Oxford Instruments plc Report and Financial Statements 2019
Oxford Instruments plc Report and Financial Statements 2019 ABOUT US
Oxford Instruments plc is a leading provider of high technology products and services to the world’s leading industrial companies and scientific research communities.
We help our customers to image, analyse and manipulate materials down to the atomic and molecular level, enabling them to accelerate their R&D, increase productivity and make new scientific discoveries.
Find out more about us www.oxinst.com
Front cover image: Biological tissue grown from patient cells captured by an Andor Dragonfly microscopy system Strategic Report Governance Financial Statements Company Information 1 2 4 7 8 12 14 18 20 22 24 26 36 48 50 61 67 74 80 43 112 113 114 116 123 153 154 155 164 166 168 100 102 104 105 110 111
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e Make a Difference d Instruments Directory d Instruments Directory ent Company Statement ent Company Statement ectors and Advisers fectiveness iability Statement Consolidated Statement Consolidated Statement of Cash Flows Accounting Policies Notes to the Financial Statements Par of Financial Position Par of Changes in Equity Notes to the Par Financial Company Information Historical Financial Summary Oxfor Dir Chief Executive’ Market Context Business Model Our Strategy Key Performance Indicators Operations Review Finance Review Principal Risks Corporate Responsibility Ef Accountability Remuneration Relations with Shar Financial Statements Responsibilities Directors’ Comprehensive of Financial Position of Changes in Equity Strategic Report Performance Highlights V Governance Leadership Report of the Dir Independent Auditor’ Consolidated Statement of Income Consolidated Statement of Consolidated Statement Our Business Investment Case How W Chairman’ Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford year
developments
past
standards
pages 164 to 168 pages 104 to 163 pages 60 to 103 pages 2 to 59 the
in this section Find additional information about us in this section performing See how we are in light of in this section Read about how we manage our Company and maintain high in in this section we progress discuss the We past year have made over the CONTENTS e on page 11 e on page 10 e on page 9 e on page 8 Find out mor Find out mor Find out mor Find out mor
difference
Quantum Technology Electric Vehicles Cancer Research Enabling 5G a How we make How we make Statements Report and Financial and Financial Report Inside this year’s this year’s Inside Oxford Instruments plc Report and Financial Statements 2019
PERFORMANCE HIGHLIGHTS
We have made good progress in the year with the continued implementation of our Horizon strategy, which is delivering good growth and improved profitability.
Revenue1 Adjusted2 operating profit1 £333.6m +12.4% £49.7m +6.9%
(2018: £296.9m) (2018: £46.5m)
Adjusted2 profit before tax1 Profit before tax1 £47.5m +12.3% £35.5m +3.8%
(2018: £42.3m) (2018: £34.2m)
Adjusted2 basic earnings per share1 Dividend per share (full year) 64.9p +15.3% 14.4p +8.3%
(2018: 56.3p) (2018: 13.3p)
Cash generated from operations1 Net cash/(debt) £56.3m £6.7m
(2018: £33.4m) (2018: £(19.7)m)
1. Continuing operations. 2. Throughout these Financial Statements we make reference to adjusted numbers. A full definition of adjusted numbers can be found in Note 1. Where we make reference to constant currency numbers these are prepared on a month by month basis using the translational and transactional exchange rates which prevailed in the previous year rather than the actual exchange rates which prevailed in the year. Transactional exchange rates include the effect of our hedging programme.
2 Strategic Report Governance Financial Statements Company Information 3 e ocurement ocurement oss life science, quantum ogress with the implementation ogress e in the Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford healthcare businesses. healthcare Innovation for our latest material analyser. Innovation for our latest material analyser.
ong order, revenue and profit growth in growth and profit revenue ong order, der, revenue and profit growth, with margin with growth, and profit revenue der, Find out mor Operations Review on pages 26 to 35
product launches; received the Queen’s Award Award the Queen’s launches; received product for Or supported in Service & Healthcare, improvement, in service and support of our own by growth performance from and an improved products our Investment in R&D supporting new and futur Continued pr embedding defined of our Horizon strategy, the businesses. across capabilities and disciplines operational Significant in-year investment in pr excellence with a focus on strategic Str by Materials & Characterisation supported in advanced material and semiconductor growth customer segments. Healthy end markets acr strong technology and academia supported our Research across growth and revenue order was held profit Operating & Discovery sector. from back in the period by a lower performance Omicron. scientific X-ray tubes and Scienta and operating processes. and operating processes.
• • • • • • Operational highlights: ong cash ency, impacted impacted ency, ofit from continuing ofit from e in the ofit before tax up 3.8% to ofit before evenue increased by 12.4% to evenue increased constant currency.
pence. million (10.8% at constant currency). at
£313.0 million), an increase of increase £313.0 million), an at constant currency).
oup has adopted IFRS 15 Revenue from from oup has adopted IFRS 15 Revenue million after mark-to-market movement million after mark-to-market movement
year dividend increased by 8.3% year dividend increased ‑ currency derivatives and adjusting items. currency 14.4
constant currency). der book of £171.6 million (31 March 2018: der book of £171.6 million (31 March
Find out mor Finance Review on pages 36 to 42
conversion of 103%. Full to £35.5 Net cash of £6.7 million following str operations up 6.9% to £49.7 million (9.7% operations up 6.9% to £49.7 million at investment headwind and one-off by a currency in operational excellence. Reported pr on Adjusted operating margin of 14.9% (2018: Adjusted operating margin of 14.9% 15.7%), 15.5% at constant curr £333.6 Adjusted operating pr Reported r The Gr 16 Leases. Contracts with Customers and IFRS by £7.0 million. revenue The impact is to increase Or for IFRS 15) up 12.2% £153.0 million, restated (9.4% Or (2018: 12.0%
• • • • • • • • to£353.5million ders up12.9% • Financial highlights: Oxford Instruments plc Report and Financial Statements 2019
OUR BUSINESS
Our core purpose is to address some of the world’s most pressing challenges.
Our business is structured around three sectors to support our customer and application focus:
Materials & Characterisation Products and solutions that enable the fabrication and characterisation of materials and devices down to the atomic scale, predominantly supporting customers across applied R&D as well as the production and manufacture of high technology products and devices.
Find out more on pages 26 to 29
Research & Discovery Provides advanced solutions that create unique environments and enable imaging and analytical measurements down to the molecular and atomic level, predominantly used in scientific research and applied R&D.
Find out more on pages 30 to 33
Service & Healthcare Provides customer service and support for our own products and the service, sale and rental of third‑party healthcare imaging systems.
Find out more on pages 34 and 35
4 Strategic Report Governance Financial Statements Company Information 5 Science
echnology e & Lifescience and capacity. develop lighter, stronger, higher stronger, develop lighter,
includes work in photovoltaics batteries. Quantum T Environment Energy Advanced Materials Healthcar Research Research & Fundamental Semiconductor & Communications “rule book” of what is possible.
Where we help customers develop we help Where applications, gaining breakthrough insights. unknown previously Growth is being driven in quantum Growth communications, computing and sensors, change radically quantum effects where the recycling, production, This includes greener substances in soil, detection of hazardous and food. and agriculture efficiencies and improved Where drivers, core sustainability remain and and customers lead the we help Where race to materials. affordable functioning and more Where growth is driven by demand for is driven by growth Where in disease detection and the improvements understanding of fundamental mechanisms. is a focus on speed, there Where security
Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford
Academic Academic Commercial Commercial 31% 69% 42% 58% Our global end market segments Our global end This segment is captured within total Group revenue. within total Group This segment is captured Service & Healthcare revenue 21% of Group Research & Discovery Research revenue 38% of Group End market segments revenue Materials & Characterisation revenue 41% of Group End market segments revenue
£14.9m +18.3% (2018: £12.6m) Adjusted operating profit +5.5% (2018: £66.8m) Revenue £70.5m (2018: £13.8m) -8% (2018: £112.0m) Adjusted operating profit £12.7m +11.8% Revenue £125.2m +10.0% (2018: £20.1m) £22.1m +16.8% (2018: £118.1m) Adjusted operating profit £137.9m Revenue Our key enabling technologies, products and services facilitate a facilitate services and products technologies, enabling key Our and health improved connectivity, increased economy, greener leaps in scientific understanding. Our business is structured around three sectors to support our customer and application focus: to support our customer and sectors three around structured Our business is Oxford Instruments plc Report and Financial Statements 2019
OUR BUSINESS CONTINUED
We are proud to be a globally recognised premium brand with a reputation for innovation and product excellence.
Principal offices and development & manufacturing sites For a full list of our locations please visit our website: www.oxinst.com/service-and-support 28 offices around the world
Revenue from external customers by destination 1,579 people employed worldwide Rest of World Germany Rest of Europe China £9.5m £28.3m £38.7m £70.0m
UK Rest of Asia Japan USA £14.2m £34.4m £38.7m £99.8m
6 Strategic Report Governance Financial Statements Company Information 7 Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford leadership positions.
Focused investment its key investment on market segments where focuses The Group innovation, world-leading enabling technologies drive product it can for customers, where and long-term growth research maintain Global business range of a broad is positioned to address Instruments Oxford technologies markets and industrial sectors. Its key enabling increased economy, underpinning the shift to a greener are and leaps in scientific healthcare improved digital connectivity, a global base and comprehensive understanding. This provides reduced impact diversification of opportunity and portfolio, offering individual market risks. from ocused Group, we understand understand we Group, ocused f ‑ driven, the Group has driven, the Group ‑ margin improvement.
entric, market entric, c ‑ centric and market ‑ specific solutions with improved workflows, bespoke specific solutions with improved ‑ margin improvement. margin improvement. technical and commercial challenges faced by our customers. our by faced challenges commercial and technical
stronger Oxford Instruments, positioned to deliver long-term long-term deliver to positioned Instruments, Oxford stronger
By being customer developed an in-depth understanding of customer needs, their helping customers to accelerate their applied R&D, increase discoveries. and make ground-breaking manufacturing productivity Instruments’ customer base just over half of Oxford Today, organisations. comprises commercial Strong customer relationships Strong Attractive end markets their key enabling on attractive segments where focuses The Group they for customers and where technologies drive long-term growth robust, can maintain leadership positions. These end markets are and Government investment. supported by sustained commercial This, alongside a customer application focus and excellent core growth long-term drivers for future strong capabilities, provides and analytics, data interpretation and associated support services. analytics, data interpretation A globally recognised premium brand with a reputation for brand with a reputation premium A globally recognised performance, unprecedented innovation, world-class product Oxford ease of use and excellence in service and support. value to existing customers, as well as increased Instruments offers in new market segments, through opportunities growth creating application Brand and reputation As a customer sustainablegrowth and Horizon, our transformational programme for the Group, is building building is Group, the for programme transformational our Horizon, a the INVESTMENT CASEINVESTMENT Oxford Instruments plc Report and Financial Statements 2019
How we make a difference Enabling 5G
5G is the latest iteration of cellular technology with the prospect of a transformational increase in speed, coverage and responsiveness of wireless networks. As a result of these improvements there will also be increasing demands on network infrastructure. Our capabilities in compound semiconductors are supporting manufacturers to develop the optoelectronic components, lasers and high-speed electronics required to deliver the improved performance enabling 5G and the rise in the data economy.
Find out more on page 29
8 Strategic Report Governance Financial Statements Company Information 9 Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford e
of disease states. states. disease of
Find out mor on page 32
Research in cancer get will 2 people 1 in UK alone, the In are rates cancer while However, lifetime. their from die will who people of number the increasing, that research to thanks It’s decreasing. is disease the more With cancer. surviving now are people many are researchers cancer, types of different 200 than and disease the causes what about more learning are making breakthroughs in therapeutic responses. products our of speed and resolution imaging The are revealing unprecedented detail in living cells, complex the of understanding an build to helping a wide underlie that mechanisms intracellular range Cancer How a we difference make Oxford Instruments plc Report and Financial Statements 2019
How we make a difference Electric Vehicles
Electric vehicles are widely seen as one of the most important innovations in transportation. As technology develops and we focus more on renewable energy and improved urban air quality, demand for them will continue to increase and they are expected to represent 22% of global share by 2030. With the rising popularity, demands on the performance capabilities have also increased. We are providing manufacturers with the solutions to address some of the most pressing problems, such as the range of electric vehicles, recharge speeds and reduction in energy loss. We also are enabling the manufacture of advanced sensors to help improve the safety of autonomous vehicles.
Find out more on page 29
10 Strategic Report Governance Financial Statements Company Information 11 Oxford Instruments plc Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford applications.
e commercial
for research and the development of of development the and research
Find out mor on page 33
solutions
Technology body the exploits technology Quantum of science covers that the extraordinary behaviour of particlesand unconventional smallest the at observed when matter and conditions. extreme under and scales of matter of nature quantum the Exploiting performance in shift a paradigm enables as such applications exciting of range a across quantum computing, secure communications work to continue We sensors. medical and researchers and companies leading with fundamental the provide to worldwide for tools Quantum How a we difference make Oxford Instruments plc Report and Financial Statements 2019
CHAIRMAN’S STATEMENT
Oxford Instruments is a business that I was delighted to join inspires the greatest admiration, with 2019 marking the Group’s 60th anniversary. Today, Oxford Instruments Oxford Instruments’ technologies are helping to find cures for cancer, advance space as Chairman in exploration and develop next generation electronics, advanced materials and quantum December 2018 and this technologies. Our brand and capabilities are recognised by the world’s leading industrial is my first report since manufacturers and scientific research institutions, who specify our products to taking on the role. accelerate their R&D, increase productivity in high tech manufacturing and achieve ground‑breaking innovations. In my first six months with the Group, I have enjoyed travelling around our sites and meeting our talented teams. I have been impressed with the quality of our businesses and the calibre of management driving our growth strategy. Our governance principles
Leadership Remuneration The Chairman is responsible for leadership of The Remuneration Policy promotes the the Board and ensuring its effectiveness on delivery of the Group’s strategy and all aspects of its role. seeks to align the interests of Directors and Shareholders. Find out more on page 61 Find out more on page 80 Effectiveness This year, the Board carried out its annual Engagement effectiveness evaluation exercise, including We continue to ensure our investors receive a specific review of the effectiveness of its regular and transparent communications. principal Committees and members. Find out more on pages 100 and 101 Find out more on page 67 Risk management The Board has accountability for reviewing and approving the adequacy and effectiveness of internal controls, including financial, operational and compliance controls and risk management. Find out more on pages 74 to 79
12 Strategic Report Governance Financial Statements Company Information 13 Our brand and capabilities recognised are by the world’s leading industrial and manufacturers research scientific institutions. 1: Technician working on a Triton 1: Technician Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford Given our positive cash position and continued Given our positive cash position and continued to raise has proposed confidence, the Board the final dividend to 10.6 pence (2018: 9.6 pence), giving a full-year dividend of 14.4 pence (2018: 13.3 pence), an increase of 8.3%. I would like to thank Steve Blair for his commitment as Interim Chairman during and all our I also thank the Board the year. employees for their contribution that has in a successful year. resulted Neil Carson Non-Executive Chairman 11 June 2019 Oxford Instruments is a business that that a business is Instruments Oxford inspires the greatest admiration, with anniversary. 60th Group’s the marking 2019 This is evident in our full‑year results, which This is evident in our full‑year results, our businesses across progress show strong and in each of our major geographies. I am success especially heartened by the Group’s customer base commercial its in increasing in segments with and its market share potential. I am also long‑term growth cash position, strong by the Group’s impressed over the a major turnaround which represents last couple of years. sets out in the Chief As Ian Barkshire is making good the Group Review, Executive’s focus a product transitioning from progress market‑driven to become a customer‑centric, for our existing the value increasing Group, customers whilst expanding our addressable markets. By building on our innovative technology and targeting attractive markets, will deliver I am confident that the Group and margin long-term sustainable growth improvements. Oxford Instruments plc Report and Financial Statements 2019
CHIEF EXECUTIVE’S REVIEW
We were delighted to welcome Neil Carson to the Board as our Non-Executive Chairman It has been a positive year in December 2018. His wealth of Board and strategic leadership experience in high tech for Oxford Instruments, companies will be invaluable in helping us realise our growth aspirations. I, and the rest with the Horizon strategy of the Board, would like to thank Steve Blair now well embedded for his leadership as Interim Chairman. Embedding the Horizon strategy across the Group. It has been a positive year for Oxford Instruments, with the Horizon strategy now well embedded across the Group. This is driving our long-term plans and initiatives and has transformed our operating processes and day-to-day activities, resulting in a return to growth and improved financial performance. In particular, I have been delighted by the level of employee engagement and their ownership of the execution of our new strategy. Through Horizon we are building a stronger Oxford Instruments, positioning ourselves to deliver Summary long-term sustainable growth and improved margins. Our performance in the year is testament to our progress, with strong order and revenue growth across each of our three sectors, year‑on‑year profit growth, a closing Materials & Research & Service & net cash position, strong order book growth Characterisation Discovery Healthcare and a book-to-bill ratio of 1.06. Horizon is our transformational programme Building on a positive first Healthy end markets across Good growth in orders for the Group and has now been in place half, the sector delivered a Lifescience, Quantum and revenue, resulting in for two years. Through our focus on strong financial performance Technologies and academic increased profitability and Market Intimacy, Innovation and Product underpinned by increased funded Research & higher margins through Development, Customer Support Services, demand from commercial Fundamental Science drove our increased focus on and Operational Excellence we have been customers within the strong order and revenue service products. changing the way we operate and have been Advanced Materials growth in the year. embedding clearly defined capabilities and and Semiconductor & disciplines across our businesses. Whilst there Communications segments. is still much to do, we have made significant progress over the past two years and are already seeing tangible returns.
14 Strategic Report Governance Financial Statements Company Information 15 As we get closer to our customers across As we get closer to our customers across our target markets we have been able to opportunities within our identify growth markets and into new markets. current growth revenue seeing strong are We as we expand customers commercial from markets. and addressable our offerings Examples include the analytical solutions we for batteries, additive manufacturing, offer neuroscience automotive and aerospace, lasers and optoelectronic and cell biology, and astronomy. devices, power electronics, Our heightened customer application-based our market intelligence has strengthened by identifying more roadmaps product future attractive development opportunities and driving our priorities and focus for innovation. Innovation Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford and Product Development Market Intimacy Excellence Operational Customer technologies.
focused Group. Through a deeper a Through focused Group. ‑ Support Our solutions are being used by customers Our solutions are advance space for cancer, to find cures exploration and develop next generation advanced materials and electronics, quantum Market Intimacy in our have made good progress We customer-centric, transformation to a more market understanding of our target market segments and the diverse challenges faced by our customers, we have changed the way we and our prospective communicate and reach clearly identifying existing customers, more can add. the value our products Customer e opportunities within our
breaking discoveries.breaking ‑ Find out mor on page 22
Operational model We are now better positioned to address a to address now better positioned are We and diverse range of attractive end broad markets and industrial sectors, and we have customers rise of commercial seen the share This was achieved by to over 50% of revenue. our portfolio and focusing on those reshaping technologies are our key enabling where areas driving long-term success for our customers, we can achieve and maintain leadership where positions. Within these markets, our products, facilitating a greener solutions and services are improved connectivity, increased economy, health and leaps in scientific understanding. our Horizon focus, we help ourThrough customers accelerate their applied R&D, increase in high tech manufacturing andproductivity make ground current markets and into new markets. new into and markets current growth We have been able to identify identify to able been have We Oxford Instruments plc Report and Financial Statements 2019
CHIEF EXECUTIVE’S REVIEW CONTINUED
Embedding the Results Increased volumes and our enhanced Horizon strategy continued The Group delivered a strong full‑year commercial focus drove reported adjusted Operational Excellence performance, with positive second half operating profit up 6.9% to £49.7 million In the year, with our cohort of lean champions trading building on the progress seen in (2018: £46.5 million) despite a modest in place, we undertook a significant the first half of the year. This resulted in currency headwind, representing an investment to deliver a step change in our strong order, revenue and profit growth, increase of 9.7% at constant currency. operational excellence programme, targeting with the Horizon strategy producing Adjusted operating margin for the Group three key areas: strategic procurement, tangible improvements in business of 14.9% (2018: 15.7%) was impacted by operational efficiency and logistics. This performance. This was underpinned by our an incremental in-year investment in our has re‑shaped our operational teams and chosen end markets and their underlying operational excellence programme and a embedded new operating practices. Already growth drivers remaining attractive and robust. small currency headwind. Operating margin this has increased our revenue capacity with In addition, continued success from recently at constant currency of 15.5% was broadly in improved productivity for the current year. launched products further strengthened our line with last year. Adjusted profit before tax Investment in our operational excellence market‑leading product portfolio, supported increased by 12.3% to £47.5 million (2018: programme within the year held back by an increased commercial focus and £42.3 million), representing an increase of operating margins but helped to deliver progress in establishing our customer-centric 15.4% at constant currency. increased revenues and established the end application approach. Continuing adjusted basic earnings per share foundations and methodologies to support Reported revenue rose to £333.6 million increased by 15.3% to 64.9 pence (2018: future growth and margin improvement. (2018: £296.9 million), an increase of 12.4% 56.3 pence). Innovation & Product Development (10.8% at constant currency). Materials & Reported orders for the Group were up Innovation is part of our heritage and remains Characterisation and Research & Discovery 12.9% (12.0% at constant currency) to central to our strategy. Through Horizon we sectors both delivered double‑digit revenue £353.5 million (2018: £313.0 million) with are more keenly targeting our R&D investment growth supported by the success of recently strong growth across all three sectors. We to create differentiated products and solutions launched products and an increased presence continue to see increased customer demand, that will provide significant value for our and demand from commercial customers. supported by our enhanced customer customers in our chosen long-term, high The Service & Healthcare sector delivered application and market focus with good growth market segments. In the year, the good growth, driven predominantly by order growth from academic customers and success of our recently launched products increased demand for services related to stronger growth from commercial customers. helped drive our growth across advanced our own products. From an end market Orders grew in Europe, North America and materials, semiconductor, life science and perspective, we had significant growth in Asia and across each of our market segments. quantum technology applications. Examples Advanced Materials (31%), with strong growth across the Lifescience (5%), Quantum The order book, representing orders for future of new product innovations are provided in delivery, increased by 12.2% to £171.6 million the Operations Review. Technologies (14%) and Semiconductor (4%) segments. From a geographical perspective, (2018: £153.0 million), growth of 9.4% at People Capabilities we had strong constant currency revenue constant currency, with strong growth across Within the Group we continue to build growth in Asia and North America of 17.7% Materials & Characterisation, Research & our leadership team, while enhancing and 9.8% respectively, with modest growth of Discovery and services related to our own commercial focus and core capabilities across 2.5% in Europe. Within Asia we had strong products. and within the Group at an operational level. growth across the region including China, Good cash collection resulted in the Group This has been a dual approach of investing Japan and South East Asia. Global distribution moving to a net cash position of £6.7 million in our existing employees as well as looking of revenues remains broadly in line with the from net debt of £19.7 million at the previous outside the organisation for individuals previous year, with Asia representing 43% year end. with specific capabilities and experience to of Group revenue, Europe 24% and North accelerate our progress. America 31%, which are broadly in line with Sector performance global R&D spend profiles. Turning to the individual sector performance: Materials & Characterisation products and solutions enable the fabrication and characterisation of materials and devices down to the atomic scale, predominately supporting customers across applied R&D as well as the production and manufacture of high technology products and devices. Building on a positive first half, the sector delivered a strong financial performance underpinned by increased demand from commercial customers within the Advanced Materials and Semiconductor & Communications segments.
16 Strategic Report Governance Financial Statements Company Information 17 segments
of our teams through the of our teams through
have continued to increase have continued to increase
pipeline and performance of newly
£24.8 million) with an increased
launched products. We incurred expenditure of £25.4 million expenditure incurred We (2018: solutions and emphasis on products, ease new capabilities, technologies that provide monitor We of use and enhanced productivity. which originates of revenue the proportion years launched in the last three products from period, our vitality(our vitality index). In the year in line with the previous index remained a continued at 37% (2018: 37%) representing healthy Ian Barkshire Chief Executive 11 June 2019 the capabilities Summary and outlook with in the year have made good progress We the continued implementation of our Horizon which is delivering good growth strategy, serving We are profitability. and improved attractive markets with long-term fundamental drivers and focusing on growth maintain leadership positions. we can where some of the purpose is to address Our core have We challenges. most pressing world’s to be a leading provider positioned the Group and services of high technology products to image, analyse and manipulate materials down to the atomic and molecular level, increased economy, facilitating a greener health and leaps in improved connectivity, scientific understanding. of geopolitical While mindful of the backdrop focused we remain and market uncertainty, the business and expect to make on improving in the year. further progress People to our fundamental are Our staff business success and I am delighted with their engagement, development and implementation of our Horizon We strategy. development of existing employees and the of new talent. targeted recruitment I would like to thank all our employees for Instruments their commitment to Oxford and their passion to deliver an exceptional experience for all our customers. party ‑ Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford million).
18.9%).
addition, this was
basis points to 21.1% (2018: basis points in the period to 10.1%
combined with an improved performance combined with an improved business. Reported Healthcare the US OI from by 8.7% to £71.3 million increased orders grew revenue (2018: £65.6 million), reported 5.5% to £70.5 million (2018: £66.8 million) increased and adjusted operating profit 18.3% to £14.9 million (2018: £12.6 Reported operating margin improved Reported operating margin improved 220 (2018: 12.3%). customer provides Service & Healthcare services and support for our own products of third and the service, sale and rental healthcare imaging systems under the OI healthcare brand. The sector had good growth Healthcare in increased resulting and revenue, in orders our higher margins through and profitability customer focus on service products, increased and consumables related support offerings In to our own products. Reported orders of £138.2 million (2018: of £138.2 million Reported orders of 16.9%, growth £118.2 million) represented both academic and from with increases customers. Reported revenue commercial (2018: by 11.8% to £125.2 million increased £112.0 million). has adopted IFRS 15 Revenue The Group Contracts with Customers. The primary from on our of revenue impact is the recognition magnet systems complex cryogenic and on installation, rather than shipment. The financial impact in the year between the two of in revenue accounting policies is an increase £7.0 million. The business has fundamentally to its operational changed its approach to testing assembly through from processes, we have and onsite installation. Accordingly, reduction in the backlog of seen a significant uninstalled complex systems. In addition to the strategic investment in operational excellence, adjusted operating was held back in the period due to profit a temporary but sustained period of low costs manufacturing yield and increased within our scientific X-ray tube business as our share well as a lower contribution from As a joint venture. of the Scienta Omicron consequence, operating margin reduced 220 R&D elements of our Horizon One of the core strategy is our investment in highly targeted development in line innovation and product with our short, medium and longer-term and our market shares to improve roadmaps markets. expand our addressable funded research communities. funded research ‑ driving demand across our portfolio driving demand across
Fundamental Science by the increased Fundamental Science by the increased
funding globally in larger scale national facilities of scientific instruments, cryogenics and high magnetic field platforms. Growth in Lifescience was predominantly in Lifescience was predominantly Growth demand for our optical driven by increased and scientific cameras; products microscopy by the continued global Quantum Technology investment in fundamental technologies and applied development in quantum computing, communication and optics; and Research & The proportion of revenue from commercial commercial from of revenue The proportion 58% representing in the year, customers rose grew orders Reported the sector. of sales from to £144.0 in the period by 11.2% million (2018: £129.5 million). Reported revenue by 16.8% to £137.9 million,increased with rising to adjusted operating profit reported £22.1 million (2018: £20.1 million), growth deliveries book for future of 10.0%. The order by 20.5% to £41.2 millionincreased (2018: £34.2 million). margin operating reported The of 16.0% (2018: 17.0%) was held back by headwind and investment in our a currency with operational excellence programme, margin of 16.8%. constant currency in Advanced Materials is driven by Growth stronger demand for lighter, the increasing and higher performing materials to address range of end a broad customer needs across applications including autonomous vehicles, economy. and a greener connectivity increased of 8% and 4% growth and revenue Order within the Semiconductor & respectively Communications segment was supported by of analytical solutions utilised to our breadth accelerate the development of next generation demand for devices, as well as the increasing solutions compound semiconductor processing vehicles and for 5G, autonomous required higher efficiency energy devices. This has in demand from a reduction than offset more silicon-based semiconductor chip mainstream and consumer electronics. manufacture advanced & Discovery provides Research and unique environments solutions that create enable imaging and analytical measurements down to the molecular and subatomic level, and research in scientific used predominantly applied R&D. Healthy end markets across and academic Lifescience, Quantum Technology & Fundamental Science funded Research in the growth and revenue order strong drove from of revenue Whilst the proportion year. in the year, increased customers commercial academic from 69% of sales in the sector are and Government Oxford Instruments plc Report and Financial Statements 2019
MARKET CONTEXT
We are well positioned to address a broad and diverse range of attractive markets and industrial sectors.
Growth drivers Our key markets with strong growth drivers include:
Healthcare & Lifescience Advanced Materials Growth is driven by demand for improvements in disease detection Those working in this area are racing to develop lighter, stronger, higher and the understanding of fundamental mechanisms. As technology functioning and more affordable materials, and range from Nobel evolves, researchers are gathering more information and generating Prize winners through to Quality Assurance for leading manufacturers. huge datasets, with increasing cellular details. By looking at the Researchers need to be able to assess a material’s properties, biological processes involved in conditions such as cancer, Alzheimer’s performance and quality, which also helps optimise manufacturing and Parkinson’s, researchers can develop new therapeutic approaches processes. The disruptive transformation within the automotive with the aim of finding a cure for life-limiting diseases. Having the industry towards electric, hybrid and autonomous vehicles is driving ability to observe such mechanisms is also facilitating gene sequencing, manufacturers to use new composite materials, super alloys, faster which aides the development of personalised medicines, and drug dynamic control electronics, and develop more efficient battery storage development within the pharmaceutical industry. and power delivery solutions. There has been a further shift towards using additive manufacturing to produce much lighter and more complex components.
28% 24% of Group revenue of Group revenue
Our solutions Our solutions Our advanced imaging and analysis solutions, such as our confocal Our portfolio enables customers to undertake significantly more microscopy systems, high performance scientific cameras and our accurate and much faster analysis, driving both capability and visualisation and analysis software, are providing enhanced capabilities productivity for customers in the automotive and aerospace industries, and productivity for investigators working in this area. We are helping as well as those analysing metals, ceramics, composites and polymers. to reveal detail not previously seen in applications such as neuroscience We are helping develop the next generation of products and and cancer research, while our software is helping to analyse and components and in the quality control and quality assurance of current interpret the extremely large datasets now being produced. By offering manufactured products. Further, we have exploited our expertise in enhanced performance at low light levels, we enable the measurement particle analysis to develop a tailored solution for the quality control and observation of the cellular interactions taking place in real time. of the raw material feedstock, helping avoid contamination and This greatly increases the accuracy and relevance of the results. maintaining end-product performance.
18 Strategic Report Governance Financial Statements Company Information 19 Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford Quantum Technology quantum effects where This is the exploitation of the regime what is possible. dominate and radically change the rulebook of in the potential for vast increases Quantum technologies offer transfer information computation speed, new paradigms for secure range a broad sensor sensitivities applicable across and unprecedented of quantum imaging of industrial and medical applications. A number have been established in support of this rapidly of excellence centres and well-funded market. growing 9% revenue of Group Our solutions Our cryogenics, advanced fabrication, imaging and characterisation Our single all critical to the advancement of this field. capabilities are investigate and helping researchers photon sensitive cameras are for communication required develop quantum optics, which are work with the leading companies systems and imaging solutions. We the fundamental tools for worldwide to provide and researchers applications. and the development of solutions for commercial research solutions are being utilised being solutions are
leading research and applied R&D products for production for production and applied R&D products leading research ‑ customers. We have helped customers working to enhance wireless wireless have helped customers working to enhance customers. We longer range energy storage, providing charging capabilities and increase electric vehicles and the higher data communications rates and capacity for 5G networks. required Our solutions materials the fabrication capabilities for new It is our ability to provide and the subsequent characterisation of their and device structures, performance that helps our customers, for example in photonics, semiconductors and data storage devices. Our 22% revenue of Group of new to the practical application by fundamental science right through within applications targeting growth are We materials within this area. the compound semiconductor device market, tailoring and adapting our market Semiconductor & Communications devices, higher compact more on creating focus is an increasing There required This is speeds, larger capacity and higher energy efficiency. AI, high data, IoT, to deliver the functionality and demands for big Withinspeed communications and autonomous vehicles. compound demand is being driven by the long-term semiconductors increasing for power silicon-based solutions transitioning of technology away from the are connectivity and communications. Power electronics electronics, electrical energy enabling technologies to use, distribute and generate in the development of electric vehicles. important increasingly and are connectivity is focused on improved With the rise of the data economy, capacity to support the rollout the speed and infrastructure increasing communication is driving growth demand for increased of 5G. Finally, devices. and optoelectronic sensors across and where we can achieve and maintain leadership positions. leadership maintain and achieve can we where and technologies are driving long-term success for our customers customers our for success long-term driving are technologies We are focusing on those areas where our key enabling enabling key our where areas those on focusing are We Oxford Instruments plc Report and Financial Statements 2019
BUSINESS MODEL
We are well positioned to address a broad and diverse range of attractive end markets and industrial sectors.
Relationships How we and resources do it
Customer relationships Research & We are a leading provider of high technology tal Sc damen ience products and services to the world’s leading Fun industrial companies and scientific research communities. We enable our customers to d ce s image, analyse and manipulate materials down n al a ri H v e & e to the atomic and molecular level. We have d t L a A a -specific if lt implemented a new sector structure to align M on so e h ti lu s c our businesses with our chosen customer ca t c a li io ie r segments and applications. p n n e p s, processe s c a ow s, a e kfl an n d or al Continuous innovation n w yt d c ic We focus our investment on market segments a fi s s t i a e c n r where our key enabling technologies drive e e d v p ose p k s rp r i i product innovation, world-leading research and r - u o n c n p d f e a i o long‑term growth for our customers and where o t u
i l r s E t c
we can maintain leadership positions. We use M u m n a t
c s a
e i
the insights we get from our market intimacy to l M t r
i
g p drive our development priorities and to ensure o
p y n
future higher returns on our innovation. A
E Our people n v
i r We have invested in building a new o management and leadership team across the n m
business as well as defining and building on e n the core capabilities we need to succeed. This t includes undertaking professional sales skills training, internal workshops on the Jobs to be Done methodology and operational excellence Q T e u lean training. We are developing a culture of c a h n accountability, empowering our employees to n tu o m own the challenge and the solution. lo g y r Our infrastructure to s uc on The significant management we have nd ti ico ica undertaken of our portfolio has delivered Sem un mm a more focused, synergistic Group. We are & Co creating greater value by breaking down silos, establishing cross-business and cross-functional working groups to extract best practice and By better understanding our customers’ world we are transforming the way we communicate better leverage our scale and synergies. the value and benefits of our products by tailoring the information for each specific end market Supplier partnerships application, as represented above. We recognise that relationships built on trust We are increasingly providing application‑specific solutions building on our existing platforms and respect with our business partners establish through tailored products, software upgrades, bespoke data interpretation and associated support mutually beneficial relations. We perform services. This is creating more value for our existing customers and, importantly, expanding our regular inspections and audits and have strategic addressable market at improved margins. reviews in place for key suppliers. We have a Group supplier management process in place that promotes a common supply chain strategy driving the business towards fewer, high level, quality suppliers.
20 Strategic Report Governance Financial Statements Company Information 21 Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford What we deliver Value for customers through solutions Value of end range advanced technology solutions to a broad provide We and personalised customer offerings markets, supported by new product enable our customers to accelerate their R&D, increase support. We and make new scientific discoveries. productivity Rewarding careers as leaders in what we do and recognised to be widely proud are We have high performance we make in the world. We for the difference our committed and skilled expectations and, by working together, committed to being the company are impact. We employees make a real the best people in our sector want to work. where Corporate responsibility is integral to our ongoing business success. Corporate responsibility need to minimise our impact on the environment, us of the It reminds encourages us to pay attention to the needs of our customers, employees and investors, and to build engagement with local communities. Shareholder value The business is underpinned by sound financial management. By achieving well placed we are and margin improvement, growth sustainable revenue over the returns and maximise Shareholder to deliver business growth long term. Strong financials of high to become a leading provider the Group have positioned We leading industrial and and services to the world’s technology products robust remain companies. Our chosen end markets research scientific and, combined with our customer applications focus and improved growth long-term drivers for future strong provide capabilities, core and margin improvement. Thought leadership a the basis for innovation across Our key enabling technologies provide the shift to arange of markets and industrial sectors and help underpin materials, and advances in digital connectivity, increased economy, greener life science, manufacturing and healthcare. Product application insight Product Product application insight Product Find out more Find out more on pages 18 and 19
Commercial markets Commercial manufacturing to support today’s products Providing new opportunities. challenges and create Applied R&D Our key enabling technologies and solutions facilitate advanced products. the development of more Market insight Fundamental research solutions to those exploring new frontiers Providing at the nanoscale. Physical & Life Sciences Innovation approach Imaging, analysis and manipulation is critical from Imaging, analysis and manipulation is critical from into applied R&D and commercial fundamental research exploitation and markets; enabling commercial fundamental discovery of advanced technology. improved health and leaps in scientific understanding. scientific in leaps and health improved Our offering are facilitating a greener economy, increased connectivity, Within these markets, our products, solutions and services services and solutions products, our markets, these Within Oxford Instruments plc Report and Financial Statements 2019
OUR STRATEGY
Horizon is a transformational programme for Oxford Instruments and has been in place for two years.
Our strategy Horizon is now well embedded across the Group and is helping us to Our products, solutions and services are facilitating a greener deliver sustained revenue growth and margin improvement. Horizon economy, increased connectivity, improved health and leaps in is driving our long-term plans and initiatives and has transformed scientific understanding. Through our Horizon focus, we help our our operating processes and day-to-day activities. We are building a customers accelerate their applied R&D, increase productivity in stronger Oxford Instruments, changing the way we operate, enhancing high tech manufacturing and make ground-breaking discoveries. our commercial focus and core capabilities across the Group. Our solutions are being used by customers to find cures for cancer, advance space exploration and develop next generation electronics, We are now better positioned to address a broad and diverse range of advanced materials and quantum technologies. attractive end markets and industrial sectors.
Operational model
Market Intimacy
Innovation Customer and Product Support Customer Development
Operational Excellence
22 Strategic Report Governance Financial Statements Company Information 23 ojects and focused Group. We have changed the We focused Group. ‑ oss our businesses, measured by clearly defined core by clearly defined core oss our businesses, measured Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford ovide more value to our existing customers, as well as ovide more and logistics. Already this has increased our revenue capacity our revenue this has increased and logistics. Already
are seeing strong revenue growth from commercial customers commercial from growth revenue seeing strong are
we communicate and reach prospective and existing customers, prospective we communicate and reach
resource them from across the Group; across them from resource we will drive the delivery of synergies and enhanced collaboration. we will drive the delivery pr For example, in R&D we will prioritise our high-impact we will pr in new market segments through opportunities growth creating bespoke workflows, application-specific solutions with improved and associated support services; and analytics, data interpretation consistency and we will transform our operational model to embed excellence acr advantage. capabilities that will enhance our competitive
• • • Progress during the year Progress a significant investment in the year to deliver a undertook We operational strategic procurement, key areas: step change in three efficiency year. for the current productivity with improved Progress during the year Progress to a more in our transformation have made good progress We market customer-centric, way and we markets. and addressable as we expand our offerings during the year Progress intelligence Our heightened customer application-based market more by identifying roadmaps product our future has strengthened attractive development opportunities and driving our priorities and focus for innovation. during the year Progress our to support develop our customer service offerings continue to We dynamic support packages, remote offering are customers’ needs. We developing of system performance and are monitoring and remote achieve that our customers can bespoke training packages to ensure and solutions. our products the most from e our key e commercially focused, market-driven Group by focused, market-driven Group e commercially focused business. ‑ projects.
outcome
enabling technologies drive long-term growth for our customers for our customers enabling technologies drive long-term growth we can maintain or develop leadership positions; and where we will be a mor we will focus our investment on market segments wher we will focus our investment whilst research maintaining our heritage in supporting fundamental focus on solutions for applied R&D and products our increasing manufacturing and production that can support our commercial customers;
We are targeting improvements in cost, time and defects to deliver targeting improvements are We Instruments’ customers. a world-class experience for Oxford delivery Operational excellence is driving us to become a more and Operational Excellence Customer Support customer demand for a higher building on the growing are We their range of services and support to help meet level and broader a core and strategic needs. Service will become evolving commercial in our markets. differentiator Innovation and Product Development Innovation and Product segments, on higher growth focusing our R&D investment are We development on the most valuable product prioritising our efforts operating model is enhancing our new opportunities. Importantly, our ability to leverage the technical capabilities and synergies across delivery of our chosen effective ensuring the more the Group, priority We continue to develop an in-depth understanding of our customer continue to develop an in-depth understanding of our customer We closely meet customer tailoring our solutions to more segments and are informing are customer relationships our stronger needs. Insights from development initiatives to and aligning our innovation and product customers’ strategic roadmaps. • Market Intimacy • tangible returns. has the following key elements: Our Horizon strategy progress over the past two years and are already seeing seeing already are and two years past the over progress Whilst there is still much to do, we have made significant significant made have we do, to much still is there Whilst Oxford Instruments plc Report and Financial Statements 2019
KEY PERFORMANCE INDICATORS
The Group uses a range of measures to monitor progress against its strategic plans. The key performance indicators are presented below:
Strategic priorities
Inventing the Future What we measure How we performed % Proportion of revenue coming from products 45 1 launched in the previous three years 37 37 Link to strategy 35 30
Why we measure To measure the effectiveness of our R&D programmes
2015 2016 2017 2018 2019
Realising the Brand What we measure How we performed
®2 Net Promoter Score 60 58 61 55 Link to strategy 52
Why we measure To measure customer feedback
2015 2016 2017 2018 2019
Adding Personal Value What we measure How we performed “Value add” = (adjusted operating profit + 1.51 1.50 1.40 1.48 1.41 employment costs)/employment costs Link to strategy
Why we measure To measure efficiency
2015 2016 2017 2018 2019
1. To ensure this metric better reflects the performance of those businesses which invest in R&D, the revenue from the Group’s OI Healthcare division has been excluded from this metric. Results from previous years have been restated to show this. 2. The Net Promoter Score is a metric which is compiled by asking customers whether they would recommend Oxford Instruments to a friend or colleague. Customers give a score between zero and ten. Those customers who score nine or ten are promoters, those customers who score seven or eight are neutral and customers who score six or less are detractors. The Net Promoter Score is the difference between the number of promoters and the number of detractors (both expressed as a percentage of the number of replies received). The score can range between -100 (no customers are promoters) and +100 (all customers are promoters). A positive score indicates that the Company has fewer detractors than promoters. 3. Calculated as adjusted operating profit divided by revenue. 4. Cash conversion is defined as the ratio of cash generated from continuing operations before non-recurring items and acquisition‑related costs, and pension scheme payments, less capitalised development expenditure and net capital expenditure on property, plant and equipment to adjusted operating profit (see Income Statement). 5. Calculated as adjusted operating profit less amortisation (but before impairment) of intangible assets divided by capital employed. Capital employed is defined as assets (excluding cash, tax and derivative assets) less liabilities (excluding tax, debt, derivative and pension liabilities).
24 Strategic Report Governance Financial Statements Company Information 25 109 14.9 15.3 20.6 12.4 2019 2019 2019 2019 2019 69 (1.1) 17.0 35.7 15.7 2018 2018 2018 2018 2018 90 1.2 8.9 11.1 12.7 2017 2017 2017 2017 2017 8.5 124 14.1 (0.5) (4.3) Operational Operational Excellence 2016 2016 2016 2016 2016 74 6.8 12.9 13.3 2015 2015 2015 2015 2015 (24.7) How we performed % How we performed % How we performed % How we performed % How we performed % Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford Customer Customer Support
flow
margins
cash
conversion ratio and high level
free
Why we measure cost of capital Why we measure deliver ROCE in excess of our To Why we measure operating maintain a strong To cash of Why we measure achieve long-term, To Why we measure sustainable growth profitable, drive To the implementation of our strategy through consistently maintain underlying To operating in EPS consistent growth Innovation and Development Product 3 5 Market Intimacy 4 and margin and
Link to strategy Return on capital capital on Return (ROCE) employed Link to strategy Cash flow Link to strategy Adjusted earnings per growth (EPS) share Link to strategy Adjusted operating operating Adjusted profit Link to strategy Revenue growth Revenue Core capabilities: Core To deliver Shareholder returns through profitable, sustainable growth with strong cash conversion and efficient use of capital. cash conversion with strong sustainable growth profitable, through returns deliver Shareholder To Financial goal Financial Oxford Instruments plc Report and Financial Statements 2019
OPERATIONS REVIEW
Materials & Characterisation
This sector includes: NanoAnalysis, Asylum Research and Plasma Technology.
Semiconductor wafer
Materials & Characterisation delivered strong growth in orders, revenue and profitability.
Revenue Adjusted2 operating profit £137.9m +16.8% £22.1m +10.0%
1 1 (2018: £118.1m) +15.3% (2018: £20.1m) +13.9% At constant currency At constant currency
Adjusted2 operating margin Profit before tax after adjusting items 16.0% 19.7m
(2018: 17.0%) (2018: £17.3m)
26 Strategic Report Governance Financial Statements Company Information 27 Asia.
The sector had growth across each of our across The sector had growth target application segments, with particularly within Advanced Materials, growth strong which accounted for 39% of sales in the Semiconductor & Communications sector. 42% of sales, with Energy, represented & Lifescience and Healthcare Environment 7%, 6% and 5% applications representing a geographic From of sales, respectively. in each of the grew perspective, revenue North America of Europe, major regions and Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford We provide leading product performance, leading product provide We of use and enhanced ease improved with the analytics and productivity, of information to aid the interpretation data. acquired strong Materials & Characterisation delivered and profitability. revenue in orders, growth This was supported by our continued focus on to targeted end offering tailoring our product customer segments and the success of recently and solutions. Through launched products our applications focus we have been able to value for our existing customers and increase into new addressable expanded our reach markets. This led to significant growth customers, and commercial industrial from of sales in the period with their proportion to 58% (2018: 49%). Academic increasing broadly with orders robust, markets remained year. in line with the previous leading ‑ leading atomic ‑ efer to note on page 2. higher performance materials
electron analysis systems used in analysis electron
Financial Statements.
these
For definition r Details of adjusting items can be found in Note 1 to
1. 2. and enhancing productivity in advanced and enhancing productivity manufacturing, quality assurance (QA) and (QC). quality control conjunction with electron and ion microscopes and ion microscopes conjunction with electron as well as our performance This sector has a broad customer base across a customer base across This sector has a broad wide range of applications for the imaging and analysis of materials down to the atomic level as well as the fabrication of semiconductor our range of through devices and structures advanced semiconductor etch and deposition Our portfolio of imaging systems. process systems includes our range of market The sector has a strong microscopes. force focus on supporting and accelerating our customers’ applied R&D, enabling the development of new devices, next generation X-ray and Oxford Instruments plc Report and Financial Statements 2019
OPERATIONS REVIEW CONTINUED
Materials & Characterisation
The continued demand for lighter, stronger In particular, we have had strong sales growth The Semiconductor & Communications and higher functioning materials has driven from our imaging and analysis products used segment saw continued order and revenue our growth in Advanced Materials. Here, with electron microscopes, namely our UltimTM growth in the year. Whilst sales to mainstream our solutions are being used to aid the range of large area X-ray detectors and silicon chip manufacturing and electronics development of next generation products and SymmetryTM, our super-fast material structural declined, we received particularly strong components, as well as in the QC and QA of analysers. These analysers enable productivity growth from commercial customers across current manufactured products. Some of the improvement through higher speed, our portfolio of semiconductor etch and key market applications include automotive resolution and accuracy of analysis. deposition solutions, underpinned by our and aerospace, additive manufacturing, leading performance and expertise in We have also had good growth within consumer electronics, displays, and polymers. compound semiconductors. Here, materials additive manufacturing applications where such as silicon carbide, indium phosphide As an example, the disruptive transformation our imaging systems are being used and gallium nitride are critical to produce within the automotive industry towards to measure a range of critical material the higher speeds, larger capacity and electric, hybrid and autonomous vehicles is properties, assess the performance and improved energy efficiencies required to driving manufacturers to use new composite quality of the manufactured components, realise a greener economy, autonomous materials and super alloys, faster dynamic and help optimise the manufacturing process. vehicles and ubiquitous unbound connectivity, control electronics, and develop more efficient Building on our expertise in particle analysis, when compared to current silicon‑based battery storage and power delivery solutions. we have developed a tailored solution for the technologies. Success in the segment was This is driving an increasing demand for our QC of the raw material feedstock, helping supported by the breadth of end applications advanced analytical imaging and etch and avoid contamination and maintaining end that we support, as well as our reach across deposition systems, with the mechanical product performance. fundamental research, applied R&D of next properties, performance and reliability generation products, and the manufacturing of advanced materials being determined support and production of current products. through the design and precise control of the composition, microstructure and thin film coatings.
28 Strategic Report Governance Financial Statements Company Information 29 atomic TM large area and high sensitivity X-ray and large area
calcium, sodium and potassium ions in
1: Cypher Atomic Force Microscope 1: Cypher Atomic Force etching system 2: PlasmaPro As our analytical systems become increasingly As our analytical systems become increasingly sensitive and easier to use by non-experts, we have found new opportunities within several markets for our X-ray analysers and atomic researchers In Lifescience, microscopes. force using our video rate Cypher are force microscope to observe biomolecular to observe microscope force furthering their interactions in real-time, understanding of how our bodies work. Our brain and nerve cell functionality; cardiac, helping to while in food markets we are yield. food integrity and production improve solutions are being used to observe the role being used to observe the role solutions are of Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford analysis
performance
Award for Innovation. Award
sensitive Extreme™ X-ray analyser is sensitive Extreme™ ‑ commercially effective price points. effective commercially recognition of the innovation encompassed of recognition
the market leader in imaging of the internal chemistry and active interfaces at the nanoscale higher for the development of new, required capacity and faster charging systems. Second, particle we have developed a tailored solution to aid the detection of microscale metal impurities, which degrade failure. and can cause catastrophic In received it has recently within the Extreme™, the Queen’s In the Energy segment, we saw good growth In the Energy segment, we saw good growth generation, storage and battery energy across of the increasing applications as a result our (Li) batteries. Here in lithium interest material analysers support two key drivers. First, our advanced high energy-resolution and ultra We have been working with a number We organisations to of leading commercial help develop the necessary semiconductor device performance, quality and reliability at
based ‑ up displays, video walls and based solutions for ‑ ‑ oss heads used acr smart watches. Within compound semiconductors we have demand being driven by seen increasing the long-term transitioning of technology silicon away from connectivity and power electronics, the are communication. Power electronics enabling technologies to use, distribute The move and generate electrical energy. to silicon carbide and gallium nitride solutions enables a step change in energy a range sales across with increased efficiency, of end applications including electric vehicles and distribution networks. Our gallium arsenide and indium phosphide process speed and solutions support the increased to deliver capacity required infrastructure transformation in connectivity, the desired for example 5G networks and the rise in Demand for increased the data economy. across communication is driving growth devices such as sensors and optoelectronic vertical cavity surface emitting lasers (VCSELs), sensor arrays and microLEDs three-dimensional Oxford Instruments plc Report and Financial Statements 2019
OPERATIONS REVIEW CONTINUED
Research & Discovery
This sector includes: Andor Technology, NanoScience, Magnetic Resonance, X-ray Technology and our minority share in Scienta Omicron.
Mould specimen captured by a Sona camera
The sector had good growth in orders and revenue.
Revenue Adjusted2 operating profit £125.2m +11.8% £12.7m -8.0%
1 1 (2018: £112.0m) +9.9% (2018: £13.8m) -2.2% At constant currency At constant currency
Adjusted2 operating margin Profit before tax after adjusting items 10.1% £6.6m
(2018: 12.3%) (2018: £4.1m)
30 Strategic Report Governance Financial Statements Company Information 31 We had growth across our three largest our three across had growth We & customer segments of Healthcare and Lifescience, Quantum Technology Science, which & Fundamental Research 41%, 22% and 19% of sales represent Sales to customers exploring respectively. new advanced materials, semiconductors or developing energy and environmental in line with broadly applications remained a geographical From year. the previous across perspective, we had good growth North America. Asia and Europe, Oxford Instruments plc Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford party customers, a lower contribution ‑ investment in operational excellence.
from the Scienta Omicron joint venture and joint venture Omicron the Scienta from an The sector had good growth in orders and in orders The sector had good growth performance by a strong driven revenue systems, microscopy our optical from scientific cameras, cryogenic systems magnets. research and superconducting Performance was supported by positive academic end markets leading to strong portfolio, the product across growth order into commercial augmented by further growth customers for our scientific cameras, cryogenic saw systems. We and optical microscopy in our NanoScience continued improvement business under a new leadership team. improvement underlying profit However, by than offset within the sector was more but sustained, period of low a temporary, manufacturing yield at X-Ray Technology, our scientific X-ray tubes for which produces third funded research funded research ‑ efer to note on page 2. Financial Statements.
these
For definition r Details of adjusting items can be found in Note 1 to
community and 31% from industrial or community and 31% from customers. commercial 1. 2. This sector provides advanced solutions that This sector provides and enable unique environments create down imaging and analytical measurements to the molecular and subatomic level, used in fundamental and applied predominantly build on our relationships We research. with customers working on breakthrough to gain insights and applications in research applications. We commercial support future and leading brand recognition have strong in our chosen market performance product the segments, with 69% of sales from academic or Government Oxford Instruments plc Report and Financial Statements 2019
OPERATIONS REVIEW CONTINUED
Research & Discovery
Growth in Healthcare & Lifescience was driven The enhanced performance it provides This has proven especially valuable for by a strong performance from our optical researchers is enabling improved our strategic OEM partners. It is providing microscopy products and solutions, including understanding and the development of them with a core capability for their gene our DragonflyTM confocal microscope, our new therapeutic approaches for cancer and sequencing and clinical screening solutions, image visualisation and analysis software neurological conditions, such as Alzheimer’s which are used for drug feasibility studies and and scientific cameras used on third‑party and Parkinson’s. in the development of personalised medicines. measurement solutions. The launch of our Building on our understanding of the needs With the expanding role of technology SonaTM camera further enhanced our portfolio of researchers in this segment, Imaris™, our in the world we have seen an increase in of high sensitivity cameras specifically tailored imaging software, enables the visualisation academic and Government investment in for life science applications. and analysis of the huge datasets modern more basic and fundamental science across There is an increasing need from those optical microscopy systems create. Imaris™ a broad range of disciplines, as well as working in neuroscience, cell and offers enhanced interpretation of results an ongoing renewal and regeneration of developmental biology to be able to acquire, and our customers are using it to better large‑scale national user facilities. While end visualise and analyse multiple large samples understand conditions, such as autism and user applications vary, we are well positioned to better understand the core biological Alzheimer’s, and processes, such as cellular to support them with a range of optical, processes that lead to disease. DragonflyTM activity during wound and organ repair and cryogenic, magnetic resonance imaging has become a platform of choice for these immune response to foreign organisms. and high magnetic field solutions. researchers as it can handle such sample Our high sensitivity cameras, which offer types while offering ease of use and an enhanced performance at low light levels, exceptional imaging capability that spans are being used to measure and observe the from the millimetre scale right down to the interaction with individual biomolecules nanometre scale. in real time, increasing the accuracy and relevance of results.
32 Strategic Report Governance Financial Statements Company Information 33 Materials segments our broad range Materials segments our broad
conducting magnet Royal Mail stamp commemorating the super Scientist analysing crisp sample using Pulsar NMR 1: 2: of analytical systems are supporting research supporting research of analytical systems are into sustainable foods, water cleanliness and advanced fabrics, as well as ensuring For example, compliance within food supply. resonance our high field benchtop magnetic the oil being used to measure analysers are and fat content of foods, contamination aiding the productivity and are within water, of high-performance and quality control fabrics for clothing manufacture. Within the Energy, Environment and and Environment Within the Energy, Advanced Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford segment. Global annual spend on
billion and is set to continue over the
quantum technologies is estimated to exceed $1.5 the next decade. Quantum technologies offer in computational potential for vast increases information speed, new paradigms for secure sensor sensitivities transfer and unprecedented range of industrial a broad applicable across and medical applications. With our Triton™ cryogenic platforms and ultra-low temperature well placed to exploit iXon™ cameras, we are opportunities. these growing Exoplanet discovery continues to attract and our notable funding within astronomy well placed cameras are range of large area for this application. The drive to find other level of earth-like planets and the increased privately funded space developments provide opportunities. continued growth Fundamental shifts in technology and and research driving increased capability are applied development for both academic and customers. Quantum Technology commercial demand and continues to deliver strong in the year growth order we had increased for this breaking discoveries of new materials discoveries breaking ‑ performance of these materials on a solutions will allow researchers to make solutions will allow researchers
ground and novel phenomena, furthering our properties understanding of the structure, and quantum scale. in astronomy, continue to see sales growth We our specialised cameras, such as the where allowing the launched Marana™, are recently of the sky with rapid imaging of large areas This is enhancing the sensitivity. increased tracking of small particles of space junk that undetectable; space junk had been previously can be very damaging to operational satellites space missions. and future During the year we won a significant global tender to supply several high-performance magnetic field systems cryogenic and extreme Institute of Physics Chinese to the renowned Academy of Sciences (IOP-CAS). This builds of the on the performance and reliability supplied many systems we have previously existing laboratories. to the IOP-CAS’s Our Oxford Instruments plc Report and Financial Statements 2019
OPERATIONS REVIEW CONTINUED
Service & Healthcare
This sector includes: The Group’s maintenance service contracts, billable repairs, training and support services, and spare part sales.
Engineer servicing a Triton dilution refrigerator
In OiService we have seen an increased demand for services and support related to our own products.
Revenue Adjusted2 operating profit £70.5m +5.5% £14.9m +18.3%
1 1 (2018: £66.8m) +4.2% (2018: £12.6m) +15.9% At constant currency At constant currency
Adjusted2 operating margin Profit before tax after adjusting items 21.1% £14.1m
(2018: 18.9%) (2018: £10.6m)
34 Strategic Report Governance Financial Statements Company Information 35 have also created bespoke training have also created
improve yield and maximise up-time. improve
In OiService we have seen an increased In OiService we have seen an increased to demand for services and support related As part of our Horizon our own products. strategy we continue to develop our customer supporting our customers’ service offerings, needs by focusing on how we can add value their in their day-to-day work and increase support remote offer We overall productivity. packages and can undertake dynamic and of system performance monitoring remote to We packages to help our customers get the most and help with expert their equipment from have built on the We data interpretation. ongoing success of our Chinese Summer first School by hosting Taiwan’s Microscopy with the National Taiwan School of Microscopy over This two-day event attracted University. academia and industry. 150 participants from website, e-commerce our dedicated Through our customers can conveniently find a range and a selection of consumables of relevant services. related Oxford Instruments plc Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford class ‑ in ‑ instrument contracts at larger ‑ centres. centres.
technical expertise, response times and technical expertise, response
imaging Within Japan, we continue our focus on supporting our key account customers of best the provision through national coverage has enabled us to win further accounts within the year. Our US OI Healthcare business continues Our US OI Healthcare of revenue to return a higher proportion to the sale of relative service contracts from in line with our strategy. systems, refurbished has been good improvement In the year there in the lease utilisation of our fleet of mobile imaging systems, and our increased focus on service capabilities has helped win multi service support for a range of MRI systems. Our efer to note on page 2. Financial Statements.
these
Healthcare brand. Healthcare For definition r Details of adjusting items can be found in Note 1 to
1. 2. In the year the sector had order and revenue and revenue In the year the sector had order and profitability with increased growth, of an improved operating margin, as a result and both OI Healthcare performance from OiService. The Service & Healthcare sector comprises the The Service & Healthcare contracts, billable maintenance service Group’s and support services, and training repairs, Instruments’ to Oxford related part sales spare the OiService brand; under own products of refurbished and the sale, service and rental and CT machines under the MRI third-party OI Oxford Instruments plc Report and Financial Statements 2019
FINANCE REVIEW
Revenue £333.6m +12.4%
(2018: £296.9m)
Adjusted profit before tax from continuing operations grew by 12.3% to £47.5 million Adjusted operating (2018: £42.3 million), representing a margin profit from continuing of 14.2% (2018: 14.2%). Adjusting items include amortisation of operations increased by acquired intangibles of £9.6 million and a net charge of £0.9 million relating to loan 6.9% to £49.7 million note make-whole settlement payments, a net credit from our associate, Scienta Omicron, (2018: £46.5 million) and a charge due to Guaranteed Minimum Pension equalisation. The movement in the mark‑to‑market valuation of un-crystallised currency hedges for future years gave rise to a charge of £1.5 million. Reported orders increased by 12.9% to Summary £353.5 million (2018: £313.0 million), an After adjusting items, the Group recorded • Orders up 12.9% to £353.5 million. increase of 12.0% at constant currency. an operating profit of £38.6 million (2018: At the end of the period the Group’s order £38.4 million) and profit before tax of • Order book of £171.6 million, book for future deliveries stood at £171.6 £35.5 million (2018: £34.2 million). up 12.2%. million (31 March 2018: £134.0 million). Continuing adjusted basic earnings per • Net cash of £6.7 million following The order book as at 31 March 2018 restated share grew by 15.3% to 64.9 pence (2018: strong cash conversion of 103%. on an IFRS 15 basis is £153.0 million, against 56.3 pence). Continuing basic earnings per £134.0 million as previously reported. Against share were 50.1 pence (2018: 34.3 pence). • Full‑year dividend increased this IFRS 15 adjusted comparative, the order Cash generated from operations of by 8.3% to 14.4 pence. book grew 12.2% on a reported basis and £56.3 million (2018: £33.4 million), 9.4% at constant currency. represents 103% (2018: 69%) cash The Group has adopted IFRS 15 Revenue from Reported revenue increased by 12.4% conversion. Net debt decreased from Contracts with Customers using the modified to £333.6 million (2018: £296.9 million). £19.7 million on 31 March 2018 to net retrospective approach. Comparatives have Revenue, excluding currency effects, increased cash of £6.7 million. not been restated. The main difference is by 10.8%, with the movement in average Adjusted operating profit is stated before within our NanoScience business where the currency exchange rates over the year impairment and amortisation of goodwill revenue recognition on complex customised increasing reported revenue by £4.7 million. magnetic and cryogenic systems is deferred and acquired intangibles, restructuring from being primarily on transfer of rights Adjusted operating profit from continuing costs, the mark-to-market valuation of and rewards of ownership to completion operations increased by 6.9% to £49.7 million unexpired currency hedges, and other of installation. The Group has also adopted (2018: £46.5 million). Adjusted operating adjusting items, as set out in Note 1 to IFRS 16 Leases in the 2018/19 financial year. profit from continuing operations, excluding the Financial Statements. The net accounting impact of adopting currency effects, increased by 9.7%. Adjusted IFRS 15 and IFRS 16 is to increase revenue operating margin from continuing operations by £7.0 million and profit before tax by decreased by 80 basis points to 14.9% (2018: £2.6 million. 15.7%), impacted by a currency headwind and in-year investment in operational excellence. Excluding currency effects, adjusted operating margin fell by 20 basis points to 15.5%.
36 Strategic Report Governance Financial Statements Company Information 37 6.9% 8.3% Change 12.4% 15.3% 46.1% 14.6% 45.7% 17.3% 12.3%
£m 0.5 0.9 3.1 (4.2) (0.3) 46.5 42.3 34.2 19.6 (10.9) (14.6) 296.9 56.3p 34.3p 56.1p 34.1p 13.3p 150.9 ch 2018 (105.8) 6.9% 23.9% ear ended Y 31 Mar +
£m 0.2 (1.2) (2.2) (9.6) (0.9) (1.5) (6.8) 49.7 47.5 35.5 28.7 333.6 177.0 64.9p 50.1p 49.7p 14.4p 64.3p ch 2019 (126.3) 21.9% ear ended Y
31 Mar
Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford
Adjusted operating profit Adjusted operating £49.7m (2018: £46.5m)
17.3%
+
hedges
1
intangibles
nings per share – basic nings per share – diluted nings per share
ency tax ofit & Characterisation, 11.8% for Research & Discovery and 5.5% for Service & Healthcare. & Characterisation, 11.8% for Research operations
pr curr
e
of acquired acquired
before before expenses items fective tax rate is calculated excluding amortisation of acquired intangibles, the mark-to-market of financial derivatives, and other adjusting items. fective tax rate is calculated excluding amortisation of acquired of shar tax
costs Characterisation, 16.1% for Research & Discovery and 7.6% for Service & Healthcare. & Discovery and 7.6% for Service & Healthcare. Characterisation, 16.1% for Research
ofit fective tax rate
& operating pr per continuing
exchange from the service of our own products. from for Materials World of 5.9%. World
profit before before ecurring of Plasma Technology. Constant currency growth of 9.9% in Research & Discovery was primarily driven by good progress from Andor Technology, Andor Technology, from & Discovery was primarily driven by good progress of 9.9% in Research growth Constant currency Plasma Technology. e of profit of associate of e of profit
finance
from from
eign The adjusted ef ofit ofit for the period from continuing operations ofit for the period from
(2018: £150.9m) £177.0m Gross profit Gross
ax partially offset by a small decline in revenue for X-Ray Technology. Service & Healthcare constant currency revenue grew by 4.2%, with good grew revenue constant currency Service & Healthcare for X-Ray Technology. by a small decline in revenue partially offset growth On a geographical basis, at constant currency, revenue grew by 2.5% in Europe, 9.8% in North America, 17.7% in Asia, with a small decline in in Europe, by 2.5% grew revenue On a geographical basis, at constant currency, Rest Reported revenue of £333.6 million (2018: £296.9 million) increased by 12.4% (10.8% at constant currency). Reported revenue increased by increased Reported revenue by 12.4% (10.8% at constant currency). increased of £333.6 million (2018: £296.9 million) Reported revenue 16.8% Gross Gross and revenue Orders by 10.3% for increased at constant currency, to £353.5 million. Orders, by 12.9% (12.0% at constant currency) grew orders reported Total Materials to goods and services billed in the period) for the year was 1.06. received The book-to-bill ratio (orders NanoAnalysis performance from by 15.3% for Materials & Characterisation, with a particularly strong increased Revenue, at constant currency, and 1. Revenue
Income Statement Income Statement is summarised below. The Group’s Dividend Continuing adjusted ear Continuing adjusted ear – basic Continuing earnings per share – diluted Continuing earnings per share Administrative Shar For Pr Non-r Mark-to-market Adjusted Adjusted Net Amortisation T Adjusted ef Pr Oxford Instruments plc Report and Financial Statements 2019
FINANCE REVIEW CONTINUED
Income Statement continued Orders and revenue continued After adjusting the comparative period for IFRS 15, total reported order book grew by 12.2% (9.4% at constant currency). The order book, at constant currency, compared to 31 March 2018, increased by 16.7% for Materials & Characterisation and 15.3% for Research & Discovery. Good growth in orders from the service of our own products was offset by a decline in OI Healthcare’s order book, resulting in a segment decline of 8.0%. Materials & Research & Service & £m Characterisation Discovery Healthcare Total1 Revenue: 2017/18 118.1 112.0 66.8 296.9 Underlying movement 18.1 11.1 2.8 32.0 Foreign exchange 1.7 2.1 0.9 4.7 Revenue: 2018/19 137.9 125.2 70.5 333.6
Revenue growth: reported 16.8% 11.8% 5.5% 12.4% Revenue growth: constant currency 15.3% 9.9% 4.2% 10.8% 1. Excluding inter-sector revenue.
Gross profit Gross profit increased by 17.3% to £177.0 million (2018: £150.9 million), representing a gross profit margin of 53.1%, an increase of 230 basis points over last year.
Operating profit Adjusted operating profit from continuing operations increased by 6.9% to £49.7 million (2018: £46.5 million), representing an adjusted operating profit margin of 14.9%, a decrease of 80 basis points against last year. At constant currency, the adjusted operating profit margin was 15.5%, a decrease of 20 basis points. The margins across all three segments have been impacted by the allocation of £2.0 million of incremental costs associated with our operational improvement programme. Excluding these costs, adjusted operating margin would have been 15.5% on a reported basis and 16.1% at constant currency. Materials & Characterisation margin declined by 100 basis points to 16.0% (2018: 17.0%). At constant currency, the margin was 16.8%, a decline of 20 basis points. Research & Discovery’s adjusted operating margin declined to 10.1% (2018: 12.3%), a decline of 220 basis points. At constant currency, the margin was 11.0%, a decline of 130 basis points. In addition to the segment’s share of operational improvement costs, the reduction was impacted by a loss in the year incurred within our X-Ray Technology business. Service & Healthcare margin increased by 220 basis points to 21.1% (2018: 18.9%). At constant currency, the margin was 21.0%, an increase of 210 basis points. During the year the Group received a favourable legal opinion on a long-term patent dispute. Consequently, a provision of £1.5 million was released to adjusted operating profit. As a key element of its operational excellence programme, the Group is committed to reducing working capital across its portfolio of businesses. Inventories and receivables are being closely scrutinised and measured against set targets. The Group has increased the provision for a write-down of working capital by £1.8 million. Our share of the Scienta Omicron joint venture showed an adjusted profit after tax of £0.2 million for the year, against a profit of £0.5 million for the comparative period. After adjusting items, our share of the Scienta Omicron joint venture was a profit of £0.5 million. Currency effects (including the impact of transactional currency hedging) have reduced reported adjusted operating profit by £1.3 million when compared to blended hedged exchange rates for the comparative period. Materials & Research & Service & £m Characterisation Discovery Healthcare Total Adjusted operating profit: 2017/18 20.1 13.8 12.6 46.5 Underlying movement 2.8 (0.3) 2.0 4.5 Foreign exchange (0.8) (0.8) 0.3 (1.3) Adjusted operating profit: 2018/19 22.1 12.7 14.9 49.7
Margin: 2017/18 17.0% 12.3% 18.9% 15.7% Margin: 2018/19 16.0% 10.1% 21.1% 14.9%
38 Strategic Report Governance Financial Statements Company Information 39 million
October 2019 to Shareholders October 2019 to Shareholders
each year in line with the increase each year in line with the increase
the sale of Industrial Analysis, which pence (2018: 9.6 pence). This results pence (2018: 9.6 pence). This results
completed on 3 July 2017.
elation to the finalisation of tax affairs elation to the finalisation of tax affairs at 31 March 2019 the Group had currency had currency 2019 the Group at 31 March US Dollars, 18% in Euros, 11% in Japanese 11% in US Dollars, 18% in Euros, underlying earnings, considering
in r was in a total dividend of 14.4 pence (2018: of 8.3%. The final 13.3 pence), an increase dividend will be paid, subject to Shareholder on 18 approval, Yen and 2% in other currencies. Translational Translational in other currencies. and 2% Yen of arise on the consolidation exposures into Sterling. overseas Company results the arise where exposures Transactional transactions of sale or purchase currency in which currency the functional from differs local accounts. its each company prepares maintains a hedging programme The Group using against its net transactional exposure internal of expected currency projections trading transactions expected to arise over 12 to 24 months. a period extending from As Discontinued operations £1.6 received In May 2019, the Group outstanding upon the disposal of the Industrial Analysis business. A gain of £1.3 million under after taxation has been recorded within discontinued operations. Recorded the comparative period under discontinued of £45.9 million operations is a post-tax profit from Dividend the policy is to increase The Group’s dividend in has The Board movements in currency. the final dividend to to increase proposed 10.6 as at 13 September 2019. on the register Foreign exchange Foreign faces transactional and The Group most notably exposure, translational currency and Japanese Yen. Euro against the US Dollar, 14% of Group approximately For the year, 55% was denominated in Sterling, revenue in hedges in place extending up to twelve months forward. Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford illion) is after the mark-to-market months.
m
pence (2018: 56.1 pence). Continuing million) with net finance charges falling million) with net finance
This has been offset by an un-crystallised gain by an un-crystallised This has been offset the value of Sterling at attributable to a rise in against a blended rate the balance sheet date forward and Japanese Yen achieved on Euro next over the contracts that will mature twelve movement on derivative financial instruments, intangibles and other amortisation of acquired adjusting items. Earnings per share Continuing adjusted basic earnings per by 15.3% to 64.9 pence increased share (2018: 56.3 pence); continuing adjusted by 14.6% to grew diluted earnings per share 64.3 by 46.1% increased basic earnings per share to 50.1 pence (2018: 34.3 pence); continuing by 45.7% to grew diluted earnings per share 49.7 pence (2018: 34.1 pence). The number of undiluted weighted average constant at 57.2 million. remained shares Profit before tax before Profit tax before Continuing adjusted profit 12.3% to £47.5 million (2018: by increased tax before £42.3 million). The adjusted profit margin of 14.2% (2018: 14.2%) was in line with last year. tax of £35.5 before millionProfit (2018: £34.2 Tax continuing The adjusted tax charge from operations of £10.4 million (2018: £10.1 tax rate of an effective million) represents 21.9% (2018: 23.9%). In April 2019, the adjudicated on a historical loan Tribunal Tax The decision went arrangement structure. a Instruments and as a result against Oxford payment of £4.0 million was made to HMRC covered in April 2019. The liability was broadly credits. and one-off by historical provisions Net finance costs adjusted net finance costs The Group’s million (2018: fell by £2.0 million to £2.2 £4.2 by £1.7 million to £1.9 million, and pension financing charges falling by £0.3 million to £0.3 million. cannot be justified.
costs. requirements of IFRS 9 to requirements
end neutral position reflects an end neutral position reflects technology, customer relationships customer relationships technology, ‑
of million (2018: £3.1 million gain). million. During the period we repaid we repaid million. During the period million relates to intangible assets million relates
reflects the movement on currency the movement on currency reflects year
crystallised loss arising from a fall in the crystallised loss arising from restructuring ‑
un value of Sterling at the balance sheet date against a blended rate achieved on US Dollar over the that will mature contracts forward next twelve months. This hedging future derivatives that are for the exposures transactional currency an opening net fair value asset – from Group of £1.5 million to a closing neutral position. The Accordingly, the Group does not use hedge the Group Accordingly, accounting for these derivatives. Net movements on marking-to-market periods are of future derivatives in respect disclosed in the Income Statement as foreign our calculation exchange and excluded from tax. before of adjusted profit of The mark-to-market loss in respect derivative financial instruments was £1.5 apply hedge accounting to these foreign apply hedge accounting to these foreign exchange hedges The Group uses derivative products to hedge uses derivative products The Group to fluctuations in its short-term exposure policy exchange rates. It is Group foreign to have in place at the beginning of the financial year hedging instruments to cover transactional exposure 80% of its forecast has decided that The Group for that year. the additional costs of meeting the extensive documentation and brands. a net charge of items were Non-recurring £0.9 outstanding £11.5 million of the principal of the sale on loan notes as a condition of Industrial Analysis. The make-whole settlement cost due at the time of the was £0.9 million. Following the repayment confirmation on Guaranteed High Court’s Minimum Pension equalisation between males a charge and females, we have recognised of £0.3 million. Our associate recognised a net gain of £0.3 million, comprised of of an a gain of £0.6 million on a reversal by £0.3 million impairment, partially offset of Adjusting items of intangibles Amortisation of acquired £9.6 on acquisitions, being the recognised value Oxford Instruments plc Report and Financial Statements 2019
FINANCE REVIEW CONTINUED
Cash flow The Group cash flow is summarised below. Year ended Year ended 31 March 2019 31 March 2018 £m £m Adjusted operating profit 49.7 46.5 Depreciation and amortisation 11.0 9.1 Adjusted EBITDA 60.7 55.6 Working capital movement 3.7 (13.2) Purchase of rental assets held for subsequent sale (1.1) (0.7) Loss on disposal of property, plant and equipment 0.2 0.3 Equity settled share schemes 0.8 1.1 Share of profit from associate (0.2) (0.5) Restructuring costs (0.7) (1.3) Pension scheme payments above charge to operating profit (7.1) (7.9) Cash generated from operations 56.3 33.4 Interest (3.2) (2.1) Tax (8.7) (3.8) Capitalised development expenditure (3.5) (5.8) Expenditure on tangible and intangible assets (6.3) (4.8) Proceeds from sale of property, plant and equipment — 9.3 Increase in investment in associate — (2.1) Proceeds from sale of subsidiary undertaking — 71.2 Decrease in long-term receivables 1.1 0.9 Dividends paid (7.6) (7.4) Proceeds from issue of share capital and exercise of share options 0.2 0.2 Payments made in respect of lease liabilities (3.2) — Decrease in borrowings (11.5) (96.8) Net increase/(decrease) in cash and cash equivalents from continuing operations 13.6 (7.8) Note: Adjusted EBITDA is earnings before interest, tax, depreciation, amortisation of acquired intangibles, mark-to-market of financial derivatives, restructuring costs and other non-cash adjusting items.
Cash generated from operations Cash generated from operations of £56.3 million (2018: £33.4 million) represents 103% (2018: 69%) cash conversion. The impact of IFRS 16 is to recognise a lease liability and corresponding asset for leases previously classified as operating leases. As a result, the depreciation charge for the year includes an additional £3.3 million reflecting the increase in asset base. Compared to the comparative period, cash generated from operations is also higher by £3.3 million. Cash conversion is defined as cash generated from operations before non-recurring items and pension scheme payments, less capitalised development expenditure, capital expenditure and payments made in respect of finance leases/adjusted operating profit. Payments made in respect of finance leases are now included within our definition of cash conversion to retain a like-for-like comparison following the introduction of IFRS 16. Working capital fell by £3.7 million, reflecting an increase in inventories of £4.0 million and receivables of £3.5 million, combined with payables and customer deposits increasing by £4.1 million and £7.1 million respectively.
Interest Net interest paid was £3.2 million (2018: £2.1 million). This includes loan note make-whole payments of £0.9 million as a consequence of repaying loan note principal following the sale of Industrial Analysis. Net interest paid in the comparative period was low due to payment timing differences.
Tax Tax paid was £8.7 million (2018: £3.8 million), the comparative period benefiting from tax deductions on allowable adjusting items and utilisation of brought‑forward tax losses. Following the Tax Tribunal adjudication on historical loan structures, the Group made a cash settlement to HMRC of £4.0 million in April 2019, after the end of the financial year.
40 Strategic Report Governance Financial Statements Company Information 41 £m £m 7.6 0.1 3.2 8.7 3.5 6.3 3.2 5.8 (0.1) (4.4) (1.1) (1.5) (6.7) 23.4 24.8 19.7 (56.3) ch 2018 ear ended Y 31 Mar
£m 0.1 3.5 (0.1) (3.5) 25.4 25.4 ch 2019 ear ended Y 31 Mar
Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford
denominated multi-currency facility of $80.0 million. denominated multi-currency ‑
e
assets assets
within non-recurring items. within non-recurring
assets fixed items
expenditur fixed intangible ch 2019 included
other receivables operations as as espect of lease liabilities e on tangible and intangible assets and om leaving an outstanding note of £27.9 million, which matures in March 2021. Associated make-whole settlement costs of 2021. Associated make-whole settlement in March leaving an outstanding note of £27.9 million, which matures
fr
R&D-related R&D-related
extension options at the end of the first and second years. The facility has been entered into with two banks and comprises extension options at the end of the first and second years. The facility has been entered
debt charged to the Income Statement and the cash spent is given below: charged to the Income of
have been long-term
development was £56.3 million. The Group invested in capitalised development costs of £3.5 million and tangible and intangible assets of £6.3 million. invested in capitalised development was £56.3 million. The Group note,
net
paid capitalised capitalised year in ‑ in cash. exchange
denominated multi-currency facility of €50.0 million and a US Dollar denominated multi-currency ‑ generated million one
ease est net ensure future liquidity in support of the business strategy. Our share was £2.1 million and was paid in September 2017. Our share of the business strategy. liquidity in support future ensure
amounts
eign Euro
ax For Analysis, £11.5 million of its bilateral private relating to the sale of Industrial repaid, as a pre-condition In the first half of the year the Group placement 2019 the business than 4.0 times. As at 31 March greater and EBITDA to interest net debt to EBITDA less than 3.0 times Debt covenants are had On 2 July 2018 the Group entered into a new unsecured multi-currency revolving facility agreement, which is committed until June 2023 facility agreement, revolving multi-currency into a new unsecured entered On 2 July 2018 the Group with £0.9 Funding a Good cash generation in the year moved the Group from having opening net debt of £19.7 million to net cash of £6.7 million. Cash generated from net debt of £19.7 million to net cash of £6.7 million. Cash generated from having opening from Good cash generation in the year moved the Group operations Movement 2018 Net debt as at 31 March Net debt and funding Net debt Amounts Amounts Disposals operations for the within discontinued recorded of £45.9 million is on 3 July 2017. A post-tax profit The sale of Industrial Analysis was completed comparative period. Inter Dividends Investment in associate venture the balance sheet of the joint to a capital injection to strengthen agreed Omicron of Scienta In the comparative period, the Shareholders and R&D expense charged to the Income Statement R&D expense charged to Depreciation Depreciation of R&D costs capitalised as intangibles Amortisation and impairment on R&D during the year cash spent Total Cash T Capitalised Capital expenditur Payments made in r Decr
Investment in Research and Development (R&D) and Investment in Research between (2018: £24.8 million, 8.4% of sales). A reconciliation £25.4 million, equivalent to 7.6% of sales cash spend on R&D in the year was Total the Net cash as at 31 Mar Oxford Instruments plc Report and Financial Statements 2019
FINANCE REVIEW CONTINUED
Pensions Going concern Forward-looking statements The Group has defined benefit pension The Group’s business activities, together This document contains certain schemes in the UK and USA. Both have been with the factors likely to affect its future forward‑looking statements. closed to new entrants since 2001 and closed development, performance and position, The forward‑looking statements reflect the to future accrual from 2010. are set out in the Performance, Strategy and knowledge and information available to the Operations sections. The financial position of Company during the preparation and up to At 31 March 2019, the net liability the Group, its cash flows, liquidity position the publication of this document. By their arising from our defined benefit and borrowing facilities are described in the very nature, these statements depend upon scheme obligations was £6.5 million Finance Review. circumstances and relate to events that may (31 March 2018: £15.3 million), a fall of occur in the future, thereby involving a degree £8.8 million. The reduction in the deficit The diverse nature of the Group, combined of uncertainty. Therefore, nothing in this was primarily due to the contributions with its financial strength, provides a solid document should be construed as a profit paid in the period. Total scheme assets foundation for a sustainable business. The forecast by the Company. at 31 March 2019 were £311.4 million Directors have reviewed the Group’s forecasts (31 March 2018: £289.5 million) and flexed them to incorporate a number while liabilities were £317.9 million of potential scenarios relating to changes in (31 March 2018: £304.8 million). trading performance. The Directors believe Gavin Hill that the Group will be able to operate within As at 31 March 2019, the UK defined benefit Group Finance Director its existing debt facilities. This review also pension liability includes an allowance 11 June 2019 considered the hedging arrangements in of £0.3 million for the expected cost of place. The Directors believe that the Group equalising Guaranteed Minimum Pension is well placed to manage its business risks between males and females. successfully. We have commenced a process to terminate The Financial Statements have been prepared the US defined benefit pension scheme. on a going concern basis, based on the This will extinguish all liabilities of the Directors’ opinion, after making reasonable scheme. The process is in its early stages enquires, that the Group has adequate and is not expected to complete until the resources to continue in operational existence end of March 2020. We estimate that the for the foreseeable future. cash cost of termination will be approximately US$4.5 million, with most of this due to be paid in the second half of the 2019/20 financial year.
42 Strategic Report Governance Financial Statements Company Information 43 related risks, related ‑ In its review of Brexit In its review that the most management concluded supply relates to the risk of significant risk event that ports and chain disruption in the in significant congested, resulting airports are of goods. A potential delays to the movement risk is stock-piling mitigating solution to this having considered of raw materials. However, the of such an approach, the risks and rewards took the decision not to stockpile. Group risk
Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford related related ‑ related risks. The key Brexit risks. related faced by UK that are risks related ‑ ‑ of the potential devaluation of Sterling post would not have an adverse impact on Brexit due to the earnings – rather, the Group’s of earnings in foreign significant proportion devaluation of Sterling should any currencies, have a positive impact on profitability. companies. For example, the risks relating companies. For example, the risks relating on EU purchases tariffs to potential future mitigated by largely are or sales post Brexit produces the type of goods that the Group as they typically have and purchases rates. Further, (i.e. 0%) tariff preferential to its products exports already the Group set countries outside the EU so it is already up to deal with the additional administrative trading from that would arise requirements The EU 27 post Brexit. with the remaining risks are set out at risk 6 overleaf. The work set risks are is likely performed shows that the Group of common a number from to be sheltered Brexit The update and review of individual business of individual business The update and review embedded in the are units’ risk registers activities of their senior management regular level, the consolidation teams. At Group the addition of of business unit risks and and approved reviewed risks are Group-wide or the Finance Director by either the Group with Group Chief Executive in conjunction the Group approved, risk management. Once to the Audit and Risk is reported risk register meetings. Committee at each of its regular the Group During the course of the year, has undertaken a detailed risk analysis on Brexit common methodology for the classification
of risks is used across all business units, of risks is used across to quantify approach following a standard the financial impact of a risk materialising, combined with an assessment of the likelihood risk score. of it arising to generate a gross The impact of any existing mitigating actions to quantify the level of residual is considered to classify the is used score risk. The resultant moderate, high or significant. risks as low, risk management consolidates the Group and adds business units’ risk registers risks to generate the additional Group-wide risk register The Group risk register. Group classified as high focuses on the risks that are all high appropriate, and significant. Where ascribed to a risk and significant risks are and for agreeing owner who is responsible implementing any ongoing mitigating actions. Risk management Risk management a management of risk plays The effective strategic plans and significant part in achieving risk management objectives. Consequently, all business units’ forms a key element of is management activities. This recurring which risk management supported by Group challenge, support and the reporting provides Committee. link to the Audit and Risk with starts The risk management process a detailed assessment of key risks in all operating business units. Business units report every quarter. to Group their risk registers A PRINCIPAL RISKS PRINCIPAL Oxford Instruments plc Report and Financial Statements 2019
PRINCIPAL RISKS CONTINUED
Principal risks and uncertainties Specific risk 1: Routes to market Context: In some instances, the Group’s products are components of higher‑level systems sold by OEMs, and thus the Group does not control its route to market.
Risk Possible impact Control mechanisms Mitigation
• Vertical integration by OEMs. • Loss of key customers/routes • Customer intimacy to match • Strategic relationships with to market. product performance to OEMs to sell performance of • Reduction in sales volumes or customer needs. the combined system. pricing and lower profitability. • Positioning of Oxford • Product differentiation Instruments brand and to promote advantages marketing directly to end of Oxford Instruments users. equipment and solutions. • Direct marketing to end users.
Specific risk 2: Technical risk Context: The Group provides high technology equipment, systems and services to its customers.
Risk Possible impact Control mechanisms Mitigation
• Failure of the advanced • Loss of market share or • “Voice of the Customer” • Understanding customer technologies applied by negative pricing pressure approach and market intimacy needs/expectations and the Group to produce resulting in lower turnover and to direct product development targeted new product commercially viable products. reduced profitability. activities. development programme • Additional NPI expenditure. • Formal NPI processes to to maintain and strengthen product positioning. • Adverse impact on the Group’s prioritise investment and to brand and reputation. manage R&D expenditure. • Stage gate process in • Product lifecycle management. product development to challenge commercial business case and mitigate technical risks. • Operational practices around sales-production matching and inventory management to mitigate stock obsolescence risks.
Specific risk 3: Economic environment Context: Government expenditure may become constrained in key markets.
Risk Possible impact Control mechanisms Mitigation
• Reduction in research • Lower sales and profitability. • Market intimacy and • Increased focus on customers funding in key markets such commercial market that are not reliant on as the US, China and the EU diversification. Government funding. (including the UK).
44 Strategic Report Governance Financial Statements Company Information 45 UK/EU ‑ eedom . emaining EU 27. term pricing ‑ ogress. oad global customer base; oad global customer base; ogrammes. Compliance monitoring pr Existing stock of raw materials and work in pr Market diversification. Long key suppliers for agreements and strategic sourcing. Pricing strategy Renewal of UK work permit scheme to facilitate employment of non Application for Authorised Economic Operator status to facilitate movement of goods with r Br Confirmation of “Fr to Operate” during new development stage product gate process. nationals. contractual protection.
Mitigation Mitigation Mitigation • • • • • • • • • ojects. eviews. cing programme. eedom to Operate” eview and Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford oduction matching and national Trade national Trade nal control framework framework nal control oduct pricing reviews. Inter Sales pr planning. resource Customer intimacy and monitoring of funded pr Strategic sour Pr Skills and capabilities r Inter Contract r against breach protection should export licences be withheld. Formal “Fr assessment to identify potential IP issues during development. product including policies, procedures such and training in risk areas as bribery and corruption, sanctions and export controls. Committee.
Control mechanisms Control Control mechanisms Control mechanisms Control • • • • • • • • • e ofitability. estrictions sales service to ‑ fecting turnover. salary costs.
e royalty payments. e royalty eases on products sourced sourced eases on products eased recruitment, eased recruitment, eases to input costs and eases to input costs and ovide after Supply chain disruption. Lower net pricing on UK exports to EU and cost incr the EU. from Reputational damage. Delays to shipments. Lower sales and pr Salary inflation. Loss of key skills, and/or incr and/or Potential loss of futur Futur Payment of damages. Fines and non-financial sanctions such as r on trade, disbarment from contracts. public procurement Lower export volumes or Lower export volumes or net pricing to key markets adversely af Incr margins. lower gross Limitations on ability to pr existing customers. revenue.
Possible impact Possible impact Possible impact • • • • • • • • • • • • • • d ee each. esulting in a complete funded research projects projects funded research work. ‑ UK research funding. UK research
ariffs on exports to EU ariffs movement of goods and services in the EU. T the UK and countries from vice versa. UK becomes less attractive to EU nationals as a place to post-Brexit. Potential short-term hiatus in Barriers to existing fr Supply chain disruption. Lower participation in EU party’s intellectual property. party’s Infringement of a thir Regulatory br Changes in the geopolitical Changes in the geopolitical landscape or a global trade war r embargo on trade with specific nations, barriers to trade with individual customers, or significant tariffs. in increases conformance with regulations and competitors may seek to protect their position through intellectual property rights. intellectual property their position through and competitors may seek to protect conformance with regulations ‑
• • • • Risk • • • • Risk Risk • Specific risk 6: Brexit-related risks Specific risk 6: Brexit-related Article 50 to leave the EU. Context: The UK has triggered Specific risk 5: Legal/compliance risk may at times experience unintentional The Group and technological environment. operates in a complex regulatory Context: The Group non Specific risk 4: Political risk Specific risk 4: Political Governments. licences from export to secure and can be required operates in global markets Context: The Group Oxford Instruments plc Report and Financial Statements 2019
PRINCIPAL RISKS CONTINUED
Principal risks and uncertainties continued Specific risk 7: Adverse movements in long-term foreign currency rates Context: A high proportion of the Group’s revenue is in foreign currencies, notably US Dollars, while the majority of the cost base is denominated in Sterling.
Risk Possible impact Control mechanisms Mitigation
• Long-term strengthening • Reduced profitability. • Procurement “make or buy” • Strategic procurement in US of Sterling against key strategy. Dollars, Euros and Yen. currencies such as the US • Treasury management. • Active review of exposure in Dollar, Japanese Yen and the key currencies. Euro. (Short-term exposure to volatility is managed by hedging programme.)
Specific risk 8: Supply chain risk Context: The Group operates a strategic “make or buy” policy which places reliance on key partners, notably single source suppliers, in terms of pricing and on-time delivery.
Risk Possible impact Control mechanisms Mitigation
• Supply chain disruption, in • Disruption to customers. • Procurement strategy to • Buffer stocks of key particular for single source • Lower sales and profitability. manage stock availability. components. components, leading to • Higher input costs. • Where possible, dual source production delays and supply is sought. potentially lost revenue. • Negative impact on the Group’s reputation.
Specific risk 9: People Context: A number of the Group’s employees have business-critical skills.
Risk Possible impact Control mechanisms Mitigation
• Key employees leave • Adverse impact on NPI. • HR people strategy for • Succession management and effective replacements • Operational disruption. retention and recruitment of plans. are not recruited on a staff with key skills. • Lower sales and profitability. • Technical career paths. timely basis. • UK work permit scheme to facilitate employment of non‑UK/EU nationals in place.
46 Strategic Report Governance Financial Statements Company Information 47 oach to protect oach to protect esponse plans in eview, monitoring eview, d sales contracts oup has closed its oup has a funding future accrual. future
Standar The Gr The Gr Regular r Citadel appr key data. User education. Detailed r downtime BCPs can reduce incidents and arising from or facilitate the restoration of production. relocation include clauses for limitation liquidated of liability, damages and the exclusion of consequential losses. defined benefit pension schemes in the UK and US to the plan in place to reduce pension deficit over the short to medium term. and testing of key security and testing of key security to assess adequacy measures against known of protection threats.
Mitigation Mitigation Mitigation • • • • • • • ogramme ds and . eness training. Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford eview of pension nal IT governance to Contractual clauses to limit financial consequences of delayed delivery Regular r strategy. Liability hedging pr to to mitigate exposure rates movements in interest and inflation. IT security policy and associated standar systems. protection Inter maintain those protection systems and our incident response. Employee awar Business Continuity Plans (BCPs) exist for all manufacturing sites.
Control mechanisms Control Control mechanisms Control mechanisms Control • • • • • • • ders in ecurring eputational ease in net debt as ease in the annual levy Reduction in net assets. the short term, resulting the short term, resulting in sales and in a reduction profitability. Incr contributions additional Group become payable to fund the deficit. Incr paid to the Pension Protection Fund. Inability to fulfil or Additional, non-r Disruption to business as usual Disruption to business as operations. data. Loss of business-critical Financial and r damage. overhead costs.
Possible impact Possible impact Possible impact • • • • • • • • oup’s oup’s eat. ead of viruses or malware ead of viruses or malware oduction arising from a oduction arising from is sensitive to movements in actuarial assumptions and returns on investments. The r Sustained disruption to pr major incident at a site. IT infrastructure. IT infrastructure. Cyber attack on the Gr Spr “Zero-day” through incidents or phishing attacks. Insider thr
Risk • eported pensiondeficit Risk • • Risk • • Specific risk 12: Pensions assumptions. calculated pension deficit is sensitive to changes in the actuarial Context: The Group’s Specific risk 11: Operational risk typically located at a single site. facilities are Context: Business units’ production Specific risk 10: IT risk Specific risk 10: IT rely on IT availability. and other systems financial Context: Elements of production, Oxford Instruments plc Report and Financial Statements 2019
VIABILITY STATEMENT
In accordance with the UK Corporate Key criteria applied for the assessment. Adverse sensitivities Governance Code 2016, the Directors are in the assessment are applied to the baseline in each year in required to perform an assessment of the As in previous years, the Board considers that the Viability Assessment Period to quantify Group’s viability over a period longer than the Group’s viability can reasonably be assured the financial impact of the key risks and the twelve months required for the going if it can maintain a net cash position or, failing uncertainties materialising. It also includes concern statement. This year’s viability that, is able to obtain sufficient debt funding the estimated impact of certain mitigating assessment covers a three-year period. This to meet its liabilities as they fall due. During the actions that could be taken by management has not changed since the requirement was year, the Group refinanced its revolving credit to offset the potential impact of downside introduced in the 2016 Report and Financial facility, which includes covenants requiring the risks. The key risks and uncertainties Statements. The Directors consider that three Group to operate at a leverage level of no more considered in the assessment are disclosed on years continues to be the most appropriate than three to one net debt to EBITDA. On this the preceding pages 44 to 47 of the Report time frame for assessing the Group’s basis, the Directors consider that being able to and Financial Statements. longer‑term viability. This is largely because operate within the parameters of three times In performing the viability assessment, the medium‑term strategic financial plan (SFP) leverage is the key criterion to consider in the the financial impact of risks having similar provides appropriate visibility of key areas viability assessment. consequences has been aggregated and such as product development and capital the potential impact has been quantified by expenditure requirements over this period. Methodology and reference to the following four consequences: This year’s assessment covers the period from sensitivities applied 1 April 2019 to 31 March 2022 (the “Viability The viability assessment evaluates the 1. reduction in revenue; Assessment Period”). potential financial impact of the principal 2. increased cost of sales; risks and uncertainties which are faced by 3. additional overhead costs; and the Group to assess the Group’s ability to withstand them. The calculations start with 4. reduction in net profitability arising from the financial budgets and strategic financial adverse movements in exchange rates plans which include profit and loss data and (in practice this would be the sum of lower cash flow movements and form the baseline contribution margin and higher overheads).
The potential financial consequences of the twelve principal risks and uncertainties faced by the Group is set out in the table below. Potential direct financial consequences Lower Higher cost Higher Lower Risk ID Description turnover of sales overheads net profit 1 Routes to market ✓ 2 Technical risk ✓ ✓ 3 Economic environment ✓ 4 Political risk ✓ ✓ 5 Legal/compliance risk ✓ ✓ ✓ 6 Brexit-related risks ✓ ✓ ✓ 7 Adverse movements in long-term foreign currency rates ✓ 8 Supply chain risk ✓ ✓ ✓ 9 People ✓ ✓ 10 IT risk ✓ ✓ 11 Operational risk ✓ ✓ ✓ 12 Pensions ✓
1. For the purpose of this viability assessment, EBITDA = Adjusted EBITDA (as defined in Note 1 to the Financial Statements).
48 Strategic Report Governance Financial Statements Company Information 49 Period remains cash generative, Period remains
the Financial Statements under Finance Review on pages 36 to 42
term viability up to 31 March 2022. term viability up to 31 March ‑ is a reasonable expectation that the is a reasonable
going concern basis. next three years. years. next three this basis, the Directors conclude that this basis, the Directors
a going concern.
On there will continue in operational existence Group and that there future for the foreseeable uncertainties that may cast no material are significant doubt over its ability to continue as the Outcome of the sensitivities As quantified, the impact in cash generation applied is to reduce each year of the Viability Assessment each year in the Viability Period. However, Assessment to the increases in year-on-year resulting net cash position. On this basis, the Group’s expectation that the has a reasonable Board will be able to continue in operation Group and meet its liabilities as they fall due over the This assessment supports not only the viability statement above, but also the statement on going concern, set out below. Going concern statement business activities and factors The Group’s its affect likely to considered that are are performance and position in the future set out in the Strategic Report on pages 2 to 59. The to the Group’s discloses information relevant financial position, its cash flows, borrowing facilities and liquidity. the Group’s have considered The Directors prospects financial position and future current and, as set out in the viability statement above, have performed an assessment of longer continue to Directors the As a result, prepare Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford denominated turnover, prime costs denominated turnover, ‑ and overheads would all reduce in absolute, in reduce and overheads would all Sterling terms, and the net impact would be unfavourable in terms of net profitability. The second largest downside risk modelled in assessment relates quantum terms in this year’s in overheads. In each to possible increases year in the Viability the Assessment Period, potential for additional overheads is quantified to annual by the same fixed value increase overheads. In total, the downside risk included 3.8% of total in the assessment represents overheads in the baseline model. In the prior year assessment, the downside risk quantified for overheads was 3.2% of the total. to direct The potential impact of increases increases costs (i.e. cost of sales) arising from in input costs due to factors such as Brexit, in a consistent been considered etc. has tariffs, The risk is quantified by way to the prior year. in in the cost of sales figures a 4% increase each year in the period. Over the Viabilityas a Assessment Period whole, the impact of the downside risks to the baseline in a decrease modelled resulted 39%. For the purposes of EBITDA of roughly the assessment, the impact on EBITDA of all of is expected to flow the sensitivities considered in the same period, resulting to cash through to net cash balances. in an equal reduction The risk of short-term adverse movements in The risk of short-term adverse by the Group’s exchange rates is mitigated In this assessment, hedging programme. in terms of the impact has been quantified to estimated reference by net profitability, risk if this However, exposure. net currency impact in to materialise, the reported were foreign complex – Sterling would be more currency In this year’s assessment, the most significant assessment, the most In this year’s reduction in relates to the risk quantified that is a potential consequence revenue Over the Viabilityof multiple risk factors. sensitivities applied in Assessment Period, the in sales a 20% reduction represent this area The quantum of this against the baseline total. of the four sensitivity is the most significant almost 80% of set out above and represents in value terms. As in the sensitivities applied years, this sensitivity has been applied previous rather than at a business unit level, at a Group or segment level. While the impact of the loss of a key customer or market in an individual for the specific business unit might be severe business unit, the risk is mitigated at a Group level by operating in diverse geographic diversification of the markets and through customer base within those markets. In the prior year assessment, the potential adverse movements in exchange impact from rates (risk 7) was the most significant risk quantified in value terms. In contrast, it is less assessment because significant in this year’s and less downside risk, is less variation there rates as calculated, in the downside currency to the rates used in the applied compared importance is also The relative budget/SFP. diminished due to the magnitude of the assessment. risk in this year’s downside revenue quantify the methodology used to However, this risk has not changed. As described on page key 46, long-term adverse movements in three and Japanese Yen) Euro (US Dollar, currencies profitability would be detrimental to Group operates predominantly because the Group with a Sterling cost base. Oxford Instruments plc Report and Financial Statements 2019
CORPORATE RESPONSIBILITY
Corporate responsibility is integral to our ongoing business success.
Through our Our values commitment to corporate responsibility, we recognise the Inclusive: Innovative and progressive: We listen and engage with We bring skill, experience and impact we have on the customers, colleagues, Shareholders openness to new ideas to address world, our employees, and partners for mutual success the needs of the 21st Century our communities and our working environments. Trusted: Wholehearted: We build long‑term We approach what we relationships based on integrity, do with passion, with trust and respect care and with pace
50 Strategic Report Governance Financial Statements Company Information 51 enable our customers to image, analyse
Just as we approach what we do for our Just as we approach customers and investors with passion, care and pace, this same wholehearted value that Oxford underpins our work to ensure business. Instruments is a responsible We and manipulate materials at the nanoscale and our technologies help to underpin the digital increased economy, shift to a greener and connectivity and advances in healthcare in the world take our role life sciences. We that how we do and recognise seriously, business is as important as what we do. Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford term, ‑ onmentally responsible manner. onmentally responsible engthening our business through engthening our business through fering our people an excellent effective stakeholder relationships; stakeholder effective diversity and inclusion; and employment experience and sense of belonging; str operating in an ethical, sustainable and envir establishing and maintaining long of
• • • Oxford Instruments is committed to the Oxford following guiding principles of corporate responsibility: • sustaining and developing an inclusive workplace; health and safety and environmental improvements; and the ethics of how we do business, including human rights and business malpractice. the development, engagement and wellbeing of our employees;
• • The key areas in which we focus our The key areas are: efforts • • Oxford Instruments plc Report and Financial Statements 2019
CORPORATE RESPONSIBILITY CONTINUED
Our people vision is to be proud to be recognised as the leaders in what we do and for the difference we make in the world.
Our employees Going forward, members of our main Board Our workplace At Oxford Instruments, our employees are and Management Board will be running As an international organisation, our fundamental to our business success. We focus groups and informal employee group employees are located across the world, continually invest in our people, developing meetings to ensure that there are sufficient frequently based in satellite offices that are the capabilities that we will need to succeed future opportunities for two-way dialogue, remote from the main business sites. In this over the longer term. We are committed and we will be repeating our Employee context it is important that we work hard to to being the company where the best in Engagement survey on an annual basis as create a sense of belonging for our employees, our sector want to work and strive to offer we continue to build on our strengths and and so we continued to run a series of global opportunities that will attract, motivate and address areas of concern. and local initiatives to ensure people feel part retain talented employees, enabling them to of a wider Oxford Instruments team. We have Health and wellbeing give their best. commissioned eye-catching new artwork This year we launched our Mental Health First using images from our customers and their Our people vision is to be proud to be Aider programme. A team of colleagues from applications of our technology for all of our recognised as the leaders in what we do and each of our UK sites and our global regions sites to display. This improves the working for the difference we make in the world; and volunteered to attend an internationally environments for our colleagues and brings this year we have continued to develop our recognised training programme, and act as a sense of connection to the wider Group employer brand and value proposition to a first point of contact for any colleagues for each of our sites. We have also produced articulate this for both internal and external who are experiencing mental health issues a new Company video which has been audiences. Our aim is to retain, attract and or emotional distress, either themselves or in displayed prominently in all of our sites and enable the best people to perform, creating their families. This service complements our gives a global overview of who we are, our an inclusive environment and culture, where Employee Assistance Programmes and the customer groups, and example applications difference is valued and people are recognised physical health checks we already provide of our technology. We have used this to for what they deliver and bring to the team. at many of our locations. increase the sense of belonging internally, This year, we conducted a global Employee In addition, many of our sites organise and raise awareness of our employer brand Engagement survey to find out more from our wellbeing activities such as mindfulness and values externally. employees about what they thought of the sessions, onsite massages and Pilates classes, This year, we have also organised a virtual experience of working for Oxford Instruments and we encourage staff to set up walking team of more than 120 employees who are across all of our businesses and the regions groups and informal running and cycling clubs logging their running, swimming, cycling and in which we operate. Since the last global to help increase physical activity and exercise. skiing miles and we are tracking these against engagement survey in 2015, our overall We also offer our employees the opportunity the distances between our office locations, Engagement Score has increased to 79%, and to purchase additional leave entitlement. with updates on the intranet each time the we were ahead of global benchmark data on This year, more than one in five of our team reaches a new location. This gives all of the measures of Employee Engagement UK‑based staff have taken advantage of this. everyone in the Group the opportunity to find included the survey. Our employees are proud out more about the work of each of our sites, to tell people where they work, feel safe in and the colleagues who are based there. the workplace, are encouraged to make their own decisions, and feel trusted, valued and motivated to do more than is required in their roles.
52 Strategic Report Governance Financial Statements Company Information 53 national Women’s Day celebrations national Women’s calibre researchers, providing them the providing researchers, calibre ‑ oung Scientist award in India oung Scientist award Oxfor Y UK China space event Inter Recent MDP cohort 1: 2: &Gownrunners 3: d InstrumentsTown 4: 5: opportunity to experience a role in industry. in industry. opportunity to experience a role In many cases, these individuals have decided to join us on a permanent basis, helping to at technical skill base remains that our ensure the cutting edge. deeply ingrained in Oxford Our values are Instruments and we endeavour to embody completed we them in all we do. This year, of our Accountability Builder the global rollout workshop for managers. All of our people managers, and those leading change, have the performance, boost skills needed to increase joint accountability for innovation and create delivering our strategically important results. survey our global staff from The results confirmed that our managers do what they extent than say they will do to a far greater managers at benchmark organisations. We continue to offer our Technical our Technical continue to offer We and structured Development Programme development opportunities for our career to and we use this programme technical staff, the best engineers help us attract and retain our technical and scientists. Through competency framework and technical career can see our employees in these roles ladder, a choice offer paths that career clear future between technical or people management pathways and that allow them to develop their that with the Company in the direction careers best suits them. placements Industrial Post-Doctoral offer We to high Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford during this programme represent represent during this programme
almost a five-fold return on investment of the almost a five-fold training fees. underpin our capability continue to We the various leadership development through we run. Our development programmes flagship Management Development covers many of the skills (MDP) Programme needed to be a successful manager in Oxford have built on this further with Instruments. We and Maximising Potential our Early Careers high focus on introducing that programmes potential candidates to the business and helping them to succeed within the Group. Examples include rolling out additional Examples include rolling functionality of Gem, our cloud-based HR Information System, as well as the deployment to further sites and businesses of our Planning, integrated Enterprise Resource Customer Relationship Management and Lifecycle Management systems. Product for our commercial Our training programme by Miller developed and delivered staff, and 249 Heiman, has continued this year, employees have now successfully completed our this training. Notable successes from Operational Excellence training programme, include University, Cardiff by accredited now having over 90 colleagues from trained in all who are our businesses across aspects of OpEx. The financial savings made projects improvement continuous from completed Developing capability undertake capability reviews, regularly We importance of ensuring we the recognising have the skills we need to help us deliver have been We long-term sustainable growth. capability gaps across to address working hard by bringing in the capabilities the Group and by investing in we need for the future, the talented people we have. This year we have made a significant investment in our the and operations teams across commercial as in the business systems that as well Group, give our employees the data they need to make evidence-based decisions. To mark International Women’s Day, our sites Day, mark International Women’s To the world held a series of lunches and around HR informal networking events. Our Group attended a number of Vicki Potter, Director, some findings these, and was able to share the Employee Engagement survey about from of working for the experiences women’s Company. of green out a number have also rolled We sites. Each business initiatives at our different has an energy champion at a local level who for monitoring energy use, is responsible emissions to air, and recycling waste streams, water and land. As part of their work, we have installed electric car charging points at two of our locations, with plans to expand growing organised a sunflower this next year, of competition in Bristol to raise awareness plastic initiative, and removed our Go Green food boxes and single use polystyrene cutlery, site. our Oxford cups from coffee Oxford Instruments plc Report and Financial Statements 2019
CORPORATE RESPONSIBILITY CONTINUED
We continue to encourage our sites to support their local communities through charity and community activities.
Our local communities Separately, we also welcomed pupils from Our working environment We believe the work we do and that we local primary and secondary schools to our Diversity and inclusion enable others to do is important and both Oxford site for a hands-on demonstration of Our objective is to ensure that we have a high benefits and advances society. To ensure this low-temperature physics, and hosted a careers capability, diverse workforce that enables us to continues, we are committed to helping the in STEM workshop for middle school girls at better understand our customers and markets; generations coming up through all stages of our Santa Barbara site. with a broad range of perspectives and education to see the importance of choosing All of our UK sites continue to run school experiences that maximise our capability to STEM subjects and the career opportunities work experience programmes and we are innovate, make the right decisions and exceed this will offer them. working with a range of Centres for Doctoral our customers’ expectations. In order to retain, attract and enable the best people to perform, This year, we have organised events for Training to offer students the opportunity we need to create an inclusive environment graduates, post-graduates and academics to build on their educational learning with and culture, where difference is valued and at the Universities of Oxford, Bristol and practical, project-based experience. We also everyone can contribute to their full potential. Exeter, both on their campuses and hosted offer industrial postdocs, which are fixed‑term at our business sites. We were also pleased contracts that allow postdoc students the Questions around inclusion were included to work with the National Taiwan University opportunity to gain meaningful industrial in our global Employee Engagement survey. to host Taiwan’s first School of Microscopy, experience as they decide whether to pursue We were ahead of the global benchmark data a two‑day event involving over 150 delegates careers in academia or industry. on the recognition by employees that we and representatives from multiple Oxford We continue to encourage our sites to support make an effort to have a diverse mix of people Instruments businesses. their local communities through charity and working in the Company, and we matched the benchmark data on the belief that everyone at We were involved in the 2019 ATOM community activities. This year, as well as the Company is treated with respect. We also Festival of Science & Technology in regular charity coffee mornings and bake learned from the survey that the positive sense Abingdon‑on‑Thames, which has the mission sales, colleagues donated over 250 bras to be of feeling included and valued is a key driver of making science available to everyone in donated to women in Africa, collected food for overall levels of employee engagement, the local community around our Oxford site. for homeless shelters and food banks in our and are proud that this forms an important Not only did we sponsor the Festival, but local communities in the UK and the US, and part of our culture. our Group HR Director, Vicki Potter, was an ran events at a local community centre which invited panellist for a VIP night to discuss aims to tackle loneliness and boost health and Analysis of the survey results by gender the challenges of making science accessible wellbeing for older residents at risk of social showed that women are more engaged overall to all. Some of our scientists and engineers isolation. We also continued our sponsorship than men, and also rated the Company more also gave up their time to attend a careers of local community sports teams and events favourably than men for all questions relating event for local schoolchildren and a series such as the Christmas lights in Yatton, Bristol. to inclusion. However, we still have more work of demonstrations and workshops which to do to improve the gender balance across were open to the public around the area our Group. throughout the Festival.
54 Strategic Report Governance Financial Statements Company Information 55 day ‑ to ‑ ® echnical Programme
d Instruments lab in Lego Potter, has taken up responsibility for has taken up responsibility Potter, is responsible for ensuring that day for is responsible eam member at our NanoScience site
we expect our suppliers to adopt the
Family fun day Attendees on our T Development T Some of our mental health first aiders Some of our mental health An Oxfor
3: 4: 5: 1: 2: same approach. We are committed to preventing acts of committed to preventing are We modern from slavery and human trafficking occurring within our business and supply systems and chain and put in place effective have reviewed, We to do so. in order controls our supplier due diligence and and improved, have a zero-tolerance We audit procedures. to all forms of modern slavery, approach bonded and including servitude, forced, compulsory labour and human trafficking and Health and safety – our employees protecting HR Director, our Group During the year, Vicki Instruments. Oxford Health and Safety across Group Vicki is supported by Dave Wales, Manager, Health, Safety and Environment who out safely and that we have carried activities are in and processes the capabilities, infrastructure to manage our health, Group the place across matters effectively. safety and environment Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford Human rights and modern slavery policies and our continue to review We systems supporting human rights. Our policy is guided by the United Nations Guiding Principles on Business and Human Rights. Our Human Rights Policy states our intent to be inclusive, supportive and safe, covering child labour, labour, matters including forced discrimination and the right to form or join a trade union and to bargain collectively. to the employee to adhere expect every We spirit of our Policy and it is fully supported All members of the Group’s by our Board. for Executive Committee take responsibility ensuring its implementation within their part also extend our expectations We of the Group. on human rights to those we work with: our partners, contractors and suppliers. Ethics This year we published a new Code of Business Conduct and Ethics, with updated policies on how we do business and what a Company are we expect of others. We and values and standards united by strong helpful document more a clearer, by creating more providing for stakeholders, we are for our employees about what’s transparency expected of them. This will help give them taking the right confidence that they are actions in various situations. level ‑ appointments were made from a balanced made from appointments were was 55%. Whilst the figure shortlist. This year, it was short of this was a slight improvement, is more our target of 60%, and shows there we can do to attract diverse candidates to the additional able to capture were We Company. the success data so we can also measure of this initiative for senior management forwards. going recruitment This year we published our second gender pay is available on our website at This gap report. and www.oxinst.com/gender-pay-review shows that our mean and median gender pay since last year. gaps have decreased This year, we invited a representative of the we invited a representative This year, National Autistic Society to run a workshop to understand for our global HR Directors employer for how we can be an effective autistic talent, and we signed up to support 100 programme Change Cheshire the Leonard four internships to talented and offered students and graduates with disabilities or long-term health conditions. have now completed our Respect All UK staff training, which is a workshop designed to help an inclusive performance-orientated to create Feedback has been working environment. highly positive, and this session is now being out globally. adapted and rolled balanced shortlists for Our drive to introduce saw a small increase leadership recruitment in the number of final shortlists which a group included at least one candidate from in the that is typically under-represented 52% of our Director Last year, Company. Oxford Instruments plc Report and Financial Statements 2019
CORPORATE RESPONSIBILITY CONTINUED
The global carbon footprint for 2018/19 continued to reduce – 1 falling to 6,835 tCO2e from 7,161 tCO2e the previous year .
Five-year view of accidents in ongoing businesses Group energy consumption (kWhs) 2014-2019 showing severity Excludes disposals Data for ongoing businesses only
2014 54 1 2014/15 14.7m 2015 42 4 2015/16 13.9m 2016 48 7 2016/17 14.1m 2017 49 3 2017/18 14.3m 2018 48 5
2019 0 Minor Serious 2018/19 14.1m 0 10 20 30 40 50 60 0 4m 8m 12m 16m
Global accident figures Sustainability – Energy consumption remain at a low level Protecting the environment We continue to monitor our global energy The total number of accidents recorded The global carbon footprint for 2018/19 use and implement energy‑saving techniques. Oxford Instruments consumed 12.41 GWh worldwide during 2018/19 increased slightly continued to reduce – falling to 6,835 tCO2e 1 of electricity, 1.01 GWh of gas and 0.5 GWh from 52 to 53. The accident numbers for our from 7,161 tCO2e the previous year . ongoing businesses over the past five years of oil globally during 2018/19, reflecting Our overall priority here is to minimise the have been fairly static, with an average of our increased manufacturing output. environmental footprint of our products 52 accidents each year. When looked at in The Company’s measure of total energy and services, and our operations around relation to the number of accidents per 1,000 use was 41.73 MWh/£million of revenue the world. Each business has an Energy employees, the average number over the last compared to 44.7 MWh/£million of revenue Champion at a local level who is responsible five years is 34 accidents/1,000 employees, in the previous year. for monitoring energy use, waste streams, which benchmarks positively against industry recycling and emissions to air, water and land. norms in the regions in which we operate. They also continuously look for innovative We are committed to the health and safety ways to reduce their environmental footprint. of our employees and our customers and Current initiatives include energy reduction, work hard, as a team, to effect improvements. improving wildlife habitats, the installation We record accidents down to the very smallest of electric car charging points and the removal cuts and abrasions – which account for the of single use plastics. majority of accidents recorded – and have begun a campaign across the Group to drive pro-active accident prevention. Globally, five serious accidents occurred during 2018/19 of which four were reportable accidents. This was an increase from three serious accidents the previous year. For reporting purposes, global reportable accidents were normalised using the UK RIDDOR definition of over seven days’ absence from work. The graph above shows the five‑year accident performance for ongoing businesses with all business disposals removed.
1. It should be noted that the above reduction was due in part to the Government reducing the greenhouse gas carbon conversion factors for electricity. Without this reduction our carbon footprint would have increased slightly.
56 Strategic Report Governance Financial Statements Company Information 57 e) per £million of 2 e/£million revenue. 2 recyclable general waste and general recyclable ‑ e). The Company’s measure measure e). The Company’s 2 ree planting to mark 60th anniversary ree Electric charging points on site Electric charging points T carbon emissions is tonnes of carbon
1: 2: of dioxide equivalent (tCO revenue. This year the global carbon emissions This year revenue. tCO is 11.55 figure Carbon reporting As part of the UK Companies Act 2006 Report) (Strategic Report and Directors’ Instruments has Regulations 2013, Oxford greenhouse a mandatory duty to report gas emissions as tonnes of carbon dioxide equivalent (tCO Waste outputs Waste aim to minimise our waste outputs and We as little as possible goes to landfill. that ensure waste to now “zero Several of our sites are either directly, recycled waste is landfill” where or metals, wood and paper, e.g. cardboard, non for indirectly food waste, which is sent to waste incinerator it can be burned energy. sites where to produce Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford dous ective. All sites authorised compliance body;
aste Electronic and Electrical Equipment aste Electronic includes European Directives such as: Directives includes European
are working towards compliance via their working towards are supply chains. (WEEE) Directive – compliance achieved (WEEE) Directive by membership of B2B Compliance – an Registration, Evaluation, Authorisation of Chemicals (REACh) Dir W Restriction on use of certain Hazar – all Substances (RoHS) regulations scope and were within that were products since July 2017 complied. sold into Europe of outside are Some of our products by an covered the RoHS scope or are exemption; and
• Environmental Directives Environmental complies with all environmental The Group it operates. legislation in countries where This • • Energy and
Reporting regulations Reporting regulations
Legal compliance – Streamlined Carbon The Government Reduction closed the Carbon Commitment Energy Efficiency Scheme (CRC) 2019. This has been superseded on 31 March Energy and Carbon by the Streamlined (SECR) which came into Reporting regulations Company will no 1 April 2019. The from force each carbon credits longer have to purchase the year to cover carbon emissions. However, cost of carbon compliance will be transferred to our energy bills as the Climate Change Levy, which is imposed on each kilowatt hour (kWh) to give of energy consumed, will be increased a similar cost burden. Oxford Instruments plc Report and Financial Statements 2019
CORPORATE RESPONSIBILITY CONTINUED
The Group complies with all environmental legislation in countries where it operates.
Greenhouse gas (GHG) emissions Oxford Instruments is a global business with operations in many parts of the world. Emissions from 14 Company sites are monitored and are reported below. Some small sales offices where energy consumption is less than 0.01% of the Group’s total energy consumption are omitted. The recorded use of hydro-fluorocarbons is below 5kg and has therefore been excluded. Emissions from purchased electricity, fuel for heating or process purposes (gas and oil) and fugitive emissions from process gases are reported in tonnes of carbon dioxide equivalent (tCO2e). Intensity ratio
The Company’s declared intensity ratio for greenhouse gas reporting is tonnes of CO2 equivalent (tCO2e) per £million of revenue. With revenues for the year at £333.6 million and the total emissions of carbon dioxide equivalent of 3835.57 tCO2e, this gives an intensity ratio as follows:
Carbon
emissions = 11.50 tCO2e Revenue £million revenue
Purchased Secondary Fugitive electricity fuel emissions Total
Region (tCO2e) (tCO2e) (tCO2e) (tCO2e) UK 2212.18 324.05 0 2536.23 North America 1159.39 0 0 1159.39 Europe 22.40 0 0 22.40 Asia 117.55 0 0 117.55 Total 3511.52 324.05 0 3835.57
58 Strategic Report Governance Financial Statements Company Information 59 ey oup UK 58% Americas 21% Asia 15% 6% Europe employees
Wood celebrate 60 years of Oxford of Oxford celebrate 60 years Wood Instruments Lunchtime running gr Onsite team meeting China technology forum Founders Sir Martin and Lady Audr Half marathon charity team Geographical spread Geographical spread of 5: 1: 2: 3: 4: Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford 22% 14% 14% 21% 22% 78% 86% 86% 79% 78% Employees Managers Management Board Plc Board Global Oxford Instruments Gender Chief Executive 11 June 2019 Ian Barkshire Signed on behalf of the Board Oxford Instruments plc Report and Financial Statements 2019
GOVERNANCE
Governance is an important element of our Board environment. To support how we do business and how we serve our stakeholders it needs to be relevant, authentic and meaningful.
Leadership Relations with See pages 61 to 66 of the Corporate Governance Report. Shareholders See pages 100 and 101. Effectiveness See pages 67 to 70 of the Corporate Governance Report and the Nomination Committee Report on page 71 to 73. Report of the Directors See pages 102 and 103.
Accountability See the Audit and Risk Committee Report on pages 74 to 79, risk management disclosures on pages 43 and 79 and Financial Statements on pages 104 to 163.
Remuneration See the Remuneration Report on pages 80 to 99.
Biological tissue grown from patient cells captured by an Andor Dragonfly microscopy system.
60 Strategic Report Governance Financial Statements Company Information 61 Executive full details of ‑
December I have been spending a significant
the year’s activities. the year’s to attend the I encourage all Shareholders AGM which will be held at the Company’s Woods, Oxfordshire, Tubney Head Office in 10 September 2019. This event on Tuesday for Shareholders an opportunity provides to meet the Executive and Non Directors. amount of time with the CEO, Ian Barkshire, amount of time with the CEO, Ian Barkshire, and have visited most of the facilities. I have found a very committed and enthusiastic of senior managers alongside group leaders in knowledgeable scientists that are new product their field. They have a strong fully committed to project pipeline and are Horizon and the advancement of the Oxford The Chief Executive’s Instruments strategy. Review on pages 14 to 17 and the Operations Review on pages 26 to 35 give In July 2018, we were saddened by the loss In July 2018, we were of Alan Thomson, who had led the Board undertook since June 2016. The Board identify an to search a comprehensive in successor to Alan, resulting appropriate my appointment in December 2018. Since 1 Chairman 11 June 2019 Neil Carson to ensure competent ensure to
Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford functional ‑ . The ethics responsibility - responsibly and maintaining wide governance documents ‑ long-term objectives and overseeing
social - commitment extends to driving the the driving to extends commitment prudent management, continuous leadershipprudent continuous management, Group’s operations Group’s
on our website at
www.oxinst.com/investors‑content/ corporate is managed by a cross programme are the Oxford Instruments Code of Business Instruments the Oxford are Conduct and Ethics together with the policies which sit within our statement on Corporate These can be and Social Responsibility. found team, the CBCE Forum, which works with that businesses to ensure the Group’s to the employee communications relating in a consistent is delivered ethics programme is a policy There and engaging manner. portal on the intranet which makes it easy for employees to access those policies and to them. relevant that are procedures These policies and statements set out the that we expect our values and standards employees to meet. These documents, together with our policies, govern how we conduct our business and set the standards that drive performance. Compliance training procedures, standard and, in some areas, oversight, reviews this. Board help to enforce and audits form part of the monitoring are Risk processes and supervision process. on an ongoing basis embedded and reviewed the organisation. across that with the Board I agreed During the year, we would carry out an internal evaluation which built on the external of the Board evaluation carried out last year by ICSA Board Evaluation. I am pleased to confirm that we continue to have a committed, engaged and details on the findings More Board. effective outlined below. of the evaluation are The main Group development and ongoing succession planning. The Board is committed to conducting conducting to committed is Board The business governance. corporate of standards high This Group’s the and term objectives, overseeing ‑ term success of the Company. term success of the Company. ‑ This will, when underpinned by our business strategy and close attention to operations, finance and risk, enhance performance and Instruments. the business of Oxford grow committed to driving the remains The Board long Group’s competent ensure operations to the Group’s and prudent management and continuous leadership development and succession to governance is set planning. The approach the Management Board and by the Board is effectively approach that the ensures Instruments’ Oxford implemented across the world. businesses around Dear Shareholders, the Group’s I am pleased to introduce Corporate Governanceon behalf Report The Corporate Governance of the Board. an insight into how the Statement provides is The Board operated during the year. Board committed to conducting business responsibly of corporate and maintaining high standards governance and is collectively responsible for the long CHAIRMAN’S INTRODUCTION CHAIRMAN’S LEADERSHIP Oxford Instruments plc Report and Financial Statements 2019
LEADERSHIP
BOARD OF DIRECTORS
Neil Carson (62) Ian Barkshire (53) Gavin Hill (51) Steve Blair (59) Non‑Executive Chairman Chief Executive Group Finance Director Independent Non‑Executive Director and Senior Independent Director Appointed to the Board Appointed to the Board Appointed to the Board Appointed to the Board December 2018 November 2015 May 2016 July 2017
Appointed Chairman Appointed Chief Executive December 2018 May 2016
Background Background Background Background Over 30 years’ experience of Holds a BSc and DPhil in physics Holds a BA in economics and Holds an engineering degree from operations management in the from the University of York, is a agricultural economics from the the University of Sheffield. Extensive UK and the US, technical innovation Chartered Physicist and a Member University of Exeter. Gavin is a experience in established and and strategic planning, culminating of the Institute of Physics. Ian has Chartered Accountant and an high‑growth emerging markets, in ten years as Chief Executive at the worked for Oxford Instruments since Associate Member of the Association strategic planning and portfolio FTSE 100 science/R&D based company, 1997 in a number of senior leadership of Corporate Treasurers. development. Johnson Matthey. In 2016 he was roles, including NanoCharacterisation awarded an OBE for services to Divisional Head, Group Technical the chemical industry. Director and Chief Operating Officer.
External appointments Previous experience Previous experience External appointments Chairman: Senior Principal Scientist: Group Finance Director: Chief Executive: TT Electronics plc GEC Marconi Materials Technology Synergy Health plc Ordnance Survey Non‑Executive Director: Research Fellow: Director, Corporate Finance: Royal Dutch Shell plc University of York Serco Group plc Previous experience Chief Executive: Director: Senior finance positions: e2v The Goldsmiths’ Company Charity Syngenta AG and AstraZeneca plc Director: Honorary President: Spectris plc SCI (the Society of Chemical Industry)
Previous experience Deputy Chairman: TI Fluid Systems plc Non‑Executive Director: Paypoint plc Amec Foster Wheeler plc Founder Member: Prince of Wales’ Corporate Leaders Group on Climate Change Board diversity Chief Executive: Johnson Matthey plc Gender diversity Tenure
86% 57%
29% 14% 14%
Male Female 1‑2 years 3‑4 years 5‑6 years
62 Strategic Report Governance Financial Statements Company Information 63 Research Council
Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford Sciences
Chairman of Committee Audit and Risk Nomination Remuneration Executive Director ‑
Key to Committees Professor Professor Friend (66) Sir Richard Independent Non Appointed to the Board September 2014 Background research encompasses Richard’s the physics, materials science and engineering of semiconductor devices made with carbon‑based semiconductors. He is a Fellow of the Royal Society and of the Royal Academy of Engineering and a Foreign Member of the US National Academy of Engineering. External appointments Cavendish Professor of Physics and College at the a Fellow of St. John’s University of Cambridge Non‑Executive Director: Eight19 Ltd Heliochrome Limited Previous experience Council member: The Engineering and Physical GmbH Duisburg
Cie
&
Executive Director ‑ Switzerland
Previous experience Executive Director: Group Plc Vodafone Henkel AG & Co. KGaA RWE AG Non‑Executive Director: Limited BBC Worldwide Constantia Flexibles GmbH Supervisory Board of Haniel Susan Johnson‑Brett Company Secretary Committee membership Secretary: Audit and Risk Nomination Remuneration Background Holds a BA from the University of Keele and has previously worked in the Secretariats of St. Modwen Properties plc, Hydro Agri (UK) Limited and TSB Group plc. Appointed to the Board January 2013 Background A graduate of the Technische Universität München and holds an INSEAD MBA. Extensive international experience in the technology and engineering sectors, having spent over 30 years in businesses operating across the globe. External appointments Chairman: Bibliotheca RFID Library Systems AG Thomas Geitner (64) Independent Non started her career at Coopers Executive Director
‑ University of Oxford and is a
External appointments Chief Financial Officer: Register Lloyd’s Previous experience Group Finance Director: Ultra Electronics plc Group Finance: Director, Qinetiq plc & Lybrand Management Consultancy Management Consultancy & Lybrand Services and then went on to hold senior financial positions in a number of major businesses. Fellow of the Chartered Institute of Management Accountants. Mary Background Holds an MA in physics from the Appointed to the Board February 2016 Mary Waldner (49) Mary Waldner Independent Non Oxford Instruments plc Report and Financial Statements 2019
LEADERSHIP
CORPORATE GOVERNANCE REPORT
Board priorities during the year Strategic • Annual strategy day and technology strategy session to consider progress and provide challenge on the Horizon strategy and next steps. • Reviewed, challenged and approved the strategic direction of the Group’s medium‑term plan. • Deep dive reviews into aspects of the strategic plan.
Operations • Received regular operational updates through the Management Board. • Site visits to Group manufacturing sites. • Monitored performance and provided challenge in key areas of operations, such as health and safety, operational excellence, human resources, innovation and business development.
Leadership and people • Appointed Chairman to the Board. • Continued the focus on organisation capability and succession planning within the senior leadership teams and more generally across the organisation.
Finance • Monitored progress against the 2018/19 financial plan and considered and approved the 2019/20 financial plan. • Reviewed and approved the financial elements of the Group’s medium‑term plan. • Continued to monitor the progress of Project Connect (the new ERP system) and its implementation. • Updates on major tax matters. • Approved the Annual Report, half‑year results and presentations to analysts. • Considered and approved the Group’s going concern and viability statements. • Reviewed and recommended payment of the interim and final dividends.
Governance and ethics • Induction of the new Chairman of the Board. • Carried out an internal Board evaluation, discussed the output openly and transparently and agreed opportunities for improvement. • Discussed ways to further develop employee engagement. • Reviewed feedback from institutional Shareholders. • Commenced review and consideration of new requirements introduced by the 2018 UK Corporate Governance Code. • Regular meetings of the Non‑Executive Directors without management being present.
Compliance Taken together with the reports of the Preservation of value The Board endorses the main and supporting Nomination Committee, Audit and Risk The basis on which the Group generates and principles and the provisions set out in the Committee, the reports on Remuneration preserves value over the longer term and the 2016 UK Corporate Governance Code and Corporate Responsibility, this Statement strategy for delivering the objectives of the (“the Governance Code”) and considers explains how Oxford Instruments has applied Group are to be found in the Strategic Report. that, throughout the period under review, the principles of good corporate governance the Group has complied with the provisions as set out in the Governance Code. Board of Directors and management structure recommended in the Governance Code, Resolutions for the election of all Directors Board of Directors save that Steve Blair was Interim Chairman will be put to Shareholders at the Company’s As at the date of this report, the Board whilst continuing as Senior Independent forthcoming AGM. Once passed, this will comprises the Chairman, four Non‑Executive Director from July 2018 until Neil Carson continue to deliver a Board which meets Directors and two Executive Directors. was appointed Chairman of the Board the requirements of Provision B.1.2 of the The Directors’ biographies and details of length in December 2018. In the exceptional Governance Code. circumstances following the death of Alan of service are shown on pages 62, 63 and The UK Corporate Governance Code was Thomson on 22 July 2018, it was considered 65. All the Directors have written letters of reissued in July 2018 (the “Revised Code”) proportionate for Steve Blair to fulfil both appointment that have been approved by the and contains a number of new and amended responsibilities whilst a new Chairman was Board and which are available for inspection at provisions. The Board is reviewing the changes being appointed. the Company’s Annual General Meeting. and identifying what it needs to do to comply with the Revised Code.
64 Strategic Report Governance Financial Statements Company Information 65 circulated paper analysing circulated ‑ matters.
Secretary’s office are responsible office are Secretary’s
Executive Directors meet without Executive Directors also meet Executive Directors ‑ ‑ meetings.
the Chairman leading these meetings.
Executive Directors at least annually, at least annually, Executive Directors
The Company Secretary and the The Company Secretary Company all relevant aspects of the proposal and of the proposal aspects all relevant a course of action. recommending in advance of the distributed papers are Board meeting in sufficient time to allow relevant for meetings. Minutes to prepare the Directors to the circulated of Committee meetings are few instances In the very Directors. relevant has not been able to attend when a Director or Committee meetings, his/her Board at comments on the papers to be considered communicated in advance to the meeting are Chairman. the relevant The Non the with The Non annually without the Chairman in attendance. chairs The Senior Independent Director these and procedures for implementing Board on corporate for advising the Board governance The Board meets on a regular basis, at least meets on a regular The Board and otherwise as required. seven times a year, held at a number of meetings are Board year. and other locations during the Group to holds one meeting specifically The Board strategic direction discuss the Company’s during the year. of financial meetings involve reviews Board against the plan and business performance Risk management by the Board. approved level and also for each both at Group review, businesses, is embedded in of the Group’s basis, system. On a rotating the reporting the from presentations receives the Board enabling businesses and key functional areas detail. specific issues in more it to explore are a decision by the Board Matters requiring supported by a pre Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford financial indicators, oversees the making framework in which this making framework in which ‑ ‑ other commitments, litigation and sets out the roles and delegated sets out the roles documented policies and procedures documented policies and procedures
the Chairman.
and over strategy, control retains The Board and investments and capital expenditure, limits the decisions which can be taken by of strategic and management in the areas financial management and Shareholder on the also decides The Board reporting. corporate actions, capital structure, Group’s mergers and acquisitions, major contracts and and remuneration proceedings, regulatory plans. incentive share delegates authority to the Board Where basis, which management it is on a structured management oversight that proper requires level. Compliance exists at the appropriate with the delegation of authorities is monitored internal audit function. by the Group’s strategy is implemented. Further, it verifies Further, strategy is implemented. and human that the necessary financial in place to meet strategic aims, are resources monitors performance against key financial and non system of risk management and sets values in governance matters. and standards operates, The details of the way the Board to including a schedule of matters reserved set out in the for decision, are the Board also includes File, which Reference Board the the authorities applying to the Directors, The Board Committees. and the Board Board as part of annually File is reviewed Reference undertaken the annual governance review by Operation of the Board to Shareholders is responsible The Board incremental for delivering sustainable entrepreneurial value through Shareholder for of controls leadership within a framework Group’s sets the managing risk. The Board the policy and strategy and maintains decision 1 year 6 years 4 years 3 years 3 years 3 years 2 years wide performance, ‑
e
aldner wide functional responsibilities and wide functional responsibilities ‑ d Friend strategy and risk management. heads of the principal operating businesses. either meets monthly, The Management Board in person or by video or telephone conference, and focuses on Group Management Board delegates management of the The Board assist business to the Chief Executive. To a in this, the Chief Executive has created that consists of the Management Board senior managers with Executive Directors, Group Board members’ length of service Board Thomas Geitner Richar Ian Barkshir Mary W Gavin Hill Steve Blair Neil Carson The Chairman is responsible for leadership of for leadership The Chairman is responsible and for ensuring its effectiveness the Board of The division on all aspects of its role. of the between the role responsibilities Executive has been Chairman and the Chief and documented in the by the Board agreed File. Reference Board to Shareholders is responsible The Board for good corporate governance, setting strategic objectives, values and the Group’s and ensuring the necessary resources standards, in place to achieve the objectives. are responsibility has delegated Group The Board for the management of health, safety and the to and he reports to Ian Barkshire environment on these matters at each meeting. the Board Oxford Instruments plc Report and Financial Statements 2019
LEADERSHIP
CORPORATE GOVERNANCE REPORT CONTINUED
Board balance the Corporate Leaders Group on Climate Thomas Geitner was appointed to the and independence Change. Neil is also Chairman of the Board as an independent Non‑Executive The Governance Code requires the Board Nomination Committee and a member Director in January 2013. He is a graduate to be of sufficient size that the balance of of the Remuneration Committee. of the Technische Universität München and holds an INSEAD MBA. skills and experience is appropriate for the Steve Blair was appointed to the Board requirements of the business and that there in July 2017. Prior to his appointment, Thomas has extensive international is a balance of Executive and Non‑Executive he was Chief Executive of Teledyne e2v experience in the technology and Directors such that no individual or small Limited (previously e2v technologies plc), engineering sectors, having spent more than group of individuals can dominate the Board’s a manufacturer of sensors, radio frequency 30 years in businesses operating across the decision‑making. The Board is committed to generators and semiconductors and a listed globe. Having worked in a number of global promoting diversity and inclusiveness of all company until its acquisition by Teledyne companies he understands the importance kinds, both on the Board and throughout the Technologies in March 2017. Previously he of remuneration connecting with strategy to Group. The Board recognises that diversity, was Business Group Director for Spectris plc. appropriately incentivise the executive team. which should be construed in its broadest He has broad operational experience and a The Board believes that his skills, experience sense and includes gender, religious and breadth of experience covering established and knowledge make Thomas well suited to ethnic diversity, background and age, is and high‑growth emerging markets, strategic chair the Remuneration Committee. an important factor in Board and, indeed, planning and portfolio development. Thomas is Chairman of the Remuneration operational effectiveness. The way in Steve is Senior Independent Director and Committee and also a member of the Audit which the Board manages diversity within also a member of the Audit and Risk, and Risk and Nomination Committees. the Board is reported on more fully in the Remuneration and Nomination Committees. Nomination Committee Report on page Mary Waldner was appointed to the Board 71 and diversity is more generally reported Richard Friend was appointed to the Board as an independent Non‑Executive Director on pages 54 and 55 in the Corporate as an independent Non‑Executive Director in February 2016. She is Chief Financial Responsibility Report. The composition in September 2014. Richard is a Fellow of Officer at Lloyd’s Register. She has a Masters of the Board and the combination of the Royal Society and Fellow of the Royal degree in physics from Oxford University diverse backgrounds and expertise of the Academy of Engineering. He is also Cavendish and is a Fellow of the Chartered Institute Non‑Executive Directors meet these principles. Professor of Physics and a Fellow of St. John’s of Management Accountants. College at the University of Cambridge. Neil Carson, Chairman, was appointed to Mary has a broad range of financial the Board as Non‑Executive Chairman in His research encompasses the physics, experience in high technology companies December 2018. Neil has a proven track materials science and engineering of that operate internationally and has worked record of delivering growth as a leader of semiconductor devices made with in a number of senior financial roles Johnson Matthey, a FTSE 100 science/R&D carbon‑based semiconductors. His research within major public limited companies, based company, where he worked for over advances have shown that these materials including as Group Finance Director of 30 years, gaining experience of operations have significant applications in LEDs, solar Ultra Electronics plc. The Board believes management, technical innovation and cells, lasers and electronics. He was knighted that Mary’s background gives her the various strategic planning; all skills which are for services to physics in the Queen’s Birthday insights needed to make her a well qualified highly complementary to the Company’s Honours List in 2003. He has also been Chairman of the Audit and Risk Committee. directly involved in the commercialisation of needs. He has also worked across a wide Mary is Chairman of the Audit and Risk technology through several spin‑off companies range of industry sectors, having served Committee and also a member of the from the University of Cambridge. as a Non‑Executive Director to a number Remuneration and Nomination Committees. of UK listed companies, on a number of Richard is a member of the Audit and Risk, Government bodies and has worked with Remuneration and Nomination Committees.
Independence of including consideration of the length Composition of the Board Non‑Executive Directors of service at Oxford Instruments plc. In the opinion of the Board, Steve Blair, Term of appointment of 5 Richard Friend, Thomas Geitner and Mary Non‑Executive Directors Waldner are independent and Neil Carson, Each Non‑Executive Director was appointed Chairman of the Board, was independent on for an initial term of three years. In line with 2 appointment. provision B.7.1 of the Governance Code, the The Board considers that they are each Board has determined that all Directors of the independent in character and judgement and Board are to be subject to annual re‑election by do not have relationships which are likely to Shareholders and, accordingly, the appropriate Independent Non‑independent affect their judgement. This opinion is based resolutions will be put to Shareholders at the on current participation and performance on Company’s forthcoming AGM. both the Board and Board Committees,
66 Strategic Report Governance Financial Statements Company Information 67 Board Board
Executive ‑ Executive ‑ the Senior Independent
strategy at its meetings. Each
Chief Executive, Ian Barkshire, Chief Executive, Ian Barkshire,
offs and choices that are made when that are and choices offs ‑ Executive Directors to explore and more and more to explore Executive Directors and the Group Executive Directors 2019. Led by Committees.
‑ ‑
the Chairman, the Non the Executive Directors. The the Executive Directors. terms of possible areas of attention in the terms of possible areas the year under review.
future, the evaluation process highlighted the evaluation process future, the need for: (i) additional informal sessions as part of the budget and strategy setting for the opportunity to give more processes Non concluded it and its Overall, the Board Committees had performed satisfactorily in evaluation, complete the internal Board To the performance the Chairman reviewed and has confirmed member of each Board with the Nomination Committee that all to perform effectively continue Directors and demonstrate commitment to their The roles. was appraised by the Chairman and the Non Chief Executive in and the Directors May the Non Steve Blair, Director, Committee was considered to be working Committee was considered well and meeting its legal obligations. In fully understand the implications of factors, such as customer/competitor activities, the implications of investing in new sectors behind to better understand the reasons trade setting strategy and budgets; (ii) building and better interactions between the Board the senior leadership teams and employees generally; (iii) continuing to evolve more the way the Audit and Risk Committee how to oversees risk; and (iv) reviewing some categories present effectively more of information and data to the Board and Gavin Hill, was appraised Finance Director, by The Board concluded that it is operating concluded that it is operating The Board all way with in an open and transparent to express members having freedom Board an appropriate their opinions, which creates decisions and to take effective environment challenge and support appropriate provide to the Chairman welcomed changes that in since his appointment has introduced a greater is creating December 2018, which focus on supporting the development and challenge of Directors carried out an evaluation of the carried Directors performance and concluded Chairman’s satisfied with the Chairman’s that they were commitment and performance. Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford one discussions ‑ to ‑ Executive Directors, that the Executive Directors, ‑ Board was performing well in all was performing Board
with each Director at which they discussed with each Director individual performance and the operation its Committees in some and of the Board detail. Each Committee Chairman held similar meetings with members of their Committees. The Senior Independent with the Non-Executive discussed Director of the Chairman the effectiveness Directors culminated in process The of the Board. by the chaired table discussion, a round Chairman, at which each Chairman reported on his/her findings and led to an open and of the frank discussion on the effectiveness and Committees. operation of the Board to a collective view around came The Board were there what worked well and where The output of the for improvement. areas the Chairman, with the allowed process evaluate the overall to objectively Board, and of the Board balance and effectiveness its Committees. areas that were reviewed, that the Board that the Board reviewed, that were areas team of Executive comprised a strong and Non and effective were Committees of the Board has adopted high governance that the Board throughout. standards with the Chairman determined This year, annual that the of the Board the rest evaluation of the performance and its principal of the Board, effectiveness should be Committees and its Directors This exercise subject to an internal review. of the Chairman, was under the control completed by using detailed questionnaires of to the key areas in relation all Directors accountability and the arrangements Board focus on these in place to enable effective included Group covered Topics areas. performance, delegation and strategy, success, development and accountability, and Committee composition Board reward, Board and Committee effectiveness, induction and training, internal control and risk management. The output of the with all Directors. was shared questionnaires The Chairman had one Board evaluation Board of Section comply with the provisions To B.6.2 of the Governance Code, the Board externallyexpects to carry out an facilitated at least effectiveness of Board review It underwent such an externally triennially. last year, the Board facilitated evaluation of Evaluation carried in which ICSA Board the performance of out a full evaluation of It concluded of the Company. the Board that the Executive Directors Executive Directors ‑ teams and functional leaders
evaluation done during the year under review.
Executive Directors are encouraged are Executive Directors
‑ attend Oxford Instruments events, exhibitions attend Oxford presentations. and award and her office act as The Company Secretary on matters concerning advisers to the Board governance compliance with Board and ensure have access to this All Directors procedures. also exists for Directors advice and a procedure advice at the to take independent professional advice was sought expense. No such Group’s The appointment and removal during the year. matters for the are of the Company Secretary as a whole. Board Throughout the year, Non the year, Throughout present to the Board on a regular basis. on a regular to the Board present Non to meet individual members of the senior invited to management team and are events. This they participate in relevant have Board development Board an undertake On appointment, Directors to which is designed induction process understanding of develop knowledge and visits to businesses through the Group’s operating sites, discussion various Group well as product as technology, of relevant management from demonstrations, briefings and familiarisation with investor perceptions This induction is supported by of the Group. by the Company briefing papers prepared Since his appointment, Neil Carson Secretary. the induction process, has been through at which he has confirmed was effective of the raising his knowledge and awareness its technologies, businesses, markets Group, and people. The operating businesses’ senior management Board development development Board and CORPORATE GOVERNANCE REPORT GOVERNANCE CORPORATE EFFECTIVENESS Oxford Instruments plc Report and Financial Statements 2019
EFFECTIVENESS
CORPORATE GOVERNANCE REPORT CONTINUED
Attendance at meetings Only the Committee Chairman and members are entitled to be present at a meeting of the Audit and Risk, Nomination or Remuneration Committees, but others may attend by invitation. No Director votes on matters where he or she has a conflict of interest. Further details of the individual Committees’ activities are described below and in the Committee reports. The following table sets out the frequency of, and attendance at, Board and principal Board Committee meetings for the year to 31 March 2019: Audit and Risk Remuneration Nomination Board Committee Committee Committee Number of meetings held 9 5 4 4 Neil Carson1 31 11 11 —1 Alan Thomson2 22 12 22 22 Ian Barkshire 9 53 33 33 Gavin Hill 9 53 23 13 Steve Blair 9 5 4 4 Richard Friend 9 5 4 4 Thomas Geitner 9 5 4 4 Mary Waldner 9 5 4 4 1. Neil Carson has attended all meetings since his appointment to the Committee on 1 December 2018. 2. Apart from meetings held in July 2018, Alan Thomson attended all meetings held before his death on 22 July 2018. 3. Attended by invitation.
Board Committees Remuneration Committee Audit and Risk Committee The Board has formed the following The Remuneration Committee comprises all The Audit and Risk Committee comprises all the Committees: Audit and Risk, Nomination, the independent Non‑Executive Directors and independent Non‑Executive Directors and its Remuneration and Administration. the Chairman of the Board. Thomas Geitner Chairman is Mary Waldner. Other members of is the Chairman of the Committee. The Board the Board, senior management and the external Membership of Board Committees, which considers that Thomas, with his experience of auditor are invited to attend all or part of any is set out on pages 62 and 63 and above, working at senior levels in global companies, meetings. The Board has determined that Mary, is determined by the Board and is reviewed including high technology companies, has with her background in financial management, regularly. The written terms of reference of an appropriate blend of skills to make a is the designated financial expert and is a well the Board Committees are reviewed annually successful Chairman of the Remuneration qualified Audit Committee Chairman. by each Committee and the Board and are Committee. The members of the Committee available on the Company’s website at The Audit and Risk Committee’s main are appointed by the Board. www.oxinst.com/investors and from the responsibilities are focused on financial Company on request. They will be on display The Remuneration Committee is responsible reporting, external audit, internal audit, at the Annual General Meeting. for recommending to the Board the internal controls and risk management. remuneration packages for Executive Directors Detail on the operation of each of the Audit Full details of the operation and the work of and the bonus and share option strategy and Risk, Remuneration and Nomination the Audit and Risk Committee are included in for the Group’s executive management. Committees is to be found within the relevant the Audit and Risk Committee Report set out Independent professional advice is sought Committees’ reports. on pages 74 to 79. when considered necessary. The Chairman Nomination Committee and the Executive Directors are responsible for Administration Committee The Nomination Committee comprises all fixing the remuneration of the Non‑Executive The Administration Committee consists of the Non‑Executive Directors, under the Directors and the Remuneration Committee a minimum of two Directors and deals with chairmanship of the Chairman of the Board. is responsible for fixing the remuneration of items of a routine and administrative nature. During the period following the death the Chairman. No Director is involved in the At each of its meetings, the Board receives a of Alan Thomson and the appointment process that sets his/her own remuneration. summary outlining all matters decided by the of Neil Carson, Steve Blair was Interim The Chief Executive is invited to attend Administration Committee since the previous Chairman of the Nomination Committee. all or part of Remuneration Committee Board Meeting. The Nomination Committee is responsible meetings as deemed appropriate, for example for assisting the Board in the formal selection when consideration is being given to the and appointment of Directors and considers performance of other Executive Directors and succession planning for the Board, which it on significant Group‑wide changes in salary reviews annually. structure and terms and conditions affecting other employees at senior executive level.
68 Strategic Report Governance Financial Statements Company Information 69 day ‑ to oup established ‑ ‑ responsibility is based on responsibility
Director;
wide functional responsibilities wide functional responsibilities ‑ oup’s management structure structure management oup’s e is a formal schedule of matters Group’s assurance function. Group’s ther the Gr and the heads of the principal businesses activities. Day of the Group’s the identification of separate businesses for activities for each of the Group’s clearly defined lines of are which there at all levels management responsibilities and Board up to and including the Group reporting accounting and the Group’s this organisation; functions reflect financial executives within Gr and acknowledged functional reporting to the Group through relationship Finance reserved to the Board for decision; other for decision; to the Board reserved delegates than these matters, the Board the to the Chief Executive and reviews the delegation of authorities throughout management structure; is headed up by the Management comprises the Its membership Board. senior managers with Executive Directors, Group the management of the for responsibility to the Management is delegated Group The Board. to their own operational businesses report is also a well head but there
• The internal control framework has been The internal control designed to manage rather than eliminate material risks to the achievement of strategic only and business objectives and can provide and not absolute, assurance reasonable, against material misstatement or loss. Because over limitations, internal controls of inherent or detect may not prevent reporting financial has been no material all misstatements. There internal control change to the Group’s by this framework during the period covered Report and Financial Statements. The key components designed to provide within the Group internal control effective include the following: • • Control activities include policies and Control authorisation and for appropriate procedures of of transactions, the application approval reviews and reporting standards financial and financial of significant judgements and regulatory performance. Financial, and risk procedures operational controls, by reviewed are the Group activities across the Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford operating
year planning ‑ principal risks set out on pages 43 toprincipal risks set out on
79.
covers financial, operational and framework includes a financial planning the mitigating actions adopted, are are the mitigating actions adopted,
to
businesses follow a standard process for risk process businesses follow a standard is reporting. The process identification and further described on page 69. On a regular and updates its risk basis each business reviews to the Chief which is then reported register Executive. If a material risk changes or arises, of the business reports the Managing Director this to the Chief Executive, at which time on the adequacy of the is a discussion there mitigating actions taken. In addition, the Board and the Audit and Risk Committee consider strategic objectives which risks to the Group’s level and develop appropriate arise at a Group actions to manage and mitigate these risks possible. where The Board has carried out a robust assessment has carried out a robust The Board the Group, of the principal risks facing its business including those which threaten performance, solvency and model, future of all major risks identified, Details liquidity. and and by the Board to and reviewed reported on a quarterlythe Audit and Risk Committee basis. The risks and an overview of the major 47 provide All uncertainties faced by the Group. process which comprises a five which comprises process model and a detailed annual budget which All Group approval. is subject to Board monthly and reported are businesses’ results include variance analysis to budget and the monthly Management also prepare prior year. reforecasts. Internal control accountability for reviewing has The Board the adequacy and effectiveness and approving operated by the Group. of internal controls This and risk management. compliance controls The management of each business is risk management and control for responsible the within their business and, through implementing Board Management Board, policies on risk and control. framework includes centralThe internal control oversight and risk management direction, of the key activities within the Group. This Internal audit and assurance internal audit function assesses the The Group’s managementthe of and effectiveness adequacy oversight and provides of significant risk areas line and front of operational management’s assurance activities. Further details of the scope of internal set out in the audit activities are Audit and Risk Committee Report on pages 74 day ‑ to ‑ 2019 at the Group’s offices 2019 at the Group’s
Executive Directors meet informally Executive Directors ‑ and the website itself carries additional
Group arranges for the Report and Group principles of the Governance Code.
September
Tubney Woods, Oxfordshire. Woods, Tubney
Within the Group there is an ongoing process is an ongoing process Within there the Group for identifying, evaluating and managing the that is significant risks faced by the Group embedded in all business units. Day Risk management has been management of this process to the Executive delegated by the Board set out are of the process Details Directors. in the Audit and Risk Committee Report on has been in pages 74 to 79. This process the financial year and up place throughout of the Report and to the date of approval reviewed Financial Statements. It is regularly with and accords Directors of by the Board the information on the Group’s products, services products, information on the Group’s and markets. with Shareholders both before and after the both before with Shareholders queries to Shareholder AGM and respond The Chairman and the Senior and requests. make themselves Independent Director as required. available to meet Shareholders posted on the announcements are All Group , www.oxinst.com/investors website, Group The Investor released. as soon as they are Relations section of the website provides financial and other information on the Group Investor relations places considerable importance on The Group communications with its Shareholders, regular of with whom it has an ongoing programme encouraged are dialogue. All Shareholders to participate in the AGM, at which the an Chairman and Chief Executive present the business, review overview of the Group’s and make comments on strategy and results business activity. current The Non in Financial Statements and related papers to be papers related Financial Statements and Shareholders where posted on its website and, paper copies, posted to have elected to receive so as to allow at least 20 working Shareholders days for consideration prior to the AGM. The next AGM will be held on 10 Annual General Meeting (AGM) Annual General Meeting for the Board The AGM is an opportunity At its AGM, the to meet Shareholders. of the complies with the provisions Group to the disclosure Governance Code relating votes, the separation of resolutions of proxy Chairmen.and the attendance of Committee The Oxford Instruments plc Report and Financial Statements 2019
EFFECTIVENESS
CORPORATE GOVERNANCE REPORT CONTINUED
Internal control continued • authorisation limits are set at appropriate • the Board reviews strategic issues and levels throughout the Group; compliance options formally once a year during the with these limits is monitored by the Group annual strategic planning process and Finance Director and the Group Internal during the year as appropriate. In addition, Audit and Risk Manager; the Executive Directors maintain a five‑year • there is a detailed and risk‑based planning model of the Group and its delegation of authority structure in individual businesses; place for sales contracts and managing • annual budgets are prepared for each commercial risks. Contracts with onerous of the Group’s businesses which include terms and conditions (such as unlimited monthly figures for turnover, profit, capital liability contracts) require approval by expenditure, cash flow and borrowings. either the Chief Executive or Group Finance The budgets are reviewed through the Director; Group management structure and result • the International Trade Committee in a Group financial budget which is monitors, considers action and makes considered and approved by the Board; recommendations around the management • the businesses prepare monthly of key risks relating to international management accounts which compare trade including sanctions, export controls the actual operating result with both the and tariffs; and budget and the prior year. The businesses • with respect to the UK pension scheme, also prepare rolling reforecasts for orders, the Group nominates half of the trustee turnover, operating profit and cash. Both directors of the corporate trustee to the are reviewed by the Board at each of its pension scheme, involves as appropriate scheduled meetings; its own independent actuary to review • the Board approves all acquisition actuarial assumptions, agrees the and divestment proposals and there investment policy with the trustee, are established procedures for the works with the trustee on its investment planning, approval and monitoring sub‑committee to deal with day‑to‑day of capital expenditure; investment matters, ensures there is an independent actuarial valuation every three • for all major investments, the performance years and agrees funding levels to provide of at least the first twelve months against adequate funding to meet the benefit the original proposal is reviewed by payments of the members as they fall due. the Board; • an internal audit is carried out through a system of regular reviews of the financial and non‑financial internal controls at each Susan Johnson‑Brett site. This is further reported on in the Audit Company Secretary and Risk Committee Report on pages 74 to 11 June 2019 79. These reviews are coordinated by the Group Internal Audit and Risk Manager; • the Board receives regular updates on pensions, corporate responsibility, business ethics and health and safety and the Audit and Risk Committee receives regular updates on treasury, tax, insurance and litigation;
70 Strategic Report Governance Financial Statements Company Information 71 to Committee 1 July 2017 1 June 2016 Date of appointment 4 February 2016 15 January 2013 1 December 2018 1 September 2014 2 4 4 4 4 4 3 — Committee Nomination
The Committee will continue to focus and future on ensuring that the present for is appropriate composition of the Board strategy and to the delivery of the Group’s the applicable, broaden, maintain, and where range of expertise, experience and diversity of The Committee those serving on the Board. all relevant will continue to work to ensure in the UK Corporate Governance requirements met. Code are Neil Carson Chairman of the Nomination Committee 11 June 2019
Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford
(Chairman to 22 July 2018) 2
3 (Chairman from 1 December 2018) (Chairman from the Group. 1 1 3 Neil Carson was appointed to the Board on 1 December 2018. He has attended all meetings since his appointment. Neil Carson was appointed to the Board until his death. Alan Thomson died on 22 July 2018. He attended all meetings Attended by invitation. 23 July 2018-30 November 2018) Steve Blair (Interim Chairman from Friend Richard Thomas Geitner Mary Waldner Number of meetings in attendance: Ian Barkshire Alan Thomson I took over as Chairman of the Committee in December 2018. Prior to my and the Board appointment, the Committee, with Steve Blair acting as Interim Chairman of the Nomination Committee, carried out an executive search to identify potential candidates to succeed The Alan Thomson as Chairman of the Board. Committee, with the help of Russell Reynolds and Associates, undertook such a search candidates. met with a number of interested of This culminated in a recommendation and my subsequent appointment to the Board appointment on 1 December 2018 as and Non‑Executive Chairman of the Board Chairman of the Nomination Committee. The Committee’s key objective is to ensure ensure to is objective key Committee’s The transparent and rigorous a formal, is there Directors new of appointment the for process effective that ensure to and Board the to succession planning processes are in place across Number of meetings attended: Neil Carson 1. 2. 3. Number of meetings held Gavin Hill Attendance at meetings year ended 31 March 2019 31 March Attendance at meetings year ended The Committee is responsible for assisting The Committee is responsible in the formal selection and the Board It considers appointment of Directors. potential candidates and recommends to the Board. appointments of new Directors The Committee considers succession and the top level planning for the Board of senior management. Annual performance appraisal of the Chief Executive. terms of the Committee’s Annual review of reference. Dear Shareholder, the I am pleased to introduce Nomination Committee Report for 2018/19. key objective is to support The Committee’s responsibilities its in fulfilling the Board and is a formal, rigorous there to ensure for the appointment of process transparent that and to ensure to the Board new Directors in are planning processes succession effective the Group. place across Key responsibilities • • • • NOMINATION COMMITTEE REPORT NOMINATION EFFECTIVENESS Oxford Instruments plc Report and Financial Statements 2019
EFFECTIVENESS
NOMINATION COMMITTEE REPORT CONTINUED
The Nomination Committee −− each appointment process begins Succession planning The Nomination Committee comprises all with an evaluation of the balance • The Group HR Director and the Chief the Non‑Executive Directors, under the of skills, knowledge, experience Executive presented the work that had chairmanship of the Chairman of the Board. and diversity existing on the Board been carried out within the business on that is drawn up through a series of succession planning, talent management, The composition of the Committee is meetings between the Committee and leadership, including at Management therefore compliant with the UK Corporate Chairman and Directors; Board and Executive Director level. Governance Code 2016 (“Governance Code”). Full details of the Committee’s −− the Board recognises that diversity, • The Committee discussed Board diversity responsibilities are set out in its terms of construed in its broadest sense and succession planning for Directors. reference, which can be found on our website and including gender, religious Performance review of at www.oxinst.com/investors-content/ and ethnic diversity, age, Executive Directors advisers-and-company-secretary, and personality and background, is • The Committee also carried out its annual include all matters required by the Governance an important factor in Board and review of the performance of: Code. The main responsibilities of the operational effectiveness; Committee are summarised below: −− in drawing up long and shortlists of • the Chief Executive; potential candidates, the Committee • with the help of the Chief Executive, • the Committee is responsible for assisting considers not only relevant skills, the Group Finance Director; and the Board in the formal selection and experience and knowledge but appointment of Directors. It considers • excluding the Chairman, reviewed the also diversity; potential candidates and recommends performance of the Chairman. appointments of new Directors to −− the Committee actively considers Other the Board: diversity before making a • Annual review of the Nomination recommendation to appoint • there is a formal, rigorous and Committee’s terms of reference. to the Board; transparent procedure for the appointment of new Directors to the • the Committee takes external advice Board, the prime responsibility for when considered appropriate and will which is delegated to the Committee; only engage executive search firms who have signed up to the Voluntary Code • the purpose of the Committee’s of Conduct for Executive Search Firms selection process is to identify the most on gender diversity and best practice; suitably qualified candidates who will complement and balance the current • the Committee considers succession skills, knowledge and experience of planning for the Board and the top level the Board: of senior management; −− recommendations for appointments • annual performance appraisal of the seek to strengthen the Board by Chief Executive; and selecting the best candidate based • annual review of the Committee’s terms on merit and against objective of reference. criteria, including time available and the commitment that will be required of the potential Director;
72 Strategic Report Governance Financial Statements Company Information 73 the Remuneration
appoint each Director will appoint each Director ‑ Executive Chairman. ‑ Non Executive and Executive Director Executive and Executive Director
‑ as appointment by Shareholders each appointment by Shareholders
‑ Carson was appointed to the
8 9 10 Following successful completion of on 1 December 2018 the search, Neil Board year at the AGM and this includes those The Committee, appointed during the year. taking into account the performance and brings to the value that each Director each of whether has considered Board, the Non for appointments should be renewed a further year and has confirmed that a this is indeed the case. Accordingly, to re resolution All Directors of the Board are put forward put forward are of the Board All Directors for re at the Company’s be put to Shareholders forthcoming AGM. The Board convened a meeting at which convened a meeting at which The Board candidate recommended the Committee’s was given and approval was considered at the candidate to appoint the preferred by level of fees agreed Committee. Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford candidates.
members of
candidate.
committee, ‑ Executive Chairman of the Board. the Board. Executive Chairman of ‑ committee. ‑ committee discussed with the Committee determined its final output of which generated a shortlist sub
‑
7 5 6 4 Appropriate references were taken up for were references Appropriate the final shortlisted candidates and the it Committee convened a meeting where feedback and Director’s each considered its recommended agreed of candidates who were interviewed by of candidates who were the Russell Reynolds then presented, Russell Reynolds then presented, a long list of and discussed in detail, candidates with the sub the The Remuneration Committee convened a the fees for meeting to consider and agree the appointment. After interviews were completed, the After interviews were sub Committee the shortlisted candidates. The shortlist of two candidates. All the Committee met with, in person or by the two final video conference, committee, ‑ Executive Directors and chairmen, Executive Directors committee comprising the Interim committee comprising ‑ ‑ each member of the Board to establish each member of the Board
1 3 2 This comprised a number of steps. This comprised a number The search was focused on experienced The search Non and former CEOs and CFOs. Candidates various backgrounds came from considered including engineering, manufacturing, technology and pharmaceuticals. They a global outlook and good all brought knowledge of plc environments. a clear specification of requirements. requirements. a clear specification of of these discussions the output Taking into consideration, the sub with the help of Russell Reynolds, drew and desired up a description of the role capabilities for candidates. Russell Reynolds including was asked to consider diversity, age, personality ethnicity, religion, gender, when undertaking its and background, for potential candidates. search Russell Reynolds Associates was appointed as adviser to the Committee on the appointment of Chairman. They spoke to Chairman, CEO and Group HR Director. HR Director. Chairman, CEO and Group The Committee established a The Committee established sub Constitution of the Board Constitution of the and appointed, a Non for, a search The Committee undertook Principal activities of the Committee during the year Principal activities Oxford Instruments plc Report and Financial Statements 2019
ACCOUNTABILITY
AUDIT AND RISK COMMITTEE REPORT
The Committee retains its focus on a range of key financial and non‑financial risk areas and has overseen improvements to the Group’s risk management process.
Key responsibilities Attendance at meetings year ended 31 March 2019 • Financial reporting. Audit and Risk Date of appointment Committee to Committee • External audit. Number of meetings held 5 • Internal controls and risk management. Number of meetings attended: • Internal audit. Mary Waldner, Chairman 5 4 February 2016 • Business malpractice. Neil Carson1 1 1 December 2018 Alan Thomson2 1 1 June 2016 Steve Blair 5 1 July 2017 Richard Friend 5 1 September 2014 Thomas Geitner 5 15 January 2013 Number of meetings in attendance: Ian Barkshire3 5 Gavin Hill3 5 1. Neil Carson has attended all meetings since his appointment to the Committee on 1 December 2018. 2. Apart from meetings held in July 2018, Alan Thomson attended all meetings held before his death on 22 July 2018. 3. Attended by invitation.
Dear Shareholder, The Committee’s core activities have not The Committee has overseen improvements The year ended 31 March 2019 has been a changed significantly since last year, reflecting to the risk management process during the year of stability in the Group structure. In this the stable corporate environment, although year, with more granular reporting required period, the membership of the Audit and certain areas of risk have received greater in relation to the most significant areas of Risk Committee (the “Committee”) has also attention, responding to changes in the risk across the Group. The internal audit remained stable, although it has continued external environment. At the same time, programme retains a mix of work to provide to adapt its activities to ensure that it deals assurance over the adequacy of internal assurance over the effective operation of with the areas of most significant risk. From a financial controls and oversight of activities key financial controls and other risk areas governance perspective, the most significant in key risk areas such as new product which are principally derived from the change in the year relates to the creation by innovation, cyber security and health and Group risk register. In the year ahead, this the Company of a new committee to assimilate safety remain central to the Committee’s approach will continue and will include the management of key risks relating to remit. To fulfil its obligations under the UK additional assurance work on key compliance international trade such as sanctions, export Corporate Governance Code, the Committee risks relating to international trade and the controls and tariffs. The creation of the performs reviews to assess the integrity of ongoing implementation of the new ERP International Trade Committee is a welcome the Financial Statements, considers key areas system. of accounting judgement that are material development in an area of key importance for a A summary of the main areas of recurring to the Group’s results and considers whether Group that derives such a significant proportion work is set out below: of revenue and profit from exporting. the Financial Statements are fair, balanced and understandable. It continues to monitor • review of the Financial Statements and annually the effectiveness of internal audit the significant accounting judgements and retains oversight of the external auditor that were used in their compilation. independence and audit relationship. (The significant accounting judgements This extends to monitoring the provision relating to the 2019 Financial Statements of non‑audit services. are set out on page 117, section (b) of policies);
74 Strategic Report Governance Financial Statements Company Information 75 fectiveness audit ‑ eview of eviewed and ecommendations egular meetings esponsibility for s review of the Financial s review nal auditor’s independence and nal auditor’s audit services policy and reviews audit services policy and reviews ‑ appointment of the external auditor. ‑ Company’s external auditor. external auditor. Company’s
also considers whether there is sufficient is sufficient there also considers whether
elevant statutory and listing requirements. the value and nature of all non the value and nature The Committee makes r to the appointment relating to the Board or re The Committee monitors compliance with r The Committee has r with KPMG, overseeing the relationship the The Committee holds r with KPMG to discuss key matters process reporting to the financial related audit strategy which include KPMG’s of audit risk and and planning, key areas requirements. reporting financial The annual audit plan is r Committee. It also reviews by the approved by KPMG the key audit findings presented at the full and half year. The Committee evaluates the ef on an annual of the external audit process basis. The Committee oversees and evaluates the exter for responsibility It also exercises objectivity. the non services provided. The Committee performs a r The Committee performs for Shareholders information and disclosure performance, to assess the Company’s business model, strategy and risks. The Committee’ of significant Statements includes a review judgements, the reporting financial accounting policies that have been used, and compliance with accounting standards. comments on the The Committee’s reporting judgements significant financial The review set out on page 77 below. are also includes an assessment as to whether all material matters have been taken into appropriately. account and treated the Financial Statements and the results and the results the Financial Statements half year and full announcements at the the Committee of its remit, As part year. and whether the Report advises the Board as a whole, Financial Statements, taken balanced and understandable. fair, are It
External audit • • • • • • Financial reporting Financial reporting • • • Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford Waldner Waldner
content/ - . secretary - specific experience and ‑ Waldner exercising the exercising Waldner
company - reference
and Thomas Geitner have and Thomas Geitner have
and - required. Its main responsibilities Its main responsibilities required. of
Chairman. to the Committee.
security, intellectual property, health health intellectual property, security, Blair
with Mary
recommends to the Board any the Board to recommends of Committee periodically reviews its Committee periodically reviews be found on our website at
set out below:
The and its effectiveness terms of reference and are is the current Chief Financial Officer of Lloyd’s Chief Financial Officer of Lloyd’s is the current held senior financial Register and has previously at companies quoted on the London roles Stock Exchange. On this basis, the Board to requirement considers that Mary fulfils the experience financial and relevant have recent and is also independent. The other members bring valuable sector reporting, pensions and financial and safety, the external tax. During the last financial year, of the four Committee auditor attended three meetings and at each of those meetings met of with the Committee without the presence the Executive Directors. Role and responsibilities responsibilities Full details of the Committee’s which terms of reference, set out in its are can www.oxinst.com/investors advisers changes continued their service throughout the throughout continued their service year, role insight duties, the Committee carry out its To and other presentations reports, receives within information to assess the various areas is generally provided Information its remit. to the Committee by internal and external and relevant audit, the Executive Directors subject matter experts. These include internal such as and external advisers on risk areas cyber Composition and Composition and terms Friend, Sir Richard Mary Waldner, Steve of terms The Audit and Risk Committee’s one member of that at least require reference financial and relevant the Committee has recent experience. This is in line with the FRC’s Guidance on Audit Committees. Mary year ‑ eference of eference s role and s role elating to the Financial fectiveness of internal risks;
eview of treasury and tax matters; eview of treasury nal auditor and auditor year results; blowing. ‑ ‑ related risks; related oup’s delegation of authority and delegation oup’s elating to international trade; ‑ nal audit, risk management and emerging annual review of key litigation matters annual review
‑ exit summary of activities by meeting over the over meeting by activities of summary eview of the effectiveness of the external eview of the effectiveness eview of the Group’s viability statement, eview of the Group’s at risk register eview of the Group year:
internal control; and internal control; inter whistle responsibilities; responsibilities; Statements; the exter independence; a significant matters r the Audit and Risk Committee; a summary of the Committee’ course of the year; the composition and terms of r IT and cyber security risks; and the Gr mechanisms for managing contractual risks. Br principal risks in the Andor and NanoScience business units; audit process. audit process. risks r r and risks; evaluation of the ef audit; and an annual r a bi and full calculations and including the supporting links to key risks and uncertainties; r each meeting of the Committee, key risk areas including discussion of and r r half to the and the statements relating
Audit and Risk Committee Chairman 11 June 2019 Mary Waldner • • • • years, I will be attending the As in previous if you In the meantime, AGM in September. have any questions or comments I should be you. delighted to hear from • • • the Committee’s of of the rest The structure is set out in the following sections: report • • • Further, the Committee has focused on the the Committee has focused Further, during the following specific subject areas last • • • • • • • • • eview ofthestatementissuedatAGM Oxford Instruments plc Report and Financial Statements 2019
ACCOUNTABILITY
AUDIT AND RISK COMMITTEE REPORT CONTINUED
Role and responsibilities continued • Approves the annual internal audit Reporting Internal controls and risk programme and reviews all financial and • Produces a report on its activities, management non‑financial internal audit reports. in accordance with the UK Corporate Governance Code. • Monitors the adequacy and effectiveness Business malpractice of the internal control environment. • Evaluates the adequacy of the • Reports to the Board on any matter it • Reviews the Group’s risk management whistle‑blowing arrangements in place at considers requires action or improvement. processes and the Group’s risk register that the Group and the Group’s response to any • Advises the Board on Directors’ is reported every quarter. reports received of business malpractice. responsibilities relating to the Financial Internal audit • Performs a review of the Group’s Statements. • The Committee performs an annual procedures and controls relating to the evaluation of the effectiveness of the prevention of fraud and the detection internal audit function. of bribery.
Activities of the Committee in respect of the financial year ended 31 March 2019 The Committee’s work is principally based on a structured programme of recurring activities that has been developed from its terms of reference and designed to fulfil its responsibilities throughout the financial year. A summary of the items discussed at each meeting since the publication of last year’s Report and Financial Statements is set out in the table below: July September November January June Agenda item 2018 2018 2018 2019 2019 Review the integrity of the draft Financial Statements, appropriateness of accounting policies and going concern assumption (reports received from management and KPMG) • • Review and recommend for approval the half‑year and year‑end announcements, interim management and AGM statements and the Report and Financial Statements • • Review of significant financial reporting issues and judgements • • Review the viability statement • Assess the effectiveness of the external audit process • Consider the independence and objectivity of the external auditor • • Review internal management representation letters • Review and agree the internal audit plan • Review the output of the internal audit work • • • Review the effectiveness of the Audit and Risk Committee • Detailed report on business‑specific risk areas • • Review of cyber security • Update on litigation • • Evaluate the effectiveness of the internal audit function • Review the internal control framework • Review the risk management processes • Review the Group risk register • • • • • Review of whistle‑blowing arrangements • Review systems and controls for detecting fraud and the prevention of bribery and corruption • Annual review of insurance • Annual review and approval of policy relating to non‑audit services • Annual review of tax arrangements • Annual review of treasury arrangements •
76 Strategic Report Governance Financial Statements Company Information 77 year. The nature of these The nature year. ‑ on ‑ claims States, and an interest charge of States, and an interest
market gain of £1.5 million relating market gain of £1.5 million relating ‑ million. The principal adjusting item
to party claims in relation to potential to potential party claims in relation million relating to the amortisation million relating to the early repayment million relating ‑ ‑
the Financial Statements.
of acquired intangible assets. The only of acquired other significant adjustment (in excess of is the £1.0 million) to operating results mark hedging contracts. Note 1 also to currency shows £10.4 million of the taxation charge in the year as an adjusting item which arises to corporation tax rates in a change from the United of loan notes. The Committee has considered management setting out all a paper from of the adjustments and concluded that the been consistently definitions have Group’s applied year judgement appropriate adjustments requires The Committee is satisfied to be exercised. adopted and the disclosure with the process in Adjusted profit and EPS Adjusted profit As explained in Note 1 to the Financial applies adjustments Statements, the Group and EPS to the statutory definition of profit and earnings, adjusted profitability to present a clearer believes they present as the Board financial performance of the of the picture 2019, In the year ended 31 March Group. totalled adjustments to operating profit £11.1 tax was the charge of before to profit £9.6 £0.9 Provisions for intellectual for intellectual Provisions property to faces potential exposure The Group third infringement. intellectual property in updates and analysis Management provide and to potential claims to the Audit relation The Committee year. Risk Committee twice a the information and explanations has reviewed by management in support of provided in the Financial the amounts recognised from reports Statements and has also received 2019, As at 31 March KPMG on the matter. in the recognised the value of the provisions Financial Statements is not significant but, of significant an area nonetheless, it remains accounting judgement. The Committee has and calculations verified that the approach performed to estimate the level of provisions and consistent with is reasonable required The Committee continues to the prior year. that the final outcome of each recognise the amount specific case is likely to vary from it takes the view that no However, provided. required. are adjustments to the provisions Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford off remains an area of an area remains off ‑ annual valuations on its behalf ‑ end accounts, Aon Hewitt ‑ March 2018 to £3.5 million at March
scheme reduced from £12.5 million from scheme reduced March 2019. This was largely due to 2019. This March a result of the adoption of IFRS 15, revenue of the adoption of IFRS 15, revenue a result
As past, is less subjective than in the recognition cut although revenue audit focus. In the reports received by the received audit focus. In the reports revenue in errors Committee, no significant reported. were recognition for accounting purposes. For the year assumptions on a consistent recommended basis with those adopted at the previous year end. Market conditions did not move result significantly during the year and as a broadly the actual assumptions used were 2018. the same as those used at 31 March also updated to Mortality assumptions were use the latest CMI 2018 tables. The valuation by River of the scheme assets was provided investment (the scheme’s and Mercantile with market practice manager) in accordance for valuing investment assets. As set out in Note 25 to the Financial deficit for the Statements, the reported UK at 31 31 performance relating investment improved recovery assets and deficit to the scheme’s contributions of £7.3 million made by the year. during the Group UK defined benefit pension scheme UK defined benefit of IAS 19, with the provisions In accordance to value its pension is required the Group 2019 as the difference deficit at 31 March value of the defined between the net present assets and liabilities. benefit scheme’s to appoint the Group IAS 19 also requires an external suitable actuary to advise on assumptions to adopt in calculating the net liabilities at the value of the scheme’s present has retained balance sheet date. The Group Aon Hewitt (the pension scheme‘s actuary) to undertake bi and
financial ‑ those
based criteria ‑ Financial Statements 2019.
principal areas of significant accounting principal areas
and the trigger point for recognition is when and the trigger point for recognition the performance conditions in the contract met. The Group with the customer are to revenue rules relating applies prescriptive to both appropriate are that recognition and services. products judgement considered in relation to the 2019 in relation judgement considered Financial Statements were: Revenue recognition adopted As set out on page 116 the Group Contracts with IFRS 15 Revenue from in is recognised Customers and revenue Revenue is with this standard. accordance principles using recognised The Committee reviews all significant The Committee reviews issues concerning the Financial Statements. The Significant matters relating to Significant matters the June requirements. This work formed part of the requirements. of the draft Financial Statements that review was undertaken by the Committee in May The scope of the Committee’s oversight oversight The scope of the Committee’s and non includes a range of financial to the particularly relevant matters which are performance. Assurance programmes Group’s Innovation (NPI), and to New Product relating as IT and Health and support functions such on the Committee’s Safety continue to feature is subject to a recurring agenda. Cyber security findings by the Committee. Key annual review audits are financial and health and safety from discussed at each meeting of the Committee. typically such as NPI, IT and HR are Other areas on an annual basis. The increased reviewed focus on international in the last trade risks financial year will continue in 2019/20. The the key Committee will continue to review that focus to ensure risks faced by the Group directed. is appropriately The 2016 UK Corporate Governance Code, the Annual to prepare the Directors requires Report and Accounts and to state that they consider them, taken as a whole, to be fair, balanced and understandable and provide to the information necessary for Shareholders position and performance, assess the Group’s The Board business model and strategy. that the Committee advise it as requested to whether the Annual Report meets Oxford Instruments plc Report and Financial Statements 2019
ACCOUNTABILITY
AUDIT AND RISK COMMITTEE REPORT CONTINUED
Misstatements The Committee is responsible for reviewing Internal audit and internal control Group management reported to the the effectiveness of the external audit process. The Committee seeks assurance over the Committee that they were not aware of This review is based on reports from KPMG at effective design and operation of internal any material misstatements or immaterial both the half year and year end and also on controls from the internal audit function. misstatements that had been made feedback from key members of the finance The Committee approves internal audit’s intentionally in order to achieve a particular community within Oxford Instruments. annual programme which includes audits presentation. The Committee also received a The effectiveness of the process for the year that consider the effectiveness of internal report from KPMG that set out its schedule ended 31 March 2019 will be evaluated by financial controls. Internal audit performs of unadjusted audit differences. The schedule the Committee at its next meeting, which is financial controls audits on a rotational basis was discussed with both Group management scheduled to take place in September 2019. across operational business units and the and KPMG. On the basis of those discussions, KPMG was re‑appointed as auditor following principal Regional Offices. The internal audit the Committee concluded that the unadjusted a tender process in 2014. In accordance with programme also includes non‑recurring, differences were not material to the Financial the rules for audit tendering and rotation risk‑based audit topics which are derived Statements and therefore no adjustment was implemented in June 2016, the Group shall be from the Group’s risk register. required. The Committee also concluded that required to replace KPMG as auditor for the It is planned that the new ERP system will the external auditor had fulfilled its duties with year ending 31 March 2022. In the meantime, be implemented at several business units in diligence and professional scepticism. the Committee shall monitor annually the 2019/20. Consequently, the internal audit plan Having reviewed presentations and reports continuing appointment of KPMG and will for the year includes a greater focus on post from management in conjunction with the issue a call for tender for the external audit implementation work to complement the core information and reports received from KPMG, when it considers it is appropriate to do so. internal financial controls reviews. The overall the Committee was satisfied that the Financial strategy remained consistent with prior years Statements appropriately addressed the Auditor independence and was developed to provide the assurance In order to assess auditor independence, key estimates and critical judgements, both required by the Committee in relation to key the Committee obtains confirmation of any in terms of quantum and the information risk areas. The internal audit plan for 2019/20 relationships between the Group and KPMG disclosed. The Committee was also satisfied was approved by the Committee at its that may have a bearing on its independence. that the key assumptions adopted in meeting in January 2019, having considered It also receives confirmation that KPMG is determining the value of assets and liabilities key areas of risk, other assurance activities independent from the Group. reported in the Financial Statements had been and historical audit findings. subject to appropriate scrutiny and challenge. As mitigation to the risk that the external The head of internal audit has a direct auditor firm’s independence might become reporting line to the Chairman of the External auditor compromised, the Committee operates a strict Audit and Risk Committee and they meet The Committee monitors the performance, policy that governs the engagement of the regularly throughout the year. The head objectivity and independence of the external external auditor to provide non‑audit services. of internal audit also meets independently auditor. It also recommends the appointment Inter alia, the policy sets out a list of prohibited with the external auditor to discuss risk or re‑appointment of the external auditor to services and a series of authority levels for areas. All reports issued by internal audit are the Board and is responsible for the approval permitted services. All non‑audit related provided to the external auditor once finalised. of its fees. engagements over £50,000 require formal The Audit and Risk Committee received KPMG’s approval by the Committee. Note 4 (page 128) The Committee’s evaluation of the presentation on its audit strategy and planning to the Financial Statements sets out the value effectiveness of the internal control memorandum at its January 2019 meeting. of audit fees for the year, together with fees environment is based on internal assurance The audit strategy and planning memorandum for non‑audit services. In the year ended reports across multiple areas of activity set out the proposed audit methodology, 31 March 2019, audit fees paid to KPMG were including operations, finance, NPI and IT, scope and planned materiality for its audit of £469,000 and non‑audit fees were £42,000. discussions with the head of internal audit the Financial Statements for the year ended This represents a non‑audit to audit fee ratio at its meetings, and on external audit reports. 31 March 2019. It also identified the principal of 0.09:1. The Committee reviewed the system of areas of audit risk and how the audit would internal financial control on behalf of the address them. The audit strategy was compiled Board and satisfied itself that the Group is following meetings with a number of relevant meeting the required standards both for the stakeholders including, but not limited to, the year ended 31 March 2019 and up to the Chairman of the Audit and Risk Committee, the date of approval of this Report and Financial Chairman of the Board and the Group Finance Statements. No concerns were raised with Director. After due consideration, KPMG’s audit the Committee in the year about possible strategy and planning memorandum were improprieties in matters of financial reporting. approved by the Committee.
78 Strategic Report Governance Financial Statements Company Information 79 Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford party provider, party provider, ‑ compliance or unethical compliance or unethical ‑ took place in June
2019 had been resolved. 2019 had been resolved.
no significant matters arising.
March
were of its work during the year, it has acted it of its work during the year,
the AGM to answer any questions.
There Summary The Committee has concluded that, as a result and with its terms of reference in accordance responsibilities. I will be available fulfilled its at Mary Waldner Audit and Risk Committee Chairman 11 June 2019 2019 and all matters raised in the year ended 31 Whistle‑blowing reporting operates a confidential The Group a third mechanism, operated by which enables employees to raise concernswhich enables employees of malpractice, non also are channels conduct. Other reporting Senior Independent available, including to the raising concerns The options for are Director. employees. These widely communicated to of clearly set out in the Code channels are Business Conduct and Ethics. The Group’s set out the policy and procedures reporting and disclosure framework for protected for the independent specify a formal protocol any through received investigation of reports channel. reporting The Committee conducts an annual review of its Reporting a Business Malpractice Policy and the outcomes of the investigations includes a This received. into the reports of the log of all matters reported review channel the independent reporting through which is maintained by the head of internal audit and risk management. The latest of findings review Risk management Risk management management activities A summary of key risk on page is set out performed by the Group in the an active role 43. The Committee takes it reviews Inter alia, risk management process. at every meeting and risk register the Group on detailed presentations more also receives business a number of individual key risks from 75, the Committee units. As set out on page risk in shaping Group has also played a role during the year. reporting principal risks and uncertainties The Group’s set out on pages 43 to 47. Although the are key risks has not changed in the of the nature importance last twelve months, the relative of certain risks has evolved. This is reflected and also in how they have been reported in the sensitivities used in the calculations supporting the viability statement, which is set out on pages 48 and 49. In the year ahead, the Committee will continue to work with the and senior management teams to ensure Board focus on key risk areas appropriate is that there taken. and the mitigating actions that are Oxford Instruments plc Report and Financial Statements 2019
REMUNERATION
REMUNERATION REPORT
We are building a stronger Oxford Instruments, changing the way we operate, enhancing our commercial focus and core capabilities across the Group.
Key responsibilities Attendance at meetings year ended 31 March 2019 • Determining the Remuneration Policy Remuneration Date of appointment for the Executive Directors. Committee to Committee Number of meetings held 4 • Determining the total Executive remuneration packages. Number of meetings attended: Thomas Geitner, Chairman 4 15 January 2013 • Performance‑related remuneration plans. Neil Carson1 1 1 December 2018 • Reviewing the Group’s remuneration policy. Alan Thomson2 2 1 June 2016 • Executive Policy for pension arrangements, Steve Blair 4 1 July 2017 service agreements, recruitment terms and Richard Friend 4 1 September 2014 termination payments. Mary Waldner 4 4 February 2016 Number of meetings in attendance: Ian Barkshire3 3 Gavin Hill3 2 1. Neil Carson has attended all meetings since his appointment to the Committee. 2. Alan Thomson attended all meetings before his death on 22 July 2018. 3. Attended by invitation.
Executive Directors’ remuneration at a glance Total remuneration payable for 2018/19 Base Annual salary Benefits Pension bonus LTIP Other Total £’000 £’000 £’000 £’000 £’000 £’000 £’000 Ian Barkshire 428 88 54 407 779 1 1,757 Gavin Hill 334 22 42 324 608 1 1,331
Remuneration performance scenarios for 2019/20 The chart illustrates how the composition of the Chief Executive’s and Group Finance Director’s remuneration could vary at different levels of performance under the Company’s Remuneration Policy. Company performance against annual bonus and PSP performance measures Performance conditions Actual Company Annual bonus Threshold On target Maximum performance Adjusted PBT £39m £43.6m £46m £45.6m Organic sales £290m £302m £307m £328.7m Cash conversion 75% 80% 85% 102.8% Strategic objectives Targets based on a range of objectives Strong
Actual Company Performance Share Plan (three‑year performance) Threshold Maximum performance Earnings per share growth 7% p.a. CAGR 12% p.a. CAGR 17.1% CAGR Total shareholder return 50th percentile 75th percentile 70.2 percentile (compared to FTSE 250) (+47.3% TSR)
80 Strategic Report Governance Financial Statements Company Information 81 22% 22% 33% 34% £2,031k growth 29% growth share price share £1,539k 27% share price price share Total including Total Total including Total tax profit target for maximum target tax profit financial strategic targets. ‑ ‑ conversion elements of the
16% 17% annual bonus and payments for 2018/19
adjusted pre
in previous years, the Committee set years, in previous
Corporate performance and PSP The annual bonus for 2018/19 was determined by a combination of cash, sales and profit targets, and non As performance targets which were stretching clearly linked to the strategy and financial financial Group performance of the Group. performance, on which 85% of bonus up with profit was based, has been strong this. 12.3% and the bonus payable reflects The and the organic payment was almost reached sales and cash payable at maximum. bonus are 26% 50% share price growth on LTIP value on LTIP 50% share price growth 27% Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford 39% 40% £1,700k payable Maximum £1,280k payable Maximum 35% 33% Bonus LTIP 2018/19
required to our remit as well as our current as well as our current to our remit required
26.5% 28% Fixed pay Work of the Committee Work during In addition to its usual annual agenda the changes items, the Committee reviewed to the UK Corporate Governance Code Remuneration Reporting and Directors’ Regulations, considering the changes that are compliance. to ensure policy and procedures a been updated guidance from has also There voting agencies number of investors and proxy following the Corporate Governance Code changes and the Committee has reviewed and taken account of these in considering operation of its Remuneration Policy for FY20 but also noting their applicability to our to this in I refer forthcoming policy review. detail below. more Target £1,257k 28% £934k Target 47% 26.5% 44% day activities, ‑ to ‑ term sustainable ‑ term vision and goals, we have pay ‑ 100% Fixed £593k pay 100% Fixed £416k closed the year with a strong order book, order closed the year with a strong
Total remuneration payable remuneration Total Chief Executive Group Finance Director Finance Group focused the business and transformed our and day operating processes and improved to growth in a return resulting Horizon we financial performance. Through Instruments, Oxford building a stronger are positioned to deliver long margins. and improved growth revenue and profit growth, as the Horizon growth, and profit revenue in strategy delivers tangible improvements business performance. By being clear about our long Dear Shareholder, performance for It has been a year of strong Instruments, with the Horizon strategy Oxford the Group. now well embedded across We Oxford Instruments plc Report and Financial Statements 2019
REMUNERATION
REMUNERATION REPORT CONTINUED
Corporate performance Review of Remuneration Policy Operation of Policy for 2019/20 and annual bonus and Shareholders are asked to approve our Executive Directors PSP payments for 2018/19 continued Directors’ Remuneration Policy at least every Effective from 1 July 2019, the Executive This results in a bonus payable in respect three years. Our current Policy was approved Directors’ salaries will be increased by 2.75%, of the financial elements of the bonus of in 2017 and re‑approval is therefore required in line with general workforce increases. 98.2% of the maximum payable. In relation next year at our 2020 AGM. Annual bonus maximum and the PSP award level remain unchanged at 100% and 150% to the strategic targets, set for 15% of the The Remuneration Committee is comfortable of salary respectively. bonus, the Committee carefully reviewed that the current policy remains appropriate performance against the objectives and for the final year of the three‑year policy As explained in more detail in our strategy scored the Chief Executive (CEO) and Group period. A full review will be carried out during section on pages 22 and 23, our strategy Finance Director (GFD) at 73.3% and 86.7% this year and a new policy will be brought to focuses on improving the profitability of the respectively, noting the strong performance Shareholders for approval at our AGM in 2020. Group, its capital efficiency and the business of the Executive Directors in driving growth portfolio to develop higher margin and growth During the year we considered carefully and improved financial performance with businesses. To this end, the performance the impact of the changes to the UK continued focus on the transformation of measures for the annual bonus and PSP Corporate Governance Code (the “2018 operational delivery throughout the Group. reflect these objectives. Code”) and new secondary legislation on Full details of the annual bonus outturn for our Remuneration Policy for executives, the As progress is made against the Horizon both the CEO and GFD of 94.4% and 96.4% Remuneration Policy more widely throughout strategy, the Committee continues to review of salary (and maximum) respectively (against the Group and our current disclosure and each year the most appropriate metrics to a target level of 75% of salary) are set out in reporting. It was agreed that many of the drive and reward performance over the the Annual Report on Remuneration. changes would be considered as part of the short term. For 2019/20 the annual bonus As both executives are relatively new to review of the Directors’ Remuneration Policy will be determined by the same metrics and their role, this is the first year that the which the Committee is due to consider weighting as 2018/19 for profit before tax performance targets for their awards under in 2019/20 and which will be formally put and cash. The Committee has, however, the Performance Share Plan (PSP) were tested. forward for approval by Shareholders at decided to replace the organic revenue The EPS performance condition, for the period 2020’s AGM. In the meantime, to meet metric with adjusted operating profit margin, ending 31 March 2019, was met in full with the more urgent requirements of the 2018 reflecting the need to drive and reward EPS growth of 17.1% per annum, resulting in Code, the Committee determined that the margin improvement and profitable growth. 100% of this element vesting. The Company’s remuneration offered to any new Executive The measures and weightings are thus profit TSR was 47.3% over the three‑year Director appointments would include pension before tax (30% salary at target/42.5% performance period, ranking it at the with a contribution rate aligned to those maximum), adjusted operating profit 70.2 percentile of its comparative group and available to the workforce and that the margin (15%/21.25%), cash conversion resulting in 85.6% of this element vesting. recovery and withholding provisions in our (15%/21.25%) and strategic objectives Accordingly, across both measures, 92.8% of annual bonus and PSP, as well as the discretion (15% at maximum). the total award vests and delivers a substantial to adjust the formulaic outcome of incentive The strategic targets will remain focused increase to total remuneration year to year. payments, would be aligned with the updated on continuing the strategic transformation requirements of the Code. Given the strong performance of the to deliver long‑term sustainable growth. business over both 2018/19 and the longer Appropriately stretching sliding scales will three‑year performance period of the PSP be set for each financial measure, with full award, the Committee is comfortable disclosure of targets and performance against that there has been a robust link between them being made in next year’s Annual Report reward and performance and alignment on Remuneration. The bonus is payable fully with investor returns. Accordingly, the in cash, recognising that the balance of the Committee has concluded that there are annual bonus and share‑based PSP is weighted no circumstances arising where it would 60% in favour of the latter. need to exercise its discretion to adjust any of the variable pay outcomes.
82 Strategic Report Governance Financial Statements Company Information 83 eased by 2.75% from eased by 2.75% from September 2019 and I will be
Executive Directors’ basic Board basic Board Executive Directors’ ‑ 2019, in line with the increases to 2019, in line with the increases
have.
July
Thomas Geitner Chairman of the Remuneration Committee 11 June 2019 Non‑Executive Directors’ fees Non‑Executive Directors’ The Non fee will be incr 1 as a and workforce the Executive Directors of for the role whole. The additional fees the and chairing Senior Independent Director and Risk Committees Remuneration and Audit at £7,500. As the Chairman was remain be no will there appointed during the year changes to his fee for 2019/20. Conclusion I hope you will be supportive of the annual the Annual Report advisory vote to approve on Remuneration, which sets out the outcomes for the year under remuneration and how the policy will be operated review will be for the year ahead. This resolution our AGM to be at to Shareholders brought held on 10 in attendance to answer any questions you may If you have any queries in the meantime, I will be pleased to engage with you and you may our Company Secretary. make contact through sincerely Yours term ‑ Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford employment emit: the ‑ eholders and year vesting period ‑ vesting holding period ‑ : the Committee has agreed ce: the Committee has agreed : the ce policies and practices some of the new Directors’ some of the new Directors’
year post ‑ ecovery and withholding and that the pension provision for new Director for new Director that the pension provision appointments will be aligned to those and our policy will be for the workforce next wording updated with the requisite year; and performance share awards already have already awards performance share a two in addition to a three and this continues post cessation of employment. As part of our policy review the Committee will consider the structure of the annual bonus and post alignment of pension with the workfor r to adjust formulaic variable discretion pay outcomes: our variable pay plan documentation and rules and PSP award plan rules have been updated to cover the of the Governance Code and requirements our policy will be updated of the wording these changes. next year to reflect Committee already considers, and provides considers, and provides Committee already to workforce challenge as appropriate, policies and practices and takes these into account when setting the Executive Remuneration Policy and Directors’ operation. The Committee will consider and and depth of its review the breadth this as appropriate; broaden alignment with Shar performance: our long longer‑term requirement; shareholding Remuneration Committee r Remuneration Committee being are terms of reference Committee’s of remit broader updated to include the of remuneration the Committee to set the as well as Team our Executive Management by the new Code; other matters required workfor
• a year Remuneration Reporting Requirements a CEO although we will not be reporting early, pay ratio this year. The Committee has also agreed to The Committee has also agreed incorporate • • In addition, the Committee has already taken has already In addition, the Committee of the requirements certain steps to address the new Code as follows: • • high EPS baseline. ‑ time ‑ regulatory changesregulatory
activities in carrying out this engagement.
Because there were no changes to the were Because there changes nor substantive Remuneration Policy, to the operation of policy for FY19, the Committee has not consulted during the year remuneration regarding with Shareholders kept up matters. The Committee has, however, to date with new and updated remuneration voting and proxy investors guidance from the impact of this onagencies and considered policy and operation. Specific engagement with will however take place overour Shareholders athe next twelve months as we move towards policy vote on our new policy at our 2020 AGM. The Committee values the opinions of its and will continue to gather Shareholders by input, as required stakeholder broader UK Corporate Governance Code,the revised its employees. As mentioned including from in our Governance will use Report, the Board to employee approach and enhance its current compliance with the engagement to ensure Code. Consideration is being given by the on HR Director Committee with our Group engage with employees how to most effectively to explain the alignment of our Executive to the wider Group remuneration Directors’ report policy and I will set out in next year’s our Corporate Governance Code and Our annual bonus is structured to start paying Our annual bonus is structured and pays out at 75% at threshold out at zero performance, with of maximum for target between and has a sliding scale vesting in The Committee sets done so for many years. targets which support the relatively stretching target, always high level of payment at the formulaic outcome to ensure reviews and does not appropriate that payments are payments have been consider that historically out of line with performance. will continue to be based 50% PSP awards on ROCE and 50% on earnings per share. a continued focus on growing EPS will ensure and the continued use of ROCE, profitability in 2017/18, provides which was introduced a close link to the business strategy over the next few years to support and incentivise management to make the changes needed to our business portfolio by ensuring that there of our capital into redeployment is efficient businesses. The higher margin and growth the target carefully Committee has considered and has increased ranges for both measures to those set the range for ROCE compared targets will remain EPS awards. for last year’s will be measured unchanged but the growth an all from Oxford Instruments plc Report and Financial Statements 2019
REMUNERATION
REMUNERATION REPORT CONTINUED
PART A: Directors’ Remuneration Policy This part of the Remuneration Report sets out the Group’s Remuneration Policy for its Directors. The Policy was approved in a binding Shareholder vote at our AGM on 12 September 2017. The Policy took effect from that date and, unless changed with Shareholders’ prior agreement, will stay in place until September 2020.
Policy overview The Committee considers carefully the In determining the remuneration of the The Remuneration Policy promotes the delivery motivational effects of the incentive structure Executive Directors, the Committee also of the Group’s strategy and seeks to align the in order to ensure that it is effective and takes into account the general trends in pay interests of Directors and Shareholders. The does not have any unintentionally negative and conditions across the Group as a whole. Committee regularly reviews the link between impact on matters such as governance, The Committee seeks to ensure that the its incentive structures and strategy to ensure environmental or social issues. More generally, underlying principles which form the basis for that remuneration packages are appropriate the Committee ensures that the overall decisions on Directors’ pay are consistent with to attract, motivate and retain the high calibre Remuneration Policy does not encourage those on which pay decisions for the rest of executives that are needed to deliver the inappropriate risk taking. the workforce are taken. Employees are not Group’s strategy. currently consulted on executive pay. However, Other matters taken the Committee will keep this under review. The Company seeks to reward executives fairly into consideration in The Committee considers feedback from and responsibly based on Group performance determining policy and their individual contribution. The Shareholders received at each AGM, together The Committee reviews the Executive Company has a strategy aimed at delivering with any feedback from additional meetings, Directors’ packages periodically, taking significant, balanced and sustainable as part of any review of Executive Director account of the level of remuneration long‑term growth and it is important remuneration. In addition, the Committee paid for comparable positions in similar for motivation and retention that the engages proactively with Shareholders where companies. Comparative pay data is used remuneration of the executives reflects this. any material changes to the Remuneration carefully, recognising the potential for an Policy are proposed. upward ratchet in remuneration caused by over‑reliance on such data. Remuneration Policy
Element of pay Purpose and link to strategy Operation Maximum opportunity
Base salary • To provide a competitive • Reviewed annually with any increase usually effective • There is no minimum or maximum and appropriate level 1 July. annual increase. of basic fixed pay • Takes account of experience, performance and • Higher increases than the average to recruit and retain responsibilities as well as the performance of the percentage for the workforce may superior talent and avoid Company, the complexity of the role within the be appropriate; for example, where excessive risk taking that Group and salary increases for employees generally. an individual changes role, where the might otherwise result • Set with regard to market data for comparable complexity of the Group changes, from an over‑reliance on positions in similar companies in terms of size, where an individual is materially variable remuneration. internationality, business model, structure and below market comparators or is • Reflects the experience, complexity, including within the industry. appointed on a below‑market salary performance and with the expectation that his/her responsibilities of salary will increase with experience the individual. and performance.
Benefits • Provided on a • Currently include, but are not limited to, the cost of: • The value of benefits varies from market‑competitive • life assurance; year to year depending on the cost basis, aids retention and to the Company and is not subject • private medical insurance; follows reward structure to a specific cap. Benefit costs for all employees. • company car benefit (car, driver, car allowance); are monitored and controlled and and/or represent a small element of total • overnight hotel accommodation where necessary remuneration costs. to enable the executive to carry out his duties efficiently at the Head Office and other Company sites. • The benefits provided may be subject to amendment from time to time by the Committee within this Policy. • Relocation costs and other incidental expenses may be provided as necessary and reasonable. • Benefits are not part of pensionable earnings.
84 Strategic Report Governance Financial Statements Company Information 85 d ned . ds over the vesting e subject to the performance.
vested.
e is no prescribed maximum e is no prescribed maximum annual increase.
limits set by tax authorities. limit is 150% of salary. This limit limit is 150% of salary. may be exceeded in exceptional up e.g. recruitment, circumstances to the limit in the PSP rules of 250% of base salary. Dividend equivalents may accrue on the PSP awar granted period and for awards 2018 to the end of the post from vesting holding period and be paid on out either as cash or as shares vesting or at the end of the holding and in respect period as appropriate that of the number of shares have The schemes ar Not applicable. Ther or 14% of base salary payable 75% of salary at year end at target performance. end payable 100% of salary at year for maximum performance. Bonuses start to be ear 0% of salary for achieving from threshold The maximum normal awar
Maximum opportunity • • • • • • • • •
or ectors f employed chase pension Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford eholding cost options) ‑ financial strategic metrics. e HMRC annual or lifetime e HMRC annual or lifetime ‑ om time to time operate . eviewed taking into account ds will vest at threshold performance ds will vest at threshold ds granted from 2017/18, vested awards 2017/18, vested awards ds granted from ds under the 2014 Performance Share ds under the 2014 Performance Share ovisions apply for misstatement, error ovisions apply for misstatement, error term financial performance and/or a stock “grossed up” as appropriate. “grossed
‑ pocket expenses including travel may be approved Share Incentive Plan (SIP)) for which Share approved ‑ ‑ of and/or business to Oxford Instruments. and/or business to Oxford Company’s expenses policy including tax Company’s ‑ approved share schemes (such as the schemes (such share approved
similar roles in other companies of a similar similar roles
‑
misconduct. misconduct.
Until the guideline is met in full, Executive Dir Reviewed annually Determined and r size Out must be held for a further two years before sale of must be held for a further two years before (other than to pay tax). the shares The Company may fr tax HMRC could be eligible. Executive Directors The SIP is open to all UK permanent staf The Committee has established shar guidelines which encourage the Executive Directors a holding of Company shares to build and retain equivalent to 150% of base salary. with the Company in accordance by reimbursed the thereon or Annual awar The Committee will set targets each year based on long 25% of the awar Clawback may be applied for misstatement, err For PSP awar for at least six months. equivalent shares or acquire retain expected to are from to the value of 50% of the net amount realised after as appropriate awards of share exercise/vesting allowing for tax payable. time commitment, experience, knowledge and as well as market data of the role responsibilities for Company contributions to a money pur Company contributions Salary supplement wher exceeded. allowances are on the key performance Performance targets based objectives of the business. indicators and strategic is based on financial metrics At least 70% of the bonus and the balance on non Clawback pr with vesting subject to achievement of performance will targets. Both the vesting and performance period years. be over a minimum of three market based metric. under each performance condition. or scheme; or (or nil Plan of performance shares
• • • • • • • • • • • • • • • • • e
ewards the ewards retirement.
competitive ‑ Executive Directors. ‑ T the Chairman and Non T T employee share employee share participation. Executive Directors’ with interests Shareholders’. Facilitates shar T ownership to provide further alignment with Shareholders. Drives and r executives and reward them for meeting targets in stretching the long term which accrue substantial value to and align the with interests Directors’ Shareholders’. T benefit for market successful achievement of annual targets set at the start of the year.
• o remunerate • o encourage • o furtheralign • o incentivisethe • • • a o provide Non‑Executive fees Director Shareholding Shareholding guideline All‑employee schemes share Long‑term incentives Annual bonus Pension Element of pay Purpose and link to strategy Operation Oxford Instruments plc Report and Financial Statements 2019
REMUNERATION
REMUNERATION REPORT CONTINUED
Differences in the Remuneration Discretions retained by the The Committee may adjust the targets and/or Policy of the Executive Directors Committee in operating its set different measures and alter weightings for and the general employees incentive plans existing annual bonus plans and share‑based There are no material differences in the The Committee may adjust the formula‑driven awards only if an event occurs which causes structure of remuneration arrangements outturn for an annual bonus or PSP the Committee to reasonably consider that the for the Executive Directors and senior performance condition in the event that performance conditions would not without management population, aside from quantum the Committee considers that the quantum alteration achieve its original purpose and the and participation levels in incentive schemes, would be inappropriate in light of wider varied conditions are no less difficult to satisfy which reflect the fact that a greater emphasis Company performance or overall Shareholder than the original conditions. Any changes, and is placed on performance‑related pay for experience. Any such use of discretion the rationale for those changes, will be set out Executive Directors and the most senior would be detailed in the Annual Report on clearly in the Annual Report on Remuneration individuals in the management team. Outside Remuneration in Part B. in respect of the year in which they are made. the senior management team, the Company The Committee operates the Group’s various Legacy arrangements aims to provide remuneration structures for incentive plans according to their respective In approving this Directors’ Remuneration employees which reflect market norms. rules and in accordance with HMRC rules Policy, authority is given to the Company Choice of performance measures where relevant. To ensure the efficient to honour any commitments entered into and approach to setting targets administration of these plans, the Committee with current or former Directors (such as may apply certain operational discretions. the payment of a pension or the vesting or The Committee selects financial and strategic These include the following: exercise of past share awards) that have been measures for the annual bonus that are key disclosed to and approved by Shareholders performance indicators for the business over • selecting the participants in the plans; in previous remuneration reports. Details of the short term. For the long‑term incentives, • determining the timing of grants and/or any payments to former Directors will be set the Committee will select a combination of payments; out in the Annual Report on Remuneration as measures that provide a good focus on the • determining the quantum of grants and/or they arise. outcomes of the Company strategy together payments; with sustainable improvements in long‑term profitability. • determining the extent of vesting based on the assessment of performance; The Committee sets appropriate and • determining “good leaver” status and, demanding targets for variable pay in the where relevant, the extent of vesting in the context of the Company’s trading environment case of the share‑based plans; and strategic objectives. The targets for the annual bonus plan will be set each year with • where relevant, determining the extent of reference to the Company’s budget and vesting in the case of share‑based plans in business and strategic plan. The Committee the event of a change of control; will review the performance conditions • making the appropriate adjustments and targets for awards under the PSP each required in certain circumstances (e.g. year prior to awards being made, taking rights issues, corporate restructuring account of the Company’s internal financial events, variation of capital and special planning, market forecasts and the business dividends); and environment. • the annual review of weighting of performance measures and setting targets for annual bonus plan and discretionary share plans from year to year.
86 Strategic Report Governance Financial Statements Company Information 87 espectively. Max Total: 27% 33% 40% £1,539k £1,280k Total including share price growth: 28% 28% 44% Target £934k d at grant, i.e.100% and 150% of salary r For an internal variable appointment, any of the prior in respect pay element awarded to to pay out according may be allowed role to take into its terms, adjusted as relevant account the appointment. In addition, any obligations other ongoing remuneration existing prior to appointment may continue. For external and internal appointments, the that the Company will Committee may agree legal and any other meet certain relocation, incidental expenses as appropriate. Group Finance Director (GFD) Finance Group Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford 100% £416k Fixed pay eceived in 2018/19. Max based payments on appointment Total: 26% 35% 39% ‑ £2,031k £1,700k Total including share price growth: the Board.
point in the year in which he or she
joined additional cash to offer Flexibility is retained and/or share or benefit remuneration of deferred in respect arrangements forfeited on leaving a previous The Committee would look to employer. being forfeited the arrangements replicate as closely as possible and, in doing so, will factors including take account of relevant remuneration, deferred of the the nature performance conditions, attributed expected value and the time over which they would may have vested or been paid. Such awards be made under the terms of the PSP or as permitted under the Listing Rules. Specific variable remuneration performance Specific variable for an individual targets can be introduced for the first year of necessary where to do so to appointment if it is appropriate responsibilities and the individual’s reflect the 47% Target 26.5% 26.5% £1,257k Chief Executive (CEO) term ‑ 100% £593k Fixed pay Annual bonus LTIP 50% share price growth on LTIP value Fixed pay target level of bonus is 75% of the maximum opportunity, i.e. 75% of salary. i.e. 75% of salary. target level of bonus is 75% of the maximum opportunity, of salary. at grant, i.e. 75% of the face value of the award target level of vesting under the annual PSP is taken to be 50% ‑ ‑ 0 e price growth is shown in the maximum scenario of 50% of the PSP award value at the date of grant. For simplicity, SIP awards, as well as dividend equivalents, are excluded. as well as dividend equivalents, are SIP awards, value at the date of grant. For simplicity, the maximum scenario of 50% of the PSP award is shown in e price growth 2019/20 (see notes for assumptions): 2019/20 (see notes for 500
Shar Fixed pay comprises salary levels as at 1 July 2019, pension contribution of 14% and the value of benefits r Fixed pay comprises salary levels as at 1 July 2019, pension contribution The on The on of the bonus opportunity and 100% of the face value of the PSP awar The maximum level of bonus and vesting under the PSP is 100% 1,000 1,500 2,000 2,500 £’000
5. Assumptions for charts above: 1. 3. 4. 2. incentives and an annual bonus entitlement in line with that of the other Executive Directors. at such a level as required Salary is provided candidate. the most appropriate to secure For new appointments, base salary and total be set initially at below may remuneration normal market rates on the basis that it may once expertise and performance be increased and sustained. has been proven In setting total remuneration levels and in In setting total remuneration considering quantum for each element of the the package for a new Executive Director, Committee takes into account the skills and experience of the individual, the market rate for a candidate of that experience and the individual. importance of securing the relevant The Company seeks to align the remuneration package with the Remuneration Policy including the by Shareholders, approved maximum plan limit for the long Recruitment and promotion Recruitment and promotion policy for Executive Directors Remuneration scenarios: Remuneration scenarios for Executive Directors Remuneration scenarios scenarios for the financial performance under different Directors potentially payable to Executive the level of remuneration The charts below show year Oxford Instruments plc Report and Financial Statements 2019
REMUNERATION
REMUNERATION REPORT CONTINUED
Executive Directors’ service contracts and policy on cessation Details of the service contracts of the Executive Directors, available for inspection at the Company’s registered office and at the Company’s AGM, are as follows: Contract date Unexpired term of contract Ian Barkshire 11 May 2016 Rolling contract Gavin Hill 9 February 2016 Rolling contract
Details of contractual terms and the policy on cessation of employment are summarised in the table below:
Contractual provision Detailed terms
Notice period Twelve months by the Company or by the Director.
Termination payment A Director’s service contract may be terminated without notice and without any further payment or compensation, except for sums accrued up to the date of termination, in the event of gross misconduct. For termination in other circumstances, the Company has a right to pay salary in lieu of the notice period (or part thereof) if it so determines. In addition, any statutory entitlements in connection with the termination would be paid as necessary, and, at the Committee’s discretion if deemed necessary and appropriate, outplacement, legal fees and settlement of claims or potential compensation claims.
Remuneration entitlements Pro‑rata bonus may also become payable for the period of active service along with vesting for outstanding share awards (in certain circumstances – see below).
Change of control No Executive Director’s contract contains additional provisions in respect of a change of control.
Any share‑based entitlements granted to an Executive Director under the Company’s share plans will be determined based on the relevant plan rules. The default treatment for existing awards is that any unvested awards lapse on cessation of employment. However, in certain prescribed circumstances, such as death, injury, ill health, disability, retirement or other circumstances at the discretion of the Committee, “good leaver” status may be applied. For good leavers, under the ESOS, awards will vest at cessation to the extent the performance condition is satisfied, but with the Committee having discretion to vest on the normal vesting date if appropriate and to waive the performance condition. Under the 2014 PSP, awards to good leavers will vest on the normal vesting date, subject to the satisfaction of the relevant performance conditions at that time and be scaled back to reflect the proportion of the normal vesting period actually served. The Committee has discretion in exceptional circumstances to disapply time pro‑rating and/or to measure performance to and vest awards at the date of cessation. Vesting at cessation would be the default position where a participant dies. In the event of a takeover, awards vest to the extent the performance condition is satisfied and are scaled back to reflect the actual period of service, with the Committee having the discretion, acting fairly and reasonably, not to scale back. External appointments The Board encourages Executive Directors to accept appropriate external non‑executive appointments provided the aggregate commitment is compatible with their duties as Executive Directors. The Executive Director concerned may retain fees paid for these services, which will be subject to approval by the Board. Currently, the Executive Directors do not hold any outside directorships. Non‑Executive Directors For the appointment of a new Chairman or Non‑Executive Director, the fee arrangement would be in accordance with the approved Remuneration Policy in place at the time. Non‑Executive Directors do not have service contracts but are appointed under letters of appointment for an initial period of three years with subsequent reviews. Non‑Executive Director appointments are now renewed for periods of one year, terminating at the next AGM. Their appointment can be terminated without notice and with no compensation payable on termination, other than accrued fees and expenses. Date of last appointment Notice period Neil Carson 1 December 2018 Six months Richard Friend 1 September 2014 None Thomas Geitner 13 March 2017 None Mary Waldner 4 February 2016 None Steve Blair 1 July 2017 None
88 Strategic Report Governance Financial Statements Company Information 89 Geitner, Geitner,
Committee.
Executive Directors: Thomas Executive Directors: ‑ Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford ectors; eements, recruitment terms and termination payments to Executive Directors. terms and termination payments to Executive eements, recruitment Executive Directors, and the Remuneration Committee, in the absence of the and the Remuneration Executive Directors, ‑ related remuneration plans for executives as well as the overall payments made under remuneration related ‑ eed policy, considering and determining the various elements and total remuneration packages of each Executive Director of of each Executive Director packages the various elements and total remuneration considering and determining eed policy, and
Thomson, who served until 22 July 2018.
plans;
oving the structure and targets for all performance oving the structure Company;
£36,648. appointed by the Committee to provide advice on all aspects of executive remuneration as required by the Committee. as required advice on all aspects of executive remuneration appointed by the Committee to provide
Alan eviewing and noting remuneration policy and trends across the Group and considering the Executive Directors’ remuneration within this remuneration Directors’ and considering the Executive the Group across policy and trends eviewing and noting remuneration wider Group Remuneration Policy affecting employees. However, no Executive Director is present when the Committee is determining his when the Committee is determining is present no Executive Director employees. However, Remuneration Policy affecting wider Group
such determining the policy for pension arrangements, service agr determining the policy for pension arrangements, appr r context; considering and determining the Remuneration Policy for the Executive Dir the Remuneration Policy for the Executive considering and determining within this agr the
members served throughout the year except for Neil Carson, who joined the Board and the Committee on 1 December 2018, the year except for Neil Carson, who joined the Board members served throughout is her own remuneration.
Steve Blair, Richard Friend, Mary Waldner, and the Chairman of the Board, Neil Carson. Thomas Geitner is the Chairman of the and the Chairman of the Board, Friend, Mary Waldner, Richard Steve Blair, During the year KF also provided executive search related services to the Company through a separate part of the business. The Committee was services to the Company through related executive search During the year KF also provided to arise. for any conflicts of interest in the potential in place at KF do not result comfortable that the controls to the Code. During the the Committee that it adheres KF is a signatory to the Remuneration Consultants’ Code of Conduct and has confirmed to to the Company and on how best their team can work matters relevant KF had discussions with the Committee Chairman on remuneration year, needs. with the Committee to meet the Company’s to the Committee during the year on a “time spent” basis. The total fees paid to KF for the advice provided charged predominately Fees are were The members of the Committee are appointed by the Board and currently comprise all the independent Non and currently appointed by the Board The members of the Committee are All or ) website: www.oxinst.com/investors Company’s published on the (which are reference written terms of The Committee acts within its agreed remuneration. of the 2016 UK Corporate Governance Code regarding and complies with the provisions evaluation process. once a year as part of the Board at least The performance of the Committee is reviewed reference. terms of as laid down in the Committee’s During the year the Committee fulfilled its duties, with this appointment in 2019/20. consultant during the year and continues independent remuneration Korn Ferry (KF) was the Committee’s KF The Chief Executive, the Group HR Director and other executives are invited to attend Committee meetings as deemed appropriate. For example, attend Committee meetings as deemed appropriate. invited to and other executives are HR Director The Chief Executive, the Group and to discuss contribution when considering the performance of other Executive Directors the Chief Executive is able to make a significant the and • • • The Remuneration Committee (unaudited) The Remuneration packages for Executive Directors remuneration the Board to the for recommending (the “Committee”) is responsible The Remuneration Committee Directors management. The Chairman and the Executive executive Group’s incentive strategy for the bonus and share pay, and has oversight of the of the Non for determining the remuneration responsible are PART B: Annual Report on Remuneration B: Annual Report on PART indicated. report has been audited where in this part of the The financial information of the Chairman. the remuneration for determining Chairman, is responsible of the Committee includes: The role • • Oxford Instruments plc Report and Financial Statements 2019
REMUNERATION
REMUNERATION REPORT CONTINUED
Directors’ remuneration (audited) The remuneration paid to the Directors during the year under review and the previous year is summarised in the tables below: Long‑term Salary Annual incentive and fees Benefits1 Pension2 bonus3 awards4 Other5 Total Executive £’000 £’000 £’000 £’000 £’000 £’000 £’000 Ian Barkshire 2019 428 88 54 407 779 1 1,757 2018 418 51 53 268 — 1 791 Gavin Hill 2019 334 22 42 324 608 1 1,331 2018 326 18 41 209 — 1 595 Total 2019 762 110 96 726 1,387 2 3,088 2018 744 69 94 477 — 2 1,386 1. “Benefits” comprise provision of a car or car allowance, health insurance, life assurance, overnight hotel accommodation where necessary to carry out duties at the Head Office of the Company and, from August 2017 for Ian Barkshire, provision of a driver to allow him to make best use of his commuting time. For the year to 31 March 2019, provision of a driver accounted for £67,687 (August 2017‑March 2018: £29,667) of the total benefits for Ian Barkshire. 2. Contractually, each Executive Director is entitled to receive a contribution to a money purchase pension scheme worth 14% of salary. Where the contractual pension contribution exceeds the annual allowance, any balancing payment is made by the Company as a cash allowance which, in line with the policy for all UK employees, is paid net of employer’s national insurance contributions. 3. “Annual bonus” represents the full annual bonus, payable in cash, payable for the year to 31 March 2019 and paid in the July 2019 payroll. 4. “Long‑term incentive awards” are those awards where the vesting is determined by performance periods ending in the year under report and therefore reports the value of the PSP award granted on 21 June 2016. The value has been determined using the average share price over the three months to 31 March 2019, £9.62. Further details of how these sums are arrived at are set out on pages 93 and 94. The share price used on grant of the 2016 PSP award was £7.375 and the total face value at grant of the vested number of shares is £570,721 for the CEO and £445,441 for the GFD. On vesting (based on an average share price for the last three months of the financial year) the share price was £9.62, giving a total vested award value of £744,443 for the CEO and £581,028 for the GFD. Dividend equivalents have been added to arrive at the total figure included in the table above. 5. The Company operates a Share Incentive Plan (SIP) which is open to all UK permanent staff employed for at least six months. “Other” is the value of matching SIP shares attributable to the year. In 2018/19 Ian Barkshire and Gavin Hill participated in the SIP up to the maximum extent permitted by HMRC. The Company offers a 1:5 match for partnership shares purchased by employees and this amounted to £360 each of matching shares for Ian Barkshire and Gavin Hill.
Long‑term Annual incentive Fees Benefits Pension bonus awards Total Non‑Executive £’000 £’000 £’000 £’000 £’000 £’000 Neil Carson1 2019 60 — — — — 60 2018 — — — — — — Alan Thomson3 2019 57 — — — — 57 2018 168 — — — — 168 Steve Blair2 2019 82 — — — — 82 2018 41 — — — — 41 Richard Friend 2019 48 — — — — 48 2018 47 — — — — 47 Thomas Geitner 2019 56 — — — — 56 2018 54 — — — — 54 Mary Waldner 2019 56 — — — — 56 2018 54 — — — — 54 Total 2019 359 — — — — 359 2018 364 — — — — 364 1. Neil Carson was appointed Non‑Executive Director and Chairman of the Board on 1 December 2018. 2. Steve Blair was appointed Non‑Executive Director and Senior Independent Director on 1 July 2017. He was Interim Chairman of the Board from 23 July 2018 until 30 November 2018. His fees were uplifted to £130,000 per annum for this period. 3. Alan Thomson, Chairman of the Board, passed away on 22 July 2018.
90 Strategic Report Governance Financial Statements Company Information
91 96% Payout 100% 100% million
maximum of % GFD:86.7% CEO:73.3%
1 92 45.7 Actual 328.7 102.8% page driven Group, increasing increasing driven Group, ‑ See
46.0 85% 307.0 Maximum centric, market ‑
43.6 80% 302.0 On target argets T executive appointments provided the aggregate the aggregate provided executive appointments ‑ Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford
39.0 eshold 75% 290.0 Thr
— 15% — — 42.5% £m £m CEO/GFD £m £m Maximum 21.25% 21.25%
ectors. The Executive Director concerned may retain fees paid for these services, fees paid for these services, concerned may retain ectors. The Executive Director
15% 15% 30% CEO/GFD On target centage of salary payable
Per breaking discoveries. By building on our innovative technology and targeting attractive markets, the Group By building on our innovative technology and targeting attractive markets, the Group discoveries. breaking 0% 0% 0% — 0% ‑ eshold CEO/GFD Thr term sustainable growth and margin improvements. and margin improvements. term sustainable growth ‑
eported for adjusted PBT and organic sales are adjusted for the impact of currency as described above. adjusted for the impact of currency eported for adjusted PBT and organic sales are
objectives financial strategic objectives were set at the start of the year. Performance against them is set out on page 92. The Committee in its set at the start of the year. financial strategic objectives were sales ‑ will be subject to approval by the Board. There were no such appointments during the year. no such appointments were There Board. by the will be subject to approval
conversion The actual numbers r
eview noted the exceptional performance in achieving the Horizon strategy objectives, laying the foundations for future growth and agreed that, and agreed growth the foundations for future eview noted the exceptional performance in achieving the Horizon strategy objectives, laying commitment is compatible with their duties as Executive Dir commitment is compatible r and for Ian Barkshire was appropriate a bonus of 11% out of the total 15% of salary available when taking into account all the circumstances, for Gavin Hill. 13% out of the total 15% of salary available was appropriate The non Strategic 1. Adjusted PBT Measure Adjusted
Organic Cash and £56.3 million cash was generated from operations delivering a cash conversion rate of 102.8%, significantly better than the prior year. better than the prior year. operations delivering a cash conversion rate of 102.8%, significantly and £56.3 million cash was generated from and organic sales targets for FY19 it took into account expected currency tax before profit When the Remuneration Committee set the adjusted based on actual exchange appropriate, outturn to adjust the targets or formulaic of the bonus, if considered the discretion headwinds but retained tax and organic sales (downwards) before adjusted profit Committee has adjusted the reported rates. In determining the bonus payment, the below set. The table to those anticipated and on which the targets were in actual exchange rates compared to take account of the difference reduces tax and organic sales outturn after adjustment for actual exchange rates. The impact of the adjustment before shows the adjusted profit payable for this metric. The organic sales outturn 100% to 95% of the maximum tax from before the amount payable on the adjusted profit continued to exceed the maximum target set.
will continue to deliver long the strategy and financial clearly linked to performance targets for the annual bonus which are years, the Committee set stretching As in previous to £336.6 million, up 12.4% on the prior rose revenue As explained in the Finance Review on pages 36 to 42, reported performance of the Group. to £47.5 continuing operations, up by 12.3% tax from before adjusted profit focus drove commercial volumes and improved increased year, The CEO and GFD have made good progress this year with the implementation of the Horizon strategy, delivering both growth and improved and improved delivering both growth strategy, year with the implementation of the Horizon this made good progress The CEO and GFD have is programme the positive impact that the Horizon transformation resulting incentive payments demonstrate results and The Group’s profitability. services and operational excellence. development, customer innovation and product as we focus on market intimacy, having on our performance a customer focused to becoming being product in its transition from is making good progress The Group Details of annual bonus earnedDetails of annual in year (audited) External (unaudited) appointments non external commercial appropriate to accept encourages Executive Directors The Board which in high their productivity them to accelerate their applied R&D, increase value for our customers by helping create value for existing customers. We tech manufacturing and make ground Oxford Instruments plc Report and Financial Statements 2019
REMUNERATION
REMUNERATION REPORT CONTINUED
Details of annual bonus earned in year (audited) continued
CEO objectives Weighting Achievements towards objectives/performance
Build people capability across the Group, 1/3 • Good appointments in business unit senior leadership and technical teams, closing core leadership, commercial, including internal appointment of Chief Technical Officer. operational and technical capability gaps. • Invested in the development of clearly defined capabilities across the Group’s businesses. 3 out of 5
Define and progress an active portfolio 1/3 • Inorganic growth opportunities identified and targeted. of opportunities to deliver organic and/or • Good organic growth delivered progress through new product introduction inorganic growth in line with the Horizon and extension of addressable markets. strategy. 4 out of 5
Deliver significant financial benefits 1/3 • Facilitated an accelerated programme of operational and procurement through the implementation of improvements delivering in‑year results and will deliver continuing benefits sustainable operational efficiencies in years to come. and a stronger commercial focus. • Built internal capabilities to sustain the improvements made. • Created stronger commercial focus by embedding sales excellence and market intimacy practices and capabilities across all businesses and regions. 4 out of 5
Total 100% 73.3%
GFD objectives Weighting Achievements towards objectives/performance
Drive the implementation of Connect 1/3 • Good progress against this objective taking into account a decision within (Group‑wide ERP system), ensuring that at the year to divert essential resources onto a key, strategic operational least 40% of revenue from the Group is improvement programme. achieved by business units using Connect • Ensured operational improvement programmes developed processes that would and an accelerated and costed plan is be implementable in Connect. completed for specified non‑UK locations. • Successfully rolled out Connect in three units. Revised and accelerated plan now in progress. 3 out of 5
Deliver a step change in the way 1/3 • £3 million improvement in working capital. the Group manages working capital • Changed the way working capital is managed, developing a stronger focus on through greater transparency and active active management of working capital in finance teams across all businesses. management of working capital across Transparent reporting throughout the organisation. the Group. • Brought in disciplines to maintain and continue to improve working capital best practice. 5 out of 5
Deliver profit growth from Healthcare 1/3 • Delivered profitable growth with profits increasing by more than £1 million in accordance with the Group plan and in FY19. agree the plan for smooth transition of • Transitioned to a consolidated and focused leadership team to drive business leadership. improvement. 5 out of 5
Total 100% 86.7%
92 Strategic Report Governance Financial Statements Company Information
of 93 1 for 1 0% 0% 779 407 608 324 bonus (£’000) (£’000) 25% 25% vesting alue 100% 100% 100% 2018/19 V 85.6% equivalent payable Actual shares shares d that will vest d that will vest 25%-100% 25%-100% including dividend
1
ending
for real estate investment estate investment real
% of awar % of awar bonus shares ded as 2,800 3,588 dividend 2018/19 of equivalent 94.44% 96.44% payable awar (% of salary) Actual insurance,
month period ‑ Number life ‑
of 1 581 744 bonus (£’000) alue 100% 100% V es vesting Maximum (% of salary) year performance period starting shar ‑
1
2 term incentive awards where vesting is where term incentive awards ‑ target bonus 26% 60% 75% 75% ‑ 64.9p 17.1% 47.3% 60,398 77,385 es vesting On Median ee years ee years ee years ee years Number of (% of salary) shar owth required Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford Below median
EPS gr d vesting centage of awar 92.8% 92.8% Per Upper quartile and above market closing price of the Company’s shares over the three shares market closing price of the Company’s ‑
es 7% per annum over thr elative to FTSE 250 (excluding certain sectors) granted number Between median and upper quartile of shar 65,085 83,390 TSR r otal T 7% to 12% per annum over thr , banks, equity investment instruments, financial services, life insurance, non Less than 7% per annum over thr e as follows: year performance period starting 1 April 2016: 12% per annum and above over thr
‑
d Date awar granted 21 June 2016 21 June 2016
1 ch 2019.
estated from the FY16 reported adjusted EPS of 49.2 pence to 40.4 pence on a continuing operations basis using disclosures as set out in the 2018 Financial on a continuing operations basis using disclosures adjusted EPS of 49.2 pence to 40.4 pence the FY16 reported estated from
adjusting for disposals of the superconducting wire business in November 2016 and the Industrial Analysis business in July 2017. wire adjusting for disposals of the superconducting
eshold and maximum eshold and maximum
ds vest after the date of this report, value has been calculated using the average mid ds vest after the date of this report, by
2019, are set out below. set out below. 2019, are 2019, £9.62. This will be restated for the actual value on vesting next year. 2019, £9.62. This will be restated
TSR target and maximum bonus potentials for the Executive Directors, as well as the amounts actually payable for the year ended the amounts actually payable for the year ended as well as potentials for the Executive Directors, target and maximum bonus 2016: and real estate investment services sectors). and real EPS ‑
Hill the level of stretch in the bonus targets evidenced by historic levels of payment. The Committee will review the target level of bonus payment as part of the policy review during FY20. the policy review the target level of bonus payment as part of levels of payment. The Committee will review in the bonus targets evidenced by historic the level of stretch
March
Barkshire
March eshold eshold arget bonus is set at 75% of maximum. The Committee is comfortable with target payment at 75% of maximum taking into account the maximum bonus opportunity of 100% of salary at 75% of maximum taking into account the maximum bonus The Committee is comfortable with target payment arget bonus is set at 75% of maximum.
As the awar 31 Sectors excluded within the FTSE Industry classification of “Financials” (namely Statements trusts The starting EPS for FY16 has been r and Bonus is calculated on salary as at 31 Mar Bonus is calculated on salary as T April
1
determined by a performance period ending in 2018/19 ar determined by a performance period ending in
Gavin Hill Ian Barkshire 1.
Results over performance period: Median Actual achieved over the period
1. as follows: will vest on 21 June 2019 Based on the performance against targets as set out above, the PSP awards Upper quartile TSR Performance level Below threshold Gavin Between thr Maximum Actual 1. final year of the three for the (TSR) being measured return is based on total shareholder 50% of the award Between thr Maximum Actual achieved over the period Below threshold Performance level Performance Share Plan (PSP) Performance Share and made on 21 June 2016 for the performance period ending in the year under review awards The performance targets which applied to the as follows: actual performance achieved against them were over a three is based on EPS measured 50% of the award Long‑Term Incentive Plans (audited) Long‑Term of the long payment in respect them and the resulting The performance targets, performance against Ian 1. 2.
The on 31 Thr Thr Oxford Instruments plc Report and Financial Statements 2019
REMUNERATION
REMUNERATION REPORT CONTINUED
Long‑Term Incentive Plans (audited) continued Performance Share Plan awards made in the year and outstanding share incentive awards (audited) Awards made under the PSP on 3 July 2018 were as follows: Total number Share price of shares Percentage on day before granted of salary award date Vesting date Ian Barkshire 64,613 150% £10.00 3 July 2021 Gavin Hill 50,430 150% £10.00 3 July 2021
The awards are subject to two performance conditions measured over a three‑year period commencing 1 April 2018. One half of each award is subject to a performance condition based on the Company’s compound annualised earnings per share (EPS) growth. The other half of each award is subject to a performance condition based on the Company’s return on capital employed in the final year of the performance period. Vesting of 50% of the award is based on EPS measured over a three‑year performance period starting 1 April 2018 as follows: Performance level EPS growth required % of award that will vest Below threshold Less than 4% per annum over three years 0% Threshold 4% per annum over three years 25% Between threshold and maximum 4% to 12% per annum over three years 25%-100% Maximum 12% per annum and above over three years 100%
Vesting of the other 50% of the award is based on return on capital employed (ROCE) for the final year of the three‑year performance period starting 1 April 2018: Performance level ROCE1 for the final year of the performance period % of award that will vest Below threshold Less than 16% 0% Threshold 16% 25% Between threshold and maximum Between 16% and 20% 25%-100% Maximum 20% per annum and above 100% 1. ROCE is calculated as EBIT/average capital employed where EBIT is adjusted operating profit less amortisation of acquired intangibles, acquisition‑related costs and changes in the mark‑to‑market values of financial instruments, and capital employed is the sum of net working capital and net book value of fixed assets, goodwill, intangible assets, investments in associates and excluding cash. As at 31 March 2019, the outstanding options for Ian Barkshire and Gavin Hill under the Executive Share Option Scheme (ESOS) and the PSP1 were as follows:
Share price March Movements during the year March Exercise on date Date of Earliest Latest Name Scheme 2019 Granted Exercised Lapsed 2018 price of grant grant exercise exercise Ian Barkshire2 ESOS 37,549 37,549 £10.28 £10.31 15/06/15 15/06/18 14/06/25 ESOS 15,000 15,000 £9.90 £9.87 14/12/11 14/12/14 13/12/21 PSP 83,390 83,390 Nil £7.34 21/06/16 21/06/19 20/06/26 PSP 65,630 65,630 Nil £9.58 25/09/17 25/09/20 24/09/27 PSP 64,613 64,613 — Nil £10.10 03/07/18 03/07/21 02/07/28 Gavin Hill PSP 65,085 65,085 Nil £7.34 21/06/16 21/06/19 20/06/26 PSP 51,223 51,223 Nil £9.58 25/09/17 25/09/20 24/09/27 PSP 50,430 50,430 — Nil £10.10 03/07/18 03/07/21 02/07/28 1. Dividend equivalents are payable on PSP shares vesting, for the period to vesting, in respect of the actual number of shares vesting. 2. Ian Barkshire was appointed to the Board on 10 November 2015. His ESOS options were granted to him as an employee of the Company prior to his appointment to the Board. The market price of the shares at 31 March 2019 was £9.77 (2018: £7.41) and the range during the year was £7.41‑£10.96 (2018: £6.76‑£11.38).
94 Strategic Report Governance Financial Statements Company Information
to 95 under the Subject conditions 213,633 166,738 performance PSP unvested
— real estate investment real
cised options 52,549 vested but unexer purchased shares. purchased ) – ESOS ‑ 1 insurance,
life ‑
No No related costs and changes in the related ‑ met as at Guideline are subject to the shareholding requirement as detailed requirement to the shareholding subject are 31 Mar
ch 2019
1
in of under 28% 17% held eholding guideline shares shares shar salary Percentage Percentage Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford
Legally in the final year of the performance period – in the final year of the performance period – in the final year of the owned 5,906 2 2 12,388 year period. The SIP scheme only uses market ‑ 50% of award TSR v FTSE 250 (excluding financial companies TSR v FTSE 250 (excluding ROCE ROCE 13% (25% vesting) to 15.5% (100% vesting) 13% (25% vesting) to 20% (100% vesting) 16% (25% vesting) to median (25% vesting) to upper quartile (100% vesting) median (25% vesting) to
, banks, equity investment instruments, financial services, life insurance, non , banks, equity investment instruments, financial services, life
e EBIT is adjusted operating profit less amortisation of acquired intangibles, acquisition less amortisation of acquired e EBIT is adjusted operating profit
50% of award EPS growth – 7% p.a. (25% vesting) EPS growth to 12% p.a. (100% vesting) – 4% p.a. (25% vesting) EPS growth to 10% p.a. (100% vesting) – 4% p.a. (25% vesting) EPS growth to 12% p.a. (100% vesting)
cash.
3 term incentive awards after allowing for tax payable. term incentive awards ‑ values of financial instruments, and capital employed is the sum of net working capital and net book value of fixed assets, goodwill, intangible assets, investments values of financial instruments, and capital employed is the sum 3
2 3 and excluding
e was appointed to the Board on 10 November 2015. Shares acquired on exercise of the share option award granted to him in June 2015 (prior to his appointment to the Board) are are granted to him in June 2015 (prior to his appointment to the Board) option award of the share on exercise acquired on 10 November 2015. Shares e was appointed to the Board
market ‑ year performance period commencing 1 April prior to date of grant. year performance period commencing 1 April prior to date of and real estate investment services sectors). estate investment and real to ‑
Hill ‑ required to be retained if the executive holds less than 50% of salary in shares. All awards granted after the date of his appointment All awards if the executive holds less than 50% of salary in shares. to be retained required
ee associates
exercise of long exercise
only Shar Ian Barkshir above of 150% of salary. in Thr Sectors excluded within the FTSE Industry classification of “Financials” (namely Sectors excluded within the FTSE Industry classification of “Financials” ROCE is calculated as EBIT/average capital employed wher mark trusts
PSP 21 June 2016 3 July 2018 25 September 2017
1. 2. 2019:£9.77. on31March es valuedusingthemarketpriceofshares Ian Barkshire
The Committee monitors the position prior to the making of any award under these share schemes to ensure that the Company remains within that the Company remains schemes to ensure under these share the making of any award The Committee monitors the position prior to within the 10% limit at 3.8%. position remains headroom the Company’s this limit. As at the date of this report, Until the salary. in the Company equivalent in value to 150% of basic a shareholding to build and retain required are The Executive Directors to the value of 50% of the net amount realised equivalent shares or purchase to retain expected are Directors is met, the Executive requirement on shown in the table below. 2019 are as at 31 March shareholdings Executive Directors’ Shareholding requirements (audited) requirements Shareholding Dilution limits (unaudited) schemes should not exceed an share for employee the issuance of new shares overall dilution through that plans provide share The Company’s capital over a ten issued share amount equivalent to 10% of the Company’s Achievement of performance conditions (unaudited) Achievement of performance conditions tested using the audited accounts of the are EPS and ROCE performance targets measured. The calculation of TSR performance is independently level of vesting is then verified by the Remuneration Committee. and the resulting Performance against targets Company. 3. 1. 2. Performance conditions for outstanding awards are described below: are for outstanding awards Performance conditions Gavin Oxford Instruments plc Report and Financial Statements 2019
REMUNERATION
REMUNERATION REPORT CONTINUED
Pension arrangements Executive Director pension arrangements (audited) Under the terms of their service contracts, Executive Directors can ask the Company to contribute to a pension plan of their choice. The Company contributes a maximum of 14% of base salary. Only base salary is pensionable and contributions are not included in the calculation of bonus and share award entitlements. Where the Company’s pension contribution exceeds the annual allowance, a balancing payment is paid by the Company to the Director, which is taxed as income. In line with the policy for all UK employees, this cash payment is reduced by 12.1% to cover employer’s national insurance costs. During the year, the Company contributed £10,000 (2018: £9,973) into the Company’s Group Personal Pension Plan in respect of Ian Barkshire and £10,000 (2018: £9,950) into a personal defined contribution plan in respect of Gavin Hill. Balancing payments to 14% of base salary (net of employer’s national insurance contributions) were paid as cash. Ian Barkshire is a deferred member of the defined benefit scheme and is no longer accruing benefits in the scheme. In accordance with the rules of the scheme his deferred benefits are subject to increases in line with statutory revaluation. The transfer value of his accrued benefits at 31 March 2019 was £788,549 (2018: £599,835). Payments to past Directors and for loss of office (audited) There were no payments to Directors for loss of office. Performance graph and CEO’s remuneration (unaudited) The graph below shows for the ten years ended 31 March 2019 the total shareholder return (TSR) on a holding of the Company’s ordinary shares compared with a hypothetical holding of shares made up of shares of the same kind and number as those by reference to which the FTSE SmallCap, FTSE Techmark and FTSE 350 Electronic and Electrical Equipment indices are calculated. These indices have been chosen as they are considered to be the most appropriate comparator groups for the Company. TSR has been calculated by reference to the relevant share price for each constituent company assuming dividends are reinvested.
£ 2,000
Oxford Instruments FTSE SmallCap 1,500 FTSE Techmark FTSE 350 E & EE
1,000
500
0 31 March 31 March 31 March 31 March 31 March 31 March 31 March 31 March 31 March 31 March 31 March 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
This graph shows the value, by 31 March 2019, of £100 invested in Oxford Instruments plc on 31 March 2009 compared with the value of £100 invested in the FTSE SmallCap, FTSE Techmark and FTSE 350 Electronic and Electrical Equipment indices. The other points plotted are the values at intervening financial year ends.
96 Strategic Report Governance Financial Statements Company Information
97 N/A marked marked 92.8% 15,835 19,533 as abstain as abstain % change % change Votes Votes Votes 1 N/A N/A 2018 2019 791 1,754 1.7 51.4% 1.7 11.8% 7.5 1.3% 0.0 0% 1.2 1.1 2018 41.9 -2.1% 96.6 2.4% 2017/18 31 March % against % against Year ended Year IRB Average employee Average N/A N/A 620 1 2.6 1.9 7.6 0.0 2019 % for % for 41.0 98.9 98.8 98.9 2017 2018/19 31 March DJF Year ended Year 64 0% 0% 94.4% 0% 56.3% 63.7% 2.5% % change 564,647 548,614 0% 0% 743 Votes against Votes against Votes Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford 51.0 73.5% 267.9 51.8% 0% 0% 2017/18 579 Votes for Votes for Votes CEO 7.5% 38.6% 48,326,065 48,991,763
88.5 406.8 428.1 417.7 2018/19
15.0% 100% 69.1% 50% 100% 100% 100% 100%
2016 2012 2013 2014 2015 2010 2011 3,464 2,348 1,179 939 2,596 50% 100% 100% 100% 100% 100% 100% (£m) (£m)
(£m) costs 2
3
buybacks 4
2 2
Change in average employee salary reflects restructuring at the top of the business. The average pay increase across all employees in the UK in 2018/19 was 2.4%. across restructuring at the top of the business. The average pay increase Change in average employee salary reflects The cost of this benefit for 2018/19 was £67,687 (2017/18: £29,667). with a driver. In August 2017, the CEO was provided and approved 2019 (to be paid in July 2019) was not known at the time the Report and Financial Statements were 31 March The value of the average employee bonus for the year ended has been subsequently included. Average employee includes all UK employees in service on 1 April 2017 and 31 March 2019 but excludes those who were on maternity leave, long‑term sick leave and those who started 2019 but excludes those who were employee includes all UK employees in service on 1 April 2017 and 31 March Average or ended employment within the period. 12 May 2016 to (IRB) who was CEO from 1 April to 11 May 2016 and Ian Barkshire shown separately for Jonathan Flint (DJF) who was CEO from remuneration 2016/17 financial year: 2017. 31 March have been granted after June 2014 as the sole long‑term (nil cost options) in June 2014. PSP awards options) and SELTIS last granted ESOS (market value share were Executive Directors incentive. vesting (%) vesting vesting (%) vesting SELTIS/PSP Benefits Bonus Resolution Resolution Dividends Share To approve the Directors’ Remuneration Policy the Directors’ approve To To approve the Annual Report on Remuneration the Annual Report approve To Statement of Shareholder voting (unaudited) Statement of Shareholder Shareholders: the following votes from the Annual Report on Remuneration received to approve AGM, the resolution At last year’s Employee Relative importance of the spend on pay Relative importance of the spend buybacks: share to dividends and employee costs relative The following table shows the Group’s 2. 3. 4. Shareholders: the following votes from the Remuneration Policy was passed at the AGM held in 2017 and received to approve The resolution 1. £’000 Salary Percentage change in the remuneration of the Chief Executive (unaudited) change in the remuneration Percentage taxable benefits and annual bonus earned between 2017/18 and salary, change in each of the CEO’s The table below shows the percentage basis). (on a per capita full‑time equivalent to that for the average UK‑based employee of the Group 2018/19, compared 1. 2. March ending Year 31 Total remuneration (£’000) The total remuneration of the CEO over the last ten years is shown in the table below. The annual bonus payout and PSP vesting level as a The annual bonus payout and over the last ten years is shown in the table below. of the CEO The total remuneration is also shown. of the maximum opportunity percentage (%) Annual bonus outcome ESOS Oxford Instruments plc Report and Financial Statements 2019
REMUNERATION
REMUNERATION REPORT CONTINUED
How the policy will be applied in 2019/20 (unaudited) Base salaries In line with the general workforce, the Executive Directors will receive salary increases of 2.75% for 2019/20 effective from 1 July 2019. The CEO’s salary as a result of the increase will be £442,600 (from £430,750) and the GFD’s £345,450 (from £336,200).
Benefits and pension These will be awarded in accordance with the approved Policy. Benefits will be in line with those received in 2018/19.
Annual bonus The maximum opportunity under the annual bonus plan for 2019/20 will be 100% of base salary for both the CEO and GFD, payable in cash. A combination of financial (85%) and non‑financial strategic (15%) metrics will be used to determine the level of payment under the annual bonus for the CEO and GFD and as detailed in the table below: Weighting as a % of opportunity Measure On target Maximum Adjusted operating profit margin (%) 15% 21.25% Profit (£m) 30% 42.5% Cash generation (%) 15% 21.25% Strategic objectives Up to 15% 1. Target bonus is set at 75% of maximum. The Committee is comfortable with the target payment at 75% of maximum taking into account the maximum bonus opportunity of 100% of salary and the level of stretch in the bonus targets evidenced by historic levels of payment. The Committee will review the target level of bonus payment as part of the policy review during FY20. Non‑financial strategic objectives have been agreed and are linked to the development and implementation of the Horizon strategy. For the CEO these objectives focus on leadership culture and people capabilities across the Group and Shareholder engagement. For the GFD these objectives focus on the successful implementation of Connect (ERP) and building on and sustaining operational efficiencies. The Committee has chosen not to disclose, in advance, the performance targets for the forthcoming year as these include matters which the Committee considers commercially sensitive. Retrospective disclosure of the performance against them will be made in next year’s Annual Report on Remuneration.
Long‑term incentives in respect of the 2019/20 financial year The 2019/20 PSP awards will be over shares with a market value at grant of 150% of salary for the CEO and GFD. Vesting will be subject to the performance conditions as set out below measured over a three‑year performance period commencing 1 April 2018. The range for the ROCE measure has been increased from that set for last year’s awards.
Half of the award Half of the award
EPS growth – 4% p.a. (25% vesting) to 12% p.a. (100% vesting) over ROCE – 20.5% in the final year of the performance period three financial years commencing with the 2019/20 financial year. (2021/22 financial year) (25% vesting) to 23.4% (100% vesting).
98 Strategic Report Governance Financial Statements Company Information 99 ease 0% 0% 0% 0% 2.75% % incr
1 2019/20 £5,000 £7,500 £7,500 £50,040 £180,000
1 2018/19 £5,000 £7,500 £7,500 £48,700 £180,000
Executive Directors. In line with the general In line with Executive Directors. ‑ Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford
ector
Executive Directors will increase by 2.75% for 2019/20, effective from 1 July 2019. There will be no increase will be no increase 1 July 2019. There from for 2019/20, effective by 2.75% will increase Executive Directors ‑
e the annual rates as at 1 July 2018 and 1 July 2019 respectively.
d Chairman is shown as at date of appointment, 1 December 2018. d Chairman is shown as at date of appointment, 1 December
2
ce, the basic fees for the Non ce, the basic fees for the fee
The fees shown for 2018/19 and 2019/20 ar 2018/19 fee for the Boar
workfor Chairman of the Remuneration Committee 11 June 2019 Thomas Geitner Approval at for submission to Shareholders subsequently by the Board the Committee on 11 June 2019 and has been approved by approved was This report September 2019. the Annual General Meeting to be held on 10 1. Board Chairman Board 2.
Non‑Executive Directors’ fees Non‑Executive Directors’ the fees for the Chairman and Non reviewed have appropriate, as Board, The Committee and the for 2019/20. to fees for the Chairman Additional fee for Deputy Chairman Additional fee for Deputy Basic Independent Dir Additional fee for Senior Chairman Additional fee for Committee Oxford Instruments plc Report and Financial Statements 2019
RELATIONS WITH SHAREHOLDERS
Administrative enquiries concerning shareholdings You may view your shareholding and dividend history, register to receive your dividends direct Financial calendar to your bank account or elect to re‑invest your dividends and register a change of address 28 February 2019 Ordinary shares quoted ex‑dividend online at www.signalshares.com. To register 1 March 2019 Record date for interim dividend to use this facility you will need your Investor Code (IVC), which can be found on your share 15 March 2019 Dividend reinvestment (DRIP) last date for election certificate, dividend confirmation statement or 31 March 2019 Financial year end proxy card. 8 April 2019 Payment of interim dividend Administrative enquiries concerning 11 June 2019 Announcement of preliminary results shareholdings in Oxford Instruments plc, such as the loss of a share certificate, dividend 11 June 2019 Announcement of final dividend payments, or a change of address should End July 2019 Publication of Annual Report be directed, in the first instance, to the Registrar, Link Asset Services, The Registry, 10 September 2019 Annual General Meeting 34 Beckenham Road, Beckenham, Kent 12 September 2019 Ordinary shares quoted ex‑dividend BR3 4TU. 13 September 2019 Record date for final dividend Tel: +44 (0)871 664 0300 (calls cost 12 pence 27 September 2019 DRIP date per minute plus your phone company’s access charge. Calls outside the United Kingdom will 18 October 2019 Payment of final dividend be charged at the applicable international 12 November 2019 Announcement of half‑year results rate. Lines are open between 09:00-17:30, Monday to Friday excluding public holidays in March 2020 Ordinary shares quoted ex‑dividend England and Wales). March 2020 DRIP last date for election Email: [email protected] March 2020 Record date for interim dividend Website: www.signalshares.com 31 March 2020 Financial year end Correspondence should refer to Oxford Instruments plc and state clearly the registered name and address of the Shareholder. Please notify the Registrar promptly of any change of address. Dividend bank mandates Investor publications The Company’s Annual and Interim Reports If you wish dividends to be paid directly The Group website provides up‑to‑date are available to download from the website, into a bank or building society account and information on corporate and investor alongside recent recordings of the City notification to be sent to your Shareholder news, as well as a wide range of additional results presentations. register address, please contact the Company’s supporting documentation. Find out more online Registrar at the address given above for a www.oxinst.com/investors dividend mandate form. Overseas holders can also choose to receive payment directly into their bank account, or can be sent a draft in local currency. Further details on international payments are available from Link Asset Services at the contact details below. Tel: +44 (0)871 664 0300 (calls cost 12 pence per minute plus your phone company’s access charge. Calls outside the United Kingdom will be charged at the applicable international rate. Lines are open between 09:00-17:30, Monday to Friday excluding public holidays in England and Wales). Website: www.signalshares.com
100 Strategic Report Governance Financial Statements Company Information 101 1.88 4.66 4.87 88.59 100% % of total
otal holding T 1,078,294 2,675,279 2,792,286 50,829,745 57,375,604
3.75 6.76 1.78 87.71 100% % of total buy and sell shares, please contact please contact buy and sell shares,
originally invested.
to
(online dealing) www.linksharedeal.com (telephone dealing). or +44 (0)371 664 0445 geographic charged at the standard Calls are Calls outside rate and will vary by provider. be charged at the the United Kingdom will open applicable international rate. Lines are Monday to Friday between 09:00-17:30, in England and excluding public holidays Full terms, conditions and risks apply Wales). or by visiting available on request and are www.linksharedeal.com. to buy or sell This is not a recommendation can Remember the price of shares shares. not go down as well as up, and you are guaranteed to get back the amount that you For further information on this service, For further information or 80 38 144 2,131 1,869 Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford Number of holders
use service. ‑ to ‑ register and there are are there and register ‑
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recent trading reports, share price data and share trading reports, recent
forthcoming events. Oxford Instruments has an extensive website Instruments has an extensive Oxford and its products which gives details of all vacancies and services, contact information, An interactive latest news announcements. section gives information investor relations on There’s no need to pre There’s Link Share Dealing Services Dealing Link Share to dealing service A quick and easy share UK in many leading either sell or buy shares Dealing by Link Share companies is provided Services. An online and telephone facility is with our Shareholders available, providing an easy no complicated forms to fill in. The online and telephone dealing service allows you to time” at a known price which trade “real will be given to you at the time you give your deal online or by telephone instruction. To all you need is your surname, Investor Code full postcode, your number, (IVC) reference date of birth and National Client Identifier. a recent Investor Code can be found on Your certificate, statement or tax voucher. share Should you not be able to locate your IVC please contact Link Asset Services number, on +44 (0)871 664 0300 (calls cost 12 pence access per minute plus your phone company’s charge. Calls outside the United Kingdom will be charged at the applicable international open between 09:00-17:30, rate. Lines are Monday to Friday excluding public holidays Please have the in England and Wales). to hand when you log documents appropriate on or call, as this information will be needed buy or sell shares. you can before
es
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otal 5,001 50,001 Over T Size of shareholding Up Analysis of Shareholders as at 31 March 2019 as at 31 March Analysis of Shareholders any communication in hard copy if it deems any communication in hard this enquiries Shareholder to who have questions relating Shareholders business or who wish to have the Group’s additional copies of the Report and Financial Statements should apply to: Company Secretary Woods, plc, Tubney Instruments Oxford OX13 5QX Abingdon, Oxfordshire Fax: 01865 393442 01865 393200 Tel: Email: [email protected] www.oxinst.com Website: Company registration Woods, Abingdon Tubney office: Registered OX13 5QX Oxfordshire in England number: 775598 Registered www.oxinst.com Website: are available for viewing on the Company’s available for viewing on the Company’s are . website at www.oxinst.com/investors The Shareholder communications Shareholder Unless you have elected to continue to receive communications by post, you will Shareholder you have given where be notified by post or, notification, for electronic us an email address by email out your Duplicate share register accounts register Duplicate share than one copy of more receiving If you are are it may be that your shares our report, accounts on our in two or more registered of members. If that was not your register merging them intention you might consider Please contact Link into one single entry. Asset Oxford Instruments plc Report and Financial Statements 2019
REPORT OF THE DIRECTORS
The Directors present their Report and the The Executive Directors report to the Board on In the year to 31 March 2019, no Director Financial Statements of Oxford Instruments plc changes in the business and in the external had a material interest in any contract for the year ended 31 March 2019. environment which may affect the risks which of significance with the Company or any the Group faces. The Executive Directors also of its subsidiaries. Since the year end, Principal activity provide the Board with monthly financial there have been no changes to the above and business reviews information. Key performance indicators are shareholdings apart from for Ian Barkshire The Company is the ultimate holding company reviewed periodically. and Gavin Hill, who each participate in the of a group of subsidiary undertakings Oxford Instruments Share Incentive Plan and There are a number of risks and uncertainties (the “Group”) engaged in the research, since the year end have each increased their which may have a material effect on the development, manufacture, rental, sale and beneficial holding by 28 shares. Oxford Instruments Group. These are described service of high technology tools and systems. in Principal Risks on pages 43 to 47. The Company is required to set out in this Insurance cover report a true and fair view of the business of Directors and Directors’ indemnities the Group during the financial year ended Biographies of all the Directors at the date For a number of years, the Group has 31 March 2019, the position of the Group at of this report, including the Non‑Executive purchased insurance to cover its Directors the end of the financial year and a description Directors, appear on pages 62 and 63. During and Officers against their costs in defending of the principal risks and uncertainties facing the year, on 22 July 2018, Alan Thompson themselves in legal proceedings taken the Group. The information which fulfils these sadly passed away. Neil Carson was against them in that capacity and in respect requirements includes the Operations and appointed Non‑Executive Chairman on of damages resulting from the unsuccessful Finance Review on pages 36 to 42 and the 1 December 2018. Steve Blair acted as defence of any proceedings. In addition, to report on Corporate Responsibility on pages Interim Chairman from 23 July 2018 until the extent permitted by UK law, the Group 50 to 59, which are incorporated in this report 30 November 2018. indemnifies its Directors and Officers for by reference. The operations, the strategic liabilities arising from such proceedings. review, the Research and Development Directors’ conflicts of interest Neither the insurance nor the indemnity activities and likely future prospects of the The Companies Act 2006 allows Directors provides cover for situations where the Group are reviewed in the Strategic Report of public companies to authorise conflicts Director has acted fraudulently or dishonestly. on pages 2 to 59. and potential conflicts of interest, where appropriate. Only Directors with no interest Share capital Results and dividends in the matter under consideration may The Company only has one class of share The results for the year are shown in the participate in the relevant decision and in capital which comprises ordinary shares of Consolidated Statement of Income on doing so they must act in a way which they 5 pence each. All shares forming part of page 110. The Directors recommend a final consider in good faith will be most likely to the ordinary share capital have the same dividend of 10.6 pence per ordinary share, promote the Company’s success. A conflicts rights and carry one vote each. There are no which together with the interim dividend of policy has been drawn up, which is reviewed unusual restrictions on the transfer of a share. 3.8 pence per ordinary share makes a total annually, and a register of conflicts and The full rights and obligations attaching to of 14.4 pence per ordinary share for the year potential conflicts is maintained. the Company’s ordinary shares, as well as the (2018: 13.3 pence). Subject to Shareholder powers of the Directors, are set out in the approval, the final dividend will be paid on Directors’ interests Company’s Articles of Association, a copy of 18 October 2019 to Shareholders registered The beneficial interests of the Directors in the which is available on the Company’s website. at close of business on 13 September 2019. Company’s share capital, all in fully paid up These can also be obtained from Companies shares at 31 March 2019, are shown below. Risks and uncertainties House or by writing to the Company Secretary. The Board exercises proper and appropriate Details of share options for the Executive During the year to 31 March 2019 the corporate governance for the Group. Directors are shown in the Remuneration Board issued no new shares (2018: 59,688) It ensures that there are effective systems Report on pages 80 to 99. following the exercise of options under of internal controls in place to manage 31 March 31 March the Company’s share option schemes. 2019 2018 Shareholders’ interests and the Group’s Shares Shares At 31 March 2019, the issued share capital assets, including the assessment and the Ian Barkshire 12,388 11,982 of the Company was 57,375,604 ordinary management of the risks to which the shares of 5 pence each. In connection with the Steve Blair — — businesses are exposed, and to monitor Company’s equity incentive plans, a separately Neil Carson — — and manage the compliance with all the administered trust held 152,710 ordinary legal requirements that affect the Group’s Richard Friend — — shares at 31 March 2019 (representing worldwide business activities. However, such Thomas Geitner — — 0.27% of the total issued share capital of the systems are designed to manage rather than Gavin Hill 5,906 5,500 Company). No shares in the Company were eliminate the risk of failure to achieve business Mary Waldner 1,000 1,000 acquired by the Company during the year objectives and can provide only reasonable (2018: nil). Details of the share capital and and not absolute assurance against material No Director was beneficially interested in the options outstanding as at 31 March 2019 are misstatement or loss. shares of any subsidiary company at any time set out in Notes 23 and 12 respectively to the during the year. Financial Statements.
102 Strategic Report Governance Financial Statements Company Information 103 emissions are reported reported emissions are 2 on as part of our reporting on greenhouse gas on greenhouse on as part of our reporting emissions in Corporate Responsibility on pages 50 to 59. Susan Johnson‑Brett Company Secretary 11 June 2019 Diversity and inclusion its employees are that recognises The Board success. The fundamental to the Group’s equal are there aim is to ensure Group’s opportunities for all employees and that there are differences where is an inclusive culture given the environment valued and people are in which they can do their best work. Corporate Responsibility on pages 50 to 59 further describes how diversity and inclusion is Instruments. managed within Oxford gas emissions Greenhouse of the Companies meet the requirements To Report) Act 2006 (Strategic and Directors’ Regulations 2013, CO Material events no material events since the year were There end to report. Board of the By order Change of control arrangements Change of control that take a number of agreements are There of alter or terminate upon a change effect, a takeover, of the Company following control and Company such as banking agreements the plans. On a change of control, share facilities may committed credit Company’s by giving not less be cancelled by lenders that days’ notice. It is also possible than three would pension plan funding arrangements need to be changed following a change of weakening of the in a resulted if that control employer covenant. Corporate governance on corporate its work reviews The Board governance in the Corporate Governance Report on pages 64 to 70. Financial risk management risk financial Details of the Group’s management objectives and policies, including and liquidity to price, credit the exposure out in Note 21 to the Financial set risk, are Statements. Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford appoint KPMG LLP as ‑ 2019 trade creditors of the 2019 trade creditors
March
year. auditor
Annual General Meeting The Notice of the Annual General Meeting to be held on 10 September 2019 is set out together with in a letter to Shareholders to the resolutions. explanatory notes relating re to A resolution to set auditor and to authorise the Directors at the will be proposed their remuneration Annual General Meeting. During the year, the Group made charitable the Group During the year, donations of £3,441 (2018: £5,068). There have been no political donations during the Fixed assets Whilst the market value of some fixed assets the Directors book value, from may differ not material. are believe that the differences of information Disclosure to Pursuant to Section 418(2) of the Companies who held office at Act 2006, the Directors Report of this Directors’ the date of approval each aware, confirm that, so far as they are of which audit information is no relevant there and each auditor is unaware; the Company’s has taken all the steps that he or she Director have been expected to have might reasonably to make himself or herself taken as a Director audit information and to of any relevant aware auditor is aware establish that the Company’s of that information. Payment of suppliers does not follow a standard The Group and terms payment practice but agrees transactions conditions for its business Payment is then with each of its suppliers. with these terms. made in accordance At 31 UK subsidiaries Company and the Group’s and equivalent to 35 days (2018: 45) were respectively, 47 days (2018: 67) of purchases based on the amounts invoiced by suppliers during the year and the amounts owed to at the end of the year. trade creditors Charitable donations 5.6 5.3 5.1 5.1 5.0 total % of % of 14.1 s
thirds thirds es ‑ ‘000 Shar 8,080,361 3,225,962 3,045,530 2,917,516 2,911,012 2,894,989
ect ect/ ect ect ect ect ect ect third of the third ect/ ‑ Dir indir dir Dir Indir Indir Indir Indir Indir
emption rights are applied, up to emption rights are dinary shares up to an aggregate up to an aggregate dinary shares dinary shares up to an aggregate up to an aggregate dinary shares ‑
ford ford
an aggregate nominal value of two an aggregate capital; issued share of the Company’s nominal value of 10% of the Company’s capital without first offering issued share and them to existing Shareholders; buy back up to 10% of the Company’ allot or nominal value of one capital and, where issued share Company’s full pre capital. issued share allot or
Ameriprise Financial BlackRock Investment Management (UK) Limited Substantial shareholdings of 3% or beneficial interests The following are or of 5% direct), the holding is (where more which is indirect), the holding (where or more of the have been notified to the Directors with Chapter 5 of in accordance Company, Rules, of the and Transparency the Disclosure the capital, share issued ordinary Company’s only class of voting capital, at 5 June 2019: • • Shareholders will be requested to renew these to renew will be requested Shareholders authorities at the AGM, details of which are set out in the Notice of the Meeting. At this year’s Annual General Meeting, the Annual General Meeting, At this year’s the authorities to renew propose Directors to: AGM year’s granted to them at last • Sir MF and Lady KA Wood & Co Baillie Gif T Rowe Price Management LLP Artemis Investment Oxford Instruments plc Report and Financial Statements 2019
DIRECTORS’ RESPONSIBILITIES
IN RELATION TO THE REPORT AND FINANCIAL STATEMENTS
The Directors are responsible for preparing • assess the Group and Parent Company’s Responsibility statement of the Annual Report and the Group and Parent ability to continue as a going concern, the Directors in respect of the Company Financial Statements in accordance disclosing, as applicable, matters related annual financial report with applicable law and regulations. to going concern; and We confirm that to the best of our Company law requires the Directors to • use the going concern basis of accounting knowledge: unless they either intend to liquidate the prepare Group and Parent Company Financial • the Financial Statements, prepared in Group or the Parent Company or to cease Statements for each financial year. Under that accordance with the applicable set of operations, or have no realistic alternative law they are required to prepare the Group accounting standards, give a true and but to do so. Financial Statements in accordance with fair view of the assets, liabilities, financial International Financial Reporting Standards The Directors are responsible for keeping position and profit or loss of the Company as adopted by the European Union (“IFRSs as adequate accounting records that are and the undertakings included in the adopted by the EU”) and applicable law and sufficient to show and explain the Parent consolidation taken as a whole; and have elected to prepare the Parent Company Company’s transactions and disclose with • the Strategic Report/Directors’ Report Financial Statements in accordance with UK reasonable accuracy at any time the financial includes a fair review of the development accounting standards, including FRS 101 position of the Parent Company and enable and performance of the business and Reduced Disclosure Framework. them to ensure that its Financial Statements the position of the issuer and the Under company law the Directors must not comply with the Companies Act 2006. They undertakings included in the consolidation approve the Financial Statements unless they are responsible for such internal control as taken as a whole, together with a are satisfied that they give a true and fair view they determine is necessary to enable the description of the principal risks and of the state of affairs of the Group and Parent preparation of Financial Statements that are uncertainties that they face. Company and of their profit or loss for that free from material misstatement, whether We consider the Report and Financial period. In preparing each of the Group and due to fraud or error, and have general Statements, taken as a whole, is fair, Parent Company Financial Statements, the responsibility for taking such steps as are balanced and understandable and provides Directors are required to: reasonably open to them to safeguard the the information necessary for Shareholders to assets of the Group and to prevent and detect • select suitable accounting policies and then assess the Group’s position and performance, fraud and other irregularities. apply them consistently; business model and strategy. Under applicable law and regulations, the • make judgements and estimates that are Signed on behalf of the Board Directors are also responsible for preparing a reasonable, relevant, reliable and prudent; Strategic Report, Directors’ Report, Directors’ • for the Group Financial Statements, Remuneration Report and Corporate state whether they have been prepared Governance Statement that complies with Ian Barkshire Gavin Hill in accordance with IFRSs as adopted by that law and those regulations. Chief Executive Group Finance Director the EU; The Directors are responsible for the 11 June 2019 • for the Parent Company Financial maintenance and integrity of the corporate Statements, state whether applicable UK and financial information included on the accounting standards have been followed, Company’s website. Legislation in the UK subject to any material departures governing the preparation and dissemination disclosed and explained in the Parent of financial statements may differ from Company Financial Statements; legislation in other jurisdictions.
104 Strategic Report Governance Financial Statements Company Information 105 1 tu tu New vs 2018 from continuing operations from
opean Union, on our audit tax
Completeness and accuracy of provisions in Completeness and accuracy of provisions claims of intellectual property respect The impact of uncertainties due to the UK exiting The impact of uncertainties the Eur £1.5m (2018:£1.5m) normalised profit 4.0% (2018: 4.8%) of Group before tax before profit Group 81% (2018: 91%) of absolute Parent company: Valuation of investments held by company: Valuation Parent company the parent
Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford ofit and losses as a percentage of total profits and losses that made up the of total profits ofit and losses as a percentage This is the pr tax before profit Group Key audit matters Recurring risks: New risks: Overview Materiality: financial Group statements as a whole Coverage
1. assessment 2. Key audit matters: including our of risks of material misstatement judgment, those matters that, in our professional Key audit matters are and of most significance in the audit of the financial statements were material misstatement include the most significant assessed risks of including those which (whether or not due to fraud) identified by us, the overall audit strategy; the allocation on: effect had the greatest of the engagement the efforts directing in the audit; and of resources below the key audit matters in arriving at our summarise team. We to address procedures audit opinion above, together with our key audit entities, our results for public interest those matters and, as required and our results addressed, These matters were those procedures. from context of, and solely for undertaken, in the based on procedures are as a whole, and in the purpose of, our audit of the financial statements incidental to that and consequently are forming our opinion thereon, matters. a separate opinion on these opinion, and we do not provide epared in accordance with the in accordance epared ent Company financial statements have been properly properly ent Company financial statements have been oup financial statements have been properly prepared in prepared oup financial statements have been properly oup’s and of the parent Company’s affairs as at 31 March 2019 as at 31 March affairs Company’s and of the parent oup’s period of total uninterrupted engagement is for the 36 period of total uninterrupted engagement is for
Our opinion is unmodified requirements of the Companies Act 2006 and, as regards the Group the Group Act 2006 and, as regards of the Companies requirements financial statements, Article 4 of the IAS Regulation. prepared in accordance with UK accounting standards, including standards, with UK accounting in accordance prepared Framework; and FRS 101 Reduced Disclosure the financial statements have been pr and of the Group’s profit for the year then ended; profit and of the Group’s as with International Financial Reporting Standards accordance Union (IFRSs as adopted by the EU); adopted by the European the par the Gr the financial statements give a true and fair view of the state of the the financial statements give a true and fair view Gr
financial years ended 31 March 2019. We have fulfilled our ethical 2019. financial years ended 31 March in independent of the Group and we remain under, responsibilities including the FRC Ethical with, UK ethical requirements accordance entities. No non-audit to listed public interest as applied Standard provided. were by that standard services prohibited • Basis for opinion on with International Standards conducted our audit in accordance We are Our responsibilities Auditing (UK) (“ISAs (UK)”) and applicable law. have obtained believe that the audit evidence we We described below. basis for our opinion. Our audit opinion is a sufficient and appropriate to the audit committee. is consistent with our report 1984. auditor by the Company before first appointed as were We The • • In our opinion: • 1. Instruments plc of Oxford have audited the financial statements We 2019 which comprise year ended 31 March (“the Company”) for the of Income, Consolidated Statement of the Consolidated Statement Statement of Financial Position, Income, Consolidated Comprehensive Statement Consolidated of Changes in Equity, Consolidated Statement Statement of Financial Position, Company of Cash Flows, Company notes, including the and the related in Equity, Statement of Changes out on pages 116 to 122. accounting policies set TO THE MEMBERS OF OXFORD INSTRUMENTS PLC INSTRUMENTS OF OXFORD MEMBERS THE TO INDEPENDENT AUDITOR’S REPORT AUDITOR’S INDEPENDENT Oxford Instruments plc Report and Financial Statements 2019
INDEPENDENT AUDITOR’S REPORT CONTINUED
TO THE MEMBERS OF OXFORD INSTRUMENTS PLC
2. Key audit matters: including our assessment of risks of material misstatement continued The risk Our response
The impact of Unprecedented level of uncertainty: We developed a standardised firm-wide approach to the consideration of uncertainties due All audits assess and challenge the reasonableness the uncertainties arising from Brexit in planning and performing our audits. to the UK exiting of estimates, in particular as described under Our procedures included: the European completeness and accuracy of provisions in respect Our Brexit knowledge: We considered the directors’ assessment of Union, on our audit of intellectual property claims and related disclosures Brexit‑related sources of risk for the group’s business and financial resources Refer to page 45 and the appropriateness of the going concern basis compared with our own understanding of the risks. We considered the (principal risks), pages of preparation of the financial statements. All of directors’ plans to take action to mitigate the risks; 48 and 49 (viability these depend on assessments of the future economic Sensitivity analysis: When addressing areas that depend on forecasts, statement) and page environment and the Group’s future prospects and we compared the directors’ analysis to our assessment of the full range of 75 (Audit Committee performance. reasonably possible scenarios resulting from Brexit uncertainty and, where Report). In addition, we are required to consider the other forecast cash flows are required to be discounted, considered adjustments to information presented in the Annual Report including discount rates for the level of remaining uncertainty; and the principal risks disclosure and the viability Assessing transparency: As well as assessing individual disclosures as part of statement and to consider the directors’ statement our procedures on the completeness and accuracy of provisions in respect of that the annual report and financial statements taken intellectual property claims, we considered all of the Brexit related disclosures as a whole is fair, balanced and understandable and together, including those in the strategic report, comparing the overall picture provides the information necessary for shareholders to against our understanding of the risks. assess the Group’s position and performance, business model and strategy. Our results Brexit is one of the most significant economic events As reported under completeness and accuracy of provisions in respect of for the UK and at the date of this report its effects intellectual property claims, we found the resulting estimates and related are subject to unprecedented levels of uncertainty disclosures of the above and disclosures in relation to going concern to be of outcomes, with the full range of possible effects acceptable. unknown. However, no audit should be expected to predict the unknowable factors or all possible future implications for a company and this is particularly the case in relation to Brexit.
Completeness Subjective estimate: Our procedures included: and accuracy The estimation of any provision required for Our sector experience: Challenging the reasonableness of the key of provisions intellectual property claims is inherently subjective assumptions made by the Group, such as potential royalty rates payable in in respect of based on the wide range of potential outcomes due respect of intellectual property claims and likelihood of an outflow of resources intellectual to differing settlement methods and royalty rates. against our own expectations based on our historical knowledge, experience property claims and understanding and our review of correspondence with competitors. (£1.8 million; 2018: The effect of these matters is that, as part of our risk £3.2million) assessment, we determined that provisions in respect Enquiry of Lawyers: Enquiring with the Group’s external legal advisers, of intellectual property claims has a high degree of having assessed their experience and competence, in respect of open matters Refer to page 75 estimation uncertainty, with a potential range of of litigation regarding the likelihood of an outflow of resources. (Audit Committee reasonable outcomes greater than our materiality Personnel interviews: Evaluating assumptions through discussion of claims Report), page 117 for the financial statements as a whole. (accounting policy) with Group’s internal legal counsel and relevant business unit managers. and page 149 Assessing transparency: Assessing whether the Group’s disclosures regarding (financial disclosures). the range of possible outcomes appropriately reflect the risks identified.
Our results We found the level of provisions in respect of intellectual property claims to be acceptable (2018: acceptable).
Valuation of Low risk/high value: Our procedures included: investments The carrying amount of the parent company’s Tests of detail: Comparing the carrying amount of 100% of investments held by investments in subsidiaries represents 83% with the relevant subsidiaries’ draft balance sheet to identify whether their net the parent (2018: 92%) of the company’s total assets. assets, being an approximation of their minimum recoverable amount, were in company Their recoverability is not at a high risk of significant excess of their carrying amount and assessing whether those subsidiaries have (£321.1 million; misstatement or subject to significant judgement. historically been profit-making. 2018: £320.9 However, due to their materiality in the context of million) Assessing subsidiary audits: Assessing the work performed by the subsidiary the parent company financial statements, this is audit team for a sample of subsidiaries and considering the results of that work, Refer to page considered to be the area that had the greatest effect on those subsidiaries’ profits and net assets. 158 (accounting on our overall parent company audit. policy) and page Our sector experience: For the investments where the carrying amount 160 (financial exceeded the net asset value, comparing the carrying amount of the investment disclosures). with the expected value of the business based on a suitable multiple of profit. Our results We found the group’s assessment of the recoverability of the investment in subsidiaries to be acceptable (2018: acceptable).
We continue to perform procedures over revenue recognition. However, recognition of revenue is not inherently subjective or complex. We have not assessed this risk as being one of the most significant risks in our current year audit and therefore it is not separately identified in our report this year.
106 Strategic Report Governance Financial Statements Company Information 107 69 88 £75,000 reported Misstatements to the audit committee £75,000) (2018: £1,500,000 Whole financial statements materiality (2018: £1.5m) £975,000 Range of materiality at components14 £0.5m £0.1m (2018: to £1.0m to £1.0m) 81% (2018: 91%) 3 Group Materiality £1.5m (2018: £1.5m) Specified risk-focused audit procedures 2018 components Residual Full scope for group audit purposes 2019 Specified risk-focused audit procedures 2019 Full scope for group audit purposes 2018 12 Total profits and losses Total that made up group profit before tax 79 69 84 78 Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford 89% 88% (2018: 92%) (2018: 94%) 8 16 any further work required by the Group team was then performed team was then performed by the Group any further work required
Normalised profit before tax materiality Group 10 19 Normalised profit before tax Normalised profit before £34.1m) (2018: £37.9m by the component auditor. by the component auditor. The Group team visited 1 (2018: 2) component location in the UK team visited 1 (2018: 2) component The Group execution of the audit to confirm appropriate (2018: UK and Sweden) Telephone conference their findings. strategy & plan and inspect component auditors and all others also held with these meetings were visits and meetings, the not physically visited. At these that were detail, discussed in more team were reported to the Group findings and Group revenue Group total assets 3)
the scope of our audit the scope of our
of
to market movements in respect of derivative financial of respect to market movements in
9%) of total profits and losses that made up group profit before before profit and losses that made up group 9%) of total profits
profits and losses that made up normalised Group profit before before profit losses that made up normalised Group and profits
overview
(2018: 14) to full scope audits for group purposes and 3 (2018: (2018: 14) to full scope audits for group specified risk-focused audit procedures. The latter were not The latter were specified risk-focused audit procedures.
to group continuing operations and 11% (2018: 8%) of total tax from components, none of by 60 (2018: 55) reporting assets is represented than 6% (2018: 2%) of any of more which individually represented assets. For tax or total group before profit group revenue, total group we performed analysis at an aggregated components, these residual no significant were our assessment that there level to re-examine group risks of material misstatement within these. instructed component auditors as to the significant team The Group risks detailed above and including the relevant to be covered, areas team approved back. The Group the information to be reported £0.5m to £1.0m the component materialities, which ranged from to the mix of size and risk (2018: £0.1m to £1.0m), having regard the components. The work on 7 of the across Group of the profile 14 components (2018: 8 of the 17 components) was performed by parent including the audit of the component auditors and the rest, team. was performed by the Group company, individually financially significant enough to require a full scope audit require individually financially significant enough to specific individual risks that needed purposes, but did present for group to be addressed. the items excluded from on team performed procedures The group tax. before profit normalised group The components within the scope of our work accounted for the opposite. indicated percentages 19% revenue, 12% (2018: 6%) of total group The remaining (2018: tax from continuing operations is calculated as £37.9m (2018: £31.4m) continuing tax from 4.0% (2018: 4.8%). of which materiality represents company financial statements as a whole was Materiality for the parent to a benchmark reference set at £1.0m (2018: £1.0m), determined with 0.3% (2018: 0.3%). of company total assets, of which it represents Committee any corrected to the Audit and Risk to report agreed We identified misstatements exceeding £75,000 (2018: or uncorrected that warranted £75,000), in addition to other identified misstatements on qualitative grounds. reporting components, we subjected 74 (2018: 72) reporting Of the group’s 11 instruments as disclosed in Note 1 (2018: with reference to a in Note 1 (2018: with reference instruments as disclosed normalised continuing operations tax from before benchmark of profit on disposal of buildings, share costs, net profit to exclude restructuring by associate and mark to market gains in of impairment recognised 1). of derivative financial instruments as disclosed in Note respect Total Materiality for the group financial statements as a whole was set at financial Materiality for the group to a benchmark determined with reference £1.5m (2018: £1.5m), continuing operations normalised to tax from before of profit recognised reversal of impairment costs, share exclude restructuring costs, loan note make-whole payment by associate, past service and mark 3. Our application of materiality and 3. Our application an Oxford Instruments plc Report and Financial Statements 2019
INDEPENDENT AUDITOR’S REPORT CONTINUED
TO THE MEMBERS OF OXFORD INSTRUMENTS PLC
4. We have nothing to report on going concern Our responsibility is to read the other information and, in doing so, The Directors have prepared the financial statements on the going consider whether, based on our financial statements audit work, the concern basis as they do not intend to liquidate the Company or information therein is materially misstated or inconsistent with the the Group or to cease their operations, and as they have concluded financial statements or our audit knowledge. Based solely on that work that the Company’s and the Group’s financial position means that we have not identified material misstatements in the other information. this is realistic. They have also concluded that there are no material Strategic report and directors’ report uncertainties that could have cast significant doubt over their ability Based solely on our work on the other information: to continue as a going concern for at least a year from the date of approval of the financial statements (“the going concern period”). • we have not identified material misstatements in the strategic eportr and the directors’ report; Our responsibility is to conclude on the appropriateness of the Directors’ conclusions and, had there been a material uncertainty related to going • in our opinion the information given in those reports for the concern, to make reference to that in this audit report. However, as we financial year is consistent with the financial statements; and cannot predict all future events or conditions and as subsequent events • in our opinion those reports have been prepared in accordance may result in outcomes that are inconsistent with judgements that were with the Companies Act 2006. reasonable at the time they were made, the absence of reference to a Directors’ remuneration report material uncertainty in this auditor’s report is not a guarantee that the In our opinion the part of the Directors’ Remuneration Report to be Group and the Company will continue in operation. audited has been properly prepared in accordance with the Companies In our evaluation of the Directors’ conclusions, we considered the inherent Act 2006. risks to the Group’s and Company’s business model and analysed how those risks might affect the Group’s and Company’s financial resources or Disclosures of principal risks and longer-term viability ability to continue operations over the going concern period. The risks that Based on the knowledge we acquired during our financial statements we considered most likely to adversely affect the Group’s and Company’s audit, we have nothing material to add or draw attention to in relation to: available financial resources over this period were: • the directors’ confirmation within the viability statement on pages • The impact of Brexit on the Group’s supply chain. 48 and 49 that they have carried out a robust assessment of the principal risks facing the Group, including those that would threaten As these were risks that could potentially cast significant doubt its business model, future performance, solvency and liquidity; on the Group’s and the Company’s ability to continue as a going • the Principal Risks disclosures describing these risks and explaining concern, we considered sensitivities over the level of available how they are being managed and mitigated; and financial resources indicated by the Group’s financial forecasts taking account of reasonably possible (but not unrealistic) adverse effects that • the directors’ explanation in the viability statement of how they could arise from these risks individually and collectively and evaluated have assessed the prospects of the Group, over what period the achievability of the actions the Directors consider they would they have done so and why they considered that period to be take to improve the position should the risks materialise. We also appropriate, and their statement as to whether they have a considered less predictable but realistic second order impacts, such reasonable expectation that the Group will be able to continue in as macroeconomic uncertainty including the impact of Brexit and the operation and meet its liabilities as they fall due over the period of erosion of customer or supplier confidence, which could result in a their assessment, including any related disclosures drawing attention rapid reduction of available financial resources. to any necessary qualifications or assumptions. Based on this work, we are required to report to you if: Under the Listing Rules we are required to review the viability statement. We have nothing to report in this respect. • we have anything material to add or draw attention to in relation to the directors’ statement in Note 1 to the financial statements on Our work is limited to assessing these matters in the context of only the use of the going concern basis of accounting with no material the knowledge acquired during our financial statements audit. As we uncertainties that may cast significant doubt over the Group and cannot predict all future events or conditions and as subsequent events Company’s use of that basis for a period of at least twelve months may result in outcomes that are inconsistent with judgments that were from the date of approval of the financial statements; or reasonable at the time they were made, the absence of anything to report on these statements is not a guarantee as to the Group’s and • if the related statement under the Listing Rules set out on page 42 is Company’s longer-term viability. materially inconsistent with our audit knowledge. We have nothing to report in these respects, and we did not identify Corporate governance disclosures going concern as a key audit matter. We are required to report to you if: • we have identified material inconsistencies between the knowledge 5. We have nothing to report on the other we acquired during our financial statements audit and the directors’ information in the Annual Report statement that they consider that the annual report and financial The directors are responsible for the other information presented in statements taken as a whole is fair, balanced and understandable the Annual Report together with the financial statements. Our opinion and provides the information necessary for shareholders to assess the on the financial statements does not cover the other information and, Group’s position and performance, business model and strategy; or accordingly, we do not express an audit opinion or, except as explicitly • the section of the annual report describing the work of the Audit stated below, any form of assurance conclusion thereon. Committee does not appropriately address matters communicated by us to the Audit Committee.
108 Strategic Report Governance Financial Statements Company Information 109 detection ‑ Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford owe our responsibilities
communicated identified laws and regulations throughout our team throughout regulations laws and communicated identified
The purpose of our audit work and to whom
of irregularities, as these may involve collusion, forgery, intentional as these may involve collusion, forgery, of irregularities, are or the override of internal We controls. omissions, misrepresentations, non-compliance and cannot be expected tofor preventing not responsible detect non-compliance with all laws and regulations. We of non-compliance throughout alert to any indications and remained to component the group communication from the audit. This included level. at group identified laws and regulations audit teams of relevant on the financial regulations of these laws and The potential effect statements varies considerably. affect that directly to laws and regulations is subject Group the Firstly, reporting legislation including financial the financial statements legislation distributable profits companies legislation), (including related and we assessed the extent of compliance with and taxation legislation on the related as part of our procedures these laws and regulations financial statement items. is subject to many other laws and regulations the Group Secondly, the consequences of non-compliance could have a material where in the financial statements, for on amounts or disclosures effect We identified the imposition of fines or litigation. instance through as those most likely to have such an effect: the following areas anti-bribery and health and safety, international trading regulations, activities. of the group’s the nature employment law recognising to identify audit procedures limit the required Auditing standards of the to enquiry non-compliance with these laws and regulations if any. and legal correspondence, and inspection of regulatory directors of actual or suspected we became aware these procedures, Through on as part of our procedures the effect non-compliance and considered or suspected financial statement items. The identified actual the related result in to our audit to non-compliance was not sufficiently significant being identified as a key audit matter. our response is an unavoidable limitations of an audit, there Owing to the inherent misstatements risk that we may not have detected some material planned have properly in the financial statements, even though we with auditing standards. and performed our audit in accordance non-compliance with laws and For example, the further removed events and transactions reflected the from is (irregularities) regulations limited in the financial statements, the less likely the inherently would identify it. by auditing standards required procedures a higher risk of non remained In addition, as with any audit, there Mike Barradell (Senior Statutory Auditor) Statutory Auditor for and on behalf of KPMG LLP, Accountants Chartered 15 Canada Square London E14 5GL 11 June 2019 8. in members, as a body, is made solely to the Company’s This report 2006. with Chapter 3 of Part 16 of the Companies Act accordance Our audit work has been undertaken so that we might state to the to state to them required members those matters we are Company’s the fullest extent for no other purpose. To and report in an auditor’s to anyone we do not accept or assume responsibility permitted by law, for members, as a body, other than the Company and the Company’s formed. or for the opinions we have our audit work, for this report, we ecords have not been kept by the parent have not been kept by the parent ecords esponsibilities es of directors’ remuneration specified by law are specified by law are remuneration es of directors’ eceived all the information and explanations we eceived all the information and explanations we ent Company financial statements and the part of the ent Company financial statements and the part which we are required to report by exception to report required which we are
Respective r we have not r for our audit. require Directors’ Remuneration Report to be audited are not in agreement not in agreement Remuneration Report to be audited are Directors’ and returns; or with the accounting records certain disclosur the par adequate accounting r not made; or Company, or returns adequate for our audit have not been received adequate for our audit have not been received or returns Company, branches not visited by us; or from We have nothing to report on the other matters to report have nothing We our opinion:
Irregularities – ability to detect Irregularities reasonably be regulations that could of laws and areas identified We our from on the financial statements expected to have a material effect the discussion with and sector experience, through general commercial by auditing standards), management (as required and other directors and legal correspondence regulatory of the group’s inspection and from the policies and other management and discussed with the directors compliance with laws and regulations. regarding and procedures Auditor’s responsibilities Auditor’s assurance about whether the to obtain reasonable Our objectives are material misstatement, from free financial statements as a whole are and to error, (see below), or whether due to fraud or other irregularities Reasonable assurance is a high report. issue our opinion in an auditor’s level of assurance, but does not guarantee that an audit conducted in with ISAs (UK) will always detect a material misstatement accordance fraud, other irregularities when it exists. Misstatements can arise from they material if, individually or in aggregate, considered and are or error decisions of be expected to influence the economic could reasonably users taken on the basis of the financial statements. on the FRC’s is provided A fuller description of our responsibilities . website at www.frc.org.uk/auditorsresponsibilities 7. responsibilities Directors’ fully in their statement set out on page 104, As explained more of the financial for: the preparation responsible are the directors give a true and fair statements including being satisfied that they as they determine is necessary to enable view; such internal control material from free of financial statements that are the preparation and assessing the Group misstatement, whether due to fraud or error; ability to continue as a going concern, disclosing, Company’s parent to going concern; and using the going as applicable, matters related concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no or the parent Group alternative but to do so. realistic We have nothing to report in these respects. have nothing to report We • • 6. on to you if, to report required 2006, we are Under the Companies Act in • We are required to report to you if the Corporate Governance to you if the Corporate to report required are We eleven the from a departure disclose Statement does not properly of the UK Corporate Governance the Code specified by provisions Listing Rules for our review. in these respects. have nothing to report We • Oxford Instruments plc Report and Financial Statements 2019
CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED 31 MARCH 2019
2019 2018
Adjusting Adjusting Adjusted1 items1 Total Adjusted1 items1 Total Notes £m £m £m £m £m £m Revenue 3 333.6 — 333.6 296.9 — 296.9 Cost of sales (156.6) — (156.6) (146.0) — (146.0) Gross profit 177.0 — 177.0 150.9 — 150.9 Research and Development 5 (25.4) — (25.4) (23.4) — (23.4) Selling and marketing (61.3) — (61.3) (53.9) — (53.9) Administration and shared services (39.6) (9.9) (49.5) (28.5) (12.1) (40.6) Share of profit/(loss) of associate, net of tax 6 0.2 0.3 0.5 0.5 (2.4) (1.9) Other operating income — — — — 3.3 3.3 Foreign exchange (1.2) (1.5) (2.7) 0.9 3.1 4.0 Operating profit/(loss) 49.7 (11.1) 38.6 46.5 (8.1) 38.4 Other financial income 8 0.3 — 0.3 0.3 — 0.3 Financial income 0.3 — 0.3 0.3 — 0.3 Interest charge on pension scheme net liabilities 25 (0.3) — (0.3) (0.6) — (0.6) Other financial expenditure 9 (2.2) (0.9) (3.1) (3.9) — (3.9) Financial expenditure (2.5) (0.9) (3.4) (4.5) — (4.5) Profit/(loss) before income tax from continuing operations 47.5 (12.0) 35.5 42.3 (8.1) 34.2 Income tax (expense)/credit 13 (10.4) 3.6 (6.8) (10.1) (4.5) (14.6) Profit/(loss) for the year from continuing operations 37.1 (8.4) 28.7 32.2 (12.6) 19.6 Profit/(loss) from discontinued operations after tax 7 — 1.3 1.3 (0.4) 46.3 45.9 Profit/(loss) for the year attributable to equity Shareholders of the parent 37.1 (7.1) 30.0 31.8 33.7 65.5
pence pence pence pence Earnings per share Basic earnings per share 2 From continuing operations 64.9 50.1 56.3 34.3 From discontinued operations — 2.3 (0.7) 80.2 From profit for the year 64.9 52.4 55.6 114.5
Diluted earnings per share 2 From continuing operations 64.3 49.7 56.1 34.1 From discontinued operations — 2.3 (0.7) 80.0 From profit for the year 64.3 52.0 55.4 114.1 Dividends per share Dividends paid 14 13.3 13.0 Dividends proposed 14 14.4 13.3 1. Adjusted numbers are stated to give a better understanding of the underlying business performance. Details of adjusting items can be found in Note 1 to the Financial Statements. The attached notes form part of the Financial Statements.
110 Strategic Report Governance Financial Statements Company Information
£m 111 2.2 (8.8) (4.8) 2018 (0.9) 65.5 53.2 (12.3)
— £m 4.2 2.5 6.2 2019 (0.5) 30.0 36.2
25 13 Notes
Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford
differences
eclassified subsequently to profit or loss to profit eclassified subsequently
translation ement gain in respect of post-retirement benefits of post-retirement ement gain in respect exchange
eign
Net cumulative foreign exchange gain on disposal of subsidiaries recycled to the Income Statement to the Income on disposal of subsidiaries recycled exchange gain Net cumulative foreign or loss subsequently to profit reclassified Items that will not be income/(expense) other comprehensive Total of the parent income for the year attributable to equity Shareholders comprehensive Total For Remeasur Profit for the year Profit Items that may be r Other comprehensive income/(expense): Other comprehensive or loss to profit on items that will not be reclassified Tax
YEAR ENDED 31 MARCH 2019 MARCH 31 YEAR ENDED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME COMPREHENSIVE OF STATEMENT CONSOLIDATED Oxford Instruments plc Report and Financial Statements 2019
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 MARCH 2019
2019 2018 Notes £m £m Assets Non-current assets Property, plant and equipment 15 24.2 22.8 Right of use assets 28 8.8 — Intangible assets 16 152.5 158.7 Investment in associate 6 4.6 4.1 Long-term receivables 19 0.3 1.4 Deferred tax assets 17 15.3 13.4 205.7 200.4 Current assets Inventories 18 60.8 45.9 Trade and other receivables 19 78.3 73.3 Current income tax recoverable 2.4 2.5 Derivative financial instruments 22 1.1 2.4 Cash and cash equivalents 20 35.2 20.7 177.8 144.8 Total assets 383.5 345.2 Equity Capital and reserves attributable to the Company’s equity Shareholders Share capital 23 2.9 2.9 Share premium 61.7 61.7 Other reserves 0.2 0.2 Translation reserve 13.4 9.2 Retained earnings 124.0 105.6 202.2 179.6 Liabilities Non-current liabilities Bank loans 24 27.9 39.4 Lease payables 28 6.0 — Retirement benefit obligations 25 6.5 15.3 Provisions 27 1.1 1.7 Deferred tax liabilities 17 6.3 6.1 47.8 62.5 Current liabilities Bank loans and overdrafts 24 0.6 1.0 Trade and other payables 26 116.9 85.5 Lease payables 28 3.0 — Current income tax payables 4.3 6.2 Derivative financial instruments 22 1.1 0.4 Provisions 27 7.6 10.0 133.5 103.1 Total liabilities 181.3 165.6 Total liabilities and equity 383.5 345.2
The Financial Statements were approved by the Board of Directors on 11 June 2019 and signed on its behalf by:
Ian Barkshire Gavin Hill Director Director Company number: 775598
112 Strategic Report Governance Financial Statements Company Information
£m £m 4.2 2.5 0.2 0.8 0.2 2.2 0.2 1.1 113 Total Total Total Total (4.8) (8.8) (7.2) (0.9) (7.4) (6.1) (0.5) (7.6) (6.4) 30.0 36.2 53.2 65.5 179.6 172.4 132.5 202.2 179.6
— — — — £m £m 2.5 0.2 0.8 0.2 2.2 1.1 (7.2) (0.9) (7.4) (6.3) (7.6) (6.4) (0.5) 45.1 98.4 30.0 32.0 65.5 66.8 124.0 105.6 105.6 earnings earnings Retained Retained
— — — — — — — — — — — — — — — — £m £m eign eign 9.2 4.2 4.2 9.2 9.2 (8.8) (4.8) 22.8 13.4 (13.6) reserve reserve For For exchange exchange translation translation
— — — — — — — — — — — — — — — — — — — — — £m £m 0.2 0.2 0.2 0.2 0.2 Other Other reserves reserves Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford
e e — — — — — — — — — — — — — — — — — — — £m £m 0.2 0.2 Shar Shar 61.5 61.7 61.7 61.7 61.7 emium emium account account pr pr
e e — — — — — — — — — — — — — — — — — — — — — £m £m 2.9 2.9 2.9 2.9 2.9 Shar Shar capital capital
income: income: ch 2019 ch 2018
year espect of employee service costs settled espect of employee service costs settled ehensive ehensive paid ement gain in respect of post-retirement benefits of post-retirement ement gain in respect ement gain in respect of post-retirement benefits of post-retirement ement gain in respect the earnings. eign exchange gain on disposal of subsidiaries
eserves comprise the capital redemption reserve, which represents the nominal value of shares repurchased and then cancelled during the and then cancelled during repurchased the nominal value of shares which represents reserve, eserves comprise the capital redemption compr compr for eign exchange translation differences eign exchange translation differences
oceeds from exercise of share options of share exercise oceeds from oceeds from issue of shares oceeds from
ax on items recognised directly in equity directly ax on items recognised ax on items recognised directly in other comprehensive income in other comprehensive directly ax on items recognised ax on items recognised directly in other comprehensive income in other comprehensive directly ax on items recognised ofit ofit for the year options of share by award Charge in r Dividends Charge in r options of share by award Net for Income Statement to the recycled ransactions with owners recorded directly in equity: directly ransactions with owners recorded ransactions with owners recorded directly in equity: directly ransactions with owners recorded otal comprehensive income/(expense): otal comprehensive otal transactions with owners recorded otal transactions with owners recorded otal comprehensive income/(expense) attributable otal comprehensive otal comprehensive income/(expense): otal comprehensive otal transactions with owners recorded directly in equity directly otal transactions with owners recorded otal comprehensive (expense)/income attributable to (expense)/income attributable to otal comprehensive
2018 2019 Balance at 1 April 2017 Pr
T Impact of adoption of IFRS 15 Impact of adoption of T directly in equity directly to equity Shareholders of the parent to equity Shareholders – Pr – For Pr Balance at 1 April 2018 Other – Remeasur – T T T – – T – Dividends paid T Balance at 31 Mar YEAR ENDED 31 MARCH 2019 MARCH 31 YEAR ENDED CONSOLIDATED STATEMENT OF CHANGES IN CHANGES OF EQUITY STATEMENT CONSOLIDATED – T T – – – Remeasur T T Balance at 31 Mar in value of commodity contracts. portion of changes of the effective in respect 1999, and the hedging reserve year ended 31 March the translation of the Group’s 2004 from arising since 1 April exchange differences comprises all foreign translation reserve exchange The foreign subsidiaries into Sterling. net investments in foreign is included within in an employee benefit trust. The cost of these shares 152,710 (2018: 183,145) of its own shares holds The Group retained equity Shareholders of the parent equity Shareholders – Pr – For Other Other r – Oxford Instruments plc Report and Financial Statements 2019
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED 31 MARCH 2019
2019 2018 Notes £m £m Profit for the year 30.0 65.5 Profit for the year from discontinued operations 7 (1.3) (45.9) Profit for the year from continuing operations 28.7 19.6 Adjustments for: Income tax expense 13 6.8 14.6 Net financial expense 3.1 4.2 Fair value movement on financial derivatives 1.5 (3.1) Restructuring costs — 1.2 Restructuring costs – relating to associate 0.3 0.4 Past service cost on defined benefit pension scheme 0.3 — Net profit on disposal of buildings — (3.3) Share of impairment recognised by associate (0.6) 2.0 Amortisation and impairment of acquired intangibles 16 9.6 10.9 Depreciation of property, plant and equipment 15 3.9 4.7 Depreciation of right of use assets 28 3.3 — Amortisation and impairment of capitalised development costs 16 3.5 4.4 Amortisation and impairment of capitalised software costs 16 0.3 — Adjusted earnings before interest, tax, depreciation and amortisation 60.7 55.6 Loss on disposal of property, plant and equipment 0.2 0.3 Cost of equity settled employee share schemes 12 0.8 1.1 Share of profit from associate (0.2) (0.5) Restructuring costs paid (0.7) (1.3) Cash payments to the pension scheme more than the charge to operating profit (7.1) (7.9) Operating cash flows before movements in working capital 53.7 47.3 Increase in inventories (4.0) (4.5) Increase in receivables (3.5) (14.4) Increase in payables and provisions 4.1 2.8 Increase in customer deposits 7.1 2.9 Purchase of rental assets held for subsequent sale (1.1) (0.7) Cash generated from continuing operations 56.3 33.4 Interest paid (3.5) (2.1) Income taxes paid (8.7) (3.8) Net cash from operating activities – continuing operations 44.1 27.5 Net cash from operating activities – discontinued operations — 3.0 Net cash flow from operating activities 44.1 30.5
114 Strategic Report Governance Financial Statements Company Information
— — — — £m 9.3 0.9 0.2 115 (4.3) (0.5) (5.8) (2.1) (4.8) 2018 (7.4) (1.0) 71.2 26.5 68.7 68.7 20.7 (96.8) (104.0)
— — — — — £m 1.1 0.9 0.3 0.2 2019 (4.1) (2.2) (3.5) (7.6) (8.4) (8.4) (3.2) 13.6 20.7 35.2 (22.1) (11.5)
7 20 28 24 Notes
Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford
expenditure associate assets in receivables
borrowings intangible long-term of of development investment paid in in received
oceeds from sale of property, plant and equipment plant and sale of property, oceeds from oceeds from issue of share capital issue of share oceeds from
Acquisition of businesses Net cash flow on disposal Increase Decrease Cash flows from investing activities Cash flows from Pr Acquisition of property, plant and equipment Acquisition of property, Capitalised Interest
Net cash used in financing activities year Cash and cash equivalents at beginning of the Cash and cash equivalents at end of the year Net cash (used in)/generated from investing activities – continuing operations investing activities Net cash (used in)/generated from investing activities Net cash (used in)/generated from financing activities Cash flows from options of share exercise from Proceeds of lease liabilities Payments made in respect Repayment and cash equivalents in cash Net increase/(decrease) rate changes on cash and cash equivalents exchange of foreign Effect Pr Dividends Net cash used in investing activities – discontinued operations Net cash used in investing activities – discontinued Oxford Instruments plc Report and Financial Statements 2019
ACCOUNTING POLICIES
Oxford Instruments plc (the “Company”) is The relatively diverse nature of the Group, • IFRS 15 Revenue from Contracts a company incorporated and domiciled in together with its current financial strength, with Customers the UK. provides a solid foundation. The Directors have The Group adopted IFRS 15 using the reviewed the Group’s forecasts and flexed modified retrospective approach on The Group Financial Statements have been them to incorporate a number of potential 1 April 2018, which means that the prepared and approved by the Directors scenarios relating to changes in trading cumulative impact on adoption has been in accordance with International Financial performance and believe that the Group will recognised in retained earnings as of Reporting Standards as adopted by the EU be able to operate within its existing debt 1 April 2018. Comparative information (“Adopted IFRS”). The Company has elected facilities which expire between March 2021 has not been restated. IFRS 15 provides to prepare its Parent Company Financial and June 2023. This review also considered a single, principles-based, five‑step model Statements in accordance with FRS 101; these hedging arrangements in place. As a to be applied to all sales contracts, based are presented on pages 153 to 163. consequence, the Directors believe that the on the transfer of goods and services to The accounting policies set out below Group is well placed to manage its business customers, and it replaces the separate have, unless otherwise stated, been applied risks successfully. Further information can be model for goods and services of IAS 18 consistently to all periods presented in these found in the Viability Statement on pages 48 Revenue. The impact on adoption of IFRS Group Financial Statements. and 49. 15 was a decrease in retained earnings of £7.2m, net of tax; an increase in inventory The Financial Statements have been prepared The Financial Statements were authorised for of £11.0m; an increase in customer on a going concern basis based on the issuance on 11 June 2019. Directors’ opinion, after making reasonable deposits of £19.0m; an increase in deferred enquiries, that the Group has adequate (a) New accounting standards income of £1.0m; a reduction in current resources to continue in operational existence The following standards and interpretations tax payable of £0.9m and an increase in for the foreseeable future. have been adopted by the Group for the year deferred tax assets of £0.9m; and ended 31 March 2019: The Group’s business activities, together • IFRS 16 Leases with the factors likely to affect its future • IFRS 9 Financial Instruments The Group adopted IFRS 16 using the development, performance and position, are The Group adopted IFRS 9 on 1 April 2018. modified retrospective approach on set out in the Strategy section on pages 22 IFRS 9 addresses the classification, 1 April 2018. IFRS 16 provides a single and 23. The financial position of the Group, measurement and derecognition of model for lessees which recognises a right its cash flows, liquidity position and borrowing financial instruments, introduces a new of use asset and lease liability for all leases facilities are described in the Finance Review impairment model for financial assets and that are longer than one year or that are on pages 36 to 42. new rules for hedge accounting. It replaces not classified as low value. The impact on IAS 39 Financial Instruments guidance, and adoption of IFRS 16 was the recognition comprehensive updates have been made to of right of use assets totalling £10.7m on IFRS 7 Financial Instruments: Disclosure and the balance sheet and corresponding lease IAS 32 Financial Instruments: Presentation. liabilities of £10.7m. The adoption of IFRS 9 has had no material impact on the Group’s results;
The table below summarises the effect of the adoption of IFRS 15 and IFRS 16 on the Group Income Statement during the year to 31 March 2019: Pre IFRS 15 IFRS 15 IFRS 16 & IFRS 16 adjustment adjustment As reported Continuing operations – adjusted £m £m £m £m Revenue 326.6 7.0 — 333.6 Cost of sales (152.5) (4.1) — (156.6) Gross profit 174.1 2.9 — 177.0
Operating profit 46.9 2.9 (0.1) 49.7 Net finance expense (2.0) — (0.2) (2.2) Profit before tax 44.9 2.9 (0.3) 47.5 Tax charge (9.8) (0.6) — (10.4) Profit after tax 35.1 2.3 (0.3) 37.1
116 Strategic Report Governance Financial Statements Company Information 117 the
associate.
an
Group has incurred legal or constructive legal or has incurred Group obligations or made payments on behalf of operations, The assets and liabilities of foreign including goodwill and fair value adjustments translated into arising on consolidation, are Sterling at exchange rates ruling at the end of period. Income statements and the reporting translated operations are cash flows of foreign into Sterling at average monthly exchange exchange foreign rates which approximate rates at the date of the transaction. Foreign on retranslation arising exchange differences the Statement of through recognised are Income. Comprehensive Associates are those entities in which the those entities in which Associates are than 20% of the shares holds more Group significant influence, and voting rights and has and over the financial but not control, operating policies. the financial information includes The Group total comprehensive of the share Group’s on an equity income of the associate significant the date that accounted basis, from until the date that influence commences Group’s significant influence ceases. When the in associate, of losses exceeds its interest share carrying amount is reduced the Group’s of further losses is to £nil and recognition discontinued except to the extent that (d) Foreign currency (d) Foreign transactions in foreign An individual entity’s translated at the foreign are currencies exchange rate ruling at the date of the transaction. Monetary assets and liabilities at the currencies denominated in foreign translated at the foreign are date reporting exchange rate ruling at that date. Foreign arising on translation exchange differences or loss. Non-monetary in profit recognised are in measured assets and liabilities that are currency terms of historical cost in a foreign the exchange rate at the translated using are date of the transaction. Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford product-related intellectual property property intellectual product-related
claims (see Note 27). and (c) Basis of preparation consolidation in presented The Financial Statements are £0.1m and to the nearest Sterling, rounded on the historical cost basis except prepared are as described on page 118 under the heading “Financial instruments”. Financial Statements include the The Group Instruments plc and its accounts of Oxford subsidiary companies adjusted to eliminate gains balances and any unrealised intra-Group and losses or income and expenses arising transactions. intra-Group from by the entities controlled Subsidiaries are is the Group exists when Control Group. exposed to or has rights to variable returns with the investee and has its investment from its through those returns the ability to affect power over the investee. In assessing control, currently potential voting rights that are taken into are or convertible exercisable of subsidiary companies account. The results the consolidated Financial included in are the date that control Statements from ceases. commences until the date that control The acquisition method is used to account for the acquisition of subsidiaries. Provisions for IP-related claims for IP-related Provisions recognised claims are for IP-related Provisions probable in the period when it becomes outflow of will be a future that there past expectations or from funds resulting estimated. events which can be reasonably the requires The timing of recognition to existing facts and application of judgement to change. which can be subject circumstances the Group’s represent Amounts provided based on currently best estimate of exposure available information. estimation Key assumptions surrounding to estimating potential uncertainty relate surrounding sharing rates or profit royalty any requires requires
liabilities
judgements
The Group recognises and measures costs measures and recognises The Group to defined benefit pension schemes relating with IAS 19 (Revised) Employee in accordance Benefits. In applying IAS 19 (Revised) the costs with the advice of assessed in accordance are independent qualified actuaries. This certain estimates and assumptions in changes in salaries and to future relation inflation, as well as mortality rates, expected returns on plan assets and the selection of suitable discount rates. The factors affecting influenced by wider these assumptions are outside largely are that factors macroeconomic A sensitivity analysis is control. of the Group’s set out in Note 25. Measurement of defined benefit Measurement scheme Significant estimates Revisions to accounting estimates are in the period in which the estimate recognised only that period affects if the revision is revised and future or in the period of the revision and both current affects periods if the revision estimates where The key areas periods. future have been used and assumptions applied are as follows. Significant judgements no are there In the opinion of the Group of the judgements made in the preparation of which Financial Statements in respect have a material view would taking a different impact on the Financial Statements. The preparation of Financial Statements of Financial Statements The preparation management to make judgements, requires the that affect estimates and assumptions policies and the application of accounting income amounts of assets, liabilities, reported from may differ and expenses. Actual results these estimates. (b) Significant estimates (b) Significant estimates and Oxford Instruments plc Report and Financial Statements 2019
ACCOUNTING POLICIES CONTINUED
(e) Financial instruments The fair value of interest rate swaps is based (f) Property, plant and equipment Financial assets and liabilities are recognised on broker quotes. Those quotes are tested Property, plant and equipment is stated at in the Group’s Consolidated Statement of for reasonableness by discounting estimated historical cost less provisions for impairment Financial Position when the Group becomes future cash flows based on the terms and (see accounting policy k) and depreciation a party to the contractual provisions of the maturity of each contract and using market which, with the exception of freehold land instrument. Derivative financial instruments of interest rates for a similar instrument at the which is not depreciated and rental assets the Group are used to hedge its exposure to measurement date. (see below), is provided on a straight-line interest rate, foreign currency and commodity The fair value of forward exchange contracts basis over each asset’s estimated economic pricing risks arising from operational, financing is their market price at the Consolidated life. Depreciation is provided based on and investment activities. The Group does not Statement of Financial Position date, being historical cost less estimated residual value. hold or issue derivative financial instruments the present value of the forward price. The The principal estimated economic lives used for trading purposes. All derivatives are gain or loss on remeasurement to fair value for this purpose are: initially recognised at fair value; attributable of forward exchange contracts is recognised • Freehold buildings, long transaction costs are recognised in profit or immediately in the Consolidated Statement leasehold land and buildings 50 years loss as incurred. Derivatives comprising interest of Income. rate swaps, foreign exchange contracts and • Furniture and fittings 10 years Contingent purchase consideration is options and metal futures contracts are • Machinery and other measured at fair value at the date of classified as “fair value through profit and equipment 5 to 10 years acquisition and subsequently carried at fair loss” under IFRS 9, unless designated as • Computer equipment 4 years value, with movements recognised in the hedges. Subsequent to initial recognition, Income Statement. • Vehicles 4 years derivatives are measured at fair value and gains or losses on the settlement of such Interest-bearing borrowings are recognised For leasehold improvements, where the length derivatives are recognised in operating initially at fair value less attributable of the lease is less than the principal estimated expenses. Where such derivatives relate to transaction costs. Subsequent to initial economic lives noted above, the length of the the following year’s exposure, any gains recognition, interest-bearing borrowings are lease is used. or losses resulting from the change in fair stated at amortised cost with any difference Fixed assets held for rental as part of the value are recognised as an adjusting item in between cost and redemption value being Group’s service business are depreciated using operating expenses. recognised in profit or loss over the period of the reducing balance method at a rate of 3% the borrowing on an effective interest basis. Changes in the fair value of the derivative per month. hedging instruments designated as cash flow Proceeds on disposal of rental assets which hedges are recognised in equity to the extent have been refurbished by the Group are that the hedge is effective. To the extent that recorded as revenue with associated costs the hedge is ineffective, changes in fair value recorded in cost of sales. Otherwise gains and are recognised in the Consolidated Statement losses on disposal of an item of property, plant of Income. If the hedging instrument and equipment are determined by comparing no longer meets the criteria for hedge the proceeds from disposal with the carrying accounting, expires or is sold, terminated amount of property, plant and equipment and or exercised, then hedge accounting is are recognised in the Income Statement. discontinued prospectively. The cumulative gain or loss previously recognised in equity remains there until the forecast transaction occurs. When the hedged item is a non‑financial asset, the amount recognised in equity is transferred to the carrying amount of the asset when it is recognised. In other cases the amount recognised in equity is transferred to the Consolidated Statement of Income in the same period that the hedged item affects profit or loss.
118 Strategic Report Governance Financial Statements Company Information 119 assets
Statement of Financial Position at Statement of Financial current
‑ an annual impairment review.
(j) Cash and cash equivalents (j) Cash and cash carried are Cash and cash equivalents in the amortised cost. comprise cash Cash and cash equivalents carried and are balances and call deposits that are overdrafts at amortised cost. Bank on demand and form an integral repayable cash management are part of the Group’s of cash and cash included as a component equivalents for the purpose of the Statement of Cash Flows. (k) Impairment of non tested for assets are All non-current impairment whenever events or circumstances indicate that their carrying value may be goodwill is subject Additionally, impaired. to For the purposes of impairment testing, assets the smallest group together into grouped are of assets that generates cash flows from largely independent of continuing use that are of assets. other groups the cash inflows from in the An impairment loss is recognised Consolidated Statement of Income as under services the administration and shared carrying heading, to the extent that an asset’s carrying value, or a cash generating unit’s amount, which value, exceeds its recoverable value net realisable the higher of its represents in use is the present and its value in use. Value cash flows expected to value of the future the cash the asset or from be derived from The present generating unit to which it relates. value is calculated using a discount rate that market assessment of the the current reflects time value of money and the risks specific to the asset concerned. in previous Impairment losses recognised periods for an asset other than goodwill has been a change if there reversed are in estimates used to determine the asset’s but only to the extent amount, recoverable that the carrying amount of the asset does not exceed its carrying amount had the in impairment loss not been recognised Impairment losses in respect periods. previous not reversed. of goodwill are of in respect Impairment losses recognised allocated first to cash generating units are amount of any goodwill the carrying reduce allocated to cash generating units and then amount of the other the carrying to reduce assets in the unit.
Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford 10 years 10 years 3 to 5 years 5 to 12 years
6 months to 15 years
elated
e echnology related echnology related acquired intangibles acquired intangibles acquired intangibles acquired Capitalised development costs T Customer r Development costs Softwar
• • • (i) Inventories stated at the lower of cost and Inventories are Cost includes materials, value. net realisable an attributable proportion labour, direct based on normal overheads of production operating capacity and all other expenditure in acquiring the inventories and incurred bringing them to their existing location and value is the estimated condition. Net realisable course of business, selling price in the ordinary less the estimated costs of completion and selling expenses. for obsolete, slow-moving is made Provision in light appropriate and defective stock where requirements, expected future usage, of recent plans and likely introduction new product values. realisable (h) Trade and other receivables (h) Trade initially are and other receivables Trade at fair value and subsequently recognised stated at their amortised cost less appropriate for for impairment. The provision provision is based on lifetime impairment of receivables losses. Lifetime expected credit expected credit calculated by assessing historic losses are The movement in the loss experience. credit in the Consolidated is recognised provision Income Statement. (iii) Acquired intangible assets (iii) Acquired a subsidiary with An intangible asset acquired as an intangible undertaking is recognised the acquired asset if it is separable from or contractual business or arises from to generate future legal rights, is expected its fair value can be economic benefits and The asset is amortised measured. reliably of the Consolidated Statement through life. Income over it useful economic (iv) Amortisation Amortisation of intangible assets is charged to the Consolidated Statement of Income on a to the use of the systematic basis in proportion assets over their estimated useful economic lives as follows: • • (ii) Development costs charged and Development costs are Research to the Consolidated Statement of Income in unless incurred the year in which they are is applied to a development expenditure of new or plan or design for the production in which products, substantially improved capitalised. The criteria for case they are capitalisation include demonstration of the technical feasibility of completing a new intangible asset that will be available for sale and that the asset will generate probable expenditure economic benefits. Where future meets the criteria, development costs are the capitalised and amortised through Consolidated Statement of Income over their useful economic lives. All business combinations are accounted for accounted are All business combinations method. Goodwill by applying the acquisition amounts arising on acquisition of represents acquisitions of business subsidiaries. In respect 2004, since 31 March that have occurred between the difference goodwill represents and the fair value of the cost of the acquisition contingent liabilities the assets, liabilities and prior to this of acquisitions respect In acquired. date, goodwill is included on the basis of its the amount deemed cost, which represents GAAP. under previous recorded expenses transaction costs The Group associated with its acquisitions and to contingent movements in liabilities relating consideration within the Income Statement in conformity with IFRS 3. Goodwill arising on acquisitions is stated at cost less any accumulated impairment losses and allocated to cash generating units that are the combination. anticipated to benefit from It is not amortised but is tested annually for impairment (see accounting policy k), or more indicator that the is an when there frequently unit may be impaired. (g) Intangible assets (i) Goodwill Oxford Instruments plc Report and Financial Statements 2019
ACCOUNTING POLICIES CONTINUED
(l) Employee benefits (m) Provisions (o) Government grants The Group operates a number of defined A provision is recognised in the Consolidated Grants from governments are recognised at benefit and defined contribution plans Statement of Financial Position when the their fair value where there is a reasonable which require contributions to be made to Group has a present legal or constructive assurance that the grant will be received independent trustee-administered funds. obligation as a result of a past event and it is and the Group will comply with all attached probable that an outflow of economic benefits conditions. (i) Defined contribution plans will be required to settle the obligation. Government grants relating to costs are Obligations for contributions to defined A provision for warranty and product related deferred and recognised in the Income contribution pension plans are recognised as liability is recognised when the underlying Statement over the period necessary to match an expense in the Consolidated Statement of products are sold. A provision for restructuring them with the costs they are intended to Income as incurred. is recognised when the Group has approved compensate. Government grants relating to a detailed and formal restructuring plan and (ii) Defined benefit plans property, plant and equipment are included the restructuring has either commenced or The Group’s net obligation in respect of defined in other current liabilities and are credited to has been announced publicly. A provision benefit pension plans is calculated separately the Income Statement on a straight-line basis for onerous contracts is recognised when for each plan by estimating the amount of over the expected useful economic lives of the the expected benefits to be derived by the future benefit that current and past employees related assets. have earned in return for their service in prior Group from a contract are lower than the periods. That benefit is discounted to determine unavoidable cost of meeting its obligations (p) Interest-bearing borrowings its present value and the fair value of any plan under the contract. A provision for a claim Interest-bearing borrowings are recognised assets is deducted. The calculation is performed or dispute is made when it is considered initially at fair value less attributable by a qualified actuary using the projected unit probable that an adverse outcome will transaction costs. Subsequent to initial credit method. occur and the amount of the loss can be recognition, interest-bearing borrowings are reasonably estimated. stated at amortised cost with any difference All actuarial gains and losses in calculating the between cost and redemption value being Group’s net obligation are recognised in the Contractual and other provisions represent the recognised in the Income Statement over Consolidated Statement of Comprehensive Directors’ best estimate of the cost of settling the period of the borrowings on an effective Income in the year. future obligations where the Directors, taking into account professional advice received, interest basis. The charge to the Consolidated Statement assess that it is more likely than not that such of Income reflects the current service cost. proceedings may be successful. The interest expense or income is calculated on the net defined benefit liability by applying the If the effect is material, provisions are discount rate to the net defined benefit liability, determined by discounting the expected and is included within financial expenditure or future cash flows at a pre-tax rate that reflects financial income in the Consolidated Statement current market assessments of the time value of Income respectively. of money and, where appropriate, the risks specific to the liabilities. (iii) Share-based payment transactions The fair value of equity settled share option (n) Trade and other payables programmes is measured at grant date and Trade and other payables are initially charged to the Consolidated Statement recognised at their fair value and subsequently of Income, with a corresponding increase stated at amortised cost. in equity, on a straight-line basis over the period during which the employees become unconditionally entitled to the options. The fair value of the options granted is measured using an option valuation model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest, except where forfeiture is only due to market performance conditions not being met.
120 Strategic Report Governance Financial Statements Company Information 121 Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford positions are reviewed to assess whether reviewed positions are
provision should be made based on provision
a are provisions Tax circumstances. prevailing taxation liabilities. included within current of in respect is recognised tax Deferred the carrying between temporary differences amounts of assets and liabilities for financial purposes and the amounts used for reporting taxation purposes. The following temporary for: the initial not provided are differences liability in respect tax of a deferred recognition of goodwill arising on a business combination; of assets or liabilities the initial recognition neither accounting nor taxable that affect relating to investments and differences profit; in subsidiaries to the extent that they will future. in the not reverse probably is based tax provided The amount of deferred or on the expected manner of realisation settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the Statement of Financial Position date. only to the tax asset is recognised A deferred taxable that future extent that it is probable available against which the asset will be profits reduced tax assets are can be utilised. Deferred that to the extent that it is no longer probable realised. benefit will be tax the related the Additional income taxes that arise from at the recognised distribution of dividends are same time as the liability to pay the related dividend. (r) Income tax the year or loss for Income tax on the profit tax. Income and deferred comprises current or loss except to in profit tax is recognised to items recognised the extent that it relates case it is recognised in which in equity, directly in equity. on tax is the expected tax payable Current using tax the year, the taxable income for enacted at rates enacted or substantively date, and any adjustment to the reporting years. of previous tax payable in respect Tax (q) Revenue has applied IFRS 15 using the The Group and therefore approach retrospective modified has not been the comparative information under and continues to be reported restated changes is disclosed IAS 18. The impact of the in policy (a). in the is recognised Under IFRS 15 revenue of Income when the Consolidated Statement in the contract with performance conditions met. the customer are the contract includes In most cases where and installation the sale of both a product and the related then the sale of the product as two separate treated installation are performance conditions. This is because the considers that the customer is able to Group even if the Group the product benefit from does not supply installation i.e. it would be possible for them to arrange installation by a of the product Revenue in respect party. third passes to the when control is recognised of which is normally upon shipment customer, of installation Revenue in respect the product. when the customer confirms is recognised acceptance of the installation. Revenue is allocated between the product and installation based on the margin expected for each component. In general, a higher since margin will be applied to the product value add to the customer is in the the greater In the of the product. design and manufacture NanoScience business, certain contracts for deemed complex systems are the sale of more to comprise just one performance condition which is met when the customer confirms at their acceptance of the installed product in is recognised revenue Accordingly, premises. on completion of installation. its entirety segment, revenue In the Service & Healthcare on for maintenance and support is recognised over the length of the contract basis a pro-rata of to the rental period. Revenue relating on a straight-line basis machinery is recognised the Service over the life of the lease. Where segment makes asset sales, & Healthcare similar considerations as those set out for the & Materials & Characterisation and Research applied. Discovery segments are Revenue excludes value added tax and similar sales-based taxes and is stated before commission payable to agents. Oxford Instruments plc Report and Financial Statements 2019
ACCOUNTING POLICIES CONTINUED
(s) Leases When the lease liability is remeasured in this (t) Segment reporting The Group has applied IFRS 16 using the way, a corresponding adjustment is made to An operating segment is a distinguishable modified retrospective approach and therefore the carrying amount of the right of use asset, component of the Group that engages in the comparative information has not been or is recorded in profit or loss if the carrying business activities from which it may earn restated and continues to be reported under amount of the right of use asset has been revenues and incur expenses, including IAS 17 and IFRIC 4. The impact of the changes reduced to zero. any revenues and expenses that relate to is disclosed in policy (a). transactions with any of the Group’s other Short-term leases and leases components. Operating components are of low-value assets Leases under which the Group combined into aggregated operating segments The Group has elected not to recognise right acts as lessee to the extent that they have similar economic of use assets and lease liabilities for short-term The Group recognises a right of use asset and characteristics. Aggregated operating leases of machinery that have a lease term of a lease liability at the lease commencement segments’ operating results are reviewed twelve months or less and leases of low-value date. The right of use asset is initially regularly by the Group’s Board of Directors to assets, including IT equipment. The Group measured at cost, which comprises the initial make decisions about resources to be allocated recognises the lease payments associated with amount of the lease liability adjusted for to the segment and to assess its performance, these leases as an expense on a straight-line any lease payments made at or before the for which discrete financial information is basis over the lease term. commencement date, plus any initial direct available. Segment results that are reported to costs incurred and an estimate of costs to Under IAS 17 the Board include items directly attributable dismantle and remove the underlying asset In the comparative period the Group did to a segment as well as those that can be or to restore the underlying asset or the not have any leases which were classified as allocated on a reasonable basis. site on which it is located, less any lease finance leases under IAS 17. All leased assets incentives received. A reportable segment is an aggregated were classified as operating leases and were operating segment in respect of which The right of use asset is subsequently not recognised in the Group’s statement of revenue or profit exceeds 10% of the Group depreciated using the straight-line method financial position. Payments made under total. Discrete financial information is disclosed from the commencement date to the earlier operating leases were recognised in profit for each reportable segment. of the end of the useful life of the right of or loss on a straight-line basis over the term use asset or the end of the lease term. The of the lease. Lease incentives received were (u) Dividends estimated useful lives of right of use assets recognised as an integral part of the total Interim and final dividends are recognised are determined on the same basis as those lease expense, over the term of the lease. as a liability when they are no longer at the of property and equipment. In addition, the discretion of the Company. right of use asset is periodically reduced by Leases under which the Group impairment losses, if any, and adjusted for acts as lessor (v) New standards and certain remeasurements of the lease liability. When the Group acts as a lessor, it determines interpretations not yet adopted at lease inception whether each lease is a There are no standards that are not yet The lease liability is initially measured at the finance lease or an operating lease. To classify effective and that would be expected to have present value of the lease payments that each lease, the Group makes an overall a material impact on the Group in the current are not paid at the commencement date, assessment of whether the lease transfers or future reporting periods and on foreseeable discounted using the interest rate implicit substantially all of the risks and rewards future transactions. in the lease or, if that rate cannot be readily incidental to ownership of the underlying determined, the Group’s incremental borrowing asset. If this is the case, then the lease is a rate. Generally, the Group uses its incremental finance lease; if not, then it is an operating borrowing rate as the discount rate. lease. As part of this assessment, the Group Lease payments included in the measurement considers certain indicators such as whether of the lease liability comprise fixed payments. the lease is for the major part of the economic life of the asset. The lease liability is measured at amortised cost using the effective interest method. It is The Group recognises lease payments remeasured when there is a change in future received under operating leases as income lease payments arising from a change in on a straight-line basis over the lease term an index or rate, if there is a change in the as part of revenue. Group’s estimate of the amount expected to The accounting policies applicable to the be payable under a residual value guarantee, Group as a lessor in the comparative period or if the Group changes its assessment of were not different from IFRS 16. whether it will exercise a purchase, extension or termination option.
122 Strategic Report Governance Financial Statements Company Information
e — — £m 1.2 0.4 2.0 8.1 123 (1.7) (3.1) (3.3) Profit Profit 34.2 10.9 42.3 32.2 befor (10.1) 23.9% income tax 1997.
2018 — — £m ofit 1.2 0.4 2.0 8.1 April (3.1) (3.3) (1.7)
pr 38.4 10.9 46.5 Operating
— — £m 0.3 0.3 0.3 9.6 1.5 0.9 (0.6) Profit 37.1 35.5 12.0 47.5 (10.4) before 21.9% income tax
2019 — — — £m ofit 0.3 9.6 1.5 0.3 0.3 (0.6) 11.1 49.7 38.6 pr Operating Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford
ed intangibles
espect of derivative financial instruments
items rate elating to associate
tax
adjustments costs 2018 and confirmed that GMPs need to be equalised.
effective effective reorganisation reorganisation taxation of ofit on disposal of buildings non-GAAP e e of impairment recognised by associate e of impairment recognised
October
Adjusted A High Court case concluded on was an inequality of benefits between male and female members who have GMP. there Historically, 26 The effect on the Group’s defined benefit pension liability is shown in Note 25. Group’s on the The effect Past service cost on defined benefit pension scheme balance sheet liability includes an allowance of £0.3m for the expected cost of equalising 2019, the IAS 19 defined benefit pension As at 31 March Guaranteed Minimum Pension (GMP) between males and females. contracted out of the UK State Second Pension prior to 6 GMP is a portion of pension that was accrued by individuals who were Net profit on disposal of buildings Net profit held under property, following the disposal of two buildings previously during the prior year, on disposal of £3.3m a net profit recorded The Group balance sheet position is shown in Note 15. of the disposal on the Group’s plant and equipment. The effect Restructuring costs – relating to associate Restructuring costs – relating by the associate. items incurred of mergers and acquisition costs and other one-off shares the Group’s These represent Restructuring costs business and include £0.5m to successfully defend a to our US Healthcare in the prior year primarily relate Restructuring costs of £1.2m incurred to a prior acquisition. legal claim relating Business Past service cost on defined benefit pension scheme Loan note make-whole payable continuing operations for the year from Adjusted profit Statutory measure from continuing operations continuing from Statutory measure
Reconciliation between profit before income tax and adjusted profit from continuing operations and adjusted profit income tax before Reconciliation between profit 1 Non-GAAP measures 1 Non-GAAP measures between peers and to give what to assist with comparability exclude certain items in order the Directors of adjusted numbers, In the preparation in the calculation of excluded of the business. These adjusting items are indication of the underlying performance they consider to be a better adjusted from continuing operations, adjusted EBITDA, for the year profit adjusted income tax, before profit adjusted adjusted operating profit, given below. items are tax rate. Details of adjusting and adjusted effective EPS, adjusted cash conversion, amortisation of intangible and equipment and right of use assets and plant of property, by adding back depreciation Adjusted EBITDA is calculated can be found in of Cash Flows. Calculation of adjusted EPS and can be found in the Consolidated Statement profit assets to adjusted operating tax. before tax by adjusted profit before to adjusted profit of tax attributable is calculated by dividing the share tax rate Note 2. Adjusted effective in the KPI section. set out return are on capital employed and Definitions of cash conversion Restructuring Restructuring costs – r Net pr Shar Amortisation and impairment of acquir Mark-to-market loss/(gain) in r Total operations continuing from Adjusted measure Shar YEAR ENDED 31 MARCH 2019 MARCH 31 YEAR ENDED NOTES TO THE FINANCIAL THE TO STATEMENTS NOTES Oxford Instruments plc Report and Financial Statements 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2019
1 Non-GAAP measures continued Reconciliation between profit before income tax and adjusted profit from continuing operations continued Share of impairment recognised by associate During the prior year the Group’s equity accounted associate recognised an impairment relating to the disposal of its Vacgen subsidiary. The Group’s share of this impairment was £2.0m. Following the completion and finalisation of the transaction, £0.6m of the impairment has been reversed.
Amortisation of acquired intangibles Adjusted profit excludes the non-cash amortisation and impairment of acquired intangible assets and goodwill.
Mark-to-market movements in respect of derivative financial instruments Under IFRS 9, all derivative financial instruments are recognised initially at fair value. Subsequent to initial recognition, they are also measured at fair value. In respect of instruments used to hedge foreign exchange risk and interest rate risk, the Group does not take advantage of the hedge accounting rules provided for in IFRS 9 since that standard requires certain stringent criteria to be met in order to hedge account, which, in the particular circumstances of the Group, are considered by the Board not to bring any significant economic benefit. Accordingly, the Group accounts for these derivative financial instruments at fair value through profit or loss. To the extent that instruments are hedges of future transactions, adjusted profit for the year is stated before changes in the valuation of these instruments so that the underlying performance of the Group can be more clearly seen.
Loan note make-whole payable During the year to 31 March 2019 the Group repaid £11.6m of the principal outstanding on its loan notes. This payment was necessary due to material changes to the Group’s structure following the disposal of its Industrial Analysis business during July 2017. The costs of £0.9m relate to the make-whole balance payable upon settlement of the £11.6m principal.
Share of taxation Adjusting items include the income tax on each of the items described above. In addition, during the prior year the tax rate in the United States reduced from 35% to 21%. As a result, this reduced the Group’s deferred tax asset by £5.4m. This was excluded from the calculation of share of taxation attributable to adjusted profit before tax.
Reconciliation of changes in cash and cash equivalents to movement in net cash/(debt) 2019 2018 £m £m Net increase/(decrease) in cash and cash equivalents 13.6 (4.8) Effect of foreign exchange rate changes on cash and cash equivalents 0.9 (1.0) 14.5 (5.8) Repayment of borrowings 11.5 96.8 Movement in accrued interest 0.4 (1.0) Amortisation of prepaid issuance fees — (0.4) Movement in net debt in the year 26.4 89.6 Net debt at start of the year (19.7) (109.3) Net cash/(debt) at the end of the year 6.7 (19.7)
Reconciliation of net cash/(debt) to Statement of Financial Position 2019 2018 Note £m £m Loan notes – unsecured 24 (28.5) (40.4) Cash and cash equivalents 20 35.2 20.7 Net cash/(debt) at the end of the year 6.7 (19.7)
124 Strategic Report Governance Financial Statements Company Information
0.2 125 total 2018 2018 2018 (0.2) 57.4 57.2 65.5 57.2 57.4 Shares Shares Shares million million
es es 0.5 2019 2019 (0.2) 57.4 57.2 57.2 45.9 57.7 Shar Shar million million operations Discontinued
— — 2.0 4.5 (1.7) (3.1) 32.2 19.6 10.9 operations Continuing
£m £m £m £m total 2019 30.0
Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford
£m 1.3 operations Discontinued
£m 1.5 0.9 0.3 0.3 9.6 (0.6) (3.6) 37.1 28.7 operations Continuing
ed intangibles es used in the calculation excludes shares held by the Employee Share Ownership Trust, as follows: Ownership Trust, Share held by the Employee es used in the calculation excludes shares
espect of
option
under edit)/charge ofit for the year from ofit for the year from items: eorganisation items shares shares of e of impairment recognised by associate e of impairment recognised
Less shares held by Employee Share Ownership Trust by Employee Share held Less shares of diluted earnings options on the calculation per share: of share The following table shows the effect Effect Weighted average number of ordinary shares per basic earnings per share calculations per basic earnings share per shares number of ordinary average Weighted
Weighted average number of shares outstanding average number of shares Weighted The weighted average number of shar Income tax (cr Adjusted pr continuing operations Mark-to-market loss/(gain) in r derivative financial instruments Loan note make-whole payable earnings used in calculation of basic per share average number of shares Weighted Past service cost on defined benefit pension scheme Shar Amortisation and impairment of acquir Profit for the year attributable to Profit of the parent equity Shareholders Business r Adjusting
2 Earnings per share Income in the Group reported continuing operations, as for the year from based on the result operations are continuing Basic and diluted EPS from of the parent. to equity Shareholders for the year attributable based on the result total operations are EPS from Statement. Basic and diluted are noted above measures The profit continuing operations. for the year from based on adjusted profit EPS are Adjusted and diluted adjusted Ownership held by the Employee Share excluding shares outstanding during the year, shares average number of ordinary divided by the weighted measures. profit these different below reconciles The table Trust. Weighted average number of ordinary shares per diluted earnings per share calculations per diluted earnings per share shares number of ordinary average Weighted is adjusted to include the shares of ordinary For the purposes of calculating diluted and diluted adjusted EPS, the weighted average number expected to vest, shares that would be issued on the conversion of all potentially dilutive ordinary shares weighted average number of ordinary as dilutive when their conversion to ordinary only treated are shares payment plans. Potential ordinary share-based Company’s to the relating loss per share. EPS or increase would decrease shares Oxford Instruments plc Report and Financial Statements 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2019
3 Segment information The Group has ten operating segments. These operating segments have been combined into three aggregated operating segments to the extent that they have similar economic characteristics, with relevance to products and services, type and class of customer, methods of sale and distribution and the regulatory environment in which they operate. Each of these three aggregated operating segments is a reportable segment. Following the disposal of the Industrial Analysis business and the introduction of the Horizon strategy in 2017, the Group now reports under a revised segment structure. The aggregated operating segments are as follows: • the Materials & Characterisation segment comprises a group of businesses focusing on applied R&D and commercial customers, enabling the fabrication and characterisation of materials and devices down to the atomic scale; • the Research & Discovery segment comprises a group of businesses providing advanced solutions that create unique environments and enable measurements down to the molecular and atomic level which are used in fundamental research; and • the Service & Healthcare segment provides customer service and support for the Group’s products and the service, sale and rental of third-party healthcare imaging systems. The Group’s internal management structure and financial reporting systems have been amended to differentiate the three aggregated operating segments on the basis of the economic characteristics discussed above. Reportable segment results include items directly attributable to a segment as well as those which can be allocated on a reasonable basis. Inter‑segment pricing is determined on an arm’s length basis. The operating results of each are regularly reviewed by the Chief Operating Decision Maker, which is deemed to be the Board of Directors. Discrete financial information is available for each segment and used by the Board of Directors for decisions on resource allocation and to assess performance. No asset information is presented below as this information is not presented in reporting to the Group’s Board of Directors. a) Analysis by business Materials & Research & Service & Results from continuing operations Characterisation Discovery Healthcare Total Year to 31 March 2019 £m £m £m £m External revenue 137.9 125.2 70.5 333.6 Inter-segment revenue — — — Total segment revenue 137.9 125.2 70.5 Segment adjusted operating profit from continuing operations 22.1 12.7 14.9 49.7
Materials & Research & Service & Results from continuing operations Characterisation Discovery Healthcare Total Year to 31 March 2018 £m £m £m £m External revenue 118.1 112.0 66.8 296.9 Inter-segment revenue — 0.1 — Total segment revenue 118.1 112.1 66.8 Segment adjusted operating profit from continuing operations 20.1 13.8 12.6 46.5
The adjusted profit after tax of £0.2m (2018: £0.5m) from the Group’s associate is reported within the Research & Discovery segment. Revenue in the Materials & Characterisation and Research & Discovery segments represents the sale of products. Revenue in the Service & Healthcare segment relates to service income, with the exception of leasing of mobile MRIs of £6.4m (2018: £6.1m) and equipment sales of £3.6m (2018: £3.3m). As at 31 March 2019 the Group had unfulfilled performance obligations under IFRS 15 of £172.5m.
126 Strategic Report Governance Financial Statements Company Information
— — £m £m £m otal £m 1.0 4.8 1.0 3.3 3.1 0.3 2.8 0.8 0.6 0.3 otal 0.9 5.5 5.8 127 T costs (1.2) (0.4) (2.0) (4.5) (0.3) (0.3) (9.6) (1.5) T (3.4) 46.5 49.7 34.2 35.5 (10.9) Capital Capitalised expenditure development
2018 2018 — — — — — — — — — — £m £m £m and £m 3.1 0.3 2.2 1.5 0.8 1.8 0.6 4.7 5.8 8.4 1.1 3.3 0.3 (4.5) items (0.3) (1.5) (3.4) (4.9) items 15.3 eciation oup oup impairment Unallocated Gr Depr Amortisation Unallocated Gr
e e — — — — — — — — — — — — — — £m £m £m £m 4.5 1.1 0.5 1.3 7.4 2.7 0.8 3.5 (1.1) (0.9) (0.8) costs 12.6 10.6 14.9 14.1 Capital Service & Service & Healthcar Healthcar Capitalised expenditure development
2019 2019 — — — — — — — — — £m £m £m £m and 4.1 2.5 1.3 2.0 1.4 7.2 4.6 7.7 0.8 0.3 0.6 6.6 ch & ch & (2.0) (7.3) (0.4) (0.3) (6.4) 13.4 13.8 12.7 eciation Discovery Discovery Resear Resear impairment Depr Amortisation Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford
— — — — — — — — — — — — £m £m (2.5) (0.3) (2.4) 20.1 17.3 22.1 19.7 Materials & Materials & Characterisation Characterisation
ed intangibles ed intangibles elating to associate elating to associate
e e items items e e
oup oup 2019 costs 2018 Gr Gr Characterisation Discovery Discovery & Healthcar Healthcar & & income expenditur income expenditur March March March March & & ch ch 31 ofit on disposal of buildings 31
e of impairment recognised by associate e of impairment recognised e of impairment recognised by associate e of impairment recognised to to
ofit before income tax on continuing operations ofit before ofit/(loss) before income tax on continuing operations ofit/(loss) before
Year Year
Year Year
Unallocated Total Materials Resear Service Unallocated Total
Materials & Characterisation
Adjusted profit for reportable segments from continuing operations segments from for reportable Adjusted profit Restructuring costs – r Net pr Amortisation of acquir Fair value movement on financial derivatives Pr
Restructuring Shar Financial Financial and capitalised development costs arise in the following segments: amortisation and impairment of intangibles capital expenditure, Depreciation, Resear Service Adjusted profit for reportable segments from continuing operations segments from for reportable Adjusted profit Reconciliation of reportable segment profit Reconciliation of reportable Restructuring costs – r benefit pension scheme Past service cost on defined Shar Amortisation of acquir financial derivatives Fair value movement on Financial Financial Pr Oxford Instruments plc Report and Financial Statements 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2019
3 Segment information continued b) Geographical analysis The Group’s reportable segments are located across a number of geographical locations and make sales to customers in countries across the world. The analysis below shows revenue and non-current assets (excluding deferred tax) for individual countries or regions that represent more than 5% of revenue.
Revenue from continuing operations from external customers by destination 2019 2018 £m £m USA 99.8 89.5 Rest of Europe 38.7 35.9 Rest of Asia 34.4 31.9 UK 14.2 18.1 Japan 38.7 34.9 China 70.0 53.5 Germany 28.3 24.8 Rest of World 9.5 8.3 Total 333.6 296.9
Non-current assets (excluding deferred tax) 2019 2018 £m £m UK 157.4 160.4 Germany 3.9 3.3 USA 15.4 11.3 Japan 1.7 0.5 China 0.5 0.2 Rest of Europe 9.4 9.6 Rest of Asia 0.4 — Rest of World 1.7 1.7 Total 190.4 187.0
4 Auditor’s remuneration
2019 2018 £’000 £’000 Audit of these Financial Statements 199 140 Amounts received by the auditor and its associates in respect of: – Audit of Financial Statements of subsidiaries pursuant to legislation 270 255 – Taxation compliance services 10 14 – Audit‑related assurance services 26 25 – Other assurance services 6 — Total fees paid to the auditor and its associates 511 434
128 Strategic Report Governance Financial Statements Company Information
— £m otal 3.9 2.1 0.1 2.3 2.2 4.1 5.8 4.7 129 T (0.1) (4.4) (1.9) 2018 2018 (9.2) (4.0) (1.9) 23.4 26.0 51.0 24.8 23.7 (12.1) (55.0) (21.3)
£m £m
— — — £m £m £m 4.1 0.5 4.6 0.1 1.0 0.9 1.1 1.8 0.5 3.8 ch & 2019 2019 (1.2) (1.8) 11.1 11.0 25.2 26.1 36.5 (20.5) (22.3) (35.4) Discovery 2018 Resear
— £m 4.8 (0.1) (3.2) 12.3 13.8 Materials & Characterisation
£m otal 0.1 3.5 T (0.1) (3.5) 25.4 25.4 Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford
— £m 0.1 0.8 ch & (1.3)
10.8 10.4 Discovery 2019 Resear
— £m 2.7 (0.1) (2.2) 14.6 15.0 Materials & Characterisation
related fixed assets related ‑
oup has certain veto rights in respect of certain decisions, it cannot unilaterally direct the activities of the Scienta Scientific AB the activities of the Scienta it cannot unilaterally direct of certain decisions, oup has certain veto rights in respect
assets liabilities
received eciation of R&D oup holds substantial, but minority, voting rights (47%). All other rights are controlled by a single shareholder; controlled voting rights (47%). All other rights are oup holds substantial, but minority, of the other representatives remaining seats held by (two of five), with the seats oup has a minority number of non-executive Board
assets liabilities
shareholder; and shareholder; the Gr whilst the Gr Group. the Gr ofit/(loss) for the year
Addition (net of tax) of associate of profit/(loss) Share 2019 Carrying value at 31 March Summary financial information for the equity accounted associate is as follows: Non-current Carrying value at 1 April 2018 • • During the prior year the Group invested a further £2.1m in its equity accounted associate. During the prior year the Group receive any dividends did not associate for the year was £0.5m (2018: loss of £1.9m). The Group in its equity accounted of profit share The Group’s the associate in either period. from Add: amounts capitalised as fixed assets Add: amounts capitalised Add: amounts capitalised as intangible assets and has its principal place registered capital of Scienta Scientific AB. Scienta Scientific AB is share in the ordinary holds a 47% interest The Group accounted for as an associate taking into account the following factors: of business in Sweden. The investment has been • Dividends 6 Investment in associate R&D expense charged to the R&D expense charged to of Income Consolidated Statement capitalised as intangibles previously Less: depr Less: amortisation and impairment of R&D costs on R&D during the year cash spent Total
5 Research and Development (R&D) and Development 5 Research as part of continuing operations is as follows: the Group The total R&D spend by Current Current assets Total Current Non-current Non-current Pr Income Expenses of profit/(loss) share Group’s Total liabilities Total Net assets of net assets share Group’s be paid by the associate until 27 May 2017. Following that date, any dividend paid to the terms of the transaction, no dividend could According after tax. At the profit year’s up to a maximum of 50% of the previous Instruments plc and the other shareholder, by both Oxford must be agreed or paid. date of signing these Financial Statements no dividend has been declared Oxford Instruments plc Report and Financial Statements 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2019
7 Disposal of subsidiary and discontinued operations In the prior year, on 3 July 2017, the Group disposed of its Industrial Analysis business for a final consideration of £82.8m.
Effect of disposal on the financial position of the Group Industrial Analysis 2018 £m Goodwill (4.3) Acquired intangible assets (0.1) Other intangible assets (4.7) Property, plant and equipment (2.4) Inventory (11.5) Trade and other receivables (9.8) Cash and cash equivalents (6.0) Trade and other payables 8.6 Provisions 0.8 Tax balances (0.4) Net assets divested (29.8)
Consideration receivable 82.8 Deferred consideration — Consideration received, satisfied in cash 82.8 Cash disposed of (6.0) Transaction expenses (5.6) Net cash inflow 71.2 Carrying value of net assets disposed of (excluding cash and cash equivalents) (23.8) Deferred consideration — Recognition of provision on disposal (2.1) Currency translation differences transferred from translation reserve 4.8 Gain on disposal 50.1 Tax (charge)/credit on gain on disposal (2.3) Gain on disposal net of tax 47.8
The recognition of provisions on disposal primarily relate to onerous lease contracts. These have been recognised in the Income Statement under discontinued operations.
Discontinued operations In the year to 31 March 2018 the Group’s Industrial Analysis business was classified as a discontinued operation. The Industrial Analysis business was considered a major class of business on the basis that it was previously an operating segment and referred to in the Group Strategic Report. On 24 May 2019 a further £1.6m was received by the Group in relation to the finalisation of tax affairs outstanding upon disposal.
Results of discontinued operations 2019 2018 £m £m Revenue — 16.8 Expenses — (16.3) Adjusted profit before tax — 0.5 Income tax charge — (0.9) Adjusted loss after tax — (0.4) Adjusting items: Amortisation of acquired intangibles — (0.1) One-off costs arising as a result of disposal — (2.2) Income tax on adjusting items — 0.8 Loss after tax — (1.9) Gain on disposal 1.6 50.1 Tax on gain on disposal (0.3) (2.3) Profit from discontinued operations after tax 1.3 45.9
130 Strategic Report Governance Financial Statements Company Information
— — £m £m £m £m 3.9 0.6 9.7 3.3 3.0 4.5 1.1 0.3 0.3 131 (0.7) (0.7) 592 431 375 2018 2018 2018 2018 2018 2018 244 82.5 80.2 71.2 96.6 80.0 pence 1,642 Number
— — — — — £m £m £m £m 3.3 0.8 2.3 2.3 2.2 0.3 0.9 3.4 0.3 0.3 2019 2019 2019 2019 2019 2019 620 386 355 218 84.5 10.3 98.9 pence
1,579 Number
Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford
share
share
per
services per share share payable per
per shared shared
result/(loss) result/(loss)
and result/(loss) result/(loss) costs Development earnings salaries earnings
make-whole marketing diluted basic and payable receivable and security and note basic diluted
Total average number of employees Total Interest charge on pension scheme net liabilities Interest Loan Social Contributions to defined contribution pension plans options of employee share Charge in respect disclosed in the Remuneration Report on pages 80 to 99 of this Report and Financial Statements. are emoluments Directors’ to discontinued operations. Included in the total above is £nil (2018: £4.6m) relating Production The average number of people employed by the Group (including Directors and temporary employees) during the year was as follows: (including Directors The average number of people employed by the Group 11 Employees
Wages Wages 10 Personnel costs Interest Interest 9 Financial expenditure Adjusted Total Interest Sales Research Administration 8 Financial income operating activities Net cash generated from Cash flows from discontinued operations discontinued Cash flows from Adjusted Total Total investing activities Net cash generated from Net cash used in financing activities Earnings per share from discontinued operations discontinued from Earnings per share
Oxford Instruments plc Report and Financial Statements 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2019
12 Share option schemes The Group operates three share option schemes:
All-employee Share Incentive Plan (SIP) All UK employees are eligible to participate in the Group’s HM Revenue and Customs-approved SIP. Participating employees make a cash contribution to the plan each month. The Group contributes a further amount equal to 20% of the employee’s contribution. Independent trustees then purchase matching shares in the market on behalf of the employees. The matching shares vest on the completion by the participating employee of a further three years’ service and can be withdrawn from the plan tax-free after five years’ service.
Medium-Term Incentive Plan Scheme (MTIP) Options awarded under the Medium-Term Incentive Plan are made annually to certain senior managers. The exercise prices are £nil. Options have a life of ten years and a vesting period of three years.
Performance Share Plan Scheme (PSP) Under the Performance Share Plan awards of performance shares (or nil‑cost options) are made annually to certain senior managers. Awards have a life of ten years with vesting subject to achievement of performance targets and a vesting period of a minimum of three years (but may be up to five years). Share option schemes that have been discontinued but for which options were outstanding at the year end include the following:
Executive Share Option Scheme (ESO) Options awarded under the Executive Share Option Scheme were made annually to certain senior managers. The exercise prices were determined according to the mid-market closing share price on the day before the date of grant. Options have a life of ten years and a vesting period of three years. The ESO, MTIP and PSP schemes are subject to performance conditions which can be found in the Remuneration Report on pages 80 to 99. Administrative expenses include a charge of £0.8m (2018: £1.1m) in respect of the cost of providing share‑based remuneration. The cost of share options is calculated by estimating the fair value of the option at grant date and spreading that amount over the vesting period after adjusting for an expectation of non-vesting. Fair values are determined using an internal valuation model based on a modified Black-Scholes model. Expected volatility has been based on historical volatility over a period of time of the same length as the expected option life and ending on the grant date. Some of the ESO and PSP options use total shareholder return (TSR) as a performance condition. As TSR is a market-based performance condition, the accounting treatment differs from that for options subject to non-market performance conditions. This means that the TSR performance conditions have been incorporated into the calculation of the fair value as a discount in calculating the fair value. For options granted in the years ended 31 March 2019 and 2018, the fair value per option granted and the assumptions used in the calculation are as follows: Medium-Term Performance Medium-Term Performance Incentive Plan Share Plan Incentive Plan Share Plan Scheme Scheme Scheme Scheme July July September September 2018 2018 2017 2017 Fair value at measurement date £3.68 £3.04 £3.38 £2.96 Share price at grant date £10.10 £10.10 £9.59 £9.59 Exercise price £nil £nil £nil £nil Expected volatility 42.7% 46.9% 41.8% 48.6% Expected option life (expressed as weighted average life used in the modelling) 6 years 3 years 6 years 3 years Expected dividend yield 1.3% 1.3% 1.4% 1.4% Risk-free interest rate 1.0% 1.0% 0.9% 0.9%
132 Strategic Report Governance Financial Statements Company Information
— — 133 shares options 0.2% 1.5% 0.5% 7,500 3,500 35,126 36,000 (21,600) (59,688) Number of Number of 2018 233,395 140,250 454,588 158,321 835,285 116,542 116,542 148,475 116,853 265,328 186,376 (112,274) 1,177,322 1,217,155
2018
cise £nil when cisable exer £7.91 £9.35 £4.37 £9.49 £7.69 £8.87 Weighted exer average price Period
03/07/21-02/07/28 21/06/19-20/06/26 25/09/20-24/09/27 03/07/21-02/07/28 16/12/11-15/12/18 17/12/12-16/12/19 07/01/14-06/01/21 14/12/14-13/12/21 15/06/18-14/06/25 21/06/19-20/06/26 29/11/19-28/11/26 25/09/20-24/09/27 options (38,805) (93,120) (93,189) 218,558 460,455 Number of
1,217,155 1,210,599
2019
2019 cise £nil £nil £nil £nil £nil £nil price £7.69 £5.62 £8.15 £6.14 £1.35 £2.04 £7.05 £9.90 £7.38 £6.27 eighted Exer average £10.14 £10.08 £10.28 cise price W exer Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford
es of — shar 0.7% 0.4% 1.1% 1,500 13,726 97,500 18,000 209,702 148,475 116,853 115,043 380,371 347,729 142,071 620,526 107,982 101,720 Number
cise prices of those options are as follows: cise prices of those options are
year year year year the
the
e Option Schemes the
the
2017 2017 2016 2011 2008 2009
during
during during 2011 during 2015 2016 2016 2018 2018
centage of issued share capital centage of issued share otal options subsisting on existing ordinary shares otal options subsisting on existing ordinary
Total options subsisting on existing ordinary shares on existing ordinary options subsisting Total Plan Performance Share Exercised Lapsed Outstanding at the year end Outstanding at the beginning of the period
December June June November shares on existing ordinary options subsisting Total capital of issued share Percentage July capital of issued share Percentage September July Per Granted Forfeited year end at the Exercisable of the options was £10.01 (2018: £10.17). price at the time of exercise The weighted average share June September Executive Shar December shares: year end on unissued ordinary Options subsisting at the The options existing at the year end were as follows: the year end were The options existing at December January Incentive Plan Medium-Term T The number and weighted average exer Oxford Instruments plc Report and Financial Statements 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2019
13 Income tax expense Recognised in the Consolidated Statement of Income
2019 2018 £m £m Current tax expense Current year 8.1 7.3 Adjustment in respect of prior years (0.7) (1.7) 7.4 5.6 Deferred tax expense Origination and reversal of temporary differences (0.9) 7.3 Adjustment in respect of prior years 0.3 1.7 (0.6) 9.0 Total tax expense 6.8 14.6 Reconciliation of effective tax rate Profit before income tax 35.5 34.2 Income tax using the weighted average statutory tax rate of 22% (2018: 22%) 7.8 7.5 Effect of: Tax rates other than the weighted average statutory rate (0.1) 0.3 Change in rate at which deferred tax recognised (1.2) 5.3 Transaction costs, deferred consideration and impairments not deductible for tax 0.6 1.2 Non-taxable income and expenses — — Tax incentives not recognised in the Consolidated Statement of Income — (0.7) Current period losses not available for carry forward — 0.4 Movement in unrecognised deferred tax 0.1 0.6 Adjustment in respect of prior years (0.4) — Total tax expense 6.8 14.6 Taxation charge recognised in other comprehensive income Deferred tax – relating to employee benefits 0.5 0.9 0.5 0.9 Taxation (credit) recognised directly in equity Current tax on adoption of IFRS 15 (0.9) — Deferred tax on adoption of IFRS 15 (0.9) — Deferred tax – relating to share options (0.2) —
Reductions in the UK corporation tax rate from 20% to 19% (effective from 1 April 2017) and to 18% (effective from 1 April 2020) were substantively enacted on 26 October 2015, and an additional reduction to 17% (effective from 1 April 2020) was substantively enacted on 6 September 2016. This will reduce the Company’s future current tax charge accordingly. The UK deferred tax liability at 31 March 2019 has been calculated based on those rates. The Group carries tax provisions in relation to uncertain tax positions arising from the possible outcome of negotiations with tax authorities. Such provisions are a reflection of the geographical spread of the Group’s operations and the variety of jurisdictions in which it carries out its activities. Effective 1 January 2018 the rate of federal tax in the US was reduced from 35% to 21% and, as a result, in the prior year deferred tax assets were reduced by £5.4m. On 2 April 2019 the EU Commission announced that it believes that in certain circumstances the UK’s Controlled Foreign Company (CFC) regime (introduced in 2013) for certain finance income constituted State Aid. The Commission instructed the UK Government to recover any such aid from affected parties. The Group has claimed the benefit of this exemption, and therefore may be required to repay State Aid. The maximum amount of State Aid repayable as at 31 March 2019 was £1.2m in respect of tax and £0.1m in respect of interest, unless the decision is successfully challenged in the EU courts. However, no provision has been made in respect of this investigation since we believe that it is more likely than not that no additional tax will ultimately be due.
134 Strategic Report Governance Financial Statements Company Information £m otal 4.7 3.9 3.7 3.7 5.0 5.2 1.0 0.7 9.3 9.6 135 T (0.6) 2018 2018 (1.4) (2.0) (1.9) (2.1) 58.8 47.0 91.3 69.8 73.9 47.0 49.7 32.5 22.8 24.2 13.0 13.3 69.8 pence pence (15.1) (23.9)
es — — £m 2.5 2.0 1.9 0.4 9.9 9.9 9.9 8.1 0.4 0.1 7.9 7.9 0.3 8.0 3.7 9.6 3.8 0.2 0.1 2019 2019 (1.0) (0.1) (0.7) (0.2) (0.3) 10.6 13.3 10.6 14.4 pence pence fittings
Fixtur and
£m and 4.5 3.8 3.2 0.7 4.8 0.8 (0.6) (1.4) (9.6) (1.0) (1.8) (1.7) 12.5 10.9 53.7 45.3 45.3 41.2 34.4 34.4 36.6 12.5 49.1 (10.9) Plant equipment
— — — — £m and 9.9 9.8 0.1 9.5 0.5 4.7 4.7 0.4 5.1 0.2 0.1 (0.5) (4.8) (0.5) 17.5 27.0 14.6 14.6 14.9 (12.0) buildings Land Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford
dividend
dividend ch 2018 ch 2018
interim final other intangibles ch 2019 2017
ch 2017 and 1 April 2018 – amounts
year year to dividend £3.2m) of assets subject to leases.
eciation charge for the year dividend April
eciation charge for the year
1 fect of movements in foreign exchange rates fect of movements in foreign fect of movements in foreign exchange rates fect of movements in foreign fect of movements in foreign exchange rates fect of movements in foreign fect of movements in foreign exchange rates fect of movements in foreign ransfer
Ef Balance at 31 Mar At Balance at 31 March 2019 Balance at 31 March and impairment losses Depreciation Depr Disposals Balance at 1 April 2018 Depr Disposals Ef 2019 Balance at 31 March Carrying At 31 Mar At 31 Mar the net book value of plant and equipment included £1.6m (2018: £0.9m) of assets under construction and £2.4m 2019, At 31 March (2018: Balance at 1 April 2017 Balance at 1 April 2017 Cost 15 Property, plant and equipment 15 Property, T Ef Balance at 31 Mar
Interim
Previous Previous Previous Previous year presented: of each accounting in respect by the Group proposed were per share The following dividends Final dividend of 10.6 pence per share for at the year end and was paid on 8 April 2019. The final proposed The interim dividend was not provided at the by the Shareholders at the year end and will be paid on 18 October 2019, subject to authorisation (2018: 9.6 pence) was not provided forthcoming Annual General Meeting. Additions Disposals Balance at 1 April 2018 Additions – other Disposals Ef
14 Dividends per share 14 Dividends per the Group: paid by were per share The following dividends Oxford Instruments plc Report and Financial Statements 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2019
16 Intangible assets Development Development Customer‑related Technology‑related costs costs acquired acquired acquired internally Goodwill intangibles intangibles intangibles generated Software Total £m £m £m £m £m £m £m Cost Balance at 1 April 2017 114.5 56.6 118.5 1.8 66.3 2.2 359.9 Additions – internally generated — — — — 6.1 0.5 6.6 Disposals (5.6) (3.7) (24.0) — (26.4) — (59.7) Transfer from PPE — — — — — 0.6 0.6 Effect of movements in foreign exchange rates (1.8) (4.0) (3.5) — (0.2) — (9.5) Balance at 31 March 2018 107.1 48.9 91.0 1.8 45.8 3.3 297.9 Balance at 1 April 2018 107.1 48.9 91.0 1.8 45.8 3.3 297.9 Additions – external — 1.3 — — — — 1.3 Additions – internally generated — — — — 3.5 0.9 4.4 Effect of movements in foreign exchange rates 1.2 2.4 2.5 — — — 6.1 Balance at 31 March 2019 108.3 52.6 93.5 1.8 49.3 4.2 309.7 Amortisation and impairment losses Balance at 1 April 2017 30.0 41.9 58.2 0.6 46.0 2.2 178.9 Amortisation charge for the year — 2.7 8.0 0.1 3.5 0.1 14.4 Impairment charge for the year — — — — 3.2 — 3.2 Disposals (1.2) (3.7) (24.0) — (21.8) — (50.7) Effect of movements in foreign exchange rates (2.0) (3.3) (1.1) — (0.2) — (6.6) Balance at 31 March 2018 26.8 37.6 41.1 0.7 30.7 2.3 139.2 Balance at 1 April 2018 26.8 37.6 41.1 0.7 30.7 2.3 139.2 Amortisation and impairment charge for the year — 1.7 7.7 0.2 3.5 0.3 13.4 Effect of movements in foreign exchange rates 1.2 2.2 1.2 — — — 4.6 Balance at 31 March 2019 28.0 41.5 50.0 0.9 34.2 2.6 157.2
Carrying amounts At 1 April 2017 84.5 14.7 60.3 1.2 20.3 — 181.0 At 31 March 2017 and 1 April 2018 80.3 11.3 49.9 1.1 15.1 1.0 158.7 At 31 March 2019 80.3 11.1 43.5 0.9 15.1 1.6 152.5
The £1.3m addition to customer‑related acquired intangible assets relates to the acquisition by the Group of a customer list from a third party during the year. The following intangible assets are considered material by the Directors as they represent 91% (2018: 91%) of total acquired intangible assets: 2019 2018
Remaining Amortisation amortisation period period £m Years Years £m Trademarks – Andor 8.0 15.0 9.8 8.7 Technology, know-how and patents – Andor: – Product related 28.9 12.0 6.8 33.1 – Software related 5.3 10.0 4.8 6.0 Technology, know-how and patents – Asylum 8.3 12.0 5.7 9.1
136 Strategic Report Governance Financial Statements Company Information £m 6.8 2.3 137 2018 10.0 61.2 80.3
£m 6.7 2.3 2019 80.3 10.0 61.3 Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford
espect of a development project which has experienced delays and cost overruns; and espect of a development project the sale of the Industrial Analysis division. of that was discontinued as a result espect of a development project
Resonance
£1.8m in r £1.4m in r
Sensitivity analysis rate. Sensitivity analysis has been growth most sensitive to changes in the discount rate and forecast are estimates of impairments The Group’s in the discount rate would be required to both of these assumptions. This demonstrated that an 800 basis point increase carried out by reference rate to in the growth a reduction Similarly, in an impairment in the Andor business. of £76.9m and result headroom to eliminate current in order business. in the OI Healthcare in an impairment to result in order nil would be required Key assumptions rates. discount rates and growth those regarding The key assumptions are based on costs are within its markets. Changes in selling prices and direct view on long-term trends at or below the Group’s are rates The growth changes in the market. past practices and expectations of future 12.6% in impairment testing are & Discovery average costs of capital used for Materials & Characterisation and Research weighted The pre-tax in line with the risk associated with each of the business segments. (2018: 14.1%) and 12.2%-12.6% (2018: 14.1%-14.9%) respectively, to past experience and an industry average weighted cost of capital as adjusted for Management has estimated these discount rates by reference of each CGU. and the risk profiles economic circumstances current factors reflecting risk appropriate • the original development timetable with in the Materials & Characterisation segment fell significantly behind During the prior year an R&D project and those early costs no value had brought management felt that some of the early work on the project costs being ahead of budget. On review, of plan put in place. The remainder was undertaken and a remediation as an intangible asset. A review consequently derecognised of £1.4m were value. to have commercial was still considered the project Industrial of the sale of the that was discontinued as a result project to an entire costs related The £1.8m impairment of capitalised development segment. & Development Research held in the capitalised costs were Analysis division. The impaired
NanoAnalysis Andor Materials & Characterisation Research & Discovery Research NanoScience Magnetic indications that goodwill might be impaired. are if there frequently tests goodwill annually for impairment, or more The Group amount of each CGU which contains goodwill. recoverable an impairment test to be carried out by determining the require Accounting standards case, the value less costs to sell or the value in use of the CGU. In the Group’s amount is calculated as the higher of the fair The recoverable cash flows and in particular in use is calculated by discounting expected future amount is based on value in use calculations. Value recoverable reviewed and amended by CGU and by the management of each prepared five-year cash flow forecasts, (except as noted below) Board-approved to be considered rates are for the subsequent 20 years. These per annum growth used together with 3.0% are management as necessary, Group businesses. for the Group’s at or below long-term market trends of intangible assets as follows: made impairments in respect During the prior year the Group •
Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units (CGUs) that are expected to benefit from that to benefit from expected generating units (CGUs) that are is allocated, at acquisition, to the cash in a business combination Goodwill acquired to individual CGUs as follows: The carrying amount of goodwill was allocated business combination. Oxford Instruments plc Report and Financial Statements 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2019
17 Deferred tax Movements in deferred tax assets and liabilities were as follows: Property, plant and Employee Intangible equipment Inventory benefits assets Tax losses Other Total £m £m £m £m £m £m £m Balance at 31 March 2017 0.9 3.0 7.1 (0.1) 5.0 4.5 20.4 Reclassification Recognised in income 0.7 (0.6) (1.7) (4.8) (1.9) (0.7) (9.0) Recognised in other comprehensive income — — (0.9) — — — (0.9) Recognised directly in equity — — — — — — — Acquisitions — — — — — — — Disposals (0.2) (0.6) (0.3) 0.7 (0.5) (0.8) (1.7) Foreign exchange — (0.2) (0.2) (0.9) 0.1 (0.3) (1.5) Balance at 31 March 2018 1.4 1.6 4.0 (5.1) 2.7 2.7 7.3 Reclassification Recognised in income (0.2) 0.4 (1.0) 1.8 0.7 (1.1) 0.6 Recognised in other comprehensive income — — (0.5) — — — (0.5) Recognised directly in equity — (1.2) 0.2 — — 2.1 1.1 Acquisitions — — — — — — — Disposals — — — — — — — Foreign exchange — 0.1 — 0.3 — 0.1 0.5 Balance at 31 March 2019 1.2 0.9 2.7 (3.0) 3.4 3.8 9.0
Certain deferred tax assets and liabilities have been offset as follows: Assets Liabilities Net
2019 2018 2019 2018 2019 2018 £m £m £m £m £m £m Gross assets/(liabilities) 19.3 18.7 (10.3) (11.4) 9.0 7.3 Offset (4.0) (5.3) 4.0 5.3 — — Net assets/(liabilities) 15.3 13.4 (6.3) (6.1) 9.0 7.3
Deferred tax assets have not been recognised in respect of the following items: 2019 2018 £m £m Deductible temporary differences 3.1 12.6 Tax losses 1.3 3.5 4.4 16.1
The tax losses and the deductible temporary differences do not expire under current tax legislation. Deferred tax assets have not been recognised in respect of these items as it is not probable that future taxable profits will be available in the subsidiaries concerned against which the Group can utilise the brought forward tax losses. No deferred tax liability has been recognised in respect of £58.2m (2018: £74.6m) of undistributed earnings of overseas subsidiaries since the majority of such distributions would not be taxable. In other cases the Group considers that it is able to control the timing of remittances so that any tax is not expected to arise in the foreseeable future. 18 Inventories 2019 2018 £m £m Raw materials and consumables 19.9 17.1 Work in progress 19.1 14.8 Finished goods 21.8 14.0 60.8 45.9
The amount of inventory recognised as an expense was £138.5m (2018: £128.7m). In the ordinary course of business, the Group makes impairment provisions for slow-moving, excess and obsolete inventory as appropriate. Inventory is stated after charging impairments of £2.0m in the current period (2018: £0.4m). In the current year, £nil (2018: £nil) was reversed relating to previous impairments. Impairments are included within gross profit. Inventory carried at net realisable value is £0.4m (2018: £0.6m).
138 Strategic Report Governance Financial Statements Company Information £m £m £m £m £m 2.4 3.7 2.3 8.5 9.6 3.5 6.1 7.2 1.4 5.9 2.3 4.3 139 2018 2018 2018 2018 2018 (1.0) (1.4) 14.0 14.9 12.1 46.9 12.6 62.8 61.4 20.7 20.7 73.3 71.0 71.0
£m £m £m £m £m 1.4 1.3 2.7 5.2 4.7 1.9 6.6 3.6 2.4 7.6 4.8 5.2 2019 2019 2019 2019 2019 (2.7) 35.2 35.2 20.6 11.6 75.0 49.4 13.8 67.4 64.7 78.3 13.4 12.8 75.0
Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford
allowance
overdue in year overdue year
of of
days
days overdue)
90 start end receivables 31
income at at (not Europe Asia World receivables receivables than
balances
of of of than
trade
Cash 20 Cash and cash equivalents Increase/(decrease) Increase/(decrease) when the customer impaired and the asset losses. The valuation allowance is reduced for credit provisions used to record allowances are Valuation is in liquidation. associated undertaking. the Group’s to amounts due from of £0.3m (2018: £1.4m) relate Long-term receivables Cash and cash equivalents in the Consolidated Statement of Cash Flows available for use by the Group. All cash and cash equivalents are Balance
Current Current
UK Balance Trade Trade 19 Trade and other receivables 19 Trade Accrued Other typically to business and country and are according to customers differ terms provided credit Standard non-interest-bearing. are receivables Trade between 30 and 60 days. associated undertaking. the Group’s includes £1.1m (2018: £1.2m) due from Other receivables was: by geographic region risk for trade and other receivables to credit The maximum exposure China Japan USA Germany Rest Rest Rest Total reporting date was: receivables at the and other receivables trade The ageing of financial assets comprising net Less but less than 91 days overdue than 30 days More More
Net Less provision for impairment of receivables Less provision Prepayments
In both periods presented, the entire provision against trade receivables relates to balances more than 90 days overdue. to balances more relates against trade receivables provision the entire In both periods presented, during the year was as follows: The movement in the allowance for impairment of trade receivables Oxford Instruments plc Report and Financial Statements 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2019
21 Financial risk management The Group’s multinational operations and debt financing expose it to a variety of financial risks. In the course of its business, the Group is exposed to foreign currency risk, interest rate risk, liquidity risk, commodity risk and credit risk. Financial risk management policies are set by the Board of Directors. These policies are implemented by a central treasury function that has formal procedures to manage foreign exchange risk, interest rate risk and liquidity risk, including, where appropriate, the use of derivative financial instruments. Commodity risk is managed locally by the operating businesses. The Group has clearly defined authority and approval limits. In accordance with its treasury policy, the Group does not hold or use derivative financial instruments for trading or speculative purposes. Such instruments are only used to manage the risks arising from operating or financial assets or liabilities or highly probable future transactions. The Group uses derivative financial instruments to hedge its exposure to fluctuations in foreign exchange rates. In common with a number of other companies, the Group has decided that the additional costs of meeting the extensive documentation requirements of IFRS 9 to apply hedge accounting to derivative financial instruments used for hedging exposure to foreign currency and interest rate volatility cannot be justified. Accordingly, the Group does not use hedge accounting for such derivatives.
Foreign currency risk Foreign currency risk arises both where sale or purchase transactions are undertaken in currencies other than the respective functional currencies of Group companies (transactional exposures) and where the results of overseas companies are consolidated into the Group’s reporting currency of Sterling (translational exposures). The Group has operations around the world which record their results in a variety of different local functional currencies. In countries where the Group does not have operations, it invariably has some customers or suppliers that transact in a foreign currency. The Group is therefore exposed to the changes in foreign currency exchange rates between a number of different currencies but the Group’s primary exposures relate to the US Dollar, the Euro and the Japanese Yen. To reduce uncertainty, the Group maintains a rolling hedge of forward contracts equivalent to 80% (2018: 80%) of the exposure expected to arise over the following twelve months. The remaining 20% is sold on the spot market. The fair value of outstanding currency contracts recognised as a liability as at 31 March 2019 amount to £1.1m (2018: £0.4m) and those recognised as an asset amount to £1.1m (2018: £2.4m). Movements in the fair value of derivative financial instruments are recognised in the Consolidated Statement of Income immediately. However, in order to facilitate a more meaningful comparison of the Group’s performance year-on-year, the elements of these movements that relate to hedges in respect of future sales are treated as an adjusting item in the calculation of adjusted earnings (Note 1). The Group’s translational exposures to foreign currency risks can relate both to the Consolidated Statement of Income and net assets of overseas subsidiaries. The Group’s policy is not to hedge the translational exposure that arises on consolidation of the Consolidated Statements of Income of overseas subsidiaries.
Interest rate risk Interest rate risk comprises both the interest rate price risk that results from borrowing at fixed rates of interest and also the interest cash flow risk that results from borrowing at variable rates. The Group’s policy is to use a mixture of revolving short and medium-term floating rate debt underpinned by longer-term fixed rate debt. The short and medium-term floating rate debt provides flexibility to reduce debt levels as appropriate. The longer-term fixed rate debt provides stability and cost certainty to the Group’s financing structure. Liquidity risk Liquidity risk represents the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing this risk is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. The Group manages this risk by maintaining adequate committed lines of funding from high quality lenders. The facilities committed to the Group as at 31 March 2019 are set out in Note 24.
Credit risk Credit risk arises because a counterparty may fail to perform its obligations. The Group is exposed to credit risk on financial assets such as cash balances, derivative financial instruments, trade and other receivables. The Group’s credit risk is primarily attributable to its trade receivables and cash balances. The amounts recognised in the Consolidated Statement of Financial Position are net of appropriate allowances for doubtful receivables, estimated by the Group’s management based on prior experience and their assessment of the current economic environment. Trade receivables are subject to credit limits and control and approval procedures in the operating companies. Due to its large geographic base and number of customers, the Group is not exposed to material concentrations of credit risk on its trade receivables. Credit risk associated with cash balances and derivative financial instruments is managed by transacting with financial institutions with high quality credit ratings. In particular, a Board-approved policy sets out guidelines for which categories of institutions may be used and the maximum amount which may be invested with each institution within a particular category. Accordingly, the Group’s associated credit risk is limited. The Group has no significant concentration of credit risk. The Group’s maximum exposure to credit risk is represented by the carrying amount of each financial asset, including derivative financial instruments, in the Group Consolidated Statement of Financial Position.
140 Strategic Report Governance Financial Statements Company Information £m 1.4 8.2 2.4 141 2018 61.4 20.7 94.1
£m 0.3 1.1 2019 64.7 10.0 35.2 111.3 Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford
contracts
equivalents receivables cash earnings growth.
exchange receivables receivables and underlying earnings, although the Board will also take into account other considerations in their decision-making process. The Board The Board in their decision-making process. will also take into account other considerations underlying earnings, although the Board
As set out in the Chief Executive’s Review, the Group will actively manage its portfolio of businesses and products, selecting those markets with will actively manage its portfolio of businesses and products, the Group Review, As set out in the Chief Executive’s nanotechnology has the those markets where will focus on leading positions. We we can maintain or grow drivers where long-term growth we can deliver unique solutions and service excellence. and where challenges most complex and pressing some of the world’s potential to address (e.g. through would seek to finance organic growth the Group and equity, between borrowings In line with the objective of maintaining a balance thus maintaining balance sheet efficiency. operating cash flow, and Development) and smaller “bolt-on” acquisitions from investment in Research has a manageable ratio of net the Group of equity and debt so as to ensure Larger acquisitions would be financed either by equity or a mixture debt to EBITDA. given in Note 12), of which are option plans (full details As well as various share in the Company. employees to hold shares encourages The Board are Incentive Plan (SIP). Under this plan, employees the opportunity to take part in a Share all UK employees have been offered April 2008 from for every (a matching share) share one additional free The Company awards in the Company. able to invest up to £1,500 each tax year in shares bought by each employee. five shares Neither the Company nor any of its subsidiaries are to capital management during the year. approach no changes to the Group’s were There subject to externally capital requirements. imposed does not have a policy to pay a fixed dividend yield or to maintain a fixed rate of dividend cover but assesses both of these metrics in line with yield or to maintain a fixed rate of dividend cover but assesses both of these metrics in line does not have a policy to pay a fixed dividend sustained The Board considers capital to comprise share capital, reserves and the net cash or net debt position of the Company. The Company was in a net and the net cash or net debt position of the Company. capital, reserves considers capital to comprise share The Board year totalled £195.5m (2018: £199.3m). capital at the end of the current cash position at the year end. Total returns that might be possible by maintaining a balance between the higher long-term objective is to have an efficient capital structure The Board’s to the ratio by reference by a sound capital position. This is monitored and the advantages and security afforded with higher levels of borrowings well inside has set itself internal limits, which are (EBITDA) and the Board and amortisation tax, depreciation interest, of net debt to earnings before in the market; the timing of these purchases its own shares right to purchase maintains the has with lenders. The Group any covenants the Group made on a specific transaction basis by the Board. decisions are would depend on market prices. Buy and sell dividends in line looks to increase level of dividend payments. In doing this, the Board considers the appropriate carefully Each year the Board with Capital management Long-term Trade Trade
Exposure to credit risk to credit Exposure 2019 was risk at 31 March to credit The maximum exposure exposure. the maximum credit represents financial assets The carrying amount of £111.3m (2018: £94.1m). Cash Other Forward
The maximum exposure to credit risk for trade receivables is discussed in Note 19. risk for trade receivables to credit The maximum exposure not past due date. are and similar taxes which of VAT include £3.3m (2018: £2.9m) in respect Other receivables Oxford Instruments plc Report and Financial Statements 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2019
22 Financial instruments Fair values of financial assets and liabilities The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy. It does not include fair value information for financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value. 2019 2018
Fair Carrying Fair Carrying Fair value amount value amount value hierarchy £m £m £m £m Assets carried at amortised cost Long-term receivables 0.3 1.4 Trade receivables 64.7 61.4 Other receivables 10.0 8.2 Cash and cash equivalents 35.2 20.7 Assets carried at fair value Derivative financial instruments: – Foreign currency contracts 2 1.1 1.1 2.4 2.4 Liabilities carried at fair value Derivative financial instruments: – Foreign currency contracts 2 (1.1) (1.1) (0.4) (0.4) Liabilities carried at amortised cost Trade and other payables (65.7) (58.1) Borrowings (28.5) (40.4) Lease payables (9.0) —
The following summarises the major methods and assumptions used in estimating the fair values of financial instruments eflectedr in the above table.
Derivative financial instruments Derivative financial instruments are marked-to-market using market prices.
Fixed and floating rate borrowings The fair value of fixed and floating rate borrowings is estimated by discounting the future contracted principal and interest cash flows using the market rate of interest at the reporting date.
Trade and other receivables/payables For receivables/payables with a remaining life of less than one year, the carrying amount is deemed to reflect the fair value. All other receivables/ payables are discounted to determine their fair value. Advances received are excluded from other payables above as these are not considered to be financial liabilities.
Lease payables The lease liability is measured at amortised cost using the effective interest method.
Fair value hierarchy The table above gives details of the valuation method used in arriving at the fair value of financial instruments. The different levels have been identified as follows: • Level 1: quoted prices (unadjusted) in active markets for identical assets and liabilities; • Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and • Level 3: inputs for the asset or liability that are not based on observable market data. There have been no transfers between levels during the year.
142 Strategic Report Governance Financial Statements Company Information
1
to — — — — — £m 7.0 9.1 0.3 143 10% years (1.8) 39.5 one five in Sterling five years Due strengthening Due more than Due more
1 — — — — £m £m £m year 1.8 0.4 1.0 5.0 (4.9) 1.4 2.6 10% 2019 2018 (9.1) 58.1 35.2 20.7 33.8 within (28.5) (40.4) Sterling amount amount one Carrying Carrying in five years weakening Due Due one to
in — — (7.0) — — £m 1% 0.4 0.6 27.9 rates flows 40.5 58.1 70.8 one year cash increase increase Contractual Due within interest interest
0.4 40.4 58.1 amount Carrying cash flows Contractual Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford
1.1 1.1 1.1 3.4 5.9 0.3 9.0 9.6 65.7 65.7 65.7 28.5 28.5 amount Carrying
59.5 39.5 98.9 99.0
contracts contracts payables equity equity other assets liabilities assets liabilities 2019 £m £m £m £m £m exchange exchange 2018 £m £m £m £m on on payables and
one percentage point increase in interest rates; in interest point increase one percentage and point weakening in the value of Sterling against all currencies; ten percentage in the value of Sterling against all currencies. point strengthening ten percentage Of the effect on the Consolidated Statement of Income, £8.0m (2018: £6.1m) would have been recognised on the “mark-to-market” line (Note 1). been recognised on the Consolidated Statement of Income, £8.0m (2018: £6.1m) would have Of the effect March March March March
31
31 Impact 1. Foreign Foreign Borrowings 2019 At 31 March Impact on Consolidated Statement of Income Impact 2018 At 31 March Impact on Consolidated Statement of Income
At the reporting date the interest rate profile of the Group’s interest-bearing financial instruments was: interest-bearing of the Group’s rate profile date the interest At the reporting The Group has estimated the impact on the Consolidated Statement of Income and on equity of the following changes in market conditions at the has estimated the impact on the Consolidated Statement The Group balance sheet date: • • • tests. possible changes in each risk variable, not worst case scenarios or stress view of reasonably the Directors’ The sensitivities above represent of market risk assuming that the specified changes occur at the year end and estimates of the impact the sensitivity analysis are The outputs from impact on the balance sheet of an instantaneous shock. The calculations they show the at that date. Accordingly, risk exposures applied to the are include all hedges in place at the year end. such mitigate any potential losses from actions taken to these estimates due to commercial materially from may differ in the future Actual results in global financial markets. As such, this than one sensitivity occurring and to further developments rate movements, to the interaction of more gains and losses. of likely future as a projection table should not be considered Sensitivity analysis Variable rate instruments Variable Financial Trade Financial Fixed rate instruments Financial Financial Trade and other payables and other Trade Maturity of financial liabilities Maturity of financial Foreign Borrowings Lease 104.9 104.3
Oxford Instruments plc Report and Financial Statements 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2019
23 Called up share capital Issued and fully paid ordinary shares: 2019 2018 Number Number of shares of shares At the beginning of the year 57,375,604 57,315,916 Issued for cash — 59,688 At the end of the year 57,375,604 57,375,604
2019 2018
Number Number of shares £m of shares £m Allotted, called up and fully paid Ordinary shares of 5p each 57,375,604 2.9 57,375,604 2.9
The total consideration received from exercise of share options in the year was £0.2m (2018: £0.2m). The holders of the ordinary shares are entitled to receive dividends as declared, a proportionate amount of capital on a winding up of the Company and one vote per share at meetings of the Company. 24 Borrowings Earlier of Effective repricing date or 2019 2018 Current interest rate maturity date £m £m Loan Notes – unsecured 4.36% March 2021 0.6 1.0 0.6 1.0
Earlier of Effective repricing date or 2019 2018 Non-current interest rate maturity date £m £m Loan Notes – unsecured 4.36% March 2021 27.9 39.4 27.9 39.4
The Group’s undrawn committed facilities available at 31 March 2019 were £104.5m, comprising the undrawn portion of the Group’s £104.5m revolving credit facility. This facility expires on 29 June 2023. The Group’s uncommitted facilities at 31 March 2019 were £20.3m. The £0.6m (2018: £1.0m) current Loan Notes balance as at 31 March 2019 represents accrued interest due for payment during April 2019. A reconciliation of the Group’s borrowings balances is shown below. Total £m Balance at 1 April 2018 40.4 Repayment of borrowings (cash flow from financing activities) (11.5) Interest charged 1.4 Interest paid (1.8) Balance at 31 March 2019 28.5
144 Strategic Report Governance Financial Statements Company Information £m £m £m £m 0.6 8.4 7.8 7.6 3.3 3.9 145 Total Total Total (0.6) (0.8) (0.9) (3.0) 2018 (0.9) (0.6) 15.3 (11.8) (11.8) 304.8 313.0 287.9 304.8 289.5 (289.5)
— £m £m £m £m USA USA USA 7.4 5.4 0.2 0.5 0.3 4.6 1.0 3.3 4.3 7.4 2.8 9.0 0.3 0.1 2019 (1.1) (0.9) (1.1) (0.1) (0.6) (4.6) 2018 2018 2018
UK UK UK — — £m £m £m 7.6 7.1 8.1 (0.9) (3.1) (0.5) (1.1) 12.5 (10.7) (10.7) 282.5 284.9 297.4 304.0 297.4 (284.9)
£m £m £m otal 7.9 7.8 0.3 6.5 0.3 8.2 0.5 Total Total T (0.7) 17.1 14.6 (10.5) (10.5) 289.5 311.4 317.9 304.8 317.9 (311.4) Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford
— £m £m £m 0.3 8.1 4.6 0.2 0.5 0.1 0.3 5.1 8.1 3.0 7.4 0.3 0.5 USA USA USA (0.4) (0.4) (0.2) (5.1)
2019 2019 2019
— — UK UK UK £m £m £m 0.3 7.9 7.7 7.3 3.5 (0.5) 17.0 14.3 (10.1) (10.1) 306.3 284.9 309.8 297.4 309.8 (306.3)
expense
benefit
2019 were 18 years and 14 years respectively (2018: 18 years and 16 years). 18 years and 14 years respectively 2019 were ement loss/(gain) on obligation
eturn on assets excluding interest income eturn on assets excluding interest defined – est on plan assets est on defined benefit obligation
March
Actual r Exchange rate adjustment Contributions to defined contribution schemes recovery payment recovery payments with the trustees of the UK pension scheme. The annual deficit a basis for deficit agreed has The Group to and including 2026. For the years up to and including through payable to the UK scheme was £7.3m (2018: £7.1m) for the financial year, UK and US defined benefit obligations at 3% per annum. The weighted average durations of the 2026, the payment will rise by approximately 31 Expense recognised in the Consolidated Statement of Income Expense recognised Total Fair value of plan assets at the beginning of the year Fair value of plan assets at the beginning of the Reconciliation of the opening and closing balances of the fair value of plan assets Reconciliation of the opening and closing
Fair value of plan assets Benefit obligation at the beginning of the year Past service cost Inter Remeasur Exchange rate adjustment Benefit obligation at the end of the year Inter Administrative expenses Fair value of plan assets at the end of the year Reconciliation of the opening and closing balances of the present value of the defined benefit obligation value of the defined balances of the present Reconciliation of the opening and closing value of funded obligations Present Recognised liability for defined benefit obligations Benefits paid Contributions by employers Benefits paid
25 Retirement benefit obligations benefit 25 Retirement service benefit to members. and death in retirement offer pensions in plans in the UK and the USA; both operates defined benefit The Group closed to new members their length of service. Both schemes have been and retirement at related to members’ final salary Pension benefits are since 2010. accrual to future since 2001 and closed Statement of Financial Position are: in the Consolidated The amounts recognised Oxford Instruments plc Report and Financial Statements 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2019
25 Retirement benefit obligationscontinued Expense recognised in the Consolidated Statement of Income continued The IAS 19 defined benefit pension balance sheet liability includes an allowance of £0.3m for the expected cost of equalising Guaranteed Minimum Pension (GMP) between males and females. GMP is a portion of pension that was accrued by individuals who were contracted out of the UK State Second Pension prior to 6 April 1997. Historically, there was an inequality of benefits between male and female members who have GMP. A High Court case concluded on 26 October 2018 and confirmed that GMPs need to be equalised. In the prior year, the trustees of the UK defined benefit scheme, in consultation with the Company, reduced its exposure to on-risk assets (a portfolio of market‑focused asset classes, the majority being equities) with a corresponding increase in its liability-driven investments, with the objective of steering a more stable journey to being fully funded. The pension fund’s gross exposure to on-risk assets fell from 85% to 45%; the majority of transactions required to make this change were completed in February 2018. As a result, the level of risk inherent in the investment strategy is now significantly lower than previously, in addition to a substantial reduction in funding level volatility. The Group has considered the requirements of IFRIC 14. The terms of the scheme give the Group the right to recover any surplus assets on the scheme upon wind-up and therefore management has concluded that there is no impact on the amounts recognised in respect of retirement benefit obligations. The Group expects to contribute approximately £7.5m to the UK defined benefit plan in the next financial year. The Group is considering, but has not yet made a final decision on, the closure of the US defined benefit scheme. In the event the scheme is closed, the Group contribution to the plan in the next financial year is expected to be £3.1m. The pension costs are recorded in the following lines of the Consolidated Statement of Income: 2019 2018 £m £m Cost of sales 0.9 0.8 Selling and marketing costs 0.8 0.7 Administration and shared services 1.4 0.8 Research and Development 0.9 1.0 Financial expenditure 0.3 0.6 4.3 3.9
Remeasurement gains and losses shown in the Consolidated Statement of Comprehensive Income 2019 2018 £m £m Actual return on assets excluding interest income 17.1 (0.8) Experience loss on scheme obligations (4.1) (2.8) Changes in assumptions underlying the present value of scheme obligations: – Financial (14.4) 4.0 – Demographic 3.9 1.8
Cumulative actuarial losses reported in the Consolidated Statement of Comprehensive Income since 1 April 2004, the transition date to IFRS, are £26.8m (2018: £29.3m cumulative actuarial losses).
Sensitivity analysis The table below shows the sensitivity of the Consolidated Statement of Financial Position to changes in the significant pension assumptions: Balance at Discount rate Inflation rate Life expectancy 31 March 2019 (-0.1% p.a.) (+0.1% p.a.) (+one year) £m £m £m £m Present value of funded obligations 309.8 315.3 314.8 322.7 Fair value of plan assets (306.3) (306.3) (306.3) (306.3) Deficit 3.5 9.0 8.5 16.4
The valuation of defined benefit liabilities is most sensitive to changes in the discount rate, inflation rate and mortality rate. The sensitivities have been calculated by running the liability calculations in full using the alternative assumptions. In each case, only the indicated assumption has changed by the amount stated. For the inflation sensitivity, the impact on the assumptions that are based on RPI inflation, such as CPI inflation and the inflation-linked pension increases, has been included.
146 Strategic Report Governance Financial Statements Company Information
% ch ch — £m 6.0 2.1 5.8 2.5 3.7 147 end years As at 2018 2018 2018 90.8 24.1 26.6 23.9 25.7 22.5 24.1 alue at 2.7% 2.5% 3.0% 2.0% 123.3 284.9 V 31 Mar 31 Mar
ch — £m 9.7 0.3 4.3 6.3 2019 2019 years 65.2 14.3 23.0 26.7 23.5 25.4 23.9 22.2 alue at 156.5 306.3 V 31 Mar A tables (96% for females) e improvement in line with e improvement
futur 93% of S2P CMI 2017 with 1.25% long-term tr
% ch 2019 end As at 2.5% 2.5% 3.1% 2.1% 31 Mar Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford A tables (93% for females) e improvement in line with e improvement futur 91% of S2P CMI 2018 with 1.25% long-term tr
Bonds fund
Market
funds
income
loan males females funds males females fixed – – Emerging overlay – – e and post-retirement
2019, the liability hedge strategy fully covered the scheme’s liabilities from changes in gilt yields and inflation expectations. liabilities from the scheme’s 2019, the liability hedge strategy fully covered
ease in pensions in payment (“3LPI”) ease in pensions in payment (“5LPI”) ease in pensions in payment global and linked this is not a precise match for the IAS 19 defined benefit obligation, which is based on corporate bond yields rather than gilt yields. match for the IAS 19 defined benefit this is not a precise return ‑ rate
hedge
funds and March
characteristics of the instrument and observable market data such as swap rates.
31
Corporate Gilts Credit Equities Property
Pre-retirement
Discount
Defined benefit scheme – UK Defined benefit scheme independent 2019 by a qualified and has been updated to 31 March 2018 of the UK plan was carried out as at 31 March A full actuarial valuation (in nominal terms): purposes of IAS 19 were major assumptions used by the actuary for the The actuary. Rate of incr Rate of incr Rate of inflation (“CPI”) Mortality – pr age 65: lifetime from expected future The mortality assumptions imply the following Insurance The UK pension scheme implements a liability hedge strategy which is designed to protect the scheme’s funding level from changes in gilt funding level from the scheme’s The UK pension scheme implements a liability hedge strategy which is designed to protect swaps. rate and inflation gilt derivatives, interest yields and inflation expectations. The liability hedge strategy consists of a portfolio of gilts, At However,
Hedge Absolute Liability Cash investment manager will accept The scheme’s by the fund manager. no observable market price a valuation will be provided assets have Where manager will query the valuation with the fund that valuation if it is within the expected range of performance. Otherwise, the investment investment manager who uses financial models which take as their input valued by the scheme’s Complex financial instruments are manager. the – males and females Pre-retirement Pre-retirement Post-retirement Post-retirement Post-retirement Post-retirement may not possible actuarial assumptions, which, due to the timescales covered, a range of from The assumptions have been chosen by the Directors be borne out in practice. The assets in the plan were: Oxford Instruments plc Report and Financial Statements 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2019
25 Retirement benefit obligationscontinued Defined benefit scheme – USA A full actuarial valuation of the USA plan was carried out as at 31 December 2014, which for reporting purposes has been updated to 31 March 2019 by a qualified independent actuary. The major assumptions used by the actuary for the purposes of IAS 19 were (in nominal terms): As at As at 31 March 2019 31 March 2018 % % Discount rate 3.70% 3.95% Rate of increase to pensions in payment 0.00% 0.00% Rate of inflation 2.25% 2.00% Mortality – pre and post-retirement RP-2014 with projection RP-2014 with projection Scale MP-2018 (fully generational), Scale MP-2017 (fully generational), male and female male and female
The assets in the plan were: Value at Value at 31 March 31 March 2019 2018 £m £m Equities 2.2 2.0 Bonds 2.8 2.3 Other 0.1 0.3 5.1 4.6
Defined contribution schemes In the UK, employees are offered participation in the defined contribution Oxford Instruments Stakeholder Plan. The Company contribution rate and employee contribution rate varies between grades and whether the individual had previously been in the defined benefit scheme. The Company contribution ranges between 4% and 14% of base salary. The Group also operates a 401k defined distribution plan in the USA. Details of pension schemes contributions made in respect of Directors can be found in the Remuneration Report on pages 80 to 99. 26 Trade and other payables 2019 2018 £m £m Trade payables 26.1 25.0 Customer deposits 38.5 15.0 Social security and other taxes 2.6 2.9 Accrued expenses and deferred income 43.7 38.1 Other payables 6.0 4.5 116.9 85.5
148 Strategic Report Governance Financial Statements Company Information 2.2 8.7 1.1 7.6 149 Total (2.3) 11.7 4.4 3.1 1.1 2.0 (1.8) (3.2) Other — 0.3 — 0.2 — 3.2 1.8 1.8 claims IP-related — 4.1 0.6 1.5 0.1 0.1 3.8 3.8 (1.4) (0.3) (0.5) (1.5) Warranties Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford
£m £m £m £m
Other provisions contracts and dilapidation provisions. leases, onerous of onerous respect to various obligations including obligations in relate Other provisions Intellectual Property‑related claims Intellectual Property‑related by other parties. brought to defend itself against proceedings to take legal or other actions The Company has on occasion been required and other known factors, the expected costs associated with such matters, based on past experience of similar items made for are Provisions The timing of utilisation of these best estimate of the likely outcome. the Directors’ and represent advice received, taking into account professional and negotiations. Contractual the complexity of issues and the outcome of various court proceedings reflecting uncertain, is frequently provisions assessment of the Directors’ the obligations and reflect best estimate of the cost of settling future the Directors’ represent and other provisions by which have been, or might be, brought for proceedings is made no provision time. However, likely settlement method, which may change over likely than not assess that it is more advice received, taking into account professional companies unless the Directors, other parties against Group be utilised within a twelve-month period. likely to are provisions expectation is that the other may be successful. The Group’s that such proceedings could be a material £nil and £2.1m. As such, there claims the range of possible outcomes is between for IP-related of the provision In respect estimate. management’s from should the outcome be different on the Financial Statements in the next twelve months effect Warranty provisions Warranty within course of business and included goods in the ordinary commitments made to customers on the sale of reflect warranty provisions Product represents period. The provision commitments typically apply for a twelve-month terms and conditions. Warranty standard companies’ the Group liability based on past experience. best estimate of the Group’s the Directors’ Balance at 1 April 2018 27 Provisions for other liabilities and charges 27 Provisions made during the year Provisions used during the year Provisions during the year released Provisions exchange of movement in foreign Effect 2019 Balance at 31 March than one year Amounts falling due after more one year Amounts falling due before Oxford Instruments plc Report and Financial Statements 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2019
28 Leases Leases under which the Group acts as lessee The Group leases assets including land and buildings, vehicles and machinery. Information about leases for which the Group is a lessee is presented below.
Right of use assets Property leases Other leases Total £m £m £m Cost Balance on adoption of IFRS 16 at 1 April 2018 9.8 0.9 10.7 Additions 0.6 0.3 0.9 Effect of movements in foreign exchange rates 0.5 — 0.5 Balance at 31 March 2019 10.9 1.2 12.1 Depreciation and impairment losses Balance on adoption of IFRS 16 at 1 April 2018 — — — Depreciation charge for the year 2.9 0.4 3.3 Balance at 31 March 2019 2.9 0.4 3.3
Carrying amounts At 1 April 2018 9.8 0.9 10.7 At 31 March 2019 8.0 0.8 8.8
Lease liabilities Total £m Balance on adoption of IFRS 16 at 1 April 2018 10.7 Additions 0.9 Payments made (cash flows from financing activities) (3.2) Interest charge 0.2 Effect of movement in foreign exchange rates 0.4 Balance at 31 March 2019 9.0 Amounts falling due after more than one year 6.0 Amounts falling due before one year 3.0
The maturity analysis of contractual undiscounted cash flows elatingr to lease liabilities is presented below: 2019 £m Less than one year 3.4 One to five years 5.9 More than five years 0.3 Total undiscounted lease liabilities at 31 March 2019 9.6 Lease liabilities included in the Statement of Financial Position at 31 March 2019 9.0 Amounts falling due after more than one year 6.0 Amounts falling due before one year 3.0
Amounts recognised in profit or loss 2019 £m Interest on lease liabilities (0.2) Expenses on short‑term leases not capitalised (0.1) Expenses on low‑value asset leases not capitalised — Income from sub-letting right of use assets —
150 Strategic Report Governance Financial Statements Company Information
— — — £m £m £m £m £m 3.4 0.2 2.2 0.3 6.4 2.5 0.4 4.0 151 2018 2019 2018 2019 (3.2) Payables Payables
£m
— £m £m £m £m 3.0 3.3 0.2 1.4 1.9 0.5 2.4 0.5 4.0 2019 2019 Receivables Receivables
— £m £m 0.7 chases chases Pur Pur
— £m £m 0.6 Revenue Revenue Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford
years charge benefits five benefit GmbH GmbH income
and payment year employee lease years one one
five following table sets out a maturity analysis of lease payments, showing the undiscounted lease payments to be received after the reporting date. after the reporting payments, showing the undiscounted lease payments to be received following table sets out a maturity analysis of lease
had the following transactions with its associate during the year:
2019 2018
ScientaOmicron ScientaOmicron ScientaOmicron ScientaOmicron
Post-employment Share-based Short-term
31 Related parties not disclosed in on consolidation and are parties, have been eliminated related and its subsidiaries, which are between the Company Transactions this note. of the Horizon following the introduction have taken on new responsibilities Management Board members of the Group’s year, During the current is included to be key management personnel and their remuneration now considered members are of this, Management Board As a result strategy. in the table below. of key management personnel is as follows: The remuneration 30 Contingent liabilities claims and/or fines and penalties of a variety of legal time to time as a result of companies liabilities may arise from In an international group and environmental safety, such as employment, taxation, health and in areas to comply with laws and regulations failure from resulting of aware has become the Board the Group, compliance across export control whilst reviewing In particular, internationalcontrol). trade (e.g. export including seeking external legal advice on potential of investigating this matter, in the process of non-compliance. Management are a specific area and to accurately stage it is too early to determine whether a settlement is probable actions which may include financial penalties. At this remedial it is unlikely to exceed £0.5m. required if a financial settlement is that early indications are quantify it. However, 29 Capital commitments expected to be and equipment which are plant property, into contracts to purchase entered 2019, the Group During the year ended 31 March (2018: £nil). settled in the following financial year for £0.2m
Within Lease income from lease contracts in which the Group acts as a lessor is as below: in which the Group lease contracts Lease income from Operating Leases under which the Group acts as lessor the Group Leases under which Operating leases under which the Group acts as lessor relate to medical imaging equipment available for rent on typically short-term agreements. on typically short-term agreements. to medical imaging equipment available for rent acts as lessor relate Operating leases under which the Group The Between Over Payments made in respect of lease liabilities of lease Payments made in respect Amounts recognised in Statement of Cash Flows in Statement Amounts recognised Total for the year. Short-term employee benefits comprise salary and benefits earned the year and bonuses awarded during length basis. its associate on an arm’s services and materials from, supplied services and materials to, and purchased the Group During the year, It Oxford Instruments plc Report and Financial Statements 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2019
32 Subsequent events The interim dividend of 3.8 pence per share (total cost £2.2m) was paid after the year end. In addition, on 11 June 2019, the Directors proposed a final dividend of 10.6 pence per ordinary share (total cost £6.1m). The total amount of £6.1m has not been provided for and there are no income tax consequences. In April 2019 the UK Tax Tribunal adjudicated on a historical loan arrangement structure. The decision went against the Group and, as a result, a payment of £4.0m was made to HMRC during April 2019. The liability was covered by historical provisions and one-off credits. On 24 May 2019, a further £1.6m was received by the Group in relation to the finalisation of tax affairs outstanding upon the disposal of its Industrial Analysis division in the prior year. The impact of this receipt on the results of the Group during the current year is disclosed in Note 7. 33 Exchange rates The principal exchange rates to Sterling used were: Year‑end rates 2019 2018 US Dollar 1.30 1.40 Euro 1.16 1.14 Yen 144 149
Average translation rates 2019 US Dollar Euro Yen April 1.39 1.14 150 May 1.36 1.14 148 June 1.33 1.14 146 July 1.32 1.13 146 August 1.30 1.12 144 September 1.29 1.11 146 October 1.29 1.13 145 November 1.28 1.13 144 December 1.28 1.12 142 January 1.30 1.13 142 February 1.31 1.15 145 March 1.30 1.16 144
Average translation rates 2018 US Dollar Euro Yen April 1.27 1.18 142 May 1.29 1.17 143 June 1.29 1.14 144 July 1.31 1.13 146 August 1.30 1.10 143 September 1.31 1.11 146 October 1.33 1.13 150 November 1.32 1.13 149 December 1.34 1.12 151 January 1.39 1.13 153 February 1.41 1.14 151 March 1.40 1.14 149
152 Strategic Report Governance Financial Statements Company Information — £m 1.0 0.6 1.4 0.3 2.9 0.1 7.6 2.9 1.5 3.6 0.4 153 2018 19.5 61.7 39.4 32.8 23.4 99.7 42.7 320.9 325.4 348.8 172.0 101.3 134.1 176.8 348.8
— — £m 1.6 0.6 0.1 0.3 1.5 2.9 0.1 7.6 0.8 2019 47.9 15.8 63.7 61.7 27.9 28.7 29.9 321.1 325.2 388.9 118.9 191.2 139.1 169.0 197.7 388.9
i f f c e d h h g Notes
Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford
Gavin Hill Director
undertakings
hand
drafts recoverable reserve reserve obligations
in
tax
over account
subsidiary
account
eserves attributable to the Company’s equity Shareholders eserves attributable to the Company’s liabilities and assets
assets
in benefit and loans assets
loss for ent assets ent liabilities tax assets use income bank
redemption redemption
reserves creditors capital premium premium and of at loans e
Director Ian Barkshire Company number: 775598 Debtors assets Current Debtors
Intangible Assets Non-curr Tangible Tangible Right Investments Deferred Current
AS AT 31 MARCH 2019 MARCH 31 AS AT PARENT COMPANY STATEMENT OF FINANCIAL OF POSITION STATEMENT COMPANY PARENT Cash assets Total Equity Capital and r Shar
Share Share Capital Other Profit Bank
Non-curr Long-term
Liabilities Retirement Provisions liabilities Current Other liabilities Total liabilities and equity Total on its behalf by: on 11 June 2019 and signed of Directors by the Board approved The Financial Statements were Oxford Instruments plc Report and Financial Statements 2019
PARENT COMPANY STATEMENT OF CHANGES IN EQUITY
YEAR ENDED 31 MARCH 2019
Share Capital Profit Share premium redemption Other and loss capital account reserve reserves account Total £m £m £m £m £m £m Balance at 31 March 2017 2.9 61.5 0.1 7.6 114.3 186.4 Loss for the year — — — — (8.7) (8.7) Other comprehensive income: Remeasurement of defined benefit liability, net of tax — — — — 0.4 0.4 Total comprehensive income for the year — — — — (8.3) (8.3) Proceeds from shares issued — 0.2 — — — 0.2 Share options awarded to employees — — — — 0.7 0.7 Share options awarded to employees of subsidiaries — — — — 0.4 0.4 Dividends paid — — — — (7.4) (7.4) Balance at 31 March 2018 2.9 61.7 0.1 7.6 99.7 172.0 Profit for the year — — — — 25.2 25.2 Other comprehensive income: Remeasurement of defined benefit liability, net of tax — — — — 0.6 0.6 Total comprehensive income for the year — — — — 25.8 25.8 Proceeds from shares issued — — — — 0.2 0.2 Share options awarded to employees — — — — 0.6 0.6 Share options awarded to employees of subsidiaries — — — — 0.2 0.2 Dividends paid — — — — (7.6) (7.6) Balance at 31 March 2019 2.9 61.7 0.1 7.6 118.9 191.2
Details of issued, authorised and allotted share capital are included in Note 23 to the Group Financial Statements. Details of treasury shares held by the Company are included as a Note to the Consolidated Statement of Changes in Equity. Details of the Group’s share option schemes are included in Note 12 to the Group Financial Statements. Details of the Group’s defined benefit pension scheme are included in Note 25 to the Group Financial Statements. Details of dividends paid are included in Note 14 to the Group Financial Statements. Other reserves relates to premium on shares issued as part of acquisitions made in the year to 31 March 1987.
154 Strategic Report Governance Financial Statements Company Information 155 Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford elated notes; econciliations for share capital, tangible fixed assets, intangible assets and investment properties; assets and investment properties; capital, tangible fixed assets, intangible econciliations for share es required by IFRS 13 Fair Value Measurement and the disclosures required by IFRS 7 Financial Instrument Disclosures. required and the disclosures Measurement Value by IFRS 13 Fair es required e-based Payments in respect of Group settled share-based payments; and settled share-based of Group e-based Payments in respect es in respect of transactions with wholly owned subsidiaries; of transactions with wholly owned subsidiaries; es in respect of capital management; es in respect of the compensation of key management personnel. es in respect Reporting Standards as adopted by the EU (“Adopted IFRS”), but makes amendments where necessary in order to comply with the necessary in order where the EU (“Adopted IFRS”), but makes amendments as adopted by Reporting Standards fects of new but not yet effective IFRS; and fects of new but not yet effective
the Company has adequate resources to continue in operational existence for the foreseeable future. to continue in operational existence for the foreseeable the Company has adequate resources amendments to FRS 101 (2013/14 Cycle) issued in July 2015 and effective immediately have been applied. immediately (2013/14 Cycle) issued in July 2015 and effective amendments to FRS 101
IFRS 2 Shar certain disclosur disclosur disclosur disclosur the ef a cash flow statement and r a cash flow statement comparative period r
Trade and other creditors and other creditors Trade at amortised cost using the measured they are initially at fair value. Subsequent to initial recognition recognised are and other creditors Trade method. interest effective Trade and other debtors Trade at amortised cost using the measured they are to initial recognition initially at fair value. Subsequent recognised and other debtors are Trade method, less any impairment losses. interest effective Non-derivative financial instruments and trade and other loans and borrowings, Non-derivative financial instruments comprise trade and other debtors, cash and cash equivalents, creditors. Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in profit or loss except to the extent that or loss except to the extent that recognised in profit tax. Income tax is deferred and or loss for the year comprises current Income tax on the profit in equity. in which case it is recognised in equity, directly recognised to items it relates date, using tax rates enacted or substantively enacted at the reporting expected tax payable on the taxable income for the year, tax is the Current years. of previous and any adjustment to tax payable in respect reporting between the carrying amounts of assets and liabilities for financial of temporary differences in respect tax is recognised Deferred of goodwill; for: the initial recognition not provided are purposes and the amounts used for taxation purposes. The following temporary differences to investments in subsidiaries relating and differences neither accounting nor taxable profit; of assets or liabilities that affect the initial recognition in the future. not reverse to the extent that they will probably or settlement of the carrying amount of assets and liabilities, is based on the expected manner of realisation tax provided The amount of deferred using tax rates enacted or substantively enacted at the Balance Sheet date. available against which the asset can be will be taxable profits that future only to the extent that it is probable tax asset is recognised A deferred realised. will be tax benefit that the related to the extent that it is no longer probable reduced tax assets are utilised. Deferred dividend. at the same time as the liability to pay the related recognised the distribution of dividends are Additional income taxes that arise from Taxation Going concern enquiries, reasonable opinion, after making on a going concern basis, based on the Directors’ The Financial Statements have been prepared that Measurement convention Measurement stated at their fair value: assets and liabilities are on the historical cost basis except that the following prepared The Financial Statements are derivative financial instruments. • in these Financial otherwise stated, been applied consistently to all periods presented The accounting policies set out below have, unless Statements. • • • the Company has also taken the exemptions Instruments plc include the equivalent disclosures, As the consolidated Financial Statements of Oxford of the following disclosures: under FRS 101 available in respect • In preparing these Financial Statements, the Company applies the recognition, measurement and disclosure requirements of International requirements and disclosure measurement the Company applies the recognition, these Financial Statements, In preparing Financial has been taken. exemptions advantage of the FRS 101 disclosure has set out below where Companies Act 2006 and disclosures: of the following available under FRS 101 in respect the Company has applied the exemptions In these Financial Statements, • (a) Accounting policies incorporated and domiciled in the UK. Instruments plc is a company Oxford Framework (FRS 101). 101 Reduced Disclosure Standard with Financial Reporting in accordance prepared were These Financial Statements The • • YEAR ENDED 31 MARCH 2019 MARCH 31 YEAR ENDED NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS COMPANY PARENT THE TO NOTES Oxford Instruments plc Report and Financial Statements 2019
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2019
(a) Accounting policies continued Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits.
Interest-bearing borrowings Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest‑bearing borrowings are stated at amortised cost using the effective interest method, less any impairment losses. Details of the Group’s interest-bearing borrowings are included in Note 24 to the Group Financial Statements.
Intra-Group lending The Company has lent funds to and from its UK subsidiaries on interest-free terms. These amounts are repayable on demand. They are stated at cost less any impairment losses.
Derivative financial instruments The Company’s accounting policies for financial instruments are the same as the Group’s accounting policies under IFRS, namely IAS 32 Financial Instruments: Presentation, IFRS 9 Financial Instruments and IFRS 7 Financial Instruments: Disclosures. These policies are set out in accounting policy “(e) Financial instruments” in the Group accounting policies, on page 118.
Tangible fixed assets Tangible fixed assets are stated at cost less accumulated depreciation and accumulated impairment losses. Where parts of an item of tangible fixed assets have different useful lives, they are accounted for as separate items of tangible fixed assets. Depreciation is charged to the profit and loss account on a straight-line basis over the estimated useful lives of each part of an item of tangible fixed assets. The estimated useful lives are as follows: • Computer equipment 4 years • Motor vehicles 4 years Depreciation methods, useful lives and residual values are reviewed at each Balance Sheet date.
Intangible assets Intangible assets represents internally developed software. Amortisation is charged to the profit and loss account on a straight‑line basis over the estimated useful lives of intangible assets unless such lives are indefinite. Intangible assets are amortised from the date they are available for use. The estimated useful lives are as follows: • Computer software 10 years
Impairment excluding deferred tax assets Financial assets (including trade and other debtors) The Company assesses at each Balance Sheet reporting date whether there is any objective evidence that a financial asset, or group of financial assets, is impaired. A financial asset, or group of financial assets, is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that have occurred after the initial recognition of the asset (an incurred “loss event”) and that loss event has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.
Non-financial assets The carrying amounts of the Company’s non-financial assets, other than deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. The recoverable amount of an asset or cash generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash generating unit” or “CGU”). An impairment loss is recognised if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the units, and then to reduce the carrying amounts of the other assets in the unit (group of units) on a pro-rata basis. Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
156 Strategic Report Governance Financial Statements Company Information 157 market ecognised ‑ e r Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford employment benefit plan under which the Company pays fixed contributions into a separate entity and will under which the Company pays fixed contributions employment benefit plan ‑ Transactions of the Company-sponsored ESOP trust are treated as being those of the Company and are therefore reflected in the Company reflected therefore those of the Company and are as being treated ESOP trust are of the Company-sponsored Transactions to equity. directly debited and credited in the Company are and sales of shares purchases the trust’s Financial Statements. In particular, Own shares held by ESOP trust Own shares The grant date fair value of share-based payments awards granted to employees is recognised as an employee expense, with a corresponding increase increase as an employee expense, with a corresponding granted to employees is recognised payments awards The grant date fair value of share-based granted is measured The fair value of the awards over the period in which the employees become unconditionally entitled to the awards. in equity, as granted. The amount recognised were awards using an option valuation model, taking into account the terms and conditions upon which the to be expected related service and non-market vesting conditions are for which the the actual number of awards an expense is adjusted to reflect service and non that do meet the related as an expense is based on the number of awards met, such that the amount ultimately recognised Share-based payment transactions Share-based Termination benefits are recognised as an expense when the Company is demonstrably committed, without realistic possibility of withdrawal, to a an expense when the Company is demonstrably committed, without recognised as are benefits Termination result of an offer termination benefits as a date, or to provide the normal retirement before formal detailed plan to either terminate employment recognised as an expense if the Company has made redundancies are benefits for voluntary Termination made to encourage voluntary redundancy. If benefits will be accepted, and the number of acceptances can be estimated reliably. that the offer it is probable redundancy, of voluntary an offer value. present discounted to their date, then they are than twelve months after the reporting payable more are as an expense in the profit and loss account in the periods during which services are rendered by employees. rendered are account in the periods during which services and loss as an expense in the profit benefits Termination value of the share-based with non-vesting conditions, the grant date fair payment awards performance conditions at the vesting date. For share-based between expected and actual outcomes. is no true-up for differences such conditions and there to reflect payment is measured in its individual Financial Statements, to the employees of its subsidiaries it recognises, grants options over its own shares the Company Where in its consolidated payment charge recognised to the equity settled share-based in the cost of investment in its subsidiaries equivalent an increase as a recognised to the subsidiary are Amounts recharged in equity. directly being recognised credit Financial Statements with the corresponding as in the cost of investment the excess is recognised exceeds the increase If the amount recharged cost of investment in subsidiary. in the reduction a dividend. Short-term benefits A liability related service is provided. expensed as the basis and are on an undiscounted measured Short-term employee benefit obligations are legal or has a present plans if the Company cash bonus or profit-sharing for the amount expected to be paid under short-term is recognised by the employee and the obligation can be estimated reliably. past service provided of a result constructive obligation to pay this amount as have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans ar for contributions to defined contribution obligation to pay further amounts. Obligations have no legal or constructive Defined benefit plans in respect of obligation net a defined contribution plan. The Company’s is a post-employment benefit plan other than A defined benefit plan return benefit that employees have earned in for their service in the of future plans is calculated by estimating the amount defined benefit pension deducted. are the fair value of any plan assets (at bid price) value, and is discounted to determine its present and prior periods; that benefit current rate used to measure for the period by applying the discount on the net defined benefit liability/(asset) the net interest The Company determines of the annual period to the net defined benefit liability/(asset). the defined benefit obligation at the beginning the dates approximating rating of at least AA that have maturity that have a credit date on bonds The discount rate is the yield at the reporting expected to be paid. which the benefits are in denominated in the currency obligations and that are terms of the Company’s effect and the return on plan assets (excluding interest) defined benefit plans comprise actuarial gains and losses, the arising from Remeasurements income and all other expenses them immediately in other comprehensive The Company recognises excluding interest). of the asset ceiling (if any, or loss. profit in to defined benefit plans in employee benefit expenses related credit method. When the calculation projected unit is performed by a qualified actuary using the The calculation of the defined benefit obligations from refunds value of benefits available in the form of any future limited to the present recognised asset is the in a benefit to the Company, results of any minimum funding requirements. the adverse effect contributions and takes into account in future the plan or reductions defined benefit pension plan. The net defined benefit cost of the plans is charged to Group-wide The Company is the sponsoring employer of a date. The contributions scheme membership attributable to each legal entity at the reporting of participating entities on the basis of the proportion years. ten ratio which has been in place for approximately an agreed determined using payable by the participating entities are A defined contribution plan is a post A defined contribution Employee benefits plans Defined contribution Oxford Instruments plc Report and Financial Statements 2019
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2019
(a) Accounting policies continued Provisions A provision is recognised in the Balance Sheet when the Company has a present legal or constructive obligation as a result of a past event, that can be reliably measured and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects risks specific to the liability. The timing of the recognition requires the application of judgement to existing facts and circumstances which can be subject to change. Amounts provided represent the Group’s best estimate of exposure based on currently available information.
Leases The Company has applied IFRS 16 using the modified retrospective approach and therefore the comparative information has not been restated and continues to be reported under IAS 17 and IFRIC 4.
Leases under which the Company acts as lessee The Company recognises a right of use asset and a lease liability at the lease commencement date. The right of use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The right of use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right of use asset or the end of the lease term. The estimated useful lives of right of use assets are determined on the same basis as those of property and equipment. In addition, the right of use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate. Generally, the Company uses its incremental borrowing rate as the discount rate. Lease payments included in the measurement of the lease liability comprise fixed payments. The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Company’s estimate of the amount expected to be payable under a residual value guarantee, or if the Company changes its assessment of whether it will exercise a purchase, extension or termination option. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right of use asset, or is recorded in profit or loss if the carrying amount of the right of use asset has been reduced to zero.
Short-term leases and leases of low-value assets The Company has elected not to recognise right of use assets and lease liabilities for short-term leases of machinery that have a lease term of twelve months or less and leases of low-value assets, including IT equipment. The Company recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term.
Under IAS 17 In the comparative period the Company did not have any leases which were classified as finance leases under IAS 17. All leased assets were classified as operating leases and were not recognised in the Company’s Statement of Financial Position. Payments made under operating leases were recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received were recognised as an integral part of the total lease expense, over the term of the lease.
Foreign currencies The Company enters into forward exchange contracts and options to mitigate the currency exposures that arise on sales and purchases denominated in foreign currencies. Transactions in foreign currencies are converted into Sterling at the rate ruling on the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the rates ruling at the Balance Sheet date or at the appropriate forward contract rates. Exchange profits and losses arising from the above are dealt with in the profit and loss account.
Investments Investments in subsidiaries are stated at cost, less any provision for impairment, where appropriate.
Dividends on shares presented within Shareholders’ funds Dividends unpaid at the Balance Sheet date are only recognised as a liability at that date to the extent that they are appropriately authorised and are no longer at the discretion of the Company. Unpaid dividends that do not meet these criteria are disclosed in the notes to the Financial Statements.
Financial guarantee contracts Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other companies within its Group, the Company considers these to be insurance arrangements and accounts for them as such. In this respect, the Company treats the guarantee contract as a contingent liability until such time as it becomes probable that the Company will be required to make a payment under the guarantee.
158 Strategic Report Governance Financial Statements Company Information
£m £m £m otal 3.3 2.0 3.9 0.6 2.3 1.4 0.9 0.3 4.2 0.3 0.1 4.6 2.3 0.3 2.6 1.7 1.0 0.6 1.6 0.6 159 T 2018 Software Software £0.4m).
£m £m 2.0 0.3 2.3 1.4 0.3 5.0 0.9 0.2 6.1 1.7 0.6 0.6 2019 Computer equipment
Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford
eclassified to profit or loss. eclassified to profit
2019 2019 2019 2019
ch ch ch ch
2018 2018 2018 2018
Mar Mar Mar Mar costs costs
2019 2019 2018 2018 April April April April 31 31 31 31 salaries year year 1 1 1 1 ch ch ch ch
at at at at at at at at for for and Mar Mar security pension Mar Mar eciation and impairment losses eciation
31 31 31 31
The expense will not subsequently be r The expense will not subsequently
Additions Balance Cost Balance (d) Intangible assets Cost Balance (c) Tangible fixed assets (c) Tangible Wages Wages
(b) Profit for the year (b) Profit the year was £0.5m (2018: income in (2018: loss of £8.7m). Other comprehensive for the financial year was £25.2m profit The Company’s (2018: £140,000) for the statutory audit. comprised £199,000 remuneration The auditor’s these individuals were during the year was 46 (2018: 47). All of Directors) people employed by the Company (including The average number of involved in administration. as follows: were of these people costs (including Directors) payroll The aggregate Additions Balance Depr Balance Balance Social Other included in Note 12 to the option schemes are share of £0.7m). Details of the Group’s payment charge was £0.6m (2018: charge The share-based Financial Statements. Group found in the Remuneration Report on pages 80 to 99. can be Full details of the emoluments paid to Directors Depr Balance Charge Balance
Charge Net book value At At Net book value At At Oxford Instruments plc Report and Financial Statements 2019
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2019
(e) Investments Investments in subsidiary undertakings £m Cost or valuation Balance at 1 April 2018 339.6 Expense in respect of share options transferred to subsidiary undertakings 0.2 Balance at 31 March 2019 339.8 Impairment Balance at 1 April 2018 and 31 March 2019 18.7
Net book value At 31 March 2018 320.9 At 31 March 2019 321.1
The following is a full list of the subsidiaries and associates and their country of registration as at 31 March 2019. This information is provided in accordance with Section 409 of the Companies Act 2006. Unless otherwise stated, entities listed below are wholly owned by either the Company or a subsidiary of the Company. Registered Country of Subsidiaries office address incorporation NanoTechnology Tools Limited5 Tubney Woods, Abingdon, Oxon, OX13 5QX UK Oxford Instruments Industrial Products Holdings Limited Tubney Woods, Abingdon, Oxon, OX13 5QX UK Oxford Instruments Industrial Products Limited Tubney Woods, Abingdon, Oxon, OX13 5QX UK RMG Technology Limited Tubney Woods, Abingdon, Oxon, OX13 5QX UK Oxford Instruments NanoAnalysis Limited5 Tubney Woods, Abingdon, Oxon, OX13 5QX UK Oxford Instruments NanoTechnology Tools Holdings Limited Tubney Woods, Abingdon, Oxon, OX13 5QX UK Andor Technology Limited 7 Millennium Way, Springvale Business Park, Belfast, NI, BT12 7AL UK Andor U.S. Holdings, Inc 425 Sullivan Avenue, Suite 3, South Windsor, CT 06074 USA Andor Technology Inc.1 300 Baker Avenue, Suite 150, Concord MA 01742 USA Andor Technology KK2 IS Building, 3-32-42 Higashi-Shinagawa, Shinagawa-ku, Tokyo, 140-0002 Japan Bitplane AG Badenerstrasse 682, 8048, Zürich Switzerland Bitplane Inc 425 Sullivan Avenue, Suite 3, South Windsor, CT 06074 USA Spectral Applied Research Inc 199 Bay Street, Suite 5300, Commerce Court West, Toronto ON M5L 1B9 Canada Oxford Instruments Molecular Biotools Limited Tubney Woods, Abingdon, Oxon, OX13 5QX UK Oxford Instruments NanoTechnology Tools Limited Tubney Woods, Abingdon, Oxon, OX13 5QX UK Oxford Instruments AFM Limited Tubney Woods, Abingdon, Oxon, OX13 5QX UK Oxford Instruments Plasma Technology Limited Tubney Woods, Abingdon, Oxon, OX13 5QX UK Oxford Instruments Overseas Holdings Limited Tubney Woods, Abingdon, Oxon, OX13 5QX UK Oxford Instruments Technology (Shanghai) Co. Limited Floor 1, Building 60, 461 Hongcao Road, Xuhui District, Shanghai China Oxford Instruments Technologies Oy Technopolis Innopoli 1, Tekniikantie12, Espoo, 02150 Finland Oxford Instruments Holdings 2013 Inc 300 Baker Avenue, Suite 150, Concord MA 01742 USA Oxford Instruments America Inc 300 Baker Avenue, Suite 150, Concord MA 01742 USA Oxford Instruments Service LLC 300 Baker Avenue, Suite 150, Concord MA 01742 USA Oxford Instruments Asylum Research Inc 6310 Hollister Avenue, Santa Barbara, CA 93117 USA Asylum Research UK Limited Tubney Woods, Abingdon, Oxon, OX13 5QX UK Oxford Instruments KK IS Building, 3-32-42 Higashi-Shinagawa, Shinagawa-ku, Tokyo, 140-0002 Japan Oxford Instruments Overseas Marketing Limited Tubney Woods, Abingdon, Oxon, OX13 5QX UK Oxford Instruments X-Ray Technology Inc 360 El Pueblo Road, Scotts Valley, CA 95066 USA Oxford Instruments Holdings Europe Limited Tubney Woods, Abingdon, Oxon, OX13 5QX UK
160 Strategic Report Governance Financial Statements Company Information 3
e £m UK UK UK 1.4 1.2 2.8 0.3 161 2018 USA nsey 15.2 20.9 India Japan France France Sweden Sweden Country of Germany Germany Germany Guer Singapor incorporation
ed £m ille 0.3 1.1 2.1 0.8 2019 43.9 48.2 okyo Register iesbaden iesbaden fice address e, 048624 aunusstein of
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V an Rajah & Cheah, 80 Raffles Place, an Rajah & Cheah, 80 Raffles illiam Place, St Peter Port, GY1 4HQ illiam Place, St Peter Port, Borsigstraße 15a, 65205, W Borsigstraße 15a, 65205, W Borsigstraße 15a, 65205, s Complex, Krishanlal Marwah Marg, Le Plan d’Aigues, RN 7, 1370 St. Cannat Limburger Straße 75, 65232 T #58-01 UOB Plaza 1, Singapor Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford ubney Woods, Abingdon, Oxon, OX13 5QX Abingdon, Oxon, OX13 ubney Woods, ubney Woods, Abingdon, Oxon, OX13 5QX Abingdon, Oxon, OX13 ubney Woods, Messrs T 77 ZA de Montvoisin, 91400 Gometz la V T T
Andheri East, Mumbai, Maharashtra, 400 072 enavägen 41, 10th Floor, 121 77 Johanneshov enavägen 41, 10th Floor, 240 Saint Paul St, Suite 301, Denver CO 80238 Ar No. 20 Shimokawa Building, 5-30-15, Ota-ku, T No. 20 Shimokawa Building, 5-30-15, Ota-ku, St James House, Kensington Squar Frances House, Sir W Unit No.11, Marwah’
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4
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on Nanotechnology EURL and on GmbH on Inc.
owed owed esident. debtors on Nanotechnology Japan, Inc. on Nanotechnology Limited d Instruments SAS d Instruments GmbH Ab d Instruments Nordiska d Instruments Overseas Holdings 2008 Limited d Instruments Overseas d Instruments UK 2013 Limited d Instruments UK 2013 d Instruments Funding Ltd d Instruments Funding ear end is 31 December. The Group has a 47% shareholding in these entities. has a 47% shareholding The Group ear end is 31 December.
Incorporated 25 December 2018. Merged with Oxfor UK tax r Y Dissolved 2 April 2019. Incorporated 11 Mar epayments
Societe Omicr ScientaOmicr Amounts falling due within one year: Amounts Other Pr Amounts owed by subsidiary undertakings Amounts falling due after one year: Amounts Equity owned by the Company represents issued ordinary share capital. All subsidiaries are consolidated in the Group accounts. consolidated in the Group capital. All subsidiaries are share issued ordinary Equity owned by the Company represents (f) Debtors 5. 1. 4. India Private Limited Instruments Oxford 2. 3. Associates Scienta Scientific AB Oxford Instruments Private Limited Oxford Oxfor Oxfor Oxfor Oxford Instruments Holdings GmbH Oxford Subsidiaries Omicr Omicr ScientaOmicr
Oxfor Oxfor Oxfor Oxford Instruments plc Report and Financial Statements 2019
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2019
(g) Creditors 2019 2018 £m £m Trade creditors 0.7 0.4 Amounts owed to subsidiary undertakings 131.8 95.4 Tax, social security and sales‑related taxes 1.2 1.6 Other financial liabilities 1.3 1.4 Accruals and deferred income 4.1 2.5 139.1 101.3
(h) Provisions for liabilities
Restructuring provision Balance at 1 April 2018 0.4 Provisions used during the year (0.4) Balance at 31 March 2019 —
Deferred tax asset 2019 2018 £m £m Balance at 1 April 1.5 1.7 Profit and loss (debit)/credit — (0.1) Other comprehensive income debit — (0.1) Balance at 31 March 1.5 1.5
The amounts of deferred tax assets are as follows: Recognised
2019 2018 £m £m Excess of depreciation over corresponding capital allowances 0.5 0.6 Tax losses — — Provisions 0.1 — Employee benefits – pension and share schemes 0.9 0.9 1.5 1.5
The Company recognises deferred tax assets only to the extent that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted. Deferred tax assets have not been recognised in respect of the following items: 2019 2018 £m £m Tax losses — 0.5 — 0.5
A reduction in the UK corporation tax rate from 21% to 20% (effective from 1 April 2015) was substantively enacted on 2 July 2013. Further reductions to 19% (effective from 1 April 2017) and to 18% (effective from 1 April 2020) were substantively enacted on 26 October 2015, and an additional reduction to 17% (effective from 1 April 2020) was substantively enacted on 6 September 2016. This will reduce the Company’s future current tax charge accordingly. The UK deferred asset liability at 31 March 2019 has been calculated based on those rates.
162 Strategic Report Governance Financial Statements Company Information 163 Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford contributions paid by the Company to the Oxford Instruments Pension Scheme were £1.7m (2018: £1.6m). Pension Scheme were Instruments contributions paid by the Company to the Oxford
(m) Related party transactions and Executive Officers and with its wholly owned subsidiary companies. with its Directors party relationship The Company has a related no other significant were disclosed in the Remuneration Report on pages 80 to 99. There with key management personnel are Transactions year. or preceding transactions with key management personnel in either the current (l) Subsequent events after the Balance Sheet date. Financial Statements for details of dividends paid or declared See Note 32 to the Group (k) Commitments £nil (2018: £nil). £nil (2018: £nil) and authorised were 2019, capital commitments contracted were At 31 March (j) Guarantees of the liability of its UK subsidiaries to the pension scheme. The guarantee scheme in respect The Company has given a guarantee to the pension of the scheme, calculated on the basis of Section 179 of the Pensions Act 2004, over the assets is for the excess of 105% of the liabilities of the scheme. which facilities, of of overdraft for £10.0m (2018: £10.0m) in respect a cross-guarantee into The Company and its UK subsidiaries have entered £nil (2018: £nil) was drawn at the year end. Stakeholder pension scheme contributions payable by pension scheme. The pension costs charge for the year represents The Company makes contributions to a stakeholder no outstanding contributions at the end of the financial year were to £0.2m (2018: £0.1m). There the Company to the scheme. These amounted (2018: £nil). The Company and its employees contribute to the Oxford Instruments Pension Scheme (“the Scheme”), a defined benefit scheme, which offers scheme, which Scheme (“the Scheme”), a defined benefit Instruments Pension contribute to the Oxford The Company and its employees their length and retirement at related to members’ final salary are to members. Pension benefits and death in service benefit pensions in retirement of service. Instruments employees have been invited to join the Oxford 1 April 2001. Since this date, new to new members from The Scheme was closed accrual. closed to future contribution scheme. The Scheme is also Stakeholder Plan, a defined directly are charged entities states that member costs net defined benefit costs to participating policy for charging Instruments Group The Oxford no longer The costs of scheme members that are participating company. if that member is also an employee of said to a participating company company’s allocated on the basis of the participating company are with a Group affiliated employees of any participating company or directly also employees of participating companies. of the total scheme members that are scheme members as a percentage paid by participating companies is the same as that for charging net defined benefit costs. The policy for determining contributions to be Financial Statements. and its funding can be found in Note 25 to the Group actuarial valuation Details of the scheme, its most recent The (i) Pension commitments Defined benefit scheme Oxford Instruments plc Report and Financial Statements 2019
HISTORICAL FINANCIAL SUMMARY
AS AT 31 MARCH 2019
2015 2016 2017 2018 2019 £m £m £m £m £m Consolidated Statement of Income Revenue from continuing operations 282.4 270.3 300.2 296.9 333.6 Adjusted operating profit from continuing operations 36.4 38.0 38.0 46.5 49.7 Other operating income — — — 3.3 — Contingent consideration deemed no longer payable — 4.9 — — — Reversal of acquisition‑related fair value adjustments (0.2) (1.0) — — — Acquisition‑related costs (2.2) (2.5) (0.3) — — Loss on disposal of subsidiary undertakings — (0.9) (0.4) — — Contingent consideration – further amount deemed payable (6.8) — — — — Restructuring costs (8.7) (2.9) (0.4) (1.2) — Restructuring costs – relating to associate — (1.3) (0.4) (0.4) (0.3) Past service cost on defined benefit pension scheme — — — — (0.3) Impairment of investment in associate — — (8.0) — — Share of impairment recognised by associate — — — (2.0) 0.6 Impairment of internally generated intangible assets — — (2.9) — — Impairment of acquired intangibles — — (33.8) — — Amortisation of acquired intangibles (17.1) (12.7) (12.5) (10.9) (9.6) Fair value movement on financial derivatives (4.8) (2.7) 1.2 3.1 (1.5) Operating (loss)/profit from continuing operations (3.4) 18.9 (19.5) 38.4 38.6 Net financing costs (8.2) (8.4) (6.7) (4.2) (3.1) (Loss)/profit before taxation from continuing operations (11.6) 10.5 (26.2) 34.2 35.5 Income tax credit/(expense) 4.9 (2.9) 0.7 (14.6) (8.0) (Loss)/profit for the year from continuing operations (6.7) 7.6 (25.5) 19.6 27.5 Adjusted profit before tax from continuing operations 29.2 30.4 31.5 42.3 47.5 Consolidated Statement of Financial Position Property, plant and equipment 33.1 35.2 32.5 22.8 24.2 Right of use assets — — — — 8.8 Intangible assets 231.3 220.8 181.0 158.7 152.5 Investment in associate — 13.1 3.9 4.1 4.6 Long-term receivables — 3.4 3.6 1.4 0.3 Deferred and current tax 14.6 13.9 18.1 3.6 6.4 Inventories 70.8 61.1 53.9 45.9 60.8 Trade and other receivables 90.7 79.0 81.7 73.9 74.7 Trade and other payables (126.5) (108.2) (98.0) (84.1) (115.1) Lease payables — — — — (3.0) Net assets excluding net cash 314.0 318.3 276.7 226.3 214.2 Cash and cash equivalents 25.1 21.8 27.2 20.7 35.2 Bank overdrafts — (1.4) (0.7) — — Bank borrowings (144.0) (148.6) (135.8) (40.4) (28.5) Net (debt)/cash (118.9) (128.2) (109.3) (19.7) 6.7 Lease payables — — — — (6.0) Provisions (16.1) (12.1) (9.8) (11.7) (8.7) Retirement benefit obligations (53.5) (35.0) (25.1) (15.3) (6.5) Net assets employed/capital and reserves attributable to the Company’s equity holders 125.5 143.0 132.5 179.6 199.7
164 Strategic Report Governance Financial Statements Company Information £m 165 2019 (8.4) 44.1 48.1 64.9 13.6 14.4 pence (22.1) 1,578
£m 2018 (7.8) pence 27.5 68.7 34.3 13.3 56.3 1,642 Financial Statements. (104.0)
oup
£m 0.6 2017 (6.6) pence 27.4 13.0 41.5 (20.2) (44.7) 1,974
£m 2016 (6.0) (6.8) pence 34.4 13.1 13.0 41.0 (35.2) 2,077 Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford
£m 2015 pence 17.9 13.0 41.2 (11.7) (19.8) (13.6) (11.7) 2,420
om investing activities
e stated to give a better understanding of the underlying business performance. Details of adjusting items can be found in Note 1 to the Gr e stated to give a better understanding of the underlying business 1 nings
om operating activities
ease)/increase in cash equivalents from continuing operations continuing in cash equivalents from ease)/increase
nings – continuing – nings Adjusted numbers ar verage number of employees of number verage
1. Per ordinary share Per ordinary Ear
Cash flows from continuing operations Cash flows from Net cash fr fr Net cash (used in)/generated activities Net cash used in financing Net (decr Adjusted ear A Dividends Employees Oxford Instruments plc Report and Financial Statements 2019
OXFORD INSTRUMENTS DIRECTORY
Company/address Country Telephone Fax Email Oxford Instruments Head Office Tubney Woods, Abingdon, Oxfordshire OX13 5QX, UK UK +44 (0)1865 393200 +44 (0)1865 393333 [email protected] Materials & Characterisation Oxford Instruments NanoAnalysis Halifax Road, High Wycombe, Systems for materials Buckinghamshire HP12 3SE, UK analysis at the nanoscale UK +44 (0)1494 442255 +44 (0)1494 524129 [email protected] Arenavägen 41, 10th floor, Systems for materials 121 7 Johanneshov, Sweden analysis at the nanoscale Sweden +46 8 5448 1550 +46 8 5448 1558 [email protected] Asylum Research 6310 Hollister Ave, Systems for materials Santa Barbara, CA 93117 USA analysis at the nanoscale USA +1 (805) 696 6466 +1 (805) 696 6444 [email protected] Borsigstraße 15A, 65205 Wiesbaden, Germany Germany +49 6122 9370 +49 621 762117 11 [email protected] Room 304, Building 52, No. 195, Section 4, ZhongXing Road, ZhuDong Township, XinZhu County, 310 Taiwan Taiwan +886 3 5788696 +886 2 2794 2757 [email protected] Halifax Road, High Wycombe, Buckinghamshire HP12 3SE, UK UK +44 (0)1494 442255 +44 (0)1494 524129 [email protected] Oxford Instruments Plasma Technology North End, Yatton, Tools for nanotechnology Bristol BS49 4AP, UK fabrication UK +44 (0)1934 837000 +44 (0)1934 837001 [email protected] Research & Discovery Andor/Bitplane/Spectral 7 Millennium Way, Scientific imaging cameras, Springvale Business Park, spectroscopy solutions Belfast, BT12 7AL, UK and microscopy systems UK +44 (0)28 9023 7126 +44 (0)28 9031 0792 [email protected] Badenerstrasse 682, CH-8048 Zürich Switzerland +41 44 430 11 00 +41 44 430 11 01 [email protected] 2 East Beaver Creek Road, Building 2, Richmond Hill, ON L3B 2N3, Canada Canada +1 (905) 326 5040 +1 (905) 326 5041 [email protected] Oxford Instruments NanoScience & Magnetic Resonance Tubney Woods, Abingdon, Advanced tools for [email protected] Oxfordshire OX13 5QX, UK applied research UK +44 (0)1865 393200 +44 (0)1865 393333 [email protected] Oxford X-Ray Technology 360 El Pueblo Road, Scotts Valley, CA 95066, USA X-ray tubes and detectors USA +1 (831) 439 9729 +1 (831) 439 6051 [email protected] Service & Healthcare OiService CT & MR 740 S. Powerline Road, [email protected] Suite E, Deerfield Beach, [email protected] Florida, 33442 USA +1 (954) 596 4945 +1 (954) 596 4946 [email protected] 64 Union Way, Vacaville, CA 95687, USA USA +1 (707) 469 1320 +1 (707) 469 1318 [email protected]
166 Strategic Report Governance Financial Statements Company Information 167 [email protected] Email [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] singapor [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]
+33 1 69 41 46 80 +49 6122 937100 +91 224 4253 5110 +81 (0)3 6732 8937 +81 (0)3 6732 8937 +82 2 2008 4555 +7 (095) 933 51 24 +65 6337 6286 +886 3 5789993 Fax +1 (978) 369 8287 +86 21 6127 3828 +86 10 5884 7901 +86 20 8478 7349 +86 28 8620 1871 +420 234 311 724
Report and Financial Statements 2019 Statements and Financial plc Report Instruments Oxford
+33 1 69 85 25 25 +49 6122 9370 +91 818 017017 +81 (0)3 6732 8961 +81 (0)6 7639 1761 +82 2 2008 4500 +7 (095) 933 51 23 +65 6337 6848 +886 3 5788696 +1 (978) 369 9933 400 678 0609 400 678 0609 400 678 0609 400 678 0609 +420 233 343 264 Telephone
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d Instruments Russia d Instruments Singapore d Instruments Korea d Instruments Germany d Instruments India d Instruments Japan d Instruments Czech Republic d Instruments France d Instruments Technology, China d Instruments Technology, Oxfor Oxfor Oxfor Shin Osaka Sun R Building 10th Floor Oxfor Oxfor Oxfor Instruments Taiwan Oxford 2F-1, No. 27, Kuang-Hsin Road, Hsin-Chu R.O.C. 300, Taiwan, Taiwan Denisovskiy per. 26, Moscow 105005, 26, Denisovskiy per. Russian Federation #04-81 Ubi TechPark 10 Ubi Crescent, 408564, Lobby E, Singapore Republic of Singapore 5-8-3 Nishi-Nakajima, Yodogawa, 5-8-3 Nishi-Nakajima, Yodogawa, Osaka, 532-0011, Japan 10 Chungmin-ro, No. 8-S 26, 8F., Songpa-gu, Seoul 05840, Korea (Republic of) Oxfor Building B2 W Room 3312, Building B3, Room 2201B, Central Plaza 1, Oxfor Oxfor Borsigstraße 15a, 65205 Wiesbaden, Germany Road No. 16A, Floor, Plot No. A-279, Ground Industrial Estate, Wagle Ambica Nagar, 400604 Thane (West), IS Building 3-32-42, Higashi-Shinagawa, 140-0002, Japan Shinagawa-ku Tokyo No. 8 Shuncheng Street, No. 8 Shuncheng Street, Jinjiang District, Chengdu, 610024 Sichuan Province, 13, CZ-160 00 Praha, Velvarska Czech Republic 77 ZA de Montvoisin, 91400 Gometz la Ville, France No. 11 West Third Ring North Road, Ring Third No. 11 West Haidian District, Beijing, 100085 Hanxi East Road, NanCun Town, Panyu District, Guangdong Province, 511446, Guangzhou Floor 1, Building 60, No. 461, Hongcao Road, Xuhui District, Shanghai, 200233 Oxford Instruments/Canada/Latin America Oxford Suite 150, 300 Baker Avenue, MA 01742, USA Concord, Company/address Offices Regional Sales and Service Oxford Instruments plc Report and Financial Statements 2019
DIRECTORS AND ADVISERS
Honorary President Auditor Sir Martin Wood OBE FRS Hon FREng DL KPMG LLP Company Secretary Principal bankers Susan Johnson-Brett ACIS HSBC Bank plc Santander plc Company number Registered in England and Wales Stockbroker number 775598 JPMorgan Cazenove Board Committees UK solicitors Audit and Risk Ashurst LLP Mary Waldner, Chairman Steve Blair US counsel Richard Friend Wilmer Hale LLP Thomas Geitner
Nomination Neil Carson1, Chairman Steve Blair Richard Friend Thomas Geitner Mary Waldner
Remuneration Thomas Geitner, Chairman Steve Blair Neil Carson1 Richard Friend Mary Waldner
Administration Any two Directors
1. Neil Carson was appointed on 1 December 2018.
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