Oxford Instruments Regulatory News (OXIG)

13 Jun 2007 07:00

Oxford Instruments PLC13 June 2007 13 June 2007 Oxford Instruments plcAnnouncement of preliminary results for the year to 31 March 2007 Oxford Instruments plc, a leading provider of high technology tools and systemsfor industry and research, today announced its preliminary results for the yearto 31 March 2007: • Turnover from continuing businesses increased by 20.6% to £161.6 million (2006: £134.0 million); • Continued improvement in gross margins from 40.6% to 41.2% despite adverse effects of currency and copper price movements; • Trading profit increased to £8.3 million (2006: £4.4 million); • Adjusted profit before tax rose to £7.5 million (2006: £4.0 million); • Adjusted EPS up to 9.6p (2006: 3.9p); • Recommended final dividend of 6.0p, making a total for the year of 8.4p, unchanged from last year; • Before restructuring costs of £2.9 million, cash generated by operations of £10.9 million was £12.5 million higher than the prior year; • Working capital as a percentage of sales fell from 18.6% to 17.0%; • Strategic repositioning of Group towards future growth markets now yielding tangible and positive results. Nigel Keen, Chairman of Oxford Instruments plc, said: "The year 2006/07represents the first full year of our more focused strategy. We have made goodprogress during the year and we believe our stronger commercial focus andimproving operational efficiency have laid the foundations for long-termprofitable growth." Enquiries: Oxford Instruments plc Tel: 01865 393200Jonathan Flint, Chief ExecutiveKevin Boyd, Group Finance Director Hogarth Partnership Limited Tel: 020 7357 9477Rachel HirstAndrew JaquesIan Payne For further copies of this announcement, please contact Lynn Shepherd at theCompany's registered office at Tubney Woods, Abingdon, Oxfordshire, OX13 5QX(email: lynn.shepherd@oxinst.com) Chairman's Statement Our objective is to generate shareholder value by becoming a leading provider oftools and systems for use by customers who need to observe and manipulate matterat the smallest scale. The continuing businesses performed strongly throughout the year, with orders up16.3% to £163.0 million. On the same basis revenues grew 20.6% to £161.6million. Trading profit increased by £3.9 million to £8.3m. This encouragingperformance was despite the adverse effects of movements in foreign exchangerates and the price of copper, which together adversely impacted profits by £4.0million. Our strategy to reposition the Group towards future growth markets is deliveringtangible results. The increasing requirement of compliance to environmentallegislation across the world is a major growth driver for sales of our products.Our other industrial and commercial businesses, which provide tools for qualitycontrol and small-scale production, also continue to grow. Our sales to the lifescience sector have increased in the year with the success of our new HyperSense(R) product. Other important sectors such as security and energy will provideopportunities for further growth in the future. We have also begun the processof converting the opportunities offered by new scientific fields such asnanoscience into technologies needed for a broad range of new industries Oxford Instruments now stands as a much more commercially orientated business.Significant cultural change in the Group has been supported by our talented andenthusiastic workforce, and I would like to thank them for their positiveresponse to the new strategy and resulting changes. They have delivered anappreciable improvement in performance. The year 2006/07 represents the first full year of our more focused strategy. Wehave made good progress during the year and we believe our stronger commercialfocus and improving operational efficiency have laid the foundations forlong-term profitable growth. Nigel Keen Chairman13 June 2007 Chief Executive's Statement Operational Review Starting from 2005/06, our target is to double the turnover of OxfordInstruments over five years by organic growth and acquisitions. We plan toachieve this by becoming a more customer focused business, increasinglyconcentrating on new products and markets, such as nanotechnology andbiotechnology. Our products will increasingly consist of complete systems solddirectly to end-users. Sales from the continuing businesses increased by 20.6% to £161.6 million. Theproducts we have launched this year have been well received by our customers andhave contributed to our growth. This, together with continuing strong demanddriven by environmental legislation around the world and a strong performance inAsia means that our internal targets for this first year of our five year plan,have been met entirely from organic growth. We have invested significantly in our global sales infrastructure, which workswith our highly motivated team of engineers and scientists. We plan to achieveour objectives by using our world-renowned capabilities in magnetic fields,cryogenics, X-ray technology and software to develop high performance tools tomeet customer needs. We are committed to a coherent product developmentprogramme, exploiting our worldwide distribution channels and strong brand imageto successfully commercialise our technological lead. At the same time as increasing the top line, work has been underway to improvethe percentage return on sales to the mid-teens from a base of 3.0% in thefinancial year 2005/06. We expect to achieve this by obtaining better value fromour fixed costs through a higher volume of sales, whilst at the same timeimproving operational performance. Our strategy has been to exit unprofitableproduct lines and to focus on margin improvement in those businesses which havea strong market position. These activities have been successful and albeit froma low base this, year we exceeded our internal target for improving return onsales, which improved by 2.1 percentage points to 5.1% in the year. Building on the improvements made to date we are putting additional resourcesbehind identifying acquisitions which will support our strategy. In generalthese will be small or medium sized and will provide technological or marketsynergy with our existing business. Whilst the overall financial performance of the business has been in line withour plan, movements in the currency markets (particularly the US$ and YEN) andincreases in the price of copper, have adversely affected our profitability thisyear. These two effects between them accounted for a reduction in profits ofaround £4.0m, compared to that which would have been generated had the valuesremained at their 2005/06 levels. This reduced profitability was offset bybetter than expected trading and efficiency improvements across the business. Analytical Businesses Orders and revenue for the year were £106.7 million (2006: £85.5 million) and£100.7 million (2006: £80.7 million) respectively. Trading profit was £10.1million (2006: £6.1 million). Our Analytical Businesses provide measurement and fabrication instruments forindustrial and research customers. The business units are: Industrial Analysis,X-Ray Technology, NanoAnalysis and Plasma Technology. Our Industrial Analysis business, which produces tools that enable ourindustrial customers to analyse materials, had a successful year. Order intakeand sales reached record levels. This was fuelled by customers buying equipmentto comply with ROHS (Restriction on Hazardous Substances) legislation, andincreasing sales to customers in sectors such as the oil and gas industry, wherethere is growing demand for tools that can positively confirm that the correctmaterials have been used in safety-critical applications. Our X-Ray Technology business, which provides X-ray sources for the industrialmarket, had a very strong year driven by the ROHS legislation. We are alsoundertaking a research contract for NASA (National Aeronautics & SpaceAdministration) to develop technology for a forthcoming mission to Mars. Our NanoAnalysis business is the market-leading provider of a range of detectorsfor users of electron microscopes who need to understand chemical and structuralproperties. This business enjoyed good sales growth driven by the introductionof new products. At the half year we announced our new INCAx-act detector basedon new technology which makes it smaller and easier to use whilst maintaininghigh performance levels. Sales of INCAx-act have exceeded our expectations inthe second half of the year and have contributed to the growth. In May 2007 wewere awarded the Queen's Award for Enterprise:Innovation for our new INCADryCoolTM detector, which offers a method of safe, high sensitivity chemicalanalysis without the use of liquid nitrogen. Plasma Technology provides a range of products for the manufacture of highperformance semiconductors for specialist applications. This business showedstrong organic growth supported by the introduction of our new Atomic LayerDeposition (ALD) products. Dr David Robbins Chief Technology Officer of Cenamps,a UK centre of excellence for nano technology at Newcastle University, and oneof our first ALD customers, said "ALD is an extremely exciting technique. Thecoatings can be accurately controlled down to a thickness of 1 nanometer whichis about 100,000 times thinner than a sheet of paper, holding excitingpossibilities for a range of industries from electronics to food packaging". Superconductivity Businesses Orders and revenue for the year were £56.3 million (2006: £63.9 million) and£60.9 million (2006: £66.7 million) respectively. Trading profit was £1.6million (2006: £0.3 million). Our superconductivity businesses provide materials, tools and systems forindustrial and government customers working at the frontiers of science. Thebusinesses in Superconductivity are: NanoScience, Superconducting Wire, MRIService, Austin Scientific and Molecular Biotools. Our NanoScience business provides superconducting magnets and cryogenic systemsfor our research and academic customers. This business has shown significantimprovement over last year, although there is still some way to go to achievethe desired performance. Reorganisation and efficiency improvement withinNanoScience mean that on a like for like basis, sales grew significantly in theyear. The long standing historical and technical difficulties that the businessfaced have been addressed. As previously reported, we negotiated an exit fromthe long running Hybrid contract with the High Magnetic field laboratory inGrenoble. We have also written off a number of Nuclear Magnetic Resonance assetsrelating to our previous trading with NMR OEMs. This clears the way for us to concentrate on new products with a more commercialfocus. In March 2007 we launched our TritonTM dilution refrigerator, a new typeof cooling device that does not require liquefied gases to operate. This opensup previously inaccessible markets where very cold detectors would be required,such as airport security. We also launched the IntegraTM re-condensing device,which significantly reduces liquid helium requirements for existing customersand opens up new market possibilities, such as quantum computing where customersrequire very low operating temperatures. Our Superconducting Wire business is a market-leading producer of wire for MRI(Magnetic Resonance Imaging) and other industries. Although sales grew in theyear this business was adversely affected by the rise in the price of copper,which is a significant component in the manufacturing process. Financialinstruments and customer contract renegotiation mean that exposure to commodityprice fluctuation is now reduced. The intergovernmental ITER programme, whichseeks to generate large-quantities of energy without any associated carbonemissions, is expected to lead to orders for our high performance wire in thelast quarter of the 2007/8 financial year. Our MRI Service business maintains MRI scanners throughout the United States andin Japan. This business was steady throughout the year and efficiency hasimproved with the introduction of GPS monitoring of the fleet of servicevehicles. Our Austin Scientific business produces, refurbishes and maintains hightechnology pumps and refrigerators for industrial and research customers.Trading was difficult in the first half of the year, particularly in theresearch area. An increased focus on industrial customers and a revamping of ournetwork of sales representatives has meant that order intake picked up towardsthe end of the year and we expect to see improved trading in the current year. Molecular Biotools, which supplies novel analytical instrumentation to the lifesciences and pharmaceutical communities, has generated high levels of growth.This has been driven by the strong customer pull for the HyperSense (R) productwhich allows significant improvements in sensitivity for NMR experiments.HyperSense occupies a unique position in this marketplace and has receivedstrong customer acceptance. A user of HyperSense, Professor Craig Malloy M.D,Professor of Radiology and Internal Medicine, University of Texas SouthwesternMedical Center, commented, "In the short time it has been in our hands, theHyperSense has fulfilled all expectations. This remarkable and reliableinstrument enabled new experiments in metabolism. The results strongly suggestthat new clinical diagnostic methods are on the horizon." Innovation Oxford Instruments Innovation (OII) is tasked with identifying key growth areasfor the business, which fall outside the current portfolio of the tradingbusinesses. For our chosen targets, OII then implements support to theacquisition process, or early stage internal development. In the year £3.4m(2006: £2.0m) was invested in OII and three early stage products weresuccessfully transferred into the trading divisions for exploitation in thecoming years. China This year we celebrated the 10th anniversary of our operations in China where wenow have sales offices in three sites around the country and a low costmanufacturing facility in Shanghai. Demand in China for our products is strongand sales rose by 35% this year. In the year, we have moved production ofseveral product lines to China. Early signs are positive, but there is stillsome way to go to transfer a cost effective volume to this facility. Our repairfacility for cryopumps for the Chinese semiconductor market is now operational.We have also launched the first product incorporating software designed by ourteam in Shanghai. Property Following site consolidations and efficiency improvements, we have two sites inthe Oxford area which are available for disposal. As reported at the half year,in North America we have moved into larger premises for our X-Ray Technologybusiness to cope with increased demand. Our sales office in Boston has alsomoved to larger premises to facilitate a new applications laboratory, which willenable us to sell our biotechnology products more effectively in the US. OurPlasma Technology business will move to a new, purpose built site in 2008. Risks to be managed Oxford Instruments provides high technology equipment and systems. There isnecessarily some technical risk associated with implementing advancedprogrammes. This risk has reduced in recent years as the business moves awayfrom large scale single customer development programmes, towards commerciallyorientated products. Our business plan requires the introduction of new productsto gain market share to support our growth. The product introductions made sofar have been successful. However, there is the risk that future productintroductions may not yield the sales forecast, especially when new markets areaccessed. A significant proportion of Oxford Instruments' profit is made in foreigncurrencies and we will therefore continue to have exposure to exchangefluctuations going forward. We aim to mitigate this risk by natural hedges wherepossible and the use of forward contracts. We also rely on purchase of a numberof commodity materials and when prices rise, we cannot always pass this costdirectly onto customers. Steps have been taken in the current year to introducehedging on key commodity purchases. Finally, our calculated pension deficit issensitive to changes in the actuarial assumptions that may have an appreciableeffect on the reported pension deficit. Looking Ahead Following a year of strong sales growth we expect the reorganisations we havemade in the business to continue to deliver organic growth, although the growthrate driven by ROHS legislation in Europe will reduce. In due course newlegislation in Asia is expected to drive global demand for environmentalcompliance equipment. Elsewhere commercial markets for our new products areexpected to remain strong. Further new product introductions are planned and wewill continue to seek out appropriate acquisition opportunities. We are confident that our strategy of commercialising our technology under ourworld renowned Oxford Instruments' brand will generate increased shareholdervalue. Jonathan Flint Chief Executive13 June 2007 Financial Review Trading Performance On a like for like basis, at constant currency, order intake was up 20.2% andrevenues increased by 26.1%. This headline number excludes the effects of aweakened US Dollar and Japanese Yen which reduced revenues by £7.4 million, andthe revenue lost with the closure of the volume magnet business at the end ofthe previous year. Reported revenues grew 9.6% to £161.6 million (2006: £147.4million). Gross margins improved from 40.6% to 41.2%, despite unfavourable movements inexchange rates and an increase in the average price of copper from US$1.88/lblast year to US$3.16/lb this year. The combined adverse effect of currency andcopper price movements at the, gross margin level is estimated to beapproximately £6.1 million compared with last year. Total operating expenses increased by £2.9 million to £58.3 million (2006: £55.4million). Operating expenses benefited by approximately £1.3 million from thetranslation of our overseas operations' expenses at weaker exchange rates and£0.9 million from hedging. Of the total underlying increase of £5.1 million,approximately £0.5 million was in R&D and £2.7 million was in additional sellingexpenses, supporting the £22.8 million growth in orders taken in the period.Administrative and shared services expenses increased by £1.9 million, a largeproportion of which was due to an increased IAS19 pension charge. Trading profit increased by £3.9 million to £8.3 million (2006: £4.4 million).Adjusted profit before tax (note 2) was £7.5 million (2006: £4.0 million). Amortisation of acquired intangibles This consists of a £0.2 million charge relating to the amortisation of acquiredintangibles (2006: £0.2 million), and a £0.9 million charge due to theadjustment, in accordance with IAS12, to the carrying value of goodwill arisingfrom the utilisation of tax losses that had not previously been recognised as adeferred tax asset. Non-recurring costs In our April trading statement we announced that we were in negotiations that weexpected to result in an asset write-down of approximately £3 million. Thesenegotiations, though still to be concluded, are at an advanced stage and as aresult we have provided £2.9 million in this year's accounts. We announced at the half-year that we had provided for a settlement with acustomer over a long running onerous contract, which resulted in a non-recurring charge of £2.2 million in the first half. This matter is nowfinalised and at an amount less than originally anticipated. As a result £0.5million of the provision released to the income statement in the second half ofthe year, through "restructuring and non recurring costs". Financial income and expenditure Within financial income and expenditure total net interest payable was £0.1 million (2006: £0.3 million receivable). The interest charge on pension schemeliabilities exceeded the expected return on pension scheme assets by £0.7 million (2006: £0.7 million). Taxation The underlying tax rate on the profit before tax for the continuing businessesbefore other operating income, restructuring and non-recurring costs andamortisation of acquired intangibles was 38% (2006: 55%). The key factorsinfluencing the rate of tax are high tax rates in overseas jurisdictions such asUSA, Germany and Japan coupled with the inability to offset losses arising inone jurisdiction against profits arising in another. The tax rate fell in theyear due to our ability to utilise brought forward losses in our subsidiary inFinland. The Group has significant tax losses in the UK available to set off againstfuture taxable profits from certain business streams. A deferred tax asset of£11.6 million (2006: £19.1 million) has been recognised against timingdifferences and unused capital allowances, of this £9.4 million (2006: £16.2million) relates to the deficit in the pension schemes. No deferred tax assethas been recognised against past UK tax losses. Earnings After a total tax charge of £2.8 million (2006: £2.5 million) the net loss forthe financial year was £1.5 million (2006: loss £3.4 million). With a weighted average number of shares of 48.2 million (2006: 47.7 million),the basic loss per share was 3.2 pence (2006: 7.2 pence). After adjusting fornon-recurring items and amortisation of acquired intangibles the earnings pershare of the underlying business was 9.6 pence (2006: 3.9 pence). Dividends The Group's proposed final dividend of 6.0p per share (2006: 6.0p), payable on25 October 2007, gives a total dividend for the year of 8.4p per share (2006:8.4p). Dividend cover for the underlying business before other operating income,non-recurring items and amortisation of acquired intangibles amortisation was1.1 times. Investment in research and development (R&D) The total cash spent on research and development in the year was £16.2 million,up £2.8 million on the prior year in line with the Group's medium term goal ofkeeping R&D spend at approximately 10% of revenues. This was made up as follows: 2007 2006 £ million £ millionTotal cash spent on research and developmentduring the year 16.2 13.4Less: amount capitalised (5.6) (2.6)Add: amortisation of amounts previously capitalised 1.5 1.1Research and development charged to the incomestatement 12.1 11.9 The net book value of capitalised R&D at the end of the financial year was £9.4million (2006: £5.5 million). Balance sheet Net operating assets, excluding acquired intangibles, increased by £1.2 millionto £58.7 million. Net working capital increased by £0.1 million. The net workingcapital to sales ratio reduced from 18.6% to 17.0%. Inventories reduced fromprior year by £1.5m million. Debtor days decreased from 66 days to 61 days. The net book value of "Property, plant and equipment" reduced by £1.9 milliondue to a transfer of a property, with a net book value of £2.0 million into"Held for sale assets", a £0.5 million adverse movement in foreign exchange andadditions exceeding depreciation and disposals by £0.6 million. Intangible assets rose by £2.5 million primarily as a result of increased R&D asexplained above. Assets held for sale represent two properties in Oxfordshire. These are expectedto be sold within the next twelve months. Pensions The deficit in the Group's pension schemes decreased by £22.6 million to £30.8million, as measured under the provisions of IAS19. Assets of the scheme at 31March 2007 were £135.1 million. The reduction in deficit is due to better thanexpected asset performance and an increase in the discount rate applied toliabilities, which is based on corporate bond yields. The triennial actuarial valuation of the UK scheme as at 31 March 2006 wascompleted during the year resulting in a deficit of £17.7 million. A long-termplan for recovering the deficit over 10 years was agreed between the Company andthe Pension Trustee Directors. As a result £2.1 million was paid into the pension fund before year-end,together with a further £2.1 million in April 2007. Taken together with the £1.8million paid in financial year 2005/06, this completes the funding of £6.0million agreed with Pension Trustee Directors at the time of the sale of theMedical business in March 2005. Cash Before Restructuring costs of £2.9 million (2006: £3.1 million) cash generatedby operations at £10.9 million was £12.5 million higher than the previous year.Working capital increased by £2.0 million in the year compared with an increaseof £10.2 million in the prior year. Working capital as a percentage of salesfell from 18.6% to 17.0%. As discussed above, a payment of £2.1 million was made to reduce the pensiondeficit, capital expenditure and taxation remained relatively constant at £4.4million and £2.5 million respectively (2006: £4.2 million and £2.7 million),dividend payments increased from £2.9 million to £4.0 million due to the timingof the payments, the underlying dividend per share remaining constant. Asdiscussed below R&D capitalisation increased by £3.0 million to £5.6 million astotal R&D expenditure rose. The cash balance at year-end was £2.8 million. Employees The number of employees at 31 March 2007 was 1,315 compared with 1,290 at 31March 2006, an increase of 2.0%. Share price The closing mid-market price of the ordinary shares at the end of the financialyear was £2.47, compared with £2.00 at the beginning of the year. The highestand lowest prices recorded in the financial year were £2.86 and £1.94respectively. Hedge Accounting The Group uses derivative products to hedge its exposure to fluctuations inforeign exchange rates and the price of copper. In common with a number of othercompanies, we decided that the additional costs of meeting the extensivedocumentation requirements of IAS39 to apply hedge accounting cannot bejustified. Accordingly the Group will not use hedge accounting for thesederivatives. Net gains and losses on marking to market such derivatives at thebalance sheet date are disclosed in the income statement in Financial Income(note 9). Changes in Accounting Treatment We have made two significant changes to the presentation of the accounts thisyear which we hope give shareholders clearer information on the performance ofthe Group. The first, which was announced in our Interim Statement, was to treatcertain revenues as agency transactions rather than accounting for them with theGroup as principal. Whilst this has no effect on profit, it reduced revenue andcost of sales for the year by £15.2 million. The prior period has been restated,an adjustment of £19.8 million. The second change involved a review of the allocation of infrastructure andsupport costs between operating expenses and cost of sales to add moretransparency to the Group's gross margins. The prior year has been restated tobe comparable which reduced cost of sales and increased operating expenses by£11.7 million. Key Performance Indicators The following key performance indicators show how we have progressed against ourpriorities. 2007 2006Revenue growthAs reported +9.6% +8.5%At constant currencies, continuing businesses +26.1% +12.7% Return on salesTrading profit as a percentage of revenue 5.1% 3.0% R&DR&D cash spend as a percentage of revenue 10.0% 9.1% Going concern The Financial Statements have been prepared on a going concern basis, based onthe Directors' opinion, after making reasonable enquiries, that the Group hasadequate resources to continue in operational existence for the foreseeablefuture. Kevin Boyd Group Finance Director13 June 2007 Group Income StatementYear ended 31 March 2007 2007 2006 as restated (note 1) Notes £m £m----------------------- ------ --------- ---------Revenue 3 161.6 147.4Cost of sales (95.0) (87.6)----------------------- ------ --------- ---------Gross profit 66.6 59.8Trading expenses excludingcost of goods sold 4 (58.3) (55.4)----------------------- ------ --------- ---------Trading profit 3 8.3 4.4 Other operating income 6 - 2.0Amortisation of acquired intangibles 7 (1.1) (0.2)Restructuring and non-recurring costs 8 (5.2) (6.7)----------------------- ------ --------- ---------Operating profit/(loss) 2.0 (0.5)Financial income 9 8.5 8.1Financial expenditure 10 (9.2) (8.5)----------------------- ------ --------- ---------Profit/(loss) before income tax 1.3 (0.9) Income tax expense 11 (2.8) (2.5)----------------------- ------ --------- ---------Loss for the year attributable to equityshareholders of the parent (1.5) (3.4)----------------------- ------ --------- --------- pence pence----------------------- ------ --------- ---------Earnings per share Basic earnings per share 12 (3.2) (7.2)Diluted earnings per share 12 (3.2) (7.2) Dividends per share Dividends paid 13 8.4 6.0Dividends proposed 13 8.4 8.4----------------------- ------ --------- --------- Total dividends £m £m----------------------- ------ --------- --------- Dividends paid 4.0 2.9Dividends proposed 4.0 4.0----------------------- ------ --------- --------- Group Statement of Recognised Income and ExpenseYear ended 31 March 2007 2007 2006 £m £m----------------------------- ---------- ----------Foreign exchange translation differences for foreignoperations (1.7) 0.9Cash flow hedges - effective portion - (0.3)Deferred tax on the above - 0.1Actuarial gain/(loss) in respect of post retirement 22.1 (10.3)benefitsDeferred tax on the above (6.7) 3.1Recycling of fair value movements oninvestments/(impairment of carrying value of investment) 0.2 (0.2)----------------------------- ---------- ----------Net income/(expense) recognised directly in equity 13.9 (6.7)Loss for the year (1.5) (3.4)----------------------------- ---------- ----------Total recognised income/(expense) for the year -attributable to equity holders of the parent 12.4 (10.1)----------------------------- ---------- ---------- Group Balance SheetAs at 31 March 2007 2007 2006 Notes £m £m----------------------------- ------ ---------- ----------AssetsNon-current assetsProperty, plant and equipment 21.5 23.4Intangible assets 18.1 15.6Available for sale equity securities 0.6 1.0Deferred tax assets 11.6 19.1----------------------------- ------ ---------- ---------- 51.8 59.1Current assetsInventories 25.6 27.1Trade and other receivables 45.1 45.3Current income tax recoverable 0.5 0.9Derivative financial instruments 0.5 0.1Cash and cash equivalents 3.9 13.9Held for sale assets 7.0 5.0----------------------------- ------ ---------- ---------- 82.6 92.3----------------------------- ------ ---------- ----------Total assets 134.4 151.4----------------------------- ------ ---------- ---------- EquityCapital and reserves attributable to theCompany'sequity holdersShare capital 2.5 2.4Share premium 20.9 20.2Other reserves 0.1 0.1Translation reserve (0.8) 0.9Retained earnings 33.1 22.8----------------------------- ------ ---------- ---------- 16 55.8 46.4----------------------------- ------ ---------- ---------- LiabilitiesNon-current liabilitiesOther payables 0.2 0.5Retirement benefit obligations 14 30.8 53.4----------------------------- ------ ---------- ---------- 31.0 53.9 Current liabilitiesBorrowings 1.0 2.9Bank overdrafts 1.1 1.2Trade and other payables 40.2 38.7Current income tax liabilities 1.8 1.9Derivative financial instruments 0.2 0.3Provisions 3.3 6.1----------------------------- ------ ---------- ---------- 47.6 51.1----------------------------- ------ ---------- ----------Total liabilities 78.6 105.0 ----------------------------- ------ ---------- ----------Total liabilities and equity 134.4 151.4----------------------------- ------ ---------- ---------- Group Statement of Cash FlowsYear ended 31 March 2007 2007 2006 £m £m--------------------------------- ---------- ----------Loss for the year (1.5) (3.4)Adjustments for:Income tax expense 2.8 2.5Net financial expense 0.7 0.4Restructuring and non-recurring costs 5.2 6.7Amortisation of acquired intangibles 1.1 0.2Other operating income - (2.0)Depreciation of property, plant and equipment 3.4 3.7Amortisation of research and development 1.5 1.1--------------------------------- ---------- ----------Earnings before interest, tax, depreciation and 13.2 9.2amortisationLoss on disposal of property, plant and equipment 0.2 0.3Cost of equity settled employee share schemes 0.2 0.3Restructuring costs paid (2.9) (3.1)Cash payments to the pension schememore than the charge to the income statement (0.7) (1.2)--------------------------------- ---------- ----------Operating cash flows before movements in working capital 10.0 5.5Decrease/(increase) in inventories 0.6 (6.5)(Increase)/decrease in receivables (2.3) 2.0Decrease in payables - (5.4)Decrease in provisions (0.3) (0.3)--------------------------------- ---------- ----------Cash generated by operations 8.0 (4.7)Interest paid (0.3) (0.6)Income taxes paid (2.5) (2.7)--------------------------------- ---------- ----------Net cash from operating activities 5.2 (8.0)--------------------------------- ---------- ----------Cash flows from investing activitiesProceeds from sale of property, plant and equipment 0.1 -Proceeds from sale of held for sale assets - 0.6Proceeds from sale of available for sale equity 0.3 2.2securitiesInterest received 0.2 0.9Acquisition of subsidiaries, net of cash acquired (0.3) (3.9)Acquisition of property, plant and equipment (4.4) (4.2)Capitalised development expenditure (5.6) (2.6)--------------------------------- ---------- ----------Net cash from investing activities (9.7) (7.0)--------------------------------- ---------- ----------Cash flows from financing activitiesProceeds from issue of share capital 0.8 0.8Proceeds from the disposal of own shares - 0.1(Decrease)/ increase in short term borrowings (1.9) 0.8Dividends paid (4.0) (2.9)--------------------------------- ---------- ----------Net cash from financing activities (5.1) (1.2)--------------------------------- ---------- ----------Net decrease in cash and cash equivalents (9.6) (16.2)Cash and cash equivalents at beginning of the year 12.7 28.5Effect of exchange rate fluctuations on cash held (0.3) 0.4--------------------------------- ---------- ----------Cash and cash equivalents at end of the year 2.8 12.7--------------------------------- ---------- ---------- Notes on the Preliminary Financial Statements 1. Basis of presentation of accounts The Group has adopted two new accounting policies in the year. The directors now consider that a more appropriate treatment of a certainrevenue stream is as an agency arrangement. Previously the Group had accountedfor the revenue as principal. The change has the effect of reducing both revenueand cost of sales by £15.2m (2006 £19.8m). The directors have reviewed the classification of operating costs between costof goods sold and overhead categories. The new classification has been appliedto the current and previous years. There is no change to trading profit ineither year. In the prior year the effect has been to reduce cost of sales by£11.7m, and increase selling and marketing costs, administration and sharedservices and research and development by £2.8m, £8.7m and £0.2m respectively. There is no change to the balance sheet or equity at any reporting date. The principal exchange rates used to translate the Group's overseas results wereas follows: Average translation rates 2007 2006 Year end rates 2007 2006---------------- -------- -------- ---------- -------- -------- US Dollar 1.89 1.79 US Dollar 1.96 1.73Euro 1.47 1.46 Euro 1.47 1.43Yen 221 202 Yen 232 205---------------- -------- -------- ---------- -------- -------- 2. Reconciliation between profit and adjusted profit 2007 2006 £m £m----------------------------- ------------ -----------Profit/(loss) before income tax 1.3 (0.9)Other operating income - (2.0)Amortisation of acquired intangible assets 1.1 0.2Restructuring and non-recurring costs (note 8) 5.2 6.7Financial instruments (see below) (0.1) ------------------------------ ------------ -----------Adjusted profit before income tax 7.5 4.0----------------------------- ------------ ----------- Under IAS 39, derivative financial instruments are recognised initially at fairvalue - this includes the fixed forward and option based foreign exchangecontracts the Group has entered into in order to manage its exposure to foreignexchange rate movements. Subsequent to initial recognition, derivative financialinstruments are measured at fair value. In the prior year, the Group hedgeaccounted for its derivative financial instruments in order to minimise thepotential volatility in the income statement. However, IAS 39 requires certainstringent criteria to be met in order to continue to hedge account, which, inthe particular circumstances of the Group, are considered by the Board not tobring any significant economic benefit. Accordingly, with effect from 1 April2006, the Group has ceased to hedge account for all of its existing derivativefinancial instruments and instead will account for them as trading instrumentswith the profit or loss on remeasurement to fair value being taken immediatelyto the income statement. Adjusted profit for the year is stated before changesin the valuation of these instruments so that the underlying performance of theGroup can more clearly be seen. 3. Segment information - Analysis by business Information is presented in the consolidated preliminary financial statements inrespect of the Group's business segments. These are the primary basis of oursegmental reporting. Segment results include items directly attributable to a segment as well asthose which can be allocated on a reasonable basis. a) Total Year to 31 March 2007 Analytical Supercon- Total ductivity £m £m £m---------------------- ---------- ------------ -----------Revenue 100.7 60.9 161.6---------------------- ---------- ------------ ----------- Trading profit before costs of OII 10.1 1.6 11.7Costs of OII (3.4)-------------------- ----------- ------------- ------------Trading profit/(loss) 8.3Amortisation of acquired intangibles (1.1)Restructuring and non-recurring costs (5.2)-------------------- ----------- ------------- ------------Operating profit/(loss) 2.0Net financial expense (0.7)Income tax expense (2.8)-------------------- ----------- ------------- ------------Loss for the year (1.5)-------------------- ----------- ------------- ------------ Segment assets 64.0 46.8 110.8Unallocated assets 23.6-------------------- ----------- ------------- ------------Total assets 134.4-------------------- ----------- ------------- ------------ Segment liabilities 26.4 17.0 43.4Unallocated liabilities 35.2-------------------- ----------- ------------- ------------Total liabilities 78.6-------------------- ----------- ------------- ------------ Research and Development to enhance and develop existing products is undertakenwithin both the Analytical and Superconductivity business segments. In additionOxford Instruments Innovation (OII) carries out initial investigations into newproduct lines that would not normally be undertaken by the operating businesses.Trading profit is shown both before and after OII costs so as to give a moremeaningful indication of the performance of the business segments. 3. Segment information - Analysis by business continued Year to 31 March 2006 Analytical Supercon- Total ductivity £m £m £m--------------------- ---------- ------------- -----------Revenue 80.7 66.7 147.4--------------------- ---------- ------------- ----------- Trading profit before costs of OII 6.1 0.3 6.4Costs of OII (2.0)-------------------- ----------- ------------- ------------Trading profit/(loss) 4.4Other operating income 2.0Amortisation of acquired intangibles (0.2)Restructuring and non-recurring costs (6.7)-------------------- ----------- ------------- ------------Operating profit/(loss) (0.5)Net financial expense (0.4)Income tax expense (2.5)-------------------- ----------- ------------- ------------Loss for the year (3.4)-------------------- ----------- ------------- ------------ Segment assets 55.6 55.9 111.5Unallocated assets 39.9-------------------- ----------- ------------- ------------Total assets 151.4-------------------- ----------- ------------- ------------ Segment liabilities 21.7 22.2 43.9Unallocated liabilities 61.1-------------------- ----------- ------------- ------------Total liabilities 105.0-------------------- ----------- ------------- ------------ 4. Trading expenses excluding cost of goods sold 2007 2006 as restated (note 1) £m £m--------------------------------- ---------- ----------Selling and marketing costs 26.7 24.6Administration and shared services 20.3 18.8Foreign exchange (gain)/loss (0.8) 0.1Research and development (note 5) 12.1 11.9--------------------------------- ---------- ---------- 58.3 55.4--------------------------------- ---------- ---------- 5. Research and development Total research and development spend by the Group is as follows: 2007 2006 as restated (note 1) £m £m--------------------------------- ---------- ----------Total cash spent on research and development during the 16.2 13.4yearLess: amount capitalised (5.6) (2.6)Add: amortisation of amounts previously capitalised 1.5 1.1--------------------------------- ---------- ----------Research and development charged to income statement 12.1 11.9--------------------------------- ---------- ---------- 6. Other operating income 2007 2006 £m £m--------------------------------- ---------- ----------Profit on disposal of investments - 1.8Profit on disposal of held for sale assets - 0.2--------------------------------- ---------- ---------- - 2.0--------------------------------- ---------- ---------- 7. Amortisation of acquired intangibles 2007 2006 £m £m--------------------------------- ---------- ----------Amortisation of acquired intangibles 0.2 0.2Adjustment to carrying value of goodwill as required by 0.9 -IAS12 ---------- ------------------------------------------- 1.1 0.2--------------------------------- ---------- ---------- The adjustment to the carrying value of goodwill arises due to the utilisationof tax losses which were not recognised as a deferred tax asset at the time ofacquisition. IAS 12 requires that when such losses are utilised subsequent toacquisition the carrying value of goodwill is reduced so that it reflects thecarrying value that would have arisen had a deferred tax asset been recognisedat the time of acquisition. 8. Restructuring and non-recurring costs Restructuring and non-recurring costs for the year comprise £1.7m in respect ofthe settlement of an onerous contract, £2.9m in respect of the exit from thehigh field magnet business, £0.3m in respect of the disposal of the Group'sinterest in Oxford Biosignals Ltd and £0.3m in respect of costs associated withthe exit from the held for sale factory which became surplus to requirementsfollowing the restructuring of the UK magnet business in 2006 (see below). Restructuring costs for the year ended 31 March 2006 relate to restructuring ofthe UK magnet business and restructuring at Plasma Technology in Yatton,Bristol. The cost comprises inventory write-downs of £3.7m, redundancy andsimilar costs of £1.0m, halted research and development costs of £0.8m, suppliercommitments of £0.7m and other costs of £0.5m. 9. Financial income 2007 2006 £m £m--------------------------------- ---------- ----------Bank interest receivable 0.2 0.9Expected return on pension scheme assets 8.2 7.2Mark to market gain in respect of derivative financial 0.1 -instruments ---------- ------------------------------------------- 8.5 8.1--------------------------------- ---------- ---------- 10. Financial expenditure 2007 2006 £m £m--------------------------------- ---------- ----------Interest payable and similar charges on bank loans and 0.3 0.6overdraftsInterest charge on pension scheme liabilities 8.9 7.9--------------------------------- ---------- ----------Total interest payable 9.2 8.5--------------------------------- ---------- ---------- 11. Income tax expense Recognised in the income statement 2007 2006 £m £m--------------------------------- ---------- ----------Current tax expenseCurrent year 2.4 2.4Adjustment for prior years - 0.1--------------------------------- ---------- ---------- 2.4 2.5--------------------------------- ---------- ---------- Deferred tax expenseOrigination and reversal of temporary differences 0.6 (0.8)Adjustment in respect of prior years (0.2) -Benefit of tax losses recognised - 0.8--------------------------------- ---------- ---------- 0.4 ---------------------------------- ---------- ---------- Total tax expense 2.8 2.5--------------------------------- ---------- ---------- Reconciliation of effective tax rate Profit/(loss) before income tax 1.3 (0.9) Income tax using the UK corporation tax rate 0.4 (0.3)Effect of:-Tax rates in foreign jurisdictions 0.4 0.5Amortisation of intangible assets 0.3 0.1Non-tax deductible expenses 0.2 0.1Tax incentives not recognised in the income statement -mainly USmanufacturing deductions (0.2) (0.4)Temporary differences not recognised for deferred tax - 0.7Effect of current tax losses not utilised 2.6 1.7Effect of previous tax losses now utilised (0.7) -(Over)/under provided in prior years (0.2) 0.1--------------------------------- ---------- ----------Total tax expense 2.8 2.5--------------------------------- ---------- ---------- Deferred tax recognised directly in equityRelating to employee benefits (6.7) 3.1Relating to cash flow hedges - 0.1--------------------------------- ---------- ---------- (6.7) 3.2--------------------------------- ---------- ---------- 12. Earnings per share a) Basic The calculation of basic earnings per share is based on the profit or loss forthe year after taxation and a weighted average number of ordinary sharesoutstanding during the year, excluding shares held by the Employee ShareOwnership Trust, as follows: 2007 2006 £m £m--------------------------------- ---------- ----------Loss for the year (1.5) (3.4)--------------------------------- ---------- ---------- Shares Shares million million--------------------------------- ---------- ----------Weighted average number of shares outstanding 48.9 48.6Less shares held by Employee Share Ownership Trust 0.7 0.9--------------------------------- ---------- ----------Weighted average number of shares used in calculation ofearnings per share 48.2 47.7--------------------------------- ---------- ---------- b) Diluted The following table shows the effect that options would have had on thecalculation of dilutive basic earnings per share. However, since there was aloss in the year that effect was antidilutive and so has been excluded from thecalculation of diluted basic earnings per share. This effect has been includedin the calculation of diluted adjusted earnings per share - see (c) below. 2007 2006 Shares Shares million million--------------------------------- ---------- ----------Number of ordinary shares per basic earnings per sharecalculations 48.2 47.7Effect of shares under option 0.3 0.5--------------------------------- ---------- ----------Number of ordinary shares per diluted earnings per sharecalculations 48.5 48.2--------------------------------- ---------- ---------- c) Adjusted The earnings per share before other operating income, amortisation of acquiredintangibles, restructuring and non-recurring costs, and mark to market gains orlosses in respect of certain derivatives are as follows: 2007 2006 pence pence--------------------------------- ---------- ----------Basic 9.6 3.9Diluted 9.5 3.8--------------------------------- ---------- ---------- A reconciliation of the profit for the years used to calculate basic earningsper share to the adjusted profit used to calculate the adjusted earnings pershare shown above is set out below: 2007 2006 £m £m--------------------------------- ---------- ----------Adjusted profit before income tax (Note 2) 7.5 4.0Taxation (2.8) (2.2)--------------------------------- ---------- ----------Adjusted profit 4.7 1.8--------------------------------- ---------- ---------- 13. Dividends per share The following dividends per share were paid by the Group: 2007 2006 pence pence--------------------------------- ---------- ----------Previous year interim dividend 2.4 -Previous year final dividend 6.0 6.0--------------------------------- ---------- ---------- 8.4 6.0--------------------------------- ---------- ---------- 13. Dividends per share continued The following dividends per share were proposed by the Group in respect of eachaccounting year presented: 2007 2006 pence pence--------------------------------- ---------- ----------Interim dividend 2.4 2.4Final dividend 6.0 6.0--------------------------------- ---------- ---------- 8.4 8.4--------------------------------- ---------- ---------- Subject to the approval of the shareholders at the Annual General Meeting on 26September 2007, the proposed final dividend will be paid on 25 October 2007 toshareholders registered at the close of business on 28 September 2007. Theordinary shares will be quoted ex-dividend on 26 September 2007. The latest datefor exercising the Scrip Dividend alternative is 25 September 2007. Thedividends payable on the shares held in trust have been waived. 14. Retirement Benefit Obligations The Group operates defined benefit plans in the UK and US, both offer pensionsin retirement and death benefit to members. Pension benefits are related tomembers' final salary at retirement and their length of service. Both schemesare now closed to new members. The Group has opted to recognise all actuarial gains and losses immediately viathe Statement of Recognised Income and Expense (SORIE). The amounts recognised in the balance sheet are: ----------------- ------- ------- ------- ------- ------- ------- UK USA Total UK USA Total 2007 2007 2007 2006 2006 2006 £m £m £m £m £m £m----------------- ------- ------- ------- ------- ------- -------Present value of fundedobligations 159.4 6.5 165.9 173.2 7.6 180.8Fair value plan assets (130.7) (4.4) (135.1) (123.3) (4.1) (127.4)----------------- ------- ------- ------- ------- ------- -------Recognised liability fordefined benefit obligations 28.7 2.1 30.8 49.9 3.5 53.4----------------- ------- ------- ------- ------- ------- ------- Reconciliation of the opening and closing balances of the present value of thedefined benefit obligation UK USA Total UK USA Total 2007 2007 2007 2006 2006 2006 £m £m £m £m £m £m------------------ ------- ------- ------- ------- ------- -------Benefit obligation atthe beginning of the year 173.2 7.6 180.8 139.1 6.0 145.1Interest on obligation 8.5 0.4 8.9 7.6 0.3 7.9Current service cost 3.1 0.6 3.7 2.2 0.6 2.8Past service cost - - - 0.1 - 0.1Contributions paid byplan participants 1.0 - 1.0 1.1 - 1.1Benefits paid (3.2) (0.2) (3.4) (2.0) (0.3) (2.3)Actuarial (gain)/loss onobligation (23.2) (0.9) (24.1) 25.1 0.4 25.5Exchange rate adjustment - (1.0) (1.0) - 0.6 0.6----------------- ------- ------- -------- -------- ------- -------Benefit obligation atthe end of the year 159.4 6.5 165.9 173.2 7.6 180.8----------------- ------- ------- -------- -------- ------- ------- 14. Retirement Benefit Obligations continued Reconciliation of the opening and closing balances of the fair value of planassets UK USA Total UK USA Total 2007 2007 2007 2006 2006 2006 £m £m £m £m £m £m----------------- ------- ------- ------- ------- ------- -------Fair value of plan assetsat the beginning of the year 123.3 4.1 127.4 98.6 3.2 101.8Expected return on plan 7.9 0.3 8.2 7.0 0.2 7.2assetsContributions by employers 3.8 0.6 4.4 3.4 0.7 4.1Contributions paid by planparticipants 1.0 - 1.0 1.1 - 1.1Benefits paid (3.2) (0.2) (3.4) (2.0) (0.3) (2.3)Actuarial (loss)/gain (2.1) 0.1 (2.0) 15.2 - 15.2Exchange rate adjustment - (0.5) (0.5) - 0.3 0.3----------------- ------- ------- ------- ------- ------- -------Fair value assets at theend of the year 130.7 4.4 135.1 123.3 4.1 127.4----------------- ------- ------- ------- ------- ------- ------- Defined benefit scheme - United Kingdom A full actuarial valuation of the UK plan was carried out as at 31 March 2006and has been updated to 31 March 2007 by a qualified independent actuary. Themajor assumptions used by the actuary were (in nominal terms): As at As at 31 March 31 March 2007 2006 % %------------------------------ ----------- ----------Discount rate 5.4 4.9Rate of salary increase 4.0 4.0Rate of increase to pensions in payment(pre 1997) 2.8 2.8Rate of increase to pensions in payment(post 1997) 2.5 2.8Rate of inflation 3.0 3.0Mortality - pre-retirement - males PA92 - year of birth PA91c2030 Mortality - pre-retirement - females PA92 - year of birth PA91c2030Mortality - post-retirement - males PA92 - year of birth PA92c2015Mortality - post-retirement - females PA92 - year of birth PA92c2015------------------------------ ----------- ---------- The assumptions used in determining the overall expected rate of return of theplan have been set with reference to yields available on government bonds andappropriate risk margins. Defined benefit scheme - United States A full actuarial valuation of the US plan was carried out as at 1 January 2005and has been updated to 31 December 2006 by a qualified independent actuary.Results at 31 March 2007 have been taken to be the same as those at 31 December2006. The major assumptions used by the actuary were (in normal terms): As at As at 31 March 31 March 2007 2006 % %--------------- --------------------- ---------------Discount rate 5.75 5.25Rate of salaryincrease 4.00 4.00Rate of increaseto pensions inpayment 0.00 0.00Rate of inflation 3.00 3.00 Mortality - pre-retirement RP-2000 combined 1983 Group Annuity mortality table, Table, male and female male and female projected to 2005 with scale AA Mortality - post-retirement RP-2000 combined 1994 Group Annuity mortality table, Reserving Table, male and female split projected to 2005 50% for males with scale AA and females--------------- --------------------- --------------- 15. Reconciliation of cash and cash equivalents to net cash 2007 2006 £m £m----------------------------------- --------- --------Decrease in cash and cash equivalents (9.6) (16.2)Effect of foreign exchange rate changes on cash and cashequivalents (0.3) 0.4Revaluation of cash balances on adoption of IAS 32 and - (0.1)IAS 39 ----------------------------------- --------- -------- (9.9) (15.9)Cash outflow from decrease in debt 1.9 -Cash inflow from increase in debt - (0.8)----------------------------------- --------- --------Movement in net cash in the year (8.0) (16.7)Net cash at start of the year 9.8 26.5----------------------------------- --------- --------Net cash at the end of the year 1.8 9.8----------------------------------- --------- -------- Analysed as:Cash and cash equivalents (per Balance Sheet) 3.9 13.9Bank overdrafts (1.1) (1.2)----------------------------------- --------- --------Cash and cash equivalents (per Statement of cash flows) 2.8 12.7Borrowings (1.0) (2.9)----------------------------------- --------- --------Net cash at end of the year 1.8 9.8----------------------------------- --------- -------- 16. Reconciliation of movement in capital and reserves 2007 2006 £m £m----------------------------------- --------- ---------Total recognised income/(expense) for the year 12.4 (10.1)Credit in respect of employee service costs settled byaward of shareoptions 0.2 0.3Proceeds from shares issued 0.8 0.8Disposal of own shares held - 0.1Dividends paid (4.0) (2.9)Opening equity shareholders' funds 46.4 58.2----------------------------------- --------- ---------Closing equity shareholders' funds 55.8 46.4----------------------------------- --------- --------- 17. Report and Accounts The financial information set out above does not constitute the Company'sstatutory accounts for the years ended 31 March 2007 or 2006. Statutory accountsfor 2006 have been delivered to the registrar of companies, and those for theyear ended 31 March 2007 will be delivered in due course. The auditors havereported on those accounts; their report was unqualified, did not include areference to any matters to which the auditors drew attention by way of emphasiswithout qualifying their report and did not contain a statement under section237(2) or (3) of the Companies Act 1985. The Company is registered in England Number 775598. 18. The Annual General Meeting The Annual General Meeting will be held on Tuesday, 25 September 2007 at 2.30 pmat Group Head Office, Tubney Woods, Abingdon, Oxon, OX13 5QX. This information is provided by RNS The company news service from the London Stock Exchange