REG - Oxford Instruments - Preliminary Results
14/06/2022 07:00
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RNS Number : 7279O Oxford Instruments PLC 14 June 2022
Oxford Instruments plc
Announcement of Preliminary Results for the year ended 31 March 2022
Strong performance over the year provides the foundation for sustainable
growth and continued medium-term margin expansion
Oxford Instruments plc, a leading provider of high technology products and
systems for industry and research, today announces its preliminary results for
the year ended 31 March 2022.
Adjusted(1) Year ended 31 March 2022 Year ended 31 March 2021 % change reported % change organic constant currency(4)
Revenue £367.3m £318.5m +15.3% +14.5%
Adjusted operating profit £66.3m £56.7m +16.9% +15.2%
Adjusted operating profit margin 18.1% 17.8% +30bps
Adjusted profit before taxation £65.9m £55.9m +17.9%
Adjusted basic earnings per share 94.3p 78.6p +20.0%
Cash conversion(2) 84% 102%
Net cash(3) £85.9m £97.6m
Statutory Year ended 31 March 2022 Year ended % change reported
31 March 2021
Revenue £367.3m £318.5m +15.3%
Operating profit £48.3m £53.0m (8.9%)
Operating profit margin 13.2% 16.6%
Profit before taxation £47.6m £52.2m (8.8%)
Basic earnings per share 67.1p 72.8p (7.8%)
Dividend per share for the year 18.1p 17.0p +6.5%
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 1.
2. 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. Organic numbers remove the impact of the acquisition of WITec.
FINANCIAL HIGHLIGHTS
· Organic revenue growth of 14.5%, partially constrained by supply
chain disruption. Reported revenue growth bolstered by WITec acquisition
· Strong growth in orders of 19.9% at organic constant currency
· Reported order book of £260.2m, growth of 26.6% at organic
constant currency
· Strong growth in adjusted operating profit of 16.9%, with margin
rising to 18.1%
· Statutory profit measures include a £6.4m charge as a result of
the unwind of the brought forward £6.1m financial derivative asset
· Growth and phasing of orders and revenue led to an increase in
working capital, resulting in normalised cash conversion of 84%
· Growth in total dividend for the year of 6.5%
OPERATIONAL HIGHLIGHTS
· Resilience of our business model and product strength underpinned
improved financial performance despite significant inflationary pressures
· Strong order growth across each of our end markets supported by
long-term structural growth drivers and global sustainability agenda
· Investment in semiconductor markets drives strong growth across our
materials analysis and etch and deposition portfolio
· Research and development of advanced materials supports strong
demand for our range of analysis and imaging systems
· Launch of advanced benchtop microscopy system complements our
imaging technology, increasing our product reach and capability into
Healthcare & Lifescience
· Quantum computing research and evolving commercial market drive
demand for our cryogenic systems and scientific cameras
· Strong performance from WITec acquisition in first year with key
applications across advanced materials and life science research
Ian Barkshire, Chief Executive of Oxford Instruments plc, commented on
performance and outlook:
"We have successfully navigated the turbulence of the last two years, and,
through the dedication of our talented global team and the successful
execution of our Horizon strategy, we have emerged as a stronger, more focused
business, even better aligned to meet the needs of our customers in attractive
end markets with long-term structural growth drivers.
"The business has performed strongly this year, despite supply chain
disruption impacting the conversion of orders into revenue and cost inflation
holding back margin progression. Looking ahead, we do not foresee short term
relief from the current economic headwinds and ongoing supply chain
constraints. However, our diverse end-markets remain resilient, and we enter
the year with good visibility due to a strong order book and continued order
growth. This supports full year outlook in line with our expectations.
"Our products play a critical role for our customers in enabling a greener,
healthier, more connected, and advanced society which puts us at the heart of
creating a more sustainable future. Our leading product portfolio, the
strength of our brand and our relentless drive for continuous operational
improvement provide the foundation for sustainable organic growth and
continued margin expansion over the medium-term, while our strong financial
position supports augmenting growth through synergistic acquisitions."
The financial information set out above does not constitute the group's
statutory accounts for the years ended 31 March 2022 or 2021, but is derived
from those accounts. Statutory accounts for 2021 have been delivered to the
Registrar of Companies and those for 2022 will be delivered following the
company's Annual General Meeting. The auditors have reported on those
accounts: their reports were unqualified, did not draw any attention to any
matters by way of emphasis and do not contain statements under s498(2) or (3)
of the Companies Act 2006.
Issued for and on behalf of Oxford Instruments plc
Enquiries:
Oxford Instruments Tel: 01865 393200
plc
Ian Barkshire, Chief Executive
Gavin Hill, Group Finance Director
MHP Tel: 020 3128 8100
Communications
Katie Hunt / Eleni Menikou / Charlie Protheroe Email: oxfordinstruments@mhpc.com
Number of pages: 41
CHAIR'S STATEMENT
I am proud of the role we play in making a positive impact on the world around
us, driven by our core purpose to enable a greener, healthier, more connected,
advanced society.
Neil Carson
Chair
This is further enhanced by the deep insights we gain through the value-driven
relationships we have with our customers. By nurturing these relationships,
and through strategic collaborations, we build a unique understanding of our
customers' current and future needs, informing our development efforts and
enabling us to sustain our leadership positions, and allowing our customers to
deliver on their goals.
Impressive performance against a challenging backdrop
The strength of our end markets, the quality of our market-leading portfolio
and the resilience of our business model are demonstrated by the Group's
strong performance in the year, which has been delivered despite global supply
chain shortages and inflationary pressures.
The unprovoked attack on Ukraine by Russia has shocked the world and, as a
global company committed to upholding our values, the Board strongly condemns
this abhorrent action and fully supports the decision to cease trading in the
territories of the Russian Federation and Belarus.
Throughout the ongoing covid-related disruptions, with regional lockdowns
intermittently in place across some of our territories, we have remained
committed to protecting the health, safety and wellbeing of all our employees
and for the Group to provide additional support where required.
We have further developed our hybrid workplace model, driving efficiencies
across the Group, maintaining business continuity throughout, and providing
improved support for our customers.
Clear opportunities ahead with execution of Horizon strategy
The successful execution of our strategy to date has driven a track record of
improved financial performance by keeping our focus on attractive end markets
with strong growth drivers, many of which are further strengthened by the
global sustainability agenda, alongside driving operational efficiency
improvements and the transformation of our service offering.
The Board remains fully supportive of the ongoing delivery and evolution of
Horizon and is excited by the expansive opportunities ahead as we build scale
and enhance the capabilities across our well-established platform. We believe
the investments being made in the business will continue to drive future
growth, including our growing, commercially driven R&D programme, our new
facilities, and the successful execution of selective acquisitions, as
demonstrated by the acquisition of Wissenschaftliche Instrumente und
Technologie GmbH (WITec).
We can also see the clear benefits of the investment that has been made in
enhancing the talent and capabilities within the Group, including commercial,
technical and service, as well as in the transformation of our customer
services' infrastructure.
As per the announcements made in February and March 2022, we note the
unsolicited proposal from Spectris plc which was withdrawn. The Board remains
highly confident that the Group has a clear and compelling strategy to achieve
growth and create value for Shareholders over the medium term.
Advancing our sustainability agenda
The establishment of the Board's Sustainability Committee has elevated the
oversight and leadership of the Group's sustainability agenda and
re‑emphasises our view that embedding sustainability throughout the Group
creates long-term value for all our stakeholders and will secure our
long‑term success.
This year, the Group has focused on developing our frameworks and processes to
adopt and align with the various reporting frameworks. We are delighted to be
publishing our first Task Force on Climate-Related Financial Disclosures
(TCFD) Statement in our Report and Financial Statements and our first
standalone Sustainability Report this year.
Diversity throughout the organisation
The Board and executive team have spent considerable time this year looking at
ways to build on the culture of diversity that is already strong within the
Group. With inclusivity being a key value, the Group encourages all employees
to bring their authentic self to work, recognising how mutually beneficial
diversity is to us and our employees.
We are committed to promoting diversity, equality, and inclusion, both on the
Board and throughout the Group. We also have a clear action plan which will
help us to reach gender and diversity representation recommendations at Board
level, as proposed by the FTSE Women Leaders Review and the Parker Review. In
the immediate-term, we are aiming to exceed 33% female representation on the
Board by July 2022, with the appointment of a further female Director with
specific capabilities and experiences which meet the needs of the Board now
and in the future.
Board changes
During the year Thomas Geitner and Steve Blair stepped down from the Board. I
thank them for their valued service to the Group. Alison Wood has also taken
up the role of Senior Independent Director and has already made a much-valued
contribution in this position. We also welcomed Nigel Sheinwald in September
as a Non‑Executive Director and Chair of the newly formed Sustainability
Committee.
Sir Martin Wood: 1927-2021
The Board and I were saddened to learn of the passing of the Oxford
Instruments founder, Sir Martin Wood, in November 2021. Martin's brilliance,
innovations and enthusiasm provided the foundation for ground-breaking
developments that have saved millions of lives and transformed our
understanding of chemistry. As a company we were fortunate to benefit from his
vision and consider him one of the great minds in scientific advancement. We
again offer our sincere condolences to his wife, Lady Audrey Wood, and their
extended family.
Our employees
The Board and I are extremely grateful for the commitment and innovation of
our employees in their approach to maintaining and growing the business
despite the many challenges we have all faced. We thank them for embracing new
approaches to working and for adapting quickly to new ways of supporting our
customers. In recognition of the impact the rising cost of living has had, we
fully support the action the executive team have taken to help our employees,
implementing a notable pay rise ahead of the usual time to do so.
During the year, we took the opportunity to engage further with employees,
gathering their feedback to ensure we can best consider their interests as
part of our decision-making process. The Board looks forward to continuing
this programme in the year ahead, by visiting sites and meeting employees in
person.
Dividend
In line with our progressive dividend policy and robust trading performance in
the year, the Board is proposing a final dividend of 13.7 pence per share
(2021: 12.9 pence per share), which is subject to shareholder approval at our
Annual General Meeting on 28 July 2022.
Looking ahead
Over the last five years, we have delivered a compound annual growth rate for
revenue and adjusted profit before tax of 6% and 16% respectively. Our
operating margin has grown from 13.6% in 2017 to 18.1% in 2022, along with
sustained high cash conversion year on year.
Despite the challenges during the past two years, the Group has delivered
significant progress, emerging even stronger and further aligned with
structurally growing end markets. This reflects the excellent execution of
Horizon, the highly talented employees we have around the world, our
high‑quality products and services, and our brand leadership. The Board
remains confident in the Group's strategic direction as a platform to deliver
sustainable growth and further margin enhancement.
Neil Carson
Chair
13 June 2022
CHIEF EXECUTIVE'S REVIEW
As I look back on the past twelve months, I am extremely proud of the
Group's performance and am even more excited about the future growth and
margin expansion opportunities that lie ahead.
We have successfully navigated the turbulence of the last two years, and,
thanks to the dedication of our talented global team and the successful
execution of our Horizon strategy, we have emerged as a stronger, more focused
business. We are now even better aligned to meet the needs of our customers in
attractive end markets with long-term structural growth drivers.
As a global provider of high technology products and services we are aware of
the critical role we play in the overall advancement of society by enabling
leading industrial companies and scientific research institutes to tackle some
of the world's most complex challenges and growth opportunities.
From healthcare to climate change to digital communications and quantum
computing, we work with our customers to create the products they need to
generate meaningful change and market growth. This fuels our mission to enable
a greener, healthier, more connected, and advanced world - and puts us at the
heart of creating a more sustainable future.
During the year we delivered strong order, revenue and profit growth with
further improvement in operating margin despite inflationary pressures, supply
chain challenges and ongoing covid‑related disruptions. This is testament to
the resilience of our business model, the quality of our product portfolio,
the strength of our end markets and our commitment to continuous improvement.
The results also represent considerable growth relative to the 2020 pre-covid
year.
Our resilience and commitment have been demonstrated throughout the year,
including through the way in which our employees embraced new ways of working,
how we have optimised our internal operations in response to supply chain
challenges, and the transformation of our sales, marketing and customer
service approaches to support the shifting needs of our customers.
At the end of August 2021, we completed the acquisition of Wissenschaftliche
Instrumente und Technologie GmbH, (WITec), a leading Raman and optical imaging
business, further enhancing our materials analysis product portfolio.
The business has performed in line with our expectations, and I have been
delighted with its integration into the Group. Their additional capabilities
are already benefitting our existing customers as well as allowing us to
expand into adjacent markets.
We have also made significant investments to support our future growth,
including in talent, product R&D, business systems and remote digital
support capabilities, as well as building a new state-of-the-art facility in
Bristol, UK for our compound semiconductor systems business.
I am particularly pleased with the progress across the Group in our
multi‑faceted approach to sustainability, including the further development
of our roadmaps across environmental, social and governance aspects of our
agenda, not least as it is a topic that I am personally very passionate about.
Our holistic approach to building a stronger business has helped us to make
significant improvements not only in our financial performance, but also in
how we support our customers, key markets, employees, communities, and
strategic partners. These will all strengthen our position for future growth.
Bringing higher value to markets with long-term structural growth drivers
The health and resilience of our chosen end markets has played a critical role
in our improved performance. The global economic recovery and increasing
sustainability agenda have reinforced their structural drivers in both the
academic and commercial sectors.
This has stimulated increased funding within our target markets, accelerating
our customers' roadmaps, and increasing demand for our solutions and services
across each of our end markets. To meet the evolving needs and expand our
global leadership, we are building scale and capability in each of our chosen
markets, increasing the value we bring through a more targeted portfolio of
higher performing, easier-to-use solutions.
· Within Semiconductor & Communications the exponential
increases in digital data and connectivity, the requirement for
more energy-efficient power devices and the increased deployment of
human‑machine interfaces (e.g. facial recognition) is driving strong demand
for our specialised analysis solutions as well as our compound semiconductor
processing systems.
· Within Healthcare & Lifescience, an understanding of the
fundamental disease mechanisms and the efficacy of treatments at the cellular
and molecular levels is helping accelerate the creation of new medicines and
therapies at a fraction of the cost, driving growth across our portfolio of
optical microscopy systems and scientific cameras.
· The deployment of and search for new Advanced Materials, which
serve as the building blocks for modern society, are driving improved
performance and more sustainable use of valuable and finite resources in
nearly all end markets and continues to drive demand across our materials
analysis portfolio.
· In the Quantum Technology market, we are working with the leaders
in the field as the market continues its evolution from earlier stage research
into applied R&D and the rapidly evolving commercial market. We are well
positioned to power this growing market and take advantage of its growth, as
it remains poised to disrupt applications from drug discovery to logistics and
financial services across government and commercial entities alike.
· In the Energy & Environment market, the transition away from
fossil fuels is accelerating the investment in batteries, solar cells and more
energy‑efficient devices, where our systems provide invaluable insights for
research and applied R&D, as well as the critical quality assurance
measurements needed for high‑volume manufacturing.
As we look to the future, we believe our strong position in these end
markets - and their structural growth drivers - will continue to create
value for our customers and present significant opportunities for sustainable
economic growth.
Strong order, revenue and profit growth
We delivered continued financial progress with strong order, revenue and
operating profit growth and further improvement in operating margin despite
the challenging external operating environment. The results also reflect
significant growth for each of these key metrics relative to the financial
year ended 31 March 2020, highlighting the underlying health of our end
markets and the strength of our portfolio. The enhanced performance was
delivered across our portfolio with an improved performance in each of the
Materials & Characterisation, Research & Discovery and Service &
Healthcare sectors.
Group FY22 Constant currency Growth vs 2021 Constant currency Growth vs 2020
Orders £423m 24% 32%
Revenue £367m 19% 21%
Adjusted operating profit £66.3m 20% 35%
Operating margin 18.1% 30bps 220bps
Reported orders increased by 19.6% to £423.1m (2021: £353.7m), representing
growth of 24.0% on a constant currency basis with strong increased global
demand resulting in high double-digit growth in North America, Europe and
Asia. We had strong growth across all of our target markets apart from
Research & Fundamental Science, which reduced in the period due in part to
lower external investment in these projects and our own increased focus on our
other, higher-value end markets.
The superior performance of our products and the notable funding into our
target markets supported high double-digit growth to academic customers. Our
heightened market intimacy focus on commercial applications, combined with the
launch of new targeted products and services for high-volume manufacturing,
Quality Assurance (QA) & Quality Control (QC), as well as corporate
R&D, drove even stronger growth with commercial customers, which grew to
account for 50% of orders in the year (2021: 46%).
Reported revenue grew 15.3% to £367.3m, representing growth of 19.2% at
constant currency despite the global supply chain challenges for materials and
electronic components which hindered conversion of the growing order book
throughout the period.
Revenue grew in each of our sectors, up 28.9% in Materials &
Characterisation, 9.3% in Research & Discovery and 13.5% in Service &
Healthcare on a constant currency basis. There was strong growth to both
commercial and academic customers, with the proportion of revenue to
commercial customers increasing to 47% (2021: 45%) in the year.
From an end markets perspective, we had particularly strong growth in the
Semiconductor & Communications, Advanced Materials and Quantum Technology
markets. Revenue in both Energy & Environment and Healthcare &
Lifescience markets grew strongly, ending the year ahead of their 2020 levels
after a subdued 2021. Revenue in Research & Fundamental Science declined
in line with reduced customer activity and our own decreased focus in this
area.
Group revenue by segment
Market segment 2022 segment revenue growth 2022 proportion of revenue 2021 proportion of revenue
Healthcare & Lifescience 5.4% 20% 22%
Semiconductor & Communications 21.4% 29% 28%
Quantum Technology 36.2% 9% 7%
Energy & Environment 13.9% 8% 8%
Advanced Materials 21.9% 28% 27%
Research & Fundamental Science (20.0)% 6% 8%
Revenue profiles were distorted by region relative to demand due to the
staggered timing and extent of easing of covid-related restrictions. This
resulted in strong revenue growth in Asia and North America and good growth in
Europe, strengthened by an improving situation through the second half of the
year.
Our continued focus on driving operational efficiencies and a policy of
proactive offsetting of inflationary pressures through price management
supported growth in reported adjusted operating profit, up 16.9% to £66.3m
and further margin enhancement to 18.1%, an increase of 30 basis points,
notwithstanding our continued investment to fuel future growth.
The strength of our end markets and continued positive order momentum resulted
in a book-to-bill ratio of 1.15 and order book growth of 31.5% to £260.3m
(2021: £197.9m). Continued focus on quality of profits resulted in strong
cash conversion of 84% (excluding the investment in our new facility for our
semiconductor systems business) and a net cash position of £85.9m at year end
after the acquisition of WITec GmbH at the end of August 2021.
Horizon: our strategy for creating value
Our financial success is underpinned by our Horizon strategy, launched in 2017
to drive sustainable growth and the margins commensurate with a high
technology company and the value we create for our customers.
The key elements of our strategy are:
· The transformation of the business into a customer-centric, market
driven Group, whereby we deliberately focus on building scale and capability
in specific end markets, with long-term structural growth drivers where we can
sustain leadership positions for technologies and products that create high
value for customers.
· Proactive engagement with customers across the full technology
cycle, from research to applied R&D to high-volume manufacturing, to
maximise the returns from our core technologies whilst positioning us to
benefit from rapid growth and each wave of technology disruption.
· Our own unique operating framework which creates expertise and
balance across the four pillars of Market Intimacy, Innovation & Product
Development, Operational Excellence and Customer Service & Support.
· A relentless dedication to continuous improvement driving ongoing
synergies, efficiencies, and strong commercial processes across the Group.
· Drive above-market growth through organic investments further
augmented by synergistic acquisitions.
We made continued progress in the execution of our Horizon strategy in the
year, further strengthening our capabilities within the four pillars of our
operating model.
· Through our commitment to market intimacy, we have developed
stronger, more personalised relationships with our target customers, deepened
our understanding of core markets, and opened opportunities for expansion into
new and adjacent markets. By establishing an intimate knowledge of our
customers' worlds, anticipating their challenges, and responding with a
portfolio of products and solutions that helps them achieve their goals, we
have grown our business in all our major markets. In addition to nurturing
these relationships, we have used our market knowledge to expand into adjacent
markets, driving new and incremental sales. This expansion supports our growth
objectives and is currently being applied with great success in larger, faster
growth commercial markets. In the year, we built on our market intimacy
strength, bringing in new talent with specific domain knowledge to augment our
existing team.
· Innovation and product development is central to our business
strategy and our heritage of innovation. We invest in creating differentiated
products and key enabling technologies, informed by our customer and market
intimacy. By understanding not just customer requirements, but also the
challenges and opportunities they face - near and long-term - we have been
able to invest in the development of more strategic solutions that deliver
greater value and returns on investment. These are the products and solutions
that shift the paradigm of what is possible for our customers, transforming
their capabilities and fuelling their growth and ours. In the year, we have
increased our investment in strategic R&D, with a dual focus on new
products and solutions that not only create maximum value for our existing
customers but also enable us to expand into new or adjacent markets and
support future growth, such as our new optical microscopy system, BC43, which
offers research-level performance in a revolutionary ease of use benchtop
system, with a significantly more accessible price point.
Our R&D spend increased 9.7% to £31.7m (2021: £28.9m), growing broadly
in line with sales and representing 8.6% of revenue. To underpin our barriers
to entry, we are more focused on protecting and expanding our intellectual
property portfolio across our core markets. Our vitality index, representing
the revenue from products launched in the last three years, was a healthy
34% of increased Group revenues (2021: 38%).
· Our operational excellence programme has enabled us to drive
efficiencies and synergies across the Group which directly impact performance
and growth. This includes strengthening our supply chain through executing a
procurement strategy focused on leveraging our scale and building long-term
strategic relationships with fewer suppliers, which has enabled us to mitigate
the industry-wide supply chain challenges. In addition, we embedded improved
manufacturing processes and created centres of excellence to promote delivery
across the wider Group. As we emerge from the pandemic, these investments in
operational excellence will continue to support our performance this year and
beyond.
· The covid-related travel restrictions of the past two years have
heightened the importance of service continuity and the expectations from
global customers. Through our customer service transformation programme, we
are exploiting our market intimacy to provide service offerings tailored to
the specific needs and goals of our customers for their usage, application and
region, throughout the lifetime use of our products. We have increased our
investment in our regional service teams and have embedded remote digital
support capabilities across our portfolio, ensuring we can deliver our global
expertise locally, enhancing customer capabilities and productivity, with
improved operational efficiency.
Through Horizon, we have delivered substantial tangible gains across the
Group, leading to improved financial performance. In the year, we undertook
a comprehensive review of our strategy, capabilities and opportunities for
further improvement in order to deliver our full potential. This confirmed the
compelling opportunities that still lie ahead to extract further value as we
continue with our strategy, driving sustainable growth and margin enhancement,
while uncovering efficiency opportunities Company wide.
Shaping a sustainable future
Sustainability is a cornerstone of our long-term strategy to drive stakeholder
value. We recognise the role we, and our technologies, can play to create a
positive impact on the environment and society and, in line with our values
and purpose, we are passionate about being a positive influence on the world.
By taking a holistic approach to sustainability, led by myself and the
executive team, with enhanced oversight at Board level through our newly
established Sustainability Committee, we review all aspects of our business to
drive positive change and believe that embedding sustainability throughout the
Group is the best way to secure our long-term success.
I am delighted with the progress we have made in the development and execution
of our sustainability initiatives as well as the enthusiasm across the
business for a progressive and ambitious sustainability agenda.
Since its establishment during the financial year, our Board-level
Sustainability Committee has embraced the importance of its role in driving
the Group's sustainability agenda at Board level and overseeing activity
within the Company. Upon his appointment to the Board in September 2021, Nigel
Sheinwald has chaired this committee and brings a wealth of experience to our
organisation from his previous role as chair of Shell's sustainability
committee.
Environment
We have embraced the adoption of the Task Force on Climate-Related Financial
Disclosures (TCFD) recommendations and reporting framework to help to expand
the environmental aspects of our sustainability agenda and effectively
communicate our work in this area. We are delighted to be publishing our first
TCFD Statement as well as our first standalone Sustainability Report.
Whilst the impact our facilities have on the environment is relatively small,
we have made great strides in reducing our carbon footprint and waste products
from our manufacturing processes and facilities (Scope 1 and 2 emissions) and
are committed to building on this progress. To accurately assess our overall
environmental impact, and in support of the TCFD reporting framework, we have
engaged with the specialist advisers EcoAct. Working together we have
confirmed our Scope 1 and 2 emissions and have made good progress in mapping
the contribution through our supply chain, distribution, and customer use of
our products (Scope 3). Once this phase is completed, we will set our targets
in line with the best practice guidance, validated by the Science Based
Targets initiative. We also recognise our role in supporting our customers in
achieving their sustainability ambitions, as well as encouraging similar
commitments from our supply chain. We have created ethical and environmental
standards for our suppliers and partners to follow and are building broad
sustainability considerations into our product development guidelines.
Social and governance
Whilst our environmental focus is extremely important, it is only one part of
our overarching sustainability agenda. We believe how we do business is as
important as what we do. This is embedded within our approach to the social
and governance aspects of business too.
Being inclusive, and creating a diverse workplace where difference is valued
and people are recognised for what they bring to the team, is a core Company
value and a key element in delivering business excellence. Through our
recruitment, employment policies and a Company culture based on respect and
creating a sense of belonging, we look to attract and retain an incredibly
talented, diverse workforce.
Communication has also been critical to our overall success. We have invested
in increasing connectivity and communication between our teams and have
embraced our hybrid workplace model, focused on an outcomes-based approach to
work and management. This shift, along with additional investments in
technology, has enabled us to create a more rewarding and collaborative
working environment for our people, where employees can build successful
careers, make a personal impact on the world and enjoy a healthy work-life
balance. At the same time, this increases efficiencies across our teams and
unlocks new synergies across business units and regions. It has also led to
accelerated innovation and cross-business product developments which further
enhance our market intimacy and improve the way in which we reach, work with,
and support our customers.
In line with our values, after the unprovoked attack on Ukraine by Russia, we
decided to cease trading in the territories of the Russian Federation and
Belarus (this represents less than 1% of Group revenue). In addition, the
Board approved a charitable donation of £30,000 (with £10,000 of this
dedicated to matching employee donations) to the International Red Cross or
UNICEF, to support those displaced or otherwise in need, because of the
conflict.
Sustainability, in its broadest sense, is one of the most transformative
opportunities in our lifetimes, and one that brings us closer to realising our
mission of "changing the art of the possible". It is with this mindset that
we are committed to making even greater progress this year and beyond.
Investing in building our capabilities
The capabilities and dedication of our employees are critical to our success
and the delivery of our strategy, which is underpinned by the combination of
our technical, market and commercial expertise. To support our growth, we have
continued to invest in our existing team to build on their skills and
experience as well as providing the development opportunities to enable them
to reach their full potential. This has included the launch of a Group-wide
project aiming to better facilitate and promote employee mobility within the
organisation and throughout their careers. During the past year, we have been
delighted to see over 11% of our employees being promoted or taking on new
responsibilities to augment their development. In addition, we have continued
to build on our team with the recruitment of individuals with specific
knowledge or capabilities. Our goal for all our employees is simple: to create
a safe and vibrant workplace environment where employees can build successful
careers, make a personal impact on the world, and enjoy a healthy work-life
balance.
I am extremely proud of how our employees and leadership team have navigated
through the ongoing challenges caused by the external operating environment to
deliver our improved performance. By embracing alternative ways of working,
which provide additional flexibility, we have been able to better meet the
needs of our customers as well as increase the essential connectivity needed
between teams to drive and foster innovation.
I would like to thank all our employees for their continued support,
commitment, and resilience during the year, and for their ongoing investment
in a culture that helps underpin our success.
Summary and outlook
We have successfully navigated the turbulence of the last two years, and,
through the dedication of our talented global team and the successful
execution of our Horizon strategy, we have emerged as a stronger, more focused
business, even better aligned to meet the needs of our customers in attractive
end markets with long-term structural growth drivers.
The business has performed strongly this year, despite supply chain disruption
impacting the conversion of orders into revenue and cost inflation holding
back margin progression. Looking ahead, we do not foresee short term relief
from the current economic headwinds and ongoing supply chain constraints.
However, our diverse end-markets remain resilient, and we enter the year with
good visibility due to a strong order book and continued order growth. This
supports full year outlook in line with our expectations.
Our products play a critical role for our customers in enabling a greener,
healthier, more connected, and advanced society which puts us at the heart of
creating a more sustainable future. Our leading product portfolio, the
strength of our brand and our relentless drive for continuous operational
improvement provide the foundation for sustainable organic growth and
continued margin expansion over the medium-term, while our strong financial
position supports augmenting growth through synergistic acquisitions.
Ian Barkshire
Chief Executive
13 June 2022
OPERATIONS REVIEW
MATERIALS & CHARACTERISATION
Key highlights
Orders
£219.2m
+25.3%
(2021: £175.0m)
Constant currency growth(1)
vs 2021: 29.8%
(vs 2020: 48.4%)
Revenue
£185.5m
+24.8%
(2021: £148.6m)
Constant currency growth(1)
vs 2021: 28.9%
(vs 2020: 32.7%)
Adjusted(2) operating profit
£26.1m
+28.6%
(2021: £20.3m)
Constant currency growth(1)
vs 2021: 30.4%
(vs 2020: 26.1%)
Adjusted(2) operating margin
14.1%
(2021: 13.7%)
Statutory operating profit
£20.8m
(2021: £16.6m)
1. For definition refer to note on page 1.
2. Details of adjusting items can be found in Note 1.
The Materials & Characterisation sector delivered strong growth,
underpinned by the strength of our portfolio and increased demand across all
our target end markets.
Materials & Characterisation overview
The Materials & Characterisation sector has a broad customer base across a
wide range of applications for:
· the imaging and analysis of materials down to the atomic level
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 systems (across Asylum Research,
NanoAnalysis, Magnetic Resonance and newly acquired WITec) include our range
of market-leading X-ray and electron analysis systems, used in conjunction
with electron microscopes, and our performance-leading atomic force and Raman
microscopes, and magnetic resonance analysers
· the fabrication of semiconductor devices and structures, where
our portfolio of advanced semiconductor etch and deposition process systems
(Plasma Technology) provide our customers with the ability to create and
manipulate materials with atomic scale accuracy to fabricate advanced compound
semiconductor devices
The sector has a strong focus on accelerating our customers' applied R&D,
enabling the development of new devices and next generation higher performing
materials, and enhancing productivity in advanced manufacturing, quality
assurance (QA) and quality control (QC).
Operational and strategic progress
During the year, we broadened the capabilities that we offer our existing
customers through the acquisition of WITec, which brought complementary
leading Raman microscopy solutions to our portfolio and can be used in
conjunction with our existing characterisation solutions. The acquisition,
which completed on 31 August 2021, enables the further exploitation of
synergies across the sales, marketing and service teams, and increases the
role we can play in supporting our customers, and provides access into new
adjacent markets.
In line with our Horizon strategy, we have enhanced our market-leading
semiconductor etch and deposition processing systems for R&D and now also
provide a suite of dedicated systems for use in high-volume manufacturing.
Construction on our new state-of-the-art facility for the business has
progressed well, with completion expected later in 2022.
A strong performance in the year
The Materials & Characterisation sector delivered strong growth,
underpinned by the strength of our portfolio and increased demand across all
our target end markets, with particularly strong growth from semiconductor,
electronics, and advanced materials. Strong order growth reflected significant
uplift in demand across North America and Asia as well as strong growth in
Europe. Order growth was also supported by our increased market focus and the
launch of new products tailored for specific end applications and customers
workflows, for example our portfolio semiconductor processing systems
dedicated for high‑volume manufacturing. Our market intimacy approach and
end application focus supported strong double-digit growth to academic
customers with twice the growth into commercial customers as we continued to
nurture existing accounts and expand into new adjacent opportunities.
Despite the well-publicised global shortages of semiconductors and
electronics, the sector delivered strong revenue growth through positive
engagement with our strategic suppliers. The phasing of the easing of travel
and access restrictions to customers' sites strongly influenced the regional
delivery of the growing order book, resulting in strong revenue growth into
Asia with good growth into North America and Europe as the situation improved
in these regions through the second half of the year. In line with orders, we
had strong double-digit revenue growth to academic customers with even
stronger growth to commercial organisations, resulting in the proportion of
revenue to commercial customers increasing slightly to 57% in the year (2021:
56%). The continued growth of the sector over the past two years reflects the
resilience of the end market drivers and the positive positioning of our
products within them. The order book for future deliveries increased by more
than 50% in the year to £116.0m (2021: £74.3m).
From an end market perspective, the sector had strong double-digit order
growth into each of our target end markets, with a similar pattern for revenue
growth apart from the Quantum Technologies segment, which remained in line
with the previous year due to the phasing of shipments. Revenue in the sector
is dominated by the Semiconductor & Communications and Advanced Materials
markets, representing 46% and 33% of revenue, respectively. Energy &
Environment and Healthcare & Lifescience both grew strongly to represent
14% and 6% of revenue, with Quantum Technology and Research & Fundamental
Science each representing 1%.
The book-to-bill of 1.18 led to a 56.1% increase in the order book for future
deliveries to £116.0m (2021: £74.3m).
Profitability for the sector was further enhanced in the period with reported
profit increasing to £26.1m (2021: £20.3m), representing an adjusted
operating margin of 14.1% (2021: 13.7%).
Semiconductor & Communications
This market is a key focus for us, in which we delivered strong double-digit
order and revenue growth across both our imaging and analysis portfolio and
semiconductor processing systems. Growth was aided by the long-term structural
drivers within this market, including the ramp up in global demand due to
their burgeoning use into everyday consumer products such as cars and
computers, as well as commercial products. This is leading to an increase in
production capacity as well as the development of the next generation of
devices with the relentless drive to reduce feature sizes to drive
manufacturing efficiency, increased processing power and reduced costs. Our
imaging and analysis solutions are used to measure the composition and
structure of the devices down to the nanoscale which, as dimensions shrink in
size, becomes ever more critical in the development of next generation
devices, their successful transfer to manufacturing, and for quality control
in high volume production. The leading precision and resolution of our
solutions is a core differentiator and allows us to support our customers to
deliver their demanding roadmaps and increase their productivity.
In addition to the mainstream silicon market, exponential increases in digital
data flow, driven by surging demand for connectivity, the requirement for more
energy-efficient devices, and the increased deployment of human‑machine
interfaces (e.g. facial recognition), are all driving strong demand for
compound semiconductors with improved performance and higher manufacturing
yields. This is leading to strong orders for our compound semiconductor
processing systems, specifically designed for commercial R&D and
high-volume production. Within these applications, our market intimacy has
helped us to focus on developing solutions for the critical layers within
devices that have the biggest impact on end device performance, cost, and
yield. For example, we have seen strong growth in demand for our indium
phosphide (InP) solutions which are used to manufacture the optical devices
with the fibre optic networks that are supporting 5G and cloud-based systems.
Furthermore, infrastructure with improved connectivity is a critical enabler
to the introduction of electric vehicles and expansion of the Internet of
Things. For example, a moving, connected electric vehicle produces 25GB of
data per hour (more than 5x the average person's monthly usage) and this is
forecast to rise to between 1TB and 19TB per hour with the introduction of
autonomous vehicles.
We have also seen strong growth in demand for our gallium nitride (GaN)
solutions which enable manufacturers to produce more efficient power devices
for consumer electronics products, and our silicon carbide (SiC) solutions are
enabling the production of faster charging and enhanced power management to
improve the range and reliability of electric vehicles. In addition, the
expansion of human-device interaction, such as virtual reality and facial
recognition on mobile phones and within autonomous driving vehicles, is
driving growth into vertical cavity lasers (VCSELs) and 3D sensing devices
where our proprietary processes offer significant performance and yield
advantages.
Advanced Materials
Double-digit order and revenue growth into advanced materials applications
were underpinned by them being the building blocks of modern society, enabling
everything from the screens we watch and the cars we drive to the batteries
that power our world. Of increasing importance is the pivotal role that
advanced materials will play in enabling a sustainable, net zero future
through their ability to transform product performance and providing a roadmap
to the more sustainable use of our valuable and finite resources. All
materials and products undergo some form of analysis, driving increasing
demand for our market‑leading product portfolio of imaging and analysis
systems, which allows our customers to measure down to the nanoscale,
optimising the performance and the subsequent economic production of these
lighter, stronger and higher functioning materials across a diverse range of
end applications.
The automotive industry is a good example of a market undertaking
transformational change due to increasingly stringent emissions regulations
and customer demand for higher electric vehicle range and improved safety.
This drives the need for dramatic reductions in weight whilst also improving
structural integrity, which is particularly relevant for electric and hybrid
vehicles where lighter and stronger materials must offset the additional
weight of the batteries. This is driving the increased use of carbon fibre
composites and lightweight alloys, and new advanced steels. As such, there is
significant investment into the understanding and control of composition and
structure at the nanoscale, which enables the design of materials with
performance tailored for the end application, such as stronger car safety
cages or crash absorption crumple sections. Steel manufacturers are also
investing in transforming their highly emission‑intensive manufacturing
processes, which contribute about 8% of global CO(2) emissions.
This is leading to further investment in the characterisation of
nanostructures and precise composition of their products, supporting increased
demand for our imaging and analysis systems. Our growth has been further
supported by our new products which provide the ability to observe even
smaller features, with dramatically faster throughput and ease of use, making
them ideal for both research and development as well as QA and QC.
Another area of increasing focus is additive manufacturing, which is gaining
both government and commercial impetus. The approach requires the creation of
complex, strong and lightweight structures with optimised production methods
which dramatically reduce material usage and waste.
Our electron microscopy products are helping researchers unlock the full
potential of 3D printing, allowing them to quickly understand the
microstructure impact of key properties ensuring they deliver the same
performance as traditional materials, for example checking the risk of
corrosion damage or the potential for a reduced lifetime of new products.
Our products are also used in the research and development of exotic new
materials such as graphene-like structures, with the long-term goal of
transforming the performance of next generation semiconductors and batteries.
Energy & Environment
Strong growth in the Energy & Environment segment for our analysis
products has been underpinned by sustained investment within the global
battery market and the continued recovery of markets such as forensics and
environmental science, after reduced customer activity during the peak of the
covid-related lockdowns.
Batteries play a key role in the transition from fossil fuels, enabling
sustainable travel and providing efficient and affordable storage to
complement renewable energy generation. This is driving continued investment
into new, improved materials and battery structures in the pursuit of lower
cost, higher performing, more environmentally friendly solutions.
As is the case for steels, battery performance is determined by the material
properties at the nanoscale and how these change through the lifetime of
charging cycles. This has led to strong growth across our Materials &
Characterisation portfolio and investment into development and production
control applications. Over the past few years, as a result of our market
intimacy, we have supported this growing market by launching a tailored
portfolio of solutions dedicated to the nuances of the battery market, from
our new "Feature Express" product that reduces the time to identify
contaminants by a factor of four, to our benchtop NMR and newly acquired Raman
systems which characterise the performance of the analyte which enables the
flow of charge across the battery. Our portfolio supports our customers'
roadmaps, providing insights to give them a competitive edge and eliminating
defects that compromise safety and performance.
In addition to the environmental impacts of global warming, reducing pollution
remains a key part of a sustainable future. We have started to develop
analysis solutions for this critical market, including our benchtop NMR
systems which can measure the fats, oils and grease in wastewater, providing a
cost-effective solution for environmental authorities and industries to
monitor pollution releases into river and sewer systems as well as preventing
harmful blockages.
Healthcare & Lifescience
We have continued to see strong growth in this segment, with dedicated
solutions for the pharmaceutical industry. Our Raman imaging techniques are
used to assess and ensure the safety and therapeutic effect of medications.
This is further supported by our dedicated, regulatory-approved pharmaceutical
software for our electron microscopy products, which screens for foreign body
contamination within and on tablet surfaces. Our material characterisation
tools are also being used to develop and monitor the performance of the
increasing range and complexity of medical implants such as micro-sized stents
and joint replacements, to understand the size and distribution of nanoscale
precipitates that can cause a reaction.
Quantum Technology
We continue to see opportunities in quantum technology markets. Through the
combination of our expertise in semiconductor processing and characterisation,
and our intimacy with customers within the quantum market, we are providing
compound semiconductor processing systems for the fabrication of high
performing qubits and their subsequent characterisation.
RESEARCH & DISCOVERY
Key highlights
Orders
£133.9m
+15.7%
(2021: £115.7m)
Constant currency growth(1)
vs 2021: 19.6%
(vs 2020: 13.0%)
Revenue
£120.3m
+6.1%
(2021: £113.4m)
Constant currency growth(1)
vs 2021: 9.3%
(vs 2020: 6.9%)
Adjusted(2) operating profit
£21.3m
+9.2%
(2021: £19.5m)
Constant currency growth(1)
vs 2021: 10.5%
(vs 2020: 48.7%)
Adjusted(2) operating margin
17.7%
(2021: 17.2%)
Statutory operating profit
£15.0m
(2021: £13.1m)
1. For definition refer to note on page 1.
2. Details of adjusting items can be found in Note 1.
The sector, which comprises Andor Technology, NanoScience and X-Ray
Technology, provides advanced solutions and technologies that enable imaging
and analytical measurements down to the atomic and molecular level, as well as
ultra-low temperature and high magnetic field environments, used across
scientific research, applied R&D, and commercial applications.
Research & Discovery overview
There are a higher proportion of sales to academia and a growing proportion to
commercial customers as we develop application-specific, easy-to-use solutions
based on our high-end research orientated platforms.
Our imaging and analytical systems portfolio includes market-leading
scientific cameras, confocal microscopes, spectrometers, lasers and X-ray
tubes. Our ultra-low temperature cryogenic and high magnetic field platforms
provide both versatile research platforms as well as dedicated systems for
more applied and increasingly routine use. In addition to selling directly to
end customers, where we have a strong brand presence, we also exploit our
position across a broad range of additional end markets by providing our key
enabling technologies to strategic OEM partners.
The sector's products play a key role across a broad range of life, material
and physical science applications, with a critical role in the development and
advancement of quantum technologies.
A positive performance
The Research & Discovery sector delivered a good performance with
double-digit order growth, good growth in revenue and improved profitability.
Positive market drivers led to increased demand, which, combined with our
leading product portfolio and targeted product launches, have led to strong
order growth relative to the previous year across each of our end markets. The
exception being Research & Fundamental Science, which declined in the year
due in part to our increased focus on higher value markets as well as slower
customer activity in the period. Europe continued its first half recovery with
particularly strong growth in the year, complemented by double-digit growth in
both North America and Asia. This included strong order growth to academia
with even stronger growth to commercial customers, with commercial customers
growing to 33% of orders for the sector (2021: 26%).
The sector delivered strong constant currency revenue growth, up 9.3%. Supply
chain challenges through the second half of the year and ongoing customer site
restrictions hindered revenue despite strong demand and impacted regional
profiles.
This resulted in strong growth in North America and Asia, with Europe
improving in the second half and ending in line with the previous year.
Revenue grew strongly to both academic and commercial customers, with the
proportion to commercial customers only increasing slightly to 26% (2021: 25%)
due to the phasing of delivery of the orders.
From an end market perspective, Healthcare & Lifescience represented 37%
of revenue, with Advanced Materials and Quantum Technology 23% and 21%
respectively. Research & Fundamental Science fell to 14%, with
Semiconductor & Communications and Energy & Environment representing
4% and 1% of revenue respectively.
The book-to-bill ratio of 1.11 led to a 12.9% increase in the order book for
future deliveries to £108.7m (2021: £96.2m).
Profitability for the sector was further enhanced in the period with adjusted
operating profit increasing to £21.3m (2020: £19.5m), representing an
adjusted operating margin of 17.7% (2020: 17.2%). This was supported by the
continued realisation of tangible gains through our Horizon strategy despite
considerable inflationary headwinds.
Healthcare & Lifescience
The positive momentum of the first half continued with increased demand and
strong double-digit order growth in the year. This was supported by an
increasing number of customer sites re-opening and recommencing programmes
after temporary covid-related closures in the previous year. Long-term market
growth drivers, such as a focus on improving the health and wellbeing of
society, driven by an ageing population and an increased focus on improved and
cost-effective healthcare provision, also strengthened. The emergence of covid
showed that understanding fundamental disease mechanisms at a molecular level
and using this knowledge to rapidly develop effective treatments transformed
the global approach to dealing with a pandemic. Our products and technologies
have been key to this and are being increasingly applied by our customers to
accelerate similar transformations across a range of conditions including
cancer, Alzheimer's, cystic fibrosis and diabetes. This has supported strong
growth in supply to the research community of our imaging solutions and
scientific camera portfolio. Furthermore, we have seen strong growth into the
broader life science and pharma markets through our strategic OEM partnerships
where our key enabling technologies sit at the heart of their products; for
example, gene sequencers and 3D micro-CT scanners, which are increasingly
being used to undertake breast cancer screening as well as biopsy sample
analysis.
Through our market intimacy focus, we have continued to develop solutions and
key enabling technologies that specifically address the needs of customers in
cell biology, neuroscience, immunology and personalised medicine.
Our new benchtop microscopy system, BC43, has been designed to provide
research grade capability, with unprecedented ease of use at a much more
affordable price point. This is already proving popular with those working in
early cancer research by dramatically improving productivity and the
understanding of cell dynamics and response to stimuli. The new details and
insights that our products facilitate are accelerating personalised treatment
plans, which will deliver optimal outcomes for cancer patients and those
battling other debilitating conditions such as cystic fibrosis.
In addition to the success of BC43, our Dragonfly portfolio has continued to
grow, and is targeting the most challenging of applications as well as central
research facilities, where several different teams utilise the equipment. Its
ability to undertake high-speed imaging over and through large samples with
unprecedented resolution has supported particularly strong growth into cell
biology and neuroscience applications.
In the year we had a reduction in sales to covid-related applications, such as
on chip diagnostic testing and screening, and are now seeing volumes similar
to the pre-covid era.
Quantum Technology
The quantum market continues its evolution into applied R&D and more
commercial applications with growing investment across governments and
increasingly commercial organisations such as Google, Amazon, IBM and a
plethora of smaller enterprises. The driver continues to be the realisation of
the potential and increasing likelihood that quantum computers could radically
disrupt existing markets such as pharmaceuticals, logistics and financial
services, as well as providing the ability to maintain long-term data
security. This is leading to an increase in research and development
investment as nations and corporates seek to gain leadership positions as well
as an emerging commercial cloud-based quantum computing market and ecosystem
with pay-per-use services.
This has supported strong growth across our portfolio of cryogenic platforms
and scientific cameras. Thanks to our strong collaborations with many of the
key players in the market, we can use the insights gained to develop solutions
tailored for the specific needs of customers. This ranges from rapid exchange
systems enabling a tenfold increase in productivity for qubit development
through to highly stable platforms for commercial quantum computers and
high-speed cameras for secure communication applications.
We remain well positioned to support the growth of this exciting market and
are building our plans for future products to enable our customers' roadmaps.
Advanced Materials
Strong growth in the Advanced Materials segment reflects increased investment
and customer demand to explore and characterise the more fundamental
properties of materials for a broad range of applications from sensors,
semiconductors, and batteries. This has led to increased demand for our
materials analysis systems which combine ultra-low temperatures and high
magnetic fields environments, allowing researchers to fully characterise the
fundamental properties of existing materials and gain the necessary insights
to design future candidates that will transform markets and create new
possibilities. To support our evolving market, we have developed easier to
operate systems with increased automation and data analytics capabilities to
improve productivity and broaden the accessibility of the product. We also
received increased demand for our scientific cameras and optical spectrometers
to customers developing more efficient catalysts and new chemicals.
Energy & Environment
In the year we saw strong order growth for our scientific cameras across a
range of applications in this segment. This included a recovery in OEM demand
for airport security scanners after being heavily subdued during the travel
restrictions of the past few years, and our ultrafast cameras that are used to
study and optimise the critical phases of nuclear fusion experiments. Due to
the timing of orders, revenue remained extremely low in the year.
Research & Fundamental Science
The Research & Fundamental Science market has been subdued in recent
years, especially for those programmes that have required multi-institution
and international collaboration. This, combined with our own decision to
accept fewer orders for one-off specialised cryogenic and high magnetic field
systems that do not benefit our own product roadmap or margin expectations,
led to a decline in orders and revenue in the year. Within these parameters we
continue to see a healthy forward-looking pipeline for our portfolio across a
broad range of research themes including astronomy, chemistry, and physics.
Within astronomy, our Balor large area camera is being used on the Extremely
Large Telescope (ELT) in Chile to align the mirrors to ensure precision
measurements. The ELT is the largest ground-based telescope in the world and
will gather a billion times more light than the human eye. It will help tackle
some of the greatest scientific challenges today, including the search for
other earth-like planets and measuring the properties of the earliest stars
and galaxies.
SERVICE & HEALTHCARE
Key highlights
Orders
£70.0m
+11.1%
(2021: £63.0m)
Constant currency growth(1)
vs 2021: 16.0%
(vs 2020: 29.3%)
Revenue
£61.5m
+8.8%
(2021: £56.5m)
Constant currency growth(1)
vs 2021: 13.5%
(vs 2020: 20.6%)
Adjusted(2) operating profit
£18.9m
+11.8%
(2021: £16.9m)
Constant currency growth(1)
vs 2021: 19.3%
(vs 2020: 34.5%)
Adjusted(2) operating margin
30.7%
(2021: 29.9%)
Statutory operating profit
£18.9m
(2021: £16.9m)
1. For definition refer to note on page 1.
2. Details of adjusting items can be found in Note 1.
The Service & Healthcare sector comprises the Group's service and support
products related to Oxford Instruments' own products, and the support and
service of third-party MRI scanners in Japan.
Service & Healthcare overview
The sector delivered continued strong order, revenue and increased
profitability, driven by the service activities related to our products, with
orders and revenues related to the service of third-party MRI systems broadly
in line with the previous year.
With customer support being more highly appreciated than it ever has been
before, our service transformation programme provides the opportunity to
create significant additional customer value, support our expansion into
commercial markets, and provide meaningful growth and margin enhancement for
the Group. We made excellent progress with our transformational programme in
the year, which underpinned constant currency order growth of 19% for services
related to our own products, with strong double-digit growth in Europe, North
America and Asia, and into both academic and commercial customers. Revenue
growth, as was the case for the other sectors, was restricted by supply chain
challenges in the year. Adjusted operating margin increased to 30.8% (2021:
29.9%) despite significant investments in our service infrastructure.
As part of our service transformation, we utilised our deep market knowledge
to develop a portfolio of tailored service offerings for specific end markets,
customer types and regions that better address the full life cycle use of our
products, creating value linked to their specific situation and workflows.
This included building on our digital and remote service capabilities, with
connectivity across our products increasing response times and enabling us to
reach customers that have previously been difficult to support effectively
because of their location. We have also developed digital analytics packages
which are providing actional insights for end users and OEM partners,
increasing productivity and efficiency.
Secondly, we have also adopted a flexible approach to service bundling to
better address our full install base by optimising the service elements that
create value for individual customers. As an example, our self-sufficiency
packages that are designed to provide fast response and parts guarantees have
driven strong growth to production customers with their own in-house support
teams.
Thirdly, building on our positive experiences throughout the pandemic we have
transitioned to a regionally led service model, where our global processes are
implemented and delivered locally. By exploiting synergies across our local
teams, investing in digital infrastructure and cross-product training for our
field engineers, we can respond more quickly to our customer requests and
improve our efficiency whilst dramatically reducing our travel footprint.
FINANCE REVIEW
We delivered a strong financial performance with growth in orders, revenue and
underlying cash flow. We have increased capital investment and maintained a
robust balance sheet and enter the new financial year with a healthy order
book.
Summary
Oxford Instruments uses certain alternative performance measures to help it
effectively monitor the performance of the Group as management believe that
these represent a more consistent measure of underlying performance. 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. All of these are
included in the statutory figures. Note 1 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.
The acquisition of WITec was completed on 31 August 2021. Growth rates
expressed on an organic basis remove the impact of the acquired business for
the period under ownership.
Reported orders increased by 19.6% to £423.1m (2021: £353.7m), an increase
of 19.9% at organic constant currency. At the end of the period, the Group's
order book for future deliveries stood at £260.2m (31 March 2021: £198.0m).
The order book grew 31.4% on a reported basis and 26.6% at organic constant
currency.
Reported revenue increased by 15.3% to £367.3m (2021: £318.5m). Organic
revenue, excluding currency effects, increased by 14.5%, with the movement in
average currency exchange rates over the year reducing reported revenue by
£12.4m.
Adjusted operating profit increased by 16.9% to £66.3m (2021: £56.7m).
Organic adjusted operating profit, excluding currency effects, increased by
15.2%, with a currency headwind in the year of £1.9m. Adjusted operating
margin increased by 30 basis points to 18.1% (2021: 17.8%). Excluding currency
effects, adjusted operating margin increased by 20 basis points to 18.0%.
Statutory operating profit includes the amortisation of acquired intangibles
of £9.5m, acquisition-related costs of £0.4m, a margin adjustment relating
to the sale of WITec inventories in the period of £1.7m, and a charge of
£6.4m relating to unwind of the brought forward financial derivative
asset.Statutory operating profit of £48.3m (2021: £53.0m) fell by 8.9%,
principally due to the mark-to-market charge on currency hedges relative to a
large credit the previous year.
Adjusted profit before tax grew by 17.9% to £65.9m (2021: £55.9m),
representing a margin of 17.9% (2021: 17.6%).
Statutory profit before tax fell by 8.8% to £47.6m (2021: £52.2m),
following the non-cash uncrystallised charge on currency hedges and increase
in amortisation of acquired intangibles following the acquisition of WITec.
This represents a margin of 13.0% (2021: 16.4%).
Adjusted basic earnings per share grew by 20.0% to 94.3p (2021: 78.6p). Basic
earnings per share were 67.1p (2021: 72.8p), a decline of 7.8%.
Cash from operations of £58.4m (2021: £49.7m) represents 72% (2021: 101%)
cash conversion. During the year, we incurred expenditure of £7.4m on the
construction of our new semiconductor facility near Bristol; cash conversion
on a normalised basis that excludes this expenditure was 84%. Net cash
decreased from £97.6m on 31 March 2021 to £85.9m on 31 March 2022, after the
€37.0m initial consideration for the acquisition of WITec.
At the end of March, our revolving credit facility remained undrawn, leaving
approximately £103m of committed facilities. This represents total headroom
of just under £190m.
Income Statement
The Group's Income Statement is summarised below.
Year ended Year ended
31 March 2022 31 March 2021
£m £m Change
Revenue 367.3 318.5 +15.3%
Adjusted operating profit 66.3 56.7 +16.9%
Amortisation of acquired intangible assets (9.5) (8.4)
Non-recurring items (2.1) (1.7)
Mark-to-market of currency hedges (6.4) 6.4
Statutory operating profit 48.3 53.0 (8.9%)
Net finance costs(1) (0.7) (0.8)
Adjusted profit before taxation 65.9 55.9 +17.9%
Statutory profit before taxation 47.6 52.2 (8.8%)
Adjusted effective tax rate 17.8% 19.3%
Effective tax rate 18.9% 19.9%
Adjusted earnings per share - basic 94.3p 78.6p +20.0%
Earnings per share - basic 67.1p 72.8p (7.8%)
Dividend per share (total) 18.1p 17.0p +6.5%
1. Net finance costs for 2022 include a non-cash charge of £0.3m
against the unwind of discount on WITec contingent consideration.
Revenue and orders
Following the acquisition of WITec, the business is reported within the
Materials & Characterisation segment. Growth rates expressed on an organic
basis exclude the impact of WITec.
Reported revenue of £367.3m (2021: £318.5m) increased by 15.3% (+14.5% at
organic constant currency). Reported revenue grew by 24.8% for Materials
& Characterisation (+18.9% at organic constant currency), with strong
growth for our electron microscope analysers and semiconductor processing
tools. Good demand for our optical imaging and microscopy systems, and
cryogenic and complex magnets as we progress with fulfilment of the large
order from the Institute of Physics in China, resulted in reported revenue
growth for Research & Discovery of 6.1% (+9.3% at constant currency).
Revenue growth from service of our own products resulted in reported growth of
8.8% (+13.5% at constant currency) for Service & Healthcare.
Total reported orders grew by 19.6% (+19.9% at organic constant currency) to
£423.1m. Reported orders grew by 25.3% (+21.5% at organic constant
currency) for Materials & Characterisation and by 15.7% (+19.6% at
constant currency) for Research & Discovery. Service & Healthcare
increased by 11.1% (+16.0% at constant currency).
The book-to-bill ratio (orders received to goods and services billed in the
period) for the year was 115% (2021: 111%).
On a geographical basis, revenue grew by 2.1% in Europe (down 2.2% at organic
constant currency), impacted by fewer shipments of semiconductor process
tools due to supply constraints, in addition to a strategic move away from
tenders with high-configured systems. Organic constant currency orders grew by
14.9%.
Revenue for North America increased by 10.7% on a reported basis and by 12.3%
at organic constant currency, with good demand for our electron microscope
analysers, and imaging and microscopy products. Orders grew by 22.8% at
organic constant currency, with strong demand across the breadth of our
product portfolio.
Asia delivered strong growth of 25.6% (+25.6% at organic constant currency)
with strong demand for our electron microscope analysers, semiconductor
processing tools, and cryogenic systems. Asia remains our largest region by
revenue, with China constituting 55% of regional revenue and 28% of total
Group revenue. Orders for the region at organic constant currency grew by
21.5%, driven by demand for electron microscope analysers, semiconductor
processing tools, and our imaging and microscopy products.
Geographic revenue growth
£m 2021/22 2021/22 2020/21 2020/21 Change % % growth at constant currency % organic growth constant currency
£m % of total £m % of total £m growth
Europe 89.0 24% 87.2 27% +1.8 2.1% 5.5% (2.2%)
North America 84.9 23% 76.7 24% +8.2 10.7% 14.6% 12.3%
Asia 188.6 51% 150.2 47% +38.4 25.6% 29.6% 25.6%
Rest of World 4.8 2% 4.4 2% +0.4 9.1% 18.2% 11.4%
367.3 100% 318.5 100% +48.8 15.3% 19.2% 14.5%
The total reported order book grew by 31.4% (26.6% at organic constant
currency). The order book, at organic constant currency, compared to 31 March
2021, increased by 45.2% for Materials & Characterisation, with strong
growth across all constituent businesses. Strong order growth in the final
quarter means that related shipments are scheduled to be made in the 2022/23
financial year, the timing of which will be subject to timely deliveries of
components. Research & Discovery grew by 12.9% (+12.3% at constant
currency), with strong demand for our imaging and microscopy products and
X-ray tubes. Supply chain disruption has led to slower order conversion than
would normally be expected, placing upward pressure on the order book.
Continued focus on own product service resulted in growth of 29.5% (+26.6% at
constant currency) from Service & Healthcare.
Materials & Research & Service &
£m Characterisation Discovery Healthcare Total
Revenue: 2020/21 148.6 113.4 56.5 318.5
Constant currency growth 28.1 10.6 7.6 46.3
Revenue at organic constant currency: 2020/21 176.7 124.0 64.1 364.8
Acquisition 14.9 - - 14.9
Currency (6.1) (3.7) (2.6) (12.4)
Revenue: 2021/22 185.5 120.3 61.5 367.3
Revenue growth: reported 24.8% 6.1% 8.8% 15.3%
Revenue growth: organic constant currency 18.9% 9.3% 13.5% 14.5%
Gross profit
Gross profit grew by 14.0% to £187.8m (2021: £164.8m), representing a gross
profit margin of 51.1%, a reduction of 60 basis points over last year, due to
increases to component costs, particularly for electronics.
Adjusted operating profit and margin
Following the acquisition of WITec, the business is reported within the
Materials & Characterisation segment. Growth rates expressed on an organic
basis exclude the impact of WITec.
Adjusted operating profit increased by 16.9% to £66.3m (2021: £56.7m),
representing an adjusted operating profit margin of 18.1%, an increase of 30
basis points against last year. At constant currency, the adjusted operating
profit margin was 18.0%, an increase of 20 basis points.
Reported Materials & Characterisation adjusted operating profit increased
by 28.6% (+16.1% at organic constant currency) with reported margin increasing
by 40 basis points to 14.1% (2021: 13.7%). This was attributable to a revenue
scale benefit from our higher‑margin imaging and analysis systems, and the
partial release of a warranty provision on a particular product in their
portfolio where the liability is less than originally anticipated. Supply
chain disruption led to a weaker than expected performance from our scanning
probe microscopy business.
Research & Discovery's adjusted operating margin increased to 17.7% (2021:
17.2%), growth of 50 basis points. At constant currency, the margin was 17.4%,
an increase of 20 basis points, supported by a strong improvement in margin
from our X-Ray Technology business.
Service & Healthcare margin increased by 80 basis points to 30.7% (2021:
29.9%). At constant currency, the margin was 31.5%, an increase of 160 basis
points owing to our focus on improving service revenue on our own products.
Currency effects (including the impact of transactional currency hedging) have
reduced reported adjusted operating profit by £1.9m when compared to blended
hedged exchange rates for the comparative period.
Materials & Research & Service &
£m Characterisation Discovery Healthcare Total
Adjusted operating profit: 2020/21 20.3 19.5 16.9 56.7
Constant currency growth 3.3 2.1 3.2 8.6
Adjusted operating profit at organic constant currency: 2020/21 23.6 21.6 20.1 65.3
Acquisition 2.9 - - 2.9
Currency (0.4) (0.3) (1.2) (1.9)
Adjusted operating profit: 2021/22 26.1 21.3 18.9 66.3
Adjusted operating margin(1): 2020/21 13.7% 17.2% 29.9% 17.8%
Adjusted operating margin(1): 2021/22 14.1% 17.7% 30.7% 18.1%
Adjusted operating margin(1) (constant currency): 2021/22 13.8% 17.4% 31.5% 18.0%
1. Adjusted margin is calculated as adjusted operating profit divided
by revenue. Adjusted 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 fell by 8.9% to £48.3m (2021: £53.0m),
representing an operating profit margin of 13.2%. Statutory operating profit
is after the amortisation and impairment of acquired intangible assets;
acquisition items; other significant non-recurring items; and the
mark-to-market of financial derivatives. The reduction in statutory operating
profit is principally due to a large charge arising from the movement in the
mark-to market valuation on financial derivatives.
Adjusting items
Amortisation of acquired intangibles of £9.5m relates to intangible assets
recognised on acquisitions, being the value of technology, customer
relationships and brands. The increase in the charge from last year reflects
the intangibles recognised following the acquisition of WITec.
Non-recurring items comprise £0.4m of professional fees on the acquisition of
WITec. In addition, a charge of £1.7m has been taken that eliminates the
profit arising in the acquired WITec business from revaluing their inventories
to fair value, in accordance with accounting standards.
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 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 year this amounted to a charge of £6.4m (2021:
£6.4m credit). The movement from a large net asset to a small net liability
for derivative financial instruments over the year reflects: (i) the
crystallisation of forward contracts that were hedging the 2021/22 financial
year, which are recognised in adjusted operating profit; and an uncrystallised
reduction in the mark-to-market valuation of forward contracts from a fall in
the value of Sterling at the balance sheet date against a blended rate
achieved on US Dollar contracts that will mature over the next eighteen
months. The mark-to-market valuation of financial derivatives that are hedging
contracts that will mature over the next eighteen months is a liability of
£0.4m.
Net finance costs
The Group's adjusted net interest costs (excluding credit on pension scheme
net assets) fell by £0.9m to £0.8m (2021: £1.7m), principally due to the
repayment of private placement notes at the previous year end. An interest
credit on pension scheme net assets of £0.4m (2021: £0.9m) arising from the
pension surplus brings net finance charges to £0.4m (2021: £0.8m). In
addition, we recorded in financial expenditure a non-cash charge of £0.3m
against the unwind of discount on WITec contingent consideration.
Adjusted profit before tax and margin
Adjusted profit before tax increased by 17.9% to £65.9m (2021: £55.9m). The
adjusted profit before tax margin of 17.9% (2021: 17.6%) was above last year
due to an increase in the adjusted operating margin and lower net finance
costs.
Reconciliation of statutory profit before tax to adjusted profit before tax Year ended Year ended
31 March 2022 31 March 2021
£m £m
Statutory profit before tax 47.6 52.2
Add back:
Amortisation of acquired intangible assets 9.5 8.4
Non-recurring items (Note 1) 2.4 1.7
Mark-to-market of currency hedges 6.4 (6.4)
Adjusted profit before tax 65.9 55.9
Statutory profit before tax and margin
Statutory profit before tax decreased by 8.8% to £47.6m (2021: £52.2m).
Statutory profit before tax is after the amortisation and impairment of
acquired intangible assets; acquisition items; other significant non-recurring
items; and the mark-to-market of financial derivatives. The statutory profit
before tax margin of 13.0% (2021: 16.4%) was below last year, principally due
to the charge from the mark-to market valuation movement on financial
derivatives.
Taxation
The adjusted tax charge of £11.7m (2021: £10.8m) represents an effective tax
rate of 17.8% (2021: 19.3%). The tax charge of £9.0m (2021: £10.4m)
represents an effective tax rate of 18.9% (2021: 19.9%). The reduction in tax
rate reflects a prior year adjustment, primarily relating to the recognition
of patent box claims in respect of sales prior to the grant of the patent.
Earnings per share
Adjusted basic earnings per share increased by 20.0% to 94.3p (2021: 78.6p);
adjusted diluted earnings per share grew by 19.8% to 93.0p (2021: 77.6p).
Basic earnings per share decreased by 7.8% to 67.1p (2021: 72.8p); diluted
earnings per share fell by 7.9% to 66.2p (2021: 71.9p).
The number of undiluted weighted average shares increased to 57.5m (2021:
57.4m).
Currency
The Group faces transactional and translational currency exposure, most
notably against the US Dollar, Euro and Japanese Yen. For the year,
approximately 23% of Group revenue was denominated in Sterling, 44% in US
Dollars, 20% in Euros, 10% 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 full year is summarised below.
£m (equivalent) Revenue Adjusted
operating
profit
Sterling 85.2 (57.2)
US Dollar 162.7 58.7
Euro 74.8 41.1
Japanese Yen 36.6 21.7
Chinese Renminbi 5.8 0.8
Other 2.2 1.2
367.3 66.3
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 twelve to 24 months. As at 31 March 2022, the
Group had currency hedges in place extending up to 18 months forward.
For the full year 2022/23, our assessment of the currency impact is, based on
hedges currently in place and forecast currency rates, a tailwind of £5.1m to
revenue, and headwind of £4.0m to profit. Forecast currency rates on unhedged
positions for the full year are - GBP:USD 1.28; GBP:EUR 1.20; GBP:JPY 163. The
headwind to operating profit is due to stronger Sterling currency rates
achieved on hedges in place for 2022/23 and unhedged transactional exposures,
against hedges that crystallised in 2022/21. This adverse impact to operating
profit is partially mitigated by a gain due to weaker blended Sterling
currency rates on unhedged transactional and translational exposures against
actual currency rates achieved in 2021/22. All currency impacts are prior to
mitigating pricing and cost actions. Uncertain volume and timing of shipments
and acceptances, currency mix and rate volatility may significantly affect
full-year currency forecast effects.
Looking further ahead to the financial year 2023/24, based on the above
currency assumptions, we would expect currency effects to have a neutral
impact to revenue and a £1.9m benefit to operating profit.
Acquisition of WITec
On 31 August 2021, the Group completed the purchase of 100% of the share
capital in WITec for an initial consideration of €37.0m. Additional
consideration of up to €5m is conditional on trading performance over a
period of twelve months following completion. Based on current forecasts, this
payment is expected to be made in full. During the period under ownership, the
business contributed constant currency revenue of £14.9m and an operating
profit of £2.9m.
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. After
a resilient year of trading, the Board has proposed a final dividend of 13.7p
per share. This results in a total dividend of 18.1p per share, growth of
6.5%. An interim dividend of 4.4p per share was paid on 14 January 2022. The
final dividend will be paid, subject to Shareholder approval, on 23 August
2022 to Shareholders on the register as at 15 July 2022.
Cash flow
The Group cash flow is summarised below.
Year ended Year ended
31 March 2022 31 March 2021
£m £m
Adjusted operating profit 66.3 56.7
Depreciation and amortisation 9.4 9.1
Adjusted(1) EBITDA 75.7 65.8
Working capital movement (11.8) (2.7)
Equity settled share schemes 2.1 1.8
Non-recurring items - 0.3
Pension scheme payments above charge to operating profit (7.6) (15.5)
Cash from operations 58.4 49.7
Interest (0.5) (1.6)
Tax (8.8) (6.3)
Capitalised development expenditure (0.7) (0.9)
Expenditure on tangible and intangible assets (13.9) (4.0)
Acquisition of subsidiaries, net of cash acquired (30.6) -
Acquisition-related cost (0.4) -
Dividends paid (12.3) -
Proceeds from issue of share capital and exercise of share options 0.1 0.2
Payments made in respect of lease liabilities (3.4) (2.8)
Decrease in borrowings (0.1) (27.9)
Net (decrease)/increase in cash and cash equivalents from continuing (12.2) 6.4
operations
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 £58.4m (2021: £49.7m) represents 72% (2021: 101%)
cash conversion. Cash conversion on a normalised basis was 84% once we exclude
expenditure relating to our new semiconductor facility. Cash conversion is
defined as cash from operations before business reorganisation 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.
Reconciliation of cash generated from operations to adjusted operating cash Year ended Year ended
flow
31 March 2022 31 March 2021
£m £m
Cash from operations 58.4 49.7
Add back/(Deduct):
Non-recurring items - (0.3)
Pension scheme payments above charge to operating profit 7.6 15.5
Capitalised development expenditure (0.7) (0.9)
Expenditure on tangible and intangible assets (13.9) (4.0)
Payments made in respect of lease liabilities (3.4) (2.8)
Adjusted cash from operations 48.4 57.2
Cash conversion % (adjusted cash from operations/adjusted operating profit) 72% 101%
Cash conversion % (normalised(1)) 84% 102%
1. Cash conversion calculated on a normalised basis excludes
expenditure in the year of £7.4m (2021: £0.8m) on the new semiconductor
facility.
Working capital increased by £11.8m with receivables increasing by £21.6m.
The receivables movement reflects the high number of orders, shipments and
acceptances in the final month of the year compared to last year, particularly
with reference to high-value semiconductor process systems, resulting in an
increase in invoicing against customer deposits, installation and acceptances.
This was partially offset by a reduction in payables and customer deposits of
£9.9m. Business growth and post-Brexit transit flows have also resulted in
higher VAT balances in receivables and payables.
Interest
Net interest paid was £0.5m (2021: £1.6m), the reduction reflecting the
repayment of private placement notes at the end of the last financial year.
Tax
Tax paid was £8.8m (2021: £6.3m).
Investment in Research and Development (R&D)
Total cash spend on R&D in the year was £31.7m, equivalent to 8.6% of
sales (2021: £28.9m, 9.1% of sales). A reconciliation between the adjusted
amounts charged to the Consolidated Statement of Income and the cash spent is
given below:
Year ended Year ended
31 March 2022 31 March 2021
£m £m
R&D expense charged to the Consolidated Statement of Income 32.8 30.0
Depreciation of R&D-related fixed assets (0.2) (0.1)
Amounts capitalised as fixed assets 0.3 0.6
Amortisation and impairment of R&D costs capitalised as intangibles (1.9) (2.5)
Amounts capitalised as intangible assets 0.7 0.9
Total cash spent on R&D during the year 31.7 28.9
Net cash and funding
Net cash
Cash from operations in the full year was offset by the payment of initial
consideration for the acquisition of WITec, resulting in a decrease in the
Group's net cash position from £97.6m at 31 March 2021 to £85.9m on 31 March
2022. The Group invested in capitalised development costs of £0.7m and
tangible and intangible assets of £13.9m, of which £7.4m relates to payments
associated with the new semiconductor facility under construction.
Up to 31 March 2022, we had incurred costs of £8.2m on the new semiconductor
facility under construction. For the financial year ended 31 March 2023, we
expect additional payments of approximately £25m to complete the facility. We
are at the early stage of a process to sell the current site, with
completion expected in the 2023/24 financial year.
Movement in net cash £m
Net cash after borrowings as at 31 March 2021 97.6
Cash generated from operations 58.4
Interest (0.5)
Tax (8.8)
Capitalised development expenditure (0.7)
Capital expenditure on tangible and intangible assets (6.5)
Capital expenditure on new semiconductor facility (7.4)
Acquisition of subsidiaries (net of cash and debt) (30.6)
Dividend paid (12.3)
Other items (3.3)
Net cash after borrowings as at 31 March 2022 85.9
Net cash including lease liabilities Year ended Year ended
31 March 2022 31 March 2021
£m £m
Net cash after borrowings 85.9 97.6
Lease liabilities (18.4) (7.5)
Net cash and lease liabilities after borrowings 67.5 90.1
Return on capital employed (ROCE)
ROCE measures effective management of capital employed relative to the
profitability of the business. ROCE is calculated as adjusted operating profit
less amortisation of intangible assets divided by average capital employed.
Capital employed is defined as assets (excluding cash, pension, tax and
derivative assets) less liabilities (excluding tax, debt and derivative
liabilities). Average capital employed is defined as the average of the
closing balance at the current and prior year end. ROCE has risen to 34.7%,
with the change principally reflecting a higher level of earnings.
Return on capital employed Year ended Year ended
31 March 2022 31 March 2021
£m £m
Adjusted operating profit 66.3 56.7
Amortisation of acquired intangible assets (9.5) (8.4)
Adjusted operating profit after amortisation of acquired intangible assets 56.8 48.3
Property, plant and equipment 31.7 21.1
Right-of-use assets 17.9 7.3
Intangible assets 140.7 122.6
Inventories 65.3 58.7
Trade and other receivables 104.7 75.6
Non-current lease payables (14.9) (4.9)
Non-current provisions (0.1) (0.7)
Trade and other payables (149.5) (126.1)
Current lease payables (3.5) (2.6)
Current provisions (7.7) (8.7)
Capital employed 184.6 142.3
Average capital employed 163.5 147.8
Return on capital employed (ROCE) 34.7% 32.7%
Return on invested capital (ROIC)
ROIC measures the after-tax return on the total capital invested in the
business. It is calculated as adjusted operating profit after tax divided by
average invested capital. Invested capital is total equity less net cash,
including lease liabilities. Average invested capital is defined as the
average of the closing balance at the current and prior year end. Oxford
Instruments aims to deliver high returns, measured by a return on capital in
excess of our weighted average cost of capital. ROIC increased slightly on the
previous year due to the improvement in operating profit and reduction in
taxation rates, more than offsetting any dilution in ROIC from the recent
acquisition.
Return on invested capital Year ended Year ended
31 March 2022 31 March 2021
£m £m
Adjusted operating profit 66.3 56.7
Taxation (11.7) (10.8)
Adjusted operating profit after taxation 54.6 45.9
Total equity 316.4 266.2
Net cash (including lease liabilities) (67.5) (90.1)
Invested capital 248.9 176.1
Average invested capital 212.5 184.4
Return on invested capital (ROIC) 25.7% 24.9%
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 (£42m) and a US Dollar-denominated multi-currency
facility of $80.0m (£61m).
Debt covenants are net debt to EBITDA less than 3.0 times and EBITDA to
interest greater than 4.0 times. As at 31 March 2022 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 31 March 2022 was £51.7m (2021: £16.3m). The value of
scheme assets increased to £351.7m (2021: £340.2m). Scheme liabilities
decreased to £300.0m (£323.9m), principally due to an increase in the
discount rate from 2.1% to 2.8%. This was offset slightly by an increase in
the inflation assumption, from 3.0% to 3.4%.
Pension recovery payments above charge to operating profit total £7.6m (2021:
£15.5m). The comparative period included a one-off contribution of £8.1m to
the UK defined benefit pension scheme, in addition to the annual recovery
payments.
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, for the scheme to achieve self-sufficiency. In 2022,
these contributions amounted to £8.0m. 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's Review and Operations Review
sections of this 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 strong during the 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 the foreseeable future.
Forward-looking statements
This document contains certain forward-looking statements. The forward-looking
statements reflect the knowledge and information available to the Company
during the preparation and up to the publication of this document. By their
very nature, these statements depend upon circumstances and relate to events
that may occur in the future, thereby involving a degree of uncertainty.
Therefore, nothing in this document should be construed as a profit forecast
by the Company.
Gavin Hill
Chief Financial Officer
13 June 2022
CONSOLIDATED STATEMENT OF INCOME
Year ended 31 March 2022
2022 2021
Adjusting Adjusting
Adjusted items(1) Total Adjusted items(1) Total
Note £m £m £m £m £m £m
Revenue 3 367.3 - 367.3 318.5 - 318.5
Cost of sales (179.5) - (179.5) (153.7) - (153.7)
Gross profit 187.8 - 187.8 164.8 - 164.8
Research and development 5 (32.8) - (32.8) (30.0) (1.3) (31.3)
Selling and marketing (52.5) - (52.5) (44.5) - (44.5)
Administration and shared services (42.2) (11.6) (53.8) (34.5) (8.8) (43.3)
Foreign exchange gain/(loss) 6.0 (6.4) (0.4) 0.9 6.4 7.3
Operating profit 66.3 (18.0) 48.3 56.7 (3.7) 53.0
Interest credit on pension scheme net assets 0.4 - 0.4 0.9 - 0.9
Other financial income 0.1 - 0.1 0.2 - 0.2
Financial income 7 0.5 - 0.5 1.1 - 1.1
Financial expenditure 8 (0.9) (0.3) (1.2) (1.9) - (1.9)
Profit/(loss) before income tax 3 65.9 (18.3) 47.6 55.9 (3.7) 52.2
Income tax (expense)/credit 12 (11.7) 2.7 (9.0) (10.8) 0.4 (10.4)
Profit/(loss) for the year attributable to equity Shareholders of the parent 54.2 (15.6) 38.6 45.1 (3.3) 41.8
Earnings per share pence pence pence pence
Basic earnings per share 2
From profit for the year 94.3 67.1 78.6 72.8
Diluted earnings per share 2
From profit for the year 93.0 66.2 77.6 71.9
Dividends per share 13
Dividends paid 21.4 -
Dividends proposed 13.7 17.0
1. Adjusted numbers are stated to give a better understanding of the
underlying business performance. Details of adjusting items can be found in
Note 1.
The attached notes form part of these Financial Statements.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year ended 31 March 2022
2022 2021
£m £m
Profit for the year 38.6 41.8
Other comprehensive income/(expense):
Items that may be reclassified subsequently to Consolidated Statement of
Income
Foreign exchange translation differences 1.0 (4.9)
Items that will not be reclassified to Consolidated Statement of Income
Remeasurement gain/(loss) in respect of post-retirement benefits 27.3 (30.8)
Tax (charge)/credit on items that will not be reclassified to Consolidated (6.8) 5.5
Statement of Income
Total other comprehensive income/(expense) 21.5 (30.2)
Total comprehensive income for the year attributable to equity Shareholders of 60.1 11.6
the parent
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 March 2022
2022 2021
Note £m £m
Assets
Non-current assets
Property, plant and equipment 14 31.7 21.1
Right-of-use assets 29 17.9 7.3
Intangible assets 15 140.7 122.6
Derivative financial instruments 22 - 1.1
Retirement benefit asset 25 51.7 16.3
Deferred tax assets 16 13.7 13.1
255.7 181.5
Current assets
Inventories 17 65.3 58.7
Trade and other receivables 18 104.7 75.6
Current income tax receivable 0.8 1.9
Derivative financial instruments 22 1.0 5.0
Cash and cash equivalents 19 96.4 128.0
268.2 269.2
Total assets 523.9 450.7
Equity
Capital and reserves attributable to the Company's equity Shareholders
Share capital 23 2.9 2.9
Share premium 62.5 62.4
Other reserves 0.2 0.2
Translation reserve 7.6 6.6
Retained earnings 243.2 194.1
316.4 266.2
Liabilities
Non-current liabilities
Bank loans 24 1.3 -
Lease payables 29 14.9 4.9
Derivative financial instruments 22 0.3 -
Provisions 28 0.1 0.7
Deferred tax liabilities 16 15.4 4.9
32.0 10.5
Current liabilities
Bank loans and overdrafts 24 9.2 30.4
Trade and other payables 26 149.5 126.1
Lease payables 29 3.5 2.6
Current income tax payables 4.5 6.2
Derivative financial instruments 22 1.1 -
Provisions 28 7.7 8.7
175.5 174.0
Total liabilities 207.5 184.5
Total liabilities and equity 523.9 450.7
The Financial Statements were approved by the Board of Directors on 13 June
2022 and signed on its behalf by:
Ian Barkshire
Director
Gavin Hill
Director
Company number: 775598
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Year ended 31 March 2022
Translation Retained
Share capital Share premium Other reserves reserve earnings Total
£m £m £m £m £m £m
As at 1 April 2021 2.9 62.4 0.2 6.6 194.1 266.2
Total comprehensive income/(expense):
Profit for the year - - - - 38.6 38.6
Other comprehensive income/(expense):
- Foreign exchange translation differences - - - 1.0 - 1.0
- Net cumulative foreign exchange gain on disposal of subsidiaries recycled to - - - - -
the Income Statement
- Remeasurement gain in respect of post-retirement benefits - - - - 27.3 27.3
- Tax charge on items that will not be reclassified to Consolidated Statement - - - - (6.8) (6.8)
of Income
Total comprehensive income attributable to equity Shareholders of the parent - - - 1.0 59.1 60.1
Transactions with owners recorded directly in equity:
- Credit in respect of employee service costs settled by award of share - - - - 2.1 2.1
options
- Tax credit in respect of share options - - - - 0.2 0.2
- Proceeds from shares issued - 0.1 - - - 0.1
- Dividends - - - - (12.3) (12.3)
Total transactions with owners recorded directly in equity: - 0.1 - - (10.0) (9.9)
As at 31 March 2022 2.9 62.5 0.2 7.6 243.2 316.4
As at 1 April 2020 2.9 62.2 0.2 11.5 174.8 251.6
Total comprehensive income/(expense):
Profit for the year - - - - 41.8 41.8
Other comprehensive (expense)/income:
- Foreign exchange translation differences - - - (4.9) - (4.9)
- Remeasurement loss in respect of post‑retirement benefits - - - - (30.8) (30.8)
- Tax credit on items that will not be reclassified to Consolidated Statement - - - - 5.5 5.5
of Income
Total comprehensive (expense)/income attributable to equity Shareholders of - - - (4.9) 16.5 11.6
the parent
Transactions with owners recorded directly in equity:
- Credit in respect of employee service costs settled by award of share - - - - 1.8 1.8
options
- Tax credit in respect of share options - - - - 1.0 1.0
- Proceeds from shares issued - 0.2 - - - 0.2
- Dividends - - - - - -
Total transactions with owners recorded directly in equity: - 0.2 - - 2.8 3.0
As at 31 March 2021 2.9 62.4 0.2 6.6 194.1 266.2
Other reserves comprise the capital redemption reserve, which represents the
nominal value of shares repurchased and then cancelled during the year ended
31 March 1999.
The foreign exchange translation reserve comprises all foreign exchange
differences arising since 1 April 2004 from the translation of the Group's net
investments in foreign subsidiaries into Sterling.
The Group holds 2,370 (2021: 52,631) of its own shares in an employee benefit
trust. The cost of these shares is included within retained earnings.
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended 31 March 2022
2022 2021
Note £m £m
Profit for the year 38.6 41.8
Profit for the year from continuing operations 38.6 41.8
Adjustments for:
Income tax expense 12 9.0 10.4
Net financial expense 0.7 0.8
Fair value movement on financial derivatives 6.4 (6.4)
WITec post-acquisition gross margin adjustment 1.7 -
Acquisition-related costs 0.4 0.4
Impairment of capitalised development costs - 1.3
Amortisation and impairment of acquired intangibles 15 9.5 8.4
Depreciation of right-of-use assets 29 3.4 2.8
Depreciation of property, plant and equipment 14 4.1 3.8
Amortisation of capitalised development costs 15 1.9 2.5
Adjusted earnings before interest, tax, depreciation and amortisation 75.7 65.8
Charge in respect of equity settled employee share schemes 11 2.1 1.8
Restructuring costs (paid)/received - 0.3
Cash payments to the pension scheme more than the charge to operating profit (7.6) (15.5)
Operating cash flows before movements in working capital 70.2 52.4
Increase in inventories 20 (0.1) (1.3)
Increase in receivables 20 (21.6) (10.5)
Increase in payables and provisions 20 11.4 11.3
Increase/(decrease) in customer deposits 20 (1.5) (2.2)
Cash generated from operations 58.4 49.7
Interest paid (0.5) (1.6)
Income taxes paid (8.8) (6.3)
Net cash from operating activities 49.1 41.8
Cash flows from investing activities
Proceeds from sale of property, plant and equipment - 0.2
Acquisition of property, plant and equipment (13.9) (4.2)
Acquisition of subsidiaries, net of cash acquired 6 (30.6) -
Acquisition-related costs (0.4) -
Acquisition of intangibles (0.1) -
Capitalised development expenditure (0.7) (0.9)
Interest received 0.1 -
Net cash used in investing activities (45.6) (4.9)
Cash flows from financing activities
Proceeds from issue of share capital 0.1 0.2
Payments made in respect of lease liabilities 29 (3.4) (2.8)
Repayment of borrowings (0.1) (27.9)
Dividends paid (12.3) -
Net cash used in financing activities (15.7) (30.5)
Net (decrease)/increase in cash and cash equivalents (12.2) 6.4
Cash and cash equivalents at beginning of the year 97.6 95.4
Effect of exchange rate fluctuations on cash held 2.3 (4.2)
Cash and cash equivalents at end of the year 19 87.7 97.6
Comprised of:
Cash and cash equivalents as per the Consolidated Statement of Financial 19 96.4 128.0
Position
Bank overdrafts 24 (8.7) (30.4)
87.7 97.6
1. 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 year
from continuing operations, 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
Consolidated Statement of Cash Flows. The calculation of adjusted EPS can be
found in Note 2. 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 from continuing operations
2022 2021
Operating Profit before Operating Profit before
profit income tax profit income tax
£m £m £m £m
Statutory measure 48.3 47.6 53.0 52.2
Acquisition-related costs 0.4 0.4 0.4 0.4
WITec post-acquisition gross margin adjustment 1.7 1.7 - -
Impairment of capitalised development costs - - 1.3 1.3
Amortisation and impairment of acquired intangibles 9.5 9.5 8.4 8.4
Fair value movement on financial derivatives 6.4 6.4 (6.4) (6.4)
Unwind of discount in respect of contingent consideration - 0.3 - -
Total non-GAAP adjustments 18.0 18.3 3.7 3.7
Adjusted measure 66.3 65.9 56.7 55.9
Adjusted income tax expense (11.7) (10.8)
Adjusted profit for the year 66.3 54.2 56.7 45.1
Adjusted effective tax rates 17.8% 19.3%
Acquisition-related costs
These represent the costs of one-off charges incurred at the balance sheet
date relating to the acquisition of WITec.
WITec post-acquisition gross margin adjustment
The finished goods and work in progress inventories were revalued to
provisional fair value, based on selling price less costs to sell. The £1.7m
adjustment relates to the gross margin which would have been earned on
post-acquisition sales to 31 March 2022, but which has been absorbed into the
acquisition date fair value. This will not recur, once all such inventory at
the acquisition date has been delivered to customers.
Impairment of capitalised development costs
During the year to 31 March 2021, 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 year 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 excludes 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
2022 2021
£m £m
Net (decrease)/increase in cash and cash equivalents (12.2) 6.4
Effect of exchange rate fluctuations on cash held 2.3 (4.2)
Movement in net cash in the year (9.9) 2.2
Net cash at start of the year 97.6 95.4
Net cash at the end of the year 87.7 97.6
Reconciliation of net cash to Statement of Financial Position
2022 2021
£m £m
Overdrafts (8.7) (30.4)
Cash and cash equivalents 96.4 128.0
Net cash at the end of the year 87.7 97.6
2. EARNINGS PER SHARE
Basic and diluted EPS from continuing operations are based on the result for
the year from continuing operations, as reported in the Consolidated Statement
of Income. Basic and diluted EPS from total operations are based on the result
for the year attributable to equity Shareholders of the parent. Adjusted and
diluted adjusted EPS are based on adjusted profit for the year from continuing
operations. The profit measures noted above are divided by the weighted
average number of ordinary shares outstanding during the year, excluding
shares held by the Employee Share Ownership Trust. The table below reconciles
these different profit measures.
2022 2021
£m £m
Profit for the year attributable to equity Shareholders of the parent 38.6 41.8
Adjusting items:
Business reorganisation items 0.4 0.4
WITec post-acquisition gross margin adjustment 1.7 -
Impairment of capitalised development costs - 1.3
Amortisation and impairment of acquired intangibles 9.5 8.4
Fair value movement on financial derivatives 6.4 (6.4)
Unwind of discount in respect of contingent consideration 0.3 -
Adjusted income tax expense (2.7) (0.4)
Adjusted profit for the year 54.2 45.1
The weighted average number of shares used in the calculation excludes shares
held by the Employee Share Ownership Trust, and is as follows:
2022 2021
Shares Shares
million million
Weighted average number of shares outstanding 57.7 57.5
Less: weighted average number of shares held by Employee Share Ownership Trust (0.2) (0.1)
Weighted average number of shares used in calculation of basic earnings per 57.5 57.4
share
The following table shows the effect of share options on the calculation of
diluted earnings per share:
2022 2021
Shares Shares
million million
Number of ordinary shares per basic earnings per share calculations 57.5 57.4
Effect of shares under option 0.8 0.7
Number of ordinary shares per diluted earnings per share calculations 58.3 58.1
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 or increase loss per share.
3. SEGMENT INFORMATION
The Group has nine operating segments. These operating segments have been
combined into three aggregated operating segments to the extent that they have
similar economic characteristics, with relevance to products and services,
type and class of customer, methods of sale and distribution and the
regulatory environment in which they operate. Each of these three aggregated
operating segments is a reportable segment. The 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 have
been amended to differentiate 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.
On 31 August 2021, the Group acquired 100% of the issued share capital of
WITec, which has been integrated into the Materials & Characterisation
segment.
Results from continuing operations
Materials & Research & Service &
Characterisation Discovery Healthcare Total
2022 £m £m £m £m
Total segment revenue 185.5 120.3 61.5 367.3
Segment adjusted operating profit from continuing operations 26.1 21.3 18.9 66.3
Materials & Research & Service &
Characterisation Discovery Healthcare Total
2021 £m £m £m £m
Total segment revenue 148.6 113.4 56.5 318.5
Segment adjusted operating profit from continuing operations 20.3 19.5 16.9 56.7
Revenue in the Materials & Characterisation and Research & Discovery
segments represents the sale of products. Revenue in the Service &
Healthcare segment relates to service income.
As at 31 March 2022, the Group had unfulfilled performance obligations under
IFRS 15 of £260.2m (2021: £198.1m). It is anticipated that £250.5m (2021:
£178.9m) of this balance will be satisfied within one year. The remainder is
anticipated to be satisfied in the following financial year.
Reconciliation of reportable segment profit from continuing operations
Materials & Research & Service & Unallocated
Characterisation Discovery Healthcare Group items Total
2022 £m £m £m £m £m
Segment adjusted operating profit from continuing operations 26.1 21.3 18.9 - 66.3
Acquisition-related costs (0.4) - - - (0.4)
WITec post-acquisition gross margin adjustment (1.7) - - - (1.7)
Amortisation and impairment of acquired intangibles (3.2) (6.3) - - (9.5)
Fair value movement on financial derivatives - - - (6.4) (6.4)
Financial income - - - 0.5 0.5
Financial expenditure - - - (1.2) (1.2)
Profit/(loss) before income tax from continuing operations 20.8 15.0 18.9 (7.1) 47.6
Materials & Research & Service & Unallocated
Characterisation Discovery Healthcare Group items Total
2021 £m £m £m £m £m
Segment adjusted operating profit from continuing operations 20.3 19.5 16.9 - 56.7
Acquisition-related costs (0.4) - - - (0.4)
Impairment of capitalised development costs (1.3) - - - (1.3)
Amortisation and impairment of acquired intangibles (2.0) (6.4) - - (8.4)
Fair value movement on financial derivatives - - - 6.4 6.4
Financial income - - - 1.1 1.1
Financial expenditure - - - (1.9) (1.9)
Profit before income tax from continuing operations 16.6 13.1 16.9 5.6 52.2
2022 2021
Depreciation £m £m
Materials & Characterisation 3.8 3.3
Research & Discovery 1.5 1.3
Service & Healthcare 0.7 0.6
Unallocated Group items 1.5 1.4
Total 7.5 6.6
2022 2021
Capital expenditure £m £m
Materials & Characterisation 11.4 3.2
Research & Discovery 1.7 1.3
Service & Healthcare 0.1 0.1
Unallocated Group items 0.7 0.2
Total 13.9 4.8
2022 2021
Amortisation and impairment £m £m
Materials & Characterisation 5.0 5.6
Research & Discovery 6.4 6.6
Service & Healthcare - -
Unallocated Group items - -
Total 11.4 12.2
2022 2021
Capitalised development costs £m £m
Materials & Characterisation 0.7 0.8
Research & Discovery - 0.1
Service & Healthcare - -
Unallocated Group items - -
Total 0.7 0.9
2022 2021
Revenue from continuing operations from external customers by destination £m £m
UK 20.2 14.5
China 103.9 76.8
Japan 39.0 39.6
USA 79.9 72.1
Germany 28.1 32.8
Rest of Europe 40.7 39.9
Rest of Asia 45.7 33.8
Rest of World 9.8 9.0
Total 367.3 318.5
2022 2021
Non-current assets (excluding deferred tax) £m £m
UK 182.8 146.0
Germany 32.7 2.9
USA 14.2 8.7
Japan 2.4 0.6
China 1.8 0.3
Rest of Europe 7.2 7.8
Rest of Asia 0.3 0.2
Rest of World 0.6 0.9
Total 242.0 167.4
4. RESEARCH AND DEVELOPMENT (R&D)
The total research and development spend by the Group is as follows:
Materials & Research &
Characterisation Discovery Total
2022 £m £m £m
R&D expense charged to the Consolidated Statement of Income 23.0 9.8 32.8
Less: depreciation of R&D-related fixed assets - (0.2) (0.2)
Add: amounts capitalised as fixed assets - 0.3 0.3
Less: amortisation of R&D costs previously capitalised as intangibles (1.8) (0.1) (1.9)
Add: amounts capitalised as intangible assets 0.7 - 0.7
Total cash spent on R&D during the year 21.9 9.8 31.7
Materials & Research &
Characterisation Discovery Total
2021 £m £m £m
R&D expense charged to the Consolidated Statement of Income 20.2 9.8 30.0
Less: depreciation of R&D-related fixed assets - (0.1) (0.1)
Add: amounts capitalised as fixed assets - 0.6 0.6
Less: amortisation of R&D costs previously capitalised as intangibles (2.3) (0.2) (2.5)
Add: amounts capitalised as intangible assets 0.8 0.1 0.9
Total cash spent on R&D during the year 18.7 10.2 28.9
5. ACQUISITION OF WITEC
On 31 August 2021, the Group acquired 100% of the issued share capital of
WITec Wissenschaftliche Instrumente und Technologie GmbH ("WITec") on a
cash-free, debt-free basis for consideration of €42m (£36.0m), of which
€5m (£4.3m) is conditional on trading performance over a period of twelve
months from the acquisition. The conditions for the deferred consideration are
meeting certain revenue, order and margin thresholds. In the calculations
below, it has been assumed that these thresholds have been met. WITec is a
leading designer and manufacturer of Raman microscopy imaging solutions, based
in Ulm, Germany.
The book and fair value of the assets and liabilities acquired is given in the
table below. Fair value adjustments will be made to better align the
accounting policies of the acquired business with the Group accounting
policies and to reflect the fair value of assets and liabilities acquired. The
business has been integrated into the Materials & Characterisation
segment.
Book value Adjustments Fair value
£m £m £m
Intangible assets - 8.3 8.3
Property, plant and equipment 0.2 - 0.2
Right-of-use assets 2.8 - 2.8
Inventories 5.3 2.6 7.9
Trade and other receivables 3.0 - 3.0
Deferred tax 0.2 (3.0) (2.8)
Trade and other payables (2.1) - (2.1)
Lease liabilities (2.8) - (2.8)
Provisions (0.5) - (0.5)
Bank loans (1.9) - (1.9)
Cash 1.7 - 1.7
Net assets acquired 5.9 7.9 13.8
Goodwill 20.6
Total consideration 34.4
Net debt acquired 0.2
Deferred consideration after discounting to transaction date (3.6)
Creditor in respect of working capital adjustment (0.4)
Net cash outflow relating to the acquisition 30.6
The goodwill arising is considered to represent the value of the acquired
workforce and the value of technology that has not been individually fair
valued.
Acquisition-related costs of £0.4m (2021: £0.4m) were expensed to the
Consolidated Statement of Income as an adjusting item in the administration
and shared services cost line.
The acquisition contributed revenue of £14.3m, adjusted operating profit of
£2.8m and a statutory loss before tax of £0.3m to the Group's profit for the
year.
If the acquisition had occurred on the first day of the year the acquisition
would have contributed revenue of £19.6m, adjusted operating profit of £3.1m
and a statutory result before tax of £nil.
6. INCOME TAX EXPENSE
2022 2021
£m £m
Recognised in the Consolidated Statement of Income
Current tax expense
Current year 9.0 9.7
Adjustment in respect of prior years (1.0) (3.2)
8.0 6.5
Deferred tax expense
Origination and reversal of temporary differences 1.2 2.0
Adjustment in respect of prior years (0.2) 1.9
1.0 3.9
Total tax expense 9.0 10.4
Reconciliation of effective tax rate
Profit before income tax 47.6 52.2
Income tax using the weighted average statutory tax rate of 21% (2021: 21%) 10.0 11.0
Effect of:
Tax rates other than the weighted average statutory rate 0.1 0.4
Change in rate at which deferred tax recognised 0.6 0.1
Non-taxable income and expenses (0.3) 0.3
Tax incentives not recognised in the Consolidated Statement of Income (0.2) -
Movement in unrecognised deferred tax - (0.1)
Adjustment in respect of prior years (1.2) (1.3)
Total tax expense 9.0 10.4
Taxation charge/(credit) recognised directly in other comprehensive income
Deferred tax - relating to employee benefits 6.8 (5.5)
Taxation credit recognised directly in equity
Deferred tax - relating to share options (0.2) (1.0)
On 5 March 2021, it was announced that the rate of UK corporation tax would be
increased to 25% from 1 April 2023. This change was substantively enacted on
24 May 2021. As such, the UK deferred tax assets and liabilities have been
calculated based on the enacted rate of 19% where they are anticipated to be
utilised prior to 31 March 2023, but at 25% when utilisation is expected to
occur after that date.
The Group carries tax provisions in relation to uncertain tax positions
arising from the possible outcome of negotiations with tax authorities. The
provisions have been calculated based on the probable outcome of those
negotiations from a range of possibilities and assume that the tax authorities
have full knowledge of the facts. Such provisions are a reflection of the
geographical spread of the Group's operations and the variety of jurisdictions
in which it carries out its activities.
On 2 April 2019, the EU Commission announced that it believes that in certain
circumstances the UK's Controlled Foreign Company (CFC) regime (introduced in
2013) for certain finance income constituted State Aid. The Commission
instructed the UK Government to recover any such aid from affected parties.
The Group has claimed the benefit of this exemption, and therefore may be
required to repay State Aid. The maximum amount of State Aid repayable as at
31 March 2020 was £1.2m in respect of tax and £0.1m in respect of interest
unless the decision is successfully challenged in the EU Courts. The Group
believed that £0.2m might ultimately have been payable and a provision was
made for that amount in the year to 31 March 2020. In early 2021, HM Revenue
and Customs advised the Group that it agreed with the Group's position that it
had not in fact been a beneficiary of State Aid. The provision of £0.2m was
accordingly released in the year to 31 March 2021.
In addition to the provision release following the enactment of the
Coronavirus Aid, Relief, and Economic Security Act (CARES Act) the Group was
able to carry back tax losses in the US to earlier years which resulted in a
prior year adjustment of £2.7m. The Group received a cash tax refund of $2.1m
in July 2021.
7. DIVIDENDS PER SHARE
The following dividends per share were paid by the Group:
2022 2021
pence pence
Previous period interim dividend 4.1 -
Previous period final dividend 12.9 -
Current period interim dividend 4.4 -
21.4 -
The following dividends per share were proposed by the Group in respect of
each accounting period presented:
2022 2021
pence pence
Interim dividend 4.4 4.1
Final dividend 13.7 12.9
18.1 17.0
The final dividend for the year to 31 March 2021 of 12.9 pence per share was
approved by Shareholders at the Annual General Meeting on 21 September 2021
and was paid on 15 October 2021. The interim dividend for the year to 31 March
2022 of 4.4 pence was approved by the Board on 8 November 2021 and was paid on
14 January 2022.
The proposed final dividend of 13.7 pence per share was not provided at the
year end and is subject to Shareholder approval at the Annual General Meeting
on 28 July 2022. It is expected to be paid on 23 August 2022, to Shareholders
on the register on the record date of 15 July 2022, with an ex-dividend date
of 14 July 2022 and with the last date of election for the Dividend
Reinvestment Plan (DRIP) being 02 August 2022.
8. EXCHANGE RATES
The principal exchange rates to Sterling used were:
Year-end rates 2022 2021
US Dollar 1.32 1.38
Euro 1.18 1.17
Japanese Yen 160 152
Average translation rates
2022 US Dollar Euro Japanese Yen
April 1.38 1.16 152
May 1.40 1.16 153
June 1.40 1.16 154
July 1.39 1.17 153
August 1.38 1.17 152
September 1.36 1.16 151
October 1.36 1.17 153
November 1.35 1.18 153
December 1.34 1.18 153
January 1.35 1.19 155
February 1.34 1.20 155
March 1.33 1.19 157
Average translation rates
2021 US Dollar Euro Japanese Yen
April 1.25 1.14 134
May 1.25 1.13 134
June 1.24 1.11 133
July 1.27 1.11 136
August 1.33 1.11 140
September 1.32 1.11 139
October 1.29 1.11 136
November 1.34 1.12 139
December 1.35 1.12 140
January 1.37 1.12 142
February 1.39 1.14 146
March 1.39 1.16 151
9. ANNUAL GENERAL MEETING
The Annual General Meeting will be held on 28 July 2022. Detailed arrangements
in respect of the AGM will be advised in due course.
10. RISK MANAGEMENT
Audit, risk and internal control
Approach to risk management
Within the Group there is an ongoing process for identifying, evaluating and
managing the significant risks faced by the Group that is embedded in all
business units. Day-to-day management of this process has been delegated by
the Board to the Executive Directors. Details of the process are set out in
the Audit and Risk Committee Report in the Report and Financial Statements.
The current risk management and internal control systems have been in place
throughout the financial year and up to the date of approval of the Report and
Financial Statements and are subject to annual review by the Board. In respect
of the year ended 31 March 2022, the Board considered that these processes
remained effective.
Summaries of our risk management framework and risk management process can be
found below and on page 35 respectively.
The Board has carried out a robust assessment of the principal risks facing
the Group, including those which threaten its business model, future
performance, solvency and liquidity. Details of all major risks identified,
and the mitigating actions adopted, are reported to and reviewed by the Board
and the Audit and Risk Committee on at least a quarterly basis. The principal
risks set out below provide an overview of the major risks and uncertainties
faced by the Group. All operating businesses follow a standard process for
risk identification and reporting. The process is further described on pages
35 to 36. On a regular basis, each business reviews and updates its risk
register which is then reported to the Chief Executive. If a material risk
changes or arises, this is reported to the Chief Executive, at which time
there is a discussion on the adequacy of the mitigating actions taken. In
addition, the Board and the Audit and Risk Committee consider risks to the
Group's strategic objectives which arise at a Group level and develop
appropriate actions to manage and mitigate these risks where possible.
Priorities during financial year ended 31 March 2022
During the year ended 31 March 2022 the principal priority was the development
of the risk management framework required for the Taskforce for
Climate-Related Financial Disclosures (TCFD) reporting. Having conducted a
pilot with the NanoScience business unit in the prior year, the main objective
was to enhance the process and extend it across all business units and the
larger regional offices in 2021/22. The risk management function collaborated
with the environmental working group that reports into the Sustainability
Committee to deliver a process for identifying, evaluating, and reporting on
climate‑related risks and opportunities across the Group. The output from
this process provided the inputs for the risks and opportunities that are set
out in the TCFD statement.
In compliance with the Financial Conduct Authority's Listing Rule 14.3.27, the
climate-related financial disclosures consistent with the TCFD Recommendations
and Recommended Disclosures have been included within the TCFD statement in
the Report and Financial Statements, which also encompasses further
information regarding the Group's exposure to climate-related risks and
opportunities.
Risk governance framework
The diagram below summarises the key accountabilities and features of our risk
governance framework.
Operational Internal audit and assurance function Audit and Risk Board
management Committee
Responsible for risk management and control within their business and, through Assesses the adequacy and effectiveness of the management of significant risk Reviews the internal financial controls systems that identify, assess, manage Oversees the internal control framework, and determines the nature and extent
the Management Board, implementing Board policies on risk and control. areas and provides oversight of operational management's front line and and monitor financial risks, and other internal control and risk management of the principal risks the Company is willing to take in order to achieve its
assurance activities. systems. long-term strategic objectives.
Guided by the internal audit and assurance function, completes detailed risk
reviews on a quarterly basis. Further information regarding the scope of internal audit and assurance More information regarding the work of the Committee can be found in its Ultimately accountable for approving the adequacy and effectiveness of
activities is set out in the Report and Financial Statements. report in the Report and Financial Statements. internal controls operated by the Group
Internal control
The internal control framework includes central direction, oversight and risk
management of the key activities within the Group. This framework includes a
financial planning process which comprises a five‑year planning model and a
detailed annual budget which is subject to Board approval. All Group
businesses' results are reported monthly and include variance analysis to
budget and the prior year. Management also prepares monthly reforecasts.
Control activities include policies and procedures for appropriate
authorisation and approval of transactions, the application of financial
reporting standards and reviews of significant judgements and financial
performance. Financial, regulatory and operational controls, procedures and
risk activities across the Group are reviewed by the Group's internal audit
and assurance function.
The internal control framework has been designed to manage rather than
eliminate material risks to the achievement of strategic and business
objectives and can provide only reasonable, and not absolute, assurance
against material misstatement or loss. Due to inherent limitations, internal
controls over financial reporting may not prevent or detect all misstatements.
There has been no material change to the Group's internal control framework
during the period covered by this Report and Financial Statements.
The key components designed to provide effective internal control within the
Group include:
· a formal schedule of matters reserved to the Board for decision and
specific terms of reference for each of its Committees; other than these
matters, the Board delegates to the Chief Executive, who in turn reviews the
delegation of authorities throughout the management structure;
· the Group's internal management beneath the Board is led by the
Management Board. Its membership comprises the Executive Directors, senior
managers with Group‑wide functional responsibilities and the heads of the
principal businesses of the Group's activities. Day‑to‑day responsibility
for the management of the Group is delegated to the Management Board. The
responsibility is based on the identification of separate businesses for each
of the Group's activities for which there are clearly defined lines of
management responsibilities at all levels up to and including the Group Board
and the Group's accounting and reporting functions reflect this organisation;
· whilst financial executives within Group businesses report to their
own operational head, there is also a well‑established and acknowledged
functional reporting relationship through to the Chief Financial Officer;
· the Board reviews strategic issues and options formally once a year
during the annual strategic planning process and during the year as
appropriate. In addition, the Executive Directors maintain a five‑year
planning model of the Group and its individual businesses;
· annual budgets are prepared for each of the Group's businesses
which include monthly figures for turnover, profit, capital expenditure, cash
flow and borrowings. The budgets are reviewed through the Group management
structure and result in a Group financial budget which is considered and
approved by the Board;
· the businesses prepare monthly management accounts which compare
the actual operating result with both the budget and prior year. They also
prepare rolling reforecasts for orders, turnover, operating profit and cash.
These are reviewed by the Board at each of its scheduled meetings;
· the Board approves all acquisition and divestment proposals and
there are established procedures for the planning, approval and monitoring of
capital expenditure;
· for all major investments, the performance of at least the first
twelve months against the original proposal is reviewed by the Board;
· an internal audit is carried out through a system of regular
reviews of the financial and non‑financial internal controls at each site.
This is further explained in the Audit and Risk Committee Report in the Report
and Financial Statements. These reviews are co-ordinated by the Group Head of
Risk and Assurance;
· the Board receives regular updates on pensions, sustainability,
business ethics and health and safety and the Audit and Risk Committee
receives regular updates on treasury, tax, insurance and litigation;
· authorisation limits are set at appropriate levels throughout the
Group; compliance with these limits is monitored by the Chief Financial
Officer and the Group assurance function;
· there is a detailed and risk‑based delegation of authority
structure in place for sales contracts and managing commercial risks.
Contracts with onerous terms and conditions (such as unlimited liability
contracts) require approval by either the Chief Executive or Chief Financial
Officer;
· the International Trade Committee monitors, considers action and
makes recommendations around the management of key risks relating to
international trade, including sanctions, export controls and customs; and
· as regards the UK pension scheme, the Group nominates half of the
trustee directors of the corporate trustee to the pension scheme, involves as
appropriate its own independent actuary to review actuarial assumptions,
agrees the investment policy with the trustee, works with the trustee on its
investment sub‑committee to deal with day‑to‑day investment matters,
ensures there is an independent actuarial valuation every three years and
agrees funding levels to provide adequate funding to meet the benefit payments
to the members as they fall due.
Risk management process
The table below summarises our methodical approach to risk management. The
principal risks and uncertainties detailed on pages 36 to 41 of this report
are monitored utilising this risk management process.
Alignment with strategy Evaluation of risk Mitigation implementation Review risk
The broad range of potential factors which could impact the Group are Careful consideration is given to: Suitable management actions or robust control mechanisms are determined, An embedded, cyclical process review:
considered and those which have a significant effect on its ability to deliver
developed and implemented.
its strategy are determined to be principal risks and uncertainties
i) the specific scenarios in which the risk could manifest i) determination of principal risks and uncertainties
ii) the various potential impacts which the risk could present ii) the effectiveness of the implemented mitigation mechanisms
Emerging risks
The Board is required to complete a robust assessment of the Company's
emerging and principal risks and confirms that it performed such an evaluation
during the financial year.
It is recognised that emerging risks can also be principal risks. A detailed
description of the principal risks and the activities to mitigate these are
set out on pages 36 to 41.
The identification and evaluation of emerging risks is derived from the
Group's quarterly risk reporting framework. The output from the business
units' detailed risk registers is reviewed by the Group Head of Risk and
Assurance and the Chief Financial Officer every quarter. Any new risks
reported by the business units are specifically identified and discussed as
part of this process. Further, there is a formal review of emerging risks at
the year end, with commentary provided to the Audit and Risk Committee as part
of its review of the Group risk register and principal risks and
uncertainties.
The emerging risks identified from the latest review include climate change
and inflationary pressures which are disclosed as principal risks. The key
climate change related risks are also disclosed in the TCFD statement in the
Report and Financial Statements. Inflationary risks are managed through
regular reviews of product pricing and, with regard to the supply chain, via
the Group's strategic sourcing strategy, which manages long-term arrangements
with key suppliers.
Principal risks and uncertainties
Principal risks are reported and discussed at every meeting of the Audit and
Risk Committee. For Oxford Instruments, principal risks are generally those
that could have a significant adverse impact on the Group's business model,
financial performance, liquidity or reputation. The Audit and Risk Committee
also considers emerging risks within the risk management framework. A formal
review of emerging risks is conducted around the year end. For the year ended
31 March 2022, the output of this assessment was the identification of
inflation and climate change as emerging risks that are also considered to be
principal risks. Further information is set out below.
The principal risks and uncertainties are set out on pages 36 to 41.
The key change in the Group's approach to risk management in 2021/22 has been
in TCFD reporting. The Group has implemented a climate-related risks and
opportunities reporting process across all business units and regional
offices. Initially this has been established to operate alongside the wider
enterprise risk management processes, although in 2022/23 we aim to integrate
it into the wider process. Further details are set out in the Sustainability
Report.
In terms of the wider risk management process there have been no significant
changes during the year ended 31 March 2022. Business units continue to
perform a detailed assessment of key risks using a standardised methodology.
The output is reported to the Group and is the basis for the compilation of
the quarterly Group risk register by the risk management function, in
collaboration with the Executive Directors. The resulting Group risk register
is reported to the Audit and Risk Committee every quarter.
Principal risks and uncertainties matrix
To facilitate meaningful comparison of the relative importance of the
principal risks and uncertainties at a Group level, these have been mapped
onto a probability and impact matrix. This matrix includes arrows which
indicate the change in the risk in comparison to the prior year's assessment.
The methodology for mapping the risks uses the Group's assessment of the
residual risk, being the probability of the risk occurring and the potential
impact it may have and taking account of any mitigating actions and controls
that have been implemented.
The output of this assessment can be found in the Risk Management section of
the Report and Financial Statements. It shows that the Group's assessment that
geopolitical risk, supply chain risk and legal/compliance risk have increased
compared to the prior year. In contrast, the risks relating to Covid-19 and
pensions have decreased. All other recurring risks are assessed to be static.
Further, two new risks, relating to inflation and climate change have been
added.
The risk management process identified 13 principal risks that are set out
below. The narrative provides a summary of the risk, explains why it is
relevant to the Group and also sets out the potential consequences should the
risk materialise, together with the mechanisms used for risk mitigation. Risks
are managed by the Board and are not assigned an individual risk owner.
Specific risk 1: Geopolitical risk
Context: The Group operates in global markets and can be required to secure
licences for relevant exports. Government policy on the export of specific
technologies or the wider issue of tariffs can change over time.
Risk
Changes in the geopolitical landscape or an escalation in global trade
tensions resulting in major obstacles to trade with customers in key markets.
This could arise from export licence refusals, trade tariffs, trade embargoes,
or nations seeking to reduce reliance on foreign imports in strategic
technologies through the development of domestic competition and/or
protectionist measures. This is potentially relevant to customers in key
export markets including, but not limited to, China, the European Union, Japan
and the USA.
Possible impact
· Lower export volumes or net pricing to key markets adversely
affecting revenue
· Increases to input costs and lower gross margins
· Limitations on ability to provide after-sales service to existing
customers
· Certain product lines might not be sustainable if access to key
export markets is severely restricted
Control mechanisms
· Contract review and protection against breach of contract should
export licences be withheld
· Proactive dialogue with relevant government authorities
Mitigation
· Broad global customer base; contractual protection
· Improved information flows to decision‑makers
Change in the year:
increased
Specific risk 2: Supply chain risk
Context: The Group operates a global supply chain, sourcing from many
suppliers across a wide range of categories. For certain technologies, there
are limited alternative sources.
Risk
· Operational disruption or price increases, due to supply chain
shortages, particularly in electronic components
· Suppliers de-committing orders due to demand pressures in other
sectors.
· Change of supplier ownership resulting in loss of supply
· Regulatory changes or economic viability causing suppliers to
discontinue production, impacting the long-term availability of key components
Possible impact
· Short-term delays or hiatus in our production arising from
component shortages
· Lost revenue
· Downward pressure on margins
· Increased lead times and potential of foregone orders
· Poor customer service/reputational damage
· Increased stock holding adversely impacting cash conversion
Control mechanisms
· Sales and operational planning process
· Group strategic sourcing programme to consolidate demand and manage
key supplier risks
· Focused efforts on higher-risk suppliers identified
· Long-term contracts with key suppliers
Mitigation
· Long-term demand planning
· Buffer stock in extended supply chain
· Relationship management with key suppliers
· Responsive and adaptive engineering change process
Change in the year:
increased
Specific risk 3: Routes to market
Context: In some instances, the Group's products are components of
higher‑level systems sold by OEMs, and thus the Group does not control its
route to market.
Risk
· Vertical integration by OEMs
Possible impact
· Loss of key customers/routes to market
· Reduction in sales volumes and/or pricing and lower profitability
Control mechanisms
· Customer intimacy to match product performance to customer needs
· Positioning of the Oxford Instruments brand and marketing directly
to end users
Mitigation
· Strategic relationships with OEMs to sell performance of combined
systems
· Product differentiation to promote advantages of Oxford
Instruments' equipment and solutions
· Direct marketing to end users
Change in the year:
no change
Specific risk 4: Technical risk
Context: The Group provides high technology equipment, systems and services to
its customers.
Risk
Failure of the advanced technologies applied by the Group to produce
commercially viable products
Possible impact
· Loss of market share or negative pricing pressure resulting in
lower turnover and reduced profitability
· Additional NPI expenditure
· Adverse impact on the Group's brand and reputation
Control mechanisms
· "Voice of the Customer" approach and market intimacy to direct
product development activities
· Formal NPI processes to prioritise investment and to manage R&D
expenditure
· Product life cycle management
Mitigation
· Understanding customer needs/expectations and targeted new product
development programme to maintain and strengthen product positioning
· Stage gate process in product development to challenge commercial
business case and mitigate technical risks
· Operational practices around sales‑production matching and
inventory management to mitigate stock obsolescence risks
Change in the year:
no change
Specific risk 5:Inflation
Context: Global inflation placing upward pressure on principal elements of the
cost base such as labour and materials.
Risk
· Rises in key cost drivers such as people costs, energy, components,
and raw materials
· For long lead time items, required to make inflationary estimates
which may be inaccurate
Possible impact
· Increased cost of production leading to a reduction in operating
profit if not offset by sufficient price increases
· Potential for under-recovery of increases if inflation estimates
are too low or reduction in order volumes if competitors do not react
similarly
Control mechanisms
· Price reviews
· Inflation protection in commercial response to long lead time
tenders and long-term agreements
Mitigation
· Ability to address inflationary pressures through price management
reviews
· Reviews of key drivers of financial performance
Change in the year:
new
Specific risk 6: Legal/compliance risk
Context: The Group operates in a complex technological and regulatory
environment, particularly in areas such as export controls and product
compliance. Competitors may seek to protect their position through
intellectual property rights and the Group may at times experience
unintentional regulatory or IP compliance issues.
Risk
· Infringement of a third party's intellectual property
· Regulatory breach
Possible impact
· Potential loss of future revenue
· Future royalty payments
· Payment of damages
· Fines and non-financial sanctions such as restrictions on trade,
disbarment from public procurement contracts
· Reputational damage
Control mechanisms
· Formal "Freedom to Operate" assessment to identify potential IP
issues during product development
· Internal control framework including policies, procedures and
training in risk areas such as bribery and corruption, sanctions and export
controls
· Product compliance teams
Mitigation
· Confirmation of "Freedom to Operate" during new product development
stage gate process
· Compliance monitoring programme over key risk areas
Change in the year:
increased
Specific risk 7: New covid variant causes major disruption
Context: Variants of covid may be highly transmissible and have a greater
impact than current variants, even on vaccinated populations.
Government response to covid outbreaks may lead to further lockdowns/travel
restrictions.
Risk
· Potential disruption to supply chains, Group operations and
customers, leading to delays in production and/or installation at customer
sites
Possible impact
· Delays in both manufacturing and service activity leading to lost
or delayed product and service revenue
Control mechanisms
· Working closely with key suppliers
· Safe ways of working and changes to shift patterns to maximise
capacity
· Remote service activities
· Strategic review of location of service personnel compared to
installed base
Mitigation
· Sales and operational planning process
· Contractual protection
· Strategic procurement, working with supply chain to mitigate risk
Change in the year:
decreased
Specific risk 8: Adverse movements in long-term foreign currency rates
Context: A high proportion of the Group's revenue is in foreign currencies,
notably US Dollars, while the cost base is predominantly denominated in
Sterling.
Risk
· Long-term strengthening of Sterling against key currencies such as
the US Dollar, Japanese Yen and the Euro
Possible impact
· Reduced revenue and profitability
· Control mechanisms
· Treasury management of short-term hedging programme
· Strategic management of currency exposure
Mitigation
· Review of supply chain currency base
· Active review of net exposure in key currencies
Change in the year:
no change
Specific risk 9: IT risk
Context: Elements of production, financial and other systems rely on IT
availability.
Risk
· Cyber-attack on the Group's IT infrastructure
· Ransomware/spread of viruses or malware
Possible impact
· System failure/data loss and sustained disruption to production
operations
· Loss of business-critical data
· Financial and reputational damage
Control mechanisms
· Suite of IT protection mechanisms including penetration testing,
regular backups, virtual machines, and cyber reviews
· External IT security consultants
· Internal IT governance to maintain protection systems and our
incident response
· Employee awareness training
Mitigation
· Managed service with third-party security specialists providing
incident monitoring
· Regular review, monitoring and testing of key security measures to
assess adequacy of protection against known threats
· End user education and phishing simulation exercises
Change in the year:
no change
Specific risk 10: People
Context: A number of the Group's employees have business-critical skills.
Risk
· Key employees leave and effective replacements are not recruited on
a timely basis
Possible impact
· Adverse impact on NPI
· Operational disruption
· Lower sales and profitability
Control mechanisms
· HR people strategy for retention and recruitment of staff with key
skills
Mitigation
· Succession management plans
· Technical career paths
· UK work permit scheme to facilitate employment of non‑UK
nationals in place
Change in the year:
no change
Specific risk 11: Operational risk
Context: Business units' production facilities are typically located at a
single site.
Risk
· Sustained disruption to production arising from a major incident at
a site
Possible impact
· Inability to fulfil orders in the short term, resulting in a
reduction in sales and profitability
· Additional, non-recurring overhead costs
Control mechanisms
· Contingency plans are in place for all manufacturing sites
· Contractual clauses to limit financial consequences of delayed
delivery
Mitigation
· Detailed responses in contingency plans can reduce downtime arising
from incidents and facilitate the restoration or relocation of production
· Standard sales contracts include clauses for limitation of
liability, liquidated damages and the exclusion of consequential losses
· Business interruption insurance
Change in the year:
no change
Specific risk 12: Climate change
Context: Climate change generates both risks and opportunities. Our response
needs to address risks and optimise opportunities.
Risk
· The transition from fossil fuels to a low‑carbon/net zero economy
may require significant changes in materials and production methods that may
impact our own operations and our suppliers
· Chronic changes in weather and extreme weather events may disrupt
supply chains, operations, and logistics
Possible impact
· Rises in production costs and product development costs to reduce
all CO2 emissions linked to our products
· Delayed production and/or installation leading to delayed revenue
· More expensive freight and packaging costs
Control mechanisms
· Sustainability Committee
· Climate-related risks and opportunities evaluation and reporting
embedded in business units
· Strategic sourcing
· Product compliance groups
Mitigation
· Product compliance teams have an established methodology to deal
with changes to environmental regulations
· Investment in product development to capitalise on the
opportunities for our key enabling technologies to help customers address
climate-related challenges
Change in the year:
new
Specific risk 13: Pensions
Context: The actuarial pension deficit is sensitive to changes in the
actuarial assumptions.
Risk
· The actuarial pension deficit is sensitive to movements in
actuarial assumptions and returns on investments
Possible impact
· Variations to the current deficit recovery plan
· Increase in the annual levy paid to the Pension Protection Fund
Control mechanisms
· Ongoing review of investment strategy, including active control of
risk, by the Trustee's investment sub-committee
· Liability hedging programme to mitigate exposure to movements in
interest rates and inflation
· Reduced exposure to equity markets
Mitigation
· The Group closed its UK defined benefit pension scheme to future
accrual in 2010
· The Group has a funding plan in place to eliminate the actuarial
deficit by 2025/26
Change in the year:
decreased
ENDS
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