand the impacts of pollution to helping
manufacturers to design more efficient energy storage. Revenue for this sector
was behind a strong comparator period, but demand remains strong, with order
growth of 8.8% at constant currency.
In Quantum Technology (6% of revenue), we are playing an important role in
supporting the transition from fundamental research to the commercialisation
of quantum computing. Key developments in the half include the installation of
our equipment to support commercial quantum computers in datacentres in Japan
and the UK, with related service contracts to support 24/7 uptime. Phasing of
installations has resulted in lower revenue in the half, but with a strong
pipeline we anticipate a stronger second half.
Research & Fundamental Science, our smallest segment (4% of Group
revenue), has performed strongly in the half, with 11.7% constant currency
growth versus the corresponding period in 2022.
Adjusted operating profit grew by 6.5% at constant currency. Despite our
significant investment in infrastructure, operations and people, we have
delivered margin broadly in line with the corresponding period in 2022 at
18.2% (-20bps).
Demand for our products and services remains strong across each of our end
markets and geographies, and a positive book-to-bill of 1.07 in the first half
resulted in a closing order book of £332m (constant currency growth of 10%).
Orders were slightly down (2.3%) on a strong comparator period at constant
currency, largely due to lengthening order cycles in commercial markets and
other external factors, including extended lead times for the third-party
electron microscopes for which we provide key analytical equipment.
Investing for sustainable growth
We continue to invest significantly in infrastructure and systems, together
with reinforcing key teams to support the ongoing growth of our business. This
is in addition to our longstanding prioritisation of investment in R&D,
set out below.
Our focus in this area is on enhancing productivity, continuing to shorten
lead times and boosting capacity, to put us in the best possible position to
support demand and enhance our returns.
Our most significant current infrastructure investments are in our UK
manufacturing hubs, with the creation of a £75m purpose-built compound
semiconductor fabrication facility, outside Bristol, and an additional
facility for Andor Belfast (at a cost of £15m), both designed to ensure we
can meet the growing global demand for our products.
The Bristol facility, on track to be fully operational in Q1 2024, will double
our production capacity in the growing compound semiconductor market, with
state-of-the-art manufacturing facilities including increased cleanroom space
and advanced laboratories. The facility has been designed to the 'very good'
environmental specification through BREEAM, the leading certification system
for sustainable buildings, with heat source pumps and a solar array.
In Belfast, the purchase of a building adjacent to our current site will
unlock substantial growth in production capacity and facilitate improved
production workflows for our scientific cameras, microscopy and optical
spectrometer products to meet heightened demand. As with the Bristol site,
sustainable principles will drive the choices made for the fit out, which is
underway, and is expected to take 24 months, with completion in autumn 2025.
A further development in the half was the consolidation of two Tokyo sites to
a new, highly sustainable, certified 4-star DBJ (Development Bank of Japan)
green building.
Ongoing investment in systems and operations (£2m in this half year) includes
the rollout of our new customer relationship management platform, which is
supporting market intimacy and the delivery of our nurture, land and expand
approach by enhancing our ability to leverage synergies across sales,
marketing and service teams. Parallel investments in IT and financial systems
are designed to unlock efficiencies and enhance our productivity. We are also
focusing on delivering operational improvements to ensure our production
processes are seamless and efficient, and strengthening and consolidating our
supply chain.
Headcount developments in the half include the recruitment of additional
service engineers and within our customer contact centres to ensure customers
have ready access to in-person support in regions where we have a
geographically disparate installation base, such as China.
Continuous market-led innovation
Innovation remains central to Oxford Instruments' priorities. In order to
maintain a strong product pipeline and retain our leading edge in our chosen
markets, we make significant investment in our own research and development.
We have invested £19.7m in R&D over the half, representing 9.4% (2022:
8.7%) of revenue.
New product launches have included a new materials analysis instrument with
the ability to collect and analyse data in a matter of minutes which would
previously take hours; a compact dilution refrigerator with a price point and
small footprint which make it accessible to a wide range of laboratories, and
an extension to our compound semiconductor atomic layer deposition range for
advanced quantum, photonics and electronics applications.
Each new product has its own drivers, but all have been developed based on our
intimate understanding of our markets and built to address the challenges
faced by our customers.
A talented and engaged team
Having joined Oxford Instruments six weeks ago, I have been busy getting to
know the business. I have already spent a considerable amount of time meeting
our people and customers. These meetings have reinforced my reasons for
joining and the key strengths which drive Oxford Instruments' leading position
in the marketplace. These include differentiated, innovative and value-add
technologies, outstanding colleagues with deep expertise, and leading
positions in structural growth markets.
I have been extremely impressed by the talent, passion and commitment
demonstrated by my new colleagues, and I am grateful for the warm welcome they
have given me. Oxford Instruments' people are highly motivated and very able,
and I am very confident in our ability to drive the business forward together.
I am delighted to record that our recent annual engagement survey, completed
in September, recorded a positive engagement score of 78%, and that well over
three quarters of employees shared their views, which we are now taking on
board.
This year has seen the expansion of our network of employee impact groups, to
include a focus on neurodiversity. We are also making positive progress on our
push to increase the number of women in leadership roles and, on a related
note, have now met the recommendations of the FTSE Women Leaders review, with
women now holding three of the seven positions on our Board.
I look forward to continuing to build on the excellent progress made to date.
Driving a positive company culture, in which engaged employees understand how
they contribute to our strategy and purpose, and feel able to deliver their
best, is one of my central priorities. I am delighted to have such strong
foundations from which to build.
Dividend
As a result of the Group's robust trading performance, the Board is declaring
an interim dividend of 4.9p per share, up 6.5% (2022: 4.6p per share).
Outlook
We enter the second half with a strong order book and a robust pipeline,
remaining mindful of the current macro environment. Our operational
improvement programme is expected to support an increase in production,
supporting our confidence in an improvement in second half trading, with our
normal seasonal second half weighting. Our expectations for the full year
trading performance are unchanged.
Having joined Oxford Instruments six weeks ago, I have been busy getting to
know the business. I have already spent a considerable amount of time meeting
our people and customers.
Oxford Instruments has made significant progress over recent years in becoming
more commercial, with increased customer intimacy and end-market focus. This
remains an important strategic focus. I believe there is a substantial
opportunity to pair this with enhanced operational effectiveness to deliver
even better outcomes for customers, together with margin expansion and
attractive, sustainable growth for shareholders. Our strong financial position
also supports continued investment for organic growth and to make selective
acquisitions to augment that growth.
I believe the Group is in a strong position with exciting prospects. We will
continue to build on Oxford Instruments' excellent reputation amongst the
world's leading companies and scientific research communities. I look forward
to working with the team to build on these strong foundations.
Richard Tyson
Chief Executive Officer
13 November 2023
Operations review
Materials & Characterisation
The Materials & Characterisation sector has a broad customer base across a
wide range of applications for:
· Imaging and analysis of materials down to the atomic level
(across our Asylum Research, NanoAnalysis, Magnetic Resonance and WITec
businesses), where our leading product performance, ease of use and advanced
analytics enhance our customers' capabilities, provide actionable insights and
increase their productivity. Our portfolio of materials analysis solutions
(including X-ray, electron and magnetic resonance analysis systems and atomic
force and Raman microscopes) enable the measurement of the structures,
composition and critical properties that define the modern world.
· The manufacture of semiconductor devices and structures, where
our Plasma Technology business' portfolio of advanced etch and deposition
process systems enables our customers to create and manipulate materials with
atomic scale accuracy to manufacture advanced compound semiconductor devices.
With a strong focus on accelerating our customers' applied R&D, our
products and services in this sector enable the development of new devices and
next generation higher performing materials, as well as enhancing productivity
in advanced manufacturing, quality assurance (QA) and quality control (QC).
Key highlights
Half year to 30 September 2023 Half year to % reported growth % constant currency(1) growth
30 September 2022
Orders £117.0m £135.4m (13.6%) (11.4%)
Revenue £109.3m £108.7m +0.6% +3.1%
Adjusted(2) operating profit £17.4m £18.9m (7.9%) +0.5%
Adjusted(2) operating margin 15.9% 17.4%
Statutory operating profit £15.9m £17.2m
Statutory operating margin 14.5% 15.8%
1. For definition refer to note on page 2.
2. Details of adjusting items can be found in Note 2 to the half- year
financial statements.
Operational, strategic and regional progress
The Materials & Characterisation sector has performed robustly in the half
year to September, with revenue and order book growth demonstrating our
resilience in a challenging macroeconomic backdrop. Revenue grew by 3% at
constant currency, with strong growth in Advanced Materials markets, and with
Semiconductor & Communications broadly in line with last year. Together
these customer segments account for more than three quarters of the sector's
revenue.
Regionally, Asia has performed particularly strongly, with double digit
revenue growth at constant currency, including 23% growth in China, where the
easing of Covid restrictions and a reduction of supply chain shortages have
further contributed to our growth. Revenue in Europe is broadly in line with
last year, while in North America, phasing held back first half revenue.
Orders for the sector remain ahead of revenue, with a book-to-bill of 1.07
including strong double-digit growth to academic customers across all our
markets. We have seen a lengthening in the purchasing cycle from commercial
customers, leading to a softening in industrial orders in Semiconductor and
Advanced Materials despite a healthy pipeline. Long lead times for electron
microscopes, which are manufactured by third parties, have also impacted the
phasing of orders for our electron microscope analytical solutions which are
bought as accessories for these devices. This resulted in orders for the
sector being 11.4% behind a strong comparator period at constant currency
(2022: £135.4m).
Adjusted operating profit was £17.4m (2022: £18.9m) after the investment in
our new Bristol facility, and significant investment to support increased
productivity. This, together with a currency headwind, was reflected in the
margin of 15.9% (2022: 17.4%), which was 50bps lower at constant currency.
The growth of revenue from academic customers reflects increased government
spending into our markets, as institutes and universities seek to advance
progress on greener technologies and advanced materials R&D, as well as
increased semiconductor capabilities.
Key strategic developments in the half include continued expansion of our
compound semiconductor solutions to commercial customers and some notable wins
to new tier 1 key accounts. The ongoing fit out of our new purpose-built
compound semiconductor facility outside Bristol, UK, is proceeding as
expected. The site comprises a state-of-the-art manufacturing area, with
increased clean-room space and advanced laboratories, and will enable a
significant ramping up in the development of leading-edge technologies. We
have moved a first cohort of office-based staff to the new building, and
production trials are now taking place. We anticipate completing the full
transition to the new facility in Q1 2024, which will double production
capacity.
We continue to derive significant benefit from the successful integration of
our WITec Raman microscopy business (acquired in August 2021), and from
increased collaboration across our materials analysis portfolio, expanding
customer and regional reach and deepening our market intimacy. Together, these
positive developments are driving double digit order and revenue growth for
WITec, and supporting the wider Materials & Characterisation sector.
Semiconductor & Communications (41% of revenue)
Semiconductor & Communications applications continue to represent the
largest proportion of revenue in the Materials & Characterisation sector.
This is due to our broad reach across both the rapidly growing compound
semiconductor market and the mainstream silicon chip market and consumer
electronics markets, and our ability to support customers at every stage from
early academic research and development to high volume commercial production.
Revenue from compound semiconductor applications and applied R&D in the
silicon market has been strong in the first half, more than offsetting the
ongoing softness in silicon chip markets we indicated at full year 2022/23.
This resulted in a slight increase in revenue on the prior year overall. The
breadth of our offering across the compound and silicon markets, and through
the R&D, production and quality control cycle, provides us with additional
resilience in the cyclical semiconductor market.
Our Plasma Technology compound semiconductor business, which accounts for over
60% of the Group's semiconductor revenue, develops and supplies the equipment
and processes used to make the semiconductor wafers and devices which support
today's high technology applications, and the development of next generation
technology. These applications include power devices, 5G connectivity, truly
wireless charging, augmented reality and the energy-efficient chips used in
data centres, which are vital to support the rapid growth in communications
and projected increases by data-hungry AI applications.
Our role ranges from early-stage academic R&D to volume manufacturing,
yield and quality control, enabling the production of high quality, high yield
wafers. A particular area of strength, and source of pricing power, is our
ability to improve outcomes for the layers within structures and devices which
have the biggest impact on performance and yield.
Elsewhere in the sector, customers across academia and industry continue to
choose our analysis tools to image and analyse the properties and performance
of both silicon and compound devices at the atomic scale, supporting R&D,
quality control and defect analysis. This accounts for the remaining
proportion of our semiconductor revenue. Here, demand has been softer into
metrology and defect review, but remains strong in applied R&D, further
demonstrating the resilience provided by the breadth of our offering.
We continue to expect sustained demand, with a strong pipeline for commercial
customers, and with orders from academic customers growing, as higher levels
of government funding enable investment in central clean room facilities and
the latest analytical equipment.
Advanced Materials (36% of revenue)
We are capitalising on the widespread appetite to understand and improve the
properties of materials across a multitude of markets, to develop new
materials to address the challenges of today and tomorrow through our advanced
materials analysis tools. Our ability to image and analyse down to the
nanoscale enables manufacturers to control the quality of today's advanced
materials, and scientists to gain unparalleled insights into the materials
they study, from long-standing but ever-evolving materials such as steel and
concrete to newer materials such as graphene.
Our revenue growth of 10% at constant currency, reflects the breadth of use
for our leading product ranges. Growth in the half has come primarily from
academic customers, as university research departments invest in the latest
high-end analytical equipment for their service labs and core facilities to
study the properties of new and existing materials. The ease of use and range
of capabilities of our equipment and software lend themselves particularly
well to these settings.
Sustainability drivers remain strong in this segment, with an increase in
research and development into structural materials such as steel and concrete,
which together account for some 15% of global carbon emissions. Customer are
using our equipment to develop and deploy greener alternatives, such as
lighter, stronger and lower carbon steels, superalloys and concrete, without
compromising performance.
We have seen strong revenue growth related to so-called two-dimensional (2D)
materials, such as graphene, which can be just one atom deep. Many times
stronger than steel, electrically conductive and incredibly lightweight and
flexible, graphene has the potential to be deployed in a multitude of areas
from drug delivery and implants to next generation electronics, composites and
energy storage. Other 2D materials are also being explored for their abilities
as insulators and transistors.
Our products also play a crucial role in understanding the properties of
polymers, used in a multitude of products from tyres to fabrics and medical
implants. Our analytical tools - in particular our atomic force microscopes -
help scientists in commercial and academic settings to measure and tune the
fundamental properties of strength, viscosity, adhesion and hardness to
optimise performance for specific applications.
Energy & Environment (15% of revenue)
Our ability to help customers understand the impacts of pollution and climate
change and to develop effective solutions for a greener future is a key driver
of growth. Customers use our analytical tools to support their work in a range
of areas, from renewable energy generation and storage to pollution
prevention, as well as the sourcing of the minerals needed across a range of
applications.
As an example, our tailored support at every stage of the battery life cycle
from raw materials and R&D to quality control and failure analysis is a
key contributor to revenue in this sector. With a broad range of techniques
across our imaging and analysis portfolio we accelerate customers'
understanding of the fundamental chemistry and mechanisms affecting battery
capacity, charging rate and lifetime, as well as supporting quality control
and defect review.
We are also seeing strong demand in environmental applications for our
analysis tools and software, as customers seek to understand and address
airborne causes of pollution, and pollutants of water such as microplastics,
fats, oils and greases.
Revenue for the segment was down 2% at constant currency.
Healthcare & Life Science (5% revenue), Research and Fundamental Science
(2% revenue) and Quantum Technology (1% of revenue)
While these segments contribute a relatively small percentage of overall
revenue, the Materials & Characterisation sector is active in all three,
and benefits from synergies with the Research & Discovery sector. We
continue to drive order and revenue growth into Life Science applications as
we build our market intimacy and increasingly tailor our solutions to address
this market. Our portfolio of atomic force microscopes and Raman imaging
systems can provide unique insights into real time biological functions, the
health of cells and tissue as well as the efficacy of new medicines.
We have seen double digit revenue growth In Research & Fundamental Science
as universities deploy our equipment to accelerate their research.
In Quantum Technology, customers are using our compound semiconductor
processing systems to manufacture and characterise the quantum chips (known as
qubits) which are the units which store information in quantum computers. Our
analytical tools are also deployed to optimise the performance of these
devices.
Research & Discovery
The sector comprises our Andor Technology, NanoScience and X-Ray Technology
businesses. It provides advanced solutions and unique environments that enable
imaging and analytical measurements down to the atomic and molecular level, as
well as ultra-low temperature and high magnetic field environments. These are
used across scientific research and applied R&D, and commercial
applications. Our leading-edge technologies play a key role across a range of
fields, from accelerating developments in medicine and material science to
facilitating the growing commercialisation of quantum technology.
Key highlights
Half year to 30 September 2023 Half year to % reported growth % constant currency(1) growth
30 September 2022
Orders £67.8m £62.8m +8.0% +10.0%
Revenue £66.6m £58.1m +14.6% +17.7%
Adjusted(2) operating profit £9.6m £7.0m +37.1% +44.3%
Adjusted(2) operating margin 14.4% 12.0%
Statutory operating profit £5.6m £3.9m
Statutory operating margin 8.4% 6.7%
1. For definition refer to note on page 2.
2. Details of adjusting items can be found in Note 2 to the full year
financial statements.
Operational, strategic and regional progress
The Research & Discovery segment delivered an excellent performance in the
half, with strong constant currency growth in orders (up 10%), revenue (up
17.7%), adjusted operating profit (up 44.3%) and margin (up 240bps). Growth
has primarily been driven by strong sales and demand for our optical
microscopy, scientific camera, and optical spectroscopy products. The
Healthcare & Life Science sector has seen particularly strong growth, with
revenue up 27% due to strong sales of our microscopy portfolio, as well as
sales of our key technologies into original equipment manufacturing (OEM)
partners, driving reach into wider life science markets. We have also seen
strong double digit revenue growth into Advanced Materials applications as
customers use our analytical and imaging equipment to investigate the
properties of a wide range of materials.
Orders and revenue have grown at constant currency across all key regions and
territories, including China. Our focus on attractive markets and the success
of recently launched products have supported strong constant currency revenue
growth in Europe (35%), the US (14%) and Japan (75%). Within China our focus
has been on growing our revenue in Healthcare, Advanced Materials and Energy
& Environment applications. This, together with the end of Covid-related
lockdowns, has supported our strong performance. Within China, our pivoted
focus into Healthcare & Life Science and Advanced Material applications
has more than offset the previously reported, ongoing headwinds of export
licence restrictions, particularly for Quantum and Astronomy markets.
Adjusted constant currency operating profit and margin have grown by 44% and
280bps respectively. Growth has been driven by increased demand for our
leading products, partially offset by increased investment in operational
capacity in our Belfast facility.
In common with Materials & Characterisation, we have seen strong growth to
academic customers across the segment, as governments and universities invest
in our systems to equip central imaging facilities. However, OEM orders and
significant investments by commercial customers for our optical microscopy and
X-ray products have also seen strong single digit growth to industrial
accounts.
As revenue is only recognised for our large cryogenics and high-field magnet
systems once they have been installed, we expect a stronger performance in the
second half of the year than the first, given our strong pipeline and several
key anticipated orders to Tier 1 commercial customers.
Continued strong operational performance across our X-Ray tube business has
driven strong order, revenue and profit growth in the half. The performance is
supported by increasing end market demand across a range of end applications
and with the market-leading performance, quality, and operational lifetime of
our X-ray sources, cementing a strong performance for the half and ongoing
positive momentum.
We are making significant investment in people and processes, boosting
production capacity and operational effectiveness across the sector, to
support the growing demand for our products and services. In particular, as
demand grows for our optical microscopes and scientific cameras, we are
investing £15m in the purchase and fit out of an additional building,
adjacent to our existing Andor Belfast site, to boost our operational
capacity. The site expansion will significantly enhance our production and
R&D capacity, allowing us to meet demand from our growing customer base
once operational in autumn 2025. Further developments in the half include the
launch of our compact, fast turnaround ProteoxS dilution refrigerator for
physics applications including Quantum. The unit has a smaller footprint and
lower cost than other refrigerators in the market, while offering reliable low
temperatures, making it accessible to a wider range of research laboratories
and budgets.
We are pleased to note that all three Nobel Prize winners for science in 2023
(Medicine, Chemistry and Physics) used our equipment in their groundbreaking
research.
Healthcare & Life Science (44% of revenue)
Our equipment and software play a key role in accelerating progress towards a
healthier society, as academic researchers, scientists and pharmaceutical
companies seek to better understand fundamental disease mechanisms at a
molecular and cellular level in order to design more effective treatments.
We are seeing continued growth in the Healthcare & Life Science segment,
the largest contributor to revenue in the Research & Discovery sector.
Revenue is up more than 25% in the half year, with strong sales of our BC43
benchtop microscope and growth in sales of our dedicated analytical and
visualisation Imaris software solutions. Good order growth and a strong
pipeline give confidence for a continuing strong performance.
Positive momentum has continued for our advanced microscopy solutions and
dedicated analytical software, with the first integrations of our BC43
benchtop microscope into OEMs' equipment, which is used to access a broader
range of life science applications. We have launched a new dedicated
Neuroscience edition of our Imaris software with AI-powered neuron
visualisation capabilities, which is enabling the acceleration of research
into dementia and depression, by supporting understanding of brain structure
and functions.
Advanced Materials (28% of revenue)
We have a dedicated focus on building market share for advanced materials
applications across our portfolio of spectrographs, scientific cameras, X-ray
sources and specialised cryogenic and high magnetic field systems, with the
benefit of synergies with Materials & Characterisation. This has resulted
in strong double-digit order and revenue growth for this segment. Customers
use our equipment to support their understanding of the fundamental properties
of new materials, to enhance the capabilities of existing materials, and in
quality assurance and quality control applications.
Quantum Technology (16% of revenue)
Revenue in the Quantum Technology segment has grown by 6% in the half, as we
collaborate with universities, quantum computing start-ups and major tier 1
communication companies. Strong sales into Europe, Japan and the US have more
than offset the expected revenue reductions from China due to export licence
restrictions.
Oxford Instruments has a key role to play in this rapidly growing sector,
which continues to evolve from the research laboratory to drive practical
applications. Quantum computers are already used in commercial applications
from chemistry to logistics and finance. The future impact of quantum is
expected to be even more significant, with the potential to help tackle
climate change and transform our ability to develop revolutionary medicines.
We are particularly well placed to benefit from the shift from pure science to
mainstream applications, given our ability to support a number of areas,
including cryogenics, quantum laser applications and (in our Materials &
Characterisation sector) the fabrication of qubits.
With a strong opportunity pipeline, we anticipate orders strengthening
following a slower start in the first half.
Research & Fundamental Science (7% of revenue)
We have seen strong order and revenue growth into this sector, particularly in
the fields of fluid and plasma dynamics, where customers are deploying our
highly specialised high speed scientific cameras to capture the evolving
dynamics of physical processes, such as fusion reactions at sub nanosecond
intervals. In astronomy, we are building market share in Europe and North
America through optimised solutions for large sky surveys, including exoplanet
detection and near-earth asteroid detection, and atmospheric research.
Semiconductor & Communications (3% of revenue) and Energy &
Environment (2% of revenue)
We continue to see good demand for our technologies in these markets. This is
primarily from researchers looking at the fundamental properties and
disruptive use of new materials in these markets.
Service & Healthcare
The Service & Healthcare sector comprises the Group's servicing and
support offering related to Oxford Instruments' own products, and the support
and service of third-party MRI scanners in Japan. We offer tailored support
packages for all our products, delivered by a global network of product
experts, application experts and service engineers, both in person and via
digital channels, including online training, webinars and remote service
support.
Key highlights
Half year to 30 September 2023 Half year to % reported growth % constant currency(1) growth
30 September 2022
Orders £39.5m £37.1m +6.5% +10.5%
Revenue £33.8m £33.7m +0.3% +4.2%
Adjusted(2) operating profit £9.5m £10.9m (12.8%) (7.3%)
Adjusted(2) operating margin 28.1% 32.3%
Statutory operating profit £9.5m £11.3m
Statutory operating margin 28.1% 33.5%
1. For definition refer to note on page 2.
2. Details of adjusting items can be found in Note 2 to the full year
financial statements.
Operational and strategic progress
The Service & Healthcare sector has made steady progress in the period.
Revenue grew by 4% at constant currency, with 11% order growth and a 35%
year-on-year increase in the order book demonstrating growing demand for our
services products, including subscriptions. Operating profit and margin were
down in the half due to investment in capabilities and infrastructure to
support further growth, as well as some elevated costs in the period for
liquid helium required to support our MRI customers in Japan. Specific areas
of increased investment include additional service engineers and customer care
centre staff, and costs associated with our new Group-wide CRM and field
management platform, which is already generating more opportunities and an
improved customer experience.
We have seen strong revenue growth to academic customers in Service &
Healthcare, as increasing numbers of customers take out point-of-sale service
contracts for our benchtop systems, and as sales of our tailored life science
packages for our Imaris imaging software continue to grow. Sales to academic
customers accounted for 49% of revenue in the half, with the share of academic
sales up six percentage points versus the prior year. Commercial sales were
broadly in line with the prior year.
We continue to deliver double digit order growth for service related to our
own products through the provision of a wider range of tailored and digital
offerings. Our servicing of third-party MRI imaging equipment in Japan
continues to deliver excellent support to our customer base, with growth in
both orders and revenue.
Regionally, constant currency revenue was slightly up across all three key
markets (North America, Asia and Europe), with growth strongest in Asia, up
5%. We have seen significant growth in orders in Europe and Asia, largely
driven by growth in Japan and China.
Our service and support strategy is focused on three key pillars:
· increased tailoring of our service offerings to specific end
applications and customer types;
· the delivery of seamless customer service at every stage of the
product life cycle;
· the development of global processes which can be delivered via a
hybrid service approach, both in region and digitally.
As we increase our portfolio and the scope of our services, our range of
support packages has expanded to meet the needs and budgets of our customers.
This allows customers to maximise their capabilities, enhance their
productivity and receive immediate help and support when needed throughout the
lifetime of our systems. Our depth of sector knowledge is a key
differentiator, with our market intimacy and deep scientific expertise
enabling us to develop products appropriate to each end application and
customer type.
We have continued to invest in extending our regional teams and spares
capacity to provide shorter lead times for in-person support and training
visits, as well as continuing to develop our digital and remote support
offerings. We are focusing on increasing our customers' productivity by
diagnosing and resolving issues in hours, through our virtual reality and
digital toolkit. This reduces the need for engineer visits, improving
efficiency and reducing our carbon footprint. We continue to design more
advanced capabilities into our products, including increased data analytics
which have unlocked new revenue streams for remote health checks and system
calibration.
We have also continued to focus on the third element of our strategy,
developing standard infrastructure and processes globally which are
implemented by our regional services teams. This includes cross-training
service engineers to service multiple products. The benefits of this approach
include cost efficiencies from best-practice procedures, deeper local customer
intimacy and improved response times.
In parallel with our investment in people, we are implementing a project to
complete our business systems customer suite, with the implementation of the
new Group-wide CRM for marketing, sales and service referenced above. The
sales element of the CRM, which is already live, is improving lead follow up,
while the full system, once complete, will support the effective running of
our Services function through standardisation and simplification.
Overall, the Service & Healthcare sector remains on a strong upward
trajectory, with significant ongoing opportunities to support revenue growth
and margin expansion.
Finance review
Oxford Instruments uses certain alternative performance measures to help it
effectively monitor the performance of the Group as management believes that
these represent a more consistent measure of underlying performance. Adjusted
items exclude the amortisation of acquired intangible assets; acquisition
items; profit or loss on disposal of operations; other significant
non-recurring items; and the mark-to‑-market movement of financial
derivatives. All of these are included in the statutory figures. Note 2
provides‑ further analysis of the adjusting items in reaching adjusted
profit measures. Definitions of the Group's material alternative performance
measures, along with reconciliation to their equivalent IFRS measure, are
included within the finance review.
The Group trades in many currencies and makes reference to constant currency
numbers to remove the impact of currency effects in the year. These are
prepared on a month-by-month basis using the translational and transactional
exchange rates which prevailed in the previous year rather than the actual
exchange rates which prevailed in the year. Transactional exchange rates
include the effect of our hedging programme.
Summary
Reported orders in the period decreased by 4.7% to £224.3m (2022: £235.3m),
a decrease of 2.3% at constant currency, against a strong comparator period.
At the end of the period, the Group's order book stood at £331.7m
(30 September 2022: £315.7m). The order book increased by 5.1% on
a reported basis and 10.1% at constant currency with a book-to-bill in the
period of 1.07 times (2022: 1.17 times).
Revenue increased by 4.6% to £209.7m (2022: £200.5m). Revenue, excluding
currency effects, increased by 7.5%, with the movement in average currency
exchange rates over the year reducing reported revenue by £5.9m. We would
expect the second half of the financial year to benefit from the normal
seasonal bias.
Adjusted operating profit excluding currency effects, increased by 6.5%.
However, due to a currency headwind of £2.7m, adjusted operating profit
decreased by 0.8% to £36.5m (2022: £36.8m). Excluding currency impacts, the
adjusted operating margin decreased by 20 basis points to 18.2% reflecting a
slightly increased gross margin offset by investment in ERP systems and
operational capability to support future growth and deliver process
efficiencies. Including currency, the adjusted operating margin decreased by
100 basis points to 17.4% (2022: 18.4%).
Statutory operating profit of £28.6m (2022: £26.3m) increased by 8.7%. This
includes amortisation of acquired intangibles of £4.6m (2022: £4.3m) and a
charge of £2.4m (2022: £6.1m) relating to the movement in the mark-to-market
valuation of uncrystallised currency hedges for future years. We also
recognised non-recurring costs of £0.9m (2022: £0.1m).
Adjusted profit before tax grew by 0.5% to £37.5m (2022: £37.3m),
representing a margin of 17.9% (2022: 18.6%). Statutory profit before tax grew
by 11.3% to £29.6m (2022: £26.6m). This represents a margin of 14.1% (2022:
13.3%).
The adjusted effective tax rate increased to 24.0% (2022: 21.4%), following
the increase in the UK corporation tax rate in April 2023. As a result,
adjusted basic earnings per share fell by 2.8% to 49.4p (2022: 50.8p). Basic
earnings per share were 38.6p (2022: 35.9p), an increase of 7.5%.
As expected, cash generated from operations was lower at £7.4m (2022:
£26.6m). This represents negative cash conversion of 21% (2022: +47%). As we
prepare for the move of operations to the new compound semiconductor facility
in Bristol in the third quarter, we have built inventory to enable us to
supply customers, as well as continuing to incur ongoing capital expenditure
related to the new site. In addition, the previously reported significant
increase in export licence delays and refusals have also led to higher
inventories, as well as a need to refund previously received customer
deposits.
Excluding these items, cash conversion on a normalised basis was 41% (2022:
65%). We expect an improvement in cash conversion in the second half and
anticipate it to be more in line with historic conversion rates. Net cash
after borrowings fell from £100.2m as at 31 March 2023 to £79.1m on
30 September 2023.
Our revolving credit facility remains undrawn, leaving approximately £109m
of committed facilities. This represents total headroom of just under
£190m, including net cash on the balance sheet.
Income statement
The Group's income statement is summarised below.
Half year to Half year to
30 September 30 September
2023 2022
£m £m Change
Revenue 209.7 200.5 +4.6%
Adjusted operating profit 36.5 36.8 (0.8%)
Amortisation of acquired intangible assets (4.6) (4.3)
Non-recurring items (0.9) (0.1)
Mark-to-market of currency hedges (2.4) (6.1)
Statutory operating profit 28.6 26.3 +8.7%
Net finance income 1.0 0.3
Adjusted profit before taxation 37.5 37.3 +0.5%
Statutory profit before taxation 29.6 26.6 +11.3%
Adjusted effective tax rate 24.0% 21.4%
Effective tax rate 24.7% 22.2%
Adjusted earnings per share - basic 49.4p 50.8p (2.8%)
Earnings per share - basic 38.6p 35.9p +7.5%
Dividend per share (total) 4.9p 4.6p +6.5%
1. Net finance costs for 2022 include a non-recurring charge of £0.2m
against the unwind of discount on WITec contingent consideration.
Revenue and orders
Total reported orders fell by 4.7% (-2.3% at constant currency) to £224.3m.
In Materials & Characterisation, reported orders were lower by 13.6%
(-11.4% at constant currency). This was against a comparator period of very
strong growth of just under 26% at constant currency. In the period we saw
macroeconomic concerns leading to a delay in placing orders across industrial
markets and we are in the process of pivoting our pipelines towards customers
who are less susceptible to export licence concerns. In Research &
Discovery, we saw good growth in orders for our optical imaging and microscopy
products, and some large OEM framework orders for X-Ray Technology. As a
result, reported orders grew by 8.0% (+10.0% at constant currency) for the
segment. Service & Healthcare orders increased by 6.5% (+10.5% at constant
currency).
Reported revenue of £209.7m (2022: £200.5m) increased by 4.6% (+7.5% at
constant currency). For Materials & Characterisation, reported revenue
grew by 0.6% (+3.1% at constant currency) as shipments of our electron
microscope analysers fell marginally against a strong comparator period and we
saw a significant rise in export licence delays for these products, which has
led to the build-up of a large amount of finished goods awaiting export
approval. Despite an increase in UK export licence rejections to China, we
have seen a good increase in shipments of semiconductor processing systems.
Good demand for our Life Science products, alongside an improvement in
operational execution, has driven reported revenue growth in Research &
Discovery of 14.6% (+17.7% at constant currency). We have also had good demand
from OEMs for our X-Ray tubes. Revenue growth from the service of our products
supported reported growth of 0.3% (+4.2% at constant currency) for Service
& Healthcare.
The book-to-bill ratio (orders received to goods and services billed in the
period) for the year was 1.07 times (2022: 1.17 times).
Geographic revenue growth
Half year to Half year to Half year to Half year to
30 September 2023 30 September 2023 30 September 2022 30 September 2022
Change % growth at constant
£m £m % of total £m % of total £m % growth currency
Europe 48.9 24% 43.4 22% +5.5 12.7% 12.2%
North America 54.6 26% 58.3 29% (3.7) (6.3%) (2.9%)
Asia 101.6 48% 97.2 48% +4.4 4.5% 8.7%
Rest of World 4.6 2% 1.6 1% +3.0 +188% +188%
209.7 100% 200.5 100% +9.2 4.6% 7.5%
On a geographical basis, revenue grew by 12.7% in Europe (+12.2% at constant
currency), supported by additional deliveries of semiconductor process systems
and optical and microscopy products. Orders grew by 9.9% at constant currency,
supported by good demand for our semiconductor processing systems and some
large OEM orders for our X-Ray tubes.
Revenue for North America was lower by 6.3% on a reported basis and down 2.9%
at constant currency. We experienced a lengthening of commercial order cycles.
In addition, unfavourable phasing of academic budgets for our semiconductor
processing tools contributed to a weaker first half for the region. These
issues also contributed to a decline in constant currency orders of 8.1%,
although pipelines remain strong across our end markets.
Asia remains our largest region by revenue, with China constituting 64% of
regional revenue and 31% of total Group revenue, following strong order intake
in the previous financial year. Asia delivered revenue growth of 4.5% (+8.7%
at constant currency) with strong demand for our atomic force microscopes,
optical and microscopy products, and semiconductor processing tools. Orders
for the region fell by 5.3% at constant currency, due to a lower number of
orders from Japan and Korea, partially offset by a small amount of growth in
China. Orders for China constituted 26% of Group orders in the half year.
The total reported order book grew by 5.1% (10.1% at constant currency) to
£331.7m compared to 30 September 2022. The order book, at constant currency,
compared to 30 September 2022, increased by 6.8% for Materials &
Characterisation, with strong growth across all constituent businesses.
Research & Discovery grew by 5.4% at constant currency, with good demand
for our imaging and microscopy products and X-Ray tubes. The Service &
Healthcare order book grew by 35.1% at constant currency as we continue to
focus on the service of our own products.
Materials & Characterisation Research & Discovery Service & Healthcare
£m Total
Revenue: HY 2022/23 108.7 58.1 33.7 200.5
Constant currency growth 3.4 10.3 1.4 15.1
Revenue at constant currency: 2023/24 112.1 68.4 35.1 215.6
Currency (2.8) (1.8) (1.3) (5.9)
Revenue: HY 2023/24 109.3 66.6 33.8 209.7
Revenue growth: reported 0.6% 14.5% 0.3% 4.6%
Revenue growth: constant currency 3.1% 17.7% 4.2% 7.5%
Gross profit
Gross profit grew by 6.6% to £111.0m (2022: £104.1m), representing a gross
profit margin of 52.9%, an increase of 100 basis points over last year.
Adjusted operating profit and margin
Adjusted operating profit excluding currency effects, increased by 6.5%.
However, due to a currency headwind of £2.7m, reported adjusted operating
profit decreased by 0.8% to £36.5m (2022: £36.8m). Excluding currency
impacts, the adjusted operating margin decreased by 20 basis points to 18.2%
as we continue to invest in ERP systems and operational capability to support
future growth and deliver process efficiencies. Including currency impacts,
the adjusted operating margin decreased by 100 basis points to 17.4% (2022:
18.4%).
Reported Materials & Characterisation adjusted operating profit decreased
by 7.9% (+0.5% at constant currency) with reported margin falling 150 basis
points to 15.9% (2022: 17.4%). Fewer shipments of our electron microscope
analysers against a strong comparative period were offset by higher revenue
from our semiconductor processing tools.
Within Research & Discovery our imaging and microscopy business has grown
well, supported by good demand, an improvement in operational execution and an
alleviation of prior year supply chain disruption. Profit growth in our
imaging and microscopy business was partially offset by a slower than expected
improvement in operational output of our standard cryogenic and magnet
systems, due in part to a diversion of resources to completing the last of the
more complex bespoke systems. The segment recorded growth in reported profit
of 37.1% (+44.3% at constant currency) and an improvement in margin to 14.4%,
representing growth of 240 basis points.
Service & Healthcare reported adjusted operating profit fell by 12.8%
(7.3% at constant currency); primarily due to an increase in helium and parts
prices within our Japan MRI business.
Currency effects for the Group (including the impact of transactional currency
hedging) depressed reported adjusted operating profit by £2.7m, primarily
due to a depreciation of the Japanese Yen against Sterling.
Materials & Characterisation Research & Discovery Service & Healthcare
£m Total
Adjusted operating profit: 2022/23 18.9 7.0 10.9 36.8
Constant currency growth 0.1 3.1 (0.8) 2.4
Adjusted operating profit at constant currency: 2023/24 19.0 10.1 10.1 39.2
Currency (1.6) (0.5) (0.6) (2.7)
Adjusted operating profit: 2023/24 17.4 9.6 9.5 36.5
Adjusted operating margin(1): 2022/23 17.4% 12.0% 32.3% 18.4%
Adjusted operating margin(1): 2023/24 15.9% 14.4% 28.1% 17.4%
Adjusted operating margin(1) (constant currency): 2023/24 16.9% 14.8% 28.8% 18.2%
1. Adjusted operating margin is calculated as adjusted
operating profit divided by revenue. Adjusted operating margin at constant
currency is defined as adjusted operating profit at constant currency divided
by revenue at constant currency.
Statutory operating profit and margin
Statutory operating profit grew by 8.7% to £28.6m (2022: £26.3m),
representing an operating profit margin of 13.6%. Growth in statutory
operating profit is supported by a lower mark-to-market charge on financial
derivatives.
Adjusting items
Amortisation of acquired intangibles of £4.6m (2022: £4.3m) relates to
intangible assets recognised on acquisitions, being the value of technology,
customer relationships and brands. Non-recurring items within operating profit
were £0.9m in the period.
The Group uses derivative products to hedge its short-term exposure to
fluctuations in foreign exchange rates. Our hedging policy allows for forward
contracts to be entered into up to 24 months forward from the end of the next
reporting period. The Group's policy is to have in place at the beginning of
the financial year hedging instruments to cover up to 80% of its forecast
transactional exposure for the following twelve months and, subject to
pricing, up to 20% of exposures for the next six months. The Group has decided
that the additional costs of meeting the extensive documentation requirements
of IFRS 9 to apply hedge accounting to these foreign exchange hedges cannot be
justified. Accordingly, the Group does not use hedge accounting for these
derivatives.
Net movements on mark-to-market derivatives in respect of transactional
currency exposures of the Group in future periods are disclosed in the income
statement as foreign exchange and excluded from our calculation of adjusted
profit before tax. In the half year this amounted to a charge of £2.4m (2022:
£6.1m charge). The small increase in the net asset for derivative financial
instruments from 31 March 2023 reflects: (i) the crystallisation of forward
contracts that were hedging the first half of this financial year, which are
recognised in adjusted operating profit, and; (ii) an uncrystallised movement
in the mark-to-market valuation of forward contracts at the balance sheet date
on forward contracts that will mature over the next 18 months.
Net finance costs
The Group's recorded net interest income was higher at £1.0m (2022: £0.5m),
due to an increase in interest rates earned on our cash balances.
Adjusted profit before tax and margin
Adjusted profit before tax increased by 0.5% to £37.5m (2022: £37.3m). The
adjusted profit before tax margin of 17.9% (2022: 18.6%) was lower than last
year largely due to currency effects.
Half year to Half year to
30 September 2023 30 September
2022
Reconciliation of statutory profit before tax to adjusted profit before tax £m £m
Statutory profit before tax 29.6 26.6
Add back:
Amortisation of acquired intangible assets 4.6 4.3
Non-recurring items (Note 2) 0.9 0.3
Mark-to-market of currency hedges 2.4 6.1
Adjusted profit before tax 37.5 37.3
Statutory profit before tax and margin
Statutory profit before tax increased by 11.3% to £29.6m (2022: £26.6m). The
statutory profit before tax margin of 14.1% (2022: 13.3%) was above last
year, principally due to the lower charge from the mark-to-market valuation
movement on financial derivatives.
Taxation
The adjusted tax charge of £9.0m (2022: £8.0m) represents an effective tax
rate of 24.0% (2022: 21.4%); the increase being primarily due to the
increase in the UK corporation tax rate from 1 April 2023. The tax charge of
£7.3m (2022: £5.9m) represents an effective tax rate of 24.7%
(2022: 22.2%). The increase is due to the rise in the UK corporation tax
rate and a small increase in non-deductible costs.
The half-year tax rate has been calculated based on the expected effective tax
rate for the year of 24.2% (having made certain assumptions about where
profits will arise).
Earnings per share
Adjusted basic earnings per share decreased by 2.8% to 49.4p (2022: 50.8p)
primarily due to the higher effective tax rate; adjusted diluted earnings per
share fell by 3.0% to 48.7p (2022: 50.2p). Basic and diluted earnings per
share increased by 7.5% to 38.6p (2022: 35.9p) and 38.1p (2022: 35.4p)
respectively, with the mark-to-market movement on financial derivatives
offsetting the rise in the effective tax rate.
The number of basic weighted average shares remained at 57.7m (2022: 57.7m).
Issuance of new shares to satisfy share option exercises will result in an
increase in the number of shares in the second half of the year.
Currency
The Group faces transactional and translational currency exposure, most
notably against the US Dollar, Euro and Japanese Yen. For the half year,
approximately 17% of Group revenue was denominated in Sterling, 55% in US
Dollars, 19% in Euros, 7% in Japanese Yen and 2% in other currencies.
Translational exposures arise on the consolidation of overseas company results
into Sterling. Transactional exposures arise where the currency of sale or
purchase transactions differs from the functional currency in which each
company prepares its local accounts.
The Group's foreign currency exposure for the half year is summarised
below.
Adjusted operating
profit
£m (equivalent) Revenue
Sterling 36.5 (49.4)
US Dollar 114.3 57.9
Euro 40.7 14.7
Japanese Yen 15.1 12.4
Chinese Renminbi 2.4 0.8
Other 0.7 0.1
209.7 36.5
The Group maintains a hedging programme against its net transactional exposure
using internal projections of currency trading transactions expected to arise
over a period extending from 12 to 24 months. As at 30 September 2023, the
Group had currency hedges in place extending up to 18 months forward.
For the full year 2023/24, our assessment of the currency impact is, based on
hedges currently in place and forecast currency rates, a headwind of £11.8m
to revenue, and £3.1m to profit. The currency headwind is in part due to a
higher than anticipated exposure to the Japanese Yen. Forecast currency rates
for the year on unhedged positions are: GBP:USD 1.23; GBP:EUR 1.15; GBP:JPY
185.
Looking further ahead to the financial year 2024/25, based on the above
currency assumptions, we would expect currency effects to have a small
tailwind of £2.2m to revenue and a £2.8m headwind to operating profit.
Uncertain volume and timing of shipments and acceptances, currency mix and FX
rate volatility, may significantly affect forecast currency outcomes.
Dividend
The Group's policy on the dividend takes into account changes to underlying
earnings, dividend cover, movements in currency and demands on our cash. The
Board remains confident in the long term performance of the business and has
declared an interim dividend of 4.9p per share (2022: 4.6p per share), growth
of 6.5%. The interim dividend will be paid on 12 January 2024 to shareholders
on the register as at 1 December 2023.
Cash flow
The Group's cash flow is summarised below.
Half year to Half year to
30 September 2023 30 September
2022
£m £m
Adjusted operating profit 36.5 36.8
Depreciation and amortisation 5.4 5.1
Adjusted(1) EBITDA 41.9 41.9
Working capital movement (31.6) (12.6)
Equity settled share schemes 1.1 1.2
Pension scheme payments above charge to operating profit (4.0) (3.9)
Cash from operations 7.4 26.6
Interest 1.2 0.1
Tax (7.9) (2.6)
Capitalised development expenditure (0.3) (0.1)
Expenditure on tangible and intangible assets (16.7) (11.5)
Dividends paid - (7.9)
Proceeds from issue of share capital and exercise of share options 0.1 -
Payments made in respect of lease liabilities (2.6) (1.5)
Decrease in borrowings (0.1) (0.1)
Net (decrease)/increase in cash and cash equivalents (18.9) 3.0
1. Adjusted EBITDA is defined as adjusted operating profit before
depreciation and amortisation of capitalised development costs. The
consolidated statement of cash flows provides further analysis of the
definition of adjusted EBITDA.
Cash from operations
Cash from operations of £7.4m (2022: £26.6m) represents negative cash
conversion of 21% (2022: +47%). During the first half we incurred expenditure
of £12.2m on the new semiconductor facility in Bristol, including new
metrology tools. This amount also included £3.0m relating to the build-up of
inventory ahead of the move of operations in the third quarter. Expenditure of
£4.1m was incurred on the purchase and strip-out of a new facility in Belfast
for our optical imaging and microscopy business, and the fit-out of a new
office and customer demonstration centre in Tokyo. In addition, the business
suffered from exceptional cash outflows of £6.3m in relation to export
licence rejections and delays, covering the refund of customer deposits and a
high level of finished goods awaiting export licence clearance. On a
normalised basis, which excludes these items, cash conversion was 41% (2022:
65%). Cash conversion is defined as cash from operations before transaction
costs and pension scheme payments above charge to operating profit, less
capitalised development expenditure, capital expenditure and payments made in
respect of lease liabilities divided by adjusted operating profit.
Half year to Half year to
30 September 2023 30 September
2022
Reconciliation of cash generated from operations to adjusted operating cash £m £m
flow
Cash from operations 7.4 26.6
Add back:
Transaction costs 0.7 -
Pension scheme payments above charge to operating profit 4.0 3.9
Capitalised development expenditure (0.3) (0.1)
Expenditure on tangible and intangible assets (16.7) (11.5)
Payments made in respect of lease liabilities (2.6) (1.5)
Adjusted cash from operations (7.5) 17.4
Cash conversion % (adjusted cash from operations/adjusted operating (21%) 47%
profit)
Cash conversion % (normalised(1)) 41% 65%
1. Cash conversion calculated on a normalised basis
excludes expenditure in the half year of £16.3m on capacity expansion and
£6.3m relating to export licence refusals and delays.
Inventory levels have increased due to build costs incurred on long lead time
new cryogenic platforms and accelerated raw material purchases ahead of an ERP
implementation. In addition, we have made some strategic inventory purchases
to avoid cost inflation.
Pension
Pension recovery payments above charge to operating profit total £4.0m (2022:
£3.9m).
Interest
Net interest received was £1.2m (2022: £0.1m), reflecting an increase in
interest rate on our cash balances.
Tax
Tax paid was £7.9m (2022: £2.6m); the increase primarily relating to higher
payments on account following the increase in the UK corporation tax rate.
Investment in Research and Development (R&D)
Total cash spend on R&D in the half year was £19.7m, equivalent to 9.4%
of sales (2022: £17.5m, 8.7% of sales). A reconciliation between the adjusted
amounts charged to the consolidated statement of income and the cash spent is
given below:
Half year to Half year to
30 September 2023 30 September
2022
£m £m
R&D expense charged to the consolidated statement of income 19.7 18.2
Depreciation of R&D-related fixed assets - (0.2)
Amounts capitalised as fixed assets - -
Amortisation and impairment of R&D costs capitalised as intangibles (0.3) (0.6)
Amounts capitalised as intangible assets 0.3 0.1
Total cash spent on R&D during the year 19.7 17.5
Net cash and funding
Net cash
Cash from operations in the half year was offset by an increase in capital
expenditure, resulting in a decrease in the Group's net cash position from
£100.2m at 31 March 2023 to £79.1m on 30 September 2023.
To date we have incurred costs of £38.0m on the new semiconductor facility,
which is expected to be complete by the end of the fiscal year. We expect
further payments of approximately £5.3m in the second half of this year and
£1.9m in Q1 25 to complete the project (including move and hook-up costs). We
are in the early stages of a process to sell the current facility, with
completion planned for H1 25. The estimated cost for the expansion in Belfast
is not expected to exceed £15m; of which £2.1m has been incurred in H1 24,
with the remainder to be phased over the next 24 months.
Movement in net cash £m
Net cash after borrowings as at 31 March 2023 100.2
Cash generated from operations 7.4
Interest 1.2
Tax (7.9)
Capitalised development expenditure (0.3)
Capital expenditure on tangible and intangible assets (16.7)
Payments made in respect of lease obligations (2.6)
Dividend paid -
Other items/FX (2.2)
Net cash after borrowings as at 30 September 2023 79.1
Half year to Half year to
30 September 2023 30 September
2022
Net cash including lease liabilities £m £m
Net cash after borrowings 79.1 97.1
Lease liabilities (34.8) (31.4)
Net cash and lease liabilities after borrowings 44.3 65.7
The increase in lease liabilities reflects the lease signed during the period
for the new office and customer demonstration centre in Tokyo.
Funding
On 2 July 2018, the Group entered into an unsecured multi-currency revolving
facility agreement, which is committed until June 2025. The facility has
been entered into with two banks and comprises a Euro-denominated
multi‑currency facility of €50.0m (£43m) and a US Dollar-denominated
multi‑currency facility of $80.0m (£66m).
Debt covenants are net debt to EBITDA less than 3.0 times and EBITDA to
interest greater than 4.0 times. At 30 September 2023 the business had net
cash.
Pensions
The Group has a defined benefit pension scheme in the UK. This has been closed
to new entrants since 2001 and closed to future accrual from 2010.
On an IAS 19 basis, the surplus arising from our defined benefit pension
Scheme obligations on 30 September 2023 was £11.3m (31 March 2023: £26.4m).
The Scheme's assets are hedged against gilt yields, whereas the accounting
liabilities are valued based on corporate bond yields. Gilt rates have risen
by more than corporate bond yields, which has resulted in the Scheme's assets
falling more than the accounting liabilities, resulting in a smaller surplus.
The value of scheme assets decreased to £218.5m (31 March 2023: £251.5m) and
scheme liabilities decreased to £207.2m (31 March 2023: £225.1m).
The scheme's actuarial valuation review, rather than the accounting basis,
determines our cash payments into the scheme. The cash contributions into the
scheme are expected to continue until 2025/26, at which point we expect, based
on current assumptions, the scheme to achieve self-sufficiency. The scheme
rules provide that in the event of a surplus remaining after settling
contractual obligations to members, the Group may determine how the surplus is
utilised.
Going concern
The Group's business activities, together with the factors likely to affect
its future development, performance and position, are set out in the
performance highlights, Chief Executive Officer's review and operations review
sections of this half year report. The financial position of the Group, its
cash flows, liquidity position and borrowing facilities are described in the
finance review.
Trading for the Group has been good during the half year. The Group has
prepared and reviewed a number of scenarios for the Group based on key risks
noted for the business and the potential impact on orders, trading and cash
flow performance. In addition, the Group has overlaid the risk of long-term
adverse movements in currency rates to our cash flow forecasts. The Board is
satisfied, having considered the sensitivity analysis, as well as its funding
facilities, that the Group has adequate resources to continue in operational
existence for at least 12 months from the data of the interim financial
statements.
Forward-looking statements
This document contains certain forward-looking statements. The forward-looking
statements reflect the knowledge and information available to the company
during the preparation and up to the publication of this document. By their
very nature, these statements depend upon circumstances and relate to events
that may occur in the future, thereby involving a degree of uncertainty.
Therefore, nothing in this document should be construed as a profit forecast
by the company.
Gavin Hill
Chief Financial Officer
13 November 2023
Condensed consolidated statement of income
Half year ended 30 September 2023
Half year to 30 September 2023 Half year to 30 September 2022
Adjusted Adjusting items(1) Total Adjusted Adjusting items(1) Total
Note £m £m £m £m £m £m
Revenue 4 209.7 - 209.7 200.5 - 200.5
Cost of sales (98.7) - (98.7) (96.4) - (96.4)
Gross profit 111.0 - 111.0 104.1 - 104.1
Research and development 5 (19.7) - (19.7) (18.2) - (18.2)
Selling and marketing (34.2) - (34.2) (29.2) - (29.2)
Administration and shared services (28.2) (5.5) (33.7) (23.1) (4.4) (27.5)
Foreign exchange gain/(loss) 7.6 (2.4) 5.2 3.2 (6.1) (2.9)
Operating profit 36.5 (7.9) 28.6 36.8 (10.5) 26.3
Financial income 1.9 - 1.9 0.9 - 0.9
Financial expenditure (0.9) - (0.9) (0.4) (0.2) (0.6)
Profit before income tax 4 37.5 (7.9) 29.6 37.3 (10.7) 26.6
Income tax expense (9.0) 1.7 (7.3) (8.0) 2.1 (5.9)
Profit for the period attributable to equity Shareholders of the parent 28.5 (6.2) 22.3 29.3 (8.6) 20.7
Earnings per share pence pence pence pence
Basic earnings per share 3
From profit for the period 49.4 38.6 50.8 35.9
Diluted earnings per share 3
From profit for the period 48.7 38.1 50.2 35.4
(1) Adjusted numbers are stated to give a better understanding of the
underlying business performance. Details of adjusting items can be found in
Note 2.
Condensed consolidated statement of income (continued)
Half year ended 30 September 2023
Year to 31 March 2023
Adjusted Adjusting items(1) Total
Note £m £m £m
Revenue 4 444.7 - 444.7
Cost of sales (214.5) - (214.5)
Gross profit 230.2 - 230.2
Research and development 5 (35.9) (0.8) (36.7)
Selling and marketing (65.4) - (65.4)
Administration and shared services (52.9) (10.3) (63.2)
Foreign exchange gain 4.5 3.0 7.5
Operating profit 80.5 (8.1) 72.4
Financial income 2.7 - 2.7
Financial expenditure (1.2) (0.4) (1.6)
Profit before income tax 4 82.0 (8.5) 73.5
Income tax expense (17.0) 2.1 (14.9)
Profit for the period attributable to equity Shareholders of the parent 65.0 (6.4) 58.6
Earnings per share pence pence
Basic earnings per share 3
From profit for the period 112.7 101.6
Diluted earnings per share 3
From profit for the period 111.3 100.3
(1) Adjusted numbers are stated to give a better understanding of the
underlying business performance. Details of adjusting items can be found in
Note 2.
Condensed consolidated statement of comprehensive income
Half year ended 30 September 2023
Half year to Half year to Year to
30 September 2023 30 September 31 March
2022 2023
£m £m £m
Profit for the period 22.3 20.7 58.6
Other comprehensive (expense)/income:
Items that may be reclassified subsequently to condensed consolidated
statement of income
Foreign exchange translation differences (0.2) 9.1 5.3
Items that will not be reclassified to condensed consolidated statement of
income
Remeasurement loss in respect of post-retirement benefits (19.4) (31.8) (38.6)
Tax credit on items that will not be reclassified to condensed consolidated 4.8 7.9 9.7
statement of income
Total other comprehensive expense (14.8) (14.8) (23.6)
Total comprehensive income for the period attributable to equity Shareholders 7.5 5.9 35.0
of the parent
Condensed consolidated statement of financial position
As at 30 September 2023
As at As at As at
30 September 2023 30 September 2022 31 March 2023
as restated(1)
Note £m £m £m
Assets
Non-current assets
Property, plant and equipment 73.1 41.0 59.3
Right-of-use assets 34.5 31.1 31.4
Intangible assets 127.3 138.4 132.1
Long-term receivables 1.2 0.1 0.5
Derivative financial instruments 8 - 0.1 0.4
Retirement benefit asset 11.3 24.5 26.4
Deferred tax assets 12.6 14.1 12.5
260.0 249.3 262.6
Current assets
Inventories 104.1 79.5 81.4
Trade and other receivables 107.2 102.7 113.2
Current income tax receivable 0.8 0.9 0.5
Derivative financial instruments 8 2.3 0.1 1.6
Cash and cash equivalents 101.7 118.9 112.7
316.1 302.1 309.4
Total assets 576.1 551.4 572.0
Equity
Capital and reserves attributable to the company's equity shareholders
Share capital 2.9 2.9 2.9
Share premium 62.6 62.5 62.6
Other reserves 0.2 0.2 0.2
Translation reserve 12.7 16.7 12.9
Retained earnings 273.2 233.3 265.4
351.6 315.6 344.0
Liabilities
Non-current liabilities
Bank loans 0.7 1.1 0.9
Lease payables 29.8 27.2 26.2
Derivative financial instruments 8 0.4 1.2 -
Provisions - 0.1 -
Deferred tax liabilities 3.9 7.5 7.8
34.8 37.1 34.9
Current liabilities
Bank loans and overdrafts 21.9 20.7 11.6
Trade and other payables 149.0 152.3 159.4
Lease payables 5.0 4.2 5.2
Current income tax payables 7.2 6.7 8.1
Derivative financial instruments 8 0.9 7.8 1.2
Provisions 5.7 7.0 7.6
189.7 198.7 193.1
Total liabilities 224.5 235.8 228.0
Total liabilities and equity 576.1 551.4 572.0
(1) Details of restatement of prior period numbers can be found in note 1.
Condensed consolidated statement of changes in equity
Half year ended 30 September 2023
Share capital Share premium Other reserves Translation reserve Retained earnings
Total
£m £m £m £m £m £m
As at 1 April 2023 2.9 62.6 0.2 12.9 265.4 344.0
Total comprehensive (expense)/income:
Profit for the period - - - - 22.3 22.3
Other comprehensive (expense)/income:
- Foreign exchange translation differences - - - (0.2) - (0.2)
- Remeasurement loss in respect of post-retirement benefits - - - - (19.4) (19.4)
- Tax credit on items that will not be reclassified to Consolidated Statement - - - - 4.8 4.8
of Income
Total comprehensive(expense)/income attributable to equity Shareholders of the - - - (0.2) 7.7 7.5
parent
Transactions with owners recorded directly in equity:
- Credit in respect of employee service costs settled by award of share - - - - 1.1 1.1
options
- Tax charge in respect of share options - - - - (1.0) (1.0)
Total transactions with owners recorded directly in equity: - - - - 0.1 0.1
As at 30 September 2023 2.9 62.6 0.2 12.7 273.2 351.6
As at 1 April 2022 2.9 62.5 0.2 7.6 243.2 316.4
Total comprehensive income/(expense):
Profit for the period - - - - 20.7 20.7
Other comprehensive income/(expense):
- Foreign exchange translation differences - - - 9.1 - 9.1
- Remeasurement loss in respect of post-retirement benefits - - - - (31.8) (31.8)
- Tax credit on items that will not be reclassified to Consolidated Statement - - - - 7.9 7.9
of Income
Total comprehensive income/(expense) attributable to equity Shareholders of - - - 9.1 (3.2) 5.9
the parent
Transactions with owners recorded directly in equity:
- Credit in respect of employee service costs settled by award of share - - - - 1.2 1.2
options
- Dividends - - - - (7.9) (7.9)
Total transactions with owners recorded directly in equity: - - - - (6.7) (6.7)
As at 30 September 2022 2.9 62.5 0.2 16.7 233.3 315.6
Condensed consolidated statement of changes in equity (continued)
Half year ended 30 September 2023
Share capital Share premium Other reserves Translation reserve Retained earnings
Total
£m £m £m £m £m £m
As at 1 April 2022 2.9 62.5 0.2 7.6 243.2 316.4
Total comprehensive income/(expense):
Profit for the period - - - - 58.6 58.6
Other comprehensive income/(expense):
- Foreign exchange translation differences - - - 5.3 - 5.3
- Remeasurement loss in respect of post-retirement benefits - - - - (38.6) (38.6)
- Tax credit on items that will not be reclassified to Consolidated Statement - - - - 9.7 9.7
of Income
Total comprehensive income attributable to equity Shareholders of the parent - - - 5.3 29.7 35.0
Transactions with owners recorded directly in equity:
- Credit in respect of employee service costs settled by award of share - - - - 2.4 2.4
options
- Tax credit in respect of share options - - - - 0.7 0.7
- Proceeds from shares issued - 0.1 - - - 0.1
- Dividends - - - - (10.6) (10.6)
Total transactions with owners recorded directly in equity: - 0.1 - - (7.5) (7.4)
As at 31 March 2023 2.9 62.6 0.2 12.9 265.4 344.0
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.
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.
Condensed consolidated statement of cash flows
Half year ended 30 September 2023
Half year to Half year to Year to
30 September 2023 30 September 2022 31 March
as restated(1) 2023
£m £m £m
Profit for the period 22.3 20.7 58.6
Adjustments for:
Income tax expense 7.3 5.9 14.9
Net financial income (1.0) (0.3) (1.1)
Fair value movement on financial derivatives 2.4 6.1 (3.0)
Release of provision on disposal - (0.4) (0.4)
WITec post-acquisition gross margin adjustment - 0.5 0.5
Transaction related costs 0.7 - -
Restructuring costs - - 0.4
Intellectual property litigation costs 0.2 - 0.5
Impairment of capitalised development costs - - 0.8
Amortisation and impairment of acquired intangibles 4.6 4.3 9.3
Depreciation of right-of-use assets 2.7 1.9 4.6
Depreciation of property, plant and equipment 2.4 2.6 4.8
Amortisation of capitalised development costs 0.3 0.6 1.4
Adjusted earnings before interest, tax, depreciation and amortisation 41.9 41.9 91.3
Charge in respect of equity settled employee share schemes 1.1 1.2 2.4
Cash payments to the pension scheme more than the charge to operating profit (4.0) (3.9) (11.7)
Operating cash flows before movements in working capital 39.0 39.2 82.0
Increase in inventories (22.9) (12.8) (15.6)
Decrease/(increase) in receivables 3.8 (8.3) (19.6)
(Decrease)/increase in payables and provisions (18.1) (5.3) 16.9
Increase in customer deposits 5.6 13.8 9.2
Cash generated from operations 7.4 26.6 72.9
Interest paid (0.5) - (0.7)
Income taxes paid (7.9) (2.6) (5.7)
Net cash (used by)/from operating activities (1.0) 24.0 66.5
Cash flows from investing activities
Proceeds from sale of property, plant and equipment 0.1 0.1 0.2
Acquisition of property, plant and equipment (16.5) (11.6) (32.3)
Acquisition of subsidiaries, net of cash acquired - - (4.8)
Acquisition of intangible assets (0.3) - -
Capitalised development expenditure (0.3) (0.1) (0.6)
Interest received 1.7 0.1 1.1
Net cash used in investing activities (15.3) (11.5) (36.4)
Cash flows from financing activities
Proceeds from issue of share capital 0.1 - 0.1
Interest paid on lease payables (0.4) (0.3) (0.5)
Repayment of lease payables (2.2) (1.2) (5.1)
Repayment of borrowings (0.1) (0.1) (0.5)
Dividends paid - (7.9) (10.6)
Net cash used in financing activities (2.6) (9.5) (16.6)
Net (decrease)/increase in cash and cash equivalents (18.9) 3.0 13.5
Cash and cash equivalents at the beginning of the period 101.5 87.7 87.7
Effect of exchange rate fluctuations on cash held (2.3) 8.0 0.3
Cash and cash equivalents at the end of the period 80.3 98.7 101.5
Comprised of:
Cash and cash equivalents as per the consolidated statement of financial 101.7 118.9 112.7
position
Bank overdrafts (21.4) (20.2) (11.2)
80.3 98.7 101.5
(1) Details of restatement of prior period numbers can be found in note 1.
Notes to the half-year financial statements
Half year ended 30 September 2023
1 Basis of preparation
Reporting entity
Oxford Instruments plc is a company incorporated in England and Wales. The
condensed consolidated half-year financial statements consolidate the results
of the Company and its subsidiaries (together referred to as the "Group").
They have been prepared and approved by the Directors in accordance with
International Financial Reporting Standard ("IFRS") IAS 34 Interim Financial
Reporting as adopted by the UK. They do not include all of the information
required for full annual financial statements and should be read in
conjunction with the consolidated Financial Statements of the Group for the
year ended 31 March 2023.
The financial information contained herein is unaudited and does not
constitute statutory accounts as defined by Section 435 of the Companies Act
2006. The comparative figures for the financial year ended 31 March 2023 are
not the Company's statutory accounts for that financial year. Those accounts
have been reported on by the Company's auditors and delivered to the registrar
of companies. The report of the auditors was (i) unqualified, (ii) did not
include a reference to any matters to which the auditors 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 Board of Directors approved the Condensed Consolidated Interim Financial
Statements on 13 November 2023.
Significant accounting policies
As required by the Disclosure Guidance and Transparency Rules of the Financial
Conduct Authority, the condensed set of Financial Statements has been prepared
applying the accounting policies and presentation that were applied in the
preparation of the Company's published consolidated financial statements for
the year ended 31 March 2023.
Prior period restatement
As reported in the statutory accounts for the year ended 31 March 2023, a
restatement has been made for the presentation of receivable and payable
balances in the prior year.
The Directors concluded that separate value-added tax (VAT) receivable and
payable balances, within the same VAT group, or within individual
registrations, of group entities, held on the condensed consolidated statement
of financial position at 31 September 2022 should have been netted off with
one another, rather than presented gross.
As a result, the condensed consolidated statement of financial position as at
30 September 2022 and condensed consolidated statement of cash flows for the
period ended 30 September 2022 has been restated as follows:
30 September 2022 30 September 2022 (restated)
(as reported)
Restatement
£m £m £m
Condensed consolidated statement of financial position
Current assets
Trade and other receivables 118.2 (15.5) 102.7
Current liabilities
Trade and other payables (167.8) 15.5 (152.3)
Condensed consolidated statement of cash flows
Increase in receivables (13.9) 5.6 (8.3)
Increase/(decrease) in payables and provisions 0.3 (5.6) (5.3)
The restatement did not result in any change to reported profit, earnings per
share, net assets or net cash from operating activities reported in the 2022
half-year financial statements.
Changes in accounting standards
IFRS 17 Insurance Contracts provides consistent principles for all aspects of
accounting for insurance contracts within the scope of the standard. The
standard is effective for years beginning on or after 1 January 2023 with a
requirement to restate comparatives.
The Group has reviewed whether its arrangements meet the accounting definition
of an insurance contract. While some contracts may transfer an element of
insurance risk, they relate to warranty and service type agreements that are
issued in connection with the Group's sales of its goods or services and
therefore will continue to be measured under IFRS 15 Revenue from Contracts
with Customers and IAS 37 Provisions, Contingent Liabilities and Contingent
Assets.
Parent company financial guarantees, meet the IFRS 17 definition of insurance
contracts. Whilst there could be an impact on individual sets of financial
statements of companies within the Group these have not impacted the condensed
consolidated interim financial statements for the period to 30 September 2023
and are not expected to have an impact for the full year. The Directors are
not aware of any other contracts where IFRS 17 would have an impact on the
condensed consolidated interim financial statements.
IAS 12 Income Taxes has been amended to incorporate revisions for 'deferred
tax related to assets and liabilities arising from a single transaction' and
'international tax reform: pillar two model rules'. There is no material
impact on the Group as a result of the amendments.
Estimates
The preparation of half-year financial statements requires management to make
judgements, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets and liabilities, income
and expense. Actual results may differ from these estimates.
In preparing these half-year financial statements, the significant judgements
made by management in applying the Group's accounting policies and key sources
of estimation uncertainty were the same as those that applied to the
consolidated financial statements as at and for the year ended 31 March 2023.
Going concern
The Directors have considered the adoption of the going concern basis of
preparation for these half-year financial statements. The Directors have
reviewed cash flow forecasts prepared for a period of 18 months from the date
of approval of these condensed accounts.
At the end of the reporting period the Group had £188.0m of available
liquidity including £79.1m of net cash and £108.9m of the undrawn revolving
credit facility ('RCF'). In reviewing the cash flow forecasts the Directors
considered the current trading position of the Group and the likely capital
expenditure and working capital requirements. Trading for the Group has been
good during the first half year, though because of significant capital
expenditure and exceptional export licence rejection and delays we have
reported a negative cash flow conversion (-21%). On a normalised basis, which
excludes these items, cash conversion was 40%. The Group has prepared and
reviewed a number of scenarios for the Group based on key risks noted for the
business and the potential impact on orders, trading and cash flow
performance. In addition, the Group has overlaid the risk of long-term adverse
movements in currency rates to our cash flow forecasts. The cashflow forecasts
show that the Group expects to comply with the covenants included within the
RCF agreement throughout the review period.
Taking into account the current cash level and the committed facilities the
Directors are confident that the Group will have sufficient funds to allow it
to continue to operate. After reviewing the projections and sensitivity
analysis the Directors believe that it is appropriate to prepare the half-year
financial statements on a going concern basis.
2 Non-GAAP measures
In the preparation of adjusted numbers, the Directors exclude certain items in
order to assist with comparability between peers and to give what they
consider to be a better indication of the underlying performance of the
business. These adjusting items are excluded in the calculation of adjusted
operating profit, adjusted profit before tax, adjusted profit for the period,
adjusted EBITDA, adjusted EPS, adjusted cash conversion and adjusted effective
tax rate. Details of adjusting items are given below.
Adjusted EBITDA is calculated by adding back depreciation of property, plant
and equipment, depreciation of right-of-use assets and amortisation of
intangible assets to adjusted operating profit, and can be found in the
condensed consolidated statement of cash flows. The calculation of adjusted
EPS can be found in Note 3. Adjusted effective tax rate is calculated by
dividing the share of tax attributable to adjusted profit before tax by
adjusted profit before tax. The definition of cash conversion is set out in
the Finance Review.
Reconciliation between operating profit and profit before income tax and
adjusted profit
Half year to Half year to
30 September 2023 30 September 2022 Year to 31 March 2023
Operating profit Profit before income tax Operating profit Profit before income tax Operating profit Profit before income tax
£m £m £m £m £m £m
Statutory measure 28.6 29.6 26.3 26.6 72.4 73.5
Release of provision on disposal - - (0.4) (0.4) (0.4) (0.4)
Transaction related costs 0.7 0.7 - - - -
WITec post-acquisition gross margin adjustment - - 0.5 0.5 0.5 0.5
Restructuring costs - - - - 0.4 0.4
Intellectual property litigation costs 0.2 0.2 - - 0.5 0.5
Impairment of capitalised development costs - - - - 0.8 0.8
Amortisation and impairment of acquired intangibles 4.6 4.6 4.3 4.3 9.3 9.3
Fair value movement on financial derivatives 2.4 2.4 6.1 6.1 (3.0) (3.0)
Unwind of discount in respect of contingent consideration - 0.2 0.4
Total non-GAAP adjustments 7.9 7.9 10.5 10.7 8.1 8.5
Adjusted measure 36.5 37.5 36.8 37.3 80.5 82.0
Adjusted income tax expense (9.0) (8.0) (17.0)
Adjusted profit for the period 36.5 28.5 36.8 29.3 80.5 65.0
Adjusted effective tax rates 24.0% 21.4% 20.7%
Release of provision on disposal
These represent the release of the provision on disposal of the OI Healthcare
business in the US in 2020.
Transaction related costs
These represent the costs of one-off charges incurred at the balance sheet
date relating to transactional work.
WITec post-acquisition gross margin adjustment
The finished goods and work in progress inventories were revalued to fair
value, based on selling price less costs to sell. The adjustments in the prior
periods relate to the gross margin which would have been earned on
post-acquisition sales to 31 March 2023, but which has been absorbed into the
acquisition date fair value. This will not recur, as all such inventory at the
acquisition date had been delivered to customers by 31 March 2023.
Restructuring costs
These represent the costs of one-off restructuring charges within the
Materials & Characterisation segment in the prior period.
Intellectual property litigation costs
These represent one-off legal costs in the Research & Discovery segment to
defend our intellectual property.
Impairment of capitalised development costs
During the prior year, the Group reviewed the capitalised development costs to
ensure they remained directly related to targeted product or software
developments. The one-off non-cash impairment relates to delays in market
launch of specific development projects within the Materials &
Characterisation segment.
Amortisation and impairment of acquired intangibles
Adjusted profit excludes the non-cash amortisation and impairment of acquired
intangible assets and goodwill.
Fair value movement on financial derivatives
Under IFRS 9, all derivative financial instruments are recognised initially at
fair value. Subsequent to initial recognition, they are also measured at fair
value. In respect of instruments used to hedge foreign exchange risk and
interest rate risk, the Group does not take advantage of the hedge accounting
rules provided for in IFRS 9 since that standard requires certain stringent
criteria to be met in order to hedge account, which, in the particular
circumstances of the Group, are considered by the Board not to bring any
significant economic benefit. Accordingly, the Group accounts for these
derivative financial instruments at fair value through profit or loss. To the
extent that instruments are hedges of future transactions, adjusted profit for
the period is stated before changes in the valuation of these instruments so
that the underlying performance of the Group can be more clearly seen.
Unwind of discount in respect of contingent consideration
Adjusted profit in the prior periods exclude the unwind of the discount in
respect of the contingent consideration on the acquisition of WITec.
Adjusted income tax expense
Adjusting items include the income tax on each of the items described above.
Reconciliation of changes in cash and cash equivalents to movement in net cash
Half year to Half year to 30 September 2022 Year to
30 September 2023 31 March 2023
£m £m £m
Net (decrease)/increase in cash and cash equivalents (18.9) 3.0 13.5
Effect of exchange rate fluctuations on cash held (2.3) 8.0 0.3
Movement in net cash in the period (21.2) 11.0 13.8
Repayment of borrowings 0.1 0.2 0.5
Net cash after borrowings at the start of the period 100.2 85.9 85.9
Net cash after borrowings at the end of the period 79.1 97.1 100.2
Reconciliation of net cash to Statement of Financial Position
Half year to Half year to 30 September 2022 Year to
30 September 2023 31 March 2023
£m £m £m
Covid-19 loan at WITec (1.2) (1.6) (1.3)
Overdrafts (21.4) (20.2) (11.2)
Cash and cash equivalents 101.7 118.9 112.7
Net cash after borrowings at the end of the period 79.1 97.1 100.2
3 Earnings per share
Basic earnings per ordinary share (EPS) is calculated by dividing the profit
attributable to equity shareholders of the parent by the weighted average
number of ordinary shares in issue during the period. The weighted average
number of shares used in the calculation is as follows:
Half year to Half year to 30 September 2022 Year to
30 September 2023 31 March 2023
Shares Shares Shares
million million million
Weighted average number of shares used in calculation of basic earnings per 57.7 57.7 57.7
share
For the purposes of calculating diluted and diluted adjusted EPS, the weighted
average number of ordinary shares is adjusted to include the weighted average
number of ordinary shares that would be issued on the conversion of all
potentially dilutive ordinary shares expected to vest, relating to the
company's share-based payment plans. Potential ordinary shares are only
treated as dilutive when their conversion to ordinary shares would decrease
EPS.
The following table shows the effect of share options on the calculation of
diluted earnings per share:
Half year to Half year to 30 September 2022 Year to
30 September 2023 31 March 2023
Shares Shares Shares
million million million
Number of ordinary shares per basic earnings per share calculations 57.7 57.7 57.7
Effect of shares under option 0.8 0.7 0.7
Number of ordinary shares per diluted earnings per share calculations 58.5 58.4 58.4
Basic and diluted EPS are based on the profit for the period attributable to
equity shareholders of the parent, as reported in the condensed consolidated
statement of income. Adjusted and diluted adjusted EPS are based on adjusted
profit for the period, as reported in Note 2:
Half year to Half year to
30 September 2023 30 September 2022 Year to 31 March 2023
£m Pence £m Pence £m Pence
Underlying profit attributable to equity shareholders of the parent/Underlying 22.3 38.6 20.7 35.9 58.6 101.6
EPS
Total underlying adjustments to profit before tax (Note 2) 7.9 13.7 10.7 18.5 8.5 14.7
Related tax effects (1.7) (2.9) (2.1) (3.6) (2.1) (3.6)
Adjusted profit attributable to equity shareholders of the parent/adjusted EPS 28.5 49.4 29.3 50.8 65.0 112.7
Diluted underlying EPS 38.1 35.4 100.3
Diluted adjusted EPS 48.7 50.2 111.3
4 Segment information
The Group has nine operating segments. These operating segments have been
combined into three aggregated operating segments to the extent that they have
similar economic characteristics, with relevance to products and services,
type and class of customer, methods of sale and distribution and the
regulatory environment in which they operate. Each of these three aggregated
operating segments is a reportable segment. The aggregated operating segments
are as follows:
- the Materials & Characterisation segment comprises a group of
businesses focusing on applied R&D and commercial customers, enabling the
fabrication and characterisation of materials and devices down to the atomic
scale,
- the Research & Discovery segment comprises a group of businesses
providing advanced solutions that create unique environments and enable
measurements down to the molecular and atomic level which are used in
fundamental research; and
- the Service & Healthcare segment provides customer service and support
for the Group's products and the service of third-party healthcare imaging
systems.
The Group's internal management structure and financial reporting systems
reflect the three aggregated operating segments based on the economic
characteristics discussed above.
Reportable segment results include items directly attributable to a segment as
well as those which can be allocated on a reasonable basis. The operating
results of each are regularly reviewed by the Chief Operating Decision Maker,
which is deemed to be the 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.
Results
Half year to 30 September 2023 Materials & Characterisation Research & Discovery Service & Healthcare
Total
£m £m £m £m
Total segment revenue 109.3 66.6 33.8 209.7
Segment adjusted operating profit 17.4 9.6 9.5 36.5
Half year to 30 September 2022 Materials & Characterisation Research & Discovery Service & Healthcare
Total
£m £m £m £m
Total segment revenue 108.7 58.1 33.7 200.5
Segment adjusted operating profit 18.9 7.0 10.9 36.8
Year to 31 March 2023 Materials & Characterisation Research & Discovery Service & Healthcare
Total
£m £m £m £m
Total segment revenue 234.5 139.4 70.8 444.7
Segment adjusted operating profit 40.5 18.0 22.0 80.5
Revenue in the Materials & Characterisation and Research & Discovery
segments relates to the sale of products. Revenue in the Service &
Healthcare segment relates to service income.
Reconciliation of reportable segment profit
Half year to 30 September 2023 Materials & Characterisation Research & Discovery Service & Healthcare Unallocated Group items
Total
£m £m £m £m £m
Segment adjusted operating profit 17.4 9.6 9.5 - 36.5
Transaction related costs - (0.7) - - (0.7)
Intellectual property litigation costs - (0.2) - - (0.2)
Amortisation and impairment of acquired intangibles (1.5) (3.1) - - (4.6)
Fair value movement on financial derivatives - - - (2.4) (2.4)
Financial income - - - 1.9 1.9
Financial expenditure - - - (0.9) (0.9)
Profit/(loss) before income tax 15.9 5.6 9.5 (1.4) 29.6
Half year to 30 September 2022 Materials & Characterisation Research & Discovery Service & Healthcare Unallocated Group items
Total
£m £m £m £m £m
Segment adjusted operating profit 18.9 7.0 10.9 - 36.8
Release of provision on disposal - - 0.4 - 0.4
WITec post-acquisition gross margin adjustment (0.5) - - - (0.5)
Amortisation and impairment of acquired intangibles (1.2) (3.1) - - (4.3)
Fair value movement on financial derivatives - - - (6.1) (6.1)
Financial income - - - 0.9 0.9
Financial expenditure - - - (0.6) (0.6)
Profit/(loss) before income tax 17.2 3.9 11.3 (5.8) 26.6
Year to 31 March 2023 Materials & Characterisation Research & Discovery Service & Healthcare Unallocated Group items
Total
£m £m £m £m £m
Segment adjusted operating profit 40.5 18.0 22.0 - 80.5
Restructuring Costs (0.4) - - - (0.4)
Release of provision on disposal - - 0.4 - 0.4
Intellectual property litigation costs - (0.5) - - (0.5)
Impairment of capitalised development costs (0.8) - - - (0.8)
WITec post-acquisition gross margin adjustment (0.5) - - - (0.5)
Amortisation and impairment of acquired intangibles (3.1) (6.2) - - (9.3)
Fair value movement on financial derivatives - - - 3.0 3.0
Financial income - - - 2.7 2.7
Financial expenditure - - - (1.6) (1.6)
Profit before income tax 35.7 11.3 22.4 4.1 73.5
Revenue Half year to Half year to 30 September 2022 Year to
30 September 2023 31 March 2023
£m £m £m
UK 12.8 10.4 29.4
China 65.1 56.8 107.4
Japan 16.0 16.8 46.7
USA 51.2 55.2 121.2
Germany 15.4 14.9 32.1
Rest of Europe 20.7 18.1 43.4
Rest of Asia 20.5 23.6 47.1
Rest of World 8.0 4.7 17.4
Total 209.7 200.5 444.7
5 Research and development (R&D)
The total research and development spend by the Group is as follows:
Half year to Half year to 30 September 2022 Year to
30 September 2023 31 March 2023
£m £m £m
R&D expense charged to the Consolidated Statement of Income 19.7 18.2 36.7
Less: depreciation of R&D-related fixed assets - (0.2) (0.3)
Add: amounts capitalised as fixed assets - - -
Less: amortisation of R&D costs previously capitalised as intangibles (0.3) (0.6) (2.2)
Add: amounts capitalised as intangible assets 0.3 0.1 0.6
Total cash spent on R&D during the year 19.7 17.5 34.8
6 Taxation
The total effective tax rate on profits for the half year is 24.7% (2022:
22.2%). The weighted average tax rate in respect of adjusted profit before tax
(see Note 2) for the half year is 24.0% (2022: 21.4%).
For the full year the Group expects the tax rate in respect of adjusted profit
before tax to be 24.2%.
7 Dividends per share
The following dividends per share were paid by the Group:
Half year to Half year to 30 September 2022 Year to
30 September 2023 31 March 2023
pence pence pence
Previous period final dividend - 13.7 13.7
Current period interim dividend - - 4.6
- 13.7 18.3
The following dividends per share were proposed by the Group in respect of
each accounting period presented:
Half year to Half year to 30 September 2022 Year to
30 September 2023 31 March 2023
pence pence pence
Interim dividend 4.9 4.6 4.6
Final dividend - - 14.9
4.9 4.6 19.5
The interim dividend for the year to 31 March 2023 of 4.6 pence was approved
by a sub-committee of the Board on 7 November 2022 and was paid on 13 January
2023. The final dividend for the year to 31 March 2023 of 14.9 pence was
approved by Shareholders at the Annual General Meeting on 19 September 2023
and was paid on 12 October 2023.
The interim dividend for the year to 31 March 2024 of 4.9 pence per share was
approved by a sub-committee of the Board on 7 November 2023 and has not been
included as a liability as at 30 September 2023. The interim dividend is
expected to be paid on 12 January 2024 to Shareholders on the register on the
record date of 1 December 2023, with an ex-dividend date of 30 November 2023
and with the last date of election for the Dividend Reinvestment Plan (DRIP)
being 19 December 2023.
8 Financial instruments
Fair values of financial assets and liabilities
The following table shows the carrying amounts and fair values of financial
assets and financial liabilities, including their levels in the fair value
hierarchy. It does not include fair value information for financial assets and
financial liabilities not measured at fair value if the carrying amount is a
reasonable approximation of fair value.
As at As at As at 31 March 2023
30 September 2023 30 September 2022 as restated (2)
as restated (1,2)
Fair value hierarchy Carrying amount Fair value Carrying amount Fair value Carrying amount Fair value
£m £m £m £m £m £m
Assets carried at amortised cost
Long-term receivables 1.2 0.1 0.5
Trade receivables 82.0 86.2 92.4
Other receivables and accrued income 11.1 6.0 8.4
Cash and cash equivalents 101.7 118.9 112.7
Assets carried at fair value
Derivative financial instruments:
- Foreign currency contracts 2 2.3 2.3 0.2 0.2 2.0 2.0
Liabilities carried at fair value
Derivative financial instruments:
- Foreign currency contracts 2 (1.3) (1.3) (9.0) (9.0) (1.2) (1.2)
Liabilities carried at amortised cost
Trade and other payables (59.9) (64.6) (79.9)
Bank overdrafts (21.4) (20.2) (11.2)
Borrowings (1.2) (1.7) (1.3)
Lease payables (34.8) (31.4) (31.4)
(1) Details of restatement of prior period numbers can be found in note 1.
(2) The other receivables and accrued income and trade and other payables
balances in the table above, as at 30 September 2022 and 31 March 2023, have
been restated to remove the tax-related balances which do not meet the
accounting definition of financial assets and liabilities. As a result, at 30
September 2022, other receivables and accrued income were reduced by £5.2m,
while trade and other payables were reduced by £7.1m; at 31 March 2023, other
receivables and accrued income were reduced by £5.8m, while trade and other
payables were reduced by £6.1m.
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. Tax related receivables and payables are excluded
from the above table as these are not considered to be financial assets and
liabilities.
Lease payables
The lease liability is measured at amortised cost using the effective interest
method.
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.
9 Retirement benefit obligations
The Group operates a defined benefit plan in the UK. A full actuarial
valuation of the UK plan was carried out as at 31 March 2021 which, for
reporting purposes, has been updated to 30 September 2023 by a qualified
independent actuary.
At 31 March 2023, the scheme actuary calculated a retirement benefit asset of
£26.4m, being the net of £251.5m of assets and a present value of future
liabilities of £225.1m.
In the period to 30 September 2023, there has been an increase in the discount
rate from 4.8% to 5.5% and significant changes to market conditions have
reduced the value of the scheme's obligations. The impact of these changes has
decreased the benefit obligation to £207.2m (31 March 2023: £225.1m). There
have been no material changes to the demographic assumptions associated with
the scheme.
The Group has agreed a basis for deficit recovery payments with the trustees
of the UK pension scheme. The deficit recovery payments are payable through to
and including 2026 and will rise by approximately 3% per annum. The deficit
recovery payment for the period was £4.2m (year to 31 March 2023: £8.2m as
well as an additional one-off payment of £4.0m). However, significant changes
in market conditions reduced the scheme's assets during the period. As a
result, the fair value of plan assets decreased to £218.5m (31 March 2022:
£251.5m).
The overall effect is that for the purposes of IAS 19 the surplus on the
scheme decreased from £26.4m to £11.3m.
10 Related parties
There have been no related party transactions in the first 6 months of the
current financial year which have materially affected the financial position
or performance of the Group.
Related parties are consistent with those disclosed in the Group's annual
report for the year ended 31 March 2023.
Principal risks and uncertainties
Information regarding the risk management process in place at the Group is set
out on pages 94 to 96 of the 2023 Report and Financial Statements.
The principal risks and uncertainties identified through that process are set
out on pages 97 to 101 of the 2023 Report and Financial Statements and can be
found on the Group's website at www.oxinst.com (http://www.oxinst.com) .
In keeping with the risk management process, the Group has performed a
quarterly update of its risk register as at 30 September 2023. It has
evaluated the disclosures made on pages 97 to 101 of the 2023 Report and
Financial Statements and has concluded that all of the risks identified
continue to be relevant for the remainder of the year ending 31 March 2024.
Further it considers that there are no additional significant risks to be
disclosed.
A summary of the risks and uncertainties identified in the 2023 Report and
Financial Statements is set out below:
· Geopolitical risk;
· Supply chain risk;
· Routes to market risk;
· New Product Introduction risk
· Market risk: Recession/inflation
· Information Technology risk
· Legal and regulatory compliance risk
· Risk of adverse movements in long-term foreign currency rates
· Risk that a global pandemic/catastrophe causes major disruption
· People and capability risk
· Business interruption: operational risk
· Climate change risk; and
· Pensions risk.
Responsibility statement of the Directors in respect of the half-year
financial statements
The Directors confirm that, to the best of their knowledge:
• the condensed consolidated interim financial statements has been prepared
in accordance with IAS 34 Interim Financial Reporting as adopted by the UK;
and
• the interim management report includes a fair review of the information
required by:
a) DTR 4.2.7R of the Disclosure Guidance 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 consolidated interim
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 Guidance 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.
By order of the Board
Richard Tyson Gavin Hill
Chief Executive Officer Chief Financial Officer
13 November 2023
Independent review report to Oxford Instruments plc
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 2023 is not prepared,
in all material respects, in accordance with UK adopted International
Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of
the United Kingdom's Financial Conduct Authority.
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 2023 which comprises the condensed consolidated statement of income,
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.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" ("ISRE (UK) 2410"). 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
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.
As disclosed in Note 1, the annual financial statements of the group are
prepared in accordance with UK adopted international accounting standards. The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with UK adopted International
Accounting Standard 34, "Interim Financial Reporting".
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410, however future events or conditions may cause the group to
cease to continue as a going concern.
Responsibilities of directors
The directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, the directors are responsible
for assessing the company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to
liquidate the company or to cease operations, or have no realistic alternative
but to do so.
Auditor's responsibilities for the review of the financial information
In reviewing the half-yearly report, we are responsible for expressing to the
Company a conclusion on the condensed set of financial statements in the
half-yearly financial report. Our conclusion, including our Conclusions
Relating to Going Concern, are based on procedures that are less extensive
than audit procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
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BDO LLP
Chartered Accountants
Reading, UK
13 November 2023
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