Oxford Instruments Regulatory News (OXIG)

21 Nov 2006 07:01

Oxford Instruments PLC21 November 2006 For release at: 7.00am, 21 November 2006 Oxford Instruments plc Announcement of interim results for 2006/07 Oxford Instruments plc ("Oxford Instruments" or the "Group"), the hightechnology tools and systems business, today announced interim results for thesix months to 30 September 2006. Highlights include: • Strong first half with like for like orders up 28% at £85.3m. • Revenues increased by 19% to £72.1m on a like for like basis, 8% as reported. • Trading profit significantly improved to £2.0m compared to a loss of £0.2m in the same period last year; adjusted profit before tax £1.7m (2005: loss of £0.3m). • Gross margins improved from 32.5% to 33.6% despite a £1.1m impact of adverse currency and copper price movements. • Adjusted earnings per share growth of 2.7p to 2.1p (2005: loss of 0.6p). Basic loss per share 2.3p (2005: loss 0.6p). • Recommended interim dividend of 2.4p per share, unchanged from the previous year. Nigel Keen, Chairman, said: "The growth strategy is showing early signs ofsuccess and the foundations have been laid for delivering enhanced andsustainable growth. Actions to accelerate new product development, open up newroutes to market and adopt a sharply focused commercial approach are yieldingresults. This is reflected in improved order levels and revenues, which in turnwill yield growth in value for shareholders". Enquiries: Oxford Instruments plc Tel: 01865 393200Jonathan Flint, Chief ExecutiveKevin Boyd, Group Finance DirectorHogarth Partnership Limited Tel: 020 7357 9477Rachel Hirst/Andrew Jaques For further copies of this Interim Results announcement, please contact LynnShepherd at the Group's registered office at Old Station Way, Eynsham, Witney,Oxon OX29 4TL (email: lynn.shepherd@oxinst.co.uk). Chairman's Statement Nigel Keen, Chairman of Oxford Instruments plc, said today: Introduction On a like for like basis we had a strong first half, with orders up 28%,revenues up 19% and trading profit improved to £2.0m compared to a loss of £0.2min the same period last year. This improving result is against a background of great change for our companyover the last 18 months. The disposal of the medical business in March 2005 leftthe way clear for us to concentrate on high growth areas, where our uniquetechnological expertise can be brought to bear to generate real value for ourshareholders and customers. The UK based volume magnet business, whichunderperformed in recent years, was closed as part of a radical restructuring ofour superconductivity business in the year ended 31 March 2006. All parts of thebusiness are now on track and operating in growing markets where we candemonstrate significant differentiation. From this sound platform we can pursue our strategy for growth. As previouslyannounced we have significantly increased our R&D spend, targeting ourinvestment towards the rapid development of innovative products that giveimmediate performance advantages to customers, in our chosen market sectors. Our"voice of the customer" initiative ensures that all aspects of our productdevelopment and marketing are guided by a vigorous interrogation andunderstanding of customer and market needs. Following the acquisitions and disposals of 2005, our strategic portfolio hasbeen reviewed. Our two targeted growth areas are Nanotools (tools for industryworking at the atomic and molecular level) and Biotools (tools for the emerginglife sciences industry). Both these markets are showing compound annual growthrates of greater than 15% and are open to paradigm shifts through theintroduction of new technology. Oxford Instruments is well positioned toparticipate in this growth through the development of valuable and innovativetechnology. This strategy is quantified in our Group wide corporate strategic model. Thismodel integrates all the business streams, and provides the benchmark againstwhich the strategic progress of the business is monitored. Using this model, weplan for Oxford Instruments to double its turnover and at the same time improveour return on sales by 10 percentage points over five years. The first sixmonths of that plan have seen significant progress. Financial Summary On a like for like basis, order intake in the first half of the year was up 28%at £85.3 million (2005: £66.6 million), revenues increased by 19% to £72.1million (2005: £60.5 million) while at the end of the half year the orderbookstood at £57.1 million, an increase over the same period last year of 36% on alike for like basis. These comparisons exclude the volume magnet business, whichas previously reported, was closed at the end of the last financial year.Including this business, order intake grew 21% from £70.7 million and revenuesgrew 8% from £66.7 million. Gross margins improved from 32.5% to 33.6%, despite unfavourable movements inexchange rates and an increase in the average price of copper from $1.6/lb lastyear to $3.5/lb this year. The combined adverse effect of currency and copperprice movements is estimated to be approximately £1.1 million compared with thefirst 6 months of last year. Total operating expenses increased by £0.3 million to £22.2 million (2005: £21.9million). A saving of approximately £1.0 million was realised in the half yearfrom the closure of the magnet business. Underlying expenses for the remainderof the business rose by £1.3 million. Of this increase, approximately £0.5million was in R&D and £0.8 million was in additional selling expenses,supporting the £19 million growth in orders taken in the period. Trading profit increased by £2.2 million to £2.0 million (2005: £0.2 millionloss). Adjusted profit before tax (note 2) was £1.7 million (2005: loss £0.3million). Cash generated by operations at £2.3 million was £10.2 million higher than thesame period last year. Working capital increased by £1.0 million in the halfyear compared with an increase of £8.2 million in the prior period. Afteraccounting for capital expenditure, tax, dividends and capitalised R&D, net cashended the period at £4.5 million, a reduction of £5.3 million over the last sixmonths. For many years the Group has acted as an intermediary between suppliers andcertain of our OEM customers. We have recorded these transactions as purchasesfrom the suppliers and sales to the OEM customers. As a result of updatedcontractual arrangements with these customers, the Board has decided that it ismore appropriate to account for these revenues as agency transactions ratherthan accounting for them with the Group as principal. Whilst this has no effecton profit, it has reduced revenue, and cost of sales in the six months to 30September by £7.9 million. The prior period has been restated, an adjustment of£8.6 million. 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 have 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 6). As described in the Operational Review below, we have provided for a settlementwith a customer over a long running onerous contract. This has resulted in anon-recurring charge of £2.2 million in the first half. If settlement is agreedthe associated cash effect would be expected to be £2.0 million. The Directors have recommended an interim dividend of 2.4 pence, unchanged fromthe previous year, payable on 10 April 2007. Operational Review Oxford Instruments Innovation, our in-house technology incubator, continues todrive the accelerated development of new and innovative products. The Group's R&D programme is running to plan. Our NanoScience business is targeted at the research community and is now whollylocated at our Tubney Woods site where it manufactures bespoke, state of the artproducts using our expertise in high magnetic fields and cryogenics. Thisbusiness consists of these activities including high technology, high field NMRmagnet products and their associated R&D and engineering. The NanoScience business has been completely restructured with the appointmentof a new managing director and senior management team. The improved commercialculture and new operating practices are already showing benefits. Customerservice levels have been improved and the business is performing ahead ofinternal budgets. Starting from next year, a new range of products based on ourcryogenics capability and guided by extensive customer input ("voice of thecustomer") will be launched into the academic and research market. While underlying performance is improving, it is disappointing that we have hadto provide for the termination of a legacy contract relating to the provision ofa Hybrid magnet for the Grenoble High Magnetic Laboratory in France. Thiscontract was signed in 1997 and has encountered significant technologicaldifficulties. At the end of last year we were hopeful that we had found atechnical solution and had provided for the implementation costs. However, thecustomer recently notified us of its decision to exercise its right to terminatethe contract, leaving us with no alternative other than to seek a financialsettlement. While we believe that we are close to such a settlement, none hasyet been agreed so we have provided for a one off charge of £2.2m. Morepositively, this represents the drawing of a line under the last of the troubledlegacy contracts. This clears the way for us to focus resources on growth areas.Our new commercial practices and risk mitigation strategy ensures that contractsof this nature with unacceptably onerous commercial conditions will not beentered into in future. Order intake at our superconducting wire business in New Jersey (OST) wasslightly up on last year. This reflected continuing strong demand for ourproduct from the major wire users. In the half year, extra customers have beenadded to our client list. The cost of copper (a major material component ofsuperconducting wire) has more than doubled in the half year. This has had anadverse effect on margins and the profitability of the OST business.Negotiations are continuing to pass on some of this increase to our customers.This is expected to mitigate the effect on the second half year. Our NanoAnalysis business, which provides instrumentation for use with electronmicroscopes, had a particularly strong half year. Order intake grew by 30% andrevenues grew by 20%. Strong customer demand, high levels of customer serviceand the introduction of new products all helped to boost trading. We introducedtwo new detector products, X-act and X-3. Our industrial customers (who, forexample, use our equipment to perform defect analysis on railway tracks) benefitfrom the tenfold speed improvement offered by X-act. Our research customers,looking at developing new nanomaterials, particularly value the threefoldincreased sensitivity of X-3. Early demand for these new products is strong andshould serve to keep our NanoAnalysis products at the forefront of the market.In addition, two new products in the NanoAnalysis sector involving innovativetechnology are being developed, ready for launch next year. Last year we combined our industrial analysis businesses into a singleorganisational entity. This enabled the sales force to focus on the highlycompetitive industrial market, which contributed to order growth and improvedperformance. Orders are up 32% on the same period last year and margins haverisen. Output levels from our factories in High Wycombe and Finland have reachedrecord levels. Requirements for hand held instrumentation to meet environmentallegislation continue to be a driving force behind this growth. Sales of ourX-ray tubes have also reached record levels and we have expanded ourmanufacturing capacity by 50% to cope with demand. Our Biotools business has had a good half year. As previously reported, theHyperSense Dynamic Nuclear polarisation product has been launched to positivecustomer response. HyperSense has the potential to revolutionise many analyticalapplications including the development of new pharmaceuticals. Following asignificant order from GE, our planned order in-take for this year has alreadybeen achieved. Work is under way to increase manufacturing capacity for the nextyear. Also, in the Biotools area we produce low resolution bench top NMRinstrumentation for use in industrial markets. At the beginning of the year,this market was soft, but in the last few months has recovered. This business iscurrently running ahead of internal forecasts cumulatively. First half trading for our Plasma Technology business is significantly strongerthan the same period last year. The company provides a range of materialfabrication equipment and has seen a considerable increase in orders as a resultof greater sales focus and an easing of the difficult market environmentexperienced last year. Orders for the first half were up by 68% and revenueswere up by 11%. Focus on low cost sourcing over the last two years and greatermarket stability has resulted in an improvement in margins. In China, six products are currently being manufactured in our Shanghaifacility. Transfer of products has proved to be a challenging task, although weare beginning to reap the benefits of the lower cost manufacturing. Revenues inChina are up 10% on the equivalent period last year. In Japan we continue toservice MRI units through our long term relationship with Siemens and Toshiba.Product sales in Japan are in line with plan. Our Eynsham manufacturing site (previously the location of the magnet technologybusiness) has now been vacated and is available for sale. We continue to marketour property in Abingdon. In Bristol, we plan to vacate the site occupied by ourPlasma Technology business, and have obtained planning consent for redevelopmentfor residential use. Our Plasma Technology business will move into a new purposebuilt facility in the vicinity. In California, we have moved into largerpremises to enable us to increase capacity for our X-ray tube business, wheredemand is particularly strong. In Boston, we have moved into larger premises,reflecting the higher turnover that we are experiencing in the US. This alsoallows us to set up a new applications laboratory to serve our life sciencescustomers on the East Coast. People These successes are closely linked to a new commercial culture in our company.Staff have participated in commercial development programmes and our "Innovate"seminars, which encourage creative and market orientated thinking. Supportingthe cultural change initiative, six new senior managers have been recruited intothe business. These new recruits come from highly market-focused organisations,which will serve to further reinvigorate our market-orientated approach. I would like to thank all our staff for their contributions in the half year. Outlook The growth strategy is showing early signs of success and the foundations havebeen laid for delivering enhanced and sustainable growth. Actions to acceleratenew product development, open up new routes to market and adopt a sharplyfocused commercial approach are yielding results. This is reflected in improvedorder levels and revenues, which in turn will yield growth in value forshareholders. Nigel Keen Chairman 21 November 2006 Group Income Statement Half year ended 30 September 2006 - unaudited Half year Half year Year to to to 30 Sept 30 Sept 31 March 2006 2005 2006 Notes £m £m £m As restated* As restated*-------------------- ------ ---------- ---------- ----------Revenue 3 72.1 66.7 147.4Cost of sales (47.9) (45.0) (99.3)-------------------- ------ ---------- ---------- ----------Gross profit 24.2 21.7 48.1Net operating expenses (22.2) (21.9) (43.7)-------------------- ------ ---------- ---------- ----------Trading profit/(loss) 3 2.0 (0.2) 4.4 Other operating income - 0.1 2.0Amortisation of acquiredintangibles (0.1) (0.1) (0.2)Restructuring and non-recurringcosts 5 (2.4) - (6.7)-------------------- ------ ---------- ---------- ----------Operating loss (0.5) (0.2) (0.5)Financial income 6 4.3 4.1 8.1Financial expenditure 7 (4.5) (4.2) (8.5)-------------------- ------ ---------- ---------- ----------Loss before income tax (0.7) (0.3) (0.9) Income tax expense 8 (0.7) - (2.5)-------------------- ------ ---------- ---------- ----------Loss for the period attributableto (1.4) (0.3) (3.4)equity shareholders of the parent ------ ---------- ---------- ------------------------------ pence pence pence-------------------- ------ ---------- ---------- ----------Earnings per share - continuing Basic earnings per share 9 (2.9) (0.6) (7.2)Diluted earnings per share 9 (2.9) (0.6) (7.1) Dividends per share Dividends paid 10 2.4 - 6.0Dividends proposed 10 2.4 2.4 8.4-------------------- ------ ---------- ---------- ---------- Total dividends £m £m £m-------------------- ------ ---------- ---------- ---------- Dividends paid 1.2 - 2.9Dividends proposed 1.2 1.2 4.0-------------------- ------ ---------- ---------- ---------- * See note 1 for detail of the restatement. Group Statement of Recognised Income and Expense Half year ended 30 September 2006 - unaudited Half year to Half year to Year to 30 Sept 30 Sept 31 March 2006 2005 2006 £m £m £m-------------------- ---------- ---------- ----------Foreign exchange translationdifferences (1.1) 0.4 0.9Cash flow hedges - effective portion - (0.3) (0.3)Deferred tax on the above - 0.1 0.1Actuarial loss in respect of postretirement benefits - - (10.3)Deferred tax on the above - - 3.1Impairment of carrying value ofinvestment - - (0.2)-------------------- ---------- ---------- ----------Net loss recognised directly in equity (1.1) 0.2 (6.7)Loss for the period (1.4) (0.3) (3.4)-------------------- ---------- ---------- ----------Total recognised expense for the year- attributable to equity holders ofthe parent (2.5) (0.1) (10.1)-------------------- ---------- ---------- ---------- Total recognised expense for the year (2.5) (0.1) (10.1)Effect of adoption of IAS 32 and IAS39, net of tax on 1 April 2005 - cashflow hedges - 0.2 0.2-------------------- ---------- ---------- ---------- (2.5) 0.1 (9.9)-------------------- ---------- ---------- ---------- Group Balance Sheet Half year ended 30 September 2006 - unaudited As at As at As at 30 Sept 30 Sept 31 March 2006 2005 2006 Notes £m £m £m-------------------- ------ ---------- ---------- ----------AssetsNon-current assetsProperty, plant and equipment 21.7 23.1 23.4Intangible assets 16.8 15.8 15.6Available for sale equity securities 1.0 1.6 1.0Deferred tax assets 18.9 16.6 19.1-------------------- ------ ---------- ---------- ---------- 58.4 57.1 59.1 Current assetsInventories 28.6 29.7 27.1Trade and other receivables 37.7 39.4 45.3Current income tax recoverable - 0.3 0.9Derivative financial instruments 0.2 0.6 0.1Cash and cash equivalents 5.4 18.7 13.9Held for sale assets 6.9 5.5 5.0-------------------- ------ ---------- ---------- ---------- 78.8 94.2 92.3-------------------- ------ ---------- ---------- ----------Total assets 137.2 151.3 151.4-------------------- ------ ---------- ---------- ---------- Equity Capital and reserves attributable tothe Company's equity holdersShare capital 2.4 2.4 2.4Share premium 20.2 20.0 20.2Other reserves 0.1 0.1 0.1Translation reserve (0.2) 0.4 0.9Retained earnings 20.2 36.1 22.8-------------------- ------ ---------- ---------- ---------- 13 42.7 59.0 46.4-------------------- ------ ---------- ---------- ---------- Liabilities Non-current liabilities Deferred consideration 0.4 0.8 0.5Retirement benefit obligations 54.2 44.0 53.4-------------------- ------ ---------- ---------- ---------- 54.6 44.8 53.9 Current liabilities Borrowings 0.5 2.8 2.9Bank overdrafts 0.4 3.3 1.2Trade and other payables 33.5 35.0 38.7Current income tax liabilities 0.1 1.8 1.9Derivative financial instruments 0.1 0.3 0.3Provisions 5.3 4.3 6.1-------------------- ------ ---------- ---------- ---------- 39.9 47.5 51.1-------------------- ------ ---------- ---------- ----------Total liabilities 94.5 92.3 105.0 -------------------- ------ ---------- ---------- ----------Total liabilities and equity 137.2 151.3 151.4-------------------- ------ ---------- ---------- ---------- Group Statement of Cash Flows Half year ended 30 September 2006 - unaudited Half year Half year Year to to to 30 Sept 30 Sept 31 March 2006 2005 2006 £m £m £m-------------------- ------- --------- ---------- ---------Loss for the period (1.4) (0.3) (3.4)Adjustments for:Income tax expense 0.7 - 2.5Net financial expense 0.2 0.1 0.4Restructuring and non-recurringcosts 2.4 - 6.7Amortisation of acquiredintangibles 0.1 0.1 0.2Other operating income - (0.1) (2.0)Depreciation of property, plant andequipment 1.8 1.8 3.7Amortisation of research anddevelopment 0.5 0.4 1.1------------------------- --------- ---------- ---------Earnings before interest, tax,depreciation and amortisation 4.3 2.0 9.2 Loss/(profit) on disposal ofproperty, plant and equipment - (0.2) 0.3Cost of equity settled employeeshare schemes - 0.2 0.3Restructuring costs paid (1.7) (2.1) (3.1)Cash payments to the pension schemeless/(more) than the charge to theincome statement 0.7 0.4 (1.2)------------------------- --------- ---------- ---------Operating cash flows beforemovements in working capital 3.3 0.3 5.5 Increase in inventories (1.6) (5.6) (6.5)Decrease in receivables 6.5 7.4 2.0Decrease in payables (5.7) (9.6) (5.4)Decrease in provisions (0.2) (0.4) (0.3)------------------------- --------- ---------- ---------Cash generated by operations 2.3 (7.9) (4.7) Interest paid (0.1) (0.3) (0.6)Income taxes paid (1.4) (1.1) (2.7)-------------------- ------- --------- ---------- ---------Net cash from operating activities 0.8 (9.3) (8.0) Cash flows from investingactivities Proceeds from sale of property,plant and equipment - 0.2 -Proceeds from sale of held for saleassets - - 0.6Proceeds from sale of available forsale equity securities - 0.1 2.2Interest received 0.1 0.5 0.9Acquisition of subsidiaries, net ofcash acquired (0.1) (3.1) (3.9)Acquisition of property, plant andequipment (2.5) (1.8) (4.2)Capitalised development expenditure (2.2) (1.3) (2.6)-------------------- ------- --------- ---------- ---------Net cash from investing activities (4.7) (5.4) (7.0)-------------------- ------- --------- ---------- --------- Cash flows from financing activities Proceeds from issue of share capital - 0.6 0.8Proceeds from the disposal of own shares - 0.1 0.1(Decrease)/increase in short term borrowings (2.4) 0.7 0.8Dividends paid (1.2) - (2.9)-------------------- --------- ---------- ---------Net cash from financing activities (3.6) 1.4 (1.2)-------------------- --------- ---------- --------- Net decrease in cash equivalents (7.5) (13.3) (16.2)Cash and cash equivalents at beginning of the 12.7 28.6 28.6periodRevaluation of cash balances on adoption ofIAS 32 - (0.1) (0.1)and IAS 39Effect of exchange rate fluctuations on cash (0.2) 0.2 0.4held --------- ---------- -----------------------------Cash and cash equivalents at end of the period 5.0 15.4 12.7-------------------- --------- ---------- --------- Notes on the Interim Financial Statements Half year ended 30 September 2006 - unaudited 1 BASIS OF PRESENTATION OF ACCOUNTS Oxford Instruments plc (the Company) is a company incorporated in England andWales. The Group financial statements consolidate those of the Company and itssubsidiaries (together referred to as the Group). The comparative figures for the financial year ended 31 March 2006 are not theCompany's statutory accounts for that financial year. Those accounts have beenreported on by the Company's auditors and delivered to the registrar ofcompanies. The report of the auditors was (i) unqualified, (ii) did not includea reference to any matters to which the auditors drew attention by way ofemphasis without qualifying their report, and (iii) did not contain a statementunder section 237(2) or (3) of the Companies Act 1985. Except as noted below andin note 2, this interim financial information has been prepared applying theaccounting policies and presentation that were applied in the preparation of theCompany's published consolidated financial statements for the year ended 31March 2006. The Group has adopted a new accounting policy in respect of a certain revenuestream. The Directors now consider that a more appropriate treatment of thisrevenue 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 £7.9m (2005: half year £8.6m, full year £19.8m). There isno 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: Half year to 30 Half year to 30 Year to 31 Sept 2006 Sept 2006 March 2006 Average Period end Average Period end Average Period end -------- -------- -------- -------- -------- -------- --------US Dollar 1.84 1.87 1.82 1.77 1.79 1.73Euro 1.46 1.47 1.46 1.47 1.46 1.43Yen 213 221 200 201 202 205-------- -------- -------- -------- -------- -------- -------- 2 RECONCILIATION BETWEEN PROFIT AND ADJUSTED PROFIT Half year to Half year to Year to 30 Sept 30 Sept 31 March 2006 2005 2006 £m £m £m------------------------ ---------- ---------- ----------Loss before tax (0.7) (0.3) (0.9) Other operating income - (0.1) (2.0)Amortisation of acquired intangibleassets 0.1 0.1 0.2Restructuring and non-recurring costs(note 5) 2.4 - 6.7Financial instruments (see below) (0.1) - ------------------------- ---------- ---------- ----------Adjusted profit/(loss) before tax 1.7 (0.3) 4.0------------------------ ---------- ---------- ---------- Under IAS 39, derivative financial instruments are recognised initially at fairvalue - this includes the forward exchange contracts the Group has entered intoin order to manage its exposure to foreign exchange rate movements. Subsequentto initial recognition, derivative financial instruments are measured at fairvalue. In the prior year, the Group hedge accounted for its derivative financialinstruments in order to minimise the potential volatility in the incomestatement. However, IAS 39 requires certain stringent criteria to be met inorder to continue to hedge account, which, in the particular circumstances ofthe Group, are considered by the Board not to bring any significant economicbenefit. Accordingly, with effect from 1 April 2006, the Group has ceased tohedge account for all of its existing derivative financial instruments andinstead will account for them as trading instruments with the profit or loss onremeasurement to fair value being taken immediately to the income statement.Adjusted profit for the year is stated before changes in the valuation of theseinstruments so that the underlying performance of the Group can more clearly beseen. 3 RESULTS BY BUSINESS Segment information is presented in the consolidated interim financialstatements in respect of the Group's business segments, which are the primarybasis of segment reporting. The business segment reporting reflects the Group'smanagement structure. Segment results include items directly attributable to a segment as well asthose which can be allocated on a reasonable basis. Half year to 30 September 2006 Analytical Superconductivity Total £m £m £m ------------------- ----------- ----------- -----------Revenue 43.3 28.8 72.1------------------- ----------- ----------- ----------- Trading profit/(loss) before costs of OII 3.6 (0.1) 3.5 Costs of OII (1.5)------------------- ----------- ----------- -----------Trading profit 2.0Amortisation of acquired intangibles (0.1)Restructuring and non-recurring costs (2.4)------------------- ----------- ----------- -----------Operating loss (0.5)Net financial expense (0.2)Income tax expense (0.7)------------------- ----------- ----------- -----------Loss for the period (1.4)------------------- ----------- ----------- ----------- Net segment assets 36.5 31.0 67.5------------------- ----------- ----------- ----------- 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. Half year to 30 September 2005 (as restated) Analytical Superconductivity Total £m £m £m ----------- ----------- -----------Revenue 35.1 31.6 66.7------------------- ----------- ----------- ----------- Trading profit/(loss) before costs ofOII 2.0 (1.3) 0.7 Costs of OII (0.9)------------------- ----------- ----------- -----------Trading loss (0.2)Other operating income 0.1Amortisation of acquired intangibles (0.1)------------------- ----------- ----------- -----------Operating loss (0.2)Net financial expense (0.1)Income tax expense -------------------- ----------- ----------- -----------Loss for the period (0.3)------------------- ----------- ----------- ----------- Net segment assets 34.0 37.8 71.8------------------- ----------- ----------- ----------- Year to 31 March 2006 (as restated) Analytical Superconductivity Total £m £m £m ----------- ----------- -----------Revenue 80.7 66.7 147.4------------------- ----------- ----------- ----------- Trading profit before costs of OII 6.1 0.3 6.4 Costs of OII (2.0)------------------- ----------- ----------- -----------Trading profit 4.4Other operating income 2.0Amortisation of acquired intangibles (0.2)Restructuring and non-recurring costs (6.7)------------------- ----------- ----------- -----------Operating loss (0.5)Net financial expense (0.4)Income tax expense (2.5)------------------- ----------- ----------- -----------Loss for the period (3.4)------------------- ----------- ----------- ----------- Net segment assets 33.9 33.7 67.6------------------- ----------- ----------- ----------- 4 RESEARCH AND DEVELOPMENT Total research and development spend by the group is as follows: Half year to Half year to Year to 30 Sept 30 Sept 31 March 2006 2005 2006 £m £m £mTotal cash spent on research anddevelopment 7.3 6.5 13.2during the yearLess: amount capitalised (2.2) (1.3) (2.6)Add: amortisation of amountspreviously capitalised 0.5 0.4 1.1------------------------ ---------- ---------- ----------Research and development charged toincome statement 5.6 5.6 11.7------------------------ ---------- ---------- ---------- 5 RESTRUCTURING AND NON-RECURRING COSTS Restructuring and non-recurring costs for the half year comprise a £2.2mprovision for the settlement of an onerous contract and £0.2m in respect ofcosts associated with the exit from the held for sale factory which becamesurplus to requirements following the restructuring of the UK magnet business in2006 (see below). Restructuring costs for the year ended 31 March 2006 relate to the restructuringof the UK magnet business and restructuring at Plasma Technology in Yatton,Bristol. The cost comprises stock write-downs of £3.7m, redundancy and similarcosts of £1.0m, halted research and development costs of £0.8m, suppliercommitments of £0.7m and other costs of £0.5m. 6 FINANCIAL INCOME Half year to Half year to Year to 30 Sept 30 Sept 31 March 2006 2005 2006 £m £m £m ---------- ---------- ----------Bank interest receivable 0.1 0.5 0.9Expected return on pension schemeassets 4.1 3.6 7.2Mark to market gain in respect ofderivative financial instruments 0.1 - ------------------------- ---------- ---------- ---------- 4.3 4.1 8.1 ---------- ---------- ---------- 7 FINANCIAL EXPENDITURE Half year to Half year to Year to 30 Sept 30 Sept 31 March 2006 2005 2006 £m £m £m------------------------ ---------- ---------- ----------Interest payable and similar chargeson bank loans and overdrafts 0.1 0.3 0.6Interest charge on pension schemeliabilities 4.4 3.9 7.9------------------------ ---------- ---------- ---------- 4.5 4.2 8.5------------------------ ---------- ---------- ---------- 8 TAXATION The Group estimates that its weighted average tax rate for the full year will be40% (2005:60%) and the tax charge for the period has been calculated using thisrate. No tax relief is expected to be obtained in respect of the restructuringand non-recurring costs. 9 EARNINGS PER SHARE a) Basic The calculation of basic earnings per share is based on the loss for the periodafter taxation and a weighted average number of ordinary shares outstandingduring the period, excluding shares held by the Employee Share Ownership Trust,as follows: Half year to Half year to Year to 30 Sept 30 Sept 31 March 2006 2005 2006 £m £m £m ---------- ---------- ----------Loss for the period (1.4) (0.3) (3.4)------------------------ ---------- ---------- ---------- Shares Shares Shares million million million ---------- ---------- ----------Weighted average number of sharesoutstanding 48.8 48.4 48.6Less shares held by Employee ShareOwnership Trust (0.8) (0.9) (0.9)------------------------ ---------- ---------- ----------Weighted average number of shares usedin calculation of earnings per share 48.0 47.5 47.7------------------------ ---------- ---------- ---------- b) Diluted Diluted earnings per share have been calculated using the same numerator as setout in (a) above and by reference to the following number of shares: Half year to Half year to Year to 30 Sept 30 Sept 31 March 2006 2005 2006 Shares Shares Shares million million million ---------- ---------- ----------Number of ordinary shares per basicearnings per share calculations 48.0 47.5 47.7Effect of shares under option 0.2 0.5 0.5------------------------ ---------- ---------- ----------Number of ordinary shares per dilutedearnings per share calculations 48.2 48.0 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: Half year to Half year to Year to 30 Sept 30 Sept 31 March 2006 2005 2006 pence pence pence------------------------ ---------- ---------- ----------Basic 2.1 (0.6) 3.9Diluted 2.1 (0.6) 3.8------------------------ ---------- ---------- ---------- A reconciliation of the profit for the periods used to calculate basic earningsper share to the adjusted profit used to calculate the adjusted earnings pershare shown above is set out below: Half year to Half year to Year to 30 Sept 30 Sept 31 March 2006 2005 2006 £m £m £m------------------------ ---------- ---------- ----------Adjusted profit/(loss) before tax(Note 2) 1.7 (0.3) 4.0Taxation (0.7) - (2.2)------------------------ ---------- ---------- ----------Adjusted profit/(loss) 1.0 (0.3) 1.8------------------------ ---------- ---------- ---------- 10 DIVIDENDS PER SHARE The following dividends per share were paid by the Group: Half year to Half year to Year to 30 Sept 30 Sept 31 March 2006 2005 2006 pence pence pence------------------------ ---------- ---------- ----------Previous period interim dividend 2.4 - -Previous period final dividend - - 6.0------------------------ ---------- ---------- ---------- 2.4 - 6.0------------------------ ---------- ---------- ---------- The following dividends per share were proposed by the Group in respect of eachaccounting period presented: Half year to Half year to Year to 30 Sept 30 Sept 31 March 2006 2005 2006 pence pence pence------------------------ ---------- ---------- ----------Interim dividend 2.4 2.4 2.4Final dividend - - 6.0------------------------ ---------- ---------- ---------- 2.4 2.4 8.4 ---------- ---------- ---------- The interim dividend for the year to 31 March 2007 of 2.4 pence was approved bythe Board on 21 November 2006 and has not been included as a liability as at 30September 2006. The interim dividend will be paid on 10 April 2007 toshareholders on the register at the close of business on 9 March 2007. 11 PENSIONS The Group does not perform actuarial valuations at the half year unless aparticularly significant event has occurred during that period. The Group hasapplied actuarial assumptions at 30 September 2006 consistent with those used at31 March 2006. Accordingly, no actuarial gain or loss arises in respect ofpensions. The actuarial assumptions will be reviewed at 31 March 2007. 12 RECONCILIATION OF CASH AND CASH EQUIVALENTS TO NET CASH Half year to Half year to Year to 30 Sept 30 Sept 31 March 2006 2005 2006 £m £m £m ------------------------ ---------- ---------- ----------Decrease in cash and cash equivalents (7.5) (13.3) (16.2)Effect of foreign exchange ratechanges on cash and cash equivalents (0.2) 0.2 0.4Revaluation of cash balances onadoption of IAS 32 and IAS 39 - (0.1) (0.1)------------------------ ---------- ---------- ---------- (7.7) (13.2) (15.9) Cash outflow from decrease in debt 2.4 - -Cash inflow from increase in debt - (0.7) (0.8)------------------------ ---------- ---------- ----------Movement in net cash in the period (5.3) (13.9) (16.7)Net cash at start of the period 9.8 26.5 26.5------------------------ ---------- ---------- ----------Net cash at end of the period 4.5 12.6 9.8------------------------ ---------- ---------- ---------- Analysed as:- Cash and cash equivalents (per Balance 5.4 18.7 13.9Sheet)Bank overdrafts (0.4) (3.3) (1.2)------------------------ ---------- ---------- ----------Cash and cash equivalents (per Statement ofCash 5.0 15.4 12.7Flows)Borrowings (0.5) (2.8) (2.9)------------------------ ---------- ---------- ----------Net cash at end of the period 4.5 12.6 9.8------------------------ ---------- ---------- ---------- 13 RECONCILIATION OF MOVEMENT IN EQUITY SHAREHOLDERS' FUNDS Half year to Half year to Year to 30 Sept 30 Sept 31 March 2006 2005 2006 £m £m £m------------------------ ---------- ---------- ----------Total recognised expense for theperiod (2.5) (0.1) (10.1)Credit in respect of employee servicecosts settled by award of shareoptions - 0.2 0.3Proceeds from shares issued - 0.6 0.8Disposal of own shares held - 0.1 0.1Dividends paid (1.2) - (2.9)Opening equity shareholders' funds 46.4 58.0 58.0Arising on adoption of IAS 32 and IAS39 - 0.2 0.2------------------------ ---------- ---------- ----------Closing equity shareholders' funds 42.7 59.0 46.4------------------------ ---------- ---------- ---------- This information is provided by RNS The company news service from the London Stock Exchange