13th Jun 2006 07:00
Oxford Instruments PLC13 June 2006 13 June 2006 Oxford Instruments plc Announcement of preliminary results for the year to 31 March 2006 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 2006: •Orders and revenue of the underlying businesses*, including acquisitions, were £159.9 million (2005 £136.9 million) and £153.8 million (2005 £135.6 million) respectively; orders were up 16.8% and revenue up 13.4%; •Trading profit of the underlying businesses*, before non-recurring items and intangible amortisation, was £6.9 million (2005 £9.1 million); £€3.3 million cash was spent on the product development investment initiative announced in June 2005, and of this £0.6 million was capitalised; •Underlying trading profit, after adjusting for the extra £2.7 million development costs charged to revenue, was £9.6 million, up £0.5 million on the previous year; •Out of the accelerated new product development programme two potentially significant new generation products were launched and early customer response has been very encouraging; •The loss making UK magnet business was restructured and a new combined NanoScience business created, involving restructuring costs of £6.6 million and the expectation of improving trading profit by at least £3.0 million in 2007; •The pre-tax loss of £0.9 million (2005 profit £0.1 million) reflected the implementation of strategic actions to reposition the Group for growth; •Continuing basic earnings per share were a loss of 7.2p (2005 loss 3.0p); adjusted basic earnings per share** were 9.1p (2005 13.9p); an unchanged final dividend of 6.0p per share is recommended; • Net cash at 31 March 2006 was £9.8 million (2005 £26.5 million). * Group businesses excluding the restructured magnet business ** Before other operating income, amortisation of acquired intangibles, restructuring and other non-recurring costs, the trading loss of the restructured magnet business and discontinued operations Nigel Keen, Chairman of Oxford Instruments plc, said: "Although much remains tobe done, we have made important progress in repositioning the Group towardsfuture growth markets by concentrating on tools and systems that enablecustomers to use our products to transform the Nanoscience they undertake intothe Nanotechnology we all use. "Trading in the first two months of the year is on track. We are now set on apath which will provide significant opportunities to grow the business andthereby increase value for our shareholders." Enquiries: Oxford Instruments plc Tel: 01865 881437 Fax: 01865 884045 Jonathan Flint, Chief Executive Martin Lamaison, Financial Director Hogarth Partnership Limited Tel: 020 7357 9477 Fax: 020 7357 8533 Andrew Jaques/Anthony Arthur For further copies of this announcement please contact Lynn Shepherd at theCompany's registered office at Old Station Way, Eynsham, Witney, Oxon OX29 4TL(email: [email protected]). Chairman's Statement We are implementing the Strategy that Jonathan Flint and I outlined last year atthe time of his appointment as Chief Executive. Jonathan reports in more detailon the evolution of this Strategy. Although much remains to be done, we havemade important progress in repositioning the Group towards future growth marketsby concentrating on tools and systems that enable customers to use our productsto transform the Nanoscience they undertake into the Nanotechnology we all use. Group trading profit of the underlying business, before non-recurring items andintangible amortisation, was £6.9 million. This was after charging £2.7 millionarising from the planned product development investment initiative announced inJune 2005. Before this expenditure, trading profit was £9.6 million, up £0.5million on the previous year. The Group's Income Statement shows the results forthe year split between the part of the magnet business where we have ceasedvolume manufacture (the restructured magnet business) and the remaining business(the underlying business). This shows the effect of the actions we have takenand announced. Group revenue of the underlying business for the year to 31 March2006 was £153.8 million, £18.2 million (13.4%) higher than the previous year.Our recent acquisitions, Metorex International, Resonance Instruments and HKLTechnologies, have all contributed to this year's performance. Revenue of the restructured magnet business in the year was £13.4 million (2005£19.2 million) and its trading loss increased to £2.5 million (2005 £1.7million). The restructuring of this business, which will avoid a continuation ofthese losses, involved non-recurring costs of £6.6 million, mainly redundancies,moving costs and stock write offs. The provisions against stock, includingcancelled new product developments and end of line supplier commitments, arehigher than anticipated at the time of the February announcement. Additionally,costs have been provided for on site work required to meet customerspecification requirements in the bespoke magnet business. Other income of £2.0million, from disposals of minority interests and a surplus property, haspartially offset these non-recurring costs. After net financial expenditure of £0.4 million the Group made a loss beforeincome tax of £0.9 million (2005 profit £0.1 million) from the combined resultsof the underlying business and the restructured magnet business. Within Analytical the trading profit, before non-recurring items and intangibleamortisation, decreased to £6.0 million from £6.4 million. Although ourNanoAnalysis (formerly Microanalysis) and Industrial Analysis businessescontinued to move ahead, showing the sixth successive year of profit growth, thetrading performance of our Plasma Technology business was impacted by marketpricing pressures although these appear to have now eased. The X-ray Technologybusiness again produced growth in revenue and trading profit, driven by thecontinuing buoyancy of the market for environmental monitoring tools. In Superconductivity the underlying business made a trading profit, beforenon-recurring items and intangible amortisation, of £0.9 million. After addingback the planned increase in product development expenditure of £2.5 million theadjusted trading profit of £3.4 million was £0.7 million higher than last year.In February 2006 we decided to cease the volume manufacture of NMR and ICRmagnets as a product range and to integrate the NMR magnet skills and technologywith the Physical Science bespoke superconducting magnets and cryogenicsbusiness based at Tubney Woods, renaming the combined business, OxfordInstruments NanoScience. This restructuring is expected to improve theSuperconductivity trading profit next year by at least £3.0 million and willallow greater clarity of the results of the rest of the Group. The NanoSciencebusiness, now under new management, will continue to offer the scientificcommunity a range of novel bespoke magnets and cryogenics but at the same timewill seek to secure a proper reward for the technical risks involved. OurSuperconducting Wire business in the USA continues to perform well and achieved7% growth in wire sales. Good results were achieved from the extra £3.3 million cash spent during theyear on incremental product development under the sponsorship of our OxfordInstruments Innovation group. Two potentially significant new products werelaunched and early customer response has been very encouraging. Basic earnings per share for the continuing business were a loss of 7.2 pence(2005 loss 3.0 pence). Basic adjusted earnings per share (defined as earningsper share for the underlying business, before other operating income,non-recurring items and intangible amortisation) were 9.1 pence (2005 13.9pence). The Board recommends a final dividend of 6.0 pence, making the totaldividend of 8.4p for the year, unchanged from last year excluding the specialdividend of 25p paid in March 2005. Net cash at 31 March 2006 was £9.8 million(2005 £26.5 million). We have a talented and enthusiastic workforce and I would like to thank all ofthem for their positive response to the new strategy and the resulting changes,and for delivering a creditable improvement in performance in the year. During the year Charles Holroyd and Steve Parker joined the Board as ExecutiveDirectors. They both have functional worldwide responsibilities in addition totheir business responsibilities for certain parts of the Group. We announced inMay that Martin Lamaison will retire as Group Financial Director with effectfrom 7 August 2006 and that Kevin Boyd, currently Group Finance Director ofRadstone Technology plc, will succeed him. I would like to thank Martin for hisoutstanding contribution to Oxford Instruments over the years. We are delightedwith the appointment of Kevin and believe that his wide ranging businessexperience will be an asset to the Group as it continues to evolve and grow. Trading in the first two months of the year is on track. We are now set on apath which will provide significant opportunities to grow the business andthereby increase value for our shareholders. Nigel Keen Chairman 13 June 2006 Chief Executive's Review I have been Chief Executive of Oxford Instruments for a year now and we havemade good progress in reinventing the Group. Last year I outlined our newstrategy based around our core skills of a deep understanding of matter at theatomic and molecular level. This strategy simultaneously provides a unifiedtheme for all parts of Oxford Instruments and defines the markets in which theGroup seeks to grow. Growth is a key element of our strategy, as through growthwe can achieve the scale necessary to stay at the forefront of our chosentechnological areas. The key elements of the strategy this year have been: •To move the business from a technology led, to a customer focused business •To move towards a systems and solutions orientated company •To aggressively move into new markets and launch new products •To move the business towards a single integrated entity •To control costs through technology, process and organisation Each of these key elements of the strategy has progressed during the first year,though in some areas there remains much more to be done. Focus on the customer - Our new 'voice of the customer' initiative has beenrolled out across the company. This ensures that customer feedback informs ournew product development. Steve Parker was appointed to the Board of OxfordInstruments plc in November and he has taken on specific responsibility forleading the customer focus drive across the business. Encouragingly we have seena growth in service revenues over the last year of 8%. This provides a stablelong-term high quality revenue stream for the business. As our new productsbecome established in the installed base, there are opportunities to grow thistype of business further. Total solutions - We are recruiting applications engineers into the business andwe are increasingly able to offer complete solutions to our customers. We haveset up a new applications laboratory in Oxfordshire for our growing MolecularBiotools business. This laboratory, together with our existing network of sevenworldwide application laboratories, enable end users to interact directly withour products and specialists, seeing for themselves the capability of OxfordInstruments tools. New products and markets - The Oxford Instruments Innovation Group is doing wellin identifying and developing radical new products, which will fuel the growthof the business. In particular, the launch of 'HyperSense' DNP system hasgenerated huge customer interest. HyperSense has the potential to revolutionisemany NMR applications. The research community is particularly excited. ProfGeoffrey Hawkes, Professor in Physical Organic Chemistry, Queen Mary, Universityof London said "The sensitivity enhancements achievable in nuclear magneticresonance (NMR) spectroscopy through the use of HyperSense are now wellestablished, and at Queen Mary we are engaged in exploiting this sensitivitygain in applications which have great potential to the pharmaceutical industryfor drug related research, and applications for biocompatible implant material". The first three units of this product have been delivered to customers. Two further new products were developed during the year. The first of these,'Flexal' was launched in May 2006. 'Flexal' is the first of a range of toolswhich use Atomic Layer Deposition (ALD) to fabricate one atom thick layers forcustomers in the electronics, semiconductor and optics industries. The second ofthese new tools will be launched later this year. Single Entity - A unified organisational structure has now been implementedthroughout the Group. I have created a central senior management team, all ofwhom have functional groupwide responsibilities. The business streams have beenreorganised to provide a greater business focus on markets and customer groups.This has encouraged a 'one company' culture and at the same time created newmanagement opportunities for our best people. Common technological themes canrapidly be shared between the business and duplication of costs and process hasbeen reduced. Cost base - We continued to work on the reduction of our cost base. In NovemberCharles Holroyd was appointed to the Board with specific responsibility forimproving operational efficiency. Our two Oxford based sites have beenconsolidated into a single facility at Tubney Woods, which will yieldsignificant ongoing savings. At the same time we have ceased production of ourloss making volume magnet product lines. In addition we have moved theproduction of several of our product ranges to our low cost manufacturingfacility in Shanghai. On the back of these initiatives orders and revenue of the continuing businessin the year rose by 16.8% and 13.4% respectively and trading profit, afteradding back the increased new product development spend announced last year, isup by 5%. The action taken to close down the loss making undifferentiated magnetproduct lines together with site consolidation and further use of our low costproduction facilities means that the way is now clear for sustained marginimprovement. Over the next few years we intend to continue to drive our business through theimplementation of our strategy to develop new generation tools for thenanotechnology and bioscience industries. This will result in increased revenue,arising from both organic and acquisitive growth. Over the next five years Ihave targeted a doubling in turnover, and this revenue growth, coupled with costreduction, should enable us to increase the return on sales by 10% of salesrevenue over the same period. The Group has in place a risk management and mitigation approach which aims toensure our medium term objectives set out above are achievable. The key riskswhich we address include competitive risks (pricing, new product introduction,acquisition prospects); technical risks (new product development, newtechnology); and commercial risks (fixed price technically demanding contracts,foreign exchange and commodity price movements, key customers and suppliers). Our increased R & D spend will enable us to generate radical new products whichwill enable existing and new customers to turn Nanoscience into Nanotechnology.Our new NanoScience business will operate at the very cutting edge oftechnology. At any time we will have a few one-off magnet contracts where thetechnical achievements to meet customer specification are challenging, but wehave put enhanced controls in place to manage these contracts. The NanoSciencebusiness also exposes potential future customers to our products during theiryears in higher education. At the moment our Analytical businesses have a numberof high quality tools operating in distinct markets. We have identifiedsignificant latent demand if we could offer a more comprehensive tool capabilitywhich unifies these currently separate markets. Our strategy is to develop, andin some cases acquire, tools to fill in any capability gaps. This will enable usto offer a complete spectrum of analytical tools to our nanoscience andbioscience customers. Our growth strategy will enable us to remain at the forefront of the business ofscience and enable our shareholders to benefit from Oxford Instrumentsworld-renowned technical capability. This is an exciting time for all of us at Oxford Instruments. Our new strategyprovides the engine which can deliver these growth targets and I am lookingforward to making it happen. Jonathan Flint Chief Executive 13 June 2006 Performance Review Analytical Orders and revenue for the year were £85.5 million (2005 £67.9 million) and£80.7 million (2005 £68.8 million) respectively. Trading profit, beforenon-recurring items and intangible amortisation, was £6.0 million (2005 £6.4million). During the year steps were taken to introduce a more market-focused structurewithin our Industrial Analysis (formerly Industrial Products) and NanoAnalysis(formerly Microanalysis) businesses in order to be more responsive to customerneeds and to reach into new markets. Separate sales, service and productdevelopment teams have been established within each business but both continueto share all other functions. New sales and distribution offices have been setup in Russia and India. Our Industrial Analysis business has benefited immediately from these actionsand revenue grew strongly in the second half. Metorex, acquired in September2004, continued its excellent performance and has benefited from access to theexisting Analytical global sales and distribution network. We introduced newproducts for environmental monitoring during the year for compliance testingunder the Restriction of Hazardous Substances (RoHS) legislation and for soilanalysis. At the end of March our isotope based 'Horizon' product was relaunchedin France for use in measuring lead in paint. The introduction ofenvironmentally friendly low sulphur fuels with differing sulphur concentrationsmeans that a wide range of customers now require simple, "on the spot" sulphuranalysis to certify that the fuel being used at a particular location conformsto an agreed specification. Industrial Analysis has now introduced its latestgeneration Lab-X instrument to offer sulphur analysis 'outside of thelaboratory' to any location in the fuel supply chain. We have now transferred the full range of our hand held coating measurementsgauges from Chicago to our low cost facility in Shanghai, as well as the largerbenchtop CMI 900 instrument used in the same marketplace, when higher precisionis required. A project management team has been tasked with the rapid transferto China of several other products currently made in the UK and USA. The market for our NanoAnalysis business, providing analytical instruments forelectron microscopes, remained steady. With the acquisition of HKL Technology inApril 2005, the product portfolio has been significantly enhanced with theaddition of the 'best in class' EBSD (electron backscatter diffraction) system.Following the successful integration of the HKL EBSD system with our existingmarket leading EDS (energy dispersive spectroscopy) platform and our WDS (wavelength dispersive spectroscopy) systems, we now offer the best combination ofelemental analysis systems in the market for use with electron microscopes. Thesecond half of the year showed good growth as the new management structureallowed the NanoAnalysis team to focus better on their customers' needs.NanoAnalysis margins and profit remained strong throughout the year. Our greaterfocus on NanoAnalysis applications, as reflected in our decision to change thename of this business from Microanalysis, has also allowed the business to takeadvantage of the emerging nanotechnology markets and in particular to addressthe nanocharacterisation sector. Although down on the previous year, our Plasma Technology business wasprofitable in the year. There was no significant upturn in the compoundsemiconductor market. However the market for high brightness light emittingdiodes (LEDs) continues to grow with widespread utilisation already being seenin the automotive industry. These products are very energy efficient which isexpected to lead to increasing use in the domestic and other lighting markets.Reflecting this, we received orders from eight new customers in this sectorduring the year. A vigorous programme of product introduction based on extensive customerresearch is now being reflected in new Plasma Technology product launches. Inparticular we have successfully installed beta sites for our new 'PlasmaEnhanced Atomic Layer Deposition' (PEALD) product. Initial customer reaction hasbeen positive with sales enquiries already active. The PEALD product offers theability to deposit nano-scale thin films of material in the creation ofnanostructures for new generation semiconductor, micro mechanical and opticaldevices and in new surface treatments. New nanofabrication tools will belaunched in a few months and will be used for the controlled, repeatable growthof nanotubes and nanowires from carbon, silicon and other materials. These areexpected to form the basis of a whole new generation of electronic devices foruse in solar cells, display technology and nanowire transistors as well as arange of materials science applications. Our X-ray Technology business produced another year of revenue and profitgrowth. Following several years of growth for its low power X-Ray sources,driven in large part by new environmental legislation, the business isincreasing its manufacturing capacity and moving to larger premises in theScotts Valley area of California. The business now has a dominant market sharein the RoHS market segment and is seeing new growth from the ultra-low sulphurmarket. In recognition of our leading position in low form factor X-ray tubes,we have been awarded a US$1.1 million development contract from NASA to developan X-ray tube for use in space. Superconductivity Orders and revenue for the underlying business for the year were £74.4 million(2005 £69.0 million) and £73.1 million (2005 £66.8 million) respectively.Trading profit of the underlying business, before non-recurring items andintangible amortisation, was £0.9 million (2005 £2.7 million). The market for bespoke superconducting magnets and cryogenic equipment picked upas the year progressed and orders were strong in the second half. Howevertowards the end of the year it became clear that radical restructuring of ourNMR magnet activity was needed reflecting the future intention of one of ourmajor customers to source increasingly from its own recently acquired magnetmanufacturing factory. In February 2006 we announced we would discontinue volumeproduction of undifferentiated magnets for OEM customers, close ourmanufacturing facility in Eynsham, Oxfordshire and consolidate all our magnetand cryogenic activity at our nearby Tubney Woods facility. At the same time anew managing director was appointed to the merged business, now known as OxfordInstruments NanoScience. These moves will greatly strengthen the ongoingbusiness. The Molecular Biotools business was formed in April 2004 within the UKSuperconductivity business. It was created to exploit the technology licensedexclusively from GE Healthcare to develop the world's first commercial DynamicNuclear Polarization technique (DNP). The use of DNP in conjunction withconventional liquid state NMR provides an information rich technique that cannoteasily be achieved with conventional NMR instrumentation alone. The informationthus generated will help researchers understand the structure and function ofmolecules that play a vital role in biochemical pathways. This will assist inthe field of life science and drug discovery. The first major product to bedeveloped, 'HyperSense', was officially launched at the annual ENC (ExperimentalNMR Conference) tradeshow in April 2006. Several beta sites have beensuccessfully installed and are generating exciting new information. We now havefive collaboration programmes with major academic institutes. Ahead of forecastswe have now taken three orders in addition to our beta site installations. Astate of the art DNP-NMR applications facility has now been set up at the TubneyWoods site to develop analytical protocols, to run customer samples and togenerate novel applications in biomolecular analysis. Within Molecular Biotools the Resonance Instruments business, acquired inSeptember 2004, had a good year and showed growth in both revenue and tradingprofit. A new bench top NMR instrument 'MQC' for quality analysis and controlfor food and chemical manufacture was launched in April 2006. This product hasbeen well received and is now in production. Superconducting wire revenue continued to grow, with reduced demand from withinthe Group more than offset by increased third party customer requirements. Thisreflected growth in the market for hospital MRI magnets, but the profitabilityof the business was adversely affected by sales price erosion and rising rawmaterial prices, particularly copper. The International Thermonuclear EnergyReactor (ITER) project, an internationally backed programme aimed at generatinghuge quantities of power, will provide an opportunity for significant additionalwire volumes in the coming years, both directly and in collaboration with otherworldwide producers. We have supplied materials under the qualificationprogramme and have met the required specification. For about five years thisprogramme will significantly increase the amount of superconducting wireproduced worldwide. We are finalising our plans to invest in new plant tosupport this activity and the rest of the wire business. The MRI magnet service business revenue grew during the year reflecting thesteady growth of the installed base in both American and Japanese hospitals. Asthe organisation grows in both countries it is able to offer an increasinglyattractive service to its customers. The USA maintenance support contract withSiemens was renegotiated and extended. The Austin Scientific cryogenic pump and compressor business had an excellentyear with growth in both revenue and profits. Additionally there was a betterrevenue balance between the US domestic and international markets. Acquisitions, disposals and discontinued businesses In April 2005 the Group acquired the share capital of HKL Technologies A/S,based in Hobro, Denmark. A total cash consideration of £2.1 million was paidduring the year with a further estimated £0.3 million due to be paid based onthe level of post acquisition sales revenue growth. HKL is a supplier ofelectron backscatter diffraction devices used in conjunction with electronmicroscopes. The revenue of HKL in the year was £1.8 million on which it made asmall contribution to trading profit of £0.1 million. The minority investments in Target Systemelectronic GmbH and Target InstrumentsInc were sold in March 2006 for £2.2 million as was a small part of the minorityholding in ARKeX Limited realising £0.1 million. In addition, the surplusproperty in Oak Ridge, Tennessee was sold in March 2006 for £0.6 million. Thecombined profit on these transactions of £2.0 million is shown in other income. The Group's Medical business was sold to VIASYS Healthcare Inc. on 1 March 2005and has been treated as a discontinued business in the prior year results. Investment in research and development (R&D) The total cash spent on research and development by the underlying business inthe year was £12.3 million, up £3.2 million on the prior year. This was made upas follows: 2006 2005 £ million £ million ---------- ----------Research and development as shown in the incomestatement 10.8 9.2Removal of amortisation of previously capitalisedresearch and development (1.1) (1.4)--------------------------------- ---------- ----------Cash spend charged to the income statement 9.7 7.8Add research and development spend capitalised in theyear 2.6 1.3--------------------------------- ---------- ----------Total cash spent on research and development in theyear 12.3 9.1--------------------------------- ---------- ---------- The net book value of capitalised R&D at the end of the financial year was £5.5million (2005 £4.0 million) and consisted mainly of the development costs of newgeneration Analytical instruments. R&D capitalised in the year represented 21%(2005 14%) of the total cash spent on R&D. Pensions Overall the deficit in the UK scheme increased by £9.4 million to £49.9 million.Assets of the scheme at 31 March 2006 were £123.3 million. Despite an increasein assets of £22.2 million over the year this was more than offset by thecombined effect of a reduction in the discount rate applied to liabilities and afurther change in the mortality tables. An actuarial valuation as at 31 March2006 is in progress and once the results are available to the Company and thePension Trustee Directors a long term plan for funding the deficit will beagreed which is acceptable to all parties. By the end of March 2006 £1.8 million of the special contribution of £6.0million referred to last year had been paid into the scheme. The balance willform part of the long term funding plan. Group Income Statement Year ended 31 March 2006 Underlying Restructured 2006 business magnet performance business Notes £m £m £m ------ --------- --------- ---------Revenue 2 153.8 13.4 167.2Cost of sales (105.3) (13.8) (119.1)----------------------- ------ --------- --------- ---------Gross profit/(loss) 48.5 (0.4) 48.1Selling and marketing costs (21.3) (0.5) (21.8)Administrative expenses (9.5) (0.7) (10.2)Research and development (10.8) (0.9) (11.7)----------------------- ------ --------- --------- ---------Trading profit/(loss) 2 6.9 (2.5) 4.4 Other operating income 3 2.0 - 2.0Amortisation of acquired (0.2) - (0.2)intangiblesRestructuring and othernon-recurring 4 (0.1) (6.6) (6.7)costs ------ --------- --------- --------------------------------Operating profit/(loss) 8.6 (9.1) (0.5)Financial income 5 8.1Financial expenditure 6 (8.5)----------------------- ------ --------- --------- ---------(Loss)/profit before income taxand (0.9)discontinued operations Income tax expense 7 (2.5)----------------------- ------ --------- --------- ---------Loss after taxation beforediscontinued (3.4)operationsProfit from discontinuedoperations 2 -after tax ------ --------- --------- --------------------------------(Loss)/profit for the periodattributable to equityshareholders of (3.4)the parent ------ --------- --------- -------------------------------- pence ----------------------- ------ --------- --------- ---------Earnings per share - continuing 8 Basic earnings per share (7.2)Diluted earnings per share (7.1) Dividends per share 9 Dividends paid 6.0Dividends proposed 8.4----------------------- ------ --------- --------- --------- Total dividends £m----------------------- ------ --------- --------- --------- Dividends paid 2.9Dividends proposed 4.0----------------------- ------ --------- --------- --------- Group Income Statement Year ended 31 March 2005 Underlying Restructured 2005 business magnet performance business Notes £m £m £m ----------------------- ------ --------- --------- ---------Revenue 2 135.6 19.2 154.8Cost of sales (93.1) (17.3) (110.4)----------------------- ------ --------- --------- ---------Gross profit/(loss) 42.5 1.9 44.4Selling and marketing costs (19.2) (0.3) (19.5)Administrative expenses (5.0) (1.0) (6.0)Research and development (9.2) (2.3) (11.5)----------------------- ------ --------- --------- ---------Trading profit/(loss) 2 9.1 (1.7) 7.4 Other operating income 3 0.2 - 0.2Amortisation of acquired (1.3) - (1.3)intangiblesRestructuring and othernon-recurring 4 (6.2) - (6.2)costs ------ --------- --------- --------------------------------Operating profit/(loss) 1.8 (1.7) 0.1Financial income 5 5.3Financial expenditure 6 (5.3)----------------------- ------ --------- --------- ---------(Loss)/profit before income taxand 0.1discontinued operations Income tax expense 7 (1.7)----------------------- ------ --------- --------- ---------Loss after taxation beforediscontinued (1.6)operationsProfit from discontinuedoperations 2 7.2after tax ------ --------- --------- --------------------------------(Loss)/profit for the periodattributable to equityshareholders of 5.6the parent ------ --------- --------- -------------------------------- pence ----------------------- ------ --------- --------- ---------Earnings per share - continuing 8 Basic earnings per share (3.0)Diluted earnings per share (3.1) Dividends per share 9 Dividends paid 33.4Dividends proposed 33.4----------------------- ------ --------- --------- --------- Total dividends £m----------------------- ------ --------- --------- --------- Dividends paid 15.7Dividends proposed 15.8----------------------- ------ --------- --------- --------- Group Statement of Recognised Income and Expenditure Year ended 31 March 2006 2006 2005 Notes £m £m ----------------------------- ------ ---------- ----------Foreign exchange translation differences 0.9 -Cash flow hedges - effective portion (0.3) -Deferred tax on the above 0.1 -Actuarial loss in respect of post retirement (10.3) (6.1)benefitsDeferred tax on the above 3.1 1.9Impairment of carrying value of investment (0.2) ------------------------------ ------ ---------- ----------Net loss recognised directly in equity (6.7) (4.2)(Loss)/profit for the period (3.4) 5.6----------------------------- ------ ---------- ----------Total recognised (expense)/income for the year (10.1) 1.4----------------------------- ------ ---------- ---------- Total recognised (expense)/income for the year (10.1) 1.4Effect of adoption of IAS 32 and IAS 39, net of 0.2 -tax on1 April 2005 (2005 not restated) - cash flowhedges ------ ---------- ---------- (9.9) 1.4 ----------------------------- ------ ---------- ---------- Group Balance Sheet As at 31 March 2006 2006 2005 Notes £m £m ----------------------------- ------ ---------- ----------Assets Non-current assets Property, plant and equipment 23.4 23.0Intangible assets 10 15.6 12.5Investments 1.0 1.6Deferred income tax assets 19.1 15.1----------------------------- ------ ---------- ---------- 59.1 52.2 Current assetsInventories 27.1 23.9Trade and other receivables 46.2 46.8Derivative financial instruments 0.1 -Cash and cash equivalents 13.9 29.7Held for sale assets 5.0 5.4----------------------------- ------ ---------- ---------- 92.3 105.8 ------ ---------- ----------Total assets 151.4 158.0----------------------------- ------ ---------- ---------- Equity Capital and reserves attributable to theCompany's equity holdersShare capital 2.4 2.4Share premium account 20.2 19.4Other reserves 16.0 16.0Translation reserve 0.9 -Retained earnings 6.9 20.2----------------------------- ------ ---------- ---------- 11 46.4 58.0 ------ ---------- ---------- Liabilities Non-current liabilities Borrowings 0.5 1.1Retirement benefit obligations 53.4 43.3----------------------------- ------ ---------- ---------- 53.9 44.4 Current liabilities Borrowings 2.9 2.1Bank overdrafts 1.2 1.1Trade and other payables 38.7 44.3Current income tax liabilities 1.9 1.3Derivative financial instruments 0.3 -Provisions 6.1 6.8----------------------------- ------ ---------- ---------- 51.1 55.6 ------ ---------- ----------Total liabilities 105.0 100.0 ------ ---------- ----------Total liabilities and equity 151.4 158.0----------------------------- ------ ---------- ---------- Group Statement of Cash Flows Year ended 31 March 2006 2006 2005 £m £m --------------------------------- ---------- ----------Cash flows from operating activitiesCash receipts from customers 169.2 185.9Cash paid to suppliers and employees (173.9) (177.6)--------------------------------- ---------- ----------Cash generated from operations (4.7) 8.3Interest paid (0.6) (0.2)Income taxes paid (2.7) (2.2)--------------------------------- ---------- ----------Net cash from operating activities (8.0) 5.9--------------------------------- ---------- ---------- Cash flows from investing activities Proceeds from sale of property, plant and equipment - 0.8Proceeds from sale of held for sale assets 0.6 -Proceeds from sale of investment 2.2 -Interest received 0.9 0.7Disposal of subsidiary, net of cash disposed - 24.0Acquisition of subsidiaries, net of cash acquired (3.9) (5.8)Acquisition of property, plant and equipment (4.2) (3.2)Capitalised development expenditure (2.6) (1.2)--------------------------------- ---------- ----------Net cash from investing activities (7.0) 15.3--------------------------------- ---------- ---------- Cash flows from financing activities Proceeds from issue of share capital 0.8 0.4Proceeds from the disposal of own shares 0.1 -Proceeds from increase in short term borrowings 0.8 0.6Dividends paid (2.9) (15.7)--------------------------------- ---------- ----------Net cash from financing activities (1.2) (14.7)--------------------------------- ---------- ---------- Net (decrease)/increase in cash equivalents (16.2) 6.5Cash and cash equivalents at beginning of the period 28.6 22.3Revaluation of cash balances on adoption of IAS 32 andIAS (0.1) -39Effect of exchange rate fluctuations on cash held 0.4 (0.2)--------------------------------- ---------- ----------Cash and cash equivalents at end of the period 12.7 28.6--------------------------------- ---------- ---------- Notes on the Preliminary Financial Statements 1. Basis of presentation of accounts The attached financial statements are the Group's first financial statementsfollowing the adoption of International Financial Reporting Standards (IFRS).These financial statements have been prepared in accordance with IFRS adoptedfor use in the EU ('Adopted IFRS') in accordance with EU Law (IAS Regulation EC/606/2002). As allowed by IFRS 1 'First-time adoption of IFRS', the Group adopted IAS 32'Financial instruments: disclosure and presentation' and IAS 39 'Financialinstruments: recognition and measurement', prospectively from 1 April 2005.Consequently, until 31 March 2005, the Group continued to hedge account forforecast foreign exchange transactions in accordance with UK GAAP, and hence thecomparative financial statements exclude the impact of these standards. On 12 October 2005, the Group published a comprehensive analysis of the impactof adopting IFRS from 1 April 2004 - available from the Company's web site atwww.oxfordinstruments.com. This included income statement and balance sheetreconciliations, as well as details of the accounting policies applied inrestating its financial statements for the year ended 31 March 2005 and as at 1April 2004. The principal exchange rates used to translate the Group's overseas results wereas follows: Average translation rates 2006 2005 Year end rates 2006 2005---------------- -------- -------- ---------- -------- -------- US Dollar 1.79 1.85 US Dollar 1.73 1.89Euro 1.46 1.47 Euro 1.43 1.45Yen 202 198 Yen 205 202---------------- -------- -------- ---------- -------- -------- 2. Segment information - Analysis by business 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 2006 Analytical Superconductivi Total ty £m £m £m -------------------- ----------- ----------- -----------Revenue 80.7 86.5 167.2-------------------- ----------- ----------- ----------- Trading profit 6.0 (1.6) 4.4Other operating income 0.9 1.1 2.0Amortisation of acquired intangibles (0.1) (0.1) (0.2)Restructuring and other non-recurring (0.1) (6.6) (6.7)costs ----------- ----------- -------------------------------Operating profit/(loss) 6.7 (7.2) (0.5)Net financing expense (0.4)Income tax expense (2.5)-------------------- ----------- ----------- -----------Profit for the period (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-------------------- ----------- ----------- ----------- 2. Segment information - Analysis by business Continued Year to 31 March 2005 Analytical Superconductivi Total ty £m £m £m -------------------- ----------- ----------- -----------Revenue 68.8 86.0 154.8-------------------- ----------- ----------- ----------- Trading profit 6.4 1.0 7.4Other operating income - 0.2 0.2Amortisation of acquired intangibles (1.2) (0.1) (1.3)Restructuring and other non-recurring (2.7) (3.5) (6.2)costs ----------- ----------- -------------------------------Operating profit/(loss) 2.5 (2.4) 0.1Net financing expense -Income tax expense (1.7) -----------Loss for the period before discontinued (1.6)operationsProfit from discontinued operations 7.2 -----------Profit for the period 5.6-------------------- ----------- ----------- ----------- Segment assets 46.0 59.9 105.9Unallocated assets 52.1-------------------- ----------- ----------- -----------Total assets 158.0-------------------- ----------- ----------- ----------- Segment liabilities 19.1 28.1 47.2Unallocated liabilities 52.8-------------------- ----------- ----------- -----------Total liabilities 100.0-------------------- ----------- ----------- ----------- Discontinued operations The results of the Medical business prior to its disposal on 1 March 2005 wereas follows: 2005 £m ----------------------------------------- ----------Revenue 25.6----------------------------------------- ---------- Trading profit -Net finance expense (0.2)Profit on sale of business 8.1----------------------------------------- ----------Profit before tax 7.9Income tax expense (0.7)----------------------------------------- ----------Profit for the period from discontinued operations 7.2----------------------------------------- ---------- penceBasic earnings per share - discontinued operations 15.2Diluted earnings per share - discontinued operations 15.1----------------------------------------- ---------- 2. Segment information - Analysis by business Continued b) Underlying business performance The underlying business comprises all of the Group's operations except thelosses made by the restructured magnet business. Disclosure of segmentalinformation for the underlying business is not required by IFRS but certainlimited information is included below to give shareholders greater insight intothe performance of the Group. Information relating to the restructured magnetbusiness is not included. Year to 31 March 2006 Analytical Superconductivity Total excluding restructured magnet business £m £m £m -------------------- ----------- ----------- -----------Revenue 80.7 73.1 153.8-------------------- ----------- ----------- ----------- Trading profit 6.0 0.9 6.9Other operating income 0.9 1.1 2.0Amortisation of acquired intangibles (0.1) (0.1) (0.2)Restructuring and other non-recurring (0.1) - (0.1)costs ----------- ----------- -------------------------------Operating profit 6.7 1.9 8.6-------------------- ----------- ----------- ----------- Year to 31 March 2005 Analytical Superconductivity Total excluding restructured magnet business £m £m £m -------------------- ----------- ----------- -----------Revenue 68.8 66.8 135.6-------------------- ----------- ----------- ----------- Trading profit 6.4 2.7 9.1Other operating income - 0.2 0.2Amortisation of acquired intangibles (1.2) (0.1) (1.3)Restructuring and other non-recurring (2.7) (3.5) (6.2)costs ----------- ----------- -------------------------------Operating profit/(loss) 2.5 (0.7) 1.8-------------------- ----------- ----------- ----------- 3. Other operating income 2006 2005 £m £m --------------------------------- ---------- ----------Profit on disposal of investments 1.8 -Profit on disposal of property 0.2 0.2--------------------------------- ---------- ---------- 2.0 0.2 --------------------------------- ---------- ---------- 4. Restructuring and other non-recurring costs 2006 2005 £m £m --------------------------------- ---------- ----------Post acquisition restructuring - 1.2Wire quality costs - 1.5Restructuring costs 6.7 3.0Impairment of held for sale assets - 0.5--------------------------------- ---------- ---------- 6.7 6.2 --------------------------------- ---------- ---------- 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. Restructuring and other non-recurring costs for the year ended 31 March 2005comprise costs relating to a specific quality issue at the US superconductingwire manufacturing plant, redundancy costs arising in the Superconductivitybusiness and restructuring costs (redundancy expense, stock write-off andsurplus lease costs) following the acquisition of Metorex International Oy andResonance Instruments Limited in September 2004, costs relating to the closureof the East Grinstead site and expenses associated with the replacement of theChief Executive. 5. Financial income 2006 2005 £m £m --------------------------------- ---------- ----------Interest receivable 0.9 0.7Expected return on pension scheme assets 7.2 4.6--------------------------------- ---------- ---------- 8.1 5.3 --------------------------------- ---------- ---------- 6. Financial expenditure 2006 2005 £m £m --------------------------------- ---------- ----------Interest payable and similar charges on bank loans and 0.6 0.2overdraftsInterest charge on pension scheme liabilities 7.9 5.1--------------------------------- ---------- ----------Total interest payable 8.5 5.3--------------------------------- ---------- ---------- 7. Income tax expense Recognised in the income statement 2006 2005 % £m % £m ------------------------- -------- -------- -------- --------Current tax expenseCurrent year 2.4 1.1Adjustment for prior years 0.1 0.1------------------------- -------- -------- -------- -------- 2.5 1.2 ------------------------- -------- -------- -------- -------- Deferred tax expenseOrigination and reversal of temporary (0.8) 0.9differencesAdjustment in respect of prior periods - 0.3Benefit of tax losses recognised 0.8 -------------------------- -------- -------- -------- -------- - 1.2 ------------------------- -------- -------- -------- -------- Total tax expense 2.5 2.4Less tax charge included withindiscontinued - (0.7)operations -------- -------- -------- ---------------------------------Total income tax expense in income 2.5 1.7statement -------- -------- -------- --------------------------------- Reconciliation of effective tax rate (Loss)/profit before tax (includingdiscontinued (0.9) 8.0operations) Income tax using the UK corporation tax 30.0 (0.3) 30.0 2.4rateEffect of tax rates in foreign (100.0) 0.5 5.0 0.4jurisdictionsAmortisation of intangible assets (11.1) 0.1 3.8 0.3Non-tax deductible expenses (11.1) 0.1 6.3 0.5Tax incentives not recognised in theincome 88.9 (0.4) (6.3) (0.5)statementDisposal of Medical business - - (28.8) (2.3)Temporary differences not recognised fordeferred (166.7) 1.5 7.5 0.6taxEffect of current tax losses not (188.9) 1.7 8.8 0.7utilisedEffect of previous tax losses now 88.9 (0.8) (1.3) (0.1)utilisedUnder/(over) provided in prior years (11.1) 0.1 5.0 0.4------------------------- -------- -------- -------- --------Total tax expense (277.8) 2.5 30.0 2.4------------------------- -------- -------- -------- -------- Deferred tax recognised directly inequityRelating to employee benefits 3.1 1.9Relating to cash flow hedges (0.1) -------------------------- -------- -------- -------- -------- 3.0 1.9 ------------------------- -------- -------- -------- -------- 8. Earnings per share a) Continuing The calculation of continuing basic earnings per share is based on the loss forthe period after taxation but before discontinued operations and a weightedaverage number of ordinary shares outstanding during the period, excludingshares held by the Employee Share Ownership Trust, as follows: 2006 2005 £m £m --------------------------------- ---------- ----------Loss for the period (3.4) (1.6)--------------------------------- ---------- ---------- Shares Shares million million --------------------------------- ---------- ----------Weighted average number of shares outstanding 48.6 48.1Less shares held by Employee Share Ownership Trust 0.9 1.0--------------------------------- ---------- ----------Weighted average number of shares used in calculation ofearnings per share 47.7 47.1--------------------------------- ---------- ---------- b) Total Total earnings per share based on the profit for the period as disclosed in theIncome Statement are as follows: 2006 2005 pence pence --------------------------------- ---------- ----------Basic earnings per share (7.2) 12.2Diluted earnings per share (7.1) 12.0--------------------------------- ---------- ---------- c) Diluted Diluted earnings per share have been calculated using the same numerators as setout in (a) and (b) above and by reference to the following number of shares: 2006 2005 Shares Shares million million --------------------------------- ---------- ----------Number of ordinary shares per basic earnings per sharecalculations 47.7 47.1Effect of shares under option 0.5 0.5--------------------------------- ---------- ----------Number or ordinary shares per diluted earnings per sharecalculations 48.2 47.6--------------------------------- ---------- ---------- 8. Earnings per share Continued d) Adjusted The earnings per share before other operating income, amortisation of acquiredintangibles, restructuring and other non-recurring costs, the restructuredmagnet business and discontinued operations are as follows: 2006 2005 pence pence --------------------------------- ---------- ----------Basic 9.1 13.9Diluted 9.0 13.8--------------------------------- ---------- ---------- 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: 2006 2005 £m £m --------------------------------- ---------- ----------(Loss)/profit for the period (3.4) 5.6Other operating income (2.0) (0.2)Amortisation of acquired intangible assets 0.2 1.3Restructuring and other non-recurring costs 6.7 6.2Tax impact of the above 0.3 (0.8)Loss of restructured magnet business 2.5 1.7Profit after tax in respect of discontinued operations - (7.2)--------------------------------- ---------- ----------Adjusted profit 4.3 6.6--------------------------------- ---------- ---------- 9. Dividends per share The following dividends per share were paid by the Group: 2006 2005 pence pence --------------------------------- ---------- ----------Previous period final dividend 6.0 6.0Current period interim dividend - 2.4Special dividend - 25.0--------------------------------- ---------- ---------- 6.0 33.4--------------------------------- ---------- ---------- The following dividends per share were proposed by the Group in respect of eachaccounting period presented: 2006 2005 pence pence --------------------------------- ---------- ----------Interim dividend 2.4 2.4Special dividend - 25.0Final dividend 6.0 6.0--------------------------------- ---------- ---------- 8.4 33.4--------------------------------- ---------- ---------- Subject to the approval of the shareholders at the Annual General Meeting on 26September 2006, the proposed final dividend will be paid on 27 October 2006 toshareholders registered at the close of business on 29 September 2006. Theordinary shares will be quoted ex-dividend on 27 September 2006. The dividendspayable on the shares held in trust have been waived. 10. Acquisitions HKL Technologies A/S The Group acquired HKL Technologies A/S based in Hobro, Denmark on 4 April 2005for a net cash consideration of £2.1m. Further consideration of up to £0.7m ispayable based on post acquisition sales revenue growth. The Group's bestestimate of this deferred consideration at the current time is £0.3m. HKLcontributed turnover of £1.8m and profit before income tax of £0.1m to the Groupin the period. Accounting policy Fair value Book value adjustments to the Group £m £m £m ------------------------- ---------- ---------- ----------Property, plant and equipment 0.2 (0.1) 0.1Inventories 0.3 (0.1) 0.2Receivables 0.6 - 0.6Payables (0.7) - (0.7)------------------------- ---------- ---------- ----------Total net assets/(liabilities) 0.4 (0.2) 0.2Goodwill 2.2 ----------Total purchase cost 2.4Less consideration deferred (0.3) ----------Net cash outflow in respect of thepurchase * 2.1Less net cash acquired - ----------Net cash outflow on acquisition 2.1 ---------- * Includes costs associated with the acquisition of £0.1m. The book value of the assets acquired are based on the management accounts atthe date of acquisition. The accounting policy adjustments reflect the alignmentof accounting policies in respect of stock provisioning and project basedcontracts. There were no fair value adjustments. Goodwill arose on the above acquisition as the criteria for the recognition ofany intangible assets are not met at the date of acquisition. It is recorded asa component of intangible assets. Metorex International Oy On 13 September 2004 the Group acquired 89.5% of the share capital of MetorexInternational Oy ('Metorex') based in Espoo, Finland. A further 9.6% wasacquired during January 2005. At 31 March 2005 the Group owned 99.1% of theshare capital of Metorex, with an expectation that the remaining share capitalwill be acquired in due course. The 0.9% minority interest is not a materialvalue. The total cash consideration was £5.3m of which £4.9m had been paid at 31March 2006 and the remaining £0.3m is payable in June 2006. Accounting Fair value policy Fair value Book value adjustments adjustments to the Group £m £m £m £m ------------------ ---------- ---------- ---------- ----------Intangible assets - 1.4 - 1.4Property, plant andequipment 0.1 - - 0.1Stocks 1.4 - (0.6) 0.8Debtors 1.4 - - 1.4Creditors (1.7) - (0.1) (1.8)Provisions (0.1) - - (0.1)------------------ ---------- ---------- ---------- ----------Total netassets/(liabilities) 1.1 1.4 (0.7) 1.8Goodwill 3.5 ----------Total purchase cost 5.3 ---------- The book value of the assets acquired are based on the management accounts atthe date of acquisition. The accounting policy adjustments reflect the alignmentof accounting policies in respect of stock provisioning and project basedcontracts. The fair value adjustments relate to recognition of certain customerrelated intangible assets not previously recognised by the Company. 10. Acquisitions Continued Resonance Instruments Limited The Group acquired Resonance Instruments Limited based in Witney, Oxfordshire on21 September 2004 for a net cash consideration of £1.8m. A further £1.3m paymentwas deferred and payable over the next two years based on future performance andstaff retention. Book value Fair value Fair value adjustments to the Group £m £m £m ------------------------- ---------- ---------- ----------Intangible assets - 0.6 0.6Property, plant and equipment 0.1 - 0.1Stocks 0.4 - 0.4Debtors 0.4 - 0.4Creditors (0.6) - (0.6)Provisions (0.1) - (0.1)------------------------- ---------- ---------- ----------Total net assets/(liabilities) 0.2 0.6 0.8Goodwill 2.3------------------------- ---------- ---------- ----------Total purchase cost 3.1------------------------- ---------- ---------- ---------- The book value of the assets acquired are based on the management accounts atthe date of acquisition. The fair value adjustments relate to recognition ofcertain customer related assets not previously recognised by the Company. 11. Reconciliation of movement in capital and reserves 2005 £m ----------------------------------------- ----------Total recognised income for the period 1.4Credit in respect of employee service costs settled by award ofshare 0.2optionsProceeds from shares issued 0.4Dividends paid (15.7)Opening equity shareholders' funds at 1 April 2004 71.7----------------------------------------- ----------Closing equity shareholders' funds at 31 March 2005 58.0----------------------------------------- ---------- 2006 £m ----------------------------------------- ----------Total recognised expense for the period (10.1)Credit in respect of employee service costs settled by award ofshare 0.3optionsProceeds from shares issued 0.8Disposal of own shares held 0.1Dividends paid (2.9)Opening equity shareholders' funds 58.0Arising on adoption of IAS 32 and IAS 39 0.2----------------------------------------- ----------Closing equity shareholders' funds 46.4----------------------------------------- ---------- 12. Report and Accounts The financial information set out above does not constitute the Company'sstatutory accounts for the years ended 31 March 2006 or 2005. Statutory accountsfor 2005, which were prepared under UK GAAP, have been delivered to theRegistrar of Companies whereas those for the year ended 31 March 2006 will bedelivered to the Registrar of Companies in due course. The auditors havereported on the 2006 accounts; their report was unqualified and did not containa statement under section 237(2) or (3) of the Companies Act 1985. The Company is registered in England Number 775598. 13. The Annual General Meeting The Annual General Meeting will be held on Tuesday, 26 September 2006 at 2.30pmat the offices of Oxford Instruments NanoScience, Tubney Woods, Abingdon, Oxon,OX13 5QX. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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