REG - Oxford Instruments - Preliminary Results
13/06/2023 07:00
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RNS Number : 4729C Oxford Instruments PLC 13 June 2023
Oxford Instruments plc
Announcement of unaudited full-year results for the 12 months to 31 March 2023
Strong momentum driven by strategic positioning in structural growth markets
places the Group well for further growth
Oxford Instruments plc, a leading provider of high technology products and
systems for industry and research, today announces its unaudited preliminary
results for the 12 months to 31 March 2023
% change
Full year to Full year to
31 March 31 March % change constant
Adjusted(1) 2023 2022 reported currency(4)
Revenue £444.7m £367.3m +21.1% +14.0%
Adjusted operating profit £80.5m £66.3m +21.4% +13.4%
Adjusted operating profit margin 18.1% 18.1% -
Adjusted profit before taxation £82.0m £65.9m +24.4%
Adjusted basic earnings per share 112.7p 94.3p +19.5%
Cash conversion(2) 88% 84%
Net cash(3) £100.2m £85.9m
Full year to Full year to % change
31 March 31 March reported
Statutory 2023 2022
Revenue £444.7m £367.3m +21.1%
Operating profit £72.4m £48.3m +49.9%
Operating profit margin 16.3% 13.2% +310bps
Profit before taxation £73.5m £47.6m +54.4%
Basic earnings per share 101.6p 67.1p +51.4%
Dividend per share for the year (total) 19.5p 18.1p +7.7%
Financial highlights
· Strong growth in orders of 20.9% to £511.6m, 14.2% at constant
currency
· Reported order book of £319.6m, growth of 19.2% at constant
currency
· Revenue growth of 21.1%, 14.0% at constant currency, 70% driven
by volume, partially constrained by supply chain disruption and export licence
refusals
· Adjusted operating profit of £80.5m, growth of 21.4% (13.4% at
constant currency) with currency tailwind supporting strong growth. Margin in
line with the prior year, despite the inflationary environment, supply chain
challenges and investment across the Group to support growth
· Net cash increased to £100.2m, with normalised cash conversion
of 88%. Strong ROCE of 35%
· Growth in total dividend of 7.7% to 19.5p
Operational highlights
· Business model and strategy continues to drive strong order,
revenue and profit growth, with positive momentum in the second half
· Strong growth in our end markets - life science, semiconductor,
advanced materials, energy & environment, and quantum - each with
long-term sustainable structural growth drivers
· Accelerated growth driven by our market intimacy, product
leadership and successful product launches
· Strong uplift to performance in Materials & Characterisation
and Service & Healthcare in the second half with easing of supply chain;
Research & Discovery performance impacted by phasing of high value product
installations and investment for future growth
· Increased focus on attractive North American and European markets
driving enhanced growth in these regions; China saw strong order growth, with
revenue in line with last year reflecting disruptions in the first half which
eased as demand rose post Covid-19 lockdowns
· New 2045 net zero commitment announced, building on 23% in-year
reduction in Scope 1 and 2 emissions per £m revenue
Summary and outlook
Ian Barkshire, Chief Executive of Oxford Instruments plc, said:
"The Group's continued positive momentum reflects our purpose-driven focus on
structural growth markets that are enabling a greener, healthier, more
connected advanced society. Our deep understanding of our customers' needs and
the drivers of growth in our markets, combined with our product leadership,
our relentless innovation, and our commitment to operational excellence - all
key elements of our well-embedded Horizon strategy - have supported a strong
set of results and underpinned continuing investment for future growth.
"We have delivered growth in orders, revenue and profit, as well as
maintaining margin, with performance strengthened in the second half as we
converted our order book and realised the benefits of new pricing structures.
"While mindful that the wider macroeconomic context remains challenging, our
record order book and strong positions in attractive end markets underpin our
confidence in the future growth of the Group. Our strong balance sheet
positions us well to invest in people, infrastructure and innovation, and to
make synergistic acquisitions to augment our organic growth. Full year outlook
is in line with our expectations."
1. Adjusted items exclude the amortisation and impairment of acquired
intangible assets, acquisition items, profit or loss on disposal of
operations, other significant non‑recurring items, and the mark-to-market
movement of financial derivatives. A full definition of adjusted numbers can
be found in the finance review and Note 2
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.
The financial information for the year ended 31 March 2023 as set out in this
preliminary announcement does not constitute the statutory accounts of the
Group for the relevant year within the meaning of section 435 of the Companies
Act 2006. The financial statements for the year ended 31 March 2023 are
unaudited. These accounts will be finalised on the basis of the financial
information presented by the Directors in the preliminary announcement and
will be delivered to the Registrar of Companies following the Company's annual
general meeting. The Consolidated Income Statement, Consolidated Statement of
Comprehensive Income, Consolidated Statement of Changes in Equity and
Consolidated Statement of Cash Flows for the year ended 31 March 2022 and the
Consolidated Balance Sheet as at 31 March 2022 have been derived from the full
Group accounts published in the Annual Report and Accounts 2022. These have
been delivered to the Registrar of Companies and on which the report of the
independent auditors was unqualified and did not contain a statement under
section 498(2) or section 498(3) of the Companies Act 2006.
The financial information in this preliminary announcement has been prepared
with regards to UK adopted international accounting standards. The Group has
applied all accounting standards and interpretations issued relevant to its
operations and effective for accounting periods beginning on 1 April 2022. The
IFRS accounting policies have been applied consistently to all periods.
LEI: 213800J364EZD6UCE231
Oxford Instruments management will present its full year results today in a
webcast available for on-demand viewing from 08.00 UK today (Tuesday 13 June
2023) at www.oxinst.com/investors-content/financial-reports-and-presentations
(http://www.oxinst.com/investors-content/financial-reports-and-presentations)
.
Enquiries:
Oxford Instruments plc
Ian Barkshire, Chief Executive; Gavin Hill, Chief Financial Officer
Julian Wais, Head of Investor Relations
Julian.wais@oxinst.com (mailto:Julian.wais@oxinst.com)
Tel: 01865 393200
MHP Communications
Katie Hunt/Eleni Menikou/Veronica Farah
oxfordinstruments@mhpc.com (mailto:oxfordinstruments@mhpc.com)
Tel: 020 3128 8100
Chief Executive's Review
As I reflect on the past 12 months - my last full year as Chief Executive - I
am proud of the Group's performance, with record orders, accelerated organic
revenue growth, strong profit growth and margins in line with the previous
year despite the inflationary environment during the year, and the investment
made to support future growth. This marks another year of strong progress.
Our continued success stems from the commitment, innovation and talent
displayed daily by our people globally, combined with the clarity and focus
brought by our Horizon strategy, which is thoroughly embedded across the
Group, and in the way we work together and place customers at the heart of
everything we do. This provides a solid foundation for future growth and
margin expansion.
From helping academic customers to achieve Nobel prize-winning scientific
breakthroughs, to supporting commercial customers' productivity and enabling
them to develop and apply the disruptive technologies of tomorrow, we are
making a positive impact on an ever-changing world, in line with our
overarching purpose to enable a greener, healthier, more connected advanced
society.
We provide market-leading differentiated technology and expertise in markets
with long-term structural growth drivers - Healthcare & Life Science,
Advanced Materials, Semiconductor, Energy & Environment, Quantum
Technology, and Research & Fundamental Science - that provide a foundation
for growth ahead of the market. As we develop our market and customer
intimacy, and invest in the business, we are able to sell an increasing range
of products to existing customers, as well as adapting our products and
services for new and adjacent markets.
All these factors have contributed to our strong financial performance in the
year, with double-digit growth in reported orders, revenue and adjusted
operating profit, despite inflationary pressures, a lag in price increases
taking effect, and supply chain challenges. With strong revenue growth and
price increases beginning to work through the order book, this resulted in a
positive second half weighting. Reported adjusted operating profit for the
year increased by 21.4%, while reported adjusted operating margin was in line
with the previous year at 18.1% (2022: 18.1%) and broadly maintained at
constant currency. We ended the year with record order intake of £511.6m,
with a book-to-bill ratio of 1.15 resulting in 22.8% growth in the order book
to £319.6m at 31 March 2023 (2022: £260.2m). The strong performance was also
reflected in adjusted EPS increasing by 19.5% to 112.7p (2022: £94.3m). With
net cash of £100.2m at 31 March 2023 we are in a strong position to invest in
future organic and inorganic growth.
Group Full year to Reported Constant currency
31 March
growth
growth
2023
Orders £511.6m 20.9% 14.2%
Revenue £444.7m 21.1% 14.0%
Adjusted operating profit £80.5m 21.4% 13.4%
Adjusted operating margin 18.1% - (10bps)
Our performance reflects increasing demand across our markets, with
particularly strong growth from our Advanced Materials, Quantum Technology,
Semiconductor and Healthcare & Life Science markets. This has resulted in
strong constant currency revenue growth across each of our three sectors -
Materials & Characterisation (19.2%), Research & Discovery (8.1%), and
Service & Healthcare (9.6%). This was achieved despite significant global
supply chain shortages and ongoing Covid-related disruption in China
negatively impacting several of our businesses.
Supply chain issues eased through the second half, supporting stronger revenue
as anticipated. Revenue into China was broadly in line with the prior year,
with double digit order growth supported by increased funding as lockdown
disruption eased. This growth rate also reflected an increase in UK Government
export licence refusals to Chinese customers, particularly for quantum
technology and astronomy applications, offset by our continued shift in focus
to other growth markets within the country, such as life science and renewable
battery technology, in which there are fewer export licence considerations. We
also increased our focus on North America, Europe, and Japan, in line with the
increased demand in several of our markets, including semiconductors and
quantum. This was reflected by strong constant currency revenue growth in
these regions (with the US up 35%, Europe up 16% and Japan up 25%).
Strategic progress
Our Horizon strategy continues to provide an important framework; delivering
tangible value and positive outcomes for customers and stakeholders, and
offering a blueprint for ongoing growth. Strategic progress in the year is as
follows.
Market intimacy is integral to our success as we develop insights into the
future of our markets, and how we can support customers in accelerating their
roadmaps which, in turn, ensures our products are well positioned
commercially. An example is the deep insight we have developed across our
portfolio of materials analysis techniques to support the renewable battery
market. This has resulted in significant growth in orders and revenue. In
Healthcare & Life Science, our insight has resulted in the development of
new microscopy products and tailored software for specialist markets.
Our focus is on nurturing existing markets, expanding into adjacent markets
and landing new key accounts. To drive this, we have invested in the size and
capabilities of regional sales and marketing teams, equipping them to develop
an in-depth understanding of local markets.
Through the headwinds of the past few years, we have maintained our focus on
innovation and product development to ensure we remain at the forefront of our
markets. Our leading products are designed with customer productivity and
ease-of-use at their core, and support our accelerating organic growth and
improving gross margins.
The combination of our market intimacy and focused approach to product
development has supported a three-year order CAGR of 15% to both commercial
and academic customers.
Operational excellence is a key focus as we seek to boost our own productivity
and shorten lead times to support the growing demand for our products. We have
continued to strengthen relationships with strategic suppliers and further
consolidate our supply chain, with a view to long-term resilience and
environmental sustainability, and are investing to optimise production
capacity.
Our investment in building regional teams is also a key element of our
customer service and support strategy, enabling us to improve response times
by being closer to customers and by training our service teams across a wider
range of products. We are developing a broad range of increasingly advanced
and tailored services which enhance our customers' capabilities and optimise
productivity, strengthening customer demand for recurring service contracts.
We also continue to invest in increasing digital and remote service
capabilities. These drive benefits for customers, colleagues and the
environment whilst improving our efficiency.
Investing for growth
Aligned with our Horizon strategy and future growth ambitions, we have
invested significantly during the year to bring new products to market, and
position ourselves to deliver process and cost efficiencies. This includes
reinforcing and extending capabilities across the business, including
investments in our teams, infrastructure and IT.
Research and development
Customer-centric, market-led research and development (R&D) is central to
our success as it enables us to transform our customers' outcomes. Investment
in the year increased 9.8% to £34.8m (2022: £31.7m), representing 7.8%
(2022: 8.6%) of revenue. Our Vitality Index (which measures the percentage of
revenue from products launched over the last three years) is 30% (2022: 34%).
This represents positive uptake from our newly launched products and continued
strong value across our portfolio as we expand our reach into adjacent
markets.
During the year we have brought a number of exciting new, leading-edge
products to market. These include:
· New processes and techniques for both compound and silicon
semiconductor fabrication, including patented processes being deployed to
manufacture higher-performing power devices used across commercial electronics
and industrial applications
· A battery-specific edition of our Cypher atomic force microscope,
advancing battery development through the direct observation of critical
chemical processes during operation
· Our new large-scale cryogenic platforms which are advancing the
performance of quantum computers
· A high-end extension to our optical microscopy portfolio,
Dragonfly 600, which provides healthcare and life science customers with
unprecedented imaging speed and quality.
People, productivity and infrastructure
We have made additional investment elsewhere to scale the business, to drive
enhanced productivity and shorten lead times for our products. We have
invested in enhanced IT systems, including a new integrated customer and
service relationship management system. In response to our strong positive
trajectory, and in anticipation of continuing growth, we have invested in
people across the business, focusing on training and development as well as
selectively increasing headcount, with a particular focus on production
capacity, and regional sales and service.
Our purpose-built, state-of-the-art compound semiconductor facility in
Bristol, UK, is set to double our production capacity in this important and
growing market once it is fully operational, which is expected to be later in
the current financial year. We are also making significant investment in
extending our production capacity and footprint at our Belfast, UK facility to
address growing demand for our range of advanced scientific cameras and
microscopy products.
Inorganic growth
Our strong balance sheet, with net cash of £100.2m at 31 March 2023,
positions us well to make further acquisitions to augment our strong organic
growth. We maintain a pipeline of opportunities in a number of target areas,
aligned with our strategy.
We have been delighted with the performance of our August 2021 acquisition
WITec, which we acquired in August 2021 and which is part of Materials &
Characterisation. In particular, WITec, which specialises in Raman microscopy,
has benefited from increased sales due to our global channels to market and
overlapping customer base. The business has continued to perform ahead of our
expectations.
Inventory
We continue to maintain elevated inventory levels to mitigate ongoing supply
chain issues, and to ensure competitive lead times.
A sustainable future
I am pleased to report strong progress in our longstanding work to embed
sustainability as an integral part of our values, which influences not only
day-to-day decisions within our own operations but also actions in relation to
our wider impact and stakeholders, including supply chain partners. This year,
our absolute Scope 1 and 2 emissions have reduced by 7%, while our emissions
intensity per £million of revenue- a helpful measure for a growing
organisation like ours - reduced by 23%. Since 2019 - our baseline year - we
have achieved a 66% reduction in emissions intensity. Our absolute Scope 1 and
2 emissions have reduced by 55% over the same period. This figure reflects
changes in our portfolio as well as energy saving and carbon reduction
measures.
Our work continues, and we are delighted to announce our new, accelerated
commitment to reach net zero carbon emissions by 2045. In addition, we have
set shorter term targets to reduce our Scope 1 and 2 emissions by 50% and 70%
respectively by 2030. Over the next year we will submit our targets and
roadmap to the Science Based Targets initiative for formal validation. We will
also continue the work already underway with our supply chain to model a
robust reduction plan for Scope 3 emissions.
Supporting our employees also remains central to our values, and in
recognition of the impact of global inflationary pressures on employee
household budgets, we have taken action to support our people in relation to
the cost-of-living crisis. Accordingly, we brought forward our Group-wide
annual salary review from July to April 2022, and followed this up with a
further one-off cost-of-living payment in October 2022 for employees most
impacted.
We are also focused on fostering a strong talent pipeline, as well as
investing in supporting and developing the talented people we already employ.
This year, we are taking on an increased number of apprentices, across a
broader range of disciplines. We have expanded our internal development
programmes, including the development of future leaders, by increasing the
number of participants in our Leadership Programme.
More broadly, we continue to build an inclusive and progressive culture,
striving to be ahead of the curve in our equality, diversity and inclusion
targets, listening to and engaging with our employees as we seek to create a
culture where everyone feels able to be their authentic self at work. To this
end, we have created a number of new employee impact groups in the year, with
more planned for the coming year.
And of course, our contribution to sustainability goes far beyond the way in
which we operate our business - indeed it is central to our purpose, to enable
a greener, healthier, more connected advanced society. We help our customers
to make a tangible positive impact on the world in all these areas. Using our
products and services, customers are developing new materials and approaches
to enable the critical energy transition which will directly impact everyone
on the planet, as the world's governments and businesses pursue the goal of
reaching net zero carbon emissions. In healthcare, our products are enabling
medical researchers to understand the fundamental mechanisms of disease,
accelerating their progress on new medicines and treatments. We are also
instrumental in the drive towards a more connected future, where everyone,
everywhere can access information whenever they need - with a particularly
meaningful impact in the emerging economies where connectivity has been proven
to improve lives and increase prosperity. Our aspiration is that everything we
do can contribute to a more advanced society for all.
Supporting a smooth transition
In April 2023, I announced my intention to retire as Chief Executive. As my
time in post nears its end, I want to thank all my colleagues, who have made
the past 25 years so rewarding and fulfilling. Their warmth, talent, and
spirit of relentless innovation have helped Oxford Instruments to become one
of the most exciting technology companies operating today, consistently
delivering positive impacts through disruptive change to the world. It has
been a privilege and an honour to lead such talent over the past seven years,
and I am delighted the company is in such a strong position as I prepare to
hand the baton on to my successor, Richard Tyson. With a robust strategic
foundation underpinning growth in all key areas, I look forward to supporting
a smooth transition, and I wish Richard and the team every success in the
future.
Summary and outlook
The Group's continued positive momentum reflects our purpose-driven focus on
structural growth markets that are enabling a greener, healthier, more
connected advanced society. Our deep understanding of our customers' needs and
the drivers of growth in our markets, combined with our product leadership,
our relentless innovation, and our commitment to operational excellence - all
key elements of our well-embedded Horizon strategy - have supported a strong
set of results and underpinned continuing investment for future growth.
We have delivered growth in orders, revenue and profit, as well as maintaining
margin, with performance strengthened in the second half as we converted our
order book and realised the benefits of new pricing structures.
While mindful that the wider macroeconomic context remains challenging, our
record order book and strong positions in attractive end markets underpin our
confidence in the future growth of the Group. Our strong balance sheet
positions us well to invest in people, infrastructure and innovation, and to
make synergistic acquisitions to augment our organic growth. Full year outlook
is in line with our expectations.
Ian Barkshire
Chief Executive
12 June 2023
Operations review
The Group performed strongly in the year, with orders, revenue and operating
profit growing, and margin in line with the previous year. The Operations
Review provides performance headlines at Group level, and more details
regarding each of our three sectors: Materials & Characterisation,
Research & Discovery, and Services & Healthcare.
Orders
Orders intake increased 20.9% to £511.6m (2022: £423.1m), representing 14.2%
growth on a constant currency basis.
Growing demand supported double digit order growth from both academic
institutions and commercial customers in the year, with strong growth across
all three sectors.
There was double-digit order growth in Healthcare & Life Science, Advanced
Materials, Semiconductor, Quantum Technology and Energy & Environment
markets. Within Semiconductor, orders continued to be robust, with strong
growth supported by our focus on compound semiconductor process equipment. Our
portfolio also addresses every stage of the semiconductor cycle from research
and applied R&D to manufacturing support, providing us with greater
resilience, relative to traditional silicon production cycles. There was
particularly strong growth in Quantum Technology supported by long-term
governments funding programmes and our increasing reach into leading
commercial companies.
In Research & Fundamental Science, orders were broadly in line with the
previous year, as we continued to move away from delivering large, one-off
bespoke systems. This market now represents just 3% of orders, due to our
managed migration to higher value markets.
Healthy demand across our regional markets resulted in strong double-digit
order growth in Europe and North America, with high single digit growth in
Asia. Within Asia, China had double digit order growth, after the adverse
impact of orders which received export licence refusals, with positive
momentum in the fourth quarter as the country moved away from its lockdown
strategy.
Revenue
Reported revenue grew by 21.1% to £444.7m (2022: £367.3m), representing
growth of 14.0% at constant currency. At constant currency, there was growth
of 19.2% in Materials & Characterisation, 8.1% in Research &
Discovery, and 9.6% in Service & Healthcare, with ongoing supply chain
issues tempering growth through the year.
The strong order growth across our end markets supported 10.0% constant
currency revenue growth in Healthcare & Life Science, 24.1% in Quantum
Technology, 15.6% in Energy & Environment and 25.2% in Advanced Materials.
Within Semiconductor, supply chain challenges limited the number of compound
semiconductor processing systems shipped, resulting in 8.9% constant currency
growth - with a book to bill of 1.21 in the year. Research & Fundamental
Science was 16.3% lower, as we focus away from this market, with it now
representing only 4% of Group revenue.
Profitability
The strong revenue performance in the second half of the year, with supply
chains easing, and price rises beginning to flow through, supported an
increase in full-year adjusted operating profits to £80.5m, representing
13.4% growth on a constant currency basis. Reported adjusted operating margin
of 18.1% was in line with the previous year, despite the inflationary
environment, supply chain challenges and our continued investment across the
Group for future growth.
End market Revenue % constant currency(1) growth vs full year to 31 March 2022 % of Group
revenue
full year to 31 March 2023
Advanced Materials £140.2m 25.2% 32%
Semiconductor & Communications £122.0m 8.9% 27%
Healthcare & Life Science £85.2m 10.0% 19%
Energy & Environment £43.0m 15.6% 10%
Quantum Technology £35.3m 24.1% 8%
Research & Fundamental Science £19.0m (16.3%) 4%
Sector review
Materials & Characterisation
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
(across our Asylum Research, NanoAnalysis, Magnetic Resonance and WITec
businesses), where our leading product performance, ease of use and advanced
analytics enhance our customers' capabilities, provide actionable insights and
increase their productivity. Our portfolio of materials analysis solutions
(including X-ray, electron and magnetic resonance analysis systems and atomic
force and Raman microscopes) enable the measurement of the structures,
composition and critical properties that define the modern world.
· The fabrication of semiconductor devices and structures, where
our Plasma Technology business' portfolio of advanced etch and deposition
process systems enables our customers to create and manipulate materials with
atomic scale accuracy to manufacture advanced compound semiconductor devices.
With a strong focus on accelerating our customers' applied R&D, our
products and services in this sector enable the development of new devices and
next generation higher performing materials, as well as enhancing productivity
in advanced manufacturing, quality assurance (QA) and quality control (QC).
Key highlights
Full year to 31 March 2023 Full year to 31 March 2022 % reported growth % constant currency(1) growth
Orders £272.8m £219.2m +24.5% +18.3%
Revenue £234.5m £185.5m +26.4% +19.2%
Adjusted(2) operating profit £40.5m £26.1m +55.2% +45.2%
Adjusted(2) operating margin 17.3% 14.1%
Statutory operating profit £35.7m £20.8m
Statutory operating margin 15.2% 11.2%
1. For definition refer to note on page 2.
2. Details of adjusting items can be found in Note 2 to the full year
financial statements.
The Materials & Characterisation sector delivered strong constant currency
order growth of 18.3% to £272.8m (2022: £219.2m), with constant currency
revenue increasing 19.2% to £234.5m (2022: £185.5m). This was underpinned by
strong customer demand across our markets, aligned with the leading-edge
technology and ease of use features within our portfolio. There was
particularly strong growth into our largest markets - advanced materials,
semiconductor and energy & environment - which together accounted for 90%
of the sector's revenue. We also saw growth into our healthcare and quantum
markets within Materials & Characterisation, albeit the majority of our
activity in these markets stems from our Research & Discovery sector. As
a result of the strong order intake, our Materials & Characterisation
order book increased by 34.5% to £156.0m at the year-end (2022: £116.0m),
representing growth on a constant currency basis of 29.6%.
Our strong revenue growth, combined with leveraging efficiencies across our
teams and portfolio, resulted in significant growth in adjusted operating
profit, which increased by 45.2% at constant currency to £40.5m (2022:
£26.1m). This was supported by price rises flowing through into second half
deliveries, better compensating for the inflationary pressures in the year.
There was a 320bps increase in the adjusted operating margin to 17.3% (2022:
14.1%) despite continued investment for future growth.
Operational, strategic and regional progress
During the year, we have continued to maximise synergies across our portfolio
of materials analysis solutions by leveraging our market insights and in-depth
knowledge of customers' workflows. This enables us to offer an ever-broader
range of tailored solutions to existing customers, as well as expanding into
larger, faster growing markets. We increasingly see both existing and new
customers deploying a range of our products and techniques to accelerate their
progress and manage the quality of their output at every stage from R&D to
manufacturing. This approach has enabled us to support the growth of WITec,
extending its reach into new geographies and markets, while in turn, WITec's
ability to measure the structural chemistry of materials has complemented our
existing portfolio, enabling us to provide solutions that fully characterise
the critical parameters of materials, systems and devices at the nanoscale.
Our investment in regional sales teams and heightened application focus
through our nurture, expand and land strategy has driven particularly strong
growth in North America and Europe, as well as growth in Asia. Within China,
we had strong order growth, and revenue growth of 6% in the year was supported
by the easing of Covid-related lockdowns in the second half of the year,
despite ongoing delays in receiving export licences and an increased number of
refusals.
We have delivered continued growth to both academic and commercial customers,
with commercial customers representing 58% of revenue in the year (2022: 57%).
Strong growth into academia was supported by increased government funding into
our markets as they prioritise the development of semiconductor
infrastructure, invest in greener technologies, and advance their national
quantum programmes.
Our own production capacity to support the growing compound semiconductor
market will significantly increase with the move of our Plasma Technology
business, based in Bristol, UK, into purpose-built, larger premises, later in
the current financial year. Comprising a state-of-the-art manufacturing area,
with increased clean-room space and advanced laboratories, it will support
further development of our leading-edge technologies in the surging compound
semiconductor market.
With good positions in a number of our end markets, the most notable
developments for Materials & Characterisation in year are in the
following:
Semiconductor & Communications (42% of revenue)
Semiconductor & Communications has delivered strong growth in both orders
and revenue. We have a broad reach across both the emerging compound
semiconductor market (representing c. 65% of our semiconductor revenue in the
year) with its strong environmental and critical communication growth drivers,
and the more established silicon chip and electronic device market. Within
these markets, we provide solutions to support fundamental developments,
applied R&D and, increasingly, solutions for manufacturing-related
applications. This breadth of application provides us with a level of
protection from the cyclicality of the semiconductor market, as, for example,
R&D investment typically increases during periods of lower production.
With governments including the US, Europe and Japan committing tens of
billions of pounds across the semiconductor market over a five- to 10-year
period, and significant investment by companies, we have seen increased growth
into research facilities and specialist clean rooms, as they seek to enhance
their regional capabilities and safeguard security of supply. This has led to
growth across our portfolio in these regions.
In the compound semiconductor market, we are seeing increasing demand driven
by a number of factors, including the rise in digital data flow, increasing
requirements from hyperscale data centres, surging demand for connectivity,
the requirement for more energy-efficient devices and the increased deployment
of human-machine interfaces such as facial recognition.
Supported by targeted new developments and product launches across our
portfolio, our systems are enabling the significant increases in performance
and yield, and the reductions in production cost needed to make the transition
to compound semiconductors economically viable. For example, in gallium
nitride devices for improved power efficiency, our solution enables etch
control to a uniformity of half a nanometre - just a few atoms thick. This
results in a four-fold improvement in manufacturing volumes, together with
enhanced performance.
With proprietary expertise across a wide range of compound semiconductors,
including indium phosphide and silicon carbide as well as gallium nitride, our
systems are being used in a broad range of important applications:
· supporting the delivery of 5G connectivity to everyone,
everywhere in the world, via communication networks and data communications
centres - for example, scaling up to support the processing needs of
autonomous cars, which are expected to require up to 20 terabytes of data an
hour;
· augmented reality applications, including micro LEDs and 3D
sensors, which are increasingly being deployed across phones, cameras and
cars;
· proximity sensors in smartphones, in applications such as facial
recognition and contactless payment, where premium performance is key; and
· critical yield and performance in power semiconductors for
consumer electronics, such as USB-C fast chargers and truly wireless charging.
Alongside growth in our compound semiconductor portfolio, we saw growth in our
imaging and analysis products. These are being used extensively across the
silicon semiconductor chip industry, supporting production and development of
next generation devices which deliver unparalleled performance and
productivity. Through the year we have seen a reduction in orders and revenue
for our equipment and techniques used directly in manufacturing defect review
for consumer electronics. However, due to our leading analytical performance,
combined with manufacturers ramping up to develop the next generation of chips
- including 1- to 3-nanometre nodes - we have seen a significant increase in
orders and revenue for applied R&D applications, demonstrating the
resilience afforded by our positioning across the technology lifecycle. This
has been supported by product launches of dedicated solutions for our
semiconductor customers for advanced characterisation at the nanoscale for
increasingly complex architecture - which is ever more important as chips and
devices continue to shrink in size.
In addition, our imaging and analysis products are deployed across the broader
electronics market including the development and production of printed circuit
boards and standard electronic components such as resistors and capacitors.
Advanced Materials (34% of revenue)
Advanced materials play an increasingly important role in our daily lives,
enabling everything from the screens we watch and the cars we drive to the
structural materials that build our cities. We have delivered very strong
double-digit order and revenue growth in this market, as both academic and
commercial customers use our equipment and techniques to develop and deploy
higher performing and more sustainable materials, products and modes of
transport, in pursuit of a greener future. We have seen particularly strong
growth into service laboratories and core facilities, where the capabilities,
versatility, and ease of use of our equipment and software lend themselves to
a wide range of applications.
With nearly all materials and products undergoing some form of analysis, this
continues to drive increasing demand across our imaging and analysis systems.
Our systems allow our customers to measure down to the nanoscale, optimising
the performance and production of lighter, stronger, higher functioning
materials from early-stage research through to design and production.
In the year, we have seen strong growth in the analysis of structural
materials such as steel and concrete which together account for around 15% of
global CO(2) emissions. Here, we are accelerating our customers' progress as
they address the vital challenge of making greener alternatives without
compromising the performance of the material. Examples include the development
of low-emission concrete recipes and self-healing concretes which can repair
cracking automatically. In metals, our products support the development of
new, low-carbon steels, and the recycling of valuable materials such as
aluminium for use in high-end applications including aerospace, as part of the
global push towards a circular economy.
In addition, we have seen related growth into automotive and aerospace
applications, as structures evolve to facilitate renewable power sources such
as the large, heavy battery packs currently needed in EVs.
The precision of our equipment also enables our products to support the
development and characterisation of so-called 2D materials such as graphene,
which are just one atom thick and have unprecedented performance properties.
Graphene is starting to make its way into mainstream products including
smartphones and wearable devices as scientists and researchers learn how to
harness its capabilities. Other 2D materials are being used in areas such as
battery research, displays and next generation semiconductors, where their
electrical properties are being explored for their potential to enhance
performance.
Our products - particularly our atomic force microscopes - also play a crucial
role in helping scientists understand the properties of polymers, including
viscosity, adhesion, strength and hardness. The integral role polymers play in
a multitude of products used in daily life, from tyres to fabrics and medical
implants, underpins our growth in this area.
Energy & Environment (14% of revenue)
From battery research to water quality, our systems play a critical part in
the development of a greener future as governments, universities and
commercial customers all over the world seek to reduce negative environmental
impacts and drive positive change.
A particular area of strength for us is the battery market, which has a key
role to play in the transition from fossil fuels, enabling sustainable travel
and providing efficient and affordable storage to complement renewable energy
generation. With our increasingly tailored solutions, which extend across our
materials and analysis portfolio, we enable our customers to address
challenges in every stage of the battery life cycle, from raw materials and
R&D through to quality control and failure analysis, and end-of-life
recycling. An example of this is our recently launched Cypher Battery Edition
atomic force microscope, configured to enable the safe direct observation of
battery chemistry during operation.
With the active elements of a battery operating at the nanoscale, our products
help researchers better understand the fundamental chemistry and mechanisms
that affect battery capacity, charging rate and lifetime. Our solutions are
also adopted to ensure quality control, including particle analysis to detect
potentially harmful contamination within raw materials.
Our analysis solutions are also playing an increasing role in the quest for a
cleaner, less polluted environment. Customers, including a major European
marine science institute, are using our systems to map the type and volume of
microplastics across the oceans - crucial in helping our understanding of the
impact of these pollutants on the wider ecosystem. Here, our leading Raman
microscopy system, combined with our Particle Scout software, enables the
categorisation and counting of microplastics and industrial waste.
Elsewhere in our portfolio, our benchtop Magnetic Resonance analysers provide
a user-friendly interface to assess the levels of fats, oils and grease in
wastewater, helping to prevent the fatbergs and pollution incidents which can
occur when these build up in sewer networks.
Healthcare & Life Science (6% revenue)
Healthcare & Life Science has delivered good growth through the year.
Customers are using our atomic force and Raman microscopy equipment to explore
biological systems, with applications in cancer and heart disease, among many
others. This includes the imaging of living cells to measure their elasticity,
structure and the dynamics of DNA, which are used to discriminate between
healthy and diseased tissue.
Quantum Technology (3% of revenue)
With strong customer relationships across the quantum market, and expertise in
semiconductor processing and characterisation, we are seeing increasing demand
to support fabrication of the qubits which form the basis of quantum
computers. Our systems are supporting the roadmap to develop quantum computers
with higher numbers of qubits, and greatly reduced defects. This will be
critical for the advancement of these transformational devices.
Research & Discovery
The sector comprises our Andor Technology, NanoScience and X-Ray Technology
businesses. It provides advanced solutions and unique environments that enable
imaging and analytical measurements down to the atomic and molecular level, as
well as ultra-low temperature and high magnetic field environments. These are
used across scientific research and applied R&D, and commercial
applications. Our leading-edge technologies have a key role to play across a
range of fields, from accelerating developments in medicine and material
science to facilitating the growing commercialisation of quantum technology.
Key highlights
Full year to 31 March 2023 Full year to 31 March 2022 % reported growth % constant currency(1) growth
Orders £160.4m £133.9m +19.8% +11.6%
Revenue £139.4m £120.3m +15.9% +8.1%
Adjusted(2) operating profit £18.0m £21.3m (15.5%) (21.1%)
Adjusted(2) operating margin 12.9% 17.7%
Statutory operating profit £11.3m £15.0m
Statutory operating margin 8.1% 12.5%
1. For definition refer to note on page 2.
2. Details of adjusting items can be found in Note 2 to the full year
financial statements.
Increasing demand for our key enabling technologies, particularly across our
Quantum Technology and Healthcare & Life Science markets, drove strong
order growth of 19.8% to £160.4m (2022: £133.9m), with momentum building
through the second half of the year. In addition, there was strong revenue
growth of 15.9% to £139.4m (2022: £120.3m). In scientific camera and
microscopy products, this was aided by the easing of supply chain pressures
and relaxation of China's lockdown restrictions in the second half. However,
for our high-value cryogenic and magnet systems, unfavourable phasing of
installations (the point at which revenue is recognised for these products)
resulted in lower revenue in the year, despite higher production volumes and
strong order growth.
Adjusted operating profit at £18.0m (2022: £21.3m) was lower than last year.
This was due to increased investment in people and processes in our scientific
camera and microscopy business as we increase production capacity and
operational effectiveness. In addition, profit was impacted by the lower
revenue in the cryogenics and magnets business as well as an unfavourable mix
in this business from the installation of the last of the legacy complex
bespoke systems. The lower adjusted operating margin of 12.9% (2022: 17.7%)
reflected these factors.
Solid progress in the year
In the period we continued to focus on the key markets for the sector, namely
Healthcare & Life Science, Advanced Materials and the evolving Quantum
Technology market. The sector has a high profile within the research-intensive
academic market, with a high proportion of sales made to academic customers.
However, sales to commercial customers represent a growing proportion of
revenue, at 33% (2022: 26%), as we develop application-specific, easy-to-use
solutions based on our high-end, research-oriented platforms. In addition to
selling directly to end customers, where we have a strong brand presence, we
also access a broad range of other end markets by providing key technologies
to a growing portfolio of strategic original equipment manufacturer (OEM)
partners.
Supply chain challenges, lockdowns in China and extended delays in obtaining
UK export licences had a disproportionate impact on the sector in the first
half. However, the easing of supply chain constraints and the lifting of Covid
restrictions in China supported a strong second half, resulting in double
digit order and revenue growth. This included significant order growth across
our cryogenic platforms for quantum computing and our optical microscopy
Healthcare & Life Science portfolio, underpinned by increased demand and
new product launches in the year. This resulted in an increased orderbook of
£119.2m (2022: £108.7m), up 9.7%, and a book to bill of 1.15.
Investment from government and commercial customers in Europe and the US has
more than offset a significant reduction in academic orders from China related
to the Quantum and Astronomy markets, as we move our focus towards markets
with fewer export licence restrictions. China now represents a smaller
proportion of revenue for the sector at 18% (2022: 25%), with significant
growth into North America, which now represents 37% (2022: 33%) of revenue.
The sector has good positions in a number of end markets, and developments are
as follows:
Healthcare and Life Science (39% of revenue)
We have seen continued strong momentum throughout the year for our advanced
microscopy solutions and dedicated analytical software. We have enabled
academic researchers, scientists and pharmaceutical companies to accelerate
progress towards a healthier society, delivering improved treatments for
neurological diseases and cancers, and towards the eradication of diseases
such as malaria and polio. The significant progress in these fields is being
enabled by our advanced microscopy solutions which support the improved
understanding of fundamental disease mechanisms. With our enhanced product
range of advanced microscopy products, we now enable fast, repeatable imaging
of large molecular and cellular samples with the highest possible resolution
for the ultimate research capability, whilst expanding the addressable market
by bringing research-grade capability to broader and much larger markets
through our disruptive, easy-to-use benchtop platform. This has supported
double-digit order growth, with enthusiastic market acceptance of our new BC43
benchtop microscope, frequently bought by core imaging facilities as a
user-friendly, space-saving workhorse to increase productivity at an
attractive price point. It has shown strong growth in cancer research and
neuroscience applications, such as studies into Alzheimer's disease and other
forms of dementia, enabling researchers and pharmaceutical companies to look
at the impact of new medicines and treatments. We also received our first OEM
order for multiple BC43 systems for incorporation into a high throughput gene
sequencing instrument.
We have also seen significant order growth for our high-end Dragonfly
microscopy system, supported by the launch of a new model with super spatial
resolution capability. Dragonfly is being used in areas including spatial
genomics, a method for mapping cancer markers rapidly to accelerate
therapeutic breakthroughs, with its high speed a particular benefit to
researchers.
Our proprietary AI-powered analytical software packages can be used across our
portfolio, and with other manufacturers' equipment. These enable the automated
analysis and interpretation of increasingly rich data sets, with sales of
tailored packages for neuroscience, cancer research and cell biology
applications growing strongly in the year. In addition to our microscopy
portfolio, we continued to see increasing demand and strong revenue growth for
our scientific cameras and laser modules through OEM partners in fields
including drug discovery and gene sequencing.
Advanced Materials (28% of revenue)
Demand for our material characterisation technologies - such as our advanced
measurement systems which integrate our superconducting magnets and cryogenic
systems, as well as our portfolio of scientific cameras and optical
spectrometers - continues to be driven by interest in new material discoveries
aligned to global mega trends. Despite supply chain issues which eased in the
second half, we continue to see significant growth in sales for technologies
which enable fundamental material characterisation.
Research & Fundamental Science (10% of revenue)
We continue to see long-term customer interest in our high-end scientific
cameras and specialised cryogenic and superconducting magnet systems across a
broad range of research themes including astronomy, chemistry and physics
research. In fluids and plasma dynamics, our scientific cameras and
spectrometers, with their highly sensitive and ultrafast detectors, enable
customers to analyse phenomena on timescales as low as a billionth of a
second. These are being used to study the efficiency of combustion processes
in jet engines as new environmental fuels are developed, as well as exploring
the critical behaviour of plasmas used to generate nuclear fusion, the
ultimate solution to clean and sustainable energy. Our products continue to
support the leading edge of science, with customers of our Andor camera and
microscopy equipment named as winners of the 2022 Nobel prizes for chemistry
and physics.
We are increasingly focusing on larger and more profitable markets, with a
reduced focus on bespoke, one-off complex systems, particularly to academia.
As a result of a controlled move away from these systems, orders and revenue
in research & fundamental science were down in the year.
Quantum Technology (18% of revenue)
Oxford Instruments is at the heart of global research and development in this
dynamic and growing market, which is receiving increased funding as both
governments and commercial players seek to deliver the vast potential of
quantum technology.
During the year, all major governments announced quantum technology funding
programmes - with the UK government, for example, committing to a £2.5
billion investment over the next 10 years. In addition, global technology and
communication companies, and a range of innovative smaller players, are
breaking new boundaries as they create ever-more powerful quantum computers
which are starting to move out of the laboratory and into mainstream
applications.
We are collaborating with many of the sector's key academic and, increasingly,
commercial institutions to accelerate progress towards the adoption of quantum
computers as a mainstream tool. Quantum has the potential to transform our
ability to solve incredibly complex problems which are beyond today's
capabilities, disrupting existing markets such as finance, logistics, drug
discovery and chemistry. Our technology and service capabilities are
supporting these customers as they transition from the research laboratory
into commercial data centres, enabling the transformation of established end
markets as datacentres start to provide quantum computing services direct to
customers, undertaking application trials on real world data.
With multiple quantum computing technologies still in trial, the
superconducting techniques which require cryogenic technologies still dominate
the use cases. Over the course of the year, we have seen significant orders
from tier 1 quantum providers, investing in our cryogenic products as they
increase their engineering programmes to build 1,000 qubit-plus systems.
However, our unique position, supporting both cryogenic quantum environments
and optics-based quantum communication, through our scientific cameras, puts
us at the heart of multiple strands of this rapidly growing market. Our highly
sensitive, photon-counting camera remains the leading imaging solution in
quantum optics experiments involving trapped ion and quantum entanglement
measurements.
Within our Semiconductor & Communications and Energy & Environment end
markets (together representing 6% of revenue), we continued to see strong
demand for our key technologies, with revenue broadly in line with the
previous year.
Service & Healthcare
The Service & Healthcare sector comprises the Group's service and support
related to Oxford Instruments' own products, and the support and service of
third-party MRI scanners in Japan. We offer tailored support packages for all
our products, delivered by a global network of product experts, application
experts and service engineers, both in person and via digital channels,
including online training, webinars and remote service support.
Key highlights
Full year to 31 March 2023 Full year to % reported growth % constant currency growth
31 March
2022
Orders £78.4m £70.0m +12.0% +6.4%
Revenue £70.8m £61.5m +15.1% +9.6%
Adjusted(2) operating profit £22.0m £18.9m +16.4% +8.5%
Adjusted(2) operating margin 31.1% 30.7%
Statutory operating profit £22.4m £18.9m
Statutory operating margin 31.6% 30.7%
1. For definition refer to note on page 2.
2. Details of adjusting items can be found in Note 2 to the full year
financial statements.
There was good growth in orders which increased 6.4% at constant currency to
£78.4m (2022: £70.0m). Revenue growth was strong, increasing by 9.6% at
constant currency to £70.8m (2022: £61.5m). Growth in orders and revenue in
North America and Europe was strong but slightly lower than the prior year in
Asia, which was adversely impacted by first half Covid-related restrictions in
the region. There was strong growth momentum in the second half, as
restrictions eased.
Adjusted operating profit increased 8.5% at constant currency to £22.0m
(2022: £18.9m) reflecting the increased revenue, but partially offset by the
investment in expanding our global service teams and lower revenues from Asia.
This investment in the Service & Healthcare offering resulted in the
adjusted operating margin decreasing by 30bps to 31.1% (2022: 30.7%).
Operational and strategic progress
Our service and support strategy, underpinned by Horizon, is focused on three
key pillars:
· increased tailoring of our service offerings to specific end
applications and customer types;
· the delivery of seamless customer service at every stage of the
product life cycle;
· the development of global processes which can be delivered via a
hybrid approach, both in region and digitally.
As we increase our portfolio and the scope of our services, we are offering a
range of support packages to match the needs and budgets of our customers.
This allows our customers to maximise their capabilities, enhance their
productivity and receive immediate help and support when needed throughout the
lifetime of our systems. We use our market intimacy to develop products
appropriate to each end application and customer type. These include tailored
offerings across our life science microscopy portfolio, where we are
increasingly securing point of sale service contracts for our benchtop
systems. We are also seeing strong growth in our Imaris life science
analytical software, with packages focused on cancer research, cell biology,
neuroscience and core facilities available on annual licences.
As the quantum market evolves into the commercial arena, we have secured a
number of contracts from commercial customers to provide 24/7 service
capability and uptime to quantum computers situated in hyperscale datacentres.
This requires a dedicated team and approach building on our experience in
providing similar service capability to MRI imaging systems and provides a
good growth opportunity going forward.
In pursuit of seamless customer service, we have continued to invest in
extending our regional teams and spares capacity to ensure short lead times
for in-person support and training visits, as well as continuing to develop
our digital and remote support offerings. We are increasingly able to diagnose
and resolve issues within a few hours, using virtual reality as part of our
digital toolkit, and in many cases removing the need for engineers to make
site visits. Together, these developments result in greater flexibility and
convenience for customers and a more sustainable offering, helping to limit
our carbon footprint from business travel.
We have also continued to focus on the third element of our strategy,
developing standard techniques and processes globally which are implemented
locally through our combined regional teams, with teams increasingly trained
to service multiple products. The benefits of this approach include cost
efficiencies from best-practice procedures, deeper local customer intimacy and
improved response times.
The ongoing transformation of our approach to customer service and support has
increased the proportion of revenue from commercial customers, who now
represent 58% of our customer base in this sector. Regionally, our increased
investment in local teams in North America and Europe has supported strong
growth in both orders and revenue to these geographies.
Our servicing of third-party MRI imaging equipment in Japan continues to
deliver excellent levels of service and support to our customer base and
revenue was broadly in line with the previous year.
The Service & Healthcare sector remains on a strong upward trajectory,
with significant ongoing opportunities to support revenue growth and margin
expansion.
Finance Review
We delivered a strong financial performance with growth in orders, revenue and
underlying cash flow. We continue to invest in resources and infrastructure
across the business to support future growth. Our balance sheet has been
strengthened further to support organic and non-organic growth opportunities.
Summary
Oxford Instruments uses certain alternative performance measures to help it
effectively monitor the performance of the Group as management believes that
these represent a more consistent measure of underlying performance. Adjusted
measures exclude the amortisation and impairment of acquired intangible
assets; 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.
Reported orders received increased by 20.9% to £511.6m (2022: £423.1m), an
increase of 14.2% at constant currency. 60% of orders growth was volume
driven, with the remainder from price increases. At the end of the year, the
Group's order book had increased to £319.6m (31 March 2022: £260.2m), up
22.8% on a reported basis and 19.2% at constant currency.
Reported revenue increased by 21.1% to £444.7m (2022: £367.3m). Revenue,
excluding currency effects, increased by 14.0%, with the movement in average
currency exchange rates over the year increasing reported revenue by £26.1m.
This strong growth was primarily volume driven, with 70% of the growth from
volume and 30% from price.
Adjusted operating profit increased by 21.4% to £80.5m (2022: £66.3m).
Adjusted operating profit, excluding currency effects, increased by 13.4%,
with a currency tailwind in the year of £5.3m. Adjusted operating margin was
held at 18.1% (2022: 18.1%) as the business invested to support growth;
excluding currency effects, adjusted operating margin decreased by 10 basis
points to 18.0%.
Statutory operating profit of £72.4m (2022: £48.3m) includes the
amortisation of acquired intangibles of £9.3m (2022: £9.5m) and a credit of
£3.0m (2022: charge of £6.4m) relating to the movement in the mark-to-market
valuation of uncrystallised currency hedges for future years. Other adjusting
non-recurring items totalled £1.8m (2022: £2.1m).
Adjusted profit before tax grew by 24.4% to £82.0m (2022: £65.9m),
representing a margin of 18.4% (2022: 17.9%).
Statutory profit before tax increased by 54.4% to £73.5m (2022: £47.6m),
following the growth in operating profit and favourable impact from the
non-cash uncrystallised credit on currency hedges. This represents a margin of
16.5% (2022: 13.0%).
Adjusted basic earnings per share grew by 19.5% to 112.7p (2022: 94.3p). Basic
earnings per share were 101.6p (2022: 67.1p), an increase of 51.4%.
Cash from operations of £72.9m (2022: £58.4m) represents 58% (2022: 72%)
cash conversion. During the year, we incurred expenditure of £24.7m on the
construction of our new semiconductor facility near Bristol and a facility
expansion in High Wycombe; cash conversion on a normalised basis
that excludes this expenditure was 88%. Net cash after borrowings increased
from £85.9m on 31 March 2022 to £100.2m on 31 March 2023.
At the end of March, our revolving credit facility remained undrawn, leaving
approximately £108m of committed facilities. This represents total headroom
of just under £210m.
Income Statement
The Group's Income Statement is summarised below.
Year ended Year ended Change
31 March 2023 31 March 2022
£m £m
Revenue 444.7 367.3 +21.1%
Adjusted operating profit 80.5 66.3 +21.4%
Amortisation of acquired intangible assets (9.3) (9.5)
Non-recurring items (1.8) (2.1)
Mark-to-market of currency hedges 3.0 (6.4)
Statutory operating profit 72.4 48.3 +49.9%
Net finance income/(cost)(1) 1.1 (0.7)
Adjusted profit before taxation 82.0 65.9 +24.4%
Statutory profit before taxation 73.5 47.6 +54.4%
Adjusted effective tax rate 20.7% 17.8%
Effective tax rate 20.3% 18.9%
Adjusted earnings per share - basic 112.7p 94.3p +19.5%
Earnings per share - basic 101.6p 67.1p +51.4%
Dividend per share (total) 19.5p 18.1p +7.7%
2. Net finance costs for 2023 include a non-recurring charge of £0.4m
(2022: £0.3m) against the unwind of discount on WITec contingent
consideration.
Revenue and orders
Total reported orders grew by 20.9% (+14.2% at constant currency) to £511.6m.
In Materials & Characterisation, reported orders grew by 24.5%
(+18.3% at constant currency), with good growth across the portfolio of
electron microscope analysers, semiconductor processing systems, atomic force
microscopes and Raman systems. In Research & Discovery, we saw good growth
of 19.8% (+11.6% at constant currency) in orders for our optical imaging and
microscopy systems, assisted by some large orders for our cryogenic systems.
Service & Healthcare increased by 12.0% (+6.4% at constant currency).
Reported revenue of £444.7m (2022: £367.3m) increased by 21.1% (+14.0% at
constant currency).
Reported revenue grew by 26.4% for Materials & Characterisation (+19.2%
at constant currency), with strong growth for our electron microscope
analysers and atomic force microscopes. We saw growth in our semiconductor
processing tools, though this was tempered in the year by supply chain
challenges and an increase in export licence refusals.
Research & Discovery reported revenue growth of 15.9% (+8.1% at constant
currency) was supported by improved second half production of our optical
imaging and microscopy products, although there was lower revenue from the
unfavourable phasing in installations of our cryogenic and magnet systems, in
addition to the impact from UK export licence constraints to China,
particularly to the quantum market.
Revenue growth from service of our own products, supported by good growth in
maintenance revenue from Life Science software and products, has more than
offset an expected small decline in revenue from our MRI service business in
Japan, resulting in reported growth of 15.1% (+9.6% at constant currency) for
Service & Healthcare.
The book-to-bill ratio (orders received to goods and services billed in the
period) for the year was 1.15 (2022: 1.15).
On a geographical basis, revenue grew by 17.9% in Europe (+15.5% at constant
currency), supported by additional deliveries of our electron analysers,
optical and microscopy products and cryogenic systems.
Revenue for North America increased by 53.5% on a reported basis and by 36.3%
at constant currency; with all businesses recording good growth, and
especially high demand for our semiconductor processing systems.
Asia remains our largest region by revenue, with China constituting 54% of
regional revenue and 24% of total Group revenue. Asia delivered revenue growth
of 6.7% (+1.9% at constant currency), with strong demand for our electron
microscope analysers and atomic force microscopes, offset by fewer deliveries
of our semiconductor processing systems due to supply chain challenges and UK
export licence rejections, and a pivot away from quantum-related cryogenic
systems caused by export licence constraints. Revenue in China fell 4% on a
constant currency basis.
Geographic revenue growth
£m 2022/23 £m 2022/23 % of total 2021/22 2021/22 Change £m % % growth at constant currency
£m
% of total growth
Europe 104.9 24% 89.0 24% +15.9 17.9% 15.5%
North America 130.3 29% 84.9 23% +45.4 53.5% 36.3%
Asia 201.2 45% 188.6 51% +12.6 6.7% 1.9%
Rest of World 8.3 2% 4.8 2% +3.5 72.9% 66.7%
444.7 367.3 +77.4 21.1% 14.0%
The total reported order book grew by 22.8% (+19.2% at constant currency). The
order book, at constant currency, compared to 31 March 2022, increased by
29.5% for Materials & Characterisation, with strong growth across all
constituent businesses. Research & Discovery grew by 7.7% at constant
currency, with strong demand for our imaging and microscopy products. We also
received a large commercial order for cryogenic systems. However, the removal
of previous years' orders due to UK export licence rejections to China within
the quantum sector depressed the growth rate. Continued focus on own product
service resulted in growth of 25.3% (+21.0% at constant currency) from Service
& Healthcare.
£m Materials & Characterisation Research & Discovery Service & Healthcare Total
Revenue: 2021/22 185.5 120.3 61.5 367.3
Constant currency growth 35.6 9.8 5.9 51.3
Currency 13.4 9.3 3.4 26.1
Revenue: 2022/23 234.5 139.4 70.8 444.7
Revenue growth: reported 26.4% 15.9% 15.1% 21.1%
Revenue growth: constant currency 19.2% 8.1% 9.6% 14.0%
Gross profit
Gross profit grew by 22.6% to £230.2m (2022: £187.8m), representing a gross
profit margin of 51.8%, an increase of 70 basis points over last year. The
business has been able to offset the effects of cost inflation within costs of
sales over the year.
Adjusted operating profit and margin
Adjusted operating profit increased by 21.4% to £80.5m (2022: £66.3m),
representing an adjusted operating profit margin of 18.1% (2022: 18.1%). At
constant currency, the adjusted operating profit margin was 18.0%, a reduction
of 10 basis points. In order to support future growth ambitions and position
ourselves to deliver process and cost efficiencies we must invest across the
business, including in infrastructure, IT, and engineering and operational
capabilities. As a result, overhead growth tracks revenue growth and offsets
short-term pass through margin enhancement.
Reported Materials & Characterisation adjusted operating profit increased
by 55.0% (+45.2% at constant currency) with reported margin increasing by 320
basis points to 17.3% (2022: 14.1%). We have seen a high level of demand for
our electron microscope analysers and atomic force microscopes, driving an
improvement in profitability. In addition, the WITec business has now been
fully integrated into the Group, with combined sales teams driving an
improvement in demand.
Within Research & Discovery, our imaging and microscopy business has had a
strong second half of the year, despite a large increase in UK export licence
rejections. The business has seen strong demand, supported by our new benchtop
microscope for the Life Science market. Investment in resources, IT systems
and infrastructure is being made to support the capture and delivery of growth
opportunities. Operational throughput of our standard cryogenic and magnet
systems has been constrained by a diversion of resources towards completing
the withdrawal from more complex bespoke systems, which now make up a much
smaller component of the business. Difficulties in obtaining UK export
licences for cryogenic systems for quantum research in China has negatively
impacted year-on-year growth. These issues have resulted in a fall in constant
currency profit of 21.1% and a 480-basis point reduction in adjusted operating
margin to 12.9% for the segment. Good order growth for our cryogenic systems,
especially from North America and Europe, is expected to contribute to an
improved trading performance for the 2023/24 financial year.
Service & Healthcare margin increased by 40 basis points to 31.1% (2022:
30.7%). At constant currency, the margin was 30.4%, a decrease of 30 basis
points.
Transaction and translation currency effects (including the impact of
transactional currency hedging) have increased reported adjusted operating
profit by £5.3m when compared to blended hedged exchange rates for the prior
period.
£m Materials & Characterisation Research & Service & Total
Discovery Healthcare
Adjusted operating profit: 2021/22 26.1 21.3 18.9 66.3
Constant currency growth 11.8 (4.5) 1.6 8.9
Currency 2.6 1.2 1.5 5.3
Adjusted operating profit: 2022/23 40.5 18.0 22.0 80.5
Adjusted operating margin(1): 2021/22 14.1% 17.7% 30.7% 18.1%
Adjusted operating margin(1): 2022/23 17.3% 12.9% 31.1% 18.1%
Adjusted operating margin(1) (constant currency): 2022/23 17.1% 12.9% 30.4% 18.0%
3. 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 grew by 49.9% to £72.4m (2022: £48.3m),
representing an operating profit margin of 16.3% (2022: 13.2%). Statutory
operating profit is after the amortisation and impairment of acquired
intangible assets; other significant non-recurring items; and the
mark-to-market of financial derivatives. The growth was driven by a strong
trading performance, supported by currency, along with a credit on the fair
value movement of forward currency contracts.
Adjusting items
Amortisation of acquired intangibles of £9.3m (2022: £9.5m) relates to
intangible assets recognised on acquisitions, being the value of technology,
customer relationships and brands.
Non-recurring items within operating profit total £1.8m. This comprises a
release of a property dilapidations provision of £0.4m relating to the
previously disposed OI Healthcare business, offset by a charge of £0.5m that
eliminates the profit arising in the acquired WITec business from revaluing
their inventories to fair value, in accordance with accounting standards. We
have also incurred legal costs of £0.5m on protection of our IP due to a
third-party infringement, and restructuring costs of £0.4m relating to the
transfer of a business to a new location. An impairment of capitalised
development costs of £0.8m relates to two small projects in our Plasma
Technology business where the development has been superseded by a new
platform and the market opportunity turned out to be smaller than forecast. We
also recorded in financial expenditure a non-recurring charge of £0.4m
against the unwind of discount on WITec contingent consideration.
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 12 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
Consolidated Statement of Income as foreign exchange and excluded from our
calculation of adjusted profit before tax. In the year this amounted to a
credit of £3.0m (2022: charge of £6.4m). The movement to a small net asset
for derivative financial instruments over the year reflects: (i) the
crystallisation of forward contracts that were hedging the 2022/23 financial
year, which are recognised in adjusted operating profit; and an uncrystallised
increase in the mark-to-market valuation of forward contracts from a rise 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 12 months.
Net finance costs
The Group recorded adjusted net interest income of £1.5m (2022: net cost of
£0.4m) due to an increase in the interest credit on pension scheme net assets
and a rise in interest income on our net cash balance. In addition, we
recorded in financial expenditure a non-recurring charge of £0.4m against the
unwind of discount on WITec contingent consideration.
Adjusted profit before tax and margin
Adjusted profit before tax increased by 24.4% to £82.0m (2022: £65.9m). The
adjusted profit before tax margin of 18.4% (2022: 17.9%) was above last year
due to an increase in net finance income.
Reconciliation of statutory profit before tax to adjusted profit before Year ended Year ended
tax
31 March 2023 31 March 2022
£m £m
Statutory profit before tax 73.5 47.6
Add back:
Amortisation and impairment of acquired intangible assets 9.3 9.5
Non-recurring items in operating profit (Note 1) 2.2 2.4
Mark-to-market of currency hedges (3.0) 6.4
Adjusted profit before tax 82.0 65.9
Statutory profit before tax and margin
Statutory profit before tax increased by 54.4% to £73.5m (2022: £47.6m).
Statutory profit before tax is after the amortisation and impairment of
acquired intangible assets; other significant non-recurring items; and the
mark-to-market of financial derivatives. The statutory profit before tax
margin of 16.5% (2022: 13.0%) was above last year principally due to the
credit from the mark-to market valuation movement on financial derivatives.
Taxation
The adjusted tax charge of £17.0m (2022: £11.7m) represents an effective tax
rate of 20.7% (2022: 17.8%). The tax charge of £14.9m (2022: £9.0m)
represents an effective tax rate of 20.3% (2022: 18.9%). The increase reflects
prior year tax credits, primarily relating to exercise of share options, as
well as a greater mix of profits from jurisdictions with higher tax rates than
our average. We expect the effective tax rate to rise in 2023/24 owing to the
increase in the UK corporation tax rate.
Earnings per share
Adjusted basic earnings per share increased by 19.5% to 112.7p (2022: 94.3p);
adjusted diluted earnings per share grew by 19.7% to 111.3p (2022: 93.0p).
Basic earnings per share increased by 51.4% to 101.6p (2022: 67.1p); diluted
earnings per share increased by 51.5% to 100.3p (2022: 66.2p).
The number of undiluted weighted average shares increased to 57.7m (2022:
57.5m).
Currency
The Group faces transactional and translational currency exposure, most
notably against the US dollar, euro and Japanese yen. For the year,
approximately 16% of Group revenue was denominated in sterling, 53% in US
dollars, 19% 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 translation and transaction foreign currency exposure for the full
year is summarised below.
£m (equivalent) Revenue Adjusted operating profit
Sterling 72.3 (97.9)
US dollar 233.8 105.8
Euro 85.8 37.4
Japanese yen 43.5 34.4
Chinese renminbi 6.2 (0.2)
Other 3.1 1.0
444.7 80.5
The Group maintains a hedging programme against its net transactional exposure
using internal projections of currency trading transactions expected to arise
over a period extending from 12 to 24 months. As at 31 March 2023, the Group
had currency hedges in place extending up to 12 months forward.
For the full year 2023/24, our assessment of the currency impact is, based on
hedges currently in place and current currency rates, a headwind to revenue
and profit of £15m and £0.6m respectively. Current currency rates on
unhedged positions for the year are GBP:USD 1.26; GBP:EUR 1.17; GBP:JPY
176.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 2024/25, based on current currency
rates, we would expect currency effects to have a neutral impact to revenue
and a £4.2m headwind to profit, owing to an unwind of hedges crystalising in
the previous financial year at more favourable rates.
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 €5m was paid in December 2022 as a consequence of specific
conditions on trading performance being met.
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 good year of trading, supported by favourable currency movements, the Board
is recommending a final dividend of 14.9p (2022: 13.7p) per share. This would
result in a total dividend of 19.5p (2022: 18.1p) per share, growth of 7.7%.
An interim dividend of 4.6p per share was paid on 13 January 2023. The final
dividend will be paid, subject to shareholder approval, on 22 August 2023 to
shareholders on the register as at 14 July 2023.
Cash flow
The Group cash flow is summarised below.
Year ended Year ended
31 March 2023 31 March 2022
£m £m
Adjusted operating profit 80.5 66.3
Depreciation and amortisation 10.8 9.4
Adjusted(1) EBITDA 91.3 75.7
Working capital movement (9.1) (11.8)
Equity settled share schemes 2.4 2.1
Pension scheme payments above charge to operating profit (11.7) (7.6)
Cash from operations 72.9 58.4
Interest 0.4 (0.5)
Tax (5.7) (8.8)
Capitalised development expenditure (0.6) (0.7)
Net expenditure on tangible and intangible assets (32.1) (13.9)
Acquisition of subsidiaries, net of cash acquired (4.8) (30.6)
Acquisition-related costs - (0.4)
Dividends paid (10.6) (12.3)
Proceeds from issue of share capital and exercise of share options 0.1 0.1
Payments made in respect of lease liabilities (5.6) (3.4)
Decrease in borrowings (0.5) (0.1)
Net increase/(decrease) in cash and cash equivalents from continuing 13.5 (12.2)
operations
4. 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 £72.9m (2022: £58.4m) represents 58% (2022: 72%)
cash conversion. Cash conversion on a normalised basis was 88% once we exclude
capital expenditure relating to our new semiconductor facility and a small
facility expansion in High Wycombe for a Materials & Characterisation
business line. 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.
Year ended Year ended
Reconciliation of cash generated from operations to adjusted operating cash 31 March 2023 31 March 2022
flow
£m £m
Cash from operations 72.9 58.4
Add back/(Deduct):
Pension scheme payments above charge to operating profit 11.7 7.6
Capitalised development expenditure (0.6) (0.7)
Net expenditure on tangible and intangible assets (32.1) (13.9)
Payments made in respect of lease liabilities (5.6) (3.4)
Adjusted cash from operations 46.3 48.0
Cash conversion % (adjusted cash from operations/adjusted operating profit) 58% 72%
Cash conversion % (normalised(1)) 88% 84%
5. Cash conversion calculated on a normalised basis excludes expenditure
in the year of £24.7m (2022: £7.4m) on the new semiconductor facility and
the Materials & Characterisation facility expansion in High Wycombe.
Working capital increased by £9.1m. Inventories increased by £15.6m as we
prioritised securing component supplies in the face of continued supply chain
disruption and uncertainty. Receivables increased by £21.5m, reflecting 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 offset by an
increase in payables and customer deposits of £28.0m.
Interest
Net interest received was £0.4m (2022: £0.5m paid), the improvement
reflecting the higher interest income received on our net cash balance.
Tax
Tax paid was £5.7m (2022: £8.8m). The Group benefitted from accelerated
capital allowances on the new semiconductor facility currently under
construction, partly contributing to cash tax being lower than the accounting
charge.
Investment in Research and Development (R&D)
Total cash spend on R&D in the year was £34.8m, equivalent to 7.8% of
sales (2022: £31.7m, 8.6% 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 2023 31 March 2022
£m £m
R&D expense charged to the Consolidated Statement of Income 36.7 32.8
Depreciation of R&D-related fixed assets (0.3) (0.2)
Amounts capitalised as fixed assets - 0.3
Amortisation and impairment of R&D costs previously capitalised as (2.2) (1.9)
intangibles
Amounts capitalised as intangible assets 0.6 0.7
Total cash spent on R&D during the year 34.8 31.7
Net cash and funding
Net cash
Cash from operations in the year was partially offset by an increase in
capital expenditure and payment of deferred consideration for the acquired
WITec business, resulting in an increase in the Group's net cash position
after borrowings at 31 March 2023 to £100.2m (31 March 2022: £85.9m). The
Group invested in tangible and intangible assets of £32.3m, of which £23.1m
relates to payments associated with the new semiconductor facility under
construction.
To 31 March 2023, we had incurred costs of £31.3m on the new semiconductor
facility under construction. For the financial year ended 31 March 2024, we
expect additional payments of approximately £10m to complete the facility. We
are also planning to expand our operations in Belfast over the next 18 months
to support the growth of our imaging and microscopy business, particularly
into Life Science markets.
Movement in net cash £m
Net cash after borrowings as at 31 March 2022 85.9
Cash generated from operations 72.9
Interest 0.4
Tax (5.7)
Capitalised development expenditure (0.6)
Capital expenditure on tangible and intangible assets (9.2)
Capital expenditure on new semiconductor facility (23.1)
Acquisition of subsidiaries (4.8)
Dividend paid (10.6)
Payments made in respect of lease liabilities (5.6)
Other items 0.6
Net cash after borrowings as at 31 March 2023 100.2
Net cash including lease liabilities Year ended Year ended
31 March 2023 31 March 2022
£m £m
Net cash after borrowings 100.2 85.9
Lease liabilities (31.4) (18.4)
Net cash and lease liabilities after borrowings 68.8 67.5
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 35.2%,
(2022: 34.7%), with the change principally reflecting a higher level of
earnings, partially offset by the investment in the new semiconductor facility
in Bristol which has increased property, plant and equipment, and right of use
assets.
Return on capital employed Year ended Year ended
31 March 2023 31 March 2022
£m £m
Adjusted operating profit 80.5 66.3
Amortisation of acquired intangible assets (9.3) (9.5)
Adjusted operating profit after amortisation of acquired intangible assets 71.2 56.8
Property, plant and equipment 59.3 31.7
Right-of-use assets 31.4 17.9
Intangible assets 132.1 140.7
Long-term receivables 0.5 -
Inventories 81.4 65.3
Trade and other receivables 125.0 104.7
Non-current lease payables (26.2) (14.9)
Non-current provisions - (0.1)
Trade and other payables (171.2) (149.5)
Current lease payables (5.2) (3.5)
Current provisions (7.6) (7.7)
Capital employed 219.5 184.6
Average capital employed 202.1 163.5
Return on capital employed (ROCE) 35.2% 34.7%
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 fell slightly on the
previous year due to an increase in property assets and leases offsetting the
positive effect of growth in adjusted operating profit after taxation.
Return on invested capital Year ended Year ended
31 March 2023 31 March 2022
£m £m
Adjusted operating profit 80.5 66.3
Adjusted taxation (17.0) (11.7)
Adjusted operating profit after taxation 63.5 54.6
Total equity 344.0 316.4
Net cash after borrowings (including lease liabilities) (68.8) (67.5)
Invested capital 275.2 248.9
Average invested capital 261.2 212.5
Return on invested capital (ROIC) 24.3% 25.7%
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 (£44m) and a US dollar-denominated multi-currency
facility of $80.0m (£64.0m).
Debt covenants are net debt to EBITDA of less than 3.0 times and EBITDA to
interest greater than 4.0 times. As at 31 March 2023 the business had net
cash.
Pensions
The Group has a defined benefit pension scheme in the UK. This has been closed
to new entrants since 2001 and closed to future accrual from 2010.
On an IAS 19 basis, the surplus arising from our defined benefit pension
scheme obligations on 31 March 2023 was £26.4m (2022: £51.7m). The value of
scheme assets fell to £251.5m (2021: £351.7m) due to a fall in value of the
scheme's gilt holdings and other liability matching assets. Scheme liabilities
decreased to £225.1m (£300.0m), principally due to an increase in the
discount rate and a decrease in the inflation-linked assumptions.
Pension recovery payments above charge to operating profit total £11.7m
(2022: £7.6m). During the year, an advance payment of £4.0m was made to
allow the Trustees to meet collateral calls to swap counterparties under the
Liability Driven Investment scheme. These funds were not required and while
the company has the right to recover this advance through making reduced
payments in the future, it is not expected to do so.
The scheme's actuarial valuation review, rather than the accounting basis,
determines our cash payments into the scheme. The Liability Driven Investment
strategy is working as intended, with the actuarial deficit falling during the
year, in line with expectations. 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. 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
12 June 2023
CONSOLIDATED STATEMENT OF INCOME
Year ended 31 March 2023
2023 2022
Adjusting items((1)) Adjusting
Adjusted £m Total Adjusted items((1)) Total
£m £m £m £m £m
Revenue 444.7 - 444.7 367.3 - 367.3
Cost of sales (214.5) - (214.5) (179.5) - (179.5)
Gross profit 230.2 - 230.2 187.8 - 187.8
Research and development (35.9) (0.8) (36.7) (32.8) - (32.8)
Selling and marketing (65.4) - (65.4) (52.5) - (52.5)
Administration and shared services
(52.9) (10.3) (63.2) (42.2) (11.6) (53.8)
Foreign exchange gain/(loss) 4.5 3.0 7.5 6.0 (6.4) (0.4)
Operating profit 80.5 (8.1) 72.4 66.3 (18.0) 48.3
Financial income 2.7 - 2.7 0.5 - 0.5
Financial expenditure (1.2) (0.4) (1.6) (0.9) (0.3) (1.2)
Profit/(loss) before income tax 82.0 (8.5) 73.5 65.9 (18.3) 47.6
Income tax (expense)/credit (17.0) 2.1 (14.9) (11.7) 2.7 (9.0)
Profit/(loss) for the year attributable to equity shareholders of the parent
65.0 (6.4) 58.6 54.2 (15.6) 38.6
Earnings per share pence pence pence pence
Basic earnings per share
From profit for the year 112.7 101.6 94.3 67.1
Diluted earnings per share
From profit for the year 111.3 100.3 93.0 66.2
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.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year ended 31 March 2023
2023 2022
£m £m
Profit for the year 58.6 38.6
Other comprehensive income/(expense):
Items that may be reclassified subsequently to Consolidated Statement of
Income
Foreign exchange translation differences 5.3 1.0
Items that will not be reclassified to Consolidated Statement of Income
Remeasurement (loss)/gain in respect of post-retirement benefits (38.6) 27.3
Tax credit/(charge) on items that will not be reclassified to Consolidated 9.7 (6.8)
Statement of Income
Total other comprehensive (expense)/income (23.6) 21.5
Total comprehensive income for the year attributable to equity shareholders of 35.0 60.1
the parent
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 March 2023
2023 2022
£m £m
Assets
Non-current assets
Property, plant and 59.3 31.7
equipment
Right-of-use 31.4 17.9
assets
Intangible 132.1 140.7
assets
Long-term receivables 0.5 -
Derivative financial 0.4 -
instruments
Retirement benefit 26.4 51.7
asset
Deferred tax 12.5 13.7
assets
262.6 255.7
Current assets
Inventories 81.4 65.3
Trade and other 125.0 104.7
receivables
Current income tax receivable 0.5 0.8
Derivative financial 1.6 1.0
instruments
Cash and cash 112.7 96.4
equivalents
321.2 268.2
Total assets 583.8 523.9
Equity
Capital and reserves attributable to the company's equity shareholders
Share 2.9 2.9
capital
Share premium 62.6 62.5
Other reserves 0.2 0.2
Translation reserve 12.9 7.6
Retained earnings 265.4 243.2
344.0 316.4
Liabilities
Non-current liabilities
Bank 0.9 1.3
loans
Lease 26.2 14.9
payables
Derivative financial - 0.3
instruments
Provisions - 0.1
Deferred tax 7.8 15.4
liabilities
34.9 32.0
Current liabilities
Bank loans and 11.6 9.2
overdrafts
Trade and other 171.2 149.5
payables
Lease 5.2 3.5
payables
Current income tax payables 8.1 4.5
Derivative financial 1.2 1.1
instruments
Provisions 7.6 7.7
204.9 175.5
Total liabilities 239.8 207.5
Total liabilities and equity 583.8 523.9
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
As at 31 March 2023
Share capital Share Other reserves Translation Retained earnings
£m premium £m reserve £m Total
£m £m £m
As at 1 April 2022 2.9 62.5 0.2 7.6 243.2 316.4
Total comprehensive income/(expense):
Profit for the year - - - - 58.6 58.6
Other comprehensive income/(expense):
-Foreign exchange translation differences - - - 5.3 - 5.3
-Remeasurement loss in respect of post-
retirement benefits - - - - (38.6) (38.6)
-Tax credit on items that will not be reclassified to Consolidated Statement
of Income
- - - - 9.7 9.7
Total comprehensive income attributable to equity shareholders of the parent
- - - 5.3 29.7 35.0
Transactions with owners recorded directly in equity:
-Credit in respect of employee service costs settled by award of share
options
- - - - 2.4 2.4
-Tax credit in respect of share options - - - - 0.7 0.7
-Proceeds from shares issued - 0.1 - - - 0.1
-Dividends - - - - (10.6) (10.6)
Total transactions with owners recorded directly in equity:
- 0.1 - - (7.5) (7.4)
As at 31 March 2023 2.9 62.6 0.2 12.9 265.4 344.0
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
- Remeasurement gain in respect of post-
retirement benefits - - - - 27.3 27.3
- Tax charge on items that will not be reclassified to Consolidated Statement
of Income
- - - - (6.8) (6.8)
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
options
- - - - 2.1 2.1
- 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
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 none (2022: 2,370) 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 2023
2023 2022
£m £m
Profit for the year 58.6 38.6
Adjustments for:
Income tax expense 14.9 9.0
Net financial (income)/expense (1.1) 0.7
Fair value movement on financial derivatives (3.0) 6.4
Release of provision on disposal (0.4) -
WITec post-acquisition gross margin adjustment 0.5 1.7
Acquisition-related costs - 0.4
Restructuring costs 0.4 -
Intellectual property litigation costs 0.5 -
Impairment of capitalised development costs 0.8 -
Amortisation and impairment of acquired intangibles 9.3 9.5
Depreciation of right-of-use assets 4.6 3.4
Depreciation of property, plant and equipment 4.8 4.1
Amortisation of capitalised development costs 1.4 1.9
Adjusted earnings before interest, tax, depreciation and amortisation 91.3 75.7
Charge in respect of equity settled employee share schemes 2.4 2.1
Cash payments to the pension scheme more than the charge to operating profit (11.7) (7.6)
Operating cash flows before movements in working capital 82.0 70.2
Increase in inventories (15.6) (0.1)
Increase in receivables (21.5) (21.6)
Increase in payables and provisions 18.8 11.4
Increase/(decrease) in customer deposits 9.2 (1.5)
Cash generated from operations 72.9 58.4
Interest paid (0.7) (0.5)
Income taxes paid (5.7) (8.8)
Net cash from operating activities 66.5 49.1
Cash flows from investing activities
Proceeds from sale of property, plant and equipment 0.2 -
Acquisition of property, plant and equipment (32.3) (13.9)
Acquisition of intangible assets - (0.1)
Acquisition of subsidiaries, net of cash acquired (4.8) (30.6)
Acquisition-related costs - (0.4)
Capitalised development expenditure (0.6) (0.7)
Interest received 1.1 0.1
Net cash used in investing activities (36.4) (45.6)
Cash flows from financing activities
Proceeds from issue of share capital 0.1 0.1
Interest paid on lease payables (0.5) (0.3)
Repayment of lease payables (5.1) (3.1)
Repayment of borrowings (0.5) (0.1)
Dividends paid (10.6) (12.3)
Net cash used in financing activities (16.6) (15.7)
Net increase/(decrease) in cash and cash equivalents 13.5 (12.2)
Cash and cash equivalents at beginning of the year 87.7 97.6
Effect of exchange rate fluctuations on cash held 0.3 2.3
Cash and cash equivalents at end of the year 101.5 87.7
Comprised of:
Cash and cash equivalents as per the Consolidated Statement of Financial 112.7 96.4
Position
Bank overdrafts (11.2) (8.7)
101.5 87.7
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
2023 2022
Operating Profit before income tax Operating Profit before
Profit £m Profit income tax
£m £m £m
Statutory measure 72.4 73.5 48.3 47.6
Release of provision on disposal (0.4) (0.4) - -
Acquisition-related costs - - 0.4 0.4
WITec post-acquisition gross margin adjustment 0.5 0.5 1.7 1.7
Restructuring costs 0.4 0.4 - -
Intellectual property litigation costs 0.5 0.5 - -
Impairment of capitalised development costs 0.8 0.8 - -
Amortisation and impairment of acquired intangibles 9.3 9.3 9.5 9.5
Fair value movement on financial derivatives (3.0) (3.0) 6.4 6.4
Unwind of discount in respect of contingent consideration 0.4 0.3
Total non-GAAP adjustments 8.1 8.5 18.0 18.3
Adjusted measure 80.5 82.0 66.3 65.9
Adjusted income tax expense (17.0) (11.7)
Adjusted profit for the year 80.5 65.0 66.3 54.2
Adjusted effective tax rates 20.7% 17.8%
Release of provision on disposal
These represent the release of the provision on disposal of the OI Healthcare
business in the US in 2020.
Acquisition-related costs
These represent the costs of one-off charges incurred at the balance sheet
date relating to the acquisition of WITec
Wissenschaftliche Instrumente und Technologie GmbH ('WITec').
WITec post-acquisition gross margin adjustment
The finished goods and work in progress inventories were revalued to fair
value, based on selling price less costs to sell. The adjustments in the
current and prior periods relate to the gross margin which would have been
earned on post-acquisition sales to 31 March 2023, but which has been absorbed
into the acquisition date fair value. This will not recur, as all such
inventory at the acquisition date had been delivered to customers by 31 March
2023.
Restructuring costs
These represent the costs of one-off restructuring charges within the
Materials & Characterisation segment.
Intellectual property litigation costs
These represent one-off legal costs in the Research & Discovery segment to
defend our intellectual property.
Impairment of capitalised development costs
During the year, the Group reviewed the capitalised development costs to
ensure they remained directly related to targeted product or software
developments. The one-off non-cash impairment relates to delays in market
launch of specific development projects within the Materials &
Characterisation segment.
Amortisation and impairment of acquired intangibles
Adjusted profit excludes the non-cash amortisation and impairment of acquired
intangible assets and goodwill.
Fair value movement on financial derivatives
Under IFRS 9, all derivative financial instruments are recognised initially at
fair value. Subsequent to initial recognition, they are also measured at fair
value. In respect of instruments used to hedge foreign exchange risk and
interest rate risk, the Group does not take advantage of the hedge accounting
rules provided for in IFRS 9 since that standard requires certain stringent
criteria to be met in order to hedge account, which, in the particular
circumstances of the Group, are considered by the Board not to bring any
significant economic benefit. Accordingly, the Group accounts for these
derivative financial instruments at fair value through profit or loss. To the
extent that instruments are hedges of future transactions, adjusted profit for
the 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
after borrowings
2023 2022
£m £m
Net increase/(decrease) in cash and cash equivalents 13.5 (12.2)
Effect of exchange rate fluctuations on cash held 0.3 2.3
Movement in net cash in the year 13.8 (9.9)
Covid-19 loan at WiTec acquired - (1.8)
Repayment of borrowings 0.5 -
Net cash after borrowings at the start of the year 85.9 97.6
Net cash after borrowings at the end of the year 100.2 85.9
Reconciliation of net cash to Statement of Financial Position
2023 2022
£m £m
Covid-19 loan at WiTec (1.3) (1.8)
Overdrafts (11.2) (8.7)
Cash and cash equivalents 112.7 96.4
Net cash after borrowings at the end of the year 100.2 85.9
2 Earnings per share
Basic earnings per ordinary share (EPS) is calculated by dividing the profit
attributable to equity shareholders of the parent
by the weighted average number of ordinary shares in issue during the year,
excluding ordinary shares held by the Employee Share Ownership Trust, which
have been treated as if they had been cancelled. The weighted average number
of shares used in the calculation is as follows:
2023 2022
Shares Shares
million million
Weighted average number of shares outstanding 57.7 57.7
Less: weighted average number of shares held by Employee Share Ownership Trust - (0.2)
Weighted average number of shares used in calculation of basic earnings per 57.7 57.5
share
During the year, all shares were transferred out of the Employee Share
Ownership Trust, and the trust was subsequently closed. Therefore there are no
shares held by the trust at 31 March 2023.
For the purposes of calculating diluted and diluted adjusted EPS, the weighted
average number of ordinary shares is adjusted to include the weighted average
number of ordinary shares that would be issued on the conversion of all
potentially dilutive ordinary shares expected to vest, relating to the
company's share-based payment plans. Potential ordinary shares are only
treated as dilutive when their conversion to ordinary shares would decrease
EPS.
The following table shows the effect of share options on the calculation of
diluted earnings per share:
2023 2022
Shares Shares
million million
Number of ordinary shares per basic earnings per share calculations 57.7 57.5
Effect of shares under option 0.7 0.8
Number of ordinary shares per diluted earnings per share calculations 58.4 58.3
Basic and diluted EPS are based on the profit for the period attributable to
equity shareholders of the parent, as reported in the condensed consolidated
statement of income. Adjusted and diluted adjusted EPS are based on adjusted
profit for the period, as reported in note 2:
2023 2022
£m Pence £m Pence
Underlying profit attributable to equity shareholders of the parent/underlying
EPS
58.6 101.6 38.6 67.1
Total underlying adjustments to profit before tax (Note 2) 8.5 14.7 18.3 31.8
Related tax effects (2.1) (3.6) (2.7) (4.6)
Adjusted profit attributable to equity shareholders of the parent/adjusted EPS
65.0 112.7 54.2 94.3
Diluted underlying EPS 100.3 66.2
Diluted adjusted EPS 111.3 93.0
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.
Depreciation 2023 2022
£m £m
Materials & Characterisation 5.1 3.8
Research & Discovery 1.7 1.5
Service & Healthcare - 0.7
Unallocated Group items 2.6 1.5
9.4 7.5
Capital expenditure 2023 2022
£m £m
Materials & Characterisation 28.6 11.4
Research & Discovery 2.7 1.7
Service & Healthcare - 0.1
Unallocated Group items 1.0 0.7
32.3 13.9
Amortisation and impairment 2023 2022
£m £m
Materials & Characterisation 5.2 5.0
Research & Discovery 6.3 6.4
Service & Healthcare - -
Unallocated Group items - -
11.5 11.4
2023 2022
Capitalised development costs £m £m
Materials & Characterisation 0.4 0.7
Research & Discovery 0.2 -
Service & Healthcare - -
Unallocated Group items - -
0.6 0.7
2023 2022
Revenue £m £m
UK 29.4 20.2
China 107.4 103.9
Japan 46.7 39.0
USA 121.2 79.9
Germany 32.1 28.1
Rest of Europe 43.4 40.7
Rest of Asia 47.1 45.7
Rest of World 17.4 9.8
444.7 367.3
2023 2022
Non-current assets (excluding deferred tax) £m £m
UK 189.6 182.8
Germany 34.8 32.7
USA 13.9 14.2
Japan 1.9 2.4
China 2.9 1.8
Rest of Europe 6.5 7.2
Rest of Asia 0.2 0.3
Rest of World 0.3 0.6
250.1 242.0
Results
Materials & Characterisation Research & Discovery Service &
£m £m Healthcare Total
2023 £m £m
Total segment revenue 234.5 139.4 70.8 444.7
Segment adjusted operating profit 40.5 18.0 22.0 80.5
Materials & Research & Discovery Service &
Characterisation Healthcare Total
2022 £m £m £m £m
Total segment revenue 185.5 120.3 61.5 367.3
Segment adjusted operating profit 26.1 21.3 18.9 66.3
Revenue in the Materials & Characterisation and Research & Discovery
segments represents the sale of products. Revenue in the Service &
Healthcare segment relates to service income. No individual customer accounts
for more than 10% of total revenue.
As at 31 March 2023, the Group had unfulfilled performance obligations under
IFRS 15 of £319.6m (2022: £260.2m). It is anticipated that £303.0m (2022:
£250.5m) 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
Materials & Research & Discovery Service & Healthcare Unallocated
Characterisation £m £m Group items Total
2023 £m £m £m
Segment adjusted operating profit 40.5 18.0 22.0 - 80.5
Restructuring costs (0.4) - - - (0.4)
Release of provision on disposal - - 0.4 - 0.4
Intellectual property litigation costs - (0.5) - - (0.5)
Impairment of capitalised development costs (0.8) - - - (0.8)
WITec post-acquisition gross margin adjustment (0.5) - - - (0.5)
Amortisation and impairment of acquired intangibles
(3.1) (6.2) - - (9.3)
Fair value movement on financial derivatives - - - 3.0 3.0
Financial income - - - 2.7 2.7
Financial expenditure - - - (1.6) (1.6)
Profit before income tax 35.7 11.3 22.4 4.1 73.5
Materials & Characterisation Research & Service & Healthcare Unallocated
2022 £m Discovery £m Group items Total
£m £m £m
Segment adjusted operating profit 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 20.8 15.0 18.9 (7.1) 47.6
4. Research and development (R&D)
The total research and development spend by the Group is as follows:
Materials & Research & Discovery
Characterisation £m Total
2023 £m £m
R&D expense charged to the Consolidated Statement of Income 26.5 10.2 36.7
Less: depreciation of R&D-related fixed assets - (0.3) (0.3)
Less: amortisation and impairment of R&D costs previously capitalised as
intangibles
(2.1) (0.1) (2.2)
Add: amounts capitalised as intangible assets 0.4 0.2 0.6
Total cash spent on R&D during the year 24.8 10.0 34.8
Materials & Characterisation Research & 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
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) was conditional on trading performance over a period of 12
months from the acquisition. The conditions for the deferred consideration
were meeting certain revenue, order and margin thresholds. WITec is a leading
designer and manufacturer of Raman microscopy imaging solutions, based in Ulm,
Germany. The business has been integrated into the Materials &
Characterisation segment.
Contingent consideration of £4.8m was paid during January 2023 based on the
performance of the WITec business in the year to 31 August 2022. The
difference of £0.5m between contingent consideration provided at acquisition
and that paid in January 2023 was due to an adjustment to the net assets
purchased.
Acquisition-related costs in the prior year 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. There were no
acquisition-related costs in the current year.
If the acquisition had occurred on the first day of the prior year the
acquisition would have 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 ended 31 March 2022.
Income tax expense 2023 2022
£m £m
Recognised in the Consolidated Statement of Income
Current tax expense
Current year 10.2 9.0
Adjustment in respect of prior years 0.3 (1.0)
10.5 8.0
Deferred tax expense
Origination and reversal of temporary differences 5.1 1.2
Adjustment in respect of prior years (0.7) (0.2)
4.4 1.0
Total tax expense 14.9 9.0
Reconciliation of effective tax rate
Profit before income tax 73.5 47.6
Income tax using the weighted average statutory tax rate of 21% (2022: 21%) 15.4 10.0
Effect of:
Tax rates other than the weighted average statutory rate 0.3 0.1
Change in rate at which deferred tax recognised 1.0 0.6
Non-taxable income and expenses (1.4) (0.3)
Tax incentives not recognised in the Consolidated Statement of Income - (0.2)
Adjustment in respect of prior years (0.4) (1.2)
Total tax expense 14.9 9.0
Taxation (credit)/charge recognised directly in other comprehensive income
Deferred tax - relating to employee benefits (9.7) 6.8
Taxation credit recognised directly in equity
Deferred tax - relating to share options (0.7) (0.2)
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 25% as utilisation will 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.
7. Dividends per share
The following dividends per share were paid by the Group:
2023 2022
pence pence
Previous period interim dividend - 4.1
Previous period final dividend 13.7 12.9
Current period interim dividend 4.6 4.4
18.3 21.4
The following dividends per share were proposed by the Group in respect of
each accounting period presented:
2023 2022
pence pence
Interim dividend 4.6 4.4
Final dividend 14.9 13.7
19.5 18.1
The final dividend for the year to 31 March 2022 of 13.7 pence per share was approved by shareholders at the Annual General Meeting on 28 July 2022 and was paid on 23 August 2022. The interim dividend for the year to 31 March 2023 of 4.6 pence was approved by a sub-committee of the Board on 7 November 2022 and was paid on 13 January 2023.
The proposed final dividend of 14.9 pence per share was not provided at the
year end and is subject to shareholder approval at the Annual General Meeting
on 28 July 2023. It is expected to be paid on 22 August 2023, to shareholders
on the register on the record date of 14 July 2023, with an ex-dividend date
of 13 July 2023 and with the last date of election for the Dividend
Reinvestment Plan (DRIP) being 01 August 2023.
8. Exchange rates
The principal exchange rates to sterling used were:
Year-end rates 2023 2022
US dollar 1.24 1.32
Euro 1.14 1.18
Japanese yen 165 160
Average translation rates
2023 US Dollar Euro Japanese Yen
April 1.28 1.19 161
May 1.26 1.18 163
June 1.24 1.17 164
July 1.22 1.18 164
August 1.19 1.18 162
September 1.14 1.15 161
October 1.13 1.15 166
November 1.17 1.16 169
December 1.20 1.14 162
January 1.22 1.13 159
February 1.22 1.14 163
March 1.22 1.14 165
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
9. Annual general meeting
The Annual General Meeting will be held on 28 July 2023. 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
Approach to risk management
An ongoing process for identifying, evaluating and managing the significant
risks faced by the Group 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 Annual 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
2023, the Board considered that these processes remained effective.
Summaries of our risk management framework and process can be found below and
on page XX , 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 below.
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 2023
During the year ended 31 March 2023 the principal priority was the integration
of the processes for identifying, evaluating, and reporting on
climate‑related risks and opportunities across the Group, as set out in the
TCFD statement. These processes have been successfully integrated into the
wider enterprise risk management processes and the detailed assessment of key
risks using a standardised methodology, as performed by the business units
across the Group.
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 Annual Report and Financial Statements, which also
encompasses further information regarding the Group's exposure to
climate‑related risks and opportunities.
Risk governance framework
The key accountabilities and features of our risk governance framework are set
out below:
Operational Management Responsible for risk management and control within the
business and, through the Management Board, implementing Board policies on
risk and control.
Guided by the internal audit and assurance function, completes detailed risk
reviews on a quarterly basis.
Internal audit and assurance function Assesses the adequacy and effectiveness
of the management of significant risk areas and provides oversight of
operational management's front‑line and assurance activities.
Further information regarding the scope of internal audit and assurance
activities is set out below
Audit and Risk Committee Reviews the internal financial controls and systems
that identify, assess, manage and monitor financial risks, and other internal
control and risk management systems. More information regarding the work of
the Committee can be found in the Report and Financial Statements
Board Oversees the internal control framework, and determines the nature and
extent of the principal risks the company is willing to take in order to
achieve its long-term strategic objectives. Ultimately accountable for
approving the adequacy and effectiveness of 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 or are subject to separate review by subject matter
experts where required (eg health and safety and product compliance).
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 12 months against the original proposal is reviewed by the Board;
- internal audits are 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
Annual Report and Financial Statements
- 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 diagram below summarises our methodical approach to risk management. The
principal risks and uncertainties
detailed below are monitored utilising this risk management process.
Alignment with strategy
The broad range of potential factors which could impact the Group are
considered and those which have a significant effect on its ability to deliver
its strategy are determined to be principal risks and uncertainties.
Evaluation of risk
Careful consideration is given to:
i) the specific scenarios in which the risk could manifest; and
ii) the various potential impacts which the risk could present.
Mitigation implementation
Suitable management actions or robust control mechanisms are determined,
developed and implemented.
Review risk
An embedded, cyclical process review:
i) determination of principal risks and uncertainties; and
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 below.
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. No emerging risks have been identified during the latest
review.
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 2023, the output of this assessment was an increase in the level of
geopolitical risk and a decrease in the level of risk relating to Oxford
Instruments' legacy defined benefit pension scheme. . Further information is
set out below. As set out above, no emerging risks were identified.
The principal risks and uncertainties are set out below.
A minor change in the Group's approach to risk management during the year
ended 31 March 2023 was the update of the scoring matrix for key risks at
Group level and amendment to the bandings for the estimated impact of a risk
arising, albeit risks continue to be categorised in a matrix based on the
expected likelihood of the risk arising and their estimated impact. Business
units continue to perform a detailed assessment of key risks using a
standardised methodology. This now includes climate‑related risks and
opportunities, which were integrated into the wider enterprise risk management
processes during the year ended 31 March 2023. 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, taking account of any mitigating actions and controls that
have been implemented.
The output of this assessment is shown in the Annual Report and Financial
Statements. The most significant risks are located in the top right quadrant
of the chart, while those assessed as being the least significant are found in
the bottom left. The chart shows that the Group's assessment of geopolitical
risk has increased compared to the prior year, while the risk relating to
pensions has decreased.
The risk management process identified 13 principal risks which 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.
1. Geopolitical
Context: The Group operates in global markets
and is required to comply with relevant regulations including, but not
limited to, sanctions, tariffs and export controls. Government policy on the
export of specific technologies and the approval of particular end users
is subject to foreign policy objectives which 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 can arise from sanctions, export licence refusals, trade tariffs, trade
embargoes, or nations seeking to reduce reliance on imports in strategic
technologies through the development of domestic competition and/or
protectionist measures. We are seeing tighter UK Government export control
policy, particularly in relation to exports to China, resulting in an
increase in export licence refusals. Furthermore, the business is exposed
to changes in both US and German export licence regulations.
Possible impact
- A contraction in export volumes to key markets and consequential
loss of revenue and reputational damage
- Restrictions on the provision of after sales service, leading to
lower service contract revenues
- Reduced access to key markets may impact research and
development (R&D) investment decisions owing to adverse impacts on
business cases
- Lower net pricing to key markets adversely affecting marginal
revenue
- Increases to input costs and lower gross margins
Control mechanisms
- Engagement with UK Government and regulatory authorities
- Contract review and protection against breach of contract should
export licences be withheld
- Long‑term investment planning strategies
Mitigation
- Focus on lower‑risk markets and end users
- Broad global customer base; contractual protection
- Market diversification
Change in the year: no change
2. Supply chain
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 their inability to
supply as a result of internal production issues.
- 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
- Poor customer service
- Reputational damage
- Lost revenue
- Downward pressure on margins
- Increased lead times and potential of being unable to fulfil
orders
- 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
- Sourcing of alternative options and/or buffer stocks in
relation to high‑risk suppliers
- Long‑term contracts with key suppliers
Mitigation
- Strategic, selective and diversified supplier base
- 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: no change
3. Routes to market
Context: In some instances, the Group's products are components of
higher-level systems sold by original equipment manufacturers (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
4. New Product Introduction (NPI)
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 mechanism
- 'Voice of the Customer' customer listening 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: n/a
5 Market risk: Recession/inflation
Context: Demand from the Group's customer base may be reduced if there is a
global contraction in investment in R&D and commercial investment.
Further, global inflation may place upward pressure on key elements of the
cost base such as labour and materials.
Risk
- Lower demand for the Group's products and services
- Rises in key cost drivers such as people costs, energy,
components, and raw materials
- For sales of long lead-time items, requirement to make
inflationary estimates when pricing, which may be inaccurate
Possible impact
- Decrease in sales volumes
- 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 mechanism
- Strategic focus on growth markets
- Price reviews
- Inflation protection in commercial response to long
lead-time tenders and long-term agreements
Ability to address inflationary pressures
- through price management reviews
- Reviews of key drivers of financial performance
-
Change in the year: no change
6 Information technology
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
- Upgrade of enterprise resource planning (ERP) and other
internal systems
- End user education and phishing simulation exercises
Change in the year: n/a
7 Legal and regulatory compliance
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 (IP) 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, exclusion 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: n/a
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: n/a
9. Global pandemic/catastrophe causes major disruption
Context: The Group operates in a global market. Supply and demand can be
materially affected in the short-term by major global events such as
pandemics, conflict or natural disaster.
Risk
Potential reduction in customer demand, disruption to supply chains and Group
operations leading to cancelled orders / reduced order intake, delays in
production, and/or installation at customer sites
Possible impact
- Lower delivery volumes and reduced order book leading to
lower revenue and downward pressure on pricing
- Delays in both manufacturing and service activity
leading to lost or delayed product and service revenue
Control mechanism
- Sales production matching and contract review process
- Horizon strategy to focus on attractive markets for
long‑term growth
- Operational reviews
- Strategic review of location of service personnel
compared to installed base
Mitigation
- Sales and operational planning processes
- Contractual protection
- Safe ways of working and changes to shift patterns to
maximise capacity
- Remote service activities
- Strategic procurement, working with supply chain to
mitigate risk
Change in the year: n/a
10. People and capability
Context: Delivering and protecting core capability and knowledge is a
strategic priority for the Group.
Risk
- Challenges in attracting and retaining high‑quality
talent in a tight labour market
- Shortage of key capabilities required to meet the
Group's strategic priorities
Possible impact
- Salary inflation and/or additional recruitment costs
- Adverse impact on NPI
- Operational disruption
- Lower sales and profitability
Control mechanisms
Strategic focus on the employee experience, including career development,
communications and competitive remuneration. to differentiate Oxford
Instruments
Mitigation
- Talent management and succession processes
- Leadership and technical development programmes
- Hybrid and remote working policies to facilitate
location-agnostic appointments
- Visa sponsorship registration for employee mobility
- Comprehensive internal communications
- Regular updates to benefits packages to maintain
competitiveness
Change in the year: n/a
11. Business interruption: operational
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
12. Climate change
Context: Climate change generates both risks and opportunities. Our response
needs to address risks and optimise opportunities. More detail on our approach
is set out in our Task Force for Climate-Related Disclosures Report on pages
Risk
- The transition from fossil fuels to a low‑carbon/net
zero economy may require significant changes in materials used and production
methods that may impact our own operations and those of 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
- Reputational damage or loss of investment arising from
failure to anticipate or address climate risk
- More expensive freight and packaging costs
Control mechanisms
- Sustainability Committee
- Climate‑related risks and opportunities evaluation and
reporting embedded in operating businesses
- 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
- Investment in CO2 reduction solutions
Change in the year: no change
13. Pensions
Context: The funding requirement for the company's legacy defined benefit
pension scheme varies, based on investment performance and external factors.
Risk
The actuarial pension deficit is sensitive to movements in actuarial
assumptions and returns on investments. The factors affecting these
assumptions are influenced by wider macro‑economic factors that are largely
outside of the Group's control
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: no change
ENDS
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